Asst. Commissioner of Income tax Cir. 1, Margao V. Salgaocar Mining Industries P. Ltd., Margao

ITA 359/PAN/2013

• Counselvise Citation: 35924114 RSA 2013
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 21-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI LD
• Assessee Lawyers: VICTOR NELATURI
• Keywords: Capital asset; Depreciation; Business expenditure; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 32; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 339/PNJ/2013 (ASSESSMENT YEAR - 2006 - 07) M/S. SALGAOCAR MINING INDUSTRIES PVT. LTD. SALGAOCARBHAWAN, ALTINHO, PANAJI - GOA. PAN: AABCS8862N (APPELLANT) VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, MARGAO RANGE, MARGAO. (RESPONDENT) ITA NOS. 359 & 360 /PNJ/2013 (ASST. YEAR - 2006 - 07 & 2007 - 08 ) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1, MARGAO (APPELLANT) VS. M/S. SALGAOCAR MINING INDUSTRIES PVT. LTD. SALGAOCAR CHAMBERS, P.B.NO.35, MARGAO - GOA. PAN:AABCS8862N(RESPONDENT) REVENUE BY : SMT. ASHA DESAI, LD. DR ASSESSEE BY : SHRI VICTOR NELATURI, ADV. DATE OF HEARING : 10/06/2014 DATE OF PRONOUNCEMENT : 26 /09 /2014 O R D E R PER: D.T. GARASIA THE CROSS APPEALS FOR ASSESSMENT YEAR - 2006 - 07 HAVE BEEN FILED AGAINST THE ORDER OF THE CIT (A) - PANAJI DATED 19.09.2013 AND THE APPEAL FOR ASSESSMENT YEAR 2007 - 08 IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - PANAJI DATED 26.09.2013. 2 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) 2 . IN A.Y. 2006 - 07 T HE ASSESSEE HAS TAKEN FOLLOWING GROUNDS WHICH READ AS UNDER: 1) CIT APPEAL CONFIRMS ADDITION RS.404,881,556/ - WHICH IS A CONTINUING LIABILITY UNDER ORDER AND DECREE OF HONBLE HIGH COURT PANAJI BENCH DATED 14/3/1990 IN COMPANY PETITION NO.1 OF 1983. 2) CIT APPEAL FAILED TO APPRECIATE THAT SECTION 41(1) IS APPLICABLE TO LIABILITY FROM EXPENDITURE CLAIMED BY ASSESSEE IN EARLIER YEARS CEASES TO EXIST. WHEREAS THIS LIABILITY IS NOT ON ACCOUNT OF ANY EXPENDITURE BUT IS FROM AN ORDER AND A DECREE OF HIGH COURT , THEREFORE IT CONTINUES TO EXIST. 3) LIABILITY UNDER SECTION 41(1) QUALIFY IRREVOCABLE CESSATION WHERE THERE IS NO POSSIBILITY OF BEING RECEIVED IN FUTURE. 4) APPELLATE CREATES LEAVE TO ADD AND/OR ALTER ANY OTHER GROUNDS AT THE TIME OF HEARING. ANNEXURES - COPIES OF ORDERS A) APPEAL ORDER DATED 19/9/20 13 B) ASSESSMENT ORDER DATED 29/12/2008 C) APPEAL FILED BEFORE CIT APPEALS ON JAN 29/2009 D) CHALLAN FOR RS. 10,000/ - BEING FEES FOR FILING APPEAL BEFORE TRIBUNAL. WHEREAS THE DEPARTMENT HAS TAKEN THE FOLLO WING GROUNDS WHICH READ AS UNDER: 1. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ORDER IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) - PANAJI, HAS ERRED IN DELETING ADDITION OF RS.2,91,14,3 64/ - MADE BY AO ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS/BUSINESS LOSS WITHOUT GIVING OPPORTUNITY TO THE AO TO VERIFY THE ASSESSEES EXPLANATION FILED BEFORE CIT(A) AND FULFILMENT OF CONDITION U/S. 37(1). 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A)PANAJI, HAS ERRED IN DELETING ADDITION OF RS.2,48,88,213/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF CONSTRUCTION OF JETTY/PORT DEVELOPMENT EXPENSES IGNORING THE EXPLANATION 1 TO SECTION 32 INTRODUCED W.E.F., 01.04.1988 AND IGNORING THE DECISION OF RAZABULAND SUGAR CO.LTD. VS. CIT(ALL) 122 ITR 817. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS.64,14,037/ - MADE BY THE AO ON ACCOUNT OF SALVAGE WRECK REMOVAL EXPENSES. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS.2,82,31,085/ - IN THE CASE OF M/S. KAWASHO CORPORATION MADE BY THE AO ON ACCOUNT OF SUNDRY CREDITORS WITHOUT GIVING OPPORTUNITY TO AO TO VERIFY THE ASSESSEES EX PLANATION FILED BEFORE CIT(A). 3 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) IN A.Y. 2007 - 08, THE DEPARTMENT HAS TAKEN FOLLOWING GROUND WHICH READ AS UNDER: 1. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ORDER IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)PANAJI, HAS ERRE D IN DELETING ADDITION OF RS. 66,22,781/ - ON ACCOUNT OF PORT DEVELOPMENT EXPENSES BY ACCEPTING ASSESEES EXPLANATION THAT THESE REPAIRS ARE REVENUE EXPENDITURE IN NATURE WITHOUT GIVINGOPPORTUNITY TO AO. 3. WHETHER ON T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)PANAJI, HAS ERRED IN DELETING AD DITION OF RS. 34,87,774/ - AND RS.38,02,140/ - ON ACCOUNT OF CONSTRUCTION OF COMPOUND WALL AT BILIKERIPORT AND ZARBHAG PROPERTY RESPEC TIVELY BY ACCEPTING ASSESSEES EXPLANA TION THAT THESE ARE REPAIRS TO THE EXISTING COMPOUND WALLS AND N OT FOR CONSTRUCTION OF NEW COMPOUND WA LLS WITHOUT GIVING OPPORTUNITY TOTHEAO. 3. ITA NO. 339/PNJ/2013 & ITA NO.359/PNJ/2013 FOR THE A.Y. 2006 - 07 AND ITA NO. 360/PNJ/2013 FOR A.Y.2007 - 08. ALL THE APPEALS RELATE TO THE SAME ASSESSEE, THEREFORE, DISPOSED BY THIS COMMON ORDER. 3.1. THE ASSESSEE COMPANY DEALING IN THE BUSINESS OF MINING, PROCESSING, TRADING & E XPORT OF MINERAL AND ORES AND TRADING & EXPORT, TRADING IN MACHINERY HAS FILED THE RETURN OF INCOME ON 28.11.2006 DECLARING TOTAL INCOME OF RS. 107,13,45,220/ - . THE RETURN WAS PROCESSED U/S. 143(3). 3.2 GROUND NO.1 OF THE ASSESSEES APPEAL: - DURING THE E XA MINATION OF SUNDAY CREDITORS, FOLLOWING TWO BALANCES WERE NOTIC ED. (I) KAWASHO CORPORATION RS. 2,82,31,085/ - (II) V.M. SALGAOCAR& BR O. PVT. LTD. RS.4,04,81,556/ - . THE ASSESSEE WAS ASKED TO FURNISH THE NATURE OF THE ABOVE TRANSACTION, THE AGE OF THE BALAN CES AND THE SUBSISTENCE OF THE DUES. THE ASSE SSEE AGREED THAT THESE ARE OLD BALANCES AND THE BALANCES ARE DUE SINCE 1999. THE FORMER BEING A JAPANESE COMPANY WHICH WAS BUYING ORE FROM THEASSES S EE AND THAT BEING FOREIGN DEBTS HAVE TO BE COMPULSORILY PAID UP . IN SOFAR AS THE DEBT DUE TO M/S V. M. SALGOACAR& BRO. PVT.LTD.THE A.R.REITERATED THAT THE ORIGINAL V. M. SALGAOCAR GROUP WAS PARTITIONED AND THAT CONSEQUENT TO PARTITION 4 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) SEVERAL DISPUTES AROSE WHICH WERE TAKEN TO THE C OURT. ALL THESE ISSUES WERE SETTLED BY THE HIGH COURT PASSING JUDGEMENT ON EVERY ISSUE WHICH AROSE CONSEQUENTLY. THE ABOVE DUES ARE PAYABLE BY THE ASSESSEE AND ARE SUBSISTING. WHEN EXAMINED IN DETAIL IT IS NOT POSSIBLE TO ACCEPT THE FACT THAT THE COURT ORDER HAS REMAINED ONLY ON PAPER IN RE SPECT OF SEVERAL ISSUES DECIDED BY THE C OURT WHILE ONLY SOME OF THEM HAVE BEEN IMPLEMENTED THAT TO A PART BY PART. THIS IS EVIDENT FROM THE NOTES ON ACCOUNT IN ITEM NO. 18(C) ON PAGE 17. IN THIS IT IS STATED THAT 1,02,000 METRIC TONS IRON ORE WAS LOANED BY M/S V. M. SALGAOCAR& BRO. PVT. LTD. TO THE ASSESSEE COMPANY IN FEBRUARY 1990 WITH THE STIPULATION THAT THE SAME SHOULD BE RETU RNED TO THE COMPANY ON LOADED - ONTO - THE - BARGE BASIS WITHIN ONE YEAR FROM THE DATE OF ORDER OF THE HIGH COURT. BUT ASSESSEE COMPA N Y HAS RETURNED ONLY 60,780 MT OF IRON ORE TILL DATE. THESE APPEARS TO BE A NON INCLINATION IN IMPLEMENTING THE COURTS ORDER EVEN AFTER 18 YEARS, OR AT LEAST THERE IS A SELECTIVE NON - IMPLEMENTATION. UNDER THE CIRCUMSTANCES THE ASSESSEE COMPANY CANNOT TAKE UMBRAGE UNDER THE COURTS ORDER AND CLAIM THAT IT WILL CONTINUE TO CARRY FORWARD THEBALANCES INDEFINITELY EVEN BEYOND THI S PERIOD OF 18 YEARS. TO THE QU ERY WHY THE SAME SHOULD NOT CONSIDERED U/S 41(1) THE ASSE S SEE HAS NO FURTHER EXPLANATION. IT WAS ALSO SUG GESTED THAT THE ASSESS E E COULD CLAIM THE SAME IN THE YEAR IN WHICH SUCH PAYMENTS ARE MADE DIRECTLY AGAINST THE INCOME OF THAT YEAR. THERE IS NO SPECIFIC REPLY FROM THE ASSESSEE. U NDER CIRCUMSTANCES A SUM OF RS. 6,87,12,641/ - IS CONSIDERED U/S 41(1) AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 3.3 . THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS DELETED THE ADDITION OF RS.2,82,31,085/ - IN THE CASE OF M/S. KAWASHO CORPORATION AND CONFIRMED THE ADDITION OF RS.4,04,81,556/ - BY OBSERVING AS UNDER: 7.4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE ADDITION IN RESPECT OF TWO PARTIES AS UNDER: 5 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) I) M/S KAWASHO CORPORATION : - IN THIS CASE, DURING THE YEAR UNDER CONSIDERATION, THE TOTAL CREDIT BALANCE IN TH E NAME OF M/S KAWASHO CORPORATION, A JAPANESE COMPANY, AMOUNTED TO RS.2,82,31,085/ - . THE A.O. ADDED ENTIRE AMOUNT U/S 41(1) DAYING THAT A FOREIGN DEBT HAS TO BE NECESSARILY PAID. ON THE OTHER HAND, THE APPELLANT CONTENDED THAT THE LIABILITY TO PAY HAS NOT CRAZED TO EXIST AS SUBSTANTIAL AMOUNT HAS BEEN PAID DURING THE YEAR UNDER CONSIDERATION AS WELL. OPENING BALANCE WAS RS.6,18,78,659/ - , PAID DURING THE YEAR IS RS.3,36,47,574/ - AND WHAT REMAINS AS BALANCE AT YEAR END IS RS.2,82,31,085/ - . THAT THE PAYMENT HA S BEEN MADE DURING THE COURSE OF THE YEAR ITSELF IS A SUFFICIENT PROOF THAT THIS IS A RUNNING ACCOUNT AND LIABILITY TO PAY HAS NOT CEASED TO EXIST. IN VIEW OF THE ABOVE FACT, I DO NOT SEE ANY REASON AS TO WHY THE ADDITION MADE BY THE A.O. BE SUSTAINED AND THE A.O. IS DIRECTED TO DELETE THE ADDITION AMOUNTING TO RS,2,82,3 1,085/ - IN THE CASE OF M/S KAWASHO CORPORATION. II) V. M. SALGAOKAR AND BROS. PVT. LTD : - IN THIS CASE THERE WAS A PARTITION IN THE FAMILY IN THE YEAR 1983 - 84, WHICH WAS RACTIFIED BY A HIGH COURT ORDER PASSED IN THE YEAR 1990 AND THE EFFECT TO THE ORDER WAS GIVEN IN THE BOOKS OF THE APPELLANT COMPANY AS ON 31.03.1990. THE ASSESSEE HAS BEEN SHOWING THIS LIABILITY SINCE A. YR. 1990 - 91 TILL DATE, I.E. 23 YEARS. THE HIGH COURT ORDER HAS NOT BEEN ACTED UPON FOR LAST 23 YRS; PROVIDING THEREBY THAT IN REALITY, NO SUCH LIABILITY EXISTS. THE MAIN CONTENTION OF THE APPELLANT IS THAT THIS LIABILITY IS NOT BECAUSE OF RECEIPT OF ANY MONEY OR EXPENDITURE BUT ON ACCOUNT OF FAMILY ARRANGEMENT VIA HIGH COURT ORDER. I DONT UNDERSTAND, AS TO WHAT DIFFERENCE THIS FACTS MAKES IN THE CASE OF THE APPELLANT. THE BARE FACTS, THERE IS A LIABILITY, WHICH HAS REMAINED UNPAID FOR LAST 23 YRS. IT MAY NOT BE A TRADE LIABILITY, BUT FACT REMAINS THAT REMISSION OF A LIABILITY IS TO BE TREATED AS INCOME IN TERMS OF PROVISIONS OF 41(1) OF THE ACT. THE AO IS RIGHT, IN MY OPTION, IN HOLDING THAT THE APPELLANT CAN CLAIM THE LOSS IN THE YEAR IN WHICH IT ACTUALLY MAKES THE PAYMENT IN VIEW, OF THE ABOVE DISCUSSION, ADDITION TO THE EXT ENT OF RS.4,04,81,556/ - . 4 . THE DEPARTMENT IS IN APPEAL IN RESPECT OF DELETING THE ADDI TION OF RS.2,82,31,085/ - AND ASSESSEE IS IN APPEAL AGAINST CONFIRMING THE ADDITION OF RS.40,48,81,556/ - . 4.1 I N ASSESSEES APPEAL IN RESPECT OF CONFIRMATION OF ADDITION OF RS.4,04,81,556/ - , T HE ASSESSEE HAS FILED THE WRITTEN SUBMISSION WHEREIN THE ASSESSEE HAS SUBMITTED THAT THERE WAS FAMILY ARRANGEMENT IN THE ASSESSMENT YEAR 1983 - 1984 WHERE BY ANIL SALGAOCAR OBTAINED HIS SHARE IN THE GROUP COMPANIES, ONE OF WHIC H WAS SALGAOCAR MINING INDUSTRIES PVT. LTD. THIS FAMILY ARRANGEMENT CREATED TWO GROUPS - ONE V.M. SALGAOCAR GROUP AND OTHER ANIL SALGAOCAR GROUP AND THERE SETTLEMENTS AMONG THEM AS REGARDS THE DIVISION OF 6 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) COMPANIES, ASSETS ETC. OF EACH GROUP. TH EREAFTER ,TH IS FAMILY ARRANGEMENT FACED SEVERAL DISPUTES WHICH WAS DECREED BY THE HIGH COURT OF BOMBAY AT PANAJI IN 1990 AND ACCORDINGLY THE MATTER WAS DISCL OSED IN THE ACCOUNTS OF GROUP COMPANIES IN THAT YEAR ENDING 31.03.1990 BY WAY OF NOTES TO ACCOUNTS. THE ACCOUN TS OF THE ASSESSEE WERE VERIFIED AND EXAMINED IN THE SCRUTINY ASSESSMENT OR ASSESSMENT YEAR 1983 - 84 AND ALSO FOR THE SUBSEQUENT YEAR. THE EXISTENCE OF THIS LIABILITY WAS ACCEPTED AND ITS EFFECT ON TAXATION IT WAS EXAMINED AND VERIFIED DURING THESE SCRUTIN Y ASSESSMENT PROCEEDINGS. THIS BALANCE IS STILL STAND AS CREDITOR ON ACCOUNT OF VARIOUS PENDING UNSETTLED MATTERS BETWEEN THE ABOVE TWO GROUPS AND THIS OUTSTANDING BALANCE IS ALIVE AND HAS NO EFFECT AS FAR AS TAXATION IS CONCERNED OF THE ASSESSEE. THE ASSE SSING OFFICER COMMEN TS THAT THESE APPEAR TO BE NON - INCLINATION IN IMPLEMENTING THE COURTS ORDER EVEN AFTER 18 YEARS, OR AT LEAST THERE IS A SELECTIVE NON - IMPLEMENTATION. UNDER THESE CIRCUMSTANCES, THE ASSESSEE COMPANY CANNOT TAKE UMBRAGE UNDER THE COURT S ORDER AND CLAIM THAT IT WILL CONTINUE TO CARRY FORWARD THE BALANCES INDEFINITELY EVEN BEYOND THIS PERI OD OF 18 YEARS. HE THEREFORE , THE ASSESSING OFFICER GAVE REFERENCE TO NOTES ON ACCOUNT IN ITEM NO 18(C). THE ASSESSEE HAS GIVEN 102,000 MT IRON ORE ON LOAN TO THE COMPANY BY THE V.M. SALGAOCAR& BROS. PVT. LTD. IN FEBRUARY, 1990 IS TO BE RETURNED TO THAT COMPANY ON LOADED INTO BARGE WITHIN ONE YEAR FROM THE DATE OF THE ORDER.THE COMPANY HAS RETURNED 60,780 MT OF IRON ORE TO VMSB TO DATE. SUNDRY CREDITORS AS ON 31ST MARCH,2006 INCLUDE S RS. 2,400,198/ - BEING COST OF B ALANCE IRON ORE TO BE RETURNED. THEREFORE ADDITION OF RS.4,04,81,556/ - WHICH IS TOTAL CREDIT TO M/S. V. M. SALGAOCAR& BROS. PVT. LTD. IS NOT CORRECT BECAUSE IT HAS NO EFFECT ON TAXATION, BECAUSE IT IS A DELICATE AND SENSITIVE FAMILY ISSUE WHICH NEEDS TO BE RESOLVED SPECIALLY IN THE PRESENT GROUP.ONLY FOR ACCOUNTING PURPOSE AND PRESENTATION OF ACCOUNTS, THIS BALANCE IS SHOWN AS LIABILITY TO V. M. SALGAOCAR& BRO. PVT. LTD. (THE MAJOR COMPANY OF V. M . SALGAOCAR GROUP). THIS BALANCE IS NOT ON ACCOUNT OF RECEIPT 7 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) OF ANY MONEY OR BECAUSE OF ANY EXPENDITURE BUT ON ACCOUNT OF F AMILY ARRANGEMENT VIA HIGH COURT DECREE. THIS LIABILITY ACTUALLY RELATES TO ASSETS ALLOCATED TO ANIL SALGAOCAR AND ACCOUNTED IN BOOKS OF THE ASSESSEE. THE SECTION 4 1(1) OF THE INCOME TAX ACT CAN BE APPLIED IF THE LIABILITY HAS ARISEN BECAUSE OF EXPENDITURE WHICH HAS BEEN CLAIMED BY ASSESSEE IN EARLIER YEARS AND IT CEASES TO EXIST S , HOWEVER IN CASE OF ASSESSEE, THE SAID LIABILITY I S NOT ON ACCOUNT OF ANY EXPEN DITURE AND ALSO IT DOES NOT CEASE TO EXISTS. THEREFORE, THE ADDITION OF RS. 4,04,81,556/ - IS IN CORRECT. 4.2 . ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES. MOREOVER, LEARNED DR SUBMITTED THAT THERE WAS A PARTITION BETWEEN THEF AMILY WHICH WAS RECTIFIED BY THE HIGH COURT ON 31 ST MARCH, 1990. T HIS LIABILITY WAS SHOWN BY THE ASSESSEE BUT IN FACT THIS IS NOT A TRADE LIABILITY , BUT THE FACTS REMAINS THAT REMISSION OF A LIABILITY IS TO BE TREATED AS INCOME IN TER MSOF PROVISIONS OF SECTION 41(1) OF THE ACT. THEREFORE, IT CANNOT BE ALLOWED. WE ALSO RELIED UPON THE ORDER OF V .M. SALGAOKAR AND BROS. PVT. LTD. 4 . 3 WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE RE WAS A FAMILY ARRANGEMENT IN THE ASSESSMENT YEAR 1983 - 1984 WHEREBY ANIL SALGAOCAR OBTAINED HIS SHARE IN THE GROUP COMPANIES, ONE OF WHICH WAS SALGAOCAR MINING INDUSTRIES PVT. LTD. THE FAMILY ARRANGEMENT CREATED TWO GROUPS - ONE V. M. SALGAOCAR GROUP AND OTHER ANIL SALGAOCAR GROUP. THE FAMILY ARRANGEMENT THEREAFTER FACED SEVERAL DISPUTES WHICH WAS DECREED BY THE HIGH CO URT OF BOMABY AT PANAJI AND AS PER THE ORDER OF THE HIGH COURT THE ASSESSEE HAS GIVEN EFFECT TO THIS HIGH COURT ORDER AND THE ASSESSING OFFICER HAS VERIFIED AND EXAMINED THIS LIABILITY. THE EXISTENCE OF THIS LIABILITY WAS ACCEPTED AND ITS EFFECT ON TAXAT ION IT WAS EXAMINED AND VERIFIED DURING THESE SCRUTINY ASSESSMENT PROCEEDINGS. THIS BALANCE IS STILL OUTSTANDING ON ACCOUNT OF VARIOUS PENDING UNSETTLED MATTERS 8 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) BETWEEN THE ABOVE TWO GROUPS AND THIS OUTSTANDING BALANCE IS ALIVE AND HAS NO EFFECT AS FAR AS TAXATION IS CONCERNED OF THE APPELLANT COMPANY. THE ASSESSEE HAS GIVEN NOTES IN HIS ACCOUNT WHICH READ AS UNDER: 1,02,000 MT IRON ORE GIVEN ON LOAN TO THE COMPANY BY THE V.M. SALGAOCAR& BROS. PVT. LTD. IN FEBRUARY, 1990 IS TO BE RETURNED TO THAT COMPANY ON LOADED INTO BARGE WITHIN ONE YEAR FR OM THE DATE OF ORDER. THE ASSESSEE COMPANY HAS RETURNED 60,780 MT OF IRON ORE TO M/S. V.M. SALGAOCAR& BRO. PVT. LTD. TO THE DATE OF SUNDRY CREDITORS AS ON 31 ST MARCH, 2006 INCLUDES THE CREDIT BALANCES . THE ASSESSING OFFICER WAS OF THE VIEW THIS IS A FAMILY ARRANGEMENT AND THIS FAMILY ARRANGEMENT IS MADE, THEREFORE, IT CANNOT BE TREATED THIS STOCK AS BUSINESS LIABILITY. WE FIND THAT THE SIMILAR ISSUE HAS COME UP IN SALGAOCAR& BOR. PVT. LTD. IN ITA NOS. 206 & 207/PNJ/2 013 AND IN ITA NOS.220 & 221 /PNJ/2013 WHEREIN THE SAME BENCH HAS TAKEN THE VIEW THAT THE STOCK IN ACCORDANCE WITH ORDER OF HONBLE HIGH COURT CANNOT BE REGARDING AS MARKET VALUE BY OBSERVING AS UNDER. 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE VARIOUS DECISIONS WHICH WERE CITED BEFORE US. AS PER AS - 2 AS HAS BEEN ANNOUNCED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), STOCK HAS TO BE VALUED AT COST OR MARKET VALUE, WHICHEVER IS LESS. U/S 145 OF THE INCOME TAX ACT INCOME CHARGEABLE UNDER THE HEAD PROFIT & GAINS OF BUSINESS AND PROFESSION HAS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY E MPLOYED BY THE ASSESSEE. THERE IS NO DISPUTE THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. SEC. 145(2) EMPOWERS THE CENTRAL GOVERNMENT TO NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY C LASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. THESE ACCOUNTING STANDARDS ARE MANDATORY TO BE FOLLOWED IN VIEW OF THE PROVISIONS OF SEC. 145(3). IN EXERCISE OF THE POWERS GIVEN U/S 145(2), THE CENTRAL GOVERNMENT NOTIFIED TWO ACCOUNTING STANDARDS; FIRST ACCOUNTING STANDARD DEALS WITH THE DISCLOSURE OF THE ACCOUNTING POLICIES. THE AS - 2 DEALS WITH THE DISCLOSURE OF THE PRIOR PERIOD AND EXTRAORDINARY ITEMS AND CHANGE IN THEIR ACCOUNTING POLICIES. PARA 4 OF THE AS - 1 LAYS DOWN AS UNDER: 4. ACCOUNT ING POLICIES ADOPTED BY AN ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS, PROFESSION OR VOCATION IN THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. FOR THIS PURPOSE, THE MAJOR CONSIDERATIONS 9 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) GOVERNING THE SELECTION AND APPLICATION OF ACCOUNTING POLICIES ARE FOLLOWING, NAMELY : - ( I ) PRUDENCE PROVISIONS SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. ( II ) SUBSTANCE OVER FORM THE ACCOUNTING TREATMENT AND PRESENTATION IN FINANCIAL STATEMENTS OF TRANSACTIONS AND EVENTS SHOULD BE GOVERNED BY THEIR SUBSTANCE AND NOT MERELY BY THE LEGAL FORM; ( III ) MATERIALITY - FINANCIAL STATEMENTS SHOULD DISCLOSE ALL MATERIALS ITEMS, THE KNOWLEDGE OF WHICH MIGHT INFLUENCE THE DECISIONS OF THE USER OF THE FINANCIAL STATEMENTS. 6.3.1 ON THE BASIS OF PARAGRAPH 4, THE ACCOUNTING POLICIES SELECTED BY THE ASSESS EE MUST BE BASED ON PRUDENCY, SUBSTANCE OVER FORM AND MATERIALITY. THIS PARAGRAPH RECOGNIZES PRUDENCY TO BE ONE OF THE MAJOR CONSIDERATIONS FOR APPLYING THE ACCOUNTING POLICIES. THIS REQUIRES THAT PROVISION SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LO SSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF THE AVAILABLE INFORMATION. THUS, IT RECOGNIZES ANTICIPATE ALL THE LOSSES BUT DO NOT PROVIDE FOR THE PROFIT UNTIL AND UNLESS THEY ARE REALI ZED. VALUING THE CLOSING STOCK AT COST OR MARKET VALUE, WHICHEVER IS LESS IS A WELL - ESTABLISHED METHOD OF ACCOUNTING AND THIS METHOD, IN OUR OPINION, IS BASED ON THE PRINCIPLES OF PRUDENCY. THE HON'BLE SUPREME COURT IN THE CASE OF CHAINRUPSAMPATRAM V. C OMMISSIONER OF INCOME - TAX, 24 ITR 481 (SUPRA) AS RELIED BY THE LD. AR, IN OUR OPINION, ACCEPTED THIS PRINCIPLE AS WE NOTED THAT THE HON'BLE SUPREME COURT EXPLAINED THE REASONS IN THE SAID DECISION FOR THE SAID PRACTICE AT PG. 485 AS UNDER : IT IS WRONG TO ASSUME THAT THE VALUATION OF THE CLOSING STOCK AT MARKET RATE HAS, FOR ITS OBJECT, THE BRINGING INTO CHARGE ANY APPRECIATION IN THE VALUE OF SUCH STOCK. THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT AT THE TIME OF THEIR PURCHASE, SO THAT THE CANCELLING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COUR SE OF THE YEAR SHOWING THE PROFIT OR LOSS ACTUALLY REALISED ON THE YEARS TRADING. AS POINTED OUT IN PARAGRAPH 8 OF THE REPORT OF THE COMMITTEE ON FINANCIAL RISKS ATTACHING TO THE HOLDING OF TRADING STOCKS, 1919. AS THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY INTENDED TO CANCEL THE CHARGE FOR THE GOODS PURCHASED, 10 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) WHICH HAVE NOT BEEN SOLD, IT SHOULD NECESSARILY REPRESENT THE COST OF THE GOODS. IF IT IS MORE OR LESS THAN THE COST, THEN THE EFFECT IS TO STATE THE PROFIT ON THE GOODS WHIC H ACTUALLY HAVE BEEN SOLD AT THE INCORRECT FIGURE. FROM THIS RIGID DOCTRINE, ONE EXCEPTION IS VERY GENERALLY RECOGNISED ON PRUDENTIAL GROUNDS AND IS NOW FULLY SANCTIONED BY CUSTOM, VIZ., THE ADOPTION OF MARKET VALUE AT THE DATE OF MAKING UP ACCOUNTS, IF T HAT VALUE IS LESS, THAN COST. IT IS OF COURSE AN ANTICIPATION OF THE LOSS THAT MAY BE MADE ON THOSE GOODS IN THE FOLLOWING YEAR, AND MAY EVEN HAVE THE EFFECT, IF PRICES RISE AGAIN, OF ATTRIBUTING TO THE FOLLOWING YEARS RESULTS A GREATER AMOUNT OF PROFIT T HAN THE DIFFERENCE BETWEEN THE ACTUAL SALE PRICE AND THE ACTUAL COST PRICE OF THE GOODS IN QUESTION (EXTRACTED INPARAGRAPH 281 OF THE REPORT OF THE COMMITTEE ON THE TAXATION OF TRADING PROFIT PRESENTED TO BRITISH PARLIAMENT IN APRIL, 1951). WHILE ANTICIPA TED LOSS IS THUS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED PROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE THEORY UNDER LYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER THE LOWER IS, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. AS PROFIT FOR INCOME - TAX PURPOSES ARE TO BE COMPUTED IN C ONFORMITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS OF COURSE, SUCH PRINCIPLES HAVE BEEN SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, UNREALISED PROFITS IN THE SHAPE OF APPRECIATED, VALUE OF GOODS REMAINING UNSOLD AT THE END OF AN ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEARS ACCOUNT IN A BUSINESS THAT IS CONTINUING ARE NOT BROUGHT INTO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PRICE BELOW COST IS ALLOWED EVEN IF SUCH LOSS HAS N OT BEEN ACTUALLY REALISED. AS TRULY OBSERVED BY ONE OF THE LEARNED JUDGES IN WHIMSTER AND CO. V. COMMISSIONERS OF INLAND REVENUE [1926] 12 TC 813,827. UNDER THIS LAW (REVENUE LAW) THE PROFITS ARE THE PROFITS REALISED IN THE COURSE OF THE YEAR. WHAT SEEMS AN EXCEPTION IS RECOGNISED WHERE A TRADER PURCHASED AND STILL HOLDS GOODS OR STOCKS WHICH HAVE FALLEN IN VALUE. NO LOSS HAS BEEN REALISED. LOSS MAY NOT OCCUR. NEVERTHELESS, AT THE CLOSE OF THE YEAR HE IS 11 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) PERMITTED TO TREAT THESE GOODS OR STOCKS AS OF THEI R MARKET VALUE. 6.3.2 THE ICAI IN THEIR AS - 2 HAVE RECOGNISED COST OR NET REALISABLE VALUE, WHICHEVER IS LESS TO BE THE METHOD FOR VALUING THE CLOSING STOCK. THE HON'BLE SUPREME COURT ALSO RECOGNISED THE METHOD OF VALUATION OF CLOSING STOCK AT COST OR MARKET VALUE, WHICHEVER IS LESS IN THE CASE OF SANJEEVWOOLEN MILLS V. CIT, 279 ITR 435 (SUPRA) WHEREIN IT WAS HELD THAT ON NO PRINCIPLE CAN ONE JUSTIFY THE VALUATION OF THE CLOSING STOCK AT MARKET RATE HIGHER THAN THE COST. PERMISSIBILITY OF THE VALUATION OF THE STOCK ON MARKET VALUE WOULD BE ONLY IF THE MARKET VALUE OF THE STOCK IS LOWER THAN THE COST OF THE STOCK. NO DOUBT, CHOICE OF THE METHOD OF THE ACCOUNTING LIES WITH THE ASSESSEE, BUT THE ASSESSEE IS REQUIRED TO SHOW THAT HE HAS FOLLOWED THE CHOSEN METHOD REGULARLY AND THE METHOD ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH THE LAW. THE ASSESSEE IN THE CASE BEFORE US CLAIMS THAT HE HAS VALUED THE STOCK IN RESPECT OF IRON ORE AT THE NET REALIZABLE VALUE, PART OF WHICH HAS BEEN DETERMINED IN ACCORDANCE WITH THE ORDER OF THE GOA BENCH OF THE HON'BLE BOMBAY HIGH COURT DT.14.3.1990. 6.3.3 NOW, THE QUESTION BEFORE US IS WHETHER THE VALUE ADOPTED BY THE ASSESSEE FOR PART OF THE STOCK IN ACCORDANCE WITH THE ORDER OF THE HON'BLE BOMBAY HIGH COURT CAN BE REGARDED TO BE THE MARKET V ALUE. THE ASSESSEE ALSO CLAIMS THAT THE ASSESSEE IS VALUING THAT PART OF THE STOCK CONSISTENTLY AT THE RATE AT WHICH THAT STOCK IS TO BE SOLD BY THE ASSESSEE AS PER THE ORDER OF THE HON'BLE BOMBAY HIGH COURT. IN OUR OPINION, IF THE METHOD ADOPTED FOR DET ERMINING THE MARKET VALUE AS PER THE HON'BLE BOMBAY HIGH COURT ORDER IS CORRECT AND THE ASSESSEE HAS CONSISTENTLY AND REGULARLY ADOPTED THE SAME METHOD, THE AO CANNOT CHANGE THE METHOD. BUT IF THE METHOD ADOPTED BY THE ASSESSEE IN RESPECT OF PART OF THE I NVENTORY FOR DETERMINING THE MARKET VALUE IS NOT CORRECT, IN OUR OPINION, THE AO CAN ASK THE ASSESSEE TO DETERMINE THE VALUE OF THAT PART OF THE STOCK IN ACCORDANCE WITH THE MARKET VALUE IT IF IS LOWER THAN COST. OUR AFORESAID VIEW IS DULY SUPPORTED BY TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD., 188 ITR 44. IN THAT DECISION, THE AO NOTED THAT THE SYSTEM OF VALUATION OF THE STOCK IN TRADE AT COST WAS NOT CORRECT AS THE COST WAS NOT PROPERLY DETERMINED. IF TH E MARKET VALUE OF THE STOCK IN TRADE, IN OUR OPINION, HAS NOT BEEN CORRECTLY DETERMINED, IT CANNOT BE SAID THAT THE ACCOUNTS OF THE ASSESSEE ARE CORRECT OR COMPLETE. 6.3.4 WE NOTED THAT THE PANAJI BENCH OF THE HON'BLE BOMBAY HIGH COURT IN COMPANY PETITION NO. 1 OF 1983 IN THE CASE OF ANIL VASUDEVASALGAONCAR&ORS. VS. V.M. SALGAONCAR&ORS.IN RESPECT OF SELLING OF THE ROM LUMP ORES AND FINES HAS IN PARA 87 AND 88 OF ITS ORDER DT. 14.3.1990 ON A COMPROMISE DECREE HELD AS UNDER : 87.(A) ORDERED AND DECREED THA T THE FOLLOWING QUANTITIES OF IRON ORE SHALL BE ALLOTTED TO THE GROUP OF PETITIONERS NO. 1, 2 & 3: 12 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) VMSB SALLITHO (RESPONDENT NO. 8) (RESPONDENT NO. 29) R.O.M. - 2,71,233 M.T. LUMPY ORE 93,387 1,02,991 FINES 240,740 -- (B) OUT OF THE ABOVE QUANTITIES, THE QUANTITY OF ORE BELONGING TO RESPONDENT NO.29 WILL CONTINUE TO REMAIN WITH RESPONDENT NO.29, THE SHAREHOLDING OF WHICH HAS BEEN ORDERED TO BE TRANSFERRED TO THE GROUP OF PETITIONERS NO. 1, 2 & 3. (C) THE AG GREGATE QUANTITY OF 334127) TONNES OF ORE BELONGING TO RESPONDENT NO.8 SHALL BE SOLD TO RESPONDENT NO. 14 AT OR FOR THE AGGREGATE PRICE OF RS.1,29,17,000/ - . (D) OUT OF THE ABOVE QUANTITIES OF IRON ORE, THE FOLLOWING QUANTITIES ARE IN POSSESSION OF RESPOND ENT NO. 8 : R.O.M 63,300 METRIC TONNES LUMPY ORE 32,200 FINES 16,600 THIS ORE SHALL CONTINUE TO BE RETAINED BY RESPONDENT NO. 8 AND SHALL BE DEALT WITH AS DIRECTED HEREINBELOW. 88. ORDERED AND DECREED THAT RESPPONDENT NO. 8. SHALL SELL 299,880 METRIC TONNES OF ROM TO RESPONDNENT NO.29 AT AN AGGREGATE PRICE OF RS.1,60,00,000/ - . THE ORE SHALL BE SOLD AND DELIVERED AT VAGUS IN CONVENIENT LOTS AGAINST PAYMENT OF PRICE IN RESPECT OF EACH SUCH LOT AS MAY BE DETERMINED BY RES PONDENT NO.8. WE NOTED THAT IN SCHEDULE XXIII FORMING PART OF THE AUDITED BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS GIVEN FOLLOWING NOTES : 10.A) AS PER THE ORDER DATED 14TH MARCH,1990, THE COMPANY IS REQUIRED TO SELL AGGREGATE QUANTITY OF 334,127 TONS OF IRON ORE AT AN AGGREGATE PRICE OF RS.12,917,000 SUBJECT TO THE CONDITIONS STIPULATED IN THE ORDER. OUT OF THE SAID QUANTITY 160,900 TONS HAVE BEEN SOLD AT THE AGGREGATE PRICE OF RS.6,220 ,225 AT THE STIPULATED RATES. BALANCE QUANTITY OF 173,227 TONS TO BE SOLD AT THE AFORESAID STIPULATED PRICE HAS NOT TILL DATE BEEN LIFTED BY THE 13 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) PURCHASER OR DELIVERED BY THE COMPANY. THE AFORESAID QUANTITY OF THE IRON ORE HAS BEEN INCLUDED IN THE CLOSING STOCK AT THE AFORESAID STIPULATED PRICE. B) AS PER THE ORDER DATED 14TH MARCH, 1990, THE COMPANY IS REQUIRED TO SELL 299,880 METRIC TONS OF R.O.M. AT AN AGGREGATE PRICE OF RS. 16,000,000 AGAINST PAYMENT OF THE AFORESAID STIPULATED PRICE. ACCORDINGLY, THE COMPANY HAS SOLD 108,559 TONS OF R.O.M. IN THE EARLIER YEARS AND THE BALANCE QUANTITY 191,321 METRIC TONS OF R.O.M. WILL BE ACCOUNTED AS AND WHEN SUCH SALE TAKES PLACE. IN THE SAME SCHEDULE, THE ASSESSEE HAS DISCLOSED THE ACCOUNTING POLICY IN RESPECT OF THE INVENTORIES THAT THE STOCK IN TRADE OF IRON ORE IS VALUED AT COST OR MARKET VALUE, WHICHEVER IS LESSER. WE HAVE ALSO NOTED THAT THE ASSESSEE HAS VALUED THE IRON ORE STOCK AS ON 31.3.2006 IN THE FOLLOWING MANNER : S R. NO PARTICULARS LOCATIO N QUANTITY TONS RATE AMOUNT RS. PS. 1. R.O.M (LESS: REJECTION & TAILINGS) - RS.156.22+RS.7.86 VAGUS PLOT 600,629 164.08 98,551,206.32 - DO - 93,387* 38.66*** 3,610,243.94 - DO - 191,321** 53.35*** 10,207,869.81 2. CHIPS (LESS: REJECTION & TAILINGS) - RS.156.22+RS.7.86 - DO - 362,880 164.08 59,541,350.40 3. SCREENED FINES - RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 388,729 241.94 94,049,094.26 - DO - 79,840* 38.66*** 3,086,531.06 4. IRON ORE LYING AT HOSPTE/YESHWANT NAGAR 18,450 16,593,467.79 5. SCREENED FINES A ) LOANED TO M/S. SALGAOCAR MIN. IND. LTD. - RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 49,159 241.94 11,893,528.46 B ) LOANED TO M/S. SALGAOCAR MIN. IND. LTD. - RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 29,880 241.94 7,229,167.20 C ) LOANED TO OTHERS RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 10,052 241.94 2,431,980.88 6. LUMPY LOANED TO OTHERS RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 2,303 241.94 557,187.82 7. SCREENED FINES RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.57.50 BERTH NO. 9 40,400 299.44 12,097,376.00 14 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) 8. LUMPY RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.57.50 BERTH NO. 9 4,000 299.44 1,197,760.00 1,871,030 321,046,763.94 LESS: 9. LOANED BY OTHERS TO US SCREENED FINES (NET) RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.55.50 BERTH NO. 9 29,591 299.44 8,860,729.04 LUMPY (NET) RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.55.50 BERTH NO. 9 (539) 299.44 (161,398.16) 29,052 8,699,330.88 ADD: VALUE OF 168.636 TONS CONSIDERED AS TAILINGS 164.08 27,669,794.88 1,841,9 8 340,017,227.94 * QUANTITY EARMARKED FOR SALE TO SMIL AS PER ORDER DATED 14 TH MARCH, 1990 ** QUANTITY EARMARKED FOR SALE TO SOL AS PER ORDER DATED 14 TH MARCH, 1990 *** AVERAGE RATE AS PER THE ORDER FROM PARA 87(A) OF THE ORDER OF THE HON'BLE BOMBAY HIGH COURT, IT IS APPARENT THAT THE ASSESSEE WAS ALLOTTED FOLLOWING QUANTITIES OF IRON ORE : ROM - NIL LUMPY ORE - 93387 TONS FINES - 240740 TONS TOTAL 334127 TONS AS PER PARA 87(C), THE SAME IRON ORE WHICH CONSISTS OF LUMPY ORE AND FINES HAS TO BE SOLD BY THE ASSESSEE FOR THE AGGREGATE PRICE OF RS.1,29,17,000/ - TO THE OTHER GROUP COMPANY, VIZ. M/S. SALGAOCAR MINING INDUSTRIES LTD. WE NOTED THAT AS PER NOTE NO. 10(A) OF SCHEDU LE XIII, THE ASSESSEE HAS SOLD 160900 TONS OUT OF 334127 TONS FOR RS. 62,20,225/ - TO M/S. SALGAONCAR MINING INDUSTRIES LTD. AND THE BALANCE QUANTITY OF 173227 TONS IS TO BE SOLD BY THE ASSESSEE TO THE SAID COMPANY. THE ASSESSEE HAS VALUED THIS 173227 TONS IN THE FOLLOWING MANNER AS PER THE VALUATION OF THE IRON ORE STOCK AS ON 31.3.2006 : ROM - 93387 TONS @ RS.38.66 SCREENED FINES 79840 TONS @ RS.38.66 IN THE VALUATION DETAILS OF THE IRON ORE, WE NOTED THE ASSESSEE HAS LUMPY ORE OF ONLY 2303 TONS WHI CH HAS BEEN VALUED @ RS.241.94 PER TON. THESE DETAILS PROVE THAT THE ASSESSEE IS NOT MAINTAINING THE SAME CATEGORY OF THE IRON ORE IN EACH OF THE YEAR FOR SELLING TO M/S. SALGAONCAR MINING INDUSTRIES LTD. THE ASSESSEE IS SUPPOSED TO SELL 15 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) LUMPY ORE (93387 TONS) BUT THE ASSESSEE HAS VALUED THE ROM 93387 TONS @ RS.38.66. THE ASSESSEE IS NOT HAVING THE STOCK IN RESPECT OF THE LUMPY ORE TO THE EXTENT OF 93387 TONS. THE STOCK OF LUMPY ORE IS ONLY 2303 TONS WHICH HAS ALSO BEEN LOANED BY THE ASSESSEE TO OTHER S ALTHOUGH AT BERTH NO. 9 THE ASSESSEE HAS SHOWN LUMPY ORE OF 4000 WHICH WAS VALUED AT RS. 299.44. WE HAVE ALSO NOTED FROM PARA 87(D) OF THE HON'BLE BOMBAY HIGH COURT ORDER THAT THE ASSESSEE WAS HAVING IN HIS POSSESSION THE FOLLOWING CATEGORIES OF IRON OR E : - ROM - 63300 TONS LUMPY ORE - 32200 TONS FINES - 16600 TONS AS PER PARA 88 OF THE ORDER OF THE HON'BLE BOMBAY HIGH COURT, ASSESSEE HAS TO SELL AND DELIVER ROM MEASURING 299880 MT TO M/S. SALITHO ORES LTD. AT A PRICE OF RS.1,60,00,000/ - . IN NOTE NO. 10(B) TO THE SCHEDULE XXIII WE NOTED THAT THE ASSESSEE HAS ALREADY SOLD 108559 MT OF ROM TO M/S. SALITHO ORES LTD. AND THE BALANCE QUANTITY OF 191321 MT HAS TO BE SOLD BY THE ASSESSEE TO THE SAID COMP ANY. THUS, THE ASSESSEE AS ON THE DATE OF THE HIGH COURT ORDER WAS NOT HAVING 299880 MT OF ROM AND ASSESSEE WAS HAVING ONLY 63300 MT OF ROM. THE BALANCE QUANTITY OF ROM HAS TO BE SOLD BY THE ASSESSEE AND DELIVERED AT VAGUS IN CONVENIENT LOTS AGAINST THE PAYMENT OF THE PRICE IN RESPECT OF EACH SUCH LOTS. WE ALSO NOTED FROM THE VALUATION OF THE IRON ORE STOCK THAT THE ASSESSEE HAS VALUED 191321 MT OF ROM @ RS. 53.35. THE ORDER OF THE HON'BLE BOMBAY HIGH COURT DID NOT STATE THAT THE ASSESSEE HAS TO SEGREGA TE AND KEEP THE STOCK OF THIS MUCH ROM. WHENEVER THE SALES WILL TAKE PLACE, THE ASSESSEE HAS TO ACCOUNT FOR IT AT THE TIME IN HIS BOOKS OF ACCOUNTS. IN VIEW OF THIS FACT, AS FOUND BY US, WE DO NOT AGREE WITH THE ASSESSEE THAT THE ASSESSEE WAS CONTINUOUSL Y MAINTAINING THE ROM TO THAT EXTENT. EVEN IF WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE PRICE AS HAS BEEN ORDERED BY THE HON'BLE BOMBAY HIGH COURT IS THE MARKET PRICE IN RESPECT OF THAT PART OF THE IRON ORE, THE ASSESSEE CANNOT VALUE THE ROM MEASU RING 93387 MT @ RS. 38.66 AS THE ASSESSEE HAS TO DELIVER THE LUMPY AND SCREENED FINES TO M/S. SALGAONCAR MINING INDUSTRIES LTD. SIMILARLY, IN RESPECT OF ROM OF 191321 MT TO BE SOLD TO M/S. SALITHO ORES LTD, THE ASSESSEE CANNOT VALUE IT AT THE RATE OF RS.5 3.35 AS ON THE DATE OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT WHATEVER STOCK THE ASSESSEE HAD IN HIS POSSESSION, THE SAME HAS BEEN DELIVERED TO IT. THE LOSS IN THIS REGARD WILL ACCRUE TO THE ASSESSEE ONLY WHEN THE SALE WILL TAKE PLACE, NOT PRIOR TO THAT. THEREFORE, IN OUR OPINION, THE ASSESSEE HAS NOT CORRECTLY VALUED THE IRON ORE STOCK IN RESPECT OF ROM OF 93387 MT AND 191321 MT @ RS.38.66/MT AND RS.53.35/MT RESPECTIVELY AS THESE QUANTITIES HAVE TO BE DELIVERED SUBSEQUENT TO THE ORDER OF THE HON'B LE BOMBAY HIGH COURT AND THE RATE AS HAS BEEN MENTIONED BY THE HON'BLE BOMBAY HIGH COURT WILL NOT APPLY TO THESE QUANTITIES OF ROM. 16 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) 6.3.5 NOW, THE QUESTION ARISES BEFORE US IS WHETHER THE PRICE FIXED BY THE HON'BLE BOMBAY HIGH COURT BE REGARDED TO BE THE MARKET PRICE. THE MARKET VALUE MEANS WHAT THE WILLING PURCHASER WOULD PAY TO THE WILLING SELLER FOR A PARTICULAR COMMODITY HAVING DUE REGARD TO ITS EXISTING UTILITY, ADVANTAGE. THE MARKET VALUE IS WHAT SOMETHING WOULD BRING IF IT WERE FOR SALE IN THE OPE N MARKET. IT IS USUALLY FIXED BY THE MARKET FORCES DEPENDING UPON THE DEMAND AND SUPPLY. THE HON'BLE BOMBAY HIGH COURT PASSED THE ORDER IN PURSUANCE OF THE DISPUTE ARISING OUT OF THE FAMILY ARRANGEMENT/SETTLEMENT. THE VARIOUS ISSUES TAKEN BEFORE THE HON 'BLE BOMBAY HIGH COURT WAS TOWARDS THE DIVISION OF THE ASSETS AND LIABILITIES BELONGING TO THE UNDIVIDED FAMILY AND IT IS INDISPUTABLY FOR MAKING EQUITABLE FAMILY SETTLEMENT. THE ASSETS OF THE FAMILY ARE DIVIDED AMONG THE VARIOUS FAMILY MEMBERS. EVEN THE STOCK OF IRON ORE AT THAT TIME WAS ALSO DIVIDED. THE LIABILITY ARISING DUE TO THE ORDER OF THE HON'BLE BOMBAY HIGH COURT, IN OUR OPINION, CANNOT BE A BUSINESS LIABILITY AS THE PRICE REALIZED BY THE ASSESSEE CAN ALSO NOT BE THE MARKET PRICE BUT THE PRICE PUT BY THE HON'BLE BOMBAY HIGH COURT IS FOR THE PURPOSE OF SETTLING THE DISPUTE MUTUALLY AMONG THE FAMILY MEMBERS AND DISTRIBUTE THE VARIOUS ASSETS AND LIABILITIES BY PUTTING CERTAIN VALUE TO THEM. IT CANNOT BE REGARDED TO BE SALE AT THE OPEN MARKET. IF ANY LOSS IS INCURRED BY THE ASSESSEE, THAT CANNOT BE REGARDED TO HAVE BEEN INCURRED DURING THE COURSE OF THE BUSINESS. WE RESPECTFULLY FOLLOWING THE ORDER OF TRIBUNAL WE ARE OF THE VIEW THAT THIS TRANSACTION OF THE ASSESSEE IS NOT A TRADING TRANSACTION AND IT IS ONLY A FAMILY DISTRIBUTE OF THE VARIOUS ASSETS AND LIABILITIES BY PUTTING CERTAIN VALUE OF THEM. IT CANNOT BE REGARDED TO BE SALE AT THE OPEN MARKET. UNDER SECTION 41(1) WHEREIN ALLOWANCE OR DEDUCTION HAS BEEN MADE FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND BY SUBSEQUENT YEAR. DURING THE PREVIOUS YEAR THE FIRST PERSON WHETHER CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BE NEFIT IN RESPECT OF TRADING LIABILITY BY WAY OF REMISSION AND SUBMISSION THEREOF THE AMOUNT OBTAINED BY SUCH PERSONS OR VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BY PROFIT AND GAIN OF THE BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOM E TAX OF THAT PREVIOUS YEAR. AS WE HAVE ALREADY HELD THAT THIS LIABILITY IS NOT A TRADING LIABILITY, THEREFORE, IT CANNOT BE TERMED AS BUSINESS LIABILITY, THEREFORE, AO ANDCIT(A) ARE JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. THIS G ROUND OF THE APPEAL IS DISMISSED. 17 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) 5 . IN RESPECT OF DEPARTMENTS APPEAL THE LEARNED DR RELIED UPON THE ORDER OF AO AND SUBMITTED THAT THE LIABILITY IN RESPECT OF CASH WHEREAS KAWASHO CORPORATION IS A CURRENT OPERATING ACCOUNT AND NOT THE OLD ACCOUNT AS CONC LUDED BY ASSESSING OFFICER , THEREFORE, IT CANNOT BE TREATED AS LIABILITY. 5 .1. LEARNED AR SUBMITTED THAT KAWASHO CORPORATION IS JAPANESE COMPANY WHICH WAS BUYING THE IRON ORE FROM THE COMPANY ON SALE CONTRACT WHICH STIPULATE QUALITY OF ORE AND LOADING TERM FOR VESSELS WITH DISPATCH FOR FAST LOADING OR DEMURRAGE FOR DELAYED LOADING WITH PAYMENTS FOR LOWER QUALITY ORE. THIS LIABILITY TO KAWASHO CORPORATION, JAPAN IS BALANCE OF CARRIED FORWARD LIABILITY AFTER DEDUCTING HE PAYMENTS MADE DURING THE YEAR. THE LEDGER COPY OF THIS ACCOUNT WAS SUBMITTED TO THECIT(A) AND CIT(A) HAS OBTAINED THE COMMENTS FROM ASSESSING OFFICER. AFTER OBTAINING THE COMMENTS THE COMMISSIONER HAS DELETED THIS ADDITION, THEREFORE, CIT(A) IS JUSTIFIED IN HIS ACTION. 5 .2. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE COMMISSIONER HAS VERIFIED THIS LIABILITIES AND COMMISSI ONER OF INCOME TAX HELD THAT THERE WAS A BUSINESS TRANSACTION BETWEEN THE PARTIES AND TOTAL LIABILITIES RS.61,878,658/ - AND SOME OF THE LIABILITIES WERE PAID DURING THE YEAR RS.33,647,574/ - AND THE RS.28,231,085/ - REMAINS PENDING. DURING THE YEAR THIS LIAB ILITY WAS PAID, THEREFORE,CIT(A) HAS DELETED THE ADDITION AND OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT, THIS GROUND OF DEPARTMENTS APPEAL IS DISMISSED. 6 . GROUND N O. 2.: - THE ASSESSING OFFICER HAS VERIFIED THE ACCOUNTS OF THE TOTAL DEBT REPORT BY THE ASSESSEE. THE ASSESSEE HAS TOTAL RETURN OF THE DEBT AT RS.6,33,32,974/ - AND OUT OF THIS DEBT TO THE EXTENT OF RS. 3,42,18,610/ - HAS BEEN ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER. IN RESPECT OF DEBT OF 18 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) RS.2,91,14,364/ - THE ASSESSING OFFICER HAS VER IFIED THE DETAIL OF BAD DEBT. THE ASSESSING OFFICER HAS VERIFIED THAT THIS DEBT IS FROM ORISSA STEVEDORS LTD. AMOUNTING TO RS.3,42,18,610/ - TO WHOM THE ASSESSEE COMPANY HAD PROVIDED TRANSHIPER AND OTHER MACHINERY WHICH FORMED PART OF THE ASSESSEES INCOME FOR THE A.Y.1998 - 99. THE ASSESSEE HAS TRIED TO RECOVER THE SAME FOR THE PAST 10 YEARS. THE ASSESSEE WAS NOT ABLE TO RECOVER THE AMOUNT, THEREFORE, IT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE ASSESSEE CONTENDED THAT WHEN ASSESSEE HAS WRITTEN OFF IN THE P/L ACCOUNT AS UNRECOVERED OF DEBT IT HAS BEEN ALLOWED AS BAD DEBT. BUT ASSESSING OFFICER WAS OF THE VIEW THAT THIS ADVANCES ARE OLD ADVANCES, THEREFORE,IT IS TO BE RECOVERED, THEREFORE, HE MADE THE ADDITION OF RS.2,91,14,364/ - . 6 .1. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER. 4.4. APART FROM THE ABOVE SUBMISSION, THE LEARNED COUNSEL OF THE APPELLANT ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF HARSHADC.CHOKSI V/S. CIT, REPORTED IN (2012)349 ITR 250 (BOM), WHICH IS A RECENT JUDGEMENT BY THE JURISDICTIONAL HIGH COURT. IN THIS CASE THE HONBLE HIGH COURT HELD THAT EVEN IF THE DEDUCTION IS NOT ALLOWABLE AS BAD DEBTS, THE TRIBUNAL OUGHT TO HAVE CONSIDERED THE ASSES SEES CLAIM FOR DEDUCTION AS BUSINESS LOSS. THIS IS PARTICULARLY SO AS THERE IS NO BAR IN CLAIMING A LOSS AS A BUSINESS LOSS, IF THE SAME WAS INCIDENTAL TO CARRYING ON OF A BUSINESS. THUS, THE FACT THAT CONDITIONS OF BAD DEBTS WERE NOT SATISFIED BY THE ASS ESSEE WOULD NOT PREVENT HIM FROM CLAIMING DEDUCTION AS A BUSINESS LOSS INCURRED IN THE COURSE OF CARRYING ON BUSINESS. 4.5. IN THE INSTANT CASE, THERE IS NO DOUBT THAT, THE BAD DEBTS CLAIMED WERE PAYMENTS INCIDENTAL TO ASSESSEES BUSINESS AND THEREFORE RA TIO OF THE JUDGEMENT OF THE ABOVE MENTIONED CASE IS SQUARELY APPLICABLE IN THE INSTANT CASE. THE UNREALIZED ADVANCES ARE TO BE ALLOWED AS BUSINESS LOSS AND THE A.O. IS DIRECTED TO DELETE THE ADDITION AMOUNTING TO RS.2,91,14,364/ - ON THIS ACCOUNT. THIS GROU ND OF APPEAL OF THE APPELLANT IS ALLOWED ACCORDINGLY. 6.2 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES.LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE COMMISSIONER HAS VERIFIED THE DEBT BALANCE AND NAME OF THE PARTY WHOM T HE ADVANCES HAVE BEEN MADE. 19 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) THE BREAK - UP PARAWISE GIVEN BY THE ASSESSEE BEFORE CIT(A) . THE ASSESSEE HAS ALSO GIVEN THE REASON FOR NOT RECOVERY THIS AMOUNT FROM THE RESPECTIVE PARTIES IN RESPECT OF KASHINATHSAKHALKAR. THE COMPANY HAD GIVEN OLD TRUCKS TO BE R EPAIRED AND OPERATED, AND TOWARDS THE REPAIRS AMOUNTS WERE PAID AND THIS AMOUNT REPRESENT THE BALANCE OF AMOUNTS PAID TO RESPECTIVE PARTIES AFTER ADJUSTING THE AMOUNT OF SUPPLIE S / SERVICES PROVIDED BY THEM. THESE BEING THE FACTS, IT IS VERY CLEAR THAT TH IS AMOUNT HAS BEEN ARISEN ON ACCOUNT OF BUSINESS TRANSACTIONS OF THE ASSESSEE AND THIS BALANCE ARE RELATED TO PAYMENTS IN COURSE OF BUSINESS. THESE PAYMENTS WERE MADE OUT OF THE INCOME OF THE ASSESSEE. THEY WERE WRITTEN OFF AS BAD DEBTS BY PASSING ENTRIES FROM THEIR ACCOUNTS TO PROFIT AND LOSS ACCOUNT. WE FIND THAT ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF VS. CIT 323 ITR 397 WHEREIN IT IS HELD THAT AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WE HAVE GONE THROUGH THE ORDER OF ASSESSING OF FICER AND THIS IS NOT A CASE OF ASSESSING OFFICER THAT THIS TRANSACTION AND CONSEQUENTIAL LOSS IS ON ACCOUNT OF OWN TRANSACTION OF THE ASSESSEE. THE ONLY OBJECTION OF THE ASSESSING OFFICER THAT THIS AMOUNT IS RECOVERABLE BUT WE FIND THAT ASSESSEE HAS WRIT TEN OF THIS AMOUNT IN BOOKS OF ACCOUNT AND THESE ARE OLD OUTSTANDING ADVANCES. THEREFORE, THE ASSESSEE HAS WRITTEN OFF THIS AMOUNT IN HIS BOOKS OF ACCOUNT. THEREFORE, CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT, DE PARTMENTS APPEAL IS DISMISSED. 7 . GROUND NO.3 : - THE ASSESSING OFFICER FOUND THAT THE ASSESSEE H AS DEBITED FOLLOWING EXPENSES TO THE REVENUE ACCOUNT WHICH READ AS SUNDER: CONSTRUCTION OF JETTY RS. 1,45,35,242/ - CONSTRUCTION OF ELECTRICAL TOWER - BELEKE RI RS. 2,51,293/ - GENERATOR BUILDING - BELEKERI RS. 66,920/ - PORT DEVELOPMENT EXPENSES RS. 98,96,258/ - 20 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) PORT RENT RS. 72,000/ - RECLAMATION WORK AT BELEKERI PORT RS. 1,38,500/ - RS. 2,49,60,213/ - THE ASSESSING OFFICER HAS GIVEN SHOW CAUSE NOTICE AND THE ASSESSEE HAS FURNISHED THE DETAILS AND ASSESSEE HAS STATED THAT IT HAS TAKEN A PLOT OF LAND ON LEASE FROM THE GOVT. OF KARNATAKA, DIRECTOR OF PORTS NEAR BALEKERI PORT. THE ASSESSEE HAS SPENT THIS MONEY IN DEVELOPING THE INFRASTRUCTURE ESPECIALLY NEEDED FOR THE SPECIFIC PURPOSE OF ASSESSEES BUSINESS. THE LAND IS SAID TO BE ON THE BANKS OF THE SEA AND IS CLOSE TO BALEKERI PORT. THE DEVELOPMENT HAS TAKEN PLACE IN ORDER TO TRANSPORT IRON ORE FOR EXPORT AFTE R LOADING THE BARGES IN THE JETTY DEVELOPED. THE ASSESSEE ALSO CONTENDS THAT THIS DEVELOPMENT IS NOT OF ANY ENDURING BENEFIT SINCE THE PLOT IS ONLY TAKEN ON LEASE FOR 3 YEARS AND THE RENEWAL IS AT THE DISCRETION OF THE GOVT. OF KARNATAKA. THE ASSESSEE HAS CLAIMED THE EXPENDITURE AS REVENUE EXPENDITURE. THE ASSES SING OFFICER HAS ALLOWED THE CAPITAL EXPENDITURE AS ELIGIBLE FOR DEPRECIATION @ 15 %. 7 .1. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 5.4. I HAVE GONE THROUGH THE CONTENTS OF THE ASSESSMENT ORDER AND HAVE PERUSED THE DETAILED SUBMISSION OF THE APPELLANT. THE A.O. DISALLOWED THE CLAIM OF REVENUE EXPENDITURE MADE BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS OBTAINED A PROLONGED ADV ANTAGE BY CONSTRUCTING A JETTY AND THEREFORE, THE EXPENDITURE INCURRED ON PORT DEVELOPMENT EXPENSES NEEDS TO BE CAPITALIZED. ON THE OTHER HAND, THE APPELLANT CONTENDED THAT THE DECISION TO DEVELOP AND CONSTRUCT A SMALL PORT (JETTY) IS A COMMERCIAL DECISION , AND INSPITE OF SPENDING MONEY, NO PERMANENT LONG - TERM RIGHTS COULD BE ACQUIRED BY THE APPELLANT. SINCE THE APPELLANT HAD GOOD PROFIT MARGIN IN THE EXPORT OF IRON ORE, SPENDING SO MUCH OF AMOUNT EVEN FOR A SHORT - TERM LEASE OF 3YRS. MADE BUSINESS SENSE. TH E A.O. ON THE OTHER HAND, HELD THAT THROUGH THE ORIGINAL LEASE WAS FOR THREE YEARS ONLY, BUT IT WAS RENEWABLE, WHICH GAVE ENDURING ADVANTAGE TO THE ASSESSEE. HOWEVER, T HE ASSESSEE CLAIMED THAT THEIR R IGHT ON THE LEASED LAND WAS FOR A LIMITED PERIOD AND ONL Y THOSE EXPENSES HAVE BEEN CLAIMED AS REVENUE EXPENSES WHICH WERE NECESSARY FOR MAKING THE LAND (JETTY) COMPATIBLE TO ASSESSEES BARGES THE MACHINERY OWNED BY THE ASSESSEE HAS BEEN DULY CAPITALIZED AND ARE REFLECTED IN ITS FIXED ASSETS. IT IS UNDISPUTED TH AT THE APPELLANT DID NOT OWN OR DID NOT HAVE ANY PERMANENT RIGHT ON THE LEASED LAND USED TO C ONSTRUCT JETTY. THE VARIOUS COUR T DECISIONS, RELIED UPON BY THE APPELLANT ALSO SUPPORT THE CAUSE OF THE APPELLANT. IN VIEW OF THE ABOVE, SINCE THE APPELLANT DID NO T OWN THE LAND AND THAT THE LEASE FOR ALSO FOR A REASONABLY SHORT TERM (3YRS.), IN MY OPINION, THE ASSESSEE CORRECTLY CLAIMED THE 21 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) PORT DEVELOPMENT EXPENSES AS REVENUE EXPENSES. THE A.O. IS DIRECTED TO DELE TE THE ADDITION OF RS.2,48,88,2 13/ - ON THIS A CCOU NT. THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED ACCORDINGLY. 7 .2. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS CLAIMED PORT EXPENSES OF RS. 2,48,88,213 / - AS REVENUE EXPENDITURE. THE ASSESSEE HAS TAKEN THE PLOT OF LAND FROM GOVT. OF KARNATAKA, DIRECTOR OF PORTS NEAR BELEKERI PORT. THE LEASE IS ONLY FOR THREE YEARS AND IT IS RENEWABLE. THE ASSESSEE HAS SPENT THIS MONEY IN DEVELOPING THE INFRASTRUCTURE FOR BUSINESS. THE LAND IS ON THE BANK S OF THE SEA AND IS CLOSE TO BALEKERI PORT. THE ASSESSEE HAS TO TRANSPORT THE IRON ORES FOR EXPORT AFTER LOADING THE BARGES IN THE JETTY DEVELOPED. THE ASSESSEE HAS NOT ENDURING BENEFIT THEREFORE, THIS EXPENSES IS TO BE TR EATED AS REVENUE EXPENDITURE AND AO HAS RIGHTLY ALLOWED THE DEPRECIATION @ 15%. 7 .3. ON THE OTHER HAND, LEARNED AR HAS FILED THE WRITTEN SUBMISSION WHICH READ AS UNDER: 11. AS REGARDS DISALLOWANCE OF PORT DEVELOPMENT EXPENSES OF RS. 2,48,88,213/ - WATER TRANSPORT. THE EXPENSES INCURRED ON DEVELOPMENT OF THE PORT ARE AS FOLLOWS: A) CONSTRUCTION OF JETTY. RS. 14,535,242/ - B) CONSTRUCTION OF ELECTRIC TOWER - BELEKERIRS. 251,293/ - C) SHED FOR GENERATOR RS. 66,920/ - D) PORT DEVELOPMENT EXPENSES RS. 9,896,258/ - E) PORT RENT RS. 72,000/ - F) RECLAMATION WORK AT BELEKERI PORT RS. 138,500/ - TOTAL EXPENSES RS. 24,960,213/ - 12 THE DETAILS OF THESE EXPENSES WERE AS UNDER: 12.1) RS. 14,535,242/ - TOWARDS EXPENDITURE INCURRED ONCONSTRUCTION OF JETTY, SURFACE PREPARATION OF PLOT,BUILDING QUAY WALL FOR THE BARGES TO BE TIED UPALONGSIDE QUAY WALL FOR RECEIVING IRON ORE DELIVERED BYTIPPER TRUCKS AND CONVEYOR BARGE LOADER BELT. 12.2)RS.251,293/ - INCURRED FOR THE CONSTRUCTION OF ELEC TRICTOWER IS TO PROVIDE FLOOD LIGHT ILLUMINATION FOR NIGHTLOADING OF BARGES, WHICH REMAINS BELOW THE RAMP WHENTHE TIPPERS UNLOAD THE IRON ORE. 12.3) RS.66,920/ - COST INCURRED TO PROTECT THE GENERATORPROVIDING POWER FOR NIGHT LOADING. 12.4) RS.9,896,258/ - E XPENDITURE FOR CONSTRUCTION OF RAMP FORTRUCK TO UNLOAD IRON ORE INTO THE HOLDS , CHARGES FOR H YDROCHLORIC SURVEY, CHARGES FOR 22 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) UNDERWATER INSPECTIONAND COLLECTION OF SOIL SAMPLES, EXPENSES TOWARDS DREDGING WORK, LEVELLING & FILLING EXPENSES. 12.5) RS. 138,500 / - EXPENS ES FOR PURCHASE OF CONSTRUCTION MATERIAL SUCH A S SAND, METAL, GRANITE BOULDER, RECLAMATION WORK AT THE PORT SITE. 13. FOLLOWING ARE THE SALIENT FEATURES OF THIS EXPENDITURE. 13.1) IT WAS A BUSINESS OPPORTUNITY THAT TOOK PLACE WITH BOOM FOR DEMAND OF IRON ORE. THE DECISION FOR EXPENDITURE WAS JUSTIFIED BECAUSE THE AMOUNTS SPENT OF ABOUT RS.250.00 LAKHS COULD BE RECOVERED BY EXPORT OF ABOUT 300,000 - 400,000 TONS AT THE RATE OF RS .50 - 70 PER TON WHERE THE PROFIT MARGIN WAS MORE THAN RS.300 PER TON. 13.2) THE ASSESSING OFFICERS COMMENT THAT THE LEASE IS RENEWABLE HAS TO BE LOOKED INTO, AS, IF THE LEASE IS NOT RENEWED THE BELEKERI PORT AUTHORITY STANDS TO ENRICH BY RS. 25,000,000 BEING THE EXPENDITURE MADE FOR THE DEVELOPMENT OF THE PLOT, THEREFORE THE ASSESSEE IS EXPOSED TO THE RISK OF LEASE NOT BEING RENEWED AND HAS RECOVERED TOTAL EXPENDITURE FROM PROFITS MADE FROM THE EXPORTS OF IRON ORE AFTER OFFSETTING THE EXPENDITURE ISSUED FOR THE DE VELOPMENT OF THE PORT. 13.3) THE LEASE STIPULATES VARIOUS CONDITIONS WHERE PERMISSION IS TO BE OBTAINED FROM VARIOUS GOVERNMENT AGENCIES. IT IS SUFFICIENT FOR ONE AGENCY TO DENY OR WITHHOLD THE PERMISSION WHEREBY THE OPERATION OF LOADING BARGES OR CARRYING LARGE ACTIVITIES COMES TO A STANDSTILL. THIS IS AGAIN ANOTHER REASON WHY EXPENDITURE CANNOT BE CAPITALIZED BUT TO CHARGE AS EXPENDITURE WHEN IT HAS TAKEN PLACE. THE INFRASTRUCTURE CREATED BY THE LESSEE FOR LOADING /UNLOADING OF THE CARGO AND OTHER PORT REL ATED ACTIVITIES ON THE DEMISED PORT LAND WILL BE PUT FOR COMMON UTILIZATION. THE LESSEE SHOULD NOT CLAIM ANY EXCLUSIVE RIGHT OVER THE USE OF SAID INFRASTRUCTURE. HOWEVER PORT AUTHORITY HAS THE RIGHT TO OFFER PRIORITY FOR THE USE OF SAID INFRASTRUCTURE TO L ESSEE. 14. THE ASSESSING OFFICER AGREED THAT THE ASSESSEE IS ENTITLED TO CHARGE THE EXPENDITURE TOWARDS THE BUSINESS EXPENSES. BUT, HE HELD THE VIEW THAT THE PLOT IS TAKEN ON LEASE FOR THE 3 YEARS, BUT THE LEASE IS RENEWABLE AND THE HUGE EXPENDITURE SO IN CURRED CREATES AN ASSET OF THE ENDURING BENEFIT. ACCORDING TO HIM JUST BECAUSE THE LEASE PERIOD IS INITIALLY FOR 3 YEARS THE ASSESSEES ARGUMENT THAT THE INFRASTRUCTURE SO DEVELOPED IS NOT OF PERMANENT NATURE CANNOT BE ACCEPTED; ALL OF A SUDDEN THE ASSETS CANNOT GET EXTINGUISHED AND IS AVAILABLE FOR THE ASSESSEES USE AS LONG AS THE LEASE SUBSISTS. HE STATED THAT IN THE EVENT THE LEASE IS TERMINATED THE ASSESSEE MAY TREAT THE TERMINAL LOSS IN THE MANNER PRESCRIBED UNDER THE LAW. ASSESSING OFFICER ALLOWED E XPENDITURE OF RS.72,000/ - TOWARDS PORT RENT AS REVENUE EXPENDITURE AND REMAINING EXPENDITURE OF RS. 24,888,213/ - HE TREATED AS CAPITAL ASSET UNDER BLOCK PLANT AND AFLOWED DEPRECIATION @15% ON IT. 15 . THE APPELLANT HAS SPENT THIS MONEY IN DEVELOPING THE INFRASTRUCTURE ESPECIALLY NEEDED FOR THE SPECIFIC PURPOSE OF THE APPELLANT BUSINESS - THE SMALL PORT FOR BARGES. 23 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) THE PLOT OF LAND IS TAKEN ON LEASE FOR THE PERIOD OF 3 YEARS AND IS RENEWABLE. THE RENEWAL OF THE LEASE IS AT DISCRETION OF THE GOVT. OF KARNAT AKA, WHICH ALONE HAS THE LAST SAY. 16. THIS EXPENDITURE INCLUDES AMOUNT INCURRED ON PREPARATION OF JETTY FACILITY AND OTHER WORK TO MAKE THE LAND FIT FOR THE BUSINESS OF THE APPELLANT I.E. TO FACILITATE THE BARGE OPERATION, LOADING/UNLOADING OF CARGO IN BA RGES. THE DEVELOPMENT HAS TAKEN PLACE IN ORDER TO TRANSPORT IRON ORE FOR EXPORT. ALL THE EXPENDITURE INCURRED FOR PORT DEVELOPMENT IS TO FACILITATE THE BUSINESS OPERATIONS OF THE APPELLANT. 17. THE ASSESSING OFFICER IS NOT CORRECT TO CONCLUDE THAT APPELLAN THAS CREATED AN ASSET BECAUSE: 17A) THE ABOVE SAID EXPENDITURE INCURRED FOR DEVELOPMENTWAS TO MAKE LEASED LAND FIT FOR USE AS PORT FOR BARGES. SO ONCE THE LEASE IS OVER NOTHING CAN BE RECOVERED FROM THESE EXPENDITURES. 17B) THIS EXPENDITURE HAS ONLY CREATE D THE LAND FIT FOR THE PURPOSE TO USE AS PORT. THE CERTIFICATE FROM PUNAGE ENGINEERS WHO HAS CONFIRMED THIS DEVELOPMENT ALSO EXPLAINS THE NATURE OF WORK DONE IS SUBMITTED CIT (APPEALS). 17C) THE MAJORITY OF THIS EXPENDITURE IS OF RECURRING NATURE, WHICH ME ANS THE APPELLANT HAS TO INCUR THE LAND FILLING EXPENDITURE NOW AND THEN AS THAT IS EVERY YEAR. 18. THE APPELLANT HAS PROPERLY CAPITALISED/TREATED AS ASSETS THE MACHINERIES, INSTALLATIONS ETC. ERECTED ON THIS LAND (PORT). SHIPLOADER AND STORE MAJOR RS. 1,3 6,48,938/ - WEIGH BRIDGE RS. 3,47,364/ - FURNITURE & FIXTURE RS. 17,735/ - COMPUTER RS. 12,620/ - OFFICE EQUIPMENT RS. 5,200/ - THE STATEMENT OF ADDITION TO FIXED ASSETS, FILED WITH THE ASSESSING OFFICER, WHICH COVER THESE ASSETS, WAS SUBMITTED TO CIT (A). 19. BY INCURRING THESE EXPENSES TO MAKE THE PLOT TO DO BARGE LOADING OPERATIONS, THE APPELLANT HAS SAVED LOTS OF EXPENDITURE AND BUSINESS OPPORTUNITY HAS INCREASED THE PROFITS, BECAUSE THERE WERE NO PROPER FACILITIES TO LOAD THE BARGES. IF THIS BARGE LOADI NG FACILITY WERE NOT CARRIED OUT, THE APPELLANT HAD NO OTHER ALTERNATIVE THAN TO MOVE THE ORE TO CHENNAI PORT WHERE THE PLOT CHARGES AND RAIL FREIGHT WOULD HAVE BEEN 3 TIMES THE COST OF MOVING THE ORE. 20. THE CURRENT SCENARIO IS DIFFERENT. PORTS ON EAST COAST SUCH AS KRISHNAPATNAM, KAKINADA AND GANGAVADHAN ARE NOW IN FULL OPERATION AND EXPORT IRON ORE FROM THESE PORTS FOR 12 MONTHS V/S BELEKERI FOR 7 MONTHS. THIS HAS RENDERED BELEKERI REDUNDANT AND NOT VIABLE. WITH THESE THREE PORTS IN OPERATION, LARGE S URPLUS OF EXPORT FACILITY IS AVAILABLE AS EXPORT QUANTITY IS DISTRIBUTED OVER FOUR PORTS. THERE IS UNCERTAINTY OF EXPORT OF IRON ORE FROM BELEKARI. LAST VESSEL LOADED BY THE COMPANY FROM BELEKERI PORT WAS ON 09TH APRIL 2008. WHATEVER DEVELOPMENT EXPENSES I NCURRED IS OF NO USE AS SUCH BECAUSE THE APPELLANT COULD USE THIS PORT FOR ONE AND HALF YEAR ONLY. 24 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) 21. FACT CAN BE SUMMARIZED AS BELOW: 21.1) THE QUANTUM OF EXPENDITURE INCURRED IS UNDISPUTED AS THE ASSESSING OFFICER HAS VERIFIED AND ACCEPTED THE TOTAL EX PENDITURE OF RS. 24,960,213/ - (WHICH INCLUDE THE PORT RENT OF RS. 72,000/ - ). 21.2) THE DEVELOPMENT IS ON LEASE PLOT FROM GOVERNMENT PORT AUTHORITIES AND NOT ON OWNED PROPERTY. 21.3) THE APPELLANT CAN NEVER BECOME THE OWNER OF THIS PROPERTY AND ITS DEVELOPM ENT. 21.4) THE APPELLANT HAS SPENT THIS MONEY IN DEVELOPING THE INFRASTRUCTURE I.E. PORT AS BUSINESS OPPORTUNITY ARISING FROM THE SUDDEN DEMAND FOR IRON ORE. 21.5) AFTER EXPIRY OF THE LEASE PERIOD APPELLANT WILL NOT HAVE ANY RIGHT/BENEFIT ON THE PROPERTY/ DEVELOPMENT. 21.6) THE APPELLANT WILL NOT BE ABLE TO RECOVER ANY THING FROM THIS EXPENDITURE FOR BELEKERI PORT. 21.7) IN VIEW OF THESE FACTS, THE EXPENDITURE HAS NOT CREATED AN ASSET AS SUCH. -- THE LEARNED AR HAS RELIED UPON THE DECISION OF CIT VS. MADRAS AUTO SERVICE (P.) LTD. [1998] 99 TAXMAN 575/233 ITR 468 (SC), CIT VS. BOMBAY DYEING AND MANUFACTURING CO. LTD. [1996] 219 ITR 521 (SC), L. H. SUGAR FACTORY AND OILS MILLS (P.) LTD. VS. CIT [1980 ] 125 ITR 293 (SC), LAKSHMIJI SUGAR MILLS CO. P. LTD. V. CIT [1971] 82 ITR 376 (SC), CIT VS. HEDE CONSULTANCY (P) LTD. 258 380 (BOM) . 8 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS MINING BUSINESS. THE ASSESSEE HAS TAKEN THE PLOT OF LAND NEAR BELEKERI PORT ON THE LEASE FROM THE GOVT. OF KARNATKA FO R THREE YEARS AND ON WHICH THE ASSESSEE HAS DEVELOPED THE INFRA STRUCTURE FOR TRANSPORTING THE IRON ORES FROM J ETTY TO ONWARDS. THEREFORE, ASSESSEE HAS CONSTRUCTED TEMPORARILY CONSTRUCTION AND IT IS NOT A PERMANENT STRUCTURE, THEREFORE, ASSESSEE HAS CLAIMED AS REVENUE EXPENDITURE. WE FIND THAT THE ASSESSEE HAS TAKEN THE DECISION TO DEVEL OP AND CONSTRUCT A SMALL PORT (JETTY) IS COMMERCIAL DECISION AND IN SPITE OF SPENDING MONEY, NO PERMANENT LONG TERM RIGHT COULD BE ACQUIRED BY THE ASSESSEE. BY USING OF THIS JETTY THE ASSESSEE HAD GOOD PROFIT MARGIN IN EXPORT OF IRON ORE, SPENDING SO MUCH OF AMOUNT EVEN FOR SHORT TERM LEASE OF 3 YEARS MADE BUSINESS SENSE. THE ASSESSEE 25 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) HAS GOOD PROFIT MARGIN IN EXPORT OF IRON ORE, SPENDING SO MUCH OF AMOUNT EVEN FOR SHORT TERM LEASE OF 3 YEARS MADE BUSINESS SENSE. THE ASSESSEES RIGHT ON THE LEASED LAND WAS FOR A LIMITED PERIOD AND ONLY THOSE EXPENSES HAVE BEEN CLAIMED AS REVENUE EXPENSES WHICH WERE NECESSARY FOR MAKING THE LAND COMPATIBLE TO BARGES. ALL THE MACHINERIES INSTALLE D/ERECTED ON THIS JETTY HAVE BEEN DULY CAPITALISED BY ASSESSEE. ON THIS GROUND CIT(A) WAS OF THE VIEW THAT THIS EXPENDITURE IS REVENUE IN NATURE. WE FIND THAT THE CIT(A) HAS HELD THAT THE ASSESSEE HAS TAKEN THE LAND USED FOR CONSTRUCTION OF JETTY HAS BEEN TAKEN ON LEASE AND THE LEASE IS ONLY FOR THREE YEARS AND ASSESSEE HAS NO PERMANENT RIGHT ON THIS JETTY. THEREFORE, THIS EXPENDITURE CANNOT BE CAPITALIZED. THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. WE FIND THAT IN THE CASE OF CIT VS. MADRAS AUTO SERVICES 233 ITR 468 WHEREIN THE A SSESSEE COMPANY WAS CARRYING THE BUSINESS OF SALE OF MOTOR PARTS. IT HAS A BRANCH AT BANGALORE. IN THE BANGALORE THE ASSESSEE TOOK PREMISES ON LEASE FOR 39 YEARS, AND THEN INCURRED THE EXPENDITURE ON DEMOLITION AND NEW CONSTRUCTION TO SUIT ITS BUSINESS REQUIREMENTS, RESULTING IN CONSIDERABLE SAVINGS BY WAY OF RENT LIABILITY. IN THE ABOVE CASE SUPREME COURT HELD THAT RIGHT FROM INCEPTION, THE BUILDING WAS OF THE OWNE RSHIP OF THE LESSOR. THEREFORE, BY SPENDING THIS MONEY, THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET. THE ONLY ADVANTAGE FROM BUSINESS POINT OF VIEW WHICH THE ASSESSEE DERIVED BY SPENDING THE MONEY WAS THAT IT GOT THE LEASE OF A NEW BUILDING AT A LOW REN T. THE ASSESSEE OBTAINED A BUSINESS ADVANTAGE AND THIS EXPENDITURE IS AS ALLOWABLE AS REVENUE EXPENDITURE. ON THE GROUND THAT ASSESSEE GET BUSINESS ADVANTAGE BY USING OF USING MODERN PREMISES AT A LOWER RENT. WE ALSO GET SUPPORTS FROM THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. BOMBAY DYEING AND MANUFACTURING CO. LTD. 219 ITR 521 (SC) WHEREIN THE COMPANY HAS CONTRIBUTED TO THE STATE HOUSING BOARD CERTAIN AMOUNTS FOR CONSTRUCTION OF TENEMENTS FO R ITS WORKERS. THE ASSESSEE COMPANY ACQUIRED NO OWNERSHIP RIGHTS IN THE TENEMENTS, AND THIS EXPENDITURE WAS TREATED 26 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) AS REVENUE EXPENDITURE. THEREFORE, CONSIDERING THE ABOVE DECISIONS OF THE HONBLE SUPREME COURT AND JURISDICTIONAL HIGH COURT OF BOMBAY, WE ARE OF THE VIEW THAT CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT, THIS GROUND OF THE APPEAL IS DISMISSED. 9 . GROUND NO. 4 : - THE ASSESSEE HAS DEBITED IN P & L ACCOUNT WIT H THE SUM OF RS.64,14,037/ - AS SALVAGE WREED REMOVAL EXPENSES. THE ASSESSEE HAS CLAIMED THAT THIS EXPENDITURE HAS INCURRED FOR REMOVAL OF TRANSHIPPERM.V.SANJIVINI WHICH SANK PRIOR TO 1996. THE WREEK REMOVAL WAS STARTED IN THE YEAR UNDER CONSIDERATION AND THIS EXPENDITURE IS WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF THE BUSINESS AND THAT THE EXPENSES ARE TOTALLY ALLOWABLE, THEREFORE, A SSESSEE CLAIMED THAT THIS EXPENDITURE SHOULD BE ALLOWED. THE AO DISALLOWED THE SAME. 9 .1. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE CLAIMED BY OBSER VING AS UNDER: I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. I AGREE WITH THE CONTENTION OF THE APPELLANT FOR THE FOLLOWING REASONS. 1 THE SHIP WHICH SUNK IN 1996 BELONGED TO THE APPELLANT COMPANY. 2 THE COST OF REMOVING THE SUNKEN SHIP WAS DEFINITELY HIGHER THAN THE RECOVERY FROM SALE OF SCRAP. BECAUSE OF WHICH THE APPELLANT DID NOT UNDERTAKE SALVAGE OPERATION ON ITS OWN. THE APPELLANT HAD TO UNDERTAKE SALVAGE OPERATIONS BECAUSE OF COUNT ORDER AND ANY IN SUBORDINATION WOULD HAVE BEEN DETRIMENTAL TO THE CARRYING ON OF BUSINESS OF THE ASSESSEE. 3 THE EXPENSES INCURRED ON SALVAGE OPERATIONS CANNOT BE TERMINATED AS ANYTHING APART FROM BUSINESS LOSS AND HAS TO BE ALLOWED AS SUCH AS THE EXPENSES ARE INVOL UNTARY AND ARE INCIDENTAL TO THE BUSINESS OF THE APPELLANT. 4 THE EXPENDITURE HAS TO BE ALLOWED IN THE YEAR IN WHICH IT HAS BEEN INCURRED AND INCOME, IF ANY, ARISING OUT OF SALE OF SCRAP HAS TO BE ACCOUNTED FOR IN THE YEAR OF RECEIPT. 27 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) IN THE VIEW OF THE ABOVE REASONS, THE A.O. IS DIRECTED TO ALLOW THE CLAIM OF SALVAGE WREEK EXPENSES AND THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED ACCORDINGLY. 9 .2 WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE W E FIND THAT THE M.V. SANJEEVANI, A SHIP WAS SUNK PRIOR TO 1996 AND AS PER THE COURT ORDER THE ASSESSEE CONDUCTED THE SALVAGE OPERATION OF THE SHIP IN THIS YEAR. THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE. THE COMPANY SHIP BELONG TO THE ASSESSEE AND AS PER THE COURT ORDER THE ASSESSEE HAS INCURRED THIS EXPEND ITURE FOR BUSINESS PURPOSE. THE ASSESSEE OFFER FOR TAXATION OF SALE VALUE OF SCRAP GENERATED IN THE YEAR IN WHICH IT IS SOLD. THE ASSESSEE HAS RELIED UPON THE DECISION OF CIT VS. CRESCENT FIL MS (P.) LTD. 214/248 ITR 670 (MAD.) WHEREIN IT IS HELD THAT IN THE CASE OF SALVAGING ASSET IF THE EXPENDITURE OR NATURE OF TRANSACTION IS SUCH AS TO BE REGARDED AS ONE IN THE REVENUE FIELD, IT CANNOT BE TREATED AS CAPITAL, MERELY BECAUSE SUCH EXPENDITURE IS INCURRED FOR THE PURPOSE OF SALVAGIN G THE CAPITAL. WE FIND THAT THE CIT(A) IS JUSTIFIED IN HIS TREATING THIS EXPENDITURE AS REVENUE EXPENDITURE AND OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT, REVENUE APPEAL IS DISMISSED ON THIS GROUND. ITA NO. 360/PNJ/2013 FOR A.Y. 2007 - 08 7. GROUND NO.2 &3 : - THE ASSESSEE HAS DEBITED IN P&L ACCOUNT WITH THE FOLLOWING EXPENSES. EXPENSES INCURRED TOWARDS DREDGING RS. 23,00,000 PORT CONCULVATORBRAKERY RS. 18,000 DECLAMATION WORK STYANAND V. NAIK RS. 38,03,107 NISARG ENTERPRISES RS. 5,19,674 TOWARDS GRANITE BOLDERS AND SAND TOTAL RS. 66,40,781 28 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) THE EXPENSES PAID TO THE PORT CONSERVATOR AND BILIKERIRS. 18,000/ - IS ALLOWED AS EXPENSES. HOWEVER, THE OTHER EXPENSES ARE CAPITAL IN NATURE AND RELIED UPON THE O RDER OF PREVIOUS YEARS. THE AO HAS DISALLOWED THE SAME AND HE HAS ALLOWED THE DEPRECIATION. THE AO HAS ALSO DISALLOWED THE REPAIR STO SMI JETTY AT BILIKERI RS.34,87,774/ - THE ASSESSING OFFICER HAS VERIFIED THE EXPENSES AND HE WAS OF THE VIEW THAT THIS EXP ENSES ARE CAPITAL IN NATURE, THEREFORE, DEPRECIATION ALLOWED AS PER THE PROVISIONS OF INCOME TAX ACT. THE ASSESSING OFFICER HAS ALSO DISALLOWED THE REPAIRING TO ZARBAG PROPERTY. THE ASSESSING HAS DEBITED P&L ACCOUNT WITH SUM OF RS.38, 02,140/ - . THE ASSESSE E EXPLAINS THAT THESE ARE RIVER SIDE PLOT USED BY THE ASSESSEE FOR STOCK PILING ORE AND IS SPENT ON ERECTING A COMPOUND WALL AROUND THE PLOT FOR SECURITY AND SAFETY REASONS. ON THE SAME ANALOGY IT CANNOT BE CONSIDERED AS A REVENUE EXPENDITURE AS THE ASSESS EE DERIVES ENDURING BENEFITS AND THE EXPENSES HAS TO BE CAPITALIZED AND DEPRECIATION IS ALLOWED. 7.1. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE EXPENSES BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT IT IS CLEAR FROM THE SUBMISSION OF THE APPELLANT THAT EXPENDITURE CLAIMED BY THE APPELLANT IS ROUTINE REPAIRS EXPENSES AND NO NEW CAPITAL ASSET HAS COME INTO EXISTENCE.WHICH MAY GIVE ASSESSEE ANY ADVANTAGE OF ENDURING NATURE. TH EREFORE, THESE EXPENSES HAVE CORRECTLY BEEN CLAIMED AS REVENUE EXPENDITURE BY THE APPELLANT. THE A.O IS DIRECTED TO DELETE THE ADDITIONS MADE. THE APPEAL O THE APPELLANT IS ALLOWED. 7.2. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO T HE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSING OFFICER HAS TREATED THE FOLLOWING EXPENDITURE AS CAPITAL EXPENDITURE WHICH IS BELEKERI PORT DEVELOPMENT EXPENSES RS.66,22,781, REPAIRS TO JETTY AT BELEKERI RS.34,87,774, REPAIRS TO ZARBAG P ROPERTY RS. 38,02,140. THE CIT(A) HAS VERIFIED THE EXPENSES AND AFTER VERIFICATION OF EXPENSES THE CIT(A) WAS OF THE VIEW THAT THIS EXPENSES 29 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) ARE A NATU RE OF REVENUE NATURE. THE WORK OF REPAIRS TO JETTY WAS GIVEN TO PUNAGE ENGINEERS. THE EXPENSES ON REPAIRS TO JETTY AT BELEKERI INCLUDE: SR.NO. NATURE OF EXPENSES AMOU NT A SITE MOBILIZATION (LABOURERS, MIXERS, VIBRATORS, WATER TANKS, WATER PUMPS, LABOUR SHEDS ETC) & DEMOBILIZATION AFTER COMPLETION RS. 125,000 B BREAKING OF OVERHUNG PLAIN CEMENT CONCRETE RS.6,030 C PROVIDING & FILLING WASHED OUT PORTION WITH GRANITE BOULDERS AND GRANITE SOLING RS. 118,118 D HAND PACK ING, RAMMING & COMPACTING WITH I OT ROLLER RS.27,060 E P /L PCC USING 20MM GRADED METAL INCL. MECHANICAL MIXING, COMPACTING, CURING, SIDE SHUTTERING ETC COMPLETE RS. 24,696 F P /L PCC USING 20MM GRADED METAL IN FLOOR INCL, MECHANICAL MIXING, VIBRATION, SIDE SHUTTERING BUT EXCL REINFORCEMENT RS.88,950 G P,F & TYING IN POSITION FOR STEEL REINFORCEMENT AS PER DRAWING & DESIG N RS. 77,120 H MOBILIZATION AND DEMOBILIZATION OF 75T CRANE FOR LIFTING & PLACING OF WAVE BREAKER BLOCKS. RS.900,000 I PROVIDING & FABRICATING STEEL FORM WORK FOR WAVE BREAKER BLOCKS RS.240,000 RS.240,000 J PROVIDING SHUTTING WITH PRE FABRICATED FORM WORK RS. 92,400 K PROVIDING & FIXING THE 100MM G.I. PIPE IN WAVE RS. 230,400 30 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) BREAKER BLOCKS TO FACILITATE LIFTING OF THE BLOCKS L CASTING OF WAVE BREAKER BLOCKS USING 40MM GRADED METAL INCL. MECHNICAL MIXING, VIBRATION, COMPACTION, CURING ETC EXCL. SHUTTERING RS. 1,152,000 M LIFTING & PLACING THE WAVE BREAKER BLOCKS WITH CRANE ALONG WITH THE SHORE AS DIRECTED RS. 256,000 N DIVING SERVICES, HIRE CHARGES OF CANOE AND OTHER MISCELLANEOUS SERVICES RS. 150,000 RS. 3,487,774 WE FIND THAT CIT(A) HAS ALSO HELD THAT THE SUM OF THE EXPENSES TOWARDS THE REPAIRS TO COMPOUND WALL COVERING THE PORT/JETTY AT BELEKERI AND THE MAINTENANCE OF THIS COMPOUND WALL IS COMPULSORY AS PER THE REGULATION FOR JETTY BY GOVERNMENT OF KARNATAKA, DEPARTMENT OF PORT AND INLAND WATER TRANSPORT. THIS IS REQUIRED FOR SAFETY AS WELL AS POLLUTION CONTROL. THIS WAS GETS DAMAGED FREQUENTLY BECAUSE OF VIBRATION CAUSED BY HEAVY TRANSPORT, THEREFORE, CIT(A) HAS TREATED THIS AMOUNT AS REVENUE IN NATURE. IN RESPECT OF ZAR BAG PROPERTY THE ASSESSEE IS HAVING PLOT FOR STOCK PILING NEAR USGAO, THIS IS TOWARDS THE REPAIRS TO COMPOUND WALL BECAUSE OF LOADING/UNLOADING & HEAVY MACHINERY OPERATION, THE COMPOUND WALL OF THIS PLOT GET DAMAGED FREQUENTLY. IT NEEDS TO BE REPAIRED EVER Y NOW & THEN. THEREFORE , THIS EXPENSES ARE IN REVENUE NATURE. WE FIND THAT IN THE CASE OF CIT(A) BELGACHI TEA CO. LTD. 99 ITR 99 (CAL), WHEREIN IT HELD THAT EXPENDITURE WAS INCURRED ON REPAIR TO FENCE OF TEA GARDEN, AND THE TRIBUNAL FOUND THAT THIS EXPENDI TURE HAS DIRECT NEXUS WITH THE BUSINESS, AND THIS EXPENDITURE ALSO CREATING AN ADVANTAGE OF ENDURING NATURE INCIDENTALLY, AND FOR THAT IT CANNOT BE TREATED AS REVENUE NATURE, THEREFORE, CONSIDERING OF THIS 31 . ITA NOS. 339 & 359/PNJ/2013 (A.Y.2006 - 07) ITA NO.360/PNJ/2013 (A.Y.2007 - 08) DECISION THE CIT(A) HAS TREATED THIS EXPENDITURE A S REVENUE EXPENDITURE AND OU R INTERFERENCE IS NOT REQUIRED. 6. IN THE RESULT, THE APPEAL S FILED BY ASSESSEE IS PARTLY ALLOWED. THE DEPARTMENTS APPEAL IS DISMISSED. ORDER PRO NOUNC ED IN THE OPEN COURT ON 2 6 .09 .2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 2 6 .09 .2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER