ACIT CIR 4(2), MUMBAI V. JBF INDUSTRIES LTD, MUMBAI

ITA 5637/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3146 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2006-2007
• Appeal Filed On: 05-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI I T A NO MUM MUM
• Assessee Lawyers: DR K SHIVARAM SENIOR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Opportunity of being heard; Earning of tax free income; Source of fund; Bad and doubtful debts; Tax effect; Commercial expediency; Revised return; Revenue expenditure
• Section: 142(1); 14A; 37(1); 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI . . , , ! ' #$, % , & BEFORE SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.2695/M/11 & I.T.A.NO.6209/MUM/11 ( %' !( / ASSESSMENT YEAR:, 2007-08 & 2008-09) M/S. JBF INDUSTRIES LIMITED 8 TH FLOOR, EXPRESS TOWER, NARIMAN POINT, MUMBAI - 400021 ' / VS. ADDL. COMMISSIONER OF INCOME TAX 4(2) AAYAKAR BHAVAN, 6 TH FLOOR MUMBAI. / I.T.A. NO.5637/MUM/13, I.T.A.2765/MUM/11, I.T.A. NO.5638/MUM/2013 & 6042/MUM/2011 ( %' !( / ASSESSMENT YEAR: 2006-07, 2007-08 & 2008-09) ADDL. COMMISSIONER OF INCOME TAX 4(2) AAYAKAR BHAVAN, 6 TH FLOOR MUMBAI. ' / VS. M/S. JBF INDUSTRIES LIMITED 8 TH FLOOR, EXPRESS TOWER, NARIMAN POINT, MUMBAI - 400021 ./ ./ PAN/GIR NO. : AAACJ2575J ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 27.05.2016 !' /DATE OF PRONOUNCEMENT:12.08.2016 #$ / O R D E R ASSESSEE BY: DR. K. SHIVARAM (SENIOR ADVOCATE) DEPARTMENT BY: SHRI ALOK JOHRI (CIT-DR) I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 2 PER AMARJIT SINGH, JM: THE ABOVE MENTIONED APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS REVENUE AGAINST THE DIFFERENT ORDER PASSED BY THE CIT (A) MUMBAI FOR THE A.Y.2006-07 TO 2008-09. IN THESE AP PEALS THE PARTIES ARE THE SAME AND THE MATTER OF CONTROVERSY ALSO SEE MS TO THE SAME, THEREFORE THESE APPEALS CAN CONVENIENTLY BE ADJUDIC ATED TOGETHER FOR ADJUDICATION. ITA NO.5637/M/13 (REVENUES APPEAL FOR A.Y.2006-07 ):- 2. THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE CANCELLATION OF THE PENALTY TO THE TUNE OF RS.19,78 ,865/- LEVIED U/S.271(1)(C) OF THE ACT AGAINST THE ORDER DATED 28 .06.2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL) 8, MUMBAI [ HEREINAFTER REFERRED TO AS THE CIT(A)]. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CANCELLING THE PENALTY OF RS.19,78,865/- LEVIED U/S.271(1)(C) OF THE I.T.ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 3 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D ITS RETURN OF INCOME DECLARING TOTAL INCOME TO THE TUNE OF RS.1,9 1,86,594/-ON 30.10.2005. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT ACCEPTING THE RETURNED INCOME. SUBSEQUENTLY, THE ORDER U/S.1 43(3) OF THE ACT WAS PASSED ON 27.12.2009 WHEREIN THE ASSESSING OFFI CER DISALLOWED THE DEPRECIATION ON LEASED PREMISES, LEASED RENTAL PAYMENT, EXCESS DEPRECIATION ON ELECTRICAL FITTINGS AND EXCESSIVE P AYMENTS TO PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT WHICH WA S SUBSEQUENTLY CONFIRMED BY THE CIT(A). IN VIEW OF THE SAID FACTS AND CIRCUMSTANCES AND AFTER THE ISSUANCE OF THE NOTICE, THE ASSESSING OFFICER LEVIED THE PENALTY TO THE TUNE OF RS.19,78,865/- BY VIRTUE OF ORDER DATED 26.03.2012. FEELING AGGRIEVED BY THIS ORDER, THE A SSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO DELETED THE SAID PENAL TY, THEREFORE THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEAR NED REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECOR D. THE LEARNED REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE A SSESSEE FILED HIS RETURN OF INCOME ON 30.10.2005 AND FURNISHED THE IN ACCURATE PARTICULARS, THEREFORE THE ASSESSING OFFICER HAS RI GHTLY LEVIED THE PENALTY IN ACCORDANCE WITH LAW BUT THE CIT(A) HAS W RONGLY DELETED THE SAME, THEREFORE THE ORDER DATED 28.06.2013 PASS ED BY THE CIT(A) IS WRONG AND AGAINST THE LAW AND FACTS AND IS LIABL E TO BE SET ASIDE IN THE INTEREST OF JUSTICE. HOWEVER, ON THE OTHER HAN D THE LEARNED I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 4 REPRESENTATIVE OF THE ASSESSEE HAS REFUTED THE SAID CONTENTION AND ARGUED THAT THE PENALTY IS NOT LIABLE TO BE LEVIABL E IF ADDITION MADE UNDER THE REGULAR PROVISION BUT THE INCOME ASSESSED UNDER THE MAT PROVISION IN VIEW OF THE LAW SETTLED IN CIT VS. NAL WA SONS INVESTMENTS LTD. (2010) 327 ITR 543 (DELHI) (HC) AN D GIVAUDAN FLAVOURS (I) PVT. LTD. VS. ACIT ITA NO. 2118/M/2010 , A.Y.2002-03 DT. 20.02.2013. IT IS ALSO ARGUED THAT THE DISALLO WANCE OF DEPRECIATION ON PREMISES WAS ALLOWED BY THE HONBLE ITAT, MUMBAI IN ITA NO.2507/M/2011 DATED 16.10.2015, THEREFORE, THE CI T(A) HAS RIGHTLY DELETED THE PENALTY WHO HAS ALSO RELIED UPON THE O RDER PASSED BY THE CIT(A) 4 VIDE ORDER NO. IT/CIT(A)-8/CIR.4/10/10-1 1 DATED 07.06.2011 IN THE ASSESSEE OWN CASE WHEREIN THE PEN ALTY HAS BEEN LEVIED UNDER THE SIMILAR CIRCUMSTANCES. BEFORE GO ING FURTHER, IT IS NECESSARY TO ADVERT THE FINDING OF CIT(A) ON RECORD . THE CIT(A) HAS DESCRIBED THE FINDING IN THE PARA 2.2 OF THE OF A PPEAL OF THE ASSESSEE WHEREIN THE PENALTY HAS BEEN ORDERED TO BE DELETED, THEREFORE THE SAME IS BEING REPRODUCED AS UNDER:- IN THE CASE OF NALWA SONS INVESTMENTS LTD., IT HAS BEEN CLARIFIED THAT WHERE ASSESSMENT U/S.115JB WAS MADE AS THE ASSESSEES INCOME COMPUTED AS PER NORMAL PROCEDURE WAS LESS THAN THE INCOME DETERMINED BY LEGAL FICTION, NAMELY , BOOK PROFIT U/S.115JB AND THUS, THE INCOME WAS ASSESSED U/S.115JB AND NOT UNDER NORMAL PROVISIONS, THOUGH THERE WAS C ONCEALMENT I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 5 IT HAD REPERCUSSIONS ONLY WHEN ASSESSMENT WAS MADE UNDER NORMAL PROCEDURE. IN VIEW OF SUCH FINDING, IT WAS HELD IN NALWA SONS INVESTMENTS LTD. THAT WHEN TAX WAS PAID OR INCOME ASSESSED U/S.115JB, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AND PENALTY U/S.271(1)(C) COULD NOT BE IMPO SED IN RESPECT OF DEPRECIATION. THUS, FROM THE DECISION I N THE CASE OF NALWA SONS INVESTMENTS LTD., IT IS CLEAR THAT WHEN ADDITIONS MADE BY THE AO HAS THE EFFECT OF AFFECTING INCOME D ETERMINED UNDER NORMAL PROVISIONS OF INCOME TAX ACT BUT TAX I S PAYABLE U/S.115JB, NO PENALTY U/S.271(1)(C) CAN BE LEVIED A S NO SUCH CONCEALMENT DID LEAD TO TAX EVASION. THE ADDITIONS IN RESPECT OF WHICH THE AO HAS LEVIED PENALTY HAVE BEEN MADE TO D ETERMINE THE ASSESSEES INCOME UNDER NORMAL SECTIONS OF INCO ME TAX ACT AT RS.18,76,73,741/- WHICH BEING LESS THAN BOOK PRO FIT OF RS.5,03,41,46,600/- U/S. 115JB, TAX WAS REQUIRED TO BE PAID ON THE AMOUNT DETERMINED U/S.115JB. THE PENALTY, THER EFORE, IN VIEW OF THE DECISION IN THE CASE OF NALWA SONS INVE STMENTS LTD. IS NOT LEVIABLE U/S.271(1)(C). THE PENALTY OF RS.9 3,30,870/- LEVIED U/S.271(1)(C) IS, THEREFORE, CANCELLED IN RE SPECTFULLY COMPLIANCE OF THE ORDER IN THE CASE OF NALWA SONS I NVESTMENTS LTD. THE APPEAL IS ALLOWED. 6. MOREOVER, THE ASSESSEE FILED THE RETURN OF INCOM E UNDER THE REGULAR PROVISION BUT THE INCOME WAS ASSESSED UNDER MAT PROVISION I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 6 I.E. U/S.115JAA OF THE ACT, THEREFORE, IN THE SAID CIRCUMSTANCES NO PENALTY IS LEVIABLE IN VIEW OF THE LAW SETTLED IN N ALWA SONS INVESTMENTS LTD. IT ALSO CAME INTO NOTICE THAT U NDER THE APPEAL OF THIS ORDER BEFORE HONBLE ITAT IN ITA NO.2507/M/201 1 DATED 16.10.2015, THE ITAT HAS ALLOWED THE DEPRECIATION O N PREMISES TO THE TUNE OF RS.29,72,213/- AND EXCESS DEPRECIATION ON E LECTRICAL FITTING TO THE TUNE OF RS.2,34,437/- AND ALLOWED THE DISALLOWA NCE U/S.40A(2)(B) OF THE ACT TO THE TUNE OF RS.4,77,918/- AND DISALLO WANCE U/S.35D OF THE ACT TO THE TUNE OF RS.21,94,414/- HAS BEEN SET ASIDE. THEREFORE, IN THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DECIDED THE MATTER OF CONTROVERSY, THEREFORE, THE O RDER IN QUESTION IS NOT REQUIRED TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED . ITA NO. 2695& 2765/M/11 (A.Y.2007-08):- 7. THE ASSESSEE AS WELL AS REVENUE FILED THE ABOVE MENTIONED CROSS APPEALS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) 11, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A) DATED 27.01.2010. RELEVANT TO THE A.Y.2007-08. 8. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED THE RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME TO T HE TUNE OF RS.30,52,23,080/-. THE SAME WAS PROCESSED U/S.143( 1)(A) OF THE ACT ON 25.02.2009. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 7 THEREFORE, NOTICES U/S.143(2) AND 142(1) WERE ISSUE D AND SERVED UPON THE ASSESSEE. THEREAFTER, THE INCOME OF THE ASSESS EE WAS ASSESSED TO THE TUNE OF RS.14,88,28,538/-. AGGRIEVED BY THIS O RDER THE ASSESSEE FILED AN APPEAL BEFORE CIT(A) WHO CONFIRMED CERTAIN ADDITIONSAND DELETED CERTAIN ADDITION, THEREFORE THE REVENUE AS WELL AS THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. ITA NO.2695/M/11 (ASSESSEES APPEAL FOR A.Y.2007-08 ) 9. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. DISALLOWANCE OF INTEREST & EXPENDITURE U/S.14A READ WITH RULE 8D OF RS.1,00,82,828/- 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ACCEPTING THE WORKING OF DISALLOWANCE OF INTEREST U/S.14A SUBMITTED DURING THE COURSE OF PROCEEDINGS AND WORKED OUT THE DISALLOWANCE OF INTEREST ON THE BASIS OF ENTIRE INTEREST DEBITED TO PROFIT & LOSS ACCOUNT WHICH INCLUDES INTEREST ON FIXED LOANS. 1.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT INTEREST ON FIXED LOANS ARE FOR FIXED PURPOSE AND UTILIZATION OF THE SAID LOANS WERE ALSO FOR THE PURPOSE FOR WHICH LOAN TAKEN. 2. EXCESS PAYMENT TO PARTY COVERED U/S.40A(2)(B) RS.8,79,242/- 2.1 THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.8,79,242/- U/S.40A(2)(B) IN RESPECT OF PURCHASE OF PLASTIC ADAPTORS FROM ARYA INDUSTRIES, WITHOUT APPRECIATING THE FACTS THAT PAYMENT MADE TO SPECIFIED PERSONS ARE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 8 WELL WITHIN THE PREVAILING MARKET RATES IN COMPETITIVE ATMOSPHERE AND ARE COMPARABLE WITH OTHER MANUFACTURES. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT THE AO HAS FOLLOWED THE ORDER OF ASSESSMENT YEAR 2006-07, WITHOUT APPRECIATING THE FACTS OF LOWER QUOTATION WERE AVAILABLE ON RECORDS. 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT APPELLANT COMPANY CANNOT COMPROMISE ON THE QUALITY OF PLASTIC ADAPTORS FOR ITS USE IN PACKING OF FINISHED PRODUCTS TO AVOID DAMAGED TO FINISHED GOODS. 3. DISALLOWANCE OF EXPENDITURE COVERED U/S.35D OF RS.21,94,414/- FOR RAISING FCCB 3.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY AO U/S.35D INCURRED FOR RAISING FCCB ON ACCOUNT OF EXPENDITURE IN THE NATURE OF TRAVELLING, BANK CHARGES, OTHER PRO. FEE, ACTUARIAL VALUATION CHARGES, ADVISORY SERVICE CHARGES, OUT OF POCKET CHARGES, LISTING FEE AND OFFERING CIRCULAR FOR ISSUE OF THE FCCB AND ALSO CHARGES FOR OPINION, CERTIFICATION CHARGES FILING FEE, FOR INCREASE IN AUTHORIZED CAPITAL AND PROFESSIONAL FEE FOR PRIVATE PLACEMENT WHICH ARE NOT SPECIFIED IN SECTION 35D OF THE INCOME TAX ACT, 1961 3.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT THERE WAS DIRECT NEXUS BETWEEN THESE EXPENDITURE INCURRED AND FCCB AND ISSUE OF FRESH SHARE CAPITAL RAISED DURING THE YEAR. THE WORD IN CONNECTION WITH--- IS WIDE EXPRESSION TO ENCOMPASS EVEN OTHER EXPENDITURE WHICH IS NOT MENTIONED IN SECTION 35D. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 9 4. DISALLOWANCE OF EXPENDITURE UNDER THE HEAD REPAIR A ND MAINTENANCE RS.2,75,401/-. 4.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO FOR REPAIR & MAINTENANCE OF RS.2,75,401/- AS NON GENUINE BUSINESS EXPENDITURE. 4.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT THESE ARE GENUINE REPAIR EXPENDITURE MERELY BECAUSE DUE TO VOLUME IN SOME MISCELLANEOUS PURCHASES PROPER NARRATION WAS NOT GIVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ADDITIONAL GROUND:- 1. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FAC T THAT IF THE EXPENSES ARE NOT ALLOWABLE U/S.35D, THEN ALTERNATIVE THE REVENUE EXPENDITURE MAY BE ALLOWED U/S.37. ISSUE NO.1: 10. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED TH E EXPENSES TO EARN THE EXEMPT INCOME TO THE TUNE OF RS.2.28 CR. THE ASSESSING OFFICER ASSESSED THE EXPENSES TO THE TUNE OF RS.4,2 7,47,657/- IN VIEW OF THE PROVISION OF RULE 8D READ WITH SECTION 14A O F THE ACT BEING DISSATISFIED THE ASSESSEE FILED THE APPEAL BEFORE T HE CIT(A) AND THE CIT(A) ASSESSED THE EXPENSES TO THE TUNE OF RS.1,00 ,82,828/-. ON APPRAISAL OF THE ORDER OF CIT(A), IT CAME INTO THE NOTICE THAT THE CIT(A) WAS SATISFIED ON ACCOUNT OF NON-APPLICABILIT Y OF THE RULE 8D OF THE ACT AS ASSESSMENT ORDER WAS OF THE YEAR IS A .Y.2007-08 BUT THE CIT(A) WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS EARNED TO EXEMPT THE INCOME TO THE TUNE OF RS.2.28 CR., THEREFORE CE RTAINLY DISALLOWANCE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 10 U/S.14A OF THE ACT IS CALLED FOR. THE CIT(A) ASSES SED THE EXPENDITURE TO THE TUNE OF RS.1,00,82,828/- U/S.14A OF THE ACT BUT HE DID NOT APPLY ANY PROPER WAYS TO ASSESS THE EXPENSES. IT IS NOT IN DISPUTE THAT THE PRESENT ASSESSMENT YEAR IS THE YEAR OF 2007-08 TO W HICH RULE 8D OF THE ACT IS NOT APPLICABLE. WORKING TO ASSESS THE EXPEN DITURE INCURRED TO EARN THE EXEMPT INCOME IS NOT ON RECORD. EVEN ON P ERUSAL OF THE ORDER OF THE ASSESSING OFFICER, IT IS APPARENT THAT THE A SSESSING OFFICER HAS APPLIED RULE 8D OF THE ACT. IN THIS REGARD WE ARE ALSO FOUND SUPPORT OF LAW SETTLED ON THE JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. DCIT[2010] 328 ITR 81 . THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE TO EARN THE EXEMPT INCOME. THERE IS NO WORKING ON THE PART OF THE AUTHORITY TO ASSESSEE THE EXPENDITURE IF ANY INCURR ED TO EARN THE EXEMPT INCOME. NO SATISFACTION HAS BEEN RECORDED B Y THE ASSESSING OFFICER AS WELL AS CIT(A) ON THE RECORD. IN VIEW O F THE RECORD, WE ARE OF THE VIEW THAT THE EXPENDITURE OF THE ASSESSEE TO EARN THE EXEMPT INCOME IS REQUIRED TO BE ASSESSED IN VIEW OF THE PR OVISION CONTAINED IN SECTION 14A(2) OF THE ACT. THEREFORE IN THE SAID C IRCUMSTANCES WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS GROUND AND DIRECT THE ASSESSING OFFICER TO ASSESS THE INCOME IN VIEW OF T HE PROVISION CONTAINED IN SECTION 14A(2) OF THE ACT. ACCORDINGL Y, THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED AND ON THIS GROUND THE A PPEAL OF THE REVENUE IS ALSO HEREBY ORDERED TO BE DISMISSED. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 11 ISSUE NO.2: 11. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED TH E CONFIRMATION OF THE DISALLOWANCE OF RS.8,79,242/- U/S.40A(2)(B) OF THE ACT IN RESPECT OF PURCHASE OF PLASTIC ADAPTORS FROM M/S. ARYA INDU STRIES. THE ASSESSEE PURCHASE 80,42,425 UNITS PLASTIC ADAPTOR @ 1.45 PER PIECE AND 25,000 UNITS OF PLASTIC LINERS @ 67 PIECE FROM M/S. ARYA INDUSTRIES. THE PURCHASE IS COVERED U/S.40A(2)(B) OF THE ACT. THE ASSESSING OFFICER ASSESSED THE PURCHASE TO THE HIGH ER SIDE AND REDUCED THE PURCHASE AS RS.8,04,242/- (80,42,425 UN ITS X 0.10) AND RS.75,000/- (RS.25,000/- X 3.00) AS ACCESS EXPENDIT URE. THE TOTAL ADDITION WAS MADE TO THE TUNE OF RS.8,79,242/- (RS. 75,000/- + RS.8,04,242/-) WHICH HAS BEEN CONFIRMED BY THE CIT( A). THE ASSESSEE PURCHASE THE PLASTIC ADAPTOR FROM THE M/S. ARYA INDUSTRIES @ RS.1.45 PER PIECE (AS IN A.U.2006-07). THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS SHOWED THE HIGHER PR ICE TO THE EXTENT OF 00.10/- PER PIECE IN COMPARISON TO THE A.Y.2006-07. THEREFORE, REDUCED THE PRICE PER PIECE TO THE EXTENT OF 00.10% AND ADDED THE DIFFERENCE INTO THE INCOME OF THE ASSESSEE. AT TH E TIME OF THE ASSESSMENT, THE ASSESSING OFFICER WAS OF THE VIEW T HAT THE RATES APPLIED FOR THIRD PARTY PURCHASES VARIED FROM 58.25 TO 72.79 WITH MAJORITY OF THE PURCHASES IN JANUARY BEING IN THE R ANGE OF 63.00 TO 64.27. THEREFORE, THE RATE OF RS.64.00 PER UNIT IS CONSIDERED TO BE REASONABLE. SINCE THE ASSESSEE HAS PURCHASED 25,00 0 UNITS FROM M/S. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 12 ARYA INDUSTRIES @ RS.67.00, THE DIFFERENCE OF RS.3. 00 PER UNIT WAS DISALLOWED. THE CIT(A) CONFIRMED THE SAME. ON APPRA ISAL OF THE ORDER IN QUESTION IT CAME INTO THE NOTICE THAT THERE IS N OT COGENT AND CONVINCING REASONS ARE ON RECORD TO REDUCE THE PURC HASE PRICE OF THE ABOVE MENTIONED ARTICLES. THERE SHOULD BE SOME COM PARABLE PRICE ON RECORD TO WHICH IT CAN BE ASSUMED THAT THE ASSESSIN G OFFICER HAS RIGHTLY REDUCED THE PURCHASE PRICE OF THE PLASTIC A DAPTOR AND PLASTIC LINER. NO DISALLOWANCE OF PURCHASE IS REQUIRED TO BE SUSTAINABLE ON THE BASIS OF ASSUMPTION AND PRESUMPTION. THERE SHO ULD BE SOME PLAUSIBLE EXPLANATION ON RECORD TO ARRIVE AT THE CO NCLUSION TO REDUCE THE PRICES OF THE ARTICLES MENTIONED ABOVE. JUST T AKING THE AVERAGE PURCHASE PRICE OF THE ARTICLES MENTIONED ABOVE NOWH ERE JUSTIFIED THE ASSESSMENT OF THE REVENUE ON THIS GROUND. THIS MAT TER HAS BEEN CONSIDERED BY THE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1624.M.2009 FOR 2005-06 DATED 17 .12.2014 WHEREIN THE DISALLOWANCE @ 6% WAS SUSTAINED IN THE SIMILAR CIRCUMSTANCES ON THE PURCHASE OF PLASTIC LINER FROM THE ARYA INDUSTRIES. SO FAR AS PURCHASE OF PLASTIC ADOPTER I S CONCERNED MATTER IS REQUIRED TO BE RE-EXAMINED IN VIEW OF THE EVIDENCE ADDUCIBLE BY THE ASSESSEE AND BY GIVING AN OPPORTUNITY BEING HEARD T O THE ASSESSEE IN THE INTEREST OF JUSTICE. IN VIEW OF THE OBSERVATIO NS MADE ABOVE WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE EXPE NDITURE INCURRED FOR THE PURCHASE OF PLASTIC LINER AND PLASTIC ADAPT OR IN VIEW OF THE OBSERVATIONS MADE ABOVE. THIS ISSUE IS HEREBY ACC ORDINGLY ALLOWED. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 13 ISSUE NO.3: 12. UNDER THIS ISSUE ASSESSEE HAS CHALLENGED THE DI SALLOWANCE OF EXPENDITURE COVERED U/S.35D OF THE ACT TO THE TUNE OF RS.21,94,414/- FOR RAISING FCCB. UNDER THIS ASSESSMENT YEAR THE ASSESSEE HAD COME OUT WITH PREFERENTIAL ALLOTMENT OF 1,55,28,600/- SH ARES @ 46.5 PER SHARE AND 62,98,100/- CONVERTIBLE WARRANTS. ITS IS SUED CAPITAL WAS ENHANCED FROM 32.02CR. TO 49CR. THE ASSESSEE ALSO INVESTED IN THE OVERSEAS SUBSIDIARY AND RAISED US $ 34.5 THOUGH 5 Y EAR FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) AT COUPON RATE OF 1.75 P.A. THE ASSESSEE CLAIMED RS.1,47,56,531/- U/S.35D OF THE AC T BEING 1/5 TH OF THE TOTAL EXPENSES OF RS.7,37,82,657/-. ASSESSING OFFICER ONLY CONSIDERED RS.1,25,62,117/- AS EXPENDITURE U/S.35D OF THE ACT INSTEAD OF RS.7,37,82,657/-. THE ASSESSEE REQUESTED TO ALL OW THE SAID EXPENDITURE BUT THE ASSESSING OFFICER DECLINED THE REQUEST AND CIT(A) CONFIRMED THE SAME. THE LEARNED REPRESENTAT IVE OF THE ASSESSEE HAS ARGUED THAT IN ITA NO.2507/M/2011 FOR THE A.Y.2006-07 IN THE ASSESSEES OWN CASE THE INCOME TAX APPELLATE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE MAT TER OF CONTROVERSY IN VIEW OF THE CERTAIN GUIDELINES MENTIONED THEREIN AND ALSO REQUESTED TO REMAND THE SAME. THE FINDING OF INCOME TAX APPE LLATE TRIBUNAL IN THIS REGARD IN THE ABOVE MENTIONED CASE IS QUITE AP PLICABLE WHICH IS REPRODUCED AS UNDER I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 14 15. GROUND NO.4 RELATES TO THE ALLOWABILITY OF THE CLAIM U/S.35D OF THE ACT. IN THIS REGARD, LD. COUNSEL FO R THE ASSESSEE BROUGHT OUR ATTENTION TO THE ADDITIONAL GR OUND FILED BEFORE US FOR THE FIRST TIME MAKING AN ALTERN ATE CLAIM SEEKING RELIEF U/S.37(1) OF THE ACT. IN THIS REGARD, LD. REPRESENTATIVES OF BOTH THE PARTIES MENTIONED T HAT THIS ISSUE RAISED IN GROUND NO.4 NEEDS TO BE REMAND ED TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER ADM ITTING THE SAID ADDITIONAL GROUND. 16. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE ADDITIONAL GROUND RAISED BY THE ASSESSEE, WE FIND T HE REQUEST FOR ADMISSION OF THE ADDITIONAL GROUND AND REMANDING THE SAME FOR FRESH ADJUDICATION IS APPROP RIATE AND IT REQUIRES TO BE SUSTAINED. ACCORDINGLY, THE ADDITIONAL GROUND ALONG WITH THE GROUND NO.4 RAISED BY THE ASSESSEE IS REMANDED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. IT IS NEEDLESS TO MENTIONED THAT THE AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTI CE. ACCORDINGLY, ADDITIONAL GROUND AS WELL AS GROUND NO.4 WITH ITS SUB-GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 15 IN VIEW OF THE SAID CIRCUMSTANCES, WE RESTORE THIS ISSUE BEFORE THE ASSESSING OFFICER TO RE-ASSESS THE MATTER OF CONTRO VERSY IN VIEW OF THE GUIDELINES AS MENTIONED IN THE ITA NO.2507/M/11 MEN TIONED ABOVE BY GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. THEREFORE, WE ALLOW THIS ISSUE ON THE SAME TERMS AND CONDITION S FOR STATISTICAL PURPOSE. ISSUE NO.4: 13. ISSUE NO.4 IS IN CONNECTION WITH THE DISALLOWAN CE OF EXPENDITURE UNDER THE HEAD OF REPAIR AND MAINTENANCE TO THE TUN E OF RS.2,75,401/-. THE ASSESSING OFFICER DISALLOWED THE REPAIR AND MAI NTENANCE CHARGES TO THE TUNE OF RS.2,75,401/- ON THE GROUND OF THAT THE PROPER DETAILS WERE NOT MAINTAINED AND FILED. HOWEVER, THE ORDER OF THE ASSESSING OFFICER IS REPRODUCED AS UNDER:- 11. PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE A SSESSEE REVEALS THAT IT HAS DEBITED A SUM OF RS.0.69CR. UND ER THE HEAD REPAIR AND MAINTENANCE AND RS.0.49CR. UNDER THE REPAIR AND MAINTENANCE (ADMN. CHARGES). THE ASSESSEE WAS ASKED TO FURNISH NECESSARY DETAILS, WH ICH WERE EXAMINED AND DISCUSSED. FOLLOWING EXPENSES FO R WHICH PROPER DETAILS ARE NOT MAINTAINED / FILED AND THEREFORE, BUSINESS PURPOSE FOR THE EXPENDITURE IS NOT I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 16 ESTABLISHED, ARE DISALLOWED AND ADDED BACK TO THE I NCOME OF THE ASSESSEE PARTY INVOICE NO. INVOICE DATE ITEM DESCRIPTION (AS GIVEN BY ASSESSEE) AMOUNT (RS.) NOVELTY STATIONERY & COMPUTERS 369 29.07.06 (BLANK) 3,250 POWER TRANS SERVICES PTS/YKB/06/28 (BLANK) 34,463 SHRI NAKODA ENGG. 337 (BLANK) 930 COMET LUBRICANTS 1772 13.03.07 (BLANK) 1,528 DELUXE MOTOR WINDING WORKS 118 14.03.07 (BLANK) 2,200 GODREJ & BOYCE 6000467/HR 05.01.07 (BLANK) 44,896 GURUKRUPA ENTERPRISES 101 21.12.06 (BLANK) 7,296 JET COMPUTRONIX 2469 06.01.07 (BLANK) 1,000 LUNARMECH MACHINE FABRIC LTD. 06190L 04.01.07 19,081 LUNARMECH MACHINE FABRIC LTD. 06215L 31.01.07 19,081 LUNARMECH MACHINE FABRIC LTD. 06218L 08.02.07 19,642 LUNARMECH MACHINE FABRIC LTD. 06268L 26.03.07 19,081 SHRI NAKODA ENGG. 287 27.02.07 (BLANK) 1,900 SHRI NAKODA ENGG. 573 24.01.07 (BLANK) 1,755 SHRI NAKODA ENGG. 713 20.03.07 (BLANK) 1,900 S. M. ENGG. 260 21.01.07 915 I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 17 WORKS S. M. ENGG. WORKS 279 03.02.07 225 S. M. ENGG. WORKS 308 21.02.07 400 S. M. ENGG. WORKS 345 20.03.07 6,600 SRUJAL ENGG. 153 24.01.07 (BLANK) 337 SRUJAL ENGG. 159 02.02.07 (BLANK) 3,479 SRUJAL ENGG. 161 05.02.07 (BLANK) 1,347 UMANG ENTERPRISES 700 (BLANK) 5,772 WIN INSULATORS 40 30.09.06 (BLANK) 32,520 WING INSULATORS 70 13.12.06 (BLANK) 8,579 SAI ASSOCIATES SA/SER/38 (BLANK) 31,584 SHYAM FURNITURE MART 3 (BLANK) 5,640 TOTAL 2,75,401 ADDITION : RS.2,75,401/- 14. THE CIT(A) HAS CONFIRMED THIS DISALLOWANCE ON T HE SAME REASON. HOWEVER, THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS CONTESTED THIS DISALLOWANCE BEFORE US BUT FAILED TO BRING ANY DISTINGUISHABLE FACTS ON RECORD. NO NEW EVIDENCE A ND OTHER MATERIALS IN SUPPORT OF HIS ASSERTION WAS PRODUCED BEFORE US. MOREOVER, IT IS INCUMBENT UPON THE ASSESSEE TO PROVE THE EXPENSES U NDER THE HEAD OF REPAIR AND MAINTENANCE ON RECORD. LACK ON THE PART OF THE ASSESSEE NOWHERE ENTITLED HIM TO RAISE HIS CLAIM. IN VIEW O F THE SAID CIRCUMSTANCES WE ARE OF THE THAT THE CIT(A) HAS PAS SED THE ORDER ON THIS ISSUE CORRECTLY AND JUDICIOUSLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 18 ADDITIONAL GROUND: 15. UNDER THIS ISSUE THE ASSESSEE ASSERTED THAT IF THE EXPENSES ARE NOT ALLOWABLE U/S.35D, THEN ALTERNATIVE THE REV ENUE EXPENDITURE MAY BE ALLOWED U/S.37. SINCE THIS MATTE R OF CONTROVERSY HAS BEEN ADJUDICATED WHILE DECIDING THE ISSUE NO. 3 AND THE SAID ISSUE HAS BEEN RESTORE TO THE FILE OF ASS ESSING OFFICER TO ADJUDICATE THE MATTER AFRESH ON CERTAIN GUIDELINES THEREFORE THERE IS NO NEED TO DECIDE THIS ISSUE SEPARATELY. HOWEVER, IT IS LEFT OPEN TO RAISE THIS ISSUE BEFORE THE ASSESSING OFFICER BY THE ASSE SSEE. IN RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED ITA NO.2765/M/11 (REVENUES APPEAL FOR A.Y.2007-08) 16. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION OF ELECTRIC FITTING AMOUNTING TO RS.5,41,42,278/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.4,27,47,657/- MADE U/S.14A READ WITH RULE 8D OF THE INCOME TAX ACT BY ASSESSING OFFICER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.21,94,414/- MADE U/S.35D OF THE INCOME-TAX ACT, 1961. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 19 DISALLOWANCE OF COMMISSION OF RS.60 LACS PAID TO TH E CHAIRMAN OF THE COMPANY U/S.36(1)(II) OF THE ACT. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AMOUNTING TO RS.1,83,92,811/- AS BUSINESS INCOME SINCE THE PERUSAL OF RECORDS REVEALED THAT THE ACTIVITY OF PURCHASE AND SALE OF SECURITIES HAS BEEN CARRIED OUT BY THE ASSESSEE THROUGHOUT THE YEAR. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF COMMISSION AMOUNTING TO RS.67,17,779/- PAID TO FOREIGN AGENTS UNDER SECTION 40A(IA) OF THE ACT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE AOS ACTION IN RESPECT OF BAD DEBTS WRITTEN OFF AMOUNTIN G TO RS.2,59,237/- ON THE GROUND THAT THE CONDITIONS OF SECTION 36(1)(VII) R.W.S. 36(2) WERE NOT FULFILLED. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.52,96,852/- ON ACCOUNT OF ERP DEVELOPMENT CHARGES, MADE BY THE AO. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON ASSETS TAKEN ON LEA SE FROM BOMBAY DYING AT RS.29,24,290/-. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER B E RESTORED. ISSUE NO.1: I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 20 17. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETING OF DISALLOWANCE OF DEPRECIATION OF ELECTRIC FITTING AM OUNTING OF RS.5,41,42,278/-. IT IS NOT IN DISPUTE THAT THE AS SESSEE HAS INSTALLED ELECTRIC FITTING WHICH CONSISTS OF 66KVA LINE STATI ON, HEAVY DUTY POWER CABLING, PENAL BOARD, POWER CABLING FOR DG SE TS FOR GENERATING POWER AND HEAVY DUTY POWER CABLING USED IN DISTRIBU TION THE POWERS AT VARIOUS SIDES OF PLANTS. THE DEPRECATION WAS AL LOWED @ 15%. THIS MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY THE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE IN IT A NO.1624.M.2009 FOR 2005-06 DATED 17.12.2014. WHEREIN DEPRECIATION WAS ALLOWED TO THE EXTENT OF 25%. THE FINDING OF THE SAID ORDER IS HEREBY MENTIONED BELOW FOR READY REFE RENCE. 29. WE NOTICE THE NOTE NO.5 GIVEN UNDER THE DEPREC IATION SCHEDULE APPLICABLE TO THE ASSESSMENT YEAR 2005-06 (WHICH IS AVAILABLE IN THE INCOME TAX RULES) DEFINE S THE EXPRESSION ELECTRICAL FITTING. ACCORDING TO THE SAID DEFINITION ELECTRICAL FITTINGS INCLUDES ELECTRICAL WIRES, SWITCHES, CLUTCHES, OTHER FITTINGS AND FANS ETC. U NDER THE DEPRECIATION SCHEDULE ELECTRICAL FITTINGS IS CLUB BED ALONG WITH FURNITURE & FIXTURES. HENCE, THE EXPRESSION ELECTRICAL FITTINGS SHOULD MEAN ONLY THOSE ITEMS WHICH CAN BE CONSIDERED AS FIXTURES OF GENE RAL NATURE AS DEFINED IN NOTE NO.5. HOWEVER, THE HEAV Y I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 21 ELECTRICAL ITEMS, WHICH ARE ATTACHED TO PLANT AND MACHINERY AND THE SAME CANNOT BE CLASSIFIED AS FIXT URES OF GENERAL NATURE. WE ALSO NOTICE THAT THE AHMEDAB AD BENCH OF THE TRIBUNAL IN THE CASE OF MADHU INDUSTRI ES LTD. (SUPRA) HAS TAKEN THE VIEW THAT THE ELECTRICAL INSTALLATION ATTACHED TO PLANT AND MACHINERY SHOULD BE CONSIDERED AS PLANT AND MACHINERY ONLY. THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS CLASSIFIED THE ELEC TRICAL FITTINGS. HENCE, BY FOLLOWING THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL REFERRED ABOVE WE HOLD THAT THE ELECTRICAL FITTINGS IN THE INSTANT CA SE SHOULD BE CONSIDERED AS PLANT AND MACHINERY AND HENCE THE DEPRECIATION SHOULD BE ALLOWED AT THE RATE OF 25% T O PLANT AND MACHINERY. 18. NO JUSTIFIABLE FACTS HAVE BEEN PLACED ON RECORD TO WHICH IT CAN BE ASSUME THAT THE CIT(A) HAS PASSED THE ORDER WRON G AGAINST LAW AND FACTS. FINDING NO MATERIAL OF ANY KIND TO INTERFER E WITH THE FINDING OF THE CIT(A). WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER CORRECTLY AND JUDICIOUSLY WHICH DOES NOT REQ UIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ISSUE NO.2 & 3: I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 22 19. UNDER ISSUE NO.2 THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION TO THE TUNE OF RS.4,27,47,657/ - MADE U/S. 14A READ WITH RULE 8D OF THE ACT AND ISSUE NO.3 IS IN CONNECTION WITH THE DISALLOWANCE OF RS.21,94,414/- MADE U/S.35D OF THE ACT. THESE ISSU ES HAVE ALREADY BEEN DISCUSSED ABOVE WHILE DECIDING THE APPEAL OF T HE ASSESSEE AND THESE ISSUES HAVE BEEN REMANDED BEFORE THE ASSESSIN G OFFICER FOR ADJUDICATION ON CERTAIN GUIDELINES, THEREFORE, NO N EED TO DECIDE THESE ISSUES AGAIN, THEREFORE THE FINDING OF THE SAME IS APPLICABLE ON THESE ISSUES. ISSUE NO.4: 20. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DISALLOWANCE OF RS.60,00,000/- U/S.36(1)(II) OF THE ACT. THE ASSES SEE PAID THE COMMISSION TO DIRECTORS TO THE TUNE OF RS.60,00,000 /- WHICH IS IN THE NATURE OF SALARY. COMPANY HAD ALSO DEDUCTED TDS AS SALARY. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE COMMISS ION WAS ALLOWED IN THE EARLIER YEARS. BEFORE GOING FURTHER IT IS NECE SSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD:- 6.3. AFTER CAREFUL EXAMINATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND HEARING THE ARGUMENTS OF THE AUTHOR IZED REPRESENTATIVE OF THE APPELLANT I AM OF THE VIEW TH AT THE PROVISIONS OF SECTION 36(1)(II) ARE NOT APPLICABLE IN THIS CASE AS THE COMMISSION OF RS.60,00,000/- HAS NOT BE EN I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 23 PAID TO CHAIRMAN AS A BONUS INSTEAD IT IS IN NATURE OF SALARY WHICH WAS DULY APPROVED BY THE SHAREHOLDERS OF THE COMPANY IN THE ANNUAL GENERAL MEETING. AN EMPLOYER MAY REMUNERATE HIS EMPLOYEE PARTLY BY WAY OF SALARY AND PARTLY BY WAY OF COMMISSION OF SALES. I N VIEW OF THE FACT THAT THE DEFINITION OF SALARY UNDER SEC TION 17(1) IS AN INCLUSIVE ONE MAKING A SPECIFIC REFEREN CE TO COMMISSION PAID IN LIEU OF OR IN ADDITION TO SALARY , IT SHOULD ALSO BE TREATED AS PART OF SALARY. THE HIGH COURT IN CIT V. T.ABDUL WAHID AND CO. [2000] 24 ITR 467 (MAD.) HELD THAT COMMISSION SHOULD ALSO BE TREATED AS SALARY APPARENTLY FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE. I FIND IN THE PRESENT CASE THE APPELLANT C OMPANY HAS ALSO DEDUCTED TDS ON THE PAYMENT OF COMMISSION WHICH IS IN THE NATURE OF SALARY. THE INCOME TAX P AYABLE BY THE CHAIRMAN OF THE COMPANY OR BY THE APPELLANT COMPANY @ 30% IS SAME. THEREFORE, THE INTEREST OF THE REVENUE IS NOT AFFECTED. PAYMENT OF SIMILAR COMMIS SION TO THE CHAIRMAN IN THE EARLIER ASSESSMENT YEARS HAS ALREADY BEEN ALLOWED BY THE ASSESSING OFFICER AND N O NEW FACTS HAVE COME TO LIGHT DURING THE YEAR. SINCE TH E ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER WIT HOUT PROPER APPRECIATION OF FACTS AND EXAMINING THE LEGA L I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 24 POSITION OF LAW THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. 21. NO DISTINGUISHABLE FACTS HAS BEEN PLACED ON REC ORD TO DIFFERENTIATE THE FINDING OF THE CIT(A). THE MATTE R OF CONTROVERSY HAS BEEN DECIDED ON THE BASIS OF LAW SETTLED IN GESTETN ER DUPLICATORS (P) LTD. VS. CIT [1979] 117 ITR 1 (SC) AND M/S. S.H.KEL KAR & CO. PVT. LTD. VS. ACIT ITA NO.7256&7257/M/2010, A.Y.2006-07 & 2007- 08, DT.07.11.2014. THE CIT(A) HAS PASSED THE ORDER ON THIS ISSUE REASONABLY AND JUSTIFIABLY WHICH DOES NOT REQUIRE T O BE INTERFERE WITH AT THIS APPELLATE STAGE, HENCE THIS ISSUE IS DECIDE D IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.5: 22. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION THE DISALLOWANCE ON SHORT TERM CAPITAL GAIN AND LONG TE RM CAPITAL GAIN TO THE TUNE OF RS.1,83,92,811/- AS BUSINESS I NCOME. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF CIT(A) ON RECORD:- 7.2.21.I HAVE CAREFULLY GONE THROUGH THE ORDER OF T HE ASSESSING OFFICER AND THE ARGUMENTS OF THE AUTHORIZED REPRESE NTATIVE OF THE APPELLANT COMPANY AND VARIOUS CASE LAWS CITE D BY THE AUTHORIZED REPRESENTATIVE. I FIND THAT THE INV ESTMENTS IN SHARES WERE MADE BY APPELLANT COMPANY TO EARN I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 25 DIVIDEND INCOME OUT OF THE SURPLUS FUND AVAILABLE W ITH THE APPELLANT COMPANY BEFORE IT COULD BE DEPLOYED F OR PURCHASE OF CAPITAL ASSETS IN THE ONGOING PROJECT W ORK. THE COMPANY HAD TAKEN UP HUGE EXPANSION WORK AND IN ORDER TO REDUCED THE OVERALL PROJECT COST, IT HAD TEMPORARILY PARKED SURPLUS FUNDS IN EQUITIES AND MU TUAL FUNDS. THE APPELLANT COMPANY IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING OF POY AND CANNOT BE SAID TO BE TRADER IN SHARES MERELY BECAUSE IT HA D ENTERED INTO SOME SHARE TRANSACTION. IN THE IMMEDI ATELY PRECEDING ASSESSMENT YEAR 06-07 THE ASSESSING OFFIC ER HIMSELF HAD ACCEPTED THE SUBMISSIONS OF THE APPELLA NT COMPANY THAT INVESTMENT IN SHARES IS ASSESSABLE UND ER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD BUSINESS. THERE HAS BEEN NO MATERIAL CHANGE IN THE FACTS OF T HE CASE DURING THE ASSESSMENT YEAR 07-08 WHICH REQUIRES REV ERSAL OF A STAND. THEREFORE, THE ASSESSING OFFICER IS NO T JUSTIFIED IN TREATING THE INCOME EARNED BY THE APPE LLANT COMPANY BY TRADING IN SHARES UNDER THE HEAD BUSINES S INCOME. DURING THE ASSESSMENT YEAR 07-08 MERELY BECAUSE RATES OF TAXATION FOR THE BUSINESS INCOME A RE HIGHER AS COMPARED TO RATES OF TAXATION FOR THE BUS INESS INCOME ARE HIGHER AS COMPARED TO RATES APPLICABLE F OR SHORT TERM CAPITAL GAIN CANNOT BE A BASIS FOR CHANG E OF I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 26 STAND. FURTHER, THE DECISION OF THE HONBLE ITAT MUMBAI IN THE CASE OF JANAK S. RANGWALL VS. ACIT (2007) 11 SOT 627 (MUM) IS IN THE FAVOUR OF THE APPELLANT COMPANY WHEREIN IT HAS BEEN HELD AS UNDER , THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INCOME CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. IN THE FACTS OF THE INSTANT CASE, THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSESSEE WHICH WAS TO B E SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT THE SAME I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 27 WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILA R TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE PRECEDING YEAR AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THERE WAS NO BASIS FOR TREATING THE ASSESSE E AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD SHARES IN THE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK IN TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE IN THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. ACCORDINGLY, I AM INCLINED TO AGREE WITH THE VIEWS OF THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY THAT IN THE LIGHT OF VARIOUS CASE LAWS CITED BY HIM ON T HE SUBJECT, AND THE FACTUAL POSITION OF THIS CASE, THE INCOME OF THE APPELLANT COMPANY EARNED BY TRADING IN SHARE S, SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS INCOME. ACCORDINGLY, THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 28 ASSESSING OFFICER IS DIRECTED TO ASSESS THE INCOME OF THE APPELLANT COMPANY UNDER THE HEAD CAPITAL GAINS ON T HE INVESTMENTS MADE BY THE APPELLANT COMPANY ON PURCHA SE AND SALE OF EQUITIES AND UNITS OF MUTUAL FUNDS AS I N THE PAST AND NOT UNDER THE HEAD BUSINESS INCOME. 23. NO DISTINGUISHABLE FACTS HAS BEEN PLACED ON REC ORD TO DEVIATE THE FINDING OF THE CIT(A) ON THIS ISSUE. THE ORDER OF THE CIT(A) HAS BEEN PASSED ON THE BASIS OF THE FINDING OF THE ITAT , MUMBAI IN THE CASE OF JANAK S. RANGWALLA VS. ACIT (2007) 11 SOT 6 27 (MUM). WE FOUND NO MERIT TO INTERFERE IN THE FINDING OF TH E CIT(A) ON RECORD, THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) HAS P ASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS D ECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ISSUE NO.6: 24. UNDER ISSUE NO.6 THE REVENUE HAS CHALLENGED THE DELETING THE DISALLOWANCE OF COMMISSION TO THE TUNE OF RS.67,17, 779/- PAID TO THE FOREIGN AGENTS U/S. 40A(IA) OF THE ACT. THE ASSESS EE PAID A SUM OF RS.67,17,779/- AS COMMISSION TO VARIOUS PARTIES IN SINGAPORE, UAE, EGYPT ETC. AND THE APPELLANT COMPANY DID NOT DEDUCT TDS BEFORE REMITTING THIS COMMISSION ABROAD. NO APPLICATION U /S.195(2) OR 195 (3) OF THE ACT WAS MADE BEFORE THE ASSESSING OFFICE R EITHER BY THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 29 APPELLANT COMPANY OR BY THE FOREIGN COMMISSION AGEN TS. ALL THE PAYMENTS WERE MADE ON THE STRENGTH OF THE CERTIFICA TES ISSUED BY THE CHARTERED ACCOUNTANTS IN COMPLIANCE TO CBDT CIRCULA R NO.759 DATED 18.11. 1997 AS MODIFIED BY CIRCULAR NO.10/2002 DATE D 09.10.2002. VIDE ORDER SHEET ENTRIES DATED 21.08.2009, 05.11.20 09 AND 01.12.2009. MAINLY THE APPELLANT COMPANY HAD RELIE D UPON THE CIRCULAR NO.23 OF 1969 DATED 26.07.1969 TO SUPPORT THE CASE, HOWEVER, SUBSEQUENTLY THE SAID CIRCULAR WAS WITHDR AWN. ON SEEING THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOT IN DISPUTE THAT THE AMOUNTS ARE NOT TAXABLE IN INDIA IN THE HANDS OF TH E RECIPIENT. AS PER CBDT CIRCULAR NO.786 DATED 07.02.2000 REGARDING TAX ABILITY U/S.195 OF THE ACT, THE DEDUCTION OF TAX AT SOURCE WOULD AR OSE IF THE PAYMENTS OF COMMISSION TO NON-RESIDENT AGENTS ARE CHARGEABLE TO TAX IN INDIA IN VIEW OF THE LAW SETTLED IN GE INDIA TECHNOLOGY CENT RE VS. CIT [2010] 327 ITR 456 (SC). IT IS HELD THAT THE MOMENT A REMITTANCE IS MADE TO A NON-RESIDENT, OBLIGATION TO DEDUCT TAX AT SOURCE DOES NOT ARISE; IT ARISES ONLY WHEN SUCH REMITTANCE IS A SUM CHARGEABLE UNDER ACT. THE CIT(A) HAS PASSED THE ORDER BY RELYING UP ON THE ABOVE SAID LAW HELD BY THE SUPREME COURT. IN VIEW OF THE REAS ONS MENTIONED ABOVE, WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSE D THE ORDER CORRECTLY AND JUDICIOUSLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ISSUE NO.7: I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 30 25. THE ISSUE NO.7 IS IN CONNECTION WITH THE DELETI ON OF BAD DEBTS U/S.36(1)(VII) R.W.S36(2) OF THE ACT TO THE TUNE OF RS.2,59,237/- THE ASSESSEE HAS ALSO TAKEN THE ANOTHER PLEA THAT WITHO UT PREJUDICE THE ASSESSEE MAY BE ALLOWED BUSINESS LOSS IN VIEW OF TH E DELIVERY OF SPARE PARTS GIVEN TO M/S.KIRLOSKAR MCQAY PVT. LTD. THE A SSESSING OFFICER DISALLOWED THE SAID BAD DEBTS AND ALLOWED THE BUSIN ESS LOSS. THE CIT(A) HAS ALLOWED THE BAD DEBTS BY RELYING UPON TH E LAW SETTLED IN T.R.F. LTD. VS. CIT [2010] 323 ITR 397 (SC). THE H ONBLE SUPREME COURT OBSERVED THAT AFTER THE AMENDMENT TO THE SECT ION 36(1)(VII) OF THE ACT W.E.F. 01.04.1989 THE ASSESSEE HAD TO ESTAB LISH, AS A MATTER OF FACT, THAT THE DEBT ADVANCED BY THE ASSESSEE HAD, I N FACT, BECOME IRRECOVERABLE OR WHETHER WRITING OFF THE DEBTS AS I RRECOVERABLE IN THE ACCOUNTS WAS SUFFICIENT. IT WAS HELD THAT WRITING OF DEBT AS IRRECOVERABLE IN THE ACCOUNTS WAS SUFFICIENT TO CLA IM BAD DEBTS AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HOWEVE R, THE ASSESSEE HAS TAKEN IN THE ACCOUNT WAS SUFFICIENT TO CLAIM BAD DE BTS AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HOWEVER, TH E ASSESSEE HAS TAKEN THE OTHER PLEA THAT PREJUDICED BUT WE DOES NO T FOUND ANY IRREGULARITY IN ALLOWANCE OF THE BAD DEBTS BY THE C IT(A). THEREFORE, IN VIEW OF THE ABOVE SAID FACTS AND CIRCUMSTANCES O F THE CASE IT IS APPARENT THAT THE CIT(A) HAS PASSED THE ORDER JUDIC IOUSLY AND CORRECTLY SPECIFICALLY BY RELYING UPON THE JUDGEMEN T PASSED BY THE HONBLE SUPREME COURT (SUPRA). THEREFORE, WE FIND NO REASON TO I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 31 INTERFERE WITH AS THIS ISSUE. HENCE THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.8:- 26. ACCORDING TO ISSUE NO.8, THE REVENUE HAS CHALLE NGED THE DISALLOWANCE OF RS.52,96,852/- ON ACCOUNT OF ENTREP RENEUR RESOURCE PLANNING (ERP) DEVELOPMENT CHARGES. UNDER THE RELE VANT ASSESSMENT YEAR THE ASSESSEE HAD CLAIMED THE ERP DEVELOPMENT C HARGES OF RS.52,96,852/-. THIS PERTAINS TO THE EXPENDITURE I NCURRED ON DEVELOPING OF ENTREPRENEUR RESOURCE PLANNING (ER) SOFTWARE BY M/S. CYRET TECHNOLOGIES (I) PVT. LTD., SO AS TO OPT IMIZE THE RESOURCE UTILIZATION OF THE ASSESSEE AND IMPROVE EFFICIENCY. THESE EXPENSES ARE ON IMPROVING AND ENHANCING THE EFFICIENCY OF THE PR ESENT SYSTEM AND THESE ADDITIONAL EXPENSES ARE GOING TO GIVE AN ENDU RING BENEFIT FOR THE YEARS TO COME. THE ASSESSEE CLAIMED THE SAID AMOUN T AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DESIRED TO PROD UCE THE DIRECTOR M/S. CYRET TECHNOLOGIES (I) PVT. LTD. WHICH THE ASS ESSEE FAIL TO DO SO, AS THE DIRECTOR WAS OUT OF STATION. THEREAFTER, TH E ASSESSING OFFICER DISALLOWED THE SAME ON ACCOUNT OF NON CO-OPERATIVE ATTITUDE OF THE ASSESSEE. THE CIT(A) HAS ALLOWED THE SAID AMOUNT A S REVENUE EXPENDITURE AND THE FINDING OF THE CIT(A) IS HEREBY REPRODUCED BELOW:- I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 32 11.3 AFTER CAREFUL CONSIDERATION OF FACTS AND CIRCU MSTANCES OF THE CASE, I FIND THAT THE APPELLANT COMPANY HAS OUTSOURCED THE ENTIRE SOFTWARE DEVELOPMENT, ITS DAY TO DAY RUNNING TO M/S. CYRET TECHNOLOGIES (I) PVT. LTD . AND THEREFORE THE APPELLANT COMPANY HAS NOT EMPLOYED AN Y OFFICER OR STAFF FOR THIS WORK AND MONTHLY BILLS AR E BEING PAID FOR OUTSOURCING WORK DONE BY THE M/S. CYRET TECHNOLOGIES (I) PVT. LTD.. THE APPELLANT COMPANY CAPITALIZES ANY EXPENDITURE INCURRED FOR DEVELOPMEN T OF NEW SOFTWARE AND OTHER CHARGES ARE CLAIMED BY IT AS REVENUE EXPENDITURE. THIS METHOD OF ACCOUNTING HAS BEEN CONTINUING FROM EARLIER YEARS WHERE THE ASSESS ING OFFICER HAD ACCEPTED THE SAME. THERE HAS BEEN NO SIGNIFICANT DEPARTURE FROM THIS PRACTICE DURING THE YEAR. ACCORDINGLY ASSESSING OFFICE IS DIRECTED TO ALLOW T HIS SUM AS REVENUE EXPENDITURE AS CLAIMED BY THE APPELLANT PUBLIC LIMITED COMPANY. 27. THE EXPENDITURE INCURRED ON THIS ACCOUNT HAS BE EN ALLOWED BY THE ASSESSING OFFICER IN THE EARLIER YEARS. THE CO MPANY HAS OUTSOURCED THE ENTIRE SOFTWARE DEVELOPMENT, ITS DAY TO DAY RUNNING TO M/S. CYRET TECHNOLOGIES (I) PVT. LTD. AND THEREFORE THE APPELLANT COMPANY HAD NOT EMPLOYED ANY OFFICER OR STAFF FOR T HIS WORK AND MONTHLY BILLS ARE BEING PAID FOR OUTSOURCING WORK D ONE BY THE M/S. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 33 CYRET TECHNOLOGIES (I) PVT. LTD. THE APPELLANT COM PANY CAPITALIZED ANY EXPENDITURE INCURRED FOR DEVELOPMENT OF NEW SOF TWARE AND OTHER CHARGES ARE CLAIMED BY IT AS REVENUE EXPENDITURE. THIS METHOD WAS FOLLOWED BY THE COMPANY FOR THE EARLIER YEARS ALSO. THE ASSESSING OFFICER HAD ALREADY BEEN ACCEPTED THE SAME. THERE IS NO DRASTIC CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE PRESEN T CASE IN COMPARISON TO THE EARLIER YEARS. ON SEEING THE SAI D FACTS AND CIRCUMSTANCES, WE NOWHERE FOUND ANY REASON TO ACCEP T THE APPEAL OF THE REVENUE ON THIS GROUND. THE CIT(A) HAS ALLOWED THE ABOVE MENTIONED EXPENDITURE AS REVENUE IN ACCORDANCE WITH LAW. THEREFORE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGA INST THE REVENUE. ISSUE NO.9:- 28. ACCORDING TO ISSUE NO.9, THE REVENUE HAS CHALLE NGED THE DELETION THE DISALLOWANCE OF DEPRECIATION ON ASSETS TAKEN ON LEASE BASIS FROM BOMBAY DYING TO THE TUNE OF RS.29,24,290 /-. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT ON T HIS ISSUE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE I N ITA NO.1624.M.2009 FOR 2005-06 DATED 17.12.2014 HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THEREFORE IN THE SAID CIRCU MSTANCES LEARNED CIT(A) HAS RIGHTLY ALLOWED THE DEPRECIATION IN ACCO RDANCE WITH LAW. IT IS ALSO ARGUED THAT THE CIT(A) HAS ALLOWED THE S AID DEPRECIATION ON THE GROUND OF ALLOWANCE BY THE ASSESSING OFFICER FO R THE A.Y.2004-05 AND 2005-06 APPARENTLY CONSIST VIEW WAS TAKEN BY TH E CIT(A) I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 34 OBSERVING THIS FACT THAT THERE IS NOT DRASTIC CHANG E IN THE FACTS AND CIRCUMSTANCES OF THE CASE. SINCE THE DEPRECIATION WAS ALLOWED FOR THE A.Y.2004-05 AND 2005-06, THEREFORE, THE DEPRECIATIO N WAS ALSO ALLOWED IN THE PRESENT CASE I.E. A.Y.2007-08. MORE OVER, THE MATTER OF CONTROVERSY WAS ALSO BEING ADJUDICATED IN FAVOUR O F ASSESSEE BY THE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1624.M.2009 FOR 2005-06 DATED 17.12.2014. NO DISTINGUISHABLE FACTS HAVE BEEN PLACED ON RECORD TO WHICH IT CAN BE ASSUMED THAT THE FINDING OF THE CIT(A) IS NOT IN ACCORDANCE OF LAW. IN VIEW OF THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) HA S PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS D ECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.10 & 11:- 29. BOTH THE ISSUES ARE GENERAL IN NATURE THEREFORE NEEDS NO ADJUDICATION. IN RESULT THE APPEAL FILED BY THE REVENUE IS HEREBY PARTLY ALLOWED. ITA NO.5638/M/13 (REVENUES (PENALTY)APPEAL FOR A.Y .2007-08):- 30. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER PASSED BY COMMISSIONER OF INCOME TAX (A) 8, MUMBAI DATED 28.06.2013 FOR THE ASSESSMENT YEAR 2007-08. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 35 31. AT THE TIME OF HEARING, IT WAS POINTED OUT BY T HE PARTIES THAT THE TAX EFFECT INVOLVED IN THIS QUANTUM IN DISPUTE BY T HE REVENUE IS LESS THAN RS.10 LAKHS. WE ALSO NOTICED FROM THE WORKING GIVEN BY THE ASSESSEE THAT THE PENALTY IN DISPUTE IS RS.2,95,953 /- AND THE EFFECT THEREIN IS LESS THAN RS.10 LAKHS. HENCE IN VIEW OF THE CBDT CIRCULAR NO.21/2015 DATED 10.12.2015 THE REVENUE IS BARRED F ROM PURSUING THIS APPEAL. ACCORDINGLY, WE DISMISSED THIS APPEAL IN L IMINE. 32. IN RESULT THE APPEAL FILED BY THE REVENUE IS DI SMISSED. ITA NO. 6209&6042/M/11 (A.Y.2008-09):- 33. THE ASSESSEE AS WELL AS REVENUE FILED THE ABOVE MENTIONED CROSS APPEALS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) 8, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A) DATE D 27.06.2011. RELEVANT TO THE A.Y.2008-09. 34. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FILED THE RETURN OF INCOME ON 27.01.2009 DECLARING TOTAL INCOME TO T HE TUNE OF RS.70,18,27,960/-. SUBSEQUENTLY A REVISED RETURN W AS FILED ON 31.03.2010 REVISING TOTAL INCOME TO THE TUNE OF RS. 76,14,41,334/-. THE REASON FOR REVISING RETURN WAS THAT THE ASSESSE E DID NOT OFFER THE EXCHANGE FLUCTUATION GAIN IN THE ORIGINAL RETURN WH ICH WAS SUBSEQUENTLY OFFERED IN THE REVISED RETURN. THE CA SE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 04.08.2009 AND SERVED UPON THE ASSESSEE ON 11.08.20 09. SINCE THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 36 ASSESSING OFFICER WAS CHANGED, THEREFORE, THE NEW A SSESSING OFFICER FURTHER ISSUED NOTICE U/S.142(1) AND 143(2) OF THE ACT. THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED BY ASSESSI NG THE INCOME TO THE TUNE OF RS.1,03,53,85,070/- FEELING AGGRIEVED T HE ASSESSEE FILED THE APPEAL BEFORE THE CIT(A) AND THE CIT(A) DECIDED THE SAID APPEAL BY VIRTUE OF ORDER DATED 27.06.2011. HOWEVER, THE ASSESSEE AS WELL AS THE REVENUE BEING NOT SATISFIED, FILED THE PRESENT APPEALS BEFORE US. ITA NO.6209/M/11 (ASSESSEES APPEAL FOR A.Y.2008-09 ) 35. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. DISALLOWANCE OF INTEREST U/S.14A RS.1,57,69,118 /- THE LEARNED CIT(A) ERRED IN CONFIRMING THE STAND TAKEN BY THE AO FOR CONSIDERING THE ENTIRE INTEREST OF RS.41.84 CRORES FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE OF INTEREST U/S.14A AGAINST EXEMPT INCOME OF DIVIDEND RECEIVED, AS AGAINST THE WORKING CAPITAL INTEREST OF RS.9.47 CRORES. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT INTEREST PAID ON FIXED LOANS, ARE FOR FIXED PURPOSE AND SAME WERE UTILIZED FOR THE PURPOSE FOR WHICH LOAN WERE TAKEN. 2 EXCESS PAYMENT TO PARTY COVERED U/S.40A(2)(B) RS.12,46,310/- THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.12,46,310/- U/S.40A(2)(B) IN RESPECT OF PURCHASE OF PLASTIC ADAPTORS FROM ARYA INDUSTRIES, WITHOUT APPRECIATING THE FACTS THAT PAYMENT MADE TO SPECIFIED PERSONS ARE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 37 WELL WITHIN THE PREVAILING MARKET RATES IN COMPETITIVE ATMOSPHERE AND ARE COMPARABLE WITH OTHER MANUFACTURERS. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT WHILE COMPARING THE RATES WITH THIRD PARTIES, THOUGH THE LOWER QUOTATIONS WERE ALSO AVAILABLE, THE THAN AO HAS PURPOSELY TAKEN THE HIGHER QUOTATION AVAILABLE. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT APPELLANT COMPANY CANNOT COMPROMISE ON THE QUALITY OF PLASTIC ADAPTORS FOR ITS USE IN PACKING OF FINISHED PRODUCTS TO AVOID DAMAGED TO FINISHED GOODS. 3. DISALLOWANCE OF INTEREST OF RS.60,47,905/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF INTEREST @ 2.87125% ON SHARE APPLICATION MONEY BY NOT TREATING THE SAME FOR BUSINESS PURPOSE. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS THAT INVESTMENT AS SHARE APPLICATION MONEY IN OVERSEAS SUBSIDIARY COMPANY WAS FOR COMMERCIAL EXPEDIENCY AND PART OF BUSINESS STRATEGY TO EXPANDS ITS BUSINESS GLOBALLY IN ADDITION TO BUSINESS ESTABLISHED IN INDIA. ADDITIONAL GROUND:- 1. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FAC T THAT IF THE EXPENSES ARE NOT ALLOWABLE U/S.35D, THEN ALTERNATIVE THE REVENUE EXPENDITURE MAY BE ALLOWED U/S.37. ISSUE NO.1:- I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 38 36. UNDER ISSUE NO.1, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE OF INTEREST U/S.14A READ WITH RULE 8D OF THE ACT TO THE TUNE OF RS.1,57,69,118/-. IN THE ASSESSMENT YEAR UNDER QUE STION THE ASSESSEE EARNED THE EXEMPT INCOME TO THE TUNE OF RS.2.17 CRO RES. THE ASSESSEE SUO MOTU DISALLOWED THE EXPENDITURE TO THE TUNE OF RS.52.17 LAKHS. ON APPRAISAL OF THE CIT(A) ORDER, IT CAME INTO THE NOTICE THAT THE CIT(A) WAS SATISFIED ON ACCOUNT OF APPLICABILITY OF THE RULE 8D OF THE ACT AS ASSESSMENT ORDER OF THE YEAR IS A.Y.2008-09 AND WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS EARNED TO EXEMPT T HE INCOME TO THE TUNE OF RS.2.17 CR., THEREFORE CERTAINLY DISALLOWAN CE U/S.14A OF THE ACT IS CALLED FOR. THE CIT(A) ASSESSED THE EXPENDI TURE TO THE TUNE OF RS.1,03,53,070/- U/S.14A OF THE ACT BUT THERE IS NO PROPER METHED TO ASSESSED THE EXPENSES. IT IS NOT IN DISPUTE THAT T HE PRESENT ASSESSMENT YEAR IS THE YEAR OF 2008-09 TO WHICH RULE 8D OF THE ACT IS APPLICABLE. WORKING TO ASSESS THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME IS NOT ON RECORD. EVEN ON PERUSAL OF THE ORDER OF THE ASSESSING OFFICER, IT IS APPARENT THAT THE ASSESSING OFFICER HAS APPLIED RULE 8D OF THE ACT WITHOUT PROPER WORKING. IN THIS REGARD WE ARE ALSO FOUND SUPPORT OF LAW SETTLED ON THE JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. DCIT[2010] 328 ITR 81 . THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE TO EARN THE EXEMPT INCOME. THERE IS NO WORKING ON THE PART OF THE AUTHORITY TO ASSESSEE THE EXPENDITURE I F ANY INCURRED TO EARN THE EXEMPT INCOME. NO SATISFACTION HAS BEEN RECORD ED BY THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 39 ASSESSING OFFICER AS WELL AS CIT(A) ON THE RECORD. IN VIEW OF THE RECORD WE ARE OF THE VIEW THAT THE EXPENDITURE OF T HE ASSESSEE TO EARN THE EXEMPT INCOME IS REQUIRED TO BE ASSESSED IN VIE W OF THE PROVISION CONTAINED IN SECTION 14A(2) OF THE ACT. THEREFORE IN THE SAID CIRCUMSTANCES WE SET ASIDE THE FINDING OF THE CIT(A ) ON THIS GROUND AND DIRECT THE ASSESSING OFFICER TO ASSESS THE INCO ME IN VIEW OF THE PROVISION CONTAINED IN SECTION 14A(2) OF THE ACT. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. ISSUE NO.2:- 37. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED TH E CONFIRMATION OF THE DISALLOWANCE OF RS.12,46,310/- U/S.40A(2)(B) O F THE ACT IN RESPECT OF PURCHASE OF PLASTIC ADAPTORS FROM M/S. ARYA INDU STRIES. THE ASSESSING OFFICER ASSESSED THE PURCHASE AT RATE HI GHER BY RS.0.10 MORE PER PIECE AS COMPARED TO RATE AVAILABLE IN OPE N MARKET WHICH HAS BEEN CONFIRMED BY THE CIT(A). THE ASSESSING OF FICER WAS OF THE VIEW THAT THE ASSESSEE HAS SHOW THE HIGHER PRICE TO THE EXTENT OF 00.10/- PER PIECE IN COMPARISON TO THE A.Y.2006-07. THEREFORE, REDUCED THE PRICE PER PIECE TO THE EXTENT OF 00.10% AND ADDED THE DIFFERENCE INTO THE INCOME OF THE ASSESSEE. THE C IT(A) CONFIRMED THE SAME, IT CAME INTO THE NOTICE THAT THERE IS NOT COGENT AND REASONABLE EVIDENCE TO REDUCED THE PURCHASE PRICE O F THE ABOVE MENTIONED ARTICLES. THERE SHOULD BE SOME PLAUSIBLE EXPLANATION ON RECORD TO ARRIVE AT THE CONCLUSION TO REDUCE THE PR ICES OF THE ARTICLES I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 40 MENTIONED ABOVE. JUST TAKING THE AVERAGE PURCHASE PRICE OF THE ARTICLES MENTIONED ABOVE NOWHERE JUSTIFIED THE ASSE SSMENT OF THE REVENUE ON THIS GROUND. THIS MATTER HAS BEEN CONSI DERED BY THE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1624.M.2009 FOR 2005-06 DATED 17.12.2014 WHEREIN THE DISALLOWANCE @ 6% WAS SUSTAINED IN THE SIMILAR CIRC UMSTANCES ON THE PURCHASE OF PLASTIC LINER FROM THE ARYA INDUSTRIES. SO FAR AS PURCHASE OF PLASTIC ADOPTER IS CONCERNED MATTER IS REQUIRED TO BE RE-EXAMINED IN VIEW OF THE EVIDENCE ADDUCIBLE BY THE ASSESSEE AND BY GIVING AN OPPORTUNITY BEING HEARD TO THE ASSESSEE IN THE INTE REST OF JUSTICE. IN VIEW OF THE OBSERVATIONS MADE ABOVE WE DIRECT THE A SSESSING OFFICER TO RE-COMPUTE THE EXPENDITURE INCURRED FOR THE PURC HASE OF PLASTIC LINER AND PLASTIC ADAPTOR IN VIEW OF THE OBSERVATIO NS MADE ABOVE. THIS ISSUE IS HEREBY ACCORDINGLY ALLOWED ISSUE NO.3:- 38. ACCORDING TO ISSUE NO.3 ASSESSEE WELL AS REVENU E CHALLENGED THE DISALLOWANCE OF INTEREST OF RS.60,47,905/-. BEFORE DISCUSSING THE MATTER OF CONTROVERSY IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD:- 9.2 UPON CONSIDERATION OF RELEVANT FACTS AND THE R EASONS FOR WHICH THE DISALLOWANCE HAS BEEN MADE BY THE A.O. AS MENTIONED IN THE ASSESSMENT ORDER, I FIND THAT THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 41 APPELLANT HAS CORRECTLY POINTED OUT THAT THE QUANTU M OF DISALLOWANCE WAS WORKED OUT BY THE A.O. WITHOUT PRO PER APPRECIATION OF FACTS THOUGH THE ENTIRE FACTS WERE AVAILABLE WITH HIM. COPIOUS EXCERPTS FROM THE ASSE SSEES LETTER DATED 07.12.2010 HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER WHICH INDICATES THAT THIS LETTER W AS PRODUCED BEFORE THE A.O. FROM THE ASSESSMENT ORDER , I FIND THAT THE A.O. IN HIS ORDER HAS SIMPLY MENTIONE D THAT THE ARGUMENTS PUT FORWARD BY THE ASSESSEE ARE GENER AL ONE AND, THEREFORE, CANNOT BE ACCEPTED. THUS, THE A.O. HAS NOT MENTIONED AS TO WHAT WERE THE RELEVANT FACT S, WHICH WERE POINTED OUT BY THE ASSESSEE AND FOR WHAT REASONS AND ON WHAT BASIS THE ASSESSEES ARGUMENTS AND CONTENTIONS WERE NOT ACCEPTABLE. THE A.O. HAS ALSO NOT CONTRADICTED OR DISPUTED THE FACTS MENTIONED IN THE ASSESSEES LETTER DATED 07.12.2010. HUGE ADDITION OF RS.7,51,08,000/- HAS BEEN MADE WITHOUT EVEN ASCERTAINING THE DATE AND PERIOD OF THE TRANSACTION S BETWEEN THE ASSESSEE AND ITS SUBSIDIARY COMPANY AND SOURCE OF FUND FOR GIVING ADVANCE OR SHARE APPLICAT ION MONEY. REGARDING THE RATE OF INTEREST ON THE LOANS TAKEN BY THE ASSESSEE AND THAT CHARGED BY THE ASSESSEE, T HERE IS ONLY A GENERAL MENTION THAT SUCH RATE VARIES FROM 1 0% TO 13% AND 6% RESPECTIVELY WITHOUT ASCERTAINING THE SO URCE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 42 OF LOAN AND SHARE APPLICATION MONEY GIVEN TO THE SUBSIDIARY COMPANY AND RATE OF INTEREST PAID, IF AN Y BY THE ASSESSEE. WITHOUT SPECIFICALLY ASCERTAINING TH E SOURCE OF FUND ADVANCED TO THE SUBSIDIARY AND THE COST OF SUCH FUND AS WELL AS THE DATE OF SUCH ADVANCES AND SHARE APPLICATION, I DO NOT FIND ANY BASIS WHATSOEVER FOR A FINDING THAT CERTAIN COST WAS INCURRED BY THE ASSES SEE IN RESPECT OF FUND GIVEN TO SUBSIDIARY. WITHOUT ASCER TAINING THESE FACTS, NO DISALLOWANCE OF INTEREST CAN BE JUS TIFIED. FURTHER, FROM THE ASSESSMENT ORDER, I FIND THAT THE A.O. HAS ALSO FAILED TO POINT OUT AS TO HOW THE PAYMENTS OF ADVANCES / LOANS TO SUBSIDIARY WERE NOT FOR BUSINES S PURPOSE OF THE ASSESSEE. THERE BEING NO SUCH FINDI NG, NO DISALLOWANCE OF INTEREST FOR THE REASON THAT SUCH EXPENDITURE OF INTEREST WAS NOT FOR BUSINESS PURPOS E COULD BE MADE, IN VIEW OF THE DECISIONS OF THE HON BLE APEX COURT IN THE CASES OF S.S.BUILDERS (SUPRA), AS THE A.O. HAS FAILED TO ENQUIRE WHETHER THE LOAN WAS GIV EN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE DISALLOWAN CE MADE BY THE A.O. IS, THEREFORE, NOT JUSTIFIED. HOW EVER, PAYMENT OF SHARE APPLICATION MONEY CANNOT BE TREATE D TO BE BUSINESS PURPOSE AND, THEREFORE, ANY INTEREST EXPENDITURE INCURRED WITH RESPECT TO FUND WHICH WAS GIVEN AS SHARE APPLICATION MONEY HAS TO BE DISALLOW ED I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 43 BEING EXPENDITURE NOT FOR BUSINESS PURPOSE. THE A. O. HAS MADE ADDITION OF RS.3,85,56,000/- IN THIS REGAR D WHICH CANNOT BE SUSTAINED AS THE A.O. HAS ADOPTED A GENERAL RATE OF 12% WITHOUT ENQUIRING OR ASCERTAINI NG THE RATE OF INTEREST, IF ANY ON FUND BORROWED OUT OF WH ICH SHARE APPLICATION MONEY WAS GIVEN. THE A.O. HAS AL SO NOT DISPUTED THE ASSESSEES CONTENTION THAT THE RAT E OF INTEREST ON SUCH BORROWING WAS 2.17825%. THE ADDIT IONS OF RS.3,85,56,000/- IS, THEREFORE, DELETED. THE APP ELLANT ITSELF HAS QUANTIFIED THE AMOUNT OF SUCH EXPENDITUR E AT RS.60,47,905/-. THE DISALLOWANCE MADE BY THE A.O. TO THE EXTENT OF RS.60,47,905/-. THE DISALLOWANCE MADE BY THE A.O. TO THE EXTENT OF RS.60,47,905/- IS CONFIRM ED AND BALANCE OUT OF RS.7,51,08,000/- IS DELETED. THE AP PEAL ON THIS GROUND IS PARTLY ALLOWED 39. THE FACTUAL POSITION IS NOT IN DISPUTE AGAINST THE PROPORTIONATE DISALLOWANCE OF INTEREST TO THE TUNE OF RS.7,51,08, 000/-. THE ASSESSING OFFICER MADE THE DISALLOWANCE ON PROPORTI ONATE BASIS OF RS.60.92 CRORE ON ACCOUNT OF INTEREST CHARGES ON LO AN GIVEN TO THE SUBSIDIARY COMPANY @ 6% BEING DIFFERENCE BETWEEN TH E INTEREST PAYABLE BY THE ASSESSEE AND RATE OF INTEREST CHARGE BY ASSESSEE AND LOAN GIVEN TO THE SUBSIDIARY COMPANY WHICH AMOUNTED TO RS.60.92 CRORES FURTHER DISALLOWANCE OF RS.3,85,56,000/- WAS MADE IN RESPECT I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 44 OF AN AMOUNT OF RS.32.13 CRORES GIVEN TO THE SUBSID IARY COMPANY IN FORM OF SHARE APPLICATION MONEY @ 12%. THUS AN AMO UNT OF RS.7,51,08,000/- WAS DISALLOWED. IN BRIEF THE ASSE SSING OFFICER DISALLOWED THE SAID AMOUNT THAT THE ASSESSEE HAD GI VEN FOR SHARE APPLICATION MONEY TO ITS SUBSIDIARY COMPANY FROM BO RROWED FUNDS WITHOUT CHARGING INTEREST THE ASSESSEE HAD BORROWED FUNDS AT 2.87125%. THE CIT(A) CONFIRMED THE DISALLOWANCE TO THE TUNE OF RS.60,47,905/- ON THE GROUND OF THAT PAYMENT ON SHA RE APPLICATION MONEY SHOULD NOT BE TREATED AS BUSINESS PURPOSE. T HE FINDING OF THE CIT(A) HAS BEEN MENTIONED ABOVE WHICH SEEMS QUITE J USTIFIABLE. FINDING NO JUSTIFIABLE FACTS WE ARE OF THE VIEW THA T THE CIT(A) HAS DECIDED THE MATTER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ADDITIONAL GROUND: 40. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR O F THE ASSESSEE BY THE CIT(A), THEREFORE, AT THIS STAGE THERE IS NO NEED TO ADJUDICATE THIS GROUND. ITA NO.6042/M/11 (REVENUES APPEAL FOR A.Y.2008-09) 41. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. U/S.14A READ WITH RULE 8D AMOUNTING TO RS.4,11,40,270/-. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 45 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION OF ELECTRIC FITTING AMOUNTING TO RS.45,61,645/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. U/S.35D AMOUNTING TO RS.21,94,414/-. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. U/S. 36(I)(II) AMOUNTING TO RS.86,75,000/- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE CAPITAL GAIN OF RS.1,83,13,622/-. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF PROFESSIONAL FEES OR COMMISSION PAID BY THE FOREIGN PARTIES MADE BY THE A.O. AMOUNTING TO RS.4,02,67,016/- U/.S 40(A)(IA) OF THE INCOME TAX ACT, 1961. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ERP DEVELOPMENT CHARGES AMOUNTING TO RS.71,27,000/- 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE PROPORTIONATE DISALLOWANCE OF INTEREST OF RS.7,51,08,000/-. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,42,38,000/- ON ACCOUNT OF UNRECONCILED AIR. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 46 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CITA() HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF PENALTY PAYMENT OF RS.10,700/- U/S. 37(1). 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LTD. CIT(A) IS CONTRARY TO LA W TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER B E RESTORED. ISSUE NO.1: 42. UNDER ISSUE NO.1, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE OF INTEREST U/S.14A READ WITH RULE 8D OF THE ACT TO THE TUNE OF RS.4,11,40,270/-. IN THE ASSESSMENT YEAR UNDER QUE STION THE ASSESSEE EARNED THE EXEMPT INCOME TO THE TUNE OF RS.2.17,28, 616/-. THE ASSESSING OFFICER SUO MOTU DISALLOWED THE EXPENDITURE TO THE TUNE OF RS.1,57,69,118. ON APPRAISAL OF THE CIT(A) ORDER I T CAME INTO THE NOTICE THAT THE CIT(A) WAS SATISFIED ON ACCOUNT OF APPLICABLITY OF THE RULE 8D OF THE ACT AS ASSESSMENT ORDER OF THE YEAR IS A.Y.2008-09 BUT THE CIT(A) WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS EARNED TO EXEMPT THE INCOME TO THE TUNE OF RS.2.17,28,616/-, THEREFORE CERTAINLY DISALLOWANCE U/S.14A OF THE ACT IS CALLED FOR. THE CIT(A) ASSESSED THE EXPENDITURE TO THE TUNE OF RS.1,03,53,070/- U/S .14A OF THE ACT BUT THERE IS NO WAYS TO ASSESS THE EXPENSES. WORKING TO ASSESS THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME IS N OT ON RECORD. EVEN ON PERUSAL OF THE ORDER OF THE ASSESSING OFFIC ER, IT IS APPARENT I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 47 THAT THE ASSESSING OFFICER HAS APPLIED RULE 8D OF T HE ACT. IN THIS REGARD WE ARE ALSO FOUND SUPPORT OF LAW SETTLED ON THE JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & B OYCE VS. DCIT[2010] 328 ITR 81 . THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE TO EARN THE EXEMPT INCOME. THERE IS NO WORKING ON THE PART OF THE AUTHORITY TO ASSESSEE THE EXPENDITURE IF ANY INCURRED TO EARN THE EXEMPT INCO ME. NO SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFF ICER AS WELL AS CIT(A) ON THE RECORD. IN VIEW OF THE RECORD WE ARE OF THE VIEW THAT THE EXPENDITURE OF THE ASSESSEE TO EARN THE EXEMPT INCOME IS REQUIRED TO BE ASSESSED IN VIEW OF THE PROVISION CONTAINED I N SECTION 14A(2) OF THE ACT. THEREFORE IN THE SAID CIRCUMSTANCES WE SE T ASIDE THE FINDING OF THE CIT(A) ON THIS GROUND AND DIRECT THE ASSESSI NG OFFICER TO ASSESS THE EXPENDITURE TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISION CONTAINED IN SECTION 14A(2) OF THE ACT. ACCORDINGLY, THE APPEAL OF THE REVENUE IS HEREBY ALLOWED. ISSUE NO.2: 43 UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETING OF DISALLOWANCE OF DEPRECIATION OF ELECTRIC FITTING AM OUNTING OF RS.45,61,645/-. IT IS NOT IN DISPUTE THAT THE ASSE SSEE HAS INSTALLED ELECTRIC FITTING WHICH CONSISTS OF 66KVA LINE STATI ON, HEAVY DUTY POWER CABLING, PENAL BOARD, POWER CABLING FOR DG SE TS FOR GENERATING POWER AND HEAVY DUTY POWER CABLING USED IN DISTRIBU TION THE POWERS I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 48 AT VARIOUS SIDES OF PLANTS. THE DEPRECATION WAS AL LOWED @ 15%. THIS MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY THE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE IN IT A NO.1624.M.2009 FOR 2005-06 DATED 17.12.2014. WHEREIN DEPRECIATION WAS ALLOWED TO THE EXTENT OF 25%. THE FINDING OF THE SAID ORDER IS HEREBY MENTIONED BELOW FOR READY REFE RENCE. 29. WE NOTICE THE NOTE NO.5 GIVEN UNDER THE DEPREC IATION SCHEDULE APPLICABLE TO THE ASSESSMENT YEAR 2005-06 (WHICH IS AVAILABLE IN THE INCOME TAX RULES) DEFINE S THE EXPRESSION ELECTRICAL FITTING. ACCORDING TO THE SAID DEFINITION ELECTRICAL FITTINGS INCLUDES ELECTRICAL WIRES, SWITCHES, CLUTCHES, OTHER FITTINGS AND FANS ETC. U NDER THE DEPRECIATION SCHEDULE ELECTRICAL FITTINGS IS CLUB BED ALONG WITH FURNITURE & FIXTURES. HENCE, THE EXPRESSION ELECTRICAL FITTINGS SHOULD MEAN ONLY THOSE ITEMS WHICH CAN BE CONSIDERED AS FIXTURES OF GENE RAL NATURE AS DEFINED IN NOTE NO.5. HOWEVER, THE HEAV Y ELECTRICAL ITEMS, WHICH ARE ATTACHED TO PLANT AND MACHINERY AND THE SAME CANNOT BE CLASSIFIED AS FIXT URES OF GENERAL NATURE. WE ALSO NOTICE THAT THE AHMEDAB AD BENCH OF THE TRIBUNAL IN THE CASE OF MADHU INDUSTRI ES LTD. (SUPRA) HAS TAKEN THE VIEW THAT THE ELECTRICAL INSTALLATION ATTACHED TO PLANT AND MACHINERY SHOULD BE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 49 CONSIDERED AS PLANT AND MACHINERY ONLY. THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS CLASSIFIED THE ELEC TRICAL FITTINGS. HENCE, BY FOLLOWING THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL REFERRED ABOVE WE HOLD THAT THE ELECTRICAL FITTINGS IN THE INSTANT CA SE SHOULD BE CONSIDERED AS PLANT AND MACHINERY AND HENCE THE DEPRECIATION SHOULD BE ALLOWED AT THE RATE OF 25% T O PLANT AND MACHINERY. 44. NO JUSTIFIABLE FACTS HAVE BEEN PLACED ON RECORD TO WHICH IT CAN BE ASSUMED THAT THE CIT(A) HAS PASSED THE ORDER WRO NG AGAINST LAW AND FACTS. FINDING NO MATERIAL OF ANY KIND TO INTE RFERE WITH THE FINDING OF THE CIT(A). WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER CORRECTLY AND JUDICIOUSLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. THIS IS SUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ISSUE NO.3: 45. UNDER THIS ISSUE CIT(A) HAS HAS CONFIRMED THE D ISALLOWANCE OF EXPENDITURE COVERED U/S.35D OF THE ACT TO THE TUNE OF RS.21,94,414/- FOR RAISING FCCB. UNDER THIS ASSESSMENT YEAR, TH E ASSESSEE HAD COME OUT WITH PREFERENTIAL ALLOTMENT OF 1,55,28,600 /- SHARES @ 46.5 PER SHARE AND 62,98,100/- CONVERTIBLE WARRANTS. IT S ISSUED CAPITAL WAS ENHANCED FROM 32.02CR. TO 49CR. THE ASSESSEE ALSO INVESTED IN THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 50 OVERSEAS SUBSIDIARY AND RAISED US $ 34.5 THOUGH 5 Y EAR FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) AT COUPON RATE OF 1.75 P.A. THE ASSESSEE CLAIMED RS.1,47,56,531/- U/S.35D OF THE AC T BEING 1/5 TH OF THE TOTAL EXPENSES OF RS.7,37,82,657/-. ASSESSING OFFICER ONLY CONSIDERED RS.1,25,62,117/- AS EXPENDITURE U/S.35D OF THE ACT INSTEAD OF RS.7,37,82,657/-. THE ASSESSEE REQUESTED TO ALL OW THE SAID EXPENDITURE BUT THE ASSESSING OFFICER DECLINED THE REQUEST AND CIT(A) CONFIRMED THE SAME. THE LEARNED REPRESENTAT IVE OF THE ASSESSEE HAS ARGUED THAT IN ITA NO.2507/M/2011 FOR THE A.Y.2006-07 IN THE ASSESSEES OWN CASE THE INCOME TAX APPELLATE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE MAT TER OF CONTROVERSY IN VIEW OF THE CERTAIN GUIDELINES MENTIONED THEREIN AND ALSO REQUESTED TO REMAND THE SAME. SINCE IN THE PRESENT CASE ALSO THE ASSESSEE RAISED THE ADDITIONAL GROUND SEEKING RELIEF U/S.36(1) OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT THE FINDING OF INCOME TAX A PPELLATE TRIBUNAL IN THIS REGARD IN THE ABOVE MENTIONED CASE IS QUITE APPLICABLE WHICH IS REPRODUCED AS UNDER 15. GROUND NO.4 RELATES TO THE ALLOWABILITY OF THE CLAIM U/S.35D OF THE ACT. IN THIS REGARD, LD. COUNSEL FO R THE ASSESSEE BROUGHT OUR ATTENTION TO THE ADDITIONAL GR OUND FILED BEFORE US FOR THE FIRST TIME MAKING AN ALTERN ATE CLAIM SEEKING RELIEF U/S.37(1) OF THE ACT. IN THIS REGARD, LD. REPRESENTATIVES OF BOTH THE PARTIES MENTIONED T HAT I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 51 THIS ISSUE RAISED IN GROUND NO.4 NEEDS TO BE REMAND ED TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER ADM ITTING THE SAID ADDITIONAL GROUND. 16. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE ADDITIONAL GROUND RAISED BY THE ASSESSEE, WE FIND T HE REQUEST FOR ADMISSION OF THE ADDITIONAL GROUND AND REMANDING THE SAME FOR FRESH ADJUDICATION IS APPROP RIATE AND IT REQUIRES TO BE SUSTAINED. ACCORDINGLY, THE ADDITIONAL GROUND ALONG WITH THE GROUND NO.4 RAISED BY THE ASSESSEE IS REMANDED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. IT IS NEEDLESS TO MENTIONED THAT THE AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTI CE. ACCORDINGLY, ADDITIONAL GROUND AS WELL AS GROUND NO.4 WITH ITS SUB-GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 46. IN VIEW OF THE SAID CIRCUMSTANCES, WE RESTORE T HIS ISSUE BEFORE THE ASSESSING OFFICER TO RE-ASSESS THE MATTER OF CO NTROVERSY IN VIEW OF THE GUIDELINES AS MENTIONED IN THE ITA NO.2507/M/11 MENTIONED ABOVE BY GIVING AN OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. THEREFORE, WE ALLOW THIS ISSUE ON THE SAME TERMS AN D CONDITIONS FOR STATISTICAL PURPOSE. THIS ISSUE IS DECIDED ACCORDIN GLY IN FAVOUR OF THE REVENUE. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 52 ISSUE NO.4: 47. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DISALLOWANCE OF RS.86,75,000/- U/S.36(1)(II) OF THE ACT. THE ASSES SEE PAID THE COMMISSION TO DIRECTORS TO THE TUNE OF RS.60,00,000 /- WHICH IS IN THE NATURE OF SALARY. COMPANY HAD ALSO DEDUCTED TDS AS SALARY. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE COMMISSI ON WAS ALLOWED IN THE EARLIER YEARS. BEFORE GOING FURTHER IT IS NECESSAR Y TO ADVERT THE FINDING OF THE CIT(A) ON RECORD:- 6.3. AFTER CAREFUL EXAMINATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND HEARING THE ARGUMENTS OF THE AUTHOR IZED REPRESENTATIVE OF THE APPELLANT I AM OF THE VIEW TH AT THE PROVISIONS OF SECTION 36(1)(II) ARE NOT APPLICABLE IN THIS CASE AS THE COMMISSION OF RS.60,00,000/- HAS NOT BE EN PAID TO CHAIRMAN AS A BONUS INSTEAD IT IS IN NATURE OF SALARY WHICH WAS DULY APPROVED BY THE SHAREHOLDERS OF THE COMPANY IN THE ANNUAL GENERAL MEETING. AN EMPLOYER MAY REMUNERATE HIS EMPLOYEE PARTLY BY WAY OF SALARY AND PARTLY BY WAY OF COMMISSION OF SALES. I N VIEW OF THE FACT THAT THE DEFINITION OF SALARY UNDER SEC TION 17(1) IS AN INCLUSIVE ONE MAKING A SPECIFIC REFEREN CE TO COMMISSION PAID IN LIEU OF OR IN ADDITION TO SALARY , IT SHOULD ALSO BE TREATED AS PART OF SALARY. THE HIGH COURT IN CIT V. T.ABDUL WAHID AND CO. [2000] 24 ITR 467 I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 53 (MAD.) HELD THAT COMMISSION SHOULD ALSO BE TREATED AS SALARY APPARENTLY FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE. I FIND IN THE PRESENT CASE THE APPELLANT C OMPANY HAS ALSO DEDUCTED TDS ON THE PAYMENT OF COMMISSION WHICH IS IN THE NATURE OF SALARY. THE INCOME TAX P AYABLE BY THE CHAIRMAN OF THE COMPANY OR BY THE APPELLANT COMPANY @ 30% IS SAME. THEREFORE, THE INTEREST OF THE REVENUE IS NOT AFFECTED. PAYMENT OF SIMILAR COMMIS SION TO THE CHAIRMAN IN THE EARLIER ASSESSMENT YEARS HAS ALREADY BEEN ALLOWED BY THE ASSESSING OFFICER AND N O NEW FACTS HAVE COME TO LIGHT DURING THE YEAR. SINCE TH E ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER WIT HOUT PROPER APPRECIATION OF FACTS AND EXAMINING THE LEGA L POSITION OF LAW THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. 48. NO DISTINGUISHABLE FACTS HAS BEEN PLACED ON REC ORD TO DIFFERENTIATE THE FINDING OF THE CIT(A). THE MATTE R OF CONTROVERSY HAS BEEN DECIDED ON THE BASIS OF LAW SETTLED IN GESTETN ER DUPLICATORS (P) LTD. VS. CIT [1979] 117 ITR 1 (SC) AND M/S. S.H.KEL KAR & CO. PVT. LTD. VS. ACIT ITA NO.7256&7257/M/2010, A.Y.2006-07 & 2007- 08, DT.07.11.2014. THE CIT(A) HAS PASSED THE ORDER ON THIS ISSUE REASONABLY AND JUSTIFIABLY WHICH DOES NOT REQUIRE T O BE INTERFERE WITH I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 54 AT THIS APPELLATE STAGE, HENCE THIS ISSUE IS DECIDE D IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.5:- 49. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE DISALLOWANCE ON SHORT TERM CAPITAL GAIN AND LONG TE RM CAPITAL GAIN TO THE TUNE OF RS.1,83,92,811/- AS BUSINESS I NCOME. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF CIT(A) ON RECORD:- 7.2.21.I HAVE CAREFULLY GONE THROUGH THE ORDER OF T HE ASSESSING OFFICER AND THE ARGUMENTS OF THE AUTHORIZED REPRESE NTATIVE OF THE APPELLANT COMPANY AND VARIOUS CASE LAWS CITE D BY THE AUTHORIZED REPRESENTATIVE. I FIND THAT THE INV ESTMENTS IN SHARES WERE MADE BY APPELLANT COMPANY TO EARN DIVIDEND INCOME OUT OF THE SURPLUS FUND AVAILABLE W ITH THE APPELLANT COMPANY BEFORE IT COULD BE DEPLOYED F OR PURCHASE OF CAPITAL ASSETS IN THE ONGOING PROJECT W ORK. THE COMPANY HAD TAKEN UP HUGE EXPANSION WORK AND IN ORDER TO REDUCED THE OVERALL PROJECT COST, IT HAD TEMPORARILY PARKED SURPLUS FUNDS IN EQUITIES AND MU TUAL FUNDS. THE APPELLANT COMPANY IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING OF POY AND CANNOT BE SAID TO BE TRADER IN SHARES MERELY BECAUSE IT HA D I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 55 ENTERED INTO SOME SHARE TRANSACTION. IN THE IMMEDI ATELY PRECEDING ASSESSMENT YEAR 06-07 THE ASSESSING OFFIC ER HIMSELF HAD ACCEPTED THE SUBMISSIONS OF THE APPELLA NT COMPANY THAT INVESTMENT IN SHARES IS ASSESSABLE UND ER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD BUSINESS. THERE HAS BEEN NO MATERIAL CHANGE IN THE FACTS OF T HE CASE DURING THE ASSESSMENT YEAR 07-08 WHICH REQUIRES REV ERSAL OF A STAND. THEREFORE, THE ASSESSING OFFICER IS NO T JUSTIFIED IN TREATING THE INCOME EARNED BY THE APPE LLANT COMPANY BY TRADING IN SHARES UNDER THE HEAD BUSINES S INCOME. DURING THE ASSESSMENT YEAR 07-08 MERELY BECAUSE RATES OF TAXATION FOR THE BUSINESS INCOME A RE HIGHER AS COMPARED TO RATES OF TAXATION FOR THE BUS INESS INCOME ARE HIGHER AS COMPARED TO RATES APPLICABLE F OR SHORT TERM CAPITAL GAIN CANNOT BE A BASIS FOR CHANG E OF STAND. FURTHER, THE DECISION OF THE HONBLE ITAT MUMBAI IN THE CASE OF JANAK S. RANGWALL VS. ACIT (2007) 11 SOT 627 (MUM) IS IN THE FAVOUR OF THE APPELLANT COMPANY WHEREIN IT HAS BEEN HELD AS UNDER , THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 56 TRANSACTION IN WHOLE HAS TO BE TAKEN INCOME CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. IN THE FACTS OF THE INSTANT CASE, THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSESSEE WHICH WAS TO B E SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILA R TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE PRECEDING YEAR AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 57 GAINS. THERE WAS NO BASIS FOR TREATING THE ASSESSE E AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD SHARES IN THE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK IN TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE IN THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. ACCORDINGLY, I AM INCLINED TO AGREE WITH THE VIEWS OF THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY THAT IN THE LIGHT OF VARIOUS CASE LAWS CITED BY HIM ON T HE SUBJECT, AND THE FACTUAL POSITION OF THIS CASE, THE INCOME OF THE APPELLANT COMPANY EARNED BY TRADING IN SHARE S, SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS INCOME. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ASSESS THE INCOME OF THE APPELLANT COMPANY UNDER THE HEAD CAPITAL GAINS ON T HE INVESTMENTS MADE BY THE APPELLANT COMPANY ON PURCHA SE AND SALE OF EQUITIES AND UNITS OF MUTUAL FUNDS AS I N THE PAST AND NOT UNDER THE HEAD BUSINESS INCOME. 50. NO DISTINGUISHABLE FACTS HAS BEEN PLACED ON REC ORD TO ADVERT THE FINDING OF THE CIT(A) ON THIS ISSUE. THE ORDER OF THE CIT(A) HAS BEEN PASSED ON THE BASIS OF THE FINDING OF THE ITAT, MUM BAI IN THE CASE OF I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 58 JANAK S. RANGWALLA VS. ACIT (2007) 11 SOT 627 (MUM) . WE FOUND NO MERIT TO INTERFERE IN THE FINDING OF THE CIT(A) ON RECORD, THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE O RDER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFER E WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDE D IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ISSUE NO.6: 51. UNDER ISSUE NO.6 THE REVENUE HAS CHALLENGED THE DELETING THE DISALLOWANCE OF COMMISSION TO THE TUNE OF RS.67,17, 779/- PAID TO THE FOREIGN AGENTS U/S. 40A(IA) OF THE ACT. THE ASSESS EE PAID A SUM OF RS.67,17,779/- AS COMMISSION TO VARIOUS PARTIES IN SINGAPORE, UAE, EGYPT ETC. AND THE APPELLANT COMPANY HAD NOT DEDUCT ED TDS BEFORE REMITTING THIS COMMISSION ABROAD. NO APPLICATION U /S.195(2) OR 195 (3) OF THE ACT WAS MADE BEFORE THE ASSESSING OFFICE R EITHER BY THE APPELLANT COMPANY OR BY THE FOREIGN COMMISSION AGEN TS. ALL THE PAYMENTS WERE MADE ON THE STRENGTH OF THE CERTIFICA TES ISSUED BY THE CHARTERED ACCOUNTANTS IN COMPLIANCE TO CBDT CIRCULA R NO.759 DATED 18.11. 1997 AS MODIFIED BY CIRCULAR NO.10/2002 DATE D 09.10.2002. VIDE ORDER SHEET ENTRIES DATED 21.08.2009, 05.11.20 09 AND 01.12.2009. MAINLY THE APPELLANT COMPANY HAD RELIE D UPON THE CIRCULAR NO.23 OF 1969 DATED 26.07.1969 TO SUPPORT THE CASE, HOWEVER, SUBSEQUENTLY THE SAID CIRCULAR WAS WITHDR AWN. ON SEEING THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOT IN DISPUTE THAT THE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 59 AMOUNTS ARE NOT TAXABLE IN INDIA IN THE HANDS OF TH E RECIPIENT. AS PER CBDT CIRCULAR NO.786 DATED 07.02.2000 REGARDING TAX ABILITY U/S.195 OF THE ACT THE DEDUCTION OF TAX AT SOURCE WOULD ARO SE IF THE PAYMENTS OF COMMISSION TO NON-RESIDENT AGENTS ARE CHARGEABLE TO TAX IN INDIA. IN VIEW OF THE LAW SETTLED IN GE INDIA TECHNOLOGY C ENTRE VS. CIT [2010] 327 ITR 456 (SC) IT IS HELD THAT THE MOMENT A REMITTANCE IS MADE TO A NON-RESIDENT, OBLIGATION TO DEDUCT TAX AT SOURCE DOES NOT ARISE; IT ARISES ONLY WHEN SUCH REMITTANCE IS A SUM CHARGEABLE UNDER ACT. THE CIT(A) HAS PASSED THE ORDER BY RELYING UP ON THE ABOVE SAID LAW HELD BY THE SUPREME COURT. IN VIEW OF THE REAS ONS MENTIONED ABOVE WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE ORDER CORRECTLY AND JUDICIOUSLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ISSUE NO.7: 52. ACCORDING TO ISSUE NO.8, THE REVENUE HAS CHALLE NGED THE DISALLOWANCE OF RS.71,27,000/- ON ACCOUNT OF ENTREP RENEUR RESOURCE PLANNING (ERP) DEVELOPMENT CHARGES. UNDER THE RELE VANT ASSESSMENT YEAR THE ASSESSEE HAD CLAIMED THE ERP DEVELOPMENT C HARGES OF RS.52,96,852/-. THIS PERTAINS TO THE EXPENDITURE I NCURRED ON DEVELOPING OF ENTREPRENEUR RESOURCE PLANNING (ER) SOFTWARE BY M/S. CYRET TECHNOLOGIES (I) PVT. LTD., SO AS TO OPT IMIZE THE RESOURCE UTILIZATION OF THE ASSESSEE AND IMPROVE EFFICIENCY. THESE EXPENSES ARE ON IMPROVING AND ENHANCING THE EFFICIENCY OF THE PR ESENT SYSTEM AND I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 60 THESE ADDITIONAL EXPENSES ARE GOING TO GIVE AN ENDU RING BENEFIT FOR THE YEARS TO COME. THE ASSESSEE CLAIMED THE SAID AMOU NT AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DESIRED TO PROD UCE THE DIRECTOR M/S. CYRET TECHNOLOGIES (I) PVT. LTD. WHICH THE ASS ESSEE FAIL TO DO SO, AS THE DIRECTOR WAS OUT OF STATION. THEREAFTER, TH E ASSESSING OFFICER DISALLOWED THE SAME ON ACCOUNT OF NON CO-OPERATIVE ATTITUDE OF THE ASSESSEE. THE CIT(A) HAS ALLOWED THE SAID AMOUNT A S REVENUE EXPENDITURE AND THE FINDING OF THE CIT(A) IS HEREBY REPRODUCED BELOW:- 11.3 AFTER CAREFUL CONSIDERATION OF FACTS AND CIRCU MSTANCES OF THE CASE, I FIND THAT THE APPELLANT COMPANY HAS OUTSOURCED THE ENTIRE SOFTWARE DEVELOPMENT, ITS DAY TO DAY RUNNING TO M/S. CYRET TECHNOLOGIES (I) PVT. LTD . AND THEREFORE THE APPELLANT COMPANY HAS NOT EMPLOYED AN Y OFFICER OR STAFF FOR THIS WORK AND MONTHLY BILLS AR E BEING PAID FOR OUTSOURCING WORK DONE BY THE M/S. CYRET TECHNOLOGIES (I) PVT. LTD.. THE APPELLANT COMPANY CAPITALIZES ANY EXPENDITURE INCURRED FOR DEVELOPMEN T OF NEW SOFTWARE AND OTHER CHARGES ARE CLAIMED BY IT AS REVENUE EXPENDITURE. THIS METHOD OF ACCOUNTING HAS BEEN CONTINUING FROM EARLIER YEARS WHERE THE ASSESS ING OFFICER HAD ACCEPTED THE SAME. THERE HAS BEEN NO SIGNIFICANT DEPARTURE FROM THIS PRACTICE DURING THE YEAR. I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 61 ACCORDINGLY ASSESSING OFFICE IS DIRECTED TO ALLOW T HIS SUM AS REVENUE EXPENDITURE AS CLAIMED BY THE APPELLANT PUBLIC LIMITED COMPANY. 53. THE EXPENDITURE INCURRED ON THIS ACCOUNT HAS BE EN ALLOWED BY THE ASSESSING OFFICER IN THE EARLIER YEARS. THE CO MPANY HAS OUTSOURCED THE ENTIRE SOFTWARE DEVELOPMENT, ITS DAY TO DAY RUNNING TO M/S. CYRET TECHNOLOGIES (I) PVT. LTD. AND THEREFORE THE APPELLANT COMPANY HAD NOT EMPLOYED ANY OFFICER OR STAFF FOR T HIS WORK AND MONTHLY BILLS ARE BEING PAID FOR OUTSOURCING WORK D ONE BY THE M/S. CYRET TECHNOLOGIES (I) PVT. LTD. THE APPELLANT COM PANY CAPITALIZED ANY EXPENDITURE INCURRED FOR DEVELOPMENT OF NEW SOF TWARE AND OTHER CHARGES ARE CLAIMED BY IT AS REVENUE EXPENDITURE. THIS METHOD WAS FOLLOWED BY THE COMPANY FOR THE EARLIER YEARS ALSO. THE ASSESSING OFFICER HAD ALREADY BEEN ACCEPTED THE SAME. THERE IS NO DRASTIC CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE PRESEN T CASE IN COMPARISON TO THE EARLIER YEARS. ON SEEING THE SAI D FACTS AND CIRCUMSTANCES WE NOWHERE FOUND ANY REASON TO ACCEPT THE APPEAL OF THE REVENUE ON THIS GROUND. THE CIT(A) HAS ALLOWED THE ABOVE MENTIONED EXPENDITURE AS REVENUE IN ACCORDANCE WITH LAW. THEREFORE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGA INST THE REVENUE. ISSUE NO.8: I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 62 54. ACCORDING TO ISSUE NO.8 REVENUE HAS CHALLENGED THE DISALLOWANCE OF INTEREST OF RS.7,51,08,000/-. BEFO RE DISCUSSING THE MATTER OF CONTROVERSY IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD:- 9.2 UPON CONSIDERATION OF RELEVANT FACTS AND THE R EASONS FOR WHICH THE DISALLOWANCE HAS BEEN MADE BY THE A.O. AS MENTIONED IN THE ASSESSMENT ORDER, I FIND THAT THE APPELLANT HAS CORRECTLY POINTED OUT THAT THE QUANTU M OF DISALLOWANCE WAS WORKED OUT BY THE A.O. WITHOUT PRO PER APPRECIATION OF FACTS THOUGH THE ENTIRE FACTS WERE AVAILABLE WITH HIM. COPIOUS EXCERPTS FROM THE ASSE SSEES LETTER DATED 07.12.2010 HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER WHICH INDICATES THAT THIS LETTER W AS PRODUCED BEFORE THE A.O. FROM THE ASSESSMENT ORDER , I FIND THAT THE A.O. IN HIS ORDER HAS SIMPLY MENTIONE D THAT THE ARGUMENTS PUT FORWARD BY THE ASSESSEE ARE GENER AL ONE AND, THEREFORE, CANNOT BE ACCEPTED. THUS, THE A.O. HAS NOT MENTIONED AS TO WHAT WERE THE RELEVANT FACT S, WHICH WERE POINTED OUT BY THE ASSESSEE AND FOR WHAT REASONS AND ON WHAT BASIS THE ASSESSEES ARGUMENTS AND CONTENTIONS WERE NOT ACCEPTABLE. THE A.O. HAS ALSO NOT CONTRADICTED OR DISPUTED THE FACTS MENTIONED IN THE ASSESSEES LETTER DATED 07.12.2010. HUGE ADDITION OF I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 63 RS.7,51,08,000/- HAS BEEN MADE WITHOUT EVEN ASCERTAINING THE DATE AND PERIOD OF THE TRANSACTION S BETWEEN THE ASSESSEE AND ITS SUBSIDIARY COMPANY AND SOURCE OF FUND FOR GIVING ADVANCE OR SHARE APPLICAT ION MONEY. REGARDING THE RATE OF INTEREST ON THE LOANS TAKEN BY THE ASSESSEE AND THAT CHARGED BY THE ASSESSEE, T HERE IS ONLY A GENERAL MENTION THAT SUCH RATE VARIES FROM 1 0% TO 13% AND 6% RESPECTIVELY WITHOUT ASCERTAINING THE SO URCE OF LOAN AND SHARE APPLICATION MONEY GIVEN TO THE SUBSIDIARY COMPANY AND RATE OF INTEREST PAID, IF AN Y BY THE ASSESSEE. WITHOUT SPECIFICALLY ASCERTAINING TH E SOURCE OF FUND ADVANCED TO THE SUBSIDIARY AND THE COST OF SUCH FUND AS WELL AS THE DATE OF SUCH ADVANCES AND SHARE APPLICATION, I DO NOT FIND ANY BASIS WHATSOEVER FOR A FINDING THAT CERTAIN COST WAS INCURRED BY THE ASSES SEE IN RESPECT OF FUND GIVEN TO SUBSIDIARY. WITHOUT ASCER TAINING THESE FACTS, NO DISALLOWANCE OF INTEREST CAN BE JUS TIFIED. FURTHER, FROM THE ASSESSMENT ORDER, I FIND THAT THE A.O. HAS ALSO FAILED TO POINT OUT AS TO HOW THE PAYMENTS OF ADVANCES / LOANS TO SUBSIDIARY WERE NOT FOR BUSINES S PURPOSE OF THE ASSESSEE. THERE BEING NO SUCH FINDI NG, NO DISALLOWANCE OF INTEREST FOR THE REASON THAT SUCH EXPENDITURE OF INTEREST WAS NOT FOR BUSINESS PURPOS E COULD BE MADE, IN VIEW OF THE DECISIONS OF THE HON BLE I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 64 APEX COURT IN THE CASES OF S.S.BUILDERS (SUPRA), AS THE A.O. HAS FAILED TO ENQUIRE WHETHER THE LOAN WAS GIV EN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE DISALLOWAN CE MADE BY THE A.O. IS, THEREFORE, NOT JUSTIFIED. HOW EVER, PAYMENT OF SHARE APPLICATION MONEY CANNOT BE TREATE D TO BE BUSINESS PURPOSE AND, THEREFORE, ANY INTEREST EXPENDITURE INCURRED WITH RESPECT TO FUND WHICH WAS GIVEN AS SHARE APPLICATION MONEY HAS TO BE DISALLOW ED BEING EXPENDITURE NOT FOR BUSINESS PURPOSE. THE A. O. HAS MADE ADDITION OF RS.3,85,56,000/- IN THIS REGAR D WHICH CANNOT BE SUSTAINED AS THE A.O. HAS ADOPTED A GENERAL RATE OF 12% WITHOUT ENQUIRING OR ASCERTAINI NG THE RATE OF INTEREST, IF ANY ON FUND BORROWED OUT OF WH ICH SHARE APPLICATION MONEY WAS GIVEN. THE A.O. HAS AL SO NOT DISPUTED THE ASSESSEES CONTENTION THAT THE RAT E OF INTEREST ON SUCH BORROWING WAS 2.17825%. THE ADDIT IONS OF RS.3,85,56,000/- IS, THEREFORE, DELETED. THE APP ELLANT ITSELF HAS QUANTIFIED THE AMOUNT OF SUCH EXPENDITUR E AT RS.60,47,905/-. THE DISALLOWANCE MADE BY THE A.O. TO THE EXTENT OF RS.60,47,905/-. THE DISALLOWANCE MADE BY THE A.O. TO THE EXTENT OF RS.60,47,905/- IS CONFIRM ED AND BALANCE OUT OF RS.7,51,08,000/- IS DELETED. THE AP PEAL ON THIS GROUND IS PARTLY ALLOWED I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 65 55. THE FACTUAL POSITION IS NOT IN DISPUTE AGAINST THE PROPORTIONATE DISALLOWANCE OF INTEREST TO THE TUNE OF RS.7,51,08, 000/-. THE ASSESSING OFFICER MADE THE DISALLOWANCE ON PROPORTI ONATE BASIS OF RS.60.92 CRORE ON ACCOUNT OF INTEREST CHARGES ON LO AN GIVEN TO THE SUBSIDIARY COMPANY @ 6% BEING DIFFERENCE BETWEEN TH E INTEREST PAYABLE BY THE ASSESSEE AND RATE OF INTEREST CHARGE D BY ASSESSEE AND LOAN GIVEN TO THE SUBSIDIARY COMPANY WHICH AMOUNTED TO RS.3,65,52000 CRORES. FURTHER DISALLOWANCE OF RS.3, 85,56,000/- WAS MADE IN RESPECT OF AN AMOUNT OF RS.32.13 CRORES GIV EN TO THE SUBSIDIARY COMPANY IN FORM OF SHARE APPLICATION MON EY @ 12%. THUS AN AMOUNT OF RS.7,51,08,000/- WAS DISALLOWED. IN BRIEF THE ASSESSING OFFICER DISALLOWED THE SAID AMOUNT ON THE GROUND THAT THE ASSESSEE HAD GIVEN SHARE APPLICATION MONEY TO ITS S UBSIDIARY COMPANY FROM BORROWED FUNDS WITHOUT CHARGING INTEREST. THE ASSESSEE OFFICER DID NOT DISPUTE THE INTEREST ON BORROWED FUNDS@ 2.8 7125%. THE CIT(A) CONFIRMED THE DISALLOWANCE TO THE TUNE OF RS .60,47,905/- ON THE GROUND OF THAT PAYMENT ON SHARE APPLICATION MON EY SHOULD NOT BE TREATED AS BUSINESS PURPOSE. THE FINDING OF THE CI T(A) HAS BEEN MENTIONED ABOVE WHICH SEEMS QUITE JUSTIFIABLE. FIN DING NO JUSTIFIABLE GROUND TO INTERFERE WITH THE SAID ORDER, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER JUDICIOUSLY AND CORRE CTLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ISSUE NO.9: I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 66 56. THE REVENUE HAS CHALLENGED THE UN-RECONCILED AI R INFORMATION OF RS.1,42,38,000/-. ASSESSEE SOLD THE PROPERTY FO R CONSIDERATION OF RS.43,50,000/-. THE AGREEMENT WAS ENTERED INTO 31. 01.2008. THE CAPITAL GAIN WAS OFFERED AS INCOME IN THIS REGARD. AIR INFORMATION SHOWED THE SALE PROCEED OF RS.1,85,88,000/- AND THE ASSESSING OFFICER ADDED THE DIFFERENCE OF RS1,42,38000 AS IN COME. THE CIT(A) HAS DELETED THE SAME. THE REASONS ARE REQUIRED TO B E ADVERT ON RECORD:- 10.2 FROM THE ASSESSMENT ORDER, I FIND THAT THE A. O. HAS NOT DISPUTED THE FACT THAT THE TRIPARTITE AGREEMENT WAS EXECUTED ON 31.01.2008 AND M/S. D. DHAYABHAI & CO. PVT. LTD. HAD SOLD THE SAID PROPERTY PURCHASED BY T HEM EARLIER IN 1997-98 FROM THE ASSESSEE AS PER THIS TR IPARTITE AGREEMENT. THE A.O. HAS REJECTED THE ASSESSEES EXPLANATION WHILE OBSERVING THAT THE ASSESSEE HAD N OT BEEN ABLE TO PROVIDE THE DETAILS AS TO WHETHER OTHE R PARTIES HAD OFFERED ANY INCOME ON THIS ACCOUNT IN T HEIR RETURN OR NOT AND WHETHER THE AMOUNT CLAIMED TO HA VE BEEN RECEIVED BY THIRD PARTY ACTUALLY BEEN OFFERED TO TAX IN THEIR CASE. I FIND THAT SUCH STAND TAKEN BY THE A.O. IS NOT JUSTIFIED. THE A.O. HAS NOT DISPUTED THAT M/S. D. DHAYABHAI & CO. PVT. LTD. HAD SOLD THE SAID PROPERT Y ACQUIRED BY THEM FROM THE ASSESSEE IN 1997-98 TO M/S.PRIVI ORGANICS FOR SALE CONSIDERATION OF I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 67 RS.1,88,00,000/- AS PER TRIPARTITE AGREEMENT EXECUT ED ON 31.01.2008. IF THESE FACTS HAVE NOT BEEN DISPUTED BY THE A.O., AS THE A.O. HAS NOT BROUGHT ON RECORD ANY MAT ERIAL TO CONTRADICT THESE FACTS, THE SUM OF RS.1,18,00,00 0/- IS TO BE TREATED AS RECEIPT IN THE HAND OF M/S. D. DHAYAB HAI & CO. PVT. LTD. AND NOT IN THE HAND OF THE ASSESSEE. THE ADDITION MADE BY THE A.O. IS NOT JUSTIFIED WHICH IS DELETED. THE APPEAL ON THIS GROUND IS ALLOWED. 57. THE MATTER IN DISPUTE IS FACTUAL IN NATURE AND BASED UPON TRIPARTITE AGREEMENT AND ADOPTED THE AGREEMENT EXEC UTED ON 31.01.2008 ALLOWING THE ASSESSEE AS WELL AS OTHER P ARTIES. THE APPRECIATION OF THE FACTS HAVE BEEN MENTIONED BY TH E CIT(A) ON RECORD. NO JUSTIFIABLE FACTS HAVE BEEN PLACED ON R ECORD TO DIVERT THE VIEW TAKEN BY THE CIT(A). THE SAID FACTS AND CIRCU MSTANCES THE CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECT LY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAG E. ISSUE NO.10: 58. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETING OF THE PENALTY PAYMENT OF RS.10,700/- U/S. 37(1) OF THE AC T. THE AMOUNT OF RS.10,700/- WAS INCLUDED IN GENERAL EXPENSES AND WA S IN NATURE OF PENALTY AS MENTIONED IN THE ASSESSMENT ORDER. THE SUBMISSION OF THE APPELLANT IS THAT A SUM OF RS.10,700/- WAS NOTHING BUT LATE FILING I.T.A. NO.2695&6209/MUM/11, 5637/MUM/13, I.T.A.2765/MUM/11, 638/MUM/2013 & 6042/MUM/2 011 A.Y.2006-07, 2007-08 & 2008-09 68 CHARGES FOR FORM NO.403 WITH GUJARAT SALES TAX OFFI CE WHICH WAS FORMAL BUSINESS EXPENDITURE AND WAS NOT OFFENCE. T HE ORDER OF CIT(A) SPEAKS THAT NO OFFENCE HAS BEEN PROVED WHERE AS THE SAME IS NORMAL BUSINESS EXPENDITURE. THE ORDER OF THE ASSE SSING OFFICER NOWHERE SPEAKS ABOUT THE COGENT AND CONVINCING EVID ENCE ON RECORD TO SPEAK ABOUT THIS FACT THAT THE SAID AMOUNT IS TH E PENALTY AMOUNT OF THE ASSESSEE. NOTHING CAN BE ASSUMED WITHOUT ANY E VIDENCE. THERE IS NO BASE TO DECLINE THE CONTENTION OF THE ASSESSEE. THE EXPENDITURE HAS BEEN SHOWN ON ACCOUNT OF LATE FILING CHARGES OF FOR M NO.403 WITH GUJARAT SALES TAX OFFICE. THE FINDING OF THE CIT(A ) IS QUITE JUSTIFIABLE WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. HENCE THIS ISSUE IS DECIDED IN FAVOUR OF TH E ASSESSEE. ISSUE NO.11 & 12: 60. THESE ISSUES ARE GENERAL IN NATURE WHICH NOWHER E REQUIRES ANY ADJUDICATION. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH AUGUST , 2016. SD/- SD/- (R.C.SHARMA) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 12 TH AUGUST, 2016 MP MP MP MP