DCIT 9(1)(2), MUMBAI V. APTECH LTD, MUMBAI

ITA 5953/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6045 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 20-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: S C TIWARI; RUTUJA PAWAR
• Keywords: Reopening of assessment; Bogus purchase; Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income; Retrospective amendment; Cost of acquisition; Wholly owned subsidiary; Bad and doubtful debts; Corroborative evidences; Accommodation entries; Competent authority; Scheme of amalgamation; Assessment record; Commercial expediency; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 43B; 143(3); 80HHC; 14A; 115JB; 37(1); 143(1); 250; 201; 251; 208; 139(1); 64; 147; 148; 37; 56

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , .., , BEFORE SHRI JOGINDER SINGH, VICE PRESIDENT, AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.5630/MUM/2017 ASSESSMENT YEAR: 2004-05 M/S APTECH LTD. A-65, APTECH HOUSE, MIDC, MAROL, ANDHERI (EAST), MUMBAI-400093 / VS. DCIT, RANGE-9(1)(2), ROOM NO.260A, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 ( # / REVENUE) ( $%& ' /ASSESSEE) P.A. NO.AADCA0602L ITA NO.5953/MUM/2017 ASSESSMENT YEAR: 2004-05 DCIT, RANGE-9(1)(2), ROOM NO.260A, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 / VS. M/S APTECH LTD. A-65, APTECH HOUSE, MIDC, MAROL, ANDHERI (EAST), MUMBAI-400093 ( # / REVENUE) ( $%& ' /ASSESSEE) P.A. NO.AADCA0602L ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 2 ITA NOS.5954, 5971 & 5917/MUM/2017 ASSESSMENT YEARS: 2005-06, 2006-07 & 2012-13 DCIT, RANGE-9(1)(2), ROOM NO.260A, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 / VS. M/S APTECH LTD. A-65, APTECH HOUSE, MIDC, MAROL, ANDHERI (EAST), MUMBAI-400093 ( # / REVENUE) ( $%& ' /ASSESSEE) P.A. NO.AADCA0602L $%& ' / ASSESSEE BY SHRI S.C. TIWARI & MS. RUTUJA PAWAR -AR # / REVENUE BY SHRI PANKAJ KUMAR -DR ( #)*' + / DATE OF HEARING : 02/01/2019 *' + / DATE OF PRONOUNCEMENT 04/01/2019 / O R D E R PER JOGINDER SINGH (VICE PRESIDENT) THIS IS A BUNCH OF FIVE APPEALS, WHEREIN, THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS APPEAL FOR ASSESSMENT YEAR 2004-05, WHEREAS, THE REVENUE IS IN APPEAL FOR ASSESSMENT YEARS 2005-06, 2006-07 AND 20 12- 13 AGAINST THE RESPECTIVE ORDERS OF THE FIRST APPEL LATE AUTHORITY, MUMBAI. 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSESS EE FOR ASSESSMENT YEAR 2004-05(ITA NO.5630/MUM/2017), WHEREIN, THE FIRST GROUND RAISED BY THE ASSESSEE PE RTAINS TO ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 3 TREATING THE AMOUNT OF RS.54.16 LAKHS AS CAPITAL LO SS OUT OF THE TOTAL LOSS OF RS.1,57,05,886/- INCURRED ON ACCO UNT OF FOREIGN EXCHANGE FLUCTUATION. 2.1. DURING HEARING, THE LD. COUNSEL FOR THE ASSES SEE, SHRI S.C. TIWARI ALONG WITH MS. RUTUJA PAWAR, EXPLA INED THAT THE ASSESSEE SUFFERED LOSS DUE TO FOREIGN EXCH ANGE FLUCTUATION AND THE ASSESSEE ISSUED GDR OUT OF INDI A FUNDS KEPT IN ESCROW ACCOUNT. IT WAS PLEADED THAT ON EARL IER OCCASION, THE MATTER WAS REMANDED BACK TO THE FILE OF THE LD. ASSESSING OFFICER BY THE TRIBUNAL WITH CERTAIN DIRECTIONS AND INTURN THE LD. ASSESSING OFFICER WIT HOUT FOLLOWING THE DIRECTION OF THE TRIBUNAL OF VERIFICATION/EXAMINATION MERELY REPEATED THE EARLIE R ASSESSMENT ORDER. IT WAS PLEADED THAT THE ASSESSEE IS HOLDER OF 100% SHARES OF ITS SUBSIDIARY AND THE ASS ESSEE MADE AVAILABLE THE OWN FUNDS TO ITS SUBSIDIARIES FO R COMMERCIAL EXPEDIENCY. RELIANCE WAS PLACED UPON THE DECISION IN THE CASE OF S.A. BUILDERS (288 ITR 1)(S UPREME COURT) WITH RESPECT TO THE RATIO LAID DOWN FOR COMM ERCIAL EXPEDIENCY. IT WAS CLAIMED THAT THE ASSESSEE/SUBSID IARY ARE IMPARTING EDUCATION IN THE FORM OF COMMERCIAL ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 4 COACHING INSTITUTE IN THE FIELD OF SOFTWARE. IT WAS ALSO EXPLAINED THAT THE PROFIT OF THE SUBSIDIARY ULTIMAT ELY COMES TO THE ASSESSEE. IT WAS EMPATHETICALLY SUBMITTED TH AT THE FOREIGN EXCHANGE GIVEN TO THE ASSESSEE WAS UTILIZED FOR COMMERCIAL EXPEDIENCY. PLEA WAS ALSO RAISED THAT TH E FUNDS WERE REQUIRED FOR BUSINESS PURPOSES OUTSIDE INDIA. OUR ATTENTION WAS INVITED TO PAGES-11 TO 14 OF THE IMPU GNED ORDER IN THE FIRST ROUND OF APPEAL, WHEREIN, IT WAS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE PURPOSES OF SUBSI DIARY. IT WAS PLEADED THAT IF THE BUSINESS OF THE SUBSIDIARY IS PROMOTED THEN THE ASSESSEE IS SOLE BENEFICIARY AND THUS THE AMOUNT SO ADVANCED TO THE SUBSIDIARY HAS TO BE ALLO WED AS REVENUE. OUR ATTENTION WAS INVITED TO SCHEDULE-C OF THE ACCOUNTS. 2.2. ON THE OTHER HAND, THE LD. DR, SHRI PANKAJ KUMAR, STRONGLY DEFENDED THE IMPUGNED ORDER DATED 30/06/2017 AND ALSO THE ASSESSMENT ORDER. OUR ATTEN TION WAS INVITED TO PARA-10.1 OF THE ORDER OF THE FIRST APPELLATE AUTHORITY. IT WAS ALSO PLEADED THAT IF THE LD. ASS ESSING OFFICER HAS NOT CARRIED OUT THE EARLIER DIRECTIONS OF THE TRIBUNAL THEN AGAIN IT MAY BE SENT TO THE FILE OF T HE LD. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 5 ASSESSING OFFICER WITH SIMILAR DIRECTIONS. PLEA WAS ALSO RAISED THAT THE ASSESSEE USED BORROWED FUNDS, WHICH WERE ADVANCED TO THE SUBSIDIARY WITHOUT ANY BUSINESS PUR POSES AND THERE WAS NO BUSINESS EXIGENCY. 2.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, REGISTERED UNDER THE COMPANIES ACT, 1956, ENGAGED IN THE BUSIN ESS OF COMPUTER TRAINING, SOFTWARE DEVELOPMENT AND EXPORT, DECLARED NIL INCOME IN ITS RETURN FILED ON 01/11/20 04 UNDER THE NORMAL PROVISIONS OF THE ACT AND DECLARED BOOK PROFIT OF RS.9,20,66,111/- UNDER SECTION 115JB OF T HE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). THE ASS ESSMENT WAS COMPLETED ON 26/12/2006 UNDER SECTION 143(3) O F THE ACT DETERMINING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT AT RS.15,25,90,380/- AND UNDER THE NORMAL PROVI SIONS OF THE ACT, THE INCOME WAS DETERMINED AT NIL. 2.4. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), THE ASSESSMENT ORDER DATED 26/12/2006 WAS CHALLENGED, WHEREIN, THE ORDER WAS PASSED ON 06/09/2007. THE SAID ORDER WAS CARRIED IN ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 6 APPEAL BEFORE THIS TRIBUNAL, WHEREIN, VIDE ORDER IN ITA NO.7316/MUM/2007) IN THE APPEAL OF THE REVENUE AND THE ASSESSEE ALSO FILED CROSS APPEAL (ITA NO.7114/MUM/2 007). THE TRIBUNAL VIDE COMMON ORDER DATED 25/01/2010, RESTORED THE ISSUES TO THE FILE OF THE LD. ASSESSIN G OFFICER WITH RESPECT TO TREATMENT OF LOSS OF RS.1,57,05,886 /- ARISING FROM FOREIGN EXCHANGE FLUCTUATION IN THE A PPEAL OF THE ASSESSEE AND IN THE APPEAL OF THE REVENUE WITH RESPECT TO DELETION OF DISALLOWANCE OF RS.3,35 LAKHS CLAIME D UNDER SECTION 35D AND ALLOWED UNDER SECTION 35DD OF THE A CT AND FURTHER THE DISALLOWANCE OF RS.3.76 CRORES CLAI MED UNDER SECTION 35DD AND FURTHER DELETION OF DISALLOW ANCE OF RS.57.33 LAKHS ON ACCOUNT OF FOREIGN EXCHANGE FLUCT UATION. SUBSEQUENTLY, NOTICE UNDER SECTION 148 OF THE ACT W AS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE V IDE LETTER DATED 14/12/2009 OBJECTED TO THE NOTICE ISSU ED UNDER SECTION 148 AND REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT. IN ITS SUBMISSIONS, THE ASS ESSEE CLAIMED THAT IT HAD PURCHASES SOFTWARE FROM M/S WASHINGTON SOFTWARE AND PAYMENT FOR WHICH WAS MADE THROUGH BANKING CHANNEL/ ACCOUNT PAYEE CHEQUE. THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 7 ASSESSEE ALSO FURNISHED THE LEDGER ACCOUNT OF M/S WASHINGTON SOFTWARE AS APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. BEFORE ADVERTING FURTHER, WE ARE REPRODUCING HEREUNDER THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004-05 DATED 26/01/2010 FOR READY REFERENCE AND ANALYSIS:- THESE ARE CROSS APPEALS ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER S OF THE LD.CIT(A)-VIII, MUMBAI DATED 06.09.2007 FOR THE A.Y . 2004-05. 2. THE FIRST GROUND OF APPEAL ON THE ASSESSEES APP EAL IS AGAINST THE CONFIRMATION OF THE DISALLOWANCE OF BELATED PAY MENT OF EMPLOYEES P.F. AND E.S.I.C. U/S 36 (1)(VA) RS. 4,32,752/- PAID BEF ORE THE DUE DATE FOR FILING OF RETURN U/S 139(1). 3. THE LEARNED DCIT HAS ERRED IN DISALLOWING EMPLOY EES CONTRIBUTION TO EMPLOYEES STATE INSURANCE CORPORATI ON (ESIC) AND EMPLOYEES PROVIDENT FUND (EPF) AMOUNTING TO RS 4,32,752/- UNDER SECTION 36(1)(VA) READ WITH 2(24). THE DISALLOWANCE WAS CONFIRMED ON APPEAL BY THE CIT(A). 4. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. I T IS THE CONTENTION THE ASSESSEE THAT CIT(A) ERRED IN CONFIR MING THE DISALLOWANCE WITHOUT APPRECIATING THE FACT THAT THE RIGORS OF PROVISIONS OF SECTION 36(1)(VA) READ WITH SEC 43B W ERE RELAXED BY THE AMENDMENT TO FIRST PROVISO TO SECTION 43B BY THE FINANCE ACT 2003 W.E.F. 1.4.2004 PERMITTING DEDUCTION OF SU CH BELATED PAYMENTS IN THE COMPUTATION OF BUSINESS INCOME IN C ASE SUCH PAYMENTS ARE MADE BY AN ASSESSEE BEFORE THE DUE DAT E IN ITS CASE FOR FILING OF RETURN OF INCOME U/S 139(1). ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 8 5. IT IS THE CONTENTION OF THE REVENUE THAT THE REL AXATION BROUGHT IN BY THE FINANCE ACT 2003 TO U/S 43B, APPLIES ONLY TO THE EMPLOYERS CONTRIBUTION BUT NOT TO THE EMPLOYEES C ONTRIBUTION RECOVERED BY THE ASSESSEE EMPLOYER FROM THE SALARIE S OF THE EMPLOYEES. WITHOUT GOING INTO THE VARIOUS ARGUMENTS , WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE HIGH COURT OF P&H IN THE CASE OF CI T VS LAKHANI RUBBER WORKS (326 ITR 415) WHEREIN FOLLOWIN G THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS AL OM EXTRUSIONS LTD (319 ITR 306), THE HIGH COURT HAS HE LD THAT BOTH THE EMPLOYERS AND THE EMPLOYEES CONTRIBUTION AS W ELL AS OTHER INCIDENTAL CHARGES CANNOT BE DISALLOWED U/S 43B, IF PAID BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1). WE FIND SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI HIGH COURT IN THE CASE OF CIT VS P.M. ELECTRONICS LTD (313 ITR 161). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE ALLOW THE APPEAL OF THE ASSE SSEE WITH THE DIRECTIONS THAT EMPLOYERS/ EMPLOYEES CONTRIBUTION T O P.F / ESIC, IF PAID WITHIN THE DUE DATE OF FILING OF THE RETURN U/S 139(1) SHOULD BE ALLOWED AND CANNOT BE DISALLOWED U /S 43B. 6. THE NEXT ISSUE ON APPEAL IS REGARDING TREATMENT OF LOSS OF RS. 1,57,05,866/- ARISING FROM EXCHANGE FLUCTUATION. DU RING THE YEAR THE ASSESSEE HAS CLAIMED FOREIGN CURRENCY EXCH ANGE LOSS OF RS 2,92,94,016/- WHICH INCLUDES DIMINUTION IN THE V ALUE OF BALANCES AMOUNTING TO RS 1,57,05,866/-. FURTHER FRO M THE NOTES TO ACCOUNTS OF THE ASSESSEE IT WAS SEEN THAT THE AS SESSEE HAS CHANGED ITS METHOD OF FOREIGN CURRENCY TRANSACTION. VIDE LETTER DATED 1,12.2006, AO REQUIRED THE ASSESSEE TO GIVE T HE REVENUE IMPACT ON THE CHANGE. 7. VIDE LETTER DATED 11.12.2006 AND 19.12.2006 THE ASSESSEE HAS SUBMITTED THE REPLY. IN THE REPLY DATED 11TH DECEMB ER 2006, THE ASSESSEE HAS SUBMITTED THAT ACCOUNTING STANDARD 11 REQUIRES THAT EXCHANGE RATE DIFFERENCE SHOULD BE COMPUTED BY CONSIDERING THE DIFFERENCE BETWEEN TRANSACTION RECO RDED IN THE BOOKS AND THE RATE APPLICABLE ON THE DATE OF SETTLE MENT. HAD THE METHOD OF ACCOUNTING BEEN SO, THE RESULT IN EXCHANG E DIFFERENCE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 9 WOULD HAVE BEEN HIGHER/LOWER WITH LOWER/ HIGHER CORRESPONDING EXPENSES /INCOME . HOWEVER THERE WAS NO EFFECT ON THE PROFIT OF THE YEAR. IN THE REPLY DATED 19TH DECEMBER 2006, THE ASSESSEE HAS SUBMITTED THAT THE FOREIGN E XCHANGE LOSS INCLUDES THE LOSS ARISING ON ACCOUNT OF REVALUATION OF ASSETS STATED IN FOREIGN CURRENCY WHICH ARE REVALUED IN OR DER TO REFLECT THE NET REALIZABLE VALUE OF THAT ASSETS AS ON THE B ALANCE SHEET DATE. HE FURTHER SUBMITTED THAT THIS LOSS IS IN THE ORDINARY COURSE OF BUSINESS AND IS THEREFORE A REVENUE LOSS AND THERE ARE NO LOSSES ON CAPITAL ACCOUNT WHICH ARE CLAIMED AS R EVENUE DURING THE YEAR. THE ASSESSEE GAVE THE BREAK UP OF THE LOSS AS UNDER: 1. DIMINUTION IN THE VALUE OF DEBTOR RS 1,36,11,523 /- 2. DIMINUTION IN THE VALUE OF BANK BALANCES RS 1,57 ,05,866/- 8. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION. HE FOUND THAT DURING THE YEAR THE ASSESSEE ISSUED GDR AND OU T OF THE TOTAL ISSUE AN AMOUNT OF RS 33,88,70,646/- IS LYING IN THE ESCROW ACCOUNT. THE ASSESSEE HAS REVALUED THE AMOUN T LYING IN THE ESCROW ACCOUNT AND AN AMOUNT OF RS 157,05,866/- HAS BEEN CLAIMED AS EXCHANGE LOSS ON ACCOUNT OF REVALUATION OF AMOUNT OUTSTANDING IN THE BANK. THE AO HELD THAT THE AMOUN T OF RS 33.88 CRORES IS THE CAPITAL OF ASSESSEE AND THE ASS ESSEE HAS NOT USED THE MONEY LYING IN THE ESCROW ACCOUNT FOR PURP OSE OF BUSINESS. THE AO OBSERVED THAT THE AMOUNT IN THE ES CROW ACCOUNT IS CAPITAL OF THE ASSESSEE AND THEREFORE TH E INCREASED LIABILITY CONSEQUENT TO THE DEVALUATION ALSO REMAIN ED THE SAME IN NATURE AND THEREFORE THE SAME IS NOT A REVENUE E XPENSES. IN THIS REGARD THE AO RELIED ON THE DECISION OF SUPREM E COURT IN THE CASE OF SUTLEJ COTTON MILLS LTD VS CIT REPORTED IN 116 ITR 1 WHEREIN THE SUPREME COURT HAS GONE INTO ALL ASPECTS OF THE MATTER AND LAID DOWN THE TEST FOR DETERMINING WHETH ER THE LOSS CAUSED ON ACCOUNT OF DEVALUATION IS A REVENUE LOSS OR A CAPITAL LOSS IN THE FOLLOWING WORDS: ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 10 THE LAW MAY, THEREFORE NOW BE TAKEN TO BE WELL SET TLED THAT WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECI ATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY IT, ON CONVER SION INTO ANOTHER CURRENCY SUCH PROFIT OR LOSS WOULD ORDINARILY BE TR ADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REV ENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMB ARKED IN THE BUSINESS. BUT IF ON THE OTHER HAND THE FOREIGN CURRENCY IS HE LD AS A CAPITAL ASSET OR AS FIXED CAPITAL SUCH PROFIT OR LOSS WOULD BE OF CA PITAL NATURE. RELYING ON THE RATIO OF THE ABOVE JUDGMENT THE AO H ELD THAT DIMINUTION IN THE VALUE OF BANK BALANCES OF RS 157, 05,866/- IS TREATED AS CAPITAL EXPENSES AND DISALLOWED THE SAME . 9. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE TH E LEARNED CIT(A). BEFORE THE FIRST APPELLATE AUTHORITY IT WAS CONTENDED THAT 15,360,000 EQUITY SHARES OF RS 10/- EACH, UNDE RLYING 3,840,000 GLOBAL DEPOSITARY RECEIPTS (GDR) OF USD 3 .75 EACH WERE ALLOTTED BY THE APPELLANT COMPANY, AT A PREMIU M OF RS 32.53 PER SHARE, ON NOVEMBER 6,2003. THE CONSIDERATION FOR THE SAME AGGREGATING TO USD 14,40 0,000 (EQUIVALENT RS 65,32,56,000) WAS RECEIVED IN THE ES CROW ACCOUNT WITH BANCO PORTUGUES DE NOGOCIOS (BPN) AND OUT OF THIS AMOUNT USD 6,929,735 (EQUIVALENT RS 31,43,85,3 54/-) WAS UTILISED. THE BALANCE OF UD 7,473,265 (EQUIVALENT RS.33,88,70,646) WAS HELD IN BPN ACCOUNT AND, PARTL Y IN UNION BANK OF INDIA. OBU ACCOUNT AS ON 31.3.2004 FOR UTIL IZATION IN THE NEAR FUTURE, FOR FOLLOWING BUSINESS PURPOSES AS PER THE OFFER DOCUMENT. (A) REPAYMENT OF WORKING CAPITAL LOANS OF THE APPEL LANT COMPANY (B) INVESTMENT IN DELHI GOVERNMENT SCHOOL PROJECT W HICH IS A PART OF THE INSTITUTIONAL PROJECT BUSINESS OF THE A PPELLANT COMPANY (C) GRANTING ADVANCES TO SUBSIDIARIES (D) INVESTMENT IN SUBSIDIARIES (E) MAKING OF BALANCE PAYMENT TO SSI LTD IN CONSIDE RATION FOR ACQUISITION OF TRAINING AND EDUCATION DIVISION FROM SSI LTD ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 11 (F) THE FUNDS TO THE EXTENT OF RS. 1362. 03 LAKHS W AS UTILISED BY APPELLANT FOR SETTING UP APTECH EDUCATION SOCIETY. 10. THE ASSESSEE GAVE VARIOUS PARTICULARS AND EXPLA NATION ABOUT THE MANNER OF UTILIZATION OF THE FUNDS KEPT I N THE ESCROW ACCOUNT IN THE SUBSEQUENT YEAR. 11. WE FIND THAT THE PARTICULARS OF USAGE OF FUNDS IN THE SUBSEQUENT YEAR WERE NOT BEFORE THE AO. WE ALSO FEE L THAT WHETHER THE LOSS IN VALUE OF MONIES REALISED FROM I SSUE OF SHARES AND KEPT ABROAD BY THE ASSESSEE ABROAD CAN BE CONSI DERED AS BUSINESS LOSS OF THE ASSESSEE HAS TO BE LOOKED INTO . THERE ARE VARIOUS ASPECTS WHICH REQUIRE FURTHER INVESTIGATION . WE THEREFORE DEEM FIT TO REMIT THE MATTER TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 12. THE NEXT GROUND OF APPEAL IS AGAINST LEVY OF IN TEREST U/S 220(2) ON ENHANCED MAT TAX LIABILITY U/S 115JB. THE AO LEVIED INTEREST U/S 220(2) OF RS 43,600 ON THE ADDITIONS M ADE TO MINIMUM ALTERNATE TAX (MAT) U/S 115JB OF THE ACT. 13. ON APPEAL THE LEARNED CIT(A) HELD THAT INTERES T U/S 220(2) IS LEVIED ON THE DEMAND RAISED AND NOTIFIED AS PER SECTION 156 OF THE IT ACT AN WHICH IS NOT PAID WITHIN THE PERIO D LIMITED UNDER SUB SECTION (I) OF SECTION 220(1). IN VIEW OF THE EXPRESS PROVISIONS OF THE ACT, I DO NOT SEE ANY REASON WHIC H CALLS FOR MY INTERVENTION IN THE IMPOSITION OF INTEREST U/S 220( 2) OF THE IT ACT. THIS GROUND IS, THEREFORE, DECIDED AGAINST THE APPELLANT. 14. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. LEVY OF INTEREST U/S 220(2) IS FOR DEFAULT IN PAYMENT OF TA X DEMANDED WITHIN THE TIME PERMITTED. ONCE THE DEMAND IS MADE, WHETHER BE IN RESPECT OF INCOME DETERMINED UNDER NORMAL COMPUT ATION OR BOOK PROFITS, AND ASSESSEE FAILS TO PAY THE SAME WI THIN TIME PERMITTED, HE IS TREATED AS AN ASSESSEE IN DEFAULT AND INTEREST U/S 220(2) IS LEVIED. INTEREST U/S 220(2) STARTS ONLY A FTER THE DEMAND IS MADE AND THE ASSESSEE DOES NOT PAY THE AMOUNT WI THIN THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 12 PERMITTED TIME. WE THEREFORE FIND NO MERIT IN THE C LAIM OF THE ASSESSEE THAT LEVY OF INTEREST U/S 220(2) IS NOT CO RRECT ON THE TAX ARISING FROM ENHANCEMENT OF THE BOOK PROFITS. THE A PPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. 15. IN RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. ITA NO. 7316/MUM/2007 - DEPARTMENTAL APPEAL: 16. THE FIRST GROUND IN THE REVENUES APPEAL IS AGA INST THE DELETION BY THE CIT(A) THE DISALLOWANCE OF RS.3.35 LAKHS CLAIMED U/S 35D BY ALLOWING ASSESSEES ALTERNATE CL AIM U/S 35DD. 17. THE ASSESSEE HAD CLAIMED RS 335,605/- UNDER SEC TION 35D OF THE INCOME TAX ACT, BEING 1/5TH OF RS 16,78,025/ - WHICH WAS THE EXPENSES INCURRED TOWARDS INCREASE IN AUTHORIZE D SHARE CAPITAL IN CONNECTION WITH SUBSTANTIAL EXPANSION OF ASSESSEES BUSINESS. 18. THE ASSESSING OFFICER FOUND THAT IN THE A.Y 200 3-04 THE AUTHORIZED SHARE CAPITAL OF THE ASSESSEE COMPANY WA S INCREASED AFTER INCORPORATION OF THE COMPANY AND AFTER COMMEN CEMENT OF THE BUSINESS OF THE COMPANY. THEREFORE, THE EXPENDI TURE IS NOT COVERED U/S 35D (2)(C) OF THE ACT. THE AO ALSO POIN TED OUT THAT THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE D ISALLOWANCE MADE IN A.Y 2003-04, THEREFORE, IMPLYING THAT THE A SSESSEE HAD ACCEPTED THE SAID DISALLOWANCE. THE A.O FURTHER STA TED THAT IN THE YEAR UNDER CONSIDERATION, THE FACT REMAINS THAT EXPENDITURE ON INCREASE IN AUTHORIZED SHARE CAPITAL AFTER THE C OMMENCEMENT OF THE BUSINESS IS NOT AN ALLOWABLE EXPENDITURE. AO RELIED ON THE RATIO OF THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF BROOKE BOND INDIA LTD 225 ITR 798 WHEREIN I T HAS BEEN HELD THAT ANY EXPENSES INCURRED IN CONNECTION WITH CAPITAL BASE WOULD NOT BE ALLOWABLE AS REVENUE EXPENDITURE. THER EFORE THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 13 AO DISALLOWED THE DEDUCTION OF RS 335,605/- (BEING 1/5TH OF RS 16,78,025/- ) TOWARDS PRELIMINARY EXPENSES ON ACCOU NT OF INCREASE IN AUTHORIZED SHARE CAPITAL. 19. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LEARNED CIT(A). BEFORE THE FIRST APPELLATE AUTHORIT Y, THE ASSESSEE SUBMITTED AS UNDER: (A) THAT THE APPELLANT COMPANY WAS KNOWN BY THE NAM E APTECH TRAINING LIMITED DURING THE YEAR ENDED 31.3.2001. IT WAS A SUBSIDIARY OF HEXAWARE TECHNOLOGIES LIMITED (ERSTWHILE APTECH LIM ITED). DURING THE PREVIOUS YEAR 2001-02, THE TRAINING DIVISION OF HEX AWARE WAS TRANSFERRED BY WAY OF A DEMERGER TO AND VESTED IN THE APPELLANT COMPANY PURSUANT TO A SCHEME OF ARRANGEMENT AND RECONSTRUCTION WHICH BE CAME EFFECTIVE ON 28.12.2001 FROM THE APPOINTED DATE I.E. 1.4.2001. A ND THIS LED TO SUBSTANTIVE EXPANSION OF APPELLANT COMPANY. THE APP ELLANT COMPANY HAD INCURRED EXPENSES OF RS 16,78,025 TOWARDS STAMP DUT Y AND ROC FILING FEES FOR INCREASE IN AUTHORIZED SHARE CAPITAL IN CONNECT ION WITH THE DEMERGER/ TAKEOVER OF TRAINING DIVISION BEING A SUBSTANTIVE E XPANSION. (B) THE EXPENSES WERE INCURRED IN RESPECT OF INCREA SE IN AUTHORISED SHARE CAPITAL IN CONNECTION OF TAKEOVER OF TRAINING DIVIS ION FROM HEXAWARE TECHNOLOGIES LIMITED WHICH IS AN EXTENSION OF ITS I NDUSTRIAL UNDERTAKING I.E. AN UNDERTAKING PROVIDING IT EDUCATION AND TRAI NING WHICH IS IN ITSELF A SEPARATE INDUSTRY. THEREFORE THE APPELLANT FIRST CL AIMED DEDUCTION OF RS 335,605 FOR AY 2002-03, BEING 2/5TH OF STAMP DUTY A ND ROC FEES OF RS 16,78,025/- AS PER THE PROVISIONS OF SECTION 35D OF THE ACT. THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE THIRD YEAR IN WHICH THE APPELLANT HAS CLAIMED DEDUCTION FOR 1/5TH OF SUCH EXPENSES. (C) THAT THE FACT OF SUCH EXPENSES BEING CLAIMED WA S DISCLOSED IN THE FOLLOWING DOCUMENTS FILED ALONG WITH THE RETURN OF INCOME FOR AY 2002-03, AY 2003-04 AND AY 2004-05. 20. FURTHER THE ASSESSEE HAS CONTENDED AS UNDER: SECTION 35D PROVIDED FOR DEDUCTION OF SPECIFIED EX PENSES LIKE EXPENSES TOWARDS DRAFTING AND PRINTING OF MEMORANDUM AND ART ICLES OF ASSOCIATION FEES FOR REGISTERING THE COMPANY UNDER THE COMPANIE S ACT, 1956, IN CONNECTION WITH PUBLIC ISSUE OF SHARES ETC., INCURR ED BY A COMPANY AFTER COMMENCEMENT OF ITS BUSINESS, IN CONNECTION WITH EX TENSION OF ITS INDUSTRIAL UNDERTAKING OF AN AMOUNT EQUAL TO 1/5TH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. AS EXPLAINED ABOVE, THE EXPENSES UNDER QUESTION WERE INCURRED FOR EXTENSION OF ITS INDUSTR IAL UNDERTAKING. THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 14 TRAINING DIVISION, WHICH WAS TAKEN OVER FROM HEXAWA RE UNDER THE DEMERGER DEFINITELY LED TO THE EXTENSION OF THE APP ELLANTS INDUSTRIAL UNDETTAKING I.E AN UNDERTAKING PROVIDING IT EDUCATI ON AND TRAINING THAT IS IN ITSELF A SEPARATE INDUSTRY. THEREFORE THE SAID E XPENSES HAVE BEEN RIGHTLY CLAIMED U/S 35D OF THE ACT. IN CASE OF BROOK BOND INDIA LTD., (1997) 225 ITR 79 8 (SC) AND PSIDCL V CIT (1997) 225 ITR 792 (SC) THE QUESTION BEFORE THE HONOURABLE SUPREME COURT WAS WHETHER SUCH EXPENSES WERE ALLOWABLE U/S 37 OF THE ACT. THERE WAS NO EXTENSION OF INDUSTRIAL UNDERTAKING IN THAT CASE AND THEREFORE NO QUESTION OF DEDUCTION U/S 35D. IN THAT CASE, THE HO NOURABLE SUPREME COURT MERELY HELD THAT EXPENSES INCURRED IN CONNECT ION WITH RAISING SHARE CAPITAL WOULD NOT BE ALLOWED AS REVENUE EXPENDITURE SINCE IT IS A CAPITAL EXPENDITURE. HOWEVER, EXPENSES ARE ALLOWABLE U/S 35 D IRRESPECTIVE OF WHETHER THEY ARE OF REVENUE OR CAPITAL NATURE PROVI DED THEY FULFIL THE CONDITIONS AS SPECIFIED U/S 35D. THEREFORE THE ASSE SSEE SUBMITTED THAT RATIO OF THIS JUDGMENT DOES NOT APPLY TO ITS CASE. THE ASSESSEE THEREFORE SUBMITTED THAT THAT EXPENSES INCURRED FOR INCREASE IN AUTHORIZED CAPITAL SHOULD BE ALLOWED AS DEDUCTIO N UNDER THE PROVISIONS OF SEC 35D(2). FURTHER ALTERNATIVELY, IT WAS URGED THAT IF THE SAME DOES NOT FALL WITHIN THE LIST OF EXPENSES SPECIFIED U/S 35D( 2), THEN THE SAME WILL DEFINITELY QUALIFY FOR DEDUCTION U/S 35DD AS EXPENS ES INCURRED WHOLLY AND EXCLUSIVELY FOR THE DEMERGER. 21. THE LEARNED CIT(A) ALLOWED THE ALTERNATE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: THE ISSUE HAS BEEN CAREFULLY EXAMINED. SECTION 35D PROVIDES FOR DEDUCTION IN RESPECT OF SPECIFIED EXPENDITURE (1) I NCURRED BEFORE COMMENCEMENT OF THE BUSINESS (II) AFTER THE COMMENC EMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF THE INDUSTRIAL UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW INDUSTRIAL UNI T. IN THE CASE OF THE APPELLANT, THE AUTHORIZED SHARE CAPITAL OF THE APPELLANT COMPANY WAS INCREASED AFTER INCORPORATION OF THE CO MPANY AND AFTER COMMENCEMENT OF THE BUSINESS OF THE COMPANY. THE TA KEOVER OF THE TRAINING AND EDUCATION BUSINESS OF HEXAWARE LTD CAN NOT BE SAID TO BE EXTENSION OF INDUSTRIAL UNDERTAKING OR SETTING UP A NEW INDUSTRIAL UNIT. THEREFORE THE SAID EXPENDITURE HAVE BEEN RIGHTLY DI SALLOWED U/S 35D (2)(C) OF THE ACT. THE APPELLANT HAS CLAIMED THAT ALTERNATIVELY THE SA ID EXPENSES OF RS 16,78,025/- BE ALLOWED U/S 35DD SINCE THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DEMERGER OF TRAINING DIVISION OF HEHAWARE LTD INTO THE APPELLANT COMPANY. SINCE THESE EXPENSES FOR INCREASE IN AUTHORIZED SHA RE CAPITAL HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DEMERGER OF TRAINING ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 15 DIVISION OF HEXAWARE LTD INTO THE APPELLANT COMPANY , THE SAME IN MY VIEW SHOULD BE ALLOWED AS DEDUCTION U/S 35DD. APPELLANT THEREFORE GETS RELIEF AO SHALL RECOMPUTE THE INCOME ACCORDINGLY. 22. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. 23. WE HEARD BOTH THE PARTIES. ALLOWABILITY OF RELI EF U/S 35DD HAS BEEN MADE FOR THE FIRST TIME BEFORE THE CIT(A). THE AO HAS NOT BEEN GIVEN AN OPPORTUNITY TO EXAMINE THE MATTER . THE ISSUE IS SET ASIDE TO THE FILES OF THE AO FOR CONSIDERING THE ALTERNATE GROUND OF THE ASSESSEE FOR DEDUCTION U/S 35DD IN AC CORDANCE WITH LAW. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 24. THE NEXT GROUND OF APPEAL OF THE REVENUE IS AGA INST LEARNED CIT(A) DELETING THE DISALLOWANCE OF RS 3.76 CRORES CLAIMED U/S 35DD.THE ASSESSEE HAD INCURRED EXPENSES OF RS 376,3 9,137/- U/S 35DD OF THE INCOME TAX ACT BEING EXPENSES INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DE-MERGER OF THE TRAINING DIVISION OF HEXXAWARE TECHNOLOGIES LIMITED UNDER A SCHEME OF ARRANGEMENT AND RECONSTRUCTION UNDER SEC 391 TO 394 OF THE COMPANIES ACT 1956. 25. THE AO IN THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 35DD OF THE IT ACT BEING 15TH OF RS 18,81,95,686/- ON ACCOUNT OF E XPENSES INCURRED IN RESPECT OF DEMERGER/TAKEOVER FOR EXPANS ION OF THE ASSESSEE COMPANY. THE AO IN THE ORDER HAS STATED TH AT THE ASSESSEE HAS FAILED TO FURNISH EVEN THE BASIC DETAI LS I.E THE NATURE OF EXPENSES THE BREAK UP OF THE AMOUNT AND P URPOSE OF SUCH EXPENSES ETC AND FURTHER THAT IT DID NOT STATE ANYTHING NOR PRODUCED ANY CORROBORATING EVIDENCE IN SUPPORT OF I TS CLAIM OF EXPENSES. IN THE AY 2003-04, THE ASSESSEE WAS NOT A LLOWED THE DEDUCTION U/S 35DD AS THE ASSESSEE HAD FAILED TO FU RNISH THE DETAILS OF THE DE-MERGER EXPENSES AND THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE DISALLOWANCES. 26. THE SUBMISSIONS MADE BY THE ASSESSEE ARE SUMMAR IZED AS UNDER: (A) THAT THE APPELLANT COMPANY INCURRED EXPENSES OF RS 18,81,95,686 DURING PREVIOUS YEAR 2001-02 AND RS 140,352/- DURIN G PREVIOUS YEAR 2002-03 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF T HE DEMERGER OF THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 16 TRAINING DIVISION OF HEXAWARE PURSUANT TO A SCHEME OF ARRANGEMENT AND RECONSTRUCTION UNDER SEC 391 TO 394 OF THE COMPANIE S ACT 1956 WHICH BECAME EFFECTIVE ON 28.12.2001 FROM THE APPOINTED D ATE I.E. 1.4.2001. (B) SECTION 35DD PROVIDES FOR DEDUCTION OF EXPENSES INCURRED BY A COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF D EMERGER OF AN AMOUNT EQUAL TO 1/5TH OF SUCH EXPENDITURE FOR FIVE SUCCESS IVE PREVIOUS YEARS. (C) THAT THE EXPENSES OF RS 18,81,95,686 DURING PRE VIOUS YEAR 2001-02 WERE INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE OF THE SAID DEMERGER. THEREFORE THE APPELLANT CLAIMED DEDUCTION OF RS 376 ,39,137 U/S 35DD FOR AY 2002-03 BEING 1/5TH OF THE SAID EXPENSES INCURRE D DURING PREVIOUS YEAR 2001-02, THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE THIRD YEAR IN WHICH THE APPELLANT HAS CLAIMED 1/5TH OF SUCH EXPEN SES. (D) THAT THE FACT OF SUCH EXPENSES BEING CLAIMED WA S DISCLOSED IN THE FOLLOWING DOCUMENTS FILED ALONG WITH THE RETURN OF INCOME FOR AY 2002- 03,AY 2003-04 AND AY 2004- 05. COMPUTATION OF TAXABLE INCOME AS DEDUCTIONS U/S 35 DD 1/5TH OF AGGREGATE EXPENSES OF RS 18,81,95,686 WHOLLY AND EX CLUSIVELY IN CONNECTION WITH DEMERGER. IN A STATEMENT SHOWING CO MPUTATION OF DEDUCTION U/S 35DD WAS ANNEXED TO RETURN OF INCOME. AND THAT DURING THE ASSESSMENT PROCEEDINGS THAT APPELLANT WAS VIDE QUES TIONNAIRE DATED 1.12.2006, CALLED UPON TO EXPLAIN THE DEDUCTION CLA IMED U/S 35DD AND VIDE LETTER DATED 11.12.2006, ASKED TO FURNISH THE DETAILS AND SUPPORTING IN RESPECT OF THE DEMERGER EXPENSES IN RESPONSE TO WHI CH THE EXPLANATION AS GIVEN ABOVE WAS GIVEN TO THE LEARNED ACIT VIDE LETT ER DATED 19.12.2006. THE APPELLANT HAS ALSO FURNISHED COPIES OF THE ORDE R OF DEMERGER AND OTHER DOCUMENTS. BUT CERTAIN VOUCHERS REGARDING EXPENSES COULD NOT BE FURNISHED AS THEY WERE WASHED AWAY BY FLOODS IN JUL Y 2005. 27. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE BY OBSERVING AS UNDER: THE ISSUE HAS BEEN CAREFULLY EXAMINED. SECTION 35D D PROVIDES FOR DEDUCTION OF EXPENSES INCURRED BY A COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DEMERGER OF AN AMOUNT EQUAL TO 1/5TH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. IN THE CASE OF THE APPELLANT THE FACT THAT THE DEMERGER HAD TAKEN PLACE PURSUANT TO SCHEME OF DEMERGER AS PER THE PROCEDURE LAID DOWN UNDER SEC. 391 TO 394 OF THE CO MPANIES ACT 1956 IS CLEARLY EVIDENT FROM THE COPY OF THE SCHEME OF DEME RGER AS APPROVED BY HONOURABLE BOMBAY HIGH COURT . FURTHER THE FACT IS ALSO MENTIONED IN THE AUDITED FINANCIAL STATEMENTS OF THE APPELLANT COMPA NY FOR FINANCIAL YEAR 2001-02 FURTHER THE APPELLANT HAS PLACED A COPY OF THE BOAR D RESOLUTION AUTHORIZING THE DIRECTORS TO FINALISE THE DETAILED TERMS OF THE SCHEME APPOINTING CONSULTANTS AND ADVOCATES IN THIS CONNEC TION AND APPROVE ALL NECESSARY EXPENSES IN CONNECTION WITH THE DEMERGER AS PER THE PROVISIONS OF SEC 391 TO 394 OF THE COMPANIES ACT 1956. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 17 IT IS A KNOWN FACT THAT THE PROCEDURE OF DEMERGER I NVOICES HUGE EXPENSES SUCH AS PAYMENT OF FEES TO ADVOCATES AND CONSULTANT S AT THE INITIAL PLANNING STAGE AND THEN FOR COMPLYING WITH THE PROV ISIONS OF UNDER SEC 391 TO 394 OF THE COMPANIES ACT 1956, GETTING THE S CHEME APPROVED BY THE HIGH COURT AS PER THE REQUIREMENT OF COMPANIES ACT, INCURRING EXPENSES ON ADVERTISEMENTS HOLDING MEETINGS STAMP DUTY AND R OC FEES TRANSFER OF BUSINESS ALONG WITH ITS ASSETS AND LIABILITIES ETC. SUCH EXPENSES ARE INCURRED IN EVERY SUCH TYPE OF DEMERGER, OTHER DOCUMENTS EVIDENCING THE EXPENSES INCURRED LI KE BILLS INVOICES ETC COULD NOT BE SUBMITTED SINCE THE SAME WERE NOT AVAI LABLE AS THEY WERE LOST IN THE FLOODS ON ACCOUNT OF UNPRECEDENTED HEAVY RAI NS THAT OCCURRED IN MUMBAI ON 26TH JULY 2005. THE FACT OF THE LOSS IN T HE FLOODS IS SUBSTANTIATED BY THE DOCUMENTS OF INSURANCE CLAIMS MADE TO RECOVER THE LOSS SUFFERED ON ACCOUNT OF THE FLOODS THE INSURANC E CLAIM ACCEPTED AND RECOVERED OF RS 80.50 LAKHS AND THE SUBSEQUENT INTE NSIVE RENOVATION THAT WAS MADE IN THE BASEMENT AREA OF APTECH HOUSE, AS A RESULT THE APPELLANT COMPANY WAS UNABLE TO PRODUCE THE BILLS INVOICES VO UCHERS ETC RELATING TO THE DEMERGER EXPENSES CLAIMED AS DEDUCTION U/S 35DD . FROM THE FACTS OF THE CASE IT IS EVIDENT THAT GENUI NE HARDSHIP WAS FACED BY THE APPELLANT COMPANY WHICH WAS PREVENTED BY SUFFIC IENT REASON BEYOND ITS CONTROL TO SUBMIT THE BILLS VOUCHERS RELATING T O THESE DEMERGER EXPENSES AND HENCE THE EXPENSES SHOULD NOT BE DISALLOWED ON ACCOUNT OF LIABILITY TO FURNISH THE NECESSARY EVIDENCES ON ACCOUNT OF FORCE MAJURE. SINCE THE EXPENDITURE IS CORROBORATED BY CIRCUMSTANTIAL EVIDE NCE OF DEMERGER SCHEME APPROVED BY THE HONOURABLE HIGH CCURT. I ACC EPT THE ARGUMENT OF THE APPELLANT THAT THE DISALLOWANCE OF DEDUCTION U/ S 35DD OF RS 376,39,137/- BEING 15TH OF THE AGGREGATE EXPENSE O RS 18,81,95,686/- IS NOT WARRANTED. I ACCORDINGLY ALLOW GROUND NO 2 AND DELETE THE ADDI TION OF RS 376,39,137/- TO THE TOTAL INCOME. 28. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. W E FIND THAT ALL THE PARTICULARS OF EXPENSES REGARDING DEMERGER WERE NOT CONSIDERED BY THE AO. FURTHER, THE DEMERGER HAS TAK EN PLACE WITH EFFECT FROM 1.4.2001. AS PER SEC 35DD, 1/5TH O F THE EXPENSES ARE ALLOWABLE IN THAT YEAR AND 4 SUCCESSIV E ASSESSMENT YEARS. IT IS NOT CLEAR WHETHER THE EXPEN SES WERE CLAIMED IN THE EARLIER YEARS AND IF SO THE RESULT T HEREOF. WE FEEL THE MATTER REQUIRES TO GO BACK TO THE AO FOR FURTHE R EXAMINATION AND DECIDE THE MATTER IN ACCORDANCE WITH LAW. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 18 29. THE NEXT GROUND OF APPEAL OF THE REVENUE IS AGA INST CIT(A) ALLOWING HIGHER RATE OF DEPRECIATING @ 50% AS AGAIN ST NORMAL RATE OF DEPRECIATION @ 20% IN RESPECT OF VEHICLES A ND THEREBY DELETING RS 3,47,329/- DISALLOWED BY AO AS EXCESS D EPRECIATION CLAIMED ON SUCH VEHICLES OVER 20%. 30. THE AO IN ASSESSMENT PROCEEDINGS FOUND FROM THE TAX AUDIT REPORT THAT THE ASSESSEE COMPANY HAD CLAIMED DEPREC IATION ON VEHICLES @ 50%. THE OPENING WDV OF THIS BOOK WAS RS 22,38,444/- AND THE ASSESSEE CLAIMED DEPRECIATION O F RS 11,19,222/-. THE ASSESSEE HAS MOTOR CARS WHICH ARE USED IN ITS BUSINESS BY THE OFFICIALS OF THE COMPANY DEPRECIATI ON @ 50% IS ALLOWABLE ON NEW COMMERCIAL VEHICLES WHICH ARE ACQU IRED ON OR AFTER THE 1ST DAY OF APRIL 2002. BUT THE AO FELT THAT THE DEPRECIATION @ 50% IS AVAILABLE ONLY TO THE COMMERC IAL VEHICLES. THE DEPRECIATION @ 50% IS NOT ALLOWABLE O N PASSENGER VEHICLES. THE AO DISALLOWED THE ASSESSEE S CLAIM OF DEPRECIATION @ 50% ON MOTOR CAR AND RESTRICTED TO 2 0% ONLY. IN THE AY 2003-04 THE DEPRECIATION WAS RESTRICTED T O 20% AGAINST 50% DEPRECIATION AS CLAIMED BY THE ASSESSEE AND THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE RESTR ICTION OF DEPRECIATION. ON THE BASIS OF DISALLOWANCE OF DEPRE CIATION IN THE AY 2003-04 THE DEPRECIATION MOTORS CAR IS WORKE D OUT AT RS 3,47,329/- AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 31. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LEARNED CIT(A). BEFORE THE LEARNED CIT(A) IT WAS SU BMITTED THAT NEW COMMERCIAL VEHICLES WHICH IS ACQUIRED ON O R AFTER THE 1ST DAY OF APRIL 2001 BUT BEFORE THE 1ST DAY OF APR IL 2002 FOR THE PURPOSE OF BUSINESS OR PROFESSION WERE ENTITLED TO DEPRECIATION AT 50%. COMMERCIAL VEHICLES FOR THIS P URPOSE WAS DEFINED IN NOTE 6 TO APPENDIX TO IT RULES. SINCE TH E MOTOR CARS ACQUIRED BY THE ASSESSEE ARE MOTORS VEHICLE WHICH F ALL WITHIN THE DEFINITION OF LIGHT VEHICLES AS DEFINED UNDER M OTOR VEHICLE ACT 1988 MOTOR CARS ARE SQUARELY COVERED BY THE DEF INITION OF COMMERCIAL VEHICLE AS DEFINED IN NOTE 6 TO APPENDIX 1 TO THE I.T. RULES. THUS SINCE THESE MOTOR CARS ARE COMMERCIAL V EHICLES WITHIN THE DEFINITION AS PER NOTE 6 TO THE DEPRECIA TION TABLE AND ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 19 WERE PURCHASED AND PUT TO USE FOR BUSINESS PURPOSE DURING PY 2001-02 AND THE APPELLANT SUBMITS THAT THE DEPRECIA TION @ 50% ON SUCH MOTOR CARS HAVE BEEN CORRECTLY CLAIMED. 32. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE FOR DEPRECIATION AT 50% OBSERVING AS UNDER: I AM OF THE VIEW THAT DEPRECIATION ON MOTOR CARS H AS BEEN RIGHTLY CLAIMED @ 50% AS PER THE PROVISION OF THE DEPRECIATION TABL E CONTAINED IN APPENDIX I TO THE I.T RULES 1962 AND THEREFORE THE SAME SHOULD BE ALLOWED. THUS THIS GROUND OF APPEAL IS ALLOWED TO THE APPELL ANT. 33. AGGRIEVED THE REVENUE IS ON APPEAL. THE PROVISI ONS OF THE I.T RULES FOR GRANTING HIGHER DEPRECIATION IN RESPE CT OF VEHICLES ACQUIRED AFTER 1.4.2001 AND PUT TO USE BEFORE 1.4.2 002. EVEN THOUGH THE CLASSIFICATION READS AS NEW COMMERCIAL VEHICLES, UNDER NOTE 6 TO THE IT RULES, IT HAS BEEN CLARIFIED THAT COMMERCIAL VEHICLES WILL INCLUDE LIGHT MOTOR VEHICL ES BUT WILL NOT INCLUDE MOTOR CAB/ MAXI CAB. THIS WOULD SHOW TH AT IT IS NOT NECESSARY FOR THE VEHICLE TO BE USED FOR COMMERCIAL PURPOSES FOR CLAIMING HIGHER RATE OF DEPRECIATION. IN FACT C ABS HAVE BEEN EXCLUDED FROM THE DEFINITION OF COMMERCIAL VEHICLE, AS THEY ARE DEALT WITH SEPARATELY. THE LEARNED CIT(A) WAS THERE FORE CORRECT IN UPHOLDING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION @ 50% IN RESPECT OF MOTOR VEHICLES ACQUIRED AFTER 1 .4.2001 AND USED BEFORE 1.4.2002. THE REVENUES APPEAL ON THIS I SSUE IS DISMISSED. 34. THE NEXT GROUND OF REVENUES APPEAL IS AGAINST THE CIT(A) DELETING THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS 1.72 CRORES. 35. THE AO IN ASSESSMENT PROCEEDINGS EXAMINED THE A SSESSEES CLAIM OF AN AMOUNT OF RS. 172,13,127/- ON ACCOUNT O F BAD DEBTS WRITTEN OFF. IT HAS BEEN STATED THAT THE ASSESSEE H AS NOT SUBMITTED THE DETAILS OF BAD DEBTS WRITTEN OFF. FUR THER AS PER THE PROVISIONS OF SEC 36(1)(VI) THE LEGISLATURE HAS MAD E ITS INTENTION AMPLY CLEAR. IT HAS STATED THAT THE AMOUN T OF ANY BAD DEBT OR PART THERE OF WHICH HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YE AR CAN BE CLAIMED. THUS THE LEGISLATURE DID NOT INTEND TO ALL OW ANY DEBT TO ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 20 BE WRITTEN OFF BUT ONLY THESE DEBTS WHICH HAVE BECO ME BAD CAN BE ALLOWED U/S 36(2)(VII) WHETHER THE DEBT HAS BECO ME BAD OR OTHERWISE IS A DECISION WHICH CAN BE TAKEN BY THE A SSESSEE ALONE. BUT THE INTENTION OF THE ASSESSEE HAS TO BE VERIFIED BEFORE ITS CLAIM OF ANY DEBT AS A BAD DEBT MAY BE ALLOWED. THE AO HAS REFERRED TO THE DECISION OF THE HONOURABLE MADRAS H IGH COURT IN A RECENT JUDGMENT IN THE CASE OF SOUTH INDIA SUR GICAL CO. LTD V ACIT REPORTED IN 201 CTR 289 TO SUPPORT HIS VIEW. THE AO HELD THAT THE CLAIM OF THE ASSESSEE REGARDING ALLOW ANCE OF ENTIRE BAD DEBTS IS NOT MAINTAINABLE THEREFORE AN A DDITION OF RS 1,72,13,127/- WAS MADE TO THE TOTAL INCOME OF THE A SSESSEE COMPANY. 36. AGGRIEVED THE ASSESSEE CONTESTED THIS DISALLOWA NCE IN THEIR APPEAL BEFORE THE LEARNED CIT(A). THE FIRST APPELLA TE AUTHORITY ALLOWED THE ASSESSEES CLAIM BY OBSERVING AS UNDER: THE ISSUE HAS BEEN EXAMINED. IT IS INDEED TO BE AC CEPTED THAT THE DECISIONS TAKEN BY THE MADRAS HIGH COURT IN THE CAS E OF CIT VS BRILLIANT TUTORIALS P,LTD (2007) 292 ITR 399(MAD) AND THE DEC ISION TAKEN BY THE DELHI HIGH COURT IN THE CASE OF CIT VS MORGAN SECUR ITIES & CREDIT P.LTD (2007) 292 ITR 339(DEL) AND CIT VS AUTOMETERS LTD ( 2007) 292 ITR 345(DEL) CLEARLY STAND BY AND SUPPORT THE DECISION OF THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS OMAN INT ERNATIONAL BANK SAOG (SPECTRUM BUSINESS SUPPORT LTD V DCIT 100 ITD 0285 (BOM SPECIAL BENCH). IN FACT IT HAS BEEN RIGHTLY POINTED OUT BY THE LD COUNSEL THAT THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS BRILLIANT TUTORIALS P LTD (2007) 292 ITR 399 (MAD) HAS IN FACT CONSIDER ED THE EARLIER DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS MICROMAX SYSTEMS P.LTD (2005) 277 ITR 409(MAD) AND SOUTH IND IA SURGICAL CO. LTD VS ACIT (2006)287 ITR 62(MAD) TO COME TO ITS FINDIN GS. FURTHER COMING TO THE MERITS OF THE CLAIM OF THE AP PELLANT COMPANY THE DEBTORS WERE OUTSTANDING FOR ALMOST 4.5 YEARS AND T HE APPELLANT COMPANY HAD TAKEN REASONABLE STEPS FOR RECOVERING THE DEBTS FROM ITS FRANCHISEE BY FORMING A TASK FORCE AND HAD EVEN SUCCEEDED IN RECO VERING SUBSTANTIAL AMOUNT OF THE DEBTS FROM THE FRANCHISEE SAVE AND EX CEPT AN AMOUNT OF RS.17,213,127/- THE TASK FORCE COULD NOT RECOVER FR OM THESE CENTRES AGGREGATING TO DESPITE THEIR BEST EFFORTS. THE ARGU MENTS THAT THE AMOUNT OF DEBTS DUE FROM EACH OF THESE FRANCHISEE WERE TOO SM ALL MAJORITY OF THEM WERE BELOW 1 LAKH) TO TAKE ANY LEGAL ACTIONS CONSID ERING THE COST BENEFIT ANALYSIS ALSO APPEARS REASONABLE. THESE DEBTS IN TH E OPINION OF THE MANAGEMENT WERE NOT RECOVERABLE INSPITE OF THE BEST EFFORTS MADE FOR COLLECTION OF THE SAME.AS A CONSEQUENCE THESE DEFAU LTING CENTRES WERE TERMINATED AND RESULTANTLY IN THE ASST. YEAR 2004-0 5 THE OUTSTANDING AMOUNT OF RS 17,213,127/- WERE WRITTEN OF IN THE BO OKS OF ACCOUNTS. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 21 HAVING CONSIDERED THE ENTIRE LAW ON THE SUBJECT AS IT IS PRESENT ON THE DAY AS ALSO THE FACTS PRESENT IN THE CASE OF THE APPELL ANT I AM OF THE VIEW OF THAT THE AO ERRED IN DISALLOWING THE CLAIM OF BAD D EBT BY HOLDING THAT THE APPELLANT HAD TO ESTABLISH THAT THE DEBT HAD BECOME BAD. THE DECISIONS OF THE VARIOUS HIGH COURTS AND THE SPECIAL BENCH OF TH E MUMBAI TRIBUNAL DO NOT SUPPORT THE VIEW OF THE AO. THE PLEA OF THE APP ELLANT IS THEREFORE ACCORDINGLY ALLOWED. 37. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. W E FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE APEX COURT IN THE CASE OF TRF LTD VS CIT (2010- TIOL-15- SC-IT). RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COURT THAT WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUC TION OF BAD DEBTS WRITTEN OFF WHICH HAVE BEEN REDUCED FROM THE INDIVIDUAL CLIENTS ACCOUNT. THE REVENUES APPEAL ON THIS ISSU E IS DISMISSED. 38. THE NEXT GROUND OF REVENUES APPEAL IS AGAINST CIT(A) DELETING THE DISALLOWANCE OF LOSS OF RS 63.69 LAKHS INCURRED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. WE FIND T HE SAME ISSUE VIZ., LOSS ON ACCOUNT OF EXCHANGE FLUCTUATION S IN RESPECT OF AMOUNTS KEPT ABROAD WAS CONSIDERED IN ASSESSEES AP PEAL ALSO. WE FOUND THAT PARTICULARS ABOUT UTILIZATION ETC WER E FURNISHED FIRST TIME BEFORE THE CIT(A) AND THE AO DIDNT HAVE AN OPPORTUNITY TO EXAMINE THE ISSUE. WE THEREFORE DEEM FIT, AS WAS DONE IN THE CASE OF ASSESSEES APPEAL, TO REMIT THE MATTER TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH IN AC CORDANCE WITH LAW. WE WOULD LIKE TO CLARIFY THAT WE HAVE NOT GIVE N OUR DECISION ON ANY OF THE ASPECTS OF THIS ISSUE AND TH E AO WILL DECIDE THE MATTER ON MERITS AFRESH IN ACCORDANCE WI TH LAW. 39. THE NEXT GROUND OF APPEAL OF THE REVENUE IS AGA INST THE DELETION BY THE CIT(A) THE DISALLOWANCE OF RS 30 LA KHS OUT OF VARIOUS EXPENSES. THIS GROUND RELATES TO DISALLOWAN CE OF MISC. EXPENSES REPAIRS AND MAINTENANCE EXPENSES TRAVELLIN G EXPENSES LEGAL AND PROFESSIONAL EXPENSES EDUCATION TRAINING EXPENSES AND ADVERTISEMENTS AND PUBLICATION EXPENSE. CENTRE OPERATION EXPENSES AND COURSE EXECUTION EXPENSES TO THE EXTEN T OF RS 30,00.000 ON ADHOC BASIS DUE TO NON AVAILABILITY OF THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 22 NECESSARY SUPPORTING BILLS AND VOUCHERS. THE AO IN THE ORDER STATES THAT FROM THE ACCOUNTS OF THE ASSESSEE IT WA S SEEN THAT THE ASSESSEE HAD CLAIMED SUBSTANTIAL AMOUNTS OF EXPENDI TURE IN RESPECT OF VARIOUS HEADS OF EXPENDITURE. THE AO ASK ED THE ASSESSEE TO FURNISH THE DETAILS OF VARIOUS EXPENSES SUCH AS MISCELLANEOUS EXPENSES. REPAIR & MAINTENANCE EXPENS ES. TRAVELLING EXPENSE LEGAL AND PROFESSIONS EXPENSES E DUCATION TRAINING EXPENSES AND ADVERTISING AND PUBLICATION E XPENSES CENTRE OPERATION EXPENSES COURSE EXECUTION EXPENSES ETC. HOWEVER NO DETAILS OF ANY EXPENDITURE WERE FILED. A S THE ASSESSEE WAS UNABLE TO FURNISH THE NECESSARY EVIDEN CES THEREFORE AN ADHOC DISALLOWANCE OF RS 30,00,000 WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 40. BEFORE THE LEARNED CIT(A) THE ASSESSEE HAS ARGU ED THAT THE FOLLOWING EXPENSES WERE INCURRED DURING THE PREVIOU S YEAR. MISCELLANEOUS EXPENSES RS 297,18,162/- REPAIRS AND MAINTENANCE EXPENSES RS 216,77,311/- TRAVELLING EXPENSES RS 471,18,827/- LEGAL AND PROFESSIONAL EXPENSES RS 27994,122/- EDUCATION TRAINING EXPENSES AND COURSE MATERIAL RS 85,487,561/- ADVERTISEMENT AND PUBLICATION EXPENSES RS 11,45210 CENTRE OPERATION EXPENSES RS 526,247,608/- COURSE EXECUTION EXPENSES RS 175,680,514/- AND CLAIMED THE SAME AS DEDUCTION U/S 37 WHILE COMP UTING INCOME UNDER HEAD PROFITS AND GAINS FROM BUSINESS A ND PROFESSION. IT HAS BEEN FURTHER STATED BY THE APPEL LANT IS THAT THE FACT OF SUCH EXPENSES BEING CLAIMED WAS DISCLOSED C LEARLY IN THE AUDITED PROFIT AND LOSS ACCOUNT FOR YEAR ENDED 31.3 .2004 FILED ALONG WITH THE RETURN OF INCOME. AND THAT THE APPEL LANT VIDE LETTER DATED 19.12.2006 FURNISHED THE DETAILS OF TH E ABOVE EXPENSES INCURRED. IT HAS BEEN PLEADED THAT THE APP ELLANT WAS UNABLE BEYOND CONTROL TO SUBMIT THE DOCUMENT EVIDEN CING THE EXPENSES INCURRED LIKE THE BILLS INVOICES ETC SINCE THE SAME WERE LOST IN THE UNPRECEDENTED FLOODS THAT ACCRUED IN MU MB AI ON 26TH JULY 2005 MOST OF THE RECORDS OF THE COMPANY W ERE PLACED ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 23 IN THE BASEMENT ARE OF APTECH HOUSE AND DUE TO THE UNPRECEDENTED FLOORS ALL RECORDS INCLUDING BILLS VO UCHERS ETC WERE SUBMERGED UNDER WATER AND THE APPELLANT COMPAN Y WAS UNABLE TO RETRIEVE ANY OF THOSE BILLS VOUCHERS DOCU MENTS RECORDS AND AS A RESULT THE APPELLANT COMPANY WAS U NABLE TO PRODUCE THE BILLS INVOICES VOUCHERS ETC RELATING TO THE DEMERGER EXPENSES CLAIMED AS DEDUCTION U/S 35DD. 41. THE APPELLANT SUBMITS THAT IT HAD PLACED THIS S UBMISSION BEFORE THE LEARNED ACIT DURING THE ASSESSMENT PROCE EDINGS THIS WAS A GENUINE HARDSHIP THAT WAS FACED BY THE APPELL ANT COMPANY THE ABOVE FACT OF THE LOSS OF IN THE FLOODS IS SUBSTANTIATED BY THE DOCUM ENTS OF INSURANCE CLAIMS MADE TO RECOVER THE LOSS SUFFERED ON ACCOUNT OF THE FLOODS AND THE SUBSEQUENT INTENSIVE RENOVATI ON THAT WAS MADE IN THE BASEMENT AREA OF APTECH HOUSE. HOWEVER THE LEARNED ACIT DISALLOWED RS 30,00,000 ON ADHOC BASIS ON ACCOUNT OF SUCH EXPENSES STATING THAT IF THE ASSESS EE FAILS TO ESTABLISH THE NECESSARY FACTS NECESSARY TO SUPPORT HIS CLAIMS FOR DEDUCTION OF EXPENDITURE THE SAME IS NOT ADMISSIBLE . 42. THE APPELLANT THUS SUBMITS THAT: THESE WERE GENUINE EXPENSES. THE AUTHENTICITY OF TH ESE EXPENSES IS SUPPORTED BY THE FINANCIAL STATEMENTS O F THE APPELLANT COMPANY FOR FINANCIAL YEAR ENDED 31.3.200 4, WHICH HAVE BEEN STATUTORILY AUDITED BY A CHARTERED ACCOUN TANT AS PER THE COMPANIES ACT WHEREIN THESE EXPENSES ALONG WITH THE RELATED BILLS AND VOUCHERS WERE PROPERLY VOUCHED, V ERIFIED AND AUDITED. THE APPELLANT COMPANY WAS UNABLE, BEYOND C ONTROL, TO SUBMIT THE BILLS/ VOUCHERS RELATING TO THESE EXPENS ES SINCE AS EXPLAINED HEREINABOVE THE SAME WERE LOST IN THE UNP RECEDENTED FLOODS IN MUMBAI ON 26TH JULY 2005.IN VIEW OF THE A BOVE, THE APPELLANT SUBMITTED THAT THE ABOVE EXPENSES WERE GE NUINELY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPELLANT COMPANIES BUSINESS AND THEREFORE THE SAME SHOULD NOT BE DISALLOWED. 43. THE CIT(A) ALLOWED THE ASSESSEES CLAIM AGAINST THE ADHOC DISALLOWANCE OBSERVING AS UNDER: ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 24 THE FACT THAT THESE EXPENSES WERE INCURRED DURING THE PREVIOUS YEAR BY THE APPELLANT COMPANY OF THE PURPOSE OF ITS BUSINE SS IS SUPPORTED BY THE FINANCIAL STATEMENTS OF THE APPELLANT COMPANY FOR F INANCIAL YEAR ENDED 31.3.2004, WHICH HAVE BEEN STATUTORILY AUDITED BY A CHARTERED ACCOUNTANT AS PER THE COMPANIES ACT WHEREIN THESE EXPENSES ALO NG WITH THE RELATED BILLS AND VOUCHERS WERE PROPERLY VOUCHED, VERIFIED AND AUDITED. FURTHER THIS FACT IS ALSO AUTHENTICATED BY THE TAX AUDIT RE PORT ISSUED BY A CHARTERED ACCOUNTANT U/S 44AB IF THE INCOME TAX ACT . OTHER DOCUMENTS EVIDENCING THE EXPENSES INCURRED LI KE BILLS/ INVOICES ETC., COULD NOT BE SUBMITTED SINCE THE SAME WERE NOT AVAI LABLE AS THEY WERE LOST IN THE FLOODS ON ACCOUNT OF UNPRECEDENTED HEAVY RAI NS THAT OCCURRED IN MUMBAI ON 26TH JULY 2005, THE FACT OF WHICH IS SUBS TANTIATED BY THE DOCUMENTS OF INSURANCE CLAIMS MADE TO RECOVER THE L OSS SUFFERED ON ACCOUNT OF THE FLOODS, THE INSURANCE CLAIM ACCEPTED AND RECOVERED OF RS. 80.50 LAKHS AND THE SUBSEQUENT INTENSIVE RENOVATION THAT WAS MADE IN THE BASEMENT AREA OF APTECH HOUSE. THE APPELLANT COMPANY WAS PREVENTED BY SUFFICIENT R EASON BEYOND ITS CONTROL, TO SUBMIT THE BILLS/ VOUCHERS RELATING TO THESE EXPENSES. THE EXPENSES SHOULD NOT BE DISALLOWED ON ACCOUNT OF INA BILITY TO FURNISH THE NECESSARY EVIDENCES ON ACCOUNT OF FORCE MAJURE. SINCE THE EXPENDITURE IS CORROBORATED BY CIRCUMSTAN TIAL EVIDENCE OF DEMERGER SCHEME APPROVED BY THE HONOURABLE HIGH COU RT, I ACCEPT THE PLEA OF THE APPELLANT THAT THE DISALLOWANCE OF THE SAID EXPENSES TO THE EXTENT OF RS. 30,00,000/- ON ADHOC BASIS IS NOT WAR RANTED. I ACCORDINGLY ALLOW GROUND NO.7 AND DELETE THE ADDI TION OF RS 30,00,000/- 44. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. A S POINTED OUT BY THE LEARNED CIT(A), THE FACT THAT THE EXPEND ITURE WERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUS INESS IS NOT DISPUTED. THE EXPENDITURES WERE ALSO AUDITED. THE A SSESSEE HAD EXPLAINED THE EXTRAORDINARY CIRCUMSTANCES UNDER WHI CH THEY WERE NOT ABLE TO FURNISH THE SUPPORTING THE DOCUMEN TS. THE SAME IS NOT DOUBTED. THE ASSESSING OFFICER HAD NOT POINTED OUT THAT ANY OF THE EXPENDITURE WAS UNREASONABLE OR HIG H. IN THE CIRCUMSTANCES, CONSIDERING THE EXTRAORDINARY CIRCUM STANCES UNDER WHICH THE ASSESSEE WAS PREVENTED FROM FURNISH ING THE SUPPORTING EVIDENCE, WE CONCUR WITH THE CIT(A) THAT ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THIS CASE, NO ADHOC DISALLOWANCE IS CALLED FOR FROM THE EXPENSES. WE AC CORDINGLY ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 25 UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE REVE NUES APPEAL ON THIS ISSUE. 45. THE NEXT GROUND OF APPEAL BY THE REVENUE IS AGA INST CIT(A) DELETING THE ADDITION OF PROVISION FOR DOUBTFUL DEB TS OF RS 595,24,304/- WHILE COMPUTING BOOK PROFIT U/S 115JB. FROM THE ACCOUNTS OF THE ASSESSEE IT WAS SEEN THAT THE ASSES SEE HAD MADE PROVISIONS OF RS 595,24,304/- ON ACCOUNT OF PROVISI ONS FOR DOUBTFUL DEBTS. WHILE THE ASSESSEE ADDED BACK THE P ROVISIONS FOR DOUBTFUL DEBTS IN ITS COMPUTATION OF TOTAL INCOME, THE SAME WAS NOT ADDED TO THE BOOK PROFIT IN ORDER TO CALCULATE MINIMUM ALTERNATE TAX (MAT) U/S 115JB OR THE IT ACT 1961. B EFORE THE AO THE ASSESSEE SUBMITTED THAT THE PROVISIONS FOR D OUBTFUL AND ADVANCES DO NOT REPRESENT PROVISION FOR UNASCERTAIN ED LIABILITIES BUT ARE PROVISIONS MADE ON A CAREFUL ES TIMATE OF THE REALIZABLE VALUE OF THE ASSETS. THUS THERE CANNOT B E ANY ADDITION ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS AND ADVA NCES. 46. THE AO DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND HELD THAT PROVISION FOR BAD DEBT IS IN THE NATURE OF CONTINGE NCY MADE IN THE ACCOUNTS OF THE ASSESSEE. THE AO THUS ADDED TO THE BOOK PROFIT U/S 115JB OF THE ACT THE PROVISION FOR DOUBT FUL DEBT OF RS 5,95,24,304/- 47. ON APPEAL THE CIT(A) ALLOWED THE ASSESSEES CLA IM OBSERVING AS UNDER: IN MY VIEW THE DOUBTFUL DEBTS AND ADVANCES FOR WHI CH THE PROVISIONS HAVE BEEN MADE ARE NOT LIABILITIES OF THE APPELLANT COMP ANY. THEY ARE THE ASSETS OF THE COMPANIES. THESE PROVISIONS FOR DOUBTFUL DEB TS AND ADVANCES ARE MADE ON A REASONABLE ESTIMATE OF THE REALIZABLE VAL UE OF THE ASSETS. THESE PROVISIONS ARE NOT FOR ANY LIABILITY OF THE APPELLA NT COMPANY. THUS, THERE IS NO QUESTION OF MAKING ANY ADDITION ON ACCOUNT OF PR OVISION FOR DOUBTFUL DEBTS AND ADVANCES TO THE NET PROFITS AS PER PROFIT AND LOSS ACCOUNT WHILE COMPUTING PROFIT UNDER SECTION 115JB. THIS CONTENTI ON OF THE APPELLANT IS SUPPORTED BY THE DECISION IN THE FOLLOWING CASES: 1. USHA MARTIN INDUSTRIES LTD V CIT (2003)81 TTJ 51 8 (CAL) 2. N.W.EXPORTS LTD V CIT(2003) SOT 136 (MUM) 3. EICHER MOTOR LTD V CIT (2004) 1 SOT 1 (INDORE) 4. COMMISSIONER OF INCOME TAX V EICHER LTD (2006) 2 87 ITR 170(DELHI) 5. IBM INDIA LTD. VS CIT (2007) 108 TTJ 531 (BANG) 6. PEERLESS GEN. FIN & INV. CO. LTD V ACIT (2007) 1 07 TTJ 186 (KOL) THUS I AM OF THE VIEW THAT THE AO HAS ERRED IN ADDI NG PROVISION FOR DOUBTFUL DEBTS OF RS 595,24,304/- TO NET PROFIT AS PER PROFIT AND LOSS ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 26 ACCOUNT OF THE APPELLANT COMPANY WHILE COMPUTING BO OK PROFITS U/S 115JB. THE GROUND IS DECIDED IN FAVOUR OF THE APPEL LANT. 48. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. W HILE COMPUTING THE BOOK PROFITS U/S 115JB, THE ASSESSEE HAS STARTED WITH THE FIGURE OF RS. 85, 907, 470/- WHICH IS AFTE R APPROPRIATIONS BUT IN ARRIVING AT THAT FIGURE THE P ROVISION FOR DOUBTFUL DEBT AND ADVANCES OF RS 595,24,304/- HAS B EEN DEDUCTED AS PART OF ADMINISTRATIVE EXPENSES. THE AO HAS ADDED BACK THIS FIGURE IN COMPUTING THE BOOK PROFITS U/S 115JB AND THE CIT(A) DELETED THE ADDITION. EVENTHOUGH THE APE X COURT IN THE CASE OF HCL COMNET HAS HELD THIS ISSUE IN FAVOU R OF THE ASSESSEE PROVISIONS OF SEC 115JB HAVE BEEN AMENDED BY THE FINANCE ( NO 2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2001 WITH AN INTRODUCTION OF EXPLANATION (I), W HICH READS AS UNDER: (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTIOJN IN VALUE OF ANY ASSET. 49. THE RETROSPECTIVE AMENDMENT HAS NULLIFIED THE D ECISION OF THE APEX COURT IN THE CASE OF HCL COMNET. IN VIEW O F THE RETROSPECTIVE AMENDMENT TO SEC 115JB WITH INTRODUCT ION OF EXPLANATION(I), W.E.F 1.4.2001, WE ALLOW THE REVENU ES APPEAL AND HOLD THAT IN COMPUTING THE BOOK PROFITS U/S 115 JB THE PROVISION FOR DOUBTFUL DEBT AND ADVANCES OF RS 595, 24,304/- CANNOT BE EXCLUDED AND IS REQUIRED TO BE ADDED BACK . ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 27 50. THE NEXT GROUND OF APPEAL IS AGAINST CIT(A) IN ALLOWING DEDUCTION U/S 80HHC WHILE COMPUTING BOOK PROFIT U/S 115JB WHEN THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC IN ABSENCE OF POSITIVE GROSS TOTAL INCOME. THE ASSESSE E IN THEIR RETURN OF INCOME CLAIMED DEDUCTION OF RS 9,18,941/- BEING PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT , WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. THE AO DID NOT ALLOW THE DEDUCTION AND ON APPEAL THE CIT(A) ALLOWE D THE DEDUCTION. 51. AGGRIEVED THE REVENUE IS ON APPEAL. WE FIND THA T THIS ISSUE OF ALLOWING DEDUCTION FOR EXPORTS WHILE COMPUTING T HE BOOK PROFITS, SHOULD BE BASED ON THE BOOK PROFITS AND NO T ON THE RELIEF U/S 80HHC COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT HAS BEEN UPH ELD BY THE APEX COURT IN THE CASE OF AJANTA PHARMA LTD VS CIT 327 ITR 305 (SC). RESPECTFULLY FOLLOWING THE DECISION OF TH E APEX COURT IN THE CASE OF AJANTA PHARMA LTD (SUPRA), WE DISMIS S THE REVENUES APPEAL ON THIS ISSUE. 52. THE LAST GROUND IN THE REVENUES APPEAL IS AGAI NST CIT(A) IN ALLOWING DEDUCTION OF PROVISION OF WEALTH TAX WH ILE COMPUTING BOOK PROFIT U/S 115JB. THE ASSESSEE WHILE COMPUTING THE BOOK PROFITS ADDED BACK PROVISION FOR INCOME TAX BUT NOT PROVISION FOR WEALTH TAX RS 81,024/- TO THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT OF THE APPELLANT WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. AO ADDED BACK RS 81,024 TO THE BOOK PROFIT U/S 115JB. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 28 53. ON APPEAL THE CIT(A) ALLOWED THE ASSESSEES APP EAL OBSERVING AS UNDER: AS DISCUSSED IN GROUND 9 ABOVE, ONLY 13 ITEMS OF AD DITIONS AND DEDUCTIONS AS SPECIFIED IN THE EXPLANATION TO SECTI ON 115JB(2) SHOULD BE ADJUSTED IN BOOK PROFITS U/S 115JB. CLAUS E (A) OF EXPLANATION TO SECTION 115JB (2) PROVIDE THAT THE AMOUNT OF INCOME TAX PAID OR PAYABLE AND THE PROVISION THEREF ORE SHOULD BE ADDED BACK TO THE NET PROFIT AS PER PROFIT AND L OSS ACCOUNT TO ARRIVE AT THE BOOK PROFITS. HOWEVER, IN MY VIEW, WEALTH TAX IS NOT INCOME TAX AND THEREFORE THE APPELLANT CONTENDS THAT THE SAME SHOULD NOT BE ADDED BACK TO THE NET PROFITS WH ILE COMPUTING BOOK PROFITS U/S 115JB. THIS GROUND IS AL LOWED IN FAVOUR OF THE APPELLANT. 54. AGGRIEVED THE REVENUE IS ON APPEAL. WE FIND THA T THE JURISDICTIONAL HIGH COURT IN THE CASE OF ESCHJAY FO RGINGS LTD ( 251 ITR 15) HAS HELD THAT PROVISION FOR WEALTH TAX IS NOT BE ADDED TO THE BOOK PROFITS WHILE COMPUTING BOOK PROF ITS U/S 115J. THE RATIO WILL BE EQUALLY BE APPLICABLE TO SE C 115JB ALSO. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT WE UPHOLD THE ORDER OF THE CIT(A) THAT PROVIS ION FOR WEALTH TAX OF RS. 81,024/- SHOULD NOT BE ADDED BACK WHILE COMPUTING THE BOOK PROFITS U/S 115JB AND DISMISS TH E REVENUES APPEAL ON THIS ISSUE. 55. IN THE RESULT THE REVENUES APPEAL IS PARTLY AL LOWED. 2.5. WE FIND THAT IN THE AFORESAID ORDER (PARA-11 ), THE TRIBUNAL DIRECTED THE LD. ASSESSING OFFICER WHETHER THE LOSS IN THE VALUE OF MONEY RELIES FROM THE ISSUE OF SHAR ES AND KEPT ABROAD CAN BE CONSIDERED AS BUSINESS LOSS TO T HE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 29 ASSESSEE AND FURTHER DIRECTED TO EXAMINE THE MATTER WITH VARIOUS ASPECT AND TO INVESTIGATE THE SAME IN ACCOR DANCE WITH LAW. HOWEVER, THE LD. ASSESSING OFFICER WITHOU T EXAMINING THE ISSUE MERELY REITERATED ITS EARLIER S TAND. THE LD. ASSESSING OFFICER RELYING UPON THE DECISION IN THE CASE OF SUTLEJ COTTON MILLS VS CIT (116 ITR 1) TREATED T HE BALANCE IS AS CAPITAL EXPENSES AND DECIDED AGAINST THE ASSE SSEE. BEFORE ADVERTING FURTHER, WE ARE REPRODUCING HEREUN DER THE RELEVANT PORTION FROM THE ORDER OF HON'BLE APEX COU RT IN SUTLEZ COTTON MILLS LTD. THE LAW MAY, THEREFORE NOW BE TAKEN TO BE WELL SET TLED THAT WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECI ATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY IT, ON CONVER SION INTO ANOTHER CURRENCY SUCH PROFIT OR LOSS WOULD ORDINARILY BE TR ADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REV ENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMB ARKED IN THE BUSINESS. BUT IF ON THE OTHER HAND THE FOREIGN CURRENCY IS HE LD AS A CAPITAL ASSET OR AS FIXED CAPITAL SUCH PROFIT OR LOSS WOULD BE OF CA PITAL NATURE. 2.6. IF THE AFORESAID OBSERVATION FROM HON'BLE APE X COURT IS ANALYZED, IT SPEAKS ABOUT WHERE THE PROFIT OR LOSS ARISES ON ACCOUNT OF FLUCTUATION (APPRECIATION OR DEPRECIATION) IN THE VALUE OF FOREIGN CURRENCY, ORD INARILY IT WILL BE A TRADING PROFIT OR LOSS FOR THE ASSESSEE O N REVENUE ACCOUNT OR AS A PART OF CIRCULATING CAPITAL EMBARKE D IN ITS BUSINESS. IF THE ISSUE IS ANALYZED WITH THE ANGLE OF ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 30 COMMERCIAL EXPEDIENCY AS WAS HELD BY HON'BLE APEX C OURT IN S. A. BUILDERS (288 ITR 1), WE DEEM IT APPROPRIA TE TO REPRODUCE THE RELEVANT PORTION FROM THE AFORESAID O RDER WHICH IS UNDER:- 'IN MADHAV PRASAD JATIA V. CIT AIR 1979 SC 1291, THE SUPREME COURT HELD THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' O CCURRING UNDER THE PROVISION OF SECTION 36(1)( III ) IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING INCOME, PROFITS OR GAINS', AND T HIS HAS BEEN THE CONSISTENT VIEW OF THE SUPREME COURT. [PARA 20] THE HIGH COURT IN THE IMPUGNED JUDGMENT AS WELL AS THE TRIBUNAL AND THE INCOME-TAX AUTHORITIES HAD APPROACHED THE MATTER FR OM AN ERRONEOUS ANGLE. IN THE INSTANT CASE, THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT PART OF IT TO ITS SISTER CONCERN (A SUBSIDIARY) AS INTEREST-FREE LOAN. THE TEST IN SUCH A CASE WAS REALLY WHETHER THIS WAS DONE AS A M EASURE OF COMMERCIAL EXPEDIENCY. [PARA 21] THE DECISIONS RELATING TO SECTION 37 WILL ALSO BE A PPLICABLE TO SECTION 36(1)( III ) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS 'FOR THE PURPOSE OF BUSINESS'. IT HAS BEEN CONSISTENTLY HELD IN DECI SIONS RELATING TO SECTION 37 THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' I NCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. [PARA 22] IN ATHERTON V. BRITISH INSULATED & HELSBY CABLES LTD. [1925] 10 TC 155, IT WAS HELD BY THE HOUSE OF LORDS THAT IN ORDER TO CLA IM A DEDUCTION, IT IS ENOUGH TO SHOW THAT THE MONEY IS EXPENDED, NOT OF N ECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT, BUT VOLUNTARILY AN D ON GROUNDS OF COMMERCIAL EXPEDIENCY AND IN ORDER TO INDIRECTLY FA CILITATE THE CARRYING ON OF THE BUSINESS. [PARA 23] THE HIGH COURT AS WELL AS THE TRIBUNAL AND OTHER IN COME-TAX AUTHORITIES SHOULD HAVE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FROM THE ABOVE ANGLE. IN OTHER WORDS , THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ENQUIRED AS TO WHETHE R THE INTEREST-FREE LOAN WAS GIVEN TO THE SISTER COMPANY (WHICH IS A SUBSIDI ARY OF THE ASSESSEE) AS A MEASURE OF COMMERCIAL EXPEDIENCY, AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. [PARA 24] THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRES SION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCU RRED UNDER ANY LEGAL OBLIGATION, YET IT IS ALLOWABLE AS A BUSINESS EXPEN DITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. [PARA 25] ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 31 NO DOUBT AS HELD IN MADHAV PRASAD JATIA'S CASE ( SUPRA ), IF THE BORROWED AMOUNT WAS DONATED FOR SOME SENTIMENTAL OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMERCIAL EXPEDIENCY, THE INTEREST T HEREON COULD NOT HAVE BEEN ALLOWED UNDER SECTION 36( 1 )( III ). [PARA 26] THUS, THE RATIO OF MADHAV PRASAD JATIA ( SUPRA ), IS THAT THE BORROWED FUND ADVANCED TO A THIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY, IF IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(1)( III ). [PARA 27] IN THE INSTANT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL AND OTHER AUTHORITIES HAD EXAMINED WHETHER THE AMOUNT ADVANCE D TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. [PARA 28] THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE EX AMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERN, AND WHAT THE SISTER CONCERN DID WITH THE MONEY, IN ORDER TO DECI DE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAD NOT BEEN DONE. [PARA 30] IT IS NOT IN EVERY CASE THAT INTEREST ON BORROWED L OAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DE PENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MON EY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIE NCY IN MANY OTHER CIRCUMSTANCES. WHERE HOLDING COMPANY, HAS A DEEP IN TEREST IN ITS SUBSIDIARY, AND THE HOLDING COMPANY ADVANCES BORROW ED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY F OR SOME BUSINESS PURPOSES, THE HOLDING COMPANY WOULD ORDINARILY BE E NTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. [PARA 35] IN VIEW OF THE ABOVE, THE APPEALS WERE TO BE ALLOWE D AND THE IMPUGNED JUDGMENTS OF THE HIGH COURT, THE TRIBUNALS AND OTHE R AUTHORITIES WERE TO BE SET ASIDE AND THE MATTER WAS TO BE REMANDED TO THE TRIBUNAL FOR AFRESH DECISION, IN ACCORDANCE WITH LAW AND IN THE LIGHT O F THE OBSERVATIONS MADE ABOVE. 2.7. WHILE COMING TO THE AFORESAID ORDER, THE HON 'BLE APEX COURT REVERSED THE DECISION OF PUNJAB AND HARY ANA HIGH COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT [2004] 269 ITR 535 / 145 TAXMAN 107 (PUNJ. & HAR.) AND AL SO DISAPPROVED THE DECISION OF THE BOMBAY HIGH COURT IN PHALTAN SUGAR WORKS LTD. V. CIT [1995] 215 ITR 5 82 ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 32 /[1994] 73 TAXMAN 518 (BOM.) AND PHALTAN SUGAR WORK S LTD. V. CWT [1994] 208 ITR989/ 72 TAXMAN 325 (BOM.) AND APPROVED THE DECISION OF THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (BHARAT) LTD. [2002] 254 ITR 377/121 TAXMAN 706 (DELHI) . THE HON'BLE AP EX COURT CONSIDERED THE DECISIONS IN ATHERTON (H.M. IN SPECTOR OF TAXES) V. BRITISH INSULATED AND HELSBY CABLES LT D. [1925] 10 TC 155 (HL), EASTERN INVESTMENTS LTD. V. CIT [19 51] 20 ITR 1 (SC)/21 COMP CAS 194 (SC); CIT CHANDULAL KESHAVLAL AND CO. [1960] 38 ITR 601 (SC); CIT V. MALAYALAM PALANTATIONS LTD. [1964] 53 ITR 140 (SC) AND CIT V. BIRLA COTTON SPINNING AND WEAVING M ILLS LTD. [1971] 82 ITR 166 (SC). IT IS NOTED THAT THE H ON'BLE APEX COURT ANALYZED THE MATTER U/S 36(1)(III) OF TH E ACT, WHEREIN, THE ASSESSEE PAID INTEREST ON BORROWED CAP ITAL. THE ISSUE BEFORE THE HON'BLE APEX COURT WAS WHERE T HE BORROWED FUNDS ADVANCED TO A THIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY. IN THAT CASE, THE ASSESSEE B ORROWED FUNDS FROM THE BANK AND ADVANCED PART THEREOF TO IT S SISTER CONCERN (A SUBSIDIARY) AS INTEREST FREE LOAN. THE L D. ASSESSING OFFICER DISALLOWED INTEREST U/S 36(1)(III ) ON ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 33 BORROWINGS TO THE EXTENT THOSE WERE ADVANCED TO SUBSIDIARY. THE TRIBUNAL AS WELL AS HIGH COURT UPHE LD THE ORDER OF THE ASSESSING OFFICER. THE HON'BLE APEX CO URT OBSERVED THAT SINCE NEITHER THE HIGH COURT NOR THE TRIBUNAL AND ALSO THE OTHER AUTHORITIES HAD EXAMINED WHETHER THE AMOUNT ADVANCED TO SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY, THE MATTER WAS REMANDED TO T HE TRIBUNAL FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW. THE MATTER WAS FURTHER EXAMINED WITH RESPECT TO BUS INESS EXPENDITURE AND ITS ALLOWABILITY U/S 37(1) OF THE A CT. THE HON'BLE APEX COURT HELD THAT IF THE EXPENDITURE WAS INCURRED ON THE GROUND OF COMMERCIAL EXPEDIENCY, IT IS ALLOWABLE BUSINESS EXPENDITURE. IF THE RATIO LAID D OWN IN THE CASE OF S.A. BUILDERS, WE NOTE THAT IN THAT CASE, T HE ASSESSEE DIVERTED BORROWED FUNDS WHEREAS, THE ASSES SEE ADVANCED ITS OWN FUNDS TO ITS SUBSIDIARY, THEREFORE , THE CASE OF THE ASSESSEE IS ON MUCH STRONGER FOOTING. 2.8. WE FIND THAT THE ISSUE UNDER HAND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN ONGC VS DCIT 83 ITR 151 (DEL.), AFFIRMED IN 162 TA XMAN ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 34 60 (DEL.) AND ALSO BY THE DECISION FROM HONBLE APE X COURT IN WOODWORD GOVERNOR INDIA PVT. LTD. (SUPRA). THE R ELEVANT PORTION FROM THE DECISION FROM HONBLE APEX COURT I S REPRODUCED HEREUNDER FOR READY REFERENCE:- 13. AS STATED ABOVE, ONE OF THE MAIN ARGUMENTS ADV ANCED BY THE LEARNED ADDITIONAL SOLICITOR GENERAL ON BEHALF OF THE DEPAR TMENT BEFORE US WAS THAT THE WORD 'EXPENDITURE' IN SECTION 37(1)CONNOTE S 'WHAT IS PAID OUT' AND THAT WHICH HAS GONE IRRETRIEVABLY. IN THIS CONN ECTION, HEAVY RELIANCE WAS PLACED ON THE JUDGMENT OF THIS COURT IN THE CAS E OF INDIAN MOLASSES COMPANY (SUPRA). RELYING ON THE SAID JUDGMENT, IT W AS SOUGHT TO BE ARGUED THAT THE INCREASE IN LIABILITY AT ANY POINT OF TIME PRIOR TO THE DATE OF PAYMENT CANNOT BE SAID TO HAVE GONE IRRETRIEVABL Y AS IT CAN ALWAYS COME BACK. ACCORDING TO THE LEARNED COUNSEL, IN THE CASE OF INCREASE IN LIABILITY DUE TO FOREIGN EXCHANGE FLUCTUATIONS, IF THERE IS A REVALUATION OF THE RUPEE VIS-A-VIS FOREIGN EXCHANGE AT OR PRIOR TO THE POINT OF PAYMENT, THEN THERE WOULD BE NO QUESTION OF MONEY HAVING GON E IRRETRIEVABLY AND CONSEQUENTLY, THE REQUIREMENT OF 'EXPENDITURE' IS N OT MET. CONSEQUENTLY, THE ADDITIONAL LIABILITY ARISING ON A CCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE WAS MERELY A CONTINGEN T/NOTIONAL LIABILITY WHICH DOES NOT CRYSTALLIZE TILL PAYMENT. IN THAT CA SE, THE SUPREME COURT WAS CONSIDERING THE MEANING OF THE EXPRESSION 'EXPE NDITURE INCURRED' WHILE DEALING WITH THE QUESTION AS TO WHETHER THERE WAS A DISTINCTION BETWEEN THE ACTUAL LIABILITY IN PRESENTI AND A LIAB ILITY DE FUTURO. THE WORD 'EXPENDITURE' IS NOT DEFINED IN THE 1961 ACT. THE W ORD 'EXPENDITURE' IS, THEREFORE, REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED. SECTION 37 ENJOINS THAT ANY EXPENDITURE NOT B EING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS SH OULD BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS'. IN SECTIONS 30 TO 36, THE EXPRESSIONS 'E XPENSES INCURRED' AS WELL AS 'ALLOWANCES AND DEPRECIATION' HAS ALSO BEEN USED. FOR EXAMPLE, DEPRECIATION AND ALLOWANCES ARE DEALT WITH IN SECTI ON ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 35 32. THEREFORE, PARLIAMENT HAS USED THE EXPRESSION ' ANY EXPENDITURE' IN SECTION 37 TO COVER BOTH. THEREFORE, THE EXPRESS ION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIRCUMSTANCES OF A P ARTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'LOSS' EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSESSEE. 14. IN THE CASE OF M.P. FINANCIAL CORPORATION V. CI T REPORTED IN 165 ITR 765 THE MADHYA PRADESH HIGH COURT HAS HELD THAT THE EXPRESSION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIR CUMSTANCES OF A PARTICULAR CASE, COVER AN AMOUNT WHICH IS A 'LOSS' EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSE SSEE. THIS VIEW OF THE MADHYA PRADESH HIGH COURT HAS BEEN APPROVED BY THIS COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LT D. V. CIT REPORTED IN 225 ITR 802. ACCORDING TO THE LAW AND PRACTICE O F INCOME TAX BY KANGA AND PALKHIVALA, SECTION 37(1) IS A RESIDUARY SECTION EXTENDING THE ALLOWANCE TO ITEMS OF BUSINESS EXPENDITURE NOT COVE RED BY SECTIONS 30 TO 36. THIS SECTION, ACCORDING TO THE LEARNED AU THOR, COVERS CASES OF BUSINESS EXPENDITURE ONLY, AND NOT OF BUSINESS LOSS ES WHICH ARE, HOWEVER, DEDUCTIBLE ON ORDINARY PRINCIPLES OF COMME RCIAL ACCOUNTING. (SEE PAGE 617 OF THE EIGHTH EDITION). IT IS THIS PR INCIPLE WHICH ATTRACTS THE PROVISIONS OF SECTION 145. THAT SECTION RECOGNIZES THE RIGHTS OF A TRADER TO ADOPT EITHER THE CASH SYSTEM OR THE MERCANTILE SYST EM OF ACCOUNTING. THE QUANTUM OF ALLOWANCES PERMITTED TO BE DEDUCTED UNDE R DIVERSE HEADS UNDER SECTIONS 30 TO 43C FROM THE INCOME, PROFITS A ND GAINS OF A BUSINESS WOULD DIFFER ACCORDING TO THE SYSTEM ADOPT ED. THIS IS MADE CLEAR BY DEFINING THE WORD 'PAID' IN SECTION 43(2), WHICH IS USED IN SEVERAL SECTIONS 30 TO43C, AS MEANING ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASI S ON WHICH PROFITS OR GAINS ARE COMPUTED UNDER SECTION 28/29. THAT IS WHY IN DECIDING THE QUESTION AS TO WHETHER THE WORD 'EXPENDITURE' IN SE CTION 37(1) INCLUDES THE WORD 'LOSS' ONE HAS TO READSECTION 37(1) WITH S ECTION 28, SECTION 29 AND SECTION 145(1). ONE MORE PRINCIPLE NEEDS TO BE KEPT IN MIND. ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSI NESS ARE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT R EASONS TO INDICATE THAT THEY ARE UNRELIABLE. ONE MORE ASPECT NEEDS TO BE HI GHLIGHTED. UNDER SECTION 28(I), ONE NEEDS TO DECIDE THE PROFIT S AND GAINS OF ANY BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 36 THEREFORE, ONE HAS TO TAKE INTO ACCOUNT STOCK-IN-TR ADE FOR DETERMINATION OF PROFITS. THE 1961 ACT MAKES NO PROVISION WITH RE GARD TO VALUATION OF STOCK. BUT THE ORDINARY PRINCIPLE OF COMMERCIAL ACC OUNTING REQUIRES THAT IN THE P&L ACCOUNT THE VALUE OF THE STOCK-IN- TRADE AT THE BEGINNING AND AT THE END OF THE YEAR SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. THIS IS HOW BUSINESS PROFIT S ARISING DURING THE YEAR NEEDS TO BE COMPUTED. THIS IS ONE MORE REASON FOR READING SECTION 37(1) WITH SECTION 145. FOR VALUING THE CLOSING STO CK AT THE END OF A PARTICULAR YEAR, THE VALUE PREVAILING ON THE LAST D ATE IS RELEVANT. THIS IS BECAUSE PROFITS/LOSS IS EMBEDDED IN THE CLOSING STO CK. WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN T HE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCO UNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASE PROFITS BEFORE A CTUAL REALIZATION. THIS IS THE THEORY UNDERLYING THE RULE THAT CLOSING STOC K IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. AS PROFITS FOR INCOME-TAX PURPOSES ARE TO BE COMPUTED IN ACCORDANCE WITH ORDI NARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS, SUCH PRINCIPLES STAN D SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, UNREALIZED PROF ITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF THE ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING Y EARS ACCOUNT IN A CONTINUING BUSINESS ARE NOT BROUGHT TO THE CHARGE A S A MATTER OF PRACTICE, THOUGH, AS STATED ABOVE, LOSS DUE TO FALL IN THE PR ICE BELOW COST IS ALLOWED EVEN THOUGH SUCH LOSS HAS NOT BEEN REALIZED ACTUALL Y. AT THIS STAGE, WE NEED TO EMPHASISE ONCE AGAIN THAT THE ABOVE SYSTEM OF COMMERCIAL ACCOUNTING CAN BE SUPERSEDED OR MODIFIED BY LEGISLA TIVE ENACTMENT. THIS IS WHERE SECTION 145(2) COMES INTO PLAY. UNDER THAT SECTION, THE CENTRAL GOVERNMENT IS EMPOWERED TO NOTIFY FROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. ACCORDINGLY, UNDER SECTION 209 OF THE COMPANIES ACT, MERCANTILE SYSTEM OF ACCOUNTING IS MADE MANDATORY F OR COMPANIES. IN OTHER WORDS, ACCOUNTING STANDARD WHICH IS CONTINUOU SLY ADOPTED BY AN ASSESSEE CAN BE SUPERSEDED OR MODIFIED BY LEGISLATI VE INTERVENTION. HOWEVER, BUT FOR SUCH INTERVENTION OR IN CASES FALL ING UNDER SECTION 145(3), THE METHOD OF ACCOUNTING UNDERTAKEN BY THE ASSESSEE CONTINUOUSLY IS SUPREME. IN THE PRESENT BATCH OF CA SES, THERE IS NO FINDING GIVEN BY THE AO ON THE CORRECTNESS OR COMPL ETENESS OF THE ACCOUNTS OF THE ASSESSEE. EQUALLY, THERE IS NO FIND ING GIVEN BY THE AO ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 37 STATING THAT THE ASSESSEE HAS NOT COMPLIED WITH THE ACCOUNTING STANDARDS. 15. FOR THE REASONS GIVEN HEREINABOVE, WE HOLD THAT , IN THE PRESENT CASE, THE 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUNT OF T HE EXCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET IS AN ITEM OF E XPENDITURE UNDER SECTION 37(1) OF THE 1961 ACT. 16. IN THE LIGHT OF WHAT IS STATED HEREINABOVE, IT IS CLEAR THAT PROFITS AND GAINS OF THE PREVIOUS YEAR ARE REQUIRED TO BE COMPU TED IN ACCORDANCE WITH THE RELEVANT ACCOUNTING STANDARD. IT IS IMPORT ANT TO BEAR IN MIND THAT THE BASIS ON WHICH STOCK- IN-TRADE IS VALUED I S PART OF THE METHOD OF ACCOUNTING. IT IS WELL ESTABLISHED, THAT, ON GENERA L PRINCIPLES OF COMMERCIAL ACCOUNTING, IN THE P&L ACCOUNT, THE VALU ES OF THE STOCK-IN- TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUN TING YEAR SHOULD BE ENTERED AT COST OR MARKET VALUE, WHICHEVER IS LOWER - THE MARKET VALUE BEING ASCERTAINED AS ON THE LAST DATE OF THE ACCOUN TING YEAR AND NOT AS ON ANY INTERMEDIATE DATE BETWEEN THE COMMENCEMENT AND THE CLOSING OF THE YEAR, FAILING WHICH IT WOULD NOT BE POSSIBLE TO ASC ERTAIN THE TRUE AND CORRECT STATE OF AFFAIRS. NO GAIN OR PROFIT CAN ARI SE UNTIL A BALANCE IS STRUCK BETWEEN THE COST OF ACQUISITION AND THE PROC EEDS OF SALE. THE WORD 'PROFIT' IMPLIES A COMPARISON BETWEEN THE STATE OF BUSINESS AT TWO SPECIFIC DATES, USUALLY SEPARATED BY AN INTERVAL OF TWELVE MONTHS. STOCK- IN-TRADE IS AN ASSET. IT IS A TRADING ASSET. THEREF ORE, THE CONCEPT OF PROFIT AND GAINS MADE BY BUSINESS DURING THE YEAR CAN ONLY MATERIALIZE WHEN A COMPARISON OF THE ASSETS OF THE BUSINESS AT TWO DIF FERENT DATES IS TAKEN INTO ACCOUNT. SECTION 145(1) ENACTS THAT FOR THE PU RPOSE OFSECTION 28 AND SECTION 56 ALONE, INCOME, PROFITS AND GAINS MUST BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IN THIS CASE, WE ARE CONCERNED WITHSECTIO N 28. THEREFORE, SECTION 145(1) IS ATTRACTED TO THE FACTS OF THE PRESENT CASE. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BROUGHT INTO CREDIT BEFORE IT IS ACTUALLY RECEIVED; IT BRINGS IN TO DEBIT AN EXPENDITURE FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED. (SEE JUDGMENT OF THIS COURT IN THE CASE OF UNITED C OMMERCIAL BANK V. CIT REPORTED IN 240 ITR 355). THEREFORE, THE ACCOUN TING METHOD FOLLOWED BY AN ASSESSEE CONTINUOUSLY FOR A GIVEN PE RIOD OF TIME NEEDS TO ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 38 BE PRESUMED TO BE CORRECT TILL THE AO COMES TO THE CONCLUSION FOR REASONS TO BE GIVEN THAT THE SYSTEM DOES NOT REFLECT TRUE A ND CORRECT PROFITS. AS STATED, THERE IS NO FINDING GIVEN BY THE AO ON THE CORRECTNESS OF THE ACCOUNTING STANDARD FOLLOWED BY THE ASSESSEE(S) IN THIS BATCH OF CIVIL APPEALS. 17. HAVING COME TO THE CONCLUSION THAT VALUATION IS A PART OF THE ACCOUNTING SYSTEM AND HAVING COME TO THE CONCLUSION THAT BUSINESS LOSSES ARE DEDUCTIBLE UNDER SECTION 37(1) ON THE BA SIS OF ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING AND HAVING COME TO THE CONCLUSION THAT THE CENTRAL GOVERNMENT HAS MADE ACCOUNTING STA NDARD-11 MANDATORY, WE ARE NOW REQUIRED TO EXAMINE THE SAID ACCOUNTING STANDARD ('AS'). 18. AS-11 DEALS WITH GIVING OF ACCOUNTING TREATMENT FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES. AS-11 DEALS WITH EFFECTS OF EXCHANGE DIFFERENCES. UNDER PARA 2, REPORTING CURRENCY IS DE FINED TO MEAN THE CURRENCY USED IN PRESENTING THE FINANCIAL STATEMENT S. SIMILARLY, THE WORDS 'MONETARY ITEMS' ARE DEFINED TO MEAN MONEY HE LD AND ASSETS AND LIABILITIES TO BE RECEIVED OR PAID IN FIXED AMOUNTS , E.G., CASH, RECEIVABLES AND PAYABLES. THE WORD 'PAID' IS DEFINED UNDER SECT ION 43(2). THIS HAS BEEN DISCUSSED EARLIER. SIMILARLY, IT IS IMPORTANT TO NOTE THAT FOREIGN CURRENCY NOTES, BALANCE IN BANK ACCOUNTS DENOMINATE D IN A FOREIGN CURRENCY, AND RECEIVABLES/PAYABLES AND LOANS DENOMI NATED IN A FOREIGN CURRENCY AS WELL AS SUNDRY CREDITORS ARE ALL MONETA RY ITEMS WHICH HAVE TO BE VALUED AT THE CLOSING RATE UNDER AS-11. UNDER PA RA 5, A TRANSACTION IN A FOREIGN CURRENCY HAS TO BE RECORDED IN THE REPORT ING CURRENCY BY APPLYING TO THE FOREIGN CURRENCY AMOUNT THE EXCHANG E RATE BETWEEN THE REPORTING CURRENCY AND THE FOREIGN CURRENCY AT THE DATE OF THE TRANSACTION. THIS IS KNOWN AS RECORDING OF TRANSACT ION ON INITIAL RECOGNITION. PARA 7 OF AS-11 DEALS WITH REPORTING O F THE EFFECTS OF CHANGES IN EXCHANGE RATES SUBSEQUENT TO INITIAL REC OGNITION. PARA 7(A) INTER ALIA STATES THAT ON EACH BALANCE SHEET DATE M ONETARY ITEMS, ENUMERATED ABOVE, DENOMINATED IN A FOREIGN CURRENCY SHOULD BE REPORTED USING THE CLOSING RATE. IN CASE OF REVENUE ITEMS FALLING UNDER SECTION 37(1), PARA 9 OF AS-11 WHICH DEALS WI TH RECOGNITION OF EXCHANGE DIFFERENCES, NEEDS TO BE CONSIDERED. UNDER THAT PARA, EXCHANGE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 39 DIFFERENCES ARISING ON FOREIGN CURRENCY TRANSACTION S HAVE TO BE RECOGNIZED AS INCOME OR AS EXPENSE IN THE PERIOD IN WHICH THEY ARISE, EXCEPT AS STATED IN PARA 10 AND PARA 11 WHICH DEALS WITH EXCHANGE DIFFERENCES ARISING ON REPAYMENT OF LIABILITIES INC URRED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS, WHICH TOPIC FALLS UNDERSECT ION 43A OF THE 1961 ACT. AT THIS STAGE, WE ARE CONCERNED ONLY WITH PARA 9 WHICH DEALS WITH REVENUE ITEMS. PARA 9 OF AS-11 RECOGNISES EXCHANGE DIFFERENCES AS INCOME OR EXPENSE. IN CASES WHERE, E.G., THE RATE O F DOLLAR RISES VIS-`-VIS THE INDIAN RUPEE, THERE IS AN EXPENSE DURING THAT P ERIOD. THE IMPORTANT POINT TO BE NOTED IS THAT AS-11 STIPULATES EFFECT O F CHANGES IN EXCHANGE RATE VIS-`-VIS MONETARY ITEMS DENOMINATED IN A FORE IGN CURRENCY TO BE TAKEN INTO ACCOUNT FOR GIVING ACCOUNTING TREATMENT ON THE BALANCE SHEET DATE. THEREFORE, AN ENTERPRISE HAS TO REPORT THE OU TSTANDING LIABILITY RELATING TO IMPORT OF RAW MATERIALS USING CLOSING R ATE OF EXCHANGE. ANY DIFFERENCE, LOSS OR GAIN, ARISING ON CONVERSION OF THE SAID LIABILITY AT THE CLOSING RATE, SHOULD BE RECOGNIZED IN THE P&L ACCOU NT FOR THE REPORTING PERIOD. 19. A COMPANY IMPORTS RAW MATERIAL WORTH US $ 25000 0 ON 15.1.2002 WHEN THE EXCHANGE RATE WAS RS. 46 PER US $. THE COM PANY RECORDS THE TRANSACTION AT THAT RATE. THE PAYMENT FOR THE IMPOR TS IS MADE ON 15.4.2002 WHEN THE EXCHANGE RATE IS RS. 49 PER US $ . HOWEVER, ON THE BALANCE SHEET DATE, 31.3.2002, THE RATE OF EXCHANGE IS RS. 50 PER US $. IN SUCH A CASE, IN TERMS OF AS-11, THE EFFECT OF THE E XCHANGE DIFFERENCE HAS TO BE TAKEN INTO P&L ACCOUNT. SUNDRY CREDITORS IS A MO NETARY ITEM AND HENCE SUCH ITEM HAS TO BE VALUED AT THE CLOSING RAT E, I.E. RS. 50 AT 31.3.2002, IRRESPECTIVE OF THE PAYMENT FOR THE SALE SUBSEQUENTLY AT A LOWER RATE. THE DIFFERENCE OF RS. 4 (50-46) PER US $ IS TO BE SHOWN AS AN EXCHANGE LOSS IN THE P&L ACCOUNT AND IS NOT TO BE A DJUSTED AGAINST THE COST OF RAW MATERIALS. 20. IN THE CASE OF SUTLEJ COTTON MILLS LTD. V. CIT REPORTED IN 116 ITR 1 THIS COURT HAS OBSERVED AS UNDER: 'THE LAW MAY, THEREFORE, NOW BE TAKEN TO BE WELL SE TTLED THAT WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY IT, ON CONVERSION ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 40 INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD OR DINARILY BE A TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY T HE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS A PART OF CIRCULATING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND , THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL, SUC H PROFIT OR LOSS WOULD BE OF CAPITAL NATURE.' (EMPHASIS SUPPLIED) 21. IN CONCLUSION, WE MAY STATE THAT IN ORDER TO FI ND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO A CCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS ME RCANTILE SYSTEM, WHICH BRINGS INTO DEBIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED A ND BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; (III) WHETHER THE ASSESSEE HA S GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CO NSISTENT AND DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF L OSSES AND GAINS; (V) WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKI NG ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED ACCOUNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPT ED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXATION. FACTS IN M/S HONDA SIEL POWER PRODUCTS LTD. [CIVIL APPEAL ARISING OUT OF SLP(C) NO. 7632/08] - CAPITAL ACCOUNT CASE: 22. THE MAIN ISSUE WHICH ARISES FOR DETERMINATION I N THIS BATCH OF CIVIL APPEALS IS: WHETHER THE ASSESSEE WAS ENTITLED TO AD JUST THE ACTUAL COST OF IMPORTED ASSETS ACQUIRED IN FOREIGN CURRENCY ON ACC OUNT OF FLUCTUATION IN THE RATE OF EXCHANGE AT EACH BALANCE SHEET DATE PEN DING ACTUAL PAYMENT OF THE VARIED LIABILITY. IN THIS BATCH OF CIVIL APP EALS, WE ARE CONCERNED ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 41 WITH INCREASE IN THE EXISTING LIABILITY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS ON 'CAPITAL ACCOUNT'. 23. BEFORE COMING TO THE ARGUMENTS, WE QUOTE HEREIN BELOW SECTION 43A, AS IT STOOD PRIOR TO 1.4.2003: '43A. SPECIAL PROVISIONS CONSEQUENTIAL TO CHANGES I N RATE OF EXCHANGE OF CURRENCY--(1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE AN ASSESSEE HAS ACQUIRED ANY ASS ET FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSINESS OR P ROFESSION AND, IN CONSEQUENCE OF A CHANGE IN THE RATE OF EXCHANGE AT ANY TIME AFTER THE ACQUISITION OF SUCH ASSET, THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRESSED IN INDIAN CURRENCY FOR MAKING PAYMENT TOWARDS THE WHOLE OR A PART OF THE COST OF THE ASSE T OR FOR REPAYMENT OF THE WHOLE OR A PART OF THE MONEYS BORROWED BY HIM F ROM ANY PERSON, DIRECTLY OR INDIRECTLY, IN ANY FOREIGN CURRENCY SPE CIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET (BEING IN EITHER CASE THE LI ABILITY EXISTING IMMEDIATELY BEFORE THE DATE ON WHICH THE CHANGE IN THE RATE OF EXCHANGE TAKES EFFECT), THE AMOUNT BY WHICH THE LIABILITY AF ORESAID IS SO INCREASED OR REDUCED DURING THE PREVIOUS YEAR SHALL BE ADDED TO, OR, AS THE CASE MAY BE, DEDUCTED FROM, THE ACTUAL COST OF THE ASSET AS DEFINED IN CLAUSE (1) OF SECTION 43 OR THE AMOUNT OF EXPENDITURE OF A CAPITAL NATURE REFERRED TO IN CLAUSE (IV) OF SUB-SECTION (1) OF SE CTION 35 OR IN SECTION 35A OR IN CLAUSE (IX) OF SUB-SECTION (1) OF SECTION 36, OR, IN THE CASE OF A CAPITAL ASSET (NOT BEING A CAPITAL ASSET REFERRED T O IN SECTION 50), THE COST OF ACQUISITION THEREOF FOR THE PURPOSES OF SECTION 48, AND THE AMOUNT ARRIVED AT AFTER SUCH ADDITION OR DEDUCTION SHALL B E TAKEN TO BE THE ACTUAL COST OF THE ASSET OR THE AMOUNT OF EXPENDITURE OF A CAPITAL NATURE OR, AS THE CASE MAY BE, THE COST OF ACQUISITION OF THE CAP ITAL ASSET AS AFORESAID.' 24. WE ALSO QUOTE HEREINBELOW SECTION 43A, AS IT ST ANDS IN THE STATUTE BOOK AFTER SUBSTITUTION BY THE FINANCE ACT 2002 W.E .F. 1.4.2003: '43A. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTH ER PROVISION OF THE ACT, WHERE AN ASSESSEE HAS ACQUIRED ANY ASSET IN AN Y PREVIOUS YEAR FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUS INESS OR PROFESSION AND, IN CONSEQUENCE OF A CHANGE IN THE RATE OF EXCH ANGE DURING ANY PREVIOUS YEAR AFTER THE ACQUISITION OF SUCH ASSET, THERE IS AN INCREASE OR ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 42 REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRE SSED IN INDIAN CURRENCY (AS COMPARED TO THE LIABILITY EXISTING AT THE TIME OF ACQUISITION OF THE ASSET) AT THE TIME OF MAKING PAYMENT.' (EMPHASIS SUPPLIED) 25. WE ALSO QUOTE HEREINBELOW PROVISIONS OF SECTION 43(1): '43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLE SS THE CONTEXT OTHERWISE REQUIRES - (1) 'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSE TS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY , AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHO RITY.' 26. SHRI PARAG TRIPATHI, LEARNED ADDITIONAL SOLICIT OR GENERAL APPEARING ON BEHALF OF THE DEPARTMENT, SUBMITTED THAT IN SECT ION 43A (AS IT STOOD PRIOR TO FINANCE ACT, 2002) THE EXPRESSION 'FOR MAK ING PAYMENT' IS IN THE CONTEXT OF INCREASE OR DECREASE OF LIABILITY AN D THE SAME HINGES ON 'MAKING THE PAYMENT TOWARDS THE WHOLE OR A PART OF ...'. ACCORDING TO THE LEARNED COUNSEL, THE EXPRESSION 'TOWARDS THE WHOLE OR A PART OF' MAKES IT CLEAR THAT SECTION 43A AS IT STOOD REFERRED TO WHOL E OR A PART OF THE PAYMENT AND THEREFORE TO THE POINT OF PAYMENT. ACCO RDING TO THE LEARNED COUNSEL, UNDER THE PRE-AMENDED SECTION 43A, THE EFF ECT OF INCREASE OR DECREASE OF LIABILITY AROSE ONLY AT THE POINT OF PA YMENT BECAUSE THE POINT OF ACCRUAL SHIFTED TO THE POINT OF PAYMENT. IN THIS CONNECTION, LEARNED COUNSEL URGED THAT THE DIFFERENCE BETWEEN ACCRUAL A ND PAYMENT OF A LIABILITY IS THAT NORMALLY THE POINT OF ACCRUAL AND THE POINT OF PAYMENT REPRESENT TWO DIFFERENT TIME MILESTONES. HOWEVER, A CCORDING TO THE LEARNED COUNSEL, IN THE CASE OF A CONTINGENT LIABIL ITY, LIKE THAT OF FOREIGN EXCHANGE FLUCTUATIONS, THE POINT OF ACCRUAL AND THE POINT OF PAYMENT BECOME THE SAME. ACCORDING TO THE LEARNED COUNSEL, UNDER THE PRE-AME NDED DISPENSATION OF SECTION 43A, THE EFFECT OF INCREASE OR DECREASE OF LIABILITY COULD ONLY ARISE AT THE POINT OF PAYMENT, AS THE POINT OF ACCR UAL SHIFTS TO THE POINT OF PAYMENT. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 43 27. LEARNED COUNSEL NEXT CONTENDED THAT ON A PROPER AND TRUE INTERPRETATION OF THE AMENDMENT TO SECTION 43A, INT RODUCED BY FINANCE ACT, 2002, SECTION 43A IS CLARIFICATORY. ACCORDING TO THE LEARNED COUNSEL, THE OCCASION FOR THE CLARIFICATORY AMENDMENT AROSE IN VIEW OF THE JUDGMENTS OF THE VARIOUS HIGH COURTS, WHICH INTERPR ETED THE UNAMENDED PROVISION AS LAYING DOWN THE PROPOSITION THAT IN CA SE OF INCREASE OR DECREASE OF LIABILITY DUE TO FOREIGN EXCHANGE FLUCT UATIONS, THE SAME IS TO BE RECOGNIZED AT THE END OF EACH FINANCIAL YEAR, IR RESPECTIVE OF WHETHER SUCH 'INCREMENTAL LIABILITY' HAD ACCRUED AND HAD BE EN PAID OR NOT. ACCORDING TO THE LEARNED COUNSEL,SECTION 43A, AS AM ENDED, RECOGNIZES THE FACT THAT IN CASE OF FOREIGN EXCHANGE FLUCTUATI ONS, THE ACCRUAL OF LIABILITY IS CO-TERMINUS WITH THE PAYMENT OF LIABIL ITY AND THEREFORE THE AMENDMENT TOSECTION 43A IS CLARIFICATORY AND NOT AM ENDATORY, NOTWITHSTANDING THE FACT THAT THE AMENDMENT OPERATE S W.E.F. 1.4.2003. 28. IN REPLY, SHRI AJAY VOHRA, LEARNED COUNSEL APPE ARING ON BEHALF OF THE ASSESSEE, SUBMITTED THATSECTION 43A (EVEN PRIOR TO THE AMENDMENT) WAS INSERTED TO PROVIDE FOR ADJUSTMENT IN THE ACTUAL CO ST OF ASSETS PURSUANT TO CHANGE IN FOREIGN CURRENCY EXCHANGE RATES. AS A CON SEQUENCE OF SECTION 43A (UNAMENDED), IT BECAME POSSIBLE TO ADJUST TO IN CREASE/DECREASE IN LIABILITY RELATING TO ACQUISITION OF CAPITAL ASSETS ON ACCOUNT OF EXCHANGE RATE FLUCTUATION, IN THE ACTUAL COST OF THE ASSETS ACQUIRED IN FOREIGN CURRENCY AND FOR DEPRECIATION TO BE ALLOWED WITH RE FERENCE TO SUCH INCREASED/DECREASED COST. ACCORDING TO THE LEARNED COUNSEL, THE PROVISIONS OF SECTION 43A(UNAMENDED) ARE PARI MATER IA WITH PARA 10 OF AS-11 WHICH INTER ALIA PROVIDES FOR ADJUSTMENT IN T HE CARRYING COST OF FIXED ASSETS ACQUIRED IN FOREIGN CURRENCY, DUE TO F OREIGN EXCHANGE FLUCTUATION AT EACH BALANCE SHEET DATE. IN THIS CON NECTION, LEARNED COUNSEL HAS PLACED RELIANCE ON THE JUDGMENT OF THIS COURT IN THE CASE OF CIT V. ARVIND MILLS LTD. REPORTED IN 193 ITR 255 . 29. TO ANSWER THE CONTROVERSY, WE NEED TO ANALYSE S ECTION 43A (UNAMENDED). THE PERIOD IN QUESTION IN THE BATC H OF CIVIL APPEALS IS PRIOR TO FINANCE ACT, 2002, THEREFORE, WE ARE REQUI RED TO CONSIDER THE SCOPE OF SECTION 43A (UNAMENDED). ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 44 30. SECTION 43A STARTS WITH A NON OBSTANTE CLAUSE. SECTION 43A(1) OVERRIDES THE OTHER PROVISIONS ONLY AS REGAR DS CASES FALLING UNDER THAT SUB-SECTION. FOR INSTANCE, IN A CASE WHERE THE ASSET IS ACQUIRED, OR THE LIABILITY TO PAY IN FOREIGN EXCHANGE ARISES, AF TER THE CHANGE IN THE RATE OF EXCHANGE, THE SAID SUB-SECTION HAS NO APPLICATIO N AND THE GENERAL PRINCIPLES OF LAW MUST BE APPLIED IN DECIDING WHETH ER THE ACTUAL COST IS INCREASED OR REDUCED AS A RESULT OF SUCH CHANGE. IN OTHER WORDS, SECTION 43A(1) APPLIES ONLY WHERE AS A RESULT OF CHANGE IN THE RATE OF EXCHANGE THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE IN TERMS OF THE INDIAN RUPEE TO PAY THE PRICE OF ANY ASSET P AYABLE IN FOREIGN EXCHANGE OR TO REPAY MONEYS BORROWED IN FOREIGN CUR RENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET. SECTION 43A (1), THEREFORE, HAS NO APPLICATION UNLESS THE ASSET IS ACQUIRED AND THE LI ABILITY EXISTED, BEFORE THE CHANGE IN THE RATE OF EXCHANGE TAKES EFFECT. IN SUCH A CASE, SECTION 43A CONTEMPLATES RECOMPUTATION OF THE COST OF THE A SSETS FOR THE PURPOSES OF DEPRECIATION [SECTIONS 32 AND 43(1)], A ND ALSO AS REGARDS CAPITAL ASSETS FOR SCIENTIFIC RESEARCH [SECTION 35( 1)(IV)] AND ALSO REGARDING PATENT RIGHTS OR COPYRIGHTS [SECTION 35A] . 31. AS HELD IN ARVIND MILLS CASE (SUPRA) INCREASE O R DECREASE IN LIABILITY IN THE REPAYMENT OF FOREIGN LOAN SHOULD BE TAKEN IN TO ACCOUNT TO MODIFY THE FIGURE OF ACTUAL COST IN THE YEAR IN WHICH THE INCREASE OR DECREASE IN LIABILITY ARISES ON ACCOUNT OF THE FLUCTUATION IN T HE RATE OF EXCHANGE. THUS, THE ADJUSTMENTS IN THE ACTUAL COST ARE TO BE MADE IRRESPECTIVE OF THE DATE OF ACTUAL PAYMENT IN FOREIGN CURRENCY MADE BY THE ASSESSEE. THIS POSITION ALSO FINDS PLACE IN THE CLARIFICATION ISSUED BY THE MINISTRY OF FINANCE DATED 4.1.1967 WHICH INTER ALIA READS AS UN DER: '2. THE GOVERNMENT AGREES THAT FOR THE PURPOSES OF THE CALCULATION OF DEPRECIATION ALLOWANCE, THE COST OF CAPITAL ASSETS IMPORTED BEFORE THE DATE OF DEVALUATION SHOULD BE WRITTEN OFF TO THE EX TENT OF THE FULL AMOUNT OF THE ADDITIONAL RUPEE LIABILITY INCURRED ON ACCOU NT OF DEVALUATION AND NOT WHAT IS ACTUALLY PAID FROM YEAR TO YEAR. THE PR OPOSED LEGAL PROVISION IN THE MATTER IS INTENDED TO BE FRAMED ON THIS BASI S.' (EMPHASIS SUPPLIED) ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 45 32. ONE MORE ASPECT NEEDS TO BE MENTIONED. SECTION 43(1) DEFINES ACTUAL COST FOR THE PURPOSE OF GRANT OF DEPRECIATION ETC. TO MEAN 'THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE'. TILL THE INSERTION OF THE UNAMENDED SECTION 43A THERE WAS NO PROVISION IN THE INCOME-TAX ACT FO R ADJUSTMENT OF THE ACTUAL COST WHICH WAS FIXED ONCE AND FOR ALL, AT TH E TIME OF ACQUISITION OF THE ASSET. ACCORDINGLY, NO ADJUSTMENT COULD BE MADE IN THE ACTUAL COST OF THE ASSETS FOR PURPOSES OF GRANT OF DEPRECIATION FO R ANY INCREASE/DECREASE OF LIABILITY SUBSEQUENTLY ARISING DUE TO EXCHANGE F LUCTUATION. CONSEQUENTLY, SECTION 43A WAS INTRODUCED IN THE ACT BY FINANCE ACT, 1967 W.E.F. 1.4.1967 IN THE ABOVE TERMS TO PROVIDE FOR ADJUSTMENT IN THE ACTUAL COST OF ASSETS PURSUANT TO CHANGE IN THE FOR EIGN CURRENCY EXCHANGE RATES. AS A CONSEQUENCE OF THE INSERTION OF THE SAI D SECTION, IT BECAME POSSIBLE TO ADJUST THE INCREASE/DECREASE IN LIABILI TY RELATING TO ACQUISITION OF CAPITAL ASSETS ON ACCOUNT OF EXCHANGE RATE FLUCT UATION, IN THE ACTUAL COST OF THE ASSETS ACQUIRED IN FOREIGN CURRENCY AND FOR, INTER ALIA, DEPRECIATION TO BE ALLOWED WITH REFERENCE TO SUCH I NCREASED/DECREASED COST. THIS POSITION IS ALSO MADE CLEAR BY CIRCULAR NO. 5-P DATED 9.10.1967 ISSUED BY CBDT. ONE MORE POINT NEEDS TO BE MENTIONE D. SECTION 43A (UNAMENDED) CORRESPONDS TO PARA 10 OF AS-11 SIM ILARLY PROVIDING FOR ADJUSTMENT IN THE CARRYING COST OF FIXED ASSETS ACQUIRED IN FOREIGN CURRENCY, DUE TO FOREIGN EXCHANGE FLUCTUATION AT EA CH BALANCE SHEET DATE. THE RELEVANT PARA READS AS FOLLOWS: '10. EXCHANGE DIFFERENCES ARISING ON REPAYMENT OF L IABILITIES INCURRED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS, WHICH CARRIE D IN TERMS OF HISTORICAL COST, SHOULD BE ADJUSTED IN THE CARRYING AMOUNT OF THE RESPECTIVE FIXED ASSETS. THE CARRYING AMOUNT OF SUCH FIXED ASSETS SH OULD, TO THE EXTENT NOT ALREADY SO ADJUSTED OR OTHERWISE ACCOUNTED FOR, ALS O BE ADJUSTED TO ACCOUNT FOR ANY INCREASE OR DECREASE IN THE LIABILI TY OF THE ENTERPRISE, AS EXPRESSED IN THE REPORTING CURRENCY BY APPLYING THE CLOSING RATE, FOR MAKING PAYMENT TOWARDS THE WHOLE OR A PART OF THE C OST OF THE ASSETS OR FOR REPAYMENT OF THE WHOLE OR A PART OF THE MONIES BORROWED BY THE ENTERPRISE FROM ANY PERSON, DIRECTLY OR INDIRECTLY, IN FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THOSE ASS ETS.' 33. AS STATED ABOVE, WHAT TRIGGERS THE ADJUSTMENT I N THE ACTUAL COST OF THE ASSETS, IN TERMS OF UNAMENDED SECTION 43A OF THE 19 61 ACT IS THE CHANGE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 46 IN THE RATE OF EXCHANGE SUBSEQUENT TO THE ACQUISITI ON OF ASSET IN FOREIGN CURRENCY. THE SECTION MANDATES THAT AT ANY TIME THE RE IS CHANGE IN THE RATE OF EXCHANGE, THE SAME MAY BE GIVEN EFFECT TO B Y WAY OF ADJUSTMENT OF THE CARRYING COST OF THE FIXED ASSETS ACQUIRED IN F OREIGN CURRENCY. BUT FOR SECTION 43A WHICH CORRESPONDS TO PARA 10 OF AS- 11 SUCH ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSETS WAS NOT POSSIBLE, PARTICULARLY IN THE LIGHT OF SECTION 43(1). THE UNAMENDED SECTIO N 43A NOWHERE REQUIRED AS CONDITION PRECEDENT FOR MAKING NECESSAR Y ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSET THAT THERE SHOUL D BE ACTUAL PAYMENT OF THE INCREASED/DECREASED LIABILITY AS A CONSEQUENCE OF THE EXCHANGE VARIATION. THE WORDS USED IN THE UNAMENDED SECTION 43A WERE 'FOR MAKING PAYMENT' AND NOT 'ON PAYMENT' WHICH IS NOW B ROUGHT IN BY AMENDMENT TO SECTION 43A VIDE FINANCE ACT, 2002. 34. LASTLY, WE ARE OF THE VIEW THAT AMENDMENT OF SE CTION 43A BY THE FINANCE ACT, 2002 W.E.F. 1.4.2003 IS AMENDATORY AND NOT CLARIFICATORY. THE AMENDMENT IS IN COMPLETE SUBSTIT UTION OF THE SECTION AS IT EXISTED PRIOR THERETO. UNDER THE UNAMENDED SE CTION 43A ADJUSTMENT TO THE ACTUAL COST TOOK PLACE ON THE HAPPENING OF CHANGE IN THE RATE OF EXCHANGE WHEREAS UNDER THE AMENDEDSE CTION 43A THE ADJUSTMENT IN THE ACTUAL COST IS MADE ON CASH BASIS . THIS IS INDICATED BY THE WORDS 'AT THE TIME OF MAKING PAYMENT'. IN OTHER WORDS, UNDER THE UNAMENDED SECTION 43A, 'ACTUAL PAYMENT' WAS NOT A C ONDITION PRECEDENT FOR MAKING NECESSARY ADJUSTMENT IN THE CA RRYING COST OF THE FIXED ASSET ACQUIRED IN FOREIGN CURRENCY, HOWEVER, UNDER AMENDED SECTION 43A W.E.F. 1.4.2003 SUCH ACTU AL PAYMENT OF THE DECREASED/ENHANCED LIABILITY IS MADE A CONDITION PR ECEDENT FOR MAKING ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSE T. THIS INDICATES A COMPLETE STRUCTURAL CHANGE BROUGHT ABOUT IN SECTION 43A VIDE FINANCE ACT, 2002. THEREFORE, THE AMENDED SECTION IS AMENDA TORY AND NOT CLARIFICATORY IN NATURE. CONCLUSION: 35. FOR REASONS GIVEN HEREINABOVE, WE FIND NO INFIR MITY IN THE IMPUGNED JUDGMENTS OF THE DELHI HIGH COURT AND ACCORDINGLY T HE CIVIL APPEALS FILED BY THE DEPARTMENT STAND DISMISSED WITH NO ORD ER AS TO COSTS. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 47 2.9. IT IS ALSO NOTED THAT HON'BLE APEX COURT IN O IL & NATURAL GAS CORPORATION LTD. VS CIT (2010) 322 ITR 180(SUPREME COURT), WHEREIN, THE ASSESSEE CLAIMED L OSS ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHA NGE WAS HELD AS ADMISSIBLE BUSINESS EXPENDITURE. IN ANOTHER CASE, CIT VS SPENCERS & CO. LTD. (2013) 359 ITR 612 (MAD. ), WHERE THE AMOUNT OF EXPENSES WERE INCURRED BY THE ASSESSEE FOR BUSINESS EXPEDIENCY OF WHOLLY OWNED SUBSIDIARY COMPANIES AND WHEN THERE EXISTED A BUSIN ESS NEXUS BETWEEN THE ASSESSEE AND THE SUBSIDIARY COMPA NIES, SUCH EXPENDITURE SHOULD BE TREATED AS HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND DIRECTLY R ELATABLE TO THE BUSINESS OF THE ASSESSEE AND THUS ELIGIBLE F OR DEDUCTION AS BUSINESS EXPENDITURE. WE FIND SUPPORT FROM THE DECISION IN CIT VS SPENCERS & CO. LTD. (2013) 3 59 ITR 630 (MAD.), CIT VS SPENCERS CO. LTD. (2013) 359 ITR 644 (MAD.) AND CIT VS RPG TRANSMISSIONS LTD. (2013) 359 ITR 673(MAD.). 2.10. IF THIS ISSUE IS ANALYZED WITH RESPECT TO COMMERCIAL EXPEDIENCY AND WHOLLY AND EXCLUSIVELY FOR ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 48 THE BUSINESS PURPOSES ETC, THE SCOPE OF BUSINESS EXPENDITURE BEFORE 1939, SECTION 10(2)(XV) OF THE 1 922 ACT USED THE PHRASEOLOGY INCURRED SOLELY FOR THE PURPO SES OF EARNING SUCH PROFITS. THE 1939 AMENDMENT SUBSTITUT ED LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF SUCH BUSINESS OR PROFESSION IN ITS PLA CE. THE 1961 ACT PHRASEOLOGY LAID OUT OR EXPANDED WHOLLY A ND EXCLUSIVELY FOR THE BUSINESS OR PROFESSION IS SIMI LAR TO THE 1939 AMENDED PHRASEOLOGY. THE WORD WHOLLY HERE RE FERS TO QUANTUM OF EXPENDITURE. THE WORD EXCLUSIVELY R EFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF EXPENDITURE AN D GIVES JURISDICTION TO THE TAX AUTHORITIES TO EXAMINE THES E MATTERS (SIDHO MAL & SONS VS CIT) (1980) 122 ITR 839, 844 ( DEL.)], AMRITLAL & CO. VS CIT (108 ITR 719, 729 (BOM.) AND B. K. KHANNA & CO. PVT. LTD. VS CIT (2001) 247 ITR 705, 7 09 (DEL.). THE EXPRESSION WHOLLY AND EXCLUSIVELY IN SECTION 37(1) DOES NOT MEAN NECESSARILY. ORDINARILY, IT I S FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD B E INCURRED IN THE COURSE OF ITS OR HIS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE B USINESS ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 49 AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTI ON. AS A MATTER OF FACTS, THE WORD NECESSARILY FOUND PLACE IN THE INCOME TAX BILLS, 1961 BUT IT WAS DROPPED AT THE LE GISLATIVE ANVIL [SASSON J. DAVI & CO. PVT. LTD. VS CIT (1979) 118 ITR 261 (SUPREME COURT)], ADDL. CIT VS KUBER SINGH BHAGWANDAS, (1979) 118 ITR 379 (MP-FB), BRALCO META L INDUSTRIES PVT. LTD. VS CIT (1994) 206 ITR 477, 482 (BOM.). THIS TEST WAS QUOTED BY THE APPROVAL OF THE SUPREME COURT IN EASTERN INVESTMENTS LTD. VS CIT (1951) 20 ITR 1, 4 (SUPREME COURT) WHERE CERTAIN PRINCIPLES WERE LAID DOWN. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AND EMPIRI CAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW TH E BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXPENDITURE, WHETHER AS REVENUE EXPENDITURE OR AS C APITAL EXPENDITURE [FORT & MACDONAL LTD. VS CIT (1964) 54 ITR 133, 143 (ALL.)]. MOTIVE TO EARN IS ALWAYS NOT AN ESSENTIAL FACTOR. THE HON'BLE ANDHRA PRADESH HIGH COURT IN C IT VS CORROMANDAL FERTILIZERS (2001) 247 ITR 417 HELD THA T THE EXPENDITURE INCURRED BY THE ASSESSEE FOR UNDERTAKIN G TECHNO-FEASIBILITY WAS UTILIZED WITH THE OBJECT OF UTILIZING THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 50 FUNDS MORE EFFICIENTLY AND PROFITABILITY WAS HELD T O BE AN ALLOWABLE EXPENDITURE. THE HON'BLE APEX COURT IN ALUMINIUM CORPORATION INDIA VS CIT 86 ITR 11, 17 (SUPREME COURT) ANALYZED THE TERM COMMERCIAL EXPEDI ENCY WHICH MEANS EVERYTHING THAT SERVE TO PROMOTE COMMER CE. THE HON'BLE KARNATAKA HIGH COURT IN CIT VS MOTOR INDUSTRIES CO. LTD. (223 ITR 112, 137 AND 138) ALSO DELIBERATED UPON COMMERCIAL EXPEDIENCY OF A BUSINE SS MAN, WHEREIN IT WAS HELD THAT IT IS TO BE TAKEN IN THE INTEREST OF BUSINESS POINT OF VIEW. IN JAIPUR ELECT RO PVT. LTD. 223 ITR 535 (RAJ.), IT WAS HELD THAT THERE IS HARDLY ANY DISPUTE TO THE PROPOSITION THAT BUSINESSMAN IS THE BEST JUDGE TO JUDGE THE BUSINESS EXPEDIENCY AND HIS VERS ION ORDINARILY BE ACCEPTED. IDENTICAL RATIO WAS LAID DO WN IN CIT VS A. TELLERY & SONS PVT. LTD. (1972) TAX LR 581, 5 82 (ALL.). THE RATIO LAID DOWN BY HON'BLE BOMBAY HIGH COURT IN CIT VS SHRI PANCHAGANGA SAHAKARI SAKAR KARKHANA LTD. (2 001) 250 ITR 772, 775 (BOM.), CIT VS EVERGROWTH TELECOM LTD. (2013) 256 CTR (BOM.) 84, CIT VS REGALIA APPARELS P VT. LTD. (352 ITR 71) (BOM.), CIT VS SPENCER & CO. LTD. (359 ITR 612)(MAD.), CIT VS INFOSYS TECHNOLOGY LTD. (2014) 3 60 ITR ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 51 714 (KARNATAKA) SUPPORTS OUR VIEW. IN THE PRESENT APPEAL, ADVANCING OF MONEY TO ITS SUBSIDIARY IS NOT IN DISP UTE, THEREFORE, BUSINESSMAN IS THE BEST JUDGE WHO KNOWS HIS/ITS INTEREST BEST, THEREFORE ON THE TEST OF COMMERCIAL EXPEDIENCY ALSO, THE ASSESSEE IS HAVING THE CASE IN ITS FAVOUR. THUS, THE LOSS ON FOREIGN EXCHANGE FLUCTUAT ION IS AN ALLOWABLE EXPENDITURE, AS WAS HELD BY HON'BLE APEX COURT IN OIL & NATURAL GAS CORPORATION LTD. VS CIT (2010) 322 ITR 180(SUPREME COURT), WHEREIN, THE ASSESSEE CLAIM ED LOSS ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREI GN EXCHANGE. THE REVENUE IS NOT EXPECTED TO GUIDE THE ASSESSEE TO DO HIS/ITS BUSINESS IN A PARTICULAR MAN NER, BECAUSE, THE ASSESSEE IS THE BEST JUDGE TO MANAGE I TS AFFAIR, UNLESS AND UNTIL ANY MALA-FIDE IS DETECTED IN THE W ORKING OF THE ASSESSEE. THE ASSESSEE WAS HAVING DEEP INTEREST IN THE SUBSIDIARY COMPANY AND THE ADVANCED MONEY WAS USED BY THE SUBSIDIARY COMPANY FOR PURCHASE OF COURSEWARES AND THE FLUCTUATION LOSS WAS SUFFERED BY THE ASSESSEE. WE FIND THAT OWN FUNDS WERE ADVANCED TO BE WHOLLY ON SUBSID IARY OUT OF COMMERCIAL EXPEDIENCY FOR PURCHASE OF SOFTWA RE . SO FAR AS THE CONTENTION OF THE LD. DR THAT THE MATTER SHOULD ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 52 BE AGAIN REMANDED TO THE FILE OF THE LD. ASSESSING OFFICER, IS CONCERNED, WE ARE OF THE VIEW, SINCE THE TRIBUNAL S ET-ASIDE THE MATTER TO THE FILE OF THE LD. ASSESSING OFFICER TO EXAMINE THE ISSUE, NO USEFUL PURPOSE WILL BE SERVED IN SEND ING THE MATTER AGAIN, THEREFORE, WE FIND NO MERIT IN THE PR OPOSITION OF THE LD. DR. THE APPEAL OF THE ASSESSEE IS ALLOWE D. 3. NOW, WE SHALL TAKE UP THE CROSS APPEAL OF THE REVENUE (ITA NO.5953/MUM/2017), WHEREIN, THE FIRST GROUND PERTAINS TO DELETING THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES OF SOFTWARE WITHOUT APPRECI ATING THE FACTUAL MATRIX. THE LD. DR DEFENDED THE ADDITIO N MADE BY THE LD. ASSESSING OFFICER BY PLACING RELIANCE UP ON THE DECISION IN THE CASE OF CIT VS JANSAMPARK ADVERTISI NG MARKETING (P.) LTD. (375 ITR 373) (DEL.), WHEREAS T HE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDE R. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF ARE THAT IN THE FINANCIAL YEAR 2003-04, THE ASSESSE E CLAIMED TO HAVE PURCHASED SOFTWARE FOR RS.50,45,000 /- FROM M/S WASHINGTON SOFTWARE LTD. THROUGH ACCOUNT P AYEE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 53 CHEQUE. THE ASSESSEE FURNISHED THE LEDGER ACCOUNT O F M/S WASHINGTON SOFTWARE ALONG WITH THE COPY OF BANK ACC OUNT FROM 01/01/2004 TO 31/03/2004 EVIDENCING THE PAYMEN T MADE THROUGH BANKING CHANNEL. THE LD. ASSESSING OFF ICER TREATED THE SAME AS ACCOMMODATION ENTRIES ON THE GR OUND THAT THE ASSESSEE DID NOT FURNISH COPIES OF BILLS/V OUCHER IN RESPECT OF PURCHASE OF SOFTWARE AND FURTHER DELIVER Y OF SOFTWARE WAS NOT ESTABLISHED. THE LD. ASSESSING OFF ICER THUS, ADDED THE AMOUNT OF RS.50,45,000/- BY TREATIN G THE SAME AS BOGUS PURCHASES AND ADDED TO THE TOTAL INCO ME. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THE FACTUAL MATRIX WAS CONSIDERED AND TH E ADDITION SO MADE BY THE LD. ASSESSING OFFICER WAS D ELETED, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. IT IS NOTED THAT PROCEEDINGS U/S 147 AND 254 OF THE ACT WERE INITIATED AGAINST THE ASSESSEE. THESE PROCEEDINGS WERE CHALLENGED BEFORE THE LD. COMMISSI ONER OF INCOME TAX (APPEALS). THE ASSESSEE BEFORE THE LD . COMMISSIONER OF INCOME TAX (APPEALS) EXPLAINED THAT THESE PROCEEDINGS WERE COMPLETED IN A HURRIED MANNER AND THE ASSESSEE WAS PREVENTED FOR TAKING LEGAL REMEDY (FIL ING ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 54 FACTUAL SUBMISSIONS TO REBUT THE CONTENTION OF THE LD. ASSESSING OFFICER). THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN PARA-9.1 OF THE IMPUGNED ORDER HAS OBS ERVED THAT THE LD. ASSESSING OFFICER WAS DIRECTED BY THE TRIBUNAL, ORDER DATED 25/01/2010 TO EXAMINE THE FACTUAL MATRI X AND THE LD ASSESSING OFFICER COMPLETED THE ASSESSMENT U /S 143(3) R.W.S. 154 OF THE ACT. IN THE MEAN TIME, THE CASE OF THE ASSESSEE WAS REOPENED U/S 147 OF THE ACT WITH R ESPECT TO INFORMATION RECEIVED FROM INVESTIGATION WING THA T THE ASSESSEE MADE BOGUS PURCHASES OF SOFTWARE FROM WASHINGTON SOFTWARE LTD. THE LD. ASSESSING OFFICER PASSED A SINGLE ORDER U/S 143(3) R.W.S. 254 AND 147 OF THE ACT, WHEREIN, THE ADDITION OF RS.50,45,000/- WAS MADE. I T WAS EXPLAINED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THE OBJECTIONS RAISED BY THE ASSESSE E WITH RESPECT TO REOPENING OF ASSESSMENT U/S 147 OF THE A CT WERE NEVER DISPOSED OF BY THE LD. ASSESSING OFFICER (PAR A-9.2 OF THE IMPUGNED ORDER). THE ASSESSEE RELIED UPON THE D ECISION IN THE CASE OF GKN DRIVES SHAFTS (INDIA) LTD. (259 ITR 19) (SUPREME COURT). IN PARA-9.3 OF THE ORDER IN APPEAL , IT HAS BEEN CLEARLY MENTIONED BY THE LD. COMMISSIONER OF I NCOME ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 55 TAX (APPEALS) THAT VIDE COMMUNICATION DATED 09/06/2 007, THE LD. ASSESSING OFFICER WAS ASKED TO APPEAR BEFOR E HIM ALONG WITH THE ASSESSMENT RECORD FOR VERIFICATION O F FACTS AND NON-DISPOSAL OF OBJECTIONS, RAISED BY THE ASSES SEE, WITH RESPECT TO REOPENING OF ASSESSMENT U/S 147 OF THE A CT. THE LD. ASSESSING OFFICER APPEARED WHEREIN IT WAS FOUND THAT THE OBJECTIONS OF THE ASSESSEE, WITH RESPECT TO REO PENING, WERE NOT DISPOSED OF BY THE LD. ASSESSING OFFICER A ND EVEN THIS FACT WAS ADMITTED BY THE LD. ASSESSING OFFICER VIDE REMAND REPORT DATED 27/06/2017 AND ORDER SHEET ENTR Y DATED 29/06/2017. THE LD. COMMISSIONER OF INCOME TA X (APPEALS) IN VIEW OF THE DECISION FROM HON'BLE APEX COURT IN THE CASE OF GKN DRIVES SHAFTS (I) LTD.(SUPRA) AND H ON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ALLANA COL D STORAGE 287 ITR 1(BOM.), DELETED THE ADDITION MADE BY THE L D. ASSESSING OFFICER. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE T OTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MAT ERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RES PECTIVE COUNSELS, IF KEPT IN JUXTAPOSITION AND ANALYZED, IT IS AN ADMITTED FACT THAT THE LD. ASSESSING OFFICER MADE T HE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 56 ADDITION MERELY ON THE BASIS OF STATEMENT MADE BY T HIRD PARTY AND THE FACTUAL ASPECT WAS NEVER CONSIDERED A ND EVEN THE OBJECTIONS RAISED BY THE ASSESSEE WITH RESPECT TO REOPENING U/S 147 OF THE ACT WERE NEVER DISPOSED OF , THEREFORE, WE FIND NO INFIRMITY IN THE CONCLUSION D RAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), MORE SPECIFICALLY WHEN THE PURCHASE OF SOFTWARE FROM WAS HINGTON SOFTWARE WAS MADE THROUGH BANKING CHANNEL. THIS GRO UND OF THE REVENUE, IS THEREFORE, HAVING NO MERIT, RESU LTANTLY DISMISSED. 4. THE NEXT GROUND RAISED BY THE REVENUE IS WITH RESPECT TO ALTERNATE CLAIM U/S 35D OF THE ACT IGNOR ING THE FACTUAL MATRIX. THE LD. DR RELIED UPON THE GROUND R AISED BY THE REVENUE WHEREAS THE LD. COUNSEL FOR THE ASSESSE E DEFENDED THE IMPUGNED ORDER. 4.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SO FAR AS , THE CONTENTION OF THE LD. DR THAT THE ASSESSEE ACCEPTED THE ADDITION IN EARLIER YEAR ALSO CANNOT BE THE BASIS T O ACCEPT IN THE PRESENT ASSESSMENT YEAR ALSO BECAUSE EACH YEAR IS ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 57 INDEPENDENT UNLESS AND UNTIL CORROBORATIVE MATERIAL IS BROUGHT ON RECORD. THE LD. COMMISSIONER OF INCOME T AX (APPEALS) HAS DEALT WITH THIS ISSUE IN A REASONED M ANNER IN WHICH WE FIND NO INFIRMITY. THEREFORE, THIS GROUND OF THE REVENUE IS ALSO HAVING NO MERIT, CONSEQUENTLY, DISM ISSED. HOWEVER, WE WILL DEAL THE ISSUE OF SECTION 35D AND 35DD TOGETHER IN SUCCEEDING PARAS OF THIS ORDER IN DETAI L. 5. THE NEXT GROUND IS WITH RESPECT TO FOREIGN EXCHANGE LOSS. WE HAVE ELABORATELY DISCUSSED THE IS SUE OF FOREIGN EXCHANGE LOSS WHILE DEALING WITH THE APPEAL OF THE ASSESSEE, THEREFORE, WE FIND NO INFIRMITY IN THE CO NCLUSION OF THE LD CIT(A), RESULTANTLY, THIS GROUND OF THE R EVENUE IS ALSO DISMISSED. 6. THE LAST GROUND RAISED IN THE APPEAL PERTAINS T O ALLOWING THE CLAIM OF THE ASSESSEE U/S 35DD OF THE ACT IGNORING THE FACT THAT THE ASSESSEE DID NOT FURNISH THE DETAILS, BREAK UP OF AMOUNT AND PURPOSE OF SUCH EXP ENSES. DURING HEARING, THE LD. DR ADVANCED ARGUMENTS, WHIC H IS IDENTICAL TO THE GROUND RAISED BY EXPLAINING THAT T HE NECESSARY DETAILS/DOCUMENTS WERE NOT FURNISHED BY T HE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 58 ASSESSEE. ON THE OTHER HAND, THE LD. COUNSEL FOR TH E ASSESSEE RELIED UPON THE IMPUGNED ORDER. IT WAS PLE ADED THAT ALL THE EXPENSES INCURRED WERE IN ASSESSMENT Y EAR 2002-03 AND NO EXPENSES WAS INCURRED DURING THIS YE AR. OUR ATTENTION WAS INVITED TO SECTION 35D AND 35DD O F THE ACT. IT WAS PLEADED THAT IN ASSESSMENT YEAR 2002-03 , 1/5 TH OF THE AMOUNT WAS ALLOWED BY THE DEPARTMENT, THEREF ORE, IT SHOULD SPREAD IN THE REMAINING FOUR YEARS (AS THE T OTAL PERIOD ALLOWABLE IS FIVE YEARS). IT WAS PLEADED THA T ONCE THE EXPENSES WERE INCURRED, THESE HAS TO BE AUTOMATICAL LY ALLOWED IN THE REMAINING YEARS. THE LD. COUNSEL REL IED UPON THE DECISION IN CIT VS INTERNATIONAL TRACTORS LTD. (2017) 84 TAXMAN.COM 132, DCIT VS SELVEL ADVERTISING PVT. LTD . (2015) 58 TAXMAN.COM 196 AND MARWAR HOTELS LTD. VS ACIT (2015) 62 TAXMAN.COM 385 (AHD.). IN REPLY THE LD. D R RELIED UPON THE DECISION IN 295 ITR 500 (SUPREME COURT). I N FURTHER REPLY, THE LD. COUNSEL FOR THE ASSESSEE CLA IMED THAT NOTHING PREVENTED THE ASSESSING OFFICER TO ISSUE NO TICE U/S 148 OF THE ACT, IF SO REQUIRED. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 59 6.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE AD VERTING FURTHER, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM SECTION 35D AND SECTION 35DD OF THE ACT FOR RE ADY REFERENCE AND ANALYSIS:- 35D. (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) WHO IS RESIDENT IN INDIA, INCURS, A FTER THE 31ST DAY OF MARCH, 1970, ANY EXPENDITURE SPECIFIED IN SUB-SECTI ON (2), ( I ) BEFORE THE COMMENCEMENT OF HIS BUSINESS, OR ( II ) AFTER THE COMMENCEMENT OF HIS BUSINESS, IN CONNEC TION WITH THE EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW UNIT, THE ASSESSEE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO ONE-TENTH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE BUSINESS COMMENCES O R, AS THE CASE MAY BE, THE PREVIOUS YEAR IN WHICH THE EXTENSION OF THE UND ERTAKING IS COMPLETED OR THE NEW UNIT COMMENCES PRODUCTION OR OPERATION : PROVIDED THAT WHERE AN ASSESSEE INCURS AFTER THE 31ST DAY OF MARCH, 1998, ANY EXPENDITURE SPECIFIED IN SUB-SECTION (2), THE P ROVISIONS OF THIS SUB- SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS 'AN A MOUNT EQUAL TO ONE-TENTH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS', THE WORDS 'AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDI TURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS' HAD BEEN SUBSTITUTE D. (2) THE EXPENDITURE REFERRED TO IN SUB-SECTION (1) SHALL BE THE EXPENDITURE SPECIFIED IN ANY ONE OR MORE OF THE FOLLOWING CLAUS ES, NAMELY : ( A ) EXPENDITURE IN CONNECTION WITH ( I ) PREPARATION OF FEASIBILITY REPORT; ( II ) PREPARATION OF PROJECT REPORT; ( III ) CONDUCTING MARKET SURVEY OR ANY OTHER SURVEY NECE SSARY FOR THE BUSINESS OF THE ASSESSEE; ( IV ) ENGINEERING SERVICES RELATING TO THE BUSINESS OF THE ASSESSEE : PROVIDED THAT THE WORK IN CONNECTION WITH THE PREPARATION OF THE FEASIBILITY REPORT OR THE PROJECT REPORT OR THE CON DUCTING OF MARKET SURVEY OR OF ANY OTHER SURVEY OR THE ENGINEERING SERVICES REFERRED TO IN THIS CLAUSE IS CARRIED OUT BY THE ASSESSEE HIMSELF OR BY A CONC ERN WHICH IS FOR THE TIME BEING APPROVED IN THIS BEHALF BY THE BOARD; ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 60 ( B ) LEGAL CHARGES FOR DRAFTING ANY AGREEMENT BETWEEN THE ASSESSEE AND ANY OTHER PERSON FOR ANY PURPOSE RELATING TO THE SETTIN G UP OR CONDUCT OF THE BUSINESS OF THE ASSESSEE; ( C ) WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDITURE ( I ) BY WAY OF LEGAL CHARGES FOR DRAFTING THE MEMORAND UM AND ARTICLES OF ASSOCIATION OF THE COMPANY; ( II ) ON PRINTING OF THE MEMORANDUM AND ARTICLES OF ASS OCIATION; ( III ) BY WAY OF FEES FOR REGISTERING THE COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 (1 OF 1956) 94 ; ( IV ) IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBSCRIP TION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDERWRITING COMMI SSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVE RTISEMENT OF THE PROSPECTUS; ( D ) SUCH OTHER ITEMS OF EXPENDITURE (NOT BEING EXPEND ITURE ELIGIBLE FOR ANY ALLOWANCE OR DEDUCTION UNDER ANY OTHER PROVISION OF THIS ACT) AS MAY BE PRESCRIBED. (3) WHERE THE AGGREGATE AMOUNT OF THE EXPENDITURE R EFERRED TO IN SUB- SECTION (2) EXCEEDS AN AMOUNT CALCULATED AT TWO AND ONE-HALF PER CENT ( A ) OF THE COST OF THE PROJECT, OR ( B ) WHERE THE ASSESSEE IS AN INDIAN COMPANY, AT THE O PTION OF THE COMPANY, OF THE CAPITAL EMPLOYED IN THE BUSINESS OF THE COMP ANY, THE EXCESS SHALL BE IGNORED FOR THE PURPOSE OF COMP UTING THE DEDUCTION ALLOWABLE UNDER SUB-SECTION (1) : PROVIDED THAT WHERE THE AGGREGATE AMOUNT OF EXPENDITURE REFE RRED TO IN SUB-SECTION (2) IS INCURRED AFTER THE 31ST DAY OF M ARCH, 1998, THE PROVISIONS OF THIS SUB-SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS 'TWO AND ONE-HALF PER CENT', THE WORDS 'FIVE PER CENT' HAD B EEN SUBSTITUTED. EXPLANATION. IN THIS SUB-SECTION ( A ) 'COST OF THE PROJECT' MEANS ( I ) IN A CASE REFERRED TO IN CLAUSE ( I ) OF SUB-SECTION (1), THE ACTUAL COST OF THE FIXED ASSETS, BEING LAND, BUILDINGS, LEASEHOLDS , PLANT, MACHINERY, FURNITURE, FITTINGS AND RAILWAY SIDINGS (INCLUDING EXPENDITURE ON DEVELOPMENT OF LAND AND BUILDINGS), WHICH ARE SHOWN IN THE BOOKS OF THE ASSESSEE AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE BUSINESS OF THE ASSESSEE COMMENCES; ( II ) IN A CASE REFERRED TO IN CLAUSE ( II ) OF SUB-SECTION (1), THE ACTUAL COST OF THE FIXED ASSETS, BEING LAND, BUILDINGS, LEASEHOLDS , PLANT, MACHINERY, FURNITURE, FITTINGS AND RAILWAY SIDINGS (INCLUDING EXPENDITURE ON DEVELOPMENT OF LAND AND BUILDINGS), WHICH ARE SHOWN IN THE BOOKS OF THE ASSESSEE AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE EXTENSION OF THE UNDERTAKING IS COMPLETED OR, AS THE CASE MAY BE , THE NEW UNIT COMMENCES PRODUCTION OR OPERATION, IN SO FAR AS SUC H FIXED ASSETS HAVE BEEN ACQUIRED OR DEVELOPED IN CONNECTION WITH THE E XTENSION OF THE UNDERTAKING OR THE SETTING UP OF THE NEW UNIT OF TH E ASSESSEE; ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 61 ( B ) 'CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY' MEANS ( I ) IN A CASE REFERRED TO IN CLAUSE ( I ) OF SUB-SECTION (1), THE AGGREGATE OF THE ISSUED SHARE CAPITAL, DEBENTURES AND LONG-TERM BORR OWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE BUSINESS OF T HE COMPANY COMMENCES; ( II ) IN A CASE REFERRED TO IN CLAUSE ( II ) OF SUB-SECTION (1), THE AGGREGATE OF THE ISSUED SHARE CAPITAL, DEBENTURES AND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE EXTENSIO N OF THE UNDERTAKING IS COMPLETED OR, AS THE CASE MAY BE, THE NEW UNIT COMM ENCES PRODUCTION OR OPERATION, IN SO FAR AS SUCH CAPITAL, DEBENTURES AN D LONG-TERM BORROWINGS HAVE BEEN ISSUED OR OBTAINED IN CONNECTION WITH THE EXTENSION OF THE UNDERTAKING OR THE SETTING UP OF THE NEW UNIT OF TH E COMPANY; ( C ) 'LONG-TERM BORROWINGS' MEANS ( I ) ANY MONEYS BORROWED BY THE COMPANY FROM GOVERNMEN T OR THE INDUSTRIAL FINANCE CORPORATION OF INDIA OR THE INDU STRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA OR ANY OTHER FINANC IAL INSTITUTION WHICH IS ELIGIBLE FOR DEDUCTION UNDER CLAUSE ( VIII ) OF SUB-SECTION (1) OF SECTION 36 OR ANY BANKING INSTITUTION (NOT BEING A FINANCIAL INST ITUTION REFERRED TO ABOVE), OR ( II ) ANY MONEYS BORROWED OR DEBT INCURRED BY IT IN A F OREIGN COUNTRY IN RESPECT OF THE PURCHASE OUTSIDE INDIA OF CAPITAL PL ANT AND MACHINERY, WHERE THE TERMS UNDER WHICH SUCH MONEYS ARE BORROWED OR T HE DEBT IS INCURRED PROVIDE FOR THE REPAYMENT THEREOF DURING A PERIOD O F NOT LESS THAN SEVEN YEARS. (4) WHERE THE ASSESSEE IS A PERSON OTHER THAN A COM PANY OR A CO-OPERATIVE SOCIETY, NO DEDUCTION SHALL BE ADMISSIBLE UNDER SUB -SECTION (1) UNLESS THE ACCOUNTS OF THE ASSESSEE FOR THE YEAR OR YEARS IN W HICH THE EXPENDITURE SPECIFIED IN SUB-SECTION (2) IS INCURRED HAVE BEEN AUDITED BY AN ACCOUNTANT AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288, AND THE ASSESSEE FURNISHES, ALONG WITH HIS RETURN OF INCOME FOR THE FIRST YEAR IN WHICH THE DEDUCTION UNDER THIS SECTION IS CLAIMED, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM 95 DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SETTING FORTH SUCH PARTICULARS AS MAY BE PRESCRIBED . (5) WHERE THE UNDERTAKING OF AN INDIAN COMPANY WHIC H IS ENTITLED TO THE DEDUCTION UNDER SUB-SECTION (1) IS TRANSFERRED, BEF ORE THE EXPIRY OF THE PERIOD OF TEN YEARS SPECIFIED IN SUB-SECTION (1), T O ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION, ( I ) NO DEDUCTION SHALL BE ADMISSIBLE UNDER SUB-SECTIO N (1) IN THE CASE OF THE AMALGAMATING COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION TAKES PLACE; AND ( II ) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS M AY BE, APPLY TO THE AMALGAMATED COMPANY AS THEY WOULD HAVE APPLIED TO T HE AMALGAMATING COMPANY IF THE AMALGAMATION HAD NOT TAKEN PLACE. (5A) WHERE THE UNDERTAKING OF AN INDIAN COMPANY WHI CH IS ENTITLED TO THE DEDUCTION UNDER SUB-SECTION (1) IS TRANSFERRED, BEF ORE THE EXPIRY OF THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 62 PERIOD SPECIFIED IN SUB-SECTION (1), TO ANOTHER COM PANY IN A SCHEME OF DEMERGER, ( I ) NO DEDUCTION SHALL BE ADMISSIBLE UNDER SUB-SECTIO N (1) IN THE CASE OF THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE DEMERGER TAKES PLACE; AND ( II ) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS M AY BE, APPLY TO THE RESULTING COMPANY, AS THEY WOULD HAVE APPLIED TO TH E DEMERGED COMPANY, IF THE DEMERGER HAD NOT TAKEN PLACE. (6) WHERE A DEDUCTION UNDER THIS SECTION IS CLAIMED AND ALLOWED FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY EXPENDITURE SPECI FIED IN SUB-SECTION (2), THE EXPENDITURE IN RESPECT OF WHICH DEDUCTION IS SO ALLOWED SHALL NOT QUALIFY FOR DEDUCTION UNDER ANY OTHER PROVISION OF THIS ACT FOR THE SAME OR ANY OTHER ASSESSMENT YEAR. 35DD AMORTISATION OF EXPENDITURE IN CASE OF AMALGAMATION OR DEMERGER. 35DD. (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY, IN CURS ANY EXPENDITURE, ON OR AFTER THE 1ST DAY OF APRIL, 1999 , WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF AMALGAMATION OR DEMERGER OF AN UNDERTAKING, THE ASSESSEE SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PR EVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DEMERGER TAKES PLACE. (2) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN SUB-SECTION (1) UNDER ANY OTHER PROVISION OF THI S ACT. 6.2. IF THE AFORESAID SECTIONS ARE ANALYZED, IT IS NOTED THAT SECTION 35D OF THE ACT BROADLY DEALS WITH AMOR TISATION OF CERTAIN PRELIMINARY EXPENSES, WHICH SPEAKS ABOUT ALLOWABILITY OF DEDUCTION OF AN AMOUNT EQUAL TO 1/1 0 TH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PRE VIOUS YEARS, BEGINNING WITH THE PREVIOUS YEAR IN WHICH TH E BUSINESS COMMENCES, OR AS THE CASE MAY BE, WHEREAS, SECTION 35DD OF THE ACT DISCUSSED ABOUT AMORTISATIO N OF EXPENDITURE IN A CASE OF AMALGAMATION OR DEMERGER, WHERE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 63 AN INDIAN COMPANY INCURS ANY EXPENDITURE, OR OR AFT ER, 01 ST DAY OF APRIL, 1999, WHOLLY AND EXCLUSIVELY FOR THE PURPOSE AMALGAMATION OF AN UNDERTAKING, THE ASSESSEE SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO 1/5 TH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOU S YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DEMERGER TAKES PLACE, SUBJECT TO CE RTAIN CONDITIONS. IN THE PRESENT APPEAL, AS CLAIMED BY TH E ASSESSEE ( AND NOT CONTROVERTED BY THE REVENUE) THA T IN ASSESSMENT YEAR 2003-04, 1/5 TH OF THE AMOUNT WAS ALLOWED BY THE DEPARTMENT ITSELF, THEREFORE, IT HAS TO SPRE AD IN REMAINING FOUR SUCCESSIVE YEARS (TOTAL FIVE YEARS). THE LANGUAGE OF THE SECTION CLEARLY STIPULATES THAT ALL OWABILITY OF THE DEDUCTION IS AUTOMATIC, UNLESS AND UNTIL CONTRA RY FACTS ARE BROUGHT ON RECORD. OUR VIEW FIND SUPPORTS FROM THE DECISION FROM HON'BLE DELHI HIGH COURT IN CIT VS INTERNATIONAL TRACTORS LTD. (2017) 84 TAXMAN.COM 13 2(DEL.), WHEREIN, IT WAS HELD AS UNDER (RELEVANT PORTION REP RODUCED HEREUNDER):- 47. AT THIS STAGE, IT REQUIRES TO BE NOTED THAT THE PU RPOSE OF INTRODUCING PROVISIONS LIKE SECTION 80-IA, WHICH IN CIDENTALLY IS ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 64 NOT RESTRICTED TO PROVIDING RELIEF TO SSI UNITS BUT TO ALL KINDS OF INDUSTRIAL UNDERTAKINGS, WAS TO ENCOURAGE INDUSTRIA L EXPANSION. THE IDEA WAS TO INCENTIVISE INVESTMENT IN INDUSTRIE S. FURTHER, THE LEGISLATIVE INTENT WAS TO GIVE, EVEN IN THE BEG INNING, THE BENEFIT FOR A PERIOD OF TEN YEARS IRRESPECTIVE OF W HETHER AFTER THE INITIAL YEAR THERE WAS AN EXPANSION OF INDUSTRI AL UNDERTAKING BY INCREASED INVESTMENT IN P&M THAT MAY HAVE TAKEN IT OUTSIDE THE AMBIT AND SCOPE OF THAT PROVIS ION. IN OTHER WORDS, IT IS NOT EXPECTED THAT THE INVESTMENT FOR P&M IN THE INITIAL AYS WOULD REMAIN STATIC FOR THE NEXT TEN YEARS. IT CANNOT BE EXPECTED THAT IF AN INDUSTRY IS SUCCES SFUL IT WOULD NOT EXPAND. IF THE IDEA WAS TO HAVE A YEARLY REVIEW, THEN THE PROVISION WOULD HAVE BEEN VERY DIFFERENTLY WORDED. FOR INSTANCE, SECTION 80-HHA(3) WHICH SPECIFICALLY STATES THAT 'D EDUCTION SHALL NOT BE ALLOWED IN COMPUTING THE TOTAL INCOME OF ANY OF THE TEN PREVIOUS YEARS AFORESAID IN RESPECT OF WHICH TH E INDUSTRIAL UNDERTAKING IS NOT A SMALL-SCALE INDUSTRIAL UNDERTA KING'. IN OTHER WORDS, IF THE LEGISLATIVE INTENT WAS THAT THE ELIGI BILITY CONDITION HAD TO BE FULFILLED ON THE LAST DAY OF THE PREVIOUS YEAR OF EACH OF THE TEN AYS DURING WHICH THE BENEFIT WAS AVAILABLE, THEN THAT PROVISION OUGHT TO EXPRESSLY STATE TO THAT EFFECT. 48. IT IS NOT POSSIBLE TO ACCEPT THE SUBMISSION MADE O N BEHALF OF THE REVENUE THAT THE WORDS 'PREVIOUS YEAR' OCCURRIN G IN SECTION 80-IA(12)(F) IN THE DEFINITION OF 'SMALL-SCALE INDU STRIAL UNDERTAKING' REFERS TO THE PREVIOUS YEAR OF EACH OF THE AYS SPOKEN OF IN SECTION 80-IA(6) OF THE ACT. THE WORDS , 'PREVIOUS YEAR' IS NOT PREFIXED WITH THE WORD 'RELEVANT'. IN THAT CONTEXT, THEREFORE, THE WORDS 'PREVIOUS YEAR' OCCURRING IN S ECTION 80- IA(12)(F) HAVE TO BE READ AS THE PREVIOUS YEAR RELE VANT TO THE 'INITIAL ASSESSMENT YEAR' AS DEFINED IN SECTION 80- IA(12)(C) AND NOT FOR ANY OTHER PURPOSE. THIS EXPLAINS WHY THIS E XPRESSION 'PREVIOUS YEAR' IS NOT USED ANYWHERE ELSE IN SECTIO N 80-IA OF THE ACT. IN FACT, WHEN THE ENTIRE SECTION IS READ AS A WHOLE, IT BECOMES VERY CLEAR THAT THE BENEFIT IS TO BE FOR TE N CONTINUOUS AYS AFTER THE INITIAL AY. 49. IT IS ALSO IN CONSONANCE WITH THE CHANGING CRITERI A FOR RECOGNITION OF AN SSI UNDER THE IDR ACT. IF THE ELI GIBILITY FOR DEDUCTION UNDER SECTION 80-IA WERE TO BE LINKED TO SUCH CHANGING CRITERIA BEYOND THE INITIAL AY, THEN THE S ECTION ITSELF WOULD BECOME NON-WORKABLE. IT WOULD SIMPLY NOT BE POSSIBLE UNDER SECTION 80-IA FOR THE BENEFIT TO BE EXTENDED TO 'TEN ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 65 CONSECUTIVE ASSESSMENT YEARS' UNDER SECTION 80-IA(6 )(II) SPECIFIC TO AN SSI IF THESE TEN YEARS WOULD INCLUDE THE INITIAL ASSESSMENT YEAR. EVEN IF THESE NEED TO BE 'CONSECUT IVE', THE BENEFIT MUST BE EXTENDED IRRESPECTIVE OF WHETHER IN THE AYS FOLLOWING THE INITIAL ASSESSMENT YEAR AN SSI UNIT S EIZES TO BE AS SUCH EITHER BECAUSE OF INCREASED INVESTMENT IN P &M OR BECAUSE OF THE CHANGE IN ELIGIBILITY LIMIT IN TERMS OF THE NOTIFICATION IN THE IDR ACT. THEREFORE, EVEN FROM THIS POINT OF VIEW, THE INTERPRETATION ADVANCED BY THE REVENUE IN THIS CASE CANNOT BE ACCEPTED. LIKEWISE, IN THE CASE OF MARWAR HOTELS LTD. VS ACIT (2015) 62 TAXMANN.COM 385 (AHD. TRIB.), IT WAS OBSE RVED AS UNDER:- SECTION 35D OF THE INCOME-TAX ACT, 1961 - PRELIMIN ARY EXPENSES (RES JUDICATA) - ASSESSMENT YEAR 2006-07 - WHETHER WHERE ASSESSEE-COMPANY AMORTISED PRELIMINARY EXPENSES IN YEAR 2002-03 AND CLAIMED DEDUCTION OF 1/5TH EXPENSES WHI CH WAS ALLOWED BY REVENUE IN FIRST YEAR AND SUBSEQUENT TWO YEARS, SAME COULD NOT BE DISALLOWED IN ASSESSMENT YEAR IN QUEST ION - HELD, YES [PARA 18] [IN FAVOUR OF ASSESSEE] IN ANOTHER CASE OF DCIT VS SELVEL ADVERTISING PVT. LTD. (2015) 58 TAXMAN.COM 196 (KOLKATA TRIB.), IT WAS HE LD AS UNDER:- 12. WE HAVE GONE THROUGH THE PROVISION OF SECTION 80-I A OF THE ACT AND THE RELEVANT SUB-SECTION (2) GIVES MAND ATE TO THE ASSESSEE THAT DEDUCTION AS SPECIFIED IN SUB-SECTION (1) MAY AT THE OPTION OF THE ASSESSEE BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS B EGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTER PRISE DEVELOPS OR BEGINS TO OPERATE ANY INFRASTRUCTURE FA CILITY. SUB-SECTION (5) SAYS ABOUT INITIAL ASSESSMENT YEAR AND THEREAFTER IN SUBSEQUENT ASSESSMENT YEARS FOR CLAIM OF DEDUCTION UNDER THIS SECTION BY PUTTING A CEILING O F TEN YEARS. THE PERIOD WILL BE COUNTED FROM THE INITIAL ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 66 ASSESSMENT YEAR AND THE ENTERPRISE OR THE UNDERTAKI NG WILL BE ALLOWED TO CHOOSE THE INITIAL YEAR FROM WHICH IT WANTS TO AVAIL OF DEDUCTION FOR FURTHER YEARS. THE CONCESSIO N HAS TO BE AVAILED OF WITHIN A SPAN OF 12 YEARS BEGINNING W ITH THE YEAR OF OPERATION. THIS MEANS THAT AN ENTERPRISE OR UNDERTAKING WHICH CHOOSES THE FOURTH YEAR OF OPERAT ION AS THE INITIAL YEAR WILL GET DEDUCTION STARTING FROM T HAT YEAR. THE REVENUE CAN SEE THE PRE-REQUISITE CONDITION FOR ALLOWANCE OF DEDUCTION TO AN ENTERPRISE OR AN UNDER TAKING IN THE VERY FIRST YEAR THE INITIAL YEAR OF CLAIM OF DEDUCTION. IN THE PRESENT CASE BEFORE US, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80-IA OF THE ACT IN THE ASS ESSMENT YEAR 2004-05, I.E., THAT WAS THE INITIAL ASSESSMENT YEAR AND IN THAT YEAR THE MATTER REGARDING THE CLAIM OF DEDU CTION HAS BECOME FINAL FOR THE REASON THAT THE HON'BLE CALCUT TA HIGH COURT HAS CONFIRMED THE ALLOWANCE OF DEDUCTION AND THE REVENUE HAS NOT CARRIED THE MATTER BEFORE THE HON'B LE SUPREME COURT. WHEREAS THE REVENUE HAS REFERRED TO THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF SKYLINE ADVERTISING (P.) LTD. ( SUPRA ), BUT THAT CANNOT BE CONSIDERED AS PRECEDENT BECAUSE THE JURISDICTIONAL HIGH COURT HAS TAKEN A VIEW IN FAVOUR OF THE ASSESSEE AN D THAT ALSO IN THE ASSESSEE'S OWN CASE. THAT MEANS THE INI TIAL ASSESSMENT YEAR I.E., 2004-05, ONCE THE CLAIM OF DE DUCTION IN RESPECT TO PRE-REQUISITE CONDITIONS FOR ALLOWANC E OF DEDUCTION HAS BEEN SATISFIED, THE SAME CANNOT BE QU ESTIONED IN FUTURE YEARS UNLESS AND UNTIL THE REVENUE DISTUR BS THE INITIAL ASSESSMENT YEAR. THE HON'BLE DELHI HIGH COU RT IN THE CASE OF DELHI PRESS PATRA PRAKASHAN LTD. (NO. 2) ( SUPRA ), HAS CONSIDERED THIS ISSUE BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321/60 TAXMAN 248, AND OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PAUL BROS. [1995] 216 ITR 548/79 TAXMAN 378 (BOM), AND ALSO SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. ( SUPRA ). SIMILAR ARE THE FACTS IN THE CASE OF SISTER CONCERN S OF THE ASSESSEE, I.E., SELVEL TRANSIT ADVERTISING PVT. LTD . IN TERM OF THE ABOVE, WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE AND DISMISS THIS COMMON ISSUE OF THE REVENUE'S APPEALS. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 67 6.3. AS CLAIMED BY THE ASSESSEE, THE LD. COUNSEL PLACE BEFORE US THE ORDER OF THE LD. ASSESSING OFFI CER FOR ASSESSMENT YEAR 2002-03 ALONG WITH THE COMPUTATION OF INCOME WHEREIN DEDUCTION UNDER SECTION 35DD OF THE ACT, THE AMOUNT OF RS.37,76,39,137/- (1/5 TH OF AGGREGATE EXPENSES) WAS ALLOWED BY THE REVENUE, THEREFORE, TH E REMAINING DEDUCTION, IN OUR VIEW IS AUTOMATIC WITHI N THE SPECIFIED SUCCESSIVE YEARS. SO FAR AS, THE CONTENTI ON OF THE LD. DR THAT IT WAS ALLOWED UNDER SECTION 143(1) OF THE ACT AND NOT UNDER SECTION 143(3) OF THE ACT IS CONCERNE D, IF THE LD. ASSESSING OFFICER WAS NOT SATISFIED THEN NOTHIN G PREVENTED HIM TO INITIATE THE PROCEEDINGS UNDER SEC TION 148 OF THE ACT. SO FAR AS, THE DECISION IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (291 ITR 500)(SUPREME COURT) IS CONCERNED, WE ARE AGREE WITH THE SAME AND RATHER BO UND TO FOLLOW THE SAME FROM HON'BLE APEX COURT WHICH IS WI TH RESPECT TO PASSING THE ORDER AS INTIMATION UNDER SE CTION 143(1) OF THE ACT, HOWEVER, AS MENTIONED EARLIER, S TILL THE LD. ASSESSING OFFICER WAS EMPOWERED TO ISSUE NOTICE UNDER SECTION 148 OF THE ACT, WHICH WAS NOT DONE. THE PRO VISION OF THE ACT (SECTION 35DD) IS VERY MUCH CLEAR, THERE FORE, WE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 68 FIND NO INFIRMITY IN THE CONCLUSION OF THE LD. COMM ISSIONER OF INCOME TAX (APPEAL). THUS, THIS GROUND OF THE RE VENUE IS ALSO DISMISSED. 7. NOW, WE SHALL TAKE UP ITA NO.5971/MUM/2017, 5954/MUM/2017, WHEREIN, THE GROUND RAISED BY THE REVENUE PERTAINS TO ALLOWABILITY OF DEDUCTION UNDER SECTION 35D, 35DD OF THE ACT. CONSIDERING THE ARGUMENTS FRO M BOTH SIDES AND THE MATERIAL FACTS AVAILABLE ON RECO RD, WE HAVE ALREADY DELIBERATED UPON THE ISSUE WHILE DEALI NG WITH THE APPEAL OF THE REVENUE ((SUPRA)), ON IDENTICAL I SSUE, THEREFORE, BOTH THESE APPEALS OF THE REVENUE ARE DI SMISSED. 8. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2012-13 (ITA NO.5917/MUM/2017), WHEREIN, THE ONLY GROUND RAISED PERTAINS TO ALLOWIN G THE CLAIM OF THE ASSESSEE, BY THE LD. COMMISSIONER OF I NCOME TAX (APPEAL), UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT MAI NTAINED SEPARATE ACCOUNTS FOR INVESTMENT IN RELATION TO EXE MPT INCOME. 8.1. DURING HEARING, THE LD. DR, ADVANCED ARGUMENTS WHICH IS IDENTICAL TO THE GROUND RAISED B Y ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 69 SUBMITTING THAT THE INVESTMENT WAS MADE BY THE ASSE SSEE FROM THE COMMON POOL AND THUS CIRCULAR NO.5/2014 DA TED 11/02/2014, ISSUED BY CBDT HAS TO BE LOOKED INTO. RELIANCE WAS PLACED UPON THE DECISION IN LALLY MOTO RS INDIA (P.) LTD. VS PR. CIT 170 ITD 370 (ASR. TRIB.) . IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DE CISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S APTECH LTD. (THE ASSESSEE) VS DCIT (ITA NO.5216/MUM/2015) FOR ASSESSMENT YEAR 2011-12, ORDE R DATED 13/02/2018. IT WAS SUBMITTED THAT DURING THE YEAR NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE AND EVE N NO EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR EARNIN G DIVIDEND INCOME, THEREFORE, BURDEN IS UPON THE REVE NUE TO PROVE THAT SOME EXPENSES WERE INCURRED. 8.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE AD VERTING FURTHER, WE ARE REPRODUCING HEREUNDER (HELD PORTION ) FROM THE AFORESAID ORDER FROM THE AMRITSAHAR BENCH OF TH E TRIBUNAL:- THE FIRST OBSERVATION IN THE MATTER IS A COMPLETE A BSENCE OF ANY EXAMINATION BY THE ASSESSING OFFICER QUA THE ASPECT OF INCURRING OF EXPENDITURE BY THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 70 ASSESSEE-COMPANY IN RELATION TO THE INVESTMENT/S YI ELDING (OR LIABLE TO YIELD) TAX-EXEMPT INCOME, WHICH, IN-SO- FAR AS IT RELATES TO THE INVESTMENT IN SHARES IS APPARENT FROM A BARE BROWSE OF THE ASSESSEE'S FI NAL ACCOUNTS, I.E. , THE BALANCE- SHEET AND PROFIT AND LOSS ACCOUNT FOR THE RELEVANT YEAR. INCURRING SUCH EXPENDITURE IS A SINE QUA NON FOR THE INVOCATION OF SECTION 14A, THE PREMISE OF WHICH IS TO DETERMINE CORRECTLY THE INCO ME CHARGEABLE TO TAX, I.E. , THE INCOME FORMING PART OF THE TOTAL INCOME, RETU RNED BY THE ASSESSEE. THE ASSESSEE, NEITHER BEFORE THE PR. COMM I SSIONER NOR THIS COURT DISPUTES THE FACTUAL OBSERVATIONS BY THE COMPETENT AUTHORITY, MADE, AS STATED WITH REFERENCE TO THE ASSESSEE'S FINAL ACCOU NTS, FORMING PART OF THE RECORD. HOW COULD THEN, ONE WONDER, THE INFERENCE O F THE INVESTMENT IN SHARES BEING FI NANCED BY BORROWED FUNDS BE DISPUTED; THE ASSESSEE HAVING NO POSITIVE CAPITAL AND, IN FACT, THROUGHOUT THE YE AR, SO THAT ITS ENTIRE ASSETS, INCLUDING THE SHARES UNDER REFERENCE, AS IS APPAREN T, ARE FINANCED BY BORROWED CAPITAL, OUTSTANDING AT NEARLY RS. 1100 LA KHS AS ON 31-3- 2012, AND ON WHICH IT HAS ADMITTEDLY INCURRED INTEREST EXPEND ITURE AT RS. 359 LAKHS. HOW WOULD IT MATTER IF THE INVESTEE COMPANY HAS, AS CLAIMED, NOT UNDERTAKEN ANY BUSINESS DURING THE RELEVANT YEAR, O R IS A DEFUNCT COMPANY (ON WHICH TH E ASSESSING OFFICER HAS ISSUED NO FINDING). NO SUCH CONTENTIONS, I.E. , QUA THE INVESTEE COMPANY BEING DEFUNCT, STANDS RAISED. A DEFUNCT COMPANY, ASSUMING SO, DOES NOT IMPLY AN ASS ET- LESS COMPANY, FOR ITS' SHARE TO HAVE NO VALUE AT ALL. THE LOSS OF VAL UE, N OT BOOKED IN AUDITED ACCOUNTS, CANNOT BE TAKEN COGNIZANCE OF. THE SAME I S EVEN OTHERWISE A CAPITAL LOSS, SO THAT INTEREST IN ITS RESPECT WOULD NOT BE DEDUCTIBLE IN COMPUTING BUSINESS INCOME. THE ONLY CONSIDERATION R ELEVANT, IS IF THE ASSESSEE-COMPANY HAS I NCURRED INTEREST EXPENDITURE IN RELATION TO THE SAI D INVESTMENT. THE ADMINISTRATION EXPENDITURE, INCURRE D AT RS. 2.36 CR., ATTRIBUTABLE TO THE SAID INVESTMENT, I.E. , IF ANY, CANNOT BE INFERRED FROM THE FACE OF THE FINAL ACCOUNTS, WHICH ASPECT WOULD REQU IRE FACTUAL VERIFICATION. ABSENCE OF INQUIRY, WHERE REQUIRED AND WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS A VALID BASIS FOR INV OCATION OF SECTION 263, I.E. , FOR EXERCISING REVISIONARY JURISDICTION, AS PER THE SETTLED LAW IN-AS- MUCH AS IT REFLECTS NON APPLICATION OF MIND. THE PRINCIPLE IS WELL- ESTABLISHED, AND LACK OF INQUIRY RENDERS AN ORDER ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. [PARA 4.1] THE SECOND, EQUALLY RELEVANT, ASPECT OF THE MATTER IS IF THE PROVISION COULD BE INVOKED IN THE ABSENCE OF ANY TAX- EXEMPT INCOME. TOWARD THIS, WHILE THE PR. COMMISSIONER RELIES ON THE BOARD CIRCULAR 5/201 4, THE ASSESSEE WAS DURING HEARING AT PAINS TO EM PHASIZE THAT THE SAME STANDS SINCE 'TORN APART' BY THE HIGH COURTS, SO THAT IT IS BEREFT OF ANY VAL UE. ON BEING ASKED IF THE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 71 SAME HAD BEEN SET ASIDE OR STAYED BY ANY HIGH COURT , HE WOULD THOUGH ADMIT OF IT BEING NOT THE CASE. THE QUESTION IS NOT WHICH OF T HE TWO IS CORRECT (VIEW) OR MORE CORRECT, BUT IF SAME IS BIND ING ON THE A.O. AS AN ASSESSING AUTHORITY. THE REASON IS SIMPLE. THE ASSE SSING OFFICER, DESPITE AN ORDER BY THE REVISIONARY AUTHORITY DIRECTING HIM TO DO SO, CANNOT PASS AN ORDER CONSISTENT WITH THE BOARD CIRCULAR WHERE THE SAME HAS BEEN STRUCK DOWN BY A COMPETENT COURT, UNLESS, OF COURSE, THE S AME STANDS, AT THE SAME TIME, UPHELD BY THE JURISDICTIONAL HIGH COURT. IN F ACT, EVEN A DECISION BY THE SAID COURT (OR BY THE APEX COURT) CONTRARY TO THE D I CTUM OF THE SAID CIRCULAR, I.E. , WITHOUT IT BEING STAYED OR STRUCK DOWN BY ANY COU RT, SHALL HAVE SAME EFFECT, SO THAT THE SAID CIRCULAR WOULD I N THAT CASE LOOSE ITS BINDING FORCE ON THE ASSESSING OFFICER. FURTHER, A DECISION BY A NON- JURISDICTIONAL HIGH CO URT SHALL NOT HAVE THE SAME AFFECT IN-AS- MUCH AS THE SAME IS NOT BINDING ON THE ASSESSING OFFICER. NO SU CH DECISION BY EITHER THE JURISDICTIONAL HIGH COURT OR THE APEX COURT HAS BEE N BROUGHT TO NOTICE. THE MOOT QUESTION THEREFORE IS IF THE SAID CIRCULAR IS IN CONFORMITY WITH THE LAW. SECTION 14A, IMMEDIATELY SUCCEEDS SECTION 14 THE FI RST SECTION OF CHAPTER IV OF THE ACT, ENUMERATING THE HEADS OF INCOME UNDE R WHICH ALL INCOME, SUBJECT TO THE OTHER PROVISIONS OF THE ACT, IS TO B E CLASSIFIED FOR THE PURPOSE OF COMPUTATION OF TOTAL INC OME, INTRODUCED BY THE FINANCE ACT, 2001 W.R.E.F. 1-4- 1962. THE ISSUE IS IF SECTION 14A(1) WOULD STAND AT TRACTED EVEN IF SUCH INCOME, I.E. , INCOME NOT INCLUDIBLE IN THE TOTAL INCOME, IS NOT ACTUALLY EARNED, OF COURSE, SUBJECT TO EXPENDITURE RELATABLE TO SU CH INCOME HAVING BEEN INCURRED. THE CIRCULAR 5/2014, AFTER EXPLAININ G THE RATIONALE OF THE PROVISION OF SECTION 14A (WITH REFERENCE TO CIRCULA R 14 OF 2001), I.E. , TO CURB THE PRACTICE OF REDUCING THE TAX LIABILITY ON TAXABLE INCOME ( I.E. , INCOME FORMING PA RT OF THE TOTAL INCOME) BY CLAIMING EXPENDITURE INC URRED IN EARNING TAX- EXEMPT INCOME AGAINST TAXABLE INCOME, GOES ON TO ST ATE THAT THE LEGISLATIVE INTENT IS THAT THE EXPENDITURE RELA TABLE TO EARNING SUCH INCOME SHALL HAVE TO BE CONSIDERED FOR DISALLOWANCE. SUREL Y, IN THAT EVENT I.E. , EXPENDITURE RELATING TO EARNING TAX- EXEMPT INCOME HAVING BEEN INCURRED, IT WOULD BECOME IRRELEVANT IF THE EXEMPT INCOME HAS AC TUALLY MATERIALIZED OR NOT, SO THAT THE DISALLOWANCE OF THE SAID EXPENDITU RE UNDER SECTION 14A WOULD ENSUE. THE SAME THEREFORE IS ONLY A CONTINUATION OF CIRCULAR 14 OF 2001, TAKING THE PREMISE OF SECTION 14A TO ITS LOGI CAL CONCLUSION. AND WHICH IS TO APPLY THE BASIC PRINCIPLE OF TAXATION, I.E. , THAT IT IS ONLY THE NET INCOME - TAXABLE OR NON-TAXABLE, I.E. , NET OF ALL EXPENDITURE INCURRED FOR EARNING THE SAME, THAT COULD BE SUBJECT TO TAX OR, AS THE CASE MAY BE, EXEMPT FROM TAX. THE LATTER CIRCULAR, WHICH IS AGAIN IN CO NSONANCE WITH THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2001 ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 72 (INTROD UCING SECTION 14A) AS WELL AS THE NOTES TO THE CLAU SES PRESENTED ALONG WITH THE SAID BILL. THE ISSUE, THUS, CONSIDER ED IN PERSPECTIVE, IS NOT IF THE INCOME NOT FORMING THE PART OF THE TOTAL INCOME (THE TAX- EXEMPT INCOME) IS EARNED OR NOT, BUT IF EXPENDITUR E RELATABLE TO SUCH INCOME HAS BEEN INCURRED. IF SUCH EXPENDITURE STANDS INCURRED, SECT ION 14A(1) BECOMES APPLICABLE. WITH REGARD TO THE SCOPE OF THE RELATAB LE EXPENDITURE, THE APEX COURT CLARIFIED THE SAME WITH REFERENCE TO ANY EXPE NDITURE ENUMERATED IN SECTIONS 15 TO 59. THE QUESTION IS SIMPLE. IF TAXAB LE INCOME ( I.E. , INCOME FORMING PART OF THE TOTAL INCOME) IS TO BE ADDED AT NET OF RELATABLE EXPENDITURE, HOW COULD IT BE OTHERWISE FOR THE TAX- EXEMPT INCOME? RATHER, IF NOT SO CONSIDERED, NOT ONLY WOULD IT VIOLATE THE BASIC PRINCIPLE OF TAXATION, IT WOULD DEFEAT THE VERY PURPOSE OF SECTION 14A, AS EXPENDITURE RELATABLE TO TAX- EXEMPT INCOME, WHERE NOT EARNED, WOULD GET CHARGED AGAINST TAXABLE INCOME. THE ACTUAL EARNING OF INCOME TAXABLE OR NOT TAXABLE, AS IS APPARENT, AND AS ONE SHALL PRESENTLY SEE, IS IRRELEVANT FOR T HE ADMISSIBILITY OF SUCH EXPENDITURE AGAINST THE RELEVANT INCOME. CONTINUING DISCUSSION, HOW, ONE MAY ASK, COULD THE EXPENDITURE INCURRED IN EARNING TAX- EXEMPT INCOME STAND ALTERED, EITHER IN NA TURE OR IN QUANTUM, DEPENDING ON THE QUANTUM OF THE TAX- EXEMPT INCOME, WHICH COULD THEREFORE BE NIL. THE EX PENDITURE IS INCURRED TO PRODUCE OR GENERATE OR IN ANTICIPATION OF, INCOME, WHETHER TAXABLE OR NON-TAXABLE. IN FACT, THE CLASSIFICATION AS TO TAX STATUS ( I.E. , TAXABLE OR NON- TAXABLE) HAS NOTHING TO DO WITH THE INCOME GENERATI NG PROCESS; AN INCOME BEING, AS A MATTER OF FISCAL INCENTIVE, BEIN G GRANTED TAX- EXEMPT STATUS, VIZ. AGRICULTURAL INCOME, UNDER THE ACT, FOR THE TIME BE ING. AN INCOME EXEMPT AS PER THE EXTANT LAW MAY NOT BE SO EARLIER OR IN FACT EVE N IN FUTURE; THE LAW WITNESSING A VARIATION IN THIS RESP ECT FROM TIME TO TIME. THE QUANTUM OF INCOME THAT MAY ARISE IS HOWEVER, LARGEL Y, UNCERTAIN, AND WHICH MAY BE HIGHER OR LOWER (INCLUDING NIL) THAN TH E VOLUME OF THE EXPENDITURE INCURRED. IT IS THE LATTER CASE WHICH RESULTS IN TH E PHENOMENON OF 'LOSS', WHICH COULD THUS BE ACROSS BOTH THE CATEGORIES OF I NCOME, I.E. , TAX- EXEMPT AND TAXABLE. THE FACT OF THE HAVING INCURRED EXPEND ITURE FOR EARNING INCOME TAX-EXEMPT (OR NON- EXEMPT), WHICH IS LARGELY A QUESTION OF FACT, WOULD THUS REMAIN, AND NOT UNDERGO ANY CHANGE, IRRESPECTIVE OF WHETHER IT HAS RESULTED IN ANY INCOME (OF EITHER GENRE), OR IN A SUM LOWER THAN THE EXPENDITURE INCURRED TOWARD THE SAME. THE PRINCIPLE IS WELL- SETTLED, REPRESENTING A FUNDAMENTAL CONCEPT OF TAXATION, I.E. , THE ALLOWABILITY (OR OTHERWISE) OF AN EXPENDITURE WOULD NOT DEPEND UPON WHETHER IT HAS IN FACT RESULTED IN AN INCOME, I.E. , POSITIVE INCOME, WHICH IS IN ANY CASE A MATTER SU BSEQUE NT, AND THAT THE MERE FACT THAT EXPENDITURE STANDS INCURRED FOR THE PURPOSE IS SUFFICIENT FOR ITS ADMISSIBILITY. THE APPLICABILITY OF SECTION 14A DOES NOT HINGE ON THE ACTUAL EARNING OF THE TAX- EXEMPT INCOME. THE ACTUAL EARNING OF DIVIDEND INCOME WAS IMMATERIAL IN-AS- MUCH AS THE RELATABLE EXPENDITURE ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 73 WOULD REMAIN THE SAME. [PARA 4.2] THE PRINCIPLE THAT IT IS THE NET INCOME, I.E. , NET OF EXPENDITURE RELATABLE THERETO, WHICH IS SUBJECT TO TAX AND, CORRESPONDING LY, NOT LIABLE TO TAX, I.E. , WHERE IT DOES N OT FORM PART OF THE TOTAL INCOME, IS WELL ESTABLISH ED. EQUALLY WELL SETTLED IS THE PRINCIPLE THAT ONCE AN INCOME I S LIABLE (OR NOT LIABLE) TO TAX, ALL EXPENDITURE RELATABLE THERETO IS TO BE REC KONED, AND IT MATTERS LITTLE THAT THE SAID EXPENDITURE HAS INDE ED RESULTED IN A POSITIVE INCOME, OR IN WHATEVER SUM. IT IS IN FACT THIS, I.E., THE EXPENDI TURE BEING HIGHER THAN THE GROSS INCOME, WHICH COULD BE NIL, THAT LEADS TO THE PHENOMENON OF LOSS, WHICH COULD THEREFORE BE ACROSS BOTH THE CATEGORIES INCOME, I.E., TAXABLE OR NON- TAXABLE, BEING ESSENTIALLY A MATTER OF FACT. THE CO NSTITUTIONALITY OF RULE 8D, PROVIDING FOR RULES OF APPORTIONMENT OF BOTH DI RECT AND INDIRECT EXPENDITURE, STANDS ALREADY UPHELD BY THE HIGH COUR T IN GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 194 TAXMAN 203/328 ITR 81 (BOM.) . EARLIER, IN GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2017] 81 TAXMANN.COM 111 , WITH REFERENCE TO THE LANGUAGE OF SECTION 14A, TH E TITLE OF WHICH IS ITSELF CLARIFICATORY, THE APEX COURT CLARI FIED THAT INCOME MUST NOT BE INCLUDIBLE IN THE TOTAL INCOME, SO THAT ONCE THI S CONDITION IS SATISFIED, THE EXPENDITURE INCURRED IN EARNING THE SAME CANNOT BE ALLOWED TO BE DEDUCTED. THE ASSESSING OFFICER IN THE PRESENT CASE HAS CLEAR LY FAILED TO APPLY THE LAW IN THE MATTER, WHICH GETS REITERATED TIME AND AGAIN BY THE APEX COURT. [PARA 5] IN VIEW OF THE FOREGOING, THERE IS NO MERIT IN THE ASSESSEE'S CASE. THE IMPUGNED ORDER IS UPHELD BOTH ON THE ASPECT OF LACK OF INQUIRY BY THE ASSESSING AUTHORITY, AS WELL AS HIS NON- OBSERVANCE OF THE BOARD CIRCULAR 5/2014, WHICH ONE HAS FOUND TO BE IN CONSONANCE WITH THE LAW AS EXPLAINED BY THE APEX COURT. THE IMPUGNED ORDER BEING AFTER T HE DATE OF AMENDMENT (BY WAY OF EXPLANATION 2) TO SECTION 263, I.E. , 1-6- 2015, THE SAME IS AN EQUALLY VALID GROUND FOR THE EXERCISE OF REVISIONAR Y POWER UNDER SECTION 263. IT IS THIS POWER, I.E. , TO DEEM AN ORDER AS ERRONEOUS IN-SO- FOR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THAT S TANDS CONFERRED WITH EFFECT FROM 1-6-2015. THAT IS, THE LAW, WITH EFFECT FROM 1 -6- 2015, DEEMS AN ORDER AS SO, WHERE ANY OF THE C IRCUMSTANCES SPECIFIED IS, IN THE OPINION OF THE COMPETENT AUTHORITY, SATISFIED. IT HAS NOTHING TO D O WITH THE DATE OF THE PASSING OF THE ORDER DEEMED ERRONEOUS, OR THE YEAR TO WHICH IT PERTAINS. BEING A PART OF THE PROCEDURAL LAW, THE PROVISION S HALL HAVE EFFECT FROM 1-6- 2015. THE ASSESSMENT DOES NOT REPRESENT A CORRECT A PPLICATION OF THE LAW, FURNISHING ONE MORE GROUND, ALBEIT PARI MATERIA, FOR THE ASSESSMENT BEING LIABLE FOR REVISION UNDER SECTION 263. [PARA 6] ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 74 IN THE RESULT, THE ASSESSEE'S APPEAL IS DISMISSED. IT IS NOTED THAT THE MUMBAI CO-ORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSM ENT YEAR 2011-12 (ITA NO.5216/MUM/2015) VIDE ORDER DATED 13/02/2018 HELD AS UNDER:- 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF TH E INCOME- TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER L D. CIT(A)- 16, MUMBAI DATED 15.09.2015 FOR ASSESSMENT YEAR (AY ) 2011- 12, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER DATED 26.03.2014 PASSED UNDER SECTION 143(3) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : GROUNDS OF APPEAL AGAINST ORDER DATED 15-09- 2015 OF THE CIT(A)- 16, V/S 250 OF THE ACT IN APPEA L AGAINST ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961. 1. (A) LEARNED CIT (A) ERRED IN RAW AND ON FACTS AND I N. THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) (III) OF RS.19,40,805/-. (B) LEARNED CIT (A) ERRED IN LAW AND ON FACTS AND I N THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE U/S 14A OF T HE ACT READ WITH RULE 8D(2) (III) IGNORING THAT STRATEGIC INVESTMENT S HAVE TO BE EXCLUDED FOR THE PURPOSE OF ARRIVING AT DISALLOWANCE UNDER R ULE 8D(III). 2. LEARNED CIT (A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) (III) OF RS.19,40,805/- WHICH IS MORE THAN DI VIDEND INCOME EARNED OF RS.6,81,948/-. 3. ORDER OF COMMISSIONER (APPEALS) BEING CONTRARY T O LAW, EVIDENCE AND FACTS OF THE CASE SHOULD BE SET ASIDE, AMENDED OR M ODIFIED. 4. EACH GROUND OF APPEAL HEREINABOVE IS INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN IMPARTING EDUCATION AND TRAINING IN INFO RMATION TECHNOLOGY. THE ASSESSEE FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 29.09.2011 DECLARING NI L INCOME, AFTER CLAIMING CARRY FORWARD OF CURRENT YEAR LOSS O F RS. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 75 6,09,83,608/- AND HAVE SHOWN INCOME UNDER SECTION 1 15JB AT RS. 3,47,48,327/-. THE ASSESSMENT ORDER WAS PASSED ON 26.03.2014 UNDER SECTION 143(3). DURING THE ASSESSM ENT THE ASSESSING OFFICER NOTED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS SHOWN EXEMPT INCOME OF RS.6,81,498/-. THE ASSESSEE SUO MOTU DISALLOWED RS. 6,320/- UNDER SECT ION 14A. THE ASSESSING OFFICER (AO) INVOKED THE PROVISIONS O F RULE 8D AND MADE THE DISALLOWANCE OF RS.64,04,866/- UNDER S ECTION 14A. BY INVOKING THE PROVISIONS OF RULE 8D. ON APPE AL BEFORE THE LD. CIT(A), THE DISALLOWANCE UNDER SECTION 14A WAS RESTRICTED TO RS.19,40,805/-. THE LD CIT(A) DELETED THE DISALLOWANCE OF RS.44,57,743/- ON HIS OBSERVATION T HAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILAB LE WITH IT BY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT VS . RELIANCE UTILITY IN ITA NO. 198 OF 2008 DATED 09.01 .2008 AND CIT VS. HDFC IN ITA NO. 330/2012 DATED 23.07.2014. THUS, FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THE PRESE NT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. THE LD. AR OF THE ASSESSEE SUBMITS THAT BEFORE INVOKING THE PROVISIONS OF RULE 8D. THE AO HAS NOT GIVEN ANY REASON ABOUT H IS NON- SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM FOR VOLUNTARY DISALLOWANCE UNDER SECTION 14A OFFERED BY ASSESSEE. THE AO MUST RECORD THE REASONS FOR HIS SATISFACTION. THE L D. AR OF THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSEE HAD EARN ED DIVIDEND INCOME OF RS. 6,81,948/- ONLY DURING THE RELEVANT F INANCIAL YEAR. THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D MUST NOT EXCEED THE EXEMPT INCOME. IN SUPPORT OF HIS SUB MISSIONS THE LD AR FOR THE ASSESSEE RELIED ON THE DECISIONS OF DECISION OF HONBLE SUPREME COURT IN GODREJ & BOYCE MANUFACT URING CO. LTD. VS. DCIT IN CIVIL APPEAL NO. 7020 OF 2011 DATED 08.05.2017, DELHI HIGH COURT IN CASE OF CHEM INVEST MENT LTD. VS. DCIT (ITA NO. 749 OF 2014 DATED 2ND SEPTEM BER 2015), KARNATAKA HIGH COURT IN CANARA BANK VS. ACIT [2005] 228 TAXMAN 212 (KAR), AND THE DECISION OF MU MBAI TRIBUNAL IN GARWARE WALL ROPES LTD. VS. ACIT (ITA N O. 5408/MUM/12). ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 76 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE AO DURING THE ASSESSMENT PROCEEDING, NO TED THAT ASSESSEE CLAIMED THE DIVIDEND INCOME OF RS. 68,19,4 81/-. THE ASSESSEE SUO MOTTO DISALLOWED RS. 6,320/- UNDER SEC TION 14A. THE AO ISSUED SHOW-CAUSE NOTICE AS TO WHY THE PROVI SION OF SECTION 14A R.W. RULE 8D SHOULD NOT BE APPLIED. THE ASSESSEE FILED ITS REPLY DATED 27.02.2014. IN THE REPLY THE ASSESSEE CONTENDED THAT NO SPECIFIC EXPENDITURE HAS BEEN INC URRED IN CONNECTION WITH ITS INVESTMENTS FOR INTEREST EXPEND ITURE. THE ASSESSEE CONTENDED THAT INTEREST EXPENDITURE BE NET TED FOR THE PURPOSE OF TAKING THE COMPONENT OF INTEREST EXPENDI TURE. THE ASSESSEE FURNISHED THE WORKING OF SUO MOTTO DISALLO WANCE UNDER SECTION 14A FOR RS.6,320/-. THE ASSESSEE ALSO CONTENDED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 6,8 1,498/- ONLY AND THE DISALLOWANCE UNDER SECTION CANNOT EXCE ED TO RS. 6,81,948/-. THE CONTENTION OF ASSESSEE WAS NOT ACCE PTED BY AO. THE AO RECORDED HIS DISSATISFACTION ABOUT THE C ORRECTNESS OF CLAIM OF ASSESSEE AND INVOKED THE PROVISIONS OF RULE 8D OF INCOME TAX RULES, 1962. THE AO MADE THE DISALLOWANC E UNDER SECTION 14A AS PER THE PROVISIONS OF RULE 8D. THE ASSESSING OFFICER DISALLOWED RS. 6,320/- UNDER CLAU SE-(I) OF RS. 44,57,743/- UNDER CLAUSE (II) AND RS. RS. 19,40,805 /- UNDER CLAUSE-(III) OF RULE 8D(2). THUS, THE AO MADE THE T OTAL DISALLOWANCE OF RS. 64,04,868/-. ON APPEAL BEFORE F IRST APPELLATE AUTHORITY THE INTEREST DISALLOWANCE [UNDE R RULE 8D(2)(II)] OF RS.44,57,743/- WAS DELETED. THE REVEN UE HAS NOT CHALLENGED THE ORDER OF FIRST APPELLATE AUTHORITY F OR DELETING THE INTEREST DISALLOWANCE. IN NARROW COMPASS THE DI SPUTE BEFORE US IS ONLY WITH REGARD TO DISALLOWANCE UNDER CLAUSE- (III) OF RULE 8D(2).WE HAVE NOTED THAT THE ASSESSIN G OFFICER HAS NOT RECODED ANY REASONS WHILE DISREGARDING THE VOLUNTARY DISALLOWANCE OFFERED BY ASSESSEE UNDER SECTION 14A. THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMEN T PVT. LTD. VS. CIT IN ITA NO. 117 OF 2015 HELD THAT BY NO STRETCH OF IMAGINATION UNDER SECTION 14A OR RULE 8D BE INTERPR ETED SO AS TO MEAN THE ENTIRE TAX EXEMPT INCOME IS TO BE DI SALLOWED. THE PORTION OF TAX EXEMPT INCOME SURELY CANNOT SWAL LOW THE ENTIRE AMOUNT AS HAS BEEN HAPPENED IN THAT CASE, TH E WINDOW FOR DISALLOWANCE AS INDICATED IN SECTION 14A IS ONL Y TO THE EXTENT OF DISALLOWING THE EXPENDITURE INCURRED BY A SSESSEE ONLY TO EARN EXEMPT INCOME. ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 77 5. THUS, CONSIDERING THE FACT OF THE PRESENT CASE A ND THE SUBMISSION MADE BY LD. AR OF THE ASSESSEE, WE DIREC T THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMP T INCOME EARNED BY ASSESSEE DURING THE FINANCIAL YEAR. IN TH E RESULT, GROUNDS OF APPEAL RAISED BY ASSESSEE ARE ALLOWED. 6. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOW ED. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, BEFORE US, THE LD. COUN SEL FOR THE ASSESSEE CLAIMED THAT DURING THE YEAR NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE AND EVEN NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEND. IT IS FURTHER NOTED THAT IN THE CASE OF ASSESSEE ITSELF F OR ASSESSMENT YEAR 2011-12 ((SUPRA)), THE TRIBUNAL DELIBERATED UPON THE ISSUE AND VIDE ORDER DATED 13/02/2018 (ITA NO.5216/MUM/2015) DECIDED IN FAVOUR OF THE ASSESSEE. IN THE AFORESAID CASE, THE COORDIN ATE BENCH HAS DULY CONSIDERED THE VARIOUS DECISIONS INC LUDING FROM HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD. VS CIT (ITA NO.117 OF 2015), W HEREIN, IT WAS HELD THAT BY NO STRETCH OF IMAGINATION UNDER SECTION ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 78 14A OF THE ACT OR RULE-8D OF THE RULES CAN BE INTER PRETED SO AS TO MEAN THE ENTIRE EXEMPT INCOME IS TO BE DISALL OWED AND DIRECTED THE LD. ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. BEFORE US, THE LD. COUNSEL FOR THE ASSESS EE EXPLAINED THAT DURING THE YEAR NO EXEMPT INCOME WAS EARNED, THEREFORE, WE FIND NO INFIRMITY IN THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL), RESULTANTL Y, THE APPEAL OF THE REVENUE IS DISMISSED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED, WHEREAS, THE APPEALS OF THE REVENUE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 02/01/2019. SD/- (N.K. PRADHAN) SD/- (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $%& / VICE PRESIDENT MUMBAI; 0 DATED : 04/01/2019 F{X~{T? P.S/. $.. , ITA NOS.5630, 5953, 5954, 5971 & 5917/MUM/2017 M/S APTECH LTD. 79 !'()*+,+-) / COPY OF THE ORDER FORWARDED TO : 1. 123 / THE APPELLANT 2. 423 / THE RESPONDENT. 3. 5 5 6' , ( 1 ) / THE CIT, MUMBAI. 4. 5 5 6' / CIT(A)- , MUMBAI 5. 8#9$'$ , 5 1+1 . , / DR, ITAT, MUMBAI 6. :%; / GUARD FILE. ! / BY ORDER, $/ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI