ACIT, CHENNAI V. M/s. Kaleesuwari Refinery Pvt. Ltd., CHENNAI

ITA 2928/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6016 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 14-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S NATARAJA
• Assessee Lawyers: G BASKAR
• Keywords: Business income; Revision of order; Business expenditure; Cost of acquisition; Revenue expenditure
• Section: 14A; 37(1); 37; 263; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NOS. 2927 &2928/MDS/2016 / ASSESSMENT YEARS : 2007-08 & 2011-12 ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -2(4), INVESTIGATION WING, 46, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034. VS. M/S. KALEESUWARI REFINERY PVT. LTD., NO. 53, RAJASEKARAN STREET, MYLAPORE, CHENNAI 600 004. [PAN: AAACK 6087A] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI. S. NATARAJA, JCIT )*% & / RESPONDENT BY : SHRI. G. BASKAR, ADVOCATE & /DATE OF HEARING : 06.07.2017 & /DATE OF PRONOUNCEMENT : 05.10.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS IN ITA NOS. 2927 & 2928 /MDS/2016 AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TA X (APPEALS)- 18, CHENNAI IN ITA NOS. 728 & 729/2015-16 DATED 28.07.2016 FOR ASSESSMENT YEARS 2007- 08 & 2011-12 , RESPECTIVELY. :-2-: ITA NOS. 2927 & 2928/MDS/2016 2. THE ASSESSEE, M/S KALEESUWARI REFINERY PVT. LTD , IS A MANUFACTURER OF EDIBLE OIL. THEY ARE ENGAGED IN PROVIDING CLEARING AND FORWARDING SERVICES TO OTHER MANUFACTURER OF EDIBLE OIL FOR WHICH THEY HAV E REGISTERED THEMSELVES AS CLEARING AND FORWARDING AGENT. CONSEQUENT TO AN A CTION U/S 263 FOR AY 2007-08, THE AO HAD EXAMINED THE ISSUE IN THE NOTE ATTACHED TO THE AUDIT REPORT ALONG WITH THE RETURN THAT 'AN AMOUNT OF RS . 1,83,04,644/- BEING THE BALANCE IN SERVICE TAX SET OFF ACCOUNT (STA) AS ON 31-03-2007, HAS BEEN CHARGED TO THE P&L ACCOUNT OF THE YEAR, SINCE THE S AME WAS NOT AVAILABLE FOR FUTURE UTILIZATION IN THE ABSENCE OF CLARITY OF STA TUTORY RULES', AFRESH AND AFTER CONSIDERING THE DETAILS, ASSESSEES EXPLANATION ETC ., REJECTED ASSESSEES CLAIM AND ADDED RS. 1,83,04,644/-. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) ALLOWED THE ASSESSEES APPEAL. AGAINST THE CIT (A) ORDER, THE REVENUE FILED THE AP PEAL IN ITA 2927 /MDS/2016 . 3. THE REVENUES GROUNDS OF APPEAL FOR THE AY 2007- 08 ARE EXTRACTED AS UNDER : 2. THE LEARNED CIT (A) IS NOT JUSTIFIED IN DIRECTIN G THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF SERVICE TAX WRITTEN OF AND CHAR GED TO P&L ACCOUNT AMOUNTING TO RS. 1,83,04,644/- MADE BY HIM IN THE ASSESSMENT FOR AY 2007-08 IN THE ASSESSEE'S CASE. 2.1 THE LEARNED CIT CA) HAVING R LIED ON THE DECISI ON OF THE HON'BLE ITAT, HYDERABAD IN THE CASE OF M/S NE DISTILLERIES P. LTD . VS ITO WARD 16(2) OUGHT TO HAVE APPRECIATED THAT T E FACTS OF THE CASE DISCUSSED IN THAT DECISION ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE, IN AS MUCH AS IN THE CASE OF MI5 :-3-: ITA NOS. 2927 & 2928/MDS/2016 NCS DISTILLERIES P. LTD, THE BUSINESS WERE CLOSED A ND DIVESTED OFF WHEREAS IN THE PRESENT ASSESSEE'S CASE, IT IS VERY MUCH A GOING CO NCERN. 2.2 THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED T HAT THE CLAIM OF WRITE OFF OF SERVICE TAX SET OFF WAS RIGHTLY DISALLOWED BY THE ASS ESSING OFFICER, AS THE SAID AMOUNTS WERE NOT OFFERED S TAXABLE RECEIPTS IN ANY OF THE PREVIOUS YEARS. 3. FOR THIS GROUNDS AND FOR ANY OTHER GROUNDS INCLU DING AMENDMENT THAT MAY BE RAISED DURING THE COURSE OF THE APPEAL PROCEEDINGS, THE ORDER OF LEARNED CIT (APPEALS) MAY BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 4. THE FOLLOWING PORTION OF THE ORDER OF THE CIT ( A) BRINGS THE ISSUE IN DETAIL AND THE ASSESSEES SUBMISSIONS ON IT AND HEN CE EXTRACTED AS UNDER: 5. 1. 2. THE APPELLANT IS A MANUFACTURER OF EDIBLE OIL, WH ICH IS MARKETED UNDER ITS BRAND NAME 'GOLD WINNER'.'. TILL 28-02-2005, THE APPELLAN T WAS PAYING CENTRAL EXCISE ON ITS MANUFACTURED GOODS AND SERVICE TAX ON C&F COMMIS SION, FREIGHT, ADVERTISEMENT, REPAIRS & MAINTENANCE, CONSULTANCY, TELEPHONE CHARGES, INSURANCE, STORAGE TANK, RENTS, BROKERAGE ETC. AFTER AVAILING THE SERVICE TAX COMPONENT ON INPUT RAW MATERIALS AND INPUT SERVICES . FOR THIS PURPOSE, THE APPELLANT HAS BEEN SEPARATING THE SERVICE TAX & CENT RAL EXCISE ON SUCH INPUT COMPONENTS AND CREDITING THEM TO THE STA ACCOUNT AFO RESAID. IT IS TO BE CAREFULLY NOTED THAT THE SUM CREDITED TO THE STA IS AN ITEM O F EXPENDITURE ACTUALLY INCURRED FOR THE PURPOSE OF THE APPELLANT'S BUSINESS. INSTEAD OF CLAIMING THE EXPENDITURE AT THE POINT OF INCURRING THE SAME, THE CLAIM WAS DEFERR ED ON ACCOUNT OF THE APPLICABILITY OF THE STATUTORY PROVISION PERMITTING FOR AVAILING CREDIT FROM THIS ACCOUNT AGAINST PAYMENT OF DUTY/SERVICE TAX ON MANU FACTURED GOODS AND OUTPUT SERVICES. THE BALANCE REMAINING UN-UTILIZED TO THE CREDIT OF THIS ACCOUNT AT THE CLOSE OF THE FY, WAS TAKEN TO THE BALANCE SHEET, ON THE ASS ET SIDE, FOR UTILIZATION IN THE SUCCEEDING YEARS. CENTRAL EXCISE ON EDIBLE OIL WAS DISCONTINUED FROM 01-03- 2005. THEREFORE, THE APPELLANT WAS AVAILING CREDIT IN THE PLA ACCOUNT AGAINST THE EXCISE DUTY ON CERTAIN BY PRODUCTS MANUFACTURED BY IT AND A LSO AGAINST THE SERVICE TAX PAYABLE ON THE C&F COMMISSION. AS A RESULT OF THE W ITHDRAWAL OF DUTY ON EDIBLE OIL, THE SCOPE FOR AVAILING CREDIT FROM THE PLA ACCOUNT D IMINISHED TO A GREAT EXTENT. :-4-: ITA NOS. 2927 & 2928/MDS/2016 THIS WAS FURTHER COMPOUNDED BY THE OBJECTION RAISED THE SERVICE TAX DEPARTMENT AGAINST AVAILING OF CREDIT OF SERVICE TAX COMPONENT O N ADVERTISEMENT & INSURANCE AGAINST SERVICE TAX PAYABLE ON C&F COMMISSION. THE REASON FOR THIS OBJECTION IS THAT, THE EXPENDITURE INCURRED ON ADVERTISEMENT AND INSURANCE RELATED ALMOST ENTIRELY TO ITS MANUFACTURED GOODS AND THEREFORE HAD NO NEXUS TO THE APPELLANT'S C&F ACTIVITY. 3. FROM 10-09-2004, CENVAT CREDIT RULES 2004(CCR), IS APPLICABLE TO BOTH SERVICE TAX CREDIT AND CENVAT CREDIT. AS PER RULE 6(1) OF C CR 2004, THE CENVAT CREDIT SHALL NOT BE ALLOWED ON SUCH QUANTITY OF INPUT OR I NPUT SERVICES WHICH IS USED IN THE MANUFACTURE OF EXEMPTED GOODS OR FOR PROVISION OF EXEM PTED SERVICES, EXCEPT IN THE CIRCUMSTANCES MENTIONED IN SUB-RULE (2). SUB-RU LE (2), MANDATES THAT, A MANUFACTURER OR PROVIDER OF OUTPUT SERVICES, MANUFACT URING FINAL PRODUCTS OR PROVIDING OUTPUT SERVICES, WHICH ARE BOTH CHARGEABL E TO DUTY OR TAX AS WELL AS EXEMPTED GOODS OR SERVICES, SHALL MAINTAIN SEPARATE ACCOUNTS, AS REGARDS CONSUMPTION OF INPUT AND INPUT SERVICES MEANT FOR DUT IABLE GOODS OR TAXABLE SERVICES AND EXEMPTED GOODS AND EXEMPTED SERVICES, AND CAN AVAIL CENVAT CREDIT ONLY ON THAT QUANTITY OF INPUT OR INPUT SERVICES USE D IN THE MANUFACTURE OF DUTIABLE GOODS OR PROVIDING TAXABLE SERVICES_ SINCE THE APPEL LANT IS ENGAGED IN MANUFACTURE OF DUTIABLE AND EXEMPTED GOODS, AS PER RULE 6(2) OF T HE CCR IT WAS REQUIRED TO MAINTAIN SEPARATE ACCOUNTS, TO AVAIL SERVICE TAX AN D CENVAT CREDIT. SINCE THE APPELLANT HAD TAKEN THE STAND THAT IT HAD NOT USED ANY OF INPUT SERVICES FOR THE MANUFACTURE OF THE FINAL PRODUCT, DIRECTLY OR INDIRECT LY, IT HAD NOT MAINTAINED SEPARATE ACCOUNTS, AS ENVISAGED UNDER SUB-RULE (2), AFORESAID. THIS WAS DISPUTED BY THE SERVICE TAX DEPARTMENT. AS MENTIONED IN PARA. 3, THE DEPARTMENT'S VIEW IS THAT EXPENDITURE ON ADVERTISEMENT AND INSURANCE ALM OST ENTIRELY RELATED ONLY TO THE EDIBLE OIL MANUFACTURED BY THE APPELLANT AND MAR KETED UNDER ITS BRAND NAME 'GOLDWINNER' AND HENCE, HAD NO RELATION TO ITS C&F ACTIVITY. IT IS PRECISELY FOR THIS REASON THAT THE SERVICE TAX DEPARTMENT HAD ISSUED SH OW CAUSE NOTICES TO THE APPELLANT (NOTICES NO.16 & 19 OF 2005), PROPOSING O F WITHDRAWAL OF SERVICE TAX AND CENVAT CREDIT AVAILED BY IT AND LATER, PASSED AN AD JUDICATION ORDER ACCORDINGLY. 4. HAVING EXAMINED THE RULES RELATING TO THE CLAIM OF SERVICE TAX CREDIT AND THE DEPARTMENT'S VIEW ON THIS MATTER, THE RATIONALE FOR CLAIMING THE SUM OF RS.1,83,04,644/- IS DISCUSSED HERE. FOR THIS PURPOS E, AN EXTRACT OF THE SERVICE TAX SET-OFF ACCOUNT FOR THE PERIOD 01-06-2003 TO 31-03-200 7 IS ENCLOSED. THE EXTRACT SHOWS, YEAR WISE EXPENDITURE ON VARIOUS ITEMS OF IN PUT SERVICES, THE AMOUNT OF :-5-: ITA NOS. 2927 & 2928/MDS/2016 SERVICE TAX COMPONENT THEREIN TAKEN TO THE BALANCE SHEET, CREDIT AVAILED & UTILIZED AS PER THE CCR, CREDIT DISALLOWED BY THE SERVICE TAX DEPARTMENT AS PER THEIR ADJUDICATION ORDER, UNDISPUTED CREDIT U/S 6(V) AND BALANCE CLAIMED FOR THIS ASSESSMENT YEAR. A SUMMARY OF THE 'EXTRACT' IS GIVE N BELOW: PARTICULARS AMOUNT (RS.) SERVICE TAX CREDITED AVAILED FOR THE PERIOD 01.06.2003 TO 31.03.2007, U/R/ 6(V) OF CCR 10,07,137 SERVICE TAX AVAILED FOR ABOVE PERIOD, OTHER THAN U/R6(V) 2,56,40,549 TOTAL CREDIT AVAILED 2,66,47,686 LESS: CREDIT UTILIZED IN FY 05 - 06 20,32,705 CREDIT UTILIZED IN FY 06 - 07 3,01,785 CREDIT UTILIZED AGAINST EXCISE LIABILITY IN FY 06-07 1,01,218 SUB - TOTAL 24,35,708 BALANCE YET TO BE UTILIZED 2,42,11,978 LESS: CREDIT WITHDRAWN AS PER THE ADJUDICATION ORDER & PENDING IN APPEAL 49,00,197 UNDISPUTED CREDIT U/R 6(V) 10,07,137 SUB - TOTAL 59 07 334 BALANCE CLAIMED IN AY 2007 - 08 1,83,04,644 IT CAN BE SEEN FROM THE EXTRACT OF THE STA ENCLOSED , THAT MAJOR PORTION OF THE SERVICE TAX CREDIT IS FROM ADVERTISEMENT & INSURANCE . IN RESPECT OF THESE TWO ITEMS, THE SERVICE TAX DEPARTMENT HAD ALREADY HELD THAT, TH E APPELLANT'S CLAIM FOR TAKING CREDIT AGAINST C&F SERVICE TAX LIABILITY IS AGAINST THE PROVISIONS OF CCR. THE APPELLANT'S SERVICE TAX LIABILITY IS ENTIRELY ON C& F SERVICES. WITH THE WITHDRAWAL OF DUTY ON EDIBLE OIL, PAYMENT OF DUTY HAD DIMINISHED T O A LARGE EXTENT. IT CAN BE NOTICED THAT IN FY 2006-07, THE APPELLANT HAD PAID ONLY A SUM OF RS.1,01,218/- ON THE BYPRODUCTS. ONLY IN RESPECT OF SERVICES FALLING U/S 6(V), CREDIT CAN BE AVAILED, AGAINST DUTY PAYABLE ON BYPRODUCTS AND AGAINST SERV ICE TAX PAYABLE ON C&F SERVICES. THIS IS CLEARLY AS PER THE PROVISIONS OF C CR AND IS ALSO NOT DISPUTED BY THE DEPARTMENT. AS REGARDS OTHER ITEMS, INCLUDING ADVER TISEMENT AND INSURANCE, CREDIT CAN BE AVAILED ONLY AGAINST DUTY PAYABLE ON BYPRODU CTS. THIS ESPECIALLY SO, AS PER THE DECISION OF THE SERVICE TAX DEPARTMENT AND DIFFICU LTY IN ESTABLISHING THEIR NEXUS :-6-: ITA NOS. 2927 & 2928/MDS/2016 TO C&F SERVICES. FURTHER, THE APPELLANT HAD ALSO NO T MAINTAINED ANY SEPARATE REGISTER AS PER CCR. IT IS ON THIS BASIS, THE APPEL LANT HAD CLAIMED THE ABOVE EXPENDITURE, LEAVING OUT THE UNDISPUTED AND DISPUTE D PORTIONS. FURTHER IT CAN BE SEEN THAT, SINCE ONLY A VERY SMALL AMOUNT IS PAID A S EXCISE DUTY ON BYPRODUCTS, IT IS NEARLY IMPOSSIBLE TO AVAIL THE CREDIT AGAINST THE S ERVICE TAX COMPONENT ON ITEMS OTHER THAN U/R 6(V). THEREFORE, THE AO IS ENTIRELY I N FAULT IN HIS OBSERVATION THAT THERE WAS NO RATIONALE IN THE APPELLANT'S CLAIM. 5. THOUGH THE APPELLANT HAD CONTESTED THE DECISION OF THE SERVICE TAX DEPARTMENT, EVEN WHEN THE APPEAL IS DECIDED IN ITS FAVOR, THE E XPENDITURE OF RS. 49,00,194/- DEFERRED IS REQUIRED TO BE CLAIMED ENTIRELY IN THE Y EAR OF RECEIPT OF THE APPELLATE ORDER, IN VIEW OF THE SLOW PACE OF ITS RECOUPMENT BY WAY OF DUTY ON BYPRODUCTS AND/OR SERVICE TAX ON C&F SERVICES. AN IMPORTANT AS PECT MISSED OUT BY THE AO IS THAT, THE APPELLANT HAD ALREADY INCURRED THESE EXPE NDITURES. THEY WERE ALSO INCURRED FOR THE PURPOSE OF THE APPELLANT'S BUSINES S. THESE FACTS HAVE NOT BEEN DISPUTED BY THE AO. THE REASON WHY THE APPELLANT HA D NOT CLAIMED THE EXPENDITURE AT THE POINT OF THEIR INCURRING HAS ALREADY BEEN EXP LAINED. IT IS COMMON KNOWLEDGE THAT DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY REV ENUE IN NATURE, THOUGH IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OVER A PERIOD OF TIME FOR VARIOUS REASONS LIKE QUANTUM AND EXPECTED FUTURE BENEFIT. FUTILITY OF DEFE RRING THE EXPENDITURE ANY FURTHER HAS BEEN CLEARLY EXPLAINED IN THE EARLIER PA RAGRAPHS. THEREFORE, THE APPELLANT'S RIGHT TO CLAIM THE EXPENDITURE U/S 37 R EMAIN UNAFFECTED. THE APPELLANT HAD ALSO EXPLAINED WHY THE EXPENDITURE DEFERRED HAS BEEN CLAIMED IN THIS AY. THOUGH THE ISSUE WAS RAISED BY THE SERVICE TAX DEPAR TMENT DURING FY 2005- 06, A CLEAR PICTURE REGARDING INCORRECTNESS OF THE APPELLA NT'S CLAIM EMERGED ONLY DURING FY 2006-07, WHEN THE SHOW-CAUSE NOTICE ISSUED BY TH E DEPARTMENT WAS TAKEN UP FOR DISCUSSION. FURTHER, THE APPELLANT'S LEGAL ADVIS OR ALSO SUBSCRIBED TO THE SAME VIEW TAKEN BY THE DEPARTMENT. IT MAY BE MENTIONED H ERE THAT IN THE APPEAL, THE DECISION IS CONTESTED MORE ON TECHNICAL ASPECTS, ES PECIALLY IN THE MATTER OF THE TRANSITIONAL CREDIT OF RS. 39,09,242/- EMBEDDED IN R S.49,00,194/-, AND REMAINING AS CREDIT IN THE STA PRIOR TO CCR2004. IN VIEW OF T HE CLARITY EMERGING ON THIS ISSUE COUPLED WITH THE LEGAL ADVICE GOT FROM THE APPELLANT 'S LEGAL ADVISOR, DURING THIS FY 2006- 07, THE CLAIM WAS ACCORDINGLY MADE. 6. THE AO'S UNDERSTANDING THAT THE APPELLANT HAD DE VIATED FROM THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY IT IS TOTALLY INCOR RECT. AS EXPLAINED EARLIER, WHEN THERE WAS NO MORE BENEFIT IN DEFERRING THE EXPENDITU RE, IN VIEW OF THE CHANGE IN :-7-: ITA NOS. 2927 & 2928/MDS/2016 LAW AND THE PERCEPTION OF THE DEPARTMENT ON THE APP ELLANT'S UNDERSTANDING ON THE SAME, THE APPELLANT DECIDED TO CLAIM THE EXPENDITUR E FOR THE ABOVE ASSESSMENT YEAR. THIS WAS A BONA FIDE DECISION TAKEN AFTER CONSI DERING VARIOUS FACTORS DISCUSSED IN THE EARLIER PARAGRAPHS, INCLUDING THE OPINION OF THE APPELLANT'S LEGAL ADVISOR. IT IS A SETTLED LAW THAT BUSINESS INCOME H AS TO BE COMPUTED UNDER ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTANCY, NO DOUBT, IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 28 TO 44 OF THE IT ACT. THE DECISION TO CLAIM THE EXPENDITURE IN THIS AY WAS NOT A WHIMSICAL ONE AS ASSUMED BY THE AO, BUT, WAS ON CAREFUL CONSIDERATION OF VARIOUS FACTORS, NONE OF WHICH HAVE BEEN FOUND BY T HE AO AS NOT BONAFIDE OR ARBITRARY. JUST BECAUSE THE APPELLANT HAD CONTESTED THE DECISION OF THE SERVICE TAX DEPARTMENT IT DOES NOT IN ANY WAY ALTER THE POSITIO N TAKEN BY THE APPELLANT, CONSIDERING THE OTHER FACTORS DISCUSSED IN THE PREVI OUS PARAGRAPHS. FURTHER A LIABILITY ONCE ATTRACTED BY AN ORDER PASSED BY A STA TUTORY AUTHORITY WOULD NOT CEASE TO BE LIABILITY MERELY BECAUSE OF IT IS CONTESTED I N APPEAL (KEDARNATH JUTE MFG. CO. LTD. 82 ITR 363 S.C.). FINALLY, IN ADDITION TO THE D ECISION OF THE CHANDIGARH ITAT IN THE CASE OF MOHAN SPINNING MILLS V ACIT REPORTED IN ( 2012) 148 TTJ (CHD) (UO) 6, THE APPELLANT ALSO WISHES TO RELY ON THE DECISION O F THE MADRAS HC IN THE CASE OF CIT V TEX TOOL COMPANY LTD [135 ITR 200] AND ON THE DECISION OF THE AMRITSAR ITAT IN THE CASE OF TRG INDUSTRIES PVT. LTD V DCIT [2013] 59 SOT 0064. IN THE FORMER CASE, THE ASSESSEE WAS IMPORTING AND PAID PRE MIUM THAT WAS FORFEITED ON ACCOUNT OF NON-UTILIZATION. CLAIM OF THIS PREMIUM FOR FEITED WAS HELD ALLOWABLE. IN THE OTHER CASE, THE ASSESSEE HAD PURCHASED QUOTA FOR A LIMITED PERIOD OF THREE YEARS FOR ITS BUSINESS PURPOSE. THE ASSESSEE COULD NOT FULLY UTILIZE THE QUOTA WITHIN THE PERIOD. IT WAS HELD THAT THE BALANCE UNUTILIZED AMOUNT LYING IN THE QUOTA ACCOUNT WAS ALLOWABLE AS BUSINESS EXPENDITURE. IN VIEW OF THE ABOVE STATED SUBMISSIONS, IT IS PRAYE D TO DELETE THE DISALLOWANCE OF RS.1,83,04,644 BEING THE BALANCE IN SERVICE TAX SET-O FF ACCOUNT, BE WRITTEN OFF. 5. DURING APPELLATE PROCEEDINGS, THE AR RELIED ON THE HON'BLE ITAT (HYDERABAD A BENCH) DECISION IN ITA NO.699/HYD/20 12 RENDERED IN THE CASE OF M/S. NCS DISTILLERIES (P) LTD., V. ITO, WARD 16( 2) HYDERABAD. THE CIT (A) HAS EXTRACTED AS UNDER: :-8-: ITA NOS. 2927 & 2928/MDS/2016 'THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RECTIFIE D SPIRIT. IT CLAIMED AN AMOUNT OF RS.1,20,62,472 IN THE P&L ACCOUNT AS WRIT E-OFF OF THE OUTSTANDING UNUTILIZED CENVAT CREDIT AVAILABLE IN ITS BOOKS OF ACCOUNTS. ASSESSING OFFICER IN THE COURSE OF SCRUTINY OF THE ASSESSMENT DID NOT ALLOW DEDUCTION BY STATING AS UNDER: '3. THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS.1,2 0,62,472/- TOWARDS CENVAT RECEIVABLE WRITTEN OFF AND MADE IT A CHARGE O N THE PROFIT AND LOSS ACCOUNT. SINCE THE AMOUNT INVOLVED IS A STATUTORY AMOUNT, VID E SHOW CAUSE DT.13.12.2010, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMO UNT WRITTEN OFF SHOULD NOT BE DISALLOWED. WITH REGARD TO THIS, THE ASSESSEE VIDE ITS LETTER DATED 16.12.2010 SUBMITTED AS UNDER: IT IS TRUE THAT WE HAVE WRITTEN OFF A SUM OF RS.120. 62 LACS TOWARDS CENVAT RECEIVABLES. WE HAVE WRITTEN OFF THIS AMOUNT SINCE W E HAVE NOT INCLUDED THIS IN PURCHASE COST. NORMALLY, CENVAT AMOUNT TO BE INCLUD ED IN PURCHASE COST OR IT SHOULD BE ACCOUNTED FOR FUTURE SET OFF. WE REQUEST YO U TO CONSIDER OUR WRITING OFF THESE CENVAT RECEIVABLES IS IN ORDER.' THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD HAVE BEEN EXAMINED. THE SUBMISSION OF THE ASSESSEE THAT THE AMOUNT IS WRITTE N OFF SINCE IT IS NOT INCLUDED IN THE PURCHASE COST IS NOT ACCEPTABLE FOR THE REASON THAT IF DUTY IS INCLUDED IN THE PURCHASE COST, THE SAME HAS TO BE INCLUDED IN THE T URNOVER AND ALSO IN THE INVENTORY IN TERMS OF PROVISIONS OF SECTION 145A. T HIS HAS A NEUTRALIZING EFFECT. THE AMOUNT UNDER CONSIDERATION IS STATUTORY AMOUNT DUE TO THE ASSESSEE WHICH CAN BE USED TO SET OFF DUTY PAYABLE ON THE FINISHED GOODS. TH E ASSESSEE HAS NOT DEMONSTRATED AS TO HOW THE CENVAT CREDIT AVAILABLE CANNOT BE AVAILED SET OFF DURING THE YEAR SO AS TO WRITE IT OFF. UNDER THE CIRCUMSTAN CES, THE WRITING OFF OF CENVAT CREDIT DOES NOT APPEAR TO BE IN ORDER, AND THEREFOR E, THE DEDUCTION CLAIMED UNDER 'CENVAT WRITTEN OFF' IS DISALLOWED.' 3. BEFORE THE LD. CIT(A), ASSESSEE ARGUED THAT THE COMPANY IS LOOSING MONEY/CREDIT ON ACCOUNT OF RATE DIFFERENTIAL BETWEEN I NPUT AND OUTPUT EXCISE DUTY. AS THIS PHENOMENA IS GOING ON YEAR AFTER YEAR, THE I NCOMES IN THE P&L ACCOUNT WERE SHOWN EXCESS AND BEING UNREALISTIC. THE CENVAT CREDIT RECEIVABLE WHICH COULD NOT BE SET OFF WAS CLAIMED AS DEDUCTION. IT WA S FURTHER SUBMITTED THAT ASSESSEE COMPANY HAS TWO DIVISIONS VIZ., DISTILLERI ES AND PROPERTY. THE DISTILLERIES DIVISION WAS FINALLY DEMERGED AND ITS ASSETS AND LIA BILITIES ARE TRANSFERRED TO ANOTHER COMPANY W.E.F. 01.04.2008 IN A SCHEME OF AR RANGEMENT APPROVED BY THE :-9-: ITA NOS. 2927 & 2928/MDS/2016 HON'BLE HIGH COURT OF ANDHRA PRADESH. ACCORDINGLY, THE OUTSTANDING CENVAT CREDIT WAS WRITTEN-OFF IN THE BOOKS OF ACCOUNTS AS THE ASSE SSEE-COMPANY WAS 'DIVESTED OF ITS DISTILLERIES BUSINESS AND IT HAS NO FACILITY TO CLAIM ANY FURTHER CREDITAS THE BUSINESS-ITSELF WAS STOPPED. 4. LD. CIT(A), HOWEVER, DID NOT AGREE AND AFTER ANA LYZING THE CENVAT PROVISIONS CAME TO THE CONCLUSION THAT THERE ARE ON LY TWO WAYS WHICH COULD BE DEBITED TO THE P&L ACCOUNT I.E., ONE AS A BAD DEBT AND THE OTHER AS A BUSINESS EXPENSE OF THE CURRENT YEAR. HE DID NOT ALLOW IT AS A BAD DEBT ON THE REASON THAT IT IS NOT TREATED AS RECEIPT AT ALL AND ASSESSEE HAS N OT FURNISHED YEAR-WISE DETAILS OF THE AMOUNTS. WITH REFERENCE TO LOSS/CLAIM UNDER SECT ION 37(1), THE LD. CIT(A) WAS OF THE OPINION THAT THIS AMOUNT IS NOT AN EXPENSE OF THE YEAR AND SINCE THE AMOUNT IS NOT EXPENSE OF THE YEAR, THE SAME CANNOT BE ALLO WED IN THE YEAR UNDER CONSIDERATION. FOR THESE REASONS, HE REJECTED THE C LAIM. 5. BEFORE US, LD. COUNSEL SUBMITTED THAT ASSESSEE H AS WRITTEN-OFF THE AMOUNT IN THE BOOKS OF ACCOUNTS. THEREFORE, LD. CIT(A) WAS WRONG IN NOT ALLOWING IT AS BAD DEBT. EVEN OTHERWISE, THE SAME IS ALLOWABLE AS BUSI NESS LOSS. HE RELIED ON THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA P LTD., 312 ITR 254. LEARNED FURTHER A.R. RELIED ON THE FOLLOWING CASE LAWS: (I) M/S. MOHAN SPINNING MILLS VS. ACIT ITA. NO. 121 2/CHD /2011 DATED 25.04.2012 (II) GIRDHAR FIBRES P. LTD., VS. ACIT ITA.NO.2027/A HD /2009 DATED 12.10.2012. (III) ACIT VS. RANGOLI INDUSTRIES P. LTD., ITA.NO.1 936/AHD /2010 DATED 11.01.201.3 6. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND CONSIDERING THE FACTS OF THE CASE AS NARRATED BEFORE THE AUTHORITIES, IT WAS OBSERVED THAT THE AFORESAID AMOUNT OF THE EXCISE DUTY CREDIT (CENVAT CREDIT) WR ITTEN OFF WAS ALLOWABLE AS DEDUCTION. ON THIS ISSUE, COORDINATE BENCH AT CHAND IGARH IN THE CASE OF M/S.MOHAN SPINNING MILLS (SUPRA) HAS OPINED AS UNDER :- '7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RESPECT OF THE DEDUCTIO N CLAIMED ON ACCOUNT OF CENVAT AMOUNTING TO RS.35,94,577. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF YARN AND FIBRE. THE YARN MANUFACTURED BY THE ASSESSEE WAS AN EXCISABLE ITEM. THE ASSESSEE WAS PA YING EXCISE DUTY ON THE RAW MATERIAL PURCHASED I.E. ACRYLIC YARN/FIBRE AND POLYE STER YARN/FIBRE. IN TURN, ASSESSEE :-10-: ITA NOS. 2927 & 2928/MDS/2016 WAS LIABLE TO PAY DUTY ON ITS MANUFACTURED ITEMS. TH E RATE OF EXCISE DUTY PAYABLE ON THE RAW MATERIAL WAS HIGHER AND THE ASSESSEE WAS DEPOSITING THE EXCISE DUTY IN PLA ACCOUNT WHICH IN TURN WAS ADJUSTABLE AGAINST TH E EXCISE DUTY PAYABLE ON THE FINISHED PRODUCTS. THE EXCISE DUTY PAYABLE ON THE FINISHED PRODUCTS WAS ON THE LOWER SIDE AND CONSEQUENTLY OVER THE PERIOD OF YEARS THE ASSESSEE H AD CREDIT OF EXCISE DUTY RESULTING IN ACCUMULATION OF CENVAT.' '10. VARIOUS TESTS HAVE BEEN LAID DOWN BY VARIOUS H IGH COURTS AND THE APEX COURT IN RELATION TO THE ALLOWABILITY OF EXPENDITURE UNDE R SECTION 37(1) OF THE ACT WHILE COMPUTING THE INCOME FROM PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD PAID CENVAT ON PURCHASE OF RAW MATERIAL WHICH WAS DEPOSITED IN ITS PLA ACCOUNT FOR CLAIMING THE BENEFIT OF SET OFF AGAINST THE EXCISE DUTY PAYABLE ON THE MANUFACTURED ITEMS I. E. BRANDED YEARN. THE ASSESSEE WAS PAYING HIGHER RATE OF EXCISE DUTY ON T HE RAW MATERIAL PURCHASED BY IT AS AGAINST THE RATE OF EXCISE DUTY APPLICABLE ON TH E MANUFACTURED ITEMS, CONSEQUENTLY CREDIT OF EXCISE DUTY WAS AVAILABLE WIT H THE ASSESSEE. THE SAID EXCISE DUTY PAID FROM YEAR TO YEAR WAS NOT CLAIMED AS AN EX PENDITURE BUT WAS CARRIED FORWARD FROM YEAR TO YEAR TO BE ADJUSTED AGAINST THE EXCISE DUTY PAYABLE BY THE ASSESSEE ON ITS MANUFACTURED ITEMS. HOWEVER, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CLOSED DOWN ITS MANUFACTURING UNIT AND CONSEQUENTLY THE BENEFIT OF THE CENVAT CREDIT REMAINED UN- ADJUSTED. ONCE THE M ANUFACTURING UNIT OF THE ASSESSEE IS CLOSED DOWN, ADMITTEDLY THE BENEFIT OF CE NVAT CREDIT NOT AVAILED OF AGAINST THE EXCISE DUTY PAYABLE ON MANUFACTURED ITEM S, CANNOT BE UTILIZED BY THE ASSESSEE AND THE SAID WRITE OFF OF CENVAT CREDIT, IS ALLOWABLE AS AN EXPENDITURE IN THE YEAR UNDER CONSIDERATION ON THE CLOSURE OF THE BUSINESS. THE WRITE OFF OF CENVAT CREDIT BY THE ASSESSEE IN ITS BOOKS OF ACCOU NT IS THUS ALLOWABLE AS BUSINESS EXPENDITURE UNDER THE PROVISIONS OF SECTION 37(1) OF THE ACT RELATABLE TO THE YEAR, IN WHICH THE MANUFACTURING ACTIVITIES ARE CLOSED DOW N BY THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF WRITE OFF OF CENVAT CREDIT OF RS.35,94,577 /-. GROUN D NO.1 RAISED BY THE ASSESSEE IS THUS ALLOWED.' 6.1. WE HAVE ALSO NOTED THAT THE COORDINATE BENCH 'A' AHMEDABAD IN THE CASE OF GIRDHAR FIBRES PVT.LTD. (SUPRA) HAS ALSO OPINED A S UNDER:- :-11-: ITA NOS. 2927 & 2928/MDS/2016 9. WE HEARD BOTH THE SIDES. BEFORE US, FORM E.R.1, I .E. RETURN OF EXCISABLE GOODS AND AVAILMENT OF CENVAT CREDIT HAS BEEN PLACED . THE EXPLANATION OF THE ASSESSEE WAS THAT THE IMPUGNED TWO AMOUNTS WERE PAR T OF THE DUTY WHICH WAS PAID BY THE ASSESSEE AT THE TIME OF PURCHASE OF RAW- MATERIAL, HOWEVER, THE ASSESSEE HAD MAINTAINED EXCLUSIVE SYSTEM OF ACCOUNT ING, THEREFORE THE DUTY PAID WAS NOT DEBITED AS A PART OF THE PURCHASES BUT A SE PARATE ACCOUNT WAS MAINTAINED AND CARRIED TO THE BALANCE-SHEET. THE AED AND NCCD WERE APPLICABLE ON POY, I.E. RAW-MATERIAL. WHEN THE FINISHED GOODS, I.E. TEXTURI SED YARN IS MANUFACTURED, THE EXCISE IS LEVIED IN THE FORM OF BASIC DUTY. THE ASSE SSEE HAS ADOPTED EXCLUSIVE METHOD OF ACCOUNTING, THEREFORE DEBITED THE NET PURC HASES AND THOSE WERE SEPARATELY RECORDED IN THE BOOKS OF ACCOUNTS. WE FIND FORCE IN THIS ARGUMENT OF THE ASSESSEE BECAUSE WHILE MAINTAINING THE EXCLUSIVE ME THOD OF ACCOUNTING THE ASSESSEE HAD A CHOICE TO INCREASE THE VALUE OF THE P URCHASES IN RESPECT OF THE DUTY PAID IN THE FORM OF AED & NCCD. IN OTHER WORDS, AN EXPENDITURE WAS INCURRED BUT THAT EXPENDITURE COULD NOT BE ADJUSTED AGAINST THE CENVAT RULES BECAUSE ON THE FINISHED GOODS, I.E. TEXTURISED YARN ONLY THE BASIC DUTY IS LEVIABLE. WE, THEREFORE, HOLD THAT THE AMOUNT WHICH IS NOW WRITTEN OFF BEING P ART OF THE BUSINESS EXPENDITURE, HENCE ALLOWABLE UNDER THE PROVISIONS O F THE ACT. IN THE RESULT, WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES BELOW AND ALLOW THE GROUND RAISED BY THE ASSESSEE. ' 7. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF ACIT VS. RANGOLI INDUSTRIE P LTD. ITA.NO.1936/AHD /2010 DATED 11.01.2013. IN THE LIGH T OF THE ABOVE DECISIONS ON IDENTICAL FACTS, SINCE A VIEW HAS ALREADY BEEN TAKEN IN FAVOUR OF THE ASSESSEE ON THIS ISSUE, RESPECTFULLY FOLLOWING THAT, WE HEREBY H OLD THAT AO AND ID.CIT(A) WAS NOT RIGHT IN DISALLOWING THE CLAIM. AO IS DIRECTED TO ALLOW THE AMOUNT AS CLAIMED, SUBJECT TO ASSESSEE FURNISHING THE DETAILS OF CREDIT YEAR WISE AND OTHER EXCISE REGISTERS/FORMS TO ESTABLISH THAT CENVAT CREDIT WAS AVAILABLE TO IT, BEFORE WRITING OFF THE SAME. ACCORDINGLY, GROUNDS RAISED BY THE ASSESS EE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED .' 6. AFTER CONSIDERING THE ASSESSMENT ORDER, GROUND , WRITTEN SUBMISSIONS, ADDITIONAL SUBMISSIONS AND THE CASE LAWS RELIED UPO N BY THE APPELLANT, THE CIT(A) HELD THAT AS THE FACTS OF THE INSTANT CASE IN APPEAL AND THE FACTS OF :-12-: ITA NOS. 2927 & 2928/MDS/2016 THE CASE IN WHICH THE HON'BLE ITAT, HYDERABAD HAD R ENDERED A DECISION IN FAVOUR OF THE APPELLANT IN THAT CASE, ARE IDENTICAL , RESPECTFULLY FOLLOWING THE DECISION, I AM OF THE CONSIDERED VIEW THAT THE ACTI ON OF THE AO IN REJECTING THE CLAIM OF THE APPELLANT IS NOT LEGALLY CORRECT A ND I HEREBY DIRECT THE AO TO DELETE THE ADDITION OF RS.1,83,04,644/- THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 7. THE DR PRESENTED HIS ARGUMENTS ON THE LINES OF THE ASSESSMENT ORDER AND ON THE GROUNDS OF APPEAL . PER CONTRA, THE AR I NVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE PAPER BOOK WHEREIN A COPY O F ; THE COMMUNICATION FROM THE O/O COMMISSIONER OF CENTRAL EXCISE REQUES TING REPLY TO THE SHOW CAUSE NOTICE DT 14.6.2005, THE ORDER COMMISSIONER O F CENTRAL EXCISE AND SUBMISSIONS MADE BY THE ASSESSE BEFORE THE A O WITH DETAILS OF CENVAT CREDIT AVAILED AND THE DECISION OF THE HON'BLE ITA T (HYDERABAD A BENCH) IN ITA NO.699/HYD/2012 RENDERED IN THE CASE OF M/S.NCS DISTILLERIES (P) LTD., V. ITO, WARD 16(2) HYDERABAD AND SUBMITTED THAT THE C IT (A) HAS CORRECTLY DIRECTED THE AO TO DELETE THE ADDITION OF RS.1,83,0 4,644/- AND ALLOWED THE APPEAL WHICH MAY BE SUSTAINED . 8. WE HEARD THE RIVAL SUBMISSIONS, GONE THROUGH REL EVANT MATERIAL AND THE ORDERS. THE ASSESSEE HAS CLEARLY EXPLAINED THE RATIONALE FOR CLAIMING THE IMPUGNED SUM OF RS.1,83,04,644/-, IN PARA 4, SUPRA, WHICH HAS BEEN UPHELD BY THE DIFFERENT BENCHES OF THE TRIBUNAL , AS IS E XTRACTED AND DISCUSSED BY :-13-: ITA NOS. 2927 & 2928/MDS/2016 THE HON'BLE ITAT (HYDERABAD A BENCH) , SUPRA. AS THE FACTS OF THIS CASE AND THE FACTS OF THE CASES IN WHICH THE HON'BLE ITA T, HYDERABAD HAD RELIED AND RENDERED THE DECISION ARE IDENTICAL WITH THE ASSESSEE, THE ORDER OF THE CIT(A) IS HELD AS JUSTIFIED AND HENCE THE GROUNDS O F REVENUES APPEAL ARE DISMISSED. 9. THUS, THE REVENUES APPEAL IN ITA NO. 2927 MDS/2 016 FOR ASSESSMENT YEARS 2007-08 IS DISMISSED. REVENUES APPEAL IN ITA NO2928 /MDS/2016 FOR ASSE SSMENT YEAR 2011-12: 10. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 20 11-12, THE AO DISALLOWED THREE ITEMS OF EXPENDITURES AS UNDER : (I) DISALLOWANCE U/S 14A RS.7,49,214/- (II) DISALLOWANCE U/S 40(A)(IA)/40A(I) DEMURRAGE RS.85,11,844/- (III)DISALLOWANCE U/S 40(A)(IA) PAYMENT TO PORT TRU ST - RS.38,27,366/- AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) AND THE CIT (A) PARTLY ALLOWED THE ASSESSEE S APPEAL. AGAINST THE CIT (A) ORDER, THE REVENUE FILED THE APPEAL IN ITA 2928 /MDS/2016 .ITS GROUNDS OF APPEAL ARE EXTRACTED AS UNDER : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) IS ERRONEOUS ON FACTS OF THE CASE AND IN LAWS. :-14-: ITA NOS. 2927 & 2928/MDS/2016 2. THE LEARNED CIT (A) ERRED IN DELETING THE DISALL OWANCE OF RS. 7,49,214/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE IT ACT R.W. RULE 8D OF THE IT RULES 1962 FOR THE AY 2011-12. 2.1 THE LEARNED CIT CA) IS NOT JUSTIFIED IN HOLDING THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS, IN THE ABSENCE OF MATERIALS FACTS SUP PORTING SUCH A CONCLUSION. 2.2 THE LEARNED CIT (A) HAVING REGARD TO THE FINDING S GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT THAT THE ASSESSEE HAD INCUR RED SOME EXPENDITURE, ARISING FROM USE OF OFFICE ESTABLISHMENT UTILIZATION OF STAFF AN D MONITORING OF INVESTMENTS BY THE DIRECTORS / PROFESSIONALS, WHICH CERTAINLY RE SULTED IN HIDDEN COST TO THE COMPANY OUT OF OVERALL COST INCURRED, OUGHT TO HAVE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S.14A IN ITS ENTIRET Y. 2.3 THE ID. CITCA) OUGHT TO HAVE BROUGHT OUT ANY MA TERIALS TO SHOW THAT THE INVESTMENTS WERE MADE OUT OF SURPLUS AND NO BORROWE D FUNDS WERE UTILIZED FOR THE INVESTMENTS. 3. THE LEARNED CIT (A) ERRED IN DIRECTING THE ASSES SING OFFICER TO DELETE THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) OF THE IT ACT IN THE ASSESSMENT FOR AY 2011-12 IN THE CASE OF THE ASSESSEE TOWARDS PAYMENT OF DEMURRAGE CHARGES MADE TO FOREIGN COMPANIES VIZ., RS. 17,47,531/- TO M/S GO LDEN AGRI INTERNATIONAL P. LTD., SINGAPORE AND RS.21,97,127/- PAID TO M/S. NOBLE RESO URCES, SWITZERLAND. 3.1. THE LEARNED CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE DEMURRAGE CHARGES PAID TO THE ABOVE FOREIGN COMPANIES ARE IN THE NATURE OF REIMBURSEMENT WITHOUT BRINGING ON RECORD SUPPORTING FACTS TO SUBSTANTIATE THE SAME. 3.2. HAVING HELD THAT THE PAYMENTS OF DEMURRAGE CHA RGES BY THE ASSESSEE TO THE FOREIGN COMPANIES ARE IN THE NATURE OF REIMBURSEMENT , THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT, BUT FOR SUCH PAYMENT BY THE S AID FOREIGN COMPANIES, THE ASSESSEE COMPANY OUGHT TO HAVE MADE THE PAYMENT ITS ELF AND IN SUCH CASE, THE PROVISIONS OF TDS ARE ATTRACTED. 4. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLO WANCE OF PORT ENTRY PASS - RS.5,09,025/- , REIMBURSEMENT OF EXPENSES TO PORT T RUST - RS.2,81,457/- AND WEIGHMENT CHARGES - RS.2,860 MADE U/S 40(A)(IA) TOW ARDS PAYMENT MADE BY THE ASSESSEE WITHOUT MAKING TAX DEDUCTION AT SOURCE(TDS) . :-15-: ITA NOS. 2927 & 2928/MDS/2016 4.1. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HAT THE ABOVE EXPENSES ATTRACTS TDS PROVISIONS AND IN THE ABSENCE OF TDS ON THE SAME BY THE ASSESSEE, OUGHT TO HAVE CONFIRMED THE SAID DISALLOWANCES MADE BY THE ASSESSING OFFICER. 5. FOR THIS GROUNDS AND FOR ANY OTHER GROUNDS INCLU DING AMENDMENT THAT MAY BE RAISED DURING THE COURSE OF THE APPEAL PROCEEDINGS, THE ORDER OF LEARNED CIT (APPEALS) MAY BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 11. THE FIRST ISSUE IS THE DISALLOWANCE U/S 14A: THE ASSESSEE ADMITTED INCOME FROM DIVIDEND WHICH IS EXEMPT UNDER THE ACT. HOWEVER IT HAD NOT MADE ANY DISALLOWANCE U/S 14A. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSEE WAS ASK ED TO FURNISH ITS CLARIFICATION IN THIS REGARD. THE A.R. CONTENDED TH AT NO SPECIFIC EXPENDITURE WAS INCURRED ATTRIBUTABLE TO EARNING THE DIVIDEND A ND THEREFORE DISALLOWANCE U/S 14A WOULD NOT ARISE. THE AO HAS NOT ACCEPTED T HIS CONTENTION FOR THE REASON THAT OBVIOUSLY THE ASSESSEE HAS USED ITS OF FICE ESTABLISHMENT AS WELL AS ITS STAFF, THUS INCURRING SOME EXPENDITURE FOR E ARNING THIS DIVIDEND INCOME. THESE INVESTMENTS WOULD REQUIRE MONITORING BY THE DIRECTORS OR SENIOR PROFESSIONALS, WHICH WOULD CERTAINLY RESULT IN HID DEN COST TO THE COMPANY OUT OF THE OVERALL COST INCURRED. THEREFORE, CONSIDERI NG ALL OF THEM , THE AO IS SATISFIED THAT DISALLOWANCE U/S.14A IS CALLED FOR. SINCE THE ASSESSEE HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW THAT THE INVESTMEN TS WERE MADE OUT OF SURPLUS AND NO BORROWED FUNDS WERE UTILIZED FOR THE INVESTMENT, PROPORTIONATE DISALLOWANCE OF INTEREST NOT DIRECTLY ATTRIBUTABLE TO THE EARNING OF SUCH DIVIDEND REQUIRES TO BE MADE AND ACCORDINGL Y THE AO DISALLOWED :-16-: ITA NOS. 2927 & 2928/MDS/2016 RS.6,27,451/- UNDER THE SECOND LIMB OF RULE 8D AND RS.6,27,451/- AND RS.1,21,763/- UNDER THE THIRD LIMB OF RULE 8D , A T OTAL OF RS.7,49,219/- U/S.14A R.W. RULE 8D . 11.1 BEFORE THE CIT (A), THE AR SUBMITTED THAT TH E INVESTMENTS WERE MADE OUT OF OWN FUNDS MORE THAN A DECADE AGO, THE SHARES ARE HELD IN DEMAT ACCOUNT, THE DIVIDENDS ARE DIRECTLY CREDITED IN THE APPELLANT'S BANK ACCOUNT AND HENCE NO QUESTION OF INCURRING ANY EXPENDITURE. CONSIDERING THEM, THE CIT (A) HELD THAT THE AR'S EXPLANATION SEEMS TO B E REASONABLE. IN ADDITION TO THE CASE LAWS RELIED UPON BY THE APPELLANT, IT I S ALSO SEEN THAT IN THE CASE OF CIT V. HERO CYCLES LTD., 2009 (P & H) (HC) THE H ON'BLE HIGH COURT HELD THAT WHEREVER IT IS FOUND THAT FOR EARNING EXEMPTED INCO ME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A CANNO T STAND. FURTHER IN THE CASE OF CIT V. K. RAHEJA CORPORATION (P) LTD. (2011 )(BOM) THE HON'BLE HIGH COURT HELD THAT IN THE ABSENCE OF ANY MATERIAL OR B ASIS TO HOLD THAT INTEREST EXPENDITURE DIRECTLY OR INDIRECTLY WAS ATTRIBUTABLE FOR EARNING DIVIDEND INCOME, INTEREST EXPENDITURE COULD NOT BE DISALLOWED U/S.14 A. RELYING ON THESE DECISIONS, WHEREIN THE FACTS ARE SIMILAR TO THE FAC TS OBTAINED IN THE APPELLANT'S CASE, THE CIT (A) WAS OF THE OPINION THAT NO ADDITI ON ON THIS COUNT IS NEEDED. HENCE , THE CIT (A) ALLOWED THE ASSESSEES APPEAL. WE HEARD THE RIVAL CONTENTIONS. THE REVENUE PLEADS THAT CIT (A) OUGHT TO HAVE BROUGHT OUT MATERIALS TO SHOW THAT THE IMP UGNED INVESTMENTS WERE :-17-: ITA NOS. 2927 & 2928/MDS/2016 MADE OUT OF SURPLUS AND NO BORROWED FUNDS WERE UTIL IZED FOR THE INVESTMENTS. SINCE THE RELEVANT FACTS ARE NOT BROUGHT IN THE O RDER OF THE CIT(A) , WE DEEM IT FIT TO SET ASIDE THIS ISSUE TO THE A O FOR A FRESH EXAMINATION. THE A O, AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE , S HALL PASS A SPEAKING ORDER. 12. THE NEXT ISSUE IS THE DISALLOWANCE OF DEMURRAG E CHARGES U/S 40A(I) & 40(A)(IA): THE ASSESSEE HAS INCURRED DEMURRAGE CHARGES TOTALLI NG TO RS. 39,44,658/- TO 2 FOREIGN COMPANIES AS UNDER: PAYMENT TO AMOUNT (A) M/S GOLDEN AGRI INTERNATIONAL PTE LTD, SINGAPOR E 17,47,531 (B) M/S NOBLE RESOURCES, SWITZERLAND 21,97,127 ON THESE PAYMENTS, THE ASSESSEE HAS NOT DEDUCTED TD S .WHEN THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THESE EXPENDITURE SHOULD NOT BE DISALLOWED U/S.40A(I) , IT CONTENDED THAT SINCE THEY ARE REIMB URSEMENTS MADE TO THOSE PARTIES IN RESPECT OF DEMURRAGE PAID BY THE SHIPPER S, THEY WILL NOT ATTRACT THE PROVISIONS OF SECTION 40A(I). THE AO HAS NOT ACCEPT ED THE ASSESSEE'S CONTENTION, AS IT IS HELD IN THE DECISION OF CIT V ORIENT (GOA) P LTD (BOM) 325 ITR 554 THAT DEMURRAGE PAID BY INDIAN COMPANY T O FOREIGN COMPANY WITHOUT TDS ATTRACTS DISALLOWANCE U/S.40A(I). ACCOR DINGLY, THE AO DISALLOWED THEM U/S 40A(I) / 40A(IA) . :-18-: ITA NOS. 2927 & 2928/MDS/2016 12.1 THE CIT (A) AFTER CONSIDERING THE ASSESSEES S UBMISSIONS IN THIS REGARD HELD THAT THE APPELLANT ITSELF HAS NOT PAID THE DEM URRAGE CHARGES AND IT ONLY MADE REIMBURSEMENT OF THE EXPENDITURE INCURRED BY T HE FOREIGN COMPANIES. IN THE CASE LAW RELIED ON BY THE AO VIZ., CIT V. OR IENT (GOA) P LTD. (BOM) 325 ITR 554, IT HAS BEEN HELD THAT DEMURRAGE PAID BY IN DIAN COMPANY TO FOREIGN COMPANY WITHOUT TDS ATTRACTS DISALLOWANCE U/S.40(A) (I). WHEREAS IN THE CASE OF THE APPELLANT, THE FACT IS DIFFERENT INASMUCH AS IT IS ONLY REIMBURSEMENT AND NOT DEMURRAGE PAYMENT AND HENCE THE ACTION OF THE A O IS UNTENABLE AND HENCE THE CIT (A) DIRECTED THE AO TO DELETE THE DI SALLOWANCE AND ALLOWED THE ASSESSEES APPEAL. 12.2 THE D R PRESENTED HIS ARGUMENTS ON THE LINES OF THE ASSESSMENT ORDER AND ON THE GROUNDS OF APPEAL . PER CONTRA, TH E AR INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE PAPER BOOK WHEREIN A COPY OF SALES CONTRACT WITH M/S NOBLE RESOURCES, COMMERCIAL INVOICE FROM M/S NOBLE RESOURCES AND INVOICE , DEBIT NOTE ISSUED TO APPELLANT FROM M/S G OLDEN AGRI INTERNATIONAL PTE LTD, SINGAPORE AND SUBMITTED THAT THE ASSESSEE MADE REIMBURSEMENTS ONLY. THE D R SUBMITTED SINCE THESE DOCUMENTS ARE PRESENT ED FOR THE FIRST TIME THEY REQUIRE SCRUTINY. WE HEARD THE RIVAL CONTENTIONS. SINCE THE RELEVANT FACTS REQUIRE EXAMINATION, WE DEEM IT FIT TO SET ASIDE THIS ISSUE TO THE A O FOR A FRESH :-19-: ITA NOS. 2927 & 2928/MDS/2016 EXAMINATION. THE A O, AFTER AFFORDING DUE OPPORTU NITY TO THE ASSESSEE , SHALL PASS A SPEAKING ORDER. 13. THE LAST ISSUE IS THE PAYMENTS MADE TO CHENNAI PORT TRUST WITHOUT TDS: THE AO DISALLOWED THE FOLLOWING PAYMENTS MADE TO C HENNAI PORT TRUST WITHOUT TDS. A PAYMENT FOR CIVIL AND ELECTRICAL WORK 15,88,818 B PORT ENTRY PASS 5,09,025 C PORT RENT 10,26,535 D REIMBURSEMENT OF EXPENSES TO PORT TRUST 2,81,457 E TERMINAL HANDLING CHARGES 60,830 F WEIGHMENT CHARGES 2,860 G WHARFAGE 3,57,841 TOTAL 38,27,366 OUT OF THE ABOVE, ON THE PORT ENTRY PASS, WEIGHMENT CHARGES, REIMBURSEMENT OF EXPENSES TO THE PORT TRUST, THE AS SESSEE PLEADED BEFORE THE CIT (A) THAT THESE PAYMENTS DO NOT ATTRACT TDS PR OVISIONS AND HENCE NO NEED TO DEDUCT TAX. THE CIT (A) HELD THAT THIS IS E XPLANATION IS ACCEPTABLE AND HENCE THE DISALLOWANCES MADE AGAINST THESE AMOUNTS ARE DIRECTED TO BE DELETED. 13.1 THE REVENUE PLEADS THAT LEARNED CIT(A) ERRED I N DELETING THE DISALLOWANCE OF PORT ENTRY PASS - RS.5,09,025/- , R EIMBURSEMENT OF EXPENSES TO PORT TRUST - RS.2,81,457/- AND WEIGHMENT CHARGES - RS.2,860 MADE U/S :-20-: ITA NOS. 2927 & 2928/MDS/2016 40(A)(IA) WHEN THESE EXPENSES ATTRACT TDS PROVISI ONS . IN THE ABSENCE OF TDS ON THEM, THE CIT (A) OUGHT TO HAVE CONFIRMED T HESE DISALLOWANCES. WE HEARD THE RIVAL CONTENTIONS. SINCE THE RELEVAN T FACTS REQUIRE EXAMINATION, WE DEEM IT FIT TO SET ASIDE TH IS ISSUE TO THE A O FOR A FRESH EXAMINATION. THE AO , AFTER AFFORDING DUE O PPORTUNITY TO THE ASSESSEE, SHALL PASS A SPEAKING ORDER. 14. IN THE RESULT, THE REVENUES APPEAL FOR AY 200 7-08 IN ITA NO. 2927 /MDS/2016 IS DISMISSED. ITS APPEAL IN ITA NO.2928 / MDS/2016 FOR ASSESSMENT YEAR 2011-12 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 5 TH DAY OF OCTOBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! ' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 05 TH OCTOBER, 2017 JPV & )12 32 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 ) /DR 6. 7 /GF