The DCIT, Circle-1(1)(1), Ahmedabad V. M/s. Arvind Ltd., Ahmedabad

ITA 249/AHD/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4136 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-03-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R MAKWANA
• Keywords: Business income; Depreciation; Business expenditure; Additional depreciation; Earning of tax free income; Deemed to accrue or arise in india; Proportionate interest; Question of law; Speculation loss; Bad and doubtful debts; Revised return; Capital expenditure; Speculative transactions; TDS; Rule 8D; Set aside
• Section: 271(1)(c); 43B; 143(3); 14A; 260A; 115JB; 40(a)(ia); 37(1); 43(5); 201; 143(2); 43; 48; 73; 13; 22; 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (CONDUCTED THROUGH VIRTUAL COURT) BEFORE: SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMB ER SL. NO. APPEAL ITA/CO A.Y. APPELLANT (PAN IF APPLICABLE) RESPONDENT (PAN IF APPLICABLE) 1 ITA 1960/AHD/2018 2009-10 ARVIND LTD. ABAD (AABCA2398D) DCIT, CIRCLE-1, ABAD 2 ITA 2054/AHD/2018 2009-10 DCIT, CIRCLE-1(1)(1), ABAD ARVIND LTD. ABAD (AABCA2398D) 3 ITA 249/AHD/2016 2010-11 DCIT, CIRCLE-1(1)(1), ABAD ARVIND LTD. ABAD (AABCA2398D) 4 CO 43/AHD/2016 (IN ITA 249/AHD/2016) 2010-11 ARVIND LTD. ABAD (AABCA2398D) DCIT, CIRCLE-1(1)(1), ABAD 5 ITA 1846/AHD/2016 2011-12 ARVIND LTD. ABAD (AABCA2398D) DCIT, CIRCLE-1(1)(1), ABAD 6 ITA 2057/AHD/2016 2011-12 DCIT, CIRCLE-1(1)(1), ABAD ARVIND LTD. ABAD (AABCA2398D) 7 ITA 273/AHD/2018 2013-14 DCIT, CIRCLE-1(1)(1), ABAD ARVIND LTD. ABAD (AABCA2398D) 8 CO 42/AHD/2019 (IN ITA 273/AHD/2018) 2013-14 ARVIND LTD. ABAD (AABCA2398D) DCIT, CIRCLE-1(1)(1), ABAD 9 ITA 2182/AHD/2018 2015-16 DCIT, CIRCLE-1(1)(1), ABAD ARVIND LTD. ABAD (AABCA2398D) 10 ITA 1961/AHD/2018 2015-16 ARVIND LTD. ABAD (AABCA2398D) DCIT, CIRCLE-1(1)(1), ABAD REVENUE BY: SHRI VINOD TANWANI, CIT-D.R. & SHRI R.R. MAKWANA, SR. D.R. ASSESSEE BY: SHRI VARTIK CHOKSHI, A .R. DATE OF HEARING : 04-09-2021 DATE OF PRONOUNCEMENT : 30-09-202 1 I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 2 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE EIGHT APPEALS FILED BY ASSESSEE/REVENUE AND TWO CROSS OBJECTIONS FILED BY ASSESSEE FOR DIFFERENT ASSESSME NT YEARS AS MENTIONED IN CAPTIONED PAGE ARISE FROM THE ORDER OF LD. CIT(A) I N PROCEEDING UNDER INCOME TAX ACT, 1961; IN SHORT THE ACT. SINCE ID ENTICAL ISSUES ON SIMILAR FACTS ARE INVOLVED IN THESE APPEALS, THEREFORE, FOR THE SAKE OF CONVENIENCE ALL THESE APPEALS ARE ADJUDICATED TOGETHER AS FOLLOWS:- ITA NO. 249/AHD/2016 A.Y. 2010-11 FILED BY REVENUE & CROSS APPEAL NO. 43/AHD/2016 FILED BY ASSESSEE 3. THE FACT IN BRIEF IS THAT THE RETURN OF INCO ME DECLARING LOSS OF RS. 107,67,77,438/- WAS FILED ON 14 TH OCTOBER, 2020. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE A CT WAS ISSUED ON 25 TH AUGUST, 2011. ASSESSMENT U/S. 143(3) OF THE ACT WA S FINALIZED ON 29 TH MARCH, 2014. GROUND NO. 1. (DISALLOWANCE OF RS. 11,41,72,708/- U /S. 14A R.W.R. 8D(2)(II) OF THE ACT) AND GROUND NO. 2 OF CROSS OBJ ECTION FILED BY THE ASSESSEE IN SUSTAINING DISALLOWANCE U/S. 14A R.W.R. 8D(2)(II) OF RS. 79,34,022/- 4. DURING THE COURSE OF ASSESSMENT, THE ASSESSIN G OFFICER NOTICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS. 16,78,260/- CLAIMED AS EXEMPT FROM TAX. THE ASSESSEE HAS SUO MOTO DIS ALLOWED EXPENSES OF RS. 3,85,728/- U/S. 14A OF THE ACT. THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAD MADE LARGE INVESTMENT TO THE AMOUNT OF RS. 300.29 CRORES, I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 3 THEREFORE, ASSESSEE WAS ASKED TO FURNISH THE WORKIN G OF DISALLOWANCE U/S. 14A R.W.R. 8D OF THE I.T. RULE, 1962. THE DETAILED SUBMISSION OF THE ASSESSEE IN RESPONSE TO THE AFORESAID QUERY RAISED BY THE ASSESSING OFFICER HAS BEEN REPRODUCED AT THE PAGE NO. 3 AND 4 OF THE ASSESSMENT ORDER. IN ITS SUBMISSION, THE ASSESSEE HAS BRIEFLY STATED THAT IT HAS RECEIVED EXEMPT DIVIDEND INCOME OF RS. 16,78,260/- AND ASSESSEE COM PANY HAS ALREADY MADE DISALLOWANCE OF RS. 3,85,728/- U/S. 14A OF THE ACT. THE ASSESSEE REPORTED THAT THE WORKING OF DISALLOWANCE HAS BEEN MADE AS P ER THE METHOD PRESCRIBED UNDER RULE 8D FOR THE PURPOSE OF COMPUTA TION OF DISALLOWANCE U/S. 14A OF THE ACT. THE ASSESSEE EXPLAINED THAT RS. 3 ,85,728/- HAS RIGHTLY BEEN DISALLOWED U/S. 14A AND NO OTHER EXPENDITURE HAS BE EN INCURRED DURING THE YEAR UNDER CONSIDERATION WHICH WAS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. THE ASSESSEE HAS ALSO STATED THAT MAJORITY OF THE INVESTMENT MADE BY THE ASSESSEE COMPANY WAS STRATEGIC INVESTMENT IN ITS SUBSIDIARY /GROUP COMPANIES OR GENERAL VENDOR, SUCH INVESTMENTS WERE NOT MADE FOR THE PURPOSE OF EARNING EXEMPT INCOME AND THESE INVESTME NTS WERE MADE AS PART OF THE EXPANSION OF ASSESSEES OWN BUSINESS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND STATED THAT ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS FOR THE EXPENDITURE IN CURRED FOR EARNING EXEMPT INCOME AND OPINED THAT THE MANNER OF COMPUTA TION OF SUCH EXPENSES HAS BEEN PRESCRIBED UNDER RULE 8D OF THE I.T. RULE, 1962. THEREFORE, THE ASSESSING OFFICER HAS COMPUTED EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME AS PER RULE 8D OF THE I.T. RULE, 196 2 U/S. 14A OF THE ACT TO THE AMOUNT OF RS. 12,37,95,730/- AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 4 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE TH E LD. CIT(A). THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE U/S. 14A TO THE AMOUNT OF RS. 79,34,022/-. THE RELEVANT PART OF THE DECISION OF THE LD. CIT(A) IS REPRODUCED AS UNDER:- 3.4.1 I OBSERVE THAT APPELLANT HAS MADE INVESTMEN T IN SHARES FROM WHICH EXEMPT INCOME IS EARNED. APPELLANT HAS NOT ESTABLISHED ANY NEXUS BET WEEN UTILIZATION OF 7TEREST-FREE FUNDS AND SUCH INVESTMENT HENCE ARGUMENT OF APPELLANT THAT IT HAS SUFFICIENT INTEREST-FREE FUNDS AVAILABLE WITH IT CANNOT BE ACCEPTED IN VIEW OF RULE 80 BROUGHT TO ST ATUTE BY ASSESSMENT YEAR 2008-09. THE DECISIONS RELIED UPON BY APPELLANT IN SUPPORT OF TH IS CONTENTION ARE PRIOR TO A.Y. 2008-09 I.E. IN THE YEAR IN WHICH RULE 8D WAS NOT ON STATUTE HENCE RATIO OF THESE DECISIONS CANNOT BE MADE APPLICABLE IN CURRENT YEAR. HOWEVER, IT IS OBSERVED THAT INTEREST EXPENDITURE O F RS.186,53,14,250/~, CONSIDERED BY ASSESSING OFFICER FOR MAKING DISALLOWANCE OF INTERE ST EXPENDITURE UNDER RULE 8D(2)(II) OF THE ACT INCLUDES INTEREST ON TERM LOAN, BUYER'S CREDIT, PAC KING CREDIT, OVERDUE INTEREST, TRANSIT PERIOD INTEREST, DISCOUNTING CHARGES, INTEREST PAID TO VEN DORS, ETC., AND SUCH FUNDS CANNOT BE ATTRIBUTABLE TO INVESTMENT ACTIVITIES. ONCE INTEREST EXPENDITURE IS PAID FOR SPECIFIC BUSINESS PURPOSE AND NOT FOR MAKING INVESTMENT IN SHARES, PROPORTIONATE DISALLOW ANCE UNDER RULE 8D(2)(II) CANNOT BE MADE. THE HON'BLE CHENNAI ITAT, IN CASE OF ACIT V/S BEST & CROMPTON ENGINEERING LIMITED (ITA NO 1603/MDS/2012) DATED 16TH JULY 2012 [36 TAXMAN.COM 555] HAS HELD AS UNDER: 'II. SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 ~ EXPENDITURE INCURRED IN RELATION TO INCOME NOT CHAR GEABLE TO TAX [BANK INTEREST] - ASSESSMENT YEAR 2009-10 - ASSESSING OFFICER WHILE COMPUTING DI SALLOWANCE UNDER SECTION 14A READ WITH RULE 8D, INCLUDED BANK INTEREST AND INTEREST ON TERM LOA N - COMMISSIONER (APPEALS) EXCLUDED SAID INTEREST FROM CALCULATION OF DISALLOWANCE AS ASSESS EE HAD UTILIZED BOTH LOANS FOR PURPOSE OF PURCHASE OF MACHINERIES AND FOR EXPANSION OF PROJEC TS AND THESE LOANS WERE SPECIFICALLY SANCTIONED FOR THESE PROJECTS ~ WHETHER COMMISSIONE R (APPEALS) HAD RIGHTLY EXCLUDED SUCH INTEREST FROM PURVIEW OF COMPUTATION OF DISALLOWANC E UNDER RULE 80(2) - HELD, YES [PARA 11] [IN FAVOUR OF ASSESSEE]' FURTHER, KOLKATA I. T.A. T., IN CASE OF REI AGRO LI MITED V/S DC/7 35 TAXMAN.COM 404 HAS HELD AS UNDER: 'RULE 8D(2) HAS THREE SUB-PARTS. THE FIRST SUB-PART I. E. (I) DEALS WITH THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THAT ISSUE IS NOT IN DISPUTE HERE. IN SECOND SUB-PERT I.E. (II), IT IS A COMPUTATION PROVIDED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. T HIS CLEARLY MEANS THAT IF THERE IS ANY INTEREST EXPENDITURE, WHICH IS DIRECTLY RELATABLE TO ANY PAR TICULAR INCOME OR RECEIPT, SUCH INTEREST EXPENDITURE IS NOT TO BE CONSIDERED UNDER RULE 8D(2 )(II). IN THE ASSESSEE'S CASE HERE THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE LOANS TAKEN FR OM THE BANKS FOR ITS BUSINESS PURPOSE. THERE IS NO ALLEGATION FROM THE BANKS OR THE ASSESS ING OFFICER THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING THE INVESTMENT IN SHARES OR FOR NON-BUSINESS PURPOSES. THUS FOR BRINGING ANY INTEREST EXPENDITURE, CLAIMED BY THE ASSESSES, UNDE R THE AMBIT OF RULE 8D(2)(II) IT WILT HAVE TO BE SHOWN BY THE ASSESSING OFFICER THAT THE SAID INTERE ST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT.' IT IS PERTINENT TO NOTE THAT SIMILAR DISALLOWANCE W AS MADE BY ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER FOR A.Y. 2007-08 WHEREIN APPELLANT HAS GIVEN SIMILAR EXPLANATION FOR INTEREST EXPENDITURE AND ITS PURPOSE AND ASSESSING OFFICER H AS ACCEPTED SUCH EXPLANATION AND MADE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A AFTER CONSIDERING INTEREST PAID ON DEBENTURES AND OTHER INTEREST ONLY. IT IS OBSERVED THAT IN A.Y.200 7-08 APPELLANT HAS PAID INTEREST EXPENDITURE OF RS.14829.06 LACS AND ASSESSING OFFICER HAS EXCLUDED SPECIFIC INTEREST OF RS.14696.75 LACS AND MADE DISALLOWANCE OF INTEREST EXPENDITURE AFTER CON SIDERING GENERAL INTEREST OF RS.132.31 LACS. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 5 EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS AP PELLANT HAS SUBMITTED THE BREAK-UP OF INTEREST EXPENDITURE AND PURPOSE FOR WHICH FUNDS WE RE BORROWED AND FROM THE DETAILED BREAK-UP REPRODUCED IN APPELLANT'S SUBMISSION IT IS HELD THA T FOLLOWING EXPENDITURE ARE ON GENERAL BORROWING AND APPELLANT HAS NOT PROVED DIRECT NEXUS WITH BUSINESS ACTIVITY HENCE SUCH INTEREST EXPENDITURE IS CONSIDERED FOR MAKING DISALLOWANCE O F INTEREST AS PER RULE 8D(2)(II). PARTICULARS AMOUNT (RS.) INTEREST ON INTER-CORPORATE DEPOSIT 2,46,28,881 BANK INTEREST 16,39,20,525 OTHERS 1,78,05,891 INTEREST ON DEBENTURES 18,16,401 TOTAL 20,81,71,698 THUS, DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) IS REQUIRED TO BE MADE AFTER ADOPTING INTEREST EXPENDITURE OF RS. 20,81,71,698 AND AFTER CONSIDERI NG OBSERVATIONS MADE FOR NET INTEREST EXPENDITURE IN SUBSEQUENT PARAS. 3.5 IT IS ALSO OBSERVED THAT APPELLANT HAS EARNED I NTEREST INCOME OF RS.35.54 CRORES WHICH IS HIGHER THAN INTEREST EXPENDITURE OF RS.20,81 CRORES WORKED OUT HEREIN ABOVE AND AS BOTH INTEREST INCOME AND EXPENDITURE ARE TAXED AS PART OF INCOME FROM BUSINESS OR PROFESSION, ONLY NET INTEREST EXPENDITURE IS REQUIRED TO BE DISALLOWED UNDER RULE 8D(2)(II). HON'BLE AHMEDABAD I.T.A.T., IN CASE OF SAFE/ REALITY P. LTD. V/S ACIT (OSD) (AY 2010- 11) IN ITA NO. 1842/AHD/2013 VIDE ITS ORDER DATED 29/11/2013 HAS HELD AS UNDER '5.3 UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTAN CES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT WHEN THE INTEREST INCOME WAS MORE THAN THE INT EREST EXPENDITURE THEN THE AO WAS NOT JUSTIFIED TO INVOKE THE PROVISIONS OF SECTION 14A READ WITH R ULE 8D OF IT ACT. WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO DEL ETE THE DISALLOWANCE.' HON'BLE AHMEDABAD MAT., IN CASE OF /TO V/S. ADANI I NFRASTRUCTURE SERVICES PVT. LTD. (AY 2009- 10) IN ITA NO. 1943/AHD/2012 VIDE ITS ORDER DATED 1 7/07/2015 HAS HELD AS UNDER: '7. WE FIND THAT IN THE CASE OF MORGAN STANLEY INDI A SECURITIES LTD VS ACIT (ITA NOS 5072/MUM/2005 AND 6774/MUM/2008; ORDER DATED 13TH A PRIL 2011), A CO-ORDINATE BENCH OF THIS TRIBUNAL HAS HELD THAT FOR THE PURPOSE OF DISALLOWA NCE UNDER SECTION 14A WHAT IS TO BE TAKEN INTO ACCOUNT IS NET AMOUNT DEBITED IN THE PROFIT AND LOS S ACCOUNT AND NOT THE GROSS INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT. SAME WAS THE VIEW OF A NOTHER COORDINATE BENCH IN THE CASE OF DC/TVS TRADE INVESTMENTS LTD (ITA NO. 1277/KO//2011; ORDER DATED 30TH MARCH 2012). VIEWED THUS, THE ACTION OF THE CIT(A) WAS FU//Y JUSTIFIED IN TAKING INTO ACCOUNT ONLY THE NET FIGURE WHICH WAS NIL IN THIS CASE,' CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE, AS AP PELLANT HAS EARNED HIGHER INTEREST INCOME IN COMPARISON WITH INTEREST EXPENDITURE, NO PROPORTIONATE INTEREST DISALLOWANCE UNDER RULE 8(2)(II) IS REQUIRED TO BE MADE AND ADDITION M ADE BY ASSESSING OFFICER FOR RS.11,41,72J08/-IS DELETED. 3.6 SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPEND ITURE UNDER RULE 8D(2)(III) IS CONCERNED, IT IS OBSERVED THAT SAME IS MADE AS PER RULES PRESCRIBED FOR MAKING SUCH DISALLOWANCE. IT IS A/SO OBSERVED THAT APPELLANT HAS MADE NEW INVESTMENTS OF RS.200.23 CRORES WHICH REQUIRES INCURRING OF ADMINISTRATIVE AND GENERAL EXPENDITURE. THE APPE LLANT HAS MADE VERY MINOR DISALLOWANCE OF EXPENDITURE OF RS. 2,88,512, WHICH IS NOT AS PER RU LE 8D HENCE ARGUMENT OF APPELLANT REGARDING NON-DISALLOWANCE OF ANY SUCH EXPENDITURE IS REJECTE D. HOWEVER, AS OBSERVED IN PRECEDING PARAS, INVESTMENTS IN FOREIGN SUBSIDIARIES AND NSC CANNOT BE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A, INVESTMENTS REQUIRED TO BE CONSIDERED FOR MAKING DISALLOWANCE IS REWORKED AT RS.266.51 CRORE AS ON 31ST MARCH, 2010 AND RS. 66.2 8 CRORES AS ON 31ST MARCH, 2009 AND AVERAGE WORKS OUT TO RS.166.39 CRORES ON WHICH DISA LLOWANCE UNDER SECTION 14A READ WITH RULE I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 6 8D(2)(III) BEING 0.5 % OF AVERAGE INVESTMENT WORKS OUT TO RS.83,19,750/-3ND AS APPELLANT HAS ALREADY MADE DISALLOWANCE OF RS.3,85,728/-, DISALLO WANCE UNDER SECTION 14A IS CONFINED TO RS.79,34,022A. IN THE RESULT, ADDITION MADE BY ASSESSING OFFICER FOR RS.12,37,95,730/- IS RESTRICTED TO RS.79,34,022/-. 6. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WITHOUT REITERATING THE FACTS AS ELABORATED ABOVE DURING TH E COURSE OF ASSESSMENT, THE ASSESSING OFFICER HAS COMPUTED DISALLOWANCE OF EXPE NDITURE INCURRED TOWARDS EARNING EXEMPT INCOME IN ACCORDANCE U/S. 14 A R.W.R. 8D OF I.T. RULE, 1962 TO THE AMOUNT OF RS. 12,37,95,730/-. HO WEVER, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS . 79,34,022/- AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE T HAT IT HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT AND THE NATUR E OF THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT RELATED TO INVEST MENT MADE BY IT ON WHICH EXEMPT INCOME EARNED. IT IS UNDISPUTED FACT THAT T HE TOTAL EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDERATION WAS OF R S. 16,78,260/- ONLY. IN THIS REGARD, WE OBSERVED THAT IN A NUMBER OF DECISI ONS THE ITAT AHMEDABAD HAD ADJUDICATED THAT DISALLOWANCE U/S. 14A CANNOT E XCEED THE AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION I.E. IN THE CASE OF JIVRAJ TEA LTD. VS. DCIT ITA NO . 886/AHD/2012 DATED 28 TH AUGUST, 2014 AND DECISION OF ITAT DELHI IN THE CASE OF SAHARA INDIA FINANCIAL CORPORATION LTD. 148 ITD 336. IN THE LIG HT OF THE FACTS THAT ISSUE IN THE INSTANT APPEAL IS SQUARELY COVERED BY JUDICI AL FINDINGS AS SUPRA THAT DISALLOWANCE U/S. 14A CANNOT EXCEED EXEMPT INCOME, THEREFORE, WE RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME OF RS. 16,78,260/- EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE GROUND OF APPEAL OF REVENUE IS DIS MISSED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 7 GROUND NO. 2 ( DELETING EXCESS DEPRECIATION CLAIM OF RS. 26,88,342/-) FILED BY REVENUE 7. DURING THE COURSE OF ASSESSMENT, THE ASSESSIN G OFFICER NOTICED THAT ASSESSEE HAS PURCHASED A CAR AMOUNTING TO RS. 76,80 ,973/- ON WHICH DEPRECIATION OF RS. 38,40,487/- @ 50% WAS CLAIMED. THE ASSESSEE SUBMITTED THAT IT WAS ENTITLED FOR DEPRECIATION @ 50% ON PURC HASE OF NEW COMMERCIAL VEHICLE ON OR AFTER 1 ST JANUARY, 2009 BUT BEFORE 30 TH SEP, 2009 AND PUT TO USE BEFORE 30 TH SEP, 2009. THE ASSESSEE HAS FURTHER SUBMITTED THA T PURCHASED MOTOR CAR WAS OF THE CATEGORY OF NEW COMMERCIAL VEH ICLE ON WHICH IT WAS ENTITLED FOR DEPRECIATION @ 50% AND THE PURCHASED C AR WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT AGREED WITH THE SUBMISSION OF THE ASSESSEE. THE ASSESSING OFFICER HAS STATED THAT AS PER THE PROVISION OF SECTION 32 R.W. APPENDIX ONE O F INCOME TAX RULE HIGHER RATE OF DEPRECIATION IS ALLOWABLE ON THE NEW COMMER CIAL VEHICLE. HE WAS OF THE VIEW THAT THE REQUIREMENT FOR REGISTRATION FOR COMMERCIAL VEHICLE WAS DIFFERENT FROM PRIVATE VEHICLES AND IN THE CASE OF THE ASSESSEE THE VEHICLE ON WHICH HIGHER DEPRECATION CLAIMED WAS NOT REGISTERED AS COMMERCIAL VEHICLE. THEREFORE, THE CLAIM OF DEPRECIATION WAS RESTRICTED TO THE NORMAL RATE OF DEPRECIATION AT 15% AND THE EXCESS CLAIM OF DEPRECI ATION TO THE AMOUNT OF RS. 26,88,342/- WAS ADDED TO THE TOTAL INCOME OF TH E ASSESSEE . 8. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPR ODUCED AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND SUBMISSION FILED BY APPELLANT. THE ASSESSING OFFICER HAS OBSERVED THAT THE APPELLANT H AS PURCHASED CAR AMOUNTING TO RS. 76,80,973/- ON WHICH DEPRECIATION OF RS. 38,40,4877- AT 50% HAS BEEN CLAIMED. FROM THE PROVISION OF SECTION I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 8 32 OF THE ACT READ WITH THE APPENDIX-1 OF THE INCOM E TAX RULES IT CAN BE SEEN THAT THE HIGHER RATE OF DEPRECIATION IS ALLOWABLE ON THE ''NEW COMMERCIA L VEHICLE'. THERE IS DISTINCTION BETWEEN COMMERCIAL VEHICLE AND PRIVATE VEHICLE. THE VEHICLE ON WHICH HIGHER RATE OF DEPRECIATION HAS BEEN CLAIMED IS NOT REGISTERED AS 'COMMERCIAL VEHICLE' W ITH THE RTO AND HENCE THE BENEFIT OF HIGHER RATE OF DEPRECIATION CANNOT BE ALLOWED ON SUCH VEHI CLE. ON THE OTHER HAND, APPELLANT RELIED ON THE NOTIFICATION NO. 10/2009/F NO. 142/01/09-TPL DATED 19.01.2009 ISSUED BY CBDT, IN WHICH IT IS CLEARLY MENTIONED THAT A NEW COMMERCIAL VEHICLE PUR CHASED ON OR AFTER 01.01.2009 BUT BEFORE 30.09.2009 AND PUT TO USE BEFORE 30.09.2009, IS ELI GIBLE TO BE DEPRECIATED AT THE RATE OF 50% PER ANNUM. FURTHER, VIDE NOTIFICATION NO. 37/2009 [F.NO . 142/01/2009-TPL], DATED 21-4-2009, DATE OF PURCHASE OF SUCH VEHICLE WAS EXTENDED UPTO 30/09 /2009. THE APPELLANT HAS REFERRED TO PROVISIONS OF SECTION 32 OF THE ACT AND ARGUED THAT IT HAS SATISFIED THE TWO PIVOTAL CONDITIONS AS UNDER: (I) THE ASSET SHOULD BE WHOLLY AND PARTLY OWN ED BY THE APPELLANT. (II) IT SHOULD BE USED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND PRO FESSION. THE APPELLANT HAS A/SO REFERRED TO FOLLOWING CONDIT IONS LAID DOWN IN THE NOTIFICATION REFERRED SUPRA AND CONTENDED THAT EVEN SUCH CONDITIONS ARE F ULFILLED BY IT: (A) DEPRECIATION AT THE RATE OF 50% CAN BE CLA IMED ON NEW COMMERCIAL VEHICLE. B) IT SHOULD BE USED FOR THE PURPOSE OF BUSINESS A ND PROFESSION. C) IT SHOULD BE ACQUIRED ON OR AFTER 01.01.20 09 BUT BEFORE 01.10.2009 AND SHOULD BE PUT TO USE BEFORE 01.10.2009 D) VEHICLE ACQUIRED SHOULD BE A COMMERCIAL V EHICLE. WITH REFERENCE TO ABOVE CLAIM, THE APPELLANT HAS R ELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) ACIT VS. M/S VOLTAMP TRANS FORMERS LTD, AHMEDABAD ITAT, ITA NO.1676/AHD/2012, VIDE ORDER DATED 22.03.2013 (II) SUNILKUMAR DHULICHAND HUF VS. ACIT (CPC) , BANGALORE, AHMEDABAD ITAT, ITA NO. 454/AHD/2013 VIDE ORDER DATED 11.06.2013 ON CAREFUL CONSIDERATION OF OBSERVATION OF ASSESSIN G OFFICER AND CONTENTION OF APPELLANT, I OBSERVE THAT APPELLANT COMPANY HAS ACQUIRED NEW VEH ICLE BEFORE 30 TH SEPTEMBER, 2009 AND AS PER NOTIFICATION NO 37/2009 (F. NO. 142/01/2009-TPL) DA TED 21/04/2009, DEPRECIATION @ 50% IS ALLOWED IN RESPECT OF COMMERCIAL VEHICLE PURCHASED AND PUT TO USE BETWEEN OF/07/2009 TO 30/09/2009 AND ON THIS BASIS, APPELLANT HAS CLAIMED DEPRECIATION@50% IN YEAR UNDER CONSIDERATION. I FURTHER OBSERVE THAT ISSUE WHETHER VEHICLE PURCHASED BY ASSESSES IS COMMERCIAL VEHICLE OR NOT AS PER APPENDIX OF DEPRECIATION CHAR T GIVEN IN INCOME TAX RULES AND WHETHER ASSESSEE IS ENTITLED TO HIGHER DEPRECIATION OR NOT IS DECIDED IN FAVOUR OF APPELLANT BY HON'BLE AHMEDABAD ITAT IN THE CASE OF M/S VOLTAMP TRANSFORM ERS LTD ITA NO.1676/AHD/2012, VIDE ORDER DATED 22.03.2013 AND HELD AS UNDER: '10.1. THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION OF RS.3,69,604/- ON THE NEW COMMERCIAL VEHICLE PURCHASED. THE AO'S OBJECTION WAS THAT THOS E VEHICLES WERE NOT REGISTERED BY THE RTO 'COMMERCIAL VEHICLE', THEREFORE THE ASSESSEE WAS NO T ENTITLED FOR ADDITIONAL DEPRECIATION CLAIMED @ 50% ON THOSE VEHICLES ACQUIRED DURING THE YEAR. W HEN THE MATTER WAS CARRIED BEFORE THE FIRST, APPELLATE AUTHORITY, ID.CIT(A) HAS EXAMINED THE PRO VISIONS OF MOTOR VEHICLE ACT AND ALLOWED THE CLAIM AS FOLLOWS:- '5.3. DECISION: I HAVE CAREFULLY PERUSED THE ASSESS MENT ORDER AND THE SUBMISSIONS GIVEN BY THE APPELLANT. THE A.O. HAS DISALLOWED THE CLAIM OF DEP RECIATION AT HIGHER RATE AS IT HAS BEEN HELD BY HIM THAT THE VEHICLE WAS NOT A COMMERCIAL VEHICLE. THE A.O. HAS TAKEN THE MEANING OF COMMERCIAL VEHICLE IN COMMON PARLANCE AND HAS HELD THAT COMMER CIAL VEHICLE IS DISTINCT AND DIFFERENT FROM PRIVATE VEHICLE AND THE VEHICLE USED BY THE APPELLA NT IS A PRIVATE VEHICLE. THE APPELLANT HAS SUBMITTED THAT AS PER NOTE NO. 6 TO THE RULES IN AP PENDIX-1, THE WORD COMMERCIAL VEHICLE HAS BEEN DEFINED TO INCLUDE LIGHT MOTOR VEHICLE AS DEFI NED BY MOTOR VEHICLE ACT, 1988. FURTHER, SECTION 2(21) OF THE MOTOR VEHICLE ACT DEFINE THE W ORD LIGHT MOTOR VEHICLE AS- 'LIGHT MOTOR VEHICLE MEANS TRANSPORT VEHICLE OR AMN IBUS. THE GROSS VEHICLE WEIGHT OF EITHER OF WHICH OR A MOTOR CAR OR A TRACTOR OR ROAD ROLLER, T HE UNLADEN WEIGHT OF ANY OF WHICH DOES NOT EXCEED 7500 KG.' I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 9 THE APPELLANT HAS FURTHER SUBMITTED THAT AS PER THE RC BOOK, THE VEHICLE IS LMV AND THE WEIGHT OF THE CAR IS 2074 KG. AND THE UNLADEN WEIGHT IS 1454 KG. WHICH WAS LESS THAN 7500 KG. THEREFORE, THE APPELLANT HAS CLAIMED THAT THE CAR PURCHASED WA S A COMMERCIAL VEHICLE AND APPELLANT WAS ENTITLED TO DEPRECIATION AT HIGHER RATE. AFTER CONS IDERING THE SUBMISSION OF THE APPELLANT AND THE FACTS, I AM INCLINED TO ACCEPT THE SUBMISSION MADE BY THE APPELLANT. THE CLAUSE VI-A OF THE APPENDIX I.E. THE TABLE OF RATES OF WHICH DEPRECIAT ION IS ADMISSIBLE PRESCRIBES THE DEPRECIATION @ 50% FOR NEW COMMERCIAL VEHICLE WHICH IS ACQUIRED ON OR AFTER 01/01/2009 BUT BEFORE 01/04/2009 AND IS PUT TO USE BEFORE 01/04/2009 FOR THE PURPOSE OF BUSINESS OR PROFESSION. FURTHER PARAGRAPH 6 OF THE NOTE BELOW THE TABLE DEFINES COMMERCIAL VE HICLES WHICH INCLUDES LIGHT MOTOR VEHICLES AS PER THE MOTOR VEHICLE ACTS, THE SPECIFICATIONS FOR WHICH ARE PRODUCED IN THE PRECEDING PARAGRAPH, THEREFORE, IT IS CLEAR THAT THE APPELLANT IS ENTITL ED FOR DEPRECIATION @ 50% WHICH WAS GIVEN AS AN INCENTIVE FORA SHORT PERIOD BETWEEN 01/01/2009 TO ; - '04/2009 BUT THE PERIOD WAS LATER ON EXTENDED UPTO 01/10/2009. THE VEHICLE PURCHASED BY THE APPEL LANT FULFILLS ALL THE CONDITIONS PRESCRIBED IN (HE INCOME TAX ACT AND THE RELATED MOTOR VEHICLE AC T AND FALLS WITHIN THE DEFINITION OF COMMERCIAL VEHICLE. THE ACT HAS NOWHERE PRESCRIBED THAT A COMMERCIAL VEHICLE SHOULD BE A VEHICLE WHICH IS USED FOR THE PURPOSE OF HIRE. IT O NLY PRESCRIBES THAT THE VEHICLE SHOULD BE USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE APPELLANT IS, THEREFORE, ENTITLED FOR THE DEPR ECIATION @50%. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED.' 11. ON HEARING BOTH THE SIDES, WE ARE OF THE CONSID ERED VIEW THAT ID. CIT(A) HAS RIGHTLY INTERPRETED THE RELEVANT PROVISIONS OF MOTOR VEHICL E ACT, WHEREIN THE WORD 'COMMERCIAL VEHICLE' HAS BEEN DEFINED. ONCE THE RELEVANT ACT HAS GIVEN A SPECIFICATION IN RESPECT OF A PARTICULAR TYPE OF VEHICLE, THEN THERE IS NO SCOPE LEFT TO INTERPRET T HE COMMERCIAL VEHICLE AS PER COMMON PARLANCE OR COMMON UNDERSTANDING. THE FINDING IN THIS REGARD OF ID. CIT(A) IS HEREBY CONFIRMED. THIS GROUND OF THE REVENUE IS DISMISSED.' 9. HEARD BOTH THE SIDES AND PERUSED THE MATERIA L ON RECORD. THE LD. CIT(A) HAS DELETED THE ADDITION AFTER FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE ITAT AHMEDABAD ON IDENTICAL ISSUE AND SIMILAR FACTS IN THE CASE OF VOLTAMP TRANSFORMERS LTD. ITA 1676/AHD/2012 DATED 22 ND MARCH 2013 AND THE DECISION OF ITAT AHMEDABAD IN THE CASE OF SUNIL KUMAR DHULICHAND HUF VS. ACIT (CPC) BANGALORE ITA 454/AHD /2013 AS ELABORATED IN HIS FINDINGS SUPRA IN THIS ORDER. FOLLOWING THE DECISION OF CO-ORDINATE BENCH, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A), THEREFORE, THIS GROUND OF APPEAL OF THE REV ENUE IS DISMISSED. GROUND NO. 3 (DELETING DISALLOWANCE OF EXCISE DUTY OF RS. 6,51,16,385/-) FILED BY REVENUE 10. AT THE TIME OF ASSESSMENT, THE ASSESSING O FFICER NOTICED THAT ASSESSEE HAS CLAIMED EXCISE DUTY CLAIM ADJUSTED AGAINST SECU RITIES PREMIUM ACCOUNT I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 10 AMOUNTING TO RS. 3,67,71,030/- AND RS. 2,83,45,355/ - RESPECTIVELY. ON QUERY, THE ASSESSEE EXPLAINED THAT THE SAME HAS NOT BEEN CHARGED TO P & L ACCOUNT RATHER IT HAS BEEN SET OFF AGAINST THE SHAR E PREMIUM ACCOUNT AS PER THE SCHEME OF CAPITAL REDUCTION SANCTION BY HIGH CO URT OF GUJARAT DATED 15 TH FEB, 2013 BEING AN ITEM OF SECTION 43B OF THE ACT. IT HAS BEEN CLAIMED ON PAYMENT BASIS. THE DETAILED EXPLANATION OF THE AS SESSEE VIDE SUBMISSION DATED 27.01.2014 IS REPRODUCED AS UNDER:- '8. YOUR GOOD SELF HAS ASKED THE ASSESSES COMPANY T O EXPLAIN THE ALLOW/ABILITY OF EXCISE DUTY CLAIM OF RS. 3,67,71,030/- AND RS.2,83,45,355/-. IN THIS REGARD, THE. ASSESSEE COMPANY SUBMITS THAT THE SAID LIABILITY HAS NOT BEEN CHARGED TO P&L ACCOUNT; BUT IT HAS BEEN CREATED BY CHARGING IT AGAINST SHARE PREMIUM ACCOUNT AS PER THE SCHEME OF CAPITAL REDUCTION SANCTIONED BY HIGH COURT OF GUJARAT DATED 15/12/2013. BEING AN ITEM OF SECTION 43B OF THE ACT IT HAS BEEN CLAIMED ON PAYMENT BASIS. IN THIS CONNECTION, IT IS SUBMITTED THAT THE SAID LIABILITY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND HAS BEEN SETTLED IN THE SAME YEAR ITSELF. ACCORDINGLY, THE SAME HAS BEEN CLAIMED ON PAYMENT BASIS AS PER THE PROVISIONS OF SECTION 4 38 OF THE ACT. SINCE IT HAS NOT BEEN CHARGED TO PROFIT & LOSS ACCO UNT FOR THE YEAR UNDER CONSIDERATION, IT HAS BEEN CLAIMED SEPARATELY IN THE RETURN OF INCOME ON PAYMENT BASIS. THE ASSESSEE HAD ALREADY SUBMITTED THE DETAILS OF THE SAID EXCISE DUTY CLAIM VIDE SUBMISSION DATED 19/12/2013. HOWEVER, IT RESUBMITS THE SAME VIDE ANNEXURE-8. SINCE THE PAYME NT HAS ALREADY MADE DURING THE YEAR, THE SAID AMOUNT DOES NOT FORM PART OF OUTSTANDING LIABI LITIES AT THE END OF THE YEAR, AS REPORTED IN ENCLOSURE-8 OF TAX AUDIT REPORT.' FURTHER, THE ASSESSEE WAS SUBMITTED VIDE SUBMISSION DATED 29/01/2U14 SUBMITTED AS UNDER:- YOUR GOOD SELF HAS ASKED THE ASSESSEE COMPANY TO FU RNISH THE PROOF OF PAYMENT OF EXCISE DUTY CLAIM OF RS.6,51,16,385/-. [SHOWN IN THE COMPUTATIO N OF INCOME AS RS.3,67,71,030/- AND RS.2,83,45,355/-]. THE CLAIM HAS BEEN MADE AS PER T HE PROVISIONS OF SECTION 43B AS THE LIABILITY HAS BEEN SETTLED BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THE DETAILS ARE AS UNDER:- PARTICULAR AMOUNT (RS.) THE ISSUE UNDER CONSIDERATION WAS IN RELATION TO RE -CREDIT OF S.2,48,59,319/- IN VIOLATION OF CENVAT CREDIT RULES, 2002. THE ASSE SSES COMPANY HAD FREEZED THE SAID AMOUNT FROM THE CENVAT CREDIT ACCOUNT TOWA RDS THE FINAL LIABILITY ARISING IN THE SAID MATTER ON WE OUTCOME OF THE FIN AL DECISION. THE COPY OF LETTER, DATED 13/11/2009, ADDRESSED TO THE COMMISSI ONER OF CENTRAL EXCISE, AHMEDABAD-II; INFORMING ABOUT THE SAID AMOUNT SO FR EEZED UNDER PROTEST IS ATTACHED HEREWITH VIDE ANNEXURE-2. THE COPY OF CENV AT CREDIT REGISTER FOR THE PERIOD FROM 01/11/2009 TO 13/11/2009 SHOWING TH E DEBIT ENTRY OF RS. 2,48 : 59,319/- IS ATTACHED HEREWITH VIDE ANNEXURE-2A. 1,72,21,030/- THE FINAL ORDER OF THE COMMISSIONER OF CENTRAL EXCI SE, AHMEDABAD-II WAS ISSUED ON 04/05/2010, WHEREIN THE FINAL LIABILITY A RRIVED AT RS. 1, 72, 21, 030/-- THE COPY OF THE SAID ORDER IS ATTACHED HEREW ITH VIDE ANNEXURE-2B. PURSUANT TO THE ORDER SO RECEIVED, THE ASSESSEE ADJ USTED THE SAID LIABILITY AGAINST THE LIABILITY FROZEN (RS.2,48,59,319/-). TH E COPY OF LETTER, DATED 25/05/2010, INFORMING THE COMMISSIONER OF CENTRAL E XCISE, AHMEDABAD- II ABOUT THE ADJUSTMENT OF LIABILITY AND PAYMENT OF IN TEREST THEREON IS ATTACHED I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 11 HEREWITH VIDE ANNEXURE-2C. IT WAS A/SO INTIMATED TH AT THE BALANCE OF RS. 76, 38, 289/- WILL BE UTILIZED IN DUE COURSE. IN THIS C ONTEXT, THE COPY OF CENVAT CREDIT REGISTER FOR THE PERIOD FROM 01/05/2010 TO 3 0/05/2010 SHOWING THE CREDIT ENTRY OF RS. 76,38, 289/- IS ATTACHED HEREWI TH VIDE ANNEXURE-2D. PURSUANT TO ORDER RECEIVED BY THE ASSESSEE, AS MENT IONED ABOVE, WHEREIN THE FINAL LIABILITY OF EXCISE WAS ARRIVED AT RS. 1, 72, 2 1, 030/-, THE ASSESSEE WAS LIABLE TO PAY THE INTEREST THEREON AMOUNTING TO RS. 18,42,068/-. THE COPY OF CHALLAN, DATED 25/02/2010 REFLECTING THE SAID PAYME NT IS ATTACHED HEREWITH THE ANNEXURE-3 18,42,068/- PURSUANT TO THE ORDER NO. V.52/15-66/OFF /OA2004-05 OF THE COMMISSIONER OF CENTRAL EXCISE, THE EXCISE DUTY T O THE TUNE OF RS.4,16,41,543/- AND INTEREST OF RS. 44, 11, 7447- .WAS REVERSED/PAID. THE COPY OF THE SAID ORDER IS ATTACHED HEREWITH VIDE AN NEXURE-4 4,16,41,543/- FURTHER, THE COPY OF LETTER, DATED 13/05/2010, INFO RMING THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE REGARDING THE REVERS AL OF DUTY AND INTEREST IS ATTACHED HEREWITH VIDE ANNEXURE-4A. FURTHER, THE CO PY OF CHALLANS REFLECTING THE PAYMENT OF EXCISE DUTY AND INTEREST IS ATTACHED HEREWITH ANNEXURE-48 44,11,744 TOTAL CLAIM OF EXCISE DUTY 6,51,16,385 IN RESPONSE TO THE SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE GOT CREDIT OF CENVAT CREDIT BUT ACTUALLY IT HAS NOT MADE ANY PAYMENT DURING THE YEAR, THEREFORE, ASSESS EE WAS ASKED TO EXPLAIN WHY THE SAME SHOULD NOT BE DISALLOWED. IN THIS RE GARD, THE ASSESSEE HAS MADE SUBMISSION VIDE LETTER DATED 22 ND MARCH, 2014, THE SAME IS REPRODUCED AS UNDER:- '7. EXPLANATION REGARDING CLAIM FOR EXCISE DU TY YOUR GOOD SELF HAS ASKED THE ASSESSEE COMPANY TO EX PLAIN AS TO WHY THE CLAIM OF EXCISE DUTY AMOUNTING TO RS.6,51,16,385/- SHOULD NOT BE DISALLO WED SINCE THE SAME IS NOT ACTUALLY PAID DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO STATED BY YOUR GOODSELVES THAT THE SAME IS NOT EVEN REPORTED IN THE TAX AUDIT REPORT. 7.1 IN THIS CONNECTION, IT IS SUBMITTED THAT THE AS SESSEE HAS EXPLAINED THE ACCOUNTING TREATMENT OF EXCISE DUTY AND THE NECESSARY JUSTIFICATIONS FOR AL LOWABILITY OF THE CLAIM OF EXCISE DUTY, EXPLAINING THE BACKGROUND OF THE TRANSACTION VIDE SUBMISSION D ATED 27/01/2014. THE SAME IS NOT REPEATED HERE FOR THE SAKE OF BREVITY. HOWEVER, IT IS REITER ATED THAT CENVAT CREDIT HAS BEEN WRITTEN OFF IS A BUSINESS LOSS OCCURRED DURING THE COURSE OF BUSINES S AND HENCE ALLOWABLE AS DEDUCTION WHILE COMPUTING THE BUSINESS INCOME FOR THE YEAR UNDER CO NSIDERATION. 7.2 WITH REGARDS TO THE QUERY AS TO NO PAYMENT HAS BEEN MADE IN RESPECT OF THE EXCISE DUTY CLAIMED WHILE COMPUTING THE BUSINESS INCOME, THE AS SESSEE WOULD LIKE TO BRING TO YOUR REFERENCE THE FACT THAT THE PAYMENT OF EXCISE DUTY CAN BE MAD E //, FOLLOWING TWO WAYS. A) BY DEBITING THE PLA ACCOUNT. - IN THIS CA SE, PLA ACCOUNT IN MAINTAINED WITH - THE EXCISE DEPARTMENT; WHEREIN THE DEBIT BALANCE IS MAINTAI NED BY MAKING PAYMENT THROUGH CASH OR BANK. PAYMENT OF EXCISE DUTY CAN BE MADE THROUGH SUCH ACC OUNT I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 12 B) BY UTILIZING THE CENVAT CREDIT - IN THIS CASE, E XCISE DUTY PAYABLE ON SALES IS ADJUSTED AGAINST THE CENVAT CREDIT RECEIVABLE WHICH HAS BEEN AVAILED ON PURCHASES. THE RECORDS OF SUCH CENVAT CREDIT IS MAINTAINED IN RG 23 REGISTER AS PER THE EXCISE L AW. 73 IN THE INSTANT CASE, CENVAT CREDIT IN RESPECT OF THE EXCESS ELECTRICITY CLEARED OUTSIDE THE FACTORY AT THE CONTRACTUAL RATES WAS IN DISPUTE AND THE SAM E WAS SETTLED AGAINST THE ASSESSEE; WHEREIN IT WAS HELD THAT CENVAT CREDIT ATTRIBUTABLE TO INPUTS USED FOR THE GENERATION OF ELECTRICITY PASSED ON / SOLD OUT BY THE ASSESSEE TO AHOKA SPINTEX AND ARVIN D POLYCOT LIMITED IS REQUIRED TO BE REVERSED/PAID. THE COPIES OF THE ORDERS, WHEREIN TH E SAID MATTER WAS SETTLED HAVE ALREADY BEEN SUBMITTED VIDE SUBMISSION DATED 29/01/2014. IN VIEW OF THE ORDERS SO RECEIVED, THE ASSESSEE HAS REVERSED/PAID CENVAT CREDIT ATTRIBUTABLE TO THE GENERATION OF ELECTRICITY SOLD OUT BY IT. FURTHER, THE INTEREST THEREON HAS ALSO BEEN PAID AND THE PROOFS REGARDING THE SAME HAVE ALREADY BEEN SUBMITT ED VIDE SUBMISSION DATED 29/01/2014, 7.4 IN THE INSTANT CASE, THE PAYMENT HAS BEEN MADE BY WAY OF UTILIZING CENVAT CREDIT BALANCE AND THEREFORE THE SAME IS DEEMED TO BE PAID. HAD THE AS SESSEE WAS NOT HAVING BALANCE IN CENVAT CREDIT RECEIVABLE IT WOULD HAVE MADE THE PAYMENT RESPECT OF SUCH LIABILITY SETTLED, BY PLA ACCOUNT HOWEVER, THE ASSESSE WAS HAVING ENOUGH CENVAT CREDI T RECEIVABLE AND THEREFORE THE PAYMENT HAS BEEN MADE BY ADJUSTING AGAINST THE CENVAT CREDIT. 7.5 IN ADDITION, IT IS TO BE NOTED THAT THE ASSESSE E IS FOLLOWING AN EXCLUSIVE METHOD OF ACCOUNTING WHEREIN THE PURCHASE AND SALES ARE SHOWN AT NET OF EXCISE DUTIES. IT SHALL BE NOTED THAT HAD THE CENVAT CREDIT ATTRIBUTABLE TO THE GENERATION OF ELE CTRICITY SOLD OUT BY THE ASSESSEE WAS NOT AVAILED IN THE RELEVANT YEAR; THEN THE SAME WOULD HAVE FORM ED PART OF FUEL EXPENSE, DEBITED TO PROFIT AND LOSS ACCOUNT, IN THE RELEVANT YEAR AND THEREBY ALLO WED TO THE ASSESSEE WHILE COMPUTING THE BUSINESS INCOME. 7.6 IN ADDITION TO ABOVE, THE ASSESSEE COMPANY SUBM ITS THAT THE SAID LIABILITY HAS NOT BEEN CHARGED TO P&L ACCOUNT; BUT IT HAS BEEN CREATED BY CHARGING IT AGAINST SHARE PREMIUM ACCOUNT AS PER THE SCHEME OF CAPITAL REDUCTION SANCTIONED BY HIGH COUR T OF GUJARAT DATED 15/12/2013. SINCE IT HAS NOT BEEN CHARGED TO PROFIT & LOSS ACCOUNT FOR THE Y EAR UNDER CONSIDERATION, IT HAS BEEN CLAIMED SEPARATELY IN THE RETURN OF INCOME ON PAYMENT BASIS . FURTHER, WITH REGARDS TO THE OBSERVATION AS TO WHY THE SAME HAS NOT BEEN REPORTED IN THE TAX AUDIT REPORT, IT IS SUBMITTED THAT THE SAID LIABILI TY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND HAS BEEN SETTLED IN THE SAME YEAR ITSELF. ACCOR DINGLY, THE SAME DOES NOT FORM PART OF OUTSTANDING LIABILITIES AT THE END OF THE YEAR, AS REPORTED IN ENCLOSURE-8 OF TAX AUDIT REPORT 7.7 MOREOVER, IT SHALL BE NOTED THAT CLAUSE 22(A) O F THE TAX AUDIT REPORT IS IN RESPECT OF AMOUNT OF MODVAT/CENVAT CREDIT AVAILED OF OR UTILIZED DURING THE PREVIOUS YEAR AND ITS TREATMENT IN THE PROFIT AND LOSS ACCOUNT AND TREATEMENT OF THE OUTSTANDING MODVAT/CENVAT CREDIT IN THE ACCOUNTS. THE DETAILS THEREOF HAVE BEEN REPORTED IN ENCLOSURE-9 T O THE TAX AUDIT REPORT. IT HAS BEEN CLEARLY MENTIONED THAT THE EXCISE DUTY PAID ON RAW MATERIAL S IS DEBITED TO THE MODVAT CREDIT RECEIVABLE ACCOUNT AND THE EXCISE DUTY PAYABLE IS ADJUSTED AGA INST THE MODVAT CREDIT RECEIVABLE ACCOUNT- IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE REVE RSAL OF CENVAT CREDIT IS DEEMED TO BE PAYMENT AND THEREFORE THE SAME CANNOT BE DISALLOWED.' HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE STATING THAT THE ASSESSEE HAS REVERSED THE CENVAT CREDIT ON THE ORDER OF EXCISE DEPARTMENT AND THE SAME WAS NOT CER TIFIED BY THE AUDITOR IN HIS REPORT IN FORM 3CD. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS NOT PAID EXCISE DUTY ACTUALLY, THEREFORE, THE S AME WAS NOT ALLOWABLE U/S. 43B OF THE ACT. THEREFORE, THE CLAIM OF EXCISE DUT Y ADJUSTED AGAINST I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 13 SECURITIES PREMIUM ACCOUNT AMOUNTING RS. 6,51,16,38 5/- (RS. 3,67,71,030 + RS. 2,83,45,355/-) WAS DISALLOWED AND ADDED TO TOTA L INCOME OF THE ASSESSEE. 11. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE TH E LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER:- 7.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND SUBMISSION FILED BY APPELLANT. THE BRIEF FACTS PERTAINING TO ABOVE ADDITION MADE BY AS SESSING OFFICER ARE THAT THE APPELLANT HAD BEEN USING NAPHTHA AS FUEL IN GAS TURBINE FOR THE GENERA TION OF ELECTRICITY. A PART OF THE ELECTRICITY SO GENERATED WAS FOR CAPTIVE CONSUMPTION IN THE MANUFA CTURE OF FINAL PRODUCT AND PART OF ELECTRICITY SO GENERATED WAS WHEELED (SOLD) OUT TO ASHOKA SPINT EX AND ARVIND POLYCOT LIMITED. THE CENVAT CREDIT ON FUEL USED IN THE GENERATION OF ELECTRICIT Y IS ADMISSIBLE FOR ELECTRICITY USED WITHIN THE FACTORY FOR PRODUCTION I.E. INPUTS USED FOR GENERAT ION OF ELECTRICITY CLEARED OUTSIDE THE FACTORY IS NOT ENTITLED FOR CENVAT CREDIT. THE APPELLANT HAD A CCORDINGLY REVERSED CENVAT CREDIT OF DUTY AVAILED ON INPUT NAPTHA ATTRIBUTABLE TO THE ELECTRI CITY PASSED ON TO OTHER ENTITIES. HOWEVER, FROM MARCH 2004, THE APPELLANT STOPPED REVERSING CREDIT AND ALSO SUO MOTU TOOK RE-CREDIT OF CENVAT CREDIT REVERSED BY THEM EARLIER FOR CERTAIN PERIOD. HOWEVER, ISSUE PERTAINING TO MATTER OF RE-CREDIT OF EXCISE DUTY WAS IN DISPUTE AND IT WAS ULTIMATELY HELD THAT CENVAT CREDIT ATTRIBUTABLE TO INPUTS USED FOR GENERATION OF ELECTRICITY SOLD TO ASHOKA S PINTEX AND ARVIND POLYCOT IS REQUIRED TO BE REVERSED/PAID AND AMOUNT OF RS. 6,51,16,385/- WAS P AID TO EXCISE AUTHORITY BY ADJUSTING CENVAT RECEIVABLE ACCOUNT. THE APPELLANT HAS CLAIMED ABOVE REFERRED ADJUSTMENT OF EXCISE BALANCE AGAINST SECURITIES PREMIUM A/C AMOUNTING TO RS. 3,6 7,71,030/- AND RS. 2,83,45,355/- IN BALANCE SHEET AND SAME WAS CLAIMED AS LOSS IN RETURN OF INC OME. THIS CLAIM OF APPELLANT WAS NOT ACCEPTED BY ASSESSING OFFICER ON THE GROUND THAT IT HAS NOT PAID EXCISE DUTY. THE APPELLANT HAS REVERSED THE CENVAT CREDIT ON THE ORDER OF EXCISE DEPARTMENT. TH E SAME WAS NOT CERTIFIED BY THE AUDITOR IN HIS REPORT IN FORM NO. 3CD REPORT. THE APPELLANT HAS FOLLOWED MERCANTILE SYSTEM AND NOT PAID EXCISE DUTY ACTUALLY. THE DEDUCTION U/S 436 OF THE ACT IS AVAILABLE IN RESPECT OF ANY SUM PAYABLE BY WAY OF T AX OR DUTY UNDER ANY LAW FOR THE TIME BEING IN FORCE OR ANY SUM PAYABLE BY THE ASSESSES ONLY IF TH E SAME IS ACTUALLY PAID BY THE ASSESSEE. THUS, THE CLAIM OF EXCISE DUTY ADJUSTED AGAINST SECURITIE S PREMIUM A/C IS ADDED TO THE TOTAL INCOME OF THE APPELLANT AS THE SAME IS NOT ACTUALLY PAID BY THE A PPELLANT ON THE OTHER HAND, APPELLANT HAS ARGUED THAT IS FOLLOWING AN EXCLUSIVE METHOD OF ACC OUNTING THE PURCHASE AND SALES IN THE PROFIT AND LOSS ACCOUNT ARE REFLECTED AT NET OF EXCISE DUT IES. IT WAS FURTHER SUBMITTED THAT MANNER IN WHICH PAYMENT OF EXCISE DUTY CAN BE MADE IS EITHER BY DEBITING THE PLA ACCOUNT OR BY UTILIZING THE CENVAT CREDIT. THE ASSESSING OFFICER HAS DISALLOWED THE CENVAT CREDIT SO REVERSED ON THE GROUND THAT ACTUAL PAYMENT HAS NOT BEEN MADE WHICH IS A PRE-REQUISITE FOR ADMISSIBILITY FOR THE EXPENSES COVERED U/S 438 OF THE ACT. IT WAS ALSO SU BMITTED THAT CREDIT MEANS A SUBSEQUENT CLAIM OF SET-OFF FOR SOMETHING PAID EARLIER. WHEN CENVAT CRE DIT RECEIVABLE IS ADJUSTED AGAINST CENVAT PAYABLE/EXCISE DUTY, IT IS DEEMED TO BE A PAYMENT. THE MAIN REASON FOR INSERTION OF CENVAT (ERSTWHILE MODVAT) WAS TO ENSURE THAT CASCADING EFF ECT OF TAX DOES NOT TAKE PLACE AND TAX ON TAX IS NOT LEVIED IN THE CHAIN OF GOODS PRODUCED BY A M ANUFACTURER BEING PASSED THROUGH VARIOUS HANDS AND ULTIMATELY REACHING THE END OR FINAL CONS UMER. WHEN THE CENVAT CREDIT INITIALLY RECEIVABLE WAS SUBSEQUENTLY REVERSED, THE NATURE OF SUCH REVERSAL WOULD BE EXCISE DUTY PAYABLE HENCE IT COULD BE SET-OFF AGAINST CENVAT RECEIVABLE . ADJUSTMENT OF CENVAT CREDIT DEEMED TO BE ONE OF THE MODES OF PAYMENT OF EXCISE DUTY UNDER EX CISE RULES AND SUCH ADJUSTMENT MADE BY APPELLANT IS NOT DISPUTED BY EXCISE AUTHORITIES. TH E APPELLANT RELIES ON THE FOLLOWING DECISIONS: I) HAWKINS COOKERS LTD. VS ITO, 14 DTR 206 ( MUMBAI ITAT) I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 14 II) ACIT VS KAISER INDUSTRIES LTD. (DELHI ITAT) [2 011] 10 TAXMANN.COM 133 ITA NO. 555/DEL/2010 DATED 18.02.2011 III) CIT VS SHAKTI SPRING INDUSTRIES PVT. LTD. (JHARKHAND HIGH COURT) [2013] 39 TAXMANN.COM 19 SO FAR AS ARGUMENT OF ASSESSING OFFICER THAT THE AP PELLANT HAS REVERSED THE CENVAT CREDIT ON THE ORDER OF EXCISE DEPARTMENT BUT THE SA ME IS NOT CERTIFIED BY THE AUDITOR IN HIS REPORT IN FORM NO. 3CD REPORT, APPELLANT HAS DRAWN ATTENTION TO CLAUSE 22FA) OF THE TAX AUDIT REPORT WHICH IS IN RESPECT OF AMOUNT OF MODVAT/CENVAT CRED IT AVAILED OF OR UTILIZED DURING THE PREVIOUS YEAR AND ITS TREATMENT IN THE PROFIT AND L OSS ACCOUNT AND TREATMENT OF THE OUTSTANDING MODVAT/CENVAT CREDIT IN THE ACCOUNTS. IT HAS BEEN C LEARLY MENTIONED THAT THE EXCISE DUTY PAID ON RAW MATERIALS IS DEBITED TO THE MODVAT CREDIT RE CEIVABLE ACCOUNT AND THE EXCISE DUTY PAYABLE IS ADJUSTED AGAINST THE MODVAT CREDIT RECEI VABLE ACCOUNT. 7.5 ON CAREFUL CONSIDERATION OF ENTIRE FACTS IT IS OBSERVED THAT APPELLANT WAS REQUIRED TO PAY EXCISE DUTY OF RS. 6,51,16,385/- ON THE GROUND THAT IN EARLIER ASSESSMENT YEARS IT HAS WRONGLY TAKEN CENVAT CREDIT PERTAINING TO INPUTS USED FOR G ENERATION OF ELECTRICITY WHICH IS SOLD TO OUTSIDE PARTIES. IT IS OBSERVED THAT APPELLANT HAS BEEN CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING HENCE AT THE TIME OF TAKING CREDIT OF CE NVAT APPELLANT HAS ALREADY CLAIMED EXPENDITURE NET OF SUCH CENVAT CREDIT HENCE WHEN IT IS HELD THAT APPELLANT IS NOT ENTITLED TO SUCH CENVAT CREDIT IN VIEW OF SUBSEQUENT ORDERS OF EXCIS E AUTHORITIES, JOSS IS BUSINESS LOSS FOR APPELLANT. THE ONLY DISPUTE RAISED BY ASSESSING OFF ICER IS THAT AS APPELLANT HAS NOT MADE PAYMENT OF SUCH EXCISE DUTY THROUGH CHEQUE OR UTILIZING PLA BUT UTILIZED CENVAT CREDIT RECEIVABLE ACCOUNT, IT IS NOT ENTITLED TO CLAIM IT AS EXPENDIT URE IN YEAR UNDER CONSIDERATION. THIS OBSERVATION OF ASSESSING OFFICER CANNOT BE ACCEPTED AS EXCISE A CT ITSELF PROVIDES PAYMENT MECHANISM OF EXCISE DUTY EITHER THROUGH PLA OR UTILIZATION OF CENVAT CR EDIT. WHEN APPELLANT IS UTILIZING CENVAT CREDIT BALANCE AVAILABLE WITH IT AS PER MECHANISM P ROVIDED IN EXCISE ACT, IT IS IN FACT REDUCING CENVAT CREDIT AVAILABLE WITH IT AND TO THAT EXTENT PAYMENT IS ALREADY MADE TO EXCISE AUTHORITIES. WHETHER UTILIZATION OF SUCH CENVAT CREDIT IS ELIGIB LE FOR DEDUCTION UNDER SECTION 438 OR NOT IS ALREADY HELD IN FAVOUR OF APPELLANT BY HON'BLE MUMB AI ITAT IN THE CASE OF HAWKINS COOKERS LIMITED V/S ITO 14DTR 206 WHEREIN IT IS HELD AS UND ER: 'IN CASE OF WHERE THERE IS NO ACTUAL PAYMENT BUT A DJUSTABLE AGAINST MODVAT ACCOUNT, WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 43B. FOR THIS PURPOSE, WE WOULD LIKE TO REFER TO THE DECISION OF ITAT SPEC IAL BENCH, CHANDIGARH IN THE CASE OF DY. C/T V GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED 107 IT D 343 (CHD)(SB) WHEREIN IT WAS HELD THAT THE MODVAT BALANCE AS SUCH DOES NOT AMOUNT TO PAYME NT. THE BALANCE BECOMES EQUIVALENT TO PAYMENT ONLY AT THE POINT OF TIME THE ASSESSEE EXER CISES HIS OPTION TO SET OFF THE BALANCE AGAINST THE CENTRAL EXCISE LIABILITY AND NOT BEFORE. IT IS TO NOTE THAT THE ISSUE PERTAINING TO SIMPLE ADJUSTMENT OF BALANCE IN MODVAT ACCOUNT WAS BEFORE THE ITAT SPECIAL BENCH, CHANDIGARH. WHILE GIVING EFFECT OF SECTION 145A, THE ADJUSTMENT OF BALANCE IN MODVAT ACCOUNT WAS NOT BEFORE THE ITAT SPECIAL BENCH, CHANDIGARH. IN CASES WHERE THERE ARE STATUTORY COMPELLATION UNDER SECTION 145A TO GIVE ADJUSTMENT IN CLOSING ST OCK, IN SUCH CASES IT HAS TO PRESUME THAT THE ASSESSES HAS EXERCISED HIS OPTION TO SET OFF AGAINS T MODVAT ACCOUNT. ON THE BASIS OF THE RATIO LAID DOWN BY THE ITAT SPECIAL BENCH CHANDIGARH IN T HE CASE OF DY. CIT V GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED 107 ITD 343(CHD)(SB) IT IS TO BE PRESUMED THAT THE ASSESSES EXERCISES HIS OPTION TO SET OFF MODVAT ACCOUNT AGAI NST EXCISE LIABILITY, WHICH AMOUNTS TO PAYMENT OF EXCISE DUTY AND ACCORDINGLY THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 43B.' THE SIMILAR OBSERVATION IS ALSO MADE IN DECISION OF DELHI ITAT IN THE CASE OF ACIT VS KAISER INDUSTRIES LIMITED REFERRED IN APPELLANT'S S UBMISSION. EVEN HON'BLE SUPREME COURT WHILE DEALING WITH ISSUE UNDER EXCISE ACT IN THE CASE OF EICHER MOTORS LIMITED VS UNION OF INDIA (SUPRA) HAS HELD THAT IF UNEXPIRED MODVAT CREDIT IS SET OFF AGAINST EXCISE DUTY PAYABLE, THE LIABILITY IS EXTINGUISHED AND IT IS HELD THAT SUCH SET OFF IS AS GOOD AS EXCISE DUTY PAID. IT IS A/SO OBSERVED THAT EVEN TAX AUDITOR HAS GIVEN AGGREGATE UTILIZATION OF CENVAT CREDIT IN YEAR UNDER CONSIDERATION IN TAX AUDIT REPORT WHICH INCLUDES REVERSAL OF CENV AT CREDIT AND PAYMENT THEREOF AGAINST I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 15 AVAILABLE CENVAT CREDIT BALANCE HENCE ARGUMENT OF A SSESSING OFFICER THAT SUCH TREATMENT IS NOT CERTIFIED BY AUDITOR IS INCORRECT. SO FAR AS DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS MARUTI UDYOG LIMITED 186 TAXMANN 49 RELIED UPON BY ASSESSING OFFICER IT IS APPROPRIATE TO REPRODUCE THE DECISION RENDERED BY COURT AS UNDER: 1, THOUGH THE HIGH COURT HAS ADMITTED THE APPEAL AN D THOUGH IT HAS FRAMED QUESTIONS OF LAW, IT IS THE GRIEVANCE OF THE DEPARTMENT THAT THE FOLLOWING QUESTIONS HAVE ALSO ARISEN FOR DETERMINATION BY THE HIGH COURT AND THEY HAVE NOT BEEN FORMULATED FO R DECISION UNDER SECTION 260A OF THE INCOME- TAX ACT, 1961. THE SAID QUESTIONS ARE AS FOLLOWS : '(I)WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDIN G THAT UNUTILIZED MODVAT CREDIT OF EARLIER YEARS ADJUSTED IN THE ASSESSMENT YEAR IN QUESTION S HOULD BE TREATED AS ACTUAL PAYMENT OF EXCISE DUTY UNDER SECTION 43B OF THE INCOME-TAX ACT, 1961. (II)WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDIN G THAT CUSTOMS DUTY PAID AND ALLOWED AS A DEDUCTION UNDER SECTION 43B CANNOT BE ADDED TO THE VALUE OF THE CLOSING STOCK.' 2. TO THIS EXTENT, THE DEPARTMENT SUCCEEDS AND ACCORDINGLY WE DIRECT T HE HIGH COURT TO DECIDE THE ABOVE QUESTIONS UNDER SECTION 260A IN THE INCOME-TAX APPEAL PENDING BEFORE IT (ITA 1683 OF 2006).' THUS, IT IS VERY CLEAR THAT HON'BLE SUPREME COURT H AS DIRECTED DELHI HIGH COURT TO INSIDER AND DECIDE THE QUESTION OF LAW PENDING BEFORE IT ALONG WITH ABOVE QUESTION OF LAW AND NOT HELD THAT ADJUSTMENT OF UNUTILIZED MODVAT CREDIT OF EARLIER Y EAR IS NOT ACTUAL PAYMENT OF EXCISE AUTHORITIES AS OBSERVED BY ASSESSING OFFICER. IT IS OBSERVED THAT EVEN REFERENCE WAS MADE TO SUPREME COURT FOR THE CASE WHERE ASSESSEE HAS CLAIM ED ADVANCE PAYMENT OF EXCISE DUTY AS DEDUCTION UNDER SECTION 43B WHEREAS IN THE APPELLAN T'S CASE, IT HAS UTILIZED AVAILABLE CENVAT CREDIT BALANCE FOR MAKING PAYMENT OF EXCISE DUTY WH ICH ACTUALLY REPRESENTS PAYMENT OF EXCISE DUTY. IT IS FURTHER OBSERVED THAT ABOVE LIABILITY OF EXCISE IS RAISED IN YEAR UNDER CONSIDERATION WAS SETTLED BY UTILIZING CENVAT CREDIT DURING THE YEAR UNDER CONSIDERATION ITSELF AND IF THE CONTENTION OF THE ASSESSING OFFICER IS ACCEPTED, ENTIRE UTILI ZATION OF CENVAT CREDIT BALANCE FOR MAKING PAYMENT OF EXCISE DUTY ARISING OUT OF SALE MADE DUR ING THE YEAR WOULD BE ALLOWED AS DEDUCTION AS THERE IS NO 'PAYMENT AS ALLEGED BY ASSESSING OFFIC ER AND THIS IS NOT THE INTENTION OF PROVIDING CENVAT MECHANISM UNDER THE EXCISE ACT. IN THE PRESE NT CASE IT IS OBSERVED THAT APPELLANT WAS HAVING CENVAT BALANCE WITH EXCISE AUTHORITIES WHICH IS NOTHING BUT EXCISE PAYMENT AT THE TIME OF PURCHASE OF GOODS/MATERIALS AND IT HAD UTILIZED SUC H BALANCE FOR MAKING PAYMENT OF CENVAT REFERRED SUPRA AND AFTER SUCH UTILIZATION, ITS AVAI LABLE BALANCE WITH EXCISE AUTHORITIES HAVE GOT REDUCED AND THE SAME IS NOTHING BUT PAYMENT OF EXCI SE TO CONCERNED AUTHORITIES. THUS, FOR THE REASONS STATED HEREIN ABOVE, DISALLOWANCE OF RS. 6, 57,76,385/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 12. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT ASSESSING OFFICER HAS RIGHTLY RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. MARUTI UDHYOG LTD. 186 TAXMAN 49. THE LD. DEPARTMENTAL R EPRESENTATIVE HAS ALSO QUOTED CIVIL APPLICATION NO. 1923 OF 2018 OF HONBL E SUPREME COURT 114 TAXMAN.COM 129 SC DATED 7 TH FEB, 2020. THE LD. DEPARTMENTAL REPRESENTATIVE HAS REFERRED PARA 16 OF THE ORDER AN D CONTENDED THAT UNREALIZED CREDIT UNDER MODVAT IS NOT QUALIFIED FOR DEDUCTION U/S. 43B OF I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 16 THE ACT. ON THE OTHER HAND, THE LD. COUNSEL HAS R EFERRED PAGE NO. 60 OF THE ORDER OF LD. CIT(A) AND SUBMITTED THAT ASSESSEE HAS UTILIZED ENTIRE BALANCE OF CENVAT CREDIT FOR MAKING PAYMENT AND FACTS IN THE C ASE OF ASSESSEE ARE ENTIRELY DIFFERENT FROM THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF MARUTI UDHYOG LTD. IN THIS REGARD, THE HONBLE SU PREME COURT HELD THAT AS THE LIABILITY TO PAY EXCISE DUTY UNDER THE EXCISE A CT ARISES ON MANUFACTURE/REMOVAL OF FINISHED GOODS FROM THE FACT ORY, AMOUNT OUTSTANDING UNDER MODVAT ACCOUNT WAS NOT ELIGIBLE F OR DEDUCTION U/S. 43B. IT WAS MERELY THE EXPENDITURE OF EXCISE DUTY THAT HAS SHIFTED FROM THE MANUFACTURE TO THE PURCHASER AND NOT THE LIABILITY TO THE SAME. THEREFORE, IT WAS CONCLUDED THAT THE UNUTILIZED CREDIT UNDER MODV AT SCHEME DID NOT QUALIFY FOR DEDUCTION U/S. 43B WHEREAS IN THE CASE OF ASSESSEE THE FACTS ARE ENTIRELY DIFFERENT, THE ASSESSEE HAD BEEN USING NAP THA AS FUEL IN GAS TURBINE FOR THE GENERATION OF ELECTRICITY. A PART OF ELECT RICITY GENERATED WAS FOR CAPTIVE CONSUMPTION IN THE MANUFACTURE OF FINAL PRO DUCT AND PART OF ELECTRICITY SO GENERATED WAS SOLD OUT TO ASHOKA SPI NTEX AND ARVIND POLYCOT LTD. THE CENVAT CREDIT ON THE FUEL USED FOR THE G ENERATIONAL OF ELECTRICITY WAS ADMISSIBLE FOR ELECTRICITY USE WITHIN THE FACTO RY, FOR PRODUCTION FOR EXAMPLE INPUT USE FOR GENERATION OF ELECTRICITY CLE ARED OUTSIDE THE FACTORY IS NOT ENTITLED FOR CREDIT. THEREFORE, THE ASSESSEE H AD ACCORDINGLY REVERSED CENVAT CREDIT OF DUTY AVAILED ON INPUT NAPTHA ATTRI BUTABLE TO THE ELECTRICITY PASSED ON TO OTHER ENTITIES. HOWEVER, FROM MARCH, 2014 THE ASSESSEE STOPPED REVERSING CREDIT AND ALSO SUO MOTT O TOOK RE-CREDIT OF CENVAT CREDIT REVERSED BY THEM EARLIER FOR CERTAIN PERIOD. HOWEVER, THE MATTER WAS IN DISPUTE AND ULTIMATELY IT WAS HELD TH AT CENVAT CREDIT ATTRIBUTABLE TO INPUT USED FOR GENERATION OF ELECTR ICITY SOLD TO ASHOKA SPINTEX I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 17 AND ARVIND POLYCOT LTD. IS REQUIRED TO BE REVERSED /PAID, THEREFORE, AN AMOUNT OF RS. 6,51,16,385/- WAS REVERSED/PAID TO EX CISE AUTHORITY BY ADJUSTING CENVAT RECEIVABLE ACCOUNT. THE LD. COUN SEL HAS FURTHER SUBMITTED THAT DECISION OF HONBLE SUPREME COURT IN THE CASE OF MARUTI UDHYOG LT, RELIED UPON BY THE ASSESSING OFFICER WAS NOT RELATED TO THE ISSUE PERTAINED TO THE CASE OF THE ASSESSEE. THE LD. COU NSEL HAS RELIED UPON THE DECISION OF LD. CIT(A). 13. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. THE ASSESSEE HAS BEEN USING NAPTHA AS FUEL GAS TURBINE FOR THE G ENERATION OF ELECTRICITY. A PART OF THE ELECTRICITY SO GENERATED WAS FOR CAPTIV E CONSUMPTION FOR THE MANUFACTURE OF FINAL PRODUCT AND PART OF THE ELECTR ICITY SO GENERATED WAS SOLD OUT TO ONE OF SISTER CONCERNS OF THE ASSESSEE. TH E CENVAT CREDIT OF FUEL USED FOR THE GENERATION OF ELECTRICITY IS ADMISSIBL E FOR ELECTRICITY USED WITHIN THE FACTORY FOR PRODUCTION I.E. INPUT USED FOR GENE RATION OF ELECTRICITY CLEARED OUTSIDE THE FACTORY IS NOT ENTITLED FOR CENVAT CRED IT. THEREFORE, THE ASSESSEE HAS REVERSED CENVAT CREDIT OF DUTY AVAILED ON INPUT NAPTHA ATTRIBUTABLE TO THE ELECTRICITY PASSED ON TO OTHER ENTITIES. HOWEVER, FROM MARCH, 2004 THE ASSESSEE STOPPED REVERSING CREDIT O F CENVAT WHICH WAS EARLIER REVERSED BY IT FOR CERTAIN PERIOD. THE MA TTER WAS IN DISPUTE AND IT HAS BEEN HELD BY THE EXCISE AUTHORITY THAT THE CENVAT A TTRIBUTABLE TO INPUT USED FOR GENERATION OF ELECTRICITY WHICH WAS SOLD T O OTHER ENTITIES WAS REQUIRED TO BE REVERSED. THERE WOULD BE NO CENVAT CREDIT ON INPUT (NAPTH) USED FOR GENERATING ELECTRICITY SOLD TO OTH ER ENTITIES. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS NOT MADE ANY PAYMENT OF EXCISE DUTY THROUGH CHEQUE OR UTILIZING P & L ACCOUNT THER EFORE THE ASSESSEE WAS I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 18 NOT ENTITLED TO CLAIM OF EXCISE DUTY EXPENDITURE DU RING THE YEAR UNDER CONSIDERATION. THE ISSUE HAS BEEN DISCUSSED IN DET AIL IN THE FINDING OF LD. CIT(A) AS ELABORATED IN THIS ORDER, THAT ASSESSEE W AS REQUIRED TO PAY EXCISE DUTY OF RS. 6,51,16,385/- ON THE GROUND THAT IN EAR LIER ASSESSMENT YEAR IT HAD WRONGLY TAKEN CENVAT CREDIT PERTAINING TO INPUT USE D FOR GENERATION OF ELECTRICITY WHICH WAS SOLD TO OUTSIDE PARTIES. THE SAME WAS SETTLED BY UTILIZING CENVAT CREDIT DURING THE YEAR UNDER CONSI DERATION. THE ASSESSEE HAS FOLLOWED EXCLUSIVE METHOD OF ACCOUNTING AS PURC HASES AND SALES IN THE P & L A/C ARE REFLECTED AT NET OF EXCISE DUTIES. THE CENVAT CREDIT RECEIVABLE IS SHOWN IN THE BALANCE SHEET UNDER THE HEAD LOAN AND ADVANCES. SINCE THE EXCISE AUTHORITY HELD THAT CENVAT CREDIT ON FUEL USED FOR GENERATION OF ELECTRICITY SUPPLIED TO THE OUTSIDE E NTITIES IS NOT AVAILABLE THEREFORE THE ASSESSEE HAS ADJUSTED CENVAT CREDIT R ECEIVABLE AGAINST CENVAT PAYABLE/EXCISE DUTY. THE ASSESSEE HAS EXERC ISED HIS OPTION TO SET OFF CENVET CREDIT AGAINST EXCISE LIABILITY, WHICH A MOUNTS TO PAYMENT OF EXCISE DUTY, THEREFORE, ASSESSEE IS ENTITLED TO DED UCTION U/S. 43B OF THE ACT. AS REFERRED IN PARA 12 OF THIS ORDER, THE FACTS IN THE CASE OF THE ISSUE ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE LAW CITE D BY THE LD. DR IN THE CASE OF CIT VS. MARUTI VDYGO LTD. 86 TAXMAN AS IN THAT C ASE THE ASSESSEE HAS CLAIMED ADVANCE PAYMENT OF EXCISE DUTY AS DEDUCTION UNDER SECTION 43B WHEREAS IN THE CASE OF THE ASSESSEE AS ELABORATED A BOVE THE ASSESSEE HAS USED THE CENVAT CREDIT BALANCE FOR MAKING PAYMENT OF EXC ISE DUTY. THE RECORDS OF CENVAT CREDIT IS MAINTAINED IN RG 23 REGISTER AS PER EXCISE LAW AND ADJUSTMENT OF CENVAT CREDIT IS ONE OF THE MODE OF P AYMENT OF EXCISE DUTY UNDER EXCISE RULE. CONSIDERING THE ABOVE FACTS AND FINDINGS, WE DO NOT FIND I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 19 ANY INFIRMITY IN THE DECISION OF LD. CIT(A). ACCOR DINGLY, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. GROUND NO. 3 (ADDING QUANTUM OF DISALLOWANCE U/S. 14A FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT) OF CROSS OBJECTI ON FILED BY ASSESSEE 14. AT THE OUTSET, THE LD. COUNSEL SUBMITTED TH AT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AS PER THE DECISION OF SPECI AL BENCH OF ITAT IN THE CASE OF THE ACIT VS. VINIT INVESTMENT PVT. LTD. (20 17) 82 TAXMAN.COM 415 WHEREIN IT IS HELD THAT EXPENSES INCURRED TO EARN E XEMPT INCOME NOT TO BE ADDED FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE A CT. THE LD. DEPARTMENTAL REPRESENTATIVE IS FAIR ENOUGH NOT TO C ONTROVERT THESE UNDISPUTED FACT THAT ISSUE IS SQUARELY COVERED BY T HE DECISION OF SPECIAL BENCH. FOLLOWING THE DECISION OF SPECIAL BENCH AS ABOVE, WE CONSIDER THAT DISALLOWANCE MADE U/S. 14A IS NOT REQUIRED TO BE AD DED FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. THEREFORE, THIS GRO UND OF CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. GROUND NO. 4 (DISALLOWANCE OF RS. 61,19,869/- ON AC COUNT OF EMPLOYEES CONTRIBUTION ) OF CROSS OBJECTION FILED BY ASSESSEE 15. DURING THE COURSE OF ASSESSMENT, THE ASSES SING OFFICER OBSERVED THAT ASSESSEE HAS FAILED TO DEPOSIT EMPLOYEES CONTRIBUT ION TO PROVIDENT FUND AND ESIC BEFORE DUE DATE PRESCRIBED UNDER RELEVANT PROV ISIONS OF THE SAID ACTS. THEREFORE, IN ACCORDANCE WITH THE PROVISION OF SECT ION 36(1)(VA) R.W.S. 2(24)(X), THE ASSESSING OFFICER MADE DISALLOWANCE O F RS. 61,19,869/-. THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 20 16. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. IT IS OBSERVED THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT 3 66 ITR 170 WHEREIN IT IS HELD THAT WHERE AN EMPLOYER HAS NOT CREDITED SUM RE CEIVED BY IT AS EMPLOYEES CONTRIBUTION TO EMPLOYEES ACCOUNT IN REL EVANT FUND ON OR BEFORE DUE DATE AS PRESCRIBED IN EXPLANATION TO SECTION 36 (1)(VA), THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF SUCH AMOUNT, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A). ACCORDINGLY, THIS G ROUND OF CROSS OBJECTION IS DISMISSED. 17. GROUND NO. 5:- THIS GROUND OF APPEAL PERTA INS TO INITIATION OF PENALTY IS PREMATURE AT THIS STAGE AND THE SAME STANDS DISM ISSED. ITA NO. 2057/AHD/2016 FILED BY REVENUE & ITA NO. 18 46/AHD/2016 FILED BY ASSESSEE GROUND NO. 1 (DELETING THE ADDITION OF RS. 4,41,77, 801/- ON ACCOUNT DISALLOWANCE U/S. 14A) FILED BY REVENUE GROUND NO. 1.1 TO 2 (SUSTAINING PART OF THE DISALL OWANCE OF INTEREST EXPENDITURE OF RS. 3,97,291/- U/S. 14A R.W.R. 8D OF THE ACT) FILED BY ASSESSEE 18. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 1 OF APPEAL VIDE ITA NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILA R AS IN ITA NO. 2057/AHD/2016 ASSESSMENT YEAR 2011-12, THER EFORE, AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 249/AHD/2016 AS SUPRA IN THIS ORDER, THE DISALLOWAN CE IS RESTRICTED TO I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 21 EXEMPT INCOME EARNED BY THE ASSESSEE TO THE AMOUNT OF RS. 52,37,680/-. THEREFORE, THE APPEAL FILED BY THE REVENUE ON THIS ISSUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS PARTLY ALLO WED. GROUND NO. 2 (DELETING ADDITION U/S. 14A FOR COMPUT ING BOOK PROFIT U/S. 115JB) FILED BY REVENUE 19. AS THE FACTS AND ISSUE INVOLVED IN GROUND N O. 3 OF APPEAL VIDE C.O. NO. 43/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILAR AS IN ITA NO. 2057/AHD/2016 ASSESSMENT YEAR 2011-12, THEREFOR E, AFTER APPLYING THE DECISION ADJUDICATED VIDE C.O. NO. 43/ AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE R EVENUE IS DISMISSED. GROUND NO. 3 (DELETING THE ADDITION OF RS. 14,06,33 9/- MADE U/S. 41(1) OF THE ACT) FILED BY ASSESSEE 20. DURING ASSESSMENT, THE ASSESSING OFFICER NOTI CED THAT ASSESSEE HAS SHOWN SUNDRY CREDITORS OF RS. 506.16 CRORES. ON PE RUSAL OF THE DETAIL FILED, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHO WN SUNDRY CREDITORS IN RESPECT OF SIX PARTIES AS ON 31 ST MARCH, 2009, 31 ST MARCH, 2010, 31 ST MARCH, 2011, 28 TH FEB, 2015 TO THE AMOUNT OF RS. 14,06,339/-. THE A SSESSING OFFICER ASKED THE ASSESSEE THAT WHY THIS LIABILITY SHOULD NOT BE PRESUMED TO BE CEASED IN VIEW OF THE FACT THAT TILL DATE THE AM OUNT DUE TO SUCH PARTIES HAS NOT BEEN PAID. THE ASSESSEE EXPLAINED THAT THIS LI ABILITY IS STILL EXISTED AND THE SAME HAS NOT TO BE CEASED. THE ASSESSING OFFI CER HAS NOT AGREED WITH THE SUBMISSION OF THE ASSESSEE AND DISALLOWED THE A MOUNT OF RS. 14,06,339/- I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 22 AS DEEMED INCOME OF THE ASSESSEE AS PER PROVISION O F SECTION 41(1) OF THE ACT. 21. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSEE. 22. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT ASSESSEE HAS NOT WRITTEN BACK THE AFORESAID LIABILITY AND IT IS STILL SHOWN IN THE BOOKS OF ACCOUNT AS PAYABL E. THEREFORE, CONSIDERING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT O F GUJARAT IN THE CASE OF CIT VS. BOGILAL KAMJIBHAI ATARA (2014) 43 TAXMAN.CO M 55, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A) LD. CIT (A) SINCE THERE WAS NOTING ON RECORD TO INDICATE THAT THERE WAS CESSATION OF L IABILITY DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THIS GROUND OF AP PEAL OF THE REVENUE IS DISMISSED. GROUND NO. 4 (DELETING ADDITION OF RS. 14,40,165/- MADE ON ACCOUNT OF DEPRECIATION OF MOTORCAR VEHICLE @15%) FILED BY REV ENUE 23. AS THE FACTS AND ISSUE INVOLVED IN GROUND N O. 2 OF APPEAL VIDE ITA NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILAR AS IN ITA NO. 2057/AHD/2016 ASSESSMENT YEAR 2011-12, THEREFOR E, AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2057 /AHD/2016 AS SUPRA IN THIS ORDER, THIS APPEAL OF THE REVENUE IS DISMISSED. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 23 GROUND NO. 5 (DELETING THE ADDITION OF RS. 80,37,73 9/- MADE ON ACCOUNT OF TREATING EXPENDITURE ON REPAIRS ON PLANT AND MAC HINERY AS CAPITAL EXPENDITURE) FILED BY REVENUE 24. DURING ASSESSMENT, THE ASSESSING OFFICER NOT ICED THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 76.21 CRORES ON ACCOUNT OF MACHINERY REPAIR TO P & L. ON PERUSAL OF THE DETAIL FILED, THE ASSESSING O FFICER WAS OF THE VIEW THAT EXPENSES TO THE AMOUNT OF RS. 86,89,448/- PAID TO M OUVO PIGNONE ON ACCOUNT OF SPARE PARTS WAS NOT ON ACCOUNT OF CURRE NT REPAIRS BUT WAS ON ACCOUNT OF ASSETS WHICH WAS HAVING ENDURING BENEFIT . THE ASSESSEE EXPLAINED THAT THESE EXPENDITURE WAS OF THE NATURE OF REPAIR TO MAINTAIN A ALREADY EXISTING ASSET. HOWEVER, THE ASSESSING OFF ICER WAS OF THE VIEW THAT PURCHASING OF SPARE PARTS TO THE AMOUNT OF RS. 86,8 9,448/- WAS OF THE NATURE OF ENDURING BENEFIT, THEREFORE, THE ASSESSING OFFIC ER HAS CAPITALIZED THE SAME AFTER PROVIDING DEPRECIATION @ 15% TO THE ASSESSEE. THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE AFTER PLACING RE LIANCE ON THE DECISION OF ITAT AHMEDABAD IN THE CASE OF BANCO PRODUCT LTD. ( ITA NO. 1105/AHD/2020 DATED 25 TH OCTOBER, 2010) 25. HEARD BOTH THE SIDES AND PERUSED THE MATERIA L ON RECORD. WITHOUT REITERATING THE FACTS AS ABOVE, THE ASSESSING OFFIC ER HAS DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE AS INCURRED ON REPAIR/MAINTENANCE ON PLANT AND MACHINERY. IT IS CLEAR FROM THE FACTS A S ELABORATED ABOVE IN THE FINDING OF LD. CIT(A) THAT THE ASSESSEE HAS INCURRE D THE EXPENDITURE FOR REPAIRING OF EXISTING SPARE PARTS AS EVIDENT FROM T HE INVOICES AND DETAIL OF CONTRACT NOTE MENTIONED IN THE FINDING OF LD. CIT(A ). THE REVENUE HAS NOT CONTROVERTED THE FACTS REPORTED IN THE FINDING OF T HE LD. CIT(A), THEREFORE, I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 24 FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE ITAT AS REFERRED BY THE LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE DEC ISION OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STA NDS DISMISSED. GROUND NO. 6 (DELETING THE ADDITION OF RS. 59,27,64 0/- MADE ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPENDITURE) 26. DURING THE COURSE OF ASSESSMENT, THE ASSESS ING OFFICER OBSERVED THAT ASSESSEE HAS INCURRED COMMISSION AND BROKERAGE EXPE NDITURE OF RS. 29.16 CRORES AND CLAIMED COMMISSION EXPENDITURE PERTAIN ING TO ASSESSMENT YEAR 2010 OF RS. 59,29,640/- IN THE CURRENT YEAR WITHOUT ESTABLISHING THAT SUCH EXPENDITURE WAS CRYSTALISED IN THE CURRENT YEAR. T HE ASSESSEE EXPLAINED THAT IT HAS BEEN CONSISTENTLY MAKING PROVISION FOR COMMI SSION EXPENDITURE ON MERCANTILE BASIS ON YEAR TO YEAR BASIS AT THE END OF FINANCIAL YEAR ON THE BASIS OF SALE MADE IN THAT FINANCIAL YEAR. AT THE BEGINNING OF NEXT ACCOUNTING YEAR SUCH PROVISION IS REVERSED AND WHEN PARTY RAISED BILL FOR COMMISSION, EXPENDITURE IS DEBITED IN COMMISSION AC COUNT HENCE ABOVE COMMISSION IS SETTLED AGAINST PROVISION MADE IN EAR LIER YEAR AND EXPENDITURE IS NOT A PRIOR PERIOD EXPENDITURE. THE ASSESSING O FFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AND STATED THAT SUCH EXPENDITURE PERTAINED TO THE EARLIER YEAR. 27. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD . CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVA NT PART OF THE DECISION OF THE LD. CIT(A) IS REPRODUCED AS UNDER:- 7.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION FILED BY THE APPELLANT THE ASSESSING OFFICER HAS OBSERVED THAT APPELLANT H AS INCURRED COMMISSION AND BROKERAGE EXPENDITURE OF RS.2016 CRONES AND ON THE BASIS OF D ETAILS SUBMITTED BY APPELLANT, IT WAS FOUND THAT I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 25 APPELLANT HAS CLAIMED COMMISSION EXPENDITURE PERTAI NING TO A.Y.2010 FOR RS.59,27,640/- IN CURRENT YEAR WITHOUT ESTABLISHING THAT SUCH EXPENDI TURE WAS CRYSTALLIZED IN CURRENT YEAR. ON THE OTHER HAND, APPELLANT HAS RELIED UPON SUBMISSION DA TED 25 TH MARCH, 2015 FILED BEFORE ASSESSING OFFICER WHEREIN IT WAS EXPLAINED THAT APPELLANT IS CONSISTENTLY MAKING PROVISIONS FOR COMMISSION EXPENDITURE ON MERCANTILE BASIS ON YEAR TO YEAR BAS IS AT THE END OF FINANCIAL YEAR ON THE BASIS OF SALES MADE IN THAT FINANCIAL YEAR. AT THE BEGINNING NEXT ACCOUNTING YEAR, SAID PROVISION IS REVERSED AND WHEN PARTY RAISES BILL FOR COMMISSION, EXPENDITURE IS DEBITED IN COMMISSION ACCOUNT HENCE ABOVE COMMISSION IS SETTLED AGAINST PROVISION MADE IN EARLIER YEAR AND EXPENDITURE IS NOT A PRIOR PERIOD EXPENDITURE. IT IS ALSO ARGUED THAT EV EN IF IT IS HELD THAT EXPENDITURE PERTAINS TO PRECEDING ASSESSMENT YEAR, SAME NEED TO BE ALLOWED IN CURRENT YEAR AS EFFECTIVE TAX RATE FOR BOTH ASSESSMENT YEARS REMAINED THE SAME. ON CAREFUL CONSIDERATION OF ENTIRE FACTS, IT IS OBS ERVED THAT APPELLANT PROVIDES FOR 'COMMISSION PAYABLE ON SALES AT YEAR END AND EXPENDITURE IS DEB ITED IN THE YEAR TO WHICH IT RELATES. ON THE BASIS OF SUCH ACCOUNTING POLICY IT HAS PROVIDED FOR AGGREGATE PROVISION OF RS. 1.44 CRORES IN A.Y. 2010-11. THE PROVISIONS MADE IN A.Y. 2010-11 IS REV ERSED IN A.Y. 2011-12 ON 1 ST APRIL, 2010 WHICH MEANS THAT LEDGER ACCOUNT OF COMMISSION EXPEN DITURE IS CREDITED BY REVERSAL OF PROVISION MADE IN EARLIER YEAR. AGAINST ABOVE PROVISION APPEL LANT HAS RECEIVED BILL OF COMMISSION AGENT IN CURRENT YEAR AND SUCH EXPENDITURE IS DEBITED AS COM MISSION EXPENDITURE IN CURRENT YEAR AND TDS IS ALSO DEDUCTED. AS EXPENDITURE OF RS. 59,27,640/- IS LOWER THAN PROVISION MADE IN EARLIER YEAR, IN FACT, APPELLANT HAS NOT CLAIMED SUCH EXPENDITURE IN CURRENT YEAR BUT SAME WERE CLAIMED IN EARLIER YEAR TO WHICH IT RELATES. CONSIDERING THIS FACT, IT IS OBSERVED THAT ASSESSING OFFICER IS INCORRECT IN OBSERVING THAT APPELLANT HAS CLAIMED PRIOR PERIOD E XPENDITURE IN CURRENT ASSESSMENT YEAR. IT IS ALSO OBSERVED THAT ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF SUCH EXPENDITURE AND IF SUCH EXPENDITURE PERTAINS TO EARLIER YEAR, IT CA N BE ALLOWED AS EXPENDITURE IN SAID ASSESSMENT YEAR AND EVEN THIS EXERCISE IS TAX NEUTRAL AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF VISHNU INDUSTRIAL GLASSES AND SHRIRAM PISTON & RING S LTD. IT IS ALSO OBSERVED THAT HON'BLE AHMEDABAD ITAT IN THE CASE OF ADANI ENTERPRISES LIM ITED (ITA NO. 1859/AHD/2011, DATED 1 ST JANUARY, 2016) HAS HELD AS UNDER: '5. WE HAVE HEARD RIVAL CONTENTIONS. PAGE 13TO 16 OF THE PAPER BOOK COMPRISE ALL DETAILS OF ASSESSEE'S PRIOR PERIOD EXPENDITURE AMOU NTING TO RS. 67,88,591/- FALLING UNDER MAJOR HEADS OF C & F, MISC. EXPENDITURE, OUTWARD FREIGHT AND TRAVELLING ETC. ITS LEDGER ACCOUNTS REVEALS THAT THE SAME HAVE BEEN RECOGNIZED ON VARIOUS DATES FROM 01-04-2005 TO 31-03-2006. THERE IS HARDLY ANY DISPUTE ON GENUINENESS ASPECT OF THE ABO VE STATED EXPENDITURE HEADS. THIS IS NOT THE REVENUE'S CASE THAT THE SAME IS CAPITAL EXPENDITURE OTHERWISE NOT ALLOWABLE U/S. 37 OF THE ACT. BOTH THE LOWER AUTHORITIES NOWHERE REBUT ASSESSEE'S CASE THAT IT HAS BEEN FOLLOWING PAST PRACTICE OR THE ISSUE STANDS DECIDED IN ITS FAVOUR IN EARLIE R ASSESSMENT YEARS. CASE LAW (1958) 33 ITR 681 (BOM) CIT VS. NAGRI MILLS CO, LTD HOLDS THAT WHEN A N ASSESSES COMPANY IS ASSESSED AT UNIFORM RATE, YEAR OF RAISING AN EXPENDITURE CLAIM IS OF NO CONSEQUENCE, MORE PARTICULARLY, WHEN THE SAME IS ALLOWABLE. NEXT JUDGMENT (2010) 194 TAXMANN 158 (DEL) CIT VS. JAGATJIT INDUSTRIES ACCEPTS CONSISTENT ACCOUNTING PRACTICE CLAIMING IDENTICAL E XPENDITURE IN MERCANTILE SYSTEM OF ACCOUNTING WHEREIN THE NECESSARY EXPENDITURE VOUCHERS HAVE BEE N RECEIVED AFTER 31ST MARCH OF THE RELEVANT ACCOUNTING PERIOD. CASE LAW (2014) 221 TAXMANN 80 ( BOM) CIT VS. MAHANAGAR GAS LTD SUPPORTS ASSESSEE'S CASE THAT PRIOR PERIOD EXPENDIT URE CRYSTALLIZE DURING THE YEAR ON RECEIPT OF BILLS IS ALLOWABLE. THIS IS FOLLOWED BY (2010) 328 ITR 17 (DEL) CIT VS. EXXON MOBIL LUBRICANTS PVT. LTD UPHOLDING CIT(A)'S AND TRIBUNAL'S VIEW THA T IF THE ASSESSES ADMITS PRIOR PERIOD INCOME WHICH WAS NOT EXCLUDED WHILE WORKING OUT RELEVANT P REVIOUS YEAR INCOME, IT IS UNREASONABLE TO ALLOW ONE PART OF PRIOR PERIOD ADJUSTMENT I.E. PRIO R PERIOD EXPENDITURE. WE COME TO REVENUE'S CASE LAW NOW. THE FIRST ONE IS (2013) 33 TAXMANN.COM 92 (BANG) BEARING POINT BUSINESS SOLUTIONS VS. DCIT AND (2013) 35 TAX MANN.COM (HYD) NOW BHARAT VENTURES LTD VS. CIT DECIDING THE ISSUE IN REVENUE'S FAVOUR. WE FIND THAT THESE TRIBUNAL'S DECISIONS DO NOT CONFIRM TO DIFFERENT VIEWS OF VARIOUS HON'BLE HIGH COURTS H EREINABOVE. NEXT CASE LAW (2013) 42 TAXMANN.COM 142 (GUJ) CIT VS. GUJARAT MINERAL DEVEL OPMENT CORPORATION IS AN ADMISSION ORDER AFTER FRAMING SUBSTANTIAL QUESTION OF LAW WHEREIN T HE MAIN CASE IS STILL PENDING FOR FINAL DISPOSAL. WE OBSERVE THAT THIS LATTER ORDER DOES NOT SETTLE A RATIO. WE TAKE INTO ACCOUNT ABOVE STATED I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 26 DISCUSSIONS, RELEVANT FACTS AND CASE LAW TO CONCLUD E THAT BOTH THE LOWER AUTHORITIES HAVE WRONGLY DISALLOWED ASSESSEE'S CLAIM OR PRIOR PERIOD EXPENDI TURE. THE SAME STANDS DELETED. THIS FIRST SUBSTANTIVE GROUND IS TREATED AS ALLOWED.' CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE, ADDIT ION OF RS.59.27640/- IS DELETED. THIS AROUND OF APPEAL IS ALLOWED. 28. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. IN VIEW OF THE DECISION OF HONBLE CO-ORDINATE BENCH OF THE IT AT IN THE CASE OF ADANI ENTERPRISES AS ELABORATED IN THE FINDING OF LD. CIT (A) AS ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 4 ( ADDITION OF RS. 65,80,813/- ON ACCO UNT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESI) FILED BY AS SESSEE 29. AS THE FACTS AND ISSUE INVOLVED IN GROUND N O. 4 OF APPEAL VIDE C.O. NO. 43/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILAR AS IN ITA NO. 1846/AHD/2016 ASSESSMENT YEAR 2011-12, THEREFOR E, AFTER APPLYING THE DECISION ADJUDICATED VIDE C.O. NO. 43/ AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. GROUND NO. 5 (ADDITION OF RS. 1,84,89,600/- ON ACCO UNT OF WRITTEN OFF STOCK) FILED BY ASSESSEE 30. DURING THE COURSE OF ASSESSMENT, ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAS CLAIMED AN AMOUNT OF RS. 20,2 4,99,600/- UNDER THE HEAD STOCK WRITTEN OFF AGAINST SECURITY PAYMENT. O N PERUSAL OF THE DETAIL FILED, THE ASSESSING OFFICER STATED THAT ASSESSEE H AS NOT PROVIDED ANY DETAIL REGARDING THE CLAIM OF STOCK WRITTEN OFF TO THE AMO UNT OF RS. 18,18,600/- I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 27 BEING FABRIC GARMENT, THEREFORE, HE HELD THAT CLAIM OF DEDUCTION IS NOT TENABLE FOR WANT OF DOCUMENTARY EVIDENCES. 31. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. T HE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS AS UNDER:- 8.2. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSION FILED BY THE APPELLANT. THE ASSESSING OFFICER HAS OBSERVED THAT APPELLANT H AS NOT PROVIDED DETAILS REGARDING STOCK WRITTEN OFF FOR RS.1,84,89,600/- BEING FABRIC GARME NTS HENCE SUCH LOSS WAS DISALLOWED WHILE COMPUTING TOTAL INCOME. ON THE OTHER HAND APPELLANT HAS ARGUED THAT IT HAS SUBMITTED COMPLETE DETAILS OF STOCK WRITTEN OFF AGAINST SECURITY PREMI UM HENCE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE ABOVE CLAIM. ON CAREFUL, CONSIDERATION OF ENTIRE FACTS, IT IS OBSERVED THAT APPELLANT HAS SUBMITTED DETAILS REGARDING STOCK WRITTEN OFF FOR RS.20.24 CR ORES AGAINST SECURITY PREMIUM. THE APPELLANT'S REPLY DATED 25' 1 MARCH, 2015 IS REPRODUCED AT PAGE 35 TO 36 OF ASSE SSMENT ORDER WHEREIN IT IS APPARENT APPELLANT HAS SUBMITTED SUCH DETAILS VIDE ANNEXURE-2. THE ASSESSING OFFICER HAS ACCEPTED THE DETAILS TOR /?S. 18.39- CRORES PERTAIN ING TO STOCK WRITTEN OFF AGAINST SECURITY PREMIUM FOR OTHER DIVISION BUT, CONFIRMED THE DISALLOWANCE ON THE GROUND THAT DETAILS REGARDING FABRIC DIVISION IS NOT SUBMITTED. THE APPELLANT HAS SUBMIT TED SUCH DETAILS BEFORE UNDERSIGNED. HOWEVER, THE APPELLANT IS UNABLE TO PROVE ITS CONTENTION THA T SUCH DETAILS ARE ALREADY ON RECORD OF ASSESSING OFFICER AND PART OF SUBMISSION DATED 2 5 MARCH, 201 5. SECONDLY, FROM THE DETAILS SUBMITTED, IT IS DIFFICULT TO VERIFY THE STOCK WRITTEN OFF FOR RS. 1 ,84,89,600/~ BEING FABRIC GARMENTS. CONSIDERING THESE FACTS, DISALLOWANCE MADE BY ASSESSING OFFICER FOR RS. 1,84,89,600/-IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 32. DURING THE COURSE OF APPELLATE PROCEEDINGS B EFORE US, THE LD. COUNSEL REFERRED ITS SUBMISSION REPRODUCED AT PAGE NO. 53 O F THE LD. CIT(A)S ORDER. THE LD. COUNSEL HAS ALSO REFERRED PAGE NO. 154 TO 1 57 OF THE PAPER BOOK WHICH WAS SUBMITTED DURING THE COURSE OF ASSESSMENT AND APPELLATE PROCEEDINGS BEFORE THE LOWER AUTHORITIES CONTAINING COMPLETE DETAILS AND ACCOUNTS OF STOCK WRITTEN OFF . THE LD. COUNSEL SU BMITTED THAT LD. CIT(A) HAS WRONGLY SUSTAINED THE ERRONEOUS ADDITION MADE BY TH E ASSESSING OFFICER. ON OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF LOWER AUTHORITIES. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 28 33. DURING THE COURSE OF ASSESSMENT, THE ASSESS ING OFFICER DISALLOWED THE CLAIM OF STOCK WRITTEN OFF OF RS. 1,84,89,600/- ON THE GROUND THAT ASSESSEE HAS NOT FURNISHED RELEVANT SUPPORTING DETAIL PERTAI NING TO THE STOCK WRITTEN OFF. IN THIS REGARD, WE HAVE GONE THROUGH THE COPI ES OF DOCUMENT PLACED AT PAGE NO. 154 TO 157 OF THE PAPER BOOK I.E. THE COMP LETE DETAIL OF THE FABRIC STOCK INCLUDING QUANTITY, ORIGINAL RATE VALUE ADOPT ED AND OTHER RELEVANT PARTICULARS. THE ASSESSING OFFICER HAS NOT MADE A NY DISCUSSION ON THE AFORESAID DETAILS FURNISHED BY ASSESSEE IN THE ASSE SSMENT ORDER, THEREFORE, WE CONSIDER IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH AFTER EXAMINATION AND V ERIFICATION OF THE DETAIL SUBMITTED BY THE ASSESSEE. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 34. GROUND NO. 6 OF THE ASSESSEE PERTAINING TO L EVY OF INTEREST U/S. 234A, B, C AND D STANDS DISMISSED SINCE LEVYING OF INTERE ST IS MANDATORY ACCORDING TO SPECIFIC PROVISIONS OF THE ACT. 35. GROUND NO. 7:- SINCE THIS GROUND OF APPEAL A GAINST INITIATION OF PENALTY IS IMMATURE AT THIS STAGE, THEREFORE, THIS GROUND O F APPEAL OF THE ASSESSEE STANDS DISMISSED. ITA NO. 273/AHD/2018 A.Y. 2013-14 (ASSESSEE) & CROS S OBJECTION 42/AHD/2019 (REVENUE) GROUND NO. 1 (RESTRICTED ADDITION TO RS. 24,72,982/ - U/S. 14A OF THE ACT) FILED BY REVENUE AND GROUND NO. 1 (CONFIRMING DISAL LOWANCE TO THE EXTENT OF RS. 24,72,982/-) OF CROSS OBJECTION FILED BY ASSESSEE I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 29 36. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 1 OF APPEAL VIDE ITA NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILA R AS IN ITA NO. 273/AHD/2018 ASSESSMENT YEAR 2013-14 & CO 42/AHD/2019 A.Y. 2013-14, THEREFORE, AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 249/AHD/2016 AS S UPRA IN THIS ORDER, THE LD. CIT(A) HAS ALREADY RESTRICTED THE DI SALLOWANCE TO THE EXTENT OF RS. 24,72,982/- AND AFTER REDUCING THE SUO MOTO DIS ALLOWANCE OF RS. 10,49,653/-, FURTHER DISALLOWANCE OF RS. 2,47,294/- WERE MADE BY THE LD. CIT(A). KEEPING IN VIEW THE FINDING OF LD. CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWANCE TO THE EXEMPT INCOME THEREFORE WE DO N OT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A). ACCORDINGLY, THE APPEA L OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. GROUND NO. 2 (ADDITION OF RS. 8,86,45,931/- IS NOT TO BE MADE WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT) FI LED BY REVENUE 37. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THA T THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AS PER THE DECISION OF SPECI AL BENCH OF ITAT IN THE CASE OF THE ACIT VS. VINIT INVESTMENT PVT. LTD. (20 17) 82 TAXMAN.COM 415 WHEREIN IT IS HELD THAT EXPENSES INCURRED TO EARN E XEMPT INCOME NOT TO BE ADDED FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE A CT. THE LD. DEPARTMENTAL REPRESENTATIVE IS FAIR ENOUGH NOT TO C ONTROVERT THESE UNDISPUTED FACT THAT ISSUE IS SQUARELY COVERED BY T HE DECISION OF SPECIAL BENCH. FOLLOWING THE DECISION OF HONBLE DELHI S PECIAL BENCH IN THE CASE OF VINIT INVESTMENT PVT. LTD. 82 TAXMAN.COM 415, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A) AFTER APPLY ING THE FINDING AS PER ABOVE, THE APPEAL OF THE REVENUE STANDS DISMISSED. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 30 GROUND NO. 3 (DELETING THE DISALLOWANCE OF RS. 2,19 ,738/- ON ACCOUNT OF DEPRECIATION ON MOTOR VEHICLES WHICH ARE NOT COMMER CIAL VEHICLES) FILED BY REVENUE 38. AS THE FACTS AND ISSUE INVOLVED IN GROUND N O. 2 OF APPEAL VIDE ITA. NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILA R AS IN ITA NO. 273/AHD/2018 ASSESSMENT YEAR 2013-14 THEREF ORE AFTER APPLYING THE DECISION ADJUDICATED VIDE I.T.A. NO. 2 49/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. GROUND NO. 4 (DELETING THE ADDITION OF RS. 9,87,664 /- MADE ON ACCOUNT OF CESSATION OF LIABILITY U/S. 41(1) OF THE I.T. AC T) FILED BY REVENUE 39. AS THE FACTS AND ISSUE INVOLVED IN GROUND N O. 3 OF APPEAL VIDE ITA. NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILA R AS IN ITA NO. 273/AHD/2018 ASSESSMENT YEAR 2013-14 THEREF ORE AFTER APPLYING THE DECISION ADJUDICATED VIDE I.T.A. NO. 2 49/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. GROUND NO. 2 (CONFIRMING DISALLOWANCE OF RS. 4,41,5 13/- BEING EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESI) FILED BY ASSESSEE (CO) 40. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 4 OF APPEAL VIDE C.O. NO. 43/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILAR AS IN ITA NO. 273/AHD/2018 ASSESSMENT YEAR 2013-14 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE C.O. NO. 43/ AHD/2016 AS I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 31 SUPRA IN THIS ORDER, THIS GROUND OF THE CROSS OBJEC TION IS DISMISSED. ITA NO. 2054/AHD/2018 A.Y. 2009-10 FILED BY REVENUE & ITA NO. 1960/AHD/2018 A.Y. 2009-10 FILED BY ASSESSEE GROUND NO. 1 (DELETING ADDITION OF RS. 9,54,12,435/ - MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF BAD DEBT) 41. DURING THE COURSE OF ASSESSMENT , THE ASSESS ING OFFICER NOTICED THAT ASSESSEE HAS REDUCED AN AMOUNT OF RS. 9,54,12,435/- AS PROVISION AGAINST BAD DEBT AND DOUBTFUL DEBT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID BAD DEBT WERE NOT ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE PREVIOUS YEAR. ON QUERY, THE ASSE SSEE EXPLAINED THAT BAD DEBT WRITTEN OFF TO THE TUNE OF RS. 0.08 CRORES WAS RELATED TO THE DEBT WHICH HAVE BEEN WRITTEN OFF DURING THE YEAR UNDER CONSIDE RATION BY DEBITING TO P & L ACCOUNT. THE ASSESSEE HAS FURNISHED THE RELEV ANT DETAIL AND SUBMITTED THAT THE CORRESPONDING INCOME WAS OFFERED TO TAX IN THE EARLIER YEARS WHEN THE SALE WAS MADE. IN RESPECT OF CLAIM OF RS. 9.54 CRORES, THE ASSESSEE EXPLAINED THAT IT REFERRED TO BAD DEBT WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION AGAINST PROVISION FOR DOUBTFUL DEBT C REDITED IN EARLIER YEAR. THE ASSESSEE EXPLAINED THAT IT HAS RIGHTLY CLAIMED DEDUCTION IN RESPECT OF BAD DEBT WRITTEN OFF AGAINST THE PROVISION FOR BAD DEBT AS PER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. THE ASSESSING OFFIC ER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE STATING THAT SINCE 2000- 01, THE ASSESSEE HAS CONSISTENTLY REDUCED DOUBTFUL DEBT FROM TOTAL DEBTO R BY MAKING A PROVISION AND THE FIGURE REDUCED FROM DEBTOR DOES NOT MATCH T HE PROVISIONS MADE BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. THER EFORE, ASSESSEES CLAIM OF I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 32 RS. 9,54,12,435/- WAS DISALLOWED AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. 42. AGGRIEVED ASSESSEE HAS FILED APPEAL BEF ORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF DECISION OF LD. CIT(A) IS AS UNDER:- 5.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND SUBMISSION FILED BY THE APPELLANT. THE APPELLANT HAS CLAIMED DEDUCTION OF BAD DEBT OF RS.9 ,54,12,435/- IN RETURN OF INCOME. THE AO HAS OBSERVED THAT SUCH AMOUNT IS NOT DEBITED IN PROFIT & LOSS ACCOUNT BUT REDUCED AGAINST PROVISION FOR BAD AND DOUBTFUL DEBTS IN BALANCE SHEET- THE AP PELLANT HAS SUBMITTED ITS EXPLANATION WHICH IS REPRODUCED AT PAGE NO.3 TO 5 OF ASSESSMENT ORDER WH ICH INCLUDES DETAILS REGARDING PROVISION FOR DOUBTFUL DEBTS CREATED IN EARLIER ASSESSMENT YEARS, COPY OF RETURN OF INCOME FOR SUCH ASSESSMENT YEARS, ETC. IN SUCH SUBMISSION APPELLANT HAS ALSO C ONTENDED THAT PROVISIONS WERE CREATED IN THE HANDS OF ARVIND CLOTHING LIMITED WHICH WAS MERGED I NTO ARVIND BRANDS LIMITED AND ARVIND BRANDS LIMITED (GARMENT DIVISION) WAS MERGED WITH A PPELLANT SUBSEQUENTLY AND BAD DEBT CLAIMED PERTAINS TO SUCH UNITS AND INCOMES WERE ALR EADY OFFERED TO FAX IN EARLIER ASSESSMENT YEARS. HOWEVER, THE CLAIM OF APPELLANT WAS REJECTED BY AO ON THE GROUND THAT THOUGH PROVISION CONSIDERED DOUBTFUL WERE REDUCED FROM DEBTOR, NO SU CH PROVISION WAS MADE IN PROFIT & LOSS ACCOUNT. THE AO HAS ALSO MADE A TABULAR CHART SHOWING YEAR-WISE AMOUNT PERTAINING TO TOTAL DEBTOR S, PROVISION REDUCED FROM DEBTOR, PROVISION FOR BAD AND DOUBTFUL DEBTS IN PROFIT & LOSS ACCOUNT AND ACTUAL BAD DEBTS CLAIMED IN PROFIT & LOSS ACCOUNT. ON THE BASIS OF SUCH TABULAR CHART, AO CON CLUDED THAT PROVISION FOR BAD AND DOUBTFUL DEBT IN PROFIT & LOSS ACCOUNT IS NOT MATCHING WITH PROVISION REDUCED FROM DEBTORS, WHICH MEANS THAT APPELLANT HAS NOT PROPERLY DISCLOSED THE ACCOU NTING TREATMENT OF BAD AND DOUBTFUL DEBTS IN FINANCIAL STATEMENTS. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ARS OF THE APPELLANT HAVE RELIED UPON THE WRITTEN SUBMISSION FILED BEFORE ASSESSING OFFIC ER AND CONTENDED THAT IN EARLIER YEARS, THERE WERE THREE COMPANIES EXISTING INDIVIDUALLY I.E. APP ELLANT COMPANY, ARVIND BRAND LIMITED (ABL) AND ARVIND CLOTHING LIMITED (ACL). THEREAFTER, PURS UANT TO ORDER OF HON'BLE GUJARAT HIGH COURT, ACL WAS MERGED WITH ABL WITH EFFECT FROM 1 SL APRIL, 2003 AND THEREAFTER, GARMENT DIVISION OF ABL (WHICH INCLUDES ACL) WAS MERGED WITH APPELLANT FROM 1 ST APRIL. 2006. IN THIS BACKGROUND APPELLANT HAS CONT ENDED THAT IN EARLIER ASSESSMENT YEAR ACL AND ABL HAVE CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS FROM PROFIT & LOSS ACCOUNT AND SUCH AMOUNT WAS NOT CLAIMED AS DED UCTION IN COMPUTATION OF TOTAL INCOME. THE APPELLANT HAS ALSO SUBMITTED TABULAR CHART ADOPTING THE FIGURE COMPARED BY AO AND CONTENDED THAT AO HAS WRONGLY COMPARED THE FIGURE OF PROVISIO N FOR BAD AND DOUBTFUL DEBT DEBITED IN PROFIT & LOSS ACCOUNT OF TWO COMPANIES BEING ABL AND ACL W ITH PROVISION REDUCED FROM DEBTORS PERTAINING TO APPELLANT COMPANY. AS ABL AND ACL WER E NOT MERGED WITH APPELLANT IN A. Y.2004- 05 TO 2006-07, PROVISION REDUCED FROM DEBTORS IN AN NUAL ACCOUNTS OF APPELLANT DOES NOT INCLUDE FIGURE OF PROVISION PERTAINING TO ABOVE TWO COMPANI ES. SO FAR AS MISMATCH OF A. Y. 2008-09 AND 2009-10 IS CONCERNED, ARS OF THE APPELLANT HAVE CON TENDED THAT AO HAS TAKEN THE FIGURE OF PROVISION FOR BAD AND DOUBTFUL DEBT IN PROFIT & LOS S ACCOUNT FROM ANNUAL ACCOUNTS OF APPELLANT COMPANY AND SAME WERE COMPARED WITH CONSOLIDATED BA LANCE SHEET OF APPELLANT COMPANY WHICH INCLUDES FIGURES OF ALL THE SUBSIDIARIES AND ASSOCI ATE COMPANIES AND DUE TO SUCH WRONG COMPARISON HE HAS ARRIVED AT CONCLUSION THAT THERE IS MISMATCH IN BOTH THE FIGURES. THE APPELLANT HAS SUBMITTED FOLLOWING RECONCILIATION STATEMENT AS TO HOW FIGURE OF RS.9,45,12,435/- ARRIVED BY IT AND CLAIMED AS BAD DEBT WHICH WAS A/SO SUBMITTED BE FORE ASSESSING OFFICER: I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 33 STATEMENT OF BAD DEBTS WRITTEN OF AGAINST PROVISION FOR BAD & DOUBTFUL DEBTS FIN. YEAR PROVISION AS PER RETURN REMARK CLAIMED DEBT NET DEBT ABL ACL TOTAL DEBT DEBT 1815530 PRIOR TO FY 2000 NOT IDENTIFIABLE 0 2000-01 123340 40 864321 13198361 DISALLOWED IN RETURN 0 2001-02 125461 52 3701992 16248144 DISALLOWED IN RETURN 0 2002-03 273994 7 1846985 4586932 DISALLOWED IN RETURN 700000 2003-04 110680 00 2891054 13959054 DISALLOWED IN RETURN 0 2004-05 711524 0 1439903 8555143 DISALLOWED IN RETURN 0 2005-06 211952 62 0 21195262 DISALLOWED IN RETURN 38589541 2006-07 265021 17 0 26502117 DISALLOWED IN RETURN 0 2006-07 246113 13 0 24611313 CREATED FROM SHARE PREMIUM A/C. 0 2007-08 446784 5 0 4467845 DISALLOWED IN RETURN 437725 2008-09 TOTAL:- 1 225799 1 G 10744255 135139701 39727266 95412 435 ON THE BASIS OF ABOVE RECONCILIATION APPELLANT HAS REITERATED ITS CONTENTION THAT WHENEVER PROVISION FOR DOUBTFUL DEBT WAS CREATED IN PROFIT & LOSS ACCOUNT, SAME WAS DISALLOWED IN RETURN OF INCOME AND CORRESPONDING INCOME IS ALREADY OFFERED TO TAX. THE APPELLANT HAS ALSO SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS SUBMITTED COPY OF LEDGER ACCOUNT OF PARTIES WHOSE BALANCES ARE WRITTEN OFF IN CURRENT YEAR AND CONTENDED THAT AO HAS NOT OBJECTED TO THE FACT THAT BAD DEBT WAS REDUCED FROM LEDGER BALANCES OF T HE SUCH PARTIES. IT WAS ALSO CONTENDED BY APPELLANT THAT INSTEAD OF CREDITING PROFIT & LOSS A CCOUNT BY REVERSAL OF PROVISION FOR DOUBTFUL DEBTS AND CLAIMING SIMILAR AMOUNT AS BAD DEBT IN PROFIT & LOSS ACCOUNT, APPELLANT HAS DIRECTLY REDUCED I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 34 SUCH AMOUNT FROM PROVISION CREATED IN EARLIER YEARS . THE ABOVE METHOD OF ACCOUNTING AND CLAIMING BAD DEBT AS DEDUCTION IS ACCEPTED BY AHMEDABAD IT AT IN THE CASE OF GUJARAT STATE CO-OPERATIVE BANK LIMITED (SUPRA), WHICH WAS LATER ON CONFIRMED BY HON'BLE GUJARAT HIGH COURT. THE APPELLANT HAS ALSO RELIED UPON DECISION OF HON' BLE SUPREME COURT IN THE CASE OF TRF LIMITED (SUPRA) AND CONTENDED THAT SAID DECISION MERELY STATES THAT FOR CLAIMING BAD DEBT, AMOUNT SHOULD BE WRITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OFASSESSEE AND SUCH CONDITION IS DULY FULFILLED BY APPELLANT. ON THIS BASIS APPELLANT HAS CONTENDED THAT DISALLOWANCE MADE BY AO SHOULD BE DELETED. 5.4. ON CAREFUL CONSIDERATION OF ENTIRE FACTS, IT IS OBS ERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, APPELLANT HAS GIVEN LEDGER ACCOUNT OF PARTIES WHOSE BALANCES WERE WRITTEN OFF IN PARA - 1.1 OF ITS WRITTEN SUBMISSION. THE APPELLANT HAS ALSO SUBMITTED STATEMENT SHOWING PARTY- WISE BAD DEBTS ALONG WITH THE YEAR IN WHICH CORRESP ONDING INCOME WAS BOOKED AND EXPLAINED THAT ALL THE PARTIES WERE PART OF OUTSTANDING DEBTORS IN RESPECT OF SALES MADE IN EARLIER YEARS AND SUCH AMOUNTS WERE WRITTEN OFF AS BAD DEBT IN CURRENT YEA R. THE AO HAS NOT DISPUTED THESE FACTS WHICH CLEARLY PROVE THAT APPELLANT HAS WRITTEN OFF DEBT I N RESPECTIVE WERE ALREADY OFFERED TO TAX IN EARLIER YEAR. THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AS ELABORATELY DISCUSSED IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TR F 391 STATES THAT FOR CLAIMING BAD DEBT, AMOUNT WOULD BE WRITTEN OFF AS IRRECOVERABLE IN ASS ESSEE'S ACCOUNT AND THIS CONDITION IS ALREADY FULFILLED BY APPELLANT. THE ONLY DISPUTE RAISED BY AO WAS THAT APPELLANT HAS NOT DEBITED PROFIT & LOSS ACCOUNT OF CURRENT YEAR BY AMOUNT OF BAD DEBT BUT THIS CONTENTION OF AO CANNOT BE ACCEPTED AS APPELLANT HAS DEBITED THE PROFIT & LOSS ACCOUNT IN THE YEAR IN WHICH PROVISION FOR BAD AND DOUBTFUL DEBTS WERE CREATED AND SUCH AMOUNTS WORE A LREADY DISALLOWED IN RETURN OF INCOME. THE APPELLANT HAS ALSO SUBMITTED COPIES OF RETURN OF IN COME OF ALL THE PREVIOUS ASSESSMENT YEARS TO PROVE THAT BAD DEBT WHICH IS CLAIMED IN CURRENT YEA R IS OUT OF PROVISION FOR BAD AND DOUBTFUL DEBTS CREATED IN EARLIER ASSESSMENT YEARS AND SAME WAS NO T CLAIMED AS DEDUCTION IN RESPECT ASSESSMENT YEARS. THESE FACTS ARE ALSO NOT DISPUTED BY AO. THE APPELLANT HAS ADOPTED METHOD OF ACCOUNT BY WHICH IT HAS REDUCED PROVISION FOR BAD AND DOUBTFUL DEBTS APPEARING IN BALANCE SHEET INSTEAD OF ADOPTING METHOD OF ACCOUNT BY WHICH CREDITING PROFI T & LOSS ACCOUNT BY PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK AND CORRESPONDINGLY CLA IMING BAD DEBT IN PROFIT & LOSS ACCOUNT. BY ADOPTING BOTH THE METHODS OF ACCOUNTING THE NET RES ULT REMAINS THE SAME AND PARTIES' ACCOUNTS ARE ALREADY REDUCED BY BAD DEBT. THIS ISSUE IS ELABORAT ELY DISCUSSED BY HON'BLE AHMEDABAD ITAT IN THE CASE OF GUJARAT STATE COOPERATIVE BANK LIMITED V/S DCIT (RE FERRED SUPRA) AND ALLOWED THE CLAIM OF APPELLANT FOR BAD DEBT NOT DEBITED IN PROF IT & LOSS ACCOUNT. THIS DECISION IS FURTHER UPHELD BY HON'BLE GUJARAT HIGH COURT IN 85 TAXMANN. COM 259 WHEREIN IT IS HELD AS UNDER: 'SECTION 36(1)(VII) OF THE INCOME-TAX ACT, 1961 - BAD DEBTS (WRITING OFF OF DEBT) - ASSESSES WAS A CO-OPERATIVE BANK - IT CLAIMED DEDUC TION ON ACCOUNT OF BAD DEBTS WRITTEN OFF WHICH COMPRISED OF DEBT SHOWN IN STATEMENT OF I NCOME AND OUTSIDE STATEMENT - ASSESSING OFFICER NOTED THAT ASSESSED HAD NOT WRITT EN OFF BAD DEBTS IN BOOKS OF ACCOUNT AND A MERE MENTION IN AUDIT REPORT WOULD NOT SATISF Y SUCH REQUIREMENT - HE, ACCORDINGLY, DISALLOWED CLAIM OF BAD DEBT TRIBUNAL HELD THAT D EBT HAD BEEN WRITTEN OFF IN SENSE THAT ACCOUNT OF DEBTOR WAS SQUARED UP BY CREDITING DEBTO R AND DEBITING BAD DEBT RESERVE ACCOUNT AND, THAT, SAID ACCOUNTING TREATMENT DID AM OUNT TO ACTUAL WRITE OFF OF DEBT- WHETHER TRIBUNAL WAS JUSTIFIED IN ITS DECISION-HELD . YES] [IN FAVOUR OF ASSESSEE] IN VIEW OF BINDING DECISION OF HON'BLE GUJARAT HIGH COURT REFERRED SUPRA AND DECISION OF MUMBAI I TAT IN THE CASE OF ARROW COATED PRODUCTS LIMITED REFERRED IN APPELLANT'S SUBMISSION REPRODUCED HEREIN ABOVE, CLAIM OF BAD DEBT MADE BY APPELLANT FOR RS.9,54,12,435/- CANNOT BE DENIED ON THE GROUND THAT APPELLANT HAS NOT SHOWN C ORRESPONDING AMOUNT IN PROFIT & LOSS ACCOUNT. 5.5. SO FAR AS THE OBSERVATION OF THE AO THAT PROVISION FOR DOUBTFUL DEBTS APPEARING IN ANNUAL ACCOUNTS ARE NOT MATCHING WITH THE FIGURE OF PROVIS ION FORBAD AND DOUBTFUL DEBTS IN PROFIT & LOSS ACCOUNT, IT IS OBSERVED THAT DURING THE COURSE OF A SSESSMENT PROCEEDINGS APPELLANT HAS CLEARLY STATED THAT BAD DEBT CLAIMED IN RETURN OF INCOME PE RTAIN TO COMPANIES BEING ABL AND ACL WHICH WERE SUBSEQUENTLY MERGED WITH APPELLANT FROM A.Y.20 07-08 AND THESE FIGURES WERE COMPARED BY AO EITHER WITH THE STAND ALONE ANNUAL ACCOUNTS OF A PPELLANT COMPANY FOR A. Y.2004-05 TO 2006- I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 35 07 WHEREIN ABOVE REFERRED TWO COMPANIES WORE NOT ME RGED WITH APPELLANT AND FOR SUBSEQUENT YEAR, SUCH FIGURES WERE COMPARED WITH CONSOLIDATED FINANCIAL STATEMENTS OF APPELLANT COMPANY WHICH INCLUDES ACCOUNTS OF ALL THE SUBSIDIARIES AND JOINT VENTURES. HAD AO COMPARED SUCH FIGURES FOR A.Y.2004-05 TO A,Y.2006-07 WITH THE STAND ALONE BALANCE SHEET OF ABL AND ACL AND FROM A.Y.2007-08 WITH STAND ALONE BALANCE SHEET OF APPEL LANT, SUCH FIGURES WOULD HAVE BEEN MATCHED AND THERE WOULD NOT HAVE BEEN ANY VARIATION AS STAT ED BY AO. THIS CLAIM OF APPELLANT IS ALSO APPARENT FROM PUBLISHED ANNUAL ACCOUNT OF APPELLANT COMPANY AND ANNUAL ACCOUNTS OF ABL AND ACL ALREADY FILED WITH THE DEPARTMENT ALONG WITH RE TURN OF INCOME. THE APPELLANT HAS ALSO EXPLAINED THE ABOVE DISCREPANCY IN TABULAR CHART RE PRODUCED IN ITS SUBMISSION. ON CAREFUL CONSIDERATION OF SUCH RECONCILIATION IT IS FOUND TH AT THERE IS NO DISCREPANCY AS ALLEGED BY AO AND DISCREPANCY HAS ARISEN ONLY ON ACCOUNT OF INCORRECT COMPARISON MADE BY ASSESSING OFFICER WHICH CANNOT BE BASIS FOR MAKING ADDITION OF RS.9,54,12,4 35/-. IN VIEW OF DETAILED DISCUSSION MADE HEREIN ABOVE AND RELYING UPON THE DECISION REFERRED SUPRA, DISALLOWANCE OF RS.9,54,12.435/- MADE BY AO IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 43. HEARD BOTH THE SIDES AND PERUSED THE MATERIA L ON RECORD. WITHOUT REITERATED THE FACTS AS ABOVE, IT IS NOTICED THAT T HE ASSESSEE HAS CLAIMED DEDUCTION OF BAD DEBT OF RS. 9,54,12,435/-. THE A SSESSING OFFICER HAS REJECTED THE CLAIM MAINLY ON THE GROUND THAT THE BA D DEBT HAS NOT BEEN DEBITED IN THE P & L ACCOUNT REDUCED AGAINST THE PR OVISION FOR BAD AND DOUBTFUL DEBT IN THE BALANCE SHEET. THE ASSESSEE E XPLAINED THAT PROVISIONS WERE CREATED IN THE HANDS OF ARVIND BRAND LTD. (GAR MENT DIVISION) WHICH WAS MERGED WITH THE ASSESSEE COMPANY. SUBSEQUENTLY , BAD DEBT CLAIMED WAS PERTAINED TO SUCH UNITS AND RELATED INCOME WERE ALREADY OFFERED TO TAX IN THE EARLIER YEARS. IN THIS REGARD, IT IS NOTICED THAT IN PURSUANCE OF THE ORDER OF HONBLE GUJARAT HIGH COURT, ARVIND CLOTHING LTD. WAS MERGED WITH ARVIND BRAND LTD. W.E.F. 01-04-2013 AND THEREAFTER GARMENT DIVISION OF ARVIND BRAND LTD. WHICH ALSO INCLUDE ARVIND CLOTHIN G LTD. WAS MERGED WITH THE ASSESSEE COMPANY FROM 1 ST APRIL, 2006. IN THE ASSESSMENT YEAR MERGED COMPANY ARVIND CLOTHING LTD AND ARVIND BRAND LTD. HAVE CREATED PROVISION FOR BAD AND DOUBTFUL DEBT FROM P & L ACCO UNT AND SUCH AMOUNT WAS NOT CLAIMED AS DEDUCTION IN COMPUTATION OF TOTA L INCOME. THE RELEVANT SUPPORTING DETAIL AND INFORMATION WAS FILED BEFORE THE ASSESSING OFFICER AND LD. CIT(A) DURING THE COURSE OF ASSESSMENT AND APPE LLATE PROCEEDINGS. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 36 BECAUSE OF MERGING OF THE AFORESAID TWO COMPANIES W ITH THE ASSESSEE COMPANY, THERE WAS MISMATCH IN THE FIGURES WHICH HA S BEEN RECONCILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND LD. C IT(A) AND EXPLAINED THAT WHENEVER PROVISION FOR DOUBTFUL DEBT WAS CREATED IN THE P & L ACCOUNT, THE SAME WAS DISALLOWED IN RETURN OF INCOME AND CORRESP ONDING INCOME WAS ALREADY OFFERED TO TAX. KEEPING IN VIEW THE AFORE SAID FACTS, THE LD. CIT(A) AFTER PLACING RELIANCE ON THE DECISION OF HONBLE G UJARAT HIGH COURT IN THE CASE OF ARROW COATED PRODUCT LTD. HELD THAT THERE W AS NO DISCREPANCY AS ALLEGED BY THE ASSESSING OFFICER AND THE DISCREPANC Y WAS ARISED ON ACCOUNT OF INCORRECT COMPARISON MADE BY THE ASSESSING OFFIC ER. THE REVENUE COULD NOT BRING ANY OTHER MATERIAL TO CONTROVERT THE FACT S AND FINDINGS OF THE LD. CIT(A), THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A). ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE I S DISMISSED. GROUND NO. 2 (DELETING THE ADDITION OF RS. 16,08,17 ,279/- MADE ON ACCOUNT OF FOREIGN EXCHANGE DERIVATIVE LOSS) 44. AT THE TIME OF ASSESSMENT, THE ASSESSING OFFIC ER NOTICED THAT ASSESSEE HAS CLAIMED MARKET TO MARKET LOSS ON ACCOUNT OF FOR EIGN EXCHANGE DERIVATIVES. ON QUERY, THE ASSESSEE EXPLAINED THA T IN RESPECT OF CLAIM OF DEDUCTION OF LOSS OF RS. 89.22 CRORES IN RESPECT OF DERIVATIVE/FORWARD CONTRACT OF FOREIGN EXCHANGE THAT IT IS IN BUSINESS OF MANUFACTURING AND TRADING OF TEXTILE, READYMADE GARMENTS AND TELE-COM MUNICATION. IN VIEW OF ITS OVERSEAS OPERATION ON PURCHASE AND SALE, THE AS SESSEE COMPANY IS EXPOSED TO RISK ON ACCOUNT OF FOREIGN EXCHANGE FLUC TUATION AND TO PROTECT ITSELF FROM ADVERSE FLUCTUATION ON EXCHANGE RATES O F FOREIGN CURRENCY, THE ASSESSEE COMPANY HAS ENTERED INTO DERIVATIVE/FORWAR D CONTRACTS FOR THE I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 37 PURPOSE OF ITS BUSINESS. THE ASSESSEE COMPANY SUBMI TTED THAT RS.16,08,17,279/- IS PERTAINED TO LOSS ARISING ON A CCOUNT OF MARKET TO MARKET VALUATION OF SUCH FORWARD/DERIVATIVE CONTRACTS WHIC H WERE OUTSTANDING PENDING FOR SETTLEMENT TILL 31 ST MARCH, 2009. THE ASSESSEE EXPLAINED THAT SUCH LOSS WAS NOT SPECULATION LOSS AS THE ASSESSEE ENTERED INTO FOREIGN EXCHANGE CONTRACT, COVERED THE LOSSES IN EXCHANGE V ARIATION, THEREFORE, TRANSACTION IS NOT SPECULATION TRANSACTION. IT IS ALSO SUBMITTED THAT SUCH HEDGING TRANSACTION IS NOT A SPECULATION TRANSACTIO N AS PROVIDED IN SECTION 43(5) RATHER THE SAME IS A NORMAL BUSINESS TRANSACT ION. THE ASSESSEE HAS ALSO PLACED RELIANCE A NUMBER OF JUDICIAL PRONOUNCEMENTS REPORTED AT THE PAGE NO. 11 OF THE ASSESSMENT ORDER OF THE ASSESSING OFF ICER. HOWEVER, THE ASSESSING OFFICER WAS NOT AGREED WITH THE SUBMISSIO N OF THE ASSESSEE AND HE WAS OF THE VIEW THAT MARKET TO MARKET LOSS IS NOT A LLOWABLE AND SAME WAS OF CONTINGENT IN NATURE ARISING OUT OF PAST CONTRACT A ND CANNOT BE REALLY ESTIMATED UNTIL THE OCCURRENCE OF FUTURE UNCERTAINT Y EVENT. THEREFORE, FOREIGN EXCHANGE DERIVATIVE LOSSES AMOUNTING TO RS. 16081729/- WAS DISALLOWED BY THE ASSESSING OFFICER AND ADDED TO TH E TOTAL INCOME OF THE ASSESSEE COMPANY. 45. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD . CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVA NT PART OF DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER:- 6.4. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND SUBMISSION FILED BY THE APPELLANT. THE BRIEF FACTS OF THE CASE ARE THAT APPELLANT HAS CLAI MED FOREIGN EXCHANGE LOSS OF RS.89,21,53,274/- IN RETURN OF INCOME AND STATED THAT IT IS AS PER AS-30 ISSUED BY ICIAI. THE APPELLANT HAS ALSO DEBITED SUCH EXPENDITURE IN PROFIT & LOSS ACCOUNT AS 'TRANS ITIONAL PROVISION ON ADOPTION OF AS-30 AND AS- 11'. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A PPELLANT HAS CLAIMED THAT IT HAS CHOSEN FOR EARLY ADOPTION OF AS-30 BY WHICH ALL THE FINANCIAL ASSETS, LIABILITIES AND DERIVATIVES ARE RE- MEASURED AF THEIR FAIR VALUE AND MARKED-TO-MARKET L OSS PERTAINING TO OUTSTANDING CONTRACTS AS ON 1 E ' JULY, 2008 WERE PROVIDED AND DEBITED AS 'TRANSITI ONAL PROVISION ON ADOPTION OF AS-30 AND AS- I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 38 11' IN PROFIT & LOSS ACCOUNT. THE APPELLANT HAS EXP LAINED THAT ABOVE REFERRED LOSS OF RS.89.22 CRORES REPRESENTED LOSS ARISING ON RE-MEASUREMENT O F FORWARD CONTRACTS AS ON 1 ST JULY, 2008 AND SUCH LOSS IS ARRIVED AT AFTER COMPILING FOREIGN EXC HANGE RATE AS ON 1 ST APRIL, 2008/RATE ON THE DATE OF CONTRACT ENTERED INTO FROM 1 ST APRIL, 2008 AND 1 SL JULY, 2008 AND FOREIGN EXCHANGE RATE AS ON 1 S! JULY, 2008. THO APPELLANT HAS FURTHER EXPLAINED THA T OUT OF SUCH LOSS, LOSS OF RS.73.13 CRORES WERE REPRESENTING ACTUAL REALIZED LOSS ON SETTLEMENT OF DERIVATIVE CONTRACTS WHICH WAS ALLOWED BY AO IN ASSESSMENT ORDER. THE REMAINING AMOUNT OF RS.16.08 CRORES REPRESENTS LOSS ON ACCOUNT OF MARKED-TO-MARKET VALUATION FOR FORWARD DERIVATIVE CONTRACTS OUTSTANDING AS ON 31 ST MARCH, 2009. THIS LOSS HAS BEEN DISALLOWED BY AO ON THE GR OUND THAT SUCH LOSS IS CONTINGENT LOSS AND HE REFERRED TO INSTRUCTION NO. 3 OF 2010, DATED 23'' M ARCH, 2010 ISSUED BY CBDT AND CONTENDED THAT MARKED-TO-MARKET LOSS FOR DERIVATIVE TRANSACTIONS C ANNOT BE ALLOWED AS ACTUAL LOSS. DURING THE COURSE OF APPELLATE PROCEEDINGS APPELLAN T HAS CLAIMED THAT IT HAS TAKEN FORWARD DERIVATIVE CONTRACTS FOR HEDGING OF ITS USD EXPORTS BY TAKING USD-INK FORWARD CONTRACT AND IN SUCH TRANSACTIONS, IL HAS INCURRED LOSSES DU E TO DEVALUATION OF INDIAN CURRENCY. THE APPELLANT HAS FURTHER CLAIMED THAT DUE TO ADOPTION OFAS-30, IT HAS CLAIMED MARKED-TO-MARKET LOSS PERTAINING TO SUCH DERIVATIVE CONTRACTS EXECUT ED UPTO 1 SI JULY, 2008 AS BUSINESS LOSS IN RETURN OF INCOME AND MARKED-TO-MARKET LOSS PERTAINING TO C ONTRACTS EXECUTED AFTER SUCH DATE WERE DEBITED TO HEDGE RESERVE ACCOUNT IN BALANCE SHEET. SO FAR AS CONTENTION OF AO THAT SUCH FOSS IS NOTIONAL LOSS IS CONCERNED, APPELLANT HAS CONTENDED THAT TRANSACTIONS WERE CARRIED FOR PURELY HEDGING PURPOSE AND SUCH HEDGING WAS AGAINST ITS US D EXPORT WHICH IS NOT DENIED BY AO. THE ARS OF THE APPELLANT HOVE RELIED UPON DECISION OF H ON'B/E SUPREME COURT IN CASE OF WOODWARD GOVERNOR (INDIA) LIMITED (SUPRA) AND ONGC IN SUPPOR T OF APPELLANT'S CLAIM THAT SUCH LOSS IS ALLOWABLE BUSINESS LOSS. WITH REGARD TO RELIANCE PL ACED BY AO THAT SUCH LOSS IS NOT ALLOWABLE BUSINESS LOSS AS PER INSTRUCTION NO.3/2010, APPELLA NT HAS ARGUED THAT SAID INSTRUCTION WAS ISSUED BY CBDT ON 23 L(T MARCH, 2010, WHICH IS SUBSEQUENT TO FILING OF RETU RN FOR CURRENT ASSESSMENT YEAR HENCE SAME IS NOT APPLICABLE IN CURRENT ASSESSMENT YEAR. APART FROM ABOVE, APPELLANT HAS REFERRED TO VARIOUS DECISION OF AHMEDABAD ITAT, BAN GALORE ITAT AND DELHI HIGH COURT WHEREIN IT IS HELD THAT CBDT INSTRUCTION CANNOT OVERRIDE DE CISION OF HON'BIE APEX COURT. THE APPELLANT HAS ALSO CONTENDED THAT ABOVE PROVISION OF MARKED-T O-MARKET LOSS WAS REVERSED IN IMMEDIATELY SUCCEEDING YEAR HENCE THE ENTIRE EXERCISE FOR PROVI DING FOR MARKED-TO-MARKET LOSS IS TAX NEUTRAL. 6.5. SO FAR AS MARKED-TO-MARKET LOSS PERTAINING TO FORWA RD CONTRACTS EXECUTED 1 S ' JULY, 2009 AND OUTSTANDING AS ON 31 S1 MARCH, 2009 ARE CONCERNED, IT IS OBSERVED THAT SUC H LOSS HAS BEEN EFFECTIVELY ROUTED THROUGH PROFIT & LOSS ACCOUNT. I T IS ALSO OBSERVED THAT SUCH LOSS IS HEDGING LOSS AND AGAINST EXPORT SALE MADE BY APPELLANT WHICH IS NOT DENIED BY AO. THE ONLY DISPUTE OF THE ASSESSING OFF ICER IS THAT SUCH LOSS IS NOTIONAL LOSS OR CONTINGENT LOSS, BUT CLAIM MADE BY APPELLANT IS SUP PORTED BY BINDING DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V/S WOODWARD GOVERNOR (INDIA) PVT. LIMITED 31 2 ITR 254 WHEREIN IT IS HELD AS UNDER: 'I SECTION 37(11 READ WITH SECTION 145, OF THE INCOME-TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABLY OF - ASSESSMENT YEAR 1998-9 9 - WHETHER EXPRESSION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN CIRCUMSTANCES OF A PA RTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'TOSS 1 , EVON THOUGH SAID AMOUNT HAS NOT GONE OUT FROM POC KET OF ASSESSEE - HELD, YES - WHETHER LOSS SUFFERED BY ASSESSES ON AC COUNT OF FOREIGN EXCHANGE DIFFERENCE AS ON DATE OF BALANCE SHEET IS AN ITEM OF EXPENDITU RE UNDER SECTION 37(1) - HELD, YES - WHETHER ACCOUNTING METHOD FOLLOWED BY AN ASSESSEE C ONTINUOUSLY FOR A GIVEN PERIOD OF TIME NEEDS TO BE PRESUMED TO BE CORRECT TILL ASSESS ING OFFICER COMES TO CONCLUSION FOR REASONS TO BE GIVEN THAT SAID SYSTEM DOES NOT REFLE CT TRUE AND CORRECT PROFITS - HELD, YES - WHETHER AN ENTERPRISE HAS TO REPORT OUTSTANDING LIA BILITY RELATING TO IMPORT OF RAW MATERIAL USING CLOSING RATE OF FOREIGN EXCHANGE AND ANY DIFFERENCE, LOSS OR GAIN, ARISING ON CONVERSION OF SAID LIABILITY AT CLOSING RATE SHO ULD BE RECOGNIZED IN PROFIT AND LOSS ACCOUNT FOR REPORTING PERIOD ~ HELD, YES' - IT IS OBSERVED THAT HON'BLE AHMEDABAD ITAT IN THE CASE OF AC/AN/ ENTERPRISES LIMITED 55 TAXMANN.COM 375 (2015), GROUP CASE OF APPELLANT HAS HELD THAT 'WHERE ASSESSEE COMPANY HAS ENTERED INTO CURRENCY SWAP CONTRACTS FOR WORKING CA PITAL LOANS WHICH WAS PREREQUISITE FOR ITS I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 39 BUSINESS OF EXPORT AND IMPORT OF COMMODITIES, LOSS INCURRED IN THE SAID CONTRACT BEING IN RESPECT OF CIRCULATING/WORKING CAPITAL IS ALLOWABLE BUSINES S, IT IS OBSERVED THAT ON THIS VERY ISSUE, HON'BLE AHMEDABAD ITAT IN THE CASE OF HEAVY METAL AND TUBES LIMITED IN ITA NO.1951/AHD/2011, DATED 30/06/2014 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. IN THE CASE OF HEAVY METAL AND TUBES LIMITED, FACTS ARE THAT ASSESSEE HAS CLAIMED LOSS ON ACCOUNT OF FOREIGN EXCHANGE DERIVATIVE AMOUNTING TO' RS.5,89, 29,8127-. IT WAS ASSESSEE'S SUBMISSION THA T IT HAD AVAILED FOREIGN CURRENCY LOAN FOR IMPORTING RAW MATERIALS AND IT HAD SHIFTED ITS LOAN LIABILITY IN DOLLAR TO SWISS FRANC AND THE LOSS RESULTED DUE TO FALL IN THE VALUE OF SWISS FRANC VI S-A-VIS DOLLAR ON THE BALANCE SHEET DATE WAS UNDERTAKEN TO MINIMIZE THE RISK OF FOREIGN EXCHANGE FLUCTUATION. THE AO DISALLOWED SUCH LOSS IN ASSESSMENT ORDER ON THE GROUND THAT 'ASSESSEE COMPA NY HAS CLAIMED LOSS ON ACCOUNT OF RE- STATEMENT OF LOANS/CREDIT LIABILITY EXISTING AS ON THE DATE OF BALANCE SHEET BY SWAPPING THE LOAN FROM DOLLAR TO SWISS FRANC TO REDUCE ITS FOREX EXPO SURE RISK AND THEREFORE THE LOSS CLAIMED BY THE ASSESSEE 'WAS RIOT OF REVENUE IN NATURE BUT WAS AN UNASCERTAINED AND NOTIONAL LOSS. HE WAS OF THE VIEW THAT THE LOSS CLAIMED BY THE ASSESSEE WAS SPECULATIVE IN NATURE'. IN ABOVE CASE, CIT (APPEALS) HAS HELD AS UNDER: '8. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS AN D FINDINGS OF THE A.O. AS WELL AS SUBMISSIONS OF THE APPELLANT. THE APPELLANT COMPANY IS ENGAGED IN THE MANUFACTURING OF TUBES & PIPES. IT PURCHASES THE REQUITED RAW MATERI ALS MAINLY FROM IMPORT SOURCE. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R UNDER CONSIDERATION, APPROX. 90% OF THE VALUE OF MATERIALS CONSUMED IS FROM IMPORT P URCHASE. THERE ARE EXPORT SALES A/SO. THUS, IT APPEARS THAT THE APPELLANT COMPANY REQUIRE S DEALING IN FOREIGN EXCHANGE IN NORMAL COURSE OF BUSINESS AND TO SAFEGUARD THE FUTU RE LOSSES AGAINST FOREIGN EXCHANGE RATE FLUCTUATION IT ENTERS IN TO HEDGING TRANSACTIO N. IT HAS AVAILED THE FUND BASED AND NON FUND BASED FINANCIAL FACILITIES FROM ITS BANKERS I N THE FORM OF LETTER OF CREDIT, BUYERS CREDIT, CASH CREDIT LIMITS IN FOREIGN CURRENCY FOR PURCHASE OF RAW MATERIALS & PAYMENT TO OVERSEAS SUPPLIERS, AGAINST STOCK OF RAW MATERIA LS & COLLECTION OF BOOK DEBTS. IT IS SUBMITTED THAT SINCE THE APPELLANT COMPANY USES THE FUND AND NON FUND BASED FACILITIES IN FOREIGN CURRENCY, THE BANKERS HAVE ADVISED THE COMP ANY TO COVER UP THE FOREIGN EXCHANGE PAYMENT LIABILITIES AGAINST THE RISK OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE. THERE IS ALWAYS AN INHERENT RISK OF FLUCTUATION IN THE RATES OF FOREIGN EXCHANGE, I.E. THE RATES OF FOREIGN EXCHANGE CHANGES BETWEEN THE TIME OF PURCHA SE OF RAW MATERIALS AND ACTUAL PAYMENT TO SUPPLIERS OR BANK, WHICH DEPENDS ON THE DEMAND AND SUPPLY POSITION OF THE FOREIGN EXCHANGE IN THE INTERNATIONAL MARKET. 8.1 DURING THE PREVIOUS YEAR, THE APPELLANT COMPANY HAS SWAP ITS WORKING CAPITAL BANK LIABILITY AGAINST PURCHASE OF RAW-MATER/A/S IN DOLL AR CURRENCY TO SWISS FRANK CURRENCY BY ENTERING INTO DERIVATIVE CONTRACTS WITH HANK. TH E STATED LOGIC FOR SUCH SWAP FROM DOLLAR TO SWISS FRANC CURRENCY WAS THAT THE SWISS F RANC IS CONSIDERED AS ONE OF THE MOST STABLE CURRENCY AS COMPARED TO DOLLAR AND ACCORDING LY, THE LOSS, IF ANY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION CAN BE MINIMIZED. HOWE VER, THERE WAS FALL IN THE VALUE OF SWISS FRANK VIS-A-VIS DOLLAR AND ON THE BALANCE SHE ET DATE I.E. 31-03-2008, THE APPELLANT COMPANY BOOKED THE LOSS OF RS.5,Q9,29,812/-. THIS F ACTS HAVE NOT BEEN DISPUTED BY THE A.O. 8. 2 IT IS FURTHER SUBMITTED BY THE AUTHORIZED REPR ESENTATIVE OF THE APPELLANT COMPANY THAT AS PER THE CONSISTENT PRUDENT PRACTICE AND REQUIREM ENTS OF ACCOUNTING STANDARDS ISSUED BY THE ICAI, IT FOLLOWS ACCOUNTING OF TRANSACTIONS FOR PURCHASE & SALES IN FOREIGN CURRENCY AT THE PREVAILING FOREIGN EXCHANGE RATE AT THE TIME OF EXECUTING TRANSACTIONS AND DIFFERENCE IF ANY BETWEEN THE AMOUNT OF PURCHASE/SA LES AND AMOUNT AT WHICH THE TRANSACTIONS IS ACTUALLY SETTLED BY THE PAYMENT TO/ FROM SUPPLIERS/DEBTORS IS ACCOUNTED AS 'LOSS/GAIN ON FOREIGN EXCHANGE FLUCTUATION'. IN THE TRADING & PROFIT & LOSS ACCOUNT, THE PURCHASE AND SALES ARE DISCLOSED AFTER SET OFF ON ACCOUNT OF THE LOSS OR GAIN DUE TO FLUCTUATION IN RATES OF FOREIGN EXCHANGE ON ACCOUNT OF TRANSACTIONS OF IMPORT PURCHASE AND EXPORT SALES IN FOREIGN EXCHANGE. SUCH GAIN OR LOSS IN FOREIGN EXCHANGE TRANSACTIONS SETTLED DURING THE YEAR IS PART OF THE COST OF IMPO RT PURCHASE OR VALUE OF EXPORT SATES. IT IS FURTHER SUBMITTED THAT AT TIMES, IT HAPPENS THAT TH E FORWARD CONTRACT TO BUY/SELL FOREIGN I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 40 EXCHANGE REMAINS OUTSTANDING AT THE LAST DATE OF BA LANCE SHEET. AS PER THE PRUDENT ACCOUNTING POLICY OF MERCANTILE/ACCRUAL SYSTEM OF A CCOUNTING AND ACCOUNTING STANDARDS ISSUED BY THE ICAI, THE UNSETTLED OUTSTANDING FOREI GN EXCHANGE FORWARD CONTRACTS HAVE TO BE EVALUATED AT AN EXCHANGE RATE PREVAILING ON THE DATE OF BALANCE SHEET AND LOSS, IF ANY, ON EVALUATION OF SUCH UNSETTLED FORWARD CONTRACTS H AVE TO BE ACCOUNTED IN THE BOOKS. AS SUCH THERE IS NO DIFFERENT BETWEEN THE LOSS ON ACCO UNT OF EVALUATION OF UNSETTLED OUTSTANDING FOREIGN EXCHANGE FORWARD CONTRACTS AND LOSS ON ACCOUNT OF SETTLED FOREIGN EXCHANGE FORWARD CONTRACTS DURING THE YEAR, LOSS, U NDER BOTH THE SITUATION, I.E. SETTLED AND UNSETTLED FORWARD CONTRACTS IN FOREIGN EXCHANGE , IS REVENUE LOSS INCURRED IN THE NORMAL COURSE OF BUSINESS TO HEDGE THE RISKS OF FLU CTUATION IN FOREIGN EXCHANGE RATES. FURTHER, IT IS ALSO SUBMITTED THAT AS PER THE ACCOU NTING STANDARD-11 (AS-11) ISSUED BY THE ICAI AND RBI'S GUIDELINES, THE COMPANIES ARE REQUIR ED TO REVALUE UN-MATURED CONTRACTS AS PER RATES OF EXCHANGE NOTIFIED BY FOREIGN EXCHAN GE DEALERS' ASSOCIATION OF INDIA (FEDAI). 8.3 DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THERE WERE 2 UNSETTLED FORWARD CONTRACTS AGGREGATING TO US $ 7 6.00 LACS AS ON THE LAST DATE OF BALANCE SHEET I.E. 31-03- 2008 TO SELL THE FOREIGN CURRENCY AT AN AGREED PRICE AT A FUTURE DATE FAILING BEYOND THE LAST DATE OF ACCOUNTING PER IOD. THE LOSS IS INCURRED BY THE APPELLANT COMPANY ON ACCOUNT OF EVALUATION OF THESE UNSETTLED OUTSTANDING FORWARD FOREIGN EXCHANGE CONTRACTS ON THE LAST DATE OF THE ACCOUNTING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACTS. IT. WAS FURTH ER SUBMITTED BY THE AUTHORIZED REPRESENTATIVE THAT THE GAIN/LOSS IN FORWARD CONTRA CT FOR FOREIGN EXCHANGE TRANSACTIONS BACKED BY LIABILITY IN FOREIGN EXCHANGE ON ACCOUNT OF PURCHASE/SALES OF GOODS ARE BUSINESS LOSSES COVERED BY SECTION 28 OF THE ACT AN D NOT LOSSES IN THE NATURE OF 'SPECULATION' AS DEFINED IN SECTION 43(5) OF THE AC T. 8.4 IT HAS BEEN FURTHER SUBMITTED THAT IN THE SUBSE QUENT YEAR I.E. FINANCIAL YEAR 2008-09 RELEVANT TO A.Y.2009-10 ON SETTLEMENT OF THE SAID 2 FORWARD CONTRACTS, THERE WAS A GAIN OF RS.1,96,26,284/- WHICH IS CREDITED TO THE PROFIT & LOSS A/C AND SHOWN AS BUSINESS INCOME IN THE FINANCIAL YEAR 2008-09 RELEVANT TO A.Y.2009- 10. HENCE, THE NET FOREIGN CURRENCY DERIVATIVE LOSS IS OF RS. 3,93,03,528/- (RS.5,89,29 ,812/-LESS RS.1,96,26,284/-). 8.5 THE APPELLANT COMPANY MADE THE TRANSACTIONS OF IMPORT PURCHASE OF RAW MATERIALS AND EXPORT SALES OF MANUFACTURED GOODS IN THE NORMA L COURSE OF BUSINESS. THE LIABILITY FOR PAYMENT TO SUPPLIERS FOR IMPORT PURCHASE IN FOR EIGN EXCHANGE IS SUBJECT TO RISK OF LOSSES ON ACCOUNT OF FLUCTUATION IN EXCHANGE RATE O F FOREIGN CURRENCY. TO SAFE GUARD AGAINST SUCH LOSSES AND TO HEDGE AGAINST THE UNFORE SEEN FUTURE LOSS DUE TO FLUCTUATION IN RATE OF FOREIGN EXCHANGE TRANSACTIONS OF PURCHASE & SALES COMPANY MAKES THE FORWARD CONTRACT IN THE NORMAL COURSE OF BUSINESS TO BUY/SE LL THE FOREIGN EXCHANGE AS PER THE MARKET CONDITION AND ADVICE OF THE BANK. THUS, LOSS ES INCURRED IN FORWARD CONTRACTS FOR FOREIGN EXCHANGE IN THE NORMAL COURSE OF BUSINESS A RE NOT SPECULATIVE TRANSACTIONS AND SIMILAR THE SAID TRANSACTIONS NOT REGARDED AS SPECU LATIVE TRANSACTION AS PER THE PROVISO (A) BELOW THE SECTION 43(5) OF THE ACT AND IS A BUS INESS LOSS COVERED BY SECTION 28 OF THE ACT. IT IS SUBMITTED THAT AS PER THE ACCOUNTING STA NDARD-11 (AS-11) ISSUED BY THE ICAL AND RBI'S GUIDELINES, THE COMPANIES WERE REQUIRED T O REVALUE UN-MATURED CONTRACTS AS PER RATES OF EXCHANGE NOTIFIED BY FOREIGN EXCHANGE DEALERS' ASSOCIATION OF INDIA (FEDAI). ACCORDINGLY, ON THE BALANCE SHEET DATE, BA SED ON THE EXCHANGE RATE ON THAT DATE, PROVISION OF PROFIT/LOSS SUBSTITUTES THE FIGU RES BOOKED AT THE TIME OF CONTRACT. THUS, REVALUED LOSS/PROFIT IS DEBITED TO THE PROFIT AND L OSS ACCOUNT. FURTHER, THIS TREATMENT IS AS PER PRINCIPLES OF ACCOUNTING WHICH REQUIRED THE CUR RENT ASSETS TO BE MARKED TO THE MARKET RATE. 8 6 THE RATIO LAID DOWN IN THE DECISION OF INCOME-T AX APPELLATE TRIBUNAL, MUMBAI BENCH-'C' SPECIAL BENCH, MUMBAI IN THE CASE OF DCIT VS. M/S. BANK OF BAHRAIN & KUWAIT (ITA NO.4404 & 1883/MUM72004) IS SQUARELY AP PLICABLE TO THE APPELLANT COMPANY. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 41 8.7 THE LOSS INCURRED BY THE APPELLANT COMPANY ON A CCOUNT OF EVALUATION OF CONTRACT ON THE LAST DAY OF ACCOUNTING YEAR I.E. BEFORE THE DAT E OF MATURITY OF FORWARD CONTRACT BE ALLOWED AS BUSINESS LOSS FOR THE FOLLOWING REASONS :- ......................... 8.8 CONSIDERING ALL THE ABOVE FACTS TOGETHER, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE APPELLANT COMPANY THAT THE LOSS INCURRED BY THE APPELLANT COMPANY ON ACCOUNT OF FOREIGN EXCHANGE HEDGING TRANSACTIONS IN FORWARD CO NTRACTS WHICH IS BACKED BY THE TRADING LIABILITY OF THE APPELLANT COMPANY ON ACCOU NT OF IMPORT PURCHASES IS A BUSINESS REVENUE LOSS AND NOT SPECULATIVE LOSS AS HELD BY TH E A.O. THE CASE OF THE APPELLANT COMPANY SQUARELY FALLS UNDER PROVISO (A) TO SEC. 43 (5) OF THE ACT AND ACCORDINGLY, THE TRANSACTIONS ENTERED INTO BY THE APPELLANT COMPANY IN RESPECT OF HEDGING OF THE PROBABLE LOSS ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREI GN EXCHANGE IN FORWARD CONTRACT ARE NOT SPECULATIVE TRANSACTIONS. THE A.O. HAS FAILED TO BR ING ON RECORD ANY COGENT MATERIAL EVIDENCE IS SUPPORT OF HIS FINDING THAT THE LOSS SU FFERED BY THE APPELLANT COMPANY IS SPECULATIVE LOSS, THEREFORE, THE ACTION OF THE A.O TO DISALLOW THE SAME AS SPECULATIVE LOSS IS UNJUSTIFIED ON THE FACTS OF THE CASE AND ACCORDI NGLY, THE DISALLOWANCE MADE BY HIM IS DELETED. THE APPELLANT, ACCORDINGLY, GETS THE RELIE F OF RS.5,89,29,812/-.' FOLLOWING THE ABOVE FINDINGS OF THE CIT(A), THE HON'BLE AHMEDABAD BENCH HAS ALLOWED THE ISSUE IN FAVOUR OF ASSESSE. THO RATIO OF THE ABOVE JUDGMENT SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE WHEREIN FORWARD CONTRACT WAS ENTERED ONLY TO M ITIGATE THE RISK OF EXPOSURE TOWARDS CHANGE IN THE RATE OF EXCHANGE AGAINST PURCHASE OF RAW MAT ERIAL FOR THE PURPOSE OF BUSINESS. IT IS IMMATERIAL THAT CONTRACT WAS ENTERED BETWEEN USD AN D SWISS DOLLAR INSTEAD OF RUPEE SINCE THE ULTIMATE PURPOSE WAS TO SETTLE LIABILITY FOR PURCHA SE OF RAW MATERIAL IN USD FOR THE PURPOSE OF BUSINESS. 6.6. IT IS OBSERVED THAT AO HAS DENIED SUCH LOSS MAINLY RELYING ON INSTRUCTION NO.3/2010 WHICH WAS ISSUED BY CBDT ON 23'' MARCH, 2010 AND ON THE D ATE OF FILING THE RETURN SUCH INSTRUCTION WAS NOT ON STATUTE HENCE IT CANNOT BE MADE APPLICABLE I N CURRENT YEAR. IT IS ALSO OBSERVED THAT HON'BLE AHMEDABAD ITAT IN ABOVE REFERRED CASE HAS DECIDED T HE ISSUE IN FAVOUR OF ASSESSEE EVEN AFTER ABOVE REFERRED CBDT INSTRUCTION. IT IS ALSO OBSERVE D THAT HON'BLE AHMEDABAD ITAT IN THE CASE OF DC/7 V/S ELITE CORE TECHNOLOGIES PVT LIMITED IN ITA NO. 197 AND 508/AHD/2016, DATED 31 ST MARCH, 2010 HAS HELD THAT CBDT INSTRUCTION NO. 3/20 10 DO NOT BIND THE APPELLATE AUTHORITIES AND DECISION OF WOODWARD GOVERNOR DEALING WITH DEDUCIBI LITY OF FOREIGN EXCHANGE MARKED-TO-MARKET LOSS WOULD PREVAIL ON SUCH INSTRUCTION. THE HON'BLE DELHI HIGH COURT IN THE CASE OF MUNJAL SHOWA LIMITED V/S DCIT HAS ALSO HELD THAT CBDT INST RUCTION NO. 3/2010 CANNOT OVERRIDE THE EXISTING DECISION OF HON'BLE SUPREME COURT/HIGH COU RT ON SIMILAR ISSUE. RELIANCE IS ALSO PLACED ON FOLLOWING DECISIONS: (I) HON'BLE HYDERABAD ITAT IN CASE OF VST IN DUSTRIES V/S ADDL. CIT VIDE ITA NO.647/HYD/2012 DATED 23/08/2013 (II) HON'BLE BANGALORE ITAT IN CASE OF SUBEX L TD. V/S DCIT (68 TAXMANN.COM 233) DATED 18/03/2016 (III) HON'BLE BANGALORE ITAT IN CASE OF QUALIT Y ENGINEERING & SOFTWARE TECHNOLOGIES (P) LTD., V/S DCIT (52 TAXMANN.COM 515) DATED 14/11 /2014 (IV) HON'BLE MUMBAI ITAT IN CASE OF RELIANCE INDUSTRIES LIMITED V/S CIT (40 TAXMANN.COM 431), DATED 20/11/2013. CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE AND R ELYING UPON THE DECISIONS REFERRED SUPRA INCLUDING DECISIONS OF HON'BLE JURISDICTIONAL ITAT AND HIGH COURT, DISALLOWANCE OF LOSS OF RS.16,08,17,279/- CTOTES MADE BY AO IS DELETED. THU S, ENTIRE DISALLOWANCE MADE BY AO FOR RS.16,08,17,279/-IS DELETED. DURING THE COURSE OF A SSESSMENT PROCEEDINGS, APPELLANT HAS CLAIMED THAT EVEN PROVISION CREATED FOR LOSS DEBITED 'HEDGE RESERVE' AMOUNTING TO RS.106,40,81,277/- SHOULD BE ALLOWED AS DEDUCTION AND SAME WAS NOT ALL OWED BY AO. THIS ISSUE IS NOT EMANATING FROM THE ASSESSMENT ORDER AND THE ADDITION FOR RS. 76,08,77,279/- MADE BY THE A.O. IS ALREADY DELETED IN PROCEEDING PARA, HENCE THIS GROUND OF AP PEAL IS INFRUCTUOUS AND THE SAME IS DISMISSED. THE RELATED GROUND OF APPEAL IS PARTLY ALLOWED. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 42 46. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE ENTERED INTO CONTRACTS FOR HEDGING ITS USA DOLLAR E XPORT BY TAKING USD-INR FORWARD CONTRACTS AND TOTAL MARKET TO MARKET LOSS W AS DEBITED AT RS. 89.22 CRORES. THE DISPUTE IS PERTAINED TO MARKET TO MARK ET LOSS OF RS. 16.8 CRORES AS OUTSTANDING CONTRACT AS ON 31 ST MARCH, 2009. THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH MARKET TO MARKET LOSSES WAS N OTIONAL AND CONTINGENT IN NATURE AND SAME CANNOT BE ALLOWED AS PER INSTRUCTI ON NO. 3/2010 ISSUED BY CBDT ON 23 RD MARCH, 2010. THE LD. CIT(A) HAS DELETED THE ADDIT ION AFTER FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE AHMEDABAD IN THE CASE OF ADANI ENTERPRISES LTD. (55 TAXMAN.COM 375), CASE OF HEAVY METAL TUBES LTD. VIDE ITA NO. 1951/AHD/2011 DATED 30 TH JUNE, 2014 AND DECISION OF DCIT VS. FLITE CORE TECH. PVT. LTD. IN THE LIGHT O F THE ABOVE FACTS AND FINDING REPORTED IN THE ORDER OF LD. CIT(A) AS ELA BORATED ABOVE AND AFTER CONSIDERING THE DECISION OF CO-ORDINATE BENCHES OF ITAT AHMEDABAD CITED IN THE ORDER OF LD. CIT(A) ON SIMILAR ISSUE AND FAC TS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A). THEREFORE , THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. GROUND NO. 3 TO 3.1 (RESTRICTING ADDITION MADE ON A CCOUNT OF DISALLOWANCE U/S. 14A R.W.R. 8D OF I.T. ACT FROM RS . 5,62,68,667/- TO RS. 17,21,275/-) FILED BY REVENUE 47. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 1 OF APPEAL VIDE I.T.A. NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILA R AS IN ITA NO. 2054/AHD/2018 ASSESSMENT YEAR 2009-10, THEREFOR E, AFTER APPLYING THE DECISION ADJUDICATED VIDE I.T.A. NO. 2 49/AHD/2016 I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 43 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. GROUND NO. 1 (SUSTAINING DISALLOWANCE OF ADMINISTRA TIVE EXPENDITURE TO THE EXTENT OF RS. 17,21,275/- U/S. 14A) FILED BY AS SESSEE 48. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO . 1 OF APPEAL VIDE ITA NO. 249/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILAR AS IN ITA NO. 1960/AHD/2018 ASSESSMENT YEAR 2009-10, THEREFOR E, AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 249/ AHD/2016 AS SUPRA IN THIS ORDER, LD. CIT(A) HAS RIGHTLY RESTRIC TED THE DISALLOWANCE TO THE EXTENT OF RS. 17,21,275/-, THEREFORE, BOTH THE GROUNDS OF APPEAL OF REVENUE AND ASSESSEE ARE DISMISSED. GROUND NO. 3.2 (RESTRICTING ADDITION OF RS. 5,62,68 ,667/- TO RS. 17,21,275/- U/S. 115JB OF THE ACT) FILED BY REVENUE 49. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 3 OF APPEAL VIDE I.T.A. NO. 1846/AHD/2016 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1960/AHD/2018 ASSESSMENT YEAR 2009-10 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE I.T.A NO. 1846/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND O F THE APPEAL OF THE ASSESSEE IS DISMISSED. GROUND NO. 4 (DELETING ADDITION OF RS. 7,54,682/- M ADE ON ACCOUNT OF CESSATION OF LIABILITY U/S. 41(1) OF THE ACT) 50. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 3 OF APPEAL VIDE I.T.A. NO. 2057/AHD/2016 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 44 NO. 2054/AHD/2018 ASSESSMENT YEAR 2009-10, THEREFOR E, AFTER APPLYING THE DECISION ADJUDICATED VIDE I.T.A NO. 20 57/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. GROUND NO. 5 (DELETING THE ADDITION OF RS.1,14,741/ - MADE ON ACCOUNT OF DISALLOWANCE U/S. 40(A)(IA) OF THE ACT) FILED BY RE VENUE 51. DURING ASSESSMENT, THE ASSESSING OFFICER OBSER VED THAT ASSESSEE HAS MADE PAYMENT OF RS. 1,14,741/- AS RECRUITMENT EXPE NSES TO PERFECT CONNECTION LTD. WITHOUT DEDUCTING TAX ON THE AFORES AID PAYMENT. THESE EXPENSES WAS DISALLOWED AS PER PROVISION OF SECTION 40(A)(IA). IN APPEAL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF EXPENSES HOLDIN G THAT SAME WAS OF THE NATURE OF REIMBURSEMENT OF EXPENDITURE WHICH DOES N OT REQUIRE DEDUCTION OF TAX. THE RELEVANT PART OF DECISION OF LD. CIT(A) I S AS UNDER:- 10.3 / HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND SUBMISSION FILED BY THE APPELLANT. THE APPELLANT HAS MADE PAYMENT OF RS. 1,14,741/- AS RECRUITMENT EXPENSES OF PERFECT CONNECTION LIMITED. THE AO HAS OBSERVED THAT AS PAYMENT IS IN NATURE OF CONTRACT, ASSESSES NEED TO HAVE DEDUCTED TDS ON SUCH PAYMENT HENCE HE MADE DISALLOW ANCE OF RS.1,14,741/- UNDER SECTION 40(A)(IA) OF THE ACT. HOWEVER, ON CAREFUL CONSIDERA TION OF LEDGER ACCOUNT SUBMITTED BY APPELLANT WHICH WAS ALSO PART OF SUBMISSION DURING ASSESSMENT PROCEEDINGS THAT APPELLANT HAS REIMBURSED TRAVELLING TICKETS OF CANDIDATES WHICH DOES NOT INV OLVE ANY CONTRACTUAL PAYMENT AS OBSERVED BY AO. THIS EXPENDITURE IS PURELY REIMBURSEMENT OF EXP ENDITURE WHICH DOES NOT REQUIRE DEDUCTION OF TDS HENCE THE ADDITION MADE BY THE AO FOR RS.1,14,741/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 52. HEARD BOTH THE SIDES AND PERUSED THE MATERIA L ON RECORD. WITHOUT REITERATING THE FACTS AS ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A), SINCE THE ASSESSING OFFICER HAS NOT DIS PROVED THE FACT THAT ASSESSEE HAS MADE PAYMENT ON ACCOUNT OF REIMBURSEME NT OF EXPENDITURE ON WHICH NO TDS IS DEDUCTABLE. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 45 GROUND NO. 6 & 6.1 (LONG TERM CAPITAL LOSS OF RS. 6 ,58,40,160/- AS AGAINST LONG TERM CAPITAL GAIN OF RS. 5,30,66,091/- OFFERED IN THE ORIGINAL RETURN OF INCOME AND REVISED RETURN OF INCOME) FILE D BY REVENUE 53. DURING THE COURSE OF ASSESSMENT THE ASSESSEE HAS BROUGHT TO THE KNOWLEDGE OF THE ASSESSING OFFICER VIDE LETTER DATE D 29 TH MARCH, 2012 THAT BECAUSE OF ERROR IN COMPUTING THE INCOME UNDER THE HEAD LONG TERM CAPITAL GAIN, IT HAS OMITTED TO TAKE CORRECT COST OF ACQUIS ITION WHILE COMPUTING THE LONG TERM CAPITAL LOSS OF RS. 7,640,519/- ON THE SA LE OF RS. 7,13,383 SHARES OF ARVIND BRAND LTD. THE ASSESSEE FURTHER SUBMITTED THAT CORRECT LONG TERM LOSS ON THE SALE OF THOSE SHARES WOULD HAVE WORKED OUT TO THE AMOUNT OF RS. 1,265,46,770/- AS AGAINST THE LOSS OF RS. 76,40,519 /- COMPUTED IN ITS RETURN OF INCOME. THE ASSESSEE HAS GIVEN THE WORKING AS PER WHICH THE LONG TERM CAPITAL GAIN OF RS. 5,30,66,091/- SHOWN IN THE REVI SED RETURN WAS REQUIRED TO BE RE-STATED AS LONG TERM CAPITAL LOSS OF RS. 6,58, 40,160/-. THE AFORESAID SUBMISSION OF THE ASSESSEE WAS NOT CONSIDERED BY TH E ASSESSING OFFICER. SUBSEQUENTLY, IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) REFERRED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS 349 ITR 336 AND DECISION O F HONBLE GUJARAT HIGH COURT IN THE CASE OF MITESH IMPAX 46 TAXMAN.C OM 390 WHEREIN IT IS STATED THAT ASSESSEE CAN CLAIM ADDITIONAL CLAIM BEF ORE CIT(A) EVEN THOUGH NO REVISED RETURN OF INCOME IS FILED. THEREFORE, IN ACCORDANCE WITH THE FINDINGS LAID DOWN IN THESE DECISIONS, THE LD. CIT( A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOWS THE LOSSES AS PER PROVI SION OF THE ACT AFTER VERIFICATION OF THE WORKING GIVEN BY THE ASSESSEE. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 46 54. AFTER HEARING BOTH THE SIDES AND PERUSING T HE DECISION OF THE LD. CIT(A) BASED ON THE FINDING OF HONBLE JURISDICTION AL HIGH COURT AS SUPRA WE DO NOT FIND ANY ERROR IN THE DIRECTION OF THE LD . CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 2 (ADDITION OF RS. 6937768/- ON ACCOUNT OF PROVIDENT FUND AND ESI) FILED BY ASSESSEE 55. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 4 OF CROSS OBJECTION VIDE CO NO. 43/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMILAR AS IN ITA NO. 1960/AHD/2016 ASSESSMENT YEAR 2009-10, T HEREFORE, AFTER APPLYING THE DECISION ADJUDICATED VIDE CO NO. 43/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. 56. GROUND NO. 3: - REGARDING INITIATION OF PENA LTY IS IMMATURE AT THIS STAGE AND THE SAME IS DISMISSED. ITA NO. 2182/AHD/2018 A.Y. 2015-16 FILED BY REVENUE AND ITA NO. 1961/AHD/2018 A.Y. 2015-16 FILED BY ASSESSEE GROUND NO. 1 (RESTRICTING DISALLOWANCE U/S. 14A R.W .R. 8D OF THE ACT FROM RS. 31,61,27,434/- TO RS. 3,07,53,555/- FILED BY REVENUE & GROUND NO. 1 (SUSTAINING DISALLOWANCE OF ADMINISTRATIVE EX PENDITURE TO THE EXTENT OF RS. 3,07,53,555/-) FILED BY ASSESSEE 57. DURING THE COURSE OF ASSESSMENT, THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME TO THE EXTENT O F RS. 1,01,23,808/- WHICH WAS CLAIMED AS EXEMPT. THE ASSESSEE HAS SUO MOTO DISALLOWED A SUM I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 47 OF RS. 24,33,945/- U/S. 14A OF THE ACT. ON QUERY, THE ASSESSEE HAS GIVEN DETAILED SUBMISSION INCORPORATED AT PAGE NO. 3 TO 1 0 OF THE ASSESSMENT ORDER POINTING OUT THAT NO OTHER EXPENDITURE HAS BEEN INC URRED DURING THE YEAR UNDER CONSIDERATION WHICH IS ATTRIBUTABLE TO EARNIN G OF EXEMPT INCOME. HOWEVER, THE ASSESSING OFFICER HAS NOT AGREED WITH THE SUBMISSION OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S. 14A IN ACCORDANCE WITH RULE 8D OF THE I.T. RULE, 1962 TO THE AMOUNT OF RS. 31,6 1,434/-. 58. THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS. 3,07,53,555/- AFTER TAKING INTO CONSIDERATION THAT ASSESSEE HAS ALSO EARNED LONG TERM CAPITAL GAIN OF RS. 9.69 CRORE WHICH WAS EXEMPT U/S. 10(38) OF THE ACT. 59. DURING THE COURSE OF APPELLATE PROCEEDINGS BE FORE US, THE LD. COUNSEL HAS VEHEMENTLY CONTENDED THAT ASSESSING OFFICER HAS NOT GIVEN EXPLICIT FINDING AS TO WHY SUO MOTTO DISALLOWANCE IS NOT ACC EPTABLE. HE HAS ALSO SUBMITTED THAT ASSESSING OFFICER HAS NOT POINTED OU T ANY DEFECT IN THE DISALLOWANCE WORKED OUT BY THE ASSESSEE AND RESORTE D TO RULE 8D WITHOUT THE REQUIRED JURISDICTION. 60. THE LD. COUNSEL HAS SUBMITTED THAT FACTS AND ISSUE IN THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF ITA T SPECIAL BENCH IN THE CASE VINEET INVESTMENT PVT. LTD. 85 TAXMAN.COM 415 THAT ONLY THOSE INVESTMENT ARE TO BE CONSIDERED FOR COMPUTING AVERA GE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. ON TH E OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 48 61. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WITHOUT REITERATING THE FACTS AS ELABORATED ABOVE IN THIS O RDER DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER HAS COMPUTED DISA LLOWANCE U/S. 14A R.W.S. 8D TO THE AMOUNT OF RS. 31,61,27,434/-. THE LD. CIT(A) HAS RESTRICTED THE SUCH DISALLOWANCE TO THE EXTENT OF RS. 3,07,53, 555/-. THE LD. CIT(A) COUNSEL HAS REFERRED THE SUBMISSION MADE TO THE LD. CIT(A) DATED 19-06- 2018. IN ITS SUBMISSION DATED 19-06-2018 THE ASS ESSEE HAS SPECIFICALLY BROUGHT TO THE KNOWLEDGE OF THE LD. CIT(A) THE FOLL OWING JUDICIAL PRONOUNCEMENTS:- (I) DECISION OF ITAT DELHI IN CASE OF ACIT VS. VINEET INVESTMENT PVT. LTD. [2017] 82 TAXMANN.COM 415 (DELHI-TRIB) DATED 1 6.06.2017. (II) DECISION OF HONBLE ITAT HYDERABAD IN CASE OF OCEAN SPARKLE LTD. IN ITA NO. 438/HYD/2016 DATED 08/06/2018 (III) DECISION OF HONBLE ITAT KOKATA IN CASE OF RATANSINGH JIVANDAS SURAIYA IN ITA NO. 1691/KOL/2013 DATED 22.04.2016 (IV) DECISION OF HONBLE ITAT AHMEDABAD IN CASE OF SARABHAI HOLDING PVT. LTD. IN ITA NO. 2328/AHD/2012 DATED 11.04.2011 THAT ONLY THOSE INVESTMENT ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING YE AR. WITH THE ASSISTANCE OF THE LD. REPRESENTATI VES, WE HAVE GONE THROUGH THE DECISION OF THE SPECIAL BENCH OF THE ITAT DELHI IN CASE OF ACIT VS. VINEET INVESTMENT PVT. LTD. (2017) 82 TAXMANN.COM 415 (DEL HI-TRIB) DATED 16.06.2017. IN VINEET INVESTMENT (P) LTD. IT IS H ELD BY THE SPECIAL BENCH OF THE TRIBUNAL THAT ONLY THOSE INVESTMENT ARE TO BE C ONSIDERED BY COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT IN COME DURING THE YEAR. WE ARE OF THE CONSIDERED VIEW THAT RATIO LAID IN TH E ABOVE DECISION IS I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 49 SQUARELY APPLICABLE IN THE INSTANT CASE. THEREFORE , WE SET ASIDE THE ORDER OF THE LD. CIT(A) FOR THE IMPUGNED ASSESSMENT YEAR AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO MAKE A DE-NOVO ORDER AFTER FOLLOWING THE RATIO LAID DOWN IN VINEET INVESTMENT PVT. LTD. (SUP RA) AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEAD TO THE ASSESSE E. IN THE RESULT, THIS GROUND OF APPEAL OF REVENUE AND ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. GROUND NO. 2 (DELETING THE ADDITION OF RS. 31,61,27 ,434/- WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT) F ILED BY REVENUE 62. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO. 3 OF CROSS OBJECTION VIDE CO NO. 43/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMI LAR AS IN ITA NO. 2182/AHD/2016 ASSESSMENT YEAR 2015-16, THER EFORE, AFTER APPLYING THE DECISION ADJUDICATED VIDE CO NO. 43/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. GROUND NO. 2 (SUSTAINING THE ADDITION OF RS. 205861 4/- ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESI) FILED BY ASSESSEE 63. AS THE FACTS AND ISSUE INVOLVED IN GROUND N O. 4 OF CROSS OBJECTION VIDE CO NO. 43/AHD/2016 ASSESSMENT YEAR 2010-11 ARE SIMI LAR AS IN ITA NO. 2182/AHD/2016 ASSESSMENT YEAR 2015-16, THER EFORE, AFTER APPLYING THE DECISION ADJUDICATED VIDE CO NO. 43/AHD/2016 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E ASSESSEE IS DISMISSED. I.T.A NOS. 249/AHD/2016 & 9 OTHERS PAGE NO DCIT VS. M/S. ARVIND LTD. 50 64. GROUND NO. 3:- INITIATION OF PENALTY PROCEEDI NGS U/S. 271(1)(C) IS IMMATURE AT THIS STAGE AND BECOMES INFRUCTUOUS AND DISMISSED. 65. IN THE RESULT, THE APPEAL ITA 1960/AHD/2018, C O 43/AHD/2016, ITA 1846/AHD/2016, CO 42/AHD/2019 AND 1961/AHD/2018 FIL ED BY ASSESSEE ARE PARTLY ALLOWED AND APPEAL ITA 2054/AHD/2018, ITA 24 9/AHD/2016, ITA 2057/AHD/2018, ITA 273/AHD/2018 AND ITA 2182/AHD/20 18 FILED BY REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2021 SD/- SD/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30/09/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,