CHAMBAL FERTILISERS AND CHEMICALS LIMITED, Kota V. JCIT, Kota

ITA 461/JPR/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4629 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 08-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Keywords: Capital asset; Depreciation; Business expenditure; Wholly owned subsidiary; Tax effect; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 14A; 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO. 461/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2011-12 M/S CHAMBAL FERTILISERS & CHEMICALS LIMITED, DISTRICT- KOTA. CUKE VS. THE JCIT, RANGE-2, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACC 9762 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 575/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2011-12 THE ACIT, CIRCLE-2, KOTA. CUKE VS. M/S CHAMBAL FERTILISERS & CHEMICALS LIMITED, DISTRICT- KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACC 9762 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI PERCY PARDIWALA (ADV.) SHRI M.L. PATODI (ADV.) MRS. RITU G.P. DAS (C.A) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDER MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 19/07/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 17/10/2018 VKNS'K@ ORDER ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 2 PER: VIKRAM SINGH YADAV, A.M. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE AGAINST THE ORDER OF CIT(A), KOTA DATED 30.03.2015 FOR A.Y. 2011-12. 2. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. THE RESPECTIVE GROUNDS OF THE APPEAL ARE AS UNDER:- ITA NO. 461/JP/2015 (GROUND OF ASSESSEES APPEAL): 1. THAT THE L'D JOINT COMMISSIONER OF INCOME TAX, RANGE 2, KOTA ERRED IN ALLOWING THE DEPRECIATION @15% ON VID EO CONFERENCING EQUIPMENT INSTEAD OF 60% AS IS APPLICA BLE AS PER APPENDIX I TO THE INCOME TAX AND FURTHER ERRED IN M AKING THE ADDITION OF RS.8,83,349/- AND THE L'D COMMISSIONER OF INCOME TAX (APPEALS), KOTA FURTHER ERRED IN CONFIRMING THE DIS ALLOWANCE OF DEPRECIATION OF RS.8,83,349/- UNDER THE FACTS AND C IRCUMSTANCES OF THE CASE. HENCE THE ADDITION OF RS. 8,83,349/- D ESERVES TO BE DELETED. 2. THE L'D JOINT COMMISSIONER OF INCOME TAX, RANGE 2, KOTA ERRED IN DISALLOWING THE REVENUE EXPENDITURE OF RS.1,91,59,945/- IN RESPECT OF EXPENDITURE INCURRED ON CONSTRUCTION OF ANICUT THAT WOULD REMAIN THE PROPER TY OF THE GOVERNMENT . THE L'D CIT(APPEALS) FURTHER ERRED IN ALLOWING ONLY RS. 38,31,989/- BY SPREADING THE EXPENDITURE O VER A PERIOD OF 5 YEARS AS ON THE BASIS OF 'LONG TERM BEN EFIT' ACCRUING TO THE ASSESSEE. SINCE THE EXPENDITURE IS REVENUE IN NATURE AND HENCE THE ADDITION OF BALANCE MAINTAINED OF RS.1,53,27.956/- SHOULD BE ALLOWED. 3. THAT THE L'D JOINT COMMISSIONER OF INCOME TAX, R ANGE-2, KOTA ERRED IN DISALLOWING RS.13,75,000/- U/S 14A ON ESTI MATED BASIS IN RESPECT OF EXPENSES ATTRIBUTABLE TO MAKING OF INVES TMENT IN ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 3 MUTUAL FUNDS AND THE L'D CIT(APPEALS) ERRED IN CONF IRMING THE SAME WITHOUT PROVING ANY NEXUS BETWEEN INVESTMENTS AND EXPENDITURE. HENCE THE ADDITION MADE ON THIS ACCOUN T DESERVES TO BE DELETED. 4. THAT THE L'D JOINT COMMISSIONER OF INCOME TAX, R ANGE-2 , KOTA ERRED IN DISALLOWING INTEREST OF RS. 25,78,65, 553/- IN RESPECT OF BORROWED FUNDS ALLEGED TO BE TAKEN FOR I NVESTMENT MADE IN THE SUBSIDIARIES AND THE L'D COMMISSIONER O F INCOME TAX (APPEALS), KOTA FURTHER ERRED IN PARTIALLY CONF IRMING THE DISALLOWANCE OF INTEREST OF RS.36,92,000/- , UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE THE PARTIAL ADDITI ON OF RS. 36,92,000/-MAINTAINED SHOULD BE SET ASIDE. 5. THAT THE L'D JOINT COMMISSIONER OF INCOME TAX, R ANGE-2, KOTA ERRED IN DISALLOWING INTEREST OF RS. 61,96,798 /- IN RESPECT OF BORROWED FUNDS ALLEGED TO BE TAKEN FOR LOANS AND ADVANCES GIVEN TO THE SUBSIDIARIES AND THE L'D COMMISSIONER OF INCOME TAX (APPEALS), KOTA FURTHER ERRED IN MAINTAINING TH E ADDITION OF INTEREST OF RS. 61,96,798/- UNDER THE FACTS AND CIR CUMSTANCES OF THE CASE. HENCE, THE ADDITION MADE ON THIS ACCOU NT SHOULD TO BE DELETED. ITA NO. 575/JP/2015 (GROUND OF REVENUES APPEAL): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN:- I) DELEING THE ADDITION OF RS. 1.00 CRORE MADE BY T HE A.O ON ACCOUNT OF LOSS ON DIMINUTION IN THE VALUE OF FERTI LIZER BONDS; II) DELETING THE ADDITION OF RS. 1061.98 LACS BEING COMPENSATION RECEIVED BY THE ASSESSEE FROM GOVT. ON ACCOUNT OF L OSS ON SALE OF FERTILIZERS BONDS SINCE THE INCOME ACCRUED TO THE A SSESSEE DURING A.Y. 2011-12 THOUGH THE COMPENSATION WAS ACTUALLY R ECEIVED IN A.Y. 2012-13; ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 4 III) IN DELETING THE ADDITION OF RS. 38,31,989/- OU T OF TOTAL ADDITION OF RS. 1,91,59,945/- MADE BY THE A.O. ON ACCOUNT OF CAPITALIZATION OF ANICUT EXPENSES; IV) DELETING THE ADDITION OF RS. 42,38,664/- MADE B Y THE A.O. ON ACCOUNT OF LOSS ON REVALUATION OF INVENTORIES; V) ALLOWING CLUB EXPENSES OF RS. 18,20,700/- PAID B Y ASSESSEE FOR MEMBERSHIP OF ITS EMPLOYEES; VI) DELETING THE ADDITION OF RS. 24,49,090/- MADE B Y THE A.O. ON ACCOUNT OF LOSS ON DERIVATIVE TRANSACTIONS; VII) DELETING THE ADDITION OF RS. 1,09,38,420/- ON ACCOUNT OF DEPRECIATION DISALLOWED ON CATALYST; VIII) DELETING THE ADDITION OF RS. 1,52,06,275/- MA DE OUT OF INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS ON ACCOUNT OF INVESTMENT IN MUTUAL FUNDS UNITS; IX) CURTAILING DISALLOWANCE OUT OF INTEREST PAID ON BORROWED FUNDS TO RS. 36,92,000/- AS AGAINST THAT OF RS. 25,78,65, 553/- MADE BY THE A.O. SINCE THE DECISION OF LD. CIT(A) IS NOT IN CONFORMITY WITH THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (20 06) 286 ITR 1 (PUNJAB) TO THE EFFECT THAT ALL THE BORROWED FUNDS AND ASSESSEES OWN FUNDS GO INTO COMMON KITTY; X) ALLOWING RENT OF RS. 12,96,000/- PAID TO A PERSO NS SPECIFIED U/S 40(A)(IA); XI) DELETING DISALLOWANCE OF RS. 1,97,58,45,000/- M ADE U/S 40(A)(IA) DUE TO FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE U/S 194J IN RESPECT OF GAS TRANSMISSION CHARGES PAI D TO M/S GAS AUTHORITY OF INDIA LTD. (GAIL) AND M/S INDIAN OIL C ORPORATION (IOC); ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 5 XII) HOLDING THAT THE DONATION OF RS. 51,11,399/- M ADE BY THE ASSESSEE TO DAV TRUST WAS EXPENDITURE INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE; 3. AT THE OUTSET, THE LD. AR REQUESTED FOR PERMISSI ON TO RAISE FOLLOWING ADDITIONAL GROUND OF APPEAL AS UNDER:- (6) FOLLOWING THE FINDINGS GIVEN BY THE HONBLE BE NCH WHILE DISPOSING OFF GROUND NO. 9 OF THE DEPARTMENTAL APPE AL (ITA NO. 389/JP14) OF THE ASSESSMENT YEAR 2010-11 VIDE ITS O RDER DATED 31.01.2018 THAT ASSESSEE COMPANY WOULD BE ALLOWED T O CLAIM THE LOSS IN THE YEAR OF ACTUAL DISPOSAL OF FERTILIZER B ONDS AND NOT IN THE YEAR ON ACCOUNT OF VALUATION OF SUCH FERTILIZER BO NDS; APPELLANT SHOULD BE ALLOWED BUSINESS LOSS OF RS. 2155.00 LACS RELATED TO VALUE OF THE FERTILIZERS BONDS SOLD DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2011-12 AND HENCE SHOULD BE ALLOWED . 4. THE LD. AR HAS SUBMITTED THAT THE ADDITIONAL GRO UND IS PURELY A CONSEQUENTIAL GROUND ARISING OUT OF ORDER AND DIREC TIONS PASSED BY THIS BENCH IN ITA NO. 389/JP/14 DATED 31.01.2018 FOR AY 2010-11. AFTER HEARING BOTH THE PARTIES, THE ADDITIONAL GROUND BEI NG A PURELY CONSEQUENTIAL GROUND PURSUANT TO ORDER PASSED FOR A Y 2010-11 IS BEING ADMITTED FOR ADJUDICATION. 5. FIRSTLY, WE REFER TO REVENUES GROUNDS OF APPEAL , OTHER THAN COMMON GROUNDS OF APPEAL WHICH WE SHALL BE DISCUSSI NG ALONG WITH THE ASSESSEES GROUNDS OF APPEAL. 6. AT THE OUTSET, THE LD AR SUBMITTED THAT GROUNDS NO. 1, 5, 7, 10, 11 AND 12 OF THE REVENUES APPEAL ARE COVERED IN FA VOUR OF THE ASSESSEE BY THE EARLIER DECISIONS OF THE COORDINATE BENCHES. IT WAS FURTHER SUBMITTED THAT THERE ARE NO CHANGES IN THE FACTS AND ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 6 CIRCUMSTANCES OF THE CASE, HENCE, THE EARLIER DECIS IONS OF THE COORDINATE BENCHES MAY KINDLY BE FOLLOWED. 7. PER CONTRA, THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER BUT FAIRLY ADMITTED THAT ALL THES E ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER DECISIONS OF THE COORDINATE BENCHES THOUGH THE SAME HAVE NOT BEEN ACCEPTED BY T HE DEPARTMENT. 8. WE NOW REFER TO THE DECISION OF THE BENCH IN ITA NO. 306/JP2014, 389/JP/2014 & 638/JP/2014 DATED 31.01.2 018 FOR A.Y. 2010-11 WHEREIN THE BENCH FOLLOWING ITS EARLIE R DECISIONS IN ITA NO. 459& 588/JP/2012 DATED 28.10.2016 FOR A.Y. 2008 -09 AND ITA NO. 470 & 412/JP/2013 DATED 25.09.2017 FOR AY 2009-10 H AS DISPOSED OFF THESE GROUNDS OF APPEAL EXCEPT FOR GROUND NO. 1 WHI CH CAME UP FOR CONSIDERATION FOR THE FIRST TIME IN AY 2010-11. THE RELEVANT FINDINGS IN RESPECT OF EACH OF THESE GROUNDS OF APPEAL ARE REPR ODUCED AS UNDER:- GROUND NO. 1 RELATING TO LOSS ON DIMINUTION IN THE VALUE OF FERTILIZERS BONDS: 15. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE ABOVE STATED FACTUAL MATRIX AND ARE OF THE VIEW THAT IT IS A CAS E OF SUBSTITUTION OF SUBSIDY DEBT OF THE ASSESSEE COMPANY WHEREBY THE AS SESSEE COMPANY HAS RECEIVED FERTILIZERS BONDS FROM THE GOVERNMENT OF INDIA OF FACE VALUE IN LIEU OF AND EQUIVALENT TO SUBSIDY DEBT DUE FROM THE GOVERNMENT OF INDIA. THE GOVERNMENT OF INDIA INSTEA D OF SETTLING THE SUBSIDY DUES IN CASH HAS ISSUED FERTILIZERS BONDS T O THE ASSESSEE COMPANY AND IT CONTINUES TO REMAIN LIABLE TO THE AS SESSEE COMPANY, BEING THE ISSUE AUTHORITY OF THE FERTILIZERS BONDS, TO REPAY THE DEBT BY ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 7 WAY OF REDEMPTION OF THESE FERTILIZERS BONDS ON OR BEFORE THE SPECIFIED MATURITY PERIOD AND ALSO REMAINS LIABLE TO PAY THE COUPON RATE AS SPECIFIED WHILE ISSUING THESE FERTILIZERS BONDS. WE ACCORDINGLY AGREE WITH THE LD. AR CONTENTIONS THAT THE GOVERNMENT SU BSTITUTED ITS SHORT TERM LIABILITY INTO LONG TERM LIABILITY BY WAY OF I SSUANCE OF THE FERTILIZERS BONDS. THESE FERTILIZERS BONDS THEREFORE CONTINUE T O REPRESENT THE SUBSIDY DEBTS OF THE ASSESSEE COMPANY. 16. NOW COMING TO LOSS ON ACCOUNT OF THE VALUATION OF FERTILIZERS BONDS, IT WAS SUBMITTED BY THE LD AR THAT THERE WAS A FALL IN THE MARKET VALUE OF THESE BONDS AND THE ASSESSEE COMPANY, THOU GH HAD MADE A PROVISION IN THE EARLIER YEAR, HAS DECIDED TO WRITE OFF THE FALL IN THE VALUE OF THESE BONDS BY AN AMOUNT OF RS. 42.10 CR AND THE SAME WAS CLAIMED AS A BUSINESS LOSS. IN SUPPORT, THE LD AR HAS PLACE D RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN C ASE OF PATNAIK & CO LTD VS CIT REPORTED IN 27 TAXMAN 287. 17. IN THE CASE OF PATNAIK & CO LTD, THE ISSUE FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT WAS 'WHETHER, ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, THE LOSS OF RS. 53,650 S USTAINED BY THE ASSESSEE ON THE SALE OF THE GOVERNMENT LOAN IS A CA PITAL LOSS OR A REVENUE LOSS?' THE FACTS AND THE FINDINGS OF THE HONBLE SUPREME C OURT IN THAT CASE ARE REPRODUCED AS UNDER: 2. THE ASSESSEE DEALS IN AUTOMOBILES AND ALSO SELL S SPARE MOTOR PARTS. FOR THE ASSESSMENT YEAR 1963-64, THE RELEVANT ACCOU NTING PERIOD BEING ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 8 THE YEAR ENDED 31-3-1963, THE ASSESSEE CLAIMED A LO SS OF RS. 53,650 SUSTAINED BY IT ON DISPOSING OF ITS SUBSCRIPTION TO THE ORISSA GOVERNMENT FLOATED LOAN, 1972. IT CLAIMED THAT THE LOSS SUFFERED BY IT WAS REVENUE LOSS AND, THEREFORE, DEDUCTIBLE AGAINST ITS PROFITS FOR THE YEAR. THE ITO DISALLOWED THE LOSS IN THE VIEW THAT IT WAS A CAPITAL LOSS,. THE ASSESSEE'S APPEAL WAS DISMISSED BY THE AAC. BUT ON SECOND APPEAL THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSE E THAT THE SUBSCRIPTION TO THE GOVERNMENT LOAN WAS CONDUCIVE T O ITS BUSINESS AND THAT THE LOSS AROSE IN THE COURSE OF THE BUSINESS, AND THAT THEREFORE, THE ASSESSEE WAS ENTITLED TO A DEDUCTION OF THE LOSS CL AIMED BY IT. 5. ACCORDING TO THE STATEMENT OF THE CASE DRAWN UP ON THE BASIS OF THE APPELLATE ORDER OF THE TRIBUNAL THE ASSESSEE WAS TO LD THAT IF IT SUBSCRIBED FOR THE GOVERNMENT LOAN PREFERENTIAL TRE ATMENT WOULD BE GRANTED TO IT IN THE PLACING OF ORDERS FOR MOTOR VE HICLES REQUIRED BY THE VARIOUS GOVERNMENT DEPARTMENTS AND TO THE FURTHER B ENEFIT OF AN ADVANCE FROM THE GOVERNMENT UP TO 50 PER CENT OF TH E VALUE OF THE ORDERS PLACED. PURSUANT TO THAT UNDERSTANDING, AN A DVANCE TO THE EXTENT OF RS. 18,37,062 WAS RECEIVED BY THE ASSESSE E AND A CIRCULAR WAS ALSO ISSUED BY THE STATE GOVERNMENT TO VARIOUS DEPARTMENTS TO MAKE PURCHASES OF THE VEHICLES REQUIRED BY THEM FRO M THE ASSESSEE. BECAUSE OF THE ADVANCE RECEIVED FROM THE GOVERNMENT , THE ASSESSEE WAS ABLE TO SAVE RS. 45,000 AS BANK INTEREST DURING THE YEAR. IT WAS ALSO NOTICED THAT THE SALES SHOT UP SUBSTANTIALLY. ON 4-9-1961 THE ASSESSEE MADE A DEPOSIT OF RS. 5 LAKHS CONSEQUENT U PON A RESOLUTION OF THE BOARD OF DIRECTORS PASSED ABOUT SIX WEEKS BEFOR E AFTER A STATEMENT MADE BY THE CHAIRMAN DURING THE BOARD MEETING THAT THE GOVERNMENT HAD APPROACHED HIM TO SUBSCRIBE TO THE GOVERNMENT L OAN AND THAT THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 9 COMPANY SHOULD DO SO AS GOOD ORDERS COULD BE EXPECT ED. THE PURCHASE OF THE LOAN WAS APPROVED BY THE BOARD OF DIRECTORS AND WAS RATIFIED IN THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS HELD ON 31-12-1961. THE TRIBUNAL FOUND THAT HAVING REGARD TO THE SEQUEN CE OF EVENTS AND THE CLOSE PROXIMITY OF THE INVESTMENT WITH THE RECE IPT OF THE GOVERNMENT ORDERS THE CONCLUSION WAS INESCAPABLE TH AT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE ASSES SEE AND BOOST ITS BUSINESS. IN THE CIRCUM STANCES, THE TRIBUNAL HELD THAT THE INVESTMENT WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PU RPOSE OF CARRYING ON THE ASSESSEE'S BUSINESS AND THAT, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE ON THE SALE OF THE INVESTMENT MUST BE REGA RDED AS A REVENUE LOSS. WE ARE OF OPINION THAT THE TRIBUNAL IS RIGHT. 6. THE HIGH COURT, AS HAS BEEN MENTIONED, RE-EXAMIN ED THE FACTS ON THE RECORD AND FOUND THAT THE INVESTMENT WAS NOT CO NNECTED WITH THE ORDERS PLACED BY THE GOVERNMENT WITH THE ASSESSEE A ND THE ADVANCE PAYMENT MADE BY THE GOVERNMENT DEPARTMENTS TO THE A SSESSEE, AND IT WAS IN THAT CONTEXT THAT THE HIGH COURT HELD THAT T HE INVESTMENT IN THE LOAN WAS A CAPITAL ASSET AND THE LOSS WAS A CAPITAL LOSS. THE HIGH COURT TOOK THE VIEW THAT THE INVESTMENT WAS OF ENDURING B ENEFIT TO THE ASSESSEE AND, THEREFORE, IT COULD NOT BE ALLOWED. W E FIND IT DIFFICULT TO HOLD THAT AN ENDURING BENEFIT WAS BROUGHT ABOUT BY THE ASSESSEE INVESTING IN THE LOAN. SO FAR AS ORDERS FROM THE GO VERNMENT DEPARTMENTS WERE CONCERNED THE MATERIAL ON RECORD S HOWS THAT ON 30- 8-1961 IT WAS DECIDED TO PURCHASE 16 JEEPS, 8 TRUCK S AND 4 ONE-TON PICK-UP VANS. THERE IS NOTHING TO SHOW THAT THERE W AS ANY REASON FOR THE ASSESSEE TO HOLD ON TO THE INVESTMENT IN THE LO AN INDEFINITELY. THERE WAS NO ENDURING ADVANTAGE. ACCORDINGLY, WE HOLD THA T THE INVESTMENT ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 10 DID NOT BRING IN AN ASSET OF A CAPITAL NATURE, AND THAT IN THE CIRCUMSTANCES OF THE CASE THE LOSS SUFFERED BY THE ASSESSEE WAS A REVENUE LOSS AND NOT A CAPITAL LOSS. IT WAS HELD BY THE ORISSA HIGH COURT IN CIT V. INDUSTRY & COMMERCE ENTERPRISES (P.)LTD. [1979] 118 ITR 606 AND BY THE MADRAS HIGH COURT IN ADDL. CIT V. B.M.S. (P.) LTD. [1979] 119 ITR 321 AND AGAIN IN CIT V. DHANDAYUTHAPANI FOU NDRY (P.) LTD. [1980] 123 ITR 709, THAT WHERE THE GOVERNMENT BONDS OR SECURITIES WERE PURCHASED BY THE ASSESSEE WITH A VIEW TO INCRE ASING HIS BUSINESS WITH THE GOVERNMENT OR WITH THE OBJECT OF RETAINING THE GOODWILL OF THE AUTHORITIES FOR THE PURPOSE OF HIS BUSINESS, THE LO SS INCURRED ON THE SALE OF SUCH BONDS OR SECURITIES WAS ALLOWABLE AS A BUSI NESS LOSS. 7. WE HOLD THAT THE HIGH COURT HAS ERRED IN THE VIE W TAKEN BY IT AND THAT THE TRIBUNAL WAS RIGHT IN ALLOWING THE APPEAL 18. AS IT IS CLEAR FROM ABOVE, IN THE ABOVE REFERRE D CASE, THE ASSESSEE HAD CLAIMED A LOSS OF RS. 53,650 SUSTAINED ON DISPO SAL OF ITS SUBSCRIPTION IN THE ORISSA GOVERNMENT FLOATED LOAN, 1972. THERE WAS ACTUAL DISPOSAL OF THE ORISSA GOVERNMENT FLOATED LO AN UNLIKE IN THE CASE OF THE ASSESSEE COMPANY WHERE THERE IS NO DISPOSAL OF THE FERTILIZERS BONDS AND THE ASSESSEE COMPANY CONTINUES TO HOLD TH ESE BONDS. IN THAT BACKGROUND OF THE CASE, IT WAS HELD THAT WHERE THE GOVERNMENT BONDS OR SECURITIES WERE PURCHASED BY THE ASSESSEE WITH A VIEW TO INCREASING HIS BUSINESS WITH THE GOVERNMENT OR WITH THE OBJECT OF RETAINING THE GOODWILL OF THE AUTHORITIES FOR THE P URPOSE OF HIS BUSINESS, THE LOSS INCURRED ON THE SALE OF SUCH BONDS OR SECU RITIES WAS ALLOWABLE AS A BUSINESS LOSS. NO DOUBT, IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS ACCEPTED THESE BONDS IN SETTLEMENT OF I TS SUBSIDY DUES IN ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 11 THE COURSE OF ITS FERTILIZERS BUSINESS GUIDED BY TH E POLICY DIRECTIVE OF THE GOVERNMENT OF INDIA WHEREBY SUBSIDY DUES WERE SETTL ED AND SUBSTITUTED THROUGH ISSUANCE OF FERTLIZERS BONDS. AT THE SAME TIME, THE ASSESSEE COMPANY CONTINUES TO HOLD THESE BONDS AS O N THE CLOSE OF THE FINANCIAL YEAR AND HAVE NOT DISPOSED THEM OFF. APP LYING THE RATIO LAID DOWN IN THE SAID DECISION OF THE HONBLE SUPREME CO URT, THE ASSESSEE COMPANY WOULD ACCORDINGLY BE ALLOWED TO CLAIM THE L OSS, IF ANY IN THE YEAR OF ACTUAL DISPOSAL OF THE FERTILIZER BONDS AND NOT IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF VALUATION OF SUCH FERTI LIZERS BONDS. IN THE RESULT, THE REVENUES GROUND OF APPEAL IS ALLOWED A ND THE FINDINGS OF THE LD CIT(A) ARE SET-ASIDE. GROUND NO. 5 RELATING TO CLUB EXPENSES OF EMPLOYEES : 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR TH E A.Y. 2005-06 PASSED IN ITA NO. 445/JP/2009 ORDER DATED 09/09/201 1, THE COORDINATE BENCH HAS HELD AS UNDER:- 10.2 THE DETAILS OF PAYMENTS MADE TO CLUB EXPENSES ARE AVAILABLE AT PAGES 158 TO 161 OF THE PAPER BOOK. IN THESE DETAIL S, THE ASSESSEE HAS GIVEN THE NAME OF THE EMPLOYEES, DATE, AMOUNT, NAME OF THE CLUB, NATURE OF PAYMENT AND PERIOD. THE CLUB MEMBERSHIP H AS BEEN PAID IN RESPECT OF 28 EMPLOYEES. IT IS NOTICED FROM THE PER IOD MENTIONED IN THE CHART THAT PAYMENTS ARE ANNUAL SUBSCRIPTION OR SUBS CRIPTION FOR PART OF THE YEAR. IT IS NOT A CASE WHERE THE ASSESSEE HAS P AID CORPORATE FEE TO THE CLUB. THERE IS NO PAYMENT FOR THE PERIOD EXCEED ING ONE YEAR SO THAT THE BENEFIT MAY BE GIVEN TO THE EMPLOYEES FOR MORE THAN A YEAR. THE EXPENDITURE AS CLUB MEMBERSHIP FEE IS AN EXPENDITUR E FOR THE PURPOSE OF THE BUSINESS. HENCE, THE EXPENDITURE IS ALLOWABL E U/S 37 OF THE ACT. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 6,70,422/-. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 12 ADMITTEDLY, THERE IS NO CHANGE IN THE FACTS AND CIR CUMSTANCES OF THE CASE AS COMPARED TO EARLIER YEARS WHERE THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE COMPANY. BY RESPECTFULLY FO LLOWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06, WE UPHOLD THE ORDER OF THE LD. CIT(A) FOR THE IMPUNGED ASSESSMENT YEAR. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. GROUND NO. 7 RELATING TO DEPRECIATION ON CATALYST: 21. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR TH E A.Y. 2006-07 PASSED IN ITA NO. 268/JP/2010 ORDER DATED 31/10/201 1, THE COORDINATE BENCH HAS HELD AS UNDER:- 3.3 THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL WH ILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2002 -03 TO 2005-06. FOLLOWING OUR FINDINGS, WE HOLD THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS 74,64,626. BY RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07, WE UPHOLD THE ORDER OF THE LD. CIT(A) FOR THIS ASSESSMENT YEAR. ACCORDINGLY, T HIS GROUND OF THE REVENUES APPEAL IS DISMISSED. GROUND NO. 10 RELATING TO RENT PAYMENT UNDER SECTIO N 40A(2)(B): 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD CIT(A) HAS GIVEN A FINDING THAT THE EMPLOYEES OF THE ASSESSEE COMPANY STAYED AT THE GUEST HOUSE IN RESPECT OF WHICH AN AMOUNT OF RS 10, 80,000 HAS BEEN PAID AS RENT. FURTHER, THE REVENUE HAS NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE TO SUGGEST THAT THE RENT PAID WAS EXCESSIVE VIS--VIS AN ACCOMMODATION OF SAME SIZE AND FACILITY IN THE S AME LOCALITY. WE THEREFORE CONFIRM THE ORDER OF THE LD CIT(A) WHO HA S ALLOWED THE RENT ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 13 PAYMENT AS INCURRED FOR THE PURPOSES OF THE ASSESSE ES BUSINESS. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. GROUND NO. 11 RELATING TO DISALLOWANCE OF GAS TRANS MISSION CHARGES U/S 40(A)(IA): 7. IN RESPECT OF GROUND OF APPEAL NO. 8 RELATING T O DISALLOWANCE OF GAS TRANSMISSION CHARGES U/S 40(A)(IA), WE NOW REFE R TO THE DECISIONS OF THE COORDINATE BENCH IN IN ITA NO. 470 & 412/JP/201 3 DATED 25.09.2017 FOR A.Y. 2009-10 WHEREIN THE RELEVANT FI NDINGS ARE REPRODUCED AS UNDER:- 9. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE AS REFERRED SUPRA WHER E THE HONBLE HIGH COURT HAS HELD THAT THE PAYMENT OF GAS TRANSMISSION CHARGES ARE NOT SUBJECT TO LEVY OF TDS, THERE IS NO QUESTION OF DIS ALLOWANCE U/S 40(A)(IA) OF THE ACT. IN THE RESULT, GROUND NO. 9 OF REVENUES APPEAL IS DISMISSED. GROUND NO. 12 RELATING TO DONATION TO DAV TRUST : 16. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR TH E A.Y. 2006-07 PASSED IN ITA NO. 268/JP/2010 ORDER DATED 31/10/201 1, THE COORDINATE BENCH HAS HELD AS UNDER:- 2.7 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06. IT IS NOT THE CASE OF THE REVEN UE THAT THE ASSESSEE HAS PAID THE CONTRIBUTION TO THE TRUST. THE CLAIM O F THE ASSESSEE IS THAT IT HAS REIMBURSED THE EXPENDITURE AND HENCE THE PRO VISIONS OF SECTION 40A(9) MAY NOT BE APPLICABLE. THE HON'BLE RAJASTHAN HIGH COURT IN THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 14 CASE OF CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD., 281 ITR 408 HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF EXP ENDITURE RELATING TO THE DONATION OF BUS TO SCHOOL. IN THAT CASE, THE AO WAS OF THE VIEW THAT THE SCHOOL IS NOT OWNED BY THE COMPANY AND THE ENTR Y IN THE SCHOOL IS ALSO NOT RESTRICTED TO THE WARDS OF THE WORKMEN AND STAFF MEMBERS OF THE COMPANY. THE EXPENDITURE WAS TREATED AS DONATIO N. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. RAJAS THAN SPINNING & WEAVING MILLS LTD.,(SUPRA) OBSERVED THAT THE QUESTI ON OF CLAIM TO DEDUCTION OF ANY AMOUNT SPENT BY THE ASSESSEE AS EX PENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE' S BUSINESS IS NOT TO BE DECIDED IN THE LIGHT THAT THE ASSESSEE MUST BE E NTITLED TO THE WHOLE BENEFIT ACCRUING FROM SUCH EXPENSES AND NOBODY ELSE SHOULD BE SHARING THIS BENEFIT AS IS DERIVED BY THE ASSESSEE BY DINT OF SUCH EXPENSES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. B. C. SHIRKE & CO., 264 ITR 83 HAD AN OCCASION TO CONSIDER THE ALLOWABI LITY OF CONTRIBUTION TO THE THREE TRUSTS FORMULATED FOR THE WELFARE OF T HE EMPLOYEES. THE HON'BLE BOMBAY HIGH COURT IN THIS CASE HAS OBSERVED AS UNDER:- VOLUNTARY PAYMENTS MADE BY AN EMPLOYER FOR THE G ENERAL WELFARE AND BENEFIT OF THE EMPLOYEES ON GROUNDS OF COMMERCIAL EXPEDIENCY ARE REVENUE EXPENDITURE, DEDUCTIBLE UNDE R SECTION 37 OF THE INCOME- TAX ACT. SUCH EXPENDITURE HAS NEXUS WITH TH E CONDUCT OF BUSINESS AND THE EXPENDITURE INCURRED FOR MAINTAINI NG INDUSTRIAL PEACE AND CORDIAL RELATIONS WITH THE EMPLOYEES IS AN EXPE NDITURE FOR THE CARRYING ON OF THE BUSINESS. IN THIS VIEW OF THE MA TTER, IN THE FACTS OF THIS CASE, WHERE THERE IS NO DISPUTE ABOUT THE BONA FIDES IN CREATION OF THE TRUSTS OR UTILISATION OF THE FUNDS CONTRIBUTED BY THE ASSESSEE TO THE TRUSTS, WE HAVE NO HESITATION IN HOLDING THAT THE E XPENDITURE INCURRED BY THE ASSESSEE BY WAY OF CONTRIBUTION TO THE WELFA RE TRUST OF THE EMPLOYEES WAS RIGHTLY HELD TO BE DEDUCTIBLE UNDER S ECTION 37 OF THE INCOME- TAX ACT. BY RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07, WE UPHOLD THE ORDER OF THE LD. CIT(A) FOR THIS ASSESSMENT YEAR. ACCORDINGLY, T HIS GROUND OF THE REVENUES APPEAL IS DISMISSED. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 15 9. ADMITTEDLY, THERE ARE NO CHANGES IN THE FACTS A ND CIRCUMSTANCES OF THE CASE OR IN THE LEGAL POSITION AS COMPARED TO EARLIER YEARS WHERE THE MATTER IN RELATION TO EACH OF THE SUBJECT GROUN DS OF APPEAL WERE DECIDED BY THE COORDINATE BENCHES. BY FOLLOWING TH E ORDERS OF THE COORDINATE BENCHES IN ASSESSEES OWN CASE FOR THE A .Y. 2008-09, A.Y. 2009-10 AND A.Y.2010-11, THE GROUND NO. 1 OF REVENU ES APPEAL IS ALLOWED AND GROUND NO. 5, 7, 10, 11 & 12 OF THE REV ENUES APPEAL ARE HEREBY DISMISSED. GROUND NO. 2 RELATING TO COMPENSATION ON ACCOUNT OF LOSS ON SALE OF FERTILIZERS BONDS: 10. GROUND NO. 2 OF THE REVENUES APPEAL RELATES TO DELETION OF ADDITION OF RS. 1061.98 LAC BEING COMPENSATION RECE IVED BY THE ASSESSEE FROM GOVERNMENT ON ACCOUNT OF LOSS ON SALE OF FERTILIZER BONDS. 11. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY RECEIVED COMPENSATION OF RS. 2319.04 LACS FROM THE GOVERNMENT OF INDIA IN MARCH 2012 AND THE SAME WAS CREDITED IN AS SESSEES BANK ACCOUNT DURING THE PERIOD 29.03.2012 TO 31.03.2012. OUT OF AFORESAID TOTAL COMPENSATION, AN AMOUNT OF RS. 1061.98 LAC PE RTAINS TO F.Y. 2010-11 RELEVANT TO IMPUGNED ASSESSMENT YEAR AND TH E BALANCE COMPENSATION OF RS. 1256.85 LAC PERTAINS TO THE NEX T FINANCIAL YEAR 2011-12 RELEVANT TO ASSESSMENT YEAR 2012-13. THE AS SESSEE HAS DECLARED THE WHOLE OF THE COMPENSATION SO RECEIVED AS ITS INCOME IN A.Y. 2012-13. HOWEVER, AS PER THE ASSESSING OFFICER , AS THE ASSESSEE COMPANY HAD RECEIVED THE COMPENSATION IN MARCH 2012 , AT LEAST AT THE TIME OF FILING REVISED RETURN OF INCOME WHICH WAS F ILED ON 20.08.2012, ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 16 THE ASSESSEE WAS EXPECTED TO DECLARE RS. 1061.98 LA C IN ITS BOOKS OF ACCOUNT OF COMPENSATION RECEIPT FROM GOVERNMENT. AS PER THE ASSESSING OFFICER, ON THE ONE HAND, THE ASSESSEE HA D SOLD THE FERTILIZER BONDS AS PER THE TERMS AND CONDITIONS LAID DOWN IN GOVERNMENTS OM DATED 31.03.2011 AND ON THE OTHER HAND, THE ASSESSE E CHOSE TO IGNORE PARA (C) OF THE SAME OM WHICH SAYS THAT THE GOVERNM ENT HAS DECIDED TO SHARE AT LEAST 50% OF THE LOSS ON SALE OF FERTIL IZER BONDS. AS PER THE ASSESSING OFFICER, SINCE THE ASSESSEE IS CONSISTENT LY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE RECEIPT OF RS. 1061.98 LA C ON ACCOUNT OF COMPENSATION RECEIVED FROM THE GOVERNMENT ON ACCOUN T OF LOSS ON SALE OF FERTILIZER BONDS DURING THE PERIOD RELEVANT TO A .Y. 2011-12 ACCRUED TO THE ASSESSEE IN THE FINANCIAL YEAR 2010-11 RELEVANT TO A.Y. 2011-12 EVEN THROUGH THE COMPENSATION WAS ACTUALLY RECEIVED IN THE SUBSEQUENT FINANCIAL YEAR RELEVANT TO A.Y. 2012-13. THEREFORE, THE AO MADE AN ADDITION OF RS 1061.98 LAC TO THE DECLARED INCOME O F THE ASSESSEE. 12. ON APPEAL, THE LD. CIT(A) HAS DELETED THE SAID ADDITION AND THE HIS FINDINGS ARE CONTAINED AT PARA 4.3 WHICH READS AS UNDER:- THE ONLY QUESTION REMAINED IS WHETHER THE AMOUNT O F RS. 1061.98 LACS WAS TO BE TREATED AS RECEIVED/RECEIVABLE IN A. Y. 2011-12 OR 2012- 13. IF WE TAX THE SAME IN A.Y. 2011-12, WE WOULD HA VE TO ALLOW EQUAL AMOUNT OF REDUCTION IN A.Y. 2012-13. THE ASSESSEE SUBMITTED THAT THE COMPENSATION WAS RE CEIVED IN A.Y. 2012-13 AND WAS ALSO DETERMINED IN A.Y. 2012-13. ON THE OTHER HAND, THE AO STATED THAT THE COMPENSATION BY GOVERNMENT O F INDIA WAS PROMISED VIDE O.M. DATED 31.03.2011. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 17 THE GOVERNMENT OF INDIA PROMISED TO PAY COMPENSATIO N OF 50% AMOUNT OF ACTUAL LOSS INCURRED ON SALE OF FERTILIZE R BONDS IN A.Y. 2011- 12, HOWEVER, THE ACTUAL AMOUNT OF COMPENSATION WAS DETERMINED IN SUBSEQUENT YEAR. IN MY OPINION, WHAT IS CRUCIAL FRO M THE POINT OF VIEW OF A BUSINESSMAN IS THE ACTUAL DETERMINATION, AND N OT THE PROMISE. AS THE COMPENSATION WAS DETERMINED AND PAID IN A.Y. 20 12-13, THE ASSESSEE HAS RIGHTLY OFFERED THE SAME FOR TAXATION IN A.Y. 2012-13. THE AO IS THEREFORE DIRECTED TO DELETE ADDITION OF RS. 10,61,98,000/-. 13. DURING THE COURSE OF HEARING, THE LD. AR HAS DR AWN OUR REFERENCE TO THE O.M. DATED 13 TH MARCH, 2012 ISSUED BY THE DEPARTMENT OF FERTILIZERS, GOVERNMENT OF INDIA AND SUBMITTED THAT THE COMPENSATION OF RS. 2319.04 LACS WAS DETERMINED BY THE GOVERNMEN T OF INDIA AND COMMUNICATED TO THE ASSESSEE COMPANY VIDE THIS O.M LETTER WHICH READ AS UNDER:- SUBJECT- REIMBURSEMENT OF LOSSES OCCURRED TO FERT ILIZER COMPANIES ON ACCOUNT OF BUY BACK OF FERTILIZER BONDS BY RBI. THE UNDERSIGNED IS DIRECTED TO SAY THAT GOVERNMENT HAD AGREED TO REIMBURSE 50% OF LOSSES INCURRED BY FERTILIZER COMP ANIES IN BUY BACK OF BONDS BY RBI. THE 50% OF THE TOTAL LOSSES INCURRED BY THE FERTILIZER COMPANIES AS COMMUNICATED BY FAI IS RS. 890.94 CROR E. THE 50% OF THE TOTAL LOSSES INCURRED BY THE FERTILIZER COMPANI ES AS COMPUTED BY BUDGET DIVISION DEPARTMENT OF ECONOMIC AFFAIRS IN C ONSULTATION WITH RBI AND MIDDLE OFFICE IS RS. 778.93 CRORE. THE BUDGET D IVISION OF DOEA HAS DIRECTED TO RECONCILE THE FIGURE OF LOSSES WITH RBI , PENDING RECONCILIATION, IT HAS BEEN DECIDED TO MAKE PARTIAL PAYMENT TO THE EXTENT OF 70% OF 50% OF TOTAL LOSSES ON BUY BACK OF BONDS, BY RBI IN ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 18 BOTH THE TRANCHES AS PER THE FIGURES PROVIDED BY D OEA. ACCORDING, IT HAS BEEN DECIDED TO REIMBURSE THE LOSSES TO VARIOUS FERTILIZERS COMPANIES AS PER THE AMOUNT MENTIONED IN THE ATTACH ED STATEMENT. DIRECTOR (FA), DOF AND DIRECTOR (F&A), FICC (FOR IN DIGENOUS USE) ARE REQUESTED TO MAKE PAYMENT TO THE CONCERNED FERTILIZ ER COMPANIES AS PER THE ENCLOSED STATEMENT, BASED ON THE CLAIMS MAD E BY THEM DULY VETTED BY AUDITORS OF THE COMPANIES, AS PER THE PRE SCRIBED PROCEDURE. THESE ISSUES WITH THE CONCURRENCE OF IFD VIDE DY. 1 940 DATED 9/3/2012. 14. FURTHER, THE LD. AR HAS REFERRED TO THE DECISIO NS OF HONBLE SUPREME COURT IN CASE OF CIT VS. EXCEL INDUSTRIES LTD. 219 TAXMAN 0379 WHERE IT WAS HELD AS UNDER:- 20. IT FOLLOWS FROM THESE DECISIONS THAT INCOME AC CRUES WHEN IT BECOMES DUE BUT IT MUST ALSO BE ACCOMPANIED BY A CO RRESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT. ONL Y THEN CAN IT BE SAID THAT FOR THE PURPOSES OF TAXABILITY THAT THE INCOME IS NOT HYPOTHETICAL AND IT HAS REALLY ACCRUED TO THE ASSESSEE. 27. APPLYING THE THREE TESTS LAID DOWN BY VARIOUS DECISIONS OF THIS COURT, NAMELY, WHETHER THE INCOME ACCRUED TO THE AS SESSEE IS REAL OR HYPOTHETICAL; WHETHER THERE IS A CORRESPONDING LIAB ILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT T O THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE; AND THE PROBA BILITY OR IMPROBABILITY OF REALISATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE A SSESSEE MAY NOT HAVE MADE IMPORTS), IT IS QUITE CLEAR THAT IN FACT NO RE AL INCOME BUT ONLY ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 19 HYPOTHETICAL INCOME HAD ACCRUED TO THE ASSESSEE AND SECTION 28(IV) OF THE ACT WOULD BE INAPPLICABLE TO THE FACTS AND CIRC UMSTANCES OF THE CASE. ESSENTIALLY, THE ASSESSING OFFICER IS REQUIRE D TO BE PRAGMATIC AND NOT PEDANTIC. 32. THIRDLY, THE REAL QUESTION CONCERNING US IS TH E YEAR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUT E THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE I MPORTS AND DID DERIVE BENEFITS UNDER THE ADVANCE LICENCE AND THE D UTY ENTITLEMENT PASS BOOK AND PAID TAX THEREON. THEREFORE, IT IS NOT AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN T HE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY T HE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX E FFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS ( ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO BE PUBLIC CO FFERS. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LIMITED ISSUE UNDER CONSID ERATION RELATES TO THE YEAR OF TAXABILITY OF COMPENSATION RECEIVED ON SALE OF THE FERTILIZERS BONDS. IT IS NOT IN DISPUTE THAT THE COMPENSATION PERTAINING TO THE YEAR UNDER CONSIDERATION WAS ACTUALLY RECEIVED IN T HE NEXT FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2012-13. THE QUES TION THEREFORE IS WHETHER THE COMPENSATION HAS ACCRUED AND BECOME DUE TO THE ASSESSEE COMPANY AND THERE IS A CORRESPONDING LIABI LITY OF THE GOVERNMENT OF INDIA TO PAY THE SAID AMOUNT DURING T HE YEAR UNDER CONSIDERATION. DURING THE YEAR UNDER CONSIDERATION , VIDE O.M DATED 31.03.2011, THE GOVERNMENT OF INDIA HAS COME UP WIT H GUIDELINES FOR ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 20 BUY BACK OF FERTILIZERS BONDS AND ALSO TO COMPENSAT E ATLEAST 50% OF LOSS SUFFERED ON SALE OF SUCH FERTILIZER BONDS. TH E COMPENSATION IS THUS LINKED TO THE ACTUAL SALE OF THE FERTILIZERS BONDS AND THE FACT THAT THE ASSESSEE COMPANY HAS SOLD 50% OF ITS HOLDING OF SUC H FERTILIZER BONDS DURING THE YEAR IS NOT IN DISPUTE. AS PER THE ASSE SSEE COMPANY, AS THE ACTUAL MECHANISM FOR DETERMINATION OF SUCH COMPENSA TION WAS NOT NOTIFIED BY THE GOVERNMENT OF INDIA, IT HAS NOT ACC OUNTED FOR THE SAME IN ITS BOOKS OF ACCOUNTS FOLLOWING THE WELL-ACCEPTE D POLICY OF PRUDENCE IN TERMS OF ACCOUNTING STANDARD 9 - REVENUE RECOGNI TION AND ACCOUNTING STANDARD 12- ACCOUNTING FOR GOVERNMENT G RANTS AND HAS THUS NOT OFFERED THE SAME TO TAX. SUBSEQUENTLY, VI DE O.M DATED 13 TH MARCH, 2012 ISSUED BY THE DEPARTMENT OF FERTILIZERS , GOVERNMENT OF INDIA, THE COMPENSATION OF RS. 2319.04 LACS WAS DET ERMINED BY THE GOVERNMENT OF INDIA AND COMMUNICATED TO THE ASSESSE E COMPANY AND THE SAME WAS REPORTED AND OFFERED TO TAX IN AY 2012 -13. TO OUR MIND, THE ASSESSING OFFICER HAS NOT APPRECIATED THE ACCOU NTING POLICY OF PRUDENCE WHICH IS A WELL-ACCEPTED POLICY UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. ACCOUNTING POLICY OF PRUDENCE BASICA LLY MEANS THAT IN VIEW OF THE UNCERTAINTY ATTACHED TO FUTURE EVENTS, PROFITS ARE NOT ANTICIPATED BUT RECOGNISED ONLY WHEN REALISED THOUG H NOT NECESSARILY IN CASH. THE REALIZATION OR CERTAINTY OF REALIZATION I S THUS ESSENTIAL FOR RECOGNITION OF REVENUES. IN THE CONTEXT OF GOVERNM ENT GRANTS AND COMPENSATION WHICH INVOLVES LENGTHY GOVERNMENTAL PR OCEDURES OF DETERMINATION, QUANTIFICATION AND SUBSEQUENT APPROV ALS FROM THE ADMINISTRATIVE AND FINANCE APPROVING AUTHORITIES, I T IS PRUDENT ON THE PART OF THE ASSESSEE COMPANY TO ACCOUNT FOR THE COM PENSATION WHEN THERE IS A CERTAINTY OF QUANTIFICATION AND ACTUAL R EALIZATION WHICH HAS HAPPENED IN AY 2012-13. FURTHER, FOLLOWING THE RAT IO LAID DOWN BY THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 21 HONBLE SUPREME COURT IN CASE OF EXCEL INDUSTRIES, IT WILL MAKE A MINOR TAX EFFECT ON A STANDALONE BASIS WHERE THE COMPENSA TION HAS BEEN OFFERED IN AY 2012-13 INSTEAD OF IMPUNGED ASSESSMEN T YEAR 2011-12 AS THE BASIC TAX RATES ARE CONSTANT @ 30% FOR THE C OMPANIES THOUGH THE SURCHARGE ON SUCH TAXES ARE PAYABLE @ 7.5% IN A Y 2011-12 WHICH HAS BEEN REDUCED TO 5% IN AY 2012-13. IN THE RESULT , WE UPHELD THE ORDER OF THE LD CIT(A) AND THE GROUND OF REVENUES APPEAL IS DISMISSED. GROUND NO. 4 RELATING TO LOSS ON REVALUATION OF INV ENTORIES: 16. WE NOW REFER TO GROUND NO. 4 OF THE REVENUES A PPEAL WHEREIN THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS. 42,38,664/- MADE BY THE AO ON ACCOUNT OF LOSS ON REVALUATION OF INVENTORIES . 17. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASS ESSEE IN ITS REVISED RETURN OF INCOME HAS CLAIMED LOSS ON REVALUATION OF INVENTORIES OF RS. 42,38,664/- WHICH WAS EARLIER DISALLOWED IN THE ASSESSMENT YEAR 2006-07 AND WHICH HAS BEEN STATED TO HAVE BEEN ALLO WED BY THE TRIBUNAL VIDE ITS ORDER DATED 31.10.2011 FOR ASSESS MENT YEAR 2006-07 IN THE YEAR OF SCRAP/ SALE. 18. AS PER THE ASSESSING OFFICER, THE SAID CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE FOR THE REASON THAT EVEN THOUGH THE ASSE SSEE HAS WRITE OFF THE INVENTORY OF AUXILIARY PUMPS IN ITS BOOKS OF AC COUNT ON 14.09.2010, IT HAS NOT CLAIMED THE LOSS WHILE FILING ITS ORIGIN AL RETURN FOR A.Y. 2011- 12 ON 29.11-2011. SECONDLY, AS PER THE ASSESSING OF FICER, THE ASSESSEE HAS MERELY WRITTEN OFF THE PUMPS IN ITS BOOKS OF AC COUNT AND THE SAME DOES NOT TANTAMOUNT TO DISCARDING THE PUMPS AND EVE N IF, THE WRITE OFF ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 22 OF THE PUMPS IN ASSESSEES BOOKS OF ACCOUNT TANTAMO UNT TO DISCARDING OF THE PUMPS, THE ASSESSEE HAS ALREADY WRITTEN OFF PUMPS IN ITS BOOKS OF ACCOUNT FOR F.Y. 2005-06 RELEVANT TO ASSESSMENT YEAR 2006-07 WHEN THE ASSESSEE HAS ORIGINALLY CLAIMED A LOSS OF RS. 4 2,38,664/-. THEREFORE, IT WAS HELD BY THE ASSESSING OFFICER THAT BY ANY LO GIC, THE LOSS OF RS. 42,38,664/- CANNOT BE SAID TO BE PERTAINING TO F.Y. 2010-11 AND THUS, THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM F OR LOSS OF RS. 42,38,664/-AND THE SAME WAS DISALLOWED. 19. ON APPEAL, THE LD. CIT(A) HAS ALLOWED THE SAID CLAIM OF THE ASSESSEE HOLDING THAT THE SAME WAS BRUSHED ASIDE BY THE ASSESSING OFFICER WITHOUT BRINGING ANY EVIDENCE CONTRARY TO THE ASSESSEES CLAIM. AS PER THE LD. CIT(A), THE ASSESSEE HAS WRITTEN OFF THE PUMPS IN ITS BOOKS OF ACCOUNTS AND THIS ACTION OF ASSESSEE WAS E QUIVALENT TO TREATING THE PUMPS AS SCRAP. IN VIEW OF THE DECISION OF THE COORDINATE BENCH FOR A.Y. 2006-07, THE LD. CIT(A) THEREFORE HELD THAT TH E ASSESSEE WAS ENTITLED TO CLAIM OF LOSS OF RS. 42,38,664/- AND TH E AO WAS DIRECTED TO ALLOW THE SAME. AGAINST THE SAID FINDING OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 20. AS THE MATTER IS EMANATING FROM THE FINDINGS OF THE COORDINATE BENCH IN ITA NO. 268/JP/2010 DATED 31.10.2011 FOR A .Y. 2006-07, WE REFER TO THE RELEVANT FINDINGS OF THE COORDINATE BE NCH WHICH ARE CONTAINED AT PARA 8.6 AND 8.7 OF ITS ORDER WHICH A RE REPRODUCED AS UNDER:- ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 23 8.6 WE HAVE HEARD BOTH THE PARTIES. WE ALSO REQUIR ED THE ASSESSEE TO GIVE BRIEF NOTE IN RESPECT OF INVENTORY WRITTEN OFF . THE BRIEF NOTE IS AS UNDER:- THE AUXILIARY OIL PUMPS (AOP) WERE PROCURED IN TH E YEAR 2000 IN PACKAGE UNDER THE EXPANSION PROJECT. THE COST OF ME CHANICAL SALE OF THE IMPORTED AUXILIARY OIL PUMP WAS RS. 21,42,684/- PER SEAL. THE OEM FOR THESE PUMPS WAS M/S TAIKOKIKAI, JAPN. IN THE COURSE OF TIME THESE, AOPS WERE ALSO DEVELOP ED INDIGENOUSLY. WE HAVE PROCURED FOUR INDIGENOUS PUMPS (ALONGWITH S EAL) FROM M/S SHILPA TRADE LINKS (P) LTD. AGAINST PURCHASE ORDER NO. 45,495 DATED 27- 11-2002 WHICH WERE RECEIVED IN THE PLANT ON 05-03-2 003 UNDER INVOICE NO. 443 DATED 21-02-2003. THE TOTAL INVOICE VALUE W AS RS. 93,441/- FOR FOUR PUMPS (I.E. RS. 23,352/- PER PUMP). ONE SUCH P UMP WAS SUCCESSFULLY INSTALLED IN UREA-II PLANT ON 27-01-20 06 IN PLACE OF IMPORTED PUMP AND WAS OPERATING SMOOTHLY. THE COST OF IMPORTED MECHANICAL SEALS OF THE IMPORT ED AOP IS ROUGHLY HUNDRED TIMES THE COST OF COMPLETE INDIGENOUS PUMP (INCLUDING SEAL). AS THESE IMPORTED PUMPS WERE LYING IN THE STORES AT THE CLOSING OF THE YEAR, THE VALUATION OF THE SAME WAS TO BE MADE AS P ER THE ACCOUNTING POLICIES FOLLOWED CONSISTENTLY I.E. AT MONTHLY WEIG HTED AVERAGE COST OR NET REALIZABLE VALUE, WHICHEVER IS LOWER. HENCE, TH E COST OF TWO IMPORTED MECHANICAL SEALS OF AOPS HAS BEEN REDUCED TO RS. 46,704/- AND DIFFERENCE OF RS. 42,38,664/- WAS CHARGED TO PR OFIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR 2006-07. 8.7 FORM THE ABOVE NOTE, IT IS CLEAR THAT THE COST OF INDIGENOUS PUMPS WAS LESS AS APPARENT FROM PURCHASE ORDER DATED 27-1 1-02. FROM THIS, IT IS NOT CLEAR THAT THE PUMPS HAVE BECOME OBSOLETE DU RING THE YEAR ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 24 UNDER REFERENCE. IT IS NOT THE CASE OF THE ASSESSEE THAT SUCH PUMPS HAVE BEEN DISCARDED DURING THE YEAR UNDER REFERENCE . THE ASSESSEE CANNOT BE GIVEN A CHOICE OF ADJUSTING THE BUSINESS LOSS. IT IS THAT THERE IS LOSS ON ACCOUNT OF REVALUATION BUT SUCH LOSS WAS EVIDENT IN THE EARLIER YEARS. WE THEREFORE, RECORD THE FINDINGS THAT THE L OSS WILL BE ALLOWABLE AS AND WHEN THE PUMPS ARE TREATED AS SCRAP OR ARE S OLD. THEREFORE, THE DISALLOWANCE OF LOSS OF RS. 42,38,664/- DOES NOT RE LATE TO THE YEAR UNDER CONSIDERATION AND THEREFORE, THE AO WAS JUSTI FIED IN DELETING THE DISALLOWANCE. 21. AS PER THE FINDINGS OF THE COORDINATE BENCH RE FERRED SUPRA, THE LOSS WILL BE ALLOWABLE IN THE YEAR WHEN THE PUMPS A RE TREATED AS SCRAP OR ARE SOLD. BOTH THE LOWER AUTHORITIES HAVE RECOR DED A FINDING THAT THE ASSESSEE HAS WRITTEN OFF THE INVENTORY OF AUXILIARY PUMPS IN ITS BOOKS OF ACCOUNT ON 14.09.2010. THE DECISION TO WRITE OFF TH E INVENTORY IS A DECISION WHICH FALLS IN THE CATEGORY OF TREATING TH E INVENTORY AS HAVING NO UTILITY OR PURPOSES AND BEING TREATED AS SCRAP F OR ALL PRACTICAL AND COMMERCIAL PURPOSES. IN THE RESULT, WE UPHOLD THE DECISION OF THE LD CIT(A) AND DISMISS THE GROUND OF REVENUES APPEAL. GROUND NO. 6 RELATING TO LOSS ON DERIVATIVE TRANSAC TIONS: 22. IN GROUND NO. 6, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS. 24,49,090/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOSS ON DERIVATIVE TRANSACTIONS. WE FIND THAT A SIMILAR ISSUE WAS INVOLVED IN AY 2010-11 AND THE RELEVANT FINDINGS OF THE BENCH IN ITA NO. 306/JP/2014 & 389/JP/2014 DATED 31.01.2018 AS M ODIFIED BY THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 25 ORDER IN MA NO. 96/JP/18 DATED 16.10.2018 ARE CONTA INED AT PARA 22 & 23 OF ITS ORDER WHICH ARE REPRODUCED AS UNDER:- 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSE D THE MATERIAL AVAILABLE ON RECORD. THE FACTUAL POSITION WHICH EME RGES IS THAT OUT OF PROVISION FOR LOSS ON DERIVATIVE TRANSACTION OF RS. 92,79,756 DISALLOWED BY THE AO, RS. 58,55,094 IS RELATED TO INTEREST RAT E SWAP TRANSACTIONS AND BALANCE RS. 34,24,662/- IS RELATED TO FORWARD C OVER TRANSACTION. THE INTEREST RATE SWAP TRANSACTION IS RELATED TO FOREIG N CURRENCY BORROWING OF US$ 25 MILLION FOR ITS FERTILIZER DIVISION FOR C APITALIZATION OF REVAMP PROJECT AT LIBOR LINKED INTEREST RATE. FURTHER, IN RESPECT OF FORWARD COVER TRANSACTIONS, TWO FORWARD COVER TRANSACTIONS ARE RE LATED TO IMPORT OF TRADED PRODUCTS (RS.8,00,000/- OF ING AND RS. 8,00, 000/- OF HDFC) AND OTHER TWO TRANSACTIONS ARE IN RESPECT OF CAPITAL IT EMS (RS. 9361.58 OF HDFC AND RS. 18,15,300/- OF ING). 23. THE INTEREST RATE SWAP TRANSACTION IS RELATED TO FOREIGN CURRENCY BORROWING FOR THE PURPOSES OF CAPITALIZATION OF REV AMP PROJECT IN RESPECT OF ASSESSEES FERTILIZER DIVISION. SIMILAR LY, TWO FORWARD COVER TRANSACTIONS ARE IN RESPECT OF CAPITAL ITEMS. THES E ALL THESE TRANSACTIONS ARE ON CAPITAL ACCOUNT. THESE INTEREST RATE SWAP TR ANSACTIONS ARE CLOSELY CONNECTED AND LINKED TO THE TRANSACTION OF FOREIGN CURRENCY BORROWINGS FOR THE PURPOSES OF ACQUISITION OF CAPITAL ASSETS. JUST LIKE INTEREST ON BORROWINGS FOR THE PURPOSES OF ACQUISITION OF A CAP ITAL ASSET (TILL THE TIME THE ASSET IS FIRST PUT TO USE) HAS TO BE CAPIT ALIZED AND CANNOT BE CLAIMED AS REVENUE EXPENDITURE, ON SAME FOOTING, AN Y HEDGING COST OR LOSS INCURRED FOR HEDGING THE INTEREST RATE RISK ON SUCH FOREIGN CURRENCY BORROWINGS FOR CAPITAL PURPOSES HAVE TO BE ON CAPIT AL ACCOUNT AND THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. ANY LIABILITY OR LOSS ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 26 ARISING IN RESPECT OF SUCH TRANSACTIONS SHALL THUS BE ON CAPITAL ACCOUNT. IN THE INSTANT CASE, WHERE THE REVAMP PROJECT HAS B EEN CAPITALIZED AND INTEREST COST POST CAPITALIZATION HAS BEEN CLAIMED AND ALLOWED BY THE REVENUE, CORRESPONDING HEDGING COST OR LOSS INCURRE D FOR HEDGING THE INTEREST RATE RISK ON SUCH FOREIGN CURRENCY BOR ROWINGS SHOULD BE ALLOWED. THE MATTER RELATING TO IRS TRANSACTIONS AM OUNTING TO RS. 58,55,094 IS THUS ALLOWED. TWO FORWARD COVER TRANSA CTIONS ARE RELATED TO IMPORT OF TRADED PRODUCTS AND ARE HOWEVER ON REV ENUE ACCOUNT AND THE LOSS ON ACCOUNT OF SUCH TRANSACTION IS HEREBY A LLOWED. IN THE RESULT, REVENUES GROUND OF APPEAL IS PARTLY ALLOWED. 23. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACT S AND CIRCUMSTANCES OF THE CASE. FOLLOWING OUR DECISION IN AY 2010-11, WE CONFIRM THE ORDER OF THE LD CIT(A) AND GROUND OF REVENUES APPE AL IS DISMISSED. GROUND NO. 8 RELATING TO DISALLOWANCE OF INTEREST O N BORROWED FUNDS ON ACCOUNT OF INVESTMENT IN MUTUAL FUNDS UNIT S: 24. GROUND NO. 8 OF THE REVENUES RELATES TO DELETI ON OF ADDITION OF RS. 1,52,06,275/- MADE OUT OF INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS ON ACCOUNT OF INVESTMENT IN MUTUAL F UNDS UNITS. 25. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE AS SESSEE HAS USED A PART OF ITS BORROWINGS FOR MAKING INVESTMENT IN UNI TS OF VARIOUS MUTUAL FUNDS WHICH HAVE YIELDED TAX-FREE DIVIDEND INCOME O F RS. 79.38 LAC DURING THE YEAR UNDER CONSIDERATION AND THEREFORE, DISALLOWANCE IS REQUIRED TO BE MADE OUT OF INTEREST PAID BY THE ASS ESSEE ON BORROWED FUNDS U/S 36(1)(III) OF THE ACT. THE ASSESSING OFFI CER FURTHER OBSERVED ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 27 THAT SINCE THE ASSESSEE HAS FAILED TO PROVE ANY COM MERCIAL EXPEDIENCY FOR UTILIZING INTEREST-BEARING BORROWED FUNDS FOR M AKING INVESTMENT IN UNITS OF MUTUAL FUNDS, HE TOOK AVERAGE RATE OF INTE REST @ 9% AND COMPUTED THE INTEREST FOR THE PERIOD OF HOLDING OF THE RESPECTIVE MUTUAL FUND UNITS AND COMPUTED AN AMOUNT OF RS. 1,52,06,27 5/-. THE ASSESSING OFFICER FURTHER HELD THAT THE ASSESSEE IS NOT CARRYING ON BUSINESS OF PURCHASE AND SALE OF UNITS OF MUTUAL FU NDS, THEREFORE, IT CANNOT BE SAID THAT THE INTEREST OF RS. 1,52,06,275 /- WAS EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUS INESS. THE ASSESSEE COULD HAVE SAVED INTEREST TO THE EXTENT OF RS. 1,52 ,06,275/-, HAD IT NOT MADE INVESTMENT IN MUTUAL FUNDS. THUS, IT IS PROVED THAT THE ASSESSEE HAS DIVERTED BORROWED FUNDS FOR MAKING INVESTMENT I N MUTUAL FUNDS. ACCORDINGLY, OUT OF TOTAL INTEREST EXPENDITURE OF R S. 101.95 CRORE PAID ON BORROWED FUNDS, THE EXPENDITURE OF RS. 1,52,06,2 75/- HAS BEEN INCURRED BY THE ASSESSEE-COMPANY TO EARN EXEMPTED I NCOME OF RS. 79.38 LAC BY WAY OF TAX-FREE DIVIDEND ON UNITS OF M UTUAL FUNDS HENCE, THE SAME WAS DISALLOWED AND BROUGHT TO TAX IN THE H ANDS OF THE ASSESSEE COMPANY. 26. IN APPEAL, IT WAS SUBMITTED BEFORE THE LD. CIT( A) THAT INVESTMENT IN MUTUAL FUNDS WAS MADE OUT OF SURPLUS SHORT TERM FUNDS AVAILABLE WITHIN THE BUSINESS AND THERE ARE NO SPECIFIC BORRO WING FOR THE PURPOSE OF MAKING THE INVESTMENT AS THE SURPLUS FUNDS WERE INVESTED IN THE MUTUAL FUND, THE ASSESSEE DID NOT INCUR ANY INTERES T EXPENDITURE RELATES THERETO. IT WAS FURTHER SUBMITTED THAT THERE ARE FE W TRANSACTIONS OF INVESTMENT IN THE MUTUAL FUNDS DURING THE WHOLE OF THE ASSESSMENT YEAR UNDER CONSIDERATION AND IT IS NOT ITS REGULAR BUSINESS. FURTHER, STATEMENT SHOWING THE SOURCE OF INVESTMENT IN MUTU AL FUNDS DURING ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 28 THE YEAR UNDER CONSIDERATION WAS SUBMITTED STATING THAT AS IT IS EVIDENT FROM THE SAID STATEMENT THAT THE INVESTMENT IN MUTU AL FUNDS WAS MADE FROM CASH GENERATED FROM BUSINESS OPERATIONS INCLU DING SUBSIDY & MARKET COLLECTIONS, COLLECTION FROM SALES, REDEMPTI ON OF MF AND INTEREST OF FERTILIZER BONDS ETC. IT WAS FURTHER SUBMITTED T HAT THE INVESTMENT IN MUTUAL FUNDS WERE MADE FROM THE CASH CREDIT ACCOUNT DULY MAINTAINED WITH HDFC BANK AND THE HDFC BANK HAS CHARGED TOTAL INTEREST OF RS. 28,56,303/- FOR THE YEAR UNDER CONSIDERATION. IT WA S FURTHER SUBMITTED THAT SUCH INVESTMENT IN MUTUAL FUNDS WERE MADE FOR TREASURY OPERATIONS AND SUCH OPERATIONS INCLUDE MANAGING SHO RT TERM SURPLUSES OR DEFICITS OF FUNDS AND THEY CANNOT BE ANY QUESTIO N OF COMMERCIAL EXPEDIENCY FOR THE SAME HENCE, IT IS PART OF THE AS SESSEES BUSINESS OPERATIONS TO MANAGE SHORT TERM SURPLUSES OR DEFICI TS. IT WAS FURTHER SUBMITTED THAT NO DISALLOWANCE CAN BE MADE OUT OF T HE INTEREST EXPENSE FOR MAKING INVESTMENT IN THE MUTUAL FUNDS UNITS. 27. THE LD CIT(A) THEREAFTER RETURNED A FINDING AS UNDER: THE ASSESSEE HAD HUGE SURPLUS AS WELL AS HUGE LOAN S, THEREFORE, IT WAS POSSIBLE THAT THE INVESTMENT COULD BE OUT OF INTERN AL ACCRUALS OR OUT OF BORROWINGS OR PARTLY FROM INTERNAL ACCRUALS AND PAR TLY OUT OF LOANS. LAST YEAR, I HAVE HELD THAT INTEREST RELATED TO INVESTME NTS WHICH WERE OUT OF BORROWED FUND WAS DISALLOWABLE. THE AO HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE BO RROWED FUNDS AND THE INVESTMENT. ON THE OTHER HAND, THE ASSESSEE CLA IMED THAT THE INVESTMENT IN MUTUAL FUND WAS NOT FROM BORROWED FUN DS BUT WAS OUT OF ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 29 INTERNAL ACCRUALS LIKE SALE OF FERTILIZER BONDS, RE DEMPTION OF MUTUAL FUNDS, NORMAL COLLECTIONS AND MATURITY OF FDS. THE ASSESSEE SUBMITTED CASH FLOW STATEMENT IN RELAT ION TO INVESTMENT IN BONDS, IT WAS SEEN THAT THE INVESTMENT WAS OUT OF N ORMAL COLLECTIONS, SUBSIDY, REDEMPTION OF MUTUAL FUND. THEREFORE, THE AO IS DIRECTED TO DELETE ADDITION OF RS. 1,52,06,275/-. 28. THE LD. DR IS HEARD WHO HAS RELIED ON THE FIND INGS OF THE ASSESSING OFFICER. 29. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT(A) HAS RETURNED A FINDING THAT THE AO HAS NOT ESTABLISHED THE NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT, HOWEVER, THE ASSESSEE HAS CLAIMED THAT THE INVESTMENT IN MUTUAL FUNDS WAS NOT OUT OF THE BORROWED FUNDS BUT OUT OF ITS INTERNAL ACCRUALS. AT THE SAME TIME, IT IS NOTED THAT THE AS SESSEE IN ITS SUBMISSION HAS STATED THAT THE INVESTMENT IN MUTUAL FUNDS HAVE BEEN MADE FROM THE CASH CREDIT ACCOUNT MAINTAINED WITH T HE HDFC BANK WHEREIN THE BANK HAS CHARGED TOTAL INTEREST OF RS. 28,56,303/- FOR THE WHOLE OF THE YEAR. DEPENDING ON THE POSITION OF THE FUNDS IN THE SAID CASH CREDIT ACCOUNT ON A GIVEN DAY, WHERE THE WITHD RAWALS ARE MORE THAN THE DEPOSITS IN THE SAID CASH CREDIT ACCOUNT, THE SURPLUS WITHDRAWAL ARE IN THE NATURE OF SHORT TERM BORROWING FROM THE BANK ON WHICH THE BANK HAS LEVIED INTEREST. IF SUCH BORROWINGS ARE FO R THE PURPOSES OF MAKING THE INVESTMENT IN THE MUTUAL FUNDS, THEN THE RE IS CLEARLY A NEXUS BETWEEN THE BORROWINGS AND THE INVESTMENTS IN MUTUAL FUND UNITS AND INTEREST TO THAT EXTENT IS DIRECTLY RELAT ED TO INVESTMENT IN TAX- FREE MUTUAL FUND UNITS, HOWEVER, WHERE THE SURPLUS BORROWINGS ARE FOR ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 30 THE PURPOSE OF BUSINESS OPERATIONS, THEN IT CANNOT BE SAID THAT SUCH BORROWINGS ARE FOR THE PURPOSES OF MAKING INVESTMEN T IN MUTUAL FUND UNITS AND ANY INTEREST INCURRED FOR THE SAID PERIOD IS A NORMAL BUSINESS EXPENDITURE. FURTHER, NATURE OF DEPOSITS IN SUCH CA SH CREDIT ACCOUNT NEEDS TO BE EXAMINED AS TO WHETHER THE DEPOSITS ARE FROM BUSINESS OPERATIONS OR THERE ARE ALSO DEPOSITS BY WAY OF FUN D TRANSFER FROM OTHER ACCOUNTS AND THE NATURE OF SUCH FUNDS FROM OTHER AC COUNTS IN THE NATURE OF BORROWINGS OR FROM BUSINESS OPERATIONS. IN CASE OF BORROWED FUNDS HAVE BEEN TRANSFERRED TO THIS PARTICULAR CASH CREDIT ACCOUNT AND SUCH FUNDS ARE THEN INVESTED IN MUTUAL FUNDS, AGAIN A NEXUS IS ESTABLISHED BETWEEN THE BORROWED FUNDS AND THE INVE STMENTS IN MUTUAL FUNDS. IN OUR VIEW, THIS PARTICULAR ASPECT OF THE MATTER IN TERMS OF NATURE AND MOVEMENT OF FUNDS HAS NOT BEEN EXAMINED BY EITHER OF THE LOWER AUTHORITIES EVEN THOUGH THE ASSESSEE HAD SAID VERY CLEARLY IN ITS SUBMISSIONS THAT CASH CREDIT ACCOUNT MAINTAINED BY THE HDFC BANK WAS USED FOR MAKING THE INVESTMENT IN THE MUTUAL FUNDS. WE, THEREFORE, DEEM IT TO APPROPRIATE TO REMAND THE MATTER TO FILE OF THE ASSESSING OFFICER TO EXAMINE THIS PARTICULAR ASPECT AFRESH IN LIGHT OF ABOVE DISCUSSIONS. IN THE RESULT, GROUND IS ALLOWED FOR S TATISTICAL PURPOSES. GROUND NO. 1 OF THE ASSESSEES APPEAL RELATING TO D EPRECIATION ON VIDEO CONFERENCING EQUIPMENTS: 30. REGARDING GROUND NO. 1 OF THE ASSESSEES APPEAL WHEREIN THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF DEPRECIAT ION ALLOWANCE @ 15% ON VIDEO CONFERENCING EQUIPMENT AS AGAINST DEPR ECIATION ALLOWANCE @ 60% CLAIMED IN ITS RETURN OF INCOME. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 31 31. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER, ON PERUSAL OF THE BILLS AND RELATED SUMMAR Y OF VIDEO AUDIO CONFERENCING EQUIPMENT PURCHASED BY THE ASSESSEE DU RING THE YEAR IN RESPECT OF ITS JASOLA (NEW DELHI) OFFICER AND GADEP AN (KOTA) OFFICE HELD THAT THIS EQUIPMENTS CANNOT BE CLASSIFIED AS COMPUT ERS OR INTEGRAL PART OF COMPUTERS SO AS TO MAKE IT ELIGIBLE FOR DEPRECIA TION @ 60% AS AGAINST DEPRECIATION @ 15% WHICH IS ADMISSIBLE IN RESPECT OF NORMAL PLANT & MACHINERY AND AFTER ISSUING THE NECESSARY S HOW CAUSE AND TAKING THE SUBMISSION OF THE ASSESSEE INTO ACCOUNT, THE EXCESS DEPRECIATION OF RS. 8,83,349/- WAS DISALLOWED AND A DDED TO THE DECLARED INCOME OF THE ASSESSEE. 32. ON APPEAL, THE LD. CIT(A) SUSTAINED THE ORDER O F THE AO AND STATED THAT HE AGREES WITH THE AOS FINDINGS THAT P LASMA MONITOR, SOUND SYSTEM, CAMERA, CABLES ETC. CANNOT BE EQUATED WITH COMPUTER SYSTEM. 33. DURING THE COURSE OF HEARING, THE LD. AR REITER ATED ITS SUBMISSION MADE BEFORE THE LOWER AUTHORITIES AND TOOK US THROU GH THE SUBMISSION MADE BEFORE THE LD. CIT(A) WHICH ARE REPRODUCED AS UNDER:- 4.41 IN THIS RESPECT OUR SUBMISSIONS IS AS FOLLOWS: THE ASSESSEE CLAIMED DEPRECIATION IN INSTALLATION O F VIDEO CONFERENCING SYSTEM @ 60% BEING COMPUTERS OR ITS PARTS AND COMPO NENTS,:- I) VIDEO AUDIO CONFERENCING RS. 7,08,500/-. II) VIDEO CONFERENCING EQUIPMENT OF RS. 12,54,499/- . ALL THE ABOVE ARE COMPUTERS OR ITS PARTS AND COMPON ENTS. THE COMPLETE DETAILS ALONG WITH INVOICES WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ARE AVAILABLE FOR YOUR KIND ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 32 VERIFICATION. THE CAPITALISATION PERTAINS TO INSTAL LATION OF VIDEO CONFERENCING SYSTEM. IT IS HUMBLY SUBMITTED THAT VIDEO CONFERENCING EQUI PMENTS ARE COVERED UNDER THE UMBRELLA OF COMPUTERS AND PARTS W ITH REFERENCE TO CLAIM THE DEPRECIATION. IN THIS REGARD, THE DEFINIT ION AVAILABLE IN SECTION 2(1)(T) OF THE INFORMATION TECHNOLOGY ACT, 2000 IS RELEVANT FOR UNDERSTANDING THE MEANING OF COMPUTER WHICH IS AS F OLLOWS: 'AS PER THE SAID ACT, 'COMPUTER' MEANS ANY ELECTRON IC, MAGNET, OPTICAL OR OTHER HIGH SPEED DATA PROCESSING DEVICE OR SYSTEM WHICH PERFORMS LOGICAL, ARITHMETIC AND MEMORY FUNCTIONS B Y MANIPULATION OF ELECTRONICS OR MAGNETIC OR OPTICAL IMPULSES AND INCLUDES ALL INPUT- OUTPUT PROCESSING, STORAGE, COMPUTER SOFTWARE OR CO MMUNICATION FACILITIES WHICH ARE CONNECTED OR RELATED TO THE CO MPUTER IN A COMPUTER SYSTEM OR COMPUTER NETWORK'. FURTHER, WE WISH TO STATE THAT: A VIDEO CONFERENCE SYSTEM IS A COMPUTER DEVICE, IT ACCEPTS INFORMATION (IN THE FORM OF DIGITALIZED DATA) BY WA Y OF VIDEO INPUT (WEBCAM OR VIDEO CAMERA) & AUDIO INPUT (MICROPHONES ) AND PROCESS THE DATA AND TRANSFER THROUGH ANALOG OR DIGITAL TEL EPHONE NETWORK OR LAN AND GIVES THE OUTPUT DATA BY WAY OF VIDEO OUTPU T (MONITOR, TELEVISION OR PROJECTOR) AND AUDIO OUTPUT (LOUDSPEA KERS ASSOCIATED WITH DISPLAY DEVICE OR TELEPHONE). A COMPUTER IS A PROGRAMMABLE MACHINE. THE TWO PRINC IPAL CHARACTERISTICS OF A COMPUTER ARE:- 1. IT RESPONDS TO A SPECIFIC SET OF INSTRUCTIONS IN A WELL DEFINED MANNER. 2. IT CAN EXECUTE A PRERECORDED LIST OF INSTRUCTIONS MODERN COMPUTERS ARE ELECTRONIC AND DIGITAL. THE AC TUAL MACHINERY (HARDWARE) INCLUDES WEBCAM, SPEAKERS IN ADDITION TO INPUT DEVICE, OUTPUT DEVICE AND CENTRAL PROCESSING UNIT. EVERY CO MPUTER IS ALSO REQUIRES A BUS THAT TRANSMITS DATA FROM ONE PART OF THE COMPUTER TO ANOTHER. THE VIDEO CONFERENCE SYSTEM IS NOTHING BUT A COMPUT ER INPUT DEVICE FOR DATA CAPTURING AND TRANSFER FOR COMMUNICATION P URPOSE. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 33 PLEASE FIND ENCLOSED CASE LAW VIZ CRABTREE INDIA LT D. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 3(1), NEW DELHI [[2010] 38 SOT 479 (DELHI)] THAT SUPPORTS THE ASSESSEE'S CONTENTIO N. THE LD ASSESSING OFFICER HAS PLACED RELIANCE ON TH E CASE OF FEDERAL BANK LTD. V/S ACIT (2011) 332 ITR 319 THAT RELATES TO EPABX AND MOBILE PHONES THAT UNDERSTANDING CANNOT BE TREATED AS COMPUTER AND HAS TO RELEVANCE TO THE ASSESSEE CASE. CONSIDERING THE ABOVE SUBMISSIONS IT IS REQUESTED T HAT THE ADDITION OF RS. 8,83,349/- TO TOTAL INCOME BY RESTRICTING DEPRE CIATION @ 60% ON VIDEO CONFERENCING EQUIPMENT TO 15% MAY KINDLY BE D ELETED. 34. FURTHER, THE LD. AR HAS REFERRED TO THE DECISI ON OF THE COORDINATE BENCH IN CASE OF CISCO SYSTEMS CAPITAL (INDIA) PVT. LTD. VS. ACIT IN IT(TP) NO. 537 (BNG)/2015 DATED 19.02.2016 WHEREIN THE COORDINATE BENCH HAS HELD IN PARA 4 AND 5 WHICH ARE REPRODUCED AS UNDER:- 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTION. CLAIM OF THE ASSESSEE BEFORE THE AO, WAS THAT THE AUDIO/VIDE O CONFERENCE EQUIPMENT AND VIDEO STREAMING EQUIPMENT WERE ALSO N ET WORKING EQUIPMENT ELIGIBLE FOR DEPRECIATION AT 60%. THE AO HAD HELD THE CLAIM OF THE ASSESSEE TO BE FARFETCHED. ACCORDING TO HIM, THE DEVICES HAD LONG PERIOD OF EF FECTIVE USE AND WERE NOT AMENABLE TO VIRUS ATTACKS OR REDUNDANCY. L EARNED CIT(A) ALSO APPROVED SUCH VIEW, TAKEN BY THE AO AND HELD T HAT SUCH EQUIPMENT WOULD BE ELIGIBLE FOR ONLY 15% DEPRECIATI ON AS AVAILABLE FOR GENERAL PLANT & MACHINERY. IN THIS REGARD, WE FIND THAT THE SIMILAR ISSUE HAD COME UP BEFORE THIS TRIBUNAL BOTH FOR THE ASSESSMENT YEAR 2008-09 & 2009-10 IN ASSESSEE'S OWN CASE. RELEVANT PARA NO.5 OF THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 34 ORDER OF THIS TRIBUNAL IN IT(TP)A NO.116(B)/2014 DA TED 10-10-2013, FOR ASSESSMENT YEAR 2009-10 IS RE-PRODUCED HEREUNDE R: 5. AS REGARDS THE FIRST ISSUE I.E. DEPRECIATION ON NETWORKING EQUIPMENT ALLOWED AT 15% AS AGAINST 60% AS CLAIMED BY THE ASS ESSEE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL, TO WHICH ONE OF US I.E. THE JUDICIAL MEMBER IS THE SIGNATORY, IN ASSESSEE'S OWN CASE FOR ASSESSMENT YE AR 2008-09 IN IT(TP)A NO.1558/BANG/2012 DATED 19/9/2014. THE TRIB UNAL IN PARA.6 TO 8.3 OF ITS ORDER HAS CONSIDERED THIS ISSUE AT LE NGTH AND HAS HELD AS UNDER: 6. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS AS WELL AS THE MATERIAL ON RECORD, WE F IND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE APEX COURT AS WELL AS THE SPECIAL BENCH (CITED SUPRA) AS REGARDS DEPRECIATION ON ROUTERS AND SWITCHES IS CONCERNED AND THE AO, FOR T HE ASSESSMENT YEARS 2006-07, 2007-08 AND 2010-11, HAS FOLLOWED TH E SAME IN ALLOWING DEPRECIATION AT THE RATE OF 60%. IN VIEW O F THE SAME, WE DIRECT THE AO TO ADOPT THE SAID RATIONALE FOR THE R ELEVANT ASSESSMENT YEAR ALSO AND ALLOW DEPRECIATION AT THE RATE OF 60% ON ROUTERS AND SWITCHES. 7. AS REGARDS AUDIO VISUAL CONFERENCING EQUIPMENTS AND VIDEO STREAMING EQUIPMENTS, THE LEARNED COUNSEL FOR THE A SSESSEE HAS FILED DETAILED SUBMISSIONS BEFORE THE AO AS WELL AS BEFOR E US TO CONVINCE US THAT THEY ARE ALSO PART OF THE COMPUTER SYSTEM AND ARE NOT INDEPENDENTLY FUNCTIONAL. HE HAS DRAWN OUR ATTENTIO N TO THE DETAILED SUBMISSIONS FILED BY THE ASSESSEE WHICH HAS ALSO BE EN REPRODUCED BY THE AO IN HIS ORDER. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 35 THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND S UBMITTED THAT THEY HAVE CONSIDERED THE ISSUE AT LENGTH AND HAVE GIVEN ELABORATE REASONS FOR TREATING THESE EQUIPMENTS AS 'PLANT AND MACHINE RY ONLY AND NOT AS COMPUTER. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT TO TREAT THE EQUIPMENT AS COMPUTER OR COMPUTER SYSTEM, THE NATURE OF THE EQUIPMENT AND TH E FUNCTIONS THEY PERFORM ARE TO BE EXAMINED. 8.1 AS PER THE DETAILS FURNISHED BY THE LEARNED COU NSEL FOR THE ASSESSEE, AUDIO AND VIDEO CONFERENCING SYSTEM COMPR ISE OF AUDIO-VIDEO DEVICES/EQUIPMENTS WHICH FACILITATE IN BRINGING PEOPLE AT DIFFERENT SITES TOGETHER FOR A MEETING. B ESIDES THE AUDIO AND VISUAL AND MEETING ACTIVITIES, THESE SYSTEMS CA N ALSO BE USED TO SHARE DOCUMENT, COMPUTER INFORMATION AND BOARDS, CONFERENCING WORKS ACROSS IT NET- WORK, ISD THROUGH COMPUTERS/COMPUTER NETWORK ETC., AND AUDIO/VIDEO FA CILITY CONSIST OF MANY ELEMENTS INCLUDING THE USE OF CODEC WHICH S TANDS FOR CODER-DECODER. CODEC IS A DEVICE, WHICH CONVERTS AN D COMPRESSES AN ANALOG AUDIO-VIDEO SIGNAL INTO DIGITAL DATA AND THEN SENDS IT OVER A DIGITAL LINE. THE DECODER REVERSES THE PROCESSES AT THE RECEIVING END AND THIS COMPRESSION AND DECOMPRESSION ALLOWS LARGE AMOUNT OF DATA TO BE TRANSFERRED ACROSS A NETWORK AT CLOSE TO REAL TIME. CONFERENCING SYSTEMS MAKE USE OF VARIOUS END POINTS IN A SYSTEM SUCH AS VIDEO INPUT CONSISTING OF CAMERA, VIDEO OUTPUT IN THE FORM OF M ICROPHONES AND SPEAKERS ETC. THE DATA TRANSMISSION HAPPENS IN A NU MBER OF WAYS DEPENDING ON THE TECHNOLOGY BEING USED INCLUDING DI GITAL TECHNOLOGIES ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 36 AS WELL AS ANALOG TECHNOLOGIES, BROADBAND INTERNET CONNECTION AND RADIO FREQUENCIES WHICH CAN INCLUDE SATELLITE TRANSMISSIO N AND WIFI. THEREFORE, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, COMPUTER SYSTEM IS EXTREMELY IMPORTANT TO CONFERENCING PROCESS AND THE REFORE THE AUDIO VISUAL TRANSMISSION EQUIPMENT SHOULD BE CONSIDERED AS PART OF A COMPUTER. 8.2 REGARDING THE VIDEO STREAMING EQUIPMENT, IT WAS SUBMITTED THAT THE VIDEO STREAMING ALLOWS USER TO BEGIN VIEWING TH E VIDEO CLIPS STORED IN A SERVER WITHOUT FIRST DOWNLOADING THE ENTIRE FI LE AND AFTER A BRIEF PERIOD OF INITIATING AND BUFFERING, THE FILE WILL B EGIN TO STREAM OR PLAY IN REAL TIME. VIDEO STREAMING INVOLVES A SERIES OF STE PS INVOLVING THE USE OF MEDIA CONTENT, A COMPUTER THAT RUNS ENCODING SOF TWARE, SERVERS FOR UPHOLDING THE STREAMED MEDIA FORMAT AND ACCESS TO S UCH MEDIA THROUGH VARIOUS DEVICES. FROM THE ABOVE SUBMISSIONS , IT IS CLEAR THAT THE EQUIPMENT USED BY THE ASSESSEE FOR AUDIO VISUAL CONFERENCING AND ALSO VIDEO STREAMING INVOLVES THE USE OF COMPUTER. AS CERTAIN INPUT AND OUTPUT EQUIPMENT MAY HAVE INDEPENDENT FUNCTIONALITY AND EXISTENCE BUT THE COMPUTER DEVICES WHICH ARE INVOLVED IN THES E ACTIVITIES WOULD BE OF NO USE IF THESE INPUT AND OUTPUT DEVICES ARE NOT USED. THEREFORE, THOUGH THE INPUT AND OUTPUT DEVICES MAY HAVE INDEPE NDENT EXISTENCE AND FUNCTIONALITY IN SO FAR AS THE ACTIVITY OF THE ASSESSEE IS CONCERNED, THEY DO FORM PART OF THE COMPUTER NETWORK SYSTEM WI THOUT WHICH THE COMPUTER USED FOR THE PURPOSE OF AUDIO AND VIDEO CO NFERENCING WOULD BE USELESS. THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF DATACRAFT INDIA LTD., (CITED SUPRA) HAS HELD THAT PERIPHERAL EQUIPMENTS USED ALONG WITH COMPUTER ARE ALSO PART OF THE COMPUTER. WE FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE 'B' BENCH OF THE T RIBUNAL AT DELHI IN THE CASE OF M/S. CRABTREE INDIA LTD. VS. ACIT IN IT A NOS.3638 & ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 37 3639/DEL/2008 AND THE TRIBUNAL VIDE ORDERS DATED 25 -2-2010 HAS HELD THAT VIDEO CONFERENCING SYSTEM IS A COMPUTER DEVICE THAT ACCEPTS INFORMATION IN THE FORM OF DIGITAL DATA BY WAY OF V IDEO INPUT I.E. WITH THE HELP OF WEB/CAM OR VIDEO CAMERA AND AUDIO INPUT WITH THE HELP OF MICROPHONE AND THE SYSTEM THEREAFTER PROCESSED THE DATA AND TRANSFER THROUGH ANALOGUE OR DIGITAL TELEPHONE NETWORK OR LA N AND DIGITAL GIVES THE OUTPUT DATA BY WAY OF AUDIO VIDEO OUTPUT. THERE FORE, IT IS A TECHNICAL DEVICE WHOSE FUNCTIONS ARE SIMILAR TO THE COMPUTER BECAUSE BASICALLY COMPUTER ALSO RESPONDS TO A SPECIFIC SET OF INSTRUCTIONS IN A WELL DEFINED MANNER. THE TRIBUNAL CONSIDERED THE DE CISION OF THE ITAT, CALCUTTA BENCH IN THE CASE OF ITO VS. SIMRAN MAJUMDAR (98 ITD 119) WHEREIN THE TRIBUNAL HAD CONSIDERED THE SIMILA R ISSUE WHEREIN DEPRECIATION AT THE RATE OF 60% WAS CLAIMED ON PRIN TERS AND SCANNERS AND IT WAS HELD THAT THEY WERE ELIGIBLE FOR DEPRECI ATION AT THE RATE OF 60%. THE TRIBUNAL, HOWEVER, HELD THAT THE CONTENTIO NS OF THE ASSESSEE THEREIN WERE NOT BEFORE THE AO AND THEREFORE THE IS SUE WAS SET ASIDE TO THE FILE OF THE AO TO CONSIDER EACH OF THE ITEMS IN DETAIL AND FIND OUT WHICH CAN BE EQUATED AND CONSTRUED AS COMPUTER FOR THE PURPOSE OF GRANTING DEPRECIATION AT THE RATE OF 60% AFTER PROV IDING THE ASSESSEE DUE OPPORTUNITY OF HEARING. 8.3 IN THE CASE BEFORE US ALSO, ALL THE COMPONENTS OF THE EQUIPMENT ARE NECESSARY FOR FULFILLMENT OF THE OBJE CTIVE OF THE AUDIO-VISUAL CONFERENCING AND VIDEO STREAMING. SOME OF THE COMPONENTS MAY EXIST INDEPENDENTLY AND MAY ALSO BE FUNCTIONING INDEPENDENTLY BUT IN THE ASSESSEE'S BUS INESS THEY ARE ONLY PERFORMING THE FUNCTIONS AS INPUT AND OUTP UT DEVICES. THE ASSESSEE CAN ALSO USE THIS EQUIPMENT INDEPENDENT OF THE COMPUTER SYSTEM USED IN THE AUDI O VISUAL ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 38 CONFERENCING AND VIDEO STREAMING ACTIVITY. BUT DID THE ASSESSEE USE THEM INDEPENDENTLY IS THE QUESTION. IN VIEW OF THE SAME, WE ARE OF THE OPINION THAT THE AO, INSTEA D OF CLASSIFYING THE ENTIRE EQUIPMENT AS PLANT AND MACHI NERY AND NOT COMPUTER, IS REQUIRED TO EXAMINE EACH ITEM IN D ETAIL AS REGARDS ITS FUNCTIONAL DEPENDENCY ON THE COMPUTER A ND ITS INDEPENDENT EXISTENCE. THE ITEMS WHICH ARE FUNCTION ALLY DEPENDENT ON COMPUTERS ARE DEFINITELY PART OF COMPU TER AND THE ITEMS WITH INDEPENDENT EXISTENCE MAY NOT BE COM PUTERS BUT WHEREVER IT IS FOUND THAT THE DEVICE IS NOT USE D INDEPENDENT OF THE COMPUTER SYSTEM AND THE PURPOSE OF AUDIO VISUAL CONFERENCING AND VIDEO STREAMING, THE SAME SHALL BE TREATED AS COMPUTERS AND WHEREVER IT IS US ED INDEPENDENTLY FOR ANY OTHER PURPOSE IT SHALL BE TRE ATED AS PLANT AND MACHINERY. THE AO, SHALL, THUS ALLOW DEPR ECIATION AT THE RATE OF 60% ON THE EQUIPMENT WHICH COULD BE CLA SSIFIED AS COMPUTER AND AT THE RATE OF 15% ON THE EQUIPMENT WH ICH COULD BE CLASSIFIED AS PLANT AND MACHINERY. THIS IS SUE IS ACCORDINGLY SET ASIDE TO THE FILE OF THE AO FOR RE- ADJUDICATION IN ACCORDANCE WITH LAW AND OUR OBSERVATION ABOVE'. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WE REMAND THE ISSUE TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. NEEDLESS TO MENTION THE ASSESSEE SHALL BE GIVEN A FAIR OPPORTUNITY FOR HEARING 5. WE ARE OF THE OPINION, THAT IN LINE WITH THE ABO VE DECISION FOR THE IMPUGNED ASSESSMENT YEAR ALSO THE AO HAS TO TAKE A CLOSE LOOK AT THE CLAIM TO VERIFY WHETHER SUCH CLAIM WAS FOR STANDALO NE EQUIPMENT OR ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 39 EQUIPMENT WHICH COULD BE USED ONLY IN CONJUNCTION W ITH THE COMPUTER. SIMILAR DIRECTIONS AS GIVEN EARLIER IN THE TWO EARL IER ASSESSMENT YEARS ARE ISSUED HERE ALSO. GROUND NO. 1 & 2 OF THE ASSES SEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 35. FOLLOWING THE COORDINATE BENCH DECISION IN CISC O SYSTEMS REFERRED SUPRA, THE MATTER IS SET-ASIDE TO THE FILE OF THE AO TO EXAMINE THE MATTER IN LIGHT OF DIRECTIONS CONTAINED IN PARA 8.3 OF ABOVE REFERRED DECISION WHICH SHALL BE EQUALLY APPLICABLE IN THE I NSTANT CASE. IN THE RESULT, THE GROUND IS ALLOWED FOR STATISTICAL PURPO SES. 36. NOW, WE REFER TO ASSESSEES APPEAL OTHER THAN C OMMON GROUNDS OF APPEAL WHICH HAVE BEEN DISCUSSED SUBSEQUENTLY. GROUND NO. 3 OF THE ASSESSEES APPEAL RELATING TO D ISALLOWANCE UNDER SECTION 14A OF THE ACT: 37. IN GROUND NO. 3 OF THE ASSESSEES APPEAL, IT HA S CHALLENGED THE DISALLOWANCE OF RS. 13,75,000/-U/S 14A OF THE ACT. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS INVESTED A SUM O F RS. 952.00 CRORES IN UNITS OF VARIOUS MUTUAL FUNDS DURING THE YEAR BE SIDES OPENING INVESTMENT OF RS. 55.00 CRORE MADE IN THE PRECEDING YEAR. ON THESE INVESTMENTS IN MUTUAL FUNDS UNITS, TAX-FREE DIVIDEN D INCOME OF RS. 79,38,911/- HAS BEEN EARNED DURING THE YEAR. TH ERE ARE A TOTAL OF 55 TRANSACTIONS OF PURCHASE AND 52 TRANSACTIONS OF SALE OF MUTUAL FUND UNITS DURING THE YEAR. AS PER ASSESSING OFFICER, TH E TOP MANAGEMENT OF THE ASSESSEE-COMPANY WOULD OBVIOUSLY HAVE DECIDED/A PPROVED THESE INVESTMENTS. IT IS CLEAR THAT APART FROM SHRI ANIL KAPOOR, MANAGING ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 40 DIRECTOR, AT LEAST SHRI ABHAY BAIJAL, VICE PRESIDEN T ( FINANCE) MUST HAVE BEEN INVOLVED IN THE DECISION-MAKING PROCESS. AS PE R ANNUAL REPORT OF THE ASSESSEE-COMPANY (PAGE-13), REMUNERATION OF RS. 1,19,50,079/- WAS PAID TO SHRI ANIL KAPOOR DURING THE YEAR. FURTH ER, AS PER THE ASSESSEE, REMUNERATION OF RS. 48,87,627/- WAS PAID TO SHRI ABHAY BAIJAL DURING THE YEAR. AS PER ASSESSING OFFICER, CONSIDER ABLE PART OF THEIR TIME AND ENERGY AS WELL AS SOME PART OF TIME AND ENERGY OF OTHER PERSONNEL DEALING WITH FINANCIAL/ BANKING MATTERS MUST HAVE B EEN SPENT IN CONNECTION WITH EARNING OF TAX-FREE DIVIDEND INCOME UNDER REFERENCE. THE ASSESSING OFFICER ACCORDINGLY HELD THAT IN VIEW OF THE LEGAL AND FACTUAL POSITION, IT IS HELD THAT EXPENDITURE ATTRI BUTABLE TO MAKING OF INVESTMENTS OF MUTUAL FUND UNITS ON WHICH TAX-FREE DIVIDEND INCOME OF RS. 79.38 LAC HAS BEEN EARNED BY THE ASSESSEE IS RE QUIRED TO BE DISALLOWED U/S 14A, SINCE HE WAS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE DIVIDEND INCOME OF RS. 79.38 LAC. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IS WORKED OUT AT RS. 13,75,000/- AS PER CAL CULATIONS BELOW:- ONE-HALF PERSENT OF AVERAGE VALUE OF INVESTMENTS IN MUTUAL FUND UNITS ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR ENDED ON 31.03.2011 I.E. 0.5% OF (55.00+NIL) CRORE = RS. 13,75,000/- 2 38. DURING THE COURSE OF APPELLATE PROCEEDING BEFOR E THE LD. CIT(A), THE ASSESSEE COMPANY SUBMITTED THAT IT DID NOT ENGA GE ANY PERSON SPECIFICALLY FOR THIS JOB AND THE EMPLOYEES DEALING WITH BANKING JOB ALSO TAKE CARE OF THE INVESTMENTS IN MUTUAL FUNDS, WHICH IS NOT BUSINESS OF THE ASSESSEE. ADDITIONALLY, IT WAS SUBMITTED THAT T HE EFFORTS PUT TO DO SUCH INVESTMENT IN MUTUAL FUNDS ARE MINISCULE AND V ERY LOW AS ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 41 COMPARED TO THE OTHER BANKING TRANSACTIONS OF THE C OMPANY AS A WHOLE HENCE, THE ADDITION OF RS. 13,75,000/- NEEDS TO BE DELETED. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE SAID ADDITION AND NOW THE ASSESSEE IN APPEAL BEFORE US. 39. WE FIND THAT A SIMILAR ISSUE WAS INVOLVED IN TH E EARLIER YEAR I.E AY 2010-11 WHEREIN THE BENCH HAS DISCUSSED THIS ISSUE AT PARA 37 WHICH IS REPRODUCED AS UNDER:- 37. REGARDING OTHER ADMINISTRATIVE/INDIRECT EXPENS ES WHICH CAN BE ATTRIBUTED TO THE PURCHASE AND SALES OF THESE MUTUA L FUND UNITS AND DISALLOWANCE UNDER RULE 8D(III), THE ASSESSING OFFI CER OBSERVED THAT THERE ARE TOTAL 19 TRANSACTIONS INVOLVING CRORES OF RUPEES WHICH HAVE BEEN INVESTED IN UNITS OF VARIOUS MUTUAL FUNDS TOTA LLING TO RS. 419.50 CRORE AND THE TOP MANAGEMENT OF THE ASSESSEE COMPAN Y WOULD OBVIOUSLY HAVE DECIDED /APPROVED THESE INVESTMENTS. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT APART FROM SHRI ANIL KAPOOR, MANAGING DIRECTOR, AT LEAST SHRI ABHAY BAIJAL, VICE PRESIDEN T- FINANCE MUST HAVE BEEN INVOLVED IN THE DECISION MAKING PROCESS AND AS PER ANNUAL REPORT OF THE ASESSEE COMPANY, REMUNERATION OF RS. 1,05,56 ,246/- AND RS. 41,55,642/- WERE PAID TO SHRI ANIL KAPOOR AND ABHAY BAIJAL RESPECTIVELY DURING THE YEAR. IT WAS OBSERVED BY THE AO THAT CON SIDERABLE PART OF THEIR TIME AND ENERGY AS WELL AS SOME OF THE TIME A ND ENERGY OF OTHER PERSONAL DEALING WITH FINANCIAL/BANKING MATTERS MUS T HAVE BEEN SPEND IN CONNECTION WITH EARNING TAX FREE DIVIDEND INCOME . THEREAFTER, THE AO HAS APPLIED RULE 8D(III) AND WORKED OUT DISALLOWANC E OF RS 88.75 LACS. DURING THE COURSE OF HEARING, THE LD AR SUBMITTED T HAT THE ASSESSEE COMPANY DID NOT ENGAGE ANY PERSON SPECIFICALLY FOR THE JOB AND THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 42 EMPLOYEES DEALING WITH BANKING JOB ALSO TAKE CARE O F INVESTMENTS IN THE MUTUAL FUNDS AND FURTHER, EVEN WHERE THE TOP MANAGE MENT OF THE ASSESSEE COMPANY CAN BE SAID TO HAVE BEEN INVOLVED IN ATLEAST THE DECISION MAKING PROCESS OF MAKING THE SUBJECT INVES TMENTS, THE DISALLOWANCE CANNOT BE DETERMINED AT RS 88,75,000 W HICH WORKS OUT TO APPROX. 60% OF THEIR SALARY EXPENDITURE OF RS 1,47, 11,888 OF THESE TWO KEY PERSONNEL OF THE ASSESSEE COMPANY. WE FIND SUBS TANCE IN THE ARGUMENT OF THE LD AR AND ARE OF THE VIEW THAT EVEN THOUGH THE FORMULA FOR WORKING OUT THE DISALLOWANCE HAS BEEN P ROVIDED UNDER RULE 8D(III), THE SAME CANNOT BE READ AS DEVOID OF ACTUA L EXPENDITURE INCURRED OR REASONABLY DETERMINED HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY. THE MATTER IS TH US SET-ASIDE TO THE FILE OF THE AO TO DETERMINE REASONABLE EXPENDITURE WHICH CAN BE SAID TO BE ATTRIBUTED TO SUBJECT INVESTMENTS IN THE MUTUAL FUND UNITS AND WHICH CAN BE DISALLOWED UNDER RULE 8D(III) OF THE ACT. 40. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GIVEN THAT SIMILAR CONTENTIONS HAVE BEEN RAISED BY THE BOTH THE PARTIES AND THE FACT THAT INVESTMENTS MADE IN MUTUAL FUNDS IN THE EARLIER YEAR HAS FORMED THE BASIS (AS PART OF AVERAGE VALUE OF INVESTMENTS) FOR COMPUTING THE DISALLOWANCE UNDE R RULE 8D(III) FOR THE YEAR, FOLLOWING OUR EARLIER ORDER FOR AY 2010-1 1, THE MATTER IS SET- ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH SIM ILAR DIRECTIONS. IN THE RESULT, THE GROUND IS ALLOWED FOR STATISTICAL PURPO SES. GROUND NO. 5 OF THE ASSESSEES APPEAL RELATING TO D ISALLOWANCE OF INTEREST ON BORROWED FUNDS: ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 43 41. IN GROUND NO. 5 OF THE ASSESSEES APPEAL, THE A SSESSEE HAS CHALLENGED THE SUSTENANCE OF DISALLOWANCE OF INTERE ST OF RS. 61,96,798/- IN RESPECT OF BORROWED FUNDS ALLEGED TO BE TAKEN FO R GIVING LOANS AND ADVANCES TO THE VARIOUS SUBSIDIARIES. 42. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE AO OBSERVED THAT THE ASSESSEE HAS GIVEN LOANS AND ADVANCES TO V ARIOUS SUBSIDIARIES AND THEREAFTER, THE AO NOTICED THAT THE ASSESSEE HA S FAILED TO PROVE THAT THERE WAS ANY COMMERCIAL EXPEDIENCY IN CHARGIN G INTEREST @ 8% ON ADVANCES OF RS. 4375.26 LACS GIVEN TO CFCL OVERS EAS LTD. FURTHER, THE AO OBSERVED THAT THE ASSESSEE HAS FAIL TO PROVE ANY COMMERCIAL EXPEDIENCY IN GIVING ADVANCE OF RS. 350 LACS TOWARD S PURCHASE OF SHARES OF M/S CHAMBAL INFRAVENTURES LTD. BESIDES TH AT, THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO PROVE ANY COMMERCIAL EXPEDIENCY FOR PAYING EXPENSES ON BEHALF OF ITS SUB SIDIARIES AND NOT RECOVERING THEM FOR LONG PERIODS OF TIME. THE AO, T HEREAFTER FOLLOWING HIS REASONING IN CONTEXT OF DISALLOWANCE OF INTERES T ON BORROWED FUNDS FOR INVESTMENT IN SUBSIDIARIES, TAKING THE RATE OF INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS @ 9% WORKED OUT DISALLO WANCE OF RS. 14,03,993/- IN RESPECT OF ADVANCES GIVEN TO M/S CFC L OVERSEAS LTD. AND RS. 10.96 LAC IN RESPECT OF ADVANCE OF RS. 3.50 CRORES GIVEN FOR PURCHASE OF SHARES OF M/S CHAMBAL INFRAVENTURE LTD. FROM 25.11.2010 TO 31.03.2011. IN RESPECT OF THE EXPENSES INCURRED ON BEHALF OF ITS VARIOUS SUBSIDIARIES, THE AO DISALLOWED THE INTERES T AMOUNTING TO RS. 36.96 LACS. ACCORDINGLY, THE AO WORKED OUT THE TOTA L DISALLOWANCE OF RS. 61.96 LACS U/S 36(1)(III) OF THE ACT AND SAME WAS D ISALLOWED. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 44 43. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THAT T HE ASSESSEE COMPANY HAS ADMITTED THAT LOANS WERE GIVEN FROM ASS ESSEES CASH CREDIT ACCOUNT, THEREFORE, IT CAN BE PRESUMED THAT LOANS WERE FROM BORROWED FUNDS AND THE ASSESSEES SUBMISSIONS WERE GENERAL IN NATURE AND DID NOT PROVE ANY COMMERCIAL EXPEDIENCY. ACCORD INGLY, IT WAS HELD THAT THE ASSESSEE HAS USED BEARING FUNDS FOR ADVANC ING LOANS TO ITS SUBSIDIARIES EITHER AT LOW INTEREST RATE OR AT NIL INTEREST RATE AND THE AO ESTIMATION OF COST OF BORROWING @ 9% WAS FOUND REAS ONABLE AND THE ADDITION OF RS. 61,96,798/- MADE BY THE AO WAS CONF IRMED. 44. DURING THE COURSE OF HEARING, THE LD. AR HAS SU BMITTED THAT CFCL OVERSEAS LIMITED WAS INCORPORATED AS THE SPECIAL PU RPOSE VEHICLE AND IS WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE FOR CONSOLI DATION OF ITS ENTIRE SOFTWARE BUSINESS. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAS GIVEN FUNDS ON VARIOUS DATES AND THE ASSESSEE HAS WHOLLY CHARGED INTEREST @ 8% ON SUCH LOAN AND THEREFORE, THERE WAS NO BASIS FOR WORKING OUT DIFFERENTIAL INTEREST RATE OF 1% AND IT IS NOT A CASE WHERE THE ASSESSEE HAS NOT CHARGED ANY INTEREST AND BASED ON THE AVERAGE COST OF BORROWING, THE ASSESSEE HAS CHARGED THE RAT E OF INTEREST @ 8% AND THERE IS NO BASIS FOR THE AO TO WORK OUT THE RA TE OF INTEREST @ 9% AND HOLDING THAT THE ASSESSEE HAS FAILED TO CHARGE THE INTEREST AT THE APPROPRIATE RATE OF INTEREST. 45. REGARDING INVESTMENT IN CHAMBAL INFRAVENTURES L IMITED (CIVL), IT WAS SUBMITTED THAT THE ASSESSEE HAS GIVEN SHARE APP LICATION MONEY OF RS. 350 LACS TO CIVL ON 25.11.2010 AND SUBSEQUENTLY , THE SHARES HAVE BEEN ALLOTTED TO THE ASSESSEE-COMPANY ON 15.03.2012 . IT WAS SUBMITTED THAT THE CIVL IS PURSUING VARIOUS BUSINESS OPPORTUN ITIES FOR SETTING UP ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 45 POWER PROJECTS IN THE STATES OF ORISSA AND CHHATTIS GARH, THE INVESTMENT IN CIVL IS A STRATEGIC INVESTMENT FOR BUSINESS PURP OSES, THE CIVL HAD SET UP TWO WHOLLY OWNED SUBSIDIARIES FOR TAKING UP POWER PROJECTS IN THE STATE OF CHHATTISGARH AND ORISSA. 46. REGARDING PAYMENT OF EXPENSES ON BEHALF OF VARI OUS GROUP COMPANIES, IT WAS SUBMITTED THAT THE ASSESSEE COMPA NY HAS PAID AN AMOUNT OF RS. 4,08,62,800/- BEING CHARGES OF RS. 12 79.95 ACRES OF LAND ON 11.11.2010 TO CIVL AND OUT OF THAT, AN AMOU NT OF RS. 3,58,62,800/- WAS RECEIVED BACK ON 25.11.2010. FURT HER, THE ASSESSEE HAS INCURRED EXPENSES OF RS. 50,247/- LIKE AUDIT FE ES, ROC FEES AND OTHER CERTIFICATION & VERIFICATION CHARGES ON BEHAL F OF THE CHAMBAL ENERGY (CHHATTISGARH) LIMITED AND DEBITED THE SAME TO CECL AND THE SAID EXPENSES WERE RECOVERABLE FROM THEM AND NOT DE BITED TO THE PROFIT AND LOSS ACCOUNT. SIMILARLY, THE ASSESSEE HAS INCUR RED EXPENSES OF RS. 5,72,374/-ON BEHALF OF THE CHAMBAL ENERGY (ORIS SA) LIMITED WHICH INCLUDES EXPENSES INCURRED ON DIGITALIZATION OF VIL LAGE MAP OF PROPOSED SITE, ROC CHARGES, AUDIT FEES AND THE SAID EXPENSES ARE RECOVERABLE FROM THEM AND NOT DEBITED TO THE PROFIT AND LOSS AC COUNT. IT WAS FURTHER SUBMITTED THAT SIMILAR NATURE OF EXPENSES H AVE BEEN INCURRED BY THE ASSESSEE IN THE PREVIOUS YEAR AND THE OPENING B ALANCE AT THE BEGINNING OF THE YEAR COMPRISES SUCH RECOVERABLE AM OUNTS. 47. IT WAS FURTHER SUBMITTED THAT THE SAID LOANS AN D ADVANCES WERE MADE OUT OF THE INTERNAL ACCRUALS OF THE ASSESSEE-C OMPANY AND THERE WERE NO SPECIFIC/ DIRECT BORROWINGS FOR THE LOANS A ND ADVANCES AND THE SAID LOANS AND ADVANCES TO THE SUBSIDIARIES WERE MA DE IN THE NORMAL COURSE OF BUSINESS FOR THE FURTHERANCE OF ITS BUSIN ESS ACTIVITIES IN THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 46 SAME OR OTHER AREAS. IT WAS SUBMITTED THAT THE ASSE SSEE HAS EARNED A PROFIT OF RS. 325.18 CRORES DURING THE YEAR AND IT HAS HUGE RESERVES AND SURPLUS WHEREIN THE GENERAL RESERVES ARE TO THE TUN E OF RS. 19695.36 LACS AND BALANCE TO THE CREDIT OF PROFIT AND LOSS A CCOUNT ACCOUNTING TO RS. 96054.08 LACS. IT WAS FURTHER SUBMITTED THAT WI THOUT PREJUDICE TO THE ASSESSEES CONTENTION THAT INTERNAL ACCRUAL WER E USED FOR MAKING LOANS AND ADVANCES TO SUBSIDIARIES, SECTION 36(1)(I II) OF THE ACT DOES NOT PROHIBIT ALLOWANCE OF INTEREST IF THE LOAN OR A DVANCE IS MADE TO SUBSIDIARY. THE ONLY CONDITION IS THAT THE MONEY SH OULD BE BORROWED FOR THE PURPOSE OF BUSINESS AND USED FOR THE PURPOSE OF ASSESSEES BUSINESS. IT WAS SUBMITTED THAT IN THE INSTANT CASE , THE ASSESSEE HAS GIVEN THE DETAILS OF LOANS AND ADVANCES AND PURPOSE OF THE LOANS AND ADVANCES TO VARIOUS COMPANIES, THEREFORE, IT IS FOR THE AO TO EXAMINE THE FACTS AND PROVE THAT CONDITIONS STIPULATED FOR CLAIMING DEDUCTION U/S 36(1)(III) OF THE ACT ARE NOT SATISFIED. IN SUPPOR T, RELIANCE WAS PLACED ON THE VARIOUS HONBLE SUPREME COURT AND HIGH COURT DECISIONS WHICH ARE LISTED AS UNDER:- S.A. BUILDERS LTD. VS. CIT(A) (2007) 158 TAXMAN 74 (SC) MUNJAL SALES CORP. VS. CIT & ANR. (2008) 168 TAXMAN 43 (SC) HERO CYCLES (P.) LTD. VS. CIT 63 TAXMANN.COM 308 (S C) CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 HINDALCO INDUSTRIES CO. CIT (2016) 389 ITR 430 CIT VS. MAX INDIA LTD. (2017) 398 ITR 209 48. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE AOS CONTENTION IS THAT TH E BORROWED FUNDS HAVE BEEN USED FOR GIVING LOAN AND ADVANCES TO VARI OUS SUBSIDIARIES/GROUP COMPANIES. THE LD. CIT(A) HAS R ETURNED A FINDING ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 47 THAT THE ASSESSEE COMPANY HAS ADMITTED THAT LOANS W ERE GIVEN FROM ASSESSEES CASH CREDIT ACCOUNT, THEREFORE, IT CAN B E PRESUMED THAT LOANS WERE FROM BORROWED FUNDS. HOWEVER, THE ASSESSEE CO MPANYS CONTENTION IS THAT NO SPECIFIC BORROWINGS HAVE BEEN MADE FOR PURPOSES OF GIVING LOANS/ADVANCES AND THE SAME WERE MADE OUT OF ITS INTERNAL ACCRUALS. IN THIS REGARD, WE NOTE THAT THE ASSESSEE IN ITS SUBMISSIONS BEFORE THE LOWER AUTHORITIES HAS STATED THAT THE IN VESTMENTS AND LOANS/ADVANCES TO ITS SUBSIDIARIES HAVE BEEN MADE F ROM THE CASH CREDIT ACCOUNT MAINTAINED WITH THE SBI BANK WHEREIN THE BA NK HAS CHARGED TOTAL INTEREST OF RS. 2,84,689/- FOR THE WHOLE OF T HE YEAR. DEPENDING ON THE POSITION OF THE FUNDS IN THE SAID CASH CREDIT A CCOUNT ON A GIVEN DAY, WHERE THE WITHDRAWALS ARE MORE THAN THE DEPOSITS IN THE SAID CASH CREDIT ACCOUNT, THE SURPLUS WITHDRAWALS ARE IN THE NATURE OF SHORT TERM BORROWING FROM THE BANK ON WHICH THE BANK HAS LEVIE D INTEREST. IF SUCH BORROWINGS ARE USED FOR THE PURPOSES OF MAKING THE LOANS/ADVANCES, THEN THERE IS CLEARLY A NEXUS BETWEEN THE BORROWING S AND THE LOANS/ADVANCES AND INTEREST TO THAT EXTENT IS DIREC TLY RELATED TO GIVING OF LOANS/ADVANCES, HOWEVER, WHERE THE SURPLUS BORROWIN GS ARE USED FOR THE PURPOSE OF BUSINESS OPERATIONS, THEN IT CANNOT BE SAID THAT SUCH BORROWINGS ARE USED FOR THE PURPOSES OF MAKING LOAN S/ADVANCES AND ANY INTEREST INCURRED FOR THE SAID PERIOD IS A NORM AL BUSINESS EXPENDITURE. FURTHER, NATURE OF DEPOSITS IN SUCH CA SH CREDIT ACCOUNT NEEDS TO BE EXAMINED AS TO WHETHER THE DEPOSITS ARE FROM BUSINESS OPERATIONS OR THERE ARE ALSO DEPOSITS BY WAY OF FUN D TRANSFER FROM OTHER ACCOUNTS AND THE NATURE OF SUCH FUNDS FROM OTHER AC COUNTS IN THE NATURE OF BORROWINGS OR FROM BUSINESS OPERATIONS. IN CASE OF BORROWED FUNDS HAVE BEEN TRANSFERRED TO THIS PARTICULAR CASH CREDIT ACCOUNT AND SUCH FUNDS ARE THEN UTILIZED IN GIVING LOANS AND AD VANCES, AGAIN A NEXUS ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 48 IS ESTABLISHED BETWEEN THE BORROWED FUNDS AND THE L OANS/ADVANCES. IN OUR VIEW, THIS PARTICULAR ASPECT OF THE MATTER IN T ERMS OF NATURE AND MOVEMENT OF FUNDS HAS NOT BEEN EXAMINED BY EITHER O F THE LOWER AUTHORITIES. MERELY BECAUSE THE LOANS WERE GIVEN F ROM ASSESSEES CASH CREDIT ACCOUNT, A SIMPLISTIC PRESUMPTION CANNOT BE DRAWN THAT LOANS WERE FROM BORROWED FUNDS GIVEN THAT THE CASH CREDIT ACCOUNT IS LIKELY TO HAVE CREDITS IN TERMS OF DEPOSITS FROM ASSESSEES B USINESS OPERATIONS. THE CREDITS AND WITHDRAWALS IN SUCH CASH CREDIT ACC OUNT NEED TO BE EXAMINED AND A CLEAR NEXUS IS REQUIRED TO BE ESTABL ISHED BETWEEN THE BORROWED FUNDS AND MAKING OF LOANS/ADVANCES TO THE SUBSIDIARIES/GROUP COMPANIES. WE, THEREFORE, DEEM IT APPROPRIATE TO RE MAND THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THIS P ARTICULAR ASPECT AFRESH IN LIGHT OF ABOVE DISCUSSIONS. IN A SCENARIO, WHERE IT IS ESTABLISHED THAT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING TH E LOANS AND ADVANCES, THE QUESTION OF COMMERCIAL EXPEDIENCY ARI SES FOR CONSIDERATION AND THE RATIO LAID DOWN BY THE VARIOU S COURTS AS RELIED UPON BY THE LD AR NEEDS TO BE EXAMINED AND WHICH WE HAVE KEPT OPEN AND NOT DEALT WITH AT PRESENT. THE ASSESSEE SHALL B E AT LIBERTY TO RAISE THE SAME BEFORE THE ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL PROVIDE REASONABLE OPPORTUNITY TO THE ASSESSEE AND THE LATTER SHALL SUBMIT THE DESIRED INFORMATION/DOCUMEN TATION AS SO DESIRED BY THE ASSESSING OFFICER. IN THE RESULT, GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ADDITIONAL GROUND NO. 6 OF THE ASSESSEES APPEAL RE LATING TO LOSS RELATED TO FERTILIZERS BONDS SOLD DURING THE Y EAR: ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 49 49. IT WAS SUBMITTED BY THE LD AR THAT THE TRIBUNAL WHILE DISPOSING OFF GROUND NO. 9 OF THE DEPARTMENTAL APPEAL (ITA NO . 389/JP14) FOR THE ASSESSMENT YEAR 2010-11 VIDE ITS ORDER DATED 31.01. 2018 HELD THAT ASSESSEE COMPANY WOULD BE ALLOWED TO CLAIM THE LOSS IN THE YEAR OF ACTUAL DISPOSAL OF FERTILIZER BONDS AND NOT IN THE YEAR ON ACCOUNT OF VALUATION OF SUCH FERTILIZER BONDS. IT WAS ACCORDI NGLY SUBMITTED THAT THE ASSESSEE COMPANY SHOULD BE ALLOWED BUSINESS LOSS OF RS. 2155.00 LACS RELATED TO VALUE OF THE FERTILIZERS BONDS WHICH HAV E BEEN SOLD DURING THE YEAR RELEVANT TO THE IMPUNGED ASSESSMENT YEAR 2011- 12. 50. IN THIS REGARD, WE REFER TO THE FINDINGS OF TH E TRIBUNAL IN ITA NO. 389/JP/14 DATED 31.1.2018 FOR AY 2010-11 WHICH READ S AS UNDER: 18. AS IT IS CLEAR FROM ABOVE, IN THE ABOVE REFERR ED CASE, THE ASSESSEE HAD CLAIMED A LOSS OF RS. 53,650 SUSTAINED ON DISPO SAL OF ITS SUBSCRIPTION IN THE ORISSA GOVERNMENT FLOATED LOAN, 1972. THERE WAS ACTUAL DISPOSAL OF THE ORISSA GOVERNMENT FLOATED LO AN UNLIKE IN THE CASE OF THE ASSESSEE COMPANY WHERE THERE IS NO DISPOSAL OF THE FERTILIZERS BONDS AND THE ASSESSEE COMPANY CONTINUES TO HOLD TH ESE BONDS. IN THAT BACKGROUND OF THE CASE, IT WAS HELD THAT WHERE THE GOVERNMENT BONDS OR SECURITIES WERE PURCHASED BY THE ASSESSEE WITH A VIEW TO INCREASING HIS BUSINESS WITH THE GOVERNMENT OR WITH THE OBJECT OF RETAINING THE GOODWILL OF THE AUTHORITIES FOR THE P URPOSE OF HIS BUSINESS, THE LOSS INCURRED ON THE SALE OF SUCH BONDS OR SECU RITIES WAS ALLOWABLE AS A BUSINESS LOSS. NO DOUBT, IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS ACCEPTED THESE BONDS IN SETTLEMENT OF I TS SUBSIDY DUES IN THE COURSE OF ITS FERTILIZERS BUSINESS GUIDED BY TH E POLICY DIRECTIVE OF THE GOVERNMENT OF INDIA WHEREBY SUBSIDY DUES WERE SETTL ED AND ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 50 SUBSTITUTED THROUGH ISSUANCE OF FERTLIZERS BONDS. AT THE SAME TIME, THE ASSESSEE COMPANY CONTINUES TO HOLD THESE BONDS AS O N THE CLOSE OF THE FINANCIAL YEAR AND HAVE NOT DISPOSED THEM OFF. APPLYING THE RATIO LAID DOWN IN THE SAID DECISION OF THE HONBLE SUPRE ME COURT, THE ASSESSEE COMPANY WOULD ACCORDINGLY BE ALLOWED T O CLAIM THE LOSS, IF ANY IN THE YEAR OF ACTUAL DISPOSAL OF THE FERTILIZER BONDS AND NOT IN THE YEAR UNDER CONSIDERATION ON AC COUNT OF VALUATION OF SUCH FERTILIZERS BONDS. IN THE RESULT, THE REVENUES GROUND OF APPEAL IS ALLOWED AND THE FINDINGS OF THE LD CIT(A) ARE SET- ASIDE. 51. IN THE YEAR UNDER CONSIDERATION, IT IS THE CLAI M OF THE ASSESSEE COMPANY THAT IT HAS ACTUALLY SOLD 50% HOLDINGS OF I TS FERTILIZERS BONDS AND RELATED LOSS OF RS 2155 LACS OUT OF TOTAL LOSS OF RS 4310 LACS SHOULD BE ALLOWED IN THE IMPUNGED ASSESSMENT YEAR. FOLLOW ING OUR FINDINGS AND DIRECTIONS IN ITA NO. 389/JP/14 REFERRED SUPRA, THE AO IS DIRECTED TO VERIFY THE FACTS REGARDING THE SALE OF THE FERTILIZ ERS BONDS DURING THE YEAR AND THE RELATED LOSS SO COMPUTED BY THE ASSESS EE AND WHERE THE SAME IS FOUND TO BE IN ORDER, ALLOW THE SAME TO THE ASSESSEE. IN THE RESULT, THE GROUND OF APPEAL IS DISPOSED OFF. 52. WE NOW REFER TO THE COMMON GROUNDS OF APPEAL WH ICH HAVE BEEN RAISED BY THE REVENUE AND THE ASSESSEE IN THEIR RES PECTIVE APPEALS. GROUND NO. 3 OF REVENUES APPEAL AND GROUND NO. 2 O F ASSESSEES APPEAL RELATING TO ANICUT EXPENSES: 53. IN GROUND NO. 3 OF THE REVENUES APPEAL AND GRO UND NO. 2 OF THE ASSESSEES APPEAL, THE REVENUE HAS CHALLENGED THE D ELETION OF ADDITION OF RS. 38,31,3989/- AND THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 51 ADDITION OF RS. 1,53,27,956/- OUT OF TOTAL EXPENDIT URE OF RS. 1,91,59,945/- IN RELATION TO CONSTRUCTION OF AN ANI CUT FACILITY. 54. BRIEFLY, THE FACTS OF THE CASE ARE THAT AN ANIC UT WAS BEING CONSTRUCTED BY THE ASSESSEE DURING THE YEAR AT A LO CATION WHICH IS AROUND 70 METERS, DOWNSTREAM OF THE EXISTING SMALL GOVERNMENT ANICUT AT RAJGARH VILLAGE, OVER PARWAN RIVER. DURING THE Y EAR, THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 1,91,59,946/- WHICH WAS SHOWN UNDER CAPITAL WORK IN PROGRESS GROUPED UNDER FIXED A SSETS IN SCHEDULE 6 OF ITS ANNUAL ACCOUNTS. IN THE COMPUTATION OF INCOM E FILED BY THE ASSESSEE, IT HAS CLAIMED THE DEDUCTION OF RS. 1,91, 59,945/- FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN CASE O F CIT VS. ASSOCIATED CEMENT COMPANIES LTD. REPORTED IN 172 ITR 257. 55. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO, AFTER GOING THROUGH THE DETAILS OF THE ANICUT EXPENSES, I SSUED A SHOW CAUSE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID EXPEN SES SHOULD NOT BE DISALLOWED SINCE THESE CONSTITUTE CAPITAL EXPENDITU RE. IN ITS SUBMISSION, THE ASSESSEE COMPANY SUBMITTED THAT IN ORDER TO OVE RCOME THE WATER SHORTAGE AND RUN THE PLANT DURING SUMMER MONTHS, IT IS NECESSARY TO AUGMENT ITS WATER RESOURCES. HENCE, IT WAS PROPOSED TO CONSTRUCT A NEW ANICUT AT RAJGARH VILLAGE OVER PARWAN RIVER AN D THE NECESSARY APPROVAL WAS SOUGHT AND GRANTED BY THE OFFICE OF TH E CHIEF ENGINEER, WATER RESOURCES DEPARTMENT, JAIPUR, RAJASTHAN. IT W AS SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 1,91,5 9,946/- DURING THE YEAR UNDER CONSIDERATION AND HAS DEBITED THE SAME I N THE CAPITAL WORK IN PROGRESS IN THE BOOKS OF ACCOUNT, HOWEVER, IN T HE RETURN OF INCOME THE SAME HAS BEEN CLAIMED AS A REVENUE EXPENDITURE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS INCURRED TOTAL EXPE NDITURE ON ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 52 CONSTRUCTION OF ANICUT OF RS. 669.45 LAC WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT IN THE SUBSEQUENT FINANCIAL YEAR R ELEVANT TO ASSESSMENT YEAR 2012-13 ON COMPLETION OF CONSTRUCTI ON, AND AS THE ASSESSEE HAS ALREADY CLAIMED DEDUCTION OF RS. 1,91, 59,946/- IN THE YEAR UNDER CONSIDERATION, THE SAID AMOUNT WAS DULY OFFERED TO TAX IN THE ASSESSMENT YEAR 2012-13. IT WAS FURTHER SUBMITT ED THAT AS FAR AS BOOKS OF ACCOUNTS WERE CONCERNED, THE EXPENDITURE O N CONSTRUCTION OF ANICUT ON THE LAND NOT OWNED BY THE ASSESSEE IS NOT COVERED UNDER THE DEFINITION OF ASSET AND IN THE INSTANT CASE, THE ANICUT IS BEING CONSTRUCTED ON THE LAND NOT OWNED BY THE ASSESSEE, HENCE, THE SAME HAS NOT BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT. 56. THE SUBMISSION SO FILED BY THE ASSESSEE WAS HOW EVER NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. AS PER THE ASS ESSING OFFICER, THE FACT THAT THE ASSESSEE IS NOT THE OWNER OF ANICUT D OES NOT OPERATE AS A BAR FOR TREATING THE ANICUT EXPENSES AS CAPITAL EXP ENDITURE. THE ASSESSEE HAS BUILT THE ANICUT ON PARWAN RIVER TO EN JOY WATER RESOURCES OF A PART OF THE RIVER EXCLUSIVELY. THE ASSESSEE H AS SOLE RIGHT OVER THE ANICUT AND THE BENEFITS ACCRUING THERE FROM. THE AS SESSEE HAS THE DOMINION AND CONTROL OVER ANICUT TO THE EXCLUSION O F OTHERS. THEREAFTER, THE ASSESSING OFFICER REFERRED TO THE DECISION OF H ONBLE SUPREME COURT IN CASE OF MYSORE MINERALS LTD. VS CIT (1999) 239 I TR 775 WHEREIN IT WAS HELD THAT BUILDING OWNED BY THE ASSESSEE MEANS THE PERSONS WHO HAVING ACQUIRED POSSESSION OVER THE BUILDING IN HIS OWN RIGHT, USES THE SAME FOR THE PURPOSE OF HIS BUSINESS OR PROFESSION THOUGH A LEGAL TITLE HAS NOT BEEN CONVEYED TO HIM AS PER THE REQUIREMENT S OF LAWS SUCH AS THE TRANSFER OF PROPERTY ACT AND THE REGISTRATION A CT, BUT NEVERTHELESS IS ENTITLED TO HOLD THE PROPERTY TO THE EXCLUSION O F ALL OTHERS. THE ASSESSING OFFICER FURTHER HELD THAT THE EXPENDITURE ON BUILDING OF ANICUT ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 53 OVER PARWAN RIVER HAS GIVEN A BENEFIT OF ENDURING N ATURE TO THE ASSESSEE SINCE THE ASSESSEE HAS OBTAINED ASSURED SU PPLY OF WATER WHICH IS BEING USED IN MANUFACTURING PROCESS CARRIE D OUT BY THE ASSESSEE FOR A LONG PERIOD OF TIME. ACCORDINGLY, AN ICUT EXPENSES OF RS. 1,91,59,945/- INCURRED BY THE ASSESSEE DURING T HE YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR CONSTITUTE CAPITAL EXPENDI TURE AND THE ASSESSEES CLAIM OF DEDUCTION MADE IN COMPUTATION O F INCOME BY TREADING THESE EXPENSES AS REVENUE EXPENSES WAS NOT FOUND ADMISSIBLE. 57. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THE AS SESSEE IS NOT OWNER OF THE LAND ON WHICH THE ANICUT WAS CONSTRUCT ED. THEREFORE, THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. HOWE VER, THE CONSTRUCTION OF ANICUT WOULD RESULT INTO LONG TERM BENEFIT AND IF WE ALLOW THE EXPENDITURE IN ONE YEAR, THE PROFIT OF TH AT YEAR WOULD GO DOWN ABNORMALLY AND IN SUBSEQUENT YEARS, THE PROFIT WOULD BE ABNORMALLY HIGH AS THE BENEFITS OF THE FACILITY WOU LD BE AVAILABLE WITHOUT ASSIGNING ANY COST. IN MY OPINION, IN SUCH SITUATION, WE HAVE TO APPLY COMMONSENSICAL APPROACH. AS THE BENEFIT WO ULD ACCRUE IN MANY YEARS, IT WOULD BE REASONABLE TO ALLOW THE EXP ENDITURE OVER A PERIOD OF TIME. IN MY OPINION, IT WOULD BE FAIR, IF WE ALLOW THE EXPENDITURE IN FIVE YEARS. IN VIEW OF THE ABOVE, 1/ 5 TH (20%) OF THE EXPENDITURE AMOUNTING TO RS. 38,31,989/- WAS DIRECT ED TO BE ALLOWED IN THE CURRENT YEAR. THE BALANCE EXPENDITURE WAS DI RECTED TO THE ALLOWED IN NEXT FOUR YEARS. ADDITION OF RS. 1,53,27 ,956/- IN CURRENT YEAR WAS CONFIRMED. AGAINST THE SAID FINDINGS, BOTH THE PARTIES ARE IN APPEAL BEFORE US. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 54 58. DURING THE COURSE OF HEARING, THE LD. AR HAS RE FERRED TO THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS LD. CI T(A) AND SUBMITTED THAT AS FAR AS INCURRENCE OF ANICUT EXPENSES IS CON CERNED, IT IS NOT DISPUTED BY THE LOWER AUTHORITIES THAT THE SAID EXP ENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUS INESS. THE LIMITED ISSUE FOR CONSIDERATION IS WHETHER THE SAID EXPENDI TURE IS CAPITAL OR REVENUE EXPENDITURE AND SECONDLY, WHETHER EXPENDITU RE INCURRED BY THE ASSESSEE SHOULD BE ALLOWED IN THE YEAR OF INCUR RENCE OF THE SAID EXPENDITURE OR SHOULD BE ALLOWED OVER THE PERIOD OF 5 YEARS AS HELD BY THE LD. CIT(A). IT WAS SUBMITTED THAT IT IS TRUE TH AT BY INCURRING THE SAID EXPENDITURE, THE ASSESSEE HAS SECURED ADVANTAGE FOR ITS BUSINESS OVER A REASONABLE PERIOD OF TIME BUT IT WAS NOT AN ADVAN TAGE IN THE CAPITAL FIELD, BECAUSE NO TANGIBLE OR INTANGIBLE ASSET WAS ACQUIRED BY THE ASSESSEE NOR THERE WAS ANY ADDITION TO OR EXPANSION OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE. IT WAS FURTHER SU BMITTED THAT IT IS A SETTLED PROPOSITION OF LAW THAT THE REVENUE EXPENDI TURE SHOULD BE ALLOWED IN THE YEAR OF INCURRENCE UNLESS THE ASSESS EE CLAIMS THE SAME TO BE DEFERRED OVER A PERIOD OF TIME WHICH IS NOT T HE CASE. IT WAS ACCORDINGLY SUBMITTED THAT THE WHOLE OF THE EXPENDI TURE SHOULD BE ALLOWED IN THE YEAR OF INCURRENCE. 59. THE LD. AR REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF L.H. SUGAR FACTORY & OIL MILLS (P) LTD. VS. CIT 4 T AXMAN 0005 WHEREIN IT WAS HELD IN PARA 3 AS UNDER:- 3. BUT THE POSITION IS DIFFERENT WHEN WE COME TO THE SECOND ITEM OF EXPENDITURE OF RS. 50,000. THERE THE ASSESSEE IS CL EARLY ON FIRMER GROUND. THE AMOUNT OF RS. 50,000 WAS CONTRIBUTED BY THE ASSESSEE UNDER THE SUGARCANE DEVELOPMENT SCHEME TOWARDS MEET ING THE COST OF ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 55 CONSTRUCTION OF ROADS IN THE AREA AROUND THE FACTOR Y. NOW, THERE CAN BE NO DOUBT THAT THE CONSTRUCTION OF ROADS IN THE AREA AROUND THE FACTORY WAS CONSIDERABLY ADVANTAGEOUS TO THE BUSINESS OF TH E ASSESSEE, BECAUSE IT FACILITATED THE RUNNING OF ITS MOTOR VEH ICLES FOR TRANSPORTATION OF SUGARCANE SO NECESSARY FOR ITS MANUFACTURING ACT IVITY. IT IS NOT AS IF THE AMOUNT OF RS. 50,000 WAS CONTRIBUTED BY THE ASS ESSEE GENERALLY FOR THE PURPOSE OF CONSTRUCTION OF ROADS IN THE STATE O F U.P., BUT IT WAS FOR THE CONSTRUCTION OF ROADS IN THE AREA AROUND THE FA CTORY THAT THE CONTRIBUTION WAS MADE AND IT CANNOT BE DISPUTED THA T IF THE ROADS ARE CONSTRUCTED AROUND THE FACTORY AREA, THEY WOULD FAC ILITATE THE TRANSPORT OF SUGARCANE TO THE FACTORY AND THE FLOW OF MANUFAC TURED SUGAR OUT OF THE FACTORY. THE CONSTRUCTION OF THE ROADS WAS, THE REFORE, CLEARLY AND INDUBITABLY CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND IT IS DIFFICULT TO RESIST THE CONCLUSION THAT THE AMOUNT OF RS. 50,000 CONTRIBUTED BY THE ASSESSEE TOWARDS MEETING THE COS T OF CONSTRUCTION OF THE ROADS UNDER THE SUGARCANE DEVELOPMENT SCHEME WA S LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE ASSESSEE. THIS CONCLUSION WAS INDEED NOT SERIOUSLY DISPUTED O N BEHALF OF THE REVENUE BUT THE PRINCIPAL CONTENTION URGED ON ITS B EHALF WAS THAT THE EXPENDITURE OF THE AMOUNT OF RS. 50,000 INCURRED BY THE ASSESSEE WAS IN THE NATURE OF CAPITAL EXPENDITURE, SINCE IT WAS INCURRED FOR THE PURPOSE OF BRINGING INTO EXISTENCE AN ADVANTAGE FOR THE ENDURING BENEFIT OF THE ASSESSEE'S BUSINESS. THE ARGUMENT OF THE REVENUE WAS THAT THE NEWLY CONSTRUCTED ROADS, THOUGH NOT BELONG ING TO THE ASSESSEE, BROUGHT TO THE ASSESSEE AN ENDURING ADVAN TAGE FOR THE BENEFIT OF ITS BUSINESS AND THE EXPENDITURE INCURRE D BY IT WAS, THEREFORE, IN THE NATURE OF CAPITAL EXPENDITURE. THE REVENUE R ELIED ON THE CELEBRATED TEST LAID DOWN BY LORD CAVE L.C. IN BRIT ISH INSULATED & ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 56 HELSBY CABLES LTD. VS. ATHERTON (1925) 10 TAX CASES 155 (HL), WHERE THE LEARNED LAW LORD STATED : 'WHEN AN EXPENDITURE IS MADE, NOT ONLY ONCE AND FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVA NTAGE FOR THE ENDURING BENEFIT OF A TRADE,.....THERE IS VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPO SITE CONCLUSION) FOR TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIBUTAB LE NOT TO REVENUE BUT TO CAPITAL.' THIS TEST ENUNCIATED BY LORD CAVE L.C. IS UNDOUBTED LY A WELL- KNOWN TEST FOR DISTINGUISHING BETWEEN CAPITAL AND REVENUE EXPENDITURE, BUT IT MUST BE REMEMBERED THAT THIS TEST IS NOT OF UNIVERS AL APPLICATION AND, AS THE PARENTHETICAL CLAUSE SHOWS, IT MUST YIELD WH ERE THERE ARE SPECIAL CIRCUMSTANCES LEADING TO A CONTRARY CONCLUSION. THE NON-UNIVERSALITY OF THIS TEST WAS EMPHASISED BY LORD RADCLIFFE IN COMMR . OF TAXES VS. NCHANGA CONSOLIDATED COPPER MINES LTD. (1965) 58 IT R 241 (PC) : TC16R.991, WHERE THE LEARNED LAW LORD SAID IN HIS H IGHLY FELICITOUS LANGUAGE THAT IT WOULD BE MISLEADING TO SUPPOSE THA T IN ALL CASES SECURING A BENEFIT FOR THE BUSINESS WOULD BE, PRIMA FACIE, CAPITAL EXPENDITURE 'SO LONG AS THE BENEFIT IS NOT SO TRANS ITORY AS TO HAVE NO ENDURANCE AT ALL'. IT WAS ALSO POINTED OUT BY THIS COURT IN EMPIRE JUTE CO. LTD. VS. CIT (1980) 17 CTR (SC) 113 : (1980) 12 4 ITR 1 (SC) : TC16R.953, THUS : 'THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCU RRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LES S, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN T HIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 57 SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT O F THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITUR E WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDU RE FOR AN INDEFINITE FUTURE.' NOW IT IS CLEAR ON THE FACTS OF THE PRESENT CASE TH AT BY SPENDING THE AMOUNT OF RS. 50,000, THE ASSESSEE DID NOT ACQUIRE ANY ASSET OF AN ENDURING NATURE. THE ROADS WHICH WERE CONSTRUCTED A ROUND THE FACTORY WITH THE HELP OF THE AMOUNT OF RS. 50,000 CONTRIBUT ED BY THE ASSESSEE BELONGED TO THE GOVERNMENT OF U.P. AND NOT TO THE A SSESSEE. MOREOVER, IT WAS ONLY A PART OF THE COST OF CONSTRUCTION OF T HESE ROADS THAT WAS CONTRIBUTED BY THE ASSESSEE, SINCE UNDER THE SUGARC ANE DEVELOPMENT SCHEME, ONE-THIRD OF THE COST OF CONSTRUCTION WAS T O BE BORNE BY THE CENTRAL GOVERNMENT, ONE-THIRD BY THE STATE GOVERNME NT AND ONLY THE REMAINING ONE- THIRD WAS TO BE DIVIDED BETWEEN THE SUGARCANE FACTORIES AND SUGARCANE GROWERS. THESE ROADS WERE UNDOUBTEDLY ADVANTAGEOUS TO THE BUSINESS OF THE ASSESSEE AS THEY FACILITATED THE TRANSPORT OF SUGARCANE TO THE FACTORY AND THE OUTFLOW OF MANUFAC TURED SUGAR FROM THE FACTORY TO THE MARKET CENTRES. THERE CAN BE NO DOUBT THAT THE CONSTRUCTION OF THESE ROADS FACILITATED THE BUSINES S OPERATIONS OF THE ASSESSEE AND ENABLED THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY AND PROF ITABLY. IT IS NO DOUBT TRUE THAT THE ADVANTAGE SECURED FOR THE BUSINESS OF THE ASSESSEE WAS OF A LONG DURATION INASMUCH AS IT WOULD LAST SO LONG A S THE ROADS CONTINUED TO BE IN MOTORABLE CONDITION, BUT IT WAS NOT AN ADVANTAGE IN ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 58 THE CAPITAL FIELD, BECAUSE NO TANGIBLE OR INTANGIBL E ASSET WAS ACQUIRED BY THE ASSESSEE NOR WAS THERE ANY ADDITION TO OR EX PANSION OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE. THE AMOUNT OF RS. 50,000 WAS CONTRIBUTED BY THE ASSESSEE FOR THE PURPOSE OF FACI LITATING THE CONDUCT OF THE BUSINESS OF THE ASSESSEE AND MAKING IT MORE EFFICIENT AND PROFITABLE AND IT WAS CLEARLY AN EXPENDITURE ON REV ENUE ACCOUNT. 60. THE LD. AR FURTHER REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS EXCEL INDUSTRIES LTD. 4 TAXMAN 0089 WHEREIN IT WAS HELD IN PARA 2 TO 4 AND PARA 9 AS U NDER:- 2. THE RELEVANT FACTS, VERY BRIEFLY STATED, ARE AS FO LLOWS : THE CASE RELATES TO THE ASST. YR. 1973-74. THE RESP ONDENT-COMPANY WAS INCORPORATED IN 1960 AND CARRIES ON BUSINESS OF MAN UFACTURE OF CHEMICALS. DURING THE YEAR OF ACCOUNT ENDED SEPTEMB ER 30, 1972, RELEVANT TO THE AFORESAID ASSESSMENT YEAR, THE RESP ONDENT SET UP A NEW UNIT AT BHAVNAGAR FOR THE MANUFACTURE OF PHOSPHORUS . FOR THE PURPOSE OF MANUFACTURE OF PHOSPHORUS, THE RESPONDENT REQUIR ED FOR CONSUMPTION A LARGE QUANTITY OF ELECTRICAL ENERGY W HICH IT HAD TO OBTAIN FROM THE GUJARAT ELECTRICITY BOARD. FOR THIS PURPOS E, THE RESPONDENT ENTERED INTO AN AGREEMENT WITH THE GUJARAT ELECTRIC ITY BOARD UNDER WHICH THE SAID BOARD AGREED TO PROVIDE AN OVERHEAD SERVICE LINE FREE OF COST UP TO 30 METRES FROM THE NEAREST DISTRIBUTION MAINS. THE SAID AGREEMENT PROVIDED THAT FOR THE LENGTH OF THE SERVI CE LINE IN EXCESS OF 30 METRES, PAYMENT WAS TO BE MADE BY THE RESPONDENT . THE AGREEMENT PROVIDED THAT NOTWITHSTANDING THAT A PORTION OF THE COST HAD BEEN PAID FOR BY THE CONSUMER, THE SERVICE LINE WOULD REMAIN THE PROPERTY OF THE GUJARAT ELECTRICITY BOARD, BY WHOM IT WAS TO BE MAI NTAINED. IN THIS ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 59 CONNECTION, THE RESPONDENT PAID A SUM OF RS. 9,00,0 00 TO THE BOARD DURING THE PERIOD MAY 4, 1970, TO MARCH 29, 1972, A S ITS CONTRIBUTION TOWARDS THE COST OF LAYING THE OVERHEAD SERVICE LIN E. THESE PAYMENTS WERE CHARGED TO THE RESPONDENT-COMPANY'S ACCOUNTS F OR THE YEAR OCTOBER 1, 1971, TO SEPTEMBER 30, 1972, RELEVANT TO THE ASST. YR. 1973- 74. THE RESPONDENT HAD TO PAY TO THE GUJARAT ELECTR ICITY BOARD, OF COURSE, THE NORMAL CHARGES OF CONSUMPTION OF ELECTR ICITY FROM MONTH TO MONTH. THE ITO TOOK THE VIEW THAT THE CONTRIBUTION OF RS. 9,00,000 PAID BY THE RESPONDENT TO THE GUJARAT ELECTRICITY BOARD TOWARDS THE COST OF LAYING THE OVERHEAD SERVICE LINE WAS AN EXPENDITURE OF A CAPITAL NATURE, AS THE SAID SERVICE LINE HAD BROUGHT TO THE RESPOND ENT AN ADVANTAGE OF AN ENDURING NATURE. ON AN APPEAL BY THE RESPONDENT, THE AAC TREATED THE SAID EXPENDITURE AS AN EXPENDITURE OF A REVENUE NATURE. THE DEPARTMENT APPEALED TO THE TRIBUNAL, WHICH UPHELD T HE CONCLUSION OF THE AAC. 3. IT MAY BE MENTIONED THAT UNDER THE SAID AGREEMENT, IT WAS PROVIDED THAT THE PERIOD OF SUPPLY WOULD BE FOR A MINIMUM PE RIOD OF SEVEN YEARS FROM THE DATE OF COMMENCEMENT OF THE SUPPLY. 4. AN ANALYSIS OF THE FACTS SET OUT EARLIER, SHOWS TH AT THE AMOUNT IN QUESTION HAS BEEN PAID BY THE RESPONDENT TOWARDS TH E CONSTRUCTION OF AN OVERHEAD SUPPLY LINE. THIS SUPPLY LINE NEVER BEC AME AN ASSET OF THE RESPONDENT AND ALWAYS BELONGED TO THE GUJARAT ELECT RICITY BOARD. THE SUPPLY WAS GUARANTEED UNDER THE AFORESAID AGREEMENT FOR A MINIMUM PERIOD OF SEVEN YEARS. NOTWITHSTANDING THE AFORESAI D CONTRIBUTION MADE BY THE RESPONDENT TOWARDS THE COST OF THE OVERHEAD SUPPLY LINE, THE RESPONDENT HAD TO PAY THE NORMAL CHARGES FOR THE AM OUNT OF ELECTRICITY ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 60 CONSUMED BY IT. THERE IS ALSO NO DOUBT THAT THE CON TRIBUTION WAS MADE BY THE RESPONDENT FOR THE PURPOSES OF COMMERCIAL EX PEDIENCY, NAMELY, FOR ASSURING THE SUPPLY OF ELECTRICITY WHICH WAS ES SENTIAL FOR THE MANUFACTURE OF PHOSPHORUS. 9. AS FAR AS THE PRESENT CASE IS CONCERNED, AS WE HAV E ALREADY POINTED OUT, BY THE AFORESAID CONTRIBUTION THE RESPONDENT H AS ACQUIRED NO CAPITAL ASSET, THE OVERHEAD SERVICE LINE BEING ALWA YS THE PROPERTY OF THE GUJARAT ELECTRICITY BOARD. THERE IS NO FINDING THAT ANY ENDURING BENEFIT OR ADVANTAGE HAS ACCRUED TO THE RESPONDENT-COMPANY BY REASON OF THE AFORESAID CONTRIBUTION MADE TOWARDS THE COST OF THE OVERHEAD SUPPLY LINE. THE OBJECT OF THE RESPONDENT IN MAKING THE PA YMENT WAS ONE OF COMMERCIAL EXPEDIENCY, NAMELY, TO OBTAIN SUPPLY OF ELECTRICITY, WITHOUT WHICH THE BUSINESS OF THE MANUFACTURE OF PHOSPHORUS IN THE UNIT AT BHAVNAGAR COULD NOT GO ON. THE PAYMENT WAS REALLY I N THE NATURE OF A PAYMENT MADE TOWARDS THE COST OF OBTAINING SUPPLY O F ELECTRICITY ESSENTIAL FOR MANUFACTURING THE ACTIVITIES CARRIED ON AT BHAVNAGAR. 61. THE LD. AR FURTHER REFERRED TO THE DECISION OF HONBLE GAUHATI HIGH COURT IN CASE OF CIT VS BONGAIGAON REFINERY & PETRO- CHEMICALS LTD. 91 TAXMAN 0124 WHEREIN IT WAS HELD IN PARA 2 AND 5 TO 6 AS UNDER:- 2. THE FACTS FOR THE PURPOSE OF ANSWERING THIS QUESTI ON MAY BE STATED AS FOLLOWS: THE ASSESSEE IS A GOVERNMENT UNDERTAKIN G IN THE PUBLIC SECTOR ENGAGED IN THE REFINING OF CRUDE OIL AND PRO DUCTION OF VARIOUS KINDS OF BY-PRODUCTS. THE ASSESSEE CONTRIBUTED A SU M OF RS. 87,20,598 TO THE RAILWAY DEPARTMENT FOR CONSTRUCTION OF RAILW AY TRACK AND SIDING, ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 61 ETC., OUTSIDE THE REFINERY COMPLEX. THE ASSESSEE CL AIMED THE SAID EXPENDITURE AS REVENUE EXPENDITURE BECAUSE ACCORDIN G TO THE ASSESSEE THE EXPENDITURE WAS FOR CARRYING OUT ITS BUSINESS A CTIVITY IN A PROFITABLE AND ADVANTAGEOUS MANNER. THE ASSESSEE DECIDED TO WR ITE OFF THE AFORESAID EXPENDITURE IN FIVE EQUAL ANNUAL INSTALME NTS AND ACCORDINGLY CLAIMED DEDUCTION OF RS. 17,44,120 IN EACH ASSESSME NT YEAR OF 1981-82 AND 1982-83. THE AO DISALLOWED THE SAME. ACCORDING TO HIM, THE EXPENDITURE WAS A CAPITAL EXPENDITURE FOR THE OBVIO US REASON THAT THE ASSESSEE ACQUIRED AN ASSET OF AN ENDURING NATURE. 5. IN THE RIVAL CONTENTIONS OF COUNSEL APPEARING ON B EHALF OF THE REVENUE AS WELL AS ON BEHALF OF THE ASSESSEE, IT IS TO BE SEEN WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IT CA N BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE. IN THIS CONNECTION, REFERENCE CAN BE MADE TO A DECISION OF THE APEX COURT IN L.H. SUGAR FACTORY & OIL MILLS (P) LTD. VS. CIT (1980) 19 CTR (SC) 185 : (1980) 125 ITR 293 (SC ) : TC 16R.1358. IN THE SAID CASE, IT WAS HELD THAT THE EXPENDITURE WAS MADE FOR THE PURPOSE OF CONSTRUCTION OF ROADS IN AREA AROUND A F ACTORY WHICH WERE WHOLLY AND EXCLUSIVELY LAID OUT FOR BUSINESS. THE S UPREME COURT HELD THAT IT WAS NOT A CAPITAL EXPENDITURE BUT A REVENUE EXPENDITURE AND THE ENTIRE EXPENDITURE WAS ALLOWABLE AS DEDUCTION. IN A NOTHER DECISION IN CIT VS. ASSOCIATED CEMENT COMPANIES LTD. (1988) 70 CTR (SC) 28 : (1988) 172 ITR 257 (SC) : TC 17R.1165, THE SUPREME COURT HELD THAT IT WAS A REVENUE EXPENDITURE BECAUSE THE ADVANTAGE WAS SECURED ONLY IN THE FIELD OF REVENUE. FOLLOWING THE ABOVE TWO DECISIONS WE FIND THAT THIS CASE IS SQUARELY COVERED BY THE DECISIONS OF THE SUPREME COURT AND A CCORDINGLY, WE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 62 HOLD THAT THE EXPENDITURE INCURRED FOR CONSTRUCTION OF RAILWAY TRACK AND SIDING WAS REVENUE EXPENDITURE AND NOT CAPITAL EXPE NDITURE AND, THEREFORE, THE ASSESSEE IS ENTITLED TO DEDUCTION. T HE NEXT POINT IS WHETHER DEDUCTION CAN BE DIVIDED AND CLAIMED IN FIV E PARTS. HOWEVER, NO PROVISION IS FOUND UNDER THE LAW PERMITTING ALLO WANCE OF ONE-FIFTH OF THE EXPENDITURE. HOWEVER, DEDUCTION CAN BE MADE IN THE RELEVANT YEAR IF THE SAME IS INCURRED DURING THAT YEAR. IN THIS R EGARD, WE DO NOT FIND ANY DISCUSSION IN THE ORDER OF THE TRIBUNAL. THEREF ORE, IT IS NOT POSSIBLE FOR US TO ANSWER THE SAID QUESTION. WE HOLD THAT EX PENDITURE INCURRED IN THE RELEVANT YEAR OF ASSESSMENT SHALL BE ALLOWED. I F THE EXPENDITURE IS INCURRED IN ONE YEAR IT WILL BE ALLOWED IN THE SAME YEAR AND IF IT IS INCURRED IN MORE THAN ONE YEAR THEN IT WILL BE IN T HE RESPECTIVE YEAR AS ACTUALLY INCURRED. IT IS ALSO NOT KNOWN WHAT WAS TH E EXPENDITURE INCURRED DURING THE ASST. YRS. 1981-82 AND 1982-83. IT IS FOR THE TRIBUNAL TO FIND OUT THE ACTUAL POSITION. 6. CONSIDERING ALL THESE, WE HOLD THAT THE EXPENDITUR E OF RS. 87,20,598 WAS NOT A CAPITAL EXPENDITURE BUT A REVENUE EXPENDI TURE. WE ANSWER THE FIRST PART OF THE QUESTION IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. BECAUSE OF MEAGRE FACTS, W E DECLINE TO ANSWER THE REST PORTION. 62. THE LD. AR FURTHER REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF TAPARIA TOOLS LTD. VS JCIT 231 TAXMAN 0005 WHEREIN IT WAS HELD IN PARA 14 TO 21 AS UNDER:- 14) THE HIGH COURT HAS ALSO OBSERVED THAT IT WAS A CASE OF DEFERRED INTEREST OPTION. HERE AGAIN, WE DO NOT AGREE WITH T HE HIGH COURT. IT HAS BEEN EXPLAINED IN VARIOUS JUDGMENTS THAT THERE IS N O CONCEPT OF DEFERRED REVENUE EXPENDITURE IN THE ACT EXCEPT UNDE R SPECIFIED ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 63 SECTIONS, I.E. WHERE AMORTIZATION IS SPECIFICALLY P ROVIDED, SUCH AS SECTION 35-D OF THE ACT. 15) WHAT IS TO BE BORNE IN MIND IS THAT THE MOMENT SECOND OPTION WAS EXERCISED BY THE DEBENTURE HOLDER TO RECEIVE THE PA YMENT UPFRONT, LIABILITY OF THE ASSESSEE TO MAKE THE PAYMENT IN TH AT VERY YEAR, ON EXERCISING OF THIS OPTION, HAS ARISEN AND THIS LIAB ILITY WAS TO PAY THE INTEREST @ RS.55 PER DEBENTURE. IN BHARAT EARTH MOV ERS V. COMMISSIONER OF INCOME TAX (2000) 6 SCC 645, THIS C OURT HAD CATEGORICALLY HELD THAT IF A BUSINESS LIABILITY HAS ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED EVEN IF SUCH A LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. F OLLOWING PASSAGE FROM THE AFORESAID JUDGMENT IS WORTH A QUOTE: THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWE D ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHAR GED AT A FUTURE DATE. WHAT SHOULD BE CRTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REAS ONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS N OT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL B E DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISHARGED IS N OT CERTAIN. THE PRESENT CASE IS EVEN ON A STRONGER FOOTING INAS MUCH AS NOT ONLY THE LIABILITY HAD ARISEN IN THE ASSESSMENT YEAR IN QUESTION, IT WAS EVEN QUANTIFIED AND DISCHARGED AS WELL IN THAT VERY ACCO UNTING YEAR. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 64 16) JUDGMENT IN MADRAS INDUSTRIAL INVESTMENT CORPOR ATION LIMITED V. COMMISSIONER OF INCOME TAX, (1997) 4 SCC 666 WAS CI TED BY THE LEARNED COUNSEL FOR THE REVENUE TO JUSTIFY THE DECI SION TAKEN BY THE COURTS BELOW. WE FIND THAT THE COURT CATEGORICALLY HELD EVEN IN THAT CASE THAT THE GENERAL PRINCIPLE IS THAT ORDINARILY REVEN UE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS TO BE ALLOWED IN THE YEAR IN WHICH IT IS INCURRED. HOWEVER, SOME EXC EPTIONAL CASES CAN JUSTIFY SPREADING THE EXPENDITURE AND CLAIMING IT O VER A PERIOD OF ENSUING YEARS. IT IS IMPORTANT TO NOTE THAT IN THAT JUDGMENT, IT WAS THE ASSESSEE WHO WANTED SPREADING THE EXPENDITURE OVER A PERIOD OF TIME AND HAD JUSTIFIED THE SAME. IT WAS A CASE OF ISSUIN G DEBENTURES AT DISCOUNT; WHEREAS THE ASSESSEE HAD ACTUALLY INCURRE D THE LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES ITS ELF. THE COURT FOUND THAT THE ASSESSEE COULD STILL BE ALLOWED TO SPREAD THE SAID EXPENDITURE OVER THE ENTIRE PERIOD OF FIVE YEARS, AT THE END OF WHICH THE DEBENTURES WERE TO BE REDEEMED. BY RAISING THE MONEY COLLECTED UNDER THE SAID DEBENTURES, THE ASSESSEE COULD UTILISE THE SAID AMO UNT AND SECURE THE BENEFIT OVER NUMBER OF YEARS. THIS IS DISCERNIBLE F ROM THE FOLLOWING PASSAGE IN THAT JUDGMENT ON WHICH RELIANCE WAS PLAC ED BY THE LEARNED COUNSEL FOR THE REVENUE HERSELF: 15.. THE TRIBUNAL, HOWEVER, HELD THAT SINCE THE EN TIRE LIABILITY TO PAY THE DISCOUNT HAD BEEN INCURRED IN THE ACCOUNTIN G YEAR IN QUESTION, THE ASSESSEE WAS ENTITLED TO DEDUCT THE E NTIRE AMOUNT OF RS.3,00,000 IN THAT ACCOUNTING YEAR. THIS CONCLU SION DOES NOT APPEAR TO BE JUSTIFIED LOOKING TO THE NATURE OF THE LIABILITY. IT IS TRUE THAT THE LIABILITY HAS BEEN INCURRED IN THE AC COUNTING YEAR. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 65 BUT THE LIABILITY IS A CONTINUING LIABILITY WHICH S TRETCHES OVER A PERIOD OF 12 YEARS. IT IS, THEREFORE, A LIABILITY S PREAD OVER A PERIOD OF 12 YEARS. ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESS EE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PERIOD OF YEARS. HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPE NDITURE IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIO D OF ENSUING YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A P ARTICULAR YEAR. THUS IN THE CASE OF HINDUSTAN ALUMINIUM CORPORATION LTD. VS. CIT, (1982) 30 CTR (CAL) 363: (1983) 144 ITR 474 (C AL) THE CALCUTTA HIGH COURT UPHELD THE CLAIM OF THE ASSESSE E TO SPREAD OUT A LUMP SUM PAYMENT TO SECURE TECHNICAL ASSISTAN CE AND TRAINING OVER A NUMBER OF YEARS AND ALLOWED A PROPO RTIONATE DEDUCTION IN THE ACCOUNTING YEAR IN QUESTION. 16. ISSUING DEBENTURES AT A DISCOUNT IS ANOTHER SUC H INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABI LITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PA YMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENT IRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES. 17) THUS, THE FIRST THING WHICH IS TO BE NOTICED IS THAT THOUGH THE ENTIRE EXPENDITURE WAS INCURRED IN THAT YEAR, IT WAS THE A SSESSEE WHO WANTED THE SPREAD OVER. THE COURT WAS CONSCIOUS OF THE PRI NCIPLE THAT NORMALLY ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 66 REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YE AR IN WHICH IT IS INCURRED, BUT AT THE INSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER, THE COURT AGREED TO ALLOW THE ASSESSEE THAT B ENEFIT WHEN IT WAS FOUND THAT THERE WAS A CONTINUING BENEFIT TO THE BU SINESS OF THE COMPANY OVER THE ENTIRE PERIOD. 18) WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY TH E ORDINARY RULE IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE ASSESSEE C LAIMS THAT EXPENDITURE IN THAT YEAR, THE IT DEPARTMENT CANNOT DENY THE SAM E. HOWEVER, IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPR EAD THE EXPENDITURE OVER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY IF THE PRINCIPLE OF 'MATCHING CONCEPT' IS SATISFIED, WHICH UPTO NOW HAS BEEN RESTRICTED TO THE CASES OF DEBENTURES. 19) IN THE INSTANT CASE, AS NOTICED ABOVE, THE ASSE SSEE DID NOT WANT SPREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FI VE YEARS AS IN THE RETURN FILED BY IT, IT HAD CLAIMED THE ENTIRE INTER EST PAID UPFRONT AS DEDUCTIBLE EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION, WHEN THIS COURSE OF ACTION WAS PERMISSIBLE IN LAW TO THE ASSE SSEE AS IT WAS IN CONSONANCE WITH THE PROVISIONS OF THE ACT WHICH PER MIT THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE YEAR IN WHICH IT WAS I NCURRED, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN THE BOOK S OF ACCOUNTS CANNOT BE A FACTOR WHICH WOULD DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE EXPENDITURE AS A DEDUCTION. IT HAS BEEN HELD REPEATEDLY BY THIS COURT THAT ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OR CONCLUSIVE AND THE MATTER IS TO BE EXAMINED ON THE TOUCHSTONE OF PROVISIONS CONTAINED IN THE ACT [SEE - KEDARNATH JU TE MANUFACTURING CO. LTD. V. COMMISSIONER OF INCOME TAX (CENTRAL), CALCU TTA, (1972) 3 SCC ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 67 252; TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD., MADRAS V. COMMISSIONER OF INCOME TAX, MADRAS, (1997) 6 SCC 11 7 ; SUTLEJ COTTON MILLS LTD. V. COMMISSIONER OF INCOME TAX, CALCUTTA, (1978) 4 SCC 358; AND UNITED COMMERCIAL BANK, CALCUTTA V. COMMISSIONE R OF INCOME TAX, WB-III, CALCUTTA, (1999) 8 SCC 338]. 20) AT THE MOST, AN INFERENCE CAN BE DRAWN THAT BY SHOWING THIS EXPENDITURE IN A SPREAD OVER MANNER IN THE BOOKS OF ACCOUNTS, THE ASSESSEE HAD INITIALLY INTENDED TO MAKE SUCH AN OPT ION. HOWEVER, IT ABANDONED THE SAME BEFORE REACHING THE CRUCIAL STAG E, INASMUCH AS, IN THE INCOME TAX RETURN FILED BY THE ASSESSEE, IT CHO SE TO CLAIM THE ENTIRE EXPENDITURE IN THE YEAR IN WHICH IT WAS SPENT/PAID BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. ONCE A RETURN IN THAT MANNER WAS FILED, THE AO WAS BOUND TO CARRY OUT THE ASSESS MENT BY APPLYING THE PROVISIONS OF THAT ACT AND NOT TO GO BEYOND THE SAID RETURN. THERE IS NO ESTOPPEL AGAINST THE STATUTE AND THE ACT ENABLES AND ENTITLES THE ASSESSEE TO CLAIM THE ENTIRE EXPENDITURE IN THE MAN NER IT IS CLAIMED. 21) IN VIEW OF THE AFORESAID DISCUSSION, WE ARE OF THE OPINION THAT THE JUDGMENT AND THE ORDERS OF THE HIGH COURT AND THE A UTHORITIES BELOW DO NOT LAY DOWN CORRECT POSITION IN LAW. THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF THE ENTIRE EXPENDITURE OF RS.2,72,25,0 00 AND RS.55,00,000 RESPECTIVELY IN THE YEAR IN WHICH THE AMOUNT WAS AC TUALLY PAID. THE APPEALS ARE ALLOWED IN THE AFORESAID TERMS WITH NO ORDERS AS TO COSTS. 63. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER AND AGAIN TOOK US THROUGH THE FINDINGS OF THE AO WHICH WE HAVE NOTED ABOVE AND SUBMITTED THAT THE EXPENDITURE ON CONSTRU CTING THE ANICUT IS CLEARLY ON CAPITAL ACCOUNT WHICH WILL GIVE ENDURING BENEFIT TO THE ASSESSEE AND THE SAME HAS RIGHTLY BEEN TREATED AS C APITAL EXPENDITURE. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 68 FURTHER, HE RELIED ON THE DECISION OF THE HONBLE S UPREME COURT IN CASE OF MYSORE MINERALS LTD. VS CIT (1999) 239 ITR 775. FURTHER, IT WAS SUBMITTED THAT THERE WAS NO BASIS WITH THE LD CIT(A ) TO ALLOW THE SAID EXPENDITURE OVER A PERIOD OF FIVE YEARS. 64. IN ORDER TO APPRECIATE THE RIVAL CONTENTIONS A ND THE FACTUAL MATRIX OF THE CASE, WE REFER TO THE LETTER OF CHIEF ENGINEER, WATER RESOURCES DEPARTMENT, JAIPUR DATED 23.03.2010 GRANT ING APPROVAL FOR CONSTRUCTION OF ANICUT WHICH VERBATIM READS AS UNDE R:- PERMISSION OF STATE GOVERNMENT IS HEREBY CONVEYED TO CONSTRUCT AN ANICUT OF 3.0 M HEIGHT BY CFCL GADEPAN AT 70 M DOWN STREAM OF EXISTING ANICUT NEAR VILLAGE RAJGARH TEHSIL-SANGOD, DISTRICT-KOTA SUBJECT TO THE FOLLOWING CONDITIONS:- 1. THE CONSTRUCTION OF ANICUT WILL BE CARRIED OUT B Y CFCL AT ITS OWN COST AS PER SPECIFICATIONS OF WATER RESOURCES DEPTT. & D ESIGN AND HYDROLOGY OF THE ANICUT SHALL BE APPROVED BY THE CHIEF ENGINE ER ID & R UNIT JAIPUR FOR WHICH ALL EXPENDITURE WILL BE BORNE BY CFCL. TH E QUALITY ASSURANCE AND SUPERVISION OF THE WORK SHALL BE CARRIED OUT BY IMTI, KOTA FOR WHICH ALL EXPENDITURE WILL BE BORNE BY CFCL. 2. CHAMBAL FERTILIZERS SHALL MAINTAIN THE ANICUT AN D APPURTENANT STRUCTURES AT ITS OWN COST. THE OFFICERS OF WATER R ECOURSES DEPTT. HOWEVER CAN INSPECT, THESE FACILITIES AND ADVISE TO THE CFCL REGARDING REQUIREMENT OF MAINTENANCE WORKS. THIS SHALL BE FOL LOWED BY CFCL. 3. THE GOVERNMENT WILL, FROM TIME TO TIME ASSESS T HE QUANTITY OF THE WATER ACCUMULATED IN THE ANICUT AND WILL HAVE THE R IGHT TO MANAGE AND CHANGE THE USAGE OF WATER AS PER ITS REQUIREMENT IN FUTURE. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 69 4. CHAMBAL FERTILIZERS SHALL PAY THE CHARGES OF WAT ER CONSUMED BY IT @ RS. 2 PER THOUSAND CUBIC FEET OR AMENDED FROM TIME TO TIME IN LINE WITH ITEM 5(AA) OF SCHEDULE 1 OF RAJASTHAN IRRIGATION AN D DRAINAGE RULES, 1955. 5. CHAMBAL FERTILIZERS SHALL OBTAIN NOC FROM DEPART MENT OF MINES & GEOLOGY AND ENVIRONMENT DEPARTMENT BEFORE CONSTRUCT ION OF ANICUT. 6. THE RESIDENTS OF THE NEARBY VILLAGES WILL BE FRE E TO DRAW WATER FOR DRINKING AND AGRICULTURE PURPOSES FROM IMPOUNDING W ATER OF EXISTING ANICUT. 7. CHAMBAL FERTILIZER SHALL PAY THE COMPENSATION FO R ALL GOVERNMENT AS WELL AS PRIVATE PROPERTY, WHICH MAY COME UNDER THE SUBMERGENCE AREA BEFORE CONSTRUCTION OF ANICUT. 8. THE GOVERNMENT RESERVES THE RIGHT TO DEMOLISH OR REDUCE THE HEIGHT OF ANICUT IN FUTURE FOR ANY DEPARTMENT REQUIREMENT OR IN PUBLIC INTEREST AND CHAMBAL FERTILIZER SHALL HAVE NO RIGHT FOR COMP ENSATION FOR COST INCURRED ON THE ANICUT FOR REQUIRED DEMOLITION & RE DUCTION OF HEIGHT. 9. THE GOVERNMENT/CENTRAL GOVERNMENT ARE FREE TO IM PLEMENT ANY PROJECT ON THE PARWAN RIVER ANY TIME AND IF ANICUT OR OTHER FACILITIES CONSTRUCTED BY THE CHAMBAL FERTILIZERS COMES UNDER THE SUBMERGED AREA, NO COMPENSATION SHALL BE PAID TO THE CHAMBAL FERTILIZERS. 10. THAT IF DURING ANY LEAN YEAR OR FOR ANY REASON BEYOND THE CONTROL OF THE GOVERNMENT, THERE IS INSUFFICIENT SUPPLY OF WAT ER AVAILABLE AT THE SAID SITE, THE GOVERNMENT WILL NOT BE RESPONSIBLE F OR ANY REDUCTION OR LACK OF WATER SUPPLY. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 70 11. ANY PROTECTION WORK FOR PARWAN AQUEDUCT ON RMC OF CHAMBAL PROJECT IF SUGGESTED BY CAD SHALL BE CARRIED OUT BY CFCL AT ITS OWN COST. 12. STORED WATER IN THE EXISTING ANICUT NEAR VILLAG E RAJGARH WILL NOT BE USED BY CFCL. 65. PURSUANT TO THE ABOVE APPROVAL, THE ASSESSEE CO MPANY HAS CONSTRUCTED THE ANICUT AT ITS OWN COST AND HAS INCU RRED AN EXPENDITURE OF RS 1,91,59,945 DURING THE YEAR UNDER CONSIDERATI ON. THE SPECIFICATION AND DESIGN SHALL BE APPROVED BY THE CHIEF ENGINEER, ID & R UNIT JAIPUR. THE QUALITY ASSURANCE AND SUPERVISION SHALL BE CARR IED OUT BY IMTI KOTA FOR WHICH EXPENSES SHALL BE BORNE BY THE ASSESSEE C OMPANY. THE ASSESSEE COMPANY SHALL OBTAIN NOC FROM DEPARTMENT O F MINES & GEOLOGY AND ENVIRONMENT DEPARTMENT BEFORE CONSTRUCT ION OF ANICUT. THE ASSESSEE COMPANY SHALL PAY THE COMPENSATION FOR ALL GOVERNMENT AS WELL AS PRIVATE PROPERTY, WHICH MAY COME UNDER T HE SUBMERGENCE AREA BEFORE CONSTRUCTION OF ANICUT. FURTHER, THE GO VERNMENT RESERVES THE RIGHT TO DEMOLISH OR REDUCE THE HEIGHT OF ANICU T IN FUTURE FOR ANY DEPARTMENT REQUIREMENT OR IN PUBLIC INTEREST AND TH E ASSESSEE SHALL HAVE NO RIGHT FOR COMPENSATION FOR COST INCURRED ON THE ANICUT FOR REQUIRED DEMOLITION & REDUCTION OF HEIGHT. 66. POST CONSTRUCTION, THE ASSESSEE COMPANY SHALL M AINTAIN THE ANICUT AND APPURTENANT STRUCTURES AT ITS OWN COST. THE OFF ICERS OF WATER RECOURSES DEPTT, HOWEVER CAN INSPECT, THESE FACILIT IES AND ADVISE REGARDING REQUIREMENT OF MAINTENANCE WORKS. THE GO VERNMENT WILL, FROM TIME TO TIME ASSESS THE QUANTITY OF THE WATER ACCUMULATED IN THE ANICUT AND WILL HAVE THE RIGHT TO MANAGE AND CHANGE THE USAGE OF WATER AS PER ITS REQUIREMENT IN FUTURE. THE ASSESSE E COMPANY SHALL PAY ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 71 THE CHARGES OF WATER CONSUMED BY IT @ RS. 2 PER THO USAND CUBIC FEET OR AMENDED FROM TIME TO TIME. THE RESIDENTS OF THE N EARBY VILLAGES WILL BE FREE TO DRAW WATER FOR DRINKING AND AGRICULTURE PURPOSES FROM IMPOUNDING WATER OF EXISTING ANICUT AND STORED WATE R IN THE EXISTING ANICUT NEAR VILLAGE RAJGARH WILL NOT BE USED BY CFC L. 67. LOOKING AT THE TOTALITY OF FACTS AND CIRCUMSTAN CES OF THE CASE, WE FIND THAT AT THE REQUEST OF THE ASSESSEE COMPANY, T HE GOVERNMENT HAS ALLOWED THE ASSESSEE COMPANY TO CONSTRUCT THE ANICU T AT ITS OWN COST. HOWEVER, THE DESIGN, SPECIFICATION, QUALITY ASSURAN CE AND SUPERVISION SHALL BE CLOSELY MONITORED THROUGH ITS DESIGNATED A UTHORITIES. THE ASSESSEE COMPANY HAS BEEN PERMITTED TO USE THE WATE R ACCUMULATED IN THE ANICUT FOR ITS CAPTIVE CONSUMPTION AND FOR THE PURPOSES, THE ASSESSEE COMPANY SHALL PAY THE NECESSARY CHARGES FO R SUCH CONSUMPTION AS SPECIFIED. IN OTHER WORDS, THE ASSE SSEE COMPANY HAS BEEN PERMITTED TO BUILD, OPERATE, MAINTAIN AND USE THE ANICUT FACILITY FOR ITS CAPTIVE CONSUMPTION THE WATER ACCUMULATED IN SU CH FACILITY. THERE IS NOTHING WHICH HAS BEEN SPECIFIED REGARDING THE PERI OD FOR WHICH SUCH FACILITY SHALL BE UTILIZED BY THE ASSESSEE COMPANY MEANING THEREBY THE ASSESSEE COMPANY SHALL BE AT LIBERTY TO USE THE SAI D FACILITY FOR THE PERIOD SUCH FACILITY HAS FUNCTIONAL USEFUL LIFE. T HE ONLY CONDITION WHICH THE GOVERNMENT HAS PROVIDED IS THAT IT SHALL HAVE T HE RIGHT TO DEMOLISH OR REDUCE THE HEIGHT OF THE ANICUT IN PUBLIC INTERE ST WHERE SUCH A NEED SO ARISE IN FUTURE AND IN SUCH AN EVENTUALITY, THE ASSESSEE COMPANY SHALL HAVE NO RIGHT OF COMPENSATION FOR THE COST IN CURRED ON THE ANICUT. 68. WE THEREFORE AGREE WITH THE VIEWS OF THE ASSES SING OFFICER THAT THE EXPENDITURE ON BUILDING OF ANICUT OVER PARWAN R IVER HAS GIVEN A BENEFIT OF ENDURING NATURE TO THE ASSESSEE SINCE TH E ASSESSEE HAS ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 72 OBTAINED ASSURED SUPPLY OF WATER WHICH IS BEING USE D IN MANUFACTURING PROCESS CARRIED OUT BY THE ASSESSEE FOR A LONG PERI OD OF TIME. HOWEVER, THE QUESTION FOR CONSIDERATION IS WHETHER THE ADVAN TAGE OR BENEFIT SO OBTAINED EVEN THOUGH OF ENDURING NATURE IS IN CAPIT AL FIELD OR NOT. IN OTHER WORDS, WHETHER ANY TANGIBLE ASSETS WERE ACQUI RED/BUILT BY THE ASSESSEE OR THERE WAS ANY ADDITION OR EXPANSION OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE, A TEST WHICH HAS BEEN LA ID DOWN BY THE HONBLE SUPREME COURT IN ITS VARIOUS RULINGS INCLUD ING THE RULINGS RELIED UPON BY THE LD AR. 69. IN THE CONTEXT OF WHETHER A TANGIBLE ASSET IN F ORM OF ANICUT FACILITY HAS BEEN BUILT AND OWNED BY THE ASSESSEE C OMPANY, WE REFER TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF MYSORE MINERALS LTD. VS CIT (1999) 239 ITR 775 WHEREIN IT WAS HELD AS UNDER: 9. IN OUR OPINION, THE TERM OWNED AS OCCURRING IN SECTION 32(1) MUST BE ASSIGNED A WIDER MEANING. ANY ONE IN POSSESSION OF PROPERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PROPERT Y AS WOULD ENABLE OTHERS BEING EXCLUDED THEREFROM AND HAVING RIGHT TO USE AND OCCUPY THE PROPERTY AND/OR TO ENJOY ITS USUFRUCT IN HIS OW N RIGHT WOULD BE THE OWNER OF THE BUILDINGS THOUGH A FORMAL DEED OF TITL E MAY NOT HAVE BEEN EXECUTED AND REGISTERED AS CONTEMPLATED BY TRANSFER OF PROPERTY ACT, REGISTRATION ACT, ETC. 'BUILDING OWNED BY THE ASSES SEE' - THE EXPRESSION AS OCCURRING IN SECTION 32(1) MEANS THE PERSON WHO HAVING ACQUIRED POSSESSION OVER THE BUILDING IN HIS OWN RIGHT USES THE SAME FOR THE PURPOSES OF THE BUSINESS OR PROFESSION THOUGH A LEG AL TITLE HAS NOT BEEN CONVEYED TO HIM CONSISTENTLY WITH THE REQUIREMENTS OF LAWS SUCH AS ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 73 TRANSFER OF PROPERTY ACT AND REGISTRATION ACT ETC. BUT NEVERTHELESS IS ENTITLED TO HOLD THE PROPERTY TO THE EXCLUSION OF A LL OTHERS. 70. IN THE PRESENT CASE, APPLYING THE RATIO SO LAI D DOWN BY THE HONBLE SUPREME COURT IN CASE OF MYSORE MINERALS, W E AGREE WITH THE FINDINGS OF THE ASSESSING OFFICER WHERE HE SAID THA T THE ASSESSEE COMPANY HAS BUILT THE ANICUT ON PARWAN RIVER ENTIRE LY WITH ITS OWN FUNDS TO ENJOY WATER RESOURCES OF A PART OF THE RIV ER EXCLUSIVELY, IT HAS SOLE RIGHT AND POSSESSION OVER THE ANICUT AND THE B ENEFITS ACCRUING THEREFROM, AND THE DOMINION AND CONTROL OVER ANICUT IS WITH THE ASSESSEE COMPANY AND TO THE EXCLUSION OF OTHERS. IN OUR VIEW, MERELY BECAUSE THE RIVER OVER WHICH THE ANICUT WAS BUILT D OESNT BELONG TO THE ASSESSEE, GIVEN THE FACT THAT THE ASSESSEE HAS BEEN GRANTED PERMISSION BY THE GOVERNMENT WHICH HAS THE SOVEREIGN RIGHT OVE R THE RIVER, THE ASSESSEE HAS GOT AN INTANGIBLE RIGHT TO BUILD THE A NICUT FACILITY FOR ITS OWN BENEFIT TO THE EXCLUSION OF THE OTHERS. FURTHE R, HAVING BUILT THE ANICUT FACILITY ENTIRELY WITH ITS OWN FUNDS, THE AS SESSEE HAS GOT THE OWNERSHIP RIGHTS WHICH THE ASSESSEE EXERCISE FOR AL L PRACTICAL AND COMMERCIAL PURPOSES OVER SUCH ANICUT FACILITY. THE CONDITION WHICH THE GOVERNMENT HAS PROVIDED WHILE GRANTING THE APPROVAL THAT IT SHALL HAVE THE RIGHT TO DEMOLISH OR REDUCE THE HEIGHT OF THE A NICUT IN PUBLIC INTEREST WHERE SUCH A NEED SO ARISE IN FUTURE AND I N SUCH AN EVENTUALITY, THE ASSESSEE COMPANY SHALL HAVE NO RIG HT OF COMPENSATION FOR THE COST INCURRED ON THE ANICUT. IN OUR VIEW, S UCH A CONDITION DOESNT TAKE AWAY THE ASSESSEES RIGHT OF SALE/DISP OSAL OF SUCH A FACILITY, AN INHERENT RIGHT ATTACHED WITH THE OWNER SHIP OVER SUCH FACILITY. IN VIEW OF THE SAME, WE ARE OF THE VIEW THAT TANGIB LE ASSET IN FORM OF ANICUT FACILITY HAS BEEN BUILT AND OWNED BY THE ASS ESSEE AND THE SAME IS CLEARLY IN THE CAPITAL FIELD. THE ASSESSEE COMP ANY SHALL THEREFORE BE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 74 ELIGIBLE FOR CLAIM OF DEPRECIATION UNDER SECTION 32 OF THE ACT AS PER PRESCRIBED RATE OF DEPRECIATION SO PROVIDED IN THE INCOME TAX RULES ON SUCH ANICUT FACILITY IN LIGHT OF DECISION OF THE HO NBLE SUPREME COURT REFERRED SUPRA. 71. NOW, COMING TO VARIOUS DECISIONS RELIED UPON B Y THE LD AR. WE HAVE CAREFULLY GONE THROUGH THESE DECISIONS AND FIN D THAT THE SAME WERE RENDERED IN THE PARTICULARS FACTS AND CIRCUMST ANCES OF THE RESPECTIVE CASES AND MUCH PRIOR TO THE LATEST DECIS ION OF THE HONBLE SUPREME COURT IN CASE OF MYSORE MINERALS. WE FIND T HAT ALL THESE DECISIONS RELIED UPON BY THE LD AR WERE RENDERED IN THE CONTEXT OF DETERMINING THE NATURE OF EXPENDITURE WHETHER IN TH E CAPITAL OR IN THE REVENUE FIELD AND ONE OF THE PRINCIPLES EMANAPTING FROM THESE DECISIONS IS THAT WHAT HAS TO BE EXAMINED IS WHETHE R ANY TANGIBLE OR INTANGIBLE ASSETS WERE ACQUIRED BY THE ASSESSEE. TH E DECISION IN CASE OF MYSORE MINERALS HAS FURTHER DEALT WITH THE ISSUE OF DETERMINING WHETHER BY INCURRING AN EXPENDITURE AND ITS POSSESS ION AND USAGE, THE ASSESSEE BECOMES THE OWNER OF ANY TANGIBLE ASSET FO R THE PURPOSES OF CLAIMING THE DEPRECIATION OVER THE LIFE OF THE ASSE T. 72. IN CASE OF L.H. SUGAR FACTOR & OIL MILLS, THE A SSESSEE HAD CONTRIBUTED A PART OF COST OF CONSTRUCTION OF THE R OADS AROUND ITS FACTORY UNDER THE SUGARCANE DEVELOPMENT SCHEME AND IN THAT CONTEXT, IT WAS HELD THAT ROADS WHICH WERE CONSTRUCTED BELON GED TO THE GOVERNMENT OF UP AND NOT TO THE ASSESSEE AND THEN, THE COURT HELD THAT THE CONTRIBUTION SO MADE BY THE ASSESSEE FACIL ITATED THE CONDUCT OF ITS BUSINESS TO RUN IT MORE EFFICIENTLY AND PROFITA BLE AND THE EXPENDITURE WAS HELD ON REVENUE ACCOUNT. THE SAID DECISION HAS BEEN FOLLOWED SUBSEQUENTLY IN CASE OF BONGAIGAON REFINERY AND PET ROCHEMICALS LTD. ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 75 IN THE INSTANT CASE, THE ASSESSEE HAS ITSELF CONSTR UCTED THE ANICUT FACILITY WITH ITS OWN FUNDS AND FOR ITS OWN BENEFIT AND CAPTIVE CONSUMPTION OF WATER SO CAPTURED IN SUCH FACILITY A ND THE FACILITY THUS BELONGS TO AND OWNED BY THE ASSESSEE. THUS, THE SAI D DECISIONS ARE DISTINGUISHABLE ON FACTS. SIMILARLY, IN CASE OF EX CEL INDUSTRIES, UNDER AN AGREEMENT WITH THE ELECTRICITY BOARD, THE ASSESSEE PAID A PART OF THE COST OF LAYING THE OVERHEAD LINE WHICH REMAINED THE PROPERTY OF THE ELECTRICITY BOARD UNLIKE THE PRESENT CASE AND IS TH US DISTINGUISHABLE. THE DECISION IN CASE OF TAPARIA TOOLS IS ON THE ISS UE OF ALLOWABILITY OF REVENUE EXPENDITURE IN THE YEAR OF INCURRENCE OR SP READING OVER A PERIOD OF TIME. THE SAME DOESNT SUPPORT THE CASE OF THE ASSESSEE AS WE HAVE HELD ABOVE THAT THE EXPENDITURE INCURRED ON CONSTRUCTING THE ANICUT FACILITY IS ON CAPITAL ACCOUNT AND NOT ON RE VENUE ACCOUNT. 73. AS WE HAVE NOTED ABOVE, THE ASSESSEE HAS SUBMI TTED BEFORE THE LOWER AUTHORITIES THAT IT HAS INCURRED EXPENDITURE OF RS. 1,91,59,946/- DURING THE YEAR UNDER CONSIDERATION AND HAS DEBITED THE SAME IN THE CAPITAL WORK IN PROGRESS IN THE BOOKS OF ACCOUNT, HOWEVER, IN THE RETURN OF INCOME, THE SAME HAS BEEN CLAIMED AS A RE VENUE EXPENDITURE. IT WAS FURTHER SUBMITTED THAT IT HAS I NCURRED TOTAL EXPENDITURE ON CONSTRUCTION OF ANICUT OF RS. 669.45 LAC WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT IN THE SUBSE QUENT FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2012-13 ON COMPLETION O F CONSTRUCTION OF ANICUT FACILITY, AND AS THE ASSESSEE HAS ALREADY CL AIMED DEDUCTION OF RS. 1,91,59,946/- IN THE YEAR UNDER CONSIDERATION, THE SAID AMOUNT WAS DULY OFFERED TO TAX IN THE ASSESSMENT YEAR 2012-13. IN LIGHT OF ABOVE SUBMISSIONS, IT IS NOTED THAT THE CONSTRUCTION OF T HE ANICUT FACILITY WAS COMPLETED IN THE FINANCIAL YEAR RELEVANT TO ASSESSM ENT YEAR 2012-13 AND THE ASSESSEE WILL THEREFORE BE ELIGIBLE TO CLAI M DEPRECIATION ON THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 76 COST OF ANICUT FACILITY SO INCURRED AMOUNTING TO RS . 669.45 LAC STARTING AY 2012-13 ONWARDS AS PER PRESCRIBED RATE OF DEPREC IATION SO DETERMINED BY THE AO AS PER LAW AND THERE SHALL BE NO ALLOWANCE FOR THE YEAR UNDER CONSIDERATION. IN THE RESULT, THE DI SALLOWANCE OF CLAIM OF EXPENDITURE OF RS 1,91,59,946/- IN THE YEAR UNDER C ONSIDERATION IS SUSTAINED. IN THE RESULT, RESPECTIVE GROUNDS OF AP PEAL ARE DISPOSED OFF. GROUND NO. 9 OF REVENUES APPEAL AND GROUND NO. 4 O F THE ASSESSEES APPEAL RELATING TO DISALLOWANCE OF INTER EST ON BORROWINGS FOR MAKING INVESTMENTS IN VARIOUS GROUP OF COMPANIES: 74. IN GROUND NO. 9 OF THE REVENUES APPEAL AND GRO UND NO. 4 OF THE ASSESSEES APPEAL, THE MATTER RELATES TO DISALLOWAN CE OF INTEREST ON BORROWED FUNDS WHICH HAVE BEEN RAISED BY BOTH THE P ARTIES. THE REVENUE IS AGGRIEVED WITH THE DELETION OF ADDITION OF RS.25,41,73,553/- OUT OF TOTAL ADDITIONS OF RS. 25,78,65,553/- MADE B Y THE ASSESSING OFFICER AND THE ASSESSEE COMPANY IS AGGRIEVED WITH THE SUSTENANCE OF DISALLOWANCE OF INTEREST OF RS. 36,92,000/-. 75. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT THE ASSESSEE HAS UTILIZED A PART OF ITS BORROWINGS FOR MAKING INVESTMENTS IN VARIOUS GROUP OF COMPANIES WITHOUT ANY COMMERCIAL E XPEDIENCY AND ACCORDINGLY, DISALLOWANCE U/S 36(1)(III) OF THE ACT ON ACCOUNT OF INTEREST PAID ON SUCH BORROWED FUNDS WAS MADE TO THE TUNE OF RS. 25,78,65,553/-. IN APPEAL, THE LD. CIT(A) RESTRICTE D THE SAID DISALLOWANCE TO RS. 36.92 LACS AND THE RELEVANT FIN DINGS OF THE LD. CIT(A) IS CONTAINED AT PARA 4.112 WHICH IS REPRODU CED AS UNDER:- ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 77 4.112 THE ASSESSEE INVESTED AMOUNTS IN FIVE COMPAN IES OUT OF THEM THREE COMPANIES NAMELY CFCL OVERSEAS LTD., INDIA ST EAMSHIP PTE LTD., SINGAPUR & INDO MORROCO PHOSPHER S.A. MORROCO (IMAC ID) WERE FOREIGN COMPANIES. AS PER THE SCHEME OF THE ACT, THE INCOME , INCLUDING DIVIDEND FROM FOREIGN COMPANIES WAS NOT EXEMPT UNDE R THE INCOME TAX ACT. THEREFORE, SECTION 14A DOES NOT APPLY IN RELAT ION TO THESE COMPANIES. THEREFORE, IT IS HELD THAT NO DISALLOWAN CE CAN BE MADE IN RELATION TO INVESTMENT MADE IN THESE COMPANIES. REGARDING INVESTMENT IN OTHER TWO COMPANIES, NAMELY CHAMBAL INFRASTRUCTURE VENTURE LTD. & ZUARI INVESTMENTS LTD ., THE INCOME (DIVIDEND) FROM THESE COMPANIES WAS EXEMPT UNDER TH E INCOME TAX ACT AND SECTION 14A WAS APPLICABLE. IN THIS CASE, IT IS PRACTICALLY DIFFICULT TO IDENTIFY THE NEXUS OF FUNDS. SECONDLY, FOR DISALLOW ANCE U/S 14A, THERE IS SPECIFIC RULE (RULE 8D) IN THE INCOME TAX RULES, W HICH PROVIDES THE METHOD FOR DETERMINING EXPENDITURE IN RELATION TO E XEMPT INCOME. THE ASSESSEE STATED THAT AS NO INCOME WAS RECEIVED FROM THESE COMPANIES, PROVISION OF SECTION 14A READ WITH RULE 8D WERE NOT APPLICABLE. WHEN THE DIVIDEND WAS TAXABLE, IT WAS HELD BY VARIO US COURTS THAT INTEREST EXPENDITURE WAS ALLOWABLE WHETHER THERE WA S ANY INCOME OR NOT. SIMILARLY, WHETHER ASSESSEE EARNS ANY INCOME O R NOT, THE DISALLOWANCE U/S 14A HAS TO BE MADE. THEREFORE, IT IS HELD THAT THE DISALLOWANCE IN THIS CASE IS TO BE COMPUTED AS PER RULE 8D READ WITH SECTION 14A. THE SAME IS COMPUTED AS UNDER:- I) AMOUNT OF DIRECT EXPENDITURE RS. NIL ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 78 II) PROPORTIONATE EXPENDITURE RS. 34.66 LACS (10978.41X452.05/143182.5)* III) HALF PERCENT OF AVERAGE INVESTMENT RS. 2.26 L ACS RS. 36.92 LACS [* INTEREST PAYMENT DURING THE YEAR RS. 10978.41 LACS INVESTMENT AT THE BEGINNING OF THE YEAR RS. 764.1 0 LACS INVESTMENT AT THE END OF THE YEAR RS. 140.00 LACS AVERAGE INVESTMENT RS. 452.05 LACS ASSETS AT THE BEGINNING OF THE YEAR RS. 125975 L ACS TOTAL ASSETS AT THE END OF YEAR RS. 160390 LACS AVERAGE TOTAL ASSETS RS. 143182.5 LACS] THEREFORE, ADDITION OF RS. 36.92 LACS IS CONFIRMED. THE AO IS DIRECTED TO DELETE BALANCE ADDITION OF RS. 25,41,73,553/-. THIS GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED . 76. AFTER HEARING THE CONTENTIONS RAISED BY BOTH TH E PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT SIMILAR ISSUE WAS INVOLVED IN THE EARLIER YEAR I.E A.Y. 2010-11 WHERE IN THE LD. CIT(A) HAS GIVEN HIS FINDINGS ON SECTION 14A WITHOUT DISCUSSIN G THE FINDING OF THE AO WHICH WERE GIVEN IN THE CONTEXT OF SECTION 36(1) (III) OF THE ACT AD THE MATTER WAS SET-ASIDE BY THE TRIBUNAL. GIVEN TH AT THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER IN RESPECT O F MAJORITY OF INVESTMENTS AMOUNTING TO RS 36,197.45 LACS WHICH AR E CARRIED FORWARD FROM THE EARLIER YEARS AND WHICH WERE THE SUBJECT M ATTER OF APPEAL BEFORE THE TRIBUNAL FOR A.Y. 2010-11 THOUGH THERE A RE SOME FRESH INVESTMENTS TO THE TUNE OF RS 4480.14 LACS MADE DUR ING THE YEAR, WE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 79 DEEM IT APPROPRIATE TO REMAND THE MATTER TO FILE OF THE LD. CIT(A) IN LIGHT OF DIRECTIONS GIVEN BY THE BENCH IN A.Y. 2010 -11 WHICH ARE CONTAINED AT PARA 48 OF OUR ORDER DATED 31.01.2018 WHICH ARE REPRODUCED AS UNDER:- 48. WE HAVE HEARD THE RIVAL THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. THE AO HAS MADE THE DISALLOWANCE OF INTEREST INVOKING THE PROVISIONS OF SECTION 36(1)(I II) HOLDING THAT THE ASSESSEE HAD UTILISED THE BORROWED FUNDS LYING IN I TS CASH CREDIT ACCOUNT FOR MAKING THE INVESTMENT IN SUBSIDIARY COMPANIES A ND HAS FAILED TO PROVE THE COMMERCIAL EXPEDIENCY FOR MAKING THESE IN VESTMENTS. THE LD CIT(A) HAS HOWEVER INVOKED THE PROVISIONS OF SECTIO N 14A OF THE ACT HOLDING THAT NO DISALLOWANCE CAN BE MADE IN RESPECT OF INVESTMENT IN FOREIGN COMPANIES AND IN RESPECT OF INVESTMENTS IN INDIA COMPANIES, DISALLOWANCE UNDER 14A READ WITH RULE 8D HAS BEEN D ETERMINED BY HIM. WHAT WE FIND SURPRISING IS THAT THE LD CIT(A) HAS T OTALLY IGNORED THE WHOLE DISCUSSIONS AND FINDINGS OF THE AO WHICH HAVE BEEN RENDERED IN THE CONTEXT OF SECTION 36(1)(III) OF THE ACT AND HA S NOT GIVEN ANY FINDINGS AS TO WHY THE PROVISIONS OF SECTION 36(1)( III) ARE NOT ATTRACTED IN THE INSTANT CASE. THE GROUND OF APPEAL RAISED B Y THE ASSESSEE COMPANY BEFORE THE LD CIT(A) WAS IN THE CONTEXT OF DISALLOWANCE MADE BY THE AO INVOKING THE PROVISIONS OF SECTION 36(1)( III) OF THE ACT AND EVEN THE SUBMISSIONS AND CONTENTIONS SO ADVANCED BY THE ASSESSEE COMPANY, AS WE HAVE NOTED ABOVE, WERE IN THE CONTEX T OF SECTION 36(1)(III) OF THE ACT. IT IS THEREFORE INCUMBENT U PON THE LD CIT(A) THAT HE SHOULD WHILE DISPOSING OFF THE SAID GROUND, EXAM INE WHETHER THE DISALLOWANCE SO MADE BY THE AO INVOKING SECTION 36( 1)(III) IS JUSTIFIED OR NOT. ONCE THE LD CIT(A) HAS EXAMINED THE APPLICABI LITY OF SECTION 36(1)(III) AND FORMS AN OPINION THAT THE AO HAS WRO NGLY INVOKED THE ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 80 PROVISIONS OF SECTION 36(1)(III) AND HE SHOULD HAVE INVOKED THE PROVISIONS OF SECTION 14A INSTEAD, IN THAT CASE, WE AGREE THAT THE LD CIT(A) WILL BE WITHIN HIS JURISDICTION TO EXAMINE T HE MATTER FROM THE PERSPECTIVE OF SECTION 14A GIVEN THAT THE MATTER FO RMS PART OF ASSESSMENT ORDER AND THE SAME HAS BEEN EXAMINED BY THE AO THOUGH IN CONTEXT OF SECTION 36(1)(III). THERE ARE INSTANC ES WHERE THE AO HAS WRONGLY INVOKED THE RELEVANT PROVISIONS OF THE ACT, IN THOSE CASES, THE COURTS HAVE HELD THAT THE LD CIT(A) IS WELL WITHIN HIS JURISDICTION TO EXAMINE THE MATTER FROM THE PERSPECTIVE OF CORRECT PROVISIONS OF LAW. GIVEN THAT THERE IS NO FINDING RECORDED BY THE LD C IT(A) REGARDING SECTION 36(1)(III) OF THE ACT, WE ARE CONSTRAINED T O REMAND THE MATTER BACK TO HIS FILE TO EXAMINE THE MATTER AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSESSEE. IN THE RESULT, RESPEC TIVE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT, THE GROUNDS RAISED IN RESPECTIVE APP EALS ARE DISPOSED OFF IN LIGHT OF ABOVE FINDINGS AND DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 17/10/2018. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 17/10/2018. * SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S CHAMBAL FERTILISERS & CHEMICALS LIMITED, KOTA. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-2/JCIT RANGE-2,KOTA. 3. VK;DJ VK;QDR@ CIT ITA NO. 461/JP/2015 & 575/JP/2015 M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. ACIT 81 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA. NO. 461/JP/2015 & 575/JP/2015 } VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR