Indian Rayon & Inds Ltd, V. ACIT Rg 3(2),

ITA 6669/MUM/2003

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54934 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 26-07-2011
• Assessment Year: misc
• Appeal Filed On: 13-10-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRI
• Keywords: Capital asset; Business income; Depreciation; Retrospective amendment; Additional evidence; Question of law; Capital receipt; Benefit of exemption; Revenue expenditure
• Section: 244A; 80HHC; 154; 11

Judgement Text

1 INDIAN RAYON & INDUSTRIES LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI P M JAGTAP, AM & SHRI VIJAY PAL RAO, J M ITA NOS. 6668 & 6669/MUM/2003 (ASST YEARS 1998-99 & 99-00) INDIAN RAYON & INDUSTRIES LTD CORPORATE FINANCE DVN ADITYA BIRLA CENTRE A WING, 4 TH FLOOR S K AHIRE MARG WORLI, MUMBAI 25 VS THE ASST COMR OF INCOME TAX RANGE 3(2), MUMBAI (APPELLANT) (RESPONDENT) ITA NOS. 6762 & 6763/MUM/2003 (ASST YEARS 1998-99 & 99-00 ) & COS 38 & 39/MUM/2011 THE ASST COMR OF INCOME TAX RANGE 3(2), MUMBAI VS INDIAN RAYON & INDUSTRIES LTD CORPORATE FINANCE DVN ADITYA BIRLA CENTRE A WING, 4 TH FLOOR S K AHIRE MARG WORLI, MUMBAI 25 (APPELLANT/RESPONDENT) (RESPONDENT/CROSS OBJECTOR) PAN NO. AAACI1747H ASSESSEE BY SHRI J D MISTRI REVENUE BY SHRI SANJIV DUTT DT.OF HEARING 27 TH JULY 2011 DT OF PRONOUNCEMENT 12 TH , AUG 2011 ORDER PER VIJAY PAL RAO, JM THESE APPEALS BY THE ASSESSEE AND REVENUE ARE DIREC TED AGAINST TWO SEPARATE ORDERS, BOTH DATED 31.7.2003 OF THE CIT(A) , FOR THE AY 1998-99 AND 1999-00 RESPECTIVELY. FOR THE AY 1998-99 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWANCE OF RS.3,44,461/- 2 INDIAN RAYON & INDUSTRIES LTD BEING RURAL DEVELOPMENT EXPENDITURE INCURRED BY THE APPELLANT AND LD CIT(A) HAS ERRED IN CONFIRMING THE SAID DISALLOWANC E. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE CLAIM OF RS.3,44,4 61/- AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWANCE OF RS.20,54,935/-- BEING INTEREST U/S 244A FOR THE ASSESSMENT YEAR 1 993-94 RECEIVED AND OFFERED TO TAX DURING THE YEAR UNDER APPEAL AND LD CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO. THE ASSESSING OFFI CER BE DIRECTED TO EXCLUDE RS. 20,54,935/- BEING WITHDRAWN INTEREST U/ S 244A, FROM THE TOTAL INCOME OF THE APPELLANT AND TO REDUCE THE TO TAL INCOME ACCORDINGLY. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AO HAS ERRED IN DISALLOWING RS.29,061 BEING DEPRECATIO N CLAIMED BY THE APPELLANT ON ROLL OVER CHARGES AND LD CIT(A) HAS ERRED IN CONFIRMING RS 28,095/- WORKED OUT BY APPELLANT BASED ON REVISED W ORKING EXCLUDING ROLL OVER CHARGES ALLOWED BY ITAT AS REVENUE EXPEND ITURE IN ASSESSMENT YEAR 1987-88. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE REVISED AMOUNT OF DEPRECIATION OF R. 28,095/- ON ROLL OVER CHARGES AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AO HAS ERRED IN MAKING THE DISALLOWANCE OF RS.29,74,18 8/- U/S 40A(9) BEING EXPENDITURE INCURRED ON PAYMENT MADE TO SCHOOLS AT VERAVAL AND MALKHED WHEREIN CHILDREN OF THE EMPLOYEES OF THE AP PELLANT COMPANY ARE STUDYING AND LD CIT(A) HAS ERRED IN CONFIRMIN G THE DISALLOWANCE. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE EXP ENDITURE OF RS 29,74,188-AND TO REDUCE THE TOTAL INCOME ACCORDING LY. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ASSESSING OFFICER HAS ERRED IN REDUCING THE CLAIM O F DEDUCTION U/S 35D FROM RS. 1,21,22,566/- TO RS. 11,39,989 ON THE GROU ND THAT TAX IS NOT DEDUCTED AT SOURCE ON AN AMOUNT OF RS. 10,98,25,771 /- AND LD CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE CORREC T CLAIM OF THE APPELLANT U/S 35D OF RS. 1,21,22,566/- AND TO REDUC E THE TOTAL INCOME ACCORDINGLY 6 WITHOUT PREJUDICE TO THE ABOVE GROUND OF THE APPELL ANT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, T HE ASSESSING OFFICER HAS ERRED IN INCLUDING THE AMOUNT OF RS. 10,98,25,7 71/- PAYMENT OF RS. 20,00,000 MADE TO LODHA & CO, CALCUTTA, BEING THE I SSUE MANAGERS FEES WHICH IS NOT A PAYMENT MADE TO A NON-RESIDENT, AND LD CIT(A) HA ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER. THE ASSESSING OFFICER BE DIRECTED TO REDUCE THE SAID AMOUNT OF RS 20,00,000 FROM RS. 10,98,25,771 AND TO WORK OUT THE DISALLOWANCE U/S 3 5D ACCORDINGLY AND REDUCE THE TOTAL INCOME ACCORDINGLY. 7 WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLANT THA T THE DEBENTURE ISSUE EXPENDITURE INCURRED BY THE APPELLANT DURING THE PREVIOUS YEARS RELEVANT TO AY 1988-89 AND 1989-90 IS REVENUE EXPEN DITURE, IF IS HELD IN 3 INDIAN RAYON & INDUSTRIES LTD THOSE YEARS THAT THE SAID EXPENDITURE IS NOT REVENU E EXPENDITURE, THE APPELLANT CLAIMS THAT THE EXPENDITURE BE CAPITALIZE D TO THE ACTUAL COST OF FIXED ASSETS AND DEPRECATION BE ALLOWED ON THE SAME ACCORDINGLY. THE ASSESSING OFFICER BE DIRECTED TO A LLOW THE CLAIM OF DEPRECATION ON THE SAID DEBENTURE ISSUE EXPENDITURE THE TOTAL INCOME ACCORDINGLY. 8 WITHOUT PREJUDICE TO THE ABOVE, IF IT IS HELD THAT THE SAID EXPENDITURE IS NEITHER A REVENUE EXPENDITURE NOR CAPITAL EXPENDITU RE WHICH ENHANCES THE ACTUAL COST OF FIXED ASSETS, THE APPEL LANT ALTERNATIVELY CLAIMS THAT DEDUCTION U/S 35D BE ALLOWED ON THE SAI D DEBENTURE ISSUE EXPENDITURE. THE ASSESSING OFFICER BE DIRECTED TO A LLOW THE CLAIM OF DEDUCTION U/S 35D ON DEBENTURE ISSUE EXPENDITURE AN D TO REDUCE THE TOTAL INCOME ACCORDINGLY. 3 GROUND NO.1 REGARDING DISALLOWANCE OF RS. 3,44,46 1/- BEING RURAL DEVELOPMENT EXPENSES. 3.1 DURING THE YEAR, THE ASSESSEE HAS CLAIMED AN AM OUNT OF RS. 3,44,461/- AS DEDUCTION ON ACCOUNT OF RURAL DEVELOPMENT EXPENSES INCURRED AT MALKHAD. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THE EARLIER YEARS, AN IDENTICAL CLAIM WAS DISALLOWED. ON APPEAL, THE CIT (A) HAS CONFIRMED THE DISALLOWANCE BECAUSE THE SAME WAS CONFIRMED IN THE AY 1994-95 TO 1997-98. 4 WE HAVE HEARD THE LD SENIOR COUNSEL FOR THE ASSES SEE AND THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD SENIOR COUNSEL HAS POINTED OUT THAT IN THE EARLIER YEARS FOR AY 1992-93 TO 1995-96 , THE TRIBUNAL RESTORED BACK THE ISSUE TO THE RECORD OF THE AO. HE HAS FURTHER SUBMITTED T HAT THE AO HAS ALLOWED THE CLAIM OF THE ASSESSEE IN THE ORDER GIVING EFFECT FOR THE AY 1992-93 TO 1995-96. ON THE OTHER HAND, THE LD DR HAS RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES. 4 INDIAN RAYON & INDUSTRIES LTD 5 AT THE OUTSET, WE NOTE THAT A SIMILAR ISSUE CAME BEFORE THE TRIBUNAL FOR AY 1994-95 AND VIDE ORDER DATED 31.7.2008, THE ISSUE O F DISALLOWANCE ON ACCOUNT OF RURAL DEVELOPMENT EXPENSES WAS RESTORED TO THE RECO RD OF THE AO. THE AO IN THE ORDER GIVING EFFECT DATED 19.2.2009 ALLOWED THE CLA IM OF THE ASSESSEE. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FOR THE AY UNDER CONSIDER ATION IS ALSO TO BE ALLOWED, IF THE CLAIM IS IDENTICAL ON THE FACTS AS IT WAS IN THE EA RLIER YEARS. ACCORDINGLY, WE RESTORED THIS ISSUE TO THE RECORD OF THE AO FOR LIMITED PURP OSES TO VERIFY, IF THE FACTS IN RESPECT OF THE CLAIM OF RURAL DEVELOPMENT EXPENSES ARE IDEN TICAL AS TO THE EARLIER YEARS, THEN THE SAME SHALL BE ALLOWED. 6 GROUND NO.2 IS REGARDING THE DISALLOWANCE OF RS. 20,54,935/- BEING INTEREST U/S 244A OF THE ACT. 6.1 THE ASSESSEE HAS RECEIVED INTEREST U/S 244A AMO UNTING TO RS. 20,54,935/- PERTAINING TO THE AY 1993-94. THE ASSESSEE CONTENDE D BEFORE THE AO THAT THIS INTEREST IS ALLOWED BY THE DEPARTMENT ON GIVING EFF ECT TO THE ORDER OF THE CIT(A) AND HAS OFFERED THE SAME TO TAX IN THIS YEAR. IT WAS FU RTHER SUBMITTED BEFORE THE AO THAT THIS INTEREST ALLOWED BY THE DEPARTMENT MAY UNDERGO CHANGE AS BOTH THE ASSESSEE AND THE DEPARTMENT PREFERRED APPEALS BEFORE THE TRI BUNAL AGAINST THE ORDER OF THE CIT(A) AND THE SAME ARE PENDING. THE AO HELD THAT THE ISSUE RELATES TO CHANGE, IF ANY DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATIO N AND MAY BE CONSIDERED IN THE RELEVANT YEAR IN WHICH SUCH INTEREST IS UNDERGONE C HANGE. 5 INDIAN RAYON & INDUSTRIES LTD 6.2 ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE AO OF ASSESSING INTEREST RECEIVED BY THE ASSESSEE U/S 244A OF THE ACT AS INC OME FOR THE AY UNDER CONSIDERATION. 7 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THOUGH THE ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AVADA TRADING CO VS ACIT REPORTED IN 104 TTJ 83, IF ANY C HANGE OR REDUCTION IN THE AMOUNT OF INTEREST GRANTED U/S 244A ON ACCOUNT OF FURTHER DEVELOPMENT IN THE PROCEEDINGS, THE ASSESSEE WOULD BE ENTITLED FOR ADJUSTMENT/DEDUC TION OF THE SAME. 7.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT SINCE THE INTEREST WAS RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR R ELEVANT TO THE AY UNDER CONSIDERATION, THEN, THE SAME IS ASSESSABLE TO TAX FOR THE AY UNDER CONSIDERATION IRRESPECTIVE OF ANY POSSIBILITY OF SUBSEQUENT WITHD RAWAL OF THE INTEREST. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 8 WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELEV ANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND THAT THIS ISSUE IS NOW SETTLED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AVADA TRADING CO (SU PRA). THE TRIBUNAL HAS OBSERVED IN PARA 14 AS UNDER: 14. IT HAS BEEN APPREHENDED BY ASSESSEE'S COUNSEL TH AT ASSESSEE WOULD BE WITHOUT REMEDY IF THE INTEREST IS REDUCED BY VIRTUE OF ASSESSMENT UNDER SECTION 143(3). THIS APPREHENSION, IN OUR OPINION, IS UNFOUN DED. IF INTEREST IS REDUCED BY VIRTUE OF SUB-SECTION (3) OF SECTION 244A ON ACC OUNT OF ASSESSMENT UNDER SECTION 143(3), THE INTEREST GRANTED IN EARLIER YEAR GETS SUBSTITUTED AND IT IS THE REDUCED AMOUNT OF INTEREST THAT WOULD FORM PART OF INCO ME OF THAT YEAR. THUS, IT WOULD AMOUNT TO MISTAKE RECTIFIABLE UNDER SECTION 154 OF THE ACT. IN OUR OPINION, IF THE BASIS, ON WHICH INCOME WAS ASSESSED IS VARIED OR CEASES TO EXIST, THEN SUCH ASSESSMENT WOULD BECOME ERRONEOUS A ND CAN BE RECTIFIED. THIS CAN BE EXPLAINED WITH AN EXAMPI.E. FOR INSTANC E, LAND IN A VILLAGE 6 INDIAN RAYON & INDUSTRIES LTD BELONGING TO VARIOUS PERSONS IS ACQUIRED BY GOVERNME NT FOR SOME DEVELOPMENT WORKS AND THE COMPENSATION IS AWARDED BY THE COLLECTOR WITH INTEREST, IF ANY. BUT ONE OF THE LAND HOLDERS CHALLE NGES THE ACQUISITION PROCEEDINGS IN THE HIGH COURT AND LATER ON SUCCEEDS A S THE ACQUISITION IS DECLARED ILLEGAL. BY VIRTUE OF SUCH HIGH COURT ORDER, SUCH COMPENSATION HAS TO BE RETURNED AND GOVERNMENT WILL HAVE TO RESTORE THE L AND TO THE VILLAGERS. THEREFORE, IF CAPITAL GAIN HAS BEEN ASSESSED IN THE H ANDS OF SOME OF THE PERSONS WHERE LANDS WERE ACQUIRED, SUCH ASSESSMENT WO ULD BECOME PATENTLY ERRONEOUS, AS THE BASIS ITSELF HAS CEASED T O EXIST. SUCH ASSESSMENT WOULD, THEREFORE, AMOUNT TO MISTAKE, WHICH, IN OUR OP INION, CAN BE RECTIFIED. SIMILARLY, ANY INCOME ASSESSED MAY BECOME NON-TAXAB LE BY VIRTUE OF RETROSPECTIVE AMENDMENT AND CONSEQUENTLY, ERRONEOUS A SSESSMENT CAN BE RECTIFIED. THEREFORE, IN OUR HUMBLE OPINION, IF THE I NTEREST GRANTED UNDER SECTION 244A(1) IS VARIED UNDER SUB-SECTION (3) OF S UCH SECTION, THEN THE INTEREST ORIGINALLY GRANTED WOULD BE SUBSTITUTED BY T HE REDUCED/INCREASED AMOUNT AS THE CASE MAY BE. THUS, INCOME ON ACCOUNT OF INTEREST IF ASSESSED CAN BE RECTIFIED UNDER SECTION 154. 9 AS VIEWED BY THE SPECIAL BENCH OF THE TRIBUNAL TH AT THE ASSESSEE WOULD NOT BE REMEDYLESS, IF ANY CHANGE OR REDUCTION IN THE AM OUNT OF INTEREST REFUND U/S 244A IN FUTURE; IN THAT EVENTUALITY, THE ASSESSMENT CAN BE RECTIFIED U/S 154 AND THEREFORE, THE APPREHENSION AND THE CONTENTION OF THE ASSESSEE WAS FOUND BASELESS BY THE SPECIAL BENCH. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, WE DO NOT FIND ANY MERIT OR SUBSTA NCE IN THE GROUND TAKEN BY THE ASSESSEE; ACCORDINGLY, THE SAME IS REJECTED. 10 HOWEVER, AS OBSERVED BY THE SPECIAL BENCH, IF AN Y CHANGE OR REDUCTION IN THE INTEREST, REFUND TO THE ASSESSEE U/S 244A, THE SAME HAS TO BE TAKEN INTO ACCOUNT U/S 154. 11 GROUND NO.3 IS REGARDING THE DISALLOWANCE OF RS. 29,061/- ON ACCOUNT OF DEPRECIATION OF ROLLOVER CHARGES. 7 INDIAN RAYON & INDUSTRIES LTD 12 FROM AY 1986-87 ONWARDS, THE ASSESSEES CLAIM FO R ROLL OVER CHARGES WAS DISALLOWED BY THE DEPARTMENT BEING CAPITAL IN NATUR E. HOWEVER, THE AO ALLOWED THE DEPRECIATION ON SUCH ADDITION TILL THE AY 1995- 96. IN THE CURRENT YEAR, THE AO DISALLOWED THE DEPRECIATION ON THAT EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAS FILED APPEALS AGAINST THE DISALLOWANCE OF ROLLO VER CHARGES IN THE EARLIER YEARS. 12.1 ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE AO IN VIEW OF THE ORDER OF THE TRIBUNAL WHEREBY THE EXPENDITURE ITSELF WAS ALLOWED AS REVENUE IN NATURE. 13 BEFORE US, THE LD SENIOR COUNSEL FOR THE ASSESSE E HAS POINTED OUT THAT SINCE THE ISSUE HAS FINALLY BEEN DECIDED AGAINST THE ASSESSE E BY THE HONBLE JURISDICTIONAL HIGH COURT FOR THE AY 1991-92 AND 1992-93 VIDE ORDE R DATED 25.9.2010 IN IT APPEAL NO.1229 OF 2008, THEREFORE, THE DEPRECIATION ON ROL LOVER CHARGES, WHICH ARE TREATED AS CAPITAL IN NATURE SHOULD BE ALLOWED. ON THE OTH ER HAND, THE LD DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 14 AFTER CONSIDERING THE RIVAL CONTENTION AND OTHER RELEVANT MATERIAL ON RECORD, AT THE OUTSET WE FIND THAT THE HONBLE JURISDICTIO NAL HIGH COURT IN ASESSEES OWN CASE FOR AY 1991-92 AND 1992-93 HAS DECIDED THE ISS UE OF ALLOWABILITY OF ROLLOVER CHARGES AGAINST THE ASSESSEE WHILE ADJUDICATING THE APPEAL OF THE REVENUE. THE HONBLE HIGH COURT IN PARA 5 OF ITS ORDER HAS HELD AS UNDER: 5 DURING THE COURSE OF THE HEARING OF THE APPEAL, T HE ATTENTION OF THE COURT HAS BEEN DRAWN TO THE JUDGMENT OF THE SUPREME C OURT IN ACIT, VADODARA V ELECON ENGINEERING CO LTD. IT IS COMMON G ROUND BETWEEN COUNSEL APPEARING ON BEHALF OF THE REVENUE AND COUNS EL APPEARING ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE HAD PAD A SUM OF RS. 6.89 LACS TO THE BANK AS ROLL OVER CHARGES FOR REPAYMENT OF THE PRINCIP AL AMOUNT OF FOREIGN 8 INDIAN RAYON & INDUSTRIES LTD EXCHANGE LOANS TAKEN FOR CAPITAL INVESTMENTS IN ITS HIGH TECH DIVISION. THIS STATEMENT OF FACT ALSO APPEARS IN THE ORIGINAL ORDER OF ASSESSMENT DATED 30 TH MARCH 1994, PERTAINING TO ASSESSMENT YEAR 1991-92. I N VIEW OF THE FACTUAL POSITION, THE ISSUE WOULD BE COVERED AGAINST THE ASS ESSEE BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ELECON ENGINEER. THI S POSITION IS FAIRLY NOT DISPUTED ON BEHALF OF THE ASSESSEE. IN VIEW OF THE AFORESAID POSITION, THE CONTENTION OF THE REVENUE IN SO FAR AS THIS GROUND IS CONCERNED WOULD HAVE TO BE ACCEPTED AND THE APPEAL WOULD HAVE TO BE ALLOWED TO THAT EXTENT. THE QUESTION OF LAW RAISED IN QUESTION G IS ACCORDINGLY ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. SINCE THE ISSUE REGARDING THE ALLOWABILITY OF ROLLO VER CHARGES IS SETTLED AGAINST THE ASSESSEE AND THE AO DENIED THE DEPRECIATION CLAIMED ONLY ON THE GROUND THAT THE ASSESSEE HAD CHALLENGED THE DISALLOWANCE OF ROLLOVE R CHARGES AND THE TREATMENT OF THE SAME BY THE REVENUE AS CAPITAL IN NATURE; THERE FORE, IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT AND IN VIEW OF THE FA CTS THAT IN THE EARLIER YEARS, THE AO HIMSELF HAS ALLOWED THE DEPRECIATION ON THE EXPENDI TURE, WHICH WAS TREATED AS CAPITAL IN NATURE, THE CLAIM OF DEPRECIATION ON SUC H EXPENDITURE TREATED AS CAPITAL IN NATURE IS THEREFORE, ALLOWABLE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 15 GROUND NO.4 REGARDING DISALLOWANCE OF RS. 29,74, 188 U/S 10A (9) OF THE ACT. 16 THE ASSESSEE CLAIMED EXPENDITURE OF RS. 29,74,18 8/- INCURRED BEING PAYMENT MADE TO THE SCHOOL AT VARAL AND MALKHAD WHEREIN THE CHILDREN OF THE EMPLOYEES OF THE ASSESSEE ARE STUDYING. THE AO DISALLOWED THE EX PENDITURE CLAIMED BY THE ASSESSEE U/S 40A(X) OF THE I T ACT. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO BY FOLLOWING THE ORDER FOR THE AY 19 95-96 TO 1997-98. 17 BEFORE US, THE LD SENIOR COUNSEL FOR THE ASSESSE E HAS SUBMITTED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR THE AY 1993- 9 INDIAN RAYON & INDUSTRIES LTD 94 TO 1995-96. HE HAS REFERRED THE RELEVANT ORDERS OF THE TRIBUNAL AND SUBMITTED THAT IN VIEW OF THE FINDINGS OF THE TRIBUNAL IN ASSESSEE S OWN CASE, THIS ISSUE MAY BE DECIDED IN FAVOR OF THE ASSESSEE. ON THE OTHER HAND , THE LD DR HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 18 WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELE VANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.3207/MUM/2002 FOR AY 1995-96 VIDE ORDER DATED 28.2.2011 DECIDED A N IDENTICAL ISSUE IN PARAS 2.9 AND 29.1 AS UNDER: 2.9 THE GROUND NO.9 IS REGARDING DISALLOWANCE OF R S.19,05,496/- UNDER SECTION 40A (9). THE SAID EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE ON PAYMENT MADE TO SCHOOLS AT VERAVAL AND MALKHED WHEREIN THE CHILDREN OF THE EMPLOYEES OF THE COMPANY WERE STUDYING. THE AO DISA LLOWED THE EXPENDITURE UNDER SECTION 40A(9). THE SAID SECTION PROVIDES THAT NO DEDUCTION COULD BE ALLOWED IN RESPECT OF ANY SUM PA ID BY THE ASSESSEE AS AN EMPLOYER TOWARDS SETTING UP OR FORMATION OF OR A S CONTRIBUTION TO ANY FUND/ TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT OR OTHER INSTITUTION FOR ANY PURPOSE EXCEPT WHERESUM IS SO PAID FOR THE PURPOSES AND TO THE EXTENT PROVIDED FOR UNDER CLAUSE (IV) OR CLAUSE (V) OF SUB SECTION (1) OF SECTION 36 OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE. THE ASSESSEE ARGUED THAT PROVISIONS OF SECTION 40A(9) W ERE NOT APPLICABLE AND THE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITUR E UNDER SECTION 37(1). CIT(A) HOWEVER FOLLOWING THE DECISION IN ASSESSMENT YEAR 1994-95 CONFIRMED THE DISALLOWANCE. AGGRIEVED BY THE SAID DECISION TH E ASSESSEE IS IN APPEAL. 2.9.1 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. WE FIND THAT THE SAME ISSUE HAD BEEN CONSIDERED BY THE TRIBUNAL IN ASSESS EES OWN CASE IN ASSESSMENT YEAR 1994-95 IN ITA NO.2326/M/2001. IN T HAT YEAR ALSO DISALLOWANCE HAD BEEN MADE UNDER SECTION 40A(9) IN RESPECT OF PA YMENTS MADE TO INDRAYAN SCHOOL. THE TRIBUNAL HOWEVER FOLLOWING THE DECISION IN A.Y.1992-93 AND 1993-94 ALLOWED THE CLAIM. FACTS THIS YEAR ARE IDENTICAL. THEREFORE FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA) WE S ET ASIDE THE ORDER OF CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE. 10 INDIAN RAYON & INDUSTRIES LTD 19 THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1995-96, WE ALLOW THE CLAI M OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ALSO. 20 GROUND NO5 IS REGARDING DISALLOWANCE OF RS. 10, 98,25,772/- BEING DEDUCTION U U/S 35(D) OF THE ACT 21 AT THE TIME OF HEARING, THE LD SENIOR COUNSEL FO R THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT PRESS THIS ISSUE BECAUSE THE SAME HAS BEEN ALLOWED BY THE AO IN THE AY 1999-00. ON THE OTHER HAND, THE LD DR HAS NOT DISPUTED THE FACTUAL POSITION AND THEREFORE, SUBMITTED THAT THIS GROUND MAY BE DECIDED AS NOT PRESSED. ACCORDINGLY, WE DISMISS THIS GROUND OF THE ASSESSEE BEING NOT PRESSED. 22 GROUND NO.6 IS REGARDING DISALLOWANCE OF PAYMENT MADE TO LODHA &CO, CALCUTTA BEING THE ISSUE MANAGERS FEE OF RS. 20 LA CS. 23 AT THE TIME OF HEARING, THE LD SENIOR COUNSEL FO R THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE RELATES TO AY 1994-95 AND THEREFORE , THE ASSESSEE DOES NOT PRESS THIS ISSUE. ON THE OTHER HAND, THE LD DR HAS NOT DISPUTE D THE FACTUAL POSITION AND THEREFORE, SUBMITTED THAT THIS GROUND MAY BE DECIDE D AS NOT PRESSED. ACCORDINGLY, WE DISMISS THIS GROUND OF THE ASSESSEE BEING NOT PR ESSED. 11 INDIAN RAYON & INDUSTRIES LTD 24 GROUND NO.7 IS AN ALTERNATIVE GROUND REGARDING D EBENTURE ISSUE EXPENSES ACCRUED DURING THE YEAR 1998-99 AND 99-00 AS WELL A S DEDUCTION U/S 35D 25 AT THE TIME OF HEARING, THE LD SENIOR COUNSEL FO R THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT PRESS THIS ISSUE AS NCD ISSUE EXPENSE CLAIM HAS ALREADY BEEN ALLOWED BY THE AO. SIMILARLY, THE ASSESSEEE DO ES NOT PRESS THE GROUND FOR DEDUCTION U/S 35D AS HAS ALREADY BEEN ALLOWED. ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT HE HAS NO OBJECTION, IF THIS GROUND IS DISMISSED BEING NOT PRESSED. ACCORDINGLY, WE DISMISS THIS GROUND OF THE ASSESSEE BEING NOT PRESSED. 26 THE ASSESSEE HAS FILED AN APPLICATION FOR ADMIS SION OF ADDITIONAL GROUNDS IN ITA NO.6668/MUM/2003 ALONG WITH THE ADDITIONAL GRO UNDS AS UNDER: I) EXCLUDE FROM TAXABLE PROFITS, THE SALES TAX EXEMPTI ON BENEFIT OF `. 1,38,50,922/- WHICH IS INCLUDED IN SALES AND WHICH IS TAXED IN THE ASSESSMENT ORDER AS PART OF PROFITS OF THE BUSINESS II) WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLANT THA T EXPENDITURE INCURRED OH ASSETS NOT OWNED IS ALLOWABLE AS REVENU E EXPENSES IN THE EYAR IN WHICH IT IS INCURRED, AS IT IS HELD BY HON BLE ITAT IN AY 1995-96 THAT SUCH EXPENDITURE IS CAPITAL IN NATURE THE APPE LLANT CLAIMS THAT EXPENDITURE HE ADDED TO THE COST OF FIXED ASS AND D EPRECIATION ON THE SAME BE ALLOWED. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE CLAIM CONSEQUENTIAL DEPRECIATION ON THE SAID EXPENDITURE OF RS. 9,96,08,1334 (8,49,13,250 AND `. 1,19,94,884 AND REDUCE THE TOTA L INCOME ACCORDINGLY. 26.1 THE ASSESSEE HAS ALSO FILED ADDITIONAL EVIDENC ES IN THE SHAPE OF COPY OF SALES TAX EXEMPTION SCHEME AND COPY OF EXEMPTION CERTIFIC ATE (ELIGIBILITY CERTIFICATE) IN SUPPORT OF THE ADDITIONAL GROUND NO.1. THE ASSESSE E HAS ALSO FILED A LETTER DATED 24.8.2007 FOR ADMISSION OF THE ADDITIONAL EVIDENCES . 12 INDIAN RAYON & INDUSTRIES LTD 27 WE HAVE HEARD THE LD SENIOR COUNSEL OF THE ASSES SEE AS WELL AS LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORDS. THE A DDITIONAL GROUND NO.1 REGARDING THE TAXABILITY OF SALES TAX EXEMPTION BENEFIT AVAIL ED BY THE ASSESSEE, THOUGH, HAS BEEN RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFO RE US; HOWEVER, THE SAME ISSUE WAS ALREADY CONSIDERED AND DECIDED BY THE TRIBUNAL IN A SSESSEES OWN CASE FOR AY 1995- 96. SINCE THE ASSESSEE HAS NOW FILED ADDITIONAL EV IDENCE, WHICH IS NOTHING BUT THE SALES TAX EXEMPTION SCHEME OF THE MAHARASHTRA GOVER NMENT AND COPY OF EXEMPTION CERTIFICATE (ELIGIBILITY CERTIFICATE) ISS UED BY THE GOVT DEPARTMENT WHICH WERE NOT AVAILABLE BEFORE THE LOWER AUTHORITIES. TH EREFORE, IN OUR CONSIDERED OPINION AND IN THE INTEREST OF JUSTICE, THIS IS REQUIRED TO BE RECONSIDERED AT THE LEVY OF THE ASSESSING OFFICER. 27.1 WE HAVE ONE MORE REASON TO RESTORE THE ISSUE TO THE ASSESSING OFFICER BECAUSE AN IDENTICAL ISSUE HAS ALREADY BEEN CONSIDE RED AND RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER IN THE CASE OF THE AS SESSEE FOR AY 1995-96 IN ITA NO.3207/M/2002 VIDE ORDER DATED 28.2.2011. THE TRIB UNAL IN PARAS 2.13.4 AND 2.13.5 HELD AS UNDER: 2.13.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING RAISING OF ADDITI ONAL GROUND FOR THE FIRST TIME BEFORE TRIBUNAL REGARDING EXCLUSION OF THE SALES TAX EXEMPTION OF RS.1,14,51,012/- PROVIDED TO THE ASSESSEE BY THE U.P .GOVERNMENT WHICH WAS INCLUDED IN TOTAL SALES IN THE COMPUTATION OF TOTAL INCOME. THE ASSESSEE HAD NOT CLAIMED DEDUCTION ON ACCOUNT OF THE SAID EXEMPT ION EITHER BEFORE THE AO OR BEFORE THE CIT(A) AND THE AMOUNT WAS INCLUDED I N THE SALE FIGURE OF RS.928.36 CRORES. THE ASSESSEE RAISED THIS ISSUE FOR TH E FIRST TIME BEFORE THE TRIBUNAL AFTER THE ORDER DATED 23.10.2003 OF THE MUM BAI SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DCIT VS RELIANCE INDUSTRIES LTD. (SUPRA) AS PER WHICH SALES TAX EXEMPTION BENEFIT WAS CAPITAL RECEIPT, NOT TAXA BLE WAS DELIVERED. THE 13 INDIAN RAYON & INDUSTRIES LTD CASE OF THE ASSESSEE IS THAT THE ASSESSEE COULD NOT HAVE RAISED THE GROUND BEFORE THE AO OR CIT(A) AS THE DECISION OF THE TRIBUN AL WAS AVAILABLE ONLY AFTER PASSING OF THE ORDER BY CIT(A). 2.13.5 WE FIND THAT THE PRINCIPLE RELATING TO ADMISSI ON OF ADDITIONAL GROUND BEING A LEGAL GROUND FOR THE FIRST TIME BEFORE THE TRI BUNAL IS SETTLED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF NTPC (S UPRA) IN WHICH THE HONBLE SUPREME COURT HELD THAT QUESTION OF LAW ARISIN G FROM THE FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS HAS TO BE ALLOWED TO BE RAISED IF IT IS NECESSARY TO CONSIDER THE QUESTION IN ORDER TO C ORRECTLY ASSESS THE TAX LIABILITY OF THE ASSESSEE. IN THIS CASE THE ASSESSE E HAD AVAILED SALES TAX EXEMPTION OF RS.1,14,51,012/- WHICH WAS ALREADY ON RECORD BEFORE THE AO AS THE SAME WAS INCLUDED IN THE TOTAL SALE FIGURE OF RS .928.36 CRORES. THIS CLAIM OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BEFORE US BY T HE REVENUE. THEREFORE THE FACT THAT THE ASSESSEE HAD AVAILED SALES TAX EX EMPTION WHICH HAD BEEN SHOWN AS PART OF THE SALES WAS ALREADY ON RECORD BEFORE THE LOWER AUTHORITIES. IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DCIT VS RELIANCE INDUSTRIES LTD. (SUPRA) WHICH HELD THAT SAL ES TAX SUBSIDY GRANTED BY THE STATE GOVERNMENT WAS OF THE NATURE OF CAPITAL RECE IPT AND COULD NOT BE TAXED, A LEGAL QUESTION DOES ARISE IN CASE OF THE AS SESSEE WHETHER THE SALES TAX EXEMPTION RECEIVED BY THE ASSESSEE FROM THE U.P.G OVERNMENT WAS TAXABLE OR NOT. SUCH QUESTION HAS A DIRECT BEARING O N COMPUTATION OF TAX LIABILITY OF THE ASSESSEE. THEREFORE IN OUR VIEW THE LEGAL QUESTION RAISED BY THE ASSESSEE AS AN ADDITIONAL GROUND HAS TO BE ADMITTED. THE ADJUDICATABILITY OF THE GROUND IS DIFFERENT FROM THE ADMISSIBILITY OF ADDI TIONAL GROUND. IN CASE, FOR ADJUDICATING A GROUND ALREADY ADMITTED, SOME MORE MA TERIAL IS REQUIRED THE TRIBUNAL CAN ALWAYS RESTORE THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER CONSIDERING ALL THE RELEVANT FACTS. BUT ON THIS GROUND, THE ASSESSEE CANNOT BE DENIED ITS RIGHT TO RAISE THE GROUND WHICH A RISES ON THE BASIS OF FACTS ON RECORD AND WHICH IS RELEVANT FOR DETERMINING THE TAX LIABILITY OF THE ASSESSEE CORRECTLY. WE THEREFORE ADMIT THE ADDITIONA L GROUND RAISED BY THE ASSESSEE. SINCE ADJUDICATION OF THE GROUND WILL REQU IRE GOING INTO THE INCENTIVE SCHEME FRAMED BY THE U.P.GOVERNMENT WHICH W AS NOT AVAILABLE BEFORE THE LOWER AUTHORITIES, THE ISSUE IS RESTORED TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLO WING OPPORTUNITY OF HEARING TO THE ASSESSEE. 27.2 ACCORDINGLY, THE MATTER IS RESTORED TO THE REC ORD OF THE ASSESSING OFFICER TO EXAMINE THE ADDITIONAL EVIDENCES FILED BY THE ASSES SEE THEN DECIDE THE ISSUE AS PER LAW. 14 INDIAN RAYON & INDUSTRIES LTD ADDITIONAL GROUND NO.2. 28 WE HAVE HEARD THE LD SENIOR COUNSEL OF THE ASSES SEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS I S AN ALTERNATIVE GROUND RAISED BY THE ASSESSEE. SINCE THIS IS A CONSEQUENTIAL RELI EF SOUGHT BY THE ASSESSEE IN CASE THE EXPENDITURE INCURRED ON THE ASSETS NOT OWNED BY THE ASSESSEE CLAIMED AS REVENUE EXPENDITURE BUT SUCH EXPENDITURE HAS ALREADY BEEN H ELD BY THE TRIBUNAL IN AY 1995- 96 AS CAPITAL IN NATURE. THEREFORE, IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE WE ADMIT TH IS ADDITIONAL GROUND. 29 THE TRIBUNAL, IN ASSESSEES OWN CASE FOR AY 1995 -96 IN PARA 4.3 HAS HELD AS UNDER: 4.3 THE GROUND NO.3 IS REGARDING EXPENDITURE OF RS.8,4 9,13,250/- INCURRED TOWARDS CONSTRUCTION OF ACCESS ROADS TO THE FACTORY. THE ASSESSEE HAS RAISED AN ALTERNATE GROUND THAT IN CASE THE EXPENDITURE WAS N OT ALLOWED AS REVENUE EXPENDITURE THE SAME SHOULD BE CAPITALIZED AND DEPREC IATION SHOULD BE ALLOWED. WE HAVE ALREADY CONSIDERED THIS ASPECT AND VIDE PARA 3.6.7 HAVE HELD THAT THE EXPENDITURE HAS TO BE TREATED AS CAPIT AL IN NATURE. THE ISSUE OF DEPRECIATION WAS NOT BEFORE THE AUTHORITIES BELOW. TH E ISSUE IS THEREFORE RESTORED TO THE ASSESSING OFFICER FOR NECESSARY EXAM INATION AND ORDER AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 4.4 THE GROUND NO.4 IN THE CROSS OBJECTION IS REGARDI NG ALLOWABILITY OF EXPENDITURE BEING PREMIUM OF RS.4 CRORES ON NON CONVERT IBLE DEBENTURES (NCD). THE ASSESSEE HAS RAISED AN ALTERNATE PLEA THA T IN CASE THE EXPENDITURE WAS NOT ALLOWED THE SAME SHOULD BE CONSIDERED UNDER SECTION 35D. SINCE THE EXPENDITURE HAS ALREADY BEEN ALLOWED ON PRO RATA BASI S OVER A 9 YEAR PERIOD THE GROUND RAISED BY THE ASSESSEE HAS BECOME INFRUCT UOUS AND THE SAME IS DISMISSED AS INFRUCTUOUS. ACCORDINGLY, WE RESTORE THIS ADDITIONAL GROUND NO.2 TO THE RECORD OF THE ASSESSING OFFICER TO EXAMINE AND DECIDE THE SAME AS PER LAW. 15 INDIAN RAYON & INDUSTRIES LTD ITA NO.6762/M/003 (BY THE REVENUE) 30 THE REVENUE HAS RAISED ONLY GROUND AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD CIT(A) ERRED IN HOLDING THAT INTEREST EXPENSES FOR THE PERIOD PRIOR T O COMMENCEMENT OF BUSINESS, AMOUNTING TO RS. 37,60,46,864/- ATTRIBUTAB LE TO BORROWING UTILIZED FOR CREATING FIXED ASSETS IN A NEW LINE OF BUSINESS WAS DEDUCTIBLE U/ 36(1)(III) OF THE I T ACT. 30.1 THE ASSESSEE CLAIMED A SUM OF `. 37,60,46,864/ - BEING INTEREST PAID ON CAPITAL BORROWED FUNDS FOR ITS NEW PROJECT/EXPANSIO N NAMELY WHITE CEMENT JST(FLAX), JST (RCM),JSI (HALOL), BIRLA PERICLASE ( MAGNESIA), RAJASHEEE SYNTEX (YARN) AND RAYON CAUSTIC) ETC. THE ASSESSEE CAPITALIZED AN D SHOWN THE INTEREST UNDER CAPITAL WORK-IN PROGRESS IN THE BOOKS OF ACCOUNT; H OWEVER, HAS CLAIMED AS DEDUCTIBLE REVENUE EXPENDITURE IN COMPUTING THE PRO FITS AND GAINS OF BUSINESS U/S 36(1)(III) OF THE I T ACT. THE ASSESSING OFFICER W AS OF THE VIEW THAT WHEN THE MONEY WAS BORROWED FOR SETTING UP A NEW ACTIVITY OR UNIT IT HAS FIRST TO BE EXAMINED ON THE FACTS WHETHER THE NEW ACTIVITY OR UNIT AND THE EX ISTING BUSINESS CONSTITUTE THE SAME BUSINESS OR THEY ARE ENTIRELY A SEPARATE AND DISTIN CT BUSINESS ALTOGETHER. AFTER DISCUSSING VARIOUS DECISIONS AND THE PRINCIPLES/TE ST LAID DOWN BY THE HONBLE SUPREME COURT, THE ASSESSING OFFICER HELD THAT THE INTEREST PAID ON THE BORROWED FUNDS FOR OPERATION OF THE NEW PROJECT IS NOT ALLO WABLE U/S 36(1)(III) AND ACCORDINGLY, DISALLOWED THE CLAIM OF THE ASSESSEE. 30.2 ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE D CIT(A) FOR AY 1995-96 AND 1997-98 AS WELL AS THE ORDER OF THE TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES LTD. 16 INDIAN RAYON & INDUSTRIES LTD 31 BEFORE US, THE LD DR HAS SUBMITTED THAT THOUGH F OR THE AY 1995-96, THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE; HOWEVER, SOME OF THE PROJECTS ARE NEW WHICH WERE NOT IN THE AY 1995-96 ; THEREFORE, THE ISSUE IS NOT ENTIRELY COVERED BY THE ORDER OF THE TRIBUNAL. H E HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN A DETAILED FINDING ON FACT WHEREAS THE CIT(A) HAS NOT DISCUSSE D THE FACT BUT DECIDED THE ISSUE ONLY ON LEGAL PROPOSITION/TEST LAID DOWN IN VARIOUS DECISIONS. 31.2 ON THE OTHER HAND, THE LD SENIOR COUNSEL HAS S UBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DIVERSIFIED OF PRODUCTS AND MANUFACTURING ACTIVITIES. ALL THE DIVISIONS/PROJECTS OF THE ASSESSEE ARE INTER CO NNECTION, INTER LACING, INTER DEPENDENCE AND CONTROLLED BY COMMON MANAGEMENT, COM MON BUSINESS ORGANIZATION, COMMON ADMINISTRATION AND COMMON PLAC E OF BUSINESS. THE ASSESSEE IS DIVERSIFYING THEIR BUSINESS AND THUS NEW PROJECT /DIVISION ARE ONLY EXPANSION OF THE EXISTING BUSINESS. HE HAS FURTHER POINTED OUT THAT ALL THE ITEMS IN THE NEW UNIT WERE MANUFACTURED BY THE ASSESSEE IN THE EARLIER YEARS. ALL THE UNITS WHICH WERE SUBJECT MATTER OF THE ASSESSMENT YEAR UNDER CONSIDERATION W ERE ALSO THE SUBJECT MATTER FOR THE AY 1995-96. HE HAS TOOK US TO THE ORDER FOR TH E AY 1995-96 AND POINTED OUT THAT EXCEPT HIGH-TECH CARBON ALL OTHER PRODUCTS ARE ALR EADY THERE AND EVEN THE PRODUCTS WERE ALREADY MANUFACTURED BY THE ASSESSEE. THEREFORE, THE FACTS AND CIRCUMSTANCES ARE IDENTICAL FOR THE AY UNDER CONSID ERATION TO THE AY 1995-96. HE HAS FURTHER SUBMITTED THAT THE CIT(A) HAS ADJUDICAT ED THE ISSUE AFTER CONSIDERING THE VARIOUS DECISIONS OF THE SUPREME COURT, HIGH COURTS AS WELL AS THE TRIBUNAL. 31.3 HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DCIT VS CORE HEALTH CARE LTD REPORTED IN 298 ITR 19 4 AND SUBMITTED THAT WHEN THE 17 INDIAN RAYON & INDUSTRIES LTD ASSESSEE BORROWED CAPITAL FOR THE BUSINESS, WHICH IS CARRIED ON BY THE ASSESSEE, THE INTEREST IS ALLOWABLE. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF WATERFALL ESTATE LTD V C CIT REPORTED IN 219 ITR 563 AND SUBMITTED THAT VARIOUS PROJECTS/DIVISIONS ARE SET U P AT DIFFERENT PLACES AND AT DIFFERENT POINT OF TIME AS WELL AS MANAGED BY LOCAL UNITS; HOWEVER, CONTROLLED BY THE HEAD OFFICE OF ALL THE DIVISION/PROJECTS THEN, IT W ILL BE CONSIDERED AS EXPANSION OF THE BUSINESS, AND NOT SETTING UP OF THE NEW BUSINESS. HE HAS FURTHER SUBMITTED THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1995-96. 32 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1995- 96. THE TRIBUNAL IN PARA 3.7.9 AND 3.7.10 ADJUDICATED THE ISSUE AS UNDER: 3.7.9 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF I NTEREST PAID ON FUNDS BORROWED FOR THE PURPOSE OF SETTING UP OF NEW PROJECTS / UNITS. THE ASSESSEE IS A DIVERSIFIED COMPANY PRODUCING RAYON, CEMENT ETC A T ITS VARIOUS PLANTS. THE ASSESSEE HAD BORROWED FUNDS FOR THE PURPOSE OF SETTING UP OF NEW UNIT. THE INTEREST PAID WAS CAPITALIZED IN THE BALANCE SHEET B UT IN THE COMPUTATION OF INCOME THE SAME WAS CLAIMED AS DEDUCTION WHILE COMP UTING THE TOTAL INCOME. THE PROVISIONS OF ALLOWING INTEREST ON CAPITA L BORROWED ARE CONTAINED IN SECTION 36(1)(III). THE ONLY REQUIREMENT OF THE S AID SECTION IS THAT THE CAPITAL SHOULD BE BORROWED FOR THE PURPOSE OF BUSINESS AND TH E INTEREST EXPENDITURE SHOULD BE INCURRED. ONCE THESE CONDITIONS ARE SATISFI ED THE INTEREST HAS TO BE ALLOWED AS A REVENUE EXPENDITURE IRRESPECTIVE OF THE FACT WHETHER BORROWED FUNDS ARE USED FOR ACQUISITION OF CAPITAL ASSET OR FOR SETTING UP OF NEW UNITS. THEREFORE THE POINT TO BE CONSIDERED IS WHETHER THE NEW UNIT WAS AN INDEPENDENT BUSINESS OR PART OF THE EXISTING BUSINES S. IN CASE THE NEW UNIT FOUND TO BE PART OF THE EXISTING BUSINESS THE INTERE ST ON CAPITAL BORROWED HAS TO BE ALLOWED AS DEDUCTION. 3.7.10 IT IS A SETTLED LEGAL POSITION THAT WHETHER T HE TWO BUSINESSES ARE THE SAME BUSINESS OR DIFFERENT BUSINESS DOES NOT DEPEND UPON THE NATURE OF TWO BUSINESSES. THE TESTS TO BE APPLIED ARE WHETHER THERE IS INTERCONNECTION, 18 INDIAN RAYON & INDUSTRIES LTD INTERLACING, INTERDEPENDENCE AND UNITY OF CONTROL BET WEEN THE TWO BUSINESSES AS HELD BY HONBLE SUPREME COURT IN CASE OF CIT VS PRITHVI INSURANCE CO. (SUPRA). THE HONBLE SUPREME COURT FOUND IN THAT CASE THAT INTERCONNECTION, INTERLACING, INTERDEPENDENCE AND UN ITY OF CONTROL WAS FURNISHED BY THE EXISTENCE OF COMMON MANAGEMENT, COM MON BUSINESS ORGANIZATION, COMMON FUND AND COMMON PLACE OF BUSIN ESS. SUBSEQUENTLY THE HONBLE SUPREME COURT AFTER CONSIDERING THE EARLIE R JUDGMENT IN CASE OF PRITHVI INSURANCE (SUPRA) HELD IN CASE OF PRODUCE EXCHA NGE CORPORATION (SUPRA) THAT IT WAS THE UNITY OF CONTROL AND NOT THE NATURE OF TWO BUSINESSES WHICH WAS A DECISIVE TEST TO DETERMINING WHETHER THE TWO BUSINESSES ARE SAME OR NOT. IN THIS CASE WE FIND THAT ALL THE UNITS ARE UNDER THE DIRECT CONTROL AND SUPERVISION OF THE BOARD OF DIRECTORS AND THUS H AVE A COMMON BUSINESS ADMINISTRATION. THOUGH THE EMPLOYEES AND FUNDS ARE SE PARATELY ALLOCATED FOR DIFFERENT UNITS THEY ARE DEPENDED UPON THE HEAD OFFI CE FOR RAISING OF FUNDS AND EMPLOYEES ARE TRANSFERABLE FROM ONE UNIT OR ANOTHER. THERE IS ALSO INTER- TRANSFER OF FUNDS. THERE IS CENTRALIZED FINANCE SELL FOR LOOKING AFTER ACCOUNTS, FINANCE, FUNDS MANAGEMENT, INFORMATION, SECRETARIAL M ATTERS AND TAXATION MATTERS FOR ALL THE UNIT. THOUGH SEPARATE PROFIT AND LOSS ACCOUNT AND BALANCE SHEETS ARE PREPARED FOR DIFFERENT UNITS, THESE ARE ONL Y TO ENSURE COMPLIANCE WITH LOCAL LAWS AND FOR CLAIM OF DEDUCTION UNDER SEC TION 80IA/ 80HHC ETC WHICH ARE SEPARATELY ALLOWABLE IN RESPECT OF EACH UN IT. SIMILAR SITUATION HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF G RASIM INDUSTRIES LTD. (64 TTJ 357). IN THAT CASE THE ASSESSEE WAS PRODUCING VI SCOSE STAPLE FIBRE, RAYON, CAUSTIC SODA, CEMENT, TEXTILES, HEAVY ENGINEERING MA CHINERY AND CHEMICALS. THE ASSESSEE HAD RAISED FUNDS FOR SETTING UP OF TWO CEMENT UNITS AT RAIPUR AND SHAMBUPURA AND STEEL UNIT AT VIKRAMSPAT SALAV. T HE TRIBUNAL HELD THAT ALL THE UNITS/ UNDERTAKINGS CONSTITUTED THE SAME BUSINE SS AND ALLOWED THE CLAIM OF INTEREST. THE SAME VIEW HAS BEEN TAKEN BY THE HON BLE HIGH COURT OF MUMBAI IN CASE OF CIT VS TATA CHEMICALS LTD. (256 I TR 395). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE HOLD THAT THE NEW UNIT BEING SET UP BY THE ASSESSEE WAS INTEGRAL PART OF THE SAME BUSINESS AND THEREFORE INTEREST ON MONEY BORROWED HAS TO BE ALLOWED AS DEDUCTION. WE T HEREFORE SEE NO INFIRMITY IN THE ORDER OF CIT(A) ALLOWING THE CLAIM O F THE ASSESSEE AND THE SAME IS UPHELD. 32.1 WE FIND THAT THE FACTS OF THIS ISSUE ARE PARA-MATERIA TO ASSESSMENT YEAR 1995- 96. SINCE THE TRIBUNAL HAS ADJUDICATED THE ISSUE AF TER CONSIDERING ALL THE DECISIONS INCLUDING THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF TATA CHEMICALS LTD REPORTED IN 256 ITR 395 AND THE DECISION OF THE TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES LTD; THEREFORE, FOLLOWING THE EARLIER O RDERS OF THE TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 19 INDIAN RAYON & INDUSTRIES LTD CROSS OBJECTION NO. 38 & 39/MUM/2011 (BY THE ASSES SEE) 33 THE ASSESSEE HAS RAISED THE ONLY GROUND IN ITS C ROSS OBJECTIONS AS UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT INTEREST EXPENSES , ATTRIBUTABLE TO BORROWINGS/LOAN TAKEN FOR A NEW PROJECTS/EXPANSION/ MODERNIZATION UTILIZED FOR CREATING FIXED ASSET IN A NEW LINE BUSINESS WAS DEDUCTIBLE U/S 36(1)(III) OF THE I T ACT. THE AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION OF U/S 36(1)(III) AND TO REDUCE THE TOTAL INCOME OF THE APPELLANT ACC ORDINGLY. 33.1 SINCE THE ISSUE IN THE REVENUES APPEAL HAS BE EN DECIDED IN FAVOUR OF THE ASSESSEE; THEREFORE THE CO FILED BY THE ASSESSEE IS DISMISSED BEING INFRUCTUOUS. ITA NO.6669/MUM/2003(BY THE ASSESSEE) 34 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWA NCE OF RS. 5,63,084/- BEING RURAL DEVELOPMENT EXPENDITURE INCURRED BY THE APPELLANT AND LD CIT(A) HAS ERRED IN CONFIRMING THE SAID DISALLOWANC E. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE CLAIM OF RS 5,63,0 84/- AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO HAS ERRED IN DISALLOWING RS. 17,267/- BE DEP RECIATION CLAIMED BY THE APPELLANT ON ROLL OVER CHARGES AND LD CIT( A) HAS ERRED IN CONFIRMING RS, 17,267/- AS REVENUE EXPENDITURE. TH E ASSESSING OFFICER BE DIRECTED TO ALLOW THE REVISED AMOUNT OF DEPRECIA TION OF RS. 17,267/- ON ROLL OVER CHARGES AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN MAKING THE DISALLOWANCE OF RS. 23,48,193/- U/S 40A(9) BEING EXPENDITURE INCURRED ON PAYMENT MADE T O SCHOOLS AT VERAVAL AND MALKHED WHEREIN CHILDREN OF THE EMPLOYE ES OF THE APPELLANT COMPANY ARE STUDYING AND LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE. THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE EXPENDITURE OF RS. 23,438,193/-AND TO RE DUCE THE TOTAL INCOME ACCORDINGLY. 4 WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLANT T HAT THE DEBENTURE ISSUE EXPENDITURE INCURRED BY THE APPELLA NT DURING THE PREVIOUS YEARS RELEVANT TO AY 1988-89 AND 1989-90 I S REVENUE EXPENDITURE, IT IS HELD IN THOSE YEARS THAT THE SAI D EXPENDITURE IS NOT REVENUE EXPENDITURE, THE APPELLANT CLAIMS THAT THE EXPENDITURE BE CAPITALIZED TO THE ACTUAL COST OF FIXED ASSETS AND DEPRECATION BE 20 INDIAN RAYON & INDUSTRIES LTD ALLOWED ON THE SAME ACCORDINGLY. THE ASSESSING OFFI CER BE DIRECTED TO ALLOW THE CLAIM OF DEPRECATION ON THE SAID DEBENTUR E ISSUE EXPENDITURE THE TOTAL INCOME ACCORDINGLY. 35 ALL THESE GROUNDS ARE COMMON AS IN THE APPEAL IN ITA NO. 6668/MUM/2003; THEREFORE, THE SAME STANDS DECIDED AS PER OUR FINDI NGS IN THE ASSESSEE APPEAL IN ITA NO.6668/MUM/2003 FOR AY 1998-99. ITA NO.6763/MUM/2003 (BY THE REVENUE) 36 THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL IS COMMON TO GROUND RAISED IN ITA 6762/MUM/2003 FOR AY 1998-99 AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD CIT(A) ERRED IN HOLDING THAT INTEREST EXPENSES FOR THE PERIOD PRIOR T O COMMENCEMENT OF BUSINESS, AMOUNTING TO RS. 37,60,46,864/- ATTRIBUTAB LE TO BORROWING UTILIZED FOR CREATING FIXED ASSETS IN A NEW LINE OF BUSINESS WAS DEDUCTIBLE U/ 36(1)(III) OF THE I T ACT. 37 THIS IS ISSUE IS DECIDED WHILE ADJUDICATING THE APPEAL IN ITA NO.6762/M/2003 OF THE REVENUE. APPLYING THE SAME RATIO, WE DECIDE THI S ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 38 IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED WHEREAS THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND PARTLY FOR S TATISTICAL PURPOSE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THE 12 TH , DAY OF AUG 2011. SD/- SD/- ( P M JAGTAP ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 12 TH , AUG 2011 RAJ* 21 INDIAN RAYON & INDUSTRIES LTD COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI