ESSAR STEEL LTD, MUMBAI V. ADDL CIT CIR 5(1), MUMBAI

ITA 7013/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71278 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 18-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 17-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Business income; Depreciation; Earning of tax free income; Retrospective amendment; Question of law; Capital receipt; Revised return; Revenue expenditure
• Section: 43B; 143(3); 234B; 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , , BEFORE SHRI RAJENDRA SINGH , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 7013 / MUM ./ 2011 ( / ASSESSMENT YEAR : 200 7 08 ) ESSAR STEEL INDIA LTD. (FORMERLY KNOWN AS ESSAR STEEL LTD.) ESSAR HOUSE, KESHVRAO KHADYE MARG MAHALAXMI, MEMBER 400 034 .. / APPELLAN T V/S ADDL. COMMISSIONER OF INCOME TAX CIRCLE 5(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACW1741P . / ITA NO. 7415 / MUM ./ 2011 ( / ASSESSMENT YEAR : 2007 08 ) ASSTT . COMMISSIONER OF INCOME TAX CIRCLE 5(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S ESSAR STEEL INDIA LTD. (FORMERLY KNOWN AS ESSAR STEEL LTD.) ESSAR HOUSE, KESHVRAO KHADYE MARG MAHALAXMI, MEMBER 400 034 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACW1741P / ASSESSEE BY : M R . VIJAY MEHTA / REVENUE BY : M R. GIRIJA DALAL ESSAR STEEL INDIA LTD. 2 / DATE OF HEARING 18.09.2013 / DATE OF ORDER 27.09.2013 / ORDER , / PER AMIT SHUKLA , J.M. THESE CROSS APPEALS HAVE BEEN PREFERRED BY EITHER PARTY, CHALLENGING THE IMPUGNED ORDER DATED 9 TH AUGUST 2011 , PASSED BY THE LE ARNED COMMISSIONER (APPEALS) IX , MUMBAI, FOR THE QUANTUM OF ASSES SMENT PASSED UNDER SECTION 143(3) , FOR THE ASSESSMENT YEAR 2007 08. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.7013/MUM./ 2011. 2. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF REVENUE EXPENDITURE OF ` 95,70,00,000, INCLUDED IN CAPITAL WORK IN PROGRESS ON THE GROUND THAT IT IS NOT A REVENUE EXPENDITURE INCURRED DURING THE COURSE OF EXTENSION OF THE EXISTING BUSINESS. 3. FACTS IN BRIEF : THE ASSESSEE, IN THE COMPUTATION OF INCOME, HAS CLAIMED A SUM OF ` 95,70,00,000, ON ACCOUNT OF REVENUE EXPENDITURE INCURRED DURING THE CONSTRUCTION PERIOD. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER, THE ASSESSE E SUBMITTED AS UNDER: 'DURING THE YEAR UNDER CONSIDERATION, EXPANSION OF THE EXISTING STEEL PLANT AND PELLET PLANT WERE GOING ON. CERTAIN PORTION OF THE ADMINISTRATION EXPENSES INCURRED BY THE COMPANY HAD BEEN APPORTIONED TO THE CAPITAL WORK IN PROGRESS OF THESE EXPANSION PROJECTS AS EXPENDITURE DURING CONSTRUCTION PERIOD. SINCE THESE REPRESENT REVENUE IN NATURE AND INCURRED FOR THE PURPOSE OF THE EXPANSION OF THE EXISTING BUSINESS OF THE COMPANY , THESE EXPENDITURE HAD BEEN CLAIMED SO I N THE COMPUTATION O F INCOME . THESE EXPENSES HAD NOT BEEN INCURRED FOR STARTING ANY NEW BUSINESS . THIS PROJECT WAS A PART OF EXISTING BUSINESS AND THEREFORE EXPENDITURE INCURRED WAS FOR THE EXISTING BUSINESS. IN VIEW OF THE FACTS, WE HAD CLAIMED THE REVENUE EXPENSES INCURRED FOR THE SAID EXPANSION. FURTHER, WE WOULD LIKE TO SUBMIT THAT THE TREATMENT IN THE BOOKS OF ACCOUNTS IS NOT DECISIVE OF THE NATURE OF TRANSACTION . PARTICULAR DEDUCTION FOR AN EXPENSE DEPENDS UPON THE PROVISION OF LAW AND NOT ON T HE NATURE OF ENTRIES IN THE BOOKS. SINCE THE AFORESAID EXPENSES WERE INCURRED FOR THE EXPANSION OF EXISTING BUSINESS AND REVENUE IN NATURE THEREFORE WE WERE ESSAR STEEL INDIA LTD. 3 ELIGIBLE TO CLAIM THE SAID EXPENSES IRRESPECTIVE OF THEIR ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNT. 4. THE ASSESSING OFFIC ER DID NOT ACCEPT THE ASSESSEES CONTENTION AND OBSERVED THAT THE ASSESSEE WAS INVOLVED IN THE MANUFACTURING OF H OT ROLLED AND COLD ROLLED STEEL AND NOW T HE ASSESSEE HAS STARTED A NEW LINE OF BUSINESS BY VENTURING INTO NEW PROJECTS . U NDER NO CIRCUMSTANCES, IT CAN BE CONSIDERED AS AN EXTENSION OF ITS EXISTING BUSINESS AND, THEREFORE, EXPENSES INCURRED FOR THE NEW PROJECTS ARE CAPITAL IN NATURE. IN SUPPORT, HE ALSO REFERRED AND RELIED UPON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN CIT V/S J.K. CHEMICALS. [ 1992] 207 ITR 98 (BOM.). ACCORDINGLY, DISALLOWANCE OF ENTIRE SUM OF ` 95,70,00,000, WAS MADE BY THE ASSESSING OFFICER. 5. BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS EXPLAINED THAT THE SAID AMOUNT WAS INCURRED FOR EXPANSION OF THE EXISTING STEEL PLANT AND MAJOR PORTION OF WHICH RELATES TO CAPACITY EXPANSION FROM 2.4 MT PER ANNUM TO 4.6 MT PER ANNUM. THESE EXPENSES WERE SHOWN UNDER CAPITAL WORK IN PROGRESS. THE ASSESSEE HAD NOT STARTED ANY SEPARATE LINE OF BUSINESS BUT IT WAS ONLY AN EXPANSION OF PRESENT STEEL PLANT AND IT DOES NOT TANTAMOUNT TO STARTING OF NEW LINE OF BUSINESS, AS HELD BY THE ASSESSING OFFICER. RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) KESORAM INDUSTRIES & COTTON SILK MILKS LTD. V/S CIT, [1992] 196 ITR 845 (CAL.); (II) CIT V/S SHAH THEATRES PVT. LTD., [1988] 169 ITR 499 (RAJ.); (III) KANHIRAM RAMGOPAL V/S CIT, [1988] 170 ITR 41 (MP). 6. IT WAS ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1994 95, THE TRIBUNAL HAS HELD THAT IN CASE OF EXPANSION OF EXISTING BUSINESS , ALL THE REVENUE EXPENDITURE INCURRED FOR T HE NEW PROJECT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THIS DECISION OF THE TRIBUNAL HAS ALSO BEEN FOLLOWED IN THE ASSESSMENT YEARS 1995 96 AND 1996 97. ESSAR STEEL INDIA LTD. 4 7. THE LEARNED COMMISSIONER (APPEALS), HOWEVER, TOO K NOTE OF THE AMENDMENT IN SECTION 36(1)(III) BROUGHT IN STATUTE BY WAY OF PROVISO BY THE FINANCE ACT, 2004, WHICH WAS AS UNDER: THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTIO N.: HE, THUS, HELD THAT IN VIEW OF THE PROVISO TO SECTION 36(1)(III), INTEREST AND OTHER EXPENSES , UP TO THE DATE OF ASSET IS FIRST PUT TO USE , ARE TO BE CAPITALIZED. ACCORDINGLY, HE ALSO CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. BEFORE US, T HE LEARNED COUNSEL, MR. VIJAY MEHTA, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT SIMILAR ISSUE HAD ARISEN IN ASSESSEES OWN CASE IN THE EARLIER YEARS VIZ. 1994 95, 1996 97, 1998 99 TO 2000 01 AND 2001 02 TO 2004 05 AND I N ALL THESE YEARS, THE TRIBUNAL HAS HE LD THAT THE EXPENDITURE INCURRED FOR EXPANSION OF BUSINESS OR INCREASE IN CAPACITY FOR EXISTING PLANT SHOULD BE TREATED AS REVENUE EXPENSES. HE ALSO CLARIFIED THAT THE ASSESSEE HAS NOT CLAIMED THE ENTIRE INTEREST AND, THEREFORE, THE PROVISO TO SECTION 36(1 )(III) IS NOT APPLICABLE IN ASSESSEES CASE. 9. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 10. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RELE VANT MATERIAL AVAILABLE ON RECORD. ON A PERUSAL OF THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), IT IS SEEN THAT THE LEARNED COMMISSIONER (APPEALS) HAS NOT EXAMINED AS TO WHAT WAS THE NATURE OF EXPENSES AND WHETHER IT WAS SPENT FOR INCREASE IN THE CAPAC ITY FOR EXISTING PLANT OR FOR THE EXPANSION OF BUSINESS OR FOR ENTIRELY NEW LINE OF BUSINESS. HE HAS SIMPLY HELD THAT IN VIEW OF THE PROVISO TO SECTION 36(1)(III), THE EXPENSES HAS TO BE CAPITALIZED. AS POINTED OUT BY THE LEARNED COUNSEL THAT THERE IS NO I NTEREST CLAIMED BY THE ASSESSEE, ESSAR STEEL INDIA LTD. 5 THEN, THERE IS NO QUESTION OF CAPITALIZING THE INTEREST AS STIPULATED IN THE PROVISO TO SECTION 36(1)(III). EVEN THE ASSESSING OFFICER HAS NOT MENTIONED AS TO WHAT IS THE NEW PROJECT ESTABLISHED BY THE ASSESSEE. IF THERE IS AN EXPANSION OF EXISTING BUSINESS OR INCREASE IN THE CAPACITY OF THE EXISTING PLANT, THEN THE EXPENDITURE INCURRED THEREON, HAS TO BE TREATED AS REVENUE EXPENDITURE AS HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE LAST SEVERAL YEARS. THUS, NEITHER TH E ASSESSING OFFICER NOR THE LEARNED COMMISSIONER (APPEALS) HAVE NOT EXAMINED THESE FACTS. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THIS ASP ECT IN THIS LINE . CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR EX AMINING WHETHER IT IS FOR INCREASE OF EXISTING BUSINESS OR NOT. THUS, THE GRO UND NO.1, RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO.2, RELATES TO LEVY OF INTEREST UNDER SECTION 234B ON ACCOUNT OF SHORT FALL IN ADVANCE TAX ARISING OUT OF RETROSPECTIVE AMENDMENT OF SECTION 115JB. 12. THE LEARNED COMM ISSIONER (APPEALS) HAS REJECTED THE ASSESSEES CONTENTION THAT NO INTEREST UNDER SECTION 234B CAN BE LEVIED ON ACCOUNT OF RETROSPECTIVE AMENDMENT IN SECTION 115JB , ON THE GROUND THAT SUCH AN INTEREST HAS TO BE LEVIED AND IS APPLICABLE EVEN IN THE PROVISION S RELATING TO SECTION 115JB. FOR THIS PURPOSE, HE RELIED UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) CIT V/S M/S. KOTAK MAHINDRA FINANCE LTD. ( 2003 ) 130 T AXMAN 730; (II) CIT V/S GEETHA RAMAKRISHNA MILL S PVT. LTD., 288 ITR 489; (III) ASSAM BENGAL CARRIERS LTD. VS CIT, [1999] 239 ITR 862; (IV) ITARSI OILS AND FLOURS P. LTD. VS CIT [2001] 250 ITR 686; & (V) KWALITY BISCUITS LTD. VS CIT, [2000] 243 ITR 519. ESSAR STEEL INDIA LTD. 6 13. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS NOT A CASE WHETHER PROVISIONS OF SECTION 234B IS APPLICABLE OR NOT OR THAT THE ASSESSEE IS LIABLE FOR THE ADVANCE TAX FOR THE PURPOSE OF BOOK PROFIT UNDER SECTION 115JB BUT WHETHER THE ASSESSEE CAN BE EX P EC TED TO PAY ANY ADVANCE TAX ON ACCOUNT OF FUTURE AMENDMENT WHICH HAS BEEN BROUGHT IN THE STATUTE WITH RETROSPECTIVE EFFECT. HE SUBMITTED PRECISELY T HIS ISSUE IS ANSWERED BY THE HONBLE CALCUTTA HIGH COURT IN EMAMI LTD. V/S CIT, [2011] 337 ITR 470 (CAL.). HE ALSO SUBMITTED THAT IN THE OTHER CASE OF SISTER CONCERN, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR IN ESSAR INVESTMENTS LTD. V/S CIT, ITA NO.6444/MUM./2011, AFTER FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COURT . 14. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDER PASSED THE LEARNED COMMISSIONER (APPEALS). 15. WE HAVE HEARD THE RIVAL CONTENTION AND ALSO PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW . THERE IS NO QUARR EL WITH THE PROPOSITION THAT THE PROVISIONS OF SECTION 234B AND 234C ARE MANDATORY IN NATURE ONCE IT HAS BEEN ESTABLISHED THAT THE ASSESSEE HAD LI ABILITY TO PAY ADVANCE TAX AS PROVIDED IN SECTIONS 207 AND 208, ON THE BOOK PROFIT. THE HON'BLE SUPREME COURT IN CIT V/S ROLTA INDIA LTD, [2011] 330 ITR 470, HAS HELD THAT EVEN THE ASSESSMENT UNDER SECTION 115JB , PROVISIONS RELATING TO PAYMENT OF ADVANCE T AX ARE APPLICABLE WHERE BOOK PROFIT IS DEEMED TO BE THE TOTAL INCOME UNDER SECTION 115JB. HOWEVER, IT HAS TO BE SEEN WHETHER THE LIABILITY TO PAY SUCH ADVANCE TAX EXISTED AT THE TIME OF DUE DATE OF THE PAYMENT OF ADVANCE TAX AS PROVIDED UNDER THE ACT OR NO T . IF SUCH A LIABILITY HAS BEEN FASTENED F OR A FUTURE DATE BY VIRTUE OF ANY RETROSPECTIVE AMENDMENT THEN THE ASSESSEE CANNOT BE HELD TO FOR E SEE AND PAY THE ADVANCE TAX. THE EXPLANATION 1 WITH VARIOUS CLAUSES HAVE BEEN BROUGHT IN THE STATUTE BY THE FINANCE ACT, 2008, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2001. THE FINANCIAL YEAR ENDING IN THIS CASE WAS 31 ST MARCH 2007 AND BY THIS TIME NO AMENDMENT WAS BROUGHT IN THE STATUTE FASTENING ANY LIABILITY OR EXPANDING THE SCOPE OF BOOK PROFIT AS ESSAR STEEL INDIA LTD. 7 STIPULATED IN THE EXPLANATION. AT THE TIME OF MAKING THE ADVANCE TAX, THE ASSESSEE CANNOT BE EXPECTED TO DO IMPOSSIBILITY I.E., LEX NON COGIT AD IMPOSIBILIA . ONCE THE ASSESSEE CANNOT FOR E SEE THE EXPANSION OF THE SCOPE OF BOOK PROFIT BY A SUBSEQUENT AMENDMENT, HE CANNOT B E HELD TO BE DEFAULTER FOR THE PAYMENT OF ADVANCE TAX , WHEN AT THAT TIME NO SUCH PROVISION EXIS TED IN THE STATUTE. THIS PRECISE ISSUE HAS BEEN DEALT AND DISCUSSED IN DETAIL BY THE HONBLE CALCUTTA HIGH COURT IN EMAMI LTD. (SUPRA), WHEREIN, IT IS HELD AS UN DER: IN THE CASE BEFORE US, THE LAST DATE OF THE RELEVANT FINANCIAL YEAR WAS 31ST MARCH, 2001 AND ON THAT DAY, ADMITTEDLY, THE APPELLANT HAD NO LIABILITY TO PAY ANY AMOUNT OF ADVANCE TAX IN ACCORDANCE WITH THE THEN LAW PREVAILING IN THE COUNTRY. CONSEQU ENTLY, THE APPELLANT PAID NO ADVANCE TAX AND SUBMITTED ITS REGULAR RETURN ON 31ST OCT., 2001 WITHIN THE TIME FIXED BY LAW WHEREIN IT DECLARED ITS TOTAL INCOME AND THE BOOK PROFIT BOTH AS NIL. HOWEVER, CONSEQUENT TO THE AMENDMENT OF THE PROVISIONS CONTAINED IN S. 115JB OF THE ACT BY VIRTUE OF FINANCE ACT, 2002 WHICH WAS PUBLISHED IN THE OFFICIAL GAZETTE ON 11TH MAY, 2002 GIVING RETROSPECTIVE EFFECT TO THE AMENDMENT FROM 1ST APRIL, 2001, THE APPELLANT FIRST VOLUNTARILY PAID A SUM OF RS. 1,55,62,511 ON ACCOUNT OF THE TAX PAYABLE ON BOOK PROFIT AS PROVIDED IN AMENDED PROVISION OF S. 115JB AND THEN FILED ITS REVISED RETURN OF 31 ST MARCH, 2003 DECLARING ITS BUSINESS INCOME AS NIL BUT THE BOOK PROFIT UNDER S. 115JB AS RS. 20,63,65,711. THE AO ACCEPTED SUCH RETURN O F INCOME BUT IMPOSED INTEREST UNDER SS. 234B AND 234C OF THE ACT AMOUNTING TO RS. 44,00,937 AND RS. 11,78,960 RESPECTIVELY. IN OUR OPINION, THE AMENDED PROVISION OF S. 115JB HAVING COME INTO FORCE W.E.F. 1ST APRIL, 2001, THE APPELLANT CANNOT BE HELD DEFAU LTER OF PAYMENT OF ADVANCE TAX. AS POINTED OUT EARLIER, ON THE LAST DATE OF THE FINANCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR, AS THE BOOK PROFIT OF THE APPELLANT IN ACCORDANCE WITH THE THEN PROVISION OF LAW WAS NIL, WE CANNOT CONCEIVE OF ANY 'ADVA NCE TAX' WHICH IN ESSENCE IS PAYABLE WITHIN THE LAST DAY OF THE FINANCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR AS PROVIDED IN SS. 207 AND 208 OR WITHIN THE DATES INDICATED IN S. 211 OF THE ACT WHICH INEVITABLY FALLS WITHIN THE LAST DATE OF FINANCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR. CONSEQUENTLY, THE ASSESSEE CANNOT BE BRANDED AS A DEFAULTER IN PAYMENT OF ADVANCE TAX AS MENTIONED ABOVE. AT THIS STAGE, WE MAY PROFITABLY RELY UPON THE OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF STAR IND IA (P) LTD. VS. CCE (2006) 201 CTR (SC) 63 : (2006) 280 ITR 321 (SC) STRONGLY RELIED UPON BY MR. BAJORIA, WHERE THE APEX COURT IN THE CONTEXT OF IMPOSITION OF SERVICE TAX BY THE FINANCE ACT, 2002 WITH RETROSPECTIVE EFFECT HELD THAT THE LIABILITY TO PAY INT EREST WOULD ARISE ONLY ON DEFAULT AND IS REALLY IN THE NATURE OF QUASI - PUNISHMENT AND THUS, ALTHOUGH THE LIABILITY TO PAY TAX AROSE DUE TO RETROSPECTIVE EFFECT OF LAW, SAME SHOULD NOT ENTAIL THE PUNISHMENT OF PAYMENT OF INTEREST. ALTHOUGH MR. NIZAMUDDIN, T HE LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE, IN THIS CONNECTION, STRONGLY RELIED UPON THE DECISION OF THE SUPREME COURT IN THE CASE OF JT. CIT VS. ROLTA INDIA LTD. (SUPRA), WE FIND THAT IN THAT CASE THE QUESTION WAS WHETHER INTEREST UNDER S. 234B OF THE ACT COULD BE CHARGED ON THE TAX CALCULATED ON THE BOOK PROFIT UNDER S. 115JA AND IN OTHER WORDS, WHETHER ADVANCE TAX WAS AT ALL PAYABLE ON BOOK PROFITS UNDER S. 115JA OF THE ACT. THE SUPREME COURT ANSWERED THE SAID QUESTION IN THE AFFIRMATIVE AND F URTHER HELD THAT THE PROVISIONS OF INTEREST ON DEFAULT AS ESSAR STEEL INDIA LTD. 8 PROVIDED IN SS. 234B AND 234C WOULD ALSO APPLY. WE HAVE ALREADY POINTED OUT THAT MR. BAJORIA, AT THE VERY OUTSET, CONCEDED THAT THE SAID DECISION SHOULD BE APPLIED FOR ANSWERING THE FIRST QUESTION F ORMULATED IN THIS APPEAL AGAINST HIS CLIENT. IN OUR OPINION, THE SAID DECISION IS NOT RELEVANT FOR CONSIDERING THE SECOND AND THE THIRD QUESTIONS AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE A DEFAULTER IN PAYMENT OF ADVANCE TAX IF HE HAD NO LIABILITY TO MA KE PAYMENT OF SUCH TAX ON THE LAST DATE OF A FINANCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR AS SUCH QUESTION DID NOT ARISE IN THE SAID CASE BEFORE THE SUPREME COURT. IT APPEARS THAT THE LEARNED TRIBUNAL HAS NOT AT ALL CONSIDERED THE AFORESAID ASPEC T AS TO THE LIABILITY OF THE ASSESSEE TO MAKE PAYMENT OF THE ADVANCE TAX ON THE LAST DAY OF THE FINANCIAL YEAR I.E. 31ST MARCH, 2001 WHEN ITS BOOK PROFIT WAS NIL ACCORDING TO THE THEN LAW OF THE LAND. THE VARIOUS DECISIONS OF THE OTHER HIGH COURTS AND THE TRIBUNALS RELIED UPON BY THE TRIBUNAL DID NOT EFFECTIVELY CONSIDER THE QUESTION WHETHER EVEN IN A CASE LIKE THE PRESENT ONE WHERE ON THE LAST DATE OF THE FINANCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD NO LIABILITY TO PAY ADVANCE TA X, HE WOULD BE NEVERTHELESS ASKED TO PAY INTEREST IN TERMS OF S. 234B AND S. 234C OF THE ACT FOR DEFAULT IN MAKING PAYMENT OF TAX IN ADVANCE WHICH WAS PHYSICALLY IMPOSSIBLE. WE, THEREFORE, PARTLY ALLOW THE APPEAL BY ANSWERING THE FIRST QUESTION IN THE AFFI RMATIVE AND AGAINST THE ASSESSEE AND THE SECOND AND THE THIRD QUESTIONS IN THE NEGATIVE AND AGAINST THE REVENUE. THE ORDER PASSED BY THE TRIBUNAL IS, THUS, SET ASIDE TO THE EXTENT INDICATED ABOVE. THUS, WE HOLD THAT NO INTEREST UNDER SECTION 234B CAN B E LEVIED ON ACCOUNT OF SUCH RETROSPEC TIVE AMENDMENT IN SECTION 115JB AND, ACCORDINGLY, THIS GROUND IS TREATED AS ALLOWED. 16. IN THE THIRD GROUND, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF LEVY OF ENCASHMENT OF ` 2,45,46,516, BY INVOKING THE PROVISIONS OF SECTION 43B. 17. THE ASSESSEE, IN THE COMPUTATION OF INCOME, HAS ADDED BACK LEAVE ENCASHMENT EXPENSES OF ` 2,45,46,516, BEING EXPENSES INCURRED DURING THE YEAR BUT NOT PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 08 I .E., 31 ST OCTOBER 2007. BEFORE THE ASSESSING OFFICER, IT WAS SUBMITTED THAT SUCH A DISALLOWANCE IS NOT COVERED BY THE PROVISIONS OF SECTION 43B AND VARIOUS CASE LAWS WERE RELIED UPON INCLUDING THAT OF THE JUDGMENT OF HONBLE SUPREME COURT IN BHARAT EARTH M OVER, [2000] 245 ITR 428 ( SC ) AND THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES V/S UNION OF INDIA, [ 2007 ] 292 ITR 470 (CAL.). THE ESSAR STEEL INDIA LTD. 9 ASSESSING OFFICER HAS DISALLOWED THE CLAIM MERELY ON THE GROUND THAT THE REVENUE HAS NOT ACCEPTED THE DECIS ION OF HONBLE CALCUTTA HIGH COURT AND SLP HAS BEEN FILED BY THE DEPARTMENT. 18. THE LEARNED COMMISSIONER (APPEALS), HOWEVER, WENT TO ANALYSE THE ACTUAL PAYMENTS AND FOUND THAT THEY WERE LESS THAN THE AMOUNT OF PROVISIONS MADE IN THE BOOKS OF ACCOUNT AND THE ACTURIAL CERTIFICATE SUBMITTED BY THE ASSESSEE IS NOT CORRECT. THEREFORE, HE WAS OF THE OPINION THAT THE ASSESSEE HAD CREATED A HUGE PROVISIONS AND THERE IS A BIG GAP BETWEEN THE ACTUAL PAYMENT AND THE PROVISIONS MADE THEREIN AND, THEREFORE, THE PAYMENT, WHICH WAS NOT BEEN MADE BEFORE THE DATE OF FILING OF RETURN OF INCOME , PROVISIONS OF SECTION 43B WOULD BE APPLICABLE. 19. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SIMILAR ISSUE WAS ALSO INVOLVED IN ESSAR EXPLORATION PRODUCTION INDIA LTD. ITA NO. 61 89/MUM./2011, WHEREIN THE MATTER HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER ON IDENTICAL FACTS AND CIRCUMSTANCES. A COPY OF THE SAID DECISION WAS PLACED BEFORE US. HE SUBMITTED THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT DECLARING THE PROVISIONS OF LEAVE ENCASHMENT UNDER SECTION 43B A S UNCONSTITUTIONAL HAS BEEN STAYED BY THE HON'BLE SUPREME COURT THEREFORE, THIS MATTER SHOULD ALSO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER IN LINE OF THE AFORESAID DECISION OF THE TRIBUNAL IN ESSAR EXPLORATION PRODUCTION INDIA LTD. (SUPRA). 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE SAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 21. AFTER CAREFULLY CONSIDERING THE SUBMISSIONS, WE ARE OF THE OPINION THAT IN VIEW OF THE FOLL OWING OBSERVATIONS OF THE TRIBUNAL IN THE AFORESAID CASE, WE ALSO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER : 4. DURING THE COURSE OF HEARING, ID A.R. SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE CASE OF M / S UNIVERSA L MEDICARE PVT LTD. VS. ACIT (I.T.A. NO.6191/M/2008) VIDE ORDER DATED 13.3.2009 AND THE TRIBUNAL CONSIDERING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) ALLOWED THE PROVISION FOR LEAVE ENCASHMENT. HE FURTHER ESSAR STEEL INDIA LTD. 10 SUBMITTED THAT THE DEPARTMENT FILED APPEAL AGAINST ORDER OF THE TRIBUNAL BEFORE THE HON'BLE BOMBAY HIGH COURT AND HON'BLE HIGH COURT VIDE ITS ORDER DATED 22.3.2010 (REPORTED IN 324 ITR 263) ADMITTED THE APPEAL ON THE ISSUE OF LEAVE ENCASHMENT AS QUESTION OF LAW AND SAI D APPEAL IS PENDING. LD A.R. FURTHER SUBMITTED THAT SLP BEFORE THE HON'BLE APEX COURT AGAINST THE ORDER OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD (SUPRA) IS STILL PENDING. LD A.R. FURTHER SUBMITTED THAT KOLKATA BENCHES OF. THE TRIB UNAL VIDE ORDER DATED 30.1.2012 IN I.T.A. NOS.1376 & 1377/KOI/2010 AND I.T.A. NO.858/KOI/2011 IN THE CASE OF S.R. BATLIBOI & ASSOCIATES VS. DCIT BY FOLLOWING ITS EARLIER DECISION IN THE CASE OF DCIT VS. MIS. ERNST & YOUNG PVT LTD. IN I.T.A. NO.1787/KO1/20 08 HAD SET ASIDE THE ORDERS OF AUTHORITIES BELOW ON THIS POINT AND RESTORED BACK TO THE FILE OF AO FOR ADJUDICATION AFRESH AS PER DECISION OF HON'BLE APEX COURT IN THE CASE OF EXIDE INDUSTRIES(SUPRA). LD A.R. SUBMITTED THAT ISSUE INVOLVED COULD BE SET ASID E TO THE FILE OF AO WITH THE DIRECTION TO DECIDE THE SAME IN THE LIGHT OF DECISION OF HON'BLE APEX COURT IN THE CASE OF EXIDE INDUSTRIES (SUPRA) OR IN THE LIGHT OF DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PVT LTD (SUPRA). 6 . WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTHORITIES BELOW AS WELL AS SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES IN THE LIGHT OF DECISIONS CITED BEFORE US. 7. WE OBSERVE THAT MUMBAI TRIBUNAL BY ITS ORDER DAED 30.3.2009 IN THE CASE OF UNIVERSAL MEDI CARE PVT. LTD. (SUPRA) ALLOWED THE CLAIM OF PROVISION FOR LEAVE ENCASHMENT ON THE BASIS OF DECISION OF HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) AS THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXCIDE INDUSTRIES (SUPRA) STRUCK DOWN THE PROVISION OF SECTION 43B(F) BEING ARBITRARY, UNCONSCIONABLE. FURTHER, THE DEPARTMENT FILED SLP BEFORE HON'BLE APEX COURT AGAINST THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD (SUPRA) BY ITS ORDER DATED S.9.200S IN SLP NO.12060/200S HAS STAYED THE OPERATION OF JUDGMENT OF HON'BLE CALCUTTA HIGH COURT. FURTHER, IT IS ALSO A FACT THAT HON'BLE BOMBAY HIGH COURT HAS ADMITTED THE ISSUE UNDER CONSIDERATION IN THE APPEAL FILED BY DEPARTMENT IN THE CASE OF UNIVERSAL MEDICARE PVT LTD (SUPRA). AT THE TIME OF HEARING, ID A.R. SUBMITTED THAT THE SAID APPEAL IS YET TO BE DISPOSED OF. WE ALSO OBSERVE THAT IT AT KOLKATA BENCH BY ITS ORDER DATED 30.1.2012 CONSIDERED THE SAID ISSUE AND BY FOLLOWING EARLIER DECISION ON IDENTICAL ISSUE IN TH E CASE ERNST & YOUNG PVT LTD. (SUPRA) HAS RESTORED THE MATTER TO THE FILE OF AO WITH A DIRECTION TO ADJUDICATE THE SAME AS PER DECISION OF HON'BLE APEX COURT IN THE CASE OF EXIDE INDUSTRIES LTD (SUPRA). IN VIEW OF ABOVE AND RESPECTFULLY FOLLOWING THE EA RLIER DECISIONS (SUPRA), WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER BACK TO THE FILE OF AO FOR ADJUDICATION AFRESH AS PER THE DECISION OF HON'BLE APEX COURT IN THE CASE OF EXIDE INDUSTRIES LTD (SUPRA). THUS, GROUND NO.3, RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 22. 23. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ESSAR STEEL INDIA LTD. 11 WE NOW TAKE UP REVENUES APPEAL IN ITA NO. 7 415/MUM./ 2011. 23. IN GROUND NO.1, THE REVENUE HAS CHALLENGED THE DISALLOWANCE OF INTEREST PAYMENT ON EXTERNAL COMMERCIAL BORROWINGS TO THE TUNE OF ` 25,91,319 UNDER SECTION 40(A)(I). 24. THE ASSESSING OFFICER NOTED THAT THE ASSESS EE HAS NOT DEDUCTED TAX ON ` 25,91,319 TOWARDS PAYMENT OF INTEREST ON EXTERNAL COMMERCIAL BORROWINGS FROM FOREIGN BANK. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE COMPANY HAD APPROVAL FROM CBDT FOR EXEMPTION OF THIS INTEREST FREE INCOME CHARGEA BLE TO TAX IN INDIA UNDER SECTION 10(5)(IV)(C) AS PER THE CERTIFICATE DATED 11 TH MARCH 1997. THE ASSESSING OFFICER HELD THAT THE CERTIFICATE OF CBDT ONLY APPROVES THE RATE OF INTEREST AND DOES NOT GRANT EXEMPTION FROM TDS. HE ALSO HELD THAT SIMILAR ISSUE H AS BEEN DEALT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2000 01 TO 2006 07. ACCORDINGLY, HE MADE THE DISALLOWANCE OF ` 25,91,319 UNDER SECTION 40(A)(IA). 25. BEFORE THE LEARNED COMMISSIONER (APPEALS), DETAIL SUBMISSIONS WERE MAD E WHICH HAS BEEN DEALT WITH BY THE LEARNED COMMISSIONER (APPEALS) AT PAGE 3. THE LEARNED COMMISSIONER (APPEALS), FOLLOWING THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 2006 07, HELD THAT THERE IS NO REQUIREMENT FOR DEDUCTING THE TDS ON SUCH INTEREST AND, TH EREFORE, NO DISALLOWANCE UNDER SECTION 40(A)(I) CAN BE MADE. 26. BEFORE US, IT HAS BEEN POINTED OUT THAT THIS VERY ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE EARLIER YEARS FOR THE ASSE SSMENT YEARS 2001 02 TO 2004 05, WHEREIN IT HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE. 27. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED THAT THIS ISSUE IS COVERED BY THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. ESSAR STEEL INDIA LTD. 12 28. AFTER CAREFULLY CONSIDERING THE RELEVANT OBSERVATIONS OF THE ASSESSING OFFICER AND TH E LEARNED COMMISSIONER (APPEALS) AND ALSO THE EARLIER YEARS ORDER, WE FIND THAT THIS ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001 02 TO 2004 05 IN ITA NO. 4715/MUM./2005, 2838, 2954 & 5086/MUM./2007, VIDE ORDER DATED 22 ND MARCH 2013 . THE RELEVANT FINDINGS APPEARING AT PARA 14 OF THE SAID ORDER WHICH, FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREIN BELOW: 14. IN THE PRESENT ORDER, THE LEARNED CIT (A) WITHOUT ELABORATE DISCUSSION HAS ALLOWED ASSESSEES CLAIM ON THE SAME REASON AS THAT OF AY 2000 - 01. THEREFORE, IN ORDER TO EXAMINE THE ISSUE, WE HAD TO EXTRACT THE ABOVE ORDER OF THE CIT (A) FOR CONSIDERING THIS GROUND. AS CAN BE SEEN FROM THE ABOVE, THE LEARNED CIT (A) DISCUSSED THE ISSUE BOTH ON FACTS AS WELL AS ON LAW. IT IS A FACT THAT THE CBDT HAS EXAMINED THE RECEIPT OF INTEREST AS PER THE PROVISIONS OF SECTION 10(15)(IV)(C) OF THE ACT. THEREFORE, WHERE THE UTILIZATION IS FOR PURCHASE OUTSIDE INDIA OF RAW MATERIAL, COMPONENTS OR PLANT & MACHINERY, SO LONG A S EXEMPTION GRANTED IS VALID, THE INTEREST RECEIVED BY THE OTHER PARTY IS NOT COVERED BY THE IT ACT AND BY VIRTUE OF EXEMPTION GRANTED BY THE CENTRAL GOVT., THE QUESTION OF TDS ON THE ABOVE AMOUNT DOES NOT ARISE AT ALL. SINCE THERE IS NO REQUIREMENT OF TDS , QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(IA) FOR NON DEDUCTION OF TAX ALSO DOES NOT ARISE. MOREOVER, AS SEEN FROM THE CORRESPONDENCE WITH THE MINISTRY OF FINANCE BY THE ASSESSEE COMPANY WAY BACK IN DECEMBER, 1996 AND FEBRUARY, 1997 IT CAN BE NOTICED THAT THE CBDT ALSO INSISTED ON VERIFYING THE DEPLOYMENT OF FUNDS AND ASSESSEE VIDE THE LETTER DATED 7.2.1997 ENCLOSED THE AUDITORS CERTIFICATE CERTIFYING THE ATTACHED STATEMENT SHOWING THE DEPLOYMENT OF FUNDS EQUIVALENT TO US$ 40.22 MILLION AND CORRESPOND ING INVOICES FOR IMPORT OF CAPITAL GOODS FOR THE HOT ROLLED COILS PROJECT OF THE COMPANY OUT OF EURO CONVERTIBLE BONDS ISSUE OF US$ 75.00 MILLION. THEY ALSO PLACED ON RECORD THE APPROVAL OF THE RBI FOR THE PURPOSE OF FINANCING THE PUT OPTION UNDER EURO CON VERTIBLE BONDS ISSUE OF USD 75 MILLION. AFTER EXAMINING THE RELEVANT CERTIFICATES THE CBDT FOREIGN TAX DIVISION VIDE LETTER DATED 12.03.1997 GRANTED THE APPROVAL UNDER SECTION 10(15)(IV)(C). THEREFORE, THE CONTENTION OF ASSESSEE NOW MADE AT THE TIME OF PAY MENT OF INTEREST DOES NOT SURVIVE AS THE ISSUE OF UTILIZATION OF THE FUNDS WAS ALREADY EXAMINED BY THE CBDT AT THE TIME OF GRANTING EXEMPTION. AS ALREADY STATED ONCE THE INTEREST INCOME IS NOT TAXABLE IN THE HANDS OF RECIPIENT AND WAS EXEMPTED BY THE GOVT. OF INDIA, QUESTION OF TDS ON THE INTEREST PAID BY ASSESSEE DOES NOT ARISE. THEREFORE, THE GROUND HAS NO MERIT AND ACCORDINGLY REJECTED. THUS, FOLLOWING THE AFORESAID DECISION, WE ALSO HOLD THAT ONCE THE INTEREST INCOME IS NOT TAXABLE IN THE HANDS OF THE RECIPIENT AND WAS EXEMPTED BY THE GOVERNMENT OF INDIA, THEN THERE IS NO QUESTION OF TDS O N THE INTEREST PAID AND CONSEQUENTLY, NO DISALLOWANCE UNDER SECTION 40(A)(I) IS CALLED FOR. THUS, GROUND NO.1, RAISED BY THE REVENUE IS TREATED AS DISMISSED. 29. GROUND NO.2, RELATES TO DISALLOWANCE OF ` 23.24 CRORES IN RESPECT OF DEPRECIATION CLAIMED ON WDV ON PLANT AND MACHINERY. ESSAR STEEL INDIA LTD. 13 30. BEFORE US, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001 02 AND 2004 05. THE RELEVANT FACTS AND FINDINGS OF THE TRIBUNAL AS DISCUSSED FROM PARA 42 TO 47 ARE REPRODUCED HEREIN BELOW: 42. GROUND NO.2 PERTAINS TO THE ISSUE OF DELETING THE DISALLOWANCE OF ` 81,04,05,885 OF DEPRECIATI ON CONSEQUENT TO ADJUSTMENTS MADE BY AO REDUCING THE COST OF PLANT & MACHINERY TO THE EXTENT OF WAIVER OF AMOUNTS, SINCE THE BORROWED FUND WAS UTILIZED FOR ACQUISITION OF PLANT AND MACHINERY. THE FACTS ARE THAT THE ASSESSEE COMPANY HAS TAKEN LONG TERM ADVA NCES FROM A FOREIGN CUSTOMER, CMC TRADING AG, SWITZERLAND IN AN EARLIER YEAR. THE ADVANCE WAS TO BE REPAID THROUGH EXPORT OF STEEL MANUFACTURED BY THE COMPANY AND THE OUTSTANDING ADVANCE WAS SUBJECT TO INTEREST PAYMENT BY THE COMPANY. THESE ADVANCES WERE F UNDED BY THE FOREIGN BANKS AND THEREFORE CMC HAS ASSIGNED ALL THE RIGHTS ARISING OUT OF THE ABOVE CONTRACTS TO THESE BANKS. THUS IT REPRESENTS AN INTEREST BEARING DEBT PAYABLE BY THE COMPANY TO THESE BANKS AND THE REPAYMENT ON REALIZATION OF THE EXPORTS WA S MADE TO THESE BANKS. BUT THE COMPANY COULD NOT FULFILL THE ENTIRE COMMITMENTS AS PER THE AGREEMENT AND THEREFORE, THE CUSTOMER/LENDERS HAD DEMANDED REPAYMENT OF AMOUNT OUTSTANDING. DURING FINANCIAL YEAR 2003 - 04 AN AGREEMENT WAS REACHED WITH CMC TRADING/L ENDERS FOR SETTLEMENT OF THE TOTAL OUTSTANDING AMOUNT AT 33% AND THEY HAVE AGREED TO WAIVE THE BALANCE PART OF AMOUNT FINANCED. THE TOTAL AMOUNT OF SUCH WAIVER DURING THE YEAR AS AGREED BY VARIOUS LENDERS FROM THE PRINCIPAL AMOUNT OF MONEY FINANCED WAS ` . 324.16 CRORES INCLUDING THE WAIVER BY CMC. 43. AS THE WAIVER FROM THE PRINCIPAL AMOUNT IS A REMISSION GIVEN BY THE LENDERS FROM THE LOAN PRINCIPAL AMOUNT AND THUS CAPITAL IN NATURE, THE SAME HAS NOT BEEN CONSIDERED AS FORMING PART OF TAXABLE INCOME IN THE RETURN OF INCOME, IN CONSONANCE WITH JUDICIAL DECISIONS. CONSEQUENT TO THIS CLAIM, AO HELD THAT THE WAIVER OF LOAN WOULD REDUCE THE COST OF PLANT AND MACHINERY AS PER SECTION 43(1) AS THE FUND HAS BEEN UTILIZED FOR ACQUISITION OF PLANT AND MACHINERY. ACCO RDINGLY, HE DISALLOWED DEPRECIATION OF ` .81,04,05,885 BY REDUCING THE ABOVE WAIVER OF LOAN FROM THE WRITTEN DOWN VALUE OF PLANT AND MACHINERY IN BLOCK OF ASSETS. 44. BEFORE THE CIT (A), ASSESSEE ARGUED THAT AS PER SECTION 43(1) ACTUAL COST MEANS THE AC TUAL COST OF THE ASSETS TO ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. BUT THE WAIVER OF LOAN BY THE LENDER IN THE CURRENT YEAR CANNOT BE TREATED AS IF THAT LENDER HAS MET THE PORTION OF THE COST OF THE PLANT AND MACHINERY ACQUIRED MUCH BEFORE IN AN EARLIER YEAR. ASSESSEE RELIED UPON THE FOLLOWING DECISIONS: I) CIT V COCHIN CO. (P) LTD (1990) 184 ITR 230 (KER.) II) CIT VS. TATA IRON & STEEL CO. LTD (1998) 231 ITR 28 5 (SC). 45. IT WAS THE CONTENTION THAT THE WAIVER OF LOAN CANNOT BE REDUCED FROM THE WDV OF PLANT & MACHINERY, THUS THE DISALLOWANCE OF DEPRECIATION BY AO BY REDUCING THE WAIVER OF LOAN FROM THE COST OF THE PLANT AND MACHINERY IS AGAINST THE LAW. ASSESSEE HAS PLEADED FOR DELETION OF THE DISALLOWANCE OF DEPRECIATION OF ` 81,04,05,885. ESSAR STEEL INDIA LTD. 14 46. THE LEARNED CIT (A) CONSIDERED THE ISSUE AND HELD AS UNDER: 3.5 I HAVE PERUSED THE FACTS OF THE CASE. I FIND THAT THE DECISIONS RELIED UPON BY THE APPELLANT ARE DIREC TLY ON THE ISSUE UNDER CONSIDERATION AND THEREFORE IN THE FACTS OF THE APPELLANTS CASE THE DISALLOWANCE OF DEPRECIATION BY REDUCING THE WDV BY THE AMOUNT OF PRINCIPAL LOAN WAIVED IS NOT JUSTIFIED. AO IS ACCORDINGLY DIRECTED TO GRANT DEPRECIATION ON THE FU LL VALUE OF WDV WITHOUT REDUCING THE WAIVED PRINCIPAL AMOUNT OF LOAN THE LEARNED DR RELIED ON THE ORDERS OF AO WHEREAS THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED CIT (A) GRANTED RELIEF BY RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. TATA IRON & STEEL CO. LTD (1998) 231 ITR 285 (SC) AND THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. COCHIN CO. (P) LTD (1990) 184 ITR 230 (KER.). HE ALSO RELIED ON THE DECISION OF THE COORDINATE BENCH DECISION OF AKZO N OBEL COATINGS INDIA (P) LTD. VS. DCIT (LTU), BANGALORE, 132 ITD 612 (BANG.). 47. WE HAVE CONSIDERED THE ISSUE. AS FAR AS THE FACTS AND LAW ARE CONCERNED, THEY WERE ALREADY ELABORATELY STATED ABOVE. THE COORDINATE BENCH IN THE CASE OF AKZO NOBEL COATINGS I NDIA (P.) LTD. VS. DCIT (LTU), BANGALORE (SUPRA) CONSIDERED SIMILAR ISSUE AND HELD IN THAT CASE AS UNDER: - FACTUAL RECAPITULATION IT IS NOT IN DISPUTE THAT IN APRIL, 1996 WHEN THE MACHINERY WAS PURCHASED, THE ACTUAL COST WAS RECORDED IN THE BOOKS OF ACCOUNT INCLUDING THE MONIES PAYABLE TO THE SUPPLIER OF MACHINERIES. EVEN TODAY THE ASSESSEE HAS NOT MADE ANY ADJUSTMENT IN ITS BOOKS OF ACCOUNT RECOGNIZING THE WRITING OFF OF AMOUNTS PAYABLE FOR PURCHASE OF MACHINERIES. THE BENEFIT AS A RESULT OF WAIVER O F THE LOAN WAS SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE BALANCE SHEET AS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE ABOVE CLAIM OF THE ASSESSEE HAS ALSO BEEN ACCEPTED BY THE REVENUE. RATIONALE AND PURPOSE BEHIND CONCEPT OF 'BLOCK OF ASSETS' THE RATIONALE AND PURPOSE FOR WHICH THE CONCEPT OF BLOCK ASSET WAS INTRODUCED IS THAT ONCE THE VARIOUS ASSETS ARE CLUBBED TOGETHER AND BECOME BLOCK ASSET WITHIN THE MEANING OF SECTION 2(11), IT BECOMES ONE ASSET. EVERY TIME, A NEW ASSET IS ACQUIRED, IT IS TO BE THROWN INTO THE COMMON HOTCHPOTCH, I.E., BLOCK ASSET ON MEETING THE REQUIREMENT OF DEPRECIATION BEING ALLOWABLE AT THE SAME RATE. INDIVIDUAL ASSETS LOSE THEIR IDENTITY AND BECOME AN INSEPARABLE PART OF BLOCK ASSET INSOFAR AS CALCULATION OF DEPRECI ATION IS CONCERNED. THE MERGER OF VARIOUS ASSETS INTO THE BLOCK ASSET CAN BE ALTERED ONLY WHEN THE EVENTUALITY CONTAINED IN CLAUSE ( C ) OF SECTION 43(6) TAKES PLACE, VIZ. , WHEN A PARTICULAR ASSET IS SOLD, DISCARDED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH FIRST BROUGHT IN USE). EVEN IN THAT EVENT, THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF THAT PARTICULAR BUILDING, MACHINERY, ETC. TOGETHER WITH THE AMOUNT OF SCRAP VALUE IS TO BE DEDUCTED FROM TOTAL WRITTEN DOWN VALU E OF THE 'BLOCK ASSET'. IT IS THUS CLEAR FROM THE AFORESAID PROVISIONS THAT THE ONLY WAY BY WHICH THE WRITTEN DOWN VALUE ON WHICH DEPRECIATION IS TO BE ALLOWED AS PER THE PROVISIONS OF SECTION 32(1)(II) CAN BE ALTERED IS AS PER THE SITUATION REFERRED TO IN SECTION 43(6)( C )( I ) A AND B. NEITHER WAS THERE PURCHASE OF THE RELEVANT ASSETS DURING THE PREVIOUS YEAR NOR WAS THERE SALE, DISCARDING OR DEMOLISHING OR DESTRUCTION OF THOSE ASSETS DURING THE PREVIOUS YEAR. ESSAR STEEL INDIA LTD. 15 THUS, THE RECOURSE BY THE REVENUE TO THOSE PROVISIONS ON THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, IT IS HELD, CANNOT BE SUSTAINED. THE ISSUE IS THAN EXAMINED FROM THE PROVISIONS OF SECTION 43(1) AND EXPLANATION 10 THERETO. WAIVER OF LOAN CANNOT FALL WITHIN SCOPE OF ANY OF EXPRESSIONS 'SU BSIDY OR REIMBURSEMENT' USED IN EXPLANATION 10 TO SECTION 43(1) THE PROVISIONS OF EXPLANATION 10 WILL APPLY ONLY WHEN THERE IS A SUBSIDY OR GRANT OR REIMBURSEMENT. IN THE INSTANT CASE, THERE WAS NO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT. THERE WAS ONLY A WAIVER OF THE AMOUNTS DUE FOR PURCHASE OF MACHINERY WHICH CANNOT FALL WITHIN THE SCOPE OF ANY OF THE EXPRESSIONS USED IN EXPLANATION 10. EVEN OTHERWISE SECTION 43(1) IS APPLICABLE ONLY IN THE YEAR OF PURCHASE OF MACHINERY AND IN THE INSTANT CASE THE P URCHASE OF THE MACHINERY IN QUESTION WAS NOT IN AY 01 - 02. THEREFORE, THE ACTUAL COST WHICH HAS ALREADY BEEN RECOGNIZED IN THE BOOKS IN THE ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 2001 - 02 CANNOT BE DISTURBED IN ASSESSMENT YEAR 2001 - 02. THERE IS A LACUNA IN LAW. IN THIS REGARD THERE IS A LACUNA IN THE LAW AND IT IS FOR THE LEGISLATURE TO PROVIDE APPROPRIATE SAFEGUARDS IN THIS REGARD. IT IS TRUE THAT THE ASSESSEE ON THE ONE HAND GETS THE WAIVER OF MONIES PAYABLE ON PURCHASE OF MACHINERY AND CLAIMS SUCH REC EIPT AS NOT TAXABLE BECAUSE IT IS CAPITAL RECEIPT. ON THE OTHER HAND THE ASSESSEE CLAIMS DEPRECIATION ON THE VALUE OF THE MACHINERY FOR WHICH IT DID NOT INCUR ANY COST. THUS, THE ASSESSEE STAND TO BENEFIT BOTH WAYS. AS PER THE LAW AS IT PREVAILS AS ON DATE , IT IS HELD THAT THE REVENUE IS WITHOUT ANY REMEDY. THE ONLY WAY THAT THE REVENUE CAN REMEDY THE SITUATION IS THAT IT HAS TO REOPEN THE ASSESSMENT FOR THE YEAR IN WHICH THE ASSET WAS ACQUIRED AND FALL BACK ON THE PROVISIONS OF SECTION 43(1) WHICH SAYS TH AT ACTUAL COST MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. EVEN THIS CAN BE DONE ONLY AFTER THE WAIVER OF THE LOAN WHICH WAS USED TO ACQUIRE MACHINERY. BY THAT TIME IF THE ASSESSMENTS FOR THAT ASSESSMENT YEAR GETS BARRED BY TIME, THE REVENUE IS WI THOUT ANY REMEDY. EVEN THE PROVISIONS OF SECTION 155 DO NOT PROVIDE FOR ANY REMEDY TO THE REVENUE IN THIS REGARD. THE ASSESSING OFFICER HAS MADE A REFERENCE TO THE PROVISIONS OF SECTION 43(6)( B ). IT IS HELD THAT THESE PROVISIONS WERE NOT APPLICABLE TO THE INSTANT CASE APPLICABLE PROVISIONS TO THE INSTANT CASE ARE SECTION 43(6)( C ). IT IS HELD THAT THE DISALLOWANCE OF DEPRECIATION CANNOT BE SUSTAINED. THE COMMISSIONER (APPEALS), IT IS HELD, OUGHT TO HAVE DELETED THE DISALLOWANCE OF DEPRECIATION IN FULL . ACCORDINGLY, THE RELEVANT GROUNDS OF APPEAL RAISED BY THE ASSESSEE, ARE ALLOWED. RESPECTFULLY FOLLOWING THE COORDINATE BENCH, WE UPHOLD THE ORDER OF THE CIT (A) WHICH IS ACCORDING TO THE LAW ON THE ISSUE. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE REVENUE GROUND AND ACCORDINGLY GROUND IS REJECTED. ESSAR STEEL INDIA LTD. 16 31. KEEPING IN VIEW THE AFORESAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, SIMILAR DIRECTIONS ARE ISSUED IN THIS YEAR ALSO. ACCORDINGLY, THE GROUND NO.2 RAISED BY THE REVENUE IS TREATED AS DISMISSED. 32. GROUND NO.3, RELATES TO DELETION OF ` 16.85 LAKHS UNDER SECTION 14A TO THE EXTENT OF 5% OF THE EXEMPTED DIVIDEND INCOME. 33. THE LEARNED COMMISSIONER (APPEALS) HAS OBSERVED THAT THE ASSESSING OFFICER HAS STRONGLY RELIED UPON THE DECISION OF TH E HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 328 ITR 081 (BOM.) AND HAS INVOKED RULE 8D FOR MAKING THE DISALLOWANCE. IT WAS CONTENDED BEFORE HIM THAT RULE 8D IS ONLY APPLICABLE FROM THE ASSESSMENT YEAR 2008 09 AND N OT FOR THE PRIOR YEARS. THE LEARNED COMMISSIONER (APPEALS) AGREED WITH THE CONTENTION OF THE ASSESSEE AND FOLLOWING THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN VIP INDUSTRIES, ITA NO.7242/MUM./2008, RESTRICTED THE DISALLOWANCE AT 5% OF THE DIVIDEND INCO ME. 34. BEFORE US, BOTH THE PARTIES HAVE RELIED UPON THE RESPECTIVE ORDERS. 35. AFTER CAREFULLY CONSIDERING THE RELEVANT OBSERVATIONS AND FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WE AGREE WITH THE CONTENTION OF THE LEARNED COMMIS SIONER (APPEALS) THAT RULE 8D CANNOT BE MADE APPLICABLE PRIOR TO THE ASSESSMENT YEAR 2008 09. HOWEVER, WHAT IS THE NATURE OF EXPENSES , INCLUDING THAT OF INTEREST I NCOME AND WHETHER IT CAN BE SAID TO BE ATTRIBUTABLE FOR EARNING OF EXEMPT INCOME OR NOT, HAS NOT BEEN EXAMINED EITHER BY THE ASSESSING OFFICER OR BY THE LEARNED COMMISSIONER (APPEALS). THE ASSESSING OFFICER HAS SIMPLY APPLIED THE PROVISIONS OF RULE 8D , WHEREAS THE LEARNED COMMISSIONER (APPEALS) HAS MADE DISALLOWANCE OF 5% OF THE EXEMPTED INCOME , W ITHOUT ANALYZING THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT AND WHETHER SUCH AN EXPENDITURE HAS ANY BEARING ON THE EXEMPTED INCOME. THEREFORE, THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE SAME AFRESH ESSAR STEEL INDIA LTD. 17 AND TO ADOPT SOME REASONABLE BASIS FOR ESTIMATING THE DISALLOWANCE. THUS, THE GROUND NO.3, IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 36. 3 6 . IN THE RESULT, REVENUES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 37. 37. TO SUM UP, ASSESSEES APPEAL AND REVENUES APPEAL ARE PARTLYL ALLOWED FOR STATISTICAL PURPOSES. 27 TH SEPTEMBER 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER 2013 SD / - RAJENDRA SINGH ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 27 TH SEPTEMBER 2013 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE ; (2) / THE REVENUE ; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITA T, MUMBAI