The ACIT, Ahmedabad Circle-1, Ahmedabad V. M/S Arvind Mills Ltd, Ahmedabad

ITA 463/AHD/2002

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9241 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-07-2009
• Assessment Year: 1990-1991
• Appeal Filed On: 04-03-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Deemed to accrue or arise in india; Bad and doubtful debts; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 80HHC; 37(1); 251; 192; 37; 12

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI H.L.KARWA AND SHRI A.N.PAHUJA ITA NO.463/ AHD/2002 (ASSESSMENT YEAR :1990-91) ASSTT. COMMISSIONER OF INCOME-TAX, AHMEDABAD CIRCLE-1, AHMEDABAD. VS THE ARVIND MILLS LTD. NARODA ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) C.O.NO.22/AHD/2002 (IN ITA NO.463/ AHD/2002) (ASSESSMENT YEAR :1990-91) THE ARVIND MILLS LTD. NARODA ROAD, AHMEDABAD. VS ASSTT. COMMISSIONER OF INCOME- TAX, AHMEDABAD CIRCLE-1, AHMEDABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV SAHAI, CIT DR RESPONDENT BY : SHRI S.N.SOPARKAR, A.R. ( (( ( )/ )/)/ )/ ORDER PER KARWA, JM: THE APPEAL BY THE REVENUE AND THE C.O. BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-XIII, AHMEDABAD DATED 1 2.11.2008 RELATING TO ASSESSMENT YEAR 1990-91. 2. GROUND NO.1 AND 1(I) OF THE APPEAL READ AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDI NG THAT SEPARATE BALANCE SHEET CAN BE FILED FOR COMPUTING THE DE EMED INCOME U/S 115J OF THE I.T.ACT. 2 1.1 THE LD. CIT(A) HAS FURTHER ERRED IN OVERLOOKING THE DECISION OF THE ITAT PUNE BENCH IN THE CASE OF SUDARSHAN CHEMICALS VS. DCIT 60 ITD 629 WHEREIN IT WAS HELD THAT SEPARATE P & L A/C CANNOT BE PREPARED BY THE ASSESSEE FOR COMPUTATION OF PRO FIT U/S 11J. 3. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF I.T.A.T. AHMEDABAD BENCH DATED 06.1.1999 IN ITA NO.4636/AHD/ 1998 IN ASSESSEES O WN CASE. THE TRIBUNAL HELD THAT THE ASSESSEE CAN FILE SEPARATE PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH PARTS (II) AND (III) OF SCHEDULE VI OF T HE COMPANIES ACT FOR THE PURPOSES OF COMPUTING THE DEEMED INCOME U/S 115J OF THE ACT WHICH IS DIFFERENT FROM THE PROFIT AND LOSS ACCOUNT PREPARED FO R LAYING BEFORE THE ANNUAL GENERAL MEETING. THIS YEAR, THE ASSESSEE HAD PREP ARED PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF SEC. 115J BY DEBITING THE ENTIRE DEFERRED EXPENDITURE, WHEREAS IN THE PROFIT AND LOSS ACCOUNT PREP ARED FOR THE APPROVAL OF AGM 1/5 TH OF SUCH EXPENDITURE WAS DEBITED. IT IS SEEN THAT WHILE DECIDING THIS ISSUE, THE CIT(A) HAS FOLLOWED THE ABOVE D ECISION OF THE TRIBUNAL AND, THEREFORE, WE DO NOT FIND ANY INFIRMI TY IN THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD THE SAME. GROUND NO.1 AND 1.1 ARE DISMISSED. 4. GROUND NO.2 OF THE APPEAL READS AS UNDER: 2. THE LD. CIT(A) HAS FURTHER ERRED IN DIRECTING THE A.O. TO RE WORK THE BOOK PROFIT U/S 115J OF THE I.T.ACT BY EXCLUDING T HE PROVISIONS FOR BAD DEBTS AND GRATUITY. 5. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE A SSESSEE COMPANY HAS MADE PROVISIONS OF BAD DEBTS OF RS.10,70,010/ -. THE ASSESSEE ALSO MADE PROVISIONS FOR GRATUITY AT RS. 10,675/-. THE ASSESSING OFFICER TOOK THE VIEW THAT THE PROVISION HAS TO BE ADDED BY WHATEV ER NATURE IT HAS TO BE 3 CREATED, WHILE WORKING OUT THE BOOK PROFIT FOR THE P URPOSE OF SECTION 115J. THE CONTENTION OF THE ASSESSEE WAS THAT BOTH THESE PROVISIO NS WERE ASCERTAINED LIABILITY AND NO ADJUSTMENT COULD BE MADE UNDER CLAUSE C OF THE EXPLANATION TO SEC. 11J OF THE ACT. 6. ON APPEAL, THE CIT(A) HELD AS UNDER: 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT CAREFULLY AND THE OBSERVATIONS OF THE A.O. AND I FIND THAT PROVISION FOR BAD DEBTS AND PROVISION FOR GRATUITY ARE ASCERTAINED LIABILITIES AS SUB MITTED BY THE A.O. THERE IS DECISION OF BOMBAY HIGH COURT IN THE CASE O F CIT VS. ECHJAY FORGINGS PVT. LTD., REPORTED IN 251 ITR 15, SAY ING THAT PROVISION FOR DOUBTFUL DEBTS COULD NOT BE INCLUDED IN T HE NET PROFITS FOR SEC. 115J OF THE I.T.ACT AND ALSO THE PROVISION FOR GRA TUITY MADE ON THE BASIS OF ACTUARIAL CALCULATIONS IS AN ASCERTAINED LIAB ILITY AND THE SAME COULD NOT BE ADDED TO THE NET PROFIT. THEREFORE, THE A.O. IS DIRECTED TO RE-WORK THE BOOK PROFIT FOR THE PURPOSE O F SEC.11J OF THE I.TACT BY EXCLUDING THE PROVISIONS FOR BAD DEBTS AND GR ATUITY. 7. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ECHJAY FORGINGS PVT. LTD. (2001) 251 ITR 15. IN T HE ABOVE CASE, THE HONBLE BOMBAY HIGH COURT HELD (HEAD NOTE ) AS UNDER: (I) . .. .. (II) THAT THERE WAS NO MATERIAL BEFORE THE COURT IN SUPPORT OF THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER THAT THE PROVISIO N FOR DOUBTFUL DEBTS MADE BY THE ASSESSEE WAS IN RESPECT OF AN UNASCERTAINED LIABILITY, NOR HAD THE DEPARTMENT DISPU TED THE ASSESSEES CLAIM THAT IT WAS AN ASCERTAINED LIABILITY. THE AMOUNT COULD NOT BE INCLUDED IN THE NET PROFITS. (III) THAT SINCE THE PROVISION FOR GRATUITY WAS MADE ON THE B ASIS OF ACTUARIAL CALCULATIONS, IT WAS AN ASCERTAINED LIABILITY A ND THE SAID AMOUNTS COULD NOT BE ADDED TO THE NET PROFITS. 4 RECENTLY, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMENT SYSTEMS AND SERVICES LTD.(2008) 305 ITR 409 (SC) HELD ( HEAD NOTE) AS UNDER: ITEM (C) OF THE EXPLANATION TO SECTION 115JA IS NOT A TTRACTED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS. THE PROVISION FO R BAD AND DOUBTFUL DEBTS IS MADE TO COVER UP PROBABLE DIMINUTION IN THE VALUE OF THE ASSETS, I.E., A DEBT WHICH IS AN AMOUNT RECEIVABLE B Y THE ASSESSEE. SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION FOR A LIABILITY, BECAUSE EVEN IF THE DEBT IS NOT RECOVERABLE NO LIABILI TY CAN BE FASTENED ON THE ASSESSEE. ANY PROVISION MADE TOWARDS IRRECOVERABIL ITY OF A DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. 8. IT IS RELEVANT TO STATE THAT ITEM (C ) OF THE E XPLANATION TO SEC. 115JA IS SIMILAR TO PROVISIONS OF ITEM C OF EXPLANATION TO SE C. 115J. THE ISSUE REGARDING PROVISION FOR BAD DEBT AND DOUBTFUL DEBTS I S ALSO COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ABOVE DECI SION OF SUPREME COURT. THE ISSUE REGARDING PROVISIONS FOR GRATUITY IS AL SO COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. V. CIT (2002) 2 55 ITR 273 (SC). IN VIEW OF THE ABOVE DECISIONS, WE DO NOT FIND ANY IN FIRMITY IN THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND ACCORDINGLY, WE UPHOLD THE SAME. 9. GROUND NO.3 OF THE APPEAL READS AS UNDER: THE LD. CIT(A) HAS FURTHER ERRED IN DIRECTING THE A. O. TO GRANT DEDUCTION U/S 80HHC ON THE BOOK PROFIT AND RECOMPUTED T HE BOOK PROFIT. 10. BEFORE THE CIT(A), THE ASSESSEE RAISED A GROUND STATI NG THAT DEDUCTION U/S 80HHC IN RESPECT OF EXPORT PROFIT SHOULD BE MADE FRO M THE BOOK PROFIT, IN VIEW OF CLAUSE (III) TO EXPLANATION OF SEC. 115J OF THE I.T.ACT, 1961. THE ASSESSEE ALSO CONTENDED THAT THE PROFIT FROM EXPORT PROFI T SHOULD BE REDUCED FROM BOOK PROFIT WHILE INVOKING THE PROVISIONS OF SEC. 115J OF THE ACT, RELYING ON THE DECISION OF THE TRIBUNAL DATED 28.5.1998 PASSED IN THE CASE OF DCIT 5 V. ATUL PRODUCTS IN ITA NO.3671/AHD/1992 RELATING TO ASSESSMENT YEAR 1989-90. BEFORE THE CIT(A),THE ASSESSEE STATED THAT IN T HE CASE OF ATUL PRODUCTS, THE CIT(A) HAD ALLOWED DEDUCTION OF EXPORT P ROFIT FROM THE BOOK PROFIT COMPUTED U/S 115J RELYING ON THE BOARDS CIRCULA R NO.559 DATED 04.5.1990. HOWEVER, THE ASSESSING OFFICER HAD TAKEN A VIE W THAT DEDUCTION U/S 80HHC CAN ONLY BE ALLOWED IN COMPUTING THE BOOK PROF ITS, WHEN THERE IS POSITIVE INCOME AFTER THE SET OFF. THIS VIEW OF THE ASSE SSING OFFICER WAS NOT ACCEPTED BY THE TRIBUNAL. 11. THE CIT(A) HELD AS UNDER: 3.4 I HAVE CONSIDERED THE SUBMISSIONS OF A.R. AND OBSERVA TIONS OF THE ASSESSING OFFICER CAREFULLY. I FIND THAT THE APPELLA NT HAD CLAIMED EXPORT PROFIT FROM THE BOOK PROFIT AS PER CLAUSE (III) TO EXPLANATION OF SEC. 115J OF THE ACT. RELYING ON THE DECISION OF I.T.A. T. AND CLAUSE (III) TO EXPLANATION OF SEC. 115J, I DIRECT THE A.O. TO GRAN T DEDUCTION U/S 80HHC FROM THE BOOK PROFIT AND RECOMPUTED THE BOOK PRO FIT. 12. BEFORE US, SHRI RAJIV SAHAI, THE LD. CIT DR SUBMI TTED THAT WHILE DECIDING THE ISSUE, THE CIT(A) HAS FOLLOWED THE DECISIO N OF I.T.A.T. AHMEDABAD BENCH IN THE CASE OF ATUL PRODUCTS (SUPRA). HE ALSO INVITED OUR ATTENTION TO A DECISION OF I.T.A.T. MUMBAI BENCH (SPECI AL BENCH) IN THE CASE OF DCIT V. SYNCOME FORMULATION (I) LTD. (2007) 106 I TD 193 (MUM.)(SPECIAL BENCH). ACCORDING TO THE LD. CIT DR, THE VIEW TAKEN B Y THE AHMEDABAD BENCH IN THE CASE OF ATUL PRODUCTS (SUPRA) AND THE VIEW T AKEN BY THE I.T.A.T. SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATION (I) LT D. (SUPRA) ARE ALMOST SIMILAR. HE FURTHER SUBMITTED THAT THE DECISION OF THE I.T.A.T. MUMBAI SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATION (I) LTD .(SUPRA) HAS BEEN OVERRULED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. AJANTA PHARMA LTD. (2009) 223 CTR (BOM.) 441. ACCORDING TO T HE LD. D.R., THE DECISIONS OF I.T.A.T. AHMEDABAD BENCH IN THE CASE OF ATUL PRODUCTS AND ALSO THAT OF I.T.A.T. MUMBAI SPECIAL BENCH IN THE CASE OF SY NCOME FORMULATION 6 (I) LTD. (SUPRA) ARE NO LONGER A GOOD LAW. HE, THEREF ORE, SUBMITTED THAT THE ORDER OF THE CIT(A) IS BASED ON THE DECISION OF I.T.A.T . AHMEDABAD BENCH IN THE CASE OF ATUL PRODUCTS MAY BE REVERSED IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT REFERRED TO ABOVE. ON THE OTHER HA ND, SHRI S.N.SOPARKAR, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: (I) CIT V. FUTURA POLYESTER LTD. 2009-TIOL-199-HIGH COURT-MAD-IT (II) CIT V. RAJANIKANT SCHELDER AND ASSOCIATES P. LTD. (302 ITR 22 (MAD.)) 13. SHRI S.N.SOPARKAR, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT IN THE ABOVE DECISIONS UNDER THE SIMILAR CIRCUMSTANCES, BOT H U/S 115J AND 115JA, IT HAS BEEN HELD THAT THE APPELLANT IS ELIGIBL E FOR DEDUCTION U/S 80HHC ON THE BOOK PROFIT AS DETERMINED UNDER THE PROVISIONS OF MAT. SHRI S.N.SOPARKAR, THE LEARNED COUNSEL FOR THE ASSESSEE ADMITT ED THAT THERE IS A CONTRARY VIEW OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AJANTA PHARMA LTD.(SUPRA). HOWEVER, SHRI S.N.SOPARKAR, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE INTERPRETING THE PROVI SIONS AS REGARDS DEDUCTION, IF TWO VIEWS ARE PERMISSIBLE, THE VIEW IN FA VOUR OF THE ASSESSEE, SHOULD BE ADOPTED AND IN THIS CONNECTION RELIANCE WAS PLA CED ON THE FOLLOWING DECISIONS: A. MYSORE MINERALS LTD. V CIT 239 ITR 775 (SC) B. ORISSA STATE WAREHOUSING CORPORATION V CIT 237 ITR 589 (SC)N C. CIT V. PODAR CEMENT PVT LTD. AND OTHERS. 226 ITR 6 25 (SC) D. CIT V GWALIER RAYON SILK MFG. CO. LTD. 196 ITR 1 49 (SC) E. CIT V SAHAZADA NAND 60 ITR 392 (SC) F. CIT V KULU VALLEY TRANSPORT CO. LTD. 77 ITR 518, 530 (SC) G. CIT V VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) H. CIT V NAGA HILLS TEA CO. LTD. 89 ITR 236, 240 (SC ) I. CONTR. ED V KANAKASABAI 89 ITR 251, 257 (SC) J. CIT V MADHO JATIA 105 ITR 179,184 (SC) 7 13.1 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THE ISSUE NEEDS TO BE EXAMINED AT THE LEVEL OF ASSESSING OFFICE R. THE RELEVANT FACTS ARE ALSO NOT AVAILABLE ON RECORD. ACCORDINGLY, WE SE T ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FOR STATISTICAL PURPOSES, THIS GROUND OF APPEAL IS ALLOWED. 14. GROUND NO.4 OF THE APPEAL READS AS UNDER: 4. THE LD. CIT(A) HAS FURTHER ERRED IN ALLOWING DEDU CTION OF RS.771000/- TOWARDS ACCRUED LIABILITY OF INTEREST. THE ASSESSEE CLAIMED DEDUCTION OF RS.7,71,000/- TOWARDS ACCRU ED LIABILITY OF INTEREST. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR THE REASONS STATED IN PARA 7 OF THE ASSESSMENT ORDER. THE ASSESSE E COMPANY WAS DIRECTED TO MAKE PAYMENT OF EXCISE DUTY TO THE EXCISE DEPARTMENT ALONG WITH COST AND INTEREST BY THE HONBLE GUJARAT HIG H COURT. AGAINST THE DECISION OF THE HON'BLE GUJARAT HIGH COURT , THE ASSESSEE WENT TO THE HONBLE SUPREME COURT AND THE HONBLE SUPREME COURT ST AYED THE OPERATION OF THE ORDER OF THE HON'BLE GUJARAT HIGH COURT. THE A SSESSEE HAS SUBMITTED BANK GUARANTEE AGAINST THE AMOUNT OF REFUND AND ACCRUE D INTEREST THEREON. THE ACCRUED INTEREST OF RS.7,71,000/- WAS PAYABLE BY THE ASSESSEE AS THE ASSESSEE WENT IN APPEAL BEFORE THE HONBLE SUPREME COUR T AND STAY WAS GRANTED BY THE HONBLE SUPREME COURT FOR REPAYMENT O F REFUND ON A CONDITION THAT THE ASSESSEE SHOULD FURNISH BANK GUARANTEE FROM YEAR TO YEAR FOR THE EXCISE REFUND AND THE AMOUNT OF INTEREST ACCRUI NG FROM YEAR TO YEAR @12%. THE ASSESSING OFFICER REJECTED THE SAME ON THE GROUN D THAT IT WAS A CONTINGENT LIABILITY AND CAN ONLY BE ALLOWED AFTER TH E MATTER IS SETTLED BY THE SUPREME COURT. THE ASSESSEE CLAIMED THAT THE COMPANYS LIA BILITY TO PAY 8 REFUND AND INTEREST WAS FINAL AN WAS NOT DEBT OWED. TH E ASSESSING OFFICER REJECTED THE CLAIM AND THE ASSESSEE FILED AN APPEAL BEFOR E THE CIT(A). THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE O RDER OF I.T.A.T. AHMEDABAD BENCH DATED 06.1.1999 PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1989-90, WHEREIN SIMILAR CLAIM HAS BEEN AL LOWED BY THE TRIBUNAL SAYING THAT IT IS AN ACCRUED LIABILITY. 15. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF I.T.A.T. AHMEDABAD BENCH PASSED IN ASSESSEES OWN CASE IN ITA NO.4636/AHD/1998 RELATI NG TO ASSESSMENT YEAR 1989-90. WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL VIDE ITS ORDER DATED 06.1.1999 HELD AS UNDER: 5. GROUND NO.3 IS AGAINST DISALLOWANCE OF ACCRUED LIABILI TY OF INTEREST AMOUNTING TO RS.9,64,179/-. THE ASSESSEE-COMPANY WAS DIRECTED TO MAKE PAYMENT OF EXCISE DUTY TO THE CUSTOM D EPARTMENT ALONGWITH COST AND INTEREST BY THE HONBLE GUJARAT HIGH COURT. THE ASSESSEE-COMPANY SUBSEQUENTLY MOVED AGAINST THIS DECISION BEF ORE THE HONBLE SUPREME COURT. THE A.O. DISALLOWED THE CLA IM OF INTEREST ON THE GROUND THAT THE LIABILITY IS CONTINGENT AND Y EARLY BANK GUARANTEE HAS TO BE FURNISHED AGAINST THE AMOUNT OF RE FUND AND ACCRUED INTEREST THEREON. THE ACCRUED INTEREST, ACCORDING TO THE ASSESSEE, COMES TO RS.9,64,179/- DURING THE PREVIOUS YEAR. 6. BEFORE US, THE LD. COUNSEL PLACED RELIANCE ON THE D ECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF DINESH M ILLS VS. DCIT (ITA NO.2627/AHD/92-93) WHEREIN THE AHMEDABAD BENCH OF THE TRIBUNAL ON SIMILAR SET OF FACTS HELD THAT THE LIABILIT Y OF THE IMPUGNED INTEREST ACCRUED DURING THE YEAR AND IS ALLOWABLE. SIMI LAR VIEW HAS BEEN TAKEN BY AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ATUL PRODUCTS VS. DCIT IN ITA NO.3508/AHD/1992. RESPECTFULL Y FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION ON ACCOUNT OF LIABILITY OF INTER EST OF RS.9,64,179/- . THIS GROUND OF ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUP RA), WE UPHOLD THE ORDER OF CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE . 9 16. GROUND NO.5 OF THE APPEAL READS AS UNDER: 5. THE LD. CIT(A) HAS FURTHER ERRED IN DELETING TH E DISALLOWANCE OF RS.91733/- BEING THE COST OF TV SETS FOUND SHORTAGE ON A CCOUNT OF TRANSIT. 17. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF I.T.A.T. AHMEDABAD BENCH IN ASSESSEES CASE IN ITA NO.81/AHD/1993 RELATING TO THE ASSESSMENT YEAR 1989 -90. WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL VIDE ITS ORDER DATED 28.2.2000 HELD AS UNDER: 5. THE NEXT ISSUE WHICH ARISES FOR CONSIDERATION IS WHE THER THE CIT(A) WAS JUSTIFIED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS.2,72,773/- MADE BY THE A.O. ON THE GR OUND OF SHORTAGE OF STOCKS OF T.V. SETS. IT IS FOUND THAT THE AS SESSEE COMPANY IS CARRYING ON BUSINESS OF PURCHASE AND SALE OF T.V. SETS THROUGH VARIOUS BRANCHES AND AGENCIES THROUGHOUT IND IA. THE TOTAL TURNOVER IN RESPECT OF T.V. SET FOR THIS YEAR COMES TO RS.2889.70 LACS. THE ASSESSEE CLAIMED SHORTAGE OF 58 T.V . SETS AND CLAIMED THE VALUE THEREOF AMOUNTING TO RS.2,7 2,773/- AS BUSINESS LOSS. IT WAS STATED THAT THE SHORTAGE WAS ON ACCOUN T OF LOSS IN TRANSIT OR BY WAY OF DAMAGE SETS WHICH COULD NO T BE SOLD. THE A.O. DISALLOWED THE CLAIM OF LOSS ON THE GROUN D THAT THE LOSS IN TRANSIT WAS NOT VERIFIABLE. HE ALSO REMARKED THAT NO FIR WAS FILED IN RESPECT OF LOSS OR THEFT. HOWEVER, THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS BEFORE HIM FOUND THAT THE LOSS CLAIMED WAS NEGLIGIBLE COMPARED WITH THE TOTAL VOLUME OF BUSINESS AND HENCE HE CONSIDERED IT PROPER AND REASONABL E TO ALLOW THE CLAIM. WE DO NOT FIND ANY REASON FOR INTERF ERENCE WITH THE FINDING OF THE FIRST APPELLATE AUTHORITY BECAUSE T HE ASSESSEE HAS CLAIMED THE LOSS ON VERIFICATION OF THE OPENING STOCK, PURCHASE, SALES AND CLOSING STOCK AND AT THE END OF THE YEA R WHEN THE ACCOUNTS WERE MADE UP 58 SETS WERE FOUND EITHE R LOST IN TRANSIT OR DAMAGED AND UNSALABLE. THIS TOTAL NUMBER OF TV SETS SOLD DURING THE YEAR COMES TO ABOUT 57,000. EITHER IN TERMS OF TURNOVER OR IN TERMS OF NUMBER OF T.V. SETS, THE L OSS CLAIMED COMES TO LESS THAN 0.01%. THUS BY ITSELF DOES NOT MEAN THA T THE LOSS CLAIMED SHOULD BE ALLOWED. HOWEVER, THE POSSIBILITY O F SUCH 10 LOSS IN TRANSIT CANNOT BE RULED OUT CONSIDERING THE FACT THAT THE ASSESSEE IS HAVING SEVERAL BRANCHES AND AGENCIES AND THE BUSINESS INVOLVES TRANSPORTATION TO DIFFERENT PLACES ON LONG ROUTES. THE A.O. HAS NOT PROVED THAT ANY OF THE MISSIN G ITEMS OF T.V. SETS AS CLAIMED BY THE ASSESSEE HAS BEEN SOLD OUTSIDE THE BOOKS OF ACCOUNT. THE MERE FACT THAT THE FIR HAS NOT BEE N FILED DOES NOT ALSO MEAN THAT THE ASSESSEE HAS MADE ANY UNACCOUNTED PROFIT OUT OF THE SHORTAGE OF STOCK. CONSIDER ING THE OVERALL CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE CIT(A) IN DIRECTING THE A.O. TO DEL ETE THE ADDITION. THE FACTS ARE SIMILAR AND, THEREFORE FOLLOWING THE ORD ER OF TRIBUNAL (SUPRA) FOR ASSESSMENT YEAR 1989-90, WE DO NOT FIND ANY MERIT I N THIS GROUND OF APPEAL AND ACCORDINGLY WE DISMISS THE SAME. 18. GROUND NO.6 OF THE APPEAL READS AS UNDER: 6. THE LD. CIT(A) HAS FURTHER ERRED IN ALLOWING THE PROVISION FOR EXPENDITURE OF RS.10,20,000/- BEING ACCRUED LIABILITY IN RESPECT OF PREMIUM PAYABLE AT THE TIME OF REDEMPTION OF NON CONVERTIBLE DEBENTURES. 19. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF I.T.A.T. AHMEDABAD BENCH IN ASSESSEES CASE IN ITA NO.81/AHD/1993 RELATING TO ASSESSMENT YEAR 1989-90. WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL HELD AS UNDER: 3. AFTER HEARING THE LD. DR AND THE LD. COUNSEL FOR THE ASSESSEE WE FIND THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR A NY INTERFERENCE. THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION VS. CIT (1997) 225 ITR 892 HAS HELD THAT DISCOUNT ON A DEBENTURE WRITTEN OFF PROPORTIONATELY EACH YEAR FOR THE PERIOD OF REDEMPTION IS ALLOWABLE AS A REVENUE EXPENDITURE IN R ESPECT OF THE AMOUNT RELATING TO THE ACCOUNTING PERIOD UNDER CONSIDER ATION. RESPECTFULLY FOLLOWING THE RATIO OF THIS DECISION WE H OLD THAT THE ASSESSEE IS ENTITLED TO CLAIM PROPORTIONATE AMOUNT OF PRE MIUM RELATING TO THE ACCOUNTING YEAR UNDER CONSIDERATION EVEN THOUGH SUCH PREMIUM IS PAYABLE ONLY AT THE TIME OF REDEMPTION. 11 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUP RA), WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY WE DISMI SS THE SAME. 20. GROUND NO.7 OF THE APPEAL READS AS UNDER: 7. THE LD. CIT(A) HAS FURTHER ERRED IN HOLDING THAT RS.6442853/- PAID AS INTEREST ON DEBENTURES WAS ALLOWABLE AS REVENUE EXPENDITURE. 21. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT WHILE FRAMING THE ASSESSMENT THE ASSESSING OFFICER DISALLOWED RS.6442853/- BEING DEBENTURES INTEREST CAPITALIZED. THE ASSESSEE COMPANY INCURRED LIABILITY OF PAYING INTEREST DEBENTURE HOLDERS TO THE TUNE OF RS.1,07,05,258/- OUT OF WHICH THE ASSESSEE CAPITALIZED RS.64,42,853/- DEBIT ED TO THE PLANT AND MACHINERY ACCOUNT OF THE NEW PROJECT I.E. DENIM PRO JECT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CAPITALIZED THIS EXP ENDITURE TO THE COST OF PLANT AND MACHINERY AND BUILDING OF THE NEW PR OJECT, WHEREAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE CLAIMED THIS IT EM AS REVENUE EXPENDITURE RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. 60 ITR 52. THE ASSESSING OFFICE R DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE SAI D EXPENDITURE WAS INCURRED IN RESPECT OF A NEW PROJECT WHICH HAD NOT YET ST ARTED COMMERCIAL PRODUCTION. 22. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING AND SALE O F DENIM CLOTH AND TEXTILE GOODS AND IT WAS IN THE PROCESS OF ESTABLISHIN G ONE MORE DENIM UNIT. THE ASSESSEE CLAIMED THAT THE INTEREST PAID ON ON-M ONEY BORROWED FOR THE PURPOSE OF EXTENSION OF EXISTING BUSINESS OF THE ASSESSEE WAS ALLOWABLE 12 U/S 36(1)(III) OF THE ACT. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. ALEMB IC GLASS INDUSTRIES (1976) 103 ITR 715 (GUJ.) WHEREIN IT HAS BEEN HELD T HAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF INTEREST PAID ON BORROWED FU ND, EVEN THOUGH THE PLANT AND MACHINERY WERE NOT USED IN THE YEAR OF ACCOUN T AND THAT THE ASSESSEE CLAIMS DEDUCTION OF CAPITAL BORROWED, ALL THAT TH E ASSESSEE HAS TO SHOW IS THAT THE CAPITAL WHICH WAS BORROWED WAS USED FOR T HE PURPOSE OF BUSINESS OF THE ASSESSEE IN THE RELEVANT YEAR AND IF IT DI D NOT MATTER THAT THE CAPITAL WAS BORROWED TO ACQUIRE AS REVENUE ASSET OR CAPITA L ASSET. THE ASSESSEE CLAIMED THAT THE EXPENDITURE OF RS.64.42 LACS AS DE DUCTION U/S 36(1)(III) OF THE ACT. THE ASSESSEE ALSO RELIED ON THE DE CISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF COREHEALTH LTD.V. DC IT REPORTED IN 251 ITR 261(GUJ.) IN SUPPORT OF HIS CLAIM THAT INTEREST PAID ON DEBENTURE WAS ALLOWABLE U/S 36(1)(III) OF THE ACT. 23. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE OBSERVING AS UNDER: 12.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CARE FULLY AND HAVE GONE THROUGH THE OBSERVATIONS OF THE A.O. AND H AVE GONE THROUGH THE CASES CITED BY THE A.R. RELYING ON THE RAT IO OF CASES CITED, I HOLD THAT INTEREST PAID ON DEBENTURES IS ALLOWABLE A S REVENUE EXPENDITURE, AS DENIM PROJECT WAS AN EXPANSION OF THE B USINESS OF THE APPELLANT OF MANUFACTURING TEXTILE GOODS. I DIRECT THE A.O. TO ALLOW THE INTEREST EXPENSES OF RS.64,42,853/- AS REVENUE EXPENDITU RE. 24. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) ON THIS ISSUE. THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE RELYING ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN DCIT V. COREHEALTH CARE LTD. (2001) 251 ITR 61. WE FIND THAT THE DECISION OF THE HONBLE GUJARAT HI GH COURT IN THE CASE OF COREHEALTH CARE LTD. (SUPRA) HAS BEEN AFFIRMED BY THE HONBLE SUPREME 13 COURT IN (2008) 298 ITR 194(SC). THEHONBLE SUPREME COURT HELD (HEAD NOTE) AS UNDER: SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961, HAS TO BE READ ON ITS OWN TERMS: IT IS A CODE BY ITSELF. IT MAKES NO DIST INCTION BETWEEN MONEY BORROWED TO ACQUIRE A CAPITAL ASSET OR A REVENUE ASSET. ALL THAT THE SECTION REQUIRES IS THAT THE ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF THE BORRWOING MUST BE FOR BUSINESS WHICH IS CA RRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT. UNLIKE SECTION 37 WHIC H EXPRESSLY EXCLUDES AN EXPENSE OF A CAPITAL NATURE SECTION 36(1)(II I) EMPHASIZES THE USER OF THE CAPITAL AND NOT THE USER OF THE ASSET WH ICH COMES INTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL. THE LEGISL ATURE HAS, THEREFORE, MADE NO DISTINCTION IN SECTION 36(1)(III) BETWEEN CAPITAL BORROWED FOR A REVENUE PURPOSE AND CAPITAL BORROWED FOR A CAPITAL PURPOSE. AN ASSESSEE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT THE CAPITAL IS USED FOR BUSINESS PU RPOSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF USING THE CAP ITAL WHICH THE ASESSEE HAS BORROWED. ACTUAL COST OF AN ASSET HAS NO RELEV ANCY IN RELATION TO SECTION 36(1)(III). THE PROVISO INSERTED IN SECTION 36(1)(III) BY THE FINAN CE ACT, 2003, WITH EFFECT FROM APRIL 1, 2004, WILL OPERATE P ROSPECTIVELY. HELD ACCORDINGLY, THAT THE ASSESSEE WAS ENTITLED TO DEDUCTIO N UNDER SECTION 36(1)(III) PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2003, IN RELATION TO MONEY BORROWED FOR PURCHASE OF M ACHINERY EVEN THOUGH THE ASSESSEE HAD NOT USED THE MACHINERY IN THE YE AR OF BORROWING. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPRE ME COURT, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGL Y WE DISMISS THE SAME. 25. GROUND NO.8 READS AS UNDER: THE LD. CIT(A) HAS FURTHER HELD IN HOLDING THAT RS.44 46146/- IN RESPECT OF EXCISE DUTY LIABILITY SHOULD NOT BE TAXED IN THE YE AR UNDER REVIEW U/S 41(1) OF THE I.T.ACT. 26. THE A.O. OBSERVED THAT IN THE RETURN OF INCOME, T HE ASSESSEE COMPANY OFFERED FOR TAXATION A SUM OF RS.44,46,146/- U/S 41(1) OF THE I.T.ACT. THE A.O. WAS ALLOWED SEIZED YARN EXCISE LIABILITY IN EARLI ER ASSESSMENT YEAR. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE EXCISE DEPARTMENT 14 RELYING ON THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF J.K.COTTON AND WEAVING AND SPINNING CO. LTD. HAD WI THDRAWN THE DEMAND RAISED BY IT EARLIER. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD RELIED ON THE GUJARAT HIGH COURT DECISION IN THE CA SE OF CIT V. BHARAT IRON AND STEEL INDUSTRIES BHAVNAGAR. THE A.O. REJECTED THE CONTENTION F THE ASSESSEE STATING THAT SIMPLY THE MATTER IS PENDING BEFORE THE HONBLE SUPREME COURT DOES NOT MEAN THAT THERE IS NO REMISSION OR CESSATION OF LIABILITY. THE LIABILITY OF PAYMENT OF EXCISE DUTY HA S CEASED WITH THE WITHDRAWAL OF DEMAND BY EXCISE DEPARTMENT. ACCORDING TO THE A.O. THE MATTER IS CONCLUDED AND, THEREFORE, THE AMOUNT OF RS.44 ,46,146/- REQUIRES TO BE TAXED DURING THE YEAR UNDER CONSIDERATION. 27. ON APPEAL, THE CIT(A) HELD THAT THE AMOUNT IN Q UESTION SHOULD NOT BE TAXED IN THE YEAR UNDER CONSIDERATION U/S 41(1) OF THE ACT. ACCORDING TO HIM, ONLY WHEN THE FINALITY IS REACHED AND THE DEMAND IS CA NCELLED BY THE SUPREME COURT, THE SAME CAN BE TAXED. 28. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF I.T.A.T. AHMEDABAD BENCH A IN THE CASE OF DCIT V. ATUL PRODUCTS LTD. RELATING TO ASSESSMENT YEAR 19 89-90. WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL VIDE ITS ORDER DATED 28.5.1998 HELD AS UNDER: 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS, FACTS AND MAT ERIALS ON RECORD WE ARE OF THE OPINION THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE THE ORDER OF THE LD. CIT(A) CANNOT BE INTERFERED WIT H. IN THE SAID DECISION IT HAS BEEN STATED THAT LIABILITY TO TAX U/S 41 OF THE ACT WOULD DEPEND UPON THE OUTCOME OF THE APPEAL BEFORE THE HON BLE SUPREME COURT. IT WAS FURTHER HELD THAT THERE IS NO PREJUDICE TO THE DEPARTMENT IF THE ASSESSMENT WAS MODIFIED DEPENDING UPON THE OUTCOME OF THE 15 DECISION OF THE HONBLE SUPREME COURT. WE, THEREFORE, REJECT THIS GROUND OF THE DEPARTMENT. 29. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THAT OF ATUL PRODUCTS (SUPRA), WE DO NOT FIND ANY MERIT IN THE GROUND RAISE D BY THE REVENUE AND ACCORDINGLY WE DISMISS THE SAME. 30. IN C.O.NO.22/AHD/2002, THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS: 1.(A) IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN NO T ACCEPTING THE PLEA OF THE APPELLANT COMPANY THAT THE INCOME COMPUTED UNDER SECTION 115J OF THE ACT IS A DEEMED INCOM E AND THAT SAME SHOULD BE CONSIDERED AS THE TOTAL INCOME OF THE APPELLANT COMPANY UNDER OTHER PROVISIONS OF THE I.T.AC T AND THAT BACKWARD WORKING SHOULD BE MADE IN ORDER TO DETERMINE CARRIED FORWARD BUSINESS LOSS, DEPRECIATION AND INVESTMENT ALLOWAN CE. (B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTH ER ERRED IN FOLLOWING THE ORDER FOR ASSESSMENT YEAR 1989-90 WHER EIN IT HAS BEEN HELD THAT SECTION 115J IS ALTOGETHER INDEPEND ENT SECTION AND THE LEGAL FICTION CREATED UNDER THAT SECTION DOES NOT AFFECT THE COMPUTATION OF INCOME UNDER INCOME TAX ACT, AS PER OTHER SECTIONS. II. ON FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.58,824/- O N GUEST HOUSE ASSETS UNDER SECTION 37(4) OF THE INCOME TAX ACT. AT THE TIME OF HEARING OF THE APPEAL SHRI S.N.SOPAR KAR, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.I(A) (B) AND II. ACCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. 31. THE FACTS RELATING TO GROUND NO.III ARE AS UNDER: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTH ER ERRED IN HOLDING THAT DEBENTURE ISSUE EXPENSES AMOUNTING TO RS.49,01,879/ - AND 16 RS.25,94,400/- ARE ALLOWABLE UNDER SECTION 35D OF THE INCOME TAX ACT AT 1/10 TH EVERY YEAR FOR TEN YEARS. 32. THE A.O. DISALLOWED RS.49,01,879/- BEING PART OF DEBENTURES ISSUE EXPENSES. THE ASSESSEE HAD ISSUED FULLY CONVERTIBLE DEBENTUR ES FOR WHICH EXPENSES TO THE TUNE OF RS.49,01,879/- WERE INCURRED. D EBENTURES WERE ISSUED FOR THE PURPOSE OF DENIM PROJECT WHICH COMMENCED P RODUCTION ON 15.1.1991. THE A.O. OBSERVED THAT THE ASSESSEE HAD CAPITA LIZED THIS EXPENDITURE TO THE COST OF THE PLANT AND MACHINERY AND BUILDING OF THE NEW PROJECT WHEREAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THESE ITEMS AS REVENUE EXPENDITURE RELYING ON T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIAN CEMENTS LTD . 60 ITR 52. THE A.O. DID NOT ACCEPT THE CLAIM OF THE ASSESSEE ON THE GROUN D THAT THE SAID EXPENDITURE WAS INCURRED IN RESPECT OF A NEW PROJECT WHI CH HAS NOT YET STARTED COMMERCIAL PRODUCTION. 33. ON APPEAL, THE CIT(A) HELD AS UNDER: 11.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY AND HAVE GONE THROUGH THE OBSERVATIONS OF TH E A.O. I FIND THAT ON THE ISSUE OF DEBENTURE ISSUE EXPENSES, ITA T ABAD BENCH HAS HELD IN THE CASE OF BANCO PRODUCTS (INDIA) LTD.V . DCIT REPORTED IN 59 TTJ 387 THAT CONVERTIBLE DEBENTURES HA VE CHARACTERISTICS OF EQUITY SHARES AND THE EXPENSES RELATED T O THE SAME CONSTITUTE CAPITAL EXPENDITURE. THEREFORE, FOLLOW ING THE SAID DECISION, I HOLD THAT DEBENTURE ISSUE EXPENDITURE OF RS.40,01,879/- IN CASE OF THE APPELLANT ARE CAPITAL IN NATURE AS THE SAME WERE CONVERTIBLE DEBENTURES. HOWEVER, I AM OF THE VIEW THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 35D OF THE I.T.ACT FOR 1/10 TH OF DEBENTURE ISSUE EXPENSES IN EACH YEAR, AS THE EXPENSES WERE FOR EXPANSION OF INDUSTRIAL UNDERTAK ING. ACCORDINGLY, I DIRECT THE A.O. TO ALLOW 1/10 TH OF EXPENSES U/S 35D OF THE I.T.ACT IN THE YEAR IN APPEAL. 34. AFTER HEARING THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) . WHILE DECIDING THE ISSUE, 17 THE CIT(A) HAS FOLLOWED THE DECISION OF I.T.A.T. AHMED ABAD BENCH IN THE CASE OF BANCO PRODUCTS (INDA) LTD. V. DCIT REPORTED IN 5 9 TTJ 387 WHEREIN IT HAS BEEN HELD THAT CONVERTIBLE DEBENTURES HAVE CHARACTE RISTICS OF EQUITY SHARES AND THE EXPENSES RELATED TO THE SAME CONSTITUTE CAP ITAL EXPENDITURE. IN THAT VIEW OF THE MATTER, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT DEBENTURE ISSUE EXPENDITURE IN QUESTION ARE CAPITAL IN NATURE AS T HE SAME WERE CONVERTIBLE DEBENTURES. ACCORDINGLY, WE UPHOLD THE ORDE R OF THE CIT(A). BEFORE PARTING WITH THIS CASE, WE DO NOT FIND ANY INF IRMITY IN THE DIRECTION OF THE CIT(A) GIVEN TO THE A.O. TO ALLOW 1 /10 TH OF EXPENSES U/S 35D OF THE ACT IN THE YEAR UNDER CONSIDERATION. THUS, CONSIDE RING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE REJECT THE GROUN D RELATING TO DISALLOWANCE OF RS.49,01,879/- BEING PART OF DEBENTURE ISSUE EXPENSES. 35. THE NEXT ISSUE RELATES TO DEBENTURE ISSUE EXPENSES OF RS.25,94,000/- NOT ALLOWED BY THE A.O. BY HOLDING AS CAPITAL EXPENDI TURE. THE ASSESSEE CLAIMED THAT THE SAME WAS ALLOWABLE AS REVENUE EXPENDIT URE. THIS ISSUE IS SIMILAR TO DEBENTURE ISSUE OF RS.49,01,879/-. WE HAVE A LREADY HELD THAT DEBENTURE ISSUE EXPENSES TO THE TUNE OF RS.49,01,879/- A RE CAPITAL IN NATURE AND ACCORDINGLY WE AGREE WITH THIS OBSERVATION OF THE CIT(A) THAT THE DEBENTURE ISSUE EXPENSES OF RS. 25,94,000/- ARE ALSO CAPIT AL IN NATURE. WE FIND THAT THE CIT(A) HAS DIRECTED THE A.O. TO ALLOW DEDUCTION U/S35D(4) 1/10 TH OF THE SAID EXPENDITURE. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE DO NOT FIND ANY MERIT IN THIS GROUND. IN VIEW OF THE ABOVE, GROUND NO.III OF THE C.O. IS DISMISSED. 36. GROUND NO. IV RELATES TO DISALLOWANCE OF RS.50,000/ - OUT OF RS.1 LAC PAID TO M/S INFRA STRUCTURE LEASING AND FINANCIAL SERV ICES LIMITED FOR OBTAINING A LOAN OF RS. 1 CRORE FOR WHICH CONVERSION CHA RGES OF RS. 1 LAC WAS PAID. THE ASSESSEE PAID THE AMOUNT ON 13.11.1989. THE A SSESSEE OBTAINED 18 LOAN OF RS. 50 LACS ON 05.7.1991 AND BALANCE RS.50,000/- WAS TO BE BORROWED ON ACQUISITION OF MACHINERY. HOWEVER, BECAUSE O F INCREASE IN THE INTEREST RATE AND OTHER ITEMS AND CONDITIONS, THE ASSESSE E DECIDED NOT TO AVAIL OF THE LOAN AND THE SAID LOAN OF RS. 50 LACS OBTA INED EARLIER WAS RETURNED ON01.9.1991 TO THE FINANCIAL COMPANY. THE A .O. HELD THAT THE PAYMENT OF RS. 1 LAC WAS NOT JUSTIFIED AS THE BILL DID N OT MATERIALIZE AND AS THE LOAN OF RS. 50 LACS WAS OBTAINED TO PURCHASE CAPITAL GOODS THE CORRESPONDING AMOUNT OF CHARGES OF RS. 50,000/- SHOULD BE CAPITALIZED. SO THE ENTIRE AMOUNT OF RS. 1 LAC WAS DISALLOWED AND ADDED TO THE INCOME. 37. ON APPEAL, THE CIT(A) ALLOWED A RELIEF OF RS.50, 000/- AND CONFIRMED THE ADDITION OF BALANCE AMOUNT OF RS.50,000/-. 38. AFTER HEARING THE PARTIES WE FIND THAT THE ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF DCIT V. GUJARAT ALKALIES AND CHEMICALS LTD. (2008) 299 ITR 85. IN THE ABOVE CASE, THE HONBLE SUPR EME COURT HELD THAT THE COMMITMENT CHARGES WERE AN ADMISSIBLE DEDUCTION U /S 37 AND THERE WAS NO INFIRMITY ON THE PART OF THE APPELLATE TRIBUN AL IN ALLOWING THE DEDUCTION. EVEN IN BOARDS CIRCULAR NO.2-P(XI-6) F.NO. 10/67/65-IT(A-I) DATED 23.8.1965 IT HAS BEEN CLARIFIED THAT THE EXPEND ITURE INCURRED BY WAY OF PAYMENT OF COMMITMENT CHARGES HAS TO BE TAKEN AS AN EXP ENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND, THEREFORE, PERMISSIBLE AS A REVENUE DEDUCTION U/S 37(1) OF THE ACT. IN VIEW OF THE ABOVE, WE ALLOW THE CLAIM OF THE ASSESSE E AND DELETE THE DISALLOWANCE OF RS.50,000/- SUSTAINED BY THE CIT(A). THIS GROUND OF C.O. IS ALLOWED. 19 39. GROUND NO. V OF C.O. READS AS UNDER: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS. 1 LAC BEING AMOUNT PAID T O MR. AMIT SEN GUPTA IN VIEW OF BUSINESS EXPEDIENCY. 40. THE FACTS RELATING TO GROUND NO.V ARE THAT THE ASSE SSEE PAID A SUM OF RS. 1LAC BEING COMPENSATION TO CONSULTANT MR. AMIT SEN GU PTA. THE CONTENTION OF THE ASSESSEE BEFORE THE A.O. WAS THAT IT H AD RETAINED ONE MR. AMIT SEN GUPTA FOR CONSULTING IN THE MATTER OF MARKET ING AND ADMINISTRATION IN THE ELECTRONICS DIVISION, WHICH WAS A NEW LINE OF BUS INESS. THE ASSESSEE WAS TRYING DIVERSION INTO IT. THE ASSESSEE HAD ALSO ABSORBE D HIM AS A TOP LEVEL EMPLOYEE IF HE WAS FOUND SUITABLE. ULTIMATELY, HE WAS NOT FOUND SUITABLE FOR THE JOB AND, THEREFORE, AS A COMPENSATION FOR THE VARIOUS SERVICES RENDERED BY HIM, AN AMOUNT OF RS. 1 LAC WAS PAID . THE A.O. DID NOT ALLOW THE SAME AS EXPENDITURE U/S 37 OF THE ACT ON T HE GROUND THAT THE ASSESSEE WAS NOT ABLE TO GIVE ANY EVIDENCE AS TO HOW HIS SER VICES WERE NECESSARY IN RUNNING THE BUSINESS OF THE ASSESSEE AND COPY OF AGREEMENT WAS NOT FURNISHED. 41. ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE A.O. STATING THAT THE ASSESSEE HAS NOT STATED WHAT WAS THE QUALIFICATION OF MR. S EN GUPTA, WHETHER HE WAS PROFESSIONALLY QUALIFIED AND WHAT REPUT ATION HE HAD IN THE ELECTRONIC BUSINESS AND, THEREFORE, THE CIT(A) AGREED W ITH THE A.OS VIEW THAT THE PAYMENT F S. 1 LAC WAS NOT JUSTIFIED ACCORDING T O COMMERCIAL EXPEDIENCY. THE CIT(A) CONFIRMED THE DISALLOWANCE. 42. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE DO NOT FIND ANY VALID GROUND IN INTERFERING WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THE AMOUNT IN QUESTION WAS PAID TO SHRI AMIT SEN GUPTA FOR VARIOUS SERVICES RENDE RED BY HIM. THE 20 ASSESSEE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANT IATE THE FACT THAT SHRI AMIT SEN GUPTA HAD ACTUALLY RENDERED SERVICE S TO THE ASSESSEE COMPANY. IN ABSENCE OF SUCH EVIDENCE, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. ACCORDINGLY, WE REJECT THE G ROUND. 43. GROUND NO.VI(A) AND (B) RELATES TO LEVY OF ADDIT IONAL TAX OF RS.34,668/- U/S 143(1A) OF THE ACT. 44. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE CIT(A) HAS NOT CONSIDERED AND DECIDE THE ISSUE. THE RELEVANT FACTS RELATING TO THIS ISSUE ARE ALSO NOT AVAILABLE ON RECORD . IN THAT VIEW OF THE MATTER, WE THINK IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE SAME AFRESH ON MERITS IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 45. IN THE RESULT, REVENUES APPEAL AS WELL AS ASSESSEES C. O. ARE ALLOWED PARTLY FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28.8. 2009. SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER SD/- (H.L.KARWA) JUDICIAL MEMBER AHMEDABAD, DATED:28.8.2009 PSP* 21 COPY TO : (1) THE ASSESSEE (2) THE ASSESSING OFFICER (3) THE CIT(A) CONCERNED, (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD.