Aarti Steels Ltd., Ludhiana V. ACIT, Ludhiana

ITA 771/CHANDI/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0062 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Depreciation; Earning of tax free income; Bad and doubtful debts; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.771/CHD/2011 (ASSESSMENT YEAR : 2008-09) AARTI STEEL LTD., VS. THE A.C.I.T., G.T. ROAD, MILLERGANJ, CIRCLE-V, LUDHIANA. LUDHIANA. PAN: AABCA4455D AND ITA NO.790/CHD/2011 (ASSESSMENT YEAR : 2008-09) THE A.C.I.T., VS. AARTI STEEL LTD., CIRCLE-V, G.T. ROAD, MILLERGANJ, LUDHIANA. LUDHIANA. PAN: AABCA4455D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUBHASH AGGARWAL DEPARTMENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 05.04.2016 DATE OF PRONOUNCEMENT : 25.04.2016 O R D E R PER RANO JAIN, A.M . : BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL S)-II, LUDHIANA DATED 7.6.2011 FOR ASSESSMENT YEAR 2008-09 . 2 ITA NO.771/CHD/2011(ASSESSEES APPEAL) : 2. THE GROUND NOS.1 AND 2 RELATES TO DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (IN S HORT THE ACT), WHICH READ AS UNDER : 1. THAT THE LEARNED CIT- (A) HAS ERRED IN CONFIRMI NG AN ADDITION OF RS.10 LAKHS U/S 14A OF THE INCOME TAX A CT, 1961, READ WITH RULE 8D(2)(III). 2. THAT IN ANY CASE THE ADDITION SUSTAINED IS AGAIN ST THE LAW AND FACTS OF THE CASE. 3. BRIEFLY, THE FACTS ARE THAT THE ASSESSING OFFIC ER DISALLOWED A SUM OF RS.55,55,801/- BY APPLYING PROV ISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME TAX RULES. THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,28,316/- DURING THE YEAR. 4. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE CONTENDED THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES ARE NOT APPLIC ABLE AS THE TOTAL INVESTMENTS IN SHARES AND MUTUAL FUNDS H AVE BEEN MADE OUT OF OWN FUNDS. THE ASSESSEES INVESTMENT D URING THE YEAR WAS A NOMINAL AMOUNT OF RS.97,233/- WHICH WAS MADE FROM THE INTERNAL CASH ACCRUALS OF THE COMPANY AND NO MONEY WAS BORROWED FOR MAKING ANY INVESTMENT. IT WAS PO INTED OUT THAT WHERE INVESTMENT IS MADE OUT OF OWN RESOURCES AND AVAILABILITY OF FUNDS IN THE FORM OF CAPITAL RESERV ES AND NET PROFIT, THE PROVISION OF SECTION 14A AND RULE 8D DO NOT APPLY. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYC LES LTD. 3 (2010) 323 ITR 518 AND MUMBAI HIGH COURT IN THE CAS E OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (MUM). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE CASE LAWS RELIED ON BY IT, THE LEARNED CIT (APPEALS ) HAS HELD THAT SINCE THE ASSESSEE HAS EARNED EXEMPT INCOME UN DER SECTIONS 10(34) AND 10(35) OF THE ACT AND ALSO IT H AS BEEN UNABLE TO PROVE THE NEXUS BETWEEN INVESTMENT AND FU NDS AVAILABLE, THE DISALLOWANCE IS RESTRICTED TO AN AMO UNT OF RS.10 LACS TO COVER UP ADMINISTRATION AND OTHER EXPENDITU RE RELATABLE TO EXEMPT INCOME. IN THIS WAY, A RELIEF OF RS.45,55,801/- WAS PROVIDED TO THE ASSESSEE BY THE LEARNED CIT (APPEALS) WHILE CONFIRMING THE DISALLOWANCE OF RS.10 LACS. 5. AGGRIEVED BY THIS, BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE COME UP IN APPEAL BEFORE US. THE A SSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE TO THE EXTENT OF RS.10 LACS SUSTAINED BY THE CIT (APPEALS), WHILE THE DEPA RTMENT IS IN APPEAL AGAINST THE RELIEF OF RS.45,55,801/- PROV IDED BY THE LEARNED CIT (APPEALS) TO THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE ARGU ING BEFORE US MADE ELABORATE SUBMISSIONS TO THE FACT TH AT THE ASSESSEE HAS HUGE FUNDS WHICH HAVE BEEN USED FOR INVESTMENTS MADE BY IT. THEREFORE, IN SUCH CIRCUMST ANCES, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MA DE. A CHART WAS FILED BEFORE US SHOWING THAT AT THE END O F THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD OWNED FUNDS CONSI STING OF SHARE CAPITAL AND RESERVES AND SURPLUS AMOUNTING TO RS.214,46,46,911/-, WHILE THE INVESTMENTS WERE TO T HE TUNE OF 4 RS.1,42,73,785/-. IN SUCH CIRCUMSTANCES, IT WAS PL EADED THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE. RELIANCE WAS PLACED ON THE ORDER OF THE I.T.A.T., C HANDIGARH BENCH IN THE CASE OF HERO CYCLES LTD. VS. ACIT IN ITA NO.192/CHD/2013, DATED 29.10.2015, COPY OF WHICH WA S PLACED ON RECORD. 7. THE LEARNED D.R. VEHEMENTLY ARGUED RELYING ON T HE ORDER OF THE ASSESSING OFFICER AND STATED THAT AFTE R INSERTION OF RULE 8D OF THE INCOME TAX RULES W.E.F. ASSESSMEN T YEAR 2008-09, THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IS MANDATORILY TO BE COMPUTED UNDER THIS RULE IF THERE IS SOME EXEMPT INCOME EARNED BY THE ASSESSEE. THE ASSESSM ENT YEAR BEING 2008-09, THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER IS QUIET AS PER LAW AND THE ACT OF THE LEAR NED CIT (APPEALS) IN RESTRICTING THE DISALLOWANCE TO RS.10 LACS IS NOT AS PER LAW. FURTHER, RELIANCE WAS PLACED ON THE JU DGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . WALFORT SHARE AND STOCK BROKERS P. LTD. (2010) 326 ITR 1, WHEREBY IT HAS BEEN HELD THAT THE EXPENSES ONLY TO THE EXTENT INCURRED FOR EARNING TAXABLE INCOME ARE TO BE ALLOWED TO THE ASSESSEE. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE O NLY ISSUE TO BE DECIDED BY US IS WHETHER THE DISALLOWANCE SUSTAI NED BY THE LEARNED CIT (APPEALS) TO THE EXTENT OF RS.10 LACS O R MADE BY THE ASSESSING OFFICER AS PER RULE 8D IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. FROM THE PERUSAL OF THE DOCUM ENTS 5 BROUGHT ON RECORD, WE OBSERVE THAT THE ASSESSEE HAS TOTAL OWNED FUNDS TO THE TUNE OF RS.214,46,46,911/- AS ON 31.3.2008, WHILE THE INVESTMENTS AS ON THAT DATE AR E AMOUNTING TO RS.1,42,73,785/-. THESE FIGURES SHOW THAT THE ASSESSEE OWNS FUNDS FAR MORE THAN THE INVESTMENTS. IN SUCH A SCENARIO, PRESUMPTION CAN BE TAKEN THAT THE INVES TMENTS HAVE BEEN MADE OUT OF OWNED FUNDS ONLY. IF THE INV ESTMENTS ARE MADE OUT OF OWNED FUNDS, NO DISALLOWANCE ON ACC OUNT OF INTEREST CAN BE MADE UNDER SECTION 14A OF THE ACT. THE PROPOSITION TO THE EFFECT THAT SUCH A PRESUMPTION C AN BE TAKEN HAS BEEN LAID DOWN BY THE HON'BLE JURISDICTIO NAL HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF BRIGHT EN TERPRISES PVT. LTD. VS. CIT IN ITA NO.624 OF 2013 DATED 24.7. 2015 AND ALSO IN THE CASE OF CIT VS . KAPSONS ASSOCIATES, ITA NO.354 OF 2013 (O&M). THOUGH WE ARE AWARE OF THE FACT THAT T HE PRESUMPTION HAS BEEN LAID DOWN BY THE HON'BLE HIGH COURT IN THE CONTEXT OF DISALLOWANCE UNDER SECTION 36(1)(III ) OF THE ACT, HOWEVER, WE ONLY INTEND TO BORROW PRESUMPTION THAT IN THE PRESENCE OF SUFFICIENT OWNED FUNDS, IT CAN BE TAKEN THAT THE INVESTMENTS HAVE BEEN MADE OUT OF THESE FUNDS ONLY AND NO INTEREST BEARING FUNDS HAVE BEEN USED FOR SAID PURP OSES. IN VIEW OF THIS, WE DO NOT SEE ANY NEED TO MAKE DISALL OWANCE UNDER SECTION 14A OF THE ACT ON ACCOUNT OF INTEREST . 9. FOR THE PURPOSE OF DISALLOWANCE OF OTHER EXPENS ES, WE DO NOT FIND ANY SATISFACTION RECORDED BY THE ASS ESSING OFFICER IN HIS ORDER EXPLICITLY OR IMPLICITLY TO TH E FACT THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENSES HAVE BEEN IN CURRED FOR 6 EARNING EXEMPT INCOME IS WRONG. RELIANCE ON THE JU DGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. DEEPAK MITTAL (2014) 361 ITR 131 (P&H), WHEREBY IT HAS BEE N HELD THAT IN THE ABSENCE OF ANY SATISFACTION RECORDED BY THE ASSESSING OFFICER, NO DISALLOWANCE OF ADMINISTRATIV E EXPENSES UNDER SECTION 14A CAN BE MADE. AS REGARDS THE ACT OF THE LEARNED CIT (APPEALS) IN UPHOLDING THE DISALLOWANCE TO THE EXTENT OF RS.10 LACS, WE DO NOT FIND ANY SUBSTANCE IN SUCH AN ACT ON THE PART OF THE LEARNED CIT (APPEALS) SINCE WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LEARNED D.R. THAT TO THE EXTENT THAT IF ANY DISALLOWANCE HAS TO BE MADE UNDER SECTION 14A OF THE ACT, THE SAME HAS TO BE CALCULAT ED AS PER RULE 8D W.E.F. ASSESSMENT YEAR 2008-09. HOWEVER,, AS PER THE FACTS OF THE PRESENT CASE, WE HAVE ALREADY HELD THA T THERE IS NO OCCASION TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSES SEE IS ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISS ED. 10. THE GROUND NO.3, 4 AND 5 RAISED BY THE ASSESSE E READS AS UNDER : 3. THAT THE LEARNED C1T- (A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 2.51 CRORES CLAIM AS BAD DEBT/BUSIN ESS LOSS BEING THE AMOUNT FORFEITED BY BHEL ON ACCOUNT OF TERMINATION OF CONTRACT. 4. THAT IN THE ALTERNATIVE THE AMOUNT BEING IN NATU RE OF CAPITAL EXPENDITURE, THE APPELLANT WAS ENTITLED TO DEPRECIATION ON THE SAME. 5. THAT THE APPELLANT CRAVES LEAVE FOR PERMISSION T O ADD, AMEND OR ALTER ANY GROUND OF APPEAL AT THE TIME OF HEA RING. 7 11. THE FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT YEAR, THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.2.51 CRORES IN HIS PROFIT & LOSS ACCOUNT ON ACCOUNT OF FORFEITURE BY M/S BHEL. THE ASSESSEE EXPLAINED TO THE ASSESSING OFFI CER THAT IT HAD ENTERED INTO A CONTRACT WITH BHEL FOR SUPPLY OF 50MW TURBINE. THE PRICE OF THE MACHINERY AS PER CONTRAC T IS RS.24.75 CRORES. THE ASSESSEE HAS PAID AN ADVANCE OF RS.2.51 CRORES. ON THE PLEA THAT IT HAS FOUND THE SUPPLIER NAMELY M/S DF POWER SYSTEMS PVT. LTD. FOR SUPPLY OF SAME MACHI NERY AT A CHEAPER RATE, THE ASSESSEE FORGONE TO ACQUIRE THE M ACHINE AND AS A RESULT RS.2.51 CRORES WERE FORFEITED BY BHEL. THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM OF THE ASSESSEE STATING THAT ANY PAYMENT MADE BY THE ASSESSEE FOR P URCHASE OF PLANT AND MACHINERY IS A CAPITAL EXPENDITURE AS PER THE ACCOUNTING PRINCIPLES. THE AMOUNT OF RS.2.51 CRORE S GIVEN AS ADVANCE FOR PURCHASE OF MACHINERY FORFEITED BY BHEL HAS TO BE TREATED AS CAPITAL EXPENDITURE. RELIANCE WAS PL ACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF S WADESHI COTTON MILLS CO. LTD. VS. CIT (1967) 63 ITR 65. 12. BEFORE THE LEARNED CIT (APPEALS), IT WAS SUBMI TTED THAT THE EXPENDITURE IS IN THE NATURE OF REVENUE EX PENDITURE FORGONE IN THE INTEREST OF THE BUSINESS AND TO SAFE GUARD THE FURTHER LOSS ON THE SAME AS THE PARTY WAS ADDITIONA LLY DEMANDING A SUM OF RS.3.68 CRORES FOR CANCELLATION OF CONTRACT. THE EXPENDITURE INCURRED IS BY WAY OF CO MMERCIAL EXPEDIENCY AS THE ASSESSEE WAS ABLE TO GET A POWER PLANT OF HIGHER CAPACITY AT A LOWER PRICE. IT WAS ALSO SUBM ITTED THAT 8 THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF SWADESHI C OTTON MILLS CO. LTD. (SUPRA) IS MIS-PLACED AS IN THAT CAS E, THE ASSESSEE HAD TO PAY COMPENSATION FOR BREACH OF CONT RACT WHILE IN ASSESSEES CASE THE ADVANCE HAD ALREADY BEEN MAD E AND THE SAME WAS CANCELLED AS PER THE CLAUSE 19 OF THE AGRE EMENT. IN THE ALTERNATIVE, IF THE AMOUNT IS TREATED AS CAPITA L EXPENDITURE, THE BENEFIT OF DEPRECIATION WAS DEMAND ED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LE ARNED CIT (APPEALS) FOUND HIMSELF NOT IN AGREEMENT WITH THE S AME AND HELD THAT THE CLAIM OF BAD DEBT IS NOT IN THE NATUR E OF BAD DEBTS UNDER ANY CIRCUMSTANCES BUT IS CATEGORICALLY OF THE NATURE OF CAPITAL LOSS. IN THIS WAY, THE ADDITION MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE CIT (APPEALS ). 13. AGGRIEVED BY THIS THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE WHILE ARGUING BEFORE US, FIRST DREW OUR ATTENTION TO VARI OUS PAGES OF PAPER BOOK TO SHOW THAT AN AGREEMENT WAS ENTERED IN TO BY THE ASSESSEE WITH M/S BHEL AS ON 4.8.2015, WHEREBY THE ACQUISITION OF MACHINE AT A PRICE OF RS.24.75 CRORE S WAS AGREED UPON AND PRICE FOR SUPERVISION WAS RS.0.35 C RORES. AS PER THE TERMS OF PAYMENT, 10% WAS TO BE GIVEN AS AD VANCE AND THE BALANCE AS PER TERMS OF AGREEMENT. AS PER THE COMPLETION SCHEDULE, THE WORK WAS TO BE COMPLETED WITHIN SIXTE EN MONTHS FROM THE DATE OF CONTRACT. AS PER ONE OF THE CLAUS ES OF THE AGREEMENT, THE SUPPLIER IS TO BE COMPENSATED WITH T HE EQUIPMENT AND SERVICES COMPLETED AT THE INSTANCE OF 9 TERMINATION OF CONTRACT. ON 16.12.2005, A LETTER W AS GIVEN TO THE SUPPLIER REQUESTING THEM TO HOLD ON THE SAID OR DER. THE REQUEST WAS MADE ON THE BASIS OF THE FACT THAT THE ASSESSEE WAS FACING SERIES OF PROBLEMS IN STABILIZATION OF I TS POWER PLANT AND CONSEQUENTLY THE OTHER UNITS OF THE PLANT . A COPY OF THE MINUTES OF MEETING WAS ALSO PLACED ON RECORD, W HEREBY IT WAS STATED THAT THE BHEL HAD STATED THAT ON THE DAT E ON WHICH THE PROJECT WAS PUT ON HOLD I.E. 16.12.2005, SUBSTANTIAL PROGRESS HAD ALREADY TAKEN PLACE IN TERMS OF ENGINE ERING AND PROCUREMENT. THEREFORE, BHEL DID NOT IMMEDIATELY P UT ON HOLD THE VARIOUS ACTIVITIES RELATED TO THE PROJECT RESULTING IN BUILT UP OF INVENTORY. IT WAS ALSO STATED THAT THE BHEL HAD CLARIFIED THAT EXPENSES ON ACCOUNT OF ENGINEERING C HARGES, PROCUREMENT OF MATERIAL AND INVENTORY CARRYING COST HAD ALREADY BEEN INCURRED TOTALING TO RS.3,67,86,000/-. THE FRESH ORDER BOOKED BY THE ASSESSEE WITH DF POWER SYSTEMS PVT. LTD. DATED 26.2.2008 FOR PURCHASE OF 50 MW DONGFANG STEA M TURBINE GENERATOR FOR RS.21.70 CRORES WAS PLACED ON RECORD. IN VIEW OF ALL THESE FACTS, IT WAS STATED THAT SIN CE THE DECISION OF THE AMENDING AGREEMENT WAS TAKEN ON ACC OUNT OF BUSINESS PRUDENCE, THE SAME HAS TO BE ALLOWED AS RE VENUE EXPENDITURE. RELIANCE WAS PLACED ON A NUMBER OF JU DGMENTS OF VARIOUS HIGH COURTS AS UNDER : I) CIT VS. MAJESTIC AUTO LTD. (2009) 315 ITR 445 (P&H) II) IDEA CELLULAR LTD. VS. ADDL.CIT (2014) 65 SOT 15 (MUM) III) RELIANCE FOOTPRINTS VS. ACIT (2014) 29 ITR (TRIB) 82 (MUM) 10 IV) ACIT VS. ANJANI KUMAR CO. LTD. (2003) 259 ITR 114 (RAJ) V) ACIT VS. AM KRYON INTERNATIONAL PVT. LTD. ITA NO.474/2014 DATED 29.10.2015 (CHD.TRIB). 14. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN T HE CASE OF SWADESHI COTTON MILLS CO. LTD. (SUPRA) AS R ELIED ON BY THE LOWER AUTHORITIES AS WELL AS THE LEARNED D.R. W AS DISTINGUISHED BY STATING THAT THE QUESTION IN THAT CASE WAS THAT PAYMENT OF COMPENSATION TREATED AS CAPITAL EXP ENDITURE WITHIN THE MEANING OF SECTION 10(2)(XV) OF THE ACT. THE FACTS BEING NOT PERI-MATRIA WITH THE FACTS OF THE PRESEN T CASE. IT WAS PRAYED THAT THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER AND CONFIRMED BY THE LEARNED CIT (APPEALS) BE DELETED. 15. THE LEARNED D.R. RELIED ON THE ORDER OF THE AS SESSING OFFICER AS WELL AS THAT OF THE CIT (APPEALS) AND FU RTHER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE DEPARTMENT BY THE ORDER OF THE HON'BLE SUPREME COUR T IN THE CASE OF SWADESHI COTTON MILLS CO. LTD. (SUPRA). 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE U NDISPUTED FACTS OF THE CASE ARE THAT SOME ADVANCE WAS GIVEN F OR ACQUISITION OF MACHINERY, BUT BECAUSE OF SOME COMME RCIAL EXPEDIENCY THE AGREEMENT HAD TO BE SHELVED. IN TH E PROCESS, THE ASSESSEE LOST THE MONEY ADVANCED, AS THE SAME G OT FORFEITED BY THE OTHER PARTY. THE ISSUE TO BE DECI DED BY US IS 11 WHETHER THE LOSS SO INCURRED BY THE ASSESSEE IS CAP ITAL OR REVENUE IN NATURE, SINCE IT IS NOT IN DOUBT THAT TH E ASSESSEE HAS IN FACT INCURRED LOSSES IN THE SAID TRANSACTION . 17. THE GENERAL TESTS TO BE APPLIED TO DISTINGUISH BETWEEN THE LOSSES OF THE NATURE OF CAPITAL OR REVE NUE HAVE BEEN ENUMERATED IN VARIOUS CASE LAWS. A NUMBER OF CASE LAWS HAVE BEEN QUOTED BY BOTH THE PARTIES EVEN BEFORE US . 18. HOWEVER, BEFORE PROCEEDING FURTHER, WE WOULD L IKE TO REMIND OURSELVES THE WORDS OF THE HON'BLE APEX COUR T ADMINISTERING CAUTION IN THE CASE OF ABDUL KAYOOM V S. CIT (1962) 44 ITR 689 (SC), WHEREBY JUSTICE HI DAYATULL AH, IN THE MAJORITY JUDGMENT OBSERVED AS FOLLOWS : WHAT ATTRIBUTABLE TO CAPITAL AND WHAT TO REVENUE HAS LED TO A LONG STRING OF CASES HERE AND IN THE ENGLISH COURT S. THE DECISIONS OF THIS COURT REPORTED IN ASSAM BENGAL CEM ENT CO. LTD. V. COMMISSIONER OF INCOME-TAX AND PINGLE INDUSTRI ES CASE HAVE CONSIDERED ALL THE LEADING CASES, AND HAVE A LSO INDICATED THE TESTS, WHICH ARE USUALLY APPLIED IN SUC H CASES. IT IS NOT NECESSARY FOR US TO COVER THE SAME GROUND AGAIN. FURTHER, NONE OF THE TESTS IS EITHER EXHAUSTIVE OR UN IVERSAL. EACH CASE DEPENDS ON ITS OWN FACTS, AND A CLOSE SIMIL ARITY BETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH, BECAUSE EVEN A SINGLE SIGNIFICANT DETAIL MAY ALTER THE ENTIRE ASPE CT. IN DECIDING SUCH CASES, ONE SHOULD AVOID THE TEMPTATION T O DECIDE CASES (AS SAID BY CORDOZO) BY MATCHING THE CO LOUR OF ONE CASE AGAINST THE COLOUR OF AN ANOTHER. TO DECIDE, THEREFORE, ON WHICH SIDE OF THE LINE A CASE FALLS, ITS BROAD RESEMBLANCE TO ANOTHER CASE IS NOT AT ALL DECISIVE. W HAT IS DECISIVE IS THE NATURE OF THE BUSINESS, THE NATURE OF THE EXPENDITURE, THE NATURE OF THE RIGHT ACQUIRED, AND TH EIR RELATION INTER SE, AND THIS IS THE ONLY KEY TO RESOLVE THE ISSUE 12 IN THE LIGHT OF THE GENERAL PRINCIPLES, WHICH ARE FOLLOW ED IN SUCH CASES. 19. WE ARE AWARE OF THE FACT THAT IN THE PRESENT C ASE, THE ISSUE INVOLVED IS THAT OF LOSSES AND NOT OF EXP ENDITURE INCURRED BY THE ASSESSEE, HOWEVER,, WE FEEL THAT TH E PARAMETERS INVOLVED IN BOTH THE CASES ARE THE SAME. THIS PROPOSITION HAS ALSO BEEN FORTIFIED BY THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS AUTO SERV ICE LTD. (19881) 156 ITR 740 (MAD). 20. UNDOUBTEDLY, THE MONEY ORIGINALLY WAS PAID FOR ACQUIRING A MACHINERY, I.E. A CAPITAL ASSET. THE A MOUNT INCURRED ON ACQUISITION OF AN ASSET OF ENDURING NAT URE ARE CAPITAL IN NATURE. HOWEVER, PRESENTLY, THE QUESTI ON IS NOT THE ALLOWABILITY OF EXPENDITURE ON ACQUISITION OF MACHI NERY, BUT THAT OF LOSS OCCURRING ON FORFEITURE OF ADVANCE GI VEN FOR MACHINERY, THE AGREEMENT FOR WHICH HAD TO BE SHELVE D AS A MATTER OF BUSINESS EXPEDIENCY. THE CASE OF THE REV ENUE IS THAT THE AMOUNT WHICH HAS BEEN FORFEITED BY THE OTH ER PERSON, WAS ORIGINALLY GIVEN TO IT TO ACQUIRE AN ASSET OF E NDURING NATURE. YES, IT IS TRUE THAT AT THE TIME OF MAKIN G ADVANCE, THE MONEY WAS INCURRED TO ACQUIRE AN ASSET OF ENDUR ING BENEFIT. BUT WHAT WAS THE ENDURING BENEFIT DERIVED AT BY THE ASSESSEE AT THE TIME OF FOREGOING THE BUYING AGREEM ENT. IN OUR OPINION, NO SUCH BENEFIT OF ENDURING NATURE HAS BEEN DERIVED BY ASSESSEE AT THE TIME OF SUFFERING LOSSES ON ACCOUNT OF FORFEITURE OF ADVANCE MONEY. THE DECISION OF CO URSE, WAS TAKEN BY THE ASSESSEE IN A WAY ONLY TO RELIEVE ITSE LF FROM THE 13 HUGE AMOUNT OF MONEY TO BE PAID FOR A MACHINERY OF LESSER CAPACITY IN COMPARISON TO A MACHINERY OF HIGHER CAP ACITY AVAILABLE TO IT AT A LOWER COST. THE ASSESSEE PROB ABLY CAME TO TERMS WITH THE OCCASION OF SUFFERING SUCH LOSSES IN WAKE OF THE FACT OF SAVING ITSELF FROM INCURRING FURTHER HU GE LOSSES. THIS ACT GOES FURTHER TO PROVE THAT THE LOSSES ARE INCURRED ON A DECISION OF PRUDENCE TAKEN FOR THE BUSINESS. SIN CE NO CAPITAL ASSET CAME INTO EXISTENCE, THE LOSS IS ALLO WABLE AS A BUSINESS LOSS. 21. BEFORE PARTING, WE WOULD LIKE TO DISTINGUISH T HE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF S WADESHI COTTON MILLS (SUPRA), ON WHICH BOTH THE LOWER AUTHO RITIES AS WELL AS THE LEARNED D.R. DURING THE COURSE OF HEARI NG BEFORE US, HAD RELIED ON. IN THAT CASE, THE ISSUE WAS THE PAYMENT OF COMPENSATION FOR CANCELLATION OF CONTRACT OF ACQUIR ING A MACHINERY. SINCE THE AGREEMENT WAS UNDOUBTEDLY FOR PURCHASE OF AN ASSET OF ENDURING BENEFIT AND THE PA YMENT OF COMPENSATION WAS ALSO LINKED WITH THE ACQUISITION O R RATHER, NON-ACQUISITION OF SUCH AN ASSET. HOWEVER, IN THE PRESENT CASE, NO SUCH MONEY IS PAID FOR ACQUISITION OR NON- ACQUISITION OF A CAPITAL ASSET. ONLY A DECISION HAS BEEN TAKEN BY A BUSINESSMAN AS A BUSINESS PRUDENCE TO FOREGO AN AGR EEMENT EARLIER ENTERED INTO. ONLY THIS DECISION HAS RESU LTED IN SOME LOSS TO THE ASSET. NO ASSET OF CAPITAL NATURE HAS COME INTO EXISTENCE. 14 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.771/CHD/2011 IS ALLOWED AND THE APPEAL OF THE RE VENUE IN ITA NO.779/CHD/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF APRIL, 2016. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 25 TH APRIL, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH