DCIT (LTU), New Delhi V. M/s. Power Finance Corporation Ltd., New Delhi

ITA 5917/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6944 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 16-01-2017
• Assessment Year: 2000-2001
• Appeal Filed On: 04-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H B S GILL
• Keywords: Business income; Depreciation; Business expenditure; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SH. S.K. YADAV , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO S . 4059 /DEL/2009, 5917 & 5918/DEL/2013 ASSESSMENT YEAR S : 1996 - 97, 2000 - 01 & 2001 - 02 DCIT(LTU), NBCC PLAZA, PUSHP VIHAR, SECTOR - III, NEW DELHI VS. M/S. POWER FINANCE CORPORATION LTD., URJANIDHI 1, BARAKHAMBA LANE, CONNAUGHT PLACE, NEW DELHI PAN : AAACP1570H (APPELLANT) (RESPONDENT) AND C.O. NO. 376 /DEL/2009 [IN ITA NO. 4059/DEL/2009] ASSESSMENT YEAR: 1996 - 97 M/S. POWER FINANCE CORPORATION LTD., URJANIDHI 1, BARAKHAMBA LANE, CONNAUGHT PLACE, NEW DELHI VS. DCIT(LTU), NBCC PLAZA, PUSHP VIHAR, NEW DELHI PAN : AAACP1570H (APPELLANT) (RESPONDENT) DEPARTMENT BY SH. H.B.S. GILL, CIT(DR) RESPONDENT BY SH. TARANDEEP SINGH, ADVOCATE DATE OF HEARING 16.01.2017 DATE OF PRONOUNCEMENT 20.01.2017 ORDER PER O.P. KANT , A. M. : THESE THREE APPEALS BY THE R EVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) , NEW DELHI , FOR 2 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 ASSESSMENT YEAR S 1996 - 97, 2000 - 01 AND 2001 - 02 RESPECTIVELY. THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) FOR ASSESSMENT YEAR 1996 - 97. THE ISSU E INVOLV ED IN THE THREE APPEALS OF THE R EVENUE AND ONE CROSS OBJECTION OF THE ASSESSEE , BEING INTERCONNECTED, WERE HEARD TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER FOR CONVENIENCE AND BREVITY. ITA NO. 4059/DEL/2009 FOR AY: 1996 - 97 2. FIRST WE TAKE UP THE APPEAL OF THE R EVENUE AND CROSS OBJECTION OF THE ASSESSEE FOR ASSESSMENT YEAR 1996 - 97. 3. G ROUNDS OF APPEAL RAISED BY THE R EVENUE IN ITA NO. 4059/DEL/2009 ARE AS UNDER: 1. LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. TO CONSIDER THE ENTIRE COMMON INTEREST EXPENSE FOR ALLOCATION TOWARDS SHORT TERM INCOME FOR WORKI NG OUT DEDUCTION U/S 36(1)(VIII). 2. LEARNED CIT(A) HAS ERRED IN NOT ALLOCATING THE INTEREST CHARGE OF RS.190.85 CRORES IN SPITE OF THE ASSESSEE S SELF STATEMENT THAT THI S AMOUNT IS USED FOR BOTH LONG - TERM AS WELL SHORT TERM LOAN. C . O . NO. 376/DEL/2009 4. G ROUND RAISED BY THE ASSESSEE IN THE CROSS O BJECTION IS AS UNDER: 1. THE LEARNED CIT( A) HAS ERRED IN LAW AND ON FACTS BY RESTRICTING ASSESSEE RESPONDENT S CLAIM FOR ALLOCATION OF COMMON EXPENSE. OUT OF TOTAL COMMON EXPENSE OF RS.9.53 CRORES (COMPRISING OF PER SONAL EXPENSE OF RS.8.32 CRORES DEPRECIATION OF RS.0.28 CRORES, PRELIMINARY EXPENS ES RS.0.04 CRORES AND PRIOR PERIOD EXPENSES RS.0.89 CRORES) ONLY RS.25 LACS HAVE BEEN HELD TO BE ALLOCABLE TO EARNING OF SHORT - TERM INCOME AS AGAINST PFC S CLAIM OF RS.1.55 CRORES, RESUL TING IN REDUCTION OF LONG - TERM INCOME ELIGIBLE FOR RELIEF U/S 36(1)(VI II). 5. THE BRIEF FACTS OF THE CASE ARE THAT THE PARTIES ARE IN APPEAL BEFORE THE TRIBUNAL IN SECOND ROUND OF PROCEEDING. THE ASSESSEE IS ENGAGED IN FINANCING THE POWER PROJECT ON LONG TERM FINANCE BASIS . IN THE ORIGINAL 3 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 RETURN OF INCOME FILED, THE ASSE SSEE CLAIMED DEDUCTION UNDER SECTION 36(1)(VII I) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) TOWARDS INCOME FROM LONG TERM FINANCES. DURING RELEVANT PERIOD, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION IN RESPECT OF ANY SPECIAL RESERVE CREDIT ED AND MAINT AINED BY THE ASSESSEE , FOR AN AMOUNT NOT EXCEEDING 40% OF THE PROFIT DERIVED FROM SUCH BUSINESS OF PROVIDING LONG TERM FINANCE (COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERVE ACCOUNT. THE LONG TERM FINANCE HAS BEEN EXPLAINED IN E XPLANATION BELOW THE SECTION WHICH MEANS ANY LOAN OR ADVANCE GIVEN FOR T HE PERIOD OF FIVE YEARS OR MORE . THE ASSESSEE HAS BEEN RECEIVING INCOME FROM LONG - TERM FINANCING FOR MORE THAN FIVE YEARS . THE LEARNED CIT(A) IN FIRST ROUND OF PROCEEDING HAS LISTED THE INCOME OTHER THAN LONG TERM FINANCES I.E. SHORT TERM INCOME EARNED BY THE ASSESSEE AS UNDER: I. INTEREST IN INVESTMENT RS.61.10 CRORES II. INTEREST ON INTER CORPORATE DEPOSITS RS.24.19 CRORES III. LEASE INCOME RS.2.80 CRORES IV. INTEREST ON LEASE FINANCING TO APSEP RS.1.08 CRORES V. MISC. INCOME RS.0.21 CRORES VI. GUARANTEE FEES RS.3.83 CRORES VII. INCOME RELATING TO THE LOANS SANCTIONED FOR A PERIOD OF LESS THAN 5 YEARS. RS.27 .39 CRORES. 5.1 THE INCOME DERIVED OTHER THAN LONG TERM FINANCE WAS NOT QUALIFIED FOR DEDUCTION UNDER SECTION 36(1)( VIII) OF THE ACT . FOR ARRIVING AT SPECIAL RESERVE IN RESPECT OF INCOME FROM LONG - TERM FINANCING, IN THE ORIGINAL RETURN OF INCOME, THE ASSESSEE REDUCED GROSS AMOUNT OF INCOME EARNED 4 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 ON ACCOUNT OF ACTIVITIES OTHER THAN LONG - TERM FINANCING FROM THE TOTAL IN COME. BUT IN THE REVISED RETURN, FOR COMPUTING THE AMOUNT TRANSFERRED TO SPECIAL RESERVE, THE ASSESSEE REDUCED THE NET INCOME FROM SHORT - TERM INVESTMENTS ETC. RATHER THAN THE GROSS INCOME . FOR WORKING OUT THE NET SHORT - TERM INCOME , THE ASSESSEE CLAIMED A P ROPORTIONATE EXPENDITURE ARRIVED AT BY MULTIPLYING THE INCOME BY A FIGURE OF 37.38 PERCENT. THIS FIGURE OF 37.38% IS THE RATIO OF TOTAL COMMON EXPENDITURE TO THE TOTAL INCOME. THE ASSESSING OFFICER DID NOT ALLOW THIS PRO RATA CLAIM OF EXPENDITURE AGAINST T HE SHORT - TERM INCOME(S) FOR COMPUTING THE SPECIAL RESERVE FROM LONG - TERM FINANCING. THE LEARNED CIT(A) ALSO DIDN T ALLOW THE PRO RATA CLAIM OF EXPENDITURE BUT HE ALTERNATIVELY ALSO HELD THE SHORT TERM INCOME FROM INTEREST ON INVESTMENT AND INTEREST ON DEPO SIT WAS INCOME TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THUS THE INCOME SHALL NOT BE QUALIFIED FOR DEDUCTION U/S 36(1)(VIII) AND NO EXPENDITURE SHALL BE TREATED FOR INCURRING SUCH EXPENDITURE. THE FINDINGS OF THE LEARNED CIT(A) ARE REPR ODUCED AS UNDER: HOWEVER, IN THE REVISED RETURN THE ASSESSEE DECIDED - TO REDUCE NET INCOMES FROM THESE, OTHER SOURCES INSTEAD OF REDUCING THE GROSS VALUE OF SUCH OTHER INCOMES. THE LOGIC OF THE ASSESSEE IS THAT THE ASSESSEE, AFTER ALL, SPENDS CERTAIN AMOUNT TO EARN SUCH OTH ER INCOMES (LIKE INTEREST ON SH6RT - TERM DEPOSITS ETC.). ACCORDINGLY, THE ASSESSEE HAS CLAIMED A PROPORTIONATE EXPENDITURE AND THE PROPORTIONATE EXPENDITURE HAS BEEN ARRIVED AT BY - MULTIPLYING THE INCOME BY 37.38%. THE FIGURE OF 37.38% HAS BEEN ARRIVED AT AS PER ANNEXURE - E TO THE COMPUTATION OF REVISED INCOME (MAY PLEASE SEE ANNEXURE - UI OF THIS ORDER. THE FIGURE OF 37.38% IS NOTHING BUT RATIO OF TOTAL COMMON EXPENDITURE TO THE TOTAL INCOME. IN OTHER WORDS, THE GROSS EXPENDITURE RATE, WHICH COMES TO 37.38% H AS BEEN TAKEN AS THE RATIO TO ARRIVE AT THE PROPORTIONATE EXPENDITURE FOR EARNING A PARTICULAR TYPE OF INCOME. FOR EXAMPLE, THE TOTAL INTEREST ON ICDS IS RS.24.19 CRORES. THE PROPORTIONATE EXPENDITURE IS TO BE DEDUCTED FROM THE INTEREST ON ICDS IS TAKEN AS 37.38% OF RS.24.19 CRORES WHICH COMES TO RS.9.04 CRORES. THIS IS NOT A CORRECT METHOD TO 5 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 ARRIVE AT THE INCOME WHICH QUALIFIES FOR THE DEDUCTION U/S 36( 1 )(VIII). THE DEDUCTION SHALL BE ALLOWED ON THE INCOME ON LONG TERM FINANCES AFTER REDUCING THE ENTIRE ( GROSS AMOUNT OF) OTHER INCOMES SUCH AS INTEREST ON INVESTMENTS, INTEREST ON DEPOSITS, LEASE INCOME ETC. THERE IS NO EXPENDITURE WHICH IS INVOLVED IN EARNING INTEREST ON INVESTMENT ON INTEREST ON DEPOSITS. THESE INCOMES HAVE BEEN EARNED ON THE SURPLUS FUND WHICH THE ASSESSEE HAS EARNED OVER A PERIOD OF TIME . THERE IS NO EXPENDITURE IN FORM OF ON BORROWED CAPITAL, THE ENTIRE ESTABLISHMENT IS FOR MAKING LONG TERM FINANCES TO THE POWER PROJECTS. THIS IS THE REASON WHY THE CBDT HAS NOTIFIED THE ASSESSED COMPANY AS A COMPANY WHICH QUALIFIES FOR DEDUCTION U/S 36(L)(VIII). | WE SHALL EXAMINE THE INCOMES OTHER THAN THE LONG TERM FINANCING ONE BY ONE, HEREUNDER: - A) INTEREST ON INVESTMENTS: THE TOTAL INTEREST EARNED UNDER THIS HEADING IS ON ACCOUNT OF DEPOSITS OF S URPLUS MONEY IN THE BANKS IN THE FORM OF FDRS. THE TOTAL INTEREST EARNED IS RS.61.10 CRORES FROM SUCH FDRS. IF THE ASSESSEE S MAIN BUSINESS IS TO DO LONG TERM FINANCING AND NOT TO EARN INCOME AS INTEREST ON FDRS, OBVIOUSLY THE EXPENDITURE FOR EARNING THE I NTEREST ON FDRS SHALL BE TAKEN AS NIL BECAUSE THE ENTIRE EXPENDITURE WAS FOR EARNING THE. INTEREST ON LONG TERM FINANCING. THE ASSESSEE HAS, HOWEVER, ALLOCATED A PROPORTIONATE EXPENDITURE WHICH IS 37.38% OF RS.61.10 CRORES WHICH IS RS.2.28 CRORES. THE' ASS ESSEE HAS PRESUMED THAT THE ENTIRE EXPENDITURE OF. THE COMPANY HAS BEEN EQUALLY DISTRIBUTED TOWARDS EARNING DIFFERENT TYPES OF INTEREST I.E. INTEREST ON LONG TERM FINANCING AS WELL AS INTEREST ON OTHER DEPOSITS LIKE FDRS. THIS PRESUMPTION HAS NO BASIS. ON THE CONTRARY, IF THE SYSTEM OF ACCOUNTING OF THE ASSESSEE IS ACCEPTED, IT WOULD CLEARLY INDICATE THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF EARNING INCOME ON ACCOUNT OF LONG TERM FINANCING FOR INDUSTRIAL DEVELOPMENT. THEREFORE, PLEA TAKEN BEFORE C BDT THAT THE ASSESSEE QUALIFIES FOR DEDUCTION U/S 36(IXVIII) WAS NOT TRUE. HOWEVER, SINCE THE ASSESSEE TOOK THIS PLEA THAT IT QUALIFIES FOR DEDUCTION U/S 36(LXVIII) AND THEREFORE, IT IS ENGAGED IN THE BUSINESS OF LONG TERM FINANCING FOR INDUSTRIAL DEVELOPM ENT, THE EXPENDITURE ON EARNING INTEREST ON FDR ETC. SHALL BE TAKEN AT NIL. WITHOUT PREJUDICE TO ABOVE, IT MAY ALSO BE ARGUED THAT THE INTEREST ON THE FDRS MADE OUT OF SURPLUS FUNDS IS NOT THE INCOME FROM THE MAIN BUSINESS WHICH THE ASSESSEE HAS BEEN CARRYING OUT. 6 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 THEREFORE, THE INTEREST ON SUCH INVESTMENTS SHALL BE TAKEN AS INCOM E FROM OTHER SOURCES AND THEREFORE, THE SAME WILL NOT QUALIFY FOR DEDUCTION U/S 36(1)(VIII) OF THE I.T. ACT. AT THE SAME TIME, EXPENDITURE SHOWN IN THE BUSINESS SHALL BE TREATED AS BUSINESS EXPENDITURE AND NOTHING OUT OF THAT SHALL BE TREATED AS EXPENDITUR E FOR EARNING SUCH INCOME FROM. OTHER SOURCES. FOR THIS RELIANCE IS PLACED ON HON BLE SUPREME COURT S DECISION IN THE CASE OF M/S TUTICORIN ALKALIES CHEMICALS & FERTILIZERS LTD. REPORTED IN 227 ITR 172(SC). B) INTEREST ON DEPOSITS : THE INTEREST EARNED ON INTER - CORPORATE DEPOSITS (ICDS) HAVE BEEN SHOWN AT 7RS.24.19 CRORES AND THE EXPENDITURE TO EARN SUCH INTEREST HAS BEEN PROPORTIONATELY TAKEN AT 9.05 CRORES. THE EXPENDITURE TO EARN THE INTEREST ON 'ICDS IS TO BE TAKEN AT NLL AS DISCUSSED IN THE PRECEEDI NG PARAGRAPH. ALTERNATIVELY, THE INTEREST ON DEPOSITS WITH THE DIFFERENT COMPANIES OF THE SURPLUS | FIND COULD ALSO BE TAKEN AS INCOME FROM OTHER SOURCES AS DISCUSSED EARLIER. C) LEASE INCOME : THE ASSESSEE HAS EARNED LEASE INCOME OF RS.2.80 CRORES. AS A GAINST THIS, THE ASSESSEE HAS SHOWN A PROPORTIONATE EXPENDITURE OF RS.1.05 CRORES (37.38% OF 2.8 CRORES). THIS IS A VERY GOOD EXAMPLE TO SHOW THAT THE ASSESSEE S METHOD OF ARRIVING AT THE EXPENDITURE TO EARN THE LEASE INCOME IS INCORRECT, BASELESS AND WITH OUT ANY LOGIC. THE ASSESSEE HAS ENTERED INTO A LEASE AGREEMENT WITH APSEB BY SHOWING PURCHASE OF PLANT ON PAPER FROM APSEB AND LEASE BACK THE SAME TO APSEB. THE ASSESSEE HAS NOT TAKEN DEPRECIATION ON SUCH PURCHASE DURING THIS YEAR. HOWEVER, THE ASSESSEE HA S CLAIMED A PROPORTIONATE DEDUCTION ON ACCOUNT OF EXPENDITURE TO EARN THE LEASE RENTAL. IN THIS TRANSACTION, CLEARLY THERE IS NO EXPENDITURE INVOLVED. THEREFORE, WHY - SHOULD THE ASSESSEE BE ALLOWED AN EXPENDITURE OF RS.1.05 CRORES TO BE ALLOCATED TO EARN A LEASE RENTAL OF RS.2.80 CRORES? INFACT THERE CANNOT BE ANY EXPENDITURE WHICH COULD BE CALLED AS EXPENDITURE TOWARDS EARNING THE LEASE INCOME. D) INTEREST ON LEASE FINANCING TO APSEB : THE TOTAL INTEREST ON LEASE INTEREST HAS BEEN SHOWN AT RS. 1.08 CRORES . THE ASSESSEE HAS ALLOCATED RS0.40 CRORES AS EXPENDITURE 7 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 TOWARDS EARNING THE INTEREST ON LEASE FINANCING. AS DISCUSSED IN THE PRECEDING PARAGRAPH, THERE IS NO EXPENDITURE WHICH COULD BE SAID TO HAVE INCURRED TOWARDS EARNING THE INTEREST ON LEASE FINANCING . E) MISC. INCOME : THE ASSESSEE HAS SHOWN MISC. INCOME OF RS.2,18,394/ - AND CLAIMED THAT RS.81,636/ - IS THE EXPENDITURE INCURRED TOWARDS EARNING THE MISC. INCOME. THERE IS ABSOLUTELY NO EXPENDITURE WHICH COULD, BE SAID TO HAVE BEEN INCURRED ON EARNING T HE MISC. EXPENDITURE. THE MISC. INCOME HAS ARISEN DUE TO WRITTEN BACK THE STALE CHEQUES AND OLD AND STICKY CREDITORS. THERE IS NO JUSTIFICATION TO SAY THAT 137.38% OF SUCH INCOME I.E. RS.81,636/ - HAS BEEN INCURRED TOWARDS EARNING SUCH MISC. INCOME. F) GUARANTEE FEES : THE ASSESSEE HAS SHOWN INCOME OF RS.3.83 CRORES AS GUARANTEE FEES. FURTHER THE ASSESSEE HAS CLAIMED AND STATED THAT RS. 1.43 CRORES (I.E. - 37.38% OF RS.3.83 CRORES ) HAS BEEN SPENT TO EARN THE INCOME OF RS.3.83 CRORES. THE VERY NATURE OF T HIS INCOME CLEARLY SHOWS THAT THERE CANNOT BE ANY EXPENDITURE WHICH COULD BE SAID TO HAVE INCURRED TO EARN THE GUA RANTEE FEE. THEREFORE, THE ENTIRE GUARANTEE FEE SHALL BE REDUCED FROM THE TOTAL INCOME TO ARRIVE AT THE FIGURE ON WHIC H DEDUCTION U/S 36(1)( VIII) COULD BE ALLOWED. G) INCOME RELATING TO LOANS SANCTIONED FOR A PERIOD LESS THAN FIVE YEARS . I NCOME RELATING TO LOANS SANCTIONED FOR A PERIOD LESS THAN FIVE YEARS. THE ASSESSEE HAS SH OWN RS.27.39 LACS AS INCOME UNDER THE ABOVE HEAD AND CLAIMED THAT 37.38% OF SUCH INCOME WHICH COMES TO RS. 10.24 LACS HAS BEEN INCURRED TO EARN THE SAID INCOME. FOR THE REASONS AS DISCUSSED ABOVE IN ITEM NO.(A), THE EXPENDITURE CANNOT BE PROPORTIONATELY ALLOCATED TO EARN SUCH INCOME. ACCORDINGLY , FROM THE TOTAL INTEREST INCOME OF RS.27.39 LACS, RS. 10.24 LACS IS NOT TO BE REDUCED TO ARRIVE AT THE FIGURE ON WHICH DEDUCTION U/S 36(1 )( VIII) COULD BE ALLOWED. FURTHER, IF WE ANALYSE THE - TOT AL EXPENDITURE DEBITED TO THE P & L ACCOUNT, WE FIND THAT THAT THERE IS NO EXPENDITURE WHICH COULD BE CALL ED AS EXPENDITURE DEBITED OR INCURRED TOWARDS EARNING OF THE INCOMES AS DISCUSSED ABOVE FROM ITEM NO.(A) TO (G). THE TOTAL EXPENSES CHA R GED TO P &.L ACCOUNT WHICH IS ON MERCANTILE BASIS, IS GIVEN BELOW : - 8 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 RUPEES IN C RORES INTEREST AND OTHER CHARGES RS.236.01 BROKERAGE AND ISSUE EXPENSES. RS. 6.27 INTEREST TAX RS. 13.83 PERSONNEL & ADMINISTRATION EXPENSES RS. 8.32 DEPRECIATION RS. 0.28 PRELIMINARY EXPENSES WRITTEN OFF RS. 0.04 RS.264.75 INTEREST AND OTHER CHARGES ARE ON THE BORROWED CAPITAL WHICH HAS BEEN UTILIZED BY THE ASSESSEE FOR LONG TERM FINANCING OF POWER PROJECTS. BROKERAGE AND ISSUE EXPENSES IS MAINLY ON DISCOUNT ON BONDS ISSUED BY THE ASSESSEE. T HE MONEY RECEIVED ON BONDS HAS BEEN UTILIZED FOR LONG - TERM, FINANCE IN POWR SECTOR. THE INTEREST - TAX EXPENDITURE, IS NOT EXPENDITURE AN ALLOWABLE EXPENDITURE. THE EXPENDITURE ON PERSONNEL AND ADMINISTRATION OF RS.8.32 C ORES IS A FIXED EXPENDITURE WHICH CANNOT BE SAID TO HAV E INCURRED TO EARN THE INCOMES AS GIVEN ABOVE FROM (A) TO (G). DEPRECIATION IS A FIXED EXPENDITURE AND IS, ANY WAY NORMAL. THEREFORE, THE ASSESSEE CAN T PLEAD THAT IT HAS INCURRED ANY EXPENDITURE TOWARDS, EARNING INCOME AS MENTIONED FROM (A) TO (G) ABOVE. THE ACCOUNTING PRINCIPLE FOLLOWED BY THE ASSESSEE TO ARRI VE AT THE SPECIA L RESERVE AMOUNT ON WHICH THE ASSESSEE COULD CLAIM DEDUCTION U/S 36(L)(VIII), IS NOT CORRECT AND CERTAINLY NOT AS PER THE LAW. IN THIS REG ARD RELIANCE IS PLACED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF M/S. TUTICORIN ALKALIES CHEMICAL & FERTILIZERS LTD. R EPORTED IN 227 ITR 172 (SC). AS PER THE DECISIONS , PRINCIPLES OF ACCOUNTANCY CANNOT OVER RIDE THE PROVISIONS OF TAX STATU TES . IT MAY ALSO BE ADDED THAT THE ASSESSEE HAS DEVIATED FROM THE ACCOUNTING PRINCIPLES FOLLOWED CONSISTENTLY BY IT IN EARLIER YEARS. THUS IT IS CLEAR THAT THE EXCESS DEDUCTION CLAIMED IN THE RE VISED RETURN ON ACCOUNT OF 36(L)( VIII) OF RS. 12,41,83,142/ - IS NOT JUSTI FIED AND THE WORKING OF DEDUCTION U/S 36(L )( VIII) HAS BEEN RE - DONE IN ANNEXURE - IV. FURTHER THE ASSESSEE HAS NOT DEDUCTED INTEREST TAX OF RS.2,68,19,000/ - AND MANAGEMENT GUARANTEE FEES OF - RS.3,85,66,000/ - COLLECTED FROM THE DIFFERENT PARTIES FROM THE TOTAL SPECIAL RESERVE ON WHICH DEDUCTION UNDER SECTION 36(L )( VIII) IS TO BE ALLOWED. ON THIS ACCOUNT, THE ASSESSEE HAS CLAIMED EXCESS D EDUCTION OF RS.2,61,54,000/ - WHICH IS NOT ALLOWED. THE DEDUCTION 9 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 U/S 36(L)( VIII) IS ALLOWED ONLY ON THE INCOME EARNED ON LONG TERM FINANCING FOR INDUSTRIAL DEVELOPMENT OR OTHER ACTIVITIES AS GIVEN IN THE PROVISION. THEREFORE, THESE AMOUNTS WOULD NOT QUALIF Y FOR DEDUCTION. THIS ISSUE HAS BEEN TAKEN UP AT THE TIME OF PROCESSING U/S 143(L)(A). THE DEDUCTION U/S 36(L )( VIII) HAS BEEN COMPUTED SEPARATELY IN THIS ORDER AS ANNEXURE - I V TO THIS ASSESSMENT ORDER. 5.2 THE M ATTER TRAVELLED TO THE TRIBUNAL. THE TRIBUNAL IN ITA NO. 994 AND 1062/DELHI/2006 HELD THE SHORT TERM INCOME AS BUSINESS INCOME BUT CONCURRED WITH THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) THAT CLAIM OF THE ASSESSEE OF PRO RAT A EXPENSES AT THE RATE OF 37.38% WAS NOT JUST IFIED AND REMITTED THE MATTER BACK TO THE ASSESSING OFFICER TO EXAMINE THE EXPENDITURE INCURRED BY THE ASSESSEE RELATING TO EACH OF SUCH SHORT TERM INCOME AND ALLOW ACCORDINGLY. THE RELEVANT FINDING OF THE TRIBUNAL IS REPRODUCED AS UNDER: 46. WE FURTHER AGREE WITH THE ORDER OF THE COMMISSIONER OF INCOME - TAX (A) THAT THE ASSESSEE HAS NEITHER ANY JUSTIFICATION NOR THERE CAN BE ANY SYSTEM OF ALLOCATING PRO RATA EXPENSES AT THE RATE OF 37.38 PER CENT KEEPING IN VIEW THE NATURE OF THE INCOME WHICH HAS BEEN HE LD BY US, HEREINABOVE IN THIS ORDER, AS BUSINESS INCOME UNDER THE HEAD THE EXPENSES CLAIMED BY THE ASSESSEE AT THE RATE OF 37.38 PER CENT HAS BEEN RIGHTLY REJECTED BY THE COMMISSIONER OF INCOME - TAX(A) IN VIEW OF THE DETAILED OBSERVATIONS AND CONCLUSIONS I N HIS ORDER. WE FURTHER UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME - TAX(A) WHEREIN HE OBSERVED THAT THE ASSESSING OFFICER SHOULD HAVE EXAMINED THE EXPENDITURE INCURRED BY THE ASSESSEE RELATING TO EACH SUCH INCOME WHICH HAS ALSO BEEN HELD BY US, HEREINAB OVE IN THIS ORDER, TO BE TREATED AS BUSINESS INCOME BY PASSING A CLEAR AND SPEAKING ORDER. 47. WE FURTHER FIND THAT THOUGH THE COMMISSIONER OF INCOME - TAX(A) HAD MADE SUCH OBSERVATIONS WHICH HAVE BEEN UPHELD BY US HEREINABOVE TREATING THE SAME TO BE VERY LOGICAL AND REASONABLE BUT WE FIND THAT NO SUCH DIRECTIONS WERE ISSUE BY THE COMMISSIONER OF INCO ME - TAX (A) IN HIS ORDER, SO, NOW, WHILE UPHOLDING THE ORDER OF THE 10 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 COMMISSIONER OF INCOME - TAX (A) TO THE EXTENT AS OBSERVED HEREINABOVE BY US, WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR CONSIDERING THE EXPENSES INCURRED BY THE ASSESSEE FOR SUCH INCOME OF INTEREST AND GUARANTEE FEE AS HAS BEEN HELD BY US TO BE BUSINESS INCOME AFTER EXAMINING EACH EXPENSE AND SEE ITS APPLICABILITY TO THE EARNING OF SUCH INCOME AND THEREAFTER CONSIDERED THE ALLOWABILITY OF THE SAME TO THE ASSESSEE. 5.3 IN PROCEEDINGS BEFORE THE ASSESSING OFFICER (I.E. IN COMPLIANCE TO THE DIRECTION OF THE TRIBUNAL ), THE ASSESSEE FILED WORKING FOR AL LOCATION OF TO TAL EXPENSES AMOUNTING TO RS.2 65.64 CRORES, WHICH IS REPRODUCED AS UNDER: EXPENSE TOTAL AMOUT (RS. IN CORES) AM OUNT DIRECTLY ALLOCABLE (RS. IN CRORES) AMOUNT NOT DIRECTLY ALLOCABLE (RS. IN CORES) 1. INTEREST AND OTHER CHARGES: 236.01. A) INTEREST ON FOREIGN CURRENCY LOANS (FCL) 21.07 A) INTEREST ON GOVERNMENT OF INDIA LOANS 23.90 C) MANAGEMENT, COMMITMENT AND AGENCY FEE 0.30 D) GUARANTEE FEE RELATING TO FCL 0.29 UNALLOCATED BALANCE 190.45 2. BROKERAGE AND ISSUE EXPENSES 6.27 0 6.27 3. INTEREST - TAX 13.83 13.83 NIL 4. PERSONNEL & ADMINISTRATION EXPENSES 8.32 0 8.32 5. DEPRECAITION .28 0 .28 6. PRELIMINARY EXPENSES WRITTEN OFF .04 0 .04 7. PRIOR PERIOD EXPENSES .89 0 .89 TOTAL 265.64 59.39 206.25 5.4 THUS, THE ASSESSEE ALLOCATED RS. 59.39 CRORES AS DIRECTLY RELATABLE TO THE BUSINESS OF LONG - TERM FINANCING. THE RATIO OF THE BALANCE EXPENSES 11 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 OF 206.25 CRORES AS COMP ARED TO THE TOTAL INCOME OF RS.5 51.76 CRORE WAS COMPUTED AS UNDER: COMMON EXPENDITUR E/TOTAL INCOME = 206.25 CRORES/ 551.76 CRORES = 37.38% 5.5 T HE ASSESSEE ALSO SUBMITTED DETAIL OF INCOME OTHER THAN INTEREST INCOME FROM LONG - TERM FINANCING AS UNDER: INTEREST ON INVESTMENT 61.01 CRORES INTEREST ON DEPOSITS (ICD) 24.19 CRORES GUARANTEE FEES 3.83 CRORES TOTAL 89.03 CRORES 5.6 THE ASSESSING OFFICER WAS OF THE VIEW : (I) THAT NO EXPENSES COULD BE DIRECTLY ATTRIBUTABLE TO THE GUARANTEE FEES (II) THE EXPENSES ON BROKERAGE AN D ISSUE EXPENSES, PERSONAL AND ADMINISTRATION EXPENSES, DEPRECIATION, PRELIMINARY EXPENSES WRITTEN OFF AND PRIOR PERIOD EXPENSES RELATED TO THE LONG - TERM FINANCING AND THEREFORE SAME CANNOT BE ATTRIBUTED TOWAR DS SHORT TERM INCOME . 5.7 THE ASSESSING OFFICER REJECTED THE METHOD ADOPTED WITH ASSESSEE, HOWEVER, ACCORDING TO HIM, USE OF SOME OF THE AMOUNT OF BORROWED FUNDS FOR SHORT - TERM INVESTMENT WAS NOT RULED OUT. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT OUT OF AND UN ALLOCABLE INTERES T EXPENSES OF RS. 190.45 CRORES, ONLY 50% OF THE COMMON INTEREST EXPENSES AMOUNTING TO RS. 95.22 CRORES COULD BE BE ALLOCATED TOWARDS OTHER INTEREST INCOME OF RS. 85.29 CRORES , I.E , INTEREST ON INVESTMENT OF RS. 61.10 CRORES AND INTEREST 12 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 ON DEPOSITS (ICD S) RS. 24.19 CRORES. THE ASSESSING OFFICER COMPUTED THE PROPORTIONATE COMMON INTEREST EXPENDITURE AS UNDER: = RS. 95.22 CRORES X SHORT - TERM INCOME /TOTAL INCOME = RS. 95.22 CRORES X 85.29 CRORES/ 551.76 CRORES = RS. 14.72 CRORES. 5.8 IN VIEW OF THE ABOVE AL LOCATION OF PROPORTIONATE EXPENDITURE, THE ASSESSING OFFICER REVISED DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT TO RS. 79.13 CRORES. 5.9 AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS) AND OBJECTED TO THE AL LOCATION OF EXPENSES MADE BY THE ASSESSING OFFICER. THE ASSESSEE SUBMITTED THAT ALTERN ATIVELY IF THE COMMON EXPENSES ARE ALLOCATED IN THE PERCENTAGE SHARE OF SHORT - TE RM INCOME OF RS. 89.13 CRORES ( 16.15%) AND LONG - TER M INCOME OF RS. 462.63 CRORES ( 83.75%) , THE EXPENSES RELATING TO SHORT - TERM INCOME WILL WORK OUT TO RS. 33.28 CRORES , WHICH HAS BEEN CLAIMED BY THE ASSESSEE. THE L EARNED COMMISSIONER OF INCOME - TAX (APPEALS) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE , HELD THE ALLOCATION OF EXPENSES TOWARDS SHORT - TERM INCOME AS UNDER: (I) REJECTED THE ALLOCATION OF 50 % OUT OF COMMON INTEREST EXPENSES OF RS. 190.45 CRORES MADE BY THE ASSESSING OFFICER AND DIRECTED FOR ALLOCATION OF THE ENTIRE COMMON INTEREST EXPENSES OF RS.190.45 CRORES. (II) AGREED WITH THE A SSESSING OFFICER ON THE ISSUE OF NO ALLOCATION OF EXPENDITURE TOWARDS GUARANTEE FEE (III) ALLOWED DEDUCTION OF RS. 25 LACS OUT OF THE EXPENSES OF RS. 15.80 CRORE S I.E. THE EXPENSES OTHER THAN COMMON INTEREST EXPENSES. 13 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 5.10 AGGRIEVED WITH THE D IRECTION IN POINT NO. (I) ABOVE , THE R EVENUE IS IN APPEAL BEFORE US, WHEREAS THE ASSESSEE IN CROSS OBJECTION AGAINST THE DEDUCTION RESTRICTED TO RS. 25 L ACS AGAINST THE EXPENSES OTHER THAN COMMON INTEREST EXPENSES AS MENTIONED IN POINT N O. (III) ABOVE. 6. BEFORE US , THE L EARNED CIT ( DR ) SUBMITTED THAT THE FORMULA E OF ALLOCATING COMMON EXPENSES FOLLOWED WITH ASSESSEE WAS ALREADY REJECTED BY THE TRIBUNAL IN FIRST ROUND OF PROCEEDING AND MATTER WAS RESTORED TO THE ASSESSING OFFICER, AND THUS THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) WAS NOT JUSTIFIED IN ACCEPTING THE ALLOC ATION SUGGESTED BY THE ASSESSEE . HE FURTHER SUBMIT TED THAT THE ASSESSING OFFICER HAS FAIRLY ALLOCATED 50% OF THE COMMON INTEREST EXPENSES IN TERMS OF THE PERCENTAGE OF THE SHORT - TERM INCOME COMPARED TO THE TOTAL INCOME. 7. ON THE OTHER HAND, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ONLY CONSIDERING 50% OF THE DIRECT EXPENSES FOR ALLOCATION TOWARDS THE SHORT - TERM INCOME WAS WITHOUT ANY BASIS AND NOT IN COMPLIANCE TO THE DIRECTION OF THE TRIBUNAL IN FIRST ROUND PROCEEDINGS. HE FURTHER SUBMITTED THAT FOR COMPUTING INCOME FROM LONG - TERM FINANCE, THE NET SHORT - TERM INCOME WAS TO BE REDUCED FROM THE TOTAL INCOME. IN SUPPORT OF THE CONTENTION THE LEARNED COUNSEL RELIED ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SHR I RAM HONDA POWER EQUIP & ORS. R EPORTED IN 289 ITR 475. HE FURTHER SUBMITTED THAT ALLOCATION OF ENTIRE COMMON INTEREST EXPENSES HAS BEEN ALLOWED BY THE ASSESSING OFFI CER IN ASSESSMENT YEAR 2007 - 08 AND ASSESSMENT YEAR 2008 - 09. HE ALSO FILED C OPY OF THE ASSESSMENT ORDERS FOR THOSE YEARS. 8. WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE ORDER OF THE LOWER AUTHORITIES , THE ORDER OF THE TRIBUNAL IN FIRST ROUND PROCEEDINGS AND THE CASES CITED 14 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 BY THE LEARNED COUNSEL OF THE ASSESSEE . AS FAR AS THE CONTENTION OF THE LEARNED COUNSEL FOR SUBTRACTING OF NET SHORT TERM INCOME OUT OF TOTAL INCOME FOR DERIVING THE INC OME FROM LONG TERM FINANCE, AND RELYING THEREON DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP. & OTHERS (SUPRA) IS CONCERNED THERE IS NO DISPUTE BETWEEN THE PARTIES IN PRESENT APPEAL . WE FIND THAT THE PRO RATA EXPENSES AT THE RATE OF 37.38% ALLOCATED TOWARDS GROSS INCOME FROM SHORT - TERM INVESTMENTS FOR NETTING OF THE INCOME FROM SHORT - TERM INVESTMENTS, WAS NOT ACCEPTED BY THE TRIBUNAL IN FIRST ROUND PROCEEDINGS. THE TRIBUNAL HELD THAT THERE WAS NO JUSTIFICATION FOR SUCH ALLOCATION ON THE BASIS OF THE RATIO OF COMMON EXPENSES TO THE TOTAL INCOME. THE LEARNED CIT(A) , IN THE FIRST ROUND OF PROCEEDINGS, ANALYSED EACH AND EVERY SHORT TERM INCOME AND EXPENSES WHICH COULD BE ALLOWED AGAINST SUCH INCOME FOR NETTING OF IN COMES. HE DIDN T ALLOW ANY EXPENSES. THE TRIBUNAL DIDN T AGREE WITH FINDING THAT NO EXPENSE WERE INCURRED TOWARDS SHORT TERM INCOMES, AND ACCORDINGLY, THE MATTER WAS RESTORED TO THE ASSESSING OFFICER TO EXAMINE THE EXPENDITURE INCURRED BY THE ASSESSEE RE LATING TO SHORT - TERM INCOMES . BUT WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE LD. COMMISSIONER OF INCOME - TAX( APPEALS) HAS ATTEMPTED FOR EXAMINING IN DETAIL OF THE EXPENSES FOR INCOME EARNED OTHER THAN TH E INCOME FROM LONG - TERM FINANCE I.E. SHORT TE RM INCOME. THE ASSESSING OFFICER HAS SIMPLY ESTIMATED 50% OF THE COMMON INTEREST EXPENSES AS NOT RELATED TO SH ORT TERM INCOME AND BALANCE 50% WAS ALLOCATED IN TERMS OF SHARE OF SHORT - TERM INCOME AS COMPARED TO TOTAL INCOME. THE COMMISSIONER OF INCOME TAX ( APPEALS) HAS REJECTED THE FINDING OF THE ASSESSING OFFICER ON THE GROUND THAT IT WAS NOT BASED ON ANY MATERIAL AND THUS COULD NOT BE HELD AS FAIR AND REASONABLE. THE ASSESSING OFFICER WAS PROVIDED OPPORTUNITY BY THE TRIBUNAL FOR IDENTIFYING THE EXPENSES RELATED TO SHORT - TERM INCOME (S) BUT THE ASSESSING OFFICER SIMP LY ADOPTED 15 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 A PERCENTAGE FORMULA , WHICH IS , IN OUR OPINION NOT HAVING ANY SCIENTIFIC BASIS FOR ALLOCATION OF THE EXPENSES AND THEREFORE WE ARE NOT INCLINED TO ACCEPT SUCH ALLOCATION OF EXPENSES. WE HAVE ALSO PERUSED THE ASSESSMENT ORDER IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 AND 2 008 - 09 WHEREIN THE ASSESSING OFFICER HIMSELF AS ACCEPTED THE ALLOCATION OF THE COMMON DIRECT EXPENSES TOWARDS SHORT - TERM INCOMES . 9. WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE TO ACCEPT THE ALLOWANCE OF PRO RATA EXPENSES T OWARDS THE SHORT TERM INCOME (S), D UE TO THE FOLLOWING REASONS: I. THAT I N THE FIRST ROUND OF PROCEEDING, THE CLAIM OF ALLOWANCE OF PRO RAT A EXPENSES TOWARDS SHORT TERM INCOME (S) WAS NOT ACCEPTED BY THE TRIBUNAL AND THE MATTER WAS RESTORED TO THE ASSESSING OFF ICER TO IDENTIFY EXPENSES TOWARDS EACH OF THE SHORT TERM INCOME. II. THAT T HE ASSESSING OFFICER HAS NOT FOLLOWED THE FINDING OF THE TRIBUNAL WHILE PASSING THE ORDER IN COMPLIANCE TO DIRECTION OF THE TRIBUNAL. III. THAT T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO NOT TAKEN INTO CONSIDERATION THE DIRECTION OF THE TRIBUNAL AND ALLOWED THE RELIEF TO THE ASSESSEE, WHICH WAS NOT APPROVED BY THE TRIBUNAL IN FIRST ROUND OF PROCEEDING. IV. THAT T HE LOWER AUTHORITIES ARE BOUND TO FOLLOW THE DIRECTION ISSUED B Y THE TRIBUNAL AND CANNOT ACT ACCORDING TO THEIR WISH OR CHOICE, WHILE COMPLYING THE DIRECTION OF THE TRIBUNAL. V. THAT T HE DIRECT EXPENSES LIKE INTEREST ET C . A RE PRIMA FACIE NOT ALLOWABLE AGAINST THE LEASE INCOME ETC. ON PRO RATA BASIS. THE INTEREST EXPENSES INCURRED FOR BORROWING FUNDS WAS REQUIRED TO BE EXAMINED BY THE ASSESSING OFFICER FROM TERMS AND CONDITIONS OF MONEY BORROWED. IF SAME WERE INCURRED EXCLUSIVELY FOR LONG TERM 16 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 BORROWING, THEN NO INTEREST EXPENSES WAS REQUIRED TO BE ALLOCATED AGAINST SHORT TERM INCOME FROM FIXED DEPOSIT IN BANKS OR INTER CORPORATE DEPOSITS ETC. THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE ALL THESE ISSUES, WHICH HE HAS NOT DONE. 10. IN VIEW OF ABOVE, WE FEEL IT APPROPRIATE TO RESTORE THE MATTER BACK TO THE FILE OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS), WHO IS DIRECTED TO FOLLOW THE DIRECTION OF THE TRIBUNAL GIVEN IN THE FIRST ROUND OF PROCEEDINGS AND DECIDE THE ISSUE ACCORDINGLY AFTER GIVING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND S OF APPEA L RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE CROSS OBJECTION , THE ASSESSEE HAS CHALLENGED ALLOCATION OF RS. 25 LAKH FOR EXPENSES OTHER THAN DIRECT EXPENSES TOWARDS SHORT - TERM INCOME . 12. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE EXPENSES OF RS. 15.80 CRORE TOWARD S BROKERAGE AND ISSUE EXPENSES ( RS. 6.27 CRORES), PERSONA L AND ADMINISTRATIVE EXPENSES (8.32 CRORES), DEPRECIATION ( RS. 0.28 CRORES), PRELIMINARY EXPENSES WRITTEN OFF (RS. 0.04 C ROR ES), PRIOR PERIOD EXPENSES (RS. 0.89 CRORES) SHOULD ALSO BE ALLOCATED PROPORTIONATELY FOR SHORT - TERM INCOME. THE LEARNED CIT (DR), ON THE OTHER HAND, RELIED ON THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) HAS DECIDED THE ISSUE AS UNDER: 5.4 FOR REMAINING HEADS OF EXPENSES I.E. PERSONAL EXPENSES OF RS.8 20 CRORES, DEP RECIATION RS. 0.28 CRORES, PRELIMINARY EXPENSES RS. 0.04 CRORES AND PRIOR PERIOD EXPENSES 0.89 CRORES THE OBSERVATION OF THE AO THAT THESE EXPENSES HAVE NOTHING TO DO WITH EARNING OF SHORT TERM INCOME DOES NOT APPEAR A CORRECT APPROACH. AT 17 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 THE SAME TIME I AM ALSO NOT CONVINCED WITH THE PLEA OF THE APPELLANT THAT SUCH EXPENDITURE SHOULD ALSO BE APPORTIONED PROPORTIONATELY FOR BOTH FOR LONG TERM AS WELL AS SHORT TERM INCOME. IT IS A FACT THAT THE MAIN ESTABLISHMENT OF THE APPELLANT IS PRIMARILY AND MAINLY WOR KING FOR EARNING OF THE LONG TERM INCOME, HOWEVER, IT CAN ALSO NOT BE DENIED THAT IN EARNING OF SHORT TERM INCOME TO THE TUNE OF RS. 89.03 CRORES THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE AT ALL. CONSIDERING THE FACT THAT A SMALL FRACTION OF MANAGERIA L AND CLERICAL MEN POWER MUST HAVE BEEN UTILIZED FOR TAKING THE DECISIONS REGARDING PLACEMENT OF FUNDS IN SHORT TERM DEPOSITS AND ACCOUNTING OF SUCH INCOME ETC., IN THE GIVEN FACTS AND CIRCUMSTANCES IT WOULD BE MORE APPROPRIATE TO MAKE A FAN AND REASONABLE ESTIMATION SOMEWHERE BETWEEN THE APPELLANT S CLAIM OF PROPORTIONATE AMOUNT OF APPROXIMATELY RS.1.5 CRORE AND NIL FIGURE AS PER THE FINDING OF THE AO. ACCORDINGLY, CONSIDERING THE VOLUME OF WORK INVOLVED IN EARNING OF SHORT TERM INTEREST INCOME. IT WOULD B E FAIR AND REASONABLE TO ALLOW A NET DEDUCTION OF RS.25 LACS OUT OF THE EXPENSES UNDER THE MISC. SUB - HEADS. 14. W E AGREE WITH THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) THAT THE MAIN ACTIVITY OF THE ASSESSEE WAS FOR EARNING FROM LON G - TERM FINANCE AND , THEREFORE , ALLOWING PROPORTIONATE EXPENDITURE WA S NOT JUSTIFIED. IN OUR OPINION, THE ESTIMATION OF RS. 25 LAKH TOWARDS THE SHORT - TERM INCOME BY THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) IS MOST REASONABLE AND JUSTIFIED. IN OUR OPI NION , THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE IS WELL REASONED AND NO INTERFERENCE ON OUR PART IS REQUIRED, ACCORDINGLY , WE UPHOLD THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE AND THE GROUND OF THE CROSS OBJECTION OF THE ASSESSEE IS REJECTED. ITA NO. 5917 AND 5918/DEL/2013. 15 . THE GROUNDS OF APPEAL RAISED IN BOT H THE APPEALS ARE IDENTICAL, THEREFORE , THE GROUNDS OF APPEAL IN ITA NO. 5917 /DEL/2013 IS ONLY REPRODUCED AS UNDER 18 ITA NOS.4059/DEL/2009; 5917 & 5918 /DEL/2013 AND C.O. NO. 376/DEL/2009 AY S : 1996 - 97, 2000 - 01 & 2001 - 02 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN FULLY ALLOWING THE CLAIM OF THE ASSESSEE REGARDING DIRECT EXPENSES AGAINST INELIGIBLE INCOME FOR THE PURPOSE OF COMPUTATION OF DEDU CTION U/S 36(1)(VIII) WHEN IN ABSENCE OF EVIDENCE FROM THE ASSESSEE, THE ASSESSING OFFICER HAD ALREADY BEEN FAIR AND REASONABLE IN ALLOWING THE CLAIM TO THE EXTENT OF 50%. 2. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 16 . W E FIND THAT ISSUE IN DISPUTE RAISED IN THE ABOVE TWO APPEALS IS IDENTICAL TO THE ISSUE RAISED IN ITA NO. 4059/DEL/2009, WHICH WE HAVE DECIDED ABOVE. AC CORDINGLY , FOLLOWING OUR OWN FINDING S IN ITA NO. 4059/DEL/2009 , WE RESTORE THE ISSUE INVOLVED IN GROUNDS OF APPEAL IN ITA NOS. 5917 & 5918/DEL/ 2013 TO THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AS DIRECTED IN ITA NO. 4059/DEL/2009 . THE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES ACCOR DINGLY. 17 . IN THE RESULT , ALL THE THREE APPEALS FILED BY THE R EVENUE IN ITA NOS. 4059/DEL/2009, 5917 & 5918/DEL/2013 ARE ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS O BJECTION OF THE ASSESSEE IN C.O. NO. 376/DEL/2009 IS DISMISSED . THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 20 TH JANUARY , 201 7 . SD/ - SD/ - ( S.K. YADAV ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 TH JANUARY , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI