DCIT, CHENNAI V. M/s. Southern Petrochemical Industries Corpn. Ltd., CHENNAI

ITA 1466/CHNY/2009

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1462 (ITAT-CHENNAI)
• Duration Of Justice: 10 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-03-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 17-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Revision of order; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Proportionate interest; Competent authority; Commercial expediency; Revised return; Rule 8D; Set aside
• Section: 143(3); 142(1); 14A; 37(1); 143(1); 143(2); 13; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ' , ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.1466/CHNY/2009 ( ( /ASSESSMENT YEAR: 2003-04 THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-V(1), CHENNAI. V . M/S. SOUTHERN PETROCHEMICAL INDUSTRIES CORPORATION LTD., SPIC HOUSE , 88, MOUNT ROAD GUINDY, CHENNAI-600032 [PAN: AAACS4668K] ( + /APPELLANT) ( ,-+ /RESPONDENT) DEPARTMENT BY : MR. M.SRINIVASA RAO, CIT ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADV. / /DATE OF HEARING : 18.09.2019 / /DATE OF PRONOUNCEMENT : 16.12.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL FILED BY REVENUE IS DIRECTED AGAINST A PPELLATE ORDER DATED 25.07.2008 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI (HEREINAFTER CALLED THE CIT(A )), IN ITA NO.88/2006- 07 FOR ASSESSMENT YEAR (AY) 2003-04, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM ASSESSMENT ORDER DAT ED 30.03.2006 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CA LLED THE AO) U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). ITA NO.1466/CHNY/2009 :- 2 -: 2. THE GROUNDS OF APPEAL RAISED BY REVENUE IN MEMO OF APPEAL FILED WITH INCOME-TAX APPELLATE TRIBUNAL, CHENNAI (HEREIN AFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT DISAL LOWANCES ON ACCOUNT OF STAFF WELFARE EXPENSES (RS.15.86 LAKHS), GUEST HOUSE EXPENSES (RS.8.96 LAKHS), CLUB SUBSCRIPTIONS (RS.4. 18 LAKHS) AND COST OF OTHER SERVICES (RS.1 LAKH) WERE NOT CALLED FOR, THEREBY, DELETING THE ADDITION OF RS.30,00,000/-MADE ON THE ABOVE COUNTS. 2.2. HAVING REGARD TO THE HON'BLE JURISDICTIONAL TR IBUNAL DECISION IN THE ASSESSEE'S OWN CASE IN ITA NO.1030/MDS/07 DA TED 7.3.08 FOR THE A-Y 2002-03, THE LEARNED CIT(A) OUGHT TO HA VE UPHELD THE DISALLOWANCE MADE TOWARDS GUEST HOUSE EXPENSES. 2.3. IN THE ABSENCE OF ANY EVIDENCE TO SUBSTANTIATE THAT THE ASSESSEE INCURRED THE EXPENDITURE TOWARDS STAFF WEL FARE AND OTHER SERVICES FOR THE PURPOSE OF BUSINESS, THE LEA RNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OF FICER. 2.4. HAVING REGARD TO THE HON'BIE KERALA HIGH COURT DECISION IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. V. DCIT (2 94 ITR 559), THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE D ISALLOWANCE MADE TOWARDS CLUB SUBSCRIPTIONS. 3.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE A SSESSEE COMPANY WOULD BE ENTITLED TO WEIGHTED DEDUCTION U/S .35(2A8), THEREBY, DELETING THE ADDITION OF RS.1,96,41,815/-. 3.2. HAVING REGARD TO SUB-SECTION (1) AND SUB-SECTI ON (3) OF SEC.35(2AB) COUPLED WITH THE FINDING IN THE ASSESSM ENT ORDER THAT THE ASSESSEE COMPANY NEITHER FURNISHED EVIDENC E AS TO THE INCURRING OF THE EXPENDITURE NOR PRODUCED ANY PROOF ON THE ISSUE OF ENTERING INTO AN AGREEMENT WITH THE PRESCRIBED A UTHORITY FOR CO-OPERATION IN RESEARCH AND DEVELOPMENT FACILITY A ND FOR AUDIT OF THE ACCOUNTS MAINTAINED BY THAT FACILITY, WHICH FIN DING HAS NOT BEEN FOUND TO BE CONTROVERTED IN THE APPELLATE PROC EEDINGS, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF T HE ASSESSING OFFICER. ITA NO.1466/CHNY/2009 :- 3 -: 4.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT NO DI SALLOWANCE OF PROPORTIONATE INTEREST WAS CALLED FOR, THUS, DE LETING THE ADDITION OF RS.31,51,15,000/-. 4.2. THE LEARNED CIT(A) OUGHT TO HAVE NOTED THAT TH E ASSESSEE HAS NOT PROVED THE COMMERCIAL EXPEDIENCY ASPECT FOR THE INSTANT A-Y VIS-A-VIS INTEREST-FREE ADVANCES MADE T O GROUP CONCERNS OUT OF INTEREST BEARING FUNDS. 5.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT DEPRE CIATION OF RS.3,30,991/-ON THE GUEST HOUSE IS ALLOWABLE. 5.2. HAVING REGARD TO THE HON'BLE JURISDICTIONAL TR IBUNAL DECISION IN THE ASSESSEE'S OWN CASE IN ITA NO.1030/ MDS/07 DATED 7.3.08 FOR THE A-Y 2002-03, THE LEARNED CIT(A ) OUGHT TO HAVE UPHELD THE DISALLOWANCE OF DEPRECIATION ON THE GUEST HOUSE. 6. FOR THESE AND OTHER GROUNDS MAY BE ADDUCED AT T HE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF FERTILIZERS, PHARMA , BIO-TECH AND ENGI NEERING SERVICES. THE AO OBSERVED IN ITS ASSESSMENT ORDER PASSED U/S 143( 3) OF THE 1961 ACT THAT THE ASSESSEE IS DEALING IN :- A) TUTICORN FACTORY- MANUFACTURING AND SALE OF UREA , DAP , ALUMINUM AND FLUORIDE. B) SMO, EHVT DIVISION- EXECUTION OF TURNKEY PROJECT S AND EXECUTION OF ELECTRIFICATION WORKS CONTRACT. C) PHARMA DIVISION- MANUFACTURE OF BULK DRUGS AND F ORMULATIONS INCLUDING PEN-G ; AND D) BIO-TECH DIVISION- PRODUCTION OF TISSUE CULTURE PLANTS, ENZYMES AND EXPORT OF CUT FLOWERS. 3.2 THE ASSESSEE FILED ITS RETURN OF INCOME WITH RE VENUE FOR IMPUGNED ASSESSMENT YEAR VIZ. AY: 2003-04 ON 23.10.2003 DEC LARING LOSS OF RS. 403,84,01,506/-. THE SAID RETURN OF INCOME WAS PROC ESSED BY REVENUE ITA NO.1466/CHNY/2009 :- 4 -: U/S 143(1) OF THE 1961 ACT ON 12.03.2004. THE ASSES SEE ALSO FILED REVISED RETURN OF INCOME ON 30.03.2004 DECLARING LOSS OF RS . 298,10,70,500/- . IN THIS REVISED RETURN OF INCOME FILED BY ASSESSEE WIT H REVENUE ON 30.03.2004 , THE ASSESSEE OFFERED INTEREST INCOME O F RS. 105.73 CRORES. THE CASE OF THE ASSESSEE WAS SELECTED FOR FRAMING S CRUTINY ASSESSMENT BY AO U/S 143(3) READ WITH SECTION 143(2) OF THE 1961 ACT. THE AO ISSUED STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE 1961 ACT TO THE ASSESSEE AND FINALLY SCRUTINY ASSESSMENT WAS FRAMED BY AO U/ S 143(3) OF THE 1961 ACT, VIDE ASSESSMENT ORDER DATED 30.03.2006 PASSED BY AO U/S 143(3) OF THE 1961 ACT , ASSESSING LOSS OF THE ASSESSEE AT R S. 342,32,81,858/-. THE REVENUE IS AGGRIEVED BY DECISION OF LEARNED CIT(A) IN GRANTING RELIEF TO ASSESSEE ON MULTIPLE ISSUES AS SPECIFIED IN ITS GRO UNDS OF APPEAL FILED WITH TRIBUNAL. WE WILL ADDRESS AND ADJUDICATE EACH OF T HESE ISSUES ONE BY ONE, AS IN THE SUCCEEDING PARAS OF THIS ORDER 3.3 THE FIRST GROUND OF APPEAL RAISED BY ASSESSEE I N ITS APPEAL FILED WITH TRIBUNAL IS GENERAL IN NATURE . THE LEANED CIT-DR H AS NOT ADVANCED ANY ARGUMENTS BEFORE US IN SUPPORT OF THIS GROUND. IN O UR CONSIDERED VIEW, THIS GROUND NUMBER 1 RAISED BY REVENUE WITH TRIBUNA L IS GENERAL IN NATURE AND DOES NOT REQUIRE SEPARATE ADJUDICATION AND HENC E GROUND NUMBER 1 IS DISMISSED AS GENERAL IN NATURE. WE ORDER ACCORDINGL Y. 3.4 THE SECOND GROUND OF APPEAL CONCERNS ITSELF WIT H DISALLOWANCE OF RS. 30,00,000/- BY AO ON ACCOUNT OF EXPENSES INCURRED T OWARDS STAFF WELFARE TO THE TUNE OF RS. 15.86 LACS , GUEST HOUSE EXPENSE S TO THE TUNE OF RS. ITA NO.1466/CHNY/2009 :- 5 -: 8.96 LACS , CLUB SUBSCRIPTION EXPENSES TO THE TUNE OF RS. 4.18 LACS AND COST OF SERVICES TO THE TUNE OF RS. 1 LACS, AGGREGA TING TO RS. 30 LACS. THE AO OBSERVED THAT ASSESSEE HAS INCURRED EXPENSES TOW ARDS STAFF WELFARE, CONTRIBUTION TO CLUBS, RECREATION ASSOCIATIONS AMOU NTING TO RS. 15.86 LACS AND THE SAME WERE DISALLOWED AS IT WAS HELD THAT TH ESE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. SIMILARLY , AO DISALLOWED GUEST HOUSE EXP ENSES ON THE GROUNDS THAT THE SAME CANNOT BE STATED TO BE INCURRED WHOLL Y FOR THE PURPOSES OF ASSESSEES BUSINESS. THE AO ALSO HELD THAT CLUB EXPENSES BEING IN NATURE OF PERSONAL BENEFIT OF THE EMPLOYEES CANNOT BE TREA TED AS INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE LEARNED C IT(A) ALLOWED THE STAFF WELFARE EXPENSES AS BUSINESS EXPENSES BY HOLDING TH AT THESE EXPENSES WERE INCURRED FOR BENEFIT OF ITS EMPLOYEES THROUGH THE EMPLOYEES WELFARE CLUBS LOCATED AT LOCATED AT EMPLOYEES COLONY AT SPI C NAGAR, TUTICORIN , ADJACENT TO ASSESSEES COMPANYS FERTILIZER COMPLEX . THE LEARNED CIT(A) ALLOWED GUEST HOUSE EXPENSES TO THE TUNE OF RS. 8.9 6 LACS BY HOLDING THAT THESE EXPENSES WERE INCURRED FOR ASSESSEE COMPANY F OR THE MAINTENANCE AND PROVISIONS OF SERVICES AT ITS GUEST HOUSE AT TU TICORIN, MUMBAI AND DELHI. THE LEARNED CIT(A) FURTHER OBSERVED THAT DET AILED ACCOUNTS OF EXPENSES INCURRED AT THESE GUEST HOUSES WERE NOT PR OVIDED BY ASSESSEE DURING ASSESSMENT PROCEEDINGS. THE LEARNED CIT(A) O BSERVED THAT THESE GUEST HOUSE EXPENSES WERE PETTY IN NATURE AND RELAT ABLE TO PURCHASE OF PROVISIONS, NEWSPAPER AND WAGES TO THE EMPLOYEES AT GUEST HOUSES. IT WAS OBSERVED BY LEARNED CIT(A) THAT THESE EXPENSES WERE MET ON DAY TO ITA NO.1466/CHNY/2009 :- 6 -: DAY BASIS BY HEAD OFICE OF THE ASSESSEE . IT WAS OB SERVED BY LEARNED CIT(A) THAT WITH PASSAGE OF TIME , THE ASSESSEE IS NOT IN A POSITION TO GATHER TOGETHER ALL RELEVANT VOUCHERS AND SOME OF T HE VOUCHERS AND RECORDS ARE PRODUCED DURING APPELLATE PROCEEDINGS. THE LEARNED CIT(A) OBSERVED THAT GUESTS USING THE GUEST HOUSE FACILITI ES ARE EMPLOYEES AND MANAGEMENT PERSONNEL OF THE ASSESSEE COMPANY. THUS , IN NUT-SHELL THE LEARNED CIT(A) HELD THAT THESE EVIDENCES FURNISHED INDICATE THAT THE GUEST HOUSE WAS MAINTAINED BY ASSESSEE TO FACILITATE THE STAY OF THE EMPLOYEES WHO HAD TO TRAVEL FOR BUSINESS PURPOSES AND MAKING ALTERNATE ARRANGEMENTS WOULD HAVE BEEN MORE EXPENSIVE. THUS , THE LEARNED CIT(A) RELYING ON PROVISIONS OF SECTION 37(1) OF THE 1961 ACT HELD THAT THESE EXPENSES WERE INCURRED FOR THE PURPOSES OF BUSINESS OF ASSESSEE AND WERE HELD TO BE ALLOWABLE U/S 37(1) OF THE 1961 ACT, VID E APPELLATE ORDER DATED 25.07.2008 PASSED BY LEARNED CIT(A). 3.5.1 THE REVENUE IS AGGRIEVED BY DECISION OF LEARN ED CIT(A) ALLOWING THESE EXPENSES AS BUSINESS EXPENSES U/S 37(1) OF TH E 1961 ACT AND HAS FILED AN APPEAL WITH TRIBUNAL. IN ITS GROUND OF APP EAL , THE REVENUE HAS REFERRED TO DECISION OF CHENNAI-TRIBUNAL IN ASSESSE ES OWN CASE FOR IMMEDIATELY PRECEDING AY: 2002-03 IN ITA NO. 1030/M DS/07, ORDER DATED 07.03.2008, WHEREIN CHENNAI-TRIBUNAL WAS PLEASED TO UPHOLD DISALLOWANCE OF GUEST HOUSE EXPENSES , BY HOLDING AS UNDER:- 16. THE FIRST GROUND RAISED BY THE REVENUE IS THAT THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN DELETI NG THE DISALLOWANCE MADE TOWARDS GUEST HOUSE EXPENDITURE ITA NO.1466/CHNY/2009 :- 7 -: AMOUNTING TO RS. 15,54,132/- RELYING UPON THE ORDER HIS PREDECESSORS IN ASSESSEES OWN CASE FOR THE ASST. Y EAR 2001- 02. 17. THIS ISSUE IS COVERED AGAINST THE ASSESSEE IN D ECISION OF THE APEX COURT RENDERED IN THE CASE OF BRITANNIA IN DUSTRIES LTD. V. CIT AND ANOTHER( 278 ITR 546) (SUPREME COUR T) . RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE THIS GROUND OF APPEAL BY THE REVENUE. THE LEARNED CIT-DR RELIED UPON DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR AY: 2002-03 AND PRAYED FOR UPHOLDING DISAL LOWANCE OF THESE EXPENSES. THE LEARNED COUNSEL FOR ASSESSEE SUBMITTE D THAT DECISION OF HONBLE SUPREME COURT IN THE CASE OF BRITANNIA INDU STRIES LIMITED( CITED SUPRA) WAS DECIDED FOR AY:1994-95 WHEREIN PROVISION S OF SECTION 37(3),(4) AND (5) OF THE 1961 ACT WHICH WERE IN STA TUTE AT THAT TIME AND WHICH CREATED RESTRICTION ON ALLOWABILITY OF GUEST HOUSE EXPENSES AT THAT RELEVANT POINT IN TIME, WHILE SECTION 37(3) , 37(4) AND (5) OF THE 1961 ACT WERE OMITTED BY FINANCE ACT, 1997 W.E.F. 01.04.1998 . PRESENTLY WE ARE CONCERNED WITH AY: 2003-04 AND THERE IS NO BAR ON A LLOWABILITY OF GUEST HOUSE EXPENSES PROVIDED THE SAME ARE INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND SATISF Y THE PROVISIONS OF SECTION 37(1) OF THE 1961 ACT. AFTER HEARING BOTH THE PARTIES AND PERUSING MATERIAL ON RECORD, WE ARE OF CONSIDERED V IEW THAT DECISION OF HONBLE SUPREME COURT IN THE CASE OF BRITANNIA INDU STRIES LIMITED(SUPRA) WAS RENDERED IN CONTEXT OF SECTION 37(3)(4) AND(5) OF THE 1961 ACT AND THE DECISION WAS RENDERED FOR AY:1994-95 BUT SECT ION 37(3) , 37(4) AND 37(5) OF THE 1961 ACT STOOD OMITTED BY FINANCE ACT, 1997 W.E.F. 01.04.1998. PRESENTLY , WE ARE SEIZED WITH AY: 2003 -04. WE HAVE ITA NO.1466/CHNY/2009 :- 8 -: OBSERVED THAT LEARNED CIT(A) HAS NOTED IN ITS APPEL LATE ORDER THAT THE ASSESSEE COULD NOT FURNISH COMPLETE EVIDENCES TO SU PPORT ITS EXPENSES BUT POSITIVE FINDING IS RECORDED BY LEARNED CIT(A) THAT GUEST HOUSE(S) WERE MAINTAINED BY THE ASSESSEE AT TUTICORIN, MUMBAI AND DELHI AND ITS NEXUS/CONNECTION WITH EMPLOYEES USING GUEST HOUSE W HILE VISITING THOSE PLACES INSTEAD OF LIVING IN ALTERNATE ACCOMMODATION ,BUT THE FACT REMAINS THAT ASSESSEE COULD NOT FURNISH COMPLETE BILLS/INVO ICES/EVIDENCES ETC. IN SUPPORT OF THESE EXPENSES TO PROVE THAT THE ENTIRE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE TO SATISFY MANDATE OF SECTION 37(1) OF TH E 1961 ACT AND THAT NO OUTSIDERS HAVE USED THESE GUEST HOUSE , THUS UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW THAT IT IS AN OLD LITIGATION WI TH A VIEW TO END LITIGATION AND BEING FAIR TO BOTH THE RIVAL PARTIES, WE ALLOW 50% OF GUEST HOUSE EXPENSES AS BUSINESS EXPENSES WHILE WE AFFIRM DISAL LOWANCE OF BALANCE 50% OF THE GUEST HOUSE EXPENSES CLAIMED BY ASSESSEE . WE ORDER ACCORDINGLY. WE HAVE ALSO OBSERVED THAT REVENUE VI DE GROUND NUMBER 5.1 AND 5.2 FILED IN MEMO OF APPEAL FILED WITH TRIB UNAL IS AGGRIEVED BY ALLOWING OF DEPRECIATION OF GUEST HOUSE BY LEARNED CIT(A). OUR ABOVE DECISION OF ALLOWING 50% OF GUEST HOUSE EXPENSES AS BUSINESS EXPENSES, SHALL APPLY MUTATIS MUTANDIS TO ALLOWABILITY OF DEP RECIATION ON GUEST HOUSE AND HENCE 50% OF THE DEPRECIATION CLAIMED BY ASSESS EE ON GUEST HOSUES SHALL BE ALLOWED AS BUSINESS DEDUCTION , WHILE BALA NCE 50% OF THE DEPRECIATION CLAIMED BY ASSESSEE SHALL BE DISALLOWE D FOR NON BUSINESS PURPOSES. THE PROVISIONS OF SECTION 38(2) OF THE 19 61 ACT SHALL BE ITA NO.1466/CHNY/2009 :- 9 -: APPLICABLE WHEN USAGE OF BUILDING IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS . THIS ALSO DISPOSES OF GROUND NUMBER 5.1 AND 5.2 RAISED BY REVENUE IN ITS APPEAL FILED WITH TRIBUNAL . WE ORDER ACCORDINGLY. 3.5.2. OUR ABOVE DECISION IN PARA 3.5.1 ABOVE SHAL L APPLY SO FAR AS STAFF WELFARE EXPENSES AND COST OF OTHER SERVICES INCURRE D BY ASSESSEE WHICH STOOD ALLOWED BY LEARNED CIT(A) BUT FACT REMAINS TH AT THE ASSESSEE COULD NOT PROVIDE COMPLETE DETAILS/EVIDENCES/INVOICES/BIL LS ETC. OF THESE STAFF WELFARE EXPENSES AND COST OF OTHER SERVICES TO PRO VE THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS ES OF THE BUSINESS OF THE ASSESSEE AND HENCE UNDER THESE CIRCUMSTANCES AN D KEEPING IN VIEW THAT IT IS AN OLD LITIGATION WITH A VIEW TO END LIT IGATION AND BEING FAIR TO BOTH THE RIVAL PARTIES, WE ALLOW 50% OF STAFF WELFA RE EXPENSES AND COST OF OTHER SERVICES CLAIMED BY THE ASSESSEE AS BUSINESS EXPENSES , WHILE WE AFFIRM DISALLOWANCE OF BALANCE 50% OF STAFF WELFARE EXPENSES AND COST OF OTHER SERVICES CLAIMED BY ASSESSEE IN RETURN OF INC OME FILED WITH REVENUE. THUS , GROUND NUMBER 2.1 TO 2.3 ARE DISPOSED OFF BY US IN PARA 3.5.1. TO 3.5.2 ABOVE AND ALSO GROUND NUMBER 5.1 AND 5.2 RAIS ED BY REVENUE IS DISPOSED OFF BY US IN PARA 3.5.1. WE ORDER ACCORDI NGLY. 3.5.3 SO FAR AS CLUB EXPENSES DISALLOWED BY THE AO WHICH STOOD ALLOWED BY LEARNED CIT(A), WE HAVE OBSERVED THAT CHENNAI-TR IBUNAL HAS CONSISTENTLY DECIDED THIS ISSUE AGAINST ASSESSEE BY HOLDING THAT THESE CLUB EXPENSES ARE PERSONAL EXPENSES OF THE DIRECTORS. TH E AO IN HIS ASSESSMENT ORDER HAS REFERRED TO THESE EXPENSES AS CLUB EXPENSES AND ITA NO.1466/CHNY/2009 :- 10 -: NOT CLUB SUBSCRIPTION EXPENSES. REFERENCE IS DRAWN TO DECISION OF CHENNAI- TRIBUNAL IN ITA NO. 880/MDS/07, ORDER DATED 07.03.2 008 FOR AY: 2002-03, IN ITA NO.2252/MDS/2003, ORDER DATED 20.10.2004 AND IN ITA NO. 1418/MDS/2014, ORDER DATED 27.12.2006 FOR AY: 2009- 10, WHEREIN THESE CLUB EXPENSES WERE HELD NOT TO BE ALLOWABLE AND IN- FACT IN AY: 2009-10 THE ASSESSEE HAS ITSELF NOR PRESSED THIS GROUND BEF ORE THE TRIBUNAL. THE ASSESSEE HAS NOT ESTABLISHED BUSINESS NEXUS OF THES E CLUB EXPENSES BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THUS, BASED ON OUR ABOVE DISCUSSION WE HO LD THIS ISSUE IN FAVOUR OF REVENUE AND HOLD THAT CLUB EXPENSES INCUR RED BY ASSESSEE SHALL NOT BE ALLOWED AS BUSINESS DEDUCTION. THE GROUND NU MBER 2.4 IS ACCORDINGLY ADJUDICATED. WE ORDER ACCORDINGLY. 4.1 THE NEXT ISSUE VIDE GROUND NUMBER 3.1 AND 3.2 R AISED BY REVENUE IN MEMO OF APPEAL FILED WITH TRIBUNAL CONCERNS ITSELF WITH DISALLOWANCE U/S 35(2AB) OF THE 1961 ACT. THE AO DISALLOWED WEIGHTED DEDUCTION CLAIMED BY ASSESSEE U/S 35(2AB) OF THE 1961 ACT OF THE R%D EXPENDITURE INCURRED BY ASSESSEE, WHILE THE LEARNED CIT(A) ALLOWED THE C LAIM OF THE ASSESSEE FOR WEIGHTED DEDUCTION OF R&D EXPENSES. THE AO DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE H AS CLAIMED WEIGHTED DEDUCTION WITH RESPECT TO RESEARCH AND DEVELOPMENT EXPENSES CLAIMED TO BE INCURRED BY ASSESSEE TO THE TUNE OF RS. 3,92,83, 629/- U/S 35(2AB) OF THE 1961 ACT AT THE RATE OF 150%. THE AO OBSERVED T HAT THE ASSESSEE HAS FURNISHED A CERTIFICATE FROM COMPETENT AUTHORITY DA TED 28.06.2000 IN FORM ITA NO.1466/CHNY/2009 :- 11 -: NO. 3CM FROM DEPARTMENT OF SCIENTIFIC AND INDUSTRIA L RESEARCH, BUT THE ASSESSEE HAS NOT FURNISHED EVIDENCES TO SHOW THAT : I) THE EXPENDITURE WAS INCURRED ON INHOUSE RESEARCH AND DEVELOPMENT FACILITY. II) THAT THE ASSESSEE HAS NOT FURNISHED EVIDENCES T O SUBSTANTIATE THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WIT H THE DEVELOPMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH F OR CO-OPERATION IN SUCH RESEARCH AND DEVELOPMENT FACILITY AND FOR AUDI T OF ACCOUNTS MAINTAINED FOR THAT FACILITY. THUS, THE AO VIDE AFORESAID FINDINGS DISALLOWED CLA IM OF EXCESS DEDUCTION OF 50% , WHICH LED TO DISALLOWANCE TO THE TUNE OF RS. 1,96,41,815/-. 4.2 THE ASSESSEE BEING AGGRIEVED BY ASSESSMENT ORDE R PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, FILED FIRST APPEAL WITH LEARNED CIT(A). THE LEARNED CIT(A) WAS PLEASED TO ALLOW CLAIM OF WEIGHT ED DEDUCTION @150% OF R&D EXPENSES INCURRED BY ASSESSEE U/S 35(2AB) OF THE 1961 ACT VIDE APPELLATE ORDER DATED 25.07.2008, BY HOLDING AS UND ER: 9. THE ASSESSEE COMPANY , IN ITS RETURN OF INCOME , HAD CLAIMED DEDUCTION IN RESPECT OF RESEARCH AND DEVELOPMENT EX PENSES UNDER SECTION 35(2AB) AT THE RATE OF 150% ON AN AMOUNT OF RS. 3,92,83,629 CLAIMED TO BE HAVE BEEN SPENT BY IT. SU CH CLAIM MADE BY THE ASSESSEE COMPANY WAS DISALLOWED BY THE ASSES SING OFFICER ON THE GROUND THAT THE ASSESSEE COMPANY HAD NOT FURNIS HED EVIDENCES TO ESTABLISH THAT THE EXPENDITURE WAS ACTUALLY INCU RRED ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AND THAT NO EVIDE NCES HAD BEEN FURNISHED TO ESTABLISH THAT THE ASSESSEE COMPANY HA D ENTERED INTO AN AGREEMENT WITH THE DEPARTMENT OF SCIENCE AND IND USTRIAL RESEARCH AND FOR AUDIT OF ACCOUNTS MAINTAINED SEPAR ATELY FOR SUCH FACILITY. IT IS NOT IN DISPUTE THAT VIDE ORDER DATE D 28.06.2000 THE DESIGNATED AUTHORITY HAD GRANTED APPROVAL TO THE IN -HOUSE RESEARCH AND DEVELOPMENT FACILITY UNDER SECTION 35(2AB) OF T HE ACT. THIS WAS IN RESPONSE TO AN APPLICATION FILED BY THE ASSESSEE COMPANY BEFORE THE DESIGNATED AUTHORITY IN FORM NO. 3CK WHICH WAS FOR ENTERING INTO AN AGREEMENT WITH THE DEPARTMENT OF SCIENCE AN D INDUSTRIAL RESEARCH FOR CONDUCTING IN-HOUSE RESEARCH AND FOR A UDIT OF ACCOUNTS ITA NO.1466/CHNY/2009 :- 12 -: MAINTAINED FOR THAT FACILITY. ONCE BOTH THESE PRE-C ONDITIONS WERE INCORPORATED IN PART B OF THE FORM NO. 3CK, AN APPR OVAL GRANTED BY THE DESIGNATED AUTHORITY WOULD AMOUNT TO AN ACCEPTA NCE OF THE ASSESSEES APPLICATION. IT WOULD NOT BE OPEN TO THE ASSESSING OFFICER TO REEXAMINE THE DEGREE OF COMPLIANCE TO THESE TWO CONDITIONS ONCE THE STATUTORY RECOGNIZED DESIGNATED AUTHORITY HAD C ONSIDERED THE ASSESSEES APPLICATION AND HAD APPROVED OF IT. ON T HE PRESENT FACTS, THE ASSESSEE COMPANY WOULD BE ENTITLED TO WEIGHTED DEDUCTION UNDER SECTION 35(2AB) AND THE GROUND OF APPEAL FILE D BY THE ASSESSEE COMPANY ON THIS ACCOUNT IS HEREBY ALLOWED. 4.3 AGGRIEVED BY AN APPELLATE ORDER DATED 25.07.20 08 PASSED BY LEARNED CIT(A) ALLOWING WEIGHTED DEDUCTION @150% OF R&D EXP ENSES U/S 35(2AB) OF THE 1961 ACT, THE REVENUE HAS FILED AN APPEAL WI TH TRIBUNAL. THE LEARNED CIT-DR SUPPORTED ASSESSMENT ORDER PASSED BY THE AO AND RELIED UPON GROUNDS OF APPEAL FILED WITH TRIBUNAL . THE L EARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT THERE WAS NO AGREEMENT ENTERED INTO WITH THE PRESCRIBED AUTHORITY AS IS ST IPULATED UNDER CLAUSE (3) TO SUB-SECTION 35(2AB) OF THE 1961 ACT. IT WAS SUBM ITTED THAT AUDIT WAS CONDUCTED OF THESE R&D EXPENSES AND COPY OF AUDIT I S PLACED ON RECORD. THE LEARNED COUNSEL WOULD RELY ON DECISION OF HYDER ABAD BENCH OF ITAT IN THE CASE OF DCIT V. SRI BIOTECH LABORATORIES IN ITA NO. 493/HYD/2015, DATED 22.07.2015 FOR AY: 2011-12. 4.4 WE HAVE HEARD BOTH THE RIVAL PARTIES AND PERUSE D MATERIAL ON RECORD INCLUDING CITED CASE LAW. THE ISSUE IN DISPUTE IS W ITH RESPECT TO GRANT OF WEIGHTED DEDUCTION @150% U/S 35(2AB) OF THE 1961 AC T WITH RESPECT TO RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY ASSES SEE. THE ASSESSEE HAS INCURRED R&D EXPENSES TO THE TUNE OF RS. 3,92,8 3,629/- AND CLAIMED WEIGHTED DEDUCTION @150% U/S 35(2AB) OF THE 1961 AC T . THE AO ITA NO.1466/CHNY/2009 :- 13 -: DISALLOWED EXCESS DEDUCTION CLAIMED BY THE ASSESSEE @50% WHICH LED TO DISALLOWANCE TO THE TUNE OF RS 1,96,41,815/-. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT PRODUCED EVIDENCE AS TO E XPENDITURE INCURRED IN IN-HOUSE R&D FACILITY APPROVED BY PRESCRIBED AUTHOR ITY I.E. SECRETARY, DSIR AND SECONDLY THE ASSESSEE HAS NOT ENTERED INTO AN AGREEMENT WITH PRESCRIBED AUTHORITY FOR CO-OPERATION AND FOR AUDIT OF ACCOUNTS OF FACILITY MAINTAINED FOR R&D WHICH IS APPROVED BY PRESCRIBED AUTHORITY AS IS MANDATED UNDER CLAUSE (3) TO SECTION 35(2AB) OF THE 1961 ACT. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FO R THE REASONS SPECIFIED IN ITS ORDER WHICH ARE ENUMERATED IN PARA 4.2 ABOVE . THUS, WE HAVE ELABORATELY ENUMERATED REASONS FOR TAKING DECISION FOR AND AGAINST THE ASSESSEE BY AUTHORITIES BELOW, WHICH ARE ENUMERATED IN PARA 4.1 AND 4.2 OF THIS ORDER. BEFORE WE PROCEED FURTHER, IT WILL B E PROFITABLE AT THIS STAGE TO REPRODUCE SECTION 35(2AB) OF THE 1961 ACT AS WAS IN STATUTE DURING RELEVANT PERIOD: [EXPENDITURE ON SCIENTIFIC RESEARCH. *** *** [(2AB)(1) WHERE A COMPANY ENGAGED IN THE BUSINESS O F [BIO- TECHNOLOGY OR IN THE BUSINESS OF] MANUFACTURE OR PR ODUCTION OF ANY DRUGS, PHARMACEUTICALS, ELECTRONIC EQUIPMENTS, COMP UTERS, TELECOMMUNICATION EQUIPMENTS, CHEMICALS OR ANY OTHE R ARTICLE OR THING NOTIFIED BY THE BOARD INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF CO ST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACI LITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE SHALL BE A LLOWED A DEDUCTION OF [A SUM EQUAL TO ONE AND ONE-HALF TIMES OF THE EX PENDITURE] SO INCURRED. [EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, EXP ENDITURE ON SCIENTIFIC RESEARCH, IN RELATION TO DRUGS AND PHAR MACEUTICALS, SHALL ITA NO.1466/CHNY/2009 :- 14 -: INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL , OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, ST ATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER TH E PATENTS ACT, 1970 (39 OF 1970).] (2) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN CLAUSE (1) UNDER ANY OTHER PROVISION O F THIS ACT. (3) NO COMPANY SHALL BE ENTITLED FOR DEDUCTION UNDE R CLAUSE (1) UNLESS IT ENTERS INTO AN AGREEMENT WITH THE PRE SCRIBED AUTHORITY FOR CO-OPERATION IN SUCH RESEARCH AND DEV ELOPMENT FACILITY AND FOR AUDIT OF THE ACCOUNTS MAINTAINED F OR THAT FACILITY. (4) THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPOR T IN RELATION TO THE APPROVAL OF THE SAID FACILITY TO THE DIRECTOR GENER AL IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED.] [(5) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF TH E EXPENDITURE REFERRED TO IN CLAUSE (1) WHICH IS INCURRED AFTER T HE 31ST DAY OF MARCH, [2005]. PROVISIONS OF SUB-SECTION 35(2AB) OF THE 1961 ACT W AS INSERTED BY FINANCE ACT, 1997, WEF 01.04.1998. NOTES ON CLAUSES TO FINANCE BILL, 1997 , WRT SECTION 35(2AB) STATES AS UNDER: ITA NO.1466/CHNY/2009 :- 15 -: AS WE COULD SEE THAT IN THE INSTANT CASE, THE SECR ETARY , DSIR VIDE ITS APPROVAL IN FORM NO. 3CM DATED 28.06.2000 HAS A PPROVED IN- HOUSE RESEARCH AND DEVELOPMENT FACILITY UNDER SUB-S ECTION 35(2AB) OF THE 1961 ACT. HOWEVER, IT IS AN ADMITTED POSITIO N THAT ASSESSEE HAS NOT ENTERED INTO AN AGREEMENT WITH PRESCRIBED A UTHORITY VIZ. SECRETARY , DSIR AS IS MANDATED UNDER CLAUSE(3) TO SUB-SECTION 35(2AB) OF THE 1961 ACT FOR CO-OPERATION IN SUCH R& D FACILITY AND AUDIT OF THE APPROVED R&D FACILITY AS IS MANDATED U NDER CLAUSE(3) TO SUB-SECTION 35(2AB) WHICH CLEARLY STIPULATES THAT N O DEDUCTION SHALL BE ALLOWED UNDER CLAUSE(1) TO SUB-SECTION 35(2AB) U NLESS THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH PRESCRI BED AUTHORITY VIZ. SECRETARY DSIR FOR CO-OPERATION AND FOR AUDIT OF THE ACCOUNTS OF ITA NO.1466/CHNY/2009 :- 16 -: THE APPROVED FACILITY MAINTAINED FOR R&D . THE ASSE SSEE HAS ADMITTEDLY NOT COMPLIED WITH CLAUSE(3) TO SUB-SECTI ON 35(2AB) AS NO SUCH AGREEMENT IS ENTERED INTO BY ASSESSEE WITH SEC RETARY, DSIR FOR CO-OPERATION AUDIT OF ACCOUNTS FOR IN-HOUSE APPROVE D FACILITY MAINTAINED FOR R&D. THE INTENT AND PURPOSE OF ENTER ING INTO AN AGREEMENT WITH PRESCRIBED AUTHORITY VIZ. SECRETARY, DSIR IS AVAILABLE ON WEBSITE OF CSIR I.E. ANUSANDHAN.NET, W HICH IS AS FOLLOWS: THE COMPANY SHOULD ENTER INTO AN AGREEMENT WITH TH E PRESCRIBED AUTHORITY (SECRETARY, DSIR) FOR CO-OPE RATION IN SUCH RESEARCH AND DEVELOPMENT FACILITY AND FOR AUDI T OF THE ACCOUNTS MAINTAINED FOR THAT FACILITY, AS PER FORMA T GIVEN IN PART B OF FORM 3CK. NOTE: THE WORD CO-OPERATION SHALL, INTER-ALIA, MEAN THAT THE FIRST PARTY SHALL BE WILLING TO UNDERTAKE PROJECTS OF NATIONAL IMPORTANCE, AS MAY BE ASSIGNED TO IT BY THE PRESCRI BED AUTHORITY, ON ITS OWN, OR IN ASSOCIATION WITH LABOR ATORIES OF CSIR, ICAR, ICMR, DRDO; DBT, DOE, M/O ENVIRONMENT, DOD, DAE, DEPARTMENT OF SPACE, UNIVERSITIES, COLLEGES OR ANY OTHER PUBLIC FUNDED INSTITUTION(S). THE FIRST PARTY WOULD BE FREE TO EXPLOIT THE RESULTS OF SUCH R&D PROJECTS, SUBJECT H OWEVER, TO ANY CONDITIONS WHICH MAY BE IMPOSED BY GOVERNMENT O F INDIA, IN VIEW OF NATIONAL SECURITY OR IN PUBLIC IN TEREST'. EVEN ON PERUSAL OF FORM NO. 3CK WHICH IS AN APPLICA TION FORM TO BE SUBMITTED FOR ENTERING INTO AN AGREEMENT WITH DSIR FOR CO-OPERATION IN IN-HOUSE R&D FACILITY AND FOR AUDIT OF THE ACCOUNTS MAINTAINED FOR THAT FACILITY WHICH AT PART B IS AN AGREEMENT TO BE SUBM ITTED BY THE APPLICANT WHICH IS TO BE COUNTERSIGNED BY SECRETARY, DSIR. TH E PURPOSE OF THIS AGREEMENT IS THAT THE APPLICANT IS WILLING TO UNDER TAKE PROJECTS OF NATIONAL IMPORTANCE, AS MAY BE ASSIGNED TO IT BY THE PRESCRI BED AUTHORITY OF ITS ITA NO.1466/CHNY/2009 :- 17 -: OWN , OR IN ASSOCIATION WITH LABORATORIES OF CSIR, ICAR, ICMR, DRDO, DBT, M/O ENVIRONMENT, DOD, DAE, DEPARTMENT OF SPACE , UN IVERSITIES , COLLEGES OR ANY OTHER PUBLIC FUNDED INSTITUTIONS AN D THE APPLICANT AGREES TO EXPLOIT THE RESULTS OF SUCH R&D SUBJECT TO CONDI TIONS AS MAY BE IMPOSED BY GOI, IN VIEW OF NATIONAL SECURITY OR IN PUBLIC I NTEREST. THE ASSESSEE HAS ADMITTEDLY NOT FULFILLED THIS CONDITION OF ENTERING INTO AN AGREEMENT WITH PRESCRIBED AUTHORITY ALTHOUGH ITS R & D FACILITIES WERE APPROVED BY SECRETARY DSIR VIDE APPROVAL GRANTED IN FORM NO. 3C M ON 28.06.2000 , VALID TILL 31.03.2003.. BUT, THE FACT REMAINS THAT THE ASSESSEE HAS NOT ENTERED INTO AN AGREEMENT WITH SECRETARY, DSIR AS I S PROVIDED UNDER CLAUSE (3) OF SUB-SECTION 35(2AB) OF THE 1961 ACT. THE ISSUE IS NO MORE RES-INTEGRA AS DEDUCTION/EXEMPTION PROVISIONS ARE T O BE STRICTLY CONSTRUED AS HELD BY CONSTITUTION BENCH OF HONBLE SUPREME CO URT IN THE CASE OF COMMISSIONER OF CUSTOMS( IMPORTS) V. DILIP KUMAR & COMPANY IN CIVIL APPEAL NUMBER 3327 OF 2007,DATED 30.07.2018 IS RELE VANT, WHEREIN HONBLE SUPREME COURT CONCLUDED AT PARA 52 , AS UND ER: 52. TO SUM UP, WE ANSWER THE REFERENCE HOLDING AS UNDER - (1) EXEMPTION NOTIFICATION SHOULD BE INTERPRETED STRICT LY; THE BURDEN OF PROVING APPLICABILITY WOULD BE ON TH E ASSESSEE TO SHOW THAT HIS CASE COMES WITHIN THE PARAMETERS OF THE EXEMPTION CLAUSE OR EXEMPTION NOTIFICATION. (2) WHEN THERE IS AMBIGUITY IN EXEMPTIO N NOTIFICATION WHICH IS SUBJECT TO STRICT INTERPRETATION , THE BENEFIT OF SUCH AMBIGUITY CANNOT BE CLAIMED BY THE SUBJECT/ASSESSEE AND IT MUST BE INTERPRETED IN FAVOUR OF THE REVENUE . ITA NO.1466/CHNY/2009 :- 18 -: (3) THE RATIO IN SUN EXPORT CASE (SUPRA) IS NOT CORRECT AND ALL THE DECISIONS WHICH TOOK SIMILAR VIEW AS IN SUN EXPORT CASE (SUPRA) STANDS OVER-RULED.: FURTHER, DECISION OF HONBLE SUPREME COURT IN THE C ASE OF JOSHI TECHNOLOGIES INTERNATIONAL INC. V. UOI REPORTED IN (2015) 374 ITR 322(SC) IS RELEVANT WHEREIN THE TAX-PAYER ENTERED INTO AN P RODUCTION SHARING CONTRACT(PSC) WITH UNION OF INDIA THROUGH MINISTRY OF PETROLEUM AND NATURAL GAS FOR EXPLOITATION OF CERTAIN OILFIELDS B UT CLAUSE AS TO SPECIAL ALLOWANCE UNDER SECTION 42 OF THE 1961 ACT WAS NOT INCORPORATED IN PRODUCTION SHARING CONTRACT ENTERED BY TAX-PAYER WI TH UNION OF INDIA THROUGH MINISTRY OF PETROLEUM AND NATURAL GAS ALTHO UGH TAX-PAYER ACTED ON UNDERSTANDING THAT SUCH A BENEFIT WOULD BE GIVEN TO IT , UNDER THESE CIRCUMSTANCES THE HONBLE SUPREME COURT DECLINED T O GIVE BENEFIT OF SPECIAL ALLOWANCE U/S 42 OF THE 1961 ACT TO THE TAX PAYER, WHEREIN HONBLE SUPREME COURT HELD AT PARA 71-72, AS UNDER:- 71. AS POINTED OUT EARLIER AS WELL, THE CONTRACT I N QUESTION WAS SIGNED AFTER THE APPROVAL OF CABINET WAS OBTAINED. IN THE SAID CONTRACT, THERE WAS NO CLAUSE PERTAINING TO SECTION 42 OF THE ACT. THE APPELLANT IS PRESUMED TO HAVE KNOWLEDGE OF THE LEGAL PROVISION, NAMELY, IN THE ABSENCE OF SUCH A CLAUSE, SPECIAL AL LOWANCES UNDER SECTION 42 WOULD BE IMPERMISSIBLE. STILL IT SIGNED THE CONTRACT WITHOUT SUCH A CLAUSE, WITH OPEN EYES. NO DOUBT, TH E APPELLANT CLAIMED THESE DEDUCTIONS IN ITS INCOME TAX RETURNS AND IT WAS EVEN ALLOWED THESE DEDUCTIONS BY THE INCOME TAX AUTHORIT IES. FURTHER, NO DOUBT, ON THIS PREMISE, IT SHARED THE PROFITS WITH THE GOVERNMENT AS WELL. HOWEVER, THIS CONDUCT OF THE APPELLANT OR EVE N THE RESPONDENTS, WAS OUTSIDE THE SCOPE OF THE CONTRACT AND THAT BY ITSELF MAY NOT GIVE ANY RIGHT TO THE APPELLANT TO CLAIM A RELIEF IN THE NATURE OF MANDAMUS TO DIRECT THE GOVERNMENT TO INCORPORATE SUCH A CLAUSE IN THE CONTRACT, IN THE FACE OF THE SPECIFIC PROVIS IONS IN THE CONTRACT TO THE CONTRARY AS NOTED ABOVE, PARTICULARLY, ARTIC LE 32 THEREOF. IT WAS PURELY A CONTRACTUAL MATTER WITH NO ELEMENT OF PUBLIC LAW INVOLVED THEREUNDER. ITA NO.1466/CHNY/2009 :- 19 -: 72. HAVING CONSIDERED THE MATTER IN THE AFORESAID P ROSPECTIVE, WE COME TO THE IRRESISTIBLE CONCLUSION THAT THE APPELL ANT IS NOT ENTITLED TO THE RELIEF CLAIMED. THOUGH IT MAY BE SOMEWHAT HA RSH ON THE APPELLANT WHEN IT AVAILED THE BENEFIT OF SECTION 42 FOR FEW YEARS AND ACTED ON THE UNDERSTANDING THAT SUCH A BENEFIT WOUL D BE GIVEN TO IT, BUT WE HAVE NO OPTION BUT TO HOLD THAT PSCS DID NOT PROVIDE FOR THIS BENEFIT TO BE GIVEN TO THE APPELLANT AND THE CONTRA CT CAN BE AMENDED ONLY IF BOTH THE PARTIES AGREE TO DO SO, AN D NOT OTHERWISE. THEREFORE, WE ARE CONSTRAINED TO DISMISS THE APPEAL FOR THE REASONS GIVEN ABOVE. SINCE, WE HAVE REFERRED TO AFORESAID TWO DECISION O F HONBLE SUPREME COURT WHICH IN OUR CONSIDERED VIEW . RATIO OF THESE TWO DECISION HAS DIRECT BEARING ON OUTCOME OF THIS APPEAL, IT WILL NOT BE N OW RELEVANT TO REFER TO THE DECISION OF HYDERABAD-TRIBUNAL IN THE CASE OF D CIT V. SRI BIOTECH LABORATORIES IN ITA NO. 493/HYD/2015 FOR AY: 2001-1 2, DATED 22.07.2015 RELIED UPON BY ASSESSEE. THUS BASED ON OUR DETAILED DISCUSSIONS AS ABOVE KEEPING IN VIEW FACTUAL MATRIX OF THE CASE, AND IN THE ABSENCE OF AN AGREEMENT BEING ENTERED INTO BY ASSESSEE WITH PRESC RIBED AUTHORITY VIZ. SECRETARY, DSIR FOR CO-OPERATION IN SUCH R & D FACI LITY AND FOR AUDIT OF ACCOUNTS , AS IS PROVIDED UNDER CLAUSE (3) TO SUB-S ECTION 35(2AB) OF THE 1961 ACT, THE ASSESSEE WILL NOT BE ENTITLED FOR DED UCTION U/S 35(2AB) OF THE 1961 ACT. THUS, WE DECIDE THIS ISSUE AGAINST TH E ASSESSEE ON THIS SHORT GROUND ONLY. THE AO HAS GIVEN A CLEAR AND POS ITIVE FINDING THAT NO EVIDENCE OF EXPENDITURE INCURRED ON IN-HOUSE R&D FA CILITY IS SUBMITTED BY ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S. THE LEARNED CIT(A) HAS NOT DEALT WITH THIS ISSUE AT ALL. BEFORE US, THE ASSESSEE HAS FILED AN AUDIT REPORT DATED 21.10.2003 ISSUED BY M/ S SAMBAMOORTHI & COMPANY, CHARTERED ACCOUNTANTS, 463/1, III MAIN RO AD, VIDYA NAGAR, ITA NO.1466/CHNY/2009 :- 20 -: VELACHERY, CHENNAI-600042 AND ASSESSEE HAS ALSO FI LED FORM NO. 3CL , WHEREIN TOTAL EXPENDITURE STATED TO BE INCURRED BY ASSESSEE ON IN-HOUSE R&D FACILITY FOR PREVIOUS YEAR 2002-03 RELEVANT TO AY: 2003-04 IN ITS INHOUSE R&D FACILITY MAINTAINED AT PHARMACEUTICAL D IVISION LOCATED AT MARAIMALAI NAGAR WHICH IS APPROVED FOR PURPOSES OF SUB-SECTION 35(2AB) BY PRESCRIBED AUTHORITY ( SECRETARY , DSIR) IS STAT ED TO BE RS. 205.43 LACS. THUS , FIRSTLY THE TOTAL EXPENSES ON IN-HOUS E R&D IS RS. 205.43 LACS AS CERTIFIED BY AUDITORS AND NOT RS. 392.83 LACS AS CLAIMED BY ASSESSEE FOR CLAIMING WEIGHTED DEDUCTION U/S 35(2AB) AND SECONDL Y, AS PER FACTS EMERGING FROM RECORDS, THE AO HAS GIVEN POSITIVE FI NDING THAT DETAILS OF EXPENDITURE INCURRED FOR IN-HOUSE R&D ARE NOT FILED AND THIRDLY, THE LEARNED CIT(A) DID NOT DEALT WITH THIS ISSUE AT ALL . THUS, LEARNED CIT(A) ORDER COULD NOT BE SUSTAINED ON THIS GROUND AS THER E IS NO FINDING ON THIS ISSUE AND IN ANY CASE IF WEIGHTED DEDUCTION IS TO B E ALLOWED TO ASSESSEE U/S 35(2AB) OF THE 1961 ACT, THEN ONLY AN AMOUNT OF RS. 205.43 LACS WILL BE ELIGIBLE FOR WEIGHTED DEDUCTION U/S 35(2AB). AS PER FACTS EMERGING FROM RECORDS, THE AO HAS GIVEN CLEAR AND POSITIVE F INDING THAT EVIDENCES IN SUPPORT OF EXPENSES INCURRED ON IN-HOUSE APPROVED R &D FACILITY ARE NOT SUBMITTED BY ASSESSEE DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND THERE IS NO FINDINGS ON THIS ISSUE BY LEARNED CIT(A ) BUT WE HAVE ALREADY HELD THAT NO DEDUCTION U/S 35(2AB) OF THE 1961 ACT CAN BE ALLOWED TO ASSESSEE ON THIS SHORT GROUND OF NON ENTERING INTO AN AGREEMENT FOR CO- OPERATION WITH SECRETARY, DSIR AND FOR AUDIT OF ACC OUNTS OF APPROVED R&D FACILITY AS HELD BY US IN THIS ORDER AND IN CASE IF AT ANY STAGE OUR ABOVE ITA NO.1466/CHNY/2009 :- 21 -: DECISION IS OVER-RULED BY HONBLE SUPERIOR COURTS O N THAT COUNT, THEN THE MATTER SHALL BE REMITTED BACK TO THE FILE OF THE AO FOR DENOVO ADJUDICATION FOR VERIFYING THE ELIGIBLE EXPENDITURE SPENT BY ASS ESSEE ON ITS APPROVED IN- HOUSE R&D FACILITY FOR COMPUTING WEIGHTED DEDUCTION U/S 35(2AB) OF THE 1961 ACT , AFTER CONSIDERING ALL THE EVIDENCES/EXPL ANATIONS WHICH THE ASSESSEE MAY LIKE TO RELY IN ITS DEFENSE AND AFTER GIVING PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W . WE ORDER ACCORDINGLY. 5.1 THE LAST ISSUE VIDE GROUND NUMBER 4.1 AND 4.2 R AISED BY REVENUE IN MEMO OF APPEAL FILED WITH TRIBUNAL RELATES TO DECIS ION OF LEARNED CIT(A) IN DELETING DISALLOWANCE OF PROPORTIONATE INTEREST EXP ENDITURE ON INTEREST FREE ADVANCES MADE BY ASSESSEE TO ITS GROUP CONCERNS WHI CH WERE STATED BY AO TO BE MADE OUT OF INTEREST BEARING FUNDS AND TH E AO HAS DISALLOWED PROPORTIONATE INTEREST EXPENSES AS THE ASSESSEE HAS FAILED TO PROVE COMMERCIAL EXPEDIENCY IN GRANTING THESE INTEREST FR EE ADVANCES TO GROUP COMPANIES. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS MADE INTEREST FREE A DVANCES TO FOLLOWING ENTITIES: A) ADVANCE AGAINST EQUITY PAID TO SPIC FERTILIZERS AND CHEMICALS : RS. 8259.8 7 LACS FZE, DUBAI B) NATIONAL AROMATICS AND PETROCHEMICALS CORPORATION(ASSOCIATED : RS. 1547. 09 LACS COMPANY) C) TUTICORIN ALKALI CHEMICALS & FERTILIZERS : RS. 1000 LACS ITA NO.1466/CHNY/2009 :- 22 -: LTD. D) SPIC PETROCHEMICALS LIMITED-ADVANCE : RS. 3020 4.72 LACS AGAINST EQUITY THE AO OBSERVED THAT THE ASSESSEE HAS ALTHOUGH CONT ENDED THAT AFORESAID LOANS WERE ADVANCED IN EARLIER PERIOD OUT OF INTERN AL CASH AVAILABLE I.E. INTEREST FREE FUNDS AVAILABLE WITH IT BUT THE AO OB SERVED THAT PERUSAL OF THE AUDITED FINANCIAL STATEMENTS WILL REVEAL THAT T HE ASSESSEES INTEREST FREE FUNDS ARE REPLACED BY INTEREST BEARING FUNDS W HICH HAVE LED TO HUGE INTEREST LIABILITY OF RS. 17,802.68 LACS AND NO TAN GIBLE BENEFIT HAS ACCRUED TO THE ASSESSEE FROM THESE HUGE ADVANCES/INVESTMENT S MADE BY ASSESSEE COMPANY TO THESE ENTITIES, WHICH LED AO TO DISALLOW PROPORTIONATE INTEREST EXPENSES VIDE ASSESSMENT ORDER DATED 30.03.2006 PAS SED BY THE AO U/S 143(3) OF THE 1961 ACT. THE AO OBSERVED FROM THE AU DITED BALANCE SHEET AS AT 31.03.2003 THAT THE SHARE CAPITAL AND RESERVE S ARE TO THE TUNE OF RS. 1125.70 CRORES WHICH HAS BEEN MOSTLY INVESTED FOR A CQUIRING FIXED ASSETS, CAPITAL WIP, INVENTORIES, SUNDRY DEBTORS, CASH AND BANK BALANCES, INVESTMENTS IN SHARES ETC. . THE AO OBSERVED THAT T HERE ARE LOANS RAISED BY ASSESSEE TO THE TUNE OF RS. 2317.03 CRORES ON WH ICH INTEREST IS PAID WHILE TOTAL AMOUNT ADVANCED TO SUBSIDIARIES, ASSOCI ATES AND GROUP CONCERNS IS TO THE TUNE OF RS. 410.12 CRORES AND IN TEREST LIABILITY INCURRED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS RS. 178.02 CRORES, WHICH LED TO PROPORTIONATE DISALLOWANCE OF INTEREST EXPENSES TO THE TUNE OF RS. 31.51 CRORES AS BEING INCURRED NOT FOR THE PURP OSES OF BUSINESS U/S ITA NO.1466/CHNY/2009 :- 23 -: 37(1) OF THE 1961 ACT, VIDE ASSESSMENT ORDER DATED 30.03.2006 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. 5.2 AGGRIEVED BY AN ASSESSMENT FRAMED BY THE AO U/S 143(3) OF THE 1961 ACT, THE ASSESSEE FILED FIRST APPEAL WITH LEARNED C IT(A) WHO WAS PLEASED TO ALLOW APPEAL OF THE ASSESSEE , VIDE APPELLATE ORDER DATED 25.07.2008 PASSED BY LEARNED CIT(A) , BY HOLDING AS UNDER: 11. THE NEXT GROUND OF APPEAL RELATES TO DISALLOWAN CE OF PROPORTIONATE INTEREST RELATABLE TO INTEREST FREE A DVANCES TO GROUP COMPANIES. THE JURISDICTIONAL TRIBUNAL, IN THE ASSE SSEES OWN CASE, HAD OCCASION TO CONSIDER THE NATURE OF SUCH ADVANCE S AND IN ITS ORDER REPORTED IN SPIC V. DCIT(93 TTJ 161) , AS ALS O IN ITS ORDER FOR ASSESSMENT YEAR 2000-01 IN ITA NO. 2252/MDS/2003 DA TED 20-10- 2004 HAD HELD THAT THE CONCERNED SISTER CONCERNS WE RE OPERATING IN THE SAME FIELD AND THERE WAS A CLOSE NEXUS BETWEEN THE RAW MATERIALS AND FINISHED PRODUCTS OF THE ASSESSEE COM PANY AND ITS SUBSIDIARIES TO WHOM ADVANCES HAS BEEN GRANTED. INT EREST HAD NOT BEEN CHARGED BY THE ASSESSEE COMPANY IN VIEW OF THE FINANCIAL CONDITION OF THOSE SUBSIDIARIES , BUT THE AMOUNTS H AD BEEN ADVANCED TO THEM FOR EXPANSION OF THE ASSESSEE COMPANYS BUS INESS OPERATIONS. THUS, THE ITAT, WHICH IS THE HIGHEST FA CT FINDING AUTHORITY, HAS ARRIVED AT THE CONCLUSION THAT THERE WAS A DEFINITE BUSINESS EXPEDIENCY FOR GRANTING SUCH INTEREST FRE E ADVANCES BY THE ASSESSEE COMPANY. THAT BEING THE CASE, THE DECISION OF THE APEX COURT IN THE CASE OF S.A. BUILDERS V. CIT(288 ITR 1 ) WOULD COME INTO OPERATION AND NO DISALLOWANCE OF PROPORTIONATE INTE REST WAS CALLED FOR ON THE FACTS OF THE PRESENT CASE.. APPEAL FILED BY THE ASSESSEE COMPANY ON THIS GROUND IS HEREBY ALLOWED. 5.3 AGGRIEVED WITH THE AFORESAID DECISION OF LEARNE D CIT(A), THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL AND HAS RAI SED GROUND NUMBER 4.1 AND 4.2 TO THAT EFFECT. THE LEARNED CIT-DR SUPPORTE D ASSESSMENT ORDER PASSED BY THE AO. THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE CHENNAI-TRIBUNAL IN THE CASE OF ASSESSEE HAS AL LOWED INTEREST EXPENSES IN THE CASE OF LOANS ADVANCED TO SPIC FERTILIZER AN D CHEMICALS FZE, DUBAI VIDE ORDERS IN ITA NO. 2252/MDS/2003 ( (2004) 23 CC H 0635(CHEN-TRIB.) ; ITA NO.1466/CHNY/2009 :- 24 -: (2005) 93 TTJ 0161(CHEN-TRIB.) FOR AY: 2000-01, VID E ORDERS DATED 20.10.2004. OUR ATTENTION WAS DRAWN TO ORDER GIVING EFFECT TO ITAT ORDER PASSED BY AO FOR AY: 1997-98 TO 1999-00, DATED 04.0 6.2007 WHEREIN THE AO HAS , INTER-ALIA, ALLOWED INTEREST EXPENSES. THE LEARNED CIT-DR IN REBUTTAL SUBMITTED THAT LEARNED COUNSEL FOR THE ASS ESSEE IS BRINGING NEW FACTS BEFORE ITAT WHICH REQUIRES VERIFICATION BY TH E AO. IT WAS SUBMITTED THAT THERE WAS CHANGE IN THE NATURE OF ADVANCES SIN CE 2000-01 AND HENCE RE-EXAMINATION IS REQUIRED BY THE AO. 5.4 WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. WE HAVE OBSERVED THAT ASSESSEE HAS MADE INTEREST FREE ADVANCES TO FOLLOWING ENTITIES: A) ADVANCE AGAINST EQUITY PAID TO SPIC FERTILIZERS AND CHEMICALS : RS. 8259.8 7 LACS FZE, DUBAI B) NATIONAL AROMATICS AND PETROCHEMICALS CORPORATION(ASSOCIATED : RS. 1547. 09 LACS COMPANY) C) TUTICORIN ALKALI CHEMICALS & FERTILIZERS : RS. 1000 LACS LTD. D) SPIC PETROCHEMICALS LIMITED-ADVANCE : RS. 3020 4.72 LACS AGAINST EQUITY WE HAVE OBSERVED FROM AUDITED BALANCE SHEET OF THE ASSESSEE AS AT 31.03.2003 EXTRACTED BY THE AO IN ITS ASSESSMENT OR DER THAT TOTAL INTEREST BEARING LOANS BOTH SECURED AND UNSECURED RAISED BY THE ASSESSEE AS AT 31.03.2003 WERE TO THE TUNE OF RS. 2317.03 CORES AN D ASSESSEE HAS CLAIMED AN INTEREST EXPENSES TO THE TUNE OF RS. 178 .02 CRORES AS REVENUE EXPENSES DURING THE YEAR UNDER CONSIDERATION. WE HA VE OBSERVED THAT AO ITA NO.1466/CHNY/2009 :- 25 -: HAS DISALLOWED PROPORTIONATE INTEREST EXPENSES WRT TO INTEREST FREE ADVANCES MADE BY ASSESSEE TO ITS GROUP ENTITIES AS THE CLAIM OF THE ASSESSEE THAT LOANS WERE ADVANCED IN EARLIER YEARS OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS NOT ACCEPTED BY THE AO AS IN THE OPINION OF THE AO, THE INTEREST FREE FUNDS WERE RE PLACED BY INTEREST BEARING BORROWINGS MADE BY THE ASSESSEE WHICH LED T O HUGE INTEREST LIABILITY OF RS. 178.02 CRORES. THE AO ALSO OBSERVE D THAT NO BUSINESS ADVANTAGE HAS ACCRUED TO THE ASSESSEE BY MAKING THE SE INTEREST FREE ADVANCES TO THESE ENTITIES AND INDIRECT ADVANTAGES MAY ACCRUE TO ASSESSEE OWING TO THESE INTEREST FREE ADVANCES BUT ON THAT COUNT IT CANNOT BE SAID THAT ENTIRE INTEREST EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AN D HENCE THE AO DISALLOWED PROPORTIONATE INTEREST EXPENSES TO THE TUNE OF RS. 3151.15 LACS. THE LEARNED CIT(A) HAS PASSED AN CRYPTIC ORDE R ALLOWING ENTIRE PROPORTIONATE INTEREST EXPENSES TO THE EXTENT OF RS . 3151.15 LACS WHICH WAS EARLIER DISALLOWED BY AO AND IN OUR CONSIDERED VIEW, THIS APPELLATE ORDER PASSED BY LEARNED CIT(A)CANNOT BE SUSTAINED F OR MANY REASONS .THE LEARNED CIT(A) HAS DELETED THE ADDITIONS MADE BY A O MAINLY BY FOLLOWING THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR AY : 2000-01 IN ITA NO. 2252/MDS/2003 DATED 20.10.2004. THE LEARNED CIT(A) ALSO REFERRED TO ANOTHER DECISION OF CHENNAI TRIBUNAL IN ASSESSEES OWN CASE REPORTED IN 93 TTJ 161 BUT INCIDENTALLY THIS DECISION IS THE SAME DECISION IN ITA NO. 2252/MDS/2003 DATED 20.10.2004 PASSED BY CHENNAI-TR IBUNAL FOR AY: 2000-01. THIS ALSO INDICATE NON APPLICATION OF MIND BY LEARNED CIT(A) ITA NO.1466/CHNY/2009 :- 26 -: WHILE PASSING CRYPTIC ORDER DATED 25.07.2008 ON THI S ISSUE . COMING BACK, THE LEARNED CIT(A) HAS DELETED THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES MADE BY THE AO BY MAINLY FOLLOWING THE AFO RESAID DECISION OF CHENNAI-TRIBUNAL FOR AY: 2000-01 IN ASSESSEES OWN CASE. IT IS OBSERVED THAT CHENNAI-TRIBUNAL WHILE ADJUDICATING DISALLOWAN CE OF PROPORTIONATE INTEREST EXPENSES WITH RESPECT TO INTEREST FREE ADV ANCES MADE BY THE ASSESSEE WAS SEIZED OF INTEREST FREE ADVANCES MADE BY ASSESSEE TO ONLY TWO ENTITIES NAMELY M/S INDO-JORDAN CHEMICALS CO. L TD., JORDAN AND M/S SPIC FERTILIZERS & CHEMICALS , FZE, DUBAI. FOR OUR PURPOSES, WE ARE NOT PRESENTLY SEIZED OF M/S INDO-JORDAN CHEMICALS CO. L IMITED. THUS, ONLY ONE COMPANY TO WHICH ASSESSEE GAVE INTEREST FREE ADVAN CES, NAMELY SPIC FERTILIZERS AND CHEMICALS FZE, DUBAI WAS BEFORE CHE NNAI-TRIBUNAL WHILE ADJUDICATING APPEAL FOR AY: 2000-01 , WHICH COMPANY NAMELY SPIC FERTILIZERS AND CHEMICALS FZE, DUBAI IS ALSO BEFORE US WHILE ADJUDICATING APPEAL FOR IMPUGNED AY: 2003-04. WE HAVE OBSERVED T HAT LEARNED CIT(A) HAS MERELY FOLLOWED THE APPELLATE ORDER PASSED BY C HENNAI-TRIBUNAL FOR AY: 2000-01 AND HAS DELETED DISALLOWANCE OF PROPORT IONATE INTEREST EXPENSES WITH RESPECT TO INTEREST FREE ADVANCES MAD E BY ASSESSEE TO FOUR ENTITIES NAMELY (I) SPIC FERTILIZERS & CHEMICALS FZ E, DUBAI ,(B) NATIONAL AROMATICS AND PETROCHEMICALS CORPORATION , (C) TUTI CORIN ALKALI CHEMICALS & FERTILIZERS LIMITED AND (D) SPIC PETROCHEMICALS L IMITED. THERE IS NO DISCUSSION AND REASONING GIVEN BY LEARNED CIT(A) IN ITS APPELLATE ORDER AS TO HOW THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES WITH RESPECT TO THE ALL THESE AFORESAID THREE ENTITIES WHICH WER E NOT BEFORE CHENNAI- ITA NO.1466/CHNY/2009 :- 27 -: TRIBUNAL WHILE ADJUDICATING APPEAL FOR AY: 2000-01 WAS TO BE DELETED. THE APPELLATE ORDER PASSED BY LEARNED CIT(A) IS NOT A S PEAKING AND REASONED ORDER. THE CHENNAI-TRIBUNAL WHILE ADJUDICATING ON T HIS ISSUE OF ALLOWABILITY OF PROPORTIONATE INTEREST EXPENSES WRT INTEREST FRE E ADVANCES MADE BY ASSESSEE TO SPIC FERTILIZERS AND CHEMICALS FZE, DUB AI IN ITA NO. 2252/MDS/2003 VIDE ORDERS DATED 20.10.2004 FOR AY: 2000-01 HAS OBSERVED THAT THE CONTENTIONS OF THE ASSESSEE ARE T WO FOLD , FIRSTLY THAT THE ASSESSEE HAD NOT BORROWED ANY MONEY FOR BEING INVES TED IN THE SHARES OF THE INVESTEE COMPANY , WHICH ISSUE WAS RESTORED BY TRIBUNAL TO THE FILE OF THE AO TO FIND OUT WHETHER ANY BORROWED FUNDS WERE USED BY THE ASSESSEE FOR BEING INVESTED IN THE SHARES OF THE INVESTEE CO MPANY , WHILE SECOND CONTENTION OF THE ASSESSEE WAS ACCEPTED THAT THE FU NDS WERE INVESTED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE TO PRODUCE RAW MATERIAL REQUIRED BY THE ASSESSEE. THE ASSESSEE HAS NOT FILED BEFORE US ORDER PASSED BY THE AO WHILE GIVING EFFECT TO ORDER PASSED BY ITAT FO R AY: 2000-01. HOWEVER, THE ASSESSEE HAS FILED AN ORDER PASSED BY AO WHILE GIVING EFFECT TO ORDER PASSED BY ITAT FOR EARLIER YEARS VIZ. AY: 1997-98 TO 1999-00, DATED 04.06.2007 DELETING DISALLOWANCE OF PROPORTIO NATE INTEREST EXPENSES WITH RESPECT TO INTEREST FREE ADVANCES MADE BY ASSE SSEE TO THREE ENTITIES NAMELY (A) INDO JORDAN CHEMICALS COMPANY LIMITED, ( B) SPIC FERTILIZERS AND CHEMICALS FZE, DUBAI AND (C) SPIC PETROCHEMICAL S LIMITED. THE AO HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE WHILE GIVING EFFECT TO THE TRIBUNALS ORDER AND ALLOWED RELIEF TO THE ASSESSEE BUT THERE IS NO FINDING BY AO ON UTILIZATION OF INTEREST FREE FUNDS FOR GRA NT OF THESE INTEREST FREE ITA NO.1466/CHNY/2009 :- 28 -: ADVANCES, AS DIRECTED BY THE TRIBUNAL IN ITS ORDER . PRESENTLY, WE ARE NOT CONCERNED WITH INTEREST FREE ADVANCES MADE TO INDO JORDAN CHEMICALS COMPANY LIMITED, BUT HOWEVER WE ARE SEIZED WITH OTH ER TWO ENTITIES IN THIS APPEAL NAMELY SPIC FERTILIZERS AND CHEMICALS F ZE, DUBAI AND SPIC PETROCHEMICALS LIMITED. THERE IS FINDING BY THE AO IN ASSESSMENT ORDER FOR IMPUGNED AY THAT INTEREST FREE ADVANCES WERE REPLAC ED BY INTEREST BEARING FUNDS. IT WILL NOT BE OUT OF PLACE TO REFER TO RECE NT DECISION OF CHENNAI- TRIBUNAL IN ASSESSEES OWN CASE FOR AY: 2003-04 IN ITA NO. 937/CHNY/2008, DATED 12.12.2019 WHEREIN REVISIONARY ORDER PASSED BY LEARNED COMMISSIONER OF INCOME-TAX U/S 263 OF THE 1 961 ACT WAS UPHELD BY TRIBUNAL. BOTH OF US WERE PART OF THE DIVISION B ENCH WHO PRONOUNCED THE SAID ORDER DATED 12.12.2019. IN THE SAID ORDER DATED 12.12.2019 PASSED BY TRIBUNAL , IT WAS OBSERVED BY TRIBUNAL TH AT THE ASSESSEE HAS ISSUED FLOATING RATE NOTES(FRN) TO THE TUNE OF US $ 120 MILLION IN THE YEAR 1996 WHICH WERE DUE FOR REPAYMENT/MATURITY IN 2003. THESE FRNS WERE DENOMINATED IN FOREIGN CURRENCY CARRYING INTER EST AND THE ASSESSEE HAD INCURRED INTEREST EXPENSES AS WELL LOSS ON FORE IGN EXCHANGE FLUCTUATIONS ON THESE FRNS. IT WAS ALSO OBSERVED B Y TRIBUNAL THAT SAID FRNS WERE ISSUED FOR FINANCING THE IMPORT INTO IND IA OF CAPITAL GOODS FOR ITS OPERATIONS AND PROJECTS IN WHICH THE ASSESSEE I S INVOLVED AND FOR GENERAL CORPORATE PURPOSES PERMITTED BY GOVERNMENT OF INDIA, WHICH IS STATED IN THE OFFER DOCUMENT ISSUED BY ASSESSEE. IT IS ALSO OBSERVED THAT CHENNAI-TRIBUNAL IN A DECISION RENDERED ON 27.12.20 16 IN ASSESSEES OWN CASE FOR AY: 2009-10 IN ITA NO. 1821/MDS/2004( OF W HICH ONE OF US BEING ITA NO.1466/CHNY/2009 :- 29 -: HONBLE JUDICIAL MEMBER WAS PART OF DIVISION BENCH WHO PRONOUNCED THAT ORDER) HAS REMITTED THE MATTER BACK TO THE AO FOR F RESH ADJUDICATION AS TO ALLOWABILITY OF PROPORTIONATE INTEREST EXPENSES WRT INTEREST FREE ADVANCES MADE TO ASSOCIATED COMPANIES, BY HOLDING AS UNDER: 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT INTEREST FREE FUNDS WERE DIVERTED TO TH E COMPANIES AT DUBAI AND JORDON. THE ASSESSEE ALSO CLAIMS THAT THE Y ARE SISTER CONCERNS OF THE ASSESSEE. HOWEVER, THE SHAREHOLDING PATTERN OF SO- CALLED COMPANIES AT DUBAI AND JORDON ARE NOT AVAILA BLE ON RECORD. THEREFORE, IT IS NOT KNOWN HOW THE ASSESSEE CLAIMS THAT THE ADVANCES WERE MADE TO SISTER CONCERNS. MOREOVER, TH E BALANCE SHEET AND OTHER FINANCIAL DOCUMENTS WERE NOT AVAILA BLE ON RECORD. THEREFORE, IT IS NOT KNOWN WHETHER THE ASSESSEE HAS ADVANCED FUNDS OUT OF INTEREST FREE FUNDS OR BORROWED FUNDS. IT IS NOT IN DISPUTE THAT THE ASSESSEE BORROWED FUNDS FOR BUSINESS PURPOSE AN D THE SAME REMAIN OUTSTANDING DURING THE YEAR UNDER CONSIDERAT ION. THEREFORE, WE HAVE TO EXAMINE HOW MUCH FUNDS WERE BORROWED AND WHETHER THERE WAS ANY NEXUS BETWEEN BORROWED FUNDS AND INVE STMENT MADE IN DUBAI AND JORDON. THE SHAREHOLDING PATTERN OF TH OSE COMPANIES IS ALSO NOT KNOWN. SINCE THESE FACTS WERE NOT AVAILABL E ON RECORD AND THE SAME WERE ALSO NOT EXAMINED BY EARLIER BENCH OF THIS TRIBUNAL DURING THE ASSESSMENT YEAR 2000-01, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE REEX AMINED. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW AR E SET ASIDE AND DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES ON THE ADVANCE MADE TO GROUP COMPANIES ARE REMITTED BACK TO THE FI LE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-E XAMINE THE MATTER AFRESH AND BRING ON RECORD THE SHAREHOLDING PATTERN OF THE 12 I.T.A. NO.1418 & 1821/MDS/14 COMPANIES AT DUBAI AND JORDON AND HOW MUCH ADVANCES WERE MADE AND ALSO FIND OUT WHETHER T HE INCOME FROM THE GROUP COMPANIES IN WHICH ADVANCES WERE MAD E, IS TAXABLE IN INDIA, AND THE OBJECT FOR WHICH THE MONEY WAS AD VANCED AND UTILIZATION OF FUNDS BY THE COMPANIES WHICH RECEIVE D THE FUNDS FROM THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACC ORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESS EE. THE CHENNAI-TRIBUNAL WHILE ADJUDICATING THE ISSUE O F DISALLOWANCE U/S 14A OF THE 1961 ACT READ WITH RULE 8D OF THE 1962 RULE IN ASSESSEES APPEAL ITA NO.1466/CHNY/2009 :- 30 -: FOR AY: 2009-10 IN ITA NO. 1418/MDS/2014 VIDE ORDER S DATED 27.12.2016( COMMON ORDER WITH ITA NO. 1821/MDS/2014) HAD MADE FOLLOWING OBSERVATIONS WHICH ARE RELEVANT AS TO DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES ON INTEREST FREE ADVANCES MADE BY ASSESSEE TO ITS ASSOCIATED CONCERNS, WHEREIN TRIBUNAL HELD AS UNDER : 8. FOR THE ASSESSMENT YEAR 2000-01, THIS TRIBUNAL IN I.T.A. NO.2252/MDS/2003 EXAMINED THIS ISSUE AND REMANDED B ACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR RE- EXAMINATION. THE ASSESSEE HAS PRODUCED A COPY OF THE ORDER OF THIS T RIBUNAL FOR THE ASSESSMENT YEAR 2000-01. FOR THE ASSESSMENT YEAR 20 00-01, THE ASSESSEE CLAIMED BEFORE THIS TRIBUNAL THAT INVESTME NT WAS MADE IN THE COMPANY WHICH PRODUCES THE BASIC RAW MATERIAL R EQUIRED BY THE ASSESSEE. ON A QUERY FROM THE BENCH, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT RAW MATERIAL WAS NOT SUPPLI ED AT FREE OF COST. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAD PURCHASED RAW MATERIAL AT SUBSIDIZED PRICE OR COST. MOREOVER, INCOME OF THE COMPANIES, WHICH ARE OUTSIDE INDIA, W AS NOT TAXABLE IN THE HANDS OF THE ASSESSEE IN INDIA. ALL THESE FA CTS ARE NOT BROUGHT TO THE NOTICE OF THE EARLIER BENCH WHICH DECIDED TH E CASE. WHEN THE INCOME OF THE ASSESSEE WAS FROM THE COMPANIES WHICH SITUATED OUTSIDE INDIA AND THE ASSESSEE CLAIMS THAT THE MONE Y WAS INVESTED IN OTHER COMPANIES, WHICH ARE SAID TO BE SUBSIDIARY COMPANIES, WHY THE EXPENDITURE INCURRED BY THE ASSESSEE SHOULD NOT BE DISALLOWED WAS NOT EXAMINED BY THIS TRIBUNAL FOR ASSESSMENT YE AR 2000-01. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS O F BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE IS RE MITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL RE-EXAMINE THE MATTER AFRESH AND BRING ON RECORD SHAREHOLDING PATTERN OF THE COMPANIES IN WHICH THE INVESTMENT WAS MADE BY THE A SSESSEE AND HOW THE COMPANIES OUTSIDE INDIA ARE SUBSIDIARY COMP ANIES OF THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDA NCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESS EE. THUS, FOR THE DETAILED REASONS AND DISCUSSIONS AS A BOVE IN THIS ORDER , WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS REQUI RED TO BE RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION DE-NOVO . NEEDLESS TO SAY THAT THE AO SHALL GIVE PROPER AND ADEQUATE OPPORTUNITY OF BE ING HEARD TO THE ITA NO.1466/CHNY/2009 :- 31 -: ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL J USTICE IN ACCORDANCE WITH LAW AND EVIDENCES/EXPLANATIONS SUBMITTED BY AS SESSEE IN ITS DEFENSE SHALL BE ADMITTED BY ASSESSEE AND THEN ADJUDICATED ON MERITS IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL FILED BY REVENUE IN IT A NO.1466/CHNY/2009 FOR AY: 2003-04 IS ALLOWED AS INDICATED ABOVE ORDER PRONOUNCED ON THE 16 TH DAY OF DECEMBER, 2019 IN CHENNAI. SD/- SD/- ( . . . ) ( N.R.S. GANESAN ) /JUDICIAL MEMBER ( ' ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 16 TH DECEMBER, 2019. TLN / ,'2 32 /COPY TO: 1. + /APPELLANT 4. 4 /CIT 2. ,-+ /RESPONDENT 5. 2 , /DR 3. 4 ( ) /CIT(A) 6. ( /GF