Weikfield Products Co (I) Pvt. Ltd., Pune V. Joint Commissioner of Income-tax,

ITA 528/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9224 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 24-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA; ANIL KUMAR CHAWARE
• Assessee Lawyers: NILESH KHANDELWAL; R G NAHAR
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Cost of acquisition; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 14A; 115JB; 37(1); 54; 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1 452 /P U N/201 1 / ASSESSMENT YEAR : 20 0 7 - 0 8 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7 , PUNE . / APPELLANT VS. WEIKFIELD PRODUCTS CO. (I) PVT. LTD., WEIKFIELD IT CITY INFOPARK, D BLOCK, 9 TH FLOOR, NAG AR ROAD, PUNE 411014 . / RESPONDENT PAN: A AA CW1865A . / ITA NO. 1416 /P U N/201 1 / ASSESSMENT YEAR : 20 07 - 08 WEIKFIELD PRODUCTS CO. (I) PVT. LTD., WEIKFIELD IT CITY INFOPARK, D BLOCK, 9 TH FLOOR, NAGAR ROAD, PUNE 411014 . / APPELLANT PAN: AAACW1865A VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT . / ITA NO. 2365 /P U N/201 2 / ASSESSMENT YEAR : 20 0 9 - 1 0 WEIKFIELD PRODUCTS CO. (I) PVT. LTD., WEIKFIELD IT CITY INFOPARK, D BLOCK, 9 TH FLOOR, NAGAR ROAD, PUNE 411014 . / APPELLANT PAN: AAACW1865A VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 2 . / ITA NO. 528 /P U N/201 5 / ASSESSMENT YEAR : 20 10 - 11 WEIKFIELD PRODUCTS CO. (I) PVT. LTD., WEIKFIELD IT CITY INFOPARK, D BLOCK, 9 TH FLOOR, NAGAR ROAD, PUNE 411014 . / APPELLANT PAN: AAACW1865A VS. THE JOINT COMMISSIONER OF INC OME TAX, RANGE 7, PUNE . / RESPONDENT ASSESSEE BY : S /S HRI R.G. NAHAR AND NILESH KHANDELWAL REVENUE BY : MS. ANN KAPTHUAMA AND SHRI ANIL KUMAR CHAWARE / DATE OF HEARING : 15 .0 5 . 2017 / DATE OF PRONOUNCEMENT: 30 . 0 6 .201 7 / ORDER PER SUSHMA CHOWLA, J M : OUT OF THIS BUNCH OF APPEALS, CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE ARE AGAINST ORDER OF CIT(A) - III , PUNE , DATED 31 . 12 .20 10 RELATING TO ASSESSMENT YEAR 20 07 - 08 AGAINST O RDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE IS ALSO IN APPEAL AGAINST SEPARATE ORDER S OF CIT(A) - III , PUNE , DATED 22 . 10 .20 12 AND CIT(A) - 5, PUNE, DATED 19.03.2015 RELATING TO ASSESSMENT YEAR S 20 09 - 10 AND 2 010 - 11 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 3 2. THIS BUNCH OF APPEALS RELATING TO THE SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF C ONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO THE FACTS AND ISSUES IN ITA NO.1416/PUN/2011 TO ADJUDICATE THE ISSUE. 3. THE ASSESSEE IN ITA NO. 1416 /PN/20 11 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - A) AS REGARDS COMPUTATION OF TAX ULS. 115 JB OF THE INCOME TAX ACT: 1 . ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT NOT GRANTING THE DEDUCTION OF RS.57,00,000/ - BY APPLICATION OF PROVISIONS OF SEC.14A FROM EXEMPT DIVIDEND & RS.31 ,49,59,605/ - ON ACCOUNT OF SHARE OF PROFIT FROM AOP WHILE COMPUTING THE ELIGIBLE INCOME IN ACCORDANCE WITH PROVISION OF SEC.115JB IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE DEDUCTIONS CLAIMED BY THE APPELLANT HAVE BEEN ALLOWED AS PER THE PROVISIONS OF THE ACT & ON THE BASIS OF SUBMISSIONS MADE BY THE APPELLANT. JUST & PROPER RELIEF BE GRANTED TO THE APPELLANT IN THIS SCORE. 2 . ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DEDUCTION OF RS. 30,75,60,287 / - BEING EXPENSES INCURRED TOWARD S SMOOTH OPERATION & FUNCTIONING OF THE COMPANY SHOULD HAVE BEEN ALLOWED WHILE COMPUTING THE ELIGIBLE INCOME DETERMINED IN ACCORDANCE WITH PROVISIONS OF SEC.115JB OF THE INCOME TAX ACT. JUST & PROPER RELIEF BE GRANTED TO THE APPELLANT IN THIS SCORE . B) AS REGARDS COMPUTATION OF TAX UNDER THE REGULAR PROVISIONS: 1 . ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE OF INTEREST OF RS. 57,00,000 / - MADE U /S. 14A IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. NO DISALLOWANCE SHOULD HAVE BEEN MADE U/S. 14A. THE DISALLOWANCE SO MADE BE DELETED. 2 . ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE OF INTEREST OF RS.5,69,402/ - MADE U/S.36(1)(III) IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. NO DISALLOWANCE SHOULD HAVE BEEN MADE U/S. 36(1)(III). THE DISALLOWANCE SO MADE BE DELETED. 3 . ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE U/S.80IC OF R S.44,92,092/ - IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. NO DISALLOWANCE SHOULD HAVE BEEN MADE U/S.80IC. THE DISALLOWANCE SO MADE BE DELETED. 4 . THE ASSESSEE HAS NOT PRESSED ORIGINAL GROUND OF APPEAL NO.2, BUT HAS FURNISHED MODIFIED GROUND OF APPEAL NO.2, WHICH READS AS UNDER: - ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 4 THE MODIFIED GROUND OF APPEAL: ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW THAT IT BE HELD DEDUCTION OF RS.28,88,50,628/ - BEING EXPENSES INCURRED TOWARDS SMOOTH OPERATION AND FUNCTIONING O F THE COMPANY SHOULD HAVE BEEN ALLOWED, IN THE NATURE OF AMOUNT PAID AS PREMIUM ON THE BUYBACK OF SHARES BY THE APPELLANT COMPANY, WHILE COMPUTING THE INCOME OF THE APPELLANT UNDER REGULAR PROVISION OF THE INCOME TAX ACT / AS WELL AS INCOME TO BE COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT. JUST AND PROPER RELIEF TO BE GRANTED TO THE APPELLANT ON THIS SCORE. 5 . THE REVENUE IN ITA NO. 1452 /PN/20 11 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN RESTRICTING THE DISALLOWANCE U/S.36(1)(III) OF THE L.T. ACT FROM RS.50,00,000/ - TO RS.5,69,402/ - THUS GRANTING RELIEF OF RS.44,30,598/ - . 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CLT(A) - III, PUNE HAS ERRED IN RESTORING THE MATTER BACK TO THE FILE OF THE AO TO RE - COMPUTE THE DISALLOWANCE U/S.14A AS THE CIT(A) DOES NOT HAVE POWER TO SET - ASIDE A CASE. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN RESTORING THE MATTER B ACK TO THE FILE OF THE AO TO RE - COMPUTE THE SHORT/LONG - TERM CAPITAL GAIN TO ALLOW OR OTHERWISE, AS THE CIT(A) DOES NOT HAVE POWER TO SET - ASIDE A CASE. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN GRANTING RELIEF OF RS.7,908/ - BY UPHOLDING THE ADDITION OF RS.44,92,092/ - OUT OF THE TOTAL ADDITION MADE OF RS.45,00,000/ - WITHOUT OFFERING AN OPPORTUNITY TO THE AO REGARDING RIGHT CLAIM OF DEPRECIATION AMOUNT. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN ALLOWING DEPRECIATION OF RS.10,73,917/ - ON MOTOR CARS PURCHASED IN THE NAME OF THE DIRECTORS. 6 . BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING OF FOOD PRODUCTS UNDER THE BRAND W EIKFIELD. IT MANUFACTURE D RANGE OF FOOD PRODUCTS LIKE CUSTARD POWDER, CORN FLOUR, JELLY CRYSTALS, CUSTARD PUDDING, TEA AND COFFEE TEA BAGS AND EVEN READY TO SERVE INDIAN INSTANT FOOD MIXES. THE ASSESSEE WAS EXPORTING ITS PRODUCTS TO MARKETS LIKE NORTH AM ERICA, EUROPE, MIDDLE EAST AND AFRICA. THE MANUFACTURING FACILITY UNIT OF THE ASSESSEE WAS AT PUNE AND DURING THE YEAR UNDER CONSIDERATION, IT HAD STARTED SUPPLYING PRODUCTS FROM NEW UNIT AT BADDI IN DISTRICT SOLAN, ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 5 HIMACHAL PRADESH. THE ASSESSING OFFICE R NOTED THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECLARED PROFIT AND GAINS OF BUSINESS AT RS.74,23,452/ - , SHORT TERM CAPITAL GAINS OF RS.9,46,571/ - AND HAD CLAIMED DIVIDEND AMOUNTING TO RS.32,09,99,966/ - AS EXEMPT UNDER SECTION 10(34) OF THE ACT WHICH COMPRISED SHARE OF PROFIT FROM ITS JOINT VENTURE WITH THE VASCON GROUP OF RS.31,49,59,605/ - . THE ASSESSEE HAD FURTHER CLAIMED PROFIT ON SALE OF MUTUAL FUNDS AMOUNTING TO RS.1,02,99,476/ - AS EXEMPT UNDER SECTION 10(35) OF THE ACT. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD PAID TAXES ON BOOK PROFITS OF RS.2,99,21,415/ - UNDER SECTION 115JB OF THE ACT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD EXCLUDED SUM OF RS.31,49,59,605/ - FROM BOOK PROFITS, WHICH WAS THE PROFIT OF AOP, A JOINT VENTURE OF ASSESSEE COMPANY WITH VASCON GROUP. THE ASSESSEE WAS ASKED TO EXPLAIN AND JUSTIFY AS TO WHY THE SAID AMOUNT WAS EXCLUDED FROM THE COMPUTATION OF BOOK PROFITS. IN REPLY, THE ASSESSEE POINTED OUT THAT THE AOP WAS ASSESSED TO TAX ON ITS INCOME A T THE RATES PRESCRIBED UNDER THE ACT AND AFTER BEING ASSESSED TO TAX, THE ASSESSEE HAD RECEIVED ITS SHARE IN SUCH AOP, WHICH WAS ACCOUNTED FOR IN THE PROFIT & LOSS ACCOUNT. SINCE THE SAID INCOME WAS RECEIVED AFTER THE CONCERNED AOP WAS ASSESSED TO TAX ON SUCH INCOME, HENCE, IT WAS EXCLUDED WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. IT CLAIMED THAT IT WAS NOT LIABLE TO BE TAXED IN ITS HANDS NEITHER UNDER REGULAR PROVISIONS NOR UNDER SECTION 115JB OF THE ACT. ELABORATE SUBMISSIONS IN THIS REGARD WERE MADE WHICH ARE INCORPORATED UNDER PARA 3 AT PAGES 3 TO 7 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER NOTED THAT THE PROVISIONS OF SECTION 115JB OF THE ACT WERE DEEMING PROVISIONS, WHICH OVERRIDES ALL OTHER PROVISIONS OF THE ACT. THE S AID SECTION LAYS DOWN TWO STEPS IN DETERMINING THE TAX LIABILITY IN THE SECTION. IN THE FIRST STEP, THE ASSESSING OFFICER HAD TO DETERMINE THE INCOME OF ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 6 ASSESSEE UNDER NORMAL PROVISIONS OF THE ACT AND THE SECOND STEP WAS TO DETERMINE THE BOOK PROFIT IN AC CORDANCE WITH SELF CONTAINED SECTION OF 115JB OF THE ACT READ WITH EXPLANATION TO THE SAID SECTION. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXCLUSION OF AOP PROFITS OF RS.31.49 CRORES WAS NOT COVERED UNDER ANY ITEM LISTED UNDER EXPLANATION TO SECTI ON 115JB OF THE ACT. REFERENCE WAS MADE TO THE DECISION OF APEX COURT IN APOLLO TYRES VS. CIT REPORTED IN 255 ITR 273 (SC) WHICH DEALT WITH THE PROVISIONS OF SECTION 115J OF THE ACT AND IT WAS HELD THAT THE ASSESSING OFFICER HAD NO JURISDICTION TO GO BEHI ND THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT PREPARED BY THE ASSESSEE COMPANY AND CERTIFIED BY THE STATUTORY AUDITORS AS HAVING BEEN PREPARED IN ACCORDANCE WITH THE REQUIREMENT OF PART II AND III OF SCHEDULE VI OF COMPANIES ACT, EXCEPT TO THE EXTEN T PROVIDED IN EXPLANATION TO SECTION 115J(1A) OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT SECTION 115JB OF THE ACT WAS ANALOGOUS TO SECTION 115J OF THE ACT AND WHAT THE APEX COURT HAD HELD IN RESPECT OF SECTION 115J OF THE ACT APPLIES EQUALLY TO SECTION 115JB OF THE ACT. THE ASSESSING OFFICER NOTED THAT AOP IN THE RETURN OF INCOME HAD CLAIMED ITS ENTIRE PROFITS TO BE EXEMPT AND INFACT THERE WAS NO CASE OF DOUBLE TAXATION. HOWEVER, IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THE SAID FACT IS NOT RELEVANT FOR TAXATION UNDER SECTION 115JB OF THE ACT. 7 . ANOTHER ISSUE NOTED BY THE ASSESSING OFFICER WAS IN RELATION TO THE DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE ACT. THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.1,07,32 ,484/ - WHICH COMPRISED OF BANK INTEREST OF RS.31,61,255/ - AND INTEREST ON UNSECURED LOANS OF RS.69,89,624/ - . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED THE SHARE OF PROFIT FROM AOP AT RS.31.44 CRORES, DIVIDEND INCOME OF RS.60,40,361/ - AND P ROFIT ON ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 7 SALE OF MUTUAL FUNDS AT RS.1.02 CRORES, TOTALING TO RS.33.12 CRORES AS EXEMPT. THE CORRESPONDING INVESTMENT ON WHICH EXEMPT INCOME WAS CLAIMED WAS RS.2054 LAKHS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD INVESTED IN MUTUAL FUNDS AND IN A OP AS ON 31.03.2006 AND WHICH IN TURN, HAD REVISED AS ON 31.03.2007. IN VIEW OF TOTAL LIABILITIES INCLUDING SHARE CAPITAL AND RESERVES AT RS.3894 LAKHS AND WHERE THE INTEREST PAID WAS RS.107 LAKHS, THE AVERAGE COST OF FUNDS WAS 2.75%. THE CONTENTION OF T HE ASSESSEE IN THIS REGARD WAS THAT IT HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE THE AFORESAID INVESTMENTS. HOWEVER, THE ASSESSING OFFICER NOTED THAT THE FUNDS AVAILABLE WERE COMMON AND WERE USED TO FINANCE EVERYTHING FROM FIXED ASSETS, INVENTORY, SHARE APPLICATION MONEY AND LOANS AND ADVANCES. FURTHER, IT WAS NOT THE CASE OF ASSESSEE THAT IT COULD TRACE THE MOVEMENT OF INTEREST FREE MONEY TO INVESTMENTS OR NON BUSINESS ADVANCES. APPLYING THE AVERAGE COST OF FUNDS TO AVERAGE AMOUNT OF INVESTMENT, INCOME OF WHICH WAS CLAIMED AS EXEMPT ON A GROSS BASIS, THE INTEREST COST ALLOCABLE WORKED OUT TO RS.57 LAKHS, WHICH WAS DISALLOWED OUT OF INTEREST EXPENDITURE AS EXPENDITURE RELATABLE TO INCOME NOT INCLUDED IN TOTAL INCOME UNDER SECTION 14A OF THE ACT. 8 . FURT HER, THE ASSESSING OFFICER NOTED FROM THE SCHEDULE OF INVESTMENT THAT CERTAIN INVESTMENTS WERE MADE IN SISTER CONCERNS WHICH TOTALED TO RS.1817 LAKHS. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT IT HAD COMMENCED THE PROCESS OF DEMERGING THE EN TIRE FOOD BUSINESS OF THE COMPANY TO WEIKFIELD FOODS PVT. LTD. AND VARIOUS INVESTMENTS MADE BY THE ASSESSEE WERE FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WAS DIVERSION OF INTEREST BEARING FUNDS FOR NON - BUSINESS PURPOSE S BY WAY OF INTEREST FREE FUNDS, SHARE APPLICATION MONEY AND EQUITY INVESTMENT IN SISTER ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 8 CONCERNS AND THE SAME ISSUE AROSE IN EARLIER YEARS AND THE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT WAS MADE. ACCORDINGLY, FOR THE YEAR UNDER CONSIDERATION, I NTEREST OF RS.50 LAKHS WAS HELD TO BE NOT FOR BUSINESS PURPOSE UNDER SECTION 36(1)(III) OF THE ACT. 9 . ANOTHER POINT NOTED BY THE ASSESSING OFFICER WAS IN RESPECT OF INCOME CLAIMED AS EXEMPT AND RE - WORKING OF GAIN FROM SALE OF MUTUAL FUNDS. THE ASSESSING OFFICER RE - COMPUTED THE SAME AND HELD THAT SUM OF RS.32,39,365/ - WAS TO BE ASSESSED AS LONG TERM CAPITAL GAIN AND BALANCE OF RS.60,40,361/ - AND RS.70,60,111/ - WERE TO BE TREATED AS SHORT TERM CAPITAL GAINS. 10 . THE ASSESSEE DURING THE YEAR UNDER CONSID ERATION HAD CLAIMED THE DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF UNIT ESTABLISHED AT BADDI, DISTRICT SOLAN, HIMACHAL PRADESH IN SEPTEMBER, 2006. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD NOT ALLOCATEDCERTAIN COMMON EXPENSES TO THE BAD DI UNIT FOR WHICH THERE WAS NO JUSTIFICATION WHICH INCLUDED ADMINISTRATIVE EXPENSES, DEPRECIATION ON ASSETS, INTEREST ON BORROWINGS AND SUM OF RS.45 LAKHS WAS ALLOCATED TO BADDI UNIT AS ADDITIONAL EXPENSES. THE DEDUCTION UNDER SECTION 80IC OF THE ACT WAS THUS, RE - WORKED. 1 1 . FURTHER DISALLOWANCE WAS MADE ON ACCOUNT OF DEPRECIATION ON CAR AMOUNTING TO RS.10,73,917/ - AS SIMILAR DISALLOWANCE WAS MADE IN THE EARLIER YEARS, WHERE CARS WERE REGISTERED IN THE NAMES OF DIRECTORS. 1 2 . THE CIT(A) UPHELD THE ORDE R OF ASSESSING OFFICER IN RESPECT OF ADDITION OF RS.31,49,59,605/ - TO BE ADDED TO BOOK PROFITS AS PER EXPLANATION TO SECTION ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 9 115JB OF THE ACT. FURTHER, ADDITIONAL GROUND OF APPEAL WAS RAISED BEFORE THE CIT(A) IN RESPECT OF ALLOWANCE OF DEDUCTION OF RS.30, 75,60,287/ - ON ACCOUNT OF EXPENSES INCURRED FOR CARRYING ON THE BUSINESS. THE CLAIM OF ASSESSEE WAS THAT THERE WAS DISPUTE AMONGST THE MEMBERS OF MALHOTRA FAMILY WHO WERE HOLDING THE SHARES OF THE COMPANY WHICH RESULTED IN VARIOUS HANDICAPS AND WAS IMPOSS IBLE TO RUN THE COMPANY IN SMOOTH AND EFFECTIVE MANNER. IN ORDER TO OVERCOME THIS PROBLEM AND SETTLE THE FAMILY DISPUTES, THE PETITION WAS MADE BEFORE THE COMPANY LAW BOARD AND IN ACCORDANCE WITH CBL ORDER, THE SHARES OF PUNEET MALHOTRA FAMILY WERE BOUGHT BACK BY THE COMPANY FOR RS.29 CRORES, WHICH INCLUDED SHARE CAPITAL OF RS.11,49,700/ - AND PREMIUM OF BUYBACK OF SHARES OF RS.28,88,50,628/ - . AFTER WRITING OFF THE AMOUNT RECEIVABLE FROM WEIKFIELD MNEMINIX PVT. LTD. OF RS.1,87,09,659/ - , TOTAL AMOUNT OF RS. 30,75,60,287/ - EXCLUDING REDUCTION OF SHARE CAPITAL OF RS.11,49,700/ - WAS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE REDUCTION OF RS.11,49,700/ - IN THE SHARE CAPITAL WAS SHOWN AS CAPITAL REDEMPTION RESERVES IN THE BALANCE SHEET UNDER THE HEAD RESERVES & SU RPLUSES. THE CLAIM OF ASSESSEE BEFORE THE CIT(A) WAS THAT THE EXPENDITURE WAS INCURRED FOR SMOOTH RUNNING OF THE COMPANY SHOULD HAVE BEEN ALLOWED WHILE COMPUTING BOOK PROFITS. THE ADDITIONAL GROUND OF APPEAL BEING A LEGAL GROUND, WAS ADMITTED AND THE CIT (A) HAS TABULATED THE DETAILS OF PREMIUM PAID ON BUYBACK OF PUNEET MALHOTRA GROUP SHARES DEBITED TO THE PROFIT & LOSS ACCOUNT BELOW THE LINE UNDER PARA 4.1 AT PAGE 15 OF THE APPELLATE ORDER. THE ASSESSEE FURNISHED THE COPY OF ORDER OF COMPANY LAW BOARD DA TED 15.12.2006 AND ALSO REFERRED TO THE DIRECTORS REPORT IN THIS REGARD. THE CIT(A) WAS OF THE VIEW THAT IT HAS TO BE EXAMINED WHETHER THE PREMIUM PAID ON BUYBACK OF SHARES COULD BE A CHARGE TO THE PROFIT & LOSS ACCOUNT OR PROFIT & LOSS APPROPRIATION ACCO UNT AT ALL UNDER THE ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 10 PROVISIONS OF COMPANIES ACT. REFERRING TO THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 AND CLAUSE (B) OF EXPLANATION TO SECTION 372A OF THE COMPANIES ACT, THE CIT(A) NOTED THAT THE COMPANY COULD PURCHASE ITS OWN SHARES OUT OF FREE RESERVES, SECURITY PREMIUM ACCOUNT AND PROCEEDS OF ANY SHARES OF SECURITIES ISSUE. FURTHER, IN THE CASE OF ASSESSEE, THE ENTIRE CONTROVERSY REVOLVES AROUND THE ACCOUNTING TREATMENT OF EXCESS AMOUNT PAID BY WAY OF PREMIUM ON BUYBACK OF SHARES OVER AND ABOVE NOMINAL VALUE OF SHARES BOUGHT BACK. THE CIT(A) NOTED THE FACT THAT NOMINAL VALUE OF SHARES OF RS.11,49,700/ - WAS DEBITED TO SHARE CAPITAL ACCOUNT AND CREDITED TO CAPI TAL REDEMPTION RESERVES ACCOUNT; THE AMOUNT PAID TOWARDS PREMIUM W AS ALSO CAP ITAL EXPENDITURE , HAD TO BE ADJUSTED AGAINST FREE RESERVES OR SECURITIES PREMIUM ACCOUNT, IF ANY, IN THE BALANCE SHEET AND IT COULD NOT BE CHARGED TO PROFIT & LOSS ACCOUNT. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY BANGALORE BENCH OF TR IBUNAL IN THE CASE OF JSW STEEL LTD. REPORTED IN 133 TTJ 742 AND IT WAS HELD THAT THE BUYBACK WAS ONE OF PROMINENT MODES OF CAPITAL RESTRICTING AND THE PREMIUM PAID WOULD BE CAPITAL EXPENDITURE AND HENCE, NOT DEDUCTIBLE IN WORKING OUT THE NET PROFIT AS PER SCHEDULE VI OF THE COMPANIES ACT. IN VIEW THEREOF, THE CIT(A) HELD THAT THE PREMIUM PAID ON BUYBACK OF SHARES COULD NOT BE ALLOWED AS DEDUCTION FROM NET PROFIT WHILE COMPUTING THE TAX LIABILITY UNDER SECTION 115JB OF THE ACT. 1 3 . IN RESPECT OF DISALLO WANCE UNDER SECTION 36(1)(III) OF THE ACT, THE CIT(A) ELABORATELY CONSIDERED THE EXPLANATION OF ASSESSEE I.E. IN RESPECT OF AVAILABILITY OF INTEREST FREE FUNDS AND THE INVESTMENTS BEING MADE IN THE EARLIER YEARS AND THE TOTAL INVESTMENTS DURING THE YEAR WE RE LESSER THAN THE INVESTMENTS MADE IN EARLIER YEARS AND SUMMARIZED EACH OF THE INVESTMENTS MADE SEPARATELY IN ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 11 ASSOCIATE CONCERNS. IN RESPECT OF INVESTMENTS IN WEKFIELD, IT NOTED THAT THE FOLLOWING INVESTMENTS WERE MADE: - I) EQUITY SHARES IN WEIKFIELD AGR O PRODUCTS LTD. (WAPL) RS.8,08,09,000/ - II) SHARE APPLICATION MONEY IN WAPL RS.1,00,00,000/ - III) PREFERENTIAL SHARES IN WAPL RS.29,00,000/ - IV) 4% NON - CONVERTIBLE DEBENTURE APPLICATION MONEY WITH WAPL RS.2,75,00,000/ - V) ICD WITH WAPL RS.86,00,000/ - 1 4 . THE ASSESSEE CLAIMED THAT ALL THE ABOVE INVESTMENTS WERE BUSINESS INVESTMENTS AND MADE OUT OF COMMERCIAL EXPEDIENCY AND IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1 (SC), NO DISALLOWANCE OF INTERE ST WAS CALLED FOR IN RESPECT OF SUCH INVESTMENTS. FURTHER PLEA OF THE ASSESSEE WAS THE AVAILABILITY OF INTEREST FREE FUNDS AND IN TURN, RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES POWER LTD. REPORTED IN 313 ITR 340 (BOM). FURTHER, THE ASSESSEE PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF TRIBUNAL IN THE CASE OF ASSESSEE FOR ASSESSMENT YEARS 2000 - 01 TO 2003 - 04, DATED 30.06.2009 AND 11.09.2009, WHEREIN IT WAS HELD THAT THE INVESTMENTS WERE FOR BUSIN ESS EXPEDIENCY AND NO DISALLOWANCE OF INTEREST WAS WARRANTED ON ACCOUNT OF SAME. ANOTHER ASPECT POINTED OUT BY THE ASSESSEE WAS THAT THERE WAS DEMERGER OF FOOD BUSINESS OF ASSESSEE AND WAPL INTO WEIKFIELD FOODS PVT. LTD. IN LINE WITH RECONSTRUCTION / MERG ER ORDER PASSED BY THE HONBLE BOMBAY HIGH COURT DATED 11.04.2008. IN THIS REGARD, IT WAS CLAIMED BY THE ASSESSEE THAT THE DEMERGER OF FOOD DIVISION REFLECTED THAT THE INVESTMENTS WERE MADE IN WAPL FOR LONG TERM BUSINESS PROSPECTS. THE CIT(A) ACCEPTING T HE PLEA OF ASSESSEE ON ALL COUNTS I.E. THE INVESTMENT FOR BUSINESS PURPOSE AND THE AVAILABILITY OF INTEREST FREE FUNDS AND ALSO IN VIEW OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HELD THAT NO ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 12 DISALLOWANCE U NDER SECTION 36(1)(III) OF THE ACT IS WARRANTED ON THE INVESTMENTS MADE IN WAPL. 1 5 . THE NEXT INVESTMENT WAS IN SHARES OF WEIKFIELD OVERSEAS LTD. TO THE EXTENT OF RS.26,69,747/ - , ON WHICH THE ASSESSEE WAS REGULARLY EARNING ROYALTY AND IT WAS HELD TH AT THERE WAS NO JUSTIFICATION IN DISALLOWING INTEREST ATTRIBUTABLE TO SUCH INVESTMENTS. THE BALANCE INVESTMENTS WERE ON ACCOUNT OF SHARE APPLICATION MONEY TO MACKINTOSH NATURAL FOODS PVT. LTD. OF RS.55,67,000/ - , WEIKFIELD IT CITY INFO PARK (AOP) OF RS.37, 000/ - , MCKINTOSH NATURAL FOODS LTD. (ICD) OF RS.36,00,000/ - AND WEIKFIELD FOODS PVT. LTD. (ICD) OF RS.1,15,01,524/ - . THE CIT(A) IN THIS REGARD WAS OF THE VIEW THAT IT WAS NOT THE CASE OF ASSESSEE THAT THE RE WERE ANY COMMERCIAL OR BUSINESS EXPEDIENCY IN MA KING SUCH INVESTMENTS. WITH REGARD TO RELIANCE PLACED UPON BY THE ASSESSEE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES POWER LTD. (SUPRA), IT WAS OBSERVED BY THE CIT(A) THAT THE ASSESSEE HAD NOT ESTABLISHED THAT AS ON DA Y OF MAKING THE INVESTMENTS IN THE SAID COMPANY, INTEREST FREE FUNDS WERE AVAILABLE AND THE ASSESSEE HAD FAILED TO ESTABLISH THAT THE SAID INVESTMENTS WERE MADE WITH A VIEW TO BUILD LONG TERM BUSINESS INTEREST OF THE COMPANY. THE CIT(A) WORKED OUT THE DIS ALLOWANCE @ 2.75% ON TOTAL INVESTMENT OF RS.2.07 CRORES AND DISALLOWED SUM OF RS.5,69,402/ - OUT OF TOTAL DISALLOWANCE OF RS.50 LAKHS MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. 1 6 . IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, THE CIT(A) NOTED THAT THE ASSESSING OFFICER HAD TREATED THE DIVIDEND INCOME AND INCOME FROM SALE / REDEMPTION OF MUTUAL FUNDS AS TAXABLE AS SHORT TERM CAPITAL ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 13 GAINS TO THE EXTENT OF RS.1,31,00,472/ - AND ON THE OTHER HAND, THE EXPENDITURE RELAT ABLE TO THE SAID INCOME WAS DISALLOWED, WHICH WAS TOTALLY UNJUSTIFIED. THE CIT(A) THUS, DIRECTED THE ASSESSING OFFICER TO ASCERTAIN ONLY DIVIDEND INCOME AND INCOME FROM SALE / REDEMPTION OF MUTUAL FUNDS, WHICH WAS EXEMPT AFTER DUE VERIFICATION AND DISALLO W THE EXPENDITURE ATTRIBUTABLE TO SUCH EXEMPT INCOME AT THE AVERAGE COST OF FUNDS BOTH UNDER REGULAR PROVISIONS AND FOR THE PURPOSE OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 1 7 . THE NEXT ISSUE ADDRESSED BY THE CIT(A) WAS THE DISALLOWANCE OF DEDUCT ION CLAIMED UNDER SECTION 80IC OF THE ACT AT RS.45 LAKHS ON ACCOUNT OF ALLOCATION OF EXPENSES DEBITED TO TAXABLE UNIT AT PUNE. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER IN ESTIMATING EXPENSES TO THE TUNE OF RS.44,92,092/ - AS ATTRIBUTABLE TO THE ELI GIBLE UNIT UNDER THE PROVISIONS OF SECTION 80IC(7) OF THE ACT. 1 8 . THE DISALLOWANCE OF DEPRECIATION ON CARS OF RS.10,73,917/ - WAS ALLOWED BY THE CIT(A) IN VIEW OF ORDERS OF TRIBUNAL IN THIS REGARD. 1 9 . THE LAST ASPECT WAS THE ADDITION MADE BY THE ASSES SING OFFICER OF RS.1,31,00,472/ - UNDER THE HEAD SHORT TERM CAPITAL GAINS / LONG TERM CAPITAL GAINS. THE CIT(A) VIDE PARA 8.3.1 HAD DIRECTED THE ASSESSING OFFICER AS UNDER: - 8.3.1 LOOKING AT THE FACTUAL ASPECTS OF THE MATTER, I AM OF THE CONSIDERED OPINI ON THAT THIS IS A FIT CASE FOR ISSUE OF DIRECTIONS TO THE ASSESSING OFFICER. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE ABOVE ASPECTS AND AFTER DUE VERIFICATION OF DETAILS FURNISHED BY THE APPELLANT, IF IT IS FOUND THAT THE DIVIDEND WAS R ECEIVED DURING THE YEAR IN RESPECT OF UNITS OF MUTUAL FUNDS SPECIFIED UNDER CLAUSE 10(23D), THE SAME SHALL BE EXEMPT U/S.10(35). IF THE DIVIDENDS SO RECEIVED ARE REINVESTED IN THE SAME MUTUAL FUNDS, THE PERIOD OF HOLDING HAS TO BE RECKONED SEPARATELY FOR R EINVESTED UNITS WHILE COMPUTING THE LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS AS THE ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 14 CASE MAY BE, ON SALE OF REINVESTED UNITS. WHILE RECKONING THE PERIOD OF HOLDING OF MUTUAL FUNDS, THE SWITCH - OUT AND SWITCH - IN I.E, SHIFT IN THE PORTFOLIO OF THE INVESTMENTS MAY BE KEPT IN MIND FOR THE PURPOSE OF COMPUTING LONG - TERM CAPITAL GAINS. THE LONG - TERM CAPITAL GAINS SHALL BE EXEMPT FROM TAX U/S 10(38) IN CASE OF EQUITY BASED MUTUAL FUNDS SUBJECT TO THE FULFILMENT OF CONDITIONS SPECIFIED IN THAT SECTION. SU BJECT TO THESE DIRECTIONS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 20 . THE CIT(A) FURTHER HELD THAT THE DEDUCTION OF RS.30,75,60,287/ - ON ACCOUNT OF PREMIUM PAID ON BUYBACK OF SHARES FROM GROUP OF SHAREHOLDERS WAS NOT ALLOWABLE AS DEDUCTION UNDER NORMAL PROVISIONS OF SECTION 37 OF THE ACT ALSO. 2 1 . THE CIT(A) FURTHER DIRECTED THE ASSESSING OFFICER TO EXAMINE WHETHER THE PROVISIONS OF SECTION 2(22)(D) OF THE ACT WERE ATTRACTED TO THE PAYMENTS MADE TO THE SHAREHOLDERS AS PART OF THE FAMILY SETTLEMENT AND TAKE APPROPRIATE ACTION AS PER LAW, IF DEEMED FIT. 2 2 . THE NEXT PLEA OF THE ASSESSEE WAS AGAINST CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT, WHICH WAS RAISED BY WAY OF ADDITIONAL GROUND OF APPEAL. THE ASSESSEE PLEADED THAT SINCE THE INCOME WAS C OMPUTED UNDER SECTION 115JB OF THE ACT, THE PROVISIONS OF ADVANCE TAX DO NOT APPLY TO THE ASSESSEE AND NO INTEREST WAS CHARGEABLE UNDER SECTIONS 234B OR 234C OF THE ACT. THE CIT(A) REJECTING THE CLAIM OF ASSESSEE IN THIS REGARD, UPHELD THE ORDER OF ASSESS ING OFFICER IN CHARGING THE INTEREST UNDER SECTION 234B OF THE ACT FOR NON - PAYMENT OF ADVANCE TAX ON THE MAT LIABILITY UNDER SECTION 115JB OF THE ACT. 2 3 . BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE ORDER OF CIT(A). ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 15 2 4 . THE ASSESSEE HAS RAISED GROUNDS OF APPEAL UNDER TWO HEADS I.E. WITH REGARD TO COMPUTATION OF TAX UNDER SECTION 115JB OF THE ACT AND WITH REGARD TO COMPUTATION OF TAX UNDER NORMAL PROVISIONS OF THE ACT. THE FIRST GROUND OF APPEAL A) 1 RAISED BY THE ASSESSEE IS AGAINST COMP UTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT, WHEREIN THE PLEA RAISED BY THE ASSESSEE WAS THAT THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT ON ACCOUNT OF EXEMPT DIVIDEND AT RS.57 LAKHS AND ALSO THE SHARE OF PROFIT FROM AOP AT RS.31,49,59,60 5/ - IS TO BE EXCLUDED FOR WORKING OUT THE ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT . THE ADDITIONAL GROUND OF APPEAL NO.2 IS ALSO IN RESPECT OF COMPUTATION OF BOOK PROFITS, WHEREIN THE PLEA HAS BEEN RAISED FOR CLAIMING DEDUCTION OF RS.28,88,50,628/ - BEING EXPENSES INCURRED TOWARDS AMOUNT PAID AS PREMIUM ON BUY BACK SHARES BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD RECEIVED ITS SHARE OF PROFIT FROM AOP AT RS.31.49 CRORES DURING THE YEAR, WHICH WAS TO BE EXCLUDED WHILE COMPUTING THE ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. HE REFERRED TO THE WRITTEN NOTE FILED IN THIS REGARD AND POINTED OUT THAT FOCUS HAD SHIFTED FROM COMPUTATION OF INCOME TO COMPUTATION OF TAX PAYABLE, IN VIEW OF SECTION 115JB OF THE ACT. HE STRESSED THAT BY VIRTUE OF SECTION 86 OF THE ACT, NO TAX IS PAYABLE ON THE SHARE OF PROFIT FROM AOP AND HENCE, THE SAME IS NOT TO BE INCLUDED IN THE BOOK PROFIT S UNDER SECTION 115JB OF THE ACT. HE REFERRED TO THE PROVISIONS O F SECTION 110 OF THE ACT AND POINTED OUT THAT IT EXCLUDES THE TAX ON SUCH INCOME I.E. SHARE OF PROFIT FROM AOP. REFERRING TO SECTION 115JB (1) OF THE ACT, HE POINTED OUT THAT THE PROVISIONS OF SAID SECTION ARE TO BE APPLIED, SAVE AS OTHERWISE PROVISIONS OF THE ACT, SO, BENEFIT OF SECTION 110 OF THE ACT IS TO BE GIVEN TO THE ASSESSEE. HE POINTED OUT THAT UNDOUBTEDLY, THE HON'BLE SUPREME COURT IN APOLLO TYRES VS. CIT (SUPRA) HAD LAID DOWN THE PRINCIPLE THAT NO ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 16 ADJUSTMENT IS TO BE MADE TO THE BOOK PROFITS UND ER SECTION 115J OF THE ACT. HOWEVER, UNDER SECTION 115JB OF THE ACT, SUB - SECTION (5) HAS BEEN INSERTED AND WHILE ASSESSMENT UNDER SECTION 115J OF THE ACT WOULD BE CONCLUDED EXCLUSIVELY ON THE BASIS OF BOOK PROFITS AS ADJUSTED BY ITEMS SET OFF IN EXPLANATI ON THEREUNDER, BUT ANY ASSESSMENT IN TERMS OF SECTION 115JA AND 115JB OF THE ACT, THE ADJUSTED BOOK PROFITS WOULD BE FURTHER SUBJECTED TO EFFECT OF OTHER PROVISIONS OF THE ACT THAT WERE SPECIFICALLY BROUGHT INTO PLAY. BY VIRTUE OF SUB - SECTION (4) TO SECTI ON 115JA AND SUB - SECTION (5) TO SECTION 115JB OF THE ACT, SUCH WAS THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS IN CIT VS. METAL & CHROMIUM PLATER P. LTD. (2016) 97 CCH 0080 (CHENHC). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE T HUS, POINTED OUT THAT THE ADJUSTED BOOK PROFITS WERE ELIGIBLE FOR FURTHER BENEFITS SET OUT IN OTHER PROVISIONS OF THE ACT AND THE HONBLE HIGH COURT OF MADRAS HELD THAT RELIEF UNDER SECTION 54EC OF THE ACT COULD BE GRANTED WHILE COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. HE FURTHER REFERRED TO THE AMENDMENT BROUGHT OUT BY THE FINANCE ACT, 2015, WHEREBY CLAUSE (II) (C) UNDER EXPLANATION TO SECTION 115JB OF THE ACT HAVE BEEN INSERTED W.E.F. 01.04.2016, WHICH PROVIDES THAT THE AMOUNT OF INCOME BEING THE SHARE OF ASSESSEE IN THE INCOME OF AOP OR BODY OF INDIVIDUALS, ON WHICH NO INCOME TAX IS PAYABLE IN ACCORDANCE WITH PROVISIONS OF SECTION 86 OF THE ACT, IF ANY, WHERE SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT, THEN THE SAME IS TO BE REDUCED WHILE COMPUTING ELIGIBLE PROFITS. HE ALSO MADE REFERENCE TO THE EXPLANATORY NOTES IN THIS REGARD AS TO WHY THIS AMENDMENT WAS BROUGHT IN . HE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF GOLDGERG F INANCE (P.) LTD. VS. ACIT (2017) 78 TAXMANN.COM 123 (MUMBAI TRIB.). THE MUMBAI BENCH OF ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 17 TRIBUNAL HAD HELD THAT THE SAID AMENDMENT WAS CURATIVE IN NATURE AND HENCE, WAS TO BE APPLIED RETROSPECTIVELY. 2 5 . IN RESPECT OF NEXT ISSUE IN GROUND OF APPEAL NO .A)1, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT CANNOT BE ADDED TO THE BOOK PROFITS WITHIN THE MEANING OF SECTION 115JB OF THE ACT AS HELD BY CHANDIGARH BENCH OF TRI BUNAL IN NAHAR INDUSTRIAL ENTERPRISES LTD. VS. DCIT IN ITA NO.897/CHD/2012, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 10.09.2014 AND FOLLOWED BY THE PUNE BENCH OF TRIBUNAL IN VARROC ENGINEERING PVT. LTD. VS. ACIT IN ITA NO.2482/PN/2012, RELATING TO ASSESSMENT YEAR 2008 - 09 , ORDER DATED 30.12.2014. 2 6 . IN RESPECT OF MODIFIED GROUND OF APPEAL NO.2, IT WAS POINTED OUT THAT SHARE PREMIUM PAID ON BUY BACK OF SHARES WAS TO BE ALLOWED AS DEDUCTION IN NORMAL COMPUTATION OF INCOME AND ALSO WHILE COMPUTING B OOK PROFITS UNDER SECTION 115JB OF THE ACT. HE REFERRED TO SERIES OF PROCEEDINGS IN THE CASE AND POINTED OUT THAT CERTAIN DISPUTES HAD MADE THE FUNCTIONING OF BUSINESS DIFFICULT AND THERE WAS MIS - HANDLING AND COURT CASES AND ALSO THE COMPANY LAW BOARD CAM E TO THE R ESCUE OF DIRECTORS OF THE COMPANY. THERE WAS FAMILY SETTLEMENT BETWEEN THE PARTIES AND THE ISSUES WERE RESOLVED BY WAY OF THIS SETTLEMENT, WHEREIN THE ASSESSEE COMPANY BOUGHT BACK THE SHARES AT PREMIUM ON SETTLEMENT OF DISPUTES AND THE ASSESSEE HAS CLAIMED THE SAID EXPENDITURE AS ALLOWABLE BOTH UNDER THE NORMAL PROVISIONS AND UNDER SECTION 115JB OF THE ACT . RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BRAMHA BAZAR HOTELS LTD. (2015) 63 TAXMANN.COM 13 (B OMBAY) AND ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 18 IT WAS POINTED OUT THAT FACTS OF THE ASSESSEE WERE SIMILAR AS BEFORE THE HONBLE BOMBAY HIGH COURT . 2 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER AT PAGE 12 IN PARA 3.13 AND THE ALTERNATE PLEA IN PARA 3.17. HE FURTHER PLACED RELIANCE ON THE ORDER OF CIT(A) IN RESPECT OF MODIFIED GROUND OF APPEAL. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 2 8 . WE HAVE HEARD THE RIV AL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE ASSESSEE IS AGGRIEVED BY THE COMPUTATION OF ELIGIBLE PROFITS UNDER SECTION 115JB OF THE A CT. THE FIRST ISSUE WHICH HAS BEEN RAISED IN THIS REGARD IS AGAINST INCLUSION OF SHARE OF PROFIT RECEIVED BY THE ASSESSEE FROM THE AOP AT RS.31.49 CRORES WHILE COMPUTING ELIGIBLE PROFITS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB OF THE ACT. THE CASE OF ASSESSEE IS THAT THE SAID SHARE OF PROFIT WHICH HAS ALREADY BEEN TAXED IN THE HANDS OF AOP AND ON WHICH, NO TAX IS PAYABLE IN THE HANDS OF MEMBER OF AOP, THEN THE SAME IS TO BE EXCLUDED FROM THE ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. UND ER THE PROVISIONS OF SECTION 86 OF THE ACT, WHICH IS PART OF CHAPTER VII WITH THE HEADING INCOME FORMING PART OF TOTAL INCOME ON WHICH NO INCOME TAX IS PAYABLE ; IT IS PROVIDED THAT WHERE THE ASSESSEE IS MEMBER OF AOP OR BODY OF INDIVIDUALS, THEN THE INCO ME TAX SHALL NOT BE PAYABLE BY THE ASSESSEE IN RESPECT OF HIS SHARE IN THE INCOME OF SUCH AOP OR BODY OF INDIVIDUALS. UNDER SECTION 110 OF THE ACT, IT IS PROVIDED THAT WHERE THERE IS INCLUDED IN THE ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 19 TOTAL INCOME OF ASSESSEE ANY INCOME, ON WHICH NO INCOME TAX IS PAYABLE UNDER THE PROVISIONS OF THE ACT, IN THE CASE OF ASSESSEE, S ECTION 86 OF THE ACT, THEN THE ASSESSEE SHALL BE ENTITLED TO DEDUCTION FROM THE AMOUNT OF INCOME TAX WITH WHICH HE IS CHARGEABLE ON HIS TOTAL INCOME, OF AN AMOUNT EQUAL TO THE INCOME TAX CALCULATED AT THE AVERAGE RATE OF INCOME TAX, ON THE AMOUNT OF WHICH NO INCOME TAX IS PAYABLE. HENCE, UNDER THE PROVISIONS OF THE ACT, WHERE THE ASSESSEE IS A MEMBER OF AOP AND HAS RECEIVED HIS SHARE FROM SUCH MEMBERSHIP, THEN THE ASSESSEE IS LIABLE TO GET DEDUCTION FROM THE INCOME TAX ON SUCH MEMBERSHIP AND CONSEQUENTLY, FOR THE PURPOSE OF EXCLUDING THE TAX ON SUCH SHARE OF PROFIT FROM THE AOP, PROVISIONS OF SECTION 110 OF THE ACT ARE ATTRACTED. THE ASSESSEE CLAIMS THAT SINCE THE SAID INCOME IS NOT TO BE INCLUDED IN ITS HANDS UNDER THE NORMAL PROVISIONS, SIMILARLY WHILE COMPUTING THE ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT, THE SAME SHOULD BE EXCLUDED. 29. UNDER SECTION 115JB OF THE ACT, WHILE DETERMINING THE BOOK PROFITS, SUB - SECTION (5) LAYS DOWN THAT SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISIONS OF THE ACT SHALL APPLY TO EVERY ASSESSEE, BEING A COMPANY MENTIONED IN THIS SECTION. IN OTHER WORDS, FOR DETERMINING THE BOOK PROFITS ELIGIBLE FOR TAX UNDER SECTION 115JB OF T HE ACT, THE PROFITS AS DECLARED IN THE PROFIT AND LOSS ACCOUNT ARE TO BE ADOPTED SUBJECT TO THE ADJUSTMENT MADE AS PER EXPLANATION UNDER SECTION 115JB OF THE ACT. HOWEVER, SUB - SECTION (5) FURTHER PROVIDES THAT ALL OTHER PROVISIONS OF THE ACT ARE APPLICABL E. IN OTHER WORDS, AS AGAINST THE PROVISIONS OF SECTION 115J OF THE ACT, WHERE NO ADJUSTMENT COULD BE MADE TO THE PROFITS DECLARED IN THE PROFIT AND LOSS ACCOUNT WHICH WAS THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT IN APOLLO TYRES VS. CIT (SUP RA) ; T HE PROFITS WHICH ARE DECLARED FOR THE PURPOSE OF ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 20 CONSIDERING THE APPLICABILITY OF SECTION 115JB OF THE ACT CAN BE TINKERED IN VIEW OF SUB - SECTION (5). SUCH IS THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS IN CIT VS. METAL & CHROMIUM PLATER P. LTD. (SUPRA). THE HONBLE HIGH COURT HELD AS UNDER: - 7. THUS, THE ADJUSTED BOOK PROFITS WOULD BE FURTHER ELIGIBLE TO THE BENEFITS SET OUT IN THE OTHER PROVISIONS OF THE ACT AND THE PLAIN LANGUAGE OF SECTION 115 JB THUS ADMITS OF THE GRANT OF R ELIEF UNDER SECTION 54 EC IN AN ASSESSMENT THEREUNDER. WE NOW DEAL WITH THE CASE LAW RELIED UPON BY THE ASSESSING OFFICER IN DENYING RELIEF TO THE ASSESSEE. THE SUPREME COURT, IN THE CASE OF APOLLO TYRES, (SUPRA) IS TO THE EFFECT THAT THE ASSESSING OFFICER IS NOT EMPOWERED TO EMBARK ON AN ENQUIRY WITH REGARD TO THE ENTRIES IN THE PROFIT AND LOSS ACCOUNT MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT 1956 AND APPROVED IN THE AGM EXCEPT TO THE EXTENT OF EFFECTING MODIFICATIONS IN ACCORDANCE WITH THE EXPLANATION TO SECTION 115J . THE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL INVESTMENTS (SUPRA) CONSIDERS THE INCLUSION OF CAPITAL GAIN FOR THE PURPOSES OF ASSESSMENT UNDER SECTION 115 J. BOTH JUDGEMENTS ARE RENDERED IN THE CONTEXT OF SECTION 115 J WHICH DOES NOT CONTAIN A PROVISION ANALOGOUS TO SUB - SECTIONS (4) OF SECTION 115 JA OR (5) OF SECTION 115 JB OF THE ACT. THUS WHILE AN ASSESSMENT U/S 1 15J WOULD BE CONCLUDED EXCLUSIVELY ON THE BASIS OF THE BOOK PROFITS AS ADJUSTED BY THE ITEMS SET OUT IN THE EXPLANATION THEREUNDER, IN AN ASSESSMENT IN TERMS OF SECTIONS 115 JA OR JB, THE ADJUSTED BOOK PROFITS WOULD BE FURTHER SUBJECTED TO THE EFFECT OF OT HER PROVISIONS OF THE ACT THAT ARE SPECIFICALLY BROUGHT INTO PLAY BY VIRTUE OF SUB - SECTIONS (4) OF SECTION 115JA AND (5) OF SECTION 115JB . 30 . IN VIEW T HEREOF, WHERE THE ASSESSEE HAS RECEIVED SHARE OF PROFIT FROM AOP WHICH ADMITTEDLY, IS NOT TAXABLE IN THE HANDS OF ASSESSEE, IN VIEW OF PROVISIONS OF SECTION 86 OF THE ACT, THEN WE HOLD THAT WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT, T HE SAID SHARE OF PROFIT IS TO BE EXCLUDED FROM THE PROFITS OF BUSINESS FOR COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. FURTHER, CLAUSE (II)(C) UNDER EXPLANATION (1) TO SECTION 115JB OF THE ACT HAS BEEN INSERTED BY THE FINANCE ACT, 2015 W.E. F. 01.04.2016, WHICH PROVIDES THAT SUCH AMOUNT OF INCOME BEING SHARE OF ASSESSEE IN INCOME OF AOP, ON WHICH NO TAX IS PAYABLE, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 86 OF THE ACT AND WHERE ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT, THEN THE SAME IS TO BE EXCLUDED WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT . T HOUGH THE FINANCE ACT, 2015 HAS INTRODUCED THE SAID CLAUSE FROM 01.04.2016 BUT THE SAME IS TO BE APPLIED RETROSPECTIVELY. IN THIS REGARD, WE FIND ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 21 SUPPORT FROM T HE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN GOLDGERG FINANCE (P.) LTD. VS. ACIT (SUPRA) . ACCORDINGLY, WE HOLD SO. THE AMOUNT OF SHARE OF AOP AT RS.31.49 CRORES IS TO BE EXCLUDED FROM THE PROFITS OF BUSINESS IN ORDER TO COMPUTE ELIGIBLE PROFITS IN THE HANDS OF ASSESSEE. 31 . THE SECOND PART OF GROUND OF APPEAL NO.A)1 IS IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, WHICH HAS BEEN ADDED TO THE BOOK PROFITS WHILE COMPUTING THE ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. WE FIN D THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF CHANDIGARH BENCH OF TRIBUNAL IN NAHAR INDUSTRIAL ENTERPRISES LTD. VS. DCIT (SUPRA), WHICH IN TURN, HAS BEEN FOLLOWED AND APPL IED BY THE PUNE BENCH OF TRIBUNAL IN VARROC ENGINEERING PVT. LTD. VS. ACIT (SUPRA) . W E HOLD THAT THE DISALLOWANCE COMPUTED UNDER NORMAL PROVISIONS OF THE ACT UNDER SECTION 14A OF THE ACT CANNOT BE ADDED TO THE PROFITS OF BUSINESS WHILE COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. CONSEQUENTLY, THE GROUND OF APPEA L NO.A)1 IS ALLOWED. 3 2 . NOW, COMING TO THE ADDITIONAL GROUND OF APPEAL I.E. GROUND OF APPEAL NO.2, WHEREIN THE ASSESSEE HAS MADE A CLAIM OF DEDUCTION TO BE ALLOWED ON ACCOUNT OF SHARE PREMIUM ON BUY BACK OF SHARES WHILE COMPUTING THE INCOME OF ASSESSEE U NDER REGULAR PROVISIONS OF THE ACT AND ALSO WHILE COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS HAD RAISED THIS ISSUE BEFORE THE CIT(A) BY WAY OF ADDITIONAL GROUND OF APPEAL. THE ASSESS EE HAD CLAIMED THAT THERE WAS DISPUTE AMONGST THE MEMBERS OF MALHOTRA FAMILY, WHO WERE HOLDING THE SHARES OF ASSESSEE COMPANY AND BECAUSE OF THE DISPARITY BETWEEN THE PERSONS, IT WAS ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 22 NOT POSSIBLE TO RUN THE AFFAIRS OF ASSESSEE COMPANY SMOOTHLY AND IN EFFEC TIVE MANNER. THE DISPUTE HAD EVEN TRAVELLED TO THE COURT AND COMPANY LAW BOARD WAS APPROACHED AND THE ORDER OF FAMILY SETTLEMENT WAS PASSED SETTLING THE DISPUTES BETWEEN THE PARTIES, UNDER WHICH THE ASSESSEE BOUGHT BACK THE SHARES OF SAID FAMILY AT PREMIU M. THE SAID BUY BACK OF SHARES AT PREMIUM WAS FOR SETTLEMENT OF DISPUTES, WHICH IN TURN, WAS A FFECTING THE FUNCTIONING OF THE COMPANY. THE ASSESSEE HAD REPAID SHARE CAPITAL OF RS.11,49,700/ - AND THE PREMIUM PAID WAS RS. 28,88,50,628/ - . FURTHER, SUM OF RS .1,87,09,659/ - BEING THE AMOUNT RECEIVABLE FROM WEIKFIELD MNEMINIX PVT. LTD. WAS WRITTEN OFF AND SUM OF RS.30,75,60,287/ - , EXCLUDING THE REDUCTION OF SHARE CAPITAL OF RS.11,49,700/ - , WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. SUM OF RS.11,49,700/ - WAS SH OWN AS CAPITAL REDEMPTION SERVICES IN THE BALANCE SHEET UNDER THE HEAD RESERVES & SURPLUS. THE COPY OF THE ORDER OF THE COMPANY LAW BOARD DATED 15.12.2006 WAS PLACED ON RECORD. THE CIT(A) WAS OF THE VIEW THAT THE AMOUNT PAID TOWARDS PREMIUM WAS CAPITAL E XPENDITURE AS THE ASSESSEE HAD ON ITS OWN DEBITED THE VALUE OF SHARES OF RS.11,49,700/ - TO THE SHARE CAPITAL ACCOUNT AND CREDITED THE SAME TO CAPITAL REDEMPTION SERVICES. THE CIT(A) HAS REFERRED TO THE DETAILS OF PREMIUM PAID ON BUY BACK SHARES OF PUNEET MALHOTRA GROUP, WHICH IS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER PARA 4.1 AT PAGE 15 OF THE ORDER. THE COMPANY LAW BOARD VIDE ITS ORDER DATED 15.12.2006 HAD SETTLED THE ISSUE AND THE RELEVANT PARAS OF THE ORDER ARE REPRODUCED AT PAGES 16 AND 17 OF TH E APPELLATE ORDER, WHICH ARE BEING REFERRED TO BUT ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. AS PER THE SAID ORDER OF THE COMPANY LAW BOARD, PUNEET MALHOTRA AND HIS FAMILY WAS TO BE PAID RS.29 CRORES AS FULL AND FINAL SETTLEMENT FOR BUY BACK OF TH EIR EQUITY SHARES HELD IN THE COMPANY. SECONDLY, THE PAID - UP SHARE CAPITAL OF THE COMPANY WOULD STAND ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 23 REDUCED BY RS.11,49,700/ - . THIRDLY, PUNEET MALHOTRA GROUP HAD TO REPAY LOAN OF RS.55 LAKHS TO THE COMPANY AND OTHER RELATIVES. THE SAID SUM OF RS.55 LA KHS WAS TO BE REPAID BY PUNEET MALHOTRA GROUP COMPANY OUT OF BUY BACK SETTLEMENT OF RS.29 CRORES. 3 3 . THE ASSESSEE IS IN APPEAL BEFORE US IN RESPECT OF ISSUE OF ALLOWABILITY OF DEDUCTION OF RS.28.88 CRORES, BOTH UNDER THE REGULAR PROVISIONS OF THE ACT A S WELL AS INCOME COMPUTED UNDER SECTION 115JB OF THE ACT. 3 4 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT SIMILAR ISSUE OF CLAIM OF BUSINESS EXPENDITURE OF BUY BACK OF SHARES AROSE BEFORE THE HONBLE BOMBAY HIGH COURT IN C IT VS. BRAMHA BAZAR HOTELS LTD. (SUPRA), WHEREIN ALSO IN TERMS OF DIRECTIONS ISSUED BY CLB, THE ASSESSEE COMPANY PAID EXTRA AMOUNT OVER AND ABOVE THE FACE VALUE OF SHARES TO THE DEPARTED GROUP OF SHAREHOLDERS, WHICH WAS DEBITED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION. HOWEVER, THE COMMISSIONER IN EXERCISE OF HIS POWERS UNDER SECTION 263 OF THE ACT, REVISED THE ORDER OF ASSESSING OFFICER AND HELD THE SAID AMOUNT TO BE IN THE NATURE OF CAPITAL EXPENDITUR E. THE HONBLE HIGH COURT HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO BUY BACK THE SHARES OF ONE GROUP OF SHAREHOLDERS WAS ONLY FOR THE PURPOSE OF ENSURING THAT IT COULD RUN ITS BUSINESS SMOOTHLY AND MORE PROFITABLY, THEN THE SAME IS TO BE ALLOWED AS REV ENUE EXPENDITURE. THE DECISION OF APEX COURT IN BROOKE BOND INDIA LTD. VS. CIT (1997) 225 ITR 798 (SC) WAS HELD TO BE RENDERED IN COMPLETELY DIFFERENT FACTS SITUATION, WHEREIN THE EXPENDITURE WAS INCURRED BY THE SAID COMPANY TO INCREASE ITS CAPITAL, WAS C LAIMED TO BE REVENUE IN NATURE AND THEREFORE, DEDUCTIBLE. THE APEX COURT ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 24 HELD THAT THE AMOUNT SPENT TO INCREASE THE SHARE CAPITAL IS NOT REVENUE BUT CAPITAL EXPENDITURE. THE HONBLE BOMBAY HIGH COURT IN CIT VS. BRAMHA BAZAR HOTELS LTD. (SUPRA) HELD THAT THE SAID DECISION WAS RENDERED IN COMPLETELY DIFFERENT FACTS SITUATION FROM THE ONE BEFORE THEM AND HENCE, WAS IN - APPLICABLE TO THE FACTS OF THAT CASE. 35. THE FACTS AND ISSUE BEFORE US ARE IDENTICAL TO THE FACTS AND ISSUE BEFORE THE HONBLE BOMBAY HIG H COURT AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN PAYING THE PREMIUM ON BUY BACK OF SHARES AT RS.28.85 CRORES IS TO BE ALLOWED AS EXPENDITURE IN THE HANDS OF ASSESSEE. THE PERUSAL OF THE ORDER OF CIT(A) WITH SPECIAL REFERENCE TO PARA 4 AT PAGE 14, THE CLAIM WAS FOR ALLOWING THE SAME WHILE COMPUTING THE BOOK PROFITS. FURTHER, THE CIT(A) VIDE PARA 4.7 HAS ALSO DECIDED THE ISSUE THAT THE PREMIUM PAID ON BUY BACK OF SHARES CANNOT BE ALLOWED AS DEDUCT ION FROM NET PROFIT WHILE COMPUTING THE TAX LIABILITY UNDER SECTION 115JB OF THE ACT AND ADDITION AL GROUND OF APPEAL RAISED BY THE ASSESSEE WAS REJECTED. THE CIT(A) VIDE PARA 9 ONWARDS HAS ALSO DECIDED THE ISSUE OF ALLOWABILITY OF EXPENDITURE UNDER SECTIO N 37(1) OF THE ACT AND DISMISSED THE SAME VIDE PARA 9.6 OF THE APPELLATE ORDER. ACCORDINGLY, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE SAID DEDUCTION ON ACCOUNT OF PREMIUM PAID ON BUY BACK OF SHARES UNDER SECTION 37(1) OF THE ACT. 3 6 . THE SECOND ASPECT OF ISSUE WHICH ARISES BEFORE US IS WHETHER THE SAID SUM OF PREMIUM PAID ON BUY BACK OF SHARES IS TO BE DEDUCTED FROM THE PROFITS OF BUSINESS WHILE COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. THE ASSESSEE HAS NOT CLAIMED THE SAID EXP ENDITURE IN ITS PROFIT AND LOSS ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 25 ACCOUNT AND HAS RAISED THIS ISSUE BY WAY OF ADDITIONAL GROUND OF APPEAL FOR THE FIRST TIME BEFORE THE CIT(A) . T HE QUESTION WHICH ARISES IS WHETHER THE PROFIT SHOWN IN THE BOOKS OF ACCOUNT, CAN THE SAME BE DISTURBED WHILE CO MPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. WE HAVE ALREADY IN THE PARAS HEREINABOVE TALKED ABOUT SUB - SECTION (5) TO SECTION 115JB OF THE ACT, UNDER WHICH WE HAVE HELD THAT IN CASE ANY PROVISIONS OF THE ACT ARE APPLICABLE FOR COMPUTING THE IN COME, THEN THE SAME IS TO BE APPLIED AND WE HAVE HELD THAT THE SHARE OF PROFIT FROM AOP IS TO BE EXCLUDED WHILE COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT. HOWEVER, THE ISSUE WHICH ARISES BEFORE US BY WAY OF PREMIUM ON BUY BACK OF SHARES IS AN EXPENDITURE TO BE CLAIMED UNDER THE NORMAL COMPUTATION OF PROFIT AND LOSS ACCOUNT, WHICH APPARENTLY HAS NOT BEEN CLAIMED BY THE ASSESSEE AND HENCE, THOUGH THE SAME IS ALLOWABLE IN THE HANDS OF ASSESSEE UNDER NORMAL COMPUTATION OF INCOME BUT THE SAME CA NNOT BE ALLOWED WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. ACCORDINGLY, WE HOLD SO. THE FIRST PART OF ADDITIONAL GROUND OF APPEAL IN ALLOWING THE SAID EXPENDITURE UNDER NORMAL PROVISIONS OF THE ACT IS THUS, ALLOWED IN FAVOUR OF ASSE SSEE, FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BRAMHA BAZAR HOTELS LTD. (SUPRA) AND SECOND PART OF THE ISSUE IN ALLOWING THE SAID EXPENDITURE WHILE COMPUTING ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT IS THUS, DISMISSE D. 3 7 . NOW, COMING TO THE OTHER ISSUES RAISED BY THE ASSESSEE VIDE GROUNDS OF APPEAL B) 1 AND 2, WHICH ARE IN RESPECT OF DISALLOWANCE OF INTEREST AT RS.57 LAKHS UNDER SECTION 14A OF THE ACT AND AT RS.5,69,402/ - UNDER SECTION 36(1)(III) OF THE ACT. THE TH IRD ISSUE RAISED ON ACCOUNT OF DISALLOWANCE OF APPROPRIATION OF ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 26 EXPENSES TO THE UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 3 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASS ESSEE IN THIS REGARD HAS FILED WRITTEN SUBMISSIONS IN RESPECT OF INTEREST EXPENDITURE AND IT HAS BEEN POINTED OUT THAT THE TOTAL INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT ON VARIOUS ACCOUNTS WA S RS.1.07 CRORES AND THE INTEREST WHICH HAS BEEN DISALLOW ED IN THE HANDS OF ASSESSEE UNDER SECTION 36(1)(III) OF THE ACT WAS RS.50 LAKHS, UNDER SECTION 14A OF THE ACT RS.57 LAKHS AND UNDER SECTION 80IC OF THE ACT AT RS.30 LAKHS, THUS, TOTALING RS.1.37 CRORES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT THE CIT(A) HAD GIVEN RELIEF OF RS.44,30,598/ - OUT OF DISALLOWANCE OF RS.50 LAKHS UNDER SECTION 36(1)(III) OF THE ACT LEAVING THE DISALLOWANCE OF RS.5,69,402/ - . THUS, OUT OF INTEREST DEBITED OF RS.1.07 CRORES, INTEREST OF RS.44,30,598/ - HAS BEEN ALLOWED UNDER SECTION 36(1)(III) OF THE ACT AND RS.1,89,315/ - WAS NOT CONSIDERED BEING VEHICLE LOAN. FURTHER, THE ASSESSEE HAS AGREED TO THE DISALLOWANCE OF INTEREST OF RS.30 LAKHS UNDER SECTION 80IC OF THE ACT, WHICH LEADS THE BALANCE INTEREST TO BE CONSIDERED FOR ADJUDICATION AT RS.31,12,571/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THERE IS NO MERIT FIRST IN DISALLOWING RS.57 LAKHS BEING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. FURTHER, IT WAS POIN TED OUT THAT THE SAID ISSUE HAS BEEN SENT BACK FOR RE - CONSIDERATION AND RE - COMPUTATION TO THE ASSESSING OFFICER. THE ASSESSEE POINTED OUT THAT RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM), THE ENTIRE INTEREST IS TO BE ALLOWED , AS INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE FOR MAKING THE AFORESAID INVESTMENTS ON WHICH, THE INCOME IS EXEMPT FROM TAX. ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 27 IN RESPECT OF INTEREST DISALLOWANCE, THE LEARNED AUTHORIZED REPRESENTAT IVE FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL IN THE PAST YEAR IN ASSESSEES OWN CASE HAS ASKED THE ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE UNDER SECTION 36(1)(III) /14A OF THE ACT CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA). HE FURTHER POINTED OUT THAT THE GROUNDS OF APPEAL RAISED ARE IN RESPECT OF DISALLOWANCE OF INTEREST OF RS.57 LAKHS UNDER SECTION 14A OF THE ACT PLUS RS.5,69,402/ - UNDER SECTION 36(1)(III) OF THE ACT BUT THE INTEREST WHICH IS AVAILABLE FOR DISALLOWANCE IS ONLY RS.31,12,571/ - . 3 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW AND POINTED OUT THAT IN THE APPEAL FILED BY THE REVENUE, THE ISSUE IN GROUN DS OF APPEAL NO.1 AND 2 IS AGAINST THE ORDER OF CIT(A) IN PARTLY ALLOWING THE DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT AND ALSO RESTORING THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 40 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES VIDE GROUNDS OF APPEAL B)1 AND 2 IS IN RESPECT OF DISALLOWANCE OF INTEREST ON ACCOUNT OF INVESTMENT MADE IN TAX FREE INVESTMENTS UNDER SECTION 14A OF THE ACT AND FOR VIOLATION OF PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THE TOTAL EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS RS.1,07,32,484/ - AS UNDER: - BANK INTEREST RS.31,61,255/ - INTEREST ON UNSECURED LOANS RS.69,89,624/ - INTEREST ON SECURITY DEP OSITS RS.3,92,290/ - VEHICLE LOAN INTEREST RS.1,89,315/ - TOTAL RS.1,07,32,484/ - ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 28 41 . THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER HAD MADE THE UNDER - MENTIONED DISALLOWANCES: - I) DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.57 LAKHS; II) DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT AT RS.50 LAKHS; III) DISALLOWANCE UNDER SECTION 80IC OF THE ACT AT RS.30 LAKHS, TOTALING RS.1,37,00,000/ - . 42 . THE ASSESSING OFFICER FIRSTLY HAD DISALLOWED EXPENDITURE MORE THAN DEBITED TO THE PRO FIT AND LOSS ACCOUNT , I.E. AGAINST THE CLAIM OF ASSESSEE OF ALLOWING INTEREST EXPENDITURE OF RS.1.07 CRORES. THE CIT(A) HAS GIVEN CERTAIN RELIEFS TO THE ASSESSEE AND BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE ORDER OF CIT(A). THE CIT(A) HAD HELD THAT OUT OF DISALLOWANCE OF RS.50 LAKHS UNDER SECTION 36(1)(III) OF THE ACT, ONLY DISALLOWANCE IS TO BE MADE TO THE EXTENT OF RS.5,69,402/ - AND THE ASSESSEE IS IN APPEAL AGAINST THE SAID DISALLOWANCE VIDE GROUND OF APPEAL NO.B)2 AND THE REVENUE IS IN APPEAL VIDE GROUND OF APPEAL NO.1 IN ALLOWING PART OF EXPENDITURE. THE ASSESSEE HAD FURTHER CLAIMED THAT OUT OF RS.1.07 CRORES, INTEREST ON VEHICLE LOAN OF RS.1,89,315/ - IS NOT TO BE CONSIDERED FOR MAKING ANY DISALLOWANCE. FURTHER, IN RESPECT OF DISA LLOWANCE OF RS.30 LAKHS PERTAINING TO 80IC UNIT, THE ASSESSEE HAS CONCEDED TO THE SAID ADDITION AND CONSEQUENTLY, OUT OF RS.1.07 CRORES, THE BALANCE EXPENDITURE WHICH REMAINS FOR CONSIDERATION IS ONLY RS.31,12,571/ - . IN THE FIRST INSTANCE, THE VEHICLE LOA N INTEREST OF RS. 1,89,315/ - IS NOT TO BE CONSIDERED WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A OR 36(1)(III) OF THE ACT. SECONDLY, THE ASSESSEE HAS ALREADY CONCEDED THAT OUT OF TOTAL LOAN EXPENDITURE OF RS.1.07 CRORES, SUM OF RS.30 LAKHS PERTAINING TO UNIT, ON WHICH THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IC OF THE ACT , DISALLOWANCE MERITS TO BE UPHELD AS THE ASSESSEE HAS NOT PRESSED THE GROUND OF APPEAL NO.3, HENCE, THE SAME IS TO BE ADDED IN THE HANDS OF ASSESSEE. ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 29 4 3 . THE NEXT ISSUE IS DISALLOWANCE MADE ON ACCOUNT OF SECTION 36(1)(III) OF THE ACT, WHICH WAS MADE AT RS.50 LAKHS BY THE ASSESSING OFFICER, WHEREAS THE CIT(A) HAS ALLOWED THE CLAIM OF ASSESSEE AT RS.44,30,598/ - VIDE PARA 5.3.6 AT PAGE 34 OF THE APPELLATE ORDER. THE CIT(A) HAS CONSIDERED THE INVESTMENTS MADE BY THE ASSESSEE IN ASSOCIATE CONCERNS AND FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN S.A. BUILDERS LTD. VS. CIT(A) AND ANOTHER (2007) 288 ITR 1 (SC), WHEREIN IT WAS HELD THAT NO DISALLOWANCE OF INTEREST I S CALLED FOR IN RESPECT OF BUSINESS INVESTMENTS MADE OUT OF COMMERCIAL EXIGENCY AND HAD APPLIED THE SAID PRINCIPLE AND HELD THAT NO DISALLOWANCE IS TO BE MADE IN THE CASE OF INVESTMENTS MADE IN WAPL UNDER SECTION 36(1)(III) OF THE ACT. RELEVANT FINDINGS O F CIT(A) ARE IN PARAS 5.3 TO 5.3.4 AT PAGES 31 TO 34 OF THE APPELLATE ORDER, WHICH ARE BEING REFERRED TO BUT ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. IN RESPECT OF BALANCE INVESTMENT, THE CIT(A) UPHELD THE DISALLOWANCE IN RESPECT OF SERIAL NOS.IV TO VII UNDER PARA 5.3.5 AT PAGE 34 OF THE APPELLATE ORDER. THE CLAIM OF ASSESSEE WAS DISMISSED IN THE ABSENCE OF ANY COMMERCIAL OR BUSINESS EXIGENCY IN MAKING THESE INVESTMENTS. 4 4 . FIRST COMING TO THE ISSUE RAISED BY THE REVENUE I.E. IN RESPECT OF IN VESTMENTS MADE FOR BUSINESS OR COMMERCIAL EXIGENCY, WE FIND NO MERIT IN THE PLEA OF REVENUE IN THIS REGARD SINCE SIMILAR ISSUE HAS ALREADY BEEN DECIDED IN EARLIER YEARS ALSO. NOW, COMING TO THE BALANCE DISALLOWANCE OR RS. 5,69,402/ - WHICH HAS BEEN HELD TO BE FOR NON - BUSINESS PURPOSE. THE PLEA OF THE ASSESSEE WAS THAT IT HAD SUFFICIENT NON - INTEREST BEARING FUNDS, HAS BEEN REJECTED BY THE CIT(A), THE TRIBUNAL IN ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 IN ITA NOS.655 & 656/PN/2009, VIDE ORDER DATED 30.06.2011 AT PARA 11 HAS ASKED THE ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 30 ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE UNDER SECTION 36(1)(III) / 14A OF THE ACT, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE IN RESPECT OF INVESTMENTS AT SERIAL NOS.IV TO VII UNDER PARA 5.3.5 AT PAGE 34 OF THE APPELLATE ORDER, WHICH ADMITTEDLY, W AS MADE FOR NON - BUSINESS PURPOSE AND WHETHER INTEREST FREE FUNDS ARE AVAILABLE O R NOT. IN CASE THEY ARE NOT AVAILABLE, THEN DISALLOWANCE OF RS.5,69,402/ - TO BE SUSTAINED. 4 5 . NOW, COMING TO THE ISSUE OF DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE ACT. ONCE THE TOTAL EXPENDITURE IS TAKEN INTO CONSIDERATION I.E. AT RS.1.07 CROR ES, SUM OF RS.1,89,315/ - OF VEHICLE LOAN IS TO BE EXCLUDED AND ALSO RS.30 LAKHS WHICH HAS BEEN HELD TO PERTAIN TO THE UNIT UNDER SECTION 80IC OF THE ACT AND RS. 44,30,598/ - ALLOWED BY THE CIT(A) UNDER SECTION 36(1)(III) OF THE ACT IN VIEW OF BUSINESS EXIGEN CY BEING UPHELD BY US AND RS.5,69,402/ - UNDER SECTION 36(1)(III) OF THE ACT, THEN THE BALANCE EXPENDITURE WHICH ADMITTEDLY, IS RESTRICTED TO RS.25,43,169/ - IS TO BE CONSIDERED FOR MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. FOLLOWING THE SAME PA RITY OF REASONING AS IN ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 AND IN VIEW OF THE ORDER OF CIT(A), THE SAME IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR RE - COMPUTATION AS TO WHETHER THE INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE IN THIS REG ARD. IN CASE OF NON - AVAILABILITY OF INTEREST FREE FUNDS, DISALLOWANCE UNDER SECTION 14A OF THE ACT IS TO BE UPHELD IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE HOLD SO. CONSEQUENTLY, GROUNDS OF APPEAL NOS.B)1 AND 2 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED AND THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE REVENUE ARE THUS, DISMISSED. ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 31 4 6 . THE REVENUE HAS ALSO RAISED GROUND OF APPEAL NO.3 AGAINST THE ORDER OF CIT(A) IN RESTORING THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO RE - COMPUTE THE SHORT / LONG T ERM CAPITAL GAINS. 4 7 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD CLAIMED THE EXEMPTION IN RESPECT OF INCOME DERIVED BY WAY OF DIVIDEND ON MUTUAL FUNDS AMOUNTING TO RS.60,40,361/ - AND ALSO IN RESPECT OF PROFIT DERIVED ON SALE OF MUTUAL FUNDS AMOUNTING TO RS.1,02,99,476/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THAT THE UNDER - MENTIONED GAINS WERE IN THE NATURE OF CAPITAL GAI NS BUT WERE CLAIMED AS EXEMPT: - TEMPLETON FLOATING RATE RS.3,42,943/ - - LTCG HDFC C ASH MANAGEMENT RS.6,28,068/ - - STCG KOTAK PORTFOLIO MANAGEMENT RS.10,00,000/ - - STCG 4 8 . IN RESPECT OF OTHER GAINS, THE ASSESSEE CLAIMED THAT THEY WERE EXEMPT UNDER SECTION 10(35) OF THE ACT. THE ASSESSING OFFICER HOWEVER, FROM THE DETAILS , NOTED THA T THERE WERE SERIES OF INVESTMENTS AND REDEMPTION IN EACH OF THE FUNDS AND EXEMPTION UNDER SECTION 10(35) OF THE ACT WAS AVAILABLE TO INCOME RECEIVED FROM MUTUAL FUNDS SPECIFIED UNDER CLAUSE (23D) WHICH DOES NOT APPLY TO INCOME ARISING ON TRANSFER OF UNITS OF MUTUAL FUNDS. THE ASSESSING OFFICER IN VIEW THEREOF, DENIED EXEMPTION CLAIMED UNDER SECTION 10(35) OF THE ACT. ON THE BASIS OF PERIOD OF HOLDING OF INCOME TO THE EXTENT OF RS.32,39,365/ - WAS ASSESSED AS LONG TERM CAPITAL GAINS WHILE THE REMAINING AMO UNT WAS OF RS.1,31,00,472/ - WAS HELD AS SHORT TERM CAPITAL GAINS. 4 9 . BEFORE THE CIT(A), THE ASSESSEE CLAIMED THAT THERE WAS MISAPPREHENSION OF THE FACTS AND ELABORATE DETAILS IN RESPECT OF DIVIDEND RECEIVED AND ITS REIMBURSEMENT AND SHIFT OF INVESTMENT FROM ONE MUTUAL FUND TO ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 32 ANOTHER, ETC. WERE FILED. THE ASSESSEE CLAIMED THAT THERE WERE NO GAINS EITHER SHORT TERM OR LONG TERM, WHERE THE DIVIDENDS RECEIVED WERE RE - INVESTED IN THE SAME SCHEME. THE CIT(A) AFTER CONSIDERING THE EXPLANATION OF ASSESSEE UN DER PARA 8.3, ACCEPTED THE FIRST CONTENTION OF ASSESSEE THAT THE ASSESSING OFFICER HAD WRONGLY TREATED THE DIVIDEND INCOME OF RS.60,43,361/ - AS EXEMPT INCOME ALONG WITH PROFITS ON SALE OF MUTUAL FUNDS OF RS.1.03 CRORES. THE ASSESSEE POINTED OUT THAT THE D IVIDEND INCOME WAS RS.60,43,361/ - AND THE PROFITS ON SALE OF MUTUAL FUNDS WERE RS.70,60,111/ - , OUT OF RS.1.03 CRORES AND THIS ASPECT OF THE ISSUE WAS ACCEPTED BY THE CIT(A). THE SECOND CONTENTION WAS WHETHER THERE WERE ANY GAINS ARISING AND THE CIT(A) REM ITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE. IN CASE, THE DIVIDEND WAS RECEIVED DURING THE YEAR IN RESPECT OF UNITS OF MUTUAL FUNDS SPECIFIED UNDER CLAUSE 10(23B), THEN THE SAME WERE TO BE TREATED AS EXEMPT UNDER SECTION 10(35) OF THE ACT. IN CASE THE DIVIDENDS RECEIVED WERE RE - INVESTED IN THE SAME MUTUAL FUNDS, THEN THE PERIOD OF HOLDING HAS TO BE RECKONED SEPARATELY FOR RE - INVESTED UNITS WHILE COMPUTING INCOME FROM LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL G AINS, AS THE CASE MAY BE, ON THE SALE OF RE - INVESTED UNITS . W HILE RECKONING THE PERIOD OF HOLDING THE MUTUAL FUNDS, THE SWITCH OFF AND SWITCH ON I.E. SHIFT IN PERFORMANCE OF THE INVESTMENTS WERE TO BE KEPT IN MIND FOR THE PURPOSE OF COMPUTING THE LONG TER M CAPITAL GAINS. FURTHER, THE LONG TERM CAPITAL GAINS WERE EXEMPT UNDER SECTION 10(38) OF THE ACT, IN CASE OF EQUITY BASED MUTUAL FUNDS ; SUBJECT TO THE FULFILLMENT OF CONDITIONS SPECIFIED IN THAT SECTION. HENCE, THESE WERE THE DIRECTIONS OF CIT(A), AGAIN ST WHICH THE REVENUE IS IN APPEAL. ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 33 50 . WE FIND NO MERIT IN THE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE, WHEREIN THE ISSUE WAS RESTORED BACK TO THE FILE OF ASSESSING OFFICER WITH SPECIFIC DIRECTIONS TO RE - COMPUTE THE INCOME IN THE HANDS OF ASSESSEE O N ACCOUNT OF SHORT TERM CAPITAL GAINS OR LONG TERM CAPITAL GAINS. THE GROUND OF APPEAL NO.3 IS THUS, DISMISSED. 51 . NOW, COMING TO ISSUE RAISED VIDE GROUND OF APPEAL NO.4 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN ALLOWING DEPRECIATION ON TOTAL ASSETS OF RS.45 LAKHS. WE FIND NO MERIT IN THE GROUND OF APPEAL NO.4 RAISED BY THE REVENUE, WHERE THE EXPENDITURE HAS BEEN ADDED AS CAPITAL EXPENDITURE. HENCE, THE GROUND OF APPEAL NO.4 IS DISMISSED. 52 . THE ISSUE IN GROUND OF APPEAL NO.5 RAISED BY THE REVENUE IS AGAINST ALLOWANCE OF DEPRECIATION OF RS.10,73,917/ - ON MOTOR CARS. THE ASSESSING OFFICER HAD DISALLOWED THE DEPRECIATION SINCE THE MOTOR CARS WERE PURCHASED IN THE NAME OF DIRECTORS. THE ASSESSEE UNDISPUTEDLY, HAD REFLECTED THE SAID VEH ICLES IN ITS SCHEDULE OF ASSETS BUT HAD PURCHASED THE VEHICLES IN THE NAMES OF ITS DIRECTORS. HOWEVER, THE LOANS AVAILED FOR ACQUIRING THE SAID VEHICLES WERE DULY REFLECTED IN THE SECURED LOANS OF THE BALANCE SHEET OF THE ASSESSEE COMPANY. THE SAID VEHIC LES WERE USED FOR THE BUSINESS PURPOSE AND THE ASSESSEE WAS ALLOWED DEPRECIATION UNDER SECTION 32 OF THE ACT BY THE CIT(A), FOLLOWING THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF ROHAN BUILDERS IN ITA NO.942/PN/2006, ORDER DATED 29.08.2 008. THE REVENUE IS AGGRIEVED BY THE SAID ORDER OF CIT(A). ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 34 53. WE FIND NO MERIT IN THE GROUND OF APPEAL NO.5 RAISED BY THE REVENUE IN THIS REGARD, WHERE THE ASSET IS ADMITTEDLY, USED BY THE ASSESSEE COMPANY, FOR WHICH THE COST OF ACQUISITION IS ALSO ME T WITH BY THE ASSESSEE COMPANY AND EVEN THE LOANS AVAILED ARE BEING SHOWN AS LIABILITY BY THE ASSESSEE. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE PLEA OF REVENUE AND THE GROUND OF APPEAL NO.5 IS DISMISSED. 5 4 . THE ASSESSEE IN ASSESSMENT YEAR 2009 - 10 HAS ONLY RAISED THE ISSUE OF COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT AGAINST THE ADDITION MADE ON ACCOUNT OF SHARE OF PROFITS OF AOP WHILE COMPUTING THE ELIGIBLE PROFITS. WE HAVE ALREADY DECIDED THIS ISSUE RAISED IN ASSESSMENT YEAR 2007 - 08 BY WAY OF GROUND OF APPEAL NO.A)1 AND FOLLOWING THE SAME PARITY OF REASONING, THIS GROUND OF APPEAL IS ALLOWED. 5 5 . IN ASSESSMENT YEAR 2010 - 11, THE FIRST GROUND OF APPEAL IS AGAINST COMPUTATION OF ELIGIBLE PROFITS UNDER SECTION 115JB OF THE ACT BY INCLUDING THE SHARE OF PROFITS FROM AOP. THE ASSESSEE IS AGGRIEVED BY THE ORDERS OF AUTHORITIES BELOW AND HAS PLEADED THAT THE SAME BE EXCLUDED AS THE TAXES HAVE BEEN PAID BY THE AOP. WE HAVE ALREADY DECIDED THIS ISSUE I N ASSESSMENT YEAR 2007 - 08 VIDE GROUND OF APPEAL NO.A)1 AND FOLLOWING THE SAME PARITY OF REASONING, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS, ALLOWED. 5 6 . THE GROUND OF APPEAL NO.B)1 IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 AT RS.25,30,313/ - . WE HAVE REMIT TED THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER IN ASSESSMENT YEAR 2007 - 08 TO DETERMINE THE INTEREST FREE FUNDS ITA NO. 1416 & 1452 /P U N/20 11 ITA NO.2365/PUN/2012 ITA NO.528/PUN/2015 WEIKFIELD PRODUCTIONS CO. (I) PV T. LTD. 35 AVAILABLE WITH THE ASSESSEE AND APPLYING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) TO DECIDE THE ISSUE. FOLLOWING THE SAME PARITY OF REASONING, THIS ISSUE IS ALSO REMITTED BACK TO THE FILE OF ASSESSING OFFICER IN LINE WITH OUR DIRECTIONS IN EARLIER YEARS. 5 7 . IN THE RESULT, APPEAL OF ASSESSEE IN ASSESSMENT YEAR 2007 - 08 IS PARTLY ALLOWED, APPEALS OF ASSESSEE IN ASSESSMENT YEARS 2009 - 10 & 2010 - 11 ARE ALLOWED AN D APPEAL OF REVENUE IN ASSESSMENT YEAR 2007 - 08 IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH JUNE , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELL ANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - III, PUNE ; 4. / THE CIT - IV, PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE