The DCIT, Circle-9, Ahmedabad V. B.Nanji & Co., Ahmedabad

ITA 2647/AHD/2009

• Counselvise Citation: 264720514 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-08-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 25-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Keywords: Business expenditure; Commercial expediency; Capital expenditure
• Section: 37(1); 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA, JUDICIAL MEMBER AND SHRI A N PAHUJA, ACCOUNTANT MEMBER ITA NO.2647/AHD/2009 (ASSESSMENT YEAR:-1997-98) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-9, AHMEDABAD V/S M/S B NANJI & CO., PRESENTLY PROP. CONCERN OF B NANJI CONSTRUCTION P. LTD., MOORTI BUNGLOW, 5, ASHOK NAGAR, BEHIND SUNDARBAN SATELLITE, AHMEDABAD PAN: AAACB 7701 Q [APPELLANT] [RESPONDENT] ITA NO.2764/AHD/2009 (ASSESSMENT YEAR:-1997-98) B NANJI & CO., (PRESENTLY PROP. CONCERN OF B NANJI CONSTRUCTION P. LTD.), AHMEDABAD V/S DEPUTY COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-9, AHMEDABAD [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI KARTAR SINGH, DR ASSESSEE BY:- SHRI SAKAR SHARMA, AR DATE OF HEARING:- 25.8.2011 DATE OF PRONOUNCEMENT:- 26.8.2011 O R D E R A N PAHUJA: THESE CROSS APPEALS FILED ON 25.9.2009 BY THE REVE NUE AND ON 8.10.2009 BY THE ASSESSEE AGAINST AN ORDER D ATED 31 ST JULY, 2009 OF THE LD. CIT(APPEALS)-XV, AHMEDABAD, FOR THE ASSESSMENT YEAR 1997-98,RAISE THE FOLLOWING GROUNDS :- ITA NO.2647/AHD/2009 [REVENUE] [1] THE ID. COMMISSIONER OF INCOME-TAX (A)-XV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4344601/- 2 ITA NOS.2647 & 2764/AHD/2009 OUT OF TOTAL ADDITION RS.11420660/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT[A] - XV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [3] IT IS THEREFORE, PRAYED THAT THE ORDER OF THE ID . COMMISSIONER OF INCOME-TAX(A)-XV, AHMEDABAD MAY BE SET-ASIDE AND THAT O F THE ASSESSING OFFICER BE RESTORED. ITA NO.2764/AHD/2009[ASSESSEE] [1] THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN CON FIRMING DISALLOWANCE OF INTEREST OF RS.6,80,000/- (ACTUAL AMOUNT RS.6,79,987 /-) WHICH WAS ORIGINALLY ALLOWED BY THE CIT (A) AND CONFIRMED BY T HE HON'BLE ITAT AGAINST ORIGINAL APPEAL. [2] THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN CONF IRMING DISALLOWANCE OF INTEREST OF RS.63,96,028/- AS PER THE DIRECTIONS OF THE HON'BLE ITAT IN ITS ORDER WHILE SETTING ASIDE THE ISSUE TO THE FILE OF A.O. WITHOUT APPRECIATING THAT APPEAL AGAINST THE ORDER O F THE HON'BLE ITAT HAS BEEN ADMITTED BY THE HON'BLE HIGH COURT AND IS PENDING FOR ADJUDICATION. [3] THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE ASSESSING OFFICER TO EXCLUDE INTEREST OF RS.52,48,561/- OU T OF TOTAL INTEREST OF RS.1,14,20,629/-WHICH WAS ALREADY BROUGHT TO TAX BY THE A.O. AS A CONSEQUENCE OF DISALLOWANCE OF INTEREST BY THE LD. CIT (A) WHILE ADJUDICATING ORIGINAL APPEAL AGAINST ORDER PASSED U/S 144 OF THE ACT. THE APPELLANT CRAVES PERMISSION TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR DUR ING THE COURSE OF HEARING OF THE APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS.55,75,070/- FILED ON 31.10.1997 BY THE A SSESSEE, ENGAGED IN PURCHASE AND SALE OF LAND, WAS TAKEN UP FOR SCRU TINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX AC T, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. SUBSEQUENT LY, DUE TO NON- PRODUCTION OF BOOKS OF ACCOUNTS AND IN THE ABSENCE OF DETAILS DESIRED BY THE AO, ASSESSMENT WAS COMPLETED ON 22-0 3-2000 U/S 144 OF THE ACT, DETERMINING INCOME OF RS.1,43,77,36 0/-.INTER ALIA, AN 3 ITA NOS.2647 & 2764/AHD/2009 AMOUNT OF RS.1,14,20,616/ ON ACCOUNT OF INTEREST WA S DISALLOWED BESIDES ADDITION OF RS.20,03,198/- U/S 68 OF THE A CT AND RS.59,41,985/- AS ALSO OF RS. 5,86,631/- IN RESPECT OF SUNDRY CREDITORS. 2.1 ON APPEAL, THE LD. CIT(A) VIDE HIS ORDER DA TED 29-03-2001 RESTORED THE ISSUE OF ADDITIONS OF RS.20,03,198/- ,RS.5,86,631/- AND RS.59,41,985/- TO THE FILE OF THE ASSESSING OFFICER [AO IN SHORT] FOR RECONSIDERATION WHILE DISALLOWANCE OF INTEREST WAS REDUCED BY RS.61,72,055/-. THIS AMOUNT COMPRISED RS.16,49,090+ 6,79,987/-ON ACCOUNT OF INTEREST ALLOWABLE U/S 36(1)(III) OF THE ACT. THE AMOUNT WAS QUANTIFIED IN THE ABSENCE OF RELEVANT DETAILS O F INTEREST FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAVING NOT F URNISHED THE SAME AND ON THE BASIS OF FINDINGS OF THE LD. CIT(A ) IN THE AY 1996- 97. BESIDES , AN AMOUNT OF RS.38,42,978/- WAS ALLOW ED U/S 57(III) OF THE ACT, AGAIN IN THE ABSENCE OF RELEVANT DETAILS O F INTEREST FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAVING NOT F URNISHED THE SAME AND ON THE BASIS OF FINDINGS OF THE LD. CIT(A ) IN THE AY 1996- 97. IN NUTSHELL, THE REMAINING AMOUNT OF DISALLOWA NCE OF INTEREST OF RS.52,48,561/- WAS CONFIRMED BY THE LD. CIT(A). 2.2 ON FURTHER APPEAL BY THE ASSESSEE AND THE R EVENUE, THE ITAT VIDE THEIR COMMON ORDER DATED 15-12-2006 IN ITA NOS .1257& 1330/AHD/2001 FOR THE AY 1997-98 RESTORED THE ISSU E OF QUANTIFICATION OF DISALLOWANCE OF INTEREST TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF QUANTIFICATION OF SUCH INTERES T ON ACCOUNT OF BORROWED FUNDS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFCL, IN THE LIGHT OF THEIR FINDINGS IN THEIR ORDE R FOR THE AY 1996-97. IN THE AY 1996-97, THE ITAT VIDE THEIR AFORESAID OR DER DATED 15.12.2006 IN ITA NO.1549/AHD/2000 CONCLUDED ON THE ISSUE OF INTEREST AS UNDER: 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN TH E LIGHT OF MATERIAL PLACED BEFORE US. THE DISALLOWANCE ON ACCOUNT OF INTEREST HAS 4 ITA NOS.2647 & 2764/AHD/2009 BEEN DELETED BY CIT(A) TO THE EXTENT OF RS.54,92,068/ -. SO AS IT RELATES TO DISALLOWANCE SUSTAINED BY CIT(A), THE ASSESSEE IS NOT IN APP EAL. THEREFORE, THERE IS NO DISPUTE TO THAT EXTENT. THE DISA LLOWANCE DELETED BY CIT(A) CONSISTS OF TWO ELEMENTS -ONE IS RS.16,49,090/- WHI CH HAS BEEN HELD TO BE PERTAINING TO REGULAR BUSINESS OF THE ASSESSEE . NO MATERIAL HAS BEEN BROUGHT TO OUR NOTICE BY ID. DR TO SHOW THAT SUCH CONTENTION OF THE ASSESSEE IS WRONG OR FINDINGS OF ID. CIT(A) IN THIS REGARD ARE FACTUALLY INCORRECT. IF SUCH IS A POSITION THEN SUCH INTEREST HAS TO B E ALLOWED FOR THE PURPOSE OF BUSINESS UNDER THE PROVISIONS OF SECTION 36(1)(I II) OF THE ACT. THEREFORE, IT IS HELD THAT ID. CIT(A) WAS RIGHT TO T HAT EXTENT THAT THE SAID INTEREST WAS ALLOWABLE ON ACCOUNT OF BORROWED FUNDS HAVIN G BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. 19. NOW THE QUESTION RELATES TO ANOTHER SUM OF RS.38, 42,978/- (RS.54,92,068/- (-) RS.16,49,090/-) WHICH PERTAINED T O BORROWINGS MADE FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFCL. ADMITTED LY THE BUSINESS OF THE ASSESSEE DOES NOT CONSIST OF CONTROLLING, ACQUIRING, CONTROLLING INTEREST IN THE COMPANIES. THE BUSINESS OF ASSESSEE IS PURCHASE AND SALE OF LAND WHEREAS THE BUSINESS OF IHFCL IS FINANCING ESTATE DEVELOPMENT AND HOUSING CONSTRUCTION. REFERENCE IN THIS REGARD CAN BE MADE TO THE REMAND REPORT OF ASSESSING OFFICER DATED 6.10.99, A COPY O F WHICH HAS BEEN PLACED BEFORE US IN THE PAPER BOOK AT PAGES 41-5 5. IT HAS BEEN THE CONTENTION OF THE ASSESSEE RIGHT FROM THE BEGINNING THA T THE INTENTION OF THE ASSESSEE TO INVEST IN THE SHARES OF IHFGL WAS TO HAVE CO NTROLLING INTEREST IN THE SAID COMPANY SO THAT CONTACT OF IHFCL WITH THE SAME LINE OF BUSINESS CAN BE EXPLOITED. THIS CONTENTION ALSO FOUND PAR T OF THE SUBMISSION OF ASSESSEE AS RECORDED IN THE REMAND REPORT UN DER THE HEAD 'CONTENTION OF THE ASSESSEE'. THUS IT CANNOT BE DISPUTED B Y THE ASSESSEE THAT ITS INTENTION TO INVEST IN THE SHARES OF IHFCL WAS TO HAVE CONTROLLING INTEREST IN IHFCL. IT HAS ALREADY BEEN POINTED OUT THA T IT IS NOT THE BUSINESS OF ASSESSEE TO KEEP CONTROLLING INTEREST OR MANAGE MENT OVER COMPANIES. THUS THE PURPOSE OF ASSESSEE IN PURCHASING THE SH ARES OF IHFCL WAS NOT FOR THE PURPOSE OF ASSESSEE'S BUSINESS WHICH IS ONLY SALE AND PURCHASE OF LAND. THUS THE MONEY BORROWED BY ASSESSEE FOR PURCHASING THE SHARES OF IHFCL CANNOT BE SAID TO BE FOR THE PURPOSE OF BUSINESS OR PROFESSION OF THE ASSESSEE. IT WAS ONLY FOR THE P URPOSE OF HAVING CONTROL OVER THE IHFCL. THE MAIN CONDITION FOR A LLOWABILITY OF INTEREST UNDER SECTION 36(1)(III) IS THAT INTEREST SHOUL D BE PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSIO N OF ASSESSEE. THUS THE INTEREST PAID BY ASSESSEE DOES NOT FULFILL THE CON DITION LAID DOWN IN SECTION 20. NOW COMING TO THE QUESTION THAT WHETHER OR NOT S UCH INTEREST COULD BE ALLOWED UNDER SECTION 57(III) OF THE IT ACT, 1961. IT IS NOT THE CASE OF ASSESSEE THAT THE INVESTMENT IN THE SHARES OF IHFCL WAS MAD E FOR PURPOSE OF EARNING DIVIDEND. FROM THE SUBMISSIONS MADE B Y ASSESSEE BEFORE ASSESSING OFFICER AS WELL AS BEFORE CIT(A) THE PURPOSE OF PURCHASING SHARES OF IHFCL WAS ONLY TO HAVE CONTROLLING IN TEREST IN IHFCL. 5 ITA NOS.2647 & 2764/AHD/2009 IT HAS NEVER BEEN THE CONTENTION OF ASSESSEE THAT THE PU RPOSE OF PURCHASING SHARES OF IHFCL WAS ONLY TO EARN DIVIDEND INCOM E. THERE IS NO MATERIAL ON RECORD TO COME TO THE CONCLUSION THAT PURCHAS E OF SHARES OF IHFCL BY THE ASSESSEE WAS DONE FOR THE PURPOSE OF EARNIN G DIVIDEND. IN THIS VIEW OF THE FACTUAL ASPECT OF THE MATTER, IT HAS T O OE HELD THAT INTEREST PAID BY ASSESSEE ON THE BORROWINGS UTILIZED FOR THE PURPO SE OF PURCHASE OF SHARES OF IHFCL CANNOT BE SAID TO BE ALLOWABLE UNDER SECT ION 57(III) OF THE ACT. SUCH INTEREST WAS NOT INCURRED, LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR- EARNING DIVIDEND INCOME. THUS THE CLAIM OF ASSESSEE IS NOT ALLOWABLE EVEN UNDER SECTION 57(III) OF TH E ACT. 21. IT HAS BEEN HELD BY HON. JURISDICTIONAL HIGH COURT I N THE CASE OF SARABHAI SONS (P) LTD. VS. CIT (SUPRA) THAT WHERE THE P URPOSE OF ASSESSEE WAS NOT OF EARNING INCOME BUT WAS TO GET FULL CONT ROL OVER THE SAID COMPANY, THEREFORE, DEDUCTION UNDER SECTION 57(III) CANNOT BE ALLOWED. IT HAS BEEN HELD THAT WHERE DOMINANT PURPOSE FOR WHICH EXPENDITURE WAS INCURRED WAS NOT TO EARN INCOME, THE EXP ENDITURE WAS OUTSIDE THE PURVIEW OF SECTION 57(III). IT WAS ALSO HELD THAT EVEN IF IT WAS A MIXED PURPOSE THEN ALSO EXPENDITURE CANNOT BE DEDUCTED UNDER SECTION 57(III). IT WILL BE RELEVANT TO REPRODUCE FOLLOWING O BSERVATIONS OF THEIR LORDSHIPS FROM THE SAID DECISION :- 'THIS COURT WHILE DEALING WITH THE CLAIM FOR DEDUCTION UNDER SECTION 12(2) OF THE 1922 ACT, WHICH PROVISION IS SIMILAR TO SECTION 57(I II) OF THE 1961 ACT, IN THE CASE OF KASTURBHAI LALBHAI (SUPRA) HAS HELD AS UND ER: '... IN ORDER TO DECIDE WHETHER AN EXPENDITURE IS A PE RMISSIBLE DEDUCTION UNDER SECTION 12(2), WE HAVE TO EXAMINE THE NATURE OF THE EXPENDITURE. THE PURPOSE FOR WHICH THE EXPENDITURE IS INCURRED MUST B E IN ORDER TO EARN THE INCOME AND HERE WE MUST NOT CONFUSE PURPOSE WITH M OTIVE. WHAT SECTION 12(2) EMPHASIZES IS THE PURPOSE FOR WHICH THE EXP ENDITURE IS INCURRED AND THE WORD 'PURPOSE' DOES NOT MEAN MOTIVE F OR THE TRANSACTION. THE MOTIVE WHICH MAY HAVE OPERATED ON THE MINDS OF ASSESSEE S IN MAKING THE EXPENDITURE IS QUITE IRRELEVANT ... MOREOVER, THE PURPOSE OF MAKING OR EARNING THE INCOME MUST BE THE SOLE PURPOSE FO R WHICH THE EXPENDITURE IS INCURRED. IF THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF MAKING OR EARNING THE INCOME AS ALSO FOR ANOTHER PURPOSE OR, IN OTHER WORDS, THE PURPOSE OF MAKING OR EARNING THE INCOME IS MI XED UP WITH ANOTHER PURPOSE IN MAKING OF THE EXPENDITURE ... THE EXPENDITURE WOULD BE OUTSIDE THE SCOPE AND AMBIT OF LECTION 12(2) AND WOULD NOT BE A PERMISSIBLE DEDUCTION UNDER THAT SECTION. THE EXPENDITURE IN ORDER TO FALL WITHIN SECTION 12(2) MUST, THEREFORE, BE INCURRED SOLE LY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME SOUGHT TO BE ASSESSED . . .' AGAIN, IN SMT. VIRMATI RAMKRISHNA'S CASE (SUPRA) THIS COU RT, AFTER CONSIDERING THE CASE IAW ON THE POINT, HAS STATED THE PR OPOSITIONS WHICH FOLLOW THEREFROM. ONE OF THE PROPOSITIONS SO STATED IS T HAT THE PURPOSE OF MAKING OR EARNING SUCH INCOME MUST BE THE SOLE PURPOSE FO R WHICH THE 6 ITA NOS.2647 & 2764/AHD/2009 EXPENDITURE MUST HAVE BEEN INCURRED, THAT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO F OR ANOTHER PURPOSE, OR FOR A MIXED PURPOSE. ANOTHER PROPOSITION WHICH IS STATED THEREIN IS THAT THE DISTINCTION BETWEEN PURPOSE AND MO TIVE MUST ALWAYS BE BORNE IN MIND, FOR, WHAT IS RELEVANT IS THE MANIFEST AN D IMMEDIATE PURPOSE AND NOT THE MOTIVE OR PERSONAL 3NSIDERATIONS WEIGHING IN THE MIND OF THE ASSESSEE FOR INCURRING THE EXPENDITURE. NOW, IF WE TURN TO THE FACTS OF THIS CASE, WHAT IS REQUI RED TO BE NOTED IS THAT THE SHARES OF SOML WERE HELD BY THE ASSESSEE ALONG WITH T WO OTHER GROUPS OF SHAREHOLDERS, VIZ., KASTURBHAI GROUP AND PATE L GROUP. THE ASSESSEE HELD 11,264 SHARES. KASTURBHAI GROUP HELD 24,975 SH ARES AND THE PATE GROUP HELD 12,737 SHARES. THE ASSESSEE WAS ALSO THE MANAGING AGENT OF SOML. IT WAS AGREED AMONGST THE SHAREHOLDERS THAT THE ASSESSEE SHOULD PURCHASE ALL THE SHARES IN ORDER TO IMPROVE THE BUSINESS OF SOML BY HOLDING 100% SHARES OF SOML, WHICH WOULD H AVE ENABLED IT TO IMPLEMENT THE EXPANSION PROJECTS. THUS, THE SHARES WHI CH WERE PURCHASED BY THE ASSESSEE WERE NOT FOR THE PURPOSE OF EAR NING INCOME, THOUGH THAT CAN BE REGARDED AS THE ULTIMATE MOTIVE. T HE SHARES WERE PURCHASED BY THE ASSESSEE WITH A CLEAR PURPOSE OR OBJECT OF GETTING 100% CONTROL OVER SOML. IF THE PURPOSE WAS TO EARN INCOME ON LY, OR EVEN IF THAT WAS THE DOMINANT PURPOSE, IT WOULD NOT HAVE SOLD THE SHA RES AGAIN TO KPPL AS, BY THAT TIME, IT HAD ALREADY ACQUIRED MORE THA N 90% SHARES, AND THAT WOULD HAVE SATISFIED ITS OBJECT OF EARNING MORE INCO ME BY POSSESSING MORE SHARES. THE REASON WHY THE ASSESSEE SOLD THE SHARES WAS T HAT IT WAS NOT ABLE TO GET 100% CONTROL BY PURCHASING ALL THE REMAINING SHARES. THUS, FROM THE NATURE OF THE TRANSACTION, IT BECOMES AP PARENT THAT THE EXPENDITURE WHICH WAS INCURRED BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF EARNING INCOME, BUT FOR THE PURPOSE OF GETTING FUL L CONTROL OVER SOML. THUS, APPLYING THE TEST AS LAID DOWN IN KASTURBHAI LALB HAI'S CASE (SUPRA) AND SMT. VIRMATI RAMAKRISHNA'S CASE (SUPRA) TO THE FACTS O F THIS CASE, IT BECOMES CLEAR THAT THE DOMINANT PURPOSE FOR WHICH EXPENDI TURE WAS INCURRED WAS NOT TO EARN INCOME. AT THE HIGHEST, IT WAS A MIXED PURPOSE. FOR THAT REASON, IT WILL HAVE TO BE HELD THAT THE EXPE NDITURE INCURRED IN THAT BEHALF FELL OUTSIDE THE PURVIEW OF SECTION 57(III) OF THE ACT.' ADOPTING THE SIMILAR PROPOSITION, HON. BOMBAY HIGH COU RT IN THE CASE OF CIT VS. AMRITABEN R. SHAH (SUPRA) HAVE LAID OUT SIMILAR PROPOSITION AS PER FOLLOWINA OBSERVATIONS :- 'WE HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS. SECTION 57 SETS AIR DEDUCTIONS WHICH ARE PERMISSIBLE IN THE COMPUTATION OF TH E INCOME CHARGEABLE THE HEAD 'INCOME FROM OTHER SOURCES'. CLAUSE (III) OF SECTION 57 PROVIDES THAT IN COMPUTING INCOME UNDER THE HEAD 'IN COME FROM OTHER SOURCES' DEDUCTION IS TO BE MADE IN RESPECT OF EXPENDITUR E INCURRED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNING SUCH INCOME PROVIDED T HE EXPENDITURE IS NOT IN THE NATURE OF CAPITAL EXPENDITURE . SECTION 57(III) OF THE ACT, SO FAR AS RELEVANT, AS IT STOOD AT THE MATERIAL TIM E, STOOD AS BELOW: 7 ITA NOS.2647 & 2764/AHD/2009 '57. DEDUCTIONS.THE INCOME CHARGEABLE UNDER THE HEAD IN COME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWIN G DEDUCTIONS, NAMELY :- (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF MAKING OR EARNING SUCH INCOME.' IT IS CLEAR FROM A PLAIN READING OF ABOVE PROVISION THA T IN ORDER TO GET DEDUCTION, THE EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME FROM OTHER SOURCES AND THAT IT SHOULD NOT BE IN THE NATURE OF .I. CAPITAL EXPENDIT URE. SECTION 58(1)(A) FURTHER .PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN CASE THE EXPENDITURE IS IN THE NATURE OF PERSONAL EXPENSES OF TH E ASSESSEE. THE QUESTION WHICH ARISES IN THIS CASE IS : WHETHER THE EXPENDI TURE INCURRED FOR BORROWING MONEY FOR PURCHASING SHARES FOR ACQUIRING CONTRO LLING INTEREST IN A COMPANY CAN BE HELD TO BE AN EXPENDITURE INCURRED WHO LLY OR EXCLUSIVELY FOR EARNING INCOME FROM DIVIDEND. THERE IS NO DISPUTE I N THIS CASE THAT THE SHARES IN QUESTION WERE PURCHASED BY THE ASSESSEE FOR THE P URPOSE OF ACQUIRING CONTROLLING INTEREST IN THE COMPANY AND NOT FO R EARNING DIVIDEND. THAT BEING SO, THE EXPENDITURE INCURRED BY WAY OF INTE REST ON THE LOAN TAKEN BY THE ASSESSEE FOR THE SAID PURPOSE CANNOT BE HELD TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME BY WAY OF DIVIDENDS. FROM THE NATURE OF TRANSACTIO N, IT IS CLEAR THAT THE EXPENDITURE WAS NOT FOR THE PURPOSE OF EARNING IN COME BY WAY OF DIVIDENDS BUT FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST IN THE COMPANY AND, THEREFORE, IT WOULD NOT BE ALLOWABLE AS A DEDUCTION UNDER SECTION 57(III) OF THE ACT. WE ARE SUPPORTED IN OUR OPINION BY THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF SARABHAI SONS (P.) LTD. V. CIT (1993) 1 10 CTR (GUJ) 305: [1993] 201 ITR 464 (GUJ) : TC 41R.670. IN THAT CASE, IT WAS HELD TH AT IF THE DOMINANT PURPOSE FOR WHICH THE EXPENDITURE WAS INCURRED WAS NOT TO EARN THE INCOME, THE EXPENDITURE INCURRED IN THAT BEHALF W OULD FALL OUTSIDE THE PURVIEW OF SECTION 57(III) OF THE ACT. WE ARE ALSO SUPPOR TED IN OUR ABOVE CONCLUSION BY THE DECISION OF THIS COURT IN CHINA! AND CO. PVT. LTD. V. CIT: [1994] 206 ITR 616 (BOM) : TC 41R 691. IN THAT CASE, THERE WAS A DISPUTE IN REGARD TO DEDUCTION OF EXPENDITURE UNDER SECTION 3 7 OF THE ACT. THE EXPENDITURE WAS INCURRED BY THE ASSESSEE IN FIGHTING ANOT HER GROUP, OF SHAREHOLDERS TO PROTECT THE INVESTMENT IN THE ERSTWHILE MANAGED COMPANY. THE COURT HELD THAT SUCH AN EXPENDITURE WAS NOT A BUSIN ESS EXPENDITURE. IT WAS OBSERVED THAT SECTION 37 OF THE ACT DEALT WITH DEDUCT IONS, INTER ALIA, OF ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION. SUCH DEDUCTION HAS TO B E IN RESPECT OF ANY EXPENDITURE FOR BUSINESS WHICH WAS CARRIED ON BY THE ASSE SSEE AT ANY TIME DURING THE PREVIOUS YEAR. IT WAS HELD THAT EXPENDIT URE INCURRED IN PROXY WAR SHOULD NOT BE DEDUCTED AS BUSINESS EXPENDITURE. 8 ITA NOS.2647 & 2764/AHD/2009 IT MAY BE PERTINENT TO MENTION THE DISTINCTION IN THE LANGUAGE USED BY THE LEGISLATURE IN SECTIONS 37(1) OF THE ACT AND 57(III) O F THE ACT/SECTION 37 PROVIDES FOR DEDUCTION OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY 'FOR THE PURPOSE OF BUSINESS' WHEREAS SECTION 57(III) PROVIDES F OR DEDUCTION ONLY OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY 'FOR TH E PURPOSE OF MAKING OR EARNING SUCH INCOME'. 'SUCH INCOME' REFERS TO 'INCOME FROM OTHER SOURCES'. THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS NARROWER THAN THE EXPRESSION 'FOR THE PURPOSE OF MAKING OR EARNI NG SUCH INCOME'. IN ORDER THAT AN EXPENDITURE MAY BE ADMISSIBLE UNDER SECTION 57(III) IT IS NECESSARY THAT THE PRIMARY MOTIVE OF INCURRING IT IS DIRECT LY TO EARN INCOME FALLING UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. TH AT IS NOT SO UNDER SECTION 37 WHICH ALLOWS DEDUCTION OF EXPENDITURE 'INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS'. UNDER SECTION 57 (III), DEDUCTION WILL NOT BE ALLOWED IF THE EXPENDITURE IS NO T INCURRED FOR THE PURPOSE OF EARNING INCOME FALLING UNDER THE HEAD 'IN COME FROM OTHER SOURCES'. IN THIS VIEW OF THE SITUATION, DOMINANT PURPOSE OF ASSESSE E BEING TO HAVE CONTROLLING INTEREST OVER IHFCL, IT CANNOT BE SAID THA T EXPENDITURE WAS INCURRED BY ASSESSEE FOR THE PURPOSE OF EARNING DIVIDEND I NCOME. IN THIS VIEW OF THE SITUATION, IT HAS TO BE HELD THAT ASSESSEE IS NOT ENTITLED TO CLAIM THE EXPENDITURE OF INTEREST ON BORROWED FUNDS TO THE E XTENT THESE WERE UTILIZED FOR THE PURPOSE OF PURCHASING SHARES IN IHFCL. 22 NOW COMING TO THE CONTENTION OF ID. AR THAT AS ASSESSI NG OFFICER IN THE REMAND REPORT HAS CONCEDED THAT THE DEDUCTION IS A LLOWABLE TO ASSESSEE UNDER SECTION 57(III) OF THE ACT, REVENUE CANNOT AG ITATE THIS ISSUE IN APPEAL BEFORE THE TRIBUNAL. AFTER CONSIDERING THE SUBMISSION OF BOTH THE PARTIES, IT IS FOUND THAT CASE LAW RELIED UPON BY ID. AR IN THIS REGARD IS DISTINGUISHABLE ON FACTS. IN THE SAID CASES, THE APPELLATE AUTHORITY HAD ACCEPTED ON THE CONCESSION OF ASSESSING OFFICER AND ACCOR DINGLY THE RELIEF WAS GIVEN. HOWEVER, IN THE PRESENT CASE, THE CIT( A) HAS NOT ACCEPTED THE COMPUTATION OF ASSESSING OFFICER BUT AFTER CONSI DERING THE RECORD HAS COME TO HIS OWN CONCLUSION. THUS THE REPORT OF A SSESSING OFFICER WAS NOT ACCEPTED BY ID. CIT(A). THE REPORT OF ASSE SSING OFFICER SUBMITTED ON THE FACTS CANNOT BE SAID TO HAVE A BINDING FORCE ON APPELLATE AUTHORITY. REMAND REPORT IS CALLED FOR ONLY TO ASCERTAIN CERTAIN FACTS. AFTER GETTING REMAND REPORT IT IS OPEN TO THE APPELLATE AU THORITY TO DRAW ITS OWN CONCLUSION SO AS IT RELATES TO AN ISSUE OF LAW. THE ALLOWA BILITY OF THE EXPENDITURE UNDER A PARTICULAR SECTION IS A QUESTION OF L AW WHICH FALLS IN THE SCOPE OF DECISION TO BE MADE BY APPELLATE AUTHORITY. IT WILL BE RELEVANT TO REFER TO THE DECISION OF HON. KERALA HIGH COURT IN THE CASE OF K. ASSAN KOYA & SONS VS. CIT 172 ITR 677 (KER) WHEREIN THEIR LOR DSHIPS HAVE OBSERVED AS UNDER :- 'WITH RESPECT, WE AGREE WITH THAT OBSERVATION. BUT IN OUR VIEW, IT HAS NO RELEVANCE TO THE SUBMISSIONS MADE ON BEHA LF OF THE REVENUE. IT IS TRUE THAT THE TRIBUNAL IS NOT BOUND BY ITS 9 ITA NOS.2647 & 2764/AHD/2009 OBSERVATIONS IN THE REMAND ORDER, BUT IT IS BOUND T O APPLY ITS MIND TO THE REPORT AND DRAW SUCH INFERENCE AS IT DE EMS FIT.' THUS WHAT WAS REQUIRED FROM CIT(A) OR IS REQUIRED FROM THE TRIBUNAL IS TO APPLY MIND ON THE SAID REPORT AND TO DRAW INFERENCE AS IT MAY BE DEEMED FIT. THUS THE CONTENTION OF ID. AR THAT DEPARTMENT CAN NOT AGITATE THE DECISION OF CIT(A) IN VIEW OF CONCESSION MADE IN THE REMA ND REPORT HAS NO FORCE AND IS LIABLE TO BE REJECTED. ACCORDINGLY, THE SAME IS REJECTED. 23. NOW COMING TO THE OTHER CASE LAWS RELIED UPON BY ID. AR ON MERITS THAT THE DEDUCTION IS ALLOWABLE IN VIEW OF THE FOLLOWI NG DECISIONS, IT IS OBSERVED THAT THE SAME ARE DISTINGUISHABLE ON FACTS. THE FACTS OF PRESENT CASE HAVE ALREADY BEEN DISCUSSED. IT HAS BEEN FOUND THAT THE DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF SARABHAI SONS (P) LTD. VS. CIT (SUPRA) IS APPLICABLE TO THE FACTS OF PRESENT CASE. A. CIT VS. RAJEEVA LOCHAN KANORIA 208 ITR 61 : 6 (CAL) -IN THE SAID CASE THE BUSINESS ACTIVITY OF THE ASSESSEE CONSISTED CONTROLLING, MANAGING AND ADMINISTERING COMPANIES. IT W AS, THEREFORE, HELD THAT INTEREST WAS ALLOWABLE UNDER SECTI ON 36(1)(III). HERE IN THE PRESENT CASE IT HAS BEEN FOUND THAT BUSINESS O F ASSESSEE WAS NOT OF CONTROLLING, MANAGING OR ADMINISTERING COMPANIES. THEREFORE, THIS DECISION IS NOT APPLICABLE TO T HE FACTS OF THE PRESENT CASE. B. INVESTMENT LTD. VS. CIT 77 ITR 533 (SC) - IN THE SAI D CASE QUESTION BEFORE THEIR LORDSHIPS WAS THAT WHETHER SHARES H ELD BY ASSESSEE WHICH WERE TREATED AS STOCK-IN-TRADE AND LOSS SUFFERE D IN THE TRANSACTION THEREIN CAN BE CONSIDERED AS REVENUE LOSS. THUS THE SAID CASE IS NOT APPLICABLE AS IN THE PRESENT CASE, SHARES A RE NOT HELD BY THE ASSESSEE AS STOCK-IN-TRADE. C. ORMERODS (INDIA) (P) LTD. VS. CIT 36 ITR 329 (BOM) -IN THE SAID INVESTMENT WAS MADE BY ASSESSEE FOR THE PURPOSE OF EARN ING INCOME ON DIVIDEND OR MAKING PROFITS AND GAINS. WHEREAS I N THE PRESENT CASE IT HAS BEEN FOUND AS A FACT THAT THE PURPO SE OF PURCHASING SHARES OF IHFCL WAS NOT FOR EARNING INCOME, DI VIDEND OR MAKING PROFITS AND GAINS. THUS THIS CASE IS ALSO NOT APPL ICABLE TO THE FACTS OF THE PRESENT CASE. D. CIT VS. J. K. INDUSTRIES (P) LTD. 125 ITR 218 (CAL) -IN THE SAID CASE INTEREST WAS PAID BY THE ASSESSEE ON THE BORROWINGS MA DE FOR PURCHASE OF LAND FOR CONSTRUCTING OFFICE OF ASSESSEE AND ITS MANAGED COMPANIES AND INTEREST WAS HELD ALLOWABLE. IN THE PRESENT CASE, THE FACTS ARE DIFFERENT, THEREFORE, THE SA ID DECISION IS ALSO NOT APPLICABLE TO THE FACTS OF PRESENT CASE. 10 ITA NOS.2647 & 2764/AHD/2009 E. CIT VS. KANORIA INVESTMENTS (P) LTD. 232 ITR 7 (CAL) - IN THE SAID CASE CAPITAL WAS BORROWED FOR THE PURPOSE OF BUSINESS. HOWEVER, IN THE PRESENT CASE, THE CAPITAL WAS BORROWED ONLY FOR PURCHASE OF SHARES WHICH IS NOT PART OF BUSINESS OF ASSESSEE. F. EASTERN INVESTMENTS LTD. VS. CIT .20 ITR 1 (SC) -IN TH E SAID CASE INTEREST ON REDEEMABLE DEBENTURES WERE ISSUED IN CONSIDERATION OF PURCHASE OF SHARES IN ORDER TO REDUCE SHA RE CAPITAL BY THE COMPANY WITH THE SANCTION OF HIGH COURT WHICH WA S CONSIDERED TO BE OUT OF COMMERCIAL EXPEDIENCY. THE FACTS OF PRESENT CASE ARE DIFFERENT. THERE IS NO COMMERCIAL EXPED IENCY. THUS THIS CASE IS ALSO NOT APPLICABLE. , V 23.1 HAVING HELD THAT THE DOMINANT PURPOSE FOR WHICH T HE EXPENDITURE OF INTEREST WAS INCURRED, WAS TO ACQUIRE CONTROLLING INTERE ST OVER IHFCL, THE CONTENTION OF ASSESSEE THAT INVESTMENT WAS MADE TO HAVE CON TROLLING INTEREST AS WELL AS TO FULFILL BUSINESS INTEREST OF ASSESSEE, IS LIABLE TO BE REJECTED ON THE GROUND THAT EVEN IF SUCH INVESTMENT IS M ADE WITH A MIXED PURPOSE, THEN ALSO SUCH INTEREST CANNOT BE ALLOWED AS T HE EXPENDITURE UNDER SECTION 36(1 )(III) OR SECTION 57(III) OF THE ACT IN VIEW OF FOLLOWING OBSERVATIONS-OF HON. JURISDICTIONAL HIGH COURT IN THE CASE OF SARABHAI SONS (P) LTD. (SUPRA): 'THIS COURT WHILE DEALING WITH THE CLAIM FOR DEDUCTION UNDER SECTION 12(2) OF THE 1922 ACT, WHICH PROVISION IS SIMILAR TO SECTION 57(I II) OF THE 1961 ACT, IN THE CASE OF KASTURBHAI LALBHAI (SUPRA) HAS HELD AS UND ER: '... IN ORDER TO DECIDE WHETHER AN EXPENDITURE IS A PE RMISSIBLE DEDUCTION UNDER SECTION 12(2), WE HAVE TO EXAMINE THE NATURE OF THE EXPENDITURE. THE PURPOSE FOR WHICH THE EXPENDITURE IS INCURRED MUST B E IN ORDER TO EARN THE INCOME AND HERE WE MUST NOT CONFUSE PURPOSE WITH M OTIVE. WHAT SECTION 12(2) EMPHASIZES IS THE PURPOSE FOR WHICH THE EXP ENDITURE IS INCURRED AND THE WORD 'PURPOSE' DOES NOT MEAN MOTIVE F OR THE TRANSACTION. THE MOTIVE WHICH MAY HAVE OPERATED ON THE MINDS OF ASSESSEE S IN MAKING THE EXPENDITURE IS QUITE IRRELEVANT ... MOREOVER, THE PURPOSE OF MAKING OR EARNING THE INCOME MUST BE THE SOLE PURPOSE FO R WHICH THE EXPENDITURE IS INCURRED. IF THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF MAKING OR EARNING THE INCOME AS ALSO FOR ANOTHER PURPOSE OR, IN OTHER WORDS, THE PURPOSE OF MAKING OR EARNING THE INCOME IS MI XED UP WITH ANOTHER PURPOSE IN MAKING OF THE EXPENDITURE ... THE EXPENDITURE WOULD BE OUTSIDE THE SCOPE AND AMBIT OF SECTION 12(2) AND WOULD NOT BE A PERMISSIBLE DEDUCTION UNDER THAT SECTION. THE EXPENDITURE IN ORDER TO FALL WITHIN SECTION 12(2) MUST, THEREFORE, BE INCURRED SOLE LY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME SOUGHT TO BE ASSESSED . . .' AGAIN, IN SMT. VIRMATI RAMKRISHNA'S CASE (SUPRA) THIS COU RT, AFTER CONSIDERING THE CASE LAW ON THE POINT, HAS STATED THE PR OPOSITIONS WHICH FOLLOW THEREFROM. ONE OF THE PROPOSITIONS SO STATED IS T HAT THE PURPOSE OF 11 ITA NOS.2647 & 2764/AHD/2009 MAKING OR EARNING SUCH INCOME MUST BE THE SOLE PURPOSE FOR WHICH THE EXPENDITURE MUST HAVE BEEN INCURRED, THAT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO FOR ANOTHER PURPOSE, OR FOR A MIXED PURPOSE. ANOTHE R PROPOSITION WHICH IS STATED THEREIN IS THAT THE DISTINCTION BET WEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN MIND, FOR, WHAT IS R ELEVANT IS THE MANIFEST AND IMMEDIATE PURPOSE AND NOT THE MOTIVE O R PERSONAL CONSIDERATIONS WEIGHING IN THE MIND OF THE ASSESSEE FOR INCURRING THE EXPENDITURE. 24. IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT THE INTE REST PAID BY ASSESSEE ON BORROWED CAPITAL TO THE EXTENT IT WAS UTILIZED FOR PURCHASE OF SHARES OF IHFCL WAS NEITHER DEDUCTIBLE UNDER SECTION 36(1 )(III) NOR UNDER SECTION 57(III) OF THE ACT. THEREFORE, THE APPEAL FILE D BY THE REVENUE FOR ASST. YEAR 1996-97 IS PARTLY ALLOWED. 2.3 IN THE LIGHT OF THEIR AFORESAID FINDINGS IN THE AY 1996-97, THE ITAT DISPOSED OF THE APPEALS OF THE ASSESSEE AND THE REVENUE FOR THE A Y 1997-98 ,HOLDING AS UNDER: 36. APROPOS ITA NO.L257/AHD/2001 FOR ASST. YEAR 1997- 98 (ASSESSEE'S APPEAL) AND ITA NO.L330/AHD/2001 FOR ASST. YEAR 1997 -98 (REVENUE'S APPEAL): FOR ASST. YEAR 1996-97, SIMILAR ISSUES HAVE BEE N DECIDED IN THE ABOVE PART OF THIS ORDER. THE SAID ORDER WILL BE APPL ICABLE TO THE PRESENT CASES ALSO AS THE FACTS AND CIRCUMSTANCES ARE SIMILAR. IN THE SAI D ORDER IT HAS BEEN HELD THAT INTEREST RELATING TO BORROWINGS MAD E FOR ASSESSEE'S REGULAR BUSINESS I.E. THE BUSINESS OF PURCHASE AND SALE OF L AND IS ALLOWABLE UNDER SECTION 36(1)(III). IT IS FURTHER HELD THAT INTEREST PAID ON BORROWED FUNDS TO THE EXTENT THEY WERE UTILIZED FOR TH E PURPOSE OF PURCHASE OF SHARES OF IHFCL CANNOT BE ALLOWED EITHER U NDER-SECTION 36(1)(III) OR UNDER SECTION 57(III) OF THE ACT, THERE FORE, DISALLOWANCE TO THAT EXTENT WAS RIGHTLY MADE BY ASSESSING OFFICER. 37. IT WAS POINTED OUT BY THE ID. AR THAT THERE ARE CERTAIN CALCULATION MISTAKES WHICH ARE REQUIRED TO BE CORRE CTED. THEREFORE, FOR ASST. YEAR 1997-98, THE MATTER IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER WITH A LIMITED PURPOSE TO QUANTIF Y THE INTEREST WHICH IS RELATED TO BORROWED FUNDS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFCL. AFTER QUANTIFICATION, SUCH INTEREST WILL BE DISALLOWED BY ASSESSING OFFICER IN ACCORDANCE WI TH THE DIRECTION GIVEN IN THIS ORDER. WE DIRECT ACCORDINGLY . 3. IN TERMS OF THE AFORESAID DIRECTIONS OF THE ITAT IN PARA 37 OF THEIR ORDER, THE AO ALLOWED OPPORTUNITY TO THE ASSE SSEE FOR QUANTIFICATION OF INTEREST. AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE ,THE AO HELD AS UNDER:- 12 ITA NOS.2647 & 2764/AHD/2009 3.1 THE ASSESSEE'S ABOVE SUBMISSION HAS BEEN CONSIDERED CAREFU LLY. BUT FOUND NOT TO BE ACCEPTABLE. IT IS OBSERVED FROM THE DETAILS FILED DURING THE SET ASIDE PROCEEDINGS AND ORIGINAL ASSESSMENT PROCEEDING S THAT THE ASSESSEE FIRM INVESTED RS.3,01,20,800/- IN THE EQUITY SHARES OF IHFC LIMITED THE AMOUNT WAS INVESTED OUT OF THE AMOUNT BORR OWED FROM THE FOLLOWING CONCERN. (A) SAKIRA RESORT PVT. LTD. RS. 50,00,000/- (B) IHFC LIMITED RS.2,89.95,800/- -------------------- TOTAL RS.3,39,95,800/- 3.2 OUT OF ABOVE, RS.38,75,000/- WAS REFUNDED BACK TO T HE ASSESSEE BEING EXCESS SHARE APPLICATION MONEY. THUS THE NET AMOUNT INVESTED IN SHARE WAS WORKED OUT TO RS.3,01,20,800/- ON WHICH THE I NTEREST QUANTUM HAS BEEN CORRECTLY WORKED OUT BY THE THEN A.O. AT RS.1,14, 20,660/-, THE SAME IS TREATED AS INTEREST ON THE BORROWED CAPITAL WHICH HAS NOT BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS OF PURCHASE AND SALE OF LAND BUT INVESTED IN SHARE OF IHFC LIMITED. TH E ASSESSEE'S ARGUMENT THAT THE TWO ACCOUNTS IN THE BOOKS OF ACCOUNT HA D BEEN MADE, ONE IN RESPECT OF FUNDS EMPLOYED IN REGULAR TRANSACTION S I.E. FOR REAL ESTATE BUSINESS AND ANOTHER ACCOUNT FOR MAKING INVESTMENT IN SHARES. THE ASSESSEE HAS NEVER TAKEN THIS PLEA IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS IN WHICH THE DISALLOWANCE OF INTEREST QUANTUM WAS WORKED OUT TO RS.1,14,20,660/-. HENCE THE ASSESSEE'S ACTION DURING THE COURSE OF SET ASIDE PROCEEDINGS GIVING C ALCULATION OF INTEREST AND ITS BIFURCATION IN PROPORTIONATE TO CLOSING BALANCE IS NOT CORRECT AND, THEREFORE, NOT ACCEPTABLE AND THE QUANTUM OF IN TEREST ON THE FUNDS UTILIZED IN INVESTMENT IS WORKED OUT TO RS.1,14,20,660/- IS ADDED IN THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL, THE LEARNED CIT(A) DEALT WITH THE IS SUES AS UNDER:- 4. GROUND NO.L IS THAT THE AO ERRED ON FACTS AND IN L AW IN DISALLOWING INTEREST OF RS.1,14,20,660. THIS DISALLOWANCE HAS BEEN MADE AS PER NARRATION GIVEN IN PARA 3 OF THE ASSESSMENT ORDER. THE AO ADDED BACK INTEREST PAYMENT OF RS.85,09,342 IN A Y 1996-97 WHICH WAS INTEREST PAID BY THE ASSESSEE ON LOAN TAKEN FROM IHFCL BECAUSE THE LOAN WAS FOUND UTILIZED IN APPLYING IN PUB LIC ISSUE SHARES OF THIS COMPANY AND WAS NOT FOUND USED FOR BUSINESS PURPOSE WH ICH WAS DEALING IN PURCHASE AND SALE OF LAND BY THE ASSESSEE. 5. THE MATTER WENT UP TO ITAT. IN PARA 10 OF ITS ORD ER FOR AY 1996-97 IN ITA NO.L549/AHD/2000 (C.O.IL/AHD/2003), HON'BLE ITAT AHMEDABAD 13 ITA NOS.2647 & 2764/AHD/2009 BENCH 'A' HELD THAT THE MONEY WAS BORROWED BY THE ASSESSEE FROM IHFCL FOR TWO, SEPARATE OBJECTIVES FOR WHICH TWO INDEPENDENT A CCOUNTS WERE MAINTAINED. ONE OF THE ACCOUNTS WAS IN THE NATURE OF TH E CURRENT ACCOUNT WHILE ANOTHER ACCOUNT WAS MAINTAINED FOR THE FUNDS BO RROWED WITH SPECIFIC PURPOSE OF INVESTMENT IN THE SHARES OF IHFCL, ITAT VIDE PARA 18 OF ITS ORDER IN AY 96-97 FOUND INTE REST PAID ON DEMAND LOAN THAT WAS CURRENT ACCOUNT OF RS.16,49,090 ALLOWABLE U/S.36(1)(III) BECAUSE MONEY WAS BORROWED FROM IHFCL FOR REGULAR BUSIN ESS OF THE ASSESSEE. HOWEVER ITAT ON THE OTHER HAND AFTER DISCUSSING C IT(A)'S ORDER CONFIRMED DISALLOWANCE OF RS.68,60,252 WHICH WAS INTEREST PAID TO IHFCL ON BORROWINGS USED FOR INVESTMENT IN SHARES. THIS RS.68,60 ,252 INTEREST WAS NOT FOUND ALLOWABLE BY ITAT U/S.36(1)(III) AND NEI THER IT WAS FOUND ALLOWABLE U/S.57(III). BESIDES THIS ITAT ALSO DID NOT FI ND ANY INTEREST ALLOWABLE ON ANY BORROWINGS MADE BY THE ASSESSEE WHICH WERE USED FOR MAKING INVESTMENTS IN IHFCL IN AY 1996-97. THE ASSESSEE'S CLAIM OF INTEREST OF RS.7,13,844 ON BORROW INGS MADE FROM JANTA CO-OPERATIVE BANK FOR A SUM OF RS.50 LACS WAS ALSO F OUND DISALLOWABLE BECAUSE OF INVESTMENT OF THE SAME IN IHFC LTD. SHARES. THE PRINCIPLE OF CONFIRMATION OF DISALLOWANCE OF INTE REST PAID ON AMOUNTS BORROWED FOR INVESTMENT IN SHARES OF IHFC LTD. BY THE AP PELLANT WAS CONFIRMED IN AY 1996-97 AS WELL AS IN AY 1997-98 HI A JOINT ORDER PASSED ON 15.12.2006 BUT IN AY 1997-98 HON'BLE IT AT RESTOR ED THE MATTER BACK TO THE FILE OF THE AO FOR QUANTIFICATION OF THE INTE REST WHICH WAS RELATED TO BORROWED FUNDS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFC LTD. 6. THE AO IN THE ORDER UNDER APPEAL ADDED BACK RS.1,14 ,20,616 WHICH WAS THE ADDITION OF INTEREST MADE IN THE INITIAL ASSESSMENT ORDER PASSED BY JCIT (ASSTT.) SPECIAL RANGE-5, AHMEDABAD ON 22.3 .2000. ON PAGE 11 OF JCIT SPECIAL RANGE'S ORDER THIS POINT HAS B EEN DISCUSSED. IT HAS BEEN INFORMED AS UNDER: INTEREST PAYMENT TO IHFCL RS. 1,07,40,629 INTEREST PAYABLE TO BANKS AND OTHERS RS. 6.80.000 RS. 1,14,20,616 AS PER THIS ORDER THE ASSESSEE MADE INVESTMENTS IN SHARES OF IHFCL IN AY 1995-96 OUT OF BORROWED FUNDS OF RS.3,39,95,800 ON WHICH IT PAID INTEREST AT THE RATE OF 22%. IN AY 1996-97 AND AY 19 97-98 ALSO INTEREST WAS PAID. IN AY 1997-98 INTEREST CLAIMED OF RS.L,14,20, 416 WAS DISALLOWED BY JCIT SPECIAL RANGE 5 IN TOTO. 7. DURING THE COURSE OF SET-ASIDE PROCEEDINGS OF AY 1997 -98 (THE ORDER UNDER APPEAL) THE ASSESSEE VIDE HIS LETTER DATED 3. 12.2008 GIVEN TO THE AO (WHICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDE R) GAVE BIFURCATION OF INTEREST OF RS.1,07,40,629 AS PER TABLE GIVEN BELOW : 14 ITA NOS.2647 & 2764/AHD/2009 NAME OF ACCOUNT OPENING BALANCE (RS.) CLOSING BALANCE (RS.) NET INCREASE OR DECREASE DURING THE YEAR AFTER PROVIDING INTEREST (RS.) BIFURCATION OF INTEREST IN PROPORTION OF CLOSING BALANCES IHFC LIMITED DEMAND LOAN 134,84,980 2,46,00,045 1,11,15,065 43,44,601 IHFC LIMITED BUILDERS LOAN 4,95,89,864 3,62,15,655 1,10,771 63,96,029 TOTAL 4,95,89,864 6,08,15,700 1,12,25,836 1,07,40,629 AS PER THIS TABLE THE INTEREST ON DEMAND LOAN COMES TO R S.43,44,601 AND IS ALLOWABLE AS PER ITAT'S ORDER DISCUSSED ABOVE FOR AY 19 96-97 WHICH IS APPLICABLE IN AY 1997-98 BECAUSE ITAT FOUND INTEREST PAID ON BORROWINGS MADE IN REGULAR COURSE OF BUSINESS ALLOWABLE U/S.36(1)(II I). HON'BLE IT AT HOWEVER DID NOT ALLOW ANY DEDUCTION OF INTEREST EXPENSE U NDER ANY SECTION WHICH THE ASSESSEE PAID ON BORROWINGS FOR MAKING INVESTMENTS IN SHARES OF IFHC LTD. THEREFORE INTEREST PAID OF RS.63,96,028 IS CLEARLY DISALLOWABLE AS ALSO OF RS.6,80,000 WHICH WAS FOUND IN THE ORIGINAL A SSESSMENT ORDER OF JC1T. SPECIAL RANGE DATED 22.3.2008 AS INTEREST ON A MOUNT USED FOR THE PURPOSE OF INVESTMENT IN IHFCL SHARES AND THE ENTIR E ADDITION HAS BEEN REPEATED IN THE ORDER UNDER APPEAL. THEREFORE THE CORRECT INTEREST WHICH NEEDS TO BE QUANTIFIED COMES RS.70,76,028/- (RS.63 ,96,028 + RS.6,80,000) WHICH SHOULD BE DISALLOWED FOR GIVING EFFE CT TO HON'BLE ITAT'S ORDER. APPELLANT GETS BELIEF OF RS.43,44,60L (RS.1,14, 20,629 - RS.70,76,028). 8. GROUND NO.2 IS THAT THE AO ERRED IN ENHANCING ASSESSM ENT BY .ADDING AMOUNT OF RS.52,48,561 ON ACCOUNT OF DISALLOWA NCE OF INTEREST WHICH WAS OTHERWISE INCLUDED IN THE INCOME COMPUTED AT A LOSS O F RS.76,509 WHICH HAS BEEN MADE BASIS FOR MAKING ASSESSMENT. IT IS NOT CLEAR AS TO HOW THE AO HAS STARTED WITH THE LO SS OF RS.76,509 IN THE ASSESSMENT ORDER DATED 27.12.2008 UNDER APPEAL. HON'BLE ITAT FOLLOWED DELETION OF INTEREST PAID ON F UNDS BORROWED FOR REGULAR BUSINESS (DEMAND LOAN) FROM IHFC LTD. IN AY 19 97-98 ALSO. 15 ITA NOS.2647 & 2764/AHD/2009 ADDITION OF RS.16,49,090 ( INTEREST PAID ON REGULAR B ORROWINGS I.E. DEMAND LOAN) WHICH WAS ADDED BACK BY THE AO IN AY 1996-97, WAS D ELETED BY CIT(A) AND ALSO BY ITAT IN AY 1996-97 VIDE ITS ORDER DATED 15.12.2006 IN ITA NO.L549/AHD/2000. IN AY 1997-98 VIDE PARA 36 AND 37 HON'BLE ITAT HAS DI RECTED TO QUANTIFY THE INTEREST (ADDITION OF WHICH WAS CONFIRMED) RELATED TO BORROWED FUNDS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFCL . THE AO SHOULD GIVE THE EFFECT TO THE ORDER OF HON'BLE ITAT IN TRUE SPIRIT AND MAKE CORRECT CALCULATIONS. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN REDUCING THE DISA LLOWANCE BY RS.43,44,601/- OUT OF TOTAL OF RS.1,14,20,660/- WHI LE THE ASSESSEE IS IN APPEAL AGAINST CONFIRMATION OF DISALLOWANCE OF R S.63,96,028 & RS.6.80,000/-. IN THIS REGARD, THE LEARNED DR VEHME NTLY ARGUED THAT THE ENTIRE INTEREST DISALLOWED BY THE AO RELATED T O BORROWINGS FOR INVESTMENT IN SHARES AND THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM FOR DEDUCTION OF INTEREST FOR AN AMOUNT OF RS.43,44,601/-ON THE OTHER HAND, THE LD. AR ON BEHA LF OF THE ASSESSEE WHILE SUPPORTING THE FINDINGS OF THE LD. C IT(A) IN DELETING THE AFORESAID AMOUNT ,CONTENDED THAT THE AMOUNT OF INTEREST OF RS.6,80,000/- [ACTUAL AMOUNT RS.6,79,987/-] HAS AL SO TO BE ALLOWED SINCE IT WAS ORIGINALLY ALLOWED BY THE LEARNED CIT( A) AND CONFIRMED BY THE TRIBUNAL. THE LD.AR FURTHER CONTENDED THAT THE INTEREST OF RS.63,96,028/- WAS RIGHTLY DISALLOWED BY THE LD. CI T(A) IN TERMS OF DIRECTIONS OF THE ITAT BUT AN AMOUNT OF RS.52,48,56 1/- OUT OF TOTAL INTEREST OF RS.1,14,20,629/-, HAS TO BE ALLOWED, SI NCE THE SAME HAS ALREADY BEEN DISALLOWED BY THE AO AS A CONSEQUENC E OF FINDINGS OF THE LD. LEARNED CIT(A) WHILE ADJUDICATING APPEAL A GAINST ORDER U/S 144 OF THE ACT. THUS, AMOUNT OF RS.52,48,561/- HAS BEEN ADDED TWICE, THE LD. AR ADDED. TO A QUERY BY THE BENCH, T HE LD. AR ADMITTED THAT ONLY ISSUE IN THEIR APPEAL RELATES TO QUANTIFICATION OF DISALLOWANCE OF INTEREST IN TERMS OF DIRECTIONS OF THE ITAT IN PARA 37 OF THEIR ORDER AND LEGALITY OF THE CLAIM WHETHER U/ S 36(1)(III) OR 57(III) OF THE ACT IS NOT BEFORE US , THE ISSUE BEING PE NDING FOR 16 ITA NOS.2647 & 2764/AHD/2009 ADJUDICATION BEFORE THE HONBLE HIGH COURT IN TERMS OF THEIR ORDER DATED 4.12.2007 IN TAX APPEAL NOS.1625-26 & 1628 OF 2007 FOR THE AYS 1996-97 & 1997-98. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID ORDER DATED 15.12.2 006 OF THE ITAT. AT THE OUTSET, WE MAY CLARIFY THAT ONLY ISSUE BEFO RE US IS IN RESPECT OF QUANTIFICATION OF DISALLOWANCE OF INTEREST RELA TED TO BORROWED FUNDS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFC L, IN TERMS OF DIRECTIONS OF THE ITAT IN PARA 37 OF THEIR ORDER DATED 15.12.2006 . THE LEGALITY OF CLAIM FOR DEDUCTION U/S 36(1)(III) OR SEC. 57(III) OF THE ACT IS N OT BEFORE US, THE MATTER BEING PENDING FOR ADJUDICATION BEFORE THE HONBLE H IGH COURT IN TERMS OF THEIR ORDER DATED 4.12.2007 IN TAX APPEAL NOS.1625-26 & 1628 OF 2007 FOR THE AYS 1996-97 & 1997-98 . AS REGARDS QUANTIFICATION OF DISALLOWANCE OF INTEREST RELATING TO BORROWED FUNDS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES OF IHFC L, WE NOTICE FROM THE FACTS NARRATED BEFORE US THAT THE ASSESSEE CLAIMED BEFORE THE AO IN ORIGINAL ASSESSMENT PROCEEDINGS THAT THERE IS NO CHANGE IN INVESTMENT IN SHARES OF RS.3,01,20,800/- DURING THE YEAR UNDER CONSIDERATION A ND INTEREST OF RS.1,07,40,629/- WAS PAID TO IHFCL AND RS.6,79,987/- TO BANKS AND OTHERS. THUS, TOTAL INTEREST CLAIMED IS RS.1,14,20,616/-. IT IS A LSO AN ADMITTED FACT THAT THE AFORESAID INVESTMENT IN SHARES HAS BEEN MADE ENTIRELY OU T OF FUNDS BORROWED FROM SANKIRA RESORTS P LTD.-RS. 50 LACS AND FROM IHFC LTD .-RS.2,89,95,800/-.THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S 144 OF T HE ACT SINCE THE ASSESSEE DID NOT PRODUCE RELEVANT BOOKS OF ACCOUNTS AND DETAI LS DESIRED BY THE AO AND AS ALREADY STATED THE ENTIRE CLAIM OF INTERES T OF RS.1,14,20,616/- WAS DISALLOWED. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLA IM FOR DEDUCTION OF INTEREST OF RS.16,49,090 & RS. 6,79,987/- U/S 36(1)(III) AND AN AMOUNT OF RS.38,42,978/- U/S 57(III) OF THE ACT IN THE ABSENCE OF DETAILS AND B REAK UP OF INTEREST ,ON THE BASIS OF FINDINGS OF HIS PREDECESSOR IN THE AY 1996-97, T HE ASSESSEE HAVING NOT FURNISHED ANY DETAILS NOR PRODUCED BOOKS OF ACCOUNTS BEF ORE THE AO/LD. CIT(A).ON FURTHER APPEAL, THE ITAT IN THEIR AFORESAI D COMMON ORDER DATED 15.12.2006 FOR THE AY 1996-97 & 1997-98 UPHELD TH E FINDINGS OF THE LD. CIT(A) 17 ITA NOS.2647 & 2764/AHD/2009 IN ALLOWING DEDUCTION OF INTEREST OF RS.16,49.090/- U/ S 36(1)(III) OF THE ACT IN THE AY 1996-97 , THE ASSESSEE HAVING MAINTAINED TWO SEPARAT E ACCOUNTS IN THEIR BOOKS FOR DEALINGS WITH IHFCL. IN FACT, SAME BASIS HAS BEEN ADOPTED AND AN EQUIVALENT AMOUNT HAS BEEN ALLOWED BY THE LD. CIT(A ) IN HIS ORDER DATED 29.3.2001 FOR THE AY 1997-98,FOR WANT OF RELEVANT DETAILS. AS REGARDS INTEREST OF RS.38,42,978/-IN RELATION TO OTHER ACCOUNT IN RESPECT OF INVESTMENT IN SHARES, THE ITAT REVERSED THE FINDINGS OF THE LD. CIT(A) ON APPE AL BY THE REVENUE IN THE AY 1996-97 ON THE GROUND THAT THE CLAIM WAS NEITHER ADM ISSIBLE U/S 36(1)(III) NOR U/S 57(III) OF THE ACT. IN THE AY 1997-98, THE ITAT FOLL OWED THEIR ORDER FOR THE AY 1996-97. IN NUTSHELL, TOTAL DISALLOWANCE OF INTEREST I N THE AY 1996-97 WORKED OUT TO RS.68,60,252[30,17,274+38,42,978].SINCE THE LD. CI T(A) IN HIS ORDER DATED 29.3.2001 FOR THE AY 1997-98 MERELY ADOPTED THE SAM E BASIS AND EQUIVALENT AMOUNT OF RS.38,42,978/- WAS ALLOWED, APPARENTLY, TH E ITAT REVERSED THE FINDINGS OF THE LD. CIT(A) IN THE AY 1997-98 IN RESP ECT OF THIS AMOUNT ALSO IN TERMS OF PARA 36 OF THEIR ORDER. SINCE THE GROUND REL ATING TO DISALLOWANCE OF THE INTEREST UPHELD BY THE LD. CIT(A) IN THE CO OF THE ASSESSEE IN THE AY 1996-97 AND CONSEQUENTLY IN THE APPEAL OF THE ASSESSEE FOR THE AY 1997-98 WAS DISMISSED BY THE ITAT, APPARENTLY ,IN TERMS OF ORDER D ATED 15.12.2006 , THE ITAT UPHELD DISALLOWANCE OF RS.38,42,978 & RS.52,48,561/- IN THE AY 1997-98 SO FAR AS INTEREST IS RELATED TO INVESTMENT IN SHARES, PARTICULAR LY WHEN NO NEW INVESTMENT IN SHARES IS STATED TO HAVE BEEN MADE IN T HE YEAR UNDER CONSIDERATION AND AN AMOUNT OF RS. RS.3,01,20,800/- INV ESTED IN SHARES REMAINS IN TACT IN THE YEAR UNDER CONSIDERATION. AS REGARDS DED UCTION OF RS. 6,79,987/- ALLOWED BY THE LD. CIT(A) U/S 36(1)(III) OF THE ACT, THE ITAT HAVE UPHELD THE FINDINGS OF THE LD. CIT(A) WHILE FOLLOWING THEIR OR DER FOR THE AY 1996-97. 6.1 IN THE LIGHT OF AFORESAID DISCUSSION , IF WE NO W HAVE A GLANCE AT THE IMPUGNED ORDER , IT IS APPARENT FROM THE SUBMISSIONS OF THE ASSESSEE BEFORE THE AO & THE LD. CIT(A) THAT THE ASSESSEE ATTRIBUTED INTE REST OF RS.43,44,601/- TO BUSINESS AND RS.63,96,029/- TO BORROWINGS FOR INVESTMEN T IN SHARES. THE BASIS FOR SUCH WORKING IS NOT EVIDENT FROM THE IMPUGNED ORDER S NOR HAS BEEN PLACED BEFORE US. EVEN THE BASIS OF ALLOCATION OF BORROWED F UNDS TOWARDS BUSINESS OR TOWARDS INVESTMENT IN SHARES IS NOT EVIDENT PARTICULARLY WHEN RELEVANT BOOKS OF 18 ITA NOS.2647 & 2764/AHD/2009 ACCOUNTS WERE NEVER PRODUCED BEFORE THE AO OR THE LD. C IT(A). IT MAY BE POINTED OUT THAT IN THE FIRST ROUND OF LITIGATION, THE ASSESSEE WORKED OUT INTEREST OF RS.37,87,168[31,07,181+ 6,79,987] U/S 36(1)(III) AND RS.55,51,599/- U/S 57(III) OF THE ACT. EVEN DURING THE FIRST ROUND OF LITIGATION, BASIS FOR SUCH WORKING IS NOT EVIDENT FROM THE RELEVANT ORDERS NOR THE LD. AR PLACE D BEFORE US. SINCE DISALLOWANCE OF INTEREST OF RS. 68,60,252/- HAS BEEN UP HELD BY THE ITAT IN THE AY 1996-97 WHILE INVESTMENT IN SHARES REMAINS THE SAME IN BOTH THE YEARS, APPARENTLY, THE CALCULATION OF DEDUCTION OF INTEREST OF RS.43,44,601/- AND DISALLOWANCE OF INTEREST OF RS.63,96,028/-BY THE LD. CI T(A) ON THE BASIS WORKING OF INTEREST SUBMITTED BY THE ASSESSEE, DOES NOT SEEM TO BE IN ORDER. IT MAY BE REITERATED HERE THAT THE ASSESSEE DID NOT PRODUCE ANY B OOKS OF ACCOUNTS BEFORE THE AO OR THE LD. CIT(A) WHILE THE BASIS FOR WORKING O F INTEREST FOR THE PURPOSE OF BUSINESS OR FOR INVESTMENT IN SHARES IS NOT EVIDENT FR OM THE IMPUGNED ORDERS NOR HAS BEEN PLACED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDERS OF THE LD. CIT(A) AND RESTORE THE ISSUE RELATING TO QUANTIFI CATION OF DISALLOWANCE OF INTEREST IN TERMS OF DIRECTIONS OF THE ITAT IN PARA 37 OF THEIR ORDER DATED 15.12.2006, RAISED IN GROUND NO.1 IN THE APPEAL OF THE REVENUE AND GROUND NO. 2 IN THE APPEAL OF THE ASSESSEE, TO HIS FILE FOR READJUD ICATION IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND OF COURSE AFTER ALLOWING SUFF ICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE OBSERVATIONS, GROUND NO. 1 IN THE APPEAL OF THE REVENUE AND GROUND NO.2 OF THE APPEAL OF THE ASSESSEE ARE DISP OSED OF. 7. AS REGARDS CLAIM FOR DEDUCTION OF INTEREST OF RS.6,79,987/- IN GROUND NO. 1 IN THE APPEAL OF THE ASSESSEE , SINCE THE ORDER DA TED 29.3.2001 OF THE LD. CIT(A) HAS BEEN UPHELD BY THE ITAT IN THE FIRST ROUN D OF LITIGATION, APPARENTLY SUCH CLAIM IS ALLOWABLE. THEREFORE, GROUND NO.1 IN THE APPEAL OF THE ASSESSEE IS ALLOWED . 8. GROUND NO.3 IN THE APPEAL OF THE ASSESSEE RELAT ES TO DOUBLE DISALLOWANCE OF RS.52,48,561/-.WE FIND THAT THE LD. CIT(A) HAS ALREAD Y DIRECTED THE AO TO MAKE CORRECT CALCULATIONS IN PARA 8 OF HER ORDER. WE DO NOT F IND ANY INFIRMITY IN THESE DIRECTIONS OF THE LD. CIT(A). THEREFORE, GROUND NO.3 IN THE APPEAL IS DISMISSED. 19 ITA NOS.2647 & 2764/AHD/2009 HOWEVER, THE AO MAY ENSURE THAT THE AMOUNT RS.52,48,5 61/-. IS NOT DISALLOWED TWICE. 9. GROUND NOS.2 AND 3 IN THE APPEAL OF THE REVENU E BEING MERE PRAYER NOR ANY SUBMISSIONS HAVING BEEN MADE ON THES E GROUNDS, DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDI TIONAL GROUND HAS BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND IN THE APPEAL OF THE ASSESSEE, ALL THESE GROUNDS ARE, THEREFORE, DI SMISSED. 10. NO OTHER SUBMISSION OR ARGUMENT WAS MADE BEFO RE US. 11. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED WHILE THAT OF THE ASSESSEE IS PARTLY ALLOWED ,BUT BOTH FOR STATISTICAL P URPOSES . ORDER PRONOUNCED IN THE COURT TODAY ON 26-08-2011 SD/- SD/- ( T K SHARMA ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 26 -08-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S B NANJI & CO., MURTI BUNGLOW, 5, ASHOK NAGAR , SATELLITE, AHMEDABAD 2. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-9, AH MEDABAD 3. CIT CONCERNED 4. CIT(A)-XV, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD