The ITO, Ward-1(4), Surat V. M/s. Lakhani Filaments Pvt.Ltd., Surat

ITA 4033/AHD/2008

• Counselvise Citation: 403320514 RSA 2008
• Duration Of Justice: 2 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASESH SHAH; HARDIK VORA ARS
• Keywords: Depreciation; Loose papers; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI G.D.AGRAWAL, V.P. & HONBL E SHRI T.K. SHARMA, J.M.) I.T.A. NO. 4033/AHD./2008 : ASSESSMENT YEAR : 2005-2006 ITO, WARD-1(4), SURAT VS- M/S. LAK HANI FILAMENTS PVT. LTD, SURAT (PAN : AAACL 4042L) (APPELLANT) (RESPONDEN T) APPELLANT BY : SHRI B.L.YADAV, D.R. RESPONDENT BY : S/SHRI RASESH SHAH & HARDI K VORA, A.RS. DATE OF HEARING : 28.07.2011 DATE OF PRONOUNCEMENT : 26.08.2011 O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 15-10-2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, SURA T FOR THE ASSESSMENT YEAR 2005-2006. 2. GROUND NO.1 OF APPEAL RAISED BY THE REVENUE READ S AS UNDER: [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.38,93,055/- MADE BY THE A.O. ON ACCOUNT OF SUPPRESSION OF PRODUCTION ON ACCOUNT OF OIL GAIN AND WASTAGE RELYING UPON THE DECISION OF THE HONBLE IT AT, AHMEDABAD IN THE CASE OF NAKODA TEXTILE INDUSTRIES PVT. LTD. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TEXTILE MANUFACTURING, GREY CLOTH, YARN S, ELECTRICITY GENERATION, ETC. IT HAS DECLARED AGGREGATE GROSS PROFIT OF RS.2,30,09,044/- @ 5.27% AS AGAINST 6.01% IN THE IMMEDIATELY PRECEDING YEAR. THE AO FRAMED THE ASSES SMENT ON 31.12.2007 UNDER SECTION 143(3) WHEREIN HE MADE AN ADDITION OF RS.38 ,93,055/- ON THE FOLLOWING GROUNDS: (I) THE ASSESSEE HAS SHOWN OIL GAIN OF ONLY 0.31% WHICH IS VERY LOW AS COMPARED TO OTHER SIMILAR TYPE OF UNITS. ITA NO.4033-AHD-08 2 (II) THE ASSESSEE HAS SHOWN WASTAGE OF QUANTITY OF 40776.858 KG. I.E. 1.68% ON TOTAL CONSUMPTION OF YARD WHICH IS ON HIGHER SID E. (III) ON BEING ASKED TO EXPLAIN THE OIL GAIN AND WASTAGE, THE ASSESSEE HAS SUBMITTED THAT IT HAS UTILIZED LOW QUALITY OF YARN WHEREIN THE WASTAGE IS HIGH. THE ASSESSEE HAS TRIED TO COMPARE THE RATES WITH TH E PARTY FROM WHOM 0.16% OF YARN WERE PURCHASED AND THEY ARE HAVING OLD TEXTURI SING MACHINES WHICH RESULTED IN HIGHER WASTAGE. THE EXPLANATIONS OF THE ASSESSEE ARE OF GENERAL IN NATURE AND COULD NOT BE CONSIDERED AS A SOLE REASON FOR HIGHER WASTAGE. (IV) SIMILAR TYPES OF UNITS FIND CLAIMED AT 0.45% T O 0.47% WASTAGE (AS MENTIONED IN ORDER OF ASSESSMENT IN PARA-7) WHEREAS THE ASSESSEE HAS CLAIMED 1.67% WASTAGE WHICH IS THREE TIMES MORE. (V) AS PER THE RATIO LAID DOWN BY THE HON'BLE ITA T, AHMEDABAD IN THE CANE OF MARMO TEXTURISING PVT LTD. -ITA NO.338/AHD/ 1994, T HE NORMAL OIL GAIN SHOULD BE 1.62% AFTER CONSIDERATION OF WASTAGE. IN THIS CA SE, AFTER TAKING INTO CONSIDERATION THE WASTAGE, THE OIL GAIN WOULD BE OF 0.31% WHICH IS FAR BEHIND THE REASONABLE RATE OF OIL GAIN DECIDED BY THE HON' BLE ITAT. 4. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE AFORESAID ADDITION OF RS. 38,93,055/- ON THE FOLLOWING GROUNDS: (I) THE A.O. HAD MADE THE ENTIRE ADDITION BASED O N THE PREMISES THAT IN THE CASES OF SOME FIVE DIFFERENT PARTIES, WASTAGE PERCENTAGE WAS AT ABOUT 0.5% WHEREAS THE ASSESSEE'S WASTAGE, WAS OF 1.68% WHICH IS AT HIGHER SIDE. THE OTHER REASON FOR MAKING ADDITION IS THAT THE ASSESSEE HAS SHOWN MUCH LOWER OIL GAIN AT 0.31% WHEREAS IN THE CASE OF MARMO TEXTURISING PVT. LTD., THE HON'BLE ITAT HAD ACCEPTED OIL GAIN AT 1.62%. THE REASONING OF THE A. O. IS NOT CORRECT AS IN THE CASE OF NAKODA TEXTILE INDUSTRIES LTD., THE HON'BLE ITAT HAS ACCEPTED THE OIL GAIN AS LOW AS 0.34% AND 0.35% FOR THE ASSESSMENT YEARS 199 8-99 AND 1997-98 RESPECTIVELY WHICH IS AFTER THE DECISION OF THE HON 'BLE ITAT IN THE CASE OF MARMO TEXTURISING INDS. LTD. (II) A SIMILAR WASTAGE ACCEPTED IS AS HIGH AS 1 .33% FOR THE ASSESSMENT YEAR 1996-97 AND 2.88% FOR THE ASSESSMENT YEAR 1994-95. THEREFORE, NO FORMULA CAN BE APPLIED WITHOUT HAVING ANY OTHER MATERIAL ON REC ORD. (III) THE REASONS SHOWN BY THE ASSESSEE ARE BET TER THAN THE RESULTS SHOWN IN THE EARLIER AND UNDER SUCH SITUATION, NO SUCH ADDITION COULD HAVE BEEN MADE BY THE A.O. 5. AGGRIEVED BY THE ABOVE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ITA NO.4033-AHD-08 3 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE REVENUE, SHRI B.L.YADAV APPEARED AND POINTED OUT THAT THE DECISION OF THE L D. CIT(A) IS NOT ACCEPTABLE BECAUSE HE HAS NOT APPRECIATED THAT THE ASSESSEE ITSELF HAD ACCEPTED THAT IT COULD CONTROL THE OIL GAIN AS THERE IS AN OIL GAIN OF 1% FOR YARN FOR 'CAPTIVE USE' AND 2.26% OIL GAIN ON 'YARN FOR SALE'. THE LD. D.R. ALSO SUBMITTED THAT THE LD. CIT(A) HAS NOT APPRECIATED THAT THE FINDINGS OF THE A.O. IS BASED ON COMPARISON OF CASE S OF FIVE DIFFERENT PARTIES WITH THE ASSESSEE WHERE THE PERCENTAGE OF WASTAGE WAS LESS T HAN THE CASE OF THE ASSESSEE. 7. ON THE OTHER HAND, SHRI RASESH SHAH AND SHRI HAR DIK VORA, APPEARING ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE OR DER OF THE LD. CIT(A). THE COUNSEL OF THE ASSESSEE POINTED OUT THAT LOOKING TO THE OIL CONSUMPTION, THE OIL GAIN OF 0.31% IS FAIR AND REASONABLE. WITH REGARD TO WASTAGE, THE COUNSEL OF THE ASSESSEE POINTED OUT THAT WASTAGE AS HIGH AS 1.33% FOR THE ASSESSMENT YE AR 1996-97 AND 2.88% FOR THE ASSESSMENT YEAR 1994-95 WAS ACCEPTED WHEREAS IN THE ASSESSMENT YEAR UNDER APPEAL, THE WASTAGE IS 1.68%. HE ACCORDINGLY CONTENDED THAT NO FORMULA CAN BE LAID DOWN FOR MEASURING THE REASONABLE WASTAGE WITHOUT CONSIDERIN G THE OTHER MATERIALS ON RECORD. IN THE CASE OF THE ASSESSEE, THE FALL IN G.P. IS ABOUT RS.31,44305/- WHEREAS THE INCREASE IN POWER AND FUEL EXPENSES ON PROPORTIONATE BASIS IS M ORE THAN RS.84.64 LAKHS. IN THE ASSESSMENT ORDER, THE AO HAS NOT BROUGHT ANY MATERI ALS ON RECORD AGAINST THE CLAIM OF POWER AND FUEL EXPENSES. HE ACCORDINGLY CONTENDED T HAT THE VIEW TAKEN BY THE LD. CIT(A) DELETING THE ADDITION OF RS. 38,93,055/- ON ACCOUNT OF ALLEGED SUPPRESSION OF O IL GAIN AND WASTAGE BE DELETED. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN CASE OF MARMO TEXTURISERS PVT. LTD., THE TRIBUNAL HAS WORKED OUT THE OIL GAIN @1.62% BAS ED ON THE OIL CONSUMPTION OF 5.12%. IN THE CASE OF THE ASSESSEE, THE OIL CONSUMP TION IS ONLY AT 1.66%. THEREFORE, THE CASE OF MARMO TEXTURISERS PVT. LTD. IS NOT COMP ARABLE. THE LD. CIT(A), RELYING ON THE DECISION OF NAKODA TEXTILE INDUSTRIES LTD. FOR DIFFERENT YEARS, AS PER CHART GIVEN AT PAGE 8 OF THE IMPUGNED ORDER, ACCEPTED THE PLEA OF THE ASSESSEE THAT OIL GAIN GENERATED BY THE ASSESSEE IS FAIR AND REASONABLE. SIMILARLY, WITH REGARD TO WASTAGE, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS GIVEN COGENT REASONS F OR HOLDING THAT WASTAGE SHOWN BY ITA NO.4033-AHD-08 4 THE ASSESSEE ARE NEITHER EXCESSIVE NOR UNREASONABLE . THE RELEVANT CONCLUSION OF THE LD. CIT(A) IS CONTAINED IN PARA 2.3 OF THE IMPUGNED ORD ER, WHICH IS REPRODUCED HEREUNDER: 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. THE A.O. HAD MADE THE ENTIR E ADDITION BASED ON THE PROMISES THAT IN THE CASE OF SOME FIVE DIFFERENT PA RTIES THE WASTAGE PERCENTAGE WAS AT LOWER AT ABOUT 0.5% WHEREAS THE ASSESSEE'S W ASTAGE OF 1.68%, WHICH IS AT HIGH. THE OTHER REASON FOR MAKING THE ADDITION I S THAT THE ASSESSEE HAS SHOWN MUCH LOWER OIL GAIN AT 0.31% WHEREAS IN THE C ASE OF MARMO TEXTURIZERS THE HON'BLE I.T.A.T. HAS ACCEPTED THE OIL GAIN AT 1 .62%. THESE REASONS OF THE A.O. ARE NOT CORRECT BECAUSE EVEN IN THE CASE OF NA KODA TEXTILE INDUSTRIES LTD., THE HON'BLE I.T.A.T. HAS ACCEPTED THE OIL GAIN ON A S LOW AS 0.34% AND 0.35% FOR A.Y. 1998-99 & 1997-98 WHICH IS AFTER THE DECIS ION OF THE HON'BLE I.T.A.T. IN THE CASE OF MARMO TEXTURISERS. SIMILARLY, THE WA STAGE ACCEPTED IS AS HIGH AS 1.33% FOR A.Y. 1995-96 AND 2.88% FOR A.Y. 1994-95. THEREFORE, NO FORMULA CAN BE APPLIED WITHOUT HAVING ANY OTHER MATERIAL ON RECORD. THE APPELLANT HAS BEEN ABLE TO EXPLAIN THE FALL IN G.P. AS STATED ABO VE. THE FALL IN G.P. IS ONLY ABOUT RS.31,44,305/- WHEREAS THE INCREASE IN POWER AND FUEL EXPENSES ON PROPORTIONATE BASIS IS MORE THAN RS.84.64 LACS. THE A.O. HAS BROUGHT NO MATERIAL ON RECORD AGAINST THE CLAIM OF POWER & FUE L EXPENSES. THIS SHOWS THAT THE ASSESSEE'S RESULTS ARE BETTER THAN IN THE LAST YEAR. IN VIEW OF ABOVE, THE ADDITION MADE BY THE A.O. IS DELETED AND THE GROUND S OF APPEAL ARE ALLOWED. 8.1 AFTER CAREFULLY GOING THROUGH THE AFORESAID REA SONS GIVEN BY THE LD. CIT(A), WE ARE OF THE VIEW THAT THE VIEW TAKEN BY HIM, DELETIN G THE ADDITION OF RS. 38,93,055/- AND KEEPING IN VIEW THE PECULIAR FACTS OF THE ASSES SEE, IS FAIR AND REASONABLE. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. C IT(A). THUS, THIS GROUND OF APPEAL IS REJECTED. 9. GROUND NO.2 OF THE REVENUES APPEAL IS AS UNDER: 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A)- I, SURAT HAS ERRED IN DELETING THE DISALLOWANCE MAD E BY THE A.O. OF RS.10,15,014/- ON ACCOUNT OF INTEREST ON ACCOUNT OF TUF LOAN HOLDING THAT SANCTION ORDER FOR SUBSIDY WAS PASSED AFTER THE END OF THE ACCOUNTING YEAR AND THEREBY THE SUBSIDY INTEREST WAS NOT ACCRUED TO THE ASSESSEE DURING THE ACCOUNTING YEAR. 10. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TEXTILE MANUFACTURING, GREY CLOTH, YARN S, ELECTRICITY GENERATION, ETC. THE AO FRAMED THE ASSESSMENT ON 31.12.2007 UNDER SECTIO N 143(3) WHEREIN HE MADE ITA NO.4033-AHD-08 5 DISALLOWANCE OF INTEREST OF RS.10,15,014/- BEING IN TEREST ON TUF LOAN ON THE FOLLOWING GROUNDS: (I) THE DETAILS FURNISHED WITH REGARD TO THE INTE REST ON TUF LOAN SHOWS THAT THE ASSESSEE HAS NOT ACCOUNTED FOR THE 'INTEREST SU BSIDY' ACCRUED TO THE ASSESSEE ON 31.03.2005. (II) WHEN THE ASSESSEE IS AWARE OF THE CON DITIONS OF THE TUF SCHEME THAT THEY ARE ENTITLED TO SUBSIDY, THEY MUST BE AWARE TH AT 'INTEREST SUBSIDY' IS ACCRUED TO THEM . 11. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A ) DELETED THE DISALLOWANCE OF INTEREST OF RS. 10,15,014/- ON THE FOLLOWING GROUND S: (I) AS SUBMITTED BY THE ASSESSEE, INTEREST SUBSID Y HAD NOT BEEN ACCRUED TO THEM AS ON 31.03.2005. (II) THE ACCRUAL OF 'INTEREST SUBSIDY IS THE DAT E WHEN 'RIGHT TO RECEIVE' OF SUCH INTEREST. (III) THE STATE BANK OF INDIA HAS PASSED THE CLAIM OF SUBSIDY AND TILL THE CLAIM IS NOT PASSED, THERE WAS NO RIGHT TO RECEIVE SUBSID Y INTEREST TO THE ASSESSEE. (IV) SANCTION ORDER IS DATED 04.09.2008 AND TUF LIM IT HAS SANCTIONED WITH EFFECT FROM 02.09.2005. EVEN AS PER SANCTION ORDER, A SUBSIDY HAS BEEN EFFECTIVE FROM 02.09.2005 I.E. PERTAINING TO ASSESS MENT YEAR 2006-07 AND IT DOES NOT PERTAIN TO ASSESSMENT YEAR 2005-06 I.E. FO R THE YEAR UNDER CONSIDERATION. (V) THE ASAESSEE HAS EVEN NOT CLAIMED DEPRECIATION AS PER TUF SCHEME BUT HAD CLAIMED NORMAL RATE OF DEPRECIATION. 12. THE LD. D.R. POINTED OUT THAT THE DECISION OF T HE LD. CIT(A) IS NOT ACCEPTABLE AS HE HAS NOT APPRECIATED THAT THE 'TUF LOAN INTEREST' IN ACCRUED TO THE ASSESSEE DUE TO THEIR 'RIGHT OF SUBSIDY' AND INTEREST EXPENSES HAS BEEN DISALLOWED AS THE ASSESSEE HAD CLAIMED FOR THIS INTEREST EXPENSES WITHOUT TAKING S ET OFF OF ACCRUED SUBSIDY INTEREST. THE LD. CIT(A) ALSO HAS NOT APPRECIATED THAT THE AS SESSEE WAS WELL AWARE OF THE AMOUNT OF SUBSIDY INTEREST DUE TO IT AT THE TIME OF DEBITING INTEREST EXPENSES AS THE ASSESSEE HAS FOLLOWED MERCANTILE SYSTEM OF THEIR AC COUNTS, THEY SHOULD HAVE ACCOUNTED FOR THE 'INTEREST SUBSIDY' ON ACCRUAL BASIS AND OUG HT TO HAVE CREDITED THE SAME TO THE 'INTEREST ON TUF ACCOUNT. ITA NO.4033-AHD-08 6 13. ON THE OTHER HAND, THE COUNSEL OF THE ASSESSEE POINTED OUT THAT SINCE BEGINNING, THE ASSESSEE HAS ACCOUNTED INTEREST SUBSIDY ON CASH BASIS, WHICH IS DULY DISCLOSED BY THE AUDITOR IN TAX AUDIT REPORT. IT WAS FURTHER STA TED THAT NO INTEREST SUBSIDY WAS ACCRUED TO THE ASSESSEE AS ON THE DATE. THE INTERES T SUBSIDY ACCRUED ONLY WHEN A RIGHT TO RECEIVE THE INTEREST IS ACCRUED. THE STATE BANK OF INDIA HAS PASSED THE CLAIM OF SUBSIDY AND TILL THE CLAIM IS PASSED, THERE IS NO R IGHT TO RECEIVE THE SUBSIDY. IN SUPPORT OF THIS, SANCTION ORDER DATED 04.09.2008 AND TUF LI MIT HAS SANCTIONED WITH EFFECT FROM 02.09.2005. THEREFORE, AS PER SANCTION ORDER, A SUB SIDY HAS BEEN GIVEN W.E.F. 02.09.2005 WHICH PERTAINS TO ASSESSMENT YEAR 2006-0 7 AND IT DOES NOT PERTAIN TO THE CURRENT YEAR 2005-06. HE ACCORDINGLY CONTENDED THAT THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 14. RIVAL SUBMISSIONS WERE CONSIDERED. THE REASONS GIVEN BY THE LD. CIT(A) FOR DELETING THE ADDITION OF RS.10,15,014/- MADE BY THE AO IS CONTAINED IN PARA 3.3, WHICH READS AS UNDER: 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE AP PELLANT AND THE OBSERVATION OF THE A.O. THE SANCTION ORDER FOR INTE REST SUBSIDY IS EFFECT FROM 02.09.2005 AND, THEREFORE, THERE IS NO QUESTION OF SHOWING INTEREST BEFORE THIS DATE. HENCE, NO QUESTION OF CHARGING INTEREST BEFOR E THIS DATE. FURTHER, THERE IS NO QUESTION OF DISALLOWANCE OUT OF INTEREST EXPENDI TURE BECAUSE THAT LIABILITY HAS NOT ACCRUED ON THE TERM LOAN. THERE IS NO FINDI NG THAT THIS TERM LOAN WAS NOT FOR THE PURPOSE OF BUSINESS. ONCE THE LOAN IS F OR THE PURPOSE OF BUSINESS THE INTEREST HAS TO BE ALLOWED AS PER THE PROVISIONS OF SECTION 36(I)(III) AS PER VARIOUS SUPREME COURT DECISIONS IN THIS REGARD. IN VIEW OF ABOVE, THE DISALLOWANCE MADE BY THE A.O. IS DELETED. THIS GROU ND OF APPEAL IS ALLOWED. 15. FROM THE PERUSAL OF THE ABOVE, IT CAN BE SEEN T HAT THE SANCTION ORDER FOR INTEREST SUBSIDY IS EFFECT FROM 02.09.2005. THIS DATE PERTAI NS TO NEXT FINANCIAL YEAR. THEREFORE, THERE IS NO QUESTION OF SHOWING INTEREST BEFORE THE STATE. KEEPING IN VIEW THE DATE OF THESE FACTS, WE ARE CONVINCED THAT THE LD. CIT(A) H AS GIVEN COGENT REASONS FOR DELETING THE DISALLOWANCE OF RS. 10,15,014/- MADE BY THE AO. WE, THEREFORE, DECLINE TO INTERFERE. RESULTANTLY, THIS GROUND OF APPEAL IS RE JECTED. 16. GROUND NO.3 OF REVENUES APPEAL IS AS UNDER: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A)- I, SURAT HAS ERRED IN DELETING THE DISALLOWANCE MAD E BY THE A.O. OF ITA NO.4033-AHD-08 7 RS.7,87,008/- UNDER SEC.35D ON THE GROUND THAT THE EXPENSES INCURRED ON EXPANSION OF BUSINESS WAS NOT COVERED WITHIN THE ME ANING OF SEC. 35D(2) OF THE ACT AND IT WAS REVENUE EXPENDITURE ALLOWABLE UNDE R SEC.37 OF THE ACT. 17. BRIEFLY STATED, THE FACTS ARE THAT THE AO FRAME D THE ASSESSMENT ON 31.12.2007 UNDER SECTION 143(3) WHEREIN HE MADE DISALLOWANCE O F RS.7,87,008/- UNDER SECTION 35D OF THE I.T. ACT, 1961 ON THE FOLLOWING GROUNDS: (I) THE ASSESSEE COMPANY HAS CLAIMED 'LOAN PROCESS ING CHARGES' OF RS.9,83,760/- FOR OBTAINING LOAN FROM BANKS FOR PUR CHASE OF NEW MACHINERY FOR ITS EXPANSION. (II) THE ASSESSEE HAD GONE FOR HUGE EXPANSION AND E XPENSES RELATING TO EXPANSION SHOULD HAVE BEEN AMORTIZED UNDER SEC.35D OF THE ACT. (III) AS PER PROVISIONS OF SECTION 35D OF THE ACT, EXPENDITURE HAS TO BE AMORTIZED WHICH ARE INCURRED AFTER THE COMMENCEMENT OF THE BUSINESS AND NOT IN CONNECTION WITH EXPANSION OF ITS INDUSTRIAL UNDE RTAKINGS. 18. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A ) DELETED THE DISALLOWANCE MADE BY THE A.O. OF RS.7,87,008/-, ON THE FOLLOWING GROUNDS: (I) THE LOAN PROCESSING CHARGES ARE NOT COVERED UN DER THE PROVISIONS OF SECTION 35D(2) OF THE ACT AND ONLY THOSE EXPENSES W HICH ARE COVERED UNDER SECTION 35D(2) ARE REQUIRED TO BE AMORTIZED. (II) THE LOAN CHARGES EXPENSES ARE 'REVENUE EXPENS ES' AND IS FULLY ALLOWABLE. (III) THE LOAN CHARGES EXPENSES WERE INCURRED FOR O BTAINING WORKING CAPITAL LOAN OF RS.4 CRORE, WORKING CAPITAL TERM LOAN OF RS .88 LACS, TERM LOAN FOR MACHINERY OF RS.2.80 CRORE, NEW TERM LOAN FOR WIND MILL OF RS.2.60 CRORE AND L.C. LIMIT FOR WORKING CAPITAL OF RS.1 CRORE. 19. THE LD. D.R. POINTED OUT THAT THE VIEW TAKEN BY THE LD. CIT(A) DELETING THE ADDITION OF RS.7,87,008/- MADE BY THE A.O. IS NOT A CCEPTABLE BECAUSE THE LD. CIT(A) HAS NOT APPRECIATED THAT SECTION 35(2)(B) OF THE AC T ENLIST THE LEGAL CHARGES WHICH COVERS THE LOAN PROCESSING CHARGES. THE LD. CIT (A) HAS ALSO NOT APPRECIATED THAT THE LOAN PROCESSING CHARGES ARE CHARGES FOR DRAFTING OF AGREEMENT AND OTHER FORMALITIES INCURRED IN THIS CONNECTION LIKE VERIFICATION OF AS SET AND OWNERSHIP AGAINST WHICH LOANS WERE OBTAINED. THE LD. D.R. ALSO STATED THAT THE LD. CIT (A) HAS NOT APPRECIATED THAT THE EXPENSES IN RESPECT OF WHICH DEDUCTION UND ER SECTION 35D WERE CLAIMED WERE ITA NO.4033-AHD-08 8 OF THE NATURE OF EXPANSION OF THE BUSINESS OF THE A SSESSEE AND THE LD. CIT(A) HAS NOT SPECIFICALLY POINTED OUT THE REASONS FOR DELETING S UCH ADDITION. 20. ON THE OTHER HAND, THE COUNSEL OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 21. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIALS AVAILABLE ON RE CORD. IT IS PERTINENT TO NOTE THAT IN PARA 17 OF THE ASSESSMENT ORDER, THE AO HAS REPRODU CED THE RELEVANT PORTION OF SECTION 35D OF THE I.T. ACT, 1961. IN OUR CONSIDERED OPINIO N, THIS DEFINITION OF SECTION 35D OF THE I.T. ACT IS DIRECTLY APPLICABLE IN CASE FOR EXP ANSION OF ITS BUSINESS AND THE ASSESSEE IS ENTITLED TO SET OFF THESE EXPENSES WITHIN FIVE E QUAL INSTALMENTS. FOR THIS REASON, THE AO RIGHTLY CONSIDERED THE LOAN PROCESSING CHARGES O F RS.9,83,760/- FOR THE PURPOSE OF AMORTIZATION UNDER SECTION 35D OF THE I.T. ACT, 196 1. ONLY 1/5 TH OF THE SAME IS ALLOWABLE FOR THE ASSESSMENT YEAR UNDER APPEAL AND THE REMAINING 4/5 TH WAS RIGHTLY DISALLOWED BY THE AO. WE, ACCORDINGLY, SET ASIDE TH E ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE AO. THIS GROUND OF TH E REVENUES APPEAL IS ALLOWED. 22. GROUND NO.4 OF REVENUES APPEAL READS AS UNDER: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A)- I, SURAT HAS ERRED IN DELETING THE DISALLOWANCE MAD E BY THE A.O. OF RS.12,22,800/- ON ACCOUNT OF UNEXPLAINED TRANSACTIO NS RECORDED IN THE IMPOUNDED FILE PAGE NO.45. 23. BRIEFLY STATED, THE FACTS ARE THAT THE AO FRAME D THE ASSESSMENT ON 31.12.2007 UNDER SECTION 143(3) WHEREIN HE MADE DISALLOWANCE O F RS.12,22,800/- UNDER SECTION ON ACCOUNT OF TRANSACTION RECORDED IN IMPOUNDED FIL E, ON THE FOLLOWING GROUNDS: (I) DURING THE COURSE OF SURVEY PROCEEDINGS, CERTAI N LOOSE PAPERS WERE FOUND AND IMPOUNDED. ON PAGE NO. 45 OF SUCH, IMPOUNDED FI LE, CERTAIN DETAILS OF TRANSACTIONS WERE RECORDED AND SUCH TRANSACTIONS AR C NOT RECORDED IN THE 'REGULAR BOOKS OF ACCOUNTS' OF THE ASSESSEE. (II) ON BEING ASKED WITH REGARD TO THE TRANSACTION S ON PAGE NO. 45 OF IMPOUNDED FILE, THE ASSESSEE HAD SUBMITTED THAT SUC H TRANSACTIONS BELONG TO SHRI CHITHRABHAI WHO HAD CAME TO THEIR OFFICE AT TH E TIME OF SURVEY. ON BEING SPECIFICALLY REQUESTED TO PRODUCE SHRI CHITHRABHAI, THE ASSESSEE HAS NEITHER PRODUCED HIM NOR FURNISHED HIS CONFIRMATORY/EXPLANA TORY LETTER. ITA NO.4033-AHD-08 9 (III) THE ASSESSEE HAD SUBMITTED THAT SHRI CHITHRAB HAI WAS COLLECTING WASTAGE/SCRAPS FROM THE ASSESSEE COMPANY WHICH ITSE LF SUGGEST THAT THEIR EXIST BUSINESS NEXUS AMONGST THE ASSESSEE AND SHRI CHITHR ABHAI. (IV) AS PER PAGE NO. 45 OF THE IMPOUNDED FILE, TH E ASSESSEE HAD TRANSACTIONS OF RS.12,22,800/-, IT IS HELD THAT THE ASSESSEE HAD SOLD WASTAGE OF RS,12,22,800/- TO SHRI CHITHRABHAI WHICH ARE RECORD ED IN THE 'IMPOUNDED FILE' BUT HAS NOT RECORDED BY THE ASSESSEE IN ITS 'REGULA R BOOKS OF ACCOUNTS . 24. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A ) DELETED THE DISALLOWANCE MADE BY THE A.O. OF RS. 12,22,800/- ON THE FOLLOWIN G GROUNDS: (I) THE TRANSACTION RECORDED ON PAGE NO. 45 OF I MPOUNDED FILE ARE SEEMS TO BE DUMB PAPER HAVING NO DESCRIPTION AT ALL AGAINST THE FIGURE EITHER IN RESPECTIVE YEAR OR IN RESPECT OF AN AMOUNT OF MONEY OR QUANTITY FOR ANYTHING. (II) THE IMPOUNDED PAPER DOES NOT BEAR THE NAME O F THE ASSESSEE OR ANY OTHER PARTY. (III) THE ADDITION IS TOTALLY BASED ON CONJECTURE A ND SURMISE. 25. AT THE TIME OF HEARING, THE LD. D.R. POINTED OU T THAT THE VIEW TAKEN BY THE LD. CIT(A) DELETING THE ADDITION OF RS.12,22,800/- MADE BY THE A.O. IS NOT ACCEPTABLE BECAUSE THE LD. CIT(A) HAS NOT APPRECIATED THAT THE ASSESSEE THEMSELVES HAVE CLAIMED THAT THE IMPOUNDED PAPERS (PAGE NO.45) BELONGS TO S HRI CHITHRABHAI WHO HAD COLLECTED WASTAGE/SCRAP FROM THE ASSESSEE-COMPANY A ND THE ASSESSEE HAD, ON BEING SPECIFICALLY REQUESTED FOR BY THE A.O., NOT PRODUCE D HIM PERSONALLY OR HAD NOT FILED ANY CONFIRMATORY/EXPLANATORY LETTERS FROM HIM WITH REGARD TO THE AFORESAID TRANSACTIONS. THE LD. D.R. FURTHER POINTED OUT THAT THE LD. CIT (A) HAS ALSO NOT APPRECIATED THE FACT THAT BY NOT PRODUCING PERSONAL LY SHRI CHITHRABHAI BY THE ASSESSEE BEFORE THE A.O., ITSELF SUGGEST THAT THE PAPERS IMP OUNDED RELATING TO THE' TRANSACTIONS OF THE ASSESSEE WITH SHRI CHITHRABHAI REPRESENT THE TRANSACTIONS IN RESPECT OF SALE/WASTAGE OF SCRAP WHICH ARE RECORDED BY THE ASS ESSEE IN THE 'LOOSE PAPER IMPOUNDED' AS ABOVE BUT HAS NOT RECORDED IN ITS 'RE GULAR BOOKS OF ACCOUNTS'. 26. ON THE OTHER HAND, THE COUNSEL OF THE ASSESSEE, APPEARING ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). ITA NO.4033-AHD-08 10 27. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT SHR I CHITHARBHAI DIED ON 01.01.2005. THE FIGURES MENTIONED ON THE LOOSE PAPER ARE WITHOUT AN Y DESCRIPTION AT ALL I.E., NO NAME OF ANY PARTY MENTIONED. ALL THESE WRITTEN FIGURES ARE NAKED AND CANNOT BE ASCERTAINED WHETHER IT PERTAINED TO AMOUNT OR QUANTITY OR WHETH ER IT IS A RECEIPT OR EXPENDITURE. IT DOES NOT BEAR THE NAME OF THE ASSESSEE OR ANY OTHER PARTY. THESE, BEING THE FACTS, THE LD. CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN DELE TING THIS ADDITION. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). THIS GROUND OF APPEAL IS REJECTED. 28. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.08.2 011 SD/- SD/- (G.D.AGRAWAL) (T.K. SHARMA) VICE PRESIDENT JUDICIAL MEMBER DATED : 26/08/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.