The DCITBharuch Circle, Bharuch V. M/s. Gujarat Narmada Valley Fertilizers Co.Ltd., Bharuch

ITA 1986/AHD/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8654 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-12-2014
• Assessment Year: 1998-1999
• Appeal Filed On: 08-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Keywords: Wholly owned subsidiary; Condonation of delay
• Section: 28

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .. , !! '#$, %& %!.%. '!, () * ( $ BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND N.S. SAINI, ACCOUNTANT MEMBER) ITA NO.1986, 1987 AND 1988/AHD/2010 [ASSTT.YEAR : 1998-1999, 1999-2000 AND 2000-01] DCIT, BHARUCH CIRCLE BHARUCH. /VS. GUJARAT NARMADA VALLEY FERTILIZERS BHARUCH. PAN : AAACG 8372 Q CO NO.125/AHD/2013 IN ITA NO.1986/AHD/2013 [ASSTT.YEAR : 1998-1999] AND CO NO.126/AHD/2013 IN ITA NO.1988/AHD/2013 [ASSTT.YEAR : 2000-2001] GUJARAT NARMADA VALLEY FERTILIZERS BHARUCH. /VS. DCIT, BHARUCH CIRCLE BHARUCH. ( ,- / APPELLANT) ( ./,- / RESPONDENT) / REVENUE BY : SHRI VIMALENDU VERMA, CIT-DR / ASSESSEE BY : SHRI SANJAY R. SHAH / DATE OF HEARING : 18 TH DECEMBER, 2014 / DATE OF PRONOUNCEMENT : 02-02-2015 (0/ O R D E R PER BENCH: 2. ITA NO.1986/AHD/2010 IS FILED BY THE REVENUE AND THE CO NO.125/AHD/2013 IS FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 2 COMMISSIONER OF INCOME-TAX (APPEALS)-VI, BARODA DAT ED 15.03.2010 PASSED IN THE ASSTT.YEAR 1998-99. ITA NO.1987/AHD/2010 FILED BY THE REVENUE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, BARODA DATED 15.03.2010 PASSED IN THE ASSTT.YEAR 1999-2000. ITA NO.1988/AHD/2010 FILED BY THE REVENUE AND THE C O NO.126/AHD/2013 IS FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, BARODA DAT ED 15.03.2010 PASSED IN THE ASSTT.YEAR 2000-01. ALL THESE APPEALS AND CROSS OBJECTIONS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE FIRST GROUNDS OF APPEAL OF THE REVENUE FOR A SSTT.YEAR 1998-99 ARE AS UNDER: 1(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION O F RS.3,50,00,000/- BEING PROVISION MADE AND DEBITED T O P&L ACCOUNT FOR THE PAYMENT TO BE MADE ON BEHALF OF THE GUJARAT NARMADA AUTO LTD. (AS EXPENSES), WHICH WAS ADDED BA CK IN COMPUTATION OF INCOME BUT CLAIMED AS DEDUCTION BY W AY OF NOTES FORMING PART OF RETURN OF INCOME. 1(II) THE CIT(A) FAILED TO APPRECIATE THAT GUJARAT NARMADA AUTO LTD. IS A SUBSIDIARY CONCERNS WHICH IS A SEPARATE E NTITY AND THEREFORE, THE EXPENSES CANNOT BE CONSIDERED FOR TH E BUSINESS OF THE ASSESSEE. FURTHER, THE ASSESSEE FAILED TO PROD UCE HE COMPLETE DETAILS OF LIQUIDATION AND SETTLEMENT WITH THE OFFICIAL LIQUIDATOR IN RESPECT OF ITS SUBSIDIARY CONCERN GNA L. MOREOVER, THE ASSESSEE COMPANY HAS MADE PROVISION FOR THE LOS S DURING THE YEAR UNDER CONSIDERATION, WHICH ARE ALLOWABLE ONLY ON THE BASIS OF ACTUAL PAYMENT. IN THE ASSESSES CASE THE LOSS DID NOT OCCUR IN THE YEAR UNDER CONSIDERATION. 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DEBITED PROVISION OF RS .3.50 CRORES PAYABLE ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 3 ON BEHALF OF GUJARAT NARMADA AUTO LTD.(GNAL) TO T HE PROFIT & LOSS ACCOUNT. THE SAID AMOUNT WAS ADDED BACK IN THE COM PUTATION OF TOTAL INCOME AND CLAIMED AS DEDUCTION BY WAY OF NOTES FOR MING PART OF THE RETURN OF INCOME. THE AO DID NOT ALLOW THE DEDUCTI ON IN THE ASSESSMENT BY OBSERVING AS UNDER: 3.7 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AS WELL AS THE SUBMISSION OF THE ASSESSEE COMPANY. FIRST OF AL L THE ASSESSEE COMPANY HAS MADE PROVISION OF THE LOSS DURING THE Y EAR UNDER CONSIDERATION AND PROVISIONS OF LOSS/EXPENSES ARE N OT ALLOWABLE. THE EXPENSES CAN BE ALLOWED ONLY ON THE BASIS OF AC TUAL PAYMENT. AS PER THE SUBMISSION OF THE ASSESSEE COMPANY IT HA D PAID THE AMOUNT OF RS.3,50,00,000/- DIRECTLY TO THE GMDC BY INSTALLMENT OF RS.50 LAKHS EACH IN MAY 1999, AUGUST 1999, NOVEM BER 1999, FEBRUARY 1999, MAY 2000, AUGUST 2000 AND NOVEMBER 2 000. THE PAYMENT WAS MADE IN THE F.Y. 1999-2000 AND 2000-01. AS DIRECTED BY THE HON'BLE ITAT, IN THE ORDER IN ITA N O. 832 TO 834/AND/1998 DATED 31.03.2000 FOR THE A.Y. 1992-93 TO 1994-95 AND HELD THAT THE LOSS DID NOT OCCURS IN THE PERIOD OF ACCOUNTS. THE ASSESSEE ITSELF HAS CLAIMED IN ITS ALTERNATIVE SUBMISSION THAT LOSS BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH THE ACCOUNTS ARE FINALLY SETTLED WITH THE LIQUIDATOR AND FINAL P AYMENT IS RECEIVED. 3.8 IN THE REPLY THE ASSESSEE COMPANY HAS SIMPLY SU BMITTED THE DATE OF PAYMENT OF RS.3,50,00,000/- TO THE GMDC, WH ICH ARE, ALSO PERTAINS TO F.Y. 1999-2000 AND 2000-01. AS PER THE DIRECTION OF THE HON'BLE ITAT THE CLAIM IS ALLOWABLE IN THE Y EAR OF SETTLEMENT BY THE OFFICIAL LIQUIDATOR. THE ASSESSEE HAS FAILED TO PROVIDE THE LETTER OF SETTLEMENT FROM THE LIQUIDATO R. THEREFORE, AS PER THE DIRECTION OF HON'BLE ITAT THE AMOUNT OF RS. 3,50,00,000/- IS NOT ALLOWABLE IN THE YEAR UNDER CONSIDERATION FO R WANT OF COMPLETE DETAILS OF LIQUIDATION AND SETTLEMENT FROM THE OFFICIAL LIQUIDATOR. IN THIS CASE THE ASSESSEE HAS CLAIMED T HE EXPENSES OF RS.3,50,00,000/- IN THE P&.L ACCOUNT BY WAY OF PROV ISION. HOWEVER, THE ASSESSEE HAS ITSELF ADDED BACK THIS AM OUNT IN THE COMPUTATION OF TOTAL INCOME FILED WITH THE RETURN O F INCOME. HENCE, THUS THE ASSESSEE HAS NOT CLAIMED .THIS EXPE NSES IN THE RETURN OF INCOME. HOWEVER, THE ASSESSEE COMPANY HAS AGAIN CLAIMED DEDUCTION OF THIS AMOUNT IN THE NOTE MADE U NDER THE COMPUTATION OF INCOME. IT IS THEREFORE, THE ADDITIO N IS NOT INCLUDED IN THE COMPUTATION OF TOTAL INCOME HEREUNDER. 5. ON APPEAL, THE CIT(A) HELD AS UNDER: ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 4 5.4 ON A SPECIFIC QUERY IN THE COURSE OF APPELLATE PROCEEDINGS, IT WAS EXPLAINED BY THE APPELLANT THAT THE OFFICIAL LI QUIDATOR IS LEFT WITH VERY NOMINAL AMOUNT. IN OTHER WORDS NO FUNDS A RE AVAILABLE WITH OFFICIAL LIQUIDATOR OUT OF WHICH THE APPELLANT CAN BE PAID OFF IN RESPECT OF AMOUNT PAID BY IT UNDER THE CORPORATE GUARANTEE GIVEN BY IT TO GMDC. THESE FACTS CLEARLY INDICATE T HAT THOUGH FORMAL CLOSING OF ACCOUNT OF THE OFFICIAL LIQUIDATO R MAY BE PENDING; THERE IS EFFECTIVELY NO BALANCE LEFT AND N O POTENTIAL OF AUGMENTING THE BALANCE AS THERE IS NO ASSET OF GNAL LEFT AVAILABLE FOR REALIZATION. THE LOSS IS ALLOWABLE AS A DEDUCTI ON IN THE YEAR IN WHICH IT CAN BE ASCERTAINED THAT THERE IS LOSS IN T HE TRANSACTION OF GUARANTEE. AS THE LIQUIDATOR IS EFFECTIVELY LEFT WI TH NO BALANCE OUT OF THE REALIZATION PROCEEDS AND NO ASSETS OF GNAL F OR FURTHER REALIZATION, THE ASCERTAINMENT OF LOSS ON ACCOUNT O F GUARANTEE IS FINAL AND THEREFORE THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. AMALGAMATIONS PVT. LTD. (226 ITR 18 8) IS SQUARELY APPLICABLE. 5.5 I HAVE FURTHER GONE THROUGH THE SU BMISSIONS OF THE AUTHORIZED REPRESENTATIVE AND THE ASSESSMENT OR DER. DURING THE COURSE OF HEARING BEFORE ME, IT WAS ARGUED T HAT THE ASSESSEE HAD GIVEN GUARANTEE AND UNDERTAKING TO T HE GMDC ON BEHALF OF GNAL. GNAL, WHOLLY OWNED SUBSIDIARY OF TH E APPELLANT COMPANY, WAS DECLARED SICK AND WAS ORDERED ON 02 -08-1995 TO BE WOUND BY GUJARAT HIGH COURT. ACCORDINGLY, G MDC HAD FILED CIVIL SUIT AGAINST THE APPELLANT IN THE CIVIL COURT OF AHMEDABAD BEING THE GUARANTOR FOR RECOVERY OF DUES ALONG WITH INTEREST. IT WAS ALSO SUBMITTED THAT TO AMICABLY SETTLE THE DUES , A JOINT MEETING OF GMDC WITH GNFC WAS HELD ON 3RD MARCH 199 7 UNDER THE CHAIRMANSHIP OF PRINCIPAL SECRETARY, ENERGY & P ETROCHEMICAL DEP'T, GOVERNMENT OF GUJARAT WHICH WAS ATTENDED BY ADDL. CHIEF SECRETARY, INDUSTRIES, MD, GMDC AND MD, GNFC. IT WA S FINALLY DECIDED IN THE MEETING THAT GNFC SHOULD MAKE PAYMEN T OF RS. 3.50 CRORES TOWARDS FULL AND FINAL SETTLEMENT OF DU ES TO GMDC AND REPAYMENT SHOULD BE MADE IN INSTALLMENTS. IT WAS AL SO DECIDED THAT IN VIEW OF SETTLEMENT, THE SUIT FILED BY THE G MDC ALSO TO BE WITHDRAWN. THE BOARD OF DIRECTORS OF BOTH THE COMPANIES RATIFI ED THE DECISION TAKEN IN THE AFORESAID MEETING UNDER THE CHAIRMANSH IP OF THE PRINCIPAL SECRETARY AND THEREFORE FULL AND FINAL SE TTLEMENT WITH GMDC CAN BE SAID TO HAVE TAKEN PLACE DURING THE YEA R. TO REDUCE THE INTEREST BURDEN, THE ASSESSEE BEING THE SOLE GU ARANTOR HAD PAID THE PRINCIPAL LIABILITY OF RS. 3.5 CRORES. IT WAS FURTHER ARGUED THAT HONOURABLE ITAT HAD ALLOWED THE INTEREST IN TH E ASSESSEE'S CASE FOR AY 1995-1996 ON SAME FACTS. ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 5 I HAVE CONSIDERED THE SUBMISSION OF THE LD. AR AND FACTS OF THE CASE. APPELLANT HAS FINALLY ARRIVED AT THE SETTLEME NT DURING THE YEAR UNDER CONSIDERATION. CONSIDERING THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE DIRECTION OF THE HONOURA BLE ITAT AND DECISION IN THE CASE OF COMMISSIONER OF INCOME TAX VS. AMALGAMATION PVT. LTD (226 ITR 188), I DIRECT ASSES SING OFFICER TO ALLOW CLAIM OF THE ASSESSEE. THE ADDITION IS THEREF ORE DELETED. THE GROUND NO. 2 IS THUS ALLOWED. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL PLACED ON RECORD. I N THE INSTANT CASE, THE ASSESSEE WITH A VIEW TO DIVERSIFY FROM ITS CONT ROLLED PRODUCT AREA AND CONSIDERING GREAT DEMAND AND POTENTIAL FOR TWO WHEELERS, THE ASSESSEE TOOK OVER A RUNNING CONCERN AND MADE IT A WHOLLY OWNED SUBSIDIARY COMPANY, NAMELY, GUJARAT NARMADA AUTO LT D. (GNAL). THE ASSESSEE, AS A HOLDING COMPANY OF GNAL, HAD AGREED WITH THE FINANCIAL INSTITUTIONS BY WAY OF AN UNDERTAKING DATED 21.3.19 88 THAT IF THERE IS ANY SHORTFALL IN THE RESOURCES OF THE BORROWER I.E. GNAL FOR COMPLETING ITS PROJECTS AND/OR FOR THE WORKING CAPITAL, THE AS SESSEE SHALL MAKE ARRANGEMENTS FOR SUCH ADDITIONAL FUNDS. THE ASSES SEE AGREED WITH THE FINANCIAL INSTITUTIONS THAT THE ASSESSEE SHALL NOT WITHDRAW FUNDS ADVANCED BY IT TO GNAL SO LONG AS MONIES DUE BY GNA L TO THE FINANCIAL INSTITUTIONS REMAIN OUTSTANDING. IN THE ASSTT.YEAR 1994-95, THE ASSESSEE HAD MADE A PROVISION FOR RS.62,84,68,160/- BY DEBITING THE AMOUNT TO PROFIT & LOSS ACCOUNT AS PROVISION FOR L OAN TO SUBSIDIARY DOUBTFUL OF RECOVERY. THE AO DID NOT ENTERTAIN THE CLAIM OF DEDUCTION ON TWO GROUNDS, VIZ. (I) THE AMOUNT OF RS.62,84,68, 160/- HAD NOT BEEN WRITTEN OFF TO DEBTORS ACCOUNT AND MAINLY DEBITED TO PROFIT & LOSS ACCOUNT ONLY ON THE BASIS OF A PROVISION, AND (II) THE LOSS DOES NOT ARISE DIRECTLY FROM THE CARRYING OUT OF THE BUSINESS OPER ATION AND CANNOT BE SAID TO BE INCIDENTAL TO THE CARRYING ON OF THE BUS INESS OF MANUFACTURE AND SALE OF CHEMICAL FERTILIZERS AND CHEMICALS. ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 6 7. THE CIT(A) UPHELD THE ACTION OF THE AO ON THE GR OUND THAT THE AMOUNT HAD NOT BEEN WRITTEN OFF TO DEBTORS ACCOUNT ON THE BASIS OF PROVISION. THE CIT(A) ALSO HELD THAT THE FACTS OF THE JUDGMENT RELIED UPON BY THE ASSESSEE IN THE CASE OF CIT VS. AMALGAM ATIONS PVT. LTD., (1997) 226 ITR 188 (SC) ARE DIFFERENT FROM THE FACT S OF THE ASSESSEE. 8. ASSESSEE, BEING AGGRIEVED, FILED APPEAL BEFORE T HE TRIBUNAL. THE ASSESSEE SUBMITTED THAT DIVERSIFICATION STEPS TAKEN IN JUNE, 1986 WERE TAKEN IN RIGHT DIRECTION AND IT WAS EXPECTED THAT T HE ASSESSEE WOULD REALIZE SUBSTANTIAL PROFITS IN THE YEARS TO COME, I N VIEW OF HIGH PROFIT MARGIN OF VARIOUS PRIVATE SECTOR COMPANIES ENGAGED IN MANUFACTURING OF TWO THREE WHEELERS. HOWEVER, ON ACCOUNT OF VARI OUS CONSTRAINTS, VIZ. CHANGE IN MARKET CONDITIONS, RESISTANCE IN THE MIND S OF CUSTOMERS AGAINST GIRNAR SCOOTERS, INEFFICIENCY OF WORK-FOR CE INHERITED FROM GOVERNMENT OWNED CORPORATIONS AND OTHER REASONS, GN AL SUFFERED HEAVY LOSSES. THE ASSESSEE MADE ALL EFFORTS TO ENS URE THAT GNAL COMES TO THE EXPECTATION AND START MAKING PROFIT. WITH THE ABOVE OBJECT IN VIEW, THE ASSESSEE CONTRIBUTED FUNDS TO SEE THAT GN AL SURVIVED AND REVIVED SO THAT THE INVESTMENT IS SAVED AND SAFEGUA RDED. HOWEVER, THE ABOVE COULD NOT BE ACHIEVED AND HOPES TO RECOVE R AMOUNT ADVANCED TO THE SUBSIDIARY COMPANY HAVE BEEN LOST. AS GNAL HAS BEEN DECLARED FIT FOR WINDING UP BY THE BIFR AND TH E HONBLE GUJARAT HIGH COURT VIDE ITS ORDER DATED 2.8.1994 DIRECTED T HAT GNAL BE WOUND UP IN ACCORDANCE WITH LAW AND OFFICIAL LIQUIDATOR B E APPOINTED FOR THIS PURPOSE. IT WAS CONTENDED THAT ADVANCES WERE MADE TO GNAL IN THE COURSE OF BUSINESS OF THE ASSESSEE AND NON-RECOVERA BILITY OF THESE ADVANCES IS INCIDENTAL TO BUSINESS AND SHOULD BE AL LOWED AS A LOSS. THE ADVANCES WERE MADE TO EARN PROFIT AND MONEY WAS ADV ANCED IN ACCORDANCE WITH ACCEPTED COMMERCIAL PRACTICE. THE AIM OF THE ASSESSEE WAS NOT TO AVOID TAXES BUT WAS PURELY COMMERCIAL I. E. EARNING OF INCOME IN FUTURE. NO LUMPSUM PAYMENT WAS MADE BUT FUNDS WERE FURNISHED IN ORDER TO AUGMENT INCOME IN THE ORDINAR Y COURSE OF ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 7 BUSINESS. THE ASSESSEE SUBMITTED THAT NATURE OF A DVANTAGE EXPECTED FROM INVESTMENT IN GNAL WAS COMMERCIAL EARNING. 9. AS REGARDS THE OBJECTIONS OF THE REVENUE AUTHORI TIES THAT LOSS DOES NOT ARISE DIRECTLY FROM CARRYING OUT OF THE BU SINESS OPERATION, IT WAS SUBMITTED THAT THE AOS OBSERVATION THAT SCOOTE R AND FERTILIZERS ARE TWO DIFFERENT BUSINESSES, AND THEREFORE, IT IS NOT THE SAME BUSINESS, IS NOT CORRECT, AND THERE IS ERROR IN THE APPLICATION OF THE ABOVE TEST. THERE IS CLEAR INTERLACING, INTER-CONNECTION AND IN TERDEPENDENCE, AND THE FERTILIZERS BUSINESS AND MANUFACTURE OF SCOOTER S WERE CARRIED BY THE SUBSIDIARY. THE LOSS WHICH AROSE WAS INCIDENTAL TO THE CARRYING ON OF BUSINESS AND SHOULD BE ALLOWED. THE ASSESSEE FURTH ER PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. AMALGAMATIONS PVT. LTD. (SUPRA). THE ASSESSEE ALSO RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. GILLANDERS ARBUTHNOT & CO. LTD., 138 ITR 763. 10. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, IT WAS STATED THAT IF LOSS IS NOT ALLOWED AS DEDUCT ION IN THE YEAR UNDER CONSIDERATION, THEN THE SAME SHOULD BE ALLOWED IN T HE YEAR IN WHICH ACCOUNT IS FINALLY SETTLED WITH THE LIQUIDATOR. 11. THE TRIBUNAL AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES, OBSERVED THAT THE LEARNED COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING CONCEDED THAT ADVANCES MADE BY THE ASSESSEE TO ITS SUBSIDIARY AND CLAIMED AS IRRECOVERABLE COULD NOT BE ALLOWED A S A BAD DEBT AS TERMS OF SECTION 36(2) ARE NOT SATISFIED IN THIS CA SE. THE CLAIM COULD ONLY BE ALLOWED AS A BUSINESS LOSS UNDER SECTION 28 (4) OF THE I.T.ACT. THE RELEVANT QUESTIONS WHICH ARE REQUIRED TO BE CON SIDERED ARE WHETHER THE LOSS HAS ARISEN IN THE COURSE OF BUSINESS, AND IF SO, IN WHAT YEAR IT HAS ARISEN. FOR DETERMINING WHETHER THE LOSS, IF A NY, IS A DEDUCTIBLE LOSS, ARTICLES AND MEMORANDUM OF THE COMPANY MUST B E SEEN, AND ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 8 MORE PARTICULARLY, WHETHER ADVANCEMENT OF LOAN TO S UBSIDIARIES IS ONE PURPOSE OF THE COMPANY. IT IS ALSO TO BE RULED OUT THAT LOSS, IF ANY SUFFERED, IS NOT A CAPITAL LOSS. DURING THE COURSE OF HEARING, ATTENTION WAS NOT DRAWN TO ALL RELEVANT MATERIAL NECESSARY FO R THE DETERMINATION OF THE ISSUE. THE OTHER QUESTION AS TO WHEN THIS L OSS ACCRUED AND IS TO BE ALLOWED IS EASIER TO ANSWER. ACCOUNTING PERIOD OF THE ASSESSEE FOR THE RELEVANT ASSTT.YEAR 1994-95 ENDED ON 31-3-1994. THE ORDER OF BIFR DECLARING GNAL FIT FOR WINDING UP AND THAT OF THE HONBLE GUJARAT HIGH COURT APPROVING ABOVE SCHEME OF WINDING UP AND APPOINTMENT OF OFFICIAL LIQUIDATOR TAKING OVER THE ASSETS OF THE C OMPANY IN LIQUIDATION CAME MUCH LATER. IN OTHER WORDS, ALL THE ABOVE EVE NTS OCCURRED MUCH AFTER 31 ST MARCH, 1994. THEREFORE, THE LOSS DID NOT ACCRUE I N THE PERIOD OF ACCOUNTING. THE ASSESSEE ITSELF HAS CLAIMED IN ITS ALTERNATIVE SUBMISSION THAT THE LOSS BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH ACCOUNTS ARE FINALLY SETTLED WITH THE LIQUIDATOR AN D FINAL PAYMENT IS RECEIVED. THE ABOVE SUBMISSION IS REASONABLE AND WE HAVE NO DIFFICULTY IN ACCEPTING THE SAME IN THE CIRCUMSTANC ES OF THE CASE. THEREFORE, THE TRIBUNAL LEFT THE CONTROVERSY OPEN F OR THE TIME BEING AND LET THE ISSUE BE DECIDED IN THE YEAR IN WHICH FINAL ACCOUNTS ARE TAKEN AND LOSS IS SUFFERED BY THE ASSESSEE. THE ENTIRE M ATTER OF DEDUCTIBILITY CAN BE EXAMINED IN THE ABOVEMENTIONED YEAR. 12. THEREAFTER, THE ASSESSEE CLAIMED DEDUCTION OF R S.3.50 CRORES BY MAKING PROVISION FOR LOSS DURING THE ASSTT.YEAR 199 8-99. THE AO OBSERVED THAT THE LOSS IS NOT ALLOWABLE, AS IT CAN BE ALLOWED ONLY ON THE BASIS OF ACTUAL PAYMENT. HE OBSERVED THAT AS PER T HE SUBMISSIONS OF THE ASSESSEE-COMPANY, IT HAD PAID AMOUNT OF RS.3.5 CRORES DIRECTLY TO GMDC BY INSTALMENT OF RS.50 LAKHS EACH IN MAY, 1999 , AUGUST, 1999 AND NOVEMBER, 1999, FEBRUARY 1999, MAY 2000, AUGUST 2000 AND NOVEMBER 2000. THE AO OBSERVED THAT AS DIRECTED B Y THE TRIBUNAL IN ITA NO.832 TO 834/AHD/1998 DATED 31.3.2000 FOR THE A.Y.1992-93 TO 1994-95 AND HELD THAT THE LOSS DID NOT OCCUR IN THE PERIOD OF ACCOUNTS, ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 9 THE ASSESSEE ITSELF HAS CLAIMED IN ITS ALTERNATIVE SUBMISSION THAT LOSS BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH THE ACC OUNTS ARE FINALLY SETTLED WITH THE LIQUIDATOR AND FINAL PAYMENT IS RE CEIVED. THE ASSESSEE HAS SIMPLY SUBMITTED THAT THE DATE OF PAYMENT OF RS .3.50 CRORES TO GMDC, WHICH ALSO PERTAIN TO F.Y.1999-2000 AND 2000- 01. AS PER THE DIRECTION OF THE TRIBUNAL, THE CLAIM IS ALLOWABLE I N THE YEAR OF SETTLEMENT BY THE OFFICIAL LIQUIDATOR. THEREFORE, AS PER THE D IRECTION OF THE TRIBUNAL, THE AMOUNT OF RS.3.50 CRORES IS NOT ALLOWABLE IN TH E YEAR UNDER CONSIDERATION FOR WANT OF COMPLETE DETAILS OF LIQUI DATION AND SETTLEMENT FROM THE OFFICIAL LIQUIDATOR. 13. ON APPEAL, THE CIT(A) HELD THAT DURING THE COUR SE OF HEARING BEFORE HIM, IT WAS SUBMITTED THAT THE ASSESSEE HAD GIVEN GUARANTEE AND UNDERTAKING TO THE GMDC ON BEHALF OF GNAL, WHOLLY O WNED SUBSIDIARY OF THE ASSESSEE COMPANY, WHICH WAS DECLARED SICK AND W AS ORDERED ON 2.8.1995 TO BE WOUND BY GUJARAT HIGH COURT. ACCORDI NGLY, GMDC HAD FILED CIVIL SUIT AGAINST THE ASSESSEE IN THE CIVIL COURT OF AHMEDABAD BEING THE GUARANTOR FOR RECOVERY OF DUES ALONG WITH INTEREST. IT WAS SUBMITTED THAT TO AMICABLY SETTLE THE DUES, A JOINT MEETING OF GMDC WITH GNFC WAS HELD ON 3.3.1997 WHEREIN IT WAS FINAL LY DECIDED THAT GNFC SHOULD MAKE PAYMENT OF RS.3.50 CRORES TOWARDS FULL AND FINAL SETTLEMENT OF DUES TO GMDC AND REPAYMENT SHOULD BE MADE IN INSTALMENTS. IT WAS ALSO DECIDED THAT IN VIEW OF SETTLEMENT, THE SUIT FILED BY THE GMDC ALSO TO BE WITHDRAWN. THE BOARD OF DIRECTORS OF BOTH THE COMPANIES RATIFIED THE DECISION TAKEN IN T HE AFORESAID MEETING UNDER THE CHAIRMANSHIP OF THE PRINCIPAL SECRETARY, GOVT. OF GUJARAT AND THEREFORE, FULL AND FINAL SETTLEMENT WITH GMDC CAN BE SAID TO HAVE TAKEN PLACE DURING THE YEAR. IN ORDER TO REDUCE THE INTE REST BURDEN, THE ASSESSEE BEING THE SOLE GUARANTOR HAD PAID THE PRIN CIPAL LIABILITY OF RS.3.5 CRORES. THE CIT(A) HELD THAT ASSESSEE HAS F INALLY ARRIVED AT THE SETTLEMENT DURING THE YEAR UNDER CONSIDERATION, AND CONSIDERING THE FACTS OF THE CASE AND FOLLOWING THE DIRECTION OF TH E TRIBUNAL AND THE ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 10 DECISION OF THE CIT VS. AMALGAMATIONS PVT. LTD. (SU PRA) DIRECTED THE AO TO ALLOW ALL THE CLAIMS OF THE ASSESSEE. 14. BEING AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 15. THE DR RELIED ON THE FINDINGS OF THE AO, WHEREA S THE AR OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND SUPPORTED THE ORDER OF THE CIT(A). 16. WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION OF RS.3.50 CRORES UNDER THE HEAD PROVISION FOR PAY MENT TO BE MADE ON BEHALF OF GUJARAT NARMADA AUTO LIMITED. THE RELEVA NT FACTS ARE THAT THE ASSESSEE HAD A FULLY OWNED SUBSIDIARY COMPANY S TYLED AS GUJARAT NARMADA AUTO LIMITED WHICH WAS ENGAGED IN THE MANU FACTURE OF TWO/ THREE WHEELERS. THE SAID SUBSIDIARY GNAL AVAILED LO AN FROM GUJARAT MINERAL DEVELOPMENT CORPORATION (GMDC) FOR WHICH TH E ASSESSEE STOOD AS GUARANTOR. THE SAID GNAL HAD HUGE LOSS AND WENT TO BIFR, AND THEREAFTER, THE HONBLE GUJARAT HIGH COURT BY ORDER ON 2.8.1994 DIRECTED THE SAID GNAL TO BE WOUND UP, AND OFFICIAL LIQUIDATOR WAS APPOINTED TO TAKE OVER THE ASSETS AND LIABILITIES O F THE SAID GNAL. THEREAFTER, GMDC INVOKED GUARANTEE GIVEN BY THE ASS ESSEE-COMPANY AND FILED A SUIT AGAINST THE ASSESSEE-COMPANY. THE REAFTER, THE ASSESSEE-COMPANY AND GMDC ENTERED INTO AN AMICABLE SETTLEMENT IN A MEETING HELD ON 3.3.1997 WHEREIN IT WAS AGREED THAT THE ASSESSEE- COMPANY SHOULD PAY RS.3.50 CRORES IN FULL AND FINAL SETTLEMENT OF THE AMOUNT OF LIABILITY OF GNAL TO GMDC. IN PURSUANCE TO THIS, THE ASSESSEE ACTUALLY PAID RS.3.50 CRORES TO GMDC AS UN DER: DATE AMOUNT (RS. IN LAKHS) MAY, 1999 50.00 AUGUST, 1999 50.00 NOVEMBER, 1999 50.00 ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 11 FEBRUARY, 2000 50.00 MAY, 2000 50.00 AUGUST, 2000 50.00 NOVEMBER, 2000 50.00 THESE PAYMENTS WERE MADE IN THE FINANCIAL YEAR 1999 -2000 AND 2000- 01 RELEVANT TO THE ASSTT.YEAR 2000-01 AND 2001-02. ON THE ABOVE FACTS, THE AO DISALLOWED THE CLAIM OF DEDUCTION MAD E BY THE ASSESSEE IN THE ASSTT.YEAR 1998-99 ON THE GROUND THAT THE TRIBU NAL IN THE CASE OF THE ASSESSEE VIDE ITS ORDER DATED 31.3.2000 PASSED IN ITA NO.832 TO 834/AHD/1998 IN THE ASSTT.YER 1992-93 TO 1994-95 HA S HELD THAT THE DEDUCTION IS ALLOWABLE IN THE YEAR OF FINAL SETTLEM ENT BY THE OFFICIAL LIQUIDATOR AND FOR WANT OF COMPLETE DETAILS OF LIQU IDATION AND SETTLEMENT FROM THE OFFICIAL LIQUIDATOR. 17. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE PURPORTEDLY FOLLOWING THE SAID DECISION OF THE TRIB UNAL AND OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. A MALGAMATIONS PVT. LTD., (1997) 226 ITR 188 (SC). ACCORDING TO THE CI T(A), THE LOSS WAS CRYSTALLIZED ON 3.3.1997 WHEN MEETING BETWEEN THE A SSESSEE-COMPANY AND GMDC TOOK PLACE. 18. WE FIND THAT EVEN IF THE VERSION OF THE CIT(A) TAKEN AS CORRECT, THEN ALSO, THE LOSS BEING CRYSTALLIZED ON 3.3.1997, THE SAME WAS IN THE ASSTT.YEAR 1997-98 AND NOT DURING THE ASSESSMENT YE AR UNDER CONSIDERATION I.E. ASSTT.YEAR 1998-99. THEREFORE, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE ON THE ABOVE COUNT. FURTHER, NO MATERIAL WAS BROUGHT ON BEFORE US TO SHOW THAT THE ASSESSEES LIABILITY TO MAKE PAYMENT OF RS.3.50 CRORES WAS CRYSTALLIZED DURING THE UNDER CONSIDERATION AND THAT NO PART OF THE PAYMENTS WERE ALSO MADE DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IN OUR CO NSIDERED VIEW, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWAN CE MADE BY THE AO. ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 12 WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) IN RESPECT OF THE ISSUE UNDER CONSIDERATION AND RESTORE BACK THE ORDER OF T HE AO. 19. COMMON GROUND OF APPEAL RAISED BY THE ASSESSEE IN GROUND NO.2 IN A.Y.1998-99 AND SOLE GROUND OF APPEAL IN THE ASS TT.YEARS 1999-2000 AND 2000-2001 IS AS UNDER: 2(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF [RS. 8,74,18,857/- FOR A.Y.1998-99, RS.8,32,03,857/- FOR A.Y.1999- 2000 AND RS.7,92,30,945/- FOR A.Y.2000-2001] ON ACC OUNT OF DISALLOWANCE OF INTEREST ON INTEREST FREE LOANS / A DVANCES GIVEN BY THE ASSESSEE TO ITS SUBSIDIARIES AND ASSOCIATE CONC ERNS. 2(II). THE CIT(A) FAILED TO APPRECIATE THE LEGAL PR INCIPLE, THAT ONUS U/S. 36(1)(III) LIES ON THE ASSESSEE TO PROVE THAT EACH LOAN IS USED FOR THE PURPOSES OF ITS BUSINESS, AS SETTLED IN THE CASE OF KISHANCHAND CHELLARAM VS. CIT. 114 ITR 654 (BOM), R . DALMIYA VS CIT. 133 ITR 169 (DEL.), CIT VS. M.S. VENKATESHW ARAN 222 ITR 163 (MAD), K. SOMASUNDARAM & BROTHERS CIT 238 ITR 9 39 (MAD) AND CIT VS MOTOR GENERAL FINANCE LTD. 254 ITR 449 ( DEL) WHICH WAS CONFIRMED IN PRINCIPLE BY THE SUPREME COURT IN THE CASE OF MOTOR GENERAL FINANCE VS CIT 267 ITR 381 (SC). 20. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASS TT.YEAR 1998-99, THE AO OBSERVED THAT CLOSING BALANCE OF ADVANCE GIVEN T O THREE PARTIES ARE AS UNDER: NAME OF PARTY ASSTT.YEARS 1998-1999 (AMOUNT IN LAKHS) 1999-2000 (AMOUNT IN LAKHS) 2000-2001 (AMOUNT IN LAKHS) GUJARAT NARMADA AUTO LTD. 4082.08 LAKHS 4082.08 408 2.08 NARMADA EDUCATION & SCIENTIFIC RESEARCH SOCIETY 264.52 264.70 348.99 VIDEOCON NARMADA ELECTRONICS LTD. 510.00 510.00 THE AO DISALLOWED THE INTEREST EXPENDITURE OF [RS. 8,74,18,857/- FOR A.Y.1998-99, RS.8,32,03,857/- FOR A.Y.1999-2000 AND RS.7,92,30,945/- FOR A.Y.2000-2001] AND HELD THAT THE INTEREST BEARI NG FUNDS HAVE BEEN DIVERTED FOR INTEREST FREE ADVANCES TO THE ABOVE SA ID PARTIES. ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 13 21. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 6.2 SIMILAR ISSUE HAD ARISEN FOR MY CONSIDERATION IN THE APPEAL FOR A.Y. 2007-08. THE APPELLANT HAS PROVED THE COMM ERCIAL EXPEDIENCY DURING THE COURSE-OF PROCEEDINGS AS DIRE CTED BY ITAT AFTER CONSIDERING THE SUPREME COURT DECISION IN CAS E OF S.A. BUILDERS. THE FACTS, BASIS OF DISALLOWANCE BY THE A O AND THE CONTENTION OF THE APPELLANT ARE IDENTICAL AS IN A.Y . 2007-08. THEREFORE FOLLOWING MY OWN DECISION IN APPELLATE OR DER FOR A.Y. 2007-08 IN APPEAL NO. CAB-VI-56-09-10 THIS GROUND O F APPEAL IS ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO DELET E THE DISALLOWANCE OF INTEREST OF RS.8,74,18,857/-. THE G ROUND NO. 3 AND 4 ARE THEREFORE ALLOWED. 22. THE AR OF THE ASSESSEE HAS FILED BEFORE US ORDE R OF TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF DATED 30.12.2011 IN ITA NOS.1463, 1464, 4007/AHD/07 & 2400/AHD/2008 AND SUBMITTED THAT THE TRIBUNAL HAS DELETED THE DISALLOWANCE FROM OUT OF INTEREST EXPEN DITURE BY OBSERVING AS UNDER: 39. NOW, WE TAKE UP THE DEPARTMENTAL APPEAL IN ITA NO.1373/AHD/2007 FOR AY 2003-04. IN GROUND NO.1, TH E BRIEF FACTS ARE THAT THE AO DISALLOWED THE INTEREST OF RS .8,00,14,405/- CLAIMED U/S 36(1)(III) OF THE ACT ON THE GROUND THA T THE BORROWINGS WERE UTILIZED FOR NON-BUSINESS PURPOSE. 40. THE LEARNED CIT(A) VIDE PARA 5.3 OF HIS ORDER ALLOWED THE CLAIM OF THE ASSESSEE SINCE THE ASSESSEE HAD BEEN A LLOWED IN EARLIER YEARS THE CLAIM ON IDENTICAL MATTERS AND TH EREFORE IT IS A COVERED MATTER. 41. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LEARNE D CIT(A) AND THE DECISION OF THE TRIBUNAL AHMEDABAD BENCH IN ASS ESSEES OWN CASE FOR AY 1995-96 AS REFERRED TO IN THE ORDER OF THE LEARNED CIT(A) VIDE PARA 5.2.3 AND THEREFORE WE FIND NO INF IRMITY IN THE ORDER OF THE LEARNED CIT(A). THUS, GROUND NO.1 OF T HE REVENUES APPEAL IS DISMISSED. 23. HE FURTHER SUBMITTED THAT THE TRIBUNAL VIDE ORD ER DATED 5.8.2014 IN THE CASE OF ASSESSEE IN ITA NO.1416 & 1696/AHD/2 010 FOR A.Y.2007- ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 14 08 AGAIN DELETED THE DISALLOWANCE ON ACCOUNT OF INT EREST EXPENDITURE BY FOLLOWING ITS ORDER DATED 30.12.2011 AS UNDER: 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT DISALLOWANCE ON AC COUNT OF INTEREST WAS MADE BY A.O IN A.Y. 03-04. THE CO-ORDI NATE BENCH OF TRIBUNAL WHILE DECIDING THE APPEAL IN ITA NO. 1373/ AHD/2007 ORDER DATED 30.12.2011 FOR A.Y. 03-04 DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER:- 39. NOW, WE TAKE UP THE DEPARTMENTAL APPEAL IN ITA NO,1373/AHD/2007 FOR AY 2003-04. IN GROUND NO.L, TH E BRIEF FACTS ARE THAT THE AO DISALLOWED THE INTEREST OF RS.8,00,14,405/-CLAIMED U/S 36(L)(III) OF THE ACT O N THE GROUND THAT THE BORROWINGS WERE UTILIZED FOR NON-BU SINESS PURPOSE. 40. THE LEARNED CIT(A) VIDE PARA 5.3 OF HIS ORDER A LLOWED THE CLAIM OF THE ASSESSEE SINCE THE ASSESSEE HAD BE EN ALLOWED IN EARLIER YEARS THE CLAIM ON IDENTICAL MAT TERS AND THEREFORE IT IS A COVERED MATTER. 41. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD CIT(A) AND THE DECISION OF THE TRIBUNAL AHMEDABAD BENCH IN ASSESSEES OWN CASE FOR A.Y. 95-96 AS REFERRED TO I N THE ORDER OF THE LD. CIT(A) VIDE PARA 5.2.3 AND THEREFO RE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. 20. BEFORE US, LD. A.R. HAS SUBMITTED THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS AND WHICH THE REVENUE COULD NOT CONTROVERT BY BRINGING ANY CO NTRARY MATERIAL ON RECORD. WE THEREFORE RESPECTFULLY FOLLO WING THE DECISION OF THE CO-ORDINATE BENCH AND FOR SIMILAR R EASONS, FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND TH US THIS GROUND OF REVENUE IS DISMISSED. 24. THE AR OF THE ASSESSEE SUBMITTED THAT AS THE FA CTS AND ISSUE INVOLVED ARE SIMILAR, FOLLOWING THE ORDER OF THE TR IBUNAL FOR EARLIER YEARS, IN THIS YEAR ALSO, THE APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 25. THE DR COULD NOT CONTROVERT THE SUBMISSIONS OF THE AR OF THE ASSESSEE. ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 15 26. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL PLACED ON RECORD . WE FIND THAT THE AO HAS DISALLOWED INTEREST EXPENDITURE ON ADVANCES GIVEN TO THE SISTER CONCERN ON THE GROUND THAT THE BORROWED FUNDS WERE UTILIZED FOR BUSINESS PURPOSE BY THE ASSESSEE BY ADVANCING THE I NTEREST FREE ADVANCE TO THE SISTER CONCERNS. ON APPEAL THE CIT( A) HAD DELETED THE DISALLOWANCE BY FOLLOWING HIS ORDER FOR ASSTT.YEAR 2007-08. WE FIND THAT THE ORDER OF THE CIT(A) FOR ASSTT.YEAR 1997-98 WAS APPEALED BY THE REVENUE, AND THE TRIBUNAL CONFIRMED THE ORDER OF TH E CIT(A) DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE. NO DISTI NGUISHING FEATURES COULD BE POINTED OUT BY THE DR. IT IS ALSO OBSERVE D THAT IN THE YEARS UNDER APPEAL ALSO, ADVANCES WERE GIVEN TO THE SAME PARTIES. THUS, THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE P RECEDENTS, WE CONFIRM THE ORDER OF THE CIT(A), AND THE GROUNDS OF THE APP EAL OF THE REVENUE IN ALL THE YEARS UNDER APPEAL ARE DISMISSED. 27. NOW, WE ADJUDICATE THE CROSS OBJECTION OF THE A SSESSEE. CROSS OBJECTION NO.125/AHD/2013 IN ITA NO.1986/AHD/ 2010 : ASSTT.YEAR 1998-99 28. IN THE CROSS OBJECTION FILED BY THE ASSESSEE FO R ASSTT.YEAR 1998- 99, THE ASSESSEE HAS TAKEN THE FOLLOWING SOLE GROUN D OF CROSS OBJECTION: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IF IT IS HELD IN DEPARTMENTS APPEAL NO.1986/A/2010 THAT THE AMOUNT OF RS.3.50 CRORES BEING PROVISIONS FOR PAYMENT MADE TO GUJARAT MINERAL DEVELOPMENT CORPORATION LTD. (GMDC) IN RESPECT OF A MOUNT ADVANCED BY THEM TO GUJARAT NARMADA VALLEY AUTO LIM ITED (GNAL) IS ALLOWABLE IN THE YEAR OF PAYMENT, THE SAM E MAY PLEASE BE DIRECTED TO BE ALLOWED IN A.Y.2000-01, WHICH APP EAL IS ALSO FIXED FOR HEARING WITH APPEAL FOR A.Y.1998-99 WHERE SUCH PAYMENT HAS BEEN MADE. IT IS SUBMITTED THAT IT BE SO HELD NOW. ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 16 29. CROSS OBJECTION FILED BY THE ASSESSEE IS BARRED BY LIMITATION OF 995 DAYS. THE ASSESSEE HAS FILED CONDONATION PETIT ION DATED 22.5.2013 WHICH READS AS UNDER: AT THE OUTSET, WE MAY STATE THAT OURS IS A JOINT S ECTOR LISTED COMPANY WITH STATE GOVERNMENT HAVING MAJOR STAKE. WE ARE SUBMITTING HEREWITH CROSS OBJECTION IN FORM NO.36A, IN TRIPLICATE, FOR THE ABOVE MENTIONED APPEAL FILED BY THE DEPARTMENT FOR ABOVE MENTIONED ASSESSMENT YEAR. THE ISSUE RELA TING TO DEDUCTIBILITY OF RS.3.50 CRORES PAID TO GMDC HAS BE EN DECIDED IN OUR FAVOUR BY THE CIT [A] IN THE APPELLATE ORDER FO R A.Y. 1998-99. THE DEPARTMENT IS IN APPEAL. WE, AS RESPONDENT, CAN SUPPORT THE ORDER OF THE C I T (A) AND ALSO SEEK APPROPRIATE AL TERNATIVE REMEDY. THEREFORE, IN VERY STRICT SENSE, WE ARE NOT REQUIRED TO FILE CROSS OBJECTION. HOWEVER, WE WERE RECENTLY ADVISED PROFESSIONALLY THAT IN CASE THE DEPARTMENT SUBMITS THAT THE YEAR UNDER APPEAL IS NOT THE CORRECT YEAR FOR ALLOWANCE ON THE GROUND THAT THE PAYMENT IS MADE IN YEAR OTHER THAN YEAR UN DER APPEAL, PRAYER MAY BE MADE IN THE FORM OF CROSS OBJECTION F OR DIRECTION TO ALLOW DEDUCTION IN THE YEAR OF PAYMENT I.E. A.Y. 20 00-01. 30. A READING OF THE ABOVE SHOWS THAT THE REASONS G IVEN FOR CONDONATION OF DELAY IN FILING THE CROSS OBJECTION ARE NOT PLAUSIBLE ONE, THEREFORE, CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 31. EVEN OTHERWISE, ON MERITS, WE FIND THAT THE AR OF THE ASSESSEE ARGUED THAT IF IN THE CASE OF APPEAL OF THE REVENUE , THE TRIBUNAL COMES TO THE CONCLUSION THAT DEDUCTION IN RESPECT OF PAYM ENT MADE BY THE ASSESSEE-COMPANY TO GMDC IS ALLOWABLE IN THE YEAR O F PAYMENT, THEN DIRECTION MAY BE GIVEN FOR ALLOWING DEDUCTION IN AS STT.YEAR 2000-01. WE FIND THAT THE ASSESSEE COMPANY PAID RS.2 CRORES TO GMDC IN THE PREVIOUS YEAR RELEVANT TO THE ASSTT.YEAR 2000-01. FURTHER, THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE-COMPANY IS M ERCANTILE, AND THEREFORE, THE DEDUCTION IS ALLOWABLE IN RESPECT OF BUSINESS LIABILITY EXPENSES OR LOSS IN THE YEAR IN WHICH SUCH LIABILIT Y ACCRUES. AS THE TRIBUNAL HAS NOT COME TO CONCLUSION THAT DEDUCTION IN RESPECT OF PAYMENT MADE BY THE ASSESSEE-COMPANY TO GMDC IS ALL OWABLE AS DEDUCTION TO THE ASSESSEE-COMPANY IN THE YEAR OF PA YMENT, WE DO NOT ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 17 FIND ANY FORCE IN THE CROSS OBJECTION OF THE ASSESS EE. THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. CROSS OBJECTION NO.126/AHD/2013 IN ITA NO.1988/AHD/ 2010 : ASSTT.YEAR 2000-01 32. IN THE CROSS OBJECTION FILED BY THE ASSESSEE FO R ASSTT.YEAR 2000- 01, THE ASSESSEE HAS TAKEN THE FOLLOWING SOLE GROUN D OF CROSS OBJECTION: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IF IT IS HELD IN DEPARTMENTS APPEAL NO.1986/A/2010 FOR A.Y.1998-99, HEARING OF WHICH HAS BEEN FIXED ALONG WITH THE PRESENT APPEAL, THAT THE PROVISION MADE FOR RS.3.50 CRORES IN RESPECT OF PAY MENT MADE TO GUJARAT MINERAL DEVELOPMENT CORPORATION LTD. (GMDC) FOR THE AMOUNT ADVANCED BY THEM TO GUJARAT NARMADA VALLEY A UTO LTD. (GNAL) IS ALLOWABLE IN THE YEAR OF PAYMENT, THE SAM E MAY PLEASE BE DIRECTED TO BE ALLOWED AS DEDUCTION FROM THE PRO FIT OF A.Y.2000-01, AS THE PAYMENT HAS BEEN MADE IN THE PR EVIOUS YEAR RELEVANT TO A.Y.2000-01. IT IS SUBMITTED THAT IT B E SO HELD NOW. 33. CROSS OBJECTION FILED BY THE ASSESSEE IS BARRED BY LIMITATION OF 995 DAYS. THE ASSESSEE HAS FILED CONDONATION PETIT ION DATED 22.5.2013 WHICH READS AS UNDER: AT THE OUTSET, WE MAY STATE THAT OURS IS A JOINT S ECTOR LISTED COMPANY WITH STATE GOVERNMENT HAVING MAJOR STAKE. WE ARE SUBMITTING HEREWITH CROSS OBJECTION IN FORM NO.36A, IN TRIPLICATE, FOR THE ABOVE MENTIONED APPEAL FILED BY THE DEPARTMENT FOR ABOVE MENTIONED ASSESSMENT YEAR. THE ISSUE RELA TING TO DEDUCTIBILITY OF RS.3.50 CRORES PAID TO GMDC HAS BE EN DECIDED IN OUR FAVOUR BY THE CIT [A] IN THE APPELLATE ORDER FO R A.Y. 1998-99. HOWEVER, WE WERE RECENTLY ADVISED PROFESSIONALLY TH AT IN CASE THE DEPARTMENT SUBMITS THAT THE CORRECT YEAR FOR ALLOWA NCE IS A.Y.2000-01 ON THE GROUND THAT THE PAYMENT IS MADE I THAT YEAR, PRAYER MAY BE MADE IN THE FORM OF CROSS OBJECTION F OR DIRECTION TO ALLOW DEDUCTION IN THE YEAR OF PAYMENT I.E. A.Y.200 0-01. 34. A READING OF THE ABOVE SHOWS THAT THE REASONS G IVEN FOR CONDONATION OF DELAY IN FILING THE CROSS OBJECTION ARE NOT PLAUSIBLE ONE. FURTHER, WE FIND THAT THIS GROUND OF CROSS OBJECTIO N DOES NOT ARISE OUT ITA NO.1986/AHD/2010 & 4 OTHERS DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS 18 OF THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 35. IN THE RESULT, THE REVENUES APPEAL FOR ASSTT.Y EAR 1998-99 IS PARTLY ALLOWED. APPEALS OF THE REVENUE FOR ASSTT. YEAR 1999-2000 AND 2000-01 ARE DISMISSED. BOTH THE CROSS OBJECTIONS O F THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON MONDAY, THE 2 ND FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE-PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 02/02/2015