Transpek Industries Limited, Baroda V. The ACIT.,Circle-4, Baroda

ITA 714/AHD/2009

• Counselvise Citation: 71420514 RSA 2009
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 04-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K VOHRA
• Assessee Lawyers: M P SARDA
• Keywords: Business expenditure; Charitable institution; Opportunity of being heard; Earning of tax free income; Additional evidence; Revenue expenditure
• Section: 40A(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND B.P. JAIN, AM. ITA NO.714/AHD/2009 ASST. YEAR:2001-02 M/S TRANSPEK INDUSTRY LTD., 6 TH FLOOR, MARBLE ARCH, RACE COURSE ROAD, BARODA. VS. ASSTT. CIT, CIRCLE-4, BARODA. (APPELLANT) .. (RESPONDENT) ITA NO.715/AHD/2009 ASST. YEAR:2002-03 M/S TRANSPEK INDUSTRY LTD., 6 TH FLOOR, MARBLE ARCH, RACE COURSE ROAD, BARODA. VS. ASSTT. CIT, CIRCLE-4, BARODA. (APPELLANT) .. (RESPONDENT) AND ITA NO.996/AHD/2009 ASST. YEAR:2002-03 ASSTT. C.I.T., CIRCLE-4, BARODA. VS. M/S TRANSPEK INDUSTRY LTD., 6 TH FLOOR, MARBLE ARCH, RACE COURSE ROAD, BARODA. (APPELLANT) .. (RESPONDENT) ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 2 ASSESSEE BY :- SHRI M.P. SARDA, AR REVENUE BY:- SHRI R. K. VOHRA, DR DATE OF HEARING :17/12/2011 DATE OF PRONOUNCEMENT : 30.12.11. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THESE ARE THREE APPEALS- TWO FILED BY THE ASSESSEE AND ONE BY THE REVENUE AGAINST SEPARATE ORDERS OF LD. CIT(A) DATED 16.1.2009 FOR ASST. YEAR 2001-02 AND ASST. YEAR 2002-03. SINCE ALL THES E APPEALS BELONG TO THE SAME ASSESSEE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.714/AHD/2009 ASST. YEAR 2001-02 (ASSESSEES APPEAL): 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL :- (1) THE ORDER PASSED BY THE HONBLE CIT(A) IS BAD IN LA W, CONTRARY TO LEGAL PRONOUNCEMENTS AND SAME BE QUASHED. (2) THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.2,32,645/- AS PER PROVISIONS OF SECTION 40A(3 ) OF THE ACT. YOUR APPELLANT SUBMITS THAT THE HONBLE CIT(A) HAS NOT APPRECIATED THE FACTS OF THE CASE AND HENCE THE DIS ALLOWANCE IS NOT JUSTIFIED. IT BE HELD SO NOW AND ADDITION BE DE LETED. (3) THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF PRIOR PERIOD EXPENSES OF RS.54,27,086/- TREATING AS IF THEY WERE NOT CRYSTALLIZED DURING THE YEAR. YOUR APPELLA NT SUBMITS THAT CIT(A) DID NOT APPRECIATE THE FACTS AS TO WHET HER THE LIABILITY IS ACCRUED DURING THE YEAR OR NOT AND HEN CE DISALLOWANCE MADE BY HIM BE DELETED. IT BE HELD SO NOW. ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 3 (4) THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.2,00,000/- OUT OF DISALLOWANCE OF RS.10,94,88 1/- MADE BY THE AO ON AD HOC BASIS IN CASE OF FOLLOWING EXPENSE S : -WELFARE EXPENSES RS.1001645 -FOREIGN TRAVEL EXPENSES RS. 93,236 ------------------- TOTAL RS.1094881 ------------------- 3. THE FIRST GROUND OF THE APPEAL IS GENERAL IN NAT URE WHICH DOES NOT REQUIRE ANY ADJUDICATION. 4. THE SECOND GROUND RELATES TO CONFIRMATION OF DIS ALLOWANCE OF RS.2,32,645/- AS PER PROVISIONS OF SECTION 40A(3) O F THE ACT. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PR OCEEDINGS THE AO ON VERIFICATION OF THE STATEMENT ATTACHED WITH THE RET URN OBSERVED THAT ASSESSEE HAS NOT ADDED BACK AN AMOUNT OF RS.2,32,64 5/- BEING INADMISSIBLE U/S 40A(3) THOUGH THE TAX AUDITOR AS P ER ANNEXURE-16 OF FORM NO.3CD HAS REPORTED THAT THE SAID AMOUNT WAS I NADMISSIBLE UNDER SECTION 40A(3). THE ASSESSEE WAS SHOW CAUSED AS TO WHY THIS AMOUNT SHOULD NOT BE DISALLOWED AS THE CASH PAYMENT OF RS. 11,63,224/- EXCEEDED THE LIMIT PRESCRIBED AS PER PROVISIONS OF SECTION 4 0A(3). THE ASSESSEE SUBMITTED THAT THE PAYMENT MADE IN CASH WAS TOWARDS ELECTRICITY BILL, TELEPHONE BILL AND OCTROI AND SINCE THE PAYMENT WAS MADE TO THE GOVERNMENT/LOCAL AUTHORITIES THE PROVISIONS OF SECT ION 40A(3) ARE NOT APPLICABLE IN THIS CASE. THE AO WAS, HOWEVER, OF TH E OPINION THAT THE ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 4 EXPENDITURE INCURRED DID NOT FALL WITHIN THE MEANIN G OF EXPENDITURE MENTIONED IN RULE 6DD(B) OF THE ACT. THEREFORE, THE AMOUNT OF RS..2,32,645/- BEING 20% OF CASH PAYMENT MADE OF RS .11,63,224/- WAS DISALLOWED U/S 40A(3) AND ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE. THIS ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT( A) WHEN AN APPEAL WAS FILED BEFORE HIM. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING IT WAS SUBMITTED ON BEHAL F OF THE ASSESSEE THAT THE PROVISIONS OF SECTION 40A(3) WERE INTRODUC ED TO DISCOURAGE CASH EXPENSES WHERE PAYMENTS BY CHEQUE COULD BE MADE. IT IS NOT IN GENUINE CASES WHERE PAYMENT IN CASH CAN BE DISALLOWED BY IN VOKING THE PROVISIONS OF SECTION 40A(3). THE PROVISIONS OF SEC TION 40A(3) WERE NOT INTRODUCED TO CREATE HARDSHIP FOR TAX PAYERS DISALL OWING GENUINE BUSINESS PAYMENT. FURTHER THE OCTROI DEPARTMENT OF BARODA MU NICIPALITY DID NOT ACCEPT THE PAYMENT BY CHEQUE. THUS THE PAYMENT BEIN G MADE IN UNAVOIDABLE CIRCUMSTANCES BE CONSIDERED AS ALLOWABL E BUSINESS EXPENDITURE. IT WAS ALSO REITERATED THAT SINCE PAYM ENTS WERE MADE TO GOVERNMENT OWNED UNDERTAKING/LOCAL AUTHORITIES, THE SE ARE COVERED UNDER THE EXEMPTION CLAUSE OF RULE 6DD(B). THEREFORE, THE ADDITION MADE BY AO AND SUSTAINED BY LD. CIT(A) MAY KINDLY BE DELETE D. ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 5 6. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDE RS OF LOWER AUTHORITIES AND SUBMITTED THAT THE PAYMENT IS NOT C OVERED BY ANY OF THE EXCEPTIONS OR CIRCUMSTANCES IN WHICH PAYMENT EXCEED ING RS.20,000/- WAS PERMITTED OTHERWISE THAN BY ACCOUNT PAYEE CHEQU E. HE, THEREFORE, SUBMITTED THAT THE ORDERS PASSED BY THE LOWER AUTHO RITIES BE UPHELD. 7. HEAD BOTH THE PARTIES, PERUSED THE RECORD AND FI ND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE MADE PAYME NT IN CASH AMOUNTING TO RS.11,63,224/-. THE TAX AUDITOR HAS ALSO FOUND T HAT AN AMOUNT OF RS.2,32,645/- BEING 20% OF THIS AMOUNT WAS INADMISS IBLE UNDER SECTION 40A(3) OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT T HE PAYMENTS WERE NOT MADE TO THE GOVERNMENT WITHIN CLAUSE (B) OF RULE 6D D AND THE CASH PAYMENT EXCEEDING RS.20,000/- HAS BEEN MADE BY THE ASSESSEE WITHOUT ANY EXCEPTIONAL CIRCUMSTANCES AS MENTIONED IN RULE 6DD. HENCE THE PROVISIONS OF SECTION 40A(3) ARE ATTRACTED IN THIS CASE. THEREFORE, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF ASSESSEE IS DISMIS SED. 8. THE THIRD GROUND OF THE APPEAL RELATES TO CONFIR MATION OF DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.54,27,0 76/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED TH AT IN TAX AUDIT REPORT THE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES OF R S.54,27,076/-. WHEN ASKED THE ASSESSEE SUBMITTED THAT THE EXPENSES HAVE BEEN CRYSTALLIZED ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 6 DURING THE YEAR AS THE DEBIT NOTES RAISED BY THE PA RTIES HAVE BEEN RECEIVED AND ACCOUNTED FOR DURING THE YEAR AFTER SETTLEMENT OF AMOUNT. THE AO, HOWEVER, WAS OF THE VIEW THAT THE ASSESSEE HAS NOT FURNISHED FULL DETAILS OF ITS CLAIM FOR THE PRIOR PERIOD EXPENSES OF RS.54 ,27,076/-, AS THE DEBIT NOTES PRODUCED BEFORE HIM COVERED ONLY A PART OF SU CH EXPENDITURE. HE THEREFORE, DISALLOWED THE ENTIRE PRIOR PERIOD EXPEN DITURE OF RS.54,27,076/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THIS ACTION OF THE AO WAS ALSO CONFIRMED BY LD. CIT(A) WHEN THE ASSESSEE WENT IN APPEAL BEFORE HIM. FURTHER AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL BE FORE US. 9. THE ASSESSEE HAS ALSO MADE REQUEST FOR ADMISSION OF FOLLOWING ADDITIONAL EVIDENCES SL.NO./PAGE NOS. AS PER INDEX OF THE PAPER BOOK. PARTICULARS/REMARKS 6/21-25 DETAILS OF PRIOR PERIOD EXPENSES WITH DESCRIPTION/REMARKS. 8/27-56 COPY OF THE AGREEMENT DATED 30.11.2000 BETW EEN THE COMPANY AND M/S TRANSPEK-SILOX INDUSTRY LTD. (TSIL) FOR SALE OF COMPANYS SULPHOXYLATES BUSINESS ON A GOING CONCERN BASIS TO SUBSTANTIATE CLAIM OF EXPENSES REFLECTED AS PRIOR PERIOD EXPENSES. 10/61-62 COPY OF THE DOCUMENT EVIDENCING PAYMENT OF DIFFERENTIAL CUSTOMS DUTY DURING THE YEAR TO SUBSTANTIATE CLAIM OF EXPENSES REFLECTED AS PRIOR PERIOD EXPENSES. 11/63-72 COPIES OF THE RELEVANT DOCUMENTS/CORRESPON DENCES FOR EXPENDITURE WHERE BILL WERE OF CURRENT DATE OR WERE RECEIVED DURING THE YEAR TO SUBSTANTIATE CLAIM OF EXPENSES REFLECTED AS PRIOR PERIOD EXPENSES. ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 7 12/73-77 COPIES OF THE RELEVANT DOCUMENTS/CORRESPON DENCES FOR EXPENDITURE WHERE LIABILITY WAS ACCEPTED BY THE COMPANY DURING THE YEAR TO SUBSTANTIATE CLAIM OF EXPENSES REFLECTED AS PRIOR PERIOD EXPENSES. WHICH AFTER HEARING BOTH THE PARTIES ARE ADMITTED A ND IN VIEW OF THESE ADDITIONAL EVIDENCES, IN THE INTEREST OF NATURAL JU STICE AND FAIR PLAY THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPO SES. 10. THE FOURTH GROUND OF THE APPEAL RELATES TO CONF IRMATION OF DISALLOWANCE OF RS.2,00,000/- OUT OF DISALLOWANCE O F RS.10,94,881/- (WELFARE EXPENSES OF RS.10,01,645/- PLUS FOREIGN TR AVEL EXPENSES OF RS.93,236/-) MADE BY THE AO ON AD HOC BASIS. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS DEBITED RS.1,00,16,458/- TOWARDS WELFARE EXPENSES. IN ABSENCE OF COMPLETE DETAILS INCLUDING MODE OF PAYME NT THE AO DISALLOWED 1/10 OF THESE EXPENSES AMOUNTING TO RS.1 0,01,645/-. THE LD. CIT(A) AFTER TAKING INTO CONSIDERATION THE SUBMISSI ONS OF THE ASSESSEE THAT ASSESSEE BEING AN ARTIFICIAL JUDICIAL PERSONS THERE CANNOT BE A NON- BUSINESS PURPOSE FOR INCURRING THESE EXPENSES, REST RICTED THIS ADDITION TO RS.2,00,000/-. WE ARE NOT INCLINED TO INTERFERE WIT H THIS FINDING OF LD. CT(A) AND THE ORDER PASSED BY HIM IS HEREBY UPHELD. SO THIS GROUND OF ASSESSEE IS ALSO DISMISSED. ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 8 IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.715/AHD/2009 ASST. YEAR 2002-03 (ASSESSEES APPEAL): 11. IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWIN G GROUNDS :- (1) THE ORDER PASSED BY THE HONBLE CIT(A) IS BAD IN LA W, CONTRARY TO LEGAL PRONOUNCEMENTS AND SAME BE QUASHED. (2) THE HONBLECIT(A) HAS ERRED IN CONFIRMING THE DISAL LOWANCE OF RS.1,26,987/- OUT OF EMPLOYEES WELFARE EXPENSES, B EING AMOUNT PAID TO SHROFF FOUNDATION TRUST. YOUR APPELL ANT HAD RIGHTLY CLAIMED THE SAME AS PER PROVISIONS OF SECTI ON 37(1) OF THE ACT. YOUR APPELLANT THEREFORE SUBMITS THAT THE SAME BE ALLOWED IN FULL. (3) THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.3,00,000/- OUT OF DISALLOWANCE OF RS.11,92,33 2/- MADE BY THE AO ON AD HOC BASIS IN CASE OF FOLLOWING EXPENSE S: -FOREIGN TRAVEL EXPENSES RS.5,32,146/- -GENERAL EXPENSES RS.1,13,420/- -EMPLOYEES WELFARE EXPENSES RS.5,46,766/- ---------------------- TOTAL RS.11,92,332/- --------------------- YOUR APPELLANT SUBMITS THAT THE D ISALLOWANCE CONFIRMED BY CIT(A) IS UNJUST AND UNCALLED FOR AND BE DELETED NO W. (4) THE HONBLE CIT(A) HAS ERRED IN NOT ENTERTAINING YO UR APPELLANTS CLAIM TO DIRECT THE AO TO ALLOW THE EXP ENSES DEBITED IN THIS YEAR AS PRIOR PERIOD EXPENSES, PERTAINING T O EARLIER YEARS AND FURTHER, TO ALLOW THE EXPENSES PERTAINING TO TH IS YEAR DEBITED AS PRIOR PERIOD EXPENSES IN SUBSEQUENT YEAR. ITA NO.996/AHD/2009 ASST. YEAR 2002-03 (REVENUES A PPEAL): 12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN SCALING DOWN DISALLOWANCE OF THE FOREIGN T RAVEL EXPENSES FROM RS.5,32,146/- TO RS.2,32,146/- AS THE ASSESSEE ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 9 COULD NOT ESTABLISH THAT THE FOREIGN TRAVEL UNDERTA KEN BY SHRI A. G. SHROFF WAS FOR BUSINESS PURPOSE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTED THE DISALLO WANCE OF RS.1,35,62,834/- BY INVOKING THE PROVISIONS OF SECT ION 14A, OBSERVING THAT SUBSECTION (2) AND (3) OF SECTION 14 A ARE RETROSPECTIVE IN NATURE, WHICH IS INCORRECT AS THES E SECTIONS WERE INSERTED WITH EFFECT FROM 1.4.2007. 13. GROUND NO.1 OF ASSESSEES APPEAL IS GENERAL IN NATURE AND DOES NOT RQUIRE ANY ADJUDICATION. 14. GROUND NO.2 OF ASSESSEES APPEAL RELATES TO CON FIRMATION OF DISALLOWANCE OF RS.1,26,987/- OUT OF EMPLOYEES WEL FARE EXPENSES. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBS ERVED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE AMOUNTING TO RS.1, 26,987/- WHICH WAS PAID TO CHARITABLE TRUST M/S SHROFF FOUNDATION TRUS T AND THE SAME WAS CLAIMED AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THE ASSESSEE WAS ASKED WHY THE SAID AMOUNT SHOULD NOT B E TREATED IN THE NATURE OF DONATION GIVEN FOR CHARITY WORK AND THE S AID PAYMENT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80G. THE AO FU RTHER OBSERVED THAT SIMILAR DISALLOWANCE WAS MADE IN ASST. YEAR 1992-93 AND IN APPEAL THE LD. CIT(A) HAS ALSO TREATED THE SAID EXPENDITURE AS DONATION PAID TO CHARITABLE TRUST. THE AO, THEREFORE, DISALLOWED THE SAID EXPENSES AND ADDED BACK THIS SUM TO THE TOTAL INCOME OF THE ASSE SSEE. IN APPEAL, THIS ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A). ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 10 FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 15. FOLLOWING ADDITIONAL EVIDENCES AS PER PAPER BOO K HAVE BEEN SUBMITTED FOR THIS GROUND AND GROUND RELATING TO DI SALLOWANCES U/S 14A:- SL.NO./PAGE NOS.AS PER INDEX OF THE PAPER BOOK PARTICULARS/REMARKS 4/54-67 DETAILS OF PAYMENTS MADE TO SHROFFS FOUNDAT ION TRUST (COPY OF THE LEDGER ACCOUNT AND COPIES OF INVOICES RECEIVED, ON SAMPLE BASIS) TO SUBSTANTIATE THAT THE PAYMENT WAS MADE FOR SERVICES AVAILED OF THE MEDICAL CENTRE RUN BY THE SAID TRUST AND WAS NOT A DONATION TO THE SAID TRUST . 9/99-117 COPY OF THE LONG TERM CONTRACT BETWEEN THE COMPANY AND M/S TRANSPEK-SILOX INDUSTRY LTD.(TSIL) FOR SALE OF SULPHUR DIOXIDE, OLEUM AND STEAM TO TSIL TO SUBSTANTIATE THAT INVESTMENT IN THE EQUITY SHARES OF TSIL WAS MADE FOR STRATEGIC BUSINESS REASONS. 10/118-124 COPY OF THE RELEVANT EXTRACTS OF THE COM PANYS BALANCE SHEET FOR FINANCIAL YEAR 2000-01 DURING WHICH THE COMPANY HAD SOLD OFF ITS SULPHOXYLATES BUSINESS AS A GOING CONCERN TO TSIL TO SUBSTANTIATE THAT THERE WAS NO CASH OUTGO FOR A MAJOR PORTION OF THE INVESTMENT MADE IN THE EQUITY SHARES OF TSIL. 11/125-131 COPY OF THE RELEVANT EXTRACTS OF THE COM PANYS ANNUAL REPORT FOR FINANCIAL YEAR 1996-97 DURING WHICH SUBSTANTIAL INVESTMENT WAS MADE BY THE COMPANY IN THE EQUITY SHARES OF M/S EXCEL INDUSTRIES LTD. (EIL) TO SUBSTANTIATE THAT THERE WERE SUFFICIENT OWN FUNDS AVAILABLE TO MAKE THE INVESTMENT IN THE EQUITY SHARES OF EIL. 12/132-141 COPY OF THE RELEVANT EXTRACTS OF THE COM PANYS ANNUAL REPORT FOR FINANCIAL YEAR 1992-93 DURING WHICH THE COMPANY MADE FIRST INVESTMENT IN THE EQUITY SHARES OF M/S UNITED PHOSPHORUS LTD. (UPL) TO SUBSTANTIATE THAT THERE WERE SUFFICIENT ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 11 OWN FUNDS AVAILABLE TO MAKE THE INVESTMENT IN THE EQUITY SHARES OF UPL. THE ASSESSEE HAS ALSO MADE REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCES WHICH AFTER HEARING BOTH THE PARTIES ARE ADMITTED A ND IN VIEW OF THESE ADDITIONAL EVIDENCES, IN THE INTEREST OF NATURAL JU STICE AND FAIR PLAY THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPO SES. 16. GROUND NO.3 OF ASSESSEES APPEAL AND GROUND NO .1 OF REVENUES APPEAL ARE INTER-LINKED. SO THEY ARE DISPOSED OF TO GETHER. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS DEBITED RS.54,67,663/- TOWARDS WELFARE EXPENSES. THE AO ASKED THE ASSESSEE FOR THE DETAILS OF THIS EXPENDIT URE. AFTER PERUSING THE DETAILS, HE FOUND THAT THE MAIN EXPENDITURE UNDER T HIS HEAD INCLUDED DRESS/OVER HEALTH-CARE SAFETY, SEMINAR/CONFERENCE, MIL, CANTEEN SUBSIDIES, EMPLOYEES INSURANCE PREMIUM, MEDICAL REIMBURSEMENT, ETC. IN THE ABSENCE OF COMPLETE DETAILS AND IN VIEW OF THE FACT THAT MAJORITY OF THE PAYMENT WAS MADE IN CASH. THE AO WAS OF THE VIEW TH AT THE ENTIRE EXPENDITURE HAS NOT BEEN INCURRED FOR BUSINESS PURP OSES. HE, THEREFORE, DISALLOWED 1/10 TH OF THE WELFARE EXPENSES OF RS.5,46,766/- AND ADDED BACK TO THE INCOME OF THE ASSESSEE. ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 12 THE AO FURTHER NOTED THAT DURING THE YEAR THE ASSE SSEE HAS DEBITED RS.5,32,146/- TOWARDS FOREIGN TRAVEL EXPENSES FOR T HE VISIT OF SHRI A. G. SHROFF AND GENERAL EXPENSES OF RS.11,34,205/-. THE AO DISALLOWED THE ENTIRE FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.5,32 ,146/- ON THE GROUND THAT THE EXPENSES INCURRED FOR THE VISIT OF SHRI A. G. SHROFF WERE FOR NON- BUSINESS PURPOSES OF THE ASSESSEE. 1/10 TH OF GENERAL EXPENSES WAS ALSO DISALLOWED ON THE GROUND THAT MOST OF THE EXPENSES WERE ON CASH BASIS AND SAME WERE NOT FULLY VERIFIABLE. THE LD. CIT(A), HOWEVER, RESTRICTED THIS ADDITION TO RS.3,00,000/- OUT OF TOTAL DISALLO WANCE OF RS.11,92,332/- TAKING INTO CONSIDERATION THAT THE NATURE OF THESE EXPENSES WAS SUCH THAT ELEMENT OF NON-BUSINESS EXPENSES COULD NOT BE RULED OUT. 17. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD . CIT(A) AND THE SAME IS HEREBY UPHELD. THEREFORE, THE GROUND OF ASSESSEE AND THAT OF THE REVENUE BOTH ARE DISMISSED. 18. GROUND NO.4 OF ASSESSEES APPEAL RELATES TO DIS ALLOWANCE OF PRIOR PERIOD EXPENSES. THE AO, DURING THE COURSE OF ASSES SMENT PROCEEDINGS OBSERVED THAT IN TAX AUDIT REPORT THE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES OF RS.8,59,327/-. THE ASSESSEE STATED THAT THE EXPENSES HAVE BEEN CRYSTALLIZED DURING THE YEAR. IN ABSENCE OF DE TAILS THE AO DISALLOWED THE ENTIRE PRIOR PERIOD EXPENSES OF RS.8,59,327/- A ND ADDED TO THE TOTAL ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 13 INCOME OF THE ASSESSEE. THIS ACTION OF THE AO WAS C ONFIRMED BY LD. CIT(A) IN APPEAL. 19. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FEEL THAT THE ASSESSEE BE GIVEN ONE MORE OPPORTUNITY TO SUBST ANTIATE HIS CLAIM THAT LIABILITY HAS CRYSTALLIZED DURING THE YEAR UNDER AP PEAL AND, THEREFORE, THE MATTER IS RESTORED BACK TO THE FILE OF AO WITH THE DIRECTION TO DECIDE THE SAME AFTER PROVIDING REASONABLE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSES. 20. DURING THE APPELLATE PROCEEDINGS BEFORE US THE ASSESSEE HAS RAISED FOLLOWING ADDITIONAL GROUND :- THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE PROVI SIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME- TAX RULES, 1962 ARE APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WHICH BEING A LEGAL GROUND WAS ADMITTED AFTER HEARI NG BOTH THE PARTIES.. 20.1 THE FOLLOWING 2ND GROUND OF REVENUES APPEAL I S CO-RELATED TO ASSESSEES ABOVE ADDITIONAL GROUND. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTE THE DISALLOW ANCE OF RS.1,35,62,834/- BY INVOKING THE PROVISIONS OF SECT ION 14A, OBSERVING THAT SUBSECTION (2) AND (3) OF SECTION 14 A ARE RETROSPECTIVE IN NATURE, WHICH IS INCORRECT AS THES E SECTIONS WERE INSERTED WITH EFFECT FROM 1.4.2007. 21. BRIEF FACTS RELATING TO THESE GROUNDS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ASSESSE E HAS RECEIVED ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 14 DIVIDEND/UTI INCOME OF RS.8,20,092/- AND HAS CLAIME D IT AS EXEMPT U/S 10(33). THE ASSESSEE COMPANY CLAIMED THIS INCOME AS EXEMPT ON GROSS BASIS WITHOUT ALLOCATING ANY EXPENSES AGAINST THIS INCOME. THE AO FURTHER FOUND THAT ASSESSEE HAS INVESTED AN AMOUNT OF RS.20,27,48,229/- IN SHARES, GOVT. SECURITIES, UTI, ETC., WHICH ARE D IVIDEND BEARING INVESTMENTS. THE ASSESSEE WAS ASKED TO FURNISH DETA ILS IN RESPECT OF EXPENSES INCURRED FOR EARNING ALL THE SAID EXEMPTED INCOME IN VIEW OF THE PROVISIONS OF SECTION 14A. IT WAS SUBMITTED BY THE ASSESSEE THAT IT DID NOT INCUR ANY DIRECT EXPENSES TO EARN DIVIDEND. AS THE ASSESSEE FAILED TO PROVE THAT THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO EARN EXEMPT INCOME OUT OF INVESTMENT IN SHARES, THE AO DISALLOWED INTE REST ON AVERAGE RATE OF BORROWINGS, WHICH CAME TO RS.1,35,62,834/- U/S 14A OF THE ACT. WHEN THE ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A), HE D IRECTED THE AO TO RECOMPUTE THE DISALLOWANCE IN TERMS OF SECTION 14A READ WITH RULE 8D. THIS DIRECTION OF LD. CIT(A) HAS BEEN CHALLENGED BY BOTH THE PARTIES BEFORE US. SINCE THE LEGAL POSITION IS NOW CLEAR TH AT RULE 8D OF INCOME- TAX RULES IS APPLICABLE W.E.F. ASST. YEAR 2008-09, THE LD. CIT(A)S ORDER IS NOT SUSTAINABLE IN LAW AS THE ASST. YEAR UNDER A PPEAL IN THIS CASE IS 2002-03. WE FURTHER FIND THAT ASSESSEE HAS FILED AD DITIONAL EVIDENCES WITH REFERENCE TO THIS GROUND WHICH WE HAVE ALREADY ADMI TTED VIDE PARA 15 OF THIS ORDER. IN VIEW OF THIS ADDITIONAL GROUND OF AS SESSEE AND THAT OF THE REVENUE BOTH ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.714, 715 & 996/AHD/2009 ASST. YEARS 2001-02 & 2002-03 15 22. IN THE RESULT, THE APPEALS OF ASSESSEE AND THE APPEAL OF REVENUE ALL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 30.12.11. SD/- SD/- (B.P. JAIN) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 17 /12/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 29/12/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..