LORD CHLORO ALKALI LTD., Jaipur V. ACIT, Jaipur

ITA 382/JPR/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5170 (ITAT-JAIPUR)
• Duration Of Justice: 5 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 1996-1997
• Appeal Filed On: 28-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI
• Keywords: Rejection of books of accounts; Capital asset converted into stock in trade; Capital asset; Business expenditure; Tax effect; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 40A(3); 143(3); 37(1); 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOE FLAG ;KNO] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF;D LNL; DS LE{K BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET K UMAR, JM VK;DJ VIHY LA- @ ITA NO. 382/JP/2011 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 1996-97 M/S LORD CHLORO ALKALI LIMITED, FORMERLY KNOWN AS MODI ALKALIES LIMITED, SP-460, MIA, ALWAR. CUKE VS. ACIT, CIRCLE-1, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCM 3981 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 420/JP/2011 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 1996-97 ACIT, CIRCLE-1, ALWAR. CUKE VS. M/S LORD CHLORO ALKALI LIMITED, FORMERLY KNOWN AS MODI ALKALIES LIMITED, SP-460, MIA, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCM 3981 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI D.S. KOTHARI (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 05/08/2016 MN?KKS'K .KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 19/08/2016 ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 2 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M.: BOTH THE CROSS APPEALS, ONE BY THE ASSESSEE AND AN OTHER BY THE DEPARTMENT ARISE AGAINST THE ORDER DATED 04/03/2011 PASSED BY THE LD CIT(A), ALWAR FOR THE A.Y. 1996-97. THE EFFECTIVE G ROUNDS OF BOTH THE APPEALS ARE AS UNDER:- GROUNDS IN REVENUES APPEAL:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE RS. 40,76,485/- MADE OUT OF S TORES AND SPARE EXPENSES. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISAL LOWANCE OF RS. 4,40,000/- MADE OUT OF LEGAL AND PROFESSIONA L CHARGES PROVISIONS BOOKED FOR BILLS NOT RECEIVED, T REATING THE SAME EXPENDED FOR GETTING A BENEFIT OF ENDURING NATURE. 3. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDIT ION OF RS. 90,400/- MADE IN RESPECT OF COLLECTION OF BENEV OLENT FUND U/S 2(24)(X) OF THE I.T. ACT NOT DEPOSITED IN BANK. 4. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE ENTERTAINMENT EXPENDITURE OF RS. 37,500/- OUT OF TO TAL DISALLOWANCE OF RS. 1,47,341/- MADE BY THE A.O. 5. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 3 ADDITION/DISALLOWANCE OF RS. 3,41,550/- MADE IN RES PECT OF GUEST HOUSE EXPENSES. 6. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDIT ION OF RS. 2,35,000/- MADE ON ACCOUNT OF PAYMENT OF CLUB. 7. THAT THE ID.CIT(A) HAS ERRED IN LAW AS WELL AS O N THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE VE HICLE EXPENSES TO RS. 1,20,000/- OUT OF TOTAL DISALLOWANC E OF RS. 2,00,000/-. 8. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING TO ALLOW THE PAYMENT OF EXCISE DUTY OF RS. 50,00,000/- AND 10,00 ,000/- PAID ON 31.08.1996 & 20.09.1996 RESPECTIVELY AS PER PROVISIONS OF SECTION 43B, OUT OF ADDITION MADE OF 5,33,24,729/- ON ACCOUNT OF ON PREMIUM MONEY COLLEC TED IN CASH ON SALE OF CHLORINE. 9. THAT THE ID. C1T(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING TO ALLOW THE CLAIM OF ASSESSEE AFTER VERIFYING THE AMOUNT FROM T HE RECORD IN RESPECT OF ADDITION MADE OF DIFFERENCE OF RS. 1,01,901/- IN MODVAT VALUE AVAILABLE IN VALUATION O F CLOSING STOCK OF RAW MATERIAL. 10. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE EX PENSES MADE ON ACCOUNT OF REPAIR OF VEHICLE TO RS. 3,02,00 0/- OUT OF TOTAL DISALLOWANCE OF RS. 6,02,000/-. 11. THAT THE ID. CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDIT ION OF RS. 10,00,000/- MADE OUT OF MANUFACTURING EXPENSES ON ACCOUNT OF VALUATION OF CLOSING STOCK. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 4 GROUNDS OF ASSESSEES APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.3,01,832/- OUT OF POWER AND FUEL EXPENSES. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.37 ,500/- U/S 37(2A) BY UPHOLDING THE ACTION OF THE AO IN ASS UMING THAT AN AMOUNT OF RS.75,000/- OUT OF EXPENDITURE ON EMPLOYEES WELFARE AND CANTEEN EXPENSES ARE OF ENTERTAINMENT IN NATURE. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF R S. 19,00,000/- ON ADHOC BASIS OUT OF REPAIRS AND MAINT ENANCE EXPENSES BY CONSIDERING THE SAME AS INCURRED ON REP AIRS OF THE GUEST HOUSE BUILDING. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.12,38,418/- OUT OF FOREIGN TRAVELLING EXPENSES. 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS. 1 ,04,108/- OUT OF LEGAL EXPENSES. 6. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.2, 00,000/- OUT OF THE PUBLICITY EXPENSES. 7. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS. 1 ,20,000/- OUT OF THE VEHICLE EXPENSES. 8. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.21,96,755/- OUT OF THE INTEREST PAYMENT. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 5 9. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.3, 45,600/- OUT OF INTEREST EXPENSES. 10. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN FACT AND IN LAW IN CONFIRMING ADDITION OF RS.82,67, 790/- U/S 40A(3). HE HAS FURTHER ERRED IN NOT CONSIDERING THE APPLICABILITY OF RULE 6DD(J) AS WAS EXISTING TILL 2 5-07-1995. 11. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS. 1 ,50,000/- OUT OF TELEPHONE EXPENSES. 12. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN FACT AND IN LAW IN NOT ALLOWING THE CLAIM OF PRIOR PERIOD EXPENSES OF RS.9,60,175/-. 13. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN FACT AND IN LAW IN CONFIRMING THE ADDITION OF RS.5,33,24,729/- ON ACCOUNT OF PREMIUM RECEIPT ON S ALE OF LIQUID CHLORINE. 14. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.3, 02,000/- OUT OF EXPENSES ON REPAIRS OF MOTOR CAR. 15. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN FACT AND IN LAW IN CONFIRMING ADDITION OF RS.4,7 3,264/- ON ACCOUNT OF LOSS IN TRANSIT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF LIQUID CHLORINE & CAU STIC SODA FLAKES. IT FILED THE RETURN DECLARING LOSS OF RS.11,08,211/- O N 26.11.96. ASSESSMENT WAS COMPLETED ON 30.03.1999 AT AN INCOME OF ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 6 RS.7,69,63,210/-. AGAINST THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), ALWAR. THE CIT(A) PASS ED AN EX-PARTE ORDER ON 25.01.2000 BY CONFIRMING MAJORITY OF THE A DDITIONS MADE BY THE AO. AFTER THE ORDER OF CIT(A), INCOME WAS DETER MINED AT RS.7,06,32,968/-. AGAINST THE ORDER OF CIT(A), BOTH THE ASSESSEE & THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE HONBLE I TAT. THE HONBLE ITAT VIDE ORDER DATED 19.09.2008, RESTORED THE MATT ER TO THE FILE OF THE CIT(A) TO DECIDE THE ISSUES DENOVO BY PROVIDING ADE QUATE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. IN PURSUANCE OF THE DIRECTION OF HONBLE ITAT, NOTICE OF HEARING WAS GIVEN TO THE ASSESSEE A S WELL AS THE AO. THE VARIOUS GROUNDS WHICH WERE SET ASIDE WERE DECID ED & DISPOSED OFF BY THE LD. CIT(A) VIDE ORDER DATED 04.03.2011. AGAI NST THE ORDER OF CIT(A), BOTH THE ASSESSEE & THE DEPARTMENT PREFERRE D THE PRESENT APPEAL BEFORE THE HONBLE ITAT. 3. FIRSTLY, WE WILL TAKE UP DEPARTMENTAL APPEAL ALO NG WITH COMMON GROUNDS IN BOTH THE APPEALS. THE FIRST GROUND OF TH E REVENUE IS AGAINST DELETING THE ADDITION/DISALLOWANCE OF RS. 40,76,485 /- MADE OUT OF STORES & SPARES EXPENSES. THE ASSESSEE CLAIMED EXPENDITURE OF RS. 52,99,623/- BEING THE COST OF TURBO CHARGER WHI CH IS A SPARE PART OF DG SET. IT WAS EXPLAINED THAT DG SET IS COVERED UND ER THE BREAK DOWN ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 7 POLICY OF INSURANCE. IN A.Y. 98-99, INSURANCE CLAIM OF RS. 32,76,485/- WAS RECEIVED & THE SCRAP VALUE OF OLD TURBO CHARGER WAS BOOKED AS MISCELLANEOUS INCOME & THEREFORE THE EXPENDITURE CL AIMED ON TURBO CHARGER IS ALLOWABLE AS REVENUE EXPENDITURE. THE AO OBSERVED THAT EXPENDITURE INCURRED IS ON CURRENT REPAIR BUT THE S AME SHOULD BE ALLOWED TO THE EXTENT OF PROCUREMENT OF NEW SPARE P ART MINUS INSURANCE RECEIVABLE MINUS AMOUNT RECEIVABLE ON SAL E OF OLD PART. ACCORDINGLY, AFTER ESTIMATING THE SALE OF OLD SPARE PARTS AT RS. 8 LACS, HE ALLOWED THE CLAIM OF EXPENDITURE AT RS. 12,23,138/- (RS.52,99,623 - RS.32,76,485 - RS.8,00,000) & DISALLOWED THE BALANC E AMOUNT OF RS. 40,76,485/-. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), W HO HAD DELETED THE DISALLOWANCE OF RS.40,76,485/- BY GIVING THE FOLLOW ING FINDINGS:- I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUB MISSION OF THE ASSESSEE. THE ASSESSEE HAS SHOWN INSURANCE CLAIM OF RS.32,76,485/- AND REALIZATION FROM THE SALE OF SCRAP OF DAMAGED T URBO CHARGER ON RECEIPT BASIS IN F.Y. 97-98 RELEVANT TO A.Y. 98-99. THEREFORE, THIS ADDITION IS NOT JUSTIFIED. ACCORDINGLY, THE ADDITIO N MADE AT RS.40,76,485/- IS DELETED. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 8 5. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD C IT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORI TIES. 6. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUB MITTED THAT THERE IS NO DISPUTE AS TO THE FACT THAT THE EXPENDITURE O N SPARE PART OF THE DG SET IS ALLOWABLE AS REVENUE EXPENDITURE. DURING THE YEAR, THE ASSESSEE INCURRED EXPENDITURE ON SUCH SPARE PART AT RS. 52,9 9,623/-. HENCE, THE ENTIRE EXPENDITURE IS ALLOWABLE DURING THE YEAR. TH E AMOUNT OF INSURANCE CLAIM & THE SALE OF THE OLD SPARE PART HA S MATERIALIZED & RECEIVED IN THE SUBSEQUENT YEAR ON 18.09.97 & ACCOR DINGLY CONSIDERED IN A.Y. 98-99. THE ASSESSEE IS FOLLOWING A CONSISTE NT ACCOUNTING POLICY WHEREBY INSURANCE CLAIM & RECOVERY OF COST TOWARDS ACCESSORIES ARE ACCOUNTED FOR ON CASH BASIS DUE TO UNCERTAINTY OF R EALIZATION. THIS IS SPECIFICALLY MENTIONED IN SCHEDULE P PARA A(1) OF THE SIGNIFICANT ACCOUNTING POLICIES & NOTES TO ACCOUNTS. IN THESE C IRCUMSTANCES, THE DEDUCTION OF INSURANCE CLAIM AND THE SALE REALIZATI ON FROM DAMAGED TURBO CHARGES FROM THE COST OF NEW TURBO CHARGES IS NOT JUSTIFIED. THE FINDINGS OF CIT(A) BE THEREFORE UPHELD BY DISMISSIN G THE GROUND OF THE DEPARTMENT. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 9 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE ASSESSEE IS FOLLOWING CONSISTENT ACCOUNTING POLICY WHEREBY INSURANCE CLAI M AND RECOVERY OF COST TOWARDS ACCESSORIES ARE ACCOUNTED FOR ON CASH BASIS DUE TO UNCERTAINTY OF REALIZATION. THE AMOUNT OF INSURANC E CLAIMED RECEIVED AS PER BREAKDOWN INSURANCE POLICY TAKEN FOR THE D.G. S ET AMOUNTING TO RS. 32,76,485/- AND REALIZATION FROM SALE OF SCRAP OF D AMAGED TURBO CHARGER AMOUNTING TO RS. 8 LACS HAS BEEN RECEIVED A ND OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEAR 1998-99. HENCE WE D O NOT SEE THAT THERE IS ANY LOSS WHICH HAS BEEN CAUSED TO THE REVE NUE BY NOT OFFERING THE SAID RECEIPTS IN THE YEAR UNDER CONSIDERATION. IT IS NOT THE CASE OF THE REVENUE THAT ANY TAX RATES HAVE CHANGED IN THE SUBSEQUENT YEAR. IN LIGHT OF ABOVE, WE DO NOT SEE ANY JUSTIFICATION IN INTERFERING WITH THE ORDER OF LD. CIT(A). HENCE WE CONFIRM THE FINDINGS OF THE LD. CIT(A) AND DISMISSED THE GROUND OF THE REVENUE. 8. THE 2 ND GROUND OF THE REVENUES APPEAL IS AGAINST DELETING THE DISALLOWANCE OF RS. 4,40,000/- MADE OUT OF LEGAL & PROFESSIONAL CHARGES TREATING THE SAME AS EXPENDITURE FOR GETTING A BENE FIT OF ENDURING NATURE. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIMED EXPENDITURE OF RS.4,40,000/- UNDER THE HEAD LEGAL & PROFESSIONAL ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 10 CHARGES. THE AMOUNT WAS PAID TO M/S JAISHREE TECHNO CRAFT, JAIPUR TOWARDS THE ENVIRONMENTAL STUDY UNDERTAKEN FOR CONV ERTING THE EXISTING MERCURY PLANT INTO A BETTER TECHNOLOGICAL MEMBRANE CELL PLANT. THE AO OBSERVED THAT THE EXPENDITURE INCURRED WAS TO GET A BENEFIT OF ENDURING NATURE, THE COPY OF REPORT OBTAINED WAS NOT FILED, INVOICE ISSUED BY THE PARTY IS DATED 26.07.1995 WHEREAS THE ORDER IS DATE D 25.12.1995. HE ACCORDINGLY, DISALLOWED THE EXPENDITURE OF RS.4,40, 000/-. 9. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), W HO HAD DELETED THE DISALLOWANCE BY HOLDING THAT THE EXPENDITURE WAS IN CURRED ON THE ENVIRONMENTAL IMPACT STUDY FOR MERCURY MCP PLANT WH OLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES AS IT WAS A C ONTINUOUS PROCESS OF THE COMPANY TO FOLLOW THE ENVIRONMENTAL POLICY. ACC ORDINGLY, THE ASSESSEE COMPANY TOOK THE TECHNICAL ADVICE AND INCU RRED THE EXPENDITURE AS REVENUE AND IT IS NOT FOR ENDURING B ENEFIT. 10. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORI TIES. 11. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SU BMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF LIQUID CHLORINE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 11 & CAUSTIC SODA FLAKES. IT IS ALREADY PRODUCING & MA NUFACTURING THE GOODS. ANY STUDY UNDERTAKEN FOR CONVERTING THE EXIS TING PLANT INTO A BETTER TECHNOLOGICAL PLANT IN AN EXISTING BUSINESS IS A REVENUE EXPENDITURE & NOT A CAPITAL EXPENDITURE. IT MAY BE NOTED THAT THOUGH THE PAYMENT IS MADE TO THE CONSULTANT TOWARDS THE E NVIRONMENTAL STUDY FOR CONVERSION OF EXISTING PLANT, SUCH CONSULTANCY, DOES NOT ADD TO THE VALUE OF THE ASSET OR GIVES ANY ENDURING BENEFIT TO THE ASSESSEE. THE PAYMENT OF CONSULTANCY CHARGES IS AN INTEGRAL PART OF PROFIT EARNING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RI GHT OF PERMANENT CHARACTER. APART FROM THE CASES RELIED BEFORE THE C IT(A), RELIANCE IS FURTHER PLACED ON THE FOLLOWING CASES:- HE RELIED O N THE FOLLOWING CASE LAWS:- (I) EFFLUENT CHANNEL PROJECT LTD. VS. ACIT (2010) 2 9 CCH 917 (AHD.) (TRIB.) (II) CIT VS. MAJESTIC AUTO LTD. (2009) 310 ITR 90 ( P&H) (HC) (III) ACIT VS. J.P. MORGAN INDIA (P.) LTD. (2011) 4 6 SOT 250 (MUM.) (TRIB.) HE FURTHER SUBMITTED THAT SO FAR AS THE AOS OBSERV ATION THAT ORDER IS DATED 25.12.1995 BUT INVOICE ISSUED BY THE PARTY IS DATED 26.07.1995, THE SAME APPEARS TO BE SOME TYPOGRAPHICAL MISTAKE. THIS WAS NEITHER POINTED OUT TO THE ASSESSEE IN THE COURSE OF ASSESS MENT PROCEEDINGS ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 12 NOR ANY ENQUIRY WAS MADE FROM THE CONCERNED PARTY A BOUT SUCH DISCREPANCY. HENCE, FOR THIS REASON THE EXPENDITURE WITHOUT PROVING THAT THE SAME IS NOT GENUINE CANNOT BE DISALLOWED. IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF RS.4 ,40,000/- AND THE GROUND OF THE DEPARTMENT BE DISMISSED. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AN AM OUNT OF RS.4,40,000/- HAS BEEN INCURRED BY THE ASSESSEE TOW ARDS THE ENVIRONMENTAL STUDY WHICH WAS UNDERTAKEN FOR CONV ERTING ITS EXISTING MERCURY PLANT INTO A TECHNOLOGICAL BETTER MEMBRANE CELL PLANT. THERE IS NOTHING ON RECORD TO CONFIRM THAT THE ASSESSEE H AS ACTUALLY CONVERTED THE EXISTING PLANT INTO THE NEW PLANT AND WHEREBY THE SAID COST SHOULD GO AND BE ADDED TO THE COST OF THE NEW PLANT. THE EXPENDITURE THEREFORE IS CLEARLY IN CONNECTION WITH CONDUCTING A STUDY TO MAKE THE PLANT TECHNOLOGICAL BETTER PLANT. IN OUR VIEW, THE SAID EXPENDITURE TOWARDS CARRYING OUT ONLY THE CONSULTANCY STUDY CAN NOT BE CHARACTERIZED AS A CAPITAL EXPENDITURE. FURTHER T HE DECISION OF PUNJAB & HARYANA HIGH COURT IN CASE OF MAJESTIC AUTO LTD. AND OTHER CO- ORDINATE BENCH DECISIONS QUOTED BY THE LD. AR SUPPO RT THE SAID POSITION. IN LIGHT OF ABOVE, WE DO NOT SEE ANY NECESSITY TO I NTERFERE TO THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 13 FINDINGS OF THE LD. CIT(A). HENCE GROUND NO.2 OF T HE REVENUE IS DISMISSED. 13. THE 3 RD GROUND OF THE REVENUES APPEAL IS AGAINST DELETING THE ADDITION OF RS. 90,400/- MADE IN RESPECT OF COLLECT ION OF BENEVOLENT FUND U/S 2(24)(X) OF THE I.T. ACT NOT DEPOSITED IN THE BANK. THE LD ASSESSING OFFICER OBSERVED THAT A BENEVOLENT FUND WAS CONSTITUTED FOR THE WELFARE OF EMPLOYEES & CONTRIBUTION WAS BEING M ADE BY THE EMPLOYEES & THE ASSESSEE. THE ASSESSEE CREATED A LI ABILITY OF RS. 90,400/- TOWARDS ITS CONTRIBUTION TO THIS FUND. THE AO DISALLOWED THE ASSESSEES CLAIM FOR THE REASON THAT THE SUM IS NOT DEPOSITED IN THE BANK AND IT WILL BE ALLOWED IN THE YEAR IN WHICH TH E SAME IS DEPOSITED IN THE BANK. 14. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), W HO HAD DELETED THE ADDITION OF RS.90,400/- BY HOLDING THAT THE ASSESSE E COMPANY HAS PAID THE SUM ON 31.08.1996 I.E. BEFORE THE DUE DATE OF F ILING THE RETURN AND THE EVIDENCE FOR PAYMENT HAS BEEN PRODUCED BY THE A SSESSEE. 15. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD LOWER AUTH ORITIES. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 14 16. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SU BMITTED THAT AS PER AS-29, A LIABILITY IS A PRESENT OBLIGATION OF THE ENTERPRISE ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES. IN MERCANTILE SYS TEM OF ACCOUNTING, ONCE THERE IS AN OBLIGATION ON THE ASSESSEE FOR CON TRIBUTION TO THE BENEVOLENT FUND, THERE IS NO LAW UNDER THE INCOME T AX ACT THAT THE SAME WOULD BE ALLOWED ONLY WHEN IT IS PAID/ DEPOSIT ED IN THE BANK IN THE NAME OF THE FUND EXCEPT WHERE SECTION 43B APPLI ES. THE AO HAS NOT DISPUTED THE LIABILITY. HENCE, THE SAME CANNOT BE D ISALLOWED ONLY BECAUSE IT IS NOT DEPOSITED IN THE BANK IN THE NAME OF THE FUND. OTHERWISE ALSO, THIS AMOUNT WAS PAID BEFORE 31.08.9 6. IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE ADDITION AND THE GROUND OF THE DEPARTMENT BE DISMISSED. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LIABILITY OF THE ASSESSEE TOWARDS ITS SHARE OF CONTRIBUTION TO THE B ENEVOLENT FUND FOR THE WELFARE OF THE EMPLOYEES HAS NOT BEEN DISPUTED. FURTHER THE LD. CIT(A) HAS CONFIRMED THAT THE SAID CONTRIBUTION HAS BEEN DEPOSITED BEFORE DUE DATE OF FILING THE RETURN OF INCOME, HE NCE IN LIGHT OF THE PROVISIONS OF SECTION 43B OF THE ACT THE SAID CONTR IBUTION HAS BEEN ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 15 RIGHTLY ALLOWED BY THE CIT(A). HENCE WE CONFIRM THE ORDER OF THE LD. CIT(A) AND WE DISMISS THIS GROUND OF REVENUES APPE AL. 18. THE 4 TH GROUND OF THE REVENUE AND 2 ND GROUND OF THE ASSESSEES APPEAL ARE AGAINST RESTRICTING THE DISALLOWANCE ON ACCOUNT OF ENTERTAINMENT EXPENSES TO RS.37,500/- OUT OF TOTAL DISALLOWANCE OF RS.1,47,341/- MADE BY THE ASSESSING OFFICER AND CON FIRMING DISALLOWANCE OF RS.37,500/- U/S 37(2A) BY UPHOLDING THE ACTION OF THE AO IN ASSUMING THAT AN AMOUNT OF RS.75,000/- OUT OF EXPENDITURE ON EMPLOYEES WELFARE AND CANTEEN EXPENSES ARE OF ENTER TAINMENT IN NATURE. THE AO OBSERVED THAT EXPENSES UNDER THE HEA D EMPLOYEES WELFARE AND CANTEEN EXPENSES INCLUDES EXPENSES ON TEA, COFFEE, COLD DRINKS ETC. FOR VISITORS. ACCORDINGLY, HE ESTIMATED RS.75,000/- IN THE NATURE OF ENTERTAINMENT EXPENDITURE. HE FURTHER OBS ERVED THAT EXPENDITURE OF RS.2,19,682/- UNDER THE HEAD REPAIR & MAINTENANCE EXPENSES ON BOARDING & LODGING OF ENGINEERS IS ALS O IN THE NATURE OF ENTERTAINMENT. ACCORDINGLY, HE MADE DISALLOWANCE OF RS. 1,47,341/- BEING 50% OF RS.75,000 AND RS. 2,19,682/- U/S 37(2 A) OF THE ACT. 19. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), W HO HAD DELETED THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 16 DISALLOWANCE OF RS.1,09,841/- BY HOLDING THAT THE E XPENDITURE INCURRED ON TECHNICAL PERSONS CALLED FOR ATTENDING THE REPAI RS OF FAULTS IN THE APPELLANTS PLANT CANNOT BE CONSIDERED AS ENTERTAINM ENT EXPENDITURE. HOWEVER, HE CONFIRMED THE DISALLOWANCE OF RS.37,500 /- BY UPHOLDING THE ACTION OF THE AO IN ASSUMING THAT AN AMOUNT OF RS.75,000/- OUT OF EXPENDITURE ON EMPLOYEES WELFARE AND CANTEEN EXPENS ES ARE OF ENTERTAINMENT IN NATURE. 20. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORI TIES. 21. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SU BMITTED THAT THE TERM 'ENTERTAINMENT', IN THE CONTEXT OF THE IT ACT, ON ITS TRUE CONSTRUCTION AND MEANING, WOULD INCLUDE THE ACTS OR PRACTICE OF RECEIVING AND ENTERTAINING STRANGERS AND FRIENDS IN A FRIENDLY, GENEROUS AND LIBERAL WAY. THESE ACTS MAY CONSIST OF PROVIDIN G, INTER ALIA, A FORMAL OR ELEGANT MEAL, A BANQUET AND BEING HOSPITABLE IN PROVIDING FOR THE WANTS OF A GUEST IN A LIBERAL AND GENEROUS MANNER. IF THE ACT OF ENTERTAINING IS ON A LAVISH AND A GRAND SCALE INVOL VING WASTEFUL EXPENDITURE, IT WOULD, NO DOUBT, AMOUNT TO ENTERTAI NMENT. ON THE OTHER HAND, IF THE ACTS OR PRACTICE OF BEING HOSPITABLE I N THE SENSE OF ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 17 PROVIDING MEALS, DRINKS OR OTHER WANTS OF PERSONS E NTERTAINED, WHETHER THEY MAY BE EMPLOYEES, WORKMEN OR OFFICERS, SERVANT S OR AGENTS IN THE SERVICE OF AN ASSESSEE, AS AN EXPRESS OR IMPLIED CO NDITION OF SERVICE, THEY WOULD NOT AMOUNT TO ACTS OF ENTERTAINMENT. SIM ILARLY, IF THE ACTS OR PRACTICE OF BEING HOSPITABLE IN THE SENSE OF PROVID ING MEALS, DRINKS OR SATISFYING ANY OTHER WANTS OF GUESTS, WHETHER THEY ARE FRIENDS, STRANGERS OR CUSTOMERS, AS A PART AND PARCEL OF EXP RESS OR IMPLIED TERMS AND CONDITIONS OF BUSINESS, TRADE OR PROFESSION, OR ON ACCOUNT OF LONGSTANDING CUSTOM IN SUCH TRADE, BUSINESS OR PROF ESSION, THEY WOULD NOT AMOUNT TO ACTS OF ENTERTAINMENT. HOSPITALITY SH OWN ON ACCOUNT OF OBLIGATION OF BUSINESS ARISING AS A RESULT OF AN EX PRESS OR IMPLIED CONTRACT OR ARISING ON ACCOUNT OF THE LONG STANDING CUSTOM OF A TRADE, BUSINESS OR PROFESSION, CANNOT AMOUNT TO ENTERTAINM ENT, AND ACTS DONE IN DISCHARGE OF SUCH OBLIGATION CANNOT BE INCLUDED AND COVERED IN THE TERM 'ENTERTAINMENT' WITHOUT VIOLENCE TO LANGUAGE. IN THE PRESENT CASE, THE EXPENDITURE INCURRED ON BOARDING & LODGING OF T ECHNICAL PERSONS CALLED FOR ATTENDING THE REPAIRS OR FAULT IN THE AS SESSEES PLANT CANNOT BE CONSIDERED AS ENTERTAINMENT EXPENDITURE. THE LD. CI T(A) HAS THEREFORE RIGHTLY DELETED THE DISALLOWANCE OF RS. 1,09,841/- AND THE GROUND OF THE DEPARTMENT BE DISMISSED. HE FURTHER SUBMITTED THAT SO FAR AS ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 18 DISALLOWANCE OF RS.37,500/- MADE BY THE AO AND CONF IRMED BY THE CIT(A) BY ASSUMING THAT AN AMOUNT OF RS.75,000/- OU T OF EXPENDITURE ON EMPLOYEES WELFARE AND CANTEEN EXPENSES ARE OF EN TERTAINMENT IN NATURE IS CONCERNED, IT IS TO BE NOTED THAT PART OF THE CANTEEN EXPENSES WHICH IS MEANT FOR THE EMPLOYEES WHERE OCCASIONALLY THE VISITORS ALSO TAKE MEALS/COFFEE CANNOT BE SAID TO BE ENTERTAINMEN T IN NATURE. RELIANCE IN THIS CONNECTION IS PLACED ON FOLLOWING CASES:- (I) CIT VS. PREMIER VEGETABLE PRODUCTS LTD. (2014) 97 DTR 230 (RAJ.) (HC) (II) ASSOCIATED STONE INDUSTRIES (KOTAH) LTD. VS. CIT (2002) 123 TAXMAN 643 (RAJ.) (HC) (III) RAJASTHAN COTTON MILLS VS. CIT (1987) 32 TAX MAN 365 (RAJ.) (HC) IN VIEW OF ABOVE, THE DISALLOWANCE RS.37,500/- CONF IRMED BY THE CIT(A) BE DELETED. 22. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AMOUNT OF RS. 2,19,682/- HAS BEEN INCURRED ON BOARDING AND LO DGING OF ENGINEERS WHO HAVE BEEN CALLED UPON TO CARRY OUT REPAIR OF FA ULTS IN THE APPELLANTS PLANT. FURTHER RS. 75,000/- HAS BEEN E STIMATED BY THE AO TOWARDS ENTERTAINMENT EXPENDITURE WHICH HAS BEEN IN CURRED ON ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 19 EXPENSES OF TEA, COFFEE, COLD DRINKS ETC. FOR THE V ISITORS WHO HAVE VISITED THE OFFICE AND FACTORY PREMISES OF THE ASSESSEE. I N OUR VIEW THESE ARE ROUTINE BUSINESS EXPENDITURE WHICH HAS BEEN INCURRE D TO PROVIDE BASIC HOSPITALITY TO THE TECHNICIANS AND GUESTS WHO HAVE VISITED THE OFFICE AND FACTORY PREMISES. FURTHER THE DECISIONS OF THE HON BLE RAJASTHAN HIGH COURT IN CASE OF PREMIER VEGETABLE PRODUCTS, ASSOC IATED STONE INDUSTRIES AND RAJASTHAN COTTON MILLS (SUPRA) SUPPO RT THE CASE OF THE ASSESSEE. IN LIGHT OF ABOVE, WE DELETE THE DISALLO WANCE OF ENTERTAINMENT EXPENDITURE OF RS. 1,47,341/- MADE BY THE AO. IN THE RESULT THIS GROUND OF THE REVENUE IS DISMISSED AND THE GROUND OF THE ASSESSEE IS ALLOWED. 23. THE 5 TH GROUND OF THE REVENUES APPEAL IS AGAINST DELETING THE ADDITION/DISALLOWANCE OF RS. 3,41,550/- MADE IN RES PECT OF GUEST HOUSE EXPENSES. THE AO FROM THE PERUSAL OF DETAILS OF MIS CELLANEOUS EXPENSES FILED BY THE ASSESSEE OBSERVED THAT A SUM OF RS.10, 61,482/- HAS BEEN SHOWN AS GUEST HOUSE EXPENSES FOR DELHI OFFICE. HOW EVER, AS PER THE TAX AUDIT REPORT, ONLY RS.7,19,965/- HAS BEEN CONSI DERED FOR DISALLOWANCE. IN THE ABSENCE OF EXPLANATION, THE AO MADE FURTHER DISALLOWANCE OF RS. 3,41,550/-. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 20 THE LD CIT(A) DELETED THE DISALLOWANCE OF RS.3,41, 550/- BY HOLDING THAT THE ASSESSEE HAS FILED THE COPY OF AUD IT REPORT BEFORE ME WHICH SHOWS FOODING AND MISCELLANEOUS CHARGES AT RS .8,55,975/- WHICH HAS ALREADY BEEN CONSIDERED BY THE AUDITOR FOR DISA LLOWANCE OF EXPENSE UNDER THIS HEAD. THEREFORE, AGAIN THE DISALLOWANCE IS NOT JUSTIFIED. THE LD CIT DR HAS RELIED ON THE ORDER OF THE LD LO WER AUTHORITIES. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUBMIT TED THAT IT MAY BE NOTED THAT ONCE THE AUDITOR AFTER VERIFICATION HAS FOUND THE GUEST HOUSE EXPENSES OUT OF MISCELLANEOUS EXPENSES AT RS. 7,19, 965/-, THE SAME CANNOT BE TAKEN AT RS. 10,61,480/- ON THE BASIS OF THE BROAD DETAILS FILED BY THE ASSESSEE. THE CIT(A) HAS THEREFORE RIG HTLY DELETED THE DISALLOWANCE AND THE GROUND OF THE DEPARTMENT BE DI SMISSED. 24. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD. CIT(A) HAS GIVEN A FINDING OF FACT THAT AS PER TAX AUDIT REPORT SUBM ITTED BEFORE HIM, AN AMOUNT OF RS. 8,55,975/- WHICH INCLUDES RS.7,19,965 /- TOWARDS THE GUEST HOUSE EXPENSES FOR DELHI OFFICE HAS ALREADY BEEN CONSIDERED BY THE AUDITOR FOR DISALLOWANCE OF THE GUESTHOUSE EXPE NSES. THE SAID FINDINGS OF THE LD. CIT(A) REMAIN UNCONTROVERTED. IN LIGHT OF THAT, WE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 21 DONOT SEE ANY JUSTIFICATION FOR ESTIMATION OF EXPEN SES AS DONE BY THE AO. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CI T(A) AND THE GROUND OF THE REVENUE IS DISMISSED. 25. THE 6 TH GROUND OF THE REVENUES APPEAL IS AGAINST DELETING THE ADDITION OF RS. 2,35,000/- MADE ON ACCOUNT OF PAYME NT TO CLUBS. THE AO OBSERVED THAT THE ASSESSEE HAS MADE PAYMENTS FOR THE CLUB MEMBERSHIP OF ITS CHAIRMAN, MD & SENIOR EXECUTIVES. ACCORDINGLY, BY HOLDING THAT THE CLUB PAYMENTS ARE NOT EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, HE MADE DISALLOWANCE OF RS.2,35,000/-. THE LD. CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT THE EXPENDITURE INCURRED ON CLUB IS FOR THE PURPOSE OF BUSINESS AS HELD BY VARIOUS COURTS. THE LD CIT DR HAS RELIED ON THE ORDER OF THE LD LO WER AUTHORITIES. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUBMIT TED THAT IT MAY BE NOTED THAT THE PAYMENT MADE TO CLUB TOWARDS CORPORA TE MEMBERSHIP IS ALLOWABLE AS BUSINESS EXPENDITURE. APART FROM THE C ASES RELIED BEFORE THE CIT(A), RELIANCE IS FURTHER PLACED ON THE FOLLO WING CASES:- (I) CIT VS. GROZ BECKERT ASIA LTD. (2013) 351 ITR 196 (P&H)(HC)(FB) ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 22 (II) CIT VS. INFOSYS TECHNOLOGIES LTD. (2012) 349 ITR 606 (KAR.)(HC) (III) CIT VS. MODI XEROX LTD. (2012) 344 ITR 411 ( ALL.) (HC) (IV) CIT VS. SAMTEL COLOUR LTD. (2010) 326 ITR 425 (DEL.) (HC) IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE DI SALLOWANCE AND THE GROUND OF THE DEPARTMENT BE DISMISSED. 26. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. GROZ BECK ERT ASIA LTD (SUPRA) HAS HELD THAT CORPORATE MEMBERSHIP DOES NOT BRING IN THE EXISTENCE AN ASSET OR AN ADVANTAGE FOR ENDURING BENEFIT TO THE BUSINESS. THE CORPORATE MEMBERSHIP WAS OBTAINED FOR RUNNING THE B USINESS. IN LIGHT OF THE SAID DECISION AND OTHER DECISIONS OF THE HON BLE HIGH COURT QUOTED (SUPRA) BY THE LD. AR, WE CONFIRM THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY HELD THAT THE EXPENDITURE INCURRED ON PAYMENTS TO CLUBS IS IN THE NATURE OF BUSINESS EXPENDITURE. 27. THE 7 TH GROUND OF THE REVENUES APPEAL AND 7 TH GROUND OF THE ASSESSEES APPEAL ARE AGAINST RESTRICTING THE VEHIC LE EXPENSES TO RS.1,20,000/- OUT OF TOTAL DISALLOWANCE OF RS.2,00, 000/- AND CONFIRMING DISALLOWANCE OF RS.1,20,000/- OUT OF THE VEHICLE EX PENSES. THE LD AO ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 23 OBSERVED THAT ASSESSEE HAS CLAIMED EXPENSES ON VEHI CLE WHICH ARE NOT OWNED BY IT. THE VEHICLES ARE USED FOR PERSONAL PUR POSE BY THE DIRECTORS. ACCORDINGLY, HE MADE LUMP SUM DISALLOWAN CE OF RS. 2 LACS. THE LD. CIT(A) OBSERVED THAT DAY TO DAY DETAILS OF EXPENSES ARE NOT MAINTAINED AND THEREFORE NON BUSINESS USE OF TH E EXPENSES CANNOT BE RULED OUT, REGISTRATION NO. OF VEHICLES ARE NOT FILED, PROVISION OF RS.1,20,000/- IS MADE WHICH IS ADJUSTED IN SUBSEQUE NT YEAR AND THEREFORE THIS LIABILITY HAS NOT BEEN CRYSTALLIZED, PERQUISITE VALUE IS INCLUDED IN SOME CASES ONLY AND THEREFORE HE CONFIR MED DISALLOWANCE OF RS.1,20,000/-. THE LD CIT DR HAS RELIED ON THE ORDER OF THE LOWER AUTHORITIES. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT FOR ALLOWANCE OF VEHICLE EXPENSES IT IS NOT NECESSARY THAT VEHICL E SHOULD BE OWNED BY THE ASSESSEE. EVEN IF VEHICLES ARE OWNED BY THE EMP LOYEES EXPENDITURE ON THEIR VEHICLE IS ALLOWABLE U/S 37(1) WHEN INCURR ED FOR THE PURPOSE OF THE BUSINESS. IN CASE OF A PUBLIC LTD. COMPANY NO D ISALLOWANCE FOR PERSONAL USE OF DIRECTORS CAN BE MADE AS HELD IN TH E FOLLOWING CASES:- (I) SURYA CREDITS LTD. VS DCIT 22 TAX WORLD 90 (JA IPUR BENCH): (II) DY. CIT VS GUJARAT FILAMENTS LTD. 108 TAXMAN 287 (AHD.) (MAG.): ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 24 (III) BANCO PRODUCTS (INDIA) LTD. VS DY. CIT 63 IT D 370(AHD.): (IV) ITO VS ASHOKA BETELNUT CO. (P.) LTD. 21 TTJ ( MAD.) 465 . HE FURTHER SUBMITTED THAT THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS.1,20,000/- AS LIABILITY FOR THIS AMOUNT WAS PROV IDED AT THE YEAR END. IT MAY BE NOTED THAT THIS IS A CRYSTALLIZED LIABILI TY WHICH IS PAID IN THE NEXT YEAR AS ACCEPTED BY THE CIT(A). NO SPECIFIC EX PENDITURE INCURRED FOR NON BUSINESS PURPOSE HAS BEEN POINTED OUT. THER EFORE, THE DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED. WITHOU T PREJUDICE, IT MAY BE POINTED OUT THAT THE CIT(A) IN THE FIRST ROUND H AS ONLY CONFIRMED THE DISALLOWANCE OF RS.1,00,000/-. THEREFORE, DISALLOWA NCE OF RS.1,20,000/- CONFIRMED BY CIT(A) IS OTHERWISE NOT JUSTIFIED. IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED BY DISM ISSING THE GROUND OF THE DEPARTMENT. 28. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE VEHICLE EXPENSES HAVE BEEN DISALLOWED ON TWO ACCOUNTS. FIRSTLY ON A/ C OF NON-BUSINESS USE OF THE EXPENSES AND SECONDLY, ON A/C OF PROVISI ONS OF RS. 1,20,000. IT IS A SETTLED POSITION IN LAW THAT IN CASE OF COR PORATE ENTITIES, NO DISALLOWANCE CAN BE MADE FOR PERSONAL USE AS CORPOR ATE ENTITIES ARE DISTINCT FROM DIRECTORS AND ANY PAYMENTS/EXPENDITUR E INCURRED FOR ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 25 DIRECTORS ARE GOVERNED BY THEIR TERMS OF APPOINTMEN T. IN THE INSTANT CASE, THEREFORE NO DISALLOWANCE CAN BE MADE HOLDING THAT EXPENDITURE HAS BEEN INCURRED FOR THE PERSONAL PURPOSES. SECOND LY, THE LIABILITY FOR RS. 1,20,000/- HAS CRYSTALLIZED DURING THE YEAR AN D FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE SAME CANNOT BE DISALLOWED. IN THE RESULT, WE DELETE THE DISALLOWANCE RS. 1,20,000 /- TOWARDS VEHICLE DISALLOWANCE MADE BY THE AO. IN THE RESULT, THE G ROUND OF THE REVENUE IS DISMISSED AND THE GROUND OF THE ASSESSEE IS ALLO WED. 29. THE 8 TH GROUND OF THE REVENUES APPEAL AND GROUND NO. 13 O F THE ASSESSEES APPEAL ARE AGAINST DIRECTING TO ALLOW TH E PAYMENT OF EXCISE DUTY OF RS.50,00,000/- AND 10,00,000/- PAID ON 31.0 8.1996 & 20.09.1996 RESPECTIVELY AS PER PROVISIONS OF SECTIO N 43B,OUT OF ADDITION MADE OF RS.5,33,24,729/- ON ACCOUNT OF PREMIUM MON EY COLLECTED IN CASH ON SALE OF CHLORINE AND CONFIRMING THE ADDITIO N OF RS.5,33,24,729/- ON ACCOUNT OF PREMIUM RECEIPT ON SALE OF LIQUID CHL ORINE. THE LD AO ON THE BASIS OF SEARCH CONDUCTED BY CENTRAL EXCISE DEP ARTMENT ON 27.8.1996 AND THE CONSEQUENT ORDER PASSED BY COMMIS SIONER OF CENTRAL EXCISE DATED 8.12.1998 HELD THAT ASSESSEE COLLECTED CASH FROM CUSTOMERS OF LIQUID CHLORIDE OVER AND ABOVE THE INV OICE VALUE FOR WHICH A DEMAND OF DUTY AMOUNTING TO RS. 1,45,61,754/- HAS BEEN RAISED BY ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 26 THE EXCISE DEPARTMENT FOR THE PERIOD APRIL 1995 TO AUGUST 1996. THE DIFFERENCE OF DUTY FOR THE PERIOD APRIL 1995 TO MAR CH 1996 WAS WORKED OUT AT RS. 1,06,64,946/-. THE EXCISE DUTY BEING 20% OF THE VALUE OF GOODS, HE HELD THAT ASSESSEE RECEIVED PREMIUM OF RS . 5,33,24,729/- (1,06,64,946 * 5) FOR WHICH ADDITION WAS MADE. IN A SSESSMENT PROCEEDINGS, ASSESSEE CONTENDED THAT AMOUNT OF THE PREMIUM ALLEGED TO BE CHARGED BY THE ASSESSEE IS STILL NOT FINALIZE D UNDER THE EXCISE ACT AND THEREFORE TILL THE SAME IS FINALLY DECIDED, NO ADDITION ON THE BASIS OF THE ORDERS OF EXCISE AUTHORITY SHOULD BE MADE IN TH E HANDS OF THE ASSESSEE. FURTHER ASSESSEE HAS PAID DUTY OF RS. 50 LACS ON 31ST AUGUST 1996 AND RS. 10 LACS ON 20.9.1996 I.E. BEFORE DUE D ATE OF FILING OF RETURN. HENCE THE AMOUNT OF RS. 60 LACS NEEDS TO BE ALLOWED U/S 43B. 30. THE LD. CIT(A) DIRECTED THE AO TO VERIFY FROM T HE EXCISE DEPARTMENT EXACT POSITION OF APPEAL AND COLLECT THE APPEAL ORDER. IT FURTHER DIRECTED THE AO TO VERIFY THE CLAIM OF PAYM ENT OF RS.60 LACS ON ACCOUNT OF EXCISE DUTY BEFORE THE DUE DATE OF RETUR N. 31. NOW BOTH ARE IN APPEAL BEFORE US. THE LD CIT DR HAS SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT MATTER REGARDING ALLEGED PREMIUM CHA RGED FROM ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 27 CUSTOMERS ON SALE OF LIQUID CHLORIDE AND ITS QUANTI FICATION IS STILL PENDING BEFORE CESTAT. HENCE, THE ADDITION MADE BY AO BE SE T ASIDE TO HIM TO DECIDE THE SAME AS PER LAW AFTER THE FINALIZATION O F APPEAL BY CESTAT. CIT(A) HAS ALSO GIVEN THE SIMILAR DIRECTION BUT STI LL THE AO HAS NOT GIVEN EFFECT TO THE SAME. HENCE, THE AO BE SPECIFICALLY B E DIRECTED TO EXCLUDE THIS ADDITION WHILE GIVING THE EFFECT TO THE APPELL ATE ORDER AND TO CONSIDER THE ADDITION AS PER LAW AS AN WHEN THE APP EAL UNDER THE EXCISE LAW IS FINALLY DECIDED. AS FAR AS ALLOWABIL ITY OF EXCISE DUTY OF RS.60 LACS DEPOSITED BY ASSESSEE BEFORE DUE DATE OF FILING OF RETURN U/S 43B IS CONCERNED, THERE IS NO ERROR IN THE DIRECTIO N GIVEN BY CIT(A) AND THEREFORE HIS ORDER BE UPHELD ON THIS ISSUE. IN VIE W OF ABOVE, THE ADDITION CONFIRMED BY CIT(A) BE DELETED. 32. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD. AR HAS CONFIRMED THAT THE MATTER BEFORE CESTAT IS STILL PENDING FOR ADJUDICATION AND HE HAS GIVEN AN ASSURANCE THAT AS SOON AS THE ORDER IS PRONOUNCED BY CESTAT AND A COPY IS MADE AVAILABLE TO THE ASSESSEE , THE ASSESSEE SHALL FORTHWITH SHARE A COPY OF THE CESTAT ORDER WI TH THE AO WITHOUT ANY UNDUE DELAY. IN LIGHT OF THAT, WE CONFIRM THE O RDER OF THE LD. CIT(A) AND SET-ASIDE THE MATTER TO THE FILE OF THE AO TO D ECIDE THE SAME ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 28 AFRESH AS PER LAW AFTER TAKING INTO CONSIDERATION T HE DECISION OF CESTAT. FURTHER WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) TO ALLOW THE CLAIM OF THE ASSESSEE TOWARDS PAYMENTS OF EXCISE DUTY OF RS. 60 LACS, CLAIMED TO BE PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, SUBJECT TO DUE VERIFICATION BY THE AO. 33. THE 9 TH GROUND OF THE REVENUES APPEAL IS AGAINST DIRECTIN G TO ALLOW THE CLAIM OF THE ASSESSEE AFTER VERIFYING THE AMOUNT FROM THE RECORD IN RESPECT OF ADDITION MADE OF DIFFERENCE OF RS. 1,01,901/- IN MODVAT VALUE AVAILABLE IN VALUATION OF CLOSING STOC K OF RAW MATERIAL. THE LD AO OBSERVED THAT ASSESSEE HAS NOT INCLUDED T HE EXCISE DUTY OF RS.3,64,438/- IN THE VALUATION OF CLOSING STOCK OF RAW MATERIAL. AS AGAINST THIS MODVAT AVAILABLE AS PER BOOKS IS RS. 2 ,98,099/-. AS THE EXCISE DUTY ON OTHER RAW MATERIAL WAS NOT AVAILABLE HE ESTIMATED THE AMOUNT OF EXCISE DUTY ON RAW MATERIAL AT RS. 4 LACS AND AFTER CONSIDERING THE MODVAT AVAILABLE AT RS. 2,98,099/- MADE AN ADDITION OF RS. 1,01,901/-. THE LD CIT(A) DIRECTED THE AO TO VERIFY THE CONTEN TION OF ASSESSEE THAT EXCISE DUTY IS PAID BEFORE DUE DATE OF FILING OF RETURN AND THAT HIS PREDECESSOR CIT(A) HAS ONLY CONFIRMED THE ADDITION OF RS.66,246/- ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 29 (364438-298099) ON THIS ACCOUNT AND ACCORDINGLY ALL OW THE CLAIM OF ASSESSEE. THE CIT DR HAS SUPPORTED THE ORDER OF THE LOWER AU THORITIES. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT SECTION 14 5A WHICH REQUIRES THAT TAX IS TO BE CONSIDERED IN VALUATION OF STOCK HAS COME INTO FORCE FROM AY 1997-98. HENCE FOR THE YEAR UNDER CONSIDERA TION NO ADDITION CAN BE MADE IN RESPECT OF EXCISE DUTY IN THE VALUE OF CLOSING STOCK. OTHERWISE ALSO WHEN SUCH EXCISE DUTY HAS BEEN SUBSE QUENTLY PAID BEFORE DUE DATE OF FILING OF RETURN, THE SAME IS AL LOWABLE U/S 43B. THIS IS ALSO ACCEPTED BY AO IN ORDER U/S 143(3)/148 DT. 28.11.03 (COPY ENCLOSED). IN THESE CIRCUMSTANCES NO ADDITION IS CA LLED FOR AND THEREFORE THE ENTIRE ADDITION NEEDS TO BE DELETED. WITHOUT PR EJUDICE TO ABOVE THERE IS NO BASIS TO ESTIMATE THE AMOUNT OF EXCISE DUTY ON RAW MATERIAL AT RS.4 LACS AS AGAINST ACTUAL AMOUNT OF RS.3,64,43 8/-. THE DIFFERENCE BETWEEN EXCISE DUTY AND MODVAT CREDIT IS ONLY RS. 6 6,249/- WHICH WAS CONFIRMED BY THE PREDECESSOR CIT(A) AGAINST WHICH N O APPEAL IS FILED BY THE DEPARTMENT TO THE TRIBUNAL. THUS, THE ADDITION MADE BY THE AO IS OTHERWISE INCORRECT. IN VIEW OF ABOVE THE ENTIRE AD DITION MADE BY AO NEEDS TO BE DELETED BY DISMISSING THE GROUND OF THE DEPARTMENT. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 30 34. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE APPELLANT HAS SUBMITTED THAT AS AGAINST EXCISE DUTY OF RS. 3,64,4 38/- IN RESPECT OF CLOSING STOCK OF RAW MATERIAL, THE APPELLANT HAD A MODVAT CREDIT AVAILABLE IN ITS BOOKS OF ACCOUNTS AMOUNTING TO RS. 2,98,099/- AND FURTHER THE BALANCE AMOUNT OF THE EXCISE DUTY HAS B EEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. THE AO IS ACCORDI NGLY DIRECTED TO VERIFY THE SAID CLAIM OF THE ASSESSEE AND WHERE THE SAME IS FOUND TO BE IN ORDER, ALLOW NECESSARY RELIEF TO THE ASSESSEE. HE NCE THIS GROUND OF THE REVENUE IS DISMISSED. 35. GROUND NO. 10 OF THE REVENUES APPEAL AND GROUN D NO. 14 OF THE ASSESSEES APPEAL ARE AGAINST RESTRICTING THE EXPEN SES MADE ON ACCOUNT OF REPAIR OF VEHICLE TO RS.3,02,000/- OUT OF TOTAL DISALLOWANCE OF RS.6,02,000/- AND CONFIRMING DISALLOWANCE OF RS.3,0 2,000/- OUT OF EXPENSES ON REPAIRS OF MOTOR CAR. THE LD ASSESSING OFFICER OBSERVED THAT DURING THE YEAR ASSESSEE HAS DEBITED RS.79.19 LAKHS ON ACCOUNT OF REPAIR & MAINTENANCE (OTHERS) AND RS.23.73 LAKHS ON ACCOUNT OF REPAIRS ON VEHICLES. THE AO OBSERVED THAT OUT OF TOTAL EXPE NSES OF RS. 79.19 LACS, DETAILS OF RS.3.02 LACS IS NOT FILED, HENCE, HE DISALLOWED THE SAME. HE FURTHER MADE LUMP SUM DISALLOWANCE OF RS.3 LACS ON VEHICLE HOLDING ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 31 THAT THE VEHICLES WERE ALSO USED FOR THE PERSONAL P URPOSE OF THE DIRECTOR. ACCORDINGLY TOTAL DISALLOWANCE OF RS.6,02 ,000/- WAS MADE. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS.3 LA CS HOLDING THAT PERSONAL PURPOSES ADDITION CANNOT BE MADE IN THE HA NDS OF THE COMPANY BUT CAN BE CONSIDERED AS PERQUISITES IN THE HANDS OF THE DIRECTORS. HOWEVER, HE CONFIRMED THE DISALLOWANCE O F RS.3.02 LACS DUE TO NON FURNISHING OF THE DETAILS. THE CIT DR HAS SUPPORTED THE ORDER OF THE LOWER AU THORITIES. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT NO LUMP SU M DISALLOWANCE OF RS.3 LACS OUT OF VEHICLE REPAIR EXPENSES ON ACCOUNT OF BENEFIT TO THE DIRECTORS CAN BE MADE IN CASE OF A LIMITED COMPANY. THE LD. CIT(A) HAS THEREFORE RIGHTLY DELETED THE DISALLOWANCE OF RS.3, 00,000/- AND THE GROUND OF THE DEPARTMENT BE DISMISSED. SO FAR AS DI SALLOWANCE OF RS.3,02,000/- MADE BY AO AND CONFIRMED BY THE CIT(A ) ON ACCOUNT OF NON AVAILABILITY OF DETAILS IS CONCERNED, CONSIDERI NG THE VOLUME OF BUSINESS AND IN THE ABSENCE OF ANY SPECIFIC REQUIRE MENT FROM THE AO, THE SAME COULD NOT BE FURNISHED. HOWEVER, THE FACT IS THAT SUCH EXPENDITURE IS INCURRED IN NORMAL COURSE OF BUSINES S. HENCE, THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 32 DISALLOWANCE OF RS.3.02 LACS CONFIRMED BY CIT(A) IS UNCALLED FOR AND DIRECTED TO BE DELETED. 36. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS W E HAVE HELD EARLIER WHILE DISPOSING OFF GROUND NO.7 IN RESPECT OF VEHIC LE RUNNING EXPENSES, APPLYING THE SAME ANALOGY, THE DISALLOWANCE OF RS. 3,00,000/- OUT OF VEHICLE REPAIR EXPENSES IS HEREBY DELETED. FURTHER THE AO OBSERVED THAT OUT OF TOTAL EXPENSES OF RS. 79.19 LACS DETAIL S OF RS. 3,02,000/- WAS NOT FILED WHICH HE DISALLOWED ON A/C OF NON-AVAILAB ILITY OF DETAILS. NO SPECIFIC REASON OR EXPLANATION HAS BEEN PROVIDED B Y THE ASSESSEE AS TO WHY IT COULD NOT SUPPLY THE DETAILS OF RS. 3,02,000 /- OF THE VEHICLE RUNNING EXPENSES. AT THE SAME TIME IT IS NOTED THA T THE AO HAS NOT CHALLENGED THE VERACITY OF THE CLAIM OR THE INCURRE NCE OF THE EXPENDITURE FOR THE PURPOSE OF THE BUSINESS. IN LI GHT OF THAT WE HEREBY DELETE THE DISALLOWANCE OF RS. 3,02,000/-. IN THE RESULT THE REVENUES APPEAL IS DISMISSED AND THE ASSESSEES APPEAL IS AL LOWED. 37. THE GROUND NO. 11 OF THE REVENUES APPEAL IS AG AINST DELETING THE ADDITION OF RS. 10 LACS ON ACCOUNT OF VALUATION OF CLOSING STOCK. THE AO ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 33 OBSERVED THAT CLOSING STOCK HAS NOT BEEN VALUED PRO PERLY. HE THEREFORE MADE A LUMP SUM ADDITION OF RS. 10 LACS AFTER REVOK ING SECTION 145(2). THE LD. CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT THE ASSESSEE IS REGULARLY FOLLOWING THE METHOD OF CLOSI NG STOCK AND THERE IS NO DEVIATION IN VALUATION METHOD DURING THE YEAR, T HUS, REJECTION OF BOOKS OF ACCOUNTS U/S 145(2) IS NOT JUSTIFIED. THE CIT DR HAS SUPPORTED THE ORDER OF THE LOWER AU THORITIES. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT IN ABSENCE OF ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT OR FOR THAT MATTER I N THE VALUATION OF CLOSING STOCK THE LUMP SUM ADDITION OF RS.10 LACS I S UNCALLED FOR. THE HONBLE ITAT ALLAHABAD BENCH IN CASE OF DCIT VS. SU BHASH CHAND AGARWAL 58 SOT 122 HAS HELD THAT WHEN ASSESSING OFF ICER FAILED TO POINT OUT ANY DEFECT IN METHOD OF ACCOUNTING OR ANY INHERENT DEFECT IN BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE, INVOKING S ECTION 145 FOR REJECTING BOOKS OF ACCOUNT IS UNSUSTAINABLE. WITHO UT PREJUDICE TO ABOVE, IT IS TO SUBMIT THAT THAT CLOSING STOCK OF O NE YEAR BECOMES THE OPENING STOCK OF THE NEXT YEAR. THE AO SIMPLY INCRE ASED THE VALUE OF THE CLOSING STOCK OF THIS YEAR BY RS.10 LAKHS WITHO UT DIRECTING TO CORRESPONDINGLY INCREASE THE VALUE OF THE OPENING S TOCK OF NEXT YEAR. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 34 HENCE IN CASE THE VALUATION OF STOCK AS DONE BY AO IS APPROVED, HE HAS TO ADOPT THE SAME AS OPENING STOCK IN NEXT YEAR. IN NEXT YEAR I.E. AY 1997-98, THE CLOSING STOCK AS VALUED BY THE ASSESSE E AS PER HIS CONSISTENT METHOD HAS BEEN ACCEPTED. THEREFORE, IN THE AY 1997-98, THE INCOME WOULD BE REDUCED BY THE SIMILAR AMOUNT. THE SUPREME COURT IN CASE OF CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 HAS HELD THAT WHERE IN SEVERAL A.Y.S, THE REVENUE ACCEPTED THE O RDER OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND DID NOT PURSUE THE MA TTER ANY FURTHER BUT IN RESPECT OF SOME A.Y.S, THE MATTER WAS TAKEN IN APPEAL BEFORE THE HIGH COURT BUT WITHOUT ANY SUCCESS, THE REVENUE CAN NOT BE ALLOWED TO FLIP-FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAXPAYERS MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT. IT FURTHER HELD THAT WHEN THE RATE OF TAX REMAINED THE SAME IN PRESENT A.Y. AS WELL AS IN SUBSEQUENT A.Y. THE DISPUTE RAISED BY TH E REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. TH ERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THE LITIGA TION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERI TS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. IT MAY BE NOTED THAT THE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. SATISH ESTATE PVT. LTD. (2014) 226 TAXMAN 11 WHERE ADDITION OF RS .75 LAKHS WAS ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 35 MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF THE LAND BUT THE CLOSING STOCK OF LAND SHOWN BY THE ASSESSEE IS ACCE PTED BY AO AS OPENING STOCK FOR THE SUBSEQUENT YEAR IN THE ASSESS MENT MADE U/S 143(3) FOR THE SUBSEQUENT YEAR DELETED THE ADDITION MADE BY THE AO AS NO LOSS TO THE REVENUE HAS BEEN CAUSED. IN THE PRES ENT CASE ALSO FOR SUBSEQUENT AY 1997-98 AO HAS ACCEPTED THE CLOSING S TOCK DECLARED BY THE ASSESSEE AS OPENING STOCK AND ALSO ACCEPTED THE CLOSING STOCK DECLARED IN THAT YEAR. THEREFORE, ALSO THE ADDITION MADE BY HIM IS LEGALLY NOT TENABLE. HENCE, THE ORDER OF THE CIT(A ) BE UPHELD BY DISMISSING THE GROUND OF THE DEPARTMENT. 38. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD. CIT(A) HAS GIVEN A FINDING OF FACT THAT THE ASSESSEE IS REGULARLY FO LLOWING THE CONSISTENT BASIS FOR THE VALUATION OF ITS CLOSING STOCK AND T HERE IS NO DEVIATION IN THE VALUATION METHOD DURING THE YEAR. FURTHER THE LD. AR HAS SUBMITTED THAT FOR SUBSEQUENT A.Y 1997-98 THE AO HAS ACCEPTED THE CLOSING STOCK DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION AS OPENING STOCK FOR THAT YEAR AND ALSO ACCEPTED THE CLOSING STOCK DECLARED IN THAT YEAR. FURTHER IT IS NOTED THAT THERE IS NO CHANGE IN THE RATE OF TAX FOR THE YEAR UNDER CONSIDERATION AND THE SUBSEQUENT ASS ESSMENT YEAR, ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 36 HENCE FOLLOWING THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF EXCEL INDUSTRIES LTD. (SUPRA) AND DECISION OF HONB LE PUNJAB & HARYANA HIGH COURT SATISH ESTATE PVT. LTD (SUPRA), WE HEREB Y DELETE THE ADDITION OF RS. 10 LACS ON ACCOUNT OF VALUATION OF CLOSING S TOCK. 39. NOW WE WILL TAKE UP THE GROUNDS IN THE ASSESSEE S APPEAL OTHER THAN THE COMMON GROUNDS. THE 1 ST GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRMING THE DISALLOWANCE OF RS. 3,01,833 /- OUT OF POWER & FUEL EXPENSES. THE LD AO OBSERVED THAT ASSESSEE PAI D THE AMOUNT OF RS.3,01,833/- TO RSEB TOWARDS PENALTY. NO JUSTIFICA TION WAS GIVEN BY THE ASSESSEE FOR ITS ALLOWABILITY. HE THEREFORE DIS ALLOWED THE SAME HOLDING THAT THE EXPENDITURE IS IN THE NATURE OF PE NALTY. BEFORE CIT(A), ASSESSEE EXPLAINED THAT THE AMOUNT PAID TO RSEB IS NOT AN EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHI CH IS PROHIBITED BY LAW. THE AMOUNT SO PAID TO RSEB IS ONLY A COMPENSAT ORY PAYMENT WHICH THE ASSESSEE HAS TO PAY AS PER CONTRACTUAL OB LIGATION SINCE IT WAS TOWARDS DRAWING THE POWER MORE THAN THE SANCTIONED CAPACITY. IT IS NOT TOWARDS INFRINGEMENT OF ANY LAW. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY HOLDI NG THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE WHICH SHOWS THAT THESE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 37 PAYMENTS WERE TOWARDS DRAWING THE POWER MORE THAN S ANCTIONED CAPACITY WHEREAS THE AO HAD SPECIFICALLY MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DEBITED PENALTY IN THE P&L A/C. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE A MOUNT PAID TO RSEB IS A PAYMENT TOWARDS THE CONTRACTUAL OBLIGATIO N AND NOT TOWARDS INFRINGEMENT OF ANY LAW. EVEN THE AO HAS NOT PRODUC ED ANY EVIDENCE TO SHOW THAT THE AMOUNT SO PAID IS ON ACCOUNT OF VIOLA TION OF LAW. MERELY BECAUSE THE ASSESSEE HAS DEBITED THE AMOUNT AS PEN ALTY, CANNOT BE THE BASIS TO CONCLUDE THAT AMOUNT PAID TO RSEB IS O N ACCOUNT OF INFRINGEMENT OF ANY LAW. CIT(A) HAS IGNORED THE FAC T THAT THE AO HAS MADE THE DISALLOWANCE ONLY BECAUSE IT IS DEBITED IN THE P&L A/C UNDER THE HEAD PENALTY BUT HAS NOT REFERRED TO ANY PARTIC ULAR SECTION OF ANY PARTICULAR ACT UNDER WHICH THIS AMOUNT IS PAID SO A S TO CONSTRUED IT AS PENALTY FOR INFRINGEMENT OF ANY LAW. EVEN NO ENQUIR Y IS MADE FROM RSEB TO ASCERTAIN THE NATURE OF PAYMENT. IT IS A SE TTLED LAW THAT THE WHETHER CERTAIN DEDUCTION FROM THE RECEIPT ARE PERM ISSIBLE IN LAW OR NOT, QUESTION HAS TO BE DECIDED ACCORDING TO THE PR INCIPLES OF LAW AND NOT IN ACCORDANCE WITH THE ACCOUNTING ENTRIES MADE IN THE BOOKS OF ACCOUNTS AS HELD BY THE SUPREME COURT IN CASE OF TUTICORIN ALKALI ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 38 CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 172. I N VIEW OF ABOVE, DISALLOWANCE CONFIRMED BY CIT(A) BE DIRECTED TO BE DELETED. THE LD CIT DR HAS SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 40. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSES SEE HAS SUBMITTED THAT AN AMOUNT OF RS. 3,01,883/- HAS BEEN PAID TO R SEB TOWARDS DRAWING EXCESS POWER OVER AND ABOVE THE SANCTION C APACITY. IT IS THEREFORE, A MATTER WHICH FALLS WITHIN THE REALM OF CONTRACTUAL RELATIONSHIP BETWEEN THE ASSESSEE AND THE RSEB AND IT IS CLEARLY IN THE NATURE OF CONTRACTUAL PAYMENT RATHER THAN INFRINGEM ENT OF ANY LAW OF THE LAND. IN LIGHT OF THAT, WE DELETE THE DISALLOW ANCE OF RS. 3,01,883/- PAID TO RSEB. 41. THE 3 RD GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING THE DISALLOWANCE OF RS. 19,00,000/- ON ADHOC BASIS OUT OF REPAIRS AND MAINTENANCE EXPENSES BY CONSIDERING THE SAME AS INC URRED ON REPAIRS OF THE GUEST HOUSE BUILDING. THE LD ASSESSING OFFIC ER HAS OBSERVED THAT THE ASSESSEE MAINTAINED A GUEST HOUSE AT ALWAR & HE AD OFFICE AT DELHI. THE TOTAL EXPENDITURE ON GUEST HOUSE INCLUDING REPA IR & MAINTENANCE EXPENSES OF RS.15,66,484/-. THE SAME HAS BEEN DISAL LOWED U/S 37(4) IN ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 39 THE COMPUTATION OF TOTAL INCOME. THE LD AO ON VERIF ICATION OF DETAILS OF DELHI OFFICE OBSERVED THAT BUILDING REPAIR & MAINTE NANCE EXPENSES INCLUDES EXPENDITURE INCURRED ON GUEST HOUSE AT 15 FRIENDS COLONY, NEW DELHI. HE ESTIMATED SUCH EXPENSES AT RS.19 LACS CONSIDERING THAT IN A.Y. 95-96, SUCH EXPENSES ESTIMATED AT RS.17 LAC S HAS BEEN ACCEPTED BY CIT(A) & DISALLOWED THE SAME. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY UPHO LDING THE FINDINGS OF THE AO CONSIDERING THE PAST HISTORY OF THE CASE. THE AR OF THE ASSESSEE HAS SUBMITTED THAT IT MAY B E NOTED THAT THE TAX AUDITOR HAS SORTED OUT THE EXPENDITURE ON R EPAIR & MAINTENANCE AT DELHI AT RS.1,68,707/- WHICH IS PART OF THE TOTA L DISALLOWANCE OF RS.15,66,484/- MADE BY THE ASSESSEE IN THE COMPUTAT ION OF TOTAL INCOME. THE AO AFTER EXAMINING THE DETAIL OF FURNI TURE REPAIR, BUILDING REPAIR, MISCELLANEOUS EXPENSES & MAINTENANCE EXPENS ES HAS POINTED OUT THREE VOUCHERS IN RESPECT OF BUILDING REPAIR (W ITHOUT AMOUNT) & 3 VOUCHERS OF MAINTENANCE EXPENSES FOR AC AMOUNTING T O RS.1,34,080/- WHICH PERTAINS TO FC-15 FRIENDS COLONY, DELHI. THE ASSESSEE HAS ALSO ITS HEAD OFFICE AT 15 FRIENDS COLONY, DELHI. THE EXPEND ITURE POINTED OUT BY THE AO IS LESS THAN THE REPAIR & MAINTENANCE EXPENS ES DISALLOWED BY ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 40 THE ASSESSEE AT RS.1,68,707/-. ON THE BASIS OF THE DISALLOWANCE MADE IN LAST YEAR, THE DISALLOWANCE CANNOT BE ESTIMATED DUR ING THE YEAR WHEN COMPLETE DETAILS WERE SUBMITTED TO THE AO & AFTER E XAMINING THE SAME AO HAS ONLY POINTED OUT THE SPECIFIC INSTANCE OF EX PENSES PERTAINING TO THE GUEST HOUSE. IN VIEW OF ABOVE, DISALLOWANCE OF RS.19 LACS CONFIRMED BY CIT(A) BE DIRECTED TO BE DELETED. AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORD ER OF THE LOWER AUTHORITIES. 42. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. ON P ERUSAL OF THE RECORDS, IT IS NOTED THAT THE AO HAS HIGHLIGHTED SP ECIFIC EXPENSES AMOUNTING TO RS.2,11,997/- INCURRED TOWARDS REPAIR AND MAINTENANCE OF THE GUEST HOUSE AT 15 FRIENDS COLONY, NEW DELHI. IT IS ALSO NOTED THAT THE ASSESSEE HAS ALREADY DISALLOWED AN AMOUNT OF RS . 1,68,707/- U/S 37(4) WHILE FILING ITS RETURN OF INCOME. IN LIGHT OF THAT, WE DO NOT SEE ANY JUSTIFICATION IN AO MAKING AN ESTIMATION AND DI SALLOWANCE AT RS. 19,00,000/-. WE ACCORDINGLY DIRECT THE AO TO RESTR ICT THE DISALLOWANCE TO RS. 2,11,997/-. GIVEN THAT THE ASSESSEE HAS ALR EADY DISALLOWED RS. 1,68,707/-, THE BALANCE DISALLOWANCE OF RS. 43,290/ - SHOULD BE MADE IN ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 41 THE HANDS OF THE ASSESSEE. HENCE THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 43. THE 4 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING DISALLOWANCE OF RS.12,38,418/- OUT OF FOREIGN TRAVE L. THE LD AO MADE DISALLOWANCE OF RS. 12,38,418/- OUT OF THE FOREIGN TRAVELLING EXPENSES OF RS. 23,23,444/- IN RESPECT OF FOLLOWING VISITS. THE CIT(A) CONFIRMED THE DISALLOWANCE BY UPHOLDING THE FINDINGS OF THE A O. NAME OF PERSON PLACE AMOUNT PURPOSE REASONS FOR DISALLOWANCE BY AO SH. DK MODI SWEDEN 2,03,781/ - D ISCUSSION WITH FOREIGN COLLABORATOR FOR DG SET POWER IS MAJOR RAW MATERIAL & INSTALLATION OF DG SET IS VERY MUCH DESIRED HENCE EXPENDITURE FOR ACQUIRING CAPITAL ASSET IS CAPITAL EXPENDITURE SH. ASHOK KUMAR SWEDEN, FRANCE & SWITZERLAND 1,61,253/ - EXPLORING POSSIBILITY OF PURCHASING SECOND HAND DG SET & EXPORT MATTER 2/3 DISALLOWED SINCE VISIT TO SWEDEN & FRANCE WAS FOR ACQUIRING CAPITAL ASSET SH. ASHOK KUMAR GENEVA, LONDON & CHESTERFIELD 2,33,587/ - DISCUSSION REGARDING EURO ISSUE & FOREIGN CURRENCY BOND, EXPORT, EXPANSION OF PLANT & SECOND HAND STORAGE TANK 3/4 OF EXPENDITURE DISALLOWED SINCE PURPOSE RELATING TO EURO ISSUE, EXPENSES ON BUSINESS & PURCHASE OF MACHINERY RELATES TO CAPITAL OUTLAY DK MODI UK, USA, SWITZERLAND & DUBAI 1,92,954/ - BUSI NESS & EXPORT PROMOTION 50% DISALLOWED FOR WANT OF NECESSARY DETAILS REGARDING ALLOWABILITY OF ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 42 EXPENDITURE AS PER RULE 6D SH. ASHOK KUMAR JAPAN 1,60,762/ - TO ATTEND DESIGN CONFERENCE FOR EXPANSION OF EXISTING MEMBRANCE PLANT SINCE VISIT WAS FOR ACQUIRING CAPITAL ASSET, HENCE EXPENDITURE IS TREATED AS CAPITAL CB GARG JAPAN 1,08,173/ - ------------- DO -- ------------- DO -------------- LN BANSAL SWEDEN, FRANCE & SWITZERLAND 92,634 EXPLORING POSSIBILITY OF PURCHASING SECOND HAND DG SET & EXPORT MATTER 2/3 DISA LLOWED SINCE VISIT TO SWEDEN & FRANCE WAS FOR ACQUIRING CAPITAL ASSET KN MODI & ASHOK KUMAR - 3,24,770/ - (RS.2,10,4 15+ RS. 1,14,355/- ) SINCE DETAILS NOT FILED EXPENDITURE DISALLOWED IT MAY BE POINTED OUT THAT THERE IS NO DISPUTE THAT THE FOREIGN TRAVEL WAS MADE IN COURSE OF THE RUNNING BUSINESS TO HAVE DISCUSSIONS REGARDING ACQUIRING OF CAPITAL ASSET, RAISING FUNDS AND ATTEND CONFERENCE FOR THE EXPANSION OF THE BUSINESS. THE B OMBAY HIGH COURT IN CASE OF BRALCO METAL INDUSTRIES PVT. LTD. VS. CI T 206 ITR 477 HAS HELD THAT EXPENDITURE ON FOREIGN TOUR OF MANAGING DIRECT OR TO EXAMINE THE SUITABILITY OF MACHINERY FOR A RUNNING BUSINESS IS NOT CAPITAL IN NATURE WHERE NO MACHINERY WAS PURCHASED. IN THE PRESENT CA SE ALSO NO NEW CAPITAL ASSET HAS BEEN PURCHASED. THE AO HAS ALSO N OT POINTED OUT THAT ANY PARTICULAR VISIT IS CORRELATED WITH PURCHASE OF ANY SPECIFIC ASSET. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 43 THUS, THE DISALLOWANCE MADE BY LOWER AUTHORITIES IS UNCALLED FOR. FURTHER DISCUSSION FOR RAISING OF FUNDS IS OTHERWIS E NOT A CAPITAL EXPENDITURE. ALL THESE EXPENDITURES WERE FOR THE PU RPOSE OF EXISTING BUSINESS & NOT FOR SETTING UP OR ESTABLISHMENT OF N EW BUSINESS. HENCE, THE ENTIRE FOREIGN TRAVEL EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE U/S 37. RELIANCE IS ALSO PLACED ON THE FOLLOWING CASE:- (I) CIT VS. SHAH THEATRES PVT. LTD. 169 ITR 499 (R AJ.) THE CIT(A) IN ITS ORDER WITHOUT DISTINGUISHING THE CASE HELD THAT THE CASE LAW RELIED BY THE ASSESSEE IS NOT APPLICAB LE TO THE FACTS OF THE CASE. IN RESPECT OF THE VISIT OF DR. KN MODI DT. 25 .09.95 FOR RS. 2,10,415/-, THE SAME IS ALONG WITH DR. DK MODI IN W HICH EXPENDITURE OF RS. 2,03,781/- AS STATED ABOVE WAS INCURRED. IN VIE W OF ABOVE, THE DISALLOWANCE CONFIRMED BY CIT(A) OUT OF FOREIGN TRA VELING EXPENSES BE DIRECTED TO BE DELETED. THE LD CIT DR HAS SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 44. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. ON P ERUSAL OF THE RECORDS ESPECIALLY THE PURPOSE OF THE FOREIGN VISITS GIVEN BY THE ASSESSEE AS WELL AS THE REASONS FOR DISALLOWANCE GIVEN BY THE AO, IT IS NOTED THAT THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 44 DISALLOWANCE HAS BEEN MADE PRIMARILY ON ACCOUNT OF THE FACT THAT THE FOREIGN VISITS HAVE BEEN UNDERTAKEN AND THE CORRESP ONDING EXPENDITURE HAVE BEEN INCURRED FOR THE PURPOSE OF ACQUIRING TH E CAPITAL ASSETS AND HENCE THE SAME HAS BEEN TREATED BY THE AO AS CAPITA L EXPENDITURE. THE LD. AR HAS SUBMITTED THAT THERE IS NO DISPUTE T HAT THE FOREIGN TRAVEL WAS UNDERTAKEN IN CONNECTION WITH ACQUISITION OF CA PITAL ASSETS BESIDES OTHER REASONS SUCH AS ATTENDING CONFERENCE ETC. AT THE SAME TIME THE LD. AR SUBMITTED THAT NO NEW CAPITAL ASSETS HAS BEE N PURCHASED OR ACQUIRED BY THE ASSESSEE. THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF BRALCO METAL INDUSTRIES PVT. LTD.(SUPRA ) WAS BROUGHT TO THE NOTICE OF BENCH IN SUPPORT OF THE CONTENTION THAT T HE EXPENDITURE ON FOREIGN TRAVEL OF MANAGING DIRECTOR TO EXAMINE THE SUITABILITY OF MACHINERY FOR A RUNNING BUSINESS IS NOT CAPITAL I N NATURE WHERE NO MACHINERY WAS PURCHASED. IN LIGHT OF ABOVE, WE SET -ASIDE THE MATTER TO THE FILE OF THE AO TO EXAMINE WHERE ANY NEW CAPITAL ASSETS WERE PURCHASED BY THE ASSESSE PURSUANT TO FOREIGN VISITS MADE DURING THE YEAR UNDER CONSIDERATION. WHETHER IT IS FOUND THAT NO NEW CAPITAL ASSETS HAVE BEEN PURCHASED BY THE ASSESSEE, THE AO IS DIRECTED TO ALLOW THE FOREIGN TRAVEL EXPENDITURE AS A REVENUE E XPENDITURE. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 45 45. THE 5 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING DISALLOWANCE OF RS. 1,04,108/- OUT OF LEGAL CHARGES . THE AO NOTED THAT OUT OF THE PROVISION FOR LEGAL EXPENSES MADE DURING THE YEAR, RS.1,04,108/- HAS BEEN PAID IN JUNE 1996 TO NATIONA L QUALITY ASSURANCE LTD. ON THE BASIS OF INVOICE DT. 29.02.96 WHICH IS TOWARDS THE COST OF REGISTRATION INCLUDING SURVEYANCE VISIT FOR THE YEA R 31.03.1997. THE AO CONSIDERED THIS CLAIM AS RELATED TO A.Y. 97-98 & AC CORDINGLY MADE THE DISALLOWANCE. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE HOLDING THAT PURPOSE OF THIS EXPENSES WAS AY 1997-98 AND THE LIABILITY H AS BEEN CRYSTALLIZED IN AY 1997-98. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT IT IS NOT IN DISPUTE THAT INVOICE WAS RAISED ON 29.02.96 I.E. IN THE YEA R UNDER CONSIDERATION. THE ASSESSEE THUS HAS A PRESENT OBLIGATION ARISING FROM THE PAST EVENT, SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES. THE PAYMENT IS ALSO MADE I N JUNE 96. HENCE, PROVISION MADE FOR SUCH LIABILITY IS ALLOWABLE EXPE NDITURE AS PER AS 29. SIMPLY BECAUSE IT IS FOR THE YEAR 31.03.97 WOULD NO T MAKE IT EXPENDITURE RELEVANT TO A.Y. 97-98. IT CAN BE NOTED THAT EVEN THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 46 PROVISION FOR AUDIT FEES IS ALLOWED IN A PARTICULAR YEAR EVEN THOUGH THE SERVICES ARE RENDERED IN THE SUBSEQUENT YEAR. IN NE XT YEAR THE AO HAS NOT ALLOWED THIS EXPENDITURE AND THEREFORE IF IT IS NOT ALLOWED IN THE YEAR UNDER CONSIDERATION IT WOULD NEVER BE ALLOWED. SUPREME COURT IN CASE OF CIT VS. EXCEL INDUSTRIES LTD. 93 DTR 457 HA S HELD THAT WHEN THE RATE OF TAX REMAINED THE SAME IN PRESENT A.Y. A S WELL AS IN SUBSEQUENT A.Y., THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THE LITIGATION WHE N IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. IN VIEW OF ABOVE, THE ADDITION CONFIRMED BY CIT(A) BE DELETED. AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORD ER OF THE LOWER AUTHORITIES. 46. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS. 1,04,108 /- TOWARDS THE COST OF REGISTRATION INCLUDING THE SURVEYANCE VISIT PAID TO NATIONAL QUALITY ASSURANCE LTD. GIVEN THAT THERE IS NO CHANGE IN TH E RATE OF TAX FOR THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 47 YEAR UNDER CONSIDERATION AND THE SUBSEQUENT YEAR, T HERE IS NO LOSS WHICH IS CAUSED TO THE REVENUE BY VIRTUE OF ASSESSE E CLAIMING THE SAID EXPENDITURE BASED ON THE INVOICE RAISED DURING THE YEAR AS AGAINST THE STAND OF THE REVENUE THAT THE SAME SHOULD BE ALLOWE D IN THE SUBSEQUENT ASSESSMENT YEAR. HENCE FOLLOWING DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LTD. (SUPRA), THIS GROUND IS ALLOWED. 47. THE 6 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING DISALLOWANCE OF RS.2 LACS OUT OF PUBLICITY EXPENSES . THE AO OBSERVED THAT VOUCHER OF RS.1 LACS FOR AMOUNT PAID TO EQUEST RIAN FEDERATION OF INDIA FOR SPONSORSHIP IS NOT FILED. FURTHER, PAYMEN T OF RS.21,000/- TO SH. JAWAHAR JAIN EDUCATION INSTITUTE IS TOWARDS DON ATION & CONTRIBUTION TO CERTAIN WELFARE ASSOCIATION, EDUCATION SOCIETY, PUJA SAMITI & TRUST FOR RS. 38,200/- AS LISTED ON PAGE 17-18 OF THE ORD ER ARE ALSO IN THE NATURE OF DONATION. ACCORDINGLY, HE MADE DISALLOWAN CE OF RS. 2 LACS. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE HOLDING THAT ASSESSEE HIMSELF ADMITTED THAT HE HAD NOT PRODUCED THE EVIDE NCES FOR EXPENSES AND CROSS CHEQUE PAYMENT DOES NOT ESTABLISH THAT TH E EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 48 FURTHER THE NATURE OF EXPENSES WAS DONATION AND NO EVIDENCE OF SOUVENIR HAS BEEN FILED. THE DISALLOWANCE IS REASON ABLE OUT OF TOTAL EXPENSES OF RS.10.34 LACS. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE P AYMENT OF RS.1 LACS TO EQUESTRIAN FEDERATION OF INDIA FOR SPO NSORSHIP IS MADE BY CHEQUE. THE PAYMENT FOR SPONSORSHIP IS NOT DOUBTED BY THE LOWER AUTHORITIES. HENCE, THE SAME CANNOT BE DISALLOWED. THE OTHER PAYMENT MENTIONED IN THE ASSESSMENT ORDER IS FOR ADVERTISEM ENT IN THE SOUVENIR. THESE ARE NORMAL SOCIO WELFARE EXPENDITURE REQUIRED TO BE INCURRED TO MAINTAIN GOOD & CORDIAL RELATIONSHIP. ONLY BECAUSE THE ASSESSEE COULD NOT PRODUCED THE EVIDENCE OF EXPENSES THAT TOO AFTE R A LAPSE OF 15 YEARS PARTICULARLY WHEN THE ASSESSEE HAS BECOME A S ICK COMPANY AND THERE WAS LABOUR UNREST, THE EXPENDITURE CANNOT BE DISALLOWED MORE PARTICULARLY WHEN PAYMENT IS MADE BY CHEQUE AND THE GENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT. WITHOUT PREJUDICE TO ABOVE, WHEN THE AO HAS SPECIFIED THE AMOUNT OF SUCH EXPENDITURE AT RS. 1,59,200/- AFTER THOROUGH VERIFICATION THERE IS NO REASON TO MAKE LU MP SUM DISALLOWANCE OF RS. 2 LACS. IN VIEW OF ABOVE, THE DISALLOWANCE C ONFIRMED BY CIT(A) BE DELETED. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 49 AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORD ER OF THE LOWER AUTHORITIES. 48. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT I S NOT IN DISPUTE THAT THE AMOUNT OF RS 1 LACS HAS BEEN PAID TO EQUESTRIAN FEDERATION OF INDIA AND OTHER AMOUNTS HAVE BEEN PAID TO SHRI JAWAHAR JAIN EDUCATION INSTITUTE AND PUJA SAMITI AND OTHER TRUST TO SUPPOR T THEIR EDUCATIONAL AND SOCIAL ACTIVITIES. THE LD. AR HAS SUBMITTED IT S INABILITY TO SUBMIT THE SUPPORTING DOCUMENTATION IN VIEW OF THE FACT THAT T HE ASSESSEE HAS BECOME A SICK COMPANY AND THE MATTER IS PRETTY OLD. GIVEN THAT THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED AND THE PAYMENTS HAS BEEN MADE BY CHEQUE, WE DELETE THE DIS ALLOWANCE OF RS. 2 LACS OUT OF THE PUBLICITY EXPENSES. 49. THE 8 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING DISALLOWANCE OF RS.21,96,755/- OUT OF INTEREST PAYM ENT. THE AO OBSERVED THAT ASSESSEE HAS BORROWED THE FUNDS ON IN TEREST BUT THE SAME HAS BEEN ADVANCED TO GROUP CONCERN AT LOWER RA TE OR AT NIL RATE WHEREAS INTEREST HAS BEEN CHARGED FROM OTHERS @18% TO 26.5%. IT IS FURTHER OBSERVED THAT INTER CORPORATE DEPOSITS HAS BEEN RAISED & THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 50 SAME IS INVESTED IN FIXED DEPOSITS FOR OBTAINING BA NK GUARANTEE FOR GROUP CONCERN. ACCORDINGLY, HE MADE DISALLOWANCE OF INTEREST OF RS.21,96,755/- AS UNDER:- NAME OF THE COMPANY AMOUNT (IN LACS) DATE DIFFERENTIAL INTEREST DISALLOWABLE AMOUNT M/S ANNAPURNA CEMENT LTD. 12.58 17.04.95 18% 2,17,005/- M/S TRANSITIONAL TRAVEL LTD. 11.50 29.04.95 6% (18-12) 63,250/- TRANSITIONAL SECURITIES LTD. 26.00 21.12.95 3% (18-15) 22,750/- MACL SECURITIES & FIN ANCE LTD. 25.00 25.12.95 3% (18-15) 18,750/- BANK GUARANTEE FOR MODI CEMENT 500.00 05.11.95 3.75% 18,75,000/- THE LD CIT(A) CONFIRMED THE DISALLOWANCE BY HOLDING THAT AO HAS ESTABLISHED NEXUS BETWEEN BORROWED FUNDS AND AMOUNT ADVANCED TO GROUP CONCERNS AND IN AY 95-96 SIMILAR DISALLOWANCE IS CONFIRMED BY HONBLE ITAT. THE AR OF THE ASSESSEE HAS SUBMITTED THAT THE AO H AS ASSUMED THAT FROM THESE PARTIES ASSESSEE SHOULD HAVE CHARGE D INTEREST @ 18% FROM ABOVE CONCERN INSTEAD OF NIL RATE OR 12% OR 15 % CHARGED FROM THEM. HE HAS THEREFORE CALCULATED THE NOTIONAL INCO ME & MADE DISALLOWANCE OF INTEREST. THERE IS NO BASIS FOR THE SAME. IT IS NOT THE CASE OF THE AO THAT ASSESSEE HAS BORROWED THE FUNDS AT A HIGHER RATE & ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 51 THEN GIVEN THE SAME AT A LOWER RATE. INFACT AO HIMS ELF HAS STATED THAT ASSESSEE HAS RAISED INTER CORPORATE DEPOSIT @ 8.5% & MADE INVESTMENT IN FDR YIELDING A RATE OF 9%. IF IN SOME CASES ASSE SSEE HAS CHARGED RATE OF INTEREST 18% OR MORE ON THE INTER CORPORAT E DEPOSIT GIVEN BY IT, THE SAME CANNOT BE A BASIS FOR HOLDING THAT ASSESSE E MUST CHARGE INTEREST FROM ALL OTHER PARTIES AT SUCH HIGHER RATE . NO NEXUS HAS BEEN ESTABLISHED BY THE AO BEFORE MAKING THE DISALLOWANC E. IT ALSO IGNORED THE FACT THAT ASSESSEE HAS INTEREST FREE FUNDS BY W AY OF SHARE CAPITAL & RESERVE & SURPLUS TO THE EXTENT OF 68.35 CRORES WHI CH IS MUCH HIGHER THAN THE SO CALLED ADVANCES GIVEN AT LOWER RATE. R ELIANCE IN THIS CONNECTION IS PLACED ON THE FOLLOWING CASES:- (I) SA BUILDERS 289 ITR 1 (SC) (II) CIT VS. BHARATI TELEVENTURE LTD. 51 DTR 98 ( DEL) (2011) (III) CIT VS. MOTOR SALES LTD 304 ITR 123 (ALL). (IV) JCIT V/S ITC LTD. (2008) 299 ITR 341 (KOLKATA ) (SB) (V) CIT VS. RADIKO KHAITAN LTD. 274 ITR 354 (ALL) THE CIT(A) HAS WRONGLY OBSERVED THAT IN AY 1995-96, HONBLE ITAT HAS CONFIRMED THE SIMILAR DISALLOWANCE IN AS MUCH AS NO SUCH ISSUE WAS BEFORE THE HONBLE ITAT IN THAT AY AS EVIDENT FROM THE COPY OF THE ITAT ORDER ENCLOSED HEREWITH. IN VIEW OF ABOVE, THE DISA LLOWANCE CONFIRMED BY CIT(A) BE DELETED. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 52 AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORD ER OF THE LOWER AUTHORITIES. 50. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. FROM THE PERUSAL OF THE R ECORDS, IT IS NOTED THAT THE ASSESSEE COMPANY HAS RAISED INTEREST BEARI NG FRESH SECURED LOANS TO THE EXTENT OF RS. 3.2 CRORES. THE DETAILS OF INTEREST HAS INCREASED TO RS. 9.84 CRORES AS AGAINST 6.06 CRORES LAST YEAR AND CREDIT OF INTEREST HAS INCREASED TO 0.014 CRORES. AS PER THE AO, THE INCREASE IN INTEREST LIABILITY IS ON ACCOUNT OF ADVANCES GIV EN AT CONCESSIONAL RATE OF INTEREST OR UTILIZING THE FUNDS FOR TAKING THE F DR FOR REVIVAL OF MODI CEMENT LTD. THIS IS EVIDENT FROM THE FACTS THAT T OTAL OF SECURED AND UNSECURED LOANS DURING THE YEAR ARE RS.72.01 CROR ES AS AGAINST RS. 63.79 CRORES LAST YEAR. AS AGAINST THIS, THE ASSES SEE CLAIMED THAT THIS AMOUNT HAS BEEN ADVANCED FROM THE SHARE CAPITAL AND RESERVES AND SURPLUS ACCOUNT. REGARDING THE ASSESSEES CONTENTI ON, LD CIT(A) HAS GIVEN HIS FINDING STATING THAT LOANS AND ADVANCES G IVEN BY THE ASSESSEE HAS NO BEARING TO THE SHARE CAPITAL OF RS. 29.53 CR ORES WHICH WAS RAISED SOME 17 YEARS BACK AS THE SAME HAS ALREADY BEEN ERO DED GIVEN THAT THE ASSESSEE HAS BECOME A SICK COMPANY. LD CIT(A) H AS FURTHER HELD THAT THE NECESSARY NEXUS HAS BEEN ESTABLISHED BETW EEN THE BORROWED ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 53 FUNDS AND THE AMOUNT ADVANCES TO THE SISTER CONCERN AND THE SAME FINDINGS COULD NOT BEEN CONTROVERTED BY THE ASSESSE E. FURTHER, THE LD. AO HAS SUBMITTED THAT THE ASSESSEE HAD ADVANCED FUN DS AS A MEASURE OF COMMERCIAL EXPEDIENCY TO THE GROUP COMPANIES. IN THIS REGARD THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT IT GAVE ADVANCES TO THE COMPANIES MENTIONED IN LETTER NO. 9 61 TEMPORARILY AS A FINANCIAL SUPPORT IN ORDER TO MEET THE STATUTORY LI ABILITIES AND DUES TOWARDS SALARY OF EMPLOYEES, WORKERS AND OTHER EXPE NSES TO THESE COMPANIES WITH THE CLEAR UNDERSTANDING THAT THE SAM E WILL BE REFUNDED BACK TO THE COMPANY. IT WAS SUBMITTED THAT MOST OF THE COMPANIES ARE SICK COMPANIES AND FINANCIAL SUPPORT WAS GIVEN ON A CCOUNT OF BUSINESS RESPONSIBILITIES AND TO PROTECT THE GOODWILL IN THE MARKET AS THESE COMPANIES ARE UNDER THE SAME MANAGEMENT. REGARDING BANK GUARANTEE FOR MODI CEMENT, THE ASSESSING OFFICER NO TED THAT THE ASSESSEE COMPANY ARRANGED A BANK GUARANTEE FOR RS. 5 CRORES IN FAVOUR OF IDBI BY DEPOSITING RS. 5 CRORES WITH THE BANK AS FD AND SUCH ARRANGEMENT WAS MADE AS REHABILITATION PACKAGE OF M /S MODI CEMENT. A FURTHER SUM OF RS. 5 CRORES PLEDGED WITH THE BANK IN A NON-LIEN FIXED DEPOSIT A/C, OUT OF THE FUNDS RAISE D FROM THE PROMOTERS. IT WAS FURTHER NOTED THAT THE INSPECTION TEAM OF TH E COMPANIES ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 54 DEPARTMENT REQUIRED ASSESSEE COMPANY AS TO WHY SUCH FUNDS TO THE EXTENT OF RS. 10 CRORES ARE BLOCKED TO REHABILITATE TO M/S MODI CEMENT LTD. IT WAS SUBMITTED THAT MODI CEMENT LTD. IS GRO UP COMPANY AND ON ACCOUNT OF MORAL RESPONSIBILITY, THE COMPANY EXTEND ED ALL POSSIBLE SUPPORT FOR REHABILITATION. HOWEVER, THE EXPLANATI ON GIVEN BY THE ASSESSEE COMPANY WAS NOT FOUND SATISFACTORY BY THE AO. IN THIS REGARD REFERENCE OF THE BENCH WAS DRAWN TO THE RECENT DECI SION OF HONBLE SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. 94 CCH 0097 WHEREIN IT WAS HELD AS FOLLOWS: APPLYING THE AFORESAID RATIO (LAID DOWN IN CASE O F S.A. BUILDERS LTD 288 ITR 1(SC)) TO THE FACTS OF THIS CASE AS ALREADY NOT ED ABOVE, IT IS MANIFEST THAT THE ADVANCE TO M/S HERO FIBRES LIMITE D BECAME IMPERATIVE AS A BUSINESS EXPEDIENCY IN VIEW OF THE UNDERTAKING GIVEN TO THE FINANCIAL INSTITUTIONS BY THE ASSESEE TO THE EFFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO M/S HERO FIBRES LIMITED TO MEE T THE WORKING CAPITAL FOR MEETING ANY CASH LOSES. IN LIGHT OF DECISION OF HONBLE SUPREME COURT IN CA SE OF HERO CYCLES, THE BANK GUARANTEE FOR RS. 5 CRORES IN FAVOUR OF IDBI B Y DEPOSITING RS. 5 CRORES WITH THE BANK AS FD BECAME IMPERATIVE AS A B USINESS EXPEDIENCY ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 55 AS PART OF THE REHABILITATION PACKAGE OF M/S MODI C EMENT WHICH IS ONE OF THE GROUP COMPANIES. SIMILARLY, THE ASSESSEE HA S SUPPORTED THE OTHER GROUP COMPANIES WHICH WERE ALSO GOING THROUGH THE FINANCIAL AND LIQUIDITY CRUNCH IN ORDER TO MEET THE STATUTORY LIA BILITIES AND DUES TOWARDS SALARY OF EMPLOYEES, WORKERS AND OTHER EXPE NSES AND HAS THUS SATISFIED THE TEST OF COMMERCIAL EXPEDIENCY IN RESP ECT OF OTHER LOAN AND ADVANCES AS WELL. IN LIGHT OF THAT, WE DELETE THE DISALLOWANCE OF RS 21,96,755/-. IN THE RESULT, GROUND OF THE ASSESSEE IS ALLOWED. 51. THE 9 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING DISALLOWANCE OF RS.3,45,600/- OUT OF INTEREST EXPEN SES. THE AO DISALLOWED THE INTEREST EXPENDITURE ON THE GROUND T HAT BORROWED FUND HAS BEEN GIVEN FOR NON-BUSINESS PURPOSE BASED ON HI S FINDINGS IN AY 1995-96. THE CIT(A) CONFIRMED THE DISALLOWANCE BY GIVING TH E FOLLOWING FINDINGS:- I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUB MISSION OF THE ASSESSEE, THE ASSESSMENT ORDER FOR AY 1995-9 6 AS WELL AS CIT(A) ORDER HAVE BEEN VERIFIED, IT IS FOUN D THAT THE ASSESSEE GAVE LOAN RS.4.35 LAC TO GM MODI HOSPITAL AND RESEARCH CENTRE AND MEDICAL SCIENCE AND RS.14.85 LA C GIVEN ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 56 TO MODI ARE LIMITED. THE ASSESSEE HAS ADMITTED THAT NO INTEREST HAD BEEN CHARGED ON BOTH THE LOANS. THEREF ORE, AO DISALLOWED RS.3,45,600/- @18% OUT OF INTEREST. THE LOAN IS REMAINED DURING THE YEAR UNDER CONSIDERATION. THE A SSESSEE DID NOT RAISE THIS ISSUE IN APPEAL BEFORE THE CIT(A ). THE FACTS ARE SIMILAR. THEREFORE, THE ACTION OF THE AO IS JUSTIFIED. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE D ISALLOWANCE CONFIRMED BY CIT(A) IS UNCALLED FOR AS THE ADVANCE WAS GIVEN TO THE GROUP CONCERNS IN VIEW OF THE COMMERCIAL EXPEDIENCY AND THEREFORE INTEREST IS ALLOWABLE EXPENDITURE IN VIEW OF THE DE CISION OF SUPREME COURT IN CASE OF S.A BUILDERS CASE (REFERRED SUPRA) . IN AY 1995-96, THIS DECISION WAS NOT AVAILABLE AND THEREFORE THE DECISI ON OF AO FOR THAT YEAR CANNOT BE APPLIED IN THE YEAR UNDER CONSIDERATION. IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED. THE LD CIT DR SUPPORTED THE ORDER OF THE LOWER AUT HORITIES. 52. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. UNLI KE THE FACTS AS NARRATED IN RESPECT OF GROUND NO. 8 ABOVE, THE ASSE SSEE HAS NOT BEEN ABLE TO DEMONSTRATE HOW IT SATISFY THE TEST OF COMM ERCIAL EXPEDIENCY IN RESPECT OF ADVANCES TO GM MODI HOSPITAL AND RESEARC H CENTRE AND ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 57 MEDICAL SCIENCE AND TO MODI ARE LIMITED. IN LIGHT OF SAME, WE ARE UNABLE TO ACCEDE TO THE CONTENTIONS OF THE ASSESSEE AND CONFIRM THE ORDER OF LD CIT(A). HENCE, GROUND NO. 9 OF THE ASS ESSEE IS DISMISSED. 53. THE 10 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING ADDITION OF RS. 82,67,790 U/S 40A(3). HE HAS FURTHE R ERRED IN NOT CONSIDERING THE APPLICABILITY OF RULE 6DD(J) AS WAS EXISTING TILL 25.07.1995. THE ASSESSEE HAS MADE PAYMENT OF FREIGH T & CARTAGE EXCEEDING RS.10,000/- IN EACH CASE AMOUNTING TO RS. 4,13,38,973/- . THE AO DISALLOWED 20% OF THE SAME I.E. RS. 82,67,79 0/- ON THE GROUND THAT THE PAYMENT WAS NOT COVERED BY RULE 6DD. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY HOLDI NG THAT ASSESSEES CASE IS NOT COVERED UNDER RULE 6DD(G) OR (J). THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT IT MA Y BE POINTED OUT THAT RULE 6DD(J) PROVIDED AN EXCEPTION TO APPLI CABILITY OF SECTION 40A(3) WHERE IT WAS NOT PRACTICABLE TO MAKE PAYMENT BY CROSSED CHEQUE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO P AYEE HAVING REGARD TO THE NATURE OF TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT THEREOF. IN CASE OF FREIGHT & CARTAGE EXPENSES PAYM ENT IS REQUIRED TO BE MADE BY DRIVERS ON SPOT AND IT IS NOT PRACTICABL E TO MAKE PAYMENT ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 58 BY CROSSED CHEQUE. THE SAID RULE 6DD(J) WAS SUBSTIT UTED W.E.F 25/07/1995 AND SIMULTANEOUSLY THE LIMIT WAS INCREAS ED TO RS. 20,000/- BY FINANCE ACT (NO. 2) 1996 W.E.F 01/04/1997. THERE FORE, EFFECTIVELY RULE 6DD(J) AS IT WAS EXISTING HAS TO BE CONSTRUED TO BE INAPPLICABLE FROM AY 1997-98. THE LD. CIT(A) HAS INCORRECTLY HEL D THAT ASSESSEES CASE IS NOT COVERED UNDER RULE 6DD(J) AS WHILE SAYI NG SO HE HAS CONSIDERED THE SUBSTITUTED RULE 6DD(J) WHEREAS IN T HE ASSESSEES CASE OLD RULE 6DD(J) IS APPLICABLE AND ASSESSEES CASE I S SQUARELY COVERED UNDER OLD RULE 6DD(J). IN VIEW OF ABOVE THE PAYMEN T OF RS. 4,12,38,973/- MADE BY THE ASSESSEE TO THE DRIVERS T OWARDS TRANSPORTATION OF GOODS IS COVERED BY RULE 6DD(J) A ND THEREFORE DISALLOWANCE OF RS. 82,67,790/- MADE BY THE AO BE D ELETED. WITHOUT PREJUDICE TO ABOVE, EXPENDITURE INCURRED UPTO 25.07 .95 IS RS. 2,77,99,801/- AS MENTIONED IN TAR ON WHICH NO DISAL LOWANCE U/S 40(A)(3) IS JUSTIFIED IN VIEW OF RULE 6DD(J). OTHER WISE ALSO WHERE THE PERSON TO WHOM PAYMENT IS MADE IS GENUINE AND CASH IS PAID IN EXCEPTIONAL CIRCUMSTANCES IN BUSINESS EXPEDIENCY, T HE SAME CANNOT BE DISALLOWED U/S 40A(3). FOR THIS RELIANCE IS PLACED ON THE FOLLOWING CASE:- (I) ANUPAM TELE SERVICES VS. ITO 2014-TIOL-16 1(GUJ.)(HC) (II) GIRDHARI LAL GOENKA VS. CIT 179 ITR 122 (CAL. )(HC) ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 59 IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY CIT (A) BE DELETED. AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORDE R OF THE LOWER AUTHORITIES. 54. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT I S NOTED THAT RULE 6DD(J) WAS SUBSTITUTED W.E.F. 25.07.1995. PRIOR TO THE AMENDMENT, RULE 6DD(J) PROVIDED AN EXCEPTION TO APPLICABILITY OF SECTION 40A(3) WHEREIN IT WAS PROVIDED WHERE IT WAS NOT PRACTICAL TO MAKE PAYMENT BY CROSSED CHEQUE OR WOULD HAVE CAUSED GENUINE DIFFI CULTY TO PAYEE HAVING REGARD TO THE NATURE OF TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT THEREOF. THE LD. CIT(A) HAS HOWEVER APPLIED THE AMENDED RULE 6DD(J) WHILE CONFIRMING THE DISALLOWAN CE WHICH STATES THAT WHERE PAYMENTS WAS REQUIRED TO BE MADE ON A D ATE ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR S TRIKE. IT IS THEREFORE CLEAR THAT FOR THE PERIOD ENDING 25.07.1995, PRE-AM ENDED RULE 6DD(J) WILL BE APPLICABLE. THE LD. AR HAS SUBMITTED THAT THESE PAYMENTS ARE IN THE NATURE OF FREIGHT AND CARTAGE PAYMENTS WHICH A RE REQUIRED TO BE MADE TO THE DRIVERS ON THE SPOT AND IT IS NOT PRACT ICAL TO MAKE PAYMENTS BY CROSSED CHEQUES. FURTHER, IN THE TAX A UDIT REPORT THE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 60 AUDITORS HAVE GIVEN THEIR REMARKS STATING THAT THE FACTORY IS SITUATED IN THE BACKWARD AREA AND THE PAYMENTS TO THE TRANSPORT ERS HAVE TO BE MADE IN CASH BECAUSE SUCH PERSONS ARE NOT HAVING B ANKING FACILITY AROUND THE FACTORY AREA. IN OUR VIEW, THE SAME PRO VES GENUINENESS OF THE TRANSACTIONS, THE IDENTITY OF THE PAYEE AS WELL AS THE BUSINESS EXPEDIENCY TO MAKE PAYMENT IN CASH IN THE BACKWARD AREA WHERE THE PAYEE ARE NOT HAVING THE BANKING FACILITY. FURTHE R LOOKING AT THE INTENT OF INTRODUCTION OF SECTION 40A(3) WHICH WAS TO CURB AND REDUCE THE POSSIBILITIES OF BLACK MONEY CIRCULATION IN ECONOMY AND TAKING INTO CONSIDERATION THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF ANUPAM TELE SERVICES (SUPRA) AND HONBLE RAJASTHAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA (SUPRA) WHEREIN IT WAS H ELD THAT EXCEPTIONS CONTAINED IN RULE 6DD ARE NOT EXHAUSTIVE AND THE SAID RULE MUST BE INTERPRETED LIBERALLY AND TAKING INTO CONSIDERATION THE BUSINESS EXPEDIENCY OF MAKING CASH PAYMENT, WE HEREBY DELETE THE DISALLOWANCE OF RS. 82,67,790/- IN THE HANDS OF THE ASSESSEE. 55. THE 11 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING DISALLOWANCE OF RS.1,50,000/- OUT OF TELEPHONE EXPE NSES. THE AO OBSERVED THAT IT IS NOT POSSIBLE TO EXTRACT THE INF ORMATION OF EXPENSES INCURRED ON THE RESIDENTIAL PHONES OF CHAIRMAN AND MD. CONSIDERING ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 61 THAT AN AMOUNT OF RS.1,91,953/- IS ALREADY CONSIDER ED FOR DISALLOWANCE UNDER THE HEAD GUEST HOUSE AGAINST WHICH RS. 4 LACS WAS DISALLOWED IN THE PRECEDING YEAR, A FURTHER DISALLOWANCE OF RS.1. 50 LACS WAS MADE. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY GIVIN G THE FOLLOWING FINDINGS:- I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUB MISSION OF THE ASSESSEE, SUCH ADDITIONS WERE MADE IN AY 199 5-96. THIS MATTER HAS BEEN SET ASIDE IN AY 1995-96 TO THE AO. BEFORE CIT(A) IN ORDER DT. 07.03.2002 THE ASSESSEE DID NOT PRESS THIS ISSUE FOR RS.1,05,439/-. KEEPING IN VIEW OF THE PAST HISTORY AND REASONABLENESS OF THE DISALLOWANCE S, THE ADDITION OF RS.1.5 LAC FOR NON BUSINESS PURPOSE IS JUSTIFIED. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT AS EX PLAINED IN GROUND NO. 7 ABOVE NO DISALLOWANCE FOR PERSONAL USE CAN BE MADE IN CASE OF A COMPANY. IN RESPECT OF TELEPHONE AT GUEST HOUSE ALREADY A DISALLOWANCE OF RS.1,91,953/- HAS BEEN MADE. IN THE SE CIRCUMSTANCES FURTHER DISALLOWANCE OF RS.1.50 LACS IS UNJUSTIFIED AND THE SAME BE DELETED. THE LOWER AUTHORITIES HAVE MADE THE DISALL OWANCE MERELY ON THE BASIS OF THE PAST HISTORY OF THE CASE WHICH IS NOT JUSTIFIED MORE PARTICULARLY WHEN THE DISALLOWANCE HAS ALREADY BEEN MADE. WITHOUT PREJUDICE TO ABOVE, IT MAY BE POINTED OUT THAT THE CIT(A) IN HIS ORDER ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 62 HAS STATED THAT THE ASSESSEE IN AY 1995-96, HAS NOT PRESS THIS ISSUE FOR RS.1,05,439/-. THUS, EVEN IF PAST HISTORY OF THE CA SE IS CONSIDERED, THE DISALLOWANCE SO MADE IS EXCESSIVE. IN VIEW OF ABOVE , THE DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED. AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORD ER OF THE LOWER AUTHORITIES. 56. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. FROM THE PERUSAL OF THE RECORDS IT IS NOTED THAT THE AO, RELYING ON THE PRE CEDING ASSESSMENT YEAR WHEREIN THE DISALLOWANCE OF RS. 4 LACS WAS MAD E IN RESPECT OF TELEPHONE EXPENSES ON THE GUEST HOUSE, HAS DISALLO WED A SUM OF RS. 1.5 LACS FOR THE YEAR UNDER CONSIDERATION. GIVEN T HAT THE SAID DISALLOWANCE IS PURELY ON ESTIMATE BASIS AND ALSO G IVEN THE FACT THAT THE ASSESSEE HAS ALREADY DISALLOWED AN AMOUNT OF RS. 1, 91,953/-, THE ADHOC DISALLOWANCE OF RS. 1.5 LACS IS HEREBY DELETE D. 57. THE 12 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST NOT ALL OWING THE CLAIM OF PRIOR PERIOD EXPENSES OF RS. 9,60,175/ -. THE AO DISALLOWED THE EXPENDITURE FOR THE REASON THAT ASSESSEE IS FOL LOWING MERCANTILE ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 63 SYSTEM OF ACCOUNTING AND IT HAS NOT FILED JUSTIFICA TION FOR ALLOWABILITY OF THE EXPENSES. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY HOLDI NG THAT ASSESSEE HAS NOT FILED ANY EXPLANATION TO SHOW THAT LIABILITY TO PAY THESE EXPENSES ACCRUED AND HAS BEEN DISCHARGED DURI NG THE YEAR UNDER CONSIDERATION. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT IT IS TO SUBMIT THAT IN SOME CASES THE CLAIM OF THE EXPENDITURE IS NOT M ADE BY THE CONCERNED PARTIES OR BILLS ARE NOT SUBMITTED TIMELY . IN SUCH CASES EXPENDITURE IS BOOKED WHEN BILLS ARE SUBMITTED IN P AST PERFORMANCE. THE EXPENDITURE INCLUDES RS.1,70,961/- ON ACCOUNT O F SALARY & WAGES WHERE LIABILITIES HAVE CRYSTALLIZED DURING THE YEAR ON SANCTION OF THE PAYMENT. FURTHER THE RATE OF TAX BEING SAME, IT DOE S NOT MATTER WHETHER IT IS ALLOWED AS DEDUCTION IN THE YEAR IN W HICH THE EXPENDITURE IS BOOKED OR IN EARLIER YEAR. FOR THIS RELIANCE IS PLACED ON THE FOLLOWING CASES:- (I) CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 (SC) (II) SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V S CIT 213 ITR 523 (GUJ.) (HC) (III) RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INV. CORPN. LTD. VS. ACIT (66 & 354/JP/08, DATED 30-09-2008 FOR AY 2 004- 05 AND 138 & 235/JP/09 FOR AY 05-06 DATED 08-01-201 0) ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 64 (IV) INSTRUMENTATION LTD. V/S IAC (1163/JP/82 ASSES SMENT YEAR 1978-79) DATED 28/09/1984 HE FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO ABO VE, IN CASE THESE PRIOR PERIOD EXPENDITURES ARE NOT ALLOWED IN THE YEAR UNDER CONSIDERATION, THEN THE SAME BE DIRECTED TO BE ALLO WED IN THE AY 1995- 96 TO WHICH IT PERTAINS. FURTHER THE ASSESSEE HAS A LSO INCLUDED IN INCOME RS. 11,86,483/- ON ACCOUNT OF EXCESS PROVISI ON WRITTEN OFF/ LIABILITIES NO LONGER REQUIRED. THIS IS MORE THAN T HE CLAIM OF PRIOR PERIOD EXPENDITURE. IN VIEW OF ABOVE, THE DISALLOWANCE CON FIRMED BY THE CIT(A) BE DIRECTED TO BE DELETED. AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORDE R OF THE LOWER AUTHORITIES. 58. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS W E HAVE HELD WHILE DISPOSING OF PREVIOUS GROUNDS, THE RATE OF TAX HAS NOT CHANGED FOR THE YEAR UNDER CONSIDERATION AND THE SUBSEQUENT ASSESSM ENT YEAR AND THE DISPUTE RAISED BY THE REVENUE IS CLEARLY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT AS HELD BY THE HONBLE SUPREME C OURT IN CASE OF EXCEL INDUSTRIES LTD. (SUPRA) AND IN CASE OF RAJASTHAN S TATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD.(SUPRA). GIVEN THAT THERE IS ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 65 NO DISPUTE THAT THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS AND THE GENUINENESS OF THE EXPENSES ARE NO T UNDER QUESTION, WE HEREBY DELETE THE DISALLOWANCE OF RS. 9,60,175/- . 59. THE 15 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING THE ADDITION OF RS. 4,73,264/- ON ACCOUNT OF LOSS I N TRANSIT. THE AO OBSERVED THAT THERE IS LOSS OF 45 MT OF CAUSTIC SOD A LYE IN TRANSIT. HE ACCORDINGLY DISALLOWED THIS LOSS AND MADE ADDITION OF RS. 4,73,264/-. THE LD. CIT(A) CONFIRMED THE ADDITION BY HOLDING T HAT SIMILAR ADDITION WAS MADE IN AY 1995-96, THE ASSESSEE DID N OT FILE ANY EVIDENCE AND JUSTIFICATION, THE TRANSIT LOSS DEPEND ON TERMS OF THE SUPPLIER COMPANY AS WELL AS INSURANCE ASPECT WHICH HAS NOT BEEN BROUGHT ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT NO MA TERIAL HAS BEEN BROUGHT ON RECORD TO ESTABLISH THAT CLAIM OF L OSS OF 45 MT OF CAUSTIC SODA LYE WAS NOT GENUINE. HENCE, THE DISALL OWANCE IS UNCALLED FOR. THE PREDECESSOR CIT(A) HAS ALSO DELETED THIS A DDITION AT PARA 28 OF HIS ORDER, COPY ENCLOSED. IN VIEW OF ABOVE ADDITION CONFIRMED BY CIT(A) BE DELETED. ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 66 AT THE OUTSET, THE LD CIT DR HAS SUPPORTED THE ORDE R OF THE LOWER AUTHORITIES. 60. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD. CIT(A) WHILE CONFIRMING THE DISALLOWANCE HAS HELD THAT THE ASSE SSEE DID NOT FILE ANY EVIDENCE AND JUSTIFICATION IN SUPPORT OF THE TRANSI T LOSS OF RS.4,73,264/-. HENCE WE DO NOT SEE ANY JUSTIFICATION TO INTERFERE IN THE ORDER OF LD. CIT(A) HENCE SAME IS CONFIRMED AND THE GROUND TAKE N BY THE ASSESSEE IS DISMISSED. 61. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D AND THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/08/20 16. SD/- SD/- YFYR DQEKJ FOE FLAG ;KNO (LALIET KUMAR) (VIKRAM SINGH YADA V) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 19/ 08/2016 ITA 382 & 420/JP/2011_ M/S LORD CHLORO ALKALIES LTD. VS ACIT 67 * PILLAI VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S LORD CHLORO ALKALI LIMITED, FORM ERLY KNOWN AS MODI ALKALIES LIMITED, ALWAR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-1, ALWAR. 3. VK;DJ VK;QDR@ CIT, ALWAR 4. VK;DJ VK;QDR@ CIT(A) ALWAR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 382 & 420/JP/2011) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR