The ACIT, Circle-4, Ahmedabad V. Gujarat Mineral Development, Ahmedabad

ITA 543/AHD/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85580 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-11-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 13-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Proportionate interest; Capital receipt; Revenue expenditure
• Section: 14A; 37(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. S. SAINI, ACCOUNTANT MEMBER. ITA. NO. 1185/AHD/2007 (ASSESSMENT YEAR:2003-04) THE DCIT, CIRCLE 4, AHMEDABAD. APPELLANT VS. GUJARAT MINERAL DEVELOPMENT CORPORATION LTD., KHANIJ BHAVAN, 132FT. RING ROAD, NR. UNIVERSITY GROUND, VASTRAPUR, AHMADABAD. RESPONDENT & I.T.A. NOS. 1246/AHD/2007 (ASSESSMENT YEAR: 2003-04) GUJARAT MINERAL DEVELOPMENT CORPORATION LTD., KHANIJ BHAVAN, 132FT. RING ROAD, NR. UNIVERSITY GROUND, VASTRAPUR, AHMADABAD. APPEL LANT VS. THE DCIT, CIRCLE 4, AHMEDABAD. RESPOND ENT I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 2 ITA NO. 543/AHD/2008 (ASSESSMENT YEAR: 2004-05) THE ACIT, CIRCLE 4, AHMEDABAD. APPELLANT VS. GUJARAT MINERAL DEVELOPMENT CORPORATION LTD., KHANIJ BHAVAN, 132FT. RING ROAD, NR. UNIVERSITY GROUND, VASTRAPUR, AHMADABAD. RESPONDENT & I.T.A. NO. 1324/AHD/2008 (ASSESSMENT YEAR: 2004-05) GUJARAT MINERAL DEVELOPMENT CORPORATION LTD., KHANIJ BHAVAN, 132FT. RING ROAD, NR. UNIVERSITY GROUND, VASTRAPUR, AHMADABAD. APPEL LANT VS. THE DCIT, CIRCLE 4, AHMEDABAD. RESPOND ENT PAN: AAACG7987P I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 3 / BY REVENUE :SHRI SUBHASH BAINS, CIT D.R. / BY ASSESSEE : SHRI S. N. SOPARKAR WITH SHRI J. T. SHAH, A.R. /DATE OF HEARING :23.01.2015 !'# /DATE OF PRONOUNCEMENT : 29.01.2015 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THESE TWO SET OF CROSS APPEALS ARE ARISING OUT FORM THE RESPECTIVE ORDERS OF CIT(A)-VI, AHMEDABAD, DATED 29 .12.2006 FOR A.Y. 2003-04 & CIT (A)-VIII, AHMADABAD, DATED 2 6.11.2007 FOR A.Y. 2004-05. SO, THEY ARE BEING DISPOSED OF B Y WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO. 1185/AHD/2007 FOR A.Y. 2003-04, REVEN UE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION RELATED TO MULT I METAL PROJECT. 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE TO THE EXTENT OF RS.18,76,968/- OUT OF THE TOTAL DISALLOWANCE MADE B Y THE A.O., ON ACCOUNT OF PRIOR PERIOD EXPENSES OF RS.76,98,98/- IGNORING THE FACT THAT THE EXPENDITUR E ALLOWED IN RESPECT OF (I) DHOLU CONSTRUCTION RS. 7,68,295/- AND (II) J.P. FABRICATORS RS.10,08,360/- I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 4 RELATED TO THE PERIOD (I) 25.03.2001 TO 31.03.2002 AND (II) 24.03.2002 TO 31.03.2002 RESPECTIVELY AND THE FACT THAT BILL WAS RAISED ON 27.05.2002 WILL NOT MAKE TH E EXPENDITURE TO BE PERTAINING TO A.Y. 2003-04. 3. THE LD. CIT(A) FURTHER ERRED IN LAW AND ON THE F ACTS OF THE CASE IN ENTERTAINING THE ASSESSEES ALTERNATE C LAIM BY DIRECTING THE A.O. TO TAX THE INTEREST PORTION O UT OF LEASE RENTALS OFFERED AS INCOME BY THE ASSESSEE, IGNORING THE FACT THAT THE ASSESSEE NEITHER, WHILE FILING THE RETURN OF INCOME U/S. 139 NOR DURING THE COURSE OF ASSESSMENT PROCEEDING, HAD MADE ANY SUCH CLAIM TO EXCLUDE THE PRINCIPAL PORTION OF THE LEASE RENT FRO M THE INCOME APPLYING THE RATIO OF THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS . CIT (2006) 284 ITR 323 (SC). 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE TO THE EXTENT OF RS.58,68,385/- OUT OF TOTAL DISALLOWANCE OF RS.60,75,409/- MADE U/S. 14A OF THE I.T. ACT. 2.1 IN I.T.A. NO. 1246/AHD/2007 FOR A.Y. 2003-04, A SSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: (1) IN FACTS AND CIRCUMSTANCES OF THE CASE, YOUR A PPELLANT MOST RESPECTFULLY SUBMITS THAT THE LEARNED ASSESSIN G OFFICER HAS ERRED IN DISALLOWING SUM OF RS. 99,62,4 50/- OF EXPENDITURE IN RESPECT OF PROJECT OF MATA - NO - MADH AND LEARNED CIT(A) HAS FURTHER ERRED IN CONFIRMING THE SAID DISALLOWANCE. (2) YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED ASSESSING OFFICER AND ALSO LEARNED CIT(A) HAVE ERRED IN REJECTING THE CLAIM OF EXPENDITURE OF RS. 55,89,17,419/- INCURRED IN RESPECT OF POWER PROJECT AT AKRI MOTA, AND HAVE FURTHER ERRED IN REJECTING THE CLAIM OF INTEREST AND FINANCIAL CHARGES OF RS. 50,33,77,067/- WHICH IS FORMING PART OF TOTAL EXPENDITURE OF RS. 55.89, 17, 149/-, AND CLAIMED AS FULLY ALLOWABLE U/S 36(1 )(III) OF THE ACT. (3) THE LEARNED ASSESSING OFFICER AND ALSO LEARNED CIT(A) HAVE ERRED IN LAW AND ON FACTS OF THE CASE BY I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 5 DISALLOWING DEPRECIATION OF RS. 3,44,364/- AND RS. 1,12,46,815/- ON THE ASSETS USED IN IMPLEMENTING TH E PROJECTS AT MATA - NO - MADH & POWER PROJECT AT AKR I MOTA RESPECTIVELY, I.E. TOTAL DISALLOWANCE OF DEPRECIATION OF RS. 1,15,91,179/-. (4) YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS. 76,98,98 6/- (GROSS) BEING THE AMOUNT OF EARLIER YEAR'S EXPENSES AS REPORTED IN TAX AUDIT REPORT, AND LEARNED CIT(A) HA S FURTHER ERRED IN SUSTAINING THE DISALLOWANCE AT RS. 58,22, 018/-. (5) ON FACTS AND CIRCUMSTANCES OF THE CASE, YOUR APPELLANT MOST RESPECTFULLY SUBMITS THAT THE LEARNE D ASSESSING OFFICER AND ALSO LEARNED CIT(A) HAVE ERRE D IN REJECTING THE CLAIM OF DEDUCTION OF RS. 2,06,516/- IN RESPECT OF PAYMENT OF SALARY TO STAFF AT THE RESIDE NCE OF CHAIRMAN. (6) ON FACTS AND CIRCUMSTANCES OF THE CASE, YOUR APPELLANT SUBMITS THAT LEARNED ASSESSING OFFICER AN D ALSO LEARNED CIT(A) HAVE ERRED IN MAKING ADDITION O F RS. 2,00,34,358/- BY REJECTING THE CLAIM OF DEPRECIATION ON ASSETS/BUSES LEASED TO GSRTC. YOUR APPELLANT FURTHER SUBMITS THAT LEARNED ASSESSING OFFICER HAS FURTHER ERRED IN HOLDING THAT THE APPEL LANT HAD NO OWNERSHIP RIGHTS ON THE BUSES WHICH ARE LEAS ED OUT TO GSRTC. (7) YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED ASSESSING OFFICER & ALSO LEARNED CIT(A) HAVE ERRED IN MAKING ADDITIONS OF MISC. INCOME OF RS. 1,34,11,961 /- OF AKRI MOTA PROJECT AND OF RS, 2,25,475/- OF MATA - NO - MADH PROJECT; WHICH YOUR APPELLANT CREDITED THE SAME TO THE PROJECT EXPS. A/C'S, AND ONLY NET EXPEN SES WERE CLAIMED. AND WITHOUT PREJUDICE, YOUR APPELLANT FURTHER SUBMITS THAT THE DISALLOWANCE IN RESPECT OF PROJECT EXPENSES SHOULD BE ON NET EXPENDITURE BASIS ONLY. (8) THE LEARNED ASSESSING OFFICER HAS ERRED IN DISA LLOWING RS. 60,75,409/- BEING PRO-RATA EXPENSES CALCULATED BY HIM IN RESPECT OF TAX FREE INCOME BEING INTEREST ON TAX FREE BONDS OF AHMEDABAD MUNICIPAL CORPORATION & LEANED CIT(A) HAS FURTHER ERRED IN SUSTAINING I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 6 ADDITION IN RESPECT OF PRO-RATA INTEREST AT RS. 2,15,024/-. 3. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO. 1185/AHD/2007 FOR A.Y. 2003-04. 3.1 FIRST ISSUE IN REVENUES APPEAL IS WITH REGARD TO ESTIMATED DISALLOWANCE OF DEPRECIATION OF RS. 5 LACS ON THE A SSETS OF MULTI METAL PROJECT. ASSESSEES CLAIM IS THAT EVEN THOUG H MACHINES IN THE MULTI METAL PROJECT WERE NOT ACTUALLY USED D URING THE YEAR, STILL CLAIM OF DEPRECIATION IS ALLOWABLE SINC E THE MACHINERIES WERE PUT IN A CONDITION READY TO USE. THE SAID DISALLOWANCE MADE BY ASSESSING OFFICER WERE DELETED BY CIT(A) BY OBSERVING THAT SIMILAR DISALLOWANCES WERE DELETE D IN A.Y. 1997-98 TO 2000-01. BEFORE US LD. DEPARTMENTAL REPRESENTATIVE AND REQUESTED TO SET ASIDE THE ORDER OF CIT(A) ON THE ISSUE AND RESTORED THAT OF THE ASSESSING OFF ICER ON THE ISSUE. ON OTHER HAND LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT CIT(A) HAS FOLLOWED ITS DECISION FOR A.Y. 1997-98 TO 2000-01 AND TRIBUNAL IN ITA NO. 402/AHD/2005 FOR A. Y. 2001- 02 VIDE PARA 4.2 4.2.1 HAS DECIDED THE SIMILAR IS SUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 4.2 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL D ECISION IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1998-99 AND 1999-2000 IN I.T.A.NO. 1392 AND 1422/ AND/2003. HE FURTHER SUBMITTED THAT THE RELEVANT PORTION OF THIS TRIBUNAL ORDER IS AT PARA 19-23 WHICH ARE AVAILABLE ON PAGE 81-82 OF THE DECISION PAPER BOOK. HE FURTHER SUBMITTED THAT THIS TRIBUNAL ORDER WAS FOLLOWED BY THE TRIBUNAL IN ASSE SSMENT YEAR 1997-98 IN I.T.A.NO. 2728/AHD/2000 AND THE REL EVANT I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 7 DISCUSSION IS IN PARA 84 OF THE TRIBUNAL ORDER ON P AGE 76 OF THE DECISION PAPER BOOK. 4.2.1 LD. D.R. OF THE REVENUE ALTHOUGH SUPPORTED T HE ORDER OF THE A.O. BUT HE COULD NOT POINT OUT ANY DIFFEREN CE IN FACTS IN THE PRESENT YEAR AS COMPARED TO EARLIER THREE YE ARS FOR WHICH THE TRIBUNAL DECISION HAD BEEN CITED BY THE L D. A.R. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN TH E ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENU E IS REJECTED. SIMILAR VIEW HAS BEEN TAKEN IN ASSESSEES OWN CASE IN ITA NO. 1036/AHD/2006 FOR A.Y. 2002-03. 3.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE IN THIS REGARD. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS DELETED THE DISALLOWANCE OF RS. 5 LA CS MADE BY ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION RELATE D TO MULTI METAL PROJECT. SAME IS UPHELD. 4. NEXT ISSUE IN REVENUES APPEAL IS REGARDING DISA LLOWANCE OF RS.18,76,968/- ON ACCOUNT OF PRIOR PERIOD CHARG ES. IN THIS REGARD LD. AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF I. 213 ITR 523 (GUJ), II. 334 ITR 102 (DEL) & III. 339 ITR 382 (DEL). ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES OF RS. 7 6,98,986/-. ASSESSING OFFICER DISALLOWED THE CLAIM STATING THAT EXAMINATION OF THE DETAILS FURNISHED BY ASSESSEE SHOW THAT THE LIABILITY TO PAY EXPENDITURE HAD CRYSTALLIZED IN THE PREVIOUS AC COUNTING YEAR ITSELF. AS THE ASSESSEE IS FOLLOWING MERCANTI LE SYSTEM OF I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 8 ACCOUNTING PROVISION SHOULD HAVE BEEN MADE IN THE E ARLIER YEARS ITSELF. THE STAND OF AUTHORIZED REPRESENTATI VE HAS BEEN THAT COMPLETE DETAILS OF PRIOR PERIOD EXPENSES WERE FURNISHED. ASSESSING OFFICER HAS DISALLOWED THE CLAIM BY MAKIN G GENERAL OBSERVATIONS WITHOUT DISCUSSION OF VARIOUS DETAILS IN THIS REGARD. 4.1 IN APPEAL, CIT(A) HAVING CONSIDERED THE VARIOUS DETAILS, DELETED THE DISALLOWANCE OF RS.18,76,968/- MADE ON ACCOUNT OF PRIOR PERIOD CHARGES BY ASSESSING OFFICER. REST WA S CONFIRMED. 4.2 BOTH ARE IN APPEAL BEFORE US. REVENUE IS OPPOS ING RELIEF OF RS.18,76,968/- ON THIS ACCOUNT WHILE ASSESSEE IS ALSO IN APPEAL AGAINST CONFIRMING THE DISALLOWANCE OF RS.58 ,22,018/- OF PRIOR PERIOD CHARGES. IN THIS REGARD, LD. DEPAR TMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF ASSESSING OFF ICER WHILE LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT ITA T IN ITA NO. 402/AHD/2005 IN A.Y. 2001-02, HAS RESTORED SIMILAR MATTER TO ASSESSING OFFICER BY OBSERVING AS UNDER: 4.3.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUG H THE ORDERS OF AUTHORITIES BELOW AND THE DECISION CITED BY THE LD. A.R. WE FIND THAT IN ASSESSMENT YEAR 1990-91, IT IS OBSERVED BY THE TRIBUNAL IN PARA 15 OF THE TRIBUNAL ORDER TH AT THE LIABILITY HAS CRYSTELISED DURING THE YEAR UNDER CON SIDERATION AND THERE IS NO DISPUTE ON THIS FACT THAT ON THIS B ASIS OF ORDER OF LD. CIT(A) WAS UPHELD BY THE TRIBUNAL IN T HAT YEAR. IN THE PRESENT YEAR, NO FINDING IS GIVEN BY LD. CIT (A) AS TO WHETHER THE EXPENSES IN QUESTION HAVE UTILIZED DURI NG THIS YEAR OR NOT. IT IS FURTHER NOTED BY LD. CIT(A) ON P AGE 4 OF HIS ORDER THAT THE A.O. HAS NOT GIVEN THIS FINDING THAT THE I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 9 EXPENSE DID NOT CRYSTELISE DURING THE PRESENT YEAR. THEREFORE, IN OUR CONSIDERED OPINION, THIS FACT HAS TO BE BROUGHT OUT ON RECORD AS TO WHETHER THE EXPENSES IN QUESTION HAVE CRYSTELISED DURING THIS YEAR AND IF T HE ASSESSEE IS ABLE TO DO SO, NO DISALLOWANCE SHOULD B E MADE. THE A.O. SHOULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. GROUND NO.2 OF THE REV ENUE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 4.3 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE RESTORE THIS ISSUE TO ASSESSING OFFICER WITH SIMILA R DIRECTION AND TO BE MORE PRECISE. ASSESSING OFFICER WILL PAS S NECESSARY ORDER AS PER LAW AFTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. AS A RESULT, THIS GROUND IN BOTH ASSE SSEES AND REVENUES APPEALS, IS ALLOWED FOR STATISTICAL PURPO SE. SINCE, WE ARE RESTORING THIS ISSUE FOR THE REASONS DISCUSSED ABOVE, WE ARE REFRAINING TO MAKE ANY COMMENT ON THE MERIT OF THE ISSUE AT HAND. THIS WILL TAKE CARE OF REVENUES GROUND NO.2 AS WELL AS ASSESSEES GROUND NO.4. ASSESSING OFFICER IS DIREC TED ACCORDINGLY. 5. NEXT ISSUE RAISED IN REVEUES APPEAL IS WITH REG ARDS TO DISALLOWANCE OF ALTERNATIVE CLAIM OF ASSESSEE TO TA X ONLY INTEREST PORTION OF LEASE RENTAL BY DISALLOWANCE OF DEPRECIATION OF RS.2,00,34,358/- ON ASSETS LEASED TO GUJARAT STA TE ROAD TRANSPORT CORPORATION (HEREINAFTER REFERRED AS GSR TC). ASSESSEE CLAIMED THAT IT HAD ENTERED INTO LEASE TRA NSACTION WITH GSRTC IN F.Y. 1993-94, 1996-97 AND 1999-2000. LEASE RENT RECEIVED WERE OFFERED FOR TAXATION AND ASSESSE E HAD I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 10 CLAIMED DEPRECIATION ON ASSETS (BUSES) LEASED TO GS RTC. IT WAS ALSO STATED ON BEHALF OF ASSESSEE THAT FOR SOME ASSESSMENT YEARS THE DEPARTMENT HAD ACCEPTED THE TRANSACTION A S GENUINE. HOWEVER, IN SOME ASSESSMENT YEARS TRANSAC TION WAS NOT REGARDED AS LEASE TRANSACTION BUT AS PURELY FIN ANCIAL YEAR TRANSACTION. IT WAS POINTED OUT BEFORE CIT(A) THAT FOR A.YS. 1997-98 TO 2001-02, THE CLAIM OF ASSESSEE WAS THAT NATURE OF TRANSACTION ENTERED INTO WITH GSRTC WAS OF THE TYPE OF LEASING TRANSACTION WAS ACCEPTED AND DEPRECIATION ON BUSES LEASED WAS ALLOWED. HOWEVER, IN A.Y. 2000-01 ONWARDS THE CIT(A) SUSTAINED THE ACTION OF ASSESSING OFFICER IN DISALL OWING THE CLAIM OF DEPRECIATION. TRANSACTION WAS TREATED AS A PURE FINANCIAL TRANSACTION. CIT(A) SUSTAINED THE DISALL OWANCE OF DEPRECIATION. HOWEVER, CIT(A) ALSO DIRECTED ASSESS ING OFFICER NOT TO TAX THE ENTIRE LEASE RENTALS TO BE TAXED. F OR THIS YEAR ALSO THE DISALLOWANCE OF DEPRECIATION WAS SUSTAINED . AS TRANSACTION IS TREATED AS FINANCIAL TRANSACTION, AS SESSING OFFICER WAS DIRECTED TO ONLY TAX THE INTEREST PORTI ON OUT OF LEASE RENTALS OFFERED AS INCOME BY ASSESSEE. 5.1 BEFORE US, LD. AUTHORIZED REPRESENTATIVE POINTE D OUT THAT IN ASSESSEES OWN CASE IN ITA NO. 128/AHD/2005 FOR A.Y. 2000-01 VIDE PARA 2.1.2 HAS DECIDED THE SIMILAR ISS UE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 2.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUG H THE I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 11 ORDER OF AUTHORITIES BELOW AND WE FIND THAT THIS IS SUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPE CIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF INDUS IND BANK LTD (SUPRA) AND, THEREFORE, RESPECTFULLY FOLLO WING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL, THIS ISS UE IS DECIDED AGAINST THE ASSESSEE. IN ADDITION TO HOLDI NG THIS THAT IN THE CASE OF FINANCIAL LEASE, LESSOR IS NOT ENTITLED TO DEPRECIATION, IT IS ALSO HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF INDUSIND BANK LTD (SUPRA) T HAT THE ENTIRE LEASE RENTAL RECEIVED BY THE ASSESSEE LESSER , CANNOT BE CONSIDERED AS INCOME AND ONLY THE INTEREST COMPONEN T OF LEASE RENTAL FINANCE CHARGE I.E. INTEREST, SHOULD B E RECOGNIZED AS INCOME. THE DECISION OF LD. CIT(A) I S ON THIS VERY LINE AND HENCE, WE DO NOT FIND ANY REASON TO I NTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GRO UND IS REJECTED. 5.2 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT (A), WHO HAS DIRECTED THE ASSESSING OFFICER TO TAX THE INTEREST PORTION OUT OF LEASE RENTALS OFFERED AS INCOME BY ASSESSEE. SAME IS UPHOLD. 6. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE U/S. 14A OF RS.58,68,355/-. ASSESSING OFFICER MADE DISALLOWANC E OF RS.60,75,409/- U/S. 14A. 6.1 MATTER WAS CARRIED BEFORE FIRST APPELLATE AUTHO RITY, WHEREIN IT WAS STATED ON BEHALF OF ASSESSEE THAT AS SESSEE HAS SUBSCRIBED TO BONDS ISSUED BY AHMEDABAD MUNICIPAL CORPORATION AND HAD INVESTED RS. 10 CRORES IN F.Y. 2001-02 RELEVANT TO A.Y. 2002-03. DURING PREVIOUS YEAR REL EVANT TO ASSESSMENT YEAR UNDER CONSIDERATION IN APPEAL I.E. 2003-04, I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 12 ASSESSEE HAD RECEIVED TAX FREE INTEREST OF RS.90 LA KHS. ASSESSING OFFICER HAD DISALLOWED A SUM OF RS.60,75, 409/- AS RELATING TO EXPENDITURE INCURRED FOR EARNING ABOVE INCOME. THE DISALLOWANCE MADE BY ASSESSING OFFICER IS AS UNDER: PROPORTION INTEREST EXPENDITURE:- INVESTMENT IN TAX FREE BONDS RS. 10,00,00,000/- TOTAL LOAN FUNDS RS.529,83,98,983/- INTEREST RS. 1,13,92,834/- PROPORTIONATE INTEREST EXPENDITURE DISALLOWABLE IS INVESTMENT IN TAX FREE BONDS X INTEREST PAID LOAN FUNDS RX. 10,00,00,000/- X 1,13,92,834 = RS.215,024 RS. 529,83,98,983 ADMINISTRATIVE EXPENDITURE:- PAYMENT TO EMPLOYEE RS. 44,76,54,644/- STATIONERY RS. 3,85,03,315/- GENERAL CHARGES RS. 6,68,12,815/- RS. 51,79,70,774/- EXEMPT INCOME RS. 90,00,000/- TOTAL INCOME RS. 78,64,65,915/- + RS.90,00,000 = RS. 79,54,65,915/- EXEMPT INCOME X ADMINISTRATIVE EXPENSES TOTAL INCOME RS. 90,00,000/- X 51,79,70,774/- = RS. 58,60,385/- RS.795465915/- STAND OF ASSESSEE HAD BEEN THAT DISALLOWANCE MADE W AS WITHOUT ANY LOGIC. WHAT ASSESSEE HAD RECEIVED IS O NLY INTEREST I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 13 WARRANTS DURING THE YEAR AND ALL IT HAD DONE WAS TO DEPOSIT THESE INTEREST WARRANTS IN THE BANK ACCOUNT. NO EX PENDITURE WAS INCURRED. THERE IS ALSO NO REQUIREMENT TO DISA LLOW INTEREST AS ASSESSEE HAS INTEREST FREE FUNDS. THEREFORE, DI SALLOWANCE U/S. 14A IS MISCONCEIVED. CIT(A) CONSIDERED THE AR GUMENTS OF ASSESSEE AND OBSERVED THAT ASSESSEES PAST EARNING AND INTEREST FREE FUNDS AND LOANS FUNDS HAVE LOST THEIR INDIVIDUAL IDENTITIES AND AS THESE FUNDS FORMED A COMMON POOL, THE INTEREST DISALLOWED BY ASSESSING OFFICER IS SUSTAIN ED AS DISALLOWANCE OF ADMINISTRATIVE EXPENSES PRACTICALLY NO EXPENDITURE WAS INCURRED AS ALL THAT HAS TO BE DONE TO REALIZE THE INTEREST IS TO DEPOSIT INTEREST WARRANTS IN BAN K. THE EXPENDITURE INCURRED IS VERY NEGLIGIBLE. NO DISALL OWANCE ON THIS GROUND IS CALLED FOR. THEREFORE, DISALLOWANCE OF RS.58,68,385/- WAS DELETED. 6.2 REVENUE IS IN APPEAL AGAINST RELIEF OF RS.58,68 ,385/- BY ITS GROUND NO.4 WHILE ASSESSEE IS IN APPEAL AGAINST CONFIRMATION OF DISALLOWANCE U/S. 14A OF RS.2,15,02 4 VIDE GROUND NO.8 BEING PRO-RATA EXPENSES FOR TAX FREE BO NDS OF AMC. LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF ASSESSING OFFICER ON THE ISSUE WHILE LD. AUTHORIZED REPRESENTATIVE SUPPORTED THE RELIEF GRANTED AND OPP OSED THE CONFIRMING DISALLOWANCE OF RS.2,15,024/- BEING PRO- RATA EXPENSES FOR TAX FREE BONDS OF ASSESSEE. LD. AUTHO RIZED REPRESENTATIVE SUBMITTED THAT ASSESSEE CORPORATION EARNED RS.90 LACS TAX FREE INTEREST FROM TAX FREE FUND OF AHMEDABAD I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 14 MUNICIPAL CORPORATION OF RS.10 CRORE. ASSESSING OF FICER DISALLOWED RS.2,15,024 ON ACCOUNT OF PROPORTIONATE INTEREST EXPENSES AND RS.58,60,385/- ON ACCOUNT OF PROPORTIO NATE ADMINISTRATIVE EXPENSES, TOTAL DISALLOWANCE OF RS.6 0,75,409/-. IN THIS REGARD ASSESSEE SUBMITTED AS UNDER: INTEREST FREE FUNDS (SHARE CAPITAL + RESERVE & SURPLUS) RS. 6,17,87,00 ,931/- INVESTMENT RS. 78,07,38,000/- CURRENT YEAR PROFIT RS. 84,91,05,226/- AS DISCUSSED ABOVE, ISSUE OF DISALLOWANCE OF INTERE ST EXPENSES HAS BEEN DECIDED AGAINST ASSESSEE. IN THIS REGARD, STAND OF ASSESSEE HAS BEEN THAT AS ASSESSEE HAS FOUR MORE IN TEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & SU RPLUS AND CURRENT YEAR PROFIT THEN IT IS PRESUMED THAT INVEST MENT MADE FROM INTEREST FREE FUNDS. FURTHER AS REGARDS TO US E OF INTEREST BEARING FUND, IT IS EXPECTED OF DEPARTMENT TO ESTAB LISH NEXUS BETWEEN INTEREST BEARING FUNDS BORROWED AND THOSE I NVESTED BY ASSESSEE. IN THIS REGARD, ASSESSEE PLACED RELIANCE ON FOLLOWING JUDICIAL PRONOUNCEMENTS: I. GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION LTD. (GUJ.) (PARA 7) 37 TAXMANN.COM 254 II. AMOD STAMPING (P.) LTD. (GUJ.) (PARA 3.1 & 4) 45 TAXMANN.COM 427 III. TORRENT POWER LTD. (GUJ.) (PARA 7 & 10) 222 TAXMAN 367 IV. RAGHUVIR SYNTHETICS LTD. (GUJ.) 354 ITR 222 V. RELIANCE UTILITIES & POWER LTD. (BOM,.) 313 ITR 340 I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 15 IN THIS LEGAL AND FACTUAL BACKGROUND, LD. AUTHORIZE D REPRESENTATIVE SUBMITTED THAT DISALLOWANCE IN QUEST ION MADE IN RESPECT OF INTEREST EXPENSES SHOULD BE DELETED. ON OTHER HAND LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A) ON THE ISSUE. 6.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT HONBLE GUJARAT HIGH COURT COM MISSIONER OF INCOME-TAX VS. GUJARAT INDUSTRIAL DEVELOPMENT CO RPORATION LTD. (SUPRA) HAS HELD THAT IT IS EXPECTED OF DEPART MENT TO ESTABLISH A NEXUS BETWEEN INTEREST BEARING FUNDS BO RROWED AND THOSE INVESTED BY ASSESSEE RESPONDENT ONLY WHEN IT IS SHOWN THAT INTEREST FREE FUNDS ARE NOT AVAILABLE WITH ASS ESSEE, QUESTION WOULD ARISE OF FASTENING TAX LIABILITY ON ASSESSEE. IN THE SAID CASE, RESPONDENT ASSESSEE HAD NOT USED BOR ROWED FUNDS, FOR THE PURPOSE OF INVESTMENT IN EQUITY SHAR ES. FOR DEDUCTION CLAIMED U/S. 80M OF ACT, ON DIVIDEND INCO ME OF THESE SHARES, BOTH THE COMMISSIONER (APPEALS) AND T HE TRIBUNAL HAVE RIGHTLY ALLOWED INTEREST FREE EXPENSE S INCURRED FOR EARNING DIVIDEND AND ALLOWED DEDUCTION U/S. 80M ON NET INCOME RECEIVED AND REVENUE HAVING FAILED TO ESTABL ISH THAT RESPONDENT HAD INCURRED ANY EXPENSES FOR EARNING DI VIDEND INCOME FROM THE AMOUNT BORROWED, THEY HAVE RIGHTLY NOT ADDED SUM OF RS.6.62 CRORE INVOKING PROVISIONS OF SECTION 14A WHICH DOES NOT PERMIT DEDUCTION OF EXPENDITURE INCURRED I N RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. SIMILAR VIEW HAS BEEN TAKEN IN AMOD STAMPING (P.) LTD. (SUPRA), TORRENT P OWER LTD. I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 16 (SUPRA) AND OTHER DECISIONS RELIED BY ASSESSEE. IN VIEW OF ABOVE, NO DISALLOWANCE OF INTEREST EXPENSES IS REQU IRED BECAUSE REVENUE IS EXPECTED TO ESTABLISH A NEXUS BETWEEN IN TEREST BEARING FUNDS BORROWED AND THESE INVESTED BY THE AS SESSEE. IN SUCH SITUATION, DISALLOWANCE U/S. 14A OF ACT IS NOT JUSTIFIED. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. ACCORDI NGLY APPEAL OF REVENUE ON THIS ISSUE IS DISMISSED AND THAT OF ASSE SSEE IS ALLOWED AS DISCUSSED ABOVE. 7. IN RESULT, APPEAL OF REVENUE IS DISMISSED. 8. NOW WE TAKE ASSESSEES APPEAL IN ITA NO.1246/AHD /2007 FOR A.Y. 2003-04. 8.1 FIRST ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.99,62,450/- BEING EXPENDITURE OF LIGNITE PROJECT AT MATA NO MADH HOLDING IT TO BE PREOPERATIVE EXPENSES. ASSES SING OFFICER MADE DISALLOWANCE OF PROJECT EXPENSES OF MATA NO MA DH OF RS.99,62,450/-. ASSESSEES CLAIM WAS THAT IT IS EN GAGED IN MINING OF LIGNITE. DURING YEAR UNDER CONSIDERATION IT HAS CONTINUED THE ACTIVITY OF EXPANSION OF ITS BUSINESS AT MATA NO MADH. ASSESSEE ALSO CLAIMED BEFORE ASSESSING OFFIC ER THAT ITAT IN ITS OWN CASE FOR A.Y. 1995-96 HAD ALLOWED T HE CLAIM OF ASSESSEE BY FOLLOWING DECISION OF ITAT FOR A.Y. 199 0-91 IN ASSESSEES OWN CASE. ASSESSING OFFICER HELD THAT E XPENDITURE INCURRED IS CAPITAL IN NATURE. FURTHER ASSESSEE IT SELF HAD CAPITALIZED EXPENDITURE AS PRE-OPERATIVE EXPENDITUR E IN ITS I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 17 BOOKS OF ACCOUNT. ASSESSING OFFICER HAS ALSO STATE D IN THE ORDER THAT CIT(A) FOR A.Y. 2000-01 HAD CONFIRMED SI MILAR DISALLOWANCE IN RESPECT OF EXPENSES RELATING TO PRO JECT. DETAILS OF EXPENDITURE AS CONTAINED IN ASSESSEES LETTER DA TED 18.11.2005 TO THE ASSESSING OFFICER ARE AS UNDER: 'DURING THE YEAR UNDER REVIEW, THE ASSESSEE COMPANY INCURRED CERTAIN EXPENDITURE FOR THE PROJECT AT MAT A NO MADH, THE DETAILS OF WHICH ARE AS UNDER: SR.NO. DESCRIPTION AMOUNT (RS.) 1. OPENING BALANCE 54763037 2. SALARIES, WAGES & ALLOWANCES 1569235 3. CONTRIBUTION TO P.F./FPF ETC. 147081 4. WELFARE/ TERMINAL EXPENSES 571762 5. CONSUMPTION OF STORES 212110 6. REPAIRS & MAINTENANCE - MACHINERY 342139 - OTHERS 184106 7. RENT, RATES & TAXES 31663 8. INSURANCE CHARGES 39252 9. TRAVELING, CONVEYANCE & VEHICLE EXPENSES 29529 10 STATIONERY, PRINTING. POSTAGE, TELEPHONE, ADVT. & PUBLICITY EXPENSES 41931 11 GENERAL CHARGES 2042294 12 MISCELLANEOUS MINING EXPENSES 3097373 13 SHARE LOAN INTEREST WRITTEN OFF - 14 RENT CHARGES 42000 15 TRANSPORTATION CHARGES - 16. OVER - BURDEN REMOVAL EXPENSES 1921623 17 FINANCIAL CHARGES 312 18 PREVIOUS YEAR'S EXPENSES 59515 19 DEPRECIATION 344364 65439326 65213851 I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 18 ALL THE ABOVE EXPENSES WERE TREATED AS PRE-OPERATIV E EXPENSES IN THE BOOKS OF ACCOUNT. THE TOTAL EXPENDITURE INCURR ED DURING THE YEAR UNDER REVIEW IS RS.10450814/-(CLOSING BALANCE RS.65213851 - OPENING BALANCE RS.54763037). OUT OF THE TOTAL EXPENSES THE COMPANY HAS CLAIMED DEDUCTION AS UNDER - TOTAL EXPENSES INCURRED RS. 10450814 LESS: DEPRECIATION NOT CLAIMED RS. 344364 LESS: BONUS DISALLOWED U/S.43B RS. 144000 TOTAL AMOUNT CLAIMED RS. 9962450 PRE-OPERATIVE EXPENSES WERE CAPITALIZED IN THE BOOK S OF ACCOUNTS IN ACCORDANCE WITH ACCOUNTING GUIDELINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. ASSESSEE PLACED RELIANCE BEFORE CIT(A) ON THE ORDER OF CIT(A) FOR A.Y. 2002- 03, WHEREIN SIMILAR ISSUE WAS DECIDED FOLLOWING ITAT OBSERVATIO N IN ASSESSEES OWN CASE AS DISCUSSED ABOVE. IN THIS BACKGROUND, C IT(A) OBSERVED THAT ITAT, AHMADABAD BENCH CONSIDERED THE ISSUE OF ALLOWABILITY OF INTEREST BORROWED FOR THE PURPOSE O F IMPLEMENTATION OF PROJECT IN THE NATURE OF EXPANSIO N OF ASSESSEES EXISTING BUSINESS, IN CASE OF GUJARAT STATE FERTILI ZER & CHEMICALS LTD. (GSFL) IN ITA NO. 739/AHD/99 FOR A.Y. 1992-93 ORDER DATED 12.05.2006. IN THIS REGARD, LD. AUTHORIZED REPRESE NTATIVE POINTED OUT THAT ITAT, AHMADABAD D BENCH IN ITA NO. 128/A HD2005 FOR A.Y. 2002-03, VIDE PARA 2.2.3, HAS DECIDED SIMILAR ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 2.2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE OR DERS OF AUTHORITIES BELOW AND THE VARIOUS TRIBUNAL DECISION S CITED BY THE LD. A.R. OF THE ASSESSEE. LD. D.R. COULD NOT PO INT ANY I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 19 DIFFERENCE IN THE FACTS IN THE PRESENT YEAR AS COMP ARED TO THE EARLIER YEARS FOR WHICH TRIBUNAL DECISIONS ARE AVAILABLE. IN THE COMBINED TRIBUNAL ORDER FOR THE ASSESSMENT Y EARS 1994-95, 1996-96 AND 1997-98 IN PARA 25 OF THIS TRI BUNAL ORDER, THIS FACT IS NOTED BY THE TRIBUNAL THAT THE ISSUE IN DISPUTE WAS REGARDING EXPENSES INCURRED IN RESPECT OF BOXITE PROJECT AT GHADSESA AND LIGNITE PROJECT AT M ATA NO MADH. IT IS FURTHER NOTED BY THE TRIBUNAL IN PARA 2 8 OF THE TRIBUNAL DECISION THAT THE A.O. DISALLOWED THE EXPE NDITURE OF MATA NO MADH PROJECT BY TREATING THE SAME AS CAPITA L EXPENDITURE. IT IS FURTHER NOTED BY THE TRIBUNAL TH AT IT WAS SUBMITTED BY THE LD. A.R. BEFORE THE TRIBUNAL THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNA L DECISION IN THE ASSESSEE'S OWN CASE IN I.T.A.NO. 3232/AHD/19 96 FOR THE ASSESSMENT YEAR 1990-91 AS PER ORDER DATED 05.0 5.2005 AND ALSO FOR ASSESSMENT YEAR 1992-93 IN I.T.A.NO. 936/AHD/1999 AS PER TRIBUNAL ORDER DATED 12.07.2005 . AS PER THIS TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 199 4-95, 1996-97 AND 1997-98, THE ISSUE IN DISPUTE WAS DECID ED IN FAVOUR OF THE ASSESSEE BY RESPECTFULLY FOLLOWING TH E EARLIER TRIBUNAL ORDER FOR THE ASSESSMENT YEARS 1990-91 AND 1992- 93. REGARDING THE TRIBUNAL ORDER FOR ASSESSMENT YEA R 1998- 99 AND 1999-2000 IN WHICH THE ISSUE WAS RESTORED BY THE TRIBUNAL TO THE A.O., WE FIND THAT IN THE SUBSEQUEN T ORDER, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ALTHOUGH THE EARLIER TRIBUNAL ORDER WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL BUT SINCE, WE FEEL THAT IN T HE FACTS OF THE PRESENT CASE, THE LATER ORDER SHOULD BE FOLLOWE D. IN THE PRESENT YEAR ALSO, LD. D.R. COULD NOT POINT OUT ANY DIFFERENCE IN FACTS AND HENCE, WE DO NOT FIND ANY R EASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR. THEREFORE , BY RESPECTFULLY FOLLOWING EARLIER TRIBUNAL DECISIONS A S DISCUSSED ABOVE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESS EE IN THE PRESENT YEAR ALSO. THIS GROUND OF THE ASSESSEE IS A LLOWED. SIMILAR ISSUE FOR A.Y. 2001-02 IN ITA NO. 186/AHD/2 005 HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 20 3.1 GROUND NO.L(A) IS REGARDING CONFIRMATION OF DISALLOWANCE OF RS.2231740/- BEING THE EXPENDITURE ON PROJECT MATA NO MADH HOLDING THE SAME AS CAPITAL IN NATURE. IT WAS AGREED BY BOTH THE SIDES THAT THIS I SSUE IS IDENTICAL TO GROUND NO.2 RAISED BY THE ASSESSEE IN THE ASSESSEE'S APPEAL FOR THE ASSESSMENT YEAR 2000-01 A ND HENCE, THE SAME CAN BE DECIDED ON SIMILAR LINE. IN THAT YEAR, THIS ISSUE WAS DECIDED BY US IN FAVOUR OF THE ASSES SEE AS PER PARA 2.2.3 ABOVE AND ON THE SAME LINES, IN THIS YEA R ALSO, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. TH IS GROUND OF ASSESSEE IS ALLOWED. 8.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE IN THIS REGARD. MOREOVER, CIT(A) FOLLOWING A.Y. 03-04 DECIDED ISSUE AGAINST ASSESSEE. AT THIS STAGE, LD. AUTHORIZ ED REPRESENTATIVE POINTED OUT THAT ISSUE WAS DECIDED A GAINST ASSESSEE FOLLOWING DECISION OF CIT(A) IN GUJARAT ST ATE FERTILIZER ON SIMILAR POINT. LD. AUTHORIZED REPRESENTATIVE FUR THER POINTED OUT THAT SUBSEQUENTLY THIS ISSUE IN GUJARAT STATE F ERTILIZER & CHEMICALS LTD. VS. ACIT HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY HONBLE GUJARAT HIGH COURT AS REPORTED IN (2009) 313 ITR 244 (GUJ.), WHEREIN HONBLE GUJARAT HIGH COURT HELD AS UNDER: 5. CONSIDERING THE FACTS OF THE PRESENT CASE AND T HE DECISION OF THE HONBLE SUPREME COURT, WE ARE OF TH E VIEW THAT THE TRIBUNAL WAS NOT RIGHT IN LAW IN DISALLOWI NG THE INTEREST OF RS.27,96,95,759/- PAID IN RESPECT OF CA PITAL BORROWED FOR THE PURPOSE OF ITS BUSINESS BEING THE SECOND CAPROLACTUM PLANT UNDER INSTALLATION. THIS TAX APP EAL IS, THEREFORE, ALLOWED. THE QUESTION FORMULATED BY THI S COURT IS ANSWERED IN THE NEGATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE. FACT S BEING SIMILAR, SO FOLLOWING THE SAME REASONING, ASSESSING OFFICER IS I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 21 DIRECTED TO DELETE THE DISALLOWANCE OF RS. 99,62,45 0/- ON EXPENDITURE OF PROJECT MATA NO MADH. 9. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.55,89,17,419/- BEING EXPENDITURE ON POWER PROJEC T AT AKRI MOTA AND FURTHER REJECTING THE CLAIM OF INTEREST AN D FINANCIAL CHARGES OF RS.50,33,77,067/- FORMING PART OF TOTAL EXPENDITURE OF RS.55,89,17,419/- BEING NOT ALLOWABLE U/S. 36(1) (III) OF THE ACT. IN THIS REGARD, IT WAS FAIRLY ADMITTED BY LD. AUTHORIZED REPRESENTATIVE THAT THIS ISSUE HAS BEEN DECIDED AGA INST ASSESSEE IN ASSESSEES OWN CASE IN ITA NO. 186/AHD/ 2005 FOR A.Y. 2001-02 VIDE PARA 3.2 BY OBSERVING AS UNDER: 3.2.4 AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE JUDGEMENTS CITED BY THE LD. A.R. IS RENDERIN G ANY HELP TO THE ASSESSEE IN THE PRESENT CASE EXCEPT THE TRIBUNAL DECISION RENDERED IN THE CASE OF UNITED PHOSPHORUS LTD. (SUPRA). IN THAT CASE, IT WAS HELD BY THE TRIBUNAL THAT INTEREST PAID ON FUNDS BORROWED FOR BUSINESS PURPOS E, INCLUDING FOR THE PURPOSE OF SETTING OF A NEW UNIT OF THE EXISTING RUNNING BUSINESS IS ALLOWABLE U/S 36(L)(II I) OF THE ACT. WHILE EXAMINING THE APPLICABILITY OF THIS TRIB UNAL DECISION, WE HAVE NOTED ABOVE THAT INTEREST EXPENDI TURE WILL BE ALLOWABLE IF IT IS FOUND THAT BORROWED FUND WERE USED FOR THE PURPOSE OF SETTING UP OF A NEW UNIT OF THE EXIS TING RUNNING BUSINESS. AS PER ABOVE DISCUSSION, WHILE EX AMINING THE APPLICABILITY OF VARIOUS OTHER JUDGMENTS, WE HA VE SEEN THAT BORROWED FUNDS WERE NOT USED FOR SETTING UP OF A NEW UNIT OF AN EXISTING RUNNING BUSINESS BUT IT WAS SET TING UP OF A NEW UNIT FOR PRODUCTION OF AN ALTOGETHER NEW PROD UCT I.E. POWER WHEREAS THE EXISTING BUSINESS OF THE ASSESSEE WAS PRODUCTION OF LIGNITE. SINCE THIS ASPECT IS NOT FUL FILLED IN THE PRESENT CASE, EVEN INTEREST EXPENDITURE IS NOT ALLO WABLE IN THE PRESENT CASE U/S 36(L)(III) BECAUSE IN THE PRES ENT CASE, I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 22 THE PRODUCT TO BE MANUFACTURED BY THE NEW UNIT IS A N ALTOGETHER NEW PRODUCT. 3.2.5 IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FI ND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON T HIS ISSUE. THIS GROUND OF THE ASSESSEE IS REJECTED INCLUDING T HE ALTERNATIVE CONTENTION. SIMILAR VIEW HAS BEEN TAKEN IN ASSESSEES OWN CASE IN ITA NO. 1114/AHD/2006 FOR A.Y. 2002-03 AGAINST ASSESSEE. 9.1 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE IN THIS REGARD. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER OF CIT(A) WHO HAS HELD THAT IN VIEW OF ADMITTED FACTUAL POSIT ION THAT AKRI MOTA POWER PROJECT IS NOT EXTENSION OF ITS EXISTING BUSINESS. THIS IS THE FIRST POWER PROJECT BEING PUT BY ASSESS EE. IT IS UNDISPUTED THAT ASSESSEE DID NOT HAVE ANY BUSINESS OF POWER GENERATE IN EARLIER. IN THE LIGHT OF ABOVE, FACTUAL LEGAL DISCUSSION HAS BEEN DONE IN ABOVE ASSESSEES APPEAL , WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS CONFIRMED THE DISALLOWANCE OF RS.55,89,17,419/- BEI NG EXPENDITURE OF POWER PROJECT AT AKRI MOTA BECAUSE A SSESSEE WAS NEVER IN BUSINESS OF GENERATION OF POWER. SAME IS UPHELD. 10. NEXT GROUND IS WITH REGARDS TO DISALLOWANCE OF DEPRECIATION OF ASSETS USED FOR IMPLEMENTATION OF PROJECTS- I. RS.3,44,364/- FOR MATA NO MADH LIGNITE PROJECT II. RS. 1,12,46,815/- FOR AKRI MOTA POWER PROJECT I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 23 ASSESSING OFFICER MADE DISALLOWANCE OF DEPRECIATION OF NON ATTRACT NAME OF MATA NO MADH OF RS.3,44,364/- AND O N ASSETS OF AKRI MOTA POWER PROJECT OF RS. 1,12,46,815/-, WHICH ARE CONFIRMED BY CIT(A). 10.1 BEFORE US, LD. AUTHORISED REPRESENTATIVE SUBMI TTED SIMILAR DISALLOWANCE OF DEPRECIATION OF ASSETS USED FOR MAT A NO MADH LIGNITE PROJECT, HAS BEEN DECIDED IN FAVOUR OF ASSE SSEE IN ITA NO. 1114/AHD/2006 FOR A.Y. 2002-03 VIDE PARA 5.5 BY OBS ERVING AS UNDER: 5.5.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE OR DERS OF AUTHORITIES BELOW. REGARDING THE CLAIM OF THE ASSES SEE IN RESPECT OF DEPRECIATION CLAIMED OF RS.343800/-ON TH E ASSETS USED IN MATA NO MADH PROJECT, WE ARE OF THE CONSIDE RED OPINION THAT THE EXPENSES INCURRED FOR THIS PROJECT WERE ALLOWED AS REVENUE EXPENDITURE IN EARLIER YEAR INCL UDED DEPRECATION ON THOSE ASSET WHICH WERE USED IN THE IMPLEMENTATION OF THIS PROJECTS AND, THEREFORE, IN THE PRESENT YEAR ALSO, THE SAME IS ALLOWABLE-. REGARDIN G THE DEPRECIATION CLAIMED ON THE ASSETS USED IN AKRI MOT A POWER PROJECT, WE ARE OF THE CONSIDERED OPINION THAT SINC E THE EXPENSES INCURRED IN RESPECT OF AKRI MOTA PROJECT W ERE NOT ALLOWABLE BY US IN THE EARLIER YEAR, THE CLAIM OF D EPRECATION ON THOSE ASSETS WHICH WERE USED DURING IMPLEMENTATI ON OF AKRI MOTA POWER PROJECT IS NOT ALLOWED AS REVENUE EXPENDITURE AND THE SAME HAVE TO BE INCLUDED IN PREOPERATIVE EXPENSES OF AKRI MOTA POWER PROJECT. W E HOLD ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED. 10.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWL EDGE IN THIS REGARD. FACTS BEING SIMILAR, ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION OF CLAIM OF RS.3,44,364/- ON THE ASSETS USED IN MATA NO MADH PROJECT FOR THE REASON DISCUSSED ABOVE . I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 24 REGARDING ALLOWABILITY OF DEPRECIATION OF RS.1,12,46,815/- F OR AKRI MOTA POWER PROJECT AS DISCUSSED ABOVE, SIMILAR ISSUE HAS BEEN DECIDED AGAINST ASSESSEE AS DISCUSSED ABOVE. LD. AUTHORIZED REPRESENTATIVE CLAIMED THAT IT WAS NOT C LAIMED SO NO QUESTION OF DISALLOWANCE ON THE POINT. IN VIEW OF ABOVE, WE RESTORE THIS ISSUE TO ASSESSING OFFICER WITH DIRECT ION TO VERIFY THE FACT OF CLAIM OF DEPRECIATION. IN CASE IT WAS CLAIMED THEN IT HAS TO BE DISALLOWED AS DISCUSSED ABOVE AND IN CASE IT WAS NOT CLAIMED THERE IS NO QUESTION OF DISALLOWANCE OF SAM E. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. SO SECO ND LIMB OF THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSE. 11. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.58,22,018/- BEING PRIOR PERIOD EXPENSES. THIS I SSUE HAS BEEN TAKEN UP IN THIS ORDER IN GROUND NO.2 OF REVEN UES APPEAL IN PARA NOS. 4 TO 4.3 WHICH WILL TAKE CARE OF THIS. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 12. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.2,06,516/- BEING SALARY TO STAFF AT RESIDENCE OF CHAIRMAN. ASSESSING OFFICER AND CIT(A) HAD FOLLOWED A.YS. 200 1-02 & 02- 03 AND DECIDED THIS ISSUE AGAINST ASSESSEE. LD. AU THORIZED REPRESENTATIVE BEFORE US POINTED OUT THAT THIS ISSU E IN ITA NO. 186/AHD/2005 FOR A.Y. 2001-02 HAS BEEN DECIDED IN F AVOUR OF ASSESSEE VIDE PARA 3.3 BY OBSERVING AS UNDER: 3.3.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE OR DERS OF I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 25 AUTHORITIES BELOW. WE FIND THAT THIS DISALLOWANCE W AS CONFIRMED BY LD. CIT(A) ON THIS BASIS THAT THE SAME IS COVERED BY EXPLANATION TO SECTION 37(1) OF THE INCO ME TAX ACT, 1961. AS PER THE EXPLANATION, IT IS SEEN THAT IF ANY EXPENDITURE BEING INCURRED BY THE ASSESSEE IS FOR A NY PURPOSE WHICH AN OFFENCE OR WHICH IS PROHIBITED BY LAW, THE SAME SHALL NOT BE ALLOWED. HENCE, IT IS TO BE SEEN THAT AS TO WHETHER IN THE PRESENT CASE, THE EXPENDITURE INCURR ED BY THE ASSESSEE IS FOR ANY PURPOSE WHICH IS AN OFFENCE AND/ OR WHICH IS PROHIBITED BY LAW AND IF IT IS NOT SO, THE SE PROVISIONS OF EXPLANATION TO SECTION 37(1) IS NOT A TTRACTED. AS PER THE SUBMISSION OF LD. CIT(A) AND AS PER THE FINDING OF LD. D.R., THIS EXPENDITURE IS IN VIOLATION OF THE G UIDELINES ISSUED BY THE GOVERNMENT OF GUJARAT DATED 28.08.199 8 AND IS AGAINST ARTICLE 192 OF THE ARTICLES OF CORPORATI ON. IN OUR CONSIDERED OPINION, THIS WILL NOT TANTAMOUNT TO AN OFFENCE AND ALSO IT DOES NOT TANTAMOUNT TO AN EXPENDITURE W HICH IS PROHIBITED BY LAW. THE GUIDELINES OF THE GOVERNMENT OF GUJARAT AND THE ARTICLES OF CORPORATION CANNOT BE CONSIDERED AS LAW OF THE COUNTRY. HENCE, IN OUR CON SIDERED OPINION, THIS DISALLOWANCE IS NOT JUSTIFIED. IF THE EXPENDITURE IS INCURRED IN VIOLATION OF THE GUIDELINES OF GOVER NMENT OF GUJARAT AND AGAINST ARTICLE 192 OF THE ASSESSEE COR PORATION THEN THE REMEDY LIES SOMEWHERE ELSE AND ACTION CAN BE TAKEN AS PER LAW AGAINST THE PERSON RESPONSIBLE FOR SUCH VIOLATION BUT THIS CANNOT BE THE BASIS FOR MAKING DISALLOWANCE OF EXPENSES WITHOUT PROVING THAT IT IS NOT FOR THE PURPOSE OF ASSESSEE'S BUSINESS. THIS IS NOT THE CLAIM OF THE REVENUE THAT THIS EXPENDITURE IS NOT FOR THE PU RPOSE OF BUSINESS AND THEREFORE, THIS DISALLOWANCE IS DELETE D. THIS GROUND OF THE ASSESSEE IS ALLOWED. SIMILAR VIEW HAS BEEN TAKEN ON SIMILAR ISSUE IN ITA NO. 114/AHD/2006 FOR A.Y. 2002-03 IN FAVOUR OF ASSESSEE . WE HAVE NO REASON TO DEVIATE FROM FACTS BEING SIMILAR, SO F OLLOWING SAME REASONING, DISALLOWANCE OF RS.2,06,516/- BEING SALA RY TO STAFF AT RESIDENCE OF CHAIRMAN IS DIRECTED TO BE DELETED. I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 26 13. NEXT IS ISSUE IS WITH REGARDS TO DISALLOWANCE O F RS.2,00,34,358/-. ASSESSING OFFICER MADE DISALLOWA NCE OF RS. 2,00,34,358/- BEING DEPRECIATION ON ASSETS/BUSES LE ASED TO GSRTC. CIT(A) FOLLOWING A.Y. 2000-01 HAS CONFIRMED THE DISALLOWANCE OF RS.2,00,34,358/- BEING DEPRECIATION ON ASSETS/BUSES LEASED TO GSRTC. 13.1 LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT IN ITA NO. 128/AHD/2005 FOR A.Y. 2000-01, THIS ISSUE HAS BEEN DECIDED AGAINST ASSESSEE VIDE PARA 2.1 AS DISCUSSED ABOVE T O BE SEEN IN THE LIGHT OF DECISION IN REVENUES APPEAL GROUND NO .3. ACCORDINGLY, THE ORDER OF CIT(A) ON THIS ISSUE IS D ISMISSED. 14. NEXT ISSUE IS WITH REGARDS TO ADDITION OF MISCE LLANEOUS INCOME OF I. RS. 1,34,11,961/- FOR AKRI MOTA PROJECT II. RS.2,25,475/- FOR MATA NO MADH PROJECT ASSESSEES CLAIM WAS MISCELLANEOUS INCOME SHOULD BE SET OFF AGAINST EXPENDITURE. IF THAT WAS DONE, THERE WILL BE NO CASE FOR DISALLOWANCE. THIS ISSUE WAS CONSIDERED BY CIT(A) FOR EARLIER ASSESSMENT YEARS. THE CLAIM WAS NOT FOUND ACCEPTAB LE AS ANY INCOME ARISING BEFORE COMPLETION OF PROJECT HAS TO BE HELD TAXABLE. IN VIEW OF THIS, THIS GROUND WAS REJECTED BY CIT(A). 14.1 LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT IN ITA NO. 1114/AHD/2006 FOR A.Y. 2002-03 VIDE PARA 5.8, SIMIL AR ISSUE HAS BEEN RESTORED TO ASSESSING OFFICER BY OBSERVING AS UNDER: I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 27 5.8.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE OR DERS OF AUTHORITIES BELOW AND THE JUDGEMENTS CITED BY THE L D. A.R. WE FIND THAT LD. CIT(A) HAS FOLLOWED THE JUDGEMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF TUTICORI N ALKALI & CHEMICALS LTD. AS REPORTED IN 227 ITR 172 (S.C.). IN THE CASE OF BOKARO STEELS LTD. (SUPRA) AND IN THE CASE OF BONGAIGAON REFINERY AND PETROCHEMICALS LTD. (SUPRA) , THIS JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. (SUPRA) WAS DULY CONSIDERED AND IT WAS HELD THAT WHEN THE INCOME EAR NED IS DIRECTLY CONNECTED AND INCIDENTAL TO CONSTRUCTION O F THE PLANT BY THE ASSESSEE, THE SAME IS CAPITAL RECEIPT AND NOT INCOME OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE. IN THE PRESENT CASE, WE FIND THAT WHEN THE A.O. MADE THIS ADDITION, THERE IS NO DISCUSSION AS TO WHETHER THES E TWO INCOMES WERE DIRECTLY CONNECTED OR INCIDENTAL TO CONSTRUCTION OF PLANT BY THE ASSESSEE OR NOT. IN TH E ORDER OF LD. CIT(A) ALSO, THERE IS NO FINDING ON THIS ASPECT OF THE MATTER. BEFORE US ALSO, ALTHOUGH RELIANCE WAS PLACE D BY THE LD. A.R. ON THESE TWO JUDGEMENTS OF HON'BLE APEX CO URT BUT THIS FACT IS NOT AVAILABLE ON RECORD AS TO WHETHER THE INCOME IN QUESTION WERE DIRECTLY CONNECTED AND INCIDENTAL TO CONSTRUCTION OF PLANT BY THE ASSESSEE OR NOT. UNDE R THESE FACTS, AND IN THE INTEREST OF JUSTICE, WE FEEL THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION IN THE LIGHT OF THESE TOW JUDGEMENTS OF HONBLE APEX C OURT RELIED UPON BY THE LD. A.R. BEFORE US. HENCE, WE S ET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE T HE MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION I N THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14.2 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REA SONING, THIS ISSUE IS RESTORED TO ASSESSING OFFICER WITH SIMILAR DIRECTION. I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 28 15. ISSUE OF 14A AS RAISED IN ASSESSEES APPEAL HA S BEEN TAKEN CARE WHILE DECIDING THIS ISSUE IN REVENUES APPEAL IN PARA 6, WHEREIN WE HAVE ALLOWED ASSESSEES APPEAL ON THIS P OINT. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 16. AS A RESULT, THIS APPEAL OF ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. 17. IN ITA NO. 543/AHD/2008 FOR A.Y. 2004-05, REVEN UE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION RELATED TO MULT I METAL PROJECT. 2. THE LD. CIT(A) FURTHER ERRED IN LAW AND ON THE F ACTS OF THE CASE IN ENTERTAINING THE ASSESSEES ALTERNATE C LAIM BY DIRECTING THE A.O. TO TAX ONLY THE INTEREST PORT ION OUT OF LEASE RENTALS OFFERED AS INCOME BY THE ASSES SEE, IGNORING THE FACT THAT THE ASSESSEE HAD NOT MADE AN Y SUCH CLAIM WHILE FILING THE RETURN OF INCOME U/S. 1 39 OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. TH E CIT(A) HAD FAILED TO APPLY THE RATIO OF THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2006) 284 ITR 323 (SC). 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.19,01,476/- U/S. 14A OF THE I.T. ACT. 17.1 IN I.T.A. NO. 1324/AHD/2008 FOR A.Y. 2004-05, ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 29 (1) IN FACTS AND CIRCUMSTANCES OF THE CASE, YOUR A PPELLANT MOST RESPECTFULLY SUBMITS THAT THE LEARNED ASSESSIN G OFFICER HAS ERRED IN DISALLOWING SUM OF RS. 8,20,38,470/- OF EXPENDITURE IN RESPECT OF PROJECT OF MATA - NO - MADH AND LEARNED CIT(A) HAS FURTHER ERR ED IN CONFIRMING THE SAID DISALLOWANCE, YOUR APPELLANT FURTHER SUBMITS THAT THE SAID EXPENDITURE IS IN NAT URE OF EXPENSES ON THE EXPANSION OF THE EXISTING BUSINE SS. (2) YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED ASSESSING OFFICER AND ALSO LEARNED CIT(A) HAS FURTHER ERRED IN REJECTING THE CLAIM OF EXPENDITURE OF RS. 9,72,58,596/- INCURRED ON POWER PROJECT AT AKRI MOT A. (3) YOUR APPELLANT FURTHER SUBMITS THAT THE LD. A.O . AND ALSO LD. CIT(A) HAVE FURTHER ERRED IN REJECTING THE CLAI M OF EXPENSES OF RS. 23,49,626/- INCURRED ON LIGNITE PROJECT, BHAVNAGAR, WHICH IS FOR EXPANSION OF EXIST ING BUSINESS. (4) YOUR APPELLANT FURTHER SUBMITS THAT THE LD. A.O . AND ALSO LD. CIT(A) HAVE FURTHER ERRED IN REJECTING THE CLAI M OF EXPENSES OF RS. 3,04,93,607/- INCURRED ON LIGNIT E PROJECT, TADKESHWAR, WHICH IS ALSO FOR EXPANSION OF EXISTING BUSINESS. (5) THE LEARNED ASSESSING OFFICER AND ALSO LEARNED CIT(A) HAVE ERRED IN LAW AND ON FACTS OF THE CASE BY DISALLOWING DEPRECIATION OF RS. 3,15,881/- AND RS. 1,05,10,539/- ON THE ASSETS USED IN IMPLEMENTING TH E PROJECTS AT MATA - NO - MADH & POWER PROJECT AT AKR I- MOTA RESPECTIVELY AND RS.48,347/- BEING DEPRECIATIO N IN RESPECT OF LIGNITE PROJECT TADKESHWAR I.E. TOTAL DISALLOWANCE OF DEPRECIATION OF RS. 1,08,74,767/-. (6) YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS. 32,27,71 8/- (GROSS) BEING THE AMOUNT OF EARLIER YEAR'S EXPENSES AS REPORTED IN TAX AUDIT REPORT, HOLDING THAT THE SAME CANNOT BE ALLOWED AS THE EXPENDITURE PERTAINS TO I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 30 EARLIER YEAR AND LEARNED CIT(A) HAS FURTHER ERRED I N SUSTAINING THE SAID DISALLOWANCE AT RS. 33,27,718/- . (7) ON FACTS AND CIRCUMSTANCES OF THE CASE, YOUR APPELLANT MOST RESPECTFULLY SUBMITS THAT THE LEARNE D ASSESSING OFFICER AND ALSO LEARNED CIT(A) HAVE ERRE D IN REJECTING THE CLAIM OF DEDUCTION OF RS. 4,080/- IN RESPECT OF PAYMENT OF SALARY TO STAFF AT THE RESIDE NCE OF CHAIRMAN. (8) ON FACTS AND CIRCUMSTANCES OF THE CASE, YOUR APPELLANT SUBMITS THAT LEARNED ASSESSING OFFICER AN D ALSO LEARNED CIT(A) HAVE ERRED IN MAKING ADDITION O F RS. 1,20,50,615/- BY REJECTING THE CLAIM OF DEPRECIATION ON ASSETS/BUSES LEASED TO GSRTC. YOUR APPELLANT FURTHER SUBMITS THAT LEARNED ASSESSING OFFICER HAS FURTHER ERRED IN HOLDING THAT THE APPEL LANT HAD NO OWNERSHIP RIGHTS ON THE BUSES WHICH ARE LEAS ED OUT TO GSRTC. (9) THE LEARNED ASSESSING OFFICER HAS FURTHER ERRE D IN DISALLOWING RS. 23,44,232/- BEING PRO-RATA EXPENSES CALCULATED BY HIM IN RESPECT OF TAX FREE INCOME BEI NG INTEREST ON TAX FREE BONDS OF AHMEDABAD MUNICIPAL CORPORATION & LEANED CIT(A) HAS FURTHER ERRED IN SUSTAINING ADDITION IN RESPECT OF PRO-RATA INTEREST OF RS. 4,42,276/-. 18. FIRST WE TAKE REVENUES APPEAL IN ITA NO. 543/A HD/2008 FOR AY. 2004-05. 18.1 FIRST ISSUE IN REVENUES APPEAL IS WITH REGARD S TO ESTIMATED DISALLOWANCE ON ACCOUNT OF DEPRECIATION O F RS.5 LAC RELATED TO MULTI METAL PROJECT. ASSESSING OFFICER MADE ESTIMATED DISALLOWANCE ON ACCOUNT OF DEPRECIATION O F RS. 5LACS RELATED TO MULTI METAL PROJECT. CIT(A) FOLLOWING A .Y. 03-04 HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF ASSESSEE. T HE ORDER OF I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 31 CIT(A) IN A.Y. 03-04 HAS BEEN DISCUSSED AND DECIDED IN FAVOUR OF ASSESSEE VIDE PARA 3 OF THIS ORDER IN REVENUES APPEAL. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING WE ARE N OT INCLINED TO INTERFERE IN THE ORDER OF CIT(A) WHO HAS DELETED THE ESTIMATED DISALLOWANCE ON ACCOUNT OF DEPRECIATION OF RS. 5 LA CS RELATED TO MULTI METAL PROJECT. SAME IS UPHELD. 19. NEXT ISSUE IS WITH REGARDS TO HOLDING THAT ONLY INTEREST PORTION OF LEASE RENT IS TO BE TAXED. CIT(A) HAS D ECIDED THIS ISSUE IN FAVOUR OF ASSESSEE WHICH HAS BEEN CONFIRME D BY US VIDE PARA 5 OF THIS ORDER IN REVENUES APPEAL FOR A .Y. 2003-04. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, W E ARE NOT INCLINED TO INTERFERE IN THE ORDER OF CIT(A) WHO HA S HELD THAT ONLY INTEREST PORTION OF LEASE RENT TO BE TAXED. S AME IS UPHELD. 20. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARDS TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.19,01 ,476/- U/S. 14A. SIMILAR ISSUE HAS BEEN DECIDED BY US IN FAVOU R OF ASSESSEE VIDE PARA 6 OF THIS ORDER FOR A.Y. 2003-04 . FACTS BEING ALMOST SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER OF CIT(A) WHO HA S DELETED THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 19.0 1.476/- MADE U/S. 14A. SAME IS UPHELD. 21. IN RESULT, THIS APPEAL OF REVENUE IS DISMISSED. 22. ASSESSEES APPEAL IN ITA NO. 1324/AHD/2008. I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 32 22.1 AT THE OUTSET OF HEARING, LD. AUTHORIZED REPR ESENTATIVE POINTED OUT THAT THERE IS A DELAY OF 40 DAYS IN FIL ING ASSESSEES APPEAL. THE REASON FOR THE SAME HAS STATED TO BE COMMUNICATION GAP BETWEEN DIFFERENT DEPARTMENTS OF ASSESSEES CORPORATION. FINDING FORCE IN THE SUBMI SSION OF LD. AUTHORIZED REPRESENTATIVE, WE CONDONE THE DELAY. 23. COMING ON THE MERIT, FIRST ISSUE IN ASSESSEES APPEAL IS WITH REGARDS TO DISALLOWANCE OF RS. 8,20,38,417/- B EING EXPENDITURE ON PROJECT OF MATA NO MADH. ASSESING O FFICER MADE DISALLOWANCE OF RS. 8,20,38,417/- BEING EXPEND ITURE ON PROJECT OF MATA NO MADH. CIT(A) FOLLOWING DECISION OF A.Y. 03- 04 HAS DECIDED THE ISSUE AGAINST ASSESSEE. WE HAVE DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE VIDE PARA 8 OF THI S ORDER FOR A.Y. 2003-04, WHICH HAS BEEN FOLLOWED BY LOWER AUTHORITI ES. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, ASSESSI NG OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.8,20,38,4 17/- BEING EXPENDITURE ON PROJECT OF MATA NO MADH. 24. NEXT ISSUE IN ASSESSEES APPEAL IS WITH REGARDS TO DISALLOWANCE OF RS.9,72,58,596/- BEING EXPENDITURE ON POWER PROJECT AT AKRI MOTA. CIT(A) FOLLOWING 03-04 HAS DE CIDED THIS ISSUE AGAINST ASSESSEE, WHICH HAS BEEN CONFIRMED BY US IN A.Y. 03-04 VIDE PARA 9 OF THIS ORDER. FACTS BEING SIMILA R, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO IN TERFERE IN THE FINDING OF CIT(A) WHO HAS CONFIRMED THE DISALLOWANC E OF RS.9,72,58,596/- BEING EXPENDITURE ON POWER PROJECT AT AKRI I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 33 MOTA BECAUSE SAME IS NEW LINE OF BUSINESS DONE BY A SSESSEE FOR FIRST TIME. 25. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.23,49,626/- INCURRED ON LIGNITE PROJECT AT BHAVN AGAR. SIMILAR ISSUE AROSE IN A.Y. 2003-04 WHICH HAS BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE PARA NO.8 OF THIS ORDER. FA CTS BEING SIMILAR, SO FOLLOWING SAME REASONING, ISSUE IS DECI DED IN FAVOUR OF ASSESSEE. ASSESSING OFFICER IS DIRECTED ACCORDI NGLY. 26. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF E XPENSES OF RS. 3,04,93,607/- INCURRED ON LIGNITE PROJECT AT TA DKESHWAR. ISSUE IN THIS GROUND IS SIMILAR TO THAT OF SIMILAR EXPENSES IN EARLIER GROUNDS ON LIGNITE PROJECT AT BHAVNAGAR. F ACTS BEING SIMILAR SO FOLLOWING SAME REASONING, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF ASSESSEE. 27. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF D EPRECIATION ON ASSETS USED FOR IMPLEMENTATION OF PROJECT, I) RS . 3,15,881/- FOR MATA NO MADH LIGNITE PROJECT II). RS. 1,05,10,5 39/- FOR AKRI MOTA POWER PROJECT AND III) RS. 48,347/- FOR LIGNIT E PROJECT AT TADKESHWAR. CIT(A) FOLLOWING A.Y. 03-04 HAS DECIDE D ISSUE OF MATA NO MADH LIGNITE PROJECT IN FAVOUR OF ASSESSEE. ISSUE OF AKRI MOTA POWER PROJECT HAS BEEN DECIDED AGAINST AS SESSEE AND ISSUE OF DEPRECIATION ON ASSETS USED FOR IMPLEMENTA TION OF PROJECTS FOR LIGNITE PROJECT AT TADKESHWAR IN FAVOU R OF ASSESSEE. ISSUE OF DEPRECIATION ON ASSETS USED FOR IMPLEMENTA TION OF I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 34 PROJECTS AT MATA NO MADH LIGNITE PROJECT HAS BEEN D ECIDED BY US IN FAVOUR OF ASSESSEE VIDE PARA 10 OF THIS ORDER FOR A.Y. 2003-04. FOLLOWING SAME LOGIC ON THIS ISSUE IN THI S YEAR AS WELL IS DECIDED IN FAVOUR OF ASSESSEE. THE ISSUE O F DEPRECIATION ON ASSETS USED FOR IMPLEMENTATION OF PROJECT AKRI M OTA POWER PROJECT OF RS. 1,05,10,539/- HAS COME IN A.Y. 03-04 WHICH HAS BEEN DECIDED AGAINST ASSESSEE BY CIT(A). IN SECOND APPEAL WE HAVE SET ASIDE SIMILAR ISSUE TO ASSESSING OFFICER V IDE PARA 10 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, THIS ISSUE IS SET ASIDE TO ASSESSING OFFICER WITH S IMILAR DIRECTION. REGARDING DISALLOWANCE OF DEPRECIATION ON ASSETS USED FOR IMPLEMENTATION OF PROJECTS FOR LIGNITE PRO JECT AT TADKESHWAR OF RS.48,347/-. WE FIND THAT THIS ISSUE HAS BEARING OF THE DECISION OF DISALLOWANCE OF EXPENSES OF RS.3,04,93,607/- INCURRED ON LIGNITE PROJECT AT TAD KESHAWAR , WHICH HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY IMM EDIATELY PRECEDING PARA. SO, ON SAME ANALOGY, THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. THUS, THIS ISSUE IS PARTLY ALL OWED. 28. NEXT ISSUE IS WITH REGARDS TO CONFIRMATION OF D ISALLOWANCE OF RS.33,27,718/- BEING PRIOR PERIOD EXPENSES. THI S SIMILAR ISSUE AROSE IN ASSESSEES APPEAL FOR 03-04, WHEREIN ORDER OF THIS ISSUE HAS BEEN SET ASIDE TO ASSESSING OFFICER VIDE PARA 4. IN CASE, CASE BEFORE US, CIT(A) HAS ALREADY SET ASI DE THE MATTER TO ASSESSING OFFICER, SO NO INTERFERENCE IS CALLED FOR FROM US. WE UPHOLD THE SAME. I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 35 29. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF R S. 4,080/- BEING SALARY TO STAFF AT THE RESIDENCE OF CHAIRMAN. CIT(A) FOLLOWING EARLIER YEAR 2003-04, HAS DECIDED ISSUE A GAINST ASSESSEE, WHICH HAS BEEN REVERSED BY US VIDE PARA 1 2 OF THIS ORDER IN FAVOUR OF ASSESSEE. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, DISALLOWANCE OF RS.4,080 BEING SALA RY OF STAFF AT THE RESIDENCE OF CHAIRMAN IS DIRECTED TO BE DEL ETED. 30. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF R S. 1,20,15,615/- BEING DEPRECIATION ON ASSETS/BUSES LE ASE TO GSRTC. CIT(A) FOLLOWING 03-04 HAS DECIDED THIS ISS UE AGAINST ASSESSEE, WHICH HAS BEEN CONFIRMED BY US VIDE PARA 13 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REAS ONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS CONFIRMED THE DISALLOWANCE OF RS.1,20,15,615/- BEIN G DEPRECIATION ON ASSETS/BUSES LEASE TO GSRTC. 31. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.4,42,276/- BEING INTEREST EXPENSE TO TAX FREE IN COME U/S. 14A. SIMILAR ISSUE HAS TO BE DECIDED IN 03-04 VIDE PARA 6 OF THIS ORDER. ASSESSING OFFICER IS DIRECTED ACCORDIN GLY. 32. ASSESSEE HAS RAISED ADDITIONAL GROUNDS WITH REG ARDS TO EMPLOYEES CONTRIBUTION OF RS.1,11,06,377/- PAID AFT ER DUE DATE BUT BEFORE FILING OF RETURN OF INCOME. THIS ISSUE HAS BEEN DECIDED BY HONBLE GUJARAT HIGH COURT AGAINST ASSES SEE AS REPORTED IN CIT VS. GUJARAT STATE ROAD TRANSPORT CO RPORATION I.T.A. NOS. 1185 & 1246/AHD/2007 & 543 & 1324/AHD/08 FOR A.Y. 03-04 & 04-05 (DCIT/ACIT VS. GUJ. MINERAL DEV. CORP. LTD.) PAGE 36 (2014) 366 ITR 170 (GUJ.) IN VIEW OF THIS ORDER OF CIT(A) ON THE ISSUE IS UPHELD, WHO HAS NOT ALLOWED ASSESSEES CON TRIBUTION TO PF OF RS.1,11,06,377/- PAID AFTER DUE DATE SO SAME IS DECIDED AGAINST ASSESSEE. AS A RESULT, THIS APPEAL OF ASSE SSEE IS PARTLY ALLOWED. 33. IN RESULT, ALL APPEALS OF REVENUE ARE DISMISSED AND THAT OF ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF JANUARY, 2015. SD/- SD/- (N. S. SAINI) (SHAILENDR A KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMB ER TRUE COPY S.K.SINHA $ $ $ $ &' &' &' &' ('# ('# ('# ('# / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. -- . / CONCERNED CIT 4. .- / CIT (A) 5. '23 &, , / DR, ITAT, AHMEDABAD 6. 367 89 / GUARD FILE. BY ORDER / $ , :/ - , <