AARTI INDUSTRIES LTD, MUMBAI V. ADDL CIT RG 10(3), MUMBAI

ITA 7039/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8057 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 18-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MEENA; DR KAILASH P GAIKWAD
• Keywords: Capital asset; Depreciation; Business expenditure; Additional depreciation; Earning of tax free income; Proportionate interest; Difference of opinion; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 5(2); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANJAY GARG,J.M. ./ ././ ./ ITA NO.7039/MUM/2014 / ASSESSMENT YEAR: 2009-10 AARTI INDUSTRIES LIMITED 71, 2ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK RD. OFF, LBS ROAD, MULUND (W) MUMBAI-400 080. PAN: AABCA 2787 L VS. ADDL. CIT-RANGE-10(3) MUMBAI. ( / // / APPELLANT ) ( / RESPONDENT ) ./ ././ ./ ITA NO.6827/MUM/2014 / ASSESSMENT YEAR: 2009-10 ADDL. CIT-(OSD)-10(3) MUMBAI. VS. AARTI INDUSTRIES LIMITED MUMBAI-80. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI R.P. MEENA & DR. KAILASH P. GAIKWAD ASSESSEE BY: SHRI VIJAY MEHTA / // / DATE OF HEARING: 30.01.2017 !'#$ / DATE OF PRONOUNCEMENT: 09.03.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , -PER RAJENDRA,AM: CHALLENGING THE ORDER DATED 17.08.2014 OF CIT(A)-22 MUMBAI THE ASSESSING OFFICER (A.O.) AND THE ASSESSEE HAVE FILED CROSS APPEALS FOR THE ABOVE MENTIONED YEAR. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF ORGANIC /INORGANIC CHEMICALS AND INTERMEDIATES,FILED ITS RETURN ON 30.09.09 DECL ARING TOTAL INCOME AT RS.79.54 CRORES .A REVISED RETURN WAS FILED ON 29/07/2010,DECLARING TO TAL INCOME AT RS.78.36 CRORES.THE AO COMPLETED ASSESSMENT U/S.143(3) OF THE ACT DETERMI NING ITS INCOME AT RS.95.21 CRORES UNDER NORMAL PROVISIONS AND AT RS.115.29 CRORES UNDER SEC TION 115JB OF THE ACT. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR) DID NOT PRESS GROUND NO.1,7 AND 10, HENCE SAME STAND DISMISSED AS NOT PRESSED. ITA/6827/MUM/2014 : 2. FIRST GROUND OF APPEAL RAISED BY AO, IS ABOUT ALLOW ING DEPRECIATION OF RS.2.53 CRORES ON PLANT & MACHINERY.IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL,WHILE ADJUDICATING THE APPEAL FOR AY 2008- 09 (ITA/2421/M/2014,DT.21.12.2016). WE ARE REPRODUCING THE RELEVANT PORTION OF THE ORDE R AND IT READS AS UNDER:- 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 2 22. GROUND 1: IN THIS GROUND, THE REVENUE HAS CHALLENG ED THE ACTION OF LD. CIT(A) IN ALLOWING DEPRECIATION OF RS.32,87,726/- WHICH WAS CLAIMED BY THE ASSESSEE ON THE BASIS OF LETTER OF APPROVAL DATED 10-10-2010. 23. THE BRIEF BACKGROUND IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE AO THAT ASSESSEE HAD CLAIMED 40% DEPRECIATION O N PLANT AND MACHINERY UNDER RULE 5(2) OF INCOME-TAX RULES ON SCRUTINY OF ANNEXURE-6 TO FORM NO.3CD. SINCE THE ASSESSEE FAILED TO FURNISH DETAILS CONNECTED TO THE APPROVAL AND CERTI FICATE GIVEN BY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) IN RESPECT OF USING ANY TECHNOLOGY OR OTHER KNOW-HOW DEVELOPED IN-HOUSE, THE AO REJECTED THE CLAIM OF THE ASSESSEE . THE AO MADE A MENTION THAT SIMILAR CLAIMS MADE DURING EARLIER YEAR WAS ALSO REJECTED. 24. IN THE APPEAL BEFORE LD. CIT(A), THE ASSESSEE SUBM ITTED IN DETAIL THAT REQUIRED APPROVAL FROM DSIR WAS RECEIVED BY THE ASSESSEE AND THE SAME WAS PRODUCED BEFORE LD. CIT(A). SUBMISSIONS OF THE ASSESSEE MADE BEFORE LD. CIT(A) ARE REPRODUCED BELOW THE SUBMISSION OF THE APPELLANT IS AS UNDER:- 'AT THE OUTSET, WE WOULD LIKE TO STATE THAT THE APP ROVAL FROM DSIR AS REQUIRED BY THE UNDER RULE 5(2) HAS BEEN RECEIVED BY THE APPELLANT AND SA ME IS ENCLOSED HEREWITH AT PAGE NO. 30 TO PAGE NO. 32 OF THE PAPER BOOK. THUS THE VERY BASIS OF DISALLOWANCE, BEING NON-RECE IPT OF APPROVAL FROM DSIR HAS BEEN RECEIVED BY THE APPELLANT, HENCE THE DISALLOWANCE D ONE BY THE ASSESSING OFFICER SHOULD BE DELETED. 1. THE APPELLANT IN A. Y. 2005-06 AND A. Y. 2006-07 HAD CLAIMED DEPRECIATION @ 40% UNDER RULE 5(2) ON PLANT / MACHINERY PUT TO USE FOR COMMERCIALIZING THE TECHNOLOGY DEVELOPED IN-HOUSE. THE SAID CLAIM WAS DISALLOWED I N THE RESPECTIVE ASSESSMENT YEARS AS THE DSIR HAD NOT ACCORDED THE APPROVAL TO CLAIM UNDER R ULE 5(2). (WE ENCLOSE HEREWITH DEPRECIATION SCHEDULE FOR A. Y. 2005-06 AT PAGE NO. 33 AND A. Y. 2006-07 AT PAGE NO. 36 TO PAGE NO. 37 OF THE PAPER BOOK, AND THE RELEVANT EXT RACT OF THE ASSESSMENT ORDER U/S. 143 (3) FOR A. Y. 2005-06 AT PAGE NO. 34 TO PAGE NO. 35 AND A. Y. 2006-07 AT PAGE NO. 38 TO PAGE NO. 39 OF THE PAPER BOOK) . 2. THE DSIR VIDE LETTER DATED 10TH OCTOBER. 2010 HA S APPROVED THE CLAIM OF THE APPELLANT. BASED ON ABOVE WE SUBMIT THAT THE DEPRECIATION AS C LAIMED BY THE APPELLAZNT @40% FOR A.Y. 2008-09 IN RESPECT OF THE PLANT / MACHINERY IN STALLED IN A.Y. 2005-06 AND ASSESSMENT YEAR 2006-07 IN BLOCK OF 40% OUGHT TO BE ALLOWED. 25. LD. CIT(A) EXAMINED THE COPY OF CERTIFICATE PROVID ED BY THE ASSESSEE AND ALLOWED THE RELIEF WITH FOLLOWING OBSERVATIONS:- 3.3 I HAVE CAREFULLY CONSIDERED THE FINDING OF TH E AO IN THE IMPUGNED ASSESSMENT ORDER AND THE ABOVE SUBMISSION OF THE APPELLANT. THE DSIR VIDE LETTER DATED 10.10.2010 HAS APPROVED THE CLAIM OF ACCELERATED DEPRECIATION ALLO WANCE UNDER RULE 5(2) OF THE I.T.ACT RULES FOR F.Y.2004-05 AND 2005-06. I FIND THE AO HA D FOLLOWED THE DECISION TAKEN BY THE PREDECESSORS FOR A.Y.2005-06 AND 2006-07 WHEN NO AP PROVAL WAS AVAILABLE, WHILE COMPLETING THE ASSESSMENTS. SINCE THE APPROVAL IS N OW GRANTED, I FIND THE CLAIM OF THE APPELLANT NEEDS TO BE ALLOWED. HOWEVER, I DIRECT TH E AO TO ALLOW THE DEPRECIATION ON THE CORRECTED W.D.V. AFTER GIVING EFFECT TO THE CLAIM O F DEPRECIATION FOR A.Y.2005-06 TO A.Y.2007-08. SUBJECT TO THIS DIRECTION, THIS GROUND IS PARTLY ALLOWED. 26. DURING THE COURSE OF HEARING BEFORE US, IT HAS BEE N STATED BY THE LD. COUNSEL THAT SINCE REQUIRED CERTIFICATE HAS BEEN PROVIDED BY THE ASSES SEE WHICH HAS BEEN EXAMINED BY THE LD. CIT(A), AND ONLY THEREAFTER RELIEF HAS BEEN PROVIDE D BY HIM IN LINE WITH EARLIER YEARS ORDERS WHICH HAVE BEEN CONFIRMED BY THE TRIBUNAL. LD. DR C OULD NOT POINT OUT ANYTHING INCORRECT OR WRONG IN THE FACTUAL FINDING OF THE LD. CIT(A). UND ER THESE CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THUS, GROUND 1 RAISED BY THE REVENUE IS HEREBY DISMISSED. RESPECTFULLY FOLLOWING EARLIER YEARS ORDER,WE DECI DE GROUND NO.1 AGAINST THE AO. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 3 3. SECOND GROUND DEALS WITH DELETING THE DISALLOWANCE OF RS.72.37 LAKHS. THE AR AND THE DEPARTMENTAL REPRESENTATIVE (DR) STATED THAT ISSUE WAS ABOUT CLAIM MADE U/S.32(2AB) OF THE ACT AND THE TRIBUNAL HAD DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE IN AY 2008-09 (SUPRA). WE FIND THAT TRIBUNAL HAD HELD AS UNDER : 27. GROUND 2 : IN THIS GROUND, THE REVENUE HAS CHALLEN GED THE ACTION OF LD.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO OF CLAIM OF WEIGHTE D DEDUCTION OF RS.64,22,951/- U/S 35(2AB)(3) OF THE ACT. 28. BRIEF BACKGROUND IS THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT ASSESSEE HAD FURNISHED ONLY A CERTIFICATE R ECEIVED FROM THE CHARTERED ACCOUNTANT AND CERTAIN CORRESPONDENCE WITH MINISTRY OF SCIENCE AND TECHNOLOGY TO CLAIM THE WEIGHTED DEDUCTION U/S 35(2AB). HE WAS OF THE OPINION THAT T HE ASSESSEE HAS NOT FULFILLED THE NECESSARY CONDITIONS LAID DOWN IN CLAUSE (I) TO (V) OF THE AB OVE SECTION AND SINCE NO EVIDENCES WERE BROUGHT BEFORE HIM TO SHOW THAT THE ASSESSEE HAD EN TERED INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY, THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE AO. HE HAS ALSO MENTIONED THAT THE RELEVANT PORTION WAS LEFT BLANK IN FORM NO .3CL AND HENCE, THE REPORT IS INCOMPLETE. THE AO HAD ALLOWED RS.1,28,45,902/- WHICH IS THE AC TUAL COST INCURRED (INCLUDES BOTH REVENUE EXPENDITURE U/S 35(1)(I) AND CAPITAL EXPENDITURE U/ S 35(21)(IV) AS AGAINST THE CLAIM OF RS.1,92,68,853/- BY THE ASSESSEE AND ADDED RS.64,22 ,951/-. IN THE APPEAL BEFORE LD.CIT(A), IT WAS BROUGHT TO THE NOTICE OF THE LD.CIT(A) THAT ASS ESSEE HAD SUBSEQUENTLY RECEIVED APPROVAL IN FORM 3CM AND THE SAME WAS SHOWN, AND THEREFORE, THE RE WAS NO REASON TO CONTINUE WITH THE DISALLOWANCE. AFTER EXAMINING THE EVIDENCE, LD. CIT (A) ALLOWED THE RELIEF WITH FOLLOWING OBSERVATIONS :- XXX X 29. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIB UNAL FOR EARLIER YEARS. THOUGH IN THE EARLIER YEARS, THIS ISSUE WAS SENT BACK TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION OF ORDER OF APPROVAL IN FORM 3CM, BUT IN THE YEAR UNDE R APPEAL, THE SAID APPROVAL IN FORM 3CM WAS FILED BEFORE THE LOWER AUTHORITIES, AND LD.CIT( A) HAD GRANTED RELIEF AFTER VERIFYING THE SAME. THEREFORE, NO PURPOSE WOULD BE SERVED IN SEND ING THE MATTER BACK TO THE FILE OF LOWER AUTHORITIES ESPECIALLY WHEN NOTHING WRONG HAS BEEN POINTED OUT IN THE FINDINGS OF LD. CIT(A). 30. PER CONTRA, THE LD. DR DID NOT MAKE ANY SERIOUS OB JECTION TO THE PROPOSITION. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE RELIEF HAS BEEN GRA NTED BY THE LD. CIT(A) AFTER VERIFYING THE REQUISITE APPROVAL IN PROPER FORM. NOTHING WRONG OR CONTRADICTORY HAS BEEN BROUGHT BEFORE US BY THE LD. DR. THUS, WE DO NOT FIND ANY NEED OR JUS TIFICATION TO INTERFERE IN THE ORDER OF THE LD. CIT(A). THEREFORE, THE ORDER OF THE LD. CIT(A) IS U PHELD. THUS, GROUND OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE SAME,GROUND NO.2 IS DECI DED AGAINST THE AO. 4. THIRD GROUND IS ABOUT INTEREST DISALLOWANCE OF RS. 1.79 CRORES U/S.36(1)(III) OF THE ACT.WE FIND THE IDENTICAL ISSUE HAD BEEN DECIDED BY THE TR IBUNAL IN FAVOUR OF THE ASSESSEE IN AY.S. 2008-09 AND 2007-08.WE ARE REPRODUCING PARA 31-35 O F THE ORDER OF THE TRIBUNAL FOR THE EARLIER AY.(SUPRA). 31. GROUND 3 : IN THIS GROUND, THE REVENUE IS AGGRIEVE D WITH THE ACTION OF LD.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST U/S 36(1)(III) ON LOANS ADVANCED TO SUBSIDIARY COMPANIES, VIZ. M/S AARTI HE ALTHCARE LTD & M/S AVINASH DRUGS LTD. 32. THE BRIEF BACKGROUND IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT THE INTEREST BEARING FUNDS WERE NOT UTI LIZED FOR ADVANCING LOAN TO THE SISTER CONCERN, THE AO DISALLOWED THE CLAIM U/S 36(1)(III) . THE CLAIM OF THE ASSESSEE THAT THERE IS BUSINESS EXPEDIENCY RELYING ON THE DECISION OF SA B UILDERS, WAS ALSO NOT ACCEPTED BY THE AO. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 4 FURTHER,SINCE THE ASSESSEE FAILED TO DISCHARGE THE ONUS AND DID NOT SATISFACTORILY DEMONSTRATE THAT ONLY INTEREST FREE FUNDS WERE ADVANCED AS LOAN S TO SISTER CONCERN, THE AO DISALLOWED PROPORTIONATE INTEREST @12% ON THE INTEREST FREE LO ANS ADVANCED AMOUNTING TO RS.2,37,16,415/-. IN THE APPEAL BEFORE LD. CIT(A), DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE WHEREIN IT WAS INTER-ALIA SUBMITTED THAT T HE ASSESSEE HAD SUFFICIENT FUNDS TO GIVE THESE LOANS AND IN ANY CASE, THESE AMOUNTS WERE GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. XXXX 34. DURING THE COURSE OF HEARING BEFORE US, IT WAS SUB MITTED BY THE LD. COUNSEL OF THE ASSESSEE THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y. 2007-08 . 35. PER CONTRA, THE LD. DR COULD NOT POINT OUT ANY DIS TINCTION BETWEEN THE FACTS OF A.Y. 2007-08 AND THE IMPUGNED YEAR. THUS, IN VIEW OF THE ORDER O F THE TRIBUNAL FOR AY 2007-08, WE FIND THAT THE ORDER OF LD. CIT(A) DESERVES TO BE UPHELD. THER EFORE, THIS GROUND IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE, THIRD GROUND STAN DS DISMISSED. 5. NEXT GROUND IS ABOUT DELETING ADDITION OF RS.30,000 /- ON COMPUTER SOFTWARE.DURING THE ASSESSMENT PROCEEDINGS, THE AO HAD FOUND THAT THE A SSESSEE HAD PURCHASED MS WINDOW FOR A SUM OF RS.30,000/-.HE HELD THAT BEING A NEW SOFTWAR E,THE EXPENDITURE WAS TO BE CAPITALISED. HE ALLOWED DEPRECIATION OF RS.9000/-(@30%) BY MAKIN G ADDITION OF RS.21,000/-. 5.1. AGGRIEVED, BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).HE HELD THAT THE ASSESSEE HAD PURCHASED THE MICROSOFT WINDOWS 2008 TO CARRY OUT DAY TO DAY BACK OFFICE WORK, THAT IT WAS A STANDARD OPERATING SOFTWARE THAT NEEDED FREQUENT UPDATION.HE REFERRED TO THE CASE OF ASAHI INDIA SAFETY GLASS LTD.(64DTR63) OF HON'BLE DELHI HIGH COURT AND HELD THAT SOFTWARE PACKAGES LIKE MS WINDOW 2008 WERE UTILITY PACKAGES,THAT THEY WERE FOR REGULAR BUSINES S USE, THAT SUCH PROGRAMMES HELP THE ASSESSEE TO CARRY-OUT THE BUSINESS MORE EFFICIENTLY AND DID NOT ENHANCE THE VALUE OF PROFIT MAKING APPARATUS.FINALLY,DELETING THE ADDITION MADE BY THE AO HE HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PURCHASING SOFTWARE S HOULD BE TREATED AS REVENUE EXPENDITURE. BEFORE US, THE DR STATED THAT THE MATTER COULD BE D ECIDED ON MERITS. THE AR RELIED UPON THE JUDGMENT OF ASAHI INDIA SAFETY GLASS LTD. OF THE HO N'BLE DELHI HIGH COURT (SUPRA). WE FIND THAT THE ISSUE STANDS COVERED BY THE ABOVE ORDER OF THE HONBLE DELHI HIGH COURT. RESPECTFULLY,FOLLOWING THE SAME, WE DISMISS GROUND NO.4 RAISED BY AO. 6. LAST GROUND OF APPEAL IS ABOUT DELETING THE ADDITIO N OF RS.15.03 LAKHS,RECEIVED BY THE ASSESSEE ON ACCOUNT OF INSURANCE CLAIM.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION FOR INSURAN CE CLAIM OF RS.15,03,312/-.IN REPLY TO THE NOTICES ISSUED IN THAT REGARD THE ASSESSEE FILED E XPLANATION VIDE ITS LETTER DT.07/01/2013.THE AO,AFTER CONSIDERING THE SUBMISSION,HELD THAT INSUR ANCE CLAIM RECEIVED (STOCK DESTROYED BY FIRE RS.14.80 LAKHS +VEHICLE RS.22,500/-) WAS ON A CCOUNT OF REVENUE EXPENSES AND HAD TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 5 6.1. BEFORE THE FAA,DURING THE APPELLATE PROCEEDINGS THE ASSESSEE ARGUED THAT INSURANCE CLAIM OF RS.14.80 LAKHS WAS RECEIVED AGAINST THE LO SS OF PLANT &MACHINERY DUE TO FIRE AND THE BALANCE WAS RECEIVED AGAINST DAMAGE OF VEHICLE. IT REFERRED TO SECTION 43(6)(C) OF THE ACT. AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA HE LD THAT THERE WAS A FIRE AT THE TARAPUR FACTORY OF AVINASH DRUGS LTD.ON 01.10.2004,THAT PLA NT &MACHINERY WERE DESTROYED IN FIRE, THAT A CLAIM WAS MADE AGAINST DESTRUCTION OF MACHIN ERY BEFORE INSURANCE COMPANY, THAT DURING THE YEAR UNDER APPEAL AVINASH DRUGS LTD. GOT MERGED WITH THE ASSESSEE, THAT INSURANCE CLAIM MADE BY ERSTWHILE COMPANY WAS RECEIVED BY THE ASSESSEE, THAT THE CLAIM WAS MADE AGAINST PLANT &MACHINERY, THAT THE INSURANCE CLAIM RECEIVED WAS TREATED AS CAPITAL RECEIPT AS PER PROVISIONS OF SECTION 43(6)(C), THAT THE ASSESS EE HAD REDUCED THE SAME FROM THE WDV OF PLANT &MACHINERY BLOCK,THAT IT WAS CREDITED TO P&L ACCOUNT IN THE BOOKS OF ACCOUNT, THAT WHILE DETERMINING THE PROFITS AND GAINS FROM BUSIN ESS IT HAD REDUCED THE SAME, THAT THE TREATMENT GIVEN BY AO TO THE AMOUNT IN QUESTION WAS NOT TENABLE.FINALLY, HE ALLOWED THE APPEAL OF THE ASSESSEE. 6.2. BEFORE US,THE DR STATED THAT MATTER COULD BE DECIDE D ON MERITS.THE AR REFERRED TO THE PROVISIONS OF SECTION 43(6) AND TREATMENT GIVEN IN THE BOOKS OF ACCOUNT. WE FIND THAT THERE WAS FIRE IN THE FACTORY PREMISES OF AVINASH DRUGS LTD. IN AY 2005-06, THAT IT MADE A CLAIM BEFORE INSURANCE COMPANY WITH REGARD TO DAMAGE CAUSED BY FIRE, THAT DURING THE AY.2009-10 AVINASH DRUGS LTD. MERGED WIT H THE ASSESSEE,THAT IT RECEIVED INSURANCE CLAIM ABOUT DAMAGE TO PLANT &MACHINERY A ND ITS VEHICLE.AS THE MONEY RECEIVED BY THE ASSESSEE WAS AGAINST THE CAPITAL ASSET, THE REFORE, SAME HAS TO BE TREATED IN THE NATURE OF CAPITAL RECEIPT.IN OUR OPINION, ASSESSEE HAD RIGHT LY REDUCED THE SAID SUM WHILE COMPUTING THE INCOME FOR THE YEAR UNDER CONSIDERATION. AS THERE I S NO LEGAL OR FACTUAL INFIRMITY IN THE ORDER OF THE FAA,SO CONFIRMING THE SAME, WE DISMISS LAST GROUND OF APPEAL,RAISED BY THE AO. ITA/7039/MUM/2014: 7. FIRST EFFECTIVE GROUND (GOA2),RAISED BY THE ASSESSE E,IS ABOUT DISALLOWANCE OF RS.1.86 CRORES MADE U/S.14A OF THE ACT R.W.R 8D OF THE INCO ME TAX RULES,1962(RULES).DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAD RECEIVED DIVIDEND INCOME OF RS.24.28 LAKHS AND HAD CLAIMED IT AS EXEMPT, THAT T HE ACCOUNTS MAINTAINED BY IT WERE MIXED, THAT THE COMMON FUNDS WERE EMPLOYED FOR EARNING EXE MPT INCOME AS WELL AS TAXABLE INCOME, THAT THE ASSESSEE HAD MADE A DISALLOWANCE OF RS.48 ,387/- ON ITS OWN. AFTER CONSIDERING THE 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 6 JUDGMENT OF GODREJ & MFG. CO.LTD. OF THE HON'BLE BO MBAY HIGH COURT (328ITR81),HE MADE A DISALLOWANCE OF RS.1.86 CRORES INVOKING THE SECTI ON OF 14A R.W.R.8DOF THE ACT. 7.1. AGGRIEVED BY THE ORDER OF AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA AND MADE ELABORATE SUBMISSIONS.REFERRING TO HIS OWN ORDER FO R THE AY 2008-09, THE FAA UPHELD THE ORDER OF THE AO STATING THAT THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES. 7.2. BEFORE US, THE AR STATED THAT WHILE DECIDING THE AP PEAL FOR AY 2008-09,THE TRIBUNAL HAD DIRECTED THE AO TO DELETE THE DISALLOWANCE ON ACCO UNT OF INTEREST EXPENDITURE AND TO RESTRICT 0.5% OF DISALLOWANCE OF EXPENDITURE BY REDUCING INV ESTMENT MADE IN SUBSIDIARY/GROUP COMPANIES,THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SUFFICIENT FUND,(RS. 341. 37 CRORES),THAT IT HAD MADE INVESTMENT OF RS.15.27 CRORES ONLY, THAT IT HAD NO OBJECTION IF THE ORDER OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT Y EAR WAS FOLLOWED. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 7.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E TRIBUNAL IN ITS ORDER FOR AY 2008- 09 (SUPRA) HAS HELD AS UNDER :- 7. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES. IT IS NOTED FROM THE PERUSAL OF THE TABLE REPRODUCED BY THE LD. CIT(A) I N HIS ORDER ON PAGE 12 THAT NET WORTH OF THE ASSESSEE COMPANY COMPRISING OF SHARE CAPITAL AND RE SERVES AGGREGATED TO RS.284.27 CRORES, WHEREAS THE AGGREGATE AMOUNT OF INVESTMENTS WAS MER ELY TO THE TUNE OF RS.26.19 CRORES. THUS, OWN FUNDS OF THE ASSESSEE WERE APPARENTLY FAR MOR E THAN THE AMOUNT OF INVESTMENTS IN TAX FREE SECURITIES. UNDER THESE CIRCUMSTANCES, NO DISALLOWA NCE CAN BE MADE ON ACCOUNT OF INTEREST IN VIEW OF JUDGEMENTS OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES LTD VS CIT (SUPRA) AND HDFC BANK LTD (SUPRA). THEREFORE , DISALLOWANCE ON ACCOUNT OF INTEREST OF RS.1,16,01,605 IS HEREBY DIRECTED TO BE DELETED. 8. WITH REGARD TO THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE AO OF RS.12,93,515 COMPUTED @0.5% OF AVERAGE VALUE OF INVESTMENT BY IN VOKING RULE 8D(2)(III), IT IS NOTED THAT THOUGH THE ASSESSEE HAD MADE VOLUNTARY DISALLOWANCE IN THE RETURN FILED BY IT, BUT BEFORE INVOKING THE ABOVE SAID RULE, THE AO RECORDED FOLLO WING FINDINGS IN THE ASSESSMENT ORDER :- XXXX 9. THUS, FROM THE ABOVE, IT WOULD BE NOTED THAT THE A O HAS CLEARLY STATED IN THE ASSESSMENT ORDER THAT FROM THE BOOKS OF ACCOUNT OF THE ASSESSE E IT WAS NOT POSSIBLE TO WORK OUT THE EXACT AMOUNT OF EXPENSES INCURRED BY IT IN EARNING THE EX EMPT INCOME. UNDER THESE CIRCUMSTANCES, IT WOULD BE DIFFICULT TO HOLD THAT THE AFORESAID RULE HAS BEEN INVOKED BY THE AO WITHOUT RECORDING ANY SATISFACTION. THUS, THIS ARGUMENT OF THE ASSESS EE IS REJECTED. 10. HOWEVER, THE LD. COUNSEL ALSO STATED THAT INVESTME NT IN THE SUBSIDIARY / GROUP COMPANIES SHOULD BE EXCLUDED WHILE WORKING OUT THE AVERAGE AM OUNT OF INVESTMENTS SINCE INVESTMENT IN THESE COMPANIES HAVE BEEN MADE NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME BUT FOR ACQUIRING CONTROL AND FOR STRATEGIC REASONS. WE FIN D FORCE IN THE ARGUMENT OF THE LD. COUNSEL IN VIEW OF THE JUDGMENTS RELIED UPON IN SUPPORT OF HIS ARGUMENTS AS HAVE BEEN MENTIONED ABOVE, VIZ. CHEMINVEST LTD (SUPRA), CIT VS ORIENTAL STRUCT URAL ENGINEERS PVT LTD (SUPRA), GARWARE WALL ROPES LTD (SUPRA) AND JM FINANCIAL LTD VS ADDL CIT (SUPRA). THEREFORE, THE AO IS DIRECTED TO EXCLUDE THE AMOUNT OF INVESTMENT MADE I N THE GROUP COMPANIES FOR STRATEGIC REASONS. FOR THIS LIMITED PURPOSE, THIS ISSUE IS SE NT BACK TO THE FILE OF THE AO, WHO SHALL DECIDE THIS ISSUE AFRESH AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE TO FURNISH REQUIRED DETAILS OF INVESTMENTS MADE IN THE GROUP C OMPANIES. THE DISALLOWANCE SHALL BE MADE BY THE AO AFTER EXCLUDING THE AMOUNT OF INVESTMENT IN GROUP / SUBSIDIARY COMPANIES FOR 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 7 WORKING OUT THE AVERAGE VALUE OF INVESTMENTS. FOR T HE PURPOSE OF RULE 8D(2)(III). AS A RESULT, GROUND 1 IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE SAME ,WE DIRECT THE AO T O DELETE THE DISALLOWANCE ON ACCOUNT OF INTEREST AND FOLLOW THE DIRECTION OF THE TRIBUNAL W ITH REGARD TO OTHER DISALLOWANCE.(0.5% DIS - ALLWOANCE).FIRST GROUND OF APPEAL IS DECIDED IN FAV OUR OF THE ASSESSEE,IN PART. 8. NEXT GROUND OF APPEAL (GOA-3) IS ABOUT COMPUTATION OF BOOK PROFIT WITH REGARD TO DISALLWOANCE U/S.14A.AS THE ISSUE IS CONSEQUENTIAL TO GROUND NO.2,SAME IS ALLOWED FOR STATISTICAL PURPOSES . 9. FOURTH GROUND DEALS WITH DISALLOWANCE OF FOREIGN EX CHANGE FLUCTUATION, OF RS.11.86 CRORES. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD AVAILED FOREIGN CURRENCY TERM LOAN FROM SBI(RS.1.30 CRORES.) AND LO AN BY WAY OF EXTERNAL COMMERCIAL BORROWING(RS.3.09 CRORES).HE DIRECTED IT TO FILE DE TAILS OF REALISED AND UNREALISED FOREIGN EXCHANGE FLUCTUATION GAINS/LOSS ON ACCOUNT OF ABOVE LOAN.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,THE AO HELD THAT THE LOAN WAS UTILISED FOR CAPITAL ASSET, THAT THE LOSS ARISING ON ACCOUNT OF EXCHANGE FLUCTUATION WAS CAPITAL IN NATU RE,THAT THE SAME WAS TO BE CAPITALISED, THAT THE ASSESSEE HAD NOT CARRIED OUT ANY ADJUSTMENT IN TERMS OF AS-11, THAT SAME WAS DEBITED TO P&L ACCOUNT AS A PERIOD COST, THAT LATER ON IT AMEN DED ITS CLAIM WITH A REQUEST TO CAPITALISE THE SAID AMOUNT TO THE FIXED ASSET AND TO ALLOW DEP RECIATION ON THE SAME. THE AO MADE AN ADDITION OF RS.11.86 CRORES AFTER ALLOWING DEPRECI ATION OF RS.66.13 LAKHS. 9.1. BEFORE THE FAA THE ASSESSEE MADE ELABORATE SUBMISS IONS AND RELIED UPON VARIOUS CASE LAWS.AFTER CONSIDERING THE SUBMISSION OF THE ASSESS EE AND THE ASSESSMENT ORDER,THE FAA HELD THAT THE BUSINESS OF THE ASSESSEE WAS SUCH THAT FOR EIGN CURRENCY WAS NOT AT ALL UTILISED OR INTENDED TO BE UTILISED FOR BUSINESS, THAT IF THERE WAS LOSS IN THE TRADING ACCOUNT IT WOULD BE CONSIDERED BUSINESS LOSS, THAT LOSS IN RESPECT OF F IXED CAPITAL LOSS WAS NOT A REVENUE LOSS, THAT THE ASSESSEE HAD NOT UTILISED THE FOREIGN CURRENCY FOR ITS BUSINESS, THAT IT DID NOT HOLD THE FOREIGN CURRENCY ON ACCOUNT OF REVENUE OR ON ACCOU NT OF TRADING. HE REFERRED TO CASE OF WOODWARD GOVERNOR INDIA P.LTD.(312ITR254) AND DEMPO & CO. PVT.LTD.(206ITR291); SUTLAJ COTTON MILLS (116ITR111); THAT THE FOREIGN C URRENCY TERM LOAN OBTAINED FROM SBI AND ECB WAS UTILISED FOR PURCHASE OF FIXED ASSETS, THAT IT WAS ON ACCOUNT OF CAPITAL, THAT THE CLAIM OF THE ASSESSEE ,THAT THE LOSSES AROSE WHILE CARRY ING ON BUSINESS WERE NOT ACCEPTABLE.FINALLY, HE UPHELD THE ORDER OF THE AO. 9.2. BEFORE US,THE AR RELIED UPON THE CASE OF HEALTH PRI ME SERVICES (INDIA) LTD. (ITA/122/ MUM/2013,DT.18.11.2016) AND COOPER CORPORATION PVT. LTD. (159ITD165). DR SUPPORTED THE ORDER OF THE FAA. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 8 9.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD AVAILED FOREIGN CURRENCY TERM LOAN FRO M SBI AND A LOAN BY WAY OF ECB,THAT IT HAD CLAIMED THE LOSS ARISING ON ACCOUNT OF FLUCTUAT ION IN FOREIGN EXCHANGE BORROWINGS AS REVENUE EXPENDITURE, THAT THE FAA,WHILE CONFIRMING THE ORDER OF THE AO,HELD THAT THE LOSS CLAIMED BY THE ASSESSEE WAS NOT REVENUE LOSS,BUT WA S CAPITAL LOSS.THE ISSUE OF REVENUE/CAPITAL LOSS HAS BEEN SUBJECT OF EXTENSIVE LITIGATION.SO,BE FORE PROCEEDING FURTHER,WE WOULD LIKE TO ENUMERATE CERTAIN PRINCIPLES GOVERNING THE LOSSES A ND SAME CAN BE SUMMARISED AS UNDER: I). WORDS REVENUE LOSS AND CAPITAL LOSS HAVE NOT DE FINED ANYWHERE IN THE ACT.BUT,WHETHER A PARTICULAR LOSS IS A TRADING LOSS OR A LOSS ON TH E CAPITAL SIDE,WOULD DEPEND ON THE FACTS OF EACH CASE.THE QUESTION, HOWEVER,IS NOT ONE OF PURE FACT BUT A MIXED QUESTION OF FACT AND LAW AND THE DECIDED CASES INDICATE HOW THE MATTER IS TO BE VIEWED IN THE CONTEXT OF THE FACTS.IT HAS BEEN HELD THAT THE PROBLEM MUST BE APPROACHED IN SU CH CASES IN THE LIGHT OF THE INTENTION OF THE ASSESSEE,HAVING REGARD TO THE LEGAL REQUIREMENT S WHICH ARE ASSOCIATED WITH THE CONCEPT OF TRADE OR BUSINESS. II). THE LIST OF ALLOWANCES ENUMERATED IN SECTIONS 30 TO 43A OF THE ACT IS NOT EXHAUSTIVE AND AN ITEM OF BUSINESS LOSS CAN BE DEDUCTED IN COMPUTI NG THE PROFITS AND GAINS OF THE BUSINESS,IF IT IS DEDUCTIBLE ACCORDING TO ORDINARY COMMERCIAL P RINCIPLES OF ACCOUNTING. III). THE MERE FACT THAT THERE IS SOME REMOTE CONNECTION BETWEEN A LOSS AND THE BUSINESS WOULD NOT BRING THE LOSS WITHIN THE EXPRESSION 'LOSS INCI DENTAL TO THE BUSINESS'.IT SHOULD SPRING DIRECTLY FROM THE CARRYING ON OF THE BUSINESS.IN SH ORT,IN ORDER TO ENTITLE A DEDUCTION ON THE GROUND OF BUSINESS LOSS,THE LOSS SHOULD NOT ONLY HA VE BEEN INCURRED IN THE COURSE OF THE BUSINESS,BUT IT SHOULD ALSO BE IN THE NATURE OF A R EVENUE LOSS. IV). ASSESSEE HAVING TREATED THE LOSS AS A REVENUE LOSS AND OBTAINED RELIEF ON THAT BASIS, ANY RECOVERY MADE IN RESPECT OF THAT LOSS MUST BE REGAR DED AS A REVENUE GAIN,AS AND WHEN IT OCCURRED.IN OTHER WORDS,IF A PART OF THE INCOME IS LOST,AND SUBSEQUENTLY IT COMES BACK TO THE ASSESSEE,IT IS LIABLE TO BE TAXED. V). WHERE THE PROPERTY IS NOT PURCHASED AS STOCK-IN-TRA DE BUT AS A CAPITAL,SALE AND CONSEQUENT LOSS ARISING ON ACCOUNT OF SALE OF SUCH PROPERTY WO ULD NOT BE REVENUE LOSS. VI). IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT THE ASS ESSEE HAD TREATED THE SHARES AS STOCK- IN-TRADE OF HIS BUSINESS, THE LOSS CANNOT BE ALLOWE D AS BUSINESS LOSS. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 9 VII). EXPENSES INCURRED FOR CARRYING ON BUSINESS,AFTER IT IS SET UP,ARE ALLOWABLE AS BUSINESS EXPENDITURE.BUT,EXPENDITURE PREPARATORY TO COMMENCE MENT OF BUSINESS IS A CAPITAL EXPENDITURE.BUSINESS CAN BE SAID TO HAVE BEEN SET U P WHEN REASONABLE QUANTITY OF END PRODUCT IS OBTAINED-MERE INSTALLATION OF MACHINERY IS NOT SUFFICIENT.IN SUCH MATTER FACT THAT END PRODUCT OBTAINED WAS SUB-STANDARD IS IRRELEVANT . VIII). THOUGH THE ASSESSEE MIGHT HAVE ORIGINALLY BORROWED THE AMOUNT FOR THE PURPOSE OF IMPORT OF CAPITAL GOODS OR SETTING UP OF A PLANT,AT THE TIME WHEN THE AMOUNT WAS UTILISED THE LOAN AMOUNT HAD UNDERGONE A CHANGE AND HAD ASSUMED A NEW CHARACTER OF STOCK-IN-TRADE OR CIRCULATING CAPITAL AND,THEREFORE,ANY LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WOULD HAVE TO BE TREATED AS R EVENUE LOSS AND NOT CAPITAL LOSS. IX). WITH REGARD TO TREATMENT TO BE GIVEN TO FOREIGN EXC HANGE FLUCTUATION IT HAS BEEN HELD THAT WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOU NT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY HIM,ON CONVERSION INTO ANOTHER CURRENCY,SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE F OREIGN CURRENCY IS HELD BY HIM ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULA TING CAPITAL IN THE BUSINESS. IT WOULD, HOWEVER, BE PROFIT OR LOSS OF CAPITAL NATURE,IF THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL.FOR DETERMINING WHETHER DEVALUATIO N LOSS IS REVENUE LOSS OR CAPITAL LOSS WHAT IS RELEVANT IS THE UTILISATION OF THE AMOUNT AT THE TIME OF DEVALUATION AND NOT THE OBJECT FOR WHICH THE LOAN HAD BEEN OBTAINED. EVEN IF THE FOREI GN CURRENCY WAS INTENDED OR HAD ORIGINALLY BEEN UTILISED FOR ACQUISITION OF FIXED ASSET,IF AT THE TIME OF DEVALUATION IT HAD CHANGED ITS CHARACTER AND HAD ASSUMED THE NEW CHARACTER OF STOC K-IN-TRADE OR CIRCULATING CAPITAL,THE LOSS THAT OCCURRED ON ACCOUNT OF DEVALUATION SHALL BE A REVENUE LOSS AND NOT A CAPITAL LOSS. IN THE CASE OF DEMPO & CO. PVT.LTD. (SUPRA),THE HON BLE BOMBAY HIGH COURT HAS HELD AS UNDER: IN DETERMINING WHETHER A LOSS IS ALLOWABLE AS A BU SINESS LOSS THE PRINCIPLES APPLICABLE ARE- (I) A LOSS ARISING IN THE PROCESS OF CONVERSION OF FOREIGN CURRENCY WHICH IS PART OF THE TRADING ASSET OF THE ASSESSEE IS A TRADING LOSS AS ANY OTHE R LOSS. (II) THE CAUSE WHICH OCCASIONS THE LOSS IS IMMATERI AL; WHAT IS MATERIAL IS WHETHER THE LOSS HAS OCCURRED IN THE COURSE OF CARRYING ON THE BUSINESS OR IS INCIDENTAL TO IT. (III) IF THERE IS LOSS IN A TRADING ASSET, IT WOULD BE A TRADING LOSS, WHATEVER BE ITS CAUSE, BECAUSE IT WOULD BE A LOSS IN THE COURSE OF CARRYIN G ON THE BUSINESS. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 10 (IV) LOSS IN RESPECT OF CIRCULATING CAPITAL IS REVE NUE LOSS WHEREAS LOSS IN RESPECT OF FIXED CAPITAL IS NOT. (V) LOSS RESULTING FROM DEPRECIATION OF FOREIGN CUR RENCY WHICH IS UTILISED OR INTENDED TO BE UTILISED IN BUSINESS AND IS PART OF THE CIRCULATING CAPITAL, WOULD BE A TRADING LOSS, BUT DEPRECIATION OF FIXED CAPITAL ON ACCOUNT OF ALTERAT ION IN EXCHANGE RATE WOULD BE A CAPITAL LOSS. (VI) FOR DETERMINING WHETHER DEVALUATION LOSS IS RE VENUE LOSS OR CAPITAL LOSS WHAT IS RELEVANT IS THE UTILISATION OF THE AMOUNT AT THE TIME OF DEV ALUATION AND NOT THE OBJECT FOR WHICH THE LOAN HAD BEEN OBTAINED. EVEN IF THE FOREIGN CURRENCY WAS INTENDED OR HAD ORIGINALLY BEEN UTILISED FOR ACQUISITION OF FIXED ASSET, IF AT THE TIME OF D EVALUATION IT HAD CHANGED ITS CHARACTER AND HAD ASSUMED THE NEW CHARACTER OF STOCK-IN-TRADE OR CIRCULATING CAPITAL, THE LOSS THAT OCCURRED ON ACCOUNT OF DEVALUATION SHALL BE A REVENUE LOSS A ND NOT A CAPITAL LOSS. (VII) THE WAY IN WHICH THE ENTRIES ARE MADE BY AN A SSESSEE IN THE BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATU RE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. NOW,WE WOULD LIKE TO DISCUSS THE FACTS OF THE CASE IN LIGHT OF THE ABOVE PRINCIPLES.IT IS A FACT THAT THE LOAN FROM THE SBI AND THE ECB WAS AVAILED BY THE ASSESSEE FOR PURCHASING CAPITAL ASSETS AND THE LOSS ARISING OUT OF THE FLUCTUATION IN FOREIGN EXCHANGE WAS NOT RELATABLE TO CIRCULATING CAPITAL OR STOCK IN TRADE OF THE ASSESS EE.IT IS NOT THE CASE OF THE ASSESSEE THAT BORROWED AMOUNT FOR THE PURPOSE OF IMPORT OF CAPITA L GOODS WAS UTILISED FOR OTHER PURPOSES OR THAT THE LOAN AMOUNT HAD UNDERGONE A CHANGE AND HAD ASSUMED A NEW CHARACTER.IT WAS A PLAIN AND SIMPLE TRANSACTION OF PURCHASING THE CAPI TAL GOODS,SO ANY LOSS RELATED WITH IT HAS TO BE CONSIDERED AS CAPITAL LOSS.IT IS ALSO FOUND THAT THE AO HAD ALLOWED DEPRECIATION ON THE ASSETS.WE WOULD LIKE MENTION THAT WE HAVE GONE THRO UGH THE CASES RELIED UPON BY THE ASSESSEE.IT IS FOUND THAT BOTH THE CASES ARE CLEARL Y DISTINGUISHABLE ON FACTS.IN THE CASE OF HEALTH PRIME SERVICES(SUPRA) THE ISSUE WAS DISALLOW ANCE OF LOSS RESULTING ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE ON THE CLOSING DATE OF THE YEAR UNDER CONSIDERATION, PRIMARILY ON THE GROUND THAT IT WAS A CONTINGENT LIABILITY AND NOTIONAL IN NATURE.IT WAS A MATTER OF REINSTATEMENT OF THE E XTERNAL COMMERCIAL BORROWINGS (ECB).IT HAD NOTHING TO DO WITH ACQUISITION OF CAPI TAL ASSEST.IN THE CASE BEFORE US,THE FAA HAS NOT HELD THAT THE LIABILITY WAS CONTIGENT.H E HAS GIVEN A CATEGORICAL FINDING OF FACT OF PURCHASE OF MACHINERY I.E.CAPITAL ASSET. SI MILARLY,IN THE CASE OF COOPER CORPORATION OF INDIA(SUPRA)THE TRIBUNAL WAS DEALING WITH BUSINESS ASSETS AND NOT CAPITAL ASSETS. 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 11 CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE MATTER BEFORE US,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER F ROM ANY TECHNICAL OR LEGAL INFIRMITY.SO, CONFIRMING THE SAME,WE DECIDE GROUND NO.4 AGAINST T HE ASSESSEE. 10. NEXT GROUND PERTAINS TO DISALLOWANCE OF ADDITIONAL DEPRECIATION U/S.32(1)(IIA)OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO DIRECTED T HE ASSESSEE TO GIVE EXPLANATION AS TO WHY 10% OF DEPRECIATION AMOUNTING TO RS.1.85 CRORE S ON MACHINERY PURCHASED DURING AY 2008-09SHOULD NOT BE DISALLOWED.AFTER CONSIDERING T HE SUBMISSION OF THE ASSESSEE AND REFERRING TO THE PROVISIONS OF CLAUSE(II) OF SEC 32 (1), THE AO HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEPRECIATION @10% FOR THE YEAR U NDER APPEAL. 10.1. BEFORE THE FAA ,THE ASSESSEE MADE SUBMISSIONS AND REFERRED TO MITS ROLLING MILLS PVT. LTD.,COSMO FILMS LTD. (139ITD628); SIL INVESTM ENT LTD. (54SOT54).THE FAA REFERRED TO AMENDED PROVISIONS OF SECTION 32(1)(IIA) AND HEL D THAT ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWANCE WAS A ONETIME BENEFIT, THAT TH E ASSESSEE HAD NOT PRODUCED ANY EVIDENCE AS TO WHY SAME WAS NOT CLAIMED IN THE EARLIER AY,TH AT SAME COULD NOT BE CLAIMED DURING THE YEAR UNDER APPEAL, THAT THE ASSESSEE DID NOT CLAIM ANY ADDITIONAL DEPRECIATION IN THE FIRST YEAR OF INSTALLATION, THAT THE AO WAS JUSTIFIED IN DISAL LOWING THE CLAIM. 10.2. BEFORE US THE AR ARGUED THAT IN CASE OF SISTER CONC ERN-ANUSHAKTI CHEMICALS AND DRUGS LTD. THE TRIBUNAL HAD DECIDED THE IDENTICAL ISSUE I N FAVOUR OF THE ASSESSEE (ITA 7495/M/2010 DT.19.2.2014), THAT THE ASSESSEE HAD CLAIMED THE AD DITIONAL DEPRECIATION IN THE EARLIER AY.AND WAS ALLOWED BY THE AO IN THAT YEAR, THAT THE FAA HA D WRONGLY HELD THAT SAME WAS NOT CLAIMED IN THE AY 2008-09.THE DR SUPPORTED THE ORDE R OF THE FAA. 10.3. WE HAVE HEARD THE ISSUE AND PERUSED THE MATERIAL BE FORE US.WE FIND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT D ELIVERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF RITTAL INDIA PVT.LTD.(380ITR42 8).THE RELEVANT PORTION OF THE ORDER READS AS UNDER: ADDITIONAL DEPRECIATION ALLOWABLE UNDER SECTION 32( 1)(IIA) OF THE INCOME-TAX ACT, 1961IS A ONE-TIME BENEFIT TO ENCOURAGE INDUSTRIALISATION AND THE RELEVANT PROVISIONS HAVE TO BE CONSTRUED REASONABLY AND PURPOSIVELY. THE ADDITIONA L DEPRECIATION IS ALLOWED IN THE YEAR OF PURCHASE AND IF IN THE YEAR OF PURCHASE THE ASSESSE E IS ELIGIBLE ONLY FOR 50 PER CENT. DEPRECIATION, THE BALANCE 50 PER CENT. CAN BE CARRI ED FORWARD FOR THE SUBSEQUENT YEAR. 11. NEXT GROUND IS ABOUT DISALLOWANCE OF RS.7.83 LAKHS U/S.40A(IA) OF THE ACT.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD CLAIMED PRIOR PERIOD EXPENSES OF RS.7,83,852/-.HE DIRECTED IT TO FILE A DETAILED EXPLANATION IN THAT REGARD.FROM THE DETAILS FILED,THE AO COULD ASCERTAIN THAT THE PAYME NTS RELATED TO FREIGHT AND COMMISSIO ,THAT THE AUDITOR,WHILE AUDITING THE BOOKS FOR SUBSEQUENT YEAR HAD POINTED OUT THAT THE EXPENSES 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 12 RELATED TO THE YEAR UNDER APPEAL.HE HELD THAT THE A SSESSEE DID NOT DEDUCT TAX AT SOURCE,WHILE MAKING PAYMENT INVOKING PROVISIONS OF SECTION40(A)( IA). HE DISALLOWED THE ENTIRE PAYMENT. 11.1. BEFORE THE FAA IT WAS ARGUED THAT TAX WAS DEDUCTED AT SOURCE AND SAME WAS DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN I.E.,BEFORE 31/09/2009, THAT THE AO WRONGLY ALLEGED THAT THE ASSESSEE DID NOT COMPLY TO THE TDS PROVISIONS, THAT THE ASSESSEE HAD DISALLOWED THE SAID EXPENDITURE IN THE AY.2010-11 BY ADDING BACK THE SA ME TO ITS INCOME, THAT THE EXPENSES WERE BOOKED IN THE NEXT ACCOUNTING YEAR,THAT THE SAME WE RE NOT CLAIMED AS DEDUCTION IN SUBSEQUENT YEARS.ALTERNATIVELY,IT WAS ARGUED THAT I F THE EXPENSES WERE TO BE DISALLOWED FOR THE YEAR UNDER APPEAL SAME SHOULD BE ALLOWED FOR AY 2010-11. 11.2. THE AR ARGUED,BEFORE US,THAT EXPENDITURE WAS INCURR ED FOR BUSINESS PURPOSES,THAT THE DIFFERENCE OF OPINION WAS ABOUT THE YEAR IN WHICH I T HAS TO BE ALLOWED.THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. WE FIND THAT THE AO OR THE FAA HAS NOT DOUBTED THE GENUINENESS OF INCURRING OF EXPENDITURE, THAT THE ASSESSEE HAD ON ITS OWN DISALLOWED THE EXP ENSES IN QUESTION IN AY.2010-11,THAT TAXES WERE DEDUCTED AND PAID BEFORE THE DUE DATE I.E.THE DUE DATE OF FILING OF RETURN OF INCOME AS PER THE PROVISIONS OF SECTION 139(1)OF THE ACT.CONS IDERING THE PECULIAR CIRCUMSTANCES AND FACTS OF THE CASE,WE DIRECT THE AO THE ALLOW THE EX PENDITURE DURING THE YEAR UNDER APPEAL. GOA-7 IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. NEXT GROUND IS ABOUT ALLEGED WRONG ENTRY PASSED BY AMARJYOT CHEMICALS LIMITED (ACL), AMOUNTING TO RS.25,036/-.DURING THE ASSESSMENT PROC EEDINGS,THE AO OBSERVED THAT AS PER THE AIR INFORMATION ACL HAD PAID INTEREST TO THE ASSESS EE AMOUNTING TO RS.25,036/-, THAT IT HAD CLAIMED THE TDS CREDIT TOWARDS THE TAXES.THEREFORE, HE ADDED THE SAID SUM TO THE INCOME OF THE ASSESSEE. 12.1. DURING THE APPELLATE PROCEEDINGS,THE ASSESSEE FILED AN AFFIDAVIT OBTAINED FROM ACL STATING THAT TDS ON SALARY HAD BEEN INADVERTENTLY D EDUCTED,THAT SAME WAS REPORTED IN THE NAME OF THE ASSESSEE INSTEAD OF EMPLOYEE, THAT THER E WAS NO SALARY PAYMENT TO THE ASSESSEE. THE FAA OBSERVED THAT THOUGH THE ACL, IN ITS AFFIDA VIT, HAD MENTIONED THAT THE TDS RETURN FOR THE 4 TH QUARTER OF AY 2009-10 WAS FURNISHED BUT NO SUCH RE TURN WAS AVAILABLE, THAT THERE WAS NOTHING ON RECORD TO ACCEPT THE CONTENTION OF T HE ASSESSEE. 12.2. BEFORE US,THE AR STATED THAT THE ASSESSEE HAD NOT M ADE ANY CLAIM FOR CREDIT, THAT THE AO SHOULD BE DIRECTED TO VERIFY THE CLAIM. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. AFTER CONSIDERING THE AVAILABLE MATERIAL,WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO FOR FURTHER VERIFICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTU - 7039&6827/M/14 M/S. AARTI INDUSTRIES LTD. 13 NITY TO THE ASSESSEE AND DECIDE THE ISSUE AFRESH.G ROUND NO.8 IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 13. DISALLOWANCE OF DEPRECIATION ON ASSET PURCHASED FRO M PRAVIN METAL CORPORATION IS THE SUBJECT-MATTER OF GROUND NO.9. IT WAS BROUGHT TO OU R NOTICE THAT IDENTICAL ISSUE WAS SET ASIDE TO THE FILE OF AO BY THE TRIBUNAL IN THE EARLIER Y EARS.WHILE DECIDING THE APPEAL FOR EARLIER AY THE TRIBUNAL HAS OBSERVED AS UNDER : 12. GROUND 3: THIS GROUND IS WITH REGARD TO THE DI SALLOWANCE OF DEPRECIATION ON ASSETS PURCHASED FROM M/S PRAVIN METAL CORPORATION OF RS.2 2,057/-. DURING THE COURSE OF HEARING IT WAS BROUGHT TO OUR NOTICE THAT THIS ISSUE HAS BE EN SET ASIDE TO THE FILE OF THE AO VIDE ORDER OF THE TRIBUNAL FOR A.YS 2005-06 TO 2007-08 DATED 0 6-02-2015. 13. WE HAVE GONE THROUGH THE ORDER PASSED BY THE TR IBUNAL FOR EARLIER YEARS AND NOTED THAT THIS ISSUE HAS BEEN SENT BACK TO THE FILE OF THE AO TO BE DECIDED IN THE LIGHT OF DIRECTIONS CONTAINED IN THE EARLIER ORDER OF THE TRIBUNAL. WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH BY THE A O IN THE LIGHT OF THE DIRECTIONS GIVEN IN THE AFORESAID ORDER OF THE TRIBUNAL. THIS GROUND MAY BE TREATED AS ALLOWED, FOR STATISTICAL PURPOSE. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,WE DIRECT TH E AO TO DECIDE THE ISSUE AFRESH AFTER HEARING THE ASSESSEE.NINTH GROUND,RAISED BY THE ASS ESSEE,IS PARTLY ALLOWED. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED AND THE APPEAL OF THE AO IS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH MARCH, 2017. 09 2017 SD/- SD/- ( /SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 09.03.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.