GMM Pfaulder Ltd., Ahmedabad V. The Jt.CIT.,Circle-4, Ahmedabad

ITA 2627/AHD/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72906 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Additional depreciation; Earning of tax free income; Proportionate interest; Bad and doubtful debts; Commercial expediency
• Section: 14A; 115JB

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER APPEAL(S) BY APPELLANT VS. RESPONDENT SL. NO(S) ITA NO(S) ASSESSMENT YEAR APPELLANT (S) RESPONDENT(S) 1. 2627/AHD/2008 2005-06 GMM PFAUDLER LTD. 3 RD FLOOR, B-JADAV CHAMBERS ASHRAM ROAD AHMEDABAD (ASSESSEE) PAN:AABCG 0563 A JT.CIT RANGE-4 AHMEDABAD (REVENUE) 2. 2923/AHD/2008 2005-06 REVENUE ASSESSEE 3. 3280/AHD/2010 2005-06 REVENUE ASSESSEE ASSESSEE BY : SHRI S.N.SOPARKAR WITH MS.U RVASHI SHODHAN, AR REVENUE BY : SHRI O.P.BATHEJA, SR.DR ' % & $' / / / / DATE OF HEARING : 10/01/2014 )*+ & $' / DATE OF PRONOUNCEMENT : 28/01/2014 , / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : OUT OF THESE THREE APPEALS, TWO APPEALS - I.E. ITA NO.2627/AHD/2008 & ITA NO.2923/AHD/2008 ARE THE CRO SS-APPEALS BY ASSESSEE AND REVENUE RESPECTIVELY AGAINST THE ORDER (IN RESPECT OF QUANTUM PROCEEDINGS) PASSED BY THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD (CIT(A) FOR SHORT) DATED 05/05/2008 PERTAINING TO ASSESSMENT YEAR (AY) 2005-06. THE IT A NO.3280/AHD/2010 IS FILED BY THE REVENUE AGAINST T HE ORDER (IN RESPECT OF PENALTY PROCEEDINGS) PASSED BY THE LD.CIT(A)-VII I, AHMEDABAD DATED ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 2 - 09/09/2010 FOR AY 2005-06. SINCE THESE APPEALS PE RTAIN TO THE SAME ASSESSEE, THESE WERE HEARD TOGETHER AND ARE BEING D ISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA N O.2627/AHD/2008 FOR AY 2005-06. THE ASSESSEE HAS RAISED FOLLOWING GROU NDS OF APPEAL:- 1. THE LEARNED COMMISSIONER (APPEALS) FAILED TO UN DERSTAND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEAREND COMMISSIOENR (APPEAL) ERRED IN CO NFIRMING THE NON-ALLOWANCE OF CLAIM OF ACCRUED INTEREST RS.38,33 ,185/- PAYABLE TO APSEB AS PER ORDER OF THE CITY CIVIL COU RT. 3. THE LEARNED COMMISSIONER (APPEAL) ERRED IN CON FIRMING THE DISALLOWANCE OF RS.3,62,160/- BEING ADMINISTRATIVE EXPENSES U/S.14A OF THE ACT, CONSIDERING THEM INCURRED IN RE LATION TO EXEMPTED DIVIDEND INCOME. 4. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF ON THE ABOVE GROUNDS OF APPEALS. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D, SUBSTITUTE, OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL AS CIRC UMSTANCES MAY JUSTIFY. 2.1. APART FROM THE ABOVE GROUNDS, THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND, WHICH READS AS UNDER:- ADDITIONAL GROUND OF APPEAL APPELLANT CRAVES LEAVE TO RAISE THIS ADDITIONAL GR OUND OF APPEAL BEFORE THE HONBLE ITAT. THIS IS A LEGAL GROUND AND THERE FORE AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NA TIONAL THERMAL POWER (229 ITR 383) IT CAN BE RAISED BEFORE THE HON BLE ITAT. 1. THE APPELLANT PRAYS THAT ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW FOR THE PURPOSE OF COMPUTING BOOK P ROFIT U/S.115JB OF THE ACT, THE AMOUNT OF BAD DEBTS WRITT EN OFF AGAINST PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE REDU CED IF PROVISION FOR BAD DEBTS IS DISALLOWED. ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 3 - APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, CHANGE , DELETE AND EDIT THE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME OF THE HEARING OF THE APPEAL. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FINALIZED, THEREBY THE ASSESSING OFFICER (AO) HAS MADE VARIOUS DISALLOWANC ES/ADDITIONS. THE DISALLOWANCES/ADDITIONS MADE BY THE AO IN RESPECT O F THE ACCRUED INTEREST TO APSEB, PROVISION FOR LIQUIDATED DAMAGES , RECOVERY OF BAD DEBTS, BAD DEBTS WRITTEN OFF, PROVISION FOR WARRANT Y, DISALLOWANCE U/S.14A, PROPORTIONATE INTEREST U/S.36(1)(III), DIS ALLOWANCE OF ADDITIONAL DEPRECIATION, DISALLOWANCE OF ROYALTY/TRADEMARK EXP ENSES, UNUTILIZED CENVAT CREDIT AND ARMS LENGTH PRICE. AGAINST THIS , ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS, PARTLY ALLOWED THE APPEAL. NOW, BOTH THE ASSESSEE AND THE REVENUE FEELING AGGRIEVED BY THE ORDER OF THE LD.CIT(A) HAV E PREFERRED CROSS- APPEALS. 4. AT THE OUTSET, LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT GROUND NO.1 IS GENERAL IN NATURE, THE SAME MAY BE DECIDED ACCORDINGLY. IN VIEW OF THE STATEMENT MADE BY THE LD.COUNSEL FOR THE ASS ESSEE, GROUND NO.1 IS TREATED AS GENERAL IN NATURE WHICH NEEDS NO SEPARAT E ADJUDICATION. 5. GROUND NO.2 IS AGAINST IN CONFIRMING THE DISALLO WANCE OF CLAIM OF ACCRUED INTEREST RS.8,33,185/- PAYABLE TO APSEB AS PER ORDER OF THE CITY CIVIL COURT. ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 4 - 5.1. THE LD.COUNSEL FOR THE ASSESSEE FAIRLY CONCEDE D THAT THIS GROUND HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE HONBLE CO ORDINATE BENCH (ITAT A BENCH AHMEDABAD) IN ITA NO.1476/AHD/2006 FOR AY 2002- 03, ORDER DATED 11/02/2011. IN VIEW OF THE SUBMISS ION MADE BY THE LD.COUNSEL FOR THE ASSESSEE AND THE DECISION OF THE HONBLE COORDINATE BENCH PASSED IN ITA NO.1476/AHD/2006(SUPRA), WHEREI N THE TRIBUNAL HAS RECORDED A FINDING THAT THE ISSUE IS DECIDED AG AINST THE ASSESSEE, THIS GROUND OF THE ASSESSEE IS, THEREFORE, REJECTED. 6. GROUND NO.3 IS AGAINST THE CONFIRMATION OF DISAL LOWANCE OF RS.3,62,160/- BEING ADMINISTRATIVE EXPENSES U/S.14A OF THE ACT. 6.1. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE BY THE HONBLE COORDINATE BEN CH IN ITA NO.1476/AHD/2006 PERTAINING TO AY 2002-03. 6.2. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER OF THE LD.CIT(A). THE LD.SR.DR HAS RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT REPORTED AT ( 2011) 12 TAXMANN.COM 227 (CAL.). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE COORDINATE BENCH IN ITA NO.1476/AHD/2006(SUPRA) VIDE PARA-16, IT HAS BEEN H ELD THAT SINCE THE ASSESSEE HAD SUFFICIENT PROFITS GENERATED THIS YEAR AND IT HAD MIXED FUNDS AND NO NEXUS IS ESTABLISHED BY THE AO AS TO WHETHER INVESTMENT WAS ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 5 - MADE OUT OF INTEREST BEARING FUNDS, DISALLOWANCE OF INTEREST CANNOT BE MADE. SIMILARLY NO DISALLOWANCE OUT OF ADMINISTRAT IVE EXPENDITURE CAN BE MADE AS THERE IS NO DIRECT NEXUS. AS A RESULT, THIS GROUNDS IS ALLOWED. IN THIS YEAR ALSO, THE AO HAS NOT ESTABLISHED THE N EXUS. MOREOVER, THE LD.COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECIS ION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. CATHOLIC S YRIAN BANK LTD. REPORTED AT (2012) 207 TAXMAN 2 :: (2011) 9 TAXMANN .COM 148 (KER.)(MAG), WHEREIN THE HONBLE HIGH COURT HAS HEL D THAT SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPENSE IS CONCERNED , THERE IS NO PRECIOUS FORMULA OR PROPORTIONATE DISALLOWANCE, HENCE NO DIS ALLOWANCE CAN BE CALLED FOR UNDER THE IDENTICAL FACTS. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH CO URT IN THE CASE OF DHANUKA & SONS(SUPRA). SINCE DIFFERENT VIEWS HAVE BEEN EXPRESSED BY THE HONBLE CALCUTTA HIGH COURT AND HONBLE KERALA HIGH COURT, VIEW WHICH IS IN FAVOUR OF ASSESSEE IS TO BE ADOPTED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PROD UCTS LTD. REPORTED AT 88 ITR 192 (SC). THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CATHOLIC S YRIAN BANK LTD.(SUPRA), THIS GROUND OF ASSESSEES APPEAL IS AL LOWED. 8. GROUND NOS.4 & 5 ARE GENERAL IN NATURE WHICH REQ UIRE NO INDEPENDENT ADJUDICATION. 9. NOW, WE TAKE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BEING LEGA L IN NATURE IN VIEW OF ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 6 - THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF NATIONAL THERMAL POWER (229 ITR 383), THE SAME IS ADMITTED F OR ADJUDICATION. SINCE THIS GROUND HAS BEEN TAKEN FIRST TIME AND CER TAIN DETAILS ARE REQUIRED TO BE VERIFIED, THIS GROUND IS RESTORED BA CK TO THE FILE OF LD.CIT(A) FOR DECISION AFRESH. ADDITIONAL GROUND I S ALLOWED BUT FOR STATISTICAL PURPOSES. 10. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.2627 /AHD/2008 FOR AY 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. 11. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO. 2923/2008 FOR AY 2005-06. THE FACTS ARE IDENTICAL AS WERE IN ITA NO.2627/AHD/2008 FOR AY 2005-06 (ASSESSEES CROSS-APPEAL-SUPRA). 11.1. THE FIRST GROUND IS AGAINST DELETION OF DISAL LOWANCE OF PROVISION FOR LIQUIDATED DAMAGES OF RS.8,67,740/-. THE LD.SR .DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLO WANCE OF PROVISION FOR LIQUIDATED DAMAGES. ON THE CONTRARY, LD.COUNSEL FO R THE ASSESSEE FAIRLY SUBMITTED THAT UNDER THE IDENTICAL FACTS, THE HONB LE COORDINATE BENCH IN ITA NO.2002/AHD/2007 FOR AY 2003-04 (ASSESSEES CRO SS-APPEAL), DATED 11/02/2011, THE ISSUE AHS BEEN RESTORED BACK TO THE FILE OF AO. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE COORDINATE BENCH IN ITA NO .2002/AHD/2007 ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 7 - FOR AY 2003-04 VIDE PARA-56 HAS RESTORED THIS ISSUE D BACK TO THE FILE OF AO. THE HONBLE TRIBUNAL IN PARA-56 HAS GIVEN THE FOLLOWING DIRECTION:- 56. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSE D THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ISSUE REGARDING LIQUIDATED DAMAGES REQUIRES A FRESH LOOK BY THE AO. HE WOULD ALLOW TH E CLAIM ON ACTUAL BASIS. WHEREVER THE OTHER PARTY HAS CLAIMED LIQUID ATED DAMAGES AGAINST THE ASSESSEE IN THE CURRENT YEAR ASST.YEAR IT SHOULD BE ALLOWED. THE ASSESSEE WOULD SUBMIT INDIVIDUAL ACCOUNT AND TH E AO WILL EXAMINE SUCH ACCOUNTS AND TAKE A DECISION AS PER LAW. THIS GROUND IS ALLOWED BUT FOR STATISTICAL PURPOSES. 12.1. AFTER CONSIDERING THE TOTALITY OF THE FACTS, WE FEEL THAT A SIMILAR DIRECTION MAY ALSO BE ISSUED IN THIS CASE AS WELL. ACCORDINGLY, THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH IN THE LIGHT O F THE DIRECTION ISSUED IN ITA NO.2002/AHD/2007 (SUPRA). THUS, THIS GROUND OF THE REVENUE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 13. GROUND NO.2 IS AGAINST THE DELETION OF THE DISA LLOWANCE OF RS.26,08,000/-, BEING BAD DEBTS WRITTEN OFF. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO, WHEREAS LD.COUNSEL FOR THE ASSESSE E SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT AN IDENTICAL IS SUE HAS BEEN DECIDED BY THE TRIBUNAL IN ITA NO.1241/AHD/06 FOR AY 2002-0 3 (REVENUES CROSS-APPEAL), ORDER DATED 11/02/2011. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE COORDINATE BENCH VIDE PARA -43 OF ITS ORDER HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE BY OBSERVI NG AS UNDER:- ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 8 - 43. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSE D THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FO R INTERFERENCE IN THE ORDER OF LD.CIT(A). IT IS ADMITTED POSITION THAT AS SESSEE HAS ACTUALLY WRITTEN OFF THE AMOUNTS. ONCE IT IS SO THEN MATTER IS SQUARELY COVERED BY THE DECISION OF HON.SUPREME COURT IN THE CASE OF TR F LTD. VS. CIT (2010) 323 ITR 397 (SC() WHEREIN IT IS HELD THAT W. E.F. 1.4.1989 IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS IT I S NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BEC OME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AND THE BA D DEBT IS IRRECOVERABLE IN THE ACCOUNT OF ASSESSEE. FOLLOWING THE ABOVE DE CISION OF HON.SUPREME COURT, WE CONFIRM THE ORDER OF LD.CIT(A ) AND DISMISS THIS GROUND OF REVENUE. 14.1. SINCE THE FACTS ARE IDENTICAL IN THIS CASE AL SO AND THE REVENUE HAS NOT POINTED OUT ANY CHANGE IN THE FACTS AND CIRCUMS TANCES OF THE CASE, THEREFORE WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THIS GROUND OF THE REVENUES APPEAL. 15. GROUND NO.3 IS AGAINST THE DELETION OF DISALLOW ANCE OF RS.68,61,000/- IN RESPECT OF PROVISION FOR WARRANT Y EXPENSES. THE SR.DR SUPPORTED THE ORDER OF THE AO, WHEREAS THE LD .COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A). LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE HAS BEEN SET ASIDE TO THE FILE OF AO BY THE HONBLE COORDINATE BENCH IN ITA NO.12/AHD/20 08 FOR AY 2004- 05. 15.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE TRIBUNAL IN ITA NO.12/AHD/ 2008 FOR AY 2004-05 (REVENUES APPEAL IN ASSESSEES OWN CASE) V IDE ORDER DATED ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 9 - 11/12/2011 HAS RESTORED THE MATTER BACK TO THE FIL E OF AO BY OBSERVING AS UNDER:- 76. GROUND NO.2 RELATES TO DELETION OF A SUM OF RS .6,43,000/- IS PROVISIONS FOR WARRANTY EXPENSES. THE ASSESSEE DEB ITED A SUM OF RS.25,70,000/- IN THE P&L A/C. THE AO DISALLOWED W ARRANTY EXPENSES FOR THREE MONTHS ON PROPORTIONATE BASIS AS PERTAINI NG TO THE SUBSEQUENT YEAR. THE LD.CIT(A) ALLOWED THE ENTIRE CLAIM FOLLO WING THE DECISION OF ITAT, BANGALORE IN THE CASE OF WIPRO GE MEDICAL SYS TEM LTD. VS. DCIT 81 TTJ 455. 79. WE HAVE HEARD THE PARTIES. THE ASSESSEE HAS T O SUBMIT PRESENT VALUE OF WARRANTY EXPENSES. IT HAS TO BE PROPERLY ASCERTAINED AND DISCOUNTED ON ACCRUAL BASIS. A PROPER CALCULATION ON THIS ISSUE WILL BE SUBMITTED TO THE AO WHO WILL EXAMINE THE SAME AND A LLOW THE CLAIM AS PER DECISION OF HON.SUPREME COURT IN ROTORK CONTROL S INDIA (P) LTD. (SUPRA) AS ABOVE. THIS GROUND OF REVENUE IS ALLOWE D BUT FOR STATISTICAL PURPOSES. 15.2. SINCE THE FACTS ARE IDENTICAL IN THIS CASE AL SO AND THE REVENUE HAS NOT POINTED OUT ANY CHANGE IN THE FACTS AND CIRCUMS TANCES OF THE CASE, THEREFORE TAKING A CONSISTENT VIEW, WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD.CIT(A) AND RESTORE THIS ISSUE BACK TO THE FI LE AO FOR FRESH ADJUDICATION. THUS, THIS GROUND OF REVENUES APPEA L IS ALLOWED BUT FOR STATISTICAL PURPOSES. 16. GROUND NO.4 IS AGAINST THE DELETION OF DISALLOW ANCE OF INTEREST EXPENSES OF RS.13,44,876/- U/S.14A OF THE ACT. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND PLACED RELIANCE ON THE DECI SION OF HONBLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF DHANUKA & SONS VS. CIT (SUPRA) AND DECISION OF ITAT MUMBAI BENCH RENDERED IN THE CASE OF KALPATARU CONSTRUCTION OVERSEAS (P.) LTD. VS. DCIT REPORTED AT (2007) ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 10 - 13 SOT 194 (MUM.). ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ISSUE HAS BEEN DECIDED BY THE HONBLE COORDINATE BENCH IN ITA NO.1476/AHD/2006 FOR AY 2002-03. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE ITAT IN ITA NO.1476/AHD/20 06(SUPRA) VIDE PARA NOS.14 TO 16 HAS HELD AS UNDER:- 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THE MA TTER WOULD GO TO THE FILE OF AO AS PER THE DECISION OF HON.BOMBAY HIGH C OURT IN THE CASE OF GODREJ BOYCE MFG. CO.LTD. (SUPRA) ONLY WHEN IT IS H ELD THAT SOME AMOUNT IS REQUIRED TO DISALLOWED AS THERE IS A NEXU S BETWEEN THE EXEMPTED INCOME AND INVESTMENT, I.E. IF REVENUE IS ABLE TO SHOW THAT INTEREST BEARING CAPITAL HAS BEEN INVESTED IN SHARE S BUT WHERE NO SUCH NEXUS IS ESTABLISHED THE QUESTION OF DETERMINING AN Y DISALLOWANCE DOES NOT ARISE AND, THEREFORE, MATTER NEED NOT BE SENT T O THE FILE OF AO AS NO DETERMINATION OF ANY DISALLOWANCE WOULD BE NECESSAR Y. IN THE PRESENT CASE WE NOTICE THAT LOAN FUNDS HAVE DECREASED THIS YEAR AS COMPARED TO EARLIER YEARS. EVEN THOUGH INVESTMENTS HAVE INCREA SED FROM RS.940.32 LACS TO RS.1008.51 LACS BUT SUCH INCREASE IN INVEST MENT CANNOT BE LINKED TO ANY BORROWED FUNDS THIS YEAR AS ASSESSEE HAS IN FACT NOT BORROWED ANY ADDITIONAL FUND THIS YEAR. PRIOR TO THE DECISI ON OF HON.SUPREME COURT IN THE CASE OF HONBLE SUPREME COURT IN S.A.B UILDERS VS. CIT 288 ITR 1 (SC) ONUS WAS CONSIDERED ON THE ASSESSEE TO S HOW THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND INVESTMENT ON W HICH NO INCOME IS EARNED. AFTER S.A.BUILDERS CASE (SUPRA) ONUS IS CO NSIDERED SHIFTED TO THE REVENUE AND AO HAS TO SHOW THAT INTEREST BEARIN G CAPITAL ALONE WERE INVESTED IN INVESTMENT ON WHICH NO INCOME WAS EARNED. HON.SUPREME COURT IN THE CASE OF MUNJAL SALES CORPO RATION VS. CIT (2008) 298 ITR 298 (SC) HELD WHERE ASSESSEE HAD SUF FICIENT PROFITS IN THE CURRENT YEAR THEN INTEREST FREE ADVANCES CAN BE CONSIDERED TO BE FLOWING FROM SUCH PROFITS. HONBLE BOMBAY HIGH COU RT IN CIT VS. ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 11 - RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) HELD THAT IF THERE ARE FUND AVAILABLE BOTH INTEREST FREE AND INT EREST BEARING, THEN A PRESUMPTION ARISE THAT INVESTMENT WERE OUT OF INTER EST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. IF THE I NTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT NO DISALLOWANCE O F INTEREST PAID ON BORROWED FUNDS WOULD BE NECESSARY. ONCE SUCH PRESU MPTION IS ESTABLISHED CLAIM OF INTEREST WAS ALLOWABLE. 15. THERE IS ANOTHER ASPECT OF THE MATTER. IF THE ASSESSEE HAS MADE INVESTMENT IN SUBSIDIARIES OUT OF MIXED FUNDS AND F OR COMMERCIAL EXPEDIENCY THEN NO INTEREST OUT OF PAYMENT MADE ON BORROWED FUNDS CAN BE DISALLOWED AS HELD IN S.A.BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SC). HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 (P& H) HELD THAT NO DISALL OWANCE OUT OF INTEREST PAYMENT IS PERMISSIBLE IF AO DOES NOT ESTA BLISH NEXUS BETWEEN THE EXPENDITURE INCURRED AND INCOME GENERATED. 16. SINCE ASSESSEE HAD SUFFICIENT PROFITS GENERATED THIS YEAR AND IT HAD MIXED FUNDS AND NO NEXUS IS ESTABLISHED BY THE AO AS TO WHETHER INVESTMENT WAS MADE OUT OF INTEREST BEARING FUNDS, DISALLOWANCE OF INTEREST CANNOT BE MADE. SIMILARLY NO DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE CAN BE MADE AS THERE IS NO DIRECT NEXUS. AS A RESULT, THIS GROUND IS ALLOWED. 17.1. THE HONBLE COORDINATE BENCH HAS EXAMINED THE VARIOUS CASE LAWS AND CAME TO THE CONCLUSION THAT THE ASSESSEE H AD SUFFICIENT PROFITS GENERATED THIS YEAR AND IT HAD MIXED FUNDS AND NO N EXUS IS ESTABLISHED BY THE AO AS TO WHETHER INVESTMENT WAS MADE OUT OF INT EREST-BEARING FUNDS, DISALLOWANCE OF INTEREST CANNOT BE MADE. IN THE PR ESENT CASE ALSO, THE FACTS ARE IDENTICAL, THEREFORE WE DO NOT FIND ANY R EASON TO TAKE A CONTRARY VIEW THAN TAKEN BY THE HONBLE COORDINATE BENCH. TH US, THIS GROUND OF THE REVENUES APPEAL IS REJECTED. 18. GROUND NO.5 IS AGAINST THE DELETION OF DISALLOW ANCE OF RS.1,29,034/- U/S.36(1)(III) OF THE ACT. THE LD.SR .DR HAS SUPPORTED THE ORDER OF THE AO, WHEREAS LD.COUNSEL FOR THE ASSESSE E SUPPORTED THE ORDER ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 12 - OF THE LD.CIT(A) AND SUBMITTED THAT UNDER THE IDENT ICAL FACTS, THE HONBLE TRIBUNAL IN ITA NO.1476/AHD/2006(SUPRA) THE ISSUE H AS BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE PARA NOS.9 & 16 BY OBSERVIN G AS UNDER:- 9. GROUND NO.4(A) RELATES TO DISALLOWANCE OF PROP ORTIONATE INTEREST OF RS.10,70,7000/-. THE AO DISALLOWED PROPORTIONATE INTEREST OUT OF INTEREST PAID ON BORROWED FUNDS ON THE ASSUMPTION T HAT BORROWED MONEY HAS BEEN USED FOR ACQUISITION OF INVESTMENT A S ON BALANCE SHEET DATE. AS PER AO THE COMPANY HAD MADE TOTAL INVESTM ENT TO THE EXTENT OF RS.1008.51 LACS IN THE EQUITY SHARES AND MUTUAL FUNDS. DURING THE YEAR THE INVESTMENT IN SHARES AND MUTUAL FUNDS WERE INCREASED FROM 940.32 LACS TO RS.1008.51 LACS. OUT OF THIS INVEST MENT, TO THE TUNE OF RS.61 LACS, IS MADE IN SUBSIDIARY COMPANIES NAMELY KARAMSAD INVESTMENT LTD. & KARAMSAD HOLDING LTD. SINCE THE ASSESSEE HAD PURCHASED SHARES IN THOSE COMPANIES BEING SISTER CO NCERNS, THE NATURE OF INVESTMENT IS THE SAME AS IN SHARES AND MUTUAL F UND OF OTHER COMPANIES. THE ASSESSEE COMPANY HAD EARNED DIVIDEN D INCOME OF RS.94.47 LACS DURING THE YEAR AND HAS CLAIMED AS EX EMPT UNDER SECTION 10(33). INVOKING SECTION 14A AO HELD THAT EXPEND ITURE FOR EARNING EXEMPTED INCOME CANNOT BE ALLOWED AS DEDUCTION. SI MILARLY, THE AO IDENTIFIED THAT ADMINISTRATIVE EXPENDITURE WHICH CO ULD HAVE BEEN INCURRED FOR HANDLING THE INVESTMENT IN SHARES AND MUTUAL FUND. A PART OF SUCH EXPENDITURE WAS CONSIDERED ATTRIBUTABL E TO INVESTMENT MADE IN SISTER CONCERNS, THE INCOME THEREFROM WAS E XEMPT UNDER SECTION 10(33). THE ASSESSEE SUBMITTED THAT IT HAS ENOUGH WORKING CAPITAL AND IT HAS NOT INCREASED ITS BORROWINGS THI S YEAR. THEREFORE, IT CANNOT BE SAID THAT INVESTMENT IN SUBSIDIARY WAS DO NE DURING THIS YEAR OUT OF ANY BORROWED CAPITAL MADE THIS YEAR. REGARD ING ADMINISTRATIVE EXPENDITURE SOUGHT TO BE DISALLOWED ASSESSEE SUBMIT TED BEFORE THE AO THAT THERE IS NO RELATIONSHIP OF SUCH EXPENDITURE W ITH THE INVESTMENT ACTIVITIES. NO SPECIFIC STAFF HAS BEEN APPOINTED F OR THIS PURPOSE. THE AO, HOWEVER, DID NOT AGREE AND DISALLOWED PROPORTIO NATE INTEREST BY HOLDING THAT ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT INTEREST FREE FUNDS WERE ALONE USED FOR MAKING SUCH INVESTME NT IN SISTER CONCERNS. THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNT FOR MAKING INVESTMENT ARE OUT OF MIXED FUNDS. THERE IS NO NEXUS BETWEEN THE INVESTMENT AND INTEREST FREE FUNDS. ONUS IS ON THE ASSESSEE DURING THE YEAR AND ALSO IN EARLIER YEARS THAT INVESTMENT FOR EARNING CAPITAL GAINS AND DIVIDEND ARE MADE OUT OF INTEREST FREE CA PITAL. AFTER LONG AND DETAILED DISCUSSION THE AO DISALLOWED PRO-RATA INTE REST WORKED OUT AT ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 13 - RS.10.70 LACS. IN ADDITION, HE ALSO DISALLOWED, BY ESTIMATE ADMINISTRATIVE, EXPENDITURE OF RS.1,20,000/-. 16. SINCE ASSESSEE HAD SUFFICIENT PROFITS GENERATED THIS YEAR AND IT HAD MIXED FUNDS AND NO NEXUS IS ESTABLISHED BY THE AO AS TO WHETHER INVESTMENT WAS MADE OUT OF INTEREST BEARING FUNDS, DISALLOWANCE OF INTEREST CANNOT BE MADE. SIMILARLY NO DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE CAN BE MADE AS THERE IS NO DIRECT NEXUS. AS A RESULT, THIS GROUND IS ALLOWED. 18.1. IN THE PRESENT CASE ALSO, THE FACTS ARE IDE NTICAL AS THE LD.CIT(A) HAD GIVEN A FINDING ON FACT THAT THERE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AND IT HAD NOT DIVERTED THE INTEREST BEARING F UND SAME REMAINED UNREBUTTED. THEREFORE, WE DO NOT FIND ANY REASON T O TAKE A CONTRARY VIEW THAN TAKEN BY THE HONBLE COORDINATE BENCH. THUS, T HIS GROUND OF THE REVENUES APPEAL IS REJECTED. 19. GROUND NO.6 IS AGAINST THE DELETION OF DISALLOW ANCE OF ADDITIONAL DEPRECIATION OF RS.2,17,595/-. THE LD.SR.DR STRON GLY SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE PRE-REQUISIT E FOR CLAIMING ADDITIONAL DEPRECIATION IS THAT THE ASSESSEE HAS TO DEMONSTRATE INCREASE IN THE INSTALLED CAPACITY. HE ALSO SUBMITTED THAT AO HAS GIVEN A FINDING THAT THE ASSESSEE COULD NOT PROVE THE INCREASE IN T HE INSTALLED CAPACITY. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPOR TED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE LD.CIT(A) IS JUSTI FIED IN DELETING THE DISALLOWANCE. HE DREW OUR ATTENTION TOWARDS PAGE N O.163 OF THE PAPER- BOOK, WHEREIN IT HAS BEEN SUBMITTED BY THE ASSESSEE -COMPANY THAT IT HAD SET UP NEW SHED IN WHICH NEW PLANT & MACHINERY INST ALLED FOR MANUFACTURING OF PARTS, WHICH ARE USED IN MANUFACTU RING OF GLASS LINED ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 14 - VESSELS/REACTORS AND ARE SOLD DIRECTLY TO THE CUSTO MERS. UPTO THIS YEAR THE COMPANY HAD NO SEPARATE FACILITY FOR THE PRODUC TION OF SAID PARTS. THEY WERE MANUFACTURED IN THE EXISTING MANUFACTURIN G FACILITIES. BY SETTING UP NEW SHED FOR MANUFACTURING OF PARTS THE ASSESSEE-COMPANY HAS ACHIEVED HIGHER PRODUCTION OF GLASS LINED VESSELS/R EACTORS AND SIMULTANEOUSLY REDUCED THE COST OF MANUFACTURING OF PARTS. THUS, THE COMPANY AHS MADE EXPANSION OF ITS EXISTING UNIT. I N THE ANNUAL REPORT, THE INSTALLED CAPACITY IN RESPECT OF MANUFACTURING OF PARTS HAS NOT BEEN REPORTED. IN ANNUAL REPORT, IT IS STATED THAT, TH E COMPANY HAS DURING THE YEAR EXPANDED CAPACITY BY ADDING A NEW FACILITY FOR MANUFACTURING GLASS LINED PARTS & COMPONENTS. AS ON 31/03/2002 THE CO MPANY HAS NO INSTALLED CAPACITY IN RESPECT OF MANUFACTURING OF P ARTS. THEREFORE, THE MANUFACTURING IN CURRENT YEAR MAY BE CONSIDERED AS 100% INCREASE INSTALLED CAPACITY IN RESPECT OF MANUFACTURING OF P ARTS. 19.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, WE FIN D THAT THE LD.CIT(A) HAS GIVEN A FINDING ON FACT THAT THE APPELLANT HAS STARTED NEW LINE OF PRODUCTION OF MANUFACTURING OF PARTS WHICH WAS NOT THERE EARLIER, THEREFORE, THERE WAS NO INSTALLED CAPACITY AS ON 31 .3.2002 IN RESPECT OF MANUFACTURING OF PARTS, THEREFORE THERE IS 100% INC REASE IN INSTALLED CAPACITY IN RESPECT OF MANUFACTURING OF PARTS. TH EREFORE, LD.CIT(A) WAS OF THE VIEW THAT AS THE NEW FACILITY OF PRODUCTION HAS BEEN ESTABLISHED THE APPELLANT IS CLEARLY ELIGIBLE FOR ADDITIONAL DEPREC IATION, ACCORDINGLY, THE DISALLOWANCE OF ADDITIONAL DEPRECIATION IS DELETED. ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 15 - 19.2. IN VIEW OF UNCONTROVERTED FINDING ON FACT T HAT THERE WAS INCREASE IN INSTALLED CAPACITY FROM 0 TO 100, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), THE SAME IS HEREBY UPHE LD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 20. GROUND NO.7 IS AGAINST THE DELETION OF DISALLOW ANCE OF ROYALTY OF RS.41,06,250/-. THE LD.SR.DR SUPPORTED THE ORDER O F THE AO, WHEREAS LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ASSESSEE-COMPANY IS PAYING ROYAL TY TO PFAUDLER INC, USA FOR THE USAGE OF TRADEMARKS. IT IS SUBMITTED T HAT AS PER USER AGREEMENT THE ASSESSEE-COMPANY HAS GOT THE RIGHT OF USER ONLY AND NOT OF OWNERSHIP. THE PAYMENT OF ROYALTY IS RELATED TO SALES MADE BY USER OF TECHNOLOGY SUPPLIED BY THEM. IF THE ASSESSEE DOES NOT USE THE TECHNOLOGY THEN NO ROYALTY PAYMENT IS REQUIRED. USER OF THE T RADEMARK DID NOT CREATE ANY ASSET OR CONFERRED ANY PERMANENT RIGHT IN FAVOU R OF THE ASSESSEE. THE AGREEMENT IS ONLY FOR 11 YEARS AND TERMINABLE BY SH ORT NOTICE. ROYALTY IS PAID IN COURSE OF PROFIT EARNING PROCESS. 20.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT ON THE BASIS OF THE SUBMISSIONS OF THE ASSESSEE, LD.CIT(A) HAS GIVEN A FINDING ON FACT THAT THE ASSESSEE HAS N OT ACQUIRED ANY OWNERSHIP RIGHTS. IT HAS GOT THE RIGHT OF USER ONL Y. SINCE, AY 1989-90, THE USER CHARGES CLAIMED AS ROYALTY HAVE BEEN ALLOW ED IN THE ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 16 - ASSESSMENTS, THE RATE OF USER CHARGES IS 1% OF THE SALES DURING THE YEAR UNDER CONSIDERATION. TDS HAS BEEN MADE IN RESPECT OF ROYALTY PAYMENTS. AS IT IS A RECURRING EXPENDITURE PAYABLE ON THE BAS IS OF SALES AND THE APPELLANT HAS NOT ACQUIRED ANY CAPITAL ASSET OR PER MANENT RIGHT, THE PAYMENT OF ROYALTY IS ALLOWABLE AS BUSINESS EXPENDI TURE. THE REVENUE HAS NOT CONTROVERTED THIS FACT BY PLACING ANY MATER IAL ON RECORD, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD.CIT(A), THE SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REV ENUES APPEAL IS REJECTED. 21. GROUND NO.8 IS AGAINST THE DELETION OF ADDITION OF RS.1,04,889/- ON ACCOUNT OF ARMS LENGTH PRICE IN RESPECT OF SALE OF MATERIAL TO ASSOCIATED CONCERN. THE LD.SR.DR SUPPORTED THE ORDER OF THE A O AND SUBMITTED THAT THE LD.CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDI TION. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ORDER OF THE LD.CIT(A) IS JUSTI FIED. 21.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A), AFTER CONSIDERING THE E XPLANATION GIVEN BY THE LD.COUNSEL FOR THE ASSESSEE, HAS GIVEN A FINDIN G ON FACT THAT THE TRANSACTIONS CONSIDERED BY THE AO ARE NOT SUBSTANTI AL AS COMPARED TO THE VOLUME OF THE TRANSACTIONS. FURTHER, IT IS FOUND T HAT IN MOST OF THE TRANSACTIONS, THE APPELLANT HAS EARNED HIGHER SALES PRICE AND IN TOTALITY THE ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 17 - APPELLANT HAS GAINED HIGHER PRICES AS CAN BE SEEN F ROM PAGES 197 TO 199 OF THE PAPER-BOOK. 21.2. THE REVENUE HAS NOT CONTROVERTED THIS FACT BY PLACING ANY MATERIAL ON RECORD, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), THE SAME IS HEREBY UPHELD. THUS, THI S GROUND OF REVENUES APPEAL IS REJECTED. 22. GROUND NO.9 IS AGAINST THE DIRECTION OF THE LD .CIT(A) TO THE AO TO ALLOW REDUCTION OF RS.1,11,223/- BEING PRIOR PER IOD ADJUSTMENT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S.115JB. THE SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A ) WAS NOT JUSTIFIED IN DIRECTING THE AO TO ALLOW REDUCTION BEING PRIOR PER IOD ADJUSTMENT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THIS ISSUE IS COVERED BY THE DEC ISION OF HONBLE GUJARAT HIGH COURT RENDERED IN TAX APPEAL NO.1940 O F 2010 IN THE CASE OF CIT VS. THE RIDDHI SIDDHI GLUCO BOILS LTD., DATE D 28/06/2012. RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT REPORTED AT (2002 ) 255 ITR 273 (SC). 22.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE RIDDHI SIDDHI GLUCO BOILS LTD.(SUPRA), HAS OBSERVED VIDE PARA-4 AS UNDER:- ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 18 - 4.0 A DIVISION BENCH OF THIS COURT IN TAX APPEAL NO.109 TO 2010, DECIDED ON 13.12.2011, HAS HELD IN PARA:10 TH AT THE ASSESSING OFFICER COULD NOT HAVE VARIED THE PROFIT AND LOSS ACCOUNT OF THE COMPANY DULY AUDITED AND PREPARED IN TERMS OF THE PROVISIONS CONTAINED IN THE COMPANIES ACT WHICH IS EXTRACTED AS UNDER:- 10. IN THAT VIEW OF THE MATTER, AS RIGHTLY POINTE D OUT BY THE COUNSEL FOR THE ASSESSEE, IN VIEW OF THE DECISIONS OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. COMMISSI ONER OF INCOME-TAX REPORTED IN (2002) 255 ITR 273 AND IN TH E CASE OF COMMISSIONER OF INCOME-TAX VS. HCL COMNET SYSTEMS A ND SERVICES LTD. REPORTED IN (2008) 305 ITR 409(SC), T HE ASSESSING OFFICER, COULD NOT HAVE VARIED THE PROFIT AND LOSS ACCOUNT OF THE COMPANY DULY AUDITED AND PREPARED IN TERMS OF THE P ROVISIONS CONTAINED IN THE COMPANIES ACT. 22.2. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEME NT OF HONBLE JURISDICTIONAL HIGH COURT, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 23. GROUND NO.10 IS AGAINST THE DIRECTION OF THE LD .CIT(A) TO THE AO NOT TO INCLUDE PROVISION FOR DOUBTFUL DEBTS OF RS.4 4,74,000/-, PROVISION FOR WARRANTY EXPENSES OF RS.21,74,000/- AND INTERES T EXPENSES OF RS.13,44,876/- BEING EXPENSES RELATED TO EARN EXEMP T INCOME FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND PLACED R ELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. ILPEA PARAMOUNT (P.) LTD. REPORTED AT (2010) 192 TA XMAN 65 (DELHI). ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPOR TED THE ORDER OF THE LD.CIT(A) AND RELIED ON THE DECISION OF HONBLE COO RDINATE BENCH (ITAT A BENCH AHMEDABAD) IN ITA NO.1999/AHD/2008 FOR AY 2003-04 IN THE CASE OF ACIT VS. VODAFONE ESSAR GUJARAT LTD., D ATED 11/05/2012, ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 19 - DECISION OF ITAT E BENCH MUMBAI IN ITA NO.3850/M UM/2010 FOR AY 2005-06 IN THE CASE OF M/S.ESSAR TELEHOLDINGS LT D. VS. DCIT DATED 29/07/2011 AND DECISION OF ITAT F BENCH DELHI IN ITA NO.4931/DEL/2010 FOR AY 2007-08 IN THE CASE OF QUIP PO TELECOM INFRASTRUCTURE LTD. VS. ACIT, DATED 18/02/2011. 23.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) IN PARA-14.2 OF HIS ORDE R HAS GIVEN A FINDING THAT AS REGARDS THE PROVISION FOR DOUBTFUL DEBTS OF RS..44,74,000/- AND PROVISION OF WARRANTY EXPENSES ARE CONCERNED, THE S AME ARE TREATED AS ASCERTAINED LIABILITY AND THEREFORE, NO ADDITION CA N BE MADE TO THE BOOK PROFIT IN RESPECT OF THESE AMOUNTS, ACCORDINGLY, TH ESE ADDITIONS ARE DELETED. SIMILARLY, IN RESPECT OF DISALLOWANCE OF EXPENSES U/S.14A OF RS.17,07,036/- AS THE DISALLOWANCE HAS BEEN REDUCED TO RS.3,62,160/-. THE LD.CIT(A) HAS PARTLY CONFIRMED THE DISALLOWANCE . WE FIND THAT THE HONBLE COORDINATE BENCH IN THE CASE OF VODAFONE ES SAR GUJARAT LTD. VIDE PARA-11 OF ITS ORDER HAS HELD AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, TH E CASE LAWS CITED AND PERUSED THE DOCUMENTS ON RECORD. IT IS A FACT THAT THE ASSESSEE HAD MADE PROVISION FOR BAD AND DOUBTFUL DEBTS AND THE S AME HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2003. IN THE BALANCE SHEET AS ON 31 ST MARCH 2003 OF THE ASSESSEE, IT CAN BE SEEN THAT THE PROVISION OF BAD AND DOUBTFUL DEBTS HAS BEEN REDUCED FROM THE GROSS DEBTORS AND THE NET SUNDRY D EBTORS ARE SHOWN AS ASSET IN THE BALANCE SHEET. THUS THE PROVISION FO R BAD AND DOUBTFUL DEBTS CANNOT BE TERMED AS A PROVISION FOR LIABILITY BUT IS IN THE NATURE OF DIMINUTION IN THE VALUE OF ASSET. IN VIEW OF TH E AFORESAID FACTS, WE ARE OF THE VIEW THAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THAT OF THE CASE OF YOKOGWA INDIA LTD.(SUPRA). WE THEREFOR E, RESPECTFULLY ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 20 - FOLLOWING THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. YOKOGWA INDIA LTD., (SUPRA) WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF CIT(A). ACCORDINGLY THE APPEAL OF THE REVENUE IS D ISMISSED. 23.2. THE HONBLE COORDINATE BENCH IN THE CASE OF M /S.ESSAR TELEHOLIDNGS LTD.(SUPRA) HAS HELD THAT THE PROVISIO NS OF SECTION 14A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOOK PR OFIT U/S.115JB OF THE ACT INASMUCH AS CLAUSE (F) OF EXPLANATION TO SECTIO N 115JB REFERS TO THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT WHICH C AN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S.115 JB OF THE ACT. IN THIS CONNECTION, THE HONBLE COORDINATE BENCH PLACED REL IANCE ON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2009) 32 SOT 101 (DEL), WHEREIN IT HAS BEEN HELD T HAT PROVISIONS OF SUB-SEC.(2) & (3) OF SECTION 14A CANNOT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA OF THE ACT. 23.3. SO FAR AS PROVISION FOR WARRANTY IS CONCERNED , LD.CIT(A) HAS GIVEN A FINDING THAT THERE LIABILITIES ARE ASCERTAINED, T HEREFORE BOOK PROFIT WOULD NOT BE INCREASED. 23.4. AFTER CONSIDERING THE TOTALITY OF THE FACTS A ND THE DECISIONS OF THE COORDINATE BENCHES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), THE SAME IS HEREBY UPHELD. THUS, THIS G ROUND OF REVENUES APPEAL IS DISMISSED. 24. GROUND NOS.11 & 12 ARE GENERAL IN NATURE WHICH REQUIRE NO INDEPENDENT ADJUDICATION. ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 21 - 25. IN THE RESULT, REVENUES APPEAL IN ITA NO.2923/ AHD/2008 FOR AY 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 26. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO. 3280/AHD/2010 FOR AY 2005-06, WHEREIN REVENUE HAS TAKEN THE FOLLO WING GROUNDS:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY OF RS.4,37,407/- LEVIED BY THE A.O. U/S.271 (1)(C) OF THE ACT, ON ACCOUNT OF DISALLOWANCE OF RS.8,33,185/- AND RS.3,6 2,160/- MADE BY THE A.O. IN RESPECT OF INTEREST PAID TO APESB AND U/S. 14A OF THE ACT, RESPECTIVELY. 1.1. IN DOING SO, THE LD.CIT(A) HAS ERRED IN NOT AP PRECIATING THE FACT THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICUL ARS WHILE CLAIMING INTEREST OF RS.8,33,185/- ON DAMAGES PAYAB LE OF RS.69,43,209 TO ANDHRA PRADESH STATE ELECTRICITY BO ARD (APSEB) AS PER THE DECREE DATED 16-12-94 ISSUED BY THE CITY CIVIL COURT WHILE THE ASSESSEE HAD OBTAINED STAY FR OM HONBLE ANDHRA PRADESH HIGH COURT AGAINST THE SAID DECREE A ND HENCE THE SAID DECREE WAS NOT IN OPERATION. 1.2. THE LD.CIT(A) HAS FURTHER ERRED IN NOT APPRECI ATING THE FACT THAT AS PER THE PROVISIONS OF SECTION 14A OF THE I.T.ACT , 1961, NO DEDUCTION SHOULD BE ALLOWED IN RESPECT OF THE EXPEN DITURE INCURRED FOR EARNING EXEMPT INCOME AND THE ASSESSEE HAD FURNISHED INCORRECT PARTICULARS OF INCOME BY DISREG ARDING THE STATUTORY PROVISIONS OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D.CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE REST ORED TO THE ABOVE EXTENT. 26.1. THE ONLY EFFECTIVE GROUND IS AGAINST THE DELE TION OF PENALTY OF RS.4,37,407/- LEVIED BY THE AO U/S.271(1)(C). 26.2. THE ASSESSING OFFICER OBSERVED THAT DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY HAS CLAIMED INT EREST PAYABLE TO APSEB AMOUNTING TO RS.8,33,185/- AND DISALLOWANCE O F ADMINISTRATIVE ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 22 - EXPENSES OF RS.3,62,160/- WHICH WAS CONFIRMED BY TH E LD.CIT(A) IN QUANTUM PROCEEDINGS. HOWEVER, THE PENALTY WAS LEVI ED IN RESPECT OF DISALLOWANCE OF RS.8,33,185/-. BEING AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS DELETED THE PENALTY. NOW, THE REVENUE IS IN APPEAL BEFORE US. 26.3. THE LD.SR.DR HAS STRONGLY SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN D ELETING THE PENALTY. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ONLY FOLLOWED THE DECISION OF THE HONBLE ITAT A BENCH AHMEDABAD IN THE CASE OF DCIT VS. GMM PFAUDLER LTD. IN ITA NO .4232/AHD/2007 FOR AY 1998-99, DATED 11/04/2008 AND ALSO DECISION OF HONBLE ITAT F BENCH IN THE CASE OF DCIT VS. NALWA INVESTMENTS LTD. IN ITA NO.3805/DEL/2010 FOR AY 2005-06, DATED 29/10/2010. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE RAISED IN REVENUES APPEAL W ITH REGARD TO DISALLOWANCE OF INTEREST PAID TO APSEB AND DISALLOW ANCE OF U/S.14A OF THE ACT. SO FAR AS THE DISALLOWANCE U/S.14A IS CON CERNED, THIS DISALLOWANCE HAS BEEN DELETED BY US IN OUR ORDER PA SSED IN ITA NO.2627/AHD/2008 (ASSESSEES APPEAL) FOR AY 2005-06 (SUPRA), THEREFORE, THE PENALTY OF RS.4,37,407/- LEVIED BY T HE AO U/S.271(1)(C) OF THE ACT IN RESPECT OF INTEREST PAID TO APSEP DOES N OT SURVIVE. THE COORDINATE BENCH IN ASSESSEES OWN CASE HAS TAKEN A VIEW THAT PENALTY IS ITA NO. 2627/AHD/2008-AY 2005-06 (BY ASSESSEE) ITA NO.2923/AHD/2008-AY 2005-06 (BY REVENUE) & ITA NO.3280/AHD/2010-AY 2005-06 (BY REVENUE) GMM PFAUDLER LTD. VS. JT.CIT - 23 - NOT LEVIABLE ON SUCH AMOUNT, THEREFORE, TAKING A CO NSISTENT VIEW, WE DELETE THE PENALTY FOR THIS YEAR ALSO. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 28. WE SUMMARIZE THE RESULT AS UNDER:- (1) ASSESSEES APPEAL IN ITA NO.2627/AHD/2008 FOR A Y 2005- 06 IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. (2) REVENUES APPEAL IN ITA NO.2923/AHD/2008 FOR AY 2005- 06 IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. (3) REVENUES APPEAL IN ITA NO.3280/AHD/2010 FOR AY 2005- 06 IS DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28 / 01 /2014 /'.., .../ T.C. NAIR, SR. PS , & 0$1 21+$ , & 0$1 21+$ , & 0$1 21+$ , & 0$1 21+$/ COPY OF THE ORDER FORWARDED TO : 1. 34 / THE APPELLANT 2. 0534 / THE RESPONDENT. 3. !! $ '6 / CONCERNED CIT 4. '6() / THE CIT(A)-VIII, AHMEDABAD 5. 1 #7 0$ , , / DR, ITAT, AHMEDABAD 6. 789 :% / GUARD FILE. ,' ,' ,' ,' / BY ORDER, 51$ 0$ //TRUE COPY// ; ;; ;/ // / !< !< !< !< ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD