ACIT 1(1), MUMBAI V. FORBES & CO.LTD, MUMBAI

ITA 5536/MUM/2011

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7340 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 07-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S C TIWARI
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Proportionate interest; Question of law; Bad and doubtful debts; Commercial expediency; Revenue expenditure; TDS; Rule 8D; Set aside
• Section: 143(3); 50C; 14A; 115JB; 40(a)(ia); 37(1); 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH F, MU MBAI BEFORE SHRI G S PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 5536/MUM/2011 ASSESSMENT YEAR: 2007-08 ACIT 1(1), MUMBAI. VS. M/S. FORBES & CO. LTD., FORBES BUILDING, CHARNJIT SINGH RAI MARG, FORT, MUMBAI 400 001. PAN: AAACF1765A (APPELLANT) (RESPONDENT) ITA NO. 5540/MUM/2011 ASSESSMENT YEAR: 2007-08 M/S. FORBES & CO. LTD., FORT, MUMBAI 400 001. PAN: AAACF1765A VS. DY. CIT OSD, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GIRISH DAVE (AR) RESPONDENT BY : SHRI S C TIWARI (CIT-DR) DATE OF HEARING : 01.07.2019 DATE OF PRONOUNCEMEN T : 25.07.2019 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: THE CAPTIONED ARE CROSS APPEALS BY THE ASSESSEE AN D THE REVENUE, WHICH ARISE OUT OF THE ORDER OF THE CIT(A)- 1, MUMBAI, WH ICH IN TURN HAS ARISEN OUT OF THE OUT OF THE ORDER PASSED BY THE ASSESSING OFFICE R U/S. 143(3) OF THE INCOME TAX ACT, 1961 RELATING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER: 2 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. GROUND I: DISALLOWANCE OF EXPENSES U/S. 14A OF THE INCOME TAX ACT, 1961 ('THE ACT') : 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-I, [' THE CIT(A)'] ERRED IN NOT DELETING THE DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE INCOME ACT, 1961 ('THE ACT'). 2. THE CIT (A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. THE APPELLANT HAD HUGE OWNED FUNDS IN THE FORM OF RESERVES AND SURPLUS WHICH WERE UTILIZED FOR MAKING INVESTMENTS; B. WHERE NO EXPENDITURE HAS BEEN ACTUALLY INCURRE D, NO DISALLOWANCE OF EXPENDITURE COULD BE MADE ON A NOTIONAL BASIS. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, THE CIT(A ) ERRED IN REFERRING THE MATTER TO THE DEPUTY COMMISSIONER OF THE INCOME TAX - 1(1), MUMBAI ('THE AO') WITH REGARD TO WORKING OUT THE TO TAL EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME UNDER SECTION 14A OF THE INCOME ACT, 1961 ('THE ACT'). GROUND II: DISALLOWANCE OF INVENTORY WRITTEN OFF OF ` 23,480,619 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DISALLOWING INVENTORY WRITTEN OFF AMOUNTIN G TO ` 23,480,619 ON THE GROUND THAT THE SAID INVENTORY WAS STILL LYING WITH THE APPELLANT COMPANY. 2. IN DOING SO, THE CIT (A) ERRED IN NOT APPRECIATI NG THAT, THOUGH THE SAID AMOUNT HAS BEEN DEBITED TO EXPENSES ACCOUNT, A N EQUIVALENT CREDIT ENTRY HAS BEEN MADE TO RAW MATERIAL CONSUMPTION ACC OUNT, THEREBY REDUCING THE RAW MATERIAL CONSUMPTION AND RESULTING IN NO IMPACT ON THE PROFIT AND LOSS ACCOUNT; 3.IN VIEW OF THE ABOVE GROUNDS, THE APPELLANT PRAYS THAT DISALLOWANCE OF INVENTORY WRITTEN OFF AMOUNTING TO ` 23,480,619 OUGHT TO BE DELETED. GROUND III; DISALLOWANCE ON ACCOUNT OF NON- DEDUCTI ON OF TDS OF ` 1,178,136 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT (A) ERRED IN DISALLOWING THE EXPENDITURE OF ` 1,178 ,136 UNDER SECTION 3 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 40(A)(IA) OF THE ACT ON THE GROUND THAT NO TAX WAS DEDUCTED AT SOURCE ON PAYMENTS MADE TO MR. BHANDARA; 2. IN DOING SO, CIT (A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. THE APPELLANT COMPANY HAS NOT BEEN ABLE TO COM PREHEND THE NATURE OF TRANSACTIONS AND PAYMENTS MADE TO MR. JEHANGIR HOMI BHANDARA; B. THE PRINCIPLES OF NATURAL JUSTICE HAVE BEEN VI OLATED AS THE DETAILS OF THE TRANSACTIONS RELATING TO MR. BHANDAR A, WHICH WERE REQUESTED DURING THE ASSESSMENT PROCEEDINGS, H AVE NOT BEEN PROVIDED TO THE APPELLANT AND ALSO ADEQUATE OP PORTUNITY OF EXPLAINING THE DETAILS CONSIDERED DURING THE ASSESS MENT PROCEEDINGS WAS NOT PROVIDED TO THE APPELLANT. 3. THE APPELLANT, THEREFORE, PRAYS THAT DISALLO WANCE UNDER SECTION 40(A)(IA) OF THE ACT BE DELETED. GROUND IV; DISALLOWANCE OF SERVICE TAX WRITTEN OFF OF RS 1,214,420 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DISALLOWING SERVICE TAX WRITTEN OFF OF ` 1,214,420 ON THE GROUND THAT THE APPELLANT FOLLOWS EXCLUSIVE SYSTEM OF ACCOUNTING AND THEREFORE, SERVICE TAX PAID SHOULD NOT HAVE BEEN RO UTED THROUGH THE PROFIT AND LOSS ACCOUNT. 2. IN DOING SO, CIT (A) FAILED TO APPRECIAT E AND OUGHT TO HAVE HELD THAT: A. IF THE APPELLANT HAD RECORDED THE RENT EXPENSES GROSS OF SERVICE TAX THEN THE SAID EXPENSES WOULD HAVE BEEN ALLOWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT AS BUSINESS EXPENDITURE. 3. THE APPELLANT, THEREFORE, PRAYS THAT DISALLOWAN CE OF SERVICE TAX WRITTEN OFF OUGHT TO BE DELETED. GROUND V: DISALLOWANCE OF INTEREST ON LOANS TO SUBS IDIARY OF RS. 25,865,668 1. THE CIT(A) ERRED IN DISALLOWING PROPORTIONATE IN TEREST EXPENSES ON ADVANCES TO SUBSIDIARY COMPANIES. 4 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION O F THE AO BY DISALLOWING PROPORTIONATE INTEREST EXPENSES BY APPL YING THE RATIO OF FUNDS ADVANCED TO TOTAL FUNDS. 3. THE CIT(A) ERRED IN NOT APPRECIATING THAT T HE ADVANCES MADE TO SUBSIDIARY COMPANIES ARE FOR BUSINESS PURPOSES AND ON THIS BASIS NO DISALLOWANCE COULD BE MADE. 4. ALTERNATIVELY, THE CIT(A) OUGHT TO HAVE ACCEPTED THAT THE OWNED FUNDS OF THE APPELLANT WERE SUFFICIENT ENOUGH TO CO VER THE ADVANCES TO ITS SUBSIDIARY COMPANIES AND THEREFORE NO DISALLOWA NCE OF INTEREST UNDER SECTION 36(L)(III) WAS TO BE MADE. GROUND VI: DISALLOWANCE OF CAPITAL ADVANCE AND DEPR ECIATION OF RS. 3,477,261 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DISALLOWING THE WRITING OFF OF ADVANCE S GIVEN TO VENDORS FOR PURCHASE OF ERP SOFTWARE AND DEPRECIATION AMOUNTING TO RS. 3,477,261. 2. IN DOING SO, CIT (A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. THE WRITE OFF RELATING TO CAPITAL ADVANCED TO VE NDORS OF ` 1,553,840 ON UNSUCCESSFUL ERP PROJECT WAS IN THE CO URSE OF BUSINESS OF THE APPELLANT COMPANY AND THEREFORE SHO ULD HAVE BEEN ALLOWED AS A REVENUE EXPENDITURE/ LOSS UNDER T HE ACT; B. THE DEPRECIATION OF RS. 1,923,421 WAS GROUPED UN DER DEPRECIATION SCHEDULE OF THE BOOKS OF ACCOUNT AND W AS VOLUNTARILY DISALLOWED WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, THE AFORESAID DISAL LOWANCE THEREFORE LED TO DOUBLE DISALLOWANCE OF D EPRECIATION. 3. THE APPELLANT, THEREFORE, PRAYS THAT DISALLOWANC E OF CAPITAL ADVANCE AND DEPRECIATION OUGHT TO BE DELETED. I GROUND VII: DISALLOWANCE OF PRIOR PERIOD EXPENDITUR E OF RS. 13,175,381 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DISALLOWING PRIOR PERIOD EXPENSES O F RS. 13,175,381. 5 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 2. WITHOUT PREJUDICE TO THE ABOVE, IF THESE E XPENSES ARE DISALLOWED IN THE YEAR UNDER CONSIDERATION, THEN THE APPELLANT HUMBLY PRAYS THAT THEY SHOULD BE ALLOWED IN THE RESPECTIVE ASSESSMENT YEARS TO WHICH THEY RELATE. 3. THE APPELLANT, THEREFORE, PRAYS THAT DISALLOWAN CE OF PRIOR PERIOD EXPENDITURE OUGHT TO BE DELETED. GROUND VIII; PROVISION FOR CONTINGENCIES AND RECOVE RIES FOR CALCULATION OF HOOK PROFITS 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) ERRED IN ADDING BACK THE PROVISION FOR CONTINGE NCIES AND RECOVERIES FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. 2. IN DOING SO, CIT (A) FAILED TO APPRECIATE A ND OUGHT TO HAVE HELD THAT: A. THE AMOUNT OF DISALLOWANCE ON ACCOUNT OF PROVI SION FOR CONTINGENCIES BE RESTRICTED TO RS. 3,281,103 I.E. T HE DIFFERENCE BETWEEN LV ACTUAL PROVISION FOR CONTINGENCIES (RS. 5,945,570) IN THE BOOKS OF ACCOUNTS AND THE PROVISION FOR CONT INGENCY ALREADY DISALLOWED BY THE APPELLANT VOLUNTARILY IN THE COMPUTATION OF ITS BOOK PROFIT (RS. 2,664,467). B. THE PROVISION FOR RECOVERIES CANNOT BE TREATED AS UNASCERTAINED LIABILITIES, AS THE SAME ARE BASED ON A CONTRACTUAL ARRANGEMENT, AND ACCORDINGLY CANNOT BE ADDED BACK FOR COMPUTING BOOK PROFIT. 3. THE APPELLANT, THEREFORE, PRAYS THAT ONLY AN ADDITIONAL AMOUNT RS. 3,281,103 ON ACCOUNT OF PROVISION FOR CONTINGEN CY BE DISALLOWED AND THE AFORESAID ADDITION ON ACCOUNT OF PROVISION FOR RECOVERIES FOR RS. 8,18,62,437 BE DELETED. GROUND IX; ADDITION UNDER SECTION 50C OF THE ACT OF RS. 16,355,585 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN MAKING AN ADDITION UNDER SECTION 50C O F THE ACT ON THE GROUND THAT SALES CONSIDERATION TAKEN BY THE APPELL ANT FOR COMPUTATION OF CAPITAL GAINS ON SALE OF LAND WAS LESS THAN STAM P DUTY VALUATION AS REQUIRED UNDER SECTION 50C OF THE ACT. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAV E HELD THAT: 6 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. A. THE SALES CONSIDERATION AS PER AGREEMENT TAKE N FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS ON SALE OF LAND BY THE APPELLANT WAS OF THE SAME VALUE AS ADOPTED BY THE R EGISTERING AUTHORITY FOR THE PURPOSE OF STAMP DUTY VALUATION; B. THE STAMP DUTY VALUATION AS CONSIDERED BY THE CIT (A) INCLUDED COMPOSITE CONSIDERATION OF LAND AND BUILDI NG TOGETHER AND THE APPELLANT HAS TAKEN SALES CONSIDERATION TO THE EXTENT OF LAND FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN S. 3. THE APPELLANT, THEREFORE, PRAYS THAT DISALLOWANC E UNDER SECTION 50C SHOULD BE DELETED. THE ONLY GROUND OF APPEAL RAISED BY THE REVENUE REA DS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) IS RIGHT IN RESTORING THE IS SUE OF DISALLOWANCE OF RS 6,31,74,997/- U/S. 14A AS PER RULE 8D TO THE ASS ESSING OFFICERS FILE AND DIRECTING THAT DISALLOWANCE TO BE AS PER IMMEDI ATE PRECEDING YEAR IN THE LIGHT OF OBSERVATION OF JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT 234 ITR 1 (BOM. ) AS THE DECISION OF HONBLE BOMBAY HIGH COURT IS NOT ACCEPTED BY THE DEPARTMENT. 3. IN SO FAR AS GROUND OF APPEAL NO.1 OF THE ASSESS EE AND THE GROUND RAISED BY THE REVENUE ARE CONCERNED, BOTH RELATE TO THE DISAL LOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A OF THE ACT. SINCE THE TWO GROUNDS RELATE TO THE SAME ISSUE THEY ARE BEING DEALT TOGETHER. 4. BRIEFLY, THE RELEVANT FACTS ARE, DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS E ARNED DIVIDEND INCOME FROM ITS SUBSIDIARIES AND ON UNITS OF MUTUAL FUNDS WHICH AMO UNT TO RS. 10,13,71,413/- AND SUCH INCOME WAS CLAIMED AS EXEMPT U/S. 10(34) OF TH E ACT. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS TO WHY THE EXPE NDITURE INCURRED IN RELATION TO THE EXEMPT INCOME BE NOT DISALLOWED U/S. 14A OF THE ACT AS NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSEE IN THE RETURN OF INCOME. THE RELEVANT DISCUSSION IN THE 7 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. ASSESSMENT ORDER REVEALS THAT THE ASSESSEE RESISTED THE DISALLOWANCE BY ASSERTING THAT NO EXPENDITURE HAS BEEN INCURRED ON THE SAID E XEMPT INCOME. THE ASSESSING OFFICER OBSERVED THAT CERTAIN PERCENTAGE OF EXPENS ES WOULD DEFINITELY BE ATTRIBUTABLE TO THE TAX FREE INCOME EARNED BY THE A SSESSEE BY WAY OF FINANCE AND MANAGERIAL COST. THEREAFTER, THE ASSESSING OFFICER APPLIED RULE OF THE INCOME TAX RULES 1962 AND COMPUTED THE DISALLOWANCE U/S. 14A O F THE ACT AT RS. 6,31,84,887/-, WHICH COMPRISES OF DISALLOWANCE OUT OF INTEREST EXPENDITURE OF RS. 5,64,20,485/- IN TERMS OF RULE 8D(2)(I) AND RS. 67, 54,402/- IN TERMS OF RULE 8D(2)(III). 4. THE ASSESSEE ASSAILED THE ACTION OF THE ASSESSIN G OFFICER BEFORE THE CIT(A) BOTH ON LAW AND ON FACTS. THE VARIED SUBMISSIONS P UT FORTH BY THE ASSESSEE HAS BEEN REPRODUCED BY THE CIT(A) EXHAUSTIVELY IN PARA 4.1 TO 12.5 OF HIS ORDER. THEREAFTER, THE CIT(A) HELD THAT RESORT TO RULE 8D BY THE ASSESSING OFFICER IN ORDER TO COMPUTE DISALLOWANCE U/S. 14A OF THE ACT W AS NOT TENABLE IN VIEW OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT 328 ITR 81 (BOM) IN AS MUCH AS RULE 8D OF THE ACT WAS APPLICABLE PROSPECTIVELY FOR A.Y. 2008- 09 ONWARDS. AFTER HOLDING SO, THE CIT(A) RESTORED THE MATTER BACK TO THE ASSE SSING OFFICER TO WORK OUT THE DISALLOWANCE, IF ANY, AFRESH AFTER AFFORDING REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE MATTER. AGAINST SUCH DECISI ON BOTH THE PARTIES ARE IN APPEAL BEFORE US. 8 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 5. IN SO FAR AS THE APPEAL OF THE REVENUE IS CONCER NED, THE SOLITARY POINT IS THAT THE CIT(A) ERRED IN RESTORING THE DISALLOWANCE TO T HE FILE OF THE ASSESSING OFFICER FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA), SINCE THE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS NOT BEEN ACCEPTED BY THE DEPA RTMENT. 6. IN OUR CONSIDERED OPINION THE DECISION OF THE CI T(A) RAISED ON THE FOOTING THAT THE PROVISIONS OF RULE 8D OF THE RULES ARE NOT APPLICABLE FOR THE INSTANT ASSESSMENT YEAR, AS THE SAME IS APPLICABLE FROM ASS ESSMENT YEAR 2008-09 ONWARDS. THIS PROPOSITION IS INDEED IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA), WHICH CONT INUES TO HOLD THE FIELD AS THE SAID PROVISION HAS NOT BEEN ALTERED BY ANY OTHER AU THORITY. HENCE, THE DECISION OF THE CIT(A) ON THIS ASPECT IS CONFIRMED AND THE GROU ND RAISED BY THE REVENUE IS DISMISSED. 7. IN SO FAR AS THE PLEA OF THE ASSESSEE IS CONCERN ED, OUR ATTENTION HAS BEEN DRAWN TO THE PROCEEDINGS IN THE ASSESSEES OWN CASE BY WAY OF ORDERS OF THE TRIBUNAL RIGHT FROM A.Y. 2002-03 TO A.Y. 2006-07. IN SO FAR AS A.Y. 2002-03 IS CONCERNED, ON THE ISSUE OF INTEREST EXPENDITURE THE TRIBUNAL RESTRICTED THE DISALLOWANCE TO RS. 7,61,476/- ON ACCOUNT OF FINDIN G RECORDED BY THE CIT(A) THAT SOME INVESTMENT HAD NEXUS WITH THE BORROWED FUNDS W HICH YIELDED EXEMPT INCOME. IN A.Y. 2003-04, VIDE ORDER DATED 10.08.20 16, IN ITA NOS. 6721 & 6580/MUM/2007, THE TRIBUNAL DELETED THE ENTIRE ADDI TION OF INTEREST EXPENDITURE 9 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. MAINLY ON THE GROUND THAT DURING THAT YEAR DIVIDEND INCOME WAS NOT EXEMPT U/S. 10(33)OF THE ACT. FURTHER IN A.Y. 2004-05, VIDE OR DER DATED 07.10.2016, IN ITA NOS. 1382 & 1573/MUM/2009, THE DISALLOWANCE AS MADE BY THE AUTHORITIES WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO R ECOMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AFRESH, IN ACCORDANCE WITH L AW PREVALENT FOR THE YEAR UNDER CONSIDERATION AS PER RULE 8D OF THE IT RULES, ARE A PPLICABLE PROSPECTIVELY FROM A.Y. 2008-09 ONWARDS. SIMILAR SITUATION PREVAILED IN A.Y. 2005-06 ALSO, WHEREIN THE TRIBUNAL VIDE ORDER DATED 28.02.2017 IN ITA NOS . 3603 & 3789/MUM/2009, RESTORED THE MATTER BACK TO THE ASSESSING OFFICER. IN A.Y. 2006-07, THE TRIBUNAL VIDE ITS ORDER, DATED 05.04.2017, RESTORED THE MATT ER TO THE ASSESSING OFFICER FOLLOWING THE PRECEDENTS. 8. PRESENTLY, IN A.Y. 2007-08, THE CASE SET UP BY T HE ASSESSEE IS THAT THE SATISFACTION OF THE ASSESSING OFFICER MANDATED BY S UB SECTION (2) OF SECTION 14A OF THE ACT HAS NOT BEEN RECORDED TO PERMIT THE ASSE SSING OFFICER TO COMPUTE THE DISALLOWANCE U/S. 14A OF THE ACT. IN SUPPORT OF SU CH PROPOSITION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD 349 ITR 449. IT IS ALSO THE SAY OF THE ASSESSEE THAT OWN INTEREST FREE FUNDS AVAILABLE WITH IT AT THE BEGINNING OF THE YEA R AS WELL AS THE CLOSING OF THE YEAR ARE ENOUGH TO COVER THE INVESTMENTS WHICH HAVE YIELDED THE EXEMPT INCOME AND, THEREFORE, FOLLOWING THE RATIO OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES 313 ITR 340, NO INTEREST EXPENDITURE CAN BE ATTRIBUTABLE TO SUCH INVESTMENTS. 10 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 9. ON THIS ASPECT, THE LEARNED CIT-DR APPEARING FOR THE REVENUE CONTENDED THAT THE LANGUAGE BY WHICH THE ASSESSING OFFICER IS REQUIRED TO RECORD THE SATISFACTION MANDATED U/S. 14A OF THE ACT IS NOT PR ESCRIBED UNDER THE STATUTE AND THE SAME HAS TO BE GATHERED FROM THE DISCUSSION IN THE ASSESSMENT ORDER. IN THAT CONTEXT, IT HAS BEEN EXPLAINED THAT THE SATISFACTIO N HAS BEEN ARRIVED BY THE ASSESSING OFFICER WHERE HE REFERS TO THE FACT THAT CERTAIN EXPENDITURE WOULD BE ATTRIBUTABLE TO THE EARNING OF THE TAX FREE INCOME ON ACCOUNT OF FINANCE AND MANAGERIAL COSTS. IN THIS REGARD, HE HAS ALSO MENT IONED TO THE OBSERVATIONS OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF DHAMPUR SUGAR MILLS LTD. VS. CIT 51 TAXMANN.COM 508 WHETHER OR NOT, THE ASSESSING OFFICER IS NOT SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAS TO BE DEDUCED FROM THE ASSESSMENT ORDER AND THERE IS NO STRAIGHT JACKET FO RMULA REQUIRING THE ASSESSING OFFICER TO USE ANY PARTICULAR LANGUAGE OR FORM. SO LONG AS THE ORDER OF ASSESSING OFFICER INDICATES THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OR CLAIM OF THE ASSESSEE THAT NO EXPENDITU RE HAS BEEN INCURRED, THE ASSESSING OFFICER HAS TO PROCEED IN THE MANNER INDI CATED RULE 8D(2). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE ARE CONSCIOUS THAT EACH ASSESSMENT YEAR IS AN INDEPENDENT UNIT OF ASSE SSMENT AND IS LIABLE TO BE DECIDED ON A UNIT BASIS. SO FAR AS CERTAIN FACTS F OR MORE THAN ONE ASSESSMENT YEAR ARE DEFINITELY REQUIRED TO BE ADJUDICATED IN A UNIF ORM MANNER. WE ARE SAYING THIS FOR THE REASON THAT THOUGH THE FACTUAL ASSERTIONS O F THE ASSESSEE HAVING SUBSTANTIAL OWN FUNDS WHICH ARE MORE THAN THE INVESTMENTS THAT YIELDED INTEREST FREE INCOME, 11 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. WE ARE CONSCIOUS OF THE FACTS THAT OUT OF TOTAL INV ESTMENTS OF RS. 132.24 CRORE, NEARLY RS. 2.5 CRORE HAVE BEEN MADE DURING THE YEAR WHEREAS THE BALANCE ARE BROUGHT FORWARD FROM EARLIER YEARS. SO FAR AS THE EARLIER YEARS ARE CONCERNED, FACT AS TO WHETHER OR NOT THE EXPENSES ARE ATTRIBUTABLE TO THE INCOME EARNED IS STILL OPEN BEFORE THE ASSESSING OFFICER, SINCE SUCH MATTE RS HAVE BEEN SET ASIDE TO HIS FILE FOR ADJUDICATION AFRESH RIGHT FROM ASSESSMENT YEARS 2004-05 TO 2006-07. THEREFORE, IN THE FITNESS OF THINGS, WE DEEM IT FIT AND PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE OUT OF THE INTEREST EXPENDITURE IN TERMS OF SECTION 14A OF THE ACT IF THE FACTS AND LAW SO WARRANTS. 11. EVEN THE ISSUE RAISED BY THE ASSESSEE WITH REGA RD TO ABSENCE OR OTHERWISE OF THE REQUISITE SATISFACTION OF SECTION 14A OF THE AC T IS CONCERNED, THE SAME SHALL ALSO BE RESTORED TO THE ASSESSING OFFICER TO BE DEA LT AFRESH AS PER LAW. 12. BE THAT AS IT MAY, FOLLOWING THE PRECEDENCE, WE KEEP THE DISALLOWANCE U/S. 14A OPEN BEFORE THE ASSESSING OFFICER AS PER LAW. NEEDLESS TO MENTION, THE ASSESSING OFFICER SHALL AFFORD THE ASSESSEE REASONA BLE OPPORTUNITY TO SUPPORT ITS STAND AS MANIFESTED IN THE RETURN OF INCOME. 13. NOW WE MAY COME TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS GENERAL AND ADMINISTRATIVE EXPENSES AMOUNTI NG TO RS. 67,54,402/- BY APPLYING RULE 8D(2)(III) OF THE RULES. SINCE IT IS FOUND TO BE INCONSISTENCY WITH THE POSITION OF LAW THE DISALLOWANCE IS NOT MAINTAI NABLE. THE LEARNED CIT(A) HAS 12 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. RIGHTLY SET ASIDE THE SAME. SINCE THE DISALLOWANCE OF INTEREST U/S. 14A HAS BEEN SET ASIDE TO THE AO AS DONE BY THE CIT(A) FOR ADJUD ICATION AFRESH AS PER LAW. ACCORDINGLY, THE GROUND OF APPEAL OF THE ASSESSEE I S PARTLY ALLOWED AS ABOVE AND THAT OF THE REVENUE IS DISMISSED. 14. GROUND NO. II RELATES TO DISALLOWANCE OF INVENT ORY WRITTEN OFF. THE LD. AR OF THE ASSESSEE SUBMITS THAT DURING THE ASSESSMENT, TH E ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DISALLOWANCE SHOU LD NOT BE MADE ON ACCOUNT OF INVENTORY WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE VIDE ITS REPLY DATED 27.11.2009 STATED THAT THOUGH THE AMOUNT HAD BEEN DEBITED TO THE EXPENSES ACCOUNT AN EQUIVALENT PROVISION THEREOF HAD BEEN MA DE IN THE BOOKS AND THUS, PRACTICALLY THERE IS NO IMPACT ON THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER REJECTED THE CONTENTION OF ASSESSEE AND REL YING UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. HERDILLA CHEMI CALS LTD. (255 ITR 532 BOM) DISALLOWED THE INVENTORY WRITTEN OFF HOLDING T HAT THERE IS NOTHING WHICH CAN POSITIVELY INDICATE THAT THE DECISION OF WRITE OFF WAS BASED ON ANY MATERIAL AVAILABLE DURING THE YEAR AND ITEMS IN QUESTION WER E STEEL LYING WITH THE ASSESSEE. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD WRITTEN OFF RS. 2,34,80,619/- IN ITS BOOKS OF ACCOUNT TOWARDS REDUCTION IN VALUE OF INVE NTORY. THE SAID REDUCTION IN RESPECT OF OBSOLETE STOCK, NON-MOVING ITEMS, SLOW M OVING ITEMS AND OTHER ITEM OF SPARE PARTS ACCESSORIES ETC., WHICH WERE OF NO UTIL ITY PURSUANT TO MAIN PRODUCT, WHICH BECAME OUTDATED. THE WRITTEN OFF PERTAINS TO FOLLOWING DIVISIONS: 13 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. DIVISION AMOUNT IN (RS.) TEXTILE DIVISION 4,514,666 ENGINEERING DIVISION 357,285 FAL ENERGY 18,608,668 TOTAL 23,480,619 15. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS TH AT AGAINST THE INVENTORY WRITTEN OFF, THE ASSESSEE HAD, DURING THE YEAR CREA TED A PROVISION FOR REDUCTION IN VALUE OF INVENTORY FOR AN IDENTICAL AMOUNT OF RS. 2 ,34,80,619/- AND REDUCE THE SAME FROM MATERIAL CONSUMED. THE LD. AR SUBMITS THA T THERE WAS NO IMPACT ON PROFIT AND LOSS OF THE ASSESSEE-COMPANY ON ACCOUNT OF INVENTORY WRITTEN OFF. THE LD. AR FURTHER SUBMITS THAT IN ASSESSEES OWN CASE FOR A.Y. 2010-11 THE LD. CIT(A) VIDE ORDER DATED 17.11.2016 ALLOWED THE SIMI LAR DISALLOWANCE OF INVENTORY WRITTEN OFF. FURTHER, IN A.Y. 2011-12, TH E LD. CIT(A) FOLLOWING THE ORDER OF A.Y. 2010-11 ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE FOR DISALLOWANCE OF INVENTORY WRITTEN OFF OF RS. 3.88 C RORE. TO STRENGTHEN ITS SUBMISSION THE LD. AR OF THE ASSESSEE RELIED UPON T HE DECISION OF HONBLE SUPREME COURT IN CIT VS. ALPHA LAVAL (INDIA) LTD. [ 2008] 295 ITR 45, HONBLE DELHI HIGH COURT IN CIT VS. BHARAT COMMERCE & INDUS TRY LTD. (240 ITR 256 DEL.), CIT VS. HOTLINE TELETUBE AND COMPONENTS LTD. (ITA NO. 694/2008), RAJASTHAN HIGH COURT IN CIT VS. WOLKEM INDIA LIMITE D (315 ITR 211) AND MUMBAI TRIBUNAL IN EMERSON PROCESS MANAGEMENT INDIA (P.) LTD. V/S ACIT (13 TAXMANN.COM 149). 16. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UPPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE ON OUR SPEC IFIC QUERY ACCEPTED THAT THE 14 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. ACCOUNT HAD BEEN DEBITED TO THE EXPENSES ACCOUNT. T HE LD. DR FURTHER SUBMITS THAT THE DECISION OF HONBLE APEX COURT IN ALPHA LAVAL P VT. LTD. (SUPRA) IS ON THE IDENTIFIABLE ITEMS AND THAT SUCH OBSOLETE ITEMS WER E SOLD IN SUBSEQUENT YEAR AT A PRICE LESS THAN 10% OF THE COST. THE LD. DR SUBMITS THAT THIS ISSUE MAY BE SENT BACK FOR VERIFICATION TO THE ASSESSING OFFICER. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO DELIB ERATED ON THE VARIOUS CASE LAWS RELIED BY LD. REPRESENTATIVE OF THE PARTIES AND BY LOWER AUTHORITIES. WE HAVE NOTED THAT THE ASSESSING OFFICER DISALLOWED THE INVENTORY WRITTEN OFF BY RELYING ON THE DECISION OF CIT VS. HERDILLA CHEMICALS LTD. (SUPRA) . WE HAVE FURTHER NOTED THAT THE HONBLE JURISDICTIONAL HIGH COURT BY CONSIDERIN G THE DECISION OF HERDILLA CHEMICALS LTD. HELD THAT WRITE OFF CLAIMED IS ESSEN TIAL ON THE BASIS OF OBSOLESCES OF ANY PARTICULAR EQUIPMENT THAT CLAIMED AS WRITE O FF, WHICH IS ESSENTIALLY ON ACCOUNT OF DETERIORATION OF VARIOUS MATERIAL INCLUD ING RAW-MATERIAL OVER A PERIOD OF TIME DUE TO WEAR AND TEAR AND THAT ASSESSEE WOUL D BE ENTITLED TO WRITE OFF IN PROFIT & LOSS ACCOUNT. WE HAVE FURTHER NOTED THAT T HE ASSESSEES SIMILAR CLAIM FOR A.Y. 2010-11 AND 2011-12 HAS BEEN ALLOWED BY FI RST APPELLATE AUTHORITY IN ORDER DATED 17.11.2016 AND 20.03.2017 RESPECTIVELY. THEREFORE, CONSIDERING THE PECULIARITY OF FACT FOR THE YEAR UNDER CONSIDERATIO N, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR INVENTORY WRITTEN OFF, HOW EVER FOR LIMITED PURPOSE, THE ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER TO VERIFY THE FACT, IF EQUIVALENT PROVISION THEREOF HAD BEEN MADE IN THE BOOKS AND TH ERE IS NO IMPACT ON PROFIT & 15 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. LOSS ACCOUNT AND ALLOW THE RELIEF TO THE ASSESSEE I N ACCORDANCE WITH LAW. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED FOR STATIS TICAL PURPOSE. 18. GROUND III RELATES TO DISALLOWANCE ON ACCOUNT O F NON-DEDUCTION OF TDS. THE LD. AR OF THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER ON THE BASIS OF INFORMATION RECEI VED FROM ITO-1 THAT ASSESSEE PAID RS. 11,78,136/-. THE ASSESSING OFFICER REQUEST ED FOR THE DETAILS BASED ON THE INFORMATION. THE ASSESSING OFFICER WITHOUT PROVIDIN G ANY INFORMATION OR DETAILS ADDED RS. 11,78,136/- TO THE INCOME OF ASSESSEE. NO OPPORTUNITY WAS GRANTED TO THE ASSESSEE. THE NATURE OF SAID PAYMENT ARE NOT KN OWN TO THE ASSESSEE. THE ASSESSEE WAS UNABLE TO COMPREHEND OR ASCERTAINED TH E NATURE OF TRANSACTION IN ABSENCE OF COMPLETE DETAILS. MR. BHANDARA WAS NOT K NOWN TO THE ASSESSEE. THE LD. AR OF THE ASSESSEE PRAYED FOR DELETING THE ENTIRE A DDITION. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF TRIBUNAL IN DCIT VS. G. SELVA KUMAR (ITA NO. 868/BANG/2009, M/S A.F. FERGUSON & CO. VS. JCIT IN ITA NO. 5037/M/2012, M/S. =KRONER INVES TMENTS LTD. VS. DCIT IN ITA NO. 5125/M/2013, MRS. ARATI RAMAN VS. DCIT IN I TA NO. 245/BANG/2012, DECISION OF HONBLE SUPREME COURT IN TIN BOX & CO. VS. CIT 9249 ITR 216), HINDUSTAN UNILEVER LTD. (W.P. NO. 2244 OF 2008). 19. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER/LD.CIT(A). 16 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 20. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND PERUSED THE ORDER OF LOWER AUTHORITIES. WE HAVE NOTED THAT THE ASSESSING OFFICER MADE ADDITION ON THE BASIS OF INFORMATION RECEIVED FROM ITO-1(1)(1). THE ASSESSING OFFICER RECORDED THAT THE ASSESSEE FAILED TO FURNIS H ANY REPLY AND THAT EXPENDITURE REMAINED UNVERIFIED AND WAS DISALLOWED BY ADDING TO THE INCOME OF ASSESSEE. BEFORE THE LD. CIT(A), THE ASSESSEE SPECIFICALLY CO NTENDED THAT NO INFORMATION ON THE BASIS OF WHICH THE ASSESSING OFFICER MADE ADDIT ION WAS SHARED WITH THE ASSESSEE BY THE ASSESSING OFFICER. BEFORE THE LD. C IT(A), THE ASSESSEE SPECIFICALLY STATED THAT MR. BHANDARA IS NOT KNOWN TO THE ASSESS EE AND IN ABSENCE OF COMPLETE DETAIL OF THE ALLEGED INFORMATION RECEIVED, THE ASS ESSEE ARE UNABLE TO PROVIDE ANY DETAILS. THE LD. CIT(A) INSTEAD OF PROVIDING ANY IN FORMATION CONFIRMED THE ACTION OF ASSESSING OFFICER. THE ASSESSING OFFICER HAS NO T MADE ANY INQUIRY FROM THE ALLEGED PAYEE NOR PROVIDED ANY SPECIFIC INFORMATION RECEIVED BY HIM FROM THE ITO-1(1)(1). THE HONBLE SUPREME COURT IN TIN BOX & CO. (SUPRA) HELD THAT THE ASSESSING OFFICER SHOULD PROVIDE FULL OPPORTUNITY T O THE ASSESSEE BEFORE MAKING ANY ADDITION. IN C. VASANTLAL & CO. (SUPRA), THE HO NBLE SUPREME COURT HELD THAT, IF THE ASSESSING OFFICER DESIRES TO USE MATERIAL SO COLLECTED BY HIM, ASSESS EE MUST BE INFORMED OF MATERIAL AND MUST BE GIVEN AN ADEQUA TE OPPORTUNITY OF EXPLAINING IT. ADMITTEDLY, THE LOWER AUTHORITIES MADE THE ADDI TION WITHOUT PROVIDING OPPORTUNITY AND SUPPLY THE INFORMATION RECEIVED FRO M ITO-1(1)(1) BEFORE MAKING ADDITION AGAINST THE ASSESSEE. IN OUR VIEW, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF ASSESSING OFFICER, WHEN TH E ASSESSEE HAS SPECIFICALLY 17 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. STATED THAT THE ALLEGED RECIPIENT I.E. JAHANGIR HOM I BHANDARA IS NOT KNOWN TO THE ASSESSEE. THEREFORE, CONSIDERING THE FACT THAT THE ASSESSING OFFICER NEITHER SHARED THE INFORMATION/MATERIAL EVIDENCE ALLEGEDLY RECEIVE D BY HIM NOR BROUGHT ANY MATERIAL TO PROVE THAT ASSESSEE MADE ANY PAYMENT OF EXPENDITURE ATTRACTING THE PROVISIONS FOR DISALLOWANCE UNDER SECTION 40A(IA). HENCE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 11,78,136/-. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 21. GROUND NO. IV RELATES TO DISALLOWANCE OF SERVIC E TAX WRITTEN OFF (THE AO AND LD. CIT(A) REFERRED IT AS SALES TAX). THE LD. A R OF THE ASSESSEE SUBMITS THAT ASSESSEE IN ITS BOOKS OF ACCOUNT, ACCOUNTED THE PAY MENT OF RENT NET OF SERVICE TAX. THE AMOUNT PAID TOWARDS SERVICE TAX WAS DEBITED TO A SEPARATE ACCOUNT IN THE BOOKS FOR AVAILING CREDIT AGAINST THE OUTPUT SERVIC E TAX LIABILITY. THE INPUT TAX CREDIT AVAILABLE TO THE ASSESSEE, ON PAYMENT OF SER VICE TAX ON RENT, WAS TO BE ADJUSTED AGAINST THIS OUTPUT TAX LIABILITY. THEREFO RE, WITH A VIEW TO IDENTIFY AND COLLATE SEPARATELY THE SERVICE TAX FOR WHICH IT WAS ENTITLED TO CLAIM CREDIT, THE ASSESSEE ACCOUNTED THE AMOUNT SEPARATELY TO A SEPAR ATE ACCOUNT INSTEAD OF ACCOUNTING THE TAX AS PART OF THE COST OF PURCHASE MADE, AS IT IS THE SERVICE TAX LIABILITY. HOWEVER, DURING THE YEAR, THE ASSESSEE C OULD NOT UTILIZE THE INPUT TAX CREDIT ON SERVICE TAX PAID FOR RENT AND AT THE END OF THE YEAR SUCH AMOUNT WAS CHARGED TO PROFIT AND LOSS ACCOUNT. THE LD. AR FURT HER SUBMITS THAT IDEALLY THE SERVICE TAX PAID ON THE RENT SHOULD HAVE BEEN INCLU DED IN THE RENTAL AMOUNT AND DEBITED TO RENT AS NARRATED ABOVE. THE ASSESSEE IF RECORDED THE SAID EXPENSES, 18 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. GROSS OF SERVICE TAX, THAN THE SAID EXPENSES WOULD HAVE BEEN ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE ACT. THE LD. AR FOR THE ASS ESSEE SUBMITS THAT ENTIRE DISALLOWANCE IS LIABLE TO BE DELETED. 22. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UPPORTED THE ORDER OF LOWER AUTHORITIES. 23 WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT, THE ASSESSING OFFICER MADE DISALLOWANCE OF SERVICE TAX WRITTEN OF F ON THE GROUND THAT ASSESSEE FOLLOWS THE EXCLUSIVE SYSTEM OF ACCOUNTING AND THER EFORE, SERVICE TAX COLLECTED SHOULD NOT HAVE BEEN ROUTED THROUGH PROFIT & LOSS A CCOUNT. THE LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER HOLDING T HAT ASSESSEE HAS NOT ROUTED SERVICE TAX IN PROFIT & LOSS ACCOUNT AND HENCE WRIT E OFF CANNOT BE PERMITTED. THE LD. AR OF THE ASSESSEE BEFORE US VEHEMENTLY SUB MITTED THAT THE ASSESSEE ACCOUNTED THE AMOUNT SEPARATELY TO A SEPARATE ACCOU NT INSTEAD OF ACCOUNTING THE TAX AS A PART OF COST OF PURCHASE MADE, BEING SERVI CE TAX ON RENT AND WAS TO BE ADJUSTED AGAINST THIS OUTPUT TAX LIABILITY. IT WAS ALSO CONVINCED THAT DURING THE YEAR, THE ASSESSEE COULD NOT UTILIZED THE INPUT TAX CREDIT ON SERVICE TAX PAID FOR RENT AND AT THE END OF YEAR SUCH AMOUNT WAS CHARGED TO THE PROFIT & LOSS ACCOUNT AND IT SHOULD HAVE BEEN INCLUDED IN THE RENTAL INCO ME ITSELF. WE FIND FORCE IN THE SUBMISSION OF LD. AR OF THE ASSESSEE THAT THE SAID EXPENSES GROSS OF SERVICE TAX IS ALLOWABLE AS DEDUCTION UNDER SECTION 37(1). THUS, B Y ACCEPTING THE SUBMISSION OF 19 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. LD. AR OF THE ASSESSEE WE ALLOWED THE DEDUCTION UND ER SECTION 37(1). IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 24. GROUND NO. V RELATES TO DISALLOWANCE OF INTERES T ON LOAN TO ITS SUBSIDIARY COMPANY. THE LD. AR OF THE ASSESSEE SUBMITS THAT TH IS GROUND OF APPEAL IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF TR IBUNAL FOR A.Y. 2002-03 DATED 12.06.2013, FOR A.Y. 2003-04 DATED 10.08.2016, FOR A.Y. 2005-06 DATED 28.02.2017 IN AND AGAIN FOR A.Y. 2006-07 IN ITA NO. 5539/MUM/2011 DATED 05.04.2017 BY FOLLOWING ALL EARLIER DECISIONS. THE LD. DR SUBMITS THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH T HE ASSESSEE. THEREFORE, NO DISALLOWANCE UNDER SECTION 36(1)(3) WAS WARRANTED. THE LD. AR FURTHER SUBMITS THAT THE ISSUE IS ALSO COVERED BY THE LATEST DECISI ON OF HONBLE SUPREME COURT IN CIT VS. RELIANCE INDUSTRIES REPORTED IN [2019] 410 ITR 466 (SC). THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER REL IED UPON THE DECISION PHALATAN SUGAR WORKS LTD. (208 ITR 989), WHICH HAS BEEN REVE RSED IN S.A. BUILDERS VS. CIT [288 ITR 1 (SC)]. 25. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITS THAT THIS ISSUE MAY BE SENT BACK TO THE ASSESSING OFFICER FOR EXAMINATI ON, IF THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THEM. 26. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIE S AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO SU BSIDIARIES OF RS. 63,72,10,739/-. 20 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESS EE COULD NOT EXPLAIN THE COMMERCIAL EXPEDIENCY. THOUGH THE ASSESSING OFFICER RECORDED THAT THE TOTAL FUND AVAILABLE WITH THE ASSESSEE ARE RS. 59,77,26,8 234/- WHICH INCLUDES INTEREST BEARING AND INTEREST FREE FUNDS. THE ASSESSING OFFI CER WORKED OUT THE DISALLOWANCE OF RS. 2,58,65,688/-. THE LD. CIT(A) C ONFIRMED THE ACTION OF ASSESSING OFFICER BY FOLLOWING THE DECISION OF HIS PREDECESSOR FOR A.Y. 2005-06 DATED 09.03.2009. WE HAVE NOTED THAT THIS ISSUE IS RECURRING ISSUE FROM A.Y. 2002-03 TO THE YEAR UNDER CONSIDERATION. WE HAVE FU RTHER NOTED THAT THE CO- ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 2006-07 IN ITA NO. 5539/MUM/2011 DATED 05.04.2017 PASSED THE FOLLOWING ORDER: 6. THE ONE MORE ISSUE IN ITA NO. 5539/MUM/2011 FOR AY 2006-07 OF ASSESSEES APPEAL IS AS REGARDS TO THE DISALLOWANCE OF INTERES T ON LOANS TO SUBSIDIARIES AT RS. 42,71,250/-. 7. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THESE ARE OLD LOANS AND TRIBUNAL IN ITA NO. 3603/MUM/2009 FOR AY 2005-0 6 VIDE ORDER DATED 28- 02-2017 HAS CONSIDERED THE ISSUE FOLLOWING TRIBUNAL S ORDER IN ASSESSEES OWN CASE FOR AY 2002-03 AND 2003-04 BY OBSERVING IN PAR A 28 AS UNDER: - 28. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THOUGH, THE LEARNED A UTHORISED REPRESENTATIVE HAD SUBMITTED BEFORE US THAT THE ISSUE IS COVERED B Y EARLIER ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEAR 200203 AND 2003 04, HOWEVER, AFTER CAREFULLY EXAMINING THE FACTS OF THE PRESENT CASE, VISAVIS THE ORDERS OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS, WE FIND LITTLE DIFFER ENCE IN THE FACTS. UNDISPUTEDLY, IN THE EARLIER ASSESSMENT YEARS, THE FIRST APPELLAT E AUTHORITY HAD GIVEN A CATEGORICAL FINDING THAT THE LOANS AND ADVANCES GIV EN TO THE SUBSIDIARIES WERE FOR COMMERCIAL EXPEDIENCY. HOWEVER, IN THE IMPUGNED ASSESSMENT YEAR, THE LEARNED COMMISSIONER (APPEALS) HAS OBSERVED THAT TH E ASSESSEE HAS FAILED TO 21 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. ESTABLISH THE COMMERCIAL EXPEDIENCY IN ADVANCING IN TEREST FREE FUNDS TO THE SUBSIDIARY. THOUGH, ASSESSEE HAD SUBMITTED BEFORE T HE LEARNED COMMISSIONER (APPEALS) THAT THE ADVANCES WERE MADE OUT OF COMMON POOL HAVING BORROWED FUNDS AND SELFGENERATED FUNDS, HOWEVER, THE LEARNE D COMMISSIONER (APPEALS) HAS OBSERVED THAT IN THE ABSENCE OF ANY VERIFICATIO N THAT THE ADVANCES TO THE SUBSIDIARY COMPANIES WAS ONLY OUT OF SELFGENERATED INCOME, ASSESSEES CLAIM CANNOT BE ACCEPTED. IN THIS CONTEXT, IT IS NECESSAR Y TO OBSERVE, THE ASSESSING OFFICER IN PARA3.5 OF THE ASSESSMENT ORDER HAS MEN TIONED THAT THE TOTAL FUNDS AVAILABLE WITH THE ASSESSEE AMOUNTED TO ` 370,18,68 ,522, OUT OF WHICH, ` 167,20,18,599, WAS BORROWED FUNDS. THUS, FROM THE A FORESAID FIGURES, IT IS VERY MUCH EVIDENT THAT THE ASSESSEE WAS HAVING SUFFICIEN T SELFGENERATED / INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE INTEREST FREE ADVANCE OF ` 25,67,46,923. IN FACT, THE LEARNED COMMISSIONER (APPEALS) HAS ALSO O BSERVED, ADVANCES HAVE BEEN MADE OUT OF COMMON FUNDS AVAILABLE WITH THE AS SESSEE WHICH INCLUDES BOTH SELFGENERATED FUNDS AND BORROWED FUNDS. AS HE LD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILI TIES AND POWER LTD. [2009] 313 ITR 340 (BOM), WHEN MIXED FUNDS ARE AVAILABLE W ITH THE ASSESSEE, THE PRESUMPTION WOULD BE, THE INTEREST FREE ADVANCES HA VE BEEN MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. TH EREFORE, APPLYING THE RATIO OF THE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA), NO N OTIONAL DISALLOWANCE / ADDING BACK OF INTEREST ATTRIBUTABLE TO INTEREST FR EE ADVANCES CAN BE MADE. THE ADDITION MADE IS, THEREFORE, DELETED. GROUND NO.(V) IS ALLOWED. 8. IN VIEW OF THE ABOVE THE LEARNED COUNSEL FOR THE AS SESSEE STATED THAT LOANS AND ADVANCES WHICH ARE UNDER CONSIDERATION HAVE ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN EARLIER YEARS AND DECIDED THE ISSUE IN FAVOUR OF ASSESSEE ALLOWING THE CLAIM OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE NOW STANDS COVERED IN FAVOUR OF ASSESSEE. ON THE OT HER HAND, THE LEARNED SR. DR FAIRLY CONCEDED THAT THERE IS REDUCTION IN LOANS AN D ADVANCES WHAT WAS IN EARLIER YEARS. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. HENCE, RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE CLAIM OF THE ASSESSEE. THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 22 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 27. CONSIDERING THE DECISION OF TRIBUNAL ON IDENT ICAL FACT AND RESPECTFULLY FOLLOWING THE SAME, WE FIND THAT THIS ISSUE IS SQUA RELY COVERED IN FAVOUR OF ASSESSEE. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 28. GROUND NO. VI RELATES TO DISALLOWANCE OF CAPITA L ADVANCE AND DEPRECIATION OF RS. 34,77,261/-. THE LD. AR OF THE ASSESSEE SUBM ITS THAT THESE DISALLOWANCES CONSIST OF ERP SOFTWARE OF RS. 15,53,840/- AND DEPR ECIATION OF RS. 19,23,421/- CLAIMED ON ESTIMATED AMOUNT OF DEPRECIATION ON ACCE LERATED BASIS. THE ASSESSING OFFICER DISALLOWED WRITTEN OFF CAPITAL ADVANCES GIV EN TO VENDORS FOR PURCHASE OF ENTERPRISES RESOURCES PLANNING (ERP) SOFTWARE. THE ASSESSING OFFICER HELD THAT THE SAID SOFTWARE IS CAPITAL ASSETS. THE ASSESSING OFFICER ALSO DISALLOWED DEPRECIATION ON ACCELERATED BASIS OF RS. 19,23,421/ - HOLDING IT THAT SAID ASSET IS NOT PUT TO USE AND THE ASSESSEE HAS NOT FURNISHED A NY EVIDENCE. THE LD. AR FURTHER SUBMITS THAT DURING THE PERIOD UNDER CONSIDERATION THE ACCELERATED DEPRECIATION OF RS. 19,23,421/- WAS INCLUDED IN THE TOTAL AMOUNT OF BOOK DEPRECIATION OF RS. 271013681/-. THERE WAS NO SEPARATE DEBIT TO THE PRO FIT & LOSS ACCOUNT ON ACCOUNT OF ACCELERATED DEPRECIATION. THE TOTAL AMOU NT BOOK DEPRECIATION OF RS. 271013681/- WAS DISALLOWED BY ASSESSEE IN CALCULATI NG THE TAXABLE INCOME FOR THE YEAR. THE DEPRECIATION CLAIMED, AS DEDUCTION BY ASS ESSEE DURING THE YEAR WAS AS PER SECTION 32 OF THE ACT. RS. 40,78,10,250/- PERTA INS ONLY TO THOSE ASSETS WHICH HAVE BEEN PUT TO USE BY THE ASSESSEE AND DOES NOT I NCLUDE IN ACCELERATED DEPRECIATION. EFFECTIVELY ACCELERATED DEPRECIATION OF RS. 19,23,421/- WAS OFFERED TO TAX BY ASSESSEE ON ACCOUNT OF DISALLOWANCE OF EN TIRE AMOUNT OF BOOK 23 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. DEPRECIATION AND DISALLOWANCE BY ASSESSING OFFICER RESULTED IN DISALLOWING THE ACCELERATED DEPRECIATION TWICE. ON THE DISALLOWANCE OF ADVANCE TO VENDOR FOR ERP SOFTWARE OF RS. 15,53,840/-, THE LD. AR SUBMITS THAT DURING THE PERIOD THE ASSESSEE WAS IN PROCESS OF IMPLEMENTATION OF ERP SY STEM FOR PATVOLK (SHIPPING DIVISION). THE ERP SYSTEM DID NOT METALIZED AS PER EXPECTATION AND THEREFORE, THE IMPLEMENTATION OF ERP SYSTEM WAS SCRAPPED. THE ADVA NCE IS GIVEN TO VARIOUS VENDORS FOR SUPPLY OF SOFTWARE, AFTER CONSIDERABLE EFFORT FOR RECOVER, WERE WRITTEN OFF. THE LD. AR SUBMITS THAT THE WRITTEN OFF WITH R EGARD TO ADVANCE PAID TO VENDORS IS A BUSINESS LOSS AND IS ALLOWABLE DEDUCTI ON. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. RAYCHEM RPG LTD. [2012 ] 21 TAXMANN.COM 507 (BOM), DECISION OF TRIBUNAL IN DCIT VS. M/S EDELWEI SS CAPITAL LTD. IN ITA NO. 3971/MUM/2009 AND ACIT VS. SANGHVI SAVLA STOCK BROK ERS LTD. [2014] 43 TAXMANN.COM 323. 29. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UPPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR SUBMITS THAT ERP SOFTWARE W AS ENDURING IN NATURE. THE LD. DR RELIED UPON THE DECISION OF HONBLE KARNATAKA HI GH COURT IN CIT VS. SOUTHERN GAS LTD. (91 TAXMANN.COM 296 (KAR.). IN TH E REJOINDER SUBMISSION, THE LD. AR OF THE ASSESSEE SUBMITS THAT IF THERE ARE TW O DIVERGENT VIEWS OF TWO DIFFERENT HIGH COURTS, THE VIEW FAVOURABLE TO THE A SSESSEE SHOULD BE ADOPTED AS PER THE DECISION OF HONBLE SUPREME COURT CIT VS V EGETABLE PRODUCTS LTD. [88 ITR 192(SC)]. 24 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 30. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER MADE THE DISALLOWANCE OF CAPITAL ADVANCE FOR ERP SOFTWARE OF RS. 15,53,840/- HOLDING THAT SOFTWARE IS A CAPITAL ASSET. FOR ACCELERATED DEPREC IATION WAS DISALLOWED BY TAKING VIEW THAT ASSET WAS PUT TO USE AND NOT ON THE BASIS OF ESTIMATES AND THAT ASSESSEE HAS NOT FURNISHED EVIDENCE OF PUT TO USE. THE LD. C IT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER ON SIMILAR LINES. 31. AS NOTED ABOVE THIS GROUND OF APPEAL CONSIST OF TWO COMPONENT I.E. CAPITAL ADVANCES MADE FOR PURCHASE OF ERP SOFTWARE OF RS. 1 5,53,840/-. THE LD. AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THAT ERP SYSTEM W AS UNDER PROCESS OF IMPLEMENTATION AND COULD NOT MATERIALIZED AS PER TH E EXPECTATION AND WAS SCRAPED. THE ASSESSEE MADE ADVANCES TO VARIOUS VEND ORS AND AFTER CONSIDERABLE EFFORT THE AMOUNT WAS WRITE OFF IN THE PROFIT & LOS S ACCOUNT. WE HAVE NOTED THAT THE LOWER AUTHORITIES HAVE NOT GIVEN ANY FINDING ON THE EXPLANATION FURNISHED BY ASSESSEE ABOUT THE SUBMISSION OF ASSESSEE THAT IMPL EMENTATION WAS ERP SOFTWARE WAS NOT MATERIALIZED AND WAS SCRAPPED. THE LOWER AU THORITIES SIMPLY CONCLUDED THAT THE ADVANCES PAID FOR ERP SOFTWARE WAS CAPITAL IN NATURE. IN OUR CONSIDERED VIEW, IT IS SETTLED LEGAL POSITION THAT THE EXPENSE S INCURRED BY ASSESSEE ON SOFTWARE ARE REVENUE IN NATURE. MOREOVER, THE IMPLEMENTATION OF SOFTWARE WAS NOT MATERIALIZED. THUS, IT IS PURELY A BUSINESS LOSS AN D IS ALLOWABLE EXPENSES. SO FAR AS DISALLOWANCE ON ACCOUNT OF DEPRECIATION ON ACCEL ERATED BASIS OF RS. 19,23,421/- IS CONCERNED. THE LD. AR OF THE ASSESSE E VEHEMENTLY SUBMITTED THAT 25 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. ACCELERATED DEPRECIATION OF RS. 19,23,421/- WAS OFF ERED TO TAX BY ASSESSEE ON ACCOUNT OF DISALLOWANCE OF ENTIRE AMOUNT OF BOOK DE PRECIATION AND DISALLOWANCE BY ASSESSING OFFICER RESULTED IN DISALLOWING THE AC CELERATED DEPRECIATION TWICE AND IT SHOULD BE DELETED. WE HAVE NOTED THAT THE LO WER AUTHORITY HAS NOT EXAMINED THE CLAM RELATED TO THE FACTUAL EXPLANATION FURNISH ED BY ASSESSEE ON DEPRECIATION ON ACCELERATED BASIS. THEREFORE, THIS PART OF DISAL LOWANCE IS RESTORED TO THE ASSESSING OFFICER TO VERIFY THE FACT AS EXPLAINED B Y ASSESSEE BEFORE LD. CIT(A) AS WELL AS BEFORE US AND GRANT RELIEF TO THE ASSESSEE IN ACCORDANCE WITH LAW. 32. GROUND NO. VII RELATES TO DISALLOWANCE OF PRIOR PERIOD EXPENDITURE OF RS. 1,31,75,381/-. THE LD. AR OF THE ASSESSEE SUBMITS T HAT PRIOR PERIOD EXPENSES PERTAIN TO RAW-MATERIAL CONSUMED IN RESPECT OF TEXT ILE DIVISION. THE TEXTILE DIVISION OF COMPANY WAS IMPLEMENTING A NEW ERP SYST EM IN PROCESS OF SWITCHING OVER THE ERSTWHILE TO THE NEW ERP SYSTEM CERTAIN PURCHASES OF RAW- MATERIAL, WHICH HAD BEEN CONSUMED, HAD BEEN INADVER TENTLY NOT INCORPORATED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. AS PER THE IN FORMATION AVAILABLE WITH THE ASSESSEE, THE EXPENDITURE ON RAW-MATERIAL CONSUMPTI ON PERTAINS TO F.Y. 2004-05 & 2005-06. SOON AFTER NOTICING THE AFORESAID OMISSI ON, THE ASSESSEE PASSED ACCOUNTING ENTRY IN ITS BOOKS OF ACCOUNT TO INCORPO RATE THE CONSUMPTION. THE LD. AR SUBMITS THAT EXPENDITURE ON RAW-MATERIAL CONSUMP TION IS AN ALLOWABLE DEDUCTION AND SHOULD BE ALLOWED AS DEDUCTION IN COM PUTING THE TAXABLE INCOME IRRESPECTIVE OF THE YEAR IN WHICH EXPENDITURE ACCRU ES. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE 26 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. BOMBAY HIGH COURT IN CIT VS. NAGRI MILLS CO. LTD. 9 33 ITR 681), DELHI HIGH COURT IN CIT VS. VISHNU INDUSTRIAL GASES P. LTD. (I TR NO. 229/1998, CUTTACK TRIBUNAL IN NATIONAL ALUMINIUM CO. LTD. VS. DCIT (1 53 TAXMAN 18) (CUTTACK TRIB.). IN ALTERNATIVE, THE LD. AR SUBMITS THAT THE EXPENDITURE MAY BE ALLOWED IN THE YEAR TO WHICH IT PERTAINS. 33. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITS THAT THIS GROUND OF APPEAL MAY BE RESTORED TO THE FILE OF ASSESSING OFF ICER FOR VERIFICATION OF FACTS AND WITH THE DIRECTION TO THE ASSESSING OFFICER TO TAKE THE DECISION AFRESH. 34. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF ASSESSEE ON THE GROUND THAT ASSESSEE FOLLOWED THE M ERCANTILE SYSTEM OF ACCOUNTING, THESE ITEMS SHOULD HAVE BEEN CLAIMED AS AND WHEN EXPENDITURE ACCRUED. THE LD. CIT(A) CONFIRMED THE ACTION OF ASS ESSING OFFICER ON SIMILAR LINE HOLDING THAT THE ACTION OF ASSESSING OFFICER IS COM PLETELY JUSTIFIED. THE HONBLE BOMBAY HIGH COURT IN CIT VS. NAGRI MILLS CO. LTD. ( SUPRA) WHILE CONSIDERING THE QUESTION OF LAW WHETHER HAVING REGARD TO THE PROVI SIONS OF SECTION 10(2) READ WITH SECTION 10(5) OF THE INCOME-TAX ACT, THE ASSES SEE COMPANY IS ENTITLED TO A DEDUCTION OF RS. 1,80,000 ON ACCOUNT OF BONUS FOR T HE YEAR 1951 IN COMPUTING THE BUSINESS PROFITS FOR THE ASSESSMENT YEAR 1952-53, IT WAS HELD THAT ACTUAL PAYMENT IS NOT NECESSARY FOR PURPOSE OF DEDUCTION AND IT IS SUFFICIENT IF LIABILITY TO BONUS IS INCURRED ACCORDING TO METHOD OF ACCOUNTING UPON BAS IS OF WHICH PROFITS OR GAINS 27 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. ARE COMPUTED. CONSIDERING THE DECISION OF JURISDICT IONAL HIGH COURT, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR CLAIMING PRIOR PERIOD EXPENSES. HOWEVER, THE LOWER AUTHORITY HAS NOT EXAMINED THE EXPENSES. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO VERIFY FA CT AND EXPENSES AND ALLOW THE SAME IN THE YEAR TO WHICH IS PERTAINS. IN THE RESUL T, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 35. GROUND NO. VIII RELATES TO PROVISION FOR CONTIN GENCIES AND RECOVERIES FOR CALCULATION OF BOOKS PROFIT. THE LD. AR OF THE ASSE SSEE SUBMITS THAT HE IS NOT PRESSING PROVISION OF DOUBTFUL DEBTS AND ADVANCES O F RS. 25,15,054/-, PROVISION FOR DOUBTFUL DEBTS ADVANCES (SCHEDULE-10) OF RS. 4, 85,06,535/- AND PROVISION FOR DIMINUTION OF VALUE OF INVESTMENT OF RS. 13,63,841/ -. THE LD. AR SUBMITS THAT HE IS PRESSING ONLY REMAINING TWO ITEMS I.E. PROVISION S FOR CONTINGENCIES FOR RS. 59,45,570/- AND PROVISION FOR RECOVERIES 8,18,62,4 37/- . THE LD. AR SUBMITS THAT FOR PROVISIONS OF CONTINGENCIES THE ASSESSEE EXPLAI NED TO THE ASSESSING OFFICER THAT THE ADDITION ON ACCOUNT OF PROVISIONS FOR CONT INGENCIES HAVE ALREADY BEEN CONSIDERED BY ASSESSEE IN THE RETURN OF INCOME. HOW EVER, DUE TO INADVERTENCE IN COMPUTING BOOK PROFIT THE AMOUNT OF PROVISIONS FO R CONTINGENCIES WAS TAKEN AT RS. 26,64,467/- INSTEAD OF AMOUNT AS PER PROFIT & L OSS ACCOUNT AT RS. 59,45,570/- . THIS TYPOGRAPHICAL ERROR WAS BROUGHT TO THE NOTIC E OF ASSESSING OFFICER VIDE LETTER DATED 27.11.2009. THE ASSESSING OFFICER IGN ORED THIS FACT AND ADDED THE AMOUNT. FOR PROVISIONS OF RECOVERY OF RS. 8,18,62,4 37/-, THE LD. AR SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS DEBITED TO THE PROFIT & LOSS 28 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. ACCOUNT NET AMOUNT OF RS. 3,32,42,437/- AS AN EXCEP TIONAL ITEM. THE SAID NET AMOUNT OF EXCEPTIONAL ITEM WERE ARRIVED AT RS. 8,18 ,62,437/- (-) RS. 4,86,20,000/- . THIS EXCEPTIONAL ITEM HAS BEEN EXPLAINED IN NOTES TO THE ACCOUNT AT .29(C). THE LD. AR PRAYED TO DELETE THE PROVISIONS OF CONTINGEN CIES AND PROVISION OF RECOVERIES. IN SUPPORT OF HIS SUBMISSION, THE LD. A R RELIED UPON THE DECISION OF CHD. TRIB. IN JCIT (OSD), VS. SHREYANS INDUSTRIES L TD. (22 TAXMANN.COM 409). 36. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITS THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER FOR VE RIFICATION OF FACTS AND WITH THE DIRECTION TO THE ASSESSING OFFICER TO TAKE THE DECI SION AFRESH. 37. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. THE ASSESSING OFFI CER DISALLOWED THE PROVISIONS OF CONTINGENCIES AND RECOVERIES BY TAKING VIEW THAT AMENDMENT MADE IN SECTION 115JA AND 115JB BROUGHT BY BUDGETARY PROVISION OF 2 009-10 AND APPLICABLE FROM 01.04.1998 AND 01.04.2001 RESPECTIVELY. THE LD. CIT (A) CONFIRMED THE ACTION OF ASSESSING OFFICER WITHOUT DISCUSSING THE WRITTEN EX PLANATION FURNISHED BY ASSESSEE. AS WE HAVE NOTED ABOVE THE ASSESSEE IS NO W PRESSING ONLY PROVISIONS FOR CONTINGENCIES AND PROVISIONS OF RECOVERIES. FOR PROVISIONS OF CONTINGENCIES, THE LD. AR OF ASSESSEE VEHEMENTLY SUBMITTED THAT DU E INADVERTENCE IN COMPUTING BOOK PROFIT AND A WRONG FIGURE DUE TO TYPOGRAPHICAL MISTAKE WAS TAKEN. WE HAVE NOTED THAT DESPITE BRINGING THE FACT IN THE NOTICE OF LD. CIT(A), THE LD. CIT(A) NOT EXAMINED FURNISHED BY ASSESSEE. SIMILARLY FOR PROVI SIONS OF RECOVERIES, THE LOWER 29 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. AUTHORITY HAS NOT EXAMINED THE EXPLANATION FURNISHE D BY ASSESSEE. THEREFORE, BOTH THE COMPONENTS OF THIS ISSUE ARE RESTORED TO THE AS SESSING OFFICER TO VERIFY THE FACT AS PER THE CONTENTION/EXPLANATION FURNISHED BY LD. AR OF THE ASSESSEE BEFORE LD. CIT(A) AS WELL AS BEFORE THE TRIBUNAL AND TO PA SS THE ORDER AFRESH. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED FOR STATIS TICAL PURPOSE. 38. GROUND NO. IX RELATES TO ADDITION UNDER SECTION 50C OF RS. 1,63,55,585/-. THE LD. AR OF THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD THREE IMMOVABLE PROPERTIES. THESE IMMOVABLE PROPERTIES COMPRISE OF SALE OF LAND AND BUILDING. THE VALUATIO N CONSIDERED BY THE ASSESSEE ON TRANSFER OF LAND IS SAME AS CONSIDERED BY STAMP VALUATION AUTHORITY FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS AND THUS TH E SALE CONSIDERATION OFFERED BY THE ASSESSEE WAS NOT LOWER AS COMPARED TO THE ST AMP DUE VALUE. THE LD. AR SUBMITS THAT ASSESSING OFFICER MAY VERIFY THE STAMP VALUATION AS THE ASSESSEE ADOPTED THE SAME VALUE AS PER THE RATE FIXED BY STA MP DUTY AUTHORITY. 39. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UMMITS THAT THIS ISSUE MAY ALSO BE RESORTED TO THE FILE OF ASSESSING OFFICER T O VERIFY THE FACT AND ASCERTAINED THE VALUATION ADOPTED BY ASSESSEE. 40. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NOTED THAT DURING THE ASSESSMENT, THE ASSESSING OFFICER ASKED THE ASSESSEE TO PROVIDE THE VALUES OF IMMOVABLE PROPERTIES, SOLD BY THE ASSESSEE DURING THE YEAR. T HE ASSESSING OFFICER HAS NOT 30 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. RECORDED, IF ANY EXPLANATION WAS FURNISHED BY ASSES SEE OR NOT. THE ASSESSING OFFICER INVOKED THE PROVISION OF SECTION 50C BY TAK ING VIEW THAT THE SALE CONSIDERATION ADOPTED BY THE ASSESSEE WAS LOWER THA N THE STAMP DUTY VALUE AND INCREASED THE SALE CONSIDERATION BY 10%, WHICH RESU LTED IN DIFFERENCE IN THE CAPITAL GAIN. BEFORE THE LD. CIT(A), THE ASSESSEE F URNISHED DETAIL SUBMISSION AND SPECIFICALLY STATED THAT VALUATION CONSIDERED BY AS SESSEE ON TRANSFER OF LAND, IS THE SAME AS THAT CONSIDERED BY STAMP DUTY AUTHORITY. TH E LD. CIT(A) INSTEAD OF GIVING ANY FINDING OVER THE EXPLANATION/SUBMISSION FURNISH ED BY ASSESSEE CONFIRMED THE ACTION OF ASSESSING OFFICER. THEREFORE, CONSIDERING THE SUBMISSION OF LD. AR OF THE ASSESSEE, THIS GROUND OF APPEAL IS ALSO RESTORE D THE FILE OF ASSESSING OFFICER TO VERIFY THE FACT, IF THE ASSESSEE ADOPTED SAME VALUE AS CONSIDERED BY STAMP DUTY AUTHORITY FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN AND PASS THE ORDER AFRESH IN ACCORDANCE WITH LAW. IN THIS RESULT, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 41. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 25/07/2019. SD/- SD/- (G S PANNU) (PAWAN SINGH) VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DATED :25 TH JULY, 2019. SK COPY OF THE ORDER FORWARDED TO : 31 ITA NO. 5536 & 5540 MUM 2011-FORBES & CO. LTD. 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT , MUMBAI. 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR/ SR. PS) INCOME TAX APPELLATE TRIBUNAL, MUMBAI