GODFREY PHILIPS INDIA LTD, MUMBAI V. ADDL CIT 8(1), MUMBAI

ITA 7682/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8563 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 22-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Wholly owned subsidiary
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI I P BANSAL, JM & SHRI RAJENDRA SINGH, AM ITA NO. 7682/MUM/2010 (ASSESSMENT YEAR 2006-07) ITA NO. 8549/MUM/2010 (ASSESSMENT YEAR 2007-08) GODERY PHILLIPS INDIA LTD SAHAR ROAD, CHAKALA ANDHERI (E) MUMBAI 99 VS THE ADDL. COMMR OF IN COME TAX 8(1)( MUMBAI (APPELLANT) (RESPONDENT) & ITA NO. 7395/MUM/2010 (ASSESSMENT YEAR 2006-07) THE ADDL. COMMR OF IN COME TAX 8(1)( MUMBAI VS GODERY PHILLIPS INDIA LTD SAHAR ROAD, CHAKALA ANDHERI (E) MUMBAI 99 (APPELLANT) (RESPONDENT) PAN NO. AABCG4768K ASSESSEE BY SHRI YOGESH THAR REVENUE BY SH AMAR DEEP DT.OF HEARING 22 ND OCT 2012 DT OF PRONOUNCEMENT 22 ND OCT 2012 PER I P BANSAL, JM APPEALS NOS 7682 AND 7395/MUM/2010 ARE CROSS APPEA LS AND THEY ARE DIRECTED AGAINST THE ORDER DATED 18.8.2010 PASSED B Y THE LD COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF ASSESSMENT YEAR 2006-07. THE APPEAL IN ITA NO.8549/MUM/2010 IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX(APPE ALS) DATED 20.9.2010 FOR THE ASSESSMENT YEAR 2007-08. GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 2 2 SINCE THESE APPEALS ARISE CERTAIN COMMON ISSUES A ND WERE ARGUED TOGETHER BY BOTH THE PARTIES; THEREFORE, FOR THE SAKE OF CON VENIENCE, ALL THESE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDER. 3 GROUND OF APPEAL READ AS UNDER: I ITA NO. 7682/MUM/2010 (ASSESSMENT YEAR 2006-07) ( BY THE ASSESSEE) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 16, MUMBAI ( THE CIT (A)) ERRED IN UPHOLDING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 8(1), MUMBAI (A.O.) IN DISALLOWING 80% DEPRECIATION ON THE UNINTERRUPTED POWER SUPPLY (UPS) ON THE GROUND THAT, THE UPS IS NOT AN ENERG Y SAVING DEVICE BUT INSTEAD AN ENERGY SUPPLY DEVICE. THE APPELLANT PRAYS THAT THE DEPRECIATION OF RS 574 ,579/- AS CLAIMED BY THE APPELLANT ON UPS BE ALLOWED. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN PARTLY UPHOLDING THE ACTION OF THE AC BY D ISALLOWING INTEREST EXPENDITURE OF RS 3.03 LACS OUT OF THE TOTAL INTEREST DISALLOWED B Y THE AC OF RS 6.64 LACS ON THE ALLEGED GROUND THAT SUCH EXPENDITURE WAS NOT INCURR ED FOR THE PURPOSE OF BUSINESS. THE APPELLANT PRAYS THAT BALANCE INTEREST OF RS 3. 03 LACS BE DELETED. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) ERRED IN PARTLY UPHOLDING THE ACTION OF THE AC IN D ISALLOWING AN AMOUNT OF RS 25.59 LACS ON ADHOC BASIS IN RESPECT OF LEAVE ENCASHMENT EXPENSES CLAIMED BY THE APPELLANT ON ACTUAL BASIS ON THE ALLEGED GROUND THA T THE SAID EXPENSES WOULD HAVE BEEN CLAIMED IN THE EARLIER YEARS AN THE BASIS OF A CTUARIAL VALUATION AND THIS AMOUNTS TO DOUBLE DEDUCTION. II ITA NO. 8549/MUM/2010 (ASSESSMENT YEAR 2007-08)( BY THE ASSESSEE) 1 DISALLOWANCE OF DEPRECIATION @ 80% ON UPS AMOUNTI NG RS. 4,72,596/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 16, MUMBAI ( THE CIT (A)) ERRED IN UPHOLDING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 8(1), MUMBAI (A.O.) IN DISALLOWING 80% DEPRECIATION ON THE UNINTERRUPTED POWER SUPPLY (UPS) ON THE GROUND THAT, THE UPS IS NOT AN ENERG Y SAVING DEVICE BUT INSTEAD AN ENERGY STORAGE AND SUPPLY DEVICE. THE APPELLANT PRAYS THAT THE DEPRECIATION OF RS 4,7 2,596/- AS CLAIMED BY THE APPELLANT ON UPS BE ALLOWED. 2 DISALLOWANCE OF INTEREST ON LOAN GIVEN TO SUBSIDI ARIES AMOUNTING RS.11,34,000/- GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING INTER EST AMOUNTING TO RS.11,34,000/- ON THE GROUND THAT SUCH INTEREST WAS PAID ON THE BORRO WINGS, WHICH WERE GIVEN AS INTEREST FREE/SUBSIDISED LOAN TO THE SUBSIDIARIES O F THE APPELLANT. THE APPELLANT PRAYS THAT DISALLOWANCE OF INTEREST O F RSLL,34,000/- BE DELETED. 3 DISALLOWANCE OF LEAVE ENCAHSMENT AMOUNTING RS. 35 ,83,000/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING AN AM OUNT OF RS.34,03,000/- ON ADHOC BASIS IN RESPECT OF LEAVE ENCASHMENT EXPENSES CLAIM ED BY THE APPELLANT ON ACTUAL BASIS ON THE ALLEGED GROUND THAT THE SAID EXPENSES WOULD HAVE BEEN CLAIMED IN THE EARLIER YEARS AN THE BASIS OF ACTUARIAL VALUATION A ND THIS AMOUNTS TO DOUBLE DEDUCTION. III ITA NO. 7395/MUM/2010 (ASSESSMENT YEAR 2006-07) (BY THE REVENUE) 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE EXCESS DEPRECIATION AMOUNTING TO RS.4,77,8401-, DISALLOWED BY THE ASSESSING OFFICER ON MOTOR CAR/VEHICLES, WITHOU T APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH LD.CIT(A) ERRED IN REDUCING THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF INTEREST ON INTEREST FREE/CONCESSIONAL LOANS TO SUB SIDIARY COMPANY AMOUNTING TO RS.6.64 LAKHS, WITHOUT APPRECIATING THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW. 4 IT MAY BE MENTIONED HERE THAT ALL THE GROUNDS RAI SED BY THE ASSESSEE IN RESPECT OF ASSESSMENT YEAR 2007-08 ARE COMMON TO GR OUNDS RAISED IN RESPECT OF ASSESSMENT YEAR 2006-07. THE FACTS RELATING TO THE ASSESSMENT YEAR 2006-07 WILL BE TAKEN INTO CONSIDERATION AND THE DECISION TAKEN THE REON WILL EQUALLY BE APPLICABLE IN RESPECT OF THE GROUNDS RELATED TO ASSESSMENT YEA R 2007-08. 5. GROUND NO.1 OF ASSESSEES APPEAL FOR THE ASSES SMENT YEAR 2006-07 AND 2007- 08 IS REGARDING DEPRECIATION ON UPS BEING ENERGY S AVING DEVICE. IT IS THE CASE OF THE ASSESSEE THAT THE UPS EMPLOYED BY IT BEING AN ENERG Y SAVING DEVICE IS ENTITLED FOR HIGHER DEPRECIATION @ 80% AS AGAINST THE CLAIM OF T HE REVENUE THAT THE SAME IS NOT AN ENERGY SAVING DEVICE; BUT AN ENERGY SUPPLY DEVIC E. THE IMPACT OF THIS DISALLOWANCE IS THE LESSER DEPRECIATION OF ` 5,74,579/- AND FOR ASSESSMENT YEAR 2007- GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 4 08, THE SAID AMOUNT IS ` 4,72,596/-. IT IS THE CASE OF THE LD AR THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2002- 03 IN ITA NO. 2792/M/2006; FOR ASSESSMENT YEAR 2003 -04 IN ITA NO.1071/M/2007; FOR ASSESSMENT YEAR 2004-05 IN ITA NO.5569/M/2007 AND F OR ASSESSMENT YEAR 2005-06 IN ITA NO.6964/M/2008, COPIES OF THESE ORDERS ARE ENCL OSED IN THE PAPER BOOK AT PAGES 1 TO 22; 23 TO 47 AND 48 TO 67 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE, THE OBSERVATIONS OF THE TRIBUNAL IN RESPECT OF THE ASSE SSMENT YEAR 2002-03 DECIDING THE ISSUE ARE REPRODUCED BELOW: 13. WE HAVE HEARD THE RIVAL CONTENTIONS. SHORT QUEST ION IS WHETHER UPS IS A AUTOMATIC VOLTAGE CONTROLLER FALLING WITHIN THE HEAD ING OF ENERGY SAVING DEVICE IN THE APPENDIX TO THE INCOME TAX RULES 1962 GIVING DEPREDATION RATES. LEGISLATURE IN ITS WISDOM HAS CHOSEN TO SHOW A N AUTOMATIC VOLTAGE CONTROLLER AS AN ELECTRICAL EQUIPMENT ELIGIBLE FOR 10 0% DEPRECIATION, FALLING UNDER THE BROADER HEAD OF ENERGY SAVING DEVICES. ONCE LEGISLATURE DEEMED THAT AN AUTOMATIC VOLTAGE CONTROLLER IS A SPECIE FALLING WITHIN ENERGY SAVING DEVICE, IT IS NOT FOR THE ASSESSING OFFICER OR LD CI T(A) TO FURTHER ANALYSE WHETHER SUCH AN ITEM WOULD INDEED AN ENERGY SAVING DEVICE. IN FACT IT IS BEYOND THEIR POWERS. HENCE THE ONLY QUESTION TO ANS WER, IN OUR OPINION IS WHETHER AN UPS IS AN AUTOMATIC VOLTAGE CONTROLLER. IT IS MENTIONED IN THE PRODUCT BROCHURE (PAPER BOOK PAGE 64) THAT THE UPS AU TOMATICALLY CORRECTED LOW AND HIGH VOLTAGE CONDITIONS AND STEPP ED UP LOW VOLTAGE TO SAFE OUTPUT LEVELS. THUS IN OUR OPINION THERE CANNOT BE A QUARREL THAT UPS WAS DOING THE JOB OF VOLTAGE CONTROLLING AUTOMATICALLY. EVEN WHEN IT WAS SUPPLYING ELECTRICITY AT THE TIME OF POWER VOLTAGE, T HE OUTAGES REMAINED CONTROLLED. THEREFORE IN OUR OPINION A UPS WOULD DEFI NITELY FALL UNDER THE HEAD OF AUTOMATIC VOLTAGE CONTROLLER. WE ARE FORTIFIED IN TAKING THIS VIEW BY THE DECISION OF JODHPUR BENCH IN THE CASE OF SURFACE FINI SHING EQUIPMENT (SUPRA), AS FOR THE DECISION OF DELHI BENCH IN THE CASE OF NE STLE INDIA LTD. (SUPRA) REFERRED BY THE LD DR, THERE THE QUESTION WAS WHETHER UPS COULD BE CONSIDERED AS COMPUTER FOR DEPRECIATION RATE OF 60%. THERE WAS NO ISSUE OR QUESTION, WHETHER FT COULD BE CONSIDERED AS AN AUTOM ATIC VOLTAGE CONTROLLER AND HENCE IN OUR OPINION THAT CASE WOULD NOT HELP THE REVENUE HERE. THEREFORE WE ARE OF THE OPINION THAT ASSESSEE WA S ELIGIBLE FOR CLAIMING 100% DEPREDATION ON UPS. DISALLOWANCE OF RS.6,82,44 3/- THEREFORE STANDS DELETED. GROUND NUMBER 3 IS ALLOWED. GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 5 FOR OTHER YEARS THE ABOVE DECISION WAS FOLLOWED BY THE TRIBUNAL. 6 AFTER HEARING BOTH THE PARTIES, RESPECTFULLY FOLL OWING THE ABOVEMENTIONED DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE, W E DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOW THE GROUND NO.1 OF BOTH THE APPE ALS FILED BY THE ASSESSEE. 7 APROPOS GROUND NO2 OF ASSESSEES APPEAL FOR BOTH ASSESSMENT YEARS AND GROUND NO.2 OF THE REVENUES APPEAL FOR ASSESSMENT YEAR 2006-07, THE FACTS FOR ASSESSMENT YEAR 2006-07 ARE THAT THE ASSESSEE HAD A DVANCED CERTAIN INTEREST FREE LOANS AND LOANS AT SUBSIDISED RATES TO ITS ASSOCIA TED CONCERNS, THE DETAILS OF WHICH ARE AS UNDER: INTEREST FREE LOAN ` 342.65 LACS SUBSIDISED LOAN (INTEREST @ 6%) ` 1205.04 LACS 7.1 IT WAS NOTICED BY THE ASSESSING OFFICER THAT TH E ASSESSEE HAD CHARGED INTEREST @ 10.25% ON ANOTHER LOAN OF ` 2043.41 LACS GIVEN TO ANOTHER 100% SUBSIDIARY NAMELY M/S INTERNATIONAL TOBACCO COMPANY LTD. THE A SSESSING OFFICER ALSO NOTICED THAT THE AVERAGE COST OF THE ASSESSEE REGARDING THE INTEREST ON THE FUNDS BORROWED BY IT WAS @ 4.86%. IT WAS ALSO NOTICED THAT THE IN TEREST FREE LOANS OF ` 342.65 LACS TO KASHYAP METALS & ALLIED INDUSTRIES WAS AN OLD LOAN WHICH WAS PRIOR TO THE INSERTION OF SEC. 372A OF THE COMPANIES ACT. NOTING ALL THESE F ACTS, THE ASSESSING OFFICER HAS COME TO A CONCLUSION THAT THE INTEREST FREE AND SUB SIDISED LOAN, WHICH BEARS INTEREST @ 6%, THE INTEREST RECEIVABLE BY THE ASSESSEE, IF C OMPUTED AT THE AVERAGE COST OF 4.86%, THEN THE INTEREST WHICH SHOULD HAVE BEEN REC EIVED BY THE ASSESSEE WOULD AMOUNTS TO ` 75.22 LACS AND THE ASSESSEE HAD RECEIVED ONLY A SU M OF ` 68.58 LACS. THUS, THE BALANCE DISALLOWANCE THAT IS AMOUNTS TO ` 6.64 LACS WAS REQUIRED TO BE GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 6 MADE; ACCORDINGLY, AN AMOUNT OF ` 6.64 LACS WAS ADDED TO THE INCOME OF THE ASSESSEE. 8 SIMILARLY FOR THE ASSESSMENT YEAR 2006-07, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE FOLLOWING LOANS WERE ADVANCED BY THE ASSESSEE, BEING INTEREST FREE AND SUBSIDISED LOANS: INTEREST FREE LOAN ` 342.65 LACS SUBSIDISED LOAN (INTEREST @ 6%) ` 1543.09 LACS 8.1 THE AVERAGE COST OF INTEREST BORNE BY THE ASSES SEE DURING THE ASSESSMENT YEAR 2007-08 WAS NOTED TO BE AT 4.72%. TAKING THE A GGREGATE OF INTEREST FREE LOANS AND SUBSIDISED LOAN AT ` 1,885.74 LACS, THE ASSESSING OFFICER COMPUTED THE INTEREST RECEIVABLE BY THE ASSESSEE AT ` 89 LACS AND NOTING THE FACT THAT THE ASSESSEE RECEIVED ONLY A SUM OF ` 77.66 LACS, THE DIFFERENCE OF ` 11.34 LACS WAS ADDED TO THE INCOME OF THE ASSESSEE. 8.2 IN RESPECT OF ASSESSMENT YEAR 2006-07, THE LD C OMMISSIONER OF INCOME TAX(APPEALS) HAS GRANTED PART RELIEF TO THE ASSESSE E ON THE ALTERNATIVE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT THE INTEREST DISALL OWANCE, IF ANY, HAS TO BE CALCULATED ACCORDING TO THE DAYS OF THE LOANS ADVANCED AND IN THIS MANNER, THE DISALLOWANCE OF ` 6.64 LACS WAS RESTRICTED TO A SUM OF ` 3.61 LACS. 9 THE ASSESSEE IN ITS APPEAL IS PRAYING FOR DELETIO N OF THE ENTIRE DISALLOWANCE AND THE REVENUE IN ITS APPEAL IS AGITATING THE DISA LLOWANCE DELETED BY THE LD COMMISSIONER OF INCOME TAX(APPEALS). FOR ASSESSMENT YEAR 2007-08, THE GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 7 DISALLOWANCE HAS BEEN UPHELD BY THE LD COMMISSIONER OF INCOME TAX(APPEALS) IN ITS ENTIRETY, THEREFORE, ASSESSEE IS SEEKING DELETION O F THE SAID ADDITION. 10 BEFORE US, THE SUBMISSIONS OF THE LD AR IS THAT SO FAR AS IT RELATES TO INTEREST FEE LOAN OF ` 342.65 LACS, IT HAS BEEN DECIDED BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEARS 2003-04 AND 2004-05 THAT THE INTEREST ON OP ENING BALANCE OF THE LOANS AND ADVANCES WHICH WERE COMING FROM EARLIER YEARS, CANN OT BE DISALLOWED AND SUCH PLEA OF THE ASSESSEE IS SUPPORTED BY THE JUDGMENT E T OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF COMMISSIONER OF INCOME-TAX V. SRIDEV ENTERPRISES REPORTED IN 192 ITR 165 IN WHICH IT HAS BEEN HELD THAT I N CASE OF LOANS AND ADVANCES WHICH WERE BEING CARRIED FORWARD FROM EARLIER YEARS IN WH ICH THERE WAS NO DISALLOWANCE, NO DISALLOWANCE COULD BE MADE IN RESPECT OF THE O PENING BALANCE IN THE CURRENT YEAR AS THE NATURE AND STATUS OF THE ADVANCES ON TH E FIRST DAY OF THE CURRENT YEAR REMAINED THE SAME AS THE NATURE AND STATUS OF THE A DVANCES ON THE LAST DAY OF THE PRECEDING YEAR. THEREFORE, HE PLEADED THAT TO THE EXTENT IT RELATES TO ` 342.65 LACS, NO DISALLOWANCE CAN BE MADE AS PER THE DECISION OF THE TRIBUNAL IN RESPECT OF ASSESSMENT YEAR 2003-04 AND 2004-05. 11 SO FAR IT RELATES TO THE REMAINING AMOUNT OF ` 1205.04 LACS FOR ASSESSMENT YEAR 2006-07 AND ` 1543.09 LACS FOR ASSESSMENT YEAR 2007-08, BEING LO ANS ON SUBSIDISED INTEREST RATE ON WHICH THE ASSESSEE CHARGED INTERES T @ 6% PER ANNUM, IT WAS SUBMITTED BY THE LD AR THAT NO DISALLOWANCE SHOULD BE MADE AS THE AVERAGE COST OF INTEREST BEARING FUNDS IS ONLY 4.86% AND 4.72 % FOR ASSESSMENT YEAR 2006-07 AND 2007- 08 RESPECTIVELY. HE HAS SUBMITTED THAT THE LD ASSES SING OFFICER WHILE MAKING THE DISALLOWANCE HAS INCLUDED THE AMOUNT OF ` 342.65 IN BOTH THE YEARS AND MADE THE GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 8 DISALLOWANCE. THEREFORE, THE LD AR HAS PLEADED THAT THE DISALLOWANCE SUSTAINED BY THE LD COMMISSIONER OF INCOME TAX (APPEALS) SHOULD BE DELETED. 11.1 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDER PASSED BY THE ASSESSING OFFICER AND PLEADED THAT THE DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFICER AND IT IS WRONGLY DELETED BY THE COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF ASSESSMENT YEAR 2006-07. 12 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS CAREFULLY CONSIDERED. SO FAR AS IT RELATES TO THE INTEREST PERTAINING TO ` 342.65 LACS, THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL (CONSOL IDATED ORDER DATED 20.4.2011 FOR ASSESSMENT YEARS 2003-04 AND 2004-05 COPY AT PAGES 23 TO 47 OF THE PAPER BOOK.) THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE REPRO DUCED BELOW: 2.6.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF I NTEREST PAID BY THE ASSESSEE ON ACCOUNT OF ADVANCES GIVEN TO THE SUBSID IARY OF THE ASSESSEE COMPANY. THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN OF RS.342.65 LACS, IT HAD ALSO ADVANCED FURTHER LOANS AT CONCESSIONAL RATE. THE ASSESSEE HAD ALSO MADE BORROWINGS ON WHICH SUBSTANTIAL INTEREST WAS BE ING PAID. THE AUTHORITIES BELOW HAVE DISALLOWED PART OF THE INTEREST PROPORTI ONATE TO INTEREST FREE ADVANCES AND ADVANCES GIVEN ON CONCESSIONAL RATE ON THE GROUND THAT THERE WAS NO MATERIAL TO SHOW THAT THE LOANS TAKEN BY THE ASSESSEE WERE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR THAT THESE LOANS AND ADVANCES WERE GIVEN OUT OF OWN FUNDS. THE CASE OF T HE ASSESSEE IS THAT THE INTEREST FREE ADVANCES HAD BEEN GIVEN SINCE FINANCIAL YEAR 1992-93 AND LOANS ON CONCESSIONAL RATE HAD BEEN GIVEN FROM FINANCIAL YEAR 1998-99. THESE HAD BEEN GIVEN OUT OF OWN FUNDS AS THE ASSESSEE HAD SUF FICIENT INTEREST FREE FUNDS AND PROFIT EARNED DURING THE RELEVANT YEARS RELIANCE HA S BEEN PLACED ON THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAL IN CASE OF RELIANCE UTILITIES AND POWER (SUPRA). IT HAS ALSO BEEN ARGUED THAT MOST OF T HE LOANS/ ADVANCES WERE COMING FROM THE EARLIER YEARS IN WHICH THERE WERE NO DISALLOWANCES AND THEREFORE NO DISALLOWANCE COULD BE MADE IN RESPECT OF OPENING BALANCES. THE ASSESSEE HAS ALSO RAISED PLEA OF COMMERCIAL EXPED IENCY ON THE GROUND THAT LOANS AND ADVANCES HAD BEEN GIVEN TO THE CONCE RN WHICH WAS A 100% SUBSIDIARY OF THE ASSESSEE COMPANY AND THEREFORE THE SAME HAD TO BE TREATED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE . GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 9 2.6.4 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECTS OF THE MATTER. WE FIND SUBSTANCE IN THE SUBMISSION OF THE ASSESSEE THAT NO DISALLOWANCE COULD BE MADE IN RESPECT OF THE OPENING BALANCES OF LOANS AND ADVANCES WHICH WERE COMING FROM EARLIER YEARS AND IN WHICH THERE WERE NO DISALLOWANCE. THE PLEA OF THE ASSESSEE IS SUPPORTED BY THE JUDGMENT OF HON BLE HIGH COURT OF KARNATAKA IN CASE OF SRIDEV ENTERPRISES (SUPRA) IN WHI CH IT WAS HELD THAT IN CASE LOANS AND ADVANCES WERE BEING CARRIED FORWARD FRO M EARLIER YEARS IN WHICH THERE WAS NO DISALLOWANCE, NO DISALLOWANCE COU LD BE MADE IN RESPECT OF THE OPENING BALANCE IN THE CURRENT YEAR AS THE NAT URE AND STATUS OF THE ADVANCES ON THE FIRST DAY OF THE CURRENT YEAR REMAIN ED THE SAME AS THE NATURE AND STATUS OF THE ADVANCES ON THE LAST DAY O F PRECEDING YEAR. IN THE EARLIER YEAR THERE WERE NO DISALLOWANCES WHICH MEANT THAT THE REVENUE WAS SATISFIED THAT LOANS AND ADVANCES WERE GIVE FROM OWN FUNDS. THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN CASE OF SRIDEV ENTERPRISES (SUPRA) WE HOLD THAT NO DIS ALLOWANCE OF INTEREST WILL BE MADE IN RESPECT OF THE OPENING BALANCES AS ON TH E FIRST DAY OF ASSESSMENT YEAR INVOLVED. 13 NOW THE QUESTION REMAINS IN RESPECT OF SUBSIDISE D LOAN ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS ON WHICH INTEREST @ 6% HAS BEEN CHARGED. 13.1 A CATEGORICAL FINDING HAS BEEN GIVEN BY THE AS SESSING OFFICER THAT THE AVERAGE INTEREST COST FOR THE ASSESSMENT YEAR 2006- 07 AND 2007-08 ARE 4.86% AND 4.72 % RESPECTIVELY. THE ASSESSEE HAD CHARGED @ 6% INTEREST FROM ITS SUBSIDIARY; THEREFORE, THE ASSESSEE HAS CHARGED MORE INTEREST R ATE THAN THE AVERAGE INTEREST RATE BORNE BY IT ON INTEREST BEARING FUNDS. THEREF ORE, THERE IS NO JUSTIFICATION FOR MAKING ANY ADDITION, FINDING FORCE IN SUCH CONTENT ION OF THE ASSESSEE; WE DELETE THE ENTIRE ADDITION FOR BOTH THE YEARS. THEREFORE, GROUND NO. 2 OF BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED AND GROUND NO.2 OF REVENUE S APPEAL FOR ASSESSMENT YEAR 2006-07 IS DISMISSED. 14 GROUND NO.3 OF THE ASSESSEES APPEAL FOR BOTH TH E YEARS RELATES TO DISALLOWANCE MADE ON ACCOUNT OF LEAVE ENCASHMENT. GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 10 15 IT IS SUBMITTED BY THE LD AR THAT THIS ISSUE REQ UIRES TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER AS IN EARLIER YEARS, SIMILAR ISSUE HAS BEEN SET ASIDE BY THE TRIBUNAL IN RESPECT OF AYS 2003-04, 2004-05 AND 200 5-06. REFERENCE IN THIS REGARD WAS MADE TO THE ORDER OF THE TRIBUNAL IN RESPECT OF AS SESSMENT YEAR 2003-04 AND 2004-05 IN ITA NO. 1071/M/2007 AND 5569/M/2007 COPY OF SUCH ORDER IS PLACED AT PAGES 23 TO 47 AND IN ITA NO.6964/M/2008 AT PAGES 48 TO 67 O F THE PAPER BOOK. 15.1 FOR THE SAKE OF CONVENIENCE, THE OBSERVATIONS OF THE TRIBUNAL IN ASSESSMENT YEAR 2004-05 ASS GIVEN IN PARA 2.8.1 ARE REPRODUCED AS UNDER: 2.8.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALL OWANCE OF PART OF THE CLAIM RELATING TO LEAVE ENCASHMENT. THE ASSESSEE HA D BEEN MAKING THE CLAIM EARLIER ON THE BASIS OF ACTUARIAL VALUATION BUT CONSEQUENT TO THE AMENDMENT OF SECTION 438 THE CLAIM WAS BEING MADE O N PAYMENT BASIS FROM A.Y.2003-04. THE ASSESSING OFFICER HAS MADE ESTIMA TED DISALLOWANCE OUT OF THE CLAIM MADE ON PAYMENT BASIS ON THE GROUND THAT P ART OF THE PAYMENTS MADE MAY RELATE TO EARLIER YEAR WHEN THESE WERE ALLOWE D ON ACTUARIAL BASIS. THE ASSESSING OFFICER HAS MADE DISALLOWANCE ON ESTI MATE WHICH CANNOT BE SUSTAINED. ONLY THE PAYMENT WHICH HAD ACTUALLY BEEN ALLOWED EARLIER CAN BE DISALLOWED. IN - OUR VIEW MATTERS REQUIRE FRESH EXAMIN ATION AND DISALLOWANCE HAS TO BE RESTRICTED TO THE AMOUNTS ALLOWED IN THE EA RLIER YEAR. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE T O THE FILE OF ASSESSING OFFICER FOR PASSING A FRESH ORDER AFTER NECESSARY EXA MINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. FOR ASSESSMENT YEAR 2005-06, THE AFORESAID DECISIO N HAS BEEN FOLLOWED 15.2 IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT SIMILAR DIRECTIONS MAY BE ISSUED FOR THESE YEARS ALSO. 15.3 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDER PASSED BY THE ASSESSING OFFICER 16 AFTER HEARING BOTH THE PARTIES, WE FIND THAT THI S ISSUE IS COVERED BY THE ABOVEMENTIONED DECISIONS OF THE TRIBUNAL. THEREFOR E, RESPECTFULLY FOLLOWING THE GODERY PHILLIPS INDIA LTD ITA NO. 7682/MUM/2010 ITA NO. 8549/MUM/2010 ITA NO. 7395/MUM/2010 . 11 DECISIONS OF THE TRIBUNAL, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. 17 FOR STATISTICAL PURPOSE, GROUND NO.3 OF THE ASSE SSEES APPEAL FOR BOTH THE YEARS IS CONSIDERED TO BE ALLOWED. 18 IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED IN THE AFORESAID MANNER WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT BY THIS 22 ND DAY OF OCT 2012. SD/- SD/- ( RAJENDRA SINGH ) ACCOUNTANT MEMBER ( I P BANSAL ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 22 ND OCT 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI