The DCIT, Circle-4, Ahmedabad V. Jay Chemical Industies Ltd., Ahmedabad

ITA 4237/AHD/2007

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6430 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 30-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: NIMISH VAYAWALA
• Keywords: Depreciation; Opportunity of being heard
• Section: 80HHC; 80IB; 28

Judgement Text

ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH,AHM EDABAD. ( BEFORE SHRI BHAVNESH SAINI AND SHRI A. K. GARODIA) I.T .A. NO. 4237/AHD/2007 (ASSESSMENT YEAR: 2004 -2005) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, NAVJIVAN TRUST BUILDING, OFF. ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. JAY CHEMICALS INDUSTRIES LTD JAY HOUSE, PANCHVAWATI, AMBAWADI, AHMEDABAD. (RESPONDENT) I.T .A. NO. 1593/AHD/2008 (ASSESSMENT YEAR: 2005 -2006) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, NAVJIVAN TRUST BUILDING, OFF. ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. JAY CHEMICALS INDUSTRIES LTD JAY HOUSE, PANCHVAWATI, AMBAWADI, AHMEDABAD. (RESPONDENT) PAN: AAACJ 7628J APPELLANT BY : SHRI S. K. GUPTA, SR. D.R. RESPONDENT BY : SHRI NIMISH VAYAWALA. ( (( ( )/ )/)/ )/ ORDER PER: SHRI A.K. GARODIA , A.M. BOTH THESE APPEALS ARE FILED BY THE REVENUE WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. C.I.T. (A)-VIII, AHMEDAB AD DATED 7-9-2007 FOR ASSESSMENT YEAR 2004-05 AND DATED 28-2-2008 FOR ASS ESSMENT YEAR 2005- 06. ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 2 2. GROUND NO.1 OF THE APPEAL IN ASSESSMENT YEAR 200 4-05 IS AS UNDER:- 1. THE LD CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE A.O. TO RE-COMPUTE THE PROFIT OF THE BUSINESS AND DECIDE ON THE ALLOWANCE OR REJECTING OF DEDUCTION U/S. 80H HC RELATABLE TO PROFIT ON TRANSFER OF DEPB ENTITLEMENTS/DEPB INCOME AFTER FOLLOWING CERTAIN SPECIFIC DIRECTIONS GIVEN BY THE CIT (A) IN THE ASSESSEES CASE FOR A.Y.2003-04. 3. BRIEF FACTS ARE THAT IT IS NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT ASSESSEE -COMPANY HAS CLAIMED DEDUCTION U/S. 80HHC OF THE ACT AMOUNTING TO RS. 35,08,420/-. IT HAS BEEN NOTED BY THE A.O. O N PAGE-5 OF THE ASSESSMENT ORDER THAT AFTER REDUCING 90% OF EXPORT INCENTIVES AND OTHER INCOME, PROFIT OF BUSINESS OF THE ASSESSEE-COMPANY IS NEGATIVE. THE A.O. HAS WORKED OUT LOSS OF RS. 30.63 LAKHS. IT IS ALSO NOTED BY THE A.O. THAT THE TOTAL TURNOVER OF THE ASSESSEE-COMPANY IS 100.26 CR ORES. THE A.O. HAS CONSIDERED THE PROVISIONS OF SECTION 80HHC AFTER IT S AMENDMENT IN 2005 AND HAS HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80HHC IN VIEW OF NEGATIVE PROFIT. BEING AGGRIEVED, THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. C.I.T. (A). THE CIT (A) HAS N OTED IN HIS ORDER THAT IN THE PRECEDING YEAR I.E. IN ASSESSMENT YEAR 2003-04 HIS PREDECESSOR HAS NOTED THAT THE ASSESSEE ACCOUNTS FOR THE DEPB ENTIT LEMENTS ON ACCRUAL BASIS IN DUE COMPLIANCE WITH THE ACCOUNTING STANDARDS PRE SCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND WHEN THE DEPB ENTITLEMENTS ARE SOLD, THE ASSESSEE OFFERS ONLY DIFFERENCE BETWEEN THE SAL E VALUE AND THE INCOME ACCOUNTED ALREADY ON ACCRUAL BASIS TREATING THE SAM E AS COST, AS PROFIT ARISING FROM THE TRANSFER OF DEPB. IT IS ALSO NOTED BY THE CIT (A) THAT IN THE PRECEDING YEAR, IT WAS HELD THAT THE METHOD OF ACCO UNTING EMPLOYED BY THE ASSESSEE WOULD HAVE TO BE ADJUSTED TO REWORK THE PR OFIT ON TRANSFER OF DEPB ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 3 YEAR ON YEAR AND ONLY THE ACTUAL PROFIT ARISING AT THE TIME OF ACTUAL SALE WAS TO BE CONSIDERED FOR ALLOWANCE OR REJECTION OF 80HH C DEDUCTION. IN THE PRESENT YEAR ALSO, IN THE IMPUGNED ORDER, THE CIT ( A) HAS DIRECTED THE A.O. TO RE-COMPUTE THE PROFIT OF THE BUSINESS AND DECIDE ON THE ALLOWANCE OR REJECTION OF DEDUCTION U/S. 80HHC IN SO FAR AS THE SAME RELATE TO TRANSFER OF DEPB ENTITLEMENTS. NOW THE REVENUE IS IN APPEAL BEF ORE US. 4. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER AND LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). IT WAS POINTED OUT BY THE BENCH THAT NOW THIS ISSUE IS COVERED AGAINST THE AS SESSEE BY THE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. KALPTARU COLOUR CHEMICALS 328 ITR 451 (BOM.). IN REPLY, THE LD. A.R. OF THE ASSE SSEE HAS NOTHING TO SAY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW AND JUDGMENT OF HON. BOMBAY HIGH COURT RENDER ED IN THE CASE OF CIT VS. KALPTARU COLOUR CHEMICALS (SUPRA). IN THIS CASE, IT WAS HELD BY HON. BOMBAY HIGH COURT THAT THE ENTIRE SALE PROCEEDS OF DEPB FELL WITHIN THE PURVIEW OF SECTION 28 (IIID) AND THEY HAVE REVERSED THIS FINDING OF THE TRIBUNAL THAT THE FACE VALUE OF DUTY ENTITLEMENT PA SSBOOK REALIZED ON THE TRANSFER OF THE ENTITLEMENT IS CHARGEABLE TO TAX UN DER SECTION 28 (IIIB). IN THIS FACTUAL POSITION, WE MODIFY THE DIRECTION OF THE LD . CIT (A) AND DIRECT THE A.O. TO DECIDE THIS ISSUE AFRESH IN THE LIGHT OF TH E DECISION OF HON BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT V/S. KALPTAR U COLOUR CHEMICALS (SUPRA). THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE ON SALE OF DEPB SHOULD BE CONSIDERED AS PROFIT ON SALE OF DEPB AND 90% OF THE SAME SHOULD BE EXCLUDED FROM THE PROFIT OF BUSINESS FOR THE PURPOS E OF EXAMINING THE ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 4 ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S. 80HH C AND IF THE RESULTANT PROFIT AFTER SUCH 90% EXCLUSION IS NEGATIVE, ASSESSEE IS N OT ELIGIBLE FOR DEDUCTION U/S. 80HHC. THE A.O. SHOULD PASS NECESSARY ORDER AS PER LAW AND AS PER ABOVE DISCUSSION AFTER ALLOWING REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND NO.1 FOR ASSESSMENT YEAR 2004 -05 IS ALLOWED IN TERMS AS INDICATED ABOVE. 6. GROUND NO.2 OF APPEAL FOR ASSESSMENT YEAR 2004-0 5 AND GROUND NO.1 OF APPEAL FOR A.Y. 2005-06 IS IDENTICAL AND TH E ISSUE INVOLVED IS AS TO WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IA. BOTH SIDES AGREED THAT FACTS IN BOTH YEARS ARE IDENTICAL AND HENCE TH IS ISSUE IN BOTH YEARS MAY BE DECIDED AS PER FACTS IN A.Y. 2004-05. 7. BRIEF FACTS ARE THAT IT IS NOTED BY THE A.O. IN PARAGRAPH 6.1. OF THE ASSESSMENT ORDER IN A.Y. 2004-05 THAT DURING THIS Y EAR, THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA (IV)(A) OF THE ACT AMOU NTING TO RS. 61,62,543/- IN RESPECT OF POWER PROJECT ENGAGED IN GENERATION/T RANSMISSION/DISTRIBUTION OF POWER. IT IS ALSO NOTED BY THE A.O. THAT THE AS SESSEE HAS SUBMITTED REPORT OF CHARTERED ACCOUNTANT IN FORM NO.10CCB ALONG WITH RETURN OF INCOME. IT IS ALSO NOTED THAT IT HAS BEEN STATED IN THE REPORT THAT THE GENERATION OF POWER STARTED ON 16-1-2003. IT IS ALSO NOTICED BY THE A.O . THAT THE ASSESSEE HAS NOT CLAIMED DEDUCTION U/S. 80IA (IV) (A) FOR THE ASSES SMENT YEAR 2003-04 AND FOR THE FIRST TIME, ASSESSEE HAS CLAIMED DEDUCTION IN A.Y. 2004-05. THE A.O. HAS MENTIONED THAT IN THE CHARTERED ACCOUNTANTS RE PORT, COMPLETE ADDRESSES OF ENTERPRISE AND UNDERTAKING HAS NOT BEE N MENTIONED. IT IS ALSO STATED BY THE A.O. THAT THE APPROVAL LETTER OF THE LOCAL/STATE AUTHORITIES WAS ALSO NOT FURNISHED ALONG WITH THE FORM NO.10CCB FOR A.Y. 2003-04. THE ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 5 A.O. HAS ALSO NOTED THAT THE ASSESSEE CLAIMED DEPRE CIATION ON THE SAME POWER PLANT IN A.Y. 2003-04 AND HENCE, POWER PLANT FORMED PART OF BLOCK ASSET OF THE ASSESSEE FOR A.Y. 2003-04. ON THE BAS IS OF THESE OBSERVATIONS, THE A.O. HAS STATED THAT IN THESE CIRCUMSTANCES, PO WER PROJECT IS NOT INDEPENDENT INDUSTRIAL UNDERTAKING OR ENTERPRISE. T HE A.O. ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF DEDUCTION U/S. 80IA. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT FOR CLAIMING DEDUCTION UNDER CHAPTER IIA (POWER PLANT), NO REGISTRATION WITH ANY AUTHORITY IS ESSENTIAL. IT WA S ALSO SUBMITTED BEFORE THE A.O. THAT UNIT IS INDEPENDENT AND EVEN IF THE DYES PLANT IS STOPPED, POWER PLANT CAN FUNCTION INDEPENDENTLY. IT WAS ALSO SUBMI TTED BEFORE THE A.O. THAT FOR INFRASTRUCTURAL FACILITY, AS PER SECTION 80IB ( 10), LOCAL AUTHORITY SHOULD APPROVE THE HOUSING PROJECT BUT NO SUCH CONDITION H AS BEEN LAID DOWN FOR POWER PLANT. RELIANCE WAS PLACED ON THE TRIBUNAL DE CISION RENDERED IN THE CASE OF WEST COAST PAPER MILLS LTD. VS. DCIT 100 TT J 833 (MUM.) AND THE JUDGMENT OF HON SUPREME COURT RENDERED IN THE CASE OF TEXTILE MACHINERY CORPORATION VS. DCIT 107 ITR 195 (SC). THE A.O. WA S NOT SATISFIED. HE HAS MADE REFERENCE TO FORM NO.10CCB AND RULE 18BBB (4) OF THE I.T. RULES, 1962 AND THEREAFTER, ON PAGE 13 OF THE ASSESSMENT O RDER FOR ASSESSMENT YEAR 2004-05, THE A.O. HAD NARRATED 5 REASONS FOR REJECT ING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IA. THE FIRST REASON GIVEN BY THE AO IS THAT THE ENTERPRISE OR UNDERTAKING IS NOT A DISTINCT ENTITY. SECOND REASON GIVEN BY AO IS THAT NO SEPARATE PLANT AND MACHINERY OWNED BY TH E ENTERPRISE OR UNDERTAKING. THIRD REASON GIVEN BY THE A.O. IS THAT UNDERTAKING OR ENTERPRISE IS NOT APPROVED BY THE CENTRAL GOVERNMENT/STATE GOV ERNMENT OR LOCAL AUTHORITY. FOURTH REASON GIVEN IS THAT NO SEPARATE BOOKS OF ACCOUNTS HAVE ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 6 BEEN MAINTAINED BY THE UNDERTAKING OR ENTERPRISE. F IFTH REASON GIVEN BY THE A.O. IS THAT EXACT LOCATION OF THE UNDERTAKING OR E NTERPRISE HAS NOT BEEN DISCLOSED BY THE ASSESSEE. BEING AGGRIEVED, THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) IN BOTH THE YEARS AND THE LD. CIT (A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND NO W THE REVENUE IS IN APPEAL BEFORE US FOR BOTH THE ASSESSMENT YEARS. 8. THE LD. D.R. OF THE REVENUE SUPPORTED THE ASSESS MENT ORDER WHEREAS THE A.R. OF THE ASSESSEE SUPPORTED THE ORDE R OF THE LD. CIT (A). RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS:- (A) WEST COAST PAPER MILLS LTD. VS. JCIT 100 TTJ 83 3 (MUM) (B) DCW LTD. VS. ADDL. C.I.T. (2010) 132 TTJ 442 9M UM.). RELIANCE WAS ALSO PLACED ON SOME OTHER JUDGMENTS WH ICH ARE NOT BEING TAKEN NOTE OF AT THIS STAGE AND IF WE FIND THAT THE ISSUES DID NOT COVERED BY THESE TWO TRIBUNAL DECISIONS, WE WILL CONSIDER THOS E JUDGMENTS ALSO. HE ALSO SUBMITTED THAT THE REPORT OF THE DEV CONSULTANT IS AVAILABLE ON PAGES 85 TO 86 AND 95 TO 96 OF THE PAPER BOOK. IT IS ALSO SUBMITT ED THAT THE POWER PLANT IS CAPTIVE POWER PLANT AND HENCE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IA. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW AND THE JUDGMENTS CITED BY THE LD. A.R. OF THE ASSESSEE AS NOTED ABOVE. 10. WE FIND THAT AT PAGE 95 OF THE PAPER BOOK IN TH E CERTIFICATE OF THE CONSULTANT, IT HAS BEEN STATED THAT POWER PLANT OF THE ASSESSEE COMPANY CAN ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 7 BE CONNECTED WITH TORRENT POWER AEC GRID AND WORK I N SYNCHRONIZATION (PARALLEL) WITH GRID AND HENCE, IN CASE OF POWER NO T REQUIRED BY THE ASSESSEE- COMPANY, THE POWER GENERATED FROM THIS POWER PLANT CAN BE FED TO THE GRID AND HENCE, THIS POWER PLANT OF 1 MW CAN WORK AS IND EPENDENT UNIT. THIS CERTIFICATE OF THE CONSULTANT WAS VERY MUCH AVAILAB LE BEFORE THE A.O. AND HE HAS NOT STATED ANY REASONS FOR NOT ACCEPTING THIS C ERTIFICATE. HENCE THIS OBJECTION OF THE A.O. IS NOT VALID THAT THIS UNIT I S NOT DISTINCT AND INDEPENDENT ENTITY. SECOND OBJECTION OF THE A.O. IS THAT NO SEPARATE PLANT AND MACHINERY IS OWNED BY THE ENTERPRISE OR UNDERTA KING. IN THIS REGARD, WE FIND THAT A FINDING AS GIVEN BY THE LD. CIT (A) ON PAGE-7 OF HIS ORDER FOR A.Y. 2004-05 THAT IT IS SEEN THAT THE POWER PLANT H AS BEEN SET UP DURING THE FINANCIAL YEAR 2002-03 AND HAS ADDED NEW BUILDING A ND ACQUIRED NEW PLANT AND MACHINERY FOR ESTABLISHING THE NEW UNIT. IT HAS BEEN LAID DOWN BY THE COURTS THAT IT IS NOT ESSENTIAL THAT UNIT IS TO BE SET UP IN DIFFERENT PREMISES. IN VIEW OF THIS CLEAR FINDING OF THE CIT (A) IN THIS R EGARD THIS IS NOT CONTROVERTED BY THE D.R. OF THE REVENUE, WE FIND NO FORCE IN THIS OBJECTION OF THE A.O. THAT NO SEPARATE PLANT AND MACHINERY IS OWNED BY THE ENTERPRISE OR UNDERTAKING. REGARDING THIRD OBJECTION OF THE A. O. THAT ENTERPRISE OR UNDERTAKING IS NOT APPROVED BY CENTRAL /STATE GOVER NMENT OR LOCAL AUTHORITY, WE WOULD LIKE TO MENTION THAT AS PER THE VARIOUS PR OVISIONS OF SECTION 80-IA, A.O. HAS NOT PIN-POINTED ANY PARTICULAR SUB SECTIO N REGARDING THIS REQUIREMENT THAT THE POWER PLANT SHOULD APPROVED BY ANY GOVERNMENT AUTHORITY. THE ASSESSEE HAS SUBMITTED BEFORE THE A. O. THAT SECTION 80IA (IV) REQUIRES THAT THERE SHOULD BE AGREEMENT WITH SPECIF IC AUTHORITY IN RESPECT OF INFRASTRUCTURE FACILITY AND IT IS ALSO SPECIFIED TH AT IN RESPECT OF NATURAL PART, THE NOTIFICATION OF CENTRAL GOVT. IS ESSENTIAL AND SIMILARLY 80IB LAYS DOWN ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 8 FOR LOCAL AUTHORITY AND HOUSING PROJECT BUT NO SUCH CONDITION HAS BEEN LAID OUT FOR POWER PLANT. IN SPITE OF THIS SUBMISSION OF THE ASSESSEE BEFORE THE A.O., THE A.O. DID NOT POINT OUT ANY SPECIFIC SUB S ECTION OF 80IA AS PER WHICH THERE IS A REQUIREMENT OF APPROVAL OF THE POW ER PLANT BY ANY GOVT. AUTHORITY. THE CIT (A) HAS ALSO NOTED AT PAGE-7 OF HIS ORDER THAT ASSESSEE HAD SUBMITTED COPY OF APPROVAL FOR INSTALLATION OF 1250 KVA CAPTIVE POWER PLANT FROM CHIEF ELECTRICAL INSPECTOR AND HAD FILED PROFIT AND LOSS ACCOUNT FOR POWER PLANT AND ALSO INSPECTION REPORT OF THE C HIEF ELECTRICAL INSPECTOR, GANDHINAGAR CARRIED OUT ON 11-1-2003 AND ACCOUNT OF ELECTRICITY DUTY PAID FOR UNITS GENERATED IN CPP. IT IS FURTHER, NOTED BY THE LD. CIT (A) THAT ADEQUATE TIME HAD BEEN GIVEN TO THE A.O. SINCE 1-3- 2007 WHEN THE PAPERS WERE GIVEN TO THE A.O. FOR HIS COMMENTS AND THE A.O . HAS NOT GIVEN ANY ADVERSE COMMENTS. THE ORDER HAS BEEN PASSED BY THE LD. CIT (A) ON 7-9- 2007. HENCE, THIS OBJECTION OF THE A.O. IS ALSO NOT VALID THAT THE ASSESSEE HAS NOT OBTAINED APPROVAL FROM GOVT. AUTHORITY BECAUSE NO SPECIFIC REQUIREMENT OF SECTION 80IA HAS BEEN POINTED OUT BY THE A.O. IN THIS REGARD. WE ALSO DID NOT FIND ANY SUB-SECTION OF SECTION 80IA WHICH REQU IRES THAT THE POWER PLANT HAS TO BE APPROVED BY ANY SPECIFIC AUTHORITY. THE L D. D.R. OF THE REVENUE HAS ALSO NOT POINTED ANY SUCH PROVISION U/S. 80IA. HENCE, WE FEEL THAT THIS OBJECTION IS ALSO NOT VALID. FOURTH OBJECTION OF TH E A.O. IS THAT NO BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BY UNDERTAKING OR ENT ERPRISE. IN THIS REGARD, WE HAVE NOTED THAT IT IS STATED BY LEARNED CIT (A) AT PAGE-7 OF HIS ORDER THAT ASSESSEE HAS FILED COPIES OF PROFIT AND LOSS ACCOUN T FOR POWER PLANT BUT THE A.O. HAS NOT FURNISHED ANY ADVERSE COMMENT BEFORE T HE LD. CIT (A). THERE IS NO SPECIFIC REQUIREMENT U/S. 80IA THAT THE ASSES SEE SHOULD MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR THE POWER PLANT. AS PER SUB-SECTION 7 OF ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 9 SECTION 80IA, IT HAS BEEN SPECIFIED THAT WITH EFFEC T FROM 1-4-2002 THE ACCOUNTS OF THE UNDERTAKING FOR THE PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR FOR WHICH THE DEDUCTION IS CLAIMED SHOULD HAVE BEEN AUDITED AND AUDIT REPORT AS PRESCRIBED IS FURNISHED ALONG WITH THE RE TURN OF INCOME. THE LD. CIT (A) HAS GIVEN A CLEAR FINDING ON PAGE-7 OF HIS ORDER THAT THE ASSESSEE HAS ALREADY FILED THE AUDIT REPORT ALONG WITH PROFIT AN D LOSS ACCOUNT AND BALANCE SHEET OF NEW UNIT. ON THIS ASPECT ALSO, LD. D.R. OF THE REVENUE COULD NOT CONTROVERT THE CLEAR FINDING OF LEARNED CIT (A). W E ARE OF CONSIDERED OPINION THAT NO ADVERSE INFERENCE CAN BE DRAWN. 11. THE LAST OBJECTION OF THE A.O. IS THAT EXACT LO CATION OF THE ENTERPRISE OR UNDERTAKING HAS NOT BEEN DISCLOSED BY THE ASSESSEE. IN THIS REGARD, IT WAS POINTED OUT BY LD. A.R. OF THE ASSESSEE THAT THE A. O. HIMSELF HAS NOTED AND REPRODUCED WRITTEN SUBMISSIONS OF THE ASSESSEE FILE D BY THE ASSESSEE BEFORE HIM AS PER LETTER DATED 22-12-2006. THE RELEVANT PA RT OF THIS LETTER IS REPRODUCED BY THE A.O. ON PAGE-12 OF THE ASSESSMENT ORDER AND IN THAT, IT HAS BEEN STATED BY THE ASSESSEE THAT POWER PLANT IS SIT UATED AT 44 GIDC, ODHAV, AHMEDABAD. HENCE IT IS SEEN THAT THE EXACT INDICAT ION OF THE POWER PLANT HAS DULY BEEN NOTED BY THE A.O. ALSO. IN THE REPORT OF THE CONSULTANT APPEARING AT PAGE 85 AND 95 OF THE PAPER BOOK ALSO, THE SAME ADD RESS OF THE POWER PLANT HAS BEEN STATED. IN THE FORM NO.10CCB IN THE AUDIT REPORT SUBMITTED BY THE ASSESSEE COPY OF WHICH IS AVAILABLE ON PAGE 74 TO 8 1 OF THE PAPER BOOK, IT HAS BEEN STATED THAT THE SAME ADDRESS OF THE ENTERP RISE/UNDERTAKING CLAIMING DEDUCTION IS AHMEDABAD, GUJARAT. ON THE BASIS OF TH IS, IT IS THE ALLEGATION OF THE A.O. THAT COMPLETE ADDRESS OF THE ENTERPRISE / UNDERTAKING IS NOT AVAILABLE ON RECORD. FOR AN OMISSION IN STATING COM PLETE ADDRESS IN THE AUDIT REPORT CLAIM OF THE ASSESSEE REGARDING DEDUCTION CA NNOT BE REJECTED ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 10 PARTICULARLY WHEN THE UNITS ADDRESS IS OTHERWISE M ADE AVAILABLE TO THE A.O. IN OUR CONSIDERED OPINION, THIS IS A TECHNICAL DEFA ULT AND HENCE ON THE BASIS OF THIS OBJECTION, THE CLAIM OF THE ASSESSEE CANNOT BE REJECTED. 12. NOW, WE FID THAT IN THE CASE OF WEST COAST PAPE R MILLS LTD. VS. JCIT (SUPRA) IT WAS HELD BY BOMBAY BENCH OF THE TRIBUNAL THAT WHEN THE ASSESSEE IS GENERATING POWER EVEN FROM CAPTIVE CONSUMPTION O F POWER, THERE IS NO FETTER AGAINST DEDUCTION UNDER SECTION 80IA. IN TH AT CASE, THE ASSESSING AUTHORITY WAS DIRECTED TO WORK OUT THE PROFIT O THE BASIS OF THE PRICE OF THE POWER GENERATED BY THE ASSESSEE AT THE AVERAGE OF T HE ANNUAL LANDED COST OF ELECTRICITY PURCHASED BY THE STATE ELECTRICITY BOAR D DURING THE IMPUGNED PREVIOUS YEAR. IN THE PRESENT CASE, ASSESSEE HAD D ULY SUBMITTED THE PROFIT AND LOSS ACCOUNT OF THE NEW UNIT AS HAS BEEN NOTED BY THE LD. CIT (A) ON PAGE-7 OF HIS ORDER BUT WE FIND THAT IN THE PAPER B OOK FILED BEFORE US, COPY OF SUCH PROFIT AND LOSS ACCOUNT OF THE ASSESSEE-COM PANY IS NOT AVAILABLE AND WHAT HAS BEEN SUBMITTED IN THE PAPER BOOK FOR THE FINANCIAL YEAR ENDING 31-3-2004 I.E. PROFIT AND LOSS ACCOUNT OF THE ENTIR E UNIT OF THE ASSESSEE- COMPANY AND NOT OF POWER PLANT. SINCE THE VERACITY OF THE PROFIT AND LOSS ACCOUNT OF THE RELEVANT UNIT OF THE ASSESSEE-COMPAN Y WAS NOT EXAMINED BY THE A.O. AND NO CLEAR FINDING HAS BEEN GIVE BY THE LD. CI (A) IN THIS REGARD AS TO WHETHER HE HAS EXAMINED THE VERACITY OF THE S AME OR NOT, WE FEEL THAT IN THE INTEREST OF JUSTICE, THIS ASPECT OF THE MATTER SHOULD GO BACK TO THE FILE OF A.O. AND HENCE, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. THE ASSESSEE HAS TO FURNISH THE AUDITED P ROFIT AND LOSS ACCOUNT OF THE POWER PLANT FOR BOTH THE YEARS AND SHOULD SUBMI T BEFORE THE A.O. OTHER NECESSARY PAPERS IN RESPECT OF SUCH PROFIT AND LOSS ACCOUNT FOR BOTH THE YEARS ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 11 AND TO THE EXTENT OF PROFIT OF POWER PLANT, ASSESSE E SHOULD BE ELIGIBLE FOR DEDUCTION U/S. 80IA AT THE PRESCRIBED RATE BUT THE A.O. SHOULD COMPUTE THE QUANTUM OF DEDUCTION ALLOWABLE TO THE ASSESSEE AFTE R DETERMINING THE PROFIT OF POWER PLANT IN BOTH THE YEARS, ON THE BASIS OF S UCH PROFIT AND LOSS ACCOUNT OF POWER PLANT TO BE SUBMITTED BY THE ASSESSEE ALON G WITH OTHER EVIDENCES. A.O. SHOULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. GROUND NO.2 OF THE REVENUE FOR A.Y. 2004-05 AND GROUND NO.1 FOR ASSESSMENT YEAR 2005-06 ARE ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO.3 OF THE REVENUE IN A.Y. 2004-05 AND GROUND NO.2 OF A.Y. 2005-06 ARE SIMILAR WITH DIFFERENCE IN AMOUNT. THE ISSUE INVOLVED IS REGARDING DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36 (1) (III) TO THE EXTENT OF RS. 57,57,818/- FOR A.Y. 2004-05 AND RS. 68,13, 750/- IN A.Y. 2005-06. 15. BRIEF FACTS ARE THAT IT IS NOTED BY THE A.O. I N THE ASSESSMENT ORDER FOR A.Y. 2004-05 THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 2.25 LAKHS IN SHARES OF JAY INFA TRADE PVT. LTD. AND RS. 352 LAKH S IN THE SHARES OF J. H. KHARAWALA PVT. LTD., AND RS.48 LAKHS IN SHARE APPLI CATION MONEY TOTALING TO RS.402.25 LAKHS. THE A.O. ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PROP ORTIONATE INTEREST U/S. 36 (1)(III) SHOULD NOT BE DISALLOWED. VARIOUS SUBMISS IONS WERE MADE BY THE ASSESSEE BUT THE A.O. WAS NOT SATISFIED AND HAD MAD E DISALLOWANCE OF RS. 57,57,818/- IN THAT YEAR OUT OF TOTAL INTEREST PAYM ENT IN PROPORTION TO INVESTMENT MADE AND TOTAL LOANS TAKEN. IN THE NEXT YEAR, A.O. MADE SIMILAR ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 12 DISALLOWANCE @ OF 15% OF TOTAL SUCH INVESTMENT MADE OF RS.352 LAKHS AND WORKED OUT DISALLOWANCE OF RS.68,13,750/- IN THAT Y EAR. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT (A) IN BOTH THE YEAR AND THE GROUND WAS DELETED BY LD. CIT (A) FOR BOTH THE YEARS. NOW THE REVENUE IS IN APPEAL BEFORE US FOR BOTH THE YEARS. 16. THE LD. D.R. OF THE REVENUE SUPPORTED THE ASSES SMENT ORDER. RELIANCE WAS PLACED BY HIM ON THE DECISION OF SPECI AL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF CHEMINVEST LTD. VS. ITO RE PORTED IN 124 TTJ 577. AS AGAINST THIS, LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT (A). IT IS ALSO SUBMITTED BY HIM THAT BALANCE SHEET IS AVAILABLE AT PAGE-69 & 70 OF THE PAPER BOOK. IT IS ALSO SUBMITTED THAT INV ESTMENT IN SHARES WAS MADE IN THE PRECEDING YEAR I.E. IN A.Y. 2003-04 AND IN T HAT YEAR, THERE IS NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE AND HENCE, THERE IS NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE AND HENCE IN THE PRESENT YEARS, THE DISALLOWANCE IS NOT JUSTIFIED. RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE ON THE FOLLOWING JUDGMENTS :- A) CIT VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340 B) S. A. BUILDERS VS. CIT 288 ITR 1 (SC) 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENT CITED BY BOTH THE SIDES. FIRST CONTEN TION OF THE ASSESSEE IS THIS THAT THE SHARE INVESTMENT WAS MADE IN THE PRECEDING YEAR I.E. IN A.Y. 2003- 04. IN THE BALANCE SHEET FOR THE PERIOD ENDING 31-3 -2004 AVAILABLE ON THE PAPER BOOK, WE FIND THAT THE PREVIOUS YEARS FIGURES ARE ALSO AVAILABLE AND INVESTMENT IN SHARES OF JAY INFA TRADE PVT. LTD., W AS RS.2.25 LAKHS AND INVESTMENT IN SHARE APPLICATION WAS RS. 48 LAKHS TO TALING TO RS.50.25 LAKHS ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 13 WAS MADE IN A.Y.2004-05 BECAUSE THE FIGURE APPEARIN G AGAINST THESE FIGURE FOR THE YEAR ENDING ON 31-3-2003 IS NIL. AS REGARDS THE THIRD INVESTMENT OF RS.352 LAKHS IN THE SHARES OF J. H. KHARAWALA PVT. LTD., WE FIND THAT THE CONTENTION OF THE ASSESSEE IS CORRECT BECAUSE IN TH E PREVIOUS YEAR COLUMN FOR THE YEAR ENDING 31-3-03, INVESTMENT OF RS.352 LAKHS IS APPEARING. THE ASSESSEE HAS ALSO GIVEN A COPY OF SHARE APPLICATION MONEY FOR THE YEAR ENDING ON 31-3-2003 WHICH IS AVAILABLE ON PAGE-1 OF THE PAPER BOOK AND WE FIND THAT THIS INVESTMENT WAS MADE BY THE ASSESSEE IN THE MONTH OF JANUARY, 2003. NOW THE QUESTION IS AS TO WHETHER AT THE TIME OF MAKING SUCH INVESTMENT OF RS. 352 LAKHS IN JANUARY, 2003, WHETH ER ANY OWN FUND WAS AVAILABLE WITH THE ASSESSEE OR NOT. SIMPLY BECAUSE THERE IS NO DISALLOWANCE OF INTEREST IN THE A.Y. 2003-04, IT CANNOT BE INFER RED THAT INVESTMENT IS MADE OUT OF OWN FUND AND NOT OUT OF ANY INTEREST BEARING PARTY FUND. NEITHER THE A.O. HAS BROUGHT ON RECORD ANY DIRECT NEXUS OF INTE REST BEARING BORROWED FUNDS WITH INVESTMENT IN SHARES NOR THE ASSESSEE HA S BROUGHT ON RECORD ANY DIRECT NEXUS OF SUCH INVESTMENT WITH THE INTEREST F REE FUNDS. HENCE, WE EXAMINE THIS ISSUE O THE BASIS OF FACTS AVAILABLE O N RECORD AS UNDER. 18. THIS IS ONE OF THE CONTENTIONS RAISED BY THE AS SESSEE BEFORE THE LD. CIT (A) AND BEFORE US THAT THERE IS SUFFICIENT FUND AVAILABLE IN THE SHAPE OF PROFIT BEFORE DEPRECIATION IN A.Y. 2003-04 AND 2004 -05. PROFIT AND LOSS ACCOUNT IS AVAILABLE ON PAGE-71 & 72 OF THE PAPER B OOK WHICH CONTAINS THE FIGURES FOR THE YEAR ENDING 31-3-2003 AND ALSO ON 3 1-3-2004. THE NET PROFIT AFTER TAX FOR THE YEAR ENDING 31-3-2003 IS RS.488.0 4 LAKHS AND THE DEPRECIATION IN THAT YEAR IS OF RS. 150.14 LAKHS AN D HENCE TOTAL GENERATION OF OWN FUND IN THAT YEAR IS RS.638.18 LAKHS, WHEREAS I NVESTMENT IN SHARES IN ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 14 THAT YEAR IS ONLY OF RS.352 LAKHS. SIMILARLY IN THE YEAR ENDING AS ON 31-3- 2004 PROFIT AFTER TAX IS RS. 214.25 LAKHS AND THE D EPRECIATION IN THIS YEAR IS RS.195.16 LAKHS AND HENCE TOTAL GENERATION OF FUNDS IS RS.309.41 LAKHS WHEREAS THE INVESTMENT IN SHARES IN THIS YEAR IS OF ONLY RS.55.25 LAKHS. IN THE LIGHT OF THIS FACT, WE FEEL THAT, IT IS NOT JUSTIFI ED TO MAKE ANY DISALLOWANCE OF INTEREST CLAIMED BY THE ASSESSEE U/S. 36(1)(III) I THE ABSENCE OF ANY DIRECT NEXUS BETWEEN THE INVESTMENT IN SHARES AND INTEREST BEARING BORROWED FUNDS WE ALSO FIND THAT IT IS ALSO NOT BROUGHT ON RECORD BY THE A.O. THAT SUCH FUNDS GENERATED FROM OPERATIONS HAS BEEN OTHERWISE USED B Y THE ASSESSEE AND WAS NOT AVAILABLE WITH THE ASSESSEE FOR INVESTMENT IN S HARES. HENCE, WE FEEL THAT NO INTERFERENCE IS CALLED IN THE ORDER OF THE LD. C IT (A). WE CONFIRM THE ORDERS OF THE LD. CIT (A) IN BOTH THE YEARS. 19. THE GROUND NO. 3 OF A.Y. 2004-05 AND GROUND NO. 2 OF A.Y. 2005-06 ARE REJECTED. 20. AS PER GROUND NO.4 IN A.Y. 2004-05 AND GROUND N O.3 IN A.Y. 2005- 06, THE ISSUE INVOLVED IS THAT OF DELETING THE DISA LLOWANCE MADE BY THE A.O. OUT OF HOUSE KEEPING CHARGES U/S. 40A(2)(B) FOR A.Y . 2004-05 RS.45,85,729/- AND RS. 45,85,729/- IN A.Y. 2005-06. 21. THE LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER FOR THIS IN BOTH THE YEARS WHEREAS THE LD. A.R. OF THE ASSES SEE STATED THAT THIS ISSUE IS COVERED BY THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR A.Y. 2003-04 IN ITA NO.875/AHD/2007 DATED 6-11-2009 A COPY OF WH ICH IS SUBMITTED AND KEPT ON RECORD. IT WAS POINTED OUT BY THE LD. A .R. OF THE ASSESSEE THAT THIS ISSUE WAS RAISED BY THE REVENUE IN THAT YEAR A S PER GROUND NO.8 WHICH ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 15 HAS BEEN REPRODUCED BY THE TRIBUNAL IN PARAGRAPH 17 OF THE TRIBUNAL ORDER. IT IS POINTED OUT THAT IN THAT YEAR ALSO, DISALLOWA NCE WAS MADE OF RS. 45,85,729/- U/S. 40A(2) (B) REGARDING HOUSE KEEPING CHARGES AND THE SAME WAS DELETED BY THE LD. CIT(A) AND THE APPEAL OF THE REVENUE IN THAT YEAR ON THIS ISSUE WAS REJECTED BY THE TRIBUNAL. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE TRIBUNAL O RDER IN ASSESSEES OWN CASE FOR A.Y. 2003-04. WE FIND THAT SIMILAR DISALLO WANCE WAS MADE IN THAT YEAR, WHICH WAS DELETED BY THE LD. C.I.T. (A) AND T HE APPEAL OF THE REVENUE IN THAT YEAR ON THIS ISSUE HAS BEEN REJECTED BY THE TRIBUNAL. NO DIFFERENCE IN FACT HAS BEEN POINTED OUT BY THE LD. D.R AND HENCE, WE CANNOT TAKE ANY CONTRARY VIEW IN THE PRESENT TWO YEARS. ACCORDINGL Y THIS GROUND OF THE REVENUE IS REJECTED IN BOTH THE YEARS. 23. IN THE RESULT BOTH THE APPEALS OF THE REVE NUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 31 - 05 - 20 11. SD/- SD/- (BHAVNESH SAINI) (A. K. GARODIA) JUDICIAL MEMBER. ACCOUNTANT MEMBER. AHMEDABAD. DATED: 31 - 05 - 2011. ITA. NO. 4237/A/07 & ITA NO.1593/08 . ASSTT.YEARS: 2004-05 & 20 05-06. 16 S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-VIII, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR.,ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR, ITAT,AHMEDABAD. 1.DATE OF DICTATION 13 - 5 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 18 / 5 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 30 - 5 -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 31 - 05 -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 31 -05 -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3 1 -05 -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..