Spacevision Impex (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 1875/DEL/2012

• Counselvise Citation: 187520114 RSA 2012
• Duration Of Justice: 3 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR SENIOR
• Keywords: Source of fund; Corroborative evidences; Notional interest; Commercial expediency; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.1457/DEL./2011 (ASSESSMENT YEAR : 2006-07) ITA NO.1875/DEL./2012 (ASSESSMENT YEAR : 2007-08) M/S. SPACEVISION IMPEX (P) LTD., VS. ACIT, CIRCLE 9 (1), D 14, KAILASH COLONY, NEW DELHI. NEW DELHI 110 048. (PAN : AAICS0922Q) ITA NO.1423/DEL./2010 (ASSESSMENT YEAR : 2006-07) ACIT, CIRCLE 9 (1), VS. M/S. SPACEVISION IMPEX (P ) LTD., NEW DELHI. D 14, KAILASH COLONY, NEW DELHI 110 048. (PAN : AAICS0922Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJ KUMAR GUPTA, ADVOCATE, SHRI AMIT GOPAL, CA REVENUE BY : SHRI B.R.R. KUMAR, SENIOR DR DATE OF HEARING : 05.05.2015 DATE OF PRONOUNCEMENT : 15.05.2015 O R D E R PER S.V. MEHROTRA, AM : ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 2 ITA NO.1457/DEL/2011 FILED BY THE ASSESSEE AND ITA NO.1423/DEL/2010 FILED BY THE REVENUE ARE CROSS APP EALS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A)-XII, NEW DELHI DATE D 23.12.2009 FOR THE ASSESSMENT YEAR 2006-07. ITA NO.1875/DEL/2012 FILE D BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT (A)-XII, NEW DELHI DATED 06.04.2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE FACTS OF THE CASE ARE THAT DURING THE YEAR U NDER CONSIDERATION, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF TRADING OF PETROLEUM PRODUCTS. IT HAD FILED ITS RETURN OF INCOME DECLAR ING INCOME AT RS.19,53,953/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.62,90,861/- AS UNDER :- INCOME AS PER RETURN OF INCOME 19,53,953/- ADD: I) ON ACCOUNT OF ROC FEES (AS DISCUSSED VIDE PARA 3 AND 3.1) (1,50,500 + 47,500) 1,98,000/- II) ON ACCOUNT OF ACCRUED ON NCS (AS DISCUSSED VIDE PARA 4) 63,605/- III) ON ACCOUNT OF CUSTOM DUTY (AS DISCUSSED VIDE PARA 5) 84,729/- IV) ON ACCOUNT OF CUSTOM DUTY (AS DISCUSSED VIDE PARA 5.1) 7,04,233/- V) ON ACCOUNT OF PROFESSIONAL FEES (AS DISCUSSED VIDE PARA 6) 7,500/- VI) ON ACCOUNT OF LEGAL FEE (PRIOR PERIOD) (AS DISCUSSED VIDE PARA 6.1) 9,450/- VII) ON ACCOUNT OF PROFESSIONAL FEES PAID FOR CONVERSIONS OF AGRICULTURE LAND (AS DISCUSSED VIDE PARA 6.2) 22,066/- ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 3 VIII) ON ACCOUNT OF MEDI-CLAIM OF THE DIRECTOR (AS DISCUSSED VIDE PARA 7) 13,142/- IX) ON ACCOUNT OF INTEREST OF WORK-IN- PROGRESS (AS DISCUSSED VIDE PARA 8) 1,24,148/- X) ON ACCOUNT OF PLANT EXPENSES (AS DISCUSSED VIDE PARA 4) 93,973/- XI) ON ACCOUNT OF NOTIONAL INTEREST ON ADVANCES (AS DISCUSSED VIDE PARA 9) 2,84,405/- XII) ON ACCOUNT OF TELEPHONE & VEHICLE (AS DISCUSSED VIDE PARA 10) 50,000/- XIII) ON ACCOUNT OF SERVICE CHARGES (AS DISCUSSED VIDE PARA 11.3 7,32,148/- + 8,08,857/-) 11,40,652/- 43,36,908/- TOTAL INCOME : 62,90,861/- LD. CIT (A) PARTLY ALLOWED THE ASSESSEES APPEAL. BEING AGGRIEVED WITH THE ORDER OF THE CIT (A), BOTH THE ASSESSEE AND REV ENUE ARE IN APPEAL FOR ASSESSMENT YEAR 2006-07. 3. FIRST, WE TAKE UP ASSESSEES APPEAL BEING ITA NO .1457/DEL/2011. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROU NDS OF APPEAL :- 1. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.1 ,98,000/- BY ASSESSING OFFICER BY DISALLOWING THE ENTIRE EXPENDI TURE OF RS.150,500/- AND RS.47,500/- FOR RAISING AUTHORIZED CAPITAL OF T HE COMPANY VIDE PARA 3 AND 3.1 OF ASSESSMENT ORDER DATED 2411 2/2008 INS TEAD OF ALLOWING THE EXPENDITURE IN FIVE YEARS AS PER SECTION 35 D OF IN COME TAX ACT 1961 OR AS PER OTHER RELEVANT SECTION OF INCOME TAX ACT 1961. 2. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.84,72 9/- AND RS.7,04,233/- BY ASSESSING OFFICER BY DISALLOWING T HE INTEREST ON LATE PAYMENT OF CUSTOM DUTY VIDE PARA 5 AND 5.1 OF ASSES SMENT ORDER DATED 24/12/2008 INSPIRE' OF OUR REPLY THAT THERE IS NO D EFAULT ON OUR PART FOR LATE PAYMENT OF CUSTOM DUTY BEING CUSTOM DUTY HAD B EEN PAID LATE FOR NON RELEASE OF MATERIAL BY CUSTOM AUTHORITIES DUE T O GOVERNMENT PROCEDURES. LEARNED ASSESSING OFFICER NOT RAISED QU ERY FOR WHAT PURPOSE ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 4 RS.7,04,233/- PAID TO CUSTOM AUTHORITIES AND MADE T HE ADDITION TO INCOME ON ITS OWN ASSUMPTIONS. 3. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.9.450 /- BY ASSESSING OFFICER BY DISALLOWING THE LEGAL FEE FOR THE MONTH OF MARCH 2005 UNDER THE HEAD OF CONSULTANCY AND PROFESSIONAL CHARGES BE ING PRIOR PERIOD EXPENSES VIDE PARA 6.1 OF ASSESSMENT ORDER DATED 24 /12/2008. BEING NO AMOUNT HAD BEEN PROVIDED FOR IN THE ACCOUNTS FOR TH E F.Y. 2004-2005, EXPENDITURE HAD BEEN ACCOUNTED FOR ON SUBMISSION OF BILL BY THE CONSULTANT. 4. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.13,14 2/- BY ASSESSING OFFICER BY DISALLOWING THE MEDICLAIM POLICY PAID FO R DIRECTOR OF THE COMPANY UNDER THE HEAD INSURANCE EXPENSES VIDE PARA 7 OF ASSESSMENT ORDER DATED 24/12/2008 STATING THAT NO REPLY / EXPL ANATION FURNISHED, HOWEVER THE REPLY HAD BEEN SUBMITTED VIDE PARA 9 OF LETTER DATE 18/12/2008. 5. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.1,24, 148/- BEING INTEREST NOT CHARGED ON CAPITAL EXPENDITURE OF RS.46,73,942/ - BOOKED AS WORK IN PROGRESS ON BEHALF OF PLANT OWNER M/S FUTURISTIC OF FSHORE SERVICES & CHEMICALS LTD. VIDE PARA 8 OF ASSESSMENT ORDER DATE D 24/12/2008. 6. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.93,97 3/- BY ASSESSING OFFICER BY DISALLOWING THE PLANT EXPENSES OF RS. 93 ,973/- VIDE PARA 8.1 OF ASSESSMENT ORDER DATED 24/12/2008. 7. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.2,84, 405/- BEING INTEREST NOT CHARGED ON BUSINESS ADVANCES OF RS.18,96,035/- GIVEN IN EARLIER YEARS VIDE PARA 9 OF THE ASSESSMENT ORDER DATED 24/ 12/2008. 8. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.50,00 0/- BY ASSESSING OFFICER BY DISALLOWING THE EXPENDITURE OF RS.50,000 /- ON ESTIMATE BASES FOR PERSONAL USE UNDER THE HEAD OF TELEPHONE, VEHIC LE RUNNING & MAINTENANCE VIDE PARA 10 OF THE ASSESSMENT ORDER DA TED 24/12/2008 INSPITE OF FRINGE BENEFIT TAX PAID ON TELEPHONE & V EHICLE RUNNING MAINTENANCE EXPENSES. ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 5 4. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE DID NOT PRESS GROUND NO.1. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 5. BRIEF FACTS, APROPOS GROUND NO.2, ARE THAT THE A SSESSEE HAD CLAIMED AN AMOUNT OF 34,78,005/- UNDER THE HEAD CUSTOM DUTY . ON EXAMINATION OF DETAILS, THE ASSESSING OFFICER NOTICED THAT ASSESSE E HAD, INTER ALIA, CLAIMED A PAYMENT OF RS.84,729/- TO THE CUSTOM DEPARTMENT I N THE MONTH OF FEBRUARY, 2006 WHICH WAS ON ACCOUNT OF DELAYED PAYM ENT OF CUSTOM DUTY ON THE GOODS IMPORTED DURING THE FINANCIAL YEAR 200 3-04. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY IT SHOULD NOT BE TREATED AS PENAL IN NATURE/PRIOR PERIOD EXPENSES AND, ACCOR DINGLY, DISALLOWED. THE ASSESSEE SUBMITTED AS UNDER :- 'INTEREST OF RS.84,728/- PAID ON CUSTOM DUTY WAS N OT PAID DUE TO ANY DEFAULT BY THE COMPANY. ACTUALLY THERE HAD BEEN DEL AY IN RELEASE OF MATERIAL DUE TO GOVERNMENT PROCEDURES, HOWEVER, CUS TOMER AUTHORITIES CHARGE THE INTEREST FROM THE ASSESSEE C OMPANY. THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLA IM ON TWO COUNTS (A) ASSESSEE HAD MADE THE PAYMENT IN THE FINANCIAL YEAR 2005-06 WHEREAS CUSTOM DEPARTMENT HAD RAISED DEMAND NOTE ON THE GOO DS IMPORTED DURING THE FINANCIAL YEAR 2003-04; AND (B) AS THE DELAY WA S ATTRIBUTABLE TO THE ASSESSEE, IT HAD PAID PENALTY IN TERMS OF INTEREST. FURTHER, THE ASSESSING OFFICER NOTICED THAT UNDER THE HEAD CUSTOM DUTY PAI D, THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.7,04,233/- AS CUSTOM DUTY P AID IN THE MONTH OF NOVEMBER, 2005. HE NOTED THAT THIS WAS ALSO ON ACC OUNT OF INTEREST PAID TO ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 6 CUSTOM DEPARTMENT ON ACCOUNT OF DELAYED PAYMENT OF CUSTOM DUTY. HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THIS AMO UNT SHOULD NOT BE TREATED AS PENAL IN NATURE AND PRIOR PERIOD EXPENSE S BEING RELATABLE TO FINANCIAL YEAR 2003-04. NOT BEING SATISFIED WITH A SSESSEES EXPLANATION, HE DISALLOWED BOTH THESE AMOUNTS CLAIMED BY THE ASSESS EE WHICH WAS CONFIRMED BY THE LD. CIT (A) INTER ALIA OBSERVING T HAT CUSTOM DEPARTMENT LEVIED PENALTY FOR RETAINING MATERIAL BEYOND THE SP ECIFIED PERIOD. 6. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINC E THE DEMAND FOR BOTH THE AMOUNTS WAS RAISED DURING THE YEAR, THEREF ORE, LIABILITY ACCRUED DURING THE YEAR ITSELF AND THIS WAS NOT A PRIOR PER IOD EXPENDITURE. HE SUBMITTED THAT THE VERY NATURE OF PAYMENT BEING INT EREST CLEARLY SUGGESTS THAT IT IS COMPENSATORY IN NATURE AND NOT PENAL IN NATURE. LD. DR SUBMITTED THAT THERE IS NOTHING ON RECORD TO SUGGES T THAT THE DEMAND WAS RAISED DURING THE YEAR. HE, THEREFORE, SUBMITTED T HAT THE MATTER BE RESTORED TO ASSESSING OFFICER TO VERIFY WHEN THE DEMAND WAS RAISED. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES. THE FACTS ARE NOT DISPUTED. LD. COUNSEL REFERS TO PAGE 20A W HEREIN COCHIN CUSTOMS RECEIPT FOR MISCELLANEOUS CHARGES IS CONTAINED WHIC H IS DATED 30.01.2006 ACKNOWLEDGING THE PAYMENT OF RS.84,728/-. IN THIS RECEIPT, THE BILL OF ENTRY NUMBER IS MENTIONED AS 170028 DATED 30.11.200 5 FROM 16.11.2005 TO 31.01.2006. THIS SUGGESTS THAT THE DEMAND NOTE WAS RECEIVED DURING THE ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 7 YEAR UNDER CONSIDERATION AND, THEREFORE, THIS CANNO T BE TREATED AS PRIOR PERIOD EXPENDITURE. SIMILARLY, THE DETAILS OF INTE REST FOR RS.7,04,233/- AT PAGE 20B OF THE PAPER BOOK ARE REPRODUCED AS UNDER :- SPACE VISION IMPEX (P) LTD. A.Y. 2006- 2007 DETAILS OF INTEREST FOR RS.7,04,233/- 1. BILL OF ENTRY NO. 170027 DATE 30.11.2005 WAREHOUSING QTY. 1240 KLR WAREHOUSING DATE 15.11.2003 FREE PERIOD 90 DAYS DUTY 1266775 INTEREST @15% P.A. (A) 333,180.00 (UPTO 15.11.2005 TOTAL 640 DAYS) (1266775 X 15/ 100 X 640/365) 2. BILL OF ENTRY NO. 170028 DATE 30.11.2005 WAREHOUSING QTY. 1240 KLR WAREHOUSING DATE 15.11.2003 FREE PERIOD 90 DAYS DUTY 1410774 INTEREST @15% P.A. (B) 371,053.00 (UPTO 15.11.2005 TOTAL 640 DAYS) (1410774X 15/ 100 X 640/365) _________________________________ TOTAL INTEREST (A) + (B) 704,233.00 THIS ALSO CLEARLY SUGGESTS THAT THE LIABILITY IS CR YSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, THIS ALSO CANNO T BE TREATED AS PRIOR PERIOD EXPENDITURE. FURTHER, BOTH THE IMPUGNED AMO UNTS ARE PRIMARILY COMPENSATORY IN NATURE BEING ON ACCOUNT OF DELAYED PAYMENT OF CUSTOM DUTY. THEREFORE, BOTH THE AMOUNTS ARE TO BE ALLOWED BEING INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. HOWEVER, IN VIEW OF THE SUBMISSIONS OF THE LD. DR, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 8 OFFICER TO VERIFY WHEN THE DEMAND WAS RAISED AND IF IT WAS RAISED DURING THE PREVIOUS YEAR UNDER CONSIDERATION THEN IT IS TO BE ALLOWED. WE ORDER ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICA L PURPOSES. 8. BRIEF FACTS, APROPOS GROUND NO.3, ARE THAT THE A SSESSEE HAD CLAIMED AN EXPENDITURE OF RS.9,450/- TOWARDS LEGAL FEE PAY MENT FOR THE MONTH OF MARCH 2005 WHICH WAS DENIED ON THE GROUND OF BEING RELATABLE TO PRIOR PERIOD EXPENSES. LD. CIT (A) HAD CONFIRMED THE ASS ESSING OFFICERS ACTION, INTER ALIA, OBSERVING THAT ASSESSEE WAS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING AND IT SHOULD HAVE BEEN DEBITED IN TH E ASSESSMENT YEAR 2005- 06. 9. HAVING HEARD BOTH THE PARTIES, KEEPING IN VIEW T HE SMALLNESS OF AMOUNT AND THERE BEING NO DISPUTE ABOUT GENUINENESS OF THE EXPENDITURE AND FURTHER THE FEE BEING RELATABLE FOR THE MONTH O F MARCH, 2005, WE ARE OF THE OPINION THAT THE CLAIM SHOULD NOT BE DENIED PAR TICULARLY WHEN THE BILL HAS BEEN RECEIVED IN THE CURRENT ASSESSMENT YEAR AN D THE PAYMENT HAS ALSO BEEN MADE IN THE CURRENT ASSESSMENT YEAR. WE ORDER ACCORDINGLY ALLOWING THIS GROUND. 10. BRIEF FACTS, APROPOS GROUND NO.4, ARE THAT ASSE SSEE COMPANY HAD PAID A SUM OF RS.13,142/- ON MEDI-CLAIM POLICY OF THE DI RECTOR OF THE COMPANY. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GR OUND THAT THE SAME ARE PERSONAL IN NATURE. LD. CIT (A) CONFIRMED THE ASSE SSING OFFICERS ACTION. ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 9 11. LD. COUNSEL SUBMITTED THAT THERE CANNOT BE ANY DISALLOWANCE ON THE GROUND OF PERSONAL EXPENDITURE OF DIRECTOR IN THE H ANDS OF THE ASSESSEE COMPANY BECAUSE THE AMOUNT HAS BEEN INCURRED FOR TH E PURPOSE OF BUSINESS. HE RELIED ON THE DECISION OF HON'BLE GUJ ARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT REPORTED IN 253 ITR 749. 12. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LOWER REVENUE AUTHORITIES BECAUSE ADMITTEDLY THE MEDI- CLAIM POLICY WAS FOR THE BENEFIT OF DIRECTOR ONLY A ND NO BENEFIT WAS DERIVED BY THE ASSESSEE COMPANY FROM THE SAID INSUR ANCE POLICY IN THE NAME OF DIRECTOR. THIS CLAIM IN NO WAY WAS FOR THE BENEFIT OF BUSINESS INTEREST OF ASSESSEE COMPANY. IT IS TRUE THAT DISA LLOWANCE CANNOT BE MADE ON THE GROUND OF PERSONAL EXPENSES IN THE HANDS OF ASSESSEE COMPANY PROVIDED THE COMPANY WAS UNDER OBLIGATION TO INCUR SUCH EXPENDITURE BUT HERE IS A CASE WHERE THE PERSONAL EXPENSES MADE ON THE DIRECTOR HAVE BEEN INCURRED BY THE ASSESSEE COMPANY ON HIS BEHALF. TH IS IS PRIMARILY IN THE NATURE OF ADVANCE TO THE DIRECTOR FROM THE COMPANY. THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO INFER THAT IT WAS IN ANY WAY UNDER OBLIGATION TO MEET THE EXPENDITURE ON MEDI-CLAIM PO LICY IN TERMS OF SERVICE CONDITIONS. THE FACTS IN THE CASE OF SAYAJ I IRON AND ENGG. WERE ENTIRELY DIFFERENT INASMUCH AS THE DIRECTORS OF THE ASSESSEE WERE ENTITLED TO USE THE VEHICLES FOR THEIR PERSONAL USE IN ACCORDAN CE WITH THE TERMS AND ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 10 CONDITIONS ON WHICH THEY WERE APPOINTED AND THE PER QUISITES GIVEN TO THE DIRECTORS FORMED PART OF THEIR REMUNERATION UNDER S ECTION 309 OF THE ACT. THEREFORE, WE CONFIRM THIS ACTION OF THE LOWER REVE NUE AUTHORITIES ON THIS GROUND. THIS GROUND IS REJECTED. 13. BRIEF FACTS, APROPOS GROUND NO.5, ARE THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.1.13 CRORES UNDER THE HEAD INTEREST AND FINANCE CHARGES PAID TO THE BANKS AND OTHER FINANCIAL INSTITUTIONS ON BORROWED CAPITAL. THE ASSESSING OFFICER EXAMINED THE DETAILS IN REGARD TO WORK-IN-PROGRESS AND NOTED THAT ASSESSEE HAD INCURRED AN AMOUNT OF RS.46 ,75,942/- ON UPGRADATION OF PLANTS ON BEHALF OF M/S. FUTURISTIC OFFSHORE SERVICES & CHEMICALS LTD. (IN SHORT, FOSCL). HE NOTED THAT AS PER AGREEMENT DATED 08.09.2004 EXECUTED BETWEEN FOSCL AND THE ASSESSEE COMPANY, THE EXPENDITURE SO INCURRED ON UPGRADATION OF PLANTS WA S REQUIRED TO BE REIMBURSED TO THE ASSESSEE COMPANY. THE ASSESSEE C OMPANY HAD NOT CHARGED ANY INTEREST ON SUCH EXPENDITURE THOUGH ASS ESSEE HAD INCURRED SUCH AMOUNT OUT OF THE FUNDS BORROWED FROM BANK AND FINANCIAL INSTITUTIONS. THE ASSESSEE IN ITS REPLY STATED AS UNDER :- ASSESSEE COMPANY HAS NOT CHARGED INTEREST ON WORK IN PROGRESS OF RS.46,73,942/- AS DECISION WAS MADE BY THE MANAGEME NT TO CHARGE INTEREST ON YEARLY BASIS INSTEAD OF CHARGING FOR SH ORT PERIOD. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD NE ITHER CHARGED INTEREST DURING THE YEAR NOR IN THE SUBSEQUENT YEAR ON THE A MOUNTS SO INCURRED ON ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 11 BEHALF OF FOSCL WHEREAS THE ASSESSEE HAD PAID INTER EST ON THE BORROWED FUNDS EVEN FOR A SINGLE DAY WHICH WAS STATED TO HAV E BEEN UTILIZED UPGRADING OF PLANTS. HE COMPUTED THE DISALLOWANCE AT RS.1,24,148/- BY APPLYING THE INTEREST @ 15% PER ANNUM. LD. CIT (A) CONFIRMED THE ASSESSING OFFICERS ACTION. 14. LD. COUNSEL REFERRED TO PAGE 25 ONWARDS WHEREIN THE AGREEMENT OF BUSINESS ARRANGEMENT BETWEEN ASSESSEE AND FOSCL DAT ED 08.09.2004 IS CONTAINED AND POINTED OUT THAT IT WAS CLEARLY AGREE D THAT THE ASSESSEE WOULD ADVANCE INTEREST FREE FUNDS TO FOSCL AS THE PROFITS DERIVED FROM THE BUSINESS WILL BE SHARED BETWEEN BOTH THE PARTIES ON EQUAL BASIS. HE SUBMITTED THAT THIS ARRANGEMENT WAS MADE ON ACCOUNT OF COMMERCIAL BUSINESS EXPEDIENCY AND, THEREFORE, NO DISALLOWANCE COULD BE MADE. 15. WE HAVE CONSIDERED SUBMISSIONS OF BOTH THE PART IES. IN THE AGREEMENT, THE FOLLOWING RECITALS ARE MADE :- WHEREAS SIPL IS CARRYING ON THE BUSINESS AS IMPO RTER AND EXPORTER OF PETROLEUM PRODUCTS AND HAS CONSIDERABLE TECHNICAL K NOWLEDGE REGARDING THE PRODUCT AND INFORMATION ABOUT EXPORT MARKETING POSS IBILITIES OF THE SAME. WHEREAS 'FOSCL' IS CARRYING ON THE BUSINESS OF MANUFACTURING/PROCESSING OF PETROLEUM PRODUCTS AND HAS CONSIDERABLE TECHNICAL KNOWLEDGE AND KNOW-HOW REGARDING THE SAME AND IS HOLDER OF THE INTELLECTUAL PROPERTY RIGHTS CONCERNING THE PRODUCT S AND ANY FUTURE ADDED PRODUCTS AND IS ENTITLED TO THESE RIGHTS. WHEREAS 'FOSCL' INTENDS TO EXPAND ITS BUSINESS IN A SSOCIATION WITH SIPL. NOW, WHEREAS 'SIPL' AND 'FOSCL' HEREIN HAVE AGREED TO CARRY BUSINESS AS PER THE TERMS AS LAID DOWN IN THIS AGREEMENT. NOW, THEREFORE, IT IS AGREED BY AND BETWEEN SIPL' AND 'FOSCL' AS FOLLOWS: ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 12 THIS AGREEMENT IS IN CONTINUATION TO THE MOUS DATED 23.04.2004 AND 30.08.2004 AND, THAT THIS AGREEMENT IS TO BE READ ALONGWITH THE SAID MOU, AS IT IS CONSIDERED TO BE AN ADDENDUM TO THE SAME INCLUDING THE FOLLOWING ADDITIONAL TERMS & CONDITIONS: FURTHER, THE FINANCIAL INVOLVEMENT OF THE ASSESSEE DEFINED IN THE AGREEMENT READS AS UNDER :- FINANCIAL INVOLVEMENT OF SIPL THE TOTAL AMOUNT OF CAPITAL EXPENSES CONSIDERED AS 'PRE-OPERATIVE PLANT EXPENSES' (MEANING WITHIN THE BROAD TERM AS E XPENSES INCURRED TOWARD MAJOR/MINOR REPAIR OF PLANT & MACHINERY, OVE RHAULING OF PLANT & MACHINERY & PURCHASE OF ITEMS REQUIRED FOR PLANT OPERATION AND WORKING-CAPITAL EXPENSES CONSIDERED AS 'POST-OPERAT IVE EXPENSES' (MEANING WITHIN THE BROAD TERM AS EXPENSES INCURRED TOWARDS PURCHASE OF RAW MATERIALS/FEED-STOCK FOR PROCESSING ALL PROD UCTION EXPENSES SUCH AS, UTILITY, WAGES, ADMINISTRATION, MAINTENANCE, ST ORES &. SPARES INVOLVED BY SIPL AT THE PLANT OF FOSCL WILL BE INTE REST FREE AS THE PROFITS DERIVED FROM THE BUSINESS WILL BE SHARED BE TWEEN BOTH THE PARTIES ON EQUAL BASIS. ALL THE INVESTMENTS MADE BY THE FIRST PARTY FOR THE PURPOSE OF MAKING PRESENT PLANT IN OPERATION AT TARAPUR AS WELL AS AN Y OTHER INVESTMENTS OR PAYMENT ALREADY MADE ON ACCOUNT OF ANY OF THE GROUP COMPANY SHALL BE REIMBURSED BY WAY OF ADJUSTING AGAINST PROCESSIN G CHARGES OR FROM THE INCOME OF GROUP OF COMPANY VIZ. M/S GANESH BENZ OPLAST LTD. OR THE RENTAL INCOME FROM THE STORAGE FACILITIES OF GA NESH BENZOPLAST LTD. AT VARIOUS PORT VIZ. GOA, COCHIN & JNPT OR THEIR OT HER SOURCES OF INCOME RELATING TO M/S RAMAKANT PLANT AND RAMESH PI LANI ASSOCIATES. SUCH INVESTMENT FROM THE FIRST PARTY WILL BE SETTLE D AND PAID WITHIN 180 DAYS FAILING WHICH INTEREST @ 15% PER ANNUM WILL BE CHARGED EXTRA. HOWEVER, THE FINANCIAL EXPENSES INCURRED TO SIPL WI TH REGARD TO SETTLEMENT OF OUTSTANDING DUES OF FOSCL TOWARDS FIN ANCIAL INSTITUTIONS, BANKS, EXCISE, SALES TAX, MSEB & MIDC WILL BE PAID BY FOSCL AT THE INTEREST RATE OF 12% PER ANNUM. A BARE PERUSAL OF THE ABOVE ARRANGEMENT CLEARLY SHO WS THAT THE WHOLE ARRANGEMENT HAS BEEN MADE ON ACCOUNT OF COMMERCIAL EXPEDIENCY BECAUSE BOTH THE PARTIES WERE BENEFITED BY THE TECHNICAL KN OWLEDGE AND KNOW-HOW ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 13 OF EACH OTHER. FOSCL WAS ALSO THE HOLDER OF INTELL ECTUAL PROPERTY RIGHTS CONCERNING THE PRODUCTS AND ANY OTHER FUTURE ADDED PRODUCTS AND WAS ENTITLED TO THESE RIGHTS, THEREFORE, IT WAS IN THE INTEREST OF ASSESSEE TO GET BENEFIT OUT OF THE SAME. WE, THEREFORE, CONSIDERIN G THE COMMERCIAL EXPEDIENCY INVOLVED AND TERMS OF THE AGREEMENT BETW EEN THE PARTIES, DID NOT FIND ANY REASON TO CONFIRM THE DISALLOWANCE MAD E BY THE LOWER REVENUE AUTHORITIES ON ACCOUNT OF INTEREST ELEMENT ON THE A MOUNTS ADVANCED TO FOSCL BEING REFLECTED AS WORK-IN-PROGRESS IN THE FI XED ASSETS. THIS GROUND IS ALLOWED. 16. BRIEF FACTS, APROPOS GROUND NO.6, ARE THAT UNDE R THE HEAD PLANT EXPENSES, THE ASSESSEE COMPANY CLAIMED EXPENSES OF RS.93,973/- WHICH WAS INCURRED ON BEHALF OF FOSCL. THE ASSESSING OFF ICER DISALLOWED THIS EXPENDITURE FOR THE SAME REASONS AS WITH REGARD TO THE INTEREST DISALLOWANCE CONSIDERED BY US VIDE GROUND NO.5 ABOV E. 17. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE EXPENDITURE CLAIMED IS ON THE SAME FOOTING AS CLAIMED BY THE ASSESSEE I N GROUND NO.5. ACCORDINGLY, WE ALLOW THIS GROUND OF THE ASSESSEE F OR THE SAME REASONS AS RECORDED VIDE DEALING GROUND NO.5 ABOVE. 18. BRIEF FACTS, APROPOS GROUND NO.7, ARE THAT ASSE SSING OFFICER NOTICED FROM THE BALANCE SHEET THAT ASSESSEE HAD ADVANCED R S.18,96,035/- TO THE FOLLOWING PERSONS :- ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 14 (I) SHRI B.B. ASHTAGI RS. 3,46,035/- (II) SHRI B.M. LAXMI NARAIN RAO RS.14,50,000/- (III) SHRI BABU RAO KAZI RS. 1,00,000/- RS.18,96,035/- THE ASSESSING OFFICER NOTICED THAT THESE ADVANCES W ERE INTEREST FREE DESPITE THE FACT THAT ASSESSEE WAS PAYING THE INTER EST ON THE BORROWED FUNDS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY NOTIONAL INTEREST ON THESE ADVANCES SHOULD NOT BE CHARGED. THE ASSESSEE SUBMITTED AS UNDER :- ADVANCE TO SH. B.M. LAXMI NARAIN RAO, SH. BABU RAO KAZI AND SH. B.B. ASHTAGI HAD BEEN GIVEN IN THE F.Y. 2004-05 FOR EXEC UTION OF BUSINESS TRANSACTION AND NO INTEREST IS TO BE CHARGED AS AGR EED BEING ADVANCES GIVEN IN THE NORMAL COURSE OF BUSINESS. 19. AFTER CONSIDERING THE ASSESSEES REPLY, THE ASS ESSING OFFICER CHARGED NOTIONAL INTEREST @ 15% AGGREGATING TO RS.2 ,84,405/- AND ADDED THE SAME TO THE ASSESSEES TOTAL INCOME. LD. CIT ( A) CONFIRMED THE ASSESSING OFFICERS ACTION, INTER ALIA, OBSERVING T HAT THERE WAS NO EXPLANATION WHY THE SAID ADVANCE WAS PENDING WITH T HE ABOVE THREE INDIVIDUALS AND PROOF OF ANY BUSINESS TRANSACTIONS WITH THEM HAD NOT BEEN SUBMITTED. 20. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASS ESSEE WAS HAVING SUFFICIENTLY OWNED FUNDS TO ADVANCE THIS AMOUNT. I N THIS REGARD, HE REFERRED TO PAGE 36 OF THE PAPER BOOK AND SUBMITTED THAT ASSESSEE HAD RESERVES AND SURPLUS OF RS.28,99,603/-. HE FURTHER REFERRED TO PAGE 37 OF THE PAPER BOOK AND SUBMITTED THAT ASSESSEE HAD ADVA NCES FROM CUSTOMERS ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 15 OF RS.4,52,85,499/- AND OTHER LIABILITIES OF RS.24, 58,305/-. HE SUBMITTED THAT IN ANY WAY OF THE MATTER, NO NOTIONAL INTEREST COULD BE CHARGED. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD OF THE CASE. IT IS WELL SETTLED LAW THAT NO ADDITION CAN BE MADE ON ACCOUNT OF NOTIONAL INTEREST TO BE EARNED BY ASSESSEE. THIS I S AGAINST THE VERY CONCEPT OF REAL INCOME THEORY. BE THAT AS IT MAY, THE ASSE SSEE HAD SUFFICIENTLY OWNED FUNDS TO ADVANCE A SUM OF RS.18,96,035/-. WE , THEREFORE, DO NOT FIND ANY BASIS FOR CONFIRMING THE ADDITIONS MADE BY LOWER REVENUE AUTHORITIES. ACCORDINGLY, THIS GROUND IS ALLOWED. 22. BRIEF FACTS, APROPOS GROUND NO.8, ARE THAT FROM THE TAX AUDIT REPORT, THE ASSESSING OFFICER NOTICED THAT AUDITORS HAD OBS ERVED THAT ASSESSEE MIGHT HAVE BOOKED SOME PERSONAL EXPENSES UNDER THE HEAD TELEPHONE EXPENSES AND VEHICLE RUNNING MAINTENANCE. HE ACCOR DINGLY MADE A DISALLOWANCE OF RS.50,000/- ON ESTIMATE BASIS WHICH WAS CONFIRMED BY LD. CIT (A). 23. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FRI NGE BENEFIT TAX HAS BEEN PAID ON TELEPHONE AND VEHICLE RUNNING EXPENSES , THEREFORE, FURTHER DISALLOWANCE IS NOT CALLED FOR. HE RELIED ON THE D ECISION OF ITAT IN THE CASE OF ASSISTANT CIT VS. M/S. MICRO TURNERS IN ITA NO.4569/DEL/2011 ORDER DATED 15.02.2013 CONTAINED AT PAGES 51 TO 57 OF THE PAPER BOOK. ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 16 24. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE ITAT IN THE CASE OF ACIT VS. M/S. MICRO TURNERS, CITED SUPRA, HAS INTER ALIA OBSERVED AS UNDER:- 8. THE COMMISSIONER OF INCOME TAX(A) HAS DISALLOWE D ABOVE ADDITION WITH AN OBSERVATION THAT THE ASSESSING OFF ICER HAS FAILED TO NOTE THAT THE FBT WAS PAID ON THE MAJOR PART OF THE EXPENSES HAS BEEN PAID BY THE ASSESSEE AND FOR THE REMAINING EXPENSES , THE ASSESSING OFFICER COULD NOT MAKE ANY CLAIM FOR DISALLOWANCE. THE COMMISSIONER OF INCOME TAX(A) FURTHER OBSERVED THAT IN A CASE OF A FIRM HAVING A TURNOVER OF MORE THAN RS.166 CRORES A ND RETURNING AN INCOME OF RS.1.42 CRORES, THE ISSUE OF MAKING AD HO C DISALLOWANCE OF SOME EXPENSES WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD IS NOT TENABLE. WE ARE UNABLE TO SEE ANY VALID REASON TO I NTERFERE WITH THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX(A) I N THE IMPUGNED ORDER. RESPECTFULLY FOLLOWING THE DECISION OF ITAT H BENCH MUMBAI (SUPRA), WE HOLD THAT THE PRESENT CASE IS SQ UARELY COVERED BY THE JUDGMENT OF ITAT MUMBAI BENCH AND GROUND NO. 2 OF THE REVENUE HAS NO LEGS TO STAND. ACCORDINGLY, GROUND NO. 2 OF THE REVENUE BEING DEVOID OF MERITS IS ALSO DISMISSED. IT IS NOT IN DISPUTE THAT ASSESSEE HAS PAID FRINGE BENEFIT TAX ON TELEPHONE AND VEHICLE RUNNING EXPENSES, THEREFORE, NO FURTHER DISALLOWANCE ON ESTIMATE BASIS IS CALLED FOR. ACCORDINGLY, THIS GR OUND IS ALLOWED. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE BEING ITA NO.1457/DEL/2011 IS PARTLY ALLOWED. 26. NOW, WE TAKE UP REVENUES APPEAL BEING ITA NO.1 423/DEL/2010. THE DEPARTMENT HAS TAKEN FOLLOWING EFFECTIVE TWO GR OUNDS :- '1. LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS.7,32,148/- DULY ADMITTE D BY THE ASSESSEE, MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES AND RS.8,08,857/- MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK, THEREBY DELETING TOTAL ADDITION OF RS.15,41, 005/- MADE UNDER THE HEAD SERVICE CHARGES. ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 17 2. LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS.11,40,652/- MADE BY THE AO ON ACCOUNT OF PRIOR PERIOD INTEREST EXPENDITURE AND TH EREBY SHIFTING THE ONUS TO THE AO TO FIND OUT THE PERIOD TO WHICH EXPENDITURE RELATES.' 27. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT PART OF THE GROUND NO.1 RELATABLE TO ADDITION OF RS.7,32,148/- IS MISCONCEIVED BECAUSE ASSESSEE DID NOT ASSAIL THE FINDINGS OF ASSESSING O FFICER BEFORE LD. CIT (A) IN REGARD TO TAKE THAT CHARGES OF RS.7,32,148/- BEI NG PERTAINING TO PREVIOUS YEAR. THEREFORE, THE ONLY ISSUE IS TO BE CONSIDERE D APROPOS GROUND NO.1 IS IN REGARD TO ADDITION OF RS.8,08,857/- MADE ON ACCO UNT OF UNDER VALUATION OF CLOSING STOCK. 28. BRIEF FACTS, APROPOS THIS ISSUE, ARE THAT THE A SSESSEE COMPANY HAD IMPORTED MATERIAL, NAMELY, BENZENE FROM M/S. PEC LI MITED AND CLAIMED TO HAVE PAID A SUM OF RS.31,16,607/- ON ACCOUNT OF SERVICE CHARGES TO M/S. PEC LIMITED. IN ITS REPLY, THE ASSESSEE, INTER ALI A, POINTED OUT THAT OUT OF THE LC CHARGES OF RS.13,55,446/- DEBITED TO THE SER VICE CHARGES, RS.7,32,148/- PERTAINING TO PREVIOUS YEAR, THEREFOR E, THIS AMOUNT WAS DISALLOWED BY ASSESSING OFFICER BEING PERTAINING TO PRIOR PERIOD EXPENSES AS ASSESSEES ADMISSION. AS REGARDS BALANCE AMOUNT OF RS.6,23,298/- (RS.13,55,446/- MINUS RS.7,32,148/-), THE ASSESSING OFFICER NOTED THAT ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 18 ASSESSEE HAD NOT FURNISHED ANY DOCUMENTARY EVIDENCE S AND WORKING OF VALUATION OF CLOSING STOCK AND SUPPORTING EVIDENCES THEREOF. HE, ACCORDINGLY, APPORTIONED VALUE OF BALANCE EXPENSES OF RS.23,84,459/- INCURRED IN CONNECTION WITH IMPORT OF GOODS OF BENZ ENE TO THE CLOSING STOCK OF BENZENE IN REGARD TO PURCHASE MADE DURING THE YEAR AND VALUE OF CLOSING STOCK DECLARED IN THE RETURN OF INCOME AS U NDER :- AMT. OF SERVICE CHARGES X VALUE OF CLOSING STOCK OF BENZENE AS DECLARED TOTAL PURCHASE OF BENZENE MADE DURING THE YEAR I.E. 23,84,459 X 6875000 20267063 = RS.8,08,857/- LD. CIT (A) DELETED THIS ADDITION INTER ALIA OBSERV ING THAT PAYMENT WAS MADE FOR THE PURPOSE OF BUSINESS OF ASSESSEE. 29. LD. DR SUBMITTED THAT THIS IS THE DIRECT COST I NCURRED BY THE ASSESSEE FOR IMPORT OF BENZENE, THEREFORE, SHOULD HAVE BEEN ALLOCATED TO THE CLOSING STOCK ALSO. 30. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 4 0 OF THE PAPER BOOK AND POINTED OUT THAT SERVICE CHARGES OF RS.31,16,60 7/- HAD BEEN DEBITED TO PROFIT AND LOSS ACCOUNT. HE SUBMITTED THAT THIS SY STEM HAS CONSISTENTLY BEEN FOLLOWED. HE FURTHER POINTED OUT THAT IN ASSE SSMENT YEAR 2005-06, THE ASSESSMENT WAS COMPLETED U/S 143(3). THE ORDER OF WHICH WAS ALSO FILED AT PAGES 50 & 50A OF THE PAPER BOOK WHICH DEMONSTRATE THAT NO SUCH ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 19 ADDITION HAS BEEN MADE IN THAT YEAR. HE FURTHER SU BMITTED THAT IN CASE, THE FINDINGS OF ASSESSING OFFICER ARE UPHELD THEN A DIR ECTION MAY BE ISSUED FOR INCREASING THE OPENING STOCK OF SUBSEQUENT YEAR. 31. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE ASSESSEE HAD NOT APPORTION ED THE DIRECT COST INCURRED FOR IMPORT OF BENZENE TO THE CLOSING STOCK . WE ARE NOT CONVINCED WITH THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT SINCE, IN EARLIER YEARS, NO SUCH APPORTIONMENT WAS MADE, THEREFORE, T HE CONSISTENT METHOD OF VALUATION SHOULD BE FOLLOWED. THE ASSESSEES AP PROACH IS CONTRARY TO FUNDAMENTAL PRINCIPLE OF ACCOUNTING WHICH REQUIRE T HE MATCHING OF EXPENSES WITH THE REVENUE. IF THE REVENUE IS TO BE REALIZED BY SALE OF STOCK IN SUBSEQUENT YEAR THEN ALL THE DIRECT EXPENSES ATT RIBUTABLE TO THE SAID STOCK CAN ALSO BE REALIZED ONLY WHEN THE STOCK IS SOLD. THEREFORE, THE DIRECT EXPENSES ARE TO BE ALLOCATED TO THE CLOSING STOCK I RRESPECTIVE OF THE FACT WHETHER THE SAME ARE DEBITED TO PROFIT AND LOSS ACC OUNT OR TRADING ACCOUNT. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) A ND RESTORE THAT OF THE ASSESSING OFFICER. HOWEVER, WE ARE IN AGREEMENT WI TH THE LD. COUNSEL FOR THE ASSESSEE THAT IF THE CLOSING STOCK OF THE CURRE NT YEAR IS TO BE INCREASED THEN SIMULTANEOUSLY OPENING STOCK OF SUBSEQUENT YEA R HAS ALSO TO BE INCREASED. WE DIRECT ACCORDINGLY. THIS GROUND IS ALLOWED IN TERMS OF AFOREMENTIONED OBSERVATIONS. ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 20 32. BRIEF FACTS, APROPOS GROUND NO.2, ARE THAT THE ASSESSEE COMPANY HAD MADE A PAYMENT OF RS.11,40,652/- TO M/S. PEC LIMITE D ON ACCOUNT OF OVERDUE INTEREST CHARGES. THE ASSESSEE WAS REQUIRE D TO EXPLAIN AS TO WHY THIS AMOUNT SHOULD NOT BE DISALLOWED BEING PRIOR PE RIOD EXPENSES AND PENAL IN NATURE. THE ASSESSEE SUBMITTED AS UNDER : - THE INTEREST OF RS.11,40,652/- PAID TO PEC LTD. IN RESPECT OF DELAY IN PAYMENT TO THEM. THE PAYMENT HAVE BEEN DELAYED DUE TO FALL IN MARKET PRICE OF THE PRODUCT DEAL BY THE ASSESSEE COMPANY. INTEREST ON DELAYED PAYMENT IS N OT THE PENALTY CHARGED BY PEC LTD., THEREFORE IT IS ALLOWE D AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DID NOT DISPUTE THE ASSESSEE S CLAIM THAT IT WAS NOT PENAL IN NATURE, HOWEVER, OBSERVED AS UNDER : HOWEVER, REGARDING THE PERIOD TO WHICH IT RELATES, ASSESSEE PREFERRED NOT TO FILE ANY REPLY. ASSESSEE HAS NOT F URNISHED ANY DOCUMENTARY EVIDENCES AND HAS NOT PROVIDED THE DETAILS FOR WHICH PERIOD IT RELATES. IN ABSENCE OF ANY DETA ILS, IT IS NOT CLEAR FOR WHICH FINANCIAL YEAR THE SAID PAYMENT IS RELEVANT. SINCE THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM MADE BY IT BY FILING DOCUMENTARY EVIDENCE, SAME IS TREATED AS PRIOR PERIOD EXPENSE. IN VIEW OF THIS, AN AMOUNT OF RS.11 ,40,652/- CLAIMED UNDER THE HEAD INTEREST PAID TO PEC LTD IS HEREBY DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE. LD. CIT (A) DELETED THE ADDITION, INTER ALIA, OBSER VING THAT ASSESSING OFFICER HAD NOT BROUGHT ON RECORD THE SAID PERIOD T O WHICH THE EXPENSES PERTAINED. 33. LD. DR VEHEMENTLY CONTESTED THE FINDING OF CIT (A) AND SUBMITTED THAT IT WAS FOR THE ASSESSEE TO BRING ON RECORD THE NECESSARY DETAILS IN ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 21 REGARD TO THE PERIOD TO WHICH THE INTEREST PERTAINE D. HE SUBMITTED THAT LD. CIT (A)S FINDINGS ARE WRONG. 34. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 4 8 OF THE PAPER BOOK WHEREIN THE DETAILS OF INTEREST CHARGED BY M/S. PEC LIMITED ARE CONTAINED. HE POINTED OUT THAT THIS CHARGE WAS NOT CONSIDERED BY ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSEE WAS PAID INTEREST UP TO 03.04.2005 ON THE ADVANCES GIVEN BY IT FOR THE PERIOD 04.04.2005 TO 1 7.11.2005 AND THE INTEREST WAS CHARGED FROM ASSESSEE. 35. HAVING HEARD BOTH THE PARTIES, WE RESTORE THIS MATTER TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF ASSESSEES CL AIM WITH REGARD TO THE DETAILS GIVEN BY M/S. PEC LIMITED WHICH IS CONTAINE D AT PAGE 48 OF THE PAPER BOOK BECAUSE THE ASSESSING OFFICER HAS OBSERV ED THAT ASSESSEE HAD NOT SUBSTANTIATED ITS CLAIM WHEREAS ASSESSEES CONT ENTION IS THAT THE DETAILS WERE BEFORE THE ASSESSING OFFICER. WE ORDER ACCORD INGLY AND THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 36. IN THE RESULT, THE APPEAL OF THE REVENUE BEING ITA NO.1423/DEL/2010 IS ALLOWED FOR STATISTICAL PURPOSES. 37. NOW, WE TAKE UP ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2007-08 BEING ITA NO.1875/DEL/2012. 38. GROUND NO.1 IS IDENTICAL TO GROUND NO.6 FOR THE ASSESSMENT YEAR 2006-07. FOR THE REASONS GIVEN BY US THEREIN, WE A LLOW THIS GROUND. ITA NO.1457/DEL./2011 ITA NO.1423/DEL./2010 ITA NO.1875/DEL./2012 22 39. GROUND NO.2 IS IDENTICAL TO GROUND NO.7 FOR THE ASSESSMENT YEAR 2006-07. FOR THE REASONS GIVEN BY US THEREIN, WE A LLOW THIS GROUND. 40. IN THE RESULT, THE APPEAL OF THE ASSESSEE BEING ITA NO.1875/DEL/2012 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF MAY, 2015. SD/- SD/- (C.M. GARG) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUTNANT MEMBER DATED THE 15 TH DAY OF MAY, 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.