ACIT, UDAIPUR V. Shri Madan Lal Paliwal, RAJSAMAND

ITA 68/JODH/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4904 (ITAT-JODHPUR)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Business income; Depreciation; Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 68/JODH/2013 (A.Y. 2009-10) ACIT, VS. SHRI MADANLAL PALIWAL CIRCLE-2, SANT KRAPA, UPALI ODEN, UDAIPUR. NATHDWARA, RAJSAMAND. PAN NO. ABWPP 0961 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 25/09/2013. DATE OF PRONOUNCEMENT : 27/09/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 02/11/2012 OF LEARNED CIT(A) UDAIPUR. THE FOLLOWI NG GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD CIT(A) HAS ERRED IN:- 1) DELETING THE DISALLOWANCE OF RS. 30,170/- BEING LOSS FROM ANUSWAR 2 ENTERPRISES. 2) DELETING DISALLOWANCE OF RS. 35,644/- BEING INT EREST IN ICICI OD BANK ACCOUNT. 3) DELETING THE DISALLOWANCE OF INTEREST OF RS. 5, 71,025/- BEING INTEREST DIRECTLY ATTRIBUTABLE TO THE ADVANCES GIVEN TO THE SISTER CONCERN AT LOWER RATE AND THUS BEING NO BUSINESS EXPENDITURE U /S 36(1)(III) OF THE L.T. ACT TO THAT EXTENT. 4) DELETING DISALLOWANCE OF INTEREST OF RS. 1,65,6 93/- BY INTEREST U/S 14A BY INVOKING THE PROVISION OF SECTION 36(1)(III) OF THE L.T. ACT. 5) DIRECTING TO ASSESS THE AGRICULTURE INCOME AMOU NTING TO RS. 5,60,892/- INSTEAD OF INCOME FROM OTHER SOURCES. 6) DELETING THE TOTAL DISALLOWANCE OF HIGHER DEPRE CIATION OF RS. 22,69,073/- CLAIMED ON VARIOUS ITEMS WHICH ARE NOT AT ALL PARTS OF THE WIND MILL, IGNORING THE FACT THAT HIGHER RATE OF DE PRECIATION IS AVAILABLE TO 'RENEWABLE ENERGY DEVICES BEING WIND M ILL' AS ENVISAGED IN ITEM NO. (XIII) OF S.NO. 3 OF NEW APPENDIX 1 (I. E DEPRECIATION TABLE) AND NOT TO THE EXTRA OR ANCILLARY ITEMS. (A) IGNORING THE FACT THAT FOUNDATION WORK & TRANSFORM ER PLINTH IS BASICALLY CIVIL WORK AND IS NOT AT ALL PART OF WIN D MILL (CAPITAL EXPENDITURE OF RS. 26,74,843/-) AND IS THUS ELIGIBL E FOR DEPRECIATION @ 10% INSTEAD OF 80%. (B) IGNORING THE FACT THAT PURCHASE AND INSTALLATI ON OF ELECTRICAL ITEMS AND ELECTRIC LINES ARE NOT ALL PART OF THE WI LL MILL (CAPITAL EXPENDITURE OF RS. 16,57,591/-) AND IS THUS ELIGIBL E FOR CLAIM OF DEPRECIATION @ 15% INSTEAD OF 80%. (C) IGNORING THE FACT THAT EVACUATION CHARGES HAVE NOT RESULTED INTO ACQUISITION OF ANY DEPRECIABLE ASSET TO THE AS SESSEE, LEAST THE WIND MILL AND AT THE MAXIMUM THIS CAN BE INTANG IBLE ASSET (EXPENDITURE OF RS. 19,85,400/-). THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DEL ETE OR MODIFY ANY 3 OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2 VIDE GROUNDS NO.1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF DISALLOWANCE OF RS. 30,170/-. 3. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE CLAIMED LOSS OF RS. 30,170/- IN THE PROPRIETARY CONCERN NAMELY M /S. ANUSWAR ENTERPRISES. HE ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF LOSS AND THE ASSESSEE SUBMITTED THAT THE EXPENDITURE WAS INCURRE D TO GET THE BOOKS OF ACCOUNT AUDITED AND OTHER EXPENSES PERTAINS TO BANK CHARGES. HENCE, THE LOSS CLAIMED WAS ALLOWABLE. THE ASSESSING OFFI CER OBSERVED THAT SINCE NO BUSINESS TRANSACTION TOOK PLACE, THEREFORE, THE LOSS CLAIMED WAS NOT ALLOWABLE AS THE AUDIT OF THE BOOKS WAS NOT STATUTO RY LIABILITY AND THE BANK CHARGES WERE ALSO NOT FOUND RELATED TO ANY BUS INESS ACTIVITY. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LEARNED CIT(A) AND SUBMITTED AS UNDER:- IN THIS REGARD, DURING THE ASSESSMENT PROCEEDING, THE APPELLANT HAS SUBMITTED REPLY ON 05/08/2011 THAT ASSESSEE HAS NOT CLOSED THE BUSINESS IN THE FIRM ANUSWAR ENTERPRISES, WHICH IS CLEAR FROM T HE BOOKS OF ACCOUNTS WHERE ASSESSEE MAINTAINED BOOKS OF ACCOUNTS AND G ET THESE AUDITED FROM THE CHARTERED ACCOUNTANTS. AS THIS FIRM IS FLOATED BY THE ASSESSEE TO TAKE VARIOUS BUSINESS AND SERVICE SECTOR RELATED ACTIVIT IES AND THE SAME COULD NOT PLACE IN THE YEAR UNDER CONSIDERATION, THIS IT IS NOT CLOSURE OF BUSINESS 4 AND DISCONTINUATION OF OPERATION. SO, THEREFORE LO SS OF RS. 30,170/- VALID AND ALLOWANCE FOR SET OFF UNDER SECTION 70 OF THE A CT. IN THIS RESPECT, THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF LAKSHMI NARAYAN BOARD MILLS PRIVATE LIMITED VS. CIT (1994) 205 ITR 88 (CA L). LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE INCURRED EXPENDITURE FOR GETTING ITS BOOKS OF ACCOUNTS AUDIT AND FOR BANK CHARGES. HE FURTHER OB SERVED THAT THE ASSESSING OFFICER DID NOT DOUBT THE INCURRING OF EX PENSES AND THAT THE ASSESSEE NEITHER CLOSED NOR DISCONTINUED THE BUSINE SS AND THE INTENTION OF THE ASSESSEE WAS TO CONTINUE THE BUSINESS. LEARNED CIT(A) WAS OF THE VIEW THAT IT WAS NECESSARY TO INCUR SOME EXPENDITUR E TO KEEP ALIVE THE BUSINESS CONCERN AND THE ASSESSING OFFICER HAD NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE SO INCURRED AND THER E WAS NO CASE FOR MAKING ANY DISALLOWANCE OF LOSS, WHICH IS ALLOWABLE TO BE SET OFF UNDER SECTION 70 OF THE I.T. ACT, 1961 (HEREINAFTER REFER RED TO AS ACT, FOR SHORT). ACCORDINGLY, DISALLOWANCE MADE BY THE ASSE SSING OFFICER WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES. IN OUR OPINION, THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE BECAUSE THE ASSESSING OFFICER DID NOT DOUBT THE GENUINENESS OF THE EXPENDITURE, WHICH WAS NECESSARY TO KEEP ALI VE THE BUSINESS 5 CONCERN. WE THEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 6. THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO THE DIS ALLOWANCE OF RS. 35,644/- BEING INTEREST IN ICICI OD BANK ACCOUNT. 7. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD PAID INTEREST OF RS. 1,06,932/- @ 13.5% ON THE OVER DRAF T TAKEN FROM ICICI BANK ON 08/04/2008. THE ASSESSEE SUBMITTED TO THE ASSES SING OFFICER THAT THE LOAN WAS TAKEN TO EXTEND THE CREDIT TO M/S. MIRAJ P RODUCTS PVT. LTD. AS UNSECURED LOAN AND AN INTEREST @ 9% WAS CHARGED FRO M THE SAID CONCERN. THEREFORE, THE OVERDRAFT WAS RAISED TO EARN INTERES T INCOME AND FURTHER TO CREATE FACILITY FOR THE BUSINESS INTEREST. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSESSEE BY OBSE RVING THAT THE ASSESSEE HAD NO STATUTORY LIABILITY OR EVEN BUSINES S LIABILITY TO RAISE LOAN FROM ICICI BANK AND THEN EXTEND THE SAME TO M/S. MI RAJ PRODUCTS PVT. LTD. AND THAT THERE WAS NO REASON TO EXPLAIN AS TO WHY THE LOAN WAS RAISED AT THE INTEREST RATE OF 13% AND THEN EXTENDE D THE SAME AT LESSER RATE OF INTEREST I.E. @ 9%. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE INTEREST OF RS. 35,644/-. 6 8. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER TO TH E LEARNED CIT(A) AND SUBMITTED AS UNDER:- THE APPELLANT PAID INTEREST A SUM OF RS.1,06,932 F OR ICICI BANK 0D ACCOUNT. THIS AMOUNT WAS PARTLY UTILIZED BY MIRAJ PRODUCTS P VT. LTD FOR 8 DAYS IN THE MONTH OF APRIL,2008. RATE OF INTEREST @ 9% THE OVER DRAFT WAS REPAID BY THE ASSESSEE ON 08.04.2008 AT THE RATE OF INTEREST @ 13 % THE LD. ASSESSING 0FFICER HAS DISALLOWED INTEREST A SUM OF RS.35644. THE APPELLANT PAID INTEREST @13.5% ON ICICI BANK OD ACCOUNT AND AN INT EREST @ 9% WAS CHARGED FROM MIRAJ PRODUCTS PVT. LTD. THE EXCESS IN TEREST I.E.4.5% (13.5% - 9%) IS FOUND TO BE EXCESS EXPENDITURE NOT CONNECTED WITH THE BUSINESS OF APPELLANT. THUS OUT OF TOTAL INTEREST OF RS.1,06,93 2, A SUM OF RS.35,644 DISALLOWED. IN SUPPORT OF THE CONTENTION, THE APPEL LANT HAS PLACED RELIANCE ON THE FOLLOWING JUDGMENT. CIT VS. INDIAN EXPLOSIVE LTD (1992) 64 TAXMAN 589: 1991) 192 ITR ,144, 147 (CAL) WHERE IT HAS BEEN HELD AS UNDER: 'WITHOUT CO-RELATING THE INTEREST FREE LOANS TO THE BORROWED CAPITAL, NO DISALLOWANCE COULD BE MADE ON THAT SCORE. SAHIBAG ENTREPRENEURS VS IT0 (1994) 50 ITD 113 (AHE M-TRIB), 49 TTJ (AHMD) 554:. 122 TAXATION 25. S.A. BUILDERS LTD VS. CIT (A), (2007) 288 ITR I9 (S C), 206 CGTR (SC) 631: 158 TAXMAN 74 OVERRULING PHALTAN SAGAR WORKS LTD VS. CW T (1994) 208 ITR 989 (BOM), THE SUPREME COURT DECISION (288 ITR 1 (SC) H AS BEEN FOLLOWED IN CIT VS. DALMIA CEMENT BHARAT LTD (2009) 183 TAXMAN 422, 429 (DEL,) CIT VS. RELIANCE UTILITIES & POWER LTD (2009) 313 ITR 340,3 44 (BOM): 221 CTR (BOM) 435. INTEREST ON MONEY BORROWED FROM BANK LENT TO S ISTER CONCERN WITHOUT CHARGING INTEREST HELD ADMISSIBLE IF MADE AS A MEAS URE OF COMMERCIAL EXPEDIENCY. CIT VS. LALSONS ENTERPRISES (2010) 324 ITR 426 DEL. WHERE THERE IS A MUTUAL RELATIONSHIP BETWEEN THE ASSESSEE AND THE SISTER CO NCERN, THE FACT THAT NO INTEREST IS CHARGED FOR ADVANCE TO SISTER CONCERN D OES NOT JUSTIFY DISALLOWANCE OF INTEREST PAID TO THE BANK ON BORROW INGS FOR THE PURPOSE OF ASSESSEE'S BUSINESS. 7 APPELLANT TAKEN THE OVER DRAFT FROM ICICI BANK ON 2 9 TH MARCH,2009 AND SAME WAS REPAID ON 9 TH APRIL 2008 . IN THIS REGARD INTEREST @ 13.5% PAID TO BANK RELATING TO USED ICICI BANK OD ACCOUNT AMOUNT ING TO RUPEES 106932. HOWEVER, INTEREST WAS RECEIVED @ 9% ON UNSECURED LO AN WHICH HAD GIVEN TO MIRAJ PRODUCTS PVT. LTD. ASSESSING OFFICER WAS D ISALLOWED EXCESS INTEREST AMOUNTING TO RS,.35644 IS NOT JUSTIFIED BECAUSE 0D AMOUNT WAS USED BY MIRAJ PRODUCTS PVT. LTD AND APPELLANT IS HAVING MAJ OR SHARE HOLDING IN THE SUCH COMPANY IN THE YEAR. IN VIEW OF ABOVE FACT APP ELLANT USED THIS OVER DRAFT IN BUSINESS INTEREST. 9. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE USED TO CHARGE THE INTER EST @ 9% ON LOANS/ ADVANCES EXTENDED TO THE COMPANY AS AND WHEN REQUIR ED FOR BUSINESS. THEREFORE, HE CHARGED THE INTEREST @ 9% FROM THE CO MPANY ON THE OVERDRAFT AMOUNT TAKEN BY HIM FROM ICICI AND PASSED ON TO THE COMPANY CONSIDERING THE BUSINESS EXPEDIENCY. HE FURTHER OB SERVED THAT THE ASSESSEE BEING THE MANAGING DIRECTOR AND MAJOR SHAR EHOLDER OF THE COMPANY, WAS RESPONSIBLE TO ARRANGE NECESSARY FUNDS FOR BUSINESS EXPEDIENCY AND THE OVERDRAFT TAKEN BY HIM FROM THE ICICI BANK WAS FOR A SHORT PERIOD OF 8-10 DAYS, THE SAME WAS UTILIZED BY THE COMPANY FOR BUSINESS PURPOSE AND NOT BY THE ASSESSEE FOR HIS PE RSONAL PURPOSE. HE FURTHER OBSERVED THAT AS THE ASSESSEE WAS THE MAJOR SHAREHOLDER OF THE COMPANY AND THERE WAS MUTUAL RELATIONSHIP BETWEEN T HE ASSESSEE AND THE COMPANY. HENCE, NO DISALLOWANCE OUT OF INTERES T PAYMENTS MADE TO 8 THE BANK ON BORROWINGS COULD BE MADE AS THE SAID FU NDS WERE UTILIZED BY THE SAID COMPANY FOR BUSINESS PURPOSE. RELIANCE WA S PLACED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. LALSONS ENTERPRISES (2010) 324 ITR 426 . LEARNED CIT(A), ACCORDINGLY, DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW, T HE DEPARTMENT IS IN APPEAL. 10. LEARNED D.R. SUBMITTED THAT THE ASSESSEE PAID INTE REST ON HIGHER RATE AND CHARGED THE INTEREST FROM THE COMPANY AT A LESSER RATE. THEREFORE, DISALLOWANCE WAS RIGHTLY MADE BY THE ASS ESSING OFFICER AND LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE SA ME. 11. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A). 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT C ASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE BEING THE MANAGING DIRECTOR AND M AJOR SHAREHOLDER OF M/S. MIRAJ PRODUCTS PVT. LTD. WAS RESPONSIBLE FOR A RRANGING THE FUNDS FOR BUSINESS EXPEDIENCY OF THAT COMPANY, BUT THE ASSESS EE WAS NOT HAVING THE FUNDS, HE THEREFORE, ARRANGED THE SAME BY RAISI NG OVERDRAFT FROM THE 9 ICICI BANK AND THE SAID AMOUNT WAS GIVEN AS LOAN TO THE COMPANY. THE ASSESSEE CHARGED INTEREST AT THE SAME RATE, WHICH W AS CHARGED IN EARLIER YEARS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE OVERDRAFT LIMIT WAS NOT RAISED BY THE ASSESSEE FOR BUSINESS PURPOSE S AND BUSINESS EXPEDIENCY, THEREFORE, DISALLOWANCE IN PART OF THE INTEREST PAID BY THE ASSESSEE TO THE BANK WAS NOT JUSTIFIED AND THE LEAR NED CIT(A) RIGHTLY DELETED THE SAME. ACCORDINGLY, THIS GROUND OF THE DEPARTMENT FAILS. 13. THE NEXT ISSUES VIDE GROUNDS NO 3 & 4 OF THE DEPAR TMENT RELATES TO THE DELETION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS. 5,71,025/- AND RS. 1,65,693/- UNDER SECTION 36(1)(III) OF THE ACT. 14 . FACTS RELATED TO THESE ISSUES IN BRIEF ARE THAT T HE ASSESSEE PAID LOAN OF RS. 76,82,967/- TO THE LIC AND CONTENDED THAT TH E LOAN WAS TAKEN FROM LIC AGAINST SURRENDER VALUE OF THE POLICY OF THE AS SESSEE AND THE SAID LOAN AMOUNT WAS EXTENDED AS UNSECURED LOAN TO M/S. MIRAJ PRODUCTS PVT. LTD. IT WAS FURTHER CONTENDED THAT THE INTEREST PAID AND RECEIVED ON SUCH LOAN WAS @ 9%, THEREFORE, THERE WAS NO EXPENDITURE WHIC H COULD BE SAID TO BE INCURRED FOR NON-INCOME EARNING PURPOSE. HOWEVER, THE ASSESSING OFFICER NOTICED THAT DURING THE RELEVANT PERIOD, THE ASSESS EE HAD WITHDRAWN AN AMOUNT OF RS. 2.91 CRORES FROM M/S. MIRAJ PRODUCTS PVT. LTD. AND INVESTED INTO MARKET PLUS MUTUAL FUND FLOATED BY LIC AND SIN CE, IT WAS A CAPITAL 10 ASSET, NO INTEREST COULD BE ALLOWED IN RESPECT OF T HIS PURCHASE AS REVENUE EXPENDITURE OR BUSINESS EXPENDITURE. HE, THEREFORE , ASKED THE ASSESSEE TO GIVE EXPLANATION ON THIS ISSUE. IN RESPONSE, TH E ASSESSEE SUBMITTED THAT THE INVESTMENT OF RS. 2.91 CRORES WAS MADE ONL Y FOR 220 DAYS DURING THE RELEVANT PERIOD AND SINCE THE LOAN TAKEN BY THE ASSESSEE WAS @ 9%. AT THE MOST, INTEREST ATTRIBUTABLE TO INVESTMENT COULD BE TAKEN @ 9%, WHICH WORKED OUT TO RS. 15,78,575/-. IT WAS FURTHER STAT ED BEFORE THE ASSESSING OFFICER THAT THE AMOUNT OF LOAN GIVEN TO M/S. MIRAJ PRODUCTS PVT. LTD. WAS COMPRISING OF LIC AS WELL AS ASSESSEES SUBSTANTIAL CAPITAL AND THAT THE AGGREGATE LOAN WAS RS. 19.6 CRORES, THEREFORE, INVE STMENT MADE IN MARKET PLUS (LIC) MAY BE TREATED AS OUT OF ASSESSEE S OWN CAPITAL. HOWEVER, THE ASSESSING OFFICER DID NOT FIND MERIT I N THE SUBMISSIONS OF THE ASSESSEE. HE, THEREFORE, DISALLOWED INTEREST A MOUNTING TO RS. 5,71,025/- CONSIDERING THE SAME FOR NON-BUSINESS PU RPOSES UNDER SECTION 36(1)(III) OF THE ACT. SIMILARLY, DURING THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE RECEIVE D A SUM OF RS. 2,21,126/- AS DIVIDEND INCOME AND THE AMOUNT OF INV ESTMENT AS ON 31/03/2009 WAS RS. 4.77 CRORES AS AGAINST RS. 1.86 CRORES AS ON 31/03/2008. HE FURTHER OBSERVED THAT THE ASSESSEE DID NOT SHOW ANY EXPENDITURE AGAINST THE ABOVE SAID EXEMPTED INCOME. THE ASSESSING 11 OFFICER HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT WERE APPLICABLE IN THIS CASE. HE WORKED OUT THE AVERAGE INVESTMENT AT RS. 3.31 CRORES AND DISALLOWED A SUM OF RS. 1,65,693/- BEING HALF P ERCENT OF AVERAGE INVESTMENT. 15. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LEARNED CIT(A) AND THE SUBMISSIONS MADE AS INCORPORATED IN PARA 4.2 OF THE IMPUGNED ORDER ARE REPRODUCED VERBATIM AS UNDER:- 'WITH REFERENCE TO THE QUERY OF INVESTMENT OF EXEMP T NATURE MADE BY THE ASSESSEE, WE WOULD LIKE TO SUBMIT TO YOUR GOOD SELF THAT THE ASSESSEE HAD BALANCE OF LOAN FROM LIC AMOUNTING TO RS.10.77 CROR ES AGAINST THE TOTAL ASSET AMOUNTING TO RS.119.68 CRORES IN THE BALANCE SHEET AS ON 31.3.2009, FURTHER, IT IS SUBMITTED THAT IT IS VERY CLEAR, THE LOAN FROM LIC WAS TAKEN IN THE EARLIER YEAR SAME WAS UNSERCURED IOAN GIVEN TO M/S.MIRAJ PRODUCTS PVT. LTD IN THE EARLIER YEAR. AS THE ASSESSEE HAS PAID R S.76,82,967 AS INTEREST TO LIC ON THE LOAN TAKEN WHERE AS INTEREST ON UNSECURE D LOAN WAS RECEIVED AMOUNTING TO RS.95,99,862 FROM M/S MIRAJ PRODUCTS P VT. LTD IN THIS YEAR. THE ASSESSEE HAD BEEN RECEIVED THE INTEREST ON UNSE CURED LOAN IS MORE THAN THE INTEREST PAID TO LIC DURING THE FINANCIAL YEAR, ASSESSEE HAD MADE THE INVESTMENT IN MARKET PLUS AMOUNTING TO RS.2.91 CRORE DATED 23.8.2008. NO DISALLOWANCE COULD BE MADE IN CASE OF INTEREST F REE ADVANCES. SINCE THE DEPARTMENT HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE AND THE INTEREST BEARING LOAN TAKEN BY THE ASSESSEE, THE INCOME-TAX AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING/SUSTAINING THE IMPUGNED DISALLOWANCE. ACCORD INGLY, THE ORDERS OF THE TAX AUTHORITIES BELOW IN THIS REGARD, ARE SET A SIDE THE IMPUGNED DISALLOWANCE ON ACCOUNT OF INTEREST FREE ADVANCES M AY BE DELETED. IN THIS 12 CONNECTION, THE ASSESSEE PLACED RELIANCE IN THE DEC ISION OF HONOURABLE ITAT, CHANDIGARH IN THE CASE OF M/S. MUNJAL SALES C ORPORATION V S. ASSTT. CLT (2004) 90 TTJ (CHD) 782, 780. ' THE REVENUE COULD NOT BRING ANY MATERIAL ON RECOR D TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST BEARING LOANS TAKEN BY T HE ASSESSEE AND THE INTEREST-FREE ADVANCE MADE BY IT IN QUESTION, FURTH ER, FROM THE BALANCE SHEET OF THE ASSESSEE IT IS OBSERVED THAT THE INTER EST-FREE FUND AVAILABLE WITH THE ASSESSEE WAS MORE THAN RS.63 CRORES WHICH FAR EXCEEDED THE INTEREST FREE ADVANCE OF RS,51 LAKH IN QUESTION, IN VIEW OF THE ABOVE FACTS, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE AMOUNT OF RS.7,14,000 OUT OF INTEREST PAID BY THE ASSESSEE. DCIT VS. IN THIS REG ARD ARE- DCIT VS. ASSAM INDUSTRIAL DEVELOPMENT CORPORATION LTD (2004) 87 TT J ( GAUH) 1067,1072- 73. 16 . LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD NOT PAID ANY INTERES T ON LOAN TAKEN FROM M/S. MIRAJ PRODUCTS PVT. LTD. AND THEREFORE, IT COU LD NOT BE SAID THAT THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE ON SUCH L OAN, WHICH WAS REQUIRED TO BE DISALLOWED. ACCORDINGLY, DISALLOWAN CE OF RS. 5,71,025/- MADE BY THE ASSESSING OFFICER WAS DELETED. LEARNED CIT(A) POINTED OUT THAT AS PER THE COPY OF AUDITED BALANCE SHEET AS ON 31/03/2008, THE SURPLUS FUNDS AMOUNTING TO RS. 83.64 CRORES, OUT OF TOTAL SURPLUS FUNDS WERE AVAILABLE WITH THE ASSESSEE, ON THAT BASIS ALS O, IT WAS HELD THAT THE DISALLOWANCE WAS NOT TENABLE. ACCORDINGLY, THE SAM E WAS DELETED. AS REGARDS TO THE DISALLOWANCE OF INTEREST AMOUNTING T O RS.1,65,693/-, 13 LEARNED CIT(A) OBSERVED THAT THE ASSESSEE FAILED TO MAKE NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT MADE THROUGH, WHICH THE ASSESSEE HAD EARNED THE EXEMPTED INCOME PARTICULARL Y, WHEN THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AVAILABLE WIT H HIM, WHICH HE COULD MAKE INVESTMENT AS PER HIS WISHES. ACCORDINGLY, TH E DISALLOWANCE OF INTEREST AMOUNTING TO RS. 1,65,693/- WAS ALSO DELET ED. NOW, THE DEPARTMENT IS IN APPEAL. 17. LEARNED D.R. REITERATED THE OBSERVATIONS MADE BY T HE ASSESSING OFFICER AND STRONGLY SUPPORTED THE ASSESSMENT ORDER DATED 29/12/2011 PASSED BY THE ASSESSING OFFICER. 18. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A). 19. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTI ES AND THE MATERIAL ON THE RECORD, IT APPEARS THAT THE ASSESSE E WAS HAVING SURPLUS FUNDS AMOUNTING TO RS. 83.64 CRORES AND MADE THE IN VESTMENT OUT OF THOSE SURPLUS FUNDS. THE ASSESSEE DID NOT CLAIM AN Y INTEREST EXPENDITURE ON THE LOAN TAKEN FROM HIS CAPITAL WITH M/S. MIRAJ PRODUCTS PVT. LTD. AND ALSO DID NOT MAKE ANY INVESTMENT TO EARN THE EXEMPT ED INCOME OUT OF 14 BORROWED FUNDS BECAUSE THE ASSESSEE WAS HAVING SUFF ICIENT SURPLUS FUNDS AVAILABLE WITH HIM. THEREFORE, THE DISALLOWANCE, M ADE BY THE ASSESSING OFFICER WITHOUT MAKING NEXUS BETWEEN THE BORROWED F UNDS AND THE INVESTMENT MADE TO EARN EXEMPTED INCOME, WAS NOT JU STIFIED AND THE LEARNED CIT(A) RIGHTLY DELETED THE SAME. WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A ) ON THESE ISSUES. 20. VIDE GROUND NO.5, THE ISSUE AGITATED BY THE DEPART MENT RELATES TO THE DIRECTION GIVEN TO THE ASSESSING OFFICER TO ASS ESS AGRICULTURAL INCOME AMOUNTING TO RS. 5,60,892/- INSTEAD OF INCOME FROM OTHER SOURCES. 21. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE OWNS 15.90 HECTARES OF AGRICULTURAL LAND AND HAD DECLARED INCO ME FROM IT AT RS. 25.21 LAC AS AGAINST RS. 9.21 LAC DECLARED IN THE I MMEDIATELY PRECEDING YEAR. THE EXPLANATION OF THE ASSESSEE WAS THAT THE ASSESSEE STARTED SYSTEMATIC AGRICULTURAL ACTIVITIES, WHICH INCREASED RECEIPT. IT WAS STATED THAT THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS IN THE NAME OF M/S. ANUSWAR AGRICULTURE FOR THIS PURPOSE. HE P RODUCED THOSE BOOKS OF ACCOUNTS WITH VOUCHERS, WHICH REVEALED THAT THE ASS ESSEE MAINLY DEALT WITH THE PRODUCTION AND SALE OF FRUITS AND VEGETABL ES. THE ASSESSING OFFICER INSTITUTED AN ENQUIRY THROUGH INSPECTOR, WH O INFORMED THAT THE 15 ASSESSEE HAD 83 BIGHA OF AGRICULTURAL LAND, OUT OF WHICH FARM HOUSE AND ROAD HAD BEEN CONSTRUCTED IN 3 BIGHA AND IN THE RES T OF 80 BIGHA, THE ASSESSEE WAS GROWING AMLA, FLOWER, LEMON, CHILLY, V EGETABLES, FODDER ETC. KEEPING IN VIEW THE EQUIPMENTS LIKE TRACTOR, HANDCRAFT ETC. BEING USED BY THE ASSESSEE, THE INSPECTOR ESTIMATED PER B IGHA AGRICULTURAL INCOME FROM RS. 23,000/- TO 25,000/-. THE ASSESSEE IN ORDER TO JUSTIFY THE DECLARATION OF AGRICULTURAL INCOME AT RS. 25.21 LAC, FILED A CERTIFICATE FROM THE PROGRAMME COORDINATOR OF VIDHYA BHAWAN KRI SHI VIGYAN KENDRA (VBKVK), IN WHICH THE AGRICULTURE PRODUCE LIKE PEA, BHINDI, BRINJAL, TOMATO, CHILLY PER BIGHA COULD BE PRODUCED. HOWEVE R, THE ASSESSING OFFICER HELD THAT THE CERTIFICATE SO FILED WAS IRRE LEVANT AND UNRELIABLE AS THE PROGRAMME COORDINATOR HAD CERTIFIED PRODUCTION ONLY AND THERE WAS NO MENTION ABOUT EXPENSES AND THE IDEAL CONDITIONS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT PROPERLY ACCOUNTED FOR THE REASONABLE EXPENSES, COST OF SEEDS AND FERTILIZERS ETC., HE, THEREFORE, ESTIMATED THE AVERAGE EARNING OF AGRICULTURAL INCOM E PER BIGHA AT RS.24,500/-. ACCORDINGLY, AGRICULTURAL INCOME WAS ESTIMATED AT RS. 19,60,000/- FROM 80 BIGHA AND THE BALANCE AMOUNT OF RS. 5,60,892/- DECLARED BY THE ASSESSEE AS AGRICULTURAL INCOME WA S ASSESSED AS INCOME FROM OTHER SOURCES. 16 22 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND MADE THE FOLLOWING SUBMISSIONS:- THE APPELLANT CARRYING ON AGRICULTURE ACTIVITIES I N THE NAME OF ANUSWAR AGRICULTURE DURING THE YEAR UNDER CONSIDERATION WHI CH INCLUDES CULTIVATIONS AND SALE OF VARIOUS AGRICULTURE CROPS AND VEGETABLE S. THE ASSESSEE IS HAVING APPROX 15.90 HECTARE OF TOTAL LAND AT VARIOUS LOCAT IONS IN AND AROUND UDAIPUR INCLUDES HATHIDHARA, HAWALA KHURD ,SABALPUR A, CHIKALWAS TEHSIL - GINRUA , UDAIPUR. FURTHER TO THIS WE HAVE FURNISHED DURING THE ASSESS MENT PROCEEDING DETAILS OF AGRICULTURE INCOME EARNED IN THE FINANCIAL YEAR 2008-2009 AMOUNTING TO RUPEES 25.21 LACS AS COMPARE TO EARNED IN THE FINAN CIAL YEAR 2007-2008 AMOUNTING TO RUPEES 9.21 LACS. IN THIS REGARD WE HA VE ALREADY SUBMITTED DETAILS OF HOLDING OF AGRICULTURE LAND IN THE REPLY DATED 05/08/2011 AND COPY OF PURCHASE AND SALE VOUCHER OF ANUSWAR AGRICU LTURE VIDE REPLY DATED 22/12/2011 FOR YOUR KIND PERUSAL. THE AGRICULTURE I NCOME AMOUNTING TO RUPEES 9.21 LAKHS WERE ACCEPTED AS SUCH IN THE EARL IER YEAR ASSESSMENT. THE LD. ASSESSING OFFICER HAS DISALLOWED AGRICULTUR E INCOME OF RUPEES 560892/- DUE TO NOT RELIABILITY OF CERTIFICATE WHIC H IS ISSUED BY VIDHYA BHAWAN KRISHI VIGYAN KENDRA THAT IS RUN BY VIDHYA B HAWAN SOCITY, UDAIPUR AND APPELLANT HAD NOT PROPERLY ACCOUNTED FOR THE CO NNECTED EXPENSE IN REASONABLE AMOUNT. CIT V. GOTAN LIME KHANII UDHYOG (2002) 256 ITR 243 (RAJ.): SECTION 145 ONLY PROVIDES THE BASIS ON WHICH THE COMPUTATION OF INCOME IS TO BE MADE FOR PURPOSE OF DETERMINING AMOUNT OF TAX. THE PROVI SION BY ITSELF DOES NOT DEAL WITH ADDITION OR DELETION OF INCOME. THEREFORE , MERE REJECTION OF, OR SOME DEFICIENCY IN, THE BOOKS OF ACCOUNT WOULD NOT MEAN THAT IT MUST NECESSARILY ADDITION TO RETURNED INCOME. CIT V. ACHRULAL (1938) 6 ITR 255 (NAG) : THE APPLICATION OF A FLAT RATE IS NOT ALWAYS JUSTIFIED; ESPECIALLY WHEN THE ASSESSEES TR UE INCOME CAN BE DETERMINED WITHOUT MUCH DIFFICULTY. 17 INTERNATIONAL FORET CO. VS. CIT (1975) 101 ITR 721 (J & K): THE GROSS PROFIT RATE IN A PARTICULAR YEAR DEPENDS ON MANY CONDITION S, I.E. THE MARKET CONDITIONS BASED ON DEMAND AND SUPPLY POSITION; THE RISE OR FALL IN MARKET RATES, ESPECIALLY ABRUPT ONES; THE CAPITAL POSITION VIS-A-VIS THE TURNOVER, ACHIEVED, AND MANY OTHERS. IT IS FOR THE ASSESSEE T O EXPLAIN THE FALL IN G.P. RATES, IF ANY, AND TO SUBSTANTIATE HIS REASONS. EVE N IF, THEREAFTER, THE ITO CONSIDERS THAT THE MATERIAL PLACED BY THE ASSESSEE IS UNRELIABLE, IN VIEW OF THE COMPARATIVE STATEMENT OF ACCOUNTS OF THE EARLIE R YEARS, HE CANNOT PROCEED TO MAKE AN ARBITRARY ADDITION AND BASE HIS CONCLUSION PURELY ON GUESSWORK. HE CAN DO SO ONLY IF HE RELATES HIS ESTI MATE TO SOME EVIDENCE OR MATERIAL ON RECORD IN VIEW OF THE WELL SETTLED POSI TION THAT IF THE PROFITS RETURNED BY THE ASSESSEE ARE NOT ACCEPTED, THE TAXI NG AUTHORITIES ARE REQUIRED TO PROVE THAT THE ASSESSEE MADE MORE PROFI TS. ST. TERESAS OIL MILLS VS. STATE OF KERALA [1970] 0 76 ITR 0365 [KERALA HIGH COURT] : ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF B USINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFIC IENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. THE DEPARTMENT HAS TO PR OVE SATISFACTORILY THAT THE ACCOUNT BOOKS ARE UNRELIABLE, INCORRECT OR INCO MPLETE BEFORE IT CAN REJECT THE ACCOUNTS. REJECTION OF ACCOUNTS SHOULD N OT BE DONE LIGHT- HEARTEDLY. THOUGH IT MAY NOT BE POSSIBLE TO LAY DOW N THE EXACT CIRCUMSTANCES IN WHICH THE ACCOUNTS-SHOULD BE REJEC TED AS UNRELIABLE OR INCORRECT, THE ACCOUNTS MAY BE REJECTED AS UNRELIAB LE IF IMPORTANT TRANSACTIONS ARE OMITTED THERE FROM OR IF PROPER PA RTICULARS AND VOUCHERS ARE NOT FORTHCOMING OR IF THEY DO NOT INCLUDE ENTRI ES RELATING TO A PARTICULAR CLASS OF BUSINESS. THE ASSESSEE SHOULD BE GIVEN REA SONABLE OPPORTUNITY FOR OFFERING EXPLANATIONS REGARDING THE DEFECTS IN THE ACCOUNTS AND, ON HIS FAILURE SATISFACTORILY EXPLAIN THE DEFECTS, THE DEP ARTMENT WOULD BE JUSTIFIED IN REJECTING THE ACCOUNTS. THE REJECTION OF ACCOUN TS AND ASSESSMENT TO THE BEST OF JUDGMENT ARE TWO DISTINCT AND SEPARATE PROC ESSES. MD. UMER V. CIT (1975) 101 ITR 525 (PAT): R.J. TRIVEDI (HUF) V. CIT (1983) 144 ITR 877 (MP) CIT V. MARGADARSI CHITS FUNDS P LIMITED (1985) 155 ITR 442 (AP) 23. IT WAS FURTHER SUBMITTED BEFORE THE LEARNED CIT (A) AS UNDER:- 18 'THE APPELLANT CARRYING ON AGRICULTURE ACTIVITIES I N THE NAME OF ANUSWAR AGRICULTURE DURING THE YEAR UNDER CONSIDERATION WHI CH INCLUDES CULTIVATIONS AND SALE OF VARIOUS AGRICULTURE CROPS AND VEGETABLE S. THE ASSESSEE IS HAVING AGRICULTURE LAND AT VARIOUS LOCATIONS IN AND AROUND UDAIPUR INCLUDES HATHIDHARA, HAWAL KHURD , SABALPURA, CHIKALWAS TEHS IL - GINRUA , UDAIPUR. ASSESSEE HAS VARIOUS AGRICULTURE EQUIPMENT HAND CAR T, HDPE CART, MOTERS ETC WHICH WERE SUFFICIENT TO GROW THE CROP, SECONDL Y FOR GETTING WATER ALSO THERE ARE IN HOUSE WELL HENCE THERE IS NO NEED OF P ROCURING-WATER OR USED OF HIRING MUCH LABOUR FROM OUT SIDE.' 24. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR THE AGRICULTURAL ACTIVITIES CARRIED OUT BY HIM IN 1 5.90 HECTARES OF AGRICULTURAL LAND AND THE ASSESSING OFFICER HAD NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS SO MAINTA INED BY THE ASSESSEE, EXCEPT THE EXPENDITURE CLAIMED BY THE ASSESSEE FOR EARNING SUCH SUBSTANTIAL AGRICULTURAL INCOME WAS COMMENSURATE WI TH THE AGRICULTURAL INCOME DECLARED IN THE RETURN. LEARNED CIT(A) FURT HER OBSERVED THAT THE ASSESSEE OWNS HIS OWN TUBE WELL, MOTOR AND THEREFOR E THERE WAS NO NEED TO HAVE WATER FROM OUTSIDE. AS REGARDS LOW EXPENDI TURE FOR SEEDS, LEARNED CIT(A) OBSERVED THAT THE ASSESSEE SUBMITTED THAT HE USED TO PRESERVE THE SEEDS OUT OF THE PRODUCTION OF CROPS A ND THEREFORE, THERE WAS LOW EXPENDITURE IN PURCHASE OF SEEDS. LEARNED CIT(A) WAS OF THE VIEW THAT THE SAID EXPLANATION OF THE ASSESSEE COUL D NOT BE BRUSHED ASIDE BECAUSE OF THE FACT THAT THE ASSESSEE HAD DECLARED AGRICULTURAL INCOME AT 19 RS. 9.21 LAC DURING THE IMMEDIATELY PRECEDING ASSES SMENT YEAR AND THE SAME HAD BEEN ACCEPTED BY THE DEPARTMENT AS GENUINE . THE LEARNED CIT(A) ALSO OBSERVED THAT THE ASSESSEE WAS KEEPING 30-40 PERMANENT LABOURS FOR DOING THE CULTIVATION AND THEREFORE, TH ERE WAS NO NECESSITY TO TAKE LABOUR FROM OUTSIDE AT HIGHER RATES AND ALL TH E ABOVE FACTS RESULTED IN FOR LESS CLAIM OF EXPENDITURE. LEARNED CIT(A) C ATEGORICALLY STATED THAT THE ASSESSING OFFICER HAD NOT DENIED THAT THE FACIL ITIES LIKE AVAILABILITY OF GOODS SEEDS, WATER, TRANSPORTATION, LABOUR ETC WERE NOT AVAILABLE TO THE ASSESSEE, DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED CIT(A) WAS OF THE VIEW T HAT THERE WAS NO CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD DIVE RTED HIS BUSINESS/NON- AGRICULTURAL INCOME TO AGRICULTURAL INCOME WITH THE INTENTION TO REDUCE THE TAX LIABILITY, THEREFORE, THE ACTION OF THE ASS ESSING OFFICER ASSESSING PART OF AGRICULTURAL INCOME AMOUNTING TO RS. 5,60,8 92/- AS INCOME FROM OTHER SOURCES WAS NOT TENABLE. ACCORDINGLY, LEARN ED CIT(A) DIRECTED THE ASSESSING OFFICER TO ASSESS THE AGRICULTURAL INCOME AS DECLARED BY THE ASSESSEE AS AGRICULTURAL INCOME AND NOT AS INCOME FROM OTHER SOURCES. NOW, THE DEPARTMENT IS IN APPEAL. 25 . WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENTS ADVANCED BY BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIAL AVAILABLE 20 ON RECORD. IN THE PRESENT CASE, IT APPEARS THAT AS SESSING OFFICER ESTIMATED THE AGRICULTURAL INCOME ONLY ON THE BASIS OF A REPORT BY HIS INSPECTOR AND IGNORED THE SEPARATE BOOKS OF ACCOUNT S MAINTAINED BY THE ASSESSEE TO SHOW THE AGRICULTURAL INCOME. IT IS NO T THE CASE OF THE ASSESSING OFFICER THAT TRUE AND CORRECT AGRICULTURA L INCOME COULD NOT BE DEDUCED FROM THE BOOKS OF ACCOUNTS. IN THE PRESENT CASE, THE ASSESSEE EXPLAINED THE REASONS FOR LOW EXPENDITURE ON ACCOUN T OF SEED PURCHASES, WATER AND TRANSPORTATION FACILITIES ETC. AND THOSE EXPLANATIONS WERE NOT REBUTTED AT ANY STAGE. IT IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE DIVERTED HIS BUSINESS INCOME OR NON-AG RICULTURAL INCOME TOWARDS AGRICULTURAL INCOME WITH THE INTENTION TO R EDUCE THE TAX LIABILITY. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING A PART OF THE AGRICULTURAL INCOME AS A INCOME FROM OTHER SOURCES , WITHOUT BRINING ANY COGENT MATERIAL ON RECORD. WE, THEREFORE, ARE OF THE VIEW THAT THE LEARNED CIT(A) RIGHTLY DIRECTED THE ASSESSING OFFIC ER TO TREAT THE AGRICULTURAL INCOME DECLARED BY THE ASSESSEE AS AGR ICULTURAL INCOME AND NOT AS THE INCOME FROM OTHER SOURCES. 26 . THE LAST ISSUE AGITATED BY THE DEPARTMENT VIDE GR OUND NO.6 RELATES TO THE DELETION OF DISALLOWANCE MADE BY THE ASSESSI NG OFFICER CONSIDERING THE DEPRECIATION CLAIMED ON VARIOUS ITEMS OF WIND M ILL ON HIGHER SIDE. 21 27 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF DEPRECIA TION ON THE NEW WIND MILL @ 80%. THE QUERY WAS RAISED IN VIEW OF THE FA CT THAT IN THE INSTALLATION OF WIND MILL SUBSTANTIAL AMOUNT WAS IN VESTED ON CIVIL WORK, OTHER ELECTRICAL WORK AND EVACUATION CHARGES. THE ASSESSEE VIDE REPLY DATED 22/12/2011 FURNISHED THE BREAKUP OF INVESTMEN T IN INSTALLATION OF WIND MILL, CIVIL WORK, EVACUATION CHARGES AND ELECT RICAL WORKS AND STRESSED UPON THE DEFINITION OF ACTUAL COST, PLANT AS PER SECTION 43(3) OF THE ACT AND RELIED UPON FOLLOWING DECISIONS TO CONT END THAT THE CIVIL WORK INCLUDED FOUNDATION WHICH SHOULD BE TREATED AS PLAN T:- 1) CIT VS. HERDILLIA CHEMICALS LTD. [(1995) 216 IT R 742 (BOM)] 2) ACIT VS. MADRAS CEMENTS LTD. [(1997) 110 ITR 28 1} 3) CIT VS. R.G. ISPAT LTD.. [(1995) 123 CTR (RAJ)] 4) CHALLAPALLI SUGARS LTD. VS. CIT [(1975) 98 ITR 167 (SC)] 28. AS REGARDS TO EVACUATION CHARGES, THE ASSESSEE SUB MITTED THAT A SUM OF RS. 19,85,400/- WAS PAID TO M/S. SUZLON POWE R INFRASTRUCTURE FOR EVACUATION AND CREATION OF INFRASTRUCTURE FACILITIE S. THEREFORE, THE INVESTMENT DESERVES FOR DEPRECIATION @ 80% BECAUSE WITHOUT THESE ITEMS IT WAS NOT POSSIBLE TO SET UP A WIND MILL. IT WAS ACCORDINGLY SUBMITTED 22 THAT THE ENTIRE INVESTMENT IN THE WIND MILL WAS ALL OWABLE FOR DEPRECIATION @ 80%. THE ASSESSING OFFICER, HOWEVER , WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND ALLOWED DE PRECIATION @ 10% ON CIVIL WORK FOUNDATION AND OTHER WORKS TRANSMISSIONS , @ 15% ON ELECTRICAL ITEMS AND COMPONENTS INSTALLATION, AND NO DEPRECIAT ION WAS ALLOWED ON EVACUATION CHARGES. ACCORDINGLY, DEPRECIATION WAS A LLOWED AT RS. 1,19,66,850/- AS AGAINST DEPRECIATION CLAIMED BY TH E ASSESSEE ON WIND MILL AT RS. 1,42,35,923/- . IN THIS MANNER, AN ADD ITION OF RS. 22,69,073/- WAS MADE. 29 . BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER TO T HE LEARNED CIT(A) AND MADE THE WRITTEN SUBMISSIONS, WHICH ARE INCORPO RATED IN PARA 7.2 OF THE IMPUGNED ORDER, FOR THE COST OF REPETITION, THE SAME IS NOT REPEATED HEREIN. LEARNED CIT(A) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT ALLOWABILITY OF DEPRECIATION ON CIVIL WORK AND FOUNDATION AND TRANSFORMER PLINTH, ELECTRICAL ITEMS AND COMPON ENTS INSTALLATION AS WELL AS EVACUATION CHARGES HAS BEEN CONSIDERED IN D ETAIL AND DECIDED IN THE CASE OF M/S. MIRAJ PRODUCTS PVT. LTD., A COMPAN Y, IN WHICH THE ASSESSEE HAD SUBSTANTIAL INTEREST BY THE JURISDICTI ONAL ITAT JODHPUR BENCH JODHPUR VIDE ORDER DATED 16/12/2011 IN ITA NO. 454/ JODH/2010 FOR THE A.Y. 2007-08. LEARNED CIT(A) BY FOLLOWING THE AFOR ESAID DECISION, 23 DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEPRECI ATION ON THE WIND MILL, CIVIL WORK, EVACUATION CHARGES AND ELECTRICAL ITEMS @ 80% BY OBSERVING AT PAGE NOS. 29 TO 31 OF THE IMPUGNED ORDER AS UNDER:- DURING THE COURSE OF APPEAL, THE APPELLANT HAS FIL ED THE BIFURCATION OF CIVIL WORK, FOUNDATION, OTHER WORK, TRANSFORMER PLINTH AS UNDER:- PARTICULARS CIVIL FOUNDATION WORK - FOUNDATION, OTHER WORK & TRANSFORMER. 0,26,74,843 COST OF WIND MILL TUBAL O R TOWER AND INSTALLATION AND TRANSFORMER 2,92,71,973 EVACUATION CHARGES 0,19,85,400 ELECTRIC ITEMS & COMPONENTS INSTALLATION 0,16,57,591 TOTAL 3,55,89,807 HOWEVER, FROM THE DETAILS OF THE ABOVE INVESTMENT, IT IS SEEN THAT COST OF CIVIL FOUNDATION WORK INCLUDE ELECTRIC YARD FENCING AMOUNTING TO RS.75,584 AND PREPARATION OF TEMPORARY APPROACH ROAD OF RS,1, 84,762 TOTALING TO RS.260346. AS HELD BY HONOURABLE ITAT, THEY CANNOT BE TREATED AS PART OF WINDMILL AS THESE ARE INDEPENDENT ASSETS AND ARE SE PARATE FROM THE WIND MILL SO THEY ARE ELIGIBLE FOR DEPRECIATION AT THE R ATE OF 10% AS HELD BY THE LD. A.0. ACCORDINGLY, DEPRECIATION AT THE RATE OF 1 0% WILL BE ADMISSIBLE ON THESE ASSETS. IN VIEW OF ABOVE DISCUSSION, THE DISALLOWANCE TO TH E EXTENT OF 10% ON FENCING AND TEMPORARY APPROACH ROAD IS UPHELD AND T HE BALANCE DISALLOWANCE IS DELETED FOR THE CIVIL FOUNDATION TR ANSFORMER PLINTH ETC. (B) EVACUATION CHARGES . DURING THE YEAR UNDER APPEAL, THE APPELLANT HAS CL AIMED EVACUATION CHARGES OF RS.19,85,400 AND CLAIMED DEPRECIATION AT THE RATE OF 80% ALLOWABLE ON WIND MILL TREATING IT AS PART AND PARC EL OF THE WIND MILL. THE LD, 24 A.O. DISALLOWED THE CLAIM OF DEPRECIATION HOLDING T HAT THE EVACUATION CHARGES CANNOT BE TREATED AS PART AND PARCEL OF THE WINDMILL. IN THIS CONTEXT IT MAY BE MENTIONED THAT THE ABOVE EXPENSES HAVE BE EN INCURRED TO CREATE INFRASTRUCTURE FACILITY FOR ESTABLISHING THE WIND M ILL AND CARRY THE ELECTRICITY GENERATED. WITHOUT SAID FACILITY, THE FUNCTIONING O F WIND MILL IS NOT POSSIBLE. IF THERE WAS NO INSTALLATION OF WIND MILL, SAID EXP ENSES WOULD NOT HAVE BEEN INCURRED BY THE APPELLANT. IN VIEW OF ABOVE DISCUS SION, IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR DEPRECIATION ON EVACUATIO N CHARGES AS CLAIMED BY THE APPELLANT. THE LD. A.O. IS DIRECTED ALLOW THE D EPRECIATION AS CLAIMED. (C) ELECTRICAL ITEMS AND INSTALLATION . DURING THE YEAR UNDER APPEAL, THE APPELLANT HAS CLA IMED EXPENDITURE OF RS. 16,57,591 AND CLAIMED DEPRECIATION AT THE RATE OF 8 0% I.E. ALLOWABLE FOR WINDMILL TREATING IT AS PART AND PARCEL OF THE WIND MILLS, HOWEVER, THE LD. A.O. ALLOWED DEPRECIATION ONLY AT THE RATE OF 15% O N THIS INVESTMENT HOLDING THAT THE EXPENDITURE INCURRED FOR ELECTRIC ITEMS AND COMPONENTS INSTALLATION CANNOT BE TERMED AS PART AND PARCEL OF THE WIND MILL. IN ABOVE CONTEXT, IT MAY BE MENTIONED THAT ABOVE EXPENSES WERE INCURRED IN ORDER TO INSTALL THE WIND MILL AS PER R EQUIRED SPECIFICATIONS. WITHOUT SUCH ELECTRICAL ITEMS, COMPONENTS ETC WIND MILL COULD NOT HAVE BEEN INSTALLED. IN VIEW OF ABOVE, ABOVE ITEMS FORM INTEGRAL PART OF THE WIND MILL. THEREFORE, IT IS HELD THAT THE APPELLANT IS E LIGIBLE FOR DEPRECIATION AT THE RATE OF 80% ON THE EXPENDITURE INCURRED ON ELECTRIC AL ITEMS AND INSTALLATION AS IT IS PART AND PARCEL OF THE WINDMILL. THE DISAL LOWANCE MADE ON THIS ACCOUNT IS DELETED. NOW, THE DEPARTMENT IS IN APPEAL. 30 . LEARNED D.R. ALTHOUGH SUPPORTED THE ORDER OF THE ASSESSING OFFICER, BUT COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER. 25 31 . IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AN D FURTHER SUBMITTED THAT THE LEARNED CIT(A) DECIDED THE ISSUE AFTER FO LLOWING THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF M/S MIRAJ PRODUCTS PVT. LTD. IN ITA NO. 454/JODH/2010 DATED 16/12/2011 FOR THE A.Y. 2007-08. THEREFORE, THE IMPUGNED ORDER MAY BE UPHELD ON THIS ISSUE. 32 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PAR TIES AND THE MATERIAL ON RECORD, IT IS AN ADMITTED FACT THAT THE LEARNED CIT(A) DECIDED THIS ISSUE BY CONSIDERING AND FOLLOWING THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE-2, UDAI PUR VS. M/S. MIRAJ PRODUCTS PVT. LTD. IN ITA NO. 454/JODH/2010 FOR THE A.Y. 2007-08 ORDER DATED 16/12/2011, WHEREIN THE ISSUE WAS DECIDED BY FOLLOWING ANOTHER ORDER DATED 11/2/2011 IN ITA NO. 195/JODH/2010. WE DEEM IT PROPER TO REPRODUCE THE FINDINGS GIVEN IN PARA 2.2 TO 2.4 OF THE ABOVE REFERRED TO ORDER DATED 16/12/2011 IN ITA NO. 454/JODH/2010 FOR THE A.Y. 2007-08, WHICH READ AS UNDER:- 2.2. THE JODHPUR BENCH HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF DEPRECIATION ON FOUNDATION IN ITA N0.195/J0DH/2010 VIDE ORDER DATED 11.02.2011. THE RELEVANT PORTION IS REPRODUC ED AS UNDER. .....12. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 8 0% ON FOUNDATION AS WELL AS OTHER CIVIL WORKS. BOTH THE L D. A0 AND LD 26 CIT (A) DENIED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT THEY ARE NOT INTEGRAL PART OF THE WIND MILL. THE D EPRECIATION IN RESPECT OF FOUNDATION IS CONCERNED THE FOUNDATION F OR THE PURPOSE OF THE WIND MILL IS DIFFERENT FROM THE OTHE R CIVIL WORKS. WIND MILL IS A HEAVY MACHINE AND A SPECIALLY DESIGN ED FOUNDATION IS REQUIRED, THEREFORE, THE LD. AO HAS N OT JUSTIFIED IN COMPARING THE FOUNDATION OF THE WIND MILL FROM O THER CIVIL WORKS . IN THE CASE OF CIT VS. HERDILLIA CHEMICALS LTD 216 ITR 742 (BOM) WHEREIN THE HONOURABLE HIGH COURT OF MUMB AI HAS HELD THE EXPENDITURE INCURRED ON FOUNDATION FIXING THE PLANT AND MACHINERY WOULD FORM PART OF THE COST OF PLANT AND MACHINERY AND THE ASSESSEE WOULD BE ENTITLED TO DEP RECIATION AT THE SAME RATE AS APPLICABLE TO THAT PLANT AND MA CHINERY. IN THE CASE OF ACIT VS, MADRAS CEMENTS LTD, 110 ITR 28 1 (MAD) HAS HELD THAT THE FOUNDATION WORK DONE FOR FIXING M ACHINERY IS TO BE TREATED AS PART OF THE PLANT AND MACHINERY. IN THE CASE OF CIT VS. R.G. ISPAT LTD 123 CTR (RAJ.) WHERE THE JUR ISDICTIONAL HIGH COURT CATEGORICALLY HELD THAT THE MASSIVE REIN FORCED CONCRETE STRUCTURE, ESPECIALLY DESIGNED TO TAKE UP LOADS, CONSTITUTED 'PLANT' WITHIN THE MEANING OF SECTION 4 3(3) OF THE INCOME-TAX ACT, 1961. 13. WE THEREFORE, TAKING INTO CONSIDERATION THE FA CTS AND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE AB OVE CASE LAWS, WE CAME TO CONCLUSION THAT THE FOUNDATION OF THE WINDMILL IS AMOUNTING TO PART AND PARCEL OF THE WIN D MILL AND IT IS PLANT AND MACHINERY AND ACCORDINGLY THE ASSESSEE IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION WHICH WAS CLAIMED. AS FAR AS CIVIL WORK IS CONCERNED, WE FIND THAT IT IS NOT AN INTEGRAL PART OF THE WINDMILL AND HE IS NOT ELIGIBLE FOR HIGHER DEPR ECIATION. 14. IN VIEW OF THE ABOVE OBSERVATIONS, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT (A) AND REMIT THE ISSUE MATTE R BACK TO THE FILE OF THE LD. A.0. AND DIRECT THE LD, A0 TO ALLOW HIGHER DEPRECIATION CLAIM OF THE ASSESSEE IN RESPECT OF FO UNDATION OF THE WINDMILL. IN SO FAR AS OTHER ALLIED WORKS ARE C ONCERNED 27 NORMAL RATE HAS TO BE APPLIED AND THIS GROUND OF AP PEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 2.3. THE JAIPUR TRIBUNAL IN ITY NO. 754/JODH/07 DA TED 18.07.2008 HELD THAT DEPRECIATION AT 80% IS TO BE GIVEN ON THE COMP LETE WIND MILL AND THE RELEVANT PARA IS REPRODUCED AS UNDER: '6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE PROVISIONS OF ALLOWING DEPRECIATIO N ON THE WIND MILL IS GOVERNED BY APPENDIX I PARA (XIII)(1)W HICH READS AS UNDER: '(XIII) RENEWABLE ENERGY DEVICES BEING (A) TO (K) (1) WIND MILLS AND ANY SPECIALLY DESIGNED DEVICES W HICH RUN ON WIND MILLS 80% IT IS EVIDENT FROM THE AFOREMENTIONED PROVISIONS TH AT THE DEPRECIATION @ 80% HAS TO BE CHARGED ON THE COMPLET E WIND MILL, THEREFORE, THE LD. CIT (A) IS NOT JUSTIFIED I N SEGREGATING THE COST OF CONSTRUCTION OF THE ROOM FROM THE SAID WIND MILL. THE SAID CONSTRUCTION OF THE ROOM, AS ARGUED HAS BEEN S PECIALLY DESIGNED FOR THE PURPOSE OF THE WIND MILL AND THERE FORE, THE LD. CIT(A) IS DIRECTED TO ALLOW THE DEPRECIATION AS PER THE RULES APPLICABLE ON THE WIND MILLS. THUS GROUND NO.6 OF T HE ASSESSEE IS ALLOWED.' 2.4. AFTER CONSIDERING BOTH THE DECISIONS WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN ALLOWING DEPRECIATION AT 80% EXCEPT FO R OTHER WORK I.E. FENCING OF ELECTRIC YARD AND TEMPORARY APPROACH ROA D, THUS DEPRECIATION AT THE RATE OF 10% WILL BE ADMISSIBLE ON RS,7,37,1 17. 33. SINCE, THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS INVOLVED IN THE CASE OF ACIT, UDAIPUR VS. M/S. MIRA J PRODUCTS PVT. LTD. (SUPRA) AND THE LEARNED CIT(A) DECIDED THE ISSUE AFTER FOLLOWING THE SAID DECISION, WE THEREFORE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE 28 FINDINGS OF LEARNED CIT(A) ON THIS ISSUE AND ACCOR DINGLY, DO NOT SEE ANY MERIT IN THIS ISSUE OF THE DEPARTMENTAL APPEAL. 34. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DIS MISSED. (ORDER PRONOUNCED IN THE COURT ON 27 TH SEPTEMBER, 2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH SEPTEMBER, 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.