Jindal Stainless Ltd., Hisar V. ACIT, New Delhi

ITA 2518/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2989 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 01-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 30-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA KATRU
• Keywords: Depreciation; Rule of consistency; Earning of tax free income; Cost of acquisition
• Section: 43B; 14A; 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , DELHI D BENCH , NEW D ELHI BEFORE SHRI R.K. PANDA ACCOUNTANT MEMB E R AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 2518 /DEL /201 3 [ ASSESSMENT YEAR: 20 0 5 - 0 6 ] JINDAL STAINLESS STEEL O.P. JINDAL MARG HISAR PAN : AABCJ 1969 M VS. THE ACIT CIRCLE 6 NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 2882 /DEL/201 5 [ASSESSMENT YEAR: 200 5 - 06 ] THE ACIT CIRCLE 6 NEW DELHI VS. JINDAL STAINLESS STEEL O.P. JINDAL MARG HISAR PAN : AABCJ 1969 M (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI AJAY VOHRA, SR. ADV. SHRI RAJ KUMAR, CA R EVENUE BY: MS. ANUPAMA KATRU, CIT - DR DATE OF HEARING : 0 1 .0 3 .2017 DATE OF PRONOUNCEMENT : 31 .0 5 .2017 ORDER PER R.K. PANDA , ACCOUNTANT MEMBER : - TH ESE ARE CROSS APPEAL S . THE F IRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDER DATED 2 ITA NOS. 2882 & 2518/DEL/2013 08 . 0 2 .20 1 3 OF THE CIT(A) - I , NEW DE LHI RELATING TO A.Y. 200 5 - 0 6 . FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 2882/DEL/2013 [B Y THE REVENUE ] 2. GROUND OF APPEAL NO. 1 BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED ALLOWING THE CLAIM OF SHORT TERM CAPITAL LOSS OF RS. 1,84,48,188/ - ON TRANSACTION OF SALE OF 18.98 LACS UNIT OF TATA GUILT SECURITIES FUND ON WHICH BONUS UNITS AT 1:1 WAS ALLOTTED TO THE ASSESSEE, WITHOUT TAKING INTO CONSIDERING THE PROVISIONS OF SECTION 94(8) OF THE INCOME TAX APPLICABLE FROM A.Y. 2005 - 06. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAD MADE AN INVESTMENT OF RS. 4 CRORES IN TATA GUILT SECURITIES FUND FOR WHICH IT W AS ALLOTTED 18.08 LAKH UNITS OF THE FUND. THE FUND DECLARED BONUS AT THE RATIO OF 1:1. AS A RESULT, THE ASSESSEE WAS IN POSSESSION OF 37.96 LAKH UNITS OF THE FUND AT THE ORIGIN AL COST OF RS.4 CRORE ONLY. DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE SOLD 18.98 LAKH UNITS FOR A CONSIDERATION OF RS.2,03,61,324/ - . AGAINST THE DISTRIBUTED COST OF RS.2 CRORE, THE ASSESSEE ACCOUNTED FOR A PROFIT RS.3,61.324/ - IN ITS BOOKS. HOWEVER , FOR TAX PURPOSES, THE COST OF THE UNITS SOLD WAS TAKEN AT ORIGINAL COST OF RS.4 CRORE, THUS 3 ITA NOS. 2882 & 2518/DEL/2013 RESULTING IN LOSS OF RS. 1,96,38,676/ - . ADJUSTING THE SAID CAPITAL LOSS OF RS. 1.96,38.676/ - IN SALE OF TATA GUILT SECURITEIS FUND WITH THE CAPITAL GAIN OF RS. 1, 76, 12,162/ - IN SALE OF OTHER MUTUAL FUNDS / UNITS / SECURITIES, THE NET CAPITAL LOSS DECLARED BY THE ASSESSEE IN THE TAX RETURN WAS RS.20,26,514/ - . 4. THE ASSESSEE HAD DISCLOSED A SUM OF RS. 44,34,823 / - AS NET PROFIT ON SALE OF INVESTMENT WHICH WAS DISCLOSED IN THE PROFIT AND LOSS ACCOUNT. THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED FROM THE DETAILS FILED BY THE ASSESSEE THAT THE INCOME DISCLOSED IN THE PROFIT AND LOSS ACCOUNT AS PROF IT ON SALE OF INVESTMENT OF RS. 46.84 LAKHS DOES NOT TALLY WITH THE DETAILS FILED IN THE RETURN. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE DIFFERENCE. 5. IN RESPONSE TO THE SAID QUERY , THE ASSESSEE BROUGHT CERTAIN NEW FACTS BEFORE THE A.O, THE DETAILS OF WHICH ARE AS UNDER: SHORT TERM CAPITAL GAIN /LONG TERM CAPITAL LOSS) 46.84 ADD: - STCG TRANSFERRED TO ORISSA DIVISION 132.89 LESS: - DIFFERENCE IN COST DUE TO BONUS SHARE AS PER AS - 13 200.00 STCL AS PER I T RETURN ( 20. 27) 6. FROM THE ABOVE, THE A.O OBSERVED THAT THERE WAS TOTAL SHORT TERM CAPITAL GAIN OF RS. 179.73 LAKHS WHICH INCLUDES SHORT TERM CAPITAL GAIN TRANSFERRED TO ORISSA DIVISION OF RS. 13 2.89 LAKHS FOR DE - CAPITALIZATION . 4 ITA NOS. 2882 & 2518/DEL/2013 H OWEVER THIS FIGURE HAS BEEN STATED AS RS. 131.64 LAKHS IN THE LETTER OF THE ASSESSEE. FURTHER , A SUM OF RS. 200 LAKHS HAS BEEN DEDUCTED ON ACCOUNT OF DIFFERENCE IN COST DUE TO BONUS SHARES. EVEN THIS FIGURE OF LOSS OF RS. 200 LAKHS HAS BEEN STATED AT RS. 1 98.75 LAKHS IN THE LETTER OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, B OTH THESE DETAILS OF INCOME TRANSFERRED IN ORISSA DIVISION FOR DE CAPITALIZATION AND ASKING FOR THE BENEFIT OF LOSS DUE TO BONUS SHARE HAS COME TO HIS NOTICE AT THE FAG END OF THE ASSESSMENT PROC EEDINGS. NO REASONS FOR DE CAPITALIZATION OF INCOME OF ORISSA DIVISION W AS FILED BY THE ASSESSEE. T HEREFORE , HE HELD THAT ASSESSEE EARNED SHORT TERM CAPITAL GAIN OF RS. 179.73 LAKHS WHICH HAS NOT BEEN OFFERED FOR TAXATION IN THE RETURN FILED BY THE ASSESSEE. HE, THEREFORE, REJECTED THE C LAIM OF RS. 200 LAKHS MADE BY THE ASSESSEE FOR THE FIRST TIME THROUGH ITS LETTER DATE 27 - 12 - 2007 ON ACCOUNT OF BONUS SHARE ON ACCOUNT OF TWIN REASON. FIRSTLY NO SUCH CLAIM HAS BEEN MADE IN THE ORIGINAL RETURN FILED BY THE ASSESSEE . S ECONDLY , NO DETAILS /DOCUMENTARY EVIDENCES IN SUPPORT OF ITS CLAIM HAS BEEN PRODUCED BEFORE HIM AT THE TIME OF ASSESSMENT. THE ASSESSING OFFICER, ACCORDINGLY, ASSESSE D THE I NCOME UNDER THE HEAD SHORT TERM CAPITAL GAIN AT RS. 179.37 LAKHS . SINCE THE ASSESSEE HA D VOLUNTARILY ADDED A SUM OF RS. 511,188/ - ON ACCOUNT OF INCENTIVE AND OTHER INCOME UNDER THE H EAD SHORT TERM CAPITAL GAIN AS PER PAGE NO. 5 ANNEXED WITH THE RETURN BUT HAS NOT INCLUDED THE SAME IN THE REVISED WORKING SUBMITTED , THEREFORE, THE ASSESSING OFFICER ALSO ADDED THE SAME AMOUNT TO THE INCOME OF THE ASSESSEE UNDER THE HEAD OF SHORT TERM CAPITAL GAIN. 5 ITA NOS. 2882 & 2518/DEL/2013 7. IN APPEAL, THE LD. CIT(A) DELETED THIS SUM BY OBSERVING AS UNDER: THE APPELLANT HAD, IN COMPUTING THE COST OF TATA GUILT SECURITIES FUND SOLD, APPLIED THE FIFO (FIRST IN FIRST OUT) PRINCIPLE. THE ONLY POINT FOR VERIFICATION, THEREFORE, WAS WHETHER THE APPELLANT HAD TAKEN THE COST OF THE BALANCE 18.98 LAKH UNITS R ECEIVED AS BONUS AS NIL WHEN THESE UNITS WERE SOLD. THE APPELLANT WAS ASKED TO CLARIFY THIS POSITION VIDE LETTER DATED 08.01.2013. THE APPELLANT REPLIED VIDE LETTER DATED 15.01.2013 THAT THE BONUS SHARES WERE SOLD DURING FY 2006 - 07 RELEVANT TO AY 2007 - 08 W HEREIN THE COST HAD BEEN TAKEN AT NIL. THE FIFO METHOD IS AN ACCEPTED WAY OF COMPUTING CAPITAL GAIN. THE COST OF THE BONUS SHARES HAS BEEN TAKEN AT NIL VALUE IN AY 2007 - 08 BY THE APPELLANT. THE AO IS DIRECTED TO VERIFY THIS CLAIM OF THE APPELLANT FOR AY 20 07 - 08 TO ENSURE THAT THE CORRECT CAPITAL GAIN HAS BEEN OFFERED TO TAX. NEEDLESS TO SAY THAT REMEDIAL ACTION SHALL BE TAKEN IF THE APPELLANT IS FOUND NOT TO HAVE CORRECTLY COMPUTED THE CAPITAL GAIN IN AY 2007 - 08. THIS GROUND OF APPEAL IS, ACCORDINGLY, ALLOW ED FOR AY 2005 - 06. THE ADDITION OF RS. 1,84,48,188/ - IS DELETED AND APPELLANT GETS RELIEF OF THIS AMOUNT. 8. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. DR STRONGLY OBJECTED TO THE ORDER OF THE LD. CIT(A). HE SUBMITTED THAT FI F O IS NOT APPLICABLE SINCE IT IS A MIXED SYSTEM OF ACCOUNTING. HE ACCORDINGLY SUBMITTED THAT SINCE THE ORDER OF THE A.O WAS JUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAME SHOULD BE UPHELD AND THE ORDER PASSED BY THE LD. CIT(A) SHOULD BE REVERSED. 6 ITA NOS. 2882 & 2518/DEL/2013 10. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). REFERRING TO THE PROVISIONS OF SECTION 94(8) OF THE INCOME - TAX ACT, 1961, HE SUBMITTED THAT THE SAID PROVISIONS ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE CONDITIONS ARE CUMULATIVE. HE SUBMITTED THAT IN THE INSTANT CASE, THE UNITS WERE PURCHASED ON 24.11.2004 AND THE PERIOD OF THREE MONTHS EXPIRES ON 24.02.2005. HOWEVER, THE ALLOTMENT OF BONUS SHARES W AS MADE IN MARCH 2005. REFERRING TO PAGE 11 OF THE ORDER OF THE LD. CIT(A), HE DRE W THE ATTENTION OF THE BENCH TO THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A), ACCORDING TO WHICH, THE ASSESSEE HAD PURCHASED UNITS OF TATA GUILT SECURITIES FUND FOR RS. 4 CRORES ON 24.11.2004 . THE SAID MUTUAL FUND DECLARED BONUS AT THE RATIO 1:1. A CCORDINGLY, THE COST OF ACQUISITION IN THE BOOKS WAS DISTRIBUTED EQUALLY ON THE ENTIRE HOLDING WHEREAS UNDER THE INCOME - TAX ACT, WHILE COMPUTING THE SHORT TERM CAPITAL GAIN/LOSS ON SALE OF MUTUAL FUND, THE ENTIRE COST OF ACQUISITION U/S 48 WAS CLAIM ED AT RS. 4 CRORES. AS S A RESULT OF THIS EXERCISE, THERE IS DIFFERENCE OF RS. 2 CRORES. 11. REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHAMBHU MERCANTILE LTD. 325 ITR 535, HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT THE CONDITIONS PRESCRIBED IN CLAUSES (A) TO (C) OF SUB - SECTION (7) OF SECTION 94 ARE CUMULATIVE IN NATURE. IT HAS BEEN HELD THAT WHEN THE TRANSACTION OF PURCHASE AND SALE IS IN RELATION TO A SECURITY OR A UNIT IN RESPECT OF WHICH DIVIDEND OR INCOME RECEIVED IS 7 ITA NOS. 2882 & 2518/DEL/2013 EXEMPT AND IT IS WITHIN STATUTORY PERIOD OF THREE MONTHS, AS PRESCRIBED IN CLAUSES (A) AND (B) OF SECTION 94(7) OF THE ACT, THAT LOSS, IF ANY, WOULD STAND DISALLOWED TO EXTENT OF DIVIDEND OR INCOME RECEIVED OR RECEIV ABLE ON SUCH SECURITIES OR UNITS IN COMPUTING ASSESSEES INCOME CHARGEABLE TO TAX. 12. REFERRING TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA S E OF CIT VS. ALKA BHOSLE 325 ITR 550 [BOM] HE SUBMITTED TH A T THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT ALL THE THREE CONDITIONS THAT ARE SPELT OUT IN CLAUSES (A), (B) AND (C) OF SECTION 94(7) OF THE ACT MUST BE FULFILLED BEFORE CONSEQUENCE THAT IS ENVISAGED IN SECTION, COMES INTO FORCE. HE, ACCORDINGLY, SUBMITTED THAT THE PROVISIONS OF SECTION 94(8) ARE NOT APPLICABLE TO THE PRESENT CASE. 13. SO FAR AS THE ARGUMENT OF THE LD. DR THAT FIFO IS NOT AN ACCEPTABLE METHOD IS CONCERNED , THE LD. AR FILED A COPY OF CIRCULAR ISSUED BY CBDT BEARING NO. 768 DATED 24.06.1998 AND SUBMITTED THAT F IFO IS NOT AN ACCEPTED METHOD. THEREFORE, THE LD. DR IS NOT JUSTIFIED IN STATING THAT FIFO METHOD IS AN ACCEPTABLE METHOD. 14 . WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES , PERUSED ORDERS OF THE A.O AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE HAD MADE AN INVESTMENT 8 ITA NOS. 2882 & 2518/DEL/2013 OF RS.4 CRORE IN TATA GUILT SECURITIES FUND FOR WHICH IT WAS ALLOTTED 18.98 LAKH UNITS OF THE FUND. THE FUND DECLARED BONUS AT THE RATIO 1:1. AS A RESULT, THE ASSESSEE WAS IN POSSESSION OF 37.96 LAKH UNITS OF THE FUND AT ORIGINAL COST OF 4 CRORES ONLY. DURING THE IMPUGNED A.Y, THE ASSESSEE HAD SOLD 18.98 LAKH UNITS AT A CONSIDERATION OF RS. 2,03, 61,324/ - BY APPORTIONING THE COST OF RS. 2 CRORES. HOWEVER, FOR TAX PURPOSES, THE COST OF THE UNITS SOLD WAS TAKEN AT ORIGINAL COST OF RS. 4 CRORES, THUS RESULTING IN LOSS OF RS. 1,96,38,676/ - . THE ASSESSEE ADJUSTED THE SAID CAPITAL LOSS ON ACCOUNT OF SA LE OF TATA GUILT SECURITIES FUND WITH CAPITAL GAIN OF RS. 1,76,12,162/ - ON ACCOUNT OF SALE OF OTHER MUTUAL FUNDS/UNITS/SECURITIES. THUS, THE ASSESSEE DECLARED NET CAPITAL LOSS OF RS. 20,26,514/ - . 15. WHILE DOING SO, THE ASSESSEE HAD COMPUTED COST OF TA TA GUILT SECURITIES FUND WHICH WERE SOLD APPLYING FIFO PRINCIPLE. WE FIND THE A.O DISREGARDING THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE, MADE AN ADDITION OF RS. 1,84,48,188/ - WHICH HAS BEEN DEL E TED BY THE LD. CIT(A). THE REASONING GIVEN BY THE LD. CIT(A) HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAS. WE DO NOT FIND ANY INFIRMITY IN THE SAME. AS SUBMITTED BEFORE THE LD. CIT(A), WE FIND THE ASSESSEE HAD PURCHASED UNITS OF TATA GUILT SECURITIES FUND ON 24.11.2004 AND THE SAID MUTUAL FUND DECLARE D BONUS IN THE RATIO 1:1 IN THE MONTH OF M ARCH 2005. 9 ITA NOS. 2882 & 2518/DEL/2013 16. THE PROVISIONS OF SECTION 94(1) READ AS UNDER: 94 (1) WHERE THE OWNER OF ANY SECURITIES (IN THIS SUB - SECTION AND IN SUB - SECTION (2) REFERRED TO AS THE OWNER) SELLS OR TRANSFERS THOSE SECURITIES, AND BUYS BACK OR REACQUIRES THE SECURITIES, THEN, IF THE RESULT OF THE TRANSACTION IS THAT ANY INTEREST BECOMING PAYABLE IN RESPECT OF THE SECURITIES IS RECEIVABLE OTHERWISE THAN BY THE OWNER, THE INTEREST PAYABLE AS AFORESAID SHALL, WHETHER IT WOULD OR WOULD NOT HAVE BEEN CHARGEABLE TO INCOME - TAX APART FROM THE PROVISIONS OF THIS SUB - SECTION, BE DEEMED, FOR ALL THE PURPOSES OF THIS ACT, TO BE THE INCOME OF THE OWNER AND NOT TO BE THE INCOME OF ANY OTHER PERSON. EXPLANATION. THE REFERENCES IN TH IS SUB - SECTION TO BUYING BACK OR REACQUIRING THE SECURITIES SHALL BE DEEMED TO INCLUDE REFERENCES TO BUYING OR ACQUIRING SIMILAR SECURITIES, SO, HOWEVER, THAT WHERE SIMILAR SECURITIES ARE BOUGHT OR ACQUIRED, THE OWNER SHALL BE UNDER NO GREATER LIABILITY TO INCOME - TAX THAN HE WOULD HAVE BEEN UNDER IF THE ORIGINAL SECURITIES HAD BEEN BOUGHT BACK OR REACQUIRED. 17. WE FIND THE HON'BLE DELHI H IGH COURT IN THE CASE OF SHAMBHU MERCANTILE LTD [SUPRA] HAS HELD THAT THE CONDITIONS PRESCRIBED IN CLAUSES (A) TO (C) OF SUB - SECTION (7) OF SECTION 94 ARE CUMULATIVE IN NATURE. ACCORDINGLY, IT HAS BEEN HELD THAT IT IS ONLY WHEN THE TRANSACTION OF PURCHASE AND SALE IS IN RELATION TO A SE CURITY OR A UNIT IN RESPECT OF WHICH DIVIDEND OR INCOME RECEIVED IS EXEMPT AND IT IS WITHIN STIPULATED PERIOD OF THREE MONTHS AS PRESCRIBED IN CLAUSES (A) AND (B) OF SECTION 94(7) OF THE ACT, THE LOSS, IF ANY, WOULD STAND DISALLOWED TO THE EXTENT OF DIVIDE ND OR INCOME RECEIVED OR RECEIVABLE ON SUCH SECURITIES OR UNITS IN COMPUTING ASSESSEES INCOME 10 ITA NOS. 2882 & 2518/DEL/2013 CHARGEABLE TO TAX. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SMT. ALKA BHONSLE [SUPRA]. 18. SO FAR AS THE ARGUMENT OF THE LD. DR THAT FIFO IS NOT AN ACCEPTABLE PRINCIPLE IS CONCERNED, WE FIND THE CBDT ITSELF VIDE CIRCULAR NO. 768 DATED 24.06.1998 HAS HELD THAT FIFO IS AN ACCEPTED METHOD. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE DETAILED ORDER PASSED BY THE LD. CIT(A) ON THI S ISSUE, WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UPHELD AND GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 19. GROUND NO. 2 OF THE APPEAL OF THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT SALES IS TO BE RECOGNIZED AS PER THE ESTABLISHED ACCOUNTING POLICIES AT THE TIME OF CREDITING THE SALES IN THE BOOKS OF ACCOUNTS AND NOT ARBITRARILY BY TAKING SHIPPING OF GOODS AS REFERENCE POINT FOR BOOKING OF SALES IN RESPECT OF EXPORTS. THIS ACCOUNTING OF SALES CANNOT BE ACCEPTED MERELY ON THE GROUND OF CONSISTENCY . 20. FACTS OF THE CASE, IN BRIEF, ARE THAT THE A.O, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THERE IS DIFFERENCE IN THE AMOUNT OF SAL ES REPORTED TO SALES TAX AUTHORITY AND THE AMOUNT OF SALES DECLARED IN THE I.T. RETURN. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE 11 ITA NOS. 2882 & 2518/DEL/2013 DISCREPANCY. FROM THE VARIOUS DETAILS FILED BY THE ASSESSEE, HE OBSERVED THAT THE SALES DECLARED BY THE ASSESSEE BEFOR E THE SALES TAX AUTHORITY INCLUDED THE VALUE OF STOCK OF FINISHED GOODS AGGREGATING TO RS. 100.03 CRORES WHEREAS THE VALUE OF GOODS LYING AT THE PORT WITH THE RETURN FILED BEFORE THE I.T. AUTHORITIES WAS AT RS. 80.52 CRORES. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE, THE A.O MADE ADDITION OF RS. 19.51 CRORES BEING THE DIFFERENCE BETWEEN SALES DECLARED BEFORE THE SALES TAX AUTHORITIES AND THE CORRESPONDING VALUATION OF SUCH STOCK TAKEN IN THE BALANCE SHEET . 21 . BEFORE THE LD. CIT(A), THE ASSESSEE MADE ELABORATE SUBMISSIONS BASED ON WHIC H THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS FILED BY THE APPELLANT. THERE IS NO DISPUTE ON THE QUANTUM OF GOODS OR OTHER FACTS OF THE CASE. THE ONLY DISPUTE IS HOW THE VALUE OF STOCK GOODS LYING AT PORT SHOULD BE ACCOUNTED FOR. THE AO ADDED THE EXCESS VALUE OF GOODS SHOWN IN SALES TAX RECORDS AS INCOME. THE APPELLANT CLAIMS THAT THE V ALUE OF GOODS WAS ALREADY DECLARED AT COST IN THE STOCK AND SHOWN AT ENHANCED VALUE AS SALES IN THE NEXT FINANCIAL YEAR (FY), AS WAS BEING DONE BY THE APPELLANT YEAR AF T ER YEAR. I HAVE CONSIDERED THE RIVAL CLAIMS AND AGREE WITH THE APPELLANT THAT THE AO ER RED IN NOT CONSIDERING THE METHOD OF ACCOUNTING CONSISTENTLY BEING FOLLOWED BY THE APPELLANT. THIS WAS ALSO NOT CHALLENGED BY REVENUE EARLIER. IN FACT, IF THE METHOD ADOPTED BY AO IS FOLLOWED, IT WILL RESULT IN REDUCTION OF INCOME IN THE SUBSEQUENT FY BY A N EQUIVALENT AMOUNT. RULE OF CONSISTENCY REQUIRES THAT A STATE OF AFFAIRS NOT BE DISTURBED UNLESS NEW FACTS OR 12 ITA NOS. 2882 & 2518/DEL/2013 CIRCUMSTANCES NECESSITATE A DIFFERENT VIEW. THERE ARE NO NEW FACTS IN THE CASE. HONBLE SUPREME COURT IN RADHASOAMI SATSANG V. CIT [(1992) 193 IT R 321 (SC)] HAS OBSERVED AS UNDER: - WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME - TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHER E A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSI TION TO BE CHANGED IN A SUBSEQUENT YEAR.' 4.4 IN VIEW OF THE ABOVE FACTO - LEGAL POSITION, THE GROUND OF APPEAL SUCCEEDS. THE ADDITION OF RS. 19,51,00,000/ - IS DELETED. THE APPELLANT GETS RELIEF OF EQUIVALENT AMOUNT. 22. AGGRIEVED WITH SUCH ORDER OF THE LD . CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 23. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE A.O. HE SUBMITTED THAT WHEN THERE IS DIFFERENCE BETWEEN THE SALES DECLARED BEFORE THE SALES TAX AUTHORITIES AND THE VALUE DECLARED FOR I.T. PURPOSES, THE A.O WAS FULLY JUSTIFIED IN BRINGING TO TAX THE DIFFERENCE BETWEEN THE TWO. 24. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE LD. CIT(A) . HE SUBMIT TED THAT WHATEVE R DIFFERENCE IS THERE 13 ITA NOS. 2882 & 2518/DEL/2013 ABOUT THE FIGURE BETWEEN THE SALES TAX RETURN AND I.T. RETURN, SUCH DIFFERENCE HAS BEEN ACCOUNTED FOR IN THE SUBSEQUENT YEAR. HE SUBMITTED THAT THE ASSESSEE IS FOLLOWING THIS TYPE OF SYSTEM CONSISTENTLY AND THE REVENUE HAS NEVER CHALLENGED THIS SYSTEM. T HEREFORE, IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN [1992]193 ITR 321 [SC] THE P RINCIPLE OF C ONSISTENCY SHOULD BE FOLLOWED . S INCE THE LD. CIT(A) HAS DELETED THE ADDITION BY RELYING ON THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI [SUPRA] AND SINCE THE ASSESSEE HAS ACCOUNTED FOR SUCH DIFFERENCE IN THE SUBSEQUENT YEAR, THEREFORE, THE ORDER OF THE LD. CIT(A) , BEING IN ACCORDANCE WITH LAW , SHOULD BE UPHELD. 25. WE HAVE CONSI DERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE A.O AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER MADE ADDIT ION OF RS. 19.51 CRORES TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND THAT THERE IS DIFFERENCE BETWEEN THE FIGURES REPORTED TO THE SALES TAX AUTHORITIES AND THE FIGURES AS PER THE INCOME - TAX RETURN. WE FIND THE LD. CIT(A) DELETED SUCH ADDITION ON THE GROUND THAT THE ASSESSEE IS FOLLOWING THIS METHOD CONSISTENTLY AND SUCH DIFFERENCE HAS ALREADY BEEN DISCLOSED IN THE RETURN FILED FOR SUBSEQUENT YEAR. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THE SUBMISSION OF THE L D. CO UNSEL FOR THE ASSESSEE THAT T HE ASSESSEE IS 14 ITA NOS. 2882 & 2518/DEL/2013 CONSISTENTLY FOLLOWING THIS METHOD OF ACCOUNTING AND THE DIFFERENCE BETWEEN THE VALUE OF STOCK DECLARED TO SALES TAX AUTHORITIES AND THE INCOME - TAX AUTHORITIES ARE OFFERED TO TAX IN THE SUBSEQUENT YEARS COULD NOT BE CONTROVERTED BY THE LD. DR. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN HIS ORDER DELETING THE ADDITION BY FOLLOWING THE RULE OF CONSISTENCY. THE GROUND RAISED BY THE REVENU E IS ACCORDINGLY DISMISSED. 26. GROUND NO. 3 OF THE APPEAL OF THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN FULLY ALLOWING THE CLAIM OF DEDUCTION U/S 80IA IN RESPECT OF CAPTIVE POWER PLANT OF T HE ASSESSEE, WITHOUT DECIDING THE SPECIFIC FINDINGS OF THE A.O. THAT PROFIT OF THE UNIT WAS INFLATED BECAUSE OF NON ACCOUNTING OF INTEREST ON BORROWED FUND, LOW ADMINISTRATIVE EXPENSES ETC. 27. FACTS OF THE CASE PERTAINING TO THIS GROUND, IN BRIEF, ARE THAT THE ASSESSING OFFICER , DURING THE COURSE OF ASSESSMENT PROCEEDINGS , OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U /S 80IA OF THE ACT IN RESPECT OF PROFIT FOR POWER UNITS OF RS. 26,07,21244/ - AS 100% OF THE PROFIT DERIVED BY THE S AID UNITS. FROM TH E RETURN FILED BY THE ASSESSEE , THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED SUCH DEDUCTION IN RESPECT OF POWER PLANT 15 ITA NOS. 2882 & 2518/DEL/2013 NO. III TO VIII FOR WHICH , SEPARATE REPORT IN FORM N O 10CCB HAVE BEEN FILED. THE ASSESSING OFFICER OBSERVED THAT THE BALANCE S HEET SO FILED ALONGWITH THE AUDIT REPORT NEITHER CONTAINED ANY LIABILITY NOR ANY ASSETS OTHER TH AN PLANT AND MACHINERY. THE ASSESSEE HA D NOT FILED ANY INDEPENDENT UNIT - WISE BALANCE SHEET FOR ALL SUCH UNITS , WHICH IS THE MANDAT ORY REQUIREMENT OF LAW. FURTHER, T HE P ROFIT AND LOSS ACCOUNT FILED FOR ALL SUCH UNITS INDICATES CLAIM OF NOMINAL EXPENSES UNDER ADMINISTRATIVE EXPENSES. THOUGH THE GROUP HAS TAKEN HUGE BORROWING S FOR WHICH INTEREST HAS BEEN PAID AND CLAIMED , HOWEVER, THE ASSESSEE HAS NOT CLAIMED SUCH INTEREST IN TH IS PROFIT AND LOSS ACCOUNT AND , THEREFORE , THE NET PROFIT RATIOS IN ALL THESE UNITS HAVE BEEN SHOWN AT A VERY HIGH PERCENTAGE , AS COMPARE D TO NET PROFIT RATIO DECLARED BY COMPANY AS A WHOLE. 28. ACCORDING TO THE ASSESSING OFFICER, W HEN NEITHER THE BALANCE SHEET HAS BEEN DRAWN NOR GOT AUDITED BY THE AUDITORS WITH RESPECT TO EACH ELIGIBLE INDUSTRIAL UNIT WHEN SUCH ACCOUNTS CARR Y FACTUAL APPARENT MISTAKE I.E NON - ACCOUNTING OF VARIOUS EXPENSES LIKE INTEREST ON BORROWED CAPITAL AND VARIOUS EX PENSES HA D NOT BEEN CLAIMED COMMENSURATE TO ITS REVENUE, THEREFORE , DETERMINATION OF PROFIT OF SUCH ELIGIBLE UNITS IS SUBJECT TO EXAMINATION . IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT THE REPORT OBTAINED FROM A N A CCOUNTANT IN FORM N O. 10 CCB C AN BE SAID TO BE INCOMPLETE IN VIEW OF NON - AVAILABILITY OF PROPER BALANCE SHEET OF THESE UNITS AND ACCOUNTING OF PROPER EXPENSES AND INCOME THEREOF . INVOKING THE PROVISION S OF SUB - SECTION 16 ITA NOS. 2882 & 2518/DEL/2013 10 OF SEC TION 80I OF THE ACT , WHICH , ACCORDING TO HIM, ARE ALSO APPLICABLE TO S EC TION 80IA OF THE ACT, T HE ASSESSING OFFICER RECOMPUTE D THE INCOME DERIVED BY SUCH ELIGIBLE UNITS ON WHICH ASS ESSEE IS ELIGIBLE FOR DEDUCTION . THE ASSESSING OFFICER, THEREFORE, ESTIMATE D THE INCOME @ 10% OF TOTAL TURN OVER OF RS. 137.18 CRO RE S, WHICH COMES TO 13.72 CRORE AS AGAINST CLAIM MADE BY THE ASSESSEE AT 26.07 CRORE S . TH E ABOVE ESTIMAT ION WAS AFTER ADJUSTMENT OF ALL DEPRECIATION . THE ASSESSING OFFICER FURTHER NOTED THAT ESTIMATE @ 10% HAS BEEN MADE I N THE LIGHT OF THE F ACT THAT THE COMPANY AS A WHOLE HAS DECLARED NET PROFIT OF 9.86 % WHERE THE COMPANY HAS EARNED SUBSTANTIAL INCOME FROM INTEREST AND OTHER SOURCES ALSO. THEREFORE, ADOPTION OF 10% PROFIT RATIO, ACCORDING TO THE ASSESSING OFFICER, WAS JUSTIFIED. 29. BEFORE THE LD. CI T(A), THE ASSESSEE SUBMITTED THAT THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT OF RS. 26,07,21,244/ - WAS DULY SUPPORTED BY THE AUDITORS CERTIFICATE IN FORM NO. 10CCB IN RESPECT OF POWER PLANT NO. III TO VIII. THE ASSESSEE HAS ALSO ENCLOSED SEPARATE UNIT WI SE BALANCE SHEET, PROFIT AND LOSS ACCOUNT DULY AUDITED BY THE CHARTERED ACCOUNTANT . THE ASSESSEE HAS ALSO ENCLOSED THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT FOR THE ASSESSMENT YEAR 2000 - 01 IN RESPECT OF DG SET NO. 1 AND 2, ASSESSMENT YEAR 2001 - 02 IN R ESPECT OF DG SET NO. 1,2,3,4,5,6 AND VIZAG DIVISION. IT WAS ARGUED THAT IN A LL THE EARLIER YEARS, THE CLAIM OF THE ASSESSEE IN RESPECT OF POWER GENERATED BY THE RESPECTIVE POWER GENERATING UNITS DULY SUPPORTED BY 17 ITA NOS. 2882 & 2518/DEL/2013 AUDITED ACCOUNTS AND CERTIFICATES OF AUDIT ORS HAS BEEN ACCEPTED AND ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS. THEREFORE, FOLLOWING THE RULE OF CONSISTENCY, THE ASSESSING OFFICER ON THE SAME SET OF FACTS SHOULD HAVE ACCEPTED FOR THE YEAR UNDER CONSIDERATION. VARIOUS DECISION S WERE ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A). IT WAS FURTHER ARGUED THAT THE ASSESSING OFFICER IN THE ORDER HAS FAILED TO ESTABLISH ON WHAT GROUND HE IS NOT ACCEPTING THE UNIT WISE AUDITED ACCOUNT E XCEPT FOR CASTING ALLEGATIONS THAT THE ASSESSEE HAD DECLARED HIGH RATE OF PROFIT AND NOT ACCOUNTED FOR INTEREST EXPENDITURE ON BORROWING IN THE PROFIT AND LOSS ACCOUNT. IT WAS ARGUED THAT THERE IS NO CASE MADE OUT BY THE ASSESSING OFFICER FOR REJECTING TH E AUDITED ACCOUNT AND ALLOWING THE CLAIM OF THE ASSESSEE ON AN ESTIMATED BASIS AT 10% ON THE TOTAL TURNOVER OF RS. 137.18 CRORES. IT IS NOT CLEAR FROM THE ASSESSMENT ORDER WHETHER T HE ASSESSING OFFICER WANTS TO ALLOW RS. 13.72 CRORES OR TO DISALLOW. IT W AS ARGUED THAT THE FINANCE ACT, 2002 W.E.F ASSESSMENT YEAR 2003 - 04 UNDER SUB - SECTION (7) OF SECTION 80IA HAS MADE IT MANDATORY FOR THE ASSESSEE TO FURNISH ALONGWITH THE RETURN THE REPORT OF THE AUDITORS IN THE PRESCRIBED FORM. THEREFORE, FROM ASSESSMENT Y EAR 2003 - 04 ONWARDS, THE CLAIM OF THE ASSESSEE IS DULY SUPPORTED BY AUDITED BALANCE SHE E T, PROFIT AND LOSS ACCOUNT AND THE REPORT OF THE AUDITORS IN FORM NO. 10CCB. THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSETS WHI CH WERE PURCHASED OUT OF THE BORROWINGS HAVE SINCE BEEN LIQUIDATED IN THE EARLIER YEARS IN RESPECT OF THE SAID UNITS. IT WAS FINALLY ARGUED THAT SINCE THE ACCOUNTS 18 ITA NOS. 2882 & 2518/DEL/2013 PREPARED BY THE ASSESSEE HAVE B EEN DULY AUDITED BY THE CHARTERED ACCOUNTANTS AND CERTIFIED, WHICH IS THE REQUIREMENT OF THE LAW, THEREFORE, THE ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED THE DEDUCTION U/S 80IA OF THE ACT AS CLAIMED BY THE ASSESSEE. 30. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD. CIT(A) DIRECTED THE ASSESSING OF FICER TO ALLOW THE CLAIM OF THE ASSESSEE IN FULL BY OBSERVING AS UNDER: 10.2 1 HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS FILED. THE RULE OF CONSISTENCY INVOKED BY THE APPELLANT WILL NOT BE APPLICABLE IF IT CAN BE CONCLUDED THAT DEDUCTION U/S 80IA WAS ALLOWED BY ERRONEOUS APPLICATION OF THE LAW AND THE EARLIER ASSESSMENTS ALLOWING THE DEDUCTION WILL NOT ESTOPPEL THE CORRECT DECISION IN THE PRESENT CASE. THE AO IN HIS ORDER HAS STATED THAT THE ENTIRE POWER GENERATED BY THE DG SETS OF THE AP PELLANT IS CONSUMED BY THE APPELLANT ITSELF. THIS HAS NOT BEEN CONTROVERTED BY THE APPELLANT. THE MOOT QUESTION HERE IS WHETHER NOTIONAL PROFIT ON ELECTRICITY GENERATED BY DG SETS AND ENTIRELY CONSUMED BY THE APPELLANT WILL BE ENTITLED TO DEDUCTION U/S 80I A. DETAILS WERE CALLED FROM THE APPELLANT IN THIS REGARD VIDE LETTER DATED 15.01.2013, TO WHICH A REPLY WAS FILED BY THE LD. AR ON 7.2.2013 ENCLOSING COPIES OF VARIOUS COMMUNICATIONS RECEIVED FROM THE GOVERNMENT OF HARYANA AND HARYANA STATE ELECTRICITY BOA RD (HSEI3) INDICATING THAT ONE OF THE CONDITIONS FOR SANCTION OF CAPTIVE POWER PLANTS TO THE APPELLANT WAS AGREEMENT BY THE APPELLANT TO SYNCHRONIZE WITH AND SUPPLY SURPLUS POWER TO THE STATE GRID. THIS BEING THE CASE, AND THE SETTLED LAW THAT 19 ITA NOS. 2882 & 2518/DEL/2013 CAPTIVE USE WILL NOT DISENTITLE ELIGIBILITY TO DEDUCTION U/S 801 / 80IA / 80IB. THE DISALLOWANCE CANNOT BE SUSTAINED. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED AND THE APPELLANT GETS RELIEF OF RS. 26,07,21,224/ - . 31. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 32. THE LD. DR HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER. 33. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE LD. CIT(A) SUBMITTED THAT THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT. THE EXPENDITURE INCURRED IN RESPECT OF EACH UNIT ARE SEPARATELY IDENTIFI ABLE . THE ADMINISTRATIVE EXPENSES HA VE BEEN ALLOCATED ON THE BASIS OF TURNOVER. THEREFORE, THERE IS NO QUESTIO N OF ANY NOTIONALITY. FURTHER, IN THE PRECEDING YEAR S THE CLAIM HAS BEEN ALLOWED. THEREFORE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN ALLOWING THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT. 34. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED ORDERS OF THE A.O AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER D ISALLOWED THE CLAIM OF DEDUCTION TO THE EXTENT OF 10% OF TURNOVER OF RS. 137.18 CRORES AS AGAINST 26.07 CRORES 20 ITA NOS. 2882 & 2518/DEL/2013 CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE BALANCE SHEET OF THE ASSESSEE NEITHER CONTAINED ANY LIABILITY NOR ANY ASSET OTHER THAN THE PLANT A ND MACHINERY IN R ESPECT OF PLANT NO. III TO VIII. FURTHER, ACCORDING TO THE PROFIT AND LOSS ACCOUNT FILED FOR ALL SUCH UNITS SHOW INCURRING OF NOMINAL EXPENSES AND T HE ASSESSEE HAS NOT CLAIMED VARIOUS EXPENSES LIKE INTEREST ON BORROWED CAPITAL. ACCORDING TO THE ASSESSING OFFICER, THE V ARIOUS EXPENSES CLAIMED BY THE ASSESSEE DO NOT COMMENSURATE WITH ITS REVENUE. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE CLAIM OF DEDUCTION AT 10% OF THE TOTAL TURNOVER THEREBY MAKING ADDITION OF RS. 13.72 LAKHS. FROM THE ORDER OF THE ASSESSING OFFICER, IT IS NOT CLEAR AS TO WHETHER HE WANTED TO ALLOW 10% DEDUCTION ON THE TOTAL TURNOVER OR SUSTAINED THE SAME. IN THE END, THE ASSESSING OFFICER HEREIN HAS MADE ADDITION OF RS. 13.72 CRORES TOWARDS DISALLOWANCE OF DEDUCTI ON CLAIMED UNDER CHAPTER VIA. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK AS WELL AS COPY OF ORDER OF THE LD. CIT(A), WE FIND UNDER IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAD ALLOWED SIMILAR CLAIM IN THE PRECEDING YEAR . SUBMISSION OF THE ASSESSEE THAT ASSETS WHICH WERE PURCHASED OUT OF BORROWINGS WERE LIQUIDATED IN THE PREVIOUS YEARS COULD NOT BE CONTROVERTED BY THE LD. DR. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE DETAILED ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE, WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, TH E SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 21 ITA NOS. 2882 & 2518/DEL/2013 35. GROUND NO. 4 OF THE APPEAL OF THE REVENUE READS AS UNDER : THE LD CIT(A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS 5 , 239/ - TOWARDS LATE DEPOSIT OF EMPLOYEES CONTRIBUTION OF ESI WITHOUT APPRECIATING THE PROVISIONS OF SECTION2(24(X) READ WITH SECTION 36(1)(VA) OF THE ACT . 36. AFTER HEARING BOTH THE SIDES, WE FI ND THE ASSESSING OFFICER , ON THE BASIS OF AUDITED REPORT, TREATED AN AMOUNT OF RS. 5329/ - AS INCOME U/S 2(24)(X) R.W.S 36(I)(VA) OF THE ACT ON ACCOUNT OF DELAYED DEPOSIT OF ESI . IN APPEAL, THE LD. CIT( A) ALLOWED THE DEDUCTION ON THE GROUND THAT SUCH DEPOSITS HAVE BEEN MADE WITHIN THE DUE DATE OF FILING OF THE INCOME TAX RETURN. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). VARIOUS BENCHES OF THE TRIBUNAL ARE CONSISTENTLY TAKING THE VIEW THAT IF THE EMPLOYEES CONTRIBUTION TOWARDS PF AND ESI ETC ARE DEPOSITED WITH THE CONCERNED AUTHORITIES BEFORE THE DUE DATE OF FILING RETURN, THEN THERE CANNOT BE ANY DISALLOWANCE U/S 43B OF THE ACT. SINCE THE ASSESSEE IN THE INSTANT CASE HAS MADE SUCH D EPOSIT BEFORE THE DUE DATE OF FILING OF THE RETURN, THEREFORE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 22 ITA NOS. 2882 & 2518/DEL/2013 ITA NO. 2518/DEL/2013 [B Y THE A SSESSEE ] 37. GROUNDS OF THE APPEAL BY THE ASSESSEE READ AS UNDER 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DIRECT NEXUS WITH EARNING OF EXEMPT INCOME COULD ONLY BE DISALLOWED UNDER SECTION 14A OF THE ACT. 1.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT RECORDING ANY FINDING/SATISFACTION FOR ANY EXPENDITURE BEING INCURRED BY APPELLANT IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME, IN TERMS OF SUB - SECTION (2) OF SECTION 14A OF THE ACT. 1.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONSIDERING THE PROVISIONS OF SUB SECTION (2) OF SECTION 14A READ WITH RULE 8D OF THE RULES, PROSPECTIVE IN OPERATION AND ARE APPLICABLE TO THE YEAR CONSIDERATION. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN SUSTAINING ADDITION OF RS. 6,11,95,775 EARNED AS INTEREST FROM TEMPORARY DEPLOYMENT OF SURPLUS LOAN FUNDS AND NOT ALLOWING IT TO BE REDUCED FROM THE TOTAL INTEREST COST OF THE LOAN FUNDS. 2.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSESSING OFFICER TO TAX INCOME OF RS. 1,32,88,683 EARNED FROM SALE OF INVESTMENT MADE OUT OF TEMPORARY DEPLOYMENT OF LOAN FUNDS, AS SHORT TERM CAPITAL GAINS. 2.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE INTEREST INCOME/ STCG WAS EARNED ON 23 ITA NOS. 2882 & 2518/DEL/2013 THE FUNDS WHICH ARE TEMPORARILY SURPLUS OUT OF THE LOAN FUNDS RAISED FOR THE GREEN FIELD PROJECT AT ORISSA AND THE SAME HAS BEEN CAPITALIZED AS PER THE ACCOUNTING STANDARD AS - 10 FOR FIXED ASSETS AND AS - 16 FOR BORROWING COSTS. 2.3 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT INTEREST INCOME IS ALWAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSATION. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DISALLOWING DEDUCTION U/S 80G FOR DONATIONS AMOUNTING TO RS. 1.45,001 ALLEGEDLY HOLDING THAT THE DONATIONS WERE NOT SUPPORTED BY DO CUMENTARY EVIDENCE. 38 . THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND OF APPEAL NO. 3 FOR WHICH THE LD. DR HAS NOT OBJECTION. ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 39. GROUND OF APPEAL N O. 1.1 AND 1.2, THE ASSESSE E HAS CHALLENGED THE ORDER OF THE CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.50,000/ - MADE BY THE ASSESSING OFFICER ON AD - HOC BASIS U/S 14A OF THE I.T. ACT. 40 . FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS OBSERVED THAT THE ASSESSEE HAS SHOWN A SUM OF RS.3,60,000/ - AS DIVIDEND FROM MAGNUM GLOBAL FUND INVESTMENT OF RS.15,00,000/ - . HE, THEREFORE, ASKED THE ASSESSEE TO EXPLA I N AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE. THE ASSESSEE EXPLAINE D THAT 24 ITA NOS. 2882 & 2518/DEL/2013 THERE IS NO CO - RELATION OF THE EXPENDITURE WITH THE DIVIDEND INCOME. HOWEVER, T HE ASSESSING OFFICER HELD THE ABOVE SUBMISSION OF THE ASSESSEE TO BE VAGUE AND GENERAL IN NATURE. ACCORDING TO HIM, THE EXPENSES FOR EARNING OF ANY INCOME CANNOT BE RUL ED OUT. THE ASSESSEE HAS NOT PROVED ANY NEXUS WHETHER INVESTMENT HAS BEEN MADE OUT OF SURPLUS FUND OR BORROWED CAPITAL THOUGH AMOUNT OF INVESTMENT AND DIVIDEND INCOME BOTH HAVING IN NOMINAL VALUE LOOKING TO THE SIZE OF COMPANY. THE ASSESSING OFFICER ACCO RDINGLY MADE DISALLOWANCE OF RS.50,000/ - U/S 14A AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4 1 . BEFORE THE CIT(A), THE ASSESSEE CHALLENGED THE ABOVE ADDITION MADE BY THE ASSESSING OFFICER. IT WAS ARGUED THAT THE ASSESSING OFFICER WITHOUT ANY EVIDENCE OR PINPOINTING ANY EXPENDITURE HAS MADE THE AD - HOC DISALLOWANCE WHICH IS NOT CORRECT . R EL Y ING ON VARIOUS DECISIONS , I T WAS ARGUED THAT THE BURDEN IS ON THE ASSESSING OFFICER TO PROVE ON THE BASIS OF EVIDENCE OR MATERIAL ON RECORD THAT THE ASSE SSEE HAS IN - FACT INCURRED THE EXPENDITURE WHICH IS RELATED TO THE EXEMPT INCOME. IT WAS SUBMITTED THAT NO POWERS HAVE BEEN GIVEN TO THE ASSESSING OFFICER TO MAKE ANY ESTIMATED DISALLOWANCE. 4 2 . HOWEVER, THE CIT(A) WAS ALSO NOT SATISFIED WITH THE ABOVE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT EXPENDITURE FOR EARNING ABOVE INCOME CANNOT BE RULED OUT. FURTHER THE DISALLOWANCE MADE IS MERE 3 . 3% OF 25 ITA NOS. 2882 & 2518/DEL/2013 THE INVESTMENT IN THE ASSETS AND 13.9% OF THE EXEMPT INCOME. THEREFORE, HE HELD THAT SUCH DISALLO WANCE MADE BY THE ASSESSING OFFICER IS REASONABLE. HE ACCORDINGLY UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4 3 . AGGRIEVED WITH SUCH ORDER OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 4 4 . LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED TO THE ORDER OF THE CIT(A). HE SUBMITTED THAT NO SUCH DISALLOWANCE HAS BEEN MADE IN THE PAST. THE ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE ON ACCOUNT OF BORROWALS FOR INVESTMENT IN THE SA ID FUND. NO NEXUS HAS BEEN PROVED BY THE ASSESSING OFFI CER THAT THE ASSESSEE HAS IN - FACT INCURRED SOME EXPENDITURE FOR EARNING TAX - FREE DIVIDEND INCOME. HE ACCORDINGLY ARGUED THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) SHOULD BE DELETED. 4 5 . LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SU BMITTED THAT ASSESSING OFFICER HA S NOT DISALLOWED ANY INTEREST EXPENDITURE. HE HAS DISALLOWED ONLY ADMINISTRATIVE EXPENSES. HE ACCORDINGLY SUBMITTED THAT CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE THE MEAGER DISALLOWANCE OF RS.50,000/ - SHOULD BE UPHELD. 26 ITA NOS. 2882 & 2518/DEL/2013 4 6 . WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE HAS EARNED EXEMPT INCOME OF RS.3,60,000/ - ON INVESTMENT OF RS.15,00,000/ - IN MAGNUM GLOBAL FUND. SINCE NO SUO MOTO DISALLOWANCE WAS MAD E BY THE ASSESSEE U/S 14A OF THE I. T. ACT, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE FOR EARNING TAX - FREE INCOME AND MADE ADHOC DISALLOWANCE OF RS.50,000/ - WHICH HAS BEEN UPHELD BY THE CIT(A). IT IS THE SUBMISSION O F THE LD. COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE HAS BEEN MADE IN THE PAST AND NO NEXUS HAS BEEN PROVED BY THE ASSESSING OFFICER . NO MATERIAL HAS BEEN PLACED ON RECORD TO SHOW THAT THE ASSESSEE HAS INCURRED SOME EXPENDITURE FOR EARNING TAX - FREE INCO ME. IN OUR OPINION, A LTHOUGH, THERE IS NO DISALLOWANCE OF INTEREST EXPENDITURE FOR EARNING TAX - FREE DIVIDEND INCOME, HOWEVER, IT CANNOT BE SAID THAT NO ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED F OR EARNING THE TAX - FREE INCOME OF RS.3,60,000/ - ON THE IN VESTMENT OF RS.15,00,000/ - . SINCE THE DIVIDEND INCOME IS ON ACCOUNT OF INVESTMENT IN MAGNUM GLOBAL FUND OF RS. 1 5,00 , 0 00 / - , THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, DISALLOWANCE OF RS.50,000/ - ON AD - HOC BASIS UNDER THE FACTS AND CIRCUM STANCES OF THE CASE APPEARS TO BE ON HIGHER SIDE. ALTHOUGH, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DISALLOWANCE HAS BEEN MADE IN THE PAST, HOWEVER, IT WAS NOT BROUGHT TO OUR NOTICE AS TO WHETHER THE 27 ITA NOS. 2882 & 2518/DEL/2013 DISALLOWANCE WAS NOT MADE IN SCRUTINY ASSESS MENT OR SUMMARY ASSESSMENT. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, DISALLOWANCE OF RS.25,000/ - UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, WILL MEET THE ENDS OF JUSTICE . WE HOLD AND DIRECT ACCORDINGLY. THE GROUND NOS.1.1 T O 1.2 BY THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOWED. 4 7 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN SUSTAINING THE ADDITION OF RS.6,11,95,775/ - EARNED AS INTEREST FROM TEMPORARY DEPLOYMENT OF SURPLUS LOAN FUNDS AND NOT ALLOWIN G IT TO BE REDUCED FROM THE TOTAL INTEREST COST OF THE LOAN FUNDS. IN GROUND NO. 2. 1 TO 2.3 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER TO TAX THE INCOME OF RS. 1,32,88,683/ - EARNED FROM SALE OF INVESTM EN T M AD E OUT OF TEMPORARY DEPLOYMENT OF FUNDS AS SHORT TERM CAPITAL GAIN. 4 8 . FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SPECIFICALLY A SK ED THE ASSESSEE TO EXPLAIN THE BASIS OF DE - CAPITALIZATION OF I NTEREST OF RS.6,11,95,775/ - . THE ASSESSEE DREW THE ATTENTION OF THE ASSESSING OFFICER TO THE REPORT MADE AT PAGE 66 OF THE ANNUAL REPORT WHICH SHOWS THAT DE - CAPITALIZATION OF INTEREST INCOME OF RS.785.49 CRORES AT ONE HAND AND ON THE OTHER HAND IT SHOWS T HE EXPENDITURE CHA R GED TO THE REVENUE DURING THE YEAR UNDER ASSESSMENT OF 28 ITA NOS. 2882 & 2518/DEL/2013 RS.1 0 77.31 CRORE. ACCORDING TO THE ASSESSING OFFICER, IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED TH AT ORISSA PROJECT HAS NOT COME INTO PRODUCTION THEN HOW AND WHY A SUM OF RS.1 0 77.31 CRORES HAS BEEN CHARGED TO REVENUE ACCOUNT AFTER DE - CAPITALIZATION OF INTEREST/ OTHER MISCELLANEOUS INCOME. HE FURTHER OBSERVED THAT A SUM OF RS.132.89 LAKHS DE - CAPITALIZATION TO ORISSA PROJE C T IS ALREADY ASSESSED TO TAX UNDER THE HEAD SHORT TERM CA PITAL GAIN. THEREFORE, IN THE SAME SPIRIT THE ASSESSING OFFICER HELD THE INTEREST INCOME OF RS.6,11,95,775/ - AS INCOME OF THE ASSESSEE. HE ACCORDINGLY MADE AN ADDITION OF RS. 6,11,95,775/ - . 4 9 . BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT DURING THE A SSESSMENT PROCEEDINGS THE ASSESSEE HAD CLEARLY EXPLAINED TO THE ASSESSING OFFICER THAT THE INTEREST RECEIVED OF RS.6,11,95,775/ - IS APPORTIONED INTEREST EARNED OUT OF THE LOAN FUNDS RAISED FOR THE ORISSA PROJECT. THE COPY OF THE LETTER SANCTIONING THE LOA N FOR FERRO ALLOYS EXPANSION PROJECT IN ORISSA WAS BROUGHT TO THE NOTICE OF THE CIT(A). IT WAS FURTHER ARGUED THAT THE INTEREST EXPENSES AS WELL AS INTEREST EARNING AS A RESULT OF APPORTIONMENT OF THE LOANS RECEIVED ON ACCOUNT OF ORISSA PROJECT ARE IN EXTR ICA B LY AND INTRINSICALLY LINKED WITH EACH OTHER AND HA S TO BE SET OFF AS A PART OF THE PROJECT COST. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD. REPORTED IN 243 ITR 2 AND IN THE CASE OF CIT VS. BOKA RO STEELS LTD. REPORTED IN 236 ITR 315 AND THE DECISION OF THE HONBLE DELHI HIGH 29 ITA NOS. 2882 & 2518/DEL/2013 COURT IN THE CASE OF CIT VS. SRI R AM HONDA POWER EQUIP MENT REPORTED IN 289 ITR 475 WERE RELIED UPON. 50 . HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE . R ELYING ON VARIOUS DECISIONS INCLUDING THE DECISION S OF HONBLE SUPREME COURT IN THE CASE OF TUTICORN ALKALI CHEMICALS AND FERTILIZERS LIMITED AND CIT VS. BOKARO STEELS LIMITED HE UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER . W HILE DOIN G SO , HE OBSERVED THAT I N THE INSTANT CASE THE ASSESSEE HAS RAISED FUND S FOR EXPANSION OF THE ORISSA PROJECT AND OUT OF THE SAME HAS MADE TEMPORARY INVESTMENT TO EARN INTEREST INCOME AND CAPITAL GAINS. THEREFORE, SUCH INCOME HAS TO BE BROUGHT TO TAX A INC OME FROM OTHER SOURCES. HE ACCORDINGLY UP HELD TH E ADDITION OF INTEREST INCOME OF RS. 6,11,95,775 / - . HE FURTHER HELD THAT THE INCOME OF RS. 1,32,88,663/ - ON SALE OF INVESTMENT TRANSFERRED TO ORISSA PLANT ACCOUNT TO REDUCE THE PROJECT COST SHALL BE CHARGED TO TAX AS SHORT TERM CAPITAL GAIN. SO FAR AS THE VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE BEFORE HIM ARE CONCERNED , HE HELD THAT THOSE DECISIONS ARE NOT APPLICABLE TO THE FA C TS OF THE PRESENT CASE. 50. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 30 ITA NOS. 2882 & 2518/DEL/2013 51 . LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORN ALKALI CHEMICALS AND FERTILIZERS LIMITED (SUPRA) DREW THE ATTENTION OF T HE BENCH TO PARA 1 OF THE ORDER, A CCORDING TO WHICH THE COMPANY WAS INCORPORATED ON 03 RD DECEMBER, 1971 AND THE TRIAL PRODUCTION OF THE FACTORY OF THE COMPANY COMMENCED ON 30 TH JUNE, 1982 . F OR THE PURPOSES OF SETTING UP OF THE FACTORIES , T HE COMPANY HAD TAKEN LOANS FROM VARIOUS BAN KS AND FINANCIAL INSTITUTIONS. THAT PART OF THE BORROWED FUNDS , WHICH WAS NOT IMMEDIATELY REQUIRED BY THE COMPANY , WAS KEPT INVEST ED IN SHORT TERM DEPOSIT WITH BANK ON WHICH INTEREST INCOME WAS EARNED. UNDER THESE CIRCUMSTANCES, THE HONBLE SUPREME COURT HELD THAT INTEREST EARN ED ON BORROWED FUNDS INVESTED PRIOR TO COMMENCEMENT OF BUSINESS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND IT CANNOT BE SAID THAT INTEREST INCOME IS NOT TAXABLE ON THE GROUND THAT IT WOULD GO TO REDUCE INTEREST ON BORROWED AMOUNTS WHICH WOULD BE CAPITALIZED. HE ACCORDINGLY SUBMITTED THAT THE DECISION RELIED UPON BY THE CIT(A) IS NOT APPLICABLE SINCE IN THE INSTANT CASE THE MONEY HAS BEEN BORROWED FOR EXPANSION OF THE PROJECT. REFERRING TO VARIOUS DECISIONS REPORTED IN 236 ITR 315 (SUPRA), 245 ITR 2 (SUPRA), 247 ITR 268 (SUPRA) AND 315 ITR 255 (SUPRA) H E SUBMITTED THAT SUCH INTEREST INCOME IS TO BE N ET TED OFF AGAINST THE CAPITAL WORK IN PROGRESS. IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT IF THE INTEREST INCOME IS TO BE TAXED AS INCOME FROM OTHER SOURCES THEN INTEREST EXPENDITURE INCURRED FOR EARNING OF SUCH INTEREST INCOME HAS TO BE ALLOWED AS DEDUCTION U/S 57(III) OF THE I.T. ACT. FOR THE ABOVE PROPOSITION, 31 ITA NOS. 2882 & 2518/DEL/2013 HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY REPORTED IN 115 ITR 519. 52 . LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE DREW THE ATTENTION OF THE BENCH TO THE PAGE 10, PARA 9 OF THE ASSESSMENT ORDER AND DREW THE INCONSISTENCY APPROAC H OF THE ASSESSEE. HE SUBMITTED THAT THE ORDER OF THE CIT(A) BEING IN CONSONANCE WITH LAW SHOULD BE UPHELD. 53 . WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDER S OF THE ASSESSING OFFICER AND THE CIT(A) AND PAPER BOOK FILE D ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSI DERED THE VARIOUS DECISIONS CITE D BEFORE US. THE ONLY ISSUE TO BE DECIDED IN THE IMPUGNED GROUNDS IS REGARDING THE TREATMENT OF RS.6,11,95,775/ - BEING INTEREST EARNED ON TEMPORARY FUNDS AND THE INCOME OF RS. 1,32,88,663/ - ON SALE OF INVESTMENT TRANSFERRED TO ORISSA PLANT . ACCORDING TO THE ASSESSING OFFICER, SUCH INTEREST INCOME HAS TO BE BROUGHT TO TAX AS INCOME FROM OTHER SOURCES WHICH HAS BEEN UPHELD BY THE CIT(A) BY RELYING ON THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORN ALKALI CHEMICALS AND FERTILIZERS LIMITED (SUPRA) AND VARIOUS OTHER DECISIONS . IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SUCH INTEREST INCOME SHOULD BE REDUC ED FROM THE CAPITAL WORK IN PROGRESS. IT IS HIS ALTERNATE CONTENTION THAT IF THE INTEREST INCOME IS TAXED AS INCOME FROM OTHER SOURCES THEN 32 ITA NOS. 2882 & 2518/DEL/2013 DEDUCTION SHOULD BE ALLOWED ON THE INTEREST EXPENDITURE FOR EARNING SUCH INTEREST INCOME A S PER THE PROVISIONS OF SECTION 57(III) . W E FIND MERIT IN THE ALTERNATE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. THE ASSESSEE HAS SUBMITTED BEFORE THE LOWER AUTHORITIES THAT THE INTEREST RECEIVED OF RS.6,11,95,775/ - IS ON ACCOUNT OF INVESTMENT OUT OF LOAN FUNDS RAISED FOR THE ORISSA PROJE CT. COPY OF THE LOAN SANCTION LETTER IN RESPECT OF ORISSA PROJECT WAS ALSO SUBMITTED DURING THE ASSESSMENT PROCEEDINGS . T HE ASSESSEE HAD CATEGORICALLY SUBMITTED BEFORE THE LOWER AUTHORITIES THAT SUCH INTEREST EXPENSES AND THE INTEREST INCOME AS A RESULT O F APPORTIONMENT OF LOAN RECEIVED ON ACCOUNT OF ORISSA PROJECT ARE IN EXTRICABLY AND INTRINSICALLY LINKED WITH EACH OTHER. 54. WE FIND THE HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MODY [SUPRA] HAS HELD THAT EXPENDITURE LAID OUT OR EXPENDED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME IS AN ALLOWABLE DEDUCTION. FOLLOWING THE ABOVE DECISION, WE ARE OF THE CONSIDERED OPINION THAT ASSESSEE SHOULD BE GIVEN DUE CREDIT FOR INTEREST EXPENDITURE INCURRED FOR EARNING SUCH INTER EST INCOME. ACCORDINGLY, THE ALTERNATE SUBMISSION OF THE ASSESSEE IS ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE AMOUNT OF EXPENDITURE APPORTIONED FOR THE INVESTMENT REQUIRED FOR E ARNING SUCH INTEREST INCOME. THE GROUND NO.2 TO 2.3 RAISED B Y THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPOSES. 33 ITA NOS. 2882 & 2518/DEL/2013 5 5 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 .0 3 .2017. SD/ - SD/ - ( BEENA PILLAI ) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMB E R DATED: 31. 0 5 .2017 V. LAKSHMI COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT (APPEALS) 5) DR: ITAT ASSISTANT REGISTRAR 34 ITA NOS. 2882 & 2518/DEL/2013 DATE DRAFT DICTATED ON 29 .0 5 .2017 DRAFT PLACED BEFORE AUTHOR .0 5 .2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .0 5 .2017 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.