DCIT,Cir.-1(1), Pune V. Global Infrastructure & Technologies Ltd., Mumbai

ITA 624/PUN/2004

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9193 (ITAT-PUNE)
• Duration Of Justice: 13 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-12-2017
• Assessment Year: 1996-1997
• Appeal Filed On: 27-04-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS NIRUPAMA KOTRU
• Keywords: Depreciation; Diversion of income; Cost of acquisition; Commercial expediency; Revised return; Revenue expenditure
• Section: 143(3); 139(5); 32; 6

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.624/PUN/2004 / ASSESSMENT YEAR : 1996-97 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . / APPELLANT V/S M/S. GLOBAL INFRASTRUCTURE & TECHNOLOGIES LTD., 929, MANTRI HOUSE, F.C. ROAD, PUNE. PAN : AAACM8350N. . / RESPONDENT . / ITA NO.722/PUN/2004 / ASSESSMENT YEAR : 1996-97 M/S. GLOBAL INFRASTRUCTURE & TECHNOLOGIES LTD., 929, MANTRI HOUSE, F.C. ROAD, PUNE PAN : AAACM8350N. . / APPELLANT V/S THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . / RESPONDENT . / ITA NO.351/PUN/2007 / ASSESSMENT YEAR : 1996-97 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . / APPELLANT V/S M/S. GLOBAL INFRASTRUCTURE & TECHNOLOGIES LTD., S.NO.137/4, PLOT NO.47, KOTHRUD PAUD, PUNE 411029. PAN : AAACM8350N. . / RESPONDENT 2 . / ITA NO.1027/PUN/2004 / ASSESSMENT YEAR : 1998-99 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . / APPELLANT V/S MANTRI HOUSING & CONSTRUCTIONS LTD., PUNE (FORMERLY KNOWN AS GLOBAL INFRASTRUCTURE & TECHNOLOGIES LTD.,) 929, MANTRI HOUSE, F.C. ROAD, PUNE 4. PAN : AAACM8350N. . / RESPONDENT ASSESSEE BY : NONE REVENUE BY : MRS. NIRUPAMA KOTRU. / ORDER PER ANIL CHATURVEDI, AM : 1. THE CROSS-APPEALS IN QUANTUM PROCEEDINGS FILED BY A SSESSEE AND REVENUE FOR A.Y. 1996-97 EMANATES OUT OF ORDER OF COMMISSIONER OF INCOME-TAX (A) 1, PUNE DT.16.01.2004. REVE NUE IS IN APPEAL FOR A.Y. 1996-97 AGAINST THE DELETION OF PENALTY U/S 271(1)(C) BY LD.CIT(A) VIDE ORDER DT.22.12.2006. REVENUE IS ALS O IN APPEAL FOR A.Y. 1998-99 IN QUANTUM PROCEEDINGS AGAINST THE ORDER OF LD.CIT(A) DT.30.03.2004. SINCE THE AFORESAID APPEALS PERTA IN TO SAME ASSESSEE, ALL APPEALS ARE CONSIDERED TOGETHER. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER :- / DATE OF HEARING : 27.12.2017 / DATE OF PRONOUNCEMENT: 28.02.2018 3 ASSESSEE IS A COMPANY (FORMERLY KNOWN AS MANTRI HOUSING & CONSTRUCTION LIMITED) STATED TO BE ENGAGED IN THE BUSINE SS OF CONSTRUCTION AND LEASING ACTIVITY. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 1996-97 ON 30.11.1996 DECLARING LOSS OF RS.1,10,87,540/-. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 31.07.1997 REVISING THE LOSS AT RS.1,10,23,022/-. THEREAFTE R, ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DT.16.02.1999 AND THE TOTAL TAXABLE INCOME WAS DETERMINED AT RS.6,98,88,900/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.03.01.2000 A LLOWED CERTAIN GROUNDS, REJECTED SOME GROUNDS AND WITH RESPEC T TO CERTAIN GROUNDS SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO RE- DECIDE THE MATTER. PURSUANT TO THE DIRECTIONS OF LD.CIT (A), ORDER WAS PASSED U/S 143(3) R.W.S. 250 OF THE ACT VIDE ORDER DT.27.03.2002 AND THE TOTAL REVISED INCOME WAS DETERMINE D AT RS.6,89,50,462/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD.CIT(A) IN 2 ND ROUND, WHO VIDE ORDER DT.16.01.2004 (IN APPEAL NO.PN/CIT(A)-I/DCIT CIR.1(1)/138/2002 - 03) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO.722/PUN /2004 READS AS UNDER : 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AP PELLANT WAS NOT ENTITLED TO DEPRECIATION ON THE POLLUTION CONTROL E QUIPMENTS AMOUNTING TO RS.5,88,13,905/- WHICH HAVE BEEN PURCH ASED FROM AND LEASED TO AP STATE ELECTRICITY BOARD. 4 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E APPELLANT WAS NOT GIVEN THE REPORT OF DDIT (INV.) HYDERABAD WHICH HAS BEEN USED AGAINST THE APPELLANT BY THE A.O. AND THEREFORE, AS THE APPELLANT HAS NOT BEEN GIVEN AN OPPORTUNITY TO MAKE THE SUBMISSIO N THEREON OR CROSS EXAMINE DDI (INV.), THE SAME REPORT CANNOT BE USED AGAINST THE APPELLANT. 3. THE LEARNED CIT(A) ERRED IN FOLLOWING THE DECISI ON OF ITAT SPL. BENCH MUMBAI IN THE CASE OF MID EAST PORT FOLIO MAN AGEMENT LTD. FOR DISALLOWING THE CLAIM OF DEPRECIATION OF RS.5,8 8,13,905/-. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF DEPRECIATION OF RS. 1,75,59,550/- ON CINEMATOGRAPHI C FILMS JUST BECAUSE IN THE ASST. YEAR 1995-96, THE APPELLANT HA D NOT PRESSED THE CLAIM BEFORE THE CIT(A). 4A. THE LEARNED CIT(A) ERRED IN NOT DECIDING THE AB OVE ISSUE ON MERITS AND THEREFORE, HIS DECISION OF DISALLOWANCE OF DEPRECIATION ON THE GROUND THAT IN THE YEAR THE APPELLANT HAD NOT P RESSED THE CLAIM, IS NOT JUSTIFIED. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF PROFESSIONAL FEE OF RS.17,64,417/- PAID BY THE APPE LLANT TO M/S. SECUREX FINANCIAL SERVICES LTD. FOR ARRANGING THE L EASE TRANSACTION WITH AP STATE ELECTRICITY BOARD. 3. ON THE OTHER HAND, THE GROUNDS RAISED BY THE REVEN UE IN ITA NO.624/PUN/2004 READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN DELETING THE INCOME OF RS.7,91,64,8 64/- CREDITED BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME ON AC COUNT OF PROJECTS NAMELY MANTRI COMMERCE (RS.2,06,85,638), MANTRI PRI DE (RS.2,37,50,433) AND MANTRI EAST (RS.3,47,26,793), AND HE HAS FAILED TO APPRECIATE THAT CLAIM OF THE DEDUCTION OF RS.7,91,64,864/-, WAS MADE BY THE ASSESSEE BY FILING A THIRD RETURN O N 16.02.99, THE DATE ON WHICH ASSESSMENT U/S. 143(3) WAS ALREADY CO MPLETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN CONCLUDING THAT NO REAL INCOME ACCR UED TO THE ASSESSEE. HE HAS FAILED TO APPRECIATE THAT THE ASSE SSEE IN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE INCOME ACCRUED AS PER THE JOINT VENTURE AGREEMENT AND RIGHTLY SHOWN BY TH E ASSESSEE IN P & L ACCOUNT, HE HAS FURTHER FAILED TO APPRECIATE TH AT THE ASSESSEE CANNOT GO BACK TO EARLIER ASSESSMENT YEAR, TO REVER SE THE ENTRIES, IF THE AGREEMENT WERE CANCELLED AFTER 2-3 YEARS. THE A CCRUAL OF INCOME IN EARLIER YEARS CANNOT BE ALLOWED TO BE FOREGONE B Y RELYING ON PRINCIPLE OF REAL INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) HAS FAILED TO APPRECIATE THAT SIMILAR CLAIM WAS MADE BY THE ASSESSEE IN A.Y. 1995-96 WHICH WAS REJECTED BY THE A.O. IN THE ORDER U/S.143(3) R.W.S 148 AND CIT(A) ON MERITS, CO NFIRMED THE 5 DECISION TAKEN BY THE A.O. THE CIT(A) HAS FAILED TO APPRECIATE THE DECISION OF HIS PREDECESSOR, TAKEN ON MERITS, FOR A .Y. 1995-96. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) HAS ERRED IN RELYING ON THE FOLLOWING DECISI ON WHICH ARE FACTUALLY DISTINGUISHABLE, I) DHUN KAPADIA 63 ITR 651(SC) II) STATE BANK OF TRAVANCORE 158 ITR 102(SC) III) BIRLA GAWLIOR PVT. LTD. 89 ITR 266 (SC) IV) SHOORJI VALLABHADAS & CO. 46 ITR 144(SC) ALL THESE DECISIONS WERE DISTINGUISHABLE BY THE CIT (A) IN A.Y. 95-96 AND NOT APPLICABLE TO THE FACTS OF CASE OF TH E ASSESSEE. HE HAS ERRED IN NOT APPRECIATING THE PRINCIPLE LAID DOWN B Y THE SUPREME COURT IN THE CASE OF SHIV PRAKASH JANAK RAJ & CO. R EPORTED IN 222 ITR 583. 5. THE ORDER OF THE CIT(A), MAY BE VACATED AND THE ORDER OF A.O. BE RESTORED. 4. ON THE DISALLOWANCES THAT WERE MADE BY THE AO IN THE 2 ND ROUND FOR A.Y. 1996-97 VIDE ORDER DT.27.03.2002, AO VIDE PE NALTY ORDER DT.31.03.2005 LEVIED PENALTY OF RS.7,25,34,996/- U/S 271(1)(C) OF THE ACT. AGGRIEVED BY THE PENALTY ORDER, ASSES SEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.22.1 2.2006 (IN APPEAL NO.PN/CIT(A)-I/DC. CIR.1(1), PN/43/05-06) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE RELIEF GRA NTED BY LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US IN APPEAL NO.351/PUN/2007 AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE CIT(A) ERRED IN DELETING THE PENALTY TO THE TUNE OF RS.3,64,15,837/- U/S 271(1)(C) OF THE I.T. ACT, 196 1. 2. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF T HE ASSESSING OFFICER BE RESTORED. 5. AS FAR AS A.Y. 1998-99 IS CONCERNED, ASSESSEE FILED ITS RE TURN OF INCOME FOR A.Y. 1998-99 ON 30.11.1998 DECLARING LOSS OF RS.5,57,39,245/- AND PROFIT UNDER MAT AT RS.25,19,445/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER BY THE OR DER PASSED BY 6 AO U/S 143(3) DATED 16.01.2001, THE TOTAL LOSS WAS DETERM INED AT RS.4,33,02,051/- AND PROFIT UNDER MAT AT RS.25,19,445/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO VIDE ORDER DT.30.03.2004 (IN APPEAL NO.PN/CIT(A) - I/JT.CIT SR-2/895/2001-02) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US IN ITA NO.1027/PUN/2004 AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW BOND AN D DEBENTURE ISSUE EXPENSES OF RS. 63.83 LAKHS, TREATING THE SAM E AS REVENUE EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN NOT FOLLOWING HIS PREDECESSORS DECI SION ON SIMILAR ISSUE IN EARLIER YEAR I.E. A.Y. 97-98 OF AL LOWING 1/5 TH OF BOND ISSUE EXPENSES EVERY YEAR CONSIDERING THE EXPE NDITURE TO BE DEFERRED REVENUE EXPENSES IN LIGHT OF DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPN LTD. 225 ITR 802. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN ALLOWING PRELIMINARY EXPENSES OF RS.1,78,432/- U/S. 35D OF THE INCOME TAX ACT,1961. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF HIS P REDECESSOR ON THE SAME ISSUE FOR A.Y.97-98 WHEREIN THE DEDUCTION U/S. 35D OF THE INCOME TAX ACT, 1961 WAS DENIED TO THE ASSES SEE, AS THE ASSESSEE COULD NOT PROVE THE CASE OF EXPANSION OF BUSINESS. 5. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF T HE A.O. BE RESTORED. 6. THE CASE FILE REVEALS THAT THESE ARE OLD MATTERS AND T HEY ARE CONTINUOUSLY GETTING ADJOURNED SINCE 2013. THE CASE FILE FURTHER REVEALS THAT BY ORDER PASSED BY HONBLE BOMBAY HIGH CO URT DT.15.12.2014 (IN COMPANY PETITION 124 OF 2014), THE ASSESSEE COMPANY WAS ORDERED TO BE WOUND UP AND THE OFFICIAL LIQUIDA TOR 7 WAS APPOINTED. THE FILE FURTHER REVEALS THAT THE EARLIER CO UNSEL SHRI M.K. KULKARNI, VIDE LETTER DT.13.01.2016, HAS INFORMED THAT S INCE THE OFFICIAL LIQUIDATOR HAS BEEN APPOINTED TO TAKE CHARGE OF BOOKS, ASSETS AND BUSINESS OF THE COMPANY AND TO EXERCISE ALL NECESSARY POWERS UNDER THE COMPANIES ACT, 1956 AND IN THE ABSENC E OF AUTHORIZATION BY THE LIQUIDATOR IN HIS FAVOUR, HE HAS WITHD RAWN HIS POWER OF ATTORNEY. THE FILE FURTHER REVEALS THAT NO REPR ESENTATIVE HAS BEEN THEREAFTER APPOINTED BY THE LIQUIDATOR. THE CA SE FILE FURTHER REVEALS THAT THE ASSESSEE COMPANY IS UNDER LIQUID ATION AND THAT LAST NOTICE FOR HEARING OF THE APPEAL WAS SERVED ON THE OFFICIAL LIQUIDATOR ON 22.07.2017 BUT NONE HAS BEEN APPEARED ON ITS BEHALF. IN VIEW OF THE AFORESAID FACTS AND SINCE THE MATT ERS BEING OLD, WE PROCEED TO DISPOSE OF THE APPEALS, EX-PARTE QUA THE ASSESSEE, ON THE BASIS OF MATERIAL ON RECORD AND AFTER HE ARING THE LD.D.R. 7. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.722/PUN/2 004 FOR A.Y. 1996-97. 7.1 GROUNDS 1 TO 3 ARE INTER-CONNECTED AND ARE CONSIDE RED TOGETHER. 7.2 ON 06.09.1995 AN EQUIPMENT DESCRIBED AS WATER POLLUTIO N CONTROL EQUIPMENT WAS PURCHASED BY THE ASSESSEE FROM ANDHRA PRADESH STATE ELECTRICITY BOARD (APSEB) AT A TOTAL COST OF RS.5,88,13,905/-. THE SAID EQUIPMENT WAS LEASED BACK TO A PSEB UNDER LEASE AGREEMENT DT.06.09.1995. ACCORDING TO THE AO , THE 8 LEASE AGREEMENT WAS A COLOURABLE DEVISE AND A COLLUSIVE TRANSACTION. HE FURTHER HELD THAT THE EQUIPMENT WAS NOT A POLLUTION CONTROL EQUIPMENT BUT MERELY A WATER TREATMENT PLANT. THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON THE SAID EQUIP MENT. THE CLAIM OF DEPRECIATION WAS DISALLOWED BY THE AO FOR THE REASON THAT THE ASSESSEE WAS ATTEMPTING TO AVOID TAX AND THE RE WAS NO REAL TRANSFER OF THE EQUIPMENT AND THEREFORE THE LESSEE WAS T HE REAL OWNER. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO REMANDED THE ISSUE BACK TO THE AO. IN THE SECOND ROUND, THE AO WHILE DISALLOWING THE CLAIM OF DEPRECIATIO N HAS NOTED THAT ASSESSEE DID NOT FILE ANY STATEMENT TO DEMONSTRATE AS TO HOW THE DEPRECIATION WAS ALLOWABLE. ACCORDING TO AO , FOR CLAIMING DEPRECIATION U/S 32 OF THE ACT, THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE ASSETS WERE IN EXISTENCE, ASSESS EE WAS THE OWNER OF THE ASSETS AND THE COST OF ACQUISITION WAS PROV ED AND THE FACT THAT THE ASSETS WERE BEING USED IN THE BUSINESS OF THE ASSESSEE. AO NOTICED THAT ASSESSEE HAS NOT FILED ANY EVIDENCE TO SUPPORT THE EXISTENCE OF ASSET BEING USED FOR BUSINESS AND THUS THE ASSESSEE FAILED TO PROVE THE COMPLIANCE OF CONDITIONS U/S 32 OF THE A CT. HE ACCORDINGLY ONCE AGAIN DISALLOWED THE CLAIM OF DEPRECIATION O F RS.5,88,13,905/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY OBSERVING AS UNDER : 6.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPE LLANT. AT THIS STAGE, IT HAS TO BE POINTED OUT THAT THE APPELLANT IS NOT ONLY FULLY AWARE OF THE REPORT OF THE DDIT (INV.), HYDERABAD B UT THERE IS ALSO THE DECISION OF THE HON'BLE ITAT, SPECIAL BENCH-C, MUMBAI IN THE CASE OF M/S. MID EAST PORT FOLIO MANAGEMENT LTD. VS . DCIT, SR-28, MUMBAI IN ITA NO.5616/MUM/1999 DATED 14-02-2003, WH EREIN THE 9 FACTS OF THE CASE ARE EXACTLY SIMILAR. EVEN THE VALU ER IN THAT CASE IS ALSO M/S. CHOUDHARY & CO. THE NATURE OF ALLEGED EQU IPMENTS LEASED OUT IS ALSO THE SAME. THE RELEVANT PORTION OF THE D ECISION OF HON'BLE ITAT, SPECIAL BENCH-C, MUMBAI IS GIVEN AS ANNEXURE TO THIS APPELLATE ORDER; FOLLOWING THE SAME, THERE IS NO CA SE IN FAVOUR OF THE APPELLANT AND THE ADDITION MADE BY THE A.O. IS DIRE CTED TO BE SUSTAINED. GROUNDS NO.7, 8, 9, 10, 11, 12 & 13 ARE DECIDED AGAINST THE APPELLANT. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, LD.D.R. TOOK US THROUGH THE ORDER OF LOWER AUTHORITIES AND SUPPORTED THE ORDER OF LD.CIT(A). SHE FU RTHER SUBMITTED THAT ASSESSEE HAS FAILED TO PROVE THE EXISTENC E OF ASSET AND THAT ASSESSEE WAS OWNER OF THE ASSETS EVEN IN THE 2 ND ROUND. SHE THEREFORE SUBMITTED THAT THE DEPRECIATION WAS RIGHTL Y DISALLOWED. 9. WE HAVE HEARD THE LD.D.R. AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE CLAIM OF DEPRECIATION. WE FIND THAT LD.CIT(A) AFTER RELYING ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MID EAST PORTFOLIO MANAGEMENT LTD. VS DCIT IN ITA NO.5616/MUM/1999 DT. 14.02.2003 HAS NOTED THAT THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THAT OF MID EAST PORTFOLIO MANAGEMENT (SUPRA), THE NAT URE OF EQUIPMENT LEASED OUT IS ALSO THE SAME. HE ACCORDINGLY, FOLLOWING THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF MID EAST PORTFOLIO (SUPRA), UPHELD THE ORDER OF AO. WE FIND THAT IN THE CASE OF MID EAST PORTFOLIO MANAGEMENT (SUPRA), THE SPECIAL BENCH O F THE TRIBUNAL AFTER CONSIDERING THE DETAILS HAS GIVEN A FINDING THA T THE INTENTION OF THE PARTIES FROM THE VERY INCEPTION WAS NOT TO SELL / 10 PURCHASE THE EQUIPMENTS IN REAL AND TRUE SENSE BUT WAS ONLY TO PREPARE DOCUMENTATION TO SHOW THAT THE ASSETS WERE A CTUALLY SOLD / PURCHASED AND THEN LEASED BACK. BEFORE US, NO MATERIAL HAS BEEN PLACED ON RECORD BY ASSESSEE TO POINT OUT ANY DISTINGUIS HING FEATURE IN THE FACTS OF THE PRESENT CASE AND THAT OF MID EAST P ORTFOLIO MANAGEMENT (SUPRA). IN SUCH A SITUATION, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF THE ASSESSEE ARE DISMISSED. 10. GROUND NOS.4 AND 4A ARE INTER-CONNECTED AND ARE WIT H RESPECT TO DISALLOWANCE OF DEPRECIATION OF RS.1,75,59,550/- ON CINEMATOGRAPHIC FILMS. 11. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 1995-9 6, ASSESSEE HAD PURCHASED CINEMATOGRAPHIC FILMS FROM M/S. SUJATHA PRODUCTIONS PVT. LTD., AT A COST OF RS.3,51,19,100/- AND IT WAS LEASED OUT TO M/S. G.V. FILMS. THE ASSESSEE HAD CLAIMED 50 % DEPRECIATION IN A.Y. 1995-96. FOR A.Y. 1996-97 ASSESSEE HA S CLAIMED BALANCE DEPRECIATION OF 50% AMOUNTING TO RS.1,75,59,550/-. THE AO IN THE FIRST ROUND DISALLOWED THE C LAIM OF DEPRECIATION FOR THE REASON THAT ACCORDING TO AO, THE E NTIRE TRANSACTION OF LEASE OF FILMS WAS A PAPER TRANSACTION ENTER ED WITH THE SOLE PURPOSE OF AVOIDING TAX. AO ALSO OBSERVED THA T M/S. G.V. FILMS AND M/S. SUJATHA PRODUCTIONS PVT. LTD., IN ORDER TO C LAIM HIGHER DEPRECIATION, HAD ENTERED INTO CIRCULAR TRADING AND OVERINVOICING PATTERN. AO THEREFORE DISALLOWED THE CLAIM OF DEPRECIATION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CA RRIED THE 11 MATTER BEFORE LD.CIT(A), WHO IN THE FIRST ROUND SET ASIDE TH E ISSUE BACK TO THE AO. IN THE SECOND ROUND, AO HAS NOTED T HAT ASSESSEE WAS ASKED TO MAKE SUBMISSIONS TO DEMONSTRATE THE FULFILLME NT OF CONDITIONS STIPULATED U/S 32 OF THE ACT FOR CLAIMING DEPRECIA TION. AO NOTED THAT NO SUBMISSIONS WERE MADE BY THE ASSESSE E AND ASSESSEE HAD FAILED TO DISCHARGE ITS PRIMARY ONUS TO ES TABLISH THAT THE CLAIM OF DEPRECIATION WAS ALLOWABLE U/S 32 OF THE ACT. HE ACCORDINGLY IN THE 2 ND ROUND ONCE AGAIN DENIED THE CLAIM OF DEPRECIATION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CA RRIED THE MATTER BEFORE LD.CIT(A), WHO IN THE SECOND ROUND UPHELD T HE ORDER OF AO BY OBSERVING AS UNDER : 7.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT. HOWEVER, IT IS SEEN THAT DURING THE APPELLATE PROCEEDINGS FOR A .Y. 1995-96, ON THE SAME ISSUE THAT IS THE CLAIM OF M/S. G.V. FILMS , THE APPELLANT HAD NOT PRESSED THE CLAIM BEFORE THE CIT(A)-I, PUNE . EVEN THIS YEAR, THE POSITION BEING SIMILAR AND THESE GROUNDS ARE RE QUIRED TO BE DECIDED AGAINST THE APPELLANT. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 12. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF LD.CIT(A) AND SUBMITTED THAT THE CLAIM OF DEPRECIATION WAS DISALLOWED BY A O AS IT WAS A SHAM TRANSACTION. SHE FURTHER SUBMITTED THAT DUR ING THE YEAR A.Y. 1995-96, THE ASSESSEE DID NOT PRESS THE CLAIM FOR DEPRECIATION BEFORE LD.CIT(A) AND LD.CIT(A) HAS NOTED THAT T HE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR T O THAT OF A.Y. 1995-96. SHE THUS SUPPORTED THE ORDER OF LD.CIT(A). 12 13. WE HAVE HEARD THE LD.D.R AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPE CT TO THE CLAIM OF DEPRECIATION ON CINEMATOGRAPHIC FILMS. WE FIND THAT A O WHILE DISALLOWING THE CLAIM OF DEPRECIATION HAS NOTED THAT AS SESSEE HAS NOT PLACED ANY MATERIAL TO DEMONSTRATE THE FULFILLMENT OF REQUIRED CONDITIONS U/S 32 OF THE ACT FOR CLAIMING DEPRECIAT ION. AO NOTED THAT NO SUBMISSIONS WERE MADE BY THE ASSESSEE AND ASSESSEE HAS FAILED TO DISCHARGE ITS PRIMARY ONUS TO ESTABLISH THAT THE CLAIM WAS ALLOWABLE U/S 32 OF THE ACT. NO MATERIAL HAS BEEN PLAC ED ON RECORD BY THE ASSESSEE TO CONTROVERT THE FINDINGS OF A O AND LD.CIT(A). IN SUCH A SITUATION, WE FIND NO REASON TO INTERFE RE WITH THE ORDER OF LD.CIT(A) AND THUS, THE GROUNDS OF THE ASSESSEE ARE DISMISSED. 14. GROUND NO.5 IS WITH RESPECT TO DISALLOWANCE OF PROFESSION AL FEE OF RS.17,64,417/- PAID TO M/S. SECUREX FINANCIAL SERVICES LTD. 14.1 AO HAS NOTED THAT PROFESSIONAL FEE OF RS.17,64,417/- WAS PAID BY ASSESSEE TO M/S. SECUREX FINANCIAL SERVICES LTD., FO R ARRANGING THE LEASE TRANSACTIONS BETWEEN THE ASSESSEE AND APSEB FOR WATER POLLUTION CONTROL EQUIPMENT. AO DISALLOWED THE CLAIM OF PROFESSIONAL FEE FOR THE REASON THAT THE TRANSACTION WITH APSEB WAS FOUND TO BE BOGUS. AGGRIEVED BY THE ORDER OF AO, ASSE SSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO RESTORED THE ISSUE BACK TO THE FILE OF AO. IN THE SECOND ROUND, AO HAS NOTED THAT ASSESS EE DID NOT FILE ANY DETAILS TO SUPPORT THE GENUINENESS OF THE TRANSAC TIONS AND FURTHER THE CLAIM OF DEPRECIATION ON WATER POLLUTION CONTROL EQUIPMENT WAS ALSO DISALLOWED BY HIM BY HOLDING THAT THE 13 TRANSACTION TO BE A SHAM TRANSACTION. ACCORDINGLY, THE CLAIM FOR PROFESSIONAL FEE WAS ALSO DISALLOWED IN 2 ND ROUND BY AO. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A) IN 2 ND ROUND. LD.CIT(A) UPHELD THE ORDER OF AO. AGGRIEVED BY TH E ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 15. BEFORE US LD.D.R. SUBMITTED THAT THAT SINCE THE TRAN SACTION OF PURCHASING OF WATER POLLUTION CONTROL EQUIPMENT FROM APS EB IS HELD TO BE A SHAM TRANSACTION, THE ALLOWABILITY OF EXPENS ES ON ACCOUNT OF PROFESSIONAL FEE ON SUCH SHAM TRANSACTION DOE S NOT ARISE. SHE THUS SUPPORTED THE ORDER OF AO. 16. WE HAVE HEARD THE LD.D.R AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO DISALLOWANCE OF PROFESSIONAL FEES. THE PROFESSIONAL FEES IS STA TED TO HAVE BEEN PAID FOR ARRANGING THE LEASE TRANSACTION BETWE EN THE ASSESSEE AND APSEB FOR WATER POLLUTION CONTROL EQUIPMENT . SINCE THE TRANSACTION OF LEASE BETWEEN ASSESSEE AND APSEB FOR WATER POLLUTION CONTROL EQUIPMENT IS HELD TO BE NOT GENUINE, THE Q UESTION OF ALLOWANCE OF PROFESSIONAL FEES DOES NOT ARISE. BEFORE U S, NO MATERIAL HAS BEEN PLACED BY ASSESSEE TO CONTROVERT THE FINDINGS OF AO AND LD.CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUND OF THE ASSESSEE IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.722/PUN/2004 FOR A.Y. 1996-97 IS DISMISSED. 14 18. NOW WE TAKE UP APPEAL OF REVENUES APPEAL IN ITA NO.624/PUN/2004 FOR A.Y. 1996-97. 19. BEFORE US, AT THE OUTSET, LD.D.R. SUBMITTED THAT THOUG H REVENUE HAS RAISED VARIOUS GROUNDS BUT ALL THE GROUNDS ARE INTER- CONNECTED AND THAT THE FIRST GROUND IS THE ONLY EFFECTIVE GROUND. 19.1 ASSESSEE IS STATED TO BE IN THE BUSINESS OF CONSTRU CTION AND LEASING ACTIVITY. IT WAS ASSESSEES SUBMISSION THAT FOR CA RRYING ON THE BUSINESS OF CONSTRUCTION OF HOUSING PROJECTS IT ACQUIR ES LAND AND RIGHTS TO DEVELOP THE LAND AND THE PROJECTS ARE O FTEN CARRIED OUT EITHER IN PARTNERSHIP OR IN JOINT VENTURE BASIS WITH O UTSIDE PARTIES. FOR THE PURPOSE OF THE DEVELOPMENT, RIGHTS IN T HE PLOT OF THE LAND WHICH ARE OWNED BY THE ASSESSEE ARE TRANSFERR ED TO THE JOINT VENTURE / PARTNERSHIP FIRM AT AN AGREED PRICE. TH E PROFITS ARISING ON ACCOUNT OF TRANSFER OF RIGHTS (BEING THE DIFFERENCE OF THE COST TO THE ASSESSEE OF SUCH RIGHTS AND THE VALUE AT WHICH IT IS TRANSFERRED) IS THEN TRANSFERRED TO THE PARTNERSHIP FIRM. IT IS THE CLAIM OF THE ASSESSEE THAT THOUGH THE PROFITS ARISING ON A CCOUNT OF TRANSFER OF RIGHTS WAS OFFERED FOR TAXATION IN THE RETURN OF INCOME, THE SAME IS NOT TAXABLE UNDER THE ACT. ASSESSEE MADE A CLAIM OF DEDUCTION OF SUCH NOTIONAL GAIN ON ACCOUNT OF UN-REALISED P ROFIT IN RESPECT OF ITS PROJECTS NAMELY, MANTRI COMMERCE, MANTRI P RIDE AND MANTRI EAST. WITH RESPECT TO MANTRI COMMERCE, IT WAS SUB MITTED THAT THE PROJECT WAS ABANDONED AT THE INITIAL STAGE ITS ELF AND THE AGREEMENT WAS PUT TO AN END AND SINCE THE PROJECT NE VER STARTED, 15 THERE COULD NOT BE ANY INCOME. SIMILAR FACTS WERE STATE D WITH RESPECT TO MANTRI PRIDE WHICH HAS GOT DELAYED BY MORE THAN 3 YEARS. ACCORDINGLY, ASSESSEE CLAIMED DEDUCTION OF UNREA LIZED PROFIT OF THE 3 PROJECTS AS UNDER :- MANTRI COMMERCE PROJECT RS.2,06,85,638/- MANTRI PRIDE PROJECT RS.2,37,50,443/- MANTRI EAST PROJECT RS.3,47,28,793/- TOTAL : RS.7,91,64,864/- 20. AO NOTED THAT NO CLAIM FOR DEDUCTION WAS MADE BY THE ASSESSEE IN THE ORIGINAL RETURN AS WELL AS THE REVISED RET URN. THE ASSESSEE MADE THE CLAIM FOR DEDUCTION FOR THE FIRST TIME IN THE SECOND REVISED RETURN FILED ON 16.02.1999 I.E., ON THE DATE O N WHICH THE ASSESSMENT ORDER WAS PASSED. THE SECOND REVISED RETURN FILED BY THE ASSESSEE WAS INVALID SINCE IT WAS BEYOND THE TIME PRESCRIBED U/S 139(4) OF THE ACT. AO THUS DENIED THE CLAIM FOR DEDUCTIO N OF UNREALIZED GAINS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD.CIT(A), WHO SET ASIDE THE ISSUE BACK TO T HE FILE OF AO AND DIRECTED THE AO TO CONSIDER THE SUBMISSIONS MADE BY THE ASSESSEE VIDE LETTER ACCOMPANYING THE REVISED RETURN. A O IN THE 2 ND ROUND NOTED THAT THE ASSESSEES MAIN PLEA WAS THAT SIM ILAR CLAIM WAS ALLOWED IN A.Y. 1995-96. THE PLEA OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO IN THE 2 ND ROUND BECAUSE HE NOTED THAT THE CLAIM WAS DISALLOWED IN A.Y. 1995-96 IN THE ORDER PASSED U/S 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DT.26.12.2000 AND T HE ACTION OF THE AO WAS CONFIRMED BY LD.CIT(A) VIDE ORDER DT.08.11.200 1. HE 16 ACCORDINGLY, FOLLOWING THE DECISION OF HIS PREDECESSOR FOR A .Y. 1995- 96, DISALLOWED THE CLAIM OF UNREALIZED PROFIT OF RS.7,91,64,864/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOL DING AS UNDER :- 5.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT. FIRST OF ALL, IT WOULD BE RELEVANT TO LOOK AT THE NATURE OF SET-ASID E PROCEEDINGS AND THE DIRECTIONS GIVEN BY THE CIT(A)-V, MUMBAI IN HIS ORDER DATED 03.02.2000 SETTING ASIDE THE ORIGINAL ASSESSMENT. I N PARA-18 AND 19 OF THE SAID ORDER, MY LEARNED PREDECESSOR HAS HELD AS UNDER :- I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS, FAC TS OF THE MATTER, RELEVANT PAPERS AND THE ASSESSMENT ORDER IN THIS REGARD. IT IS TRUE THAT IN THE IMMEDIATELY PRECEDING ASSESSING YEAR, THE APPELLANT HAD STAKED AN IDENTICAL CLAIM W HICH WAS DULY ALLOWED BY THE DEPARTMENT AFTER A RATHER DETAI LED DISCUSSION. THERE ARE NO SIGNIFICANT DIFFERENCE IN REGARD TO THE FACTS OF A.Y.1995-96, AND THAT OF A.Y. 1996-97, I.E . THE YEAR UNDER APPEAL. THE ASSESSEE HAS CERTAIN RIGHTS FOR DEVELOPMENT OF LAND WHICH HAVE BEEN TRANSFERRED TO A JOINT VENTURE OR, PARTNERSHIP FIRM AT A HIGHER PRICE AND THE ISSUE IS WHETHER SUCH EXCESS PRICE CAN BE TAXED UNDER THE AC T, OR NOT. STRICTLY SPEAKING , AS STATED BY THE A.O HIMSELF, IN HIS ORDER FOR A.Y.1995-96, THE ISSUE IS FULLY COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF SUPREME COURT IN THE CA SE OF SUNIL SIDDARTHBHAI, CITED SUPRA. FURTHER, THE AUTHORIZED REPRESENTATIVE HAS RAISED AN ARGUMENT TO THE EFFECT THAT NO REAL INCOME HAS BEEN GENERATED OUT OF THE ABOVE TRA NSACTION. ON THIS COUNT, IT IS SEEN THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. CITED SUPRA, FULLY, SUPPORTS THE STAND TAKEN BY THE ASSESSEE. IN THAT C ASE, THE APEX COURT WAS CONSIDERING THE ACTUAL INCOME CONCEP T AND THE PRINCIPLES OF REAL INCOME. THE ELECTRICITY UNDE RTAKING HAD ENHANCED ITS RATES AND SUCH ENHANCED RATES WERE SHO WN AS RECEIPTS IN ACCOUNTS , BUT IN ACTUAL EFFECT, THE AM OUNT UNREALIZED WAS ACCOUNTED FOR, AND COULD NOT BE REA LISED DUE TO LITIGATION AND DUE TO SUBSEQUENT TAKEOVER BY THE GOVERNMENT. THE HONOURABLE SUPREME COURT PRONOUNCED THAT THE AMOUNT DUE ON SUCH ENHANCEMENT HAD NOT ACCRUED AND WAS NOT ASSESSABLE. IN THE INSTANT CASE, THE FOLLOWING AMOUNTS OF UNREA LIZED PROFIT COULD NOT HAVE BEEN INCLUDED IN THE TOTAL ASSESSED INCOME. THE AMOUNT OF RS.2,06,85,638/- IN RESPECT OF THE EN TIRE PROFIT OF PROJECT MANTRI COMMERCE, RS.2,37,50,433/- IN RESPECT OF 50% OF THE PROFIT IN RESPECT OF PROJECT MANTRI PR IDE, AND RS. 3,47,28,793/- IN RESPECT OF THE ENTIRE PROFIT OF PR OJECT MANTRI EAST. 5.2.1 AFTER RECORDING SUCH A FINDING IN THE APPELLA TE ORDER, IN PARA 20, MY LEARNED PREDECESSOR SENT THE ISSUE BACK TO T HE FILE OF A.O. TO 17 LOOK INTO ALL ASPECTS OF THE MATTER AND NOT TO PENA LIZE THE ASSESSEE MERELY BECAUSE A CLAIM WAS MADE LATE. THERE WAS A S PECIFIC DIRECTION OF THE CIT(A) IN THE LAST TWO LINE OF THE AFORESAID ORDER QUOTED AS UNDER :- WHILE DECIDING THE ABOVE ISSUE, THE A.O. SHALL ALS O KEEP IN MIND, MY VARIOUS OBSERVATIONS CONTAINED HEREINABOVE . THIS GROUND IS DECIDED ACCORDINGLY. 5.2.2. IN THE LIGHT OF SUCH CLEAR CUT DIRECTIONS, I FAIL TO UNDERSTAND AS TO WHY THE A.O. TOOK IT UPON HIMSELF THE TASK NOT A SSIGNED TO HIM IN THE SET-ASIDE ORDER, AS PER MERGER OF PRINCIPLE, TH E APPELLATE ORDER OF THE CIT(A) HAD MERGED WITH THE ASSESSMENT PROCEEDIN GS AND AS SUCH WITHOUT BRINGING OUT ANY FURTHER FACTS ON RECORD, T HE A.O. HAS MERELY REFERRED TO THE APPELLATE PROCEEDINGS FOR A.Y. 1995 -96 ON A SIMILAR ISSUE AND DECIDED THIS ISSUE AGAINST THE APPELLANT. I DO NOT THINK THIS IS LEGALLY PERMISSIBLE. HOWEVER, LOOKING AT THE GRA VITY OF THE MATTER, I HAVE ALSO GONE THROUGH THE APPELLATE ORDER FOR A.Y. 1995-96 AGAINST ORDER U/S 143(3) / 147 AS WELL AS THE SUBMISSIONS O F THE APPELLANT. WHILE THE STAND OF THE CIT(A)-I, PUNE IN THE AFORES AID APPELLATE ORDER, WHERE THE PROCEEDINGS BEFORE HIM WERE PROCEEDINGS U /S 147, CANNOT BE FAULTED WITH AS THE APPELLANT WAS NOT ENTITLED T O RAISE SUCH ISSUES IN THE PROCEEDINGS U/S 147 WHICH HAS THE EFFECT OF REDUCING THE TOTAL INCOME, AS THE VERY NATURE OF THE PROCEEDINGS U/S 1 47 ARE FOR THE PURPOSES OF ASSESSING INCOME ESCAPING ASSESSMENT. T HE SAME STAND CANNOT BE SIMPLY BORROWED IN THE PROCEEDINGS FOR A. Y. 1996-97 AS THERE IS NO RE-ASSESSMENT IN THIS CASE AND ALL THE DETAILS WERE AVAILABLE DURING THE ORIGINAL ASSESSMENT PROCEEDING S / SET-ASIDE PROCEEDINGS. 5.2.3 HAVING SAID THIS, I HAVE ALSO GONE THROUGH TH E CONCEPT OF REAL INCOME AS ENUNCIATED BY THE HON'BLE SUPREME COURT I N A SERIES OF DECISIONS COMMENCING FROM MISS DHUN DADABHOY KAPADI A V. CIT, 63 ITR 651 (SC). IN FACT, THE CONCEPT OF REAL INCOME C AME FOR CRITICAL ANALYSIS IN THE STATE BANK OF TRAVANCORE V. CIT (19 86) 158 ITR 102 (SC) WHERE THE ISSUE RELATED TO THE DEDUCTIBILITY O R OTHERWISE OF A PROVISION BY WAY OF INTEREST SUSPENSE ACCOUNT, MAJO RITY DECISIONS HOLDING THAT THE CONCEPT OF REAL INCOME DOES NOT EX TEND TO A SITUATION, WHERE SUCH PROVISION IS MADE ON AN AD HOC BASIS. TH E SUPREME COURT IN THE JUDGMENT OF SABYASACHI MUKHARJI J IN T HE LEADING JUDGMENT HAD LAID DOWN THE FOLLOWING PROPOSITIONS A S TO WHAT CONSTITUTES REAL INCOME IN THE FOLLOWING WORDS IN/S TATE BANK OF TRAVANCORE V. CIT (1986) 158 ITR 102 AT PAGE 155: (1) IT IS THE INCOME WHICH HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE THAT IS TAXABLE. WHETHER THE INCOME HAS, R EALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REALITY OF THE SITUATION. (2) THE CONCEPT OF REAL INCOME WOULD APPLY WHERE TH ERE HAS BEEN A SURRENDER OF INCOME WHICH IN THEORY MAY HAVE ACCRUED BUT IN THE REALITY OF THE SITUATION, NO INCOME HAD RESULTED BECAUSE THE INCOME DID NOT REALLY ACCRUE. (3) WHERE A DEBT HAS BECOME BAD, DEDUCTION IN COMPL IANCE WITH THE PROVISIONS OF THE ACT SHOULD BE CLAIMED AND ALLOWED. 18 (4) WHERE THE ACT APPLIES, THE CONCEPT OF REAL INCO ME SHOULD NOT BE SO READ AS TO DEFEAT THE PROVISIONS OF THE A CT. (5) IF THERE IS ANY DIVERSION OF INCOME AT SOURCE U NDER ANY STATUTE OR BY OVERRIDING TITLE, THEN THERE IS NO IN COME TO THE ASSESSEE. (6) THE CONDUCT OF THE PARTIES IN TREATING THE INCO ME IN A PARTICULAR MANNER IS MATERIAL EVIDENCE OF THE FACT WHETHER INCOME HAS ACCRUED OR NOT. (7) MERE IMPROBABILITY OF RECOVERY, WHERE THE CONDU CT OF THE ASSESSEE IS UNEQUIVOCAL, CANNOT BE TREATED AS EVIDE NCE OF THE FACT THAT INCOME HAS NOT RESULTED OR ACCRUED TO THE ASSESSEE. AFTER DEBITING THE DEBTOR'S ACCOUNT AND NOT REVERSI NG THAT ENTRY - BUT TAKING THE INTEREST MERELY IN SUSPENSE ACCOUNT CANNOT BE SUCH EVIDENCE TO SHOW THAT NO REAL INCOME HAS ACCRUED TO THE ASSESSEE OR BEEN TREATED AS SUCH BY THE ASSESSEE. (8) THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICA BLE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT BUT, IN EVERY CASE, IT MUST BE APPLIED WITH CARE AND WITHIN WELL-RECOGNISE D LIMITS.' IT WAS, HOWEVER, CONCEDED THAT APPLICATION OF THE A BOVE PRINCIPLES IN A PARTICULAR CASE IS NOT EASY. 5.2.4 IN THE CASE OF CIT VS. BIRLA GWALIOR PVT. LTD ., 89 ITR 266 (SC), WHERE SUCH WAIVER OF A MANAGING AGENCY COMMISSION M ADE EVEN AFTER THE FINANCIAL YEAR BUT BEFORE THE ACCOUNTS WE RE MADE UP BY THE MANAGING COMPANY WAS FOUND TO BE NOT TAXABLE ON APP LICATION OF THE THEORY OF REAL INCOME. BUT IT WAS BECAUSE THERE WAS NO STIPULATED DATE FOR THE PAYMENT. IT WAS FOUND THAT UNDER THE C IRCUMSTANCES THE PRINCIPLE LAID DOWN IN CIT V. SHOORJI VALLABHDAS & CO. (1962) 46 ITR 144 (SC), WOULD HAVE NO APPLICATION IN THE FOLLOWIN G WORDS: 'THE PRINCIPLE OF REAL INCOME IS NOT TO BE SO SUBOR DINATED AS TO AMOUNT VIRTUALLY TO A NEGATION OF IT WHEN A SURREND ER OR CONCESSION OR REBATE IN RESPECT OF MANAGING AGENCY COMMISSION IS MADE, AGREED TO OR GIVEN ON GROUNDS O F COMMERCIAL EXPEDIENCY, SIMPLY BECAUSE IT TAKES PLAC E SOME TIME AFTER THE CLOSE OF AN ACCOUNTING YEAR. IN EXAM INING ANY TRANSACTION AND SITUATION OF THIS NATURE THE COURT WOULD HAVE MORE REGARD TO THE REALITY AND SPECIALITY OF THE SI TUATION RATHER THAN THE PURELY THEORETICAL OR DOCTRINAIRE ASPECT O F IT. IT WILL LAY GREATER EMPHASIS ON THE BUSINESS ASPECT OF THE MATT ER VIEWED AS A WHOLE WHEN THAT CAN BE DONE WITHOUT DISREGARDI NG STATUTORY LANGUAGE.' THE SUPREME COURT IN SHIV PRAKASH JANAK RAJ'S CASE (SUPRA) FOUND THAT IN BIRAL GWALIOR PVT LTD.'S CASE (1973) 89 ITR 266, VARIOUS GROUNDS LIKE COMMERCIAL EXPEDIENCY INDICATING NOT O NLY REALITY BUT THE SPECIALITY OF THE SITUATION WAS CONSIDERED, WHE N THE WAIVER AFTER THE END OF THE FINANCIAL YEAR WAS FOUND ACCEPTABLE. THE SUPREME COURT IN THE LIGHT OF THE THREE LEADING DECISIONS O N THE SUBJECT CIT V. SHOORJI VALLABHDAS & CO.'S CASE, (1962) 46 ITR 144, MORVI INDUSTRIES LTD.'S CASE (1971) 82 ITR 835 (SC) AND CIT V. BIRLA GWALIOR PVT. LTD. (1973) 89 ITR 266 FOUND THAT THE HYPOTHETICAL INCOM E, EVEN IF 19 CREDITED AS INCOME IN THE BOOKS MAY NOT BE TAXABLE IN VIEW OF THE THEORY OF REAL INCOME. 5.2.5 IN THE CASE OF THE APPELLANT AS IS APPARENT, FROM THE VERY NATURE OF THE TRANSACTIONS, NO REAL INCOME HAS ACCR UED ON THE ACCOUNT OF MERELY TRANSFERRING THE STOCK-IN-TRADE A T AN INFLATED VALUE TO JOINT VENTURE ETC. AS SUCH, I HAVE TO CONCUR WI TH MY LEARNED PREDECESSOR CIT(A)-V, MUMBAI AS FOR HIS DECISION IN THE APPELLATE ORDER DATED 03-02-2000 AND AS SUCH THE ADDITION MAD E BY THE AO ON THIS ACCOUNT IS DIRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 21. BEFORE US, LD.D.R. SUBMITTED THAT IN THE ORIGINAL RETURN O F INCOME THAT WAS FILED BY THE ASSESSEE ON 30.11.1996, NO C LAIM OF DEDUCTION OF UNREALISED GAINS WAS MADE BY THE ASSESSEE. EVEN IN THE FIRST REVISED RETURN FILED ON 31.07.1997, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR THE DEDUCTION OF UNREALIZED GAINS. THE REAFTER, IN THE SECOND REVISED RETURN FILED ON 16.02.1999, ASSESSEE FOR THE 1 ST TIME MADE A CLAIM FOR DEDUCTION OF UNREALIZED GAINS. SHE SUBMITTED THAT THE 2 ND REVISED RETURN WHO FILED ON 16.02.1999 BEING THE DATE ON WHICH THE ASSESSMENT ORDER FOR A.Y. 1996-97 WAS PASSED BY THE AO. SHE SUBMITTED THAT SINCE THE REVISE D RETURN OF INCOME FILED BY THE ASSESSEE WAS A NON-EST RETURN, THE CLAIM OF THE ASSESSEE CANNOT BE CONSIDERED. SHE FURTHER SUBMITTED T HAT WHILE DECIDING THE ISSUE IN A.Y. 1995-96 THAT THE CO-ORDINATE B ENCH OF THE TRIBUNAL HAS HELD THAT ONCE THE ISSUE HAS REACHED FINALITY IN THE ORIGINAL ASSESSMENT, THE ASSESSEE CANNOT REAGITATE THE IS SUE. SHE FURTHER SUBMITTED THAT ON THE MERITS, THE ASSESSEE D ID NOT PRESS THE CLAIM IN A.Y. 1995-96. SHE THEREFORE SUBMITTED THAT LD .CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM OF UNREALIZE D GAINS. SHE THUS SUPPORTED THE ORDER OF AO. 20 22. WE HAVE HEARD THE LD.D.R AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPE CT TO THE CLAIM OF DEDUCTION OF THE UNREALIZED GAINS AGGREGATING TO RS.7,91,64,864/- MADE BY THE ASSESSEE FOR THE FIRST TIME IN THE SECOND REVISED RETURN. IT IS AN UNDISPUTED FACT THAT ASSESSEE FILED IT S ORIGINAL RETURN OF INCOME FOR A.Y. 1996-97 ON 30.06.1996 DECLA RING LOSS OF RS.1,10,87,540/-. THEREAFTER ASSESSEE REVISED THE R ETURN OF INCOME ON 31.07.1997 WHEREIN THE LOSS WAS REVISED TO RS.1,10,23,022/-. IN BOTH THESE RETURNS OF INCOME FILED, ASSE SSEE DID NOT MAKE THE CLAIM OF THE DEDUCTION OF THE UNREALIZED P ROFITS. ASSESSEE THEREAFTER FILED A 2 ND RETURN OF INCOME ON 16.02.1999 WHEREIN THE CLAIM OF THE UNREALIZED PROFITS WAS MADE FOR THE FIRST TIME. HERE IT WOULD BE RELEVANT TO NOTE THAT THE 2 ND REVISED RETURN WAS FILED ON 16.02.1999, BEING THE SAME DATE ON WHICH AO P ASSED ORDER U/S 143(3) OF THE ACT. AO HAS NOTED THAT 2 ND REVISED RETURN FILED BY THE ASSESSEE ON 16.02.1999 WAS AN INVALID RETURN A S IT WAS FILED BEYOND THE TIME PRESCRIBED U/S 139(4) OF THE ACT. IT IS AN UNDISPUTED FACT THAT U/S 139(5) OF THE ACT, A REVISED RETU RN OF INCOME CAN BE FILED WHEN A PERSON DISCOVERS ANY OMISSION O R ANY WRONG STATEMENT THEREIN. THUS THE PREREQUISITE CONDITIO N FOR REVISING A RETURN OF INCOME U/S 139(5) OF THE ACT IS DISCO VERY OF OMISSION OR ANY WRONG STATEMENT IN THE RETURN OF INCOME FURNISHED IN PURSUANCE OF A NOTICE U/S 139(1) OF THE ACT OR IN PURS UANCE OF NOTICE UNDER SUB-SECTION (1) OF SEC.142 OF THE ACT. WE FIND THAT HONBLE ALLAHABAD HIGH COURT IN THE CASE OF AMJAD ALI NAZ AR ALI VS. CIT (1977) 110 ITR 419 HAS OBSERVED THAT THE USE O F THE WORD DISCOVERS IN SEC.139(5) CANNOTES DISCOVERY OF SOME OMI SSION OR 21 WRONG STATEMENT IN THE RETURN, OF WHICH THE ASSESSEE WA S NOT AWARE AT THE TIME OF FILING OF THE ORIGINAL RETURN OF INCOME. IT FURTH ER OBSERVED THAT IT CANNOT COVERS A CASE WHERE THE OMISS ION OR WRONG STATEMENT CONTAINED IN THE FIRST RETURN WAS DELIBERATE. I N CASES WHERE AN ASSESSEE HAS DELIBERATELY OMITTED PARTICULARS O F HIS INCOME OR MADE WRONG STATEMENT IN THE RETURN OF INCOME, THE REVISED RETURN FILED BY HIM WOULD BE OUTSIDE THE PALE OF SE C.139(5) OF THE ACT AND IT WOULD NOT BE A REVISED RETURN AS CONT EMPLATED BY THE ACT. BEFORE US, NO MATERIAL HAS BEEN PLACED BY THE ASSESSEE TO DEMONSTRATE THAT ASSESSEE WAS NOT AWARE ABOUT NOT C LAIMING THE DEDUCTION OF UNREALIZED GAIN IN THE ORIGINAL RETURN OF INCOM E OR WHILE FILING THE RETURN OF INCOME IN THE 1 ST REVISED RETURN OF INCOME AND THAT HE BECAME AWARE ABOUT IT ONLY AT THE TIME OF FILING OF 2 ND REVISED RETURN OF INCOME. FURTHER, THE FINDING OF AO THAT THE RETURN FILED BY THE ASSESSEE WAS AN INVALID RETURN HAS NOT BEEN CONTROVERTED BY ASSESSEE. CONSIDERING THE TOTALITY OF AFO RESAID FACTS AND IN THE LIGHT OF THE AFORESAID DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF AMJAD ALI NAZIR ALI (SUPRA), WE ARE OF T HE VIEW THAT LD.CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO GRAN T DEDUCTION OF UNREALIZED PROFIT. WE THUS SET ASIDE THE ORD ER OF LD.CIT(A) AND UPHOLD THE ORDER OF AO. THUS THE GROUND OF REVENUE IS ALLOWED. 23. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED. 24. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.1027/PU N/2004 FOR A.Y. 1998-99. 22 25. GROUND NOS. 1 AND 2 ARE INTER CONNECTED AND ARE WIT H RESPECT TO ALLOWING THE ISSUE OF EXPENDITURE OF RS.63.83 LAKHS ON ACC OUNT OF BOND AND DEBENTURE ISSUE EXPENSES. 26. AO NOTED THAT ASSESSEE HAS CLAIMED EXPENDITURE OF RS.63,83,664/- ON ACCOUNT OF ISSUE OF CLAIM OF SECURED RED EEMABLE NON CONVERTIBLE BONDS. HE NOTED THAT SIMILAR ISSUE AROSE IN A.Y. 1997-98. HE WAS OF THE VIEW THAT THE EXPENSES WERE INC URRED FOR RAISING ADDITIONAL SOURCE OF FINANCE AND THEREFORE THE EXPEN SES WAS OF CAPITAL IN NATURE AND THEREFORE RELYING ON THE DECISION OF THE HONBLE APEX COURT IN BROOKE BOND (INDIA) LTD., REPORTED IN 225 ITR 798 (SC) DENIED THE CLAIM OF EXPENSES. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A) WHO DE CIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER : AS SUCH, AFTER CONSIDERING THE SUBMISSION OF THE AP PELLANT AND THE FACTS OF THE CASE, THE CLAIM OF THE APPELLA NT IS ALLOWABLE IN PRINCIPLE AS THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF BROOKE BOND (INDIA) LTD. IS WI TH REGARD TO THE SHARE ISSUE EXPENSES AND NOT BOND ISSUE EXPENSE S. THE APPELLANT HAS ALSO SUBMITTED THE DETAILS OF THE PAY MENTS FOR VARIOUS PROJECTS WHICH HAVE BEEN FUNDED THROUGH THE RECEIPTS OF THE BONDS. CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSION OF THE APPELLANT, THE ISSUE IS DECIDED I N FAVOUR OF THE APPELLANT. GROUND NO. 7 IS DECIDED IN FAVOUR OF THE APPELLANT. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 27. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. SHE FUR THER SUBMITTED THAT ON IDENTICAL FACTS IN A.Y. 1997-98, THE LD.CI T(A), BY 23 RELYING ON THE DECISION OF APEX COURT IN THE CASE OF MAD RAS INDUSTRIAL INVESTMENT CORPORATION REPORTED IN 225 ITR 8 02 HAS HELD THAT BOND ISSUE EXPENSES HAVE TO BE TREATED AS DEFERR ED REVENUE EXPENSES AND ONLY 1/5 TH OF EXPENSES BE ALLOWED. SHE SUBMITTED THAT LD.CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF HIS PREDE CESSOR FOR A.Y. 1997-98. SHE THUS SUPPORTED THE ORDER OF AO. 28. WE HAVE HEARD THE LD.D.R AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO ALLOWABILITY OF CLAIM OF BOND AND DEBENTURE ISSUE EXPENSES. AO HAD DISALLOWED THE CLAIM OF BOND AND DEBENTURE ISSUE EXPEN SES AS HE WAS OF THE VIEW THAT THE EXPENSES WERE OF CAPITAL IN N ATURE AND IN SUPPORT OF HIS VIEW, HE PLACED RELIANCE ON THE DECISION IN THE CASE OF BROOKE BOND (INDIA) LTD., (SUPRA). WE FIND THAT LD.CIT (A) WHILE ALLOWING THE CLAIM OF BOND AND DEBENTURE ISSUE EXPENS ES HAS HELD THAT THE DECISION IN THE CASE OF BROOKE BOND (SUPRA) WAS WITH RESPECT TO SHARE ISSUE EXPENSES AND NOT WITH BOND ISS UE EXPENSES AND THEREFORE NOT APPLICABLE TO THE FACTS IN THE CASE OF A SSESSEE. BEFORE US LD.D.R. HAS PLACED RELIANCE ON THE DECISION OF SUP REME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORP ORATION LTD., VS. CIT REPORTED IN 225 ITR 802 (SC). WE FIND THAT FAC TS IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT (SUPRA) ARE DIFFERENT AND ARE NOT APPLICABLE TO THE FACTS OF THE CASE FOR THE YEAR UND ER CONSIDERATION. IN THE CASE OF MADRAS INDUSTRIAL INVESTME NT (SUPRA) THE ISSUE WAS WITH RESPECT TO THE CLAIM OF DEDUCTION OF DIS COUNT OF DEBENTURES ISSUED BY THE ASSESSEE. ON THE OTHER HAN D, WE FIND THAT THE HONBLE RAJASTHAN HIGH COURT RECENTLY IN THE CASE OF CIT VS. 24 MODERN THREADS (2018) 400 ITR 381, HAS HELD THE EXPENDI TURE ON ISSUE OF DEBENTURES IS DEDUCTIBLE, IRRESPECTIVE THE NATURE OF DEBENTURES. SIMILAR VIEW HAS ALSO BEEN TAKEN BY HONBLE G UJARAT HIGH CURT IN THE CASE OF CIT VS. OFFICE OF OFFICIAL LIQUIDATOR (200 9) 316 ITR 181 (GUJ). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS, THE GROUNDS OF REVENUE ARE DISMISSED. 29. GROUND NOS.3 AND 4 ARE INTER-CONNECTED AND ARE WITH RESPECT TO ALLOWABILITY OF PRELIMINARY EXPENSES OF RS.1,78,432/- U/S 35D OF THE ACT. 30. AO NOTED THAT ASSESSEE HAD CLAIMED PRELIMINARY EXPEN SES OF RS.1,78,432/- U/S 35(D) OF THE ACT. HE NOTED THAT SIMILAR ISSUE AROSE IN A.Y. 1997-98 AND THE EXPENDITURE WAS DISALLOWED BY THE AO AND THE MATTER WAS CONTESTED IN APPEAL. HE THERE FORE FOLLOWING THE ORDER OF HIS PREDECESSOR, DISALLOWED THE CLAIM OF THE A SSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOL DING AS UNDER : 4. GROUND NO. 5 TAKEN BY THE APPELLANT IS AGAINST DISALLOWANCE OF PRELIMINARY EXPENSES OF RS.1,78,432/- U/S. 35D OF THE I.T ACT, 1961. THE A.O. HAS DECIDED THIS ISSUE AGAINST THE A PPELLANT ON THE BASIS OF PAST RECORDS. THE SUBMISSION OF THE APPELL ANT DATED 16.07.2003 REVEALS THAT THIS IS THE SIXTH YEAR OF D EDUCTION CLAIMED BY THE APPELLANT FOR PRELIMINARY EXPENSES ON THE EQ UITY ISSUE RAISED IN A.Y.1993-94. AS SUCH, IN SUCH A SITUATION, THE D ECISION TAKEN BY THE A.O. CANNOT BE UPHELD. GROUND NO. 5 IS DECIDED IN FAVOUR OF THE APPELLANT. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 25 31. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. 32. WE HAVE HEARD THE LD.D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD.CIT(A) WHILE DECIDING THE ISSUE HAS GIVEN A FINDING THAT THE EQUITY ISSUE WAS RAISED IN A.Y. 1993-94 AND THIS WAS THE 6 TH YEAR OF DEDUCTION CLAIMED BY THE ASSESSEE AND THEREFORE THE DISALLOWANCE CANNOT BE UPHELD. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO POINT OUT ANY FALLACY IN THE FINDINGS OF LD.CIT(A) AND THUS, THE GROUNDS OF REVENUE ARE DISMISSED. 33. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1027/PUN/2004 IS DISMISSED. 34. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.351/PUN/2 007 FOR A.Y. 1996-97. 35. ASSESSEE HAD FILED RETURN OF INCOME FOR A.Y. 1996-97 ON 30.11.1996 DECLARING LOSS OF RS. 1,10,87,540/-. SUBSEQUENTLY , ASSESSEE FILED REVISED RETURN ON 31.07.1997 REVISING THE LOS S AT RS. 1,10,23,022/-. THEREAFTER, ASSESSMENT WAS FRAMED U/S 143(3 ) OF THE ACT VIDE ORDER DT.16.02.1999 AND THE TOTAL INCOME WAS DETERMINED AT RS.6,98,88,900/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO ALLOWED S OME OF THE GROUNDS, REJECTED SOME GROUNDS AND SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO RE-DECIDE THE ISSUE ON CE RTAIN GROUNDS. THEREAFTER, ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 250 OF THE ACT VIDE ORDER DT.27.03.2002 AND THE TOTAL TAXABLE INCOME WA S 26 COMPUTED AT RS.6,89,50,462/- BY MAKING VARIOUS DISALLOWANC ES. ON THE DISALLOWANCES MADE, AO VIDE ORDER DT.31.03.2005 LEVIED PENALTY OF RS.7,25,34,996/- U/S 271(1)(C) OF THE ACT. AGGR IEVED BY THE PENALTY ORDER OF AO ASSESSEE CARRIED THE MATTER BE FORE LD.CIT(A). LD.CIT(A) VIDE ORDER DT.22.12.2006 (IN APPEAL NO.PN/CIT(A)-I/DC. CIR.1(1),PN/43/05-06) ON SOME OF THE ADD ITIONS MADE BY AO UPHELD THE LEVY OF PENALTY AND ON SOME OF THE ADDITIONS / DISALLOWANCES DELETED THE PENALTY. ON THE ISSUE OF PENA LTY ON DENIAL OF DEDUCTION OF UNREALIZED PROFIT OF RS.7.91 CRORES (ROUN DED OFF), LD.CIT(A) DELETED THE PENALTY BY HOLDING AS UNDER : 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE MATERIALS ON RECORD. THE CIT(A)-1, PUNE IN THE APPELLATE ORDER DATED 16.01.2004 AFTER PLACING RELI ANCE ON VARIOUS JUDICIAL PRONOUNCEMENTS HAS DELETED THE ADDITION OF RS.7,91,64,864/-. THE CONCLUSION OF THE CIT(A) IS C ONTAINED AT PARA 5.2.5 OF THE APPELLATE ORDER AND THE SAME IS REPROD UCED AS UNDER : IN THE CASE OF THE APPELLANT AS IS APPARENT, FROM THE VERY NATURE OF TRANSACTION, NO REAL INCOME HAS ACCR UED ON THE ACCOUNT OF MERELY TRANSFERRING THE STOCK-IN- TRADE AT AN INFLATED VALUE TO JOINT VENTURE ETC. AS SUCH, I HAVE TO CONCUR WITH MY LEARNED PREDECESSOR CIT(A)-V, MUMBAI AS FOR HIS DECISION IN THE APPELLATE ORDER D ATED 3-2-2000 AND AS SUCH THE ADDITION MADE BY THE A.O. ON THIS ACCOUNT IS DIRECTED TO BE DELETED. SINCE THE VERY BASIS OF PENALTY WHICH IS QUANTUM AD DITION STANDS DELETED BY CIT(A)-I, PUNE FOLLOWING JUDICIAL PRECEDENTS AS MENTIONED IN QUANTUM APPEAL, THE VERY BASIS OF P ENALTY DISAPPEARS. THUS, IT IS HELD THAT ONCE THE VERY FOU NDATION OF IMPOSITION OF PENALTY HAS BECOME NON EXISTENT, IMPO SITION OF PENALTY SHALL NOT BE JUSTIFIED AS HELD BY HON'BLE R AJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHISHPAL AS REPOR TED IN 255 ITR 187. ACCORDINGLY, CONCEALMENT PENALTY IN RESPEC T OF RS.7,91,64,864/- IS DIRECTED TO BE DELETED. 36. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN A PPEAL BEFORE US. 37. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. 27 38. WE HAVE HEARD THE LD.D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT VARIOUS DISALLOWANCES / ADDITIONS WER E MADE BY AO WHILE FRAMING THE ASSESSMENT. ON THE DISALLOWANCES / ADDITIONS MADE, AO LEVIED PENALTY U/S 271(1)(C) OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO UPHELD THE LEVY OF PENALTY ON MOST OF THE ADD ITIONS BUT DELETED THE PENALTY ON THE DENIAL OF DEDUCTION ON ACC OUNT OF UNREALIZED GAINS. ON THE ISSUES ON WHICH LD.CIT(A) HAS CON FIRMED THE LEVY OF PENALTY, ASSESSEE IS NOT IN APPEAL BEFORE US M EANING THEREBY THAT IT HAS ACCEPTED THE DECISION OF LEVY OF PENA LTY ON THOSE ISSUES. THEREFORE THE ONLY ISSUE THAT REMAINS BEFORE US IS THE DELETION OF PENALTY ON DENIAL OF DEDUCTION OF UNREALIZED GAINS. LD.CIT(A) DELETED THE PENALTY BECAUSE THE ADDITION ON WHIC H THE PENALTY WAS LEVIED, HAD BEEN DELETED BY LD.CIT(A) AND AGAINS T WHICH REVENUE IS AGGRIEVED. WHILE DECIDING THE ISSUE OF DENIA L OF DEDUCTION ON UNREALIZED GAINS IN REVENUES APPEAL HEREINAB OVE, WE HAVE UPHELD THE ORDER OF AO AND SET ASIDE THE RELIEF GRAN TED BY LD.CIT(A). SINCE THE QUANTUM RELIEF GRANTED BY LD.CIT(A) HAS BEEN SET ASIDE, THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT BY A O IS THEREFORE UPHELD MORE SO BECAUSE THE REASON FOR DELETIN G THE PENALTY BY LD.CIT(A) WAS ON ACCOUNT OF RELIEF GRANTED WITH R ESPECT TO UNREALIZED GAINS. THUS, THE GROUND OF REVENUE IS ALLOWED. 39. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO.351/PUN/2007 IS ALLOWED. 40. IN NUTSHELL, THE APPEAL OF ASSESSEE IN ITA NO.722/PUN/2004 IS DISMISSED. THE APPEALS OF REVE NUE IN ITA 28 NO.624/PUN/2004 AND ITA NO.351/PUN/2007 ARE ALLOWE D AND THE APPEAL OF REVENUE IN ITA NOS.1027/PUN/2004 IS D ISMISSED. ORDER PRONOUNCED ON 28 TH DAY OF FEBRUARY, 2018. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ' / JUDICIAL MEMBER #' / ACCOUNTANT MEMBER PUNE; DATED : 28 TH FEBRUARY, 2018. YAMINI $%&'()(& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-1, PUNE. CIT-I, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $+,-/ GUARD FILE. / BY ORDER // TRUE COPY // // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.