The DCIT, Circle-8, Ahmedabad V. Sintex Industries Ltd., Ahmedabad

ITA 2786/AHD/2014

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6789 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 17-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Bad and doubtful debts; Rule 8D; Capital Gains
• Section: 143(3); 14A; 80IA; 80IC; 143(2); 80IC; 43; 13; 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (CONDUCTED THROUGH VIRTUAL COURT) BEFORE: SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEM BER SL. NO. APPEAL ITA A.Y. APPELLANT RESPONDENT 1 2786/AHD/2014 2011-12 THE DCIT, CIR-8, ABAD SINTEX INDUSTRIES LTD., ABAD 2 2702/AHD/2014 2011-12 SINTEX INDUSTRIES LTD., ABAD THE DCIT, CIR-8, ABAD 3 1416/AHD/2018 2013-14 THE DCIT, CIR- 4(1)(1), ABAD SINTEX INDUSTRIES LTD., ABAD 4 1417/AHD/2018 2014-15 THE DCIT, CIR- 4(1)(1), ABAD SINTEX INDUSTRIES LTD., ABAD PAN NO: AADCS0858E REVENUE BY: SHRI VINOD TANWANI, CIT-D.R. ASSESSEE BY: SHRI BHAVIN MARFATIA, A.R. DATE OF HEARING : 08-02-2021 DATE OF PRONOUNCEMENT : 08-04-202 1 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE FOUR APPEALS FILED BY REVENUE EXCEPT ITA NO. 2702/AHD/2014 FILED BY ASSESSEE, ARISE FROM ORDER OF THE CIT(A), AHMEDABAD, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. ALL THESE THREE APPEAL FILED BY REVENUE AND ONE APPEAL FILED BY ASSESSEE ARE INTERCONNECTED BASED ON SIMILAR ISSUE AND FACTS, THEREFORE, FOR THE SAKE OF CONVENIENCE, THESE APPEALS ARE ADJUDICA TED BY THIS COMMON I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 2 ORDER TAKING THE FACTS OF ASSESSMENT YEAR 2011-12 VIDE ITA NO. 2786/AHD/2014 AND ITS FINDINGS WILL BE APPLICABLE T O THE REMAINING THREE APPEALS. ITA NO. 2786/AHD/2014 FILED BY REVENUE A.Y. 2011-12 3. THE FACT IN BRIEF IS THAT RETURN OF INCOME DE CLARING INCOME OF RS. 2,33,19,03,480/- WAS FILED ON 12 TH SEP, 2011. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE A CT WAS ISSUED ON 3 RD AUGUST, 2012. THE ASSESSEE COMPANY IS ENGAGED IN T HE BUSINESS OF MANUFACTURING AND DEALING IN COTTON, SYNTHETICS PLA STIC ETC. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT ON 20 TH MARCH, 2013 AND TOTAL INCOME WAS ASSESSED AT RS. 2,79,13,06,590 /- AFTER MAKING VARIOUS ADDITIONS AND DISALLOWANCES. THE ASSESSEE FILED A PPEAL BEFORE THE LD. CIT(A) AGAINST THE ORDER OF ASSESSING OFFICER. THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE REVENUE HA S FILED THE INSTANT APPEAL AGAINST THE DECISION OF LD. CIT(A) IN DELETING THE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER. THE VARIOUS GROUNDS OF THESE ISSUES FILED BY REVENUE ARE ADJUDICATED AS FOLLOWS:- GROUND NO. 1(DELETING THE DISALLOWANCE OF DEDUCTION U/S. 80IC UNDER THE HEAD INTEREST AND FINANCIAL CHARGES, COMMON EXP ENSES OF CORPORATE EXPENSES AND COMMON EXPENSES OF CORPORATE AND PLAST IC DIVISION) 4. THIS GROUND RELATES TO ALLOCATION OF COMMON INTEREST AND FINANCIAL CHARGES OF RS. 891.99 LACS TO THE BADDI UNIT WHILE CALCULATING DEDUCTION U/S. 80IC OF THE ACT. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAS ALLOCATED INTERES T/FINANCIAL CHANGES OF RS. I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 3 118.11 LACS IN THE ACCOUNTS OF THE BADDI UNIT. HO WEVER, ON PERUSAL OF THE DETAIL, THE ASSESSING OFFICER OBSERVED THAT THE ASS ESSEE COMPANY WAS HAVING COMMON POOLS OF FUNDS AS WELL AS COMMON BANK ACCOUN TS FOR ITS ENTIRE BUSINESS BEING CARRIED OUT FROM THE HEAD OFFICE. T HEREFORE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST EXPENDITU RE REQUIRED TO BE ALLOCATED PROPORTIONATELY IN THE RATIO OF SALES FOR DEDUCTION U/S. 80IC OF THE ACT FOR THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. ACCORDINGL Y, THE ASSESSING OFFICER HAS ALLOCATED EXPENSES OF RS. 891.99 LACS IN THE CA SE OF BADDI UNIT. THE ASSESSING OFFICER ALSO NOTICED THAT ASSESSEE COMPAN Y HAS DEBITED COMMON HEAD EXPENSES INCURRED BY THE COMPANY UNDER VARIOUS HEADS. THE DETAIL IS GIVEN AS UNDER:- S. NO. PARTICULARS AMOUNT (RS. IN LAKHS) 1 AUDIT FEES 52-00 2 COMPUTER MAINTENANCE EXPENSES 11.98 3 SECURITY CHARGES 3.99 4 DIRECTOR FEES 5.00 5 PROVISION FOR DOUBTFUL DEBTS ETC. 76.00 6 CHARITY & DONATION 14.00 TOTAL 162.97 THE ASSESSING OFFICER FURTHER NOTICED THAT IN RESPE CT OF BADDI UNIT, THE ASSESSEE HAS ALLOCATED EXPENSES OF RS. 9.2 LACS AND ON THE BASIS OF TURN OVER THE ASSESSING OFFICER HAS MADE ALLOCATION OF RS. 20 .14 LACS, THEREFORE, THE DIFFERENCE AMOUNT OF RS. 12.24 LACS WAS REDUCED FRO M THE CLAIM OF DEDUCTION U/S. 80IC OF THE ACT. FURTHER, THE ASS ESSING OFFICER NOTICED THAT THERE WERE CERTAIN EXPENSES INCURRED BY THE PLASTIC DIVISION AND CORPORATE DIVISION. THE ASSESSING OFFICER WAS OF THE VIEW THA T CERTAIN PORTION OF THESE I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 4 EXPENDITURE WERE ALSO PERTAINED TO BADDI UNIT, THER EFORE, ON THE BASIS OF TURNOVER, THE ASSESSING OFFICER HAS ALLOCATED AN AM OUNT OF RS. 475.75 LACS AND THE DIFFERENCE AMOUNT OF RS. 784.75 LACS WAS RE DUCED FROM THE CLAIM OF DEDUCTION U/S. 80IC OF THE ACT IN THE CASE BADDI UN IT. 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSE E AFTER MAKING REFERENCE TO THE DECISION OF HIS PREDECESSOR FOR ASSESSMENT Y EAR 2009-10, ASSESSMENT YEAR 2010-11 IN RESPECT OF INTEREST AND FINANCIAL C HARGES FOLLOWING THE RATIO OF DECISION OF EARLIER ASSESSMENT YEAR AS REFERRED ABOVE, THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOCATE COMMON I NTEREST & FINANCE CHARGES ON THE BASIS OF INVESTMENT IN THE BADDI UNI TS AT THE PLACE OF SALE/TURNOVER. IN RESPECT OF ADDITION ON ACCOUNT OF ALLOCATION COMMON HEAD EXPENSES, THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE AFTER FOLLOWING THE ORDER OF HIS PREDECESSOR FOR ASSESSME NT YEAR 2009-10 AND 2010-11 HOLDING THAT WHEN ALLOCATION OF COMMON HEAD EXPENSES ARE MADE ON ACTUAL BASIS THEN THERE IS NO NEED FOR FURTHER A LLOCATION OF SUCH EXPENSES ON THE BASIS OF SALES RATIO. SIMILARLY IN RESPECT OF ADDITION ON ACCOUNT OF EXPENSES PERTAINING TO PLASTIC AND CORPORATE DIVISI ON, THE LD. CIT(A) HAS ALSO ALLOWED THE APPEAL OF THE ASSESSEE AFTER FOLLOWING THE DECISION OF HIS PREDECESSOR OF ASSESSMENT YEAR 2009-10 AND 2010-11 HOLDING THAT THE ASSESSING OFFICER FAILED TO PUT ANY REASONING TO AL LOCATE SUCH EXPENSES ON THE BASIS OF SALES/TURNOVER RATIO. 6. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS SUBMITTED THAT AFORESAID ISSUE OF ALLOCATION OF EXPENSES HAS BEEN I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 5 ADJUDICATED BY CO-ORDINATE BENCH OF THE ITAT IN FAV OUR OF THE ASSESSEE ITSELF VIDE ITA NO. 1548/AHD/2012. THE LD. DEPARTM ENTAL REPRESENTATIVE WAS FAIR ENOUGH NOT TO CONTROVERT THESE UNDISPUTED FACT THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT. 7. WITH THE ASSISTANCE OF REPRESENTATIVES, WE HAVE GONE THOUGH THE DECISION OF CO-ORDINATE BENCH OF THE ITAT VIDE ITA NO. 1548/AHD/2012 IN THE CASE OF THE ASSESSEE ITSELF ON IDENTICAL FACTS/ SIMILAR ISSUE AND NOTICED THAT ALLOCATION OF COMMON INTEREST FINANCIAL CHARGES, CO MMON HEAD EXPENSES AND ALLOCATION OF PLASTIC AND CORPORATE DIVISION EXPENS ES WERE ADJUDICATED IN FAVOUR OF THE ASSESSEE VIDE ORDER OF THE ITAT FOR A SSESSMENT YEAR 2010-11 VIDE ITA NO. 1548/AHD/2012. THE RELEVANT PART OF T HE DECISION OF THE ITAT IS DISCUSSED AS UNDER:- IN RESPECT OF ALLOCATION OF COMMON INTEREST AND FINANCIAL CHARGES:- 17. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. THE CASE OF THE ASSESSEE IS THAT FINANCIAL CHARGES CANNOT BE ALLOCATED IN THE RATIO OF SALES, BECAUSE, THE SALES HAVE NO DIRECT INFLUENCE ON THE INTEREST EXPE NDITURE. THE FINANCIAL CHARGES ARE RELEVANT TO THE INVESTMENT MADE BY AN ASSESSEE. IN OTHER WORDS, SUPPOSE AN ASSESSEE HAS MADE INVESTMENT AFTER BORROWING FUNDS DUE TO SOME REASON OR MARKET CONDITIONS HE COULD NOT EFFECT THE SALES, THEN, IF WE GO BY THE LOGIC OF THE AO, THERE WOULD BE A L ESSER ALLOCATION. THE ASSESSEE HAS ALLOCATED THE EXPENDITURE ON ACCOUNT OF FINANCIAL CHARGES, KEEPIN G IN VIEW THE INVESTMENT IN BHADDI UNITS. IN OTHER WORDS, THESE ARE DIRECT EXPENDITURE RELATABLE TO BHADDI UNITS. THEREFORE, THE ID.CIT(A) HAS RIGHTLY DELETED THE ALLOCATION OF INTEREST/FINANCIA L CHARGES IN THE BHADDI MADE ON THE BASIS OF SALES RATIO. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ID.CIT(A) ON THIS ISSUE. ALLOCATION OF COMMON HEAD EXPENSES:- 25. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES , WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT IF ANY UNIT, WHICH IS ENTITLED FOR DEDUCTION UNDER CHAPTER-VI OF THE INCOME TAX ACT VIZ. 80IA OR 80IC IN THE PRESENT CASE, IF AVAILS THE BENEFIT OF CERTAIN FACILITIES FOR WHICH THE EXPENSES ARE IN CURRED UNDER COMMON POOL, THEN A PROPORTIONATE ALLOCATION, ACCORDING TO THE SCIENTIFIC METHOD, OUG HT TO BE MADE, WHILE DEALING WITH THE ISSUE FOR THE PURPOSE OF ALLOCATION UNDER SECTION 80IA IS CON CERNED, WE HAVE UPHELD THE ALLOCATION IN THE RATIO OF TURNOVER. SIMILARLY, WE HAVE NOT UPHOLD TH E ALLOCATION OF FINANCIAL CHARGES IN THE RATIO OF SALES MADE FROM THE PRODUCTS OF 80IC UNITS VIS-A-VI S THE TOTAL SALES MADE BY THE COMPANY, BECAUSE, WE HAVE OBSERVED THAT SUCH EXPENDITURE IS TO BE WORKED OUT ON THE BASIS OF ACTUAL INVESTMENT MADE IN 80IC UNITS. WITH THIS ANALOGY, W HEN WE EXAMINE THE DETAILS, FOR THE PURPOSE OF ALLOCATION UNDER THE PRESENT HEAD, THEN IT WOULD RE VEAL THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE ACCOUNTS FOR THESE UNITS. IT HAS DEBITED E XPENDITURE ON ACTUAL BASIS. THE AO DID NOT FIND I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 6 ANY ERROR IN THAT ATTRIBUTION. HE SIMPLY JUMPED TO MAKE ALLOCATION ON THE BASIS OF SALES MADE BY THESE UNITS VIS-A-VIS THE TOTAL SALES. THAT IS NOT A SCIENTIFIC 'CRITERIA FOR MAKING DISALLOWANCE. THE ID.CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSESS EE, IT HAS CONSIDERED ALL THESE EXPENDITURE, AND WHERE THERE IS A DIRECT NEXUS WITH THE ACTIVITY OF 80IC UNITS, VIS-A-VIS THIS EXPENDITURE, IT HAS ALREADY MADE DISALLOWANCE. LET US TAKE AN EXAMPLE. AS FAR AS SECURITY CHARGES ARE CONCERNED, THE ASSESSEE ALREADY ACCOUNTED THE SECURITY CHARGES REL EVANT FOR THE PURPOSE OF 80IC UNITS. WHY ALLOCATION OUT OF THE EXPENDITURE INCURRED AT HEAD OFFICE OUGHT TO BE MADE TO THIS UNIT. SIMILARLY, IT HAS ALLOCATED OUT OF COMPUTER MAINTENANCE. THIS EXP ENDITURE WOULD RELATE TO THE COMPUTERS WHICH ARE DIRECTLY INVOLVED IN 80IC UNITS. AFTER CONSIDER ING THE ORDERS OF THE ID.CIT(A) ON THIS ISSUE, WE DO NOT FIND ANY ERROR IN THE ORDERS, AND ACCORDINGL Y, THE ORDERS OF THE-CIT(A) IN BOTH THE YEARS ARE UPHELD ON THIS ISSUE. THE ID.CIT(A) HAS RIGHTLY DEL ETED THE DISALLOWANCE MADE BY THE AO, OUT OF COMMON HEAD EXPENSES OF CORPORATE DIVISION. IN RESPECT OF PLASTIC AND CORPORATE DIVISION:- 28. WE HAVE EXAMINED THE DETAILS WITH THE ASSISTA NCE OF THE REPRESENTATIVES. IN OUR REASONING GIVEN WHILE UPHOLDING THE DELETION UT OF CERTAIN CO MMON HEAD EXPENSES, WE DO NOT FIND ANY ERROR IN DELETING THE DISALLOWANCE UNDER THESE HEAD. THE BASIC REASON IS THAT THE ASSESSEE HAS DEBITED EXPENDITURE WHICH HAS DIRECT NEXUS WITH 80IC UNITS. SUCH EXPENDITURE CANNOT BE AMPLIFIED BY CONSIDERING THE SALES RATIO. THE AO HAS NOWHERE HIG HLIGHTED, AS TO WHICH PARTICULAR FACILITY WAS USED BY THE ASSESSEE, GENERATED OUT OF COMMON HEAD EXPENSES. HE SIMPLY ADOPTED THE FIGURE OF SALES AND THEN PROCEEDED TO DISALLOW THE EXPENDITUR E. IN OUR OPINION, THE ID.AO OUGHT TO HAVE EXAMINED THIS ASPECT, AND FIND OUT THAT A PARTICULA R ITEM OF EXPENDITURE INCURRED BY E ASSESSEE AT HEAD OFFICE, WHICH HAS GIVEN BENEFIT TO 80IC UNIT, ONLY OUT OF THAT EXPENDITURE, IF HE MADE AN ALLOCATION, THEN HIS STAND COULD BE JUSTIFIED. THER EFORE, FOLLOWING OUR FINDING IN EARLIER GROUNDS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL O F THE REVENUE, THE ORDERS OF THE CIT(A) ON THIS ISSUE ARE UPHELD. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT AS SUPRA, WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A) FOR ALLOCATING COMMON INTEREST & FINANCIAL CHARGES ON THE BASIS OF INVESTMENT. SIMILAR IN RESPECT OF DELETING ADDITION OF COMMON HEAD EXPENSE S AND PLASTIC/CORPORATE DIVISION EXPENSES MADE ON SALES BASIS, WE DO NOT F IND ANY INFIRMITY IN THE DECISION OF LD. CIT(A) AFTER FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH AS CITED ABOVE IN THIS ORDER. TAKING INTO CONSIDE R THE FINDING OF THE CO- ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF ON TH E AFORESAID ISSUES, WE DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF LD. CIT(A), THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 7 GROUND NO. 2(RESTRICTING DISALLOWANCE U/S. 14A OF R S. 1.766 LACS AS AGAINST RS. 23.305 CRORES MADE BY THE ASSESSING OFF ICER & GROUND NO. 4 OF ASSESSEE VIDE ITA NO. 2702/AHD/2017 CONFIRMING DISALLOWANCE OF RS. 1.766 CRORE U/S. 14A OF THE ACT) 8. DURING THE COURSE OF ASSESSMENT, THE ASSESSI NG OFFICER NOTICED THAT ASSESSEE COMPANY HAS RECEIVED DIVIDEND INCOME OF RS . 85,49,180/-. HOWEVER, THE ASSESSEE HAD DISALLOWED ONLY RS. 1,42, 083/- IN RESPECT OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. O N QUERY, THE ASSESSEE EXPLAINED THAT INVESTMENT WAS MADE OUT OF SURPLUS A ND INTERNAL ACCRUAL AVAILABLE WITH THE COMPANY AND NO BORROWED FUND WAS USED. THE ASSESSING OFFICER HAS NOT ACCEPTED THE CONTENTION OF THE ASSE SSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME AND COMPUTED THE DISALLOWANCE TO THE AMOUNT OF RS. 23,31,86,985/- A FTER APPLYING THE RULE 8D OF THE I.T. RULE, 1961. 9. THE ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A) . THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND R ESTRICTED DISALLOWANCE TO THE AMOUNT OF RS. 1.78 CRORES. 10. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL SUBMITTED THAT ON SIMILAR ISSUE DISALLOWANCE MADE F OR ASSESSMENT YEAR 2010- 11 WAS DELETED BY THE ITAT VIDE ITA NO. 1598/AHD/20 12 AND THE HONBLE HIGH COURT HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE VIDE IT APPEAL NO. 268 OF 2017. THE LD. COUNSEL HAS FURTHE R SUBMITTED THAT HONBLE SUPREME COURT HAS ALSO DISMISSED THE SPECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THE ORDER OF HONBLE GUJARAT HIGH C OURT. THE LD. COUNSEL IS I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 8 FAIR ENOUGH NOT TO CONTROVERT THESE UNDISPUTED FACT S THAT ASSESSES IS COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THE ITAT FO R ASSESSMENT YEAR 2010- 11 AS CITED ABOVE. 11. WITH THE ASSISTANCE OF LD. REPRESENTATIVES , WE HAVE GONE THROUGH THE DECISION OF CO-ORDINATE BENCH OF THE ITAT FOR ASSES SMENT YEAR 2010-11 AND NOTICED THAT AT PARA 36 AND 37 OF THE ORDER THE ISS UE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE. THE RELEVANT PART OF THE D ECISION OF THE CO-ORDINATE BENCH IS REPRODUCED AS UNDER:- 36. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS. AS FAR AS THE PROPOSITION OF THE LD.CIT-DR THAT EVEN IN THE ABSENCE OF ANY MECHANISM FOR DISALLOWAN CE, THE EXPENDITURE, WHICH IS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME CAN BE WORKED OUT ON ESTIM ATE BASIS OR REASONABLENESS BASIS AFTER LOOKING INTO THE FACTS AND CIRCUMSTANCES OF A PARTI CULAR CASE IS CONCERNED, WE DO NOT HAVE ANY DISPUTE. THE AMOUNTS CAN BE DISALLOWED ON ESTIMATE BASIS. IN THE PRESENT APPEALS, THE ASSESSES ITSELF HAS MADE DISALLOWANCE OF RS.5.10 LAKHS IN TH E ASSTT.YEAR 2009-10 AND RS.52,000/- IN THE ASSTT.YEAR 2010-11. IN THE ASSTT.YEAR 2009-10, THE EXEMPT INCOME IS OF RS.2.02 CRORES WHEREAS IN THE ASSTT.YEAR 2010-11 IT IS RS.22.50 LAKHS. BEFORE EMBARKING UPON THE FACTS OF THE PRESENT CASE, WE DEEM IT PERTINENT TO TAKE NOTE OF THE OBSERVATIO NS OF THE DELHI HIGH COURT RECORDED IN PARA-29 OF THE JUDGMENT IN THE CASE OF MAXOPP INVESTMENT LT D. (SUPRA). IT READS AS UNDER: 'SCOPE OF SUB-SECTIONS (2) AND (3) OF SECTION 14A 29. SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSI NG OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OF FICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO .EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE ASSESSING OFFICER RE TURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION 'PRECEDENT FOR THE ASSESSI NG OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCU RRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. SUB-SECT/ON (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A. SUB-SEC TION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THA T NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSES SING OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINAT ION OF THE AMOUNT OF EXPENDITURE IN I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 9 ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUBSECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSESSING OFFICER I S NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSE SSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD BEING THE METHOD STIP ULATED IN RULE 8D OF THE SAID RULES. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. ' 37. ACCORDING TO THE HON'BLE DELHI HIGH COURT, WHEN AN ASSESSEE DEMONSTRATE ACTUAL INCURRENCE OF THE EXPENDITURE, THEN RULE 8D WOULD NOT BE AUTOM ATICALLY APPLIED WITHOUT LOOKING INTO THE EXPLANATIONS. IN OTHER WORDS, WHEN AN ASSESSEE HAS WORKED OUT THE EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME ON ACTUAL, BASIS AND DEMON STRATED TO THE AO THE INCURRENCE OF SUCH EXPENDITURE, THEN AO HAS TO RECORD A FINDING THAT H E WAS NOT SATISFIED WITH THE CORRECTNESS OF THE EXPENDITURE SHOWN BY THE ASSESSEE. IN OTHER WORDS, HE HAS TO VERIFY THE ACCOUNT OF THE ASSESSEE, AND IF HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE, THEN, AFTER ASSIGNING REASONS, HE WOULD PROCEED TO COMPUTE THE EXPENSES ON THE BASIS OF THE METHOD BROUGHT IN THE RULE 8D. IN THE LIGHT OF THE ABOVE PROPOSITI ON, LET US EXAMINE THE FACTS IN BOTH THE YEARS AND FINDING RECORDED BY THE AO. THE MAIN CONTENTION OF THE ASSESSEE IN BOTH THE YEARS IS THAT IT HAS MADE INVESTMENT IN THE MUTUAL FUND WITH 'GROWTH OPT ION'. IN THE CASE OF GROWTH OPTION, NO DIVIDENDS ARE DECLARED BY THE MUTUAL FUND, AND ONLY INCOME DECLARED BY AN INVESTOR IS IN THE FORM OF CAPITAL GAINS. THE CAPITAL GAINS DERIVED BY THE ASSESSEE ON MUTUAL FUND ARE TAXABLE AND NOT AN EXEMPT INCOME DERIVED FROM SUCH INVESTMENT. IN THE ASSTT.YEAR 2009-10, THE ASSESSEE HAS OFFERED A SUM OF RS.19.22 CRORES ON SALE OF SUCH INVESTMENT F OR TAXATION AS SHORT/LONG TERM CAPITAL GAIN. SIMILARLY, IN THE ASSTT.YEAR 2010-11, A SUM OF RS.8 .23 CRORES HAS BEEN OFFERED. THE INVESTMENT MADE BY THE ASSESSEE WAS NOT OUT OF INTEREST BEARIN G FUND. IT HAS ITS OWN SURPLUS FUND OUT OF WHICH INVESTMENT HAS BEEN MADE. THE ASSESSEE HAS DEMONSTR ATED THAT IT HAD OWN FUNDS OF RS.1981.55 CRORES IN THE ASSTT.YEAR 2009-10 AND INVESTMENT IN THE MUTUAL FUND WAS ONLY RS.144.51 CRORES. THE ASSESSEE HAS ALSO SUBMITTED THAT ITS INVESTMENT IN EARNING EXEMPT INCOME HAS BEEN REDUCED DURING THE YEAR FROM 78.45 CRORES TO RS.18.09 CRORE S. THE ASSESSEE HAS SUBMITTED THESE DETAILS IN ITS SUBMISSIONS REPRODUCED BY THE AO. SIMILARLY, IN THE ASSTT.YEAR 2010-11, IT HAS RESERVE FUND OF RS.2319.17 CRORES AND MADE INVESTMENT OF RS.111.09 CRORES. THE ID.AO HAS NOT GIVEN ANY HEED TO THESE SUBMISSIONS OR FIGURES SUBMITTED BY THE ASSES SEE. THE ASSESSEE HAS FURTHER MADE DISALLOWANCE OF RS.5.12 LACS IN THE ASSTT.YEAR 2009 -10. THIS WAS MAINLY FOR MANAGEMENT OF INVESTMENT. HE SIMPLY DISCUSSED THE BACKGROUND FOR BRINGING SECTION 14A AS WELL RULE 8D ON THE STATUTE BOOK. HE HAS SPECIFICALLY NOT WORKED OUT TH E AMOUNTS EVEN ON THE BASIS OF RULE 8D. HE CALLED FOR A WORKING FROM THE ASSESSEE AND MADE A L UMPSUM ADDITION IN BOTH THE YEARS. THE ID.AO HAS NOT RECORDED ANY FINDING THAT AMOUNTS ADDED BAC K BY THE ASSESSEE ARE NOT COMMENSURATE WITH THE ADMINISTRATIVE EXPENSES WHICH MIGHT BE ATTRIBUT ABLE TO EARNING EXEMPT INCOME. BECAUSE, ON INTEREST EXPENSES ACCOUNT, THERE CANNOT BE ANY DISA LLOWANCE AS THE ASSESSEE HAS FAR MORE INTEREST FREE FUND THAN INVESTMENT. WE ARE OF THE VIEW THAT THE ID.CIT(A) HAS LOOKED INTO ALL THESE ASPECTS IN THE ASSTT.YEAR 2009-10 BEFORE DELETING THE DISAL LOWANCE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE ID.CIT(A) ON THIS ISSUE IN ASSTT.YEAR 2009-1 0. CONSEQUENTLY, WE ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN THE ASSTT.YEAR 2010-11 AN D DELETE THE DISALLOWANCE MADE BY THE AO. RESPECTFULLY FOLLOWING THE DECISION OF CO -ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR A.Y. 2009-10 AND A.Y. 2010-11 THE APPEAL OF THE REVENUE IS DISMISSED. REGARDING THE APPEAL OF THE ASSESSEE, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER EXAMINATION/VERIFICATION OF THE DETAILS FILED BY TH E ASSESSEE AS PER THE I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 10 DIRECTION LAID DOWN IN THE DECISION OF THE CO-ORDIN ATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF AS SUPRA VIDE ITA N O. 1598/AHD/2012 AND DECISION OF HONBLE GUJARAT HIGH COURT VIDE IT APPE AL NO. 268 OF 2017. THEREFORE, APPEAL FO THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. GROUND NO. 3 (DELETING ADDITION OF RS. 5,28,10,870/ - ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION GAIN) 12. DURING THE COURSE OF ASSESSMENT, THE ASSES SING OFFICER NOTICED THAT THE AMOUNT OF RS. 5,28,10,870/- WAS ACCOUNTED FOR A S EXCHANGE GAIN BASED ON EXCHANGE RATE PREVAILING ON MARCH, 31, 2011. TH E ASSESSEE HAS RELIED UPON THE PROVISION OF SECTION 43A OF THE ACT. HOWE VER, THE ASSESSING OFFICER HAS NOT AGREED WITH THE CONTENTION OF THE A SSESSEE AND STATED THAT GAIN ON FOREIGN EXCHANGE FLUCTUATION HAS TO BE TAXE D IN THE YEAR UNDER CONSIDERATION AND ACCORDINGLY ADDED THE FOREIGN EXC HANGE FLUCTUATION GAIN OF RS. 5,28,10,870/- TO THE TOTAL INCOME OF THE AS SESSEE. 13. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD . CIT(A) . THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE AFTER FOLLOW ING THE DECISION OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2010-11. THE RELEV ANT PART OF THE DECISION OF THE LD. CIT(A) IS REPRODUCED AS UNDER:- I AM INCLINED WITH APPELLANT THAT MERELY ON ACCOUN T OF GAIN IN FOREIGN EXCHANGE FLUCTUATION RELATED TO LIABILITY TOWARDS FCCB, THE A.O. TREATED THEM AS TAXABLE U/S 28 OF THE ACT THOUGH THE FOREIGN EXCHANGE LOSS IN EARLIER YEARS ON THE SAME ISSUE WERE NOT DEALT ACCORDINGLY. I AM ALSO INCLINED WITH THE CONTENTION THAT IN VIEW OF PROVIS IONS OF SECTION 43A OF THE ACT AND CLEAR INSTRUCTION / EXPLANATION / CLARIFICATION FROM THE CBDT IN VARIOUS CIRCULARS AS WELL AS LEGAL PROPOSITION, THE NATURE OF SUCH FOREIGN EXCHANGE GA IN WILL REMAIN CAPITAL IN NATURE AND REQUIRED TO BE ADJUSTED TOWARDS COST OF SHARES OF SUBSIDIARY AT THE TIME OF PAYMENT OF FCCB. THERE IS NO DISPUTE AS FAR AS AMOUNT OF FOREIGN EXCHANGE GAIN R ELATED TO LIABILITY OF FCCB LOAN RELATED TO ITS UTILIZATION FOR SHARES OF SUBSIDIARY COMPANY. IT IS THEREFORE CONSIDERING THE FACTS, PROVISIONS OF SECTION 43A OF THE ACT, CBDT CIRCULARS, RATIO OF VA RIOUS CASE LAWS RELIED ON BY APPELLANT AND RATIO OF MY PREDECESSOR IN THE CASE OF APPELLANT IN APPEA L ORDER FOR A.Y. 10-11, THE A.O. IS NOT JUSTIFIED IN TREATING RS. 5,28,10,870/- AS TAXABLE GAIN. TH E A.O. IS DIRECTED TO TREAT THE SAME AS NOTIONAL I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 11 GAIN OF CAPITAL NATURE AND DELETE THE ADDITION SO M ADE. THE APPELLANT GETS RELIEF ACCORDINGLY. THIS GROUND IS TREATED AS ALLOWED. 14. DURING THE COURSE OF APPELLATE PROCEEDINGS B EFORE US, THE LD. COUNSEL HAS CONTENDED THAT SIMILAR ISSUE HAS BEEN ADJUDICAT ED BY THE CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE FOR A SSESSMENT YEAR 2010-11 VIDE ITA NO. 1548/AHD/2012. THE LD. COUNSEL ALSO S UBMITTED THAT HONBLE GUJARAT HIGH COURT HAS ALSO CONFIRMED THE ORDER OF THE ITAT FOR ASSESSMENT YEAR 2010-11. THE LD. DEPARTMENTAL REPRESENTATIVE IS FAIR ENOUGH NOT TO CONTROVERT THESE UNDISPUTED FACTS THAT ISSUE IS COV ERED BY THE DECISION OF THE ITAT AS REFERRED ABOVE. 15. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE DECISION OF ITAT ON THE SIMILAR ISSUE AND IDENTICAL FACTS AND NOTICED THAT VIDE ITA NO. 1548/AHD/2012 THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION IS GIV EN AT PARA NO. 51 & 52 OF THE ITAT IS REPRODUCED AS UNDER: - 51. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY, IN THE CASE OF ACIT VS. ELECON ENGINEERING (SUPRA), THE HON'BLE SU PREME COURT HAS CONSIDERED THE SCOPE OF SECTION 43A AND OBSERVED THAT WHERE THE ASSESSEE HA S ACQUIRED ASSET OUTSIDE INDIA FOR THE PURPOSE OF HIS BUSINESS, AND THAT ASSET WAS ACQUIRED BY BOR ROWED FUNDS, THE AMOUNT BY WHICH THE LIABILITY STOOD INCREASED OR REDUCED ON ACCOUNT OF FOREIGN EX CHANGE RATE DURING THE PREVIOUS YEAR, THEY BE ADDED TO OR DEDUCTED FROM THE ACTUAL COST OF THE AS SET AS DEFINED IN SECTION 43(1) OF THE INCOME TAX ACT. THE OBSERVATION OF THE HON'BLE SUPREME COU RT HAS BEEN NOTICED BY THE ID.CIT(A) WHILE TAKING NOTE OF ASSESSEE'S SUBMISSIONS ON PAGE NO.49 OF THE IMPUGNED ORDER. THE OBSERVATION OF THE HON'BLE SUPREME COURT READS AS UNDER: '9. SECTION 43 A, BEFORE ITS SUBSTITUTION BY A NEW SECTION 43 A VIDE FINANCE ACT, 2002, WAS INSERTED BY FINANCE ACT, 1967 WITH EFFECT FROM 1-4-1967, AFTER THE DEVALUATION OF THE RUPEE ON 6-6-1966. IT APPLIED WHERE AS A RESULT OF CHANGE IN THE RATE OF EXCHANGE THERE WAS AN INCREASE OR REDUCTION IN THE LIABILITY OF TH E ASSESSEE IN TERMS OF THE INDIAN RUPEE TO PAY THE PRICE OF ANY ASSET PAYABLE IN FOREIGN EX CHANGE OR TO REPAY MONEYS BORROWED IN FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF AC QUIRING AN ASSET. THE SECTION HAS NO APPLICATION UNLESS AN ASSET WAS ACQUIRED AND THE LI ABILITY EXISTED, BEFORE CHANGE IN THE RATE OF EXCHANGE. WHEN THE ASSESSEE BUYS AN ASSET A T A PRICE, ITS LIABILITY TO PAY THE SAME ARISES SIMULTANEOUSLY. THIS LIABILITY CAN INCREASE ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE. AN ASSESSEE WHO BECOMES THE OWNER OF AN A SSET (MACHINERY) AND STARTS USING THE SAME, IT BECOMES ENTITLED TO DEPRECIATION ALLOW ANCE. TO WORK OUT THE AMOUNT OF DEPRECIATION, ONE HAS TO LOOK TO THE COST OF THE AS SET IN RESPECT OF WHICH DEPRECIATION IS I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 12 CLAIMED. SECTION 43A WAS INTRODUCED TO MITIGATE HAR DSHIPS WHICH WERE LIKELY TO BE CAUSED AS A RESULT OF FLUCTUATION IN THE RATE OF EX CHANGE. SECTION 43A LAYS DOWN, FIRSTLY, THAT THE INCREASE OR DECREASE IN LIABILITY SHOULD B E TAKEN INTO ACCOUNT TO MODIFY THE FIGURE OF ACTUAL COST AND, SECONDLY, SUCH ADJUSTMENT SHOUL D BE MADE IN THE YEAR IN WHICH THE INCREASE OR DECREASE IN LIABILITY ARISES ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE. IT IS FOR THIS REASON THAT THOUGH SECTION 43A BEGIN S WITH A NON OBSTANTE CLAUSE, IT MAKES SECTION 43(1) ITS INTEGRAL PART. THIS IS BECAUSE SE CTION 43A REQUIRES THE COST TO BE RECOMPUTED IN TERMS OF SECTION 43AFOR THE PURPOSES OF DEPRECIATION [SECTIONS 32 AND 43(1)]. A PERUSAL OF SECTION 43A MAKES IT CLEAR THA T INSOFAR AS THE DEPRECIATION IS CONCERNED, IT HAS TO BE A/LOWED ON THE ACTUAL COST OF THE ASSET, LESS DEPRECIATION THAT WAS ACTUALLY A/LOWED IN RESPECT OF EARLIER YEARS. HOWEV ER, WHERE THE COST OF THE ASSET SUBSEQUENTLY INCREASED ON ACCOUNT OF DEVALUATION, T HE WRITTEN DOWN VALUE OF THE ASSET HAS TO BE TAKEN ON THE BASIS OF THE INCREASED COST MINU S THE DEPRECIATION EARLIER ALLOWED ON THE BASIS OF THE OLD COST. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. UNDER SECTION 43A, AS IT STOOD AT THE RELEVANT TIME, IT WAS INTER ALIA PR OVIDED THAT WHERE AN ASSESSEE HAD ACQUIRED AN ASSET FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSINESS, AND IN CONSEQUENCE OF A CHANGE IN THE RATE OF EXCHANGE AT ANY TIME AFTER SUCH ACQUISITION, THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRESSED IN INDIAN CURRENCY FOR MAKING PAYMENT TOWARDS THE WHOLE OR PART OF THE COST OF THE ASSET OR FOR REPAYMENT OF THE WHOLE OR PART OF THE MONEYS BORROWED BY HIM FOR THE PURPOSE OF ACQUIRING THE ASSET, THE AMOUNT BY WHICH THE LIABILITY STOOD INCREASED O R REDUCED DURING THE PREVIOUS YEAR SHALL BE ADDED TO OR DEDUCTED FROM THE ACTUAL COST OF THE ASSET AS DEFINED IN SECTION 43(1).' 52. THE ISSUE IN DISPUTE BEFORE US SQUARELY COVERED BY THE ABOVE PREPOSITION. IN VIEW OF THE ABOVE DECISION, WE DO NOT FIND ANY MERIT IN THIS GROUND O F APPEAL. IT IS REJECTED. WE HAVE ALSO GONE THROUGH THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF THE ASSESSEE ITSELF ON THE IDENTICAL ISSUE. THE RELEVANT PART OF THE DECISION VIDE TAX APPEAL NO. 2 68 OF 2017 IS DISCUSSED AS UNDER:- 10. NOW SO FAR AS IMPUGNED ORDER PASSED BY THE LEA RNED TRIBUNAL IN DELETING THE DISALLOWANCE OF RS. 39,48,81,350/- = INCURRED TOWAR DS FOREIGN EXCHANGE GAIN IS CONCERNED, AT THE OUTSET, IT IS REQUIRED TO BE NOTED THAT THE MONEY W AS BORROWED BY THE ASSESSEE IN FOREIGN EXCHANGE FOR THE PURPOSE OF EXPANDING ITS BUSINESS AND MAKIN G INVESTMENT. THEREFORE, AS RIGHTLY OBSERVED BY THE LEARNED CIT(A) AS WELL AS THE LEARNED TRIBUN AL, THE PURPOSE WAS, ON CAPITAL ACCOUNT AND ANY EXCHANGE FLUCTUATION RESULTING INTO PROFIT OR L OSS SHOULD BE TREATED ON CAPITAL ACCOUNT AND ADJUSTED FROM THE COST OF THE ASSET, BUT IT CANNOT HAVE ANY IMPACT ON THE REVENUE ACCOUNT. AT THIS STAGE, IT IS REQUIRED TO BE NOTED THAT IN THE CASE OF THE VERY ASSESSEE, THE ASSESSEE HAD INCURRED LOS S IN THE SAME ACCOUNT IN THE EARLIER ASSESSMENT YEARS AS WELL AS SUBSEQUENT ASSESSMENT YEAR AND THE TREATMENT GIVEN BY THE ASSESSEE HAS BEEN ACCEPT ED. THEREFORE, THE LEANED CIT(A) AS WELL AS THE TRIBUNAL HAS RIGHTLY DELETED THE DISALLOWANCE O F RS. 39,48,81,350/- = MADE ON ACCOUNT OF FOREIGN GAIN. EVEN OTHERWISE, THE ISSUE INVOLVED I N THE PRESENT TAX APPEAL IS SQUARELY ANSWERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF ACIT V. ELECON ENGINEERING COMPANY LIMITED, REPORTED IN 189 TAXMANN 83 [2010] 10.1 AT THIS STAGE, DECISION OF DIVISION BENCH OF THIS COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME-TAX V. INDIA GELATINE & CHEM ICALS LIMITED, [2015] 376 ITR 553 [GUJ] NEEDS A REFERENCE WHERE THE DIVISION BENCH HAS HELD AND OBSERVED THAT WHEN THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS OUT OF WHICH CONCERN ED INVESTMENTS HAD BEEN MADE, DISALLOWANCE UNDER SECTION 14A OF THE ACT IS NOT JUSTIFIED. I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 13 11. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTAN CES, IT CANNOT BE SAID THAT THE LEARNED TRIBUNAL HAS COMMITTED ANY ERROR IN DELETING THE DISALLOWANC E OF EXPENDITURE OF RS. 39,48,81,350/- INCURRED TOWARDS FOREIGN EXCHANGE GAIN. WE CONCUR WITH THE FINDINGS RECORDED BY THE LEARNED CIT(A) AS WELL AS TRIBUNAL. NO SUBSTANTIAL QUESTIO N OF LAW ARISES. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT AND THE FINDINGS OF HONBLE JURISDICTIONAL GUJARAT HIGH COU RT IN THE CASES OF THE ASSESSEE ITSELF AS SUPRA ON THE IDENTICAL ISSUE ON SAME FACTS WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE THEREFORE SA ME STANDS DISMISSED. ITA NO. 2702/AHD/2014 A.Y. 2011-12 FILED BY ASSESSE E 16. THE GROUND NOS. 1 TO 3 ARE NOT PRESSED, THER EFORE, THE SAME STANDS DISMISSED AS NOT PRESSED. GROUND NO. 5 (ADDITION OF RS. 4,29,414/- FOR LATE CONTRIBUTION TO ESIC) 17. DURING THE COURSE OF ASSESSMENT , THE ASS ESSING OFFICER NOTICED THAT ASSESSEE HAS MADE DELAY IN DEPOSITING EMPLOYEES CO NTRIBUTION TOWARDS PF AND ESIC, THEREFORE, AN AMOUNT OF RS. 5,79,319/- WA S DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 36(I)(VA) AND SECTION 2(2 2)(X) OF THE ACT. 18. THE LD. CIT(A) HAS SUSTAINED THE ADDITION AF TER FOLLOWING THE DECISION HONBLE JURISDICTIONAL GUJARAT HIGH COURT IN THE CA SE OF GUJARAT STATE ROAD TRANSPORT CORPORATION. 19. HEARD BOTH THE SIDES. IN VIEW OF THE DECIS ION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT C ORPORATION (2014) 41 TAXMAN.COM 100, WE DO NOT FIND ANY MERIT IN THE APP EAL OF THE ASSESSEE AND THE SAME STANDS DISMISSED. I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 14 ITA NO. 1416/AHD/2018 A.Y. 2013-14 FILED BY REVENUE GROUND NO. 1 (ALLOWING THE DEDUCTION U/S. 80IC OF T HE ACT OF RS. 11,37,41,397/- ) 20. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 1 VIDE ITA NO. 2786/AHD/2014 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1416/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2786/AHD/2014 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 2 (DELETING THE DISALLOWANCE OF RS. 22,6 1,28,325/-U/S. 14A AND RESTRICTING THE SAME TO THE EXTENT OF EXEMPT IN COME) 21. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 2 VIDE ITA NO. 2786/AHD/2014 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1416/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2786/AHD/2014 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 3 (DELETING THE ADDITION OF RS. 65,77,11 3/- ON ACCOUNT OF FOREX GAIN U/S. 43A OF THE ACT) 22. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 3 VIDE ITA NO. 2786/AHD/2014 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1416/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 15 2786/AHD/2014 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. ITA NO. 1417/AHD/2018 A.Y. 2014-15 FILED BY REVENUE GROUND NO. 1 (ALLOWING THE DEDUCTION U/S. 80IC OF T HE ACT OF RS. 2,33,56,462/- ) 23. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 1 VIDE ITA NO. 2786/AHD/2014 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1417/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2786/AHD/2014 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 2 (DELETING THE DISALLOWANCE OF RS. 38,9 1,06,367/-U/S. 14A AND RESTRICTING THE SAME TO THE EXTENT OF EXEMPT IN COME) 24. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 2 VIDE ITA NO. 2786/AHD/2014 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1417/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2786/AHD/2014 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 3 (DELETING THE ADDITION OF RS. 38,91,06 ,367/- U/S. 14A) I.T.A NOS. 2786, 2702/AHD/2014 & 1416, 1417/AHD/201 8 PAGE NO DCIT VS. SINTEX INDUSTRIES LTD. 16 25. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. .... VIDE ITA NO. 2786/AHD/2014 ASSESSMENT YEAR 2011-12 ARE SIMIL AR AS IN ITA NO. 1416/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2786/AHD/2014 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. 26. IN THE RESULT, APPEAL ITAS 2786/AHD/2014, 1416 /AHD/2018, AND 1417/AHD/2018 FILED BY REVENUE ARE DISMISSED AND AP PEAL ITA NO. 2702/AHD/2014 FILED BY ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08-04-2021 SD/- SD/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 08/04/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,