Modi Rubber Ltd., New Delhi V. DCIT, New Delhi

ITA 1816/DEL/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69248 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 10-07-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 21-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GUNJAN P RASAD
• Assessee Lawyers: AJAY VOHRA ADV SH ROHIT GARG
• Keywords: Capital asset; Depreciation; Search and seizure; Notional interest; Commercial expediency; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1); 37

Judgement Text

ITA NOS. 1816&1846/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1816/DEL/2010 A.Y. : 2001-2002 M/S MODI RUBBER LTD., 4-7C, DDA SHOPPING CENTRE, NEW FRIENDS COLONY, NEW DELHI 110 025 (PAN: AAACM2062R) VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 5(1), CENTRAL REVENUE BUILDING, INDRAPRASTHRA MARG, NEW DELHI 110 001 AND I.T.A. NO. 1846/DEL/2010 A.Y. 2001-02 ACIT, CIRCLE 5(1), VS. M/S MODI RUBBER LTD., R.NO. 409-A, CR BLDG., 4-7C, DDA SHOPPING COMPL EX, IP ESTATE, NEW DELHI NEW FRIENDS COLONY, NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. A JAY VOHRA, ADV., SH. ROHIT GARG DEPARTMENT BY : SH. GUNJAN PRASAD, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE EMA NATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S)-VIII, NEW DELHI FOR ASSESSMENT YEAR 2001-02. REVENUES APPEAL : REVENUES APPEAL : REVENUES APPEAL : REVENUES APPEAL :- -- - 2. THE ISSUES RAISED IN THE REVENUES APPEAL READ AS UNDER:- ITA NOS. 1816&1846/DEL/2010 2 1. THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A) I S ERRONEOUS AND CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETIN G THE ADDITION OF RS. 30,450/- AND RS. 46,40,822/- MADE B Y THE ASSESSING OFFICER ON ACCOUNT OF DELAYED PAYMENT OF ESIC AND PF AND SUPERANNUATION FUND. 2.1 THE LD. COMMISSIONER OF INCOME TAX (A) IGNORED T HE FACT THAT THE AMENDED PROVISIONS OF SECTION 43B ARE APPLI CABLE W.E.F. A.Y. 2004-05 AND NOT APPLICABLE IN THE YEAR UNDER CONSIDERATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETI NG THE ADDITION OF RS. 3,97,53,676/- MADE BY THE ASSESS ING OFFICER BY CAPITALIZING THE EXPENSES INCURRED FOR INSTALLATION OF MAJOR PLANT. 3.1 THE LD. COMMISSIONER OF INCOME TAX (A) IGNORED T HE FACT THAT THE ASSESSEE DID NOT FILE DETAILS REGARDING TH E NATURE EXPENDITURE DURING THE ASSESSMENT PROCEEDINGS AND O NLY FILED COPY BILL. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUND OF THE APPEAL RAISED ABOUT AT THE TIME OF T HE HEARING. 3. APROPOS D APROPOS D APROPOS D APROPOS DELETION OF ADDITION ON ACCOUNT OF DELAYED PAYMENT OF ESI ELETION OF ADDITION ON ACCOUNT OF DELAYED PAYMENT O F ESI ELETION OF ADDITION ON ACCOUNT OF DELAYED PAYMENT O F ESI ELETION OF ADDITION ON ACCOUNT OF DELAYED PAYMENT O F ESI AND PF AND SUPERANNUATION FUND. AND PF AND SUPERANNUATION FUND. AND PF AND SUPERANNUATION FUND. AND PF AND SUPERANNUATION FUND. ITA NOS. 1816&1846/DEL/2010 3 ASSESSING OFFICER DISALLOWED A SUM OF RS. 30,450/ - BEING CONTRIBUTION TOWARDS ESI & PF U/S. 43B OF THE ACT ON THE GROUND THAT THE SAME WAS PAID BEYOND THE DUE DATE AS PROVIDED UNDER EMPLOYEES PROVIDENT FUND ACT. FURTHERMORE, THE CONTRIBUTION OF RS. 46,40,822/- TOWARDS SUPERANNUATION FUND IN THE MONTH OF FEBRUARY , 2001 AND MARCH, 2001 WHICH WAS PAID BY THE ASSESSEE IN APRIL , 2001 AND MADE MAY, 2001 RESPECTIVELY, WAS DISALLOWED BY THE ASSESS ING OFFICER U/S. 43B OF THE ACT ALLEGING THAT THE SAME WAS DEPOSITED AFTER THE DUE DATE. 4. UPON ASSESSEES APPEAL AS REGARDS THE PAYMENT OF PF & ESI, LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION BY RELYING UPON THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF C.I.T. VS. AIMIL LTD, 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS SUBMITTED THAT AS REGARDS THE PAYMENT MADE BY THE ASSESSEE IN RESPECT OF PF AND ESI DUES THOUGH TH ESE AMOUNTS WERE PAID AFTER THE DUE DATE AS PROVIDED IN THE EPF ACT, THE SAME WERE PAID BEFORE THE DUE DATE OF FILING OF RETURN FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION. IN THESE CIRCUMSTANCES, ASSESSEES C LAIM IS ALLOWABLE, AS PER THE DECISION OF THE HONBLE APEX COURT IN THE C ASE OF C.I.T. VS. VINAY CEMENT LTD. 213 CTR 268. IN THE LIGHT OF THE AFORESAID SUBMISSIONS AND PRECEDENTS, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A). ACCORDINGLY , WE UPHOLD THE SAME. 7. AS REGARDS THE CONTRIBUTION TOWARDS SUPERANNUATI ON FUND, ASSESSING OFFICER WAS OF THE OPINION THAT THE PAYME NT WAS TO BE MADE ITA NOS. 1816&1846/DEL/2010 4 BY THE ASSESSEE COMPANY BEFORE THE END OF MARCH, 200 1 AND THEREFORE, THE SUMS PAID IN THE MONTH OF APRIL, 2001 AND MAY, 2001 WERE TO BE DISALLOWED IN TERMS OF SECTION 43B OF THE ACT. 8. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION IN THIS REGARD. 9. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 10. IN THIS REGARD, THE SUBMISSIONS OF THE ASSESSEE ARE AS UNDER:- AS REGARDS THE CONTRIBUTION TOWARDS SUPERANNUATION FUND, IT IS RESPECTFULLY SUBMITTED, THAT AS PER THE EMPLOYEES SUPERANNUATION SCHEME OF THE ASSESSEE, THE ORDINARY ANNUAL CONTRIBUTION TOWARDS SUPERANNUATION FUND CAN BE PAID IN ONE INSTALLMENT O R IN TWO OR MORE INSTALLMENTS EVERY YEAR. IT IS OBVIO US THAT THE DUE DATE FOR PAYMENT OF CONTRIBUTION TOWARDS SUPERANNUATION FUND, RELATING TO FINANCIAL YEAR COULD ONLY FALL IN THE IMMEDIATELY FOLLOWING FINANCI AL YEAR, SINCE OTHERWISE IT WOULD MEAN THAT WHOLE OF THE AMOUNT OF CONTRIBUTION TOWARDS SUPERANNUATION FUND RELATING TO A FINANCIAL YEAR, IS PAYABLE IN ADVANCE , WHICH IS CERTAINLY NOT WHAT THE SUPERANNUATION SCHEME PROVIDES. THE AMOUNT OF CONTRIBUTION TOWARDS SUPERANNUATION FUND GET QUALIFIED / CYSTALLIZED ONL Y AFTER THE SALARY FOR THE LAST MONTH OF THE FINANCIA L YEAR HAS BEEN PAID WHICH IS ON OR AFTER 31 ST MARCH OF THAT FINANCIAL YEAR AND THE DUE DATE OF PAYMENT OF SUC H CONTRIBUTION CAN THUS ONLY BE AFTER AND NOT BEFORE 31 ST MARCH OF THE FINANCIAL YEAR. THEREFORE, THE DUE DAT E ITA NOS. 1816&1846/DEL/2010 5 FOR DEPOSIT OF SUPERANNUATION FUND CONTRIBUTION RELATING TO FINANCIAL YEAR 2000-01 WAS 31.3.2002. THE CONTRIBUTION AND / OR DEPOSIT OF THE CONTRIBUTI ON TOWARDS THE SUPERANNUATION FUND ON MONTHLY BASIS IS , IN FACT, NOWHERE PROVIDED IN THE SUPERANNUATION SCHEME OF THE APPELLANT. THE AFORESAID AMOUNT OF RS . 46,60,822/- BEING SUPERANNUATION FUND CONTRIBUTION PERTAINING TO THE MONTHS OF FEBRUARY, 2001 AND MARCH, 2001, HAVE BEEN DEPOSITED IN APRIL, 2001 AND MAY, 2001, RESPECTIVELY, WAS WITHIN DUE DATE AND THE DISALLOWANCE OF THE SAME UNDER SECTION 43B OF THE AC T WAS TOTALLY UNWARRANTED. IT WILL, THEREFORE, BE APPRECIATED THAT THERE WAS NO DEFAULT, AS CONTEMPLATED UNDER SECTION 43B OF THE ACT, IN THE PAYMENT OF CONTRIBUTION TOWARDS SUPERANNUATION FUND BY THE APPELLANT SO AS TO JUSTIFY THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND CONSIDERABLE COGENCY IN THE SUBMIS SIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT DUE DATE FOR PAYMENT OF CONTRIBUTION TOWARDS SUPERANNUATION FUND RELATING TO THE FINANC IAL YEAR COULD ONLY FALL IN THE IMMEDIATELY FOLLOWING FINANCIAL YEAR. THE AMOUNT OF CONTRIBUTION TOWARDS SUPERANNUATION FUNDS GETS QUA LIFIED / CRYSTALISED ONLY AFTER THE SALARY OF THE LAST MONTH OF THE FINA NCIAL YEAR HAS BEEN PAID, JUST ON OR AFTER 31 ST MARCH OF THAT FINANCIAL YEAR AND DUE DATE FOR PAYMENT OF SUCH CONTRIBUTION CAN ONLY BE AFTER AND N OT BEFORE THE 31 ST MARCH OF THE FINANCIAL YEAR. THUS WE AGREE WITH THE LD. COMMISSIONER ITA NOS. 1816&1846/DEL/2010 6 OF INCOME TAX (A) THAT THE BALANCE AMOUNT OF RS. 46 ,60,822/- BEING SUPERANNUATION FUND CONTRIBUTION PERTAINING TO THE MONTH OF FEBRUARY, 2001 AND MARCH, 2001 WHICH HAVE BEEN DEPOSITED IN A PRIL, 2001 AND MAY, 2001 RESPECTIVELY, WAS WITHIN THE DUE DATE AND THE DISALLOWANCE OF THE SAME U/S. 43B OF THE ACT WAS NOT WARRANTED. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME T AX (A) ON THIS ISSUE. 12. APROPOS ISSUE OF DELETION OF ADDITION OF RS APROPOS ISSUE OF DELETION OF ADDITION OF RS APROPOS ISSUE OF DELETION OF ADDITION OF RS APROPOS ISSUE OF DELETION OF ADDITION OF RS. 3,97, 53,676/ . 3,97,53,676/ . 3,97,53,676/ . 3,97,53,676/- -- - TOWARDS TOWARDS TOWARDS TOWARDS INSTALLATION OF PLANT. INSTALLATION OF PLANT. INSTALLATION OF PLANT. INSTALLATION OF PLANT. IN THIS CASE DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE INCURRED AN EXPENDITURE OF RS. 3,97,53,676/- ON OVE RHAULING OF CERTAIN PLANT AND MACHINERY, WHICH WAS TREATED BY THE ASSESS EE AS DEFERRED REVENUE EXPENDITURE AND 20% OF THE SAME WAS CHARGED TO THE PROFIT AND LOSS ACCOUNT. BUT IN TAX COMPUTATION THE ENTIRE AMOUNT OF RS.3,97,53,676/- WAS CLAIMED AS REVENUE DEDUCTION. THE PARTICULARS OF EXPENDITURE INCURRED FOR REPAIR AND MAINTENANCE IS AS UNDER:- S.N S.NS.N S.NO OO O. PARTICULARS OF MACHINERY . PARTICULARS OF MACHINERY . PARTICULARS OF MACHINERY . PARTICULARS OF MACHINERY AMOUNT (RS.) AMOUNT (RS.) AMOUNT (RS.) AMOUNT (RS.) 1. BANBURY G.K. 255 N (INTERNAL BODY) 3,22,57,936 /- 2. 3 ROLL CALENDAR (GEAR BOXES) 41,23,890/- 3. BANBURY F-370 33,71,850/- THE ASSESSING OFFICER, IN THE ORIGINAL ASSESSMENT PROCEEDINGS, ALLEGED THAT THE EXPENDITURE OF RS. 3,97,53,676/- W AS CAPITAL EXPENDITURE, ALLOWED 25% DEPRECIATION IN RESPECT OF THE AFORESAID EXPENDITURE AND DISALLOWED THE BALANCE AMOUNT OF RS . 2,98,15,257/-. ITA NOS. 1816&1846/DEL/2010 7 13. THE LD. COMMISSIONER OF INCOME TAX (A) DELETED THE AFORESAID DISALLOWANCE. IN FURTHER APPEAL BY THE DEPARTMENT, THE TRIBUNAL REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO EXAMINE THE NATURE OF THE EXPENDITURE CONCERNED WITH REFERENCE TO THE RELEVANT DOCUMENTARY EVIDENCE SUCH AS BILLS, BROCHURES ETC. AND TAKE A FRESH DECISION IN ACCORDA NCE WITH LAW. 14. DURING THE SET ASIDE PROCEEDINGS ASSESSEE SUBMITT ED FOLLOWING DOCUMENTS:- - COPY OF INVOICE NO. 099.0059 DATED 15.09.1999 ISS UED BY KRUPP ELASTOMERTECHNIK, GERMANY FOR PURCHASE OF ONE HEAVY DUTY INTERNAL MIXER GK 255N. - COPY OF INVOICE NO. 0505958 DATED 12.10.2000 ISSU ED BY MC. NEIL AKRON REPIQUET, FRANCE OF PURCHASE OF REDUCTION GEAR BOX FOR 3 COLL CALENDAR. - COPY OF BILL OF ENTRY DATED 03.11.2000 IN RESPECT OF INVOICE NO. 099.0059 DATED 15.9.1999 FOR PURCHASE OF HEAVY DUTY INTERNAL MIXER GK 255N. 15. ASSESSING OFFICER NOTED THAT ASSESSEE HAS NOT F URNISHED ANY OTHER DOCUMENTARY EVIDENCES. ASSESSING OFFICER OBSERVED T HAT ASSESSEE COMPANY HAS NOT BEEN ABLE TO ESTABLISH THAT THE SAID MACHINES WERE PART OF SOME OTHER MACHINE. ASSESSING OFFICER FURTH ER OBSERVED THAT IT HAS ONLY BEEN EMPHASIZED THAT THESE ARE IMPORTANT PAR TS OF MANUFACTURING PROCESS / MANUFACTURING PLANT. THAT TH E ARGUMENT OF THE ASSESSEE WOULD ACCORDINGLY IMPLY THAT UNLESS EA CH PIECE OF MACHINERY COMPRISING THE ENTIRE MANUFACTURING PLANT I S REPLACED, THE SAME WOULD AMOUNT TO MAINTENANCE AND UPKEEP OF MACHIN ERY, ITA NOS. 1816&1846/DEL/2010 8 WHICH IS VERY UNREASONABLE PROPOSITION. ASSESSING OFFICER PROCEEDED TO HOLD THAT THE ENTIRE AMOUNT OF RS. 3,97,53,676/- WAS HELD TO BE CAPITAL EXPENDITURE AND DEPRECIATION, AS PER RULES WAS ALLOWED TO THE ASSESSEE COMPANY. 16. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION HOLDING AS UNDER:- 8.3. THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT COMPANY AND THE FINDINGS RECORDED BY THE LEARNED AO HAVE BEEN CAREFULLY PERUSED. THE BASIC QUESTION WHICH NEEDS TO BE ANSWERED HERE IS WHETHER THE EXPENDITURE INCURRED ON THE REPLACEMENT OF HEAVY DUTY INTERNAL MIXER G.K. 225 N AND THE REDUCTION GEAR BOX, WHICH ARE SUBJECT MATTER OF DISPUTE, FALL WITHIN THE MEANING OF ACQUISITION OF MACHINERY OR THE SAME FORMS PART OF REPAIRS/REPLACEMENT. THE LD. COUNSELS APPEARING ON BEHALF OF THE APPELLANT COMPANY HAVE SUBMITTED THAT THE HEAVY DUTY INTERNAL MIXTURE AND REDUCTION GEAR BOX PURCHASED BY THE APPELLANT COMPANY DURING THE YEAR UNDER CONSIDERATION WERE INTERNAL AND INTEGRAL PART OF THE EXISTING PLANT AND MACHINERY AND WERE NOT AN INDEPENDENT MACHINERY AS THE LEARNED ASSESSING OFFICER HAS TRIED TO MAKE IT OUT TO BE. AS PER THE LEARNED COUNSELS IN A PLANT SUCH AS THE ONE BEING RUN BY THE APPELLANT COMPANY HEAVY EXPENDITURE IS NORMALLY INCURRED ON ITA NOS. 1816&1846/DEL/2010 9 MAINTENANCE AND UPKEEP OF MACHINERIES WHICH ALWAYS INCLUDE REPLACEMENT OF OLD AND WORN OUT PARTS OF SUCH PLANT AND MACHINERY. HOWEVER, IT IS CLAIMED THAT MERELY BECAUSE HEAVY EXPENSES ARE DEBITED SHOULD NOT BY ITSELF BE TAKEN AS A BASIS TO TREAT SUCH EXPENDITURES AS CAPITAL EXPENDITURE. IT IS ARGUED THAT THE EXPENDITURE IN QUESTION HAS NOT RESULTED IN BRINGING INTO EXISTENCE ANY INDEPENDENT CAPITAL ASSET NOR THE SAME HAS IN ANY WAY ENHANCED THE CAPACITY/EFFICIENCY OF THE MACHINES. 8.4 I ALSO FIND THAT THE LEARNED AO HAS NOT CONSIDERED THE ISSUE IN RIGHT PERSPECTIVE. HE HAS NOT RECORDED ANY FINDING AS TO HOW THE BANBURY MIXTURE AND GEAR BOXES CAN FUNCTION INDEPENDENTLY AND HOW THE OTHER PLANT AND MACHINERY IS EXPECTED TO RUN WITHOUT THE SUPPORT OF THE AFORESAID COMPONENTS. THEREFORE, WHAT SEEMS TO ME IS THAT THE DECISION OF THE LEARNED AO HAS BEEN MAINLY INFLUENCED BY THE HEAVY AMOUNT OF EXPENDITURE CLAIMED BY THE APPELLANT COMPANY WHICH, I AM AFRAID, IS NOT THE PROPER WAY OF DECIDING THE ISSUE INVOLVED IN THE PRESENT CASE. AS SUBMITTED BY THE LEARNED COUNSELS IN THEIR WRITTEN SUBMISSIONS, THE INTERNAL MIXTURE G.K. 225 N IS AN INTEGRAL PART OF BANBURY G.K. 225 N WHICH APART FROM MIXTURES ALSO HAS COMPONENTS LIKE BODY, ROTORS, ELECTRIC MOTOR AND ITA NOS. 1816&1846/DEL/2010 10 PANELS, COOLING CONVEYERS AND GEAR BOXES, SIMILAR IS THE CASE WITH THE ROLL CALENDARS WHICH HAS OTHER COMPONENTS NAMELY, GEAR BOX, ROLLS AND ROTORS AND ELECTRIC MOTORS AND PANELS. THEREFORE, HAVING REGARD TO THE BASIC PARAMETERS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V/S SARAVANA SPINNING MILLS (P) LTD, SINCE THE ITEMS IN QUESTION ARE PART AND PARCEL OF BANBURY MIXTURE AND 3 ROLL CALENDAR RESPECTIVELY, THE SAME WOULD FALL WITHIN THE MEANING OF CURRENT REPAIRS ONLY. FURTHER, AS STATED EARLIER, THE CLAIM OF THE APPELLANT IS THAT EXPENDITURE ON THE IDENTICAL ITEMS HAVE BEEN INCURRED IN EARLIER YEARS ALSO AND THE SAME HAS BEEN DULY ALLOWED BY THE RESPECTIVE AOS IN THE ORDERS PASSED UNDER SECTION 143 (3) OF THE IT ACT 1961. THEREFORE, THE AO WAS NOT PERMITTED TO TAKE A DIFFERENT VIEW WITHOUT POINTING OUT ANY DISTINGUISHING FEATURES DURING THE YEAR UNDER CONSIDERATION. 8.5. THEREFORE, LOOKING TO THE TOTALITY OF CIRCUMSTANCES, I AM OF THE VIEW THAT THE EXPENDITURE INCURRED ON INTERNAL MIXTURE G.K. 225 N AND REDUCTION GEAR BOX WOULD FALL WITHIN THE MEANING OF REPAIRS AND MAINTENANCE ONLY. ACCORDINGLY, THE DISALLOWANCE MADE BY THE LEARNED AO IS BEING DIRECTED TO BE DELETED. ITA NOS. 1816&1846/DEL/2010 11 17. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 18. LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. LD. COUNSEL OF THE ASSESSEE SUP PORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AND SUBMITTED A S UNDER:- THE AFORESAID ACTION OF THE ASSESSING OFFICER, IN OUR RESPECTFUL SUBMISSION, IS BAD IN LAW FOR THE REASONS ENUMERATED HEREUNDER: A) ASSESSING OFFICER WITHOUT DISCUSSING WHETHER THE AFORESAID EXPENDITURE PROVIDES ANY ENDURING BENEFIT TO THE ASSESSEE, HELD THE SAME TO BE CAPITAL EXPENDITU RE. B) ASSESSEE HAD FURNISHED ALL THE NECESSARY VOUCHERS ALONGWITH THE EXPLANATION TO CLAIM THE AFORESAID AS REVENUE EXPENDITURE. C) ASSESSING OFFICER DID NOT PROVIDE REASONABLE OPPORT UNITY TO THE ASSESSEE IN AS MUCH AS ASSESSEE WAS NOT INTIMATED ABOUT ANY FURTHER REQUIREMENT AS TO DOCUMENTS WHICH THE ASSESSING OFFICER NEEDED IN ORDE R TO EXAMINE THE NATURE OF THE AFORESAID EXPENDITURE, IN CASE THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ASSESSEE'S CLAIM IN THE FIRST INSTANCE. THE AFORESAID EXPENDITURE WAS INCURRED BY THE ASSES SEE FOR THE MAINTENANCE AND UPKEEP OF THE MACHINERY AND REPLACE OF THE OLD AND WORN OUT PARTS OF PLANT AND MACHINERY, WHICH WAS NECESSARY FOR KEEPING THE MACHIN ES IN WORKING ORDER. THERE WAS NO REPLACEMENT OF ENTIR E INDEPENDENT MACHINERY AND THE AFORESAID EXPENSES WE RE, THUS, NOT CAPITAL IN NATURE. FOR EXAMPLE, THE BANBURY G.K. ITA NOS. 1816&1846/DEL/2010 12 255 N AS MENTIONED IN THE INVOICE IS ONE OF THE INTE RNAL PART OF THE BODY OF THE WHOLE BANBURY MIXTURE AND THE GEA R BOX IS ALSO AN INTERNAL PART OF THE 3 ROLL CALENDAR. TH US, NO NEW ASSET CAME INTO EXISTENCE BY INCURRING OF THE SAID EXPENDITURE AND THERE WAS NO ENHANCEMENT IN THE CAPACITY/EFFICIENCY OF THE MACHINES. THEREFORE, THE SAID EXPENDITURE WOULD BE ALLOWABLE AS CURRENT REPAIRS U NDER SECTION 31 (1) OF THE ACT OR AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. RELIANCE IN THIS REGARD I S PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CAS E OF CIT VS SARAVANA SPINNING MILLS (P) LTD.: 293 ITR 201. SIMILAR EXPENDITURE INCURRED ON THE BANBURY MIXTURE E TC. HAD BEEN INCURRED BY THE ASSESSEE IN THE EARLIER YE ARS, WHICH GOES ON TO SHOW THAT IT IS A RECURRING EXPENS E INCURRED TO KEEP THE MACHINE IN RUNNING CONDITION. SIMILAR EXPENSE INCURRED IN THE PAST HAS ALWAYS BEEN ALLOWE D BY THE DEPARTMENT IN ALL THE EARLIER ASSESSMENT YEARS. THE EXPENDITURE ON REPAIR AND MAINTENANCE OF PLANT & MACHINERY OF SIMILAR NATURE HAD BEEN CONSISTENTLY AC CEPTED BY THE DEPARTMENT AS REVENUE DEDUCTION. THE DISALLO WANCE OF THE EXPENDITURE IN THE RELEVANT PREVIOUS YEAR IS NOT SUSTAINABLE EVEN ON THE GROUND OF CONSISTENCY. FURTHER ON PERUSAL OF THE DETAILS OF THE REPAIR AND MAINTENANCE EXPENDITURE INCURRED AS A PERCENTAGE OF TOTAL RECEIPTS OF THE APPELLANT IN THE LAST FOUR YEARS AS WELL AS IN THE YEAR UNDER APPEAL, IT WILL BE APPRECIATED THAT AN EXPENDITURE OF NEARLY 2-3% OF THE TOTAL RECEIPTS WA S INCURRED BY THE APPELLANT ON THE REPAIR AND MAINTEN ANCE OF ITA NOS. 1816&1846/DEL/2010 13 MACHINERY. IN FACT, IN THE RELEVANT PREVIOUS YEAR TH E EXPENDITURE INCURRED WAS ONLY 1.868%. IN VIEW OF THE ABOVE, IT IS RESPECTFULLY PRAYED, TH AT THE EXPENDITURE INCURRED BY THE APPELLANT IN RESPECT OF THE REPAIRS OF PLANT AND MACHINERY AS AFORESAID MAY KIND LY BE ALLOWED DEDUCTION. 19. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT ASSESSEE IN THIS CASE HAS INCURRED A SUM OF RS. 3, 97,53,676/- ON THE REPLACEMENT OF HEAVY DUTY INTERNAL MIXER AND REDUCTI ON GEAR BOX. ASSESSEE HAS SUBMITTED THE NECESSARY VOUCHERS IN TH IS REGARD. IT IS THE CLAIM OF THE ASSESSEE THAT THE HEAVY DUTY INTERN AL MIXER AND REDUCTION GEAR BOX PURCHASED BY THE ASSESSEE COMPAN Y DURING THE YEAR UNDER CONSIDERATION WERE INTERNAL AND INTEGR AL PART OF THE PLANT AND MACHINERY AND WERE NOT AN INDEPENDENT MACHINERY . LD. LD. COMMISSIONER OF INCOME TAX (A) IN THIS REGARD, HAS O BSERVED THAT IN A PLANT SUCH AS THE ONE BEING RUN BY THE ASSESSEE COMP ANY HEAVY EXPENDITURE IS NORMALLY INCURRED ON MAINTENANCE AND UPKEEP OF MACHINERIES WHICH ALWAYS INCLUDE REPLACEMENT OF OLD AND WORN OUT PARTS OF SUCH PLANT AND MACHINERY. IT HAS FURTHER BEEN THE CLAIM OF THE ASSESSEE THAT MERELY BECAUSE HEAVY EXPENSES ARE DEBI TED THE SAME SHOULD NOT BY ITSELF BE TAKEN AS A BASIS TO TREAT S UCH EXPENDITURE AS CAPITAL EXPENDITURE. 19.1 WE FIND THAT ASSESSING OFFICER HAS NOT MADE OU T THE CASE THAT THE EXPENDITURE IN QUESTION HAS RESULTED IN BRINGIN G INTO THE EXISTENCE ANY INDEPENDENT CAPITAL ASSET NOR THE SAME HAS IN A NY WAY ENHANCED THE CAPACITY / EFFICIENCY OF THE MACHINES. WE FURT HER FIND THAT LD. COMMISSIONER OF INCOME TAX (A) HAS OBSERVED THAT THE INTERNAL MIXTURE G.K. 225 N IS AN INTEGRAL PART OF BANBURRY G .K. 225 N WHICH APART FROM MIXTURES ALSO HAS COMPONENTS LIKE BODY, RO TORS, ELECTRIC ITA NOS. 1816&1846/DEL/2010 14 MOTOR AND PANELS, COOLING CONVEYERS AND GEAR BOXES. SIMILAR IS THE CASE WITH THE ROLL CALENDARS WHICH HAS OTHER COMPO NENTS NAMELY, GEAR BOX, ROLLS AND ROTORS AND ELECTRIC MOTORS AND PANELS. THUS, WE AGREE WITH THE LD. COMMISSIONER OF INCOME TAX (A) TH AT HAVING REGARD TO THE BASIC PARAMETERS LAID DOWN BY THE HONBLE APE X COURT IN THE CASE OF C.I.T. VS. SARAVANA SPINNING MILLS (P) LTD., SINCE THE ITEMS IN QUESTION ARE PART AND PARCEL OF BANBURY MIXTURE AND 3 ROLL CALENDAR RESPECTIVELY, THE SAME WOULD FALL WITHIN THE MEANIN G OF CURRENT REPAIRS ONLY. 20. WE FURTHER NOTE THAT EXPENDITURE HAS BEEN IN CURRED BY THE ASSESSEE ON BANBERRY MIXTURES ETC. IN THE EARLIER Y EARS ALSO. THIS SHOWS THAT IT IS A RUNNING EXPENSES INCURRED TO KEE P THE MACHINE IN RUNNING CONDITION. SIMILAR EXPENSES INCURRED IN THE PAST HAS ALWAYS BEEN ALLOWED BY THE DEPARTMENT. THUS, THE DISALLOWAN CE OF EXPENDITURE IN THE RELEVANT PREVIOUS YEAR IS NOT SU STAINABLE EVEN ON THE GROUND OF CONSISTENCY. 21. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX (A) IN THIS REGARD. ACCORDINGLY, WE UPH OLD THE SAME. ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL 22. THE ISSUES RAISED IN THE REVENUES APPEAL REA D AS UNDER:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF P RIOR PERIOD EXPENSES AMOUNTING TO RS. 1,96,61,963/- MADE BY THE ASSESSING OFFICER HOLDING THAT THE APPELLANT HAS FAILED TO DISCHARGE THE ONUS TO PROVE ITA NOS. 1816&1846/DEL/2010 15 THAT THE LIABILITY IN RESPECT OF EARLIER YEARS EXPE NDITURE HAS ACTUALLY CRYSTALLIZED DURING THE ASSESSMENT YEA R UNDER CONSIDERATION. 1.1 THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN OBSERVING THAT NO SUPPORTING DOCUMENTS HAVE BEEN PRODUCED BY THE APPELLANT IN RESPECT OF THE AFORESAID CLAIM. 1.2 WITHOUT PREJUDICE, THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION OF THE AFORES AID EXPENDITURE IN THE YEAR TO WHICH THE SAME RELATED T O. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS. 51,43,792/- MADE BY T HE ASSESSING OFFICER IN RELATION TO LATE PAYMENT OF PURCHASE TAX AND SALES TAX. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF T HE LOAN PROCUREMENT CHARGES AMOUNTING TO RS. 19,20,826/- PAID TO POYSHA FINANCE CORP. LTD., PROVESTMENT SERVICES LTD., AND PEACOCK CHEMICALS PVT. LTD. FOR ARRANGING INTER-CORPORATE DEPOSIT, ALL EGING THAT THE APPELLANT HAS NOT SPECIFIED THE NATURE OF SERVICES RENDERED BY THE AFORESAID PARTIES AND THE BASIS FOR CALCULATION OF ABOVE LOAN PROCUREMENT CHARGES. ITA NOS. 1816&1846/DEL/2010 16 4. THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN CONFIRMING TO THE EXTENT OF RS. 24,00,000/-, THE DISALLOWANCE ON ACCOUNT OF NOTIONA L INTEREST LOAN AMOUNT OF RS. 2 CRORE GIVEN TO MODI STONE LTD. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE SAID LOANS AND ADVANCES WERE MADE IN EARLIER YEARS OUT OF OWN FUNDS AND FOR BUSINESS EXPEDIENCY AND DISALLOWANCE OF INTEREST WAS, THEREFORE, NOT CALLED FOR. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 23. APROPOS ISSUE OF DISALLOWANCE OF PRIOR PERIOD E XPENSES AMOUNTING APROPOS ISSUE OF DISALLOWANCE OF PRIOR PERIOD EXPEN SES AMOUNTING APROPOS ISSUE OF DISALLOWANCE OF PRIOR PERIOD EXPEN SES AMOUNTING APROPOS ISSUE OF DISALLOWANCE OF PRIOR PERIOD EXPEN SES AMOUNTING TO RS. 1,96,61,963/ TO RS. 1,96,61,963/ TO RS. 1,96,61,963/ TO RS. 1,96,61,963/- -- -. . . . ON THIS ISSUE ASSESSING OFFICER OBSERVED THAT THE DETAILS FURNISHED BY THE ASSESSEE IN RESPECT OF PRIOR PERI OD EXPENDITURE IS VERY CRYPTIC. THESE EXPLANATIONS DO NOT EVIDENCE T HAT HOW THE EXPENDITURE GOT CRYSTALIZED DURING THE YEAR. HE HE LD THAT ASSESSEE COMPANY HAS FAILED TO PROVE THAT THE PRIOR PERIOD E XPENDITURES HAVE BEEN FINALIZED/ SETTLED/ CRYSTALISED DURING THE Y EAR. ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE HAS FAILED TO DISCHARG E ITS ONUS, BY WAY OF DOCUMENTARY PROOF/ EVIDENCE THAT EARLIER YEARS EXPE NDITURE HAVE ACTUALLY BEEN CRYSTALISED DURING THE YEAR. THE DISA LLOWANCE OF RS. 1,96,61,963/- WAS MADE TO PRIOR PERIOD EXPENSE. ITA NOS. 1816&1846/DEL/2010 17 24. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) CONSIDERED THE VARIOUS ASPECTS OF THE CLAIM AND SUS TAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 25. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 26. WE HAVE CONSIDERED THE SUBMISSIONS AND THE ISSU ES ARE BEING ADJUDICATED AS UNDER:- I. I.I. I. ELECTRICITY AND WATER CHARGES: ELECTRICITY AND WATER CHARGES: ELECTRICITY AND WATER CHARGES: ELECTRICITY AND WATER CHARGES:- -- - BILL OF 89,69,692/- WAS RAISED BY DELHI ELECTRICITY BOARD (DEB) IN MARCH, 2000 FOR THE PERIOD JUNE, 1994 TO NOVEMBER, 19 99 TOWARDS DIFFERENCE IN LOAD. AS PER THE ASSESSEES SUBMISSION S, DEB THREATENED DISCONNECTION, IF THE AMOUNT WAS NOT PAID. THE DISC ONNECTION WAS DEFERRED SUBJECT TO ASSESSEES DEPOSITING RS. 10 L ACS. IT IS IN THE AFORESAID CIRCUMSTANCES IT HAS BEEN CLAIMED THAT THE ASSESSEE MADE A PROVISIONS OF RS. 89,69,692/-. THE LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT THE ASSESSEE HAS NOT ACCEPTED THE SAI D LIABILITY IN AS MUCH AS REPRESENTATION WAS MADE BEFORE THE POWER MINIS TRY AND ONLY AN ADHOC PROVISION WAS MADE. THEREFORE, THE SAME DOE S NOT CONSTITUTE ASCERTAINED LIABILITY. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PER USED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TA X (A) IS CORRECT IN HOLDING THAT ASSESSEE HAS NOT ACCEPTED THE SAID LIA BILITY IN AS MUCH AS REPRESENTATION HAS BEEN MADE BEFORE THE POWER MINIS TRY. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THE AMOUNT HAS BECOME ASCERTAINED LIABILITY. WE FURTHER NOTE IN SUBSEQUEN T PERIODS, THE ASSESSEE HAS MADE CERTAIN PAYMENTS AMOUNTING TO RS. 4 5,46,650/- AND THE BALANCE PROVISION OF RS. 44,23,042/- WAS WR ITTEN BACK IN THE ITA NOS. 1816&1846/DEL/2010 18 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.20 06. IN THIS REGARD, WE FIND COGENCY IN THE SUBMISSIONS OF THE LD. COU NSEL OF THE ASSESSEE THAT PAYMENT / ADJUSTMENT OF RS. 35,46,650/- WAS MADE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, THE SAME SHOULD BE ALLOWED AS DEDUCTION. WE DIRECT THE ASSESSING OFFIC ER TO EXAMINE THE VERACITY OF THE SUBMISSIONS AND ALLOW ACCORDINGLY. II. II.II. II. EXGRATIA PAYMENT OF RS. EXGRATIA PAYMENT OF RS. EXGRATIA PAYMENT OF RS. EXGRATIA PAYMENT OF RS. 26,31,121/ 26,31,121/ 26,31,121/ 26,31,121/- -- - AND RS. 14,72,597/ AND RS. 14,72,597/ AND RS. 14,72,597/ AND RS. 14,72,597/- -- - THE ABOVE PAYMENTS HAVE BEEN CLAIMED TO HAVE BEEN A CCOUNTED FOR IN THIS PERIOD AS THE NECESSARY DECISION REGA RDING THE PAYMENT OF THE SAME WAS TAKEN BY THE TOP MANAGEMENT ONLY FOR T HE MONTH OF JUNE, 2000. THEREFORE, IT HAS BEEN CLAIMED THAT THE SAME WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HOWEVER, WE NOTE THAT ASSESSEE HAS NOT EXPLAINED THE CIRCUMSTANCES U NDER WHICH THE EXGRATIA TO SENIOR MANAGEMENT WAS DECLARED IN THE MONTH OF JUNE, 2000. NO DETAILS IN THIS REGARD ABOUT THE PERSONS , THE SERVICES AND THE NATURE OF THE BENEFITS INCLUDING THE PAYMENT HAV E BEEN FURNISHED. IN THESE CIRCUMSTANCES, WE FIND THAT LD. COMMISSIONER OF INCOME TAX (A) IS CORRECT IN HOLDING THAT IN THE ABSENCE OF N ECESSARY DETAILS, ASSESSING OFFICER HAS RIGHTLY CONSIDERED THE ASSE SSEES RESPONSE AS A VERY CRYPTIC. HENCE, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) FOR THE DISALLOWANCE IN THIS REGARD. LD. COMMISSIONER OF INCOME TAX (A) IN HIS ORDER HAS O BSERVED THAT OTHER CLAIMS ON ACCOUNT OF STORES AND RAW MATER IALS CONSUMED, INTEREST ON SALES TAX, INTEREST ON SECURITY DEPOSIT , C&F AGENTS, SHARE REGISTRATION CHARGES ARE ALSO WITHOUT ANY SUPPORTIN G. HE HAS OBSERVED THAT IT IS SETTLED POSITION OF LAW THAT BEFORE COMI NG TO THE ADMISSIBILITY OR OTHERWISE OF AN EXPENDITURE THE ASSESSING OFFICE R HAS TO ASCERTAIN ITA NOS. 1816&1846/DEL/2010 19 PRIMARY FACT OF INCURRING OF SUCH EXPENDITURE. LD. COMMISSIONER OF INCOME TAX (A) HAS GIVEN A CATEGORICAL FINDING THAT THOUGH IT IS THE ASSESSEES CLAIM THAT THE EXPENDITURE CLAIMED WAS A CTUALLY INCURRED AND THE LIABILITY TO INCUR SUCH EXPENDITURE GOT CRY STALLIZED IN THE YEAR UNDER CONSIDERATION, NO SUPPORTING DOCUMENTS HAVE B EEN PRODUCED NOR THE SAME WERE PRODUCED BEFORE THE ASSESSING OFF ICER. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE CASE L AWS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE ARE NOT GERMANE TO THE ISSUE HEREIN. UNDER SUCH CIRCUMSTANCES, WE FIND THAT ASSESSEE CLAI M THAT THE EXPENDITURE IN THIS REGARD SHOULD BE ALLOWED IN THE CURRENT ASSESSMENT YEAR CANNOT BE SUSTAINED AS IT IS THE DUTY OF THE A SSESSEE TO SATISFY THE PRIMARY REQUIREMENT OF LAW THAT THE EXPENDITURE CLAI MED UNDER THE HEAD PRIOR PERIOD EXPENSES WAS ACTUALLY LAID DOWN OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUS INESS AND FURTHERMORE, THE SAME HAS BEEN INCURRED AND GOT CRYSTALLIZED ONLY IN THE YEAR UNDER CONSIDERATION. HENCE, IN OUR CONSID ERED OPINION, THERE IS NO INFIRMITY IN THE ORDER OF THE AUTHORITIES BELO W ON THIS ISSUE. ACCORDINGLY, WE SUSTAIN THE ADDITION MADE IN THIS RE GARD. 27. APROPOS ISSUE OF DISALLOWANCE OF INTEREST TO TH E EXTENT OF RS. APROPOS ISSUE OF DISALLOWANCE OF INTEREST TO THE EX TENT OF RS. APROPOS ISSUE OF DISALLOWANCE OF INTEREST TO THE EX TENT OF RS. APROPOS ISSUE OF DISALLOWANCE OF INTEREST TO THE EX TENT OF RS. 51,43,792/ 51,43,792/ 51,43,792/ 51,43,792/- -- - ON THIS ISSUE ASSESSING OFFICER MADE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 1,36,96,253/- PAID ON LATE PAYMENT OF PURCHASE TAX AND SALES TAX. THE ASSESSING OFFICER HAS MADE T HE SUBJECT DISALLOWANCE MAINLY BECAUSE (I) IN HIS OPINION, THE INTEREST PAID ON SALES TAX AND PURCHASE TAX WAS IN THE NATURE OF PEN ALTY (II) AS PER THE JUDGEMENTS OF HONBLE SUPREME COURT IN THE CASES OF M ALWA VANASPATI AND CHEMICAL COMPANY VS. C.I.T. 225 ITR 383 AND HAJJI AZIZ AND ABDUL ITA NOS. 1816&1846/DEL/2010 20 SHAKOR BROTHERS VS. C.I.T. 43 ITR 350 ANY EXPENSES LAID OUT BY WAY OF PENALTY FOR BREACH OF LAW IS NOT TO BE TREATED AS E XPENSES INCURRED FOR THE PURPOSES OF BUSINESS, AND (III) THE AMOUNT IN Q UESTION HAS BEEN CLAIMED MERELY ON THE BASIS OF NOTICES / SHOW CAUSE I SSUED TO THE ASSESSEE AND NO DEMANDS HAVE BEEN ACTUALLY RAISED TH EREFORE, THE DEDUCTION WAS NOT ALLOWABLE ON ACCOUNT OF BEING A C ONTINGENT LIABILITY. 28. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT IT IS FOUND THAT OUT OF THE TOTAL CLA IM OF RS. 1,36,96,253/- FOLLOWING AMOUNTS CLEARLY REPRESENTED PAYMENT OF IN TEREST:- (I) BOMBAY (BOMBAY SALES TAX ACT) : RS. 7301245/- (II) NAGPUR (BOMBAY SALES TAX ACT) : RS. 148858/- (III) JAIPUR (RAJASTHAN SALES TAX ACT) : RS. 9195 10/- TOTAL : RS. 83,69,613/- HOWEVER, LD. COMMISSIONER OF INCOME TAX (A) NOTED THA T THERE WAS NO INFORMATION/ EVIDENCE WITH RESPECT TO THE BA LANCE AMOUNT OF RS. 53,26,640/- AS TO WHETHER THE SAME WAS PAID TO COMPENSATE THE GOVERNMENT EXCHEQUER FOR DELAYED PAYMENTS OR IT WAS P ENAL IN NATURE. THEREFORE, THE LD. COMMISSIONER OF INCOME TAX (A) HEL D THAT IN THE ABSENCE OF NECESSARY DETAILS / EVIDENCE, HE DID NOT AGREE WITH THE ASSESSEE COMPANY THAT IT WAS COMPENSATORY IN NATURE AND THEREFORE THE SAME WAS NOT AN ADMISSIBLE EXPENDITURE IN TERMS O F SECTION 37(1) OF THE I.T. ACT. 29. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 30. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (A) HAS DISA LLOWED A SUM OF ITA NOS. 1816&1846/DEL/2010 21 RS. 53,26,640/- ON THE GROUND THAT ASSESSEE HAS NOT SUBMITTED NECESSARY DETAILS / EVIDENCE IN THIS REGARD. LD. CO UNSEL OF THE ASSESSEE HAS CONTENDED THAT THIS AMOUNT WAS ALLOWABLE. HOWEVE R, LD. COUNSEL OF THE ASSESSEE HAS NOT SUBMITTED ANY DETAIL IN THIS RE GARD. LD. COUNSEL OF THE ASSESSEE HAS CLAIMED THAT THE ABOVE INTEREST PAID BY THE ASSESSEE WAS COMPENSATORY AND NOT PENAL IN NATURE. HOWEVER, NECESSARY DETAILS IN THIS REGARD ARE NOT AVAILABLE . UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (A). ACCORDINGLY, WE UPH OLD THE SAME. 31. APROPOS ISSUE OF DISALLOWANCE OF LOAN PROCUREME NT CHARGES APROPOS ISSUE OF DISALLOWANCE OF LOAN PROCUREMENT C HARGES APROPOS ISSUE OF DISALLOWANCE OF LOAN PROCUREMENT C HARGES APROPOS ISSUE OF DISALLOWANCE OF LOAN PROCUREMENT C HARGES AMOUNTING TO RS. 19,20,826/ AMOUNTING TO RS. 19,20,826/ AMOUNTING TO RS. 19,20,826/ AMOUNTING TO RS. 19,20,826/- -- - ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSESS EE HAS CLAIMED AN AMOUNT OF RS. 19,20,826/- PAID TO M/S POISHA FINCO RP LIMITED, M/S PROVESTMENT SERVICES LTD. AND M/S PEACOCK CHEMICALS PVT . LTD. AS SERVICE CHARGES FOR ARRANGING FINANCE FOR THE ASSES SEE AND DEBITED UNDER BANK CHARGES. ASSESSEE SUBMITTED THAT THESE CHARGES WERE PAID FOR ARRANGING FINANCE FOR THE COMPANY AS IT WAS IN A PRECARIOUS FINANCIAL POSITION AND WAS UNABLE TO GET THE FINANC ES EASILY. FROM THE DETAILS ASSESSING OFFICER NOTED THAT ASSESSEE COMP ANY HAS PAID 4.5% OF THE AMOUNT OF LOAN FOR ARRANGING INTER CORPORATE DEPOSITS OF VARIOUS AMOUNTS FOR A PERIOD OF 90-100 DAYS. ASSESSING OFFI CER NOTED THAT NO FURTHER DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE . THAT IT WAS NOWHERE EXPLAINED AS TO WHAT SERVICES WERE RENDERED BY THESE COMPANIES AND WHAT EFFORTS WERE MADE BY THESE COMPANIE S. ACCORDINGLY, ASSESSING OFFICER DISALLOWED A SUM O F RS. 19,20,826/- IN THIS REGARD. ITA NOS. 1816&1846/DEL/2010 22 32. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT CLAIM OF THE ASSESSEE COMPANY IS NOT SUPPO RTED WITH ANY CREDIBLE/TANGIBLE EVIDENCE. HE OBSERVED THAT THERE WAS NO INFORMATION REGARDING SERVICES RENDERED BY THESE COMPANIES FOR A RRANGING FUNDS IN QUESTION AS NO SUPPORTING DOCUMENTS, LEAVE ALONE THE CONFIRMATIONS FROM AFORESAID PARTIES, WERE FURNISHED BEFORE THE AS SESSING OFFICER OR BEFORE THE LD. COMMISSIONER OF INCOME TAX (A). LD. COM MISSIONER OF INCOME TAX (A) HELD THAT FOR CLAIMING EXPENDITURE IN TERMS OF SECTION 36 AND 37 OF THE I.T. ACT ASSESSEE HAS TO SUBMIT PRO PER EVIDENCE SO AS TO JUSTIFY THAT THE CLAIM OF EXPENDITURE WAS NOT ONL Y BONAFIDE, BUT IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF ITS BUSINESS. HOWEVER, IN THIS CASE SINCE THE ASSESSEE FAILED TO DO SO, LD. COMMISSIONER OF INCOME TAX (A), UPHELD THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER. 33. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 34. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED TH E RECORDS. WE FIND THAT THERE IS NO QUARREL WITH REGARD TO THE SU BMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE IN SO FAR AS THE POSITION O F LAW WITH RESPECT TO THE DEFINITION OF INTEREST IS CONCERNED. HOWEVER, WE NOTE THAT ASSESSING OFFICER AND LD. COMMISSIONER OF INCOME TAX (A) HAD NOTED THAT ASSESSEE HAS NOT SUBMITTED ANY DETAIL/ SUPPORTI NG WITH RESPECT TO THIS EXPENDITURE. WE AGREE WITH THE LD. COMMISSIONER OF INCOME TAX (A) THAT THIS CLAIM OF THE ASSESSEE IS NOT SUPPORTE D WITH ANY CREDIBLE OR TANGIBLE EVIDENCE. THERE IS NO INFORMATION AS TO THE IMMEDIATE REQUIREMENT OF THE FUNDS, IF ANY, BORROWED AND SERV ICES RENDERED BY THESE PARTIES IN ARRANGING THE FUNDS IN QUESTION. UNDER THE CIRCUMSTANCES, SINCE THE ASSESSEE HAS FAILED TO SUBMI T THE PROPER ITA NOS. 1816&1846/DEL/2010 23 EVIDENCE IN THIS REGARD, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A). ACCORDINGLY, WE UPHOLD THE SAME. 35. APROPOS ISSUE OF DISALLOWANCE OF RS. 24,00,000/ APROPOS ISSUE OF DISALLOWANCE OF RS. 24,00,000/ APROPOS ISSUE OF DISALLOWANCE OF RS. 24,00,000/ APROPOS ISSUE OF DISALLOWANCE OF RS. 24,00,000/- -- - ON THIS ISSUE THE ASSESSING OFFICER DISALLOWED I NTEREST OF RS. 89,82,208/- ON THE GROUND THAT THE ASSESSEE HAD ADV ANCED INTEREST FREE LOAN TO VARIOUS GROUP COMPANIES WHILE THE ASSES SEE WAS PAYING HUGE INTEREST TO BANK AND FINANCIAL INSTITUTIONS ON THE BORROWINGS. THE ASSESSING OFFICER HAS COMPUTED INTEREST @ 12% PER A NNUM ON THE OUTSTANDING BALANCE IN RESPECT OF THE FOLLOWING:- MODI SPG. & WVG. MILLS CO. LTD. : RS. 1,98,51,747 /- MODI ALKALIES AND CHEMICALS LTD. : RS. 1,40,00,000/ - MODI STONE LTD. : RS. 2,00,00,000/- MODI CARPET LTD. : RS. 2,10,00,000/- RS. 7,48,51,747/- AND HAS DISALLOWED THE SAME OUT OF INTEREST PAID BY THE ASSESSEE. 36. THE LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION OF NOTIONAL INTEREST W.R.T. TO LOAN ADVANCED TO THE FO LLOWING COMPANIES:- MODI MODI SPG. & WVG. MILLS CO. LTD. : RS. 1,98,51 ,747/- MODI ALKALIES AND CHEMICALS LTD. : RS. 1,40,00,000/ - MODI CARPET LTD. : RS. 2,10,00,000/- RS. 7,48,51,747/- ITA NOS. 1816&1846/DEL/2010 24 36.1 THE LD. COMMISSIONER OF INCOME TAX (A), HOWEVER , SUSTAINED THE ADDITION ON NOTIONAL INTEREST W.R.T. LOAN OF RS. 2, 00,000/- ADVANCED TO MODI STONE LTD. IN THE YEAR 1977 OBSERVING THAT NO D ETAIL HAD BEEN FILED BY THE ASSESSEE TO JUSTIFY THAT THE SAME HAS B EEN ADVANCED IN THE EARLIER YEARS OUT OF THE INTEREST FREE FUNDS. 37. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APP EAL BEFORE US. 38. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT THE ASSES SEE WAS HAVING BUSINESS TRANSACTIONS WITH M/S MODI STONE LTD. THE A SSESSEE USED TO SUPPLY THE RAW MATERIAL TO MODI STONE LTD. ON JOB WO RK BASIS AND IN TURN RECEIVED THE TYRES. ASSESSEE ADVANCED LOAN OF RS. 2 CRORES TO MODI STONE LTD. ON ACCOUNT OF COMMERCIAL EXPEDIENCY AS TH E SAID COMPANY WAS DECLARED SICK BY BIFR VIDE ORDER DATED 15.4.199 8. NO INTEREST WAS ACCRUED ON THE ABOVE LOAN OF RS. 2 CRORE. IT HAS F URTHER BEEN SUBMITTED THAT ON PERUSAL OF THE FINANCIAL STATEMEN TS FOR THE YEAR ENDED 30.9.1997, IT WOULD BE APPRECIATED THAT THE ASSESSEE WAS HAVING MIXED POOL OF FUNDS COMPRISING OF THE OWNED FU NDS AS WELL AS LOAN FUNDS. IN SUCH A SITUATION, IN THE ABSENCE OF ONE TO ONE NEXUS BETWEEN BORROWED FUNDS AND LOAN ADVANCED TO MODI STO NE LTD., THE PRESUMPTION IN LAW IS THAT THE LOAN TO MODI STONE LTD . SHOULD BE PRESUMED TO HAVE COME OUT OF OWN FUNDS. LD. COUNSEL O F THE ASSESSEE HAS FURTHER SUBMITTED THAT EVEN IF THE ABOVE LOAN WA S ADVANCED BY THE ASSESSEE OUT OF BORROWED FUNDS, THEN, TOO NO DISALL OWANCE ON ACCOUNT OF INTEREST COULD BE MADE IN RESPECT OF INTEREST FR EE LOANS / ADVANCES MADE TO MODI STONE LTD. OUT OF COMMERCIAL EXPEDIENCY. LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE SAID LOAN AMOUNT IS BEING CARRIED FORWARD FROM EARLIER YEARS. THERE IS NO FRE SH LOAN OR ADVANCE ITA NOS. 1816&1846/DEL/2010 25 MADE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS Y EAR. THERE WAS NO SUCH DISALLOWANCE MADE IN EARLIER YEARS. IT HAS B EEN SUBMITTED THAT NO INTEREST INCOME SHOULD BE ACCRUED WHERE THE FIN ANCIAL POSITION OF THE DEBTOR IS NOT GOOD AND THE ULTIMATE RECOVERY OF THE INTEREST IS ITSELF DOUBTFUL. 39. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 40. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE ASSESSEE THAT THERE IS NO FRESH LOAN OR ADVANCE MADE BY THE ASSESSEE TO M/S MODI STONE LTD. DURING THE RELEVANT PREVIOUS YEAR. T HE ADVANCE WAS MADE IN THE EARLIER PERIOD. ASSESSEE HAD BUSINESS RE LATIONSHIP WITH MODI STONE LTD. IN SUCH SITUATION, THERE IS COGENCY IN THE SUBMISSIONS OF THE ASSESSEE THAT THERE WAS COMMERCIAL EXPEDIENCY INVOLVED IN ADVANCING THE LOAN IN THIS REGARD. IN THIS REGARD, DECISION OF HONBLE APEX COURT IN SA BUILDERS LTD. VS. C.I.T. : 288 ITR 1 (SC) IS GERMANE AND SUPPORTS THE CASE F THE ASSESSEE. WE FURTHER FIND THAT IT IS THE CLAIM OF THE ASSESSEE THAT IT HAD MIXED POOL OF FUNDS COMPRISI NG OWNED FUNDS AS WELL AS LOAN FUNDS. HENCE, IN SUCH A SITUATION , IN THE ABSENCE OF ONE TO ONE NEXUS BETWEEN BORROWED FUNDS AND LOAN AD VANCE TO MODI STONE LTD., THE PRESUMPTION IN LAW IS THAT THE LOAN TO MODI STONE LTD. SHOULD BE PRESUMED TO HAVE COME OUT OF OWN FUNDS. THE ABOVE SUBMISSIONS OF THE ASSESSEE HAS NOT BEEN REBUTTED. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE SAID LOA N OF RS. 2 CRORE WAS MADE OUT OF INTEREST BEARING FUNDS. IN THESE CI RCUMSTANCES, WE FIND CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. HENCE, IN THE BACKGROUND OF THE AFORESAI D DISCUSSIONS AND ITA NOS. 1816&1846/DEL/2010 26 PRECEDENT, WE SET ASIDE THE ORDERS OF THE AUTHORITI ES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESS EE. 41. IN THE RESULT, THE ASSESSEES APPEAL (I.T.A. NO . 1816/DEL/2010) STANDS PARTLY ALLOWED AND REVENUES APPEAL (I.T.A. NO. 1846/DEL/2010) STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/8/2013. SD/- SD/- [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 23/8/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY ASSISTANT REGISTRAR, ITAT, DELHI.