M/s Nagreeka Exports Limited, Kolkata V. A.D.I.T Rg - 6,kolkata, Kolkata

ITA 455/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4776 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: S D VERMA
• Keywords: Business income; Transactions in derivatives; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 14A

Judgement Text

ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C, KOLKATA (BEFORE SHRI N.V.VASUDEVAN, J.M. &DR.A.L.SAINI, A.M .) ITA NO. 455/KOL/2013: ASSTT. YEAR : 2008-2009 M/S. NAGREEKA EXPORTS LIMITED 18, R.N. MUKHERJEE ROAD, KOLKATA- 700 001 PAN: AAACN 9999A VS ADDITIONAL C.I.T, RANGE-6, AAYKAR BHAWAN, KOLKATA- 700069 (APPELLANT) (RESPONDENT) ITA NO.578/KOL/2013 : ASSTT. YEAR : 2008-09 D.C.I.T., CIRCLE-6, KOLKATA VS M/S. NAGREEKA EXPORTS LTD. 18, R.N. MUKHERJEE ROAD, KOLKATA- 700 001 PAN: AAACN 9999A (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI S.D. VERMA, ADVOCATE DEPARTMENT BY: SHRI G. MALLIKARJUN A, CIT,DR DATE OF HEARING : 28.07.2016 DATE OF PRONOUNCEMENT : -2016 ORDER PER DR. A.L.SAINI, A.M .: THE CAPTIONED APPEAL FILED BY THE ASSESSEE AND THE CROSS APPEAL FILED BY THE REVENUE PERTAINING TO ASSESSMENT YEAR 2008-09, ARE DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- VI, KOLKATA IN APPEAL NO.33/CIT(A)-VI/CIR-6/11-12/KOL, DATED 21.12.2012, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE LD. ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) DATED 28 TH DECEMBER, 2010. ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 2 2. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE A SSESSEE IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND ENGA GED, INTER ALIA , IN THE MANUFACTURING OF YEARN/ TEXTILE PRODUCTS. THE ASSE SSEE FILED RETURN OF INCOME ON 1 ST OCTOBER, 2008 DECLARING A TOTAL INCOME OF RS.7,00,4 2,650/- AND IT WAS DULY PROCESSED UNDER SECTION 143(1). THEREAFTER, THE CAS E WAS SELECTED FOR SCRUTINY AND NOTICES WERE ISSUED UNDER SECTIONS 143(2)/ 142(1) O F THE ACT, AND ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 143(3). 3. SINCE THE APPEAL FILED BY THE ASSESSEE AND CROSS APPEAL FILED BY THE REVENUE RELATE TO THE SAME ASSESSEE AND INVOLVE COMMON ISSU ES, THEREFORE, THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST, WE DEAL WITH THE ASSESSEES APPEAL IN ITA NO .455/KOL/2013, WHICH CONTAINS THREE GROUNDS OF APPEAL. THE APPEAL FILED BY THE REVENUE IN APPEAL ITA NO.578/KOL/2013 WHEREIN THE REVENUE HAS RAISED ONE GROUND OF APPEAL WHICH IS IDENTICAL AND SIMILAR TO GROUND NO. 3 OF ASESSEE`S APPEAL THEREFORE, THE SAME WILL BE MERGED WITH ASSESSEE`S APPEAL AND ADJUDICATED T OGETHER. THE ASSESSEE IS ASSAILING THE DECISION OF THE LD.CI T(A) IN CONFIRMING THE FOLLOWING ADDITIONS WHICH WERE MADE BY THE ASSESSIN G OFFICER: ( 1). THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI/KOL WAS NOT JUSTIFIED IN UPHOLDING THAT A.O'S ACTION IN TREATING THE MARK TO MARKET LOSS ON ACCOUNT OF FOREX DERIVATIVES AMOUNTING TO RS.1,58,94,821/-AS N OTIONAL LOSS AND TREATING THE SAME AS UNASCERTAINED LIABILITY. WHILE UPHOLDING THE ACTION OF THE ASSESSING OFFICER THE LEARNED CIT(A)-VI IGNORED THE CASE LAWS RELIED UPON BY THE APPELLANT. (2). THAT IN THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI/KOL WAS NOT JUSTIFIED IN ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 3 UPHOLDING THAT A.O'S ACTION IN TREATING THE REPLACE MENT COST OF COMBERS AND RING FRAMES OF RS.4,52,50,588/- AS CAPITAL EXPENDIT URE WHICH WAS CLAIMED BY THE APPELLANT COMPANY AS REVENUE EXPENDITURE UNDER SECTION 37(1). (3). THAT IN THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI/KOL WAS NOT JUSTIFIED IN CALCULATING THE AMOUNT OF DISALLOWANCE UNDER SECTIO N 14A READ WITH RULE 8D AT RS.2,83,604/-. 4. GROUND NO.1 . FOREX DERIVATIVES AMOUNTING TO RS.1,58,94,821/- TRE ATING THE SAME AS UNASCERTAINED LIABILITY AND NOTIONAL LO SS . AS PER NOTES TO ACCOUNTS NO. 14(B) (SCHEDULE O), THE COMPANY HAS CHARGED AN AMOUNT OF RS.1,58,94,821/- TO THE PROFIT & LOSS A/C. IN RESPECT OF DERIVATIVE CONTRACTS OUTSTANDING AS ON 31 ST MARCH, 2008. THE LD. AO DID THE ADDITION OF RS. 1,58,94,821/- HOLDING THAT MARK TO MARKET LOSS ON ACCOUNT OF FOREX DERIVATIVE IS A NOTIONAL LOSS, THE DATE OF SETTLEME NT OF THE FOREX DERIVATIVE FALLS BEYOND 31/03/2008 AND THE CONTRACT WAS NOT MATURED AS ON 31/03/2008. THE LEARNED ASSESSING OFFICER COMPLETELY IGNORED THE SU BMISSIONS MADE BEFORE HIM BY THE ASSESSEE AND DISALLOWED THE LOSS ALLEGING IT TO BE NOTIONAL LOSS ON UNEXPIRED CONTRACT. AGGRIEVED FROM THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A) VI, KOLKATA, WHO HAS CONFIRMED THE ACTION OF THE LD. ASSESSING OFFICER. NOT BEING SATISFIED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. THE LD. A.R. FOR THE ASSESSEE HAS SUBMITTED THAT AS PER ACCOUNTING STANDARD-11 THE EFFECTS OF CHANGES IN FOREIGN EXCH ANGE RATES THE COMPANY IS UNDER MANDATE TO ACCOUNT GAIN OR LOSS OF FORWARD CO NTRACT. ACCOUNTING STANDARD - 30 FINANCIAL INSTRUMENTS DEALS WITH VARIOUS DERIV ATIVE PRODUCTS. NORMALLY, A COMPANY WHICH IS ENGAGED IN THE IMPORT AND EXPORT O F GOODS TAKES A FORWARD ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 4 CONTRACT TO LOCK THE PRICES AGAINST FLUCTUATION OF FOREIGN EXCHANGE RATES. THE COMPANY MAY ALSO ENTER INTO AN OPTION OR CROSS CURR ENCY SWAP TO PROTECT THE RISK OF FLUCTUATIONS IN THE INTEREST RATE AND FOREIGN EXCHA NGE RATES IN RESPECT OF AN UNDERLYING ASSET, AND LIABILITY. IN THE INSTANT CAS E THE COMPANY HAS ENTERED INTO THESE FOREX DERIVATIVE CONTRACTS TO HEDGE THE RISK OF INTEREST IN RESPECT OF RUPEE LOAN, THEREFORE THE UNDERLYING LIABILITY IN THE INS TANT CASE IS RUPEE LOAN. THE LD. AR FOR THE REVENUE HAS RELIED ON THE DECISI ON OF HON`BLE ITAT KOLKATA BENCH `B` IN ITA NO. 1241/KOL/2013 WHEREIN THE SIMI LAR IDENTICAL ISSUES WERE ADJUDICATED, VIDE PARA 25 AND 26 OF THE SAID DECISI ON WHICH ARE REPRODUCED BELOW: 25. APPLYING THE ABOVE OBSERVATIONS TO THE FACTS AN D CIRCUMSTANCES OF PRESENT CASE, WE FIND THAT THE CLAIMED LOSS UNDER C ONSIDERATION OCCURRED TO THE ASSESSEE ON ACCOUNT OF FIVE UNEXPIRED FOREX FO RWARD CONTRACTS I.E A LOSS INCURRED ON ACCOUNT OF REVALUATION ON CONTRACT ON L AST DAY OF ACCOUNTING PERIOD BEFORE DATE OF MATURITY OF FORWARD CONTRACT. THE LD. CIT-A OBSERVED THAT THE ASSESSEE HAS BEEN FOLLOWING A CONSISTENT A CCOUNTING POLICY FOR DETERMINING LOSS UNDER AS-11 AND AS-30 AS REQUIRED UNDER COMPANIES ACT AND IT IS TO BE NOTED THAT THE ACCOUNTING STANDARDS WERE ISSUED BY THE ICAI WHICH HAS RECEIVED JUDICIAL RECOGNITION. ACCORDINGL Y, THE ASSESSEE, THE GAIN OR LOSS ON REVALUATION OF THE OUTSTANDING CONTRACTS WAS BOOKED IN THE P.& L, A/C AS PER THE MANDATORY REQUIREMENTS OF RBI GUIDEL INES. THE HON`BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A (P) LTD. (SUPRA) HAS OBSERVED AT P.265 PARA 17 THAT THE CENTRAL GOVE RNMENT HAS MADE AS-11 MANDATORY. DURING THE COURSE OF FIRST APPELLATE PRO CEDINGS THAT THE CIT-A NOTICED THAT THE AO ALLOWED THE LOSS OF RS. 85,70,4 25/- FOR 2010-11 WHICH SUPPORTS TO SHOW THAT THE ASSESSEE HAS BEEN FOLLOWI NG CONSISTENTLY ACCOUNTING STANDARDS AND THE LIABILITY HAS BEEN ACC RUED FOR A PENDING OBLIGATION FOR EVERY YEAR I.E. THE DIFFERENCE WAS A RISING FOR MORE THAN ONE ACCOUNTING PERIOD. 26. WE, ACCORDINGLY, HOLD THAT DISALLOWANCE MADE B Y AO TREATING THE IMPUGNED AMOUNT OF RS. 54,23,955/- FOR A.Y. 2009-10 AS CONTINGENT AND NOTIONAL LOSS IS NOT JUSTIFIED AND THAT THE LOSS IN CURRED TO THE ASSESSEE ON ACCOUNT OF FIVE UNEXPIRED FOREX FORWARD CONTRACTS O N THE LAST DATE OF ACCOUNTING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT IS ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 5 NOT CONTINGENT AND IT IS A ACTUAL LOSS, IS ALLOWABL E. THUS, RESPECTFULLY, FOLLOWING THE OBSERVATIONS MADE BY THE SPECIAL BENC H SUPRA, THE GROUND NO- 2 RAISED BY THE APPELLANT REVENUE FAILS AND THE ORD ER OF CIT-A IS JUSTIFIED, CONSEQUENTLY GROUND NO-2 IS DISMISSED. 5.1 THE LD. AR FOR THE ASSESSEE HAS VEHEMENTLY SUBM ITTED THAT THE ABOVE CITED DECISION OF HON`BLE ITAT ,KOLKATA IS IDENTICAL TO T HE FACTS OF THE ASSESSEE UNDER CONSIDERATION. THE TREATMENT FOLLOWED BY THE ASSESS EE COMPANY IS IN LINE WITH THE MATCHING CONCEPT OF EXPENDITURE AND LIABILITY SINCE AS AT THE CLOSE OF THE ACCOUNTING YEAR THERE WAS A LIABILITY WHICH CANNOT BE IGNORED OR ELSE THE FINANCIAL STATEMENTS WOULD NOT REFLECT A TRUE AND FAIR VIEW O F THE ASSETS AND LIABILITIES AND CORRESPONDING PROFIT FOR THE YEAR. IN ADDITION TO T HIS, THE LD. AR HAS ALSO PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1. IN THE CASE OF - BANK OF BAHRAIN & KUWAIT (J 32 TTJ 505) (MUMBAI ITAT SB) WHEREIN IT HAS BEEN HELD THAT LOSS ON ACCO UNT OF VALUATION OF FORWARD CONTRACTS ON THE LAST DAY OF ACCOUNTING PERIOD IS AN ALLOWABLE BUSINESS LOSS. 2. WOODWARD GOVERNOR INDIA (P) LTD. (2009) 312 ITR 254 (SC). 5.2 THE LD. AR FOR THE ASSESSEE STATED THAT IN VIEW OF DETAILED SUBMISSIONS MADE AND CASE LAW CITED ABOVE, IT IS CLEAR THAT THE BUSINESS LOSS OF RS..1,58,94,8211- ON ACCOUNT OF MARK TO MARKET OF U NEXPIRED FOREX DERIVATIVES CONTRACTS IS ALLOWABLE AND PRAYED THAT ADDITION MAD E ON THIS ACCOUNT MAY BE DELETED. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE LD. AO AND THE LD. CIT(A) AND CITED BEFORE US THE CBDT CIRCULAR NO.3/2010 DATED 23 RD MARCH, 2010, WHEREIN THE ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 6 CBDT HAS INSTRUCTED TO THE DEPARTMENT THAT MARK TO MARKET LOSSES WHICH ARE IN THE NATURE OF SPECULATION SHOULD NOT BE ALLOWED AS A BU SINESS EXPENDITURE. LD. DR STATED THAT IT IS A NOTIONAL LOSS WHICH WILL BE ACT UALLY DEDUCTIBLE FROM THE INCOME OF THE ASSESSEE ON THE MATURITY OF THE CONTRACT. THE I SSUE UNDER CONSIDERATION IS IN RESPECT OF UNSETTLED CONTRACTS AND MOREOVER THERE I S NO ANY UNDERLYING ASSETS AND LIABILITY TO HEDGE THE RISK. HE FURTHER SUBMITTED T HAT LOSS ARISING FROM MARK TO MARKET POSITION OF FINANCIAL INSTRUMENTS IS DIFFERE NT AND CANNOT BE CONSIDERED ALLOWABLE AS DEDUCTION AS SUCH LOSS HAS NOT ARISEN SO FAR IN THE NORMAL COURSE OF BUSINESS OPERATION OF THE ASSESSEE. THE EXCHANGE RA TES ARE STILL LIABLE TO FLUCTUATE OF THE MARKET IN FUTURE, THEREFORE, IT IS KIND OF A SP ECULATIVE TRANSACTION WHICH SETTLES OTHERWISE THAN BY THE ACTUAL DELIVERY WITHIN THE ME ANING OF SUB-SECTION 5 OF SECTION 43 OF THE INCOME TAX ACT, 1961. THE LD. DR ALSO RELIED ON THE FOLLOWING JUDGMENTS. 1). ACIT-VS- K. MOHAN & COMPANY PRIVATE LTD., BANGA LORE ITAT 126 ITD 59 2) D. KISHORE COMMERCIAL & COMPANY, MUMBAI ITAT, 2 SOT 769 3) S. VINOD KUMAR VS- ACIT, MUMBAI ITAT IN ITA NO. 506/MUM/13 ALL THE JUDGMENTS CITED ABOVE SPEAK ABOUT THE SPECU LATIVE TRANSACTIONS WHICH DO NOT HAVE ANY UNDERLYING ASSETS AND LIABILITIES TO H EDGE AND THESE TRANSACTIONS SETTLE IN FUTURE WITHOUT ACTUAL DELIVERY OF GOODS. 7. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE LD. AR FOR THE ASSESSEE, SIN CE THE PROPOSITION CANVASSED BY LD AR IS SUPPORTED BY HON`BLE ITAT-KOLKATA, CITED S UPRA. THERE IS AN UNDERLYING LIABILITY ( LOAN) TO HEDGE THE RISK AND HENCE THE D ERIVATIVE CONTRACT UNDER CONSIDERATION IS FOR THE PURPOSE OF BUSINESS AND NO T FOR THE PURPOSE TO SPECULATE THE ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 7 TRANSACTION WITHOUT AND UNDERLYING ASSETS AND LIABI LITIES. IN THE INSTANT CASE THERE IS AN UNDERLYING LIABILITY AND PURPOSE OF THIS DERIVAT IVE CONTRACT IS TO MINIMISE THE BUSINESS RISK BY WAY OF HEDGING THEREFORE IT IS NOT A SPECULATIVE TRANSACTION AS LD. DR HAS POINTED OUT (SUPRA), HENCE WE DIRECT THE LD. CIT (A) TO DELETE THE ADDITION. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 9. GROUND NO. 2 R EPLACEMENT COST OF COMBERS AND RING FRAMES OF RS.4,52,50,588/- THE ISSUE CONTESTED BY THE ASSESSEE IN THE SECOND G ROUND OF APPEAL RELATES TO REVENUE EXPENDITURE OF RS. 4,52,50,588/- INCURRED B Y THE ASSESSEE TO REPLACE COMBERS AND RING FRAMES IN THE MANUFACTURING DEPART MENT. IN THE AUDITED ACCOUNTS OF THE ASSESSEE, THE REPLACEMENT EXPENDITURE FOR CO MBERS AND RING FRAMES HAS BEEN TREATED AS CAPITAL EXPENDITURE. BUT IN THE COMPUTAT ION OF TOTAL INCOME FOR INCOME TAX PURPOSE THE ASSESSEE HAS REDUCED THE REPLACEMEN T COST OF 4,52,50,588/- [5,32,06,580-79,55,992] FOR RING FRAMES AND COMBERS FROM BUSINESS INCOME. THAT IS, FOR THE PURPOSE OF INCOME TAX, THE ASSESSEE HAS CHARGED THE ENTIRE COST OF REPLACEMENT TO PROFIT AND LOSS ACCOUNT ( REVENUE EX PENDITURE), HOLDING THAT EACH MACHINE IS AN INTEGRAL PART OF THE SPINNING MILL, A ND THE SAME IS OBJECTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HELD THAT EACH MACHINE INCLUDING THE RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPAB LE OF INDEPENDENT AND SPECIFIC FUNCTION AND THEREFORE, THE EXPENDITURE IN CURRED FOR REPLACEMENT OF THE NEW MACHINE WOULD NOT COME WITHIN THE MEANING OF T HE WORKS `CURRENT REPAIRS`. HE HAS ALSO RELIED UPON TWO DECISIONS OF THE HON`BL E SUPREME COURT IN THE CASE OF M/S SARAVANA SPINNING MILLS PVT. LTD. [2007] 293 IT R 201 AND M/S SRI MANGAYARKARASI MILLS (P) LTD [2009] 315 ITR 114 (SC ) WHICH SUPPORT THE VIEW OF THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO N OTED THAT ON THE SIMILAR SET OF FACTS, THE HON`BLE ITAT HAS UPHELD THE ACTION OF TH E ASSESSING OFFICER IN TREATING ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 8 THE EXPENDITURE INCURRED BY THE ASSESSEE AS A CAPIT AL IN THE ASSESSMENT YEAR 2005- 06 IN THE ASSESSEE`S OWN CASE, AND THE CIT (A) HAS ALSO UPHELD THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE INCUR RED BY THE ASSESSEE AS A CAPITAL IN THE ASSESSMENT YEAR 2006-07 IN THE ASSESSEE`S OW N CASE. AGGRIEVED FORM THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE LD. CIT (A)-VI, KOLKATA, WHO HAS CONFIRMED T HE ACTION OF THE ASSESSING OFFICER. NOT BEING SATISFIED FROM THE ORDER OF THE CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 10. BEFORE US, THE LD. AR FOR THE ASSESSEE HAS SUB MITTED THAT THE ENTIRE OPERATION IN THE TEXTILE AND SPINNING MILLS RIGHT FROM THE BL OW ROOM TO THE CONE WINDING SECTION OF THE MILL IS TO BE CONSIDERED A SINGLE PL ANT AND THE OUTPUT FROM THE VARIOUS INTERMEDIATE STAGES OF PRODUCTION COULD NOT BE SOLD OR MARKETED AND USED FOR OTHER PURPOSES. THEREFORE, THE RING FRAMES CANNOT BE WORK ED INDEPENDENTLY BUT ONLY AS A PART OF THE SPINNING UNIT. THERE IS NO NEW ASSETS CREATED IN THE PROCESS OF REPLACEMENT OF WORN OUT MACHINES. 11. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE H AS SUBMITTED THAT EACH MACHINE INCLUDING THE RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFIC FUNCTION AND TH EREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT OF THE NEW MACHINE WOULD N OT COME WITHIN THE MEANING OF THE WORKS `CURRENT REPAIRS`. HE HAS REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER AND RELIED UPON TWO DECISIONS OF THE HON`BL E SUPREME COURT IN THE CASE OF M/S SARAVANA SPINNING MILLS PVT. LTD. [2007] 293 IT R 201 AND M/S SRI MANGAYARKARASI MILLS (P) LTD [2009] 315 ITR 114 (SC ). HE ALSO POINTED OUT THAT ON THE SIMILAR SET OF FACTS, THE HON`BLE ITAT HAS U PHELD THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE INCURRED BY THE ASSESSEE AS A CAPITAL IN THE ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 9 ASSESSMENT YEAR 2005-06 IN THE ASSESSEE`S OWN CASE, AND THE CIT (A) HAS ALSO UPHELD THE ACTION OF THE ASSESSING OFFICER IN TREAT ING THE EXPENDITURE INCURRED BY THE ASSESSEE AS A CAPITAL EXPENDITURE IN THE ASSESS MENT YEAR 2006-07 IN THE ASSESSEE`S OWN CASE. 12. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE LD. DR FOR REVENUE, SINCE TH E PROPOSITION CANVASSED BY LD. DR, IS SUPPORTED BY THE TWO DECISIONS OF THE HON`BL E SUPREME COURT REFERRED ABOVE. MOREOVER,ON THE SIMILAR SET OF FACTS, THE HO N`BLE ITAT HAS UPHELD THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXP ENDITURE INCURRED BY THE ASSESSEE AS A CAPITAL EXPENDITURE IN THE ASSESSMENT YEAR 200 5-06 IN THE ASSESSEE`S OWN CASE. UNDER THESE SET OF FACTS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD.CIT (A). 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 14. GROUND NO. 3 OF ASSESSEE`S APPEAL: D ISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT RS.2,83,604/- GROUND NO. 1 OF REVENUE`S APPEAL IN ITA NO. 578/KOL /2013: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW,WHEN THE L D. CIT (A) HAS UPHELD THE APPLICABILITY OF COMPUTATION OF THE DISALLOWANCE U/ S 14A TO BE WORKED OUT AS PER THE PRESCRIBED PROCEDURE U/S 8D, HOWEVER, THE LD. C IT(A) GROSSLY ERRED IN GIVING LEEWAY WHILE CONSIDERING THE BALANCE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS ON T HE LAST DAY OF THE PREVIOUS YEAR, WHEN THERE IS NO SUCH PROVISION OR RELAXATION U/S 8 D (II) & (III). ASSESSING OFFICER DISALLOWED RS.30,00,514/- UNDER SECTION 14A OF THE I.T. ACT,READ WITH RULE 8D. THE ASSESSEE HAS SUO-MOTO DI SALLOWED U/S 14A OF THE ACT ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 10 AT RS. 1,80,880/- AS STT PAID ON THE INVESTMENT. TH E ASSESSEE HAS EARNED DIVIDEND OF RS. 57500/- ONLY.THE ASSESSEE HAS OPENING BALANC E OF INVESTMENT OF RS. 25,57,753/- AND PURCHASED SHARE WORTH OF RS. 144,80 4,322/- ON 26/03/2008. AGGRIEVED FORM THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE LD. CIT (A)-VI, KOLKATA, WHO HAS CONFIRMED T HE ACTION OF THE ASSESSING OFFICER. NOT BEING SATISFIED FROM THE ORDER OF THE CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 15. BEFORE US, THE LD. AR FOR THE ASSESSEE HAS SUB MITTED THAT ASSESSING OFFICER HAS DISALLOWED RS.30,00,514/- ARBITRARILY WITHOUT A PPLYING RULE 8D AND WITHOUT RECORDING ANY SATISFACTION IN THE ASSESSMENT ORDER. THE LD. CIT (A) HAS DELETED THE ADDITION OF RS. 30,00,514/- MADE BY ASSESSING OFFIC ER BUT THEN WORKED OUT DISALLOWANCE AT RS. 102,724/- BY APPLYING RULE 8D(2 ) (II) AND RULE 8D (2) (III). THE REVENUE IS IN CROSS APPEAL AGAINST THE DELETION OF RS. 30,00,514/- AND WORKING OUT ADDITIONAL DISALLOWANCE AT RS. 102,724/- IN OR DER TO UNDERSTAND, HOW THE LD. CIT(A) HAS WORKED OUT THE SAID ADDITIONAL DISALLOWA NCE, THE RELEVANT PARA NOS. 38, 39 AND 40 OF HIS ORDER ARE REPRODUCED BELOW: 38. THE APPELLANT HAS SUBMITTED THAT BY FOLLOWING T HE JUDGEMENT OF THE HON`BLE ITAT, KOLKATA IN THE CASE OF BALARAMPUR CHI NI MILLS LTD. VS. DCIT (SUPRA), THE NEXUS BETWEEN FUNDS BORROWED AND INVE STMENTS MADE HAS TO HAVE A LINK OR NEXUS FOR MAKING DISALLOWANCE. THERE FORE, THE RULE 8D IS APPLIED ONLY ON THE AMOUNT OF RS.25,57,753/- TAKING THE OPENING VALUE AS THE AVERAGE INVESTMENTS DUE TO THE PECULIAR FACT THAT A HUGE INVESTMENT WAS DONE AT THE FAG END OF THE YEAR ON 26-03-2008 ONLY BECAUSE OF WHICH THE AVERAGE VALUE HAS INCREASED TO RS. 7,47,,09,914/-. THE CALCULATION OF DISALLOWANCE ON THE BASIS OF RS. 25,57,753/- TAKING THE OPENING VALUE AS THE AVERAGE INVESTMENTS UNDER RULE 8D (2) (II) AMOUNTS TO RS. 89,936/- AND UNDER RULE 8D (2) (III) AMOUNTS TO RS. 12,788/- THE REBY TOTALING TO RS. 1,02,724/- ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 11 39.THE APPELLANT`S SUBMISSIONS THAT THERE I S AN INCREASE IN RESERVES AND SURPLUS,AS COMPARED TO THE IMMEDIATELY PRECEDING PR EVIOUS YEAR AND SECURED TERM LOANS HAVE REDUCED AS COMPARED TO THE IMMEDIAT ELY PRECEDING PREVIOUS YEAR WHICH SIGNIFIES THAT NO NEW INVESTMENTS WERE MADE O UT OF SECURED BORROWED FUNDS. FURTHER, THAT THE WORKING CAPITAL LOANS HAVE INCREA SED AS COMPARED TO IMMEDIATELY PRECEDING PREVIOUS YEAR AND THIS INCREA SE HAVE BEEN TOTALLY UTILIZED FOR BUSINESS PURPOSE OF THE COMPANY SINCE THERE IS A CORRESPONDING INCREASE IN THE NET CURRENT ASSETS AS COMPARED TO IMMEDIATELY PRECE DING PREVIOUS YEAR ARE NOT ACCEPTABLE SINCE IT IS A GENERAL OBSERVATION AND TH E FUNDS FOR INVESTMENTS HAVE BEEN USEDFROM COMMON KITTY. ON THE DATE OF INVESTME NT APPELLANT HAD BEEN PAYING INTEREST ON HUGE BORROWINGS AND THERE IS NO DIRECT INVESTMENT FROM ANY EXCLUSIVE CAPITAL FUND HAVING ANY DIRECT NEXUS OF ITS ORIGIN AND BEING INVESTED AS INVESTMENTS EARNING EXEMPTED INCOME.THEREFORE, THE APPELLANT`S SUBMISSION THAT ITS OWN CAPITAL FUND FREE FROM INTEREST HAS BEEN INVESTED I S HELD TO BE DEVOID OF MERIT. 40. THEREFORE, IN THE FACTS AND CIRCUMSTANCES AS D ISCUSSED AND FOLLOWING THE JUDGEMENTS OF THE HON`BLE APPELLATE AUTHORITIES INC LUDING THE HON`BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADER S LTD. VS. CIT-III, KOLKATA & DHANUKA & SONS VS. CIT ( CENTRAL)-1, THE HON`BLE SP ECIAL BENCH OF ITAT IN THE CASE OF CHEMINVEST LTD. V. INCOME TAX OFFICER, NEW DELHI AND THE HON`BLE ITAT DELHI BENCH H IN THE CASE OF TECHNOPAK ADVISORS ( P) LTD V. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-16, NEW DELHI, TH E DISALLOWANCE OF RS. 1,80,880/- AS STT AND RS. 1,02,724/- TOTALING TO RS . 2,83,604/- AS PER RULE 6D READ WITH SECTION 14A IS UPHELD. THE GROUND OF APPEAL IS PARTLY ALLOWED. THE ABOVE CITED WORKING OF LD CIT(A) AS PER SECTION 14A , READ WITH RULE 8D SEEMS TO BE CORRECT. HE HAS RIGHTLY EXCLUDED THE IN VESTMENT MADE BY ASSESSEE ON 26/03/2008 AT RS. 1,44,804,322 TO COMPUTE THE AVERA GE AMOUNT BECAUSE THE INVESTMENT WAS DONE BY THE ASSESSEE AT THE END OF T HE ACCOUNTING YEAR. THE LD.CIT (A) WORKED OUT THE DISALLOWANCE AS PER RULE 8D (2) (II) BY TAKING OPENING BALANCE OF INVESTMENT AT RS. 25,57,753/- THEREFORE THE TOT AL DISALLOWANCE WORKED OUT BY HIM WAS [ 25,57,753 X6,38,29029/1815274370] AT RS. 89,936/- WHEREAS AS PER AO THE DISALLOWANCE WAS AT RS. 26,26,964/- AND AS PER RULE 8D (2) (III) THE DISALLOWANCE WORKED OUT BY HIM WAS [ RS.25,57,753 X 0.5] AT RS. 12788/- WHEREAS AS PER AO THE DISALLOWANCE WAS AT RS.3,73,550/-. TH US, OUT OF RS.30,00,514/- THE ITA NOS.455 & 578/KOL/2013 M/S. NAGREEKA EXPORTS LTD. 12 CIT(A) HAS DELETED RS.28,97,790 (3000514-102724) AN D RETAINED THE ADDITION OF RS. 102724/-. THE SAID WORKING HAS BEEN DONE BY THE LD.CIT(A) AS PER THE PROCEDURE LAID DOWN IN SECTION 14A READ WITH RULE 8 D, THEREFORE WE DID NOT FIND ANY MISTAKE IN THE DISALLOWANCE MADE BY LD. CIT (A) , HENCE WE CONFIRM THE ORDER OF THE LD. CIT (A). 16. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE AND REVENUE ON THIS ISSUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03-08-2016 SD/- SD/- (N.V.VASUDEVAN) (DR. A.L.SAI NI) JUDICIALMEMBER ACCOUNTANT MEMBER DATED: 03/08/2016 TALUKDAR (SR.PS) COPY OF THE ORDER FORWARDED TO: 1. REVENUE 2 ASSESSEE 3. THE CIT-I, 4. THE CIT (A)-I, 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES