Linde India Limited (formerly BOC India Limited), Kolkata V. D.C.I.T.-Cir-12, Kolkata, Kolkata

ITA 235/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4266 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-08-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY CITSRDR
• Assessee Lawyers: K R VASUDEVAN; BASANT GODHYAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Bad and doubtful debts; Valuation report; Commercial expediency
• Section: 143(3); 2(14); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.235/KOL/2014 ASSESSMENT YEAR:2005-06 LINDE INDIA LIMITED (FORMERLY BOC INDIA LTD) OXYGEN HOUSE, P-43, TARATALA ROAD, KOLKATA-700 088 [ PAN NO.AAACB 2528 H ] / V/S . DCIT, CIRCLE-12, AAYAKAR BHAWAN, P- 7, CHOWRINGHEE SQUARE, KOLKTA-69 /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI K.R.VASUDEVAN, AR & SHRI BASANT GODHYAR, AR /BY RESPONDENT SHRI P.K.CHAKRABORTY, ADDL CIT-SR-DR /DATE OF HEARING 20-10-2016 /DATE OF PRONOUNCEMENT 09-11-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA DATED 13.03.2013. ASSESS MENT WAS FRAMED BY DCIT, CIRCLE-12, KOLKATA U/S 143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 26.12.2008 FOR ASSE SSMENT YEAR 2005-06. SHRI K.R.VASUDEVAN & SHRI BASANT GADHYAR, LD. AUTHO RIZED REPRESENTATIVES APPEARED ON BEHALF OF ASSESSEE AND SHRI P.K. CHAKRA BORTY, LD. DEPARTMENTAL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE. ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 2 2. THE FACTS IN BRIEF AS CULLED OUT FROM THE ORDER OF AUTHORITIES BELOW AND OTHER DOCUMENTS ARE THAT ASSESSEE, A LIMITED COMPANY IS E NGAGED IN MANUFACTURING & SALE OF VARIOUS INDUSTRIAL AND MEDICAL GASES (VIZ. OXYGE N, NITROGEN, DISSOLVED ACETYLENE ETC.). THE ASSESSEE FOR THE YEAR UNDER CONSIDERATIO N HAS FILED ITS RETURN OF INCOME DECLARING LOSS OF 58,77,58,710/- COMPRISING OF BUSINESS INCOME, HOUSE PROPERTY AND CAPITAL GAIN. SUBSEQUENTLY, CASE WAS SELECTED FOR S CRUTINY AND NOTICE U/S. 143(2)/142(1) OF THE ACT WAS ISSUED UPON ASSESSEE. THE ASSESSMENT WAS FRAMED U/S. 143(3) OF THE ACT AT A TOTAL LOSS OF 58,59,43,867/- BY MAKING CERTAIN ADDITIONS / DISALLOWANCE TO THE TOTAL INCOME OF ASSESSEE WHICH ARE DISCUSSED BELOW. 3. FIRST ISSUE RAISED BY ASSESSEE IS THAT LD. CIT(A ) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE ADDITION OF 11,07,112/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. 4. THE ASSESSEE HAS GIVEN ADVANCE OF 22,14,224/- ON BEHALF OF ITS SISTER CONCERN, NAMELY, KOL MAK CHEMICALS LTD. (KMCL FOR SHORT) IN THE EARLIER YEAR. THE HON'BLE JURISDICTIONAL HIGH COURT APPROVED A SCHEME OF COMP ROMISE IN THE YEAR 1983 WITH THE DIRECTION TO KMCL TO PAY 50% OF THE AFORESAID TO AS SESSEE IN INSTALLMENTS OF 10 YEARS AND BALANCE 50% WAS WAIVED OFF. HOWEVER, ASSESSEE I N THE INSTANT CASE COULD NOT RECOVER BALANCE 50% I.E. 11,07,112/- FROM ITS SISTER CONCERN. THEREFORE, IT WAS WRITTEN OFF AS BAD DEBT. HOWEVER, THE AO DID NOT AL LOW THE DEDUCTION FOR SUCH BAD DEBT ON THE GROUND THAT SUCH LOSS WAS NOT INCURRED IN THE COURSE OF BUSINESS OF ASSESSEE. THEREFORE, THE AFORESAID LOSS WAS DISALLO WED AND ADDED BACK TO THE TOTAL INCOME OF ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT MONEY WAS ADVANCED ON BEHALF OF KMCL ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER TO FACILITATE THE BUSINESS OF KMCL. THEREFORE SUCH AMOUNT SHOULD BE TREATED AS ADVANCE GIVEN WHOLLY AND EXCLU SIVELY FOR THE BUSINESS OF ASSESSEE. HOWEVER THE LD. CIT(A) DISREGARDED THE CL AIM OF ASSESSEE BY OBSERVING AS UNDER:- ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 3 4. I HAVE CONSIDERED THE FINDING OF THE AO IN HIS ASSESSMENT ORDER DT. 26.12.2008 AND WRITTEN SUBMISSION FILED BY THE AR D URING THE APPELLATE PROCEEDING. APPEAL ON GROUND NO. 1(A) AND 1(B) ARE AGAINST THE DISALLOWANCE OF RS.1107112/- TOWARDS BAD ADVANCES. THE AO DISALL OWED THIS AMOUNT ON THE BASIS OF THE FACT THAT THIS LOSS OF BAD ADVANCES WA S NOT INCURRED IN THE COURSE OF BUSINESS OF THE ASSESSEE, RATHER THAT ADVANCE WAS G IVEN BY A SISTER CONCERN OF THE ASSESSEE MORE THAN 20 YEARS AGO. DURING THE ASS ESSMENT PROCEEDING THE AR FILED DETAILS AND DOCUMENTS WHICH WERE SENT TO THE AO FOR VERIFICATION AND REMAND REPORT. THE ASSESSING OFFICER HAS SUBMITTED A REMAND REPORT VIDE LETTER NO.DCIT(CIR-12)/KOL/REPORT/BOC/2012-13/400 DT. 26.0 7.2012. IN THE REMAND REPORT THE AO HAS DISTINGUISHED ASSESSEES CASE FRO M ALL THE CASES REFERRED BY THE AO ULTIMATELY IT IS CLEAR THAT THE ADVANCES WHI CH THE ASSESSEE IS CLAIMING AS BAD ADVANCES WAS NOT GIVEN DURING THE COURSE OF ASS ESSEES BUSINESS. I HAVE CONSIDERED THE FINDING OF THE ASSESSMENT ORDER AND IN THE REMAND REPORT ALSO. I HAVE ALSO CONSIDERED THE WRITTEN SUBMISSION FILED B Y THE AR AND SUBMISSION FILED IN RESPONSE TO REMAND REPORT. I FIND THAT THE AO HAS CORRECTLY BROUGHT ON RECORD THAT THE ADVANCES CLAIMED TO BE BAD BY THESE WERE NEVER GIVEN DURING THE COURSE OF BUSINESS OF THE ASSESSEE. ALL THE CAS ES CITED BY THE AR EMPHASIS ON BAD ADVANCES DURING THE COURSE OF THE BUSINESS O F THE ASSESSEE. IN THIS CASE AS THE ADVANCES WERE GIVEN BY ANOTHER COMPANY WHICH HAD BECOME BAD SO IT COULD NOT BE CLAIMED BY THE ASSESSEE AS BAD ADVANCE S IN ITS OWN COURSE OF BUSINESS. ACCORDINGLY, ASSESSEES APPEAL ON GROUND NO. 1 IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 6. BEFORE US LD AR FILED PAPER BOOK WHICH IS RUNNIN G PAGES FROM 1 TO 112 AND HE REITERATED SAME SUBMISSION AS MADE BEFORE LD. CIT(A ) AND PRAYED BEFORE THE BENCH TO SET ASIDE THE ORDER OF AUTHORITIES BELOW. ON THE OTHER HAND, LD. DR SUBMITTED THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN GIVING THE LO AN TO ITS SISTER CONCERN AND LOAN ADVANCE WAS NOT GIVEN IN ORDINARY COURSE OF BUSINES S. HE VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSION, WE FIND THAT ASSESSEE HAS ADVANCE MONEY ON BEHALF OF ITS SISTER CONCERN WHICH WAS NOT RETURNED BACK DUE TO POOR FINANCIAL CONDITIONS. THEREFORE, ASSESSEE HAS WRITTEN OFF THE SAME IN ITS BOOKS OF ACCOUNT. THE AUTHORITIES BELOW DID NOT ALLOW THE DE DUCTION ON ACCOUNT OF AMOUNT WRITTEN OFF IN ITS BOOKS OF ACCOUNT ON THE PLEA THA T IT WAS NOT GIVEN IN THE COURSE OF ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 4 BUSINESS OF ASSESSEE. NOW THE CRUX OF THE ISSUE TO ADJUDICATE SO AS TO WHETHER THE DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF IS AL LOWABLE DEDUCTION IN THE AFORESAID FACTS & CIRCUMSTANCES. FROM THE FACTS WE FIND THAT THE ADVANCE GIVEN TO THE KMCL BECAME UNRECOVERABLE AS THE FINANCIAL CONDITION WAS IN A VERY BAD SHAPE. THE ASSESSEE HAS ALREADY WAIVED OFF 50% OF THE AMOUNT ADVANCED T O KMCL IN PURSUANCE OF A SCHEME APPROVED BY THE HONBLE HIGH COURT OF CALCUT TA. THE BALANCE HAS BEEN WRITTEN OFF IN THE YEAR UNDER CONSIDERATION AS THER E WAS NO POSSIBILITY FOR THE RECOVERY OF THE SAID SUM FROM KMCL. THERE WAS NO SPECIFIC DE NIAL/ PROHIBITION UNDER THE ACT FOR DISALLOWING THE CLAIM OF THE AMOUNT WRITTEN OFF AS ADVANCE GIVEN TO THE SISTER CONCERN. IN SUCH CIRCUMSTANCES THE ADMISSIBILITY OF THE ASSESSEE CLAIM SHALL DEPEND ON THE ACCEPTED COMMERCIAL PRACTICES AND TRADING PRINC IPLES. SUCH PRINCIPAL HAS BEEN LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF BADRIDAS DAGA VS. CIT (1958) 34 ITR 10 WHERE IT WAS HELD AS UNDER : 6. THE RESULT IS THAT WHEN A CLAIM IS MADE FOR A DEDUC TION FOR WHICH THERE IS NO SPECIFIC PROVISION IN S. 10(2), WHETHER IT IS AD MISSIBLE OR NOT WILL DEPEND ON WHETHER, HAVING REGARD TO ACCEPTED COMMERCIAL PRACT ICE AND TRADING PRINCIPLES, IT CAN BE SAID TO ARISE OUT OF THE CARR YING ON OF THE BUSINESS AND TO BE INCIDENTAL TO IT. IF THAT IS ESTABLISHED, THEN T HE DEDUCTION MUST BE ALLOWED, PROVIDED OF COURSE THERE IS NO PROHIBITION AGAINST IT, EXPRESS OR IMPLIED, IN THE ACT. IN THE LIGHT OF ABOVE DECISION OF THE HONBLE APEX COURT, WE ARE OF THE CONSIDERED VIEW THAT THE MONEY HAS BEEN ADVANCED IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IN THE INSTANT CASE IS CONNECTED WITH ITS SISTER CONCERN IN ONE WAY OR THE OTHER WAY WHICH PROVES/ ESTABLISHES COMMERCIAL CONN ECTIONS. BESIDES THE ABOVE WE ALSO FIND SUPPORT & GUIDANCE FROM THE ABOVE CASE BA DRIDAS DAGA (SUPRA) WHERE IT WAS FURTHER HELD AS UNDER : AT THE SAME TIME, IT SHOULD BE EMPHASISED THAT THE LOSS FOR WHICH A DEDUCTION COULD BE MADE UNDER S. 10(1) MUST BE ONE THAT SPRIN GS DIRECTLY FROM THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE, EVEN IF IT HAS SOME CONNECTION WITH H IS BUSINESS. IF, FOR EXAMPLE, A THIEF WERE TO BREAK OVERNIGHT INTO THE PREMISES OF A MONEY-LENDER AND RUN AWAY WITH FUNDS SECURED THEREIN, THAT MUST RESULT I N THE DEPLETION OF THE RESOURCES AVAILABLE TO HIM FOR LENDING AND THE LOSS MUST, IN THAT SENSE, BE A BUSINESS LOSS, BUT IT IS NOT ONE INCURRED IN THE RU NNING OF THE BUSINESS, BUT IS ONE TO WHICH ALL OWNERS OF PROPERTIES ARE EXPOSED W HETHER THEY DO BUSINESS OR ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 5 NOT. THE LOSS IN SUCH A CASE MAY BE SAID TO FALL ON THE ASSESSEE NOT AS A PERSON CARRYING ON BUSINESS BUT AS OWNER OF FUNDS. THIS DI STINCTION, THOUGH FINE, IS VERY MATERIAL AS ON IT WILL DEPEND WHETHER DEDUCTIO N COULD BE MADE UNDER S. 10(1) OR NOT. WE ARE ALSO OF THE VIEW THAT ONCE THE COMMERCIAL CO NNECTION HAS BEEN ESTABLISHED THEN THE ASSESSEE IS VERY MUCH ENTITLED FOR THE DED UCTION OF THE LOSS CLAIMED BY IT. IN SUCH FACTS & CIRCUMSTANCES WE RELY IN THE CASE OF CIT VS. GILLANDERS ARBUTHNOT & CO. PVT. LTD . 138 ITR 0763 WHERE THE HONBLE HIGH COURT OF CALC UTTA HAS OBSERVED AS UNDER:- BUSINESS LOSSIRRECOVERABLE ADVANCES GIVEN TO SUBS IDIARIESSUBSIDIARIES TO WHICH THE LOANS WERE ADVANCED BY THE ASSESSEE WERE ALL CONTROLLED BY THE ASSESSEE-COMPANY AND SOME OF THEM HAD ACTUALLY APPO INTED THE ASSESSEE- COMPANY AS THEIR MANAGING AGENTSAMOUNTS DUE FROM S UBSIDIARIES BECOMING IRRECOVERABLE AND WRITTEN OFFTRIBUNAL FOUND THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF FINANCING ITS SUBSIDIARIES WHICH WA S INCIDENTAL TO THE ASSESSEE'S MAIN BUSINESS ACTIVITIES WHICH WERE DIVERSE IN NATU REFINDINGS OF TRIBUNAL NOT CHALLENGED AS PERVERSETHEREFORE, THE LOSS INCU RRED BY THE ASSESSEE HAS TO BE ALLOWED AS ON BUSINESS ACCOUNT SIMILARLY WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF HERO CYCLES (P) LTD. VS CIT 379 ITR 347. THE REL EVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW. BUSINESS EXPENDITURE INTEREST ON BORROWINGSDEDUCTIONASSESSEE CLAIMED DEDUCTION OF INTEREST PAID ON BORROWED SUMS FROM BANK UNDER PROVISIONS OF S. 36(1)(III)DEDUCTION WAS DISALLOWE D BY AO AS MONEY BORROWED ON WHICH INTEREST WAS PAID, WAS NOT FOR BU SINESS PURPOSES AND NO DEDUCTION COULD BE ALLOWEDAO RE-CALCULATED FIGURES , AND DISALLOWED CLAIM TO EXTENT OF RS.16,39,010CIT (A) SET ASIDE ORDER OF A O HOLDING THAT INTEREST PAID BY ASSESSEE OF WHICH DEDUCTION WAS CLAIMED, WA S FOR BUSINESS PURPOSES AND, THEREFORE, ENTIRE INTEREST PAID BY ASSESSEE SH OULD HAVE BEEN ALLOWED AS BUSINESS EXPENDITUREITAT UPHELD VIEW OF CIT(A) AND THUS, DISMISSED APPEAL PREFERRED BY REVENUEAPPEAL OF REVENUE HAD BEEN ALL OWED BY HIGH COURT AND IT WAS HELD THAT WHEN LOANS WERE TAKEN FROM BAN KS AT WHICH INTEREST WAS PAID FOR PURPOSES OF BUSINESS, INTEREST THEREON COU LD NOT BE CLAIMED AS BUSINESS EXPENDITUREHELD, DELHI HIGH COURT IN 'CIT V. DALMI A CEMENT (B.) LTD.' [2002 (254) ITR 377] HELD THAT ONCE IT WAS ESTABLIS HED THAT THERE WAS NEXUS BETWEEN EXPENDITURE AND PURPOSE OF BUSINESS, REVENU E COULD NOT JUSTIFIABLY CLAIM TO PUT ITSELF IN ARM-CHAIR OF BUSINESSMAN OR IN POSITION OF BOARD OF DIRECTORS AND ASSUME ROLE TO DECIDE HOW MUCH WAS RE ASONABLE EXPENDITURE HAVING REGARD TO CIRCUMSTANCES OF CASENO BUSINESSM AN COULD BE COMPELLED TO MAXIMIZE ASSESSEES PROFIT AND IT AUTHORITIES MU ST PUT THEMSELVES IN SHOES ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 6 OF ASSESSEE AND SEE HOW PRUDENT BUSINESSMAN WOULD A CTAUTHORITIES MUST NOT LOOK AT MATTER FROM THEIR OWN VIEW POINT BUT THAT O F PRUDENT BUSINESSMAN ADVANCE TO X BECAME IMPERATIVE AS BUSINESS EXPEDIENCY IN VIEW OF UNDERTAKING GIVEN TO FINANCIAL INSTITUTIONS BY ASSE SSEE TO EFFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO X TO MEET WORKING CAPITAL FOR MEETING ANY CASH LOSESASSESSEE COMPANY HAD OFF-LOADED ITS SHARE HOL DING IN SAID X TO VARIOUS COMPANIES OF Y AND AT THAT TIME, ASSESSEE COMPANY NOT ONLY REFUN DED BACK ENTIRE LOAN GIVEN TO X LIMITED BY ASSESSEE BUT THIS WAS REFUNDED WITH INTERESTASSESSEE HAD CREDIT BALANCE IN BANK ACCOUN T WHEN SAID ADVANCE OF RS. 34 LAKHS WAS GIVENCOMPANY HAD RESERVE/SURPLUS TO TUNE OF ALMOST 15 CRORES AND, THEREFORE, ASSESSEE COMPANY COULD IN AN Y CASE, UTILISE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORSORDER OF HIGH C OURT SET ASIDE AND ORDER OF ITAT WAS RESTOREDAPPEAL ALLOWED. WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HONBLE A PEX COURT IN THE CASE OF S.A. BUILDERS LTD. VS CIT 158 TAXMAN 74. THE RELEVANT EX TRACT OF THE ORDER IS REPRODUCED BELOW. THE HIGH COURT IN THE IMPUGNED JUDGMENT, AS WELL A S THE TRIBUNAL AND THE IT AUTHORITIES HAVE APPROACHED THE MATTER FROM AN ERRO NEOUS ANGLE. THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER-CONCERN (A SUBSIDIARY) ON INTEREST-FREE LOAN. THE TEST IN SUCH A CASE IS REALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE DECISIONS RELATING TO S. 37 WILL ALSO BE APPLICABLE TO S. 36(1)(III) BECAUSE IN S. 37 ALSO THE EXPRESSION USED IS ' FOR THE PURPOSE OF BUSINESS '. IT HAS BEEN CONSISTENTLY HELD IN DECISIONS RELATING TO S. 37 THAT THE EXPRESSION ' FOR THE PURPOSE OF BUSINESS ' INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMME RCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. THE HIGH COURT AS WELL AS THE TRIBUNAL AND OTHER IT AUTHORITIES SHOULD HAVE APPRO ACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FROM THE ABOVE ANGLE. IN OTHER WORDS, THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ENQUIRED AS TO WHETHER THE INTEREST-FREE LOAN WAS GIVEN TO THE SIS TER COMPANY (WHICH IS A SUBSIDIARY OF THE ASSESSEE) AS A MEASURE OF COMMERC IAL EXPEDIENCY, AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. THE EXPRESSION ' COMMERCIAL EXPEDIENCY ' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPE NDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET I T IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITI ES HAVE EXAMINED WHETHER THE AMOUNT ADVANCED TO THE SISTER-CONCERN WAS BY WA Y OF COMMERCIAL EXPEDIENCY. THE HIGH COURT AND THE OTHER AUTHORITIE S SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MON EY TO ITS SISTER-CONCERN, AND WHAT THE SISTER-CONCERN DID WITH THIS MONEY, IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAS NOT BEE N DONE. THE IMPUGNED JUDGMENTS OF THE HIGH COURT, THE TRIBUNAL AND OTHER AUTHORITIES ARE SET ASIDE ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 7 AND THE MATTER IS REMANDED TO THE TRIBUNAL FOR A FR ESH DECISION IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE. IT IS MADE CLEAR THAT IT IS NOT THAT IN EVERY CASE INTEREST ON BORROWED L OAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER-CONCERN. IT ALL DE PENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER- CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE AS SESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CA N BE SAID TO BE ADVANCED TO A SISTER-CONCERN FOR COMMERCIAL EXPEDIE NCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSE S, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. IN THE BACKGROUND OF THE ABOVE DISCUSSIONS AND PREC EDENT WE FIND THAT THE ASSESSEE IS HOLDING COMPANY WHICH HAS ADVANCED MONEY TO ITS SUB SIDIARY COMPANY. IN OUR VIEW THE RELATIONSHIP BETWEEN THE ASSESSEE AND SUBSIDIAR Y IN ITSELF ESTABLISHES THE COMMERCIAL CONNECTIONS. THUS THE ASSESSEE IS ENTITL ED FOR THE DEDUCTION OF LOSS CLAIMED BY WRITING OFF THE IRRECOVERABLE ADVANCE TO THE SISTER CONCERN. WE ACCORDINGLY SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT ASSESSING OFFICER ACCORDINGLY. THIS GROUND OF ASSESSEE IS ALLOWED. 8. NEXT ISSUE RAISED BY ASSESSEE IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY TREATING THE SALE OF LAND AND BUILDING AS COMPOSITE PROPERTY INSTEAD OF SEPARATE CAPITAL ASSET. 9. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SOLD ITS RESIDENTIAL BUILDING ALONG WITH LAND APPURTENANT THERETO LOCATED AT VAIZ AG FOR A SUM OF 1,37,02,000/-. THE ASSESSEE SOLD ITS LAND AND BUILDING AT A COMPOSITE PRICE AS STATED ABOVE. THE ASSESSEE IN ITS RETURN INCOME BIFURCATED THE COMPOSITE PRICE OF ITS LAND AND BUILDING INTO LAND AND BUILDING AMOUNTING TO 1,24,18,000/- AND 12.84 LAKH RESPECTIVELY. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVE D THAT THE ASSESSEE HAS BIFURCATED ITS COMPOSITE CONSIDERATION TOWARDS THE LAND AND BU ILDING WITH THE SOLE PURPOSE OF CLAIMING THE BENEFIT OF INDEXATION AND CONCESSIONAL RATE OF TAX APPLICABLE TO LONG ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 8 TERM CAPITAL GAINS. THE AO FURTHER OBSERVED THAT IT IS NOT DISCERNABLE FROM THE FINANCIAL STATEMENT OF ASSESSEE WHETHER LAND AND BU ILDING WERE DISCLOSED SEPARATELY AND ASSESSEE ALSO FAILED TO BRING ANY EVIDENCE TO S HOW THAT NO DEPRECIATION ON THE COST OF THE PROPERTY WAS CLAIMED BY ASSESSEE. IN THE ABS ENCE OF ANY DOCUMENTARY EVIDENCE, AO HELD THAT THE ENTIRE CONSIDERATION OF 1,37,02,000/- IS TOWARDS THE SALE OF DEPRECIABLE ASSETS AND ACCORDINGLY DISALLOWED THE C LAIM OF ASSESSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT LAND WAS ACQUIRED IN THE YEAR 1958 A T A COST OF 11,771/- AND VALUATION REPORT FROM THE GOVERNMENT REGISTERED VALUER WAS OB TAINED FOR THE VALUATION OF THE SAID LAND AS ON 01.04.1981 U/S 55(2)(B)(I) OF THE A CT. SIMILARLY SALE PRICE OF THE COMPOSITE LAND AND BUILDING WAS BIFURCATED BETWEEN LAND AND BUILDING ON THE BASIS OF VALUATION REPORT OBTAINED FROM THE GOVT. REGISTERED VALUER. HOWEVER, LD. CIT(A) DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING AS U NDER:- I HAVE CONSIDERED THE FINDING OF THE AO IN THE A SSESSMENT ORDER AS WELL AS IN THE REMAND REPORT. I HAVE ALSO CONSIDERED THE W RITTEN SUBMISSION FILED BY THE AR DURING THE APPELLATE PROCEEDING AND IN RESPO NSE TO REMAND REPORT. FROM THE FACTS DISCUSSED BY THE AO AS WELL AS FROM THE SUBMISSION FILED BY THE AR IT IS CLEAR THAT A) THE AGREEMENT FOR SALE OF THE VIZAG PROPERTY WAS A COMPOSITE AGREEMENT AND IT DID NOT PROVIDE BIFURCATION OF CONSIDERATION BET WEEN THE COST AND LAND. B) THE ASSESSEE HAD MADE THE BIFURCATION OF CONSIDE RATION ONLY TO AVAIL THE INDEXED COST OF REQUISITION TO AVAIL CONCESSIONAL R ATE OF TAX APPLICABLE TO LONG TERM CAPITAL GAINS. C) DURING THE APPELLATE PROCEEDING THE AR COULD NOT BRING ANYTHING ON RECORD OR COULD NOT FILED ANY DOCUMENT/BOOKS OF ACCOUNT TO PROVE THAT THE ASSESSEE HAD SHOWN LAND AND BUILDING SEPARATELY IN THE BOOKS OF ACCOUNT MAINTAINED BY IT. THEREFORE, BIFURCATION OF CONSIDERATION IN THIS SITUATION IS ONLY TO REDUCE THE TAX LIABILITY ON CAPITAL AGAINST. KEEPING IN VIEW T HIS FACTS ASSESSEES APPEAL ON GROUND NO. 2 IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 11. BEFORE US FIRST LD. AR DREW OUR ATTENTION ON PA GE 81 OF THE PAPER BOOK AND DEMONSTRATED THAT BOTH LAND AND BUILDING HAS BEEN S HOWN SEPARATELY IN ITS AUDITED ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 9 FINANCIAL STATEMENT AND HE PRAYED BEFORE THE BENCH TO SET ASIDE THE ORDER OF AUTHORITIES BELOW. ON THE OTHER HAND, DR SUBMITTED THAT BUILDING IN TH E QUESTION IS NOT INSEPARABLE FROM THE LAND THEREFORE THE COMPOSITE CONSIDERATION RECE IVED BY ASSESSEE REPRESENTS THE SALE OF LAND AND BUILDING TOGETHER. THERE WAS NO SEPARA TE DISCLOSURE OF THE LAND MADE BY ASSESSEE IN ITS FINANCIAL STATEMENTS. HE VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LOWER AUTHORITIES IN THE I NSTANT CASE HAS HELD THAT THE ASSESSEE HAS SOLD THE DEPRECIABLE ASSETS AS THE LAND & BUILD ING ARE NOT SEPARATELY DISCERNIBLE FROM THE FINANCIAL STATEMENTS OF THE ASSESSEE. HOWE VER WE FIND THAT THE ASSESSEE HAS SHOWN THE LAND & BUILDING SEPARATELY IN ITS AUDITED FINANCIAL STATEMENTS WHICH ARE PLACED ON THE PAGE 31 OF THE PAPER BOOK. WE ALSO FI ND THAT THE ASSESSEE HAS PURCHASED THE BUILDING IN THE YEAR 1958 AND ACCORDINGLY THE V ALUATION REPORT OF THE LAND AS ON 1 ST APRIL 1981 WAS OBTAINED WITH REGARD TO THE LAND WHI CH IS PLACED ON PAGES 87 TO 90 OF THE PAPER BOOK. SIMILARLY THE LD. AR HAS ALSO PRODU CED THE COPY OF THE VALUATION REPORT OF THE LAND & BUILDING FOR THE BIFURCATION O F THE SALE CONSIDERATION BETWEEN THE LAND & BUILDING RESPECTIVELY WHICH IS PLACED ON PAG ES 82 & 86 OF THE PAPER BOOK. THE LD. DR HAS NOT BROUGHT ANYTHING CONTRARY TO THE ARG UMENT OF THE LD. AR. WE ALSO FIND THAT IN SIMILAR FACTS & CIRCUMSTANCES THE VARIOUS C OURTS HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS DETAILED BELOW. HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT VS. VIMAL CHAND GOLECHA 201 ITR 442 HAS OBSERVED AS UNDER : CAPITAL GAINSLONG-TERM OR SHORT-TERMLAND AND BUI LDING SOLD TOGETHER FOR A CONSOLIDATED PRICELAND ITSELF IS A CAPITAL ASSET IN TERMS OF S. 2(14) AND IS STATED AS A SEPARATE ASSET UNDER THE SCHEME OF THE ACTPRICE OF LAND AND BUILDING CAN BE BIFURCATEDASSESSEE PURCHASED LAND MUCH BEFORE TWO YEARS FROM THE DATE OF SALETRIBUNAL JUSTIFIED IN TREATIN G THE CAPITAL GAINS ARISING FROM SALE OF LAND AS LONG-TERM CAPITAL GAINS ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 10 HONBLE ITAT JODHPUR BENCH IN THE CASE OF ITO VS. K ISHORE RAJ SINGHVI 105 TTJ 1040 HAS OBSERVED AS UNDER : CAPITAL GAINSSALE OF DEPRECIABLE ASSETSSALE OF F ACTORY BUILDING WITH LANDASSESSEE HAS BEEN SHOWING LAND SEPARATELY AND HAS NOT CLAIMED DEPRECIATION THEREONTHEREFORE, CAPITAL GAINS ATTRI BUTABLE TO SALE OF LAND WERE CHARGEABLE TO TAX SEPARATELY AS LONG-TERM CAPI TAL GAINS CIT VS. VIMAL CHAND GOLECHA (1993) 110 CTR (RAJ) 216 : (1993) 201 ITR 442 (RAJ ) FOLLOWED. HONBLE ITAT KOLKAT BENCH IN THE CASE OF STATESMAN LIMITED VS. ACIT 114 ITD 595 HAS OBSERVED AS UNDER : CAPITAL GAINSLONG-TERM OR SHORT-TERMAPPORTIONMENT OF SALE CONSIDERATION BETWEEN LAND AND SUPERSTRUCTURE VIS-A -VIS PROPERTY DEVELOPMENT AGREEMENTASSESSEE COMPANY GOT AN IMMOVABLE PROPERT Y DEVELOPED BY AP LTD. WHICH CONSTRUCTED SUPERSTRUCTURES ON THE LAND PURSUANT TO THE AGREEMENT, 56.8 PER CENT OF THE BUILDING WAS RETAIN ED BY AP LTD. AND 43.2 PER CENT BELONGED TO THE ASSESSEEASSESSEE SOLD FOUR FL OORS OF THE SAID NEWLY CONSTRUCTED BUILDING BY EXECUTING DISTINCT AND INDE PENDENT AGREEMENTS WITH FOUR COMPANIESIT DECLARED LONG-TERM CAPITAL GAINS ARISING ON TRANSFER OF PROPORTIONATE UNDIVIDED PORTION OF SAID LAND ATTRIB UTABLE TO SAID FOUR FLOORS AND SHORT-TERM CAPITAL GAINS ARISING ON TRANSFER OF SUPERSTRUCTURE FORMING PART OF THE SAID FOUR FLOORSAO REJECTED SUCH COMPUTATIO N OF CAPITAL GAINS MAINLY ON THE BASIS THAT THE RIGHTS OF THE ASSESSEE COMPAN Y IN THE LAND AND BUILDING FORMING PART OF THE SAID PROPERTY WERE EXTINGUISHED , AS SOON AS THE SAME WERE HANDED OVER TO THE DEVELOPER FOR DEVELOPMENT THROUG H CONSTRUCTION OF NEW MULTISTORIED BUILDINGNOT JUSTIFIEDASSESSEE NEVER TRANSFERRED 100 PER CENT OF THE RIGHT IN LAND TO AP LTD.ONLY 56.8 PER CENT OF THE LAND WAS TO BE TRANSFERRED TO AP LTD. AND THAT TOO AFTER COMPLETIO N OF THE DEVELOPMENT OF THE LANDAGREEMENTS FOR SALE BETWEEN THE ASSESSEE AND T HE PURCHASERS CLEARLY SHOW THAT THE ASSESSEE HAS ALSO TRANSFERRED PROPORT IONATE UNDIVIDED SHARES IN THE LAND TO THE PURCHASERSSINCE THE LAND WAS ACQUI RED BEFORE 1981, ASSESSEE HAS RIGHTLY TAKEN THE MARKET VALUE OF LAND AS ON 1S T APRIL, 1981, FOR THE PURPOSE OF APPORTIONMENTOBJECTION OF THE REVENUE TO THE CO MPUTATION OF CAPITAL GAINS THAT THE ASSESSEE COMPANY HAS CLAIMED DEPRECI ATION ON BUILDING IS WITHOUT ANY MERIT AS THE ASSESSEE HAS NEVER CLAIMED DEPRECIATION ON SUCH LAND AND BUILDINGOBJECTION TO THE BENEFIT OF INDEXATION IS ALSO NOT TENABLE IN VIEW OF THE FACT THAT THE ASSESSEE HAS MADE NECESSARY EN TRIES IN THE BOOKS OF ACCOUNT ON THE BASIS OF VALUATION REPORT OF A REGISTERED VA LUER AND THE REVENUE HAS NOT DOUBTED SUCH VALUATION REPORT AT ANY POINT OF TIME SINCE THE LAND WAS ACQUIRED BEFORE 1981, GAIN ARISING ON DISPOSAL OF L AND IS LONG-TERM CAPITAL GAIN WHILE THE GAIN ON DISPOSAL OF FOUR FLOORS OF T HE BUILDING IS TO BE TREATED AS SHORT-TERM CAPITAL GAIN. ITA NO.235/KOL/2014 A.Y. 2 005-06 LINDE INDIA LTD. VS. DCIT CIR-12 KOL PAGE 11 IN THE BACKGROUND OF THE ABOVE DISCUSSIONS AND PREC EDENT WE FIND THAT THE ASSESSEE IS HAS SHOWN THE LAND & BUILDING SEPARATELY IN THE BOO K OF ACCOUNTS AND NO DEPRECIATION ON THE LAND HAS BEEN CLAIMED. THEREFORE THE ASSESSE E IN OUR CONSIDERED VIEW IS ENTITLED FOR THE SHOWING THE LONG TERM CAPITAL GAIN WITH IND EXATION ON THE SALE OF THE LAND. THE VALUATION REPORT SUBMITTED BY THE ASSESSEE BIFURCAT ING THE SALE PROCEEDS BETWEEN THE LAND & BUILDING HAS NOT BEEN DISPUTED, THUS WE FIND NO REASON TO INTERFERE WITH THE SAME. WE ACCORDINGLY SET ASIDE THE ORDER OF LD. CI T(A) ON THIS ISSUE AND DIRECT ASSESSING OFFICER ACCORDINGLY. THIS GROUND OF ASSES SEE IS ALLOWED. 13. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09/11/2016 SD/- SD/- (K.NARSIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S ! - 09/11/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-LINDE INDIA LTD. OXYGEN HOUSE, P-43, TAR ATALA RD, KOL-88 2. /RESPONDENT-DCIT, CIR-12, AAYAKAR BHAWAN P7, CHOWRI NGHEE SQ. KOL-69 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,