D.C.I.T Cir - 10,kolkata, Kolkata V. M/s Vesuvius India Ltd., Kolkata

ITA 2127/KOL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1454 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 15-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH
• Assessee Lawyers: HARISH AGARWAL ACA
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B, KOLKATA [BEFORE SHRI N.V. VASUDEVAN, JM & SHRI WASEEM AHMED, AM ] I.T.A. NO. 2127/KOL/2013 ASSESSMENT YEAR 2006-07 D.C.I.T. CIRCLE-10................................................APPELLANT KOLKATA 700 001 M/S. VESUVIUS INDIA LIMITED,...................RESPONDENT P-104, TARATOLLA ROAD KOLKATA - 700088 [PAN:AAACV8995Q] I.T.A. NO. 2024/KOL/2013 ASSESSMENT YEAR 2006-07 M/S. VESUVIUS INDIA LIMITED.............................APPELLANT P-104, TARATOLLA ROAD KOLKATA 700088 D.C.I.T. CIRCLE-10,................... RESPONDENT KOLKATA 700 001 APPEARANCES BY: SHRI KALYAN NATH, ADDL. CIT APPEARING ON BEHALF OF THE REVENUE. SHRI HARISH AGARWAL, ACA APPEARING ON BEHALF OF THE ASSESSEE. DATE OF CONCLUDING THE HEARING : AUGUST 22, 2017 DATE OF PRONOUNCING THE ORDER : SEPTEMBER 15, 2017 ORDER PER WASEEM AHMED, AM THESE CROSS-APPEALS FILED BY THE REVENUE AND THE ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT (APPEALS) XII, KOLKATA, DATED 12.03.2013. FIRST WE TAKE UP REVENUE APPEAL ITA 2127/KOL/2013 . REVENUE HAS RAISED FOLLOWING GROUND OF APPEAL: WHETHER LD. CIT (A) XII, KOLKATA WAS JUSTIFIED IN HOLDING THAT THE EXPENDITURE IN RESPECT OF CLUB ENTRANCE AND SUBSCRIPTION FEE OF RS. 42,83,748/- IN TOTAL WAS REVENUE IN NATURE WHEN THE AO HAD MADE THE 2 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD ADDITION ON THE GROUND THAT THE ASSESSEE DID NOT SUBMIT ANYTHING TO PROVE THAT THE EXPENDITURE WAS NOT PERSONAL IN NATURE? 2. THE SOLITARY ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT THE LD. CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 42,83,748/- ON ACCOUNT OF CLUB AND SUBSCRIPTION FEE. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF REFRACTORY & MONOLITHICS AND TRADING. 4. THE ASSESSEE DURING THE YEAR HAS CLAIMED AN EXPENSE OF RS. 42,83,748/- AS CLUB EXPENDITURE. THE DETAILS OF THE CLUB EXPENSES STAND AS UNDER: SL. NO. PARTICULARS EXPENSES 1 EXPENSES INCURRED AT VARIOUS CLUBS RS. 5,33,048/ - 2 MEMBERSHIP FEE AT VARIOUS CLUBS RS. 37,50,700/ - THE ASSESSEE, DURING THE ASSESSMENT PROCEEDINGS EXPLAINED TO THE ASSESSING OFFICER THAT ALL THE CLUB EXPENSES WERE INCURRED IN CONNECTION WITH THE BUSINESS AND THEREFORE, THESE ARE ELIGIBLE FOR DEDUCTION. HOWEVER, THE AO REQUISITIONED TO THE ASSESSEE TO FURNISH THE PAYMENT OF CLUB WISE DETAILS AS WELL AS THE PERSONS WHO VISITS TO THE CLUBS. BUT THE ASSESSEE FAILED TO FURNISH THE SAME. THEREFORE, THE AO DISALLOWED THE CLUB EXPENSES OF RS. 42,83,748/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A). THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT THE MEMBERSHIP FEES PAID TO VARIOUS CLUBS IS REPRESENTING THE CORPORATE MEMBERSHIP AND OTHER CLUB EXPENSE FOR UTILISING THE CLUB FACILITY. THE MEMBERSHIP WAS TAKEN AS CORPORATE MEMBER. THE NECESSARY DETAILS OF THE 3 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD EMPLOYEES IN WHOSE NAME, THE CORPORATE MEMBERSHIP WAS TAKEN WERE FURNISHED TO THE AO ALONG WITH THE PROOF OF PAYMENT. 6. THE ASSESSEE ALSO SUBMITTED THAT ALL THE EXPENSES UNDER THE HEAD CLUB EXPENDITURE WERE INCURRED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IN THIS REGARD, THE ASSESSEE RELIED ON VARIOUS JUDGEMENTS IN SUPPORT OF HIS CLAIM. 6.1 THE ASSESSEE ALSO SUBMITTED THAT SIMILAR ISSUE WAS ALSO THERE IN THE ASSESSMENT YEARS 2000-01 AND 2001-02 WHICH WERE DECIDED BY THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITS FAVOUR IN ITA NO. 649 & 650/KOL/2008 VIDE ORDER DATED 08.10.2009. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED MADE BY THE AO BY OBSERVING AS UNDER: APPEAL ON GROUND NO 6 IS AGAINST THE DISALLOWANCE OF RS. 42,83,748/- AS CLUB ENTRANCE AND SUBSCRIPTION FEES. THE AO IN THE ASSESSMENT ORDER HAS DISALLOWED THIS AMOUNT HOLDING THAT THE SAME WAS NOT EXPEND WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE AR IN HIS WRITTEN SUBMISSION FILED DURING THE APPELLATE PROCEEDING HAS BROUGHT ON RECORD THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 37,50,700/- TOWARDS CORPORATE MEMBERSHIP OF VARIOUS CLUBS AND RS. 5,33,048/- TOWARDS SUBSCRIPTION CHARGES. THE ASSESSEE HAS ALSO FILED A CASE LAW OF THE JURISDICTIONAL KOLKATA TRIBUNAL ON THIS ISSUE IN THE CASE OF ASSOCIATED ENGG. PRODUCTS VS ITO (63 ITD 105) (KOL). IN THIS JUDGEMENT THE KOLKATA TRIBUNAL HELD PAYMENT OF SUBSCRIPTION TO CLUB IS A REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS . SIMILAR VIEW HAS BEEN TAKEN REGARDING CLUB MEMBERSHIP BY THE JURISDICTIONAL TRIBUNAL IN THE CASE OF EVEREADY INDUSTRIES INDIA LTD. VS DCIT (78 ITD 175) (KOL). I HAVE CONSIDERED THE FINDING OF THE AO AND THE WRITTEN SUBMISSION AND CASE LAWS FILED BY THE AR. I FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE RATIO DECIDED BY THE JURISDICTIONAL TRIBUNAL IN EVEREADY INDUSTRIES LTD. (SUPRA) CASE. ACCORDINGLY, ASSESSEES APPEAL ON GROUND NO 6 IS ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), REVENUE IS IN APPEAL BEFORE US. 7. THE LD DR BEFORE US SUBMITTED THAT NECESSARY DETAILS AS DESIRED BY THE AO WERE NOT FURNISHED AT THE TIME OF ASSESSMENT. THEREFORE, IT 4 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD IS NOT CLEAR WHETHER THE EXPENSES INCURRED BY THE ASSESSEE ARE PERSONAL IN NATURE OR FOR THE BUSINESS PURPOSES. BESIDES THE ABOVE, THE LD DR SUBMITTED THAT THE CLUB EXPENSES HAVE NO NEXUS WITH THE BUSINESS OF THE ASSESSEE. THEREFORE IT SHOULD NOT BE ALLOWED AS DEDUCTION. IN THIS CONNECTION, THE LD DR RELIED ON THE ORDER OF HONBLE HYDERABAD TRIBUNAL IN THE CASE OF K.L. HYTECH SECURE PRINT LTD. VS JCIT REPORTED IN 61 TAXMANN.COM 449. ON THE OTHER HAND, THE LD AR BEFORE US SUBMITTED THAT THE EXPENDITURES UNDER THE HEAD CLUB EXPENSES WERE INCURRED FOR THE PURPOSE OF THE ASSESSEE. MOREOVER, THE MEMBERSHIP WAS CORPORATE MEMBERSHIP. THE CLUB PROVIDES FACILITY TO ITS MEMBERS FOR THE PURPOSE OF HOLDING THE BUSINESS MEETING. THE LD AR ALSO SUBMITTED THAT SIMILAR DISALLOWANCE WAS ALSO MADE BY THE AO IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. ON APPEAL, THE LD. CIT (A) DELETED THE SAME. THE REVENUE AGAINST THE DELETION MADE BY THE LD. CIT (A) HAS NOT PREFERRED ANY APPEAL BEFORE HONBLE TRIBUNAL. 8. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE THE AO HAS HELD THAT CLUB EXPENSES ARE NOT ELIGIBLE AS DEDUCTION ON THE GROUND THAT NECESSARY DETAILS WERE NOT FURNISHED. HOWEVER, THE LD. CIT (A) DELETED THE ADDITION MADE BY THE AO ON THE GROUND THAT VARIOUS TRIBUNALS / COURTS HAVE HELD THAT THE EXPENSES INCURRED IN RELATION TO CLUB ACTIVITIES ARE ELIGIBLE FOR DEDUCTION. 9. NOW THE ISSUE BEFORE US ARISE SO AS TO WHETHER THE IMPUGNED CLUB EXPENSES ARE ELIGIBLE FOR DEDUCTION FROM THE BUSINESS PROFIT OF 5 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD THE ASSESSEE. IN THIS CONNECTION, WE FIND THAT THE CLUBS PROVIDE SEVERAL KINDS OF FACILITIES SUCH AS CONFERENCES, BUSINESS MEETINGS, AS WELL AS PROVISION FOR MULTIMEDIA EXHIBITION. MANY CLUBS ALLOW MEMBERSHIP TO COMPANIES OR OTHER BUSINESS ENTITIES. THE MEMBERSHIP IS GIVEN IN NAME OF COMPANY OR OTHER CONCERN. IT IS VERY WELL KNOWN THAT THE CLUBS ARE A PLATFORM TO MEET PEOPLE. THE MEETINGS CAN BE PRIVATELY ORGANIZED OR CAN BE IN THE COURSE OF MASS MEETINGS OR GATHERINGS AT THE TIME OF FUNCTIONS OR CELEBRATIONS AT CLUB. BY VISITING CLUBS, CHANCES OF MAKING NEW CONTACTS IMPROVE. WITH NEW CONTACTS, PEOPLE CAN DO MORE INTERACTIONS WHICH CAN BE BENEFICIAL FOR BUSINESS AND PROFESSION. THEREFORE BUSINESS ORGANIZATIONS LIKE COMPANY, FIRM, BANK, CO-OPERATIVE SOCIETY ETC. FUNCTIONS THROUGH HUMAN AGENCIES WHICH MAY BE DIRECTORS OR OTHER OFFICERS OF BUSINESS ORGANIZATION. THEREFORE, BUSINESS ORGANIZATIONS PROVIDE FACILITY TO THEIR OFFICERS TO ATTEND AND AVAIL SERVICES OF CLUBS. CLUBS MAKE COMPANY OR OTHER BUSINESS ORGANIZATION AS ITS MEMBER. THIS IS GENERALLY CALLED AS CORPORATE MEMBERSHIP. THE EXPENSES MAY BE IN NATURE OF ENTRANCE FEES, ANNUAL FEES, LIFE MEMBERSHIP FEES AND REIMBURSEMENT OF ACTUAL EXPENSES ETC. THE PURPOSE OF THE EXPENDITURE IS TO HAVE A SUITABLE PLATFORM FOR MEETING WITH THE PEOPLE AND GETTING ADVANTAGES OF MEETING MANY PEOPLE AT A TIME TO MAINTAIN OLD CONTACTS AND ALSO TO MAKE NEW CONTACTS. THE MAIN PURPOSE OF THE ORGANIZATION IS TO INDUCE ITS OFFICERS TO ATTEND SUCH PLACES FOR MAINTAINING AND MAKING CONTACTS FOR THE BENEFIT OF BUSINESS. EVEN IF SOME PERSONAL ADVANTAGE IS OBTAINED BY OFFICERS, IT WILL BE IN NATURE OF MAINTAINING GOOD RELATIONS WITH OFFICERS AND IN NATURE OF STAFF WELFARE EXPENSES. THEREFORE, THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. BY OBTAINING MEMBERSHIP FOR A PERIOD OF MORE THAN ONE 6 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD YEAR, THERE MAY BE AN ADVANTAGE OF ENDURING NATURE. HOWEVER, SUCH ADVANTAGE IS IN THE FIELD OF REVENUE BENEFIT AND NOT FOR OBTAINING ANY CAPITAL ASSET OR OBTAINING BENEFIT IN CAPITAL FIELD. THEREFORE SUCH EXPENSES WILL BE OF REVENUE NATURE. BESIDES THE ABOVE, WE FIND THAT THE ASSESSEE HAS FURNISHED NECESSARY DETAILS TO THE AO AT THE TIME OF ASSESSMENT WHICH IS PLACED ON PAGE 19 OF THE PAPER BOOK. 9.1 WE ALSO NOTE THAT THE SIMILAR EXPENSES WERE ALSO CLAIMED BY THE ASSESSEE IN THE EARLIER YEARS WHICH WAS ALLOWED AS DEDUCTION. IT WAS ALSO OBSERVED THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE OWN CASE OF THE ASSESSEE IN ITAT 182 OF 2010, GA 2349 OF 2010 HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE QUESTIONS FORMULATED BEFORE THE HONBLE COURT ARE AS FOLLOWS : B. WHETHER THE LEARNED INCOME TAX APPELLATE TRIBUNAL, C BENCH, KOLKATA ERRED IN LA AND IN FACTS AND CIRCUMSTANCES OF THE CASE IN ALLOWING CLUB ENTRANCE FEES AS REVENUE EXPENDITURE THOUGH THE SAME IS CAPITAL IN NATURE SINCE THE RIGHT OF MEMBERSHIP WAS NOT LIMITED TO THAT PARTICULAR ASSESSMENT YEAR; C. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED TRIBUNAL WAS WRONG IN NOT APPRECIATING THAT CLUB ENTRANCE FEES OF RS.11,233/ OUGHT TO BE DISALLOWED ON THE GROUND THAT THE ENTRANCE FEES GAVE THE ASSESSEE A RIGHT FOR CORPORATE MEMBERSHIP AND THE RIGHT WAS NOT LIMITED TO THE YEAR BUT OVER THE YEARS FOR WHICH SUCH MEMBERSHIP CONTINUED AND AS SUCH THE LEARNED TRIBUNAL OUGHT TO HAVE HELD THE SAME AS CAPITAL EXPENDITURE. THE FINDING OF THE HONBLE COURT STANDS AS UNDER:- SIMILARLY, THE ASSESSEE COMPANY IN ORDER TO PROMOTE BUSINESS INCURRED EXPENSES THROUGH THEIR DIRECTORS AND SENIOR EXECUTIVES AND NO FAULT COULD BE FOUND EITHER UNDER THE LAW OR ON FACT FOR SPENDING THE MONEY. WE, THEREFORE, FIND THAT THE DISMISSAL OF THE 7 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD APPEAL OF THE REVENUE BY THE LEARNED TRIBUNAL IS LEGALLY AND FACTUALLY JUSTIFIED. WE ALSO FIND THAT THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE HAS DECIDED THE ABOVE ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO. 649 & 650/KOL/2008 FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 VIDE ORDER DATED 08.10.2009. THE RELEVANT EXTRACTED OF THE ABOVE IS REPRODUCED BELOW: GROUND NO. 1 IN ITA NO. 649/KOL/2008 AND GROUND NO 2 IN ITA NO. 650/KOL/2008 ARE IN RESPECT OF THE EXPENSES INCURRED ON THE CLUB ENTRANCE FEES. THE LEARNED DR RELIED ON THE ORDER OF THE AO. THE LEARNED AR ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT (A). AFTER HEARING BOTH THE SIDES, WE FIND THAT THESE EXPENSES WERE INCURRED BY THE ASSESSEE FOR THE BETTERMENT OF THE BUSINESS. THESE EXPENSES WERE FOR SMOOTH RUNNING AND TO PROMOTE AND ADVANCE THE BUSINESS. SUCH EXPENDITURE INCURRED FOR MAINTAINING THE BUSINESS CONNECTIONS CONTRACTS BY THE DIRECTORS AND SENIOR EXECUTIVES OF THE COMPANY TO IMPROVE THE BUSINESS RELATIONS AND PROSPECTS. KEEPING THESE FACTS IN VIEW AND THE CASE LAWS RELIED UPON BY THE CIT (A) FOR GRANTING RELIEF, WE FIND THAT THERE IS NO FAULT IN THE ORDER OF THE CIT (A) AND DISMISS THE GROUNDS OF THE REVENUE IN BOTH THE APPEALS. 10. THE FACTS OF THE CASE CITED BY THE LEARNED DR IN THE CASE OF K.L. HYTECH SECURE PRINT LTD. ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE IN HAND. IN THAT CASE THE HONBLE ITAT OF HYDERABAD DECIDED THE ISSUE IN FAVOUR OF REVENUE ON THE GROUND THAT THE MEMBERSHIP OF THE CLUB WAS TAKEN IN THE INDIVIDUAL NAME OF THE DIRECTOR AS WELL AS HIS FAMILY MEMBER. ALTHOUGH IN THE INSTANT CASE BEFORE US THE MEMBERSHIP OF THE CLUB WAS TAKEN IN THE NAME OF THE COMPANY AS EVIDENT FROM THE DOCUMENTS PLACED ON PAGES 20 TO 25 OF THE PAPER BOOK. THUS THE FEES WAS PAID FOR THE CORPORATE MEMBERSHIP IN THE CLUBS. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A). HENCE THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 8 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD COMING TO ASSESSEES APPEAL IN ITA NO.2024/KOL/2013 . 11. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED AND GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO RS. 58,50,000/- AS CAPITAL IN NATURE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO GROUND NO. 1 TAKEN HEREIN ABOVE, THE LD. CIT(A) WAS NOT JUSTIFIED AND GROSSLY ERRED IN NOT ALLOWING DEPRECIATION ON INTEREST EXPENDITURE DISALLOWED AS CAPITAL IN NATURE. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) WAS NOT JUSTIFIED AND GROSSLY ERRED IN NOT ALLOWING DEDUCTION CLAIMED ON ACCOUNT OF TOOLINGS PURCHASED AND UTILISED FOR PRODUCTION DURING THE YEAR AMOUNTING TO RS. 2,69,31,000/-. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN RESTRICTING THE ALLOWANCE OF CONTRACT RECEIPT INCLUDED IN SALES AT RS. 13,86,95,057/- INSTEAD OF RS. 13,95,05,048/- DISALLOWED IN THE ORDER U/S 143(3) DATED 31.12.2009. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN NOT DECIDING IN NOT DECIDING THE GROUND AGAINST EXCESS LEVY OF INTEREST U/S 234C OF RS. 8,19,107/- ON MERITS AND HOLDING THAT THE SAME IS CONSEQUENTIAL IN NATURE. 6. THAT THE APPELLANT CRAVES LEAVES TO ADD, TO AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HERE-IN-ABOVE, EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 12. AT THE OUTSET, THE LD AR BEFORE US SUBMITTED THAT HE HAS BEEN INSTRUCTED BY THE ASSESSEE NOT TO PRESS GROUND NO 3 AND 5. THE LD. DR ALSO RAISED NO OBJECTION ON THE SUBMISSION OF THE LD. AR. THEREFORE, WE ARE DISMISSING BOTH THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS NOT PRESSED. 9 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD 13. THE FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO. 1 AND 2 IS THAT LD. CIT (A) ERRED IN CONFIRMING THE ORDER OF AO BY TREATING THE INTEREST EXPENSES OF RS. 58,50,000/- ONLY AS CAPITAL IN NATURE. THE LD. CIT-A SUB-SEQUENTIALLY ALSO NOT ALLOWED THE DEPRECIATION ON SUCH CAPITAL EXPENDITURE. 14. THE ASSESSEE IN ITS BALANCE SHEET AS ON 31.03.2005 AND 31.03.2006 HAS SHOWN CAPITAL WORK IN PROGRESS FOR RS. 2,99,08,000/- AND RS. 14,89,16,000/- RESPECTIVELY. THE ASSESSEE HAS ALSO DEBITED IN ITS PROFIT AND LOSS ACCOUNT FOR RS. 58,50,000/- AS INTEREST ON BORROWINGS. ON THE BASIS OF ABOVE FIGURES THE AO OPINED THAT BORROWED FUNDS HAS BEEN UTILISED BY THE ASSESSEE IN THE CAPITAL WORK IN PROGRESS AND THEREFORE THE ASSESSEE SHOULD HAVE CAPITALISED THE AMOUNT OF INTEREST EXPENSES. ACCORDINGLY THE AO CALLED UPON THE ASSESSEE TO JUSTIFY THE CLAIM OF INTEREST EXPENSE. IN COMPLIANCE THERETO THE ASSESSEE MADE A REPLY VIDE LETTER DATED 15.12.2009 THAT THE CAPITAL WORK IN PROGRESS WAS CAPITALISED DURING THE F.Y. 2006-07 AND FURNISHED THE NECESSARY DETAILS IN SUPPORT OF ITS CLAIM. 15. HOWEVER, THE AO OBSERVED THAT THE REPLY OF THE ASSESSEE IS SILENT ABOUT THE CLAIM OF THE INTEREST MADE BY IT DURING THE YEAR I.E. FINANCIAL YEAR 2005-06. THEREFORE THE AMOUNT OF INTEREST WAS DISALLOWED BY THE AO BY OBSERVING AS UNDER: IN ABSENCE OF SUCH DETAIL THE UNDERSIGNED IS LEFT WITH NO ALTERNATIVE BUT TO CALCULATE THE INTEREST PERTAINING TO THE PERIOD WITH RESPECT TO OPENING CAPITAL WORK IN PROGRESS, ADDITION DURING THE YEAR AND CAPITALIZED DURING THE YEAR AS PER PROVISION OF SECTION 36(1)(III) OF THE I.T. ACT ON AVERAGE BASIS. THE PROVISION CLEARLY SPEAKS THAT INTEREST HAS TO BE CAPITALIZED TO THE DATE ON WHICH SUCH CAPITAL ASSET IS PUT TO USE. IN ABSENCE OF NECESSARY 10 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD DETAIL, ONLY AVERAGE RATE FOR THE INTEREST AND CAPITAL WORK IN PROGRESS IS BEING TAKEN FOR THE CALCULATION OF INTEREST. OPENING CAPITAL WORK IN PROGRESS IS RS. 2,99,08,000 CLOSING CAPITAL WORK IN PROGRESS IS RS. 14,89,16,000 AVERAGE CAPITAL WORK IN PROGRESS RS. 8,94,12,000 INTEREST DEBITED IS RS. 58,50,000 RATE OF INTEREST AT WHICH LOAN TAKEN 10% INTEREST ON AVERAGE CAPITAL WORK IN PROGRESS @ 10% RS. 89,41,200 INTEREST CAPITALIZED RS. NIL INTEREST NOT CAPITALIZED BUT DEBITED TO P/L A/C CONSIDERING IT AS REVENUE EXPENDITURE RS. 58,50,000 FROM THE ABOVE CALCULATION, IT IS APPARENT THAT THE ASSESSEE SHOULD HAVE CAPITALIZED RS. 58,50,000 BUT HAS NOT CAPITALIZED. IN THE CIRCUMSTANCES THE TOTAL AMOUNT OF INTEREST OF RS. 58,50,000 IS BEING DISALLOWED CONSIDERING IT TO BE CAPITALIZED AS PER PROVISION OF SECTION 36(1)(III) OF THE I.T. ACT. 16. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT (A). THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED AS UNDER: 1. THERE WAS SUFFICIENT INTERNAL ACCRUAL DURING THE F.Y. ENDING 31.03.2005 AND 31.03.2006 RESPECTIVELY FOR RS. 89,71,65,000/- AND RS. 1019969000/-. ALL THE INVESTMENTS IN THE CAPITAL WORK IN PROGRESS IN THE EARLIER YEAR AS WELL AS DURING THE YEAR WERE MADE OUT OF ITS OWN FUND/ RESERVE & SURPLUS. NO BORROWED FUND OF WHATSOEVER WAS USED IN THE CAPITAL WORK IN PROGRESS. ACCORDINGLY, THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE FOR THE INTEREST EXPENSES CLAIMED BY IT DURING THE YEAR. 2. THE ASSESSEE FURTHER SUBMITTED THAT THE INTEREST WAS PAID ON THE WORKING CAPITAL LOAN BORROWED FROM THE BANK. 11 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD THE DETAILS OF INTEREST PAID ON THE WORKING CAPITAL LOAN STANDS AS UNDER: NATURE OF INTEREST NAME OF THE BANK INTEREST AMOUNT INTEREST ON OVERDRAFT BSBC 17,73,108 INTEREST ON WORKING CAPITAL LOAN HSBC 20,08,476 INTEREST ON PACKING CREDIT LOAN HSBC 11,16,157 INTEREST ON WORKING CREDIT LOAN IDBI 3,59,918 INTEREST ON WORKING CAPITAL LOAN HDFC 1,34,247 COMPLIANCE OF AS-16-ADJUSTMENT OF EXCHANGE LOSS HSBC 4,57,785 TOTAL 58,49,691 THE BORROWED FUND WAS USED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS AND NO PART OF IT WAS UTILIZED FOR THE CAPITAL WORK IN PROGRESS. 3. THE NET WORKING CAPITAL OF THE ASSESSEE AS ON 31.03.2006 IS RS. 86,26,17,000/- WHICH IS FAR ACCESS OF THE WORKING CAPITAL LOAN BORROWED BY IT. THUS IT CAN BE INFERRED THAT NO BORROWED FUND HAS BEEN UTILISED IN THE CAPITAL WORK IN PROGRESS. 4. THE ASSESSEE WAS MAINTAINING AN OVERDRAFT CURRENT ACCOUNT WITH HSBC WHICH IS USED FOR MIXED PURPOSES. AS SUCH DEPOSIT OF TRADING RECEIPTS AND PAYMENT OF ALL THE EXPENSES WERE MADE THROUGH THIS ACCOUNT. THE TRADING DEPOSIT IN THE SAID ACCOUNT DURING THE YEAR IS OF RS. 2,45,21,38,071/- WHEREAS THE CREDIT AVAILED FROM THE BANK DURING THE YEAR WAS OF RS. 68,15,19,881/- ONLY. THUS IT IS CLEAR THAT THE DEPOSIT OF TRADING RECEIPTS IN THE ACCOUNT WAS MUCH MORE THAN THE AMOUNT OF WORKING CAPITAL LOAN AVAILED FROM IT. AS SUCH THE ACCOUNT WAS USED FOR MIXED PURPOSES AND THEREFORE NO DISALLOWANCE OF WHATSOEVER IN THE GIVEN 12 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD CIRCUMSTANCES CAN BE MADE. THE LEARNED AR IN SUPPORT OF HIS CLAIM HAS RELIED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340. 5. THE ASSESSEE ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE FURTHER SUBMITTED THAT IF AT ALL THE INTEREST EXPENSES NEED TO BE CAPITALISED THEN THE DEPRECIATION ON THE SAME SHOULD BE ALLOWED. HOWEVER, THE LD. CIT (A) AFTER HEARING THE CONTENTIONS OF THE ASSESSEE HAS CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER: APPEAL ON GROUND NO 4 AND 5 ARE AGAINST THE DISALLOWANCE OF RS. 58,50,000/- AS INTEREST EXPENDITURE CAPITAL IN NATURE. THE AO HAS GIVEN HIS FINDING IN THE ASSESSMENT ORDER THAT INTEREST HAS TO BE CAPITALIZED U/S 36(1)(III) OF THE I.T. ACT, 1961 AT RS. 89,41,200/- BY OVERAGING ON OPENING AND CLOSING OF CWIP AND MULTIPLYING THE SAME WITH THE RATE OF INTEREST OF 10%. HOWEVER, SINCE THE ACTUAL INTEREST INCURRED DURING THE YEAR ON THIS HEAD WAS RS. 58,50,000/-. DURING THE APPELLATE PROCEEDING THE AR HAS SUBMITTED SOME DETAILS, THE SAME WERE SENT TO THE AO WITH THE DIRECTION TO ASK ASSESSEE TO FURNISH COMPLETE DETAILS AND AFTER VERIFICATION TO SUBMIT THE REMAND REPORT. THE AO HAS SUBMITTED HIS REPORT ON THIS ISSUE VIDE REMAND REPORT VIDE LETTER NO DCIT CIR-10/KOL/REMAND REPORT/2011- 12/846 DTD. 27.06.2011. IF SAYS THE ASSESSEE DID NEITHER PRODUCE THE RELEVANT BANK ACCOUNTS NOR THE FUND FLOW/CASH FLOW STATEMENT TO SUPPORT ITS CONTENTION. THE ASSESSEE ALSO DID NOT FURNISH ANY EVIDENCE REGARDING UTILIZATION OF BORROWED FUND FOR WORKING CAPITAL REQUIREMENT. IN THE ABSENCE OF SUCH DETAILS, THE ORDER OF THE ASSESSING OFFICER APPEARS TO BE JUSTIFIED. I HAVE CONSIDERED THE WRITTEN SUBMISSION FILED BY THE AR AND THE REMAND REPORT OF THE AO ON THIS ISSUE. I FIND THAT THE AR / ASSESSEE DID NOT PRODUCE ALL THE REQUIRE DETAILS/RELEVANT DOCUMENTS EITHER IN THE ASSESSMENT PROCEEDING OR IN THE APPELLATE PROCEEDING OR BEFORE THE AO OF THE REMAND STATE. SINCE, COMPLETE DETAILS HAVE NOT BEEN FILED OR PRODUCED BEFORE THE AR. THEREFORE, THE CLAIM OF THE ASSESSEE CANNOT BE VERIFIED, ACCORDINGLY, ASSESSEES APPEAL ON GROUNDS NO 4 AND 5 DISMISSED. 13 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), THE ASSESSEE IS AS SECOND APPEAL BEFORE US. 17. THE LD AR BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 101 AND ALSO SUBMITTED WRITTEN STATEMENT THAT ALL THE NECESSARY DETAILS WERE DULY SUBMITTED TO THE LOWER AUTHORITIES AT THE TIME OF ASSESSMENT AND APPELLATE PROCEEDINGS. THE LD AR IN THIS CONNECTION DREW OUR ATTENTION ON PAGES 51 AND 52 OF THE PAPER BOOK WHERE THE NECESSARY DETAILS OF THE INTEREST AS WELL AS WORKING CAPITAL LOAN WERE PLACED. 17.1 THE ASSESSEE ALSO SUBMITTED THAT AS PER THE AGREEMENT WITH THE BANK, IT WAS NOT ALLOWED TO USE THE WORKING CAPITAL LOAN OTHER THAN WORKING CAPITAL REQUIREMENT. IN THIS CONNECTION, THE LEARNED AR PRODUCED THE COPIES OF SANCTIONED LETTERS BY THE BANK WHICH ARE PLACED ON PAGES 53 TO 92 OF THE PAPER BOOK. ON A PERUSAL OF SANCTIONED LETTER BY THE BANKS IT WAS OBSERVED THAT THE LOANS WERE GIVEN ONLY FOR THE PURPOSE OF WORKING CAPITAL REQUIREMENT. THE ALLEGATION OF THE AO IN THE REMAND REPORT THAT IT FAILED TO FURNISH THE NECESSARY DETAILS IN CONNECTION WITH THE INTEREST EXPENSES IS BASELESS. IT IS BECAUSE OF THE FACT THAT THE NECESSARY DETAILS WERE DULY SUBMITTED BY THE ASSESSEE BEFORE THE AO AS EVIDENT FROM THE PAPER BOOK FILED BEFORE US. 17.2 THE LD AR ALSO SUBMITTED THAT AS PER THE AGREEMENT WITH THE BANK IN CONNECTION WITH THE WORKING CAPITAL LOAN, THERE WAS A PENALTY CLAUSE IF THE ASSESSEE USES THE BORROWED FUND OTHER THAN WORKING CAPITAL REQUIREMENT. THEREFORE, THERE WAS NO POSSIBILITY FOR USING THE WORKING CAPITAL LOAN FOR THE PURPOSE OF CAPITAL WORK IN PROGRESS. AS SUCH THERE WAS NO NEED TO PRODUCE IN CASH FLOW AND FUND STATEMENT TO 14 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD THE AO IN ORDER TO VERIFY WHETHER THE BORROWED FUND WERE UTILISED IN THE CAPITAL WORK PROGRESS. 17.3 THE LD AR ALTERNATIVELY SUBMITTED BEFORE US THAT IF INTEREST EXPENDITURE IS NOT ALLOWED AS DEDUCTION THEN IT SHOULD BE ALLOWED THE DEPRECIATION ON IT AS PER THE PROVISIONS OF THE ACT. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE AGREEMENT WITH THE BANK IS NOT FOOLPROOF EVIDENCE SUGGESTING THAT THE BORROWED FUND HAS NOT BEEN UTILISED BY THE ASSESSEE IN THE IMPUGNED CAPITAL WORK IN PROGRESS. THEREFORE, IT WAS THE DUTY OF THE ASSESSEE TO SUBMIT THE DOCUMENT TO JUSTIFY THAT NO BORROWED FUND HAS BEEN UTILISED IN THE IMPUGNED CAPITAL WORKING IN PROGRESS. THEREFORE, THE PRODUCTION OF FUND FLOW AND CASH FLOW IN RELATION TO THE INVESTMENT MADE IN THE IMPUGNED CAPITAL WORK IN PROGRESS WAS NECESSARY. 18. THE ASSESSEE HAS FAILED TO SUBMIT THE NECESSARY DETAILS AS DESIRED BY THE AO IN THE ORIGINAL AS WELL AS IN THE REMAND PROCEEDINGS. IN THIS CASE THE ASSESSEE HAS SUFFICIENT FUND THEN THERE WAS NO NEED TO BORROW THE FUND FROM THE BANK. INDEED THERE WAS SUFFICIENT FUND AVAILABLE WITH THE ASSESSEE FOR THE PURPOSE OF INVESTMENT BUT THE ASSESSEE FAILED TO GIVE ANY EVIDENCE TO PROVE THAT BORROWED FUND HAS NOT BEEN UTILISED IN THE CAPITAL WORK IN PROGRESS. THEREFORE, THE MATTER SHOULD BE RESTORED BACK TO THE AO FOR FRESH ADJUDICATION. 19. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES AND PERUSED RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES WHETHER THE BORROWED FUND HAS BEEN DIVERTED IN THE CAPITAL WORK IN PROGRESS. THE AO HAS HELD THAT BORROWED FUND HAS BEEN UTILISED IN THE CAPITAL WORKING IN PROGRESS AND CONSEQUENTIALLY 15 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD THE INTEREST CLAIMED IN THE PROFIT AND LOSS ACCOUNT IS NOT ELIGIBLE FOR DEDUCTION U/S 36(1)(III) OF THE ACT. THE AO MADE HIS OPINION ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH THE NECESSARY DETAILS TO JUSTIFY ITS CLAIM OF INTEREST EXPENSES. THE VIEW TAKEN BY THE AO WAS ALSO CONFIRMED BY THE LD. CIT (A) ON SIMILAR BASIS. 19.1 ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2006, IT WAS OBSERVED THAT THE ASSESSEE HAS TAKEN FOLLOWING LOANS FROM THE BUSINESS: NATURE OF LOAN AMOUNT (RS) WORKING CAPITAL LOAN FROM HSBC 9,00,00,000 PACKING CREDIT LOAN FROM HSBC 2,23,80,000 WORKING CAPITAL LOAN FROM IDBI 3,00,00,000 OVERDRAFT FACILITY FROM HSBC 3,08,25,000 TOTAL 17,32,05,000 20. THE CLAIM OF THE AR BEFORE US WAS THAT ALL THE ABOVE LOANS WERE TAKEN FOR THE PURPOSE OF WORKING IN CAPITAL. AS PER THE AGREEMENT SUCH LOAN COULD BE USED ONLY FOR THE PURPOSE OF WORKING CAPITAL REQUIREMENTS, OTHERWISE PENAL PROVISION WOULD BE ATTRACTED. THE LEARNED AR IN SUPPORT OF HIS CLAIM HAS PRODUCED NECESSARY DOCUMENTS IN THE FORM OF SANCTIONED LETTER WHICH ARE PLACED ON PAGES 53 TO 92 OF THE PAPER BOOK. INDEED ON PERUSAL OF SANCTIONED LETTERS IT WAS OBSERVED THAT THE LOANS CAN ONLY BE UTILISED FOR THE PURPOSE OF THE WORKING CAPITAL REQUIREMENT. HOWEVER, THE ARGUMENT OF THE LEARNED DR IS THAT THE SANCTIONED LETTERS IS NOT SUFFICIENT ENOUGH TO PROVE THAT NO BORROWED FUND WERE UTILISED IN THE CAPITAL WORK-IN-PROGRESS. IN THE LIGHT OF ABOVE DISCUSSION, WE FIND BY LOWER AUTHORITIES THAT NO DETAIL WAS SUBMITTED IN RELATION TO THE INTEREST EXPENSES WHICH WERE 16 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD NOT PROPER. IT IS BECAUSE NONE OF THE AUTHORITY HAS BROUGHT ON RECORD, THE PAPERS WHICH WERE NOT SUBMITTED BY ASSESSEE AS DESIRED BY THEM. 21. IT WAS OBSERVED THAT THE ASSESSEE WAS USING ITS ACCOUNT MAINTAINED WITH HSBC BANK FOR MIXED PURPOSES. AS SUCH ALL THE TRADING RECEIPTS WERE DEPOSITED IN ITS ACCOUNT AS WELL AS OF BUSINESS EXPENSES WERE MET THROUGH THIS BANK ACCOUNT. THUS IT WAS THE MIXED ACCOUNT OF THE ASSESSEE. THERE IS NO DISPUTE THAT THE CAPITAL OF THE ASSESSEE WAS MUCH MORE THAN THE WORKING CAPITAL BORROWING AS EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE WHICH IS PLACED ON PAGES 10 OF THE PAPER BOOK. THE RELEVANT EXTRACTED OF THE BALANCE SHEET STANDS AS UNDER: VESUVIUS INDIA LTD. BALANCE SHEET AS AT MARCH 31, 2006 RS.000 SCHEDULE AS AT MARCH AS AT MARCH NO 31, 2006 31, 2005 SOURCES OF FUNDS 1. SHAREHOLDERS FUNDS SHARE CAPITAL 1 202,901 202,961 RESERVES & SURPLUS 2 1,089,969 1,292,930 897,165 2. LOAN FUNDS UNSECURED LOANS 3 173,205 ---- WE FURTHER NOTE THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA) HAS HELD THAT WHERE THE OWN FUND OF THE ASSESSEE IS GREATER THAN THE BORROWED FUNDS, THEN AN INFERENCE CAN BE DRAWN THAT NO BORROWED FUND HAS BEEN UTILISED IN THE INVESTMENT. THEREFORE, WE CAN DRAW THE PRINCIPLES LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA) ON THE GROUND THAT THE OWN FUND OF THE ASSESSEE IS MUCH MORE THAN THE BORROWED FUND. RELEVANT EXTRACTED OF THE JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA) STANDS AS UNDER: 17 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD.'S CASE (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD.'S CASE (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.'S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT (APPEALS) AND ITAT. 22. ON PERUSAL OF THE ABOVE ORDER, WE NOTICE THAT THE RATIO LAID DOWN BY THE HONBLE COURT IS CLEARLY APPLICABLE TO THE FACTS OF THE ASSESSEE. IN THE INSTANT CASE WE NOTICE THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE BORROWED FUND AS EVIDENT FROM ITS BALANCE SHEET AS DISCUSSED ABOVE. RESPECTFULLY, FOLLOWING THE SAME WE HOLD THAT NO BORROWED FUND HAS BEEN UTILISED BY THE ASSESSEE IN THE IMPUGNED CAPITAL WORK-IN-PROGRESS. CONSEQUENTIALLY, THERE IS NO REASON FOR MAKING THE DISALLOWANCE OF INTEREST EXPENSES. AS WE HAVE DELETED THE ADDITION MADE BY THE LOWER AUTHORITIES ON ACCOUNT OF INTEREST EXPENSES, WE REFRAIN OURSELVES FROM ADJUDICATING THE ALTERNATE ARGUMENT TAKEN BY THE AR FOR CLAIMING THE DEPRECIATION. IN VIEW OF THE ABOVE, WE REVERSE THE ORDER OF LOWER AUTHORITIES. HENCE THE GROUNDS OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 18 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD 23. THE NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.4 OF THIS APPEAL IS THAT LD. CIT (A) ERRED IN RESTRICTING THE RELIEF TO THE ASSESSEE FROM RS. 139505048/- TO RS. 138695057/- I.E. CONFIRMED THE DISALLOWANCE OF RS. 809991/- ONLY. 24. THE ASSESSEE DURING THE YEAR HAS SHOWN FOLLOWING GROSS INCOME: SCHEDULE 12 SALE MANUFACTURING - 207,59,90,000/- TRADING 46,68,40,000/- TOTAL 2,5428,30,000/- SCHEDULE 13 OTHER INCOME COMMISSION INCOME 78,63,000/- INTEREST FROM BANK 1,32,000/- OTHERS 21,51,000/- MISC. INCOME 1,56,29,000/- TOTAL 2,57,75,000/- 25. ON THE BASIS OF ABOVE, THE AO OBSERVED THAT THE ASSESSEE HAS NOT SHOWN ANY CONTRACT RECEIPTS IN ITS INCOME THOUGH IT HAS CLAIMED TDS FOR RS. 30,68,178/- DEDUCTED U/S 194C OF THE ACT. ACCORDINGLY THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED BENEFIT OF TDS AMOUNTING TO RS. 30,68,173/- ONLY BUT FAILED TO DECLARE CORRESPONDING CONTRACT RECEIPT ON SUCH TDS AMOUNT FOR RS. 13,95,05,048/-. ACCORDINGLY, THE AO CALLED UPON THE ASSESSEE TO JUSTIFY ITS CONTRACT RECEIPT OF RS. 13,95,05,048/-. THE ASSESSEE IN RESPONSE TO THE NOTICE OF THE AO SUBMITTED ITS REPLY VIDE LETTER DATED 29.12.2009 BY SUBMITTING THAT THE AMOUNT OF CONTRACT RECEIPT HAS BEEN SHOWN IN THE GROSS RECEIPT AS SHOWN IN THE AUDIT PROFIT AND LOSS ACCOUNT. THE ASSESSEE SUBMITTED AN ANNEXURE NO. 2 SHOWING THE GROSS RECEIPT OF RS. 5,67,81,802/- ONLY. 19 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD 26. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE FAILED TO RECONCILE THE TDS CLAIMED BY IT FOR RS. 30,68,178/- WITH ITS GROSS INCOME SHOWN IN THE AUDITED BALANCE SHEET. THEREFORE, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 27. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE RECEIPT CORRESPONDING TO THE TDS AMOUNT HAS BEEN DULY SHOWN IN THE GROSS INCOME. THE LD. CIT (A) CALLED FOR THE REMAND REPORT FROM THE AO WHO ADMITTED THAT THE RECEIPT TO THE TUNE OF RS. 13,83,55,055/- HAS BEEN DULY RECONCILED. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AS WELL AS THE REMAND REPORT HAS DELETED THE ADDITION MADE BY THE AO IN PART BY OBSERVING AS UNDER: I HAVE CONSIDERED THE WRITTEN SUBMISSION OF THE AR AND FINDING OF THE AO IN HIS ASSESSMENT ORDER AS WELL AS AOS FINDING IN THE REMAND REPORT AFTER VERIFICATION OF DETAILS FILED BY THE AR ASSESSEES APPEAL ON THIS GROUND IS ALLOWED TO THE TUNE OF RS. 138695057/-. THUS, ASSESSEES APPEAL ON GROUNDS NO 2 AND 3 ARE PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), THE ASSESSEE IS A SECOND APPEAL BEFORE US. 28. THE LD AR BEFORE US SUBMITTED THAT THE ACTUAL SERVICE INCOME IS RS. 13,83,55,055/- INSTEAD OF RS. 13,95,05,048/- ON WHICH TDS CREDIT OF RS. 29,21,896/- HAS BEEN CLAIMED IN THE ROI. THE AO IN THE ORDER U/S 143(3) HAS COMMITTED VARIOUS ERRORS IN COMPUTING SERVICE INCOME OF RS. 13,95,05,048/-. A RECONCILIATION STATEMENT IDENTIFYING THE ERRORS COMMITTED IN THE ORDER U/S 143(3) IS ENCLOSED AS ANNEXURE 1 PAGE 3 TO 5 OF THE PAPER BOOK . 20 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD IN THE REMAND REPORT DATED 27.06.2011 ENCLOSED ON PAGES 46-48 OF THE PAPER BOOK, THE AO HAS STATED THAT ACTUAL SERVICE INCOME ON WHICH TDS CREDIT OF RS. 29,21,896/- HAS BEEN CLAIMED IS RS. 13,83,55,055/-. HOWEVER WHILE COMMENTING ON THE SERVICE INCOME OF RS. 13,95,05,048/- COMPUTED IN THE ORDER U/S 143(3), THE AO STATED THAT SERVICE INCOME FROM TATA STEEL LTD. WAS CONSIDERED AT RS. 14,96,000/- INSTEAD OF RS. 3,86,003/-. HENCE, SERVICE INCOME SHALL BE RS. 13,86,95,051/- [RS. 13,95,05,048/- - (RS. 14,96,000/- - RS. 3,86,003/-)] INSTEAD OF RS. 13,95,05,048/-. DURING THE COURSE OF REMAND PROCEEDINGS, IT HAS BEEN PROVED TO THE SATISFACTION OF THE AO THAT THE ENTIRE SERVICE INCOME ON WHICH TDS CREDIT HAS BEEN CLAIMED, IS INCLUDED UNDER THE HEAD SALES AND HENCE OFFERED TO TAX. HENCE RELIEF SHALL BE GRANTED FOR THE ENTIRE SERVICE INCOME OF RS. 13,95,05,048/- WHICH HAS BEEN DISALLOWED IN THE ASSESSMENT ORDER U/S 143(3) INSTEAD OF SERVICE INCOME OF RS. 13,86,95,051/-. ON THE OTHER HAND, THE LD DR SUBMITTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR THE PURPOSE OF RECONCILIATION. THE LEARNED AR IN HIS REJOINDER RAISED NO OBJECTION, IF THE MATTER IS RESTORED BACK BY THE AO. 29. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES AND PERUSED RELEVANT MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE ADDITION MADE BY THE AO TO THE TUNE OF RS. 13,09,05,048/- ON THE GROUND THAT THE ASSESSEE HAS NOT SHOWN THE SAID AMOUNT IN ITS INCOME. HOWEVER, THE AO IN ITS REMAND REPORT HAS ADMITTED THAT THE ASSESSEE HAS SHOWN INCOME IN ITS BOOKS OF ACCOUNTS TO THE TUNE OF RS. 13,83,55,055/-. ACCORDINGLY THE RELIEF WAS GRANTED BY THE LD. CIT (A). 21 I.T.A. NOS. 2127 & 2024 887/KOL/2013 M/S VESUVIUS INDIA LTD 29.1 HOWEVER, ON PERUSAL OF ABOVE DETAILS, WE FIND THAT THERE IS STILL AN AMOUNT OF RS. 8,09,991/- WHICH NEEDS TO THE RECONCILED. BOTH THE PARTIES BEFORE US AGREED TO RESTORE THIS ISSUE TO THE FILE OF AO FOR THE PURPOSE OF RECONCILIATION. IN VIEW OF THE ABOVE, WE RESTORE BACK THE ABOVE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. HENCE THIS GROUND OF APPEAL FOR ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THAT OF APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 SEPTEMBER, 2017. SD/- SD/- (N.V. VASUDEVAAN) (WASEEM AHMED) (JUDICIAL MEMBER) ACCOUNTANT MEMBER DATED: 15/09/2017 BISWAJIT, SR. P.S. COPY OF ORDER FORWARDED TO: 1. M/S. VESUVIUS INDIA LTD., KOLKATA. 2. DCIT, CIR-10, KOLKATA. 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA