Kirloskar Oil Engines Ltd., Pune V. DCIT Cir.-8, Pune

ITA 181/PUN/2004

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62745 (ITAT-PUNE)
• Duration Of Justice: 8 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-04-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 04-02-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH VERMA
• Keywords: Depreciation; Business expenditure; Carry forward of business losses; Opportunity of being heard; Principle of natural justice; Unabsorbed depreciation
• Section: 32; 68; 11; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 181/PN/2004 (ASSTT.YEAR : 1999-2000) KIRLOSKAR OIL ENGINES LTD., LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE 411 003. PAN NO.AAACP 3590P .. APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CICLE 8, PRATYAKSHA KAR BHAVAN, PRADHIKARAN, AKURDI, PUNE 411 044. .. RESPONDENT ITA NO. 176/PN/2004 (ASSTT.YEAR : 1999-2000) DY. COMMISSIONER OF INCOME TAX, CICLE 8, PRATYAKSHA KAR BHAVAN, PRADHIKARAN, AKURDI, PUNE 411 044. .. APPELLANT VS. KIRLOSKAR OIL ENGINES LTD., LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE 411 003. PAN NO.AAACP 3590P .. RESPONDENT ASSESSEE BY : C.H. NANIWADEKAR RESPONDENT BY : MUKESH VERMA DATE OF HEARING : 04-04-2012 DATE OF PRONOUNCEMENT : 27-06-2012 ORDER PER R.K. PANDA, AM THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST T HE ORDER DATED 24-11-2003 OF THE CIT(A)-III, PUNE RELATING TO ASSESSMENT YEAR 1999-2000. FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO. 181/PN/2004 (BY ASSESSEE) : 2. GROUND OF APPEAL NO. 1 BY THE ASSESSEE READS AS UNDER : 1. DISALLOWANCE OUT OF INTEREST CLAIMED RS. 68,58 ,000/- THE LEARNED CIT(A) ERRED ON FACTS AND IN CIRCUMSTAN CES OF THE CASE, IN UPHOLDING DISALLOWANCE OF INTEREST EXPENSES OF RS. 68.58 LACS (OUT OF TOTAL DISALLOWANCE OF RS. 281.69 LACS MADE BY THE AO). H E SHOULD HAVE APPRECIATED THE FACTS FULLY IN PROPER PERSPECTIVE, AND OUGHT TO HAVE DELETED THE DISALLOWANCE IN FULL. 2.1. AFTER HEARING BOTH THE SIDES, WE FIND THE AO D ISALLOWED AN AMOUNT OF RS. 2,81,69,558/- BEING DIVERSION OF INTEREST BEARING F UNDS TO SISTER CONCERNS WITHOUT CHARGING ANY INTEREST. IN APPEAL THE LEARNED CIT(A ) FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 1998-99 RESTRICTED SUCH DISALLOWANC E TO RS. 68.58 LAKHS. WE FIND THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNA L IN ASSESSEES OWN CASE AND THE ISSUE WAS RESTORED TO THE FILE OF THE AO VIDE ITA N O. 45/PN/2001 FOR ASSESSMENT YEAR 1997-98 AND ITA NO. 257/PN/2003 FOR ASSESSMENT YEAR 1998-99. WE FIND THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IN IT A NO. 257/PN/2003 FOR ASSESSMENT YEAR 1998-99 READS AS UNDER : 4. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSI ONS, WE FIND THAT IDENTICAL ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE ASS ESSING OFFICER IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR S AS STATED ABOVE. FOLLOWING THE PRECEDENT, WE RESTORE BACK TO THE FIL E OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AND TO ASCERTAIN AS TO WHETHER T HE AMOUNT ADVANCED TO THE VARIOUS COMPANIES CLOSELY CONNECTED TO THE ASSESSEE WERE MADE OUT OF THE BORROWED FUNDS OR OTHERWISE AND THEN TO DECIDE THE ISSUE AS PER PROVISIONS OF LAW AFTER PROVIDING ASSESSEE A REASONABLE OPPORTUNI TY OF BEING HEARD. THIS GROUND IS DECIDED AS ABOVE. 2.2 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL FOR EARLIER YEARS AND IN ACCORDANCE WITH LAW. THIS GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D FOR STATISTICAL PURPOSES. 3 3. GROUND OF APPEAL NO. 2 BY THE ASSESSEE READS AS UNDER : 2. DISALLOWANCE OUT OF COMMISSION EXPENSES RS. 6 ,59,563/- THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE MADE BY THE ASSESSING OFFICER OF COMMISSION GENUINELY AND ACTUALLY PAID T O VARIOUS DEALERS BY MERELY RELYING ON SURMISES, GUESSWORK AND CONJECTUR E. HE FAILED TO APPRECIATE THAT THE APPELLANT HAD PRODUCED FULL PRO OF OF PAYMENTS AND DETAILS OF EXPENSES. 3.1. AFTER HEARING BOTH THE SIDES, WE FIND THE AO F OLLOWING HIS ORDER FOR ASSESSMENT YEAR 1997-98 DISALLOWED COMMISSION OF RS . 6,59,563/- BEING 10% OF THE COMMISSION CLAIMED AT RS. 65,95,636/-. IN APPE AL, THE LEARNED CITA) UPHELD THE DISALLOWANCE MADE BY THE AO. WE FIND THAT IDEN TICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITA NO. 25 7/PN/2003 ORDER DATED 30-08- 2011 FOR THE ASSESSMENT YEAR 1998-99. WE FIND THE TRIBUNAL AT PARA 7 OF THE ORDER HAS DISCUSSED THE ISSUED AND ALLOWED THE CLAIM OF T HE ASSESSEE BY HOLDING AS UNDER: 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES, WE FIND THAT THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE BY THE DECISION OF OUR CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1995-96. FOLLOWING THE PRECEDENT, T HEREFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF COMMISSI ON. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 3.2 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 4. GROUND OF APPEAL NO. 3 BY THE ASSESSEE READS AS UNDER : 3. DISALLOWANCE OUT OF VEHICLE MAINTENANCE EXPENSES RS. 1,52,654/- THE LEARNED CIT(A) ERRED IN DISALLOWING 2% OF THE V EHICLE EXPENSES AND PROPORTIONATE DEPRECIATION ON MOTOR CAR U/S. 38(2) ON ACCOUNT OF NON- BUSINESS EXPENDITURE AND PERSONAL USE OF COMPANYS VEHICLES BY OFFICERS OF THE COMPANY. HE FAILED TO APPRECIATE THAT AS PER T HE SERVICE CONDITIONS APPLICABLE TO SENIOR OFFICERS, COMPANY ALLOWS THEM TO USE COMPANYS VEHICLES FOR OFFICE WORK AND ANY INCIDENTAL PERSONA L USE IS TREATED AS PERQUISITES IN THE HANDS OF OFFICERS AS PER INCOME- TAX RULES, 1961. 4 4.1. AFTER HEARING BOTH THE SIDES, WE FIND THE AO D ISALLOWED AN AMOUNT OF RS. 1,52,654/- BEING 2% OF THE VEHICLE MAINTENANCE EXPE NSES CLAIMED AT RS. 52,95,627/-. HE ALSO DISALLOWED 2% OF THE DEPRECIA TION ON VEHICLES AT RS. 46,742/. THE ABOVE ADDITIONS WERE UPHELD BY THE CIT(A) . WE FIND THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 AND THE TRIBUNAL VIDE ITA NO. 257/2003 ORDER DATED 30-08-2011 HAS ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER : 10. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, WE FIND THAT THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE BY THE DECISION OF OUR CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1995-96 AND 1997-98. WE FURTHER FIN D THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. KIRLOSKAR FERROUS INDUSTRIES LTD., PUNE IN INCOME-TAX APPEAL NO. 622 OF 2010 DATED 04.07.2011 HAS MADE A REFERENCE TO THE ABOVE DECISION OF THE TRIBUNAL IN THE ASSESSEE S CASE FOR ASSESSMENT YEARS 1995-96 AND 1996-97 (SUPRA) UPHOLDING THE VIEW THAT IN A CASE OF A LIMITED COMPANY EXPENDITURE INCURRED ON TELEPHONE, VEHICLE ETC., WHICH ARE CERTIFIED BY THE AUDITORS OF THE COMPANY AS ALSO THE AUDITORS UN DER THE INCOME-TAX ACT CANNOT BE DISALLOWED. FOLLOWING THE PRECEDENT, THER EFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE OUT OF VEHICLE MAINTENANCE EX PENSES. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 4.2 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 5. GROUND OF APPEAL NO.4 BY THE ASSESSEE READS AS UNDER : 4. DISALLOWANCE OUT OF TELEPHONE EXPENSES RS. 77, 297/- THE LEARNED CIT(A) ERRED IN DISALLOWING RS. 77,297/ - OUT OF EXPENDITURE INCURRED ON RESIDENTIAL TELEPHONES AS NON-BUSINESS EXPENDITURE. HE FAILED TO APPRECIATE PROCEDURE FOLLOWED BY THE COMPANY FOR RE IMBURSEMENT OF TELEPHONE EXPENSES AND CONSIDER THE SUBMISSIONS MAD E IN THESE REGARDS. HE OUGHT TO HAVE FOLLOWED EXECUTIVE INSTRUCTIONS ISSUE D BY THE CENTRAL BOARD OF DIRECT TAXES REGARDING USE OF TELEPHONES BY EMPLOYE ES. 5.1. AFTER HEARING BOTH THE SIDES, WE FIND THE AO D ISALLOWED AN AMOUNT OF RS. 77,297/- BEING 10% OF THE RESIDENTIAL TELEPHONE EXP ENSES CLAIMED BY THE ASSESSEE AT RS. 7,72,974/-. IN APPEAL THE LEARNED CIT(A) UPH ELD THE DISALLOWANCE. WE FIND 5 THAT IDENTICAL ISSUE HAD COME BEFORE THE TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 AND THE TRIBUNAL VIDE ITA N O. 257/2003 ORDER DATED 30- 08-2011 HAS ALLOWED THE CLAIM OF THE ASSESSEE BY DI RECTING THE AO TO DELETE THE ADDITION BY HOLDING AS UNDER : 11. THE NEXT GROUND RELATES TO DISALLOWANCE OUT OF TELEPHONE EXPENSES OF RS.50,568/-. FOLLOWING THE REASONING GIVEN IN PARA 10 ABOVE, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE O UT OF TELEPHONE EXPENSES OF RS 50,568/-. 5.2. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 6. GROUND OF APPEAL NO.5 BY THE ASSESSEE READS AS U NDER : 5. DEDUCTION U/S. 28 RS. 1,83,74,000/- THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN DIS ALLOWING ASSESSEES CLAIM U/S. 28 OF THE INCOME TAX ACT, 1961 AS BUSINE SS LOSS DUE TO RECOVERABILITY OF ADVANCES OF RS. 1,83,74,000/-. H E FAILED TO FULLY APPRECIATE THE FACTS. HE FURTHER ERRED IN HOLDING THAT THE AS SESSEE HAS FAILED TO ESTABLISH THAT THE LOSS RELATES TO THE CURRENT YEAR . 6.1. LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME O F HEARING DID NOT PRESS THIS GROUND FOR WHICH THE LEARNED D.R. HAS NO OBJECTION. ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 7. GROUND OF APPEAL NO.6 BY THE ASSESSEE READS AS U NDER : 6. DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES- RS. 2,00,000/- THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN ARB ITRARILY DISALLOWING RS. 2,00,000/- OUT OF MISCELLANEOUS EXPENSES AS NON-BU SINESS EXPENDITURE. HE FAILED TO APPRECIATE REMARKS BY THE AUDITORS AS WEL L AS THE BOARDS CIRCULARS REGARDING COMPANY ASSESSMENTS. 7.1. AFTER HEARING BOTH THE SIDES, WE FIND THE AO D ISALLOWED AN AMOUNT OF RS. 2 LAKHS ON ADHOC BASIS OUT OF RS. 79,37,337/- CLAIMED BY THE ASSESSEE UNDER THE HEAD 6 MISCELLANEOUS EXPENSES. IN APPEAL THE LEARNED CI T(A) UPHELD THE ADDITION. WE FIND THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TR IBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 AND THE TRIBUNAL VIDE ITA N O. 257/2003 ORDER DATED 30- 08-2011 ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDIN G AS UNDER : 15. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE CONSIDERED OPINION THAT NO SUCH AD HOC DISALLOWANCE IS CALLED IN THE ASSESSEES CAS E, WHICH IS A LIMITED COMPANY AND THE EXPENDITURE INCURRED ARE CERTIFIED BY THE A UDITORS OF THE COMPANY AS ALSO THE AUDITORS UNDER THE INCOME-TAX ACT, FOLLOWING TH E PARITY OF REASONING LAID DOWN BY THE HONBLE HIGH COURT IN THE CASE OF KIRLOSKAR FERROUS INDUSTRIES LTD. (SUPRA). IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ASPECT AND THE ASSESSING OFFICER IS DIRECTED TO DEL ETE THE AD HOC DISALLOWANCE OF RS 2,00,000/- MADE ON THIS COUNT. THIS GROUND OF AP PEAL IS ACCORDINGLY ALLOWED. 7.2. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. GROUND OF APPEAL NO.7 BY THE ASSESSEE READS AS U NDER : 7. DISALLOWANCE OUT OF AIRCRAFT EXPENSES RS. 5,79 ,640/- THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AIRCRA FT WERE USED FOR NON- BUSINESS PURPOSES WHEN IT WAS AVERRED BEFORE HIM TH AT THE AIRCRAFT ARE JOINTLY OWNED AND OTHER COMPANIES AND THERE IS NO E LEMENT OF PERSONAL USE AT ALL. HE FURTHER ERRED IN DISALLOWING PROPORTION ATE DEPRECIATION ON AIRCRAFT UNDER SECTION 38(2). 8.1. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE GROUND IS DECIDED AGAINST THE ASSESSEE VIDE I TA NOS. 1039/PN/2000 FOR ASSESSMENT YEAR 1995-96, ITA NO.45/PN/2001 FOR ASSE SSMENT YEAR 1997-98 AND ITA NO. 257/PN/2003 FOR ASSESSMENT YEAR 1998-99. I N VIEW OF THE ABOVE SUBMISSION BY THE LEARNED COUNSEL FOR THE ASSESSEE AND IN VIEW OF THE CONSISTENT DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE THI S GROUND RAISED BY THE ASSESSEE IS DISMISSED. 7 9. GROUND OF APPEAL NO.8 BY THE ASSESSEE READS AS UNDER : 8. LEASEHOLD LAND WRITTEN OFF RS. 44,416/- THE LEARNED CIT(A) ERRED IN DISALLOWING RS. 44,416/ - ON ACCOUNT OF LEASEHOLD LAND WRITTEN OFF. HE FURTHER ERRED IN EQU ATING THE WRITE OFF WITH THE DEPRECIATION. HE FAILED TO APPRECIATE THE NATURE O F PAYMENT. IN ANY CASE HE OUGHT TO HAVE FOLLOWED THE JUDGMENT IN CIT VS. HMT LTD., (203 ITR 820). 9.1. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND FOR WHICH LEARNED D.R. HAS NO OBJECTION. AC CORDINGLY THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 9.2 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 176/2004 (BY REVENUE) : 10. GROUND OF APPEAL NO. 1 BY THE REVENUE READS AS UNDER : 1. THE LEARNED CIT(A) ERRED IN DIRECTING TO GRANT R ELIEFS AS PER THE BIFRS ORDER WHEN IN THE FACT THE DEPARTMENT WAS NO T MADE PARTY TO THE BIFRS ORDER. 10.1. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE YEAR THERE IS A MERGER OF M/S. SHIVAJI WORKS LTD. INTO M/S. KIRLOSKAR OIL ENGINES LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED BIFR ORDER STATING THAT THE CONCESSIONS MENTIONED THEREIN, I.E. BIFR ORDER SHOU LD BE ALLOWED IN THE HANDS OF M/S. KIRLOSKAR OIL ENGINES LTD. THE AO REFERRED TO THE ORDER U/S.119(2)(A) OF THE IT ACT, 1961 DATED 16-02-2000 ISSUED BY CBDT WHICH READS AS UNDER : THE CBDT IN EXERCISE OF THE POWERS U/S.119(2)(A) O F THE IT ACT, 1961 VIDE ORDER DATED 22-04-1991 (F.NO.225/91/99/ITA II) HAD DIRECTED THA T EFFECT TO ALL ORDERS PASSED BY BOARD OF INDUSTRIAL & FINANCIAL RECONSTRUCTION (BIF R) IN AN APPROVED SCHEME OF RECONSTRUCTION/REHABILITATION BE GIVEN DURING THE C OURSE OF AN ASSESSMENT AFTER GRANTING ALL THE RELIEFS UNDER THE IT ACT, 1961 INCLUDING TH OSE RELIEFS WHERE THE BIFR HAD RECOMMENDED CONSIDERATION OF SUCH RELIEFS UNDER THE IT ACT BY THE CENTRAL GOVERNMENT. IN SUPERSESSION OF THIS, THE CBDT NOW DIRECTS THAT WHEREVER THE ORDER OF THE BIFR IN AN APPROVED SCHEME OF RECONSTRUCTION/REHABILITATION 8 (A) DIRECTS THAT THE RELIEFS BE ALLOWED UNDER THE I .T. ACT, 1961 THE EFFECT TO SUCH ORDERS BE GIVEN IMMEDIATELY. (B) RECOMMENDS THAT THE RELIEFS UNDER THE I.T. ACT, 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT, THE RELIEF BE ALLOWED TO THE AS SESSEE IF DURING COURSE OF THE PROCEEDINGS BEFORE THE BIFR, THE VIEWS OF THE I. TA X DEPARTMENT HAVE BEEN CONSIDERED BY THE BIFR. HOWEVER, IF THE ORDER OF BIFR HAS BEEN P ASSED WITHOUT MAKING I. TAX DEPARTMENT A PARTY OR WITHOUT GIVING A CHANCE TO TH E I.TAX DEPARTMENT TO SUBMIT ITS VIEWS THE EFFECT OF BIFR RECOMMENDATIONS IS TO BE G IVEN ONLY AFTER SUCH RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE C BDT. 10.2. ON EXAMINATION OF BIFR ORDER DATED 19 TH DECEMBER 1999 THE AO NOTED THAT THE INCOME TAX DEPARTMENT WAS NOT A PARTY AND ITS V IEWS WERE NOT CONSIDERED BY BIFR BEFORE FINALIZATION OF ITS PROCEEDING. IN VIE W OF THE CBDT INSTRUCTIONS (I.E., THE ORDER OF THE CBDT DATED 16-02-2000) THAT IN THE EVENT OF INCOME TAX DEPARTMENT NOT BEING GIVEN CHANCE OF BEING HEARD, T HE ASSESSING AUTHORITY IS CONSTRAINED NOT TO GIVE EFFECT TO THE RECOMMENDATIO N OF THE BIFR BEFORE THE SAME ARE CONSIDERED BY CBDT. THERE IS NOTHING ON RECORD TO SHOW THAT THE VIEW OF THE IT DEPARTMENT WERE CONSIDERED BEFORE FINALIZATION O F BIFRS PROCEEDINGS. THEREFORE THE AO DID NOT TAKE INTO ACCOUNT THE BIF RS ORDER WHILE FINALIZING THE ASSESSMENT. 10.3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE A O HAS CHOSEN ONLY THAT PORTION OF THE ORDER OF CBDT U/S. 119(2) (A) WHICH WAS CONV ENIENT TO HER. IT WAS SUBMITTED THAT THE ORDER OF THE BOARD HAS TO BE REA D FULLY AND NOT IN PARTS. IT WAS SUBMITTED THAT WHEREVER THE BIFR DIRECTED THAT THE RELIEFS SHOULD BE ALLOWED OR EVEN WHEN THE BIFR RECOMMENDED THAT THE RELIEFS WER E TO BE CONSIDERED BY THE CENTRAL GOVERNMENT AND WHERE THE DEPARTMENTS VIEW HAD BEEN CONSIDERED BY THE BIFR BEFORE MAKING SUCH RECOMMENDATIONS THE RELIEFS WERE TO BE ALLOWED TO THE ASSESSEE BY THE ASSESSING OFFICER. IT WAS ONLY WHE N THE BIFR RECOMMENDED THE RELIEF WITHOUT TAKING THE VIEWS OF THE I.T. DEPARTM ENT THAT IT WAS TO BE CONSIDERED BY THE CBDT BEFORE ANY RELIEF WAS ALLOWED BY THE AS SESSING OFFICER. HOWEVER, 9 WHETHER THE BIFR DIRECTED THE RELIEF HAS TO BE GRAN TED, THE EFFECT TO THE ORDER OF THE BIFR WAS TO BE GIVEN IMMEDIATELY IRRESPECTIVE OF TH E FACTS WHERE THE INCOME TAX DEPARTMENT WAS MADE OR WAS NOT MADE A PARTY AND WHE THER THE VIEW OF THE DEPARTMENT WERE CONSIDERED BY THE BIFR OR NOT. IT WAS SUBMITTED THAT IN THE CASE OF THE ASSESSEE IN VIEW OF THE SANCTIONED SCHEME OF BIFR IT WAS THE DIRECTIONS OF THE BIFR IN THE SAID SCHEME AND NOT MERELY RECOMMEN DATIONS. SUCH RELIEFS IN EQUIVOCAL TERMS WERE DIRECTIONS DIRECTING THE DEPAR TMENT TO GRANT RELIEFS, FOR INSTANCE ; 1. ON PAGE NO. 18 OF THE SANCTIONED SCHEME IT IS ST ATED THAT ON AMALGAMATION KOEL SHALL BE ALLOWED TO CARRY FORWARD AND SET OFF LOSSES AND UNABSORBED DEPRECIATION ALLOWANCE OF SWL UNDER SECTION 72A OF THE INCOME TAX ACT, 1961. 2. ON PAGE NO. 19 AMOUNT ADVANCED BY KOEL TO SWL, TILL THE EFFECTIVE AMALGAMATION TAKES PLACE, SHALL BE ALLOWE D AS BUSINESS LOSS U/S.29 OF THE INCOME TAX ACT, 1961 TO KOEL IN THE YEAR IN WHICH AMALGAMATION TAKES EFFECT. 10.4. IT WAS SUBMITTED THAT THE ORDER OF BIFR USED THE WORDS SHALL BE ALLOWED WHILE DECIDING ON THE RELIEFS. IT WAS SUBMITTED TH AT WHEN SHALL WAS USED BY THE STATUTE, THE CONTEXT IN WHICH IT WAS USED BECOMES A N OBLIGATION OR A DIRECTION. IT WOULD BE AN ALTOGETHER CASE IF THE WORDS MAY HAD BEEN USED, THEN THE CONTEXT MAY HAVE BECOME A DISCRETION OR A RECOMMENDATION. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESSING OFFICER HAD COMMITTED A GRAVE ER ROR IN LAW BY NOT FOLLOWING THE CBDT ORDER, WHICH WAS BINDING UPON HER. 10.5. THE ASSESSEE EMPHASISED THE PROVISIONS OF THE SCHEME SANCTIONED BY THE BIFR U/S. 18(4) R.W.S. 19(3) OF THE SICK INDUSTRIAL COMPANIES ACT (SICA) WHICH HAD AN OVERRIDING EFFECT ON ANY OTHER PROVISIONS OF ANY OTHER ACT EXCEPT THE PROVISIONS OF FERA 1973 AND URBAN LAND (CEILING & R EGULATION) ACT, 1976. REFERENCE WAS MADE TO SECTION 32(1) OF SICA. IT WA S ALSO CONTENDED THAT THE PROCEEDINGS BEFORE BIFR WERE JUDICIAL PROCEEDINGS A ND THE BIFR WAS DEEMED TO BE CIVIL COURT U/S. 14 OF SICA. ONCE THE COURT PAS SED ANY ORDER, THE EFFECT OF SUCH ORDER HAD TO BE GIVEN UNLESS THE ORDER WAS MOD IFIED BY THE SAME COURT OR ANY OTHER HIGHER JUDICIAL AUTHORITY BY DUE PROCESS OF L AW, I.E. TO STAY TILL THE ORDER OF THE 10 BIFR WAS MODIFIED, THE EXISTING PRESENT BIFR ORDER WAS FINAL AND BINDING UPON THE TAX AUTHORITIES. 10.6. IT WAS ALSO POINTED OUT THAT THE DEPARTMENT H AD APPROACHED THE BIFR FOR GRANTING AN OPPORTUNITY TO THE DEPARTMENT TO PRESEN T ITS VIEWS ON THE TAX CONCESSIONS. BUT THE BIFR HAD NOT CARRIED OUT ANY MODIFICATION IN ITS ORIGINALLY SANCTIONED ORDER NOR IT HAD SET ASIDE ITS ORIGINAL ORDER AND THE MATTER WAS PENDING WITH THE BIFR. THUS THE ORIGINALLY SANCTIONED ORDE R STOOD AS IT WAS AT PRESENT WHICH WAS BINDING ON THE DEPARTMENT. IT WAS SUBMIT TED THAT IN FACT THE ASSESSING OFFICER OUGHT TO HAVE FIRST GIVEN EFFECT TO THE BIF R ORDER WHICH WAS SUBSISTING AND VALID ON THE DATE OF THE ASSESSMENT ORDER AND THEN AWAIT MODIFICATION OF THAT ORDER BY BIFR, IF ANY. THE ASSESSING OFFICER WAS NOT JU STIFIED IN RAISING A DEMAND IGNORING THE VALID AND EFFECTIVE ORDER OF THE BIFR SIMPLY ON THE GROUND THAT DEPARTMENT WAS NOT ALLEGEDLY HEARD BY THE BIFR. 11. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UND ER : THE SUBMISSIONS HAVE BEEN CONSIDERED AND THE PROVI SIONS OF SECTION 32 OF SICA AS WELL AS THE ORDER OF THE CBDT U/S. 19(2)(A) DATED 16-02-2000 HAVE BEEN PERUSED. IN MY OPINION, THE WHOLE PURPOSE OF SICA IS TO REVI VE A SICK INDUSTRIAL UNIT. AS POINTED OUT BY THE HONBLE FINANCE MINISTER, WHI LE INTRODUCING SEC.72A AND REPORTED ALSO IN 218 ITR 140 (PAGE 147), THE SI CKNESS IN INDUSTRY IS A MATTER OF GRAVE NATIONAL CONCERN IN AS MUCH AS CLOS URE OF ANY MANUFACTURING UNIT ENTAILS SOCIAL COSTS IN TERMS OF LOSS OF PRODUCTION AND UNEMPLOYMENT AS ALSO WASTE OF VALUABLE CAPITAL ASSE TS. THE PREAMBLE TO SICA ALSO STATES THAT THE SICA WAS INTRODUCED IN TH E PUBLIC INTEREST TO MAKE SPECIAL PROVISIONS FOR DETECTION OF SICK UNITS AND EXPEDITIOUS ENFORCEMENT OF THE MEASURES DETERMINED BY AN EXPERT BOARD (I.E. BI FR) TO REVIVE SUCH SICK UNIT. I THEREFORE FEEL THAT THE ISSUE IS TO DECIDE D IN THIS PERSPECTIVE. SECTION 32 OF THE SICA STATES THAT THE PROVISIONS O F ANY SCHEME MADE UNDER THE SICA SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW EXCEPT FERA AND URBAN LA ND CEILING ACT. TO MY MIND THE PLAIN INTERPRETATION OF SECTION 32 IS T HAT WHEN A SCHEME IS SANCTIONED UNDER SICA, THE EFFECT TO ALL THE PROVIS IONS OF THE SCHEME WILL HAVE AN OVERRIDING EFFECT EVEN IF SUCH PROVISIONS A RE INCONSISTENT WITH ANY OTHER LAW. THUS IF BIFR SANCTIONS A REVIVAL SCHEME , THE EFFECT TO SUCH SCHEME WHICH INCLUDES MEASURES TO REVIVE A SICK UNI T IS TO BE GIVEN EVEN IF THEY ARE NOT IN LINE WITH THE PROVISIONS OF ANY OTH ER APPLICABLE LAWS. THUS 11 SECTION 32 IS IN LINE WITH THE WHOLE PURPOSE OF THE SICA FOR ENSURING SPEEDY REVIVAL OF A SICK UNIT. AS REGARDS TAX CONCESSIONS, THE CBDT HAS COME OUT W ITH AN ORDER U/S. 119(2)(A), WHICH, INCIDENTALLY RECOGNIZES THE OVERR IDING POWERS OF THE BIFR GRANTED TO IT U/S. 32 OF THE SICA. THE ORDER STATE S THAT WHEN THE BIFR DIRECTS THAT THE RELIEFS ARE TO BE GRANTED, THE EFF ECT OF SUCH RELIEFS IS TO BE GIVEN IMMEDIATELY NOTWITHSTANDING THE FACT WHETHER THE DEPARTMENT WAS MADE A PARTY TO THE HEARING BEFORE BIFR. IT IS ONL Y WHEN BIFR RECOMMENDS THAT THE RELIEFS ARE TO BE CONSIDERED BY THE DEPART MENT THEN THE ISSUE WILL ARISE WHETHER THE DEPARTMENT WAS MADE A PARTY BEFOR E THE BIFR. ALSO IF SUCH RECOMMENDATION IS MADE BY THE BIFR AFTER CONSI DERING THE DEPARTMENTS VIEWS, THEN STILL THE EFFECT IS REQUIR ED TO BE GIVEN. IT IS ONLY IF THE RECOMMENDATION IS MADE BY THE BIFR WITHOUT HEAR ING THE DEPARTMENT, THEN THE EFFECT IS TO BE GIVEN AFTER THEY ARE DULY CONSIDERED BY THE CBDT. THUS THE MAIN ISSUE TO BE DECIDED IN THE PRESENT CA SE IS WHETHER THE RELIEFS GRANTED BY THE BIFR ARE DIRECTIONS OR RECOMMENDA TIONS. THE SUBJECT RELIEFS ARE MENTIONED ON PAGE 18 OF THE SCHEME WHER EIN THE BIFR INVARIABLY USES THE WORDS SHALL BE ALLOWED. IT IS NOTEWORT HY THAT THE BIFR HAS NOT USED THE WORDS TO CONSIDER AS IS THE COMMON PRACT ICE OF BIFR WHEN IT INTENDS TO RECOMMEND THE RELIEFS. WHEN THE WORDS SHALL BE ALLOWED ARE USED, THESE ARE NOTHING BUT DIRECTIONS, TO MY MIN D, AND THEREFORE THE EFFECT TO THE RELIEFS IS TO BE GRANTED IMMEDIATELY KEEPING IN VIEW THE PROVISIONS OF SEC.32 OF THE SICA AND THE ORDER OF THE CBDT U/S.11 9(2)(A) DATED 16-02- 2000. AS REGARDS THE ISSUE OF DATE OF AMALGAMATION RAIS ED BY THE ASSESSING OFFICER DURING APPELLATE PROCEEDINGS, I FIND THAT T HE ISSUE WAS NOT AT ALL ADDRESSED BY THE ASSESSING OFFICER AT THE TIME OF A SSESSMENT AND IS SOUGHT TO BE RAISED FOR THE FIRST TIME IN APPELLATE PROCEEDIN GS. EVEN OTHERWISE IT IS OBSERVED THAT SWL WAS DECLARED AS SICK BY THE BIF R IN MARCH 1998. THE SANCTIONED SCHEME BY BIFR EXPRESSLY STATES THE DATE OF AMALGAMATION AS 1.4.98 AND THAT CANNOT BE CHANGED UNLESS THERE IS A MOTIVE OF TAX EVASION, AS POINTED OUT BY THE HONBLE SUPREME COURT IN MARSHA LL & SONS CASE (223 ITR 809). IN THE CASE OF APPELLANT AS THE MERGER W AS EFFECTED TO REVIVE A SICK COMPANY, THAT TOO UNDER A SCHEME PREPARED BY A N OPERATING AGENCY AND SANCTIONED BY BIFR WHICH IS CONSTITUTED FOR THI S VERY PURPOSE, IT WOULD BE WRONG TO ASCRIBE ANY MOTIVE OF TAX EVASION OR TA X PLANNING WITHOUT ANY BASIS. THE ISSUE IS TO BE VIEWED FROM A PROPER PER SPECTIVE THAT A SICK COMPANY IS BEING REVIVED. THE HEALTHY COMPANY TAKE S OVER THE BURDEN OF A SICK COMPANY WHICH INVOLVES FINANCIAL INVESTMENTS B Y IT AND THEREFORE THE TAX CONCESSIONS ARE REQUIRED. IN MY OPINION IT WOU LD BE AN IRONY TO VIEW THIS AS A TAX PLANNING OR TAX EVASION. IT IS FOR T HIS REASON THAT THE FACTS OF THE PRESENT CASE CANNOT BE EQUATED WITH THAT OF FINOLEX CASE ON WHICH THE ASSESSING OFFICER HAS PLACED RELIANCE. IN THAT CAS E, FIRSTLY NO OUTSIDE PARTIES WERE INVOLVED. IN THIS CASE, THE OPERATING AGENCY IN THE FIRST PLACE EXPLORED ALL THE AVENUES TO REVIVE A SICK UNIT. IT FIRST TR IED TO REVIVE SWL ON A STAND- ALONE BASIS. WHEN THIS WAS NOT FOUND PRACTICAL, IT INVITED BIDS TO TAKE OVER THE SICK COMPANY AND WHEN NO CONCRETE PROPOSALS CAM E FORTH, THEN ONLY THE 12 AMALGAMATION WITH KOEL WAS MOOTED. IN FINOLEX CASE , THE MERGER WAS UNDER THE COMPANIES ACT, WHERE NO SUCH OUTSIDE PART IES WERE INVOLVED IN FORMULATING THE MERGER PROPOSAL. IN THAT CASE, ALS O THE PROPOSAL WAS INITIATED MUCH LATER TO BE EFFECTIVE FROM AN EARLIE R DATE. IN THE INSTANT CASE, SWL WAS DECLARED AS A SICK COMPANY BY BIFR IN MARCH 1998, AND THE STEPS TO REVIVE IT WERE INITIATED IMMEDIATELY, AND THEREF ORE THERE WAS NOTHING WRONG TO TAKE 1.4.98 AS THE EFFECTIVE DATE. THE BI FR HAS ALSO STATED THE EFFECTIVE DATE AS 1.4.98, AND SINCE THERE ARE NO MO TIVES OF TAX PLANNING WHICH CAN BE ASCRIBED TO THE REVIVAL SCHEME, THE EF FECTIVE DATE, ONCE DETERMINED BY THE BIFR, WILL HAVE TO BE FOLLOWED. THE ISSUE OF TAX EVASION HAS BEEN RAISED BY THE ASSESSING OFFICER WITHOUT EX AMINING THE ISSUE AT THE ORIGINAL STATE. THE QUERY REGARDING DATE OF AMALGA MATION WAS MADE BY THE ASSESSING OFFICER AND WHICH WAS DULY EXPLAINED BY T HE APPELLANT AT THE ASSESSMENT STAGE WHICH WAS APPARENTLY FOUND TO BE A CCEPTABLE AS NO FURTHER ENQUIRY WAS MADE BY THE ASSESSING OFFICER ON THIS A CCOUNT. THE ASSESSING OFFICER HAS ALSO NOT CRITICALLY ANALYSED FACTS OF T HE CASE IN FCL (SUPRA) AND THAT OF THE APPELLANT. IN THE CASE OF FCL IN THE A PPELLATE ORDER FOR A.Y. 1998-99 I HAD AGREED WITH THE ASSESSING OFFICER THA T THE DETERMINATION OF THE APPOINTED DATE WAS A COLOURABLE DEVICE AND THE ASSESSING OFFICERS ORDER WAS CONFIRMED IN REGARD TO THE FINDING THAT T HE APPOINTED DATE WAS ARBITRARILY FIXED IN ORDER TO BYPASS THE PROVISIONS OF SECTION 72A OF THE I.T. ACT, 1961. THE FACTS IN THE CASE OF THE APPELLANT ARE DIFFERENT FROM THE CASE OF THE FCL. THERE IS NOTHING TO SHOW THAT THE APPO INTED DATE WAS ARBITRARILY FIXED OR BACK DATED AND CONSIDERING THE FACTS OF TH E CASE BEING AMALGAMATION OF A SICK COMPANY UNDER SICA AND THE S CHEME OF AMALGAMATION AS PASSED BY BIFR COULD BE A COLOURABL E DEVICE. HOLDING SUCH A VIEW WOULD BE RIDICULOUS AND FARFETCHED. SI NCE AS ALREADY HELD THAT IN THE SCHEME OF THE BIFR THE RELIEFS ARE NOT RECOM MENDATIONS BUT DIRECTIONS THE EFFECT TO THE ORDER OF THE BIFR HAS TO BE GIVEN EVEN IF THE DEPARTMENT HAS NOT BEEN MADE A PARTY TO THE SCHEME. IN THE INSTAN T CASE THE DEPARTMENT HAS NOT BEEN MADE A PARTY BEFORE THE BIFR. THE APPELLA NTS REPRESENTATIVE HAS ALSO POINTED OUT THAT THE DEPARTMENT HAD ASKED FOR THE REVIEW THE ORDER OF THE BIFR AND THE BIFR HAD PASSED ANOTHER ORDER ON 1 9-08-2003 AFTER CONSIDERING THE ADJOURNMENT REQUEST OF THE DEPARTME NT AND THE BENCH HAD DISCHARGED M/S. SWL OUT OF PURVIEW OF BIFR SINCE TH E AMALGAMATION SCHEME SANCTIONED BY THE BOARD ON 03-03-2000 WAS SU BSTANTIALLY IMPLEMENTED AS A RESULT OF WHICH M/S. SEL COULD BEC OME TECHNO- ECONOMICALLY, VIABLE ON LONG TERM BASIS. M/S. SWL WAS DISCHARGED FROM PURVIEW OF BIFR WITH IMMEDIATE EFFECT. THUS, THE P RESENT SANCTIONED ORDER OF THE BIFR SUBSISTS AS ON THE DATE AND CANNOT BE I GNORED UNTIL IT IS MODIFIED OR SET ASIDE BY BIFR OR THE HIGHER AUTHORITIES. TH E DECISION RELIED BY THE APPELLANT IN M/S. J.K. CORPORATION 68 ITD 240 IS SQ UARELY APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT AND THE SCHEME I F AT ALL BECAUSE OF NOT FOLLOWING OF CERTAIN PROCEDURE BY THE BIFR SUCH AS NOT MAKING THE DEPARTMENT AS A PARTY COULD ONLY MAKE THE SCHEME VO IDABLE AND NOT VOID. IN VIEW OF SECTION 32(1) OF SICA THE SCHEMES MADE UNDE R SICA SHALL BE OVERRIDING EFFECT ON ALL OTHER LAWS EXCEPT THE PROV ISIONS OF FERA AND ULC ACT. UNLESS THE ORDER OF THE BIFR IS MODIFIED OR S ET ASIDE BY A COMPETENT COURT OR A FORUM IT SHALL REMAIN TO BE BINDING. TH EREFORE, THE ISSUE IN THE PRESENT CASE HAS TO BE DECIDED ON THE BASIS OF THE ORIGINAL SANCTIONED ORDER. THE ORIGINAL ORDER OF SICA UNLESS MODIFIED/AMENDED OR RECTIFIED CANNOT BE OVERLOOKED AT THE APPELLATE STAGE. IN THAT VIEW OF THE MATTER, I FIND THAT THE 13 CONTENTIONS OF THE APPELLANTS REPRESENTATIVE ARE L EGALLY TENABLE AND THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO GRA NT THE RELIEFS WHICH ARE MENTIONED IN THE ORDER OF THE BIFR DATED 16.12.1999 . HOWEVER, IF AND WHEN THE ORIGINAL ORDER DATED 16.12.1999 IS MODIFIED BY THE BIFR OR HIGHER AUTHORITIES OR BY COMPETENT FORUM IT WOULD BE OPEN TO THE ASSESSING OFFICER TO MODIFY HER ORDER ACCORDINGLY GIVING EFFE CT TO THIS APPELLATE ORDER. THE GROUND OF THE APPELLANT IS ALLOWED SUBJECT TO T HE OBSERVATION THAT IF THE ORDER OF THE BIFR IS MODIFIED/SET ASIDE SUBSEQUENTL Y THE ORDER GIVING EFFECT TO THIS ORDER SHALL BE MODIFIED ACCORDINGLY BY THE ASSESSING OFFICER. 12.1. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE R EVENUE IS IN APPEAL BEFORE US. 13. THE LEARNED DR SUBMITTED THAT THE DEPARTMENT WA S NOT A PARTY TO THE BIFR PROCEEDINGS. HE SUBMITTED THAT AFTER SANCTIONED SC HEME WAS PASSED WITHOUT THE DEPARTMENT BEING MADE A PARTY ANOTHER ORDER WAS PAS SED ON 19-08-2003. REFERRING TO PAGE 166 OF THE PAPER BOOK THE LEARNED DR DREW ATTENTION OF THE BENCH TO THE DRAFT MODIFICATION TO THE SANCTIONED S CHEME VIDE ORDER DATED 13-09- 2001 WHEREIN IT HAS BEEN MENTIONED THAT THE PROPOSE D MODIFICATIONS ARE CIRCULATED TO THE INCOME TAX DEPARTMENT GIVING 60 DAYS TIME TO THEM FOR CONVEYING THEIR CONSENT OR OTHER VIEWS U/S.19(2) OF THE SICA. REFE RRING TO PAGE 103 OF THE PAPER BOOK THE LEARNED DR DREW ATTENTION OF THE BENCH TO THE CIRCULAR ISSUED BY CBDT VIDE FILE NO. 225/91/99/ITA-II-DATED 16-02-2000 (RE PORTED IN 159 CTR STATUTE 148). REFERRING TO PAGE 127 OF THE PAPER BOOK THE LEARNED DR DREW THE ATTENTION OF THE BENCH TO PROVISION OF SUB SECTION (2) OF SEC TION 19 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 ACCORDING TO WHICH THE SCHEME AS PER SUB SECTION (1) OF SECTION 19 SHALL BE CIRCULATED T O EVERY PERSON REQUIRED BY SCHEME TO PROVIDE FINANCIAL ASSISTANCE FOR HIS CONSENT WIT HIN A PERIOD OF 60 DAYS FROM THE DATE OF SUCH CIRCULATION. REFERRING TO PAGE 191 OF THE PAPER BOOK THE LEARNED DR SUBMITTED THAT AS PER THE DIRECTION OF THE BIFR ON AMALGAMATION KIRLOSKAR OIL ENGINES LTD. SHALL BE ALLOWED TO CARRY FORWARD AND SET OFF OF LOSSES AND UNABSORBED DEPRECIATION ALLOWANCE OF SWL U/S.72A OF THE INCOME TAX ACT, 1961. HE 14 SUBMITTED THAT QUESTION OF CONSENT COMES ONLY WHEN THE DRAFT ORDER IS CIRCULATED TO THE DEPARTMENT. REFERRING TO PAGE 3 OF THE ASSESSM ENT ORDER HE SUBMITTED THAT THE AO HAS MENTIONED THAT THE BIFR ORDER DATED 16-12-19 99 SHOWS THAT INCOME TAX DEPARTMENT WAS NOT MADE A PARTY AND ITS VIEWS WERE NOT CONSIDERED BY THE BIFR BEFORE FINALISING OF ITS PROCEEDINGS. REFERRING TO THE CBDT CIRCULAR NO. 683 DATED 08-06-1994 HE SUBMITTED THAT UNLESS THE DRAFT ORDER IS SERVED ON THE DG IT IS NOT BINDING ON THE DEPARTMENT. REFERRING TO THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN THE CASE OF GOVERNMENT OF INDIA (DEPARTMEN T OF REVENUE) VS. APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTI ONS AND OTHERS ( A COPY OF WHICH IS PLACED IN THE PAPER BOOK) THE LEARNED DR DREW TH E ATTENTION OF THE BENCH TO PAGE 18 OF THE ORDER AND SUBMITTED THAT THE NODAL A GENCY DEPUTED TO COORDINATE THE ASPECT OF GRANT OF FINANCIAL CONCESSIONS OR FINANCI AL ASSISTANCE TO BE GIVEN TO SICK INDUSTRIAL COMPANY WOULD BE DIRECTOR GENERAL OF INC OME TAX (ADMINISTRATION). HE SUBMITTED THAT THE ORDER OF THE LEARNED CIT(A) B EING NOT BASED ON PROPER APPRECIATION OF FACTS, SHOULD BE SET-ASIDE AND THAT OF THE ORDER OF THE AO BE RESTORED. 14. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A) AND DREW THE ATTENTION OF THE B ENCH TO THE CHRONOLOGY OF EVENTS WHICH ARE AS UNDER : SR. DATE EVENT 1 08-12-1999 ORIGINAL ORDER PASSED BY BIFR 2 25-09-2000 IT DEPT. OBJECTS TO BIFR ORDER FOR NON -OPPORTUNITY 3 13-09-2001 BIFR ISSUES NOTICE FOR DRAFT MODIFICAT ION (TO BE REPLIED WITHIN 60 DAYS) 4 12-11-2001 KOEL OBJECTS TO PROPOSED DRAFT MODIFIC ATION 5 23-04-2002 KOEL MAKES FURTHER SUBMISSIONS 6 18-08-2003 IT DEPT. FILES ADJOURNMENT LETTER 7 19-08-2003 BIFR PASSES FINAL ORDER 15 HE SUBMITTED THAT THE SICA IS A SPECIAL ACT FOR REH ABILITATION OF SICK COMPANIES. IT APPOINTS THE OPERATING AGENCY WHO IS THE LEAD BA NK. REFERRING TO PAGE 125 OF THE PAPER BOOK THE LEARNED COUNSEL FOR THE ASSESSEE DRE W THE ATTENTION OF THE BENCH TO SECTION 18 OF SICA WHICH SPEAKS OF PREPARATION AND SANCTION OF SCHEME. REFERRING TO PAGE 130 OF THE PAPER BOOK THE LEARNED COUNSEL F OR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO SECTION 25 OF SICA ACCORD ING TO WHICH ANY PERSON AGGRIEVED BY AN ORDER OF THE BIFR MADE UNDER THIS A CT MAY, WITHIN 45 DAYS FROM THE DATE ON WHICH A COPY OF THE ORDER IS ISSUED TO HIM, PREFER AN APPEAL TO THE APPELLATE AUTHORITY. REFERRING TO SECTION 32(1) OF THE SICA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF THIS ACT AND OF ANY RULES OR SCHEMES MADE THERE UNDER SHALL HAVE EFFECT NOT WITHSTANDING WITH ANYTHING INCONSISTENT THERE WITH CONTAINED IN ANY LAW EXCEPT THE PROVISIO NS OF FERA 1973 AND THE URBAN LAND (CEILING AND REGULATION) ACT 1976. REFERRING TO SUMMARY RECORD OF THE PROCEEDINGS OF THE HEARING HELD ON 19-08-2003, (COP Y OF WHICH IS PLACED AT PAPER BOOK PAGES 139 TO 142) THE LEARNED COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE SAME AND SUBMITTED THAT UNLESS THE DEPARTMENT FILES AN APPEAL THE ORDER OF THE BIFR BECOMES FINAL. 14.1. REFERRING TO PAGE 104 OF THE PAPER BOOK THE L EARNED COUNSEL FOR THE ASSESSEE DREW ATTENTION OF THE BENCH TO THE DECISION OF CALC UTTA BENCH OF THE TRIBUNAL IN THE CASE OF J.K. CORPORATION LTD. VS. ACIT REPORTED IN 68 ITD 240 AND SUBMITTED THAT DECLARATION MADE BY THE BIFR IS DECLARATION IN ACCO RDANCE WITH LAW. NO OTHER DECLARATION BY CENTRAL GOVERNMENT IS NEEDED AND ASS ESSEE COMPANY WAS ENTITLED TO CARRY FORWARD THE LOSSES, UNABSORBED DEPRECIATION A ND UNABSORBED INVESTMENT ALLOWANCES OF THE AMALGAMATING COMPANY WHERE THE SC HEME OF AMALGAMATION HAS BEEN MADE UNDER THE PROVISIONS OF THE SICA 1985 AND DECLARATION HAS BEEN MADE BY BIFR U/S.72(A)(1) OF THE INCOME TAX ACT. REFERR ING TO THE CERTIFICATE 16 U/S.72A(2)(II) OF THE INCOME TAX ACT, 1961 BY BIFR DATED 25-06-2003 (PAPER BOOK PAGE 150) THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BIFR IN THE CERTIFICATE HAS STATED THAT FOR THE ASSESSMENT YEAR 2001-02 FOR WHICH SET OFF OF ACCUMULATED LOSSES/UNABSORBED DEPRECIATION IS CLAIM ED BY THE AMALGAMATED COMPANY M/S. KIRLOSKAR OIL ENGINES LTD. THE BUSINES S OF THE AMALGAMATING COMPANY M/S. SWL WAS CARRIED ON BY THE FORMER COMPA NY. IT HAS FURTHER BEEN CERTIFIED THAT ADEQUATE STEPS HAVE BEEN TAKEN BY TH E AMALGAMATED COMPANY M/S. KIRLOSKAR OIL ENGINES LTD. FOR THE REHABILITATION O R REVIVAL OF THE BUSINESS OF THE AMALGAMATING COMPANY M/S. SWL. REFERRING TO PARA 1 8 OF THE ORDER OF THE CIT(A) THE LEARNED COUNSEL FOR THE ASSESSEE DREW TH E ATTENTION OF THE BENCH TO THE LAST FEW LINES AND SUBMITTED THAT THE LEARNED CIT(A ) HAD TAKEN THE CORRECT DECISION. HE SUBMITTED THAT IF THE RELIEFS ARE DENIED TODAY T HE DEPARTMENT HAS TO PROVIDE THE ASSESSEE A SOLUTION AS TO HOW TO UNDO THE AMALGAMAT ION. HE SUBMITTED THAT DENYING THE BENEFIT NOW WILL BE UNJUST AND UNFAIR A ND AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS HELD BY THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF CIT VS. J.K. CORPORATION REPORTED IN 331 ITR 303. REFERRIN G TO THE SAID DECISION HE SUBMITTED THAT THE HONBLE COURT IN THE SAID DECISI ON HAS HELD THAT BIFR HAVING SANCTIONED A SCHEME FOR REHABILITATION OF A SICK IN DUSTRIAL UNDERTAKING, BY WAY OF AMALGAMATION/MERGER THEREOF WITH THE ASSESSEE COMPA NY BY ORDER DATED 25-01- 1994 GIVING RETROSPECTIVE OPERATION TO THE SCHEME W .E.F. 01-02-1992, ASSESSEE COMPANY CANNOT BE DENIED THE BENEFIT OF CARRY FORWA RD AND SET OFF OF LOSSES OF THE AMALGAMATING COMPANY FOR THE PERIOD FROM 01-02-1992 TO 31-03-1992 ON THE GROUND THAT THE AMALGAMATION COULD NOT BE MADE OPER ATIVE RETROSPECTIVELY OR THAT THE CONSENT OF THE CENTRAL GOVERNMENT WAS NOT TAKEN . SO FAR AS THE VARIOUS DECISIONS RELIED ON BY THE LEARNED DR HE SUBMITTED THAT THOSE DECISIONS ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN ANY CASE 17 SINCE NO APPEAL WAS FILED BY THE REVENUE AGAINST TH E ORDER OF THE BIFR, HE SUBMITTED THAT THE SAME IS BINDING ON THE DEPARTMEN T. HE SUBMITTED THAT SINCE ALL THE CONCESSIONS GIVEN BY THE BIFR ARE AS PER LAW, T HEREFORE THE ORDER OF THE LEARNED CIT(A) SHOULD BE UPHELD. 15. THE LEARNED DR IN HIS REJOINDER SUBMITTED THAT IN THE CASE OF J.K. CORPORATION THERE WAS NO QUESTION OF SERVICE OF ORD ER. IT WAS CONCERNED WITH IMPLEMENTATION. SO FAR AS DRAFT MODIFICATION TO TH E SANCTIONED SCHEME DATED 13- 09-2001 IS CONCERNED, (A COPY OF WHICH IS PLACED AT PAPER BOOK 166 AND 167) THE LEARNED DR SUBMITTED THAT THE BIFR HAS NOT GIVEN AN Y OPPORTUNITY TO THE DEPARTMENT AND THEY HAVE ONLY CALLED FOR OBJECTIONS , IF ANY, TO THE PROPOSED MODIFICATION. HE SUBMITTED THAT THE CERTIFICATE OB TAINED REGARDING CARRY FORWARD OF BUSINESS LOSSES, DEPRECIATION LOSS WAS NOT BEFORE T HE AO. HE SUBMITTED THAT ONLY THE SANCTIONED DRAFT WAS AVAILABLE BEFORE AO. HE A CCORDINGLY SUBMITTED THAT THE ORDER OF THE AO SHOULD BE UPHELD. 16. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND THE GRIEVANCE OF THE REVENUE IN THE IMPUGNED GROUND IS THAT SINCE THE DEPARTMENT WAS NOT MADE A PARTY TO THE BIFR PROCEEDINGS, THERE FORE NO EFFECT CAN BE GIVEN TO THE SAME. FROM THE VARIOUS DETAILS FURNISHED BY TH E ASSESSEE WE FIND THE INCOME TAX DEPARTMENT WAS NOT MADE A PARTY WHEN THE ORIGIN AL ORDER WAS PASSED BY THE BIFR ON 8-12-1999 FOR WHICH THE INCOME TAX DEPARTME NT OBJECTED TO THE BIFR FOR NOT GIVING ANY OPPORTUNITY ON 25-09-2000. ON T HE BASIS OF SUCH OBJECTION THE BIFR ISSUED DRAFT MODIFICATION ORDER DATED 13-09-20 01 CALLING FOR OBJECTIONS, IF ANY, FROM THE INCOME TAX DEPARTMENT. AFTER VARIOUS OBJECTIONS MADE BY 18 KIRLOSKAR OIL ENGINES LTD. TO THE PROPOSED DRAFT MO DIFICATION AND ON THE BASIS OF FURTHER SUBMISSIONS THE BIFR FIXED THE CASE FOR HEA RING ON 19-08-2003. ALTHOUGH THE DEPARTMENT FILED PETITION SEEKING ADJOURNMENT O N 18-08-2003 THE BIFR DID NOT CONSIDER THE SAME AND PASSED THE FINAL ORDER ON 19- 08-2003. UNDER THESE CIRCUMSTANCES IT HAS TO BE DECIDED AS TO WHETHER TH E AO IS JUSTIFIED IN NOT ACCEPTING THE ORDER OF THE BIFR. 17. ORDER U/S.119(2)(A) OF THE INCOME TAX ACT 1961 DATED 16-02-2000 ISSUED BY CBDT HAS ALREADY BEEN REPRODUCED AT PARA 10.1 OF TH E IMPUGNED ORDER ACCORDING TO WHICH WHEREVER THE ORDER OF THE BIFR IN AN APPRO VED SCHEME OF RECONSTRUCTION/REHABILITATION DIRECTS THAT THE RELI EFS BE ALLOWED UNDER THE INCOME TAX ACT THE EFFECT TO SUCH ORDERS BE GIVEN IMMEDIAT ELY. IT IS ONLY WHEN BIFR RECOMMENDS THAT THE RELIEF UNDER INCOME TAX ACT 196 1 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT AND THE DEPARTMENT IS NOT A PART Y OR NO CHANCE IS GIVEN TO THE DEPARTMENT TO SUPPORT ITS VIEWS, THEN THE EFFECT O F BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER SUCH RECOMMENDATIONS ARE CONSIDERE D BY THE CBDT. AN EXAMINATION OF THE BIFR ORDER SHOWS THAT THE SAME I S DIRECTORY AND NOT RECOMMENDATORY IN NATURE. FURTHER AFTER THE ORIGIN AL ORDER WAS PASSED BY THE BIFR ON 16-12-1999 THE DEPARTMENT HAS OBJECTED FOR NOT GIVING ANY OPPORTUNITY FOR WHICH THE BIFR ISSUED NOTICE FOR DRAFT MODIFICA TION. DESPITE SUCH OPPORTUNITY GIVEN THE DEPARTMENT SOUGHT ADJOURNMENT WHICH WAS N OT ACCEPTED BY THE BIFR AND PASSED THE FINAL ORDER ON 19-08-2003. THEREFORE, I T CANNOT BE SAID THAT THE DEPARTMENT WAS NOT GIVEN ANY OPPORTUNITY. 18. WE FIND THE PROVISIONS OF SECTION 32 OF THE SIC A READS AS UNDER : 32. EFFECT OF THE ACT ON OTHER LAWS (1) THE PROVISIONS OF THIS ACT AND OF ANY RULES OR SCHEMES MADE THEREUNDER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHI NG INCONSISTENT THEREWITH 19 CONTAINED IN ANY OTHER LAW EXCEPT THE PROVISIONS OF THE FOREIGN EXCHANGE REGULATION ACT, 1972 (46 OF 1973) AND THE URBAN LAN D (CEILING AND REGULATION) ACT, 1976 (33 OF 1976) FOR THE TIME BEI NG IN FORCE OR IN THE MEMORANDUM OR ARTICLES OF ASSOCIATION OF AN INDUSTR IAL COMPANY OR IN ANY OTHER INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT. (2) WHERE THERE HAS BEEN UNDER ANY SCHEME UNDER THI S ACT AN AMALGAMATION OF A SICK INDUSTRIAL COMPANY WITH ANOT HER COMPANY, THE PROVISIONS OF SECTION 72A OF THE INCOME-TAX ACT, 19 61 (43 OF 1991), SHALL, SUBJECT TO THE MODIFICATIONS THAT THE POWER OF THE CENTRAL GOVERNMENT UNDER THAT SECTION MAY BE EXERCISED BY THE BOARD WITHOUT ANY RECOMMENDATION BY THE SPECIFIED AUTHORITY REFERRED TO IN THAT SECTION , APPLY IN RELATION TO SUCH AMALGAMATION AS THEY APPLY IN RELATION TO THE AMALG AMATION OF A COMPANY OWNING AN INDUSTRIAL UNDERTAKING WITH ANOTHER COMPA NY. IN VIEW OF THE ABOVE, DIRECTION GIVEN BY THE BIFR I S BINDING ON THE ASSESSING OFFICER. THE SICK INDUSTRIAL COMPANIES (SPECIAL PR OVISIONS) ACT 1985 IS A CENTRAL ACT HAVING LEGAL SANCTITY. IT HAS GOT OVERRIDING EF FECT ON ANY OTHER PROVISIONS OF ANY OTHER ACT EXCEPT THE PROVISIONS OF FERA 1973 AN D URBAN LAND (CEILING ACT & REGULATION) ACT 1976. THEREFORE, THE DIRECTIONS OF THE BIFR HAVE TO BE HONOURED AND FAILURE OF SUCH DIRECTIONS WILL BRING LEGAL DIS HARMONY. FURTHER, WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT IF THE RELIEFS ARE DENIED NOW THE DEPARTMENT HAS TO PROVIDE A SOLUTION TO THE ASSESSEE AS HOW TO UNDO THE AMALGAMATION. IN THIS VIEW OF THE MATTER AND I N VIEW OF THE DETAILED ORDER PASSED BY THE LEARNED CIT(A) DIRECTING TO GRANT REL IEF AS PER BIFR ORDER WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UP HELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 19. GROUND NO. 2 BY THE REVENUE READS AS UNDER : 2. THE LEARNED CIT(A) ERRED IN DIRECTING TO LIMIT T HE DISALLOWANCE OUT OF INTEREST TO RS. 68.58 LAKHS AS AGAINST RS. 2,61,69, 558/- DISALLOWED BY THE ASSESSING OFFICER. 19.1. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASS ESSING OFFICER OBSERVED THAT AS PER SCHEDULE 11 TO THE PRINTED ACCOUNTS, THE LOANS AND ADVANCES GIVEN BY THE ASSESSEE COMPANY WERE TO THE TUNE OF RS. 97,60,95,000/-. TH E ASSESSING OFFICER ASKED FOR 20 THE DETAILS OF EACH LOAN AND ADVANCE AND THE PURPOS E FOR WHICH IT HAD BEEN GIVEN. THE ASSESSEE FILED THE DETAILS OF LOANS & ADVANCES. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE GAVE ONLY A NOTE ON ADVANCES G IVEN TO M/S. MYSORE KIRLOSKAR LIMITED AND MERELY STATED THAT ALL THE ADVANCES WER E GIVEN OUT OF OWNED FUNDS. THE ASSESSING OFFICER WAS OF THE OPINION THAT INTER EST ON BORROWED FUNDS TO THE EXTENT NOT UTILIZED FOR BUSINESS PURPOSES WAS TO BE DISALLOWED U/S. 36(1)(III) AND FOR THIS PURPOSE SHE ADOPTED THE METHOD OF APPLYING THE RATIO OF OWN FUNDS TO THE INTEREST BEARING FUNDS, I.E., BORROWED CAPITAL DEPL OYED TO THE ADVANCES GIVEN FOR NON-BUSINESS PURPOSES. THE ASSESSING OFFICER WORKE D OUT THE RATIO AS UNDER : OPENING BAL. CLOSING BAL. AVERAGE BAL. (RS. IN 000) OWN 34,75,733 29,19,462 31,97,597 BORROWED 30,82,651 25,38,656 28,10,653 RATIO 1:0.88 19.2. THE ASSESSING OFFICER FURTHER TREATED RS.19,3 5,47,589 OUT OF TOTAL ADVANCES OF RS. 52,70,29,000 AS BUSINESS ADVANCES AND BALANC E RS.33,34,81,411 AS NON- BUSINESS ADVANCES. THE ASSESSING OFFICER ALSO TREA TED RS. 8,54,257 (BEING 10% OF RS. 85,42,573 OTHER ADVANCES) AS NON BUSINESS ADVAN CES MAKING IT TOGETHER TO RS. 33,43,35,668. APPLYING THE RATIO OF 1:0.88, THE AS SESSING OFFICER WORKED OUT ADVANCES GIVEN FOR NON-BUSINESS PURPOSES OUT OF BOR ROWED FUNDS AT RS. 15,64,97,546 AND DISALLOWED INTEREST @18% ON THESE WHICH COMES TO RS. 2,81,69,558. 19.3. BEFORE CIT(A) IT WAS SUBMITTED THAT IN THE FI RST PLACE THE ADVANCES HAD GONE DOWN TO RS. 52.70 CRS. AS ON 31-03-99 FROM RS. 128. 11 CRS AS ON 31-03-98. IT WAS SUBMITTED THAT THERE WERE NO FRESH BORROWINGS DURIN G THE YEAR AND IN FACT THE 21 BORROWINGS HAD GONE DOWN FROM RS. 308.26 CRS. IN TH E EARLIER YEARS TO RS. 253.86 CRS. IN THE CURRENT YEAR. IT WAS SUBMITTED THAT F OR DISALLOWANCE U/S. 36(1)(III), WHAT WAS IMPORTANT WAS THE PURPOSE FOR WHICH THE LO ANS WERE TAKEN. IT WAS SUBMITTED THAT WHEN NO FRESH BORROWINGS WERE MADE, IT WAS NATURAL THAT THE SOURCE OF ADVANCES OF RS. 52.70 CRS. WAS AS ESTABLISHED IN EARLIER YEARS AND IT WAS AS PER DEPARTMENTS FINDINGS ONLY THAT THE BORROWINGS OF R S.3.07 CRS. ONLY WERE USED FOR NON-BUSINESS PURPOSES. 19.4. IN APPEAL, THE LD. CIT(A) FOLLOWING HIS ORDER FOR A.Y. 1998-99 RESTRICTED SUCH DISALLOWANCE TO 68.58 LAKHS. AGGRIEVED WITH S UCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 20. AFTER HEARING BOTH THE SIDES WE FIND THIS GROUN D IS CO-RELATED TO GROUND OF APPEAL NO. 1 BY THE ASSESSEE IN WHICH THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) FOR SUSTAINING A PART OF THE INTEREST. WE H AVE ALREADY DECIDED THE ISSUE & THE GROUND RAISED BY THE ASSESSEE HAVE BEEN RESTORE D TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LIGHT OF THE ORDER OF THE TRIBU NAL FOR A.Y. 1998-99. FOLLOWING THE SAME RATIO WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THE AO SHALL DECIDE THE ISSUE AFRESH AND AS PER LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD & DIRECT ACCO RDINGLY. THIS GROUND BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURP OSES. 21. GROUND OF APPEAL NO. 3 BY REVENUE READS AS UNDE R : 3. THE LEARNED CIT(A) ERRED IN DIRECTING TO RESTRIC T THE EXPENSES INCURRED FOR EARNING DIVIDEND INCOME TO RS. 50,000/ - WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAS NOT MAINTAINED ANY SEPAR ATE ACCOUNT IN ORDER TO EARN SUCH TAX FREE INCOME. 22 21.1. AFTER HEARING BOTH THE SIDES WE FIND THE AO D ISALLOWED AN AMOUNT OF RS. 20,53,048/- BEING 5% OF THE DIVIDEND INCOME OF RS. 4,10,60,955/-. IN APPEAL THE LEARNED CIT(A) RESTRICTED SUCH DISALLOWANCE TO RS. 50,000/- ON THE GROUND THAT THE ADHOC DISALLOWANCE @5% OF THE DIVIDEND INCOME IS TO O HIGH. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE IS NO INTEREST EXPENDITURE FOR EARNING THE TAX FREE DIVIDEND/INCOME. FURTHER IT I S ALSO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ONLY 5 DIVIDE ND CHEQUES TOTALLING TO RS. 4,10,60,759/- WERE RECEIVED AND THEREFORE DISALLOWA NCE OF 5% OF THE TOTAL INCOME ON ESTIMATE BASIS IS UNJUSTIFIED. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE SINCE THE LEARNED CIT(A) HAS RESTRICTED THE DISALLO WANCE TO RS. 50,000/- ON ACCOUNT OF EMPLOYEE COST, INFRASTRUCTURE COST, ETC. FOR EAR NING THE DIVIDEND INCOME, THEREFORE, THE SAME BEING REASONABLE SHOULD BE UPHE LD. WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. THERE IS NO FINDING GIVEN BY THE AO THAT ASSESSEE HAS INCURRED ANY EXPENDITURE O N ACCOUNT OF INTEREST ON BORROWED CAPITAL FOR EARNING THE TAX FREE DIVIDEND INCOME. FURTHER THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AS SESSEE HAS RECEIVED ONLY 5 DIVIDEND CHEQUES AMOUNTING TO RS. 4.11 CRORES COULD NOT BE CONTROVERTED BY THE LEARNED DR. WE, THEREFORE, ARE OF THE OPINION THAT DISALLOWANCE OF 5% OF THE DIVIDEND INCOME UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE IS UNJUSTIFIED. IN OUR OPINION THE ORDER OF THE LEARNED CIT(A) RESTRIC TING THE DISALLOWANCE TO RS. 50,000/- ON ADHOC BASIS APPEARS TO BE REASONABLE. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND THE SAME IS THEREFORE UPHELD. GROUND RAISED BY THE REVENUE IS THEREFORE DISMISSED. 23 22. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JUNE 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R .K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 27 TH JUNE 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. DY.CIT- CIRCLE-8, AKURDI, PUNE 4. CIT(A)-III , PUNE 5. ACIT, ITAT-I, PUNE 6. THE D.R, A BENCH,PUNE 7. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, // TRUE COPY // ITAT, PUNE BE NCHES, PUNE