M/s. KEC INFRASTRUCRES LTD. (FORMERLY KEC INTERNATIONAL LTD., MUMBAI V. DCIT Rg. - 8(2), MUMBAI

ITA 3615/MUM/2006

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8019 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 30-07-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 09-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRITAM SINGH
• Assessee Lawyers: MANISH V SHAH
• Keywords: Depreciation; Business expenditure; Wholly owned subsidiary; Notional interest; Revenue expenditure; Capital expenditure
• Section: 44AD; 14A; 37; 28; 10

Judgement Text

, INCOME TAX APPELLATE TRIBUNALMUMBAI BENCH ES I MUMBAI , , ! BEFORE S.SH.VIJAY PAL RAO,JUDICIAL MEMBER AND RAJEN DRA,ACCOUNTANT MEMBER ./ ITA NO.3615/MUM/2006 ' ' ' ' # # # # / ASSESSMENT YEAR 2001-02 ./ ITA NO. 3702/MUM/2006 ' ' ' ' # # # # / ASSESSMENT YEAR 2001-02 ./ ITA NO. 3616/MUM/2006 ' ' ' ' # # # # / ASSESSMENT YEAR 2002-03 ./ ITA NO. 4020/MUM/2006 ' ' ' ' # # # # / ASSESSMENT YEAR 2002-03 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI MANISH V. SHAH + * / REVENUE BY : SHRI PRITAM SINGH ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 30/07/2014 -.# + ), / DATE OF PRONOUNCEMENT : 08/08/2014 PER BENCH: CHALLENGING THE ORDER DT.31.03.2006 OF THE CIT(A)-V III,MUMBAI,ASSESSEE-COMPANY AND THE ASSESSING OFFICER (AO) HAVE FILED CROSS APPEALS FOR THE YEAR UNDER CONSIDERATION.ASSESSEE HAS M/S. KEC INTERNATIONAL LTD. 3RD FLOOR, TRANSASIA HOUSE, CHANDIVALI STUDIO ROAD, CHANDIVALI, ANDHERI (E), MUMBAI-400072 PAN:AAACK4279J VS DCIT, RANGE-8(2), MUMBAI. DCIT, RANGE-8(2), MUMBAI. VS M/S. KEC INTERNATIONAL LTD. 3RD FLOOR, TRANSASIA HOUSE, CHANDIVALI STUDIO ROAD, CHANDIVALI, ANDHERI (E), MUMBAI-400072 PAN:AAACK4279J M/S. KEC INTERNATIONAL LTD. 3RD FLOOR, TRANSASIA HOUSE, CHANDIVALI STUDIO ROAD, CHANDIVALI, ANDHERI (E), MUMBAI-400072 PAN:AAACK4279J VS DCIT, RANGE-8(2), MUMBAI. DCIT, RANGE-8(2), MUMBAI. VS M/S. KEC INTERNATIONAL LTD. 3RD FLOOR, TRANSASIA HOUSE, CHANDIVALI STUDIO ROAD, CHANDIVALI, ANDHERI (E), MUMBAI-400072 PAN:AAACK4279J ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 2 RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO. 3615/MUM/2006 GROUND I: REDUCTION IN CLAIM FOR DEPRECIATION: 1.ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME TAX, RANGE 8(2), MUMBAI ('AO') OF REDUCING THE CLAIM FOR DEPRECIATION FROM RS. 20,52, 27,133/- TO RS. 16,78,38,734 BY FORCIBLY ALLOWING DEPRECIATION FOR THE A.Y 1999-00 WITHOUT C ONSIDERING THE FACT THAT THE CLAIM FOR DEPRECIATION ALLOWANCE WAS OPTIONAL FOR THAT YEAR I N VIEW OF SUPREME COURT RULING. 2.THE APPELLANT THEREFORE PRAYS THAT THE DEPRECIATI ON ALLOWANCE BE ALLOWED AS CLAIMED IN THE RETURN OF INCOME. GROUND II: DISALLOWANCE OF INTEREST ON BORROWINGS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DISALLOWING RS. 115.18 LAKHS, BEING INTEREST ON BOR ROWED FUNDS ON THE GROUND THAT THE FUNDS WERE UTILIZED FOR INVESTING IN SECURITIES EARNING TAX FR EE INCOME. 2. HE FURTHER ERRED IN CONFIRMING THE ACTION OF AO TO THE EXTENT OF DISALLOWING INTEREST ON BORROWINGS THAT WERE RAISED DURING THE PREVIOUS YEA R, ON PRORATA BASIS WITHOUT CONSIDERING THAT- A) THE INVESTMENT ACTIVITY IS A PART OF ONE COMPOSI TE AND INDIVISIBLE BUSINESS AND THERE IS COMPLETE UNITY OF CONTROL AMONGST DIFFERENT BUSINESS ACTIVIT IES; B) THERE IS NO NEXUS BETWEEN BORROWED FUNDS AND THE INVESTMENTS MADE IN SHARES OF OTHER COMPANIES; C) DIVIDEND ON SHARES IS NOT TAX-FREE IN VIEW OF SE CTION 115-0 AS HELD IN THE DECISION OF HON'BLE MUMBAI TRIBUNAL IN CASE OF M/S MAFATLAL HOLDINGS LT D VS ADDL CIT (ITA NO 235/M/02); D) INVESTMENTS ARE SUBJECT TO CAPITAL GAIN TAX LIAB ILITY ON THEIR SALES; AND E) THE APPELLANT HAS COMPLIED WITH THE PROVISION OF SECTION 36(1)(III) OF THE ACT. 3. THE APPELLANT PRAYS THAT DISALLOWANCE OF INTERES T ON BORROWINGS MADE DURING THE YEAR BE DELETED. 4. WITHOUT PREJUDICE, THE INTEREST WHICH HAS BEEN D ISALLOWED BE ALLOWED TO BE CAPITALIZED OR BE ALLOWED AS A DEDUCTION FROM THE SALE CONSIDERATION AS AND WHEN THE INVESTMENTS ARE SOLD. GROUND III: DISALLOWANCE OF INTEREST ON ADVANCE TO SUBSIDIARIES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CITCA) ERRED IN CONFIRMING THE ACTION OF AO OF DISALLOWING NOTIONAL INTEREST O N THE ALLEGED GROUND THAT THE BORROWED FUNDS WERE UTILISED FOR MAKING ADVANCE TO SUBSIDIARY DISR EGARDING THE FACT THAT NO INTEREST BEARING FUNDS WERE DIVERTED FOR GIVING ADVANCE TO THE SUBSIDIARY AND THAT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE ADVANCE GIVEN TO THE SUBSIDIA RY. 2. THE APPELLANT THEREFORE PRAYS THAT THE DISALLOWA NCE OF SUCH INTEREST BE DELETED. 3. WITHOUT PREJUDICE, THE AMOUNT OF DISALLOWANCE BE RESTRICTED TO INTEREST ON THE ADVANCES MADE DURING THE YEAR UNDER APPEAL. GROUND IV: DISALLOWANCE OF DEFERRED REVENUE EXPENSE S: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CITCA) ERRED IN DISALLOWING THE AMOUNT OF PENSION PAID TO EMPLOYEES UNDER SECTION 3 7(L) OF THE ACT. GROUND V: DISALLOWANCE OF LEGAL EXPENSES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CITCA) ERRED IN CONFIRMING THE ACTION OF THE A.O. OF DISALLOWING LEGAL EXPENSE S AMOUNTING TO RS. 5,000/- PAID TO THE SOLICITORS MS/. KANGA & CO. FOR REPRESENTING, DEFENDING AND AD VISING THE APPELLANT IN VARIOUS PROCEEDINGS BEFORE JUDICIAL AUTHORITIES. 2. THE APPELLANT PRAYS THAT THE WHOLE OF THE LEGAL EXPENDITURE OF RS. 5,000/- BE ALLOWED WHILE COMPUTING BUSINESS EXPENDITURE UNDER SECTION 37 OR IN THE ALTERNATIVE 1/5TH OF THE EXPENDITURE BE HELD AS ALLOWABLE UNDER SECTION 35DD OF THE ACT. 3. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PR AYS THAT DIRECTION BE GIVEN TO THE A.O. TO ALLOW THE EXPENSES/ AMORTISATION IN / WITH EFFECT FROM TH E YEAR IN WHICH THE COURT APPROVAL FOR AMALGAMATION IS RECEIVED. GROUND VI: DISALLOWANCE OF LOSS OF INDIAN CONSTRUCT ION DIVISION ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CITCA) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE LOSS INCURR ED IN THE INDIAN CONSTRUCTION DIVISION OF THE APPELLANT. GROUND VII: COMPUTATION OF INCOME UNDER THE HEAD 'I NCOME FROM HOUSE PROPERTY': 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O. TO RECOMPUTE INCOME UNDER THE HEAD 'INCOME FRO M HOUSE PROPERTY'. GROUND NO.VIII: THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER AND / O R AMEND ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. ITA NO. 3616/MUM/2006 AY.2002-03 GROUND I: DISALLOWANCE OF INTEREST ON BORROWINGS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DISALLOWING RS. 79.74 LAKHS, BEING INTEREST ON BORR OWED FUNDS ON THE GROUND THAT THE FUNDS WERE UTILIZED FOR INVESTING IN SECURITIES EARNING TAX FR EE INCOME. 2. HE FURTHER ERRED IN CONFIRMING THE ACTION OF DEP UTY COMMISSIONER OF INCOME TAX, RANGE 8(2), MUMBAI ('A.O.') TO THE EXTENT OF DISALLOWING INTERE ST ON BORROWINGS THAT WERE RAISED DURING THE PREVIOUS YEAR, ON PRORATA BASIS WITHOUT CONSIDERING THAT - A) THE INVESTMENT ACTIVITY IS A PART OF ONE COMPOSI TE AND INDIVISIBLE BUSINESS AND THERE IS COMPLETE UNITY OF CONTROL AMONGST DIFFERENT BUSINESS ACTIVIT IES; B)THERE IS NO NEXUS BETWEEN BORROWED FUNDS AND THE INVESTMENTS MADE IN SHARES OF OTHER COMPANIES; C) DIVIDEND ON SHARES IS NOT TAX-FREE IN VIEW OF SE CTION 115-0 AS HELD IN THE DECISION OF HON'BLE MUMBAI TRIBUNAL IN CASE OF M/S MAFATLAL HOLDINGS LT D VS ADDL CIT (ITA NO 235/M/02); D) INVESTMENTS ARE SUBJECT TO CAPITAL GAIN TAX LIAB ILITY ON THEIR SALES; AND E) THE APPELLANT HAS COMPLIED WITH THE PROVISION OF SECTION 36(1 )(III) OF THE ACT. 3. THE APPELLANT PRAYS THAT DISALLOWANCE OF INTERES T ON BORROWINGS MADE DURING THE YEAR BE DELETED. 4. WITHOUT PREJUDICE, THE INTEREST WHICH HAS BEEN D ISALLOWED BE ALLOWED TO BE CAPITALIZED OR BE ALLOWED AS A DEDUCTION FROM THE SALE CONSIDERATION AS AND WHEN THE INVESTMENTS ARE SOLD. GROUND II DISALLOWANCE OF INTEREST ON ADVANCE TO SU BSIDIARIES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF A.O. OF DISALLOWING NOTIONAL INTEREST ON THE ALLEGED GROUND THAT THE BORROWED FUNDS WERE UTILISED FOR MAKING ADVANCE TO SUBSIDIARY DISREGARD ING THE FACT THAT NO INTEREST BEARING FUNDS WERE DIVERTED FOR GIVING ADVANCE TO THE SUBSIDIARY AND T HAT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE ADVANCE GIVEN TO THE SUBSIDIA RY. 2. THE APPELLANT THEREFORE PRAYS THAT THE DISALLOWA NCE OF SUCH INTEREST BE DELETED. 3. WITHOUT PREJUDICE, THE AMOUNT OF DISALLOWANCE BE RESTRICTED TO INTEREST ON THE ADVANCES MADE DURING THE YEAR UNDER APPEAL. GROUND III: DISALLOWANCE OF LEGAL EXPENSES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. OF DISALLOWING LEGAL EXPENSES AM OUNTING TO RS. 5,000/- PAID TO THE SOLICITORS MS/. KANGA & CO.FOR REPRESENTING, DEFENDING AND ADV ISING THE APPELLANT IN VARIOUS PROCEEDINGS BEFORE JUDICIAL AUTHORITIES. 2. THE APPELLANT PRAYS THAT THE WHOLE OF THE LEGAL EXPENDITURE OF RS. 5,000/- BE ALLOWED WHILE COMPUTING BUSINESS EXPENDITURE UNDER SECTION 37 OR IN THE ALTERNATIVE 1/5TH OF THE EXPENDITURE BE HELD AS ALLOWABLE UNDER SECTION 35DD OF THE ACT. 3. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PR AYS THAT DIRECTION BE GIVEN TO THE A.O. TO ALLOW THE EXPENSES /AMORTISATION IN/ WITH EFFECT FROM THE YEAR IN WHICH THE COURT APPROVAL FOR AMALGAMATION IS RECEIVED. GROUND IV: COMPUTATION OF INCOME UNDER THE HEAD 'IN COME FROM HOUSE PROPERTY': 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O. TO RECOMPUTE INCOME UNDER THE HEAD 'INCOME FRO M HOUSE PROPERTY'. GROUND V: REDUCTION IN CLAIM FOR DEPRECIATION: ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 4 1. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. OF REDUCING THE C LAIM FOR DEPRECIATION FROM RS. 16,06,05,832/- TO RS. 1,34,41,8621- BY FORCIBLY ALLOWING DEPRECIATION FOR THE A. Y 1999-00 WITHOUT CONSIDERING THE FACT THAT THE CLAIM FOR DEPRECIATION ALLOWANCE WAS OPTIONAL FOR THAT YEAR IN VIEW OF SUPREME COURT RULING. 2. THE APPELLANT THEREFORE PRAYS THAT THE DEPRECIAT ION ALLOWANCE BE ALLOWED AS CLAIMED IN THE RETURN OF INCOME. GROUND NO. VI: DISALLOWANCE OF DEFERRED REVENUE EXP ENSES: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DISALLOWING THE AMOUNT OF PENSION PAID TO EMPLOYEES UNDER SECTION 3 7 (1) OF THE ACT. GROUND NO.VII: THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER AND 1 O R AMEND ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. THE GROUNDS OF APPEAL FILED BY THE AO READ AS UNDER : ITA NO. 3702/MUM/2006 AY.2001-02 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN GIVING RELIEF OF RS. 590.77 LACS OUT OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FROM THE INTEREST PAYMENT WITHOUT APPRECIATING THE FACTS OF THE CASE. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT RS. 7,05,95,024/- REPRES ENTED THE COST OF INTEREST ATTRIBUTABLE TO THE BORROWING UTILIZED FOR MAKING INVESTMENT IN SHARES AND NOT FOR THE PURPOSE OF BUSINESS. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF INTEREST TO RS. 318.86 INSTEAD OF R S. 485.80 ON ACCOUNT OF INTEREST FREE ADVANCES MADE TO ITS SUBSIDIARY BISPOKE INVESTMENT LTD. 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,52,43,8691- ON ACCOUNT OF LICENCE FEES PAYMENT MADE TO MIS RPG ENTERPRISES LTD., WITHOUT APPRECIATING THE FACTS OF THE CASE. 5.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT OF RS. 2,51, 43,8691- REPRESENTED THE LICENSE FEES PAID BY THE ASSESSEE TO USE THE LOGO OF 'RPG' AND WAS OF CAPITA L NATURE AND THAT THE ASSESSEE COULD NOT PRODUCE ANY SUBSTANTIVE EVIDENCE OF ANY SERVICES RE NDERED BY M/S RPG ENTERPRISES LTD. TO BE ELIGIBLE FOR RECEIVING SUCH LICENSE FEE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT UPHOLDING THE COMPUTATION OF INCOME FROM HOUSE PROPERTY MADE BY THE ASSESSING OFFICER. ITA NO. 4020/MUM/2006 AY.2002-03 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CITCA) ERRED IN DELETING THE DISALLOWANCE OF RS.L.80 CRORES ON ACCOUNT OF LICENC E FEES PAYMENT MADE TO M/S RPG ENTERPRISES LTD. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE S AND IN LAW. THE CITCA) ERRED IN NOT APPRECIATING THE FACTS THAT RS. 545.52 LACS REPRESE NTED THE COST OF INTEREST ATTRIBUTABLE TO THE BORROWING UTILIZED FOR MAKING INVESTMENT IN SHARES AND NOT FOR THE PURPOSE OF BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS ES AND IN LAW, THE CITCA) ERRED IN RESTRICTING THE DISALLOWANCES OF INTEREST TO RS. 236.04 LACS IN STEAD OF RS. 332.68 LACS ON ACCOUNT OF INTEREST FREE ADVANCES MADE TO ITS SUBSIDIARIES. 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE S AND IN THE LAW, THE CIT(A) ERRED IN NOT UPHOLDING THE COMPUTATION FROM HOUSE PROPERTY MADE BY THE ASSESSING OFFICER. 2.ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANU FACTURE OF TRANSMISSION TOWERS.AS MOST OF THE GROUNDS OF APPEAL FILED BY BOTH THE SIDES ARE M ORE OR LESS SAME,SO,FOR THE SAKE OF CONVENIENCE,WE ARE DECIDING BOTH THE MATTERS BY A S INGLE ORDER. DETAILS OF DATES OF FILING OF ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 5 RETURNS,INCOMES RETURNED,DATES OF ASSESSMENT,ASSESS ED INCOMES, DATES OF ORDERS OF THE CIT(A)CAN BE SUMMARISED AS UNDER: AY. RETURN FILED ON RETURNED INCOME ASSESSMENT DATE ASSESSED INCOME DT.OF CIT(A) ORDER 2001-02 31.10.2001 (-) 50,63,25,381/- 25.03.2004 (-) 31,47,34,525/- 31 .03.2006 2002-03 31.02.2002 (-) 73,85,20,038/- 30.07.2004 (-) 600,589,180/- 10. 04.2006 ITA NO. 3615/MUM/2006-AY.2001-02 : 3. THE FIRST GROUND OF APPEAL IS ABOUT REDUCING THE CL AIM FOR DEPRECIATION FROM RS. 20,52,27,133/- TO RS.16,78,38,734/-.DURING THE ASSESSMENT PROCEEDI NGS,THE AO FOUND THAT ASSESSEE HAD CLAIMED DEPRECIATION OF RS.20.52 CRORES,THAT IT DID NOT CLA IM DEPRECIATION IN THE AY 1999-2000 IN THE RETURN OF INCOME,THAT THE AO HAD ALLOWED DEPRECIATI ON IN THAT YEAR,THAT WHILE IT HAD CLAIMED DEPRECIATION OF RS. 20.52 CRORES IT HAD NOT TAKEN I NTO ACCOUNT THE DEPRECIATION ACTUALLY ALLOWED BY THE AO FOR THE AY 1999-2000, THAT BECAUSE OF NON CL AIMING OF DEDUCTION IN THE SAID YEAR THE WRITTEN DOWN VALUE OF BLOCK ASSETS AS ON 01.04.99 A ND 1.4.2000 REMAINED UNCHANGED, THAT FOR THE AY 2001-02 THE ASSESSEE HAD MADE A CLAIM OF RS. 20, 52,27,133/- TOWARDS DEPRECIATION ON THE FIXED ASSETS BASED ON THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS. ACCORDINGLY, THE DEPRECIATION ALLOWABLE IN THE YEAR UNDER CONSIDERATION WAS REWOR KED BY THE AO ADJUSTING WDV AS ON 1.4.2000 TAKEN INTO CONSIDERATION THE DEPRECIATION ACTUALLY ALLOWED BY THE AO. HE WORKED OUT THE DEPRECIATION ALLOWABLE AT RS. 16.78 CRORES IN PLACE AT RS. 20.52 CRORES.AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRS T APPELLATE AUTHORITY (FAA),WHO FOLLOWING THE ORDER FOR THE AY 1999-2000 UPHELD THE ORDER OF THE AO AND REJECTED THE GROUND RAISED BY THE ASSESSEE. 3.1. BEFORE US,AUTHORISED REPRESENTATIVE(AR)FAIRLY CONCE DED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY.1999-00,THE TR IBUANL(ITA/2059&1439/MUM/2004/,DTD. ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 6 17.10.2012)HAD DELIBERATED UPON THE ISSUE AS UNDER: 9.GROUND NO.12 IS REGARDING DEPRECIATION ALLOWANCE . THE AO NOTED THAT THE ASSESSEE HAD DEBITED DEPRECIATION OF RS.16,78,38,022/- IN THE P& L ACCOUNT WHICH HAD BEEN ADDED TO THE TOTAL INCOME. THE AO OBSERVED THAT THE ASSESS EE WAS REQUIRED TO DEDUCT THE DEPRECIATION ALLOWABLE AS PER INCOME TAX RULES WHILE COMPUTING GROSS TOTAL INCOME FOR GIVING DEDUCTION UNDER SECTION CHAPTER VIA WHICH HAD NOT BEEN DONE.HE DID NOT ACCEPT THE CLAIM OF THE ASSESSEE WHICH WAS BASED ON THE JUDGMENT OF HON 'BLE SUPREME COURT IN THE CASE OF CIT VS.MAHINDRA MILLS LTD.((243ITR56). THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT DEPRECIATION COULD NOT BE THRUST UPON THE ASSESSEE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF MAHI NDRA MILLS (SUPRA). IT WAS ALSO SUBMITTED THAT THE EXPLANATION 5 TO SECTION 32(1) WAS APPLIC ABLE ONLY FROM ASSESSMENT YEAR 2002-03 AND THEREFORE CLAIM OF THE ASSESSEE WAS ALLOWABLE . CIT(A) HOWEVER DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF INDIAN RAYON CORPORATI ON (261 ITR 98).AGGRIEVED BY SAID DECISION, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 9.1WE HAVE HEARD BOTH THE PARTIES IN THE MATTER.THE LD. AR FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE WAS COVERED AGAINST THE ASSESSEE BY THE FULL BENCH JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN CASE OF PLASTIBLENDS INDIA LIMITE D VS. ACIT (318 ITR 352). IN THE SAID JUDGMENT, IT HAS, BEEN CLEARLY HELD THAT TOTAL GROS S INCOME HAD TO BE COMPUTED IN ACCORDANCE TO PROVISIONS OF SECTIONS 30 TO 43D. THE HONBLE COURT ALSO HELD THAT DEDUCTION UNDER SECTION 80IACOULD NOT BE ENHANCED BY DISCLAIMING GRANT OF DEPRECIATION.THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT OF BOM BAY IN THE CASE OF PLASTIBLENDS INDIA LIMITED VS. ACIT (SUPRA), WE CONFIRM THE ORDE R OF CIT(A). 4. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF INTE REST ON BORROWINGS.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD MADE AN INVESTMENT IN SHARES AND MUTUAL FUNDS, THAT THE INCOME FROM SUCH INVESTMENT, IN FORM OF DIVIDEN D, WAS EXAMINED U/S 10(33) OF THE ACT, THAT ON 31.03.2001 THE TOTAL INVESTMENT IN SHARES AND SE CURITIES/DEBENTURES MADE BY THE ASSESSEE WAS OF RS.12022.34 LAKHS, THAT IT HAD RECEIVED DIVIDEND OF RS. 36,67,174/-, THAT IT HAD BORROWED FUNDS FROM BANKS AND FINANCIAL INSTITUTIONS FOR THE PURPO SE OF ITS BUSINESS, THAT INTEREST PAID ON SUCH BORROWINGS WAS CLAIMED AS DEDUCTION U/S 36(1)(3) OF THE ACT. CONSIDERING THESE FACTS,HE HELD THAT INTEREST BEARING FUNDS WERE UTILISED FOR INVESTMENT IN SHARES AND MUTUAL FUNDS,THAT THE INCOME FROM SUCH INVESTMENTS WAS CLAIMED EXAMINED U/S 10 O F THE ACT.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 14A SHO ULD NOT BE APPLIED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, HE MADE A DISALLOWANCE OF RS. 7.05 CRORES. 4.1. IN THE APPELLATE PROCEEDINGS, AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT THE ISSUE RAISED BE FORE HIM WAS REPETITIVE IN NATURE. REFERRING TO ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 7 THE ORDERS FOR THE AY 1999-2000,HE HELD THAT ASSESS EE WAS ENTITLED FOR PARTIAL RELIEF. HE DIRECTED THE AO TO VERIFY THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE FOR RETAINING THE DISALLOWANCE OF RS. 115.18 LAKHS IN PLACE OF RS. 590.77 LAKHS. 4.2. BEFORE US,AR AND THE DEPARTMENTAL REPRESENTATIVE ST ATED THAT IDENTICAL ISSUE HAD BEEN DECIDED IN THE ORDER FOR THE YEAR 2000-01(ITA4845/M UM/2004,DATED13.02.2013).WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL .WE FIND THAT IN THE ORDER FOR THE YEAR 2000- 01(SUPRA)THE TRIBUNAL HAS DISCUSSED AND HAS DECIDED THE ISSUE AS UNDER: 15.WE HAVE HEARD THE RIVAL ARGUMENTS AND WE ARE CONVINCED THAT THE ISSUE IS TRAVELLING FROM ASSESSMENT YEAR 1998-99 AND SIMILAR DIREC TION WAS GIVEN IN ASSESSMENT YEAR 1999- 2000 BY THE COORDINATE BENCH.WE ARE ALSO IN AGRE EMENT THAT FOR A CONSISTENT VIEW, THE AO HAS TO BE AFFORDED WITH THE SIMILAR DIRECTIONS, BUT AT THI S STAGE, WE CANNOT IGNORE THE PROVISIONS OF SECTION 14A, WHICH WAS INSERTED WITH RETROSPEC TIVE EFFECT FROM 01.04.1962.THIS ISSUE, WE FIND WAS TOUCHED UPON BY THE COORDINATE BENCH IN ITA NO. 4862/MUM/201 IN ASSESSMENT YEAR 1998-99, WHEREIN, IT WAS ARGUED THAT RATIO LAI D DOWN IN THE GODREJ & BOYCE MFG CO. LTD. VS. DCIT, REPORTED IN 328 ITR 81 COULD NOT B E APPLIED. THE AR, HAD SUBMITTED THAT ON THE FACTS, WHERE INTEREST FREE FUNDS ARE SUBSTANTI ALLY HIGHER THEN THE INVESTMENTS, IT WOULD BE APPROPRIATE THAT THE CASE OF RELIANCE UTILITI ES & POWER LTD. REPORTED IN 178 TAXMAN 135 (BOM) AND THE DECISIONS OF THE COORDINATE BENCHES AT MUMBAI,IN THE CASES OF DC IT VS. HDFC BANK, ITA NO. 991/2008 AND K-RAHEJA CORP.VS.DCIT, I TA NO. 4823/MUM/ 2007, BE APPLIED.THE COORDINATE BENCH IN THE ASSESSEES CASE IN A SSESSMENT YEAR 1998-99 DID CONCLUDE THAT THE ISSUE HAS NOT BEEN EXAMINED IN THE LIGHT OF SEC TION 14A, THE IMPUGNED ISSUE MAY BE RESTORED TO THE AO 16.IN THE LIGHT OF THE ABOVE, AND AS PER THE SEPARA TE SUBMISSIONS OF BOTH THE PARTIES, WE RESTORE THE ISSUE TO THE FILE OF THE AO WITH THE D IRECTION TO EXAMINE THE ISSUE IN THE LIGHT OF FUND FLOW STATEMENTS AND ALSO ON THE BASIS OF SECTION 1 4A(2) TO EXAMINE WHETHER AT ALL WITH THE CORRECTNESS OF THE CASH FLOW STATEMENT, ANY DISALLOWANCE COULD BE MADE U/S 14A AND THEN GO TO SECTION 36(1)(III). THE DISALLOWANCE, IF AT ALL, SHALL BE LOOKED INTO FROM BOTH THE ANGELS, I.E. 36(1)(III) AND SECTION 14A AND PROPER ADJUDICATI ON IS MADE, AFTER GIVING REASONABLE AND ADEQUATE OPPORTUNITY TO THE ASSESSEE. RESPECTFULLY,FOLLOWING THE SAME WE RESTORE BACK THE ISSUE TO THE FILE OF THE AO TO VERIFY THE FACTS IN LIGHT OF THE DIRECTIONS GIVEN IN THE ABOVE ORDER .GROUND NO.2 IS PARTIALLY ALLOWED. 5 .THIRD GROUND OF APPEAL IS ABOUT DISALLOWANCE OF IN TEREST ON ADVANCE TO SUBSIDIARY.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT IN THE EAR LIER YEARS THE THEN AO HAD DISALLOWED THE INTEREST ATTRIBUTABLE TO INTEREST FREE LOAN ADVANCE D TO ITS SUBSIDIARY COMPANY,THAT AT THE END OF THE YEAR AN AMOUNT OF RS. 48.53CRORES WAS OUTSTANDING A GAINST M/S BASPOKE FINVEST PVT. LTD.,THE SUBSIDIARY COMPANY.CALCULATING THE AVERAGE COST OF THE FUNDS @ 10.01,HE MADE A DISALLOWANCE OF ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 8 RS.4.85 CRORES IN THE APPELLANT PROCEEDINGS.THE FAA HELD THAT,FOLLOWING THE DECISION FOR THE EARLIER AY.,THE ASSESSEE WAS ENTITLED TO PARTIAL RE LIEF THAT HAD BEEN WORKED BY THE ASSESSEE AT RS. 166.94 LAKHS.HE DIRECTED THE AO TO VERIFY THE CORRE CTNESS OF THE CLAIM MADE BY THE ASSESSEE COMPANY. 5.1. BEFORE US,BOTH THE PARTIES AGREED THAT THE ISSUE WA S COVERED BY THE ORDER FOR THE EARLIER YEAR.WE FIND THAT IN THE ORDER FOR THE 1999-2000(SU PRA),TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: 6.2WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY.WE FIND THAT THE SAME ISSUE OF DISALLOWANCE OF INTEREST IN RELATION TO INTEREST FREE ADVANCE TO 100% SUBSIDIARY I .E. BESPOKE FINVEST LTD. HAD BEEN CONSIDERED BY T HE TRIBUNAL IN 1998-99 IN WHICH YEAR ALSO DISALLOWANCE HAD BEEN MADE BY AO ON SIMILAR BASIS. THE TRIBUNAL NOTED THAT THE ASSESSEE HAD NOT GIVEN ANY FRESH ADVANCE DURING THE CURR ENT YEAR AND OUTSTANDING BALANCE WAS DUE TO AMOUNT OF DIVIDEND RECEIVABLE AND AMOUNT OF ST AMP DUTY. THE TRIBUNAL ALSO OBSERVED THAT INTERNAL ACCRUAL WERE SUFFICIENT TO ADVANCE TH E AMOUNT TO THE SUBSIDIARY. THE TRIBUNAL ACCORDINGLY DELETED THE DISALLOWANCE MADE. IN T HIS YEAR, THE DISALLOWANCE IS MOSTLY ON ACCOUNT OF OPENING BALANCE WHICH HAS ALREADY BEEN DELETED BY THE TRIBUNAL IN ASSESSMENT YEAR 1998-99. IN THE CURRENT YEAR, THE ADVANCE GI VEN IS ONLY RS.8.00 LACS WHICH ARE EASILY EXPLAINED FROM THE CURRENT PROFIT OF RS.25.92 CRORES. WE, THEREFORE, SEE NO JUSTIFICATION FOR MAKING THE DISALLOWANCE. THE ORDER OF CIT(A) IS THEREFORE, SET ASIDE AND ADDITION MADE IS DELETED. 6. THE NEXT GROUND IS ABOUT DISALLOWANCE DEFERRED REVE NUE EXPENDITURE.WHILE COMPLETING THE ASSESSMENT,THE AO FOUND THAT THE ASSESSEE HAD CLAIM ED DEFERRED REVENUE EXPENDITURE OF RS. 33.79 LAKHS,WHICH INCLUDED PENSION PAID TO THE EMPLOYEES OF KURLA PLANT WHO HAD TAKEN VOLUNTARY RETIREMENT IN THE EARLIER YEARS.AFTER CONSIDERING T HE SUBMISSION FILED BY THE ASSESSEE IN THIS REGARD,HE HELD THAT AS PER THE PROVISIONS OF THE AC T DEDUCTION IN RESPECT OF PAYMENT OF ANY SUM TO AN EMPLOYEE AT THE TIME OF RETIREMENT WAS GOVERNED BY SECTION 35DDA OF THE ACT, THAT THE PENSION PAID TO VOLUNTARY RETIRED EMPLOYEES WOULD N OT BE TREATED AT PAR WITH THE ONETIME PAYMENT ELIGIBLE FOR DEDUCTION.ACCORDINGLY,HE MADE A DISALL OWANCE OF RS. 33.79 LAKHS. 6.1. IN THE APPELLATE PROCEEDINGS BEFORE THE FAA.THE ASS ESSEE CONTENDED THAT THE PENSION PAYMENT WAS ELIGIBLE AS EXPENDITURE,THAT IT WAS NOT IN THE NATURE OF COMPENSATION REFERRED TO IN SECTION 35DDA,THAT THE SECTION WAS RESPECTFULLY INTRODUCED W.E.F. THE AY 2002-03,THAT PROVISIONS OF THAT SECTION WERE NOT APPLICABLE FOR THE YEAR UNDER CONS IDERATION.AFTER CONSIDERING THE REPLY OF THE ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 9 ASSESSEE,THE FAA HELD THAT PROVISIONS OF SECTION 35 DDA WERE APPLICABLE FOR THE YEAR UNDER CONSIDERATION,THAT THE SCHEME IN WHICH ASSESSEE HAD PAID PENSION HAD BEEN APPROVED BY THE CCIT AS A VOLUNTARY RETIREMENT SCHEME, THAT TILL THE AY 2000-01 THE WHOLE OF THE AMOUNT WAS ELIGIBLE FOR DEDUCTION, THAT IN THE AY 2001-02 AMOUNT WAS T O BE RESTRICTED IN THE MANNER PROVIDED U/S 35DDA OF THE ACT.FINALLY,HE UPHELD THE ORDER OF THE AO. 6.2. BEFORE US, REPRESENTATIVES OF BOTH THE SIDES AGREED THAT ISSUE IDENTICAL ISSUE HAD ARISEN IN THE YEAR1999-00(SUPRA)AND SAME HAS BEEN DECIDED IN FAVO UR OF THE ASSESSEE.WE FIND THAT WHILE ADJUDICATING THE APPEAL FOR THAT YEAR THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: 12.5.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITUR E INCURRED ON ACCOUNT OF VRS.WE FIND THAT THE SAME ISSUE HAS ALREADY BEEN CONSIDERED BY THE TRIBU NAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR1998-99.THE TRIBUNAL FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. BHOR INDUSTRIES LTD.(SUPRA),ALLOWED THE CLAIM OF THE ASSESSEE.FACTS THIS YEAR ARE IDENTICAL.THEREFORE,RESPECTFULLY FOLLOWING THE D ECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 1998-99 (SUPRA),WE SEE NO INFIRMITY IN THE OR DER OF CIT(A) AND SAME IS, THEREFORE, UPHELD. 7. GROUND NO.6 PERTAINS TO DISALLOWANCE OF LEGAL EXPEN SES.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS. 2.51 CRORERS UNDER THE HEAD MISCELLANEOUS EXPENSES, INCLUDING LOGO EXPENSES, THAT THE SAID AM OUNT WAS PAID TO RPG ENTERPRISES PVT. LTD. (RPGEPL),THAT IT HAD ENTERED INTO AN AGREEMENT WITH RPGEPL ON 29.03.1999, THAT AS PER THE AGREEMENT IT WAS ALLOWED TO USE THE LOGO OF RPG TO THE ASSESSEE SUBJECT TO CERTAIN CONDITIONS, THAT THE AGREEMENT WAS EFFECTIVE FROM 01.04.1999 UP TO 3 1.03.2004. HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE LOGO EXPENSES SHOULD NOT BE T REATED AS CAPITAL EXPENDITURE.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT ASSESSEE HAD E NTERED INTO AN AGREEMENT IN THE PAST ALSO, THAT THE LONG TERM CONTRACT BOUND THE ASSESSEE TO MAKE T HE PAYMENT EVER YEAR WHETHER OR NOT ANY SERVICES WERE RENDERED BY RPGEPL IN ANY PARTICULAR YEAR, THAT THE AGREEMENT STIPULATED THAT RPGEPL WOULD HAVE RIGHT TO TERMINATE THE AGREEMENT, THAT THE AGREEMENT ENABLE IT TO USE THE LOGO SO THAT IT COULD PROJECTS CERTAIN STANDARDS AND QUA LITY IN THEIR BUSINESS, THAT THERE WAS NOTHING IN THE AGREEMENT THAT THE SUM PAID WAS TOWARDS ANY PAR TICULAR SERVICES RENDERED, THAT THE EXPENDITURE ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 10 INCURRED BY IT HAD NOT SATISFIED THE TEST OF LED OU T OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THAT IT HAD ALSO NOT ESTABLISH ED THE USE OF COMMON LOGO BY THE COMPANY HAD BEEN HELPFUL AND ENHANCING PROFIT OF THE BUSINESS. REFERRING TO THE ORDER FOR THE EARLIER YEARS, HE DISALLOWED THE AMOUNT OF RS. 2,51,43,869/- AS BUSIN ESS EXPENDITURE. 7.1. IN THE APPELLATE PROCEEDINGS IT WAS SUBMITTED BEFOR E THE FAA THAT IN EARLIER YEARS SIMILAR DISALLOWANCE OF PAYMENT MADE BY THE AOS WERE UPH ELD BY THE FAA,THAT IN THE CASE OF RPG THE FAA,IN HIS CONSOLIDATED ORDER FOR THE AY 1998-99 TO 2001-02 HAD VACATED THE ORDER OF THE AO'S AND HAD GIVEN RELIEF TO THE ASSESSEE, THAT THE FAA HAD HELD THAT SERVICES HAD BEEN RENDERED BY THE SAID CONCERN WHICH ASSOCIATES ENTITIES,INCLUDING TH E ASSESSEE COMPANY,THAT IN DOING SO RPGEPT HAD CARRIED OUT BUSINESS ACTIVITIES.AFTER CONSIDERI NG THE EARLIER YEARS ORDERS, REPLY OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT IN THE CONSOLIDATED ORDER FOR THE ABOVE REFERRED THREE AY.S.,THAT IT WAS ENGAGED IN CARRYING OUT THE BUSIN ESS ACTIVITY, THAT PROFIT/LOSS WAS TO BE TAXED IN TERMS OF SECTION 28 OF THE ACT, THAT CLAIM OF THE A SSESSEE WAS SIMILAR TO THAT ALL THE OTHER ASSOCIATE S CONCERNS REFERRED TO THE ABOVE, THAT IT WAS ALSO RE CEIVING THE SERVICES FROM RPGEPL.AS A RESULT, HE DELETED THE DISALLOWANCE MADE BY THE AO OF RS. 2 .51 CRORES AND ALLOWED THE APPEAL OF THE ASSESSEE. 7.2. BEFORE US,AR AND DR AGREED THAT IN THE AY.S.1998-99 AND 1999-2000 SIMILAR ISSUE HAD ARISEN BEFORE THE TRIBUNAL,THAT IN THE YEAR 1999-2000 ITAT ,HAD REMANDED THE MATTER TO THE AO, THAT FOR AY. 1998-99,THE AO,WHILE GIVING EFFECT TO THE ITAT S ORDER HAD ALLOWED THE LICENSE FEES.HE REFERRED TO THE CASES OF PHILIPS CARBON BLACK LTD. (ITA NO. 1316 (KOL.)/ 2003- DATED 25.04.2005)RPG TRANSMISSIONS LTD.(ITA NOS. 1807-180 9/MDS/2005 & ITA NOS. 751, 753 & 753/MDS/2005-DATED 23.01.2006),EVERREADY INDUSTRIES LTD. (ITA NO. 959/KOL/02)AND DUNCAN INDUSTRIES LTD.(ITA NO. 905/KOL./03).FROM THE RIVAL SUBMISSIONS IT IS CLEAR THAT IDENTICAL ISSUE HAS BEEN ALREADY DECIDED IN FAVOUR OF THE ASSESSEE.WE W OULD LIKE TO REPRODUCE THE ORDER FOR THE AY.2000-01(ITA/4845/MUM/2004/DTD.11.06.2014)WHICH READS AS UNDER: ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 11 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE PASSING ORDER U/S.143(3)R.W.S.254 OF THE ACT,IN PUR SUANCE OF THE ORDER OF THE TRIBUNAL FOR THE YEAR 1997-98,AO HAD ALLOWED THE LICENSE FEE CLAIMED BY T HE ASSESSEE FOR THAT YEAR.AS THE FACT AND CIRCUMSTANCES FOR THE YEAR UNDER APPEAL ARE IDENTIC AL TO THE FACTS OF EARLIER YEAR,SO,WE DECIDE THE GROUND NO.4 IN FAVOUR OF THE ASSESSEE. 8. NEXT GROUND IS ABOUT LEGAL EXPENSES.DURING THE ASSE SSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 7,500/-,BEING PA YMENT TO M/S KAMA & COMPANY, SOLICITORS,FOR ATTENDING COURT MATTERS IN CONNECTIO N WITH THE PRICE MERGER TO RPG TRANSMISSION LTD.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSE E, THE AO HELD THAT ISSUE HAD BEEN EXAMINED DURING THE PRECEDING AY IN DETAIL.REFERRING TO THE DECISION OF HON'BLE SUPREME COURT DELIVERED IN THE CASE OF BOMBAY DYING & MANUFACTURING CO. LTD. ( 219 ITR 521),HE HELD THAT THE CLAIM REGARDING SUCH EXPENSES FROM THE AY 2000-01 HAD TO BE SEEN IN LIGHT OF SECTION 35DD OF THE ACT,THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION EQ UAL TO 1/5 OF THE EXPENDITURE, THAT THE MERGER HAD NOT TAKEN PLACE THOUGH IT WAS TO BE EFFECTIVE F ROM 01.04.1997. HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE RELYING UPON THE ORDERS OF THE EARL IER YEARS.THE FAA HELD THAT DISALLOWANCE MADE BY THE AO WAS JUSTIFIED AND THERE WAS NO REASON FOR INTERFERING WITH HIS ORDER. 8.1. BEFORE US,IT WAS AGREED BY THE REPRESENTATIVES OF B OTH THE SIDES THAT THE ISSUE WAS DECIDED BY THE TRIBUNAL VIDE ITS ORDER 11.06.2014,WHILE DECIDI NG THE APPEAL FOR THE AY.2000-01(SUPRA). WE FIND THAT IN THAT ORDER ISSUE WAS DECIDED AS UNDER: 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE HAVE HEARD THE RIVAL SUBMISSIONS.THERE IS NO DOUBT THAT EXPENDITUR E INCURRED BY THE ASSESSEE FOR AMALGAMATION OR DEMERGER OF COMPANY CAN BE ALLOWED AS AN ALLOWABLE EXPENDITURE U/S.35DD OF THE ACT,BUT FOR THAT FACTUM OF AMALGAMATION OR MERGER SHOULD BE ESTABLIS HED.AS THE ASSESSEE HAD NOT PROVED THE FACT THAT EXPENDITURE WAS INCURRED FOR AMALGAMATION,SO,F AA WAS JUSTIFIED IN REJECTING ITS CLAIM FOR THE YEAR UNDER CONSIDERATION.ASSESSEE IS FREE TO CLAIM THE EXPENDITURE RELATED TO AMALGAMATION IN THE YEAR AMALGAMATION TOOK PLACE.BUT,FOR IN THE YEAR UN DER APPEAL SAID EXPENDITURE CANNOT BE ALLOWED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER WE DECIDE TH E ISSUE AGAINST THE ASSESSEE-COMPANY. 9. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF LOSS OF INDIAN CONSTRUCTION DIVISION (ICD), AO FOUND THAT THE ASSESSEE HAD NOT GOT ITS BOOKS OF AC COUNTS AUDITED/MAINTAINED IN RESPECT OF ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 12 ASSESSEE'S ICD BRANCH,JAIPUR, THAT THE ASSESSEE HAD CLAIMED LOSS OF RS. 26.11 LAKHS IN RESPECT OF THE SAID BRANCH. HE DIRECTED THE ASSESSEE TO EXPLAI N AS TO WHY LOSS SHOULD NOT BE DISALLOWED. THE ASSESSEE REPLIED THAT DUE TO UNION PROBLEMS THE BOO KS OF ACCOUNT OF ICD HAD BEEN SEIZED AND AUDIT COULD NOT BE CARRIED OUT.AFTER CONSIDERING TH E REPLY OF THE ASSESSEE THE AO HELD THAT THERE WAS VIOLATION OF PROVISION OF SECTION 44AB OF THE A CT,THAT THE LOSS CLAIMED BY IT AMOUNTING TO RS. 26.11 LAKHS HAD TO BE DISALLOWED AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 9.1. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER,DURING THE APPELLATE PROCEEDINGS,THE FAA HELD THAT NO EVIDENCE WAS PRODU CED AS TO HOW THE LOSS HAD BEEN ARRIVED AT BY THE ASSESSEE, THAT THE ONUS TO SUBSTANTIATE LOS S WAS SQUARELY UPON THE ASSESSEE. REFERRING TO THE PROVISIONS OF SECTION 44AD OF THE ACT,HE HELD THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE,THAT THE AO WAS JUSTIFIED IN EFFECTING LOS S CLAIMED BY IT. 9.2. BEFORE US,AR ARGUED THAT BECAUSE OF LABOUR UNREST A T JAIPUR ACCOUNTS OF ICD COULD NOT BE AUDITED,THAT FAILURE OF THE ASSESSEE WAS DUE TO REA SONS BEYOND ITS CONTROL,THAT LOSS HAD INCURRED AND SAME WAS CLAIMED IN THE RETURN OF THE INCOME.HE REFERRED TO THE PAGE NOS. OF THE PAPER BOOK(PB.)DR SUPPORTED THE ORDERS OF THE FAA. 9.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THERE WAS LABOUR PROBLEM AND BOOKS OF ACCOUNTS AND RELEVA NT DOCUMENTS WERE NOT IN THE POSSESSION OF THE ASSESSEE WHEN THE AUDIT TOOK PLACE.BECAUSE OF T HE SEIZURE OF NECESSARY DOCUMENTS IF THE ASSESSEE COULD NOT GET THEM AUDITED THEN IS SHOULD NOT BE PENALISED,PROVIDED THE CLAIM MADE BY IT IS OTHERWISE LEGAL AND ALLOWABLE.IN OUR OPINION,MAT TER NEEDS VERIFICATION AT THE LEVEL OF THE ASSESSEE. SO, IN THE INTEREST OF JUSTICE,WE ARE REM ANDING BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISS UE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.THE ASSESSEE WILL BE FREE TO PRODUCE THE EVIDENCE IN THIS REGARD.GROUND RAISED BY THE ASSESSEE STANDS PARTLY ALLOWED. ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 13 10. LAST GROUND OF APPEAL IS ABOUT COMPUTATION OF INCOM E UNDER THE HEAD INCOME FROM HOUSE PROPERTY.IN THE COMPUTATION OF INCOME,THE ASSESSEE HAD NOT INCLUDED A SUM OF RS. 70.686/- BEING UN-REALISED RENT FROM KAMANI METALIC OXIDES LTD. (K MOL) ON THE GROUND THAT THE PARTY WAS A CONTINUOUS DEFAULTER,THAT IT HAD DEBITED A SUM OF R S. 3.90 LAKHS, BEING RENT FROM THE ABOVE PARTY AS WELL AS KMOL ON THE GROUND THAT THESE WERE UN-RE ALISED RENT ELIGIBLE FOR DEDUCTION U/S 24(1)(X) R.W RULE 4.THE AO HELD THAT THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTABLE, THAT MERE FILING OF EVICTION NOTICE COULD NOT BE CONSIDERED A GROUND FOR CLAIMING DEDUCTION OF UNUTILISED RENT,THAT THE ASSESSEE HAD ALSO CLAIMED OTHER EXPEN SES OF RS. 2.77 LAKHS FOR WHICH THERE WAS NO PROVISIONS U/S 24(1) OF THE ACT.CONSEQUENTLY,INCOME FROM THE HOUSE PROPERTY WAS REVISED AS BY THE AO AS UNDER: TOTAL RENT REALISED/REALIZABLE RS. 1,34,81,124 LESS: MUNICIPAL & OTHER TAXES RS. 6,30,600 RS. 1,28,50,524 LESS: 1/4TH FOR REPAIRS RS. 32,12,631 INSURANCE RS. 57,062 RS. 32,69,693 RS. 95,80,831 IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE ISSUE OF REPETITIVE IN NATURE.REFERRING TO THE ORDERS OF THE EARLIER YEARS (SUPRA),HE PARTIALLY AL LOWED THE APPEAL FILED BY THE ASSESSEE-COMPANY. 10.1.BEFORE US,THE AR STATED THAT .HE RELIED UPON T HE ORDERS OF ALOO BEJAN DAVER (2381&2382/ MUM/2010),SHARMILA TAGORE(150 TAXMAN 4),J B PATEL(3 12ITR-AT,171).HE STATED THAT LATER AN AGREEMENT WAS SIGNED BETWEEN BOTH THE PARTIES,THAT THE PREMISES WAS OCCUPIED BY THE A COMPANY CONTROLLED BY THE EMPLOYEES.DR SUPPORTED THE ORDER OF THE FAA. 10.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO DID NOT HAVE BENEFIT OF LATER DEVELOPMENTS AND IN O UR OPINION EVENTS TAKING PLACE AFTER THE ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 14 ASSESSMENT PROCEEDINGS ARE RELEVANT FOR DECIDING TH E ISSUE.THEREFORE,IN THE INTEREST OF JUSTICE THE ISSUE IS BEING RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO HEAR THE ASSESSEE,BEFORE FINALISING THE ISSUE.LAST GROUND OF APPEAL IS PARTIALLY DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO. 3616/MUM/2006 AY.2002-03 11. GROUNDS NO.1TO 6 DEAL WITH DISALLOWANCE OF INTEREST ON BORROWINGS,DISALLOWANCE OF INTEREST ON ADVANCE TO SUBSIDIARIES,DISALLOWANCE OF LEGAL EXPEN SES,COMPUTATION OF INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY',REDUCTION IN CLAIM FOR DEPRECIATION,DISALLOWANCE OF DEFERRED REVENUE EXPENSES. 11.1. BEFORE US,AR AND THE DR AGREED THAT ALL THE ABOVE I SSUES WERE RAISED BY THE ASSESSEE IN THE APPEAL FILED FOR THE EARLIER AY.WE HAVE,WHILE DECID ING THE APPEAL FOR THE PRECEDING YEAR,DECIDED THE ISSUES OF DISALLOWANCE OF INTEREST ON BORROWING S,DISALLOWANCE OF INTEREST ON ADVANCE TO SUBSIDIARIES,DISALLOWANCE OF DEFERRED REVENUE EXPEN SES IN FAVOUR OF THE ASSESSEE.FOLLOWING THE SAME WE DECIDE THESE ISSUES IN ITS FAVOUR.WE HAVE D ECIDED THE ISSUE OF DISALLOWANCE OF LEGAL EXPENSES, AND REDUCTION IN CLAIM FOR DEPRECIATION AGAINST THE ASSESSEE.FOLLOWING THE SAME THESE TWO GROUNDS ARE DECIDED AGAINST IT.THE ISSUE OF COMPUTATION OF INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'WAS RESTORED TO THE FILE OF THE AO,BY US,W HILE ADJUDICATING THE APPEAL FILED FOR EARLIER YEAR.FOLLOWING THE SAME MATTER IS RESTORED BACK TO THE FILE OF THE AO. ITA NO. 3702/MUM/2006 AY.2001-02 12. NOW WE WOULD TAKE THE APPEALS FILED BY THE AO.FIRST TWO GROUNDS OF APPEAL ARE ABOUT DISALLOWANCE OF INTEREST ON BORROWINGS.BEFORE US,BO TH THE REPRESENTATIVES AGREED THAT ISSUE IS INTERRELATED WITH THE GROUND NO. 2 RAISED BY THE AS SESSEE.WE FIND THAT WHILE DECIDING THE ISSUE WE ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 15 HAVE RESTORED BACK THE MATTER TO THE FILE OF THE AO FOR FURTHER VERIFICATION.FOLLOWING THE SAME,WE ALLOW BOTH THE GROUNDS IN FAVOUR OF THE AO,IN PART. 13. GROUND NO.3 IS ABOUT INTEREST ON ADVANCE TO SUBSIDI ARIES.WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN PARAGRAPH NO.5.1. OF OUR ORDER.F OLLOWING THE GROUND NO.3 IS DECIDED AGAINST THE AO. 14. NEXT TWO GROUND IS ABOUT DISALLOWANCE OF LICENCE FE ES.IN PARAGRAPH NO.7.2 OF OUR ORDER WE HAVE HELD THAT THE LICENCE FEES PAID BY THE ASSESSE E TO THE PARENT COMPANY HAS TO BE ALLOWED.THEREFORE, GROUNDS NO.,4AND 5 FILED BY THE AO,ARE DISMISSED. 15. LAST GROUND OF APPEAL IS ABOUT COMPUTATION OF INCOM E FROM HOUSE PROPERTY.IN VIEW OF OUR ORDER FOR THE YEAR UNDER CONSIDERATION,AT PARA NO. 10.2 OF OUR ORDER MATTER IS BEING RESTORED BACK TO THE FILE OF THE AO.GROUND NO.6 IS PARTLY ALLOWED . ITA NO. 4020/MUM/2006 AY.2002-03 16. GROUNDS OF APPEAL FOR THE YEAR DEAL WITH DISALLOWAN CE OF LICENCE FEES(GROUND.1),INTEREST ON BORROWINGS(G.2),INTEREST ON ADVANCE TO SUBSIDIARIES (G3.) AND INCOME FROM HOUSE PROPERTY(G.4). FOLLOWING OUR ORDER FOR THE EARLIER YEAR GROUNDS NO .1 AND 3 ARE DISMISSED AND GROUNDS NO.2 AND 4 ARE PARTIALLY ALLOWED. AS A RESULT, APPEAL FILED BY THE AO AND BY THE ASS ESSEE STAND PARTLY ALLOWED. 0)1 , '() 2 '() 3 3 4 + 5 6 7)1 8 + ) 9:. ORDER PRONOUNCED IN THE O PEN COURT ON 08TH AUGUST, 2014 . 7 + -.# 6 <' 8 5) ,2014 . + 5 C SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, <'/ DATE: 08.08 . 2014 S.K. ITA NO.3515, 3616, 3702 & 4020/MUM/2006 M/S. KEC INTERNATIONAL LTD. 16 7 + &) E#) 7 + &) E#) 7 + &) E#) 7 + &) E#)/ COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ F G , 4. THE CONCERNED CIT / F G 5. DR I BENCH, ITAT, MUMBAI / H5 &)' , ... 6. GUARD FILE/ 5 0 ') &) ') &) ') &) ') &) //TRUE COPY// 7' / BY ORDER, I/9 DY./ASST. REGISTRAR , /ITAT, MUMBAI