M/s. WEIZMANN LTD., MUMBAI V. ADDL CIT RG- 1(3), MUMBAI

ITA 4161/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8271 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 04-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J D MISTRY
• Keywords: Depreciation; Commercial expediency; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 80HHC; 115JB; 250

Judgement Text

I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 1 IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. [ CORAM: PRAMOD KUMAR, AM AND V. DURGA RAO, JM ] I.T.A NO.4603/ MUM/2008 ASSESSMENT YEAR: 2004-05 ADDL. CIT, RANGE 1 (3) APPELLANT MUMBAI. VS. WEIZMANN LTD., RESPONDENT EMPIRE HOUSE, 2214, D.N. ROAD, A.K.NAYAK MARG, FORT, MUMBAI. PA NO.AAACW 1260 H ITA NO.4161/MUM/2008 ASSESSMENT YEAR: 2004-05 WEIZMANN LTD., APPELLANT EMPIRE HOUSE, 2214, D.N. ROAD, A.K.NAYAK MARG, FORT, MUMBAI. PA NO.AAACW 1260 H VS ADDL. CIT, RANGE 1 (3) RESPONDENT MUMBAI. PAVAN VED, FOR THE REVENUE J.D.MISTRY AND VIJAY MEHTA , FOR THE ASSESSEE O R D E R PER PRAMOD KUMAR : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALL ENGED THE ORDER DATED 10 TH APRIL, 2008 OF CIT(A)-XXI, MUMBAI, IN THE MATTER O F ASSESSMENT UNDER SECTION I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 2 143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2004-05, ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE ADDITION OF RS 23,31,963 AGAIN ST DISALLOWANCE OF LEASE RENTAL, PAID ON WINDMILL, IGNORING THE FACT THAT TH E ASSESSEE COMPANY WITH MUTUAL UNDERSTANDING FIRST PURCHASED AND THEN SOLD BACK TO MANUFACTURER AND AGAIN PURCHASED THROUGH ITS SISTER CONCERN FROM WHOM IT HAS BORROWED THE SAME ON LEASE. 2. BRIEFLY STATED, RELEVANT MATERIAL FACTS ARE LIKE T HIS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT T HE ASSESSEE COMPANY HAS CLAIMED EXPENDITURE ON ACCOUNT OF PAYMENT OF LEA SE RENTAL OF RS. 23,32,963 TO M/S. WEIZMANN HOMES LIMITED, IN RESPECT OF ONE 250 K. W. WINDMILL. THE AO ALSO NOTED THAT THE LEASE RENTAL EXPENSES WAS DISALLOWED IN A .Y. 1998-99 ON ACCOUNT OF THE FACT THAT THE SAID ASSET WAS PURCHASED IN THE YEAR 1 997-98 BEING SOLD TO THE MANUFACTURE IN A.Y. 1998-99, WHO IN TURN SOLD THE SAM E TO M/S. WEIZMANN HOMES LIMITED FROM WHOM THE ASSESSEE COMPANY TOOK BACK THE W INDMILL ON LEASE. THE AO ALSO NOTED THAT SIMILAR RENTAL EXPENDITURE WAS DISALLO WED IN A.Y. 1998-99. IN THIS BACKDROP, THE ASSESSING OFFICER DISALLOWED THE PAYMENT O F LEASE RENT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE CIT (A) FOLLOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000 ON THIS ISSUE, DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 23,31,963. BEING AGGRIEVED BY THE STAND SO TAKEN BY THE CIT (A), THE ASSESSING OFFICER IS IN APPEAL BEFORE THE TRIBUNAL. 3. HAVING HEARD THE RIVAL CONTENTIONS, WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE CIT (A) TO INTERFERE AS THE CIT (A) HAS FOLLOW ED THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-99 AND 1999 -200 ON SIMILAR FACTS, WHEREIN, THE TRIBUNAL HAS ALLOWED THE DEDUCTIO N OF LEASE RENTAL ON THIS WINDMILL, OBSERVING AS FOLLOWS:- I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS . THE CASE OF THE AUTHORITIES BELOW IS THAT THERE WAS NO NEED FOR THE ASSESSEE TO SELL THESE TWO WINDMILLS BECAUSE IN ANY CASE DIRECTLY OR INDIR ECTLY THESE WINDMILLS WERE UTILIZED FOR THE PURPOSES OF THE BUSINESS OF T HE ASSESSEE. AS TO WINDMILL 250 KW THE ASSESSEE TOOK IT BACK ON LEASE FROM WHL. WINDMILL 500 KW WAS FINALLY TAKEN ON LEASE BY TAPI ENERGY PR ODUCT LTD (TAPI) WHO WAS A SISTER CONCERN OF THE ASSESSEE. TAPI WAS SHA RING REVENUE FROM ASSESSEES SALE OF ELECTRICITY TO ANDHRA PRADESH GO VERNMENT. THE REVENUE HAS ALSO CONTENDED THAT THE SERIES OF TRANSACTIONS WERE ENTERED INTO BETWEEN THE GROUP CONCERNS WITH A VIEW TO AVOID TAX LIABILITY OF THE GROUP AS A WHOLE. THERE IS CERTAIN FLAW ON THE FACE OF TH IS ARGUMENT IN AS MUCH AS BANK OF MADURA WHO PURCHASED WINDMILL 500 KW IS NOT PART OF THE ASSESSEE GROUP. SECONDLY, IT IS NOT FOR THE INCOME- TAX AUTHORITIES TO DETERMINE AS TO IN WHAT MANNER THE ASSESSEE SHOULD HAVE CONDUCTED HIS BUSINESS AFFAIRS. IT IS NOT IN DISPUTE THAT THE TRA NSACTIONS WERE GIVEN EFFECT TO BY THE PARTIES. EVEN IF THE HUNCH OF THE LEARNED CIT(A) THAT WINDMILL 250 KW WAS NOT PHYSICALLY MOVED IS CORRECT THE FACT REMAINS THAT OWNERSHIP OF THE ASSESSEE OVER THE WINDMILL WAS SUB STITUTED AND THE ASSESSEE THEREAFTER OPERATED THE WINDMILL AS A LESS EE. THE AUTHORITIES BELOW HAVE APPROACHED THE ISSUE FROM PHYSICAL POINT OF VIEW ALONE. THEY HAVE NOT GONE INTO THE FINANCIAL RESTRUCTURING PART OF THE TRANSACTIONS WHICH TOO COULD BE AN IMPORTANT CONSIDERATION FOR T HE ASSESSEE. THE ASSESSEE HAS ARGUED BEFORE THE AUTHORITIES BELOW TH AT THERE IS NO REDUCTION IN THE ASSESSEES TAX LIABILITY BY THE TR ANSACTIONS AN DIN FACT THE ASSESSEE STOOD TO GAIN BY THE TRANSACTIONS IN AS MU CH AS THE ASSESSEE RECEIVED RS.550 LACS BY WAY OF LIQUIDATED DAMAGES. THE CASE OF THE REVENUE IS THAT ALL THESE ARRANGEMENTS MIGHT HAVE FA CILITATED REDUCTION OF TAX LIABILITY OF THE ASSESSEE GROUP TAKEN AS A W HOLE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RIGHTLY ARGUED THAT TH E ASSESSMENT OF THE ASSESSEE CANNOT BE AFFECTED BY WHAT HAPPENED IN THE CASE OF THERE ASSESSEE EVEN IF THEY WERE PART OF THE SAME GROUP A S THE ASSESSEE HIMSELF. ACTION, IF ANY WAS LEGALLY PERMISSIBLE, COULD BE TA KEN IN THE ASSESSMENT OF THERE ASSESSEES. FOR THE PURPOSE OF INCOME-TAX PROC EEDINGS EACH ASSESSEE IS A SEPARATE ENTITY. ABOVE ALL THERE IS CONSIDERAB LE FORCE IN THE CONTENTION OF THE ASSESSEE THAT WHILE ON THE ONE HAND THE ASSE SSEES CLAIM OF DEDUCTION OF LEASE RENTALS HAS BEEN DISALLOWED, THE INCOME EARNED BY THE ASSESSEE ON SALE OF POWER TO ANDHRA PRADESH GOVERNM ENT HAS BEEN ASSESSED WITHOUT DEMUR. WE THEREFORE HOLD THAT THE DISALLOWANCE OF THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF LEASE R ENT PAID IN RESPECT OF WINDMILL 250 KW IS WITHOUT ADEQUATE JUSTIFICATION A ND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION OF LEASE RENTA L ON THIS WINDMILL. 4. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF THE COORDINATE BENCH, WE CONFIRM THE ORDER OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. GROUND NO. 1 IS THUS DISMISSED. I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 4 6. IN SECOND GROUND OF APPEAL, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO ALLOW THE DEDUCTION U/ S. 80 HHC OF RS 43,26,451 WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT , IN SPITE OF THE FACT THAT THE DEDUCTION U/S. 80HHC COMPUTED UNDER CLAUSE (A), ( B) & (C) OF SUB- SECTION(3) OR SUB-SECTION 3(A) IS NIL AN AS PROVIDED IN SECTION 115JB OF THE ACT. 7. SO FAR AS THIS GRIEVANCE OF THE ASSESSING OFFICER IS CO NCERNED, RELEVANT MATERIALS ARE LIKE THIS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THE PROFITS ELIGIBLE FOR DEDUCTION U NDER SECTION 80 HHC HAVE BEEN CLAIMED TO BE RS. 43,26,431, EVEN THOUGH NO DEDUCTIO N UNDER SECTION 80 HHC IS CLAIMED BECAUSE THE GROSS TOTAL INCOME DURING THE YEAR WAS NIL. IN THE COMPUTATION OF TOTAL INCOME AS PER THE NORMAL PROVISIONS OTHER THA N SECTION 115JB, THE ASSESEE HAS CLAIMED DEDUCTION U/S. 80 HHC AT NIL WHILE WORKI NG OUT THE BOOK PROFIT U/S.115JB, THE ASSESSEE HAS DEDUCTED RS. 43,26,431 ON ACCO UNT OF PROFIT ELIGIBLE FOR DEDUCTION U/S. 80 HHC. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEDUCTION U/S. 80HHC, AS ACTUALLY CLAIMED IN THE RETURN AND NOT THE PROFITS SAID TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HH C, BE REDUCED FROM THE BOOK PROFIT U/S.115JB. IT WAS EXPLAINED BEFORE THE AO THA T THE DEDUCTION U/S. 80HHC IS ALLOWABLE AS PER SECTION 115JB(2)(IV) OF THE INCOME T AX ACT, 1961. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE AND D ETERMINED THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. AGGRIEVED, THE ASSESSE E CARRIED THE MATTER IN APPEAL. BEFORE THE CIT (A), RELIANCE WAS PLACED ON THE DECISI ON OF THE MUMBAI ITAT (SB) IN THE CASE OF DCIT AND ORS V SYNCOME FORMULATIONS INDIA LTD (292 ITR 144) IN RESPECT OF DEDUCTION U/S.80HHC FROM BOOK PROFIT, WHEREIN, IT WAS HELD THAT DEDUCTION U/S. 80HHC IN A CASE OF MAT ASSESSMENT IS TO BE WORKED OUT O N THE BASIS OF ADJUSTED BOOK PROFIT AND NOT ON THE BASIS OF PROFIT COMPUTED UNDER THE REGULAR PROVISIONS OF I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 5 LAW APPLICABLE TO THE COMPUTATION OF PROFIT AND GAI NS OF BUSINESS OR PROFESSION. THE CIT (A) ALLOWED THE ASSESSEES PLEA, INTER ALIA, OBSERVIN G AS UNDER:- .. AFTER DUE CONSIDERATION OF THE FACT AS WELL AS THE LAW, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE APPELLANT. IT IS NOTICED THAT THE APPELLANT HAD PROFITS TO THE EXTENT OF RS. 2,60,55,412 AS PER THE NORMAL COMPUTATION OF INCOME. THE SAID INCOME WAS REDUCED TO NIL DUE TO ADJUSTMENT OF CARRY FORWARD OF UNABSORBED DEPRECIATION. THE SAID JUDGEMENT WAS REQUIRED TO BE MADE AS PER THE PROVISIONS OF LAW. HAD SUCH UNABSORBED DEPRECIATION NOT BEEN AVAILABLE, THE APPELLANT COUL D HAVE GOT THE SAID DEDUCTION EVEN IN THE NORMAL COMPUTATION OF INCOME. THE AOS CONTENTION THAT IF THE SAID DEDUCTION IS NOT AVAILA BLE IN THE NORMAL COURSE OF COMPUTATION OF INCOME THEN, THE SAME CANNOT BE A LLOWED EVEN FROM THE BOOK PROFIT IS NOT CORRECT. THE DECISION OF THE IT AT MUMBAI BENCH CITED SUPRA, HAS CLARIFIED THIS ISSUE AND HELD THAT DEDUC TION U/S. 80HHC IN MAT CASES IS ALLOWABLE ON THE BASIS OF THE ADJUSTED BOO K PROFIT AND NOT ON THE BASIS OF THE PROFIT COMPUTED UNDER THE REGULAR PROV ISIONS OF LAW APPLICABLE TO THE COMPUTATION OF PROFIT & GAINS OF BUSINESS OR PROFESSION. THE COMPUTATION OF INCOME UNDER NORMAL PROVISIONS A ND THE COMPUTATION OF BOOK PROFIT ARE TWO DISTINCT COMPUTA TION OF INCOME AND BOTH THE COMPUTATIONS ARE TO BE VIEWED SEPARATELY. THE DEDUCTION AVAILABLE IN RESPECT OF BOOK PROFIT HAS TO BE ALLOW ED WITHIN THE AMBIT OF SECTION 115JB. THUS CONSIDERING THE FACTS IN TOTAL ITY AND ALSO THE SPECIAL BENCH DECISION, CITED SUPRA, I AM OF THE CONSIDERED OPINION THAT THE DEDUCTION U/S. 80HHC OF RS. 43,26,431 CANNOT BE DEN IED TO THE APPELLANT. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE DEDUCT ION OF RS. 43,26,451 U/S. 80 HHC OF THE ACT TO THE APPELLANT FROM BOOK P ROFIT. 8. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TR IBUNAL. 9. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF A CO-ORDINATE BEN CH IN THE CASE OF DCIT V. M/S. GLENMARK LABORATORIES LTD IN ITA NO.4155/M/2007 FOR THE ASSESSMENT YEAR 2004- 05, WHEREIN, THE TRIBUNAL FOLLOWING THE DECISION OF THE ITAT (SB) IN THE CASE OF SYNCOME FORMULATIONS (I) LTD. (SUPRA) HAS AFFIRMED THE VIEW OF THE CIT (A) DELETING THE SIMILAR ADDITION. IN ANY EVENT, THE VIEW TAKE N BY THE TRIBUNAL IN SPECIAL BENCH DECISION IN THE CASE OF SYNCOME FORMULATIONS (SUPRA) N OW STANDS APPROVED BY HONBLE SUPREME COURT IN THE CASE OF AJANTA PHARMA L TD VS CIT (327 ITR 305) . 10. GROUND NO. 2 IS THUS DISMISSED. I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 6 11. IN GROUND NO. 3, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE : 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO RE-COMPUTE THE ADJUSTED PROFIT FROM DEPB, AFTER REDUCING THE REASONABLE COST OF DEPB FROM THE SALE CON SIDERATION, FOR COMPUTING THE DEDUCTION U/S. 80 HHC, IGNORING THE FA CT THAT THE ASSESSEE COMPANY HAS RECEIVED THE DEPB ON EXPORT OF GOODS WITH OUT ANY COST. INSPTIE OF THIS, THE ASSESSEE COMPANY HAS SHOWN LOSS ON SALE OF DEPB BY REDUCING THE INFLATED COST WITHOUT ANY VALID BASIS AND THUS CLAIMED THE HIGHER DEDUCTION U/S. 80 HHC, FOR CALCULATING THE BOOK PROFIT. 12. APROPOS GROUND NO.3, THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAS RECEIVED EXPORT INCENTIVES OF RS. 3,71,45,425 ON ACCO UNT OF PROFIT FROM SALE OF DUTY ENTITLEMENT PASS BOOK (DEPB) LICENSES AND HAS COMPUTED T HE DEDUCTION U/S. 80 HHC ON THE SAME. IT IS ALSO NOTICED THAT THE TOTAL EX PORT TURNOVER IS RS. 38,29,93,698/-, WHICH IS MORE THAN RS. 10 CRORES. THE AO OBSERVED THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAS SATISFIED T HE CONDITION REQUIRED FOR ALLOWANCE OF DEDUCTION U/S. 80 HHC ON THE DEPB BENEF ITS EARNED BY THE ASSESSEE, THEREFORE, HE DISALLOWED THE CLAIM OF THE ASSESSEE AND H AS REDUCED 90% OF SALE PRICE OF DEPB LICENCE IN COMPUTING THE ADJUSTED PROFIT FOR THE PURPOSE OF DETERMINING DEDUCTION U/S. 80 HHC. BEING AGGRIEVED, THE ASSESSEE CA RRIED THE MATTER IN APPEAL. THE CIT (A) AFTER CONSIDERING THE ASSESSEES SUBMISSION AND AFTER CONSIDERING DECISIONS OF COORDINATE BENCHES OF THIS TRIBUNAL, UPHE LD THE GRIEVANCE OF THE ASSESSEE AND DIRECTED THE AO TO RE-COMPUTE THE ADJUSTED PROFIT FOR DETERMINING 80 HHC DEDUCTION, TAKING INTO ACCOUNT 90% OF ONLY THE PROFITS ON THE SALE OF DEPB LICENSE AND BY TAKING ONLY THE PROFIT ELEMENT ON SALE OF DEPB LICENCE AND NOT THE ENTIRE SALE PROCEEDS. AGGRIEVED, THE REVENUE IS IN A PPEAL BEFORE US. 13. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS NOW SQUARELY COVERED BY THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS KALP TARU COLOURS & CHEMICALS (328 ITR 451). AS HELD BY THEIR LORDSHIPS, THE INCOME ON SAL E OF DEPB LICENCE IS REPRESENTED BY ENTIRE SALE PROCEEDS OF THE LICENCE AND THERE IS NO LOGICAL JUSTIFICATION IN BIFURCATING THE VALUE OF THE SALE CO NSIDERATION REALIZED BY THE I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 7 EXPORTER ON THE TRANSFER OF THE DEPB CREDIT AS HAS BE EN DIRECTED BY THE CIT(A) IN THIS CASE. IN THE PRESENT CASE, WHILE A LOSS HAS BEEN COM PUTED BECAUSE OF SEGREGATION OF THE SALE PROCEEDS OF THE DEPB LICENCE BUT ONCE ENT IRE AMOUNT IS TAKEN AS INCOME, IT WILL OBVIOUSLY BE A POSITIVE FIGURE. ACCORDINGLY, WE VACATE THE RELIEF GRANTED BY THE CIT(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 14. GROUND NO. 3 IS THUS ALLOWED. 15. IN GROUND NO. 4, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO RE-COMPUTE THE DEDUCTI ON U/S. 80 HHC BY TAKING THE TURNOVER OF THE TAXABLE DIVISION ONLY ON STANDAL ONE BASIS AND IGNORING THE TURNOVER OF THE OTHER DIVISIONS, WITHOUT CONSIDERI NG THE PROVISION OF SECTION 80 AB OF THE ACT, WHICH TALK ABOUT THE GROSS P ROFIT OF THE ASSESSEE AND NOT OF THE DIVISION. 16. WITH REGARD TO GROUND NO.4, LEARNED REPRESENTATI VES FAIRLY AGREE THAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES O WN CASE FOR THE ASSESSMENT YEARS 1998-99, 1999-2000(SUPRA). WE FIND THAT SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE A CO-ORDINATE BENCH OF T HIS TRIBUNAL AND IT WAS, INTER ALIA, OBSERVED AS FOLLOWS:- DURING THE COURSE OF HEARING BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE COMPANY WAS ENGAGED IN DIVERSIFIED BUSINESS ACTIVITIES AND EACH BUSINESS W AS DISTINCT AND SEPARATE FROM ANOTHER. FOR THIS PURPOSE THE ASSESSE E COMPANY HAD SEVERAL DIVISION VIZ. TEXTILE DIVISION, LEASE AND H IRE PURCHASE DIVISION; POWER GENERATION DIVISION, FOREIGN EXCHANGE DIVISIO N & FINANCIAL AND OTHER SERVICES DIVISION. THESE ACTIVITIES WERE DIST INCT AND SEPARATE FROM EACH OTHER. FOR THIS PURPOSE THE ASSESSEE HAD MAINT AINED SEPARATE BOOKS OF ACCOUNT IN RESPECT OF EACH DIVISION AND SEPARATE P & L A/S. AND SEPARATE BALANCE SHEET WERE PREPARED IN RESPECT OF EACH DIVISION. FOR THE PURPOSE OF ANNUAL ACCOUNTS OF THE COMPANY AS A WHOL E THE ACCOUNTS OF VARIOUS DIVISIONS WERE CONSOLIDATED AND A CONSOLIDA TED P & L A/S. AND BALANCE-SHEET WAS ALSO PREPARED. THE ASSESSING OFFI CER HAD SIMPLY ADOPTED THE FIGURES APPEARING IN THE CONSOLIDATED A CCOUNT AND IGNORED THE SEPARATE ACCOUNTS OF TEXTILE DIVISION. IN THE C ASE OF AN ASSESSEE I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 8 CARRYING ON MORE THAN ONE BUSINESS IT WAS ONLY THE BUSINESS OF WHICH EXPORT WAS A PART WAS REQUIRED TO BE TAKEN INTO CON SIDERATION AND NOT OTHER BUSINESS WHICH HAD NOTHING TO DO WITH THE EXP ORT BUSINESS. AT OUR DIRECTION THE ASSESSEE HAS FILED SEPARATE BALANCE S HEET AND P & L A/S. OF TEXTILE DIVISION AS ALSO AUDIT REPORT IN FORM NO.10 CCAC. IN SUPPORT OF ITS CONTENTIONS THE LEARNED COUNSEL HAS RELIED UPON THE JUDGMENTS REPORTED IN 245 ITR 49 (BOM); 245 ITR 769 (BOM); 246 ITR 429 (BOM); 246 ITR 439 (BOM); 254 ITR 656 (MAD); 257 ITR 60 (MAD) AND 132 TAXMANN 297 (KER). THE LEARNED COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISIONS REPORTED IN 63 TTJ 409 (AHD); 66 ITD 353 AND THE DE CISION OF ITAT MUMBAI BENCH A IN ITA NO. 4205/MUM/96 IN THE CASE OF MIKU AGENCIES AND MUMBAI BENCH C DECISION IN ITA NO.4259 & 4260 /M/95 IN THE CASE OF M/S. TRAB ENTERPRISES. THE LEARNED DEPARTMENTAL REP RESENTATIVE ARGUED THAT UNDER THE PROVISIONS OF SECTION 80HHC(3) NO DI STINCTION HAS BEEN DRAWN AS TO WHETHER THE ASSESSEE WAS ENGAGED IN A S INGLE BUSINESS OR MORE THAN ONE BUSINESS. FOR THE PURPOSE OF THAT SUB -SECTION ALL THE BUSINESS OF THE ASSESSEE WERE REQUIRED TO BE AGGREG ATED EVEN IF THE SAME WERE SEPARATE AND DISTINCT FROM EACH OTHER. IN SUPP ORT OF THESE CONTENTIONS HE PLACED RELIANCE ON THE DECISION REPO RTED IN 212 ITR (AT) 1 (DEL) AND 257 ITR 41 (KER). ON CONSIDERATION OF THE MATTER WE FIND THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80HHC ON TEXTILE DIVISION ON STAND ALONE BASIS IS FULLY SUPPORTED BY THE DECISIO NS OF ITAT MUMBAI BENCH A MUMBAI DATED 29/8/02 IN ITA NO.4205/MUM/1 996 IN THE CASE OF MIKU AGENCIES V. DCIT SPL. RG.9, MUMBAI FOR A.Y 1991-92 AND DECISION OF ITAT MUMBAI BENCH C DATED 8/7/02 IN ITA NO. 42 59 & 4260/MUM/95 IN THE CASE OF DCIT SPL. RG.22 MUMBAI VS. M/S. TRAB ENTERPRISES FOR A. Y.S 1990-91 AND 1991-92. IT IS SEEN THAT IN THE LATER C ASE THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF K.K. DOSHI & CO. 245 ITR 849 (BOM) RESPECTFULLY, FOLLOWI NG THESE DECISIONS OF THE TRIBUNAL WE ACCEPT THE ASSESSEES GROUNDS OF AP PEAL NO.7 AND DIRECT THAT THE ASSESSEE SHOULD BE ALLOWED DEDUCTION U/S.8 0HHC ON THE BASIS OF THE BUSINESS TURNOVER AND BUSINESS PROFIT OF TEXTIL E DIVISION ONLY WITHOUT TAKING INTO CONSIDERATION THE BUSINESS TURNOVER AND THE BUSINESS PROFIT OF OTHER DIVISIONS. 17. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO DISTURB THE CONCLUSIONS ARR IVED AT BY THE CIT(A) SINCE THE CIT (A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL (SUPRA) DIRECTING THE AO TO COMPUTE THE DEDUCTION UNDER SECTION 80 HHC IN RESPECT TEXTILE DIVISION ON STAND- ALONE BASIS TAKING INTO ACCOUNT THE TOTAL TURNOVER A ND BUSINESS PROFITS OF TEXTILE DIVISION ONLY, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). THE VIEW SO TAKEN BY THE CIT(A) IS CONSISTENT WITH THE VIEWS OF THE COORDINATE BENCHES, AND NO CONTRARY DECISION HAS BEEN CITED BEFORE US. I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 9 18. ACCORDINGLY, GROUND NO.4 IS DISMISSED. 19. IN GROUND NO. 5, GRIEVANCE RAISED BY THE ASSESSING O FFICER IS AS FOLLOWS: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 109.20 LACS RELATABLE TO INTEREST FREE ADVANCE OF R S 7.26 CRORES TO ITS SISTER CONCERN I.E. WEIZMAN HOME LTD IGNORING THE FACT THA T ON ONE HAND IT HAS ADVANCED FREE OF INTEREST, RS 1.21 CR ON 28.3.2003, R S 1.76 CRORE ON 1.4.2003, & RS 4.29 CRORE ON 1.4.2003 TOTALING RS 7.26 CRORES TO ITS SISTER CONCERN I.E. WEIZMAN HOMES LTD AND ON THE OTHER HAND THE ASSESSEE COM PANY PAID INTEREST @ 15% AGAINST BORROWING OF RS 4.68 CRORES FROM WEIZMAN CORPORATE SERVICES LTD., RS 7.7 CRORE FROM OM MITRA SECURITIES L TD AND RS 3 CRORES FROM PMP LTD, ALL SISTER CONCERNS FOR WHICH THE ASSESSEE COMPAN Y COULD NOT PROVE THE NEXUS BETWEEN AVAILABILITY OF SURPLUS FUND FOR ADV ANCING FREE OF INTEREST. 20. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. IN T HE COURSE OF ASSESSMENT PROCEEDINGS, FROM THE BALANCE SHEET, THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE COMPANY HAS SHOWN CLOSING BALANCE OF THE SECURED LOANS A T RS.60.81 CRORES AND UNSECURED LOANS AT RS.7.95 CRORES. AGAINST THESE LOANS, T HE ASSESSEE COMPANY HAS PAID INTEREST EXPENDITURE OF RS.4.85 CRORES AGAINST TER M LOAN, RS.25.44 LACS AGAINST DEBENTURES AND RS.3.16 CRORES AGAINST OTHER LOANS. ON A PERUSAL OF THE LIST OF THE LOAN CREDITORS FURNISHED BY THE ASSESSEE, THE AO NOTICED THAT THE ASSESSEE HAS BORROWED RS. 4.68 CRORES FROM WEIZMANN CORPORATE SERV ICES LTD., RS.7.7 CRORES FROM OM MITRA SECURITIES LTD AND RS. 3 CRORES FROM PRABHANJ AN MULTITRADE P LTD., THE SISTER CONCERNS OF THE ASSESSEE AND ALLOWED INTEREST @ 15%. IT WAS ALSO NOTICED THAT THE ASSESSEE HAD DIVERTED AN AMOUNT OF RS.1.21 CRORES ON 28.3.2003,RS 1.76 CRORES ON 1.4.2003 AND RS 4.29 CRORES ON 1.4.2003 TOTALING T O RS. 7.26 CRORES TO M/S. WEIZMANN HOMES LTD., FREE OF INTEREST. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS PAID INTEREST TO SISTER CONCERN @ 15% AND HAS ADVAN CED INTEREST FREE LOAN TO M/S. WEIZMANN HOME LTD OUT OF INTEREST BEARING LOAN. THE ASSESSEE WAS, THEREFORE, ASKED TO PROVE THE NEXUS ABOUT THE AVAILABILITY OF IN TEREST FREE/SURPLUS FUNDS DIVERTED TO WEIZZMANN HOMES LTD. IN REPLY, IT WAS, I NTER ALIA, SUBMITTED BY THE ASSESSEE THAT INVESTMENTS IN THE GROUP COMPANY HAVE BEEN MADE FROM OWN FUND AS I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 10 THE NET WORTH OF THE ASSESSEE COMPANY AS ON 31.3.2004 CO NSTITUTED AT RS. 61.45 CRORES. THE AO REJECTED THE ASSESSEES CONTENTION, INTER ALIA, OBSERVING THAT THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BETWEEN AVAILABILIT Y OF INTEREST FREE/SURPLUS FUND AND DIVERSION THEREOF TO M/S. WEIZMANN HOMES LT D. ACCORDINGLY, HE DISALLOWED INTEREST EXPENDITURE OF RS 109.20 LAKHS AND ADDED BACK TO THE INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). THE CIT (A) DELETED THE DISALLOWANCE, INTER AL IA, OBSERVING AS UNDER:- .. DURING THE YEAR THE APPELLANT HAS INVESTED A S UM OF RS.7.26 CRORES IN WEIZMANN HOMES LTD. AND PURCHASED ITS SHARES AS IS EVIDENT FROM THE BALANCE SHEET. IT IS ALSO EVIDENT FROM THE BALANCE SHEET THAT NO FRESH BORROWINGS HAVE BEEN MADE BY THE APPELLANT DURING T HE YEAR. IN FACT, THE LOANS BORROWED FROM BANKS AND FINANCIAL INSTITUTION S HAVE BEEN REDUCED SUBSTANTIALLY AND THERE IS A MINOR INCREASE IN UNSE CURED LOANS, WHICH WORKS OUT TO ABOUT RS 18 LAKHS ONLY. THUS, IT IS Q UITE CLEAR FROM THE BALANCE SHEET OF THE APPELLANT THAT THE APPELLANT H AS NOT MADE ANY BORROWINGS DURING THE YEAR. ONCE THERE IS NO BORRO WING DURING THE YEAR, IT CANNOT, THEREFORE, BE CONCLUDED THAT BORROWED FU NDS HAVE BEEN DIVERTED TO M/S. WEIZMANN HOME LTD AS INTEREST FREE LOAN. THE APPELLANT COMPANYS WORTH IS ABOUT S. 61 CRORES AND THERE IS A SUBSTANTIAL TURNOVER AND INTERNAL ACCRUAL DURING THE YEAR. THERE IS NOT HING ON RECORD TO CONCLUDE THAT THE SAID INVESTMENT IS NOT OUT OF INT ERNAL ACCRUAL AS WELL AS THE NET WORTH OF THE APPELLANT COMPANY. IN ORDER T O DISALLOW A PART OF THE INTEREST EXPENDITURE ON THE GROUND THAT BORROWED FU NDS HAVE BEEN USED FOR NON-BUSINESS PURPOSES, A NEXUS HAS TO BE ESTABL ISHED BETWEEN THE BORROWED FUNDS AND ITS UTILIZATION FOR NON-BUSINESS PURPOSES. UNTIL AND UNLESS A CO-RELATION BETWEEN THE BORROWED FUNDS AND ITS USE OF NON- BUSINESS PURPOSES IS ESTABLISHED, THE DISALLOWANCE OF PART OF INTEREST CANNOT BE SUSTAINED. IN THE INSTANT CASE, SUCH NEXU S IS TOTALLY MISSING. IT HAS NOT BEEN PROVED THAT BORROWED FUNDS HAVE GONE F OR THE PURPOSE OF INVESTMENT IN SHARES OF M/S. WEIZMANN HOMES LTD. I T IS FURTHER NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE APPELLANT HAS ALREADY SATISFACTORY EXPLAINED THE SOURCES OF INVES TMENTS IN M/S. WEIZMANN HOMES LTD. IN THE APPELLANTS CASE, NO BO RROWED FUNDS HAVE BEEN USED FOR NON-BUSINESS PURPOSES. THUS, ON THE WHOLE, LOOKING TO THE FACTS OF THE MATTER, I FIND THAT THE DISALLOWANCE O F INTEREST EXPENDITURE ON THE GROUND THAT BORROWED FUNDS HAVE BEEN USED FOR I NVESTMENTS OR ADVANCES AS INTEREST FREE LOAN HAS NO MERIT. THE A O HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND ITS USE FOR NON- BUSINESS ACTIVITIES. RATHER, THE APPELLANT HAS BEE N ABLE TO ESTABLISH THE OPPOSITE THROUGH THE CHART AT PARA 9.3 ABOVE. IN V IEW OF THESE FACTS, I FEEL THAT THE DISALLOWANCE OF EXPENDITURE CANNOT BE SUST AINED. ACCORDINGLY, THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 109. 20 LAKHS IS DIRECTED TO BE DELETED I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 11 21. HAVING CONSIDERED THE RIVAL CONTENTIONS, WE DO NO T FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). ON PERUSAL OF THE PAPER BOOK PRODUCED BEFORE US, AS IS EVIDENT FROM BALANCE SHEET AS AT 31.3.2 004, IT IS NOTICED THAT THE ASSESSEE HAS OWN FUND OF RS. 72.63 CRORES AS AGAINST DIVERSIO N OF RS. 7.26 CRORES. PERUSAL OF THE IMPUGNED ORDER ALSO REVEALS THAT THE ASSE SSEE HAS ESTABLISHED ONE TO ONE NEXUS. IN ANY EVENT, AS IS HELD BY HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD (313 ITR 340 ), AS LONG AS ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS, THE PRESUMPTION TO BE TAKEN IS THAT THE INVESTMENTS ARE MADE OUT OF SUCH INTEREST FREE FUNDS. WE ALSO FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. M/S. VAMAN PRESTRE SSING CO. LTD. IN ITA NO.4190/M/2008 ORDER DATED 7.1.2010, ON SIMILAR FACT S, REJECTED THE GROUNDS TAKEN BY THE REVENUE. WE, THEREFORE, DECLINE TO INTERFER E. 22. GROUND NO. 5 IS THUS DISMISSED. 23. IN GROUND NO. 6, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 4,81,022 IGNORING THE FACT THAT THE SAME WAS INCUR RED ON DIVERSION OF HIGHER INTEREST BEARING FUND TO DIRECTORS CLOSE FRIEND S, AT LOWER INTEREST RATE THAT TOO WITHOUT ANY BUSINESS NEED. 24. APROPOS GROUND NO.6, FACTS ARE THAT THE ASSESSEE HAS BORROWED UNSECURED LOAN @ 15% INTEREST AND ALSO ADVANCED CERTAIN LOANS TO ITS SISTER CONCERNS @ 15% INTEREST. HOWEVER, IN CASE OF TWO COMPANIES, I.E. M/ S. IMPERIAL ASSETS & CAPITAL MANAGEMENT P. LTD., AND M/S. VE-CARES DRIERS AND CLEAN ERS P. LTD, THE ASSESSEE HAS ALLOWED INTEREST BEARING ADVANCES @ 14% & 10%, RESPECT IVELY. BEFORE THE AO, THE ASSESSEE COULD NOT FURNISH SATISFACTORY EXPLANATION REGARD ING NEXUS FOR ADVANCING OF SURPLUS/INTEREST FUNDS. ON THIS BACKGROUND, THE AO DISAL LOWED THE EXCESS INTEREST EXPENDITURE AMOUNTING TO RS 4,81,022. AGGRIEVED, TH E ASSESSEE CARRIED THE MATTER I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 12 IN APPEAL. THE CIT (A) DELETED THE DISALLOWANCE AND THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 25. HAVING HEARD BOTH THE SIDES, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE CIT (A) TO INTERFERE. WE HAVE NOTED THAT WHAT HAS BEEN DISALLOWED IS INTEREST PAID BY THE ASSESSEE ON THE GROUND THAT BORROWINGS AT HIGHER RATE OF INTEREST HAVE BEEN DIVERTED AS INTEREST BEARING ADVANCES AT LOWER RATE, E VEN THOUGH IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVA ILABLE AND EVEN AS COMMERCIAL EXPEDIENCY OF THE ADVANCES IS NOT EVEN CALLED INTO Q UESTION. MERE FACT OF ALLOWING INTEREST FREE ADVANCE AT A RATE LOWER THAN THE RATE ON WHICH BORROWINGS ARE MADE, CANNOT JUSTIFY THE IMPUGNED DISALLOWANCE, BUT THEN, O N THE FACTS OF THIS CASE, THERE IS NOTHING MORE THAN THIS ARITHMETIC TO JUSTIFY THE IMP UGNED DISALLOWANCE. GRIEVANCE OF THE ASSESSING OFFICER IS, THEREFORE, NOT REALLY SUSTAIN ABLE IN LAW. WE REJECT THE GRIEVANCE AND DECLINE TO INTERFERE IN THE MATTER. 26. GROUND NO. 6 IS THUS DISMISSED. 27. IN GROUND NO. 7, THE ASSESSEE HAS RAISED THE FOLLOWIN G GRIEVANCE : 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO RESTRICT THE DISALLOWANC E OF PERSONAL FOREIGN TRAVEL AT RS 3,98,560 AS AGAINST RS 7,24,000 WITHOUT GIVING A NY VALID JUSTIFICATION 28. APROPOS GROUND NO.7, BRIEF FACTS ARE THAT THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS INCURRED AN EXPENDITURE OF RS. 2 8,96,888 ON FOREIGN TRAVELING, WHICH INCLUDES RS. 9,04,809 ON TICKETING A ND RS. 19,92,079 ON OTHER MISCELLANEOUS EXPENDITURE. THE ASSESSING OFFICER ASKED T HE ASSESSEE TO FURNISH THE DETAILS OF MISCELLANEOUS EXPENSES, WHICH COULD NOT BE C OMPLIED WITH. THEREFORE, IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCES, AND THE PUR POSE OF TRAVEL, THE AO DISALLOWED ONE FOURTH I.E. RS 7,24,200/- OUT OF TOTA L EXPENDITURE OF RS.19,92,079. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 13 29. BEFORE THE CIT (A), IT WAS SUBMITTED THAT THE WHO LE EXPENSES OF THE FOREIGN TRAVELING HAVE BEEN INCURRED FOR THE PURPOSE OF BUSIN ESS AND NO ELEMENT OF PERSONAL EXPENDITURE IS INVOLVED. RELIANCE WAS PLACED IN THE CASE OF BETA NAPHTHOL PVT LTD., V DCIT, 50 TTJ 375(INDORE), WHEREIN, IT WAS HELD THAT ADHOC DISALLOWANCE ARE NOT PERMITTED. WHILE THE CIT(A) ALLOWED THE TICKET EXP ENSES IN FULL, HE RESTRICTED THE DISALLOWANCE OUT OF THE BALANCE EXPENSES TO 20%, AS AG AINST 25% DISALLOWED BY THE ASSESSING OFFICER. AGGRIEVED, THE REVENUE IS IN APPE AL BEFORE THE TRIBUNAL. 30. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO DISTURB THE FINDINGS OF THE CIT(A) ON THIS ISSUE EITHER. THE REASONING ADOPTED BY THE CIT(A) IS THIS. THE REQUI SITE DETAILS OF TRAVELLING, SUCH AS NAMES OF PERSONS TRAVELLING AND PURPOSE OF TRAVEL ETC ARE ON RECORD, AND SINCE COMPLETE DETAILS OF EXPENSES, OTHER THAN TICKET EXPEN SES, ARE NOT PLACED, AN ADHOC DISALLOWANCE OF 20% IS MADE TOWARDS PERSONAL EXPENSES. AS FOR TICKET EXPENSES, SINCE THERE IS NO DISPUTE ABOUT THE FACT OF, EVIDENCE OF OR JUSTIFICATION OF EXPENSES, THE ENTIRE AMOUNT IS ALLOWED IN FULL BY THE CIT(A). WE SEE NO INFIRMITY IN THIS APPROACH OF THE CIT(A). WE APPROVE THE ACTION OF TH E CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 31. GROUND NO. 7 IS THUS DISMISSED. 32. IN GROUND NO. 8, GRIEVANCE OF THE ASSESSING OFFICER IS AS FOLLOWS: 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS 2,66,36,753 OUT OF RS 2,91,36,753 MADE ON ACCOUNT OF REMISSION OF LOAN LIAB ILITIES BY IGNORING THE FACT THAT THE ADDITION WAS MADE AFTER GATHERING THE RELEVANT INFORMATION FROM THE BANK, AND ALSO THE EXPLANATION 1 OF SECTION 41 W HICH EXPLAINED THE FACT THAT THE REMISSION OR CESSATION OF ANY LIABILITY WILL B E PROFIT CHARGEABLE TO TAX IN THE HANDS OF THE RECIPIENT. 33. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER NOTICED THAT IN THE COMPUTATION OF INCOME, ATTACHED TO THE RETURN, THE ASSESSEE HAS REDUCED I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 14 ITS PROFIT BY RS 2,91,36,753 ON ACCOUNT OF REMISSION OF BANK LIABILITIES. THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE ASSESSEE NEVER CLAIMED ANY D EDUCTION IN RESPECT OF AMOUNTS SO WAIVED BY THE BANK, IT COULD NOT BE ADDED TO HIS INCOME UNDER SECTION 41(1) OF THE ACT. IT WAS ALSO SUBMITTED THAT THE SAID AMOUNT COULD NOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE UNDER SECTION 28(IV) EIT HER. IT WAS POINTED OUT THAT THE BANKER, I.E. VYASYA BANK LTD, HAS EXTENDED NCD FA CILITY OF RS 7.50 CRORES, SPECIFICALLY FOR THE PURPOSE OF MEETING CAPITAL EXPEN DITURE OF THE COMPANY, AND ONLY PART AMOUNT OF THE SAID NCD WAS WRITTEN BACK AFTER DU E SETTLEMENT WITH THE BANKER. RELIANCE WAS PLACED ON HONBLE GUJARAT HIGH COURT JU DGMENT IN THE CASE OF CIT VS CHETAN CHEMICALS 267 ITR 770 AND ON HONBLE BOMBAY H IGH COURTS JUDGMENT IN THE CASE OF MAHINDRA & MAHINDRA LTD VS CIT (261 ITR 501 ). NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE PROCEEDED TO ADD THE SAID SUM TO THE INCOME RETURNED BY THE ASSESSEE, AND OBSERVED AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E ASSESSEE COMPANY AS WELL AS THE CASE LAWS, CITED BY THE A.R. AND NOTICED THAT T HERE IS NO FORCE IN THE SAME. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE COMPANY HAS DULY CREDITED ITS P&L A/C., BY AN AMOUNT OF RS 2,91,36,753/-, ON ACCOUNT OF REMISSION OF LOAN LIABILITY OF VYSYA BANK. HOWEVER, IN THE COMPUTATION OF INCOM E, IT HAS REDUCED THE SAME. IT IS ALSO NOTICED THAT THE ASSESSEE COMPANY HAS NO T REDUCED THE SAME OUT OF BLOCK OF ASSETS, FOR WHICH IT HAS CLAIMED TO HAVE B EEN USED. ACCORDINGLY VIDE ORDER SHEET NOTING DT. 16.10.06, THE A.R. OF THE AS SESSEE COMPANY, WAS REQUESTED TO FURNISH THE NECESSARY PAPERS / REPORTS, SUBMITTE D FOR SANCTION OF LOAN, COPY OF SETTLEMENT LETTERS FOR REMISSION OF LIABILITIES, DE TAILS OF INTEREST PAID TILL DATE ETC. AGAINST THE LOAN BORROWED FROM THE VYSYA BANK. IN C OMPLIANCE THE A.R. OF THE ASSESSEE COMPANY, SIMPLY FURNISHED A SANCTION LETTE R REGARDING APPROVAL OF THE HIGHER AUTHORITIES OF THE BANK, FOR INVESTING IN TH E NCD, TO MEET THE CAPITAL EXPENDITURE OF THE COMPANY, AT 16% INTEREST P.A.. T HE ASSESSEE COMPANY, HOWEVER, COULD NOT FURNISH THE OTHER DOCUMENTS, AS DESIRED ABOVE. IN DUE COURSE OF TIME ON 07.12.06, THE ASSESSEE COMPANY HAS SUBMI TTED A LETTER DT. 02.12.06, SIGNED BY THE VICE PRESIDENT AND HEAD OF ING VYASA BANK LTD., MUMBAI REGARDING ONE TIME SETTLEMENT OF OUTSTANDING BALANC E UNDER NCD RS.750 LACS. THE PERUSAL OF LETTER REVEALS THE FOLLOWING FACTS. WITH REFERENCE TO THE ABOVE, WE HEREBY CLARIFY / C ONFIRM THAT THE BANK HAD GRANTED / DISBURSED FINANCIAL ASSISTANCE TO YOUR CO MPANY I.E. LEASE FINANCE OF RS. 450.00 LACS ON 28 03. 1995 & NCD OF PS. 750.00 LACS ON 29.9 2001. THE BALANCE LIABILITY UNDER THE ABOVE FACILITIES WAS CR YSTALLIZED AT RS. 775. 0O LACS IN SEPT, 2002, OF WHICH THE COMPANY PAID ONLY PS. 3 63.63 LACS TILL NOV,2003. ON ACCOUNT OF NON PAYMENTS OF OVER DUES IN SPITE OF RESCHEDULEMENTS, I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 15 PURSUANT TO SERIES OF DISCUSSIONS AND CONSIDERING T HE CONSTRAINTS FACED BY THE COMPANY, WE CONSIDERED YOUR REPRESENTATIONS AND HAD AGREED FOR ONE TIME SETTLEMENT OF BALANCE DUES AT AN AGGREGATE AMOUNT O F PS.320.OO LACS IN JUNE,2004. ACCORDINGLY, WE CONFIRM THE RECEIPT OF RS.200 LACS, SOURCED FROM THE SALE OF 2 WIND MILLS, WHICH WAS APPROPRIATED TOWARDS THE BALA NCE LIABILITY UNDER THE LEASE FINANCE FACILITY AND ALSO RECEIPT OF AN AMOUN T OF PS. 120 IACS, WHICH WAS APPROPRIATED TOWARDS THE BALANCE LIABILITY UNDER TH E NCD FACILITY ON 23.06.2004. AS THE FULL AGGREGATE AMOUNT OF RS.320. 00 LACS WAS RECEIVED BY THE BANK, WE HAVE ISSUED NO DUES CERTIFICATE VIDE OUR L ETTER DT. 23.06.2004. THE CAREFUL READING OF THE ABOVE CONTENTS REVEALS T HAT THE BANK HAS NOT GIVEN A CLEAR-CUT REPLY, REGARDING THE NATURE OF REMISSION OF LIABILITY OF RS. 2,91,36,753. ON GIVEN TELEPHONE NUMBER, IN THE PRESENCE OF THE A R, I SPOKE TO THE PERSON, WHO HAS SIGNED THE ABOVE LETTER. HOWEVER, HE COULD NOT EXPLAIN, PROPERLY ABOUT THE NATURE OF LIABILITY SETTLED, FACTS AND FIGURES, REF ERRED IN THE LETTER. ACCORDINGLY, VIDE LETTER DT. 07.12.06, THE CONCERNED PERSONS OF THE BANK, AS SUGGESTED BY HIM, WAS REQUESTED TO FURNISH THE FOLLOWING DETAILS. (A) TERMS AND CONDITIONS UNDER WHICH THE ABOVE LOAN WAS SANCTIONED. (B) PURPOSE FOR WHICH LOAN WAS SANCTIONED. (C) DETAILS OF SECURITIES OBTAINED FOR SANCTIONING THE ABOVE LOANS. (D) COPY OF LETTERS SUBMITTED BY M/S. WEIZMANN LTD. , FOR WAIVER OF ABOVE LOAN. (E) REASONS RECORDED BY THE BANK BEFORE WAIVING THE LOAN LIABILITIES OF RS.291.37 LACS. (F) WHETHER THE WAIVER PERTAINS TO THE EXCESS RATE OF INTEREST OR AGAINST WAIVER OF PRINCIPLE AMOUNT OF LOANS. (G) DATE-WISE AND AMOUNT-WISE REPAYMENT OF LOAN AND INTEREST TILL THE DATE OF WAIVER OF LOANS. IN COMPLIANCE TO ABOVE, THE VICE PRESIDENT/REGIONAL HEAD OF THE BANK, VIDE HIS REPLY DATED 08/12/2006 HAS SUBMITTED AS UNDER: WITH REFERENCE TO THE ABOVE WE FURNISH HEREUNDER T HE FOLLOWING DETAILS: (A) &(B) PARTICULARS LEASE FINANCE FOR WIND MILLS NON CONVERTIBLE DEBENTURES(NCD) DATE OF SANCTION 28/03/1995 29/09/2001 AMOUNT SANCTIONED RS 450.00 LACS RS 750.00 LACS I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 16 RATE OF INTEREST . OD INT. @ 24.48% @ 14% COMP(HALF YEAR RESTS) REPAYMENT PERIOD 43 QUARTERS 84 MONTHS WITH INITIAL HOLIDAY PERIOD OF MONTHS PURPOSE OF FACILITY 2 WIND MILLS OF 500 KV TO MEET NORMAL CAPITAL EXPENDITURE OF THE COMPANY (C) DETAILS OF SECURITIES (NCD FACILITY) (I) HYPOTHECATION OF 2 WIND MILLS OF CAPACITY OF 50 0 KW BELONGING TO COMPANY LOCATED AT RAM GIRL, ANANTAPUR DIST~, ANDHRA PRADESH TOGETHER VALUED AT RS.3.30 CRORES (W HICH ARE FREE FROM ENCUMBRANCE OF ANY NATURE) (II) EQUITABLE MORTGAGE OF PROPERTY AT LAXMI CH AMBERS, 3 FLOOR, MG. ROAD, ERNAKULA, CHOCHIN VALUED AT RS.35 LACS (III) PERSONAL GUARANTEE OF CHETAN D. MEHRA (IV) EM OF OFFICE UNIT NO. 005, 005A AND 005B, CENT RE POINT, RESIDENCY ROAD, BANGALORE VALUED AT RS.56~O0 LACS. (D) COPY OF COMPANYS LETTER DATED 18/02/2004 AND 29/04/2004 REQUESTING FOR CONCESSIONS AND ONE TIME SETTLEMENT IS ENCLOSED. (E) REASONS RECOMMENDED/RECORDED FOR APPROVAL OF TH E ONE TIME SETTLEMENT BY THE BANK: (1) APTRANSCO, WITH WHOM THE COMPANY HAS GOT PPA (P OWER PURCHASE AGREEMENT) INCREASED WHEELING CHARGES FROM 2% TO RUPEE 1.00 PER UNIT (I.E. 33% INCREASE), WHICH RE SULTS INTO STRAIGHTWAY LOSS OF 113 REVENUE TO THE COMPANY TE RRIBLE SQUEEZING THE MARGINS IN POWER GENERATION DIVISION OF THE COMPANY. (2) INCOME TAX DEPARTMENT HAS CLAIMED RS.190 LACS A GAINST THE GROUP COMPANIES AND IN PURSUANCE THEREOF, IT HAS AT TACHED ALL THE GROUP COMPANY ACCOUNTS. (3) THEIR JOINT VENTURE PARTNERS MIS. WINDIA WIND P OWER OF NETHERLANDS HAS EXITED FROM THE JOINT VENTURE PARTN ERS MIS. WINDIA POWER LTD., MAKING THE COMPANY A SICK ONE AN D RENDERING THE INVESTMENT OF RS.8.00 CRORES IN THE G ROUP COMPANY IRRECOVERABLE AND ALSO MAKING THEIR DUES TO IDBI TO THE TUNE OF RS.6.00 CRORES NPA I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 17 (4) THE COMPANY HAS ALTOGETHER WRITTEN OFF AN AMOU NT OF RS.20.00 CRORES IN THEIR FINANCIAL SERVICES DIVISION RECEIVA BLE FROM THEIR CLIENTS. FURTHER, THE COMPANY FORESEES DEFICIT OF CASH FLOWS TO THE EXTENT OF RS.32.00 CRORES BY 31/03/2005. (5) INITIATING LEGAL ACTION AGAINST THE COMPANY MA Y NOT BE THE PREFERRED OPTION FOR THE BANK OWING TO LACK OF ADEQ UATE SECURITIES. (6) THE COMPANY HAS PAID RS.363.63 LACS (AGAINST R S.775.00 LACS) AND HAS ALSO CLEARED OFF THE ENTIRE WORKING CAPITAL FACILITIES TO THE EXTEN T OF RS.140.00 LACS IN BANKS EXPOSURE BY 5.00 CRORES APP X . (7) THIS BULLET PAYMENT OF RS.320 LACS TO THE BANK IS NOT COMING FROM THE COMPANYS CASH FLOWS BUT IS COMING FROM UNEXPEC TED SOURCES, SUCH AS INCOME TAX REFUND AND OUTSIDE BORROWINGS. IN FAC T, OTHER BANKS AND FIS ARE EYEING ON TARGETING ON THIS IT REFUND TO TH E COMPANY AND BRING PRESSURE ON THE COMPANY TO DIVERT THE AMOUNT TO THE M . (8) AS PROSPECTS FOR THE GROUP AS A WHOLE IS DISCOU RAGING, AS SEEN FROM THEIR DEFICIT FORECASTS IT IS BETTER TO COME OUT OF THIS ACCOUNT STRATEGICALLY FORTHWITH BY ACCEPTING THIS BULLET PA YMENT OF RS.320 LACS IN FULL AND FINAL SETTLEMENT AND FURTHER SOD OF APPX. RS.91.37 LACS IS JUSTIFIED FROM THIS POINT OF VIEW . (9) SLMG, MUMBAI 7 AND HEAD SLMG, BLORE OVER THE P ERIOD COULD SYSTEMATICALLY STRETCH THE PARTY UPTO RS.320 LACS ( MAXIMUM FOR FINAL SETTLEMENT AND NO FURTHER INCREASE IS POSSIBLE FOR THE PARTY . (F) THE EXECUTIVE MANAGEMENT COMMITTEE OF THE BANK PERMITTED FOR WRITE OFF /WAIVER AS UNDER : LEASE ACCOUNT: TO SELL THE WIND MILLS TO TAPL ENERGY PROJECTS LTD . FOR RS.20000 LACS TO WRITE OFF BALANCE IN BOOK BALANCE OF RS.163.90 LACS TO WAIVER THE OVERDUE INTEREST OF RS.159.17 LACS TO TRANSFER THE ASSETS TO THEM NCD ACCOUNT TO ACCEPT RS.120.00 LACS AS FULL AND FINAL SETTLEMENT TO WRITE OFF BALANCE IN BOOK BALANCE OF RS.266.37 LACS TO WAIVE OVERDUE INTEREST OF RS..234.9-I LACS 5. DETAILS OF AMOUNT RECOVERED FROM THE COMPANY OUT OF THE CRYSTALISED LIABILITY OF PS. 775.00 LACS IN NCD AND LEASE FINAN CE FACILITY ARE AS UNDER: I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 18 L DATE OF RECOVERY AMOUNT RECOVERED (RUPEES) 01/01/2003 10000000.00 04/04/2003 20000000.00 25/04/2003 1000000.00 12/07/2003 2000000.00 06/09/2003 1050000.00 1 2/0 9/2003 400000.00 10/10/2003 1000000.00 11/10/2003 500000.00 05/11/2003 413246~ 52 23/06/2004 32000000.00 TOTAL 68363246.52 THIS IS FOR YOUR FAVOUR OF INFORMATION. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSION O F THE BANK AND. NOTICED THAT THE BANK HAS WAIVED THE OVERDUE INTEREST OF RS.159. 17 LAC IN THE LEASE ACCOUNT AND RS.234.91 LACS IN THE NCD ACCOUNT . ACCORDINGLY, VIDE ORDER SHEET NOTING DATED 12/12/2006, THE AR OF THE ASSESSEE COMPANY WA S REQUIRED TO JUSTIFY THE CLAIM, WITH RESPECT TO THE LETTER DATED 08/12/2006 RECEIVED FROM THE BANK. IN COMPLIANCE, THE ASSESSEE COMPANY COULD NOT OFFER AN Y SATISFACTORY EXPLANATION. IT IS PERTINENT TO MENTION HERE THAT THE ING VYSYA BANK USED TO CLAIM, SUCH TYPE OF WAIVER AS BAD DEBT AGAINST ITS PROFIT . IN VIEW OF THESE FACTS, THE REMISSION/WAIVER OF OVER DUE INTEREST OF RS.2.91 CR ORE, AS CLAIMED ABOVE, IS HEREBY, TREATED AS INCOME OF THE COMPANY FOR AX. 20 0405 AND ADDED BACK TO THE TOTAL INCOME. 34. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) AND POINTED THAT NO PART OF THE WRITE OFF WAS EVER CLAIM ED AS DEDUCTION. IT WAS CONTENDED THAT WRITE OFF OF AN AMOUNT, WHICH HAS NOT BEEN CLAIMED AS DEDUCTION, CANNOT RESULT IN AN ADDITION UNDER SECTION 41(1). ELA BORATE SUBMISSIONS WERE MADE ON MERITS POINTING OUT THAT THE LIABILITIES WRITTEN O FF WERE NOT OF REVENUE NATURE, AND THAT IT REPRESENTED THE CAPITAL AMOUNT. LEARNED CIT( A) UPHELD THE CONTENTIONS OF THE ASSESSEE, EXCEPT TO THE EXTENT OF RS 25 LAKHS REPRESENTED BY LEASE RENTAL WRITTEN OFF, AND DELETED THE REST OF THE ADDITION. WHILE DOING SO, THE CIT(A) OBSERVED AS FOLLOWS: 13.9. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER CAREFULLY. DURING THE YEAR THE I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 19 APPELLANT HAS REMITTED A LOAN LIABILITY OF RS 2,91, 36,753 ON ACCOUNT OF LOANS TAKEN FROM ING VYSYA BANK. THE AO WAS OF THE VIEW THAT THE PROVISION OF SECTION 41(1) WOULD APPLY TO THIS REMI SSION OF LOAN LIABILITY AND ACCORDINGLY, HE BROUGHT THE SAID REMISSION TO T AX. THE APPELLANT CONTENDED THAT THE SAID REMISSION WAS ON LOAN ACCOU NT TO WHICH THE PROVISIONS OF SECTION 41(1) DOES NOT APPLY AS THE S AID REMISSION HAS NOT ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND NO DEDUC TION WAS CLAIMED WHICH IS A PRIMARY CONDITION FOR INVOKING THE PROVI SIONS OF SECTION 41(1) OF THE I,.T.ACT. THE APPELLANT PLACED HEAVY RELIAN CE ON GUJARAT HIGH COURT DECISION IN THE CASE OF CIT V. CHETAN CHEMICAL PVT LTD CITED SUPRA, WHEREIN, THE HONBLE HIGH COURT HELD THAT REMISSION OF LOAN DOES NOT COME UNDER THE PURVIEW OF SECTION 41(1) OF THE I.T. ACT. 13.10. AS THE FACTS SPEAK, THE APPELLANT AVAILED LO AN FACILITIES FROM THE ING VYSYA BANK ON TWO COUNTS NAMELY, LEASE FINANCE FOR WINDMILLS OF RS 450 LACS ON 28.3.1995. ANOTHER LOAN WAS ALSO TAKEN BY THE APPELLANT COMPANY ON ACCOUNT OF NCD OBTAINED ON 29.9.2001 AT RS 750 LAKHS. THE APPELLANT MAINTAINS BOTH LOAN ACCOUNTS SEPARATELY. EVEN INTEREST ACCOUNT IN RESPECT OF BOTH THE ACCOUNTS WAS MAINTAI NED SEPARATELY. FROM THE LEDGER ACCOUNT OF ING VYSYA BANK IN APPELLANTS BOOKS, IT IS NOTED THAT THE APPELLANT OBTAINED LOANS OF RS 750 LAKHS ON 28. 10.2001 AGAINST 750 NCDS OF RS 1,00,000 EACH. AS ON 31.3.2004 THE BALA NCE LOAN ON THIS ACCOUNT WAS RS.4,70,88,295. AGAINST THIS LOAN BALA NCE, THE APPELLANT MADE PAYMENT OF RS 59,51,541 LEAVING A LOAN BALANCE OF RS 4,11,36,754. THE COMPANY HAS THEN NEGOTIATED WITH THE BANK FOR W AIVER OF THE SAID LOAN. AFTER NEGOTIATIONS THE BANK AGREED TO WAIVE T HE LOAN OF RS 2,91,36,753 ONLY AND THE REMAINING AMOUNT OF RS 1,2 0,00,000 OUT OF RS 4,11,36,754 WAS PAID BY THE APPELLANT. A CLOSE LOO K ON THE INTEREST ACCOUNT IN RESPECT OF THIS LOAN REVEALS THAT THE APP ELLANT WAS REQUIRED TO PAY AN INTEREST OF RS 1,25,64,041. OUT OF THIS, IN TEREST OF RS 46,89,041 HAS BEEN OFFERED TO TAX FOR THE A.Y. 2003-04 AS IS EVID ENT FROM THE OTHER INCOME FOR A.Y 2003-04. THE REMAINING DUE INTEREST OF RS 78,75,000 HAS I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 20 NEVER BEEN CLAIMED IN THE PROFIT AND LOSS ACCOUNT A ND, THEREFORE, THE SAME IS NOT HIT BY THE PROVISIONS OF SECTION 41(1) OF TH E I.T.ACT. THUS, IT IS NOTED THAT NO PART OF THE INTEREST HAS BEEN CLAIMED IN TH E PROFIT AND LOSS ACCOUNT FROM 1.4.2001 TO 31.3.2003 AND, THEREFORE, THERE IS NO REMISSION ON ACCOUNT OF INTEREST IN RESPECT OF NCDS LOAN OF R S 750 LAKHS. 13.11 IT IS NOTED FROM THE ASSESSMENT ORDER THAT TH E AO HAS MADE INDEPENDENT INQUIRIES IN RESPECT OF REMISSION OF RS 2,91,36,753 FROM ING VYSYA BANK. THE ING VYSYA BANK VIDE LETTER DATED 2 .12.2009 EXPLAINED TO THE AO ABOUT THE REMISSION OF LOAN LIABILITY OF RS 2,91,36,753. THE RELEVANT EXTRACTS FROM THE SAID BANKS LETTER AS RE PRODUCED IN THE ASSESSMENT ORDER IS REPRODUCED HEREUNDER: (F) THE EXECUTIVE MANAGEMENT COMMITTEE OF THE BANK PERMITTED FOR WRITE OFF/WAIVER AS UNDER: LEASE ACCOUNT TO SELL THE WINDMILLS TO TAPL ENERGY PROJECTS LTD F OR RS 200.00 LAKHS. TO WRITE OFF BALANCE IN BOOK BALANCE OF RS 163.90 L AKHS. TO WAIVER THE OVERDUE INTEREST OF RS 159.17 LAKHS TO TRANSFER THE ASSETS TO THEM NCD ACCOUNT TO ACCEPT RS 120.00 LAKHS AS FULL AND FINAL SETTLEM ENT TO WRITE OFF BALANCE IN BOOK BALANCE OF RS 266.37 LAKHS TO WAIVE OVERDUE INTEREST OF RS 234.91 LAKHS 13.12 FROM THIS LETTER, IT IS SEEN THAT IN NCD A/C THERE IS A REMISSION OF LOAN AMOUNT OF RS 266.7 LAKHS ONLY WHEREAS THE APPE LLANT HAS CLAIMED THE REMISSION OF LOAN ACCOUNT OF RS 2,91,36,753. DURING THE COURSE OF I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 21 APPEAL HEARING, THE APPELLANT WAS ASKED TO RECONCIL E THE CLAIM OF RS 2,91,36,753 IN VIEW OF BANKS LETTER WRITTEN TO THE AO. THE APPELLANT INFORMED THAT IT SEEMS THAT THE BANK, OUT OF REMISS ION OF RS 2,91,36,753 HAS ADJUSTED A SUM OF RS 25,00,000 AGAINST NCD ACCO UNT. 13.13 FROM THESE FACTS, IT IS GATHERED THAT THOUGH T HE LIABILITIES AMOUNTING TO RS 2,91,36,753 HAS BEEN CONSIDERED BY THE APPELLANT AS REMISSION OF LOAN LIABILITIES, BUT THE BANK HAS ADJ USTED THE PAYMENT OF RS 25,00,000 IN NCD ACCOUNT WHEREAS THE APPELLANT HAS ADJUSTED THE SAME AGAINST LEASE ACCOUNT. THUS, THE BANK IS SHOWING T HE BALANCE OF RS 2,66,36,753 IN NCD ACCOUNT. THUS, IT IS SEEN THAT A SUM OF RS 25 LACS PERTAINS TO LEASE RENT ACCOUNT AND THIS AMOUNT THER EFORE IS NOT A PART OF LOAN AMOUNT REMITTED BY THE APPELLANT BUT A PART OF INTEREST ACCOUNT WHICH HAS BEEN REMITTED. 13.14 IT IS FURTHER NOTED THAT IN RESPECT OF LEASE RENT ACCOUNT WHICH STARTED FROM 30.9.1996 TO 31.3.2003 THE INTEREST UN DER THE LEASE RENT ACCOUNT HAS REGULARLY BEEN PAID BY THE APPELLANT EX CEPT A SUM OF RS 1,13,04,918 WHICH WAS DUE TO THE BANK ON 31.3.2003. OUT OF THIS, THE APPELLANT ADJUSTED A SUM OF RS 25 LACS AND THE REMAI NING AMOUNT OF RS 88,04,918 WHICH WAS CLAIMED IN THE PROFIT AND LOSS ACCOUNT HAS BEEN OFFERED TO INCOME TAX IN THE A.Y. 2003-04. IN CASE, THE APPELLANT HAD WRITTEN BACK RS 25,00,000 ALONGWITH RS 88,04,918 ON ACCOUNT OF INTEREST TOTALING TO RS 1,13,04,918 AND OFFERED THE SAME TO TAX, ONLY IN THAT CASE, THE APPELLANTS CLAIM OF RS 2,91,36,753 COULD HAVE BEEN CONSIDERED AS REMISSION OF LOAN LIABILITY. THUS, IN MY CONSIDERE D OPINION, THE APPELLANT IS ENTITLED FOR RELIEF OF RS 2,66,36,753 AS THE SAM E IS NOT HIT BY THE PROVISION OF SECTION 41(1) OF THE I.T.ACT BEING THE REMISSION OF LOAN AMOUNT. THE SUM OF RS 25 LACS REMITTED BY THE APPE LLANT IS ON ACCOUNT OF LEASE RENT TO WHICH PROVISION OF SECTION 41(1) ARE APPLICABLE. IN VIEW OF THESE FACTS, THE AO IS DIRECTED TO DELETE THE ADDIT ION OF RS 2,66,36,753 OUT OF RS 2,91,36,753 AND THE BALANCE DISALLOWANCE OF R S 25 LACS IS UPHELD AS I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 22 THE SAME IS BROUGHT TO TAX IN VIEW OF PROVISIONS OF SECTION 41(1) OF THE I.T.ACT, 1961. THE AO IS DIRECTED TO ALLOW DEDUCTIO N OF RS2,66,36,753. THE GROUND IS PARTLY ALLOWED . 35. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), TH E ASSESSING OFFICER IS IN APPEAL BEFORE US. 36. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 37. THE MAIN THRUST OF LEARNED DEPARTMENTAL REPRESENT ATIVES SUBMISSIONS IS THAT IN VIEW OF HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF SOLID CONTAINERS LTD VS DCIT (308 ITR 417), THE AMOUNT OF L OAN WRITTEN OFF IS TO BE TREATED AS INCOME AS THE SAID WRITE OFF HAS TAKEN PLACE IN THE COURSE OF ASSESSEES BUSINESS ACTIVITY. IT IS HIS STAND THAT THE LAW LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAINDRA LTD VS CIT (2 61 ITR 5010), TO THAT EXTENT, CEASES TO BE GOOD LAW. WE ARE UNABLE TO SEE MERITS IN T HIS STAND FOR MORE REASONS THAN ONE. IN THE CASE OF SULZER INDIA LTD VS DCIT ( 4 2 SOT 457), A SPECIAL BENCH OF THIS TRIBUNAL, AFTER CONSIDERING A NUMBER OF DECISION S OF HONBLE BOMBAY HIGH COURT AS ALSO OTHER HONBLE HIGH COURTS AND HONBLE SUPREME COURT, HAS HELD THAT , HAVING REGARD TO THE AFORESAID LAW LAID DOWN BY THE HONBLE SUPREME COURT AND HIGH COURTS, WE FIND THAT TO INVOKE THE PROVISIONS OF SECTION 41(1) OF THE ACT, THE FIRST REQUIREMENT IS AS TO WHETHER IN THE ASSESSMENT OF TH E ASSESSEE, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF LOSS, EXPENDITURE OR THE TRADING LIABILITY INCURRED BY THE ASSESSEE.. IN SOLID CONTAINERS CASE (SU PRA), THEIR LORDSHIPS WERE DEALING WITH A SITUATION IN WHICH THE LOAN WAS TAKEN DURING THE COURSE OF TRADING AND THE INCOME WAS HELD TO BE DIRECTLY AS A RESULT OF THE TRADING ACTIVITY. IN ANY EVENT, THIS DECISION DOES NOT NEGATE THE LAW LAID DOW N BY HONBLE BOMBAY HIGH COURT BUT ONLY HOLDS THAT THE LAW SO LAID DOWN IN MAH INDRA & MAHINDRA (SUPRA) DOES NOT APPLY TO THE PARTICULAR FACT SITUATION THAT SOLI D CONTAINERS CASE (SUPRA) WAS DEALING WITH. WHEN IT IS SO SPECIFICALLY OBSERVED IN S OLID CONTAINERS CASE (SUPRA), IT I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 23 CANNOT BE OPEN TO US TO DISREGARD THE LAW LAID DOWN B Y HONBLE HIGH COURT IN MAHINDRA & MAHINDRAS CASE. IN THIS VIEW OF THE MATTER , AND HAVING REGARD TO THE FACT THAT IT IS AN UNCONTROVERTED FINDING OF THE CIT(A) T HAT THE AMOUNT REPRESENTING IMPUGNED RELIEF WAS NEVER CLAIMED AS DEDUCTION BY THE ASSESSE, WE SEE NO REASONS TO DISTURB THE WELL REASONED FINDINGS OF THE CIT(A). W E APPROVE THE STAND OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 38. GROUND NO. 8 IS THUS DISMISSED. 39. GROUND NO. 9 IS AS FOLLOWS: 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANC E OF RS 63,36,000 OF DEPRECIATION @ 5.28% MADE U/S.115JB IN RESPECT OF INF LATED PRICE OF WINDMILL OF RS 12 CR WHICH WAS DISALLOWED AFTER NECESSARY VERIF ICATION IN THE EARLIER YEARS. 40. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF APPOLLO TYRES LTD VS CIT (255 ITR 273), EVEN AS LEARNED DEPARTMENTAL REPR ESENTATIVE RATHER DUTIFULLY RELIES UPON THE ORDER OF THE ASSESSING OFFICER. WE, THER EFORE, SEE NO REASONS TO DISTURB THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND CONFIRM THE SAME. 41. GROUND NO. 9 IS DISMISSED. 42. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE TE RMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH , 2011 SD/- (V. DURGA RAO ) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 7 TH MARCH , 2011 PARIDA I.T.A NO.4603/ MUM/2008 WEIZMANN LTD., 24 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XXI, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY -1, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI