THE DY CIT 14(2), MUMBAI V. M/S. ARYA TEXTURISERS & TWISTERS, MUMBAI

ITA 6647/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56294 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 02-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER. I.T.A.NO.6200/MUM/2007 & I.T.A.NO.2289/MUM/2010 A.Y 2004-05 M/S. ARYA TEXTURISERS & TWISTER, C/O. M/S. JBF INDUSTRIES LIMITED, EXPRESS TOWER, 8 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. PAN: AABFA 2182 Q VS. JT. COMMISSIONER OF I.T. 14(2), MUMBAI. AND I.T.A.NO.6647/MUM/2007 A.Y 2004-05 DY. COMMISSIONER OF I.T. 14(2), MUMBAI. M /S. ARYA TEXTURISERS & TWISTER, MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. K. SHIVRAM. REVENUE BY : SHRI P.K.B.MENON. DATE OF HEARING: 01-12-2011. DATE OF PRONOUNCEMENT: 28-12-2011. O R D E R PER T.R.SOOD, AM: THESE CROSS APPEALS ARE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.6200/M/07 [ASSESSEES APPEAL] : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BUT ONLY THREE DISPUTES AR E INVOLVED WHICH ARE AS UNDER: 1. DISALLOWANCE OF INTEREST U/S.36(1)(III)/14A AMOUNTI NG TO RS.38,43,799/-. ITA NOS.6200, 6647 & 2289 2 2. DISALLOWANCE OF DEFERRED REVENUE EXPENDITURE AMOUNT ING TO RS.1,05,240/-; AND 3. LEVY OF INTEREST UNDER SECTIONS 234A, 234B AND 234C . 3. DISPUTE 1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED A SUM OF RS.38,46,799/- AS INTEREST. IT WAS FURTHER N OTICED THAT ASSESSEE HAD GIVEN LOANS AND ADVANCES TO RELATED PARTIES AMO UNTING TO RS.1,23,06,024/-. FROM PERUSAL OF THE BALANCE-SHEET IT WAS FURTHER NOTICED THAT ASSESSEE HAD ALSO MADE INVESTMENT IN S HARES AMOUNTING TO RS.11,44,53,279/- WHICH MAINLY CONSISTED OF SHAR ES OF SISTER CONCERNS KNOWN AS JBF INDUSTRIES LIMITED. THE ASSES SEES PARTNERS CAPITAL WAS ONLY RS.1,71,99,802/-. IN REPLY TO A QU ERY, IT WAS MAINLY STATED THAT NO SHARES WERE PURCHASED DURING THE YEA R AND ASSESSEE WAS TAKING UNSECURED LOANS WHICH WERE INTEREST FREE . HOWEVER, AO DID NOT AGREE WITH THIS PROPOSITION AND AFTER DISCUSSIN G VARIOUS CASE LAWS, DISALLOWED THE INTEREST. 4. ON APPEAL, ACTION OF THE AO HAS BEEN CONFIRMED B Y THE LD. CIT(A). 5. BEFORE US, IT WAS MAINLY CONTENDED THAT INVESTME NT IN SHARES WAS MADE IN THE YEAR `1997-98 AND NO INTEREST BEARI NG FUNDS HAVE BEEN USED FOR BUSINESS PURPOSE ONLY AND ASSESSEE HA D SOME SURPLUS FUNDS AND, THEREFORE, IT COULD HAVE BEEN ASSUMED TH AT ONLY SURPLUS FUNDS HAVE BEEN USED IN GIVING INTEREST FREE LOANS. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT CIT VS. RELIANCE UTILITIES & POWERS LTD. [313 ITR 3 40]. ITA NOS.6200, 6647 & 2289 3 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT ONCE IN VESTMENT WAS MADE IN SHARES AND EVEN IF NO INCOME IS GENERATED, THEN EXPENDITURE INCURRED FOR ACQUISITION OF SUCH SHARES HAS TO BE D ISALLOWED IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF CHEMIINVEST LTD. VS. ITO [121 ITD 318] (S.B) (DEL). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT AO HAS NOT DISCUSSED AT WHICH POINT OF TIME IN VESTMENT HAS BEEN MADE IN SHARES. AT THE SAME TIME, THOUGH ASSESSEE H AS MADE A SUBMISSION THAT SURPLUS FUNDS WERE AVAILABLE, BUT N O SUCH DETAILS ARE AVAILABLE. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMIINVEST LTD. VS. ITO (SUPRA) HAS HELD AS UNDER: SECTION 14A, READ WITH SECTION 10(34), OF THE INCO ME-TAX ACT, 1961 EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME ASSESSMENT YEAR 2004-05 WHETHER SINCE DI VIDEND INCOME IS EXEMPTED FROM TAX BY VIRTUE OF SECTION 10(34), I NTEREST PAID ON BORROWED CAPITAL UTILIZED IN PURCHASE OF SHARES, BE ING EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME NOT FORMING PART OF ASSESSEES TOTAL INCOME, CANNOT BE ALLOWED AS A DEDUCTION HE LD, YES WHETHER SUCH DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVE N IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY ASSESSEE HELD, YES. HOWEVER, IF NO INVESTMENT HAS BEEN MADE DURING THE YEAR, THEN THIS DECISION IS NOT APPLICABLE. FURTHER, IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD. [SUPRA] IT WAS HELD AS UNDE R: HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE TH IS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCT IBLE. THEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASID E THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION ITA NOS.6200, 6647 & 2289 4 TO RE-EXAMINE THE ISSUE IN THE LIGHT OF THE ABOVE D ECISIONS AND DECIDE THE SAME ACCORDINGLY. 8. DISPUTE NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO DISALLOWED A SUM OF R S.1,14,240/- FOLLOWING THE ASSESSMENT ORDER FOR A.Y 2003-04. 9. ON APPEAL, LD. CIT(A) CONFIRMED THE DISALLOWANCE . 10. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL FOR A.Y 2003-04 IN I.T.A.NOS.6199 & 6646/MUM/07 VIDE PA RA-10. HE POINTED OUT THAT ASSESSEE HAD PAID A SUM OF RS.10,5 2,400/- TOWARDS REPAIRS AND RECONSTRUCTION ETC., TO THE ASSOCIATION AND CLAIMED THE SAME AS 1/10 TH OF THE EXPENDITURE. 11. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER O F THE CIT(A). 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THIS ISSUE WAS ADJUDICATED IN ASSESSEES OWN CASE FOR A.Y 2003 -04 IN I.T.A.NOS.6199 & 6646/M/07 VIDE PARAS 10 TO 12 WHIC H ARE AS UNDER: THE LEARNED COUNSEL SUBMITTED THAT THERE IS NO DISP UTE AS FAR AS PAYMENT OF RS.10,52,400/- TOWARDS REPAIRS AND RECON STRUCTION COST EXPENSES TO THE ASSOCIATION AS MEMBER OF THE DAULAT BHAYARI TENANTS ASSOCIATION IS CONCERNED. THIS PART OF THE EXPENDIT URE IS TO BE BORNE BY THE ASSESSEE FOR OCCUPYING THE PREMISES. IT WAS FUR THER SUBMITTED THAT SIMILAR AMOUNT OF L/LOTH CLAIM IS BEING ALLOWED IN EARLIER YEARS AND ALSO ALLOWED IN LATER TWO YEARS. THE LEARNED COUNSE L RELIED ON THE ORDER OF THE ITAT IN THE CASE OF M/S. CRYSTAL AUDIO LTD. IN ITA NO. 1303/MUM/2002 FOR THE PROPOSITION THAT THE REVENUE CANNOT DENY THE EXPENDITURE IN ONE YEAR WHICH WAS BEING ALLOWED IN EARLIER YEARS. IN THE ALTERNATE THE COUNSEL SUBMITTED THAT DEPRECIATI ON ON THE AMOUNT MAY BE ALLOWED TO THE ASSESSEE. 11. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O . 12. WE HAVE CONSIDERED THE ISSUE. THE FACT IS THAT THE PREMISES WAS TAKEN ON LEASE FROM 09.08.1997 AND ASSESSEE PAID AN AMOUNT OF RS.L0,52,400/- ON 14-08-1997 TO THE ASSOCIATION FOR PAYMENT TO MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY. THIS AMOUNT IS ALSO BEING ALLOWED AT 1/10TH OF THE GROSS AMOUNT IN EARLIER YEARS AND ITA NOS.6200, 6647 & 2289 5 ALSO IN LATER TWO YEARS. WE ARE NOT IN A POSITION T O UNDERSTAND HOW AND WHY THE A.O. HAS TREATED THIS AMOUNT AS CAPITAL IN NATURE. OBVIOUSLY THE AMOUNT WAS PAID TOWARDS REPAIRS AND RECONSTRUCT ION EXPENSES AND SINCE THE LUMPSUM AMOUNT WAS PAID IN ADVANCE ASSESS EE HAS CLAIMED IT OVER A PERIOD OF 10 YEARS AT RS. 10,52,400/- AS DED UCTION IN 10 YEARS. ASSESSEE IS IN FACT OCCUPYING THE PREMISES TAKEN ON LEASE AND FURTHER IT IS ALSO EARNING RENTAL INCOME BY SUBLETTING THE PRO PERTY WHICH IS ALSO OFFERED AS INCOME FROM OTHER SOURCES. THE EXPENDITU RE IS ALLOWABLE AS REVENUE EXPENDITURE IN ASSESSEES BUSINESS THE CLAI M OF ONE-TENTH IN EACH IS REASONABLE ON DEFERRED REVENUE CONCEPT. ACC ORDINGLY WE ALLOW THE GROUND AND DIRECT THE A.O. TO ALLOW THE EXPENDI TURE. GROUND IS ALLOWED. FOLLOWING THE ABOVE, WE ALLOW THIS GROUND. 13. THE ISSUE REGARDING LEVY OF INTEREST U/S.234A, 234B AND 234C IS OF CONSEQUENTIAL NATURE AND AO IS DIRECTED TO LEVY INTEREST AS PER THE PROVISIONS OF THE ACT. 14. I.T.A.NO.6647/M/07 : IN THIS APPEAL, REVENUE HAS RAISED VARIOUS GROUNDS BUT AT THE TIME OF HEARING LD. DR SUBMITTED THAT ONLY THREE DISPUTES ARE INVOLVED, VIZ., 1. ALLOWANCE OF DEDUCTION U/S.80IA 2. ALLOWANCE OF DEDUCTION U/S.80IA ON SCRAP SALE AND COMMISSION RECEIVED ON LATE PAYMENT, AND 3. ALLOWANCE OF DEPRECIATION ON OLD PLANT & MACHINERY. 15. DISPUTE NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S.80IA AMOUNTING TO RS.12,17,858/-. HE FURTHER NOTICED THAT DURING THE YEAR ASSESSEE HAD PURCHASED SOME OL D MACHINERY WHICH, ACCORDING TO HIM, WAS MORE THAN 20% OF THE T OTAL VALUE OF THE MACHINERY. ACCORDINGLY, A NOTICE WAS ISSUED AS TO W HY DEDUCTION SHOULD NOT BE DENIED. IN RESPONSE, ASSESSEE GAVE TH E FOLLOWING REPLY VIDE LETTER DATED 6-11-2006: 1. THE ASSESSEE HAD BEEN GETTING THIS DEDUCTION U/S . 80-IA FROM A. Y ITA NOS.6200, 6647 & 2289 6 1998-99 ONWARDS AND WAS ELIGIBLE FOR DEDUCTION @ 10 0% FOR FIRST FIVE YEAR AND @ 25% FOR REMAINING FIVE YEARS. 2. THE INVESTMENT IN PLANT & MACHINERY WAS RS. 514. 50 LACS ON 1/4/2003. 3. EXPLANATION 2 TO SECTION 801A TALKS ABOUT TOTAL VALUE OF PLANT & MACHINERY USED. THE ACT DOES NOT STATE ABOUT THE WD V OF PLANT & MACHINERY. 4. THE CONDITIONS TO BE FULFILLED IN THE INITIAL YE AR WHEN NEW INDUSTRIAL UNDERTAKING IS BEING SET UP. THE ASSESSEE HAS BEEN GETTING THE DEDUCTION U/S. 80IA FOR SIX YEARS AND CLAUSE (2) OF SECTION 80IA (3) IS NOT APPLICABLE. 5. WITHOUT PREJUDICE TO ABOVE, EXPLANATION (2) TO S ECTION 80IA(3) DOES NOT APPLY, IF WE TAKE THE TOTAL VALUE OF PLANT & MA CHINERY AND NOT ON THE BASIS OF WDV AS ON 1/4/2003, WHICH IS GIVEN AS UNDER: TOTAL VALUE OF PLANT & MACHINERY AS ON 1/4/2003 RS . 514.50 LACS VALUE OF OLD PLANT & MACHINERY (PURCHASED) RS. 88.61 LACS TOTAL RS. 603.11 LACS ------------------ THE AO AFTER EXAMINING THE ABOVE REPLY WAS NOT CONV INCED AND REFERRED TO THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE CIT VS. SEEYAN PLYWOODS [190 ITR 564]. HE REWORKED THE VALUE OF OLD PLANT & MACHINERY VIDE PARA 3.7 AS UNDER: TOTAL INVESTMENT IN PLANT & MACHINERY AS PER ASSESS EE- 514.50 LACS 20% OF ABOVE - 102.90 LACS VALUE OF OLD MACHINERY PURCHASED IN A.Y. 2003-04 - 8.14 LACS VALUE OF OLD MACHINERY PURCHASED IN A.Y. 2004-05 - 145.25 LACS 153.39 LACS PERCENTAGE OF OLD PLANT & MACHINERY 153.39 X 100 = 29.81% 514.50 THUS, OLD PLANT & MACHINERY BEING MORE THAN 20%, HE DISALLOWED THE DEDUCTION. 16. BEFORE THE CIT(A) IT WAS MAINLY SUBMITTED THAT THE AO WAS NOT CORRECT IN ADOPTING THE WDV FOR THE PURPOSE OF CALC ULATING THE VALUE OF THE MACHINERY. REFERENCE WAS ALSO MADE TO THE DECIS ION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. NIPPON ELECTRONICS (INDIA) LTD. [181 ITR 518], WHEREIN IT WAS HELD THAT A COND ITION REGARDING OLD ITA NOS.6200, 6647 & 2289 7 MACHINERY WAS APPLICABLE ONLY IN THE INITIAL YEAR I .E. THE YEAR OF FORMATION OF THE UNDERTAKING. SIMILAR VIEW WAS TAKE N BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. LAXMI PACKERS [14 SOT 303]. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AN D ALLOWED DEDUCTION U/S.80IA. 17. BEFORE US, LD. DR CARRIED US THROUGH THE ASSESS MENT ORDER AND POINTED OUT THAT HOW OLD MACHINERY PURCHASED DURING THE YEAR WAS MORE THAN 20%. HE ALSO REFERRED TO THE RELIANCE PLA CED BY THE AO ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF CI T VS. SEEYAN PLYWOODS [SUPRA] WHEREIN IT WAS CLEARLY HELD THAT FOR THE PURPOSE OF VARIOUS DEDUCTIONS EVERY YEAR IS A DIFFERENT YEAR. 18. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT FIRST OF ALL IT IS NOT FAIR TO INVOKE THE PROVISION S OF SUB-SEC.(II) OF SEC.80IA WHICH PROHIBITS THAT UNIT CANNOT BE FORMED AFTER TRANSFER TO THE NEW BUSINESS OF OLD MACHINERY USED FOR ANY PURP OSE BECAUSE THIS CONDITION COULD BE APPLIED ONLY AT THE STAGE OF FOR MATION. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. NIPPON ELECTRONICS (INDIA) LTD. [SUPRA] HAD CLEARLY OBSERVED THAT SINCE THE WO RD USED IN THE SECTION IS FORMED THEREFORE SUCH CONDITION REQUIR ES TO BE COMPLIED ONLY IN THE INITIAL YEAR. IN ANY CASE, IN THE CASE OF ITO VS. LAXMI PACKERS [SUPRA], MUMBAI BENCH HAS ALREADY TAKEN A V IEW THAT THE INTENTION OF THE LEGISLATURE WAS NOT THAT CONDITION REGARDING PURCHASE OF OLD MACHINERY NEEDS TO BE APPLIED EVEN IN LATER YEAR. ITA NOS.6200, 6647 & 2289 8 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. AT THAT RELEVANT POINT OF TIME SEC.80IA (II) READ AS UNDER: (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. CLEARLY THE EXPRESSION WHICH HAS BEEN USED IS FORM ED AND FORMATION OF AN UNDERTAKING WOULD HAVE COME ONLY AT THE INITI AL STAGE. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. NIPPON ELECTRONICS (INDIA) LTD. [SUPRA] WHILE DEALING WITH THE SIMILAR ISSUE U/S.80J(4)(II) HAS HELD THAT THE WORD FORM SUGGESTS THAT SUCH TR ANSFER HAS TO BE CONSIDERED AT THE TIME OF FORMATION OF NEW UNDERTAK ING. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. LAXMI PACKERS [SUPRA]. THE ISSUE INVOLVED B EFORE THE KERALA HIGH COURT IN THE CASE OF CIT VS. SEEYAN PLYWOODS [ SUPRA] WAS SLIGHTLY DIFFERENT IN THE SENSE THAT IN THAT CASE THE CONDIT ION REGARDING FORMATION OF UNIT WAS NOT MET IN THE INITIAL YEAR. THE CONDITION WAS FULFILLED IN THE LATER YEAR BUT THE DEDUCTION WAS S TILL HELD TO BE ALLOWABLE. THEREFORE, IT IS CLEAR THAT ONCE AT THE STAGE OF FORMATION THE UNDERTAKING HAS COME INTO EXISTENCE WITH NEW MACHIN ERY, THEN LATER ON EVEN IF OLD MACHINERY IS ADDED THEN DEDUCTION CA NNOT BE DENIED. ACCORDINGLY, WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 20. DISPUTE NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS MADE A CLAIM U/S.80IA ON SALE OF SCRAP AMOUNTING TO RS.2,6 3,519/- AND ITA NOS.6200, 6647 & 2289 9 COMMISSION ON LATE PAYMENT AMOUNTING TO RS.60,618/- . ON FURTHER ENQUIRY, IT WAS NOTICED THAT SALE OF SCRAP MAINLY C ONSISTED OF ITEMS LIKE CARTONS, PUTHA, PATTI, PLASTIC, PAPER ETC. THE AO W AS OF THE VIEW THAT THESE ITEMS ARE NOT IN THE NATURE OF BY-PRODUCT AND , THEREFORE, NOT ELIGIBLE TO DEDUCTION U/S.80IA. AS FAR AS INTEREST ON LATE PAYMENT IS CONCERNED, HE FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NIRMA INDUSTRIES [95 ITD 19 5] AND DISALLOWED THE DEDUCTION. 21. BEFORE THE LD. CIT(A) IT WAS MAINLY SUBMITTED T HAT AS FAR AS INTEREST ON LATE PAYMENT IS CONCERNED, THE DECISION OF THE SPECIAL BENCH HAS BEEN OVER-RULED BY THE HON'BLE GUJARAT HI GH COURT IN NIRMA INDS. VS. DCIT [283 ITR 402]. IN RESPECT OF SCRAP S ALE IT WAS SUBMITTED THAT IT WAS NECESSARY BY PRODUCT FOR MANUFACTURING PROCESS BECAUSE PACKING MATERIAL WAS ALSO USED FOR PACKING OF PRODU CTS MANUFACTURED BY THE ASSESSEE. REFERENCE WAS MADE TO THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. HARJIVAN DAS JUTHABHAI ZAVERI AND ANOTHER [258 ITR 785]. THE LD. CIT(A) AF TER EXAMINING THE ISSUE ALLOWED THE DEDUCTION VIDE PARA-11 WHICH IS A S UNDER: 11. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMI SSIONS AND LIND MERH IN THE ARS CONTENTION. THE SALE OF SCRAP AMOU NTING TO RS.2,63,5L9/- WAS UNDISPUTEDLY A BYE PRODUCT OF THE MANUFACTURING PROCESS AND WAS CLOSELY CONNECTED WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE AR HAD RIGHTLY RELIED ON THE JUDGE MENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. I HARJEEVANDAS JU THABHAI ZAVERI AND ANOTHER 258 ITR 785. SIMILARLY, LATE PAYMENT OF RS. 60,615/- RECEIVED BY THE APPELLANT WAS IN NATURE OF INTEREST ON DELAY ED REALISATIONS OF SALE PROCEEDS FROM THE CLIENTS AND WAS CLEARLY COVE RED BY HE JUDGERNENT OF GUJARAT HIGH COURT IN THE CASE OF NIR MA INDUSTRIES. THEREFORE, IN MY OPINION, BOTH THE AMOUNTS RECEIVED ON ACCOUNT OF SALE OR SCRAP AND ON ACCOUNT OF LATE PAYMENT WERE E LIGIBLE AS PROFITS OF INDUSTRIAL UNDERTAKING FOR DEDUCTION U/S.80IA. A CCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. ITA NOS.6200, 6647 & 2289 10 22. BEFORE US, LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO. 23. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT LD. CIT(A) HAS CORRECTLY NOTED THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NIRMA INDS. [SUPRA] WAS OVER RULED BY THE HON'BLE GUJARAT HIGH COURT REPORTED AT 283 ITR 402 WHEREIN IT WAS HELD THAT INTEREST RECEIVED ON LATE PAYMENT ON SALE CONSIDERATION WAS TO BE CONSTRUED AS INCOME DERIVED FROM INDUSTRIAL B USINESS AND WAS ELIGIBLE FOR DEDUCTION. SIMILARLY, THE HON'BLE GUJA RAT HIGH COURT IN THE CASE OF DCIT VS. HARJIVANDAS JUTHABHAI ZAVERI AND A NOTHER [SUPRA] HAS HELD THAT EVEN PAYMENT RECEIVED ON ACCOUNT OF EMPTY SODA BOTTLES, BANDANA EMPTY BARRELS ETC., IS CLOSELY CONNECTED WI TH THE MANUFACTURING BUSINESS AND, THEREFORE, QUALIFIES FO R DEDUCTION. WE ARE OF THE OPINION THAT LD. CIT(A) HAS CORRECTLY ADJUDI CATED THIS ISSUE AND ACCORDINGLY WE DECLINE TO INTERFERE IN HIS ORDER. 25. DISPUTE NO.3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD PURCHASED MACHINERY FROM JJBF INDS. WHICH IS A SISTER CONCERN AT RS.1,26,65,022/-. ON FURTHER ENQUIRY AO NOTICED THA T NO INDEPENDENT VALUATION OF THIS MACHINERY WAS DONE. ACCORDINGLY H E INVOKED EXPLANATION 3 OF SEC.43[1] AND HELD THAT ASSESSEE H AS INFLATED THE COST OF MACHINERY FOR CLAIMING EXCESS DEPRECIATION AND A CCORDINGLY HE ALLOWED DEPRECIATION ONLY AT WDV OF RS.73,92,429/- WHICH WAS THE WDV IN THE BOOKS OF JBF INDS. ITA NOS.6200, 6647 & 2289 11 26. BEFORE THE CIT(A) IT WAS MAINLY SUBMITTED THAT THE OLD MACHINERY WAS PURCHASED FOR RS.72,82,679/- AGAINST THE WDV OF THIS MACHINERY AT RS.73,92,429/- IN THE BOOKS OF JBF IND S. IT WAS SUBMITTED THAT THE BALANCE OF AMOUNT WAS ON ACCOUNT OF COMPON ENT OF EXCISE DUTY AMOUNTING TO RS.44,46,121/- AND SALES TAX OF R S.9,19,354/-. IT WAS ALSO SUBMITTED THAT ASSESSEE HAS ITSELF ADOPTED THE COST OF MACHINERY FOR THE PURPOSE OF DETERMINATION OF DEPRE CIATION AT RS.82,02,043/- THEREFORE NO EXCESS DEPRECIATION WAS CLAIMED AS CONCLUDED BY THE AO. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PA RA-24 WHICH IS AS UNDER: 24. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMI SSIONS AND FIND MERIT IN INC ARS CONTENTION. ON PERUSAL OF THE DET AILS, IT SEEMS THAT THE AD WAS UNDER THE MISTAKEN IMPRESSION THAT THE M ACHINERY WAS PURCHASED BY THE APPELLANT AT A VERY HIGH PRICE OF RS.1.26,65,022/- WHICH WAS INCLUSIVE OF AN AMOUNT OF RS. 1,16,121/- ON ACCOUNT OF EXCISE DUTY THAT STOOD EXCLUDED BY THE APPELLANT HI MSELF WHILE CLAIMING DEPRECIATION. THE APPE1ANT HAD SHOWN THE T OTAL COST OF PLRI1 AND MACHINERY PURCHASED FROM M/S. JBF INDUSTRIES ST OOD AT RS. 72,82,679/- AN THE SALES TAX PAID AT RS.9,19,364/-. THUS, THE APPELLANT HAD PURCHASED THE MACHINERY FROM M/S. JBF INDUSTRIES AT RS.72,82,679/- WHICH WAS LITTLE LESS THAN THE WVDV VALUE OF MACHINERY AT RS.73,92,429/- IN THE BOOKS OF ACCOUNT OF M/S. .JBF INDUSTRIES. FURTHER SINCE THE APPELLANT HAD TO PAY SALES TAX OF R .9,90,664/-, THE SAME WAS RIGHTLY INCLUDED INTO THE COST OF PLANT AND MACHINERY FOR THE PURPOSES OF DEPRECIATION. IN THE CIRCUMSTANCES, THERE WAS NO JUSTIFICATION FOR THE AD TO REDUCE THE ACTUAL COST OF PLANT AND MACHINERY FOR THE PURPOSE OF ALLOWANCE OF DEPRE CIATION. ACCORDINGLY, THE DISALLOWANCE OF DEPRECIATION OF RS .13,18,148/- IS HEREBY DELETED. THUS, THIS GROUND OF APPEAL IS HERE BY ALLOWED. 27. BEFORE US, LD. DR SUPPORTED THE ORDER OF THE AO . ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUPPORTED THE ORD ER OF THE CIT(A). 28. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT LD. CIT(A) HAS CORRECTLY ADJUDICATED THE ISSUE. THE ASSESSEE H AS NOT INFLATED THE COST BUT EXTRA COST WAS DUE TO COMPONENT OF EXCISE DUTY AND SALES TAX ITA NOS.6200, 6647 & 2289 12 WHICH ARE STATUTORY LEVIES AND ASSESSEE CANNOT AVOI D THEM. IN ANY CASE, ASSESSEE HAS NOT CLAIMED DEPRECIATION ON THE TOTAL COST BUT HAD ITSELF EXCLUDED THE COMPONENT OF EXCISE DUTY AND SA LES TAX FOR CLAIM OF DEPRECIATION. NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT THIS FINDING OF LD. CIT(A) IS NOT CORRECT. THEREFORE, WE ARE OF THE OPINION, THAT LD. CIT(A)S ORDER NEEDS TO BE CONFIRMED AND A CCORDING WE DECLINE TO INTERFERE WITH THE SAME. 29. I.T.A.NO.2289/MUM/2010 : IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUND: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE PENALTY OF RS. 13,85 ,314/-LEVIED U/S 271(1)( C) OF THE I. T. ACT ON GROUND THAT AOS FIN DING IS SPECIFIC, THAT BORROWED FUND HAVING UTILIZED FOR NON BUSINESS ACTI VITIES. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT S THAT THE CLAIM OF EXPENDITURE (INTEREST) U/S 36(I)(III) WAS ALLOWED B Y THE AO IN ASSESSMENT YEAR 2003-04 AND IN ASSESSMENT YEAR 2005 -06 AND 2006- 07 ON GROUND THAT THE SAME WAS UTILIZED FOR PAYMENT OF SUNDRY CREDITORS FOR RAW MATERIAL, THEREFORE ACCORDING TO APPELLANT IT IS NOT THE CASE OF INADMISSIBLE EXPENDITURE KNOWINGLY CLAI MED BY THE APPELLANT . 30. AFTER HEARING BOTH THE PARTIES WE FIND THAT BEC AUSE OF AN ADDITION IN RESPECT OF DISALLOWANCE OF INTEREST AMO UNTING TO RS.38,43,799/- AND DISALLOWANCE OF DEFERRED REVENUE EXPENDITURE AMOUNTING TO RS.1,05,240/- PENALTY PROCEEDINGS WERE INITIATED AND AFTER DETAILED DISCUSSION MINIMUM PENALTY OF 100% W AS LEVIED. 31. ON APPEAL, LD. CIT(A) ALLOWED THE RELIEF IN RES PECT OF DISALLOWANCE AMOUNTING TO RS.1,05,240/- BECAUSE THI S EXPENDITURE WAS ALLOWED BY THE TRIBUNAL IN THE EARLIER YEAR. HOWEVE R, PENALTY WAS CONFIRMED IN RESPECT OF THE OTHER ADDITION. 32. BOTH THE PARTIES WERE HEARD IN DETAIL. ITA NOS.6200, 6647 & 2289 13 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT NOW PENALTY SURVIVES ONLY ON DISALLOWANCE OF INTEREST AMOUNTING TO RS.38,43,799/-. THIS ISSUE HAS ALREADY BEEN SET ASIDE BY US WHILE A DJUDICATING THE ASSESSEES APPEAL IN I.T.A.NO.6200/MUM/07 IN THE AB OVE NOTED PARAS. THEREFORE, PENALTY PROCEEDINGS ALSO REQUIRE TO BE S ET ASIDE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) AND REMIT THE ISSUE BACK TO THE FILE OF THE AO. THE PENALTY MAY B E CONSIDERED AFTER COMPLETION OF THE SET ASIDE PROCEEDINGS. 34. IN THE RESULT, ASSESSEES APPEALS IN I.T.A.NOS. 6200/MUM/2007 & 2289/M/2010 ARE ALLOWED FOR STATISTICAL PURPOSES WH ILE REVENUES APPEAL IN I.T.A.NO.6647/MUM/2007 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 28-12-2011. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28-12-2011. P/-*