DCIT CC 35, MUMBAI V. ALOK INDUSTIRES LTD, MUMBAI

ITA 6266/MUM/2010

• Counselvise Citation: 626619914 RSA 2010
• Duration Of Justice: 3 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 02-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAN R VORA NIKHIL TIWARI; ANKIT KOCHAR
• Assessee Lawyers: K C PATNAIK
• Keywords: Earning of tax free income; Source of fund; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A; 80IB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 6575/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. ALOK INDUSTRIES LTD. VS. ACIT, CENTRAL CIRCLE 35 PENINSULA TOWERS, PENINUSLA AAYAKAR BHAVAN, M.K. R OAD CORPORATE PARK, G.K. MARG MUMBAI 400020 LOWER PAREL, MUMBAI 400013 PAN AAACA0201C APPELLANT RESPONDENT ITA NO. 6266/MUM/2010 (ASSESSMENT YEAR: 2006-07) ACIT, CENTRAL CIRCLE 35 VS. M/S. ALOK INDUSTRIES LTD. AAYAKAR BHAVAN, M.K. ROAD PENINSULA TOWERS, PENINUS LA MUMBAI 400020 CORPORATE PARK, G.K. MARG LOWER PAREL, MUMBAI 400013 PAN AAACA0201C APPELLANT RESPONDENT APPELLANT BY: SHRI RAJAN R. VORA, NIKHIL TIWARI & ANKIT KOCHAR RESPONDENT BY: SHRI K.C. PATNAIK DATE OF HEARING: 02.09.2013 DATE OF PRONOUNCEMENT: 17.09.2013 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE A GAINST THE ORDER OF THE CIT(A) 41, MUMBAI DATED 25.06.2010. 2. REVENUE HAS RAISED TWO GROUNDS ON THE ISSUE OF PRIO R PERIOD EXPENSES ALLOWED BY THE LEARNED CIT(A) WHEREAS THE ASSESSEE HAS RAISED 12 GROUNDS ON VARIOUS ISSUES AND IN THE COURSE OF APPELLATE PR OCEEDINGS FILED ADDITIONAL GROUNDS VIDE LETTER DATED 16.08.2013 ON THREE ISSUE S, WHICH DOES NOT REQUIRE ANY FACTUAL EXAMINATION. AFTER CONSIDERING THE SAME AND DISCUSSION WITH THE LEARNED D.R. THE ADDITIONAL GROUNDS ARE AD MITTED. ALL THE GROUNDS ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 2 ARE CONSIDERED AND DECIDED, AFTER HEARING THE LEARN ED COUNSEL WHO PLACED ON RECORD PAPER BOOKS IN TWO VOLUMES AND ALSO A FACT S HEET INDICATING VARIOUS ISSUES AND LD DR IN DETAIL. ITA NO. 6576/MUM/2010 3. GROUNDS NO. 1 TO 4 PERTAINS TO TAXING INTEREST INCO ME EARNED DURING THE CONSTRUCTION PERIOD AS INCOME FROM OTHER SOURCE S. THE ASSESSEE HAS UNDERTAKEN VARIOUS PROJECTS FOR EXPANSION OF ITS EX ISTING BUSINESS. FOR THIS PURPOSE THE ASSESSEE HAS AVAILED LOANS FROM BANKS A ND OTHER BORROWINGS IN THE FORM OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCC BS). THE INTEREST ON THESE BORROWINGS HAD BEEN CAPITALISED TOWARDS COST OF PROJECT UNDER EDCP ACCOUNT (EXPENDITURE DURING CONSTRUCTION PERIOD). A FTER THE LOANS/ BORROWINGS WERE AVAILED, THE FUNDS WERE KEPT IN FIX ED DEPOSIT ACCOUNT IN THE BANK FOR SHORT PERIOD OF TIME TILL THEY WERE TO BE UTILIZED. THE INTEREST INCOME THEREFROM WAS ADJUSTED AGAINST THE INTEREST EXPENSE S WHICH WERE TO BE CAPITALIZED, AS THERE WAS A DIRECT NEXUS BETWEEN TH E INCOME AND EXPENSES. INTEREST WAS ALSO EARNED ON FDS KEPT AS MARGIN MON EY WITH BANKS TO AVAIL GUARANTEES, ETC. BREAKUP OF INTEREST INCOME WHICH W AS CAPITALISED UNDER EDCP ACCOUNT IS AS UNDER: - SOURCE OF FUNDS NATURE OF FIXED DEPOSITS INTEREST I NCOME LOAN FROM BANKS TEMPORARY, OUT OF FUNDS NOT REQUIRED IMMEDIATELY 8.98 LOAN FROM BANKS OUT OF FUNDS KEPT AS MARGIN MONEY 5.52 PROCEEDS FROM FCCBS TEMPORARY, OUT OF FUNDS NOT REQUIRED IMMEDIATELY 6.58 TOTAL 21.08 THE ASSESSEE ALSO EARNED OTHER INCOME OF ` 11.45 CRORES ON DEPOSITS WHERE BORROWED FUNDS ARE USED FOR EXISTING BUSINESS AND S UCH INTEREST INCOME IS OFFERED TO TAX ON WHICH THERE IS NO DISPUTE. THE AO HELD THAT AS THERE WAS EXPANSION OF BUSINESS, THE INTEREST INCOME ON SURPL US FUNDS PARKED WOULD BE TAXED AS INCOME RELYING ON HON'BLE SUPREME COURT DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. 227 ITR 172 AND CANNOT BE CAPITALIZED. THE LEARNED CIT(A) UPHELD THE ORDER OF THE AO AND REJECTED THE ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 3 CONTENTION OF THE ASSESSEE OF DIRECT NEXUS BETWEEN INTEREST EARNED AND INTEREST EXPENDED. THE CIT(A) HELD THAT INCOME WAS ASSESSABLE AS INCOME FROM OTHER SOURCES AS REVENUE RECEIPTS AND CANNOT B E REDUCED FROM INTEREST EXPENSES DURING CONSTRUCTION PERIOD. 4. IT WAS THE SUBMISSION THAT THERE IS A DIRECT NEXUS BETWEEN INTEREST INCOME AND INTEREST EXPENSES SO CAPITALISED. THE LE ARNED COUNSEL EXPLAINED THAT THE FIXED DEPOSITS ARE KEPT OUT OF THE BORROWE D FUNDS OR FOR THE PURPOSE OF IMPORT OF MACHINERY AND THE THIRD ITEM PERTAINS TO EDCP ACCOUNT. IT WAS ALSO SUBMITTED THAT EXTERNAL COMMERCIAL BORROWINGS MADE BY THE ASSESSEE CAN ONLY BE UTILISED FOR CAPITAL EXPENDITURE. IT WA S HIS SUBMISSION THAT THERE IS A CLEAR NEXUS WITH THE INTEREST EXPENSES DURING THE CONSTRUCTION PERIOD, SO THERE IS NO NECESSITY TO TAX THE AMOUNT AS INCOM E FROM OTHER SOURCES WITHOUT NETTING AGAINST INTEREST EXPENSES. THE LEAR NED COUNSEL PLACED ON RECORD COPIES OF THE ORDERS IN THE FOLLOWING CASES IN SUPPORT OF HIS CONTENTIONS: - I) CIT VS. JHUNJHUNWALA VANSAPATI LTD. 11DTR 21 (ALL) II) INDIAN OIL PANIPAT POWER CONSTRUCTION LTD. VS. ITO 315 ITR 255 (DEL) III) CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD. 243 IT R 2 (SC) IV) LG ELECTRONICS INDIA (P) LTD. 309 ITR 265 (DEL) V) CIT VS. LOK HOLDING 308 ITR 356 (BOM) THE LEARNED COUNSEL ALSO DISTINGUISHED THE DECISION OF THE HON'BLE MADRAS HIGH COURT RELIED UPON BY THE CIT(A) IN THE CASE OF SOUTH INDIA SHIPPING CORPORATION LTD. VS. CIT 240 ITR 24 STATING THAT T HEY ARE THE DEPOSITS OUT OF SURPLUS FUNDS AND DIRECT NEXUS WITH THE INTEREST EX PENSES WAS NOT INVOLVED. IN THE ALTERNATE THE LEARNED COUNSEL ALSO SUBMITTED THAT THE INTEREST CAN BE NETTED OFF AS HELD BY THE HON'BLE SUPREME COURT IN THE CONTEXT OF 80-HHC IN THE CASE OF ACG ASSOCIATED CAPSULES 343 ITR 89 SO T HAT ONLY NET AMOUNT CAN BE BROUGHT TO TAX AS INCOME. 5. THE LEARNED D.R., HOWEVER, IN REPLY, RELIED ON THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TUTICOR IN ALKALI CHEMICALS AND FERTILIZERS LTD.(SUPRA) AND ALSO IN THE CASE SOUTH INDIA SHIPPING CORPORATION ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 4 LTD. RELIED UPON BY THE LEARNED CIT(A). HE THEN REF ERRED TO THE FACTS AS TAKEN BY THE AO IN THE ORDER. 6. WE HAVE EXAMINED THE ISSUE. THERE IS NO DISPUTE WIT H REFERENCE TO ASSESSEE EARNING INTEREST INCOME BUT ADJUSTING THE SAME TOWARDS COST OF PROJECT. THE ISSUE OF HAVING DIRECT NEXUS WITH THE BORROWINGS HAS NOT BEEN EXAMINED BY THE AO AT ALL. IN CASE THE ASSESSEE HAS UTILISED THE BORROWED FUNDS FOR EARNING THE INCOME TO THAT EXTENT, THE IN TEREST HAS TO BE GIVEN SET OFF TO THE INTEREST PAID ON THE BORROWED FUNDS. IT WAS THE CONTENTIONS OF THE ASSESSEE THAT THERE IS A DIRECT NEXUS AND THESE FUN DS ARE NOT SURPLUS FUNDS SO AS TO CONSIDER AS INCOME FROM OTHER SOURCES. THI S ASPECT REQUIRES EXAMINATION BY THE AO AND IN CASE THERE IS DIRECT N EXUS WITH THE EARNING OF INTEREST INCOME WITH THAT OF THE BORROWALS, THEN ON LY NET INTEREST CAN BE BROUGHT TO TAX OR ADJUSTED IN THE CONSTRUCTION ACCO UNT. THEREFORE, WITHOUT GOING INTO THE VARIOUS CASE LAW RELIED UPON BY THE ASSESSEE, WE RESTORE THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE NEXUS AS PECT OF THE EARNING OF INTEREST INCOME ON BORROWED FUNDS, SPECIFICALLY BOR ROWED FOR THE PURPOSE OF PROJECT WHICH IS UNDER CONSTRUCTION AND DECIDE ACCO RDINGLY. THE ASSESSEE IS FREE TO RAISE THE CONTENTIONS RAISED BEFORE US AND THE AO IS DIRECTED TO EXAMINE THE FACTS AND LAW BEFORE DECIDING THE ISSUE . IN CASE THE AO CONSIDERS THAT THERE IS NO NEXUS AND INCOME FROM IN TEREST HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND ADJUSTMENT FOR HIG HER CAPITALISATION AS REQUESTED BY THE ASSESSEE WITHOUT PREJUDICE TO THE ABOVE THE CONTENTIONS, IS ALSO TO BE EXAMINED. WITH THESE DIRECTIONS, THE ISS UE IN GROUNDS NO. 1 TO 4 ARE RESTORED TO THE FILE OF THE AO FOR EXAMINATION OF FACTS AND NECESSARY CONSIDERATION. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSE. 7. GROUND NO. 5 PERTAINS TO DISALLOWANCE OF LEAVE EN CASHMENT OF ` 1,03,25,488/-. DURING THE YEAR THE ASSESSEE MADE A PROVISION OF LEAVE ENCASHMENT ON ACTUARIAL BASIS WHICH WAS DISALLOWED BY THE AO AS A PROVISION. THE LEARNED CIT(A), RELYING ON SECTION 4 3B(F) OF THE ACT, CONFIRMED THE SAME. IT WAS THE SUBMISSION THAT THE CLAIM WAS MADE ON THE BASIS OF THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. 292 ITR 470 WHEREIN THE PROVISIONS OF 43B(F) W AS STRUCK DOWN. ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 5 HOWEVER, AT PRESENT THE SAID JUDGEMENT OF THE HON'B LE HIGH COURT WAS STAYED BY THE HON'BLE SUPREME COURT AND THE MATTER IS PENDING BEFORE THE HON'BLE SUPREME COURT. IT WAS SUBMITTED THAT THE MA TTER MAY BE RESTORED TO THE FILE OF THE AO FOR ADJUDICATION AS PER THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA). KEEPING IN VIEW OF THE PENDENCY OF THE MATTER BEFORE THE HON'BLE SUPREME C OURT, WE RESTORE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS AND WHEN THE DECISION OF THE HON'BLE SUPREME COURT IS RENDERED ON THIS IS SUE. GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSE. 8. GROUNDS NO. 6 TO 9 PERTAIN TO DISALLOWANCE OF EXPEN SES UNDER SECTION 14A. THE AO, INVOKING RULE 8D, MADE DISALLOWANCE OF ` 78,90,394/- UNDER SECTION 14A AS THE ASSESSEE HAD CLAIMED DIVIDEND IN COME OF ` 1,56,76,940/- AS EXEMPT FROM TAX. THE LEARNED CIT(A) CONFIRMED TH E SAME. IT WAS SUBMITTED THAT APPLICATION OF RULE 8D CAN NOT BE AP PLIED TO THE IMPUGNED ASSESSMENT YEAR AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 238 ITR 81 AND A REASO NABLE AMOUNT CAN BE DISALLOWED. ON THE FACTS, IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENTS IN EARLIER YEARS WHEREIN THERE IS NO SU CH DISALLOWANCE AND THE ONLY INVESTMENT MADE IN THE YEAR OF ` 17 CRORES WAS IN BONDS EARNING TAXABLE INCOME, THEREFORE, NO DISALLOWANCE OF INTEREST IS R EQUIRED ON FACTS. 9. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS PAS SED BY THE AUTHORITIES. 10. KEEPING IN VIEW THE PRINCIPLES LAID DOWN BY THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE ARE OF THE OPINION THAT RULE 8D IS NOT APPLICABLE TO THIS ASSE SSMENT YEAR. SINCE THE ASSESSEES ACTIVITIES ARE INTER-RELATED, ONE CANNOT RULE OUT CERTAIN EXPENDITURE BEING INCURRED ON EARNING EXEMPT INCOME . KEEPING IN VIEW THE COORDINATE BENCH DECISIONS IN THE CASE OF M/S. DARA SHAW & COMPANY P. LTD. IN ITA NO. 225/MUM/2011 DATED 12 TH JUNE, 2013 AND VIKABH SECURITIES P. LTD. IN ITA NO. 459/MUM/2011 DATED 31 ST JANUARY, 2013, WE CONSIDER AN AMOUNT OF 5% OF THE DIVIDEND EARNED, I. E. ` 7,83,850/- CAN BE CONSIDERED AS EXPENDITURE INCURRED FOR EARNING EXEM PT INCOME ON A ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 6 REASONABLE BASIS. ACCORDINGLY, THE DISALLOWANCE IS RESTRICTED TO AN AMOUNT OF ` 7,83,850/-. GROUND IS PARTLY ALLOWED. 11. GROUNDS NO. 10 & 11PERTAIN TO DISALLOWANCE OF BAD D EBT. THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF ` 1,36,74,180/- AS BAD DEBTS IN THE BOOKS OF ACCOUNT. THE DETAILS OF THE AMOUNT ARE AS UNDER: - SL. NO. PARTICULARS AMOUNT ( ` `` ` ) 1 ACCOUNTED EARLIER AS MARGIN MONEY RECEIVABLE FROM BANK, NOW WRITTEN OFF 1,27,22,597 2 WRITTEN OFF ON ACCOUNT OF TAX U/S 193 PAID BY THE ASSESSEE DURING F.Y. 1999-2000 FROM INTEREST ON SECURITIES PAID TO THE BANK BUT THE AMOUNT WAS NOT RECEIVED FROM THE BANK 7,58,221 3 DEPOSITS GIVEN TO LANDLORD WHILE TAKING FLATS ON LEAVE AND LICENCE WRITTEN OFF 1,50,000 4 ADVANCE TO EMPLOYEES WRITTEN OFF 43,362 TOTAL 1,36,74,180 THE AO DISALLOWED THE AMOUNT ON THE REASON THAT THE AMOUNT WAS NOT SATISFYING THE CONDITIONS PRESCRIBED UNDER SECTION 36(2) OF THE ACT. LEARNED CIT(A) CONFIRMED THE SAME, EVENTHOUGH THE ASSESSEE MADE AN ALTERNATIVE CLAIM FOR BUSINESS LOSS. IT WAS SUBMITTED THAT THE MAJOR AMOUNT WRITTEN OFF PERTAINS TO AN ARRANGEMENT WITH BANKS WHERE ITS CRE DITORS WOULD GET MONEY FROM BANKS ON DUE DATES. THE BANK PAID NET AMOUNT, AFTER DEDUCTING DISCOUNTING CHARGES AND MARGIN MONEY, TO CREDITORS. THE ASSESSEE PAID THE BALANCE AMOUNT, I.E. DISCOUNTING CHARGES AND MARGIN MONEY DEDUCTED BY BANKS TO CREDITORS SEPARATELY. THIS AMOUNT IS SHOWN AS RECOVERED FROM THE BANKS. HOWEVER, AT THE END OF THE CREDIT PERIOD FUL L PAYMENT WAS MADE TO BANK BY THE ASSESSEE WHEREBY THE BANK RELEASED THE MARGIN MONEY ALSO AND PAID TO CREDITORS. THUS CREDITORS RECEIVED MONEY TW ICE ON ACCOUNT OF MARGIN MONEY. HOWEVER, THE ASSESSEE CONTINUED TO SHOW THE MARGIN MONEY RECEIVABLE FROM BANK IN ITS CURRENT ASSETS. THIS AN OMALY WAS NOTICED IN THE FINANCIAL YEAR 2005-06 AND THE ASSESSEE RECOVERED L ARGE AMOUNT FROM CREDITORS. THE BALANCE AMOUNT WHICH IS NOT RECOVERA BLE HAS BEEN WRITTEN OFF AND CLAIMED IN P&L ACCOUNT. IT WAS SUBMITTED THAT T HESE BAD DEBTS OTHERWISE IS ALSO ALLOWABLE AS LOSS INCIDENTAL TO B USINESS UNDER SECTION 28 ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 7 BY RELYING ON THE DECISION OF THE HON'BLE MADRAS HI GH COURT IN THE CASE OF DEVI FILMS VS. CIT 75 ITR 301. THE ASSESSEE ALSO RE LIED ON THE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF HARSAHD J . CHOKSI 349 ITR 250 TO SUBMIT THAT EVEN IF A DEDUCTION IS NOT ALLOWABLE AS BAD DEBT THE SAME CAN BE ALLOWED AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT IF THE SAME IS INCIDENTAL TO CARRYING ON THE BUSINESS. WITH REFERE NCE TO OTHER AMOUNTS IT IS SUBMITTED THAT THESE ARE DEPOSITS MADE FOR THE PURP OSE OF TAKING FLATS ON LEAVE AND LICENCE BASIS ( ` 1,50,000/-), ADVANCE GIVEN TO EMPLOYEES WHICH COULD NOT BE RECOVERED ( ` 43,362/-) AND AN AMOUNT OF ` 7,58,221/- TOWARDS TDS PAYMENT OF INTEREST TO BANK. 12. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS OF THE AO TO SUBMIT THAT THESE AMOUNTS DO NOT SATISFY THE PRINCIPLES LA ID DOWN UNDER SECTION 36(2). THERE WERE NOT DETAILS ON RECORD TO ALLOW IT AS BUSINESS LOSS AND THE LIABILITY HAS TO BE EXAMINED. 13. WE HAVE CONSIDERED THE ISSUE. AS FAR AS THE AO IS C ONCERNED, HE DISALLOWED THE AMOUNT ON THE REASON THAT NO DETAILS WERE FURNISHED. THE LEARNED CIT(A) ALSO DID NOT EXAMINE THE CLAIM IN IT S CORRECT PERSPECTIVE AND EVEN THE ALTERNATIVE CLAIM WAS ALSO NOT CONSIDERED. THE AMOUNTS SATISFY THE CONDITIONS OF SECTION 36(2) AS THESE ARE TAKEN INTO THE BOOKS OF ACCOUNT. THESE ADVANCES/ RECEIVABLES ARE PART OF THE BUSINES S ACTIVITY OF THE ASSESSEE AND THERE IS NO DISPUTE WITH REFERENCE TO THE AMOUN TS BEING RECEIVABLE. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE OPINION OF THE LEARNED CIT(A) THAT THE AMOUNTS ARE NOT SATISFYING THE CONDITIONS OF SECTION 36(2). EVEN OTHERWISE THE AMOUNTS THAT ARE NOT RECOVERABLE CAN ALSO BE WRITTEN OFF AS LOSS INCIDENTAL TO BUSINESS, AS THESE AROSE IN THE COURSE OF ASSESSEES BUSINESS ACTIVITY. EXCEPT THE AMOUNT OF TDS, WHICH IS CLAIMED AS BAD DEBT, OTHER AMOUNTS, IN OUR VIEW, ARE ALLOWABLE AS BAD DE BT AND IN THE ALTERNATIVE ALSO AS BUSINESS LOSS. TO THE EXTENT OF CLAIM OF TD S, WE ARE UNABLE TO UNDERSTAND THE TRANSACTIONS AS NO DETAILS ARE PLACE D AND WHETHER THIS AMOUNT WAS NOT RECEIVED FROM THE BANK EITHER AS TDS CERTIFICATE OR AS AMOUNT IN CASH ETC. AS STATED EARLIER THE AO DID NO T EXAMINE THE ISSUE IN THE ABSENCE OF COMPLETE DETAILS BEFORE HIM. THEREFO RE, WE ARE OF THE OPINION ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 8 THAT THE AO CAN EXAMINE THE ISSUE OF RECOVERY OF TH E MARGIN MONEY FROM THE BANK AND ALSO OTHER AMOUNTS ON FACTUAL BASIS AND AL LOW AS BAD DEBT OR BUSINESS LOSS. FOR THE PURPOSE OF VERIFICATION INCL UDING THE CLAIM WRITTEN OFF AS TDS, THE ISSUES ARE RESTORED TO THE FILE OF THE AO TO EXAMINE THE FACTS FIRST AND THEN DECIDE ACCORDING TO LAW. THE MATTER IS RES TORED TO THE FILE OF THE AO. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY AND IS FREE TO RAISE ALL THE CONTENTIONS PLACED BEFORE US, IF NECESSARY. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSE. 14. GROUNDS NO. 12 & 13 PERTAINS TO DENIAL OF DEDUCTION UNDER SECTION 80IB ON TUF SUBSIDY RECEIVED OF ` 4.93 CRORES. THE ASSESSEE HAS RECEIVED THE AMOUNT AS PART OF TECHNOLOGY UP-GRADATION FUND SCHE ME OF MINISTRY OF TEXTILES WHEREIN THE LENDING AGENCY REIMBURSED 5% I NTEREST COST TO THE BORROWER UPON SATISFACTION OF CERTAIN CONDITIONS. T HE ASSESSEE STATED TO HAVE RECEIVED AN AMOUNT OF ` 45 CRORES AS TOTAL SUBSIDY OUT OF THE TOTAL INTERES T PAID OF ` 115.55 CRORES. OUT OF THE TOTAL SUBSIDY, AMOUNT OF ` 4,93 CRORES WAS CREDITED TO THE P & L ACCOUNT OF UNITS WHICH ARE EL IGIBLE FOR DEDUCTION UNDER SECTION 80IB. THE AO EXCLUDED THE SUBSIDY ON THE GR OUND THAT IT WAS INCENTIVE PROFIT RECEIVED FROM GOVERNMENT OF INDIA, HENCE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THE LEARNED CIT(A) UP HELD THE ACTION OF THE AO. 15. IT WAS SUBMITTED THAT THE SUBSIDY RECEIVED UNDER TU F SCHEME IS REIMBURSEMENT OF INTEREST EXPENDITURE INCURRED BY T HE ASSESSEE AND ONLY NET INTEREST AFTER REDUCING THE SUBSIDY HAD BEEN DE BITED TO THE P & L ACCOUNT. IT WAS SUBMITTED THAT THE SUBSIDY WAS NOT REIMBURSEMENT OF COST INCURRED BY THE ASSESSEE. LD.COUNSEL HAS PLACED REL IANCE UPON THE DECISION OF THE MUMBAI ITAT IN THE CASE OF TOTAL PACKAGING S ERVICES IN ITA NO. 5364/MUM/2009 AND THE DIAMONDS TOOL INDUSTRIES IN I TA NO. 2080/MUM/2011 FOLLOWING THE DECISION OF THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. MEHALAYA STEELS LTD. 55 DTR 27. HE ALSO RELIED UPON THE COORDINATE BENCH DECISION IN THE CASE OF JYOTI CERAMIC INDUSTRIES P. LTD. IN ITA NO. 7080/MUM/1998 WHEREIN IT WAS HELD T HAT REIMBURSEMENT OF ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 9 COST BY WAY OF GRANT/SUBSIDY IS ELIGIBLE FOR DEDUCT ION UNDER SECTION 80I AND THE SAME GOES TO REDUCE THE INTEREST EXPENDITURE IN CURRED. 16. THE LEARNED D.R., HOWEVER, RELIED ON THE DECISION O F THE HON'BLE HIGH COURT IN THE CASE OF LIBERTY INDIA TO SUBMIT THAT T HE WORD USED IN 80IB IS DERIVED THEREFORE, THERE SHOULD BE PRIMARY SOURCE OF INCOME AND GOVERNMENT INCENTIVES CANNOT BE AN ELIGIBLE PROFIT . 17. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS AS PLACED ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE C LAIM AND THE AMOUNT OF REIMBURSEMENT TO THE ASSESSEE. IT WAS STATED THAT T OTAL SUBSIDY WAS APPORTIONED TO THE ELIGIBLE UNITS. THE BASIS OF APP ORTIONMENT IS NOT PLACED ON RECORD NOR MENTIONED IN THE ORDER. THE NEXUS OF REIMBURSEMENT BY WAY OF SUBSIDY IS TO BE ESTABLISHED SO AS TO CONSIDER T HE CLAIM OF ASSESSEE THAT REIMBURSEMENT INFACT REDUCES THE INTEREST CLAIM. AS SEEN FROM THE RECORD HOW THE AMOUNTS ARE QUANTIFIED, WHETHER THE AMOUNT IS PART OF THE UNIT INTEREST COST CLAIMED EARLIER WERE NOT EXAMINED/ N OT ON RECORD. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES, WE DEE M IT PROPER TO SET ASIDE THIS PARTICULAR ISSUE TO THE FILE OF THE AO WITH TH E DIRECTION TO EXAMINE WHETHER THE REIMBURSEMENT OF INTEREST COST IS REIMB URSEMENT OF REVENUE EXPENDITURE DEBITED TO THE P & L ACCOUNT OF THAT EL IGIBLE UNIT TO THAT EXTENT EITHER IN THIS YEAR OR IN ANY EARLIER YEARS. IF IT IS SO THEN DUE TO REIMBURSEMENT THE EXPENDITURE INCURRED BY THE ASSES SEE IS REDUCED, TO THE EXTENT THE PROFIT OF THE INDUSTRIAL UNDERTAKING WIL L INCREASE. THEREFORE, TO EXAMINE THE INTEREST CLAIM OUT OF THE UNIT AND ITS REIMBURSEMENT BY WAY OF SUBSIDY, THE MATTER IS RESTORED TO THE FILE OF THE AO. HE IS DIRECTED TO KEEP IN MIND THE DECISION OF THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF MEHALAYA STEELS LTD. (SUPRA) AND ALLOW THE DEDUCTIO N UNDER SECTION I80IB ACCORDINGLY IF THE NEXUS IS ESTABLISHED. GROUNDS AR E ALLOWED FOR STATISTICAL PURPOSE. 18. GROUNDS NO. 14 & 15 ARE ADDITIONAL GROUNDS RAISED B Y THE ASSESSEE THAT THE AMOUNT RECEIVED UNDER TUF SCHEME IS CAPIT AL IN NATURE AND NOT CHARGEABLE TO TAX. THE FACTS OF THE TUF SCHEME WERE STATED BY THE AO IN THE ORDER AND ACCORDINGLY THERE IS NO DISPUTE WITH REFE RENCE TO APPLICABILITY OF ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 10 TUF SCHEME. THE ASSESSEE RECEIVED, AS PER ITS STATE MENT, AN AMOUNT OF ` 45 CRORES BUT IN THE GROUND IT IS STATED THAT THE AMOU NT OF SUBSIDY OF ` 4.93 CRORES IS CAPITAL IN NATURE. HOWEVER, THE GROUND IS WITH REFERENCE TO AMOUNT OF ` 4.93 CRORES WHICH IS TO BE CONSIDERED AS CAPITAL IN NATURE AS PER THE SUBMISSIONS OF THE ASSESSEE. SINCE THIS ISSUE WAS N OT EXAMINED BY THE AO AT ALL, WE ADMIT THE ADDITIONAL GROUND AND RESTORE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE CLAIM AFRESH KEEPING IN MIND THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT ON THE ISSUE OF SUBSID Y AND ALSO OTHER CASE LAWS. ALSO TO BE KEPT IN MIND THE ISSUE IN GROUNDS 12 AND 13 ABOVE WHERE ASSESSEE CLAIMED DEDUCTION U/S 80IB. GROUNDS RESTO RED TO THE FILE OF THE AO FOR EXAMINATION. 19. GROUND NO. 16 PERTAIN TO DISALLOWANCE UNDER SECTION 40(A)(IA) FOR SHORT DEDUCTION OF TAX. IT WAS SUBMITTED THAT THE A O DISALLOWED AN AMOUNT OF RS,.6,82,852/- ON ACCOUNT OF SHORT DEDUCTION UND ER SECTION 40(A)(IA) AND THE SAME WAS NOT CONTESTED BEFORE THE CIT(A). IT WA S SUBMITTED THAT RECENTLY, IN THE CASE OF DICT VS. CHANDABHOY & JASS OBHOY 49 SOT 448 (MUM) THE ITAT HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) DO NOT APPLY TO THE CASE OF LESSER DEDUCTION OF TAX, WHICH WAS FOLL OWED IN THE CASE OF HINDUSTAN UNILEVER INDIA LTD. 22 ITR (TRIB) 737. IT WAS THE SUBMISSION THAT SINCE THE DISALLOWANCE IS ONLY ON ACCOUNT OF SHORT DEDUCTION THE SAME SHOULD BE DELETED. THIS IS A LEGAL ISSUE, HENCE THE GROUND IS ADMITTED. BUT SINCE THE SAME WAS NOT RAISED BEFORE THE AO, WE RES TORE THE ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 20. GROUND NO. 17 RAISED BY THE ASSESSEE IS AN ADDITION AL GROUND PERTAINING TO DISALLOWANCE OF PRIOR PERIOD EXPENSES WHICH AS SUBJECT MATTER OF THE REVENUE APPEAL IN ITA NO. 6226/MUM/2010 . THE ASSESSEE IS A LISTED PUBLIC COMPANY. IT WAS SUBMITTED THAT THE ACCOUNTS THE ASSESSEE ARE FINALISED WITHIN FEW DAYS OF THE YEAR END AND MOST BILLS ARE NOT RECEIVED TILL THE FINALISATION AND HENCE PROVISION WAS MADE ON ES TIMATED BASIS. IN NEXT YEAR, ACTUAL INVOICES ARE BOOKED AGAINST PROVISION MADE AND ANY SHORTFALL WAS DEBITED TO P & L ACCOUNT. AS PER ANNEXURE TO TA X AUDIT REPORT, CERTAIN EXPENSES OF ` 13,71,417/- WERE SHOWN AS PRIOR PERIOD EXPENSES. TH E ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 11 ASSESSEE SUBMITTED THAT OUT OF THE TOTAL EXPENSES, ` 2,31,656/- PERTAINED TO CURRENT YEAR AND WERE INADVERTENTLY MENTIONED AS PR IOR PERIOD EXPENSES. THE AO DISALLOWED THE BALANCE EXPENSES OF ` 11,39,761/-. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE EXPENSES WERE INCUR RED FOR PURPOSES OF BUSINESS AND HENCE SHOULD BE ALLOWED. THE CIT(A) RE LYING ON THE DECISION IN THE CASE OF STERLITE INDUSTRIES (INDIA) LTD. VS ADD L. CIT 102 TTJ 53 (MUM) ALLOWED THE EXPENSES AS DEDUCTION. 21. LD DR SUBMITTED THAT THE PRIOR PERIOD EXPENSE CAN N OT BE ALLOWED AS EXPENCE OF THIS YEAR AND RELIED ON GROUNDS RAISED. LD. COUNSEL SUBMITTED THAT FOLLOWING VARIOUS PRINCIPLES ON THE ISSUE INCL UDING THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT & CHEMICALS INDUSTRIES LTD. VS. CIT 213 ITR 523, SHORTFALL IN E STIMATE SHOULD BE ALLOWED AS DEDUCTION SINCE IT HAS CRYSTALLISED DURING THE Y EAR. IN THE ALTERNATE IT SUBMITTED THAT EVEN PRIOR PERIOD EXPENSES IF NOT AL LOWED IN THIS YEAR, THE SAME SHOULD BE ALLOWED IN THE PREVIOUS YEAR, I.E. A .Y. 2005-06 FOR WHICH ADDITIONAL GROUND WAS RAISED AS AN ALTERNATE CLAIM. 22. WE HAVE CONSIDERED THE ISSUE. THE LEARNED CIT(A) EX AMINED THE ISSUE AND ALLOWED THE AMOUNT VIDE PARA 7.3 OF THE ORDER A S UNDER: - 7.3 I HAVE CONSIDERED THE REPLY OF THE APPELLANT A ND PERUSED THE ASSESSMENT ORDER. THE HON'BLE ITAT IN THE CASE OF S TERLITE INDUSTRIES (INDIA) LTD. VS. ACIT 102 TTJ 53 HAVE HELD THAT THE ASSESSEE HAVING RECEIVED BILLS/ VOUCHERS FOR SOME PRIOR PERIOD EXPE NSES ONLY IN THE RELEVANT PREVIOUS YEAR, IT IS ENTITLED TO DEDUCTION OF SUCH EXPENDITURE IRRESPECTIVE OF THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN VIEW OF THIS FACT, SINCE T HE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND HILL HAS BEEN RECEIVED DURING THE YEAR THEREFORE THE PRIOR PERIOD EXPENSES MAY BE ALLOWED TO THE APPELLANT DURING THE YEAR. THE ASSESSING OFFICE R IS DIRECTED TO DELETE THE ADDITION OF RS.11,39,761/-. 23. SINCE THERE IS A FINDING THAT THE AMOUNT HAS CRYSTA LLISED IN THE YEAR, THERE IS NO MERIT IN THE REVENUE APPEAL THAT THE SA ME SHOULD DISALLOWED. THE CIT(A) IS CORRECT IN ALLOWING THE AMOUNT AS IT IS CRYSTALLISED DURING THE YEAR. THEREFORE, THE ALTERNATE GROUND RAISED BY THE ASSESSEE IN GROUND NO. 17 THAT THIS SHOULD BE ALLOWED AS EXPENDITURE IN TH E EARLIER YEAR DOES NOT ITA NO. 6576 & 6266/MUM/2010 M/S. ALOK INDUSTIRES LTD. 12 ARISE AS IT BECOMES ACADEMIC IN NATURE. IN VIEW OF THIS REVENUE GROUNDS ARE DISMISSED ALONGWITH THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 24. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND A SSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2013. SD/- SD/- (S.T.M. PAVALAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19 TH SEPTEMBER, 2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 41, MUMBAI 4. THE CIT, CENTRAL III, MUMBAI CITY 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.