Appeal details
Counselvise Citation
[2012] 119 COUNSELVISE.COM (IT) 8375 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-10-2012
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Next Hearing Date
09-10-2012
Assessment Year
2002-2003
Appeal Filed On
14-10-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER / ITA NO. 6298/ MUM ./2009 ( / ASSESSMENT YEAR : 200 1 2002 ) JINDAL IRON & STEEL COMPANY LTD. (MERGED WITH & NOW KNOWN AS JSW STEEL LIMITED) JINDAL MANSION 5A, DR. G. DESHMUKH MARG MUMBAI 400 026 .. / APPEL LANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 5(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT PERMANENT ACCOUNT NUMBER AAACJ2902K / ITA NO. 7109/MUM./2010 ( / ASSESSMENT YEAR : 2002 2003 ) JINDAL IRON & STEEL COMPANY LTD. (MERGED WITH & NOW KNOWN AS JSW STEEL LIMITED) JINDAL MANSION 5A, DR. G. DESHMUKH MARG MUMBAI 400 026 .. / APPELLANT V/S DY. COMMISSIONER OF INCOM E TAX RANGE 5(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT PERMANENT ACCOUNT NUMBER AAACJ2902K JINDAL IRON & STEEL COMPANY LTD. 2 / ITA NO. 6677/MUM./2010 ( / ASSESSMENT YEAR : 2002 200 3 ) DY. COMMISSIONER OF INCOME TAX RANGE 5(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S JINDAL IRON & STEEL COMPANY LTD. (MERGED WITH & NOW KNOWN AS JSW STEEL LIMITED) JINDAL MANSION 5A, DR. G. DESHMUKH MARG MUMBAI 400 026 .... / RESPONDENT PERMANENT ACCOUNT NUMBER AAACJ2902K / REVENUE BY : M R . P.K.SHUKLA / ASSESSEE BY : MR. KANCHUN KAUSHAL, MR. DHA NESH BAFNA & MR. ALIASGER RAM PURAWALA / DATE OF HEARING 09 .10.2012 / DATE OF ORDER 31 . 10 . 2012 / ORDER / PER AMIT SHUKLA , J.M. THE ASSESSEE HAS PREFE RRED AFORESAID APPEALS FOR THE ASSESSMENT YEAR 2001 - 02 AND 2002 - 03, WHEREAS, THE REVENUE HAS PREFERRED APPEAL FOR THE ASSESSMENT YEAR 2002 - 03. SINCE THE ISSUES ARISING OUT OF THESE APPEALS ARE MOSTLY COMMON, THEREFORE, A S A MATTER OF CONVENIENCE, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.6298 /MUM./2009 , WHICH IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 30 TH SEPTEMBER 2009, PASSE D BY THE COMMISSIONER (APP EALS) IX, MUMBAI, FOR QUANTUM OF JINDAL IRON & STEEL COMPANY LTD. 3 ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT') FOR ASSESSMENT YEAR 2001 - 02. 3. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF CLUB EXPENSES OF SUMS AMOUNTING TO RS. 96,997. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, HAS OBSERVED THAT THE CLUB EXPENDITURE OF RS. 96,997, CONSIST OF SUBSCRIPTION FEE OF RS. 51,940, AND ENTERTAINMENT CHARGES OF RS. 45,057. BEFORE THE ASSESSING OFFICER, IT WAS CONTENDED THAT THE ENTIRE EXPENDITURE HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS ONLY . HOWEVER, THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GROUND THAT IN THE ASSESSMENT YEAR 1999 - 2000, THE COMMISSIONER (APPEALS) HAS CONFIRMED THE SAID DISALLOWANCE, AS WAS MADE BY THE ASSESSING O FFICER. ACCORDINGLY, HE DISALLOWED THE ENTIRE AMOUNT OF RS. 96,997. 4. BEFORE THE COMMISSIONER (APPEALS), IT WAS EXPLAINED THAT THE SAID EXPENDITURE COMPRISED OF CORPORATE MEMBERSHIP OF BOMBAY GYMKHANA CLUB AND KHAR GYMKHANA CUB , TAKEN SPECIFICALLY FOR THE D IRECTORS MAINLY WITH AN INTENTION TO PROMOTE BUSINESS AND TO ESTABLISH BUSINESS RELATIONSHIP IN COMMERCIAL INTEREST OF THE BUSINESS. VOUCHER - WISE DETAILS OF EXPENDITURE INCURRED WERE ALSO FILED. IN SUPPORT OF THE ALLOWABILITY OF CLUB EXPENDITURE, THE ASSES SEE RELIED UPON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATORS CO. INDIA LTD. V/S CIT, [1992] 195 ITR 682 (BOM.) . FURTHER RELIANCE WAS ALSO PLACED ON VARIOUS OTHER DECISIONS OF THE TRIBUNAL AND HIGH COURT WHICH HAVE BEEN LISTED IN PARA - 1.4 OF THE APPELLATE ORDER. THE COMMISSIONER (APPEALS) , HOWEVER, DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE WAS UNABLE TO FILE ANY EVIDENCE THAT AS TO HOW THE SUBSCRIPTION MONEY PAID TO THE CLUB HELP THE BUSINESS OF THE ASSESSEE AND THAT THE ASSESSE E COULD NOT FILE ANY EVIDENCE THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 1997 - 98 TO 2000 - 01, WHEREIN THE TRIBUNAL, AFTER FOLLOWING THE JUDGMENT OF BOMBAY HIGH COURT IN OTIS JINDAL IRON & STEEL COMPANY LTD. 4 ELEVATORS CO. INDIA LTD. (SUPRA) AND OTHER DECISIONS, HELD THAT THE EXPENDITURE TOWARDS CLUB EXPENDITURE ARE ALLOWABLE AS BUSINESS EXPENDITU RE AND ALLOWED THE ASSESSEES CLAIM. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UP ON THE FINDINGS OF THE COMMISSIONER (APPEALS). 7. AFTER H E ARING THE RIVAL CONTENTIONS OF THE PARTIES, CONSIDERING THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE TRIBUNAL DECISION CITED BEFORE US, WE FIND THAT THE SAID ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.4432/MUM./2003, FOR ASSESSMENT YEAR 1999 - 2000 , WHEREIN THE COMMISSIONER (APPEALS) HAS GIVEN SIMILAR FINDINGS. THE TRIBU NAL, AFTER CONSIDERING THE ENTIRE FACTS AND THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN OTIS ELEVATORS CO. INDIA LTD. (SUPRA) , ALLOWED THE ASSESSEES CLAIM OF CLUB EXPENDITURE. CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL AND THE FACT THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY T HE COMMISSIONER (APPEALS) AND DELETE THE DISALLOWANCE MADE UNDER THE HEAD CLUB EXPENDITURE . THUS, THE GROUND RAISED BY THE ASSESSEE IS HEREBY ALLOWED. 8. I N GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 9,49,30,534, ON ACCOUNT OF UNUTILIZED MODVAT CREDIT ON THE CLOSING STOCK. 9. THE ASSESSING OFFICER, ON VERIFICATION OF THE DETAILS FILED, FOUND THAT THERE WERE UNUTILIZED MODVAT CREDIT AS ON 31 ST MARCH 2001, AMOUNTING TO RS. 9,49,30,534, WHICH WAS NOT ADDED TO THE CLOSING STOCK . BEFORE THE ASSESSING OFFICER, RELIANCE WAS PLACED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF INDO NIPPON CHEMICALS LTD., 245 ITR 385 . THE ASSESSING OFFICE R DID NOT ACCEPT THE ASSESSEES CONTENTIONS AND HELD THAT IN THE SAID DECISION, SECTION 145A WAS NOT CONSIDERED AS THE SAME WAS BROUGHT IN THE STATUTE W.E.F. ASSESSMENT YEAR 1999 - 00. THUS, FOLLOWING THE DECISION GIVEN BY THE COMMISSIONER (APPEALS) IN THE JINDAL IRON & STEEL COMPANY LTD. 5 A SSESSMENT YEAR 2000 - 01, HE ADDED THE ENTIRE AMOUNT OF UNUTILIZED MODVAT CREDIT OF RS. 9,49,30,534, TO THE ASSESSEES TOTAL INCOME. 10. BEFORE THE COMMISSIONER (APPEALS), THE ASSESSEE SUBMITTED THAT IT HAS BEEN FOLLOWING EXCLUSIVE METHOD OF VALUATION OF CLOSIN G STOCK AS PRESCRIBED BY THE ICAI IN THE GUIDANCE NOTE ON ACCOUNTING OF MODVAT. IT HAS BEEN CONSISTENTLY FOLLOWING THIS METHOD IN WHICH VALUATION OF STOCK IS MADE AT NET METHOD I.E., AFTER EXCLUDING THE MODVAT CREDIT AVAILABLE FROM THE GROSS PURCHASE PRICE . IT WAS ALSO SUBMITTED THAT THE HON'BLE SUPREME COURT IN CASE OF CIT V/S INDO NIPPON CHEMICALS CO. LTD. [2003] 261 ITR 275 (SC) , HAS CONFIRMED THIS METHOD OF VALUATION. EVEN OTHERWISE, IT WAS SUBMITTED THAT EVEN IF THE CLOSING STOCK IS ADJUSTED BY MODVAT CREDIT, THERE WILL BE NO E FFECT O N THE BUSINESS PROFIT OF THE ASSESSEE AS THE PURCHASE STOCK WILL ALSO INCLUDE THE ELEMENT OF MODVAT . RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN HAWKINS COOKERS LTD., 14 DTR 206 . THE COMMISSIONER (APPEALS), HOWEV ER, REJECTED THE SAID CONTENTIONS AND HELD THAT SIMILAR ISSUE HA S BEEN CONFIRMED BY THE COMMISSIONER (APPEALS) IN THE ASSESSMENT YEAR 2000 - 01. 11. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT, FIRST OF ALL, THE EXCISE DUTY CANNOT BE ADDED TO THE CLOSING STOCK AND IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S LOKNETE BALASAHEB DESAI S. S. K. LTD., [2011] 339 ITR 288 (BOM) , AND UNREPORTED JUDGMENT OF HON'BLE SUPREME COURT IN THE C ASE OF CIT V/S M/S. DYNA VISION LTD . ALTERNATIVELY, HE SUBMITTED THAT IF UNUTILIZED MODVAT CREDIT IS ADDED TO THE CLOSING STOCK, THEN SIMILAR ADJUSTMENT SHOULD BE MADE EVEN IN THE OPENING STOCK AND PURCHASES. FOR THIS, RELIANCE WAS PLACED ON THE JUDGMENT O F JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S MAHALAXMI GLASS WORKS P. LTD., [2009] 318 ITR 116 (BOM.). 12. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UP ON THE FINDINGS GIVEN BY THE COMMISSIONER (APPEALS). JINDAL IRON & STEEL COMPANY LTD. 6 13. WE HAVE HEARD THE RIVAL CON TENTIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENTS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS BEEN FOLLOWING THE NET METHOD OF ACCOUNTING FOR THE MODVAT CREDIT, WHEREIN THE CLOSING STOCK IS VAL UED AT THE NET OF INPUT DUTY PAID ON THE RAW MATERIALS AND WHICH DOES NOT FORM PART OF THE CLOSING STOCK. BEFORE THE COMMISSIONER (APPEALS), RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF INDO NIPPON CHEMICALS CO. LTD. (SUPRA) , WH ICH PERTAINS TO THE ASSESSMENT YEAR 1989 - 90. THE JURISDICTIONAL HIGH COURT IN THE SAID CASE OF INDO NIPPON (SUPRA) , WHICH HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT, HAD SPECIFICALLY HELD THAT THE PROVISIONS OF SECTION 145A, IS NOT APPLICABLE IN ASSESS MENT YEAR 1989 - 90, AS THE SAME HAS BEEN BROUGHT IN THE STATUTE W.E.F. 1 ST APRIL 1999. THUS, THE PROVISIONS OF SECTION 145A WAS NOT THE SUBJECT MATTER OF ADJUDICATION EITHER BY THE HIGH COURT OR BY THE HON'BLE SUPREME COURT. FROM THE PLAIN READING OF THE PR OVISIONS OF SECTION 145A, IT IS EVIDENT THAT FOR THE PURPOSE OF VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORIES, ADJUSTMENT ON ACCOUNT OF TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE HAS TO BE MADE. EXCISE DUTY COMPONENT IN THE FORM OF MODVAT IN THE RAW MATERIALS HAS TO BE INCLUDED WHILE VALUING THE PURCHASES AND SALES OF GOODS AND INVENTORIES, AS IT HAS A DIRECT BEARING ON VALUATION OF STOCK. THUS, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO CARRY OUT NECESSARY VALUATION ON ACCOUNT OF MODVAT CREDIT ON PURCHASES AND INVENTORIES IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 14 5 A. THE ASSESSEE WILL PROVIDE NECESSARY DETAILS AND WORKING TO THE ASSESSING O FFICER TO THIS EFFECT , WHO WILL VERIFY THE SAME. WE ALSO AGREE WITH THE ALTERNATIVE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CORRESPONDING ADJUSTMENT IN THE OPENING STOCK SHOULD ALSO BE MADE IN VIEW OF THE PRINCIPLES LAID DOWN BY T HE JURISDICTIONAL HIGH COURT IN CASE OF MAHALAXMI GLASS WORKS P. LTD. (SUPRA) . CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALSO MAKE CORRESPONDING ADJUSTMENT IN THE OPENING STOCK IN VIEW OF THE PRINCIPLES JINDAL IRON & STEEL COMPANY LTD. 7 LAID DOWN BY THE JURISDICTIONAL HIGH COURT. WE ORDER ACCORDINGLY. THUS, GROUND NO.2, RAISED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14. IN GROUNDS NO.3, 4 AND 5, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTER EST AND EXPENSES MADE UNDER SECTION 14A OF THE ACT, FOR THE SUMS AMOUNTING TO RS. 5,97,30,707. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS EARNE D DIVIDEND INCOME FOR A SUM OF RS. 6,14,300, OUT OF THE INV ESTMENTS WHICH WERE MADE IN SHARES AND EQUITY. BEFORE THE ASSESSING OFFICER, IT WAS CONTENDED BY THE ASSESSEE THAT HAS NOT INCURRED ANY EXPENDITURE ON ACCOUNT OF INTEREST OR ON ACCOUNT OF ESTABLISHMENT EXPENSES FOR EARNING THE DIVIDEND INCOME. THE ASSESSIN G OFFICER REJECTED THE SAID CONTENTIONS OF THE ASSESSEE AND WORKED OUT THE DISALLOWANCE OF RS. 5,97,30,707, ON THE FOLLOWING GROUNDS AND REASONING. DETAILS SUBMITTED BY THE ASSESSEE COVERING THE AMOUNTS OF INVESTMENTS, BORROWED FUNDS AND OWN FUNDS HAVE BE EN ANALYZED, UTILIZATION OF THE BORROWED FUNDS HAS ALSO BEEN ANALYZED TO TRACE THE EXTENT OF SUCH BORROWED FUNDS, WHICH HAVE NOT BEEN SPENT FOR BUSINESS PURPOSES. AFTER CONSIDERING THE FUND FLOW INTO VARIOUS ACCOUNTS ATTRIBUTABLE TO THE BUSINESS PURPOSES I E CAPITAL ASSETS AND OTHER FIXED ASSETS, BORROWAL COST, REPAYMENT OF EXISTING LOANS, FRONT - END FEES, WORK - IN - CAPITAL ACCOUNTS ETC, RS.41 ,59,52,000/ - OF THE TOTAL BORROWED FUNDS IS LEFT UNEXPLAINED VIS A VIS THE BUSINESS PURPOSES. DURING THE ASSESSMENT P ROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN HOW THESE FUNDS ARE NOT CONSIDERED SPENT FOR THE PURPOSES OF INVESTMENT OF SHARES. ASSESSEE FILED A LETTER DATED 25.3.2004 STATING THAT THE WHOLE OF THE BORROWED FUNDS ARE USED FOR BUSINESS PURPOSES ONLY AS REQ UIRED AS PER THE TERMS AND CONDITIONS OF THE FINANCIAL INSTITUTIONS SET AT THE TIME OF GRANT OF LOANS TO THE ASSESSEE. THE ASSESSEE FLIED UTILISATION CERTIFICATES (UC) WHICH WERE TO BE IULED BEFORE THE FINANCIAL INSTITUTIONS IN SUPPORT OF THE UTILISATION OF BORROWED FUNDS FOR BUSINESS PURPOSES. THE CONTENTION OF THE ASSESSEE HAS BEEN CONSIDERED AND THE SAME HAS BEEN REJECTED FOR THE REASON THAT THE UTFLIZATION CERTIFICATES (UC) DO NOT COVER THE WHOLE OF THE BORROWED FUNDS, RS 41,59,52,0001 - IS THE UNCERTIF IED BORROWED FUNDS NOT COVERED BY THESE UCS, ASSESSEE HAS NO EVIDENCE TO PROVE THAT THESE AMOUNTS ARE NOT INVESTED IN THE SHARES. JINDAL IRON & STEEL COMPANY LTD. 8 FURTHER, THE ASSESSEE WAS ALSO ASKED TO FURNISH THE DETAILS ON THE AVERAGE RATE OF BORROWINGS (ARB) BY THE ASSESSEE. 14.36% I S THE AVERAGE RATE OF BORROWINGS AS SUPPLIED BY THE ASSESSEE WITH OUT PREJUDICE TO ITS ORIGINAL CONTENTION. APPLYING THE ARB OF 14.36%, THE INTEREST RELATABLE TO THE AMOUNT OF RS.4 1.60 CRORES IS WORKED OUT AND THE SAME WORKS OUT TO RS.5,97,30,7071 - . FURTH ER, THE ASSESSEES REQUEST FOR SET OFF OF INTEREST INCOME OF RS.80 LAKHS AND FROM THE INVESTMENT COMPANY WITH THE INTEREST EXPENSES ON RS.4 1,59,52,000/ - HAS NOT BEEN ALLOWED AS THE PROVISIONS OF SECTION L4A DO NOT ALLOW SUCH SET OFF. ACCORDINGLY, RS 5,97, 30,707! - IS THE INTEREST NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. THE SAME IS DISALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. THE ADDTION ON THIS ACCOUNT IS RS. 5,97,30,707. 16. BEFORE THE COMMISSIONER (APPEALS), IT WAS CONTENDED BY THE ASSESSEE THAT THE INVESTMENTS IN SHARES TO THE VARIOUS COMPANIES WERE MADE FOR THE STRATEGIC BUSINESS PURPOSES AND, THEREFORE, THE SAME WAS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND HENCE, SECTION 14A, CANNOT BE INVOKED . FURTHER, IT WAS ARGUED THAT NO ADDITIONAL FUNDS WERE UTILIZED FOR MAKING FURTHER INVESTMENT DURING THE YEAR AS MOST OF THE INVESTMENTS WERE MADE IN THE EARLIER YEARS. THE OTHER LIMB OF ARGUMENT WAS THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENT AND, THEREFORE , NO DISALLOWANCE OF INTEREST OR ANY EXPENSES INCURRED CAN BE MADE. THE DETAIL SUBMISSIONS OF THE ASSESSEE ON THESE ISSUES HAVE BEEN INCORPORATED FROM PAGES - 17 TO 21 OF THE APPELLATE ORDER. THE COMMISSIONER (APPEALS), HOWEVER, AFTER FOLLOWING THE DECISION OF THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DAGA CAPITAL MANAGEMENT LTD., 26 SOT 603 , HELD THAT RULE 8D, SHOULD BE APPLIED AND THE DISALLOWANCE, IN FACT, WILL COME TO RS. 8,92,63,707. IN A WAY THE DISALLOWANCE WAS ENHANCED FROM RS. 5,97,30,707/ - TO RS.8,92,63,707/ - THE RELEVANT FINDINGS OF THE COMMISSIONER (APPEALS) APPEAR S FROM PAGES - 22 TO 25 OF THE APPELLATE ORDER. 17. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT SO FAR AS THE APPLICABILITY OF RULE 8D IS CONCERNED, THE SAME IS NOW SET TLED BY THE JUDGMENT PASSED BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 328 ITR 81 (BOM.) , WHEREIN THE COURT HELD THAT RULE 8D CANNOT BE MADE APPLICABLE IN THE ASSESSMENT JINDAL IRON & STEEL COMPANY LTD. 9 YEAR S PRIOR TO ASSESSMENT YEAR 2008 - 09. HE FUR THER SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT NON - INTEREST BEARING FUNDS AND ITS OWN FUNDS TO MAKE THE INVESTMENTS IN SHARES AND THERE IS NO BASIS FOR ASSUMING THAT THE ASSESSEE HAS USED THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN TAX FREE SECURI TIES. IN SUPPORT OF THIS CONTENTION, HE HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS: - CIT V/S RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM.) ; DCIT V/S HDFC BANK LTD., ITA NO.4529/MUM./2005 & ORS ; SHOPPER STOP LTD. V/S ACIT, ITA NO.1448 & 4475/MU M/ 2010 ; AND LALA RAM FINANCE & INV. V/S DCIT, ITA NO.260 & 261/AGR./2011 18 . IN SUPPORT OF THE ABOVE CONTENTION, HE HAS FILED A STATEMENT SHOWING AVAILABILITY OF OWN FUNDS AND INTEREST BEARING FUNDS AND UTILIZATION THEREOF. HIS ANOTHER PLANK OF ARGUMENT S WAS THAT WHEN NO INCOME IS EARNED BY THE ASSESSEE WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. HE SUBMITTED THAT IN ASSESSEES CASE, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 6,00,000 AND ODD AND IF COST OF INVESTMENT IN WHICH DIVIDEND INCOME IS EARNED IS CALCULATED, THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, EVEN AS PER THE FORMULA OF THE ASSESSING OFFICER WILL HARDLY COME TO RS. 3,00,000 AND ODD. TO SUBSTANTIATE HIS CLAIM, HE HAS GIVEN STATEM ENT SHOWING WORKING OF COST OF INVESTMENT AND HAS RELIED UPON THE FOLLOWING DECISIONS: - DELITE ENTERPRISES P. LTD. V/S ITO, 22 SOT 245; CIT V/S DELITE ENTERPRISES, ITA NO.110 OF 2009, BOMBAY HIGH COURT; AVSHESH MERCANTILE P. LTD. V/S DCIT, ITA NO.5779/M /2006 SIVA IND. & HOLDINGS LTD. V/S ACIT, 2011 TII 67 ITAT MAD.; CIT V/S WINSOME TEXTILE IND. LTD., 319 ITR 204 (P&H); AND JINDAL IRON & STEEL COMPANY LTD. 10 SHREE SHYAMKAMAL FINANCE & LEASING CO. P. LTD., V/S ITO, 21 SOT 42 (SMC). 19. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME IN ITS ACCOUNT AND NO EXPENDITURE HAS BEEN ATTRIBUTABLE TOWARDS EARNING OF THIS INCOME AND, THEREFORE, DISALLOWANCE HAS TO BE MADE. HE FINALLY RELIED UPON THE FINDINGS AND REASONING GIVEN BY THE COMMISSIONER (APPEALS). 20. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE CASE LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. INSOFAR AS THE FINDINGS GIVEN BY THE COMMISSIONER (APP EALS) THAT RULE 8D IS APPLICABLE IN THIS YEAR, CANNOT BE SUSTAINED IN VIEW OF THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE (SUPRA) , WHEREIN IT HAS BEEN HELD THAT RULE 8D CANNOT BE APPLIED RETROSPECTIVELY I.E., PRIOR TO ASSESSMENT YEAR 2008 - 09. NOW COMING TO THE DISALLOWANCE MADE UNDER SECTION 14A, WE AGREE WITH THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IF THE ASSESSEE HAS OWN FUNDS AND NON - INTEREST BEARING FUNDS, THE PRESUMPTION CAN BE DRAWN THAT INVESTMENTS HAVE BEEN MAD E FROM THESE FUNDS. THIS PROPOSITION HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S RELIANCE UTILITIES & POWER LTD., [2009] 313 ITR 340 (BOM.) , WHICH HAS BEEN FOLLOWED BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL, MUMBAI. THE HIGH C OURT IN THIS CASE HAS OBSERVED AND HELD AS UNDER : - 10. IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFO RE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTAN CES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT JINDAL IRON & STEEL COMPANY LTD. 11 CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WO OLCOMBERS CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED T HAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COU RT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF T HE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 21. O N PERUSAL OF THE STATEMENT FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE, W E FIND THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 590.67 CRORES AS ON 31 ST MARCH 2001, IN THE SHARES. THE ASSESSEES OWN FUNDS AS PER THE BALANCE SHEET ARE IN THE FORM OF SHARE CAPITAL OF RS. 42 . 80 CRORES AND RESERVE AND SURPLUS OF RS. 394.50 CRORES WHIC H AGGREGATES TO RS. 437.30 CRORES , OUT OF WHICH RS. 60.36 CRORES HAVE BEEN INCURRED FOR MISCELLANEOUS EXPENSES AND BALANCE AMOUNT OF RS. 379.94 CRORES WERE DULY AVAILABLE FOR MAKING THE INVESTMENT. THE LEARNED COUNSEL FOR THE ASSESSEE HAD SUBMITTED THAT AC CUMULATED DEPRECIATION OF RS. 2 35.58 CRORES SHOULD ALSO BE CONSIDERED AS AVAILABLE FUNDS AS DEPRECIATION IS A NOTIONAL CHARGE TO THE PROFIT. HOWEVER, WE ARE UNABLE TO ACCEPT THIS CONTENTION THAT FUNDS IN THE FORM OF ACCUMULATED DEPRECIATION SHOULD BE TREAT ED AS AVAILABLE FUNDS BECAUSE THE ACTUAL FIGURE, AS GIVEN IN THE BALANCE SHEET HAS TO BE TAKEN INTO ACCOUNT. LOOKING TO THE ENTIRE ASPECT OF TH E MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RESTORE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE AVAILABILITY OF ASSESSEES OWN FUNDS AND ANY OTHER INTEREST BEARING FUNDS WHICH CAN BE SAID TO BE AVAILABLE TO THE ASSESSEE FOR MAKING THE INVESTMENT IN VIEW OF THE PRINCIPLES LAID DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF RELIANC E UTILITIES & POWER LTD. (SUPRA) . JINDAL IRON & STEEL COMPANY LTD. 12 22. NOW COMING TO THE SECOND ARGUMENT OF THE LEARNED COUNSEL THAT WHERE NO INCOME IS EARNED BY THE ASSESSEE WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THEN NO DISALLOWANCE CAN BE MADE. FIRST OF ALL, IT IS NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 6,14,300 AND IT CANNOT BE SAID THAT THE ASSESSEE HAS NO EXEMPT INCOME FORMING PART OF THE TOTAL INCOME. SECONDLY, THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO, [2009] 121 ITD 318 (DEL.) , HAD HELD THAT EVEN IF NO INCOME WAS RECEIVED, EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTION 14A. THE OTHER DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS NOT APPLICABLE AS IN THE PRESENT CASE, IT IS NOT THE CASE WHERE T HE ASSESSEE HAD NO EXEMPT INCOME. THUS, THIS ALTERNATIVE PLEA TAKEN BY THE LEARNED COUNSEL FOR THE ASSESSEE IS NOT ACCEPTABLE ON THE FACTS OF THE PRESENT CASE. LOOKING TO THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER PASSED B Y THE COMMISSIONER (APPEALS) AND RESTORE BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO WILL FIRSTLY , EXAMINE THE AVAILABILITY OF INTEREST FREE FUNDS AND ASSESSEES OWN FUNDS FOR THE PURPOSE OF MAKING THE INVESTMENT AND SECONDLY, EVEN AFTER EXAMI NING THE AVAILABILITY OF FUNDS, IT IS FOUND THAT BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES, THEN DISALLOWANCE CAN BE MADE TO THE EXTENT OF INTEREST PAYABLE ON THE BORROWED FUNDS WHICH HAVE BEEN UTILIZED FOR THE PURPOSE OF AC QUIRING THE SHARES. THE ASSESSEE WILL PROVIDE ALL THE NECESSARY INFORMATION AND DETAILS FOR ADJUDICATION OF THE ISSUE. THUS, GROUNDS NO.3, 4 AND 5, ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23. GROUNDS NO.6, 7 AND 8, RELATE TO DISALLOWANCE O F PRIOR PERIOD EXPENSES FOR SUMS AGGREGATING RS. 5,60,55,200. 24. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL, VIDE ORDER DATED 25 TH JUNE 2010, FOR THE ASSESSMENT YEAR 2000 - 01, IN ASSESSEES OWN CASE, HAS GIVEN A DIRECT ION TO ALLOW THE SE EXPENDITURE IN THE ASSESSMENT YEAR 2000 - 01. JINDAL IRON & STEEL COMPANY LTD. 13 25. IN VIEW OF THE FACT THAT IN THE ASSESSMENT YEAR 2000 - 01, THESE PRIOR PERIOD EXPENSES HAVE BEEN DIRECTED TO BE ALLOWED , H ENCE, THE SAME CANNOT BE ALLOWED IN THIS YEAR. THUS, DISALLOWANCE MA DE IN THIS YEAR CANNOT BE ALLOWED. CONSEQUENTLY, GROUNDS NO.6, 7 AND 8, ARE TREATED AS ALLOWED. 26 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PU RPOSES. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.7109 /MUM./2010, FOR ASSESSMENT YEAR 2002 03 . THIS APPEAL IS BARRED BY LIMITATION BY 30 DAYS. IN PETITION FOR CONDONATION OF DELAY, THE ASSESSEE HAS GIVEN DETAILED REASONS SUPPORTED BY AN AFFIDAVIT. IN VIE W OF THE REASONS GIVEN IN THE SAID PETITION, WE CONDONE THE DELAY OF 30 DAYS. ACCORDINGLY, APPEAL IS BEING DECIDED ON MERITS. 2 7 . GROUND NO.1, RELATES TO DISAL LOWANCE OF CLUB EXPENDITURE OF RS. 1,49,332. 2 8 . AT THE OUTSET, BOTH THE PARTIES AGREE D BEFORE US THAT THIS IS SIMILAR TO THE ISSUE DECIDED BY US IN ASSESSEES APPEAL IN ITA NO.6298/MUM./ 2009 , VIDE PARA - 7 ABOVE. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND ALLOW GROUND NO.1, RAISED BY THE ASSESSEE. 29 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 6,46,47,400, ON ACCOUNT OF MODVAT CREDIT TO THE CLOSING STOCK. 30 . BOTH THE PARTIES AGREE D BEFORE US THAT THIS ISSUE IS ALSO IDENTICAL TO THE GROUND DECIDED BY US IN ASS ESSEES APPEAL IN ITA NO.6298/MUM./ 2009 , VIDE PARA S - 14 & 15 ABOVE. CONSISTENT WITH THE VIEW TAKEN THEREIN, WHICH APPLIES HERE ALSO MUTATIS MUTANDIS , WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THIS ISSUE BACK TO THE FIL E OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. THUS, GROUND NO.2, RAISED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. JINDAL IRON & STEEL COMPANY LTD. 14 31 . IN GROUNDS NO.3, 4 AND 5, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF RS. 1,34,56,840, MADE UNDER SECTION 14A OF T HE ACT. 3 2 . HERE ALSO B OTH THE PARTIES AGREE D BEFORE US THAT THIS ISSUE IS ALSO IDENTICAL TO THE ISSUE DECIDED BY US IN ASSESSEES APPEAL IN ITA NO.6298/MUM./ 2009 , VIDE PARA S - 22, 23 AND 24 ABOVE. THUS, C ONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. THUS, GROUND S NO. 3, 4 AND 5 , RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 3 3 . IN GROUNDS NO.6, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 1,94,49,012, ON ACCOUNT OF INTEREST RECEIVABLE WRITTEN OFF. 3 4 . THE ASSESSING OFFICER, ON EXAMINATION OF PROFIT & LOSS ACCOUNT, FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 1,94,4 9,012, AS INTEREST RECEIVABLE WRITTEN OFF DURING THE YEAR UNDER CONSIDERA TION. THE ASSESSEES CONTENTION BEFORE THE ASSESSING OFFICER W AS THAT THIS INTEREST HAS BEEN ACCOUNTED FOR ON ACCRUAL BASIS IN THE PROFIT & LOSS ACCOUNT IN THE EARLIER YEARS AND THE S AME HAS BEEN OFFERED FOR TAX ALSO . SINCE THE ENTIRE INTEREST COULD NOT BE RECEIVED / RECOVERED, THE BOARD DECIDED THAT THE SAME SHOULD BE WRITTEN OFF IN THE BOOKS OF ACCOUNT IN THE RELEVANT PREVIOUS YEAR . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASS ESSEE COMPANY HAS ITSELF ADMITTED THAT PRINCIPAL AMOUNT AGAINST WHICH THE INTEREST HAD ACCRUED ARE STILL OUTSTANDING AND THE ASSESSEE IS HOPEFUL OF RECOVERY OF THE SAME. THUS, HE REACHED TO THE CONCLUSION THAT THE STAND TAKEN BY THE ASSESSEE IS CONTRADICTO RY AS WHEN THE ASSESSEE IS NOT TREATING THE PRINCIPAL AMOUNT AS BAD DEBT, THEN HOW THE INTEREST CAN BE WRITTEN OFF AS IRRECOVERABLE. ACCORDINGLY, HE DISALLOWED THE CLAIM. IN HIS CONCLUSION, HE HAS ALSO GIVEN A REMARK THAT IN THE ASSESSMENT YEAR 2000 01, PR OCEEDINGS UNDER SECTION 263, HAVE BEEN CONCLUDED BY THE LEARNED COMMISSIONER OF INCOME TAX , WHEREBY IT WAS HELD THAT THE ASSESSEE HAS ACTUALLY NOT SHOWN ANY INCOME RELATABLE TO THE CLAIM OF THE ASSESSEE IN ANY OF THE PREVIOUS YEAR. JINDAL IRON & STEEL COMPANY LTD. 15 3 5 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS INVESTED IN OPTIONALLY CONVERTIBLE DEBENTURES (O CD S) IN THE FINANCIAL YEAR 1994 95 OF THE FOLLOWING COMPANIES. A) KARNIVASINI INVESTMENT & FINANCE P. LTD. B) KAUANDALIYA INVESTMENTS & FINANCE P. LTD. C) MORTA FINLEASE & INV. P. LTD. D) ATIRUPA INVESTMENTS P. LTD. E) ZAFONIC FINLEASE & INV. P. LTD. F) OTTOMAN FINLEASE & INV. P. LTD. 3 6 . THESE O CDS CARRY INTEREST @ 16% PER ANNUM AND WERE REDEEMABLE AT THE END OF SEVEN YEARS FROM THE DATE OF ALLOTMENT WITH A N OPTION TO CONVERT THE OCDS INTO EQUITY SHARES. FROM THE F.Y. 1994 95 TO 2000 01, INTER E ST OF RS. 1,94,49,012, HAD ACCRUED TO THE ASSESSEE. HOWEVER, THESE PARTIES WERE NOT IN A POSITION TO PAY THE AMOUNT TO THE ASSESSEE DUE TO FINANCIAL CRUNCH AND HAD ENT ERED INTO RE STRUCTURING PROPOSAL WITH THE ASSESSEE THAT INTEREST OUTSTANDING TILL 31 ST MARCH 2001, SHOULD BE WAIVED AND FURTHER R EDUCTION OF INTEREST RATE SHOULD BE MADE FROM 16@ TO 12%. AFTER ACCEPTING THIS PROPOSAL, THE ACCUMULATED INTEREST OF RS. 1,94, 49,012, WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. IT WAS PLEADED THAT ALL THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) OF THE ACT STANDS FULFILLED AND THE SAME HAS TO BE ALLOWED AS BAD DEBT. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE JUDGME NT OF HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. V/S CIT, 322 ITR 397 (SC) . 3 7 . THE LEARNED COMMISSIONER (APPEALS), AFTER GOING THROUGH THE DETAILS FURNISHED BY THE ASSESSEE, NOTICED THAT THE APPROVAL FOR WRITING OFF ALL THE INTEREST AMOUNTS WAS GIVEN BY THE BOARD OF DIRECTORS IN THE NEXT FINANCIAL YEAR I.E., ON MAY 2002. TO COUNTER THIS, THE ASSESSEE RELIED UPON THE DECISION OF THE TRIBUNAL, LUCKNOW BENCH, IN THE CASE OF U.P. RAJKIYA NIRMAN NIGAM, 24 SOT 139 , WHEREIN IT WAS HELD THAT THE ASSESSEE CAN W RITE OFF THE AMOUNT BEFORE THE BOOKS OF ACCOUNT ARE CLOSED WHICH COULD JINDAL IRON & STEEL COMPANY LTD. 16 BE EVEN AFTER 31 ST MARCH. THE LEARNED COMMISSIONER (APPEALS) REJECTED THE SAID CONTENTIONS OF THE ASSESSEE AND HELD THAT DEDUCTION FOR BAD DEBT WRITTEN OFF CAN BE CLAIMED ONLY IN THE YE AR IN WHICH THE AMOUNT IS ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. FURTHER, HE HELD THAT THE ASSESSEE IS NOT IN THE BUSINESS OF MAKING INVESTMENT IN SHARES ON OCDS AND THERE IS NO SYSTEMATIC AND ORGANISED ACTIVITY TAKEN BY THE ASSESSEE FOR MAKING SUCH . MERE PLACING OF SURPLUS FUNDS IN OCD S COULD NOT BE TREATED AS BUSINESS ACTIVITY OF THE ASSESSEE. HE, WHIL E COMING TO THIS CONCLUSION, REFERRED TO THE DECISION OF THE TRIBUNAL, MUMBAI BENCHES, IN TOPMAN EXPORTS, 33 SOT 337. THE FINAL CONCL USION DRAWN BY THE LEARNED COMMISSIONER (APPEALS) ARE REPRODUCED HEREIN BELOW: 8.8 IN THE PRESENT CASE ALSO, THE APPELLANT COMPANY MADE LONG TERM INVESTMENTS IN OCDS TO EARN INTEREST OR TO ACQUIRE SHARES. THUS PURPOSE OF THE APPELLANT WAS TO ACQUIRE SHA RES AND TO EARN INCIDENTAL INTEREST INCOME. THIS ACTIVITY HAS NOT BEEN CARRIED OUT BY THE APPELLANT AS A PART OF ITS BUSINESS ACTIVITY OR EVEN INCIDENTAL TO ITS BUSINESS ACTIVITY. THEREFORE, THE REAL NATURE OF INTEREST INCOME EARNED IN THE EARLIER YEARS IS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. MERELY BECAUSE INTEREST WAS WRONGLY TAXES AS BUSINESS INCOME, IN THE EARLIER YEARS, CLAIM CANNOT BE ALLOWED UNDER SECTION 36(1)(VII) OF THE ACT. IN VIEW OF THESE FACTS, THE CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VII) IS NOT ALLOWED. THIS GROUND OF APPEAL IS NOT ALLOWED. 3 8 . THE LEARNED COUNSEL FOR THE ASSESSEE, FIRST OF ALL, SUBMITTED THAT INSOFAR AS THE OBSERVATIONS OF THE ASSESSING OFFICER REGARDING 263 PROCEEDINGS UNDER SECTION 263 IN A.Y. 2000 01 ARE CONCERNED, THE SAID ORDER HAS BEEN QUASHED BY THE TRIBUNAL VIDE ORDER DATED 24 TH MARCH 2008, PASSED IN ITA NO.3969/MUM./2005 , WHEREIN THE TRIBUNAL FOUND THAT THE ASSESSING OFFICER HAS TREATED THE INTEREST INCOME RECEIVED ON ADVANCE AS BUSINESS RECE IPTS. HE DREW OUR ATTENTION TO PARAS 7 AND 8 OF THE SAID ORDER. WITH REGARD TO THE LEARNED COMMISSIONER (APPEALS)S OBSERVATIONS THAT BAD DEBT CAN BE WRITTEN OFF ONLY DURING THE YEAR AND NOT AFTER 31 ST MARCH, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED IN DETAIL BY THE TRIBUNAL, LUCKNOW BENCH , IN THE CASE OF U.P. RAJKIYA NIRMAN NIGAM (SUPRA) , WHEREIN IT HAS BEEN HELD THAT THE LAW REQUIRES TO WRITE OFF THE BAD DEBT IN THE ACCOUNT OF THE JINDAL IRON & STEEL COMPANY LTD. 17 ASSESSEE FOR THE RELEVANT YEAR AN D THERE IS NO CONDITION IN THE SAID PROVISION OF SECTION 36(1)(VII) THAT SUCH WRITING OFF SHOULD BE DONE IN THE PREVIOUS YEAR. IF THE ACCOUNTS OF THE ASSESSEE ARE OPEN AND SUBJECT TO CORRECTION BY THE AUDITORS, THEN SUCH WRITING OFF CAN BE DONE IN THOSE BO OKS. HE ALSO RELIED UPON THE JUDGMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT V/S UNITED BANK OF INDIA, [1993] 115 CTR 35 (CAL.) , WHEREIN IT HAS BEEN HELD THAT SUBSEQUENT RESOLUTION BY THE BOARD OF DIRECTORS APPROVING THE BAD DEBT RELATES BACK TO THE DAT E OF FINALIZATION OF ACCOUNTS. REGARDING OTHER FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) THAT INVESTMENT IN THE OCDS WAS NOT PART OF THE BUSINESS ACTIVITY AND, THEREFORE, THE SAME CANNOT BE ALLOWED UNDER SECTION 36(1)(VIII) , HE SUBMITTED THAT IN ASSES SEES OWN CASE, THE INTEREST INCOME HAD ALWAYS BEEN CONSIDERED AS BUSINESS INCOME BY THE DEPARTMENT WHICH IS EVIDENT FROM THE FINDINGS GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE IN 263 PROCEEDINGS FOR ASSESSMENT YEAR 2000 01. HE ALSO PLACED RELIANCE ON T HE DECISION IN GOETZE INDIA LTD., 25 SOT 171 (DEL.) AND OTHER DECISIONS ON THIS POINT . HE FURTHER SUBMITTED THAT IN THE CASE OF JSW STEEL LTD. , A SISTER CONCERN OF THE ASSESSEE, SIMILAR ISSUE HAS BEEN ALLOWED BY THE TRIBUNAL, BANGALORE BENCH. THE COPY OF T HE SAID JUDGMENT HAS BEEN PLACED BEFORE US. 39 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE, AFTER REFERRING TO THE VARIOUS FINDINGS AND THE CONCLUSIONS DRAWN BY THE LEARNED COMMISSIONER (APPEALS), SUBMITTED THAT MERE MAKING OF INVESTMENT I N OCDS CANNOT BE TREATED AS PART OF BUSINESS ACTIVITY AND ONCE IT IS FOUND THAT SUCH AN INVESTMENT IS NOT PART OF THE BUSINESS CARRIED OUT BY THE ASSESSEE, THEN THERE IS NO QUESTION OF ALLOWING DEDUCTION UNDER SECTION 36(1)(VII). HE, THUS, STRONGLY RELIED UPON THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS). 4 0 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS CITED BEFORE US. IT IS NOT DISPUTED BEFORE US, THAT THE AMOUN T OF INTEREST OF RS. JINDAL IRON & STEEL COMPANY LTD. 18 1,94,49,012, WHICH HAD ACCRUED TO THE ASSESSEE ON THE INVESTMENT MADE IN OCDS OF THE VARIOUS COMPANY HAS BEEN DISCLOSED IN THE PROFIT & LOSS ACCOUNT OF THE EARLIER YEARS. SUCH AN INTEREST INCOME HAS ALSO BEEN ACCEPTED AS BUSINESS INCOM E OF THE ASSESSEE. THE ASSESSEE HAS WRITTEN OFF THIS AMOUNT OF INTEREST IN THE ACCOUNT AS IRRECOVERABLE AS PER THE DECISION TAKEN BY THE BOARD OF DIRECTORS IN RESOLUTION IN MAY 2002. THE FIRST ISSUE IS , WHETHER THE DECISION TO WRITE OFF THE AMOUNT AFTER TH E CLOSE OF THE FINANCIAL YEAR CAN BE DONE AND TREATED TO BE WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. FROM THE PERUSAL OF THE DECISION IN THE CASE OF U.P. RAJKIYA NIRMAN NIGAM (SUPRA) , AS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THIS ISSUE HAS BEEN DISCUSSED AND ANALYZED IN THE FOLLOWING MANNER : 8. T HE COND I TI O NS REQUIRE D FOR ALLOWING THE CLAIM IS THAT, FIRSTLY, ANY DEBT, OR PART THEREOF, IS WRITTEN OFF AS IRRECOVERAB L E AND SECONDLY, THEY SHOULD BE WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. SO FAR AS THE FIRST PART OF CI. (VII) OF S. 36(1) IS CONCERNED, THERE IS NO DISPUTE THAT THE DEBT HAS BECOME BAD AND IT WAS WRITTEN OFF. THE DISPUTE RELATES TO THE INTERPRETATION OF THE WORDS USED SUBSEQUENTLY. WHEN WE GO THROUGH THE SUBSEQUENT PART IN THE CLAUSE, WE NOTICE THAT REQUIREMENT IS TO WRITE OFF BAD DEBT IN THE ACCOUNTS O F THE ASSESSEE FOR THE PREVIOUS YEAR. THIS CLAUSE DOES NOT SAY TO WRITE OFF BAD DEBT IN THE PREVIOUS YEAR. IT WOULD HAVE MADE A VAST DIFFERENCE IF THE WORD IN WOULD HAVE BEEN THERE IN PLACE OF FOR. IN THE CLAUSE, THE WORDS ACCOUNTS OF THE ASSESSEE ARE QUALIFIED WITH FURTHER WORDS FOR THE PREVIOUS YEAR. IT ONLY MEANS THAT THE ACCOUNTS IN WHICH THE ACT OF WRITING OFF IS TO BE DONE BY THE ASSESSEE SHOULD BE FOR THE PREVIOUS YEAR. THEREFORE, THE LAW REQUIRES TO WRITE OFF THE BAD DEBT IN THE ACCOUNTS OF THE ASSESSEE FOR THE RELEVANT YEAR. THERE IS NO CONDITION IN THE PROVISION THAT SUCH WRITING OFF SHOULD BE DONE IN T HE PREVIOUS YEAR (I.E. BEFORE THE END OF FINANCIAL YEAR IN THE PRESENT CASE BEFORE 31ST MARCH, 2001). IN OTHER WORDS, IF THE ACCOUNTS OF THE ASSESSEE ARE OPEN AND SUBJECT TO COLLECTIONS BY THE AUDITORS AS PER THE COMPANIES ACT, THEN SUCH WRITING OFF CAN B E DONE IN THOSE BOOKS. THERE IS ALSO NO CONDITION IN THIS CLAUSE THAT THE DECISION FOR TREATING THE DEBT AS BAD OR IRRECOVERABLE SHOULD BE TAKEN IN THE PREVIOUS YEAR ITSELF. IT W I LL AMOUNT TO WRITING A NEW LEGISLATION WHICH IS NOT PERMISSIBLE. IN OTHER WOR DS, IF IT IS POSSIBLE FOR THE ASSESSEE LEGALLY AND OTHERWISE TO MAKE ENTRIES IN THE BOOKS OF A PARTICULAR PREVIOUS YEAR THEN THE CLAIM OF BAD DEBT CAN BE MADE IN THE BOOKS FOR THAT PREVIOUS YEAR. IN OTHER WORDS, WHERE BOOKS OF ACCOUNT ARE NOT C L OSED AND CO MPLETE, NOT SIGNED BY THE BOARD OF DIRECTORS AND NOT ADOPTED BY THE SHAREHOLDERS AS PER THE COMPANIES ACT, IT IS LEGALLY PERMISSIBLE TO MAKE ADJUSTMENTS B E FORE THEY ARE FINA L LY AD O PTED. IN THE PRESENT CASE, EVEN THOUGH ASSESSEE HAD FILED RETURN OF INCOME W ITH THE JINDAL IRON & STEEL COMPANY LTD. 19 DEPARTMENT BUT THEY WERE BASED ON UNAUDITED BOOKS OF ACCOUNT AND THE ACCOUNTS WERE NOT SIGNED BY THE BOARD OF DIRECTORS. THEREFORE, IN OUR CONSIDERED VIEW, IT IS OPEN FOR THE ASSESSEE TO WRITE OFF THE IRRECOVERABLE BAD DEBTS IN SUCH BOOKS OF ACCOUN T. IT IS BECAUSE THERE IS NO CONDITION PROVIDED IN THE ACT THAT DECISION FOR WRITING OFF THE BAD DEBT SHOULD BE TAKEN ONLY IN THE RELEVANT PREVIOUS YEAR OR THAT SUCH WRITING OFF OF THE BAD DEBT IN THE BOOKS SHOULD BE PHYSICALLY AND ACTUALLY DONE IN THE PRE VIOUS YEAR BEFORE 31 ST MARCH EXPIRES AT MID NIGHT. 4 1 . THE CALCUTTA HIGH COURT ALSO IN THE CASE OF UNION BANK OF INDIA (SUPRA) , HAS HELD THAT THE RESOLUTION APPROVING AND ACCEPTING THE RECOMMENDATION RELATING TO THE TREATMENT OF CERTAIN ITEMS MUST RELATE BACK TO THE DATE UPTO WHICH THE ACCOUNTS ARE FINALISED AND SUCH DETERMINATION OR APPROVAL MUST BE TREATED AS BEING EFFECTIVE FROM THAT DATE. BY BEING RETROSPECTIVE EFFECT, THE NATURE AND CHARACTER OF THE ENTRIES HAVE NOT BEEN CHANGED. FROM THE PROPOSITION LAID DOWN BY THE AFORESAID DECISIONS, WE HOLD THAT EVEN THE BOARD RESOLUTION WAS PASSED IN MAY 2002, WITH REGARD TO THE APPROVAL OF WRITING OFF THE AMOUNT AS IRRECOVERABLE IN THE ACCOUNTS, IT WILL RELATE BACK TO THAT PREVIOUS YEAR IN WHICH IT IS BEING TRE ATED AS IRRECOVERABLE AND WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THERE IS NO SUCH CONDITION IN THE SAID CLAUSE I.E., CLAUSE (VII) OF SUB SECTION (1) OF SECTION 36 THAT THE DECISION FOR TREATING DEBT AS BAD OR IRRECOVERABLE SHOULD BE TAKEN IN THE PREV IOUS YEAR ITSELF . I F THE BOOKS OF ACCOUNT ARE NOT CLOSED AND COMPLETED, IT IS PERMISSIBLE TO MAKE ADJUSTMENTS BEFORE BEING FINALLY ADOPTED. THUS, WE DO NOT FIND ANY MERIT IN SUCH A CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS). 4 2 . NOW, COMING TO THE ISSUE THAT WHETHER SUCH A DEDUCTION ON ACCOUNT OF WRITING OFF BAD DEBT CAN BE ALLOWED BY THE ASSESSEE WHEN AS ALLEGED BY THE CIT(A) THAT IT WAS NOT INVOLVED IN THE BUSINESS ACTIVITY OF MAKING THE INVESTMENT IN OCDS. FROM THE RECORDS, IT IS SEEN THAT T HE ASSESSEE HAS INVESTED IN OCDS IN THE VARIOUS COMPANIES FOR EARNING INTEREST. THIS INTEREST INCOME IS ALSO BEING SHOWN IN THE PROFIT & LOSS ACCOUNT ON ACCRUAL BASIS AND SUCH AN INTEREST INCOME IN THE PAST HAS ALSO BEEN ASSESSED AS BUSINESS INCOME. THERE IS ALSO A CATEGORICAL FINDING BY THE TRIBUNAL IN ASSESSMENT YEAR 2000 01, WHILE DEALING WITH THE PRECISE ISSUE IN THE JINDAL IRON & STEEL COMPANY LTD. 20 PROCEEDINGS UNDER SECTION 263 , THAT INTEREST INCOME HAS ALWAYS BEEN TREATED AS BUSINESS RECEIPTS BY THE ASSESSING OFFICER. AS POINTED OUT BY THE LEARNED COUNSEL, IT I S SEEN THAT IN THE EARLIER YEARS, ASSESSEES INTEREST INCOME SHOWN UNDER THE HEAD BUSINESS INCOME , HAS BEEN ACCEPTED BY THE DEPARTMENT. THUS, ON THESE FACTS, ONCE THE INTEREST INCOME HAS BEEN OFFERED ON ACCRUAL BASIS, WHICH HA S BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT AS BUSINESS INCOME AND THE SAME HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS IN THIS YEAR, THE SAME HAS TO BE ALLOWED AS BAD D E BT. THE LAW ON THIS SCORE IS FAIRLY SETTLED BY THE JUDGMENT OF HON'BLE SUPRE ME COURT IN THE CASE OF TRF LTD. (SUPRA) . THUS, WE DO NOT FIND ANY REASON TO UPHOLD THE FINDINGS AND THE REASONING GIVEN BY THE LEARNED COMMISSIONER (APPEALS). CONSEQUENTLY, THE ASSESSEES CLAIM FOR BAD DEBT ON ACCOUNT OF INTEREST RECEIVABLE WRITTEN OFF IS HEREBY ALLOWED. THUS, GROUND NO.6, RAISED BY THE ASSESSEE IS ALLOWED. 4 3 . GROUNDS NO.7 AND 8, RELATE S TO DISALLOWANCE OF PRIOR PERIOD EXPENSES FOR SUMS AGGREGATING TO RS. 36,44,276. 4 4 . AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997 98, WHEREIN THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. 4 5 . LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, FA IRLY CONCEDED TO THE SAID CONTENTION OF THE COUNSEL. 4 6 . AFTER GOING THROUGH THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AND THE ASSESSING OFFICER AND ALSO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE FIND THAT THIS ISSUE HAS BEEN RESTOR ED BACK TO THE FILE OF THE ASSESSING OFFICER. CONSEQUENTLY, WE ALSO SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO BE CONSIDERED AFRESH . G ROUND NO.7 & 8 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. JINDAL IRON & STEEL COMPANY LTD. 21 4 7 . GROUND NO.9, RELATES TO DISALLOWANCE OF I NTER CORPORATE DEPOSIT (ICD) ALONG WITH THE INTEREST WRITTEN OFF FOR SUMS AMOUNTING TO RS. 2,51,33,956. 4 8 . THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 2,51,33,956 TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF AMOUNT IN RESPECT OF IC DS WRITTEN OFF. THE SAME WA S ADDED BACK WHILE COMPUTING THE TAXABLE INCOME AS IT WAS DOUBTFUL ABOUT THE CLAIM. THE ASSESSEE HAS GIVEN ICD S IN THE F.Y. 1994 95 TO THE VARIOUS COMPANIES, THE DETAILS OF WHICH ARE GIVEN IN PARA 12.2 OF THE LEARNED COMMISSIONER (APPEALS)S ORDER. FROM TH E F.Y. 1994 95 TO 2000 01, INTEREST OF RS. 2,30,02,576, WAS ACCRUED TO THE ASSESSEE WHICH WAS SHOWN IN THE PROFIT & LOSS ACCOUNT AS INCOME , THE DETAILS OF WHICH WAS GIVEN BEFORE THE LEARNED COMMISSIONER (APPEALS). IT WAS CLAIMED BEFORE THE LEARNED COMMISSI ONER (APPEALS) THAT THESE PARTIES WERE NOT IN A POSITION TO PAY THE AMOUNT DUE TO FINANCIAL CR UNCH AND IN ONE TIME SETTLEMENT PROPOSAL AND PROTRACTED NEGOTIATION , SETTLEMENT WAS REACHED WHERE THE PARTIES PAID PART OF THE PRINCIPAL AMOUNT AS FULL AND FINAL SETTLEMENT. WHATEVER AMOUNT WAS LEFT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT MOSTLY ON ACCOUNT OF INTEREST AND PARTLY TOWARDS THE PRINCIPAL AMOUNT. THE SAME WAS CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VII). IT WAS FURTHER SUBMITTED THAT OUT OF THE SAID AM OUNT, AN AMOUNT OF RS. 2,19,33,956, WAS WRITTEN OFF ON ACCOUNT OF ACCRUED INTEREST AND REMAINING AMOUNT OF RS. 32,00,000, WAS WRITTEN OFF AGAINST THE PRINCIPAL AMOUNT. THE PRINCIPAL AMOUNT WAS CLAIMED AS BUSINESS LOSS. 49 . THE LEARNED COMMISSIONER (APPEAL S), FIRST OF ALL, DISALLOWED THE CLAIM ON THE PRELIMINARY GROUND THAT THE DECISION TO WRITE OFF WAS TAKEN AFTER 31 ST MARCH I.E., IT WAS APPROVED BY THE BOARD OF DIRECTORS IN MAY 2002. THE OTHER GROUND FOR CONFIRMING THE DISALLOWANCE WAS THAT THE ASSESSEE H AS NOT FILED ANY EVIDENCE THAT THERE WAS ANY CONTRACT WITH THE COMPANIES IN ADJUSTING AGAINST THE PRINCIPAL AMOUNT AND NOT AGAINST THE ACCRUED INTEREST. HE REJECTED THE CLAIM OF THE ASSESSEE THAT ALL THE PAYMENTS RECEIVED BY IT FROM THESE COMPANIES SHOULD HAVE BEEN ADJUSTED AGAINST JINDAL IRON & STEEL COMPANY LTD. 22 THE INTEREST AMOUNT FIRST . HE FURTHER HELD THAT IT WAS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE TO MAKE SUCH DEPOSITS ON SYSTEMATIC AND REGULAR BASIS, THEREFORE, DEALING IN ICDS WAS NEITHER THE MAIN BUSINESS OF THE ASSESSEE NO I NCIDENTAL. THE ASSESSEE IS ALSO NOT A NON BANKING FINANCIAL COMPANY. HE, THUS, DISALLOWED THE CLAIM ON THE SIMILAR REASONING AS WAS GIVEN WITH REGARD TO THE CLAIM OF BAD DEBT ON INTEREST RECEIVABLE AS DISCUSSED ABOVE. 5 0 . THE LEARNED COUNSEL FOR THE ASSES SEE, BY AND LARGE, REITERATED THE SAME SUBMISSIONS AS WAS MADE WITH REGARD TO THE GROUND NO.6 I.E., DISALLOWANCE OF INTEREST RECEIVABLE WRITTEN OFF. HE FURTHER SUBMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION IN THE CASE JSW STEEL LTD. V/S ACIT , WHI CH IS A SISTER CONCERN OF THE ASSESSEE BY THE TRIBUNAL, BANGALORE BENCH, WHEREIN ON SIMILAR FACTS, SUCH A BAD DEBT WAS ALLOWED. HE FURTHER SUBMITTED THAT THE DEPARTMENT CANNOT THRUST UPON THE ASSESSEE THAT THE AMOUNT RECEIVED SHOULD BE FIRST ADJUSTED AGAIN ST THE INTEREST AND THEN THE PRINCIPAL AMOUNT. IT IS THE ASSESSEES DECISION TO ADJUST AGA INST THE PRINCIPAL AMOUNT OR INTEREST AMOUNT. 5 1 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED UPON THE ORDER PASSED BY THE LEARNED COMM ISSIONER (APPEALS). 5 2 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD SHOWN INTEREST ON ICDS ON ACCRUAL BASIS IN THE PROFIT & LOSS ACCOUNT IN THE EARLIER YEARS. IT IS ALSO AN ADMITTED FACT THAT THE AMOUNT RECEIVED UNDER ONE TIME SETTLEMENT WITH THE COMPANIES, THE ASSESSEE HAS ADJUSTED THE SAME AGAINST THE PRINCIPAL AMOUNT FIRST. THE INTEREST PORTION HAS MOSTLY BEE N WRITTEN OFF. INSOFAR AS THE LEARNED COMMISSIONER (APPEALS)S FINDING THAT THE AMOUNT RECEIVED SHOULD HAVE BEEN FIRST ADJUSTED AGAINST THE ACCRUED INTEREST AND THEN TOWARDS PRINCIPAL, CANNOT BE UPHELD AS THERE IS NO SUCH LAW WHICH PERMITS THAT ADJUSTMENT SHOULD BE FIRST MADE AGAINST THE INTEREST AND NOT TOWARDS THE PRINCIPAL AMOUNT UNLESS THE PARTIES HAVE AGREED TO OTHERWISE. THE DEPARTMENT CANNOT THRUST UPON THE ASSESSEE THAT THE AMOUNT RECEIVED OR RECOVERY SHOULD BE FIRST ADJUSTED AGAINST THE ACCRUED INT EREST. IT IS THE JINDAL IRON & STEEL COMPANY LTD. 23 DECISION AND MUTUAL UNDERSTANDING OF THE PARTIES AS TO HOW THE ADJUSTMENTS SHOULD BE MADE . THUS, THE FINDINGS O F THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE ARE REJECTED. 5 3 . NOW COMING TO THE ISSUE THAT SUCH A WRITING OFF CANNOT BE ALLOWED AS THE INVESTMENT IN THE ICDS W AS NOT PART OF THE BUSINESS ACTIVITY. AS NOTED ABOVE, IT IS NOT DISPUTED THAT IN ALL THESE YEARS, THE ASSESSEE HAD SHOWN ACCRUED INTEREST ON ICDS IN THE PROFIT & LOSS ACCOUNT AND HAS BEEN OFFERED FOR TAX AS BUSINESS I NCOME. THIS HAS BEEN ACCEPTED BY THE DEPARTMENT ALSO. THE COROLLARY, THEREFORE, IS THAT INTEREST WAS EARNED DURING THE COURSE OF BUSINESS. ONCE INTEREST INCOME HAS BEEN TAXED AS BUSINESS INCOME, THE LEARNED COMMISSIONER (APPEALS) NOW CANNOT SAY THAT LENDIN G OF MONEY IN THE FORM OF ICDS WAS NOT PART OF THE BUSINESS ACTIVITIES. ONCE THE ASSESSEE HAS WRITTEN OFF THIS AMOUNT AS IRRECOVERABLE, THE SAME HAS TO BE ALLOWED AS BAD DEBT UNDER SECTION 36(1)(VII) R/W SECTION 36(2) AS ALL THE CONDITIONS LAID DOWN THEREI N STANDS FULFILLED. THE REASONING GIVEN IN PARA 42 ABOVE ALSO APPLIES HERE ALSO. ACCORDINGLY, THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 2,19,33,956 / - STANDS DELETED. REGARDING BALANCE AMOUNT OF RS.32 LAKHS WRITTEN OFF AGAINST THE PRINCIPAL AMOUNT WHETHE R CAN BE ALLOWED AS BUSINESS LOSS OR NOT . IN THE FOREGOING PARAS, WE HAVE ALREADY HELD THAT INVESTMENT IN ICDS WERE PART OF THE BUSINESS ACTIVITIES AS THE INTEREST ACCRUED THEREFROM HAS BEEN TREATED AS BUSINESS INCOME . T HE LOSS ARISING ON SUCH INVESTMENT I S THUS CONSEQUENTLY ALLOW ABLE AS BUSINESS LOSS AND THEREFORE, THE SUM OF RS.32 LAKHS IS ALLOW ED AS BUSINESS LOSS. THE GROUND RAISED BY THE ASSESSEE IS THUS ALLOWED. 5 4 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.6677/MUM./2010, FOR ASSESSMENT YEAR 2002 03 . 5. I N GROUND NO.1, THE REVENUE HAS CHALLENGED THE DELETION OF INTEREST EXPENDITURE FOR SUM OF RS. 1,55,99,183, RELATING TO BORROWED FUNDS UTILISED FOR THE PURCHASE OF CAPITAL ASSET. JINDAL IRON & STEEL COMPANY LTD. 24 56. DURING THE YEAR, THE ASSESSEE HAS CAPITALISED INTEREST EXPENDITURE OF RS. 1,55,99,183 IN THE BOOKS OF ACCOUNT HOWEVER CLAIMED THE SAME AS DEDUCTION WHILE COMPUTING ITS TAXABLE INCOME. 57. BEFORE THE ASSESSING OFFICER, IT WAS CLAIMED THAT IT HAD BORROWED THE CAPITAL FOR THE PURPOSE OF BUSINESS AND, THEREFORE, IT IS ENTITLED FOR DEDUCTION ON ACCOUNT OF INTEREST PAYMENT EVEN IF THE BORROWED FUNDS WERE UTILISED FOR ACQUIRING CAPITAL ASSETS. THE ASSESSING OFFICER REJECTED THE SAID CONTENTIONS AFTER RELYING ON THE PROVISO TO SECTION 36(1 )(III) AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. CHELLAPALLI SUGAR, 98 ITR 197 (SC) . 58. BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT IT HAD CAPITALISED INTEREST EXPENDITURE IN ITS BOOKS OF ACCOUNT TO COMPLY WITH THE REQUIREMENT OF THE AS - 16, ISSUED BY THE I CAI. HOWEVER, THE ACCOUNTING ENTRIES MADE IN THE BOOKS OF ACCOUNT ARE NOT CONCLUSI VE FOR THE TREATMENT OF TAX. IT WAS FURTHER SUBMITTED THAT PROVISIONS OF PROVISO TO SECTION 36(1)(III) WILL NOT BE APPLICABLE AS THE SAID PROVISO CAME INTO FORCE W.E.F. A.Y. 2004 05. FINALLY, RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CORE HEALTH CARE, 298 ITR 194 (SC) . THE LEARNED COMMISSIONER (APPEALS) ACCEPTED THE ASSESSEES CONTENTIONS AND ALLOWED THE ASSESSEES GROUND AFTER OBSERVING AND H OLD AS UNDER: 2.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. AS PER PROVISIONS OF SEC.36(1)(III) OF THE INCOME TAX ACT, ANY INTEREST PAID ON BORROWED CAPITAL IS TO BE ALLOWED AS DEDUCTION IF THE BORROWED CAPITAL IS USED FOR THE PURPOSE OF BUSINE SS. ACCORDING TO THE ASSESSING OFFICER, IF THE BORROWED CAPITAL IS USED FOR THE PURPOSE OF ACQUIRING CAPITAL ASSETS, THEN INTEREST UPTO THE DATE, ON WHICH THE ASSET ACQUIRED IS PUT TO USE, IS TO BE CAPITALIZED. THIS ISSUE HAS COME BEFORE THE SUPREME COURT IN THE CASE OF M/S CORE HEALTH CARE LIMITED 298 ITR 104 WHEREIN HONBLE SUPREME COURT HELD THAT PROVISO INSERTED IN SECTION 36(1)(III) , WHICH CONTAINS PROVISIONS FOR CAPITALIZATION OF SUCH INTEREST, WILL APPLY WITH EFFECT FROM A.Y . 2005 - 06. IT WAS FURTHER HELD THAT THIS PROVISO IS PROSPECTIVE IN NATURE AND WILL NOT APPLY TO EARLIER ASSESSMENT PROCEEDINGS. ACCORDINGLY, IT WAS HELD BY SUPREME COURT THAT IF INTEREST IS PAID ON BORROWED C APITAL, WHICH IS BORROWED FOR THE PURPOSE OF BUSINESS, THEN INTEREST, PAID IS TO BE ALLOWED AS DEDUCTION EVEN IF THE BORROWED CAPITAL IS USED FOR ACQUIRING ASSETS FOR THE PURPOSE OF JINDAL IRON & STEEL COMPANY LTD. 25 BUSINESS OF THE APPELLANT. IT WAS FURTHER CLARIFIED BY THE HON BLE SUPREME COURT THAT EXPLANATION 8 WILL APPLY ONLY TO THOSE CASES WHICH DEALS WITH CONCEPTS LIKE ALLOWING DEPRECIATION AND WILL NOT APPLY TO THE PROVISIONS OF SEC. 36(1)(III) OF THE INCOME TAX ACT. I FURTHER FIND THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF APPELLANT IN ITS OWN CASE FOR THE ASSESSMENT YEAR 1994 - 95, ASSESSMENT YEAR 19 99 - 00 AND IN ASSESSMENT YEAR 2000 - 01. THE APPELLANT HAS BORROWED THE CAPITAL TO INCREASE ITS COLD ROLLING MILL CAPACITY WHICH HAS BEEN INCREASED FROM 2,50,000 TONNES TO 4,00,000 TONES. THUS, THE LOAN TAKEN BY THE APPELLANT IS UTILIZED IN THE EXISTING BUSIN ESS. ALL THE CONDITIONS FOR CLAIMING DEDU C TIONS UNDER SECTION 36(1)(III) ARE MET. ACCORDINGLY, IT IS HELD THAT APPELLANT IS ENTITLED TO DEDUCTION ON ACCOUNT OF INTEREST PAYMENT OF RS. 3,01,82,927/ - EVEN IF THE BORROWED CAPITAL IS USED FOR ACQUIRING NEW ASSE TS. THIS GROUND OF APPEAL IS ALLOWED. 59. LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THIS ISSUE IS NOW COVERED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CORE HEALTH CARE (SUPRA) . 60. LEARNED COUNSEL FOR THE ASSESSEE, ON THE O THER HAND, RELIED ON THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). 61. WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED THE SAID EXPENDITURE ON THE GROUND THAT PROVISO ADDED TO SECTION 36(1)(III) THOUGH BROUGHT IN STATUTE W.E.F. 1 ST APRIL 2004, IS CLARIFICATORY IN NATURE. HOWEVER, THIS ISSUE IS NOW COVERED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF CORE HEALTH CARE (SUPRA) THAT PROVISION FOR CAPITALIZATION OF SUCH INTEREST IS PROSPECTIVE IN NATURE AND WILL APPLY W.E.F. A.Y. 2005 06. THIS DE CISION HAS BEEN FOLLOWED BY THE HON BLE SUPREME COURT IN THE CASE OF ACIT VS. ARVIND POLYCOT LTD., 299 ITR 12(SC) . ACCORDINGLY, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) AS ABOVE. THUS, THE GROUND RA ISED BY THE REVENUE IS DISMISSED. 62. IN GROUND NO.2, THE DEPARTMENT HAS CHALLENGED THE DIRECTION OF THE LEARNED COMMISSIONER (APPEALS) TO THE ASSESSING OFFICER TO ALTER THE OPENING STOCK OF THE ASSESSEE BY CONSIDERING THE UNUTILISED MODVAT CREDIT IN CONT RAVENTION TO RULE 46A. JINDAL IRON & STEEL COMPANY LTD. 26 63 THIS ISSUE HAS ALREADY BEEN DE CIDED IN GROUND NO.2 OF ASSESSEES APPEAL IN ITA NO. 6298 /MUM./2009 , VIDE PARAS 14 AND 15 ABOVE , WHEREIN THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS AND ONE DIRECTION IS THAT THE ASSESSING OFFICER SHOULD GIVE CORRESPONDING CREDIT IN THE OPENING STOCK ALSO IN VIEW OF THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS P. LTD. (SUPRA) . ACCORDINGLY , THERE IS NO MERIT IN THE GROUND RAI SED BY THE DEPARTMENT AND THE SAME IS HEREBY DISMISSED. 64 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 31 ST OCTOBER, 2012 ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER,2012. S SD/ - D / - P.M. JAGTAP ACCOUNTANT MEMBER S SD/ - D / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 31 /10/2012 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE ; (2) / T HE 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) JINDAL IRON & STEEL COMPANY LTD. 27 / ITAT, MUMBAI
