Veena Industries Ltd., Pune V. Deputy Commissioner Income-tax,

ITA 1904/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7487 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Business income; Earning of tax free income; Question of law; Commercial expediency
• Section: 43B; 40A(3); 14A; 80IB; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , , ' # BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . /ITA NO. 1904/PUN/2014 '& & /ASSESSMENT YEAR : 2010-11 VEENA INDUSTRIES LTD. M/S. MZSK & ASSOCIATES, CAS, LEVEL-3, RIVERSIDE BUSINESS BAY, PLOT NO. 84, WELLESLEY ROAD, NEAR RTO PUNE-411 001 PAN : AAACV9329E ....... / APPELLANT / V/S. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), PUNE. / RESPONDENT ASSESSEE BY : SHRI NEELESH KHANDELWAL REVENUE BY : SHRI MUKESH JHA / DATE OF HEARING : 13.07.2017 / DATE OF PRONOUNCEMENT : 31.08.2017 / ORDER PER VIKAS AWASTHY, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, PUNE DATED 28.08.1 4 FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO. 1904/PUN/2014 A.Y. 2010-11 2. THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER O F INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEMES OF THE ACT IT BE HELD THAT THE CLAIM OF THE APPELLANT IS ADMISSIBLE IN TERMS OF PROVISION OF SEC. 80IB(4) OF THE INCOME TAX ACT TO THE EXTENT OF RS. 1,28,39,312/- PROFIT DERIVED FROM UNI T LOCATED AT SILVASA. THE CLAIM BE ALLOWED TO THE APPELLANT AS PER PROVISIONS OF THE ACT AND FACTS PREVAILING IN THE CASE. THE DISALLOWANCE MADE BE DE LETED. THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. 2. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CAS E AND AS PER PROVISIONS & SCHEME OF THE ACT, IT BE HELD THAT DISALLOWANCE OF EXPENSES AT RS. 4,33,500/- IN TERMS OF PROVISIONS OF SECTION 14A OF THE ACT MA DE BY THE AO AND CONFIRMED BY THE 1 ST APPELLATE AUTHORITY IS UNWARRANTED, UNJUSTIFIED, IMAGINARY AND CONTRARY TO THE PROVISIONS AND SCHEME OF THE ACT. IT FURTHER BE HELD THAT NO DISALLOWANCE IS WARRANTED IN THE CASE OF THE APPELLANT ON FACTS PREVAILING IN THE CASE AND AS PER PROVISIONS OF LAW . THE DISALLOWANCE MADE BE DELETED. JUST AND PROPER RELIEF BE GRANTED TO TH E APPELLANT. 3. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CAS E AND AS PER PROVISIONS & SCHEME OF THE ACT, IT BE HELD THAT DISALLOWANCE/ AD DITION OF INTEREST PAYMENT OF RS. 80,03,105/- BEING PART OF PURCHASE PRICE IN TERMS OF PROVISIONS OF SECTION 40(A) (IA) OF THE ACT MADE BY THE AO AND CO NFIRMED BY THE 1 ST APPELLATE AUTHORITY IS UNWARRANTED, UNJUSTIFIED, IM AGINARY AND CONTRARY TO THE PROVISIONS AND SCHEME OF THE ACT. IT FURTHER BE HELD THAT NO DISALLOWANCE IS WARRANTED IN THE CASE OF THE APPELLANT ON FACTS PREVAILING IN THE CASE AND AS PER PROVISIONS OF LAW. THE DISALLOWANCE MADE BE DELETED. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT. 4. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. SHRI NEELESH KHANDELWAL APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MA NUFACTURING OF GENSET COMPONENTS AND ALSO IN SHEET METAL FABRICATION WOR K. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 18.01.10 DECLARING TOTAL INCOME OF RS. 10,60,50,290/-. THE INDUSTRIAL UN DERTAKING ESTABLISHED BY THE ASSESSEE AT SILVASA IS IN INDUSTRIALLY BA CKWARD STATE AS SPECIFIED IN THE EIGHTH SCHEDULE. THE ASSESSEE IS MANUFACTU RING AND ASSEMBLING ELECTRICAL GENERATORS AT SILVASA UNIT. THE MANUFACT URING PROCESS STARTED AT SILVASA UNIT BEFORE 31.03.2004. SINCE TH E ASSESSEE HAS COMPLIED WITH ALL THE CONDITIONS, THUS, THE ASSESSEE IS ELIGIBLE FOR CLAIMING 3 ITA NO. 1904/PUN/2014 A.Y. 2010-11 DEDUCTION U/S 80IB(4) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE SITUATED AT SILVASA NEITHER STARTED MANUFACTURING ACTIVITY ON OR BEFORE 31.03.04 NOR THE ACTIVITY CARRIED OUT AMOUNTS TO MANUFACTURE OR PROD UCTION OF ANY GOODS OR ARTICLE AS ENVISAGED U/S 80IB(4) OF THE ACT. 4. THE LD. AR CONTENDED THAT SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE CASE OF ASSESSEE IN EARLIER ASSESS MENT YEARS I.E 2005-06 AND 2008-09. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TRIBUNAL IN ITA NOS. 1368 & 1369/PN/2012. THE TRIBUNAL HE LD THAT THE ACTIVITIES CARRIED BY ASSESSEE AT SILVASA UNIT AMOUNTS TO MANUFACTURE OR PRODUCTION. AS FAR AS THE ISSUE RELATING TO DATE OF START OF MANUFACTURING ACTIVITY IS CONCERNED, THE TRIBUNAL RESTORED THE ISSUE BAC K TO THE FILE OF ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE LD. AR PLACED ON RECORD COPY OF ORDER OF CO-ORDINATE BENCH DATED 27.02.15 COMMON FOR ITA NOS. 1368 & 1369/PN/2012, ASSESSMENT YEARS 2005-06 & 2008-09 RESPECTIV ELY. 5. SHRI MUKESH JHA REPRESENTING THE DEPARTMENT VEHEMEN TLY DEFENDED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMIN G ADDITIONS. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT THE ISSUE WHETHER SILVASA UNIT IS ELIGIBLE FOR CLAIMING DEDUCTION U/S. 80IB(4) WAS ADJUDICATED BY THE TRIBUNAL IN APPEAL ITA NOS. 1368 &1369/ PUN/2012 (SUPRA.). 6. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PERU SED. THE FIRST GROUND OF APPEAL IS WITH RESPECT TO ALLOWABILITY OF DEDUCTION U/S. 80IB(4) ON PROFITS DERIVED FROM UNIT LOCATED AT SILVASA. THE AUTHORITIES BELOW HAVE HELD THAT SILVASA UNIT OF ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUC TION U/S. 80IB (4) AS THE ACTIVITY CARRIED OUT BY THE ASSESSEE IN THE SA ID UNIT DOES NOT 4 ITA NO. 1904/PUN/2014 A.Y. 2010-11 AMOUNT TO MANUFACTURE OR PRODUCTION AND THE ASSESSEE HAS FAILED TO SHOW THAT MANUFACTURE OR PRODUCTION AT SILVASA UNIT HAD BEGAN ON OR BEFORE 31.03.04. WE FIND THAT DISALLOWANCE OF DEDUCTION U/S. 80IB(4) IN THE CASE O F ASSESSEE WAS MADE BY THE DEPARTMENT IN ASSESSMENT YE ARS 2005-06 & 2008-09 FOR IDENTICAL REASONS. IN RESPECT OF FIRST OBJECTIO N THAT IS, WHETHER THE ACTIVITY CARRIED OUT BY THE ASSESSEE AT SILVASA UNIT AMOUNTS TO MANUFACTURE OR PRODUCTION, THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER:- 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS WITH RESPECT TO THE OBJECTION OF THE ASSESSING OFFICER THAT THE ACTIVITY UNDERTAKEN BY THE ASSESSEE AT SILVASA UNIT RELATING TO THE GENERA TORS DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. IN OUR AFORESAID OPINION, THE AFORESAID ISSUE IS DIRECTLY COVERED BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF JACKSON ENGINEERS LTD. (SUPRA). AS PER THE HONBLE DELHI HI GH COURT, THE ACTIVITY INVOLVING ASSEMBLING OF VARIOUS COMPONENTS AND ACHIEVING A FINAL PRODUCT OF A GENERATOR AMOUNTS TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING WITH THE MEANING OF SECTION 80- IB OF THE ACT. MOREOVER, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA LOCOMOTIVE AND ENGINEERING COMPANY LIMITED (SUPRA) H AS ALSO HELD THAT ASSEMBLING OF VARIOUS COMPONENTS WHICH RESULTS INTO A DIFFERENT PRODUCT WHICH IS DISTINCT THEN THE INDIVIDUAL COMPO NENTS, SUCH AN ACTIVITY AMOUNTS TO MANUFACTURE OR PRODUCTION. AS A CONSEQUENCE, WE THEREFORE DO NOT AGREE WITH THE FIRST OBJECTION OF THE ASSESSING OFFICER TO DENY ASSESSEES CLAIM FOR DEDUCTION U/S. 80-IB ( 4) OF THE ACT. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. THE DEPARTMENT HAS NOT PLACED ON RECORD ANY MATERIALS CONTRARY TO THE FINDINGS OF THE CO-ORDINATE BENCH. THEREFORE, THE ISSUE WHETHER THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AT SILVASA UNIT ARE IN THE NATURE OF MANUFACTURE OR PRODUCTION IS LAID TO REST. 7. IN RESPECT OF SECOND LIMB FOR DISALLOWING BENEFIT OF DEDUCT ION U/S. 80IB (4) I.E WHETHER MANUFACTURE OR PRODUCTION AT SILVASA U NIT HAD BEGAN ON OR BEFORE 31.03.04, THE TRIBUNAL REMITTED THE MATTER BA CK TO THE FILE OF ASSESSING OFFICER BY HOLDING AS UNDER :- 5 ITA NO. 1904/PUN/2014 A.Y. 2010-11 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. AFTER HAVING CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE RIVAL SUBMISSIONS, ONE ISSUE WHICH COMES OUT IS THAT MAJO R PLANK OF THE REVENUE IS BASED ON THE ENQUIRIES CONDUCTED WITH TH E TRANSPORTER. IN- FACT, WHETHER OR NOT THE MANUFACTURING ACTIVITY OF THE ASSESSEE AT SILVASSA UNIT HAD COMMENCED ON OR BEFORE 31.03.2004 IS A MATTER OF FACTUAL APPRECIATION. THE LETTER OF THE TRANSPORTER DATED 10.12.2010, AND HIS STATEMENT OF EVEN DATE WHICH HAVE BEEN HEAV ILY RELIED UPON BY THE ASSESSING OFFICER, HAVE BEEN PLACED AT PAGES 152 TO 155 AND 156 TO 161 OF THE PAPER BOOK. IT IS NOTICEABLE THAT ON 10.12.2010 WHEN THE TRANSPORTER WAS PUT TO QUESTION, HE DENIED OF ANY BUSINESS TRANSACTION OR RELATION WITH THE ASSESSEE OF M/S KA VITA INDUSTRIES PVT. LTD.. FURTHER, WHEN THE BILLS PURPORTED TO HAVE BEE N ISSUED BY HIM TO M/S KAVITA INDUSTRIES PVT. LTD. AND ASSESSEE WERE P UT TO HIM, IT WAS STATED THAT THOSE BILLS I.E. BILL NOS.130 AND 132 R ESPECTIVELY WERE NOT ISSUED BY HIM. THOUGH, HE CONFIRMED THE VEHICLE NUM BER MENTIONED IN THE BILLS BUT IT WAS CLAIMED BY HIM THAT THE SAID V EHICLE WAS NOT SENT BY HIM FROM CHAKAN, PUNE (I.E. THE PREMISES OF M/S KAVITA INDUSTRIES PVT. LTD.) TO SILVASSA UNIT OF THE ASSESSEE. AFTER NOTICING THE DENIAL OF THE TRANSPORTER, HE WAS ALSO ASKED TO PRODUCE A LOG BOOK, IF ANY, MAINTAINED BY HIM SHOWING MOVEMENT OF THE VEHICLE I N QUESTION. IN RESPONSE, IT WAS STATED THAT THOUGH THE VEHICLE WAS OWNED BY HIM BUT NO LOG BOOK WAS MAINTAINED FOR ITS MOVEMENT. ON BEI NG ASKED TO PRODUCE THE BILL BOOK FOR THE RELEVANT PERIOD, THE SAID TRANSPORTER REPLIED THAT IT WAS NOT AVAILABLE AND IT WAS KEPT I N THE GODOWN IN HIS RESIDENTIAL HOUSE WHICH HE HAD SINCE SHIFTED OUT. T HE TRANSPORTER ALSO CONFIRMED THAT THE BILL NOS. 130 AND 132 PURPORTED TO HAVE BEEN ISSUED BY HIM WERE NOT EVEN ITA NOS.1368 & 1369/PN /2012 SIGNED BY HIM AND NOR WERE ISSUED BY HIM. WHEN ALL THESE W ERE PUT TO THE ASSESSEE, A DETAILED WRITTEN COMMUNICATION WAS FURN ISHED, WHICH WE HAVE ALREADY REPRODUCED IN THE EARLIER PART OF THIS ORDER. THE CLAIM OF THE ASSESSEE WAS THAT THE RELEVANT TRANSPORT BILLS WERE ISSUED BY THE TRANSPORTER HIMSELF AND WERE DULY SIGNED BY HIM. TH E REPLY FURNISHED BY THE ASSESSEE CLARIFIED THE POSITION THAT THE VEH ICLE IN QUESTION BELONGED TO THE M/S PADWAL TRANSPORT, WHO CARRIED T WO CONSIGNMENTS FROM PUNE TO SILVASSA ON 28.03.2004 ONE BELONGING T O M/S KAVITA INDUSTRIES PVT. LTD. AND THE OTHER BELONGING TO M/S SNA INDUSTRIES. FURTHER, THE SAME VEHICLE BROUGHT BACK TWO CONSIGNM ENTS FROM SILVASSA TO PUNE ON 30.03.2004 ONE BELONGING TO M/S AUTO MECH INDUSTRIES PVT. LTD. AND OTHER BELONGING TO ASSESSE E'S SILVASSA UNIT. IT WAS POINTED OUT THAT NOT ONLY TWO BILL NOS. 130 AND 132 WERE ISSUED BY THE TRANSPORTER BUT ALSO BILL NOS. 246 AND 249 W HICH RELATED TO M/S PADWAL TRANSPORT FOR CARRYING OF TWO CONSIGNMENTS F ROM PUNE TO SILVASSA ON 28.03.2004 AND BRINGING BACK THE CONSIG NMENT TO PUNE ON 30.03.2004. IT WAS POINTED OUT THAT TOTAL TRANSPORT ATION CHARGES COVERING THE FOUR BILLS TOTALLED TO RS.7,280/- AND THEREFORE THE CASE SETUP BY THE TRANSPORTER IN HIS STATEMENT THAT IT W AS IMPOSSIBLE TO MAKE HIM TRIP FROM PUNE TO SILVASSA FOR A SUM OF RS .1,820/- WAS ONLY HALF-TRUTH BECAUSE THE TRANSPORTER HAD EARNED MUCH MORE THAN THE FIGURE OF RS.1,820/- WHICH RELATED TO ONLY ONE OF T HE FOUR BILLS RAISED. IT WAS ALSO POINTED OUT THAT THE TRANSPORTER HAD HIMSE LF STATED THAT THE TRANSPORTATION CHARGES FOR ONE TRIP BETWEEN PUNE AN D SILVASSA SHOULD HAVE BEEN RS.5,000/-, A STATEMENT MADE IN THE CONTE XT OF THE AMOUNT OF RS.1,820/- STATED IN THE BILL SHOWN TO HIM. THE ASSESSEE POINTED OUT THAT THE TRANSPORTER HAD EARNED RS.7,280/- WHIC H SHOWED THAT THE CHARGES WERE COMMENSURATE TO WHAT WAS THE EXPECTATI ON OF THE TRANSPORTER. SINCE ASSESSEE POINTED OUT THAT BILL N OS. 246 AND 249 DATED 30.03.2004 WHICH WERE ISSUED BY THE M/S PADWA L TRANSPORT ON M/S KAVITA INDUSTRIES PVT. LTD. AND M/S SNA INDUSTR IES, CHAKAN, 6 ITA NO. 1904/PUN/2014 A.Y. 2010-11 RESPECTIVELY WERE GENUINE, THERE WAS NO REASON FOR THE TRANSPORTER TO HAVE ITA NOS.1368 & 1369/PN/2012 DENIED THE AUTHEN TICITY OF THE OTHER TWO BILLS, NAMELY, 130 AND 132. IT WAS POINTE D OUT THAT ON THE BASIS OF OTHER BILLS OF THE TRANSPORTER ALSO THAT T HE SIGNATURES ON ALL THE BILLS ARE IDENTICAL AND SIMILAR. WE FIND THAT WHEN THE TRANSPORTER WAS AGAIN PUT TO EXAMINATION BY THE ASSESSING OFFICER, HE RESCINDED FROM HIS EARLIER STAND OF THE BILLS HAVING BEEN FABRICAT ED. A COPY OF THE SAID STATEMENT RECORDED ON 28.12.2010 IS PLACED AT PAGES 20 TO 24 OF THE PAPER BOOK. THE RELEVANT PORTION OF THE SAME IS ALR EADY REPRODUCED IN THE EARLIER PART OF THIS ORDER. NEVERTHELESS, WHEN THE ASSESSING OFFICER PUT ACROSS TO THE TRANSPORTER BILL NOS. 246 AND 249 ISSUED BY HIM AS ALSO THE CONTENTS OF ASSESSEE'S SUBMISSIONS IT WAS ADMITTED THAT THE LR AND BILLS WERE INDEED ISSUED AND SIGNED BY HIM. THE TRANSPORTER EXPLAINED THAT THE BILLS RELATED TO THE LOCAL TRANS PORTATION AND NOT FOR TRANSPORTATION OUTSIDE MAHARASHTRA AND THAT IN THE BILLS HE HAD MENTIONED THE ADDRESS OF SILVASSA MERELY FOR THE PU RPOSES OF BILLING. ACCORDING TO THE TRANSPORTER, THOUGH THE LRS AND BI LLS WERE ISSUED BY HIM BUT THEY WERE FOR LOCAL TRANSPORTATION ONLY AND THERE WAS NO TRANSPORTATION OF GOODS FROM CHAKAN, PUNE TO SILVAS SA OR FROM SILVASSA TO CHAKAN, PUNE. 21. OSTENSIBLY, THERE ARE APPARENT CONTRADICTIONS I N THE STATEMENTS FURNISHED BY THE TRANSPORTER AT THE DIFFERENT POINT S OF TIME. IN SUCH A SITUATION, ONE OF THE COURSE AVAILABLE WAS FOR A CR OSS-EXAMINATION OF THE TRANSPORTER BY THE ASSESSEE. ON THIS ASPECT, WE FIND THAT THE ASSESSING OFFICER DID ALLOW AN OPPORTUNITY TO THE A SSESSEE OF CROSS- EXAMINING THE TRANSPORTER. WE FIND THAT IN THIS CON TEXT, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO CROSS-EXAMINE THE TRANSPORTER ON 29.12.2010. THE SAID OPPORTUNITY WAS ALLOWED BY THE ASSESSING OFFICER THROUGH A COMMUNICATION DATED 28.12.2010, A COPY OF WHICH HAS BEEN PLACED ON RECORD. THE ASSESSEE DID NOT AVA IL OF THIS OPPORTUNITY FOR THE REASON EXPLAINED IN ITS EXPLANA TION DATED 28.12.2010 TO THE ASSESSING OFFICER, A COPY OF WHIC H HAS BEEN PLACED AT PAGES 95-96 OF THE PAPER BOOK. THE ASSESSEE POIN TED OUT THAT EARLIER IT HAD CONTENDED THAT DUE TO THE CONTRADICT ORY POSITION TAKEN BY THE TRANSPORTER A REPORT OF THE HANDWRITING EXPERT BE CALLED FOR TO ESTABLISH AS TO WHETHER THE SIGNATURE ON THE TRANSP ORT BILLS WERE THAT OF SHRI PADWAL OR NOT. IT WAS ALSO ASSERTED BY THE ASSESSEE THAT THE CROSS-EXAMINATION WOULD NOT SERVE ANY PURPOSE WHEN THE APPROPRIATE PREPARATION WAS NOT POSSIBLE AT A SHORT NOTICE. NO DOUBT, TECHNICALLY SPEAKING, AN OPPORTUNITY WAS ALLOWED TO THE ASSESSE E TO CROSS- EXAMINE THE TRANSPORTER. THE ASSESSMENT ORDER HAS B EEN PASSED ON 31.12.2010 AND OBVIOUSLY THE CROSS-EXAMINATION OPPO RTUNITY WAS ALLOWED AT THE FAGEND OF THE PROCEEDINGS. OF-COURSE , ONE OF THE REASONS FOR THE CROSS-EXAMINATION TO BE ALLOWED AT THE FAGEND WAS THAT THE INVESTIGATION ITSELF WERE STARTED LATE BY THE ASSESSING OFFICER. BUT THE MOOT QUESTION IS THAT CAN IT BE CONCLUSIVEL Y ESTABLISHED ON THE BASIS OF THE APPARENTLY INCONSISTENT STAND OF THE T RANSPORTER THAT THERE WAS NO TRANSACTION EFFECTED WITH M/S KAVITA INDUSTR IES PVT. LTD. OR M/S SNA INDUSTRIES PRIOR TO 31.03.2004. IN-FACT, IN THE EXCISE RETURN FURNISHED BY THE ASSESSEE, A COPY OF WHICH HAS BEEN PLACED AT PAGES 131 TO 132 OF THE PAPER BOOK, IT IS REVEALED THAT A SSESSEE RETURNED THE QUANTITY MANUFACTURED AND ALSO SHOWED ITS LIABILITY FOR EXCISE DUTY ON THE QUANTITY MANUFACTURED AND SOLD. THE SAID RETURN OF INCOME IS DATED 05.04.2004 AND AT THE TIME OF HEARING, THE OR IGINAL COPIES OF THE SAID WERE ALSO CALLED FOR AND PERUSED. THE SAID RET URN CORRESPONDED TO THE QUARTER ENDING ON 31.03.2004. THE REFLECTION OF QUANTITY OF GOODS MANUFACTURED AND LIABILITY OF EXCISE DUTY THE REOF IN THE SAID RETURN HAS NOT BEEN DISAPPROVED BY THE REVENUE AT A NY STAGE. THERE 7 ITA NO. 1904/PUN/2014 A.Y. 2010-11 IS ALSO NO REASON FOR US TO DISREGARD THE SAME. NEV ERTHELESS, IT IS ALSO EMERGING THAT SO FAR AS THE EVIDENCE OF TRANSPORTAT ION IS CONCERNED IT DOES NOT CLINCHINGLY ESTABLISH THE CASE EITHER WAY. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, IT WAS NOT ONLY IMPERAT IVE BUT ALSO PRUDENT THAT THE CROSS-EXAMINATION OF THE TRANSPORTER WAS U NDERTAKEN SO AS TO ENABLE THE ASSESSING OFFICER TO COME TO APPROPRIATE FINDINGS. IN OUR CONSIDERED OPINION, IT WOULD MEET THE ENDS OF ITA NOS.1368 & 1369/PN/2012 JUSTICE IF THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CERTAINLY CONFRONTED TH E ASSESSEE WITH THE MATERIAL WITH HIM BUT ALSO ENSURE THAT AN APPROPRIA TE AND ADEQUATE OPPORTUNITY OF CROSS-EXAMINATION IS ALLOWED TO THE ASSESSEE. IT IS ALSO RELEVANT TO SAY THAT IN RESPONSE TO THE DENIALS BY THE TRANSPORTER, INITIALLY THE ASSESSEE HAD MADE A DETAILED SUBMISSI ON ATTEMPTING TO DEMOLISH THE VERSION OF THE TRANSPORTER. THE INITIA L BURDEN ON THE ASSESSEE STOOD DISCHARGED IN VIEW OF ITS SUBMISSION S DATED 21.12.2010 AND THEREFORE IT WAS IN FITNESS OF THING S THAT CROSS- EXAMINATION WAS CARRIED OUT SO AS TO ENABLE THE ASS ESSING OFFICER TO COME TO AN APPROPRIATE AND CREDIBLE FINDINGS THEREO F. THUS, WE SET- ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTE R BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL MAKE AN ORDER AFRES H AFTER ALLOWING THE NECESSARY OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AND KEEPING IN MIND OUT ABOVE DIRECTIONS. THUS, FOR ASSESSMENT Y EAR 2005-06, ASSESSEE PARTLY SUCCEEDS FOR STATISTICAL PURPOSES. THUS, IN VIEW OF ABOVE OBSERVATION OF THE CO-ORDINATE BEN CH AND TO MAINTAIN CONSISTENCY, WE ARE OF CONSIDERED VIEW THAT IT W OULD BE JUST AND PROPER TO RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTIONS. WE HOLD AND DIRECT ACCORDINGLY. THUS, GROUND NO. 1 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOS E IN THE AFORESAID TERMS. 8. IN GROUND NO. 2, THE ASSESSEE HAS ASSAILED DISALLOWANCE OF RS.4,33,500/- MADE U/S.14A. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME FROM INVESTMENTS MADE IN G ROUP CONCERN. THE ASSESSEE HAS MADE STRATEGIC INVESTMENT TO THE TUN E OF RS. 867 LAKHS IN MECCALTE INDIA PVT. LTD FOR ACQUIRING 49% SHARES. THE EN TIRE INVESTMENT WAS MADE FROM OWN FUNDS AND BORROWED FUNDS WERE NOT US ED FOR MAKING SUCH INVESTMENT. THEREFORE, THE PROVISIONS OF SECTION 14A O F THE ACT ARE NOT ATTRACTED. TO SUPPORT HIS CONTENTION THE LD. AR PLACED RE LIANCE ON THE FOLLOWING DECISIONS:- 8 ITA NO. 1904/PUN/2014 A.Y. 2010-11 1) CHEMINVEST LTD. VS. CIT. 378 ITR 33 (2015) 2) RAM INFRASTRUCTURE LTD VS. JCIT, ITA NO. 746/PN/201 3, ASSESSMENT YEAR 2009-10 DECIDED ON 30.12.16 9. THE LD. DR VEHEMENTLY SUPPORTED THE IMPUGNED ORDER A ND SUBMITTED THAT DISALLOWANCE U/S 14A R.W.RULE 8D IS TO BE MADE IF THE INVESTMENT IS MADE, IRRESPECTIVE OF THE FACT WHETHER ANY DIVIDEND INCOME IS EARNED OR NOT. 10. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTAT IVES OF BOTH SIDES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. THE FA CT THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME EXEMPT FROM TAX FROM INVESTMENTS MADE IN MECCALTE INDIA PVT. LTD, HAS NOT BEE N DISPUTED BY THE DEPARTMENT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CH EMINVEST LTD VS. CIT (SUPRA.) HAS HELD THAT NO DISALLOWANCE U/S 14A IS TO BE MADE WHERE NO EXEMPT INCOME HAS BEEN EARNED. SIMILAR VIEW HAS BEEN T AKEN BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RAM INFRASTR UCTURE LTD. VS. JCIT (SUPRA.). THE RELEVANT EXTRACT OF THE FINDINGS OF THE CO-O RDINATE BENCH ARE AS UNDER:- 9. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ORIENTAL STRUCTURAL ENGINEERS PVT . LTD. (SUPRA) HAS UPHELD THE ORDER OF TRIBUNAL WHERE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D WAS DELETED UNDER SIMILAR CIRCUMSTANCES. IN THE SAID C ASE THE ASSESSEE HAD MADE INVESTMENT IN THE SUBSIDIARY COMPANY OUT OF BO RROWED FUNDS. THE SAID SUBSIDIARY COMPANY WAS FORMED AS SPV TO OBTAIN CONT RACTS FROM NHAI. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HA RI INFRASTRUCTURE PVT. LTD. VS. DY. CIT IN ITA NO. 848/PN/2013 FOR THE ASSESSME NT YEAR 2009-10 DECIDED ON 18-01-2016, UNDER SIMILAR CIRCUMSTANCES BY FOLLOWING THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF IN COME TAX VS . ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. (SUPRA) DELETED THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D IN RESPECT OF INVESTMENTS MADE IN THE SUBSIDIARY COMPANIES WHICH WERE CREATED AS SPV TO OBTAIN AND EXECUTE GOV ERNMENT CONTRACTS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO ON THE BASIS OF HIS FINDING THAT INTEREST 9 ITA NO. 1904/PUN/2014 A.Y. 2010-11 BEARING FUNDS HAVE BEEN DIVERTED TO HOLDING COMPANY FOR ACQUISITION OF THEIR SHARES MADE DISALLOWANCE OF RS.1,08,81,177 /- U/S.14A OF THE I.T. ACT R.W. RULE 8D OF THE I.T. RULES. WHILE DOIN G SO, HE REJECTED THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT MADE IN THE SHARES OF HOLDING COMPANIES ARE DUE TO COMMERCIAL EXPEDIENCY AND THEREFORE NO DISALLOWANCE OF INTEREST SHOULD BE MADE U/S.36(1)(I II) OR U/S.14A. WE FIND THE LD.CIT(A) REJECTING THE VARIOUS SUBMISSION S MADE BEFORE HIM AND DISTINGUISHING THE VARIOUS DECISIONS CITED BEFO RE HIM REJECTED THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE IS CALLE D FOR U/S.14A OF THE I.T. ACT. 18. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE INVESTMENTS ARE MADE IN SHARES OF THE HOLDING C OMPANY WHO IN TURN HAS INVESTED THE AMOUNT IN THE SUBSIDIARY COMP ANY AND SPECIAL PURPOSE VEHICLE COMPANIES, FOR GETTING CONTRACTS FR OM THE PWD DEPARTMENT OF GOVERNMENT OF MAHARASHTRA, THEREFORE, THE INVESTMENT WAS FOR COMMERCIAL EXPEDIENCY AND THEREFORE NO DISA LLOWANCE OF INTEREST IS CALLED FOR. IT IS ALSO THE ALTERNATE CO NTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE NO DIVIDEND INC OME HAS BEEN RECEIVED WHICH IS EXEMPT FROM TAX, THEREFORE, NO DI SALLOWANCE U/S.14A SHOULD BE MADE. IT IS ALSO ANOTHER ALTERNATE CONTEN TION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE ENTIRE INCO ME OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IA(4), THEREFORE, E VEN IF ANY DISALLOWANCE IS MADE THE BUSINESS INCOME OF THE ASS ESSEE WILL GO UP AND THEREFORE THERE WILL BE CORRESPONDING DEDUCTION OF THE SAID AMOUNT AND THEREFORE IT IS REVENUE NEUTRAL. 18.1 WE FIND SOME FORCE IN THE ARGUMENTS ADVANCED B Y THE LD. COUNSEL FOR THE ASSESSEE. WE FIND AN IDENTICAL ISSU E HAD COME UP BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENTAL STRUCTURE ENGINEERS PVT. LTD. (SUPRA). IN THAT CASE ALSO INVE STMENTS WERE MADE IN THE SUBSIDIARY COMPANIES OUT OF BORROWED FUNDS. THE SUBSIDIARY COMPANY HAD TO FORM SPECIAL PURPOSE VEHICLES (SPV) IN ORDER TO OBTAIN CONTRACTS FROM NHAI. THE DISALLOWANCE U/S.14A R.W. RULE 8D WAS RESTRICTED BY THE CIT(A) WHICH WAS UPHELD BY THE IT AT. ON FURTHER APPEAL BY THE REVENUE, THE HONBLE HIGH COURT DISMI SSED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER : THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER DATED 02.12.2011 PASSED BY THE INCOME TAX APP ELLATE TRIBUNAL, NEW DELHI IN ITA NO.4245/DEL/20 11 IN RES PECT OF THE ASSESSMENT YEAR 2008-09. THE ISSUE BEFORE THE TRIBU NAL, WHICH IS ALSO AN ISSUE BEFORE US, WAS WHETHER IN THE FACT S AND CIRCUMSTANCES OF THE CASE THE COMMISSIONER OF INCOM E TAX (APPEALS) HAD ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 TO 2% OF DI VIDEND INCOME OF RS.20,27,812/-. IT WAS THE CONTENTION OF THE REVENUE THAT RULE 8D O F THE INCOME TAX RULES, 1962 HAD NOT BEEN APPLIED PROPERLY IN RE SPECT OF THE ASSESSMENT YEAR 2008-09. THIS ASPECT HAS BEEN CONSI DERED BY THE TRIBUNAL IN DETAIL AND IT HAS OBSERVED AS UNDER : - 6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TA X (APPEALS) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS 2,96,731/- WAS PAID ON FUNDS UTILIZED FOR MAKING INVESTMENTS ON WHICH EXEMPTED I NCOME WAS RECEIVABLE. FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT IN RESPECT OF INVESTMENT OF RS 6,07,7 75,000/- MADE IN 10 ITA NO. 1904/PUN/2014 A.Y. 2010-11 SUBSIDIARY COMPANIES AS PER DOCUMENTS PRODUCED BEFO RE HIM, THEY ARE ATTRIBUTABLE TO COMMERCIAL EXPEDIENCY, BECAUSE AS PER SUBMISSION MADE BY THE ASSESSEE, IT HAD TO FORM SPECIAL PURPOS E VEHICLES (SPV) IN ORDER TO OBTAIN CONTRACTS FROM THE NHAI AND THE SPV S SO FORMED ENGAGED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTE THE WORKS AWARDED TO THEM (I.E. SPVS) BY THE NHAI. IN ITS PRO FIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN THE TURNOVER F ROM EXECUTION OF THESE CONTRACTS AND THEREFORE NO EXPENSE AND INTERE ST ATTRIBUTABLE TO THE INVESTMENTS MADE BY THE APPELLANT IN THE PSVS C AN BE DISALLOWED U/S. 14A R.W. RULE 80 BECAUSE IT CANNOT BE TERMED A S EXPENSE/ INTEREST INCURRED FOR EARNING EXEMPTED INCOME. UNDE R THE CIRCUMSTANCES, LD. COMMISSIONER OF INCOME TAX (APPEA LS) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER SUM RS 40,55 6/- CALCULATED @ 2% OF THE DIVIDEND EARNED IS SUFFICIENT. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS), HENCE WE UPHOLD THE SAME. ON GOING THROUGH THE ABOVE OBSERVATIONS WE ARE OF T HE VIEW THAT THIS IS MERELY A QUESTION OF FACT AND DOES NOT INVOLVE A NY QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW, AS THE TRI BUNAL HELD THAT THE EXPENSES WHICH HAVE BEEN CLAIMED BY THE ASSESSEE WE RE NOT TOWARDS THE EXEMPTED INCOME. THE DISALLOWANCE, THEREFORE, W AS RIGHTLY LIMITED TO A SUM OF RS 40,556/-. THE QUESTION OF INTERPRETI NG RULE 8-D IS NOT IN DISPUTE AND THE ONLY DISPUTE IS WITH REGARD TO FACT S WHICH HAVE BEEN SETTLED BY THE TRIBUNAL. THE APPEAL IS DISMISSED. 19. WE ALSO FIND MERIT IN THE ALTERNATE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE ASSESSEE IS ENTITLED TO DED UCTION U/S.80IA(4), THEREFORE, THE ADDITION, IF ANY, HAS TO BE ALLOWED U/S.80IA(4) AND THEREFORE, THE SAME IS REVENUE NEUTRAL. ADMITTEDLY, THE INCOME OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IA WHICH T HE AO HIMSELF HAS ALLOWED IN THE BODY OF THE ASSESSMENT ORDER. THE RE TURNED BUSINESS INCOME HAS BEEN ALLOWED BY THE AO AS DEDUCTION U/S. 80IA AS PER THE CLAIM. THEREFORE, ONCE A PART OF THE INTEREST EXPEN DITURE IS DISALLOWED THEN THE CORRESPONDING BUSINESS INCOME WILL GO UP. THEREFORE, THE REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE THAT TH E AO MAY BE DIRECTED TO INCREASE THE DEDUCTION U/S.80IA(4) TO T HE EXTENT OF DISALLOWANCE U/S.14A WHICH INCREASES THE BUSINESS P ROFIT TO THAT EXTENT IS ACCEPTABLE. IN THIS VIEW OF THE MATTER, W E SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE DISAL LOWANCE MADE U/SA.14A. GROUND OF APPEAL NO.1 AS WELL AS THE FIRS T ISSUE IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE ACCORD INGLY ALLOWED. 10. WE FURTHER OBSERVE THAT THE CBDT VIDE CIRCULAR NO. 37/2016 DATED 02-11-2016 HAS CLARIFIED THAT WHERE DISALLOWANCE HA S BEEN MADE U/S. 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT AND OTHER S PECIFIC DISALLOWANCE RELATING TO BUSINESS ACTIVITY DEDUCTION UNDER CHAPTER VI-A I S ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. THE RELEVANT EXTR ACT OF THE CIRCULAR IS AS UNDER : CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 (THE ACT ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUT ING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES D ISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED 11 ITA NO. 1904/PUN/2014 A.Y. 2010-11 AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT-LINKED DEDUCTION UNDER CHAPTER VI-A 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON TH E ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAV E GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO TH E BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN C LAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFI TS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLO WS : (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF N ON-DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY I NCREASE ASSESSEE'S PROFITS FROM BUSINESS OF DEVELOPING HOUS ING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALL OWANCE UNDER SECTION 40 (A)(IA) OF THE ACT WOULD QUALIFY FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER - WARD 5(1) VS. KEVAL CONSTRUCTI ON, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH CO URT. COMMISSIONER OF INCOME-TAX-IV, NAGPUR VS. SUNIL VISHWAMBHARNATH TIWARI, IT APPEAL NO. 2 OF 2011, SE PTEMBER 11,2015, BOMBAY HIGH COURT. (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT I S NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE U NDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80- IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR VS. SURYA MERCHANTS LTD., I.T . APPEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHABAD HIGH COURT. THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN A CCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A )(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANC ES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DE DUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF TH E ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VL-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 11. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF HARI INFRASTRUCTURE PVT. LTD. VS. DY. CIT (SUPRA) HAS AL READY DECIDED THE ISSUE WITH RESPECT TO DISALLOWANCE U/S. 14A HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF DISALLOWANCE U/S. 14A ON BOT H THE GROUNDS. THUS, IN VIEW OF THE FACTS OF THE CASE, THE ORDER OF CO-ORDI NATE BENCH AND THE CBDT CIRCULAR, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S. 14A OF THE ACT. ACCORDINGLY, GROUND NOS. 2 AN D 4 RAISED IN THE GROUNDS OF APPEAL BY THE ASSESSEE ARE ALLOWED. THEREFORE, IN VIEW OF THE FACTS OF THE CASE AND DECISIONS DIS CUSSED ABOVE, WE FIND MERIT IN GROUND NO. 2 RAISED BY THE ASSESSE E. SINCE NO 12 ITA NO. 1904/PUN/2014 A.Y. 2010-11 EXEMPT INCOME HAS BEEN EARNED DURING THE PERIOD RELEVAN T TO THE ASSESSMENT YEAR UNDER APPEAL AND SINCE IT IS NO ONES CA SE THAT ANY INTEREST EXPENDITURE WAS INCURRED FOR MAKING INVESTMENTS BY THE A SSESSEE, THEREFORE, NO DISALLOWANCE U/S 14A IS WARRANTED. ACCORDINGL Y, GROUND NO. 2 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED. 11. THE THIRD GROUND RAISED IN THE APPEAL BY THE ASSESS EE RELATES TO DISALLOWANCE OF RS. 80,03,105/- U/S. 40(A) (IA) OF THE ACT. THE LD. AR SUBMITTED THAT DISALLOWANCE U/S.40(A) (IA) HAS BEEN MADE FOR NON- DEDUCTION OF TDS U/S. 194A OF THE ACT ON PAYMENT OF INTER EST FOR DELAYED PAYMENTS TO CREDITORS. THE LD. AR SUBMITTED THAT INTEREST PAID WAS IN THE NATURE OF TRADE PAYMENTS, THEREFORE, SUCH PAYMENTS DO N OT FALL WITHIN THE AMBIT OF SECTION 194A OF THE ACT. TO SUPPORT HIS SUBMISSION , THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS :- 1) ITO VS. PARAG MAHASUKHLAL SHAH, 143 TTJ (AHD) 60 6. 2) SRI VENKATESH PAPER AGENCIES (HYD.)(P)(LTD.) VS. DCIT, 24 TAXMANN.COM 52 (HYD.) 3) GHAZIABAD DEVELOPMENT AUTHORITY VS. DR. N.K GUP TA 258 ITR 337. THE LD. AR MADE ALTERNATE SUBMISSION THAT AS PER PROVIS O TO SECTION 201(1) OF THE ACT, IN CASE THE PAYEE HAS CONSIDERED THE S AID INCOME IN THE RETURN OF INCOME FILED, THEN NO DISALLOWANCE SHALL BE MADE U/S . 40(A) (IA) OF THE ACT. THE LD. AR IN SUPPORT OF HIS ALTERNATE CONTENTIO N PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF M/S. SHREE SAI TRADERS VS. ITO IN ITA NO. 2184/PN/2016 FOR ASSESSME NT YEAR 2009-10 DECIDED ON 11.11.2016. 13 ITA NO. 1904/PUN/2014 A.Y. 2010-11 12. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT ONCE TH E INTEREST HAS BEEN PAID, THE ASSESSEE WAS LIABLE TO DEDUCT TAX U/S 194 A OF THE ACT. WHETHER THE INTEREST EXPENDITURE IS IN RESPECT OF DELAYED PAYMENTS TO CREDITORS OR FOR ANY OTHER REASON, THE ASSESSEE IS LIABLE TO DEDUCT TDS ON PAYMENT OF INTEREST UNDER SECTION 194A. 13. BOTH SIDES HEARD. WITHOUT GOING INTO THE MERITS WHETH ER THE INTEREST PAID BY THE ASSESSEE IS IN THE NATURE OF TRADE PAYMENT OR PAYMENT OF INTEREST FALLING WITHIN THE AMBIT OF SECTION 194A, WE DEEM IT APPROPRIATE TO CONSIDER THE ALTERNATE SUBMISSION OF THE ASSESSEE. THE PR OVISIONS OF SECTION 40(A)(IA) HAVE BEEN AMENDED BY THE FINANCE ACT, 2012 W.E.F 01.04.13. THE SECOND PROVISO TO SECTION 40(A)(IA) HAVE BEEN INSERTED ACCORDING TO WHICH NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT WOULD BE MADE IF THE AS SESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER FIRST PROVISO T O SECTION 201(1) OF THE ACT. IN THE CASE OF M/S. SHREE SAI TRADERS VS. ITO (S UPRA.) WHILE ADJUDICATING SOMEWHAT SIMILAR ISSUE, THE TRIBUNAL HELD: 10. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I FIND THE ASSESSING OFFICER ON THE BASIS OF THE DIRECTION GIV EN BY THE CIT IN THE ORDER PASSED U/S.263 CALLED FOR CERTAIN DETAILS FROM THE ASSESSEE AND THEREAFTER MADE ADDITION OF RS.6,66,189/- U/S.40(A)(IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED ANY TAX FROM THE PAYMENT OF INTEREST. THE LD. CIT(A) PARTLY UPHELD THE ACTION O F THE ASSESSING OFFICER WHICH HAS ALREADY BEEN REPRODUCED IN PRECEDING PARAGRAPHS. IT IS THE SUBMISSION OF THE L D. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE INSERT ION OF THE SECOND PROVISO TO PROVISIONS OF SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT, 2012 W.E.F. 01-04-2013, DISALLOWAN CE U/S. 40(A)(IA) OF THE ACT WOULD NOT BE MADE IF THE ASSESS EE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SECTION 201(1) OF THE I.T ACT. IT IS ALSO HIS SU BMISSION THAT GIVEN AN OPPORTUNITY THE ASSESSEE IS IN A POSITION TO PROVE THAT THE PAYEE HAD ALREADY DECLARED SUCH INCOME IN ITS HANDS AND PAID TAXES THEREON AND THEREFORE NO DISAL LOWANCE U/S. 40(A)(IA) CAN BE MADE IN THE HANDS OF THE ASSE SSEE. IT IS ALSO HIS SUBMITTED THAT SUCH AMENDMENT TO PROVISION S OF SECTION 40(A)(IA) IS RETROSPECTIVE IN NATURE. 14 ITA NO. 1904/PUN/2014 A.Y. 2010-11 IN THE LIGHT OF AMENDED PROVISIONS OF SECTION 40(A)(IA), WE DEE M IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE OF ASSE SSING OFFICER WITH DIRECTION TO GIVE OPPORTUNITY TO THE ASSESSEE TO SUBSTA NTIATE WITH EVIDENCE THAT PAYEE HAS ALREADY INCLUDED INTEREST INCOME IN ITS RET URN AND HAS PAID TAX THEREON. ACCORDINGLY, GROUND NO. 3 RAISED IN THE APP EAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON THURSDAY, THE 31 ST DAY OF AUGUST, 2017. SD/- SD/- ( . / D. KARUNAKARA RAO ) ( /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; ! / DATED : 31 ST AUGUST, 2017. SB * +'- . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-1, PUNE. 4. THE CIT-1, PUNE. 5. % ( , ( , , , / DR, ITAT, A BENCH, PUNE. 6. / / GUARD FILE. // TRUE COPY // / BY ORDER, ( / PRIVATE SECRETARY ( , / ITAT, PUNE.