SHREE RAMA MULTI TECH LTD., Ahmedabad V. THE JT.CIT, SPL.RANGE-7, Ahmedabad

ITA 3297/AHD/2003

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50794 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-03-2014
• Assessment Year: 1998-1999
• Appeal Filed On: 25-08-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Principle of natural justice; Capital receipt; Onus to prove; Sham transactions; Capital expenditure
• Section: 43B; 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND A.L. GEHLOT, A M SHRI RAMA MULTI TECH LTD., RAMNIVAS-1, KHANPUR, AHMEDABAD. VS. JT. CIT, SR-7, AHMEDABAD. (APPELLANT) .. (RESPONDENT) SHRI RAMA MULTI TECH LTD., RAMNIVAS-1, KHANPUR, AHMEDABAD. VS. ASSTT. CIT, CIR-8, AHMEDABAD. (APPELLANT) .. (RESPONDENT) ASSTT. CIT, CIR-8, AHMEDABAD. VS. SHRI RAMA MULTI TECH LTD., RAMNIVAS-1, KHANPUR, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. N. SOPARKAR, SR.ADVOCATE RESPONDENT BY:- SHRI S. K. GUPTA, CIT, DR DATE OF HEARING: 1 3/10/2011 DATE OF PRONOUNCEMENT : 21/10/2011 O R D E R PER A.L. GEHLOT, ACCOUNTANT MEMBER . THESE THREE APPEALS, TWO HAVE BEEN FILED BY THE AS SESSEE AND ONE HAS BEEN FILED BY THE REVENUE AGAINST TWO SEPAR ATE ORDERS OF CIT(A) ITA NO. ASST. YEAR 3297/AHD/2003 1998-99 ITA NO. ASST. YEAR 667/AHD/2005 2001-02 ITA NO. ASST. YEAR 1071/AHD/2005 2001-02 ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 2 DATED 9.7.2003 FOR ASST. YEAR 1998-99 AND DATED 10/ 01/2005 FOR ASST. YEAR 2001-02. SINCE ALL THESE APPEALS PERTAIN TO TH E SAME ASSESSEE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.3297/AHD/2003 ASST. YEAR 1998-99 (ASSESSEES APPEAL): 2. GROUND NOS. 1 TO 3 ARE IN RESPECT OF VIOLATION O F PRINCIPLES OF NATURAL JUSTICE, NON-PROVIDING OPPORTUNITY OF HEARI NG AND CERTAIN GROUNDS COVERED BY EARLIER YEARS 1996-97 AND 1997-98. THE L D. AR SUBMITTED THAT THESE ARE GENERAL IN NATURE AND, THEREFORE, THE SAM E ARE NOT PRESSED. AFTER HEARING THE LD. DR WE DISMISS THESE GROUNDS AS NOT PRESSED. 3. GROUND NO.4 IS IN RESPECT OF ADDITION OF RS.1,42 ,06,989/- BEING THE LOSS ON ACCOUNT OF ALLEGED SHAM TRANSACTIONS OF PUR CHASE AND SALE OF HDPE FABRICS COATED ON BOTH SIDES. 4. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE ASS ESSMENT PROCEEDINGS ON VERIFICATION OF PURCHASES EXCEEDING RS.50,000/- IT WAS NOTICED THAT THE ASSESSEE HAS PURCHASED HDPE FABRICS COATED ON BOTH SIDES FROM THE FOLLOWING PARTIES: SR.NO NAME OF THE PARTY QTY. IN MTRS. AVG. RATE PER MTRS AMOUNT (RS.) 1 VIMPSAN AGENCY 19,59,575 17.14 3,35,13,715 2. PAPER CONVERTER 13,76,910 17.98 2,47,64,496 3. SHREE RAMA POLYSYNTH PVT. LTD 4,10,000 16.50 67, 50,000 4. SURAKSHA PETRO CHEM. P. LTD. 6,22,000 18.19 1,13 ,16,000 5. SHUBHAGI POLYTRADE P. LTD. 5,66,000 18.00 1,01,8 8,000 6. PRERAK TRADING PVT. LTD. 4,88,030 18.32 89,44,59 0 5. ON FURTHER EXAMINATION, IT WAS NOTICED THAT THE ASS ESSEE HAS SOLD THE PRODUCT, HDPE FABRICS COATED ON BOTH SIDES TO T HE FOLLOWING PARTIES: ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 3 SR.NO NAME OF THE PARTY QTY. IN MTRS. AVG. RATE PER MTRS AMOUNT (RS.) 1 HIPOLLIN LTD. 4131250 15 61988750 2. NILKAMAL SYNFAB LTD. 1945555 15 29183325 3. PLASTIC HOLLOWERS & CONTAINERS 9888800 15 148320 00 4. SANKET INDUSTRIES 1966860 15 16002900 ON DETAILED EXAMINATION, OF WHICH DISCUSSION HAS BE EN MADE BY THE AO IN PARA 4 AT PAGE NO.2 TO PAGE NO.14 OF THE ASSESS MENT ORDER, THE AO WAS OF THE VIEW THAT THERE WAS NO NECESSITY FOR THE ASS ESSEE TO PURCHASE THE SAID HDPE FABRICS COATED ON BOTH SIDES AT AVERAGE R ATE OF RS.17.62 WHEREAS THE ASSESSEE HAS SOLD THE SAME GOODS FOR RS .15/- PER METER. THE AO NOTICED THAT ASSESSEE HAS DONE THIS EXERCISE THR OUGH ITS SISTER CONCERN ONLY TO REDUCE THE PROFIT OF THE ASSESSEE-COMPANY. IN SUPPORT OF THIS FACT, THE AO NOTICED THAT THE ASSESSEE DID NOT PRODUCE TR ANSPORT RECEIPT OR ANY SUCH DOCUMENTS OR ANY PARTIES HAVE BEEN PRODUCED WI TH THEIR BOOKS OF ACCOUNTS TO PROVE THAT THE TRANSACTIONS WERE GENUIN E. THE AO FOLLOWING A JUDGMENT OF THE APEX COURT IN THE CASE OF IN MCDOWELL AND CO LTD V CTO (1985)154 ITR 148 (SC) HELD THAT IT WAS ONLY P APER TRANSACTION AND THE ASSESSEE HAS REDUCED THE PROFIT BY RS.2.62 PER METER ON 5422515/- METERS. THE AO ACCORDINGLY COMPUTED THE AMOUNT OF ADDITION OF RS.1,42,06,989/- AS UNDER: 10. THUS FROM THE WORKING GIVEN ABOVE DERIVED FROM THE ANNEXURES (A1 TO A5) MADE PART OF THIS ORDER IT BEC OME CLEAR THAT THE ASSESSEE HAS PURCHASED BACK IN THIS YEAR THE SA ME 54,22,515/- METER OF HDPE FABRICS COATED ON BOTH SIDES AT A AVERAGE RATE OF RS.17.62 PER METER (TOTAL AMOUNT PA ID/TOTAL METERS PURCHASED) WHICH IS SHOWN AS SALES BY IT AT A PRICE OF RS.15/- PER METER. THUS, IT HAS INFLATED PURCHASE PRICE OF THE SAME MATERIAL WHICH IS SOLD BY ITSELF BY RS.2.62/- PER METER THRO UGH ABOVE REFERRED SHAM TRANSACTION AND HAS THUS REDUCED ITS TAXABLE INCOME BY RS.1,42,06,989/- (55,22,515 X 2.62) BY INFLATING PURCHASE PRICE ARTIFICIALLY. BY ADOPTING THIS EVASION METHODOLOGY THE ASSESSEE ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 4 COMPANY HAS ARTIFICIALLY BOOKED LOSS OF THE ABOVE A MOUNT IN ITS ACCOUNTS AND HAS ACCORDINGLY REDUCED ITS PROFIT. 6. THE CIT(A) CONFIRMED THE ORDER OF THE AO OBSERVI NG THAT IN SPITE OF VARIOUS OPPORTUNITIES, THE ASSESSEE HAS FAILED T O GIVE ANY SATISFACTORY EXPLANATION. THE CIT(A) HAS ALSO REJECTED THE ASSE SSEES CONTENTION THAT THERE IS NO BASIS IN THE ARGUMENTS OF THE ASSESSEE REGARDING THE RIGHT AND POWER OF THE AO TO DECIDE THE PURCHASE/SALES AS BOG US. 7. THE LEARNED AR SUBMITTED THAT THE ASSESSEE H AS SOLD ITS MANUFACTURED PRODUCT HDPE FABRICS COATED ON BOTH SI DES TO DIFFERENT PARTIES DURING THE PERIOD MAY, 2007 TO SEPTEMBER, 2 007. ALL THE PARTIES WERE DEALING IN THE SAME LINE OF BUSINESS AND ALSO WERE MANUFACTURING TARPAULIN FROM HDPE AND THEY HAVE PURCHASED THE GOO DS FROM COMPANY FOR MANUFACTURING OF TARPAULIN AND TRADE. ALL THE PURCHASING COMPANY/PARTIES ARE NOT RELATED ASSESSEE COMPANY. T HEY ARE ASSESSED TO TAX. THE ASSESSEE HAS FURNISHED SUFFICIENT EVIDENC ES AND DETAILS REGARDING THE PURCHASE AND SALE OF PARTIES TO SHOW THAT THE T RANSACTIONS WERE DURING THE COURSE OF BUSINESS AND GENUINE. THE ASSESSEE H AS FURNISHED THE NAMES AND ADDRESS OF THE PARTIES, INCOME PAN, REGIS TRATION NUMBER OF THE COMPANIES WITH ROC, LOCAL SALES-TAX NUMBER, CENTRAL SALES-TAX NUMBERS, COPIES OF INVOICES ALONG WITH DELIVERY CHALLANS AND TRANSPORTATION DETAILS, COPIES OF LEDGER ACCOUNTS OF THE PARTIES ALONG WITH THEIR CONFIRMATION. THE ACCOUNTS OF ALL THE PARTIES WERE SETTLED THROUG H BANKING CHANNEL AND COPIES OF ACCOUNTS ALONG WITH THE COPIES OF TAX RET URNS WERE FURNISHED. THE LEARNED AR FURTHER SUBMITTED THAT THE AO HAS DI RECTLY COLLECTED INFORMATION UNDER SECTION 133(6). IF THE CONCERNED PARTIES ARE NOT SUBMITTING ANY INFORMATION CALLED FOR BY THE AO, TH E ASSESSEE IS NOT RESPONSIBLE FOR THE SAME. THE LEARNED AR SUBMITTED THAT THE GOODS TO THE SO-CALLED PARTIES WERE SOLD IN THE PERIOD MAY, 2007 TO SEPTEMBER, 2007 ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 5 AND AFTER THE GAP OF SIX MONTHS, THE ASSESSEE-COMPA NY PURCHASED THE GOODS FOR THE PERIOD NOVEMBER, 2007 TO MARCH, 2008. THE LEARNED AR WHILE EXPLAINING THE REASONS FOR PURCHASE AT AVERAG E RATE RS.17.62 PER METER SUBMITTED THAT THE ASSESSEE-COMPANY HAS SOLD THE GOODS AT RS.15/- PER METER BECAUSE THE COMPANY WAS EARNING AT THIS P RICE AND THE COMPANY HAS NO IMMEDIATE PLAN TO MANUFACTURE TARPAULIN OUT OF FABRICS. THE ASSESSEE ALSO WANTED LIQUID MONEY OUT OF INVENTORY BECAUSE AT THAT TIME THE AVERAGE COST OF OPERATING OF THE COMPANY WAS AR OUND 21% PER ANNUM. IT WAS ALSO SUBMITTED BY THE LEARNED AR THA T HDPE FABRICS COATED ON BOTH SIDES WAS THE SEMI-FINISHED MANUFACT URED PRODUCT OF THE ASSESSEE-COMPANY. THE FINAL PRODUCT TARPAULIN CAN BE PRODUCED FROM THE HDPE FABRICS COATED ON BOTH SIDES AND DURING THE PE RIOD OF MAY, 2007 TO NOVEMBER, 2007 THE COMPANY HAS NO PLAN TO MANUFACTU RE TARPAULINS. THEREFORE, THE SAID SEMI-FINISHED MANUFACTURED PROD UCT WAS SOLD AT A PRICE AND ALSO MADE PROFIT OUT OF THE SALE OF SUCH PRODUCTS. THE ASSESSEE WAS CARRYING ON HUGE AMOUNT OF INVENTORY OF THE SAI D PRODUCT AND AT THE SAME TIME THE COMPANY WAS PAYING AROUND 21% PER ANN UM INTEREST ON ITS WORKING CAPITAL BORROWING. THE GOODS SOLD BY THE ASSESSEE-COMPANY AT PREVAILING MARKET PRICE TO SAVE INTEREST COST ON WO RKING CAPITAL. THE LEARNED AR SUBMITTED THAT IT WAS THE DECISION OF TH E PRUDENT BUSINESSMEN TO SELL THE GOODS ON PREVAILING MARKET PRICE AND EA RNING THE PROFIT ALSO BY LIQUIDATING THE STOCK INTO CASH TO REDUCE THE INTER EST ON WORKING CAPITAL. AFTER ABOUT SIX MONTHS, THE COMPANY HAS PURCHASED T HE GOODS HDPE FABRICS COATED ON BOTH SIDES AT THE PREVAILING MARK ET RATE TO MANUFACTURE TARPAULIN AND IN SUBSEQUENT YEAR, THE COMPANY HAS M ANUFACTURED TARPAULIN OUT OF THE SAID RAW-MATERIALS AND THE SAM E WAS SOLD AT PROFIT. THE CLOSING STOCK OF THE SAID PRODUCT HAS BEEN SHOW N BY THE ASSESSEE AT COST PRICE THEREFORE THERE WAS NO LOSS TO THE COMPA NY ON PURCHASE OF THE SAID GOODS. THE LEARNED AR SUBMITTED THAT ON IDENT ICAL SET OF FACTS, THE ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 6 ITAT IN ASSESSEES OWN CASE FOR A.Y.2000-2001 REPOR TED IN (2005) 92 TTJ (AHD) 568 DELETED THE ADDITION ON THE GROUND TH AT THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THE PAYMENTS MADE TO THE SUPPLIERS HAS COME BACK TO THE ASSESSEE. 8. THE LEARNED DR, ON THE OTHER HAND, RELIED U PON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT FACTS OF THE I SSUE IN AY 2000-2001 AND FACTS OF THE CASE UNDER CONSIDERATION ARE NOT I DENTICAL THEREFORE SAME IS NOT APPLICABLE. THE LEARNED DR FURTHER SUBMITTED THAT THE GOODS WERE PURCHASED WITHOUT ANY FURTHER PROCESS. THERE IS NOT MATERIAL ON RECORD TO SHOW THAT THE SAID GOODS WERE INCLUDED IN THE CLOSI NG STOCK. THE TRANSACTIONS ARE ON SAME DAY FOR BOOKING LOSS. 9. WE HAVE HEARD LEARNED REPRESENTATIVES OF THE PAR TIES AND PERUSED THE RECORD. CRUX OF THE MATTER TO BE EXAMINED IN TH IS ISSUE IS WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PURCHASE AND SALE OF HDPE FABRICS COATED ON BOTH SIDES ARE GENUINE OR SH AM TRANSACTIONS. TO EXAMINE THIS ISSUE, IT HAS TO SEE THE CASE OF THE R EVENUE. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS SOLD HDPE FABRICS COATED ON BOTH SIDES AT THE RATE OF RS.15/- PER METER TO DIFFERENT PARTI ES INCLUDING HIPOLLIN LTD., AND NILKAMAL SYNFAB LTD. AND OTHERS. THE EXPLANATI ON OF THE ASSESSEE FOR SELLING OF THE GOODS AT THE RATE OF RS.15/- PER MET ER WAS THAT THIS PRODUCT WAS THE SEMI-FINISHED MANUFACTURED PRODUCT OF THE A SSESSEE-COMPANY AND THIS PRODUCT WAS LYING IN STOCK WITH THE ASSESSEE-C OMPANY IN HUGE QUANTITY. THE ASSESSEE DECIDED TO SELL THIS PRODUC T TO LIQUIDATE INTO CASH AND REDUCE THE INTEREST LIABILITY WHICH WAS PAID BY THE ASSESSEE ON WORKING CAPITAL. HOWEVER, AFTER ABOUT SIX MONTHS, THE ASSESSEE HAS CHANGED THE BUSINESS POLICY AND DECIDED TO MANUFACT URE TARPAULIN FOR WHICH HDPE FABRICS COATED ON BOTH SIDES IS RAW-MATE RIAL THEREFORE, THE ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 7 ASSESSEE HAS PURCHASED THE SAID RAW-MATERIAL AT THE PREVAILING MARKET RATES. THE CONTENTION OF THE ASSESSEE IS THAT THES E TRANSACTIONS WERE THE BUSINESS TRANSACTION CONDUCTED AT THE PREVAILING MA RKET RATES. THE DEPARTMENT HAS NOT DISPUTED ABOUT THIS FACT THAT TH E TRANSACTIONS WERE NOT AT THE PREVAILING MARKET RATE. THE DEPARTMENT HAS TREATED THIS TRANSACTION AS SHAM TRANSACTION MERELY ON THE BASIS OF THAT EAR LIER THE ASSESSEE HAS SOLD THE GOODS AT THE RATE OF RS.15/- PER METER AND SUBSEQUENTLY PURCHASED AT AVERAGE RATE RS.17.62 PER METER. THE FINDING OF THE AO IS ON PRESUMPTION WITHOUT CONSIDERING THE FACT THAT TH E ASSESSEE HAS SOLD THE GOODS TO THE PARTIES AND PURCHASED FROM DIFFERENT P ARTIES AND SOME OF THEM ARE LIMITED AND PRIVATE LIMITED COMPANIES. TH E AO DID NOT EXAMINE THOSE CONCERNED PARTIES. MERELY ON THE GROUND THAT THOSE PARTIES DID NOT FURNISH THE RELEVANT DETAILS AND COPIES OF THE ACCO UNTS THEREFORE TRANSACTIONS ARE SHAM IS NOT CORRECT FINDING OF THE AO. WHEN THE AO HAS DOUBTED ABOUT THE GENUINENESS OF THE TRANSACTIONS A ND THE TRANSACTIONS ARE WITH THE LIMITED AND PRIVATE LIMITED COMPANIES, THE IR IDENTITY AND GENUINESS OF THE TRANSACTIONS CANNOT BE DOUBTED UNL ESS COMPLETE CHAIN OF EXAMINATION IS DONE. THE AO HAS REACHED TO THE CONC LUSION WITHOUT VERIFYING THE FACTS FROM THE CONCERN PARTIES. THE TRANSACTIONS CANNOT BE DOUBTED PARTICULARLY WHEN THE ASSESSEE HAS FURNISHE D COMPLETE DETAILS WITH NAMES AND ADDRESSES, PAN, SALES-TAX REGISTRATI ON NUMBERS ETC AND THERE WERE SCOPE OF EXAMINATION BY THE AO. THE ASS ESSEE HAS FILED RETURN DECLARING THE TOTAL INCOME AT RS.8,19,08,360/- ON H UGE TURNOVER. WHEN THE ASSESSEE IS DOING THE BUSINESS ON SUCH LARGE SC ALE, THE ASSESSEE HAS TO TAKE SOME BUSINESS DECISION FROM THE VIEW POINT OF A PRUDENT BUSINESSMAN. AFTER CONSIDERING THE ASSESSEES EXP LANATION, WE CANNOT DOUBT ABOUT THE CORRECTNESS OF BUSINESS DECISION OF THE ASSESSEE IN RESPECT OF PURCHASE AND SALE OF HDPE FABRICS COATED ON BOTH SIDES. SOMETIMES UNDER COMPELLING CIRCUMSTANCES THE BUSINESSMAN HAVE TO TAKE SUCH ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 8 DECISION. MERELY ON THE BASIS OF PRESUMPTION IT CA NNOT BE HELD THAT THE ASSESSEE HAS CARRIED THESE TRANSACTIONS TO REDUCE T HE PROFIT. 9.1 AS REGARDS THE JUDGMENT OF THE APEX COURT I N THE CASE OF MCDOWELL AND CO LTD, V CTO (1985)154 ITR 148 (SC). WE FIND THE APEX COURT IN ANOTHER SUBSEQUENT JUDGMENT IN THE CASE OF UNION OF INDIAV AZADI BACHAO ANDOLAN (2003) 263 ITR 706, THE SUPREME COUR T HAS APPROVED THE DECISION OF THE MADRAS HIGH COURT IN M.V. VALLI APPAN V ITO (1988) 170 ITR 238, WHERE THE MADRAS HIGH COURT HAD HELD T HAT THE DECISION IN MCDOWELL AND CO LTD, V CTO (1985)154 ITR 148 (SC) C ANNOT BE READ AS LAYING DOWN THAT EVERY ATTEMPT AT TAX PLANNING IS ILLEGITIMATE AND MUST BE IGNORED OR THAT EVERY TRANSITION OR ARRANGEMENT WHICH IS PERFECTLY PERMISSIBLE IN LAW, WHICH HAS THE EFFECT OF REDUCIN G THE TAX BURDEN OF THE ASSESSES, MUST BE LOOKED UPON WITH DISFAVOR. IN VIE W OF THE AFORE SAID LEGAL PRINCIPLES LAID DOWN BY THE APEX COURT WE FIN D IT IS OPEN TO ASSESSEE TO ARRANGE THEIR AFFAIRS IN SUCH A MANNER THAT IT WOULD NOT ATTRACT THE TAX LIABILITIES, IF IT CAN BE MANAGED WITHIN T HE PERMISSIBLE LIMIT OF LAW. 9.2 ANOTHER IMPORTANT ASPECT OF THE MATTER IS TH AT THE ONUS TO PROVE THAT THE APPARENT IS NOT THE REAL IS ON THE PARTY WHO CL AIMS IT TO BE SO. AS IT WAS THE DEPARTMENT WHICH CLAIMED THAT THE TRANSACTI ONS ARE SHAM, THE BURDEN LAY ON THE DEPARTMENT TO PROVE THAT THE TRAN SACTIONS ARE SHAM. A SIMPLE WAY OF DISCHARGING THE ONUS AND RESOLVING TH E CONTROVERSY WAS TO EXAMINE THE COMPLETE CIRCLE OF SO CALLED SHAM TRANS ACTIONS EXAMINING CONCERNED PARTIES AND OTHER MATERIAL AND DOCUMENTS. ON THE CONTRARY, THERE IS POSITIVE EVIDENCE FURNISHED BY THE ASSESSE E AND EXPLAINED THE REASONS OF THE TRANSACTIONS CARRIED OUT BY THE ASSE SSEE. IN CASE OF CONCERNED CORRESPONDING PARTIES THE AO DID NOT DOUB T THE TRANSITIONS IN ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 9 SPITE OF THE FACT THAT THE ASSESSEE HAS FURNISHED C OMPLETE DETAILS INCLUDING THEIR PERMANENT ACCOUNT AND THOSE PARTIES. THEY ARE ASSESSED TO TAX. 9.3 IN THE LIGHT OF THE ABOVE DECISION, WE ARE OF THE VIEW THAT THE TRANSACTIONS POINTED OUT BY THE AO WERE GENUINE TRA NSACTION IN ACCORDANCE WITH COMMERCIAL EXPEDIENCIES AND A DECIS ION OF THE BUSINESSMEN. WE THEREFORE DID NOT FIND ANY SUBSTAN CE IN SUSTAINING ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) . THEREFORE, WE DELETE THE ADDITION OF RS.1,42,06,989/-. 10. GROUND NO.5 IS IN RESPECT OF ADDITION OF RS.35, 54,409/- ON ACCOUNT OF INTEREST. 10.1. BRIEF FACTS OF THIS ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS REDUCED THE CA PITAL WORK-IN-PROGRESS AND PRE-OPERATIVE EXPENSES AS GIVEN IN SCHEDULE-1 O F THE BALANCE SHEET, THE AO NOTICED THAT THE ASSESSEE HAD REDUCED INTER EST INCOME OF RS.35,54,409/- FROM THE PREOPERATIVE EXPENSES WHICH IS NOT A CORRECT METHOD.. ALL INTEREST INCOME WAS ARISING ON THE ADV ANCES GRANTED FOR THE PURCHASE OF ASSETS. AFTER CONSIDERING THE ASSESSEE S SUBMISSIONS THE AO WAS OF THE VIEW THAT THE INTEREST INCOME IS ASSESSA BLE AS REVENUE INCOME, INCOME FROM OTHER SOURCES RELYING ON THE JUDGMENT O F HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. 227 ITR 172 (SC). THE AO TREATED THE SAID INTEREST INCO ME OF RS.35,54,409/- AS INCOME FROM OTHER SOURCES AND ADDED TO THE TOTAL INCOME OF THE ASSESS. 10.2. THE CIT(A) CONFIRMED THE ORDER OF THE AO OBSE RVING THAT THE ASSESSEE HAS FAILED TO FURNISH EVIDENCES/DETAILS TO PROVE THAT THE INTEREST HAS BEEN RECEIVED ON ADVANCES MADE FOR THE BUSINESS PURPOSE AND THE SAME WAS NOT GIVEN OUT OF IDLE FUNDS. ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 10 10.3. THE LD. AR REITERATED THE SUBMISSIONS WHICH W ERE MADE BEFORE THE CIT (A) THAT THE AO HAS FAILED TO DIFFERENTIATE THE FACTS BETWEEN THE FACTS IN THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) AND IN THE CAS E OF BOKARO STEEL LTD. 236 ITR 315 (SC). THE LD. AR SUBMITTED THAT THE FAC TS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS OF THE CAS E OF BOKARO STEEL LTD. THE LD. AR FURTHER SUBMITTED THAT INTEREST INCOME I N SCHEDULE-F OF THE BALANCE SHEET WERE RECEIVED FROM STRUCTURE ENGINEE RS RS.12,32,126/-, J.B. MACHINERY RS.6,12,283 AND JHAVERBHAI BIHARILAL & CO. RS.17,10,000/-. THE LD. AR FURTHER SUBMITTED THAT I N THE CASE OF STRUCTURE ENGINEERS THE AMOUNT WAS ADVANCED FOR CONSTRUCTION PURPOSES ON WHICH THE ASSESSEE RECEIVED INTEREST. OTHER TWO PARTIES J.B. MACHINERY AND JHAVERBHAI BIHARILAL & CO. ARE DEALING IN PLANT AND MACHINERY AND ADVANCED MONEY GIVEN THEM FOR THE PURCHASE AND INST ALLATION OF PLANT AND MACHINERY. THE LD. AR SUBMITTED THAT THE ASSESSEE D ID NOT MAKE ANY ADVANCE AS AN IDLE FUND FOR NON-BUSINESS PURPOSES W ITH A VIEW TO EARN THE INTEREST THEREON. BUT THE ADVANCES WERE GIVEN FOR C ONSTRUCTION AS WELL AS PURCHASE AND INSTALLATION OF PLANT AND MACHINERY. I T IS ALSO THE SUBMISSION OF THE LD. AR THAT THERE IS NO DISPUTE THAT THE ADV ANCES WERE GIVEN FOR CONSTRUCTION AND AGAINST PLANT AND MACHINERY. THE L D. AR POINTED OUT TO PARA 3.1 PAGE 6 OF THE CIT(A)S ORDER WHEREIN THE C IT(A) NOTED THAT THE AO OBSERVED THAT THE METHOD ADOPTED BY THE ASSESSEE IN REDUCING COST OF CAPITAL AND PRE-OPERATIVE EXPENSES IS NOT CORRECT A S ALL INTEREST INCOME ARISING EVEN ON THE ADVANCES GRANTED FOR THE PURCHA SE OF ASSETS ARE TAXABLE AS INCOME OF THE YEAR AND THE SAME CANNOT B E DEDUCTED FROM THE PRE-OPERATIVE EXPENSES. THE CIT(A) HAS ALSO NOTED T HE REPLY GIVEN BY THE ASSESSEE TO THE AO IN RESPONSE TO SHOW CAUSE NOTICE EXPLANATION THAT THE INTEREST INCOME HAS BEEN RECEIVED ON THE FUNDS COLL ECTED FOR THE PURPOSE ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 11 OF EXPANSION PROJECT AND ASSESSEE HAS CAPITALIZED E XPANSION PROJECT RELATED EXPENSES, BOTH INCOME AND EXPENSES ARE CAPI TAL IN NATURE AND SET OFF AGAINST EACH OTHER WHILE IN THE NET BALANCE IS THEN CAPITALIZED. IN THIS CONNECTION THE LD. AR RELIED ON THE FOLLOWING DECIS IONS:- I) CIT VS. VGR FOUNDATIONS, 298 ITR 132 (MAD) II) CIT VS. BOKARO STEEL LTD. 236 ITR 315 (SC) III) CIT VS.KARNAL CO-OP. SUGAR MILLS LTD., 243 ITR 2 (SC) IV) CIT VS. KARNATAKA POWER CORPORATION, 247 ITR 26 8 (SC) V) BONGAIGAON REFINARY AND PETRO-CHEM. LTD. VS. CIT , 251 ITR 329 (SC) VI) SHRI RAMA MULTI TECH LTD V ACIT 92 TTJ 568 (A HD) PARA 3.4 THE LEARNED AR ALSO SUBMITTED THAT THE ISSUE IS COV ERED BY THE ORDER OF THE ITAT FOR AY 2000-2001 10.4 THE LD. DR ON THE OTHER HAND RELIED ON THE ORD ER OF CIT(A) AND SUBMITTED THAT THE ORDER OF CIT(A) IS IN ACCORDANCE WITH THE JUDGMENT OF APEX COURT IN THE CASE OF TUTICORIN ALKALIES CHEMIC ALS AND FERTILIZERS LTD. (SUPRA). 10.5 WE HAVE HEARD THE LD. REPRESENTATIVES OF THE P ARTIES, RECORD PERUSED AND GONE THROUGH THE DECISIONS. THE ADMITTED FACTS OF THE ISSUE ARE THAT THE ASSESSEE RECEIVED INTEREST INCOME FROM THOSE PA RTIES TO WHOM ADVANCES WERE GIVEN FOR CONSTRUCTION OF BUILDING AN D PURCHASE OF PLANT AND MACHINERY. THE LD. AR HAS DEMONSTRATED THE SAME BY REFERRING THE FACTS NOTED BY CIT(A)S ORDER THAT THIS FACT IS NOT IN DISPUTE. ON THE BASIS OF ABOVE ADMITTED FACTS, WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF SUPREME COURT IN THE CASE OF BOKARO STE EL LTD. (SUPRA) AND ALSO COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR ASST. YEAR 2000-01 REPORTED IN 92 TTJ (AHD) 568. THE RELE VANT FINDING OF THE TRIBUNAL IS REPRODUCED BELOW :- ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 12 3,4 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GO ING THROUGH THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE BAS IC FACTS NECESSARY FOR CONSIDERING THE CLAIM OF ASSESSEE WER E AVAILABLE ON RECORD BEFORE AO AND THE ARGUMENTS GIVEN BY THE ASS ESSEE BEFORE THE CIT(A) WERE NOT FRESH EVIDENCE TAKEN UP BEFORE C1T(A) BUT THEY WERE ONLY ARGUMENTS TAKEN UP BY THE ASSESSEE T O ELABORATE THIS ASPECT BECAUSE INFORMATION REGARDING ADVANCES GIVEN FOR CAPITAL GOODS WAS FURNISHED TO THE AO VIDE ASSESSEE'S LETTE R DT. 11 TH MARCH, 2003, COMPILED AT P 263. WHICH IS ALMOST THE SAME A S APPEARING AT PP. 227 AND 227A OF THE PAPER BOOK. 'THE AO HAS NEI THER DISPUTED THE INFORMATION FURNISHED ABOVE NOR CALLED FOR ANY FURTHER INFORMATION. THEREFORE, THE BASIC INFORMATION OF SA ID CLAIM WAS BEFORE THE AO. THUS, THE ARGUMENTS BEFORE THE CIT(A ) PUT FORWARD BY THE ASSESSES ARE ARGUMENTS TO ELABORATE THE BASI S OF ASSESSEE'S CLAIM AND NO FRESH EVIDENCE BEFORE THE CIT(A} WAS G IVEN. ON MERIT, THE AO HAS RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILI ZERS LTD. (SUPRA) AND THE ASSESSEE HAS RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD (SUPRA). ACTU ALLY, BOTH THE DECISIONS WERE FOR THE PERIOD PRIOR TO COMMENCEMENT OF THE BUSINESS. IN ASSESSEE'S CASE IT IS ACTUALLY EXPANSI ON OF BUSINESS. THE ASSESSEE WAS CONCERNED WITH EXPANSION OF EXISTI NG; BUSINESS AND NO NEW BUSINESS WAS TO BE SET UP AT AMBALIYARA IN GUJARAT AND PONDICHERRY. THESE TWO PROJECTS AT THESE TWO PLACES WERE TO BE SET UP FOR MANUFACTURING THE SAME ITEMS WHICH WERE PROD UCED AT THE UNITS AT KADI AND MOTIBHOYAN IN GUJARAT. THE HON'BL E SUPREME COURT IN THE CASE OF BOKARO STEEL LTD (SUPRA) HAS H ELD THAT WHERE MONEY WAS BORROWED BY COMPANY WHICH WAS IN PROCESS OF CONSTRUCTION AND ERECTING ITS PLANT, THE INTEREST I NCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORROWED MONEY C AN BE CAPITALIZED AND ADDED TO THE COST OF THE FIXED ASSE TS CREATED AS A RESULT OF SUCH EXPENDITURE. BY SAME REASONING, IF T HE ASSESSEE RECEIVES ANY AMOUNTS WHICH ARE INTRICATELY LINKED W ITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPT S WILL GO TO REDUCE THE COST OF ITS ASSETS THESE ARE RECEIPTS OF CAPITAL NATURE AND CANNOT BE TAXED. HON'BLE SUPREME COURT IN THE C ASE OF CIT VS. KAMAL CO-OPERATIVE SUGAR MILLS LID. (2000) 161 CTR (SC) 241: (2000) 243 ITR 2 (SC) HAS HELD THAT THE DEPOSIT OF MONEY IN PRESENT CASE FOR OPENING CREDIT FOR PURCHASE OF MAC HINERY WAS DIRECTLY LINKED WITH PURCHASE OF PLANT AND MACHINER Y, ACCORDINGLY, INTEREST WAS HELD AS CAPITAL RECEIPT WHICH WOULD GO TO REDUCE COST OF ASSET, IT IS PERTINENT TO MENTION HERE THAT IN K AMAL CO-OP. SUGAR ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 13 MILLS LTD. (SUPRA), BOTH THE DECISIONS IN THE CASES OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) AND BOK ARO STEEL LTD. (SUPRA) HAVE BEEN CONSIDERED. A SIMILAR DECISION HA S BEEN RENDERED BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENTS AND CHEMICALS INDUSTRIES LTD (SUPRA), WHERE IN THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH THE SUP PLIER TO PURCHASE CERTAIN MACHINERY. UNDER THE AGREEMENT, IN THE EVENT OF DELAY CAUSED IN DELIVERY TO SUPPLY THE MACHINERY IT HAD TO PAY BY WAY OF LIQUIDATED DAMAGES @ 0.5 PER CENT OF THE PUR CHASE PRICE OF MACHINERY WHICH HAS NOT BEEN DELIVERED IN TIME WITH OUT ANY PROOF OF DAMAGES ACTUALLY SUFFERED BY THE ASSESSES. THERE WAS DELAY IN SUPPLY OF MACHINERY AND THE ASSESSEE RECEIVED COMPE NSATION ON THE BASIS OF AGREEMENT. IT WAS HELD THAT AMOUNT OF DAMAGES RECEIVED BY THE ASSESSES HAD DIRECT NEXUS TO THE DE LAY CAUSED IN DELIVERY OF CAPITAL ASSETS. HENCE, THE DAMAGES RECE IVED BY THE ASSESSEE WERE CAPITAL RECEIPT. IT IS SETTLED LEGAL POSITION THAT AGREEMENT CAN BE ORAL AS WELL AS WRITTEN. IF THE FA CTS BROUGHT ON RECORD SHOW THAT THERE WAS CERTAIN CONTRACT BETWEEN THE PARTIES, THE ABSENCE OF WRITTEN CONTRACT WILL NOT AFFECT THE DAMAGES PAYABLE FOR BREACH THEREOF. MOREOVER, THE AO DID NOT DISPUT E THE INFORMATION FURNISHED THROUGH LETTER DT. 11 TH MARCH, 2003. SO, IT IS NOT CORRECT TO SUGGEST THAT THIS ISSUE HAS BEEN TAK EN BY ASSESSEE FOR THE FIRST TIME BEFORE THE CTT(A}. THE ASSESSEE HAS ALL OPTIONS TO ELABORATE THE BASIS OF HIS CLAIM TAKEN BEFORE THE A O. A SIMILAR VIEW HAS BEEN TAKEN BY HONBLE MADRAS HIGH COURT IN P.L M FIRM VS CIT (1968) 68 ITR 856 (MAD). AS FAR AS THE ISSUE OF EXPANSION IS CONCERNED, THE PROSPECTUS SHOWS THAT ISSUING FRESH SHARE CAPITAL WAS FOR THE PURPOSE OF SETTING UP OF TWO NEW UNITS AND EXPANSION OF EXISTING BUSINESS AT KADI AND MOTIBHOYAN, WHICH WA S GIVEN TO THE AO. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT AMOUNT RECEIVED BY THE ASSESSEE HAD RELATION W ITH DELAY CAUSED IN EXECUTION OF CONTRACT OF CONSTRUCTION AND SUPPLY OF PLANT AND MACHINERY AS DISCUSSED ABOVE AND IS CAPITAL REC EIPT. ACCORDINGLY, THIS GROUND IS ALLOWED. 10.6 SINCE THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE FOR ASST. YEAR 2000-01, WE RESPECTFULLY FOLLOWING THE O RDER OF THE TRIBUNAL AND IN THE LIGHT OF THE CASE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. HOWEVER, THE AO IS DIRECTED TO GIVE CONSEQ UENTIAL EFFECT ON ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 14 DEPRECIATION IF SAME HAS BEEN ALLOWED WHILE MAKING ADDITION OF THIS AMOUNT. 11. GROUND NO.6 IS IN RESPECT OF DISALLOWANCE OF RS .68,40,000/- OUT OF INTEREST EXPENSES. BRIEF FACTS OF THIS ISSUE ARE TH AT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS GI VEN ADVANCES TO BABUBHAI PATEL & CO. AND SHRI RAM ASSOCIATION WITHO UT CHARGING INTEREST. THE AO NOTICED THAT THE ASSESSEE HAS DIVE RTED INTEREST BEARING BORROWINGS TO INTEREST FREE ADVANCES TO THESE TWO P ARTIES. THE AO CONSIDERING THE ASSESSEES SUBMISSIONS CALCULATED T HE AMOUNT OF DISALLOWANCE BY APPLYING 18% RATE OF INTEREST OF WH ICH CALCULATION COMES TO RS.68,40,000/-. THE CIT(A) CONFIRMED THE ORDER O F THE AO OBSERVING THAT THE ASSESSEE FAILED TO SUPPORT THE FACT THAT A DVANCES WERE GIVEN FOR BUSINESS PURPOSES. 12. AT THE OUTSET THE LD. AR SUBMITTED THAT THIS IS SUE IS COVERED BY THE ORDER OF THE TRIBUNAL FOR ASST. YEAR 2000-01 IN ASS ESSEES OWN CASE. THE LD. AR SUBMITTED THAT ONE OF THE PARTIES SHRI RAM A SSOCIATION IS THE COMMON PARTY IN ASST. YEAR 2000-01 AND IN THE YEAR UNDER CONSIDERATION. THE LD. AR FURTHER SUBMITTED THAT THE TRIBUNAL IN A SST. YEAR 2000-01 HAS SENT BACK THE MATTER TO THE FILE OF AO AND IN SECON D ROUND OF LITIGATION THE AO REPEATED THE ADDITION BUT THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE REVENUE DID NOT FILE THE SECON D APPEAL. 13. AFTER HEARING THE LD. DR WE FIND THAT ON IDENTI CAL SET OF FACTS THE TRIBUNAL IN ASST. YEAR 2000-01 IN THE CASE OF ASSES SEE VIDE PARA NO 6.2 HAS SENT BACK THE MATTER TO THE FILE OF AO. SINCE T HE FACTS ARE IDENTICAL WE ALSO SEND BACK THIS MATTER TO THE FILE OF AO WITH I DENTICAL DIRECTIONS. ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 15 14. GROUND NO.7 IS IN RESPECT OF DISALLOWANCE OF RS .54,71,162/- OUT OF SHARES AND DEBENTURES ISSUE EXPENSES AND DEFERRED R EVENUE EXPENSES. THE AO DISALLOWED RS.54,71,162/- OUT OF SHARES AND DEBE NTURE ISSUE EXPENSES AND DEFERRED REVENUE EXPENSES. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. 15. THE LD. AR FAIRLY CONCEDED THAT THE EXPENSES RE LATING TO SHARE ISSUE ARE NOT ALLOWABLE. HOWEVER, THE EXPENSES RELATING T O DEBENTURE ISSUE AND DEFERRED REVENUE EXPENSES ARE ALLOWABLE EXPENSES. T HE LD. AR SUBMITTED THAT THIS ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL FOR ASST. YEAR 2000-01. 16. AFTER HEARING THE LD. DR WHO SUBMITTED THAT AO HAS RELIED UPON THE EARLIER ASSESSMENT YEAR. WE FIND THAT EXPENSES RELATED TO SHARES EXPENSES IS NOT ALLOWABLE HOWEVER IN RESPECT OF DEB ENTURE ISSUE EXPENSES AND DEFERRED REVENUE EXPENSES WE FIND THAT THIS ISS UE IS ALSO COVERED BY PARA NO.7 AND OTHER PARA OF THE ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR ASST. YEAR 2000-01 (SUPRA). ADMITTEDLY THE SHARE ISSUE EXPENSES ARE NOT ALLOWABLE AND BIFURCATION OF THE EXPENSES O F RS.54,71,162 RELATING TO SHARE ISSUE EXPENSES ARE NOT AVAILABLE ON THE RE CORD, BIFURCATION IS NECESSARY AFTER VERIFICATION OF THE RECORD, WE, THE REFORE, FIND IT APPROPRIATE TO SEND BACK THIS ISSUE TO THE FILE OF AO WITH THE DIRECTION TO BIFURCATE THE EXPENSES IN RESPECT OF SHARES AND DEB ENTURE EXPENSES AND DEFERRED REVENUE EXPENSES AND DECIDE THE SAME IN TH E LIGHT OF THE ORDER OF THE TRIBUNAL FOR ASST. YEAR 2000-01. 17. THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONA L GROUNDS: 1.THE APPELLANT PRAYS THAT ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW THE LD.AO AND LD.CIT(A) HAVE ERRED IN NOT ALLOWING THE DEFERRED REVENUE EXPENSES TO THE EXTENT INCURRE D FOR RAISING BORROWED FUNDS. ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 16 18. AFTER HEARING LEARNED REPRESENTATIVES OF THE PA RTIES, THE ABOVE ADDITIONAL GROUND IS ADMITTED. HOWEVER, WE FIND TH AT THIS GROUND IS A SUPPORTING GROUND TO THE GROUND NO.7 OF THE ASSESSE ES APPEAL, WHICH HAVE DECIDED IN ABOVE PARA 14 TO 16 OF THIS ORDER. 19. GROUND NO.8 IS GENERAL GROUND IN RESPECT OF CAL CULATION OF DEDUCTION U/S 80IA WHICH REQUIRES NO SPECIFIC FINDI NG. 20. GROUND NO.9 IS IN RESPECT OF DISALLOWANCE OF DE DUCTION U/S 80IA. THE AO DID NOT ALLOW DEDUCTION U/S 80IA ON CERTAIN INCOME. THE ORDER OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT(A). 21. THE LD. AR BIFURCATED THE OTHER INCOME IN FIVE CATEGORIES AS UNDER:- (I) RS.11,36,535/- OTHER INCOME AS PER PAGE NO.22 OF PA PER BOOK. (II) RS.7,07,288/- SALE OF RAW MATERIAL. (III) RS.19,65,195/- PRIOR PERIOD INCOME AS PER DETAILS G IVEN AT PAGES 23 OF PAPER BOOK. (IV) RS.9,92,525/- SUNDRY BALANCE WRITTEN OFF. (V) RS.48,77,032/- NETTING OF INTEREST. TOTAL RS.96,78,875/- 22. THE LD. AR HAS NOT PRESSED THE ITEM NO.(II) OF RS.7,07,288/- AND ITEM NO.(IV) OF RS.9,92,525/-. THEREFORE THE SAME A RE DISMISSED AS NOT PRESSED. 23. AS REGARDS ITEM NO.(I), OTHER INCOME OF RS.11,3 6,535/- OF WHICH DETAILED AS UNDER:- SALE TAX REFUND OF RS.64,449/- DEVELOPMENT CHARGES RS.24,000/- EXCESS CREDIT OF EXCISE WRITTEN OFF RS.19,296/- CASH DISCOUNT RS.26,308/- FOREIGN CURRENCY FLUCTUATION RS.1,24,998/- INSURANCE CLAIM RS.11,260/- ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 17 KASAR BATAV RS.2,95,381/- SPECIAL DISCOUNT RS.5,32,773/- OTHER MISC. INCOME RS.38,970/- 24. THE LD. AR HAS NOT PRESSED DEVELOPMENT CHARGE O F RS24,000/-, INSURANCE CLAIM OF RS.11,260/- AND OTHER MISCELLAN EOUS INCOME OF RS.38,970/-, THEREFORE SAME ARE DISMISSED AS NOT PR ESSED. THE ORDER OF LD. CI(A|) ON THESE ITEMS IS CONFIRMED. AS REGARDS OTHER ITEMS SALES TAX REFUND, EXCISE BALANCE, CASH DISCOUNT, FOREIGN CURR ENCY FLUCTUATION, KASAR BATA AND SPECIAL DISCOUNT ARE RELATED TO THE BUSINE SS OF THE ASSESSEE. THESE ITEMS ARE PART AND PARCEL OF ITEMS OF PROFIT AND LO SS ACCOUNT AND DIRECTLY LINKED WITH PURCHASE AND SALE THEREFORE, THERE IS A N INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND ACCORDINGLY AND DEDUCTIO N U/S. 80IA IS ALLOWED. THE A.O IS DIRECTED TO ALLOW THE DEDUCTION U/S 80IA ON THESE ITEMS. 25. GROUND NO.10 IS IN RESPECT OF REDUCING LOSS OF KADI UNIT OF RS.44,56,667/- FROM THE PROFIT OF THE BUSINESS FOR CALCULATING THE DEDUCTION U/S. 80HHC OF THE ACT. THE LD. AR FAIRLY CONCEDED THAT THIS IS COVERED AGAINST ASSESSEE BY THE AMENDMENT IN THE AC T IN 2005. AFTER HEARING LD. DR WE CONFIRM THE ORDER OF LD. CIT(A) O N THE ISSUE. 26. GROUND NO.11 IS IN RESPECT OF CALCULATION OF DE DUCTION U/S. 80HHC REGARDING GROSS INTEREST INCOME AND GROUND NO.12 IN RESPECT OF DISALLOWANCE OF NETTING OF INTEREST RECEIPT OF INTE REST EXPENDITURE. 27. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES. WE FIND THAT AFTER THE ORDER OF CIT(A), THERE ARE LOT OF DEVELOP MENT AND VARIOUS JUDGMENTS ON THE ISSUE. THE FACTS OF THE ISSUE ARE REQUIRED TO BE EXAMINED IN THE LIGHT OF LATEST AVAILABLE DECISIONS . WE THEREFORE SEND BACK THIS ISSUE TO THE FILE OF THE AO TO DECIDE AFR ESH IN ACCORDANCE WITH ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 18 LAW AFTER CONSIDERING AVAILABLE DECISIONS ON THE IS SUE. NEED NOT MENTION, THE AO WILL PROVIDE OPPORTUNITY OF HEARING TO THE A SSESSEE. 28. GROUND NO.13 IS IN RESPECT OF CHARGING OF INTER EST U/S.234B/234C WHICH IS CONSEQENTIONAL IN NATURE THE AO IS DIRECTE D ACCORDINGLY. ITA NO. 667/AHD/2005 APPEAL BY ASSESSEE FOR A.Y 200 1-02 29. THE FIRST GROUND IS IN RESPECT OF DISALLOWANCE OF RS.32.02 LAKH OUT OF INTEREST. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED THE INTEREST CLAIM OF THE ASSESSEE FOLLO WING THE PRECEDING YEARS OF AO'S ORDER IN A.Y. 1998-99 ON THE GROUND T HAT ASSESSEE HAS GIVEN INTEREST FREE LOAN TO ITS SISTER CONCERN. THE LD. CIT(APPEALS) CONFIRMED THE A.OS ORDER OBSERVING THAT IN EARLIER YEAR THE MATTER HAS RESTORED TO THE A.O AND A.O DID NOT YET DECIDE THE CASE. THEREFORE, IT WAS NOT POSSIBLE TO HIM TO DECIDE THE ISSUE. HOWEVER, T HE LD. CIT(APPEALS) FOLLOWED HIS ORDER FOR A.Y 2000-01 AND CONFIRMED TH E ADDITION WITH A REMARKS THAT ASSESSEE SHALL BE ENTITLED TO APPROAC H FOR RECTIFICATION IF THE A.O PASSED THE ORDER IN HIS FAVOUR IN ITS EARLI ER YEAR. 30. WE HAVE HEARD THE LD. REPRESENTATIVE OF THE PAR TY. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY FIRST IN A.Y 1998-99 IN PARA 11 TO 13 OF THIS ORDER. THE A.O IS DIRECTED ACCORDINGLY. 31. THE SECOND IS IN RESPECT DISALLOWANCE OF RS.9,9 4,421/- BEING 1/5TH OF EXPENSES INCURRED ON PUBLIC ISSUE U/S 35D OF THE ACT OUT OF WHICH THE ASSESSEE HAS CLAIMED 1/5TH IN THE YEAR UNDER CONSID ERATION. THE LD. CIT(APPEALS) FOLLOWED HIS ORDER FOR A.Y 2000-01 AND CONFIRMED THE CONDITION SUBJECT TO REMARK IF THE ASSESSEES CLAI M IS ACCEPTED BY ASSESSING OFFICER IN EARLIER YEAR FOR WHICH THE MA TTER HAS BEEN REMITTED BACK. THE ASSESSEE SHALL ENTITLE TO APPROACH BEFORE LD. CIT(APPEALS) FOR ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 19 RECTIFICATION. AT THE OUT SET, LD. AR SUBMITTED THA T THIS ISSUE IS COVERED BY THE ORDER OF LD. CIT(APPEALS) IN A.Y 2000-01 IN ASS ESSEES OWN CASE REPORTED IN THE CASE OF SHRI RAMA MULTI TECH LTD. V . ACIT (2005) 92 TTJ 568 (AHD), WHEREIN THE ITAT HAS SENT BACK THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH CERTAIN DIRECTION. IDENTICAL ROUND HAS ALSO DECIDED IN A.Y.1998-99 IN PARA NO.10 TO 10.6 OF THIS ORDER. SINCE THE FACTS ARE IDENTICAL WE RESPECTFULLY FOLLOWING THE ORDER OF IT AT IN A.Y 2000-01 AND WE ARE ALSO SENDING BACK THE MATTER TO THE FILE OF A.O WITH IDENTICAL DIRECTION. 32. THE THIRD ISSUE IN RESPECT OF DISALLOWANCE OF R S.3.60 CRORES ON ACCOUNT OF SOFTWARE EXPENSES. THE ASSESSEE CLAIMED SOFTWARE EXPENSES OF RS.3.60 CRORES AS REVENUE EXPENSES. THE ASSESSING O FFICER TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED THE DEPRECI ATION @ 12.5% AS THE SOFTWARE WERE PURCHASED IN DECEMBER, 2000. THE LD. CIT(APPEALS) CONFIRMED THE ORDER OF A.O WITH THE OBSERVATION THA T SOFTWARE PURCHASED WAS AN INTEGRAL PART OF THE MACHINERY FOR WHICH THE ASSESSEES ENTITLED FOR DEPRECIATION @ 25%. SINCE THE MACHINERY WAS PURCHAS ED IN DEC00, THEREFORE THE A.O HAS RIGHTLY DEPRECIATED @ 12.5%. 33. AFTER HEARING LD. DR POINTED OUT THAT THIS ISSU E MAY BE DECIDED IN THE LIGHT OF ORDER OF ITAT DELHI SPECIAL BENCH REPO RTED IN THE CASE OF AMWAY INDIA ENTERPRISES (2008) 111 ITD 112 (DEL) ( SB) AND THE ORDER OF ITAST CHENNAI REPORTED IN THE CASE OF JCIT V. IN DIA EQUIPMENT LEASING LTD. (2008) 111 ITD 37 (CHENNAI). 34. AFTER HEARING LD. DR WE FIND THAT CERTAIN FACTS ARE REQUIRED TO VERIFY IN THE LIGHT OF THE DECISION OF THE ITAT SPE CIAL BENCH DELHI IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) WE THEREFO RE SEND BACK AND THE RELEVANT MATERIAL IS NOT READILY AVAILABLE AT THIS STAGE. UNDER THE ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 20 CIRCUMSTANCES, WE SEND BACK THIS MATTER TO THE FILE OF A.O WITH A DIRECTION TO DECIDE THIS ISSUE IN ACCORDANCE WITH L AW ABOUT THE DECISION OF THE ITAT DELHI SPECIAL BENCH (SUPRA) AFTER PROVIDIN G REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 35. THE FOURTH GROUND IN RESPECT OF DISALLOWANCE OF RS.81,38,531/- U/S 43B OF THE ACT ON ACCOUNT OF CUSTOM DUTY. THE ASSE SSEE BEFORE THE LD. CIT(APPEALS) RAISED ADDITIONAL GROUND THAT THE ASSE SSEE IS ENTITLED TO DEDUCTION U/S 43B FOR RS.81,38,531/- BEING THE CUST OM DUTY INCLUDED IN THE VALUE OF CLOSING STOCK. THE SIMILAR ADDITIONAL GROUND WAS RAISED BEFORE ITAT IN A.Y 2000-01. THE LD. CIT(A) DID NOT ALLOW THE ADDITIONAL GROUND ON THE GROUND THAT ASSESSEE HAS A LREADY PROVIDED AN OPPORTUNITY BY WAY OF REMAND BACK THE JUDGMENT OF H ONBLE APEX COURT IN THE CASE OF BERGER PAINS INDIA LTD. V. CIT 266 ITR 299 (SC) RELATED BY THE ASSESSEE IS FOR THE PRIOR PERIOD TO 01-04-10 00 AND WITH EFFECT FROM 1-4-1999 U/S 145A HAS BEEN INSERTED. 36. LD. AR SUBMITTED THAT ON IDENTICAL SET OF FACT S IN A.Y 2000-01 THE ITAT ADMITTED THE ADDITIONAL GROUND AND MATTER HAS BEEN SENT BACK TO THE FILE OF A.O WITH A CERTAIN DIRECTION. 37. AFTER HEARING LD. DR WE FIND THAT ON IDENTICAL SET OF FACTS ITAT VIDE PARA NO.12.4 IN A.Y 2000-01 HAS RESTORED THE I SSUE BEFORE THE FILE OF A.O WITH CERTAIN DIRECTION, SINCE THE FACTS ARE IDE NTICAL, WE ARE ALSO SENDING BACK THIS ISSUE TO THE FILE OF A.O WITH IDE NTICAL DIRECTION. 38. THE GROUND NO.5 IS IN RESPECT OF DISALLOWANCE O F DEPRECIATION ON ASSETS OF RS.1,44,11,203/- HOLDING THEM AS ASSET NO T PUT USE FOR THE PURPOSE OF BUSINESS. THE ASSESSEE RAISED ADDITIONAL GROUND BEFORE LD. CIT(APPEALS) AND CLAIMED DEPRECIATION ON THE ASSETS AMOUNT TO ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 21 RS.1,44,11,203/-. THE LD. CIT(A) REJECTED THE ADDIT IONAL GROUND OF THE ASSESSEE OBSERVING THAT ASSESSEE ITSELF DID NOT CLA IM THE DEPRECIATION ON SUCH ASSETS. THE ASSET WAS NOT USED FOR THE PURPOSE OF BUSINESS. THE CONTENTION OF LD. AR THAT ASSET WAS READY TO USE. T HEREFORE THE ASSESSEE IS ENTITLED FOR DEPRECIATION FOR THE PURPOSE OF THE VERIFICATION OF THE FACTS AND MATERIAL MAY SEND BACK TO THE FILE OF A.O. 39. AFTER HEARING LD. DR THE ADDITIONAL GROUND RAI SED BY ASSESSEE IS ADMITTED AND SEND BACK MATTER TO THE FILE OF A.O WI TH A DIRECTION TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER CONSI DERING RELEVANT LATEST JUDGMENT ON THE ISSUE AND AFTER VERIFYING THAT WHET HER IN SUBSEQUENT YEAR THE DEPARTMENT HAS ACCEPTED ASSESSEES CONTENTION A ND ALLOWED DEPRECIATION ON WRITTEN DOWN VALUE AS ON FIRST DAY OF EACH FINANCIAL YEAR IF THE DEPARTMENT ACCEPTED AND ALLOWED THE DEPRECIA TION ON WRITTEN ABOVE VALUE AS DECLARED BY ASSESSEE. THEN WE ARE OF THE V IEW THAT THERE IS NO NEED TO DISTURB OF SUCH ACCEPTANCE OF THE DEPARTMEN T IN ALLOWING THE DEPRECIATION WHICH HAS FOLLOWED CONSISTENTLY IN SUB SEQUENT YEARS IN CASE THE FACTS ARE FOUND OTHERWISE AS WE STATED ABOVE TH AT THE ISSUE MAY DECIDE IN ACCORDANCE WITH LAW, THE A.O IS DIRECTED ACCORDI NGLY. 40. THE GROUND NO.6 IS IN RESPECT OF DEPRECIATION O N RS.2,96,61,243/- BEING ADDITIONAL DUTY LEVIABLE U/S 3 OF THE CUSTOMS TARIFF ACT, 1975. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND BEFORE L D. CIT(APPEALS) CLAIMING THAT DEPRECIATION ON THE AMOUNT OF RS.2,96 ,61,243/- BEING EXCISE DUTY LEVIABLE U/S.3 OF THE CUSTOM TARIFF ACT, 1975 IN RESPECT OF ASSET ACQUIRED WHICH HAS NOT BEEN ALLOWED CREDIT UNDER TH E CUSTOM EXCISE TARIFF RULE, 1945 TO THE ASSESSEE. THE LD. CIT(APPE ALS) AFTER CONSIDERING THE A.O REMAND REPORT REJECTED THE ASSESSEES ADDIT IONAL GROUND OBSERVING THAT ASSESSEE DID NOT CONTAIN BEFORE A.O IN RESPECT OF ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 22 EXPLANATION 9 TO SECTION 43 AT THE TIME OF REMAND R EPORT. THEREFORE, THE ADDITIONAL GROUND IS NOT JUSTIFIED. 41. AFTER HEARING LD. DR WE ADMITTED THE ADDITIONAL GROUND OF THE ASSESSEE, HOWEVER, THE FACTS ARE REQUIRED TO VERIFY FROM THE ORIGINAL REPORT. WE THEREFORE SEND BACK THIS ISSUE ALSO TO T HE FILE OF A.O WITH A DIRECTION TO VERIFY THE FACTS AND DECIDED THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING OPPORTUNITY OF HEARING TO ASSESSEE. ITA NO.1071/AHD/2005 APPEAL BY THE DEPARTMENT AY20 01-2002 42. GROUND NO.1 AND 2 ARE IN RESPECT OF DISALLOWANC E OF RS.13.75 LAKH ON ACCOUNT OF DEFERRED REVENUE EXPENSES AND RS.20,6 5,537/- ON ACCOUNT OF EXPENSES OF SHARES & DEBENTURE.. 43. LD. REPRESENTATIVE OF THE PARTY AGREED THAT BOT H GROUNDS ARE SIMILAR TO THE A.Y 1998-99. AFTER HEARING LD. REPRESENTATI VE OF THE PARTY, WE FIND THAT ON IDENTICAL SET OF FACTS THESE GROUND HA VE BEEN DECIDED IN A.Y 1998-99 IN PARA 14 TO 17 OF THIS ORDER. THE ASSESSI NG OFFICER IS DIRECTED ACCORDINGLY. 44. GROUND NO.3 IS IN RESPECT OF CALCULATION OF DED UCTION U/S 80HHC THE LD. CIT(APPEALS) DID NOT ACCEPT THE A.OS CONTE NTION AND DIRECTED THE A.O TO EXCLUDE THE AMOUNT OF INCENTIVE FROM THE TOTAL TURNOVER AND RE- COMPUTE THE DEDUCTION. THE DETAILS OF NATURE OF IN CENTIVE IS NOT AVAILABLE ON RECORD WE THEREFORE SENT BACK THIS ISSUE TO THE FILE OF A.O WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER CONSIDERING THE LATEST AVAILABLE RELEVANT DECISIONS AND AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NOS.3297 ,667 AND 1071 ASST. YEAR 1998-99 & 2001-02 23 45. THE GROUND NO.4 IS IN RESPECT OF EXCLUDING NET INTEREST EXPENSES WHILE COMPUTING DEDUCTION U/S.80I OF THE ACT. THE L D. REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ISSUE IS ONLY IN RESPEC T OF NETTING OF THE INTEREST. THIS GROUND IS SIMILAR TO GROUND NO.10 OF ASSESSEES APPEAL FOR A.Y.1998-99. AFTER HEARING LD. REPRESENTATIVE OF T HE PARTIES WE FIND THAT NECESSARY RECORD FOR VERIFICATION OF NEXUS AND OTHERS ARE NOT READILY AVAILABLE AT THIS STAGE, WE THEREFORE SEND BACK THI S ISSUE TO THE FILE OF A.O WITH THE DIRECTION TO DECIDE THE ISSUE IN ACCORDANC E WITH LAW AFTER CONSIDERING RELEVANT LATEST AVAILABLE ON THIS ISSUE . 46. IN THE RESULT, BOTH APPEALS OF ASSESSEE ARE PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPE AL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 21/10/2011 SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD