Gujarat Alkalies & Chemicals Ltd., Baroda V. The Dy.CIT.,Circle-1(1), Baroda

ITA 2398/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94702 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 31-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Wrong claim; Capital expenditure
• Section: 143(3); 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI KUL BHARAT, JM, & MANISH BORAD, AM . ITA NO. 2398/AHD/2012 ASST. YEAR: 2009-10 GUJARAT ALKALIES & CHEMICALS LTD., PO- PETROCHEMICALS, DIST. BARODA. VS DCIT, CIR.1(1), BARODA (APPELLANT) (RESPONDENT) PA NO.AAACG8896M APPELLANT BY SHRI SUNIL TALATI, AR RESPONDENT BY SHRI SANJAY AGRAWAL, CIT,DR DATE OF HEARING: 2/9/2015 DATE OF PRONOUNCEMENT: 19/11/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF ASSESSEE IS DIRECTED AGAINST THE OR DER OF CIT(A)-I, BARODA, IN APPEAL NO.CAB-I/283/11-12, DAT ED 31.8.2012. ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE I NCOME-TAX ACT, 1961 (IN SHORT THE ACT) BY DCIT, CIR.1(1), BARODA, FOR ASST. YEAR 2009-10. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D TRADING OF CHEMICALS AND GENERATION OF POWER. RETURN OF INCOME WAS FILED ON 23.9.2009 DECLARING TOTAL INCOME OF RS.88,18,01,350 /- AND THEREAFTER THE RETURN OF INCOME WAS REVISED ON 6.9.2010. THE C ASE WAS SELECTED ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 2 FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED ON 19 .8.2010 AND DULY SERVED. THE ASSESSMENT WAS COMPLETED BY THE ASSESSI NG OFFICER AT A TOTAL INCOME OF RS.162,29,20,947/-. VARIOUS ADDITIO NS WERE MADE BY THE ASSESSING OFFICER AND THE ISSUES IN THE APPEAL OF ASSESSEE ARE AGAINST CONFIRMATION OF VARIOUS ADDITIONS/DISALLOWA NCE BY LD. CIT(A). 3. FOLLOWING GROUNDS ARE RAISED IN THIS APPEAL BY ASSE SSEE:- 1) THE HONBLE CIT(A)-I, BARODA HAS ERRED IN NOT AC CEPTING YOUR APPELLANTS CONTENTION, HOLDING THAT THE ORDER PASS ED BY THE LD. DY.CIT IS BAD IN LAW & CONTRARY TO LEGAL PRONOUNCEM ENT. IT IS THEREFORE SUBMITTED THAT THE ORDER PASSED BY AO BE QUASHED AND ADDITIONS/DISALLOWANCES MADE BY AO AND CONFIRME D BY CIT(A) BARODA BE DIRECTED TO BE DELETED. 2) THE HONBLE CIT(A)-I, BARODA HAS ERRED IN CONFIR MING THE DISALLOWANCE OF RS.14,01,000/- ON ACCOUNT OF AMORTI ZATION OF LEASE RENT TREATING THE SAME AS OF CAPITAL NATURE. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE MADE BY AO AND CONFIR MED BY HONBLE CIT(A) IS UNWARRANTED. SAME BE DIRECTED TO BE DELETED NOW. 3) THE HONBLE CIT(A)-I, BARODA HAS ERRED IN CONFI RMING THE ADDITION OF RS.2,26,90,000/- BEING MADE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.S. 8D OF THE ACT. YOU R APPELLANT SUBMITS THAT THE SAID PROVISIONS ARE NOT APPLICABLE AND AD-HOC DISALLOWANCE OF RS.59.45 LACS @ 0.5% OF AVERAGE INV ESTMENT AND INTEREST OF RS.167.45 LACS DISALLOWED ON PRO RA TA BASIS IS NOT JUSTIFIED AND THE ADDITION MADE BE DELETED NOW. 4) THE HONBLE CIT(A)-I, BARODA HAS ERRED IN IN NOT ALLOWING DEDUCTION OF RS.64,57,81,000/- CLAIMED U/S 80IA OF THE ACT. YOUR APPELLANT SUBMITS THAT THE NECESSARY BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED AND ALL CONDITIONS LAID DOWN U /S 80IA ARE FULFILLED. HENCE THERE IS NO JUSTIFICATION TO DISAL LOW YOUR APPELLANTS CLAIM BY ADOPTING THE MARKET RATE OF UN ITS OTHER THAN ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 3 RATE ADOPTED BY YOUR APPELLANT. IT IS THEREFORE, SU BMITTED THAT THE DEDUCTION U/S 80IA IS RIGHTLY CLAIMED BY YOUR A PPELLANT AND HENCE BE ALLOWED NOW. 5) THE HONBLE CIT(A)-I, BARODA HAS ERRED IN CONFIR MING THE RE- COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT AND INCREASING BOOK PROFIT BY ADDING BACK FOLLOWING ITEMS TREATING THE SAME AS CONTINGENT LIABILITIES: -CLAIM OF PROVISION FOR DOUBTFUL DEBT 64,88,327/- -CLAIM OF PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT AND PROVISION FOR LOSS IN DERIVATIVES 12,37,89,390/- YOUR APPELLANT SUBMITS THAT AO IS NOT JUSTIFIED IN TREATING THE ABOVE AS CONTINGENT LIABILITY AND MAKING ADDITION T O BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. THE PROVIS IONS MADE ARE IN ACCORDANCE WITH METHOD OF ACCOUNTING REGULAR LY FOLLOWED BEING MERCANTILE AND SUCH LIABILITIES ARE ASCERTAIN ED. FURTHER, FINAL ACCOUNTS HAS BEEN PREPARED AS PER ACCOUNTING STANDARDS PRESCRIBED THE INSTITUTE OF CHARTERED ACCOUNTANTS O F INDIA AND SAME ARE IN ACCORDANCE WITH SCHEDULE VI TO THE COMP ANIES ACT, 1956 HENCE FURTHER ADJUSTMENTS AS ABOVE, TO PR OFIT AS PER FINAL ACCOUNTS ARE NOT PERMISSIBLE UNDER SECTION 11 5JB. IT BE HELD SO NOW AND BOOK PROFIT AS DECLARED BE ACCEPTED NOW. 6) THE HONBLE CIT(A)-I, BARODA HAS ERRED IN CONFIR MING THE CHARGING OF INTEREST U/S 234B/234C OF THE ACT. THE AO BE DIRECTED TO DELETE THE SAID INTEREST. YOUR APPELLANT CRAVES FOR LEAVE TO ALTER/AMEND/WITH DRAW/MODIFY ANY OF THE ABOVE GROUNDS AND/OR TO ADD ANY GROUND B EFORE DISPOSAL OF APPEAL. 4. GROUND NO.1 IS GENERAL IN NATURE HENCE NEEDS NO ADJUDICATION. ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 4 5. GROUND NO.2 IS IN RELATION TO CONFIRMATION OF DI SALLOWANCE OF RS.14,01,000/- BEING AMORTIZATION OF LEASE RENT PAI D TREATING THE SAME AS OF CAPITAL NATURE BY CIT(A). ASSESSING OFFI CER REFERRED TO DISALLOWANCE ON SIMILAR ISSUE IN ASST.YEAR. 2008-09 AND MADE DISALLOWANCE IN ASST. YEAR 2009-10 OF RS.14,01,000/ - BEING AMORTIZATION OF LEASE RENT. 6. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE TH E CIT(A) WHO CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER :- 3.2 I HAVE CONSIDERED THE MATTER, WHICH IS COVERE D BY MY DECISION DATED 3.11.2011 IN APPELLANTS CASE IN CAB -I/25/10-11 FOR AY 2008-09. FACTS OF THE CASE AND APPELLANTS S UBMISSIONS BEING IDENTICAL, DISALLOWANCE OF RS.14,01,000/- IS CONFIRMED. 7. BEING AGGRIEVED, THE ASSESSEE IS IN FURTHER APPE AL BEFORE THE TRIBUNAL. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY MADE THE DISALLOWANCE AND THE C IT(A) HAS ALSO NOT PROPERLY APPRECIATED THE FACTS OF THE CASE WHIL E CONFIRMING THE DISALLOWANCE. THE ISSUE IS COVERED IN FAVOUR OF ASS ESSEE BY THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN ASSESSEE S OWN CASE IN TAX APPEAL NOS. 778,779 & 780 OF 2013 VIDE ORDER DA TED 21/10/2013 (COPY OF JUDGMENT PLACED ON RECORD). 8. THE LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORI TIES AND OPPOSED THE SUBMISSIONS OF LD. AR. ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 5 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. SIMILAR ISSUE IN ASSESSEES OWN CASE HAS BEEN DECIDED BY HONBLE GUJARAT HIGH COURT IN TAX APPEAL NOS. 778,779 & 780 OF 2013 VIDE ORDER DATED 21/10/2013, IN RESPECT OF ASST. YEARS 2005-06 TO 2007-08 WHEREIN THE HONBLE HIGH COURT H AS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND HAS HELD AS UNDER : - 9.0 NOW, SO FAR AS QUESTION NO.2 IN TAX APPEAL NOS .778 OF 2013 AND 779 OF 2013 AND SOLE QUESTION IN TAX APPEA L NO.780 OF 2013 I.E WHETHER THE LEARNED TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT RS.3,36,224/- BEING AMORTIZATION OF LE ASE RENT FOR THE LAND IS CAPITAL EXPENDITURE IS CONCERNED, ON CO NSIDERING THE DECISION OF THIS COURT IN THE CASE OF SUN PHARMACEU TICAL INDUSTRIES LIMITED (SUPRA) AS WELL AS DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF MADRAS AUTO SERVICES P VT. LTD. (SUPRA), WE ARE OF THE OPINION THAT THE LEARNED TRI BUNAL HAS COMMITTED AN ERROR IN DISTINGUISHING THE AFORESAID DECISIONS AND NOT APPLYING THE SAME TO THE FACTS OF THE CASE ON H AND. CONSIDERING THE AFORESAID TWO DECISIONS, IT IS TO B E HELD THAT THE AFORESAID LEASE RENT WAS DEDUCTIBLE AS REVENUE EXPE NDITURE AND THE LEARNED TRIBUNAL HAS ERRED IN HOLDING THAT RS.3,36,224/- AFTER AMORTIZATION OF LEASE RENT PAID FOR THE LAND IS CAPITAL EXPENDITURE. UNDER THE CIRCUMSTANCES, CONSIDERING T HE AFORESAID TWO DECISIONS OF THE HONBLE SUPREME COUR T IN THE CASE OF MADRAS AUTO SERVICES PVT. LTD. (SUPRA) AND THE DECISION OF THE HONBLE COURT IN THE CASE OF SUN PHARMACEUTI CAL INDUSTRIES LTD. (SUPRA) THE QUESTION NO.2 IN TAX AP PEAL NOS.778 AND 779 OF 2013 AND SOLE QUESTION NO.1 IN TAX APPEA L NO.780 OF 2013 IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE HEREBY DELETE THE DISALLOWANCE OF RS .14,01,000/- MADE ON ACCOUNT OF AMORTIZATION OF LEASE RENT WHICH WAS TREATED AS ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 6 CAPITAL EXPENDITURE BY THE ASSESSING OFFICER. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 11 G ROUND NO.3 RELATES TO CONFIRMATION OF ADDITION OF RS.2,26,90,000/- MADE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A R.W.S. RULE 8D, BY CIT(A). DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO MADE DISALLOWANCE OF RS.2,26,90,000/- BY INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME-TAX RULES. APPELLANT HAD EARNED DIVIDE ND INCOME OF RS.6,78,87,800/- CLAIMED EXEMPT U/S 10(34), TAX FRE E INTEREST FROM UTI OF RS.1,11,766/- CLAIMED EXEMPT U/S 10(35) AND COMPENSATION FOR CTC PHASE OUT OF RS.3,79,09,618/- CLAIMED EXEMP T U/S 28(VA(II). IN RESPONSE TO AOS PROPOSAL TO MAKE DISALLOWANCE U /S 14A, APPELLANT MADE SUBMISSIONS IDENTICAL TO SUBMISSIONS MADE IN THIS REGARD DURING ASSESSMENT FOR ASST. YEAR 2008-09. AS SESSING OFFICER NOTED THAT APPELLANT HAD INCURRED INTEREST ON FUNDS BORROWED AND HAD NOT MAINTAINED SEPARATE ACCOUNTS FOR SOURCES OF FUN DS UTILIZED FOR INVESTMENT ACTIVITIES. ASSESSING OFFICER DID NOT AC CEPT THAT FUNDS DEPLOYED FOR EARNING TAX FREE INCOME WERE ENTIRELY OUT OF INTEREST FREE FUNDS. ASSESSING OFFICER HELD THAT IT WAS A CASE OF FALLING U/S 14A(2). THE ASSESSMENT YEAR INVOLVED BEING SUBSEQUENT TO AS ST. YEAR 2008- 09, ASSESSING OFFICER INVOKED RULE 8D TO COMPUTE DI SALLOWANCE U/S 14A AT RS.2,26,90,000/-. 12. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT(A) WHO AFTER CONSIDERING THE ASSESSMENT ORDER A ND THE ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 7 SUBMISSIONS MADE BY ASSESSEE CONFIRMED THE DISALLOW ANCE. AGGRIEVED, ASSESSEE IS NOW IN FURTHER APPEAL BEFORE THE TRIBUN AL. 13. THE LD. AR OF THE ASSESSEE SUBMITTED THAT SIMIL AR ISSUE CAME UP BEFORE THE TRIBUNAL IN ASSTT. YEAR 2004-05 IN ITA N O.4556/AHD/2007 (COPY PLACED ON RECORD) AND THE TRIBUNAL HAS DECIDED THE ISSUE BY REDUCING THE DISALLOWANCE. SO THE PRESENT ISSUE MAY BE DECIDED I N ACCORDANCE WITH THE DECISION OF THE TRIBUNAL FOR ASST. YEAR 200 4-05. 14. ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDE RS OF LOWER AUTHORITIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. AR HAS REFERRED TO THE ORDER OF CO- ORDINATE BENCH IN ITA NO.4556/AHD/2007 IN ASSESSEES OWN CASE FOR ASST. Y EAR 2004-05 WHEREIN THE ISSUE REGARDING DISALLOWANCE UNDER SECTION 14A HAS BEEN DECIDED. HOWEVER, THE ABOVE DECISION OF CO-ORDINATE BENCH IS FOR ASST. YEAR 2004-05 WHEREAS THIS APPEAL IS FOR ASST. YEAR 2009-10 AND I N BETWEEN THERE HAS BEEN AMENDMENT RULE 8D WITH EFFECT FROM 24.3.2008 WHEREI N THE METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO IN COME NOT INCLUDIBLE IN TOTAL INCOME HAS BEEN INTRODUCED. DISALLOWANCE U/S 14A OF THE ACT IS ATTRACTED WHEN ASSESSEE CLAIMS EXPENDITURE IN RELATION TO INC OME NOT INCLUDIBLE IN TOTAL INCOME AND FOR THE CALCULATION OF SUCH EXPENDITURE RULE 8D OF THE I.T. RULES NEEDS TO BE REFERRED. GENERALLY THE MAIN REASON WHI CH INITIATES THE POSSIBILITY OF ATTRACTION OF SECTION 14A IN THE MIN D OF ASSESSING OFFICER IS THE CLAIM OF INTEREST PAID ON BORROWED FUNDS UTI LIZED IN MAKING INVESTMENTS WHICH WILL FETCH INTEREST FREE INCOME T O THE ASSESSEE AND, ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 8 THEREFORE, INTEREST EXPENDITURE CLAIMED TO THE EXTE NT OF SUCH INVESTMENTS NEEDS TO BE ADDED BACK TO THE INCOME OF ASSESSEE AND SIMILARLY ADMINISTRATIVE AND OTHER ESTABLISHMENT EX PENSES WHICH ARE INCURRED BY THE ASSESSEE FOR BUSINESS PURPOSES, THE RE ALWAYS REMAINS SOME ELEMENT OF EXPENDITURE WHICH MAY HAVE BEEN INCURRED FOR EARNING TAX FREE INCOME. THE RELEVANT PORTION O F RULE 8D READS AS UNDER :- 8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO T HE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH ( A ) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR ( B ) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT O F EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RUL E (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY : ( I ) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME; ( II ) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABL E TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY A B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE ( I ) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FR OM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN T HE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEA R ; ( III ) AN AMOUNT EQUAL TO ONE- HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVEST MENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AN D THE LAST DAY OF THE PREVIOUS YEAR. ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 9 (3) FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSET S SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INCREASE ON ACCO UNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.] 16. FROM PERUSAL OF RULE 8D IT IS UNDERSTOOD THAT B EFORE PROCEEDING AHEAD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION T O INCOME NOT INCLUDIBLE IN TOTAL INCOME FIRST OF ALL ASSESSING OFFICER HAS TO PLACE ON RECORD THAT WITH REGARD TO THE ACCOUNT OF THE ASSESSEE HE IS NOT SAT ISFIED WITH THE CORRECTNESS OF EXPENDITURE MADE BY ASSESSEE OR THE CLAIM MADE B Y THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME SHALL BE AGGREGA TE OF THE FOLLOWING: (1) THE AMOUNT OF EXPENDITURE DIRECTLY RELATED TO I NCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. (2) PRO-RATA CALCULATION OF INTEREST EXPENDITURE CL AIMED ON THE FUNDS APPLIED TO INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME. (3) 0.5% OF THE AVERAGE OF THE VALUE OF INVESTMENT GIVING TAX-FREE INCOME. 17. WE NOW MOVE TO ANALYZE THE FACTS OF THE CASE T O THE PROVISIONS OF RULE8D. FIRSTLY FROM GOING THROUGH THE ASSESSMEN T ORDER WE FIND THAT THERE IS NO SPECIFIC OBSERVATIONS MADE BY THE ASSESSING O FFICER WHEREIN HE IS DISSATISFIED WITH THE CORRECTNESS OF THE BOOKS OF A CCOUNT OF THE ASSESSEE NOR HE HAS SPECIFICALLY POINTED OUT ABOUT WRONG CLAIM O F EXPENSES MADE BY THE ASSESSEE. IT SEEMS THAT ON THE BASIS OF PROFIT AND LOSS ACCOUNT WHERE THE ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 10 ASSESSEE HAS SHOWN EXEMPT INCOME UNDER SECTION 10(3 4), UNDER SECTION 10(35) AND EXEMPT UNDER PROVISO TO SECTION 28(VA)(I I), HE HAS ASSUMED THAT THERE OUGHT TO HAVE BEEN SOME EXPENDITURE IN THE FO RM OF INTEREST PAID OR ADMINISTRATIVE EXPENSE WHICH HAVE BEEN INCURRED FOR EARNING INCOME WHICH DO NOT FORM PART OF TOTAL INCOME. THEREFORE, THE C ONDITIONS WHICH WAS REQUIRED TO BE ADHERED BEFORE ADOPTING THE METHOD P RESCRIBED UNDER RULE 8D WAS NOT COMPLIED BY THE ASSESSING OFFICER AS IS EVI DENT FROM THE ASSESSMENT ORDER. 18. FURTHER IN REGARD TO THE INTEREST EXPENDITURE T HAT WHETHER THERE IS ANY APPLICATION OF INTEREST BEARING FUND TO INVESTMENTS GIVING TAX FREE INCOME, WE HAVE GONE THROUGH THE AUDITED BALANCE SHEET OF THE ASSESSEE COMPANY FROM WHICH IT IS REVEALED THAT INVESTMENTS AS ON 31ST MA RCH, 2009 ARE AT RS.117.28 CRORES APPEARING IN THE ASSETS SIDE AND T HE SHARE-HOLDERS FUND COMPRISING OF SHARE CAPITAL AND RESERVES AND SURPLU S TOTALING AT RS.1244.92 CRORES WHICH SHOWS THAT ASSESSEE WAS HAVING SUFFICI ENT SOURCE OF INTEREST- FREE FUNDS WHICH MIGHT HAVE BEEN INVESTED IN THE TA X-FREE INCOME BEARING INVESTMENTS. FURTHER OUT OF THE TOTAL EXEMPT INCOME SHOWN BY THE ASSESSEE RS.37,09,618/- IS EXEMPTED UNDER THE PROVISO TO SEC TION 28(VA)(II) IN RELATION TO SUM RECEIVED AS COMPENSATION FROM THE MULTILATER AL FUND OF THE MONTREAL PROTOCOL ON SUBSTORIES THAT DEPLETE THE OZONE LAYER UNDER THE U.N.E.P. AND THIS INCOME IS RELATED TO THE BUSINESS ACTIVITIES C ARRIED ON BY THE ASSESSEE AND NOT FROM ANY TAX-FREE INVESTMENTS. AS THE ASSES SEE SEEMS TO BE HAVING SUFFICIENT INTEREST FREE FUNDS OUT OF WHICH INVESTM ENTS IN FUNDS GIVING TAX FREE INCOME WOULD HAVE BEEN MADE AND ALSO THERE IS NO SP ECIFIC OBSERVATIONS BY THE ASSESSING OFFICER THAT DURING THE PREVIOUS YEAR ANY SUCH FUNDS BEARING INTEREST HAVE BEEN DIVERTED/APPLIED TO INVE STMENTS, INCOME OF WHICH ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 11 IS NOT FORMING PART OF TOTAL INCOME AND, THEREFORE, THERE SEEMS TO BE NO POSSIBILITY OF APPLICATION OF RULE 8D IN RELATION T O INTEREST EXPENDITURE. 19. AS REGARDS APPORTIONMENT OF ADMINISTRATIVE AND ESTABLISHMENT EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT TOW ARDS EXEMPT INCOME EARNED DURING THE YEAR ON ONE HAND, ASSESSEE WHICH IS A LIMITED COMPANY HAS PROVIDED AUDITED FINANCIAL STATEMENT ALONG WITH AUDIT REPORT U/S 44AB WHEREIN NO SPECIFIC DISALLOWANCE U/S 14A IS APPEAR ING AND ON THE OTHER HAND, THE ASSESSING OFFICER HAS NOT GONE SPECIFICAL LY THROUGH THE BOOKS OF ACCOUNT SO AS TO BRING ANY FACT THAT ANY SUCH EXPEN DITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. THEREFORE, ASSESSING OFF ICER WAS NOT CORRECT IN APPLYING SECTION 14A READ WITH RULE 8D IN THE CASE OF THE ASSESSEE. HOWEVER, LOOKING TO PAST HISTORY, PREVIOUS ASSESSME NTS MADE AND THE DECISION OF CO-ORDINATE BENCH, AS WELL AS ACCEPTING THE FACT THAT ONE CANNOT IGNORE THE POSSIBILITY OF INCURRING SOME EXPENDITUR E FOR EARNING EXEMPT INCOME WHICH HAVE BEEN DEBITED TO THE PROFIT AND LO SS ACCOUNT AND TO COVER UP SUCH POSSIBILITY WE ARE OF THE VIEW THAT A LUMP SUM DISALLOWANCE OF RS.1,00,000/- WILL MEET THE ENDS OF JUSTICE. WE DO SO. ACCORDINGLY THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 20. GROUND NO.4 HAS ARISEN DUE TO REDUCTION IN TH E DEDUCTION CLAIMED BY ASSESSEE UNDER SECTION 80IA WHEREIN THE ASSESSING O FFICER HAS ESTIMATED THE RATE OF RS.2.23 PER UNIT FOR UNITS OF ELECTRICI TY SOLD AND ARRIVED AT A CONCLUSION THAT ASSESSEE EARNED HAS NOT EARNED ANY PROFIT RATHER INCURRED LOSSES. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE T HE CIT(A) WHO REPLACED THE RATE TAKEN BY THE ASSESSING OFFICER AT RS.2.23 BY RS.3.11 PER UNIT AND ACCORDINGLY ASKED THE ASSESSING OFFICER TO RECOMPUT ED THE PROFITS OF ELIGIBLE ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 12 UNDERTAKING FOR THE PURPOSE OF SECTION 80IA(IV). HO WEVER, LD. CIT(A) HAS CONFIRMED IN HIS ORDER THAT ASSESSEE IS ELIGIBLE FO R DEDUCTION UNDER SECTION 80IA(4) IN RESPECT OF ELECTRICITY GENERATED BY IT F OR CAPTIVE CONSUMPTION. AGGRIEVED, THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 21. THE LD. AR OF THE ASSESSEE SUBMITTED THAT SIMIL AR ISSUE IN ASSESSEES OWN CASE HAS BEEN DEALT BY THE TRIBUNAL IN ITA NOS. 179, 180 & 181/AHD/2010 FOR ASST. YEARS 2005-06 TO 2007-08 (CO PY PLACED ON RECORD). SO HE SUBMITTED THAT THE ISSUE MAY BE DECIDED IN VI EW OF THE ABOVE DECISION OF THE TRIBUNAL. 22. THE LD. DR SUPPORTED THE ORDERS OF LOWER AUTHOR ITIES. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH IN ASSES SEES OWN CASE FOR ASST. YEARS 2005-06 TO 2007-08 HAS DECIDED SIMILAR ISSUE BY OBSERVING AS UNDER :- 5.4.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT THIS ISSUE WAS DECIDED BY LD. CIT(A) AS PER THE TRIBUNAL DECISION IN THE CASE OF ALEMBIC LTD. (SUPRA) AND ALSO IN THE CASE OF JINDAL STEELS & POWER LTD. (SUPRA) AND WORKED OUT DEDUCTION ALLOWABLE TO THE A SSESSEE U/S 80IA IN RESPECT OF CAPTIVE CONSUMPTION OF POWER, THE RATES FIXED BY ELECTRICITY BOARD I.E. GEB IN THE PRESENT CASE, HAS TO BE APPLI ED AND NOT THE PRICE FIXED BY THE LEGISLATIVE MANDATE. HE HAS ALSO NOTED THAT IN THE PRESENT CASE, THE ASSESSEE IS PREVENTED BY LEGISLATIVE MAND ATE FROM SELLING POWER TO ANY PERSON OTHER THAN GEB AND THE RATES FIXED BY GEB WAS RS.1.86 PER UNIT ONLY BUT THE GEB IS ASKING THE ASSESSEE TO PAY AT RS.4.55 PER UNIT AND HENCE, HE HAS DIRECTED THE AO TO ALLOW DEDUCTIO N U/S 80IA AS CLAIMED, BEING THE MARKET RATE OF RS.4.55 PER UNIT OF POWER. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY THE LD. DR AN D HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE WHICH IS IN LINE WITH VARIOUS TRIBUNAL DECISIONS. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THESE GROUNDS OF THE REVENUE IN ALL TH E THREE YEARS ARE REJECTED. ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 13 24. APPLYING THE SAME RATIO TO THE CASE OF ASSESSEE ON THIS GROUND, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CI T(A) AND ACCORDINGLY THE GROUND OF ASSESSEE IS PARTLY ALLOWED. 25. NOW WE TAKE UP GROUND NO.5. THE MAIN ISSUE IN T HIS GROUND IS REGARDING COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT WHEREBY CLAIM FOR PROVISION FOR DOUBTFUL DEBT AND CLAIM OF PROVISION OF DIMINUTION IN VALUE OF INVESTMENT AND PROVISION FOR LOSS IN THE D ERIVATIVE WERE ADDED BACK TO THE BOOK PROFIT BY THE ASSESSING OFFICER AND THE SAME WAS CONFIRMED BY LD. CIT(A). 26. AGGRIEVED, THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THIS ISSU E HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.4462/AHD/ 2007 AND 4556/AHD/2007 FOR ASST. YEAR 2004-05 AND OTHERS (CO PY OF ORDER PLACED ON RECORD). SO THIS ISSUE MAY BE DECIDED ACCORDINGLY. 27. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF LOWER AUTHORITIES. 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASST. YEAR 2004-05. THE REL EVANT OBSERVATIONS OF THE CO-ORDINATE BENCH ARE AS FOLLOWS :- 4.7 IT WAS FURTHER SUBMITTED THAT GROUND NO.6 IN A SSESSMENT YEAR 2005-06, GROUND NO.4 IN ASSESSMENT YEAR 2006-0 7 AND ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 14 GROUND NO.4 IN ASSESSMENT YEAR 2007-08 IS REGARDING CONFIRMATION OF ENHACEMENT OF BOOK PROFIT ON ACCOUN T OF PROVISION FOR BAD AND DOUBTFUL DEBT. IN THIS REGARD , IT WAS FAIRLY CONCEDED BY THE LD. AR THAT THIS ISSUE HAS TO BE DE CIDED AGAINST THE ASSESSEE AS PER CLAUSE (I) OF EXPLANATI ON 1 TO SECTION 115JB AND HENCE, THIS ISSUE IS DECIDED AGAI NST THE ASSESSEE IN ALL THE THREE YEARS. APPLYING THE SAME RATIO TO THE FACTS OF ASSESSEES CASE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND ACCORDINGLY THIS GROUND OF ASSESSEE IS REJECTED. 29. GROUND NO.6 IS REGARDING CHARGING OF INTEREST U /S 234B/234C OF THE ACT. THIS GROUND IS CONSEQUENTIAL. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOV.2015 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 19/11/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 2398/AHD/2012 ASST. YEAR 2009-10 15 1. DATE OF DICTATION:16 /11 /2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER:17/11/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: