M/S Adani Exports Ltd, Ahmedabad V. The D C I T, Ahmedabad

ITA 2405/AHD/1998

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73089 (ITAT-AHMEDABAD)
• Duration Of Justice: 15 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-01-2014
• Assessment Year: 1995-1996
• Appeal Filed On: 09-12-1998
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Search and seizure; Loose papers; Document seized; Retrospective amendment; Documents seized; Revenue expenditure; Capital expenditure
• Section: 32; 132; 69C; 80HHC; 234B

Judgement Text

1 , , , , B, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.2405/AHD/1998 [ASSTT.YEAR : 1995-1996] ADANI EXPORTS LTD. VASANT NATURE VIEW BLDG. 4 TH FLOOR, ASHRAM ROAD AHMEDABAD-9. /VS. DCIT (ASSTT.), S.R.1 AHMEDABAD. ITA NO.2435/AHD/1998 [ASSTT.YEAR : 1995-1996] JT. CIT, SPL.RANGE-1 AHMEDABAD. /VS. ADANI EXPORTS LTD. VASANT NATURE VIEW BLDG. 4 TH FLOOR, ASHRAM ROAD AHMEDABAD-9. ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) +$ , - / ASSESSEE BY : SHRI S.N. SOPARKAR, WITH SHRI P.M. MEHTA / , - / REVENUE BY : SHRI O.P. VAISHNAV, CIT-DR '0 , $1/ DATE OF HEARING : 24 TH JANUARY, 2014 234 , $1/ DATE OF PRONOUNCEMENT : 14 TH MARCH, 2014 5 / O R D E R ITA NO.2435, 2405/AHD/1998 2 PER N.S. SAINI, ACCOUNTANT MEMEBR: THESE ARE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 30.9.1998. BOTH THESE APPEALS ARE DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUND NO.1 OF THE REVENUES APPEAL IS DIREC TED AGAINST THE ORDER OF THE LEARNED CIT(A) IN RESTRICTING DISALLOWANCE O F RS.14 LAKHS BEING PAYMENT FOR PURCHASE OF PAVILION SITE AT GUJARAT CR ICKET ASSOCIATION TO RS.1,40,000/- BEING 10% OF THE AMOUNT PAID. 3. IN THE ASSESSEES APPEAL, THE GRIEVANCE OF THE A SSESSEE IN GROUND NO.5 IS THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE O RDER OF THE AO REJECTING THE ASSESSEES CLAIM FOR DEDUCTION OF RS.14.00 LAKH S ON ADVISEMENT BEING AMOUNT PAID TO THE GUJARAT CRICKET ASSOCIATION. 4. AS THE FACTS AND ISSUES INVOLVED IN BOTH THE ABO VE GROUNDS OF THE APPEALS ARE SIMILAR, THERE ARE BEING ADJUDICATED TO GETHER FOR THE SAKE OF CONVENIENCE. 5. BRIEF FACTS OF THE CASE ARE THAT THE AO, RELYING ON THE FINDING GIVEN IN THE ASSESSMENT ORDER FOR ASSTT.YEAR 1994-95, HELD T HAT THE PAYMENT OF RS.14 LAKHS WAS MADE BY THE ASSESSEE FOR PURCHASING AN AS SET OF ENDURING NATURE AND HENCE, WAS NOT ALLOWABLE AS REVENUE EXPENDITURE . ACCORDINGLY, HE DISALLOWED THE ASSESSEES CLAIM FOR DEDUCTION FROM THE TOTAL INCOME. THE LEARNED CIT(A) HAS OBSERVED THAT THE FACTS OF THE C ASE AND THE SUBMISSION MADE IN THIS REGARD WERE SIMILAR TO THAT MENTIONED IN HIS ORDER DATED 11.8.1997 FOR THE ASSTT.YEAR 1994-95 IN ASSESSEES CASE. FOLLOWING THE SAID ORDER, HE HELD THAT BENEFIT OF ADVERTISEMENT WOULD ACCRUE TO THE ASSESSEE FOR ITA NO.2435, 2405/AHD/1998 3 A PERIOD OF TEN YEARS, AND HENCE DIRECTED THE AO TO ALLOW DEDUCTION OF RS.1,40,000/- FOR THE ASSESSMENT YEAR 1995-96 AND O F RS.1,40,000/- FOR THE NEXT NINE ASSESSMENT YEARS, AS THE PAYMENT OF RS.14 .00 LAKHS MADE IN THIS YEAR IS OF IDENTICAL NATURE TO THE PAYMENT OF RS.7, 00,000/- MADE IN THE ASSTT.YEAR 1994-1995. 6. WE FIND THAT WE HAVE DECIDED THIS ISSUE IN ASSES SMENT YEAR 1994-95 VIDE CONSOLIDATED ORDER PASSED IN ITA NO.3403/AHD/1 997 AND CO NO.73/AHD/2011 DATED 31.1.2014, WHEREIN, WE HAVE HE LD AS UNDER: 14. THE LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER WHEREAS THE LD. AR OF THE ASSESSEE CONTENDED THAT THE NAM E OF ADANI EXPORTS WILL BE DISPLAYED FOR EVER AND THEREFOR E, THERE WAS NO BASIS FOR THE LD. CIT(A) TO ARRIVE AT A CONCLUSION TH AT THE EXPENDITURE WOULD BENEFIT THE ASSESSEE OVER A PERIOD OF 10 YEARS AND THEREBY ALLOWING 1/10 OF THE SAME AS DEDUCTION DUR ING THE YEAR UNDER CONSIDERATION. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE DURING THE YEAR PAID R S 7,00,000/- TO GUJARAT CRICKET ASSOCIATION. AS PER AGR EEMENT ENTERED INTO WITH GUJARAT CRICKET ASSOCIATION WHICH HAS BEEN QUOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR AS WEL L AS COPY OF WHICH IS PLACED AT PAGE NUMBERS 44 TO 45 OF TH E ASSESSEES PAPER BOOK IT IS OBSERVED THAT AS PER THE SAID AGREEMENT, THE ASSESSEE AGREED TO MEET PAYMENT OF RS.25,00,000/- INCLUDING RS.7,00,000- IN QUESTION IN CONSIDERATION OF ONE OF THE STADIUM TO BE CALLED AS ADA NI STADIUM OR ANY OTHER NAME AGREED BY THE ASSESSEE DURIN G THE CRICKET MATCHES TO BE PLAYED IN THE SARDAR PATEL GUJAR AT STADIUM AND A BOARD DISPLAYING SUCH NAME WILL BE PUT UP IN TH AT PAVILION. THUS, IT IS OBSERVED THAT PAYMENT WAS IN THE NATURE OF ADVERTISEMENT. THE CONCLUSION OF THE ASSESSING OFFICER THAT THE PAYMENT WAS MADE FOR ACQUIRING PERMANENT PAVILION SIT E IS NOT CORRECT. WE FIND THAT NO PERMANENT SITE WAS ACQUIRED B Y THE ASSESSEE IN LIEU OF THE PAYMENT IN QUESTION AND THE ASSESS EE HAS NOT BECOME THE OWNER OF ANY SITE IN CONSIDERATION OF TH E SAID PAYMENT. THEREFORE, WE DO NOT FIND ANY MERIT IN TH IS GROUND OF APPEAL OF THE REVENUE. ITA NO.2435, 2405/AHD/1998 4 15. FURTHER, WE FIND THAT THERE WAS NO BASIS ON WHICH T HE LD. CIT(A) COULD HAVE HELD THAT THE BENEFIT OF PAYMENT I N QUESTION WILL BE AVAILABLE FOR 10 YEARS ONLY AND CONSEQUENTIAL DEDUCTION IS TO BE ALLOWED OVER A PERIOD OF 10 YEARS. IT IS OBSERV ED THAT THE BENEFIT WAS NOT FOR ANY FIXED PERIOD. WE AGREE WITH THE LD. CIT(A) THAT THE EXPENDITURE IN QUESTION IS REVENUE IN NATURE AND NO CAPITAL ASSET OF ENDURING NATURE WAS ACQUIRED BY THE ASSESSEE BY MAKING THE PAYMENT IN QUESTION AND THEREFORE, THE ENTIRE PAYMENT IS ALLOWABLE AS DEDUCTION TO THE ASSESSEE IN THE Y EAR ON INCURRING OF THE EXPENDITURE. WE, THEREFORE, MODIFY THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION FOR ENTIRE RS 7,00,000/- DURING THE YEAR UN DER CONSIDERATION. THUS, RELEVANT GROUND OF APPEAL OF THE REVENUE IS DISMISSED AND RELEVANT GROUND OF CROSS-OBJECTION OF TH E ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE MODIFY THE ORDE R OF THE LEARNED CIT(A) AND DIRECT THE AO TO ALLOW DEDUCTION FOR ENTIRE AMO UNT OF RS.14.00 LAKHS DURING THE YEAR UNDER CONSIDERATION. THUS, THE GRO UND OF THE APPEAL OF THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS AL LOWED. 7. THE GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST ORDER OF THE CIT(A) DIRECTING THE AO TO ALLOW DEPRECIATIO N ON TRUCKS @ 40% ON TRUCKS GIVEN ON LEASE. 8. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 40% ON TRUCKS G IVEN ON LEASE. AS THE TRUCKS WERE PURCHASED AND USED FOR LESS THAN 180 DA YS, THE ASSESEEE CLAIMED DEPRECIATION AT THE RATE OF 20% AMOUNTING TO RS.30, 98,481/-. THE AO WAS OF THE VIEW THAT SINCE THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF RUNNING THE TRUCKS ON HIRE, DEPRECIATION AT THE RATE OF 25% ONLY WAS ADMISSIBLE ON THESE TRUCKS. HE, THEREFORE, ALLOWED THE DEPRECIA TION AT THE RATE OF 12.5% TO THE ASSESSEE AS THE TRUCKS WERE USED FOR LESS THAN 180 DAYS DURING THE YEAR AND THEREBY MADE DISALLOWANCE OF RS.15,49,241/-. ITA NO.2435, 2405/AHD/1998 5 9. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION AT THE RATE OF 40% ON THE TRUCKS GIVEN ON LEASE, AND DELETED THE DISALLOWANCE OF RS.15,49,241/-. 10. THE LEARNED DR SUPPORTED THE ORDER OF THE AO. 11. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF FIRST LEAS ING CO. OF INDIA LTD. VS. CIT, (1995) 216 ITR 455 (MAD), CIT VS. SHAAN FINANC E P.LTD., (1998) 231 ITR 308 (SC), CIT VS. MGF LTD., 285 ITR 42 (DEL), I CDS LTD. VS. CIT, (2013) 285 ITR 527 (SC) AND ARGUED THAT WHERE THE A SSESSEE GAVE TRUCKS ON LEASE, WHICH IN TURN WAS USED BY THE LESSEE IN THE BUSINESS OF TRANSPORTATION, THE ASSESSEE WAS ENTITLED TO HIGHER DEPRECIATION AT THE RATE OF 40%. 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED HIG HER DEPRECIATION AT THE RATE OF 40% ON TRUCKS GIVEN BY IT ON LEASE. THE AO DISA LLOWED THE CLAIM FOR HIGHER DEPRECIATION AT THE RATE OF 40% ON TRUCKS GI VEN ON LEASE TO THE ASSESSEE, AND ALLOWED DEPRECIATION AT THE RATE 25% AND AS THE TRUCKS WERE ACTUALLY USED FOR LESS THAN 180 DAYS BY THEASSESSEE , HE ALLOWED DEPRECIATION AT THE RATE 12.5% IN PLACE OF 20% CLAIMED BY THE AS SESSEE, AND THEREBY MADE DISALLOWANCE OF RS.15,49,241/- FOR THE REASON THAT THE TRUCKS WERE NOT USED BY THE ASSESSEE FOR THE BUSINESS OF HIRE. ON APPEA L, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT THE TRUCK S WERE GIVEN ON LEASE BY THE ASSESSEE WHICH WAS ONE OF THE BUSINESS OF THE A SSESSEE. BEING AGGRIEVED ITA NO.2435, 2405/AHD/1998 6 THE REVENUE IS APPEAL BEFORE US. WE FIND THAT THE HONBLE APEX COURT IN THE CASE OF ICDS LTD. (SUPRA) HAS HELD AS UNDER: HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, (I) THAT THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT THE TRUCKS THAT IT PURCHASED. THEREFORE, ON A COMBINED READING OF SECTION 2(13) AND (24) OF THE ACT THE INCOME DERIVED FROM LEA SING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERIVED IN THE COURSE OF BUSINESS, AND HAD BEEN SO ASSESSED. HENCE, IT FULFI LLED THE REQUIREMENT OF SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE COURSE OF BUSINESS. THE ASSESSEE DID USE THE VEHI CLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT THE T RUCKS THEMSELVES WERE NOT USED BY THE ASSESSEE WAS IRRELEVANT FOR THE PURPOSE OF THE SECTION. (II) THAT A SCRUTINY OF THE MATERIAL FACTS AT HAND RAISE D A PRESUMPTION OF OWNERSHIP IN FAVOUR OF THE ASSESSEE. THE V EHICLE, ALONG WITH ITS KEYS, WAS -DELIVERED TO THE ASSESSEE UPON WHICH, THE LEASE AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WITH THE CUSTOMER. THE FACT THAT AT THE END OF THE LEASE PERIOD, THE OWNERSHIP OF THE VEHICLE WAS TRANSFERRED TO THE LESSEE AT A NOMINAL VALUE DID NOT MAKE THE ASSESSEE IN EFFECT A FINA NCIER. NO INFERENCE COULD BE DRAWN FROM THE REGISTRATION CERTIFICA TE AS TO OWNERSHIP OF THE LEGAL TITLE OF THE VEHICLE. IF THE L ESSEE WAS IN FACT THE OWNER, HE WOULD HAVE CLAIMED DEPRECIATION ON THE VEHICLES, WHICH, AS SPECIFICALLY RECORDED IN THE ORDER OF THE TRIBUNAL, WAS NOT THE CASE. (III) THAT THE ENTIRE LEASE RENT RECEIVED BY THE ASSESSE E WAS ASSESSED AS BUSINESS INCOME IN ITS HANDS AND THE ENTIRE LEASE RENT PAID BY THE LESSEE HAD BEEN TREATED AS DEDUCTIBLE REVENUE EXPENDITURE IN THE HANDS OF THE LESSEE. THIS REAFFIRMED THE POSITION THAT THE ASSESSEE WAS IN FACT THE OWNER OF THE VEHICLE, IN SO FAR AS SECTION 32 OF THE ACT IS CONCERNED. (IV) THAT, THEREFORE, THE ASSESSEE WAS THE OWNER OF THE VEHICLES. AS THE OWNER, IT USED THE ASSETS IN THE COURSE OF ITS BUSIN ESS, SATISFYING BOTH REQUIREMENTS OF SECTION 32 OF THE ACT AND , HENCE, WAS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITI ONS MADE TO THE TRUCKS, WHICH WERE LEASED OUT. (V) THAT FOR PURPOSES OF THE ASSESSEES CLAIM TO THE HIGHER RATE OF DEPRECIATION, THE INTERPRETATION OF THE TERM PUR POSES OF BUSINESS, USED IN THE -SECOND PROVISO TO SECTION 32(1) OF THE ITA NO.2435, 2405/AHD/1998 7 ACT WOULD NOT BE ANY DIFFERENT FROM THAT ASCRIBED TO I T UNDER SECTION 32(1) OF THE ACT. THEREFORE, THE ASSESSEE FULFILLE D EVEN THE REQUIREMENTS FOR A CLAIM OF A HIGHER RATE OF DEPR ECIATION AND WAS -ENTITLED THERETO. WE FIND THAT THE ORDER OF THE CIT(A) IS SUPPORTED B Y THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SUP RA). WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDE R OF THE CIT(A) ON THIS ISSUE, AND ACCORDINGLY, THE GROUND NO.2 OF THE APPE AL OF THE REVENUE IS DISMISSED. 13. THE GROUND NO.3 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), DIRECTING THE AO TO ALLOW DEDU CTION UNDER SECTION 80HHC FOR MARINE DIVISION. 14. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS NOT FILED AUDIT REPORT IN THE PRESCRIBED FORM REGAR DING THE CLAIM FOR DEDUCTION UNDER SECTION 80HHC ALONG WITH RETURN OF INCOME. HE OBSERVED THAT THE SAME WAS FURNISHED BY THE ASSESSEE ALONG W ITH LETTER DATED 16.1.1998 DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. SINCE THE AUDIT REPORT WAS NOT FILED ALONGWITH THE RETURN OF INCOME , THE CLAIM FOR DEDUCTION U/S.80HHC IS NOT ALLOWABLE. FURTHER, THE AO OBSER VED THAT THE FACTS OF THE CASE IN THIS YEAR WERE SIMILAR TO THOSE FOR THE A.Y .1994-95 AS THE ASSESSEE HAS INCURRED LOSS FROM EXPORT OF TRADING GOODS DUR ING THE YEAR OF RS.13,34,85,370/- AND IN VIEW OF THE REASONS GIVEN IN THE ASSESSMENT ORDER FOR THE A.Y.1994-95, NO DEDUCTION UNDER SECTION 80H HC WAS ADMISSIBLE TO ASSESSEE-COMPANY FOR MARINE DIVISION. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 80HHC WITH RESP ECT TO MARINE DIVISION. ON APPEAL, THE LEARNED CIT(A) OBSERVED THAT THE FAC TS OF THE ASSESSEES CASE ITA NO.2435, 2405/AHD/1998 8 IN THIS YEAR ARE SIMILAR TO THOSE FOR A.Y.1994-95 A ND THAT WHILE DECIDING THE APPEAL FOR A.Y.1994-95, HE HAD DIRECTED THE AO TO A LLOW DEDUCTION UNDER SECTION 80HHC FOR MARINE DIVISION TO THE ASSESSEE, IN ACCORDANCE WITH THE DISCUSSION MADE AND FINDINGS GIVEN IN HIS ORDER DAT ED 11.8.1997 FOR A.Y.1994-95. FOLLOWING THE SAID ORDER, THE LEARNED CIT(A) DIRECTED THE AO IN THE PRESENT YEAR OF THE APPEAL ALSO TO ALLOW DED UCTION UNDER SECTION 80HHC WITH RESPECT TO MARINE DIVISION TO THE ASSESS EE IN ACCORDANCE WITH THE DISCUSSION MADE AND FINDINGS GIVEN BY HIM IN HI S ORDER DATED 11.8.1997 PASSED IN A.Y.1994-12995. 15. THE LEARNED DR SUPPORTED THE ORDER OF THE AO. T HE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). 16. WE HAVE CONSIDERED RIVAL SUBMISSION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. UNDISPUTED FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CL AIMED DEDUCTION UNDER SECTION 80HHC OF RS.13,58,18,560/- FOR MARINE DIVIS ION BEING 90% OF THE EXPORT INCENTIVE WITHOUT REDUCING THE LOSS FROM EXP ORT IN TRADING ACTIVITIES IN MARINE DIVISION. THE AO DISALLOWED THE CLAIM FOR D EDUCTION TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD NOT FILED THE A UDIT REPORT IN FORM NO.10CCAC ALONG WITH RETURN OF INCOME FILED UNDER S ECTION 139(1) OF THE ACT, BUT HAD FILED THE SAID AUDIT REPORT DURING THE ASSESSMENT PROCEEDINGS VIDE ITS LETTER DATED 16.1.1998. FURTHER, AO OBSER VED THAT THE FOB VALUE OF THE EXPORT OF MARINE DIVISION WAS RS.3,82,43,10,93 1/- AND DIRECT COST WAS RS.3,81,69,96,533/- AND INDIRECT COST WAS RS.14,07, 99,768/-, AND AFTER DEDUCTING THE DIRECT AND INDIRECT COST FROM THE FOB VALUE OF THE EXPORT, THERE WAS A LOSS OF RS.13,34,85,370/-. THEREFORE, THE AO HELD THAT AS THERE ITA NO.2435, 2405/AHD/1998 9 WAS A LOSS IN EXPORT IN MARINE DIVISION, THE ASSESS EE WAS NOT ENTITLED TO DEDUCTION UNDER SECTION 80HHC. 17. ON APPEAL, THE LEARNED CIT(A) OBSERVED THAT THE FACTS OF THE CASE OF THE ASSESSEE IN THIS YEAR ARE SIMILAR TO THE ASSTT. YEAR 1994-95, AND THEREFORE, DIRECTED THE AO TO ALLOW DEDUCTION UNDER SECTION 80 HHC FOR MARINE DIVISION TO THE ASSESSEE IN ACCORDANCE WITH THE DIS CUSSION MADE AND FINDING GIVEN BY HIM IN HIS ORDER DATED 11.8.1997 FOR A.Y.1 994-95 IN THE ASSESSEES CASE. 18. WE FIND THAT THE FACTS AND ISSUE INVOLVED IN TH E PRESENT YEAR ARE SIMILAR TO THAT OF A.Y.1994-95 AND ON THE SIMILAR F ACTS AND CIRCUMSTANCES OF THE CASE, TRIBUNAL HELD AS UNDER: 36. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON R ECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IN ITS MARINE DIVI SION SUFFERED LOSS OF RS 13,50,71,719/- ON EXPORT OF TRADIN G GOODS AND EARNED EXPORT INCENTIVES OF RS 13,70,45,917/-. TH E ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS 13,70,45,917/- ON THE GROUND THAT IN RESPECT OF EXPORT TURNOVER IT HAS CLAIMED DEDUCTION U/S 80HHC BY ISSUING CERTIFICATE TO THE SUPPORTING MANUFACTURER IN RESPECT OF ENTIRE EXPORT TURNOVER. T HE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM ON THE GROUN D THAT THERE WAS LOSS ON EXPORT OF TRADING GOODS AND ON THE GR OUND THAT THE REQUIRED CERTIFICATE OF THE AUDITOR WAS NOT FURNISHED ALONG WITH RETURN OF INCOME. 37. ON APPEAL, THE LD. CIT(A) HELD THAT FURNISHING O F AUDITORS CERTIFICATE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS SUFFICIENT COMPLIANCE. 38. FURTHER, THE LD. CIT(A) HELD THAT WHILE COMPUTIN G EXPORT PROFIT, THE LOSS IS TO BE IGNORED AND AFTER IGNORING T HE LOSS AS THE ASSESSEE HAD EXPORT INCENTIVES OF RS 13,70,95,917/-, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80HHC SUBJECT TO THE ITA NO.2435, 2405/AHD/1998 10 CONDITION THAT SUCH DEDUCTION SHOULD NOT EXCEED THE GROSS TOTAL INCOME AS REDUCED BY DEDUCTION U/S 80HHC ALLOWED FOR TRADI NG DIVISION. 39. BEFORE US, THE LD. DR CONTENDED THAT AS THERE WAS L OSS ON EXPORT OF TRADING GOODS U/S 80HHC(3)(B), THE ASSESSEE WAS NO T ENTITLED TO ANY DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIVISION. 40. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPOR TED THE ORDER OF THE LD. CIT AND SUBMITTED THAT AS THE ASS ESSEE ISSUED A DISCLAIMER CERTIFICATE IN RESPECT OF EXPORT TURNO VER AND THEREFORE, THE LOSS ON EXPORT OF TRADING GOODS IS TO BE IGNORED AND THE LD. CIT(A) WAS JUSTIFIED IN GRANTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT INCENTIVE. HE RELIED UPON THE DECI SION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MMTC VS. JCI T (2007) 112 TTJ 15 (DELHI). 41. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LIMITED VS. DCIT (2004) 135 TAXMANN 594 (SC) HELD AS UNDER: 15. IT WAS NEXT SUBMITTED THAT EVEN WHEN THE PROFITS ARE TO BE REDUCED BY THE LOSSES IN CASES WHERE AN EXPORT HOUSE HAS DISCLAIMED ITS TURNOVER IN FAVOUR OF A SUPPORTI NG MANUFACTURER, THE TURNOVER OF THE EXPORTER GETS REDU CED TO THE EXTENT DISCLAIMED. IT IS SUBMITTED THAT AS THE TU RNOVER, WHICH IS DISCLAIMED, IS REDUCED IT CANNOT THEN BE TAKEN IN TO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB-SECTION 3(C)( II). IN OUR VIEW THIS IS AN ARGUMENT W HICH MERELY NEEDS TO BE STATED TO BE REJECTED. IF SUCH AN ARGUMENT IS ACCEPTED IT WOULD LEAD TO AN ABSURD RESULT. IT WOULD MEAN WHEN IF THERE WAS NO DISCLAIMER THE EXPORT HOUSE WOULD NOT BE ENTITLED TO ANY DEDUCTION IN CASES WHERE THERE IS A LOSS BUT BECAUSE DISCLAIMER HAS BEEN MADE BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURER WOULD BECOME ENTITLED TO DEDUCTIONS. TH E PROVISO TO SUB-SECTION (3) OF SECTION 80HHC ENABLES A DISCLAIMER ONLY TO ENABLE THE EXPORT HOUSE TO PASS ON DEDUCTIONS. IT IN NO WAY REDUCES THE TURNOVER OF THE EX PORT HOUSE. IN COMPUTING TOTAL INCOME, THE ENTIRE TURNOVER IS TAKEN INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. TH US EVEN THOUGH THE DISCLAIMER IS MADE THE TAXABLE INCOME O F RS. 4.39 CRORES HAS BEEN ARRIVED AT BY THE APPELLANTS A FTER ITA NO.2435, 2405/AHD/1998 11 TAKING INTO ACCOUNT THE ENTIRE TURNOVER FROM EXPORT O F TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS. 4.39 CRORES ADMITTEDLY THE LOSS OF RS. 6.86 CRORES HAS BEEN TAKEN IN TO ACCOUNT. EVEN AFTER DISCLAIMER THE TURNOVER HAS REMAINED THE TURNOVER OF THE EXPORT HOUSE, I.E., THE APPELLANT S. THE DISCLAIMER IS ONLY FOR PURPOSES OF ENABLING THE EXPORT HOUSE TO PASS ON THE DEDUCTION WHICH IT WOULD HAVE GOT TO THE SUPPORTING MANUFACTURER. IT FOLLOWS THAT IF NO DEDUCTION IS AVAILABLE, BECAUSE THERE IS A LOSS, THEN THE EXPORT HOUSE CANNOT PASS ON OR GIVE CREDIT OF SUCH NON- EXISTING DEDUCTION TO A SUPPORTING MANUFACTURER. THUS, IN OUR CONSIDERED VIEW, THE LOSS OF RS 13,50,71,71 9/- SUFFERED ON EXPORT OF TRADING GOODS CANNOT BE IGNORED ON THE GROUND THAT A DISCLAIMER CERTIFICATE WAS ISSUED IN RESPECT OF RELEVANT EXPORT TURNOVER TO THE SUPPORTING MANUFACTUR ER. 42. FURTHER, WE FIND THAT THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. MEREENA CREATIONS 189 TAXMANN 71 (DEL.) HELD AS UNDER: 15. AFTER READING THE JUDGMENT OF THE SUPREME COURT IN IPCA LABORATORY LTD.S CASE (SUPRA), IT CLEARLY EMERGES: NO DOUBT, UNLESS THERE IS A POSITIVE PROFIT, THE BENEFIT OF SECTION 80HHC WOULD NOT BE GIVEN. THE COURT INTERPRETED IT TO MEAN THAT IF THE RE IS A LOSS THEN NO DEDUCTION WOULD BE AVAILABLE. HOWEVER, HOW THE TEST FOR DETERMINING THE FIGURE OF POSITIVE PROFIT IS APPLIED IS STATED AS FOLLOWS: 'IN ARRIVING AT THE FIGURE OF POSITIVE PROFIT, BOTH THE PROFITS AND THE LOSSES WILL HAVE TO BE CONSIDERED. IF THE NET FIGURE IS A POSITIVE PROFIT THEN THE ASSESSEE WILL BE ENTITLED TO A DEDUCTION. IF THE NET FIGURE I S A LOSS THEN THE ASSESSEE WILL NOT BE ENTITLED TO A DEDUCTION.' IT IS CLEAR FROM THE ABOVE THAT WHILE COMPUTING EXPORT PROFIT THE RESULT OF TWO ACTIVITIES IS TO BE NETTED. WHILE DOING SO, EXPORT INCENTIVES ARE ALSO TO BE TAKEN INTO CONSIDERATION. ITA NO.2435, 2405/AHD/1998 12 43. WE FIND THAT THE DECISION OF THE DELHI TRIBUNAL I N THE CASE OF MMTC (SUPRA) IS NOT APPLICABLE IN THE INSTANT C ASE IN AS MUCH AS IN THE INSTANT CASE, THERE IS LOSS IN EXPORT O F TRADING GOODS WHICH COULD NOT BE PASSED ON TO SUPPORTIN G MANUFACTURER BY ISSUING DISCLAIMER CERTIFICATE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY (SUPRA). IN VIEW OF THE ABOVE DECIS ION OF THE HONBLE DELHI HIGH COURT, WE FIND THAT AFTER TAKI NG INTO CONSIDERATION 90% OF EXPORT INCENTIVE, THERE WAS A POSITIVE PROFIT OF RS 20,24,198/- IN THE INSTANT CASE. THEREFORE, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80HHC IN RESPECT OF RS 20,24,198/- ONLY. WE, THEREFORE , MODIFY THE ORDER OF THE LD. CIT(A) TO THE ABOVE EXT ENT. THUS, THE GROUND OF APPEAL OF REVENUE IS PARTLY ALLOW ED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE A.Y.1 994-95, WE DIRECT THE AO TO ALLOW DEDUCTION UNDER SECTION 80HHC FOR RS.22 ,33,190/- I.E. (90% OF EXPORT INCENTIVE OF RS.13,58,18,560/- MINUS LOSS IN TRADING ACTIVITY IN MARINE DIVISION RS.13,34,85,370/-). THUS, THIS GROU ND OF THE REVENUE IS PARTLY ALLOWED. 19. THE GROUND NO.4 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO CONSIDER THE NET INTEREST OF RS.7,32,300/- AS AGAINST GROSS INTEREST EXPENSES OF RS.3,73,70,700/- IN INDIRECT COST FOR DEDUCTION FOR WORKING OUT DEDUCTI ON UNDER SECTION 80HHC FOR TRADING DIVISION. 20. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT IN THE WORKING OF TOTAL INDIRECT COST, OF EXPORT OF TRADING GOODS THE ASSESSEE HAS CONSIDERED NET INTEREST OF RS.7,32,300/-. THE AO OBSERVED THAT TH E GROSS INTEREST PAYMENT OF RS.3,73,70,700/- SHOULD BE INCLUDED IN THE INDI RECT COST INSTEAD OF NET INTEREST OF RS.7,32,300/-, AS THERE IS NO DIRECT NE XUS BETWEEN PAYMENT OF INTEREST AND RECEIPT OF INTEREST FROM VARIOUS SOURC ES. ITA NO.2435, 2405/AHD/1998 13 21. ON APPEAL, THE LEARNED CIT(A) OBSERVED THAT THE ISSUE WAS WHETHER THE GROSS INTEREST EXPENSES HAVE TO BE CONSIDERED W HILE CALCULATING THE INDIRECT COST OF EXPORT OF TRADING GOODS OR THE NET INTEREST EXPENSES, THE COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION DATED 30.4.1998 OF THE ITAT, MUMBAI BENCH IN ITA NO.NO.2045/MUM./1996 IN T HE CASE OF KANTILAL CHHOTALAL VS. ACIT FOR A.Y.1992-93. THE R ATIO OF THIS DECISION WAS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. ACCORDING, THE LEARNED CIT(A) DIRECTED THE AO TO INCLUDE THE NET INTEREST OF RS.7,32,300/- INSTEAD OF GROSS INTEREST OF RS.3,73,70,700/- IN THE INDIRE CT COST, WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC ADMISSIBLE TO THE ASS ESSEE. 22. THE LEARNED DR SUPPORTED THE ORDER OF THE AO. THE LEARNED AR OF THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES P. LTD. VS. CIT, (2012) 343 ITR 89 (SC) AND SUBMITTED THAT THE ISSUE WAS COVERED BY THE SAID DE CISIONS OF THE HONBLE SUPREME COURT WHERE THE NETTING OF INTEREST INCOME AGAINST INTEREST EXPENDITURE IS ALLOWABLE TO THE ASSESSEE. 23. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE AO WHILE CALCULATING THE DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER SECTION 80HHC IN RESPECT OF TRAD ING DIVISION WHILE CALCULATING INDIRECT COST CONSIDERED THE GROSS INTE REST EXPENDITURE OF RS.3,73,70,700/- WITHOUT REDUCING THEREFROM THE INT EREST INCOME EARNED BY THE ASSESSEE ON THE GROUND THAT THERE WAS NO NEXUS BETWEEN INTEREST EXPENDITURE AND INTEREST INCOME EARNED BY THE ASSES SEE FROM VARIOUS SOURCES. THE CONTENTIONS OF THE ASSESSEE WAS THAT THE NET INTEREST ITA NO.2435, 2405/AHD/1998 14 EXPENDITURE AFTER REDUCING THE INTEREST INCOME EARN ED BY THE ASSESSEE SHOULD BE TAKEN AS INDIRECT COST OF THE TRADING GOODS FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THIS CONTENTION OF THE ASSESS EE WAS ACCEPTED BY THE CIT(A), FOLLOWING THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KANTILAL CHHOTALAL VS. ACIT (SUPRA). WE FIND THAT THE DECISION OF THE LEARNED CIT(A) IS SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATES CAPSULES VS. CI T (SUPRA) WHEREIN IT HAS BEEN HELD THAT NOT THE GROSS INTEREST BUT ONLY THE NET INTEREST, WHICH HAS BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASS ESSEE AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON', IS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. IN THE INSTANT CASE, THE INTEREST INCOME WAS TREATED BY THE AS PART OF INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A), WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVEN UE IS DISMISSED. 24. THE GROUND NO.5 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLOW DE DUCTION EQUAL TO 10% OF THE EXPORT INCENTIVE FROM THE INDIRECT COST ATTRIBU TABLE TO THE EARNING OF EXPORT INCENTIVE WHILE COMPUTING DEDUCTION UNDER SE CTION 80HHC FOR TRADING DIVISION. 25. THE BRIEF FACTS OF THE CASE ARE THAT IN WORKING OUT THE INDIRECT COST FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC, THE A SSESSEE REDUCED THE INDIRECT COST BY 10% OF THE EXPORT INCENTIVES ON AC COUNT OF BEING EXPENSES INCURRED FOR EARNING OF EXPORT INCENTIVES. THE AO DISALLOWED THE ASSESSEES CLAIM ON THE GROUND THAT THE DEPARTMENT HAD NOT ACC EPTED THE ORDER OF THE ITA NO.2435, 2405/AHD/1998 15 LEARNED CIT(A) FOR A.Y.1994-95 DECIDED IN FAVOUR OF THE ASSESSEE, AS IT HAS FILED FURTHER APPEAL BEFORE THE TRIBUNAL. 26. ON APPEAL, THE CIT(A) HAS FOLLOWED HIS ORDER DA TED 11.8.1997 FOR A.Y.1994-95 AND ALLOWED THE CLAIM OF THE ASSESSEE. 27. WE FIND THIS ISSUE HAS BEEN DECIDED BY US IN A. Y.1994-95 VIDE ORDER DATED 31/1/2014 IN ITA NO.3403/AHD/1997 AND CO NO.7 3/AHD/2011 WHEREIN, THE TRIBUNAL ASSESSEES OWN CASE HELD AS U NDER: 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN EXPORT OF TRAD ING GOODS AND THEREFORE, IS ELIGIBLE FOR DEDUCTION U/S 80HHC IN RESPECT OF PROFIT DERIVED FROM EXPORT OF TRADING GOOD S. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC AT RS 13,33,39,275/- WHEREAS THE ASSESSING OFFICER ALLOWED SUCH DEDUCTION ON RS 13,15,00,727/-. THUS, THE ASSESSING OFFICER GRANTED LESSE R DEDUCTION OF RS 18,78,548/- U/S 80HHC THAN THE AMOUNT CL AIMED BY THE ASSESSEE. THE ABOVE DIFFERENCE AROSE BECAUSE THE ASSESSEE REDUCED ITS INDIRECT COST RELATABLE TO THE EXPORT O F TRADING GOODS BY 10% OF EXPORT INCENTIVES OF RS 1,87,85 ,483/- WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWI NG CBDT CIRCULAR NO. 621 DATED 19.12.1991. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF HERO EXPORTS VS. CIT (SUPRA) IN FAVOUR OF TH E ASSESSEE. THE HONBLE SUPREME COURT HAS HELD THAT FOR TH E PURPOSE OF DETERMINING EXPORT PROFIT U/S 80HHC(3)(B) IN CASE OF TRADER EXPORTER INDIRECT COST CAN BE REDUCED BY 10% OF E XPORT INCENTIVES ETC. THEREFORE, WE DO NOT FIND ANY ERROR I N THE ORDER OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE GRO UND OF THE REVENUE. ITA NO.2435, 2405/AHD/1998 16 ASSESSEES APPEAL 28. THE GROUNDS NO.1, 2 AND 3 OF THE ASSESSEES APP EALS ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE D ISALLOWANCE OF RS.1,39,28,587/- ON ACCOUNT OF PUBLIC ISSUE EXPENSE S. 29. BRIEF FACTS OF THE CASE OF THE ASSESSEE ARE THA T THE AO OBSERVED THAT THE ASSESSEE HAS BROUGHT OUT PUBLIC ISSUE OF 12,50, 000 EQUITY SHARES OF RS.10/- AT A PREMIUM OF RS.140/- PER SHARE IN SEPTE MBER, 1994. THE AO RELYING ON THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT, 225 ITR 798 HELD THAT THE EXPENSES INCURRED BY THE COMPANY IN CONNECTION WITH THE ISSUE OF SHARES WITH A VIEW TO INCREASE ITS SHARE CAPITAL WAS DIRECTLY RELATED TO EXPANSION OF THE CAPITAL BASE OF THE COMPANY AND WAS CAPITAL EXPENDITURE, AND THEREFORE, DISALLOWED PUBLIC ISSUE EXPENDITURE OF RS.1,39,28,587/-. 30. BEFORE THE AO, THE ASSESSEE MADE AN ALTERNATIVE CLAIM THAT THE EXPENDITURE OF RS.1,39,28,587/- SHOULD BE CONSIDERE D FOR DEDUCTION UNDER SECTION 35D. THE AO HELD THAT THE EXPENSES TO THE EXTENT OF RS.1,55,138/- WAS INCURRED ON GIFT COUPONS, HOTEL BILLS AND POCKE T EXPENSES WERE NOT COVERED UNDER THE PROVISIONS OF SECTION 35D(2) OF T HE IT ACT. HE FURTHER HELD THAT CAPITAL EMPLOYED IN THE BUSINESS OF THE A SSESSEE HAS BEEN DEFINED IN EXPLANATION (B) BELOW SECTION 35D(3) OF THE IT ACT AS THE AGGREGATE OF TH E ISSUED SHARE CAPITAL, DEBENTURES AND LONG TERM BORR OWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR. ACCORDING TO THE AO, THE IS SUED SHARE CAPITAL DOES NOT INCLUDE SHARE PREMIUM, AS IN THE BALANCE SHEET, IT WAS SEPARATELY SHOWN AS RESERVES AND SURPLUS. ACCORDING TO THE AO, THE C APITAL EMPLOYED IS RESTRICTED TO THE SHARE CAPITAL RAISED BY THE PARTI CULAR ISSUE IN SEPTEMBER, ITA NO.2435, 2405/AHD/1998 17 1994 AND NOT THE CUMULATIVE BALANCE OF THE TOTAL SH ARE CAPITAL AS ON 31.3.1995. THEREFORE, HE WORKED OUT THE ELIGIBLE A MOUNT FOR DEDUCTION U/S.35D AT RS.3,12,500/- BEING 2.5% OF THE ISSUED S HARE CAPITAL. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE AO. 31. THE LEARNED DR SUPPORTED THE ORDER OF THE CIT(A ). 32. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS COMPUTED THE DEDUCTION UNDER SECTION 35D AND CONSID ERED ONLY THE SHARE CAPITAL. FURTHER, AS PER THE DECISION OF THE ITAT, AHMEDABAD BENCHES,, IN THE CASE OF SIRHIND STEEL, 97 ITD 502, SHARE PREMIU M IS TO BE A PART OF CAPITAL EMPLOYED. IT WAS, THEREFORE, THE SUBMISSI ON OF THE ASSESSEE THAT THE TOTAL CAPITAL EMPLOYED BY THE ASSESSEE WAS RS.31,55 ,64,000/- AND 2.5% OF SUCH AMOUNT AS PER PROVISION OF SECTION35D WORKS OU T TO RS.78,89,1000/- AND ONLY 1/10 TH THEREOF WOULD BE ALLOWED IN CURRENT YEAR, I.E. RS. 7,88,900/- AND NOT RS.31,250/- ALLOWED BY THE AO. 33. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO WHILE ALLOWI NG DEDUCTION UNDER SECTION 35D (2) HAS CONSIDERED THE AMOUNT OF SHARE CAPITAL RAISED DURING THE YEAR EXCLUDING THE AMOUNT OF SHARE PREMIUM AND THUS ALLOWED DEDUCTION UNDER SECTION 35D(2) AT RS.31,250/- 34. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE AO. 35. BEFORE US, THE SOLE PLEA OF THE ASSESSEE WAS TH AT THE REVENUE OUGHT TO HAVE INCLUDED SHARE PREMIUM RAISED DURING THE YEAR ALSO IN ISSUED CAPITAL WITHIN THE MEANING OF SECTION 35D(2) OF THE ACT. F OR THE ABOVE CONTENTION, ITA NO.2435, 2405/AHD/1998 18 HE PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSIONER OF INCOME-TAX, SPL. RANGE 7 V. SIRHIND STEEL LTD., [2005] 97 ITD 502 (AHD.). ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 36. WE FIND THAT THE TRIBUNAL IN THE CASE OF SIRHIN D STEEL LTD. (SUPRA) HAS HELD AS UNDER: 7. SINCE THERE IS NO AMOUNT OUTSTANDING ON ACCOUNT OF DEBENTURES AND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR, EXPLANATION (C) TO SECTION 35D(3) IS IRR ELEVANT. SO IS THE CASE WITHEXPLANATION (A) TO SECTION 35D(3) AS COST OF PROJECT IS ALSO MUCH LESS THAN ISSUED SHARE CAPITAL. THEREFOR E, WE HAVE TO CONCENTRATE ON THE DEFINITION GIVEN TO TERM ' CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY' IN EXPLANATION (B) TO SECTION 35D(3). THERE IS NO DISPUTE TO THE EXTENT THAT SHARE CAPITAL OF THE ASSESSEE-COMPANY AS STANDING UNDER THE HEAD 'SOURCES OF FUND' AS ON THE LAST DAY OF THE PREVIOUS YEA R IS RS. 4,00,71,000. THE CIT(A) HAS CONSIDERED THE ENTIRE OTHE R SUM OF RS. 14,86,64,238 (THE AMOUNT OUTSTANDING UNDER THE H EAD RESERVE AND SURPLUS THE DETAILS OF WHICH HAVE ALREADY BEEN REPRODUCED ABOVE) AS PART OF ISSUED SHARE CAPITAL AND HAS CONCLUDED THAT 2.5 PER CENT OF SUCH CAPITAL EMPLOYED WAS WITHIN THE AMOUNT OF TOTAL EXPENDITURE INCURRED BY ASSESSEE ON PUBLIC ISSUE AND THUS THE ASSESSEE WAS ENTITLED TO CLAIM FULL DEDUCT ION OF RS. 4,71,244. HERE THE SUBMISSION OF LD. COUNSEL OF T HE ASSESSEE IS THAT IN ANY CASE, SHARE PREMIUM HAS TO BE CONSIDERED AS 'ISSUED SHARE CAPITAL'. THERE IS A FORCE IN SU CH CONTENTION THAT THE AMOUNT OUTSTANDING ON ACCOUNT OF SHA RE PREMIUM HAS TO BE TREATED AS ISSUED SHARE CAPITAL. SECTION 78 OF THE COMPANIES ACT, 1956 DEALS WITH THE SUBJECT 'APPLICATI ON OF PREMIUMS RECEIVED ON ISSUE OF SHARES'. SAID SECTION READS AS UNDER: '(1) WHERE A COMPANY ISSUES SHARE AT A PREMIUM, WHETHER FOR CASH OR OTHERWISE, A SUM EQUAL TO THE AGGREGATE AMOUNT OR VALUE OF THE PREMIUMS ON THOSE SHARES SHALL BE TRANSFERRE D TO AN ACCOUNT, TO BE CALLED 'THE SHARE PREMIUM ACCOUNT', AND TH E PROVISIONS OF THIS ACT RELATING TO THE REDUCTION OF THE SHARE ITA NO.2435, 2405/AHD/1998 19 CAPITAL OF A COMPANY SHALL, EXCEPT AS PROVIDED IN THIS S ECTION, APPLY AS IF THE SHARE PREMIUM ACCOUNT WERE PAID-UP SHARE CAPITAL OF THE COMPANY. (2) THE SHARE PREMIUM ACCOUNT MAY, NOTWITHSTANDING ANY THING IN SUB-SECTION (1), BE APPLIED BY THE COMPANY (A)IN PAYING UP UN-ISSUED SHARES OF THE COMPANY TO BE ISSUED TO MEMBERS OF THE COMPANY AS FULLY PAID BONUS SHARES; (B)IN WRITING OFF THE PRELIMINARY EXPENSES OF THE COMP ANY; (C)IN WRITING OFF THE EXPENSES OF, OR THE COMMISSION PA ID OR DISCOUNT ALLOWED ON, ANY ISSUE OF SHARES OR DEBENTURES OF THE COMPANY; OR (D)IN PROVIDING FOR THE PREMIUM PAYABLE ON THE REDE MPTION OF ANY REDEEMABLE PREFERENCE SHARES OR OF ANY DEBENTURES OF THE COMPANY. (3) WHERE A COMPANY HAS, BEFORE THE COMMENCEMENT OF TH IS ACT, ISSUED ANY SHARES AT A PREMIUM, THIS SECTION SHALL APPL Y AS IF THE SHARES HAD BEEN ISSUED AFTER THE COMMENCEMENT OF THIS ACT : PROVIDED THAT ANY PART OF THE PREMIUMS WHICH HAS BEEN SO APPLIED THAT IT DOES NOT AT THE COMMENCEMENT OF THIS A CT FORM AN IDENTIFIABLE PART OF THE COMPANYS RESERVES WIT HIN THE MEANING OF SCHEDULE VI, SHALL BE DISREGARDED IN DETERMINING THE SUM TO BE INCLUDED IN THE SHARE PREMIU M ACCOUNT.' (EMPHASIS SUPPLIED) A PERUSAL OF ABOVE-MENTIONED SECTION WILL REVEAL THAT ANY SHARE PREMIUM COLLECTED BY A COMPANY SHALL BE TREATED AS IF THE SAME IS PAID-UP SHARE CAPITAL OF THE COMPANY AND IT IS ALSO REQUIRED TO BE RETAINED IN A SEPARATE ACCOUNT. THE SAID AMOUNT CANNOT BE UTILIZED FOR ANY PURPOSE, OTHER THAN THE ONE SPECIFIED IN SUB-SECTION (2). IF AMOUNT LYING IN SE PARATE PREMIUM ACCOUNT IS USED FOR ANY OTHER PURPOSES, IT WOULD TANTAMOUNT TO REDUCTION IN SHARE CAPITAL WHICH WILL AT TRACT THE PROVISIONS OF SECTIONS 100 TO 105 OF THE COMPANIES ACT . 8. ACCORDING TO SUB-SECTION (2) THE SHARE PREMIUM ACCOUNT MAY BE APPLIED FOR THE FOLLOWING PURPOSES: ITA NO.2435, 2405/AHD/1998 20 (1)THE PAYING UP OF FULLY PAID BONUS SHARES TO BE ISSUE D BY THE COMPANY TO ITS MEMBERS; (2)THE WRITING OFF OF PRELIMINARY EXPENSES OF THE COM PANY; (3)THE WRITING OFF OF THE EXPENSES OF, OR UNDERWRITI NG COMMISSION PAID OR DISCOUNT ALLOWED ON, ANY ISSUE OF SHAR ES OR DEBENTURES OF THE COMPANY; (4)THE PROVIDING OF A PREMIUM PAYABLE BY THE COMPANY ON REDEMPTION OF REDEEMABLE SHARES OR REDEMPTION OF DEBENTURES OF THE COMPANY. THUS THE EFFECT OF THIS SECTION IS TO CREATE A NEW CLASS OF CA PITAL OF A COMPANY WHICH IS NOT DISTRIBUTABLE AS INCOME ANY MOR E THAN ANY OTHER CAPITAL ASSET. ON A WINDING UP THE SURPLUS MON IES IN THE SHARE PREMIUM ACCOUNT WILL BE RETURNED TO THE SHARE HOLDERS AS CAPITAL AND SO LONG AS THE COMPANY IS A GOING CONCERN, T HE SAME MONIES CAN NEVER BE RETURNED TO THE SHAREHOLDERS EX CEPT THROUGH THE MEDIUM OF REDUCTION PETITION OR, IN OTHE R WORDS, EXCEPT UNDER EXACTLY THE SAME CONDITIONS AS THOSE UNDER WH ICH ANY OTHER CAPITAL ASSET CAN REACH THE SHAREHOLDERS HAND. HOWEVER, THE SAME ANALOGY WILL NOT APPLY TO THE OTHER AMOUNTS STAND CREDITED UNDER THE HEAD 'RESERVE AND SURPLUS' I.E ., (I) INVESTMENT ALLOWANCE (UTILIZED) RESERVE RS. 8,21,849, ( II) 'GENERAL RESERVE' RS. 6,43,25,301 AND THE SUM (III) 'TRANSFERRED FROM PROFIT AND LOSS A/C' RS. 1,46,00,000 ( TOTAL = RS. 7,97,46,150 ALL OTHER SUMS STANDING TO THE CREDIT OF RESERVE AND SURPLUS A/C). THEREFORE, WE HOLD THAT CIT(A) WA S WRONG IN CONCLUDING THAT ENTIRE SUM OF RS. 18,87,35,238 (RS. 4,00 ,71,000 AS SHARE CAPITAL AND AMOUNT OF RS. 14,86,64,238 AS RESERV E AND SURPLUS) WAS 'ISSUED SHARE CAPITAL' WITHIN THE MEANING OF EXPLANATION (B ) TO SECTION 35D(3). THEREFORE, WE MODIFY HIS ORDER AND HOLD THAT A SUM OF RS. 7,97,46,150 AS COMPUTE D ABOVE, WAS NOT 'ISSUED SHARE CAPITAL' WITHIN THE MEANIN G OF EXPLANATION (B) TO SECTION 35D(3) OF THE ACT. THERE FORE, ISSUED SHARE CAPITAL OF THE ASSESSEE CAN ONLY BE CONSIDERED TO BE A SUM OF RS. 10,88,97,000 (RS. 4,00,71,000 BEING SHA RE CAPITAL PLUS RS. 6,88,26,000 AMOUNT OUTSTANDING AS SHARE PREMIUM ACCOUNT) 2.5 PER CENT OF RS. 10,88,97,000 IS OF RS. 27,22,425 AND THUS THE EXPENDITURE INCURRED BY ASSESSEE HAVE TO BE RESTRICTED TO THAT SUM AND THEREFORE, THE ASSESSEE I S ENTITLED TO MAXIMUM 10 PER CENT OF THE SUM OF RS. 27, 22,425 WHICH COMES TO RS. 2,72,242. THUS, THE ADDITION MADE BY ITA NO.2435, 2405/AHD/1998 21 ASSESSING OFFICER DESERVES TO BE UPHELD TO THE EXTENT OF RS. 1,99,002 (RS. 4,71,244RS. 2,72,242). THEREFORE, THE ORDER OF CIT(A) IS MODIFIED ACCORDINGLY AND WE DIRECT ASSESSING OFFI CER TO RESTRICT THE ADDITION TO THE EXTENT OF RS. 1,99,002. T HE APPEAL FILED BY THE REVENUE IS, THEREFORE, PARTLY ALLOWED. IN THE ABSENCE OF ANY CONTRARY DECISION BEING POINT ED OUT TO US, WE FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL DIRECT THE AO TO RE-COMPUTE THE DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER SECTION 3 5D BY INCLUDING THE SHARE PREMIUM AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR ALONG WITH THE SHARE CAPITAL RECEIVED DURING THE YEAR FOR THE PURP OSES OF TAKING AMOUNT OF ISSUED CAPITAL. THUS, THE GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED AS ABOVE. 37. THE GROUND NO.4, 6, 7, 8 AND 10 OF THE APPEALS ARE AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO OF REJECTING THE ASSESSEES CLAIM FOR DEDUCTION U/S.33AC. 6 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD.CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE AOS ACTION OF R EJECTING THE ASSESSEES CLAIM FOR DEDUCTION OF RS.40,000 FOR STA MP EXPENSES. 7 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD.CIT(A) WAS NOT JUSTIFIED IN UPHOLDING A DISALLOWANCE OF RS .44,654 OUT OF CLUB EXPENSES OF RS.1,764,458 BY TREATING THE SAID SUM O F RS.44,654 AS OF ENTERTAINMENT NATURE. 8. WITHOUT PREJUDICE TO THE GROUND NO.7 ABOVE, ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) SHOULD HAVE DIRECTED THE AO TO TREAT THE SAID SUM OF RS.44,654 AS ENTERTAINM ENT EXPENDITURE ALSO FOR QUANTIFICATION OF DISALLOWANCE OUT OF THE EXPENSES OF THIS NATURE U/S.37(2) AS IT STOOD THEN. ITA NO.2435, 2405/AHD/1998 22 10. WITHOUT PREJUDICE TO THE GROUND NO.7 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN NOT ACCEPTING THE ASSESSEES PLEA THAT HE AO WAS NOT JUSTIFIED IN DRA WING AN ADVERSE INFERENCE AGAINST THE ASSESSEE. HE FURTHER ERRED I N NOT ORDERING THE DELETION OF ADDITION MADE IN RESPECT OF THE ALLEGED VERSION OF ADITYA CARGO GROUP. 38. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PR ESSED THE ABOVE GROUNDS OF APPEALS, HENCE, THE SAME ARE DISMISSED A S NOT PRESSED. 39. THE GROUND NO.9 OF THE APPEAL OF THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE AO FOR MAKING ADDITION ON THE BASIS OF PAPERS SEIZED FROM THE PREMISES OF ADITYA CARGO GROUP. 40. THE GROUND NO.11 OF THE APPEAL IS DIRECTED AGAI NST THE ORDER OF THE CIT(A) THAT A SUM OF RS.1,28,782/- WAS ATTRIBUTABLE TO SEIZED DOCUMENTS TO M/S.GIRA ENTERPRISES AND WAS NOT ATTRIBUTABLE TO TH E ASSESSEE. THEREFORE, THE AO HAS FURTHER ERRED IN NOT DELETING THE ADDITION O F RS.1,28,782/-. 41. IN GROUND NO.12 THE CLAIM OF THE ASSESSEE IS TH AT IF AN ADDITION WAS TO BE MADE U/S.69C ON THE BASIS OF SUCH SEIZED PAPERS AN EQUAL AMOUNT WAS ALLOWABLE AS BUSINESS EXPENDITURE, BECAUSE, EVEN AS PER THE SEIZED PAPERS THE EXPENDITURE WAS FOR BUSINESS PURPOSES AND OF REVENU E NATURE. 42. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT A SEARCH AND SEIZURE OPERATION UNDER SECTION 132 WAS CONDUCTED B Y THE ADIT(INT) ON 24.11.1995 IN THE PREMISES OF ADITYA CARGO & TRANSP ORT LTD., JAMNAGAR AND ITS DIRECTORS, SHRI T.V.SUJAN. THE AO HAS OBSERVE D THAT THE DOCUMENTS SEIZED DURING THE COURSE OF THE SEARCH REVEALED THA T M/S.ADITYA CARGO & TRANSPORT LTD. HAD RECEIVED THE ACCOUNTED SERVICE C HARGES FROM M/S.ADANI ITA NO.2435, 2405/AHD/1998 23 EXPORT LTD. IN ADDITION TO THE NORMAL CHARGES WHICH WERE REFLECTED IN THE BOOKS. THE DETAILS OF THE UNACCOUNTED PAYMENTS MAD E BY ADANI EXPORTS LTD. TO M/S.ADITYA CARGO & TRANSPORT LTD., AS MENTIONED IN VARIOUS PAGES OF THE SEIZED DOCUMENTS HAVE BEEN MENTIONED BY THE AO IN A NNEXURE-A TO THE ASSESSMENT ORDER. HE STATED THAT THE TOTAL OF VAR IOUS AMOUNTS MENTIONED WAS RS.26,50,744/- AFTER REDUCING THE BILL AMOUNT O F RS.21,20,885/-, THE BALANCE AMOUNT WAS RS.5,29,859/-. THE BILL OF RS.2 1,20,885/- WAS REFLECTED IN THE BOOKS OF ACCOUNTS OF M/S.ADITYA CARGO & TRAN SPORT LTD., AND THE BALANCE AMOUNT OF RS.5,29,859/- WAS SHOWN TO BE PAI D IN CASH OUTSIDE THE BOOKS OF ACCOUNTS. THE AO OBSERVED THAT THE RECEIP T OF THE ABOVE AMOUNT IN CASH WAS CONFIRMED BY SHRI T.V.SUJAN, DIRECTOR IN T HE STATEMENT RECORDED UNDER SECTION 132(4) ON 24.11.1995. AS THE TOTAL A MOUNT OF RS.26,50,744/- INCLUDING THE BILL AMOUNT WAS NOT RECORDED BY THE A SSESSEE IN ITS BOOKS OF ACCOUNTS, THE AO MADE ADDITION OF RS.26,50,744/- TO THE INCOME OF THE ASSESSEE UNDER SECTION 69C OF THE ACT. 43. ON APPEAL, THE CIT(A) OBSERVED THAT HE HAS SEEN CONFIRMATORY LETTER FROM GUJARAT EXPORT CORPORATION FILED BY THE ASSESS EE BEFORE THE AO AND THE COPY OF WHICH HAS BEEN FILED BEFORE THE HIM. IN TH IS CONFIRMATORY LETTER NO DETAILS OF PAYMENT MADE BY GUJARAT STATE EXPORT COR PORATION HAVE BEEN GIVEN. IN THE PAPERS SEIZED DURING THE COURSE OF S EARCH CONDUCTED IN THE PREMISES OF M/S.ADITYA CARGO & TRANSPORT LTD., IT W AS MENTIONED THAT THE PAYMENTS TOTALING TO RS.26,50,744/- WERE RECEIVED F ROM M/S.ADANI EXPORT LTD. SHRI T.V.SUJAN, DIRECTOR OF THE ABOVE MENTION ED COMPANY ALSO ACCEPTED THIS FACT IN HIS STATEMENT U/S.132(4) RECORDED ON 2 4.11.1995, THEREFORE, CONSIDERING THE FACTS ON RECORD, THE AO WAS JUSTIFI ED IN MAKING THE ADDITION OF RS.26,50,744/- FOR PAYMENTS MADE TO M/S.ADITYA C ARGO & TRANSPORT LTD., ITA NO.2435, 2405/AHD/1998 24 AND NOT RECORDED IN THE BOOKS OF ACCOUNTS OF THE AS SESSEE-COMPANY. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE ALTERNATIV E PLEA OF THE ASSESSEE THAT IF THE ADDITION OF RS.26,50,744/- MADE U/S.69C WAS APPROVED, THEN DEDUCTION FOR BUSINESS EXPENDITURE OF THE SAME AMOUNT MAY BE ALLOWED. THE LEARNED CIT(A) OBSERVED THAT IT WAS SEEN THAT THESE PAYMENT S TOTALING TO RS.26,50,744/- WERE REGARDING THE CLEARING AND FORW ARDING CHARGES OF THE GOODS. NO DETAILS HAVE BEEN FURNISHED BY THE ASSES SEE REGARDING THE PURCHASE AND SALE OF THE GOODS FOR WHICH CLEARING A ND FORWARDING CHARGES HAVE BEEN MADE. THE BUSINESS EXPENSES CLAIMED BY T HE ASSESSEE WERE TO BE ALLOWED AGAINST THE PROFIT EARNED BY THE ASSESSEE C OMPANY ON THE SALE OF GOODS, FOR WHICH CLEARING AND FORWARDING CHARGES TO TALING TO RS.26,50,744/- HAVE BEEN PAID. AS THE ASSESSEE HAS FAILED TO FUR NISH COMPLETE DETAILS REGARDING THE VARIOUS TRANSACTIONS REGARDING GOODS FOR WHICH CLEARING AND FORWARDING CHARGES OF RS.26,50,744/- HAVE BEEN PAID , NO DEDUCTION FOR BUSINESS EXPENSES CLAIMED BY THE ASSESSEE IN THE AL TERNATIVE PLEA MADE WAS ALLOWABLE. THUS, NO DEDUCTION FOR BUSINESS EXPENS ES WAS ADMISSIBLE AGAINST THE ADDITION OF RS.26,50,744/- MADE FOR UNE XPLAINED PAYMENTS MADE TO M/S.ADITYA CARGO AND TRANSPORT LTD. THE ALTERNA TIVE PLEA MADE BY THE ASSESSEE WAS REJECTED, AND THE ADDITION OF RS.26,50 ,744/- MADE BY THE AO WAS CONFIRMED. 44. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT T HE ADDITION WAS MADE ON THE BASIS OF LOOSE PAPERS AND STATEMENT RECORDED DURING THE COURSE OF SEARCH AT THE THIRD PARTY PREMISES. THE COPY OF THE STATEMENT MADE UNDER SECTION 132(4) OF THE ACT WAS NOT PROVIDED AND EVEN CROSS-EXAMINATION WAS NOT GIVEN. IT WAS FURTHER SUBMITTED THAT FROM THE SEIZED MATERIAL FOUND, EVEN IN THE AO HIMSELF HAS OBSERVED THAT PAYMENT WAS TOW ARDS CLEARING AND ITA NO.2435, 2405/AHD/1998 25 FORWARDING EXPENDITURE. EVEN THOUGH THE PROVISION OF SECTION 69C IS ATTRACTED, THE SAME IS ALLOWABLE AS EXPENDITURE AS PROVISO INSERTED BELOW 69C OF THE ACT BY THE FINANCE (NO.2) ACT, 1998 HAD BEEN MADE EFFECT FROM 1.4.1999. IN THIS REGARD, RELIANCE WAS PLACED ON T HE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF RADHE DEVELOPERS, 329 ITR 1 AS WELL AS THE DECISION IN THE CASE OF KRISHNA TEXTILES VS. CI T, (2012) 343 ITR 227, WHEREIN IT WAS HELD AS UNDER: THAT SINCE IT WAS AN ADMITTED POSITION THAT THE AS SESSEE WAS CARRYING ON BUSINESS IN COAL AND LIGNITE AND PURCHASES WERE MAD E FROM TIME TO TIME FROM GMDC, EVEN IF ANY ADDITION WAS REQUIRED TO BE MADE UNDER SECTION 69C, THE ENTIRE EXPENDITURE TOWARDS IT HAD TO BE AL LOWED AS A DEDUCTION UNDER SECTION 37(1). THE ASSESSMENT YEAR UNDER CONS IDERATION WAS ADMITTEDLY 1987-88 TO WHICH THE AMENDMENT OF SECTIO N 69C WOULD NOT BE APPLICABLE. THUS, TAKING INTO CONSIDERATION THE TOT ALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN MAKING AND/OR CONFIRMING THE DISPUTED ADDITION INAS MUCH AS EVEN IF THE ASSESSEE DID INCUR EXPENDITURE OF RS.1,92,261 IN PU RCHASING COAL, LIGNITE, ETC., FROM GMDC, THE EQUIVALENT DEBIT IN THE PROFIT AND LOSS ACCOUNT WOULD NEUTRALIZE EACH OTHER AND NO ADDITION COULD BE MADE . 45. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND FORCE IN THE ARGUMENT OF THE LEA RNED AR THAT AMENDMENT IN SECTION 69C TO THE EFFECT THAT DEDUCTION IN RESP ECT OF UNEXPLAINED BUSINESS EXPENDITURE WILL NOT BE ALLOWED, HAS BEEN BROUGHT I NTO FORCE BY THE FINANCE (NO.2) ACT, 1998 W.E.F. 1.4.1999. IN THE INSTANT C ASE THE ASSESSMENT YEAR INVOLVED IS 1995-96. IN THE INSTANT CASE, IT IS NO T IN DISPUTE THAT RS.26,50,744/- RELATES TO PAYMENT OF SERVICE CHARGE S FOR IMPORT OF GOODS. THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION O F RS.26,50,744/- WHEN THE SAID AMOUNT IS TREATED AS UNEXPLAINED BUSINESS EXPE NDITURE OF THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AU THORITIES ON THIS ISSUE AND ALLOW THE GROUND OF THE APPEAL OF THE ASSESSEE. ITA NO.2435, 2405/AHD/1998 26 46. THE GROUND NO.13 OF THE APPEAL IS DIRECTED AGAI NST THE ORDER OF THE CIT(A) IN NOT ACCEPTING THE CLAIM OF THE ASSESSEE T HAT IT WAS NOT LIABLE FOR LEVY OF INTEREST UNDER SECTION 234A, 234B AND 234C OF THE ACT. 47. THE LEARNED CIT(A) HAS HELD THAT THE AO IS DIRE CTED TO CHARGE INTEREST UNDER SECTIONS 234A, 234B AND 234C OF THE ACT ON TH E INCOME DETERMINED AFTER GIVING EFFECT TO HIS ORDER. 48. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT FOR MARINE DIVISION NETTIN G WAS DONE AS PER THE RETROSPECTIVE AMENDMENT BROUGHT BY FINANCE ACT, 200 5 W.E.F. 1.4.1992 (5 TH PROVISO TO SECTION 80HHC(3)). IN OUR CONSIDERED VIE W, TO THE EXTENT OF DISALLOWANCE UPHELD IN MARINE DIVISION, NO INTEREST WOULD BE CHARGEABLE. IN THIS CONNECTION, OUR VIEW FINDS SUPPORT FROM THE DE CISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ABDUL WAHID, I TA NO.182 & 183 OF 2010 ORDER DATED 26.11.2010 WHEREIN IT WAS HELD THA T INTEREST UNDER SECTIONS 234A, 234B AND 234C AROSE DUE TO RESTRICTION OF DED UCTION U/S.80HHC, AS A RESULT OF SETTING OFF THE BUSINESS LOSS AGAINST 90% OF EXPORT INCENTIVES AS PER THE FIFTY PROVISO TO SECTION 80HHC(3) WHICH WAS INT RODUCED BY AN AMENDMENT BROUGHT IN THE YEAR 2005 W.E.F. 1.4.1992. THE CIT(A) HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT THE PROVISIO N IN QUESTION WAS BROUGHT FROM 1.4.1992 WHICH THE ASSESSEE COULD NOT FORESEE AT THE TIME OF FILING THE RETURN OF INCOME AND ON THE CONTRARY THERE WERE SEV ERAL HIGH COURT AND ITAT DECISIONS SUPPORTING THE ASSESSEES VIEW THAT BUSINESS LOSS COULD BE ADJUSTED AGAINST 90% EXPORT INCENTIVES FOR WORKING OUT THE DEDUCTION ITA NO.2435, 2405/AHD/1998 27 US/.80HHC. RESPECTFULLY FOLLOWING THE ABOVE CITED ORDER, WE ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE, AS STATED ABO VE. 50. IN THE RESULT, THE BOTH THE APPEALS OF THE REVE NUE AND THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD