UTI Bank Ltd.,(Now known as Axis Bank Ltd), Ahmedabad V. The Dy.CIT.,Circle-8, Ahmedabad

ITA 4386/AHD/2007

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67643 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-08-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 11-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Question of law; Bad and doubtful debts; Difference of opinion; Tax effect; Revenue expenditure
• Section: 143(3); 14A; 32; 263

Judgement Text

ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NOS. 2572/AHD/2006, 4386,4388/AHD/2007 & 7 90/AHD/2012 (ASSESSMENT YEAR: 2004-05,2002-0 3,2004-05 & 07-08) UTI BANK LIMITED TRISHUL, OPP. SAMTHESHWAR MAHADEV NEAR LAW GARDEN ELLISBRIDGE AHMEDABAD-380 006 (APPELLANT) VS. THE ACIT CIRCLE 8, AHMEDABAD (RESPONDENT) ITA NOS. 2737/AHD/2006, 236 & 238/AHD/2008 (ASSESSMENT YEARS: 20 04-05, 2002-03 & 2004-05) THE ACIT CIRCLE 8, AHMEDABAD (APPELLANT) VS. UTI BANK LIMITED TRISHUL, OPP. SAMTHESHWAR MAHADEV NEAR LAW GARDEN ELLISBRIDGE AHMEDABAD- 380 006 (RESPONDENT) PAN:AACU2414K APPELLANT BY : SHRI ARVIND SONDE. A.R. RESPONDENT BY : SHRI SUBHASH BAINS, CIT D.R. ( )/ ORDER DATE OF HEARING : 23-08-2013 DATE OF PRONOUNCEMENT : 10-09-2013 ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 2 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE ARE SEVEN APPEALS OUT OF WHICH FOUR APPEAL S ARE FILED BY ASSESSEE NAMELY ITA NO. 2572/AHD/2006 (FOR A.Y. 2004-05), IT A NO. 4386/AHD/2007 (FOR A.Y. 2002-03), ITA NO. 4388/AHD/2007 (FOR A.Y. 2004 -05) & ITA NO. 790/AHD/2012 (FOR A.Y. 2007-08) AGAINST THE ORDER O F CIT(A) DATED 25.09.2006, 05.10.2007, 05.10.2007 & 05.01.2012 RESPECTIVELY. THE THREE APPEALS OF REVENUE NAMELY IN ITA NO. 2737/AHD/2006 (FOR A.Y. 2 004-05), ITA NO. 236/AHD/2008 (FOR A.Y. 2004-05) & ITA NO. 239/AHD/2 012 (FOR A.Y. 2007-08) ARE AGAINST THE ORDER OF CIT(A) DATED 25.09.2006, 0 5.10,2007 & 5.10.2007 RESPECTIVELY. WE PROCEED TO DISPOSE OF ALL THESE AP PEALS BY WAY OF CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE FIRST TAKE UP ASSESSEES APPEAL (IN ITA NO. 2572 /AHD/2006 FOR AY 2004-05) 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUTHORITIES ARE AS UNDER: 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF BANKING. IT FILED ITS RETURN OF INCOME FOR A.Y. 2004-05 DECLARING INCOME OF RS. 465,59,74,060/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESS MENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 31.01.2006 AND THE TOTAL INCOME WA S DETERMINED AT RS. 664,36,99,320/-. AGGRIEVED BY THE ORDER OF ASSESSIN G OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 25.09.2006 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE A FORESAID ORDER OF CIT(A) BOTH THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFOR E US. GROUND NO 1 AND ITS SUB GROUNDS ARE WITH RESPECT TO DEPRECIATION ON WINDMILLS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD SHOWN PURCHASE OF WINDMILLS AMOUNTING TO RS. 27,54, 00,000/- AND THE SAME ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 3 WAS SHOWN AS PUT TO USE ON 19.03.2004 AND ASSESSEE HAD ALSO CLAIMED DEPRECIATION AT 80% AMOUNTING TO RS. 11,01,60,000/- . THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. THE SUBMISSIONS MADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW TH AT THE ASSESSEE IS A BANKING INSTITUTION GOVERNED BY BANKING REGULATION ACT, 1949 AND IT CANNOT ENGAGE IN ANY OTHER BUSINESS OTHER THAN BANKING. T HE AO WAS FURTHER OF THE VIEW THAT THE DEPRECIATION AT HIGHER RATE IS AVAILA BLE TO AN ASSESSEE WHO IS ENGAGED IN GENERATION AND DISTRIBUTION OF ELECTRICI TY AND SINCE THE ASSESSEE WAS A BANKING COMPANY, IT CANNOT SAID TO BE ENGAGED IN THE GENERATION OF ELECTRICITY. HE FURTHER NOTED THAT THE LEASE RENTAL S WERE FIXED ON THE BASIS OF INTEREST ON ADVANCES AND OTHER CHARGES RECEIVABLE B Y THE ASSESSEE AS A FINANCIER BUT THE SAME WAS NOT CO-RELATED TO THE PR OJECTED INCOME ON THE CAPACITY OF EACH WIND ENERGY GENERATOR, THE ASSESSE E WAS NOT ENTITLED FOR SURPLUS INCOME ON EXCESS GENERATION OF POWER, ASSES SEE WAS NOT TO SUFFER ANY LOSS OWING TO LESSER PRODUCTION OR ANY OTHER CONTIN GENCIES, THE RETURN OF THE ASSESSEE ON FINANCING WAS GRANTED BY TAKING INTERES T FREE DEPOSIT, ASSESSEE WAS NOT TAKING THE RESPONSIBILITY OF LABOUR, REPAIR S, TAXES ETC IN RUNNING OF THE PROJECT. HE ALSO NOTED THAT THE NORMAL LIFE OF TO W IND ENERGY GENERATOR WAS 20 YEARS AND THE LEASE PERIOD ADOPTED BY THE ASSESSEE WAS ONLY 10 YEARS. HE ALSO DISALLOWED THE CLAIM OF THE ASSESSEE FOR THE R EASON THAT THE PURCHASE OF WIND ENERGY GENERATORS WAS IN ITS NAME WITHOUT LAND AND POWER PURCHASE AGREEMENT IN ITS NAME WITH THE CONCERNED ELECTRICIT Y BOARD. HE ACCORDINGLY HELD THAT INCOME FROM OPERATION IS SHOWN AS LEASE R ENTAL AND NOT AS INCOME FROM GENERATION OF ELECTRICITY. HE THEREFORE TREAT ED THE ENTIRE TRANSACTION AS FINANCING AND THEREFORE DISALLOWED THE CLAIM OF DEP RECIATION OF RS. 11,01,60,000/-. AGGRIEVED BY THE ORDER OF AO, ASSES SEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) NOTED THAT THE FACTS IN THE P RESENT YEAR WERE SIMILAR TO ASSESSMENT YEAR 2002-03 AND THEREAFTER UPHELD THE O RDER OF AO BY HOLDING AS UNDER:- ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 4 3.4 FACTS OF THE CASE FOR THIS ASSESSMENT YEAR I S VERY SIMILAR TO FACTS FOR A.Y. 02-03. THE WEGS IN QUESTION WERE MANUFACTURED BY NE PC LTD. THE APPELLANT HAS ADVANCED MONEY TO THE SAID COMPANY, BUT UNABLE TO RECOVER THE SAME. IN THAT YEAR FOR RECOVERING THE AMOUNT, THE LEASE ARRA NGEMENT WAS DONE THROUGH WESCARE INDIA LTD., WHEREAS IN THIS YEAR THE SAME H AS BEEN ENTERED WITH NEW DEVELOPER SUNDARAM CLAYTON LTD.. THE MAIN OBJEC TIVE OF THE APPELLANT WAS ONLY TO RECOVER OUTSTANDING DUES FROM NEPC LTD., AN D FOR THIS PURPOSE M/S. WESCARE INDIA LTD., WAS ASSURED A COMMISSION OF RS. 2,00,000/- PER WEG. HOWEVER, DUE TO BACKING OUT OF SUNDARAM CLAYTO N LTD., THERE WAS DELAY IN COMPLETION OF THE PROJECT AND HENCE THE PAYMENT OF COMMISSION WAS RESENTED. ON SIMILAR FACTS IN A.Y. 2002-03 AND ON S IMILAR SUBMISSION MADE BY THE ASSESSEE IN THAT YEAR, THE ISSUE WAS DECIDED BY CIT(A) VIDE ORDER DT: 18/11/2005. THE MAIN FINDINGS WERE AS UNDER:- 'IV) FROM THE CONTENTS OF THE TRIPARTITE AGREEMENT DT:22-9-2000, THE STATEMENT OF SHRI V.R. RAGHUNATHAN AND PAPERS FOUND IN SURVEY WH ICH ARE DISCUSSED IN DETAIL BY THE AO IN THE ASST. ORDER AND IN BRIEF RE PRODUCED IN PARA 7.1 ABOVE, IT IS EVIDENT THAT ACTUALLY M/S. WESCARE INDIA LTD.(WI L) APPROACHED UT1 BANK FOR FINANCING THEIR BUSINESS IN WHICH TAX SAVING BENEFI T WAS TO BE PASSED ON TO UTI BANK. THEREAFTER, THE TRIPARTITE AGREEMENT WAS SIGN ED. THE TRIPARTITE LEASE AGREEMENT SUGGESTS THAT THE PAYMENT FOR ASSETS HAS BEEN MADE BY UTI BANK IN THE CAPACITY OF FINANCIER AND NOT REAL OWNER. TH E LESSEE AND W1L IS REQUIRED TO SUFFER THE LOSSES ARISING OUT OF PURCHASE OF ASS ETS AND THEY ARE ONLY AMENABLE TO ALL RISKS ATTACHED TO PURCHASE OF ASSET S.' 'V) THE APPELLANT IS ENGAGED IN BANKING BUSINESS UN DER THE BANKING REGULATIONS ACT. THE APPELLANT CANNOT ENGAGED IN GE NERATION OF ELECTRICITY, AS IT IS NOT PERMISSIBLE UNDER THE BANKING REGULATIONS AC T. HENCE, THE APPELLANT WAS NOT PERMITTED TO PURCHASE WINDMILL FOR GENERATION O F POWER IN THE NORMAL COURSE OF BUSINESS IN THE FIRST INSTANT.' 'VI) FURTHER, THE UTI WAS NOT CONCERNED WITH THE OP ERATIONAL ASPECT OF EQUIPMENT OR LOSS OR DAMAGES TO THE EQUIPMENT. HERE ONLY W1L HAS TAKEN ALL RESPONSIBILITIES FOR THAT. EVEN THE LAND DID NOT BE LONG TO THE UTI BANK LTD, BUT BELONG TO WIL.' 'VII) THE CONTENTION OF ASSESSEE THAT IN CASE OF WI ND MILLS STOP OPERATION DUE TO AGITATION OR DUE TO CHANGE IN THE WIND VELOCITY RES ULTING IN SHORT GENERATION OF POWER THE REVENUE WOULD BE DRASTICALLY AND CRITICAL LY AFFECTED IS CONTRARY TO THE EVIDENCE. WIL HAS AGREED TO PAY FOR THE SHORTAGE VI DE CLAUSE 6A(I) PROVISO. NON RECEIPT OF DEPOSIT FROM WIL AND NON ACTION FOR THE LAPSE IS A SERIOUS BREACH OF THE AGREEMENT ITSELF.' ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 5 THE ASSESSEE HAS NOT FOLLOWED THE AGREEMENT IN ITS TRUE MEANING AS THE ASSESSEE HAS NOT TAKEN ANY ACTION FOR NON-OBSERVANC E OF VARIOUS CONDITIONS IN THE AGREEMENT. INSTEAD OF TAKING ACTION FOR THE DEFAULT IN DEPOSIT BY WIL AS A VIOLATION OF THE AGREEMENT, THE ASSESSEE IS TURNING THE SAME AS A SH IELD 'THAT DEPOSIT IS NOT RECEIVED'. 'THE OWNING OF THE WEG WITHOUT THE REQUISITE LAND W ITH ABUNDANT VELOCITY OF WIND IS OF SCRAP VALUE. THIS MAY BE THE REASON FOR THE ALLEGED LESSEE B1L BELONGING TO TVS GROUP DID NOT GO FOR THE PURCHASE OF THE WIND MILLS. ON THE CONTRARY BY JOINING IN THE AGREEMENT WITHOUT ANY IN VESTMENT AND/OR RESPONSIBILITY BIL IS GETTING THE POWER AT 60 PS. L ESS PER UNIT.' 'VIII) THE DECISION IN THE CASE OF PRAKASH IND. LTD . IS NOT RELEVANT FOR DECIDING THE ISSUE WHETHER THE ASSESSEE IS ENTITLED TO DEPRE CIATION OR NOT. IN THAT CASE THE QUESTIONS INVOLVED WAS OF OWNERSHIP BETWEEN THE COMPANY AND BANK. IN THE SAID LEASE AGREEMENT THERE WAS A STIPULATION TH AT AFTER THE EXPIRY OF THE LEASE PERIOD THE MACHINERY WAS TO BE RETURNED TO TH E BANK. THE DISPUTE WAS NOT UNDER THE INCOME TAX ACT AND THEREFORE NOT APPLICABLE. THE DECISION OF T HE ITAT IN THE CASE OF BIRLA CHEMICALS AND TRADERS (P) LTD. IS ALSO NOT RELEVANT FOR THE ISSUE AT HAND.' 'IX) THEREFORE, IN VIEW OF THE DISCUSSIONS MADE ABO VE AND THE FINDING BROUGHT OUT ON RECORD BY THE A.O. AND DISCUSSED IN DETAILS IN THE ASST. ORDER, WHICH ARE PRODUCED ABOVE IN EARLIER PARAS, IT IS EVIDENT THAT THIS WAS NOT A LEASE TRANSACTION, BUT ONLY FINANCE TRANSACTION. HENCE, T HE DEPRECIATION IS NOT ALLOWABLE.' 'X) AS PER THE DECISION OF HON. SUPREME COURT IN TH E CASE OF MCDOWELL & CO. VS. CIT., 154 ITR 148, TO ASCERTAIN THE REAL NATURE OF TRANSACTION, THE VEIL HAS TO BE LIFTED. AS PER THE DECISION OF HON. KARNATAKA HI GH COURT IN THE CASE OF AVASARALA AUTOMATION LTD. VS. JCIT 266 ITR 178, IT HAS BEEN HELD THAT WHILE IT IS PERMISSIBLE FOR AN ASSESSEE TO HAVE THE TAX PLAN NING, IT IS NOT PERMISSIBLE TO PREPARE DOCUMENTS AND TO GIVE THE COLOUR OF REAL TR ANSACTIONS ON THE BASIS OF SAID DOCUMENTS, WHICH WOULD ENABLE THE ASSESSEE TO EVADE THE PAYMENT OF TAX. WHEN AN ASSESSEE MAKES A CLAIM OF DEPRECIATION ON THE GROUND ALLOWED BY LAW, IT WOULD ALWAYS BE OPEN TO THE AO TO PIERCE THE VEIL OF TRANSACTIONS PUT FORWARD AND FIND OUT AS WHETHER THE TRANSACTION PUT FORWARD FOR THE PURPOSE OF CLAIMING DEPRECIATION IS GENUINE TRANSACTION OR ONL Y A MAKE BELIEVE, ONE INTENDED TO AVOID PAYMENT OF TAX.' AS THE FACTS HERE ARE SIMILAR IN THIS ASSESSMENT YE AR ALSO AND ON CONSIDERING THE FACTS OF THE CASE FOR THIS ASST. YEAR ALSO AS D ISCUSSED IN DETAIL BY THE A.O. IN THE ASST. ORDER, IT IS EVIDENT THAT THESE ARE IN FA CT LOAN TRANSACTION WHICH ARE CLAIMED BY THE APPELLANT AS LEASE TRANSACTIONS. TH E CASE LAWS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE TO THE FACTS OF TH E PRESENT CASE. THE SO CALLED OPERATION OF LEASE TRANSACTION IS NOTHING BUT A COL OURFUL DEVICE AND AS PER THE SUPREME COURTS DECISION IN THE CASE OF MCDOWELL & CO.VS. CIT., 154 ITR 148, WE HAVE TO FIND OUT THE TRUTH BEHIND THE FACT AND D ECIDE THE CASE ACCORDINGLY. ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 6 THEREFORE, IT IS HELD THAT TRANSACTION MADE WAS ONL Y LOAN TRANSACTION AND NOT GENUINE LEASE TRANSACTION AND THE A.O. WAS JUSTIFIE D IN DISALLOWING THE DEPRECIATION AND THE ACTION OF THE A.O. IS HEREBY C ONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. 6. BEFORE US, THE LEARNED A.R. AT THE OUTSET SUBMIT TED THAT THE ISSUE OF DEPRECIATION ON LEASED ASSETS HAS NOW BEEN SETTLED AND DECIDED BY HON. SUPREME COURT IN THE CASE OF ICDS LTD VS. CIT & ANR (2013) 350 ITR 527 (SC). HE ALSO SUBMITTED THE FOLLOWING THE AFORESAID DECIS ION OF HON. APEX COURT, THE MUMBAI TRIBUNAL ON IDENTICAL FACTS IN THE CASE OF D EVELOPMENT CREDIT BANK LTD. VS. DCIT ITA NO. 300/AHD/2001 AND 4892/AHD/2003 HAS DECIDED THE ISSUE IN ASSESSEES FAVOUR. THE LEARNED A.R. FURTHER SUBMITT ED THAT THE ASSESSEE HAD ENTERED INTO LEASE TRANSACTION IN THE NORMAL COURSE OF BUSINESS AS THE SAME WAS PERMISSIBLE BY THE BANKING REGULATION ACT. HE FURTHER SUBMITTED THAT THE LEASE INCOME EARNED BY THE ASSESSEE IS ALSO DISCLOS ED IN ITS PROFIT AND LOSS ACCOUNT. HE ALSO URGED THAT IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR THE ISSUE HAS BEEN DECIDED IN ITS FAVOUR. HE P LACED ON RECORD THE ORDER OF THE TRIBUNAL. HE THUS URGED THAT THE ADDITION MADE BE THE AO BE DELETED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE INCOME FROM LEASE HAS B EEN CONSIDERED BY ASSESSEE AS INCOME. IT IS ALSO AN UNDISPUTED FACT T HAT THE AO HAS CONSIDERED THE LEASE ENTERED BY THE ASSESSEE TO BE A FINANCE L EASE TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE IS NOT ENTITLED TO DEP RECIATION. ON IDENTICAL FACTS, IN THE ASSESSEES OWN CASE FOR AY 2002-03 (IN ITA N O. 2572/AHD/2006 ORDER DATED 25.09.2006 THE ISSUE HAS BEEN DECIDED IN FAV OUR OF ASSESSEE BY HOLDING AS UNDER: 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE INCOME FROM LEASE HAS BEEN CONSIDERED BY ASSESSEE AS INCOME IT IS AN UNDISPUTED FACT THAT TH E A.O. HAS CONSIDERED THE LEASE ENTERED BY THE ASSESSEE TO BE A FINANCE LEASE TO ARRIVE AT THE CONCLUSION ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 7 THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION. WE FIND THAT THE ISSUE OF DEPRECIATION ON LEASED ASSETS HAS BEEN DECIDED BY H ONOURABLE APEX COURT IN THE CASE OF ICDS LTD (SUPRA). ONE OF THE QUESTION B EFORE THE HON. SUPREME COURT WAS WHETHER THE ASSESSEE IS ENTITLED TO DEPR ECIATION VEHICLES FINANCE BY IT WHICH IS NEITHER OWNED NOR USED BY THE ASSESSEE BY VIRTUE OF THE BUSINESS THE HON. SUPREME COURT HELD AS UNDER: THE PROVISION ON DEPRECIATION IN THE INCOME-TAX AC T, 1961, READS THAT THE ASSET MUST BE 'OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE A ND USED FOR THE PURPOSES OF THE BUSINESS'. THEREFORE, IT IMPOSES A TWIN REQUIRE MENT OF 'OWNERSHIP' AND 'USAGE FOR BUSINESS' FOR A SUCCESSFUL CLAIM UNDER S ECTION 32 OF THE ACT. THE SECTION REQUIRES THAT THE ASSESSEE MUST USE THE ASSET FOR THE 'PURPOSE, OF BUSINESS'. IT DOES NOT MANDATE USAGE OF THE ASSET B Y THE ASSESSEE ITSELF. AS LONG AS THE ASSET IS UTILIZED FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE, THE REQUIREMENT OF SECTION 32 WILL STAND SATISFIED, NOT WITHSTANDING NON-USAGE OF THE ASSET ITSELF BY THE ASSESSEE. THE DEFINITIONS OF 'OWNERSHIP' ESSENTIALLY MAKE OWN ERSHIP A FUNCTION OF LEGAL RIGHT OR TITLE AGAINST THE REST OF THE WORLD. HOWEV ER, IT IS 'NOMEN GENERA- LISSIMUM', AND ITS MEANING IS TO BE GATHERED FROM T HE CONNECTION IN WHICH IT IS USED, AND FROM THE SUBJECT-MATTER TO WHICH IT IS AP PLIED. AS LONG AS THE ASSESSEE HAS A RIGHT TO RETAIN THE LEGAL TITLE AGAI NST THE REST OF THE WORLD, IT WOULD BE THE OWNER OF THE ASSET IN THE EYES OF LAW. HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, (I) T HAT THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT THE TRUCKS THAT IT PURCHAS ED. THEREFORE, ON A COMBINED READING OF SECTION 2(13) AND (24) OF THE A CT THE INCOME DERIVED FROM LEASING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERIVED IN THE COURSE OF BUSINESS, AND HAD BEEN SO ASSESSED. HENCE , IT FULFILLED THE REQUIRE- MENT OF SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE COURSE OF BUSI- NESS. THE ASSESSEE DID USE THE VEHICLES IN THE COUR SE OF ITS LEASING BUSINESS. THE FACT THAT THE TRUCKS THEMSELVES WERE NOT USED BY THE ASS ESSEE WAS IRRELEVANT FOR T HE PURPOSE OF THE SECTION. 26. IN THE CASE OF DEVELOPMENT CREDIT BANK LTD. THE ISSUE BEFORE MUMBAI TRIBUNAL WAS WITH RESPECT TO DEPRECIATION ON ASSETS GIVEN ON LEASE. THE CO- ORDINATE BENCH OF TRIBUNAL DECIDED THE ISSUE IN FAV OUR OF ASSESSEE BY HOLDING AS UNDER: 28 WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND W E ARE OF THE VIEW THAT CROSS APPEALS ON THE ISSUE OF ALLOWANCE OF DEPRECIA TION IN THE CURRENT YEAR HAVE TO BE DECIDED SIMULTANEOUSLY. IN SO FAR AS DIS ALLOWANCE OF DEPRECIATION ON THE ASSETS INVOLVED IN SLB TRANSACTIONS, THE ISSUE STANDS SETTLED IN FAVOUR OF THE ASSESSEE. FROM THE SYNOPSIS FILED BY THE AR, IT IS SEEN THAT THE ASSESSEE PROVIDED THE AO WITH ALL THE INFORMATION AS WAS ASK ED FOR, I.E. LEASE AGREEMENTS, COPIES OF BILLS FOR PURCHASE OF ASSETS, INSPECTION REPORTS, COPIES OF ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 8 INSURANCE COVER ETC., WHICH, IN OUR CONSIDERED OPIN ION, WAS IDENTICAL CIRCUMSTANCE, WHICH WAS BEFORE THE HON'BLE DELHI HI GH COURT IN THE CASE OF COSMO FILMS (SUPRA), I.E. SLB TRANSACTIONS, REVENUE AUTHORITIES APPLYING MCDOWELL'S CASE AND ARGUING THAT IT IS A DEVISE FOR LOWERING THE TAX EFFECT AND RELYING ON THE BOARD'S CIRCULAR (SUPRA), AND MORE I MPORTANTLY, THAT, THAT CASE ALSO PERTAINED TO ASSESSMENT YEAR 1996-97. THE HON' BLE DELHI COURT TOOK THE VIEW THAT SLB TRANSACTIONS ARE GENUINE AND CANNOT B E CONSIDERED TO BE SHAM. 29. ON APPRECIATION OF THE RECORDS, AS PRODUCED BEFORE US, THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF COSMO FILMS LTD. (SUPRA) HAS ARGUMENTS OF THE ASSESSEE ON THE IMPUGNED ISSUE, TH EREBY, IMPLIEDLY, REVERSED THE RATIO IN THE DECISIONS OF MIDEAST (SUPRA) AND I NDUSLND (SUPRA). WE FIND THAT TESTS LAID DOWN IN MIDEAST CASE WAS PRIMARILY TO AS CERTAIN THE GENUINENESS OF THE TRANSACTION ENTERED BY THE ASSESSEE WITH ITS LE SSEE, WHICH WAS DONE BY THE CIT(A) IN EACH CASE. 31. IN ANY CASE, THE ISSUE OF SLB TRANSACTION AND I N PARTICULAR THE ISSUE OF OWNERSHIP OF ASSET, ALSO HAS BEEN LAID TO REST BY T HE HON'BLE APEX COURT IN THE CASE OF ICDS LTD. VS CIT, IN CA NO. 3286 TO 3290 OF 2008, WHEREIN THE QUESTION THAT WAS SOUGHT TO BE ANSWERED WAS WHETHER THE APPELLANT (ASSESSEE) IS THE OWNER OF THE VEHICLES WHICH ARE LEASED OUT B Y IT TO ITS CUSTOMERS. THE HON. SUPREME COURT OF INDIA, CONCLUDED, EXTRACTED F ROM PARA 28, FROM A PERUSAL OF THE LEASE AGREEMENT AND OTHER RELATED FA CTORS, AS DISCUSSED ABOVE, WE ARE SATISFIED OF THE ASSESSEES OWNERSHIP OF THE TRUCKS IN QUESTION (PARA28, PAGE28). 32. COMING TO THE ISSUE OF FINANCE LEASE, WHEREIN THE CIT(A) SUSTAINED THE DISALLOWANCE BECAUSE THE USAGE OF THE EQUIPMENT LEA SE OUT COULD NOT BE SUBSTANTIATED. ON GOING THROUGH THE DECISION OF TH E JURISDICTIONAL HIGH COURT OF BOMBAY, WE FIND THAT THE ISSUE NOW IS AT REST, IN SO FAR AS THE LESSOR IS CONCERNED, BECAUSE, WHILE DEALING THE CASE OF THE L ESSOR, I.E. THE ASSESSEE IN THE INSTANT CASE, THE ASSET HAS LEFT ITS CORRIDORS FOR BEING UTILIZED, AND IN RETURN, RENT HAD BEEN RECEIVED BY THE ASSESSEE. THE HON. B OMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. HAS HELD THAT WHAT IS TO BE SEEN IS THAT THE ASSET HAS BEEN GIVEN ON LEASE AND THE LEASE RENT HAS BEEN RECEIVED, GIVEN IN THAT CASE, SO FAR AS LESSOR IS CONCERNED, THE ASSET HAS BEEN USED. 34. AFTER HAVING EXAMINED ALL THE TRANSACTIONS WHI CH HAVE BEEN IMPUGNED BEFORE US, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION UNDER ALL THE THREE CIRCUMSTANCES, I.E . SALE LEASE BACK, GENUINENESS OF TRANSACTION AND ASSET HAVING BEING P UT TO USE. WE, THEREFORE, ALLOW GROUND NO. 1 THE ASSESSEES APPEAL AND DISMIS S BOTH THE GROUNDS OF THE DEPARTMENTS APPEAL. 27. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN VIEW OF THE DECISION OF HBLE APEX COURT IN THE CASE OF ICDS (SUPRA) AND THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD , ASSESSEE IS ELIGIBLE FOR ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 9 DEPRECIATION AND WE THUS DELETE THE ADDITION MADE B Y THE ASSESSING OFFICER. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED. 9. SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE IDE NTICAL TO THAT OF EARLIER YEAR, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE FOR AY 2002-03, THE DECISION OF HBLE APEX COURT IN TH E CASE OF ICDS (SUPRA) AND THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF DEVE LOPMENT CREDIT BANK LTD, WE DECIDE THE ISSUE IN FAVOUR OF ASSESSEE. THUS THI S GROUND OF THE ASSESSEE IS ALLOWED. GROUND NO. 2 IS WITH RESPECT TO DISALLOWANCE UNDE R 14A. 8. AO NOTICED THAT ASSESSEE HAS CLAIMED INTEREST ON TAX FREE BONDS AND DIVIDEND ON SHARES AND MUTUAL FUNDS AMOUNTING TO RS . 24,76,97,844/- AS EXEMPT INCOME. THE ASSESSEE HAD ALSO MADE SUO MOTTO DISALLOWANCE UNDER SECTION 14A OF RS. 2,20,000,000/-. HE FURTHER NOTE D THAT ON IDENTICAL FACTS IN A.Y. 2003-04, THE CLAIM OF ASSESSEE WAS REJECTED. H E ACCORDINGLY WORKED OUT THE DISALLOWANCE OF INTEREST AND OTHER EXPENDITURE BY WORKING OUT THE DISALLOWANCE OF RS. 30.78 CR. BY HOLDING AS UNDER: A) TOTAL BORROWED FUND AT YEAR END AVAILABLE FOR INVESTMENT 16720 B) TOTAL INTEREST FREE FUNDS OF THE APPELLANT 7430 ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 10 COMPRISING OF SHARES, CAPITAL, RESERVES, DEMAND DEPOSITS AND OTHER LIABILITIES LESS:- FUNDS DEPLOYED FOR CRR AND SLR (RS. 725 + 4837) 5562 C) INTEREST FREE FUNDS AVAILABLE FOR INVESTMENT 1868 D) TOTAL BORROWED FUNDS AVAILABLE FOR INVESTMENT 14852 E) RATIO OF BORROWED FUNDS TO INTEREST 87.43:12.57 ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 11 FREE FUNDS AVAILABLE FOR INVESTMENT IS, THEREFORE, 87.43 (BORROWED) 12.57 (INTEREST FREE) F) TAX FREE INVESTMENT S AS PER BALANCE SHEET 311 ADD: SHARE APPLICATION MONEY AS AT 31/03/200 3 - G) TOTAL TAX FREE INVESTMENT S 311 H) INTEREST EXPENDITUR E ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 12 ATTRIBUTABLE TO RS. 311 CRORES WHICH OUGHT TO BE RELATED TO TAX FREE INVESTMENT S [ BORROWED DEPLOYED FUNDS IN TAX FREE INVESTMENT ] ( RS. 311 CRORES) X 1022 X TOTAL INTEREST TOTAL BORROWINGS (RS. 14852 CRORES) 21.22 I) ALL OTHER EXPENDITUR E WHICH CAN BE ATTRIBUTED TO TAX FREE ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 13 INVESTMENT WOULD BE [BORROWED DEPLOYED FUNDS IN TAX FREE INVESTMENT ] (RS. 311 CRORES ) X1022 X TOTAL OPERATIVE EXP. TOTAL FUNDS BORROWED AND (RS. 562 CRORES) INTEREST FREE (RS. 14852 CRORES.) 11.76 TOTAL DISALLOWAN CE (H+J ) TOTAL 32.98 LESS: DISALLOWED 2.20 ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 14 BY THE ASSESSEE NET DISALLOWAN CE 30.78 9. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED T HE MATTER BEFORE CIT(A). CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HO LDING AS UNDER: 4.3 AFTER CONSIDERING THE SUBMISSIONS OF THE APPE LLANT AND THE CASE LAWS RELIED UPON, I AM OF THE OPINION THAT THE ACTION OF THE ASSESSING OFFICER IS NOT CORRECT AS REGARDS DISALLOWING INTEREST EXPENSES AM OUNT AFTER ALLOCATING IT TO THE INVESTMENTS FOR EXEMPTED INCOME. THE APPELLANT HAS FILED THE DETAILS BEFORE THE ASSESSING OFFICER ADMITTING THAT ONLY PART OF T HE INTEREST BEARING FUNDS IS USED FOR INVESTING IN THE INVESTMENTS GIVING TAX EX EMPTED INCOME. THE INTEREST COST IS CALCULATED AT RS. 2.2 CR. WHICH IS OFFERED FOR TAXATION. HENCE THE A.O. IS NOT JUSTIFIED IN FURTHER ALLOCATING THE INTEREST EX PENDITURE FOR THIS PURPOSE DISREGARDING THE FACT THAT THE APPELLANT HAS SURPLU S FUNDS. HOWEVER AS REGARDS THE OTHER OPERATING EXPENSES ARE CONCERNED, THE APP ELLANT HAS NOT FILED ANY DETAILS AS TO HOW MUCH EXPENDITURE IS TO BE APPORTI ONED FOR EARNING THE EXEMPTED INCOME. THEREFORE, PROPORTIONATE EXPENDITU RE HAS TO BE ALLOCATED OUT OF THE TOTAL OPERATIVE EXPENDITURE FOR EARNING THE EXEMPT INCOME UNDER THE PROVISIONS OF SEC. 14A. THIS VIEW IS SUPPORTED BY THE DECISION OF ITAT CHENNAI BENCH IN THE CASE OF SOUTHERN PETRO CHEMICALS INDUS TRIES V. DCIT, 93 TTJ 181. AS PER THIS DECISION, THE INVESTMENT DECISIONS ARE VERY STRATEGIC DECISIONS IN WHICH TOP MANAGEMENT IS INVOLVED AND, THEREFORE, PR OPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTIN G THE EXEMPTED INCOME. THE APPELLANT HAS SUBMITTED THAT EVEN IF EARLIER YE AR APPELLATE ORDER IS FOLLOWED, THE DISALLOWANCE OUT OF OPERATING EXPENSES COMES TO RS. 4.47 CR. THIS SUBMISSION IS NOT ACCEPTED. THE ASSESSING OFFICER H AS ALREADY GIVEN DETAILED ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 15 WORKING IN ASST. ORDER FOR CALCULATING RS. 11.76 CR ., WHICH IS JUSTIFIED. HENCE, THE DISALLOWANCE IS CONFIRMED TO BE EXTENT OF RS. 1 1.76 CR. AND THE BALANCE AMOUNT IS DELETED. 10. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE A ND REVENUE ARE IN APPEAL BEFORE US. 11. BEFORE US, THE LEARNED A.R. SUBMITTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF CAPITAL, RESERVES AND SURPLUS AND INTEREST FREE DEMAND DEPOSIT ARE FAR IN EXCESS OF THE TAX FR EE INVESTMENT AT THE END OF THE YEAR AND THEREFORE NO DISALLOWANCE UNDER SECTIO N 14A IS CALLED FOR. HE FURTHER SUBMITTED THAT ON IDENTICAL FACTS IN THE AS SESSEES OWN CASE, THE HON. TRIBUNAL HAD DELETED THE ADDITION MADE UNDER 14A AN D WHICH HAS ALSO BEEN UPHELD BY HON. GUJARAT HIGH COURT IN TAX APPEAL NO. 118/AHD/2013. HE THEREFORE SUBMITTED THAT IN THE PRESENT CASE NO DIS ALLOWANCE UNDER SECTION 14A WAS CALLED FOR. 12. THE LEARNED D.R. ON THE OTHER HAND POINTED TO T HE RELEVANT PARAGRAPHS OF THE ORDER OF AO AND RELIED ON THE ORDER OF AO AND FURTH ER SUBMITTED THAT THE AO HAS RIGHTLY MADE THE DISALLOWANCE UNDER SECTION 14A AND THUS SUPPORTED HIS ORDER. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS EARNED RS. 24.77 CRORE ON ACCOUNT OF INTEREST ON TAX FREE BONDS, DEBENTURES AND DIVID END INCOME WHICH HAS BEEN CLAIMED AS EXEMPT. IT IS ALSO A FACT THAT ASSESSEE WHILE COMPUTING THE TOTAL INCOME HAD SUO MOTU DISALLOWED RS. 2.20 CRORES UNDE R SECTION 14A. AO WORKED OUT THE DISALLOWANCE UNDER SECTION 14A AT RS . 30.78 CRORE. WE FIND THAT ON IDENTICAL FACTS FOR A.Y. 2003-04 IN ITA NO. 2571/AHD/2006, THE CO- ORDINATE BENCH OF TRIBUNAL HAD RESTRICTED THE DISAL LOWANCE TO BE MADE BY ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 16 ASSESSEE. WE FURTHER FIND THAT IN ASSESSEES OWN C ASE FOR A.Y. 2002-03 IN ITA NO. 2572/AHD/2006 ORDER DATED 25.09.2006, THE MATTE R HAS BEEN DECIDED BY HOLDING AS UNDER: 14. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS EARN ED RS. 39.65 CRORE ON ACCOUNT OF INTEREST ON TAX FREE BONDS, DEBENTURES A ND DIVIDEND INCOME WHICH HAS BEEN CLAIMED AS EXEMPT. IT IS ALSO A FACT THAT THE ASSESSEE WHILE COMPUTING THE TOTAL INCOME HAS SUO MOTU DISALLOWED RS. 6.32 CRORE U/S 14A. AO WORKED OUT THE DISALLOWANCE UNDER SECTION 14A AT RS. 36.68 CRORE AND AFTER SETTING OFF DISALLOWANCE MADE BY THE ASSESSEE , HE DISALLOWED RS. 30.45 CRORE. WE FIND THAT BEFORE AO, ASSESSEE HAS NOT RAI SED THE CONTENTION ABOUT NO DISALLOWANCE U/S 14A AND THEREFORE THE AO HAD PR OCEEDED AHEAD ON THE BASIS OF SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE . CIT(A) HAD DELETED THE ADDITION TO THE EXTENT OF RS. 25.35 CRORE. WE F URTHER FIND THAT ON IDENTICAL FACTS FOR A.Y. 2003-04, (ITA NO 2571/AHD/2006), TH E CO-ORDINATE BENCH OF TRIBUNAL HAD RESTRICTED THE DISALLOWANCE TO THAT MA DE BY THE ASSESSEE BY HOLDING AS UNDER: 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT DURING THE YEAR THE ASSESSEE HAS EAR NED INTEREST OF RS 17.45 CRORE ON TAX FREE BOND AND DEBENTURES AS AGAINST WHICH THE ASSES SEE HAD SUO MOTO DISALLOWED RS 5.53 CRORE BEING THE INTEREST EXPENSES U/S 14A AS A GAINST WHICH THE AO HAS WORKED OUT THE DISALLOWANCE OF RS 32.76 CRORE. AFTER GIVING TH E CREDIT OF DISALLOWANCE OF RS 5.53 CRORE MADE BY THE ASSESSEE, THE AO DISALLOWED RS 27 .23 CRORE U/S 14A. AS ON 31 ST MARCH 2003, THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS TO THE TUNE OF RS 3404 CRORE (COMPRISING OF SHARE CAPITAL OF RS 230 C RORE, RESERVES OF RS 689 CRORES AND INTEREST FREE DEMAND DEPOSITS OF RS 2485 CRORES) AS AGAINST WHICH THE TAX FREE INVESTMENTS WERE TO THE TUNE OF RS 589 CRORE. THUS THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. CIT (A) HAS GIVEN A FIND ING THAT THE FACTS IN AY 2003-04 ARE IDENTICAL TO THE FACTS OF THE CASE IN AY 2002-03 AN D ACCORDINGLY HE HAS FOLLOWED THE DECISION OF CIT (A) FOR AY 2002-03. THESE FACTS HAV E NOT BEEN CONTROVERTED BY THE LD. D.R. NOR HAVE THEY BROUGHT ON RECORD ANY FACTS TO T HE CONTRARY. HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & PO WER LTD (SUPRA) HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SU FFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE. IN THE PRE SENT CASE, SINCE THE ASSESSEE HAS SUO MOTO DISALLOWED RS 5.53 CRORE U/S 14A, RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT IN THE FACTS OF THE PRESENT CASE, NO FURTHER DISALLOWANCE OVER AND ABOVE THAN WHAT HAS BEEN DISA LLOWED BY THE ASSESSEE IS CALLED ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 17 FOR. AS FAR AS DISALLOWANCE OF OTHER ADMINISTRATIVE EXPENSES IS CONCERNED, THE UNDISPUTED FACT IS THAT THE DISALLOWANCE HAS BEEN MADE BY THE AO WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED T O EARN THE EXEMPT INCOME. IN THE CASE OF HERO CYCLES (SUPRA) THE HON'BLE HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITUR E IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S 14A CANNOT BE ACCEPTED. DISALLOWANCE U/S 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. IN THE PRESENT CASE, THE AO HAS PRESUMED THAT THE ASSESSEE MIGHT HAVE INCURRED EXPENDITURE TO EARN THE EXEMPT INCOME. HE HAS NOT GIVEN ANY FINDING OF INCURRING OF EXPENDITURE. IN VIEW OF THESE FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF HIGH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF ADMINISTRATIVE EXPENSES CAN BE MADE. WE ACCORDINGLY DIRECT FOR THE DELETION OF THE ADDITION MADE BY THE AO AND ALLOW THIS GROUND OF THE ASSESSEE. 20. BEFORE US, THE LEARNED A.R. HAS RAISED A NEW ARGUME NT WHEREIN IT WAS SUBMITTED THAT EVEN THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE WHILE COMPUTING THE INCOME SHOULD BE DELETED AND FO R WHICH HE PLACED RELIANCE THE DECISION OF HON. CALCUTTA HIGH COURT A ND THE DECISION OF SUPREME COURT. WE FIND THAT THIS GROUND WAS NOT TA KEN BY THE ASSESSEE BEFORE A.O. AND CIT(A). AO HAD PROCEEDED ON THE BAS IS OF THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE. THUS THE AO OR C IT(A) DID NOT HAD ANY OPPORTUNITY TO EXAMINE THE AFORESAID CONTENTION AND THEREFORE THERE IS NO FINDING ON IT EITHER BY THE A.O. AND CIT(A). IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE MATTER WITH RESPECT TO NIL DISALLOWANCE UNDER 14A BE REMITTED BACK TO THE FILE OF AO FOR EXAMINING IT AFRESH. THUS THE MATTER IS REMITTED TO THE FILE OF AO AND HE IS DIRECTED TO ADMIT THE ISSUE AND DECIDE THE ISSUE AFRESH ON MERITS. AS PER LAW AFTE R CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEE I S ALSO DIRECTED AND FURNISH PROMPTLY THE DETAILS CALLED FOR BY THE AO T O DECIDE THE ISSUE. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSES. 15. SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE ID ENTICAL TO THAT OF A.Y. 2002-03, AS ADMITTED BEFORE US BY BOTH THE PARTIES, WE FOR S IMILAR REASONS REMIT THE MATTER BACK TO THE FILE OF AO FOR EXAMINING THE ISS UE AFRESH WITH DIRECTIONS SIMILAR TO THAT GIVEN WHILE DECIDING THE APPEAL FOR AY 2002-03 AND DIRECT HIM TO DECIDE THE ISSUE AFRESH ON MERITS AS PER LAW AND AF TER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND AFTER GIVING R EASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED TO FURNISH PROMPTLY THE ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 18 DETAILS CALLED FOR BY THE AO TO DECIDE THE ISSUE. T HUS THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 3 IS WITH RESPECT TO DISALLOWANCE U/S 36 (1)(VII) 16. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS CLAIMED WRITE OFF UNDER SECTION 36(1)(VII) AT RS.15 6,42,85,257/- AND HAD NOT CONSIDERED THE PROVISION IN THE BAD AND DOUBTFUL DE BT ACCOUNT AT THE END OF ACCOUNTING YEAR AMOUNTING TO RS. 162.51 CRORE. THE ASSESSEE WAS ASKED TO SUBSTANTIATE ITS STAND. THE ASSESSEE INTERALIA SUBM ITTED DURING THE YEAR AS PER THE INCOME TAX ACCOUNT, THERE WAS NO INCREMENTAL PR OVISION MADE AND THEREFORE NO DISALLOWANCE WAS CALLED FOR. IT WAS FU RTHER SUBMITTED THAT IDENTICAL DISALLOWANCE MADE IN A.Y. 2002-03 WAS DELETED BY CI T(A). AO DID NOT ACCEPT THE CONTENTIONS OF ASSESSEE AS HE WAS OF THE VIEW T HAT THE ORDER OF CIT(A) FOR A.Y. 2002-03 WAS NOT ACCEPTED BY THE DEPARTMENT AND A SECOND APPEAL HAS BEEN FILED. HE WAS FURTHER OF THE VIEW THAT THE CRE DIT BALANCE OF RS. 162.51 CRORE AS AT THE END OF THE FINANCIAL YEAR WAS REQUI RED TO BE DISALLOWED. SINCE THE ASSESSEE HAD CLAIMED WRITE OFF BAD DEBTS ONLY T O THE EXTENT OF RS. 156,42,85,257/- THE AO LIMITED THE DISALLOWANCE TO THE EXTENT OF THE BAD DEBTS CLAIMED BY ASSESSEE AND ACCORDINGLY DISALLOWED RS. 156,42,85,257/- UNDER SECTION 36(1)(VII). AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT ALONG WITH VARIOUS JUDICI AL DECISIONS. SIMILAR ISSUE AROSE IN EARLIER ASST. YEAR, I.E. 2002-03, WHEREIN I HAVE, VIDE ORDER DATED 18.11.2005, HELD AFTER CONSIDERING THE DECISION OF SOUTH INDIAN BANK LTD. V. CIT, 262 ITR 579 (KER.) DCIT V. CATHOLIC SYRIAN BAN K LTD., 88 ITD 185 (COCH) (SB) & KARNATAKA BANK LTD. V. ACIT, 78 TTJ 996 (BAN G) AS UNDER:- ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 19 'THE ACTUAL BAD DEBT WRITTEN OFF WOULD BE LIMITED T O THE EXCESS AMOUNT OF WRITE OFF OVER THE AMOUNT STANDING TO THE CREDIT OF THE P ROVISION ACCOUNT CREATED UNDER CL. (VIIA) TO SEC. 36(1) ALLOWED UNDER CL.(VI IA) TO SECTION 36(1). THUS, IT IS CLEAR FROM THE DECISION OF COCHIN ITAT SPECIAL BENC H THAT IT IS THE PROVISION MADE AND ALLOWED U/S SEC 36 (1) (VIIA) WHICH HAS TO BE CONSIDERED FOR RESTRICTING THE DEDUCTION U/S 36 (1) (VII). THE AO. HAS UNDERSTOOD IT AND INSTEAD OF RESTRICTING THE DISALLOWANCE OF BAD .DEBT U/S 36 (1)(VII) BY THIS PROVISIONS MADE AND ALLOWED U/S 36(1)(VIIA) AMOUNTING TO RS. 8.24 C R HE HAS RESTRICTED IT AND DISALLOWED BY AN AMOUNT OF RS. 59.03 CR.PLUS 31.603 CR. THIS IS NOT CORRECT AND CANNOT BE UPHELD. THE PROVISION MADE AND ALLOWED UI/S. 36(L)(VIIA) IS ALTHOUGH INDEPENDENT ALLOWANCE, IT WILL RESTRICT THE DISALLOWANCE U/S. 3 6(L)(VII) BY APPLICATION OF PROVISO TO SEC. 36(L)(II), WHICH RESTRICTS TO THE CREDIT BA LANCE OF THE PROVISION MADE AND ALLOWED IN ASSESSMENT FOR DOUBTFUL DEBTS U/S. 36(L) (VIIA). NOW, THE ONLY DISPUTE REMAINS IS THAT OF RESTRICTIN G THE DISALLOWANCE U/S. 36(1)(VII) BY APPLYING THE PROVISO TO THIS SEC., WH ETHER IT SHOULD BE RESTRICTED BY THE OPENING BALANCE OF THE PROVISIONS FOR BAD AND D OUBTFUL DEBTS U/S. 36(1)(VIIA) OR BY THE CLOSING BALANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS U/S. 36(1)(VIIA) OF THE I.T. ACT. IN EARLIER ASSESSMENT YEAR, I.E. A.Y. 2002- 03 AND 2003-04, IT WAS HELD BY CIT(A) THAT IT SHOULD BE RESTRICTED BY CLOSING BALA NCE OF THE PROVISION FOR BAD AND DOUBTFUL DEBT U/S. 36(1)(VIIA) OF THE I.T. ACT. FOLLOWING THE SAME ORDER TO ADOPT A CONSISTENT VIEW, IT IS HELD FOR THIS YEAR A LSO THAT IT SHOULD BE RESTRICTED BY CLOSING BALANCE OF PROVISION OF BAD AND DOUBTFUL DEBT U/S. 36(1)(VIIA) OF THE I.T. ACT. THEREFORE, IN MY VIEW THE CORRECT DEDUCT ION ALLOWABLE TO THE APPELLANT IS AS UNDER:- DEDUCTION ALLOWABLE U/S. 36(1)(VII): GROSS BAD DEBT ACTUALLY WRITTEN OFF DURING PREVIOUS YEAR. RS. 157.43 CR. LESS: CLOSING BALANCE IN THE PROVISION FOR BAD & DOUBTFUL DEBTS U/S. 36(1)(VIIA) AS ON 31-03-04. RS. 37.76 CR . BALANCE ALLOWABLE U/S. 36(1)(VII).. RS. 119.67 CR . HENCE, THE ALLOWABLE DEDUCTION U/S. 36(1)(VII) IS R S. 119.67 CR. AS AGAINST THE CLAIM MADE BY THE APPELLANT RS. 142. 59 CR. THEREF ORE, THE DISALLOWANCE COMES TO RS. 22. 92 CR. WHICH IS CONFIRMED AND THE BALANCE AMOUNT IT DELETED 17. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 18. BEFORE US AT THE OUTSET, THE LEARNED A.R. SUBMI TTED THAT THE ISSUE IN THE PRESENT GROUND IS IDENTICAL TO THAT OF THE FACTS OF THE CASE IN EARLIER YEARS. HE ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 20 FURTHER SUBMITTED THAT IN EARLIER YEARS, THE HON. T RIBUNAL HAS DECIDED THE ISSUE FOR A.Y. 2003-04 IN ITS FAVOUR. HE FURTHER SUBMITT ED THAT HON. GUJARAT HIGH COURT IN ASSESSEES OWN CASE FOR A.Y. 1998-99, 2000 -01 & 2001-02 IN TAX APPEAL NO. 1077 TO 1080/AHD/2010 HAS DECIDED THE IS SUE IN FAVOUR OF ASSESSEE. HE THUS SUBMITTED THAT SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT EARLIER YEARS, THE ISSUE BE DECID ED IN ITS FAVOUR FOLLOWING THE DECISION OF HIGH COURT AND TRIBUNAL. THE LEARNED D. R. ON THE OTHER HAND RELIED ON THE ORDER OF ASSESSING OFFICER. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE REVENUE IN TAX APPEAL NO. 1077 TO 108 0/AHD/2010 (FOR AY 1998- 99, 2000-01 & 2001-02) HAD PREFERRED APPEAL BEFORE HIGH COURT AGAINST THE ORDER OF TRIBUNAL AND THE QUESTION RAISED BEFORE HO N. GUJARAT HIGH COURT READS AS UNDER: WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN HOLDING THAT FOR THE PURPOSE OF SECTION 36(1)(VII) ONLY THE CLOSING CRED IT BALANCE IN THE PREVIOUS ACCOUNT OF THE EARLIER YEARS IS TO BE CONSIDERED. DESPITE THE PROVISION OF SECTION 36(1)(VII) OF THE ACT? THE HON. GUJ. H. C. HELD AS UNDER:- 15. IN THE PRESENT CASE, HOWEVER, THE QUESTION OF M ETHOD OF OPERATION OF PROVISO TO SECTION 36(L) (VII) ARISES. SUCH PROVISO AS NOTED, PROVIDES THAT IN CASE OF AN ASSESSEE TO WHICH CLAUSE (VIIA) APPLIES, THE AMOUNT OF DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED T O THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR ACCOUNT MADE UNDER THAT CLAUSE. THE REVENUES CONTENTION IS THAT BY VIRTUE OF SUCH PROVISO, THE CLAIM OF THE ASSESSEE FOR DEDUCTION FO R DEBTS WRITE OFF, SHOULD BE REDUCED BY THE CLOSING BALANCE OF THE ASSESSEE IN HIS ACCOUNT FOR THE PROVISION OF BAD AND DOUBTFUL DEBTS. ON THE OTHER HAND, THE ASSESSEE CONTENTS THAT SUCH DIMINUTION BE LIMITED TO THE OPENING BALANCE OF SUC H ACCOUNT. 16.WE NOTICE THAT IN THIS RESPECT THE PROVISION IS SILENT. WE MAY THEREFORE RECORD THAT THE INTERPRETATION ADOPTED BY THE TRIBU NAL IN THE IMPUGNED JUDGMENT WOULD ORDINARILY GIVE RISE TO A QUESTION OF LAW PAR TICULARLY WHEN IT IS POINTED OUT THAT THERE IS NO PREVIOUS DECISION OF ANY HIGH COUR T ON THE SUBJECT. HOWEVER, ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 21 THE ISSUE HAS BEEN MADE SUFFICIENTLY CLEAR BY THE C BDT CIRCULAR NO.17/2008 DATED 26-11-2008. IN THE SAID CIRCULAR, THIS VERY I SSUE HAS BEEN EXAMINED AND CLARIFIED IN THE FOLLOWING MANNER:- 2. IN A RECENT REVIEW OF ASSESSMENT OF BANKS CA RRIED OUT BY C&AG, IT HAS BEEN OBSERVED THAT WHILE COMPUTING THE INCOME OF BA NKS UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS & PROFESSION, DEDUCTIONS OF L ARGE AMOUNTS UNDER DIFFERENT SECTIONS ARE BEING ALLOWED BY THE ASSESSI NG OFFICERS WITHOUT PROPER VERIFICATION, LEADING TO SUBSTANTIAL LOSS OF REVENU E. IT IS, THEREFORE, NECESSARY THAT ASSESSMENTS IN THE CASES OF BANKS ARE COMPLETE D WITH DUE CARE AND AFTER PROPER VERIFICATION. IN PARTICULAR, DEDUCTIONS UNDE R THE PROVISIONS REFERRED TO BELOW SHOULD BE ALLOWED ONLY AFTER A THOROUGH EXAMI NATION OF THE CLAIM ON FACTS AND ON LAW AS PER THE PROVISIONS OF THE I.T, ACT, 1 961. (I) UNDER SECTION 36(L)(VII) OF THE ACT, DEDUCTION ON A CCOUNT OF BAD DEBTS WHICH ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IS ADMISSIBLE. HOWEVER, THIS SHOULD BE ALLOWED ONLY IF THE ASSESSEE HAD DEBITED THE AMOUNT OF SUCH AMOUNTS TO THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT UNDER SECTION 36(1)(VII) OF THE ACT, AS REQUIRED BY SECTION 36(2) (V) OF THE ACT. (II) WHILE CONSIDERING THE CLAIM FOR BAD DEBTS U/S 36(1) (VII), THE ASSESSING OFFICER SHOULD ALLOW ONLY SUCH AMOUNT OF BAD DEBTS WRITTEN OFF AS EXCEEDS THE CREDIT BALANCE AVAILABLE IN THE PROVISI ON FOR BAD AND DOUBTFUL DEBT ACCOUNT CREATED U/S 36(1) (VIIA) OF THE ACT. THE C REDIT BALANCE FOR THIS PURPOSE WILL BE THE OPENING CREDIT BALANCE I.E., THE BALANC E BROUGHT FORWARD AS ON 1 ST APRIL OF THE RELEVANT ACCOUNTING YEAR. 17. AS ALREADY NOTED, IN ABSENCE OF SUCH CLARIFIC ATION BY CBDT, WE WOULD HAVE BEEN INCLINED TO ADMIT THE APPEALS. HOWEVER, W HEN SUCH CIRCULAR ISSUED UNDER SECTION 119(2) OF THE ACT CLARIFIES-THE POSIT ION BEYOND ANY DOUBT, WE HAVE NO REASON TO ENTERTAIN THE REVENUE'S APPEALS. AS ALREADY NOTED, THE STATUTORY PROVISION IS SILENT ON THE PRECISE METHOD OF WORKING OUT THE DEDUCTION. IT IS BY NOW WELL-SETTLED THAT SUCH CIRCULARS ISSUE D BY THE BOARD IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119(2) OF THE ACT, M AY HAVE THE EFFECT OF RELAXING THE RIGORS OF A STATUTORY PROVISION. IN TH E CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) ITSELF, THE APEX COURT TOUCHED ON THE EFFECT OF THE CIRCULAR ISSUED BY THE BOARD. IT WAS OBSERVED AS UNDER:- 'NOW, WE SHALL PROCEED TO EXAMINE THE EFFECT OF THE CIRCULARS WHICH ARE IN FORCE AND ARE ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (FOR SHORT, 'THE BOARD') IN EXERCISE THE POWER VESTED IN IT UNDER SECTION 119 O F THE ACT. CIRCULARS CAN BE ISSUED BY THE BOARD TO EXPLAIN OR TONE DOWN THE RIG OURS OF LAW AND TO ENSURE FAIR ENFORCEMENT OF ITS PROVISIONS. THESE CIRCULARS HAVE THE FORCE OF LAW AND ARE BINDING ON THE INCOME-TAX AUTHORITIES, THOUGH THEY CANNOT BE ENFORCED ADVERSELY AGAINST THE ASSESSEE. NORMALLY, THESE CIR CULARS CANNOT BE IGNORED. A CIRCULAR MAY NOT OVERRIDE OR DETRACT FROM THE PROVI SIONS OF THE ACT BUT IT CAN ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 22 SEEK TO MITIGATE THE RIGOUR OF A PARTICULAR PROVISI ON FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIED CIRCUMSTANCES SO LONG AS THE CIRCULAR IS IN FORCE, IT AIDS THE UNIFORM AND PROPER ADMINISTRATION AND APPL ICATION OF THE PROVISIONS OF THE ACT. (REFER TO UCO BANK V. CIT(1999) 4 SCC 599 ). 18. IN CASE OF UCO BANK VS. COMMISSIONER OF INCOME TAX REPORTED IN 237 ITR 889 THE SUPREME COURT IN CONNECTION WITH EFFECT OF CIRCULARS ISSUED BY THE BOARD UNDER SECTION 119 OF THE ACT OBSERVED: SUCH INSTRUCTIONS MAY BE BY WAY OF RELAXATION OF ANY OF THE PROVISIONS OF THE SECTIONS SPECIFIED THERE OR OTHERWISE. THE BOARD, T HUS, HAS POWERS INTER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR E NFORCEMENT OF ITS PROVISIONS, BY ISSUING CIRCULARS IN EXERCISE OF ITS STATUTORY P OWERS UNDER SECTION 119 WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATIO N OF THE ACT. UNDER SECTION 119(2)(A), HOWEVER, THE CIRCULARS AS CONTEMPLATED T HEREIN CANNOT BE ADVERSE TO THE ASSESSEE. THUS, THE AUTHORITY WHICH WIELDS THE POWER FOR ITS OWN ADVANTAGE UNDER THE ACT IS GIVEN THE RIGHT TO FORGO THE ADVAN TAGE WHEN REQUIRED TO WIELD IT IN THE MANNER IT CONSIDERS JUST BY RELAXING THE RIG OUR OF THE LAW OR IN OTHER PERMISSIBLE MANNERS AS LAID DOWN IN SECTION 119. TH E POWER IS GIVEN FOR THE PURPOSE OF JUST, PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND IN PUBLIC INTEREST. IT IS A BENEFICIAL POWER GI VEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLI ED. HARD CASES WHICH CAN BE PROPERLY CATEGORISED AS BELONGING TO A CLASS, CA N THUS BE GIVEN THE BENEFIT OF RELAXATION OF LAW BY ISSUING CIRCULARS BINDING T HE TAXING AUTHORITIES.' 19. IN THE RESULT, BEARING IN MIND THE CIRCULAR ISS UED BY CBDT DATED 26.11.2008 NO FURTHER CONTROVERSY SHOULD ARISE. IN THE RESULT, THE TAX APPEALS ARE DISMISSED. 20. BEFORE US, THE LD.D.R. COULD NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD.A.R. NOR COULD BRING ANY MATERIAL ON RECORD TO D EMONSTRATE THAT THE DECISION OF HIGH COURT HAS BEEN OVERTURNED BY SUPERIOR COURT . FURTHER, SINCE THE FACTS THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARL IER YEARS, WE RESPECTFULLY, FOLLOWING THE DECISION OF HON. GUJARAT HIGH COURT, IN ASSESSEES OWN CASE ALLOW THIS GROUND IN FAVOUR OF ASSESSEE AND THUS TH IS GROUND OF ASSESSEE IS ALLOWED. GROUND NO. 4 IS WITH RESPECT TO DISALLOWANCE OF FRA UD EXPENSES. ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 23 21. ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED LOSS ON ACCOUNT OF FRAUD EXPENSES AMOUNTING TO RS. 52.31LACS. ASSESSEE SUBMITTED THE DETAILS TO THE EXTENT OF RS. 29.51 LACS BUT NO DETAILS WERE FU RNISHED WITH RESPECT TO THE REMAINING AMOUNT OF RS. 22.80 LACS AS ACCORDING TO THE ASSESSEE THEY CONSISTED OF SMALLER AMOUNTS PERTAINING TO RETAIL A ND DEMAT ACCOUNTS AND THE NUMBERS WERE VERY HIGH. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. IN THE ABSENCE OF DETAILS OF RS. 2 2.80 LACS, HE CONSIDERED THE SAME HAS NOT ALLOWABLE. AGGRIEVED BY THE ORDER OF A SSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER BY HOLDING AS UNDER:- 7.2 DURING THE APPELLATE PROCEEDINGS, THE APPELLA NT SUBMITTED THAT THESE ARE GENUINE LOSSES AND SHOULD BE ALLOWED. THE APPELLAN T FILED COPY OF NEWSPAPER ARTICLE SHOWING THAT THE SAME PERSON SHRI G.N. SHAR MA HAS DONE FRAUD AT VARIOUS OTHER PLACES, HENCE IT SHOULD BE ALLOWED. HOWEVER NO DETAILS OR ANY OTHER EVIDENCE WERE SUBMITTED IN SUPPORT OF THIS CL AIM OF LOSS. HENCE, IT IS HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLO WING THE LOSS OF RS. 22. 80 LACS IN RESPECT OF WHICH NO DETAILS WERE SUBMITTED. THI S GROUND IS, THEREFORE, REJECTED. 22. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. 23. BEFORE US, THE LEARNED A.R. STRONGLY SUBMITTED THAT THE LOSSES WERE GENUINE AND WERE INCURRED DURING THE COURSE OF BUSINESS AND THEREFORE SUBMITTED THE SAME SHOULD BE ALLOWED. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT IN THE ABSENCE OF DETAILS THE EXPENDITURE CANNOT BE ALLOWE D AND THUS SUPPORTED THE ORDER OF AO AND CIT(A). 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE DID NOT FURNISH DETAILS O F LOSS OF RS. 22.80 LACS BEFORE THE LOWER AUTHORITIES NOR WERE THE SAME SUBM ITTED BEFORE US. IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERFERE WITH TH E ORDER OF CIT(A). THUS THIS GROUND OF ASSESSEE IS DISMISSED. ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 24 ITA NO. 2737/AHD/2002006 (FOR A.Y. 2004-05) REVENUE S APPEAL) 25. THE GROUNDS RAISED READS AS UNDER:- 1.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN R ESTRICTING THE DISALLOWANCE U/S. 14A AT RS. 11.76 CRORES AS AGAINST RS. 30.78 C RORES MADE BY THE ASSESSING OFFICER, THEREBY GRANTING RELIEF OF RS. 1 9.02 CR. 2.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN R ESTRICTING THE DISALLOWANCE U/S. 36(1)(VIIA) AT RS. 22.92 CR. AS AGAINST RS. 15 6.42 CR. DISALLOWED BY THE ASSESSING OFFICER THEREBY GRANTING RELIEF OF RS. 13 3.5 CR. 3.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING COMPENSATION FOR OF LEASE AGREEMENT OF RS. 32 LACS. THE ASSESSING OFFI CER HAS RIGHTLY DISALLOWED THIS CLAIM HOLDING THAT THE ASSESSEE COMPANY AFTER THE EXPIRY OF LEASE AGREEMENT IN 2001 WAS UNDER NO CONTRACTUAL OBLIGATI ON TO PAY THE COMPENSATION TO LESSOR SPECIALLY SO WHEN IT HAD REG ULARLY MADE THE PAYMENTS OF RENT DURING THE PERIOD 2001 TO 2004. 26. BEFORE US, BOTH THE PARTIES SUBMITTED THAT GROU ND NO 1 IS CONNECTED WITH GROUND NO 2 OF ASSESSEES APPEAL IN ITA NO. 2572/A/ 2006 AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE GROUND I N ASSESSEES APPEAL ARE EQUALLY APPLICABLE TO THE PRESENT GROUNDS. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SINCE GROUND NO. 1 OF THE PRESENT REVENUES APPEAL ARE CONNECTED WITH GROUND NO. 2. OF ASSESSEES APPEAL IN ITA NO. 2572/AHD/200 6 AND SINCE GROUND NO 2 OF ASSESSEES APPEAL IN ITA NO 2572/AHD/2006 HEREIN ABOVE HAS BEEN HAS BEEN DISCUSSED AND DECIDED IN FAVOUR OF ASSESSEE, W E THEREFORE FOR SIMILAR REASONS DISMISS THIS GROUND OF THE REVENUE. 28. BEFORE US, BOTH THE PARTIES SUBMITTED THAT GROU ND NO 2 IS CONNECTED WITH GROUND NO 3 OF ASSESSEES APPEAL IN ITA NO. 2572/A/ 2006 AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE GROUND I N ASSESSEES APPEAL ARE EQUALLY APPLICABLE TO THE PRESENT GROUNDS. ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 25 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SINCE GROUND NO. 2 OF THE PRESENT REVENUES APPEAL ARE CONNECTED WITH GROUND NO. 3. OF ASSESSEES APPEAL IN ITA NO. 2572/AHD/200 6 AND SINCE GROUND NO 2 OF ASSESSEES APPEAL IN ITA NO 2572/AHD/2006 HEREIN ABOVE HAS BEEN HAS BEEN DISCUSSED AND DECIDED IN FAVOUR OF ASSESSEE, W E THEREFORE FOR SIMILAR REASONS DISMISS THIS GROUND OF THE REVENUE. GROUND NO. 3 IS WITH RESPECT TO COMPENSATION EXPENS ES FOR TERMINATION OF RENT AGREEMENT. 30. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD TAKEN PREMISES AT BARODA KNOWN AS ARUNDEEP COMPLEX ON LEAVE AND LICENCE BASIS ON 1.12.1996 FROM ONE SHRI DILIP KUM AR PATEL FOR THE PERIOD OF 5 YEARS WITH STIPULATION TO EXTEND THE SAME FOR ANOTH ER 5 YEARS. A NON INTEREST BEARING SECURITY DEPOSIT OF RS. 35 LAKHS WAS ALSO P AID. IN THE YEAR 2001, THE BANK DID NOT RENEW THE AGREEMENT AS PER THE ORIGINA L TERMS BUT HOWEVER CONTINUED TO PAY THE INCREASED RENT ON MONTH TO MON TH BASIS. THEREAFTER, THE LANDLORD WAS ASKED TO RETURN THE SECURITY DEPOSIT I NITIALLY GIVEN. THE LANDLORD DID NOT RETURN THE SECURITY DEPOSIT BUT ON THE CONTRARY MADE A CLAIM OF RENT FOR PERIOD FROM 2003 TO 2006 AS IF THE LEAVE AND LICENC E AGREEMENT WAS EXTENDED FOR ANOTHER 5 YEARS WITH EFFECT FROM 2001. THE BAN K ENTERED INTO A COMPROMISE WITH THE LANDLORD AND FOREGO THE DEPOSIT AND PAID C OMPENSATION OF RS. 32 LAKHS WHICH INCLUDED 6 MONTHS RENT EQUIVALENT TO RS. 16,0 8,936/- ( INCLUSIVE OF OPPORTUNITY COST ON SECURITY DEPOSIT ) FOR THE NOT ICE PERIOD (B) AN ESTIMATED COST OF RS. 12 LAKHS TOWARDS RESTORATION AND (C) TH E REMINDER FOR OTHER EXPENSES. AO DID NOT ACCEPT THE CONTENTION OF THE A SSESSEE AS HE WAS OF THE VIEW THAT THERE WAS NO LEGAL OBLIGATION ON THE PART OF ASSESSEE TO PAY SUCH COMPENSATION. HE WAS FURTHER OF THE VIEW THAT NO B USINESSMAN WILL FOREGO THE RIGHT TO RECOVER THE DEPOSIT AS THERE WERE NO ARREA RS OF RENT AND ACCORDINGLY DISALLOWED THE SECURITY DEPOSIT OF RS 32 LACS WHICH WAS CLAIMED BY ASSESSEE ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 26 AS REVENUE EXPENDITURE. AGGRIEVED BY THE ORDER OF A O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 6.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED THAT THE EXISTING PREMISES DID NOT HAVE GOOD VIEW A ND ENTRANCE TO THE PREMISES WAS SMALL AND NOT SUITABLE. HENCE THE APPELLANT VAC ATED THE SAME. ALTHOUGH THE LEASE AGREEMENT WAS NOT RENEWED IN WRITING IN 2 001, THE APPELLANT WAS USING THE PREMISES BEYOND THAT PERIOD AND THE LANDL ORD CLAIMED COMPENSATION BY IMPLICATION 'LEASE AGREEMENT CONTINUES'. THE LAN DLORD CLAIMED COMPENSATION AND DEMANDED RS. 80 LAKHS WHICH WAS UL TIMATELY SETTLED FOR RS. 32 LAKHS AND IT WAS PAID TO THE LANDLORD TO AVOID F UTURE LITIGATION COST ETC. IT IS A FACT TAT THIS EXPENDITURE IS GENUINE AND WAS PAID T O THE LANDLORD AND THIS SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. THE APPELLANT R ELIED ON THE FOLLOWING DECISIONS SAYING THAT THE A.O IS PROHIBITED FROM SI TTING IN THE JUDGMENT OVCRPRUDENCE OR WISDOM OF JUDGMENT AFTER BUSINESSMA N:- I. CIT V DHANRAJGIRJI RAJA NARASINGIRJI, 191 ITR 54 4....50(SC) II. CIT V WALCHAND & CO. (P) LTD., 65 ITR 381...385 (SC) AND J.K. WOOLEN CIT, 72 ITR 612 (SC). III. F.E. DINSHAW LTD. V. CIT, 36 ITR 114 120 (BOM ) IV. CIT V VIJAYALAKSHMI MILLS LTD., 94 ITR 173 178 179 (MAD). V. CIT V DALMIA CEMENT (BHARAT) LTD. (2001) 254 ITR 377 (DEL) VI. EXTRACTS FROM THE LAW AND PRACTICE OF INCOME TA X BY KANGA, PALKHIWALA AND VYAS-VOLUME I- NINTH EDITION PAGE 89 9. 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS ALONG WITH THE CASE LAWS RELIED UPON. I AM IN AGREE MENT WITH THE APPELLANT'S VIEW. IT IS A FACT THAT THE EXPENDITURE IS GENUINE AND IT WAS PAID TO THE LANDLORD AS COMPENSATION FOR VACATING THE PREMISES. IT WAS N ECESSARY TO AVOID THE LITIGATION COST. IF ANY EXPENDITURE IS GENUINE AND INCURRED IN THE COURSE OF BUSINESS, ITS QUANTUM OR SUFFICIENCY CANNOT BE EXAM INED BY THE ASSESSING OFFICER, UNLESS THE PAYMENT IS MADE TO A RELATED CO NCERN. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AND BY FOLLOWING THE CASE LAWS AS RELIED UPON BY THE ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 27 APPELLANT, I HOLD THAT THERE IS NO JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER TO DISALLOW THE CLAIM OF COMPENSATION PAID BY THE A PPELLANT AMOUNTING TO RS. 32 LAKHS. THE APPELLANT GETS RELIEF ON THIS POINT. 31. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US, THE LEARNED D.R. RELIED ON THE ORDER OF AO, ON THE OTHER HAND THE LEARNED A.R. SUPPORTED THE ORDER OF CIT(A). 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NO TED THAT THE LANDLORD CLAIM COMPENSATION AND DEMANDED RS. 80 LAKHS WHICH WAS UL TIMATELY SETTLED FOR 32 LAKHS AND IT WAS PAID TO LANDLORD TO AVOID FUTURE L ITIGATION COST ETC. HE HAS FURTHER HELD THAT THE COST WAS NECESSARY TO AVOID L ITIGATION COST AND THE EXPENDITURE WAS GENUINE AND INCURRED IN THE COURSE OF BUSINESS. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) . THUS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). THUS THIS GROU ND OF REVENUE IS DISMISSED. ITA NO: 4386/AHD/2007 (ASSESSEES APPEAL) AND ITA N O 236/AHD/2008 (REVENUES APPEAL) FOR AY 2002-03 33. THESE TWO APPEALS, ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE, ARISE OUT OF THE ORDER OF CIT(A) DATED 5.10.2007 WHEREIN THE DISPUTE IS WITH RESPECT TO PENALTY U/S 271(1)(C). 34. THE APPEAL OF ASSESSEE IS AGAINST THE ORDER OF AO DATED 25.01.2007 FOR AY 2002-03 WHEREBY PENALTY WAS LEVIED U/S 271(1)(C) AT 300% (RS 24,09,75,000/-) BY AO. ASSESSEE IS AGGRIEVED BY THE LEVY OF PENALTY WHEREAS REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) DATED 05.10.2007 W HEREBY HE REDUCED THE PENALTY AT 100% (RS.8,03,25,000/-). SINCE THE ISSUE IS COMMON, BOTH THE APPEALS ARE CONSIDERED TOGETHER FOR DISPOSAL FOR TH E SAKE OF CONVENIENCE. ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 28 35. IN THIS APPEAL, ASSESSEE HAS RAISED VARIOUS GRO UNDS BUT THEY ALL RELATE TO LEVY OF PENALTY UNDER SECTION 271(1)(C) AMOUNTING TO RS. 8,03,25,000/-. THE FACTS AS CULLED OUT ARE AS UNDER: 36. WHILE PASSING THE ORDER UNDER SECTION 143(3) FO R A.Y. 2002-03,AO APART FROM OTHER DISALLOWANCES, HAD MADE DISALLOWANCE ON ACCOU NT OF FRAUD EXPENSES (RS 22,80,000/-) AND DEPRECIATION ON WIND ENERGY GENERA TORS OF RS. 11,01,60,000/-. THE AFORESAID 2 DISALLOWANCES WAS ALSO SUSTAINED BY CIT(A). ASSESSING OFFICER NOTED THAT ASSESSEE KNOWINGLY COMMITTED THE DEFAULT OF FURNISHING INACCURATE PARTICULARS OF INCOME BY CLAIMING DEPRECIATION OF R S. 22,50,00,000/- ON WIND ENERGY GENERATORS AND THEREFORE LEVIED PENALTY ON I T AT 300% OF THE TAX SOUGHT TO BE EVADED (RS. 24,09,75,000/-). 37. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) GRANTED PARTIAL RELIEF BY REDUCING THE PENAL TY FROM 300% TO 100%. ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) BECAUS E HE HAS RETAINED THE PENALTY AND ON THE OTHER HAND THE REVENUE IS AGGRIE VED BY THE ACTION OF CIT(A) IN REDUCING PENALTY FROM 300% TO 100%. 38. BEFORE US, THE LEARNED A.R. SUBMITTED THAT ASSE SSEE HAD DISCLOSED AND MADE KNOWN TO THE ASSESSING OFFICER ALL THE PARTICULARS AND FACTS MATERIAL TO THE COMPUTATION OF INCOME ACCURATELY. HE FURTHER SUBMI TTED THAT THE THERE IS NO FINDING OF CONCEALMENT OF ANY PRIMARY FACTS AND OR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND THAT THE EXPLANATION GIVE N BY THE ASSESSEE IS FALSE. HE FURTHER SUBMITTED THAT EACH OF THE CLAIMS MADE I N THE RETURN WAS BONAFIDE AND BASED ON HONEST UNDERSTANDING OF LAW OR JUDICIA L PRECEDENTS AS ALSO WAS MADE UNDER THE GUIDANCE OF PROFESSIONAL. HE FURTHER SUBMITTED THAT THE IMPUGNED DISALLOWANCE INVOLVED A LEGAL PROPOSITION ON UNDERSTANDING OR INTERPRETATION WHEREOF TWO VIEWS WERE POSSIBLE. HE FURTHER SUBMITTED THAT ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 29 PENALTY PROCEEDINGS ARE MATERIALLY DIFFERENT FROM T HE ASSESSMENT PROCEEDINGS AND THAT MERE ASSESSMENT OF AN ITEM AS INCOME DOES NOT PER SE JUSTIFY CONCLUSION OF CONCEALMENT AND OR FURNISHING OF INAC CURATE PARTICULARS. HE FURTHER SUBMITTED THAT THE DISALLOWANCE INVOLVED A LEGAL PROPOSITION ON UNDERSTANDING OR INTERPRETATIONS WHERE TWO VIEWS WE RE POSSIBLE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD DISCLOSED AND MADE ALL PARTICULARS AND FACTS MATERIAL TO THE COMPUTATION OF ITS INCOME ACCURATEL Y THE CLAIM MADE IN THE RETURN WAS BONAFIDE AND BASED ON HONEST AND BONAFID E UNDERSTANDING OF LAW AND JUDICIAL PRECEDENT. THE LEARNED A.R. FURTHER SU BMITTED THAT THE ASSESSEE HAS DISCHARGED ITS BURDEN OF SATISFACTORILY EXPLANA TION OF ITS CLAIM. HE FURTHER SUBMITTED THAT NO PENALTY WAS LEVIABLE AS THE ASSES SEE WAS NEITHER GUILTY OF CONTUMACIOUS CONDUCT NOR ANY ELEMENT OF MENS REA WA S PRESENT. HE FURTHER SUBMITTED THAT MERE DIFFERENCE OF OPINION AS PRIMAR ILY LAW BASED DEBATABLE COMPLEX QUESTION OF INTERPRETATION CANNOT BE A GROU ND FOR SUSTAINING PENALTY. HE FURTHER RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS (2010) 322 ITR 158 (SC). HE THUS URG ED THAT THE PENALTY LEVIED BE DELETED. THE LEARNED D.R. ON THE OTHER HAND RELI ED ON THE ORDER OF ASSESSING OFFICER. 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE PENALTY HAS BEEN LEVIED ON TH E DISALLOWANCE OF DEPRECIATION ON WIND ENERGY GENERATORS. WHILE DECID ING THE QUANTUM APPEAL IN ITA NO. 2572/AHD/2006, HEREINABOVE, THE QUANTUM ADD ITION HAS BEEN DELETED BY US AND THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. SINCE THE QUANTUM ADDITION ON WHICH THE PENALTY HAS BEEN LEVI ED ITSELF HAS BEEN DELETED, THE QUESTION OF LEVY OF PENALTY UNDER SECTION 271(1 )(C) ON SUCH DISALLOWANCE THEREFORE DOES NOT ARISE, WE THEREFORE DELETE THE P ENALTY. THUS THIS GROUND OF ASSESSEE IS ALLOWED AND THE GROUND OF REVENUE IS DI SMISSED. ITA NO: 4388/AHD/2007 (ASSESSEES APPEAL) AND ITA N O 238/AHD/2008 (REVENUES APPEAL) FOR AY 2004-05 ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 30 40. THESE TWO APPEALS, ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE, ARISE OUT OF THE ORDER OF CIT(A) DATED 5.10.2007 WHEREIN THE DISPUTE IS WITH RESPECT TO PENALTY U/S 271(1)(C). 41. THE APPEAL OF ASSESSEE IS AGAINST THE ORDER OF AO DATED 25.1.2007 FOR AY 2004-05 WHEREBY PENALTY WAS LEVIED U/S 271(1)(C) AT 300% (RS 12,10,13,550/-/- ) BY AO. ASSESSEE IS AGGRIEVED BY THE LEVY OF PENAL TY WHEREAS REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) DATED 5.10.2007 WH EREBY HE REDUCED THE PENALTY AT 100% (RS.4,03,37,850/-). SINCE THE ISSUE IS COMMON, BOTH THE APPEALS ARE CONSIDERED TOGETHER FOR DISPOSAL FOR TH E SAKE OF CONVENIENCE. 42. WHILE PASSING THE ORDER UNDER SECTION 143(3) FO R A.Y. 2004-05,AO APART FROM OTHER DISALLOWANCES, AO HAD MADE DISALLOWANCE ON AC COUNT OF FRAUD EXPENSES (RS 22,80,000/-) AND DEPRECIATION ON WIND ENERGY GE NERATORS OF RS. 11,01,60,000/-. THE AFORESAID 2 DISALLOWANCES WAS A LSO SUSTAINED BY CIT(A). ASSESSING OFFICER WAS THEREFORE OF THE VIEW THAT TH E ASSESSEE HAS WITHIN THE MEANING OF S. 271(1)(C) READ WITH EXPLANATIONS HAS KNOWINGLY COMMITTED THE DEFAULT OF FURNISHING INACCURATE PARTICULARS OF INC OME AND THEREFORE LEVIED PENALTY @300% OF THE TAX SOUGHT TO BE EVADED (RS 12 ,10,13,550/-). 43. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) GRANTED PARTIAL RELIEF BY REDUCING THE PENAL TY FROM 300% TO 100%. ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) BECAUS E HE HAS RETAINED THE PENALTY AND ON THE OTHER HAND THE REVENUE IS AGGRIE VED BY THE ACTION OF CIT(A) IN REDUCING PENALTY FROM 300% TO 100%. 44. BEFORE US THE LEARNED A.R. SUBMITTED THAT THE A SSESSEE HAS DISCLOSED AND MADE KNOWN TO THE AO ALL THE PARTICULARS AND FACTS MATERIAL TO COMPUTATION OF ITS INCOME ACCURATELY. THE IMPUGNED AMOUNT REPRESEN TED LOSS INCURRED IN THE ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 31 NORMAL COURSE OF BUSINESS. HE FURTHER SUBMITTED THA T EACH OF THE CLAIMS MADE IN THE RETURN WAS BONAFIDE AND BASED ON HONEST UNDE RSTANDING OF LAW OR JUDICIAL PRECEDENTS AS ALSO WAS MADE UNDER THE GUIDANCE OF P ROFESSIONAL. HE FURTHER SUBMITTED THAT THE IMPUGNED DISALLOWANCE INVOLVED A LEGAL PROPOSITION ON UNDERSTANDING OR INTERPRETATION WHEREOF TWO VIEWS W ERE POSSIBLE. HE FURTHER SUBMITTED THAT PENALTY PROCEEDINGS ARE MATERIALLY D IFFERENT FROM THE ASSESSMENT PROCEEDINGS AND THAT MERE ASSESSMENT OF AN ITEM AS INCOME DOES NOT PER SE JUSTIFY CONCLUSION OF CONCEALMENT AND OR FURNISHING OF INACCURATE PARTICULARS. HE FURTHER SUBMITTED THAT THE DISALLOWANCE INVOLVED A LEGAL PROPOSITION ON UNDERSTANDING OR INTERPRETATIONS WHERE TWO VIEWS WE RE POSSIBLE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD DISCLOSED AND MADE ALL PARTICULARS AND FACTS MATERIAL TO THE COMPUTATION OF ITS INCOME ACCURATEL Y THE CLAIM MADE IN THE RETURN WAS BONAFIDE AND BASED ON HONEST AND BONAFID E UNDERSTANDING OF LAW AND JUDICIAL PRECEDENT. THE LEARNED A.R. FURTHER SU BMITTED THAT THE ASSESSEE HAS DISCHARGED ITS BURDEN OF SATISFACTORILY EXPLANA TION OF ITS CLAIM. HE FURTHER SUBMITTED THAT NO PENALTY WAS LEVIABLE AS THE ASSES SEE WAS NEITHER GUILTY OF CONTUMACIOUS CONDUCT NOR ANY ELEMENT OF MENS REA WA S PRESENT. HE FURTHER SUBMITTED THAT MERE DIFFERENCE OF OPINION AS PRIMAR ILY LAW BASED DEBATABLE COMPLEX QUESTION OF INTERPRETATION CANNOT BE A GROU ND FOR SUSTAINING PENALTY. HE FURTHER RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS (2010) 322 ITR 158 (SC). HE THUS URG ED THAT THE PENALTY LEVIED BE DELETED. THE LEARNED D.R. ON THE OTHER HAND RELI ED ON THE ORDER OF ASSESSING OFFICER. 45. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, ONE OF THE ADDITION ON WHICH THE PENALTY HAS BEEN LEVIED IS ON THE DISALLOWANCE OF DEPRECIATION ON WIND ENERGY GEN ERATORS. WHILE DECIDING THE QUANTUM APPEAL IN ITA NO. 2572/AHD/2006, HEREINABOV E, THE QUANTUM ADDITION HAS BEEN DELETED BY US AND THE MATTER HAS BEEN DECI DED IN FAVOUR OF THE ASSESSEE. SINCE THE QUANTUM ADDITION ON WHICH THE P ENALTY HAS BEEN LEVIED ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 32 ITSELF HAS BEEN DELETED, THE QUESTION OF LEVY OF PE NALTY UNDER SECTION 271(1)(C) ON SUCH DISALLOWANCE THEREFORE DOES NOT ARISE, 46. THE OTHER ADDITION ON WHICH THE PENALTY IS LEVI ED IS ON FRAUD EXPENSES. THE PENALTY UNDER S. 271(1)(C) OF THE ACT IS LEVIABLE I F THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT THAT ANY PE RSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. IT IS WELL SETTLED THAT ASSESSMENT PROCEEDINGS AND PENALT Y PROCEEDINGS ARE SEPARATE AND DISTINCT AND THE FINDING IN THE ASSESS MENT PROCEEDINGS CANNOT BE REGARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENA LTY PROCEEDINGS. 47. THE NECESSARY INGREDIENTS FOR ATTRACTING EXPLN. 1 TO S. 271(1)(C) ARE THAT : (I) THE PERSON FAILS TO OFFER THE EXPLANATION, OR (II) HE OFFERS THE EXPLANATION WHICH IS FOUND BY THE AO OR THE CIT(A) OR THE CIT TO BE FALS E, OR (III) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AN D FAILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE AND THAT ALL THE FACTS RELA TING TO THE SAME HAVE BEEN DISCLOSED BY HIM. IF THE CASE OF ANY ASSESSEE FALLS IN ANY OF THESE THREE CATEGORIES, THEN ACCORDING TO THE DEEMING PROVISION PROVIDED IN EXPLN. 1 TO S. 271(1)(C) THE AMOUNT ADDED OR DISALLOWED IN COMPUTI NG THE TOTAL INCOME SHALL BE CONSIDERED AS THE INCOME IN RESPECT OF WHICH PAR TICULARS HAVE BEEN CONCEALED, FOR THE PURPOSES OF CL. (C) OF S. 271(1) , AND THE PENALTY FOLLOWS. ON THE OTHER HAND, IF THE ASSESSEE IS ABLE TO OFFER AN EXPLANATION, WHICH IS NOT FOUND BY THE AUTHORITIES TO BE FALSE, AND ASSESSEE HAS BEEN ABLE TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACT S RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM, THEN IN THAT CASE PENALTY SH ALL NOT BE IMPOSED. 48. IN THE PRESENT CASE THE ASSESSEE HAD DISCLOSED ALL THE MATERIAL FACTS BEFORE THE AO AND CIT(A). WHEN THE ASSESSEE HAS MADE A PAR TICULAR CLAIM IN THE RETURN OF INCOME AND HAS ALSO FURNISHED ALL THE MAT ERIAL FACTS RELEVANT THERETO, THE DISALLOWANCE OF SUCH CLAIM CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THERE WAS CONCEALMENT OF PARTICULARS OF HIS INCOME BY THE ASSESSEE OR ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 33 FURNISHING INACCURATE PARTICULARS THEREOF. THIS IS A CASE OF BONA FIDE DIFFERENCE OF OPINION REGARDING THE ALLOWABILITY OF A CLAIM OF DEDUCTION BETWEEN THE ASSESSEE AND DEPARTMENT. WHAT IS TO BE SEEN IS WHET HER THE SAID CLAIM MADE BY THE ASSESSEE WAS BONA FIDE AND WHETHER ALL THE M ATERIAL FACTS RELEVANT THERETO HAVE BEEN FURNISHED AND ONCE IT IS SO ESTAB LISHED, THE ASSESSEE CANNOT BE HELD LIABLE FOR CONCEALMENT PENALTY UNDER S. 271 (1) (C) OF THE ACT. IN THE PRESENT CASE ALL THE NECESSARY FACTS WERE FURNISHED BY ASSESSEE. IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (SUPRA) THE HON. APE X COURT HAS HELD THAT THERE MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LA W BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF ASSESSEE. IN VIEW OF THE TOTALITY OF FACTS WE ARE OF THE VIEW THAT THE A DDITION DOES NOT CALL FOR LEVY OF PENALTY UNDER S. 271(1)(C). 49. WE THUS CANCEL THE PENALTY LEVIED BY THE AO ON BOTH THE ADDITIONS MADE BY THE AO. THUS THIS GROUND OF ASSESSEE IS ALLOWED AND THE GROUND OF REVENUE IS DISMISSED. ITA NO. 790/AHD/2012 (FOR A.Y. 2007-08) ASSESSEES APPEAL 50. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF FRI NGE BENEFIT ON 20.10.2007 FOR AY 2007-08 DECLARING VALUE OF FRINGE BENEFIT OF RS 16, 47,56,033/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 115WE(3) VIDE ORDER DATED 21.12.2009 AND THE FRINGE BENEFIT VALUE DECLARED BY THE ASSESSEE WAS ACCEPTED. 51. LATER, ON VERIFICATION OF THE ASSESSMENT RECOR DS AND FROM THE ANNUAL ACCOUNTS FOR THE YEAR ENDED 31.3.2007, CIT NOTED TH AT ASSESSEE HAD CONTRIBUTED RS 9.14 CRORE (RS 9,13,67,379) TO APPRO VED SUPERANNUATION FUND BUT IN THE RETURN OF FRINGE BENEFIT TAX (FBT), IT HAD SHOWN ONLY RS 22,36,132 AS CONTRIBUTION TOWARDS APPROVED SUPERANNUATION FU ND FOR EMPLOYEES. HE WAS ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 34 OF THE VIEW THAT U/S 115W(1)(C) OF THE ACT, ANY CON TRIBUTION BY THE EMPLOYER TO ANY SUPERANNUATION FUND FOR THE EMPLOYEES ATTRACT L EVY OF FRINGE BENEFIT TAX ON 100% OF SUCH CONTRIBUTION. HE WAS THUS OF THE VIEW THAT AO HAD NOT MADE ANY ADDITION TO FBT AND THEREFORE RS 8,91,31,247/- HAS ESCAPED ASSESSMENT RESULTING INTO SHORT LEVY OF FBT ALONGWITH INTEREST TO THE TUNE OF RS 3,99,01,995/-. AND ACCORDINGLY THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. CIT ISSUED SHOW CAUSE NOTICE ON 13.12.2011 IN RESPONSE TO WHICH THE ASSESSEE INTERA LIA SUBMITTED THAT THE S. 115W(1)(C) WAS AMENDED BY FINANCE BILL 2006 WEF AY 2007-08 AND ACCORDING TO WHICH ONLY CONTRIBUTION BY AN EMPLOYER TO AN APP ROVED SUPERANNUATION FUND IN EXCESS OF RS 1 LAC PER YEAR PER EMPLOYEE WOULD A TTRACT LEVY OF FBT. THE ASSESSEE FURTHER SUBMITTED THAT OUT OF THE TOTAL EX PENDITURE OF RS 9.14 CRORE TOWARDS APPROVED SUPERANNUATION FUND, RS 8.62 CRORE S WAS IN RESPECT OF EMPLOYEES HAVING PER EMPLOYEE CONTRIBUTION OF LESS THAN RS 1 LAC PER YEAR AND THEREFORE RS 8.62 CRORE WAS NOT LIABLE FOR FBT. IT WAS FURTHER SUBMITTED THAT OF THE BALANCE CONTRIBUTION OF RS 51.36 LACS (RS 9.14 CRORE LESS RS 8.62 CRORE) , IN CASE OF 29 EMPLOYEES THE CONTRIBUTION WAS RS 1 LAC OR MORE AND THEREFORE THE THRESHOLD OF RS 1 LAC PER EMPLOYEE FOR 29 EMPLOYEES WAS REDUCED AND THE AMOUNT OF CONTRIBUTION LIABLE TO RS 22,36,132 WAS W ORKED OUT. IT WAS FURTHER SUBMITTED THAT THE ASSESSEMENT WAS FRAMED BY THE AO U/S 115WE(3) AFTER DUE APPLICATION OF MIND AND VERIFICATION AND THEREFORE THE ORDER OF THE AO CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. CIT DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HELD THE ORDER OF THE AO PASSED U/S 115WE(3) TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND ACCORDINGLY CANCELLED THE ORDER AND DIRECTED THE AO TO FRAME FRESH ORDER. 52. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 53. BEFORE US THE LD.A.R. SUBMITTED REITERATED THE SUBMISSIONS MADE BEFORE CIT AND ALSO PLACED ON RECORD THE DETAILS OF CONTRIBUTI ON MADE IN SUPERANNUATION ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 35 FUND. HE FURTHER SUBMITTED THAT IN THE PRESENT CASE THE PREREQUISITE CONDITIONS SPECIFIED U/S 263 ARE NOT SATISFIED. HE SUBMITTED T HAT THE COMPUTATION OF TAXABLE FBT WAS AS PER THE PROVISIONS OF THE ACT AND THE AO HAD PASSED THE ORDER AFTER DETAILED INQUIRIES AND VERIFICATION OF THE BO OKS OF ACCOUNTS AND RECORDS OF THE ASSESSEE. SPECIFIC QUERIES WERE RAISED DURING T HE COURSE OF ASSESSMENT AND AFTER BEING SATISFIED, THE AO PASSED THE ORDER. HE THEREFORE URGED THAT THE ORDER PASSED U/S 263 BE QUASHED. THE LD.A.R. FURTHE R SUBMITTED THAT IN RESPONSE TO THE SHOW CAUSE NOTICE, THE AO HAD MADE DETAILED SUBMISSIONS BUT IN THE ORDER PASSED U/S 263, CIT(A) HAS NOT DEALT W ITH THE SUBMISSIONS AND THEREFORE THE ORDER PASSED BY CIT NEEDS TO BE QUASH ED. 54. ON THE OTHER HAND THE LD.D.R. SUPPORTED THE ORD ER OF CIT. 55. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE RELEVANT CLAUSE OF FRINGE BENEFIT READS AS UNDE R: SECTION 115WB-FRINGE BENEFITS (1) FOR THE PURPOSES OF THIS CHAPTER, 'FRINGE BENEF ITS' MEANS ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF- (A) .....; (B) ......; (C) ANY CONTRIBUTION BY THE EMPLOYER TO AN APPROVED SUPERANNUATION FUND FOR EMPLOYEES; AND SECTION 115WC-VALUE OF FRINGE BENEFITS. (1) FOR THE PURPOSES OF THIS CHAPTER, THE VALUE OF FRINGE BENEFITS SHALL BE THE AGGREGATE OF THE FOLLOWING NAMELY:- ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 36 (A) ..... ; (B) THE AMOUNT OF CONTRIBUTION, REFERRED TO IN CLAU SE (C) OF SUB-SECTION (1) OF SECTION 115WB, WHICH EXCEEDS ONE LAKH RUPEES IN RES PECT OF EACH EMPLOYEE; 55. ON READING THE RELEVANT PROVISIONS OF SECTION 1 15WB AND 115WC IT CAN BE SEEN THAT THE VALUE OF CONTRIBUTION BY AN EMPLOYER TO AN APPROVED SUPERANNUATION FUND FOR EMPLOYEES IN EXCESS OF RS O NE LAC IN RESPECT OF EACH EMPLOYEE IS CHARGEABLE TO FBT. BEFORE US, THE LD.A. R. HAS PLACED ON RECORD THE TOTAL CONTRIBUTION IN SUPERANNUATION FUND TO BE RS 9,13,67,379 WHICH INCLUDES LIST OF 29 EMPLOYEES WHERE THE CONTRIBUT ION IN SUPERANNUATION FUND WAS MORE THAN RS 1 LAC AND THEIR AGGREGATE AMOUNT W AS RS 51,36,132. FROM THE AFORESAID AMOUNT, THE ASSESSEE HAD REDUCED RS 2 9 LACS, BEING THE EXEMPTION LIMIT IN RESPECT OF 29 EMPLOYEES,(THE CON TRIBUTION WAS IN EXCESS OF RS 1 LACS EACH) AND THE BALANCE OF RS 22,36,132 WAS CO NSIDERED AS TAXABLE FBT. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE SUB MISSIONS MADE BY THE LD.A.R NOR COULD POINT OUT ANY MISTAKE IN THE CALCU LATION OF FBT. 56. IN THE CASE OF MALABAR INDUSTRIAL CO. VS CIT (S UPRA) THE HBLE APEX COURT HAS HELD THAT CIT HAS TO BE SATISFIED OF TWIN CONDITION S, NAMELY (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT I S PREJUDICIAL TO THE INTERESTS OF THE REVENUE SO AS TO INVOKE THE PROVISIONS OF S. 26 3. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUD ICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE REC OURSE CANNOT BE HAD TO S. 263(1).IN THE PRESENT CASE, THE REVENUE COULD NOT P OINT OUT ANY ERROR IN THE CALCULATION OF WORKING OF FBT AND THEREFORE ORDER O F THE AO WHICH IS SOUGHT TO BE REVISED CANNOT BE CONSIDERED TO BE ERRONEOUS AND THEREFORE THE PROVISIONS OF S. 263 COULD NOT BE INVOKED IN THE PRESENT CASE. WE THEREFORE QUASH THE ORDER OF CIT. THUS THIS GROUND OF THE ASSESSEE IS A LLOWED. 57. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ITA NOS.2572, 2737/A/2006, 4386,4388/A/2007, 236,238/A/2008 790/A/2012 . A.YS. 2002-03,2004-05 & 2007- 08 37 58. IN THE RESULT ITA NO. 2572/AHD/2006 ASSESSEES APPEAL IS PARTLY ALLOWED, ITA NO. 2737/AHD/2006 REVENUES APPEAL IS DISMISSED, IT A NO. 4386/AHD/2007 ASSESSEES APPEAL IS ALLOWED, ITA NO. 236/AHD/2008 REVENUES APPEAL IS DISMISSED, ITA NO. 4388/AHD/2007 ASSESSEES APPEAL IS ALLOWED, ITA NO. 238/AHD/2008 REVENUES APPEAL IS DISMISSED AND ITA NO. 790/AHD/2 012 ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 09 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD