The ITO, Ward-5(1), Ahmedabad V. Nir Marketing Pvt. Ltd., Ahmedabad

ITA 3296/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0431 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 11-11-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S N SOPARKAR
• Assessee Lawyers: NEETA SHAH
• Keywords: Initiation of penalty proceedings; Non-deduction of tax; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 234B; 36 (1) (iii); 147; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI H. L. KARWA, JM AND P. K. BANSAL, AM ) ITA NO. 3296/AHD/2004 A. Y.: 2001-02 THE INCOME TAX OFFICER, WARD 5(1), CU SHAH COLLEGE BUILDING, 2 ND FLOOR, AHMEDABAD VS NIR MARKETING PVT. LTD., G/20, NEW MADHAVPURA MARKET, SHAHIBAUG, AHMEDABAD PA NO. AABCN 4057G (APPELLANT) (RESPONDENT) ITA NO. 1643, 1983, /AHD/2006 AND 3666/AHD/2007 A.Y.: 2002-03, 2003-04 AND 2004-05 NIR MARKETING PVT. LTD., G/20, NEW MADHAVPURA MARKET, SHAHIBAUG, AHMEDABAD PA NO. AABCN 4057G VS THE INCOME TAX OFFICER, WARD 5(1), CU SHAH COLLEGE BUILDING, 2 ND FLOOR, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. SOPARKAR, AR RESPONDENT BY SMT. NEETA SHAH, DR O R D E R PER H. L. KARWA: THESE FOUR APPEALS INVOLVING CERTAIN COMMON ISSUES WERE HEARD TOGETHER AND ARE BEING DISPOSED O F BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRSTLY, WE WILL TAKE UP REVENUES APPEAL I.E. I TA NO.3296/AHD/2004 RELATING TO ASSESSMENT YEAR 2001-0 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPE AL READS AS UNDER: ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 2 1. THE LD. COMMISSIONER OF INCOME-TAX(APPEALS)-XA , AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF PREMIUM ON OFCPN OF RS.19,15,841/- . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY, DURING THE YEAR UNDER CONSIDERATION WAS ENGAGED IN THE BUSINESS OF TRADING OF SOAP, DETERGENT POWDER AND CAKE ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 19-06-200 0 DECLARING TOTAL INCOME AT RS. NIL. HOWEVER, THE ASSESSMENT WAS FINA LIZED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON 26-0 2-2004 DETERMINING TOTAL INCOME AT RS.19,15,841/-. WHILE FRAMING THE A SSESSMENT, THE AO DISALLOWED RS.19,15,841/- ON ACCOUNT OF PREMIUM PAY ABLE ON OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTES (OFCPN) AS FUTURE C ONTINGENT LIABILITIES. ON VERIFICATION OF ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD DEDUCTED AN AMOUNT OF RS.19,15,841/- AS PREMIUM ON OFCPN FROM THE TOTAL INCOME OF RS.31,35,704/- (OFCPN). WHEN THE AO ENQUIRED ABOUT THE DEDUCTION, THE ASSESSEE FILED REPLY VIDE ITS LE TTER DATED 17-03-2003. THE ASSESSEE ALSO FILED ANOTHER REPLY ON 23-09-2003 . BOTH THE REPLIES FILED BY THE ASSESSEE WERE NOT CONSIDERED BY THE AO TO BE SATISFACTORY. THE AO TOOK THE VIEW THAT THE ASSESSEE COMPANY HAD MADE A PROVISION FOR FUTURE CONTINGENT LIABILITIES, WHICH COULD NOT BE THE SUBJECT MATTER OF DEDUCTION. THEREFORE, AFTER DISCUSSING THE ISSUE AT LENGTH IN THE ASSESSMENT ORDER THE AO REJECTED THE ASSESSEES CLA IM OF PREMIUM ON OFCPN AND ADDED THE SUM OF RS.19,15,841/- TO THE TO TAL INCOME OF THE ASSESSEE COMPANY. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), IT WAS CONTENDED BY THE ASSESSEE THAT THE PROVISIONS OF PREMIUM ON OFCPN IS IN THE NATURE OF INTEREST U/S 36 (1) (III) OF THE ACT. IT WAS ALSO S TATED THAT CAPITAL HAS BEEN BORROWED AND IS ADMITTEDLY UTILIZED FOR THE PURPOSE OF BUSINESS. AS ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 3 REGARDS THE TERMS AND CONDITIONS AT WHICH DEBENTURE S HAVE BEEN ISSUED IT WAS STATED THAT THE DEBENTURES ARE ISSUED HAVING MATURITY PERIOD OF SEVEN YEARS GIVING RIGHT TO THE INVESTOR TO HAVE OP TION TO PUT (EXERCISE THEIR RIGHTS) FROM THE END OF SIXTH YEAR TILL MATUR ITY AND TO GET TEN EQUITY SHARES AT PREMIUM OF RS.31.50 PAISE. IF SUCH OPTION IS NOT EXERCISED THEN IN THAT CASE, THE INVESTOR IS ENTITLED TO RS.325/- FOR THE INITIAL INVESTMENT OF RS.100/- MADE BY HIM. IT WAS STATED THAT THE ASS ESSEE COMPANY WAS CONTRACTUALLY LIABLE TO PAY RS.325/- AT THE END OF SEVENTH YEAR FOR THE FUNDS USED FOR THE PERIOD OF SEVEN YEARS. THE ONLY CONTINGENCY IF AT ALL ONE CAN THINK ABOUT, IS EXERCITATION OF PUT OPTION BY THE INVESTOR. EVEN IN THAT CASE, IT WOULD BE ISSUANCE OF EQUITY SHARE AT A PREMIUM, BUT ON THIS DEBENTURE THE COMPANY IN ANY CASE IS CONTRACTU ALLY LIABLE TO PAY THE AGREED PREMIUM. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION LTD. VS CIT (1997) 225 ITR 802 (SC). THE ASSESSEE ALSO SUBMITTED BEFORE THE CIT(A) THAT U/S 209 OF THE COMPANIES ACT, ALL C OMPANIES HAD TO KEEP THEIR ACCOUNTS ON MERCANTILE BASIS, AND, THEREFORE, SUCH LIABILITY HAS TO BE PROVIDED FOR. THE ASSESSEE FURTHER SUBMITTED THA T AS PER THE TERMS OF INSTRUMENT, THE PREMIUM WAS GETTING ACCUMULATED YEA R OVER YEAR AND WAS BECOMING PAYABLE, BY THE COMPANY, IN MATURITY I . E. AT THE END OF SEVENTH YEAR. THE ASSESSEE ALSO SUBMITTED BEFORE TH E CIT(A) THAT THE COMPANY IS LIABLE FOR PAYMENT AND LIABILITY DUES AC CRUED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION LTD. (SUPRA). THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE CIT(A) THAT NO TAX DEDUCTION AT SOURCE HAS BEEN MAD E ON THE ABOVE AMOUNT. THE TAX AT SOURCE IS NATURALLY NOT DEDUCTED AT THE RELEVANT POINT OF TIME, IT IS NOT KNOWN WHO IS LIKELY TO GET THE INTEREST, AS THE DEBENTURES ARE TRANSFERABLE. THE ASSESSEE ALSO SUBM ITTED BEFORE THE CIT(A) THAT THE INVESTOR OF OFCPN HAVING DECLARED O R NOT, THE INTEREST ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 4 INCOME IN THE RESPECTIVE RETURN OF INCOME, IS OF NO CONSEQUENCE TO IT. MOREOVER, MERELY BECAUSE THE INCOME IS NOT DECLARED BY THE INVESTOR IS NOT A FACTOR, WHICH CAN AFFECT THE ALLOWABILITY OF THE EXPENDITURE IN ASSESSEES HAND. 5. IN VIEW OF THE ABOVE, THE ASSESSEE SUBMITTED BEF ORE THE CIT(A) THAT THE ADDITION MADE BY THE AO WAS ILLEGAL, UNCALLED F OR AND NOT JUSTIFIABLE AND REQUESTED THE CIT(A) TO DELETE THE SAME. 6. THE CIT(A) DELETED THE ADDITION RELYING ON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION LTD. VS CIT 225 ITR 802(SC) . THE RELEV ANT FINDINGS OF THE CIT(A) ARE AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE A. R. OF THE APPELLANT CAREFULLY. I HAVE ALS O GONE THROUGH THE DECISIONS RELIED UPON BY THE A. R. AND THE OBSE RVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I HA VE ALSO GONE THROUGH THE CBDTS CIRCULAR, REFERRED BY THE A. R. OF THE APPELLANT. I AGREE WITH THE CONTENTIONS PUT FORTH B Y THE A. R. OF THE APPELLANT. I AM OF THE VIEW THAT IN THE CASE OF APPELLANT NO INTEREST OR REPAYMENT OF PRINCIPAL BECOMES DUE OR A CCRUED ON THE OFCPN DURING THE 7 YEARS AFTER ALLOTMENT. THE S AME BECOMES DUE ONLY AT THE END OF 7 TH YEAR. ORDINARILY, THE REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED FULLY I N THE YEAR IT IS INCURRED/PAID AND SHOULD NOT BE SPREAD OVER A PE RIOD OF YEARS. BUT, THE FACTS OF T4HE CASE MAY JUSTIFY IF T HE ASSESSEE INCURS EXPENDITURE IN A PARTICULAR YEAR AND THEN SP READS IT OVER A PERIOD OF YEARS AS HELD BY THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION VS CIT (1987) 225 ITR 802 (SC). IN THE AFOREMENTIONED CASE THE HONBLE SUPREME COURT HELD AS UNDER. ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRELY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEAR S. ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 5 HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIOD OF ENSUING YEARS. IN FACT, A LLOWING THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT GIVE A VER Y DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YE AR. THUS IN THE CASE OF HINDUSTAN ALUMINUM CORPORATION LTD. VS. CIT (1983) 144 ITR 474, THE CALCUTTA HIGH COURT UPH ELD THE CLAIM OF THE ASSESSEE TO SPREAD OUT A LUMP SUM PAYMENT TO SECURE TECHNICAL ASSISTANCE AND TRAINING OVER A NUMBER OF YEARS AND ALLOWED A PROPORTIONATE DEDUCTION IN THE ACCOUNTING YEAR IN QUESTION. ISSUING DEBENTURE AT A DISCOUNT IS ANOTHER SUCH INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PER IOD OF THE DEBENTURES. THE APPELLANT, THEREFORE, HAD, IN ITS RETURN, CORRECTLY CLAIMED A DEDUCTION ONLY IN RESPECT OF TH E PROPORTIONATE PART OF DISCOUNT OF RS.12,500/- OVER THE RELEVANT ACCOUNTING PERIOD IN QUESTION. IN THIS CONNECTION, WE AGREE WITH THE REASONING AND CONCLUS ION OF THE MADHYA PRADESH HIGH COURT IN THE CASE OF M. P. FINANCIAL CORPORATION V. CIT(1987) 165 ITR 765. THE VIEW THAT WE HAVE TAKEN IS ALSO IN CONFORMITY WITH THE ACCOUNTING PRACTICE OF SHOWING THE DISCOUNT IN THE DISCOUNT ON DEBENTURES ACCOUNT WHICH IS WRITTEN O FF OVER THE PERIOD OF THE DEBENTURES. HAVING CONSIDERED THE FACTS OF THE CASE AND RESPECT FULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT, RE FERRED TO ABOVE, I AM OF THE VIEW THAT THE ACTION OF THE ASSE SSING OFFICER DOES NOT SEEM TO BE JUSTIFIED. THE ADDITION MADE BY THE ASSESSING OFFICE, IS THEREFORE, DELETED. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AT LENGTH AND WE HAVE ALSO CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE ON RECORD AND CONSIDERED THE SUBMISSIONS OF THE ASS ESSEE MADE BEFORE ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 6 THE AO AS WELL AS BEFORE THE CIT(A). THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF ITAT A BENCH, AHMEDABAD IN THE CASE OF NIRMA LTD. VS. DCIT IN ITA NO.1245/A HD/2006 RELATING TO ASSESSMENT YEAR 2002-03. THE TRIBUNAL VIDE ITS ORDE R DATED 13-07-2009 ALLOWED THE CLAIM OF NIRMA LTD. IN THE SAID CASE TH E CIT(A) CONFIRMED THE DISALLOWANCE AMOUNTING TO RS.40,72,70,261/- BEING I NTEREST RELATING TO DEEP DISCOUNT BOND SERIES A AND B. IN THE SAI D CASE, THE CONTENTIONS OF THE ASSESSEE WAS THAT IT WAS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING IN COMPLIANCE WITH THE REQUIREMENTS O F SECTION 209 OF THE COMPANIES ACT, AND, THEREFORE, CLAIMED ALL THE EXP ENSES ON THAT BASIS TO WORK OUT ITS TAXABLE INCOME. IT WAS ALSO SUBMITTED ON BEHALF OF NIRMA LTD. THAT THE DISCOUNT GIVEN TO DDBS WAS CLAIMED AS INCOME ON PROPORTIONATE BASIS IN CONFORMITY WITH THE PRINCIPL ES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION LTD. VS CIT 225 ITR 802(SC). THE TRIBUN AL FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. (SUPRA) AND THAT OF HON BLE BOMBAY HIGH COURT IN TAPARAIA TOOLS LTD. VS. JCIT (2003) 260 IT R 102 (BOMBAY HELD AS UNDER: 16 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE SHORT ISSUE THE AMOUNT OF DIFFERENCE BETWEEN THE IS SUE PRICE AND PAR VALUE/DEEMED DDBS, WHICH HAS BEEN TREATED A S INTEREST BY THE ASSESSEE AS WELL DEPARTMENT, IS LIA BLE TO BE ALLOWED. THE CASE OF THE DEPARTMENT FOR IMPUGNED DISALLOWANCE IS THAT THE EXPENDITURE HAS NOT ACCRUE D IN THE APPEAL AND THAT IT WOULD ACCRUE ONLY AT THE TIME OF MATURITY OF THE DDBS THE ASSESSEE, ON THE OTHER HAND, IS THAT T HE IMPUGNED EXPENDITURE DE ALLOWED ON PROPORTIONATE BA SIS IN THE YEAR UNDER APPEAL FOR THE REASON THAT IT RELATE S TO THE YEAR UNDER APPEAL BUT HAS ALSO BEEN INCURRED IN THE YEAR FOR THE PURPOSES OF THE BUSINESS AND THEREFORE IT SHOULD BE ALLOWED ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 7 AS DEDUCTION. LET US CONSIDER THE ISSUE FIRST FROM THE ACCOUNTING POINT OF VIEW AND THEN FROM THE LEGAL PO INT OF VIEW. 17. IT IS NOT AT ALL IN DISPUTE THAT THE ASSESSEE M AINTAINS ITS ACCOUNTS ON ACCRUAL BASIS; RATHER THE COMPANIES ACT MANDATES THE ASSESSEE TO DO SO. ACCRUAL BASIS OF AC COUNTING (ALSO REFERRED TO AS MERCANTILE BASIS) IS THE METHO D OF RECORDING TRANSACTIONS BY WHICH REVENUES, COSTS, AS SETS AND LIABILITIES ARE RECOGNISED IN THE ACCOUNTS IN THE P ERIOD IN WHICH THEY ACCRUE, I, E, WHEN TRANSACTIONS OCCUR RATHER T HAN WHEN THEY ARE SETTLED BY RECEIPT OR PAYMENT IN CASH. THI S RESULTS IN MATCHING THE ACCOMPLISHMENTS (I.E., REVENUES) WITH THE EFFORTS (I.E., COSTS) IN A GIVEN PERIOD. THEREFORE, TWO ESS ENTIAL FEATURES OF ACCRUAL BASIS OF ACCOUNTING ARE: (A) REVENGES AR E RECOGNIZED AS THEY ARE EARNED; AND (B) FOR DETERMINING THE PER IODIC INCOME, COSTS ARE MATCHED AGAINST REVENUES SO RECOG NISED OR AGAINST THE TIME PERIOD TO WHICH THEY RELATE. THE M ATCHING CONCEPT IS THUS AN INTEGRAL PART OF ACCRUAL ACCOUNT ING. IN FACT, THEY ARE OFTEN USED INTERCHANGEABLY. THE MATCHING C ONCEPT REQUIRES PROPER ALLOCATION OF COSTS INTO APPROPRIAT E PERIODS SO THAT RELEVANT INCOMES AND EXPENSES ARE MATCHED TO O UT THE CORRECT PROFITS IN A GIVEN ACCOUNTING PERIOD. THIS VIEW IS WELL FORTIFIED BY JUDGMENT IN TAPARIA TOOLS LTD,, 260 IT R 102, 116 (BOM.) IN WHICH, THE HONBLE HIGH COURT HAS EXPLAIN ED THE MATCHING CONCEPT THUS. '. THEREFORE, UNDER THE MERCANTILE SYSTEM OF ACCOU NTING, IN ORDER TO DETERMINE THE NET INCOME OF AN ACCOUNTING YEAR, THE REVENUE AND OTHER INCOMES ARE MATCHED WITH THE COST OF RESOURCES CONSUMED (EXPENSES). UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THIS MATCHING IS REQUIRED TO BE DONE ON ACCRUAL BASIS. UNDER THIS MATCHING CONCEPT, REVENUE AND INC OME EARNED DURING AN ACCOUNTING PERIOD IRRESPECTIVE OF ACTUAL CASH IN-FLOW IS TO BE COMPARED WITH EXPENSES INCURRED DU RING THE SAME PERIOD IRRESPECTIVE OF ACTUAL OUT-FLOW OF CAS H.' 18. PURSUANT TO THE PROVISIONS OF SECTION 145(2), T HE CENTRAL GOVERNMENT HAS NOTIFIED ACCOUNTING STANDARDS TO BE FOLLOWED FOR INCOME-TAX PURPOSES. ACCORDING TO PARAGRAPH 6(B ) OF THE AFORESAID NOTIFICATION, 'ACCRUAL' REFERS TO THE 'AS SUMPTION THAT, REVENUES AND COSTS ARE ACCRUED, THAT IS, RECOGNIZED AS THEY ARE EARNED OR INCURRED (AND NOT AS MONEY IS RECEIVE D OR PAID) AND RECORDED IN THE FINANCIAL STATEMENTS OF THE PER IOD TO ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 8 WHICH THEY RELATE.' THE AFORESAID DEFINITION HAS NO W STATUTORY FORCE AND THEREFORE HAS TO BE FOLLOWED. ACCORDING T O THE SAID DEFINITION, TWO CONDITIONS MUST BE SATISFIED TO CON STITUTE 'ACCRUAL'. THEY ARE: CO THE REVENUES AND COSTS ARE REQUIRED TO BE RECOGNIZED AS THEY ARE EARNED OR INCURRED (AND N OT AS MONEY IS RECEIVED OR PAID); ARID (II) THE REVENUES AND COSTS SO RECOGNIZED MUST BE RECORDED IN THE FINANCIAL STATEM ENTS OF THE PERIODS TO WHICH THEY RELATE. THUS MERE INCURRENCE OF LIABILITY OR COST IS RIOT SUFFICIENT- THE INCURRENCE OF LIABI LITY/COST SHOULD BE RECOGNIZED AND RECORDED IN THE FINANCIAL STATEME NTS OF THE PERIODS TO WHICH THEY RELATE. THE THRUST OF THE AFO RESAID DEFINITION IS ALSO ON THE DETERMINATION OF PERIODIC REVENUES AND COSTS IN ORDER TO CORRECTLY WORK OUT THE PROFIT S IN A GIVEN ACCOUNTING PERIOD FOR INCOME TAX PURPOSES. 19. THE FOCUS OF ACCOUNTING PRINCIPLES AND PRACTIC ES AS WELL AS THE INCOME-TAX LAW IS TO ENSURE THAT ONLY CORREC T OR REAL PROFITS ARE WORKED OUT IN A GIVEN ACCOUNTING PERIOD , I.E., PREVIOUS YEAR AND BROUGHT TO TAX. IN OTHER WORDS, B OTH THE REVENUES AND COSTS MUST MATCH AND RELATE TO THE ACC OUNTING PERIOD. SECTION 28 OF THE INCOME-TAX ACT ALSO SEEKS TO ACHIEVE THE SAME OBJECT. SECTION 28 TAXES THE PROFITS AND G AINS OF THE BUSINESS OR PROFESSION OF THE PREVIOUS YEAR, E.G., ACCOUNTING PERIOD WHICH, IN SUBSTANCE, REQUIRES MATCHING THE ACCOMPLISHMENTS (I.E., REVENUES) WITH EFFORTS (I. E . COST/EXPENSES INCURRED) IN A GIVEN ACCOUNTING PERIO D. BOTH THE REVENUES AS WELL, AS COSTS/EXPENSES RELATING TO A P ARTICULAR YEAR MUST BE ACCOUNTED FOR IN THAT YEAR ITSELF TO A RRIVE AT THE CORRECT OR REAL PROFITS. THERE IS A PLETHORA OF AUT HORITIES, E.G., KEDARNATH JUTE MANUFACTURING CO. LTD. V. CTT, 82 IT R 363 (SC) AND MADEVA UPENDRA SINAI V. UNION OF INDIA, 98 ITR 209 (SC), ETC., FOR THE PROPOSITION THAT THE PROFITS AS SESSABLE UNDER SECTION 28 MUST BE REAL PROFITS TO BE ASCERTAINED O N ORDINARY PRINCIPLES OF TRADING AND COMMERCIAL ACCOUNTING. IF THE ASSESSEE IS UNDER A LIABILITY OR LIABILITY HAS BEEN INCURRED IN RELATION TO A GIVEN PERIOD OR IS BOUND TO MAKE A CE RTAIN PAYMENT FROM THE GROSS PROFITS, THE PROFITS AND GAI NS CAN ONLY BE THE NET AMOUNT AFTER THE SAID LIABILITY OR AMOUN T IS DEDUCTED FROM THE GROSS PROFITS OR RECEIPTS. 20. IT IS EVIDENT ON BARE PERUSAL OF THE INFORMATIO N MEMORANDUM OF BOTH THE SERIES OF DDBS THAT THE LIAB ILITY TOWARDS DISCOUNT OR INTEREST WAS INCURRED IN THAT V ERY YEAR IN ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 9 WHICH THE DDBS WERE ISSUED. THE ASSESSES WAS CONTRA CTUALLY BOUND TO DISCHARGE AT THE TIME OF MATURITY OF DDBS. THE ASSESSEE HAD NO ELEMENT OF DISCRETION IN THIS BELIE F. BY ISSUING THE DEBENTURES AT A DISCOUNT, THE ASSESSEE- COMPANY INCURRED THE LIABILITY IN THE YEAR OF ISSUE OF DEBE NTURES TO PAY THE DISCOUNT AT THE TIME OF MATURITY BUT SUCH PAYME NT WAS TO SECURE THE BENEFIT OVER A NUMBER OF YEARS. AND THER EFORE SUCH LIABILITY WAS NOT TO BE ALLOWED IN ITS ENTIRETY IN THE YEAR OF ISSUE OF DDBS AS THE ENTIRE LIABILITY DID NOT RELAT E TO THAT YEAR. HERE COMES THE RELEVANCE OF MATCHING PRINCIPLE. SIN CE THERE WAS A CONTINUING BENEFIT TO THE BUSINESS OF THE ASS ESSEE OVER THE ENTIRE PERIOD, THE LIABILITY WAS REQUIRED TO BE SPREAD OVER THE ENTIRE PERIOD OF THE DDBS, BESIDES, THERE IS NO DISPUTE THAT THE FUNDS BORROWED THROUGH DDBS WERE USED FOR THE P URPOSES OF THE BUSINESS IN THE YEAR UNDER APPEAL AND HENCE THE EXPENSES, E.G., DISCOUNT/INTEREST, ETC., RELATING T HERETO WOULD DESERVE TO BE ACCOUNTED FOR IN AND ALLOCATED TO THE YEAR UNDER APPEAL ON PRO-RATA BASIS. TESTED ON THE AFORESAID P RINCIPLES, THE ASSESSEE IS ENTITLED TO SUCCEED IN ITS CLAIM AS THE DISCOUNT/INTEREST WORKED OUT ON PROPORTIONATE BASIS NOT ONLY RELATED TO THE ACCOUNTING PERIOD UNDER APPEAL BUT W AS ALSO INCURRED TO ACHIEVE THE ACCOMPLISHMENTS, I.E., THE PROFITS OF THE YEAR UNDER APPEAL. THE MERE FACT THAT THE IMPUGNED LIABILITY WAS TO BE DISCHARGED AT THE TIME OF MATURITY/REDEMP TION OF DDBS WILT NOT DEFEAT THE CLAIM OF THE ASSESSEE AS T HE FACTUM OF ACTUAL PAYMENT IS IRRELEVANT IN DECIDING UPON TH E CLAIM UNDER THE ACCRUAL SYSTEM OF ACCOUNTING. 19. NOW LET US TURN TO THE SPECIFIC PROVISIONS OF LAW GOVERNING THE AIM. THE FOCUS OF SECTION 37 OF THE I NCOME-TAX ACT IS TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDI TURE BEING (I) EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 (II) PERSONAL OR (III) CAPITAL EXPENDITURE} LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS. IT IS WELL-ESTABLISHED PRINCIPLE OF LAW THAT THE CLAIM OF THE ASSESSEE IS LIABLE TO BE ALLOWED IF IT SATISFIES AL L THE INGREDIENTS OF THE SECTION WHICH ALLOWS THE DEDUCTI ON. THE JUDGMENT IN MADRAS INDUSTRIAL INVESTMENT CORPORATIO N, 255 ITR 802 (SC) COMPREHENSIVELY EXAMINES ALL THE AFORE SAID ASPECTS OF THE CASE AND LAYS DOWN THE PRINCIPLES GO VERNING SUCH CLAIMS. IN THAT CASE, THE ASSESSEE HAD ISSUED DEBENTURES AT A DISCOUNT ON 10* DECEMBER 1966, REDEEMABLE AFTE R 12 YEARS. THE ISSUE PRICE OF DEBENTURE OF RS.L00/- WAS RS,98. ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 10 THE TOTAL AMOUNT OF DISCOUNT ON THE ENTIRE ISSUE WA S RS.3 LAKHS WHILE THE PRO-RATA DISCOUNT, I,E., THE PROPOR TIONATE AMOUNT OF DISCOUNT FOR THE PERIOD OF SIX MONTHS END ING WITH JUNE 30, 1967 WAS RS.12,500/-, TAKING THE PERIOD OF 12 YEARS WHICH WAS THE PERIOD OF REDEMPTION AND DIVIDING THE TOTAL AMOUNT OF DISCOUNT BY 12 YEARS. RELEVANT PROPOSITIO NS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE AFORESAID JUDGMENT CAN BE SUMMED UP AS UNDER: (I) WHEN A COMPANY ISSUES DEBENTURES AT A DISCOUNT, IT INCURS A LIABILITY PAY A LARGER AMOUNT THAN WHAT IT HAS BORROWED, AT A FUTURE DATE. LIABILITY TO PAY THE DISCOUNTED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVE D FOR THE DEBENTURES IS A LIABILITY WHICH HAS BEEN IN CURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES. THE AMOUNTS SO OBTAINED BY ISSUE OF DEBENTURES ARE USED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS. TH IS WOULD THEREFORE BE EXPENDITURE. (II) THE HON'BLE SUPREME COURT CITED, WITH APPROVAL, THE OBSERVATIONS MADE IN INDIA CEMENTS LTD., 60 TTR 52 (SC), THAT (A) THE LOAN OBTAINED IS NOT AN ASSET OR ADVANTAGE OF AN ENDURING NATURE; (B) THE EXPENDITUR E WAS MADE FOR SECURING THE USE OF MONEY FOR A CERTAI N PERIOD; AND (C) IT IS IRRELEVANT TO CONSIDER THE OB JECT WITH WHICH THE LOAN WAS OBTAINED. (III) BY ISSUING THE DEBENTURES AT A DISCOUNT, THE ASSESS EE INCURS THE LIABILITY TO PAY THE DISCOUNT IN THE YEA R OF ISSUE OF DEBENTURES BUT SUCH PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. SINCE THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF THE ASSESSEE OVER THE ENTIRE PERIOD, THE LIABILITY SHOULD BE SPREAD O VER THE PERIOD OF THE DEBENTURES. 22. THE FACTUAL MATRIX OF THE CASE BEFORE US IS ALM OST IDENTICAL WITH THE ONE IN MADRAS INDUSTRIAL INVESTM ENT CORPORATION LTD. (SUPRA). IN THIS VIEW OF THE MATTE R, THE LAW AS LAID DOWN IN THE AFORESAID JUDGMENT WOULD SQUARELY COVER THE ISSUE INVOLVED IN THE CASE BEFORE US AS WELL. IN TH E CASE BEFORE US, THE ASSESSEE HAS ISSUED DDBS AT A PRICE LOWER T HAN THEIR PAR VALUE/DEEMED FACE VALUE, I.E., THE VALUE AT WHI CH THEY ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 11 WERE REQUIRED TO BE REDEEMED UPON EXPIRY OF REDEMPT ION PERIOD. THE LIABILITY TOWARDS PROPORTIONATE DISCOUN T INCURRED BY THE ASSESSEE WAS A LIABILITY NOT ONLY IN PRESENT ALTHOUGH IT WAS PAYABLE IN FUTURE BUT ALSO RELATED TO THE ACCOU NTING PERIOD UNDER APPEAL. BESIDES, IT WAS NOT ONLY QUANT IFIABLE BUT WAS ALSO ACTUALLY QUANTIFIED BY THE ASSESSEE, WHICH HAS NOT BEEN DISPUTED BY THE DEPARTMENT. THE MATCHING PRINC IPLE OF ACCOUNTING ALSO REQUIRES THAT THE EXPENDITURE RELAT ABLE TO A PARTICULAR YEAR MUST BE ALLOCATED TO THAT YEAR OTHE RWISE IT WOULD LEAD TO DISTORTION IN PROFITS. THE ASSESSEE I S THEREFORE ENTITLED TO THE DEDUCTION OF PROPORTIONATE AMOUNT O F DISCOUNT IN THE YEAR UNDER APPEAL IN TERMS OF THE PRINCIPLES LAID DOWN IN THE AFORESAID JUDGMENT AND FOR THE REASONS AFORE SAID. 23. SECTION 36(L)(III) DEALS WHICH THE DEDUCIBILI TY OF INTEREST ON CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINES S. THE ONLY CONDITION REQUIRED TO BE SATISFIED FOR CLAIMING THE DEDUCTION U/S 36{L)(III) IS THAT THE CLAIM OF INTEREST SHOULD BE WITH REFERENCE TO THE CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS. AS ALREADY STATED EARLIER, THERE IS NOT E VEN AN ALLEGATION BY THE DEPARTMENT THAT THE CAPITAL WAS N OT BORROWED FOR THE PURPOSES OF THE BUSINESS. THEREFOR E THE CLAIM OF THE ASSESSEE, WHICH REMAPS UNCONTROVERTED BY THE DEPARTMENT, THAT THE CAPITAL WAS BORROWED FOR THE P URPOSES OF THE BUSINESS HAS TO .BE ACCEPTED AND IS ACCORDINGLY ACCEPTED- SINCE THE LIABILITY INCURRED BY THE ASSESSEE TOWARD S INTEREST IS WITH REFERENCE TO THE BORROWED CAPITAL UTILIZED FOR THE PURPOSES OF ITS BUSINESS IN THE YEAR UNDER APPEAL A ND ALSO THAT IT RELATES TO THE YEAR UNDER APPEAL, THE ASSES SEE, IN OUR VIEW, IS ENTITLED TO SUCCEED IN ITS CLAIM FOR DEDUC TION ON PRO- RATA BASIS. WE HOLD ACCORDINGLY. 24. THE AO AND THE LEARNED CTT(A) HAVE MADE VARIOUS OTHER OBSERVATIONS IN THEIR RESPECTIVE ORDERS FOR D ENYING THE DEDUCTION CLAIMED BY THE ASSESSEE. THESE ARE: (I) THE ASSESSEE-COMPANY IS A CASH-RICH COMPANY; (II) THERE WAS NO NEED TO RAISE THE FUNDS THROUGH D DBS; (III) THE INVESTORS IN THE DDBS BEIONG TO THE SAME GROUP TO WHICH THE ASSESSEE BELONGS; (IV) THE INVESTORS IN DDBS HAVE NOT OFFERED CORRESPONDIN G INCOME TO TAX IN THEIR RESPECTIVE HANDS; (V) SINCE THE ASSESSEE DID NOT DEDUCT THE TAX AT SOURCE IN ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 12 TERMS OF SECTION 193, IT COULD NOT BE ALLOWED TO CL AIM DEDUCTION ON ACCOUNT OF INTEREST LIABILITY (VI) INSERTION OF CLAUSE (IIIA) IN SECTION 36 MADE IT ABUNDANTLY CLEAR THAT 'PRO-RATA DISCOUNT' COULD BE ALLOWED IN RESPECT OF ZERO COUPON BONDS ALONE ISSUE D BY AN INFRASTRUCTURE CAPITAL COMPANY OR INFRASTRUCT URE CAPITAL FUND OR PUBLIC SECTOR COMPANY AFTER 1,6.200 5 AND THEREFORE SUCH A CONCESSION COULD NOT BE EXTEND ED IN RESPECT OF EARLIER ASSESSMENT YEARS AND THAT TOO TO THE ASSESSEE-COMPANY WHICH WAS NEITHER AN INFRASTRUCTURE COMPLY R NOR A PUBLIC SECTOR COMPANY; (VII) THE DEVICE ADOPTED BY THE ASSESSEE WAS A TAX AVOIDANCE DEVICE AND THEREFORE SUCH DEVICE WAS TO B E IGNORED. 25. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT ALL THE AFORESAID OBSERVATIONS HAVE NO DIRECT BEARING ON TH E ISSUE AND THEREFORE ARE NOT RELEVANT IN DECIDING UPON THE CLAIM OF THE ASSESSEE UNDER SECTION 36(L)(III)/37 OF THE INC OME-TAX. WE ARE IN AGREEMENT WITH THE AFORESAID SUBMISSIONS. IN OUR VIEW, THE ASSESSEE IS ENTITLED TO SUCCEED IN ITS CLAIM FO R DEDUCTION UNDER SECTION 36(L) (III)/37 SO LONG AS HE FULFILS ALL THE CONDITIONS PRESCRIBED THEREIN- WE HAVE ALREADY HELD EARLIER THAT THE ASSESSEE NOT ONLY SATISFIES -ILL THE CONDI TIONS STIPULATED BY ME AFORESAID PROVISIONS BUT ALSO THAT THE CASE OF THE ASSESSEE IS COVERED BY THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN INDUSTRIAL INVESTMENT CORP ORATION (SUPRA) 26. HAVING HELD THAT THE ASSESSEE IS ENTITLED T O PROPORTIONATELY CLAIM EXPENDITURE TOWARDS DISCOUNT/ INTEREST ON THE DDBS ON ACCRUAL BASIS IN THE YEAR UNDER, WE DIRECT THE AO TO CORRECTLY WORK OUT THE AMOUNT OF DEDUCTION TO THE EXTENT IT RELATES TO THE YEAR UNDER APPEAL. IN VIEW OF THE FOREGOING, GROUND NO.3 TAKEN BY THE ASSESSEE IS ALLOWED SUBJEC T TO THE AFORESAID OBSERVATIONS. 8. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORA TION LTD. (SUPRA) AND ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 13 ALSO THE DECISION OF THE TRIBUNAL RENDERED IN THE C ASE OF NIRMA LTD. WE HOLD THAT THE ASSESSEE HAD CORRECTLY CLAIMED THE DE DUCTION ONLY IN RESPECT OF PROPORTIONATE PART OF THE PREMIUM ON OFC PN ON ACCRUAL BASIS IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE UP HOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 9. IN ITA NO.1983/AHD/2006 FOR AY 2003-04, THE ASSE SSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) XI AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN FINALIZING APPELLATE ORDER DATED 7.8.2006 FOR A. Y. 2003.04 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XI AHMEDABAD HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.36,09,609/ BEING THE AMOUNT OF PREMIUM ON OFCPN. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XI AHMEDABAD HAS ERRED IN REJECTING THE GROUNDS RELATI NG TO INITIATION PENALTY PROCEEDINGS U/S. 271 (1) ( C ) O F THE INCOME TAX ACT. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XI AHMEDABAD HAS ERRED IN REJECTING GROUNDS RELATING T O CHARGING OF INTEREST U/S. 234B AND 234C OF THE I.T. ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XI AHMEDABAD HAS ERRED IN NOT PASSING SPEAKING ORDER R ELATING TO LEVY OF INTEREST U/S. 234D OF THE I. T. ACT. 10. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO COMMENTS. 11. GROUND NO.2 RELATES TO DISALLOWANCE OF RS.36,09 ,609/- BEING AMOUNT OF PREMIUM ON OFCPN. WHILE DECIDING THE REVE NUES APPEAL IN ITA NO.3296/AHD/2004 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ONLY IN RESPECT OF PROPORTIONATE PART OF PREMIUM ON ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 14 OFCPN ON ACCRUAL BASIS IN THE YEAR UNDER CONSIDERAT ION. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2001-02 (ITA NO.3296/AHD/2004). IN VIEW OF THE DETAILED DISCUSSI ON GIVEN THEREIN, WE SET ASIDE THE ORDER OF THE CIT(A) AND THE DECISION RENDERED IN REVENUES APPEAL FOR AY 2001-02 (SUPRA) SHALL APPLY WITH EQUA L FORCE TO THIS GROUND OF APPEAL OF THE ASSESSEE. ACCORDINGLY, WE ALLOW TH IS GROUND OF APPEAL. 12. GROUND NO.3 OF THE APPEAL RELATES TO INITIATION OF PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT. AT THE TIME OF HEARING OF THE APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL AND ACCORDINGLY WE DISMISS THE SAME AS NOT PRESSED. 13. GROUND NO.4 OF THE APPEAL IS CONSEQUENTIAL IN N ATURE AND WE HOLD ACCORDINGLY. 14. GROUND NO. 5 RELATES TO CHARGING OF INTEREST U/ S 234 D OF THE ACT. 15. AFTER HEARING THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES WE FIND THAT IN VIEW OF THE DECISION OF THE ITAT, DE LHI E BENCH (SB) IN THE CASE OF ITO VS EKTA PROMOTERS PVT. LTD. (2008) 113 ITD 719 (DEL) (SB) INTEREST U/S 234D OF THE ACT CANNOT BE CHARGED IN R ESPECT OF THE ASSESSMENT YEAR FALLING BEFORE 01-06-2003, AS THE P ROVISIONS OF SECTION 234 D OF THE ACT INSERTED WITH EFFECT FROM 01-06-20 03. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. 16. IN ITA NO.1643/AHD/2006 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) XI AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN FINALIZING APPELLATE ORDER DATED 18.05.2000 6 ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 15 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AHMEDABAD HAS ERRED IN REJECTING THE GROUNDS FOR REOPENING THE ASSESSMENT U/S. 147 OF THE INCOME TAX ACT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AHMEDABAD HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.26,89,920/ BEING THE AMOUNT OF PREMIUM ON OFCPN ON THE FINDING THAT THE CLAIM IS TOWARDS ACCRUED LIABILITIES AND IT IS NOT EXPLAINED WHETHER IT IS A CTUALLY PAID. 4. THE LEARNED CIT (A) HAS ERRED IN REJECTING THE G ROUNDS RELATING TO INITIATION PENALTY PROCEEDINGS U/S. 271 (1) ( C ) OF THE INCOME TAX ACT. 5. THE LEARNED CIT (A) HAS ERRED IN REJECTING GROUN DS RELATING TO CHARGING OF INTEREST U/S. 234B AND 234C OF THE I.T. ACT AND WHEREAS THE LEARNED CIT(A) HAS ERR ED IN NOT GIVING ANY FINDING REGARDING CHARGING OF INTERE ST U/S 234A OF THE I. T. ACT. 17. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO COMMENTS. 18. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.2 OF THE APPEAL AC CORDINGLY WE DISMISS THE SAME AS NOT PRESSED. 19. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.26,89 ,920/- BEING AMOUNT OF PREMIUM ON OFCPN. WHILE DECIDING THE REVE NUES APPEAL IN ITA NO.3296/AHD/2004 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ONLY IN RESPECT OF PROPORTIONATE PART OF PREMIUM ON OFCPN ON ACCRUAL BASIS IN THE YEAR UNDER CONSIDERAT ION. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2001-02 (ITA NO.3296/AHD/2004). IN VIEW OF THE DETAILED DISCUSSI ONS GIVEN THEREIN, WE SET ASIDE THE ORDER OF THE CIT (A) AND THE DECIS ION RENDERED IN ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 16 REVENUES APPEAL FOR AY 2001-02 (SUPRA) SHALL APPLY WITH EQUAL FORCE TO THIS GROUND OF APPEAL OF THE ASSESSEE. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. 20. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.4 OF THE APPEAL AC CORDINGLY WE DISMISS THE SAME AS NOT PRESSED. 21. GROUND NO.5 OF THE APPEAL IS CONSEQUENTIAL IN NATURE AND WE HOLD ACCORDINGLY. 22. IN ITA NO.3666/AHD/2007 THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) XI AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN FINALIZING APPELLATE ORDER FOR A. Y. 2004.0 5 ON 13.08.2007 FOR APPEAL NO. CIT(A)XI/WD.5(1)/206/2005.06. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XI AHMEDABAD HAS ERRED IN REJECTING THE GROUNDS FOR REOPENING THE ASSESSMENT U/S. 147 OF THE INCOME TAX ACT. 3. THE LEARNED CIT (A) XI ABAD HAS ERRED IN CONFIR MING ADDITION OF RS.42,24,671/ BEING THE AMOUNT OF PREMI UM ON OFCPN. 4. THE LEARNED CIT (A) XI ABAD HAS ERRED IN INTERF ERING FOR GROUNDS RELATING TO INITIATION PENALTY PROCEEDINGS U/S. 271 (1) ( C ) OF THE INCOME TAX ACT. 5. THE LEARNED CIT (A) XI ABAD HAS ERRED IN REJECT ING GROUNDS RELATING TO CHARGING OF INTEREST U/S. 234B AND 234C OF THE I.T. ACT. ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 17 23. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO COMMENTS. 24. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.2 OF THE APPEAL AC CORDINGLY WE DISMISS THE SAME AS NOT PRESSED. 25. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.42,24 ,671/- BEING AMOUNT OF PREMIUM ON OFCPN. WHILE DECIDING THE REVE NUES APPEAL IN ITA NO.3296/AHD/2004 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ONLY IN RESPECT OF PROPORTIONATE PART OF PREMIUM ON OFCPN ON ACCRUAL BASIS IN THE YEAR UNDER CONSIDERAT ION. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2001-02 (ITA NO.3296/AHD/2004). IN VIEW OF THE DETAILED DISCUSSI ONS GIVEN THEREIN, WE SET ASIDE THE ORDER OF THE CIT (A) AND THE DECIS ION RENDERED IN REVENUES APPEAL FOR AY 2001-02 (SUPRA) SHALL APPLY WITH EQUAL FORCE TO THIS GROUND OF APPEAL OF THE ASSESSEE. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL 26. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.4 OF THE APPEAL AC CORDINGLY WE DISMISS THE SAME AS NOT PRESSED. 27. GROUND NO.5 OF THE APPEAL IS CONSEQUENTIAL IN N ATURE AND WE HOLD ACCORDINGLY. ITAA NO.3296/A/04, 1643 &1983A/06 AND 3666/AHD/2007 NIR MARKETING PVT. LTD. 18 28. IN THE RESULT, ITA NO.3296/AHD/2004 IS DISMISSE D, ITA NO.1983/AHD/2006, ITA NO. 1643/AHD/2006 AND ITA NO. 3666/AHD/2007 ARE PARTLY ALLOWED AS INDICATED ABOVE . THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20-1 1-2009 SD/- SD/- (P. K. BANSAL) ACCOUNTANT MEMBER (H. L. KARWA) JUDICIAL MEMBER DATE : 20-11-09 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD