The ACIT, (OSD), Ward-8(4), Ahmedabad V. Shree Rama Multi Tech Ltd., Ahmedabad

ITA 298/AHD/2006

• Counselvise Citation: 29820514 RSA 2006
• Duration Of Justice: 5 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-12-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 07-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS CHHAVI ANUPAM
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bogus purchase; Bogus Share capital; Depreciation; Opportunity of being heard; Period of limitation; Additional evidence; Question of law; Bad and doubtful debts; Corroborative evidences; Valuation report; Commercial expediency; Provision of bad debts; Revenue expenditure
• Section: 43B; 80HHC; 234B; 147; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (SHRI BHAVNESH SAINI, JM AND A.MOHAN ALANKAMONY, AM ) ITA NO.298/AHD/2006 A. Y.: 2002-03 THE A. C. I. T. (OSD), CIRCLE - 8(4), AAYAKAR BHAVAN, AHMEDABAD VS SHREE RAMA MULTI TECH LTD., RAMNIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N (APPELLANT) (RESPONDENT) ITA NO.338/AHD/2006 A.Y.: 2002-03 SHREE RAMA MULTI TECH LTD., RAMNIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N VS THE A. C. I. T. (OSD), CIRCLE - 8(4), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.4282/AHD/2007 A.Y.: 2002-03 SHREE RAMA MULTI TECH LTD., 603, SHIKHAR BUILDING, NEAR VADILAL HOUSE, NAVRANGPURA, AHMEDABAD PA NO. AAJCS 1563 N VS THE D. C. I. T., CIRCLE - W-8(4), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) 2 ITA NO.4281/AHD/2007 A.Y.: 1999-2000 SHREE RAMA MULTI TECH LTD., 603, SHIKHAR BUILDING, NEAR VADILAL HOUSE, NAVRANGPURA, AHMEDABAD PA NO. AAJCS 1563 N VS THE D. C. I. T., CIRCLE - W-8(4), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.1510/AHD/2009 A.Y.: 2003-04 SHREE RAMA MULTI TECH LTD., RAM NIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N VS THE INCOME TAX OFFICER, WARD 8 (4), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.1890/AHD/2009 A.Y.: 2003-04 THE A. C. I. T. (OSD), CIRCLE-8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, A WING, ASHRAM ROAD, AHMEDABAD VS SHREE RAMA MULTI TECH LTD., RAM NIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N (APPELLANT) (RESPONDENT) 3 ITA NO.1511/AHD/2009 A.Y.: 2004-05 SHREE RAMA MULTI TECH LTD., RAM NIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N VS THE D. C. I. T. (OSD), CIRCLE 8 (4), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.1892/AHD/2009 A.Y.: 2004-05 THE A. C. I. T. (OSD), CIRCLE-8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, A WING, ASHRAM ROAD, AHMEDABAD VS SHREE RAMA MULTI TECH LTD., RAM NIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N (APPELLANT) (RESPONDENT) ITA NO.1512/AHD/2009 A.Y.: 2005-06 SHREE RAMA MULTI TECH LTD., RAM NIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N VS THE D. C. I. T. (OSD), CIRCLE 8 (4), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) 4 ITA NO.1891/AHD/2009 A.Y.: 2005-06 THE A. C. I. T. (OSD), CIRCLE-8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, A WING, ASHRAM ROAD, AHMEDABAD VS SHREE RAMA MULTI TECH LTD., RAM NIVAS NO.1, KHANPUR, AHMEDABAD PA NO. AAJCS 1563 N (APPELLANT) (RESPONDENT) DEPARTMENT BY MRS. CHHAVI ANUPAM, CIT DR ASSESSEE BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 28-12-2011 DATE OF PRONOUNCEMENT: 06-01-2012 O R D E R PER BHAVNESH SAINI: THIS ORDER SHALL DISPOSE OF ALL THE ABOVE CROSS APPEALS IN RESPECT OF THE SAME ASSESSEE FOR DIFFERENT ASSESSMENT YEARS MENTIONED ABOVE. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FI NDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL ON RE CORD. ITA NO.298/AHD/2006 ITA NO.338/AHD/2006 2. BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XIV, AHMEDABAD DATED 29-11-2005 FOR ASSESSMENT YEAR 2002-03. 3. ON GROUND NO.1 IN THE APPEAL OF THE REVENUE, R EVENUE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN ALLOW ING DEPRECIATION ON INTANGIBLE ASSETS I.E. SOFTWARE. THE ASSESSEE IN IT S APPEAL ON GROUNDS 5 NO.2 AND 3 CHALLENGED THE ORDER OF THE LEARNED CIT( A) IN NOT ALLOWING DEPRECIATION ON TANGIBLE ASSETS. 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE AO DI SALLOWED DEPRECIATION AMOUNTING TO RS.12,82,17,500/- IN RESP ECT OF VARIOUS ASSETS MADE DURING THE YEAR WHICH INCLUDED INTEGRAT ED SOFTWARE PURCHASED, SAESA 1005 IMP MACHINE, COMPONENT FOR PL T, CONTROL PANELS, HOT FOIL STAMPING MACHINE, LAB TESTING EQUI PMENT, UTILITIES FOR PLT, DYES AND MOULDS FOR INDG ETC. MAINLY PERTA INING TO UNIT-2, UNIT-3 AND UNIT-4 FOR THE YEAR UNDER CONSIDERATION. THE DISALLOWANCE HAS BEEN MADE ON THE FOLLOWING GROUNDS. THE DETAILS HAVE BEEN DISCUSSED BY THE AO IN THE ASSESSMENT ORDER. THE SO FTWARE AND MACHINERIES WERE PURCHASED FROM ASSOCIATED CONCERN VIZ. VIMPSON PRECISION PVT. LTD., SURAKSHA PETRO CHEMICALS PVT. LTD., MODERN PRECISION INDUSTRIES AND SAMPAT RAO. A SURVEY WAS C ONDUCTED AT THE OFFICE PREMISES OF THE ASSESSEE ON 15-03-2005 AND D URING THE SURVEY NO FIXED ASSETS REGISTERED WAS FOUND TO HAVE BEEN M AINTAINED AT THE OFFICE PREMISES AND VARIOUS ASSETS WERE NOT FOUND P HYSICALLY AT THE FACTORY PREMISES. LATER ON, THE ASSESSEE PRODUCED T HE FIXED ASSETS REGISTER, WHERE THE ADDITIONS TO FIXED ASSETS WERE WRITTEN IN THE REGISTER IN DIFFERENT PEN AND WITH SR. NO. SUFFIXED WITH A. THE ASSET VALUATION REPORT PREPARED BY DALAL MOTT MACDONALD W AS FOUND DURING THE SURVEY WHICH LISTED THE ASSETS OF THE ASSESSEE AND ITS VALUATION AS ON 30-04-2003. THE A. O. HAS FOUND THAT ALL THE ASSETS ARE NOT MENTIONED THEREIN. THE STATEMENTS WERE TAKEN FROM V ARIOUS PERSONS, WHO SAID THAT MAJORITY OF THE SOFTWARE CAME WITH MA CHINES AND ONLY SMALL CHANGES ARE TO BE MADE IN THE SOFTWARE IN CON SULTATION WITH THE 6 ORIGINAL SUPPLIERS AND THAT WHERE IS THE LICENSE OR CD TO USE SOFTWARE, NOBODY COULD PRODUCE THE SAME. THE SUMMONS WAS ISSU ED TO VARIOUS SUPPLIERS, BUT NO ONE ATTENDED. THE AO HAS, THEREFORE, HELD THAT THE PURCHASES OF THESE ASSETS ARE NOT GENUINE AND DISALLOWED THE DEPRECIATION CALCULATED AT RS.12,82,17,500/-. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ALL THE ASSETS PURCH ASED ARE GENUINE AND THE DEPRECIATION SHOULD BE ALLOWED. A COPY OF T HE APPRAISAL REPORT FOR VALUATION DONE BY DALAL MOTT MACDONALD I N RESPECT OF FIXED ASSETS WAS FOUND DURING THE SURVEY. THE VALUE OF TH E ASSETS AS ON 31-03-2003 IS MORE THAN THE VALUE OF THE ASSETS AS PER THE COMPANYS RECORDS. IT SHOWS THAT ALL THE ASSETS WER E PURCHASED AND THE DEPRECIATION IS RIGHTLY CLAIMED. THE ASSESSEE H AD PURCHASED PLANT & MACHINERY NOT ONLY FROM THE ALLEGED ASSOCIA TED CONCERNS, BUT PURCHASED MACHINERY PARTS IN LARGE NUMBER FROM OVER SEAS MARKET FROM WORLD LEADER MANUFACTURERS. THE TOTAL MACHINER Y PURCHASED WORTH RS.94,97,96,045/- WAS ADDED DURING THE YEAR, WHICH INCLUDED INTEGRATED SOFTWARE PURCHASED FROM DESIGN ELECTRONI CS & SOFT DESIGN. WHEN THE MACHINERIES WERE PURCHASED, THE CO MPANY HAD TWO ALTERNATIVES TO PURCHASE THE SOFTWARE EITHER TO PURCHASE INBUILT SOFTWARE ALONG WITH THE MACHINE FROM ORIGINAL SUPPL IER LOCATED AT SWITZERLAND OR TO GET IT DEVELOPED LOCALLY. BY THIS PROCESS, THE COMPANY COULD SAVE LARGE AMOUNT OF CUSTOMS DUTY AND VALUABLE FOREIGN EXCHANGE OF THE COUNTRY. THE DEVELOPMENT OF SOFTWARE FROM LOCAL MARKET WAS FOR THE IMMEDIATE AVAILABILITY AND AFTER SALES SERVICE. FOR THE PURPOSE OF DEVELOPING SOFTWARE TO BE FITTED IN THE MACHINERIES IMPORTED FROM AISA SWITZERLAND, APPLITE CH SOLUTION HAD DEPUTED ITS ENGINEERS TO AISA COMPANY, SO THAT THEY COULD GET 7 DETAILED KNOWLEDGE, TECHNICAL SPECIFICATIONS, CRITI CALITY OF THE MACHINE AND OTHER HARDWARE CONFIGURATION REQUIREMENTS. APPL ITECH SOLUTION LTD. IS A CMM 5 COMPANY, HAVING VAST EXPERIENCE OF DEVELOPING SOFTWARE PROCESS SOFTWARE FOR KANDLA PORT TRUST, GA D OF GOVT. OF GUJARAT, HOME DEPTT. OF GUJARAT, RAN BAXI LABORATOR IES LTD., ADANI WILLMAR LTD. AND MANY OTHER LARGE SIZE ORGANIZATION S. THE ASSESSEE HAS SUBMITTED THAT THE ADDITION IN PLANT AND MACHIN ERY ALSO INCLUDES THE ITEMS OTHER THAN INTEGRATED SOFTWARE SUCH AS IN SULATION FOR RCC TANKS, TREATING EQUIPMENTS, AIR COOL COMPRESSORS, A IR COOLED COMPACT WATER CHILLERS, DYES AND MOULDS, WHICH HAVE BEEN AC QUIRED FROM VIMPSON PRECISION PVT. LTD., MODERN PRECISION INDUS TRIES AND SURAKSHA PETROCHEMICALS PVT. LTD. THE ASSESSEE FURT HER SUBMITTED THAT SOFTWARE IS AN INTANGIBLE ASSET AND IT IS LOAD ED IN THE SYSTEM OF THE MACHINERIES AND IT CANNOT BE PHYSICALLY FOUND I N THE PREMISES DURING THE COURSE OF SURVEY AND ANY TECHNICAL CAN O NLY ASCERTAIN WHETHER IT IS LOADED IN THE SYSTEM OR NOT. HENCE, T HE AO WAS NOT JUSTIFIED TO SAY THAT NO SOFTWARE FOUND AND SEEN AT THE FACTORY PREMISES. FURTHER, IN THE VALUATION REPORT FOUND AT THE TIME OF SURVEY, WHICH WAS PREPARED BY DALAL MOTT MACDONALD, THERE I S MENTION OF AUTOMATION FOR MACHINERY AND THE EXISTENCE OF SOFTW ARE AND EVEN THE AO HAS ACCEPTED THESE FACTS AND CREDIT FOR PART OF THE AMOUNT IS TO BE GIVEN. WHEN THE AO WAS NOT ACCEPTING THE EXISTENCE OF SOFTWARE AND ALL THE PURCHASES OF SOFTWARE WERE THERE TO JUSTIFY THE CLAIM, THE SAME HAS TO BE ACCEPTED. REGARDING THE ABSENCE OF OTHER MACHINERIES DURING THE SURVEY, THE ASSESSEE HAS SUBMITTED THAT DURING THE LONG PERIOD FROM THE DATE OF INSTALLATION TO THE DATE OF SURVEY, SOME OF THE ITEMS HAVE EITHER TURNED INTO SCRAP OR USED ITEMS A ND SOME OF THE 8 ITEMS HAVE ALREADY BEEN FITTED IN AS A PART OF THE MACHINERY. FURTHER, IT WAS NOT POSSIBLE BY THE SURVEY TEAM TO NOTE DOWN CORRECTLY ALL ASSTS, AS IT WAS NOT PHYSICALLY POSSIBLE TO WRITE D OWN ALL THE ASSETS FOUND DURING THE SURVEY AT FACTORY PREMISES AS THER E WERE LARGE NUMBER OF PLANT & MACHINERIES AND HENCE, THE REPORT PREPARED AT THE TIME OF SURVEY WAS NOT PROPER AND COMPLETE. THE FAC T THAT THE ASSETS ARE MENTIONED IN THE STOCK REGISTER IN DIFFERENT HA ND WRITINGS AND WITH NUMBERS SUFFIXED WITH A WAS ONLY DUE TO THE REASO N THAT WHEN IT WAS FOUND THAT THE SAME WERE NOT ENTERED EARLIER, I T WAS ENTERED. BUT THIS ACT DID NOT MAKE THE PURCHASE BOGUS. THERE WER E RECEIPTS OF PURCHASES, TRANSPORTATION PAYMENTS, GATE PASSES, AN D STORE RECEIPTS ETC. WHICH WERE PROPERLY MAINTAINED. THEREFORE, IT WAS SUBMITTED THAT THE DEPRECIATION SHOULD BE ALLOWED. THE LEARNED CIT (A) CONSIDERING FACTS AND THE EXPLANATION OF THE ASSESSEE PARTLY AL LOWED THE CLAIM OF THE ASSESSEE. HIS FINDINGS IN THE APPELLATE ORDER I N PARA 5.4 AND 5.5 ARE REPRODUCED AS UNDER: 5.4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AS WELL AS THE SUBMISSIONS ADVANCED BY THE APPELLANT. AS FA R AS THE ADDITION OF SOFTWARE IS CONCERNED, I AGREE WITH THE SUBMISSIONS OF THE APPELLANT THAT SOFTWARE IS INTANGIBLE ASSET AND SOFTWARE HAS TO BE LOADED IN THE SYSTEM OF THE MACHINE. THER E MERE FINDING BY THE SURVEY TEAM THAT NO SOFTWARE WAS FOU ND AND SEIZED AT THE TIME OF SURVEY CANNOT MAKE IT BOGUS. IN FACT, A TECHNICAL PERSON CAN CHECK AND TELL WHETHER IT IS L OADED IN THE SYSTEM OR NOT. EVEN THE A. O. HAS ACCEPTED THE FACT THAT SOME OF SOFTWARE WERE DEVELOPED LOCALLY AND INSTALLED IN THE SYSTEM. THE VALUATION REPORT FOR ASSETS PREPARED BY DALAL M OTT MACDONALD WHICH WAS FOUND DURING THE SURVEY INDICAT ES THAT SOFTWARE WERE DEVELOPED AND INSTALLED BY THE APPELL ANT IN THE SYSTEM. THE SOFTWARE HAS BEEN DEVELOPED BY REPUTED CONCERNS AND THE APPELLANT IS HAVING ALL THE VOUCHERS AND RE CEIPTS. 9 THEREFORE, THE ACTION OF THE A. O. IN DISALLOWING D EPRECIATION ON SOFTWARE IS NOT JUSTIFIED. THE A. O. IS DIRECTED TO ALLOW THE DEPRECIATION IN RESPECT OF ALL THE SOFTWARE PURCHAS ED AND INSTALLED DURING THE YEAR. 5.5 HOWEVER, AS REGARDS THE TANGIBLE ASSETS, THE S UBMISSION OF THE APPELLANT CANNOT BE ACCEPTED. DURING THE SUR VEY, IT WAS FOUND BY THE SURVEY TEAM THAT THESE ASSETS WERE NOT THERE IN THE PREMISES AND IF THE APPELLANT HAD ANY OBJECTION REGARDING THE LIST OF THE ASSETS IN THE SURVEY REPORT, THE SA ME HAS TO BE OBJECTED THERE ITSELF AND OUGHT TO HAVE CORRECTED. MAKING OF OBJECTION AT THIS STAGE THAT SURVEY WAS NOT CONDUCT ED PROPERLY AND LISTING OF ASSETS WAS NOT DONE PROPERLY CANNOT BE ACCEPTED. THE SUBMISSION THAT THE ASSETS HAVE BEEN BROKEN OR TORE OFF DURING THIS PERIOD CANNOT HELP THE APPELLANT TO EXP LAIN THE ABSENCE OF ASSETS AT THE TIME OF SURVEY. WHEN THE A SSETS WERE NOT FOUND AT THE TIME OF SURVEY, IT IS CLEAR THAT T HE CLAIM OF THE APPELLANT IS NOT ACCEPTABLE. ALSO THE VALUATION REP ORT PREPARED BY DALAL MOTT MACDONALD SAYS THAT THE SPECIFIC ITEM S OF THE MACHINERIES ARE NOT THERE TO SUPPORT THE CLAIM OF T HE APPELLANT. THEREFORE THE ACTION OF THE A. O. IN DISALLOWING TH E DEPRECIATION ON THE TANGIBLE ASSETS LIKE 24 CAVITY MOULD AND OTH ER MOULDS AND OTHER PLANT & MACHINERIES IS JUSTIFIED. THEREFO RE, GROUND OF THE APPELLANT IN RESPECT OF INTANGIBLE ASSETS OF SO FTWARE IS ALLOWED AND THE CLAIM OF DEPRECIATION ON TANGIBLE A SSETS IS REJECTED. THE A. O. IS DIRECTED TO CALCULATE AND AL LOW THE DEPRECIATION ACCORDINGLY. 5. THE LEARNED DR SUBMITTED THAT SURVEY WAS CONDUCT ED IN THE PREMISES OF THE ASSESSEE IN ORDER TO VERIFY THE COR RECTNESS OF THE CLAIM OF THE ASSESSEE FOR GRANT OF DEPRECIATION. TH E ASSESSEE WAS ASKED TO PRODUCE THE RELEVANT COPIES OF BILLS/INVOI CES, CHALLANS OF FREIGHT/TRANSPORTATION AND EXPENSES INCURRED FOR SE TTING UP OF THE MACHINES AND SOFTWARE. THE PURCHASES WERE MADE FROM THE SISTER CONCERNS. DURING THE SURVEY NO FIXED ASSET REGISTER WAS FOUND. THE REGISTER WAS PRODUCED SUBSEQUENTLY IN WHICH THERE W ERE DIFFERENCES 10 IN THE ENTRIES. THE STATEMENTS OF EMPLOYEES WERE RE CORDED WHO HAVE DENIED CLAIM OF THE ASSESSEE. THE REPOT OF DALAL MO TT MACDONALD WAS FOUND IN SURVEY, BUT ONLY FEW ASSETS WERE FOUND RECORDED THEREON. SOME OF THE EMPLOYEES CLAIMED IN THEIR REP LY THAT SOFTWARE ARE INBUILT AND ARE SUPPLIED BY THE MANUFACTURERS O F THE MACHINE. CONCERNED PARTIES WERE SUMMONED BUT THEY HAVE NOT R ESPONDED TO THE NOTICE. THE AO THEREFORE, RIGHTLY DISALLOWED TH E DEPRECIATION. THE LEARNED DR SUBMITTED THAT SINCE NO SUPPORTING EVIDE NCE WAS PRODUCED THEREFORE, THE LEARNED CIT(A) SHOULD NOT HAVE DELETED THE PART ADDITION. ON THE OTHER HAND, LEARNED COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND SUBMITTED THAT SURVEY WAS CONDUCTED ON 15-3-2005 AF TER CLOSE OF THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR AND THERE WAS A HUGE GAP IN BETWEEN. SINCE ASSESSEE WAS SUFFERING FROM F INANCIAL CRISES, THEREFORE, THE DETAILS WERE PRODUCED SUBSEQUENTLY B EFORE THE AO ALONG WITH BILLS AND VOUCHERS WHICH HAVE NOT BEEN A PPRECIATED BY THE AO. FIXED ASSET REGISTER WAS ALSO PRODUCED. THE REP ORT OF DALAL MOTT MACDONALD WAS FOUND IN SURVEY WHICH CLEARLY STATED THAT ALL MACHINERIES AND SOFTWARE WERE INSTALLED IN THE PREM ISES OF THE ASSESSEE AND VALUATION WAS MORE. HE HAS PREPARED TH E DETAILS PARTY- WISE OF THE ADDITIONS WHICH WERE ADDED TO PLANT AND MACHINERY IN THE UNITS OF THE ASSESSEE AND ALSO FILED COPY OF THE RE PORT OF DALAL MOTT MACDONALD AND REFERRED TO SEVERAL PAGES FROM THE RE PORT TO SHOW THAT ALL THE MACHINERIES PURCHASED AND SOFTWARE ARE PART OF THE REPORT OF THE DALAL MOTT MACDONALD. HE HAS, THEREFORE, SUB MITTED THAT THE CLAIM OF THE AO IS INCORRECT AND ASSESSEE PRODUCED ALL THE RELEVANT MATERIALS TO SUPPORT THE CONTENTION. HE HAS SUBMITT ED THAT SINCE FULL 11 DETAILS OF TANGIBLE ASSETS WERE ALSO FILED WHICH AR E PART OF THE REPORT AND THE RECORD OF THE ASSESSEE, THEREFORE, THE MATT ER COULD BE RESTORED TO THE FILE OF THE AO FOR ALLOWING CLAIM O F DEPRECIATION ON TANGIBLE ASSETS. HE HAS SUBMITTED THAT AS REGARDS D EPRECIATION ON INTANGIBLE ASSETS, LEARNED CIT(A) ON PROPER APPRECI ATION OF FACTS RIGHTLY DELETED THE ADDITION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD. THE ASSESSEE CLAIMED THAT DUE TO FINANCIAL CRISIS THE DETAILS COULD NOT BE PRODUCED AT THE TIME OF SURVEY WHICH I S NOT IN DISPUTE AND IS ALSO SUPPORTED BY THE FACT THAT ASSESSEE FIL ED THE RETURN OF INCOME DECLARING LOSSES OF RS.19.95 CRORES. THE ASS ESSMENT YEAR UNDER APPEAL IS 2002-03 AND SURVEY IS CONDUCTED AFT ER SEVERAL YEARS ON 15-03-2005. THE ASSET VALUATION REPORT OF DALAL MOTT MACDONALD OF MAY, 2003 WAS FOUND DURING THE COURSE OF SURVEY. COPY OF THE SAID REPORT IS FILED ON RECORD WHICH VALUATION REPORT IS PREPARED, ON THE BASIS OF INFORMATION, DATA AND PARTICULARS PROVIDED BY INDUSTRIAL DEVELOPMENT BANK OF INDIA AND THE ASSESSEE. THE LEA RNED COUNSEL FOR THE ASSESSEE PREPARED A CHART AND REFERRED TO P AGE NUMBERS IN THE REPORT OF THE VALUER AND BY REFERRING THE DETAI LS NOTED IN THE ASSESSMENT ORDER EXPLAINED THAT ALL THE ASSETS NOT FOUND BY AO ARE SPECIFICALLY MENTIONED IN THE VALUATION REPORT. THE REFORE, CLAIM OF THE AO IS INCORRECT THAT THE ASSETS ARE NOT MENTIONED I N THE VALUATION REPORT WHICH WAS PREPARED ABOUT TWO YEARS PRIOR TO THE DATE OF SURVEY. THE VALUATION SHOWN BY THE VALUER OF ASSETS WAS ALSO STATED TO BE MORE THAN THE VALUE CLAIMED BY THE ASSESSEE. THE ASSESSEE PRODUCED ALL THE RELEVANT DETAILS BEFORE AO REGARDI NG PURCHASE OF THE 12 ASSETS BUT SAME HAS NOT BEEN DISCUSSED IN DETAIL. T HE ASSESSEE ALSO CLAIMED THAT SOFTWARE WAS ALSO PURCHASED WHICH WAS USED FOR THE PURPOSE OF BUSINESS. THE AO ON THE BASIS OF REPORT OF DALAL MOTT MACDONALD ALSO ACCEPTED THE CLAIM OF THE ASSESSEE I N PART AND GRANTED DEPRECIATION. THEREFORE, THERE WAS NO REASO N FOR THE AO TO DISPUTE THE REMAINING PART OF SUCH REPORT WHICH CON TAINED ALL THE DETAILS OF INSTALLATION OF THE FIXED ASSETS IN THE PREMISES OF THE ASSESSEE. EVEN, ONE OF THE PERSONS EXAMINED DURING SURVEY ADMITTED THAT ALL THE SOFTWARE WERE INBUILT. THE LE ARNED CIT(A) ON PROPER EXAMINATION OF EVIDENCES AND MATERIAL RIGHTL Y CAME TO THE CONCLUSION THAT SOFTWARE IS INTANGIBLE ASSET AND WA S LOADED IN THE SYSTEM OF MACHINE. THE LEARNED CIT(A) ALSO RIGHTLY HELD THAT INSTALLATION OF SOFTWARE COULD BE CHECKED BY THE TE CHNICAL PERSON WHETHER IT WAS LOADED IN THE SYSTEM OR NOT. THEREFO RE, THE FINDING IN THE SURVEY CANNOT BE RELIED UPON. EVEN THE AO HAS A CCEPTED THE FACT THAT SOME OF THE SOFTWARE WERE DEVELOPED LOCALLY AN D INSTALLED IN THE SYSTEM. THE FINDING OF FACT RECORDED BY LEARNED CIT (A) FIND SUPPORT FROM THE VALUATION REPORT OF ASSETS PREPARED BY DAL AL MOTT MACDONALD WHICH WAS FOUND IN SURVEY WHICH INDICATED THAT SOFT WARE WERE DEVELOPED AND INSTALLED BY THE ASSESSEE IN THE SYST EM. THE ASSESSEE PRODUCED ALL THE VOUCHERS AND RECEIPT FOR THE SAME WHICH WAS ALSO EXAMINED BY LEARNED CIT(A). NOTHING IS PRO DUCED BEFORE US DURING THE COURSE OF ARGUMENTS TO REBUT THE FINDING S OF LEARNED CIT(A). CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF THE MATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) IN A LLOWING DEPRECIATION IN RESPECT OF ALL THE SOFTWARE PURCHASED AND INSTAL LED DURING THE YEAR. 13 FURTHER, THE AO DENIED CLAIM OF THE ASSESSEE BECAUS E NO FIXED ASSETS REGISTER WAS MAINTAINED BY THE ASSESSEE BUT SAME WAS PRODUCED BEFORE THE AO SUBSEQUENTLY. SOME STATEMENT S WERE RECORDED DURING THE COURSE OF SURVEY BUT IT IS NOT CLEAR FROM THE ASSESSMENT ORDER WHETHER THE SAME WERE SUPPLIED TO THE ASSESSEE FOR ALLOWING THEIR CROSS EXAMINATION ON BEHALF OF T HE ASSESSEE. UNLESS, CROSS EXAMINATION IS ALLOWED TO SUCH STATEM ENTS, THE SAME CANNOT BE USED IN EVIDENCE AGAINST THE ASSESSEE. ME RELY BECAUSE THE PARTIES WHO HAD SUPPLIED ASSETS TO THE ASSESSEE HAVE NOT RESPONDED TO THE NOTICE OF THE AO MAY NOT BE A GROU ND FOR DENYING CLAIM OF THE ASSESSEE ON TANGIBLE ASSETS. THE LEARN ED CIT(A) ALSO FAILED TO CONSIDER THAT SPECIFIC ITEMS OF TANGIBLE ASSETS ARE RECORDED IN THE REPORT OF DALAL MOTT MACDONALD. SINCE THE MATER IAL SUPPLIED BY THE ASSESSEE IS NOT EXAMINED IN DETAIL AND COMPLETE DETAILS OF THE ASSETS ARE RECORDED IN THE REPORT OF VALUATION PREP ARED PRIOR TO THE SURVEY AT THE INSTANCE OF IDBI, THEREFORE, WE ARE O F THE VIEW THE MATTER AS REGARDS DEPRECIATION ON TANGIBLE ASSETS R EQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. WE ACCORDIN GLY, CONFIRM THE ORDER OF THE LEARNED CIT(A) IN GRANTING DEPRECIATIO N ON INTANGIBLE ASSETS. THE DEPARTMENTAL APPEAL ON GROUND NO.1 IS A CCORDINGLY DISMISSED. HOWEVER, THE ORDER OF LEARNED CIT(A) IN REFUSING TO GRANT DEPRECIATION ON TANGIBLE ASSETS IS SET ASIDE AND TH E MATTER IS RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION. THE AO SHALL PASS REASONED ORDER BY GIVING REASONABLE SUFFICIENT OPPORTUNITY T O THE ASSESSEE CONSIDERING THE VALUATION REPORT OF DALAL MOTT MACD ONALD AND THE EVIDENCES PRODUCED BY THE ASSESSEE FOR PURCHASE OF TANGIBLE ASSETS. 14 IN THE RESULT, GROUND NO.2 AND 3 OF THE APPEAL OF T HE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7. THE REVENUE ON GROUND NO.2 CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN DIRECTING THE AO TO ALLOW DEDUCTI ON U/S 80HHC AND 80 IA OF THE IT ACT. THE ASSESSEE HAS NOT CLAIMED T HESE DEDUCTIONS AT THE TIME OF FILING OF THE RETURN FOR THE REASONS THAT THE INCOME COMPUTED WAS AT LOSS. HOWEVER, WHEN VARIOUS ADDITIO NS WERE MADE AND INCOME IS COMPUTED AT PROFIT, THE ASSESSEE MADE CLAIM OF DEDUCTION UNDER SECTION 80IA AND 80 HHC OF THE IT A CT, BECAUSE THE ASSESSEE FULFILLED ALL THE CONDITIONS FOR GRANT OF DEDUCTION UNDER THE ABOVE PROVISIONS. THE CLAIM OF THE ASSESSEE WAS NOT ALLOWED BY THE AO BECAUSE IT WAS NOT CLAIMED IN THE RETURN OF INCO ME. THE LEARNED CIT(A) FOUND THAT CLAIM OF THE ASSESSEE SHOULD BE C ONSIDERED BECAUSE THE INCOME IS COMPUTED ULTIMATELY AT PROFIT DUE TO THE ADDITIONS. IT WAS ALSO FOUND THAT ASSESSEE FULFILLE D ALL THE CONDITIONS FOR CLAIMING DEDUCTION UNDER THESE PROVISIONS. THE AO WAS, THEREFORE, DIRECTED TO EXAMINE THIS ISSUE AND ALLOW THE CLAIM AS PER LAW. 8. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 9. ON CONSIDERATION OF THE ABOVE FACTS, WE DO N OT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. SINCE THE ASS ESSEE FILED RETURN OF INCOME AT LOSSES, THEREFORE, THERE WAS NO REASON FOR THE ASSESSEE TO MAKE A CLAIM OF DEDUCTION OUT OF PROFIT UNDER TH E ABOVE PROVISIONS. 15 THE ASSESSEE MADE A CLAIM OF DEDUCTION UNDER THESE PROVISIONS WHEN INCOME IS COMPUTED AT PROFIT. THE LEARNED CIT( A), THEREFORE, RIGHTLY DIRECTED THE AO TO CONSIDER THIS ISSUE PART ICULARLY WHEN THE ASSESSEE FULFILLED CONDITIONS UNDER THESE PROVISION S. THE LEARNED CIT(A) MERELY DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AS PER LAW. WE, THEREFORE, DO NOT FIND ANY MERIT IN TH IS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. 10. THERE IS NO OTHER GROUND OF APPEAL IN THE DEPAR TMENTAL APPEAL. DEPARTMENTAL APPEAL IN ITA NO. 298/AHD/2006 IS ACCO RDINGLY DISMISSED. 11. ON GROUND NO.1 IN THE APPEAL OF THE ASSESSEE, T HE ASSESSEE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN NOT A LLOWING CLAIM OF BAD DEBTS U/S 36 (1) (VII) OF THE IT ACT. THE AO D ISALLOWED CLAIM OF BAD DEBTS IN A SUM OF RS.18,89,51,846/-. THE AO OBS ERVED THAT ASSESSEE HAS SHOWN SALES TO THE SAME PARTIES DURING THE YEAR AS WELL AS IN SUBSEQUENT YEAR. PAYMENTS WERE ALSO RECE IVED AGAINST THE SAME; THEREFORE, THERE WAS NO BAD DEBT. THE REPLY O F THE ASSESSEE WAS NOT ACCEPTED AND AS REGARDS FOUR PARTIES INCLUD ING BAD DEBTS WRITTEN OFF EARLIER YEAR AND CLAIM WAS DENIED. IT W AS SUBMITTED BEFORE THE LEARNED CIT(A) THAT DEBTS HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AND THE ASSESSEE FU LFILLED ALL THE CONDITIONS OF THE ABOVE PROVISION. THE LEARNED CIT( A) NOTED THAT AO HAS BROUGHT ON RECORD THAT DEBTS WHICH ARE WRITTEN OFF ARE CURRENT YEARS DEBTS AND THEY ARE NOT BAD DEBTS. THE ASSESS EE HAS NOT GIVEN ANY EVIDENCE TO INDICATE THAT DEBTS HAVE BECOME BAD . THE DEBTORS 16 HAVE NOT DENIED THAT THEY WILL NOT MAKE PAYMENTS TO THE ASSESSEE. NO LEGAL STEPS HAVE BEEN TAKEN FOR RECOVERY OF THE DEBTS AND PERIOD OF LIMITATION FOR RECOVERY HAS NOT EXPIRED. THE CLA IM OF THE ASSESSEE WAS ACCORDINGLY REJECTED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD., 323 ITR 397 AND ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF RIASMO LIFESCIENCES PVT. LTD. IN ITA NO.127 5/AHD/2009 DATED 08-04-2011. THE LEARNED DR ALSO SUBMITTED THA T THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE JUDG MENTS. 13. ON CONSIDERATION OF THE FACTS OF THE CASE, WE F IND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMEN T OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA) IN WHICH IT WAS HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESS EE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AN D THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE A CCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROV ISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT , THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCO UNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE- 17 MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTE NT OF THE WRITE OFF. THE SAME DECISION IS FOLLOWED BY ITAT AHMEDABAD BEN CH IN THE CASE OF RIASMO LIFESCIENCES PVT. LTD. (SUPRA) AND A PPEAL OF THE ASSESSEE HAS BEEN ALLOWED. IN THE LIGHT OF THE VIEW TAKEN BY THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA) AND UNDISPUTEDLY DEBTS HAVING BEEN WRITTEN OFF IN THE B OOKS OF ACCOUNTS IN THE YEAR UNDER CONSIDERATION, THE CLAIM OF BAD DEBT S IS ALLOWABLE TO THE ASSESSEE. WE ACCORDINGLY SET ASIDE THE ORDERS O F THE AUTHORITIES BELOW AND DELETE THE ADDITION. IN THE RESULT, GROUN D NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 14. ON GROUND NO.4 OF THE APPEAL OF THE ASSESSEE, THE ASSESSEE CHALLENGED LEVY OF INTEREST U/S 234B, 234C AND 234D OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT CHARGING OF INTEREST U/S 234 B AND 234C OF THE IT ACT ARE MANDA TORY AND CONSEQUENTIAL IN NATURE AND DID NOT PRESS THE SAME. THE SAME IS ACCORDINGLY DISMISSED. HOWEVER, AS REGARDS LEVY OF INTEREST U/S 234D OF THE IT ACT, HE HAS SUBMITTED THAT THE SAID PROVI SION WAS INSERTED IN THE ACT WITH EFFECT FROM 01-06-2003, THEREFORE, SAM E IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2004-05 ONWARDS AND NOT F ROM THE EARLIER ASSESSMENT YEAR. HE HAS RELIED UPON DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS JACABS CIVIL INCORPORATED / MITSUBISHI CORPORATION, 194 TAXMAN 4 95 IN WHICH IT WAS HELD THAT SUCH INTEREST COULD BE CHARGED U/S 23 4D OF THE IT ACT FROM ASSESSMENT YEAR 2004-05. THE LEARNED DR DID NO T DISPUTE THE SAME PROPOSITION OF LAW. CONSIDERING THE ABOVE PROV ISIONS, IN THE 18 LIGHT OF DECISION OF THE HONBLE DELHI HIGH COURT A BOVE WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW FOR CHARGING OF INTEREST U/S 234D OF THE IT ACT IN THE ASSESSMENT YEAR UNDER APPEAL I.E. 2002-03. GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. 15. ON GROUND NO.5, ASSESSEE CHALLENGED THE INITIAT ION OF PENALTY U/S 271 (1) (C) OF THE IT ACT WHICH IS SEPARATE PRO CEEDINGS AND THE SAME GROUND IS ACCORDINGLY DISMISSED. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA N O.338/AHD/2006 IS PARTLY ALLOWED. ITA NO.4282/AHD/2007 17. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 31-08-2007 FOR ASSESSMENT YEAR 2002-03, CHALLENGING THE LEVY OF PENALTY U/S 271 (1) ( C ) O F THE IT ACT. 18. THE ASSESSEE FILED RETURN OF INCOME SHOWING TOT AL TAXABLE LOSS OF RS.19.95 CRORES, HOWEVER ASSESSMENT WAS COMPLETE D U/S 143 (3) OF THE IT ACT AT RS.14,79,99,040/-. THE PENALTY WAS INITIATED ON THE FOLLOWING DISALLOWANCES: (1) CLAIM OF BAD DEBTS RS. 18,89,51,846/-. (2) DEPRECIATION ON TANGIBLE ASSETS RS. 9,27,36 ,250/- 19. THE AO LEVIED THE PENALTY ON THE ABOVE ADDITION S WHICH WAS CONFIRMED BY THE LEARNED CIT(A) VIDE IMPUGNED ORDER . 19 20. ON CONSIDERATION OF THE FACTS OF THE CASE, WE A RE OF THE VIEW PENALTY CANNOT BE LEVIED AGAINST THE ASSESSEE. THE ASSESSEE PREFERRED APPEAL AGAINST THE ORDER OF THE LEARNED C IT(A) ON QUANTUM BEFORE THE TRIBUNAL IN ITA NO.338/AHD/2006 (SUPRA). THE CLAIM OF ASSESSEE FOR BAD DEBTS HAS BEEN ALLOWED AND ADDITIO N HAS BEEN DELETED. AS REGARDS THE DEPRECIATION ON TANGIBLE AS SETS, THE MATTER IS RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION. THEREFORE, NO PENALTY CAN BE LEVIED AT THIS STAGE BECAUSE BOTH TH E ADDITIONS ON WHICH PENALTY WAS LEVIED HAVE BEEN DELETED OR RESTO RED TO THE FILE OF THE AO. WE ACCORDINGLY, SET ASIDE THE ORDERS OF AUT HORITIES BELOW AND CANCEL THE PENALTY. HOWEVER, AO IS AT LIBERTY TO IN ITIATE PENALTY PROCEEDINGS AFTER PASSING THE ORDER ON GRANT OF DEP RECIATION ON TANGIBLE ASSETS WHICH WOULD DEPEND UPON OUTCOME OF THE FINDINGS OF THE ASSESSING OFFICER. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .4282/AHD/2007 IS ALLOWED. ITA NO.4281/AHD/2007 22. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XIV, AHMEDABAD DATED 01-10-2007 FOR ASSESSMENT YEAR 1999-2000. 23. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PR ESS GROUNDS NO. 1 AND 2 OF THE APPEAL OF THE ASSESSEE CHALLENGI NG THE REOPENING OF THE ASSESSMENT U/S 147 OF THE IT ACT. SAME ARE A CCORDINGLY DISMISSED. 20 24. ON GROUND NOS. 3 AND 4, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF INSURANCE EXPENSES OF RS.50,11,623/ - AND IN ALTERNATE CLAIM IT IS STATED THAT IF THE INSURANCE EXPENSES ARE DISALLOWED, CORRESPONDING INSURANCE RECEIPTS OFFERE D AS INCOME AMOUNTING TO RS.1,25,87,770/- MAY BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE. 25. THE LEARNED CIT(A) NOTED THAT THE AO DISALLOWED INSURANCE EXPENSES OF RS.50,11,623/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF LOSS INCURRED DURING THE FIRE AT MOTI BAYAN PLANT A ND DAMAGE OF MACHINERY, BUILDING, RAW MATERIALS AND FINISHED GOO DS. THE ASSESSEE DEBITED THESE AMOUNTS IN THE BOOKS OF ACCOUNTS ON E STIMATE BASIS WHICH WAS DISALLOWED BY THE AO SAYING THAT IT WAS O NLY A CONTINGENT LIABILITY. THE ASSESSEE SUBMITTED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED OR THE INCOME OFFERED FROM INSURA NCE RECEIPT MAY BE EXCLUDED FROM THE TOTAL INCOME. THE LEARNED CIT( A) DID NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE BECAUSE THE INS URANCE RECEIPT WAS OFFERED AS INCOME WHICH WAS RIGHTLY TAXED BY TH E AO. THE ASSESSEE HAS ALREADY CAPITALIZED THE MACHINERY, BUI LDING ETC. IN ITS BLOCK OF ASSETS AND DEPRECIATION IS CLAIMED THEREON , HENCE, IF ANY PART OF IT IS DESTROYED ON FIRE, THE ASSESSEE KEEPS ON GETTING DEPRECIATION UNDER BLOCK OF ASSETS SCHEME. IT WAS, THEREFORE, HELD THAT THERE WAS NO JUSTIFICATION FOR FURTHER CLAIMIN G LOSS ON DAMAGES OF MACHINERY AS REVENUE EXPENDITURE. SIMILARLY, ASSESS EE HAS ALREADY DEBITED THE COST OF RAW MATERIALS ETC. AND NO FURTH ER DEBIT FOR LOSS ON FIRE IS REQUIRED. THE LEARNED CIT(A) ALSO CONFIRMED THE ADDITION. 21 26. ON CONSIDERATION OF RIVAL SUBMISSIONS, WE ARE O F THE VIEW THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT INSURANCE R ECEIPTS AND EXPENSES SHOULD BE CONSIDERED TOGETHER. HOWEVER, LE ARNED DR SUBMITTED THAT NO EVIDENCE WAS FILED FOR THE LOSS C LAIMED. IT IS NOT IN DISPUTE THAT THE ASSESSEE OFFERED INSURANCE RECEIPT S OF RS.1,25,87,770/- AS INCOME IN THE ASSESSMENT YEAR U NDER APPEAL. THE FIRE TOOK PLACE ON APRIL,1998 WHICH IS RELATED TO THE ASSESSMENT YEAR UNDER APPEAL IN WHICH MACHINERY, BUILDING, RAW MATERIAL AND FINISHED GOODS WERE CLAIMED TO HAVE BEEN DESTROYED AS IS NOTED IN PARA 6 OF THE ASSESSMENT ORDER. THE AO HOWEVER, REJ ECTED THE CLAIM OF THE ASSESSEE BECAUSE THE INSURANCE COVER WAS TAK EN FOR LOSS OF PRODUCTION AND EXPECTED PROFIT WHEREAS INSURANCE EX PENSES WERE DEBITED ON ESTIMATE BASIS RELATING TO DESTRUCTION O F MACHINERY, BUILDING, RAW MATERIAL AND FINISHED GOODS. THE CLAI M OF ASSESSEE THUS APPEARS TO BE FOR LOSS OF PRODUCTION I.E. FINISHED GOODS AND THE EXPECTED PROFIT THEREON. SINCE FIRE HAD TAKEN PLACE IN THE ASSESSMENT YEAR UNDER APPEAL, THEREFORE, IT CANNOT BE SAID TO BE CONTINGENT LIABILITY. ONCE ASSESSEE HAS SHOWN INCOME ON ACCOUN T OF INSURANCE RECEIPTS OUT OF THE SAME INCIDENT AND CLAIMED EXPEN SES OUT OF THE SAME INCIDENT RELATING THERETO, THE CLAIM OF THE AS SESSEE SHOULD HAVE BEEN APPRECIATED AND CONSIDERED FOR BOTH I.E. INCOM E AND THE EXPENDITURE ON ACCOUNT OF INSURANCE. SIMILARLY, ASS ESSEE SHALL HAVE TO SATISFY THE AO AS TO HOW EXPENSES HAVE BEEN CLAI MED AND SHOULD HAVE FILED THE SUPPORTING EVIDENCES. WE ACCORDINGLY , DO NOT FIND ANY JUSTIFICATION FOR THE AUTHORITIES BELOW TO DENY THE CLAIM OF THE ASSESSEE. THIS ISSUE IS NOT PROPERLY APPRECIATED AN D CONSIDERED BY 22 THE AUTHORITIES BELOW. THE ORDERS OF AUTHORITIES BE LOW ARE SET ASIDE AND THE MATTER IN ISSUE IS RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION. THE AO SHALL GIVE REASONABLE SUFF ICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE PASSING THE O RDER ON THESE GROUNDS. IN THE RESULT, GROUND NOS. 3 AND 4 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 27. ON GROUND NO.5, ASSESSEE CHALLENGED THE DISA LLOWANCE OF INTEREST AND FINANCE CHARGES OF RS.4,21,74,334/- . ON GROUND NO.6, ASSESSEE CHALLENGED THE DISALLOWANCE OF LEGAL AND P ROFESSIONAL CHARGES OF RS.65,87,500/-. ON GROUND NO.7, ASSESSEE CHALLENGED THE DISALLOWANCE OF INTEREST ON REDEMPTION OF FCB OF RS .43,86,000/-. ON GROUND NO.10, ASSESSEE CHALLENGED THE DISALLOWANCE OF DEPRECIATION ON ASSETS AMOUNTING TO RS.41,58,747/-. ALL THESE GR OUNDS ARE CONNECTED, THEREFORE, TAKEN UP TOGETHER FOR THE PUR POSE OF DISPOSAL. IT IS STATED THAT THE ASSESSEE COMPANY FILED RETURN OF INCOME IN RESPONSE TO NOTICE U/S 148 OF THE IT ACT AND HAS MA DE ADDITIONAL CLAIMS ON THESE EXPENSES. SUCH CLAIMS WERE NOT MADE IN THE ORIGINAL RETURN OF INCOME. THE AO REJECTED THE CLAIM OF THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SUN ENGINEERING WORKS LTD., 198 ITR 297 IN WHICH IT WAS HELD THAT THE PROCEEDINGS U/S 147 ARE MEANT FOR THE BENE FIT OF REVENUE AND NOT FOR ASSESSEE, THE ASSESSEE CANNOT BE PERMIT TED TO CONVERT THE RE-ASSESSMENT PROCEEDINGS INTO AN APPEA L OR REVISION IN DISGUISE AND SICK LEAVE IN RESPECT OF I TEMS EARLIER REJECTED OR CLAIM RELIEF IN RESPECT OF ITEMS NOT CL AIMED IN THE ORIGINAL ASSESSMENT PROCEEDINGS, UNLESS RELATABLE T O ESCAPED 23 INCOME. THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE AO BECAUSE SUCH CLAIM OF DEDUCTION OF VARIOUS EXPENSES WERE NO T MADE IN THE ORIGINAL RETURN OF INCOME. THE LEARNED CIT(A) FOLLO WING THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF SUN ENGINE ERING WORKS LTD. DISMISSED THESE GROUNDS OF APPEAL OF THE ASSE SSEE. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT DISPUTE THE ABOVE LEGAL PROPOSITION. IN VIEW OF THE ABOVE FACTS THAT NO SUCH CLAIMS WERE MADE IN THE ORIGINAL RETURN OF INCOME, THEREFORE, AUTHORITIES B ELOW RIGHTLY DISALLOWED CLAIM OF ASSESSEE RAISED FOR THE FIRST T IME IN THE PROCEEDINGS U/S 148 OF THE IT ACT. THE ISSUE IS COV ERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF SUN ENGINEERING WORKS LTD. (SUPRA). GROUND NOS. 5, 6, 7 AND 10 OF THE APPEAL OF THE ASSESSEE ARE ACCORDINGLY DISMISSE D. 28. ON GROUND NOS. 8 AND 9, THE ASSESSEE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING ACTION OF THE AO I N DISALLOWING BAD DEBTS PROVISIONS OF RS.9,37,942/-. THE AUTHORITIES BELOW NOTED THAT THE PROVISIONS FOR DOUBTFUL DEBTS IS NOT ALLOWABLE IN VIEW OF THE AMENDMENT TO SECTION 36(1) (VII) OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE CONCEDED THAT PROVISIONS FOR BAD D EBTS CANNOT BE ALLOWED AND THE ISSUE MAY BE DECIDED AGAINST THE AS SESSEE. NO FURTHER ARGUMENTS HAVE BEEN MADE ON ALTERNATE CLAIM . IN VIEW OF THE ABOVE, GROUND NOS. 8 AND 9 OF THE APPEAL OF THE ASS ESSEE ARE DISMISSED. 29. ON GROUND NOS. 11 AND 12, THE ASSESSEE CHALLENG ED THE DISALLOWANCE OF DEDUCTION U/S 80 IA OF THE IT ACT O N OTHER INCOME OF 24 RS.1,39,30,555/-. IN ALTERNATE CONTENTION IT IS PLE ADED THAT ONLY NET OTHER INCOME MAY BE TAKEN INTO CONSIDERATION WHILE CALCULATING THE DEDUCTION. THE AO DISALLOWED DEDUCTION U/S 80 IA OF THE IT ACT ON OTHER INCOME. THE LEARNED CIT(A) CONFIRMED THE ORDE R OF THE AO AND REJECTED THE CLAIM OF THE ASSESSEE. 30. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED T O THE DETAILS OF OTHER INCOME AT PAGE 170 OF THE PAPER BOOK WHICH PE RTAINS TO INSURANCE CLAIM, SUNDRY BALANCE WRITTEN BACK, MISC. INCOME, DIVIDEND AND PROFIT ON SALE OF RAW MATERIAL. THE LEARNED COU NSEL FOR THE ASSESSEE DID NOT PRESS PART OF THIS CLAIM IN RESPEC T OF OTHER INCOME I.E. SUNDRY BALANCE WRITTEN BACK, MISC. INCOME, DIV IDEND AND PROFIT ON SALE OF RAW MATERIAL. THESE GROUNDS ARE ACCORDINGLY DISMISSED. THE LEARNED COUNSEL FOR THE ASSESSEE AS REGARDS INSURAN CE CLAIM SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SPORTKING INDIA LTD., 324 ITR 283 IN WHICH IT WAS HELD THAT THE SUM RECEIVED FROM INSURANCE COMPANY AS COMPENSATION FOR GOODS DESTROYED BY FIRE IS DERIVED FROM INDUSTRIAL UNDERTAKING AND TO BE INCLU DED IN PROFITS OF BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80 IA OF THE IT ACT. WE, THEREFORE, FOLLOWING THE DECISION OF THE HONBL E DELHI HIGH COURT, DIRECT THE AO TO ALLOW DEDUCTION U/S 80 IA OF THE I T ACT ON INSURANCE CLAIM. AS FAR AS THE NETTING OF OTHER INCOME IS CON CERNED, THE SAME IS NOT ALLOWABLE IN VIEW OF THE DECISION OF THE HONBL E BOMBAY HIGH COURT IN THE CASE CIT VS ASIAN STAR CO. LTD., 326 I TR 56 HELD AS UNDER: 25 IN THE CIRCUMSTANCES, WE ALLOW THE APPEAL BY HOLDING THAT THE TRIBUNAL WAS NOT JUSTIFIED IN COMI NG TO THE CONCLUSION THAT THE NET INTEREST ON FIXED DEPOSITS IN THE BANK RECEIVED BY THE ASSESSEE SHOUL D BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80 HHC AND NOT THE GROSS INTEREST. THE QUESTION OF LAW WOULD ACCORDINGLY STA ND ANSWERED IN THE AFORESAID TERMS IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THERE SHALL BE NO ORDER AS TO COSTS. 30.1 IN VIEW OF THE ABOVE DISCUSSIONS, GROUND NO. 1 1 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND GROUND NO.12 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 31. ON GROUND NO.13, THE ASSESSEE CHALLENGED ORDER OF THE LEARNED CIT(A) IN NOT GRANTING DEDUCTION U/S 80 IA OF THE I T ACT ON REVISED TOTAL INCOME AS COMPUTED IN THE IMPUGNED ASSESSMENT ORDER. THE LEARNED CIT(A) DIRECTED THE AO TO ALLOW DEDUCTION U /S 80 IA AS PER PROVISIONS OF THE ACT. THE ISSUE IS SAME AS IS CO NSIDERED IN DEPARTMENTAL APPEAL IN ASSESSMENT YEAR 2002-03 ON G ROUND NO.2 ON WHICH THE DEPARTMENTAL APPEAL HAS BEEN DISMISSED. S INCE, TOTAL INCOME WAS REVISED TO POSITIVE INCOME, THEREFORE, C LAIM OF ASSESSEE WAS RIGHTLY ALLOWED BY THE LEARNED CIT(A) AS PER LA W. SINCE DIRECTION IS ALREADY GIVEN BY THE LEARNED CIT(A), THEREFORE, NO FURTHER DIRECTION IS REQUIRED IN THIS MATTER. THIS GROUND IS ACCORDIN GLY DISPOSED OF. 32. ON GROUND NO.14, THE ASSESSEE CHALLENGED THE OR DER OF THE LEARNED CIT(A) IN NOT GRANTING DEDUCTION U/S 80 IA AS WELL AS DEDUCTION U/S 80 HHC OF THE IT ACT UPON THE SAME GR OSS TOTAL INCOME WITHOUT REDUCING THE DEDUCTION GRANTED UNDER ONE SE CTION WHILE 26 CALCULATING THE DEDUCTION UNDER OTHER SECTION. THE LEARNED CIT(A) FOLLOWING THE DECISION OF ITAT CHENNAI SPECIAL BENC H IN THE CASE OF RAGINI GARMENTS, 294 ITR (AT) 15 UPHELD THE ACTION OF THE AO AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DECISIO N OF SPECIAL BENCH IS AGAINST THE ASSESSEE. IN VIEW OF THE ABOVE , GROUND NO.14 OF THE APPEAL OF THE ASSESSEE HAS NO MERIT AND IS DISM ISSED. 33. ON GROUND NOS. 15 AND 16, THE ASSESSEE CHALLENG ED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE ORDER OF TH E AO IN REDUCING THE BUSINESS PROFITS BY 90% OF THE GROSS INTEREST R ECEIPTS AND IN ALTERNATE CONTENTION IT WAS PLEADED THAT ONLY NET I NTEREST INCOME MAY BE REDUCED. THE LEARNED CIT(A) FOLLOWING THE DECISI ON OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF K. S. SUBBIAH PILL AI & CO. (INDIA) PVT. LTD. 260 ITR 304 AND THE DECISION OF THE HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF RANI PALIWAL, 268 ITR 220 REJECTED THE CLAIM OF THE ASSESSEE BECAUSE THE GROSS INTERES T INCOME IS TO BE REDUCED FROM BUSINESS PROFITS WHILE CALCULATING DED UCTION U/S 80 HHC OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE CIT VS ASIAN STAR CO. LTD., 326 ITR 56 IN WHICH IT WAS HELD AS UNDER: IN THE CIRCUMSTANCES, WE ALLOW THE APPEAL BY HOLDING THAT THE TRIBUNAL WAS NOT JUSTIFIED IN COMI NG TO THE CONCLUSION THAT THE NET INTEREST ON FIXED DEPOSITS IN THE BANK RECEIVED BY THE ASSESSEE SHOUL D BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80 HHC AND NOT THE GROSS 27 INTEREST. THE QUESTION OF LAW WOULD ACCORDINGLY STA ND ANSWERED IN THE AFORESAID TERMS IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THERE SHALL BE NO ORDER AS TO COSTS. IN VIEW OF THE ABOVE, GROUND NOS. 15 AND 16 OF THE APPEAL OF THE ASSESSEE ARE DISMISSED. 34. ON GROUND NO.17, THE ASSESSEE CHALLENGED THE DI SALLOWANCE OF RS.58,88,574/- OUT OF PURCHASE EXPENDITURE BY TREAT ING THE SAME AS BOGUS PURCHASES. THE FACTS OF THE CASE ARE THAT THE CENTRAL EXCISE DEPARTMENT HAD CARRIED OUT SEARCH OPERATION AT THE BUSINESS PREMISES OF THE ASSESSEE ON 15-06-2002 AND DURING T HE SEARCH; THE EXCISE DEPARTMENT HAD FOUND EVIDENCES THAT THE ASSE SSEE COMPANY HAD SHOWN BOGUS PURCHASES FROM M/S. GUJARAT PICKERS INDUSTRIES LTD. THE DETAILS EVIDENCES IN THIS REGARD HAVE BEEN ENUM ERATED IN DETAIL BY THE COMMISSIONER OF CENTRAL EXCISE (ADJUDICATION ) AHMEDABAD VIDE ORDER DATED 30-12-2005. THE AO HELD THAT THE P URCHASES FROM THIS PARTY HAVE BEEN CONSISTENTLY HELD BY THE DEPAR TMENT TO BE BOGUS PURCHASES. THE AO FOLLOWING THE ORDERS FOR ASSESSME NT YEAR 2002-03 AND 2003-04 DISALLOWED THE CLAIM OF THE ASSESSEE. I T WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO WAS NOT JUSTI FIED IN MAKING ADDITION WITHOUT GIVING INDEPENDENT FINDINGS. THE A SSESSEE MADE GENUINE PURCHASES AND IN SUPPORT OF WHICH ASSESSEE FILED COPIES OF BILLS/CHALLANS AND PAYMENTS WERE DULY MADE. THEREFO RE, NO DISALLOWANCE IS CALLED FOR. THE LEARNED CIT(A) FOLL OWING THE ORDER OF COMMISSIONER OF CENTRAL EXCISE (SUPRA) CONFIRMED TH E ORDER OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. 28 35. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND SU BMITTED THAT SEARCH WAS CONDUCTED ON 15-02-2002 SUBSEQUENT TO SE VERAL YEARS OF ASSESSMENT YEAR UNDER APPEAL AND THE ASSESSEE FILED DETAILED EVIDENCES BEFORE THE AO WHICH HAVE NOT BEEN EVEN DI SCUSSED IN THE ASSESSMENT ORDER. FINDINGS OF EXCISE AUTHORITIES HA VE NOT BECOME FINAL AND NOTHING IS BROUGHT ON RECORD AGAINST THE ASSESSEE. HE HAS SUBMITTED THAT ITAT AHMEDABAD BENCH IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 1998-99 VIDE ORDER DAT ED 21-10-2011 GRANTED RELIEF TO THE ASSESSEE. HE HAS SUBMITTED TH AT THERE IS NO FINDING GIVEN AGAINST THE ASSESSEE IN ASSESSMENT YE AR 2002-03. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE PARTIES AR E DIFFERENT IN THE ASSESSMENT YEAR UNDER APPEAL AND IN THE ORDER OF TH E TRIBUNAL DATED 21-10-2011. 36. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. THE SEARCH WAS CONDUCTED BY THE EXCISE DEPARTMENT ON 15-02-200 2 I.E. SEVERAL YEARS AFTER THE COMPLETION OF THE ASSESSMENT YEAR U NDER APPEAL 1999-2000. NOTHING IS BROUGHT IN THE ORDER OF THE A O AS TO WHICH INCRIMINATING MATERIAL WAS FOUND IN SEARCH OF EXCIS E DEPARTMENT AGAINST THE ASSESSEE WHICH PROMPTED THE AO TO HOLD THE PURCHASES AS BOGUS MADE FROM GUJARAT PICKERS INDUSTRIES LTD. IN ASSESSMENT YEAR UNDER APPEAL. NO FINDING IS GIVEN AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2002-03. NOTHING IS EXPLAINED AS TO WHETHER THE PROCEEDINGS BEFORE CENTRAL EXCISE DEPARTMENT HAVE A NY RELATION WITH 29 THE PROCEEDINGS UNDER ASSESSMENT YEAR IN APPEAL. TH E LEARNED DR RIGHTLY CONTENDED THAT PARTIES ARE DIFFERENT IN THE ASSESSMENT YEAR UNDER APPEAL AS COMPARED TO THE PARTIES CONSIDERED BY THE TRIBUNAL IN THE ORDER DATED 21-10-2011. FURTHER, THE EVIDENC ES FILED BY THE ASSESSEE ON THIS ISSUE HAVE NOT BEEN COMMENTED TO B Y THE AO. THE AO SHOULD SPECIFICALLY POINT OUT AS TO WHICH OF THE MATERIAL WAS FOUND AGAINST THE ASSESSEE RELATING TO THE ASSESSMENT YEA R UNDER APPEAL. IN THE ABSENCE OF ANY EVIDENCE FOUND AGAINST THE AS SESSEE IN SEARCH FOR THE ASSESSMENT YEAR UNDER APPEAL, NO ADDITION C OULD BE MADE AGAINST THE ASSESSEE. THE ORDER OF THE AO ON THIS I SSUE IS THUS NON- SPEAKING AND CANNOT BE SUSTAINED IN LAW. ACCORDINGL Y, WE ARE OF THE VIEW THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE AO. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THIS ISSUE BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. IN THE RESULT, GROUND NO.17 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 37. ON GROUND NO.18, THE ASSESSEE CHALLENGED THE LE VY OF INTEREST U/S 234B AND 234C OF THE IT ACT WHICH IS MANDATORY AND CONSEQUENTIAL. ON GROUND NO.19, INITIATION OF PENAL TY PROCEEDINGS U/S 271 (1) (C) HAS BEEN CHALLENGED, WHICH IS INDEPENDE NT AND SEPARATE PROCEEDINGS. GROUND NO.20 IS GENERAL. THESE GROUNDS ARE ACCORDINGLY DISMISSED. 38. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .4281/AHD/2007 IS PARTLY ALLOWED. 30 ITA NO.1510/AHD/2009 ITA NO.1890/AHD/2009 39. BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XIV, AHMEDABAD DATED 26-03-2009, FOR ASSESSMENT YEAR 2003-04. 40. THE ASSESSEE ON GROUND NOS. 1 AND 2, CHALLENGED THE DISALLOWANCE OF BAD DEBTS OF RS.1,27,59,170/- U/S 3 6(1) (III) OF THE IT ACT. IT IS NOTED IN THE IMPUGNED ORDER THAT SIMILAR CLAIM WAS MADE IN RESPECT OF PARAS TRADING CORPORATION IN ASSESSMENT YEAR 2002-03 IN WHICH ADDITION WAS UPHELD BY THE LEARNED CIT(A). SI NCE THE ASSESSEE COULD NOT PRODUCE ANY PROOF REGARDING EFFORTS MADE FOR RECOVERY OF THE DEBTS, CLAIM OF BAD DEBTS WAS DISALLOWED FOLLOW ING THE OBSERVATION IN ASSESSMENT YEAR 2002-03. WE FIND THA T IN ASSESSMENT YEAR 2002-03 THE SIMILAR CLAIM OF THE ASSESSEE IN I TA NO.338/AHD/2006 ABOVE HAS BEEN ALLOWED BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F . LTD. (SUPRA). BY FOLLOWING THE SAME DECISION, WE SET ASIDE THE ORDER S OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE. GROUND N OS. 1 AND 2 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 41. ON GROUND NO.3, ASSESSEE CHALLENGED THE DISALLO WANCE OF DEPRECIATION ON TANGIBLE ASSETS. THE REVENUE ON GRO UND NO.1 CHALLENGED THE DELETION OF DISALLOWANCE OF DEPRECIA TION ON ASSETS. IT IS STATED THAT ISSUE IS SAME AS IS CONSIDERED IN AS SESSMENT YEAR 2002-03 AND THE LEARNED CIT(A) FOLLOWED HIS ORDER F OR ASSESSMENT YEAR 2002-03 AND DIRECTED THE AO TO ALLOW DEPRECIAT ION ON SOFTWARE 31 PURCHASED I.E. INTANGIBLE ASSETS AND DISALLOWED THE CLAIM OF DEPRECIATION ON TANGIBLE ASSETS. IT IS STATED BY BO TH THE PARTIES THAT ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2002-03 AB OVE MAY BE FOLLOWED. IN ASSESSMENT YEAR 2002-03, WE HAVE DECID ED THE CROSS APPEALS IN ITA NO.298/AHD/2006 AND ITA NO.338/AHD/2 006 AND THE DEPARTMENTAL APPEAL HAS BEEN DISMISSED CONFIRMING D EPRECIATION ON SOFTWARE I.E. INTANGIBLE ASSETS AND RESTORED THE IS SUE OF CLAIM OF DEPRECIATION ON TANGIBLE ASSETS TO THE FILE OF THE AO. BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03 A BOVE, THE DEPARTMENTAL APPEAL IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS SIMILARLY ALLOWED FOR STATISTICAL PURPOSES ON THIS ISSUE. 42. ON GROUND NO.4, THE ASSESSEE CHALLENGED THE DIR ECTION OF THE LEARNED CIT(A) IN RESTRICTING THE DISALLOWANCE TO T HE EXTENT OF 25% ON DISALLOWANCE OF RS.3,08,17,231/- MADE BY THE AO ON ACCOUNT OF NON- GENUINE PURCHASES. THE REVENUE HAS RAISED GROUND NO .4 CHALLENGING THE DELETION OF ADDITION AND GRANTING PART RELIEF O F RS.2,31,12,921/- ON THE SAME ISSUE OF BOGUS PURCHASES. 43. BRIEFLY, THE FACTS OF THE CASE AS NOTED IN THE ORDER OF THE LEARNED CIT(A) ARE THAT DURING THE SEARCH OPERATION CARRIED OUT BY THE CENTRAL EXCISE DEPARTMENT ON 15-02-2002 (THOUGH IT HAS BEEN REPORTED WRONGLY AS 15-06-2002), IT WAS NOTICED THAT ASSESSE E HAD SHOWN PURCHASES FROM FIVE PARTIES NAMELY GUJARAT PICKERS INDUSTRIES LTD., LABDHI INTERNATIONAL, MANDELIA CHEMICALS, IDEAL PET ROPRODUCTS LTD. AND M/S. ABHISHEK POLYMERS WHEREIN ONLY INVOICES WE RE RECEIVED WITHOUT ACTUAL RECEIPT OF MATERIAL. THE AO RELYING ON THE FINDINGS OF 32 CENTRAL EXCISE AUTHORITIES FOR FINANCIAL YEAR 2001- 02 CONCLUDED THAT THE PURCHASES MADE FROM THESE PARTIES ARE BOGUS AS SIMILAR FACTS EXISTED FOR THAT YEAR AND ONLY BILLS HAVE BEEN RECE IVED WITHOUT ACTUAL RECEIPT OF MATERIAL. IT WAS ALSO OBSERVED THAT THE PRODUCTION SHOWN BY THE ASSESSEE WAS MUCH LOWER THAN THE NORMAL PRODUCT ION AND FINDING TO THAT EFFECT HAVE BEEN GIVEN BY THE COMMISSIONER OF CENTRAL EXCISE AND THE TAX AUDITOR HAS NOT GIVEN YIELD OF FINISHED PRODUCTS. THE AO, THEREFORE, HELD THAT PURCHASES MADE FROM THESE PART IES WERE BOGUS AND NON-GENUINE AND DISALLOWED RS.3,08,17,231/-. I T WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ALL THE NECESSARY PR OOF HAVE BEEN FURNISHED WITH REGARD TO GENUINENESS OF THE PURCHAS ES ALONG WITH SUPPORTED DOCUMENTS. ADDITION IS MADE BY THE AO WIT HOUT GIVING ANY INDEPENDENT FINDINGS. DURING THE APPELLATE PROCEEDI NGS ASSESSEE FURNISHED DETAILS OF PURCHASES WITH INVOICES AND PR OOF AS TO DELIVERY AND EVIDENCES TO PROVE THE PHYSICAL MOVEMENTS OF TH E GOODS AS FILED IN THE PAPER BOOK. IT WAS, THEREFORE, SUBMITTED THA T THE SAME MAY BE ADMITTED UNDER RULE 46A OF THE IT RULES BECAUSE THE ASSESSEE WAS NOT GIVEN SUFFICIENT OPPORTUNITY TO PRODUCE THESE D ETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ADDITIONAL EV IDENCES FILED BY THE ASSESSEE WERE FORWARDED TO THE AO FOR HIS REMAN D REPORT. THE AO IN HIS REPORT REFERRED TO SEARCH OPERATION CARRI ED OUT BY THE CENTRAL EXCISE DEPARTMENT AND THE FINDINGS GIVEN BY THEM TH AT FOR PURCHASES ONLY BILLS WERE RECEIVED WITHOUT ACTUAL DELIVERY. T HE REPORT OF THE AO WAS CONFRONTED TO THE ASSESSEE AND ASSESSEE EXPLAIN ED THAT THE AO IN THE ENTIRE REMAND REPORT DID NOT GIVE ANY COMMEN TS ON THE ADDITIONAL EVIDENCES PLACED BEFORE HIM; THEREFORE, THE REPORT IS COMPLETELY MISPLACED AND MISCONCEIVED. THE LEARNED CIT(A) 33 CONSIDERING THE EVIDENCES AND REMAND REPORT OF THE AO DISALLOWED 25% OUT OF THE PURCHASES AND GRANTED SUBSTANTIAL RE LIEF TO THE ASSESSEE. HIS FINDINGS IN PARA 7.2 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 7.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE A. R. OF THE APPELLANT AND THE R EMAND REPORT OF THE A. O. AND COUNTER FILED BY THE A. R. IT IS S EEN THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN RESPONSE T O LETTERS ISSUED TO THE ABOVE PARTIES, ALL THE PARTIES HAD FU RNISHED THE DETAILS EXCEPT ONE PARTY I.E. IDEAL PETRO PRODUCTS LTD. WHICH DID NOT FURNISH ANY REPLY. THE A. O. HAS DISALLOWED PUR CHASES FROM TWO PARTIES I.E. GUJARAT PICKERS INDUSTRIES LTED. A ND LABDHI INTERNATIONAL. AS REGARDS PURCHASES FROM THESE PARR IES, IT IS THE CONTENTION OF THE A. R. THAT THE PURCHASES HAVE BEE N MADE FROM THEM AND GOODS HAVE BEEN RECEIVED. IT IS STATE D BY THE A. R. THAT CENTRAL EXCISE SEARCH WAS ON 15/16-02-2002 AND THE EXCISE DEPARTMENT HAS CONDUCTED AUDIT OF DAILY STOC K ACCOUNT FOR THE PERIOD FROM 16-02-2002 TO 31-12-2002 IN FEB RUARY 2003 AND HAS NOT GIVEN ANY ADVERSE COMMENTS FOR THE SAID PERIOD, A COPY OF THE REPORT HAS BEEN FILED AT PAGES 1229 TO 1230 OF PAPER BOOK. MOREOVER, IT WAS ARGUED OUT BY THE A. R . THAT AFTER EXCISE SEARCH THE APPELLANT WOULD NOT HAVE LIKED TO RECEIVE BILLS WITHOUT GOODS. HOWEVER, AS PER THE FINDINGS OF CENT RAL EXCISE DEPARTMENT, ONLY BILLS HAVE BEEN RECEIVED WITHOUT A CTUAL RECEIPT OF GOODS THOUGH FOR PERIOD PRIOR TO 15-2-2002. AS I T IS LIKELY THAT THE APPELLANT WOULD HAVE CONTINUED TO RECEIVE BILLS WITHOUT ACTUAL RECEIPT OF GOODS, I AM OF THE VIEW THAT THE DECISION OF ITAT AHMEDABAD IN VIJAY PROTEINS REPORTED IN 59 ITD 428 (AHD) WOULD BE APPLICABLE AND THE DISALLOWANCE IS S USTAINED TO THE TUNE OF 25% OF PURCHASES CLAIMED TO HAVE BEEN M ADE FROM THE TWO PARTIES, SO I DIRECT THE A. O. TO RESTRICT THE DISALLOWANCE TO 25% OF PURCHASES FROM THESE PARTIES AND THE APPE LLANT IS ALLOWED RELIEF ON THE BALANCE AMOUNT OF DISALLOWANC E. 44. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT 34 SEARCH WAS CARRIED OUT BY CENTRAL EXCISE DEPARTMENT ON 15-02-2002 WHICH IS PRIOR TO THE START OF THE FINANCIAL YEAR R ELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL 2003-04. THEREFORE, FI NDING OF THE EXCISE DEPARTMENT IN EARLIER YEAR HAVE NO CONCERN W ITH THE SUBSEQUENT YEAR. IN THE REMAND REPORT, PB-1510 DATE D 04-12-2007, THE AO DID NOT ADVERSELY COMMENT UPON THE EVIDENCES AND DOCUMENTS FILED BY THE ASSESSEE PROVING THE GENUINE PURCHASES. SINCE, THE CLAIM OF THE ASSESSEE IS NOT DISPUTED BY THE AO; THEREFORE, ADDITION IS CLEARLY UNJUSTIFIED. HE HAS SUBMITTED T HAT THE AO HAS DISALLOWED PURCHASES OF GUJARAT PICKERS INDUSTRIES LTD. AND LABDHI INTERNATIONAL FOR WHICH DETAILED EVIDENCES ARE FILE D IN THE PAPER BOOK FROM PB 915 ONWARDS AND THE ASSESSEE FILED ABOUT 40 0 PAGES IN SUPPORT OF THE CONTENTIONS. NO PURCHASE WAS MADE FR OM IDEAL PETROPRODUCTS LTD. AND ALL THE THREE PARTIES FILED THE CONFIRMATIONS BEFORE THE AO WHICH IS ALSO MENTIONED IN THE ASSESS MENT ORDER. THEREFORE, EVEN PART ADDITION IS UNJUSTIFIED. THE L EARNED CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE BUT MERELY ON LI KELIHOOD OF BOGUS PURCHASES SUSTAINED ADDITION OF 25% OUT OF PURCHASE S. THE PRIOR YEARS FINDINGS OF EXCISE DEPARTMENT PRIOR TO START OF THE FINANCIAL YEAR ARE IRRELEVANT AND ENTIRE ADDITION SHOULD HAVE BEEN DELETED. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE BILLS WERE BOGUS. SINCE IN EARLI ER, THE PARTIES ISSUED BOGUS BILLS TO THE ASSESSEE, THEREFORE, THE AO CORRECTLY MADE THE ADDITION. 45. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND JUSTIFICATION EVEN TO SUSTAIN PART ADDITION. IT IS NOT IN DISPUTE THAT 35 SEARCH WAS CARRIED OUT BY CENTRAL EXCISE DEPARTMENT PRIOR TO START OF THE FINANCIAL YEAR IN APPEAL. THE FINANCIAL YEAR ST ARTS FROM 01-04-2002 AND WOULD END ON 31-03-2003 FOR ASSESSMENT YEAR 200 3-04 UNDER APPEAL. THE SEARCH IS CONDUCTED ON 15-02-2002; THER EFORE, THERE IS NO QUESTION OF RECOVERY OF ANY INCRIMINATING MATERI AL AGAINST THE ASSESSEE IN THE SEARCH FOR THE ASSESSMENT YEAR 2003 -04. THE AUTHORITIES BELOW MERELY ON GOING THROUGH THE FINDI NGS IN EARLIER YEAR FOLLOWED THE ORDER FOR HOLDING BOGUS PURCHASES MADE BY THE ASSESSEE. THE ASSESSEE EXPLAINED BEFORE THE LEARNED CIT(A) THAT NO SUFFICIENT OPPORTUNITY WAS GIVEN TO PRODUCE THE DOC UMENTS ON THIS ISSUE, THEREFORE, ADDITIONAL DOCUMENTS WERE FILED A T THE APPELLATE STAGE ON WHICH REMAND REPORT FROM THE AO WAS CALLED FOR, BUT THE AO HAS NOT GIVEN ANY FINDING AGAINST THE ASSESSEE BASE D ON THE ADDITIONAL EVIDENCES. THE CONCERN PARTIES HAVE FURN ISHED DETAILS AND ALSO FILED CONFIRMATIONS EVEN AS PER FINDINGS OF TH E AO. NOTHING IS BROUGHT ON RECORD IF ANY ADVERSE FINDINGS WERE GIVE N BY CENTRAL EXCISE AUTHORITIES AGAINST THE ASSESSEE FOR ASSESSM ENT YEAR UNDER APPEAL. THE LEARNED CIT(A) IN SUBSTANCE ACCEPTED T HE CLAIM OF THE ASSESSEE BUT MERELY ON PRESUMPTION AND ASSUMPTION O BSERVED THAT IT IS LIKELY THAT THE ASSESSEE WOULD CONTINUE TO RECEI VE BILLS WITHOUT ACTUAL DELIVERY. THE FINDINGS OF LEARNED CIT(A) HAV E NO BASIS AND HAVE NOT BEEN SUPPORTED BY ANY EVIDENCE OR MATERIAL ON RECORD. IN THE ABSENCE OF ANY MATERIAL ON RECORD AGAINST THE A SSESSEE, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN EVEN PART ADD ITION AGAINST THE ASSESSEE. WE ACCORDINGLY, SET ASIDE THE ORDER OF TH E LEARNED CIT(A) IN CONFIRMING PART ADDITION AND SUSTAIN THE ORDER I N DELETING THE 36 ADDITION. IN THE RESULT, GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS ALLOWED AND GROUND NO.4 OF THE APPEAL OF THE REVENU E IS DISMISSED. 46. ON GROUND NO.5, THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF RS.9,94,421/- U/S 35D OF THE IT ACT AND ON GROUND N O.6 CHALLENGED THE DISALLOWANCE OF RS.9,13,861/- IN RESPECT OF PUB LIC ISSUE EXPENSES. THE AO FOLLOWING THE ORDERS OF EARLIER YEARS MADE T HE DISALLOWANCES. THE AO ALSO NOTED THAT IN ASSESSMENT YEAR 2000-01 T HE ISSUE HAS BEEN SET ASIDE BUT THERE IS NOTHING ON RECORD TO JU STIFY THE DEDUCTION. THE LEARNED CIT(A) FOLLOWING THE ORDER OF LEARNED C IT(A) FOR ASSESSMENT YEAR 2000-01 AND NOTING THAT APPEAL IS P ENDING BEFORE THE TRIBUNAL CONFIRMED THE ADDITION AND NOTED THAT IF FAVOURABLE DECISION IS RECEIVED FROM ITAT FOR THE EARLIER YEAR , THE AO SHALL FOLLOW THE SAME ORDER. 47. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET SUBMITTED THAT ITAT AHMEDABAD BENCH IN THE CASE OF THE SAME A SSESSEE IN ASSESSMENT YEAR 2001-02 IN ITA NO. 667/AHD/2005 FOL LOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2000-01 R ESTORED THE MATTER BACK TO THE FILE OF THE AO FOR RECONSIDERATI ON. COPY OF THE ORDER DATED 21-10-2011 IS FILED ON RECORD. THE SAME IS NOT DISPUTED BY THE LEARNED DR. BY FOLLOWING THE ORDER OF THE TR IBUNAL FOR ASSESSMENT YEAR 2001-02 (SUPRA) ON THE ISSUE OF DED UCTION U/S 35D, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AN D RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR RECONSIDERATION. AS REGARDS FOR PUBLIC ISSUE, THE AO SHALL FOLLOW THE ORDER OF THE TRIBUNA L FOR ASSESSMENT YEAR 2000-01 AS IS SUBMITTED BY THE LEARNED COUNSEL FOR THE 37 ASSESSEE. IN THE RESULT, GROUND NOS. 5 AND 6 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 48. ON GROUND NO.7, THE ASSESSEE CHALLENGED THE LEV Y OF INTEREST U/S 234B AND 234C OF THE IT ACT WHICH IS MANDATORY AND CONSEQUENTIAL. ON GROUND NO.8, INITIATION OF PENALT Y PROCEEDINGS U/S 271 (1) (C) HAS BEEN CHALLENGED, WHICH IS INDEPENDE NT AND SEPARATE PROCEEDINGS. GROUND NO.9 IS GENERAL. THESE GROUNDS ARE ACCORDINGLY DISMISSED. 49. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .1510/AHD/2009 IS PARTLY ALLOWED. 50. ON GROUND NO.2 IN THE DEPARTMENTAL APPEAL, REVE NUE CHALLENGED THE DELETION OF ADDITION OF RS.10,55,53, 967/- U/S 36(1) (III) OF THE IT ACT. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE AO NOTICED THAT THE ASSESSEE DEBITED RS.49,16,26,051/- UNDER THE HEAD INTEREST AND OTHER CHARGES OUT OF WHICH THE AO DISA LLOWED RS.41,60,72,084/- U/S 43B OF THE IT ACT. THUS NET INTEREST CLAIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WA S OF RS.7,55,53,967/- AND ANOTHER AMOUNT OF RS.3,00,00,0 00/- WAS ALSO CLAIMED AS INTEREST PAID OF EARLIER YEAR U/S 43B OF THE IT ACT. ON BEING ASKED TO JUSTIFY THE ALLOWABILITY OF INTEREST CLAIM IN VIEW OF PROVISIONS OF SECTION 36(1) (III) OF THE IT ACT, CONSIDERING T HE FACT THAT HUGE LOANS AND ADVANCES TO THE TUNE OF RS.98,51,92,997/- WERE GRANTED TO VARIOUS PARTIES, ON WHICH NO INTEREST WAS CHARGED B Y THE ASSESSEE, THE ASSESSEE SUBMITTED THAT MAJOR ADVANCES WERE FOR THE PURPOSE OF PURCHASE OF RAW MATERIAL ETC. AND THE INTEREST CLAI MED WAS ALLOWABLE 38 AS THE MONIES WERE UTILIZED FOR THE PURPOSE OF THE BUSINESS. AFTER DISCUSSING THE ISSUE IN DETAIL IN THE ASSESSMENT OR DER, THE AO OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT THE MA JOR PARTIES TO WHOM ADVANCES WERE GRANTED WAS FOR THE PURPOSE OF P URCHASING THE RAW MATERIAL WAS WRONG, AS IN MOST OF THE CASES THE OPENING BALANCE WAS KEPT OUTSTANDING AND NO PURCHASES FROM THE SAID PARTIES IN MOST CASES WERE MADE DURING THE ENTIRE FINANCIAL YEAR. I T WAS FURTHER OBSERVED BY THE AO THAT AMOUNT OF ADVANCES GRANTED TOO THE PARTIES HAVE REMAINED UNALTERED IN MOST CASES AND THE AMOUN T IN EACH OF THE ACCOUNTS RUNS INTO CRORES OF RUPEES FROM WHOM N O PURCHASES COULD HAVE BEEN MADE AS THE AMOUNT OF ADVANCES GRAN TED EXCEEDS THE TOTAL PURCHASES MADE IN THE ENTIRE FINANCIAL YE AR, SO, THE INTEREST BEARING FUNDS OF THE ASSESSEE HAD BEEN DIVERTED TOW ARDS GRANT OF LOANS AND ADVANCES TO OTHER PARTIES. THEREFORE, THE AO DISALLOWED THE CLAIM OF INTEREST PAYMENT @12% ON THE ADVANCES WHICH WORKED OUT TO RS.11,82,23,160/- U/S 36(1) (III) OF THE IT ACT BUT LIMITED TO THE INTEREST CLAIMED. 50.1 IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THA T THE AO DID NOT ISSUE ANY SHOW CAUSE NOTICE ON THIS ISSUE AND THAT ALL THE ADVANCES WERE MADE FOR BUSINESS PURPOSES EITHER FOR PURCHASE OF MATERIALS OR PLANT AND MACHINERY. FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE HAS SUBSTANTIAL INTEREST FREE FUNDS AT ITS DISPOSAL AND IN THE ABSENCE OF NEXUS BETWEEN THE BORROWINGS AND THE INVESTMENTS, N O PART DISALLOWANCE WAS CALLED FOR. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ENTIRE DISALLOWANCE HAS BEEN MAD E BY THE AO PURELY ON ESTIMATE BASIS WITHOUT ESTABLISHING ANY N EXUS BETWEEN THE 39 FUNDS BORROWED AND ADVANCES GRANTED. IN ANY CASE TH E ASSESSEE HAS GOT ITS OWN FUNDS TO THE TUNE OF RS.284.20 CRORES W HICH IS TOTALLY INTEREST FREE AS AGAINST THE TOTAL ADVANCES OF RS.9 8.52 CRORES. HAVING FAILED TO ESTABLISH THE NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENTS, THE ASSESSEE RELYING UPON THE DECISION OF TORRENT FINANCIERS, 73 TTJ 624, SUBMITTED THAT THE ENTIRE A DVANCES HAVE COME FROM ITS OWN FUNDS AND NO PART OF THE BORROWED CAPITAL HAS GONE IN MAKING THE SAID ADVANCES. FURTHER, THE ASSE SSEE SUBMITTED THAT MAJOR BORROWINGS HAVE BEEN TAKEN FROM BANKS AN D FINANCIAL INSTITUTIONS WHICH MONITOR THE APPLICATION OF THE B ORROWED FUNDS ALSO AND THEREFORE ALSO, BORROWED FUNDS COULD NOT BE USE D FOR NOON- BUSINESS PURPOSES. THE LEARNED COUNSEL FOR THE ASSE SSEE PLACED RELIANCE ON SEVERAL OTHER CASE LAWS I.E. CIT VS RAD ICO KHAITAN LTD., 274 ITR 354 (ALL.), CIT VS TIN BOX CO., 260 ITR 637 (DEL.), CIT VS PREM HEAVY ENGINEERING WORKS PVT. LTD., 285 ITR 554 (ALL.), CIT VS BRITANIA INDUSTRIES LTD., 280 ITR 525 (CAL.) AND OT HER CASES. IT WAS SUBMITTED THAT RECENTLY THE HONBLE SUPREME COURT HAS HELD THAT IN CASE OF LOANS TO ASSOCIATE CONCERNS AND/OR OUTSI DE PARTIES, COMMERCIAL EXPEDIENCY FROM THE BUSINESSMANS POINT OF VIEW HAS TO BE TAKEN INTO CONSIDERATION AND WHILE DOING SO, REVENUE CANNOT SIT IN THE ARM-CHAIR OF THE ASSESSEE. FOR THIS, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION I N THE CASE OF S. A. BUILDERS LTD. VS CIT, 288 ITR 1 (SC) AND CONTENDED THAT WHEN THE TOTAL INTEREST FREE ADVANCES DID NOT EXCEED THE TOT AL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, NO INTEREST WAS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUNDS FOR NON-BUSINESS PU RPOSES. 40 50.2 THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ENTIRE ADDITION. HIS FINDINGS IN PARA 5.3 ARE REPRODUCED AS UNDER: 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE A. R. ALONG WITH THE JUDICIAL DECISIONS RELIED UPON. FROM THE DETAILS FU RNISHED BY THE A. R. IT IS SEEN THAT THE ADVANCES HAVE BEEN GIVEN TO VARIOUS CONCERNS FOR THE PURPOSE OF PURCHASE OF MATERIALS OR PURCHASE OF PLANT AND MACHINERY, THUS THE ADVANCES ARE BUSINESS ADVANCES. I AM IN AGREEMENT W ITH THE CONTENTION OF THE APPELLANT THAT WHEN IT IS HAV ING SUFFICIENT INTEREST FREE FUNDS, THERE IS NO QUESTIO N OF ANY DIVERSION OF INTEREST BEARING FUNDS TO GIVE LOANS/ADVANCES. IN VIEW OF THE ABOVE FACTS AND BY FOLLOWING THE JUDICIAL DECISION IN THE CASE OF TORR ENT FINANCERS VS ACIT (2001) 73 TJ 624 (AHD) AND OTHER CASES CITED, I AM OF THE OPINION THAT THE DISALLOWA NCE OF INTEREST EXPENSES IN RESPECT OF ADVANCES GIVEN IS N OT JUSTIFIED, HENCE THE DISALLOWANCE OF INTEREST EXPEN SES IS DELETED. 51. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB 64 AND SUBMITTED THAT SHARE CAPITAL OF THE ASSESSEE WITH RESERVES AND SURPLUS ARE TO THE TUNE OF RS.284.20 CRORES AND AS SUCH THE LOANS AND ADVANCES ARE VERY SMALL AND ADDITION HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD., 3 13 ITR 340 WHEREIN IT HAS BEEN HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRA FT AND/OR 41 LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT IN VESTMENTS WOULD BE OUT OF INTEREST-FREE FUNDS GENERATED OR AV AILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISS IONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCT IBLE. HE HAS ALSO RELIED UPON THE UNREPORTED DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS RAGHUVIR SYNTHETICS LTD ., TAX APPEAL NO.829 OF 2007 DATED 05-12-2011 CONFIRMING THE ORDE R IN THE CASE OF TORRENT FINANCIERS LTD. RELIED UPON BY THE LEARNED CIT(A) IN THE APPELLATE ORDER. 52. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). IT WAS FOUND OUT BY THE LEARNED CIT(A) THAT ADVANCES HAD B EEN GIVEN TO VARIOUS CONCERNS FOR THE PURPOSE OF PURCHASE OF RAW MATERIALS OR PURCHASE OF PLANT AND MACHINERY. THUS, THESE WERE F OUND TO BE BUSINESS ADVANCES. IT WAS FURTHER FOUND THAT THE AS SESSEE IS HAVING SUFFICIENT OWN FUNDS, THEREFORE, THERE IS NO QUESTI ON OF DIVERSION OF INTEREST-BEARING FUNDS FOR GIVING LOANS AND ADVANCE S. THE DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE SQUAR ELY APPLIES TO THE CASE OF THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND A NY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). GRO UND NO.2 OF THE DEPARTMENTAL APPEAL IS ACCORDINGLY DISMISSED. 53. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELE TION OF ADDITION ON ACCOUNT OF LOSS ON SALE OF RAW MATERIAL S OF 42 RS.2,69,86,470/-. THE AO NOTICES THAT THERE WAS A S UBSTANTIAL FALL IN THE GROSS PROFIT DURING THE YEAR UNDER CONSIDERATIO N AS COMPARED TO EARLIER YEAR, AS GROSS PROFIT FOR THE YEAR UNDER CO NSIDERATION WAS 30.19% AS AGAINST 45.69% OF THE PRECEDING YEAR, THU S THERE WAS A DIFFERENCED IN GROSS PROFIT RATE BY 15.41%. THE AO ALSO FOUND FROM THE ORDER OF THE COMMISSIONER OF CENTRAL EXCISE (AD JUDICATION), AHMEDABAD DATED 30-12-2005 THAT THE ASSESSEE COMPAN Y WAS ENGAGED IN VARIOUS ACTIVITIES OF MANIPULATING ITS F INANCIAL AFFAIRS BY DEBITING BOGUS PURCHASES. THE AO NOTICED THAT THE A SSESSEE HAD DEBITED RS.2,69,86,470/- AS LOSS ON SALE OF RAW MAT ERIAL AND FROM THE DETAILS, IT WAS OBSERVED THAT THE ASSESSEE WAS PURC HASING GRANULES FROM VARIOUS PARTIES AS RAW MATERIAL AND ON THE OTH ER HAND OPENING STOCK OF GRANULES LYING WAS SOLD AWAY AT LOWER RATE S THAN THE COST AND ON BEING ASKED, IT WAS EXPLAINED BY THE ASSESSE E THAT OLD GRANULES WHICH WERE NOT OF GOOD QUALITY WERE SOLD A WAY, BUT THE ASSESSEE DID NOT EXPLAINED AS TO HOW THE GRANULES S OLD AWAY WERE OF INFERIOR QUALITY. THEREFORE, THE AO HELD THAT THE C LAIM OF LOSS IN RESPECT OF SALES OF GRANULES WAS FICTITIOUS AND HEN CE THE SAME WAS DISALLOWED. 53.1 IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THA T THE AO DID NOT ISSUE ANY SHOW CAUSE NOTICE ON THIS ISSUE AND THE L EARNED COUNSEL FOR THE ASSESSEE FURNISHED LIST OF TRANSACTIONS AND RESPECTIVE SALES BILLS TOGETHER WITH PROOF OF DELIVERY COMPILED AT P AGES 1 TO 914 IN THE PAPER BOOK MARKED AS ANNEXURE A SO AS TO PROVE THE GENUINENESS OF THE TRANSACTIONS MADE WITH THESE PARTIES AND SUBMIT TED THAT THE ADDITIONAL EVIDENCES BE ADMITTED UNDER RULE 46A OF THE IT RULES AS 43 THE ASSESSEE COULD NOT FILE THESE BASIC DETAILS AS NO SPECIFIC SHOW CAUSE NOTICE WAS ISSUED. THE ADDITIONAL EVIDENCES F ILED BY THE LEARNED COUNSEL FOR THE ASSESSEE WERE FORWARDED TO THE AO FOR HIS REMAND REPORT. THE AO IN HIS REPLY DATED 04-12-2007 REPORTED THAT THE ISSUE HAS ALREADY BEEN DEALT WITH BY THE AO IN PAGE 12(IV) OF HIS ORDER. AFTER VERIFICATION OF THE EVIDENCES PRODUCED BY THE ASSESSEE THE AO HAD COME TO THE CONCLUSION THAT THE LOSS CLA IMED IN RESPECT OF SUCH SALES OF RAW MATERIAL IS FICTITIOUS AND THEREF ORE, THE SAME HAS BEEN DISALLOWED AND AS PER THE CLEAR FINDING IN THE ASSESSMENT ORDER, THE AO STATED THAT THE ADDITION MADE BE CONFIRMED. THE AOS REPORT WAS CONFRONTED TO THE ASSESSEE AND IN RESPONSE THER ETO, THE ASSESSEE SUBMITTED THAT THE ENTIRE REMAND REPORT PL ACED ON RECORD BY THE AO WAS COMPLETELY MISPLACED AND MISCONCEIVED AN D IN TOTAL DEFIANCE OF DIRECTIONS OF THE LEARNED CIT(A) AND TH E AO HAS NOT GIVEN ANY FINDINGS, ANY COMMENTS ON THE ADDITIONAL EVIDEN CES PLACED BEFORE HIM AND IT WAS SEEN THAT INSTEAD OF COMMENTI NG ON THE MERITS AND VERACITY OF THE ADDITIONAL EVIDENCES, THE AO ME RELY REPRODUCED WHAT HAS BEEN STATED IN THE ORIGINAL ASSESSMENT ORD ER. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IT HAD FILED A SEPARATE WRITTEN SUBMISSION IN SUPPORT OF PRODUCTION AND ADM ISSION OF THE ADDITIONAL EVIDENCES UNDER RULE 46A OF THE IT RULES WHEREIN THE REASONS FOR NOT PLACING THE EVIDENCE AT THE APPELLA TE STAGE HAVE BEEN NARRATED IN DETAIL AND IT WAS ONLY AFTER ANALYZING THE SAID SUBMISSION IN THE REASONING, THE LEARNED CIT(A) ADMITTED THE E VIDENCES AND DIRECTED THE AO TO LOOK INTO THE SAME AND ONCE THE LEARNED CIT(A) DIRECTED THE AO TO LOOK INTO THE ADDITIONAL EVIDENC ES, IT WAS NOT OPEN TO THE AO TO JUST BRUSH ASIDE T HE EVIDENCE IN A SU MMARY MANNER. 44 THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT HUGE VOLUMES OF ADDITIONAL EVIDENCES ARE IN ORDER AND TH E AO DID NOT FIND ANY MISTAKE IN THE SAME AND HENCE, HE HAS NOT COMME NTED ON ANY OF THEM. 54. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS IN PARA 6.3 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE A. R. OF THE APPELLANT AND THE R EMAND REPORT OF THE A. O. AND COUNTER FILED BY THE A. R. FROM TH E DETAILS NOW FURNISHED, IT IS SEEN THAT THE APPELLANT HAS SUFFER ED LOSS ON ACCOUNT OF SALE OF GRANULES, WHICH WERE INFERIOR QU ALITY AND THE SAME HAD TO BE SOLD OFF AT LOWER RATES THAN THE COS T PRICE. THE A. O. WHILE DISALLOWING THE CLAIM OF LOSS, BY OBSER VING THAT THE APPELLANT DID NOT PRODUCE ANY PROOF TO SHOW AS TO H OW THE QUALITY OF GRANULES COULD DETERIORATE WITHOUT ANY R EASONS, HAS NOT ISSUED ANY SHOW CAUSE NOTICE SO AS TO VERIFY TH E GENUINENESS OF THE CLAIM AND SUCH DISALLOWANCE WITH OUT ESTABLISHING ANY ATTEMPT ON THE PART OF THE APPELLA NT TO HIDE ITS TRUE INCOME CANNOT BE SUSTAINED. IN FACT, DURING TH E APPELLATE PROCEEDINGS, THE A. R. HAS BEEN ABLE TO FURNISH NEC ESSARY DETAILS INCLUDING COPIES OF SALE BILLS AND PROVE TH E GENUINENESS OF ITS CLAIM OF LOSS. IT IS ALSO FOUND THAT SALES H AVE BEEN MADE OUT OF OPENING STOCK AND SALES HAVE NOT BEEN MADE T O ANY RELATED, SISTER OR ASSOCIATE CONCERN OF THE APPELLA NT OR ITS DIRECTORS. FURTHER DEPENDING ON THE QUALITY OF MATE RIALS THE PRICE RECEIVED WAS LOWER THAN THE COST PRICE. CONSI DERING THE ADDITIONAL EVIDENCES AND DETAILS FILED BY THE APPEL LANT, I AM OF THE OPINION THAT THE A. O. IS NOT JUSTIFIED IN MAKI NG THE DISALLOWANCE OF SUCH A HUGE AMOUNT. THE DISALLOWANC E MADE IN THIS RESPECT IS DIRECTED TO BE DELETED. 55. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE 45 SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT ENTIRE DOCUMENTARY EVIDENCES WERE FURNISHED BEFORE THE LEARNED CIT(A) COPIES OF WHICH ARE FILED AT PB 1 TO 914 WHI CH CLEARLY SUPPORT THE FINDINGS OF THE LEARNED CIT(A). HE HAS SUBMITTE D THAT IN THE REMAND REPORT FILED BY THE AO THE CLAIM OF THE ASSE SSEE HAS NOT BEEN DISPUTED. 56. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE ASSESSEE FURNISHED COMPLETE DETAILS BEFORE THE LEARNED CIT(A) ON WHICH REMAND REPORT WAS CALLED FOR FROM THE AO AND THE CLAIM OF THE ASS ESSEE HAS NOT BEEN DISPUTED BY THE AO. THE LEARNED CIT(A) CONSIDE RING THE DETAILS FURNISHED FOUND THAT THE ASSESSEE HAS SUFFERED LOS S AND SUCH FINDINGS OF THE LEARNED CIT(A) HAVE NOT BEEN REBUTT ED THROUGH ANY EVIDENCE OR MATERIAL ON RECORD. SINCE, IT IS A DEPA RTMENTAL APPEAL AND NOTHING IS PRODUCED BEFORE US TO DISPUTE THE FINDIN GS OF THE LEARNED CIT(A) , WE DO NOT FIND ANY JUSTIFICATION TO INTERF ERE WITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DIS MISS GROUND NO.3 OF THE APPEAL OF THE REVENUE. 57. ON GROUND NO.5, REVENUE CHALLENGED THE DELETION OF ADDITION MADE ON ACCOUNT OF DIFFERENCE OF BALANCE OF RS.14,0 3,85,459/-. THE AO ISSUED LETTERS TO THE PARTIES, IN RESPONSE TO WH ICH THREE PARTIES FURNISHED REPLY ALONG WITH COPY OF SHRI RAMA MULTIT ECH LTD., FOR ASSESSMENT YEAR 2002-03 AND ON VERIFICATION OF THE DETAILS IT WAS NOTICED BY THE AO THAT THERE WERE MANY DIFFERENCES BETWEEN THE ACCOUNT OF THE ASSESSEE AND THE ACCOUNTS OF SUPPLIE RS AND THE 46 ASSESSEE COULD NOT RECONCILE THE SAID DIFFERENCE, S O THE AO HELD THAT THE PURCHASES FROM THESE PARTIES ARE BOGUS AND NON- GENUINE AND CALCULATED THE DIFFERENCE AS PER THE DETAILS GIVEN IN THE ASSESSMENT ORDER AND MADE DISALLOWANCE OF RS.14,03,85,459/-. I T WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO MADE ADDITION OF THIS AMOUNT ON ACCOUNT OF THE SO-CALLED DIFFERENCE WITHOUT PROV IDING ANY OPPORTUNITY TO THE ASSESSEE SO AS TO GIVE ANY EXPLA NATION OR FURNISH RECONCILIATION STATEMENT. THE LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT IN FACT THERE WERE NO SUCH DIFFERENC ES AND FURNISHED A COMPLETE RECONCILIATION STATEMENT WITH LEDGER ACCOU NTS AND VOUCHERS DURING THE APPELLATE PROCEEDINGS AS COMPLIED IN ANN EXURE C AT PAGES 1231 TO 1458 TO THE SUBMISSION AND SUBMITTED THAT T HE ADDITIONAL EVIDENCES BE ADMITTED UNDER RULE 46A OF THE IT RULE S AS THE ASSESSEE WAS NOT GIVEN SUFFICIENT OPPORTUNITY TO PR ODUCE THESE EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. THE ADDITIONAL EVIDENCES FILED BY THE LEARNED COUNSEL F OR THE ASSESSEE WERE FORWARDED TO THE AO FOR HIS REMAND REPORT. IN REPLY, THE AO VIDE LETTER DATED 04-12-2007 REPLIED UPON HIS FINDINGS I N THE ASSESSMENT ORDER AND SUBMITTED THAT THE LEARNED COUNSEL FOR TH E ASSESSEE WAS ALLOWED TO VERIFY THE DIFFERENCES WHICH COULD NOT B E RECONCILED BY HIM. 58. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS IN PARA 8.3 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 8.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE A. R. AND THE REMAND REPORT OF T HE A. O. I 47 FIND THAT IN RESPECT OF ABHISHEK POLYMER INDUSTRIES THE DIFFERENCE HAS ARISEN IN THE OPENING BALANCE OF THE PARTY AS PAYMENTS HAVE BEEN MADE DURING THE YEAR TO THE SAID PARTY BY THE APPELLANT ON BILLS DISCOUNTED AS PER THE RECONC ILIATION OF ACCOUNTS FILED BY THE APPELLANT AT PAGES 1401 TO 14 56 OF THE PAPER BOOK. AS REGARDS THE PARTY LABDHI INTERNATION AL THE APPELLANT HAS STATED THAT THE DIFFERENCE IN CLOSING BALANCE IS OF RS.7,50,000/- WHICH HAS ARISEN DUE TO THE FACT THAT THE SAID AMOUNT WAS GIVEN AS AN ADVANCE FOR MATERIALS TO THE SAID PARTY WHICH HAS BEEN TRANSFERRED TO THE REGULAR ACCOUNT S UBSEQUENTLY ON 4-10-2004 AND THE APPELLANT HAS FILED A RECONCIL IATION OF ACCOUNTS AT PAGES 1373 TO 1398 OF THE PAPER BOOK. I T IS SEEN THAT THERE WAS DIFFERENCE IN OPENING BALANCE IN THE CONTRA ACCOUNT IN RESPECT OF THIS PARTY AND DURING THE YEA R THE AMOUNTS HAVE BEEN DULY RECONCILED AND T HE CLOSING BALANCE IN THE ACCOUNT OF THIS PARTY AS WELL AS CONTRA ACCOUNT TAL LIES. AS REGARDS THE OTHER PARTY GUJARAT PICKERS INDUSTRIES LTD. THE APPELLANT HAS SUBMITTED THAT THERE IS NO DIFFERENCE IN CLOSING BALANCE AND THE APPELLANT HAS FILED A RECONCILIATIO N OF THE ACCOUNTS AT PAGES 1231 TO 1372 OF THE PAPER BOOK. F ROM THE DETAILS AND THE RECONCILIATION STATEMENT FILED BY T HE APPELLANT I FIND THAT THERE ARE NO DIFFERENCE BETWEEN THE FIGUR ES OF PURCHASES SHOWN BY THE APPELLANT AS WELL AS THE FIG URES SHOWN BY THE SAID PARTIES AND THE DIFFERENCE IS ONLY IN O PENING BALANCE WHICH HAS ARISEN BECAUSE OF THE FACT THAT THE SAID PARTY HAS ACCOUNTED RECEIPT OF MONEY AT THE TIME OF DISCOUNTI NG BILLS AND THE APPELLANT HAS ACCOUNTED IN THIS YEAR ON MAKING ON MAKING PAYMENT TO THE BANK. CONSIDERING THE ABOVE FACTS, I FIND THAT THERE IS NO JUSTIFICATION FOR MAKING ANY ADDITION O N THE DIFFERENCE BETWEEN THE FIGURES SHOWN IN CONTRA ACCOUNTS OF THE RE PARTIES. THE A. O. IS, THEREFORE, DIRECTED TO DELETE THE ADD ITION OF RS.14,03,85,459/-. 59. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT DOCUMENTARY EVIDENCES ARE FILED IN THE PAPER BOOK P B -1231 TO 1458 WHICH WERE ALSO FILED BEFORE THE LEARNED CIT(A) AND THE LEARNED 48 CIT(A) ON PROPER APPRECIATION OF THE FACTS AND CIRC UMSTANCES RIGHTLY DELETED THE ADDITION. 60. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. THE ASSESSEE FURNISHED RECONCIL IATION STATEMENT SUPPORTED BY EVIDENCES AND MATERIAL ON RECORD ON WH ICH REMAND REPORT WAS CALLED FOR FROM THE AO. NO DIFFERENCE WA S FOUND IN THE DETAILS AND RECONCILIATION STATEMENT FILED BY THE A SSESSEE. THE LEARNED DR FAILED TO POINT OUT ANY DISCREPANCY IN T HE FINDINGS OF THE LEARNED CIT(A) OR ANY IMPROPER APPRECIATION OF EVID ENCES OR MATERIALS ON RECORD OF THE LEARNED CIT(A). IN THE A BSENCE OF ANY CHALLENGE TO THE FINDINGS OF THE LEARNED CIT(A), WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LE ARNED CIT(A). WE CONFIRM THE SAME AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 61. ON GROUND NO.6, THE REVENUE CHALLENGED THE DELE TION OF ADDITION ON ACCOUNT OF SHARE AND DEBENTURE ISSUE EX PENSES OF RS.12,84,047/-. THE AO NOTED THAT IN EARLIER YEAR S IMILAR ADDITION WAS MADE AND THE ITAT ALLOWED THE APPEAL OF THE ASSESSE E IN ASSESSMENT YEAR 2000-01, BUT APPEAL IS PENDING BEFO RE THE HONBLE HIGH COURT, THEREFORE, ADDITION WAS MADE. THE LEARN ED CIT(A) CONSIDERING THESE FACTS DELETED THE ADDITION. ON CO NSIDERATION OF THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW MERELY BECAUS E APPEAL IS PENDING ON THE SAME ISSUE BEFORE THE HONBLE HIGH C OURT IS NO GROUND FOR THE AO TO MAKE THE ADDITION. THE LEARNED CIT(A) CORRECTLY FOLLOWED THE ORDER OF THE TRIBUNAL AND RIGHTLY DELE TED THE ADDITION. GROUND NO.6 OF THE APPEAL OF THE REVENUE IS DISMISS ED. 49 62. ON GROUND NO.7, THE REVENUE CHALLENGED THE DELE TION OF ADDITION MADE ON ACCOUNT OF MACHINERY REPAIR EXPENS ES OF RS.30,00,000/-. THE AO FOUND THAT THE ASSESSEE HAS DEBITED THE AMOUNT IN QUESTION AS REPAIRS TO MACHINERY AND ON V ERIFICATION IT WAS FOUND THAT NO PURCHASE HAVE BEEN MADE AND THE SAME WAS HELD TO BE NON-GENUINE. THE AO, THEREFORE, HELD THAT EXPEND ITURES WAS ALSO FICTITIOUS AND WITHOUT PROOF ADDITION WAS ACCORDING LY MADE. THE LEARNED CIT(A) FOUND THAT IN ASSESSMENT YEAR 2002-0 3, HE HAS GRANTED DEPRECIATION ON THE SAME MACHINERIES, THERE FORE, EXPENSES INCURRED BY THE ASSESSEE FOR ANNUAL MAINTENANCE SHA LL HAVE TO BE ALLOWED. THE LEARNED CIT(A) ACCORDINGLY, ALLOWED TH E CLAIM OF THE ASSESSEE. 63. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND FIND THAT IN ASSESSMENT YEAR 2002-03, THE DEPARTMENTAL A PPEAL HAS BEEN DISMISSED ON THE ISSUE ON THE GROUND OF DEPRECIATIO N ON SOFTWARE. THEREFORE, THE FINDINGS OF THE LEARNED CIT(A) GET S UPPORT FROM THE ORDER FOR ASSESSMENT YEAR 2002-03 AND AS SUCH THE L EARNED CIT(A) ON PROPER APPRECIATION OF THE FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. IN THE RESULT, GROUND NO.7 OF THE APPEAL OF THE REVENUE IS DISMISSED. 64. GROUNDS NO.8 AND 9 OF THE APPEAL OF THE REVENUE ARE GENERAL IN NATURE AND ARE DISMISSED. 65. IN THE RESULT, THE DEPARTMENTAL APPEAL IN ITA N O.1890/AHD/2009 IS DISMISSED. 50 ITA NO.1511/AHD/2009 ITA NO.1892/AHD/2009 66. BOTH THE CROSS APPEALS ARE DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A)-XIV, AHMEDABAD DATED 26-03-2009 FOR ASSESSME NT YEAR 2004-05. 67. ON GROUND NO.1, ASSESSEE CHALLENGED THE ORDER O F THE LEARNED CIT(A) IN RESTRICTING THE DISALLOWANCE TO THE EXTEN T OF 25% ON DISALLOWANCE OF RS.2,99,56,428/- IN RESPECT OF NON- GENUINE PURCHASES. THE REVENUE ON GROUND NO.2, CHALLENGED T HE ORDER OF THE LEARNED CIT(A) IN DELETING THE PART ADDITION ON THI S ISSUE. 68. THE AO FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2003-04 MADE THE DISALLOWANCE HOLDING THE SAME TO BE NON-GENUINE PURCHASES. THE LEARNED CIT(A) FOLLOWING HIS ORDER FOR ASSESSMENT Y EAR 2003-04 SUSTAINED THE ADDITION TO 25% OF THE PURCHASES. BOT H THE PARTIES STATED THAT ISSUE IS SAME AS IS CONSIDERED IN ASSES SMENT YEAR 2003- 04. BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR ASSE SSMENT YEAR 2003- 04 ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND DELETE THE ENTIRE DISALLOWANCE. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED AND GROUND NO.2 OF THE APPEAL OF THE REVENU E IS DISMISSED. 69. ON GROUND NO.2, ASSESSEE CHALLENGED THE DISALLO WANCE OF RS.9,13,861/- IN RESPECT OF PUBLIC ISSUE EXPENSES. THE LEARNED CIT(A) NOTED THAT DISALLOWANCE U/S 35D WAS MADE FOL LOWING THE EARLIER YEAR ORDER IN WHICH ISSUE WAS DECIDED IN FA VOUR OF THE ASSESSEE AND THE MATTER IS PENDING BEFORE THE HONB LE HIGH COURT 51 BECAUSE THE DECISION OF THE APPELLATE AUTHORITY WAS NOT ACCEPTED. THE LEARNED CIT(A) ACCORDINGLY DELETED THE ADDITION BY FOLLOWING THE ORDER OF THE EARLIER YEAR. SIMILARLY, FOR PUBLIC IS SUE THE LEARNED CIT(A) NOTED THAT FOR ASSESSMENT YEAR 2000-01 THE ORDER OF THE TRIBUNAL IS AWAITED. THIS GROUND WAS DISMISSED BUT IT WAS DIREC TED THAT IF ANY FAVOURABLE DECISION IS RECEIVED, AO SHALL FOLLOW TH E SAME. BOTH THE PARTIES SUBMITTED THAT ISSUE IS SAME AS IS CONSIDER ED IN ASSESSMENT YEAR 2003-04 ON GROUNDS NO.5 AND 6 IN THE APPEAL OF THE ASSESSEE. WE ACCORDINGLY, FOLLOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-04 DIRECT THE AO TO FOLLOW THE SAME DECIS ION. THIS GROUND STANDS DISPOSE OF ACCORDINGLY. 70. ON GROUND NO.3, THE ASSESSEE CHALLENGED THE ORD ER OF THE LEARNED CIT(A) IN DISALLOWING DEPRECIATION ON TANGI BLE ASSETS. THE REVENUE ON GROUND NO.3 CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF DEPRECIATION ON INTANG IBLE ASSETS. THE LEARNED CIT(A) FOLLOWING THE ORDER OF ASSESSMENT YE AR 2002-03 ALLOWED THE DEPRECIATION ON SOFTWARE PURCHASES ON I NTANGIBLE ASSETS AND CONFIRMED THE ADDITION ON ACCOUNT OF DISALLOWAN CE OF DEPRECIATION ON TANGIBLE ASSETS. BOTH THE PARTIES S TATED THAT ISSUE IS SAME AS IS CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2002-03. BY FOLLOWING THE SAME ORDER OF THE TRIBUNAL ABOVE F OR ASSESSMENT YEAR 2002-03, THE ORDER OF THE LEARNED CIT(A) GRANT ING DEPRECIATION ON INTANGIBLE ASSETS IS CONFIRMED AND GROUND NO.3 O F THE DEPARTMENTAL APPEAL IS DISMISSED. HOWEVER, ORDER OF THE LEARNED CIT(A) IN REFUSING TO GRANT DEPRECIATION ON TANGIBL E ASSETS IS SET ASIDE AND RESTORED TO THE FILE OF THE AO AS IS DIRECTED I N ASSESSMENT YEAR 52 2002-03 ABOVE. GROUND NO.3 OF THE APPEAL OF THE ASS ESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 71. ON GROUND NO.4, THE ASSESSEE CHALLENGED THE LEV Y OF INTEREST U/S 234B AND 234C OF THE IT ACT WHICH IS MANDATORY AND CONSEQUENTIAL. ON GROUND NO.5, INITIATION OF PENALT Y PROCEEDINGS U/S 271 (1) (C) HAS BEEN CHALLENGED, WHICH IS INDEPENDE NT AND SEPARATE PROCEEDINGS. GROUND NO.6 IS GENERAL. THESE GROUNDS ARE ACCORDINGLY DISMISSED. 72. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.1511/AHD/2009 IS PARTLY ALLOWED. 73. THE REVENUE ON GROUND NO.1 CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN DIRECTING TO ALLOW THE SALE OF RA W MATERIAL LOSS OF RS.10,56,23,027/-. THE LEARNED CIT(A) DISCUSSED THI S ISSUE IN PARA 3 OF THE APPELLATE ORDER AND FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2003-04 DELETED THE ADDITION. BOTH THE PARTIES STAT ED THAT THE ISSUE IS SAME AS IS CONSIDERED IN ASSESSMENT YEAR 2003-04. F OLLOWING THE ORDER OF ASSESSMENT YEAR 2003-04 IN WHICH TRIBUNAL DISMISSED THE DEPARTMENTAL APPEAL ON THIS GROUND, WE DISMISS GROU ND NO.1 OF THE APPEAL OF THE REVENUE. IN THE RESULT, GROUND NO.1 O F THE APPEAL OF THE REVENUE IS DISMISSED. 74. ON GROUND NO.4, REVENUE CHALLENGED THE DELETION OF ADDITION ON ACCOUNT OF SERVICE CHARGES OF RS.38,24,496/-. THE L EARNED CIT(A) IN PARA 6 NOTED THAT THE AO FOLLOWING THE ORDER FOR AS SESSMENT YEAR 2002-03 AND 2003-04 DISALLOWED THIS EXPENDITURE AS NON-GENUINE. 53 THE LEARNED CIT(A) FOUND THAT SIMILAR EXPENSES HAVE BEEN ALLOWED ON ACCOUNT OF MAINTENANCE EXPENSES IN ASSESSMENT YE AR 2003-04 AND ACCORDINGLY DELETED THE ADDITION. BOTH THE PAR TIES STATED THAT THE ISSUE IS SAME AS IS CONSIDERED IN ASSESSMENT YEAR 2 003-04 IN WHICH THE TRIBUNAL DISMISSED THE DEPARTMENTAL APPEAL. FOL LOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-04 ON GROU ND NO.7, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 75. ON GROUND NO.6, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.3,06,637/- U/S 36(1) (VA) OF THE IT ACT. THE AO DID NOT ALLOWED THE DEDUCTION BECAUSE THE PAYMENT OF EMPLOYEES CONTRIB UTION TOWARDS PF AND ESI WAS MADE BEYOND THE PERIOD BUT WITHIN GR ACE PERIOD. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT PAYMEN TS HAVE BEEN MADE WITHIN THE GRACE PERIOD AND RELIED UPON THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF VINAY CEMENT L TD. 312 CTR 268. THE LEARNED CIT(A) FOLLOWING THE SAID DECISION DELETED THE DISALLOWANCE BECAUSE THE PAYMENTS HAVE BEEN DEPOSIT ED WITH THE GOVERNMENT BEFORE DUE DATE OF FILING OF THE RETURN. BOTH THE PARTIES STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE ABOVE JUDGMENT WHICH IS ALSO CONFIRMED BY THE HONB LE SUPREME COURT IN THE CASE OF ALOM EXTRUSION LTD. 319 ITR 30 6. IN VIEW OF THE ABOVE, GROUND NO.6 OF THE APPEAL OF THE REVENUE IS DISMISSED. 76. GROUNDS NO.7 AND 8 OF THE DEPARTMENTAL APPEAL A RE GENERAL AND ARE ACCORDINGLY DISMISSED. 77. IN THE RESULT, DEPARTMENTAL APPEAL IN ITA NO.18 92/AHED/2009 IS DISMISSED. 54 ITA NO.1512/AHD/2009 ITA NO.1891/AHD/2009 78. BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XIV, AHMEDABAD DATED 27-03-2009 FOR ASSESSME NT YEAR 2005-06. 79. ON GROUND NO.1, ASSESSEE CHALLENGED THE DISALLO WANCE OF 20% OUT OF COMMISSION EXPENSES OF RS.1,24,86,095/-. THE REVENUE ON GROUND NO.2 CHALLENGED THE ORDER OF THE LEARNED CIT (A) IN DELETING PART ADDITION. 80. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO DISALLOWED RS.77,49,482/- OUT OF TOTAL CLAIM OF COMMISSION EXP ENSES OF RS.1,24,86,095/-. THE AO NOTED THAT COMMISSION PAYM ENT IS CLAIMED AT 1.93% OF THE GROSS TURNOVER WHEREAS IN THE PRECE DING YEAR IT WAS ONLY 0.70%. THE ASSESSEE EXPLAINED THAT EXPENSES HA VE INCREASED BECAUSE THE COMPANY HAD OBTAINED MORE BUSINESS THRO UGH THE AGENTS. THEREFORE, MORE COMMISSION WAS PAID. THE AO DID NOT ACCEPT THE CONTENTION AND BY COMPARING THE COMMISSI ON PAYMENT WITH THE PRECEDING ASSESSMENT YEAR EXCESSIVE COMMIS SION WAS DISALLOWED. IT WAS SUBMITTED BEFORE THE LEARNED CIT (A) THAT DISALLOWANCE WAS MADE WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE TO REBUT THE ALLEGATION OF THE AO. NO DEFECTS HAVE BEE N FOUND IN THE BOOKS OF ACCOUNTS AND DETAILS MAINTAINED IN THIS RE GARD. THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN SUPPORT O F THE CLAIM AND FURTHER SUBMITTED THAT LUMP SUM DISALLOWANCE ON MER ELY CONJECTURE AND SURMISES, IS NOT JUSTIFIED. THE LEARNED CIT(A) FOUND THAT THE AO 55 MADE THE ADDITION WITHOUT ISSUING ANY SHOW CAUSE NO TICE TO THE ASSESSEE. COMMISSION PAYMENT IS ALLOWED IN THE LAST YEAR AND NO DEFECTS HAVE BEEN POINTED OUT IN THE BOOKS OF ACCOU NTS AND NO ADVERSE INFORMATION OR EVIDENCE HAS BEEN BROUGHT FO R DISALLOWING COMMISSION. THE LEARNED CIT(A) HOWEVER, CONSIDERING THE HIGHER PAYMENT AS COMPARED TO EARLIER YEAR DISALLOWED 20% OF THE SAME AND ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE P ARTLY. 81. BOTH THE PARTIES ARE IN APPEAL ON THESE GROUND S. THE LEARNED DR RELIED UPON ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT ON MERE COMPAR ISON OF EXPENSES WITH THE LAST YEAR IS NO GROUND TO MAKE TH E PART ADDITION. 82. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD. THE HONBLE SUPREME COURT IN THE CASE OF DH ANRAJ GIRJIRAJA NARSINHJI, 91 ITR 544 HELD THAT IT IS NOT OPEN TO T HE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR SUCH EXPENSES. IN THE CASES OF WALCHAND & CO. PVT. LTD., 65 ITR 381 AND SASSOON J. DAVID & CO., 118 ITR 261 IT WAS HELD THAT EXPENSES SHOULD BE CON SIDERED FROM THE POINT OF VIEW OF THE BUSINESSMAN. THE ASSESSEE IN THE PRESENT CASE PLEADED BEFORE THE LEARNED CIT(A) THAT NO SHOW CAUS E NOTICE WAS GIVEN BEFORE MAKING THE DISALLOWANCE AND THE CONTEN TION OF THE ASSESSEE WAS FOUND TO BE CORRECT. IN SUCH AN EVENT, NO ADDITION SHOULD HAVE BEEN MADE. IT WAS FURTHER FOUND THAT CO MMISSION PAYMENT WAS ALSO MADE IN THE LAST YEAR AND NO DEFEC TS HAVE BEEN 56 POINTED OUT IN THE MAINTENANCE OF BOOKS OF ACCOUNTS AND NO ADVERSE COMMENTS HAVE ALSO BE GIVEN ON THE EVIDENCES MAINTA INED BY THE ASSESSEE. THEREFORE, MERELY ON THE BASIS OF COMPARI SON OF THE EXPENSES WITH LAST YEAR WITHOUT BRINGING ANY INCRIM INATING EVIDENCE AGAINST THE ASSESSEE ON RECORD, THE AUTHORITIES BEL OW WERE NOT JUSTIFIED IN MAKING THE ADDITION AGAINST THE ASSESS EE. THE LEARNED CIT(A) SHOULD HAVE DELETED THE ENTIRE ADDITION. IN THE RESULT, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND E NTIRE ADDITION IS DELETED. IN THE RESULT GROUND NO.1 OF THE APPEAL O F THE ASSESSEE IS ALLOWED AND GROUND NO.2 OF THE APPEAL OF THE REVENU E IS DISMISSED. 83. ON GROUNDS NO.2 AND 3, THE ASSESSEE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN DISALLOWING BAD DEBTS OF RS.3 .10 CRORES OUT OF RS.92.10 CRORES CLAIMED BY THE ASSESSEE. THE REVENU E ON GROUND NO.4, CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN GRANTING PART RELIEF TO THE ASSESSEE. THE LEARNED CIT(A) DISCUSSED THIS ISSUE OF CLAIM OF BAD DEBTS IN PARA 6 OF THE APPELLATE ORDER AND FOUN D THAT SUBSTANTIAL DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT S WHICH WERE REQUIRED TO BE WRITTEN OFF AND APPROVED BY INDEPEND ENT AUDITORS. THE SUBSTANTIAL ADDITION WAS ACCORDINGLY DELETED. BOTH THE PARTIES DID NOT DISPUTE THAT THE BAD DEBTS HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR AND CONDITIONS OF SECTION 36(1) (VII) HAVE BEEN SATISFIED IN THIS CAS E. IT IS THEREFORE, STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. (SUPRA). WE HAVE DECIDED THE SIMILAR ISSUE IN ASSES SMENT YEAR 2002- 03 ABOVE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION IN THE 57 CASE OF T. R. F. LTD. (SUPRA). FOLLOWING THE SAME D ECISION, WE DO NOT JUSTIFY EVEN PART DISALLOWANCE IN THE MATTER. THE O RDER OF LEARNED CIT(A) GRANTING DEDUCTION FOR BAD DEBTS IS CONFIRME D BUT THE LEARNED CIT(A) IS NOT JUSTIFIED IN CONFIRMING PART OF THE A DDITION ON THIS ISSUE. ENTIRE ADDITION IS, THEREFORE, DELETED. GROUNDS NO. 2 AND 3 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED AND GROUND NO.4 OF THE APPEAL OF THE REVENUE IS DISMISSED. 84. ON GROUND NO.4, ASSESSEE CHALLENGED THE DISALLO WANCE OF DEPRECIATION ON TANGIBLE ASSETS. THE REVENUE ON GRO UND NO.1 CHALLENGED THE DELETION OF DISALLOWANCE OF DEPRECIA TION ON ASSETS. IT IS STATED THAT ISSUE IS SAME AS IS CONSIDERED IN AS SESSMENT YEAR 2002-03 AND THE LEARNED CIT(A) FOLLOWED HIS ORDER F OR ASSESSMENT YEAR 2002-03 AND DIRECTED THE AO TO ALLOW DEPRECIAT ION ON SOFTWARE PURCHASED I.E. INTANGIBLE ASSETS AND DISALLOWED THE CLAIM OF DEPRECIATION ON TANGIBLE ASSETS. IT IS STATED BY BO TH THE PARTIES THAT ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2002-03 AB OVE MAY BE FOLLOWED. IN ASSESSMENT YEAR 2002-03, WE HAVE DECID ED THE CROSS APPEALS IN ITA NO.298/AHD/2006 AND ITA NO.338/AHD/2 006 AND THE DEPARTMENTAL APPEAL HAS BEEN DISMISSED CONFIRMING D EPRECIATION ON SOFTWARE I.E. INTANGIBLE ASSETS AND RESTORED THE IS SUE OF CLAIM OF DEPRECIATION ON TANGIBLE ASSETS TO THE FILE OF THE AO. BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03 A BOVE, THE DEPARTMENTAL APPEAL IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS SIMILARLY ALLOWED FOR STATISTICAL PURPOSES ON THIS ISSUE. 58 85. ON GROUND NO.5, THE ASSESSEE CHALLENGED THE LEV Y OF INTEREST U/S 234B AND 234C OF THE IT ACT WHICH IS MANDATORY AND CONSEQUENTIAL. ON GROUND NO.6, INITIATION OF PENALT Y PROCEEDINGS U/S 271 (1) (C) HAS BEEN CHALLENGED, WHICH IS INDEPENDE NT AND SEPARATE PROCEEDINGS. GROUND NO.7 IS GENERAL. THESE GROUNDS ARE ACCORDINGLY DISMISSED. 86. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.1512/AHD/2009 IS PARTLY ALLOWED. 87. THE REVENUE ON GROUND NO.3, CHALLENGED THE ORDE R OF THE LEARNED CIT(A) IN DIRECTING THE AO TO ALLOW SHARE A PPLICATION MONEY OF RS.4,36,00,000/-. THE AO DISALLOWED THE ABOVE AM OUNT U/S 68 OF THE IT ACT BEING UNEXPLAINED SHARE APPLICATION MONE Y. THE ASSESSEE FURNISHED DETAILS BEFORE THE AO WHICH INCLUDES DETA ILS OF PREFERENTIAL WARRANTS ISSUED TO FOUR COMPANIES I.E. PAN EMAMY CO SMED LTD., VIMPSON INVESTMENTS PVT. LTD., SHRI VIKRAM PATEL AN D SHARAD C. PATEL AMOUNTING TO RS.5,04,00,000/-. BUT THE CLAIM OF THE ASSESSEE WAS REJECTED TREATING THE SAME AS UNEXPLAINED SHARE CAPITAL MONEY. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ADD ITION ON ACCOUNT OF UNEXPLAINED SHARE CAPITAL WAS MADE IN RESPECT OF SH ARE HOLDERS NAMELY VIMPSON INVESTMENTS PVT. LTD. (RS.80 LACS), SHRI VIKRAM PATEL (RS.2.40 CRORES) AND SHRI SHARAD PATEL (RS.1. 16 CRORES) AGGREGATING TO RS.4.36,00,000/-. THE ASSESSEE FURNI SHED COMPLETE DETAILS OF RECEIPT OF SHARE APPLICATION MONEY ALONG WITH SHARE APPLICATION FORMS, THEIR NAMES, ADDRESSES, PAN AND OTHER DETAILS OF THE SHARE APPLICANTS. THEREFORE, ASSESSEE PROVED ID ENTITY OF THE 59 SHARE APPLICANTS, GENUINENESS OF THE TRANSACTIONS A ND THEIR CREDITWORTHINESS. IT WAS ALSO SUBMITTED THAT SUCH S HARE APPLICATION MONEY WAS RECEIVED AS A RESULT OF COMPROMISE SCHEME PLACED BEFORE THE HONBLE GUJARAT HIGH COURT. THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN SUPPORT OF THE CONTENTION AND ULTIMATELY THE LEARNED CIT(A) FOUND THAT THE ISSUE IS COVERED BY D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS , 216 CTR 195 IN WHICH IT WAS HELD THAT AS THE SHAREHOLDERS ARE I DENTIFIED, NO ADDITION CAN BE MADE IN THE HANDS OF THE COMPANY AS UNEXPLAINED SHARE CAPITAL. THE LEARNED CIT(A) ACCORDINGLY DELE TED THE ADDITION. BOTH THE PARTIES STATED THAT THE ISSUE IS COVERED I N FAVOUR OF THE ASSESSEE BY THE ABOVE JUDGMENT OF THE HONBLE SUPRE ME COURT IN THE CASE OF LOVELY EXPORTS (SUPRA). BY FOLLOWING THE SA ME DECISION AND CONSIDERING THE FINDINGS OF THE LEARNED CIT(A), WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCORDINGLY DISMISSED. 88. GROUNDS NO.5 AND 6 OF THE APPEAL OF THE REVENUE ARE GENERAL IN NATURE AND ARE DISMISSED. 89. IN THE RESULT, DEPARTMENTAL IN ITA NO.1891/AHD/ 2009 IS DISMISSED. 60 90. IN THE RESULT, ALL THE APPEALS OF THE DEPARTMEN T ARE DISMISSED. THE APPEAL OF THE ASSESSEE IN ITA NO.4282/ADH/2007 IS ALLOWED, HOWEVER, THE REMAINING APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD