JCIT 15(1)(1), MUMBAI V. AARTI INDUSTRIES LTD, MUMBAI

ITA 4251/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0681 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 20-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Additional depreciation; Earning of tax free income; Proportionate interest; Capital receipt; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 5(2); 14A; 115JB; 32(1)(iia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN , HON'BLE ACCOUNTANT MEMBER ITA NO. 4398 /MUM/201 6 (A.Y: 2010 - 11 ) M/S. AARATI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF LBS ROAD, MULUND (W), MUMBAI 400 080 PAN: AABCA 2787 L V. ADDL. C.I.T, RANGE 10(3 ), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 4251 /MUM/201 6 (A.Y: 2010 - 11) J. C.I.T, RANGE 15(1)(1) ROOM NO. 517, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 V. M/S. AARATI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF LBS ROAD, MULUND (W), MUMBAI 400 080 PAN: AABCA 2787 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANUJ KISNADWALA DEPARTMENT BY : SHRI MANOJ KUMAR SINGH DATE OF HEARING : 2 4 .08.2018 DATE OF PRONOUNCEMENT : 19 .11 .2018 2 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. O R D E R PER C. N. PRASAD (JM) 1. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 24 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A) ] DATED 15.03.2016 FOR THE ASSESSMENT YEAR 2010 - 11. 2. FIRST WE TAKE UP THE APPEAL OF THE ASSESSEE ITA.NO. 4398/MUM/2016. 3. THE FIRST GROUND IN THE GROUNDS OF APPEAL IS GENERAL IN NATURE , HENC E THE SAME NEED NOT BE ADJUDICATED. 4. THE SECOND GROUND IN GROUNDS OF APPEAL OF THE ASSESSEE IS WITH REGARD TO DISALLOW ANCE MADE U/S. 14A OF THE ACT. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 14A R.W.R. 8D AND T HE LD.CIT(A) SUSTAINED THE SAME FOLLOWING THE FINDINGS GIVEN IN THE A.Y 2009 - 10 . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 2009 - 10 THE TRIBUNAL DELETED THE DISALLOWANCE MADE UNDER RULE 8D 2(II) AND RESTRICTED THE DISALLOWANCE OF EXPENDITURE MADE UNDER RULE 8D (2)(III) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE CURRENT ASSESSMENT YEAR ASSESSEE HAS OWN FUNDS OF . 398 CRORES AND MADE 3 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. INVESTMENTS F . 15.25 CRORES, THEREFORE THE INTEREST DISALLOWANCE MADE UNDER RULE 8D2(II) SHOULD BE DELETED. COMING TO THE DISALLOWANCE OF EXPENDITURE UNDER RULE 8D(2)(III) , LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONLY THOSE INVESTMENTS WHICH YIELD EXEMPT INCOME DURING THE YEAR HAVE TO BE CONSIDERED FOR COMPUTING TH E DISALLOWANCE UNDER RULE 8D(2)(II I ) IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE DELHI IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED [165 ITD 27]. 6. LD. DR VEHEMENTLY SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE LD.CIT(A) ORDER, WE FIND THAT DISALLOWANCE U/S. 14A R.W. RULE 8D HAS BEEN DECIDED AGAINST THE ASSESSEE FOLLOWING THE DECISION TAKEN IN THE ASSESSMENT YEARS 2008 - 09 & 2009 - 10. O N A PERUSAL OF THE ORDER OF THE TRIBUNAL IN ASSESSEE OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 IN ITA NO. 7039/ MUM /2014 DATED 09.03.2017, WE FIND THAT THE TRIBUNAL DELETED THE DISALLOWANCE ON ACCOUNT OF INTEREST . THUS, FOLLOWING THE TRIBUNAL ORDER , W E DIRECT THE ASSESSING OFFICER TO DELETE THE INTEREST DISALLOWANCE MADE UNDER RULE 8D(2)(II) , SINCE THE ASSESSEE HAS SUFFICIENT OWN FUNDS MUCH MORE THAN THE INVESTMENTS . COMING TO T HE DISALLOWANCE UNDER RULE 8D(2) (III) FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED (SUPRA) WE DIRECT THE ASSESSING OFFICER TO 4 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. CONSIDER ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) AND RECOMPUTED THE DISALLOWANCE ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED. 8. THE THIRD GROUND IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS WITH RESPECT TO THE DISALLOWANCE U/S. 14A WHILE COMPUTING THE BOOK PROFITS U/S. 115JB OF THE ACT. THIS ISSUE IS SQUARELY COVERED BY THE D ECISION OF THE DELHI SPECIAL BENCH IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED W HEREIN THE HONBLE SPECIAL BENCH HELD THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S. 14A R.W. RULE 8D OF THE I.T. RULES. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE SPECIAL BENCH, AFTER PROVIDING ADEQUATE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. 9. GROUND NO. 4 OF GROUNDS OF APPEAL OF THE ASSESSEE IS IN RESPECT OF DISALLOWANCE OF ADDITIONAL DEPRECIATION OF .2,31,36,547/ - . U/S. 32(1)(IIA) OF THE ACT. 10. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET SUBMITS THAT T HIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2009 - 10. IT IS SUBMITTED THAT THE ASSESSING OFFICER AND 5 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. THE LD.CIT(A) FOLLOWED THE FINDINGS GIVEN FOR THE ASSESSMENT YEAR 20 0 9 - 10. WE HAVE PERUSED THE ORDERS OF THE TR IBUNAL FOR THE ASSESSMENT YEAR 2009 - 10 AND FIND THAT THE CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED , F OLLOWING THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF RITTAL INDIA (P.) LTD. [380 ITR 428]. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT TH E ASSESSING OFFICER TO ALLOW THE ADDITIONAL DEPRECIAT ION U/S. 32(1)(IIA) OF THE ACT. 11. GROUND NO . 5 OF GROUNDS OF APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF FOREIGN EX CHANGE FLUCTUATION DIFFERENCE. 12. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2009 - 10 AVAILED FOREIGN CURRENCY TERM LOAN FROM SBI BY WAY OF EXTERNAL COMMERCIAL BORROWING (ECB) FOR ACQUISITION OF CAPITAL ASSET. DURING THE ASSESSMENT YEA R 2009 - 10 THE ASSESSEE INCURRED LOSS ON FOREIGN EXCHANGE FLUCTUATI ON DIFFERENCE AND THE SAME WAS TREATED AS CAPITAL LOSS BY THE ASSESSING OFFICER WHICH WAS SUSTAINED BY THE LD.CIT(A) AND ALSO THE TRIBUNAL. DURING THE CURRENT ASSESSMENT YEAR, HOWEVER THERE WAS A GAIN IN FOREIGN EXCHANGE FLUCTUATION DIFFERENCE ON ACCOUNT OF THE SAID LOAN . THE ASSESSEE CONTENDED THAT THE FOREIGN EXCHANGE GAIN SHOULD BE TREATED AS CAPITAL RECEIPT AND SINCE IT WAS CREDITED TO P & L ACCOUNT THE SAME SHOULD NOT BE 6 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. CONSIDERED FOR TAXATION. THIS WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND THE LD.CIT(A) . 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE THAT THE FOREIGN EXCHANGE FLUCTUATION DIFFERENCE IS CAPITAL IN NA TURE AND HENCE THE SAME SHOULD BE REDUCED FRO M THE CREDIT SIDE OF THE P & L ACCOUNT . LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HELD THAT SINCE THE ASSESSEE HIMSELF HAS OFFERED THE SAID RECEIPT TO TAX THE SAME CANNOT BE AGITATED . LD. COUNS EL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RAMCHANDRA & CO. [ 168 ITR 375] RELIED ON BY THE LD.CIT(A) HAS NO APPLICATION TO THE FACTS OF THE CASE. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PRUTHVI BROKERS AND SHAREHOLDERS [349 ITR 336] ASSESSEE IS PERMITTED TO MAKE AN ADDITIONAL CLAIM BEFORE THE APPELLATE AUTHORITIES. THEREFORE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE HONBLE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10 HELD THAT THE FOREIGN EXCHANGE FLUCTUATION LOSS IN RESPECT OF THE TRANSACT ION FOR ACQUISITION OF CAPITAL ASSET IS HELD TO BE A CAPITAL LOSS, ON THE SAME TRANSACTION AS THE ASSESSEE HAS EARNED FOREIGN EXCHANGE GAIN DURING THE CURRENT ASSESSMENT YEAR , IN ORDER TO MAINTAIN THE CONSISTENCE, THE GAIN ARISING IN THE CURRENT ASSESSMENT YEAR SHOULD 7 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. BE TREATED AS CAPITAL IN NATURE. THEREFORE, IT IS SUBMITTED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO TREAT THE INCOME OFFERED BY THE ASSESSEE IN THE P&L ACCOUNT AS CAPITAL IN NATURE. 14. LD. DR STRONGLY SUPPORTED THE ORDE RS OF THE AUTHORITIE S BELOW. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW, AND THE DECISION OF THE TRIBUNAL IN ASSESSEE OWN CASE. IT IS AN UNDISPUTED FACT THAT THE FOREIGN EXCHANGE FLUCTUATION DIFFERENCE EARNED BY THE ASSESSEE DURING THE CURRENT ASSESSMENT YEAR IS ON ACCOUNT OF LOAN BORROWED FROM SBI BY WAY OF EXTERNAL COMMERCIAL BORROWING (ECB) FOR ACQUISITION OF CAPITAL ASSET DURING THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2009 - 10. IT IS AN UNDISPUTED FACT THAT THE LOSS INCURRED O N ECB LOAN WAS TREATED AS CAPITAL LOSS FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2009 - 10 BY THE LOWER AUTHORITIES WHICH WAS AFFIRMED BY THE TRIBUNAL. THE CONTENTION OF THE ASSESSEE THAT SINCE THE LOSS IN FOREIGN EXCHANGE FLUCTUATION DIFFERENCE WA S TREATED AS CAPITAL LOSS DURING THE ASSESSMENT YEAR 2009 - 10, GAIN EARNED ON FOREIGN EXCHANGE FLUCTUATION ON SAID LOAN DURING THE CURRENT ASSESSMENT YEAR SHOULD BE TREATED AS CAPITAL RECEIPT , APPEARS TO BE JUST AND PROPER . SINCE LOSS WAS TREATED AS CAPITA L LOSS DURING THE IMMEDIATELY PRECEDING ASSESSMENT YEAR TO MAINTAIN THE CONSISTENCE WE DIRECT THE ASSESSING OFFICER TO TREAT THE FOREIGN EXCHANGE GAINED DURING THE CURRENT 8 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. ASSESSMENT YEAR AS CAPITAL RECEIPT AND THE SAME SHOULD BE REDUCED FROM THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF TAXATION. HENCE, WE DIRECT THE ASSESSING OFFICER TO REDUCE THE SAME FRO M TOTAL INCOME OF THE ASSESSEE. 16. GROUND NO. 6 RELATES TO THE ADDITION ON ACCOUNT OF INTEREST INC OME UNDER THE HEAD INCOME FROM OTHER SOURCES. 17. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT ASSESSEE RECEIVED . 54,72,377/ - TOWARDS INTEREST FROM VARIOUS DEPOSITS MADE BY THE ASSESSEE WITH COMPANIES, BANK S , ELECTRICITY DEPARTMENT, STAFF LOANS, ETC., AND T HE SAID INTEREST WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. ON APPEAL THE LD.CIT(A) FOLLOWING THE ORDER AND THE FINDINGS FOR THE ASSESSMENT YEAR 2009 - 10 SUSTAINED THE ACTION OF THE ASSESSI NG OFFICER IN TREATING THE INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 18. LD. DR VEHEMENTLY SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE 9 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. FIND NO INFIRMITY IN TAX ING THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. HENCE THE GROUND IS REJECT ED. 20. GROUND NO .7 OF THE GROUNDS OF APPEAL OF THE ASSESSEE IS IN RESPECT OF DISALLOWANCE ON DEPRECIATION ON ASSETS PURCHASE D FROM M/S. PRAVEEN M ETAL CORPORATION . ON A PERUSAL OF THE TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 2009 - 10, WE FIND THAT THE TRIBUNAL RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH. FOLLOWING THE ORDER FOR THE ASSESSMENT YEAR 2009 - 10, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION. THIS GROUND IS AL LOWED FOR STATI STICAL PURPOSE. 21. COMING TO THE REVENUES APPEAL IN ITA.NO. 4251/MUM/2016 , T HE FIRST GROUND IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S. 35(2 AB) OF THE ACT. 22. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2009 - 10, WHEREIN THE TRIBUNAL HELD AS UNDER: - 3. SECOND GROUND DEALS WITH DELETING THE DISALLOWANCE OF RS.72.37 LAKHS. THE AR AND THE DEPARTMENTAL REPRESENTATIVE (DR) STATED THAT ISSUE WAS ABOUT CLAIM MADE U/S.32(2AB) OF THE ACT AND THE TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN AY 2008 - 09 (SUPRA). WE FIND THAT TRIBUNAL HAD HELD AS UNDER : 27. GROUND 2 : IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF L D.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO OF CLAIM OF WEIGHTED DEDUCTION OF RS.64,22,951/ - U/S 35(2AB)(3) OF THE ACT. 28. BRIEF BACKGROUND IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT ASSESSEE HAD FURNISHED ON LY A CERTIFICATE 10 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. RECEIVED FROM THE CHARTERED ACCOUNTANT AND CERTAIN CORRESPONDENCE WITH MINISTRY OF SCIENCE AND TECHNOLOGY TO CLAIM THE WEIGHTED DEDUCTION U/S 35(2AB). HE WAS OF THE OPINION THAT THE ASSESSEE HAS NOT FULFILLED THE NECESSARY CONDITIONS LAID DOWN IN CLAUSE (I) TO (V) OF THE ABOVE SECTION AND SINCE NO EVIDENCES WERE BROUGHT BEFORE HIM TO SHOW THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY, THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE AO. HE HAS ALSO MENTIONED THA T THE RELEVANT PORTION WAS LEFT BLANK IN FORM NO.3CL AND HENCE, THE REPORT IS INCOMPLETE. THE AO HAD ALLOWED RS.1,28,45,902/ - WHICH IS THE ACTUAL COST INCURRED (INCLUDES BOTH REVENUE EXPENDITURE U/S 35(1)(I) AND CAPITAL EXPENDITURE U/S 35(21)(IV) AS AGAINS T THE CLAIM OF RS.1,92,68,853/ - BY THE ASSESSEE AND ADDED RS.64,22,951/ - . IN THE APPEAL BEFORE LD.CIT(A), IT WAS BROUGHT TO THE NOTICE OF THE LD.CIT(A) THAT ASSESSEE HAD SUBSEQUENTLY RECEIVED APPROVAL IN FORM 3CM AND THE SAME WAS SHOWN, AND THEREFORE, THER E WAS NO REASON TO CONTINUE WITH THE DISALLOWANCE. AFTER EXAMINING THE EVIDENCE, LD. CIT(A) ALLOWED THE RELIEF WITH FOLLOWING OBSERVATIONS : - XXXX 29. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSEL STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL FOR EARLIER YEARS. THOUGH IN THE EARLIER YEARS, THIS ISSUE WAS SENT BACK TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION OF ORDER OF APPROVAL IN FORM 3CM, BUT IN THE YEAR UNDER APPEAL, THE SAID APPROV AL IN FORM 3CM WAS FILED BEFORE THE LOWER AUTHORITIES, AND LD.CIT(A) HAD GRANTED RELIEF AFTER VERIFYING THE SAME. THEREFORE, NO PURPOSE WOULD BE SERVED IN SENDING THE MATTER BACK TO THE FILE OF LOWER AUTHORITIES ESPECIALLY WHEN NOTHING WRONG HAS BEEN POINT ED OUT IN THE FINDINGS OF LD. CIT(A). 30. PER CONTRA, THE LD. DR DID NOT MAKE ANY SERIOUS OBJECTION TO THE PROPOSITION. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE RELIEF HAS BEEN GRANTED BY THE LD. CIT(A) AFTER VERIFYING THE REQUISITE APPROVAL IN PROPER F ORM. NOTHING WRONG OR CONTRADICTORY HAS BEEN BROUGHT BEFORE US BY THE LD. DR. THUS, WE DO NOT FIND ANY NEED OR JUSTIFICATION TO INTERFERE IN THE ORDER OF THE LD. CIT(A). THEREFORE, THE ORDER OF THE LD. CIT(A) IS UPHELD. THUS, GROUND OF THE REVENUE IS DISMI SSED. RESPECTFULLY FOLLOWING THE SAME, GROUND NO.2 IS DECIDED AGAINST THE AO. 23. RESPECTFULLY FOLLOWING THE SAME , WE REJECT THE GROUND RAISED BY THE REVENUE. 24. GROUND NO.2 OF GROUNDS OF APPEAL IS THAT THE LD.CIT(A) ERRED IN ALLOWING THE DEPRECIAT ION ON THE A SSETS USED FOR R&D. 25. WE FIND FROM THE TRIBUNAL ORDER THAT THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10. HOWEVER, DURING THE HEARING OF APPEAL FOR THE CURRENT ASSESSMENT YEAR, ON A QUERY FROM THE 11 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. BENCH AS TO WHETHER THE ASSESSEE HAS OBTAINED APPROVAL FOR CLAIMING DEPRECIATION , IT IS SUBMITTED THAT AN APPLICATION FOR GRANTING OF CERTIFICATE FOR CLAIM DEPRECATION UNDER RULE 5(2) OF I.T. RULES WAS MADE TO THE SECRETARY TO THE DEPA RTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY ON 24.09.2 010 AND THE SAME IS PENDING. IT IS SUBMITTED THAT APPROVAL IN FORM 3CL HAS BEEN OBTAINED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WHEREIN THE MINISTRY OF SCIENCE AND TECHNOLOGY HAS APPROVED THE ASSESSEE COMPANY AS R&D RESEARCH CENTRE . HOWEVER, THE APPLICATION FOR CLAIM FOR DEPRECIATION AS PER RULE 5(2) IS PENDING FOR APPROVAL AND THE SAME HAS NOT BEEN RECEIVED. IT IS SUBMITTED THAT THE SAME DOCUMENTS WERE FILED BEFORE THE LD.CIT(A) IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2009 - 10 I.E. APPROVAL IN FORM 3CL AND APPLICATION FOR CLAIMING DEPRECIATION AS PER RULE 5(2) OF I.T. RULES. IT IS SUBMITTED THAT AFTER VERIFYING THE SAID DOCUMENTS THE LD.CIT(A) GRANTED REL IEF FOR THE ASSESSMENT YEAR 2009 - 10 AND THE SAME WAS UPHELD BY THE HONBLE TRIBUNAL. THEREFORE, IT IS SUBMITTED THAT CLAIM FOR DEPRECIATION ON THE R&D SHOULD BE ALLOWED. 26. LD. DR STRONGLY OBJECTED BY SAYING THAT WHEN THERE IS NO APPROVAL FOR THE YEAR UNDER CONSIDERATION , ASSESSEE SHALL NOT BE ENTITLED FOR ALLOWANCE FOR DEPRECIATION. 12 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT THE APPROVAL FOR CLAIM ING DEPRECIATION UNDER RULE 5(2) IS PENDING WITH DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY. ASSESSEE WAS ISSUED WITH FORM 3CL RECOMMENDING AND TREATING THE IN - HOUSE RESEARCH AND DEVELOPMENT CENTRE OF THE ASSESSEE COMPANY AS HAVI NG R&D FACILITY. THE APPROVAL FOR CLAIMING DEPRECIATION UNDER RULE 5(2) OF THE ACT IS YET TO BE RECEIVED. THEREFORE, IN THE ABSENCE OF CERTIFICATE FOR CLAIMING DEPRECIATION UNDER RULE 5(2) OF THE I.T. RULES, THE ASSESSING OFFICER IS RIGHT IN NOT CONSIDER ING THE CLAIM OF THE ASSESSEE FOR ALLOWING DEPRECIATION ON PLANT AND MACHINERY UNDER RULE 5(2) OF I.T. RULES. THEREFORE, WE AGREE WITH THE ASSESSING OFFICER THAT ASSESSEE IS NOT ENTITLED FOR DEPRECIATION UNDER RULE 5(2) OF I.T. RULES. HOWEVER, THE CLAIM O F THE ASSESSEE SHALL BE CONSIDERED AS AND WHEN THE ASSESSEE OBTAINS THE CERTIFICATE FOR CLAIMING DEPRECATION UNDER RULE 5(2) OF THE I.T. RULES FROM THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY . HOWEVER, FOR THE TIME BEING THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE. THUS , WE HOLD THAT THE ASSESSING OFFICER IS JUSTIFIED IN NOT ALLOWING THE CLAIM FOR DEPRECIATION ON ASSETS UNDER RULE 5(2 ) OF I.T. RULES . THI S GROUND OF REVENUE IS ALLOWED. 13 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. 28. THE LAST GROUND IS REGARDI NG DELETING THE DISALLOWANCE OF INTEREST U/S. 36(1) (III ) ON THE LOAN ADVANCE D TO THE SUBSI DIARY COMPANY OF THE ASSESSEE. 29. WE FIND THAT THE LD.CIT(A) FOLLOWING THE FINDINGS AND THE ORDER FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E 2009 - 10 DELETED THE DISALLOWANCE WHICH WAS AFFIRMED BY THE TRIBUNAL OBSERVING AS UNDER: - 4. THIRD GROUND IS ABOUT INTEREST DISALLOWANCE OF RS.1.79 CRORES U/S.36(1)(III) OF THE ACT. WE FIND THE IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN FAVOUR O F THE ASSESSEE IN AY.S. 2008 - 09 AND 2007 - 08. WE ARE REPRODUCING PARA 31 - 35 OF THE ORDER OF THE TRIBUNAL FOR THE EARLIER AY.(SUPRA). 31. GROUND 3 : IN THIS GROUND, THE REVENUE IS AGGRIEVED WITH THE ACTION OF LD.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST U/S 36(1)(III) ON LOANS ADVANCED TO SUBSIDIARY COMPANIES, VIZ. M/S AARTI HEALTHCARE LTD & M/S AVINASH DRUGS LTD. 32. THE BRIEF BACKGROUND IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT THE INT EREST BEARING FUNDS WERE NOT UTILIZED FOR ADVANCING LOAN TO THE SISTER CONCERN, THE AO DISALLOWED THE CLAIM U/S 36(1)(III). THE CLAIM OF THE ASSESSEE THAT THERE IS BUSINESS EXPEDIENCY RELYING ON THE DECISION OF SA BUILDERS, WAS ALSO NOT ACCEPTED BY THE AO. FURTHER, SINCE THE ASSESSEE FAILED TO DISCHARGE THE ONUS AND DID NOT SATISFACTORILY DEMONSTRATE THAT ONLY INTEREST FREE FUNDS WERE ADVANCED AS LOANS TO SISTER CONCERN, THE AO DISALLOWED PROPORTIONATE INTEREST @12% ON THE INTEREST FREE LOANS ADVANCED AMOUN TING TO RS.2,37,16,415/ - . IN THE APPEAL BEFORE LD. CIT(A), DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE WHEREIN IT WAS INTER - ALIA SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT FUNDS TO GIVE THESE LOANS AND IN ANY CASE, THESE AMOUNTS WERE GIVEN FOR THE PURPO SE OF BUSINESS OF THE ASSESSEE. XXX 34. DURING THE COURSE OF HEARING BEFORE US, IT WAS SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y. 2007 - 08 . 35. PER CONTRA, THE LD. DR COULD NOT POINT OUT ANY DISTINCTION BETWEEN THE FACTS OF A.Y. 2007 - 08 AND THE IMPUGNED YEAR. THUS, IN VIEW OF THE ORDER OF THE TRIBUNAL FOR AY 2007 - 08, WE FIND THAT THE ORDER OF LD. CIT(A) DESERVES TO BE UPHELD. THEREFO RE, THIS GROUND IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE, THIRD GROUND STANDS DISMISSED. 30. FACTS BEING IDENTICAL , RESPECTFULLY FOLLOWING THE SAME, WE SUSTAIN THE ORDER OF THE LD.CIT(A) AND REJECT THE GROUNDS RAISED BY THE REVENUE. 14 ITA NO.4398 & 4251 /MUM/2016 (A.Y: 2010 - 11) M/S. AARATI INDUSTRIES LTD. 31. IN THE RESULT, APP EAL OF THE ASSESSEE AND REVENUE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 19 TH NOVEMBER , 2018 SD/ - SD/ - ( N.K. PRADHAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 19 / 11 / 2018 GIRIDHAR , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM