GALAXY SURFACTANTS LTD., NAVI MUMBAI V. ACIT., RANGE-10(3), MUMBAI

ITA 3481/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83703 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Capital asset; Depreciation; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 14A; 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI ! , ' #$ % % % % , &' . % . () . % . #$ * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ./I .T.A. NO.4453/MUM/2011 ( + + + + / ASSESSMENT YEAR : 2008-09 THE ACIT-10(3), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. GALAXY SURFACTANTS LTD., C-49/2,TTC INDUSTRIAL AREA, PAWNE, NAVI MUMBAI-400 073 ./I .T.A. NO.3481/MUM/2011 ( + + + + / ASSESSMENT YEAR : 2008-09 M/S. GALAXY SURFACTANTS LTD., C-49/2,TTC INDUSTRIAL AREA, PAWNE, NAVI MUMBAI-400 073 / VS. THE ACIT-10(3), AAYAKAR BHAVAN, MUMBAI-400 020 $, ' ./ - ./ PAN/GIR NO. : AAACG 1539P ( ,. / APPELLANT ) .. ( /0,. / RESPONDENT ) ,. 1 / REVENUE BY: SHRI S.P. WALIMBE /0,. 2 1 / ASSESSEE BY: SHRI C.P. RAMASWAMI 2 3)' / DATE OF HEARING :28.08.2014 45+ 2 3)' / DATE OF PRONOUNCEMENT :03.09.2014 #6 / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE PREFERRED AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)- 22, MUMBAI DT. 9.3.2011 PERTAINING TO A.Y. 2008-09. BOTH THESE APPEALS WER E HEARD TOGETHER AND ITA NOS.4453 & 3481/M/2011 2 THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE S AKE OF CONVENIENCE AND BREVITY. ITA NO. 4453/M/2011 A.Y. 2008-09 2. THE MAIN GRIEVANCE OF THE REVENUE IS THAT THE LD . CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXCESS COMMISSION PAYM ENT OF RS. 10,10,312/- MADE TO M/S. GALAXY CHEMICALS INC. USA. THE REVENUE HAS ALSO RAISED AN ADDITIONAL GROUND BY WHICH IT CLAIMS THAT THE APPEAL MEMO BEFORE THE LD. CIT(A) WAS NOT VERIFIED BY A COMPETE NT PERSON AS DEFINED U/S. 140 OF THE INCOME TAX ACT READ WITH RULE 45 OF THE INCOME TAX RULES. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE MAIN ISSUE IN REVENUES APPEAL IS DECIDED IN FAVOUR OF T HE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.YRS 2004-05 AN D 2005-06 IN ITA NOS. 5779 & 5780/M/08. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED TO THIS. 5. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) AT PARA- 8.3 OF HIS ORDER WHERE HE HAS FOLLOWED THE EARLIER DECISIONS OF HIS PREDECESSOR ON IDENTICAL FACTS. THE LD. CIT(A) OBS ERVED THAT IN EARLIER YEARS THE TRIBUNAL HAS CONFIRMED THE FINDINGS OF TH E LD. CIT(A). THE LD. CIT(A) ACCORDINGLY FOLLOWED THE FINDINGS OF THE TRI BUNAL. 6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AO. WE HAVE ALSO GONE THROUGH THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE (SUPRA). WE FIND THAT THE TRIBUNAL HAS CONSIDERED THIS ISSUE AT PARA-7 ON PAGE-4 OF ITA NOS.4453 & 3481/M/2011 3 ITS ORDER AND DISMISSED THIS GROUND OF THE REVENUE. AS NO NEW FACTS HAVE BEEN BROUGHT ON RECORD BEFORE US, RESPECTFULLY FOLL OWING THE FINDINGS OF THE CO ORDINATE BENCH, THIS GRIEVANCE OF THE REVENU E IS DISMISSED. 7. IN SO FAR AS THE ADDITIONAL GROUND OF THE REVENU E IS CONCERNED, THE ASSESSEE HAS FILED AN AFFIDAVIT OF THE MANAGING DIR ECTOR STATING THAT AT THE TIME OF FILING OF THE APPEAL BEFORE THE LD. CIT(A), THE MANAGING DIRECTOR WAS TRAVELLING FOR SOME BUSINESS REQUIREMENTS AND T HEREFORE THE APPEAL MEMO WAS SIGNED BY THE EXECUTIVE DIRECTOR (FINANCE) . 8. WE HAVE CAREFULLY PERUSED THE CONTENTS OF THE AF FIDAVIT. UNDOUBTEDLY UNDER RULE 45(2), THE FORM OF APPEAL TO LD. CIT(A) IS TO BE SIGNED AND VERIFIED BY THE PERSON WHO IS AUTHORIZED TO SIGN THE RETURN OF INCOME. HOWEVER, U/S. 140(C) OF THE ACT IF FOR ANY UNAVOIDABLE REASON SUCH MANAGING DIRECTOR IS NOT ABLE TO SIGN AND VERI FY THE RETURN, THEN THE SAME CAN BE SIGNED ANY DIRECTOR THEREOF. AS THE M ANAGING DIRECTOR WAS TRAVELLING, THE APPEAL MEMO WAS SIGNED AND VERIFIED BY THE EXECUTIVE DIRECTOR (FINANCE), THE SAME IS IN ACCORDANCE WITH LAW. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE ADDITIONAL GROUND TAKEN B Y THE REVENUE AND IS DISMISSED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ITA NO. 3481/M/2011 A.Y. 2008-09 10. GROUND NO. 1 & 2 ARE OF GENERAL IN NATURE AND T HEREFORE NEED NO SEPARATE ADJUDICATION. ITA NOS.4453 & 3481/M/2011 4 11. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS. 4166/- U/S. 14A OF THE ACT. 11.1 IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSES SEE HAS RECEIVED DIVIDEND FROM UNION BANK OF INDIA. THE DIVIDEND WA S DIRECTLY CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE WITHOUT ANY EFF ORT ON THE PART OF T HE ASSESSEE AND THEREFORE THE ASSESSEE HAS INCURRED NI L EXPENSES FOR EARNING THIS DIVIDEND INCOME. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE I NDUSTRIES LTD. 339 ITR 632. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT ( SUPRA), WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 4,166/-. GROUND NO. 3 IS ACCOR DINGLY ALLOWED. 12. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF RS. 6,57,550/- INCURRED ON UPGRADATION OF APPLICATION SOFTWARE. 12.1. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT P ARA-6 OF HIS ORDER. WHILE GOING THROUGH THE DETAILS OF EXPENDITURE DEBI TED UNDER THE HEAD REPAIRS AND MAINTENANCE, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 9,20,050/- PERTAINING TO PURCHASE OF SOFTWARE. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THIS SHOULD NOT B E CAPITALIZED. THE ASSESSEE FILED A DETAILED REPLY IN SUPPORT OF ITS C LAIM OF REVENUE EXPENDITURE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE IN RESPECT OF THREE ITEMS AND ACCORDINGLY CAPITALIZED A SUM OF RS. 7,61,050/- AND ALLOWED DEPRECIATION AS PER THE PROV ISIONS OF LAW AND DISALLOWED THE BALANCE AMOUNT. 12.2. THE ASSESSEE CARRIED THE MATTER BEFORE THE L D. CIT(A). IT WAS STRONGLY CONTENDED THAT THE EXPENDITURE WAS INCURRE D FOR THE UPGRADATION ITA NOS.4453 & 3481/M/2011 5 OF THE SOFTWARE ALREADY INSTALLED AND THEREFORE THE EXPENSES INCURRED BY THE ASSESSEE HAS TO BE TREATED AS REVENUE EXPENDIT URE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE LD. CIT(A) DIR ECTED THE AO TO DELETE THE DISALLOWANCE OF RS. 1,03,500/- AND CONFIRMED TH E BALANCE DISALLOWANCE. 12.3. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. IT IS THE SAY OF THE LD. COUNSEL THAT THE UPGRADATION WERE CARRIED OUT ON I TEMS CAPITALIZED IN THE EARLIER YEAR AND THE EXPENSES INCURRED ARE NOT FOR ANY NEW ITEM THEREFORE THE EXPENDITURE ARE OF REVENUE IN NATURE. 12.4. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATI VE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 12.4. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS SUN DARAM CLAYTON LTD. 321 ITR 69, FOLLOWING THE DECISION IN THE CASE OF SOUTHERN ROADWAYS 288 ITR 15 HAS HELD THAT UPGRADATION OF COMPUTERS THEREBY ENHANCING THE CONFIGURATION OF THE COMPUTERS FOR IM PROVING THEIR EFFICIENCY, BUT WITHOUT MAKING ANY STRUCTURAL ALTER ATIONS IS NOT CHANGE OF AN ENDURING NATURE. THE EXPENDITURE INCURRED BY THE ASSESSEE HAD TO BE TREATED AS REVENUE EXPENDITURE. IN THE CASE IN HA ND, IT IS THE UPGRADATION OF SOFTWARE ALREADY INSTALLED FOR THE SMOOTH AND EF FICIENT WORKING THEREFORE FOLLOWING THE RATIO LAID DOWN BY THE HON BLE MADRAS HIGH COURT (SUPRA), WE DIRECT THE AO TO DELETE THE ADDIT ION OF RS. 6,57,550/- AND ALLOW THE CLAIM OF UPGRADATION OF SOFTWARE AS R EVENUE EXPENDITURE. THE AO IS ALSO DIRECTED TO WITHDRAW THE DEPRECIATIO N ALLOWED BY HIM WHILE TREATING THE EXPENDITURE AS CAPITAL EXPENDITU RE. GROUND NO. 4 WITH ITS SUB-GROUNDS ARE ACCORDINGLY ALLOWED. ITA NOS.4453 & 3481/M/2011 6 13. GROUND NO. 5 RELATES TO THE DISALLOWANCE OF INT EREST BEING ATTRIBUTABLE TO CAPITAL WORK-IN-PROGRESS. 13.1. THIS ISSUE HAS BEEN DISCUSSED BY THE AO AT PA RA-7 OF HIS ORDER. WHILE ANALYZING THE BALANCE SHEET OF THE ASSESSEE, THE AO FOUND THAT AN AMOUNT OF RS. 6,45,20,948/- WAS SHOWN AS CAPITAL W ORK-IN-PROGRESS AT COST. THE ASSESSEE WAS ASKED TO EXPLAIN WHETHER A NY INTEREST WAS CAPITALIZED ON THIS CAPITAL WORK-IN-PROGRESS. THE ASSESSEE EXPLAINED VIDE ITS LETTER DT. 19.10.2010 THAT NO INTEREST WAS CAPI TALIZED IN CAPITAL WORK-IN- PROGRESS. THE ASSESSEE WAS THEN ASKED TO SHOW CAUS E AS TO WHY INTEREST EXPENDITURE ATTRIBUTABLE TO CAPITAL WORK-IN-PROGRES S SHOULD NOT BE ADDED TO THE RETURNED INCOME OF THE ASSESSEE. VIDE LETTE R DT. 4.11.2010, THE ASSESSEE STATED THAT IT HAS NOT BORROWED ANY TERM L OANS FOR ACQUISITION OF ANY CAPITAL ASSET, THEREFORE THERE IS NO QUESTION O F ANY INTEREST EXPENDITURE ATTRIBUTABLE TO THE CAPITAL WORK-IN-PROGRESS. IT W AS EXPLAINED THAT THE ASSESSEE HAS BORROWED US$ 5 MILLION FROM DBS BANK, SINGAPORE WHICH IS AN EXTERNAL COMMERCIAL BORROWING (ECB). THE DIS BURSEMENT OF THE DCB WAS RECEIVED IN THE MONTH OF JANUARY AND THE SA ID LOAN WAS ACTUALLY UTILIZED IN THE NEXT FINANCIAL YEAR. THIS SUBMISSIO N OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO. THE AO WENT ON TO DISCUSS THE BORROWINGS OF THE ASSESSEE AT PARA-7.2 OF HIS ORDER AND WORKS OUT TO RS. 56 LAKHS AS INTEREST ATTRIBUTABLE TO CAPITAL WORK-IN-PROGRESS. 13.2. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE M ATTER BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONSIDERED THIS GRIEVAN CE AT PARA 5.1 OF HIS ORDER AND AT PARA-5.3 HAS ONLY DISCUSSED THE FINDIN GS OF THE AO AND CONFIRMED THE DISALLOWANCE. ITA NOS.4453 & 3481/M/2011 7 13.3. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT THE REVENUE A UTHORITIES HAVE TAKEN THE FIGURE OF BORROWINGS WHICH WAS AT THE END OF TH E FINANCIAL YEAR. IT IS THE SAY OF THE LD. COUNSEL THAT THE ENTIRE CAPITAL WORK-IN-PROGRESS DURING THE YEAR WAS MET OUT OF THE INTERNAL ACCRUALS OF TH E ASSESSEE AND THEREFORE NO BORROWED CAPITAL WAS UTILIZED. 13.4. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATI VE STRONGLY SUPPORTED THE FINDINGS OF THE AO. 13.5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE A UTHORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD BE FORE US. THE AO HAS GONE BY THE PRESUMPTION THAT THE ASSESSEE MUST HAVE UTILIZED SOME PART OF THE BORROWED CAPITAL TOWARDS CAPITAL WORK-IN-PROGRE SS. A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE SHOWS THAT THE ASSESS EE HAS GENERATED CASH TO THE TUNE OF RS. 34.50 CRORES AS IS EVIDENT FROM THE CASH FLOW STATEMENT APPEARING ON 43 OF THE ANNUAL STATEMENT OF ACCOUNT. THE TOTAL EXPENDITURE INCURRED TOWARDS CAPITAL WORK-IN-PROGRE SS IS ONLY RS. 6.45 CRORES. THIS CLEARLY SHOW THAT THE ASSESSEE WAS HA VING SUFFICIENT OWN FUNDS. WE, THEREFORE, DO NOT FIND ANY MERIT IN ATT RIBUTING THE INTEREST TOWARDS CAPITAL WORK-IN-PROGRESS. WE, ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITION OF RS. 56 LAKHS. GROUND NO. 5 IS ACCORDINGLY ALLOWED. 14. GROUND NO. 6 RELATES TO THE DISALLOWANCE OF RS. 1,61,57,002/- INCURRED BY THE ASSESSEE ON CURRENT REPAIRS OF BUIL DINGS. 0 14.1. THE AO HAS DISCUSSED THIS ISSUE AT PARA-8 OF HIS ORDER. THE AO NOTICED THAT UNDER THE HEAD REPAIRS AND MAINTENANC E BUILDING. THE ASSESSEE HAS CLAIMED EXPENDITURE AMOUNTING TO RS. 1 ,62,25,655/- WHICH ITA NOS.4453 & 3481/M/2011 8 COMPRISES TO VARIOUS EXPENDITURES LIKE CHANGING OF FLOORING, PLASTERING OF WALLS, CEILING, PAINTING, ELECTRICAL FITTINGS, WASH ROOMS, CABINS ETC. THE AO WAS OF THE OPINION THAT THE EXPENDITURES ARE OF CAPITAL IN NATURE AND ACCORDINGLY ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM . IT WAS EXPLAINED THAT THE CORPORATE OFFICE OF THE ASSESSEE WAS CONSTRUCT ED IN 1996-97 THEREFORE AFTER 10 YEARS IT REQUIRED CERTAIN MAJOR REPAIRS DU E TO WEAR AND TEAR, LEAKAGES ETC. IT WAS FURTHER EXPLAINED THAT WHEREV ER THE EXPENDITURE INCURRED FOR MAKING CABINS, REPLACING FURNITURE ETC , THE SAME HAS BEEN CAPITALIZED UNDER THE HEAD FURNITURE AND FIXTURES A ND THE REMAINING HAS BEEN CLAIMED AS REVENUE EXPENDITURE. THE AO DID NO T ACCEPT THE SUBMISSION OF THE ASSESSEE AND TREATED THE EXPENDIT URE OF RS. 1,61,57,002/- AS CAPITAL EXPENDITURE AND ACCORDINGL Y ALLOWED DEPRECIATION AS PER PROVISIONS OF LAW. 14.2. BEFORE THE LD. CIT(A), THE ASSESSEE REITERATE D ITS CLAIM BUT WITHOUT ANY SUCCESS. 14.3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE D REW OUR ATTENTION TO THE DETAILS OF EXPENDITURES CLAIMED UNDER THE HEAD CURRENT REPAIRS. IT IS THE SAY OF THE LD. COUNSEL THAT LOOKING TO THE NATU RE OF EXPENDITURE, IT CANNOT BE TERMED AS CAPITAL EXPENDITURE AND DESERVE S TO BE ALLOWED AS REVENUE EXPENDITURE. THE LD. COUNSEL HAS ALSO FILE D COMPLETE DETAILS OF EXPENDITURES INCURRED ALONGWITH SUPPORTING EVIDENCE S IN THE FORM OF BILLS. 14.4. THE LD. DR RELIED UPON THE ORDERS OF THE REVE NUE AUTHORITIES. 14.5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE A UTHORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECOR D BEFORE US. IT IS NOT IN DISPUTE THAT THE ASSESSEE ITSELF HAS CAPITALIZED EXPENDITURE AMOUNTING TO ITA NOS.4453 & 3481/M/2011 9 RS. 1.71 CRORES UNDER THE HEAD FURNITURE AND FIXT URES. A PERUSAL OF THE DETAILS OF EXPENDITURE SHOWS THAT THE SAME HAS BEEN INCURRED ON FLOORING, PLASTERING, PAINTING, WASH ROOM, CABINS ETC. 14.6. THE OBJECT AND PURPOSE OF EVERY REPAIR IS TO IMPROVE THE BAD CONDITION OF THE BUILDING TO PREVENT ITS FURTHER DE TERIORATION AS FAR AS POSSIBLE AND TO KEEP IT WIND AND WATER-TIGHT. SO L ONG THE REPAIR DOES NOT BRING INTO EXISTENCE, AN ADDITIONAL ADVANTAGE OR BE NEFIT OF AN ENDURING NATURE OR CHANGE THE NATURE, CHARACTER OR THE IDENT ITY OF THE BUILDING ITSELF, THE EXPENDITURE HAS TO BE CONSIDERED AS REVENUE EXP ENDITURE. FOR THESE OBSERVATIONS, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ICI (INDIA) PVT. LTD. 113 ITR 105. A PERUSAL OF THE DETAIL SHOWS THAT NO STRUCTURAL ALTERATION WAS MADE TO THE BUILDING AND THE ASSESSEE CARRIED OUT ONLY REPAIRS WHICH WERE AB SOLUTELY NECESSARY TO PRESERVE AND MAINTAIN THE BUILDING AND TO PREVENT I TS FURTHER DETERIORATION. THE PLASTERING PROCESS MAY HAVE EXTENDED THE LIFE O F THE BUILDING, IT HAS NOT EXTENDED THE ORIGINAL LIFE OF THE BUILDING NOR THE ORIGINAL CONDITION OF THE BUILDING. THE QUANTUM OF EXPENDITURE BY ITSELF CANNOT BE A DETERMINING FACTOR FOR FINDING OUT AN EXPENDITURE A S REVENUE OR CAPITAL. CONSIDERING THE FACTS IN TOTALITY, IN OUR CONSIDERE D OPINION, THE EXPENDITURE INCURRED BY THE ASSESSEE HAVE TO BE ALL OWED AS REVENUE EXPENDITURE, WE, ACCORDINGLY, DIRECT THE AO. HOWEVE R, THE AO IS DIRECTED TO WITHDRAW DEPRECIATION WHICH WAS ALLOWED BY HIM W HILE TREATING THE EXPENDITURE AS CAPITAL IN NATURE. GROUND NO. 6 IS ALLOWED. 15. GROUND NO. 7 RELATES TO THE ESTIMATED DISALLOWA NCE OF POWER AND FUEL EXPENSES. ITA NOS.4453 & 3481/M/2011 10 15.1. THE AO HAS DISCUSSED THIS DISALLOWANCE AT PAR A-9 OF HIS ORDER. THE AO NOTICED THAT THE ASSESSEE HAS DEBITED RS. 12.41 CRORES UNDER THE HEAD POWER AND FUEL OUT OF WHICH RS. 5.01 CRORES IS CLA IMED TOWARDS EOU UNIT ELIGIBLE FOR EXEMPTION U/S. 10B AND THE BALANC E AMOUNT IS CLAIMED TOWARDS NON-EOU UNIT. THE ASSESSEE WAS ASKED TO JU STIFY THE CLAIM OF EXPENDITURE. THE ASSESSEE FILED A DETAILED REPLY A S UNDER: 4. POWER & FUEL : RS. 12.41 CRORES OUT OF WHICH EO U RS. 5.01 CRORES. IN YOUR LETTER REFERRED ABOVE, YOU HAVE COMPARED TH E EXPENDITURE ON POWER & FUELO FOR EOU UNIT AND NON-EOU UNITS ASK ED US TO EXPLAIN WITH EVIDENCES AS TO WHY THE EXPENDITURE ON POWER & FUEL FOR EOU IS LESS AS COMPARED TO NON-EOU UNITS PUT TO GETHER WHEREAS THE TURNOVER OF THE EOU IS MORE THAN THE NO N-EOU UNITS. IN THIS RESPECT, WE WISH TO SUBMIT AS UNDER: THE ASSESSEE HAS MAINTAINED ACCOUNTING RECORDS GIVI NG UNIT WISE DETAILS OF ALL EXPENDITURE INCLUDING POWER & FUEL. WE ARE ENCLOSING HEREWITH UNITWISE BREAK-UP OF POWER AND F UEL FOR YOUR KIND PERUSAL/RECORDS. IT MAY BE NOTED THAT WHILE P REPARING THE PROFIT & LOSS ACCOUNT OF THE EOU UNIT, THE ASSESSEE HAS TAKEN INTO ACCOUNT ALL EXPENSES WHICH ARE DIRECTLY ATTRIBUTABL E TO EOU UNIT AND IN RESPECT OF COMMON EXPENSES, THE SAME ARE ALL OCATED IN THE RATIO OF SALES. FURTHER, WE WISH TO STATE THAT EOU UNIT IS EXCLUSIV ELY USING SELF GENERATED ELECTRICITY FOR ITS MANUFACTURING PROCESS . PLEASE REFER TO THE UNITWISE DETAILS OF POWER & FUEL ENCLOSED AS AB OVE. THE ELECTRICITY FROM MSEB IS USED FOR LIGHTING. THE EO U USES ELECTRICITY GENERATED BY DG SET FOR ITS MANUFACTURI NG PROCESSES. IT MAY ALSO BE NOTED THAT THE COST OF PER UNIT OF E LECTRICITY GENERATED BY DG SET WAS CHEAPER THAN PER UNIT COST OF ELECTRICITY SUPPLIED BY MSEB. PLEASE REFER ANNEXURE TO DIRECTO RS REPORT ON PAGE-16 OF ANNUAL REPORT WHICH IS ATTACHED WITH THE RETURN OF INCOME. FROM THE SAID ANNEXURE, YOU WILL APPRECIAT E THAT THE COST OF ELECTRICITY PURCHASED IS RS. 5.27 PER UNIT WHERE AS THE COST OF SELF ITA NOS.4453 & 3481/M/2011 11 GENERATED ELECTRICITY IS RS. 4.69 PER UNIT. IT MAY ALSO BE NOTED THAT THE NUMBER OF UNITS OF ELECTRICITY PURCHASED IS 325 0 THOUSAND AS AGAINST 12593 THOUSANDS UNITS FROM OWN GENERATION. IN VIEW OF THE ABOVE, WE SUBMIT THAT THE POWER & FU EL AS DEBITED TO PROFIT & LOSS ACCOUNT OF THE EOU IS CORRECT AND REQUEST YOU TO KINDLY ACCEPT THE SAME. 15.2. THIS EXPLANATION OF THE ASSESSEE DID NOT FIN D ANY FAVOUR FROM THE AO WHO PROCEEDED BY REALLOCATING THE EXPENDITURE AN D ESTIMATED THE DISALLOWANCE AT RS. 61,53,396/-. 15.3. THE LD. CIT(A) HAS CONSIDERED THE GRIEVANCE O F THE ASSESSEE AT PARA 7.1 OF HIS ORDER. AT PARA 7.3, THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO. 15.4. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEF ORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR ALL UNITS , EOU AND NON-EOU. THE AO HAS NOT POINTED OUT ANY DEFECT OR DISCREPANC Y IN ANY OF THE BOOKS OF ACCOUNT THEREFORE THE ESTIMATION MADE BY THE AO IS UNCALLED FOR AND DESERVE TO BE DELETED. 15.5. THE LD. DR SUPPORTED THE ORDERS OF THE REVENU E AUTHORITIES. 15.6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE A UTHORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCE BROUGHT ON RECORD BEFORE US. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS MAINTAINING SEPARAT E BOOKS OF ACCOUNT FOR ALL ITS ELIGIBLE UNIT. WE FIND THAT THE ASSESSEE H AS FILED COMPLETE DETAILS OF UNIT-WISE POWER CONSUMPTION FOR EVERY UNIT. THE AS SESSEE HAS ALSO FILED ITA NOS.4453 & 3481/M/2011 12 COMPLETE MONTH-WISE CONSUMPTION OF POWER FOR EVERY UNIT. THIS IS ALSO EVIDENT FROM THE REPLY FILED BY THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS WHICH IS EXHIBITED HEREINABO VE. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE INDEPENDENT RECORDS N OR HE HAS GIVEN ANY ADVERSE FINDINGS IN THE DETAILS OF THE POWER CONSUM PTION FILED BY THE ASSESSEE. IT IS ALSO NOT A CASE OF THE REVENUE THA T THE ASSESSEE HAS SHOWN EXORBITANT PROFIT FROM THE UNITS WHICH ARE ELIGIBLE FOR DEDUCTION U/S. 10(B) OF THE ACT. IT IS ALSO NOT THE CASE OF THE REVENU E THAT THERE IS A DIVERSION OF EXPENDITURE FROM EXEMPT UNIT TO TAXABLE UNIT. T HE REALLOCATION HAS BEEN MADE PURELY ON SURMISES AND CONJECTURES. THE REALLOCATION HAS BEEN MADE ON THE BASIS OF RESPECTIVE TURNOVERS OF ELIGIB LE AND NON ELIGIBLE UNITS WHICH, IN OUR CONSIDERED OPINION, IS UNWARRAN TED. WE, ACCORDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 61,53,396. GROUND NO. 7 IS ACCORDI NGLY ALLOWED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.09.2014 SD/- SD/- (S.T.M. PAVALAN ) (N.K. BILLAIYA) #$ / JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 7# DATED : 3 RD SEPTEMBER, 2014 . . ./ RJ , SR. PS ITA NOS.4453 & 3481/M/2011 13 #6 #6 #6 #6 2 22 2 /3 /3 /3 /3 8+3 8+3 8+3 8+3 / COPY OF THE ORDER FORWARDED TO : 1. ,. / THE APPELLANT 2. /0,. / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :; /3 , , / DR, ITAT, MUMBAI 6. ;& < / GUARD FILE. #6 #6 #6 #6 / BY ORDER, 03 /3 //TRUE COPY// = == = / > > > > (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI