DCIT, Circle - 8, Kolkata, Kolkata V. M/s. E.I.H. Ltd., Kolkata

ITA 2182/KOL/2006

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100279 (ITAT-KOLKATA)
• Duration Of Justice: 8 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 23-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 29-12-2006
• Court: TRIBUNAL
• Department Lawyers: RAJAT SUBH RA BISWAS LD
• Assessee Lawyers: R N BAJORIA SR ADVOCAT
• Keywords: Gift; Business income; Depreciation; Transfer pricing; Business expenditure; Double taxation relief; Rule of consistency; Earning of tax free income; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Additional evidence; Permanent establishment; Bad and doubtful debts; Corroborative evidences; Notional interest; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 37; 28; 143(3); 80HHC; 14A

Judgement Text

ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH,JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NOS. 2182/KOL/2006, 1876/KOL/2007 & 196/KOL/20 10 A.YS 2003-04, 2004-05 & 2005-06 DCIT, CIR-8, KOLKATA VS. M/S. E I H LIMITED PAN:AAACE6898B (APPELLANT) (RESPONDENT) ITA NOS.57, 1846/KOL/2007 & 299/KOL/2010 AYS. 2003-04, 2004-05 & 2005-06 M/S. E I H LIMITED VS. JCIT (OSD) INCHARGE/DCI T, CIR-8, KOLKATA (APPELLANT) (RESPONDENT) FOR THE APPELLANT/DEPARTMENT: SHRI RAJAT SUBH RA BISWAS, LD.CIT/DR FOR THE RESPONDENT/ASSESSEE : S HRI R.N BAJORIA, SR.ADVOCATE & SHRI A.K GUPTA, FCA, LD.ARS DATE OF HEARING: 03-12 -2015 DATE OF PRONOUNCEMENT: 9 -12-2 015 ORDER SHRI M.BALAGANESH, AM : THESE APPEALS OF THE ASSESSEE AND THE REVENUE ARIS E OUT OF THE ORDERS OF THE LEARNED CIT(A)-XIII, KOLKATA IN APPEAL NO. 47/CIT(A )-VIII/KOL./CIR.-8/2006-07 DATED 20.10.2006 FOR ASST YEAR 2003-04 ; APPEAL NO. 215/CIT(A)-VIII/KOL/CIR- 8/2006-07 DATED 21.05.2007 FOR ASST YEAR 2004-05 AND; APPEAL NO. 292/CIT[A]- XIII/CIR-8/08-09 DATED 23.11.2009 FOR ASST YEAR 200 5-06 AGAINST THE ORDERS OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 2 2. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE A PPEALS, THEY ARE TAKEN UP TOGETHER FOR ADJUDICATION AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 57 / KOL / 2007 ASST YEAR 2003-04 ASSES SEES APPEAL 3. DISALLOWANCE U/S 40(A) (I) OF THE ACT IN RESPEC T OF PROFESSIONAL AND CONSULTANCY FEES PAID TO NON-RESIDENTS RS. 12,99, 57,302/ - THE BRIEF FACTS OF THIS ISSUE IS THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO OBSERVED HUGE PAYMENTS MADE BY THE ASSES SEE AND REFLECTED UNDER EXPENDITURE IN FOREIGN CURRENCY IN NOTE NO. 26(A) TO NOTES ON ACCOUNTS TO THE FINANCIAL STATEMENTS RELATING TO PROFESSIONAL, CONS ULTANCY AND OTHER MATTERS. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE SA ME TOGETHER WITH COMPLIANCE OF TDS PROVISIONS THEREON. THE ASSESSEE FILED REPLIES VID E LETTERS DATED 21.11.2005 AND 3.3.2006. THE BREAK UP OF THE AFORESAID EXPENDITUR E OF RS. 12,99,57,302/- IS AS BELOW:- PROFESSIONAL CHARGES 4,95,97,116 CONSULTANCY CHARGES 2,49,99,455 AMOUNTS REMITTED ON BEHALF OF HEAD OFFICE BY THE OB EROI GRAND, KOLKATA 4,51,65,514 AMOUNTS REMITTED ON BEHALF OF OTHER UNITS THE OBEROI NEW DELHI 19,58,824 (TAX DEDUCTED WHERE VER APPLICABLE) OBEROI GRAND KOLKATA 1,49,914 (TAX DEDUCTED) OBEROI TOWERS MUMBAI 12,27,111 (TAX DEDUCTED) THE OBEROI MUMBAI 4,84,906 (TAX DEDUCTED) THE OBEROI BANGALORE 3,37,195 (TAX DEDUCTED) CECIL SHIMLA 1,13,655 (TAX DEDUCTED) EIH DELHI 27,51,051 (TAX DEDUCTED) UDAIVILAS UDAIPUR 31,72,561 (TAX DEDUCTED WHEREVE R APPLICABLE) -------------- ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 3 1,01,95,217 ------------------- TOTAL 12,99,57,302 -------------------- 3.1. THE LEARNED AO DISALLOWED THE AFORESAID EXPE NDITURE ON THE GROUND THAT TDS OBLIGATIONS WERE NOT COMPLIED WITH BY THE ASSESSEE IN RESPECT OF THE SAID PAYMENTS WHICH WAS ALSO UPHELD BY THE LEARNED CIT(A). AGGRI EVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE DISALLOWANCE OF RS.12,99,57,302/- MADE UNDER SECTIO N 40(A)(I) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) ON PROFESSIONAL & CONSULTANCY FEES PAID TO NON RESIDEN TS IGNORING THE FACT THAT SUCH FEES WAS NOT SUBJECT TO TAX IN INDIA REQUIRING NO TAX WITHHOLDING UNDER SECTION 195. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE THE FACT THAT DISALLOWANCE U/S. 40(A)(I) COULD ONLY BE MADE WHERE TAX IS DEDUC TIBLE U/S. 195 AND THE ASSESSEE HAD FAILED TO DEDUCT SUCH TAX. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT CONSIDERING THAT LEGAL FEES AND OTHER PROFESSIONAL FEES RENDERED FROM OUTSIDE INDIA IS NOT TAXABLE IN INDIA EVEN UNDER SECTION 9(1)(VII) OF THE ACT. 3.2. THE LEARNED AR STATED THAT IN RESPECT OF SOME PROFESSIONAL CHARGES, THE ACTUAL SERVICES WERE RENDERED OUTSIDE INDIA BY THE NON-RES IDENT CONSULTANTS AND NONE OF THEM HAVE ANY PERMANENT ESTABLISHMENT IN INDIA AND AS SU CH IT RESULTED IN NO INCOME ACCRUING AND ARISING IN INDIA AND ACCORDINGLY NOT T AXABLE IN INDIA. THE LEARNED AR TOOK US TO THE RELEVANT PAGES OF THE PAPER BOOK FIL ED BY THE ASSESSEE TO EXPLAIN THE CONTENTIONS OF THE ASSESSEE AND ALSO STATED THAT TH ESE DETAILS WERE ALSO DULY FILED BEFORE THE LOWER AUTHORITIES. HE ARGUED THAT THE ASSESSE E CANNOT BE EXPECTED TO FORESEE AN AMENDMENT IN THE STATUTE WITH REGARD TO TDS OBLIGAT IONS AND ANY RETROSPECTIVE AMENDMENT IN THE LAW COULD ONLY DISTURB THE COMPUTA TION MECHANISM OF DETERMINATION ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 4 OF INCOME. ACCORDINGLY, HE ARGUED THAT BY VIRTUE O F A RETROSPECTIVE AMENDMENT, THE INCOME OF AN ASSESSEE COULD BE DISTURBED ON A HIGHE R SIDE OR LOWER SIDE. BUT THE TDS OBLIGATIONS THAT ARE CAST ON THE ASSESSEE ARE ONLY PROCEDURAL IN NATURE AND ASSESSEE COULD MAXIMUM BE EXPECTED TO FOLLOW THE LAW AS IT S TOOD AT THE TIME OF MAKING PAYMENT OR CREDITING THE ACCOUNT OF PAYEE WHICHEVER IS EARLIER. HENCE THE ASSESSEE CANNOT BE FAULTED WITH DUE TO RETROSPECTIVE AMENDME NT IN PROCEDURAL LAW. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORT ED THE ORDER OF THE LEARNED AO. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOKS FILED BY THE ASSESSEE IN TWO VOLUMES. THE BREAK UP OF RS. 12,99,57,302/- BEING THE AMOUNT DIS ALLOWED BY THE LEARNED AO IS STATED HEREINABOVE. IT WOULD BE ADVISABLE TO GET I NTO EACH AND EVERY ITEM CONTAINED IN THE SAID BREAK UP AS BELOW:- 3.3.1. PROFESSIONAL CHARGES RS. 4,95,97,115 THE ASSESSEE HAD MADE PAYMENTS TO ATANASKOVIC HARTN ELL, SYDNEY, NSW, AUSTRALIA ON VARIOUS DATES DURING THE FINANCIAL YEAR 2002-03 REL EVANT TO ASST YEAR 2003-04 TOWARDS LAWYERS PROFESSIONAL FEES FOR SERVICES RENDERED OU TSIDE INDIA. THE DETAILS OF THE SAME ARE SUBMITTED IN PAGE 251 OF THE PAPER BOOK FILED B Y THE ASSESSEE. SINCE THE INCOME THEREON IS NOT CHARGEABLE TO TAX IN INDIA IN THE HA NDS OF THE PAYEE AND THEY DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA , THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 OF THE ACT. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD VS CIT R EPORTED IN (2010) 327 ITR 456 (SC) . HENCE NO DISALLOWANCE COULD BE MADE U/S 40(A)(I) OF THE ACT FOR THE SAME. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 5 WE ALSO FIND THAT THE SAID SERVICES ARE GOVERNED BY ARTICLE 14 OF DTAA AS PER WHICH THE SAID PAYMENTS ARE NOT LIABLE TO BE TAXED IN IND IA. IT IS WELL SETTLED THAT THE PROVISIONS OF DTAA WOULD PREVAIL OVER THE ACT AND T HE ASSESSEE IS ENTITLED TO USE THE SAME WHENEVER IT IS FOUND BENEFICIAL TO THE ASSESSE E WHICH IS PROVIDED IN THE STATUTE ITSELF. 3.3.2. CONSULTANCY CHARGES RS. 2,49,99,455/- THE ASSESSEE HAD MADE PAYMENTS TO VARIOUS PARTIES I N BANGKOK AND MAURITIUS AND THE DETAILS OF THE SAME WERE DULY SUBMITTED IN PAGE 253 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE ASSESSEE TOTALLY CLAIMED A SUM OF RS. 2,72,93,733/- AND OUT OF THIS, A SUMOF RS. 22,94,278/- BEING PAYMENT MADE TO HOOLOOM ANN PROJECT SERVICES LTD, MAURITIUS TO SERVICES UTILIZED IN INDIA WHICH WAS D ULY SUBJECTED TO DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY, THE LEARNED AO GRANTED DEDU CTION FOR THIS PORTION. WE FIND THAT THE PAYMENTS MADE TO THE VARIOUS PARTIES IN BA NGKOK AND MAURITIUS FOR SERVICES RENDERED OUTSIDE INDIA AND NO PART OF THESE SERVICE S HAVE BEEN UTILIZED IN INDIA AND HENCE THE SAME DOES NOT BECOME CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE PAYEE AND HENCE THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 OF THE ACT. 3.3.3. AMOUNTS REMITTED ON BEHALF OF HEAD OFFICE B Y THE OBEROI GRAND, KOLKATA RS. 4,51,65,514/- THE ASSESSEE HAD MADE PAYMENTS TO CREATIVE KITCHEN PLANERS ASIA PACIFIC LTD, HONGKONG TOWARDS CONSULTANCY SERVICES RENDERED ABRO AD ; ATANASKOVIC HARTNELL, AUSTRALIA TOWARDS LAWYERS PROFESSIONAL FEES FOR SER VICES RENDERED ABROAD ; P INTERIOR & ASSOCIATES CO LTD, BANGKOK TOWARDS DESIGN AND DRA WING SERVICES RENDERED ABROAD AND TO TINO-KWAN LIGHTING CONSULTANTS, HONGKONG TOW ARDS PROFESSIONAL SERVICES RENDERED ABROAD TOTALING TO THE TUNE OF RS. 4,51,65 ,514/-. THE DETAILS OF ALL THESE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 6 PAYMENTS WERE DULY FURNISHED IN PAGE 254 OF THE PAP ER BOOK FILED BY THE ASSESSEE. WE FIND THAT IN ALL THESE CASES, THE SERVICES WERE RENDERED OUTSIDE INDIA AND ACCORDINGLY NO PART OF THE SAID PAYMENTS ARE CHARGE ABLE TO TAX IN INDIA IN THE HANDS OF THE PAYEE AND HENCE THERE IS NO OBLIGATION ON THE P ART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 OF THE ACT. 3.3.4. AMOUNTS PAID ON BEHALF OF OTHER UNITS RS. 1,01,95,217/- THE ASSESSEE HAD MADE PAYMENTS TO VARIOUS PARTIES I N AUSTRALIA, ENGLAND, SINGAPORE AND THAILAND TOWARDS PROFESSIONAL SERVICES, DESIGN SERVICES, LANDSCAPING AND ARCHITECTURAL SERVICES, INTERIOR DESIGN SERVICES ET C. THE DETAILS OF ALL THESE PAYMENTS WERE DULY FURNISHED IN PAGE 255 OF THE PAPER BOOK F ILED BY THE ASSESSEE WHEREIN IT IS FOUND THAT THE ASSESSEE HAD DULY COMPLIED WITH THE TDS OBLIGATIONS WHEREVER APPLICABLE IN RESPECT OF PAYMENTS MADE TO MICROS FI DELIO ASIA PACIFIC PTY LTD AUSTRALIA TOWARDS ANNUAL MAINTENANCE CHARGES FOR CE NTRAL RESERVATIONS SYSTEM AND CUSTOMER INFORMATION SYSTEM SUPPORT FEES. WE FI ND THAT IN ALL THESE CASES, THE SERVICES WERE RENDERED OUTSIDE INDIA AND ACCORDINGL Y NO PART OF THE SAID PAYMENTS ARE CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE PAYE E AND HENCE THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 OF THE ACT. 3.4. ON SERVICES NOT PERFORMED IN INDIA IT IS UNDISPUTED THAT THE SERVICES RENDERED BY THE PROFESSIONAL CONSULTANTS OUTSIDE INDIA AND NONE OF THEM WERE NEITHER UTILIZED IN INDIA NOR RENDERED IN INDIA. IN THESE CIRCUMSTANCES , THE PAYMENTS MADE TO THEM WOULD NOT COME UNDER THE AMBIT OF TAXATION IN INDIA IRRESPECTIVE OF THE FACT WHETHER THE SAID PARTIES HAVE PERMANENT ESTABLISHMENT IN INDIA OR NOT. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD VS DIT REPORTED IN (2007) 288 ITR 408 (SC) . ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 7 3.5. ON RETROSPECTIVE AMENDMENT WITH EFFECT FROM 1 .6.1976 BY WAY OF EXPLANATION IN SECTION 9(2) OF THE ACT NOW LET US SEE WHETHER THE AMENDMENT IN SECTION 9(2 ) OF THE ACT BY WAY OF AN EXPLANATION INTRODUCED BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 COULD BE INVOKED ON THE ASSESSEE FOR VIOLA TION OF TDS OBLIGATIONS. FOR THE SAKE OF CONVENIENCE, THE SAID EXPLANATION IS REPROD UCED HEREIN BELOW:- EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR C LAUSE (VII) OF SUB-SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NO N-RESIDENT, WHETHER OR NOT,- (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINE SS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. 3.5.1. WE FIND THAT THIS ISSUE HAS BEEN ELABORATEL Y DEALT WITH BY THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT VS SU BHOTOSH MAJUMDER IN ITA NOS. 1629/KOL/2012 FOR ASST YEAR 2009-10 ; ITA NO. 366/K OL/2012 FOR ASST YEAR 2008-09 AND ITA NO. 2058 /KOL/2009 FOR ASST YEAR 2006-07 DA TED 27.11.2015 WHEREIN, IT WAS HELD THAT :- FROM THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO PRECEDENTS CITED ABOVE, WE ARE OF THE VIEW THAT TILL AMENDMENT IN EXPLANATION TO SECTION (2) OF THE ACT, THE PREVAILING LEGAL POSITI ON WAS THAT UNLESS THE TECHNICAL SERVICES WERE RENDERED IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SECTION 9(1)(VII) OF TH E ACT. THE LAW AMENDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDING LIABILITY IS CONCERNED, IT DEPENDS ON THE LAW AS IT EXISTED AT THE POINT OF TIME WHEN PAYMENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD, WERE MADE. THE TAX DEDUCTOR IS NOT EXPECTED TO KNOW HOW THE LA W WILL CHANGE IN FUTURE. A RETROSPECTIVE AMENDMENT IN LAW DOES CHANGE THE TA X LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE EFFECT. THE TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS TO NON-RESIDENTS, AS SET OUT IN SECTION 195 OF THE ACT, REQUIRE THAT THE PERSON MAKING THE PAYMENT A T THE TIME OF CREDIT OF ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 8 SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE T IME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE. WHEN THESE OBLIGATIONS ARE TO BE CHARGED AT THE POINT OF TIME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER, SUCH OBLIGATIONS CA N ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT STANDS AT THAT POINT OF TIME. 3.5.2. WE ALSO PLACE RELIANCE ON THE FOLLOWING DEC ISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS HINDUSTAN ELECTRO GRAPHITES LTD REPORTED IN (2000) 243 ITR 48 (SC IN THIS REGARD. IN THIS CASE, THE ASSESSEE COMPANY FILED A WRIT PETITION IN THE HIGH COURT CHALLENGING THE VERY CONSTITUTIONALITY OF SECTION 1 43(1)(A) READ WITH SECTION 143(1A) AND SECTION 4 AND ALSO THE INTIMATION SENT BY THE AO LEVYING ADDITIONAL TAX. HIGH COURT SPEAKING THROUGH ONE OF US (RUMA PAL, J.) NOTICED THAT SECTION 28 OF THE ACT WAS AMENDED WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 1967. IT SAID: AN ASSESSEE CANNOT BE IMPUTED WITH CLAIRVOYANCE. WHEN THE RETURN WAS FILED , THE ASSESSEE COULD NOT POSSIBLY HAVE KNOWN THAT THE DECISION ON THE BASIS OF WHICH CASH COMPENSATORY SUPPORT HAS BEEN C LAIMED AS NOT AMOUNTING TO THE ASSESSEES INCOME CEASED TO BE OPE RATIVE BY REASON OF RETROSPECTIVE LEGISLATION. 3.6. WE FIND THAT THE GENUINITY OF THE EXPENDITURE HAS NOT BEEN DOUBTED BY THE REVENUE. IT IS NOT THE CASE OF THE REVENUE THAT TH E SAID EXPENDITURE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ONLY GROUND ON WHICH DISALLOWANCE WAS MADE IS THAT THE SAID PAY MENTS WERE NOT SUBJECTED TO DEDUCTION OF TAX AT SOURCE AND THEREBY PROVISIONS O F SECTION 40(A)(I) OF THE ACT WOULD GET ATTRACTED. BUT WE FIND THAT IN ALL THESE CASE S, THE SERVICES WERE RENDERED OUTSIDE INDIA AND HAD NOT BEEN UTILIZED IN INDIA AND HENCE NO INCOME ACCRUE OR ARISE IN INDIA AND ACCORDINGLY THEY ARE NOT CHARGEABLE TO TAX IN I NDIA. HENCE THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 OF THE ACT. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 9 3.7. IN VIEW OF THE AFORESAID FINDINGS AND JUDICIA L PRECEDENTS RELIED UPON INCLUDING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL, WE HOL D AS UNDER:- A) THE PAYMENTS MADE, TOWARDS PROFESSIONAL CHARGES, CO NSULTANCY CHARGES AND AMOUNTS PAID ON BEHALF OF OTHER UNITS IN RESPECT OF SERVICES RENDERED ONLY OUTSIDE INDIA AND WERE NOT UTILIZED IN INDIA, ARE N OT CHARGEABLE TO TAX IN INDIA IN TERMS OF SECTION 195(1) OF THE ACT AND HEN CE THERE IS NO OBLIGATION THAT COULD BE CAST ON THE ASSESSEE TO DEDUCT TAX AT SOURCE. B) EVEN OTHERWISE, THE PAYMENTS ARE GOVERNED BY THE PR OVISIONS OF ARTICLE 14 OF DTAA WHICH WOULD PREVAIL OVER THE OTHER PROVISIO NS OF THE ACT , WHEREIN THE SAID PAYMENTS ARE LIABLE TO BE TAXED ON LY IN ABROAD AND NOT IN INDIA. C) A RETROSPECTIVE AMENDMENT IN STATUTE DOES CHANGE TH E TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BU T IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY WITH RETROSPECTIVE EFFECT. ACCORDINGLY THE GROUND NOS. 1 TO 3 RAISED BY THE AS SESSEE ARE ALLOWED. 4. DISALLOWANCE OF EXPENSES INCURRED TOWARDS OVERS EAS OFFICE MAINTENANCE, SALES PROMOTION, SALES OFFICE EXPENSES , AIRCRAFT MAINTEN ANCE EXPENSES AND OTHERS RS. 16,75,13,445/- THE BRIEF FACTS OF THIS ISSUE IS THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO OBSERVED HUGE PAYMENTS MADE BY THE ASSES SEE AND REFLECTED UNDER EXPENDITURE IN FOREIGN CURRENCY IN NOTE NO. 26(A) TO NOTES ON ACCOUNTS TO THE FINANCIAL STATEMENTS RELATING TO OFFICE MAINTENANCE , SALES PROMOTION EXPENSES, REMITTANCE FOR SALES OFFICE, REMITTANCE FOR AIRCRAF T MAINTENANCE AND OTHER MATTERS. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE SA ME AND SHOW CAUSED AS TO HOW THE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 10 AFORESAID EXPENDITURE ARE ALLOWABLE U/S 37 OF THE A CT. THE BREAK UP OF THE AFORESAID EXPENDITURE OF RS. 16,75,13,445/- IS AS BELOW:- OFFICE MAINTENANCE 14,95,766 SALES PROMOTION EXPENSES 1,30,26,127 REMITTANCE FOR SALES OFFICE 13,07,04,5 65 REMITTANCE FOR AIR CRAFT MAINTENANCE 1,07,58,197 FOREX REMITTANCE OTHER MATTERS 1,15,28,790 ---------------------- 16,75,13,445 ---------------------- 4.1. THE LEARNED AO DISALLOWED THE AFORESAID EXPE NDITURE ON THE GROUND SINCE NO DETAILS WERE FILED WITH SUPPORTING EVIDENCES BEFORE HIM AND HENCE THE SAME ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES AND HENCE NOT ALLOWABLE U/S 37 OF THE ACT WHICH WAS ALSO UPHELD BY THE LEARNED CIT (A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF RS.16,75,13,445/- CLAIMED BY THE ASSESSEE OVERSEAS OFFICE MAINTENANCE, SALES PROMOTION, SALES OFFICE EXPENSES , AIRCRAFT MAINTENANCE AND OTHER MATTERS FOR WHICH REMITTANCES WERE MADE IN FOREIGN EXCHANGE AND SPENT WHOLLY AND EXCLUSIVELY F OR THE BUSINESS PURPOSE. 4.2. THE LEARNED AR TOOK US TO THE RELEVANT PAGES O F THE PAPER BOOK FILED BY THE ASSESSEE WHEREIN THE ENTIRE DETAILS OF THE AFORESAI D EXPENDITURES WERE SUBMITTED DATE WISE MENTIONING THE NAME OF THE PARTIES TO WHOM PAY MENTS WERE MADE TOGETHER WITH THE PURPOSE OF PAYMENTS. HE ARGUED THAT ALL THESE PAYMENTS WERE DULY SUBJECTED TO INDEPENDENT AUDIT BY A CHARTERED ACCOUNTANT AND CA CERTIFICATES WERE DULY SUBMITTED BEFORE THE LOWER AUTHORITIES AND HENCE THE GENUINIT Y OF THE EXPENDITURES CANNOT BE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 11 DOUBTED WITH. MOREOVER, ALL THESE EXPENSES ARE IN CURRED FOR RENDERING OF SERVICES OUTSIDE INDIA AND THERE IS NO OBLIGATION FOR THE AS SESSEE TO DEDUT TAX AT SOURCE AS THE SAME ARE NOT CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE. HE STATED THAT NO DISALLOWANCE ON THIS ACCOUNT WAS MADE BY THE LEARNE D AO IN THE EARLIER YEARS AND ALSO IN SUBSEQUENT YEARS. HE ARGUED THAT THE SAME ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE AND ACCORDINGLY PLEADED FOR DELETION OF THE ADDITIONS. IN RESPONSE TO THIS, TH E LEARNED DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. THE RELEVANT PAGES OF THE PAPER BOOK ON THE IMPUGNED ISSUE IS FROM PAGES 256 279 IN RESPECT OF EACH OF THE AFORESAID EXPENDITURES. WE FIND FROM THE SAID DETA ILS THAT THE MAJOR EXPENDITURE HAS BEEN INCURRED IN RESPECT OF COST OF SPARE PARTS FO R MAINTENANCE OF AIRCRAFTS , IMPORT OF ARTICLES SUCH AS MINERAL WATER, RAW MEAT, LIQUOR ET C, EXPENDITURE INCURRED FOR OBTAINING FITNESS CERTIFICATE AFTER EVERY HOURS OF FLYING AS PER INTERNATIONAL AVIATION RULES, IMPORT OF SPARE PARTS FROM ABROAD, PROMOTION AND MARKETING EXPENSES ABROAD, CHARGES, SALES PROMOTION EXPENSES TOWARDS REDEMPTION OF POINTS UND ER OBEROI TOP PROGRAMME, PARTICIPATION FEE OF IN ASIA MILES PROGRAMME, EXPEN SES FOR MEDIA COVERAGE OF THE PROGRAMME, COST OF SPACE AND STAND FOR ITB BERLIN I N GERMANY , CHARGES FOR STAND AND SPACE BOOKED FOR ARABIA TRAVEL MARKET IN DUBAI, CHA RGES FOR STAND DECORATION FOR IBTM EXHIBITION AT GENEVA , COST OF SPACE AND STAND FOR WTM IN LONDON, ENTIRE EXPENSES INCURRED IN FOREIGN SALES OFFICES IN LONDO N, NEWYORK, SYDNEY, SINGAPORE AND DAMMAM ON VARIOUS DATES THROUGHOUT THE YEAR ETC. FROM THE DETAILS FURNISHED, WE ALSO SEE THAT THE ENTIRE FOREIGN SALES OFFICE RECEI PTS AND EXPENSES AND STATEMENT OF ASSETS AND LIABILITIES WERE DULY SUBJECTED TO AN IN DEPENDENT AUDIT BY A CHARTERED ACCOUNTANT IN ORDER TO GIVE COMFORT LEVEL TO THE AS SESSEE HEREIN FOR ADOPTION OF THOSE FIGURES IN THE CONSOLIDATED FINANCIAL STATEMENTS OF THE ASSESSEE. WE FIND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT NO DISALLOWANC E ON THIS COUNT WAS MADE IN THE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 12 EARLIER YEARS AND ALSO IN SUBSEQUENT YEARS BY THE R EVENUE. HENCE WE HOLD THAT THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED BY THE REVENUE. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS CIT REPORTED IN 193 ITR 321 (SC) . FROM THE DETAILS FURNISHED, WE ARE COMPLETELY SATISFIED THAT THE ENTIRE EXPENDITURES A RE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND ACC ORDINGLY DIRECT THE LEARNED AO TO GRANT DEDUCTION FOR THE WHOLE AMOUNT AS DEDUCTION. HENCE THE GROUND NO. 4 RAISED BY THE ASSESSEE IS ALLOWED. 5. DISALLOWANCE OF RS. 7,31,507/- U/S 80HHC OF THE ACT IN RESPECT OF EXPORT OF FOOD AND BEVERAGES TO OUT BOUND FLIGHTS OF FOREIGN AIRLINES , THE PAYMENTS FOR WHICH WERE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE DERIVED SALE PROCEEDS ON ACCOUNT OF FLIGHT KITCHEN SERVICES (SALE OF FOOD AND BEVERAGES ) TO OUT BOUND FLIGHTS OF FOREIGN AIRLINES AND CLAIMED DEDUCTION U/S 80HHC OF THE ACT AND PROCEEDS RECEIVED THEREON IN CONVERTIBLE FOREIGN EXCHANGE. SINCE IT HAS BEEN HELD IN ASST YEAR 1998-99 BY THIS TRIBUNAL THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTIO N U/S 80HHC OF THE ACT IN RESPECT OF THIS TRANSACTION, THE LEARNED AO DENIED DEDUCTION U /S 80HHC OF THE ACT WHICH WAS ALSO UPHELD BY THE LEARNED CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT (APPEALS) ERRED IN REJECTING THE CL AIM OF THE ASESSEE FOR RS.7,31,507/- UNDER SECTION 80HHC OF TH E ACT ON EXPORT OF FOOD AND BEVERAGES TO OUT BOUND FLIGHTS OF FOREIGN AIRLINES, THE PAYMENTS FOR WHICH WERE RECEIVED IN C ONVERTIBLE FOREIGN EXCHANGE. 5.1. THE LEARNED AR ARGUED THAT THIS ISSUE IS DIRE CTLY COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2 002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 13 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND FIND THAT THIS ISSUE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE REPORTED IN (2011) 338 ITR 503 (CAL) WHICH HAS BEEN RELIED UPON WHILE RENDERING THE JUDGEMENT FOR THE ASST YEAR 2002-03 BY THIS TRIBUNA L. THE QUESTIONS RAISED BEFORE THE HONBLE CALCUTTA HIGH COURT ARE REPRODUCED BELOW FO R THE SAKE OF CONVENIENCE :- 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HOLD THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN ASSESSEES OWN CASE REPORTED IN 338 ITR 503 (CAL). THE QUESTIONS RAISEDBEFORE THE HONBLE CALCUTTA HIGH COURT ARE RE PRODUCED BELOW FOR THE SAKEOF CONVENIENCE :- (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE SUPPLY OF FOOD AND BEVERAGES TO THE INTERN ATIONAL AIRLINES IN SEALED CONTAINERS CONSTI TUTES EXPORT O F GOODS OUT OF INDIA FOR THE PURPOSES OF SECTION 80HHC OF T HE ACT? (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE SALE PROCEEDS RECEIV ED FOR SUPPLY OF SUCH FOOD AND BEVERAGES WAS IN CONVERTIBLE FOREIGN EXCHANGE W ITHIN THE MEANING OF SECTION 80HHC OF THE ACT? (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE YOUR PETITIONER IS ENTITL ED TO THE DEDUCTION CLAIMED UNDER SECTION 80HHC OF THE ACT? THE RELEVANT OPERATIVE PORTION OF THE SAID JUDGEMEN T IS REPRODUCED BELOW:- 13. AFTER HEARING THE LEARNED COUNSEL FOR THE PAR TIES AND AFTER GOING THROUGH THE AFORESAID PROVISIONS OF LAW, WE FIND TH AT IN ORDER TO GET THE BENEFIT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT , THE ASSESSEE MUST COMPLY WITH THE TERMS OF THE SAID SECTION. IN THE C ASE BEFORE US, THE ONLY GROUNDS OF REFUSAL OF THE BENEFIT ARE THAT FIRST, T HAT THE SALE OF SUCH FOOD AND BEVERAGES TO THE FOREIGN AIRLINES DID NOT AMOUNT TO EXPORT OUT OF INDIA AND SECONDLY, THAT THE PAYMENT RECEIVED FROM THE SAID F OREIGN AIRLINES IN INDIA IN THE FORM OF INDIAN RUPEES COULD NOT BE TREATED A S PAYMENT IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE MEANING OF THE PROVISIO NS OF SECTION 80HHC OF THE ACT. THE WORD EXPORT HAS NOT BEEN DEFINED IN THE ACT AND THUS, THE SAID WORD IS TO BE INTERPRETED IN THE LIGHT OF THE LANGUAGE OF SECTION 80HHC OF THE ACT INCLUDING THE EXPLANATION ADDED THERETO AND IF THE FORMALITIES REQUIRED IN SECTION 80HHC ARE FULLY COMPLIED WITH, IN OUR OPINION, IT IS NOT NECESSARY THAT ALL THE OTHER FORMALITIES PRESCRIBED IN THE CUSTOMS ACT FOR EXPORT OF THE ARTICLES ARE ALSO REQUIRED TO BE FULL Y COMPLIED WITH BY AN ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 14 ASSESSEE IN ADDITION TO THOSE PRESCRIBED UNDER SECT ION 80HHC. 14. AS FOR INSTANCE, UNDER THE CUSTOMS ACT, A TRAN SACTION BY WAY OF SALE OR OTHERWISE IN A SHOP, EMPORIUM OR ANY OTHER ESTAB LISHMENT SITUATE IN INDIA IN EXCHANGE OF INDIAN CURRENCY DOES NOT AMOUN T TO EXPORT BUT FOR THE PURPOSE OF GETTING BENEFIT OF DEDUCTION UNDER S ECTION 80HHC, IF A TRANSACTION TAKES PLACE BY WAY OF SALE OR OTHERWISE IN A SHOP OR ESTABLISHMENT SITUATE IN INDIA INVOLVING CLEARANCE AT ANY CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT AND AT THE SAME TIME, THE RESERVE BANK OF INDIA TREATS SUCH TRANSACTION IN LIEU OF INDIAN CUR RENCY AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF THE FOREIGN EX CHANGE REGULATION ACT, 1973(46 OF 1973), AND ANY RULES MADE THEREUNDE R, THE TRANSACTION SHOULD BE TREATED AS EXPORT OUT OF INDIA FOR THE PU RPOSE OF SECTION 80HHC OF THE ACT BY VIRTUE OF THE ADDED EXPLANATIONS (A) AND (AA) QUOTED ABOVE. 15. IN THIS CONNECTION, WE MAY PROFITABLY REFER T O THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. SILVER AND ART S PALACE, REPORTED IN (2003) 259 ITR 684WHERE THE SAID COURT HAS APPROVED THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF RAM BABU AND SO NS VS. UNION OF INDIA, REPORTED IN (1996) 222 ITR 606 LAYING DOWN T HE PROPOSITION OF LAW THAT IF BOTH THE CONDITIONS MENTIONED IN EXPLANATIO NS (A) AND (AA) ARE COMPLIED WITH IN A GIVEN SITUATION, THE TRANSACTION SHOULD BE TREATED TO BE AN EXPORT OUT OF INDIA FOR THE PURPOSE OF SECTION 8 0HHC OF THE ACT. 21. NOW THE MOST VITAL QUESTION THAT ARISES FOR D ETERMINATION IN THIS APPEAL IS WHETHER THE APPELLANT HAS COMPLIED WITH T HE CONDITIONS PRESCRIBED IN BOTH THE EXPLANATIONS (A) AND (AA) OF THE ACT. 22. WE HAVE ALREADY INDICATED THAT IN THIS APPEAL W E HAVE ON THE PRAYER OF THE APPELLANT ADMITTED SOME ADDITIONAL PI ECES OF EVIDENCE IN SUPPORT OF ITS CONTENTION THAT IT HAS COMPLIED WITH BOTH THE ABOVE CONDITIONS. IN SPITE OF GIVING OPPORTUNITY TO LEAD EVIDENCE IN REBUTTAL TO THE REVENUE FOR THE PURPOSE OF DISPUTING THE GENUIN ENESS OF THOSE ADDITIONAL PIECES OF EVIDENCE, THE REVENUE DID NOT LEAD ANY EVIDENCE. WE, THEREFORE, ACCEPT THE VERACITY OF THE STATEMENTS CO NTAINED IN THE ADDITIONAL PIECES OF EVIDENCE AS WELL AS THE AUTHOR ITY OF THE PERSONS WHO ISSUED THE LETTERS ADMITTED AS ADDITIONAL EVIDENCE AND PROCEED TO CONSIDER WHETHER THE APPELLANT HAS COMPLIED WITH THE CONDITI ONS MENTIONED IN BOTH THE EXPLANATIONS (A) AND (AA). 23. THE CERTIFICATE ISSUED BY THE OFFICE OF THE CO MMISSIONER OF CUSTOMS DATED APRIL 13, 2004 CERTIFIES THAT ALL BONDED GOOD S AND CATERING FOOD SUPPLIES ARE CARRIED IN A SEALED HL-LIFT OF M/S. OB EROI FLIGHT SERVICES, THE APPELLANT BEFORE US, WHICH IS ESCORTED BY THE CUSTO MS PREVENTIVE OFFICER ON DUTY, TO THE AIR CRAFTS OF INTERNATIONAL AIRLINE S CATERED BY THEM AT THE TARMAC AT CHHATRAPATI SHIVAJI INTERNATIONAL AIRPORT , MUMBAI, AS REQUIRED ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 15 UNDER THE REGULATIONS OF THE CUSTOMS ACT, 1963. IN OUR OPINION, THE AFORESAID CERTIFICATE INDICATES THAT THE APPELLANT IN THE PROCESS OF SELLING THE FOOD AND BEVERAGE IN THE SAID AIRPORT HAS COMPL IED WITH THE CONDITION MENTIONED IN EXPLANATION (AA) OF THE SECTION 80HHC. 24. SIMILARLY IN REPLY TO THE LETTER WRITTEN BY TH E ASSESSEE TO THE GENERAL MANAGER OF THE RESERVE BANK OF INDIA TO ISS UE A CERTIFICATE SHOWING THAT THE PAYMENTS MADE IN INDIAN RUPEES TO THE HOTELS BY FOREIGN AIRLINES AND DIPLOMATS ARE BEING TREATED BY RESERVE BANK AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSE OF FOREIGN EXCHANG E REGULATION ACT, 1973 AND THE RULES MADE THEREUNDER AS ALSO THE FORE IGN EXCHANGE MANAGEMENT ACT, IT APPEARS THAT THE ASSISTANT GENER AL MANAGER, FOREIGN EXCHANGE DEPARTMENT HAS WRITTEN A LETTER DATED NOVE MBER 7, 2005. BY THE SAID LETTER THE SAID OFFICER HAS CERTIFIED THAT THE PROVISIONS OF THE DGFT CIRCULAR NO.60/97-2002 DATED DECEMBER 24, 1998 REGARDING TREATMENT OF THE AMOUNTS RECEIVED IN RUPEES BY A HO TEL COMPANY OUT OF REPATRIABLE FUNDS WOULD ALSO APPLY UNDER THE FEMA R EGULATIONS. IN THE ABSENCE OF ANY EVIDENCE DISPUTING THE SAID ASSERTIO N OF THE OFFICER CONCERNED, WE HOLD THAT THE APPELLANT HAS ALSO COMP LIED WITH THE CONDITION MENTIONED IN EXPLANATION (A) ADDED TO SEC TION 80HHC OF THE ACT. 25. WE, THUS, FIND THAT THE APPELLANT HAS SUCCESS FULLY ESTABLISHED BEFORE THIS COURT BY UNCONTROVERTED ADDITIONAL EVID ENCE THAT THE TRANSACTION IN QUESTION SATISFIES THE CONDITIONS IN DICATED IN BOTH THE EXPLANATIONS (A) AND (AA) OF SECTION 80 HHC OF THE ACT IN RESPECT OF THE DISPUTED ITEMS AT THE CHHATRAPATI SHIVAJI INTERNATI ONAL AIRPORT, MUMBAI, AND THUS, IT IS A FIT CASE WHERE THE ORDERS PASSED BY THE AUTHORITIES BELOW SHOULD BE SET ASIDE AND THE ASSESSING OFFICER SHOUL D BE DIRECTED TO CONSIDER THE CLAIM OF DEDUCTIONS UNDER SECTION 80HH C OF THE ACT ON MERIT AS THE APPELLANT HAS PROVED THAT THE TRANSACTION IN QUESTION FROM THE SAID AIRPORT AMOUNTS TO EXPORT OUT OF INDIA. 27. WE, THEREFORE, ALLOW THIS APPEAL BY SETTING ASI DE THE ORDERS OF THE AUTHORITIES BELOW AND BY ANSWERING ALL THE THREE FO RMULATED QUESTIONS INDICATED ABOVE IN THE AFFIRMATIVE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF EXPORT OF FOOD AND BEVERAGES TO OUT B OUND FLIGHT S OF INTERNATIONAL AIRLINES AND FOR THE PROCEEDS RECEIVE D THEREON IN CONVERTIBLE FOREIGN EXCHANGE AND HOLD THAT THE ASSE SSEE HAD COMPLIED WITH THE PROVISIONS OF SECTION 80HHC OF THE ACT IN THIS REGARD. ACCORDINGLY, THE GROUND NOS. 2 & 3 RAISED BY THE AS SESSEE ARE ALLOWED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 16 RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF EXPORT OF FOOD AND BEVERAGES TO OUT BOUND FLIGHTS OF INTERNATIONAL AIRLINES AND FOR THE PROCEEDS RECEIVED THEREON IN CONVERTIBLE FOREIGN EXCHANGE A ND HOLD THAT THE ASSESSEE HAD COMPLIED WITH THE PROVISIONS OF SECTION 80HHC OF TH E ACT IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE ASSESSE E IS ALLOWED. 6. DISALLOWANCE OF 50% OF AGGREGATE EXPENDITURE IN CURRED ON RUNNING AND MAINTENANCE OF AIRCRAFT RS. 52,05,217/- ( 50% OF 1,04,10,435/-) THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE MAINTAINS TWO AIRCRAFTS BEARING REGISTRATION NO. VT EJZ (KING AIR) AND VT OBE (HS-1 25-700) (JET AIRCRAFT) WHICH WERE ACQUIRED DURING FINANCIAL YEARS RELEVANT TO AS ST YEARS 1995-96 AND 1996-97 RESPECTIVELY. THESE AIRCRAFTS ARE MAINLY USED FOR PROVIDING SERVICES TO THE TOURISTS WHO CHARTERED THEM ACCORDING TO THEIR REQUIREMENT. IT IS PART AND PARCEL OF THE TOTAL BUSINESS PACKAGE OFFERED TO THE FOREIGN TOURIST WHO WANTS TO ENJOY FIVE STAR LUXURY OF THE INTERNATIONAL STANDARD IN ALL RESPECTS. COPIES OF THE LOG BOOK FOR BOTH THE AIRCRAFTS WERE ENCLOSED BEFORE THE LEARNED AO TOGETHER WITH T HE MONTHLY BREAK UP OF REPAIRS, RUNNING AND MAINTENANCE OF THE SAID AIRCRAFTS. THE FOLLOWING DETAILS WERE ALSO FILED BEFORE THE LEARNED AO:- A) STATEMENT OF CHARTERED FLIGHTS EFFECTED DURING THE PERIOD APRIL 2002 TO MARCH 2003 INDICATING THE FLYING TIME EFFECTED FOR THE RESPECTIVE AIRCRAFTS . B) STATEMENT OF CORPORATE FLIGHTS OF JET AIRCRAFT EFFE CTED DURING THE PERIOD APRIL 2002 TO MARCH 2003 INDICATING THE FLYING TIME . C) STATEMENT OF CORPORATE FLIGHTS OF KING AIRCRAFT EFF ECTED DURING THE PERIOD APRIL 2002 TO MARCH 2003 INDICATING THE FLYING TIME . D) MONTH WISE INCOME FROM CHARTERING OF AIRCRAFTS FOR THE PERIOD APRIL 2002 TO MARCH 2003. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 17 E) THE DETAILS OF TOTAL FUEL UPLOADED DURING THE PERIO D APRIL 2002 TO MARCH 2003 TOGETHER WITH THE DETAILS OF AVERAGE FUEL CONS UMPTION PER HOUR OF FLIGHT FOR EACH AIRCRAFT TOGETHER WITH ITS PRICE WERE FILE D. F) THE DETAILED STATEMENT OF EXPENDITURE AMOUNTING TO RS. 1,04,10,435/- INCURRED FOR RUNNING, REPAIR AND MAINTENANCE OF THE AIRCRAFTS WAS FILED. 6.1. THE LEARNED NOT BEING SATISFIED WITH THE AFOR ESAID DETAILS HELD THAT NO SATISFACTORY EXPLANATION HAS BEEN FORWARDED BY THE ASSESSEE WHIC H LEAVES AMPLE SCOPE FOR BELIEF THAT THERE HAS BEEN NON-BUSINESS USE OF THE AIRCRAF TS BY THE DIRECTORS OR THEIR RELATIVES OR FAMILY MEMBERS. HE FURTHER STATED THAT IN THE ASSESSMENT ORDERS OF EARLIER YEARS IT HAS BEEN NOTICED THAT THE ASSESSING OFFICERS HAD FO UND THAT 4-SEATER AIRCRAFTS OWNED BY THE ASSESSEE WAS MOSTLY USED BY THE OBEROIS AND THE IR CLOSE RELATIVES FOR PERSONAL TRIPS. IN THE CURRENT YEAR ALSO THERE DO NOT APPEAR ANY RE ASON TO DEVIATE FROM THE EARLIER OBSERVATION OF THE DEPARTMENT IN THIS RESPECT. ACC ORDINGLY, HE DISALLOWED 50% OF TOTAL EXPENSES OF RS. 1,04,10,435/- AND ADDED A SUM OF R S. 52,05,217/- TO THE TOTAL INCOME OF THE ASSESSEE. THIS ACTION OF THE LEARNED AO WAS UPHELD BY THE LEARNED CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS:- 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.52,05,217/- BEING 50% OF AGGREGA TE EXPENDITURE INCURRED ON RUNNING AND MAINTENANCE OF AIRCRAFT IGNORING THAT THE AIRCRAFTS WERE EXCLUSIVELY USED F OR THE PURPOSE OF BUSINESS. 7. THAT THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT THE OBSERVATION OF THE ASSESSING OFFICER THAT THE AIRCRAFT WAS USED FOR PERSONAL PURPOSES WAS WIL D GUESS BUT NOT BASED ON ANY SPECIFIC FINDING. 6.2. THE LEARNED AR ARGUED THAT THIS ISSUE IS DIRE CTLY COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2 002-03 IN ITA NO. 316/KOL/2006 ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 18 DATED 11.9.2015. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERE D BY THE DECISION OF THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR ASST YEAR 2002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015 IN PARA 4.4 HAD HE LD AS UNDER:- IT IS SEEN THAT THE NET EXPENDITURE TOWARDS RUNNIN G AND MAINTENANCE OF AIRCRAFTS DEBITED IN PROFIT AND LOSS ACCOUNT IS ONL Y RS. 95,64,995/- AND HENCE THE PREMISE OF THE LEARNED AO THAT A SUM OF R S. 2,14,04,416/- IS DEBITED TO PROFIT AND LOSS ACCOUNT IS GROSSLY INCOR RECT. IT IS OBSERVED THAT ULTIMATELY THE ASSESSEE HAD DERIVED SURPLUS OF RS. 1,07,87,457/- BEING THE DIFFERENCE BETWEEN THE CHARTERING INCOME OF RS. 2, 02,52,452/- AND MAINTENANCE AND RUNNING OF AIRCRAFTS EXPENDITURE TO THE TUNE OF RS. 95,64,995/-, EVEN THOUGH DERIVING SURPLUS THEREON I S NOT A PRE-REQUISITE FOR ALLOWANCE OF EXPENDITURE INCURRED. WE ALSO FIND TH AT COMPLETE DETAILS OF THE ENTIRE EXPENDITURE TOWARDS RUNNING AND MAINTENA NCE OF AIRCRAFTS TOGETHER WITH THE LOG BOOK HAS BEEN FILED BEFORE TH E LEARNED AO AND HENCE THERE IS ABSOLUTELY NO CASE FOR THE LEARNED AO TO R EJECT THE SAME AND PROCEED TO MAKE DISALLOWANCE ON ESTIMATED BASIS TO BE IN LINE WITH THE DISALLOWANCES MADE IN EARLIER YEARS. WE ALSO FIND THAT THE EARLIER YEARS ITAT ORDER ON THIS ISSUE NEED NOT BE FOLLOWED FOR T HE ASST YEAR UNDER APPEAL AS IN THIS YEAR, THE ENTIRE DETAILS WERE VER Y MUCH BEFORE THE LEARNED AO. WE ALSO FIND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT THE ASSESSEE COMPANY BEING A NON-NATURAL PERSON CANNOT HAVE ANY PERSONAL ELEMENT THEREON AND ALL THE EXPENDITURE INCURRED TH EREON HAD TO BE CONSTRUED ONLY FOR BUSINESS PURPOSES . TO THIS EXT ENT, THE RELIANCE ON THE GUJARAT HIGH COURT DECISION IN 253 ITR 749 IS WELL PLACED AND SUPPORTS THE CASE OF THE ASSESSEE. WE ALSO FIND LOT OF FOR CE IN THE ARGUMENTS OF THE LEARNED AR THAT IF AT ALL THERE IS ANY PERSONAL ELE MENT INVOLVED IN THE AFORESAID EXPENDITURE, THE SAME HAVE TO BE TAXED AS PERQUISITE IN THE HANDS OF THE DIRECTORS AND IT IS ONLY FOR THE TDS OFFICER TO LOOK INTO THE VIOLATIONS, IF ANY, ON THE SAME AND HENCE ON THAT GROUND ALSO, NO DISALLOWANCE OF EXPENDITURE COULD BE APPRECIATED. WE FIND THAT THE LEARNED AO HAD MADE THE ENTIRE ADDITION BASED ON SURMISES AND CONJECTUR ES AND MADE ON ADHOC BASIS . IT IS WELL FOUNDED PROPOSITION THAT WHAT IS APPARENT IS REAL AND THE ALLEGATION TO PROVE THE CONTRARY IS ON THE PERSON M AKING SUCH ALLEGATION. THE FOLLOWING DECISIONS SUPPORT OUR VIEW IN THIS RE GARD:- ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 19 CIT VS DAULAT RAM RAWATMULL (1973) 87 ITR 349 (SC) SUKHDAYAL RAMBILAS VS CIT (1982) 136 ITR 414 MADURA KNITTING CO VS CIT (1956) 30 ITR 764 (MAD) IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AN D RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS THEREON, WE HAVE NO HESITAT ION IN DELETING THE ADDITION MADE IN THE SUM OF RS. 42,80,883/- ON AN E STIMATED BASIS. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE ASSESSE E IS ALLOWED. IN VIEW OF THE AFORESAID FACTS OF THE CASE AND RESP ECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION (SUPRA), WE HOLD THAT NO ADDITION N EED TO BE MADE ON AN ESTIMATED BASIS TOWARDS RUNNING AND MAINTENANCE OF AIRCRAFTS. ACCORDINGLY, THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE ARE ALLOWED. 7. DISALLOWANCE OF INTEREST ON BORROWED CAPITAL TO THE EXTENT OF INTEREST FREE ADVANCES MADE TO ASSOCIATED ENTERPRISES RS. 3,73, 32,024/- 7.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE HAD ADVANCED THE FOLLOWING SUMS TO THE FOLLOWING PARTIES AND THE SUMS OUTSTANDING A S ON 31.3.2003 TOWARDS THAT ACCOUNT ARE AS BELOW:- (I) LAKE PALACE HOTELS & MOTELS LTD - 2,50,00,000 (II) ADVANCE AGAINST SHARES - 9,71,00,200 (III) GREEN FIELDS HOTELS & RESORTS P LTD - 8,00,00,000 (IV) ADVANCE TOWARDS EQUITY PARTICIPATION IN MASHOBRA RESORT LTD - 13,00,00,00 0 (V) LOAN TO MUMTAZ HOTELS LTD (SUBSIDIARY CO.) - 5 ,33,91,181 (VIII) OBEROI KERALA HOTELS & RESORT LTD - 40, 00,000 ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 20 TOTAL 38,94,91,381 AMOUNTS PAID TO LAKE PALACE HOTELS & MOTELS LTD R S. 2,50,00,000/- THIS WAS PAID AS SECURITY DEPOSIT FOR TAKING LAND O F THE HOTELS AT UDAIPUR, RAJASTHAN AND INTEREST @ 9% HAS BEEN CHARGED FOR SUCH DEPOSIT . THE SAID PARTY HAD ALSO DULY DEDUCTED TAX AT SOURCE ON THE INTEREST PAYMENT MADE TO THE ASSESSEE . ADVANCE AGAINST SHARES RS. 9,71,00,200/- THIS INCLUDES A SUM OF RS. 9,01,50,000/- PAID TO N ANDI HILLS & RESORTS LIMITED FOR THE JOINT VENTURE PROJECT WITH THE JANSON GROUP OF BANGALORE, KARNATAKA. THE AMOUNT WAS ADVANCED FOR ACQUISITION OF LAND FOR THE PROJEC T OUT OF OWN GENERATION OF FUNDS. AMOUNTS PAID TO GREEN FIELDS HOTELS & RESORTS P LTD RS. 8,00,00,000/- THE AMOUNT WAS ADVANCED FOR ACQUISITION OF LAND FOR THE GOLF COURSE IN KHANDALA, MAHARASHTRA FOR THE JOINT VENTURE PROJECT OUT OF OW N GENERATION OF FUND. AMOUNTS PAID TO MASHOBRA RESORT LTD RS. 13,00,00, 000/- THE COMPANY IS A JOINT VENTURE COMPANY OWNING HOTEL WILDFLOWER HALL AT SHIMLA. ACCORDING TO JOINT VENTURE AGREEMENT, THE COMPANY I S REQUIRED TO FINANCE FOR CONSTRUCTION OF HOTEL WHICH WAS INITIALLY CONSIDERE D AS ADVANCE FOR EQUITY SHARES. THE AMOUNT PAID SHALL BE ADJUSTED AGAINST EQUITY SHARES TO BE ISSUED TO THE COMPANY. AMOUNTS PAID TO MUMTAZ HOTEL LTD (FORMERLY KNOWN AS GOYALS INTERNATIONAL HOTELS & RESORTS LTD RS. 5,33,91,181/- ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 21 THIS IS A JOINT VENTURE COMPANY OWNING HOTEL AMARVI LAS AT AGRA. THE ASSESSEE HAS CONTROLLING INTEREST TO THE EXTENT OF 60% OF THE IS SUED EQUITY CAPITAL OF THE COMPANY. THIS WAS PAID AS LOAN AND INTEREST IS CHARGED ON TH E SAME BY THE ASSESSEE. AMOUNTS PAID TO OBEROI KERALA HOTELS & RESORT LTD RS. 40,00,000/- THE SAME IS ALSO A JOINT VENTURE COMPANY AND ACCORD ING TO THE AGREEMENT THE COMPANY IS REQUIRED TO ADVANCE ON EQUITY SHARES PAR TICIPATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE A SSESSEE MENTIONED THE PURPOSE OF ADVANCING MONIES TO AFORESAID PARTIES AND PLEADED T HAT THE SAME WERE ADVANCED DURING THE COURSE OF THEIR BUSINESS AND TO PURSUE FURTHER BUSINESS INTERESTS OF THE ASSESSEE AND ALSO PLEADED THAT OWN FUNDS WERE VERY MUCH AVAILABL E WITH THE ASSESSEE AND NO BORROWED FUNDS WERE USED FOR ADVANCING THE MONIES T O AFORESAID PARTIES AND HENCE NO INTEREST DISALLOWANCE SHOULD BE INVOKED ON THE ASSE SSEE. 7.2. THE LEARNED AO DISALLOWED INTEREST PAID ON BORROWED FUNDS @ 12% PER ANNUM TO THE EXTENT OF THE AFORESAID MONIES ADVANCED TO V ARIOUS PARTIES BY CONCLUDING THAT THE SAME WERE ADVANCED FOR NON-BUSINESS PURPOSES. AGGR IEVED, THE ASSESSEE CHALLENGED THIS ISSUE BEFORE THE LEARNED CITA WHO UPHELD THE D ISALLOWANCE OF INTEREST MADE BY THE LEARNED AO EXCEPT IN RESPECT OF AMOUNTS ADVANCE D TO LAKE PALACE HOTELS & MOTELS LTD ; JYOTI PVT LTD AND MUMTAZ HOTEL LTD FRO M WHOM THE ASSESSEE HAD CHARGED INTEREST. AGGRIEVED, THE ASSESSEE HAS PREFERRED FU RTHER APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN REST RICTING THE DISALLOWANCE OF INTEREST TO RS.3,73,32,024 BEING 12 % OF INTEREST FREE ADVANCES IGNORING THE FACT THAT THE S AID ADVANCES WERE MADE TO ASSOCIATE ENTERPRISES SOLELY FOR COMME RCIAL EXPEDIENCY AND RELATED TO THE BUSINESS INTEREST OF THE ASSESSEE. 9. THAT WITHOUT PREJUDICE TO GROUND NO. 8 AS ABOVE , THE LEARNED CIT(APPEALS) HAD FAILED TO APPRECIATE THAT THE ADVANCES MADE TO THE ASSOCIATED ENTERPRISES WERE MA DE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 22 WHOLLY OUT OF OWNED FUNDS AND THE QUESTION OF DISAL LOWANCE OF INTEREST INCURRED ON BORROWED FUNDS DID NOT ARISE. 7.3. THE LEARNED AR REFERRED TO THE RELEVANT PAGES OF THE PAPER BOOK FILED BY THE ASSESSEE CONTAINING THE VARIOUS SUBMISSIONS OF THE ASSESSEE ON THE IMPUGNED ISSUE BEFORE THE LOWER AUTHORITIES AND ARGUED THAT THE AS SESSEE HAD SUFFICIENT FUNDS AT ITS DISPOSAL FOR MAKING THESE ADVANCES AND HENCE THE FI NDING OF THE LEARNED AO THAT BORROWED FUNDS WERE UTILIZED FOR MAKING THESE ADVAN CES IS FACTUALLY INCORRECT WHICH HAS BEEN FURTHER ENDORSED BY THE LEARNED CIT(A). H E FURTHER ARGUED THAT THIS ISSUE IS DIRECTLY COVERED BY THE ORDER OF THIS TRIBUNAL IN A SSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL. 7.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE PAPER BOOK FILED BY THE A SSESSEE THAT THE ENTIRE DETAILS AS TO FOR WHAT PURPOSE THE MONIES WERE PAID BY THE ASSESS EE COMPANY TO THE AFORESAID PARTIES WERE GIVEN BEFORE THE LEARNED AO . WE FIND THAT IN RESPECT OF AMOUNTS ADVANCED BY THE ASSESSEE TO CERTAIN GROUP COMPANIES WHERE INTEREST IS CHARGED BY IT, THERE IS ABSOLUTELY NO DISPUTE. IN RESPECT OF INT EREST FREE ADVANCES, IT HAS TO BE SEEN WHETHER THE SAME WERE ADVANCED OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS BY THE ASSESSEE. THE LEARNED AO SIMPLY STATES THAT SIMILA R DISALLOWANCES WERE MADE IN THE EARLIER YEARS AND ACCORDINGLY THE SAME IS TO BE MAD E FOR THIS ASST YEAR ALSO BRUSHING ASIDE ALL THE SUBMISSIONS OF THE ASSESSEE. IN THE I NSTANT CASE, THE ASSESEE HAD IN FACT MADE BORROWINGS AND UTILISED THE SAME FOR THE PURPO SE OF ITS BUSINESS. THE BORROWED FUNDS AND THE OWN FUNDS IN THE FORM OF SHARE CAPITA L, RESERVES & SURPLUS, CASH PROFITS DERIVED DURING THE YEAR, ETC WERE INEXTRICABLY MIXE D IN THE SAME BANK ACCOUNT AND HENCE PRESUMPTION COULD BE DRAWN THAT INTEREST FREE ADVANCES WERE MADE OUT OF OWN ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 23 FUNDS PROVIDED THE OWN FUNDS ARE MORE THAN THE AMOU NTS ADVANCED INTEREST FREE TO PARTIES. THE OWN FUNDS AVAILABLE WITH THE ASSESSEE COMPANY IS WORKED OUT AS BELOW:- 31.3.2003 31.3.2002 (RUPEES IN CRORES) SHARE CAPITAL 152.39 152.39 GENERAL RESERVE 451.21 446.21 SURPLUS IN PROFIT AND LOSS A/C 29.34 38.7 5 CAPITAL REDEMPTION RESERVE 2.42 2.42 FOREIGN EXCHANGE EARNINGS RESERVE 0.00 5. 00 DEBENTURE REDEMPTION RESERVE 0.00 1.9 5 ------------- ------------ TOTAL OWN FUNDS 635.36 646.72 ------------ ------------ 7.4.1. MOREOVER, IT IS WELL SETTLED PROPOSITION TH AT IT IS NOT FOR THE INCOME TAX DEPARTMENT TO SUGGEST HOW THE BUSINESSMAN SHOULD CO NDUCT HIS BUSINESS AND HAVE HIS AFFAIRS. THE BUSINESSMAN KNOWS HIS INTEREST BEST. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS DHANRAJ GIRJI RAJA NARASINGHERJI (1973) 91 ITR 544 (SC) . FURTHER RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS WALCHAND A ND CO. (1967) 65 ITR 381 (SC) WHEREIN IT WAS HELD THAT IN APPLYING THE TEST OF CO MMERCIAL EXPEDIENCY WHETHER THE EXPENDITURE WAS EXCESSIVELY LAID DOWN FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE IS TO B E JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND NOT THAT OF THE REVENUE. IT IS WEL L DECIDED THAT WHAT IS TO BE SEEN FOR THE PURPOSE OF ALLOWABILITY OF INTEREST U/S 36(1)(I II) OF THE ACT IS AS TO WHETHER THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUS INESS. 7.4.2. FROM THE ABOVE WORKINGS OF AVAILABILITY OF OWN FUNDS, IT COULD SAFELY BE CONCLUDED THAT THE BORROWED FUNDS WERE NOT UTILIZED FOR MAKING THE INTEREST FREE ADVANCES BY THE ASSESSEE. THIS FINDING IS GIVEN IR RESPECTIVE OF THE FACT THAT THE SAME WERE ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND FOR THE PURPOSE OF BUSINESS. WE FIND THAT ALL THE ADVANCES WERE MAD E AS STRATEGIC INVESTMENTS TO PURSUE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 24 ITS FURTHER BUSINESS INTERESTS AND THOSE COMPANIES WERE ALSO USING THE BRAND OF THE ASSESSEE, RENDERING TECHNICAL SERVICES AND ASSESSEE S STAFF WERE USED BY THE GROUP COMPANIES AND HENCE HAD TO BE CONSTRUED AS ADVANCES MADE DURING THE COURSE OF ASSESSEES BUSINESS. 7.4.3. WE DRAW OUR SUPPORT FROM THE FOLLOWING DECI SIONS IN SUPPORT OF OUR FINDINGS :- A) CIT VS GOPALAKRISHNA MURALIDHAR REPORTED IN (196 3) 47 ITR 469 (AP) B) WOOLCOMBERS OF INDIA LTD VS CIT REPORTED IN 134 ITR 219 (CAL) C) CIT VS HOTEL SAVERA REPORTED IN 239 ITR 795 (MAD ) D) CIT VS BRITANNIA INDUSTRIES LTD REPORTED IN 280 ITR 525 (CAL) E) S A BUILDERS LTD VS CIT REPORTED IN 288 ITR 1 (S C) F) ADDL. CIT VS TULIP STAR HOTELS LTD IN CC NO. 713 8-7140 / 2012 DATED 30.4.2012 BY THE SUPREME COURT , WHEREIN IT WAS HELD AS BELOW:- IN OUR VIEW, S.A.BUILDERS LTD VS CIT REPORTED IN 28 8 ITR 1, NEEDS RECONSIDERATION. THOUGH IT IS STATED THAT THE DECISION IN S.A.BUILDE RS LTD IN 288 ITR 1 (SC) REQUIRES RECONSIDERATION, NOTICE HAS BEEN ORDERED T O BE ISSUED TO BOTH THE PARTIES AND THE MATTER IS STILL PENDING BEFORE THE SUPREME COURT AS ON DATE. HENCE THE DECISION IN 288 ITR 1 (SC) IS VERY MUCH APPLICABLE AS ON DATE UNTIL THE JUDGEMENT IN TULIP STAR HOTELS LTD IS PRONOUNCED BY THE SUPRE ME COURT. G) MUNJAL SALES CORPORATION VS CIT AND ANOTHER REPO RTED IN 298 ITR 298 (SC) H) CIT VS RELIANCE UTILITIES AND POWER LTD REPORTED IN 313 ITR 340 (BOM) ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 25 I) RECENT DECISION OF THE HONBLE APEX COURT IN THE CASE OF HERO CYCLES (P) LTD VS CIT REPORTED IN (2015) 63 TAXMANN.COM 308 (SC) DA TED 5.11.2015. THE OPERATIVE PORTION OF THE AFORESAID JUDGEMENTS A RE NOT REPRODUCED HEREIN FOR THE SAKE OF BREVITY. HOWEVER THE PRINCIPLES LAID DOWN BY THE VARIOUS COURTS INCLUDING THE APEX COURT IS CONSIDERED IN OUR FINAL DECISION REND ERED HEREIN. 7.4.4. WE ALSO FIND THAT THIS ISSUE IS SQUARELY CO VERED BY THE DECISION OF THE CO- ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSE ES OWN CASE IN FAVOUR OF THE ASSESSEE FOR ASST YEAR 2002-03 IN ITA NO. 316/KOL/2 006 DATED 11.9.2015 IN PARA 6 OF THE SAID ORDER. 7.4.5. IN VIEW OF THE AFORESAID FACTS AND CIRCUMST ANCES AND THE JUDICIAL PRECEDENTS ON THE IMPUGNED ISSUE, WE HOLD AS UNDER:- - THAT THE INTEREST FREE ADVANCES WERE MADE BY THE AS SESSEE TO VARIOUS PARTIES DURING THE COURSE OF ITS BUSINESS AND ARE STRATEGIC INVESTMENTS. - THAT THE BORROWED FUNDS WERE NOT DIVERTED FOR NON-B USINESS PURPOSES AS SUFFICIENT OWN FUNDS WERE AVAILABLE WITH THE ASSESS EE TO MAKE INTEREST FREE ADVANCES TO ITS GROUP CONCERNS. - THAT WHEN BORROWED FUNDS AND OWN FUNDS WERE INEXTRI CABLY MIXED IN THE SAME BANK ACCOUNT AND IF THE OWN FUNDS ARE MORE THA N THE AMOUNTS ADVANCED INTEREST FREE TO SISTER CONCERNS, THEN THE PRESUMPTION COULD BE DRAWN IN FAVOUR OF THE ASSESSEE THAT THOSE ADVANCES WERE MADE ONLY OUT OF OWN FUNDS OF THE ASSESSEE. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 26 - THAT FROM THE AFORESAID FACTS AVAILABLE ON RECORD, THE ASSESSEE HAD ADVANCED MONIES TO VARIOUS CONCERNS DURING THE COURSE OF ITS BUSINESS TO FURTHER STRENGTHEN ITS BUSINESS INTERESTS WITH THE SAID PAR TIES AND AS A MEASURE OF COMMERCIAL EXPEDIENCY. - THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY WHETHER THE EXPENDITURE WAS EXCESSIVELY LAID DOWN FOR THE PURPOSE OF BUSINE SS, REASONABLENESS OF THE EXPENDITURE IS TO BE JUDGED FROM THE POINT OF V IEW OF A BUSINESSMAN AND NOT THAT OF THE REVENUE. ACCORDINGLY WE HOLD THAT THE ACTION OF THE LEARNED AO IN DISALLOWING A SUM OF RS. 4,67,38,966/- AND LEARNED CITA RESTRICTING THE SAID DISALLOWANCE TO RS. 3,73,32,024/- IS NOT WARRANTED AND GROUND NOS. 8 & 9 RAISED BY THE ASSESSEE ARE ALLOWED. 8. DISALLOWANCE OF DEPRECIATION ON ADDITION TO FIX ED ASSETS RS. 7,84,550/- THE BRIEF FACTS OF THIS ISSUE IS THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD SHOWN ADD ITIONS TO BUILDINGS AND COMPUTERS TO THE TUNE OF RS. 30,94,172/- AND RS,. 1 9,79,476/- RESPECTIVELY DURING THE YEAR UNDER APPEAL AND CLAIMED DEPRECIATION THEREON AMONG OTHERS. THE ASSESSEE SUBMITTED THAT THE BILLS FOR THE ENTIRE ADDITIONS TO FIXED ASSETS HAVE BEEN DULY SUBJECTED TO STATUTORY AND TAX AUDIT BY CHARTERED A CCOUNTANTS AND INCOME TAX DEPRECIATION FIGURES WERE CERTIFIED BY THEM ACCORDI NGLY PRAYED FOR ACCEPTANCE OF THE DEPRECIATION FIGURE BASED ON THE SAID CERTIFICATION . THE LEARNED AO NOT BEING SATISFIED WITH THIS REPLY SOUGHT TO DISALLOW DEPRECIATION ON BUILDINGS AND COMPUTERS TO THE TUNE OF RS. 7,84,550/- WHILE ACCEPTING THE INCOME TAX DE PRECIATION FIGURE IN RESPECT OF OTHER ASSETS AS PER THE CERTIFICATION DONE BY TAX AUDITOR . THIS ACTION WAS UPHELD BY THE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 27 LEARNED CIT(A) IN FIRST APPELLATE PROCEEDINGS. AGG RIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFI RMING THE DISALLOWANCE OF DEPRECIATION OF RS.7,48,550/- ON AD DITION TO FIXED ASSETS DESPITE THE FACT THAT ALL SUCH ADDITIO NS WERE DULY CERTIFIED BY THE CHARTERED ACCOUNTANT AND INVOICE C OPIES WERE PRODUCED AT THE TIME OF ASSESSMENT PROCEEDING S 8.1. THE LEARNED AR REITERATED WHAT HAS BEEN STATE D BEFORE THE LOWER AUTHORITIES AND REFERRED TO THE RELEVANT PAGES OF THE PAPER BOOK OF THE ASSESSEE NUMBERING FROM PAGES 307 TO 362 IN RESPECT OF THE IMPUGNED ISSUE CONTAIN ING THE VARIOUS DETAILS OF ALL THE FIXED ASSETS OF THE ASSESSEE DATE WISE AND PRAYED F OR DELETION OF THIS ADDITION . IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORT ED THE ORDERS OF THE LOWER AUTHORITIES. 8.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD FILED THE DE TAILS OF ENTIRE FIXED ASSETS WHICH IS PART OF THE PAPER BOOK IN PAGES 307 TO 362 AND WE F IND THAT THE ENTIRE ADDITIONS TOGETHER WITH THE INCOME TAX DEPRECIATION FIGURES W ERE DULY SUBJECTED TO CERTIFICATION BY THE TAX AUDITOR IN THE TAX AUDIT REPORT AND THE LEARNED AO HAD INDEED GRANTED INCOME TAX DEPRECIATION FOR OTHER ASSETS EXCEPT RS. 7,84,550/- BEING DEPRECIATION ON BUILDINGS AND COMPUTERS. WE FIND THAT THIS ACTION OF THE LEARNED AO IS NOT APPRECIATED AND IT IS ALSO STATED IN THE GROUNDS TH AT THE ASSESSEE HAD SUBMITTED THE BILLS BEFORE THE LEARNED AO. IN THESE CIRCUMSTANCES, WE HAVE NO HESITATION TO DELETE THIS ADDITION MADE IN THE SUM OF RS. 7,84,550/- TOWARDS DEPRECIATION ON BUILDINGS AND COMPUTERS AND ACCORDINGLY THE GROUND NO. 10 RAISED BY THE ASSESSEE IS ALLOWED. 9. DISALLOWANCE OF NOTIONAL FOREIGN EXCHANGE LOSS O N FOREIGN CURRENCY LOAN RS. 7,87,63,270/- ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 28 THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE COMPANY AVAILED 2603.99 MILLION IN JAPANESE YEN ON 13 TH AUGUST 2001 (EQUIVALENT TO RS 100 CRORES) UNDER FO REIGN CURRENCY NON RESIDENT BANK SCHEME (IN SHORT FCNR( B) ) LOAN FOR THE PURPOSE OF ITS WORKING CAPITAL BUSINESS. HENCE THIS GOES T O PROVE THAT THE LOAN HAS BEEN OBTAINED FOR REVENUE ACCOUNT. THIS LOAN WAS OUTSTA NDING AS ON 31.3.2003 AND THE SAME WAS RESTATED AT THE EXCHANGE RATE PREVAILING A T THE END OF THE YEAR IN CONSONANCE WITH THE ACCOUNTING STANDARD 11 (AS-11) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) BY THE ASSESS EE COMPANY. THE ASSESSEE DERIVED A NOTIONAL LOSS ON SUCH RESTATEMENT IN VIEW OF INCREASE IN LIABILITY PAYABLE ON THE LOAN ACCOUNT AMOUNTING TO RS. 7,87,63,270/-. THE SAME IS WORKED OUT AS BELOW:- LOAN BALANCE AS ON 31.3.2002 - 95,84,63,619 LESS: VALUE OF LOAN AS ON 31.3.2003 2603.99 MILLION JPY @ 0.39832215 - 103,72,26,889 -------------------- DIFFERENCE REPRESENTING LOSS BY WAY OF INCREASE IN LIABILITY 7,87,63,270 -------------------- 9.1. THE ASSESSEE ADDED THE SAME TO ITS TAXABLE INC OME AS THE SAME WAS NOTIONAL LOSS WHICH WAS NOT INCURRED AS ON THE DATE OF BALAN CE SHEET DATE AND ACCORDINGLY FILED ITS RETURN OF INCOME. 9.2. BUT DURING THE ASST YEAR 2002-03, THE ASSESSE E ON SIMILAR RESTATEMENT OF FOREIGN CURRENCY LOAN EARNED A NOTIONAL GAIN DUE TO DECREASE IN FOREIGN CURRENCY LOAN TO THE EXTENT OF RS. 4,15,36,381/- WHICH WAS R EDUCED FROM THE TAXABLE INCOME BY THE ASSESSEE WHILE FILING THE RETURN FOR THE ASS T YEAR 2002-03. 9.3. THE LEARNED AO HAVING ADDED THE NOTIONAL EXCH ANGE GAIN FOR THE ASST YEAR 2002-03 AMOUNTING TO RS. 4,15,36,381/- SOUGHT TO RE MAIN SILENT ON THE NOTIONAL ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 29 EXCHANGE LOSS WHICH WAS VOLUNTARILY DISALLOWED BY T HE ASSESSEE IN THE RETURN AND DID NOT GIVE ANY FINDING IN THIS REGARD IN HIS ASSESSME NT ORDER. THIS SILENT ACTION WAS ALSO CONFIRMED BY THE LEARNED CITA. AGGRIEVED, THE ASSE SSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN REJECTING THE APPELLANTS PLEA THAT NOTIONAL GAIN ON FOREIGN CURR ENCY SWAP AMOUNTING TO RS.4,15,36,381/- HAVING BEEN TAXED IN AY 2002-03, THE NOTIONAL LOSS OF RS.7,87,63,270/- ON ACCOUNT OF CURRENCY SWAP INCURRED DURING THE YEAR SHOULD HAVE BEEN ALLO WED AS BUSINESS EXPENDITURE. 9.4. THE LEARNED AR ARGUED THAT THIS ISSUE IS DIR ECTLY COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2 002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015. IN RESPONSE TO THIS , THE LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL. 9.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE ON 13.8.2001 HA D AVAILED FOREIGN CURRENCY LOAN OF JPY 2603.99 MILLION (EQUIVALENT TO RS 100 CRORES ) FOR THE PURPOSE OF ITS WORKING CAPITAL PURPOSES AND HENCE IT COULD SAFELY BE CONCLUDED THAT THE LOAN WAS BORROWED ON REVENUE ACCOUNT. HENCE ANY EXCHANGE FL UCTUATION ARISING OUT OF RESTATEMENT OF THE SAID LOAN AT THE END OF THE YEAR , BE IT GAIN OR LOSS, WOULD ALSO FALL ON REVENUE ACCOUNT AND HENCE AUTOMATICALLY COM ES UNDER THE AMBIT OF TAXATION IF IT IS A GAIN AND ALLOWABLE AS AN EXPENDITURE IF IT IS A LOSS. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA P LTD REPORTED IN 312 ITR 2 54 (SC) , WHEREIN THEIR LORDSHIPS HAD CATEGORICALLY HELD THAT SINCE THE LOA N WAS BORROWED FOR WORKING CAPITAL PURPOSES I.E ON REVENUE ACCOUNT, ANY LOSS A RISING OUT OF RESTATEMENT AT THE END OF THE YEAR WOULD BE SQUARELY ALLOWABLE U/S 37( 1) OF THE ACT. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 30 9.5.1. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSE ES OWN CASE FOR ASST YEAR 2002- 03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015 , WHEREI N IN PARA 5 OF OUR ORDER, WE HAD HELD AS BELOW:- IN VIEW OF THE AFORESAID JUDGEMENT OF THE APEX COUR T, WE HOLD THAT THE SUM OF RS. 4,15,36,381/- BEING THE EXCHANGE GAIN WOULD BE TAXABLE IN THE HANDS OF THE ASSESSEE FOR THE ASST YEAR 2002-03 AND CORRE SPONDINGLY THE LEARNED AO IS ALSO DIRECTED TO GRANT DEDUCTION FOR THE EXCH ANGE LOSS DUE TO RESTATEMENT FOR THE ASST YEAR 2003-04. ACCORDINGL Y, THE GROUND NO. 5 RAISED BY THE ASSESSEE IS DISMISSED. 9.5.2. HENCE IN VIEW OF OUR CLEAR FINDING GIVEN IN ASST YEAR 2002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015 , WE HOLD THAT THE ASS ESSEE IS INDEED ENTITLED TO CLAIM EXCHANGE LOSS OF RS. 7,87,63,270/- ARISING OU T OF RESTATEMENT OF FOREIGN CURRENCY LOAN AT THE END OF THE ACCOUNTING YEAR WHI CH HAS BEEN UTILIZED ON REVENUE ACCOUNT. ACCORDINGLY, THE GROUND NO.11 RAISED BY T HE ASSESSEE IS ALLOWED. 10. CHARGING OF INTEREST U/S 234 B OF RS. 3,69,21 ,375/- AND U/S 234 D OF RS. 42,49,712/- OF THE ACT WE FIND THAT THIS ISSUE IS ONLY CONSEQUENTIAL IN NA TURE AND HENCE DOES NOT REQUIRE ANY ADJUDICATION. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO . 57 / KOL / 2007 FOR THE ASST YEAR 2003-04 IS ALLOWED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 31 ITA NO. 2182 / KOL / 2006 ASST YEAR 2003-04 DEP ARTMENT APPEAL 11. DISALLOWANCE OF DEDUCTION U/S 80HHD EXCLUSIO N OF PAYMENTS RECEIVED IN INDIAN RUPEES FROM FOREIGN AIRLINES AND EMBASSIE S - RS. 12,90,46,618/- THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C LAIMED DEDUCTION U/S 80HHD OF THE ACT IN RESPECT OF PROFIT DERIVED FROM THE SERVICES PROVIDED TO THE FOREIGN TOURISTS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80HHD OF THE ACT. THE ASSESSEE COMPANY CLAIMED TOTAL FOREIGN EXCHANGE RECEIPTS OF RS. 194, 45,11,547/- FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHD OF THE ACT. OUT OF T HIS, THE LEARNED AO OBSERVED THAT A SUM OF RS. 12,90,46,618/- MADE BY THE FOREI GN EMBASSIES RECEIVED IN INDIAN RUPEES AND ACCORDINGLY HELD THAT THE SAME SHOULD NO T BE CONSIDERED FOR DEDUCTION U/S 80HHD OF THE ACT AS THE SAME WAS NOT RECEIVED IN FO REIGN CURRENCY. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT A WHO DELETED THE DISALLOWANCE OF THE LEARNED AO. AGGRIEVED, THE REVENUE PREFERRED FURTHER APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE EXCLUSION OF THE A MOUNT OF RECEIPTS AT RS.12,90,46,618/- IN INDIAN RUPEE FOR FOREIGN A IRLINES AND EMBASSIES IN QUESTION IN THE COMPUTATION OF TOTAL T URNOVER FOR THE PURPOSE OF CALCULATION FO DEDUCTION U/S. 80HHC OF T HE I.T ACT, 1961. 11.1. THE LEARNED AR ARGUED THAT THE ASSESSEE COMPA NY HAS RECEIVED A SUM OF RS. 3,19,32,343/- IS RECEIVED FROM FOREIGN EMBASSIES IN INDIAN RUPEES WHICH FALL UNDER THE EXEMPTED CATEGORY AND RS. 9,71,14,275/- RECEIVED FROM FOREIGN AIRLINES IN INDIAN RUPEES. THE LEARNED AR FURTHER ARGUED THAT SIMILAR DISALLOWANCE MADE IN ASST YEAR 2002-03 BY THE LEARNED AO IN ASSESSEES OWN CASE CA ME UP BEFORE THIS TRIBUNAL AND THE SAME IN ITA NO. 426 / KOL / 2006 (REVENUE APPEA L) DATED 11.9.2015 HAD HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 32 TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR O F THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL. 11.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE DETAILED PAPER BOOK OF THE ASSESSEE AND PERUSED THE MATERIALS AVAILABLE ON REC ORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 , WHEREIN IN PARA 2, IT HAS BEEN HELD AS UNDER:- THE SHORT POINT THAT ARISES FOR CONSIDERATION IS TH AT WHETHER THE MONIES RECEIVED IN INDIAN RUPEES BY ASSESSEE FROM FOREIGN AIRLINES AND EMBASSIES WHICH WERE ACCEPTED AS AMOUNTS RECEIVED IN CONVERTI BLE FOREIGN EXCHANGE BY THE RBI PURSUANT TO ITS CIRCULAR ISSUED IN THE C ONTEXT OF EPCG SCHEME, COULD BE APPLIED FOR THE PURPOSE OF GRANTING DEDUCT ION U/S 80HHD OF THE ACT. IN THIS CONNECTION, IT IS RELEVANT TO LOOK INT O THE PURPOSE BEHIND GRANTING DEDUCTION U/S 80HHD OF THE ACT BY THE LEGI SLATURE TO AN ASSESSSEE. FROM THE SAID INTENTION, IT COULD BE EASILY INFERRE D THAT THE PROVISIONS OF SECTION 80HHD BEING BENEFICIAL IN NATURE NEEDS TO B E VIEWED LIBERALLY. MOREOVER, THE PROVISIONS OF SECTION 80HHD RELIES ON THE MEANING OF CONVERTIBLE FOREIGN EXCHANGE IN CLAUSE (A) OF EX PLANATION TO SECTION 80HHC. IT IS RELEVANT TO REPRODUCE CLAUSE (A) OF EXPLANATION TO SECTION 80HHC HERE:- CONVERTIBLE FOREIGN EXCHANGE MEANS FOREIGN EXCHAN GE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF I NDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF TH E FOREIGN EXCHANGE MANAGEMENT ACT , 1999 AND ANY RULES MADE T HEREUNDER. FROM THE ABOVE MEANING, IT IS VERY CLEAR THAT ONCE THE RBI ACCEPTS A PARTICULAR RECEIPT TO HAVE BEEN RECEIVED IN CONVERT IBLE FOREIGN EXCHANGE, THE DEDUCTION U/S 80HHC AND 80HHD SHOULD BE GRANTED TO THE ASSESSEE. IN THE INSTANT CASE, ADMITTEDLY, THE ASSESSEE HAD R ECEIVED MONIES IN ACCORDANCE WITH THE SCHEME APPROVED BY RBI AND HENC E THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80HHD OF THE ACT IN RESP ECT OF AMOUNTS RECEIVED IN INDIAN RUPEES FROM FOREIGN AIRLINES AND FOREIGN EMBASSIES. IT IS PERTINENT TO NOTE THAT THE LEARNED AO HAD GRANTED D EDUCTION U/S 80HHD OF THE ACT IN THE SET ASIDE ASSESSMENT PROCEEDINGS FOR THE ASST YEAR 1999-2000 ON THE SAME ISSUE TO THE SAME ASSESSEE. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 33 HENCE IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTAN CES AND PROVISIONS OF THE ACT, WE DIRECT THE LEARNED AO TO GRANT DEDUCTI ON U/S 80HHD OF THE ACT TO THE ASSESSEE. HENCE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 11.3. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE ASST YEAR 2002-03 AS STATED SUPRA, WE FIND NO INFIR MITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD AND ACCORDINGLY THE GROUND NO . 1 RAISED BY THE REVENUE IS DISMISSED. 12. ADDITION OF INDIRECT TAXES SUCH AS SALES TAX, EXPENDITURE TAX, ETC AS PART OF TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHD RS. 59,98,77,014/- THE BRIEF FACTS OF THIS ISSUE IS THAT FROM THE TAX AUDIT REPORT FILED BY THE ASSESSEE, IT WAS SEEN THAT THE ASSESSEE IS FOLLOWING THE PRACTICE OF EXCLUDING INDIRECT TAXES FROM THE TOTAL TURNOVER OF RS. 383,33,90,705/- . THE LEARN ED AO IN THE COMPUTATION U/S 80HHD OF THE ACT ADDED INDIRECT TAXES TO THE TOTAL TURNOVER ON THE CONTENTION THAT THE PRACTICE OF EXCLUDING THE INDIRECT TAXES IS IN VIOL ATION OF SECTION 145A OF THE ACT AND THE VERDICT OF THE SUPREME COURT IN THE CASE OF CHO WRINGHEE SALES BUREAU VS CIT REPORTED IN 87 ITR 542 (SC) WHEREIN IT WAS HELD THA T INDIRECT TAXES COLLECTED SHOULD FORM PART OF TRADING RECEIPTS AND SHOULD BE INCLUDE D IN THE TOTAL RECEIPTS OF THE ASSESSEE. ACCORDINGLY A SUM OF RS. 59,98,77,014/- REPRESENTING INDIRECT TAXES SUCH AS SALES TAX (RS. 22,42,39,745/-) , EXPENDITURE TAX (R S. 19,86,03,409/-) , LUXURY TAX (RS. 17,32,70,625/-), SERVICE TAX (RS. 21,34,376/-), ENT ERTAINMENT TAX (RS. 54,277/-) AND WORK CONTRACT TAX (RS. 15,74,582/-) WAS ADDED TO TH E TOTAL TURNOVER FOR THE PURPOSE OF ASCERTAINING THE PERCENTAGE OF RECEIPT IN FOREIGN C URRENCY FOR GRANTING DEDUCTION U/S 80HHD OF THE ACT. THE LEARNED CIT(A) DELETED THE ADDITION MADE ON THIS COUNT. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUND:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD.CIT(A) HAS ERRED IN DELETING THE EXCLUSION OF INDIRECT COST OF RS.59,98,77,014/- IN THE COMPUTATION OF DEDUCTION U/S. 80HHD OF THE I .T ACT, 1961. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 34 12.1. THE LEARNED AR FURTHER ARGUED THAT SIMILAR AD DITION MADE IN ASST YEAR 2002-03 BY THE LEARNED AO IN ASSESSEES OWN CASE CAME UP BE FORE THIS TRIBUNAL AND THE SAME IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 HAD HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN RESPONSE TO THIS, TH E LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THIS TRIBUNAL. 12.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE DETAILED PAPER BOOK OF THE ASSESSEE AND PERUSED THE MATERIALS AVAILABLE ON REC ORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 , WHEREIN IN PARA 9, IT HAS BEEN HELD AS UNDER:- 9.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND WE FI ND THAT THIS ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS LAKSHMI MACHINE WORKS LTD (2007) 290 ITR 667 (SC) WHEREIN IT WAS HELD THAT SECTION 80HHC(3) IS A BENEFICIAL SECTION. IT WAS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTI VE WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBIN ED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINE SS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROFITS BY APPORTIONING THE TOTAL BUSINESS PROFITS ON THE BASI S OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. THIS METHOD EARLIER EXISTED UNDER THE EXCESS PROFITS TAX ACT AND IT EXISTED IN THE BUSINESS PROFITS TAX ACT. THEREFORE, JUST AS COMMISSION RECEIVED BY AN ASSESS EE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF TURNOVER, EX CISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TURNOVER . THE EXCI SE DUTY AND SALES TAX ARE INDIRECT TAXES AND ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE, IF THEY ARE MADE RELATABLE TO EXPORTS, THE FORMULA U/S 80HHC WOULD BECOME UNWORKABLE. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 35 THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE J URISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE OF CIT VS EIH LTD IN ITA NO. 3 OF 2001 DATED 31.3.2011, WHEREIN THEIR LORDSHIPS OF CALCUTTA HIGH COURT HAD HELD AS UNDER:- THE LAST QUESTION BEFORE US IS WHETHER THE TRIBUNA L BELOW COMMITTED SUBSTANTIAL ERROR OF LAW IN RECOMPUTING D EDUCTION U/S 80HHD OF THE ACT AT RS. 77,62,17,303/- BY NOT INCLU DING RECEIVABLES IN ITS COMPUTATION ALTHOUGH THE RECEI PT INCLUDES RECEIVABLES AS PER MERCANTILE SYSTEM OF ACCOUNTING. A PLAIN READING OF THE SECTION 80HHD MAKES IT CLEAR THAT FOR COMPUTATION OF THE RELIEF U/S 80HHD, THE TOTAL TURN OVER ALONE IS INCONSEQUENTIAL BUT THE AO HAS RELIED UPON IT. IN OUR OPINION, FOR COMPUTATION OF GROSS TOTAL RECEIPT IN BUSINESS, THE OPENING SUNDRY DEBTOR SHOULD BE ADDED TO THE TOTAL TURNOVER AND FR OM THAT THE CLOSING SUNDRY DEBTOR SHOULD BE DEDUCTED IN ORDER T O ARRIVE AT THE CORRECT FIGURE AND THAT HAS BEEN FOLLOWED BY THE AU DITOR WHO HAS CERTIFIED THE ENTITLEMENT OF 61.07% OF THE BUSINESS PROFIT. OUR AFORESAID VIEW FINDS SUPPORT FROM THE DECISION OF T HE SUPREME COURT IN THE CASE OF CIT VS LAKSHMI MACHINE WORKS REPORTE D IN (2007) 290 ITR 667 WHILE INTERPRETING THE SIMILAR PROVISIO N OF SECTION 80HHC(3) OF THE ACT. IT FURTHER APPEARS THAT COPY OF ACCOUNTANTS CERTIFICATE IN FORM 10CCAD HAS ALSO BEEN PRODUCED. THEREFORE, THE ASSESSING OFFICER WRONGLY CONSIDERED THE TOTAL TURN OVER OF RS. 395,62,34,559/- INSTEAD OF GROSS RECEIPT IN BUSINES S AMOUNTING TO RS. 390,93,27,318/- CERTIFIED BY THE AUDITOR AND AC CORDINGLY, THE RELIEF ALLOWED U/S 80HHD SHOULD BE ENHANCED TO RS. 77,62,17,303/- INSTEAD OF RS. 77,53,58,471/- ALLOWED BY THE ASSESS ING OFFICER. IN VIEW OF THE AFORESAID DECISIONS, WE ARE NOT INCL INED TO INTERFERE WITH THE DECISION OF THE LEARNED CITA ON THIS ISSUE. ACCORD INGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 12.3. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE ASST YEAR 2002-03 AS STATED SUPRA, WE FIND NO INFIR MITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD AND ACCORDINGLY THE GROUND NO . 2 RAISED BY THE REVENUE IS DISMISSED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 36 13. DISALLOWANCE OF PRE-OPENING EXPENSES AS CAPITAL IN NATURE RELATING TO NEW HOTEL THE OBEROI UDAYVILAS RS. 1,66,62,614/- THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE HAD INCURRED A SUM OF RS. 1,66,62,614/- PERTAINING TO NEW HOTEL THE OBEROI U DAYVILAS AND IT RELATES TO THE PERIOD PRIOR TO THE DATE OF COMMENCEMENT OF COMMERC IAL PRODUCTION OF THE SAID HOTELS BUT AFTER THE SETTING UP OF THE SAID HOTELS. THE LEARNED AO OBSERVED THAT IN THE BOOKS OF ACCOUNTS, THESE EXPENSES WERE WRITTEN OFF OVER A PERIOD OF 5 YEARS TREATING THE SAME AS DEFERRED REVENUE EXPENSES AND FOR THE PURPOSE OF INCOME TAX HAD CLAIMED THE FULL AMOUNT AS EXPENDITURE ON THE PRETEXT THAT THE SAME ARE ONLY PRE-COMMENCEMENT BUSINESS EXPENDITURE INCURRED ON TRAINING OF EMPLOY EES, ADVERTISEMENT EXPENDITURE, ETC TO MAKE THEM FIT FOR TAKING UP THE JOB ON COMME NCEMENT OF THE ACTIVITIES FOR WHICH THE ASSESSEE ALSO RELIED ON CERTAIN DECISIONS IN IT S SUPPORT. BUT THE LEARNED AO SOUGHT TO DISALLOW THE SUM OF RS. 1,66,62,614/- IN THE ASS ESSMENT BY TREATING THE SAME AS CAPITAL EXPENDITURE. IN FIRST APPEAL, THE LEARNED CIT(A) APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION. AGGRIEVE D, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF PR E-OPENING EXPENSES AMOUNTING TO RS.1,66,62,614/- TREATING THE SAME AS REVENUE EXPENDITURE AS AGAINST TREATED BY AO AS CA PITAL EXPENDITURE. 13.1. THE LEARNED AR FURTHER ARGUED THAT SIMILAR AD DITION MADE IN ASST YEAR 2002-03 BY THE LEARNED AO IN ASSESSEES OWN CASE CAME UP BE FORE THIS TRIBUNAL AND THE SAME IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 HAD HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN RESPONSE TO THIS, TH E LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THIS TRIBUNAL. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 37 13.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE DETAILED PAPER BOOK OF THE ASSESSEE AND PERUSED THE MATERIALS AVAILABLE ON REC ORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 , WHEREIN IN PARA 11, IT HAS BEEN HELD AS UNDER:- 11.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD SET UP TWO STAR HOTELS (VANYAVILAS AND UDAYVILAS) DURING THE ASSESSMENT Y EAR UNDER APPEAL AND CERTAIN EXPENSES IN THE FORM OF SALARIES, TRAINING AND DEVELOPMENT OF GENERAL MANAGERS, SERVICE ENGINEERS ETC, WERE INCUR RED BY THE ASSESSEE AFTER THE SETTING UP OF ITS BUSINESS BUT BEFORE THE DATE OF COMMENCEMENT OF BUSINESS TO ENABLE SMOOTH FUNCTIONING OF THE ACTIVI TIES POST COMMENCEMENT OF BUSINESS TO PROVIDE UNINTERRUPTED AND BETTER SER VICES TO THE GUESTS IN THE HOTEL WITHOUT ANY OBSTRUCTION. THESE EXPENSES THOU GH TREATED AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNTS, AS AC CORDING TO THE ASSESSEE, THE BENEFIT OUT OF THESE EXPENDITURE COULD BE SPREA D OVER A PERIOD OF 5 YEARS, BUT FOR THE PURPOSE OF INCOME TAX , THE SAME WERE CLAIMED AS REVENUE EXPENDITURE IN FULL IN THE YEAR OF INCURRENCE. NOW THE SHORT POINT THAT ARISES FOR OUR CONSIDERATION IS AS TO WHETHER THE E XPENDITURE INCURRED FROM THE DATE OF SETTING UP OF BUSINESS TILL THE DATE OF COMMENCEMENT OF BUSINESS COULD BE CHARGED OFF AS REVENUE EXPENDITURE OR NOT. WE FIND THAT THIS ISSUE HAS BEEN ELABORATELY DEALT WITH IN THE FOLLOWING CA SES :- A) CIT VS KANORIA GENERAL DEALERS P LTD (1986) 15 9 ITR 524 (CAL) B) CIT VS RAMARAJU SURGICAL COTTON MILLS LTD (1967) 63 ITR 478 (SC) C) CIT VS HUGHES ESCORTS COMMUNICATIONS LTD (2009) 311 ITR 253 (DEL) D) CIT VS RELAXO FOOTWEARS LTD (2007) 293 ITR 231 ( DEL) SLP BY REVENUE AGAINST THIS ORDER DISMISSED. THE SPECIAL LEAVE PETITION FILED BY THE REVENUE AGA INST THIS ORDER IS DISMISSED BY THE SUPREME COURT IN CC 12361 / 2007 D ATED 3.1.2008 . E) DELHI ITAT 15 SOT 348 (DEL) HOTEL HANS P LTD V S ACIT ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 38 F) KESORAM INDUSTRIES AND COTTON MILLS LTD VS CIT ( 1992) 196 ITR 845 (CAL) WE HOLD THAT THE EXPENDITURE WERE INCURRED FOR EXPA NSION OF THE SAME BUSINESS AND NOT FOR SETTING UP OF THE NEW BUSINESS . INSTEAD THESE EXPENDITURES WERE INCURRED BY THE ASSESSEE AFTER TH E BUSINESS IS SET UP. IT IS ULTIMATELY ONLY A NEW UNIT OF THE ASSESSEE BY WA Y OF TWO FRESH HOTELS (VANYAVILAS AND UDAYVILAS) WHICH IS NOTHING BUT AN EXPANSION OF THE EXISTING HOTEL BUSINESS OF THE ASSESSEE WITH COMPLE TE INTERCONNECTION AND INTERLACING OF FUNDS WITH COMMON ADMINISTRATION , C OMMON MANAGEMENT , COMMON FUND AND COMMON PLACE OF BUSINESS. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECE DENTS ON THE IMPUGNED ISSUE, WE HOLD THAT THE ENTIRE EXPENDITURE OF RS. 1 ,61,98,830/- RELATING TO HOTEL VANYAVILAS AND RS. 1,42,67,177/- RELATING TO HOTEL UDAYVILAS TO BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY, THE G ROUND NO. 3 TAISED BY THE REVENUE IS DISMISSED. 13.3. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE ASST YEAR 2002-03 AS STATED SUPRA, WE FIND NO INFIR MITY IN THE ORDER OF THE LEARNED CITA IN THIS REGARD AND ACCORDINGLY THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 14. ADDITION ON ACCOUNT OF EXCESS PROVISION OF TEC HNICAL FEES RS. 24,37,804/- THE LEARNED AO ADDED BACK AN AMOUNT OF RS. 24,37,80 4/- ON ACCOUNT OF EXCESS PROVISION OF TECHNICAL FEES FOR EARLIER YEARS WRITT EN BACK IGNORING THE CLARIFICATION GIVEN AT THE TIME OF ASSESSMENT PROCEEDINGS THAT TH E SAID AMOUNT WAS PROVIDED IN ACCOUNTS OF THAT YEAR ON THE PROVISIONAL BASIS PEND ING AUDITED ACCOUNTS AND AS SUCH EXCESS AMOUNT WAS OFFERED FOR TAXATION IN THAT YEAR. AFTER AUDIT WAS OVER AND THE AMOUNT RECOVERED WAS DETERMINED, THE EXCESS PROVISION WAS WRITTEN BACK DURING THE YEAR UNDER ASSESSMENT AND SINCE THE AMOU NT WAS OFFERED FOR TAXATION IN EARLIER YEARS IT WAS CLAIMED AS DEDUCTION. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 39 14.1. THE LEARNED CITA FOUND THAT THIS ISSUE HAS BE EN ALLOWED BY HIS PREDECESSOR IN ASST YEAR 2002-03 AND ACCORDINGLY PROCEEDED TO DELE TE THE ADDITION MADE IN THE SUM OF RS. 24,37,804/- BY THE LEARNED AO. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF PR OVISIONS DEBITED FOR EXPENSES ON ACCOUNT OF REPAIRS, BAD DEB TS ETC AMOUNTING TO RS.24,37,804/- AS AGAINST EARNING OF INCOME FROM TECHNICAL ASSISTANCE FEE OF RS. 74,65,349/-. 14.2. THE LEARNED AR FURTHER ARGUED THAT SIMILAR AD DITION MADE IN ASST YEAR 2002-03 BY THE LEARNED AO IN ASSESSEES OWN CASE CAME UP BE FORE THIS TRIBUNAL AND THE SAME IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 HAD HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN RESPONSE TO THIS, TH E LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THIS TRIBUNAL. 14.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE DETAILED PAPER BOOK OF THE ASSESSEE AND PERUSED THE MATERIALS AVAILABLE ON REC ORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 , WHEREIN IN PARA 13, IT HAS BEEN HELD AS UNDER:- 13.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD AND WE FIND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT THE INCOME ON ACCOUNT OF TECHNICAL SERVICES IN RESPECT OF MANAGED HOTELS ARE INITIALLY BOOKED ON PROVISIONAL BASIS BY THE ASSESSEE FOR WANT OF FINALIZATION OF ACCOUNTS OF THOSE MANAG ED HOTELS, AND LATER BASED ON CHARTERED ACCOUNTANTS CERTIFICATE THE COR RECT INCOME IS BOOKED AND PROVISION ALREADY MADE IS ADJUSTED ACCORDINGLY. IT MAY EITHER BE INCREASED OR REDUCED. HENCE WE HAVE NO HESTITATIO N TO DELETE THIS ADDITION MADE IN THE SUM OF RS. 4,62,806/-. ACCORDINGLY, TH E GROUND NO. 5 RAISED BY THE REVENUE IS DISMISSED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 40 14.4. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE ASST YEAR 2002-03 AS STATED SUPRA, WE FIND NO INFIR MITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD AND ACCORDINGLY THE GROUND NO . 4 RAISED BY THE REVENUE IS DISMISSED. 15. DISALLOWANCE OF ADVANCES WRITTEN OFF RS. 6,41 ,636/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 6,41,636/- TOWARDS ADVANCES WRITTEN OFF AND CLAIMED THE SAME AS DEDUCTION IN THE RETURN. THE LEARNED AO WITHOUT BRINGING OUT THE FACTS IN THIS R EGARD PROCEEDED TO MAKE THE DISALLOWANCE BY MAKING THE FOLLOWING OBSERVATIONS:- THE ASSESSEE HAS DEBITED RS. 6,41,636/- UNDER THE H EAD ADVANCES WRITTEN- OFF. WRITTEN OFF ADVANCES IS NOT AN ALLOWABLE EXP ENDITURE UNDER THE INCOME TAX ACT, 1961 AND HENCE IS BEING DISALLOWED. ON FIRST APPEAL, THE ASSESSEE FILED FRESH EVIDENES IN SUPPORT OF ITS CONTENTIONS WHICH WERE SUBJECTED TO REMAND PROCEEDINGS BEFORE THE LEA RNED AO. BY FILING THE FRESH EVIDENCES, THE ASSESSE PLEADED THAT THE MATTER RELA TES TO PAYMENT OF SALES TAX FOR THE FINANCIAL YEARS 1972-73 AND 1973-74. THE ASSESSEE CLAIMED THAT OBEROI , NEW DELHI HAD DEPOSITED SALES TAX DEMAND FOR THESE FINANCIAL YEARS AND DEBITED THE SAME TO ADVANCE PAYMENT ACCOUNT. FURTHER THE ASSESSEE CL AIMED THAT THE CASES WERE FINALLY DECIDED AND SOME REFUND WAS DUE TO THE ASSESSEE ON THE BASIS OF EXCESS PAYMENT. THE BALANCE PAYMENT OF RS. 3,30,730/- AND RS. 3,01,324/ - FOR THE ABOVE TWO FINANCIAL YEARS RESPECTIVELY WAS WRITTEN OFF AS IRRECOVERABLE IN FI NANCIAL YEAR 2002-03 RELEVANT TO ASST YEAR 2003-04. THE ASSESSEE PRODUCED COPIES OF ASSE SSMENT ORDERS FOR THESE TWO YEARS PASSED BY DELHI SALES TAX AUTHORITIES. BASED ON TH ESE EVIDENCES, THE LEARNED CIT(A) HELD THAT THE ACTION OF THE LEARNED AO IN ADDING BA CK THE AMOUNT OF RS. 6,41,636/- ON THE GROUND THAT THE LIABILITY TO PAY SALES TAX NEIT HER RELATED TO THE ASSESSMENT YEAR IN ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 41 QUESTION NOR WAS CRYSTALLIZED DURING THE YEAR CANNO T BE SUSTAINED AND IS DELETED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUND:- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF ADVANCE W RITTEN OFF DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR 2003-04 TO THE EXTENT OF RS. 6,41, 636/- ON ACCOUNT OF SAL ES TAX DEMAND DEPOSITED FOR FINANCIAL YEAR 1972-73 & 1973-74 IN E ARLIER YEARS AGAINST THE DEMAND FINALIZED BY DELHI SALES TAX AUT HORITY ON 26.2.90 & 30.06.87. 15.1. THE LEARNED AR VEHEMENTLY SUPPORTED THE ORDE R OF THE LEARNED CIT(A). IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORT ED THE ORDER OF THE LEARNED AO. 15.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE RELEVANT PAGES OF THE PAPER BO OK FILED BY THE ASSESSEE. WE FIND THAT THE SALES TAX PAYMENTS MADE FOR THE FINANCIAL YEARS 1972-73 AND 1973-74 BY OBEROI DELHI WHICH HAD BEEN KEPT IN ADVANCE PAYMEN T ACCOUNT HAS BEEN WRITTEN OFF DURING THE FINANCIAL YEAR 2002-03 TREATING THE SAME AS IRRECOVERABLE. THE SAME IS ALSO SUPPORTED BY THE SALES TAX ASSESSMENT ORDERS PASSED BY THE DELHI SALES TAX DEPARTMENT. NO DOUBT THAT ANY LEGITIMATE SALES TAX PAID BY AN ASSESSEE IS ENTITLED FOR REIMBURSEMENT FROM THE CUSTOMERS THROUGH SALES INVO ICES OR OTHERWISE, SINCE THE MATTER PERTAINS TO FINANCIAL YEARS 1972-73 AND 1973 -74, IT IS PRACTICALLY IMPOSSIBLE TO SEARCH THE RELEVANT CUSTOMER AND RECOVER THE SALES TAX FROM THEM. HENCE IN THESE CIRCUMSTANCES , THE DECISION OF THE ASSESSEE TO TRE AT THE SAID SALES TAX PAYMENTS RETAINED UNDER ADVANCE PAYMENT ACCOUNT , AS IRRECOV ERABLE CANNOT BE DOUBTED WITH. WE HOLD THAT THIS IS NOTHING BUT A TRADING LOSS INC URRED BY THE ASSESSEE AND ALLOWABLE AS DEDUCTION U/S 28 OF THE ACT. HENCE WE FIND NO IN FIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE REVENUE IS DISMISSED. 16. DISALLOWANCE OF INTEREST ON BORROWED FUNDS R S. 94,06,942 /- ( 46738966- 37332024) ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 42 THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE HAD ADVANCED MONIES TO TWO PARTIES NAMELY LAKE PALACE HOTELS & MOTELS LTD (RS 2,50,00, 000/-) ; MUMTAZ HOTEL LTD (RS. 5,33,31,181/-) WHEREIN ASSESSEE HAD DULY CHARGED IN TEREST AND OFFERED THE SAME TO TAX. ACCORDINGLY, IT WAS PLEADED BY LEARNED AR THAT NO D ISALLOWANCE OF INTEREST SHOULD BE MADE. THE LEARNED CIT(A) DELETED THE ADDITION MADE TOWARDS DISALLOWANCE OF INTEREST ON BORROWED FUNDS IN RESPECT OF FUNDS ADVANCED TO A FORESAID TWO PARTIES AS THE SAME ARE INTEREST BEARING AND CONFIRMED THE ADDITION TOW ARDS INTEREST DISALLOWANCE IN RESPECT OF OTHER PARTIES. AGAINST THIS RELIEF GRAN TED TO ASSESSEE, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST ON LOANS AMOUNTING TO RS.4,67,38,966/- ON THE AMOUNT OF INTE REST FREE LOANS GIVEN TO ITS FIVE SUBSIDIARIES OF RS.38,54,91,3881/ - OUT OF BORROWED FUNDS ON WHICH INTEREST EXPENDITURE @ 12% WAS CLAIM ED BY THE ASSESSEE. THOUGH THE SAID INTEREST ON INTEREST FREE ADVANCES IN THE CASE OF TWO SUBSIDIARIES VIZ. LAKE PALACE HOTEL & M OTELS LTD AND MUMTAZ HOTELS LTD ON THE INTEREST FREE LOAN AMOUNTI NG TO RS.31,11,00,200/-. 16.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. THIS I SSUE HAS BEEN ELABORATELY DEALT WITH IN GROUND NOS. 8 & 9 RAISED BY THE ASSESSEE IN THIS ORDER. THE DECISION RENDERED THEREON WILL BE EQUALLY APPLICABLE TO GROUND NO. 6 RAISED BY THE REVENUE. ACCORDINGLY, GROUND NO. 6 RAISED BY THE REVENUE IS DISMISSED. 17. DISALLOWANCE ON ACCOUNT OF STAFF WELFARE EXPEN SES RS. 50,00,000/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE COMPANY IS IN THE HABIT OF PROVIDING FREE / SUBSIDIZED MEALS TO ITS EMPLOYEES ON DUTY. THE LEARNED AO PROCEEDED TO DISALLOW A SUM OF RS. 50,00,000/- ON ACCOUNT OF STA FF WELFARE EXPENSES ON AN ADHOC BASIS BASED ON THE DISALLOWANCES MADE IN THE EARLIE R YEARS I.E ASST YEARS 2001-02 & ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 43 2002-03. ON FIRST APPEAL, THE LEARNED CIT(A) ON TH E BASIS OF EARLIER YEARS ORDER OF HIS PREDECESSOR DELETED THE ADDITION MADE TOWARDS S TAFF WELFARE EXPENSES ON AN ADHOC BASIS WITH A FINDING THAT IT IS QUITE USUAL AND STA NDARD PRACTICE IN HOTEL BUSINESS TO PROVIDE MEALS TO ITS EMPLOYEES AND THERE WAS NO DIS PUTE ON THE FACTS THAT EXPENDITURE ON SUCH MEAL WAS ALLOWABLE BUSINESS EXPENDITURE. A GGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS .50,00,000/- OUT OF STAFF WELFARE EXPENSES AS AGAINST RS.10,62,8 3,448/- DEBITED UNDER THE HEAD. 17.1. THE LEARNED AR FURTHER ARGUED THAT SIMILAR AD DITION MADE IN ASST YEAR 2002-03 BY THE LEARNED AO IN ASSESSEES OWN CASE CAME UP BE FORE THIS TRIBUNAL AND THE SAME IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 HAD HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN RESPONSE TO THIS, TH E LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THIS TRIBUNAL. 17.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE DETAILED PAPER BOOK OF THE ASSESSEE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNA L IN ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 426 / KOL / 2006 (REV ENUE APPEAL) DATED 11.9.2015 , WHEREIN IN PARA 16, IT HAS BEEN HELD AS UNDER:- 16.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS SEEN THAT THE ADDITION HAS BEEN MADE ONLY ON AN ADHOC BASIS BY THE LEARNED AO . IT IS SEEN THAT THE LEARNED COUNSEL FOR THE REVENUE HAD SOUGHT TO WITHD RAW THIS GROUND BEFORE THE HONBLE HIGH COURT WHILE PURSUING THE APPEAL IN THE EARLIER YEAR BASED ON THE INSTRUCTIONS FROM THE INCOME TAX DEPARTMENT WHICH IS CLEARLY STATED IN PARA 2 OF THE ORDER OF THE HIGH COURT. THIS ONL Y LEADS TO A SITUATION THAT PROBABLY THE REVENUE IN ITS WISDOM THOUGHT IT FIT N OT TO PURSUE THIS ISSUE BEFORE THE HIGH COURT AS THE ADDITION MADE THEREON MAY NOT GET SUSTAINED IN THE HIGH COURT. WE FIND THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR THE ASST ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 44 YEAR 2001-02 IN ITA NO. 833/KOL/2005 DATED 8.9.2006 . THE OPERATIVE PORTION OF THE SAID JUDGEMENT IS CONSIDERED . RESPECTFULLY FOLLOWING THE COORDINATE BENCH OF THE TRIBUNAL ON THIS IMPUGNED ISSUE IN ASSESSEES OWN CASE FOR THE EARLI ER YEAR, WE ARE NOT INCLINED TO INTERFERE WITH THE DECISION OF THE LEAR NED CITA ON THIS ISSUE. ACCORDINGLY, GROUND NO. 8 RAISED BY THE REVENUE IS DISMISSED. 17.3. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE ASST YEAR 2002-03 AS STATED SUPRA, WE FIND NO INFIR MITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD AND ACCORDINGLY THE GROUND NO . 7 RAISED BY THE REVENUE IS DISMISSED. 18. DISALLOWANCE OF REPAIRS, RENEWALS, REPLACEMENT AND ADVERTISEMENT RS. 1,08,30,147/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE HAS DEBITED THE FOLLOWING EXPENSES IN ITS PROFIT AND LOSS ACCOUNT:- RENEWAL AND REPLACEMENT 3,84,03,196 REPAIRS 24,44,19,284 ADVERTISEMENT, PUBLICITY ETC 10,25,47,306 PASSAGE & TRAVELLING 15,61,37,573 ------------------ 54,15,07,359 THE LEARNED AO OBSERVED FROM THE ASSESSMENT ORDERS OF EARLIER ASSESSMENT YEARS , THE GENUINENESS AND ALLOWABILITY OF THE AFORESAID EXPEN DITURE IS NOT FREE FROM DOUBT AND ACCORDINGLY AS IN EARLIER YEARS PROCEEDED TO DISALL OW 2% OF THE AFORESAID EXPENDITURE. ON FIRST APPEAL, THE LEARNED CIT(A) DELETED THE DIS ALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,08,30,147/- @ 2% OF THE TOTAL EXPENSES INCURRE D UNDER THE HEAD REPAIRS, RENEWAL, REPLACEMENT, ADVERTISEME NT, PASSAGE AND TRAVELLING THOUGH THE ASSESSEE FAILED T O PRODUCE DETAILS OF SUCH EXPENSES AND PROVE THE GENUINENESS OF THE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 45 ALLOWABILITY OF THE BUSINESS EXPENDITURE BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS FOR THE YEAR. 18.1. THE LEARNED AR FURTHER ARGUED THAT SIMILAR A DDITION MADE IN ASST YEAR 2002-03 BY THE LEARNED AO IN ASSESSEES OWN CASE CAME UP BE FORE THIS TRIBUNAL AND THE SAME IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 HAD HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN RESPONSE TO THIS, TH E LEARNED DR FAIRLY CONCEDED TO THE POINT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THIS TRIBUNAL. 18.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE DETAILED PAPER BOOK OF THE ASSESSEE AND PERUSED THE MATERIALS AVAILABLE ON REC ORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN ITA NO. 426 / KOL / 2006 (REVENUE APPEAL) DATED 11.9.2015 , WHEREIN IN PARA 17, IT HAS BEEN HELD AS UNDER:- 17.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ADDITION OF R S. 1,07,42,335/- HAS BEEN MADE ONLY ON AN ADHOC BASIS WHICH IS NOT IN ACCORDA NCE WITH LAW. WE ALSO FIND THAT THIS ISSUE HAS BEEN DEALT WITH BY THIS TR IBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1760/CAL/1999 FOR ASST YEAR 1996-97 . RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THE TRIBUNAL ON THIS IMPUGNED ISSUE IN ASSESSEES OWN CASE FOR T HE ASST YEAR 1996-97, WE ARE NOT INCLINED TO INTERFERE WITH THE DECISION OF THE LEARNED CITA ON THIS ISSUE. ACCORDINGLY, GROUND NO. 9 RAISED BY TH E REVENUE IS DISMISSED. 18.3. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE ASST YEAR 2002-03 AS STATED SUPRA, WE FIND NO INFIR MITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD AND ACCORDINGLY THE GROUND NO . 8 RAISED BY THE REVENUE IS DISMISSED. 19. DISALLOWANCE OF GENERAL CHARGES RS. 1,01,42,4 17/- ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 46 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LE ARNED AO OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 4,05,69,671/- ON ACCOUNT OF GENERAL CHARGES. HE OBSERVED THAT NO DETAILS OR EXPLANATION HAS BEEN FI LED IN THIS REGARD AND ACCORDINGLY PROCEEDED TO DISALLOW 25% OF THE SAME AS UNVERIFIAB LE AND NOT RELATED TO THE BUSINESS AND MADE DISALLOWANCE OF RS. 1,01,42,417/-. ON FIR ST APPEAL, THE ASSESSEE PLEADED THAT ALL THE DETAILS WERE INDEED FILED BEFORE THE LEARNE D AO AND THE OBSERVATION OF THE LEARNED AO IS FACTUALLY INCORRECT. IT WAS ALSO PL EADED THAT OUT OF RS. 4,05,69,671/-, A SUM OF RS. 3,99,61,272/- DEBITED IN THE HEAD OFFICE RELATES TO AMOUNTS PAID TO DIFFERENT ASSOCIATIONS LIKE HOTEL ASSOCIATION OF IN DIA , WORLD ECONOMIC FORUM, MEMBERSHIP FEES AND ANNUAL SUBSCRIPTION FOR VARIOUS STOCK EXCHANGES. BASED ON THESE SUBMISSIONS, THE LEARNED CIT(A) DELETED THE A DDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,01,4 2,417/- BEING 25% OF THE TOTAL EXPENSES INCURRED UNDER THE HEAD GENERAL CHARGESBY ACCEPTING ASSESSEES EXPLANATION AND OTH ER DETAILS WHICH WERE NOT PRODUCED AND NOT VERIFIED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. 19.1. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDE R OF THE LEARNED AO AND IN RESPONSE TO THIS, THE LEARNED AR REFERRED TO THE RE LEVANT PAGE OF THE PAPER BOOK WHICH CONTAINED THE DETAILS OF THE ENTIRE GENERAL CHARGES . HE FURTHER ARGUED THAT NO DISALLOWANCE WAS MADE BY THE LEARNED AO IN THE ASSE SSMENT YEAR 2002-03 (EARLIER YEAR) AND ASSESSMENT YEAR 2005-06 (SUBSEQUENT YEAR ) ON THIS ACCOUNT AND VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT(A). 19.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE RELEVANT PAGE OF THE PAPER BOO K FILED BY THE ASSESSEE. WE FIND FROM THE PAPER BOOK, THE DETAILS OF GENERAL CH ARGES ARE AS FOLLOWS:- ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 47 HEAD OFFICE 3,99,61,272 CHOWRINGHEE PROPERTIES 140 OBEROI MOUNT EVEREST, DARJEELING 4,558 PALM BEACH, GOPALPUR 2,04,496 CALCUTTA DEPOSIT 813 DELHI DEPOSIT 7,221 MUMBAI DEPOSIT 5,510 CENTRAL PURCHASE, DELHI 561 GOA PROJECT 15,052 OBEROI AIRPORT SERVICES, KOLKATA 3,70,049 -------------------- 4,05,69,672 WE ALSO FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AMOUNTS DEBITED IN HEAD OFFICE REPRESENTS AMOUNTS PAID TO DIFFERENT ASSOCIATIONS LIKE HOTEL ASSOCIATION OF INDIA , WORLD ECONOMIC FORUM, MEMBERSHIP FEES AND ANNUAL SUBSCRIPTION FOR VARIOUS STOCK EXCHANGES. THESE ARE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. WE ALSO FIND THAT THIS DISALLOWANCE IS NOT MADE BY THE LEARNED AO FOR THE ASST YEAR 2002-03 (I.E THE EARLIER YEAR) AND IN ASST YEAR 2005-06 ( IN SUBSEQUENT YEAR ). MOREOVER, THERE IS ABSOLUTELY NO BASIS FOR MAKING THE DISALLOWANCE AT THE RATE OF 25% OF TOTAL GENERAL CHARGES BY THE LEARNED AO. ACCORDINGLY, WE FIND NO INFIRMITY IN T HE ORDER OF THE LEARNED CITA AND HENCE THE GROUND NO. 9 RAISED BY THE REVENUE IS DIS MISSED. 20. DISALLOWANCE OF PRIOR PERIOD EXPENSES RS. 1, 00,000/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE TAX AUDIT OR HAD REMARKED IN HIS TAX AUDIT REPORT FOR THE ASST YEAR 2004-05 THAT A SUM OF RS. 1,00,0 00/- REPRESENTS EXPENDITURE PERTAINING TO ASST YEAR 2003-04 AND ACCORDINGLY REP ORTED THE SAME UNDER PRIOR PERIOD EXPENSES IN TAX AUDIT REPORT. BASED ON THIS, THE ASSESSEE MADE A CLAIM BEFORE THE LEARNED AO THAT THE SAID EXPENDITURE OF RS. 1,00,00 0/- BE ALLOWED AS DEDUCTION IN ASST YEAR 2003-04 ( I.E THE ASSESSMENT YEAR UNDER A PPEAL). THE LEARNED AO DID NOT CONSIDER THIS REQUEST OF THE ASSESSEE. ON FIRST AP PEAL, THE LEARNED CIT (A) ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 48 APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND ON GOING THROUGH THE TAX AUDIT REPORT FOR THE ASST YEAR 2004-05 AND IN LINE WITH THE MERC ANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, ALLOWED THE CLAIM OF THE ASSESSEE BY STATING THAT THE ASSESSEES TIME FOR FILING REVISED RETURN HAD EXPIR ED AND ACCORDINGLY HAD MADE A CLAIM BY WAY OF A LETTER BEFORE THE COMPLETION OF ASSESSM ENT PROCEEDINGS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UND:- 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF EXPENSES OF RS.1,00,000/- CLAIMED BEFORE THE AO DURING ASSESSMENT PROCEEDIN GS FOR THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2003 -04 BY THEIR LETTER DATED 27.01.06 THOUGH THE SAID EXPENSES REL ATED TO THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 200 4-05 AS PER TAX AUDIT REPORT NOT DEBITED TO THE P & L A/C FOR THE A SSESSMENT YEAR 2003-04. 20.1. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDE R OF THE LEARNED AO AND IN RESPONSE TO THIS, THE LEARNED AR VEHEMENTLY SUPPORT ED THE ORDER OF THE LEARNED CIT(A). 20.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE RELEVANT PAGE OF THE PAPER BOO K FILED BY THE ASSESSEE. WE FIND FROM THE PAPER BOOK THAT THE ASSESSEE HAD GENUINELY MADE THIS CLAIM BEFORE THE LEARNED AO BASED ON THE TAX AUDITOR REFLECTING A FI GURE OF RS. 1,00,000/- UNDER PRIOR PERIOD EXPENSES IN THE TAX AUDIT REPORT FOR ASST YE AR 2004-05. IT IS NOT THE CASE OF THE REVENUE THAT THE SAID EXPENDITURE IS NOT INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESEE I N LINE WITH THE MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY IT, HAD SOUGHT TO RECTIFY ITS GENUINE OMISSION AND CLAIM THE SAME IN THE ASSESSMENT PROCEEDINGS BY WAY OF A LETTER DATED 27.1.2006. WE ARE AWARE AT THIS JUNCTURE THAT ANY CLAIM COULD BE MADE ONLY BY FILING A VALID RETURN AS HAS BEEN HELD BY THE HONBLE APEX COURT IN THE CASE OF GOETZE INDIA LTD REPORTED IN 284 ITR 323 (SC) . BUT THE SAME JUDGEMENT STATES IN THE LAST PARA THA T THE SAID FINDING ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 49 IS NOT APPLICABLE TO APPELLATE AUTHORITIES MORE ESP ECIALLY TO TRIBUNALS. HENCE RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HONBLE APEX COURT (SUPRA) AND IN VIEW OF THE FACT THAT THE SAID EXPENDITURE OF RS. 1,00,0 00/- IS GENUINELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS, WE HOLD T HAT THE ACTION OF THE LEARNED CIT(A) DOES NOT REQUIRE ANY INTERFERENCE IN THIS REGARD. H ENCE THE GROUND NO. 10 RAISED BY THE REVENUE IS DISMISSED. 20.2.1 IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 2182 / KOL / 2006 FOR ASST YEAR 2003-04 IS DISMISSED. ITA NO. 1846 / KOL / 2007 ASST YEAR 2004-05 ASS ESSEES APPEAL 21. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS BEFORE US :- 1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE DISALLOWANCE OF RS. 88,506,749/- MADE UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E 'ACT') ON PROFESSIONAL & CONSULTANCY FESS PAID TO NON RESIDEN TS IGNORING THE FACT THAT SUCH FEES BEING NOT SUBJECT TO TAX IN IND IA REQUIRED NO TAX WITHHOLDING UNDER SECTION 195. 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE THE FACT THAT DISALLOWANCE U/S 40(A)(I) COULD ONLY BE MADE WHERE TAX IS DEDUCT IBLE U/S 195 AND THE APPELLANT HAD FAILED TO DEDUCT SUCH TAX. 3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT CONSIDERING THAT LEGAL FEES, COMMISSION TO FOREIGN TRAVEL AGENTS, PAYMENTS ON AC COUNT OF ADVERTISEMENT, SUBSCRIPTION AND LISTING FEES OF TRA DE ASSOCIATIONS AND FEES FOR OTHER PROFESSIONAL SERVICES RENDERED F ROM OUTSIDE INDIA CANNOT BE TREATED AS 'FEES FOR TECHNICAL SERVICES' TO ATTRACT THE DEEMING PROVISIONS UNDER SECTION 9(1 )(VII) OF THE ACT. 4) THAT THE LEARNED CIT(A) ERRED IN ENHANCING THE DISALLOWANCE U/S 40(A)(I) BY ANOTHER RSA,453,580/- DURING THE AP PEAL PROCEEDINGS FOR NON DEDUCTION OF TAX AT SOURCE ON COMMISSION PA ID TO FOREIGN ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 50 TRAVEL AGENTS IGNORING THE FACT THAT SUCH COMMISSIO N BEING NOT SUBJECT TO TAX IN INDIA REQUIRED NO TAX WITHHOLDING UNDER SECTION 195. 5) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF RS.167, 134,707/- CLAIMED BY THE APPELLANT AS OVERS EAS OFFICE MAINTENANCE, SALES PROMOTION, SALES OFFICE EXPENSES , AIRCRAFT MAINTENANCE AND OTHER MATTERS FOR WHICH REMITTANCES WERE MADE IN FOREIGN EXCHANGE AND SPENT WHOLLY AND EXCLUSIVELY F OR THE BUSINESS PURPOSE. 6) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN ALLEGING NON-COMPLIAN CE OF DETAILED RECORDS/EVIDENCES OF PAYMENTS ALONGWITH JUSTIFICATI ON IGNORING THE FACT THAT EACH AND EVERY ITEM OF DETAILS HAD BEEN F URNISHED BEFORE THE ASSESSING OFFICER WHICH WAS COMMUNICATED IN THE WRI TTEN SUBMISSION BEFORE THE LEARNED CIT(A). 7) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS)ERRED IN REJECTING THE CLAIM OF THE APPELLANT FOR RS 4,001,630/- UNDER SECTION 80HHC OF THE ACT O N EXPORT OF FOOD AND BEVERAGES TO OUT BOUND FLIGHTS OF FOREIGN AIRLI NES PAYMENTS FOR WHICH WERE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE . 8) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF RS.5,492,786/- BEING 20% OF AGGREGATE EXPENDITURE I NCURRED ON RUNNING AND MAINTENANCE OF AIRCRAFT IGNORING THE FA CT THAT THE AIRCRAFTS WERE EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS AND THERE WAS TOTAL COMPLIANCE BEFORE THE ASSESSING OFFICER S O FAR AS THE SUBMISSION OF DETAILS WAS CONCERNED AND ALSO THERE WAS A NET PROFIT OF RS.9, 158,600/- FROM THE BUSINESS OF CHARTERING OF AIRCRAFTS. 9) THAT THE LEARNED CIT(APPEALS) ERRED IN NOT APPR ECIATING THAT THE OBSERVATION OF THE ASSESSING OFFICER THAT THE A IRCRAFT WAS USED FOR PERSONAL PURPOSES WAS A WILD GUESS BUT NOT BASE D ON ANY SPECIFIC FINDING. 10) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN RESTRICTI NG THE DISALLOWANCE OF INTEREST TO RS. 40,003,060/-, BEING 12% OF INTEREST FREE ADVANCES IGNORING THE FACT THAT SAID ADVANCES WERE MADE TO ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 51 ASSOCIATE ENTERPRISES SOLELY FOR COMMERCIAL EXPEDIE NCY AND RELATED TO THE BUSINESS INTEREST OF THE ASSESSEE. 11 ) THAT WITHOUT PREJUDICE TO GROUND NO 10 AS ABOV E, THE LEARNED CIT(APPEALS) HAD FAILED TO APPRECIATE THAT THE ADVANCES MADE TO THE ASSOCIATE ENTERPRISES WERE MADE WHOLLY OUT OF OWNED FUNDS AND THE QUESTION OF DISALLOWANCE OF INTEREST INCURRED ON BORROWED FUNDS DID NOT ARISE. 12) THAT WITHOUT PREJUDICE TO GROUND NOS. 10 & 11 AS ABOVE, THE LEARNED CIT(APPEALS) SHOULD HAVE REALISED THAT NO I NTEREST IS CHARGEABLE IN CASE OF ADVANCES, WHICH ARE NOT IN TH E NATURE OF LOAN. 13) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE DISALLOWANCE OF RS. 2,500,000/- ON ACCOUNT OF LEGAL EXPENSES IGNORING THE FACT THAT SUCH DISALLOWANCE WAS MADE P URELY ON SURMISE AND CONJECTURE. 14) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS.155,577/- ON INCO RRECT APPRECIATION OF FACTUAL POSITION. 15) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) WAS WRONG IN CONFIRMING THE DI SALLOWANCE OF RS.250,000/- U/S.14A WHEN NO EXPENDITURE WAS ACTUAL LY INCURRED IN RELATION TO EXEMPT DIVIDEND INCOME. 16) THAT WITHOUT PREJUDICE TO THE GROUND AS STATED ABOVE, THE ADDITION OF RS.250,000/- MADE U/S.14A OF THE ACT IS HIGHLY EXCESSIVE. 17) THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STA TED HERE-IN-ABOVE EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. 22. WE FIND THAT MOST OF THE GROUNDS RAISED BY THE ASSESSEE HEREINABOVE ARE COVERED BY THE DECISIONS RENDERED BY US FOR THE ASST YEAR 2 003-04 IN ITA NO. 57/ KOL/ 2007. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 52 23. THE GROUND NOS. 1 TO 4 RAISED BY THE ASSESSEE ARE SIMILAR TO THE GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT WITH CERT AIN CHANGES IN THE NAME OF THE PARTIES, CHANGE IN PLACE OF THOSE PARTIES AND CHANG E IN AMOUNTS PAID TO THOSE PARTIES. IN RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 23.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 66 , 70,71 , 72 , 97, 98 , 105 , 106 & 107 OF PAPER BOOK 1 AND PAGES 231, 232 , 233 , 234, 235 TO 258, 286 TO 289 OF PAP ER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND T HE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NOS. 1 TO 3 IN PAR A 3 WOULD APPLY WITH EQUAL FORCE FOR THE GROUNDS 1 TO 4 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NOS. 1 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED. 24. THE GROUND NOS. 5 & 6 RAISED BY THE ASSESSEE A RE SIMILAR TO THE GROUND NO. 4 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT CHANGE IN AMOUNTS PAID TO THOSE PARTIES. IN RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 24.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 66 , 67, 97, 98 , 107 & 108 OF P APER BOOK 1 AND PAGES 259 TO 285 ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 53 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003- 04 FOR THE GROUND NO. 4 IN PARA 4 WOULD APPLY WITH EQUAL FORCE FOR THE GROUNDS 5 AND 6 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NOS. 5 & 6 RAISED BY THE ASSESSEE ARE ALLOWED. 25. THE GROUND NO. 7 RAISED BY THE ASSESSEE IS SIM ILAR TO THE GROUND NO. 5 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. THE LEARNED AR A RGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT CHANGE IN AMOUNTS RECEI VED IN CONVERTIBLE FOREIGN EXCHANGE TOWARDS EXPORT OF FOOD AND BEVERAGES TO OU TBOUND FLIGHTS OF FOREIGN AIRLINES. IN RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED T HAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 200 3-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 25.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 54 , 61, 99 , 108 & 109 OF PAPER BOOK 1 AND PAGES 291 TO 294 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CA SE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 F OR THE GROUND NO. 5 IN PARA 5 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 7 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 7 RAISED BY THE ASSESSEE IS ALLOWED. 26. THE GROUND NOS. 8 & 9 RAISED BY THE ASSESSEE ARE SIMILAR TO THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. TH E LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT CHANGE IN AMOUNTS AND PERCENTAGE OF AMOUNTS DISALLOWED. HE ARGUED THAT IN ASST YEAR 20 04-05, 20% OF THE IMPUGNED EXPENDITURE WAS DISALLOWED BY THE LEARNED AO AS AGA INST 50% DISALLOWED IN ASST YEAR 2003-04. IN RESPONSE TO THIS, THE LEARNED DR A LSO CONCEDED THAT THE FACTS ARE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 54 SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO . 26.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 51 , 56, 63, 99, 109 TO 110 OF PA PER BOOK 1 AND PAGES 295 TO 311 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CA SE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 F OR THE GROUND NOS. 6 & 7 IN PARA 6 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NOS. 8 & 9 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NOS. 8 & 9 RAISED BY THE ASSESSEE ARE ALLOWED. 27. THE GROUND NOS. 10, 11 & 12 RAISED BY THE ASS ESSEE ARE SIMILAR TO THE GROUND NOS. 8 & 9 RAISED BY THE ASSESSEE FOR ASST YEAR 200 3-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE IS SUES EXCEPT CHANGE IN AMOUNTS AND CHANGE IN NAMES OF THE PARTIES. HE FURTHER AR GUED THAT THESE ADVANCES WERE MADE ONLY FOR FURTHERING THE BUSINESS INTERESTS OF THE ASSESSEE. HE ALSO POINTED OUT TO THE RELEVANT PAGE OF THE PAPER BOOK FILED BY THE ASSESSEE WHEREIN IN RESPECT OF AMOUNTS DUE FROM CERTAIN PARTIES, IT ONLY REPRES ENTS REIMBURSEMENT OF EXPENSES AND NOT ANY ADVANCES MADE TO THEM. IN RESPONSE T O THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 20 03-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 27.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 52 , 57 TO 59, 74, 100, 110, 111 OF PAPER BOOK 1 AND PAGES 311A, 311B , 312 TO 315 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 55 LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NOS. 8 & 9 IN PARA 7 WOULD APPLY WIT H EQUAL FORCE FOR THE GROUND NOS. 10 , 11 & 12 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NOS. 10 , 11 & 12 RAISED BY THE ASSESSEE ARE ALLOWED. 28. DISALLOWANCE ON ACCOUNT OF LEGAL EXPENSES ON A DHOC BASIS RS. 25,00,000/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE DEBITED A SUM OF RS. 1,24,40,594/- ON ACCOUNT OF LEGAL EXPENSES GROUPED UNDER THE HEAD O THER EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THE LEARNED AO OBSERVED THAT THE ASS ESSEE FILED A LIST OF PERSONS AND AMOUNTS PAID. HOWEVER, HE OBSERVED THAT THE NECES SITY OF INCURRING THESE EXPENSES VIS A VIS THE BUSINESS OF THE ASSESSEE WAS NOT PROV ED WITH ANY EVIDENCES. ACCORDINGLY, HE RESORTED TO MAKE AN ADHOC DISALLOWA NCE OF RS. 25,00,000/- OUT OF THE SAME. THIS ADDITION WAS UPHELD BY THE LEARNED CITA AS HE OBSERVED THAT THE ASSESSEE DID NOT BOTHER TO FILE ANY EVIDENCES EVEN BEFORE HI M. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 13) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE DISALLOWANCE OF RS. 2,500,000/- ON ACCOUNT OF LEGAL EXPENSES IGNORING THE FACT THAT SUCH DISALLOWANCE WAS MADE P URELY ON SURMISE AND CONJECTURE. 28.1. THE LEARNED AR TOOK US TO THE RELEVANT PAGES OF THE PAPER BOOK FILED BY THE ASSESSEE AND VEHEMENTLY ARGUED THAT THE ENTIRE EXPE NSES WERE INCURRED ONLY FOR HANDLING THE LEGAL DISPUTES ARISING OUT OF THE BUSI NESS OF THE ASSESSEE. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER S OF THE LOWER AUTHORITIES. 28.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOKS FILED BY THE ASSES SEE. THE RELEVANT PAGES OF THE PAPER ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 56 BOOK ON THIS IMPUGNED ISSUE ARE PAGES 59, 68, 102, 111 OF PAPER BOOK 1 AND PAGES 316 TO 334 OF PAPER BOOK 2. WE FIND THAT FROM THE RELEVANT PAGES OF THE PAPER BOOK THAT THE DATE WISE AND UNIT WISE DETAILS REGARDING THE NAME OF THE PARTIES TO WHOM PAYMENTS ARE MADE, PURPOSE OF THE PAYMENT, PETITIO N NUMBERS IN SOME CASES, ETC ARE AVAILABLE. HOWEVER, IT IS NOT CLEAR THAT WHETHER T HE ENTIRE DETAILS OF LEGAL EXPENSES WERE FILED BEFORE THE LOWER AUTHORITIES FOR THEIR V ERIFICATION. HENCE WE DEEM IT FIT AND APPROPRIATE , IN THE INTEREST OF JUSTICE AND FAIRPL AY , TO SET ASIDE THIS ISSUE TO THE FILE OF THE LEARNED AO TO DECIDE THIS ISSUE AFRESH IN ACCOR DANCE WITH LAW. THE ASSESSEE IS DIRECTED TO SUBMIT ALL THESE DETAILS BEFORE THE LEA RNED AO AND SUCH OTHER EVIDENCES AND DOCUMENTS AS MAY BE REQUIRED IN SUPPORT OF ITS CONTENTIONS. HENCE THE GROUND NO. 13 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. 29. DISALLOWANCE OF BAD DEBTS RS. 1,55,577/- THE LEARNED AR STATED THAT IN VIEW OF THE SMALLNESS OF THE AMOUNT INVOLVED, HE IS NOT WILLING TO PRESS THIS GROUND. THE LEARNED DR DID N OT OBJECT TO THE SAME. 29.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN VIE W OF THE ABOVE, THE GROUND NO. 14 RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 30. DISALLOWANCE U/S 14A OF THE ACT TOWARDS PROPOR TIONATE MANAGEMENT EXPENSES RS. 2,50,000/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS. 56,28,218/- AND CLAIMED THAT NO EXPENDITURE WAS INC URRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING THIS EXEMPT INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO OBSERVED THAT IT IS NOT POSSIBLE THA T ANY INCOME CAN BE EARNED WITHOUT INCURRING ANY ADMINISTRATIVE EXPENSES. ACCORDINGL Y, HE MADE DISALLOWANCE U/S 14A OF THE ACT A SUM OF RS. 2,50,000/- ON AN ADHOC BASI S. THE ACTION OF THE LEARNED AO ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 57 WAS UPHELD BY THE LEARNED CITA. AGGRIEVED, THE ASS ESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 15) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS WRONG IN CONFIRMING THE DI SALLOWANCE OF RS.250,000/- U/S.14A WHEN NO EXPENDITURE WAS ACTUAL LY INCURRED IN RELATION TO EXEMPT DIVIDEND INCOME. 16) THAT WITHOUT PREJUDICE TO THE GROUND AS STATED ABOVE, THE ADDITION OF RS.250,000/- MADE U/S.14A OF THE ACT I S HIGHLY EXCESSIVE. 30.1. THE LEARNED AR ARGUED THAT THE PROVISIONS OF RULE 8D OF THE IT RULES COULD BE MADE APPLICABLE ONLY FROM ASST YEAR 2008-09 AS HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ& BOYCE MANU FACTURING CASE REPORTED IN 328 ITR 81 (BOM) AND FAIRLY PLEADED THAT SINCE PROVISIO NS OF SECTION 14A OF THE ACT HAS GOT RETROSPECTIVE APPLICATION IN THE STATUTE, DISAL LOWANCE THEREON COULD BE RESTRICTED TO 1% OF EXEMPT INCOME AS HAS BEEN HELD BY THE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS R.R.SEN & BROTHERS P LTD IN G.A.NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED TO THE SUBMISSION OF THE LEARNED AR. 30.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE R ELEVANT ASSESSMENT YEAR UNDER APPEAL IS 2004-05 AT WHICH POINT OF TIME , THE PROV ISIONS OF RULE 8D WAS NOT IN FORCE AND THE SAME WAS MADE APPLICABLE ONLY FROM ASST YEA R 2008-09 AS DECIDED IN THE DECISION OF GODREJ & BOYCE MANUFACTURING. HOWEVER, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD DERIVED TAXABLE INCOME AS WELL AS TAX FREE INCOME AND INCURRED EXPENDITURE FOR DERIVING BOTH THE INCOMES AND HENCE DISALLOWANCE IS DEFINITELY WARRANTED IN TERMS OF SECTION 14A WHICH IS BROUGHT IN THE STATUTE BOOK WITH RETROSPECTIVE EFFECT FROM 1.4.1962. THE DISALLOWA NCE HAD TO BE MADE ONLY ON AN ESTIMATED BASIS WITH REGARD TO THE EXPENDITURE INCU RRED FOR THE PURPOSE OF EARNING TAX ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 58 FREE INCOME. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S R.R.SEN & BROTHERS P LTD IN GA NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013 HAD HELD AS UNDER:- THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRE D BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDE R INCOME TAX. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1% OF SUCH DIV IDEND INCOME, WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. THE APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT, WE D IRECT THE LEARNED AO TO DISALLOW 1% OF EXEMPT INCOME UNDER THIS ISSUE AND ACCORDINGL Y, THE GROUND NOS. 15 & 16 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO . 1846 / KOL / 2007 FOR THE ASST YEAR 2004-05 IS PARTLY ALLOWED. ITA NO. 1876 / KOL / 2007 ASST YEAR 2004-05 DEP ARTMENT APPEAL 31. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : - I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, ID.CIT(A) HAS ERRED IN EXCLUDING RS.IO,49,30,539/-, REPRESENTING RECEIPTS IN FOREIGN CURRENCY FROM FOREIGN AIRLINES AND EMBASSIES, FOR THE PURPOSE OF COMPUTATION OF ALLOWABLE DEDUCTION U /S.80HHD AND IN PLACING RELIANCE ON HON'BLE ITAT'S DECISION DATE D 29.06.2005 IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1999-20 00 IN ITA NOS.891 & 8011K0V04 VIDE WHICH THE ISSUE WAS RESTOR ED BACK TO THE FILE OF THE ASSESSING OFFICER WITH SPECIFIC DIRECTI ONS. IN DOING SO, ID.CIT(A) HAS FAILED TO APPRECIATE THE OBSERVATIONS OF THE ASSESSING OFFICER ON THE ISSUE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, ID.CIT(A) HAS WRONGLY DIRECTED TO EXCLUDE RSA7,46,00,021/- RE PRESENTING ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 59 EXCISE DUTY, SALES TAX, LUXURY TAX, ETC., FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHD B Y OBSERVING THAT THE PROVISIONS UNDER CHAPTER VIA HAVE INDEPEND ENT CODE OF COMPUTATION OF RELIEF AVAILABLE UNDER RELEVANT PROV ISIONS AND THAT THERE WAS NO SCOPE OF IMPORTING ANY ISSUE UNLESS IT WAS IN THE SAID SECTIONS AND IN DOING SO ID.CIT(A) FAILED TO APPREC IATE THE ACTION OF THE ASSESSING OFFICER THAT WAS BASED ON THE JUDGEME NT OF HON'BLE SUPREME COURT IN THE CASE OF CHOWRINGHEE SALES BURE AU VS. CIT REPORTED IN 1871TR 542. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, ID.CIT(A) ERRED IN DELETING THE ADDITION OF RS.36,03,743/- RE LATING TO EXCESS PROVISION MADE TOWARDS TECHNICAL ASSISTANCE FEES BY RELYING ON HON'BLE ITAT'S DECISION DATED 29.06.2005 IN THE ASS ESSEE'S OWN CASE FOR ASSESSMENT YEAR 1999-2000 IN ITA NOS.891 & 8011 KOL/ 2006 AND NOT APPRECIATING THE ASSESSING OFFICER'S OBSERV ATION MADE IN THE RELEVANT ASSESSMENT ORDER FOR ARRIVING AT THE OPERA TIONAL PROFIT OF THE HOTELS UNDER CONSIDERATION. THE ASSESSEE CALCULATED ITS RECEIPTS @ 12.5% OF OPERATIONAL PROFIT OF SEVERAL GROUP HOTELS WHO IN TURN CLAIMED PROVISION FOR REPAIRS AS WELL AS BAD & DOUB TFUL DEBTS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, ID.CIT(A) ERRED IN RESTRICTING THE ADDITION MADE ON ACCOUNT O F INTEREST-FREE LOANS TO RS.4,00,03,060/- BY ACCEPTING THE ASSESSEE 'S ARGUMENT THAT ONLY RS.33,33,58,828/- REPRESENTED INTEREST-FREE LO AN ADVANCED TO MLS. BALAJI HOTELS & ENTERPRISES LTD. AND THE BALAN CE RS.17,83,91, 145/- WAS ADVANCED NOT FREE OF INTEREST ALTHOUGH TH E ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CLAIM BEFORE THE ASSESSI NG OFFICER DURING ASSESSMENT PROCEEDINGS OR SUBSEQUENTLY AND WHICH, T HEREFORE, REMAINED UNVERI FIABLE. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, ID.CIT(A) ERRED IN DELETING THE ADDITION OF RS.58,29,681/- RE LATING TO STAFF WELFARE EXPENSES BY PLACING RELIANCE ON THE ORDER O F HON'BLE IT AT DATED 08.09.2006 IN THE ASSESSEE'S OWN CASE FOR ASS ESSMENT YEARS 2000-01 & 2001-02 IN ITA NOS.833 & 10901K0V05 AND F AILING TO APPRECIATE THE OBSERVATIONS OF THE ASSESSING OFFICE R ON THE ISSUE. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, ID.CIT(A) ERRED IN DELETING THE DISALLOWANCE/ADDITION MADE BY THE ASSESSING OFFICER OF RS.8J,43,698/- ON ACCOUNT OF EXPENSES TO WARDS REPAIRS, RENEWALS, REPLACEMENTS, ETC., BY NOT APPRECIATING T HE ASSESSING OFFICER'S OBSERVATION THAT THE EXPENSES REMAINED UN VERIFIABLE BEFORE HIM DURING ASSESSMENT PROCEEDINGS FOR THE YEAR SINC E THE ASSESSEE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 60 FAILED TO EXPLAIN THE INDIVIDUAL EXPENSES IN THE MA NNER REQUISITIONED BY THE ASSESSING OFFICER ALONG WITH SUPPORTING DOCU MENTS. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, ID.CIT(A) ERRED IN DELETING THE DISALLOWANCE/ADDITION MADE BY THE ASSESSING OFFICER OF RS.50,33,347/- ON ACCOUNT OF GENERAL EXP ENSES BY NOT APPRECIATING THE ASSESSING OFFICER'S OBSERVATION TH AT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE SAID EXPENSES IN THE MANNER CALLED FOR WITH SUPPORTING EVIDENCE DURING ASSESSMENT PROCEEDI NGS FOR THE YEAR. 8. THAT, THE PETITIONER CRAVES LEAVE TO ADD, ALTER OR MODIFY ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL ANY TIME BEFORE OR A T THE TIME OF HEARING. 32. WE FIND THAT MOST OF THE GROUNDS RAISED BY TH E REVENUE HEREINABOVE ARE COVERED BY THE DECISIONS RENDERED BY US FOR THE ASST YEAR 2 003-04 IN ITA NO. 2182 / KOL/ 2006. 33. THE GROUND NO. 1 RAISED BY THE REVENUE IS SIMI LAR TO THE GROUND NO. 1 RAISED BY THE REVENUE FOR ASST YEAR 2003-04. THE LEARNED AR ARGU ED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUE EXCEPT CHANGE IN AMOUNTS RECEIV ED IN CONVERTIBLE FOREIGN EXCHANGE FROM FOREIGN AIRLINES AND EMBASSIES FOR THE PURPOS E OF COMPUTATION OF ALLOWABLE DEDUCTION U/S 80HHD OF THE ACT. IN RESPONSE TO THI S, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 33.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 335 TO 345 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 61 GROUND NO. 1 IN PARA 11 WOULD APPLY WITH EQUAL FORC E FOR THE GROUND NO. 1 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 34. THE GROUND NO. 2 RAISED BY THE REVENUE IS SIM ILAR TO THE GROUND NO. 2 RAISED BY THE REVENUE FOR ASST YEAR 2003-04. THE LEARNED AR ARGU ED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUE EXCEPT CHANGE IN AMOUNTS IN RES PECT OF EXCLUSION OF SERVICE TAX, SALES TAX AND OTHER INDIRECT TAXES FOR THE PURPOSE OF COMPUTATION OF ALLOWABLE DEDUCTION U/S 80HHD OF THE ACT. IN RESPONSE TO THI S, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 34.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 382 TO 389 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NO. 2 IN PARA 12 WOULD APPLY WITH EQUAL FORC E FOR THE GROUND NO. 2 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 35. EXCESS PROVISION FOR TECHNICAL FEES RS. 36,0 3,743 - THE GROUND NO. 3 RAISED BY THE REVENUE IS SIMILAR TO THE GROUND NO. 4 RAISED B Y THE REVENUE FOR ASST YEAR 2003-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO C HANGE IN THE ISSUE EXCEPT CHANGE IN FIGURES. IN RESPONSE TO THIS, THE LEARNED DR AL SO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 62 35.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 382 TO 389 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NO. 4 IN PARA 14 WOULD APPLY WITH EQUAL FORC E FOR THE GROUND NO. 3 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 36. DISALLOWANCE OF INTEREST ON BORROWED FUNDS RS . 4,00,03,060/- THE GROUND NO. 4 RAISED BY THE REVENUE IS SIMILAR TO THE GROUND NO. 6 RAISED BY THE REVENUE FOR ASST YEAR 2003-04. THIS ISSUE IS ALSO SIMILAR TO GROUND NOS. 10 TO 12 RAISED BY THE ASSESSEE FOR THE ASST YEAR 2004-05 . THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUE EXCEPT CHANGE IN FIGURES AND CHANGE IN PA RTIES WITH REGARD TO THE EARLIER YEAR. IN RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED T HAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 200 3-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 36.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 314 AND 315 OF PAPER BOOK 2. WE HOLD THA T THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NO. 6 IN PARA 16 AND FOR THE GROUND NOS. 10 TO 12 IN PARA 27 FOR THE ASST YEAR 2004-05 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 4 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 4 RAISED BY THE REVENUE IS DIS MISSED. 37. DISALLOWANCE ON ACCOUNT OF STAFF WELFARE EXPENS ES RS. 58,29,681/- THE GROUND NO. 5 RAISED BY THE REVENUE IS SIMILAR T O THE GROUND NO. 7 RAISED BY THE REVENUE FOR ASST YEAR 2003-04. THE LEARNED AR ARGU ED THAT THERE IS ABSOLUTELY NO ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 63 CHANGE IN THE ISSUE EXCEPT CHANGE IN FIGURES. IN R ESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 20 03-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 37.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 346 TO 349, 349A, 350 & 351 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISI ON RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NO. 7 IN PARA 17 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 5 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 5 RAISED BY THE REVENUE IS DISMISSED. 38. DISALLOWANCE ON ACCOUNT OF EXPENSES TOWARDS REP AIRS, RENEWALS AND REPLACEMENTS RS. 81,43,698/- THE GROUND NO. 6 RAISED BY THE REVENUE IS SIMILAR T O THE GROUND NO. 8 RAISED BY THE REVENUE FOR ASST YEAR 2003-04. THE LEARNED AR ARGU ED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUE EXCEPT CHANGE IN FIGURES. IN R ESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 20 03-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 37.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 352 TO 420 OF PAPER BOOK 2. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NO. 8 IN PARA 18 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 6 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 6 RAISED B Y THE REVENUE IS DISMISSED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 64 38. DISALLOWANCE ON ACCOUNT OF GENERAL EXPENSES RS. 50,33,347/- THE GROUND NO. 7 RAISED BY THE REVENUE IS SIMILAR T O THE GROUND NO. 9 RAISED BY THE REVENUE FOR ASST YEAR 2003-04. THE LEARNED AR ARGU ED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUE EXCEPT CHANGE IN FIGURES. IN R ESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 20 03-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2004-05 ALSO. 38.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 421 & 422 OF PAPER BOOK 2. WE H OLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NO. 9 IN PARA 19 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 7 FOR THE ASST YEAR 2004-05. HENCE THE GROUND NO. 7 RAISED B Y THE REVENUE IS DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 1876 / KOL / 2007 FOR ASST YEAR 2004-05 IS DISMISSED. ITA NO. 299 / KOL / 2010 ASST YEAR 2005-06 ASSE SSEE APPEAL 39. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS BEFORE US :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER U/S 40(A)(I) OF THE ACT TO THE EX TENT OF RS. 2,46,85,226/- OUT OF THE PROFESSIONAL & CONSULTANCY FEES OF RS 3, 18,83,520/- PAID TO NON-RESIDENTS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THA T UNDER THE DOMESTIC TAX LAWS OF INDIA THE PAYMENTS MADE ON ACCOUNT OF S ERVICES RENDERED ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 65 FROM OUTSIDE INDIA ARE NOT SUBJECT TO INDIAN INCOME TAX AND THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT I N ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD -VS.- DIRECTOR OF INCOME TAX 2 88 ITR 408(SC) IS VALID EVEN AFTER THE INTRODUCTION OF THE EXPLANATIO N INTRODUCED AFTER SECTION 9(2) OF THE IT ACT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT MARKETING COMMIS SION PAYABLE TO OVERSEAS AGENTS FOR SERVICES RENDERED OUTSIDE INDIA IS TAXABLE IN INDIA. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT 'LEGAL CHARGES' IS NOT COVERED BY THE DEFINITION 'FEES FOR TECHNICAL SERVI CES' AND ANY REMITTANCE ABROAD ON ACCOUNT OF SUCH LEGAL FEES REN DERED FROM OUTSIDE INDIA, BEING A PROFESSIONAL CHARGE SHOULD NOT BE SU BJECT TO INDIAN TAX UNDER THE DOMESTIC TAX LAWS OF INDIA. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT AS PER THE TAX TREATIES INDIA HAS ENTERED INTO WITH THE UK, THE USA ETC. THE DEFI NITION OF 'FEES FOR TECHNICAL SERVICES (FTS)' IS VERY NARROW AND ASERVI CE SHOULD BE CONSIDERED AS FTS, ONLY IF A NEW TECHNOLOGY IS MADE AVAILABLE TO THE PAYEE. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT THE TAX TREATIES WITH THAILAND AND AUSTRALIA DO NOT HAVE FTS CLAUSE AND C ONSEQUENTLY FURTHER ERRED IN CONSIDERING BUSINESS INCOMES RENDERED NOT THROUGH A PERMANENT ESTABLISHMENT IN INDIA AS INCOME SUBJECT TO TAX IN INDIA. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT M/S. ANN SCOTT & ASSOCIATES LTD., UK HAD RENDERED PROFESSIONAL SERVICES IN INDIA EXCEEDI NG 180 DAYS DURING FY 2004-05. 8 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CL T(APPEALS) ERRED IN HOLDING THAT M/S. ANTASKOVIC HA RTNELL, AUSTRALIA HAD RENDERED PROFESSIONAL SERVICES IN INDIA EXCEEDING 1 80 DAYS DURING FY 2004-05. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 66 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT PAYMENT S FOR PURCHASE OF DRAWINGS ARE NOT TAXABLE UNDER INDIA - THAILAND TAX TREATY. 10 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER U/S 40(A)(I) OF THE ACT OF RS. 1, 50,10,962/- PAID TO FOREIGN COMPANY TOWARDS SALES PROMOTION SERVICES RE NDEREO OUTSIDE INDIA DUE TO ALLEGED NON DEDUCTION OF TAX U/S 195 F ROM SUCH PAYMENT. 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT RS. 1,5 0,10,962/- PAID ON ACCOUNT OF SALES PROMOTION EXPENSES IS NOT TAXABLE IN INDIA NEITHER UNDER THE DOMESTIC LAW NOR UNDER THE APPLICABLE TAX TREAT Y 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER OF RS. 67,62,092/- BEING 10% OF T OTAL EXPENDITURE OF RS. 6,76,20,915/- ON ACCOUNT OF AIRCRAFT MAINTENANC E AND RUNNING EXPENSES ON AN AD-HOC BASIS, BASED ON MERE SURMISE AND CONJECTURE; IGNORING THE FACT THAT THE AIRCRAFTS WERE EXCLUSIVE LY USED FOR THE PURPOSE OF THE BUSINESS. 13 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER AS NOTIONAL INTEREST AMOUNTING TO RS. 5,84, 87,705/- ON ADVANCES GIVEN TO THE SUBSIDIARIES /ASSOCIATES COMPANIES SOL ELY FOR COMMERCIAL EXPEDIENCY AND RELATED TO THE BUSINESS INTEREST OF THE APPELLANT. 14. THAT WITHOUT PREJUDICE TO THE GROUND NO. 13 HER EIN ABOVE, THE LEARNED CITTAPPEALS)ERRED IN NOT APPRECIATING THE F ACT THAT THE RATE OF INTEREST AS CONSIDERED BY THE ASSESSING OFFICER, FO R NOTIONAL DISALLOWANCE OF ADVANCES GIVEN TO SUBSIDIARIES/ASSO CIATES COMPANIES SOLELY FOR COMMERCIAL EXPEDIENCY, IS TOO HIGH AND A RBITRARY. 15. THAT WITHOUT PREJUDICE TO THE GROUND NO. 13 & 1 4 HEREIN ABOVE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE ADVANCES MADE TO THE SUBSIDIARIES/ASSOCIATES COMPAN IES WERE MADE WHOLLY OUT OF THE OWNED FUNDS AND THEREFORE, THE QU ESTION OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS DID NOT ARISE. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 67 17. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER OF RS. 1,93,558/- ON ACCOUNT OF B AD DEBTS WRITTEN OFF AND OFFERED TO TAX EARLIER. 40. WE FIND THAT MOST OF THE GROUNDS RAISED BY THE ASSESSEE HEREINABOVE ARE COVERED BY THE DECISIONS RENDERED BY US FOR THE ASST YEAR 2 003-04 IN ITA NO. 57/ KOL/ 2007. 41. DISALLOWANCE OF PROFESSIONAL FEES (RS. 2,46,85 ,226/-) ; CONSULTANCY FEES ( RS. 3,18,83,520/-) AND SALES PROMOTION EXPENSES (RS. 1, 50,10,962/-) PAID TO NON- RESIDENTS THE GROUND NOS. 1 TO 11 RAISED BY THE ASSESSEE ARE SIMILAR TO THE GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT WITH CERT AIN CHANGES IN THE NAME OF THE PARTIES, CHANGE IN PLACE OF THOSE PARTIES AND CHANG E IN AMOUNTS PAID TO THOSE PARTIES. IN RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2005-06 ALSO. 41.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 1 TO 4, 22, 29, 30, 35 TO 37, 39 TO 135, 244 TO 356, 374 TO 425 OF PAPER BOOK . WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED U PON THEREIN AND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GR OUND NOS. 1 TO 3 IN PARA 3 AND GROUND NO. 4 IN PARA 4 WITH REGARD TO SALES PROMOTI ON EXPENSES WOULD APPLY WITH EQUAL FORCE FOR THE GROUNDS 1 TO 11 FOR THE ASST YEAR 200 5-06. HENCE THE GROUND NOS. 1 TO 11 RAISED BY THE ASSESSEE ARE ALLOWED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 68 42. DISALLOWANCE TOWARDS REPAIRS , RUNNING AND MAI NTENANCE OF AIRCRAFTS RS. 67,62,092 THE GROUND NO. 12 RAISED BY THE ASSESSEE IS SIMILA R TO THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT CHANGE IN AMOUNTS AN D PERCENTAGE OF AMOUNTS DISALLOWED. HE ARGUED THAT IN ASST YEAR 2005-06, 1 0% OF THE IMPUGNED EXPENDITURE WAS DISALLOWED BY THE LEARNED AO AS AGAINST 50% DIS ALLOWED IN ASST YEAR 2003-04. IN RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED T HAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 200 3-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2005-06 ALSO. 42.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CITA ARE ENCLOSED IN PAGES 4, 5, 19, 27, 30, 37, 136 TO 151, 244, 357 TO 373 OF PAPER BOOK. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN A ND THE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NOS. 6 & 7 IN PARA 6 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 12 FOR THE ASST YEAR 2005- 06. HENCE THE GROUND NO. 12 RAISED BY THE ASSESSEE IS ALLOWED. 43. DISALLOWANCE OF INTEREST ON BORROWED FUNDS IN RESPECT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE RS. 5,84,87,705/- THE GROUND NOS. 13,14 & 15 RAISED BY THE ASSESSEE ARE SIMILAR TO THE GROUND NOS. 8 & 9 RAISED BY THE ASSESSEE FOR ASST YEAR 2003-04. THE LEARNED AR ARGUED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUES EXCEPT CHANGE IN AMOUNTS AND CHANGE IN NAMES OF THE PARTIES. HE FURTHER ARGUED THAT THESE ADVANCE S WERE MADE ONLY FOR FURTHERING THE BUSINESS INTERESTS OF THE ASSESSEE. HE ALSO POINTE D OUT TO THE RELEVANT PAGE OF THE PAPER BOOK FILED BY THE ASSESSEE WHEREIN IN RESPECT OF AM OUNTS DUE FROM CERTAIN PARTIES, IT ONLY REPRESENTS REIMBURSEMENT OF EXPENSES AND NOT A NY ADVANCES MADE TO THEM. IN ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 69 RESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACTS ARE SIMILAR TO ASST YEAR 2003-04 AND DECISION RENDERED IN ASST YEAR 2003-04 ON THESE ISSUES COULD BE FOLLOWED FOR ASST YEAR 2005-06 ALSO. 43.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 5, 6, 27, 28, 30 TO 34, 152 TO 1 67 OF PAPER BOOK. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND T HE DECISION RENDERED BY US FOR THE ASST YEAR 2003-04 FOR THE GROUND NOS. 8 & 9 IN PARA 7 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NOS. 13 , 14 & 15 FOR THE ASST YEAR 2005-06. HENCE THE GROUND NOS. 13 , 14 & 15 RAISED BY THE ASSESSEE ARE ALLOWED. 44. DISALLOWANCE ON ACCOUNT OF SPECIFIC GENERAL CH ARGES RS. 7,00,000/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE LEARNED A O DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT EXPENSES TO THE TUNE OF RS. 14,99,285/- OUT OF TOTAL GENERAL CHARGES OF RS. 3,29,66,709/- ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. HE HAD LISTED OUT THE SAME IN THE ASSESSMENT ORDER. ACCO RDINGLY THE LEARNED AO DISALLOWED A SUM OF RS. 14,99,285/- IN THE ASSESSMENT. ON FIR ST APPEAL, THE LEARNED CITA RESTRICTED THE SAID DISALLOWANCE TO RS. 7,00,000/- AFTER HOLDING THAT SOME EXPENSES LISTED BY THE LEARNED AO CANNOT BE RELATED TO THE B USINESS OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWIN G GROUND:- 16. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER UNDER THE HEAD 'GENERAL CHARGES' TO THE EXTENT OF RS. 7,00,000/- AS NOT BEING RELATED TO THE BUSINESS OF THE APPELLANT. 44.1. THE LEARNED AR ARGUED THAT THE DISALLOWANCE CONFIRMED BY LEARNED CIT(A) FOR RS. 7,00,000/- MAINLY REPRESENTS GIFTS GIVEN TO EMP LOYEES ON VARIOUS OCCASIONS ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 70 RESULTING IN HIGHER OUTPUT AND PRODUCTIVITY AND GIF TS TO VIP GUESTS ON SPECIAL OCCASIONS WITH A VIEW TO GENERATE GOODWILL AND ARE INCURRED A S A MEASURE OF COMMERCIAL EXPEDIENCY. WITH REGARD TO EXPENDITURE INCURRED ON HORSE FEEDS , THE SAME ARE INCURRED FOR HORSES WHICH WERE MADE AVAILABLE TO TH E HOTEL GUESTS OF ASSESSEE IN RAJASTHAN FOR JOY RIDES. IN RESPONSE TO THIS, T HE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AO. 44.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE DETAILS LISTED IN THE ASS ESSMENT ORDER BY THE LEARNED AO, THE FOLLOWING EXPENSES TO BE NOT ATTRIBUTABLE TO THE BU SINESS OF THE ASSESSEE:- ANIMESH KARMAKAR NO DETAILS 1,50,000 HSBC CREDIT CARD PAYMENT 5,362 HSBC CREDIT CARD PAYMENT 57,449 HSBC CREDIT CARD PAYMENT 99,364 --------------- 3 ,12,175 IN VIEW OF THE SAME, WE DIRECT THE LEARNED AO TO RE STRICT THE DISALLOWANCE TO RS. 3,12,175/- AS NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE . HENCE THE GROUND NO. 16 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 45. DISALLOWANCE OF BAD DEBTS WRITTEN OFF RS. 1,9 3,558/- THE LEARNED AR STATED THAT IN VIEW OF THE SMALLNESS OF THE AMOUNT INVOLVED, HE IS NOT WILLING TO PRESS THIS GROUND. THE LEARNED DR DID N OT OBJECT TO THE SAME. 45.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN VIE W OF THE ABOVE, THE GROUND NO. 17 RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESS ED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 71 46. DISALLOWANCE U/S 14A OF THE ACT TOWARDS PROPORT IONATE MANAGEMENT EXPENSES RS. 20,08,159/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS. 87,75,238/- AND CLAIMED THAT NO EXPENDITURE WAS INC URRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING THIS EXEMPT INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO OBSERVED THAT IT IS NOT POSSIBLE THAT ANY INCOME CAN BE EARNED WITHOUT INCURRING ANY ADMINISTRATIVE EXPE NSES. ACCORDINGLY, HE MADE DISALLOWANCE U/S 14A OF THE ACT A SUM OF RS. 20,08, 159/- BY APPORTIONING THE EXEMPT INCOME OF RS. 87,75,238/- IN THE RATIO OF TO TAL PERSONNEL EXPENSES OF RS. 143,08,40,079/- TO TOTAL INCOME OF RS. 625,24,71,05 4/-. IN OTHER WORDS, THE DISALLOWANCE WAS WORKED OUT IN THE FOLLOWING MANNER BY THE LEARNED AO:- EXEMPT INCOME - 87,75,238 (A) TOTAL PERSONNEL EXPENSES - 143,08,40,079 (B) TOTAL INCOME - 625,24,71,054 (C ) DISALLOWANCE U/S 14A = (A) * (B) / (C ) = RS. 20,0 8,159 THE ACTION OF THE LEARNED AO WAS UPHELD BY THE LEAR NED CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUND:- 18. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ARBITRARY DISA LLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 20,08,159/- U/S 14A OF THE ACT AS BEING PROPORTIONATE MANAGEMENT EXPENSES INCURRED FOR EARN ING EXEMPT INCOME. 47.1. THE LEARNED AR ARGUED THAT THE PROVISIONS OF RULE 8D OF THE IT RULES COULD BE MADE APPLICABLE ONLY FROM ASST YEAR 2008-0 9 AS HAS BEEN HELD BY THE ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 72 HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ& BO YCE MANUFACTURING CASE REPORTED IN 328 ITR 81 (BOM) AND FAIRLY PLEADED THA T SINCE PROVISIONS OF SECTION 14A OF THE ACT HAS GOT RETROSPECTIVE APPLICATION IN THE STATUTE, DISALLOWANCE THEREON COULD BE RESTRICTED TO 1% OF EXEMPT INCOME AS HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS R.R .SEN & BROTHERS P LTD IN G.A.NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED TO THE SUBMISS ION OF THE LOWER AUTHORITIES. 48.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE R ELEVANT ASSESSMENT YEAR UNDER APPEAL IS 2005-06 AT WHICH POINT OF TIME , THE PROV ISIONS OF RULE 8D WAS NOT IN FORCE AND THE SAME WAS MADE APPLICABLE ONLY FROM AS ST YEAR 2008-09 AS DECIDED IN THE DECISION OF GODREJ & BOYCE MANUFACTURING. H OWEVER, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD DERIVED TAXABLE INCOME AS WEL L AS TAX FREE INCOME AND INCURRED EXPENDITURE FOR DERIVING BOTH THE INCOMES AND HENCE DISALLOWANCE IS DEFINITELY WARRANTED IN TERMS OF SECTION 14A WHICH IS BROUGHT IN THE STATUTE BOOK WITH RETROSPECTIVE EFFECT FROM 1.4.1962. THE DISA LLOWANCE HAD TO BE MADE ONLY ON AN ESTIMATED BASIS WITH REGARD TO THE EXPENDITUR E INCURRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS M/S R.R.SEN & BROTHERS P LTD IN GA NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013 HAD HELD AS UNDER:- THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRE D BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDE R INCOME TAX. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1% OF SUCH DIV IDEND INCOME, WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. THE APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT, WE D IRECT THE LEARNED AO TO DISALLOW 1% OF EXEMPT INCOME UNDER THIS ISSUE AND ACCORDINGL Y, THE GROUND NO. 18 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 73 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO . 299 / KOL / 2010 FOR THE ASST YEAR 2005-06 IS PARTLY ALLOWED. ITA NO. 196 / KOL / 2010 ASST YEAR 2005-06 DEPA RTMENT APPEAL 49. THE REVENUE HAS RAISED THE FOLLOWING GROUND :- 1. THAT LD. CIT(A) ERRED ON FACTS AND CIRCUMSTANCE S OF THE CASE AND IN LAW IN ALLOWING THE CLAIM OF EXPENDITUR E OF RS.43,34,707/- OF STAFF WELFARE EXPENSES BECAUSE IT WAS FOUND DURING THE COURSE OF ASSESSMENT PROCEEDING THAT A S UBSTANTIAL PART OF THE EXPENSES BOOKED UNDER STAFF WELFARE EXP ENSES RELATED TO MEALS ON DUTY AND THE ASSESSEE DID NOT MAINTAIN ANY PROPER ACCOUNT IN RESPECT OF THESE EXPENSES. DISALLOWANCE ON ACCOUNT OF STAFF WELFARE EXPENSES RS. 43,34,707/- THE GROUND NO. 1 RAISED BY THE REVENUE IS SIMILAR T O THE GROUND NO. 5 RAISED BY THE REVENUE FOR ASST YEAR 2004-05. THE LEARNED AR ARGU ED THAT THERE IS ABSOLUTELY NO CHANGE IN THE ISSUE EXCEPT CHANGE IN FIGURES. IN R ESPONSE TO THIS, THE LEARNED DR ALSO CONCEDED THAT THE FACT IS SIMILAR TO ASST YEAR 2004 -05 AND DECISION RENDERED IN ASST YEAR 2004-05 ON THIS ISSUE COULD BE FOLLOWED FOR AS ST YEAR 2005-06 ALSO. 49.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY T HE ASSESSEE. WE FIND THAT THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LEARNE D AO / LEARNED CIT(A) ARE ENCLOSED IN PAGES 6, 29, 35, 236 TO 243 OF PAPER BO OK. WE HOLD THAT THE FINDINGS GIVEN, CASE LAWS RELIED UPON THEREIN AND THE DECISI ON RENDERED BY US FOR THE ASST YEAR 2004-05 FOR THE GROUND NO. 5 IN PARA 37 WOULD APPLY WITH EQUAL FORCE FOR THE GROUND NO. 1 FOR THE ASST YEAR 2005-06. HENCE THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. ITA NOS. 2182/KOL/06, 57, 1876 & 1846/KOL/07, 196 & 299/K OL/2010 DCIT,CIR-8, KOL VS. M/S. E I H LTD 74 49.2 IN THE RESULT, THE APPEAL OF THE REVENUE IN IT A NO. 196 / KOL / 2010 FOR ASST YEAR 2005-06 IS DISMISSED. 50. TO SUM UP, THE OUTCOME OF THE AFORESAID APPEAL S ARE TABULATED BELOW:- ASSESSMENT YEAR APPEAL NO. APPEAL FILED BY RESULT 2003-04 ITA NO.57/KOL/07 ASSESSEE ALLOWED -DO- ITA NO.2182/KOL/06 DEPARTMENT DISMISSED 2004-05 ITA NO.1846/KOL/07 ASSESSEE PARTLY ALLOWED -DO- ITA NO.1876/KOL/07 DEPARTMENT DISMISSED 2005-06 ITA NO.299/KOL/10 ASSESSEE PARTLY ALLOWED - DO - ITA NO.196/KOL/10 DEPARTMENT DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 9 -12-2015. 1. . THE APPELLANT/DEPARTMENT: DCIT, CIR-8/JCIT (OSD), INCHARGE, AAYKAR BHAWAN, P-7 CHOWRINGHEE SQ, KOL-69. KOL-1. 2 THE RESPONDENT/ASSESSEE-M/S. EIH LIMITED 4 MANGOE LANE, KOL-1 3 / THE CIT, 4.THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 9 /12/2015 **PRADIP/SPS COPY OF THE ORDER FORWARDED TO:-