ACIT, Circle-2(1), Bhubaneswar, Bhubaneswar V. Indian Metals and Ferro Alloys Ltd, Bhubaneswar

ITA 160/CTK/2013

• Counselvise Citation: 16022114 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K DASH
• Assessee Lawyers: SACHIT JALLY
• Keywords: Depreciation; Business expenditure; Reason to believe; Unabsorbed depreciation; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 37(1); 147; 148; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 1 6 0 /CTK/201 3 : (ASST. YEAR : 200 6 - 0 7 ) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BHUBANESWAR. (APPELLANT) AN D VS. INDIAN METALS AND FERROW ALLOYS LTD, BOMIKHAL, RASULGARH, BHUBANESWAR 751010 PAN : AAAC14818F (RESPONDENT) C.O. NO. 27/CTK/2013 : (ASST. YEAR : 2006 - 07) (ARISING OUT OF ITA NO. 160/ CTK/2013) INDIAN METALS AND FERROW ALLOYS LTD, BOMIKHAL, RASULGARH, BHUBANESWAR 751010 PAN : AAAC14818F (APPELLANT) VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BHUBANESWAR. (RESPONDENT) A PPELLANT BY : P .K. DASH, D.R . RE SPONDENT BY : SACHIT JALLY , A . R . DATE OF HEARING : 01 /0 5 /2014 DATE OF PRONOUNCEMENT : 06 /0 6 /2014 O R D E R PER P.K. BANSAL : THIS APPEAL AS WELL AS CROSS OBJECTION HA VE BEEN FILED AGAINST THE ORDER OF CIT (A), BHUBANESWAR PASSED U/S 14 3 (3) DATED 17.12.2012. IN THE APPEAL, THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUND S OF APPEAL : - 2 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE DISALLOWED THE ENTIRE UNABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEARS 1990 - 91 TO 1997 - 98 AGGREGATING TO RS.42 578.02 LAKH FOR THE PURPOSE OF CARRY FORWARD IN VIEW OF THE PROVISIONS OF SEC.32(2) OF THE I.T. ACT WHICH WERE EFFECTIVE FROM 01.04.97 TO 31.03.02 BEFORE THE SAME WERE AMENDED BY FINANCE ACT 2001 W.E.F. 01.04.02 AND TO THAT EXTENT THE LD. CIT(A) SHOULD HAVE RECTIFIED THE ORDER OF THE AO BY ENHANCING THE DISALLOWANCE MADE BY THE A.O. 2. ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS NOT CORRECTLY APPRECIATED THE IMPORT OF THE PROVISIONS OF SEC.32(2) AS THEY EXISTED FROM 01.04.97 TO 31.03.02 AND HAS ALSO NOT FOLLOWED THE DECISION OF THE H ONBLE ITAT, SPL. BENCH E MUMBAI IN THE CA SE OF DCIT VS TIMES GUARANTEE LTD REPORTED IN 2010 - TIOL - 340 - ITAT - MUM - SB, 131 TTJ 257 IN WHICH THE SAME ISSUE WAS EXAMINED IN DETAIL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN ACCEPTING THE CONTENTION OF THE ASSESSEE WITHOUT GIVING THE AO A REASONABLE OPPORTUNITY IN VIOLATION OF RULE 46A. 2. IN THE C.O. THE ASSESSEE HAS TAKEN AS MANY AS ELEVEN GROUNDS OF APPEAL. GROUND NO. 1 TO 7 SINCE NOT PRESSED THEREFORE, STANDS DISMISSED AS NOT PRESSED. NOW THERE REMAIN S FOLLOWING GROUNDS SURVIVED: - 8 . THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEDUCTION OF RS.7.41 CRORES INCURRED IN CONNECTION WITH DE - RATING OF SHARES WITHOUT APPRECIATING THAT NEITHER THE SAID ITEM OF INCOME FORMED PART OF THE REASONS RECORDED BY THE ASSESSING OFFICER FOR INITIATING RE - ASSESSMENT PROCEEDINGS UNDER SECTION 147/148 OF THE ACT, NOR WAS SUCH EXPENDITURE CONNECTED WITH THE ISSUE OF DEDUCTION FOR UNABSORBED DEPR ECIATION ON THE BASIS OF WHICH REASSESSMENT PROCEEDINGS HAD BEEN INITIATED. 9. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEDUCTION OF RS.7.41 3 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) CRORES INCURRED IN CONNECTION WITH DE - RATING OF SHARES WITHOUT APPRECIATING THAT EVEN IN TERMS OF EXPLANATION 3 TO SECTION 147 OF THE ACT ROVING AND FISHING ENQUIRIES ARE NOT PERMITTED AND THAT ONLY THOSE ITEMS OF INCOME WHICH ARE CONNECTED WITH AND COME TO THE NOTICE OF THE ASSESSING OFFICER AFTER INITIATING THE RE - ASSESSMENT PROCEEDINGS CAN BE BROUGHT TO TAX UNDER SECTION 147 OF THE ACT. 10. WITHOUT PREJUDICE, THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEDUCTION OF RS.7.41CRORES INC URRED AND CLAIMED BY THE RESPONDENT IN CONNECTION WITH DE - RATING OF SHARES WITHOUT APPRECIATING THAT SUCH EXPENDITURE WAS ON REVENUE ACCOUNT AND INCURRED WHOLLY AND EXCLUSIVELY TOWARDS BUSINESS OF THE APPELLANT. 11. WITHOUT FURTHER PREJUDICE, THAT THE CI T(A) ERRED ON FACTS AND IN LAW IN NOT ALLOWING AMORTIZATION OF EXPENSES INCURRED IN CONNECTION WITH DE - RATING OF SHARES UNDER SECTION 35D D OF THE ACT. 3. THE ONLY ISSUE INVOLVED IN THE GROUNDS TAKEN BY THE REVENUE RELATE TO THE CARRY FORWARD AND SET OF THE UN ABSORB ED DEPRECIATION FOR THE ASSESSMENT YEAR 1991 TO 1997 - 98. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED UNABSORBED DEPRECIATION RELATING TO INDIAN CHARGE CHROME LTD WHICH WAS AMALGAMATED WITH THE ASSESSEE COMPANY AMOUNTING TO RS. 502 , 15 , 46 , 000/ - W.E.F. 01.04.2005 . THE ASSESSING OFFICER EXAMINED THE CLAIM FOR CARRY FORWARD AND SET OFF AND WAS OF THE VIEW THAT AFTER THE AMENDMENT OF SECTION 32(2) W.E.F. 1.4.1997 THE AS SESSEE WAS ENTITLED TO CARRY FORWARD AND SET OF F UN ABSORBED DEPRECIATION FOR A PARTICULAR YEAR ONLY FOR A TOTAL PERIOD OF EIGHT ASSESSMENT YEARS SUBSEQUENT TO THE ASSESSMENT YEAR TO WHICH THE UNABSORBED DEPRECIATION RELATE S.T HIS PROVISION EXISTED TILL ASSE SSMENT YEAR 2001 - 02. THE ASSESSING OFFICER AFTER EXAMINING THE DETAILS WAS OF THE VIEW DURING THE ORIGINAL ASSESSMENT THAT DEPRECIATION RELATING TO THE ASSESSMENT YEAR 1990 - 91 AND 1992 - 93 GOT LAPSED AND COULD NOT BE CARRIED FORWARD BEYOND ASSESSMENT YEAR 2 001 - 02. THE TOTAL DEPRECIATION SO LAPSED WAS RS.182 , 74 , 22 , 000/ - AND THEREFORE HE ALLOWED CARRY FORWARD OF BALANCE 4 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) DEPRECIATION AMOUNTING TO RS.319 , 41 , 24 , 000/ - . WHEN THE MATTER WENT BEFORE THE CIT(A) THE CIT(A) TOOK THE VIEW THAT THE DENIAL OF THE BENEFIT OF CARRY FORWARD OF UN ABSORBED DEPRECIATION RELATING THE ASSESSMENT YEAR 1990 - 91 TO 1992 - 93 WAS NOT IN ACCORDANCE WITH THE LAW AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ALLOW UNABSORBED DEPRECIATION OF RS. 182 , 74 , 22 , 000/ - RELATING TO THESE YEARS FOR THE PURPOSE OF CARRY FORWARD. THE REVENUE WENT IN APPEAL BEFORE THE ITAT ON 29.11.2010. IN THE MEAN TIME THE ASSESSING OFFICER BY ISSUING THE NOTICE U/S 148 DATED 28.10.2010, RE - OPENED THE ASSESSMENT INVOKING THE PROVISION OF SECTION 147 ON THE REASON TO BELIEVE THAT THE ENTIRE UNABSORBED DEPRECIATION ALLOWANCE BEGINNING FROM THE ASSESSMENT YEAR 1990 - 91 TO THE ASSESSMENT YEAR 1997 - 98 AGGREGATING TO RS. 42578.02 LAKH HAS LAPSED BEFORE THE ASSESSMENT YEAR 2006 - 07 AND THEREFORE , THIS WAS NOT ELIGIBLE FOR TH E PURPOSE OF SET OFF AND CARRY FORWARD IN THE IMPUGNED ASSESSMENT YEAR AS DEPRECIATION ALLOWANCE PERTAINING TO THE EARLIER PREVIOUS YEARS WHICH REMAINS UNABSORBED AT THE BEGINNING OF THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR 1997 - 98 COULD BE CAR RIED FORWARD ONLY UPTO THE END OF THE ASSESSMENT YEAR 2005 - 06. IN VIEW OF PROVISION TO SECTION 32(2) AS IT EXISTS PRIOR TO ASSESSMENT YEAR 1997 - 98 . THUS REVENUE WAS OF THE VIEW THAT THE SUM OF RS. 24304 LAKH HAS BEEN DEEMED TO HAVE ESCAPE D ASSESSMENT WITHI N MEANING OF EXPLANATION 2 OF SECTION 14 7 AND SUBSEQUENTLY ASSESSING OFFICER AFTER CONSIDERING THE OBJECTIONS AND SUBMISSIONS OF THE ASSESSEE TOOK THE VIEW VIDE O RDER DATED 15.4.2011 THAT THE UNABSORBED DEPRECIATION AMOUNTING TO RS 243 , 03 , 80 , 000 / - RELAT ING TO THE ASSESSMENT YEAR 1993 - 94 TO 1997 - 98 GOT LAPSED BEFORE ASSESSMENT YEAR 2006 - 07 AND REDUCED THE CARRY FORWARD OF UNABSORBED DEPRECIATION TO RS. 1,85,55,39,761 / - LAKH. THE TRIBUNAL V IDE ITS ORDER DATED 16.12.2011 RESTORE D THE ISSUE TO THE FILE OF THE CIT(A) IN THE LIGHT OF THE FINDING OF THE ASSESSING OFFICER IN THE RE - ASSESSMENT ORDER. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) ON 13.5.2011 AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 15.4.2011. CIT(A) DISPOSED OFF BOTH THE APPEALS AGAINST THE ORIGINAL ASSESSMENT AND RE - ASSESSMENT BY COMMON ORDER 5 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) DATED 17.12.2012 BY TAKING THE DECISION ON THE ENTIRE AMOUNT OF UNABSORBED DEPRECIATION AMOUNTING TO RS. 502,15,46,000/ - FOR THE UNABSORBED DEPRECIATION AND TOOK THE VIEW IN FAVOUR OF THE ASSESSEE RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS LTD, 354 ITR 244 (GUJ) . 4. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW AND THE CASE LAW CITED BEFORE US . WE HAVE ALSO GONE THROUGH THE CIRCULAR NO. 762 DATED 18.2.1998 AS WELL AS CIRCULAR NO.14 OF 2001. WE HAVE ALSO GONE THROUGH THE DECISION OF GENERAL MOTORS PVT. LTD VS CIT, 354 ITR 244 . I N OUR VIEW THE IMPUGNED ISSUE TAKE N BY THE REVENUE IN ITS GROUNDS OF APPEAL IS DULY COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE AFORESAID CASE IN WHICH HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER : - . PRIOR TO THE FINANCE ACT NO.2 OF 1996, THE UNABSORBED DEPRECIAT ION FOR ANY YEAR WAS ALLOWED TO BE CARRY FORWARD INDEFINITELY AND BY A DEEMING FICTION BECAME ALLOWANCE OF THE IMMEDIATELY SUCCEEDING YEAR. THE FINANCE ACT NO.2 OF 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIATION AND SET - OFF TO A LIMIT OF 8 YEA RS, FROM THE ASSESSMENT YEAR 1997 - 98. CBDT CIRCULAR NO. 762, DATED 18 - 2 - 1998 IN THE FORM OF EXPLANATORY NOTES CATEGORICALLY PROVIDED, THAT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN IN THAT PREVIOUS YEA R SHALL BE CARRIED FORWARD AND ADDED TO THE DEPRECIATION ALLOWANCE OF THE NEXT YEAR AND BE DEEMED TO BE PART THEREOF. [PARA 31] SO, THE UNABSORBED DEPRECIATION ALLOWANCE OF ASSESSMENT YEAR 1996 - 97 WOULD BE ADDED TO THE ALLOWANCE OF ASSESSMENT YEAR 1997 - 98 AND THE LIMITATION OF 8 YEARS FOR THE CARRY - FORWARD AND SET - OFF OF SUCH UNABSORBED DEPRECIATION WOULD START FROM ASSESSMENT YEAR 1997 - 98. [PARA 32] THE PROVISION OF SECTION 32(2) WAS INTRODUCED BY FINANCE (NO.2) ACT, 1996 AND FURTHER AMENDED BY THE FINAN CE ACT, 2000. THE PROVISION INTRODUCED BY FINANCE (NO.2) ACT WAS CLARIFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECTIVE EFFECT. [PARA 34] 6 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) THE SAID CBDT CIRCULAR CLARIFIES THE INTENT OF THE AMENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY AND, ACCORDINGLY, THE AMENDMENT DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THIS AMENDMENT HAS BECOME APPLICABLE FROM ASSESSMENT YEAR 2002 - 03 A ND SUBSEQUENT YEARS MEANING THAT ONLY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL, 2002 (ASSESSMENT YEAR 2002 - 03) WILL BE DEALT WITHIN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND NOT BY THE P ROVISIONS OF SECTION 3292) AS IT STOOD BEFORE THE SAID AMENDMENT. IF THE INTENTION OF THE LEGISLATURE HAS BEEN TO ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE WORKED OUT IN ASSESSMENT YEAR 1997 - 98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE AM ENDMENT OF SECTION 32(2) BY FINANCE ACT, 2001, IT WOULD HAVE INCORPORATED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONTAIN ANY SUCH PROVISION. HENCE, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE TAKEN KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2). WHILE CONSTRUING TAXING STATUTES, RULE OF STRICT INTERPRETATION HAS TO BE APPLIED, GIVING FAIR AND REASONABLE CONSTRUCTION TO THE LANGUAGE OF SECTION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR THE REVENUE. BUT IF THE LEGISLATURE FAILS T O EXPRESS CLEARLY AND THE ASSESSEE BECOMES ENTITLED FOR A BENEFIT WITHIN THE AMBIT OF SECTION BY THE CLEAR WORDS USED IN SECTION, THE BENEFIT ACCRUING TO THE ASSESSEE CANNOT BE DENIED. HOWEVER, CIRCULAR NO.14 OF 2001 HAD CLARIFIED THAT UNDER SECTION 32(2, IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPRECIATION UNDER SECTION 32(2) SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMENDED BY THE FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE ASSESSMENT YEARS 1997 - 98, 1999 - 2000, 2000 - 01 AND 2001 - 02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS, AND IF ANY UNABSORBED DEPRECIATION OR PART THEREOF COULD NOT BE SET OFF TILL THE TIME IT IS SET OFF AGAINST TH E PROFITS AND GAINS OF SUBSEQUENT YEARS. [PARA 37] THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECIATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH IT R ELATES. IF SUCH DEPRECIATION AMOUNT IS IN EXCESS THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, THEN SUCH EXCESS SHOULD BE ADJUSTED AGAINST THE PROFITS AND GAINS FROM ANY OTHER BUSINESS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THER EAFTER, THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT YEAR. WHERE THERE IS 7 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UN ABSORBED DEPRECIATION BECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. IT IS HELD THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL, 2002 (A.Y. 2002 - 03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE CIRCULAR NO.14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED DEPRECIATION FROM ASSESSMENT YEAR 1997 - 98 UP TO THE ASSESSMENT YEAR 2001 - 02 GOT CLARIFIED FORWARD TO THE ASSESSMENT YEAR 2002 - 03 AND BECAME PART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. [PARA 38] NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE BY THE LD. D.R EXCEPT RELYING ON THE ORDER OF ASSESSING OFFICER. THE SLP AGAINST THE SAID ORDER HAS BEEN DISMISSED BY HONBLE SUPREME COURT. WE NOTED THAT GUJARAT HIGH COURT WHILE DECIDING THE ISSUE IN GENERAL MOTORS (I) PVT. LTD VS DCIT HAS NOT NOTICED ITS EARLIER DECISION IN DEVESH METCAST LTD VS JCIT, 338 ITR 130 (GUJ) AND THAT OF MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS RPIL SIGNALLING SYSTEMS LTD. 328 ITR 283 (MAD) WHICH HAD TAKEN A CONTRARY VIEW. SINCE SLP HAS BEEN DISMISSED AGAINST THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS (I) PVT LTD WE ARE BOUND TO FOLLOW THE SAM E. THIS IS ALSO A SETTLED LAW THAT IF THERE IS CONTRARY DECISIONS OF DIFFERENT HIGH COURTS AND THERE IS NO DECISION OF THE JURISDICTION HIGH COURT, THE VIEW FAVOURABLE TO THE SUBJECT HAS TO BE TAKEN. IN RESPECT OF GROUND RELATING TO VIOLATION OF RULE 46 A, THE LD. D.R COULD NOT EXPLAIN WHAT FRESH EVIDENCE HAS BEEN FILED BY THE ASSESSEE BEFORE THE CIT(A). WE THEREFORE, DISMISS ALL THE GROUND TAKEN BY THE REVENUE. 5. IN THE C.O THE GROUND NO S. 8 TO 11 RELATE TO THE ISSUE RELATING TO THE CLAIM OF THE DEDUCT ION AMOUNTING TO RS.7.41 CRORES INCURRED BY PAYING THE 8 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) COMPENSATION FOR DE - RATING OF THE SHARES. THE BRIEF FACTS OF THIS ISSUE ARE THAT DURING THE COURSE OF THE RE - ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 741,74,113/ - AS REVENUE EXPENDITURE ON ACCOUNT OF COMPENSATION PAID TO LENDERS FOR DE - RATING OF THE SHARES. THE ASSESSEE WAS ASKED TO EXP LAIN. THE ASSESSEE EXPLAINED THAT ICCL MERGE WITH IMFA W.E.F. 1.4.2005. AS PER THE AGREEMENT ICCL ENTERED INTO WITH ITS LENDER I.E SIX BANKERS AND TWO FINANCIAL INSTITUTIONS LED BY IDBI FOR A STRUCTURED SETTLEMENT OF ITS LONG TERM DEBT IN THE YEAR 2003. ON E OF THE CONDITIONS OF THE SAID SETTLEMENT WAS THAT ICCL SHOULD MERGE WITH ITS PROMOTER COMPANY IMFA AND ICCL SHOULD DE - RATE ITS EXISTING CAPITAL BY 95%. THE SHARE HOLDERS OF ICCL DID NOT ACCEPT THE PROPOSAL OF DE - RATING AND THEREFORE, LENDERS WERE REQUEST ED TO REDUCE THE DE - RATING FROM 95% TO 50% THROUGH ICCL AND A REQUEST WAS MADE TO IDBI VIDE LETTER DATED 19.8.2005. THE LENDER ACCEPTED THE PROPOSAL BUT DEMANDED A SUM OF RS. 74,174,113/ - AS COMPENSATION TOWARDS LOSS BEING SUFFERED DUE TO SUCH CHANGES IN T HE DE - RATING PROPOSAL . THE ASSESSEE CLAIMED THAT SINCE THE SAID AMOUNT WAS WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE BUSINESS OF IMFA AND WAS PROVIDED FOR LIQUIDATING RECURRING CLAIM THE EXPENDITURE HAS TO BE ALLOWED AS REVENUE EXPENDITURE DUR ING THE FINANCIAL YEAR 2005 - 06. ALTERNATE PLEA WAS TAKEN THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF AMALGAMATION, ATLEAST 1/5 TH OF THE EXPENDITURE U/S 35DD STARTING FROM ASSESSMENT YEAR 2006 - 07 SHOULD BE ALLOWED. THE ASSES SING OFFICER TOOK THE VIEW SINCE THE LONG TERM DEBT WAS BASICALLY CAPITAL IN NATURE, SUCH COMPENSATION WOULD RETAIN THE CHARACTER OF ORIGINAL LENDING I.E CAPITAL BORROWING. HE ALSO TOLD THAT THE EXPENDITURE WAS NOT AS A RESULT OF AMALGAMATION THEREFORE, T HIS IS NOT AN EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF AMALGAMATION. THE STRUCTURED SETTLEMENT WAS DONE IN 2003 WHEREAS AMALGAMATION TOOK PLACE W.E.F 1.4. 2005. AMALGAMATION AND DE - RATING OF THE SHARES BOTH WERE THE RESULTS OF THE STRU CTURED SETTLEMENT. THE ASSESSING OFFICER THUS REJECTED THE CLAIM. THE ASSESSEE WENT IN APPEAL BEFORE THE 9 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) CIT(A), CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDER : - 11. AS REGARDS THE COMPENSATION PERTAINING TO THE REDUCTION OF DE - RATING FROM 90% TO 50% , IT IS CLEARLY RELATABLE TO THE RESTRICTING/MODIFICATION OF SHARE CAPITAL OF M/S. ICCL. ON ONE HAND THE LENDING CONSORTIUM ACCEPTED THAT THE SHARE CAPITAL IN THE COMPANY SHOULD BE D E - RATED BY 50% INSTEAD OF THE ORIGINAL PROPOSED 95%, ON THE OTHER HAND FOR DOING SO THE CONSORTIUM DEMANDED AND GOT COMPENSATION AMOUNT OF RS.7,41,74,113/ - . THE BENEFIT WHICH ACCRUED TO M/S.ICCL - IMFA (AMALGAMATED COMPANY) WAS A DIRECT EASING REDUCTION IN L OAN AMOUNT PAYABLE TO THE LENDING CONSORTIUM AND / OR THE PERIOD OF PAYMENT. IN OTHER WORDS, THE COMPENSATION WAS PAID FOR FUNDS FACILITATION. DIRECTLY OR INDIRECTLY, PAYMENT OF SUCH COMPENSATION DID NOT HAVE ANY BENEFICIAL IMPACT ON THE TRADING ACTIVITY W HICH WAS OTHERWISE BEING CARRIED ON EITHER BY M/S. IMFA OR M/S. ICCL. THIS COMPENSATION DEFINITELY DOES NOT HAVE ANY CONNECTION WITH REMOVE OF OBSTACLES FOR SMOOTH CONDUCT OF BUSINESS. 11.1. I HAVE GONE THROUGH ALL THE CITATIONS OF CASES CONTAINED IN PARA - 4.0 TO 4.2 IN THE PAPER BOOK SUBMITTED BY THE APPELLANT (PAGE 30 TO 37). IN MY HUMBLE OBSERVATION, NOT A SINGLE CASE PERTAINS TO FUNDS FACILITATION OR PAYMENT ON ACCOUNT OF VARIATION IN FACE VALUE OF SHARE CAPITAL. 12. IN VIEW OF MY FOREGOING DISCUSSIONS, I CONFIRM THE ACTION OF THE AO HOLDING THAT THE IMPUGNED COMPENSATION WAS PAID AS A PRECONDITION FOR DEBT RESTRUCTURING AND MORE PARTICULARLY FOR THE CONSORTIUM AGREEING UPON THE DE - RATING PERCENTAGE AT 50% INSTEAD OF 95%. SINCE THIS IS NOT AT ALL AN EXPENDITURE RELATABLE TO AMALGAMATION (IN FACT AMALGAMATION AND DE - RATING WERE 2 INDIVIDUAL CONDITIONS FOR DEBT RESTRUCTURING), THERE IS NO QUESTION OF AMORTIZATION OF EXPENDITURE EITHER. 6. THE LD. A.R IN THIS REGARD CON TENDED BEFORE US THAT THE ASSESSEE HAS TO INCUR AN EXPENDITURE OF RS. 7 , 4 1, 74,113/ - AS COMPENSATION PAID TO THE FINANCIAL INSTITUTION FOR MAKING NECESSARY AMENDMENT IN THE STRUCTURED SETTLEMENT PROPOSAL TO DE - RATE ICCLS EXISTING S HARES BY 50%. I T WAS S UBMITTED THAT ICCL 10 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) HAD ENTERED INTO AN AGREEMENT WITH ITS LENDERS I.E. WITH SIX BANKERS AND TWO FINANCIAL INSTITUTIONS LED BY IDBI FOR A STRUCTUR ED SETTLEMENT OF ITS LONG TERM DEBT DURING THE YEAR 2003. ONE OF THE CONDITION S IN THE SAID SETTLEMENT WAS TH AT ICCL SHOULD MERGE WITH ITS PROMOTERS COMPANY IMFA AND ICCL SHOULD DERATED ITS EXISTING SHARE CAPITAL BY 95%. THE SHARE HOLDERS OF ICCL DID NOT ACCEPT THE PROPOSED DE - RATING AND REQUESTED THE LENDERS TO R EDUCE THE DE - RATING FROM 95% TO 50% THROUGH ICCL. THE ICCL MADE A REQUEST TO THE IDBI. AS AGREED, THE COMPENSATION OF RS. 7 ,4 1 , 74 ,113 / - WAS PAID TO LENDERS AND PART OF THE SETTLEMENT AMOUNT DUE TO THE LENDERS WAS CONVERTED INTO EQUITY SHARES. AS THE SAID AMOUNT IS WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS OF IMFA AND HAS BEEN PROVIDED FOR LIQUIDATING RECURRING CLAIMS, IMFA (ICCL S INCE MERGED WITH EF FECT FROM 1, APRIL 2005) TREATED THE EXPENDITURE ON COMPENSATION AGAINST REDUCTION OF DE - RATING AMOUNTING TO RS. 7 ,4 1 , 74,113/ - AS REVENUE EXPENDITURE DURING THE FY 2005 - 06. THE SAID EXPENDITURE HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF T HE BUSINESS OF THE ASSESSEE. THE EXPENSE BEING INCURRED UNDER A CONDITION STIPULATED IN THE SETTLEMENT WITH THE LENDERS, IN ORDER TO COMPLETE THE PROCESS OF AMALGAMATION FOR IMPROVING THE BUSINESS FUNCTIONING OF IMFA, THE SAME SHOULD BE TREATED THEREFORE A S REVENUE EXPENDITURE. THE EXPENDITURE HAS WRONGLY BEEN TREATED BY THE REVENUE AS CAPITAL EXPENDITURE. THE EXPENDITURE HAS BEEN INCURRED FOR THE FURTHERANCE OF THE BUSINESS OF THE ASSESSEE. THE EXPENDITURE IS OF NOT ENDURING NATURE. THE EXPENDITURE IS CLOS ELY RELATED TO THE BUSINESS AND THEREFORE, IT HAS TO BE VIEWED AS AN INTEGRAL PART OF THE CONDUCT OF THE BUSINESS. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS : - 1. EMPIRE JUTE CO. LTD VS CIT [1980] 124 ITR 455 (SC) 2. CIT VS SHANTILAL P. LTD. [ 1983] 144 ITR 57 (SC) 3. CIT VS DESICCANT ROTORS INTERNATIONAL PVT. LTD. [2012] 347 ITR 32 (DEL). 11 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) 4. CIT VS KARAMCHANDPREMCHAND PVT. LTD. [1993] 200 ITR 281 (GUJ). 5. ASST.CIT VS W.S.INDUSTRIES (INDIA) LTD. [2011] 128 ITD 98. 7. THE LD. A.R COULD NOT FI LED THE COPY OF THE SETTLEMENT AR RIVED AT BETWEEN ICCL AND LENDERS . A LTERNATELY, IT WAS CONTENDED THAT SINCE THE EXPENDITURE IS RELATED TO THE AMALGAMATION , THEREFORE, THE ASSESSEE BE ALLOWED DEDUCTION AS PER THE PROVISIONS OF SECTION 35DD. 7.1 THE LD. A.R ALSO TAKEN A TECHNICAL OBJECTION THAT ONCE THE ACTION OF THE CIT(A) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION IS CONFIRMED, THERE WILL REMAIN NO ADDITION ON THE BASIS OF REASONS RECORDED BY THE ASSESSING OFFICER FOR INITIATING ACTION U/S 147. THE ASSESSING OFFICER WILL NOT BE ABLE TO MAKE ANY OTHER ADDITION AS THE WORD USED IN SECTION 147 IS AND. IN THIS REGARD RELIANCE WAS PLACED ON THE FOLLOWING DECISION S : - 1. RANBAXY LABORATORIES LTD VS CIT, 336 ITR 136 (DEL) 2. CIT VS JET AIRWAYS (I) LTD, 331 ITR 236 (MUM). 8. THE LD. D.R ON THE OTHER HAND VEHEMENTLY CONTENDED THAT DELETION OF THE ADDITION BY THE APPELLATE AUTHORITY DOES NOT MEAN THAT NO ADDITION WAS MADE BY THE ASSESSING OFFICER. THE DECISION OF DELHI HIGH COURT IN THE CASE OF RANBAXY LABORATORIES LTD VS CIT (SUPRA) AND THAT OF CIT VS JET AIRWAYS (I) LTD ARE TH E CASES WHERE NO ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE REASONS RECORDED. THE ADDITION WAS MADE IN RESPECT OF OTHER INCOME FOR WHICH REASONS WERE NOT RECORDED. ON THE ISSUE OF PAYMENT OF THE COMPENSATION FOR THE DE - RATING OF THE SHA RE OF ICCL , RELIANCE WAS PLACED ON THE DECISION OF CIT(A). IT WAS ALSO ARGUED THAT THE PROVISION OF SECTION 35DD WERE NOT APPLICABLE AS THIS EXPENSE IS NOT RELATED TO THE AMALGAMATION. 12 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) 9. WE HEARD THE RIVAL SUBMISSION AND CAREFULLY CONSIDERED THE SAME ALO NG WITH THE ORDERS OF TAX AUTHORITIES BELOW . SO FAR THE TECHNICAL ISSUE RELATING TO THE POWER OF THE ASSESSING OFFICER IN RESPECT OF ADDITION MADE BY DISALLOWING COMPENSATION PAID TO THE LENDERS FOR DE - RATING IS CONCERNED, WE NOTED THAT IN THIS CASE THE AS SESSING OFFICER HAS MADE THE ADDITION IN RESPECT OF THE INCOME FOR WHICH REASONS FOR ESCAPEMENT OF ASSESSMENT WERE RECORDED BY HIM I.E. UNABSORBED DEPRECIATION . MERELY THE ADDITIONS SO MADE STAND DELETED BY THE CIT(A) WILL NOT MAKE THE ACTION OF THE ASSESSING OFFICER ILLEGAL IF HE HAS ADDED ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY, IN THE COURSE OF THE PROCEEDINGS U/S 147. WE HAVE GONE THROUGH THE DECIS IONS OF DELHI HIGH COURT IN THE CASE OF RANBAXY LABORATORIES LTD VS CIT (SUPRA) AND THAT OF MUMBAI HIGH COURT IN THE CASE OF CIT VS JET AIRWAYS (I) LTD, 331 ITR 236. WE NOTED THAT IN BOTH THESE DECISIONS NO ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER O N THE BASIS OF THE REASONS RECORDED BY HIM THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN VIEW OF THIS FACT HONBLE HIGH COURT DELETED THE ADDITIONS WHICH WERE MADE IN RESPECT OF THE ISSUES OTHER THAN THE ISSUES IN RESPECT OF WHICH PROCEEDING S U/S 147 WERE INITIATED. IN THE IMPUGNED CASE , THE ADDITION FOR THE UNABSORBED DEPRECIATION WAS DULY MADE ALONG WITH DISALLOWANCE FOR COMPENSATION PAID TO THE LENDERS FOR DE - RATING OF THE SHARES ON ACCOUNT OF ARRIVING OF THE SETTLEMENT FOR LONG TERM BORR OWING OF THE COMPANY WHICH GOT MERGED WITH THE ASSESSEE COMPANY , BY THE ASSESSING OFFICER. THE REASONS U/S 148 WAS DULY RECORDED FOR ESCAPEMENT OF THE INCOME IN RESPECT OF UNABSORBED DEPRECIATION. THE DISALLOWANCE OF U NABSORBED DEPRECIATION WAS DELETED BY THE APPELLATE AUTHORITY THAT DOES NOT MEAN NO ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE REASON TO BELIEVE RECORDED BY HIM. THE SECTION 147 OF THE INCOME TAX ACT TALK S OF ASSESSING OFFICER NOT OF THE APPELLATE AUTHORITY. THESE DECISIONS IN OUR OPINION ARE NOT APPLICABLE TO THE FACTS OF THE CASE. IN OUR 13 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) OPINION , THERE IS NO ILLEGALITY IN THIS CASE AS PER THE PROVISION OF SECTION 147 OF THE INCOME TAX ACT. WE ACCORDINGLY DISMISS THIS TECHNICAL PLEA OF THE LD. A.R. 10. NOW , WE WILL DEAL WI TH THE PLEA OF THE LD. A.R WHETHER THE EXPENDITURE INCURRED BY ICCL WHICH GOT AMALGAMATED IN THE ASSESSEE IN RESPECT OF COMPENSATION PAID TO THE LENDERS AGAINST THE R EDUCTION OF THE DE - RATING. THIS IS AN UNDISPUTED FACT THAT ICCL HAD BORROWED MONEY FROM IT S LENDERS I.E. WITH SIX BANKERS AND TWO FINANCIAL INSTITUTIONS. THE ICCL WAS NOT ABLE TO MAKE THE PAYMENT OR TO FULFIL ITS COMMITMENT TOWARDS THE RE - PAYMENT OF THE LONG TER M DEBT. THEREFORE A DEBT RESTRUCTURING PLAN FOR ICCI WAS APPROVED AND THE TERMS LEND ERS HAD SUGGESTED IN 2003 FOR DERATING OF EXISTING EQUITY SHARES OF ICCL BY 95%, AND TO CONVERT PART OF DEBT BY LENDERS INTO ICCL EQUITY. SUBSEQUENTLY AS PER THE ASSESSEE THE DERATING WAS DONE @50% AND FOR THAT COMPENSATION WAS PAID TO THE FINANCIAL INSTIT UTIONS OTHERWISE THEY WOULD HAVE NOT AGREED FOR REDUCTION OF DE - RATING . IN OUR OPINION, IF THE SHARES ARE DE - RATED BY 95%, THE LENDERS WOULD HAVE GOT MORE SHARES ON CONVERSION OF LOAN IN TO EQUITY. ONCE THE DE - RATING IS REDUCED, THE NATURAL CONSEQUENCE IS THAT THE LENDERS GOT LESS SHARES IN ICCL ON CONVERSION OF THE LOAN INTO EQUITY. THIS MEANS THAT THE LENDERS WILL BE GETTING THE SHARE ON CONVERSION OF LOAN INTO EQUITY AT SETTLEMENT AT A HIGHER PRICE. THE COMPANY THEREFORE, WOULD HAVE COMPENSATED THE LEND ER SO THAT THEY MAY ARRIVE AT A SETTLEMENT. THIS IN OUR OPINION IS THE TRUE NATURE OF THE TRANSACTION. FOR DECIDING THE ISSUE WE HAVE TO LOOK INTO THE TRUE NATURE OF THE TRANSACTION NOT TO THE NOMENCLATURE OR COLOUR OF THE TRANSACTION WHAT THE ASSESSEE WOU LD HAVE GIVEN TO IT. THE COMPENSATION , THEREFORE, SO PAID TO THE LENDERS AMOUNTING TO RS. 7,41,74,113/ - THEREFORE CAN BY NO STRETCH OF IMAGINATION BE REGARDED TO BE ON REVENUE ACCOUNT. THIS AMOUNT HAS BEEN PAID IN OUR OPINION TO COMPENSATE THE LENDERS BECAUSE THEY GOT SHARES IN ICCL ON CONVERSION OF DEBT AT A HIGHER PRICE. CONSEQUENTLY, AT THE TIME OF AMALGAMATION THE LENDERS WILL GET LESS SHARES IN IMFA AS IN PLACE O F 14 EQUITY SHARES OF ICCL, 14 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) ONE EQUITY SHARE OF IMFA WAS ALLOTTED. IN CASE THE SHARES WOULD HAVE BEEN DE - RATED BY 95%, THE LENDERS WOULD HAVE GOT MORE SHARES IN ICCL ON CONVERSION OF PART OF THE DEBT INTO EQUITY. IN CONSEQUENCE THEREOF ON AMALGAMATION, TH E LENDERS WOULD HAVE GOT MORE SHARES IN IMFA IN EXCHANGE OF SHARES IN ICCL. NO PERSON OF ORDINARY PRUDENCE WHAT TO TALK OF LENDERS HAVE AGREED TO SUCH AMENDMENT UNTIL AND UNLESS THEY HAVE BEEN COMPENSATED FOR THE LOSS ARISING DUE TO THE LESS VALUE OF THE SHARES RECEIVED BY THEM. THE EXPENDITURE SO INCURRED CANNOT BE REGARDED FOR FACILITATING THE BUSINESS OF THE ASSESSEE OR LIQUIDATING THE RECURRING CLAIMS AS CONTENDED BY THE LD. A.R. THE TRUE NATURE OF THE EXPENDITURE IS THAT THE COMPANY HAS COMPENSATED TH E LENDERS AS THEY AGREED TO TAKE THE SHARES IN ICCL AT A HIGHER PRICE THAN WHAT WAS PROPOSED BY THEM IN THEIR STRUCTURED SETTLEMENT DURING THE YEAR 2003. THE EXPENDITURE SO INCURRED IS CLEARLY ON CAPITAL ACCOUNT , IT CANNOT BE REGARDED TO HAVE BEEN INCURRED FOR SERVING THE DEBT OR TO HAVE BEEN INCURRED FOR THE PURPOSE OF THE AMALGAMATION. THIS EXPENDITURE CAN ALSO NOT BE REGARDED TO HAVE BEEN INCURRED FOR THE PURPOSE OF THE AMALGAMATION AS THE DEBTS HAS BEEN CONVERTED INTO THE EQUITY SHARES AT A LESSER VALU E PRIOR TO TH E MERGING OF THE ICCL INTO IMFA AND COMPENSATION HAS BEEN PAID TO THE LENDERS ON CONVERSION OF THE DEBTS INTO EQUITY SHARES AT A HIGHER VALUE. THE COMPENSATION SO PAID IS DIRECTLY LINKED WITH THE LOSS SUFFERED BY THE LENDERS ON ACCOUNT OF CONV ERSION OF DEBTS INTO EQUITY SHARES DUE TO THE AMENDED PROPOSAL. THE ASSESSEE GETS BENEFITED IN CONSEQUENCE THAT IT HAS TO ALLOT LESS SHARES IN ITS COMPANY TO THE ERSTWHILE SHARE HOLDER OF ICCL. THUS THIS EXPENDITURE HAS CLEARLY BEING INCURRED BY THE ASSESS EE ON CAPITAL ACCOUNT FOR THE PURPOSE OF SHARE CAPITAL. T HEREFORE, THE EXPENDITURE CANNOT BE ALLOWED AS A REVENUE EXPENDITURE U/S 37(1) AS IT IS A CAPITAL EXPENDITURE. THE ASSESSEE ALSO CANNOT GET DEDUCTION U/S 35DD OF THE INCOME TAX ACT AS THIS EXPENDITU RE HAS NOTHING TO DO WITH THE AMALGAMATION AND INCURRENCE OF THIS EXPENDITURE WAS MADE FOR ALLOTTING THE SHARES IN ICCL NOT FOR THE PURPOSE OF AMALGAMATION OF ICCL WITH THE ASSESSEE. 15 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) 11. WE HAVE GONE THROUGH THE CASE LAWS AS RELIED ON BY LD. A.R. THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD (SUPRA) IN OUR OPINION WILL NOT ASSIST THE ASSESSEE AS THE ISSUE INVOLVED IN THAT CASE DOES NOT RELATE FOR PAYING THE COMPENSATION TO THE LENDER ON CONVERSION OF THE LONG TERM DEBT INTO EQUI TY SHARE AT A HIGHER VALUE AS HAS BEEN EXPECTED BY THE LENDER. THE EXPENDITURE SO INCURRED IS NOT FOR FACILITATING THE DAY - TO - DAY TRADING OPERATIONS OF THE ASSESSEE COMPANY AND ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE COMPANYS BUSINESS TO BE C ARRIED ON MORE EFFICIENTLY. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS SHANTILAL PVT. LTD (S UPRA) DEALS WITH THE AWARD OF COMPENSATION BY AN ARBITRATION AWARD ON A DISPUTE BETWEEN THE PARTIES. THE QUESTION INVOLVED RELATE TO WHETHER THE LO SS SUFFERED BY THE ASSESSEE WAS A LOSS INCURRED IN A SPECULATIVE TRANSACTION. THUS, THIS DECISION WILL NOT APPLY TO THE FACTS OF THE CASE. THE DECISION OF DELHI HIGH COURT IN CIT VS DESICCANT ROTORS INTERNATIONAL PVT. LTD (SUPRA) WILL ALSO NOT APPLY WITH T HE FACTS OF THE CASE AS THE AMOUNT WAS PAID FOR SETTLEMENT OF SUIT FOR INFRINGEMENT OF PATENT. THE ISSUE WAS WHETHER THE AMOUNT SO PAID IS PENALTY OR BUSINESS EXPENDITURE. IN THE CASE OF CIT VS KARAMCHAND PRE MCHAND PVT. LTD. [1993] 200 ITR 281 (GUJ ) THE ISSUE RELATE TO THE PAYMENT MADE FOR SECURING OR AUGMENTING ELECTRICAL POWER SUPPLY WHETHER IT IS A REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THE HONBLE COURT TOOK THE VIEW THAT THE EXPENDITURE HAS BEEN INCURRED FOR PROFIT MAKING APPARATUS AND DUE TO IT S PROFIT MAKING STRUCTURE CAN BE OPERATED WITH GREATER PRODUCTIVITY THEREFORE, PAYMENT WILL TAKE THE CHARACTER OF REVENUE EXPENDITURE. THE COMPENSATION IN THE CASE OF THE ASSESSEE HAS NOT BEEN MADE FOR PROFIT APPARATUS OR FOR INCREASE IN PRODUCTION B UT FOR COMPENSATING THE SHARE CAPITAL. THIS DECISION THEREFORE IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. WE HAVE ALSO PER SUED THE CASE OF CHENNAI BENCH IN THE CASE OF ACIT VS WS INDUSTRIES, 128 ITR 98. THIS DECISION RELATE TO THE CLAIM MADE BY THE A SSESSEE FOR DISCHARGING THE CORPORATE GUARANTEE GIVEN FOR ITS SUBSIDIARY COMPANY UNDER THE SETTLEMENT WITH THE BANKS BY AFFECTING ONE TIME 16 ITA NO. 1 6 0/C T K /201 3 & C.O.NO.27/CTK/2013 (ASST. YEAR : 2006 - 0 7 ) SETTLEMENT. THIS DECISION HAS NOT TO DEAL WITH THE COMPENSATION PAID ON CAPITAL ACCOUNT. THUS THIS DECISION IS ALSO NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. WE THEREFORE, DISMISS THE GROUND NOS. 8 TO 11. 12 . IN THE RESULT, BOTH THE APPEAL FILED BY THE REVENUE AS WELL AS C.O FILED BY THE ASSESSEE ARE DISMISSED . 13 . ORDER PRONOUNCED IN PURSUANCE OF RULE 34(4) OF ITAT RULES, 1963 BY PUTTING ON NOTICE BOARD OF THE BENCH AT CUTTACK ON 06 / 06 /201 4 . SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 06 / 06 /2014 * A * COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER