DCIT, Jaipur V. RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORTATION LTD., Jaipur

ITA 207/JPR/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2094 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 27-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Search and seizure; Diversion of income; Rule of consistency; Earning of tax free income; Question of law; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 80IB; 37(1); 56; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 311/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. CUKE VS. THE DCIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 420/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 323/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 2 CO NO. 07/JP/2016 (ARISING OUT OF ITA NO. 323/JP/2016) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. CUKE VS. THE ACIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 313/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. CUKE VS. THE DCIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 421/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 93/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. CUKE VS. THE JCIT, CIRCLE-6, ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 3 UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 207/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 THE DCIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C - SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 94/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. CUKE VS. THE ACIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 208/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 THE DCIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR4695J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 4 FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDER MEHTA ( CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 22/01/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 23/02/2018 VKNS'K@ ORDER PER BENCH: THESE ARE FIVE SETS OF CROSS APPEAL/ CROSS OBJECTI ON ARE DIRECTED AGAINST THE ORDERS OF LD CIT(A) DATED 05.03.2014, 2 5.01.2016 & 30.12.2014 IN RESPECT OF ASSESSMENT YEARS 2009-10 T O 2012-13. THOUGH FOR THE ASSESSMENT YEAR 2009-10 THERE ARE TWO SETS OF APPEALS ARE ARISING FROM ORIGINAL ASSESSMENT U/S 143(3) AND OTH ER FROM THE ASSESSMENT FRAMED U/S 143(3) R.W.S. 147 OF THE ACT. IN THE APPEAL FOR THE ASSESSMENT YEAR 2009-10 ARISING FROM ASSESSMENT ORDER PASSED U/S 143(3), THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS. 1,42,76,000/- MADE BY THE AO TO THE VALUE OF CLOSING STOCK BY HOLDING THAT LAND UNDER LITIGATION OR ENCROACHMENT MAY HAVE HIGH MARKET VALUE THAN COST I N SUBSEQUENT YEARS AND THEREFORE ITS VALUE CANNOT BE TAKEN AT NIL. 1.1 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THE ADDITION ALREADY MADE IN EARLIER YE ARS ON THIS ACCOUNT IN CONFIRMING THE ADDITION MADE DURING THE YEAR RESULTING INTO EXCESSIVE ADDITION TO THE EXTENT OF RS. 72.19 LACS. 2. THE ASSESSEE CRAVES TO AMEND, ALTER, OR MODIFY A NY OF THE GROUND OF APPEALS. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 5 3. NECESSARY COST BE ALLOWED TO THE ASSESSEE. 2. GROUND NO. 1 IS REGARDING THE ADDITION MADE ON A CCOUNT OF VALUATION OF CLOSING STOCK OF LAND WHICH WAS TAKEN BY THE ASSESSEE AT NIL. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT AUDITOR IN ITS REPORT HAS MADE OBSERVATION REGARDING NON INCLUSION OF STOCK OF LAND MEASURING 340.34 ACRES VALUING RS. 12, 58,75,000/- AS ON 31.03.2009 BEING UNDER LITIGATION AND ENCROACHMENT THOUGH THE SAID LAND IS TREATED SALEABLE. THE AO ACCORDINGLY ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT OF RS. 12,58,75,000/- SHOULD NOT BE ADDE D TO THE TOTAL INCOME OF THE ASSESSEE. IN RESPONSE THE ASSESSEE ST ATED IN ITS REPLY DATED 10.10.2011 THAT THESE LANDS ARE NOT UNDER THE POSSESSION OF THE ASSESSEE SINCE LONG TIME. ACCORDINGLY, AS PER THE P RINCIPLE OF PRUDENCE, UNLESS AND UNTIL ALL DISPUTES ARE RESOLVED BY THE C OURTS SUCH LANDS HAVE BEEN VALUED AT NIL. THE AO DID NOT ACCEPT THE REPLY OF THE ASSESSEE AND MADE AN ADDITION OF RS. 1,42,76,000/- ON ACCOUNT O F NON VALUATION OF THIS STOCK OF LAND UNDER LITIGATION/ENCROACHMENT. T HE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT( A) HOWEVER, THE LD. CIT(A) HELD THAT THE ASSESSEE HAS NOT VALUED ITS ST OCK OF LAND AS PER PROPER AND RECOGNIZED METHOD, THEREFORE, DEVIATION FROM COST METHOD ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 6 IS NOT PERMISSIBLE. ACCORDINGLY, THE LD. CIT(A) CON FIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN OPENING AND CLOSING STOCK OF DISPUTED LAND. 3. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE IS HAVING LARGE CHUNK OF LAND AT VARIOUS I NDUSTRIAL AREA SPREAD OVER THROUGHOUT THE RAJASTHAN. SOME OF THE LAND SIT UATED AT VARIOUS INDUSTRIAL AREA IS UNDER LITIGATION AND/OR UNDER EN CROACHMENT AND THESE LANDS ARE NOT UNDER THE POSSESSION OF COMPANY SINCE LONG TIME. UNLESS AND UNTIL LAND IS EVACUATED AND ALL DISPUTES ARE RE SOLVED/ SETTLED BY THE COURTS, CORPORATION IS NOT IN POSITION TO OCCUPY TH E SAID LAND. THE DETAIL OF THESE LAND MEASURING 340.34 ACRES VALUING TO RS. 1,258.75 LAKHS IS AT PB 73-75. COPIES OF THE REPORTS OF THE UNIT IN-CHARGE OF THE INDUSTRIAL AREA INDICATING THE REASONS WHY THESE LANDS WERE CO NSIDERED UNDER LITIGATION/ENCROACHMENT ALONG WITH NECESSARY EVIDEN CE FOR THE SAME WERE FILED BEFORE THE AO COMPRISING OF 802 PAGES IN TWO VOLUMES. ON SOME OF THE ENCROACHED LAND TEMPLE/TRIBAL HOSTEL/ C REMATION GROUND IS CONSTRUCTED, ON SOME AREA THERE IS DISPUTE WITH THE FOREST DEPARTMENT AND SOME AREA ARE UNDER THE COURT LITIGATION. THE B ASIC PRINCIPAL OF VALUATION OF STOCK IS TO VALUE IT AT COST OR REALIZ ABLE VALUE, WHICHEVER IS LOWER. SINCE IN THESE CASES THE LAND IS NOT IN POSS ESSION OF THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 7 ASSESSEE, IT HAS NO REALIZABLE VALUE AND THEREFORE, SUCH ENCROACHED/LITIGATED LAND IS RIGHTLY VALUED AT NIL AS PER THE CONSISTENT ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE. AS AND WHEN THE ENCROACHMENT IS REMOVED FROM SUCH LAND OR THE LITIG ATION IS DECIDED IN FAVOR OF THE ASSESSEE, SUCH LAND IS INCLUDED IN THE STOCK AT FULL VALUE. HENCE, THE OBSERVATION OF THE LD. CIT(A) THAT VALUE ADOPTED AT NIL IS ARBITRARY AND WITHOUT BASIS IS NOT CORRECT IN AS MU CH AS WHEN THE LAND UNDER ENCROACHMENT / LITIGATION IS NOT UNDER THE PO SSESSION OF THE ASSESSEE, BY FOLLOWING THE PRINCIPLE OF PRUDENCE SU CH LAND NEEDS TO BE VALUED AT NIL. HE HAS RELIED UPON THE FOLLOWING DEC ISIONS:- CIT VS. NATION & GRINDLAYS BANK LTD. 145 ITR 457 SHRI RAM BEARING LTD. VS CIT 199 ITR 579 THE LD. AR HAS FURTHER SUBMITTED THAT FOR THE A.Y. 2007-08 ON THIS VERY ISSUE THE TRIBUNAL VIDE ORDER DATED 24.06.2011 HAS SET ASIDE THE ISSUE TO AO WITH THE DIRECTIONS THAT WHEN THE LITIGATION AND ENCROACHMENT WILL AFFECT THE VALUATION OF THE STOCK SUCH CANNOT BE VA LUED AT COST PRICE. THUS, HE HAS CONTENDED THAT IN PRINCIPLE THE TRIBUN AL HAS ACCEPTED THAT THE LAND UNDER ENCROACHMENT/LITIGATION CANNOT BE VA LUED AT COST PRICE. HE HAS REFERRED TO THE DETAILS OF THE YEAR WISE STA TEMENT OF LAND UNDER ENCROACHMENT/LITIGATION FROM ASSESSMENT YEAR 2006-0 7 TO 2012-13 AND ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 8 SUBMITTED THAT THE TOTAL AREA OF LAND UNDER ENCROAC HMENT/LITIGATION HAS REDUCED FROM 361.66 ACRES IN AY 2008-09 TO 340.34 A CRES IN THE YEAR UNDER CONSIDERATION. THE LD. AR HAS FURTHER SUBMIT TED THAT THE AO MADE ADDITION ONLY ON THE BASIS OF THE REMARKS IN T HE AUDIT REPORT WHEREAS THE ISSUE WAS ALSO RAISED BY THE C&AG IN CO URSE OF SUPPLEMENTARY AUDIT OF ACCOUNTS FOR THE A.Y. 2010-1 1 AND AFTER CONSIDERING THE REPLY DATED 27.09.2010 OF THE ASSES SEE THE C & AG ACCEPTED THE VALUATION OF LAND AND DID NOT GIVEN AN Y ADVERSE COMMENT ON THE ACCOUNTS OF THE ASSESSEE. ALTERNATIVELY THE LD. AR HAS SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE CLAIM AND CONTE NTION THE TOTAL COST OF LAND UNDER ENCROACHMENT/LITIGATION AS ON 31.03.2 009 IS RS. 12,58,75,000/- OUT OF WHICH THE AO HAD ALREADY MADE ADDITION TO THE EXTENT OF RS. 11,88,18,000/- IN THE A.YS. 2006-07 A ND 2007-08 RESPECTIVELY. THEREFORE, ONLY REMAINING AMOUNT OF RS. 72.19 LACS CAN BE CONSIDERED AS THE VALUE OF THE ENCROACHMENT/LITI GATION UNDER LAND. 4. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT THE VALUE OF THE LAND CANNOT BE NIL EVEN IF IT IS UNDER ENCROACHMENT /LITIGATION. THE ASSESSEE WAS EARLIER VALUING THE STOCK OF LAND AT C OST PRIOR TO THE ASSESSMENT YEAR 2006-07, THEREFORE, THE AO HAS RIGH TLY TAKEN THE VALUE OF LAND AT COST. HE HAS RELIED UPON THE ORDERS OF T HE AUTHORITIES BELOW. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 9 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 24.06.2011 IN ITA NO. 1267 & 1387 OF 2010 HAS CONSI DERED THIS ISSUE IN PARA 5.7 AS UNDER:- 5.7 DURING THE COURSE OF HEARING, THE LD. AR WAS A SKED AS TO WHETHER LAND WHICH HAS BEEN VALUED AT NIL AS ON 31- 03-07 TO THE EXTENT OF RS. 145.33 11 CRORES WAS PURCHASED DURING THE YEAR. WE WERE INFORMED THAT THE LAND WAS NOT PURCHASED IN THIS YEAR. WE ARE NOT HAVING THE DETAILS OF THE LITIGATION IN RESPECT OF LAND FOR WHICH VALUATION HAS BEEN TAKEN AT NIL FROM 31-0 3-06 TO 31-03- 07. IT IS TRUE THAT ENCROACHMENT AND LITIGATION WIL L HAVE AN IMPACT ON THE ON THE VALUATION. THE MANAGEMENT HAS TAKEN T HE DECISION TO CONSIDER THE VALUE AT NIL BUT WE ARE NOT INFORME D AS TO WHETHER THE DECISION IS BASED ON CERTAIN EXPERT OPI NION OR ON THE BASIS OF PRUDENCE OR AFTER CONSIDERING EACH AND EVE RY CASE ON MERITS. SECTION 4 IS A CHARGING SECTION AND ACCORDI NG TO WHICH INCOME TAX IS TO BE CHARGED IN RESPECT OF TOTAL INC OME OF THE PREVIOUS YEAR. THE REDUCTION IN THE VALUE OF THE ST OCK IS TO BE SUBSTANTIATED BY THE ASSESSEE THAT IT HAS RESULTED INTO PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATIO N . IN CASE THE LITIGATION AND ENCROACHMENT WERE EXISTING AT TH E TIME WHEN THE ASSESSEE ACQUIRED THE LAND AND FILED THE DISPUT E BEFORE 31- 03-06 THEN WHY SUCH REDUCTION WAS NOT CONSIDERED WH EN THE ASSESSEE WAS CHANGING THE METHOD OF ACCOUNTING IN T HE ASSESSMENT YEAR 2006-07. AS PER CHARGING SECTION, T AX IS LEVIED ON THE ACTUAL INCOME OF THE PREVIOUS YEAR. IT MEANS THAT FACTS WHICH EXISTED DURING PREVIOUS YEAR ARE TO BE CONSID ERED. WHEN THE ASSESSEE MAKES HIS PURCHASES, HE ENTERS HIS STO CK AT COST PRICE ON ONE SIDE OF THE ACCOUNTS. AT THE CLOSE OF THE YEAR, HE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 10 ENTERS THE VALUE OF ANY UNSOLD STOCK AT COST ON THE OTHER SIDE OF THE ACCOUNTS THUS CANCELING OUT THE 12 ENTRIES RELA TING TO THE SAME UNSOLD STOCK IN THE ACCOUNTS; AND THEN THAT IT IS CARRIED FORWARD AS THE OPENING BALANCE IN THE NEXT YEARS A CCOUNT. THIS CANCELING OUT OF THE UNSOLD STOCK FROM BOTH THE SID ES OF THE ACCOUNTS LEAVES ONLY THE TRANSACTIONS ON WHICH THER E HAVE BEEN ACTUAL SALES AND GIVES A TRUE AND ACTUAL PROFIT OR LOSS ON HIS YEARS DEALINGS. THE ONLY EXCEPTION IS THAT UNSOLD STOCK C AN BE VALUED AT THE COST PRICE OR MARKET VALUE WHICHEVER IS LESS. T HE NOTIONAL LOSS, IF ANY, CAN BE CLAIMED IN THE YEAR WHEN UNSOL D STOCK HAS A LESSER VALUE AS COMPARED TO THE STOCK PRICE. HOWEVE R, NOTIONAL PROFIT CANNOT BE ADDED IN CASE MARKET VALUE IS MORE THAN THE COST. HENCE, VALUATION OF THE STOCK IS TO BE BASED ON THE SAME METHOD FOR BOTH OPENING AND CLOSING STOCK. THE AO H AS SIMPLY NOT ALLOWED DEDUCTION OF RS. 145.33 LACS ON THE GRO UND OF NOT ACCEPTING THE CHANGE IN METHOD OF VALUATION. HOWEVE R, THE AO HAS NOT CONSIDERED THE ASPECTS AS TO WHETHER EVENTS IN RESPECT OF REDUCTION IN VALUATION OF STOCK HAVE OCCURRED DURIN G PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATIO N. WE ARE NOT HAVING FULL FACTS IN RESPECT OF THE STOCK WHICH HAV E BEEN VALUED AT NIL TO ASCERTAIN THE NATURE OF LITIGATION OR ENCROA CHMENT AND THE PERIOD WHEN SUCH LANDS WERE ACQUIRED AND WHEN THE A SSESSEE BECAME AWARE OF ENCROACHMENT OR LITIGATION. HENCE, THE ISSUE OF ADDITION OF RS. 145.33 LACS IS RESTORED BACK ON THE FILE OF THE AO. WE DO FEEL THAT LITIGATION AND ENCROACHMENT WILL AF FECT THE VALUATION OF THE 13 STOCK AND SUCH STOCK CANNOT BE VALUED AT COST PRICE. WITH THIS OBSERVATION, THE MATTER IS RESTORE D BACK ON THE FILE OF THE AO. IN VIEW OF THE EARLIER DECISION OF THIS TRIBUNAL AN D TO MAINTAIN THE RULE OF CONSISTENCY, WE ARE OF THE VIEW THAT THE ADDITIO N MADE BY THE AO FOR ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 11 THE UNDER YEAR UNDER CONSIDERATION IS DEPENDENT ON THE OUTCOME TO THE ADDITION MADE BY THE AO ON THIS ACCOUNT IN THE EARL IER YEAR. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE SET A SIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR DECIDING THE SA ME AFRESH IN TERMS OF THE DIRECTIONS AS GIVEN BY THE TRIBUNAL FOR THE A.Y . 2007-08. 6. GROUND NO. 1.1 IS REGARDING ALTERNATIVE PLEA. S INCE THE MAIN ISSUE IS SET ASIDE TO THE RECORD OF THE AO ACCORDIN GLY THE ALTERNATIVE CLAIM/ PLEA OF THE ASSESSEE IS ALSO REQUIRED TO BE CONSIDERED BY THE AO WHILE ADJUDICATING THE ISSUE OF VALUATION OF THE ST OCK OF LAND UNDER ENCROACHMENT/LITIGATION. 7. FOR THE ASSESSMENT YEAR 2009-10 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN ALLOWING MAI NTENANCE EXPENSES OF RS. 3,21,27,000/- IN RESPECT OF TRANSFE R INDUSTRIAL AREAS. 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND LAW THE LD. CIT(APPEALS) HAS ERRED IN HOLDING PRIOR PER IOD EXPENSES OF RS. 21,87,382/- AS ALLOWABLE EXPENSE. 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND LAW THE LD. CIT(APPEALS) HAS ERRED IN HOLDING CONTRIBUT ION OF RS. 10,00,000/- TO STATE RENEWAL FUND AS ALLOWABLE EXPE NDITURE. 4. THE APPELLANT CRAVES ITS RIGHT TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 12 8. GROUND NO. 1 IS REGARDING THE ADDITION MADE BY T HE AO ON ACCOUNT OF MAINTENANCE EXPENSES IN RESPECT OF TRANS FERRED INDUSTRIAL AREAS DELETED BY THE LD. CIT(A). 9. WE HAVE HEARD LD. DR AS WELL AS LD. AR AND CONSI DERED THE RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF A SSESSMENT PROCEEDINGS THE AO NOTED THAT THE AUDITOR IN ITS RE PORT HAS MADE COMMENTS THAT THE EXPENDITURE RELATING TO MAINTENAN CE OF TRANSFERRED INDUSTRIAL AREA AMOUNTING TO RS. 3,21,27,000/- IS T REATED AS EXPENDITURE OF RIICO WITHOUT RECEIVING INCOME FROM SUCH AREA. A CCORDINGLY THE AO HAS DISALLOWED THESE EXPENDITURE AND ADDED TO THE I NCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) HAS ALLOWED THE CLAM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AS WELL AS ITS PREDECESSOR ORDER FOR THE ASSESSMENT YEAR 2008-09. 10. THE ASSESSEE WAS INCORPORATED WITH THE MAIN OBJ ECT OF DEVELOPMENT OF INFRASTRUCTURE FACILITY FOR INDUSTRI ES AND PROVIDING LONG TERM FINANCE FACILITIES TO INDUSTRIES IN THE STATE OF RAJASTHAN. PRIOR TO THE INCORPORATION OF THE ASSESSEE, THE STATE GOVERN MENT HAD DEVELOPED CERTAIN INDUSTRIAL AREA IN THE STATE OF RAJASTHAN A ND ACCORDINGLY THE MAINTENANCE OF 37 INDUSTRIAL AREAS WERE TRANSFERRED TO THE ASSESSEE IN ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 13 OCTOBER, 1979 FOR MAINTENANCE. THESE INDUSTRIAL ARE AS WERE DEVELOPED BY THE STATE GOVERNMENT BUT TRANSFERRED TO THE ASSE SSEE FOR MAINTENANCE. THE AO HAS DISALLOWED THE CLAIM ON THE GROUND THAT WHEN THE ASSESSEE HAS NOT OFFER ANY INCOME FROM THESE AR EA THEN THE EXPENDITURE FOR MAINTAINING THESE INDUSTRIES AREA I S NOT ALLOWABLE. AT THE OUTSET WE NOTE THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 08.1.2010 IN ITA NO. 138/JP/2009 HAS CONSIDERED AND DECIDED THIS ISSUE I N PARA 5 TO 9 AS UNDER:- 5. THE CONTENTION OF THE ID. A/R BEFORE US REMAIN ED THAT THE ISSUE IN THE PRESENT CASE IS TO BE DECIDED AS TO WH ETHER THE CLAIM OF THE ASSESSEE CAN BE DISALLOWED ON ACCOUNT OF THE EXPENDITURE BEING PRIOR PERIOD EXPENSES AND WHETHER IN THE CIRC UMSTANCES THE AMOUNT WRITTEN OFF DURING THE YEAR CAN BE ALLOW ED IN - THIS YEAR OR NOT. HE SUBMITTED THAT THE ASSESSEE HAS BEE N INCURRING THE MAINTENANCE COST ON THE SAID INDUSTRIAL AREA AN D DEBITING IT TO THE ACCOUNT OF STATE GOVT, UNDER THE HOPE THAT I T WOULD BE REIMBURSED BY STATE GOVT. THE STATE GOVT, REIMBURSE D A PART OF SUCH EXPENDITURE IN EARLIER YEAR BY WAY OF GRANT IN AID. AFTER ADJUSTING THE SAME AN AMOUNT OF RS. 770.62 LACS WAS OUTSTANDING AS EXPENDITURE RECOVERABLE FROM TRANSF ERRED AREA' AS ON 31.03.04. THE ASSESSEE PURSUED FOR REIMBURSEM ENT OF SAID AMOUNT WITH THE GOVT, BUT THE SAME WAS NOT ACCEDED TO, AS MAINTENANCE OF INDUSTRIAL AREA WAS THE OBJECT AND A CTIVITY OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ASSESSEE, AFT ER APPROVAL FROM THE BOARD OF DIRECTOR, (PB 31, ITEM NO. 7) WRI TTEN OFF THE CLAIM OF SAID EXPENDITURE IN THE BOOKS OF ACCOUNTS AS A BUSINESS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 14 LOSS. SUCH BUSINESS LOSS IS ALLOWABLE U/S 28 OF THE ACT IN THE YEAR IN WHICH THE SAME IS WRITTEN OFF. HE REFERRED TO PA GE 1436 TO 1439 OF THE COMMENTARY OF CHARTURVEDI AND PITTHISAR IA 5 ADDITION AS REGARD THE PRINCIPLES FOR ALLOWANCE OF A LOSS AS BUSINESS DEDUCTION. HE ALSO PLACED RELIANCE ON FOLLOWING CAS ES: COMMISSIONER OF INCOME-TAX VS. INDEN BESELERS 181 I TR69 (MAD) COMMISSIONER OF INCOME-TAX VS. ABDUL RAZAK & CO. 13 6 ITR 825 (GUJ.) COMMISSIONER OF INCOME-TAX VS. TEXTOOL CO. LTD. 135 ITR 200 (MAD.) COMMISSIONER OF INCOME-TAX VS. INVESTA INDUSTRIAL CORPORATION LTD. 119 ITR 380 (BOM.): BHARUCHA (B.D.) VS. COMMISSIONER OF INCOME-TAX 65 ITR 403 (SC) 6. THE ID. A/R SUBMITTED FURTHER THAT AS PER ACCOU NTING STANDARD 5 NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGE IN ACCOUNTING POLICY' ISSUED BY INSTITUTE OF CHARTE RED ACCOUNTANTS OF INDIA, PRIOR PERIOD EXPENSE ARE THOSE WHICH ARIS E ON ACCOUNT OF ERROR AND OMISSION IN PREPARATION OF THE FINANCIAL STATEMENTS OF ONE OR MORE PRIOR PERIODS. IN THE PRESENT CASE THE CLAIM MADE DURING THE YEAR IS NOT ON ACCOUNT OF ERROR OR OMISS ION COMMITTED IN EARLIER YEARS. IN EARLIER YEARS THE ASSESSEE HAS DEBITED THIS AMOUNT TO THE STATE GOVT, AND PART OF IT WAS RECOVE RED BUT THE REMAINING AMOUNT WAS NOT FOUND RECOVERABLE DURING T HE YEAR AND THEREFORE THE WRITE-OFF MADE DURING THE YEAR IS EXP ENDITURE FOR THE YEAR AND NOT A PRIOR PERIOD EXPENDITURE. THE ID . A/R ALSO DISTINGUISHED THE CASES RELIED UPON BY THE ASSESSIN G OFFICER AND PLEADED THAT THE CLAIM OF WRITE OFF MADE BY THE ASS ESSEE IS ALLOWABLE DEDUCTION FOR THE YEAR UNDER CONSIDERATIO N. 7. THE ID. D/R ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE LOWER AUTHORITIES ON THE ISSUE WHILE PLACING RE LIANCE ON ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 15 THEM. 8. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND SUBST ANCE IN THE CONTENTION OF THE LD. A/R THAT PRIOR PERIOD EXPENSE S ARE THOSE EXPENSES WHICH ARISE ON ACCOUNT OF ERROR AND OMISSI ON IN PREPARATION OF THE FINANCIAL STATEMENT OF INCOME OR MORE PRIOR PERIODS. ON OUR QUERY, THE LD. A/R SUBMITTED THAT T HE VARIOUS CORRESPONDENCES LONE BY THE ASSESSEE WITH THE STATE MENT GOVERNMENT IN RESPECT OF RELEASE OF RS. 770.62 LACS DUE TO IT FROM THE GOVERNMENT. HE REFERRED TO THE MINUTES OF THE MEETING HELD IN THE CHAMBER OF ADDITIONAL CHIEF SECRETARY, FINANCE ON 19.08.2003, THE EXTRACT OF WHICH IS AS UNDER:- MINUTES OF THE MEETING HELD IN THE CHAMBER OF THE ADDITIONAL CHIEF SECRETARY, FINANCE ON 19 TH AUGUST, 2003 THE ISSUE RELATING TO TRANSFERRED INDUSTRIAL AREAS BEING MAINTAINED BY RIICO WAS DISCUSSED AT LENGTH IN THE MEETING HEL D IN THE CHAMBER OF THE ADDITIONAL CHIEF SECRETARY, FINANCE ON 19' AUGUST, 2003. FOLLOWING OFFICERS WERE PRESENT: 1. SHRI M.D. KAURANI, ADDITIONAL CHIEF SECRETARY, FINANCE IN CHAIR 2. SHRI S.P. GUPTA, CMD, RIICO 3. SHRI ASHOK JAIN, COMMISSIONER. INDUSTRIES 4. SHRI R.K. SHARMA, ED, RIICO 5. SHRI MAHAVEER SINGH, OSD. FINANCE 6. SHRI B.L. GARG, DS, FINANCE 7. SHRI S.C. VYAS. FA. RIICO CMD, RIICO APPRISED THE PARTICIPANTS OF THE FOLLOWI NG BACKGROUND: 1. A NUMBER OF 37 INDUSTRIAL AREAS DEVELOPED AND MA INTAINED BY THE GOVERNMENT WERE TRANSFERRED TO RIICO IN SEPTEMB ER, 1979 FOR UPKEEP AND MAINTENANCE. 2. AN ANNUAL MAINTENANCE GIANT WAS PROVIDED BY GOVE RNMENT TO ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 16 RIICO FOR THIS WORK. 3. RIICO WAS ALSO COLLECTING DEVELOPMENT CHARGES AN D ECONOMIC RENT FROM THE ALLOTTEES OF PLOTS IN THESE AREAS. 4. SUBSEQUENTLY, VIDE ORDER DATED 31.1.1991 THE GOV ERNMENT DIRECTED RIICO TO DEPOSIT THE DEVELOPMENT CHARGES A ND ECONOMIC RENT WITH THE STATE GOVERNMENT AND GOVERNMENT WILL PROVIDE EQUIVALENT AMOUNT TO RIICO FOR EXPENDITURE. 5. RIICO WAS GIVEN RS. 10:05 CRORE AS GRANT UPTO 19 98-99 WHERE RIICO HAD INCURRED EXPENDITURE OF RS 12.56 CRORE UP TO 31 M MARCH. 1999. 6. THEREAFTER, GOVERNMENT DID NOT RELEASE ANY GRANT FOR MAINTENANCE OF THESE TRANSFERRED INDUSTRIAL AREAS A ND RIICO IS BEARING THIS EXPENDITURE. 7. AS A CONSEQUENCE, RIICO ALSO STOPPED DEPOSITING DEVELOPMENT CHARGES AND ECONOMIC RENT WITH THE STATE GOVERNMENT . 8. ACCOUNTANT GENERAL, RAJASTHAN HAS RAISED AN OBJE CTION TO RIICO FOR NOT DEPOSITING THE RECEIPTS FOR WHICH RII CO HAS SEPARATELY MOVED A CASE TO GOVERNMENT FOR REGULARIZ ATION. FINALLY, CMD, RIICO REQUESTED FOR MODIFICATION IN T HE GOVERNMENT ORDER DATED 31.1.1991 AND ALLOW. RIICO TO RETAIN TH E RECEIPTS SO THAT THEY ARE ABLE TO MAINTAIN THESE INDUSTRIAL ARE AS IN A SATISFACTORY MANNER. ACS WAS IN AGREEMENT WITH THE PROPORTION. HOWEVER, IT WAS DECIDED THAT THE MATTER SHOULD BE M OVED ON FILE FOR FORMAL CLEARANCE AT APPROPRIATE LEVEL. (R.K. SHRMA) EXECUTIVE DIRECTOR RIICO AGAIN VIDE LETTER DATED 30.3.2005 TO THE PRINCIPAL SECRETARY. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 17 INDUSTRIES, GOVT, OF RAJASTHAN, JAIPUR, IT WAS CONV EYED AS UNDER: TILL END OF MARCH, 2004, A SUM OF RS. 1776.36 LACS HAS BEEN SPENT BY THE CORPORATION ON MAINTENANCE OF TRANSFERRED AR EAS, WHEREAS CORPORATION HAS RECEIVED GRANT-IN-AID, OF ONLY RS. 1005.74 LACS. THE EXCESS EXPENDITURE OF RS. 770.62 LACS HAS BEEN TAKE N TO THE CREDIT OF PROFIT AND LOSS ACCOUNT BY RAISING A DEBIT TO EX PENSES RECOVERABLE FROM TRANSFERRED AREAS ACCOUNT. THE COR PORATION HAS THEREFORE, REQUESTED THE GOVERNMENT FOR RELEASE OF THIS AMOUNT YIDE LETTER NO. IPI/F-1 (9)-19/PT-IV/137 DATED I 9. 05.2004 AND NO.IPI/F-1 (9)-19/PT. IV/172 DATED 28.05.2004. AN A SSURANCE WAS ALSO GIVEN VIDE LETTER NO.F.4(60)IND./1780 DATED 3. 8.2004 THAT MATTER IS UNDER CONSIDERATION AND DECISION WILL BE COMMUNICATED IN DUE COURSE OF TIME. KEEPING IN VIEW OF ABOVE FACTS, IT IS REQUESTED TO CONVEY APPROVAL OF THE STATE GOVERNMENT FOR RELEASE OF RS. 770.62 L ACS AS GRANT- IN AID TO CORPORATION AND TO ALLOW FOR RETAINING T HE AMOUNT OF DEVELOPMENT CHARGES AND ECONOMIC RENT TOWARDS MAINT ENANCE OF TRANSFERRED AREAS BEING MAINTAINED BY RIICO FROM 1 ST APRIL, 2004. 9.THE LD. A/R REFERRED TO THE LETTER OF THE STATE G OVERNMENT DATED 19.04.2006 WHEREIN IT HAS REFUSED TO MAKE PAY MENT OF THE AFORESAID AMOUNT. IT IS UNDER THESE CIRCUMSTANCES, THE LD. A/R STATED THAT, THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY HAVE APPROVED THE WRITE OFF OF RS. 770.62 LACS RECOVERA BLE FROM THE STATE GOVERNMENT ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE ON MAINTENANCE OF TRANSFERRED INDUSTRIAL A REA WHILE APPROVING THE ACCOUNTS FOR THE YEAR UNDER CONSIDERA TION. CONSIDERING THESE MATERIAL FACTS OF THE ISSUE, WE A RE OF THE VIEW THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN MA KING AND UPHOLDING THE DISALLOWANCE OF RS. 770.62 LACS BY TR EATING IT AS PRIOR PERIOD EXPENDITURE. WE THUS WHILE SETTING ASI DE THE ORDERS OF THE LOWERS AUTHORITIES IN THIS REGARD, DIRECT TH E AO TO ACCEPT ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 18 THE ABOVE CLAIM OF THE ASSESSEE. THE GROUND NO. 1 I S THIS ALLOWED. WE FURTHER NOTE THAT RIGHT FROM THE BEGINNING THE A SSESSEE HAS BEEN INCURRED EXPENDITURE FOR MAINTENANCE OF THE TRANSFE RRED AREA AND SHOWING THE SAME AS RECEIVABLE FROM GOVERNMENT. AGA INST WHICH THE STATE GOVERNMENT HAS PERMITTED ADJUSTMENT OF LIABIL ITY OF DEPOSIT OF DEVELOPMENT CHARGES AND ECONOMIC ARE NOT MAINTENANC E EXPENSES. EVEN OTHERWISE AS PER TERMS OF TRANSFER OF THESE AR EAS THE ASSESSEE IS UNDER OBLIGATION TO MAINTAIN THE INDUSTRIAL AREA TR ANSFERRED FROM STATE GOVERNMENT AND THE GOVERNMENT IS ALLOWING THE GRANT FROM TIME TO TIME AND ALSO ALLOWING THE ASSESSEE TO ADJUST THESE LIABILITY AGAINST AMOUNTS PAYABLE TO THE GOVERNMENT ON ACCOUNT OF LEA SE RENTALS AS WELL AS DEVELOPMENT CHARGES RECEIVED FROM ALLOTTEES. ACC ORDINGLY, FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL FOR THE ASSESSME NT YEAR 2005-06 AS WELL AS ASSESSMENT YEAR 2008-09 WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A) QUA THIS ISSUE. 11. GROUND NO. 2 IS REGARDING PRIOR PERIOD EXPENSES DISALLOWANCE BY THE AO BUT ALLOWED BY THE LD. CIT(A) ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 19 12. WE HAVE HEARD LD. DR AS WELL AS AR AND CONSIDER ED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AS WELL AS FOR THE ASSESSME NT YEAR 2007-08 IN ITA NO. 1267/JP/2010 VIDE ORDER DATED 24.06.2011 AS HELD IN PARA 4.2 AS UNDER:- 4.2 THE TRIBUNAL WHILE DECIDING THE APPEAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 HAS DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE. WHILE HOLDING SO, THE T RIBUNAL HAS REFERRED TO THE DECISION IN THE CASE OF THE ASSESSE E FOR THE ASSESSMENT YEARS 1994-95 AND 1995-96 IN WHICH THE T RIBUNAL HAS HELD THAT SUCH EXPENDITURE IS ALLOWABLE. IN THE ASS ESSMENT YEAR 2003-04, SUCH PRIOR PERIOD EXPENSES WAS ALLOWED BY THE TRIBUNAL VIDE ITS ORDER DATED 21.08.2007 IN ITA NO. 324/JP/2 006. FOLLOWING THE DECISION OF THE TRIBUNAL FOR THE ASSE SSMENT YEAR 2003-04, THE TRIBUNAL ALLOWED THE PRIOR PERIOD EXPE NSES FOR THE ASSESSMENT YEAR 2004-05 VIDE ITS ORDER DATED 30 TH SEPT. 2008. THUS, THE ISSUE OF ALLOWABILITY OF PRIOR PERIOD EXP ENSES STANDS DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE L D. CIT(A) WAS JUSTIFIED IN ALLOWING THE PRIOR PERIOD EXPENSES. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSE E BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE. T HEREFORE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD . CIT(A) QUA THIS ISSUE. WE FURTHER NOTE THAT THE HONBLE JURISDICTION HIGH COURT IN CASE OF PR. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 20 CIT VS. RAJASTHAN STATE SEED CORPORATION LTD. 386 I TR 267 HAS ALSO DECIDED THIS ISSUE AN IDENTICAL ISSUE IN FAVOU R OF THE ASSESSEE. 13. GROUND NO. 3 IS REGARDING DISALLOWANCE MADE BY THE AO IN RESPECT OF CONTRIBUTION TO STATE RENEWAL FUND WAS A LLOWED BY THE LD. CIT(A). 14. WE HAVE HEARD LD. DR AS WELL AS AR AND CONSIDER ED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AN I DENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AS WELL AS FOR THE ASSESSME NT YEAR 2007-08. THE TRIBUNAL VIDE ORDER DATED 24.06.11 IN ITA NO. 1 267/JP/2010 FOR THE ASSESSMENT YEAR 2007-08 HAS CONSIDERED AND DECIDED THIS ISSUE IN PARAS 3.1 TO 3.2 AS UNDER:- 3.1 THE SECOND GROUND OF THE REVENUE IS THAT THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 10.00 LACS MA DE BY WAY OF DISALLOWANCE OF CONTRIBUTION TO STATE RENEWAL FUND DESPITE THE FACT THAT IT WAS APPLICATION OF INCOME AND NOT BUSI NESS EXPENDITURE. 3.2 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF T HE ASSESSEE BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE ASSE SSMENT YEAR 2005-06. THE TRIBUNAL AT PARA 25 VIDE ITS ORDER DAT ED 8TH JAN. 2010 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E AND THE SAME IS REPRODUCED AS UNDER:- 25. AFTER CONSIDERING THE OBJECTS OF THE STATE R ENEWAL FUND (PAGE 9 OF THE PAPER BOOK) SUBMITTED BY THE ASSESSE E, WE NOTED THAT THIS FUND IS SET UP TO PROVIDE A SOCIAL SAFETY NET FOR 4 THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 21 WORKERS LIKELY TO BE EFFECTED BY RESTRUCTURING IN T HE STATE PUBLIC ENTERPRISES. THE OBJECTIVE OF TIS FUND ARE AS UNDER :- (I) TO PROVIDE ASSISTANCE TOWARDS COST OF RETIRING AND REDEPLOYMENT OF EMPLOYEES, FOLLOWING MODERNIZATION AND RESTRUCTURING OF PUBLIC SECTOR UNDERTAKING (II) TO PROVIDE FUNDS TOWARDS COMPENSATION/ VOLUNT ARY RETIREMENT SCHEME AFFECTING THE EMPLOYEES AS A RESU LT OF RESTRUCTURING / WINDING UP / DIS-ENGAGEMENT / CLOSU RE O ANY STATE PUBLIC ENTERPRISES. (III) TO PROVIDE ASSISTANCE TOWARDS GAINFUL SELFEMP LOYMENT TO THE EMPLOYEES CONSEQUENT TO THE RESTRUCTURING/ WINDING- UP/ CLOSURE OF SUCH UNDERTAKINGS, UNDER SCHEME TO BE APPROVED B Y THE STATE GOVT., AND (IV) ANY OTHER ASSISTANCE/ RELIEF PROGRAM FOR ANY CATEGORY OF WORKERS TO BE DECIDED BY THE STATE GOVT. THUS THE CONTRIBUTION MADE TO THE AFORESAID FUND I S SOLELY FOR THE PURPOSE OF THE WELFARE AND BENEFIT OF THE EMPLOYEES . THIS ISSUE HAS BEEN DECIDED BY US IN CASE OF RAJASTHAN STATE S EEDS CORPORATION LTD., SUPRA WHERE WE HAVE HELD AS UNDER :- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT AS PER T HE MEMORANDUM OF STATE RENEWAL FUND SET UP BY THE STAT E GOVT. , IT IS CREATED WITH THE OBJECT OF PROVIDING A SAFETY NET FOR THE WORKERS LIKELY TO BE AFFECTED BY RESTRUCTURING IN T HE STATE PUBLIC ENTERPRISES. WE ARE THUS OF THE VIEW THAT CONTRIBUT ION MADE TO THE SAID FUND IS SOLELY FOR THE PURPOSE OF WELFARE AND BENEFIT OF THE 5 EMPLOYEES. THE RAJASTHAN HIGH COURT IN CASE O F CIT VS. RAJASTHAN SPINNING AND WEAVING MILLS LTD., 274 ITR 465 HAS BEEN OBSERVED THAT IF IS FOR THE ASSESSEE TO DECIDE WHET HER ANY EXPENDITURE SHOULD BE INCURRED IN COURSE OF BUSINES S. THE EXPENDITURE CAN BE INCURRED VOLUNTARILY AND WITHOUT NECESSITY. ANY CONTRIBUTION MADE BY THE ASSESSEE TO A PUBLIC W ELFARE FUND WHICH IS CONNECTED OR RELATED WITH HIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37. AGAIN THE COURT IN THE CASE OF CI T VS. SHRI ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 22 RAJASHAN SYNTEX LTD. , 221 CTR 410 (RAJ.) HELD THAT WHERE ASSESSEE GAVE CONTRIBUTION TO THE EMPLOYEES WELFAR E FUND, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. THE CASE RELIED BY AO OF CIT VS. JODHPUR COOPERATIVE MARKETING SOCIETY 27 5 ITR 372 (RAJ.) IS DISTINGUISHABLE AS IN THIS CASE THE AMOUN T WAS SET APART FOR THE SHAREHOLDERS OF THE SOCIETY WHEREAS IN THE PRESENT CASE AMOUNT WAS PROVIDED FOR THE BENEFIT OF THE EMPLOYEE S. IN VIEW OF THIS THE CONTRIBUTION MADE TO STATE RENEWAL FUND IS ALLOWABLE U/S 37(1). IN VIEW OF ABOVE, WE WHILE SETTING ASIDE THE ORDERS OF THE LOWER AUTHORITIES IN THIS REGARD, DIRECT THE AO TO DELETE THE ADDITION OF RS. 10,00,000/- IN QUESTION. 3.3 FOLLOWING THE ORDER OF THE TRIBUNAL, WE HOLD TH AT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 10.00 LACS ACCORDINGLY, IN VIEW OF THE EARLIER ORDERS OF THIS TRIBUNAL IN ASSESSEES OWN CASE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER THE LD. CIT(A) QUA THIS ISSUE. ITA NO. 323/JP/16 AND CO NO. 07/JP/2016 ARISING FRO M REASSESSMENT ORDER: 15. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING DEDUCT ION OF RS. 8,83,09,666/- ON INTEREST INCOME (INCLUDING PENAL I NTEREST INCOME RS. 8,83,09,666/- AND OTHER INCOME OF RS. 56,05,249 /-) 2. THE APPELLANT CRAVES ITS RIGHTS TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 23 16. THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING, MAINTAINING AND OPERATING INDUSTRIAL PARKS/ SEZ UNITS. THE AO WAS O F THE VIEW THAT THE DEDUCTION U/S 80IA IS NOT ALLOWABLE IN RESPECT OF I NTEREST, PENAL INTEREST INCOME AND OTHER MISCELLANEOUS INCOMES AS THE SAME IS NOT AN INCOME DERIVED FROM ELIGIBLE BUSINESS OF THE ASSESSEE U/S 80IA. THE AO PLACED RELIANCE ON VARIOUS DECISIONS INCLUDING THE HONBLE DECISION IN CASE LIBERTY INDIA LTD. VS. CIT 317 ITR 218 . ON APPEAL THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF INT EREST INCOME INCLUDING PENAL INTEREST BUT DISALLOWED THE CLAIM ARE OTHER I NCOMES. THE LD. CIT(A) HAS HELD THAT THE INTEREST INCOME AND PENAL INTEREST HAS BEEN DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING IS THEREFORE, ELIGIBLE IN DEDUCTION U/S 80IA OF THE ACT. AS REGARDS THE MISCE LLANEOUS INCOME THE LD. CIT(A) HAS NOT ALLOWED THE CLAIM OF THE ASSESSE E. THEREFORE, BOTH ASSESSEE AS WELL AS REVENUE ARE AGGRIEVED BY THE O RDER OF THE LD. CIT(A) ON THIS ISSUE. 17. BEFORE US, LD. DR HAS SUBMITTED THAT THE INTERE ST, PENAL INTEREST AND OTHER INCOMES RECEIVED BY THE ASSESSEE CANNOT B E CONSIDERED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING ELIG IBLE FOR DEDUCTION U/S 80IA OF THE ACT. SINCE, THESE INCOMES ARE NOT EARNE D FROM THE MAIN ACTIVITY OF THE ASSESSEE THEREFORE, THE SAME CANNOT BE CONSIDERED AS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 24 INCOME DIRECTLY RELATED TO THE ACTIVITY OF DEVELOPI NG, OPERATING THE INDUSTRIAL PARKS/SEEZ UNITS . HE HAS RELIED UPON TH E DECISION OF HONBLE SUPREME COURT IN CASE OF LIBERTY INDIA LTD. VS. CIT (SUPRA) 18. ON THE OTHER HAND, LD. AR OF THE ASSESSEE HAS S UBMITTED THAT THE ASSESSEE ALLOTS INDUSTRIAL LAND EITHER ON DOWN PAYM ENT BASIS OR INSTALLMENT BASIS. WHEN THE INDUSTRIALISTS ARE ALLO TTED ON INSTALLMENT BASIS THE PRICE CHARGED IS INCLUSIVE OF INTEREST CO MPONENT THEREFORE, IN THE BOOKS OF ACCOUNTS THE INSTALLMENT RECEIVED AMOU NT IS RECORDED IN TWO PARTS ONE TOWARDS THE VALUE OF LAND (DEVELOPMEN T CHARGES) AND ANOTHER TOWARDS INTEREST CHARGES. HE HAS REFERRED T O THE SAMPLE COPY OF LEASE AGREEMENT IN CASE OF LAND ALLOTTED ON INST ALLMENT BASIS AND SUBMITTED THAT THE INSTALLMENT PAYMENT OF THE PLOT SO ALLOTTED IF NOT RECEIVED IN TIME PROVIDED UNDER THE AGREEMENT, PENA L INTEREST IS CHARGED FROM THE DEBTOR FOR THE PERIOD OF DELAY. SIMILARLY WHEN THE SERVICE CHARGES/ RENT AND OTHER CHANGES ARE NOT PAI D BY THE DEBTOR TIMELY THE INTEREST IS CHARGED FROM THEM FOR DELAYE D PAYMENT. THEREFORE, LD. AR HAS SUBMITTED THAT THE INTEREST I S RECEIVED FROM THE DEBTORS AND IS PART AND PARCEL OF THE PAYMENT RECEI VED BY THE ASSESSEE FROM THE ALLOTTEES AND HENCE, THE SAME IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IN SUPPORT HIS CONTENTION HE HAS R ELIED UPON THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 25 DECISION OF HONBLE GUJARATH HIGH COURT IN CASE OF NIRMA INDISTRIES LTD. VS DCIT 283 ITR 402 AS WELL AS DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. SUZLON ENGERY LTD. 354 ITR 630 AND SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT HAS HELD THAT THE INTEREST RECEIVED FROM TRADE DEBTORS TOWARDS LATE PAYMENT OF SALES CONSIDERATION IS REQUIRED TO BE INCLUDED IN THE PRO FITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 80IB O F THE ACT. THE LD. AR HAS SUBMITTED THAT THE HONBLE GUJARAT HIGH COUR T HAS DELIVERED THE DISCUSSION AFTER CONSIDERING THE DECISION IN CASE O F LIBERTY INDIA LTD. VS. CIT (SUPRA). HE HAS RELIED UPON THE DECISION OF HON BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF PHATELA COTGIN INDUSTRIES (P) LTD. VS. CIT 303ITR 411 . THE LD. AR HAS ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT(A) VS. MEGHALAYA STEEL LTD. 383 ITR 217 AND SUBMITTED THAT THE HONBLE SUPREME COURT AFTER CONSIDERING THE DECISION IN CASE OF LIBERTY INDIA L TD VS. CIT (SUPRA) AS WELL AS OTHER DECISIONS ON THIS POINT HAS DECIDED T HIS ISSUE IN FAVOUR OF THE ASSESEE. AS REGARDS THE OTHER INCOME THE LD. AR HAS SUBMITTED THAT THE ASSESSEE RECEIVED VARIOUS OTHER CHARGES RECOVER ABLE FROM THE INDUSTRIAL UNITS FOR DEVELOPMENT, UPKEEP AND MAINTE NANCE OF INDUSTRIAL AREA, CHARGES FOR SITE PLAN, LEASE AGREEMENT FORM E TC WHICH ARE NON ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 26 RECURRING IN NATURE. THESE CHARGES ARE THE INCOME DERIVED FROM THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE OF DEVELOPIN G, MAINTAINING AND OPERATING INDUSTRIAL PARK/SEZ UNITS THEREFORE, THE SAME CANNOT BE ASSESSED AS OTHER INCOME BUT IT IS PART AND PARCEL OF THE BUSINESS INCOME OF THE ASSESSEE. THE MISCELLANEOUS INCOME CO MPRISING SITE PLAN CHARGE, LEASE AGREEMENT FORM, ROAD CUTTING CHARGES AND OTHER CHARGES RECOVERED FROM CONTRACT ARE ALSO DIRECTLY LINKED WI TH THE ACTIVITY OF INDUSTRIAL PARK AND THEREFORE, THE SAME ARE TO BE I NCLUDED IN THE INCOME OF THE ASSESSEE FOR DEDUCTION U/S 80IA OF THE ACT. HE HAS RELIED UPON THE DECISION OF MUMBAI BENCHES OF THE TRIBUNAL IN C ASE OF ITO VS. HIRANANDANI BUILDERS 128 DTR 97 . THUS, THE LD. AR HAS PLEASED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80I A IN RESPECT OF ALL THE INCOMES WHICH ARE DIRECTLY LINKED WITH THE ACTIVITY OF THE INDUSTRIAL PARK. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. AS REGARDS THE CLAIM OF DEDUCTI ON U/S 80IA OF THE ACT IN RESPECT OF THE INTEREST AND PENAL INTEREST I NCOME IS CONCERNED WE NOTE THAT THIS INCOME IS NOT DERIVED FROM THE DEPOS IT OF SURPLUS FUND WITH THE BANK BUT THE INTEREST AND PENAL INTEREST I S RECEIVED BY THE ASSESSEE ON ACCOUNT OF LATE PAYMENT BY THE ALLOTTEE /DEBTOR. THEREFORE, WHEN THE DUE AMOUNT FROM THE DEBTOR IS BUSINESS REC EIPT THEN THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 27 INTEREST ON THE SAID AMOUNT DUE TO LATE PAYMENT WOU LD NOT TAKE A DIFFERENT CHARACTER FROM THE PRINCIPLE RECEIPT. HEN CE, THE INTEREST AND PENAL INTEREST RECEIVED ON ACCOUNT OF LATE PAYMENT BY THE DEBTOR WOULD BE INCOME OF THE INDUSTRIAL UNDERTAKING. THE HONBL E GUJARAT HIGH COURT IN CASE OF CIT VS SUZLON ENGERY LTD. (SUPRA) HAD OC CASION TO EXAMINE THIS ISSUE IN PARA 5 AS UNDER:- 5. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE ISSUE IS COVERED BY THE DECISION OF THIS COURT IN C ASE OF NIRMA INDUSTRIES LTD. (SUPRA). IN THE SAID DECISION, THE COURT HAS HELD AND OBSERVED AS UNDER :- 'HOWEVER, THE PARTIES HAVING MADE ELABORATE SUBMISS IONS THE MATTER MAY BE EXAMINED FROM A SLIGHTLY DIFFERENT AN GLE. WHEN THE ASSESSEE ENTERS INTO A CONTRACT FOR SALE OF ITS PRO DUCTS IT COULD EITHER STIPULATE (A) THAT INTEREST AT THE SPECIFIED RATE W OULD BE CHARGED ON THE UNPAID SALE PRICE AND ADDED TO THE OUTSTANDING TILL THE POINT OF TIME OF REALISATION, OR (B) THAT IN CASE OF DELAY T HE PAYMENT FOR SALE OF PRODUCTS WORTH RS.100/- TO CARRY THE SALE PRICE OF RS.102/- FOR FIRST MONTH'S DELAY, RS.104/- FOR SECOND MONTH'S DE LAY, RS.106/- FOR THIRD MONTH'S DELAY AND SO ON. IF THE CONTENTION OF REVENUE IS ACCEPTED, MERELY BECAUSE THE ASSESSEE HAS DESCRIBED THE ADDITIONAL SALE PROCEEDS AS INTEREST IN CASE OF CONTRACT AS PE R ILLUSTRATION (A) ABOVE, SUCH PAYMENT WOULD NOT BE PROFITS DERIVED FR OM INDUSTRIAL UNDERTAKING, BUT IN CASE OF ILLUSTRATION (B) ABOVE, IF THE PAYMENT IS DESCRIBED AS SALE PRICE IT WOULD BE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. THIS CAN NEVER BE, BECAUSE IN SUM AND SUBSTANCE THESE ARE ONLY TWO MODES OF REALISING SAL E CONSIDERATION, THE OBJECT BEING TO REALISE SALE PROCEEDS AT THE EA RLIEST AND WITHOUT DELAY. PURCHASER PAYS HIGHER SALE PRICE IF IT DELAY S PAYMENT OF SALE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 28 PROCEEDS. IN OTHER WORDS, THIS IS A CONVERSE SITUAT ION TO OFFERING OF CASH DISCOUNT. THUS, IN PRINCIPLE, IN REALITY, THE TRANSACTION REM AINS THE SAME AND THERE IS NO DISTINCTION AS TO THE SOURCE. IT IS INC ORRECT TO STATE THAT THE SOURCE FOR INTEREST IS THE OUTSTANDING SALE PRO CEEDS. IT IS NOT THE ASSESSEE'S BUSINESS TO LEND FUNDS AND EARN INTEREST . THE DISTINCTION DRAWN BY REVENUE IS ARTIFICIAL IN NATURE AND IS NEI THER IN CONSONANCE WITH LAW NOR COMMERCIAL PRACTICE. THE TRIBUNAL WAS THEREFORE NOT JUSTIFIED IN HOLDING THAT WHILE COMPUTING DEDUCTION UNDER SECTION 80-I OF THE ACT I NTEREST RECEIVED FROM TRADE DEBTORS TOWARDS LATE PAYMENT OF SALES CO NSIDERATION IS REQUIRED TO BE EXCLUDED FROM THE PROFITS OF THE IND USTRIAL UNDERTAKING AS THE SAME CANNOT BE STATED TO HAVE BE EN DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING.' WE FURTHER NOTE THAT THE HONBLE SUPREME COURT IN C ASE OF CIT VS. MEHALAYA STEEL LTD. (SUPRA) HAS DECIDED THIS ISSUE IN PARAS 17 TO 29 ARE AS UNDER:- 17. AN ANALYSIS OF ALL THE AFORESAID DECISIONS CITED O N BEHALF OF THE REVENUE BECOMES NECESSARY AT THIS STAGE. IN THE FIR ST DECISION, THAT IS IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD.'S CASE (SUPRA) THIS COURT HELD THAT SINCE AN EXPRESSION OF WIDER IMPORT HAD BEEN USED, NAMELY 'ATTRIBUTABLE TO' INSTEAD OF 'DERIVED FROM', THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUT ION OF ELECTRICITY. IN SHORT, A STEP REMOVED FROM THE BUSINESS OF THE I NDUSTRIAL UNDERTAKING WOULD ALSO BE SUBSUMED WITHIN THE MEANI NG OF THE EXPRESSION 'ATTRIBUTABLE TO'. SINCE WE ARE DIRECTLY CONCERNED WITH THE EXPRESSION 'DERIVED FROM', THIS JUDGMENT IS REL EVANT ONLY INSOFAR AS IT MAKES A DISTINCTION BETWEEN THE EXPRESSION 'D ERIVED FROM', AS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 29 BEING SOMETHING DIRECTLY FROM, AS OPPOSED TO 'ATTRI BUTABLE TO', WHICH CAN BE SAID TO INCLUDE SOMETHING WHICH IS IND IRECT AS WELL. 18. THE JUDGMENT IN STERLING FOODS CASE (SUPRA) LAYS D OWN A VERY IMPORTANT TEST IN ORDER TO DETERMINE WHETHER PROFIT S AND GAINS ARE DERIVED FROM BUSINESS OR AN INDUSTRIAL UNDERTAKING. THIS COURT HAS STATED THAT THERE SHOULD BE A DIRECT NEXUS BETWEEN SUCH PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING OR BUSINESS. S UCH NEXUS CANNOT BE ONLY INCIDENTAL. IT THEREFORE FOUND, ON THE FACT S BEFORE IT, THAT BY REASON OF AN EXPORT PROMOTION SCHEME, AN ASSESSEE W AS ENTITLED TO IMPORT ENTITLEMENTS WHICH IT COULD THEREAFTER SELL. OBVIOUSLY, THE SALE CONSIDERATION THEREFROM COULD NOT BE SAID TO B E DIRECTLY FROM PROFITS AND GAINS BY THE INDUSTRIAL UNDERTAKING BUT ONLY ATTRIBUTABLE TO SUCH INDUSTRIAL UNDERTAKING INASMUCH AS SUCH IMP ORT ENTITLEMENTS DID NOT RELATE TO MANUFACTURE OR SALE OF THE PRODUC TS OF THE UNDERTAKING, BUT RELATED ONLY TO AN EVENT WHICH WAS POST- MANUFACTURE NAMELY, EXPORT. ON AN APPLICATION OF TH E AFORESAID TEST TO THE FACTS OF THE PRESENT CASE, IT CAN BE SAID TH AT AS ALL THE FOUR SUBSIDIES IN THE PRESENT CASE ARE REVENUE RECEIPTS WHICH ARE REIMBURSED TO THE ASSESSEE FOR ELEMENTS OF COST REL ATING TO MANUFACTURE OR SALE OF THEIR PRODUCTS, THERE CAN CE RTAINLY BE SAID TO BE A DIRECT NEXUS BETWEEN PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS, AND REIMBURSEMENT OF SUCH SUBSIDIES. HOWEVER, SHRI RADHAKRISHNAN STRESSED THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES WAS THE FACT THAT THE GOVER NMENT GAVE THEM AND THAT, THEREFORE, THE IMMEDIATE SOURCE NOT BEING FROM THE BUSINESS OF THE ASSESSEE, THE ELEMENT OF DIRECTNESS IS MISSING. WE ARE AFRAID WE CANNOT AGREE. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SECTIONS 80-IB AND 80-IC IS WHETHER THE PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS AND G AINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT TH E IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DI FFERENCE, AS IT CANNOT BE DISPUTED THAT THE SAID SUBSIDIES ARE ONLY IN ORDER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCU RRED BY THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 30 ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PR ODUCTS. THE 'PROFITS AND GAINS' SPOKEN OF BY SECTIONS 80-IB AND 80-IC HAVE REFERENCE TO NET PROFIT. AND NET PROFIT CAN ONLY BE CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN ARTICLE ALL ELE MENTS OF COST WHICH GO INTO MANUFACTURING OR SELLING IT. THUS UNDERSTOO D, IT IS CLEAR THAT PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS OF THE ASSESSEE, NAMELY PROFITS ARRIVED AT AFTER DEDUCTING MANUFACTU RING COST AND SELLING COSTS REIMBURSED TO THE ASSESSEE BY THE GOV ERNMENT CONCERNED. 19. SIMILARLY, THE JUDGMENT IN PANDIAN CHEMICALS LTD.' S CASE (SUPRA) IS ALSO DISTINGUISHABLE, AS INTEREST ON A DEPOSIT M ADE FOR SUPPLY OF ELECTRICITY IS NOT AN ELEMENT OF COST AT ALL, AND T HIS BEING SO, IS THEREFORE A STEP REMOVED FROM THE BUSINESS OF THE I NDUSTRIAL UNDERTAKING. THE DERIVATION OF PROFITS ON SUCH A DE POSIT MADE WITH THE ELECTRICITY BOARD COULD NOT THEREFORE BE SAID T O FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF, UNLIKE THE FACTS OF THE PRESENT CASE, IN WHICH, AS HAS BEEN HELD ABOVE, ALL THE SUB SIDIES AFOREMENTIONED WENT TOWARDS REIMBURSEMENT OF ACTUAL COSTS OF MANUFACTURE AND SALE OF THE PRODUCTS OF THE BUSINES S OF THE ASSESSEE. 20. LIBERTY INDIA'S CASE (SUPRA) BEING THE FOURTH JUDG MENT IN THIS LINE ALSO DOES NOT HELP REVENUE. WHAT THIS COURT WA S CONCERNED WITH WAS AN EXPORT INCENTIVE, WHICH IS VERY FAR REM OVED FROM REIMBURSEMENT OF AN ELEMENT OF COST. A DEPB DRAWBAC K SCHEME IS NOT RELATED TO THE BUSINESS OF AN INDUSTRIAL UNDERT AKING FOR MANUFACTURING OR SELLING ITS PRODUCTS. DEPB ENTITLE MENT ARISES ONLY WHEN THE UNDERTAKING GOES ON TO EXPORT THE SAID PRO DUCT, THAT IS AFTER IT MANUFACTURES OR PRODUCES THE SAME. PITHILY PUT, IF THERE IS NO EXPORT, THERE IS NO DEPB ENTITLEMENT, AND THEREF ORE ITS RELATION TO MANUFACTURE OF A PRODUCT AND/OR SALE WITHIN INDI A IS NOT PROXIMATE OR DIRECT BUT IS ONE STEP REMOVED. ALSO, THE OBJECT BEHIND DEPB ENTITLEMENT, AS HAS BEEN HELD BY THIS COURT, I S TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 31 EXPORT PRODUCT WHICH IS PROVIDED FOR BY CREDIT TO C USTOMS DUTY AGAINST THE EXPORT PRODUCT. IN SUCH A SCENARIO, IT CANNOT BE SAID THAT SUCH DUTY EXEMPTION SCHEME IS DERIVED FROM PRO FITS AND GAINS MADE BY THE INDUSTRIAL UNDERTAKING OR BUSINESS ITSE LF. 21. THE CALCUTTA HIGH COURT IN MERINOPLY & CHEMICALS L TD. V. CIT [1994] 209 ITR 508 , HELD THAT TRANSPORT SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THAT CASE, THE DIVISION BENCH HELD: 'WE DO NOT FIND ANY PERVERSITY IN THE TRIBUNAL'S FI NDING THAT THE SCHEME OF TRANSPORT SUBSIDIES IS INSEPARABLY CONNEC TED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. IT IS A FACT T HAT THE ASSESSEE WAS A MANUFACTURER OF PLYWOOD, IT IS ALSO A FACT TH AT THE ASSESSEE HAS ITS UNIT IN A BACKWARD AREA AND IS ENTITLED TO THE BENEFIT OF THE SCHEME. FURTHER IS THE FACT THAT TRANSPORT EXPENDIT URE IS AN INCIDENTAL EXPENDITURE OF THE ASSESSEE'S BUSINESS A ND IT IS THAT EXPENDITURE WHICH THE SUBSIDY RECOUPS AND THAT THE PURPOSE OF THE RECOUPMENT IS TO MAKE UP POSSIBLE PROFIT DEFICIT FO R OPERATING IN A BACKWARD AREA. THEREFORE, IT IS BEYOND ALL MANNER O F DOUBT THAT THE SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE PROFI TABLE CONDUCT OF THE BUSINESS AND IN ARRIVING AT SUCH A DECISION ON THE FACTS THE TRIBUNAL COMMITTED NO ERROR.' 22. HOWEVER, IN CIT V. ANDAMAN TIMBER INDUSTRIES LTD., [2000] 242 ITR 204/109 TAXMAN 135 (CAL.) , THE SAME HIGH COURT ARRIVED AT AN OPPOSITE CONCLUSION IN CONSIDERING WHETHER A DEDUCTION WAS ALLOWABLE UNDER SECTION 80HH OF THE ACT IN RESPECT OF TRANSPORT SUBSIDY WITHOUT NOTICING THE AFORESAID EARLIER JUDG MENT OF A DIVISION BENCH OF THAT VERY COURT. A DIVISION BENCH OF THE C ALCUTTA HIGH COURT IN CEMENT MFG CO. LTD.'S CASE (SUPRA) BY A JU DGMENT DATED 15.1.2015, DISTINGUISHED THE JUDGMENT IN ANDAMAN TI MBER INDUSTRIES LTD.'S CASE (SUPRA) AND FOLLOWED THE IMP UGNED JUDGMENT OF THE GAUHATI HIGH COURT IN THE PRESENT CASE. IN A PITHY DISCUSSION OF THE LAW ON THE SUBJECT, THE CALCUTTA HIGH COURT HELD: ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 32 'MR. BANDHYOPADHYAY, LEARNED ADVOCATE APPEARING FOR THE APPELLANT, SUBMITTED THAT THE IMPUGNED JUDGMENT IS CONTRARY TO A JUDGMENT OF THIS COURT IN THE CASE OF CIT V. ANDAMA N TIMBER INDUSTRIES LTD. REPORTED IN [2000] 242 ITR 204/109 TAXMAN 135 WHEREIN THIS COURT HELD THAT TRANSPORT SUBSIDY IS NOT AN IMMEDIATE SOURCE AND DOES NOT HAVE DIRECT NEXUS WIT H THE ACTIVITY OF AN INDUSTRIAL UNDERTAKING. THEREFORE, THE AMOUNT REPRESENTING SUCH SUBSIDY CANNOT BE TREATED AS PROFIT DERIVED FR OM THE INDUSTRIAL UNDERTAKING. MR. BANDHYPADHYAY SUBMITTED THAT IT IS NOT A PROFIT DERIVED FROM THE UNDERTAKING. THE BENEFIT UNDER SEC TION 80IC COULD NOT THEREFORE HAVE BEEN GRANTED. HE ALSO RELIED ON A JUDGMENT OF THE SUPREME COURT I N THE CASE OF LIBERTY INDIA V. COMMISSIONER OF INCOME TAX, REP ORTED IN (2009) 317 ITR 218 (SC) WHEREIN IT WAS HELD THAT SUBSIDY BY WAY OF CUSTOMS DUTY DRAW BACK COULD NOT BE TREATED AS A PR OFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. WE HAVE NOT BEEN IMPRESSED BY THE SUBMISSIONS ADVAN CED BY MR. BANDHYOPADHYAY. THE JUDGMENT OF THE APEX COURT IN T HE CASE OF LIBERTY INDIA (SUPRA) WAS IN RELATION TO THE SUB SIDY ARISING OUT OF CUSTOMS DRAW BACK AND DUTY ENTITLEMENT PASS-BOOK SC HEME (DEPB). BOTH THE INCENTIVES CONSIDERED BY THE APEX COURT IN THE CASE OF LIBERTY INDIA COULD BE AVAILED AFTER THE MA NUFACTURING ACTIVITY WAS OVER AND EXPORTS WERE MADE. BUT, WE AR E CONCERNED IN THIS CASE WITH THE TRANSPORT AND INTEREST SUBSIDY W HICH HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY INASMUCH AS T HESE SUBSIDIES GO TO REDUCE THE COST OF PRODUCTION. THEREFORE, THE JUDGMENT IN THE CASE OF LIBERTY INDIA V. COMMISSIONER OF INCOME TAX HAS NO MANNER OF APPLICATION. THE SUPREME COURT IN THE CASE OF SA HNEY STEEL AND PRESS WORKS LTD. & OTHERS VERSUS COMMISSIONER OF IN COME TAX, REPORTED IN [1997] 228 ITR AT PAGE 257 EXPRESS ED THE FOLLOWING VIEWS: ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 33 '. . . . . SIMILARLY, SUBSIDY ON POWER WAS CONFINED TO 'POWER CONSUMED FOR PRODUCTION'. IN OTHER WORDS, IF POWER IS CONSUMED FOR ANY OTHER PURPOSE LIKE SETTING UP THE PLANT AND MAC HINERY, THE INCENTIVES WILL NOT BE GIVEN. REFUND OF SALES TAX W ILL ALSO BE IN RESPECT OF TAXES LEVIED AFTER COMMENCEMENT OF PRODU CTION AND UP TO A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCE MENT OF PRODUCTION. IT IS DIFFICULT TO HOLD THESE SUBSIDIES AS ANYTHING BUT OPERATION SUBSIDIES. THESE SUBSIDIES WERE GIVEN TO ENCOURAGE SETTING UP OF INDUSTRIES IN THE STATE OF ANDHRA PRA DESH BY MAKING THE BUSINESS OF PRODUCTION AND SALE OF GOODS IN THE STATE MORE PROFITABLE.' 23. WE ARE OF THE VIEW THAT THE JUDGMENT IN MERINOPLY & CHEMICALS LTD.'S CASE (SUPRA) AND THE RECENT JUDGMENT OF THE CALCUTTA HIGH COURT HAVE CORRECTLY APPRECIATED THE LEGAL POSITION . 24. WE DO NOT FIND IT NECESSARY TO REFER IN DETAIL TO ANY OF THE OTHER JUDGMENTS THAT HAVE BEEN PLACED BEFORE US. THE JUDG MENT IN JAI BHAGWAN OIL AND FLOUR MILLS' CASE (SUPRA) IS HELPFU L ON THE NATURE OF A TRANSPORT SUBSIDY SCHEME, WHICH IS DESCRIBED AS U NDER: 'THE OBJECT OF THE TRANSPORT SUBSIDY SCHEME IS NOT AUGMENTATION OF REVENUE, BY LEVY AND COLLECTION OF TAX OR DUTY. THE OBJECT OF THE SCHEME IS TO IMPROVE TRADE AND COMMERCE BETWEEN THE REMOTE PARTS OF THE COUNTRY WITH OTHER PARTS, SO AS TO BRI NG ABOUT ECONOMIC DEVELOPMENT OF REMOTE BACKWARD REGIONS. THIS WAS SO UGHT TO BE ACHIEVED BY THE SCHEME, BY MAKING IT FEASIBLE AND A TTRACTIVE TO INDUSTRIAL ENTREPRENEURS TO START AND RUN INDUSTRIE S IN REMOTE PARTS, BY GIVING THEM A LEVEL PLAYING FIELD SO THAT THEY C OULD COMPETE WITH THEIR COUNTERPARTS IN CENTRAL (NON-REMOTE) AREAS. THE HUGE TRANSPORTATION COST FOR GETTING THE RAW MA TERIALS TO THE INDUSTRIAL UNIT AND FINISHED GOODS TO THE EXISTING MARKET OUTSIDE THE STATE, WAS MAKING IT UNVIABLE FOR INDUSTRIES IN REM OTE PARTS OF THE COUNTRY TO COMPETE WITH INDUSTRIES IN CENTRAL AREAS . THEREFORE, INDUSTRIAL UNITS IN REMOTE AREAS WERE EXTENDED THE BENEFIT OF ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 34 SUBSIDIZED TRANSPORTATION. FOR INDUSTRIAL UNITS IN ASSAM AND OTHER NORTH-EASTERN STATES, THE BENEFIT WAS GIVEN IN THE FORM OF A SUBSIDY IN RESPECT OF A PERCENTAGE OF THE COST OF TRANSPORT ATION BETWEEN A POINT IN CENTRAL AREA (SILIGURI IN WEST BENGAL) AND THE ACTUAL LOCATION OF THE INDUSTRIAL UNIT IN THE REMOTE AREA, SO THAT THE INDUSTRY COULD BECOME COMPETITIVE AND ECONOMICALLY VIABLE.' (PARAS 14 AND 15) 25. THE DECISION IN SAHNEY STEEL AND PRESS WORKS LTD.' S CASE (SUPRA) DEALT WITH SUBSIDY RECEIVED FROM THE STATE GOVERNMENT IN THE FORM OF REFUND OF SALES TAX PAID ON RAW MATERIA LS, MACHINERY, AND FINISHED GOODS; SUBSIDY ON POWER CONSUMED BY TH E INDUSTRY; AND EXEMPTION FROM WATER RATE. IT WAS HELD THAT SUC H SUBSIDIES WERE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. 26. WE DO NOT FIND IT NECESSARY TO FURTHER ENCUMBER TH IS JUDGMENT WITH THE JUDGMENTS WHICH SHRI GANESH CITED ON THE NETTING PRINCIPLE. WE FIND IT UNNECESSARY TO FURTHE R SUBSTANTIATE THE REASONING IN OUR JUDGMENT BASED ON THE SAID PRI NCIPLE. 27. A DELHI HIGH COURT JUDGMENT WAS ALSO CITED BEFORE US BEING DHARAM PAL PREM CHAND LTD.'S CASE (SUPRA) FRO M WHICH AN SLP PREFERRED IN THE SUPREME COURT WAS DISMISSED. T HIS JUDGMENT ALSO CONCERNED ITSELF WITH SECTION 80-IB O F THE ACT, IN WHICH IT WAS HELD THAT REFUND OF EXCISE DUTY SHOULD NOT BE EXCLUDED IN ARRIVING AT THE PROFIT DERIVED FROM BUS INESS FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80-IB O F THE ACT. 28. IT ONLY REMAINS TO CONSIDER ONE FURTHER ARGUMENT B Y SHRI RADHAKRISHNAN. HE HAS ARGUED THAT AS THE SUBSIDIES THAT ARE RECEIVED BY THE RESPONDENT, WOULD BE INCOME FROM OT HER SOURCES REFERABLE TO SECTION 56 OF THE INCOME TAX ACT, ANY DEDUCTION THAT IS TO BE MADE, CAN ONLY BE MADE FROM INCOME FROM OT HER SOURCES AND NOT FROM PROFITS AND GAINS OF BUSINESS, WHICH I S A SEPARATE AND DISTINCT HEAD AS RECOGNISED BY SECTION 14 OF TH E INCOME TAX ACT. SHRI RADHAKRISHNAN IS NOT CORRECT IN HIS SUBMI SSION THAT ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 35 ASSISTANCE BY WAY OF SUBSIDIES WHICH ARE REIMBURSED ON THE INCURRING OF COSTS RELATABLE TO A BUSINESS, ARE UND ER THE HEAD 'INCOME FROM OTHER SOURCES', WHICH IS A RESIDUARY H EAD OF INCOME THAT CAN BE AVAILED ONLY IF INCOME DOES NOT FALL UN DER ANY OF THE OTHER FOUR HEADS OF INCOME. SECTION 28(III)(B)* SPE CIFICALLY STATES THAT INCOME FROM CASH ASSISTANCE, BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORT S UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME C HARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. IF CASH ASSISTANCE RECEIVED OR RECEIVA BLE AGAINST EXPORTS SCHEMES ARE INCLUDED AS BEING INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', IT I S OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO B E INCLUDED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION', AND NOT UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 29. FOR THE REASONS GIVEN BY US, WE ARE OF THE VIEW TH AT THE GAUHATI, CALCUTTA AND DELHI HIGH COURTS HAVE CORREC TLY CONSTRUED SECTIONS 80-IB AND 80-IC. THE HIMACHAL PRADESH HIGH COURT, HAVING WRONGLY INTERPRETED THE JUDGMENTS IN STERLIN G FOODS (SUPRA) AND LIBERTY INDIA'S CASES (SUPRA) TO ARRIVE AT THE OPPOSITE CONCLUSION, IS HELD TO BE WRONGLY DECIDED FOR THE REASONS GIVEN BY US HEREINABOVE. THUS, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS FOLLOWING THE DECISIONS OF HONBLE GUJARAT HIGH COU RT IN CASE OF CIT VS. SUZLON ENGERY LTD. (SUPRA) AND DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. MEHALAYA STEEL LTD. (SUPRA) WE HOLD THAT THE INTEREST AND PENAL INTEREST RECEIVED FROM DEBTOR DUE TO LATE PAYMENT IS PART OF PROFIT OF INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUC TION U/S 80IA OF THE ACT. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 36 20. SO FAR AS OTHER MISCELLANEOUS INCOME IS CONCER NED WE NOTE THAT THIS INCOME COMPRISE OF SITE PLAN CHARGE, LEASE AGR EEMENT FORM CHARGES, ROAD CUTTING CHARGES AND PENAL INTEREST RE CEIVED FROM CONTRACTOR ETC. IT IS PERTINENT TO NOTE THAT THESE RECEIPTS ON ACCOUNT OF ABOVE SAID SERVICES OR VIOLATION OF THE CONDITION O F THE CONTRACT BY THE VENDORS/ ALLOTTEES CANNOT BE SEPARATED FROM THE BUS INESS ACTIVITY OF DEVELOPING, MAINTAINING AND OPERATING INDUSTRIAL PA RKS/SEZ UNITS. THESE SERVICES AND ACTIVITIES ARE PART OF THE MAIN BUSINE SS ACTIVITY OF THE ASSESSEE AND CANNOT BE HELD AS INDEPENDENT OR SEPAR ATE ACTIVITY AS THE SAME CANNOT BE PERFORMED WITHOUT HAVING CORE BUSINE SS ACTIVITY. THEREFORE, WHEN ALL THESE SERVICES ARE RENDERED FOR AND CLOSELY CONNECTED WITH THE MAIN ACTIVITY THEN THE INCOME FR OM THESE SERVICES/ACTIVITIES WOULD BE INCLUDED IN THE PROFIT OF UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THE MUMBAI BENCH ES OF THE TRIBUNAL IN CASE OF ITO VS. HIRANANDANI BUILDERS (SUPRA) HAS ANALYZED THIS ISSUE AND HELD IN PARA 15 AS UNDER:- 15. THE NEXT ITEM OF RECEIPTS RELATES TO THE TENDER FEES RECEIVED BY THE ASSESSEE ON SALE OF TENDER FORMS. T HE LD CIT(A) HAS NOTICED THAT THE ASSESSEE HAS AVAILED THE SERVI CES OF VARIOUS SUB-CONTRACTORS FOR THE PURPOSE OF CARRYING OUR VAR IOUS WORKS IN THE IT PARKS AND SEZ. IN ORDER TO SELECT THE VENDOR S (SUB- ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 37 CONTRACTORS), THE ASSESSEE HAS FOLLOWED TENDER SYST EM AND IN THAT PROCESS, IT HAS COLLECTED MONEY ON SALE OF TEN DER FORMS. HENCE, THE LD CIT(A) HAS HELD THAT THE ACTIVITY OF INVITING TENDER IS VERY MUCH PART OF THE DEVELOPMENT AND OPERATION OF SEZ AND ACCORDINGLY HELD THAT THE SALE OF TENDER FORMS SHAL L BE ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. SINCE THE TENDER S HAVE BEEN INVITED IN CONNECTION WITH THE DEVELOPMENT AND OPER ATION OF IT PARKS AND SEZ, WE ARE OF THE VIEW THAT THE LD CIT(A ) WAS JUSTIFIED IN HOLDING THAT THE TENDER FEES ARE ELIGI BLE FOR DEDUCTION U/S 80IA OF THE ACT. ACCORDINGLY, THE INCOME FROM ALL THESE ACTIVITY ASS OCIATED WITH MAIN ACTIVITY OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. HENCE, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSE E AND AGAINST THE REVENUE. 21. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN UPHOLDING THE VALIDITY OF ORDER PASSED U/S 147 OF THE IT ACT, 1961. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING THE DEDUCTION U/S 80IA ON OTHER MISCELLANEOUS INCOME OF RS. 6,26,797/-.` 3. THE ASSESSEE CARVES RIGHT TO ADD, ALTER, AMEND, AND MODIFY ANY OF THE GROUND OF APPEAL. 4. NECESSARY COST BE ALLOWED TO BE ASSESSEE. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 38 22. GROUND NO. 2 IS COMMON TO THE GROUND RAISED BY THE REVENUE AND ACCORDINGLY IN VIEW OF OUR FINDING OF THE REVEN UES APPEAL THE GROUND NO. 2 OF THE CROSS OBJECTION IS ALLOWED. 23. AS REGARDS GROUND NO. 1 WHEN THIS ISSUE ON MERI T HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THEREFORE, GROUN D NO. 1 OF THE CROSS OBJECTION BECOMES ACADEMIC IN NATURE. ACCORDINGLY, WE DO NOT PROPOSE TO GO INTO GROUND NO. 1 OF THE CROSS OBJECTION. 24. FOR THE ASSESSMENT YEAR 2010-11 THE ASSESSEE AS WELL AS REVENUE HAVE RAISED THE FOLLOWING GROUNDS:- ASSESSEES GROUNDS 1. THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW IN CONFIRMING ADDITION OF RS. 71,03,87,000/- MADE BY THE AO TO TH E VALUE OF CLOSING STOCK BY HOLDING THAT LAND UNDER LITIGATION OR ENCROACHMENT MAY HAVE HIGH MARKET VALUE THAN COST I N SUBSEQUENT YEARS AND THEREFORE ITS VALUE CANNOT BE TAKEN AT NIL. 2. THE ASSESSEE CRAVES TO AMEND, ADD, ALTER, OR MOD ITY ANY OF THE GROUND OF APPEALS. 3. NECESSARY COST BE ALLOWED TO THE ASSESSEE. REVENUES GROUNDS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 39 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN HOLDING PRIO R PERIOD EXPENSES OF RS. 3,19,357/- AS ALLOWABLE EXPENSES. 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND LAW THE LD. CIT(APPEALS) HAS ERRED IN HOLDING CONTRIBUT ION OF RS. 20,00,000/- TO STATE RENEWAL FUND AS ALLOWABLE EXPE NDITURE. 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND LAW THE LD. CIT(APPEALS) HAS ERRED IN HOLDING CONTR IBUTION OF RS. 1,00,00,000/- TO CENTRE FOR DEVELOPMENT OF STONES AS ALLOWABLE EXPENDITURE. 4. THE APPELLANT CRAVES ITS RIGHT TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 25. GROUNDS OF THE ASSESSEES APPEAL IS COMMON TO T HE GROUND RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. AC CORDINGLY IN VIEW OF OUR FINDING ON THE ADJUDICATION OF THE ISSUE FOR THE ASSESSMENT YEAR 2009-10 THE SAME STANDS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER ON THE SAME TERMS. 26. GROUND NO. 1 OF THE REVENUES APPEAL IS COMMON TO THE GROUND RAISED FOR THE ASSESSMENT YEAR 2009-10. ACCORDINGLY , IN VIEW OF OUR DECISION ON THIS ISSUE FOR THE ASSESSMENT YEAR 2009 -10 THE GROUND NO. 1 OF THE REVENUES APPEAL STANDS DISMISSED. 27. GROUND NO. 2 IS REGARDING THE CONTRIBUTION TO STATE RENEWAL FUND. THIS GROUND OF REVENUES APPEAL IS COMMON TO THE GROUND RAISED FOR THE ASSESSMENT YEAR 2009-10. ACCORDINGLY, IN VI EW OF OUR DECISION ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 40 ON THIS ISSUE FOR THE ASSESSMENT YEAR 2009-10 THE G ROUND NO. 2 OF THE REVENUES APPEAL STANDS DISMISSED. 28. GROUND NO. 3 IS REGARDING THE CONTRIBUTION TO C ENTRE FOR DEVELOPMENT OF STONES. DURING THE YEAR UNDER CONSID ERATION THE ASSESSEE HAS CLAIMED DEDUCTION OF RS. 1 CRORE ON AC COUNT OF CONTRIBUTION TO CENTRE FOR DEVELOPMENT OF STONES (C DOS). THE ASSESSEE CONTENDED THAT THE MAIN OBJECT OF THE ASSESSEE IS T O DEVELOP INFRASTRUCTURE FACILITIES AND DEVELOPMENT OF INDUST RIES IN THE STATE OF RAJASTHAN. THE ASSESSEE IS DOING VARIOUS ACTIVITIES AND RUNNING VARIOUS PROGRAMS FOR THE DEVELOPMENT OF INDUSTRIES IN THE S TATE OF RAJASTHAN. FOR THIS PURPOSE THE ASSESSEE ALONG WITH GOVERNMENT OF RAJASTHAN HAS PROMOTED A SOCIETY NAMED CENTRE FOR DEVELOPMENT OF STONES WITH THE OBJECT TO DEVELOP AND PROMOTE AND SUPPORT THE DIMEN SIONAL STONE SECTOR AND RELATED INDUSTRIES IN INDIA. THUS, THE ASSESSEE CLAIMED THE CONTRIBUTION TO CDOS AS ELIGIBLE EXPENDITURE. THE A O HELD THAT THE CONTRIBUTION TO CDOS IS A CASE OF APPLICATION OF IN COME AND THEREFORE, IS NOT AN ALLOWABLE CLAIM. ON APPEAL, THE LD. CIT(A ) HAS HELD THAT THE ASSESSEE IS ONE OF THE PROMOTERS OF CDOS ALONG WIT H GOVERNMENT OF RAJASTHAN. THE CONTRIBUTION TO CDOS WAS USED FOR PR OMOTION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF RAJASTHAN AN D THE SAME CANNOT ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 41 BE TREATED AS AN APPLICATION OF INCOME. ACCORDINGLY , THE DISALLOWANCE MADE BY THE AO WAS DELETED BY THE LD. CIT(A). 29. BEFORE US, LD. DR HAS SUBMITTED THAT THE CONTRI BUTION MADE TO CENTRE FOR DEVELOPMENT OF STONE HAS NOT DIRECTED NE XUS WITH THE BUSINESS OF THE ACTIVITY AND THEREFORE, THE SAME CA NNOT BE ALLOWABLE BUSINESS EXPENDITURE. HE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 30. ON THE OTHER HAND LD. AR OF THE ASSESSEE HAS R EITERATED THE CONTENTION HAS RAISED BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE ALONG WITH THE STATE OF RAJASTHAN HAS PROMOTED A SOCIETY OF CDOS WHICH CARRIES VARIOUS TRADE PROMOTIONAL EVE NTS AND PROVIDE VOCATIONAL TRAINING TO ENTREPRENEURS, TESTING FACIL ITIES OF INDIAN STONES FOR STANDARDIZATION OF QUALITY, PROPERTIES AND SUIT ABILITY AND ALSO BRINGS OUT THROUGH PUBLICATION, IMPORTANT DATA AND INFORM ATION FOR THE BENEFIT OF STONE INDUSTRIES OF INDIA AS A WHOLE AND OF RAJ ASTHAN IN PARTICULAR. ALL THESE ACTIVITIES CARRIED BY CDOS TO DEVELOP TH E STONE INDUSTRIES IN THE STATE OF RAJASTHAN AS A RESULT OF WHICH VARIOU S ENTREPRENEURS ARE ATTRACTED TO ESTABLISH SUCH STONE INDUSTRIES AND I N TURN STIMULATE THE INDUSTRIAL GROWTH IN THE STATE WHICH IS THE MAIN OB JECT OF THE ASSESSEE. THEREFORE, THE CONTRIBUTION MADE BY THE ASSESSEE TO CDOS IS AN ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 42 EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND ACCORDINGLY ALLOWABLE U/S 37(1) OF THE ACT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF H ONBLE JURISDICTION HIGH COURT IN CASE OF ACIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD. 274 ITR 463. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE MAIN OBJECT OF THE ASSESSEE IS PROVIDED TO DEVELOPING, MAINTAINING AND OPERATING INDUSTRIAL PA RKS/SEZ UNITS. THEREFORE, THE ASSESSEE IS IN THE BUSINESS OF PROVI DING INFRASTRUCTURE FACILITIES TO THE INDUSTRIES IN THE STATE. THE CENT RE FOR DEVELOPMENT OF STONES THOUGH IS BROUGHT INTO EXISTENCE FOR PROMOTI ON AND PROVIDING VARIOUS FACILITIES TO A PARTICULAR INDUSTRY BEING I NDIAN STONES HOWEVER, IT IS UNDISPUTED FACT THAT THE STATE OF RAJASTHAN IS H EAVING THE MAJORITY OF STONE BUSINESS IN INDIA AND ANY STEPS TAKEN FOR PRO MOTION OF THE STONE INDUSTRIES WILL HAVE A DIRECT IMPACT ON THE DEVELOP MENT OF INDUSTRIES IN THE STATE OF RAJASTHAN. THE HONBLE JURISDICTION HI GH COURT IN CASE OF ACIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD (SU PRA) HAD THE OCCASION TO DEAL WITH A QUESTION WHETHER THE EXPEND ITURE INCURRED ON COMPUTERIZATION OF MINES DEPARTMENT OF THE GOVERNME NT OF RAJASTHAN OF RS. 50 LACS DOES NOT QUALIFY TO BE AN EXPENDITUR E EXPENDED WHOLLY ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 43 AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ALLOWAB LE U/S 37(1) OF THE ACT. THE HONBLE HIGH COURT IN CASE OF RAJASTHAN STATE MINES & MINERALS LTD. VS. ACIT 274 ITR 463 AS HELD IN PARA S 5.3, 6.8, 6.9, 10, 10.1 & 14 ARE AS UNDER:- 5.3 REGARDING QUESTION 3, MR. JHANWAR HAS TAKEN US TO THE PROVISIONS OF SECTION 37 OF THE INCOME TAX ACT WHIC H READS AS UNDER. 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. 6.8 IN COMMISSIONER OF INCOME TAX VS MOONLIGHT BUIL DERS AND DEVELOPERS REPORTED IN (2008) 307 ITR 197 (DELHI), SIMILER VIEW WAS TAKEN. 6.9 HE HAS RELIED ON TWO DECISIONS OF TRIBUNAL WHER E NO APPEAL WAS PREFERRED. THEREFORE, THEY CANNOT DISCRIMINATE BETWEEN TWO DIFFERENT ASSESSEE. 10. COUNSEL FOR THE RESPONDENT CONTENDED THAT ON FI RST ISSUE REGARDING SECTION 37, THE EXPENSES WHICH ARE MADE A RE JOF CAPITAL NATURE, THEREFORE, IT CANNOT BE TAKEN AS RE VENUE EXPENDITURES. IN THAT VIEW OF THE MATTER, THE FIRST ISSUE MAY NOT BE CONSIDERED. HOWEVER, REGARDING SECOND ISSUE, HE CONTENDED THAT ASSESSEE IS NOT ENTITLED FOR DEPRECIATION SINC E HE HAS NOT MADE ANY CAPITAL INVESTMENT AND THIS IS RAW MATERIA L. 10.1 REGARDING ISSUE NO. 3, HE CONTENDED THAT THERE IS CONCURRENT FINDING OF AUTHORITIES AND THE ISSUE IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE DEPARTMENT. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 44 14. REGARDING ISSUE NO. 3, TAKING INTO CONSIDERATIO N THE EXPENSES WHICH ARE DONE IN VIEW OF DECISION IN SA BUILDERS CASE (SUPRA) AND OTHER JUDGMENTS RELIED ON THE ASSESSEE, THE ISS UE IS ANSWERED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF RAJASTHAN STATE MINES & MINERALS LTD. ACIT AND HAVI NG REGARD TO THE FACTS THAT THE CONTRIBUTION IS MADE FOR DEVELOPMENT AND PROMOTION OF INDUSTRIES IN THE STATE OF RAJASTHAN THROUGH CENTRE FOR DEVELOPMENT OF STONES WHICH IS PROMOTED BY THE ASSESSEE ALONG WITH THE STATE GOVERNMENT OF RAJASTHAN WE ARE OF THE VIEW THAT TH E SAID CONTRIBUTION MADE BY THE ASSESSEE IS AN ALLOWABLE EXPENDITURE U /S 37(1) OF THE ACT. 32. FOR THE ASSESSMENT YEAR 2011-12 THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS:- 1 . THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 2,00,00,000/- MADE ON ACCOUNT OF CONTRIBUTION FOR C ONSTRUCTION OF THE RAJASTHAN BHAWAN IN MUMBAI. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IA IN RESPECT OF OTHER INCOME ON TH E GROUND THAT SAME IS NOT DERIVED FROM AN ELIGIBLE BUSINESS. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.32,33,193/- U/S 14A BY APPLICATION OF RULE 8D(2)(III)OF THE IT RULES. HE HAS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 45 FURTHER ERRED IN APPLYING RULES 8D(2)(III) BY HOLDI NG THAT THE WORD INVESTMENT USED IN THIS RULE WOULD INCLUDE SHARES / SECURITIES HELD AS STOCK IN TRADE. 4. THE ASSESSEE CARVES RIGHT TO ADD, ALTER, AMEND, AND MODIFY ANY OF THE GROUND OF APPEAL. 5. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. 33. GROUND NO. 1 IS REGARDING CONTRIBUTION FOR CONS TRUCTION OF THE RAJASTHAN BHAWAN IN MUMBAI. THE ASSESSEE HAS DEBITE D A SUM OF RS. 2 CRORES UNDER THE HEAD CONTRIBUTION FOR CONSTRUCTION OF RAJASTHAN BHAWAN, MUMBAI. THE AO OBSERVED THAT THE EXPENDITUR E IS NOT INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE ASSES SEES BUSINESS OF INDUSTRIAL AREA DEVELOPMENT AND LONG TERM FINANCING . IT IS MERELY AN APPLICATION OF INCOME AND THUS, NOT ALLOWABLE U/S 3 7(1) OF THE ACT. ACCORDINGLY, THE AO DISALLOWED THE CLAIMED OF THE A SSESSEE. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO. 34. BEFORE US, LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE CONTRIBUTION WAS MADE BY THE ASSESSEE FOR CONSTRUCT ION OF RAJASTHAN BHAWAN AT MUMBAI AT THE DIRECTIONS OF THE STATE GOV ERNMENT OF RAJASTHAN. THE BUILDINGS AFTER CONSTRUCTION WILL NO T BE AVAILABLE FOR USE BY THE OFFICERS OF THE ASSESSEE FOR OFFICIAL WORK W HICH WOULD RESULT IN THE REDUCTION OF COST OF LODGING AND BOARDING AT MU MBAI. THE LD. AR HAS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 46 REFERRED TO THE LETTER DATED 24.10.2017 OF GOVERNME NT OF RAJASTHAN WHEREBY IT WAS INTIMATED TO ALL CORPORATIONS WHO HA VE MADE CONTRIBUTIONS FOR THE CONSTRUCTION OF THIS BUILDING TO ALLOW THEM REBATE ON THE ROOM TARIFF. THUS, THE LD. AR HAS SUBMITTED THAT AS PER THE SAID LETTER THE ASSESSEE IS ALLOWED REBATE OF 75% OF THE ROOM TARIFF ON CONSIDERATION OF THE TOTAL CONTRIBUTION MADE BY IT. THEREFORE, THE EXPENDITURE ON ACCOUNT OF CONTRIBUTION FOR CONSTRUC TION OF RAJASTHAN BHAWAN, MUMBAI HAS BEEN INCURRED WHOLLY AND EXCLUSI VELY FOR THE BUSINESS OF THE ASSESSEE. HE HAS RELIED UPON THE DE CISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO. 324/2006 DATED 21.07.2007 AND SUBMITTED THAT TH E TRIBUNAL HAS ALLOWED THE EXPENDITURE INCURRED FOR A GUEST HOUSE IN NEW DELHI IN WHICH CERTAIN ROOMS HAVE BEEN EAR-MARKED AND CAN BE USED BY THE EMPLOYEES. HE HAS RELIED UPON THE DECISION OF HONB LE RAJASTHAN HIGH COURT IN CASE OF CIT VS. RAJASTHAN SPINNING & WEAVI NG MILLS LTD 274 ITR 463. 35. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CONTRIBUTI ON FOR CONSTRUCTION OF RAJASTHAN HOUSE IN MUMBAI IS OTHERWISE EXPENDITURE IN CAPITAL FIELD AND ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 47 THEREFORE, THE SAME IS NOT ALLOWABLE AS REVENUE EXP ENDITURE. FURTHER THIS EXPENDITURE HAS NO DIRECT NEXUS WITH THE BUSIN ESS ACTIVITY OF THE ASSESSEE AND HENCE, IT CANNOT BE HELD AS AN EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS OF THE ASSESSEE . 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 WHILE CONSIDERING AN ISSUE OF THE EXPENDITURE INCURRED TOWARDS THE CO NTRIBUTION MADE TO THE CONSTRUCTION OF GUEST HOUSE IN DELHI VIDE ORDE R DATED 21.08.2007 IN ITA NO. 324/JP2006 HAS HELD IN PARA 12 AS UNDER:- 12. CONSIDERING THE ABOVE SUBMISSIONS, WE ARE OF T HE VIEW THAT UNDISPUTEDLY ASSESSEE WAS NOT THE OWNER OF THE FOUR ROOMS IN THE GUEST HOUSE OF THE STATE GOVERNMENT AT CHANAKYAPURI IN NEW DELHI AND THE ASSESSEE WAS ONLY ENTITLED TO USE THO SE FOUR ROOMS ALLOTTED TO IT FOR STAYING OF ITS OFFICIALS VISITIN G DELHI. ASSESSEE HAS NO RIGHT TO SELL, ALTER OR AMEND THOSE ALLOTTED ROO M. THE GUEST HOUSE WAS UNDISPUTED NEITHER PURCHASED NOR CONSTRUC TED BY THE ASSESSEE. THE MAINTENANCE OF THESE ROOMS WERE ALSO IN THE HANDS OF THE STATE GOVERNMENT WHO HAS BEEN CHARGING THE SAME ON ANNUAL BASIS FROM THE ASSESSEE. THUS IN A SENSE ONLY THE FACILITIES TO USE THOSE ALLOTTED FOUR ROOMS TO THE ASSESSEE WERE PURCHASED ON A LUMP-SUM PAYMENT. IT IS AN ESTABLISH ED POSITION OF LAW THAT IN A CASE OF OWNERSHIP AGAINST IMMOVABL E PROPERTY, THE UNCONDITIONAL INTEREST IN ABSOLUTE TERM WITH FR EEDOM TO SELL, ALIENATE ECT. IS TRANSFERRED BY THE SELLER TO THE P URCHASER, WHICH IS ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 48 ADMITTEDLY NOT THE CASE OVER HERE. UNDER THESE CIRC UMSTANCES WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY COM E TO THE CONCLUSION THAT NO CAPITAL ASSETS HAVE BEEN CREATED TO THE ASSESSEE BUT ONLY A PRIVILEGE OR A RESERVATION OF F OUR ROOMS WERE MADE ON PERMANENT BASIS TO THE ASSESSEE. THEREFORE, THE PROVISIONS OG GUEST HOUSE AT DELHI WAS IN THE NORMA L COURSE OF BUSINESS AND EXPENDITURE INCIDENTAL TO IT IS OF REV ENUE NATURE. THE LD. CIT(A) HAS RIGHTLY OBSERVED FURTHER THAT TH E AO HAS NOT APPRECIATED THE FACTS PROPERLY THAT TOTAL EXPENDITU RE OF RS. 40,00,000/- WAS DEFERRED IN FIVE EQUAL INSTALMENTS AND ONLY RS. 8,00,000/- WAS DEBITED IN A.Y. 2003-04. THUS, THE E NTIRE ADDITION OF RS. 40,00,000/- NEED TO BE DELETED AND THE CLAIM OF DEPRECIATION ALLOWED BY THE AO AT RS. 2,00,000/- IS ALSO TO BE ADDED BACK IN THE COMPUTATION OF INCOME AS PER THE FIRST APPELLATE ORDER. WE CONCUR WITH THE VIEW OF LD. CIT (A) WHICH ALSO FINDS SUPPORT FROM THE DECISIONS OF HONBLE DELHI H IGH COURT IN JTHE CASE OF NESET HOLDINGS (P) LTD. V/S CIT(SUPRA) WHEREIN ONE TIME PAYMENT WAS ALLOWED AS REVENUE EXPENDITURE WH ERE SUCH PAYMENT IS MEANT FOR REDUCING THE OVERALL REVENUE E XPENDITURE OF THE ASSESSEE. THE GUEST HOUSE IN THE PRESENT CASE W AS REQUIRED ONLY FOR RUNNING THE BUSINESS AND WORKING OF THE AS SESSEE FOR BETTER INTER-ACTION WITH THE GOVERNMENT OF INDIA AN D VARIOUS FINANCIAL ORGANIZATIONS. THE FIRST APPELLATE ORDER BEING COMPREHENSIVE AND REASONS ONE, WE ARE NOT INCLINED TO INTERFERE THEREWITH. THE SAME IS UPHELD. THE GROUND NO. 2 IS THUS REJECTED. WE FURTHER NOTE THAT AS PER LETTER DATED 24.10.2017 THE GOVERNMENT OF RAJASTHAN HAS ALLOWED THE ASSESSEE A REBATE OF 75% OF TARIFF OF THE ROOM FOR STAYING OF THE EMPLOYEES/OFFICERS OF THE A SSESSEE. THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAJAST HAN RENEWAL ENERGY ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 49 CORPORATION LTD. VS. DCIT VIDE ORDER DATED 18.08.2 017 IN ITA NO. 159& 202/JP/2015 AND OTHERS WHILE CONSIDERING AN IDENTI CAL ISSUE HAS HELD IN PARA 55 AS UNDER:- 55. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. IT IS NOT DISPUTED T HAT THE CONTRIBUTION TOWARDS CONSTRUCTION OF RAJASTHAN BHAW AN HAS BEEN MADE AS DIRECTED AND AUTHORIZED BY THE STATE GOVERN MENT, BEING THE OWNER AND SHAREHOLDER OF THE ASSESSEE COMPANY. THE QUESTION IS THEREFORE NOT ABOUT THE AUTHORIZATION B EFORE INCURRENCE OF THE SAID EXPENDITURE. THE QUESTION I S WHETHER THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE COMPANY FOR THE PURPOSES OF ITS BUSINESS OR NOT. THE ONUS IS O N THE ASSESSEE COMPANY TO ESTABLISH THE SAID FACT. THE LD AR HAS SUBMITTED THAT THE ASSESSEE COMPANY HAS WRITTEN TO THE GOVERNMENT OF RAJASTHAN TO PROVIDE ACCOMMODATION FACILITIES IN TH E RAJASTHAN BHAWAN TO ITS OFFICERS ON THEIR VISIT TO MUMBAI, HO WEVER, THERE IS NOTHING ON RECORD TO SUPPORT THE SAID CONTENTION. WE ARE ACCORDINGLY SETTING ASIDE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE SAID CONTENTION AND THE EXAMINE THE MAT TER A FRESH. IN THE RESULT, THE GROUND OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. THUS, THE TRIBUNAL BY CONSIDERING THE ACCOMMODATION FACILITY IN THE GUEST HOUSE AS RELEVANT FACTOR SET ASIDE THE ISSUE TO THE RECORD OF THE AO TO EXAMINE THE ACCOMMODATION FACILITY AVAILABLE TO THE ASSESSEE IN RAJSTHAN BHAWAN AT MUMBAI. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 50 36. SINCE THIS LETTER DATED 24.10.2017 WAS NOT AVAI LABLE BEFORE THE COORDINATE BENCH IN CASE OF RAJASTHAN RENEWAL ENERG Y CORPORATION LTD. (SUPRA) THEREFORE, THE AO WAS ASKED TO EXAMINE THE FACT. HOWEVER, IN VIEW OF THE SAID LETTER DATED 24.10.2017 IT IS CLEA R THAT THE ASSESSEE GOT THE REBATE OF 75% AS WELL AS THE RIGHT TO USE THE A CCOMMODATION BY ITS OFFICERS/EMPLOYEES VISITING AT MUMBAI. ACCORDINGLY, IN VIEW OF THE EARLIER DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS IN VIEW OF THE FACT THAT THE ASSESSEE HAS RECEIVED THE BENEFIT IN THE SHAPE OF ACCOMMODATION AGAINST THE SAID EXPENDITURE FOR CONS TRUCTION OF RAJASTHAN HOUSE WE HOLD THAT THE CLAIM OF THE ASSES SEE IS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. 37. GROUND NO. 2 IS REGARDING DISALLOWANCE OF DEDUC TION U/S 80IA OF THE ACT. GROUND NO. 2 OF THE ASSESSEES APPEAL IS COMMON TO THE GROUND RAISED BY THE ASSESSEE FOR THE ASSESSMENT YE AR 2009-10. ACCORDINGLY IN VIEW OF OUR FINDING ON THIS ISSUE FO R THE ASSESSMENT YEAR 2009-10 THE SAME STANDS ALLOWED. 38. GROUND NO. 3 IS REGARDING DISALLOWANCE MADE U/S 14A OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO N OTED THAT THE ASSESSEE HAS EARNED TAX FREE INCOME DURING THE YEAR UNDER CONSIDERATION OF RS. 1,81,49,621/- WHICH IS COMPRIS ING OF DIVIDEND ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 51 INCOME FROM THE RAJASTHAN VENTURE CAPITAL FUND, INC OME CONTRIBUTED BY RAJASTHAN VENTURE CAPITAL FUND AND DIVIDEND INCO ME FROM SHARES. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 14A R.W.R 8D AND MADE DISALLOWANCE OF RS. 38,75,046/- . THE A SSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) AND CONT ENDED THAT THE PROFIT ON SALE OF SHARES AND SECURITIES HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM PROFIT AND GAIN FROM BUSINESS AND NOT U NDER THE HEAD CAPITAL GAIN. THEREFORE, THE AO CANNOT SHIFT FROM O NE SETTLED AND CONSISTENT STAND OF THE DEPARTMENT WHERE THE SHARES AND EQUITY HAS BEEN ACCEPTED AT STOCK IN TRADE OF THE ASSESSEE. FU RTHER, THE ASSESSEE CONTENDED THAT THE ASSSESSEES OWN FUNDS COMPRISING THE RESERVE AND SURPLUS IS AROUND RS. 900/- CRORES WHEREAS THE INVE STMENT IN STOCK AND SHARES AND EQUITY IS ONLY RS. 66.43 CRORES. EVEN T HE NET PROFIT FOR THE YEAR IS RS. 204.84 CRORES WHICH IS FAR MORE EXCEEDS THE VALUE OF STOCK OF SHARES & SECURITIES HELD BY THE ASSESSEE. THUS, IT WAS CONTENDED THAT THE ASSESSEES OWN FUNDS COMPRISING SHARE CAPITAL, RESERVE AND SURPLUS IS 13.49 TIMES OF THE INVESTMENT AND HENCE NO DISAL LOWANCE ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A IS CALLED FOR. THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A OF THE ACT HOWEVER, THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 52 EXPENDITURE UNDER RULE 8D(2)(III) OF RS. 32,23,193/ - WAS CONFIRMED BY LD. CIT(A). 39. BEFORE US, LD. AR OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSEE IS HOLDING THE SHARES AND SECURITIES AS ST OCK-IN-TRADE THEN NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT. THE ASSESSEE DID NOT RECEIVED ANY DIVIDEND ON THE SHARES WHICH ARE HELD AS STOCK IN TRADE AND NOT INVESTMENT. THE DEPARTMENT HAS ACCEPTED THE PROFIT OF SALE OF SHARES/ SECURITIES AS PROFIT AND GAIN FROM BUSINESS IN ALL THE YEARS INCLUDING THE YEAR UNDER CONSIDERATION. THEREFORE, WHEN THE PROFIT ARISING FROM THE SALES OF SHARES/ SECURITIES ASSESS ED TO TAX AS BUSINESS INCOME OF THE ASSESSEE THEN, THE PROVISIONS OF SECT ION 14A CANNOT BE INVOKED FOR DISALLOWANCE MERELY BECAUSE THE ASSESSE E HAS INCIDENTAL DIVIDEND INCOME. HE HAS FURTHER CONTENDED THAT EVEN OTHERWISE WHEN THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR E ARNING THE DIVIDEND INCOME THEN, NO DISALLOWANCE IS CALLED FOR. THE LD. AR HAS REFERRED TO THE ASSESSEES OWN INTEREST FREE FUNDS WHICH IS MOR E THAN 14 TIMES OF THE INVESTMENT OF THE VALUE OF STOCK AND INVESTMENT . THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED DISALLOWANCE ON ACCOUNT OF INTEREST INCOME. HE HAS RELIED UPON THE DECISION OF HONBLE KARNATAK A HIGH COURT IN CASE OF CCI LIMITED VS. DCIT 206 TAXMAN 563, DECISION OF HONBLE PUNJAB ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 53 AND HARYANA HIGH COURT IN CASE OF PCIT VS STATE BAN K OF PATIALA 391 ITR 218 AS WELL AS DECISION OF THE KOLKATA BENCHES OF THE TRIBUNAL IN CASE OF DCIT VS. GULSAN COMPANY LTD. 86 DTR 262. 40. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE O RDER OF THE ASSESSING OFFICER. 41. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE PROVIDES LONG TERM FINANCE TO THE INDUSTRIES BY WAY OF LOAN AND EQUITY PARTICIPATION. THE SHARES HELD BY THE ASSESSEE UNDER THE EQUITY PARTICIPATION AS WELL AS OTHER SECURITIES ARE STOCK-IN-TRADE. WE HAVE GONE THROUGH THE RELEVA NT RECORD OF FINANCIAL STATEMENT OF THE ASSESSEE AND FOUND THAT THE SHARES AND SECURITIES ARE HELD AS STOCK IN TRADE. FURTHER, THE RE IS NO DISPUTE THAT THE ASSESSEES OWN INTEREST FREE FUNDS ARE AROUND R S. 900 CRORES IN COMPRISEN TO THE INVESTMENT/ VALUE OF SHARES AND SE CURITIES AT RS. 66 CRORES. THEREFORE, THE ASSESSEES OWN FUNDS ARE MAN Y TIMES MORE THA INVESTMENT/ VALUE OF SHARES AND SECURITIES. THE SHA RES AND SECURITIES ARE HELD AS STOCK-IN-TRADE AND THE PROFIT AND LOSS ARISING ON SALE OF THE SHARES ARE TAKEN AS BUSINESS PROFIT OR LOSS. THE AS SESSING OFFICER AS ACCEPTED THAT THE NATURE OF INCOME ARISING FROM THE SALE OF SHARES AND SECURITIES AS BUSINESS INCOME. THEREFORE, IN VIEW O F THE DECISION OF ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 54 HONBLE KARNATAKA HIGH COURT IN CASE OF CCI LTD. V S. JCIT(SUPRA) NO DISALLOWANCE IS CALLED FOR U/S 14A AS HELD IN PARA 2 TO 5 AS UNDER:- 2. THE SUBSTANTIAL QUESTION OF LAW THAT ARISES FOR CO NSIDERATION IN THIS APPEAL IS: WHETHER THE PROVISIONS OF SECTION 14A OF THE ACT AR E APPLICABLE TO THE EXPENSES INCURRED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS MERELY BECAUSE THE ASSESSEE IS ALSO HAVING DIVIDEND INCOME WHEN THERE WAS NO MATERIAL BROUGHT TO SHOW THAT THE ASSE SSEE HAD INCURRED EXPENDITURE FOR EARNING DIVIDEND INCOME WH ICH IS EXEMPTED FROM TAXATION? 3. THE LEARNED COUNSEL FOR THE ASSESSEE ASSAILING THE IMPUGNED ORDER OF THE AUTHORITIES CONTENDED THAT THE ASSESSE E HAS INCURRED EXPENDITURE FOR PURCHASING SHARES. 63% OF THE SHARE S SO PURCHASED ARE SOLD AND THE INCOME DERIVED THEREFROM IS OFFERE D TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES RE MAINED UNSOLD. THOSE SHARES YIELDED DIVIDEND. THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE SAID DIVIDEND INCOME. THEREFORE, NO EXPENDITURE COULD BE ATTRIBUTED TO TH E SAID DIVIDEND INCOME AND THE SAID EXPENDITURE CANNOT BE DISALLOWE D AND THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION OF THE ENTIRE EXPENDITURE INCURRED IN RESPECT OF PURCHASE OF SHAR ES. THE AUTHORITIES HAVE NOT PROPERLY APPRECIATED SECTION 1 4A OF THE INCOME TAX ACT AND COMMITTED A SERIOUS ERROR IN PAS SING THE IMPUGNED ORDER. 4. PER CONTRA, THE LEARNED COUNSEL FOR THE REVENUE PO INTED OUT THAT ADMITTEDLY WHEN SHARES RETAINED BY THE ASSESSEE HAS YIELDED DIVIDEND, WHEN THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF INCOME TAX PROPORTIONATELY, THE EXPENDITURE INCURRE D IN ACQUIRING THAT DIVIDEND ALSO SHOULD BE EXCLUDED FROM EXPENDIT URE. IN THAT VIEW OF THE MATTER, THE ORDERS PASSED BY THE AUTHOR ITIES ARE LEGAL AND VALID. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 55 5. WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE D EDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63% O F THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIV ED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH TH E ASSESSEE. IT IS THOSE UNSOLD SHARES HAVE YIELDED DIVIDEND, FOR WHIC H, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPE NDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPEN DITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSE SSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVID END INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS O F SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED OR DERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. ACCORDINGL Y, WE PASS THE FOLLOWING: I) APPEAL IS ALLOWED. (II) IMPUGNED ORDERS ARE HEREBY SET ASIDE. (III) THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE PUNJAB AND HARYANA HIGH COURT IN CASE OF PCIT VS STATE BANK OF PATIALA (SUP RA) AS HELD IN PARAS 2 TO 5 AS UNDER:- ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 56 2. THE APPEAL IS ADMITTED ON THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE HON'BLE ITAT IS RIGHT IN LAW IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX AC T, 1961?' THE QUESTION REALLY IS WHETHER THE PROVISIONS OF SE CTION 14A OF THE INCOME TAX ACT (FOR SHORT 'THE ACT') APPLY WHERE THE EXEMPT INCOME SUCH AS DIVIDEND OR INTEREST IS EARNED FROM SECURITIES HELD BY THE ASSESSEE AS ITS STOCK-IN-TRADE. THE ASSESSEE HAD RAISED OTHER ISSUES AS WELL. THE TRIBUNAL HAVING DECIDED THE ABO VE QUESTION IN FAVOUR OF THE ASSESSEE DID NOT DECIDE THE OTHER ISS UES. 3. AS WE HAVE ALSO DECIDED THE QUESTION IN FAVOUR OF T HE ASSESSEE, IT FOLLOWS THAT SECTION 14A IS INAPPLICAB LE ALTOGETHER. THE APPEAL MUST, THEREFORE, BE DISMISSED. HAD WE DE CIDED THE ISSUE AGAINST THE ASSESSEE, WE WOULD HAVE REMANDED THE MATTER TO THE TRIBUNAL FOR ITS DECISION ON THE OTHER ASPEC TS, SUCH AS, WHETHER THE INVESTMENTS AND SECURITIES YIELDING EXE MPT INCOME WERE FROM INTEREST FREE FUNDS/ASSESSEE'S OWN FUNDS OR FROM INTEREST BEARING FUNDS AS THE TRIBUNAL HAD NOT DECI DED THE SAME. 4. THE RESPONDENT FILED A RETURN DECLARING AN INCOME O F ABOUT RS.670 CRORES WHICH WAS SELECTED FOR SCRUTINY. THE RETURN SHOWED DIVIDEND INCOME EXEMPT UNDER SECTION 10(34) AND (35 ) OF ABOUT RS.11.07 CRORES AND NET INTEREST INCOME EXEMPT UNDE R SECTION 10(15)(IV)(H) OF ABOUT RS.1.12 CRORES. THE TOTAL EX EMPT INCOME CLAIMED IN THE RETURN WAS, THEREFORE, RS.12,19,78,0 15/-. THE ASSESSEE WHILE CLAIMING THE EXEMPTION CONTENDED THAT THE INVESTMENT IN SHARES, BONDS, ETC. CONSTITUTED ITS S TOCK-IN-TRADE; THAT THE INVESTMENT HAD NOT BEEN MADE ONLY FOR EARN ING TAX FREE INCOME; THAT THE TAX FREE INCOME WAS ONLY INCIDENTA L TO THE ASSESSEE'S MAIN BUSINESS OF SALE AND PURCHASE OF SE CURITIES AND, THEREFORE, NO EXPENDITURE HAD BEEN INCURRED FOR EAR NING SUCH EXEMPT INCOME; THE EXPENDITURE WOULD HAVE REMAINED THE SAME EVEN IF NO DIVIDEND OR INTEREST INCOME HAD BEEN EAR NED BY THE ASSESSEE FROM THE SAID SECURITIES AND THAT NO EXPEN DITURE ON PROPORTIONATE BASIS COULD BE ALLOCATED AGAINST EXEM PT INCOME. THE ASSESSEE ALSO CONTENDED THAT IN ANY EVENT IT HA D ACQUIRED ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 57 THE SECURITIES FROM ITS OWN FUNDS AND, THEREFORE, S ECTION 14A WAS NOT APPLICABLE. 5. THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE T O THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME AND ADDED THE SAME TO THE ASSESSEE'S INCOME BY APPLYING SECTION 1 4A. THE ASSESSING OFFICER ACCORDINGLY APPLIED RULE 8D FOR D ETERMINING THE EXPENDITURE TO BE DISALLOWED AS PER SECTION 14A. HE COMPUTED THE EXEMPT INCOME AS CLAIMED BY THE ASSESSEE, NAMEL Y, ABOUT RS. 12.20 CRORES. THE ASSESSING OFFICER FOUND THE T OTAL EXPENSES ALLOCATED AGAINST EXEMPT INCOME TO BE RS. 40.72 CRO RES, BUT HELD THAT THE SAME SHOULD NOT EXCEED THE EXEMPTED INCOME AND, THEREFORE, HE RESTRICTED THE EXPENSES TO THE EXTENT OF EXEMPT INCOME CLAIMED BY THE ASSESSEE I.E. ABOUT RS.12.20 CRORES AND ADDED THE SAME TO THE ASSESSEE'S INCOME. THEREFORE, IN VIEW OF THE DECISIONS OF HONBLE HIGH COURTS NO DISALLOWANCE U/S 14A IS CALLED FOR IN RESPECT OF TH E SHARES AND SECURITIES HELD AS STOCK IN TRADE. 42. HOWEVER, THE INVESTMENT MADE BY THE ASSESSEE TH ROUGH RAJASTHAN VENTURE CAPITAL FUNDS CANNOT BE TAKEN AS STOCK IN TRADE AND THEREFORE, DISALLOWANCE ON ACCOUNT OF INDIRECT COM MON ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) HAS TO BE WORKED OU T BY CONSIDERING THE AVERAGE INVESTMENT IN RAJASTHAN VENTURE CAPITAL FUN D ONLY. ACCORDINGLY, WE DIRECT THE AO TO RECOMPUTED THE DIS ALLOWANCE U/S 14A R.W.R 8D(2)(III) ONLY IN RESPECT OF INVESTMENT THRO UGH RAJASTHAN VENTURE CAPITAL FUND. HENCE, THE GROUND OF THE ASSESSEES A PPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 58 43. FOR THE ASSESSMENT YEAR 2012-13 ASSESSEE HAS RA ISED THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 53,48,000/- INCURRED BY THE ASSESSEE ON PROVIDING TRANING FOR D EVELOPING ENTREPRENEURIAL SKILLS IN PURSUANCE OF ITS OBJECT O F INDUSTRIAL DEVELOPMENT DEBITED UNDER THE HEAD CORPORATE SOCIAL RESPONSIBILITY EXPENSES, BY HOLDING THAT IT IS AN A PPLICATION OF INCOME AND NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IA IN RESPECT OF OTHER INCOME ON TH E GROUND THAT THE SAME IS NOT DERIVED FROM AN ELIGIBLE BUSINESS. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS. 1,85 ,60,000/- MADE BY THE AO TO THE VALUE OF CLOSING STOCK BY FOLLOWI NG THE DECISION OF HIS PREDECESSOR WHERE IT WAS HELD THAT LAND UNDE R LITIGATION OR ENCROACHMENT MAY HAVE HIGH MARKET VALUE THAN COST I N SUBSEQUENT YEARS AND THEREFORE ITS VALUE CANNOT BE TAKEN AT NIL. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 17,56,304/- U/S 14A BY APPLICATION OF RULE 8D(2)(III) OF THE IT RULES. HE HAS FURTHER ERRED IN APPLYING RULE 8D(2)(III) BY HOLDI NG THAT THE WORD INVESTMENT USED IN THE RULE WOULD INCLUDE SHARES/ SECURITIES HELD AS STOCK IN TREAD. 5. THE ASSESSEE CARVES RIGHT TO ADD, ALTER, AMEND, AND MODIFY ANY OF THE GROUNDS OF APPEALS. 6. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 59 44. FOR THE ASSESSMENT YEAR 2012-13 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 20,00,000/- MADE BY DISALLOWING CONTRIBUTION TO STATE RENEWAL F UND. 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 33,85,622/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 3,00,00,000/- ON ACCOUNT OF CONTRIBUTION TO SDOS. 4. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT (A) WAS JUSTIFIED IN ALLOWING DEDUCTION U/S 80 IA(4) ON INTEREST INCOME INCLUDING PENAL INTEREST INCOME AND ON OTHER INCOME. 5. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT (A) WAS JUSTIFIED IN ALLOWING RELIEF TO THE ASS ESSEE OUT OF ADDITION MADE U/S 14A OF THE INCOME TAX ACT. 45. GROUND NO. 2 OF THE ASSESSEES APPEAL AND GROUN D NO. 4 OF THE DEPARTMENT APPEAL IS COMMON REGARDING THE DEDUCTION U/S 80IA IN RESPECT OF OTHER MISCELLANEOUS INCOME AND INTEREST INCOME INCLUDING PENAL INTEREST INCOME IS COMMON TO THE ISSUE INVOLV ED IN THE ASSESSMENT YEAR 2009-10. ACCORDINGLY, IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE A.Y. 2009-10 GROUND NO. 2 OF THE ASSE SSEES APPEAL IS ALLOWED WHEREAS GROUND NO. 4 OF THE REVENUES APPEA L IS DISMISSED. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 60 46. GROUND NO. 4 OF THE ASSESSEES APPEAL AND GROUN D NO. 5 OF THE REVENUES APPEAL IS REGARDING DISALLOWANCE MADE U/S 14A PARTLY DELETED BY THE LD CIT(A). THIS ISSUE IS COMMON TO THE ISSU E RAISED FOR THE ASSESSMENT YEAR 2011-12 AND IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE ASSESSMENT YEAR 2011-12 THE GROUND OF THE ASSESSEE APPEAL IS PARTLY ALLOWED AND GROUND OF THE REVENUES APPEAL IS DISMI SSED. 47. GROUND NO. 3 OF THE ASSESSEES APPEAL IS REGARD ING THE ADDITION MADE ON ACCOUNT OF VALUE OF CLOSING STOCK. THIS ISS UE IS COMMON TO THE ISSUE RAISED FOR THE ASSESSMENT YEAR 2009-10 THEREF ORE, IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE A.Y. 2009-10 THE SAME IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER. 48. GROUND NO. 1 OF THE ASSESSEES APPEAL IS REGARDING THE CLAIM OF 53,48,000/- UNDER THE HEAD CORPORATE SOCIAL RESPONS IBILITY EXPENSES (CSR). THE ASSESSEE CONTENDED THAT EXPENDITURE IS I NCURRED ON TRAINING AT ATDC (APPAREL TRAINING & DEVELOPMENT CENTRE) SMA RT CENTRE FOR INTEGRATED SKILL DEVELOPMENT SCHEME IN RESPECT OF T EXTILE INDUSTRIES AS WELL AS GARMENT SECTOR SO AS TO GENERATE EMPLOYMENT , AVAILABILITY OF SKILLED MANPOWER, GENERATION OF NEW INVESTMENT ETC. IT WAS FURTHER CONTENDED THAT IT WOULD HELP IN INDUSTRIAL GROWTH O F THE STATE AND ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 61 ESTABLISHMENT OF NEW INDUSTRIES IN THE AREA DEVELOP ED BY THE ASSESSEE. THE AO DID NOT ACCEPT THIS CLAIM OF THE ASSESSEE AN D HELD THAT CSR EXPENSES INCURRED BY THE ASSESSEE IS NEITHER COVERE D UNDER THE PROVISIONS OF SECTION 37(1) OF THE INCOME TAX ACT N OR IT CAN BE HELD AS DIVERSION OF INCOME BY OVERRIDING TITLE. THUS, THE AO WAS OF THE VIEW THAT THE EXPENDITURE IS NOT INCURRED WITH A VIEW TO BRING ANY PROFITS OR MONETARY ADVANTAGE TO THE ASSESSEE. ACCORDINGLY, TH E ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF RS. 53,48,000/- ON THIS ACCOUNT. THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO AND HELD THAT IT IS APPROPRIATION OF PROFIT AND NOT EXPENDITURE INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 49. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE IS CONSTITUTED WITH THE MAIN OBJECT OF DEV ELOPMENT OF INDUSTRIES AND ENTREPRENEURS IN THE STATE OF RAJAST HAN. IN PURSUANCE OF THESE OBJECTS THE ASSESSEE ALSO CARRIES VARIOUS TRA INING AND OTHER PROGRAMS FOR THE DEVELOPMENT OF ENTREPRENEURIAL SKI LLS SO THERE IS GROWTH OF INDUSTRIES IN THE STATE OF RAJASTHAN. THE ASSESSEE HAS ACCORDINGLY INCURRED EXPENDITURE OF RS. 53,48,000/- BY PROVIDING ASSISTANCE FOR 2,674 TRAINEES @ RS. 2,000/- PER TR AINEE TO APPAREL ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 62 TRAINING & DEVELOPMENT CENTRE. THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE AND OBJECT FOR WHICH T HE ASSESSEE HAS BEEN ESTABLISHED AND THEREFORE, SUCH EXPENDITURE IS ALLOWABLE BUSINESS EXPENDITURE. IN SUPPORT OF HIS CONTENTION HE HAS RE LIED UPON THE DECISIONS OF HONBLE JURISDICTION HIGH COURT OF CIT VS. RAJASTHAN COOPERATIVE DAIRY FEDERATION LTD. 229 TAXMAN 34 AS WELL AS DECISION IN CASE OF ACIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD. 274 ITR 463. 50. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT TH E EXPENDITURE INCURRED ON CORPORATE SOCIAL RESPONSIBILITY IS NOT ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF THE ACT. EVEN THERE IS NOT OBLIGATION ON THE ASSESSEE TO INCUR THIS EXPENDITURE FOR THE YEAR UND ER CONSIDERATION AS THE PROVISIONS OF SECTION 135 OF THE COMPANIES ACT, 2013 WAS BROUGHT ONLY INSTITUTE BY INSERTION OF EXPLANATION 2 TO SEC TION 37(1)OF THE I.T. ACT E.W.F 01.04.2015 HENCE, THE SAME IS NOT APPLICA BLE FOR THE YEAR UNDER CONSIDERATION. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 51. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE E XPENDITURE INCURRED BY THE ASSESSEE FOR PROVIDING TRAINING TO THE PERSO NS THROUGH APPAREL ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 63 TRAINING & DEVELOPMENT CENTRE IN THE FORM OF ASSIST ANCE OF RS. 2,000/- PER TRAINEE IS IN THE CATEGORY OF CORPORATE SOCIAL RESPONSIBILITY (CSR). THE ASSESSEE HAS CLAIMED THAT IT WILL HELP THE GENE RATION OF EMPLOYMENT AND MAKING AVAILABLE SKILL MANPOWER TO THE INDUSTRI ES WHICH IN TURN WOULD HELP IN INDUSTRIAL GROWTH OF STATE OF RAJASTH AN. HOWEVER, WE FIND THAT THE CORPORATE SOCIAL RESPONSIBILITY PROVISION HAS BEEN BROUGHT IN THE COMPANIES ACT 2013 AND CONSEQUENTIAL AMENDMENT HAS BEEN BROUGHT TO THE INCOME TAX ACT U/S 37(1) BY WAY OF INSERTION OF EXPLANATION W.E.F. 01.04.2015. THUS, WHEN SPECIFIC PROVISION HA S BEEN BROUGHT INTO STATUTE FOR ALLOWING SUCH EXPENDITURE W.E.F. 01.04. 2015 THEN PRIOR TO THE SAID PROVISIONS THE DEDUCTION IN RESPECT OF THE EXPENDITURE INCURRED UNDER CORPORATE SOCIAL RESPONSIBILITY IS NOT ALLOWA BLE UNLESS AND UNTIL THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE TRAINING TO THE EMPLO YMENT SEEKER MAY BE GOOD GESTURE ON THE PART OF THE ASSESSEE BUT IN THE ABSENCE OF EVEN A PROXY LINK BETWEEN THE EXPENDITURE AND BUSINESS A CTIVITY OF THE ASSESSEE THE SAID EXPENDITURE CANNOT BE ALLOWED U/S 37(1) OF THE ACT PRIOR TO 01.04.2015. RAIPUR BENCH OF THE TRIBUNAL I N CASE OF ACIT VS. JINDAL POWER LTD. 138DTR 313 HAS HELD THAT THE EXPE NDITURE TOWARDS CORPORATE SOCIAL RESPONSIBILITY REFERRED TO SECTION 135 OF COMPANIES ACT ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 64 IS NOT ALLOWABLE IN VIEW OF THE FACT THAT THE EXPLA NATION 2 TO SECTION 37 HAS BEEN INSERTED W.E.F. 01.04.2015. THOUGH LD. AR OF THE ASSESSEE HAS RELIED UPON THE VARIOUS DECISIONS INCLUDING THE DEC ISION OF HONBLE JURISDICTION HIGH COURT HOWEVER, WE FIND THAT IN TH OSE CASES THE EXPENDITURE WAS INCURRED BY THE ASSESSE IN CONNECTI ON WITH THE BUSINESS ACTIVITY, THEREFORE, THERE WAS CLOSE NEXUS BETWEEN THE EXPENDITURE AND BUSINESS ACTIVITY OF THE ASSESSEE. IN CASE OF CIT VS. RAJASTHAN COOPERATIVE DAIRY FEDERATION LTD. (SUPRA) THE HIGH COURT AS HELD OBSERVATION IN PARAS 9 TO 12 AS UNDER:- 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. OFF ICER, APPEARING ON BEHALF OF THE APPELLANT-REVENUE AND GO NE THROUGH THE IMPUGNED ORDER AS ALSO THE ORDER OF THE LOWER A UTHORITIES. 10. IN OUR VIEW, THE ITAT AS WELL AS CIT(A) HAVE AR RIVED AT A FINDING OF FACT THAT THE GENUINENESS OF THE EXPENSE S IS NOT DOUBTED BY THE APPELLANT-REVENUE AND THUS, WHEN GEN UINENESS OF THE EXPENSES HAS NOT BEEN DOUBTED BY THE APPELLANT- REVENUE, THEN IT IS A FINDING OF FACT. WE MAY FURTHER ADD TH AT THE RESPONDENT-ASSESSEE, AS REFERRED TO HEREIN ABOVE, I S AN APEX BODY RESPONSIBLE FOR DEVELOPMENT OF DAIRY ACTIVITIE S IN COOPERATIVE SECTOR IN THE STATE OF RAJASTHAN AND TH E FUNDAMENTAL OBJECTIVES OF THE RESPONDENT-ASSESSEE, AS PER ITS B YE-LAWS, ARE AS UNDER: 3.1.TO CARRY OUT ACTIVITIES FOR PROMOTING PRODUCTI ON, PROCUREMENT, PROCESSING AND MARKETING OF THE MILK A ND MILK PRODUCTS FOR ECONOMIC DEVELOPMENT OF THE ANIMAL HUSBANDRY/FARMING COMMUNITY. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 65 3.2. DEVELOPMENT AND EXPANSION OF SUCH OTHER APPLIE D ACTIVITIES AS MAY BE CONDUCIVE FOR THE PROMOTION OF THE DAIRY INDUSTRY, IMPROVEMENT AND PROTECTION OF SUCH MILCH ANIMALS AN D ECONOMIC BETTERMENT OF THOSE ENGAGED IN MILK PRODUCTION. 3.2.(7)ADVISE, GUIDE, ASSIST AND CONTROL THE MEMBER MILK UNIONS IN ALL RESPECTS OF MANAGEMENT, SUPERVISION AND AUDI T FUNCTIONS; 3.2.(8) PURCHASE OR ASSIST IN PURCHASING RAW MATERI AL, PROCESSING MATERIAL ETC; OR TO COLLABORATE WITH SOM E ONE IF NEED ARISES; 3.2(12) PROMOTE THE ORGANIZATION OF PRIMARY SOCIETI ES AND ASSIST MEMBERS IN ORGANIZATION OF THE PRIMARY SOCIE TIES; 3.2(13) PLAN DEVELOPMENT STRATEGIES AND PROGRAMME T O INCREASE THE VOLUME OF PRODUCTION, PROCUREMENT OF F EDERATION AND ITS MEMBER UNIONS AND FOR EFFECTIVE MARKETING O F THE SAME; 3.2(14) RENDER TECHNICAL, ADMINISTRATIVE, FINANCIAL AND OTHER NECESSARY ASSISTANCE TO THE MEMBER UNIONS AND ENTER INTO COLLABORATION AGREEMENT WITH SOME ONE IF THE NEED A RISES. 11. ON PERUSAL OF THE AFORESAID OBJECTIVES, IT IS C LEAR THAT THE PRIMARY DUTY OF THE RESPONDENT-ASSESSEE IS TO TAKE INTO CONSIDERATION THE AMOUNT INCURRED TOWARDS THE PRIMA RY LEVEL SOCIETIES FROM WHICH IT IS ENGAGED IN PROCUREMENT O F MILK. THE RESPONDENT-ASSESSEE HAS INCURRED THE SAID AMOUNT FO R INCREASING THE PROCUREMENT OF MILK AND PROTECTING THE DAIRY FA RMERS FROM THE THREAT OF THE PRIVATE MILK VENDORS, LAUNCHED VA RIOUS SCHEMES FROM TIME TO TIME FOR INDUCING MORE AND MORE MILK P RODUCERS TO JOIN MILK DEVELOPMENT COOPERATIVE SOCIETIES IN FURT HERANCE OF ITS FUNDAMENTAL OBJECTIVES, WHICH, IN OUR OPINION, IS C ERTAINLY IN THE ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 66 NATURE OF BUSINESS EXPENSES. IT IS ALSO A FINDING O F FACT THAT ONE OF THE OBJECTIVES OF THE RESPONDENT-ASSESSEE IS TO CARRY OUT SUCH ACTIVITIES AS MAY BE CONDUCIVE FOR THE PROMOTION OF THE DAIRY INDUSTRY AND IMPROVEMENT AND PROTECTION OF MILCH AN IMALS AND IN PURSUANCE OF THE SAID OBJECTIVE, IT HAS TO RUN TECH NICAL, ADMINISTRATIVE, FINANCIAL AND OTHER NECESSARY SUPPO RT TO THE SOCIETIES. THE RESPONDENT-ASSESSEE COLLECTS MILK FR OM ITS MEMBER UNIONS I.E. PRIMARY DAIRY COOPERATIVE SOCIETY (DCS) AND SELLS THE MILK AND MILK PRODUCTS TO THE CONSUMERS UNDER ITS B RAND NAME SARAS. FOR INCREASING THE PROCUREMENT OF MILK AND PROTECTING THE DAIRY FARMERS, IT HAS TO LAUNCH VARIOUS SCHEMES FOR INDUCING MORE AND MORE MILK PRODUCERS TO JOIN THE PRIMARY DA IRY CO- OPERATIVE SOCIETY AND FOR THIS PURPOSE, IT HAS INCU RRED EXPENDITURE AND THUS, IN OUR VIEW, THESE EXPENSES ARE DIRECTLY RELATED TO THE BUSINESS OF THE RESPONDENT-ASSESSEE AND INCURRED FO R COMMERCIAL EXPEDIENCY. IT IS ALSO A FINDING OF FACT THAT THE R ESPONDENT- ASSESSEE HAS ALSO CHARGED 'CESS' @1% OF THE SALE VA LUE FROM MILK UNIONS FOR WHICH RECEIPTS OF RS.9,12,27,490/- HAVE BEEN OFFERED AS INCOME BY THE ASSESSEE AND WHEN INCOME HAS BEEN OFFERED BY THE RESPONDENT-ASSESSEE, THEN THE SAID EXPENDITURE IS CERTAINLY ALLOWABLE AS BUSINESS EXPENDITURE. FURTHERMORE, WHE N SUCH INCOME OF RS.9,12,27,490/- IS ALREADY OFFERED FOR T AXATION THEN QUESTION OF ADJUSTMENT AGAINST GRANT FROM NDDB DOES NOT ARISE. 12. WE HAVE ALSO GONE THROUGH THE JUDGMENT RELIED B Y THE OFFICER OF KERALA HIGH COURT IN SEASON RUBBER LTD. (SUPRA), HOWEVER, THE SAID JUDGMENT IS TOTALLY DISTINGUISHABLE AND NOT EV EN REMOTELY APPLICABLE TO THE FACTS OF THE INSTANT CASE. THUS, IT IS CLEAR THAT THE EXPENDITURE INCURRED IN THE SAID CASE WAS TOWARDS PRIMARY LEVEL SOCIETY MEMBER WHICH IT IS EN GAGED IN ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 67 PROCUREMENT OF MILKS AND THEREFORE, THE PURPOSE OF INCURRING THE EXPENDITURE WAS FOR INCREASING PROCUREMENT OF MILKS AND PROTECTING THE DAIRY FARMERS. ON THE OTHER HAND IN THE CASE OF THE ASSESSEE THERE IS NO NEXUS BETWEEN THE EXPENDITURE AND THE OBJECTS AND B USINESS ACTIVITY OF THE ASSESSEE. THE EXPENDITURE HAS NO DIRECT CONNECT ION/NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE THEN, IN THE ABSE NCE OF ANY PROVISIONS IN THE INCOME TAX ACT THE SAME CANNOT BE ALLOWED PR IOR TO THE INSERTION OF EXPLANATION 2 TO SECTION 37(1) W.E.F. 01.04.2015 . ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF TH E AUTHORITIES BELOW QUA THIS ISSUE. 52. GROUND NO. 1 OF THE REVENUES APPEAL IS REGARDI NG DELETION OF ADDITION MADE ON ACCOUNT OF CONTRIBUTION TO STATE R ENEWAL FUND. THIS ISSUE IS COMMON AS RAISED FOR THE ASSESSMENT YEAR 2 009-10 TO 2011-12. IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE ASSESS MENT YEAR 2009-10 TO 2011-12 WE DO NOT FIND ANY ERROR OR ILLEGALITY IN T HE ORDER OF THE CIT(A) QUA THIS ISSUE. 53. GROUND NO. 2 OF THE REVENUES APPEAL IS REGARDI NG DELETION OF ADDITION MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES. THIS ISSUE IS COMMON AS RAISED FOR THE ASSESSMENT YEAR 2009-10 TO 2011-12. IN VIEW ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 68 OF OUR FINDING ON THIS ISSUE FOR THE ASSESSMENT YEA R 2009-10 TO 2011-12 WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) QUA THIS ISSUE. 54. GROUND NO. 3 OF THE REVENUES APPEAL IS REGARD ING DISALLOWANCE ON ACCOUNT OF CONTRIBUTION TO CDOS. THIS ISSUE IS C OMMON AS RAISED FOR THE ASSESSMENT YEAR 2010-11 TO 2011-12. IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE ASSESSMENT YEAR 2010-11 TO 2011-12 WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) QUA THIS ISSUE. 55. GROUND NO. 4 OF THE REVENUES APPEAL IS REGARDI NG DEDUCTION U/S 80IA AS OTHER INCOME. THIS ISSUE IS COMMON AS RAISE D FOR THE ASSESSMENT YEAR 2009-10 TO 2011-12. IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE ASSESSMENT YEAR 2009-10 TO 2011-12 WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) QUA THIS ISSUE. 56. GROUND NO. 5 OF THE REVENUES APPEAL IS REGARDI NG DISALLOWANCE MADE U/S 14A PARTLY DELETED BY THE LD. CIT(A). THI S ISSUE IS COMMON TO THE ISSUE RAISED FOR THE ASSESSMENT YEAR 2011-12. I N VIEW OF OUR FINDING ON THIS ISSUE FOR THE ASSESSMENT YEAR 2011-12 THE G ROUND OF THE REVENUES APPEAL IS DISMISSED. ITA NO. 311 & 420/JP/2014 323/JP/2016, CO. NO. 07/J P/2016 313& 421/JP/14, 93,207,94& 208/JP/2015 69 IN THE RESULT, APPEALS OF THE ASSESSEE ARE PARTLY A LLOWED AND APPEALS OF THE REVENUES ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/02/2018 SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23/02/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ACIT/DCIT/JCIT, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 311& 420/JP/2014, 323/JP16, CO 07/JP16 313 & 421/JP/14, 93 & 207/JP/15, 94& 208/JP2015} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR