M/s Apex Encon Projects Pvt. Ltd., Visakhapatnam V. THE JCIT, RANGE - 3, Visakhapatnam

ITA 48/VIZ/2014

• Counselvise Citation: 4825314 RSA 2014
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Business income; Depreciation; Charitable institution; Share purchase agreement; Opportunity of being heard; Earning of tax free income; Additional evidence; Question of law; Reasonable cause; Corroborative evidences; Notional interest; Commercial expediency; Retraction; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 47 & 48/VIZAG/2014 ASSESSMENT YEAR : 2009-10 AND 2010-11 M/S APEX ENCON PROJECTS P.LTD. VS. JC IT, RANGE 3 D.NO.1-54-11, PLOT NO.51, SECTOR 1 VI SAKHAPATNAM HIG, MVP COLONY VISAKHAPATNAM PAN: AAFCA 1196 H ITA NO. 49/VIZAG/2014 ASSESSMENT YEAR 2011-12 M/S APEX ENCON PROJECTS P.LTD. VS. JCI T, RANGE-3 VISAKHAPATNAM VISAKHAPATNAM ITA NO. 87/VIZAG/2014 ASSESSMENT YEAR 2010-11 DCIT, CIRCLE 3(1) VS. M/S APEX ENCO N PROJECT PVT.LTD. VISAKHAPATNAM VISAKHAPATNAM S.P.NOS. 27 AND 28/VIZAG/2014 (IN ITA NOS. 48 AND 49/VIZAG/2014) ASSESSMENT YEAR : 2010-11 AND 2011-12 M/S APEX ENCON PROJECT PVT.LTD. VS. JCIT , RANGE 3 VISAKHAPATNAM VISAKHAPATNAM (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI G.V.N.HARI, ADVOCATE DEPARTMENT BY :- SH.K.V.N.CHARYA, CIT, D.R. DATE OF HEARING :- 10.07.2014 DATE OF PRONOUNCEMENT :- 05.09.2014 ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 2 OF 50 O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NOS. 47/VIZAG/14, 48/VIZAG/14 AND 49/VIZAG/2014 ARE FILED BY THE ASSESSEE FOR THE AY 2009-10, 2010-11 AND 2011-12, ITA 87/V/2014 IS A REVENUE APPEAL FILED FOR THE AY 2010-11. 2. AS THE ISSUES ARISING IN ALL THESE APPEALS ARE C OMMON AND AS THEY PERTAIN TO THE SAME ASSESSEE FOR THE SAKE OF CONVEN IENCE THEY ARE HEARD TOGETHER AND ARE DISPOSED OF BY WAY OF THIS COMMON ORDER. 3. FACTS IN BRIEF :- THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND I S ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONTR ACTS AND MANUFACTURING OF CONSTRUCTION MATERIAL. 4. WE HAVE HEARD SHRI K.V.N.CHARYA, THE LD.CIT, D. R. ON BEHALF OF THE REVENUE AND SHRI GVN HARI, THE LD.COUNSEL FOR THE ASSESSEE. 5. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS, THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW AND CASE LAWS CITED, WE HO LD AS FOLLOWS. 6. WE FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT Y EAR 2009-10 IN ITA NO.47/VIZAG/2014. THE GROUNDS OF APPEAL READ AS UN DER. 1. THE ORDER OF THE LD.CIT(APPEALS) IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE TO THE FACTS. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 3 OF 50 2. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN CONFIR MING THE ACTION OF THE ASSESSING OFFICER IN ALLOWING THE DEDUCTION U/S 80 IC AT RS.15,75,04,427/- AS AGAINST DEDUCTION OF RS.17,81,73,427/- CLAIMED BY T HE APPELLANT. 3. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN CONFIR MING THE DISALLOWANCE OF DEPRECIATION TO THE EXTENT OF RS.9,34,931/-. 4.(A) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN CONFI RMING PARTIALLY THE DISALLOWANCE OF INTEREST OF RS.69,79,492/- ON LOANS AND ADVANCES. (B) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN REJECTI NG THE CONTENTION OF THE APPELLANT THAT THE INTEREST FREE FUNDS AVAILABLE TO THE APPELLANT CAN BE PRESUMED TO HAVE BEEN UTILIZED FOR EXTENDING INTERE ST FREE LOANS AND ADVANCES. (C ) THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE INTEREST FREE LOANS AND ADVANCES EXTENDED TO THE SISTER CONCERNS WERE OUT OF COMMERCIAL EXPEDIENCY. (D) THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE CASH CREDIT AVAILED BY THE APPELLANT CANNOT BE SAID TO HAVE BEE N DIVERTED FOR NON BUSINESS PURPOSES MERELY BECAUSE THE PAYMENTS TO SI STER CONCERNS WERE MADE FROM THE SAID ACCOUNT. (E) THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE INTEREST FREE FUNDS ROUTED THROUGH THE CASH CREDIT ACCOUNT W ERE MORE THAN THE INTEREST FREE ADVANCES EXTENDED FROM OUT OF THE CAS H CREDIT ACCOUNT. 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F APPEAL HEARING. 7. GROUND NO.1 IS GENERAL IN NATURE. 8. GROUND NO.2 IS ON THE ISSUE OF COMPUTATION OF DE DUCTION U/S 80 IC. IN OTHER WORDS, THE ISSUE IS THE DETERMINATION OF THE PROFIT WHICH IS ELIGIBLE FOR DEDUCTION U/S 80 IC. 9. THE FACTS ARE THAT THE ASSESSEE COMPANY IS ALSO ENGAGED IN THE MANUFACTURE OF CONSTRUCTION CHEMICALS AT ITS PLANT AT BADDI, HIMACHAL PRADESH IN ADDITION TO BUSINESS OF CONTRACTS. THE INCOME E ARNED FROM THIS UNIT WAS CLAIMED AS EXEMPT U/S 80 IC OF THE ACT. THE TOTAL TURNOVER OF THE ASSESSEE COMPANY WAS RS.270.33 CRORES. THE TURNOVER FROM CO NTRACT BUSINESS WAS ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 4 OF 50 RS.229.14 CRORES AND THE TURNOVER FROM THE BADDI U NIT IN HIMACHAL PRADESH WAS RS.41.19 CRORES. THE PROFIT BEFORE TAX OF THE COMPANY WAS RS.71.74 CRORES OUT OF WHICH THE PROFIT OF THE TAXABLE UNI T WAS RS.53.92 CRORES AND THE PROFIT OF THE EXEMPT UNIT WAS RS.17.81 CRORES. 9. THE ISSUE BEFORE US IS ALLOCATION OF CERTAIN EXP ENSES RECORDED AT THE VISAKHAPATNAM OFFICE AMOUNTING TO RS.40,83,00,560/- TO THE BADDI UNIT. THE ASSESSEE HAD ALREADY ALLOCATED 15.24% OF COMMON ADM INISTRATION EXPENSES AMOUNTING TO RS.52.05 LAKHS TO ITS BADDI UNIT. 9.1. THE ASSESSING OFFICER ALSO TOOK INTO CONSIDERA TION KEY MAN INSURANCE PREMIUM PAID AS WELL AS ADMINISTRATIVE EXPENDITURE FOR ALLOCATION. KEY MAN INSURANCE PAID DURING THE PY RELEVANT TO THE IMPUGN ED ASSESSMENT YEAR WAS AS UNDER. I. SHRI N.RAMA RAO RS.5 CRORES II. SMT.N.PADMAVATHI RS.2 CRORES III. SHRI N.ANJANEYA VARMA - RS.3 CRORES IN ADDITION THERE IS ANOTHER AMOUNT OF RS.15 LAKHS WHICH IS ADMINISTRATIVE AND OTHER EXPENSES RECORDED AT VISAKHAPATNAM OFFICE. 9.2. THE ASSESSEES CONTENTION IS AS FOLLOWS. (A) ONE SHRI S.C.GUPTA, WHO IS A DIRECTOR OF THE CO MPANY HAS SPECIALIZED KNOWLEDGE IN THE FIELD OF CONCRETE MIX DESIGNS AND HE IS THE ONLY DIRECTOR WHOSE SERVICES WERE REQUIRED IN THE CASE OF BADDI U NIT AT HIMACHAL PRADESH. (B) AS FAR AS THE OTHER DIRECTORS ON WHOSE LIFE KEY MAN INSURANCE PREMIUM HAS BEEN PAID, IT WAS SUBMITTED THAT SHRI N.ANJANE YA VARMA IS IN-CHARGE OF ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 5 OF 50 WORK SITES AT VARIOUS LOCATIONS, SHRI N.RAMA RAO IS IN OVERALL CONTROL OF THE COMPANY AND DOES NOT DEVOTE ANY TIME TO THE EXEMPT UNIT AND SMT. N. PADMAVATHI IS IN-CHARGE OF POLICIES AND ADMINISTR ATION AND HAS NO ROLE IN RESPECT OF MANUFACTURING UNIT. HENCE NONE OF THESE DIRECTORS ARE DIRECTLY INVOLVED WITH THE MANUFACTURING UNIT AT BADDI. (C) THE NATURE OF EXPENDITURE I.E. KEY MAN INSURANC E PREMIUM HAS NO DIRECT OR INDIRECT NEXUS WITH EARNING OF INCOME FROM MANUF ACTURING UNIT OF THE ASSESSEE COMPANY AT BADDI. (D) GENERAL EXPENSES INCURRED IN VISAKHAPATNAM UNIT HAVE NO RELATIONSHIP WITH THE EARNING OF INCOME OF THE MANUFACTURING UNI T AT BADDI, HIMACHAL PRADESH. 9.3. THE ASSESSING OFFICER REJECTED THESE CONTENTIO NS. ON APPEAL THE FIRST APPELLATE AUTHORITY HELD THAT SHRI N.RAMA RAO, SMT. N.PADMAVATHI AND SHRI N.ANJANEYA VARMA ARE PROMOTER DIRECTORS OF THE COM PANY AND THE CLAIM THAT THEIR SERVICES WERE NOT UTILIZED FOR THE MANUFACTUR ING UNIT AT BADDI HAS NO BASIS AT ALL. HE ALSO HELD THAT THE ASSESSEE DID N OT DEMONSTRATE THAT ONLY SHRI SC GUPTA IS RESPONSIBLE FOR THE ENTIRE OPERATION O F THE BADDI UNIT. 9.4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITS THAT T HE EXPENDITURE IN QUESTION IS AN EXTRA ORDINARY EXPENSE AND BY NO STR ETCH OF IMAGINATION IT CAN BE SAID THAT THIS EXPENDITURE BY WAY OF KEY MAN IN SURANCE PREMIUM IS INCURRED IN RELATION TO OR FOR THE PURPOSE OF EARNI NG EXEMPT INCOME FROM BADDI UNIT AT HIMACHAL PRADESH. HE ARGUED THAT IN CASE THE REVENUES STAND IS THAT THE EXPENDITURE HAS A RELATIONSHIP WITH INC OME, THEN LOGICALLY, IT SHOULD ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 6 OF 50 BE HELD THAT WHEN THE INSURANCE AMOUNT IS RECEIVED ON MATURITY OR OTHERWISE, SUCH RECEIPT SHOULD ALSO BE HELD AS EARNED FROM TH E ELIGIBLE UNIT AND HENCE EXEMPT U/S 80 IC. HE RELIED ON THE DECISION OF MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF DCW LTD. VS. ACIT (2010) 132 TTJ ( MUM) 442. ON MERITS HE EMPHASIZED THAT NONE OF THESE DIRECTORS WERE IN CHA RGE OF BADDI UNIT AND IT WAS ONLY ONE MR.S.C.GUPTA WHO WAS LOOKING AFTER THE UNIT AND NO KEY MAN INSURANCE PREMIUM HAS BEEN PAID IN THE NAME OF THIS PERSON. 9.5. THE LD.D.R. MR.KVN CHARYA, ON THE OTHER HAND D ISPUTED THE ANALOGY CANVASSED BY THE LD.COUNSEL FOR THE ASSESSEE AND SUBMITTED THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SRIN IVASA CYSTINE LTD. 92 ITD 460 HAS HELD THAT RECEIPT OF INSURANCE CANNOT BE HE LD AS DERIVED FROM THE INDUSTRIAL UNIT. ON MERITS HE RELIED ON THE ORDER OF THE LD.CIT(APPEALS) SPECIFICALLY ON PARA 8.5. 10. AFTER HEARING RIVAL CONTENTIONS WE HOLD AS FOLL OWS. 10.1. THE PAYMENT OF RS.10 CRORES AS PREMIUM FOR KE Y MAN INSURANCE POLICIES ON THE LIFE OF THREE DIRECTORS, IN OUR VIE W, IS AN EXTRA ORDINARY EXPENDITURE. THIS IS NOT AN EXPENDITURE IN THE NOR MAL COURSE OF BUSINESS AND IS NOT INCURRED FOR EARNING INCOME FROM THE MANUFAC TURE UNIT AT BADDI. THIS PAYMENT IS NOT GENERAL ADMINISTRATIVE EXPENSES. MO REOVER IT IS DEMONSTRATED THAT THESE THREE DIRECTORS ARE NOT ACTIVELY INVOLVE D IN BADDI UNIT. THE ISSUE IS WHETHER SUCH EXTRA ORDINARY EXPENDITURE, INCURRED O N PERSONS WHO ARE NOT DIRECTLY CONNECTED WITH THE MANUFACTURING UNIT CAN BE ALLOCATED TO THE UNIT AT BADDI, HIMACHAL PRADESH. IN OUR VIEW AS THE EXPEND ITURE IN QUESTION IS NOT ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 7 OF 50 DIRECTLY OR INDIRECTLY RELATABLE TO THE INDUSTRIAL UNIT, THE SAME CANNOT BE ALLOCATED TO THE MANUFACTURING UNIT FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 80 IC. SUCH ALLOCATION WOULD DEFEAT THE PURPOSE OF THE INCENTIVE PREMIUM. THE ASSESSEE HAS ALREADY ALLOCA TED ROUTINE ADMINISTRATION EXPENSES WHILE COMPUTING ELIGIBLE PROFITS FOR THE P URPOSE OF DEDUCTION U/S 80 IC. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT THE FIRST APPELLATE AUTHORITY HAS ERRED IN UPHOLDING THE ORDER OF THE ASSESSING O FFICER, WHEREIN A PERCENTAGE OF THIS EXTRA ORDINARY EXPENDITURE WAS A LLOCATED WHILE COMPUTING ELIGIBLE PROFITS FOR DEDUCTION U/S 80 IC AND REDUCI NG THE ELIGIBLE PROFITS. AS FAR AS OTHER ADMINISTRATIVE EXPENSES OF RS.15 LAKHS REC ORDED IN THE BOOKS OF VISAKHAPATNAM, 15.25% OF THE SAME MAY BE ALLOCATED TO THE MANUFACTURING UNIT AT BADDI AS THE LD.COUNSEL FOR THE ASSESSEE CO ULD NOT DEMONSTRATE AS TO HOW THESE ARE NOT ALLOCABLE TO THE MANUFACTURING UN IT. IN THE RESULT THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 11. GROUND NO.3 IS ON THE ISSUE OF DISALLOWANCE OF CLAIM FOR DEPRECIATION TO THE EXTENT OF RS.9,34,931/-. AFTER HEARING RIVAL C ONTENTIONS WE FIND THAT THE FIRST APPELLATE AUTHORITY IN HIS ORDER AT PARA 6.4 PAGE 7 OBSERVED THAT THE ASSESSEE COULD NOT FILE EVIDENCE IN SUPPORT OF CERT AIN FIXED ASSETS EVEN DURING THE APPELLATE PROCEEDINGS. THE CONTENTION OF THE L D.COUNSEL FOR THE ASSESSEE WAS THAT, THE PAYMENTS WERE MADE BY ACCOUNT PAYEE C HEQUES. HE COULD NOT PRODUCE ANY OTHER EVIDENCE. IN OUR VIEW THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO BE UPHELD AS THE ASSESSEE HAS NOT PRODUCED EVIDENCE IN SUPPORT OF HIS CLAIM. IN THE RESULT THIS GROUND OF THE ASSESSEE IS DISMISSED. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 8 OF 50 12. GROUND NO.4 IS ON THE ISSUE OF DISALLOWANCE MAD E ON THE CLAIM OF INTEREST EXPENDITURE. DURING THE ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS ADVANCED AN AMO UNT OF RS.569 LAKHS TO M/S PRAVEENYA INSTIUTE OF MARINE ENGINEERING, VIJAY ANAGARAM. THIS INSTITUTE IS RUN BY M/S JAGRITHI CHARITABLE TRUST. FOUR DIRE CTORS OF THE ASSESSEE COMPANY ARE ALSO DIRECTORS OF THIS TRUST. THE AMOU NT IN QUESTION WAS FOR THE DEVELOPMENT OF INFRASTRUCTURE FOR THE INSTITUTE . NO INTEREST WAS CHARGED. ON BEING QUESTIONED, THE ASSESSEE SUBMITTED THAT (A ) THE FACILITIES CREATED BY THE INSTITUTE WILL BE USED BY THE COMPANY FOR ITS B USINESS PURPOSE AND HENCE THERE IS COMMERCIAL EXPEDIENCY. (B) THE AMOUNTS WE RE NOT ADVANCED OUT OF LOAN FUNDS AND THE ASSESSEE COMPANY HAD SUFFICIENT INTEREST FREE FUNDS AS WELL AS PROFITS TO MAKE THE ABOVE ADVANCES. (C ) TH ERE IS NO NEXUS BETWEEN THE LOANS TAKEN AND INTEREST FREE ADVANCES GIVEN. 12.1. THE ASSESSING OFFICER REJECTED THE CONTENTION S OF THE ASSESSEE AND ADDED AN AMOUNT OF RS.69,79,492/- BY CALCULATING NO TIONAL INTEREST @ 12% ON THE OUTSTANDING AMOUNT OF RS.5,81,62,431/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY OB SERVED THAT THERE WERE CERTAIN OTHER INTEREST FREE ADVANCES MADE BY THE AS SESSEE TO THE SISTER CONCERNS SUCH AS M.R.ENTERPRISES, SALOO PROJECT, CH IMAKURTI PROJECT ETC. WHICH WERE CONSIDERED BY THE ASSESSING OFFICER IN T HE SUBSEQUENT YEARS. THE LD.CIT(APPEALS) EXCLUDED THE OPENING BALANCES OF IN TEREST FREE ADVANCES GIVEN TO SISTER CONCERNS AND ARRIVED AT THE NET INT EREST FREE ADVANCES OF RS.6,60,42,144/- DURING THE YEAR. HE REJECTED THE CONTENTION OF THE ASSESSEE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 9 OF 50 THAT ADVANCES TO M/S PRAVEENYA INSTITUTE OF MARINE ENGINEERING WAS MADE OUT OF BUSINESS EXPEDIENCY. THE SECOND CONTENTION THAT THE ASSESSEE HAS SUFFICIENT PROFITS, RESERVES AND INTEREST FREE FU NDS TO MAKE IMPUGNED ADVANCES WAS ALSO REJECTED ON THE GROUND THAT ADVAN CES WERE MAINLY MADE THROUGH SBI CC ACCOUNT WHICH IS A COMMON ACCOUNT. HE HELD THAT IT IS NECESSARY TO VERIFY THE AVAILABILITY OF NON INTERES T BEARING FUNDS IN THE CC ACCOUNTS TO EXAMINE THE PLEA AS TO WHETHER INTEREST FREE FUNDS WERE ADVANCED. HE REJECTED THE PLEA ON AVAILABILITY OF INTEREST FREE FUNDS UNDER THE FACTUAL SCENARIO BROUGHT OUT BY HIM. THE OTHER PLE AS OF THE ASSESSEE WERE ALSO REJECTED ON THE GROUND THAT MOST OF THE PAYMEN TS WERE MADE THROUGH SBI CC ACCOUNT. HE ANALYSED THE SBI CASH PAYMENTS AND HE CAME TO CONCLUSION THAT ONLY RS.252.153 CRORES ARE DEPOSIT S AS AGAINST PAYMENTS OF RS.255.93 CRORES DURING THE YEAR. THE EXCESS PAYME NTS WERE CONSIDERED AS INCLUDING THE IMPUGNED ADVANCES. HE EXAMINED THE C ASH FLOW POSITION AND REJECTED THE CONTENTIONS OF THE ASSESSEE THAT SOME OF THE PAYMENTS ARE OUT OF CONTRACT RECEIPTS AND FROM AND RECEIPTS OTHER T HAN CREDIT LIMITS. AS THE ASSESSING OFFICER HAD EXPRESSED DIFFICULTY IN ANALY ZING DAY TO DAY CASH FLOW STATEMENTS, THE ASSESSEE WAS REQUESTED TO GIVE MONT H WISE ANALYSIS. ON EXAMINATION OF MONTHLY FUND FLOW STATEMENT THE LD.C IT, CAME TO A CONCLUSION THAT THE IMPUGNED ADVANCES CANNOT BE SAID TO HAVE BEEN MADE OUT OF CONTRACT RECEIPTS. HE FURTHER HELD AS FOLLOWS. EVEN ASSUMING THAT THE DIRECT SOURCE OF THE ADVANCE S WERE OUT OF CONTRACT RECEIPTS, THE ELEMENT OF INTEREST LIABILITY CANNOT BE RULED OUT, AS IT WOULD MEAN ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 10 OF 50 THAT THE OTHER BUSINESS PAYMENTS SUFFERS INTEREST L IABILITY MERELY BECAUSE THE CONTRACT RECEIPTS ARE DIVERTED FOR NON-BUSINESS PUR POSE. HENCE THE PLEA THAT WHENEVER THE CONTRACT RECEIPTS ARE MORE THAN THE PA YMENTS THERE SHOULD NOT BE ANY INTEREST DISALLOWANCE IS NOT ACCEPTABLE. BE SIDES, I FIND MERIT IN THE ASSESSING OFFICERS OBSERVATION THAT EVERY FUND JOI N THE COMMON HOTCHPOTCH OF CASH CREDIT ACCOUNT AND ACCORDINGLY REDUCES SEGR EGATION OF FUNDS INTO SURPLUS AND INTEREST BEARING FUNDS IS DIFFICULT AT ANY GIVEN POINT OF TIME SINCE THE RECEIPTS FROM THE CONTRACT WORKS WHICH THE ASSE SSEE IS STATING TO BE SURPLUS FUNDS, JOINS THE HOTCHPOTCH OF THE CASH CR EDIT ACCOUNT AND ACCORDINGLY REDUCES THE CASH CREDIT BALANCE WITH TH E RESULT THAT SUCH SURPLUS GOES INTO CLEARING OF THE BORROWALS MADE THROUGH SUCH CASH CREDIT ACCOUNTS. LIKE-WISE, SUCH SURPLUS ALSO GETS UTILIZED IN MEETI NG THE HUGE INTEREST COMPONENT OF SUCH CASH CREDIT ACCOUNTS. BUT, HOWEVE R, WHEN THE CONTRACT RECEIPTS DEPOSITED EXCEED THE CREDIT LIMIT SO THAT THE CC ACCOUNT BECOME A POSITIVE BALANCE, IN SUCH SITUATION IT CAN BE INFE RRED THAT THE CONTRACT RECEIPTS DEPOSITED HAVE REPLENISHED THE CREDITS AVAILED AND INTEREST LIABILITY WOULD CEASE AT THAT POINT. SIMILARLY WHEN THE CONTRACT RE CEIPTS DEPOSITED INTO THE ACCOUNT ARE MORE THAN THE PAYMENTS AND ALSO MORE TH AN THE AVERAGE CREDIT UTILIZATION AND IF THERE IS EXCESS OF CONTRACT RECE IPTS OVER PAYMENTS DURING THE MONTH AT LEAST BY THE VALUE OF IMPUGNED ADVANCES'( I.E IF THE DIFFERENCE BETWEEN THE CONTRACT RECEIPTS AND PAYMENT IS MORE T HAN THE IMPUGNED ADVANCES) THEN THERE IS REASONABLE BASIS TO TAKE A VIEW THAT THERE IS ELEMENT OF REPLENISHMENT OF THE CREDIT DURING THE MONTH BY DEPOSIT OF EXCESS CONTRACT RECEIPTS, AND IN THOSE MONTHS THE INTEREST DISALLOW ANCE CAN BE RESTRICTED T FOR THAT MONTH ONLY. THEREFORE THE AO IS DIRECTED TO R E-COMPUTE THE INTEREST DISALLOWANCE WITH THESE PRINCIPLES AS CRITERIA. THEREAFTER AT PARAS 7.17 TO 7.20 HE GAVE CERTAIN D IRECTIONS TO THE ASSESSING OFFICER ON THE MODE OF COMPUTING THE INTEREST DISAL LOWANCE. AT PARA 7.21 THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 11 OF 50 ASSESSING OFFICER WAS DIRECTED TO ADOPT INTEREST RA TE OF 13% AND RECOMPUTE INTEREST DISALLOWANCE. AGGRIEVED THE ASSESSEE IS I N APPEAL BEFORE US. 13. THE LD. COUNSEL FOR THE ASSESSEE REPEATED THE S UBMISSIONS MADE BEFORE THE LD.CIT (APPEALS). THE LD.D.R. RELYING O N THE ORDER OF THE FIRST APPELLATE AUTHORITY SUBMITTED THAT COMMERCIAL EXPED IENCY IS THE FUNDAMENTAL PRINCIPLE THAT HAS TO BE SEEN. HE ARGUED ONCE IT I S PROVED THAT THE ADVANCE WAS NOT MADE DUE TO COMMERCIAL EXPEDIENCY AND THE N THE QUESTION AS TO WHETHER THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS OR NOT IS OF NO AVAIL. HE POINTED OUT THAT THE ASSESSEE HAS NOT DEMONSTRAT ED COMMERCIAL EXPEDIENCY BEFORE THE AUTHORITIES. 13.1. BOTH PARTIES RELIED UPON NUMBER OF DECISIONS AND EVEN FILED CASE LAW PAPER BOOKS. WE HAVE PERUSED THESE CASE LAWS AND W E WOULD BE REVERTING TO THEM DURING THE COURSE OF OUR FINDING WHEREVER NECE SSARY. 14. AFTER HEARING RIVAL CONTENTIONS, WE HOLD AS FOL LOWS. 15. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS GI VEN INTEREST FREE ADVANCES TO CERTAIN SISTER CONCERNS. THE ASSESSEE S CASH CREDIT LIMIT WITH STATE BANK OF INDIA HAS GONE UP FROM RS. 15.47 CROR ES TO RS. 18.27 CRORES DURING THE YEAR. DURING THE YEAR THE ASSESSEE GENER ATED A CASH FLOW OF RS. 76.52 CRORES FROM ITS BUSINESS OPERATION DURING THE PREVIOUS YEAR 2008-09 RELEVANT TO THE IMPUGNED ASSESSMENT YEAR IN THE FOR M OF PROFITS, DEPRECIATION ETC. THE ASSESSEE IS HAVING INTEREST FREE FUNDS OF RS. 19 CRORES IN THE FORM OF SHAREHOLDER FUNDS. IT IS ALSO CLAIMED THAT THE ASSE SSEE IS HAVING AN AMOUNT OF ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 12 OF 50 RS. 77 CRORES AS INTEREST FREE FUNDS IN THE FORM OF CURRENT LIABILITIES. AS AGAINST THE CASH CREDIT OF RS. 24.15 CRORES AVAILED BY THE ASSESSEE FROM SBI AND IDBI, A TOTAL AMOUNT OF STOCK, DEBTORS AND OTHER CU RRENT ASSETS STOOD AT RS. 42.50 CRORES. THE COMMON CASH CREDIT ACCOUNT HAS BE EN USED FOR ROUTING BOTH THE INTEREST FREE FUNDS AND INTEREST BEARING F UNDS AND IT IS NOT POSSIBLE TO SEGREGATE THE MIXED ACCOUNT. THERE WERE NO SQUA RED UP ADVANCES DURING THE YEAR. THERE IS AN OPENING BALANCE OF RS. 69 LAK HS IN THE ACCOUNT OF PRIME COLLEGE AND HENCE THIS AMOUNT IS NOT DIVERTED FROM CASH CREDIT LIMITS OF THE CURRENT YEAR. AN ANALYSIS OF THESE FACTS DEMONSTRA TE THAT THE ASSESSEE HAS INTEREST FREE FUNDS OF RS.95.52 CR. IN ADDITION TO EXCESS OF CURRENT LIABILITY OVER CURRENT ASSETS, AS AGAINST INTEREST FREE ADVANCE OF RS.5.69 CRORES GIVEN TO M/S PRAVEENA INSTITUTE OF MARINE ENGINEERING. THE TOTA L NET ADVANCES ARE RS. 6.6 CRORES. 15.1. ON THIS FACTUAL MATRIX WE HAVE TO EXAMINE TH E VARIOUS PROPOSITIONS LAID DOWN BY THE HON`BLE COURTS. 15.2. (A ) THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., REPORTED IN 313 ITR 340 AT PARA 10 IT IS HELD AS FOLLOWS. PARA 10. IF THERE BE INTEREST FREE FUNDS AVAILABL E TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSES SEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAS T INDIA PHARMACEUTICAL ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 13 OF 50 WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHE RE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THA T IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAX ES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVE RDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED T HAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT T HE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS CASE (SUPRA) THE CALCUTTA HIGH COURT H AD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT A/ C OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WE RE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FO R THE RUNNINGOF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE TH E HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUND S AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTIO N WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTA BLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL. (B) THE HONBLE MADRAS HIGH COURT IN THE CASE OF CI T VS. MUTHUKARUPAN AT PARA 5.3 HELD AS FOLLOWS. 5.3. THE DOCTRINE OF ATTRIBUTION HAS BEEN EMPHATIC ALLY DEALT WITH BY LORD WRIGHT IN PATON VS. IRC 21 TAX CASES 626, AS UNDER: ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 14 OF 50 ..IN THE ORDINARY COURSE, A PERSON PAYING INTEREST DOES NOT GENERALLY APPROPRIATE THE PAYMENT TO INCOME OR TO A NY PARTICULAR PIECE OF INCOME OR ANY SPECIFIC ASSET: HE HAS THE GENERAL BO DY OF AVAILABLE FUNDS, SAY HIS BANKING ACCOUNT, IF HE HAS ONLY ONE, AND HE PAY S BY DRAWING ON THAT A/C, WHICH MAY INCLUDE INCOME, BORROWED MONEY, CAPITAL A ND SO FORTH. THIS IS WHAT IS MEANT BY PAYMENT OUT OF A MIXED FUND, OR PA YMENTS MADE OUT OF THE GENERAL TILL, OR PAYMENTS MADE NEUTRALLY. THE REVE NUE AUTHORITIES HAVE NO RIGHT IN SUCH CASES TO APPROPRIATE THOSE PAYMENTS T O NON-TAXABLE RATHER THAN TAXABLE MONEYS. HENCE THE TAXPAYER IS GIVEN THE RI GHT OF ATTRIBUTION IN THE WAY MOST FAVOURABLE TO HIMSELF. IT IS PRESUMED IN THE ABSENCE OF EVIDENCE TO THE CONTRARY THAT PAYMENTS ARE MADE OUT OF INCOME. (C ) IN THE CASE OF PRANIK SHIPPING AND SERVICES LTD. VS. ACIT (2012) , 135 ITD 233 (MUM) THE MUMBAI C BENCH OF THE TRIBUNAL HELD AS UNDER. HELD: IF THE ASSESSEE HAS INTEREST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL, THEN THE PRESUMPTION WOULD BE THAT INVEST MENTS WERE MADE FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. A DVERTING TO THE FACTS OF THE INSTANT CASE IT IS OBSERVED THAT THE INTEREST FREE FUNDS AVAILABLE AT THE DISPOSAL OF THE ASSESSEE ARE FAR IN EXCESS OF THE INTEREST F REE LOANS ADVANCED TO THE SISTER CONCERNS. THUS, ADDITION MADE BY ASSESSING OFFICER WAS DELETED. CIT VS. RELIANCE UTILITY AND POWER LTD. (2009) 313 ITR 340 (BOM.), APPLIED; EAST INDIA PHARMACEUTIC; WOOLCOMBERS OF INDIA LTD. VS CI T (1981) 134 ITR 219 (CAL) JAL WORKS LTD. VS CIT (1997) 224 ITR 627 (SC) , RELIED. 15.3. APPLYING THE PROPOSITIONS LAID DOWN IN THE AB OVE CASE LAWS TO THE FACTS OF THE CASE, WE HOLD THAT AS UNDISPUTEDLY ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE INTEREST FREE ADVANCE. HENCE THE PR ESUMPTION WOULD BE THAT THE INTEREST FREE ADVANCES WERE MADE FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN THIS CASE THE ADVANCES QUANTIFIED BY THE LD. CIT(A) IS ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 15 OF 50 RS. 6,60,42,144/- AND WHEREAS THERE ARE INTEREST FR EE SHAREHOLDER FUNDS AVAILABLE WITH THE ASSESSEE WAS RS.19 CRORES AND TH E PROFITS AND FUNDS GENERATED DURING THE YEAR WERE RS. 72.52 CRORES. TH IS CLEARLY SHOW THAT THE ASSESSEE HAD INTEREST FREE FUNDS FAR IN EXCESS OF THE INTEREST FREE ADVANCES GIVEN TO VARIOUS PARTIES. HENCE WE HOLD THAT THE LD .COMMISSIONER OF INCOME TAX (APPEALS) NOT CORRECT IN DIRECTING THE ASSESSI NG OFFICER TO CONDUCT A FRESH COMPUTATION ON INTEREST DISALLOWANCE BY LAYING DOWN CERTAIN GUIDELINES, WHICH IN OUR VIEW ARE AGAINST THE PROPOSITIONS LAID DOWN BY THE HONBLE HIGH COURT. THE ASSESSING OFFICER HAD INSTEAD OF DISALLOWING IN TEREST HAD MADE A NOTIONAL INTEREST ADDITION WHICH IN OUR VIEW IS NOT PERMISSI BLE IN LAW. BANKS THAT TOO NATIONAL BANKS GRANT CASH CREDIT LIMITS AGAINST STO CKS, DEBTORS ON STRICT TERMS AND CONDITIONS AND THE CREDIT LIMITS ARE STRICTLY M ONITORED. THE REVENUE CANNOT ALLEGE DIVERSION OF BANK FUNDS WITHOUT SUPPO RTING EVIDENCE. THE BANKS REDUCE THE CREDIT LIMITS IN CASE OF REDUCTION IN STOCK-IN-TRADE, BILLS RECEIVABLE, DEBTORS ETC. IN THIS CASE THE BOOKS DE MONSTRATE THAT THE ENTIRE BANK LOANS FROM SBI AND IDBI AMOUNTING TO RS.24.15 CRORES IS AGAINST STOCK, DEBTORS AND OTHER CURRENT ASSETS OF RS.42.50 CRORES . THERE IS NO BASIS FOR THE LD.COMMISSIONER OF INCOME TAX (APPEALS) TO ALLEGE D IVERSION OF THESE FUNDS. 15.4. IN VIEW OF THE ABOVE DISCUSSION, THIS GROUND OF THE ASSESSEE IS ALLOWED. 16. GROUND NO 5 IS GENERAL IN NATURE. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 16 OF 50 17. IN THE RESULT ITA 47/VIZAG/2014 FOR THE AY 2009 -10 IS ALLOWED IN PART. 18. ITA NO. 48/VIZAG/2014 AND ITA 87/VIZAG/2014 : THESE ARE CROSS APPEALS FOR THE AY 2010-11. 18.1. WE FIRST TAKE UP ASSESSEE`S APPEAL IN ITA 48/ VIZAG/2014, THE GROUNDS ARE AS FOLLOWS. 1. THE ORDER OF THE LD.CIT(APPEALS) IS CONTRARY T O THE FACTS AND ALSO THE LAW APPLICABLE TO THE FACTS. 2. THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN DIRECTI NG THE ASSESSING OFFICER TO RECOMPUTED THE DEDUCTION U/S 80 IC BY ALLOCATION O F INDIRECT EXPENSES THAT HAVE NO DIRECT NEXUS WITH THE MANUFACTURING UNITS I N RESPECT OF WHICH THE DEDUCTION WAS CLAIMED. 3. THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN SUSTAIN ING THE ADDITION OF RS. 3,32,10,000/- TOWARDS RETURN ON INVESTMENT ON A NOT IONAL BASIS IN RESPECT OF INVESTMENT IN SATYAVANI PROJECTS WITH REGARD TO WHI CH NO INCOME ACCRUED TO THE APPELLANT EITHER CONTRACTUALLY OR LEGALLY. 4.(A) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN CONFI RMING PARTIALLY THE DISALLOWANCE OF INTEREST OF RS.5,05,25,410/- ON LOA NS AND ADVANCES AND RS.7,12,790/- ON ADVANCES FOR CAPITAL EXPENDITURE. (B) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN REJECTI NG THE CONTENTION OF THE APPELLANT THAT THE INTEREST FREE FUNDS AVAILABLE TO THE APPELLANT CAN BE PRESUMED TO HAVE BEEN UTILIZED FOR EXTENDING INTERE ST FREE LOANS AND ADVANCES AND ALSO ADVANCES FOR CAPITAL EXPENDITURE. (C ) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE INTEREST FREE LOANS AND ADVANCES EXTENDED TO THE SISTER CONCERNS WERE OUT OF COMMERCIAL EXPEDIENCY. (D) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED T HAT THE CASH CREDIT AVAILED BY THE APPELLANT CANNOT BE SAID TO HAVE BEE N DIVERTED FOR NON BUSINESS PURPOSES MERELY BECAUSE THE PAYMENTS TO SI STER CONCERNS WERE MADE FROM THE SAID ACCOUNT. (E) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED T HE FACT THAT THE INTEREST FREE FUNDS ROUTED THROUGH THE CASH CREDIT ACCOUNT W ERE MORE THAN THE INTEREST FREE ADVANCES EXTENDED FROM OUT OF THE CAS H CREDIT ACCOUNT. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 17 OF 50 5. THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRM ING THE DISALLOWANCE OF RS.1,01,54,750/- U/S 14A OF THE ACT. 6. THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN PARTIAL LY SUSTAINING THE DISALLOWANCE OF DEPRECIATION. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F APPEAL HEARING. 18.2. GROUND NO 1 IS GENERAL IN NATURE. 18.3. GROUND NO 2 IS SIMILAR TO THE ISSUE THAT ROSE IN ITA 47/VIZAG/2014 FOR AY 2009-10. IT RELATES TO THE DETERMINATION OF ELIG IBLE PROFITS FOR THE PURPOSE OF ALLOWING REDUCTION U/S.80IC. BOTH PARTIES SUBMIT TED THAT THE ISSUE IN QUESTION IS IDENTICAL WITH THE ISSUE THAT AROSE IN THE EARLIER ASSESSMENT YEAR AND THE ARGUMENTS MADE BY BOTH THE PARTIES ON THIS ISSUE FOR THE AY 2009-10 ARE ADOPTED BY THEM FOR THIS YEAR ALSO. AS THE ISSUE AND THE ARGUMENTS IS THE SAME, CONSIST ENT WITH THE VIEW TAKEN FOR THE AY 2010-11 WE ALLOW THIS GROUND OF THE ASSE SSEE IN PART. 18.4. GROUND NO 3 IS ON THE ISSUE OF ACCRUAL OF INC OME. THE FACTS PERTAINING TO THIS GROUND ARE BROUGHT OUT AT PARA 9.1 TO 9.3 O F THE LD.CIT(A)`S ORDER WHICH IS EXTRACTED FOR READY REFERENCE. 9. GROUND NOS. 9 AND 10: ESTIMATION OF INCOME FRO M ADVANCES MADE TO M/S SATYAVANI PROJECTS & CONSULTANTS P.LTD. RS.3,32,10, 000/-. 9.1. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY ENTERED INTO A JOINT DEVELOPMENT AGREEMENT WITH M/S SATYAVANI PROJ ECTS AND CONSULTANTS P.LTD. AND IN RESPECT OF WHICH ONE PROJECT AT BEGUM PET WAS IN PROGRESS. THE ASSESSING OFFICER NOTED AS PER CLAUSE 9 TO NOTES TO ACCOUNTS THAT THE ASSESSEE WAS GIVEN AN ASSURANCE BY THE SAID DEVELOP ER THAT A MINIMUM ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 18 OF 50 RETURN OF 30% WILL BE PAID TO ASSESSEE COMPANY. TH E AR REPRESENTED THAT NO INCOME WAS RECOGNISED AS THE ACTIVITIES HAVE NOT S TARTED DUE TO RECESSIONARY TRENDS. THE AO FOUND THIS CLAIM TO BE CONTRADICTING THE STATEMENTS IN THE ANNUAL REPORT. THEREFORE, THE AO ESTIMATED INCOME A T 30% ON THE AMOUNT ADVANCED OF RS.11,07,00,000/- AND MADE AN ADDITION OF RS.3,32,10,000/-. 9.2 AGAINST THE ABOVE ADDITION, THE ASSESSEE SUBMI TTED WRITTEN SUBMISSIONS AS UNDER:- THE APPELLANT ENTERED INTO A JOINT DEVELOPMENT AGRE EMENT FOR DEVELOPMENT OF THREE HOUSING PROJECTS WITH SIX OTHERS. THE ABOVE G ROUP OF SIX PARTIES WERE HAVING A CONSULTANCY FIRM WHEREIN THEY WERE HAVING SOME CONSTRUCTION PROJECTS ON HAND, HOWEVER, THEY WERE NOT IN A POSI TION TO EXECUTE THOSE PROJECTS FOR WANT OF WORKING CAPITAL. THEREFORE, TH EY ENTERED INTO THE ABOVE AGREEMENT WITH THE APPELLANT COMPANY. AS PER THIS A GREEMENT, THE APPELLANT COMPANY WAS TO INVEST RS,9.00 CRORES TO ENABLE THE OTHERS TO REPAY THE EXISTING BORROWINGS. FURTHER, THE APPELLANT COMPA NY HAS TO BRING IN MACHINERY AND WORKING CAPITAL FOR EXECUTING THE APA RTMENT PROJECT AT BEGUMPET WHICH WAS ONE OF THE PROJECTS HELD BY THE ABOVE GROUP OF SIX PARTIES. IN CONSIDERATION THEREOF, THE ABOVE GROUP OF SIX PERSONS PROMISED TO PAY 40% OF THE PROFITS TO THE APPELLANT COMPANY SU BJECT TO A MINIMUM RETURN OF INVESTMENT OF 30%. HOWEVER, THE APPELLANT COMPANY COULD INVEST ONLY RS.11,07,00,000/- AND THEREFORE THE CONSTRUCT ION OF APARTMENT PROJECT AT BEGUMPET COULD NOT BE COMMENCED. THUS, THE APPEL LANT COMPANY DID NOT EVEN FULFILL ITS PART OF THE AGREEMENT SO THAT IT CAN BE ENTITLED TO THE BENEFITS ARISING OUT OF THE ABOVE AGREEMENT HOWEVER, THE ASS ESSING OFFICER OBSERVED THAT A RETURN OF 30% ON THE ABOVE AMOUNT OF RS.11, 07,00,000/- ACCRUED TO THE APPELLANT COMPANY AND ACCORDINGLY BROUGHT THIS AMOUNT OF RS.3,32,10,000/- TO TAX. IN THIS REGARD THE APP ELLANT WOULD LIKE TO SUBMIT THAT THE APPELLANT COMPANY HAVING NOT BEEN ABLE TO FULFILL ITS PART OF COMMITMENT AS PER THE ABOVE DEVELOPMENT AGREEMENT, IT HAS NO LEGAL RIGHT TO CLAIM THE MINIMUM RETURN OF 30% ON THE AMOUNT I NVESTED. THE MINIMUM RETURN WAS ASSURED IN THE EVENT THE PROJECT WAS TAK EN UP AND IF LOSS IS INCURRED IN EXECUTION OF THE PROJECT. HOWEVER, THE PROJECT. ITSELF COULD NOT COMMENCE AND HENCE THERE WAS NEITHER ANY PROFIT NOR ANY LOSS FROM THE EXECUTION OF THE PROJECT. THEREFORE, IT IS NOT CORR ECT TO SAY THAT A SUM OF RS.3,32,10,000/- ACCRUED TO THE APPELLANT FROM THE ABOVE AGREEMENT. IN VIEW OF THESE FACTS, IT IS RESPECTFULLY SUBMITTED T HAT THE ASSESSING OFFICER MAY KINDLY BE DIRECTED TO DELETE THE ABOVE ADDITION OF RS.3,32,10,000/-. 9.3 IT IS RELEVANT TO REFER TO THE AGREEMENT BETWE EN THE PARTIES, THE RELEVANT EXTRACT IS AS UNDER.- ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 19 OF 50 '1. THIS AGREEMENT WILL BE TREATED AS A JN AND THE SECOND PARTY HAS AGREED TO INVEST AN AMOUNT OF RS.9 CRORES FOR LIQUI DATING THE OUTSIDE LIABILITIES OF THE FIRST PARTY. 2. FURTHER SECOND PARTY HAS AGREED TO EXECUTE THE A PARTMENTS PROJECT AT BEGUMPET, INITIALLY BY BRINGING ITS MACHINERY AND W ORKING CAPITAL. THE SECOND PARTY HAS ALSO AGREED TO EXECUTE THE PROJECTS AT GA GILAPUR AND ANNOJIGUDA FOR WHICH THE FIRST PARTY IS THE OWNER AND HOLDING DEVE LOPMENT RIGHTS BY BRINGING IN REQUIRED WORKING CAPITAL FOR COMPLETION OF THE P ROJECTS. THE FIRST PARTY HEREBY GIVES THE FOLLOWING ASSURANC E TO THE SECOND PARTY IN CONSIDERATION OF THE INVESTMENT PROPOSED BY THE FIR ST PARTY. 1. THE SECOND PARTY SHALL HAVE THE FIRST RIGHT TO REC OVER THE SURPLUS SALE PROCEEDS AFTER MEETING THE EXPENDITURE OF THE ABOVE THREE PROJECTS TOWARDS ITS INVESTMENTS. THE FIRST PARTY SHALL GIV E NECESSARY AUTHORIZATION TO THE SECOND PARTY. 2. THE FIRST PARTY ASSURES THAT IN THE EVENT OF ADVER SE MARKET CONDITIONS CONTINUING AND CONSEQUENTLY IS UNABLE TO MARKET THE APARTMENTS TO BE CONSTRUCTED, THE FIRST PARTY HAS AGREED TO INDEMNIF Y THE SECOND PARTY AGAINST ANY LOSS THAT MAY RESULT FROM THE CONSTRU CTION ACTIVITY. 3. THE PROFIT OUT OF EXECUTION OF THE PROJECTS SPECIF IED ABOVE SHALL BE SHARED BETWEEN THE FIRST PARTY AND THE SECOND PARTY IN THE RATIO OF 4:6 IN FAVOR OF THE SECOND PARTY. 4. THE FIRST PARTY ASSURES THE SECOND PARTY THAT A RE TURN ON INVESTMENT AT THE RATE OF 30% PER ANNUM IN A PERIOD OF 5 YEARS IS ASSURED AND IN THE EVENT OF THE JOINT VENTURES RESULTING IN LESSER PROFIT, THE FIRST PARTY WILL MAKE GOOD THE SHORT FALL TO MAKEUP A RETURN OF 30% ON INVESTMENT TO THE SECOND PARTY. 5. IN CASE THE RETURN ON INVESTMENT TO THE SECOND PART Y IS MORE THAN 30% THE ACTUAL RETURN OF INVESTMENT WILL BE PAID TO THE SECOND PARTY AS PER CLAUSE-3. 6. THE FIRST PARTY HAS PREPARED PROJECT-WISE PROFILE WHICH IS ANNEXED CONTAINING AREAS TO BE BUILT AND SALEABLE AREAS IND ICATING DEVELOPER'S SHARE AND OWNER'S SHARE WHICH INCLUDES COMMITMENT A LREADY MADE BY THE FIRST PARTY. 7. . 8. THE FIRST PARTY HAS TO PROVIDE ALL NECESSARY ENGINE ERING SERVICES FOR EXECUTING THE ABOVE PROJECTS AND SHALL PLAN MARKETI NG SET UP IN ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 20 OF 50 CONSULTATION WITH THE SECOND PARTY. THE FIRST PART Y HEREBY AGREES TO PROVIDE PMC FOR ALL THE ABOVE PROJECTS AT COST. 9. THE FIRST PARTY SHALL TAKE THE ENTIRE RESPONSIBILIT Y OF MARKETING THE FLATS TO BE CONSTRUCTED IN ALL THE ABOVE THREE PROJECTS A T THE FATES GUIDED BY THE ANNEXURE. 10. IN THE EVENT OF THE SECOND PARTY NOT BEING ABLE TO RECOVER THE INVESTMENT AND ASSURED RETURN EVEN AFTER THREE YEAR S, THE SECOND PARTY IS AT LIBERTY TO DISPOSE OFF ANY OR ALL THE C OLLATERAL SECURITIES OFFERED TO REALIZE ITS INVESTMENT ALONG WITH ASSURE D RETURNS BY WAY OF OPEN OFFER THROUGH ADVERTISEMENT BY GIVING FIRST RI GHT TO THE FIRST PARTY. 11. THE FIRST PARTY HEREBY AGREES TO JOIN HANDS WITH THE SECOND PARTY FOR DEVELOPING THE BUSINESS OPPORTUNITIES OF BOTH THE P ARTIES FOR MUTUAL BENEFIT. 12. THE FIRST PARTY HEREBY GIVES THE STAGE WISE WORKI NG CAPITAL REQUIREMENTS AND PROJECTED CASH FLOW FOR ALL THE TH REE PROJECTS AS PER ANNEXURE. 13. . THE FIRST PARTY HAS ALREADY INCURRED VARIOUS EXP ENSES TOWARDS LAND COST, PLAN APPROVAL CHARGES INCLUDING PLANNING DESI GNING ETC., BESIDES LAND DEVELOPMENT CHARGES AND CONSTRUCTION EXPENSES. THE FIRST PARTY SHALL SUBMIT THE DETAILED ACCOUNT OF THE EXPENDITUR E SO THAT IT WILL BE CONSIDERED AS THE INVESTMENT BY THE FIRST PARTY WHI CH WILL BE TAKEN BY HIM AFTER GIVING PRIORITY TO THE SECOND PARTY'S INV ESTMENTS AND PROFITS ASSURED. 14. THE FIRST PARTY ASSURES THE SECOND PARTY THAT THEY WOULD NOT ISSUE ANY SHARES IN SATYAVANI PROJECTS AND CONSULTANTS PV T. LTD AND SATYAVANI HOMES PVT. LTD IN FUTURE TO INCREASE TH E PAIDUP CAPITAL WITHOUT INTIMATING HE SECOND PARTY, IN THE EVENT OF THE FIRST PARTY ISSUING ANY SHARES IN SATYAVANI PROJECTS AND CONSUL TANTS PVT. LTD AND SATYAVANI HOMES PVT.. LTD THEY SHALL DEPOSIT FURTH ER SHARE CERTIFICATES WITH THE SECOND PARTY TO MAKE UP 1% OF THE SHARES O F THE COMPANY'. 18.5. THE FIRST APPELLATE AUTHORITY REJECTED THE CONTENTIONS OF THE ASSESSEE THAT THE PROJECT DID NOT COMMENCE AND HENCE INCOM E HAS NOT ACCRUED. IT WAS HIS VIEW THAT ASSESSEE HAS INVESTED RS. 11.07 C RORES DURING THE YEAR TO LIQUIDATE CERTAIN LIABILITIES OF THE FIRST PARTY AN D HAD ALSO PROVIDED MACHINERY AND WORKING CAPITAL AND HENCE THE ASSESSEE PERFORME D ITS PART OF THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 21 OF 50 OBLIGATION FOR WHICH IT WAS ENTITLED TO A RETURN ON SUCH INVESTMENT. HE HELD THAT THE ASSESSEE HAS NOT MADE OUT ANY CASE, AS TO WHY THE INCOME IN SUCH INVESTMENT WAS NOT RECOGNIZED. HE OBSERVED THAT THE ASSESSEE HAS NOT FILED ANY CONFIRMATION OF THE OTHER PARTY IN SUPPORT OF I TS CLAIM. ON THE GROUND THAT THE ASSESSEE HAS PERFORMED ITS TERMS OF THE CONTRAC T, HE HELD THAT INCOME HAD ACCRUED TO THE ASSESSEE. HENCE HE DIRECTED THE AO TO ESTIMATE THE RETURN ON INVESTMENT BY TAKING THE DATES OF THE INVESTMENT . 18.6. ON THIS ISSUE THE ASSESSEE FILED AN APPLICATI ON FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 29. THIS EVIDENCE A RE CONFIRMATION LETTERS FROM M/S SATYAVANI HOMES PVT.LTD. DT. 22.1.2014 AND 29.1.2014. 18.7. THE CASE OF THE ASSESSEE IS THAT , AS THERE WAS RECESSIONARY TREND IN THE REAL ESTATE MARKET AT HYDERABAD, THE FIRST PART Y TO THE MOU DID NOT EVINCE ANY INTEREST IN EXECUTION OF THE PROJECT AS PER THE ORIGINAL PLAN. HE SUBMITTED THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE OTHER PARTIES WAS STRAINED ON ACCOUNT OF NON COMMENCEMENT OF THE PROJECT AND OTHE R BUSINESS ISSUES. HENCE THE ASSESSEE WAS NOT IN A POSITION TO OBTAIN CONFIRMATION FROM THE OTHER PARTY. SUBSEQUENT TO THE ORDER OF THE LD.CIT( A) THE ASSESSEE FORWARDED A COPY OF THE ORDER TO THE FIRST PARTY AND EXPLAINE D ITS ANGUISH. IT WAS THEN THAT THE CONFIRMATION LETTER WAS GIVEN BY THE FIRST PARTY M/S. SATYAWANI HOMES PVT. LTD. HE ARGUED THAT THE CONFIRMATION LET TERS GO TO THE ROOT OF THE MATTER AS TO WHETHER THE ASSESSEE FULFILLED ITS OBL IGATION AS PER THE MOU AND AS TO WHETHER ANY INCOME HAS ACCRUED TO THE ASSESS EE FOR THE RELEVANT ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 22 OF 50 PREVIOUS YEAR. HE PLEADED THAT THE CIRCUMSTANCES W ERE BEYOND THE CONTROL OF THE ASSESSEE DUE TO THE ABOVE FACTORS WHICH LEAD T O THE ASSESSEE NOT BEING ABLE TO OBTAIN CONFIRMATION LETTER FROM THIRD PARTI ES AND HENCE THE TWO LETTERS DATED 22ND JANUARY,2014 AND 25 TH JANUARY,2014 SHOULD BE ADMITTED AS ADDITIONAL EVIDENCE. 18.8. THE LD.DR OPPOSED THE ADMISSION OF ADDITIONAL EVIDENCE. IT WAS HIS CASE THAT THE ASSESSEE WAS NOT PREVENTED BY A REASO NABLE CAUSE FROM FURNISHING THESE EVIDENCES BEFORE THE LOWER AUTHOR ITIES. 19. AFTER HEARING RIVAL CONTENTIONS WE ARE OF THE C ONSIDERED OPINION THAT THE ADDITIONAL EVIDENCE HAS TO BE ADMITTED AS IN OU R VIEW THE ASSESSEE HAS DEMONSTRATED THAT IT WAS PREVENTED BY SUFFICIENT CA USE FROM FILING THESE LETTERS OF CONFIRMATIONS BEFORE THE LOWER AUTHORITI ES. THE CONFIRMATION LETTERS, ALONG WITH COPIES OF THE BALANCE SHEET, ETC. GO TO THE ROOT OF THE MATTER AS TO WHETHER ANY INCOME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE DURING THE PY RELEVANT TO THE IMPUGNED ASSESSMENT YEAR AND A S TO THE FACT WHETHER THE ASSESSEE FULFILLED ITS OBLIGATIONS AS PER THE M OU. IN OUR VIEW THE STRAINED RELATIONSHIP BETWEEN THE PARTIES AND THE RECESSION ARY TRENDS IN REAL ESTATE IN HYDERABAD DUE TO POLITICAL UNREST CONSEQUENT TO THE AGITATION FOR A SEPARATE STATE OF TELANGANA IS A REASONABLE CAUSE FOR THE ASSESSEE, FOR NOT BEING ABLE TO PRODUCE THESE EVIDENCES BEFORE THE LOWER AU THORITIES. HENCE, WE ADMIT THESE ADDITIONAL EVIDENCES. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 23 OF 50 20. ON THE ISSUE OF ACCRUAL OF INCOME THE LD.COUNSE L FOR THE ASSESSEE REITERATED HIS CONTENTIONS THAT THERE IS NO ACCRUAL OF INCOME AS THE PARTIES COULD NOT EXECUTE THE TERMS OF THE MOU. HE REFERR ED TO THE MOU DT. 29 TH DAY OF AUGUST,2009 BETWEEN THE PARTIES AND SPECIFIC ALLY CLAUSE NO.1, CLAUSE NO.2 AS WELL AS THE ASSURANCES OF THE FIRST PARTY A ND SECOND PARTY. THE AGREEMENT IS AT PAGES 57 TO 65 OF THE PAPER BOOK. H E VEHEMENTLY CONTENDED THAT BOTH THE BOTH PARTIES TO THE AGREEMENT STATED THAT THERE IS A FAILURE IN THE IMPLEMENTATION OF THE MOU TERMS AND CONDITIONS DUE TO UNAVOIDABLE CIRCUMSTANCES AND UNDER THOSE CIRCUMSTANCES THE C LAUSES IN THE AGREEMENT COULD NOT BE ACTED UPON AND HENCE THERE IS NO ACCRU AL OF INCOME ON THE PART OF THE ASSESSEE NOR ACCRUAL OF EXPENDITURE ON THE P ART OF THE FIRST PARTY. HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. 20.1. THE LD. DR OPPOSED THE CONTENTIONS AND RELIED ON THE ORDER OF THE FIRST APPELLATE AUTHORITY. HE POINTED OUT THAT TH E FIRST PARTY HAD ALSO AGREED TO OFFER COLLATERAL SECURITY TO THE ASSESSEE COMPAN Y, FOR THE INVESTMENT MADE. THUS HE SUBMITS THAT INCOME IN QUESTION HAS ACCRUE D TO THE ASSESSEE IF THE TERMS OF THE AGREEMENT ARE CONSIDERED. 21. AFTER HEARING RIVAL CONTENTIONS WE HOLD AS FOLL OWS. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRI ES (SUPRA) HELD AS UNDER. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 24 OF 50 (I) THREE TESTS HAVE BEEN LAID DOWN BY VARIOUS DE CISIONS OF THE SUPREME COURT TO DETERMINE WHEN INCOME CAN BE SAID TO HAVE ACCRUED : (A) WHETHER THE INCOME IS REAL OR HYPOTHETICAL; (B) WHETHER THE RE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT TO T HE ASSESSEE AND (C ) THE PROBABILITY OR IMPROBABILITY OF REALIZATION OF THE INCOME BY THE ASSESSEE HAS TO BE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW. APPLYING THESE TESTS, ON FACTS, EVEN IF IT IS ASSUMED THAT THE ASS ESSEE WAS ENTITLED TO THE BENEFITS UNDER THE ADVANCE LICENCES AS WELL AS UNDE R THE DUTY ENTITLEMENT PASS BOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY FREE IMPORTS TO THE ASS ESSEE UNTIL THE GOODS ARE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, A HYPOTHETICAL INCOME WHICH MAY OR MAY NOT MATERIALIZE AND ITS MONEY VALUE IS THEREFORE NOT THE INCOME OF THE ASSE SSEE. ALSO, FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE ASSESSEE MAY NOT HAVE MADE IMPORTS), NO REAL INCOME ACCRUED TO THE ASSESSEE IN THE YEAR OF EXPORTS AND S.28(IV) WOULD BE INAPPLICABLE. ESSENTIALLY, THE A SSESSING OFFICER IS REQUIRED TO BE PRAGMATIC AND NOT PEDANTIC (SHOORJI VALLABHDA S 46 ITR 144 (SC), MORVI INDUSTRIES 82 ITR 835 (SC) & GODHRA ELECTRICITY CO . 225 ITR 746 (SC) FOLLOWED). 18. THE ABOVE PASSAGE WAS CITED WITH APPROVAL IN MO RVI INDUSTRIES LTD. V. COMMISSIONER OF INCOME-TAX (CENTRAL), [1971] 82 ITR 835 (SC) IN WHICH THIS COURT ALSO CONSIDERED THE DICTIONARY MEANING OF THE WORD 'ACCRUE' AND HELD THAT INCOME CAN BE SAID TO ACCRUE WHEN IT BECOMES D UE. IT WAS THEN OBSERVED THAT: '........ THE DATE OF PAYMENT ....... DOES NO T AFFECT THE ACCRUAL OF INCOME. THE MOMENT THE INCOME ACCRUES, THE ASSESSEE GETS VE STED WITH THE RIGHT TO CLAIM THAT AMOUNT EVEN THOUGH IT MAY NOT BE IMMEDIA TELY.' 19. THIS COURT FURTHER HELD, AND IN OUR OPINION MOR E IMPORTANTLY, THAT INCOME ACCRUES WHEN THERE 'ARISES A CORRESPONDING LIABILIT Y OF THE OTHER PARTY FROM WHOM THE INCOME BECOMES DUE TO PAY THAT AMOUNT.' 20. IT FOLLOWS FROM THESE DECISIONS THAT INCOME ACC RUES WHEN IT BECOMES DUE BUT IT MUST ALSO BE ACCOMPANIED BY A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT. ONLY THEN CAN IT BE SAID THAT FO R THE PURPOSES OF TAXABILITY THAT THE INCOME IS NOT HYPOTHETICAL AND IT HAS REAL LY ACCRUED TO THE ASSESSEE. 21.1. IN THE CASE ON HAND, THERE IS NO CORRESPOND ING LIABILITY OF THE OTHER PARTY FROM WHOM INCOME IS SAID TO HAVE BECOM E DUE TO THE ASSESSEE. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 25 OF 50 WHEN BOTH PARTIES AGREED THAT THE TERMS OF THE MOU COULD NOT BE ACTED UPON AND IMPLEMENTED DUE TO VARIOUS FACTS AND CIRCUMSTA NCES, SUCH AS SLUGGISH MARKET, PREVAILING POLITICAL SITUATION ETC., THE QU ESTION OF HOLDING THAT THE INCOME HAS ACCRUED TO THE ASSESSEE DOES NOT ARISE. THE AGREEMENT TALKS OF RETURN ON INVESTMENT. IT IS NOT INTEREST. RETURN ON INVESTMENT CARRIES WITH IT BUSINESS RISK AND UNCERTAINITY. THE ASSURANCE TO G IVE A MINIMUM RETURN OF INCOME IS COUPLED WITH CONDITIONS OF PERFORMANCE. BOTH THE PARTIES TO THE AGREEMENT ARE STATING THAT THE CRUCIAL TERMS AND CO NDITIONS OF THE MOU REMAIN UNFULFILLED AS THE PARTIES COULD NOT EXECUT E THE PROJECT AT GAGILAPUR AND ANNOJIGUDA. WHEN THIS IS THE MUTUALLY AGREED F ACT BETWEEN THE UNRELATED PARTIES, IT IS NOT FOR THE AO TO COME TO A CONCLUSION THAT THE TERMS AND CONDITIONS OF THE MOU ARE FULFILLED AND THAT T OO WITHOUT ANY EVIDENCE. AS OBSERVED THESE ARE UNRELATED PARTIES AND THERE IS NO ALLEGATION OF COLLUSION AND THE FACT THAT THEY COULD NOT PROCEED WITH THE PROJECTS AS PER THE AGREEMENT IS AN UNCONTROVERTED FACT. 21.2. IN ANY EVENT, AS WE HAVE ADMITTED ADDITIONAL EVIDENCE, WE DEEM IT PROPER TO SET ASIDE THE ISSUE TO THE FILE O F THE AO FOR EXAMINING THESE ADDITIONAL EVIDENCES AND DISPOSING OF THE CASE DENO VO AFTER GIVING THE ASSESEE OPPORTUNITY OF BEING HEARD. THE ASSESSING OFFICER SHALL NOT ASSESS HYPOTHETICAL INCOME. ONLY REAL INCOME SHOULD BE BR OUGHT TO TAX BASED ON EVIDENCE AND THAT TOO IF CORRESPONDING LIABILITY IS RECORDED IN THE BOOKS OF THE OTHER PARTY. WE DIRECT THE AO TO APPLY THE PRINCIP LES LAID DOWN BY THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 26 OF 50 HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRI ES LTD.(SUPRA) ON THIS ASPECT OF ACCRUAL OF INCOME. IN THE RESULT THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 22. GROUND NO.5 IS AGAINST THE DISALLOWANCE MADE U/ S14A. THIS DISALLOWANCE CONSISTS OF TWO PARTS (A) DISALLOWANCE OF INTEREST, (B) DISALLOWANCE OF EXPENDITURE. 22.1. AFTER HEARING THE RIVAL CONTENTIONS WE HOLD AS FOLLOWS. 22.2. AS FAR AS THE DISALLOWANCE OF INTEREST U/S 1 4A IS CONCERNED, CONSISTENT WITH THE VIEW TAKEN BY US WHILE DISPOSI NG GROUND NO.4 REGARDING DISALLOWANCE OF INTEREST FOR THE AY 2009-10 WE ALL OW THE CLAIM OF THE ASSESSEE FOR THE REASONS THAT THE ASSESSEE HAS SUFF ICIENT INTEREST FREE FUNDS AS COMPARED TO THE TOTAL INVESTMENT MADE. FOR THIS PROPOSITION WE RELY ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT-II, MUMBAI VS. HDFC BANK LTD. IN ITA NO.330/2012 VIDE JUDGEMEN T DT. 23 RD JULY, 2014 HELD AS FOLLOWS. QUESTION(A): WHETHER ON THE FACTS AND IN LAW, TH E HONBLE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INVESTMENT IN TAX FREE SECURITIES/INVESTMENTS ARE REPRESENTED BY ASSESSEES OWN FUNDS IN THE SHAPE OF SHARE CAPITAL AND RESERVES, IGNORING THE FACT THAT THE ASSESSEE IS A BANK INVOLVED IN TRANSACTIONS OF MONEY IN VARIOUS FORMS AND TREASURY OPERATIONS I S ONLY OUT OF ITS FUNCTIONS? WITH REFERENCE TO QUESTION (A), MR.SURESH KUMAR SUB MITTED THAT THE ITAT ERRED IN HOLDING THAT THE INVESTMENTS OF THE ASSESS EE IN TAX FREE SECURITIES/INVESTMENTS WERE FROM THE ASSESSEES OWN FUNDS. SINCE THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS AND TH E ASSESSEES OWN FUNDS ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 27 OF 50 WERE NOT SEPARATELY IDENTIFIED, THE INVESTMENT IN G OVERNMENT SECURITIES HAD BEEN MADE BY THE ASSESSEE BANK FROM COMMON POOL OF FUNDS AVAILABLE WITH IT. ACCORDING TO MR.SURESH KUMAR, AS PER THE PROVI SIONS OF SECTION 14A, NO DEDUCTION COULD BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE AGAINST THE INCOME CLAIMED AS EXEMPT FROM TAX, AS A PPORTIONMENT OF EXPENDITURE WAS AN INHERENT PART OF S.14A. HE SUB MITTED THAT IN THE ABSENCE OF A DIRECT NEXUS BETWEEN ASSESSEES OWN FUNDS AND THE INVESTMENT MADE BY IT, THE INVESTMENT OUGHT TO BE TREATED FROM THE COM MON POOL HAVING BOTH BORROWED AS WELL AS OWN FUNDS OF THE ASSESSEE AND T HEREFORE, PROPORTIONATE DISALLOWANCE OF INTEREST BY THE ASSESSING OFFICER W AS FULLY JUSTIFIED. HE THEREFORE SUBMITTED THAT THE CIT(A) AND THE ITAT HA D GONE WRONG ON THIS COUNT THAT REQUIRED INTERFERENCE BY THIS COURT. 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORD ED BY THE ITAT, UNDISPUTEDLY THE ASSESSEES OWN FUNDS AND OTHER NON INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECUR ITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE A SSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIE S. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERIT IN THE CONTENTION R AISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAV OUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT(APPEALS) OR THE ITAT ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE. 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE S QUARELY COVERED BY THE JUDGEMENT IN THE CASE OF RELIANCE UTILITIES AND POW ER LTD. (SUPRA). THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CA SE IS THAT THE ASSESSEES OWN FUNDS AND OTHER NON INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THIS FACTUA L POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE AS SESSEES CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX FREE SECURITIES. IN VIEW OF THE FACTUAL POSITION AS PER THE JUDGEMENT OF THIS COURT IN RELIANCE UTILITIES A ND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE. WE THEREFORE ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR.SURES H KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE O N THIS GROUND. WE DO NOT FIND THAT QUESTION(A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 28 OF 50 22.3. THE FACTS OF THE PRESENT CASE ARE PARI MATER IA WITH THE FACTS OF THE CASE IN CIT VS. MS. HDFC BANK LTD(SUPRA). HENC E WE HOLD THAT NO DISALLOWANCE OF INTEREST CAN BE MADE IN THIS CASE U /S 14A. 22.4. AS REGARDS DISALLOWANCE OF EXPENDITURE U/S14 A IS CONCERNED, THE ARGUMENT OF THE ASSESSEE THAT IT HAS NO EXEMPT INCO ME DURING THE YEAR AND HENCE THERE CANNOT BE A DISALLOWANCE U/S14A HAS TO BE REJECTED IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE DELHI ITAT IN THE CASE OF CHEMINVEST LTD. VS. ITO (DEL) (SB) 317 ITR (AT) 86 WHICH WAS R ELIED UPON BY THE LD.D.R. ANYHOW WE FIND THAT THE ASSESSING OFFICER AS WELL A S THE LD.CIT(APPEALS) HAVE NOT 22.4.1. THIS PROPOSITION OF LAW ARE DISCUSSED BY T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JK INVESTORS (BOMBAY) L TD. VS. ACIT IN ITA NO. 7858/MUM/2011, ASSESSMENT YEAR 2008-09 DT. 13.3.201 3, WHEREIN IT HAS BEEN HELD AS FOLLOWS. 11. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES AND HAVE PERUSED THE MATERIAL PLACED BEFORE US. THE ISSUE AS CARVED OUT BY THE AR IS WITH RESPECT TO RS.10,000 ONLY, BUT ON THE CONTRARY, THE ISSUE BEFORE US IS ON THE APPLICABILITY OF RULE 14A AND COMPUTATION OF DISALL OWANCE AS PER RULE 8D. THE RELEVANT PORTION READ OUT BY THE AR FROM THE DECISI ON IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT (SUPRA) IN PARA 70 OF THE ORDER PERTAINS TO THE CORRECTNESS OF COMPUTATION OF DISALLOWANCE AND GIVI NG VALID REASONS FOR SUCH COMPUTATION. THE CRUX OF ARGUMENT OF AR IS WITH REF ERENCE TO SECTION 14(2) WHICH IS AS UNDER: 'THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED, ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 29 OF 50 IF AO HAVING REGARD TO THE ACCOUNTS OF ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT. THE WORDS THAT NEED REFERENCE IN THE SECTION ARE ' IF AO HAVING REGARD TO THE ACCOUNTS OF ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM ..;' MEANS THAT BEFORE GOING TO THE COMPUTATION, AO HAS TO CROSS THE BARRIER OF THE SATISFACTION WITH THE CORRECTNESS OF THE CLA IM, THEN AO CAN BE PERMITTED TO STRAIGHTAWAY APPLY THE COMPUTATION UND ER RULE 8D. 12. THUS THE ISSUE IN THIS APPEAL IS WITH REFERENC E TO INVOKING OF PROVISIONS OF SECTION 14A(2) AND RULE 8D. THE HON'B LE BOMBAY HIGH COURT WHILE. UPHOLDING THE CONSTITUTIONAL VALIDITY OF THE SECTION I4A AND RULE 8D HAS THIS TO OBSERVE WITH REFERENCE TO SUB SECTION 2 & 3 OF SECTION 14A: 'SUB-SECTIONS (2) AND (3) OF SECTION I4A WERE INSER TED BY AN AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT OF 2006 WITH EFFECT FROM APRIL 1, 2007. UNDER SUB-SECTION (2), THE ASSESSING OFFICER IS REQ UIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE I N RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. SUB-SECTION (2) WAS INSERTED SO AS TO PROVIDE A UNIFORM METHOD APPLICABLE WHERE THE ASSES SING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. PARLIAMENT HAS PROVIDED AN ADEQUATE SAFEGUARD TO THE INVOCATION OF THE POWER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME BY ADOPTION OF THE PRESCRIBED METHOD. THE INVOCATION O F THE POWER IS MADE CONDITIONAL 011 THE OBJECTIVE SATISFACTION OF THE A SSESSING OFFICER IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVIN G REGARD TO THE ACCOUNTS OF THE ASSESSEE. THESE SAFEGUARDS WHICH ARE IMPLICIT I N THE REQUIREMENTS OF FAIRNESS AND FAIR PROCEDURE UNDER ARTICLE 14 MUST B E OBSERVED BY THE ASSESSING OFFICER WHEN HE ARRIVES AT HIS SATISFACTI ON UNDER SUB-SECTION (2) OF SECTION 14A. SUB-RULE (1) OF RULE 8D OF THE INCOME- TAX RULES, 1962, HAS ALSO INCORPORATED THE ESSENTIAL REQUIREMENTS OF SUB-SECT ION (2) OF SECTION 14A BEFORE THE ASSESSING OFFICER PROCEEDS TO APPLY THE METHOD PRESCRIBED UNDER SUB-RULE (2)' .. (EMPHASIS SUPPLIED). 13. THE SAME OPINION WAS EXPRESSED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD AND OTHERS V. ITO 247 CTR 162 WHEREIN RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 30 OF 50 THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS P VT. LTD 326 LTR 1 (SC) AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ AND BOYCE COMPANY LTD VS. DCLT (328 ITR 81). THE RELEVA NT PORTIONS OF THE JUDGMENT OF HON'BLE DELHI HIGH COURT ARE AS UNDER: 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOU NT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQU IREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIG GERED ONLY IF THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTI ON 14A. SUBSECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDI TURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB- SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASS ERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE C LAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE I N ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT. 1T IS ONLY IF THE ASSESSING OFFICER IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFFICER GELS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESC RIBED METHOD BEING THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 31 OF 50 METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHI LE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO E XPENDITURE, AS THE CASE MAY BE, IN RELATION 10 EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME .. RULE 8D. 30. AS WE HAVE ALREADY NOTICED, SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METHOD OF DETERMINATION OF T HE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE EXPRESSI ON USED IS - 'SUCH METHOD AS MAY BE PRESCRIBED'. WE HAVE ALREADY MENTIONED AB OVE.' THAT BY VIRTUE OF NOTIFICATION NO.4512008 DATED 2410312008, THE CENTR AL BOARD OF DIRECT TAXES INTRODUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) T HE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SA ID ACT FOR SUCH PREVIOUS YEAR, THE ASSESSING OFFICER SHALL DETERMINE THE AMO UNT OF THE EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SUB-RULE (2) OF RULE 8D. WE MAY OBSERVE THAT RULE 8D( 1) PLACES THE PROVISIONS OF SECTION I4A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HA VE ALREADY SEEN, WHILE DISCUSSING THE PROVISIONS OF SUB-SECTIONS (2) AND ( 3) OF SECTION 14A, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER TO HI MSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DISSATISF ACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THA T THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D OF THE SAID RULES. 31. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM O F THE ASSESSEE IN THIS REGARD. IF ONE EXAMINES SUB-RULE (2) OF RULE 8D, WE FIND THAT THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT I NCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE FATAL INCOME. THE SECOND COMPONENT BEING COMPUTED ON THE BASIS OF THE FORMUL A GIVEN THEREIN IN A ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 32 OF 50 CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY O F INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT. THE FORMULA ESSENTIALLY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST [OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, TO THE AVERAGE OF THE TOTAL ASSETS OF THE ASSESSEE. THE THIRD COMPONE NT IS AN ARTIFICIAL FIGURE - ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVEST MENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEETS OF ASSESSEE, ON THE FIRST DAY AND TH E LAST DAY OF THE PREVIOUS YEAR, IT IS THE AGGREGATE OF THESE THREE COMPONENTS WHICH WOULD CONSTITUTE THE EXPENDITURE IN RELATION TO EXEMPT INCOME AND IT IS THIS AMOUNT OF EXPENDITURE WHICH WOULD BE DISALLOWED UNDER SECTION I4A OF THE SAID ACT. IT IS, THEREFORE, CLEAR THAT IN TERMS OF THE SAID RULE , THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO ASPECTS - (A) DIRECT AND (B) INDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWAY TAKEN INTO ACCOU NT BY VIRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF INTEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPO RTIONMENT, AS INDICATED ABOVE, AND, IN CASES WHERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, A RULE OF THUMB FIGURE OF ONE HALF PERCENT OF THE A VERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, IS TAKEN. 41. SUB-SECTION (2) OF SECTION I4A, AS WE HAVE SE EN, STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH. DOES NOT FORM PART OF THE TOTAL INCOME 'IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSI NG OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A(2) WHICH EXPL ICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLIC IT IN SECTION 14A( 1) (AS IT NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTIO N 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD 10 THE METHOD OF DETERMINI NG SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY, IN OTHER WORDS, SECTION 14A, EVEN PRIOR 10 THE INTRODUCTION OF SUB-SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION M UST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DET ERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. T HE REQUIREMENT OF ADOPTING ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 33 OF 50 A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-SECTION (2) OF SECTION 14A. PRIOR TO THAT. THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 14. THE HON'BLE PUNJAB & HARYANA HIGH C01LL1 IN THE CASE OF CIT VS. HERO CYCLES LTD. 323 ITR 518 (P&H) HAS ALSO HELD TH AT DISALLOWANCE UNDER SECTION 14A COULD NOT STAND WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED: 'HELD - DISMISSING THE APPEAL, THAT THE EXPENDITURE ON INTEREST WAS SET OUT AGAINST THE INCOME FROM INTEREST AND THE INVESTMENT IN THE SHARES AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED , WAS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDI RECTLY SOME EXPENDITURE WAS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED COULD NOT BE ALLO WED 10 BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE MANDATE O F SECTION 14A, COULD NOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRE D FINDING OF INCURRING OF EXPENDITURE AND WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER S ECTION 14A COULD NOT STAND. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMI SSIBLE. 15. THE COORDINATE BENCH IN THE CASE OF JUSTICE SAM P BHARUCHA VS. ADDL. CIT IN ITA NO.3889/MUM/2011 DATED 25.07.2012 HAS ANALYZED SIMILAR ISSUE AND CAME TO THE FOLLOWING CONCLUSION: '5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. SECTION 14A HAS WITHIN IT IMPLI CIT NOTION OF APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR THE COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON-TAXABLE INCOME IS RECEIVED. BUT WHEN IT IS POSSIBLE TO DETERMINE THE ACTUAL EXPENDITURE IN REL ATION TO THE EXEMPT INCOME OR WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATIO N TO THE EXEMPT INCOME, THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14 A HAS NO APPLICATION. THE OBJECTIVE OF SECTION 14 A IS NOT ALLOWING TO RE DUCE TAX PAYABLE ON THE NORMAL EXEMPT INCOME BY DEBITING THE EXPENDITURE IN CURRED TO EARN THE EXEMPT INCOME. THUS, THE EXPENSES INCURRED TO EARN EXEMPT INCOME CANNOT BE ALLOWED AND THE EXPENSES SHALL BE ALLOWED ONLY T O THE EXTENT THEY ARE RELATED 10 THE EARNING OF TAXABLE INCOME. IF THERE IS EXPENDITURE DIRECTLY OR INDIRECTLY INCURRED IN RELATION TO EXEMPT INCOME, T HE SAME CANNOT BE CLAIMED ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 34 OF 50 AGAINST THE INCOME, WHICH IS TAXABLE AS IT IS HELD BY THE HON 'BLE SUPREME COURT IN CASE OF COMMISSIONER OF INCOME-TAX: V. WAL FORT SHARE AND STOCK BROKERS P. LTD. REPORTED IN 326 ITR I THAT FOR ATTR ACTING THE PROVISIONS OF SECTION 14 A, THERE SHOULD BE PROXIMATE CAUSE FOR D ISALLOWANCE WHICH AS RELATIONSHIP WITH THE TAX EXEMPT INCOME. 5.1 THE EXPENDITURE INCURRED IN RELATION TO THE INC OME WHICH DOES NOT FORM PART OF TOTAL INCOME HAS TO BE DISALLOWED. HOW EVER, IT SHOULD BE PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. ONCE SUCH PROXIMITY RELATIONSHIPS EXIST, THE DISALLOWANCE IS TO BE EFFECTED. IN CASE THE ASSESSE E HAD CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME, IT WAS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE AS SESSEE HAD INCURRED ANY EXPENDITURE IN RELATION TO INCOME WHICH DID NOT FOR M PART OF TOTAL INCOME AND IF SO TO QUANTIFY THE EXTENT OF DISALLOWANCE. THUS, IN ORDER TO DISALLOW THE EXPENDITURE UNDER SECTION 14A, THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PAR T OF TOTAL INCOME. NO NOTIONAL EXPENDITURE CAN BE APPORTIONED FOR THE PUR POSE OF EARNING EXEMPT INCOME UNLESS THERE IS AN ACTUAL EXPENDITURE IN REL ATION TO EARNING THE INCOME NOT FORMING PART OF TOTAL INCOME. IF THE EXP ENDITURE IS INCURRED WITH A VIEW TO EARN TAXABLE INCOME AND THERE IS APPARENT D OMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND TAX ABLE INCOME, THEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A MERELY B ECAUSE SOME TAX EXEMPT INCOME IS RECEIVED BY THE ASSESSEE. 5.2 AVERTING TO THE FACTS OF THE CASE IN HAND, THE ASSESSEE HAD MADE A CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED OR CLAI MED FOR EARNING THE EXEMPT INCOME. FROM THE DETAILS OF THE EXPENDITURE, IT IS CLEAR THAT THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE HA S DIRECT NEXUS WITH THE PROFESSIONAL INCOME OF THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS USED HIS OFFICIAL MACHINERY AND ESTABL ISHMENT FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING THAT ANY OF THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSE E IS ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME. IN OTHER WORDS WHEN THE ASSESSING OFFICER HAS NOT POINTED OUT THAT CERTAIN EXPENDITURE IS NOT INC URRED FOR EARNING THE PROFESSIONAL INCOME; BUT ARE INCURRED IN RELATION T O DIVIDEND INCOME OR SUCH EXPENDITURE IS INCURRED FOR INSEPARABLE AND INDIVIS IBLE ACTIVITIES COMPRISING PROFESSIONAL AS WELL AS THE ACTIVITIES ON WHICH IS EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE, THEN IN THE ABSENCE OF ANY SUCH INSTANCE OF EXPENDITURE, FINDING OF ASSESSING OFFICER OR ANY MA TERIAL TO SHOW THAT THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 35 OF 50 EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE AG AINST THE TAXABLE INCOME HAS ANY RELATION FOR EARNING THE EXEMPT INCOME, THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED . 5.3 IN THE CASE OF SHRI PAWAN KUMAR PARAMESHWAR LA L VS. ACIT (SUPRA) THIS TRIBUNAL HAS CONSIDERED AND DECIDED AN IDENTICAL ISSUE IN PARA 4 AS UNDER: '4. AFTER HEARING THE ASSESSEE IN PERSON AND ARGUME NTS OF THE LEARNED D.R. WE ARE OF THE OPINION THAT NO DISALLOWANCE IS CALLE D FOR UNDER SECTION 14A. OBVIOUSLY THE ASSESSEE IS MAINTAINING SEPARATE BOOK S OF ACCOUNT FOR PURPOSE OF BUSINESS AND THESE INVESTMENTS ARE IN HIS PERSON AL CAPACITY. THE A.O. ALSO HAS NOT DISALLOWED ANY EXPENDITURE OF PERSONAL NATU RE OUT OF THE INCOME FROM BUSINESS OR PROFESSION IN THE COMPUTATION OF I NCOME IN THE ASSESSMENT ORDER. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE EXPENDITURE CLAIMED IN THE BUSINESS OF SHARE DEALINGS CANNOT BE CORRELATED TO THE INCOMES EARNED IN PERSONAL CAPACITY THAT TOO ON DIVIDEND, PPF INTERES T AND TAX FREE INTEREST ON RBI BANDS. IN VIEW OF THIS, WE ARE OF THE OPINION T HAT ESTIMATION OF EXPENDITURE OF RS.20,000/- OUT OF BUSINESS EXPENDIT URE CLAIMED IN BUSINESS ACTIVITY CANNOT BE CONSIDERED FOR BEING INCURRED FO R THIS EARNING OF TAX FREE INCOME OF ABOVE NATURE. IN VIEW OF THIS DISALLOWANC E SO MADE UNDER SECTION 14A OF '.20,000/- IS DELETED. NOT ONLY THAT THE CIT (A) DIRECTED THE A.O. TO CONSIDER THE ALLOWANCE INVOKING RULE 8D. THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 3 28 ITR 81 HAS CONSIDERED RULE 8D TO BE APPLICABLE PROSPECTIVE AND SINCE THE ASSESSMENT YEAR INVOLVED IS BEFORE THE INTRODUCTION OF SUB SECTION (2) &(3) OF SECTION 14A, THERE IS NO QUESTION OF DISALLOWING THE AMOUNTS INVOKING RULE8D . THEREFORE, THE CIT(A)'S DIRECTION AND THIS IS SET ASIDE AND THE ADDITIONS S O MADE BY THE A.D. IN THE COMPUTATION OF BUSINESS INCOME IS DELETED. GROUND I S CONSIDERED TO BE ALLOWED. ' 5.4 SIMILARLY IN CASE OF AUCHTEL PRODUCTS LID (SUPR A), IT WAS HELD BY THIS TRIBUNAL IN PARA 15 HAS UNDER: '15. A BARE PERUSAL OF THE ABOVE PROVISIONS DISALLO WABLE AS PER RULE 8D, IF HE, 'IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE' IN RESPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. E VEN IF THE ASSESSEE CLAIMS THAT NO. EXPENDITURE WAS INCURRED IN RESPECT OF EXE MPT INCOME, THE AO IS SUPPOSED TO. FALLOW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE'S CLAIM. TO. PUT IT SIM PLY, THE FURTHER DISALLOWANCE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 36 OF 50 U/S.14A IS CALLED FAR WHEN THE AO IS NOT SATISFIED WITH THE ASSESSEE'S CLAIM OF HAVING INCURRED NO. EXPENDITURE OR SOME AMOUNT OF E XPENDITURE IN RELATION TO. EXEMPT INCOME. SATISFACTION OF THE AO AS TO THE INC ORRECT CLAIM MADE BY THE ASSESSEE IN THIS REGARD IS SINE QUA NON FOR INVOKIN G THE APPLICABILITY OF RULE 8D. SUCH SATISFACTION CAN BE REACHED AND RECORDED O NLY WHEN THE CLAIM OF THE ASSESSEE IS VERIFIED. 1F THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A PARTICULAR EXPENDITURE IN RESPECT OF EARNING THE EX EMPT INCOME AND THE AO GETS SATISFIED, THEN THERE IS NO. REQUIREMENT TO. S TILL PROCEED WITH THE COMPUTATION OF AMOUNT DISALLOWABLE AS PER RULE 8D. FROM THE ASSESSMENT ORDER, IT IS OBSERVED THAT THE AO SIMPLY KEPT THE A SSESSEE'S SUBMISSIONS AN RECORD WITHOUT APPRECIATING AS TO WHETHER THESE WER E CORRECT OR NOT. HE PROCEEDED ON THE PREMISE AS IF THE DISALLOWANCE AS PER RULE 8D IS AUTOMATIC IRRESPECTIVE OF THE GENUINENESS OF THE ASSESSEE'S C LAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO. EXEMPT INCOME. IT IS AN IN CORRECT COURSE ADOPTED BY THE AO. THE CORRECT SEQUENCE, IN OUR CONSIDERED OPI NION, FOR MAKING ANY DISALLOWANCE U/S. 14A IS TO/FIRSTLY, EXAMINE THE AS SESSEE'S CLAIM OF HAVING INCURRED SOME EXPENDITURE OR NO EXPENDITURE IN RELA TION TO. EXEMPT INCOME, IF THE AO GETS SATISFIED WITH THE SAME, THEN THERE IS NO. NEED TO COMPUTE DISALLOWANCE AS PER RULE 8D. IT IS ONLY WHEN THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR 110 EXPENDITURE HAVING BEEN INCURRED IN RELATION TO EXE MPT INCOME, THAT THE MANDATE OF RULE 8D WILL OPERATE. IN THE INSTANT CAS E, THE AUTHORITIES BELOW HAVE DIRECTLY GONE TO THE SECOND STAGE OF COMPUTING DISALLOWANCE U/S. 14A AS PER RULE 8D WITHOUT RENDERING ANY OPINION 011 THE C ORRECTNESS OR OTHERWISE OF THE ASSESSEE'S CLAIM IN THIS REGARD. WE, THEREFO RE. SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE F ILE OF AO TO RE-COMPUTE DISALLOWANCE, IF ANY, IN ACCORDANCE WITH OUR ABOVE OBSERVATIONS AFTER DULY EXAMINING THE ASSESSEE'S CLAIM IN THIS REGARD.' 6. IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND CI RCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT NO DISA LLOWANCE UNDER SECTION 14A IS CALLED FOR WHEN THE ASSESSEE HAS NOT INCURRE D AND CLAIMED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. 16. SIMILAR VIEWS WERE ALSO EXPRESSED BY THE COORDI NATE BENCHES IN THE CASE OF RELAXO FOOTWEARS LID, VS. ADDL. CIT (20 12) 50 SOT 102 AND PRIYA EXHIBITORS (P) LID VS. ACIT (2012) 54 SOT 356. III THE CASE OF RELAXO FOOTWEARS LID, IT WAS HELD AS UNDER: ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 37 OF 50 'THE ASSESSING OFFICER SHOULD HAVE CONSIDERED THE C LAIM OF THE ASSESSEE THAT 110 EXPENDITURE HAS BEEN INCURRED IN RELATION 10 EA RNING THE EXEMPT INCOME. IF THE CLAIM WAS NOT FOUND TO BE IN CONSONANCE WITH THE FACTS 011 RECORD, IT COULD HAVE BEEN REJECTED AND DISALLOWANCE COULD HAV E BEEN MADE AS PER RULE BD. HOWEVER, IT S FOUND THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AT ALL AND HE HAS STRAIGHTWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE BD. THE COMMISSIONER (APPEA LS) MADE AN ASSUMPTION THAT WHENEVER EXEMPT INCOME IS EARNED TH ERE WILL BE SOME EXPENDITURE INCURRED IN RELATION THERETO. SUCH PRES UMPTION CANNOT FORM THE BASIS FOR MAKING DISALLOWANCE UNDER RULE 8BD. ' 17. IN THE CASE OF PRIYA EXHIBITORS (P) LTD I'S. AC IT (2012) 54 SOT 356 IT WAS HELD AS UNDER: 'FROM THE CAREFUL STUDY OF THE OBSERVATIONS MADE BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LID. (SUPRA) , IT IS APPARENT THAT FIRST THE ASSESSINLG OFFICER HAS TO DETERMINE THE CLAIM O F THE ASSESSEE REGARDING EXPENSES WHICH NEITHER THE ASSESSING OFFICER LIAR T HE COMMISSIONER (APPEALS) HAS DONE IN THE INSTANT CASE. IN FACT, THE SAID DEC ISION GOES AGAINST THE DEPARTMENT ITSELF IN SO FAR AS THEIR LORDSHIPS HAS HELD THAT THE ASSESSING OFFICER MUST IN THE FIRST INSTANCE DETERMINE WHETHE R THE CLAIM OF THE ASSESSEE IS CORRECT AND DETERMINATION MUST BE MADE HAVING RE GARD 10 THE ACCOUNTS OF THE ASSESSEE. THE LEGISLATURE DIRECTS HIM TO FOLLOW RULE BD ONLY WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM O F ASSESSEE. ' AFTER CONSIDERING THE PRINCIPLES LAID DOWN BY VARIO US JUDGMENTS, IT IS IMPERATIVE THAT THE ASSESSING OFFICER CAN INVOKE RU LE BD ONLY WHEN HE RECORDS SATISFACTION IN REGARD TO THE CORRECTNESS O F THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPOIL A DETERMINATIO N OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM.E IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPEN DITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFF ICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. THEREFORE, IT IS ALL T HE MORE NECESSARY THAT AO HAS TO EXAMINE THE ACCOUNTS OF ASSESSEE FI RST AND THEN IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM, ONLY HE CAN INVO KE RULE 8D. NO SUCH EXAMINATION WAS MADE OR SATISFACTION WAS RECORDED B Y AO IN THIS CASE. IT WAS NOTICED THAT THE ASSESSING OFFICER HAS NOT CONSIDER ED THE CLAIM OF THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 38 OF 50 ASSESSEE AT ALL AND HE HAS STRAIGHTWAY EMBARKED UPO N COMPUTING DISALLOWANCE UNDER. RULE 8D ON THE PRESUMPTION THAT PORT FOLIO MANAGEMENT INVOLVES AT LEAST 2% OF CHARGES. DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WHERE IT WA S FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, D ISALLOWANCE UNDER SECTION /4A COULD NOT STAND. WE NOTICE THAT ASSESSE E ITSELF DISALLOWED THE INTEREST WHICH IS DIRECTLY APPLICABLE, DMAT CHARGES AND ADMINISTRATIVE EXP ON ESTIMATION TOTALING TO RS.L,55.44,610. ASSESSEE IS A HUNDRED CRORE TURNOVER COMPANY. AO HAS NOT EXAMINED ANY EXPENDITURE CLAIME D IN P& L ACCOUNT SO AS TO RELATE TO EXEMPT INCOME, NOR GAVE A FINDING T HAT ASSESSEE CLAIM IS NOT CORRECT FOR ANY REASON. RULE 8D CANNOT BE INVOKED D IRECTLY WITHOUT SATISFYING ABOUT THE CLAIMS OR OTHERWISE. CONSEQUENTLY, THE DI SALLOWANCE WAS NOT PERMISSIBLE. WE THEREFORE, ALLOW THE GROUND OF APPE AL. ' 6. WE FIND FROM THE FACTS OF THE ABOVE CASE THAT TH E AO HAS NOT EXAMINED T E ACCOUNTS OF THE ASSESSEE AND THERE IS NO SATISFACTION RECORDED BY THE AO ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT THE SAME HE INVOKED RULE 8D OF THE RULES. WHILE REJECTI NG THE CLAIM OF THE ASSESSEE WITH REGARD TO EXPENDITURE OR NO EXPENDITU RE, AS THE CASE MAY BE; IN RELATION TO EXEMPTED INCOME, THE AO HAS TO INDIC ATE COGENT REASONS FOR THE SAME. FROM THE FACTS OF THE PRESENT CASE IT IS NOTI CED THAT THE AO HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AND STRAIGHT A WAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES O N PRESUMING THE AVERAGE VALUE OF INVESTMENT AT 'H% OF THE TOTAL VAL UE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE COORDINATE BENCH DEC ISION IN THE CASE OF J. K. INVESTORS (BOMBAY) LTD., SUPRA, WE UPHOLD THE ORDER OF CIT(A). THIS APPEAL OF REVENUE IS DISMISSED. 22.5. IN THIS ORDER OF M/S JK INVESTORS (SUPRA) A NUMBER OF PROPOSITIONS HAVE BEEN CULLED OUT OF JUDGEMENTS OF VARIOUS HIGH COURTS. THESE PROPOSITIONS HAVE TO BE FOLLOWED BY THE ASSES SING OFFICER. HENCE ON THE ISSUE OF DISALLOWANCE OF EXPENDITURE WE SET ASI DE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THE AO SHALL APPLY THE PROPOSITION LAID DOWN BY THE TRIBUNAL IN THE CASE REFERRED TO ABOVE AND D ETERMINE THE QUANTUM OF DISALLOWANCE. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 39 OF 50 22.6. IN THE RESULT THIS GROUND IS ALLOWED IN PART . 23. GROUND NO.6 IS AGAINST PARTIALLY SUSTAINING TH E DISALLOWANCE ON DEPRECIATION. THE FIRST APPELLATE AUTHORITY HAS PA RTLY SUSTAINED THE DEPRECIATION DISALLOWANCE FOR THE REASONS THAT THE ASSESSEE FAILED TO FURNISH CERTAIN BILLS AND VOUCHERS. AS THE BILLS AND VOUCH ERS ARE NOT FURNISHED, WE FIND NO INFIRMITY IN THE ORDER OF THE FIRST APPELLA TE AUTHORITY. 23.1. IN THE RESULT THIS GROUND OF THE ASSESSEE I S DISMISSED. 23.2. IN THE RESULT ITA 48/DEL/2014 FOR THE ASSESSM ENT YEAR 2010-11 IS PARTLY ALLOWED. 24. ITA 87/VIZAG/2007 IS AN APPEAL FILED BY THE REVENUE. GROUND NO.1 IS GENERAL IN NATURE. 25. GROUND NO.2&3 ARE REGARDING DISALLOWANCE OF THE CLAIM OF DEDUCTIONS U/S80 IC. WE FIND THAT THE FIRST APPELLATE AUTHORI TY HAD ADMITTED THE AUDIT REPORT IN QUESTION IN FORM NO.10 CCB, BY WAY OF ADD ITIONAL EVIDENCE DURING THE APPELLATE PROCEEDINGS. SUCH ADMISSION OF ADDITI ONAL EVIDENCE HAS NOT BEEN CHALLENGED BY THE REVENUE IN THE GROUNDS OF AP PEAL. WHEN THE ADMISSION OF ADDITIONAL EVIDENCE IS NOT CHALLENGED THEN THE CONSEQUENCE OF CONSIDERING THE EVIDENCE CANNOT BE CHALLENGED WHEN THERE IS NOTHING WRONG WITH THE FINDING. IN GROUND NO.3 THE REVENUE SUBMI TS AND AGREES THAT LD. C.I.T (A) BASED HIS DECISION ON THE PROPOSITIONS LA ID DOWN BY VARIOUS BENCHES OF THE ITAT AND ALSO JUDGEMENTS OF SOME HIGH COURTS . THE ONLY GRIEVANCE OF ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 40 OF 50 THE REVENUE IS THAT THERE IS NO DECISION OF THE JUR ISDICTIONAL HIGH COURT OR SUPREME COURT ON THE ISSUE AND HENCE THE LD.CIT(AP PEALS) SHOULD NOT HAVE FOLLOWED THE PROPOSITIONS LAID DOWN BY VARIOUS HIGH COURTS ON THIS ISSUE. SUCH A GROUND IS NOT SUSTAINABLE. AS ADMITTEDLY THE LD.CIT(APPEALS) HAS RELIED ON THE DECISION OF THE ITAT AND THE PROPOSIT IONS LAID DOWN BY THE HIGH COURTS. HENCE GROUND NOS 2 AND 3 OF THE REVENUE A RE TO BE DISMISSED. 25.1. IN THE RESULT ITA 87/V/2014 IS DISMISSED. 26. ITA NO.49/VIZAG/2014 IS AN APPEAL IS BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD.CIT(A) DT. 10.1.2014 FO R THE AY 2011-12 ON THE FOLLOWING GROUNDS. 1. THE ORDER OF THE LD.CIT(APPEALS) IS CONTRARY T O THE FACTS AND ALSO THE LAW APPLICABLE TO THE FACTS. 2. (A) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN HOL DING THAT THE TURNOVER IN RESPECT OF CCE PROJECTS HAS TO BE ADOPTED AT RS.173 .58 CRORES AS AGAINST TURNOVER OF RS.165.91 CRORES ADMITTED BY THE APPELL ANT. (B) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE DIFFERENTIAL AMOUNT OF RS.7.67 CRORES NEITHER ACCRUED TO THE APP ELLANT NOR WAS RECEIVED BY THE APPELLANT. (C ) THE LD.CIT(A ) ERRED IN ADOPTING TURNOVER PART IALLY ON THE BASIS OF REVISED FINANCIAL STATEMENTS AND PARTIALLY ON THE BASIS OF FINANCIAL STATEMENTS FOUND AT THE TIME OF SURVEY. (3) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN SUSTAI NING THE ADDITION OF @ 30% P.A. TOWARDS RETURN ON INVESTMENT ON A NOTIONAL BAS IS IN RESPECT OF INVESTMENT OF RS.12,37,000/- IN SATYAVANI PROJECTS WITH REGARD TO WHICH NO INCOME ACCRUED TO THE APPELLANT EITHER CONTRACTUALL Y OR LEGALLY. 4.(A) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN CONFI RMING PARTIALLY THE DISALLOWANCE OF INTEREST OF RS.7,56,94,060/- ON LOA NS AND ADVANCES AND RS.63,89,630/- ON ADVANCES FOR CAPITAL EXPENDITURE. (B) THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN REJECTI NG THE CONTENTION OF THE APPELLANT THAT THE INTEREST FREE FUNDS AVAILABLE TO THE APPELLANT CAN BE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 41 OF 50 PRESUMED TO HAVE BEEN UTILIZED FOR EXTENDING INTERE ST FREE LOANS AND ADVANCES AND ALSO ADVANCES FOR CAPITAL EXPENDITURE. (C ) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE INTEREST FREE LOANS AND ADVANCES EXTENDED TO THE SISTER CONCERNS WERE OUT OF COMMERCIAL EXPEDIENCY. (D) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED T HAT THE CASH CREDIT AVAILED BY THE APPELLANT CANNOT BE SAID TO HAVE BEE N DIVERTED FOR NON BUSINESS PURPOSES MERELY BECAUSE THE PAYMENTS TO SI STER CONCERNS WERE MADE FROM THE SAID ACCOUNT. (E) THE LD.CIT(APPEALS) OUGHT TO HAVE APPRECIATED T HE FACT THAT THE INTEREST FREE FUNDS ROUTED THROUGH THE CASH CREDIT ACCOUNT W ERE MORE THAN THE INTEREST FREE ADVANCES EXTENDED FROM OUT OF THE CAS H CREDIT ACCOUNT. 5. THE LD.CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRM ING THE DISALLOWANCE OF RS.7,53,315/- U/S 14A OF THE ACT. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F APPEAL HEARING. 26.1. AFTER HEARING RIVAL CONTENTIONS WE HOLD AS F OLLOWS. 26.2. GROUND NO.1 IS GENERAL IN NATURE. 26.3. GROUND NO.2 IS ON THE ISSUE OF THE TURNOVER T O BE ADOPTED IN RESPECT OF CCE PROJECTS. THE ASSESSEES CLAIM IS THAT THE TUR NOVER FROM CCE PROJECTS IS RS.165.91 CRORES. THE LD.CIT(A) HAS ADOPTED THE TU RNOVER FIGURE AT RS.173.58 CRORES. THE DIFFERENTIAL AMOUNT WAS TAXE D AS INCOME WHICH IS ACCRUED TO THE ASSESSEE DURING THE YEAR. 26.4. THE LD.CIT(A) AT PARA 4.4 PAGE 14 RECORDED AS FOLLOWS. 4.4. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS MENTIONED THAT THE BOOKS OF ACCOUNTS IMPOUNDED ARE FAR MORE RELIABLE T HAN THE RESTATED FINANCIAL STATEMENTS. THIS WAS POINTED OUT TO THE DCIT(3)(1) , SHRI GOPI KRISHNA DURING THE COURSE OF HEARING AND WAS ASKED TO PRODUCE THES E BOOKS OF ACCOUNT AND ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 42 OF 50 OTHER INCRIMINATING MATERIAL IMPOUNDED DURING SURVE Y. THE LEARNED DCIT SUBMITTED THAT BOOKS OF ACCOUNTS WERE NOT IMPOUNDED DURING THE SURVEY AND THAT THE MATERIALS REFERRED TO IN THE ASSESSMENT OR DER WAS THE AUDITED FINANCIAL STATEMENTS FOUND DURING THE SURVEY AND TH ERE WAS NO OTHER INCRIMINATING MATERIAL FORMING PART OF THE IMPOUNDE D DOCUMENTS. THE LEARNED DCIT ALSO SUBMITTED THAT CERTAIN MATERIAL I N THE ASSESSEES COMPUTER WERE ANALYSED AND FOUND TO BE INCOMPLETE AND THEY R ELATED TO SOME TRANSACTIONS MAINTAINED IN THE VIZAG OFFICE. THUS, AS PER THE ASSESSING OFFICER, THE ONLY RELEVANT MATERIAL FOUND DURING TH E SURVEY WAS THE AUDITED FINANCIAL STATEMENT AND ON WHICH RELIANCE HAS BEEN PLACED IN THE FINANLISATION OF THE ASSESSMENT. 26.5. FROM THE ABOVE IT IS CLEAR THAT THE AO PLACE D RELIANCE ON THE AUDITED FINANCIAL STATEMENTS FOUND DURING THE COURS E OF SURVEY. THE ASSESSEE VIDE LETTER DT. 24.1.2013, FILED BEFORE THE ASSESSI NG OFFICER EVIDENCES IN THE FORM OF THIRD PARTY CONFIRMATIONS AS TO WORK COMPL ETED, AS WELL AS COPIES OF TDS RETURNS FILED BY THE THIRD PARTIES. THE LD.CIT (A) RECORDS THAT THE AO HAS NOT EXAMINED THE VERACITY OF THESE EVIDENCES TO FIN D OUT THE TRUTH IN THE CLAIMS MADE BEFORE HIM. DESPITE SUCH FINDINGS THE L D.CIT(APPEALS) HAS CONCLUDED THAT THERE IS A VARIATION IN THE TURNOVER . 26.6. THE ASSESSEE FILED ITS RETURN OF INCOME BASED ON RESTATED FINANCIAL STATEMENTS. THE LD.CIT(A) AT PAGE 15 OF HIS ORDER O BSERVED AS FOLLOWS. THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW DISCREPANCIES OR DEFECTS IN THE RESTATED FINANCIAL STATEMENTS. NO CASE HAS BEEN MADE OUT AS TO WHY THE RESTATED FINANCIAL ACCO UNTS SHOULD NOT BE RELIED UPON OR AS TO WHY THEY SHOULD BE REJECTED. NO DOUB T, THE AUDITED FINANCIAL STATEMENTS FOUND DURING THE SURVEY OPERATION WAS A VALID PIECE OF EVIDENCE COUPLED WITH THE ADMISSION MADE BY THE DIRECTORS . BUT, WHEN THE RETURN OF INCOME WAS FILED ON THE BASIS OF RESTATED FINANC IAL ACCOUNTS AND THE ADMISSION RETRACTED POINTING OUT CERTAIN DEFECT S IN THE FINANCIAL STATEMENT FOUND DURING THE SURVEY, I THINK, THE ASS ESSING OFFICER IS ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 43 OF 50 DUTY BOUND TO BRING OUT MATERIALS OR VALID REASONS AS TO WHY THEY SHOULD NOT BE RELIED ON IN THE DETERMINATION OF PRO FITS OF THE CONSTRUCTION BUSINESS, AND ALSO ON THE VERACITY OF THE CLAIMS MADE. BUT, INSTEAD ONLY TECHNICAL DEFECT IN THE CLAIMS MA DE HAVE BEEN DISCUSSED WITHOUT POINTING OUT ANY MATERIAL DEFECT IN THE EVIDENCE RELIED ON BY THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO INVOKED THE PRESUMPTION PROVIDED IN S.292C OF THE IT ACT, BUT I AM OF THE VIEW THAT THE PROVISIONS OF S.292C OF THE ACT WOULD NOT BAR THE A SSESSEE FROM MAKING ANY VALID CLAIM AS TO THE VERACITY OF EVIDENCE FOUND OR TO LEAD EVIDENCE IN SUPPORT OF ITS CLAIMS. THE NOTICE ISSUED U/S 143(2) TO THE ASSESSEE, AFTER THE FILING OF THE RETURN CONFERS ON THE ASSESSEE RIGHT TO ADDUCE EVIDENCE IN SUPPORT OF ITS RETURN OF INCOME. SUCH A RIGHT WOULD NOT BE RESTRI CTED BY THE PRESUMPTION RAISED U/S 292C OF THE IT ACT. IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER IS NO T JUSTIFIED IN NOT EXAMINING OR CONSIDERING THE CLAIMS PUT FORTH BY THE ASSESSEE AND REJECTING THEM WITHOUT INQUIRY. (EMPHASIS OURS). 26.7. AFTER DISCUSSING AS ABOVE, THE LD.CIT(APPEAL S) CONSIDERED THE VARIATIONS IN THE RESTATED FINANCIAL STATEMENTS OF ACCOUNT AND THE AUDITED FINANCIAL STATEMENTS FOUND DURING THE COURSE OF SUR VEY. HE ACCEPTED THE CLAIMS OF THE ASSESSEE WITH REGARD TO ALL OTHER FIG URES EXCEPT IN THE CASE OF CCE PROJECTS. THE REVENUE HAS ACCEPTED THESE FINDI NG OF THE LD.CIT(APPEALS). THE ASSESSEE DISPUTES THE TURNOVE R DIFFERENCE DETERMINED BY THE LD.CIT(APPEALS) IN CCE PROJECTS WHICH ARE DE FENCE RELATED PROJECTS WITH GOVERNMENT OF INDIA. 26.8. THE ISSUE THAT IS IN DISPUTE BEFORE US IS RE GARDING TURNOVER OF ON CCE PROJECTS. THE ISSUE IS BROUGHT OUT AT PARA 5.1 TO PARA 5.3 OF THE LD.CIT(A) ORDER WHICH IS EXTRACTED FOR READY REFERE NCE. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 44 OF 50 CCE PROJECTS 5.1. WITH REFERENCE TO CCE PROJECTS, IT WAS SUBMI TTED THAT THE ASSESSEE HAS DONE FOUR PROJECTS FOR CCE DURING THE YEAR. THE TURNOVER DETAILS AS PER RESTATED ACCOUNTS AND AS PER FINANCIAL STATEMENT F OUND DURING THE SURVEY WAS GIVEN AS FOLLOWS:- 5.2 THE AR SUBMITTED THAT THE TURNOVER IN RESPECT O F CCE PROJECT DELHI AS PER THE RESTATED ACCOUNTS WAS RS. 5870.25 LAKHS AS AGAI NST THE TURNOVER AS PER FINANCIAL STATEMENT FOUND DURING THE SURVEY OF RS. 6336.06 LAKHS. THE AR SUBMITTED WITH REFERENCE TO CONTRACT RECEIPT LEDGE R (VIDE PAGE 14-20 OF PAPER III) THAT MATERIAL ADVANCES OF RS.L,67,38,492/- A ND RS.2,L5,20,OOO/- AND BILLS RECEIVABLE OF RS.9,62,01,482/- WAS BOOKED AS CONTRACT TURNOVER INITIALLY, AND THAT AN AMOUNT OF RS.1,65,81,221/- WAS REVERSE D IN THE RESTATED ACCOUNTS TOWARDS MATERIAL ADVANCE RECEIVED AND THA T AS A RESULT THE TURNOVER GOT REVISED TO RS.58,70,25,000/-. WITH RE GARD TO CCE PROJECT, JABALAPUR, THE AR REFERRED TO PAGES 15-19 OF PAPER BOOK-IV, AND SUBMITTED THAT MATERIAL ADVANCE RECEIVED OF RS. 62,74,395/- W AS BOOKED AS TURNOVER, AND THAT AN AMOUNT OF RS.3,01,77,500/- WAS REVERSED IN THE RESTATED ACCOUNTS, AND AS A RESULT THE TURNOVER GOT REDUCED TO RS.1,03,05,61,100/-. THE AR WAS ASKED TO EXPLAIN WHY THE MATERIAL ADVANC E AMOUNTING TO RS.3,82,58,492/- TAKEN AS TURNOVER WAS REVERSED BY AN AMOUNT OF RS.4,65,81,224/- IN THE CASE OF CCE PROJECTS DELHI, AND WHY THE MATERIAL ADVANCE AMOUNTING TO RS.62,74,395/- TAKEN AS TURNOV ER WAS REVERSED BY AN AMOUNT OF RS.3,01,77,500/- AND SUBMIT THE BASIS/DOC UMENTS FOR PASSING SUCH REVERSE ENTRIES. THE ARS WERE NOT ABLE TO GIVE AN Y FURTHER EXPLANATION ON DOCUMENTS FOR THE BASIS OF SUCH REVERSION. THE AR S WERE NOT ABLE TO PRODUCE THE WORK BILLS IN SUPPORT OF THEIR ARGUMEN T. HOWEVER, IT WAS CONTENDED THAT AS PER THE CONFIRMATION LETTER GIVE N BY THE DEPUTY DIRECTOR CCE PROJECTS, TDS WAS EFFECTED ON THE CONTRACT PAYM ENT TO THE TUNE OF RS.L,49,OL,35,037/- IN RESPECT OF THE FOUR CCE PROJ ECTS EXECUTED DURING THE YEAR, AND THE ASSESSEE AS AGAINST WHICH HAS ADMITTE D A HIGHER TURNOVER IN ITS RESTATED ACCOUNTS SHOULD BE TAKEN FOR THE PURPOSE O F COMPUTATION OF TURNOVER. 5.3. IT IS TO BE NOTED THAT THE ASSESSEE COULD NOT GIVE ANY SUPPORTING EVIDENCE TO SHOW THAT IT HAD RECEIVED MATERIAL ADV ANCE OF RS.3,82,58,492/- IN THE CASE OF CCE PROJECT DELHI AND RS.62,74,395/ - IN THE CASE OF CCE PROJECTS, JABALPUR WHICH WAS SAID TO BE TAKEN AS TU RNOVER AND WAS SUBSEQUENTLY REVISED. SIMILARLY, NO CORRESPONDING E VIDENCE WAS GIVEN FOR THE ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 45 OF 50 BILLS RECEIVABLE OF RS.9,62,01,482/-. NO BASIS W AS GIVEN FOR REVERSING AN AMOUNT OF RS.7,67,58,724/- (RS.4,65,81,224/- + RS. 3,01,77,500/-) IN RESPECT OF THESE PROJECTS. THE ASSESSEE COULD NOT IDENTIF Y THE RECEIPT OF THE ABOVE REFERRED MOBILIZATION ADVANCE WITH REFERENCE TO I TS BANK STATEMENT. THE AO HAD FORWARDED THE INFORMATION GATHERED FROM DD CCE PROJECTS IN LETTER NO.90146{TDS/WED/ES DATED 7-11-2012, WHICH ALSO DID NOT REFER TO PAYMENT OF MOBILIZATION ADVANCE OR MATERIAL ADVAN CE DURING THE YEAR. IT HAS ONLY REFERRED TO PAYMENTS MADE DURING THE YEAR ON WHICH TDS WAS EFFECTED. THERE IS NO REFERENCE TO THE BILLS RAISED DURING THE YEAR, THE ARS EXPLAINED THAT THE ASSESSEE IS NOT IN A POSITION TO SUBMIT T HE CONTRACT AGREEMENTS FOR THE BILLS RAISED. THUS, THE CLAIM THAT THE MOBILI ZATION ADVANCE RECEIVED BY THE ASSESSEE WAS REVERSED IS NOT SUBSTANTIATED WITH ANY EVIDENCE AND THEREFORE, THE CLAIM OF REDUCTION OF TURNOVER OF RS .767.59 LAKHS IS NOT ACCEPTABLE. THE CONTRACT TURNOVER FOR THESE PROJEC TS MAY BE TAKEN AS PER THE AUDITED STATEMENT FOUND DURING SURVEY. 26.9. THE ASSESSEE`S CONTENTION IS THAT: (A) THE T URNOVER AS PER BOOKS AND RESTATED ACCOUNTS IS MORE THAN THE TURNOVER CER TIFIED BY THE GOVERNMENT AUTHORITIES OF CCE PROJECTS AND THAT THIS TURNOVER IS ACCEPTED BY THE AO AS CORRECT DURING REMAND PROCEEDINGS. (B) THE TURNOVER AND FINAL POSITION AS PER RESTATED FINANCIAL STATEMENTS HAVE BEEN ACCEPTED FO R VARIOUS PROJECTS, EXCEPT IN THE CASE OF CCE PROJECTS, WHICH IS LOOKED INTO I N ISOLATION WITHOUT CONSIDERING THIRD PARTY CONFIRMATIONS. (C) THE FIRS T APPELLATE AUTHORITY IGNORED THE FACT THAT THE ASSESSEE INCREASED HIS WORK-IN-PR OGRESS BY RS. 79.20 CRORES, WHILE REDUCING THE TURNOVER BASED ON PROPER CONSIDE RATION OF EVIDENCES BY RS. 125.40 CRORES. THE STATEMENT FOUND DURING SURV EY, WHEN COMPARED, WITH THE FIGURES IN THE RESTATED ACCOUNTS RESULTS I N A NET POSITION WHICH IS ADVANTAGEOUS TO REVENUE BY RS. 79.20 CRORES WHEN COMPARED TO UNRECONCILED TURNOVER DIFFERENCE WHICH IS RS. 7.67 CRORES WHICH WAS ADDED. ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 46 OF 50 (D) WHEN FINAL BOOKS OF ACCOUNTS REMAINED ACCEPTED IN ALL RESPECTS, THEREFORE, IT IS IMPROPER TO REJECT THE BOOKS IN RE SPECT OF CCE PROJECTS. 26.10. THE LD.D.R. SUBMITS THAT (A) THE VARIATION BETWEEN THE AUDITED BOOKS OF ACCOUNTS OF THE RESTATED FINANCIAL STATEME NTS HAS NOT BEEN PROPERLY EXPLAINED BY THE ASSESSEE. (B) THERE IS NO SUPPORT ING EVIDENCE TO SHOW THAT THE ASSESSEE RECEIVED MATERIAL ADVANCES OF RS.3,82, 58,492/- IN THE CASE OF CCE PROJECTS, DELHI AND RS.62,74,396/- IN THE CASE OF CCE PROJECTS JABALPUR. (C) NO EVIDENCE WAS GIVEN FOR BILLS RECEIVABLE (D) NO BASIS WAS GIVEN FOR RESERVING AN AMOUNT OF RS.7.67 CRORES.(E) THE ASSE SSEE EXPLAINED THAT IT IS NOT IN A POSITION TO SUBMIT CONTRACT AGREEMENTS OR BILLS RAISED. 26.11. HE PRAYED THAT THE ORDER OF LD.CIT(APPEALS) BE UPHELD. 27. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS . THE FIRST APPELLATE AUTHORITY AT PAGE 14 PARA 4.4 HAS RECORDE D A FINDING THAT THE DCIT SUBMITTED THAT BOOKS OF ACCOUNTS WERE NOT IMPOUNDED DURING THE SURVEY AND THAT THERE WAS NO INCRIMINATING MATERIAL WHICH WAS FOUND OR IMPOUNDED. HE RECORDS A FINDING THAT THE ONLY RELEVANT MATERIAL F OUND DURING THE SURVEY WAS THE AUDITED FINANCIAL STATEMENTS. 27.1. FURTHER AT PAGE 15, HE RECORDS THAT WHILE AU DITED FINANCIAL STATEMENTS FOUND DURING THE SURVEY, WERE VALID PIEC E OF EVIDENCES, WHEN RETURN OF INCOME IS FILED BASED ON THESE RESTATED F INANCIAL ACCOUNTS AND ON RETRACTION OF STATEMENTS MADE AFTER DEMONSTRATING D EFECTS IN THE AUDITED ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 47 OF 50 FINANCIAL ACCOUNTS, AND THE LD.CIT(APPEALS) FURTHE R HELD THAT THE ASSESSING OFFICER IS DUTY BOUND TO BRING OUT MATERIAL OR VALI D REASONS AS TO WHY THESE RESTATED ACCOUNTS SHOULD NOT BE RELIED UPON. AFTER LAYING DOWN SUCH PROPOSITIONS, THE LD.CIT(APPEALS) ACCEPTED THE VARI ATIONS IN THE TURNOVER OF THE ASSESSEE COMPANY AS REGARDS VARIOUS OTHER PROJE CTS EXCEPT THE FOUR CCE PROJECTS. ALL OTHER FIGURES AS PER THE RESTATED F INANCIAL STATEMENTS WERE ACCEPTED. UNDER THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE FIRST APPELLATE AUTHORITY SHOULD NOT HAVE BASED HIS CONCL USIONS ON THE FINANCIAL STATEMENTS FOUND DURING THE COURSE OF SURVEY, ONLY IN THE CASE OF CCE PROJECTS. THE FINANCIAL STATEMENTS FOUND DURING T HE COURSE OF SURVEY SHOULD HAVE BEEN ACCEPTED AS A WHOLE OR REJECTED AS A WHO LE AND IT IS NOT CORRECT TO PICK AND CHOOSE CERTAIN ITEMS. WHEN IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE COULD NOT LEAD EVIDENCE TO SUPPORT THE FIG URES RECORDED BY IT IN RESTATED FINANCIAL STATEMENTS, THEN THE BEST COURSE WOULD BE TO OBTAIN THE FACTS AND FIGURES FROM THE GOVERNMENTAL AUTHORITIES WITH WHOM THE ASSESSEE HAS CARRIED OUT CONTRACTS. IN THE CASE ON HAND TDS WERE MADE ON ALL CONTRACT PAYMENTS AND THE TDS CERTIFICATES ARE AVAI LABLE WITH THE REVENUE. THE GOVERNMENTAL AUTHORITIES OF CCE PROJECTS ALSO CONFIRMED THE QUANTUM OF TURNOVER AS RECORDED IN THEIR OWN BOOKS. TO TAKE S OME OTHER FIGURE THEN WHAT IS RECORDED BY THE GOVERNMENTAL AUTHORITIES IN THEIR BOOKS OF ACCOUNTS WOULD NOT BE CORRECT. HENCE IN OUR VIEW, IT WOULD HAVE BEEN APPROPRIATE FOR THE LD.CIT(APPEALS) TO ADOPT THE TURNOVER FIGURE FROM THE CCE PROJECT AUTHORITIES CERTIFICATES. IN THIS CASE THE ASSES SEE HAS DECLARED A TURNOVER IN ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 48 OF 50 ITS RESTATED FINANCIAL ACCOUNTS WHICH IS HIGHER THA N WHAT WAS CERTIFIED BY THE GOVERNMENTAL AUTHORITIES OF CCE PROJECTS. HENCE NO ADDITION IS WARRANTED AND THE FIGURE SO DECLARED SHOULD BE ACCEPTED. 27.2. MOREOVER IN THIS CASE THE ASSESSEE HAS, IN IT S RESTATED FINANCIAL STATEMENTS DISCLOSED AN INCREASE IN WORK-IN-PROGRES S BY RS.79.20 CRORES. THE ADDITION SOUGHT TO BE SUSTAINED BY THE LD.CIT(APPEA LS) WAS RS.7.97 CRORES. THUS THE INCREASE IN WORK-IN-PROGRESS IN OUR VIEW A BSORBS THIS VARIATION OF RS.7.67 CRORES. HENCE NO SEPARATE ADDITION IS WARR ANTED. 27.3. EVEN OTHERWISE THE TURNOVER RECORDED AS PER B OOKS AS REFLECTED IN THE RESTATED FINANCIAL STATEMENTS IS RS.16591.26 LAKHS AS AGAINST THE TURNOVER CONFIRMED BY THE GOVERNMENTAL AUTHORITIES OF CCE PR OJECTS AS RS.14901.35 LAKHS. THIS FIGURE OF RS.14901.35 LAKHS HAS BEEN A CCEPTED AS THE CORRECT TURNOVER BY THE ASSESSING OFFICER IN THE REMAND PRO CEEDINGS. AS THE TURNOVER DECLARED BY THE ASSESSEE IS HIGHER THAN THE CERTIF IED TURNOVER, IN OUR VIEW, NO SEPARATE ADDITION IS WARRANTED. AS STATED THE LD.C IT(APPEALS) WHILE ACCEPTING THE BOOK FIGURES AS REFLECTED IN THE REST ATED FINANCIAL STATEMENTS IN ALL ASPECTS, COMMITTED AN ERROR WHILE ESTIMATING THE TURNOVER IN THE CASE OF CCE PROJECTS. LOOKING AT THE ISSUE FROM ANY ANGLE WE HAVE TO HOLD THAT THE ADDITION IN QUESTION IS WRONG AND HAS TO BE DELETED . IN THE RESULT THIS APPEAL OF THE ASSESSEE IS ALLOWED AND THE ADDITION IS DELE TED. 28. GROUND NO.3 IS ON THE ISSUE OF NOTIONAL ADDITIO N @ 30% P.A. TOWARDS RETURN ON INVESTMENTS IN SATHYAVANI PROJECTS. SIMI LAR ISSUE WAS CONSIDERED ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 49 OF 50 BY US WHILE DISPOSING OF THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010- 11 VIDE PARA 21.2. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE ALLOW THIS GROUND OF THE ASSESSEE FOR STATISTICAL PURPOSES. 29. GROUND NO.4 IS SAME AS IN THE ASSESSMENT YEAR 2 009-10, WHICH WE HAD DECIDED VIDE PARAS 15 TO 15.3 ABOVE. CONSISTE NT WITH THE VIEW TAKEN THEREIN, WE ALLOW THIS GROUND OF THE ASSESSEE. 30. GROUND NO.5 IS ON DISALLOWANCE U/S 14A. THIS ISSUE IS SAME AS IN THE ASSESSMENT YEAR 2009-10 WHICH WE HAD DECIDED VIDE P ARA NOS.22 TO 22.6 ABOVE. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE PARTLY ALLOW THIS GROUND. 30.1. IN THE RESULT ITA NO.49/V/2014 IS PARTLY ALLO WED. 31. IN THE RESULT ASSESSEES APPEALS IN ITA NOS. 47/V/2014 (ASSESSMENT YEAR 2009-10), ITA 48/V/2014 (AT 2010-11), ITA 49/ V/2014 (ASSESSMENT YEAR 2011-12) ARE PARTLY ALLOWED AND REVENUE APPEAL IN ITA 87/V/0214 (ASSESSMENT YEAR 2010-11) IS DISMISSED. 32. AS FAR AS SP NOS. 27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2014) FOR THE ASSESSMENT YEAR 2010-11 AND 2011-12 ARE CON CERNED, BOTH THE S.PS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2014. SD/- SD/- (SAKTIJIT DEY) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 5 TH SEPTEMBER, 2014 *MANGA ITA NOS. 47, 48 AND 49/V/2014 ASSESSMENT YEAR 2009-10, 2010-11, 2011-12 ITA 87/V/2014 : ASSESSMENT YEAR 2010-11 M/S APEX ENCON PROJECT PVT.LTD., VISAKHAPATNAM A N D S.P.NOS.27 AND 28/V/2014 (IN ITA NOS. 48 AND 49/V/2 014) AT 2010-11 AND 2011-12 PAGE 50 OF 50 COPY OF THE ORDER FORWARDED TO: 1. M/S. APEX ENCON PROJECTS PVT. LTD., D.NO.1-54-11 , PLOT NO.51, SECTOR-1, HIG, M.V.P. COLONY, VISAKHAPATNAM. 2. JCIT, RANGE-3, VISAKHAPATNAM. 3. DCIT CIRCLE-3(1), VISAKHAPATNAM. 4. CIT-1, VISAKHAPATNAM 5. CIT(A), VISAKHAPATNAM 6. DR; VISAKHAPATNAM. 7. GUARD FILE BY ORDER SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM.