M/s Paliwal Overseas Ltd., Panipat V. ACIT, Panipat

ITA 3490/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7082 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-04-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 11-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Retrospective amendment; Question of law; Notional interest; Commercial expediency; Reassessment proceedings
• Section: 80HHC; 147; 37; 28

Judgement Text

ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 1 OF 47 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NOS.-3490 TO 3495/DEL/2011 ( ASSESSMENT YEARS: 2000-01 TO 2006-07) PALIWAL OVERSEAS LTD. PALIWAL NAGAR, G.T. ROAD, PANIPAT. AABCP1067E VS ACIT CENTRAL CIRCLE PANIPAT. ASSESSEE BY SH. SATISH KUMAR GOEL, ADV. REVENUE BY SH. ASHISH CHANDRA MOHANTY, SR. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THESE BUNCH OF SIX APPEALS ARE FILED AGAINST A CON SOLIDATED ORDER DATED 18/03/2011 PASSED BY THE LD. CIT (APPEA LS)-KARNAL FOR SIX DIFFERENT ASSESSMENT YEARS. ITA NO. 3490 H AS BEEN PREFERRED BY THE ASSESSEE FOR AY 2000-01. ITA NO. 3491 HAS BEEN PREFERRED BY THE ASSESSEE FOR AY 2000-01. ITA NO. 3492 HAS BEEN PREFERRED BY THE ASSESSEE FOR AY 2002-03. ITA NO. 3493 ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 2 OF 47 HAS BEEN PREFERRED BY THE ASSESSEE FOR AY 04-05. I TA NO. 3494 HAS BEEN PREFERRED BY THE ASSESSEE FOR AY 05-06 AND ITA 3495 HAS BEEN PREFERRED BY THE ASSESSEE FOR AY 06-07. S INCE ALL THESE APPEALS HAD IDENTICAL ISSUES AND THEY WERE HEARD TO GETHER, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER. WE NOW TAKE UP THE APPEALS ONE BY ONE. 2. ITA NO. 3490/DEL/2011 FOR AY 2000-01 THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY DERIV ED INCOME FROM MANUFACTURING AND EXPORT OF COTTON/HANDLOOM PR ODUCTS. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THA T THE ASSESSEE HAD PAID INTEREST OF RS. 1.13 CRORES ON BO RROWINGS FROM BANKS BUT HAD AT THE SAME TIME GIVEN INTEREST FREE LOANS/ADVANCES TO VARIOUS PERSONS FOR NON BUSINESS PURPOSES ON WHICH NO INTEREST WAS CHARGED. THE AO ALSO NOTED THAT INTERESTS ATTRIBUTABLE TO THESE AMOUNTS WERE ALSO D ISALLOWED IN EARLIER ASSESSMENT YEARS 1996-97 TO 1999-2000. THE AO ALSO NOTED THAT THE ASSESSEE HAD ADMITTED THE FACTUM OF GIVING LOANS/ADVANCES FOR NON BUSINESS PURPOSES. IT WAS T HE ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 3 OF 47 ASSESSEES CONTENTION THAT IT HAD INTEREST FREE DEP OSITS FROM M/S PALIWAL INDUSTRIES P. LTD. AND, THEREFORE, IF ANY IN TEREST ON INTEREST FREE ADVANCES WAS TO BE DISALLOWED, THE AM OUNT OF INTEREST FREE DEPOSITS SHOULD ALSO BE CONSIDERED AN D ONLY THE NET INTEREST SHOULD BE DISALLOWED. THE AO WORKED OUT INTEREST @ 10% ON THESE INTEREST FREE ADVANCES AND ADDED RS. 2 4,28,047/- TO THE INCOME OF THE ASSESSEE OUT OF THE BANK INTER EST PAID. THE AO FURTHER NOTICED THAT THE ASSESSEE HAD RECEIVED I NTEREST OF RS. 3,33,405/- ON MARGIN MONEY FDRS WHICH WAS SHOWN UNDER THE HEAD BUSINESS INCOME. THE AO WAS OF THE VIEW THAT THIS INTEREST WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES RATHER THAN UNDER THE HEAD BUSINESS INCOM E AND IN THE ASSESSMENT THIS INTEREST INCOME WAS ASSESSED AS INCOME FROM OTHER SOURCES. FURTHER THE AO ALSO CONSEQUEN TLY REDUCED THE CLAIM OF THE ASSESSEE U/S 80HHC AFTER TREATING THE INTEREST INCOME OF RS. 3,33,405/- AS INCOME FROM OTHER SOUR CES. IN ADDITION TO THIS THE AO ALSO MADE ADHOC DISALLOWANCES OF RS. 20,000/- OUT OF MISCELLANEOUS EXPENSES, RS. 35,000/ - OUT OF ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 4 OF 47 REPAIRS AND MAINTENANCE EXPENSES AND RS. 10,000/- O UT OF ADVERTISEMENT EXPENSES. 2.1 AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE FIRST APPELLATE AUTHORITY ON THESE ISSUES. HOWEVER, THE LD. CIT (A) UPHELD THE DISALLOWANCES/ADDITIONS MADE BY THE AO AN D DISMISSED THE ASSESSEES GROUNDS OF APPEAL. 2.2 NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE ITAT AND THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E AS UNDER: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT(APPE ALS) IN CONFIRMING DISALLOWANCE OF RS.24,28,047/- OUT OF IN TEREST PAID BY THE COMPANY AS DEEMED INTEREST CHARGEABLE O N ALLEGED INTEREST FREE ADVANCES IS HIGHLY ARBITRARY, ILLEGAL, VOID AND UNCALLED FOR. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT (APP EALS) IN CONFIRMING THE ORDER OF ACIT IN SEGREGATING INTERES T RECEIVED AT RS.3,33,405/- ON MARGIN MONEY FDRS WHICH WERE MA DE FOR RAISING EXPORT PACKING CREDITS AND FOREIGN BILL S LIMITS ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 5 OF 47 AGAINST WHICH INTEREST WAS PAID TO THE BANK AT RS. 1,17,08,600/- AND TREATING THE SAME TO BE INCOME FR OM OTHER SOURCES IS HIGHLY ARBITRARY AGAINST JUDICIAL DISCIP LINE ILLEGAL, VOID AND UNCALLED FOR. 4. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX IN CONFIRMING THE ORDER OF THE AO IN ISOLATING BANK IN TEREST ON MARGIN MONEY FDRS AT RS.3,33,405/- AGAINST BANK INT EREST PAID AT RS. 1,17,08,600/- FOR THE PURPOSES OF REDUC ING CLAIM OF DEDUCTION U/S 80HFIC IS ALTOGETHER ARBITRARY, IL LEGAL, VOID AND UNCALLED FOR. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX CONFIRMING DISALLOWANCES OF RS.20,000/- OUT OF MISCELLANEOUS EXPENSES RS.35,000/- OUT OF REPAIRS A ND MAINTENANCE EXPENSES RS. 10,000/- OUT OF ADVERTISEM ENT EXPENSES IS ARBITRARY, ILLEGAL AND UNCALLED FOR. 3. THE LD. AR SUBMITTED THAT AS FAR AS GROUND NO. 2 OF THE ASSESSEES APPEAL IS CONCERNED, THE LD. CIT (A) WHIL E CONFIRMING THE DISALLOWANCE OF RS. 24,28,047/- OUT OF THE INTER EST PAID BY THE COMPANY AS DEEMED INTEREST CHARGEABLE ON ALLEGE D INTEREST FREE ADVANCES HAS COMPLETELY IGNORED THE FACT THAT THE ASSESSEE HAD A PAID UP CAPITAL OF RS. 95.40 LAKHS AS WELL AS ACCUMULATED ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 6 OF 47 PROFITS/RESERVES OF RS. 4,881.62 LAKHS AS INTEREST FREE FUNDS AVAILABLE WITH IT. HE DREW OUR ATTENTION TO THE COPY OF THE BALANCE SHEET FOR THE YEAR ENDED 31.03.2000 AND 31. 03.1999 IN SUPPORT OF HIS CONTENTIONS. HE FURTHER SUBMITTED T HAT THE BANK LOANS AMOUNTING TO RS. 11,48,72,106/- AS ON 31.03.2 000 WERE MUCH LESS THAN FIXED ASSETS, BUSINESS INVESTMENTS, STOCKS, SUNDRY DEBTORS, BANK AND CASH ETC. AND HENCE, THERE WAS NO DIVERSION OF BORROWED FUNDS FOR THE PURPOSE OF MAKI NG INTEREST FREE ADVANCES. THE LD. AR SUBMITTED THAT THERE WAS NO REASON TO DISALLOW INTEREST ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ON GROUND NO. 3 REGARDING TREATMENT OF INTEREST ON FDR AS INCOME FROM OTHER SOURCES, THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PALIWAL INDUSTRIES (A SISTER CONCERN OF THE ASSESSEE) IN ITA NO. 431 A ND 432/08 IN JUDGMENT DATED 30.09.2008. ON GROUND NO. 4 REGARDI NG THE REDUCTION IN CLAIM OF DEDUCTION U/S 80HHC, THE LD. AR SUBMITTED THAT THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY ASSESSEES OWN CASE FOR FY 1995-96 IN ITA NO. 1874/2 000. ON ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 7 OF 47 GROUND NO. 5 RELATING TO ADHOC DISALLOWANCES THE LD. AR SUBMITTED THAT THE DETAILS OF THE EXPENSES WERE MAD E AVAILABLE IN THE ASSESSMENT PROCEEDINGS ITSELF AND HENCE, THE CONTENTION OF THE DEPARTMENT THAT ALL THE EXPENSES WERE NOT PR OPERLY VOUCHED WAS FACTUALLY INCORRECT. 4. THE LD. DR SUPPORTED THE ORDER OF THE LOWER AUTH ORITIES AND SUBMITTED THAT THE DISALLOWANCES/ADDITIONS HAD BEEN CORRECTLY MADE AND SHOULD BE SUSTAINED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS FAR AS GROUND NO. 2 REGARDI NG THE DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST ON INTE REST FREE ADVANCES IS CONCERNED, IT IS SEEN THAT IT IS THE CO NTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD A PAID UP CAPITAL OF 95.40 LACS AND ACCUMULATED RESERVES OF 4,881.62 LACS WHICH WERE IN FACT INTEREST FREE FUNDS AVAILABLE WITH IT AND AS AGAINST THIS THE INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCES WAS RS. 3,00,18,97/- ONLY. ASSESSEE HAS ALSO PLACED RELIAN CE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S A BUILDERS VS. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 8 OF 47 CIT 288 ITR 1 (SC). THE LD. CIT (A) WAS OF THE OPI NION THAT SINCE THE CAPITAL OF THE ASSESSEE HAS ALREADY BEEN APPLIE D FOR OTHER BUSINESS PURPOSES, IT WAS REASONABLE TO CONCLUDE THA T INTEREST FREE ADVANCES HAD BEEN MADE OUT OF INTEREST BEARING FUNDS. THE LD. CIT (A) WAS ALSO OF THE OPINION THAT THE EXACT SOURCE OF MAKING THE INTEREST FREE ADVANCE HAD NOT BEEN FURNI SHED BY THE ASSESSEE AND HENCE, THE DISALLOWANCE HAS BEEN RIGHTL Y MADE BY THE AO. THE AO HAS ON PAGE 1 AND 2 OF THE ASSESSMEN T ORDER REPRODUCED A LIST OF 33 CONCERNS TO WHICH INTEREST F REE ADVANCES HAVE BEEN MADE BY THE ASSESSEE COMPANY AND HAS OPIN ED THAT NO DISTINCTION CAN BE MADE BETWEEN LONG TERM ADVANC ES AND SHORT TERM ADVANCES. THE AO HOWEVER, DID AGREE TO THE ASSESSEES CONTENTION THAT NOTIONAL INTEREST PAYABL E ON INTEREST FREE ADVANCES OUGHT TO BE ALLOWED WHILE COMPUTING TH E DISALLOWANCE AND HE ACCORDINGLY, GAVE A BENEFIT OF R S. 5,73,850/- AND CALCULATED THE NET DISALLOWANCE AT RS . 24,28,047/-. HOWEVER, ON GOING THROUGH THE ASSESSME NT ORDER IT IS CLEAR THAT THE AO HAS NOWHERE ESTABLISHED A NE XUS BETWEEN INTEREST BEARING FUNDS ON ONE HAND AND LOANS AND AD VANCES ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 9 OF 47 GIVEN BY THE ASSESSEE FREE OF INTEREST ON THE OTHER . VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ALLOWABILITY OF INTER EST ON LOAN FOR BUSINESS PURPOSES U/S 36(1)(III) HAVE FOCUSED O N THE NEXUS BETWEEN BORROWED FUNDS AND INTEREST FREE ADVANCES. 5.01 IN THE CASE OF CIT VS. SRIDEV ENTERPRISES 192 ITR 165 (KARN.), IT WAS THE HONBLE KARNATAKA HIGH COURTS DICTA THAT, IN RESPECT OF THE ADVANCES MADE DURING THE ACCOUNTING YEAR IN QUESTION, THE MATTER WAS REMITTED TO FIND OUT WHETH ER THE ADVANCES MADE IN THE YEAR OF ACCOUNT HAVE COME OUT OF BORROWED FUNDS OR NOT AND IF IT IS SHOWN TO BE OUT OF FUNDS NOT BORROWED, THEN NO DISALLOWANCE CAN BE MADE. 5.02 SIMILARLY, IN THE CASE OF CIT III VS. NAVAL TECHNOP LAST INDUSTRIES LTD. (ORDER DATED 24/09/2012), THE HONB LE GUJARAT HIGH COURT OBSERVED THAT, WITH RESPECT TO QUESTION NO. 2, WE NOTICED THAT THE AO MADE ADDITION OF RS. 16,62,000/ - OF THE INTEREST ON ADVANCES MADE BY THE ASSESSEE COMPANY T O CERTAIN CONCERNS IN WHICH THE DIRECTORS OF THE COMPANIES WE RE INTERESTED. THE CIT (A), HOWEVER, NOTED THAT THE ASSESSEE HAD F UNDS MORE ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 10 OF 47 THAN RS. 7,38,14,637/- BY WAY OF SHARE CAPITAL RESE RVES AND SURPLUS ON WHICH NO INTEREST WAS INCURRED. THE COM MISSIONER, THEREFORE, WAS OF THE OPINION THAT THE ASSESSEE HAD SUFFICIENT FUNDS TO MAKE INTEREST FREE ADVANCES AND THAT BORRO WED FUNDS ON INTEREST WERE NOT DIRECTED FOR MAKING INTEREST FREE ADVANCESWHEN TWO AUTHORITIES FOUND ON FACTS THAT NO INTEREST BEARING FUNDS WERE DIRECTED FOR MAKING INTEREST FRE E ADVANCES, IN OUR VIEW, NO QUESTION OF LAW WOULD ARISE. 5.03 IN THE CASE OF MYSORE MINERALS LTD. 142 ITD 128 (BA NG.) (TRIB.), THE BANGALORE BENCH, WHILE ADJUDICATING ON AN IDENTICAL ISSUE, OPINED THAT, WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE R ECORD THAT, IT IS NOT THE CASE OF THE AO THAT VIPL TO WHOM THE AMOUNT OF RS. 2 CRORES WAS GIVEN, IS A SISTER CONCERN OF THE ASSESS EE. IT ALSO APPEARS THAT THE AO FAILED TO APPRECIATE THE REASON S FOR ADVANCING THIS AMOUNT BY THE ASSESSEE. THE ASSESSI NG OFFICER FAILED TO ESTABLISH ANY DIRECT NEXUS THAT THE SUM O F RS. 2 CRORES GIVEN TO VIPL WAS OUT OF RS. 6 CRORES ADVANCED BY M /S KALYANI STEELS LTD. THE LD. CIT (A) IN HIS ORDER HAS ALSO GIVEN A FINDING ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 11 OF 47 THAT THE AMOUNT ADVANCED TO VIPL IS DONE IN EARLIER YEARS AND NOT IN THE IMPUGNED YEAR. IN THIS FACTUAL MATRIX, WE D O NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LD. CI T (A) DELETING THE ADDITION OF RS. 6 LACS MADE BY THE AO. 5.04 ANOTHER IMPORTANT JUDGMENT ON THIS ISSUE WAS GI VEN BY THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F CIT FARIDABAD VS. MARE AUTO INDUSTRIES 12 TAXMAN.COM 25 9 (P&H). IN THIS CASE THE ASSESSEE HAD INTEREST BEARING LOAN S AND IT HAD MADE ADVANCES TO SISTER CONCERNS FREE OF INTEREST. NO EVIDENCE WAS PRODUCED THAT INTEREST BEARING FUNDS WERE DIVERT ED TO MAKE INVESTMENT IN SISTER CONCERNS. THE HONBLE PUNJAB AND HARYANA HIGH COURT HELD THAT NO ADDITION COULD HAVE BEEN MA DE IN THIS CASE. 5.05 ON THE ISSUE OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, THE HONBLE BOMBAY HIGH COURT HELD IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED 313 ITR 34 0 (BOM.) THAT IF BOTH INTEREST FREE AND INTEREST BEARING FUNDS WE RE AVAILABLE ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 12 OF 47 WITH THE ASSESSEE, THE PRESUMPTION IS THAT ADVANCES WERE MADE OUT OF INTEREST FREE FUNDS. 5.06 ON THE OTHER HAND, THE HONBLE PUNJAB AND HARY ANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LIMITED VS . CIT 286 ITR 1 OBSERVED THAT THE THEORY OF ESTABLISHING NEXUS BE TWEEN FUNDS BORROWED AND THEIR DIVERSION FOR NON BUSINESS PURPO SES CANNOT BE ACCEPTED. THE HONBLE HIGH COURT HELD THAT THER E SHOULD BE A NEXUS BETWEEN THE USE OF BORROWED FUNDS FOR THE PU RPOSES OF BUSINESS TO CLAIM DEDUCTION U/S 36(1)(III). HOWEVER , THIS JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT WAS SET ASIDE BY THE HONBLE APEX COURT IN THE CASE OF SA BUILDERS LTD. 288 ITR 1 (SC) IN WHICH THE HONBLE APEX COURT AGREED WITH THE EARLIER JUDGMENT OF THE HONBLE DELHI HIGH COUR T IN CIT VS. DALMIA CEMENT LTD. 254 ITR 377 (DEL.) THAT ONCE IT IS ESTABLISHED THAT THERE WAS A NEXUS BETWEEN EXPENDITU RE AND THE PURPOSE OF BUSINESS, THE REVENUE CANNOT ASSUME THE ROLE TO DECIDE AS TO HOW MUCH IS REASONABLE EXPENDITURE HAVI NG REGARD TO THE CIRCUMSTANCES OF THE CASE. IT WAS, THEREFORE , HELD THAT EVEN IF THERE IS A NEXUS OF BORROWED FUNDS WITH FUND S ADVANCED ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 13 OF 47 INTEREST FREE, THE MEASURE OF COMMERCIAL EXPEDIENCY HAS TO BE NECESSARILY LOOKED INTO BEFORE MAKING DISALLOWANCE OF INTEREST ON BORROWED FUNDS. THE HONBLE APEX COURT OBSERVED AS UNDER: TO CONSIDER WHETHER ONE SHOULD ALLOW DEDUCTION U/S 36(1)(III) OF INTEREST PAID BY THE ASSESSEE ON AMOU NTS BORROWED BY IT FOR ADVANCING TO A SISTER CONCERN, T HE AUTHORITIES AND THE COURTS SHOULD EXAMINE THE PURPO SE FOR WHICH THE ASSESSEE ADVANCED THE MONEY AND WHAT THE SISTER CONCERN DID WITH THE MONEY. THAT THE BORROWED AMOUNT IS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN IS NOT RELEVANT. WHAT I S RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCES FOR EARNING PROFITS. ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) THE REVENUE CANNOT JUSTIFIABLY CLA IM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR I N THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 14 OF 47 REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFITS. 5.06 SUBSEQUENTLY, THE HONBLE APEX COURT IN THE CA SE OF MUNJAL SALES CORPORATION VS. CIT 298 ITR 298 HELD T HAT NO DISALLOWANCE OF INTEREST ON BORROWED FUNDS COULD BE M ADE WHEN THE INTEREST FREE ADVANCES ARE ESTABLISHED TO BE OU T OF CAPITAL OR PROFITS OF THE ASSESSEE DURING THE YEAR. HENCE, ES TABLISHMENT OF NEXUS OF BORROWED FUNDS WITH THE FUNDS ADVANCED INTE REST FREE WAS AND STILL REMAINS A CRITICAL CONDITION FOR MAKIN G ANY DISALLOWANCE OF INTEREST. 5.07 HENCE, ON THE FACTS OF THE PRESENT CASE AS WELL AS THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUE COUPLE D WITH THE FACT THAT THE DEPARTMENT ITSELF ALLOWED THE INTERES T PAID BY THE ASSESSEE IN AY 2009-10 (BY THE AO) AND 2010-11{BY T HE LD. CIT(A)}, WE HOLD THAT SINCE THE ASSESSEE HAD ADEQUA TE INTEREST FREE FUNDS AND NO NEXUS WAS ESTABLISHED BY THE AO B ETWEEN THE INTEREST BEARING FUNDS ON ONE HAND AND THE INTEREST FREE ADVANCES ON THE OTHER, THERE IS NO JUSTIFICATION IN MAKING ANY ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 15 OF 47 NOTIONAL DISALLOWANCE ON ACCOUNT OF INTEREST. WE S ET ASIDE THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND DIRECT T HE AO TO DELETE THIS DISALLOWANCE. 5.08 IN THE RESULT, GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWED. 5.1 AS FAR AS THE ISSUE OF TAXING INTEREST ON FDRS UNDER INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INC OME IS CONCERNED, THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PALIWAL INDUSTRIES IN ITA NO. 431 AND 432 OF 2008. A PERUS AL OF THIS DECISION BRINGS OUT THE FACT THAT THE HONBLE PUNJA B AND HARYANA HIGH COURT HAS FOLLOWED ITS EARLIER DECISIO N IN THE CASE OF CIT (CENTRAL) LUDHIANA VS. M/S AVERY CYCLE INDUS TRIES LTD., LUDHIANA IN ITA NO. 73 OF 2005 AND ALLOWED THE ASSE SSEES (PALIWAL INDUSTRIES APPEAL). IT IS SEEN THAT INTER EST AMOUNTING TO RS. 3,33,405/- HAS BEEN EARNED ON FDRS WHICH WERE KEPT AS MARGIN MONEY FOR RAISING EXPORT PACKING CREDIT AND FOREIGN BILLS LIMITS AND HENCE, IT CANNOT BE DISPUTED THAT SUCH I NCOME IS ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 16 OF 47 ESSENTIALLY IN THE NATURE OF BUSINESS INCOME AND NO T INCOME FROM OTHER SOURCES. THE HONBLE DELHI HIGH COURT I N CIT VS. JAYPEE DSC VENTURES LIMITED 335 ITR 132 (DEL.) HAS HELD AS UNDER: AS IS NOTICEABLE FROM THE STIPULATIONS IN THE AGRE EMENT, THE PERFORMANCE GUARANTEE BY WAY OF BANK GUARANTEE WAS REQUIRED FOR FAITHFUL PERFORMANCE OF ITS OBLIGATION S. THE NON SUBMISSION OF THE GUARANTEE WOULD HAVE ENTAILED IN TERMINATION OF THE AGREEMENT AND NHAI WOULD HAVE BE EN AT LIBERTY TO APPROPRIATE BID SECURITY. THAT APART, T HE RELEASE OF SUCH PERFORMANCE SECURITY DEPENDENT UPON CERTAIN CONDITIONS. THUS, IT IS CLEARLY EVINCIBLE THAT THE BANK GUARANTEE WAS FURNISHED AS A CONDITION PRECEDENT TO ENTERING THE CONTRACT AND FURTHER IT WAS TO BE KEPT ALIVE TO FULFILL THE OBLIGATIONS. QUITE APART FROM THE ABOVE, THE RELEA SE OF THE SAME WAS DEPENDENT ON THE SATISFACTION OF CERTAIN C ONDITIONS. THUS, THE PRESENT CASE IS NOT ONE WHERE THE ASSESSE E HAD MADE THE DEPOSIT OF SURPLUS MONEY LYING IDLE WITH I T IN ORDER TO EARN INTEREST; ON THE CONTRARY, THE AMOUNT OF I NTEREST WAS EARNED FROM FIXED DEPOSIT WHICH WAS KEPT IN THE BAN K FOR FURNISHING THE BANK GUARANTEE. IT HAD AN INEXTRICA BLE NEXUS WITH SECURING THE CONTRACT. THE VIEW EXPRESS BY TH E TRIBUNAL CANNOT BE FOUND FAULT WITH. THE TRIBUNAL WAS THERE FORE, JUSTIFIED IN HOLDING THAT THE INTEREST EARNED BY TH E ASSESSEE ON ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 17 OF 47 THE FDRS HAS INTRINSIC AND INSEGGREGABLE NEXUS WITH THE WORK UNDERTAKEN AND, THEREFORE, THE INTEREST EARNED BY THE ASSESSEE IS CAPITAL IN NATURE AND SHALL GO TOWARDS ADJUSTMENT AGAINST THE PROJECT EXPENDITURE AND THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 5.1.1 HENCE, RESPECTFULLY FOLLOWING THE RATIO OF JUD GMENTS AS LAID DOWN BY THE PUNJAB AND HARYANA HIGH COURT IN TH E CASE OF PALIWAL INDUSTRIES AS WELL AS THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAYPEE DSC VENTURES LIMITED (SUPRA), WE HAVE NO HESITATION IN HOLDING THAT THE INTEREST ON FDRS IS TO BE ASSESSED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOU RCES. WE SET ASIDE THE ORDER OF THE LD. CIT (A) ON THIS ISSU E AND DIRECT THE AO TO AMEND THE COMPUTATION ACCORDINGLY. 5.1.2 GROUND NO. 3 OF THE ASSESSEES APPEAL IS ACCO RDINGLY ALLOWED. 5.3 GROUND NO. 4 OF THE ASSESSEES APPEAL CHALLENGE S THE IMPUGNED ACTION OF THE LD. CIT(A) IN CONFIRMING THE ORDER OF THE AO IN ISOLATING BANK INTEREST ON MARGIN MONEY FDRS AT RS. 3,33,405/- AGAINST BANK INTEREST PAID AT RS. 1,17,0 8,600/- FOR ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 18 OF 47 THE PURPOSE OF REDUCING CLAIM OF DEDUCTION U/S 80HH C. IT IS THE ASSESSEES CONTENTION THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEES OWN CASE IN ITA NO. 1874/2000 FOR FY 1995 -96. ON GOING THROUGH THE RIVAL SUBMISSIONS AS WELL AS THE D ECISION OF THE COORDINATE DELHI BENCH WE FIND THAT ON THIS ISS UE ALSO THE ASSESSEE OUGHT TO SUCCEED. THE DELHI BENCH HAS REL IED UPON THE CASE OF LALSON ENTERPRISES VS. DCIT 82 TTJ (DEL.)(S B) 1048, WHEREIN THE SPECIAL BENCH HAS HELD THAT FOR THE PURP OSES OF APPLYING EXPLANATION (BAA) BELOW SECTION 80HHC(4B) W HILE REDUCING 90% OF RECEIPT BY WAY OF INTEREST FROM PRO FIT OF BUSINESS, IT IS ONLY 90% OF NET INTEREST REMAINING AFTER ALLOWING A SET OFF OF INTEREST PAID WHICH HAS A NEXUS WITH INTER EST RECEIVED THAT CAN BE REDUCED AND NOT 90% OF GROSS RECEIPT. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LALSONS ENTERP RISES (SUPRA) HAS ALSO HELD SO ON THE BASIS OF THE COMPUTATIONAL PROVISIONS, WHEREIN AS PER SEC. 37 ONLY EXPENDITURE INCURRED FOR EARNING OF AN INCOME IS TO BE ALLOWED AS A DEDUCTION U/S 37 OF THE ACT. 5.3.1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN D KEEPING IN VIEW THE CONSISTENT VIEW OF THE COORDINATE BENCHES, ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 19 OF 47 WE HOLD THAT FOR THE PURPOSE OF APPLYING EXPLANATION (BAA) BELOW SECTION 80HHC (4B) WHILE REDUCING 90% OF RECEIPTS BY WAY OF INTEREST FROM PROFIT OF BUSINESS, IT IS ONLY 90% OF NET INTEREST RECEIVED THAT CAN BE REDUCED AND NOT 90% OF THE GRO SS RECEIPT. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT ( A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO RE-COMPUTE THE ALLOWABLE DEDUCTION U/S 80HHC OF THE ACT ACCORDINGLY. 5.3.2 GROUND NO. 4 OF THE ASSESSEES APPEAL IS ALLO WED FOR STATISTICAL PURPOSES. 5.4 IN GROUND NO. 5 THE ASSESSEE HAS CHALLENGED CON FIRMATION OF DISALLOWANCES OF RS. 20,000/- OUT OF MISCELLANEOU S EXPENDITURE, RS. 35,000/- OUT OF REPAIRS AND MAINTE NANCE EXPENDITURE AND RS. 10,000/- OUT OF ADVERTISEMENT E XPENSES. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT A SUM OF RS. 1,66,634/- HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF MISCELLANEOUS EXPENSES AGAINST WHICH RS. 20,000/- HAVE BEEN DISALLOWED ON THE BASIS THAT SOME EXPENSES HAVE NOT ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 20 OF 47 BEEN PROPERLY VOUCHED. NO SPECIFIC INSTANCES OF VO UCHERS NOT BEING AVAILABLE ON RECORD OR NOT HAVING BEEN PRODUC ED HAVE BEEN POINTED OUT. SIMILARLY, RS. 28,12,671/-HAS BEEN CL AIMED UNDER REPAIRS AND MAINTENANCE EXPENSES AND THE AO HAS DIS ALLOWED A SUM OF RS. 35,000/- ON THE GROUND THAT ALL THESE EX PENSES ARE NOT PROPERLY VOUCHED. AGAIN NO SPECIFIC DISCREPANC IES HAVE BEEN POINTED OUT IN THIS REGARD. FURTHER, OUT OF THE TO TAL SUM OF RS. 1,03,900/- DEBITED TO THE PROFIT AND LOSS ACCOUNT O N ACCOUNT OF ADVERTISEMENT EXPENSES, A DISALLOWANCE OF RS. 10,000 /- HAS BEEN MADE ON THE GROUND THAT SOME EXPENSES WERE NOT PROPERLY VOUCHED. THE LD. CIT(A) IN PARA 4.04 OF THE IMPUGN ED ORDER HAS MENTIONED THAT NO BILLS OR VOUCHERS WERE PRODUCED F OR EXAMINATION, NATURE OF REPAIRS/EXPENSES HAVE NOT BE EN EXPLAINED AND COPIES OF APPROVAL FOR UNDERTAKING TH E CONSTRUCTION WERE NOT FILED AND ACCORDINGLY, THE ADHOC DISALLOWANCES WERE CONFIRMED. HAVING GONE THROUGH T HE FACTUAL MATRIX OF THE CASE, IT IS VERY MUCH APPARENT THAT T HE AO HAS MADE THESE DISALLOWANCES WITHOUT POINTING OUT ANY SPE CIFIC DEFECTS IN THE VOUCHERS. IT IS ALSO NOTEWORTHY THAT THE ACCOUNTS ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 21 OF 47 OF THE ASSESSEE WERE DULY AUDITED AND NO ADVERSE FIN DING HAS BEEN REPORTED BY THE AUDITORS IN THIS REGARD. HENC E, IN ABSENCE OF ANY SPECIFIC DEFECT/DISCREPANCY BEING POINTED OU T AND BROUGHT ON RECORD, WE ARE UNABLE TO CONCUR WITH THE VIEW TAKEN BY THE DEPARTMENT ON THIS ISSUE AND WE SET ASIDE THE IMPUG NED ORDER OF THE LD. CIT (A) AND DIRECT THE AO TO DELETE THES E ADDITIONS/DISALLOWANCES. 5.4.1 IN THE RESULT, GROUND NO. 5 IS ALLOWED. 5.5 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. ITA NO. 3491/DEL/2011 FOR AY 2001-02 FOR AY 2001-02 THE ASSESSEE HAS TWO EFFECTIVE GROUND S OF APPEAL BESIDES CHALLENGING THE VALIDITY OF REASSESSMENT PR OCEEDINGS. GROUND NO. 2 CHALLENGES THE ACTION OF THE LD. CIT ( A) IN CONFIRMING THE VALIDITY OF REASSESSMENT PROCEEDINGS . GROUND NO. 3 CHALLENGES THE ACTION OF THE LD. CIT (A) IN CONFI RMING THE ORDER OF THE DCIT (AO) IN SEGREGATING INTEREST RECEIVED A MOUNTING TO RS. 6,09,565/- ON MARGIN MONEY FDRS AND TREATING TH E SAME TO BE INCOME FROM OTHER SOURCES. GROUND NO. 4 CHALLEN GES THE ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 22 OF 47 IMPUGNED ACTION OF THE LD. CIT(A) IN CONFIRMING THE ORDER OF THE AO IN ISOLATING BANK INTEREST ON MARGIN MONEY FDRS AND EXCLUDING DEPB(DUTY ENTITLEMENT PASSBOOK SCHEME) AT RS. 1,46,65,282/- FOR REDUCING THE CLAIM OF DEDUCTION U /S 80HHC. THE GROUNDS OF APPEAL READ AS UNDER: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT (APP EALS) IN CONFIRMING VALIDITY OF REASSESSMENT PROCEEDINGS IS HIGHLY ARBITRARY, ILLEGAL, VOID AND UNCALLED FOR. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT (APP EALS) IN CONFIRMING THE ORDER OF DCIT IN SEGREGATING INTERES T RECEIVED AT RS.6,09,565/- ON MARGIN MONEY FDRS WHICH WERE MADE FOR RAISING EXPORT PACKING CREDITS AND FOREIGN BILLS LI MITS AGAINST WHICH INTEREST WAS PAID TO THE BANK AT RS.78,54,390 /- AND TREATING THE SAME TO BE INCOME FROM OTHER SOURCES I S HIGHLY ARBITRARY AGAINST JUDICIAL DISCIPLINE ILLEGAL, VOID AND UNCALLED FOR. 4. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX IN CONFIRMING THE ORDER OF THE AO IN ISOLATING BANK IN TEREST ON MARGIN MONEY FDRS AT RS.6,09,565/- AGAINST BANK INT EREST ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 23 OF 47 PAID AT RS.78,54,390/-AND EXCLUDING DEPB AT RS. 1,46,65,282/- FOR THE PURPOSES OF REDUCING CLAIM OF DEDUCTION U/S 80HHC IS ALTOGETHER ARBITRARY, ILLEGAL, VOID AN D UNCALLED FOR. 6.1 IT IS SEEN THAT GROUND NO. 3 OF ASSESSEES APPE AL IN THIS YEAR IS SIMILAR TO GROUND NO. 3 OF THE ASSESSEES A PPEAL IN ITA NO. 3490/DEL/2011 FOR AY 2000-01. THIS ISSUE HAS A LREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ABOVE SAID APPEAL FOR AY 2000-01. FOLLOWING THE SAME WE ALLOW THIS GRO UND IN THIS YEAR ALSO. 6.1.1 IN THE RESULT, GROUND NO. 3 IS ALLOWED. 6.2 ON GROUND NO. 4, THE LD. AR SUBMITTED THAT THE CONSTITUTIONAL VALIDITY OF INSERTION OF CONDITIONS IN THE THIRD AND FOURTH PROVISOS TO SECTION 80HHC (3) OF THE ACT BY AMENDMENT OF TAXATION LAWS (SECOND AMENDMENT) ACT, 2005 WITH RETR OSPECTIVE EFFECT WAS CHALLENGED BEFORE THE HONBLE APEX COURT AND THE HONBLE APEX COURT TRANSFERRED THE MATTERS PENDING BEFORE VARIOUS HIGH COURTS TO THE HONBLE HIGH COURT OF GU JARAT. IN THESE SPECIAL CIVIL APPLICATIONS BEFORE THE HONBLE HIGH COURT OF ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 24 OF 47 GUJARAT, IT WAS THE SUBMISSION OF THE PETITIONERS TH AT THE BENEFIT OF DEDUCTION U/S 80HHC OF THE ACT WAS AVAILABLE TO T HEM FROM AY 1998-99 TO AY 2004-05 AND THAT THEY HAD SETTLED THEIR AFFAIRS BASED ON THE AVAILABILITY OF THE SAID BENEFIT UP TO 31 ST MARCH, 2004. IT WAS SUBMITTED BY THE PETITIONERS THAT THRO UGH THIS AMENDMENT THE RESPONDENTS (CIT AND OTHERS) SEEK TO TAKE AWAY THE BENEFIT RETROSPECTIVELY AFTER THE ENTIRE PERIOD OF BENEFIT WAS OVER ON 31 ST MARCH, 2004. IT WAS THE PETITIONERS CONTENTION TH AT THE AMENDMENT SOUGHT TO GRANT SOME CONDITIONAL BENE FIT SELECTIVELY TO CERTAIN ASSESSEES IN JANUARY, 2006 WI TH RETROSPECTIVE EFFECT FOR THE PERIOD AY 1988-89 TO A Y 2004-05. THE PETITIONERS FURTHER CONTENDED THAT THE IMPUGNED PORTION OF THE SAID AMENDMENT DISCRIMINATED BETWEEN THE ASSESS EE FALLING IN THE SAME CLASS WHICH WAS PROHIBITED BY ARTICLE 14 OF THE CONSTITUTION OF INDIA AND AT THE SAME TIME IMPOSED NEW PRE- CONDITIONS RETROSPECTIVELY FOR BEING ELIGIBLE FOR D EDUCTION U/S 80HHC OF THE ACT. IT WAS FURTHER CONTENDED BY THE P ETITIONERS THAT THE SAID AMENDMENT DENIED RETROSPECTIVELY THE DEDUCTION U/S 80HHC TO EXPORTERS HAVING TURNOVER OF MORE THAN RS. 10 ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 25 OF 47 CRORES ALTHOUGH THE EXPORTERS WERE ENCOURAGED TO IN CREASE THEIR TURNOVER AS AN INCENTIVE TO AVAIL DEDUCTION U/S 80H HC. THE PETITIONER FURTHER CONTENDED THAT THE AMENDMENT GRA NTED DEDUCTION WITH RESPECT TO EXPORT HAVING TURNOVER OF MORE THAN RS. 10 CRORES WHOSE PRODUCTS WERE NOTIFIED OR WERE E LIGIBLE FOR BOTH DUTY DRAWBACK SCHEME AND DUTY ENTITLEMENT PASS BOOK SCHEME AND THAT THE RATE OF DUTY DRAWBACK IS HIGHER THAN DEPB WHILE THE REST OF THE EXPORTERS WERE SINGLED OU T WITHOUT THERE BEING ANY RATIONAL BASIS FOR MAKING THE AFORE SAID CLASSIFICATION. THE PETITIONERS FURTHER CONTENDED THAT THE DENIAL WAS AGAINST THE PRINCIPLE OF PROMISSORY ESTOPPEL AND THAT THE AMENDMENT SOUGHT TO UPSET THE FINANCIAL STRUCTURING BASED ON WHICH THE ASSESSEES HAD ARRANGED AND PLANNED THEIR B USINESS AFFAIRS AND THAT THE AMENDMENT ALSO UPSET THE SETTL ED LAW LAID DOWN BY THE VARIOUS TRIBUNALS. THE LD. AR FILED A C OPY OF THE JUDGMENT RENDERED BY THE HONBLE HIGH COURT OF GUJA RAT IN THE BUNCH OF SPECIAL CIVIL APPLICATIONS WHICH WERE DISPO SED OF ON 02/07/2012 UNDER THE NAME OF AVANI EXPORTS AND OTHE RS VS. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 26 OF 47 CIT RAJKOT AND OTHERS. THE LD. AR SUBMITTED THAT I N VIEW OF THE JUDGMENT THE ASSESSEES CLAIM ALSO OUGHT TO BE ALLO WED. 6.2.1 THE LD. DR RELIED ON THE ORDER OF THE LOWER A UTHORITIES. 6.2.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. IT IS SEEN THAT AN AMENDMENT WA S MADE BY THE TAXATION LAWS AMENDMENT ACT, 2005 IN SECTION 80H HC W.E.F. 01/04/1998. SECOND, THIRD AND FOURTH PROVISO S WERE INSERTED BELOW SUB-SECTION (3) OF SECTION 80HHC AND CLAUSES (IIID) AND (IIIE) WERE INSERTED IN SECTION 28 OF TH E ACT AND THE CUMULATIVE EFFECT OF THESE AMENDMENTS WAS THAT DEDUC TION U/S 80HHC WAS TO BE ALLOWED ON DEPB IN CASES HAVING EXPO RT TURNOVER OF ABOVE RS. 10 CRORES, SUBJECT TO FULFILL MENT OF TWO CONDITIONS THAT DEPB RATE WAS LOWER THAN THE RATE OF DUTY DRAWBACK AND THE ASSESSEE HAD AN OPTION TO CHOOSE EI THER THE DEPB OR DUTY DRAWBACK SCHEME. IT HAS BEEN THE DEPAR TMENTS CONTENTION THAT THE ASSESSEE DID NOT FULFILL THESE CONDITIONS ALTHOUGH ITS TURNOVER WAS MORE THAN RS. 10 CRORE. T HE DEPARTMENT HAS CONTENDED THAT THE AMOUNT OF PROFIT ON SALE OF ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 27 OF 47 DEPB LICENSE IS NOT TO BE CONSIDERED FOR WORKING OUT DEDUCTION U/S 80HHC OF THE ACT. HOWEVER, THE HONBLE HIGH CO URT OF GUJARAT HAS STRUCK DOWN THE RETROSPECTIVE AMENDMENT TO SECTION 80HHC. THE HONBLE GUJARAT HIGH COURT HAS HELD THAT THE AMENDMENT GRANTING BENEFIT RESTRICTING IT TO A CLASS OF ASSESSEES WHOSE TURNOVER WAS LESS THAN RS. 10 CRORE WA S PERMISSIBLE ONLY PROSPECTIVELY AND BY MAKING IT RET ROSPECTIVE IT TOOK AWAY AN ENJOINED RIGHT OF A CLASS OF CITIZEN WHO AVAILED OF A BENEFIT BY COMPLYING WITH THE REQUIREMENTS OF THE TH EN PROVISIONS OF LAW. THE HONBLE GUJARAT HIGH COURT HAS LAID DOWN IN PARAS 26 AND 27 AS UNDER: 26. ON CONSIDERATION OF THE ENTIRE MATERIALS ON RECORD, WE, THEREFORE, FIND SUBSTANCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE PETITIONERS T HAT THE IMPUGNED AMENDMENT IS VIOLATIVE FOR ITS RETROSPECTIVE OPERATION IN ORDER TO OVERCOME THE DECISION OF THE TRIBUNAL, AND AT THE SAME TIME, FOR DEPRIVING THE BENEFIT EARLIER GRANTED TO A CLASS OF THE ASSESSEE WHOSE ASSESSMENTS WERE STILL PENDING ALTHOUGH SUCH BENEFIT WILL BE AVAILABLE TO THE ASSESSEE WHOSE ASSESSMENTS HAVE ALREADY BEEN ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 28 OF 47 CONCLUDED. IN OTHER WORDS, IN THIS TYPE OF SUBSTANTIVE AMENDMENT, RETROSPECTIVE OPERATION CAN BE GIVEN ONLY IF IT IS FOR THE BENEFIT OF THE ASSES SEE BUT NOT IN A CASE WHERE IT AFFECTS EVEN A FEWER SECTION OF THE ASSESSEE. 27. WE, ACCORDINGLY, QUASH THE IMPUGNED AMENDMENT ONLY TO THIS EXTENT THAT THE OPERATION OF THE SAID SECTION COULD BE GIVEN EFFECT FROM THE DAT E OF AMENDMENT AND NOT IN RESPECT OF EARLIER ASSESSMENT YEARS OF THE ASSESSES WHOSE EXPORT TURNOVER IS ABOVE RS. 10 CRORE. IN OTHER WORDS, TH E RETROSPECTIVE AMENDMENT SHOULD NOT BE DETRIMENTAL TO ANY OF THE ASSESSES. 6.2.3 IT IS FURTHER SEEN THAT A SISTER CONCERN OF THE ASSESSEE COMPANY, M/S PALIWAL EXPORTS, HAD ALSO CHALLENGED TH E INSERTION OF CONDITIONS IN THE THIRD AND FOURTH PRO VISO TO SECTION 80HHC (3) OF THE ACT BY AMENDMENT WITH RETROSPECTIVE EFFECT BEFORE THE HONBLE PUNJAB AND HARYANA HIGH COURT IN CWP NO. 9546 OF 2008, WHEREIN THROUGH ITS DECISION DATED 22. 02.2013 THE HONBLE PUNJAB AND HARYANA HIGH COURT HELD AS U NDER: IN ALL THESE PETITIONS, INSERTION OF CONDITIONS IN THE THIRD AND FORTH PROVISO TO SECTION 80HHC (3) OF ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 29 OF 47 THE ACT BY AMENDMENT OF TAXATION LAWS (SECOND AMENDMENT) ACT, 2005 WITH RETROSPECTIVE EFFECT HAVE BEEN CHALLENGED. IT IS A MATTER OF RECORD THAT SIM ILAR WRIT PETITIONS WERE FILED IN VARIOUS HIGH COURTS. TRANSFER PETITION WAS FILED IN THE SUPREME COURT AN D THE SUPREME COURT HAD DIRECTED TRANSFER OF ALL THOS E WRIT PETITIONS TO THE HIGH COURT OF GUJARAT. THE H IGH COURT OF GUJARAT VIDE JUDGMENT DATED JULY 02, 2012 DECIDED THE SAID BUNCH OF WRIT PETITIONS AND QUASHE D THE IMPUGNED AMENDMENT ONLY TO THE EXTENT THAT THE OPERATION OF THE SAID SECTION COULD BE GIVEN EFFECT FROM THE DATE OF THE AMENDMENT AND NOT IN RESPECT O F EARLIER ASSESSMENT YEARS. THE BOMBAY HIGH COURT FOLLOWING THE AFORESAID JUDGMENT OF THE GUJARAT HIG H COURT, DISPOSED OF ALL THE WRIT PETITIONS BEFORE IT IN THE FOLLOWING MANNER: IT IS ADMITTED THAT THE PRESENT WRIT PETITIONS ARE IDENTICAL TO THE WRIT PETITIONS WHICH WERE THE SUBJECT MATTER OF THE TRANSFER PETITIONS BEFORE THE SUPREME COURT AND THE JUDGMENT OF THE GUJARAT HIGH COURT. ONLY THE FIRST FOUR WRIT PETITIONS LISTED ABOVE WERE THE SUBJECT MATTER OF THE TRANSFER PETITIONS. IN OTHER WORDS, THE FIRST FOUR MATTERS STOOD TRANSFERRED TO THE GUJARAT HIGH COURT PURSUANT TO THE ABOVE ORDERS OF THE SUPREME COURT. THE OTHER PETITIONS, ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 30 OF 47 THEREFORE, DID NOT STAND TRANSFERRED TO THE GUJARAT HIGH COURT. KEEPING IN MIND THAT THE SUPREME COURT HAD TRANSFERRED ALL THE MATTERS TO THE GUJARAT HIGH COURT IN ORDER TO AVOID CONFUSION AND DIFFICULTIES IN ENFORCEMENT OF CONFLICTING JUDGMENTS OF DIFFERENT HIGH COURTS, WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE IN THESE WRIT PETITIONS TO FOLLOW THE JUDGMENT OF THE GUJARAT HIGH COURT. IN THE CIRCUMSTANCES, FOR THE ABOVE REASON, THE WRIT PETITIONS, OTHER THAN THE FIRST FOUR WRIT PETITIONS ARE DISPOSED OF IN THE TERMS OF THE ORDER AND JUDGMENT OF THE GUJARAT HIGH COURT. THE FIRST FOUR WRIT PETITIONS, IN ANY EVENT, STAND DISPOSED OF BY THE ORDER AND JUDGMENT OF THE GUJARAT HIGH COURT. NO ORDER AS TO COSTS. ALL THE WRIT PETITIONS ARE DISPOSED OF IN A SIMILAR MANNER, IN SAME TERMS. 6.2.4 HENCE, RESPECTFULLY FOLLOWING THE RATIO OF JU DGMENT LAID DOWN BY THE HONBLE GUJARAT HIGH COURT AND AS F OLLOWED BY THE HONBLE PUNJAB AND HARYANA HIGH COURT, WE SET AS IDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RE-COMPUTE THE QUANTUM OF DEDUCTION U/S 80HHC AF TER INCLUDING THE AMOUNT OF DEPB CREDIT. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 31 OF 47 6.2.5 THIS GROUND OF ASSESSEES APPEAL IS ACCORDIN GLY ALLOWED. 6.3 AS FAR AS GROUND NO. 2 OF THE ASSESSEES APPEA L CHALLENGING THE VALIDITY OF REASSESSMENT PROCEEDING S U/S 147 OF THE ACT IS CONCERNED, AS THE OTHER TWO GROUNDS OF AP PEAL HAVE ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE ON M ERITS, WE CHOOSE NOT TO ADJUDICATE ON THIS LEGAL GROUND CHALL ENGING THE VALIDITY OF REASSESSMENT PROCEEDINGS AS THE SAME HA S BECOME ACADEMIC IN NATURE. 6.4 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. 7. ITA NO. 3492/DEL/2011 FOR AY 2002-03 IN THIS YEARS APPEAL ALSO ISSUES ARE IDENTICAL TO THOSE IN AY 2000-01 AND 2001-02. GROUND NO. 2 CHALLENGES THE A CTION OF THE LD. CIT (A) IN CONFIRMING THE ORDER OF THE AO I N SEGREGATING INTEREST OF RS. 17,75,181/- RECEIVED ON MARGIN MONE Y FDRS AND TREATING THE SAME AS INCOME FROM OTHER SOURCES. GR OUND NO. 3 CHALLENGES THE IMPUGNED ACTION OF THE LD. CIT (A) I N CONFIRMING ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 32 OF 47 THE ORDER OF THE AO IN ISOLATING BANK INTEREST ON M ARGIN MONEY FDRS AND REDUCING THE CLAIM OF DEDUCTION U/S 80HHC. THE GROUNDS OF APPEAL READ AS UNDER: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT (APPEALS) IN CONFIRMING THE ORDER OF ACIT IN SEGREGATING INTEREST RECEIVED AT RS. 17,75,181/- ON MARGIN MONEY FDRS WHICH WERE MADE FOR RAISING EXPORT PACKING CREDITS AND FOREIGN BILLS LIMITS AGAINST WHICH INTEREST WAS PAID TO THE BANK AT RS. 60,96,127/- AND TREATING THE SAME TO BE INCOME FROM OTHER SOURCES IS HIGHLY ARBITRARY AGAINST JUDICIAL DISCIPLINE ILLEGAL, VOID AND UNCALLED FOR. 3. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX IN CONFIRMING THE ORDER OF THE AO N ISOLATING BANK INTEREST ON MARGIN MONEY FDRS AT RS. 17,75,181/- AGAINST BANK INTEREST PAID AT RS.60,96,127/- FOR THE PURPOSES OF REDUCING CLAIM OF DEDUCTION U/S 80HHC IS ALTOGETHER ARBITRARY, ILLEGAL, VOID AND UNCALLED FOR. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 33 OF 47 7.1 IT IS SEEN THAT GROUND NO. 2 IS IDENTICAL TO G ROUND NO. 3 OF THE ASSESSEES APPEAL IN AY 2000-01 AND THE SA ME HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE. ON THE SAME REA SONING AND ON IDENTICAL FACTS THIS GROUND ALSO DESERVES TO SUC CEED. 7.1.1 IN THE RESULT, GROUND NO. 2 OF ASSESSEES AP PEAL IS ALLOWED. 7.2 FURTHER GROUND NO. 3 IS IDENTICAL TO GROUND NO . 4 OF ASSESSEES APPEAL FOR AY 2000-01 AND ON IDENTICAL S ET OF FACTS THIS GROUND ALSO DESERVES TO SUCCEED AND WHILE SETTI NG ASIDE THE IMPUGNED ORDER OF THE LD. CIT (A) ON THIS ISSUE, WE RESTORE THE MATTER TO THE FILE OF AO FOR RE-COMPUTATION OF DEDU CTION U/S 80HHC IN TERMS OF OUR DIRECTIONS ISSUED IN THE APPE AL FOR AY 2000-01. 7.2.1 HENCE, THIS GROUND IS ALLOWED FOR STATISTICA L PURPOSES. 7.3 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E IS ALLOWED. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 34 OF 47 8. ITA NO. 3493/DEL/2011 FOR AY 2004-05 THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT(APPEALS) IN CONFIRMING DISALLOWANCE OF RS.7,63,816/- OUT OF INTEREST PAID BY THE COMPANY A S DEEMED INTEREST CHARGEABLE ON ALLEGED INTEREST FREE ADVANCES IS HIGHLY ARBITRARY, ILLEGAL, VOID AND UNC ALLED FOR. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT (APPEALS) IN CONFIRMING THE ORDER OF ACIT IN SEGREG ATING INTEREST RECEIVED AT RS.26,74,914/- ON MARGIN MONEY FDRS WHICH WERE MADE FOR RAISING EXPORT PACKING CREDITS AND FOREIGN BILLS LIMITS AGAINST WHICH INTE REST WAS PAID TO THE BANK AT RS.49,63,862/- AND TREATING THE SAME TO BE INCOME FROM OTHER SOURCES IS HIGHLY ARBITRARY AGAINST JUDICIAL DISCIPLINE ILLEGAL, VOID AND UNCALLED FOR. 4. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX IN CONFIRMING THE ORDER OF THE AO IN ISOLATING BANK INTEREST ON MARGIN MONEY FDRS AT RS.26,74,914/- ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 35 OF 47 AGAINST BANK INTEREST PAID AT RS.49,63,862/- FOR TH E PURPOSES OF REDUCING CLAIM OF DEDUCTION U/S 80FIHC IS ALTOGETHER ARBITRARY, ILLEGAL, VOID AND UNCALLED FO R. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX CONFIRMING DISALLOWANCES OF RS. 10000/- OUT OF MISCELLANEOUS EXPENSES RS.25000/- OUT OF REPAIRS AND MAINTENANCE EXPENSES RS.43000/- OUT OF ADVERTISEMENT EXPENSES IS ARBITRARY, ILLEGAL AND UNCALLED FOR. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS) IN FURTHER UPHOLDING DISALLOWANCES OF RS.25000/- OUT OF TRAVELLING EXPEN SES, RS.25000/- OUT OF STAFF WELFARE EXPENSES AND RS.25000/- OUT OF TELEPHONE EXPENSES IS IRRATIONAL, ARBITRARY AND UNCALLED FOR. 7. THAT THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) IN CONFIRMING DISALLOWANCE OF HOUSE T AX PAID AT RS.49995/- IN RESPECT OF PROPERTY AT WHICH THE BUSINESS OF THE APPELLANT IS BEING CARRIED OUT IS I LLEGAL AND UNCALLED FOR. 8. THAT LEARNED COMMISSIONER OF INCOME TAX HAS FURT HER ERRED IN UPHOLDING EXCLUSION OF INTEREST ON MARGIN MONEY FDRS AND DEPB FOR THE PURPOSES OF DEDUCTION ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 36 OF 47 U/S 80HHC WHICH IS ILLEGAL AND UNCALLED FOR. 9. THAT LD. CIT HAS FURTHER ERRED IN UPHOLDING EXCL USION OF INTEREST ON MARGIN MONEY FDRS AND DEPB FOR THE PURPOSES OF DEDUCTION U/S 80HHC WHICH IS ILLEGAL AN D UNCALLED FOR. 8.1 IT IS SEEN THAT GROUND NO. 2 IS IDENTICAL TO G ROUND NO. 2 OF ASSESSEES APPEAL IN 2000-01 WHICH HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AND THE DISAL LOWANCE HAS BEEN DELETED. AS DISALLOWANCE IN THIS YEAR HAS BEEN MADE ON IDENTICAL SET OF FACTS AS IN AS IN AY 2000-01, ON A SIMILAR REASONING WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 7,6 3,816/- ON ACCOUNT OF NOTIONAL INTEREST CHARGEABLE ON INTEREST FREE ADVANCES. 8.1.1 IN THE RESULT, GROUND NO. 2 OF THE ASSESSEE S APPEAL IS ALLOWED. 8.2 AS FAR AS THE ISSUE OF TREATING INTEREST RECEI VED ON MARGIN MONEY FDRS AMOUNTING TO RS. 26,74,914/- AS I NCOME FROM SOURCES IS CONCERNED, THIS ISSUE IS ALSO SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY OUR ADJUDICATION IN ITA N O. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 37 OF 47 3490/DEL/2011 FOR AY 2000-01 WHEREIN WE HAVE ALLOWE D GROUND NO. 3 OF THE ASSESSEES APPEAL. THIS ISSUE HAS ALS O BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN APPELLATE PROCEEDINGS FOR SUBSEQUENT YEARS IN AY 2001-02 AND 02-03 IN ITA NOS. 3491 & 3492 RESPECTIVELY. WE FIND NO REASON TO ADJUDICA TE DIFFERENTLY IN THIS YEAR. 8.2.1 IN THE RESULT, GROUND NO. 3 OF THE ASSESSEE S APPEAL IS ALLOWED. 8.3 FURTHER, GROUND NO. 4 IS IDENTICAL TO GROUND N O. 4 OF ASSESSEES APPEAL FOR AY 2000-01 AND ON IDENTICAL S ET OF FACTS THIS GROUND ALSO DESERVES TO SUCCEED AND WHILE SETTI NG ASIDE THE IMPUGNED ORDER OF THE LD. CIT (A) ON THIS ISSUE, WE RESTORE THE MATTER TO THE FILE OF AO FOR RE-COMPUTATION OF DEDU CTION U/S 80HHC IN TERMS OF OUR DIRECTIONS ISSUED IN THE APPE AL FOR AY 2000-01. 8.3.1 HENCE, THIS GROUND IS ALLOWED FOR STATISTICA L PURPOSES. 8.4 GROUND NO. 8 IS IDENTICAL TO GROUND NO. 4 OF T HE ASSESSEES APPEAL FOR AY 2001-02 IN ITA NO. 3491/DE L/2011. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 38 OF 47 THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE AND ON IDENTICAL SET OF FACTS, WE ALLOW THE ASSESSEES GROU ND OF APPEAL THIS YEAR ALSO AND WHILE SETTING ASIDE THE ORDER OF THE LD. CIT (A) WE RESTORE THE MATTER TO THE FILE OF THE AO FOR RE-C OMPUTATION OF DEDUCTION U/S 80HHC. 8.4.1 IN THE RESULT, GROUND NO. 8 OF ASSESSEES AP PEAL IS ALLOWED FOR STATISTICAL PURPOSES. 8.5 GROUND NO. 5 AND 6 CHALLENGE THE CONFIRMATION OF DISALLOWANCE OF RS. 10,000/- OUT OF MISCELLANEOUS EX PENSES, RS. 25,000/- OUT OF REPAIRS AND MAINTENANCE, RS. 43,000 /- OUT OF ADVERTISEMENT EXPENSES, RS. 25,000/- OUT OF TRAVELI NG EXPENSES, RS. 25,000/- OUT OF STAFF WELFARE EXPENSES AND ANOTH ER RS. 25,000/- OUT OF TELEPHONE EXPENSES. A PERUSAL OF T HE ASSESSMENT ORDER REVEALS THAT ALL THESE AMOUNTS HAV E BEEN DISALLOWED ON AN ADHOC BASIS WITHOUT POINTING OUT ANY SPECIFIC DEFECT EITHER IN THE BOOKS OF ACCOUNTS OR RECORDING A FINDING THAT THESE EXPENSES WERE INADMISSIBLE. HENCE, IN ABSENCE OF ANY CLEAR CUT FINDING OF DEFECT EITHER BY THE AO OR BY THE LD. CIT (A), ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 39 OF 47 WE FIND NO REASON TO UPHOLD THESE DISALLOWANCES AND WH ILE SETTING ASIDE THE ORDER OF THE LD. CIT (A) WE DIREC T THE AO TO DELETE THESE DISALLOWANCES. 8.5.1 GROUND NOS. 5 AND 6 ARE ACCORDINGLY ALLOWED. 8.6 GROUND NO. 7 CHALLENGES THE ACTION OF THE LD. CIT (A) IN CONFIRMING THE DISALLOWANCE OF HOUSE TAX AMOUNTI NG TO RS. 49,995/- IN RESPECT OF THE PROPERTY WHICH THE ASSESS EE CLAIMS IS USED FOR THE PURPOSE OF THE BUSINESS. IT IS SEEN T HAT THE RECEIPT OF THE PROPERTY TAX HAS BEEN ISSUED IN THE NAME OF ONE OF THE DIRECTORS SHRI AVINASH CHANDER SHARMA AND THE AO HA S OPINED THAT THE SAME DID NOT RELATE TO THE BUSINESS OF THE ASSESSEE. THE LD. CIT (A) HELD THAT NOTHING HAD BEEN BROUGHT ON R ECORD TO ESTABLISH THAT THE PROPERTY WAS USED FOR THE BUSINES S OF THE ASSESSEE. IT HAS BEEN THE ASSESSEES CONTENTION TH AT THE PREMISES ARE BEING USED FOR THE PURPOSE OF ASSESSEE S BUSINESS BUT EVEN BEFORE US THE CLAIM OF THE ASSESSEE COULD NOT BE SUBSTANTIATED. HENCE, WE HAVE NO ALTERNATIVE BUT T O CONFIRM THE ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 40 OF 47 DISALLOWANCE AND WE ACCORDINGLY, UPHOLD THE IMPUGNED ACTION OF THE LD. CIT (A) ON THIS ISSUE. 8.6.1 IN THE RESULT, GROUND NO. 7 OF THE ASSESSEE S APPEAL IS DISMISSED. 8.7 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED. 9. ITA NO. 3494/DEL/2011 FOR AY 2005-06 THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX (A) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT(APPEALS) IN CONFIRMING DISALLOWANCE OF RS.6,92,966/- OUT OF INTEREST PAID BY THE COMPANY A S DEEMED INTEREST CHARGEABLE ON ALLEGED INTEREST FREE ADVANCES IS HIGHLY ARBITRARY, ILLEGAL, VOID AND UNC ALLED FOR. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX CONFIRMING DISALLOWANCES OF RS.10,000/- OUT OF MISCELLANEOUS EXPENSES RS.30,000/- OUT OF ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 41 OF 47 REPAIRS AND MAINTENANCE EXPENSES RS.10,000/- OUT OF ADVERTISEMENT EXPENSES IS ARBITRARY, ILLEGAL AND UNCALLED FOR. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS FURTHER ERRED IN UPHOLDING DISALLOWANCES OFRS.20,000/- OUT OF STAFF WELFARE EXPENSES, RS.15000/- OUT OF TRAVELLING EXPENSES AND RS.25,000 /- OUT OF TELEPHONE EXPENSES WHICH IS ARBITRARY AND UNCALLED FOR. 9.1 IT IS SEEN THAT GROUND NO. 2 IS IDENTICAL TO G ROUND NO. 2 OF ASSESSEES APPEAL IN 2000-01 WHICH HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AND THE DISAL LOWANCE HAS BEEN DELETED. AS DISALLOWANCE IN THIS YEAR HAS BEEN MADE ON IDENTICAL SET OF FACTS AS IN AS IN AY 2000-01, ON A SIMILAR REASONING WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 6,9 2,966/- ON ACCOUNT OF NOTIONAL INTEREST CHARGEABLE ON INTEREST FREE ADVANCES. 9.1.1 IN THE RESULT, GROUND NO. 2 OF THE ASSESSEE S APPEAL IS ALLOWED. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 42 OF 47 9.2 GROUND NOS. 3 AND 4 CHALLENGE THE CONFIRMATION OF ADHOC DISALLOWANCES OF RS. 10,000/- OUT OF MISCELLANEOUS EXPENSES, RS. 30,000/- OUT OF REPAIRS AND MAINTENAN CE EXPENSES, RS. 10,000/- OUT OF ADVERTISEMENT EXPENSE S, RS. 20,000/- OUT OF STAFF WELFARE EXPENSES, RS. 15,000/- OUT OF TRAVELING EXPENSES AND RS. 25,000/- OUT OF TELEPHON E EXPENSES. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT ALL THESE AMOUNTS HAVE BEEN DISALLOWED ON AN ADHOC BASIS WITHOUT POINTING OUT ANY SPECIFIC DEFECT EITHER IN THE BOOKS OF ACCOUNTS OR RECORDING A FINDING THAT THESE EXPENSES WERE INADMISSIBLE. HEN CE, IN ABSENCE OF ANY CLEAR CUT FINDING OF DEFECT EITHER B Y THE AO OR BY THE LD. CIT (A) WE FIND NO REASON TO UPHOLD THESE D ISALLOWANCES AND WHILE SETTING ASIDE THE ORDER OF THE LD. CIT (A) WE DIRECT THE AO TO DELETE THESE DISALLOWANCES. 9.2.1 GROUND NOS. 3 AND 4 OF THE ASSESSEES APPEAL ARE ACCORDINGLY ALLOWED. 9.3 IN THE FINAL RESULT, THE ASSESSEES APPEAL IS ALLOWED. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 43 OF 47 10. ITA NO. 3495/DEL/2011 FOR AY 2006-07 THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ A S UNDER: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY THE ORDER OF THE LEARNED CIT(APPEALS) IN CONFIRMING DISALLOWANCE OF RS. 6,92,9661/ - OUT OF INTEREST PAID BY THE COMPANY AS DEEMED INTEREST CHARGEABLE ON ALLEGED INTEREST FREE ADVANCES IS HIGHLY ARBITRARY, ILLEGAL, VOID AND UNC ALLED FOR. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX CONFIRMING DISALLOWANCES OF RS.20,000/- OUT OF ADVERTISEMENT EXPENSES IS ARBITRARY, ILLEGAL AND UNCALLED FOR. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN UPHOLDING DISALLOWANCE OF HOUSE TAX PAID AT RS. 1,31,938/- IN RESPECT OF PREMISES WHERE THE BUSINESS OF THE COMPANY IS BEING CARRIED OUT IS ALTOGETHER ARBITRARY, ILLEGAL AND UN CALLED FOR. 5. THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 44 OF 47 HAS FURTHER ERRED IN CONFIRMING ADDITION OF RS.2,63,209/- IN RESPECT OF ALLEGED ESTIMATED AGRICULTURE EXPENSES WHICH IS ARBITRARY ILLEGAL AND UNCALLED FOR. 10.1 IT IS SEEN THAT GROUND NO. 2 IS IDENTICAL TO GROUND NO. 2 OF ASSESSEES APPEAL IN 2000-01 WHICH HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AND THE DISAL LOWANCE HAS BEEN DELETED. AS DISALLOWANCE IN THIS YEAR HAS BEEN MADE ON IDENTICAL SET OF FACTS AS IN AS IN AY 2000-01, ON A SIMILAR REASONING WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 6,9 2,966/- ON ACCOUNT OF NOTIONAL INTEREST CHARGEABLE ON INTEREST FREE ADVANCES. 10.1.1 GROUND NO. 2 OF THE ASSESSEES APPEAL IS ACC ORDINGLY ALLOWED. 10.2 GROUND NO. 3 CHALLENGES THE DISALLOWANCE OF R S. 20,000/- OUT OF ADVERTISEMENT EXPENSES. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THIS AMOUNT HAS BEEN DISALLOWED ON THE BASIS THAT THE ASSESSEE COULD NOT EXPLAIN TH E NATURE OF ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 45 OF 47 THE ADVERTISEMENT AND COULD ALSO NOT FURNISH THE PR OOF OF ADVERTISEMENT. THE LD. CIT (A) HELD THAT EVEN THE COPY OF MAGAZINE IN WHICH THE ADVERTISEMENT WAS PRINTED WAS NO T PRODUCED. THE LD. AR INVITED OUR ATTENTION TO PAGE 12 OF THE PB FOR AY 2005-06 AND SUBMITTED THAT THE ADVERTISEMENT HAD BEEN RELEASED FOR A FULL PAGE COLOUR ADVERTISEMENT IN TH E MAGAZINE BEING BROUGHT OUT BY AN NGO AND NAMED SASHART . ON GOING THROUGH THE RELEVANT DOCUMENTS AS WELL AS THE ORDER S OF THE AUTHORITIES BELOW AND THE SUBMISSION MADE BY THE LD . AR, WE FIND THAT PAGE NO. 12 OF THE PAPER BOOK IS A LETTER DATED 22/04/2005 ADDRESSED TO SH. AVINASH CHANDER PALIWAL SEEKING ADVERTISEMENT IN THE MAGAZINE TO BE BROUGHT OUT. H OWEVER, COPY OF THE RECEIPT ISSUED FOR ADVERTISEMENT WAS NOT ON R ECORD. SIMILARLY, COPY OF MAGAZINE IN WHICH THE ADVERTISEME NT WAS PRINTED IS ALSO NOT ON RECORD. HENCE, WE FIND NO R EASON TO INTERFERE WITH THE CONCLUSION ARRIVED AT BY THE LOWE R AUTHORITIES AND WE ACCORDINGLY UPHOLD THE DISALLOWANCE. 10.2.1 GROUND NO. 3 OF THE ASSESSEES APPEAL IS ACC ORDINGLY DISMISSED. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 46 OF 47 10.3 GROUND NO. 4 WAS NOT PRESSED BY THE ASSESSEE A ND IT WAS SUBMITTED AS THE NECESSARY RECTIFICATION ON THIS ISSUE HAS ALREADY BEEN CARRIED OUT BY THE AO. 10.3.1 HENCE, GROUND NO. 4 IS DISMISSED AS NOT PRES SED. 10.4 GROUND NO. 5 CHALLENGES A CONFIRMATION OF ADD ITION OF RS. 2,63,209/- IN RESPECT OF ESTIMATED AGRICULTURAL EXPENSES. IT IS SEEN THAT THE AO HAS OBSERVED THAT NO DETAILS RE GARDING THE EXPENSES WERE AVAILABLE ON RECORD. THE LD. CIT (A) ALSO CONFIRMED THE SAME BY HOLDING THAT THE DETAILS WERE NOT VERIFIABLE. HOWEVER, BEFORE US THE LD. AR POINTED OUT THAT A DETAILED LEDGER ACCOUNT OF AGRICULTURAL EXPENSES WAS ON RECORD. ALSO DETAILS OF AGRICULTURAL INCOME WERE ON RECORD. OUR ATTENTION WAS INVITED TO PAGES 15 AND 16 OF THE PAPER BOOK FOR AY 06-07 WHICH CONTAINED COPIES OF THESE ACCOUNTS RESPECTIVEL Y. ON AN OVERALL VIEW OF THE FACTUAL MATRIX OF THIS DISALLOW ANCE WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE AO FOR RE- EXAMINATION AND RE-ADJUDICATION AFTER HAVING DULY C ONSIDERED THE EVIDENCES TO BE SUBMITTED BY THE ASSESSEE IN TH IS REGARD. ITA NOS. 3490 TO 3495/DEL/2011 PALIWAL OVERSEAS LTD. PAGE 47 OF 47 10.4.1 GROUND NO. 5 OF THE ASSESSEES APPEAL IS ALL OWED FOR STATISTICAL PURPOSES. 10.5 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE FINAL RESULT ITA NO. 3490/DEL/2011 IS A LLOWED, ITA NO. 3491/DEL/11 IS PARTLY ALLOWED, ITA NO. 3492 /DEL/11 IS ALLOWED, ITA NO. 3493/DEL/11 IS PARTLY ALLOWED, ITA NO. 3494/DEL/11 IS ALLOWED AND ITA NO. 3495/DEL/11 IS P ARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2016 SD/- SD/- (L.P. SAHU) (SUDHANSHU SRI VASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30.06.2016 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI