M/s. Nalwa Sons Investments Ltd., Hisar V. ACIT, New Delhi

ITA 1425/DEL/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5615 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 29-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 11-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Keywords: Business expenditure; Earning of tax free income; Question of law; Speculation loss; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A; 115JB; 37(1); 145; 37; 15

Judgement Text

PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P.SAHU, ACCOUNTANT MEMBER ITA NO. 1425/DEL/2013 (ASSESSMENT YEAR : 2005-06) NALWA SONS INVESTMENTS LTD., O.P.JINDAL MARG, HISAR-125005. PAN-AAACJ2734R VS ACIT, CENTRAL CIRCLE-6, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 2246/DEL/2013 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE-13(1), NEW DELHI VS NALWA SONS INVESTMENT LTD. 28, NAJAFGARH ROAD, MOTI NAGAR INDL. AREA, NEW DELHI-110015. PAN-AAACJ1734R (APPELLANT) (RESPONDENT) ITA NO. 1426/DEL/2013 (ASSESSMENT YEAR : 2006-07) NALWA SONS INVESTMENTS LTD., O.P.JINDAL MARG, HISAR-125005. PAN-AAACJ2734R VS ACIT, CENTRAL CIRCLE-6, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 1428/DEL/2013 (ASSESSMENT YEAR : 2008-09) NALWA SONS INVESTMENTS LTD., O.P.JINDAL MARG, HISAR-125005. PAN-AAACJ2734R VS ACIT, CIRCLE-13(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 2206/DEL/2013 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE-13(1), ROOM NO.-406, C.R. BUILDING, I.P.ESTATE, NEW DELHI VS NALWA SONS INVESTMENT LTD. 28, NAJAFGARH ROAD, MOTI NAGAR INDL. AREA, NEW DELHI- 110015. PAN-AAACJ1734R (APPELLANT) (RESPONDENT) PAGE | 2 ITA NO. 1429/DEL/2013 (ASSESSMENT YEAR : 2009-10) NALWA SONS INVESTMENTS LTD., O.P.JINDAL MARG, HISAR-125005. PAN-AAACJ2734R VS ACIT, CENTRAL CIRCLE-6, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 2207/DEL/2013 (ASSESSMENT YEAR : 2009-10) DCIT, CIRCLE-13(1), ROOM NO.-406, C.R. BUILDING, I.P.ESTATE, NEW DELHI VS NALWA SONS INVESTMENT LTD. 28, NAJAFGARH ROAD, MOTI NAGAR INDL. AREA, NEW DELHI- 110015. PAN-AAACJ1734R (APPELLANT) (RESPONDENT) ITA NO.6545/DEL/2014 (ASSESSMENT YEAR : 2010-11) NALWA SONS INVESTMENTS LTD., O.P.JINDAL MARG, HISAR-125005. PAN-AAACJ2734R VS DCIT, CIRCLE-13(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 6972/DEL/2014 (ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE-17(2), NEW DELHI VS NALWA SONS INVESTMENT LTD. 28, NAJAFGARH ROAD, MOTI NAGAR INDL. AREA, NEW DELHI-110012. PAN-AAACJ1734R (APPELLANT) (RESPONDENT) ITA NO.6546/DEL/2014 (ASSESSMENT YEAR : 2011-12) NALWA SONS INVESTMENTS LTD., O.P.JINDAL MARG, HISAR-125005. PAN-AAACJ2734R VS ACIT, CIRCLE-13(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 6973/DEL/2014 (ASSESSMENT YEAR : 2011-12) DCIT, CIRCLE-17(2), NEW DELHI. VS NALWA SONS INVESTMENT LTD. 28, NAJAFGARH ROAD, MOTI NAGAR INDL. AREA, NEW DELHI-110012. PAN-AAACJ1734R (APPELLANT) (RESPONDENT) PAGE | 3 APPELLANT BY SH. ASHWANI KUMAR, CA RESPONDENT BY SH. S.R.SENAPATI, SR.DR DATE OF HEARING 13.03.2018 DATE OF PRONOUNCEMENT 16.04.2018 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER THIS ORDER SHALL DISPOSE OF ALL THE ABOVE CROSS-APP EALS FILED IN THE CASE OF THE SAME ASSESSEE BECAUSE THE ISSUES ARE COMMON IN ALL THE MATTERS. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL ON RECORD. THESE APPEALS ARE DECIDED AS U NDER:- ITA NO. 1425/DEL/2013 [ASSESSEES APPE AL] (AY: 2005-06) ITA NO. 2246/DEL/2013 [REVENUES APPEA L] (AY: 2005-06) 3. BOTH THESE CROSS-APPEALS ARE DIRECTED AGAINST TH E ORDER OF LD.CIT(A)-1, NEW DELHI DATED 03.01.2013 FOR AY 2005-06. GROUND NO.1 (ASSESSEES APPEAL):- 1. THAT THE ORDER DATED 03.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED TO DIRECT THE LEARNED ASSESSING OFFIC ER TO TREAT THE LOSS OF M/S GLOBE STOCKS LTD., AS A SPECULATION LOSS U/S 73 OF THE INCOME TAX ACT, 1961. 3.1. THIS ISSUE RELATES TO DISALLOWANCE OF CLAIM OF TRADING LOSS OF RS.73,54,155.80 ON PURCHASE AND SALE OF SHARES OF M /S GLOBE STOCKS LTD. THE AO IN VIEW OF CERTAIN DISCREPANCY NOTICED IN TH E REPLIES FILED BY THE ASSESSEE HELD THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THESE TRANSACTIONS AND DISALLOWED THE CLAIM OF LOSS IN PU RCHASE AND SALE OF THE SAID SHARES. IT IS CLARIFIED THAT THE NAME OF THE SHARE S WHICH IS THE SUBJECT MATTER PAGE | 4 OF DISPUTE HERE IS GLOBE STOCKS & SECURITIES LTD. THE WRITTEN SUBMISSIONS OF THE ASSESSEE IS REPRODUCED IN THE IMPUGNED ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT THE ASSESSEE COMPANY WAS AN INTEGRATED STEEL MANUFACTURING UNIT AT HISAR WITH THE NAME OF JINDAL STRIPS LTD. WITH THE DEMERGER DULY APPROVED BY THE PUNJAB & HARYANA HIGH COURT W.E.F 01.04.2002, JINDAL STRIPS LTD.S MANUFACTURING ACTI VITIES WERE TRANSFERRED TO ANOTHER COMPANY NAMELY, M/S JINDAL STAINLESS LTD. A ND THE INVESTMENT ACTIVITIES WHICH AT THAT TIME WERE ONLY INVESTMENTS BY WAY OF EQUITY SHARES IN VARIOUS COMPANIES AND LOANS AND ADVANCES ALREADY GI VEN TO COMPANIES WERE RETAINED BY JINDAL STRIPS LTD. WHICH LATER ON WAS C HANGED TO M/S NALWA SONS INVESTMENTS LTD., THE ASSESSEE COMPANY. THE ASSESS EE IS DULY REGISTERED WITH RESERVE BANK OF INDIA (IN SHORT RBI) AS A NON BAN KING FINANCE COMPANY (IN SHORT NBFC) VIDE REGISTRATION NO.N-1403081 DATED 25.07.2005. THE ASSESSEE COMPANY AS AN INVESTMENT COMPANY, IS CARRY ING ON BUSINESS AS SUCH. IN THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAS TRADED IN BUYING AND SELLING OF SCRIPS OF GLOBAL STOCK LTD., THE PURCHAS E OF SHARES OF THE SAID COMPANY IN THE MONTH OF JANUARY 2005 OF 55,000 SHAR ES IS DULY SUPPORTED BY CONTRACT NOTES FROM THE STOCK BROKER AND SALE WA S THROUGH M/S SHARADHA STOCK BROKING PVT.LTD., ANOTHER BROKER SUPPORTED B Y BROKERS NOTE WHICH WAS FILED BEFORE THE AO. FURTHER DETAILS OF BROKERS AN D COMPLETE DETAILS OF PURCHASE AND SALE OF SHARES AND PAYMENTS MADE THROU GH ACCOUNT PAYEE CHEQUES AND SUBSEQUENT DETAILS OF RECEIPT INTO BANK WERE FILED. THE ASSESSEE HAS ALSO FILED COPIES OF THE BANK ACCOUNTS CONTAINI NG ENTRIES OF PURCHASE OF PAGE | 5 THE SHARES AND SALE PROCEEDS ARE REFLECTED. THE AS SESSEE ALSO PROVIDED COPIES OF THE DEMAT ACCOUNT WITH ICICI BANK CLEARLY SHOWIN G BOTH TRANSACTIONS. THE AO DISREGARDED ALL THESE POSITIVE EVIDENCES FIL ED BY THE ASSESSEE AND DISALLOWED THE INCURRING OF THE LOSS OF RS.73,54,15 5.80 ON MERE SUSPICION. THE TRADING LOSS SHOULD BE ALLOWED TO THE ASSESSEE. 3.2. LD.CIT(A) CONSIDERING THE DOCUMENTARY EVIDENCE S AND MATERIAL ON RECORD HELD THAT THE GENUINENESS OF THE TRANSACTION S CANNOT BE DOUBTED AND CANNOT BE A GROUND FOR DISALLOWANCE. LD.CIT(A), HO WEVER, REFERRED TO EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 19 61 (IN SHORT ACT) AND NOTED THAT THE ASSESSEE COMPANY IS NOT COVERED BY E XCEPTION. THE NBFC REGISTRATION HAS BEEN GRANTED TO THE ASSESSEE COMPA NY ON 25.07.2005 AFTER THE END OF THE FY ON 31.03.2005. THUS, IT WAS NOT A FINANCIAL OR INVESTMENT COMPANY COVERED BY THE EXCEPTION, THEREFORE, THE LO SS CLAIMED BY THE ASSESSEE WAS HELD TO BE LOSS IN SPECULATION BUSINESS AND IS TO BE CARRIED FORWARD FOR SET OFF AGAINST SUCH INCOME, IF ANY, IN THE SUBSEQU ENT YEAR. THE AO WAS DIRECTED TO ALLOW THE LOSS AS SPECULATION LOSS U/S 73 OF THE ACT. 3.3. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SU BMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT THE A SSESSEE MOVED AN APPLICATION DATED 09.03.2004 TO THE RBI FOR REGISTR ATION AS NON-BANKING FINANCIAL COMPANY PURSUANT TO SCHEME OF ARRANGEMENT AND DE-MERGER APPROVED BY HONBLE PUNJAB & HARYANA HIGH COURT. N AME OF THE COMPANY JINDAL STRIPS LTD. WAS FURTHER CHANGED TO NAME OF T HE ASSESSEE WHICH WAS ALSO INFORMED TO THE RBI AND LATER ON NBFC CERTIFIC ATE WAS GRANTED TO THE PAGE | 6 ASSESSEE VIDE CERTIFICATE DATED 25.07.2005. HE HAS SUBMITTED THAT THE REGISTRATION AS NBFC RELATES TO DATE OF APPLICATION BECAUSE OF SCHEME OF ARRANGEMENT AND DEMERGER AS APPROVED BY THE HONBLE PUNJAB & HARYANA HIGH COURT. RBI IN THEIR LETTER DATED 26.07.2005 D ID NOT GIVE ANY ADVERSE REMARKS IN REGISTRATION CERTIFICATE. HE HAS, THERE FORE, SUBMITTED THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF THE LOS S. 3.4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDE R OF LD.CIT(A) AND SUBMITTED THAT NO REGISTRATION HAS BEEN GRANTED IN AY UNDER APPEAL TO THE ASSESSEE AS NBFC. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS. THE AO IN THE ASSESSMENT ORDER HELD THAT THE ASSESSEE FAILED TO ESTABLISH THE GENU INENESS OF THE SHARES TRADING TRANSACTIONS AND JUSTIFICATION OF ITS CLAIM AS TRADING LOSS AS ITS RETURN OF INCOME. THE AO, THEREFORE, DISALLOW THE CLAIM OF LOSS OF RS.73.54 LAKHS. LD.CIT(A), HOWEVER, AFTER GOING THROUGH THE EVIDENC E AND MATERIAL ON RECORD, HELD THAT THE GENUINENESS OF THE TRANSACTION CANNOT BE DOUBTED AND NO DISALLOWANCE COULD BE MADE. LD.CIT(A), HOWEVER, RE FERRED TO EXPLANATION TO SECTION 73 OF THE ACT AND HELD THAT THE ASSESSEE SH ALL BE DEEMED TO BE CARRYING OF SPECULATION BUSINESS TO THE EXTENT TO W HICH THE BUSINESS CONSIST PURCHASE AND SALE OF SUCH SHARES BECAUSE NBFC REGIS TRATION HAVE BEEN GRANTED TO THE ASSESSEE ON 25.07.2005 AND AS SUCH T HE ASSESSEE WOULD NOT FALL IN EXCEPTION TO EXPLANATION TO SECTION 73 OF T HE ACT. SINCE BANKING REGISTRATION WAS NOT GRANTED TO THE ASSESSEE, THERE FORE, CLAIM OF THE ASSESSEE WERE DISALLOWED. LD. COUNSEL FOR THE ASSESSEE, HOW EVER, SUBMITTED THAT THE PAGE | 7 SCHEME OF ARRANGEMENT AND DEMERGER AMONG JINDAL STR IPS LTD. & JINDAL STAINLESS LTD. HAS BEEN SANCTIONED BY THE HONBLE P UNJAB & HARYANA HIGH COURT W.E.F 01.04.2002. THE FORMAL ORDER HAS BEEN ISSUED ON 30.06.2003. THE ASSESSEE FILED APPLICATION FOR A CERTIFICATE OF REGISTRATION TO COMMENCE/CARRY ON BUSINESS OF A NON BANKING FINANCI AL INSTITUTION WITH RBI ON 09.03.2004 IN WHICH RBI HAVE BEEN INFORMED THAT THE SCHEME OF ARRANGEMENT AND DEMERGER WAS APPROVED BY THE HONBL E PUNJAB & HARYANA HIGH COURT AND CONSEQUENT UPON SCHEME OF ARRANGEMEN T AND DEMERGER OF JINDAL STRIPS LTD. HAS BECOME AN INVESTMENT COMPANY AND SHALL BE REGISTERED AS NON BANKING FINANCE COMPANY UNDER THE PROVISION OF SECTION 45 IA OF RBI ACT, 1934. THE ASSESSEE ACCORDINGLY, MADE AN APPLI CATION FOR CERTIFICATE OF REGISTRATION TO CARRY ON BUSINESS OF A NON-BANKING FINANCIAL INSTITUTION. THE ASSESSEE ALSO FILED ANOTHER LETTER DATED 10.05.2005 IN WHICH IT WAS INFORMED THAT NAME OF M/S JINDAL STRIPS LTD. EARLIER HAS BEE N CHANGED TO NALWA SONS INVESTMENT LTD., I.E. THE ASSESSEE. RBI ACCORDINGL Y ISSUED A CERTIFICATE OF REGISTRATION IN FAVOUR OF THE ASSESSEE DATED 25.07. 2005 PERMITTED TO/COMMENCE/CARRY ON BUSINESS OF NON-BANKING FINANC IAL INSTITUTION SUBJECT TO CERTAIN CONDITIONS. LD. COUNSEL FOR THE ASSESSE E, THEREFORE, RIGHTLY CONTENDED THAT IN THE LETTER OF THE RBI DATED 26.07 .2005 INFORMING THE ASSESSEE OF GRANTING REGISTRATION AS NON-BANKING FI NANCIAL INSTITUTION, RBI HAS NOT MADE ANY ADVERSE REMARKS FOR CARRYING ON BU SINESS FROM A PARTICULAR DATE SINCE AS PER SCHEME OF ARRANGEMENT AND DEMERGE R OF JINDAL STRIPS LTD. SHALL BE DEEMED TO BE INVESTMENT COMPANY AND SHALL BE REGISTERED AS NON- PAGE | 8 BANKING FINANCIAL COMPANY. M/S JINDAL STRIPS LTD. MOVED TO RBI FOR GRANT OF REGISTRATION AS AN NBFC ON 09.03.2004 BECAUSE OF SC HEME OF ARRANGEMENT AND DEMERGER WAS APPROVED BY THE HONBLE PUNJAB & H ARYANA HIGH COURT ON 30.06.2003. SUBSEQUENTLY, NAME OF M/S JINDAL STRIP S LTD. HAS BEEN CHANGED TO THE NAME OF THE ASSESSEE COMPANY WHICH WAS ALSO INTIMATED TO THE RBI. THESE FACTS CLEARLY SUPPORT THE EXPLANATION OF THE ASSESSEE THAT CONSEQUENT UPON SCHEME OF ARRANGEMENT AND DEMERGER, THE ASSESS EE COMPANY SHALL BE DEEMED TO BE INVESTMENT COMPANY AND SHALL BE REGIST ERED AS NON-BANKING FINANCIAL COMPANY AS PER THE JUDGMENT OF THE HONBL E HIGH COURT WHICH WAS APPROVED PRIOR TO THE FY, THEREFORE, REGISTRATION G RANTED TO THE ASSESSEE AS NBFC WOULD RELATE BACK TO THE DATE OF APPLICATION I .E. 09.03.2004 AS SUCH THE ASSESSEE WOULD BE NBFC IN FY UNDER APPEAL. SINCE L D.CIT(A) ACCEPTED THE GENUINENESS OF THE TRANSACTIONS OF SALE AND PURCHAS E OF SHARES IN QUESTION AND HIS FINDINGS HAVE NOT BEEN CHALLENGED BY THE RE VENUE IN THE DEPARTMENTAL APPEAL, THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF LOSS. THUS, LD.CIT(A) WA S UNJUSTIFIED TO DIRECT THE AO TO ALLOW LOSS AS SPECULATION LOSS U/S 73 OF THE ACT. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELET E THE ENTIRE ADDITION. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS AL LOWED. GROUND NO.2 (ASSESSEES APPEAL):- 2. THAT THE ORDER DATED 03.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED IN NOT ALLOWING A SUM OF RS.1811.73 L ACS REPRESENTING THE PAGE | 9 PRINCIPAL AMOUNT OF LOAN WRITTEN OFF WHICH HAS BEEN ADVANCED IN EARLIER YEARS TO M/S JINDAL HOLDINGS LTD. (RS. 1097 .25 LACS) AND M/S COLORADO TRADING COMPANY LTD. (RS.714.48 LACS) AND WHICH HAD BEEN WRITTEN OFF AS NOT RECOVERABLE DURING THE YEAR. 5. THIS GROUND RELATES TO INTEREST OUTSTANDING AGGR EGATING TO RS.1438.24 LACS TO BE ALLOWED AS BAD DEBT U/S 36(1)(VII) R.W.S ECTION 36(2) OF THE ACT. THE AO HAD DISALLOWED RS.32,49,97,000/- CLAIMED BY THE ASSESSEE AS BAD DEBT. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD.CIT( A) AND FILED WRITTEN SUBMISSIONS, SAME IS REPRODUCED IN THE APPELLATE OR DER IN WHICH THE ASSESSEE EXPLAINED THAT THE AO HAS ADDED A SUM OF RS.32,49,9 7,000/- AS BAD DEBTS. IN THE INCOME TAX RETURN FOR AY UNDER APPEAL, THE A SSESSEE HAS CLAIMED A SUM OF RS.32,49,97,000/- BEING THE AMOUNT WRITTEN O FF AS NOT RECOVERABLE FROM THE COMPANIES TO WHOM LOANS WERE ADVANCED. TH E DETAILS OF THE AMOUNT ADVANCED WITH ITS BREAK-UP AS TO THE PRINCIPLE AMO UNT AND THE INTEREST AMOUNT INVOLVED ARE AS UNDER:- (RS. IN LACS) PRINCIPLE AMOUNT INT. AMOUNT (I) JINDAL HOLDINGS LTD. 1097.25 946.00 (II) COLORADO TRADING CO.LTD. 714.48 492.24 1811.73 1438.24 5.1. THE AMOUNT OF RS.1438.24 LAKHS REPRESENTS THE INTEREST INCOME WHICH WERE INCLUDED IN THE INCOME OF THE COMPANY DURING T HE PREVIOUS YEARS AS AND WHEN THOSE INTEREST INCOME WERE ACCRUED OR RECEIVED AND HAS BEEN RIGHTLY CLAIMED AS ALLOWABLE BAD DEBTS. IT WAS INTIMATED T HAT THE INVESTMENT WHICH HAS BEEN MADE BY THE ASSESSEE COMPANY IS WAY BACK S INCE 1998 AND NOT IN THE YEAR UNDER CONSIDERATION. SO FAR AS ADVANCES A RE CONCERNED, WHICH HAS PAGE | 10 ACCUMULATED TILL LAST YEAR UPTO RS.20.43 CRORES WER E INFORMED, THE PRINCIPAL AMOUNT COMPRISING THE ADVANCES OF RS.1097.25 LAKHS AND THE CORRESPONDING INTEREST WHICH HAS BEEN CONSIDERED BY THE ASSESSEE AS INCOME UPTO LAST YEAR WAS RS.946 LAKHS WHICH HAS BEEN WRITTEN OFF AS BAD DEBTS. FURTHER, IT HAS ALREADY BEEN BROUGHT TO THE NOTICE OF THE DEPARTMEN T THAT OVER PERIOD OF FOUR YEARS, THE REPAYMENT OF PRINCIPAL AMOUNT AS WELL AS THE RECOVERY OF INTEREST HAS BECOME DIFFICULT, IT WAS POINTED OUT BY THE AUD ITOR ALSO. COPY OF THE BALANCE SHEET OF JINDAL HOLDINGS LTD. FOR PRECEDING YEARS WERE FILED TO SHOW THAT IT IS ACCUMULATING LOSSES. IT WAS, THEREFORE, SUBMITTED THAT IN EARLIER YEARS, THIS COMPANY WAS SUFFERING HUGE LOSS AND ONL Y IN THE CURRENT YEAR, THERE WAS A NOMINAL PROFIT AND THAT TOO AS A RESULT OF NON PROVISION OF INTEREST. THIS COMPANY HAS HUGE ACCUMULATED LOSSES . SINCE THERE IS NO MOVEMENT IN THE INVESTMENTS AND DUE TO LIQUIDITY CR UNCH AS EXPLAINED, THE REPAYING CAPACITY WAS WORSENING YEAR AFTER YEAR AND THE ASSESSEE COMPANY HAD TO TAKE HARSH STEPS TO WRITE OFF THE DEBT INCLU DING INTEREST. THIS WAS THE REASON WHY THE ASSESSEE COMPANY HAD TO TAKE STEPS T O WRITE OFF AS BAD DEBTS. IT WAS FURTHER SUBMITTED THAT THE COMPANY GOT DEMER GED W.E.F. 01.04.2002 RELEVANT TO AY 2003-04. EARLIER TO THIS, COMPANY U SED TO BE MANUFACTURING COMPANY IN THE NAME OF M/S JINDAL STRIPS LTD. UNDE R THE SCHEME OF DEMERGER, ALL MANUFACTURING ACTIVITIES WERE GOT TRA NSFERRED TO A NEW COMPANY NAMED M/S JINDAL STAINLESS LTD. AND THIS COMPANY W AS LEFT WITH ONLY INVESTMENT IN VARIOUS COMPANIES AND ALSO LOANS AND ADVANCES OUTSTANDING FROM THEM. THESE INVESTMENTS WERE MADE LONG BEFORE AND WERE VERY DIFFICULT PAGE | 11 TO RECOVER, WHAT TO TALK OF PRINCIPAL AMOUNT BUT EV EN THE INTEREST WAS ALSO NOT RECOVERABLE. AS PER THE PRUDENTIAL NORMS OF RBI, T HE ASSETS (LOANS AND ADVANCES) BECOMES SUB STANDARD ASSETS IF THE ASSET S IN RESPECT OF WHICH INTEREST REMAINED OVERDUE FOR A PERIOD OF SIX MONTH S OR MORE, IT SHOULD BE WRITTEN OFF IN BOOK OF ACCOUNT. THE ASSESSEE FILED LETTER OF AUDITOR IN WHICH HE ASKED THE ASSESSEE TO SUBSTANTIATE THE RECOVERABILI TY OF THE ABOVE SAID LOANS, THEREFORE, THE ASSESSEE WAS CONSTRAINED TO WRITE OF F THE SAME AMOUNT I.E. PRINCIPAL AND INTERESTS IN THE BOOKS OF ACCOUNTS OF THE COMPANY. SIMILAR IS THE POSITION WITH RESPECT TO M/S COLORADO TRADING C OMPANY, THEREFORE, THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(VII) OF THE AC T. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF KEDARNATH JUTE MANUFACTURING COMPANY LTD. 82 ITR 363 (SC). THE ASSESSEE ALSO FILED ADDITIONAL GROUND OF APPEAL TO CLAIM DEDUCTION OF R S.1811.73 LAKHS PRINCIPAL AMOUNT OF LOANS ADVANCED IN EARLIER YEAR TO THESE P ARTIES WHICH WAS WRITTEN OFF AND NOT RECOVERABLE DURING THE YEAR, CONSIDERIN G THE FACT THAT GRANT OF LOAN IS A PRINCIPAL BUSINESS OF A COMPANY AS NBFC. 5.2. LD.CIT(A) AS REGARDS THE WRITING OFF BAD DEBT RELATING TO INTEREST AMOUNTING TO RS.1438.24 LAKHS NOTED THAT W.E.F. 01. 04.1989 SECTION 36(1)(VII) OF THE ACT PROVIDES FOR DEDUCTION OF AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN TS OF THE ASSESSEE FOR THE FY, AND RELIED UPON THE DECISION OF THE HONBLE SUP REME COURT IN CASE OF TRF LTD. VS CIT [2010] 323 ITR 397 (SC) AND DELETED THE ADDITION OF RS.1438.24 LAKHS ON ACCOUNT OF BAD DEBT RELATING TO INTEREST A MOUNT. FURTHER AS REGARDS, PAGE | 12 THE ADDITIONAL GROUND OF APPEAL FOR CLAIMING OF BA D DEBT OF PRINCIPAL AMOUNT OF RS.1811.73 LAKHS WRITTEN OFF AS BAD DEBT, IT WAS NOTED THAT THE ASSESSEE HAD ITSELF DURING THE ASSESSMENT PROCEEDINGS, GIVEN UP THIS CLAIM. IT WAS NOTED THAT CONDITIONS OF SECTION 36(2) ARE NOT SATI SFIED, THEREFORE, PRINCIPAL AMOUNT ADVANCED BY THE ASSESSEE DOES NOT FALL IN TH IS CATEGORY. SINCE THE ASSESSEE WAS NOT AN NBFC DURING AY UNDER APPEAL AS CERTIFICATE WAS GRANTED ON 25.07.2005, THE CLAIM OF THE ASSESSEE WAS REJECT ED. THE ADDITIONAL GROUND WAS ACCORDINGLY REJECTED. 5.3. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SU BMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT EVEN IF BAD DEBT WAS NOT PRESSED BEFORE THE AO, THE ASSESSEE COULD TAKE ADDI TIONAL GROUND OF APPEAL WHICH HAS ALSO BEEN DECIDED BY LD.CIT(A). HE HAS S UBMITTED THAT BAD DEBTS WERE WRITTEN OFF AS RECOVERABLE IN THE BOOKS OF ACC OUNTS OF THE ASSESSEE. HE HAS SUBMITTED THAT THE ASSESSEE IS AN NBFC AND REGI STRATION RELATES TO AY UNDER APPEAL AS WELL. HE HAS SUBMITTED THAT THE IS SUE IS COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F TRF LTD. (SUPRA). PRINCIPAL AMOUNT ADVANCED ON WHICH INTEREST WAS ALL OWED DEDUCTION ON COMMERCIAL CONSIDERATION SHOULD ALSO TO BE ALLOWED TO THE ASSESSEE. HE IS RELIED UPON THE FOLLOWING DECISIONS:- (I) DELHI HIGH COURT IN THE CASE OF CIT VS IFCI VENTURE CAPITAL FUNDS LTD. [2009] 2 TAXMANN.COM 93 (DELHI) IN WHICH IT WAS HELD THAT AS PER SECTION 36(1)(VII), AS AMENDED WITH EFFECT FROM 01.04.1989, THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THAT THE CONCERNED DEBT PAGE | 13 HAS ACTUALLY BECOME BAD IN THE RELEVANT YEAR FOR TH E PURPOSE OF CLAIMING DEDUCTION UNDER THE SECTION AND THE ONLY R EQUIREMENT FOR CLAIMING THIS DEDUCTION IS THAT THE ASSESSEE HAS TO WRITE OFF THE RELEVANT DEBTS IN ITS BOOKS OF ACCOUNTS TREATING TH E SAME AS BAD. IN THE INSTANT CASE, THERE WAS A FINDING OF FACT B Y THE TRIBUNAL THAT SINCE THE AMOUNT HAD BEEN WRITTEN OFF IN THE ACCOUNTS, THE ASSESSEE WAS NO MORE REQUIRED TO PROV E WHETHER THE AMOUNT HAD BECOME BAD DURING THE YEAR OR NOT. THE WRITE OFF WAS BONA FIDE. UNDER THE CIRCUMSTANCES, THE ASSESSEE WAS DULY ENT ITLED FOR DEDUCTION OF THE SUM ON ACCOUNT OF BAD DEBTS AND TH ERE WAS NO INFIRMITY IN THE REASONING GIVEN BY THE TRIBUNAL ON THAT POINT AND, AS SUCH, NO SUBSTANTIAL QUESTION OF LAW AROSE FOR C OURTS CONSIDERATION AND THE REVENUES APPEAL WAS NOT MAIN TAINABLE. (II) ITAT, HYDERABD BENCH IN THE CASE OF ITW SIGNODE INDIA LTD. VS DCIT [2007] 110 TTJ 170 (HYDERABAD) IN WHICH IN PARA 17 HELD AS UNDER:- 17. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD. OF COURSE, THE FACT THAT THE O UTSTANDING BALANCE DUE FROM GLEN VIEW INCLUDES COMMISSION AND LEASE RENT DOES NOT FIND A MENTION IN THE ORDER OF THE AO AS W ELL AS THE CIT(A). HOWEVER, PAPERS PLACED IN THE PAPER BOOK A T PP.65 TO 70 DO REVEAL THIS FACT AND THESE PAPERS WERE CERTAINLY BEFORE THE LOWER AUTHORITIES AS THE CERTIFICATE APPENDED TO TH E PAPER BOOK INDICATES. THEREFORE, IT CANNOT BE SAID TO BE A NE W FACT BROUGHT ON RECORD. THE ASSESSEE MAY HAVE LEASED FACTORY AND P LANT TO GLEN VIEW BUT THAT FACT DOES NOT HAVE ANY BEARING ON THE CLAIM OF THE ASSESSEE. THE ASSESSEE IS EQUALLY DEPENDENT ON GLE N VIEW FOR ITS BUSINESS. THE FINANCIAL POSITION OF THE GLEN VIEW MUST NOT HAVE BEEN HEALTHY, AND HENCE, HAD THE ASSESSEE NOT ADVAN CED ANY PAGE | 14 MONEY TO GLEN VIEW, THE ASSESSEE WOULD HAVE BEEN TH E SUFFERER FOR WANT OF SUPPLIES OF STRAPS. THUS, TO SERVE THE NEE DS OF ITS OWN BUSINESS, THE ASSESSEE HAD TO KEEP ON PUMPING FUNDS TO GLEN VIEW. THIS IS NOTHING BUT PURE COMMERCIAL EXPEDIEN CY WHICH HAS BEEN DISCUSSED IN DETAIL IN RESPECT OF GROUND NO.1. IN FACT, THE CASE OF THE ASSESSEE HERE IS MUCH STRONGER THAN WHA T IT WAS IN GROUND NO.1. FURTHER, THE BALANCE DOES INCLUDE LEA SE RENT AND COMMISSION DUE FROM GLEN VIEW WHICH WAS OFFERED FOR TAXATION IN THE EARLIER YEARS. THEREFORE, THE CONDITION LAID D OWN IN S. 36(1)(VII) IS ALSO FULFILLED. ACCORDINGLY, IN THE LIGHT OF TH IS DISCUSSION AND IN THE LIGHT OF THE REASONS GIVEN IN RESPECT OF GROUND NO.1, WE DELETE THE DISALLOWANCE OF RS.1,26,95,765. (III) DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS CABLE CORPORATION OF INDIA LTD. [2016] 75 TAXMANN.COM 117 (BOMBAY) IN WHICH IT WAS HELD THAT:- LOSS ON ACCOUNT OF REDUCED RECOVERY OF LOAN ADVANC ED, WOULD BE CONSIDERED A BUSINESS LOSS; IT WOULD BE ALLOWABLE A S DEDUCTION. (IV) JUDGEMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS VIVEK ENGINEERING & CASTING LTD. [2016] 383 ITR 480(CALCU TTA) IN WHICH IT WAS HELD THAT :- THE TRIBUNAL AS THE LAST FACT-FINDING AUTHORITY HA S COME TO THE CONCLUSION THAT MORE THAN 50 PER CENT OF THE CAPITA L OF THE ASSESSEE IS DEPLOYED IN MONEY LENDING. THEREFORE, THE FACT THAT THE ASSESSEE IS IN THE MONEY LENDING BUSINESS CANNOT BE DOUBTED. THUS, BAD DEBT CLAIM SHOULD BE ALLOWED. (V) JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS CIT [2010] 323 ITR 166 (SC) IN WHICH IT WAS HELD THAT :- PAGE | 15 SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961-BAD DEBTS- ASSESSMENT YEARS 1993-93 AND 1994-95-WHETHER WHERE ASSESSEE BANK HAD WRITTEN OFF IMPUGNED BAD DEBT IN ITS BOOKS BY WAY OF A DEBIT TO PROFIT AND LOSS ACCOUNT, SIMULTANEOUSLY RE DUCING CORRESPONDING AMOUNT FROM LOANS AND ADVANCES TO DEB TORS DEPICTED ON ASSETS SIDE IN BALANCE SHEET AT CLOSE O F YEAR, ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII) AND FOR THAT PURPOSE, IT WAS NOT NECESSARY FOR IT TO CLOSE INDIV IDUAL ACCOUNT OF EACH OF ITS DEBTORS IN ITS BOOKS. 5.4. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE A SSESSEE WAS NOT AN NBFC IN AY UNDER APPEAL. THE DEDUCTION OF INTERES TS ALLOWED MAY BE RESTORED TO THE AO FOR VERIFICATION. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS. ON GROUND NO.1, IT IS HELD THAT THE ASSESSEE WAS AN NBFC IN AY UNDER APPEAL AND THE REGISTRATION AS SUCH IS EFFECTIVE FROM THE DATE OF APPLICATION DATED 09.03. 2004 BECAUSE OF THE SCHEME OF ARRANGEMENT AND DEMERGER APPROVED BY THE HONBLE PUNJAB & HARYANA HIGH COURT VIDE JUDGEMENT DATED 30.06.2003 WHEREBY THE ASSESSEE SHALL BE DEEMED TO BE AN INVESTMENT COMPANY AND SHALL BE REG ISTERED AS NON BANKING FINANCIAL COMPANY AS PER RBI ACT. THE ASSESSEE HAS FILED THE BALANCE SHEET OF THE DEBTOR COMPANY TO SHOW THAT THEY HAVE ACCUMULAT ED LOSS FROM EARLIER YEARS. THE INVESTMENT WAS MADE BY THE ASSESSEE WAY BACK IN 1998 AND NOT IN THE YEAR UNDER CONSIDERATION. THE PRINCIPAL AMO UNT COULD NOT BE RECOVERED AND EVEN THE INTEREST WAS ALSO NOT RECOVE RABLE. THE ASSESSEE COMPANY, THEREFORE, WRITTEN OFF THE PRINCIPAL AMOUN T AS WELL AS INTERESTS AS IRRECOVERABLE IN ITS BOOKS OF ACCOUNTS AS PER SECTI ON 36(1)(VII) OF THE ACT. THE PAGE | 16 ASSESSEE, THEREFORE, SATISFIED THE CONDITION OF SEC TION 36(1)(VII) OF THE ACT. LD.CIT(A) FOUND AS REGARDS INTEREST AMOUNT THAT IT IS ALLOWABLE UNDER ABOVE PROVISION AND ISSUE IS COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). SINCE THE ASSESSEE WAS AN INVESTMENT COMPANY AND IT WAS A PRINCIPAL BUSINESS OF THE ASSESSEE TO GRANT LOAN AND ADVANCE WHICH WAS ALSO GRANTED EARLIER, THEREFORE, IF THE PRINCIPAL AMOUNT AND INTERESTS IS NOT RECOVERABLE FROM DEBTOR COMPANY FO R LAST SEVERAL YEARS, THE ASSESSEE CORRECTLY WRITE OFF SAME IN ITS BOOKS OF A CCOUNT AS IRRECOVERABLE. THE CLAIM OF THE ASSESSEE IS SUPPORTED BY THE BALANCE S HEET OF THE DEBTOR COMPANY TO SHOW THAT THEY HAVE ACCUMULATED LOSSES. THE DECISIONS RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE SUPPORT THE CL AIM OF BAD DEBT ON PRINCIPAL AMOUNT AS WELL AS ON INTERESTS. THE AO T HUS SHOULD NOT HAVE REJECTED THE CLAIM OF THE ASSESSEE. THE CLAIM OF T HE ASSESSEE THUS ALLOWABLE AS BAD DEBTS AS WELL AS BUSINESS LOSS. WE ACCORDIN GLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS .1811.73 LAKHS SUSTAINED BY THE LD.CIT(A). GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 6.1. IT MAY BE NOTED HERE THAT THE REVENUE HAS ALSO RAISED GROUND NOS. 3 & 4 ON THE SAME ISSUE WHICH READS AS UNDER:- 3. THE LD. CIT(A)ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE A ND JUSTIFY ITS CLAIM OF OUTSTANDING INTEREST PORTION OF RS.1438.24 LACS AS BAD DEBTS FROM M/S JINDAL HOLDINGS LTD. AND COLORADO TRADING CO. LTD. WHICH IS GROUP CONCERN/SUBSIDIARY OF THE ASSESSEE. PAGE | 17 4. THE LD. CIT(A) ERRED IN LAW AND IN FACTS OF THE CASE BY IGNORING THE FACT THAT THE BAD DEBTS U/S 36(2) OF THE ACT ARE AL LOWED TO BE CLAIMED AS REGULAR AND PROPER EXPENDITURE IN THE YEAR IN WHICH IT IS CRYSTALLIZED AND DEBITED TO THE PROFIT AND LOSS ACCOUNT. 6.2. IN VIEW OF THE FINDINGS IN ASSESSEES APPEAL O N GROUND NO.2, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD.CIT(A) IN DEL ETING THE ADDITION, THE DEPARTMENTAL APPEAL THUS DISMISSED ON THESE GROUND S. 6.3. GROUND NO.3 OF THE ASSESSEE READS AS UNDER:- 3. THAT THE ORDER DATED 03.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED TO SUSTAIN THE ADDITION MADE BY THE L EARNED ASSESSING OFFICER OF RS.36,35,873/- BY INVOKING THE PROVISION S OF SECTION1 4A OF THE INCOME TAX ACT, 1961 ON THE ACCOUNT OF EXPENSES INCURRED TO EARN EXEMPT INCOME (DIVIDEND) WHEREAS NO EXPENDITURES WE RE INCURRED BY IT TO EARN THE SAID INCOME AS THE INVESTMENTS HAD C OME TO THE APPELLANT COMPANY UPON DEMERGER AND YIELDED DIVIDEN D INCOME WITHOUT ANY FURTHER EXPENDITURE. 6.4. THE AO DISALLOWED RS.36,35,873/- BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. THE WRITTEN SUBMISSION OF THE ASSE SSEE IS REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLA INED THAT THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE AMOUNTING TO RS.4,0 6,58,564/- OUT OF THE TOTAL INCOME OF RS.10,08,56,000/-. THE ASSESSEE HA S NOT INCURRED ANY EXPENDITURE FOR EARNING THE SAID DIVIDEND INCOME. THE AO HAS ALSO FAIRLY NOTED THAT NO INTEREST ELEMENT IS INVOLVED. THE AO SHOULD HAVE FOLLOWED THE PAGE | 18 SAME IN RESPECT OF OTHER EXPENDITURE AS THE ASSESSE E HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. IT WA S SUBMITTED THAT INVESTMENTS ARE EXISTING SINCE 1998 AND HAS COME TO THE ASSESSEE COMPANY UPON DEMERGER. THE ASSESSEE DOES NOT INCUR ANY EXP ENDITURE FOR EARNING THE SAID DIVIDEND INCOME. THE ASSESSEE CONTENDED THAT FOR DISALLOWANCE OF EXPENDITURE U/S 14A, DIRECT NEXUS BETWEEN FUNDS BOR ROWED AND INVESTMENTS IN SHARES YIELDING TAX FREE INCOME HAS TO BE ESTABL ISHED. AFTER INSERTION OF SUB-SECTION 2 & 3 TO SECTION 14A, POWER HAS BEEN GI VEN TO AO TO ASCERTAIN THE EXPENDITURE INCURRED IN RELATION TO EARNING OF TAX FREE INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE AO HOWE VER, DID NOT DO SO, THE DISALLOWANCE MADE BY THE AO IS WITHOUT ANY BASIS, A ND SHOULD BE DELETED. THE AO HAS NO POWER TO MAKE ESTIMATE. LD.CIT(A), H OWEVER, HELD THAT THE AO CORRECTLY CALCULATED THE DISALLOWANCE U/S 14A OF TH E ACT. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS NOT DECLARED ANY DIRECT EXPEN SES NOR APPLY RULE 8D. HOWEVER, THE ASSESSEE EARNED DIVIDEND INCOME WHICH IS EXEMPT. IT WAS FOR THE ASSESSEE TO ESTABLISH THAT BORROWED FUNDS HAVE NOT BEEN USED IN SUCH INVESTMENTS. THIS GROUND OF APPEAL OF THE ASSESSEE WAS DISMISSED. 6.5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT R ULE 8D IS NOT APPLICABLE TO AY UNDER APPEAL BECAUSE IT WAS INTRODUCED BY INC OME TAX AMENDMENT RULES 2008 W.E.F 24.03.2008 AND WILL HAVE APPLICAB ILITY FROM AY 2008-09. HE HAS SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN DIVIDEND INCOME. THE AO HIMSELF ADMITTED THAT NO I NTEREST ELEMENTS HAVE BEEN INVOLVED. THE AO HAS NOT RECORDED ANY SATISFA CTION AS PER SECTION 14A PAGE | 19 OF THE ACT SO AS TO REJECT THE EXPLANATION OF THE A SSESSEE, THEREFORE, NO DISALLOWANCE IS REQUIRED IN THE FACTS AND CIRCUMSTA NCES OF THE CASE. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT A DISPUTE THAT RULE 8D IS APPLICABLE FROM AY 2008-09. THE ASSESSEE SUBMIT TED BEFORE THE AO THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE DI VIDEND INCOME. THE AO HAS ALSO NOTED IN THE ASSESSMENT ORDER THAT NO INTE REST ELEMENT IS INVOLVED ON TRANSACTION. THE ASSESSEE ALSO SUBMITTED BEFORE TH E AUTHORITIES BELOW THAT INVESTMENTS WERE EXISTING SINCE 1998 AND HAS COME T O THE ASSESSEE UPON DEMERGER. THE AO HAS NOT DISPUTED THE CONTENTION OF THE ASSESSEE. THE AO SHOULD HAVE CONSIDERED THE EXPLANATION OF THE ASSES SEE IN PROPER PROSPECTIVE AS REGARDS THE OTHER EXPENDITURE ALSO ON WHICH THE ASSESSEE CLAIMED THAT SAME WERE NOT INCURRED FOR EARNING ANY DIVIDEND INC OME. IN THE CASE OF DIPAK MITTAL 361 ITR 131 (PUNJAB & HARYANA HIGH COU RT) , THE ASSESSEE CLAIMED NO EXPENDITURE INCURRED TO EARN EXEMPT INCO ME. IT WAS, THEREFORE, HELD THAT THE AO SHOULD PROCEED U/S 14A(2) OF THE A CT TO COLLECT MATERIAL AND EVIDENCES TO DETERMINE EXPENSES. IN THE CASE OF HERO CYCLES 323 ITR 518 (PUNJAB & HARYANA HIGH COURT) , IT WAS HELD THAT DISALLOWANCE WAS NOT PERMISSIBLE WHERE NO NEXUS ESTABLISHED BETWEEN EXPE NDITURE INCURRED AND INCOME GENERATED. WHERE NO EXPENDITURE INCURRED, NO DISALLOWANCE. THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF TAIKISHA ENGINEERING INDIA LTD. 370 ITR 338 (DELHI), IT WAS HELD THAT NO DISALLOWANCE TO BE MADE IN ABSENCE OF SATISFACTION RECORDED BY THE AO AS TO WH Y VOLUNTARY DISCLOSURE PAGE | 20 MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFA CTORY. IN THE CASE OF KAPSONS ASSOCIATES 381 ITR 204 (PUNJAB & HARYANA HI GH COURT) , IT WAS HELD THAT WHEN THE ASSESSEE CLAIMED OLD INVESTMENT MADE OUT OF CAPITAL AND RESERVES, NO SEPARATE AMOUNT BORROWED FOR MAKING IN VESTMENT AND NO REASONS HAVE BEEN RECORDED TO REJECT THE EXPLANATIO N OF THE ASSESSEE, NO DISALLOWANCE BE MADE. IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD. [2016] 380 ITR 652 (P&H) BY THE PUNJAB & HARYANA HIGH COURT HELD AS UNDER: - SECTION 14A OF THE INCOME-TAX ACT, 1961, EMPOWERS AN ASSESSING OFFICER TO DISALLOW EXPENDITURE IN RELATION TO EXEMPTED INC OME FROM SHARES IF INTEREST BEARING FUNDS HAVE BEEN USED BY THE ASSESS EE. SECTION 14A MAY ONLY BE INVOKED IF THE ASSESSEE HAS MADE INVESTMENT S IN PURCHASE OF SHARES OUT OF BORROWED FUNDS. AS A CONSEQUENCE, IF THE ASSESSEE HAS INVESTED HIS OWN MONEY IN PURCHASE OF SHARES, THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A. SECTION 14A REQUIRE S THE ASSESSING OFFICER TO RECORD SATISFACTION THAT INTEREST BEARIN G FUNDS HAVE BEEN USED TO EARN TAX-FREE INCOME. THE SATISFACTION TO BE REC ORDED MUST BE BASED UPON CREDIBLE AND RELEVANT EVIDENCE. THE ONUS, THER EFORE, TO PROVE THAT INTEREST BEARING FUNDS WERE USED, LIES SQUARELY ON THE SHOULDERS OF THE REVENUE. THUS, IF THE ASSESSING OFFICER IS ABLE TO REFER TO RELEVANT MATERIAL WHILE RECORDING SATISFACTION THAT BORROWED FUNDS WERE USED TO EARN INTEREST-FREE INCOME AS OPPOSED TO THE ASSESSE E'S OWN FUNDS, THE ASSESSING OFFICER MAY LEGITIMATELY DISALLOW SUCH A CLAIM. THE ASSESSING OFFICER, HOWEVER, CANNOT, BY RECORDING GENERAL OBSE RVATIONS, PARTICULARLY WHERE THE ASSESSEE HAS DENIED USING INTEREST BEARIN G FUNDS, PROCEED TO INFER THAT INTEREST BEARING INCOME MUST HAVE BEEN U SED TO EARN EXEMPTED INCOME. SECTION 14A, BEING IN THE NATURE OF AN EXCE PTION, WAS TO BE CONSTRUED STRICTLY AND ONLY WHERE THE ASSESSING OFF ICER RECORDS PAGE | 21 SATISFACTION, ON THE BASIS OF CLEAR AND COGENT MATE RIAL, SHALL AN ORDER BE PASSED UNDER SECTION 14A DISALLOWING SUCH A CLAIM. THE ASSESSEE MADE A CATEGORICAL SUBMISSION OF FACT BEFORE THE ASSESSING OFFICER THAT NO INTEREST BEARING FUNDS HA D BEEN DIVERTED TO MAKE INVESTMENTS LEADING TO TAX EXEMPT INCOME. THE ASSESSING OFFICER, UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME-T AX RULES, 1962, DISALLOWED EXPENDITURE IN RESPECT OF THE DIVIDEND E ARNED BY THE ASSESSEE HOLDING THAT INTEREST BEARINGS FUNDS HAD B EEN USED TO EARN TAX- FREE DIVIDEND. THE COMMISSIONER (APPEALS) HELD THAT THE REVENUE HAD NOT BEEN ABLE TO PROVE THAT INTEREST BEARING FUNDS WERE USED. THIS WAS CONFIRMED BY THE TRIBUNAL HOLDING THAT AS THE ASSES SING OFFICER HAD FAILED TO PROVE THAT INTEREST BEARING FUNDS WERE US ED, IT WOULD NOT INVITE DISALLOWANCE UNDER SECTION 14A. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT AS THERE WAS NO T ANGIBLE MATERIAL ON RECORD THAT COULD HAVE ENABLED THE ASSE SSING OFFICER TO RECORD SATISFACTION IN TERMS OF SECTION 14A THE FIN DINGS RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL THAT THE AS SESSING OFFICER HAD FAILED TO DISCHARGE THIS ONUS WERE NEITHER PERVERSE NOR ARBITRARY AND, THEREFORE, DID NOT CALL FOR INTERFERENCE. 8. CONSIDERING THE FACTS OF THE CASE AND IN THE ABS ENCE OF ANY SATISFACTION RECORDED BY THE AO, NO DISALLOWANCE SHOULD HAVE BEE N MADE BY THE AUTHORITIES BELOW. THE ASSESSEE CLAIMED THAT NO EX PENSES HAVE BEEN INCURRED FOR EARNING DIVIDEND INCOME AND INVESTMENTS WERE EX ISTING SINCE 1998 AND FURTHER ADMITTEDLY NO INTEREST ELEMENT IS INVOLVED TO EARN DIVIDEND INCOME WOULD SHOW THAT NO BORROWED FUNDS HAVE BEEN USED FO R MAKING INVESTMENT. IF AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HE SHOULD HAVE BROUGHT SOME MATERIAL ON RECORD TO DISBELIEVE THE E XPLANATION OF THE ASSESSEE. HE SHOULD RECORD HIS SATISFACTION AS TO HOW THE EXP LANATION OF THE ASSESSEE PAGE | 22 WAS UNREASONABLE AND UNSATISFACTORY. IN THE ABSENC E OF ANY EVIDENCE ON RECORD, DISALLOWANCE MADE BY THE AO IS NOT SUSTAINA BLE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELET E THE ADDITION. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. GROUND NO.4 4. THAT THE ORDER DATED 03.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED TO SUSTAIN THE ADDITION MADE TO THE B OOK PROFIT U/S 115JB OF THE INCOME TAX ACT, 1961 BY THE LEARNED ASSESSIN G OFFICER OF RS.36,35,873/- ON ACCOUNT OF EXPENSES INCURRED TO E ARN EXEMPT INCOME (DIVIDEND) WHEREAS NO EXPENDITURES WERE INCU RRED BY IT TO EARN THE SAID INCOME AS THE INVESTMENTS HAD COME TO THE APPELLANT COMPANY UPON DEMERGER AND YIELDED DIVIDEND INCOME W ITHOUT ANY FURTHER EXPENDITURE. 9. THE ASSESSEE CHALLENGED THE ACTION OF THE AO IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT BY ADDING A SUM OF RS.13,55,92 9/- BEING DIMINITION IN VALUE OF INVESTMENT AND THE EXEMPT INCOME OF RS.4.0 6 CRORES. THE ASSESSEE CONTENDED BEFORE LD.CIT(A) THAT THERE IS NO SUCH PR OVISION U/S 115JB OF THE ACT FOR MAKING SUCH ADDITION. LD.CIT(A) FOUND THE ACTION OF THE AO IN ORDER. LD.CIT(A) ALSO NOTED FURTHER, AS PER CLAUSE (F), THE BOOK PROFIT IS TO BE INCREASED BY THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMP T INCOME. THE AO IS DIRECTED TO ADD THE AMOUNT OF RS.36,35,873/- FOR T HE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMIT TED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY ORDER OF ITAT, DELHI PAGE | 23 SPECIAL BENCH IN THE CASE OF ACIT VS VIREET INVESTMENT PVT. LTD. 82 TAXMANN.COM 415 IN WHICH IN PARA 6.22 IT IS HELD AS UNDER:- IN VIEW OF ABOVE DISCUSSION, WE ANSWER THE QUESTIO N REFERRED TO US IN FAOVUR OF ASSESSEE BY HOLDING THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WI THOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. LD. DR DID NOT DISPUTE THE SAME. 10. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S, WE ARE OF THE VIEW THAT THE ORDER OF LD.CIT(A) CANNOT BE SUSTAINED SINCE WE HAVE DELETED THE ADDITION OF RS.36,35,873/- MADE U/S 14A OF THE ACT. FURTHER , IT COULD NOT BE TAKEN FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. FURTHE R THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT, SPECIAL BE NCH IN THE CASE OF ACIT VS VIREET INVESTMENT PVT. LTD. (SUPRA), WE ACCORDINGLY SET ASIDE THE ORDERS BELOW AND DELETE THE ADDITION. THIS GROUND OF APPEAL IS ALLOWED. GROUND NO.5 5. THAT THE ORDER DATED 03.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED TO SUSTAIN THE ADDITION MADE BY THE L EARNED ASSESSING OFFICER OF RS.3,60,000/- REGARDING EXPENDITURE FOR FILING FEES AND FOR ISSUE OF PREFERENCE SHARE CAPITAL WHICH HAD BEEN CL AIMED AS A DEDUCTION U/S 35-D ON THE GROUND THAT THE SAME REPR ESENTS CAPITAL EXPENDITURE AND THAT IT DOES NOT FULFILL THE CONDIT IONS FOR CLAIMING DEDUCTION U/S 35D. PAGE | 24 10.1. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS TH IS GROUND, THE SAME IS DISMISSED AS NOT PRESSED. 11. THE REVENUE HAS RAISED GROUND NOS. 1 & 2 AS UNDER:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING REMUNERATION PAID TO MANAGEMENT CONSULTANT AMOUNTIN G TO RS.6,00,000/- AS BUSINESS EXPENDITURE ALLOWABLE U/S 37(1) OF THE ACT THOUGH THE SAME WERE INCURRED FOR EXPANSION OF THE BUSINESS. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY I GNORING THE PROVISION OF SECTION 37 OF THE I.T. ACT, WHEREIN IT IS PROVIDED THAT THE BUSINESS EXPENDITURE NOT OF CAPITAL NATURE IS ALLOW ABLE UNDER THIS SECTION. 11.1. THE AO DISALLOWED RS. 06 LAKHS BEING FEES PAI D FOR MANAGEMENT CONSULTANCY TO DR. L. K. SINGHAL. THE AO HELD IT T O BE CAPITAL EXPENDITURE AND DISALLOWED. THE ASSESSEE SUBMITTED BEFORE LD.C IT(A) THAT DR.L.K.SINGHAL, WHO IS A MANAGEMENT CONSULTANT AND WAS CHAIRMAN AND MANAGING DIRECTOR OF MECON LTD. AND HAS EXPERIENCED IN THE INDUSTRY A ND BEING A TECHNOCRAT HAS RICH EXPERIENCE IN PROJECT APPRAISAL TECHNO ECO NOMIC EVALUATION AND FEASIBILITY STUDIES, HE HAS A WIDE RANGE OF EXPERIE NCE. THE AO ACCEPTED SUBMISSIONS OF THE ASSESSEE THAT REIMBURSEMENT PAID TO DR. L.K. SINGHAL WAS COMMENSURATE TO THE SERVICES RENDERED. THE AO, HOW EVER, HELD IT TO BE CAPITAL EXPENDITURE. THE ASSESSEE STATED BEFORE LD .CIT(A) THAT AO FAILED TO APPRECIATE THAT DURING THE COURSE OF CARRYING ON TH E ACTIVITIES OF THE COMPANY, THERE ARE VARIOUS CONSULTATIONS FROM TIME TO TIME A S WELL AS ADVICE ON VARIOUS ASPECTS ON THE BUSINESS FOR WHICH CONSULTANTS ARE E NGAGED. NO NEW BUSINESS PAGE | 25 HAS COME INTO EXISTENCE, PAYMENT IS MADE BY CHEQUE ON WHICH TDS DEDUCTED. LD.CIT(A) FOUND THAT SERVICES OF EXPERTS ARE ENGAGE D FOR BUSINESS PURPOSES TO PREPARE A PROJECT REPORT AND FEASIBILITY REPORT. L D.CIT(A), THEREFORE, FOUND THAT AMOUNT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND, HOW BUSINESS IS TO BE CONDUCTED IS NOT CONCERN OF T HE REVENUE. LD.CIT(A) ALLOWED THE EXPENDITURE U/S 37(1) OF THE ACT. 11.2. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE O F THE VIEW THAT NO INFERENCE IS CALLED FOR IN THE MATTER. WHEN THE ASSESSEE ENG AGED CONSULTANTS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, IT IS REVENUE EXPENDITURE BECAUSE IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THIS GROUND OF APPEAL OF REVENUE HAS NO MERIT, THE SAME IS, THEREF ORE, DISMISSED. NO OTHER POINT IS ARGUED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS ABOVE AND DEPARTMENTAL APPEAL IS DISMISSED. ITA NO.1426/DEL/2013 (ASSESSEES APPEAL) (AY 2006-0 7) 13. THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED A GAINST THE ORDER OF LD. CIT(A)-I, NEW DELHI DATED 03.01.2013 FOR AY 2006-07 . 13.1. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.1 OF THE APPEAL OF THE ASSESSEE, THE SAME IS DISMISSED AS NOT PRESS ED. 13.2. ON GROUND NO.2 , THE ASSESSEE CHALLENGED THE DISALLOWANCE OF RS.72,62,000/- U/S 14A OF THE ACT. THE AO FOLLOWIN G HIS ORDER FOR AY 2005- PAGE | 26 06 MADE THE DISALLOWANCE U/S 14A OF THE ACT. LD. R EPRESENTATIVES OF BOTH THE PARITIES SUBMITTED THAT THIS ISSUE IS SAME HAS BEEN CONSIDERED UNDER AY 2005-06. IN AY 2005-06, WE HAVE DELETED THE ENTIRE ADDITION U/S 14A OF THE ACT. FOLLOWING THE ORDER OF AY 2005-06, WE SET ASI DE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. THIS GR OUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.1428/DEL/2013 (ASSESSEES APPEAL) (AY 2008-0 9) ITA NO. 2206/DEL/2013 (REVENUES APPEAL) (AY 2008-0 9) 15. BOTH THESE CROSS APPEALS ARE DIRECTED AGAINST T HE ORDER OF LD.CIT(A)- XVI, DELHI DATED 31.01.2013 FOR AY 2008-09. 15.1. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.1 OF THE APPEAL OF THE ASSESSEE, THE SAME IS DISMISSED AS NOT PRESS ED. GROUND NO.2 (ASSESSEES APPEAL) 2. THAT THE ORDER DATED 31.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XVI, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION ON ACCOUNT OF IMPUTED INTEREST ON NON PERFORMING ASSETS MADE BY THE LEARNED ASSESSING OFF ICER TO THE EXTENT OF RS.49,07,985/- ON THE GROUND THAT THE RELATED INTER EST BEARING ADVANCE TO JINDAL STEEL & ALLOYS LTD. 15.2. BRIEFLY STATED FACTS OF THE CASE ARE THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO SHOW CAUS E AS TO WHY AS PER PAGE | 27 ACCRUAL SYSTEM OF ACCOUNTANCY, INTEREST INCOME ACCR UED ON ALLEGED NON PERFORMING ASSETS SHOULD NOT BE ADDED TO TOTAL INCO ME. IN RESPONSE TO THIS, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A NBFC REGISTERED WITH RBI. THE ASSESSEE HAD ADVANCED INTEREST BEARING LOANS TO M/S NALWA METAL & ALLOYS LTD. (RS.54,66,023/-); M/S JINDAL STEEL & ALLOYS LT D. (RS.5,16,62,737/-); AND M/S GAGAN TRADING CO. LTD. (RS. 7,45,213/-). THERE WERE NO RECOVERY FROM THESE PARTIES SINCE PREVIOUS YEARS 1999-2000, 2002- 03 AND 2005-06 RESPECTIVELY. HENCE, THE LOAN BECOMES NPA AS PER R BI GUIDELINES AND INTEREST WAS NOT ACCRUED ON THE SAID LOANS AS PER RBI GUIDEL INES. THE AO REFERRED TO SECTION 145 OF THE ACT WHICH PRESCRIBE SYSTEM OF AC COUNTANCY I.E. CASH OR MERCANTILE. THE AO FURTHER NOTED THAT THE ASSESSEE IS FREE TO MAINTAIN ITS ACCOUNT AS PER RBI GUIDELINES BUT IT IS OBLIGATORY ON THE PART OF THE ASSESSEE TO DETERMINE THE INCOME ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING WHICH THE ASSESSEE IS FOLLOWING. ONCE LOAN ARE GOO D AND SECURED, IT CANNOT BE BAD. THE AO, ACCORDINGLY, MADE THE ADDITION. TH E ASSESSEE REITERATED THE SAME FACTS BEFORE LD. CIT(A) AND SUBMITTED THAT THE RE WERE NO RECOVERY FROM THESE PARTIES IN EARLIER YEARS AND HENCE LOAN HAVE BECOME NPA AS PER RBI GUIDELINES AND NO INTEREST HAS ACCRUED TO THE ASSES SEE. THE DETAILED WRITTEN SUBMISSIONS OF THE ASSESSEE IS REPRODUCED IN THE AP PELLATE ORDER ALONGWITH THE CASE LAWS. LD.CIT(A) NOTED THAT THE ASSESSEE I S A NBFC AND HAD ADVANCED INTERESTS BEARING LOANS TO THE ABOVE THREE CONCERNS. THE ASSESSEE DID NOT ACCOUNT FOR INTEREST IN THE RELEVANT ASSESS MENT YEAR DUE TO CONTINUOUS DEFAULT IN RESPECT OF THE INTERESTS AND ON ACCOUNT OF UNCERTAINTY PAGE | 28 REGARDING RECEIPT OF PRINCIPAL AND INTEREST THEREON . LD. CIT(A) NOTED THAT JINDAL STEEL & ALLOYS LTD. IS A RELATED PARTY AND FROM THE AUDITED FINANCIAL STATEMENT, IT IS EVIDENT THAT LOAN OF RS.5,16,62,73 7/- WAS ALREADY RECOVERED FROM JINDAL STEEL & ALLOYS LTD. IN AY 2008-09 BECAU SE THE SAID UNSECURED LOAN IS NO LONGER APPEARING IN THE BALANCE SHEET. THEREFORE, CLASSIFICATION OF THE SAID INTEREST BEARING ADVANCE TO JINDAL STEEL & ALLOYS LTD. AS NON- PERFORMING ASSET ON THE GROUND OF NON-RECOVERY IS C ONTRARY TO THE FACTS OF THE CASE. LD.CIT(A) NOTED THAT SINCE ADVANCE IS ALREAD Y RECOVERED IN AY UNDER APPEAL FROM JINDAL STEEL & ALLOYS LTD., THEREFORE, ON MERCANTILE SYSTEM OF ACCOUNTING, THE AO IS FULLY JUSTIFIED IN ADDING THE ACCRUED INTEREST INCOME. THEREFORE, ADDITION TO THE EXTENT OF RS.49,07,985/ - WAS MAINTAINED. 15.3. HOWEVER, AS REGARDS, THE ADVANCE GIVEN TO REM AINING TWO PARTIES, LD.CIT(A) NOTED THAT IN AY 2007-08, HE HAS DELETED THE ADDITION VIDE ORDER DATED 31.01.2013 WHICH IS REPRODUCED IN THE APPELLA TE ORDER IN WHICH LD.CIT(A) NOTED THAT SINCE THE ASSESSEE IS A NBFC C OMPANY SHALL HAVE TO FOLLOW RBI GUIDELINES STRICTLY. NO INTEREST COULD BE CHARGED ON PRESUMPTIVE BASIS. LD.CIT(A) FOLLOWING HIS ORDER OF AY 2007-08 DELETED THE ADDITION OF INTERESTS OF RS.5,19,220/- AND RS.70,775/-. 16. THE REVENUE ALSO RAISED FOLLOWING GROUND NOS. 1, 2 AND 3 WHICH READ AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO DELETE THE ADDITIONS OF RS.5,89,995/- MADE ON ACCOU NT OF INTEREST ON PAGE | 29 ADVANCES MADE TO M/S NALWA METAL & ALLOYS LTD. AND M/S GAGAN TRADING CO.LTD. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN I GNORING THE FACT THAT M/S NALWA METAL & ALLOYS LTD. & M/S. GAGAN TRA DING CO. LTD. ARE SISTER/GROUP CONCERNS OF THE ASSESSEE AND HOLDING T HEM AS NPAS IS BASELESS BECAUSE MERE IMPROBABILITY OF RECOVERY DOE S NOT MEAN THAT REAL INCOME HAS ACCRUED TO THE ASSESSEE. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT CONSIDERING THE FACT THAT SEC.145 OF THE I.T.ACT WHICH IS MANDATORY FOR EVERY ASSESSEE, PERMITS USE OF ONE TYPE OF ACCOUNTING SYSTEM IN A P ARTICULAR YEAR AND HYBRID ACCOUNTING SYSTEM IS NOT ALLOWED. 16.1. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE DID NOT RECEIVE ANY AMOUNT FROM JINDAL STEEL & ALLOYS LTD., THEREFORE, MATTER MAY BE REMANDED BACK TO THE AO FOR VERIFICATION. HE HAS SU BMITTED THAT DUE TO AMALGAMATION AND CHANGE IN THE NAME OF THE PARTIES, THERE IS CONFUSION ON FACTS, THEREFORE, THESE FACTS NEEDS VERIFICATION. LD. DR ALSO SUGGESTED THAT MATTER MAY BE REMANDED TO THE AO. 16.2. IN VIEW OF THE SUBMISSIONS OF THE PARTIES, WE ARE OF THE VIEW THAT THE MATTER AS REGARDS GROUND NO.2 OF THE APPEAL OF THE ASSESSEE NEEDS VERIFICATION AT THE LEVEL OF THE AO. LD.CIT(A) CON FIRMED THE ADDITION OF INTEREST OF RS.49,07,985/- BECAUSE PRINCIPAL AMOUNT HAVE BEE N RECOVERED BY THE ASSESSEE FROM M/S JINDAL STEEL & ALLOYS LTD. AY UND ER APPEAL. LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT DUE TO AM ALGAMATION, THERE IS CHANGE IN THE NAMES OF THE PARTIES AND THE ASSESSEE HAS NOT RECOVERED ANY AMOUNT. THEREFORE, THESE FACTS REQUIRE CLARIFICATI ON AT THE LEVEL OF THE AO. WE PAGE | 30 ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO PASS AN O RDER AFRESH AFTER VERIFICATION OF FACTS BY GIVING THE REASONABLE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 16.3. HOWEVER, AS REGARDS GROUND NOS. 1, 2 & 3 OF T HE DEPARTMENTAL APPEAL ARE CONCERNED, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT SINCE NO AMOUNT HAS BEEN RECOVERED FROM THESE PARTIES AND RECOVERY OF THE PRINCIPAL AMOUNT IS IN DOUBT, THEREFORE, THE ASSESSEE RIGHTLY FOLLOW ED RBI GUIDELINES WITH REGARD TO ACCOUNTING OF NPAS AND INTERESTS RELATING THERETO. HE HAS SUBMITTED THAT THE ASSESSEE CANNOT BE ASKED TO MAXI M THE PROFITS AND RELIED UPON DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RAMAN (A.) & CO. [1968] 067 ITR 0011 (SC). ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE AO. 16.4. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NO T FIND ANY MERIT IN THESS GROUNDS OF APPEAL OF THE REVENUE. THE ASSESSEE IS A NBFC, THE ASSESSEE HAS TO FOLLOW RBI GUIDELINES WITH REGARD TO ACCOUNTING OF NPAS AND INTERESTS INCOME RELATING THERETO. THE ASSESSEE FOLLOWED RBI GUIDELINES. LD.CIT(A) IN AY 2007-08 DECIDED THE SAME ISSUE IN FAVOUR OF THE ASSESSEE. SINCE RECOVERY OF THE PRINCIPAL AMOUNT IS IN DISPUTE AND NO AMOUNT OF LOANS OUTSTANDING AGAINST THESE PARTIES HAVE BEEN RECOVERED IN PAST, THEREFORE, THE ASSESSEE CORRECTLY DID NOT ACCOUNT FOR INTERESTS IN THE BOOK S OF ACCOUNTS. LD.CIT(A), THEREFORE, CORRECTLY DELETED THE ADDITION ON ACCRUA L OF INTERESTS IN RESPECT OF M/S NALWA METAL & ALLOYS LTD. AND M/S GAGAN TRADING CO.LTD. THERE IS NO PAGE | 31 INFIRMITY POINTED IN THE ORDER OF LD.CIT(A) IN FOLL OWING HIS ORDER FOR AY 2007- 08. THESE GROUNDS OF APPEAL OF THE REVENUE ARE DIS MISSED. 16.5. THE ASSESSEE RAISED GROUND NO.3 WHICH READS AS UNDER:- 3. THAT THE ORDER DATED 31.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XVI, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE UNDER SECT ION 14A OF THE INCOME TAX ACT, 1961 TOWARDS EXPENDITURES INCURRED IN RELA TION TO EARNING OF TAX FREE INCOME TO THE EXTENT OF RS.27.35 LAKHS. 17. THE REVENUE ALSO RAISED GROUND NO.4 ON THE SAME ISSUE:- 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY IGNORING THE FACT THAT THE AMOUNT ADDED TO THE INCOME OF THE ASSESSEE IS ARRIVED AT AFTER REDUCING THE AMOUNT OF RS.27,18,533/- U/S 14A OF TH E ACT ALREADY DISALLOWED BY THE ASSESSEE FROM ITS COMPUTATION OF INCOME. 17.1. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED EX EMPT INCOME U/S 10(34) OF THE ACT OF DIVIDEND INCOME OF RS.6.64 CRORES. T HE AO ASKED FOR THE DETAILS OF EXPENSES ATTRIBUTED TOWARDS EXEMPT INCOME DISALL OWABLE U/S 14A OF THE ACT. THE ASSESSEE SUBMITTED THAT IT HAS MADE PROVI SION OF DISALLOWANCE U/S 14A AS PER ASSESSMENT ORDER OF PREVIOUS YEAR TO AVO ID THE PENALTY BUT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR EARNING OF DIVIDEND INCOME. IT WAS SUBMITTED THAT INVESTMENTS ARE EXISTING SINCE 1 998 AND HAS COME TO THE ASSESSEE COMPANY UPON DEMERGER. THE AO NOTED THAT THE ASSESSEE HAS DISALLOWED PROPORTIONATE AMOUNT OF EXPENDITURE RELA TABLE TO EXEMPT INCOME OF RS.27,18,533/-. THE AO ACCORDINGLY WORKED OUT DISA LLOWANCE U/S 14A R.W. PAGE | 32 RULE 8D AT AN AMOUNT OF RS.87,56,000/-. THE AO RED UCED THE AMOUNT DISALLOWED BY THE ASSESSEE HIMSELF AND MADE THE ADD ITION OF RS.54.54 LACS. THE ASSESSEE REITERATED THE SAME FACTS BEFORE LD.CI T(A) AND IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR EARNING OF DIVIDEND INCOME. THERE IS NO NEXUS BETWEEN THE TAX FREE INCO ME AND EXPENDITURE INCURRED FOR EARNING SUCH INCOME. IT WAS SUBMITT ED THAT THE AO HAS ADDED THE AMOUNT DISALLOWED BY THE ASSESSEE FOR RS.27,18, 533/-, THEREFORE, AT THE MOST THE ADDITION SHOULD BE OF RS.27.27 LAKHS ONLY. LD.CIT(A) CONFIRMED THE ORDER OF THE AO AS REGARDS DISALLOWANCE U/S 14A OF THE ACT FOR A SUM OF RS.54.54 LAKHS, HOWEVER, NOTED THAT THE ASSESSEE HA S SUO MOTU DISALLOWED RS.27.18 LAKHS IN COMPUTATION OF INCOME, THEREFORE, THE AO WAS DIRECTED TO REDUCE THE ADDITION FROM RS.54.54 LAKHS TO RS.27.35 LAKHS. 17.2. IT IS STATED THAT THIS ISSUE IS SAME AS HAV E BEEN CONSIDERED IN AY 2005-06. FOLLOWING THE REASONS FOR DECISION FOR TH E SAME, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION SUSTAINED BY LD.CIT(A). AS REGARDS, DEPARTMENTAL APPEAL, WHATEVER AMOUNT WE RE DISALLOWED BY THE ASSESSEE SUO MOTU HAVE BEEN REDUCED BY LD.CIT(A). THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) IN DOING SO . THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. PAGE | 33 ITA NO. 1429/DEL/2013 [ASSESSEES APPE AL] (AY: 2009-10) ITA NO. 2207/DEL/2013 [REVENUES APPEA L] (AY: 2009-10) 19. BOTH THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LD.CIT(A)- XVI, DELHI DATED 31.01.2013 FOR AY 2009-10. 19.1. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.1 OF THE APPEAL OF THE ASSESSEE, THE SAME IS DISMISSED AS WITHDRAWN . 19.2. GROUND NOS.2 & 3 OF THE APPEAL OF THE ASSESSEE READ AS UNDER:- 2. THAT THE ORDER DATED 31.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XVI, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE AS M UCH AS HE WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION ON ACCOUNT OF IMPUTED INTEREST ON NON PERFORMING ASSETS MADE BY THE LEARNED ASSESSING TO THE EXTENT OF THE ACCRUED INTEREST OF AY 2008-09 ON THE GROUND THAT T HE ADVANCE HAS BEEN RECOVERED DURING THE EARLIER YEAR WHEREAS THERE HAD BEEN NO SUCH RECOVERY BUT ONLY A TRANSFER OF THE AMOUNT AS A RES ULT OF A SCHEME OF ARRANGEMENT. 3. THAT THE ORDER DATED 31.01.2013 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XVI, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE AS M UCH AS HE WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE UNDER SECT ION 14A OF THE INCOME TAX ACT, 1961 TOWARD EXPENDITURES INCURRED IN RELAT ION TO EARNING OF TAX- FREE INCOME TO THE EXTENT OF RS 35.87 LAKHS. 20. THE REVENUE HAS RAISED GROUND NOS. 1 TO 4 WHICH READ AS UNDER:- 1. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO DELETE THE ADDITIONS OF RS.5,96,392/- MADE ON ACCOU NT OF INTEREST ON ADVANCES MADE TO M/S NALWA METAL & ALLOYS LTD., GAG AN TRADING CO. LTD. & M/S JINDAL STAINLESS (MAURITIUS) LTD. PAGE | 34 2, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE FACT THAT M/S NALWA METAL & ALLOYS LTD & GAGAN TRADING CO. LT D. & M/S JINDAL STAINLESS (MAURITIUS) LTD. ARE SISTER/GROUP CONCERN S OF THE ASSESSEE AND HOLDING THEM AS NPAS IS BASELESS BECAUSE MERE IMPRO BABILITY OF RECOVERY DOES NOT MEAN THAT REAL INCOME HAS ACCRUED TO THE A SSESSEE. 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE FACT THAT SEC.145 OF THE I.T.ACT WHICH IS MANDATORY FOR EVERY ASSESSEE, PERMITS USE OF ONE TYPE OF ACCOUNTING SYSTEM IN A P ARTICULAR YEAR AND HYBRID ACCOUNTING SYSTEM IS NOT ALLOWED. 4. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS BY IGNORING THE FACT THAT THE AMOUNT ADDED TO THE INCOME OF THE ASSESSEE IS ARRIVED AT AFTER REDUCING THE AMOUNT OF RS.29,03,953/- U/S 14 A OF T HE ACT ALREADY DISALLOWED BY THE ASSESSEE FROM ITS COMPUTATION OF INCOME. 21. GROUND NO.2 IN APPEAL OF THE ASSESSEE AND GROUN D NO.1, 2 & 3 OF THE APPEAL OF THE REVENUE ARE SAME AS HAVE BEEN CONSIDE RED IN AY 2008-09. FOLLOWING THE SAME REASONS FOR DECISION FOR AY 2008 -09, WE SET ASIDE THE ORDER OF AUTHORITIES BELOW ON GROUND NO.2 OF THE AP PEAL OF THE ASSESSEE AND RESTORE THE SAME ISSUE TO THE FILE OF THE AO WITH D IRECTION TO RE-DECIDE THE APPEAL OF THE ASSESSEE AS IS DIRECTED IN AY 2008-09 (SUPRA). GROUND NO.1, 2 & 3 OF REVENUES APPEAL ARE, HOWEVER, DISMISSED. 22. GROUND NO.3 OF THE APPEAL OF THE ASSESSEE AND G ROUND NO.4 OF THE DEPARTMENT ARE SIMILAR AS HAVE BEEN DECIDED IN AY 2 008-09. FOLLOWING THE SAME REASONS FOR DECISIONS FOR AY 2008-09, WE SET A SIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. THE APPEAL OF THE ASSESSEE IS ALLOWED AND REVENUES APPEAL IS DISMISSED. PAGE | 35 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. ITA NO. 6545/DEL/2014 [ASSESSEES APPE AL] (AY: 2010-11) ITA NO. 6972/DEL/2014 [REVENUES APPEA L] (AY: 2010-11) 24. BOTH THESE CROSS-APPEALS ARE DIRECTED AGAINST T HE ORDER OF LD.CIT(A)- XVI, DELHI DATED 30.09.2014 FOR AY 2010-11. THE ASS ESSEE FILED THE APPEAL ON THE FOLLOWING GROUND:- THAT THE ORDER DATED 30.09.2014 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) XVI NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MU CH AS HE WAS NOT JUSTIFIED TO RESTRICT THE DISALLOWANCE TO THE TUNE OF RS.43.96 LAKHS BEING THE EXPENDITURE ALLEGEDLY INCURRED IN RELATION TO E ARNING TAX FREE INCOME BY INVOKING THE PROVISIONS OF SECTION1 4A OF THE IN COME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 24.1. THE REVENUE FILED FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD.CIT(A) IS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS AMOUNTING TO RS.40,98,318/-. 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF T HE CASE & IN LAW, THE LD.CIT(A) IS JUSTIFIED IN REDUCING THE DISALLOW ANCE U/S 14A AMOUNTING TO RS.54,37,053/- TO RS.43.96 LAKHS. 24.2. GROUND RAISED IN THE APPEAL OF THE ASSESSEE A ND GROUND NO.2 OF THE APPEAL OF THE REVENUE ARE SIMILAR AS HAVE BEEN CONS IDERED AND DECIDED IN AY 2005-06 AND OTHERS (SUPRA). FOLLOWING THE REASONS FOR THE SAME, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. THE PAGE | 36 ASSESSEES APPEAL IS ALLOWED AND GROUND NO.2 OF THE DEPARTMENTAL APPEAL IS DISMISSED. ON GROUND NO.1 OF THE DEPARTMENT, LD.CI T(A) FOLLOWED HIS ORDER FOR AY 2007-08 AS WELL AS AY 2008-09 & 2009-10 TO DELETE THE ADDITION. IT IS STATED THAT THIS ISSUE IS SAME AS HAVE BEEN RAISED IN AY 2008-09 & 2009-10. FOLLOWING THE REASONS FOR THE DECISION FOR AY 2008- 09 & 2009-10, WE DO NOT FIND ANY MERIT IN DEPARTMENTAL APPEAL. THIS GROUND OF DEPARTMENTAL APPEAL IS DISMISSED. 24.3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. ITA NO. 6546/DEL/2014 [ASSESSEES APPE AL] (AY: 2011-12) ITA NO. 6973/DEL/2014 [REVENUES APPEA L] (AY: 2011-12) 25. BOTH THESE CROSS-APPEALS ARE DIRECTED AGAINST T HE ORDER OF LD.CIT(A)- XVI, DELHI DATED 30.09.2014 FOR AY 2011-12. THE AS SESSEE RAISED THE FOLLOWING GROUND:- THAT THE ORDER DATED 30.09.2014 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) XVI, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MU CH AS HE WAS NOT JUSTIFIED TO RESTRICT THE DISALLOWANCE TO THE TUNE OF RS.20.74 LAKHS BEING THE EXPENDITURE ALLEGEDLY INCURRED IN RELATION TO E ARNING TAX FREE INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE IN COME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. PAGE | 37 25.1. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE & IN LAW, THE LD.CIT(A) IS JUSTIFIED IN DELETING THE ADD ITION ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS AMOUNTING TO RS.4 0,98,318/-. 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF T HE CASE & IN LAW, THE LD.CIT(A) IS JUSTIFIED IN REDUCING THE DISALLOW ANCE U/S 14A AMOUNTING TO RS.58,91,087/- TO RS.20,74,000/-. 25.2. IT IS SUBMITTED BY LD. REPRESENTATIVES OF BOT H PARTIES THAT BOTH THE ISSUES ARE SIMILAR AS HAVE BEEN CONSIDERED FOR AY 2 010-11. FOLLOWING THE REASONS FOR DECISION FOR AY 2010-11, WE SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION ON WHICH ASSESSEES A PPEAL IS FILED. THE APPEAL OF THE ASSESSEE IS ALLOWED WHEREAS DEPARTMENTAL APP EAL IS DISMISSED. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND DEPARTMENTAL APPEAL IS DISMISSED. 27. IN THE FINAL RESULT, THE APPEALS OF THE ASSESSE E FOR AYS 2005-06, 2006- 07, 2008-09 & 2009-10 ARE PARTLY ALLOWED WHEREAS AP PEALS OF THE ASSESSEE FOR AYS 2010-11 & 2011-12 ARE ALLOWED AND ALL DEPARTMEN TAL APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 16.04.2018. SD/- SD/- (L.P.SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:- 16 TH APRIL, 2018 *AMIT KUMAR* PAGE | 38 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI