, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , !, # !$ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.718/MDS/2011 ' (' / ASSESSMENT YEAR : 2000-01 M/S STERLITE INDUSTRIES (INDIA) LTD. NO.1, SAI FLATS, NO.55, PILLAIYAR KOIL STREET, KANAGAM, THARAMANI, CHENNAI - 600 113. PAN : AABCS 4955 Q V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) ./ ITA NO.1008/MDS/2011 ' (' / ASSESSMENT YEAR : 2000-01 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI - 600 034. V. M/S STERLITE INDUSTRIES (INDIA) LTD. NO.1, SAI FLATS, NO.55, PILLAIYAR KOIL STREET, KANAGAM, THARAMANI, CHENNAI - 600 113. (*+/ APPELLANT) (,-*+/ RESPONDENT) './ 0 1 /ASSESSEE BY : DR. ANITA SUMANTH, ADVOCATE 0 1 /REVENUE BY :SH. M. SWAMINATHAN, SR. STANDING CO UNSEL 2 0 /# / DATE OF HEARING : 22.08.2016 34( 0 /# / DATE OF PRONOUNCEMENT : 23.09.2016 2 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE SAME ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS)V, CHENNAI, DATED 01.02.2011 AND PERTAIN TO ASSESSMENT YEAR 2000-01. THEREFORE, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. LETS FIRST TAKE ASSESSEES APPEAL IN I.T.A. NO.7 18/MDS/2011. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DEDU CTION CLAIMED BY THE ASSESSEE UNDER SECTION 80-IA OF THE INCOME-T AX ACT, 1961 (IN SHORT 'THE ACT') IN RESPECT OF INTEREST, MANAGE MENT FEES AND CORPORATE GUARANTEE COMMISSION. 3. DR. ANITA SUMANTH, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80-IA OF THE ACT IN RESPECT OF INTEREST INCOME RECEIVED F ROM DEPOSITS, MANAGEMENT FEES AND CORPORATE GUARANTEE COMMISSION. ACCORDING TO THE LD. COUNSEL, THESE RECEIPTS WERE INEXTRICABL Y LINKED TO THE BUSINESS OF THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80-IA OF THE ACT 3 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 WHILE COMPUTING TAXABLE INCOME. REFERRING TO THE J UDGMENT OF APEX COURT IN ACG ASSOCIATED CAPSULES PVT. LTD. (2012) 3 43 ITR 89, THE LD.COUNSEL SUBMITTED THAT AT THE BEST, ONLY THE NET PROFIT SHALL BE TAKEN INTO CONSIDERATION. THE LD.COUNSEL SUBMITTED THAT NETTING OF THE EXPENDITURE / INTEREST HAS TO BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME. 4. ON THE CONTRARY, SHRI M. SWAMINATHAN, THE LD. SR . STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT INTEREST IN COME, MANAGEMENT FEES AND CORPORATE GUARANTEE COMMISSION ARE NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING, THEREFORE, THE SAME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE A CT. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD. SR. STANDING COUNSEL SUBMITTED THAT THE ASSESSEE HAS RECEIVED INTEREST I NCOME TO THE EXTENT OF ` 5,14,989/-, MANAGEMENT FEES TO THE EXTENT OF ` 3,54,36,933/- AND CORPORATE GUARANTEE COMMISSION TO THE EXTENT OF ` 1,64,90,412/. THE ASSESSING OFFICER AND THE CIT(AP PEALS) FOUND THAT THEY ARE NOT DERIVED FROM THE ELIGIBLE BUSINES S OF THE ASSESSEE. THEREFORE, BY PLACING RELIANCE ON THE JUDGMENT OF A PEX COURT IN STERLING FOODS (237 ITR 579) FOUND THAT THE INCOME TO THE EXTENT OF ` 5,24,43,323/- RECEIVED AS INTEREST INCOME, MANAGEME NT FEES AND 4 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 CORPORATE GUARANTEE COMMISSION, ETC. WOULD NOT FORM PART OF ELIGIBLE BUSINESS, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE F OR DEDUCTION UNDER SECTION 80-IA OF THE ACT. 5. THE LD. SR. STANDING COUNSEL FOR THE REVENUE HAS ALSO SUBMITTED THAT THE CIT(APPEALS) HAS PLACED HIS RELI ANCE ON THE JUDGMENTS OF APEX COURT IN PANDIAN CHEMICALS V. CIT (262 ITR 278) AND IN LIBERTY INDIA V. CIT (317 ITR 218). IN VIEW OF THESE JUDGMENTS OF APEX COURT, ACCORDING TO THE LD. SR. S TANDING COUNSEL, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE ACT OF THE AMOUNT RECEIVED FROM INTERE ST INCOME, MANAGEMENT FEES AND CORPORATE GUARANTEE COMMISSION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 80 -IA OF THE ACT. SECTION 80-IA OF THE ACT CLEARLY SAYS THAT WHERE TH E GROSS TOTAL INCOME OF THE ASSESSEE INCLUDES PROFITS AND GAINS D ERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFE RRED TO IN SUB- SECTION (4) OF SECTION 80-IA OF THE ACT. SECTION 8 0-IA(4) OF THE ACT CLEARLY SAYS THAT THE PROVISIONS OF SECTION 80-IA O F THE ACT IS APPLICABLE TO AN ENTERPRISE ON THE BUSINESS OF DEVE LOPING, OPERATING 5 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 AND MAINTENANCE OR DEVELOPING, OPERATING AND MAINTA INING OF ANY INFRASTRUCTURE FACILITY WHICH FULFILLS THE CONDITIO NS LAID DOWN THEREIN. THEREFORE, IT IS OBVIOUS THAT THE INCOME SHALL BE D ERIVED FROM THE BUSINESS OF DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING OR OPERATING AND MAINTAINING ANY INFRASTRUCTURE FAC ILITY. IN THE CASE OF PRESENT ASSESSEE, IT IS NOT THE CASE OF THE ASSE SSEE THAT INTEREST INCOME, MANAGEMENT FEES AND CORPORATE GUARANTEE COM MISSION WERE DERIVED DIRECTLY FROM THE BUSINESS OF DEVELOPI NG OR OPERATING AND MAINTAINING OR DEVELOPING OR OPERATING AND MAIN TAINING OF INFRASTRUCTURE FACILITY. THE ONLY CONTENTION OF TH E ASSESSEE BEFORE THIS TRIBUNAL IS THAT INTEREST, MANAGEMENT FEES AND CORPORATE GUARANTEE COMMISSION ARE INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE. MERELY BECAUSE THERE WAS A NEXUS BETWEEN THE BUSINESS AND THE RECEIPT OF INCOME, WE CANNOT SAY T HAT THE INCOME WAS DIRECTLY DERIVED FROM THE BUSINESS UNDERTAKING. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT FOR CLAIMING DEDUCTI ON UNDER SECTION 80-IA(4) OF THE ACT, THE INCOME SHALL HAVE TO BE DE RIVED FROM BUSINESS OF DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING OR OPERATING AND MAINTAINING OF INFRASTRUCTURE FACI LITY. THEREFORE, INTEREST INCOME RECEIVED FROM DEPOSITS, MANAGEMENT FEES AND CORPORATE GUARANTEE COMMISSION ARE NOT ELIGIBLE FOR DEDUCTION 6 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 UNDER SECTION 80-IA OF THE ACT. IN FACT, THE CIT(A PPEALS) HAS RIGHTLY PLACED HIS RELIANCE ON THE JUDGMENT OF APEX COURT I N STERLING FOODS (SUPRA), PANDIAN CHEMICALS (SUPRA) AND LIBERTY INDI A (SUPRA). 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF A PEX COURT IN ACG ASSOCIATED CAPSULES PVT. LTD. (SUPRA). IN T HE CASE BEFORE THE APEX COURT, THE ISSUE WAS DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. AFTER REFERRING T O EXPLANATION (BAA) TO SECTION 80 HHC OF THE ACT, THE APEX COURT FOUND THAT 90% OF NET INTEREST OR NET RENT, WHICH WAS INCLUDED IN THE PROFIT OF THE BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN THE CASE BEFORE US, I T IS THE DEDUCTION UNDER SECTION 80-IA OF THE ACT. THERE IS NO PROVIS ION LIKE EXPLANATION (BAA) TO SECTION 80HHC IN 80-IA OF THE ACT FOR INCLUDING ALL THE MISCELLANEOUS INCOME FOR THE PURPOSE OF COM PUTING DEDUCTION UNDER SECTION 80-IA OF THE ACT. IN THE A BSENCE OF SPECIFIC PROVISION LIKE EXPLANATION (BAA) TO SECTION 80HHC O F THE ACT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ENTI RE MISCELLANEOUS INCOME HAS TO BE EXCLUDED SINCE THEY ARE NOT DERIVE D FROM INDUSTRIAL UNDERTAKING. THEREFORE, THE QUESTION OF NETTING WO ULD NOT ARISE FOR 7 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 CONSIDERATION. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGMENT OF APEX COURT IN ACG ASSOCIATED CAPSULES P VT. LTD. (SUPRA) WOULD NOT BE APPLICABLE TO THE FACTS OF THE CASE. IN VIEW OF THE ABOVE DISCUSSION, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 8. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF DEDUCTION UNDER SECTION 80-IA OF THE ACT IN THE COM PUTATION OF BOOK PROFIT UNDER SECTION 115JA OF THE ACT. 9. DR. ANITA SUMANTH, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE BY PLACING RELIANCE ON SUB-SECTION (4) OF SECTION 80-IB OF THE ACT. REFERRING TO SUB-SECTION (4) OF SECTION 8 0-IB OF THE ACT, DR. ANITA SUMANTH SUBMITTED THAT THE DEDUCTION UNDER SE CTION 80-IB OF THE ACT SHALL BE 100% OF PROFITS AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMENT YEARS. THE DEDUCTI ON OF PROFIT FROM BOOK PROFIT WOULD BE APPLICABLE AS A STATUTORY DEDU CTION. MERELY BECAUSE THERE WAS RESTRICTION OF THE PROFIT AT THE RATE OF 30% IN THE NORMAL COMPUTATION THAT CANNOT BE A REASON TO DISAL LOW THE CLAIM OF 8 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 THE ASSESSEE. THEREFORE, THE STATUTORY RESTRICTION OF THE CLAIM TO 30% CANNOT BE A REASON FOR DISALLOWING THE CLAIM OF THE ASSESSEE. 10. ON THE CONTRARY, SHRI M. SWAMINATHAN, THE LD. S R. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT THE ASSESSE E CLAIMED DEDUCTION AT THE RATE OF 100% OF THE PROFIT IN THE CASE OF CCR SILVASSA AND ACSR RAKHOLI. HOWEVER, IN RESPECT OF JFTC SILVASSA OF THE RESERVES, THE ASSESSEE CLAIMED DEDUCTION ONL Y AT THE RATE OF 30%. THE ASSESSING OFFICER AFTER EXAMINING THE CAS E UNDER SECTION 115JA(V) OF THE ACT, FOUND THAT BEFORE THE INTRODUCTION OF 80- IB(4) AND 80-IB(5) BY FINANCE ACT 1999, THERE WAS A REFERENCE ABOUT 115JB IN SECTION 80-IA(2) WITH SUB-CLAUSE (IV ). THE CHANGE WAS EFFECTED IN SECTION 115-JA CONSEQUENT TO SPLITT ING OF SECTION 80-IA INTO SECTION 80-IA AND 80-IB BY FINANCE ACT 1 999 WITH EFFECT FROM 01.04.2000. THEREFORE, THE ASSESSEE IS ELIGIB LE FOR DEDUCTION UNDER SECTION 80-IA OR SUBSEQUENTLY UNDER SECTION 8 0-IB AFTER AMENDMENT TO THE EXTENT OF 100% FOR THE FIRST FIVE YEARS AND 30% FOR NEXT FIVE YEARS AND THE DEDUCTION OF PROFIT FRO M THE BOOK PROFIT WOULD BE APPLICABLE DURING THE PERIOD IN WHICH THE ASSESSEE IS ELIGIBLE FOR 100%. IN THE ABSENCE OF ANY EXPRESS P ROVISION FOR ALLOWING THE DEDUCTION WHEN THE ASSESSEE ITSELF CLA IMS AT THE RATE OF 9 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 30% AT THE NORMAL COMPUTATION, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SUB-SECTION (4) OF SECTION 80-IB OF THE ACT CLEARLY SAYS THAT IN CA SE OF INDUSTRIAL UNDERTAKING IN THE INDUSTRIALLY BACKWARD STATE, SPE CIFIED IN 8 TH SCHEDULE SHALL BE 100% OF THE PROFITS AND GAINS DER IVED FROM THE INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMENT YEARS BE GINNING WITH INITIAL ASSESSMENT YEAR AND THEREAFTER 30% OF THE P ROFITS AND GAINS DERIVED SUCH INDUSTRIAL UNDERTAKING ELIGIBLE FOR DE DUCTION. 12. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS O F SECTION 115JA OF THE ACT. EXPLANATION (V) TO SECTION 115JA OF THE ACT CLEARLY SAYS THAT THE PROFIT DERIVED FROM THE INDUS TRIAL UNDERTAKING LOCATED IN INDUSTRIALLY BACKWARD AREA AS REFERRED T O IN SUB-SECTION (4) AND SUB-SECTION (5) OF SECTION 80-IB OF THE ACT IS ELIGIBLE FOR DEDUCTION OF 100% OF THE PROFITS AND GAINS UNDER SU B-SECTION (4) AND SUB-SECTION (5) OF SECTION 80-IB OF THE ACT. T HIS SUB-SECTION, AS RIGHTLY POINTED OUT BY THE LD.COUNSEL FOR THE ASSES SEE, DOES NOT RESTRICT THE DEDUCTION ALLOWED UNDER SECTION 80-IA OR UNDER SECTION 10 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 80-IB OF THE ACT, AS THE CASE MAY BE. THIS SECTION MERELY SAYS THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION AT 100% OF HE PROFITS AND GAINS FOR THE FIRST FIVE ASSESSMENT YEARS. FOR THE FIRST FIVE ASSESSMENT YEARS, THE ASSESSEE IS ELIGIBLE FOR 100% OF THE PROFITS AND GAINS AND IN THE NEXT YEAR, IN THE CASE OF COMP ANY, THE ASSESSEE IS ELIGIBLE FOR 30% OF THE PROFITS. THERE FORE, THE 30% OF THE PROFITS AND GAINS ALLOWED UNDER SECTION 80-IA O F THE ACT HAS TO BE REDUCED FROM THE BOOK PROFIT COMPUTED FOR THE PU RPOSE OF SECTION 115JA OF THE ACT. THEREFORE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORD INGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSE SSING OFFICER IS DIRECTED TO REDUCE 30% OF THE PROFITS AND GAINS, WH ICH WAS COMPUTED UNDER SECTION 80-IB(4) OF THE ACT, FROM TH E BOOK PROFIT FOR THE PURPOSE OF COMPUTING TAXABLE INCOME UNDER SECTI ON 115JA OF THE ACT. 13. NOW COMING TO THE REVENUES APPEAL, THE FIRST G ROUND IS WITH REGARD TO ADDITION OF ` 61 CRORES FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JA OF THE ACT. 14. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL, SUBMITTED THAT THIS ISSUE WAS CONSIDERED BY THIS TR IBUNAL IN THE 11 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1998-99 AN D 1999-2000 AND THIS TRIBUNAL FOUND THAT THE ASSESSEE ESTIMATED THE PROFIT AT ` 233.26 CRORES FOR THE PURPOSE OF COMPUTING PROFIT U NDER SECTION 155JA OF THE ACT AND ADDITION WAS ALSO MADE TO THE EXTENT OF ` 61 CRORES IN THE NORMAL COMPUTATION. THE LD. SR. STAN DING COUNSEL SUBMITTED THAT BY REFERRING TO THE METHOD OF ACCOUN TING FOLLOWED BY THE ASSESSEE AND THE JUDGMENT OF APEX COURT IN APOL LO TYRES (255 ITR 273), THIS TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH IS REPORTED IN 6 SOT 497. THEREFORE, ACCORDI NG TO LD. SR. STANDING COUNSEL, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY EARLIER ORDER OF THIS TRIBUNAL. 15. WE HAVE HEARD DR. ANITA SUMANTH, THE LD.COUNSEL FOR THE ASSESSEE ALSO. THE LD.COUNSEL SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000. 16. WE HAVE CONSIDERED THE SUBMISSIONS ON EITHER SI DE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. SR. STANDING COUNSEL FOR THE R EVENUE AND THE LD.COUNSEL FOR THE ASSESSEE, THE VERY SAME ISSUE WA S CONSIDERED BY THIS TRIBUNAL FOR THE ASSESSMENT YEARS 1998-99 A ND 1999-2000 12 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 AND THIS TRIBUNAL DELETED THE SIMILAR ADDITION MADE BY THE ASSESSING OFFICER. BOTH, THE LD. SR. STANDING COUNSEL FOR TH E REVENUE AND THE LD.COUNSEL FOR THE ASSESSEE VERY FAIRLY BROUGHT TO THE NOTICE OF THE TRIBUNAL THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBU NAL. IN VIEW OF THIS ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 199 8-99 AND 1999- 2000, THE ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 61 CRORES IS NOT JUSTIFIED. ACCORDINGLY, THE CIT(A PPEALS) HAS RIGHTLY DELETED THE ADDITION. THIS TRIBUNAL DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 17. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DEP RECIATION CLAIMED BY THE ASSESSEE ON THE PURCHASE OF STEEL. 18. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL FOR THE REVENUE, SUBMITTED THAT THE ASSESSEE CLAIMED DEPREC IATION ON BOGUS PURCHASE OF STEEL. THE ASSESSEE COULD NOT PR ODUCE PURCHASE BILLS BEFORE THE ASSESSING OFFICER OR THE CIT(APPEALS). THE CIT(APPEALS) BY PLACING RELIANCE ON THE ORDER O F THIS TRIBUNAL FOR THE BLOCK PERIOD, PRESUMED THAT THE ASSESSEE HA S PURCHASED THE STEEL WHICH WAS USED FOR FABRICATION OF PLANT. THE LD. SR. STANDING 13 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 COUNSEL FURTHER SUBMITTED THAT BLOCK ASSESSMENT PRO CEEDING WAS SET ASIDE BY THIS TRIBUNAL ON THE GROUND THAT THERE WAS NO SEARCH MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATIO N AND THE ORDER IS BARRED BY LIMITATION. THIS TRIBUNAL HAD NO OCCA SION TO DISCUSS THE MATTER ON MERIT. WHEN THIS TRIBUNAL HAS NOT DISCUS SED THE MATTER ON MERIT AND NO EVIDENCE LIKE BILLS FOR PURCHASE OF STEEL WAS PRODUCED, ACCORDING TO THE LD. SR. STANDING COUNSEL , THE MATTER NEEDS TO BE VERIFIED BY THE ASSESSING OFFICER. THE REFORE, THE LD. SR. STANDING COUNSEL SUBMITTED THAT THE MATTER MAY BE R EMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATI ON. 19. ON THE CONTRARY, DR. ANITA SUMANTH, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT THE CIT(APPEALS) CONSIDERE D THE ISSUE ELABORATELY IN THE BLOCK ASSESSMENT PROCEEDING AND FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION. THE LD.COUN SEL FURTHER SUBMITTED THAT THIS ORDER OF THE CIT(APPEALS) WAS C ONSIDERED BY THIS TRIBUNAL AND THE APPEAL OF THE ASSESSEE WAS ALLOWED ON THE GROUND THAT THERE WAS NO SEARCH MATERIAL AND THE ORDER OF THE ASSESSING OFFICER WAS BARRED BY LIMITATION. ACCORDING TO THE LD. COUNSEL, EVEN THOUGH THIS TRIBUNAL HAD NOT CONSIDERED THIS ISSUE ON MERIT AND THE FINDING RECORDED BY THE CIT(APPEALS) WITH REGARD TO PURCHASE OF 14 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 STEEL, THE FINDING RECORDED IN BLOCK ASSESSMENT BY THE CIT(APPEALS) CANNOT BE IGNORED BY THE TRIBUNAL SINCE THE COMMISS IONER IS HAVING COTERMINOUS POWER AS THAT OF THE CIT(APPEALS), WHO PASSED THE IMPUGNED ORDER NOW UNDER CHALLENGE BEFORE THIS TRIB UNAL. IN THE BLOCK ASSESSMENT, THE CIT(APPEALS) HAS EXAMINED THE ISSUE AND FOUND THAT THE ASSESSEE HAS PURCHASED THE STEEL WHI CH WAS USED IN FABRICATION OF PLANT. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE BEFORE THIS TRIBUNAL IS WITH REGARD TO DEPRECIATION ON THE SO-CALLED PURCHASE OF STEEL. THE REVENUE CLAIMS THAT THE ASS ESSEE HAS NOT PRODUCED BILLS AND VOUCHERS FOR PURCHASE OF STEEL, AND THE CLAIM IS BOGUS. FROM THE MATERIAL AVAILABLE ON RECORD, IT A PPEARS THAT THE ASSESSEE PURCHASED STEEL TO THE EXTENT OF ` 267,66,84,018/-. THE ASSESSING OFFICER FOUND THAT THE COPIES OF BILLS TO SUPPORT THE PURCHASE ARE NOT PRODUCED. THE CIT(APPEALS), BY RE FERRING TO THE ORDER OF BLOCK ASSESSMENT, FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION. 15 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 21. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THI S TRIBUNAL FOR BLOCK PERIOD. THE BLOCK ASSESSMENT WAS MADE UNDER OLD SCHEME, I.E. UNDER SECTION 158BC OF THE INCOME-TAX ACT. UN DER THE OLD SCHEME OF BLOCK ASSESSMENT, THE ASSESSING OFFICER W AS EXPECTED TO CONFINE HIMSELF TO THE MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION. THEREFORE, THIS TRIBUNAL FOUND THAT IN THE ABSENCE OF SEARCH MATERIAL, THERE CANNOT BE A BLOCK ASSESSMENT UNDER SECTION 158BC OF THE ACT. THE TRIBUNAL FURTHER FOUND THAT THE ORDER OF THE ASSESSING OFFICER WAS ALSO BARRED BY LIMITATION. T HE ASSESSMENT NOW UNDER CONSIDERATION BEFORE THIS TRIBUNAL IS A R EGULAR ASSESSMENT UNDER SECTION 143(3) OF THE ACT. UNDER THE OLD SCHEME OF BLOCK ASSESSMENT, THE ASSESSING OFFICER WAS EMPO WERED TO FRAME ASSESSMENT IN RESPECT OF UNDISCLOSED INCOME U NDER SECTION 158BC OF THE ACT ON THE BASIS OF THE MATERIAL FOUND DURING SEARCH OPERATION AND ALSO REGULAR ASSESSMENT IN RESPECT OF INCOME DISCLOSED IN REGULAR COURSE UNDER SECTION 143(3) OF THE ACT. NOW, ADMITTEDLY, NO ASSESSMENT IS IN EXISTENCE IN RESPEC T OF UNDISCLOSED INCOME FOR WANT OF SEARCH MATERIAL AND THE ORDER OF ASSESSING OFFICER ITSELF WAS BARRED BY LIMITATION. THEREFORE , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT PLACING RELIANCE ON THE ORDER OF THE 16 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 CIT(APPEALS) FOR THE BLOCK PERIOD, WHICH WAS ADMITT EDLY SET ASIDE BY THIS TRIBUNAL, IS NOT JUSTIFIED. 22. THE CIT(APPEALS) IS EXPECTED TO EXAMINE THE GEN UINENESS OF PURCHASE OF STEEL INDEPENDENTLY ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD AND THEREAFTER RECORD HIS OWN F INDING WITH REGARD TO ACQUISITION AND EXISTENCE OF THE CAPITAL ASSET. UNFORTUNATELY, THE CIT(APPEALS) HAS NOT TAKEN ANY PAIN TO ASCERTAIN TH E GENUINENESS OF PURCHASE OF STEEL AND THE ACQUISITION / EXISTENC E OF THE CAPITAL ASSET. THEREFORE, AS RIGHTLY SUBMITTED BY THE LD. SR. STANDING COUNSEL FOR THE REVENUE, THE MATTER NEEDS TO BE RE- EXAMINED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE WITH REGARD TO DEPRECIATION IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-E XAMINE THE MATTER AFRESH ON THE BASIS OF BILLS AND VOUCHERS TH AT MAY BE PRODUCED BY THE ASSESSEE FOR PURCHASING THE STEEL A ND THEREAFTER DECIDE THE ISSUE AFRESH, IN ACCORDANCE WITH LAW, AF TER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 23. THE REVENUE HAS ALSO RAISED A GROUND REGARDING DEPRECIATION ON ACCOUNT OF CAPITALIZATION OF FOREIG N EXCHANGE FLUCTUATION CONSEQUENT TO BLOCK ASSESSMENT. SINCE THE MAIN ISSUE 17 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 OF DEPRECIATION IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ALL THE ISSUES OF DEPRECIATION SHALL BE RECONSIDERED BY THE ASSESSING OFFICER, IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPO RTUNITY TO THE ASSESSEE. 24. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE UNDER SECTION 14A OF THE ACT. 25. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF ` 2.93 CRORES AND THE CIT(APPEALS), HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE ON THE G ROUND THAT THE ASSESSEE HAS INVESTED ITS OWN FUNDS. ACCORDING TO THE LD. SR. STANDING COUNSEL, IRRESPECTIVE OF INVESTMENT OUT OF ITS OWN FUNDS, THE ASSESSEE HAS TO NECESSARILY INCUR EXPENDITURE O N MANAGERIAL LEVEL FOR THE PURPOSE OF TAKING DECISION TO MAKE IN VESTMENT. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSE L, THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 26. ON THE CONTRARY, DR. ANITA SUMANTH, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE INVESTED ITS OWN FUNDS, 18 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 THEREFORE, THE ASSESSEE HAS NOT INCURRED ANY EXPEND ITURE AT ALL. HENCE, THERE CANNOT BE ANY DISALLOWANCE. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY ALLOW ED THE CLAIM OF THE ASSESSEE. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2000-01. THEREFORE, RU LE 8D OF INCOME-TAX RULES, 1962 IS NOT APPLICABLE FOR THE YE AR UNDER CONSIDERATION. THEREFORE, REASONABLE ESTIMATION HA S TO BE MADE FOR THE EXPENDITURE INCURRED BY THE ASSESSEE. NOW BEFO RE THIS TRIBUNAL, THE ASSESSEE SUBMITS THAT NO EXPENDITURE WAS INCURRED AND THE ASSESSEES OWN FUNDS WERE INVESTED. THE AS SESSEE BEING A COMPANY, HAS TO ENTRUST THE MATTER TO SOME OF THE EXECUTIVES FOR MAKING INVESTMENT. THEREFORE, THE SALARY PAID TO T HE EXECUTIVES, WHO WERE ENTRUSTED THE WORK OF INVESTMENT, IS DEFIN ITELY A COST INCURRED BY THE ASSESSEE FOR TAKING ADMINISTRATIVE DECISION TO INVEST IN THE SHARES WHICH YIELDED EXEMPTED INCOME. THE M ANAGERIAL FUNCTION PERFORMED BY THE EXECUTIVES NEED TO BE TAK EN INTO CONSIDERATION FOR THE PURPOSE OF ESTIMATION OF DISA LLOWANCE. SINCE RULE 8D IS NOT APPLICABLE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION 19 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 THAT A REASONABLE ESTIMATION HAS TO BE MADE. THIS TRIBUNAL, WHEREVER RULE 8D OF INCOME-TAX RULES, 1962 IS NOT A PPLICABLE, IS UNIFORMLY MAKING 2% DISALLOWANCE OF INVESTMENT. AC CORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND T HE ASSESSING OFFICER IS DIRECTED TO ESTIMATE THE DISALLOWANCE AT 2% OF INVESTMENT MADE BY THE ASSESSEE. 28. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DED UCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. 29. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL FOR THE REVENUE, SUBMITTED THAT THE CIT(APPEALS) DIRECTED T HE ASSESSING OFFICER TO VERIFY FORM 10CCAC AND THEREAFTER DECIDE THE MATTER. THEREFORE, THE LD. SR. STANDING COUNSEL PLACED HIS RELIANCE ON THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 30. ON THE CONTRARY, DR. ANITA SUMANTH, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT SINCE THE CIT(APPEALS) DIR ECTED THE ASSESSING OFFICER TO VERIFY FORM 10CCAC, THE REVENU E CANNOT HAVE ANY GRIEVANCE AT ALL. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. DEDUCTION UNDER 20 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 SECTION 80HHC OF THE ACT WAS DENIED ON THE GROUND T HAT THE ASSESSEE HAS NOT FILED FORM 10CCAC, WHICH WAS A PRE -CONDITION FOR ALLOWING DEDUCTION UNDER SECTION 80HHC OF THE A CT. THEREFORE, THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO VERIFY FORM 10CCAC. THIS TRIBUNAL DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 32. THE REVENUE HAS RAISED ONE MORE GROUND WITH REG ARD TO SET OFF OF LOSSES BY THE ASSESSEE WHILE COMPUTING BOOK PROFIT. 33. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL FOR THE REVENUE, SUBMITTED THAT THE CIT(APPEALS) DIRECTED T HE ASSESSING OFFICER TO COMPUTE THE BOOK PROFIT AFTER SETTING OF F OF LOSSES BY THE ASSESSEE-COMPANY. ACCORDING TO THE LD. SR. STANDIN G COUNSEL, THE CLAIM CANNOT BE SET OFF. 34. WE HAVE HEARD DR. ANITA SUMANTH, THE LD.COUNSEL FOR THE ASSESSEE, ALSO. IT IS NOT KNOWN WHAT KIND OF CLAIM WAS MADE BY THE ASSESSEE TO SET OFF WHILE COMPUTING THE BOOK PROFIT . IN THE ABSENCE OF DETAILS OF CLAIM FOR SET OFF FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES 21 I.T.A. NO.718/MDS/2011 I.T.A. NO.1008/MDS/2011 BELOW ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE MATTER IN THE LIGHT OF THE MATERIAL THAT MAY BE FIL ED BY THE ASSESSEE, IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEE. 35. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( ! ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 6 /DATED, THE 23 RD SEPTEMBER, 2016. KRI. 0 ,/78 98(/ /COPY TO: 1. './ /ASSESSEE 2. ,-*+ /RESPONDENT 3. 2 :/ () /CIT(A)-V, CHENNAI-34 4. 2 :/ /CIT, CHENNAI-III, CHENNAI 5. 8; ,/ /DR 6. ' < /GF.