The ACIT, Circle-8, Ahmedabad V. Torrent Power Ltd., Ahmedabad

ITA 773/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63016 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 29-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B K
• Keywords: Capital asset; Business expenditure; Charitable institution; Earning of tax free income; Bad and doubtful debts; Revenue expenditure
• Section: 143(3); 2(14); 14A; 37(1); 37

Judgement Text

ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENC H, AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM & SHRI ANIL CHATURVEDI A.M.) I.T.A. NO. 50 4 /AHD/2008. (ASSESSMENT YEAR: 2004-05) TORRENT POWER LTD., TORRENT HOUSE, NEAR DINESH HALL, ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8, AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD. (RESPONDENT) I.T.A. NO. 773 /AHD/2008. (ASSESSMENT YEAR: 2004-05) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8, AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. TORRENT POWER LTD., TORRENT HOUSE, NEAR DINESH HALL, ASHRAM ROAD, AHMEDABAD. (RESPODENT) PAN: AAACT 5739L APPELLANT BY : MR.S.N. SOPARKAR, SR. ADVOC ATE WITH SHRI P.M. MEHT A RESPONDENT BY : MR.B.K.S.PANDYA, CIT (DR) ( )/ ORDER DATE OF HEARING : 31 -7-2012 DATE OF PRONOUNCEMENT : 12-10 -201 2 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 2 APPEALS ARE FILED BY THE ASSESSEE AND BY THE REVENU E AGAINST THE ORDER PASSED BY LD. CIT (A)-XIV, AHMEDABAD DATED 26 -11-2007 FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY IN THE TWIN CITIES OF AHMEDABAD AND GANDHINAGAR. THE ASSESSEE FILED ITS RETURN OF I NCOME ON 1-11-2004 DECLARING TOTAL INCOME OF RS.12,23,88,230/-. THE CA SE WAS SELECTED FOR SCRUTINY. ASSESSMENT WAS FRAMED U/S. 143(3) VIDE O RDER DATED 29-12-2006 AND THE TOTAL INCOME WAS DETERMINED AT RS. 68,37,14 ,110/- BY MAKING VARIOUS ADDITIONS/DISALLOWANCES. AGGRIEVED WITH THE ORDER OF A.O. ASSESSEE CARRIED THE MATTER BEFORE CIT (A). CIT (A) GRANTED PARTIAL RELIEF TO ASSESSEE. AGGRIEVED BY THE ORDER OF CIT (A) BOTH THE ASSESSEE AND THE REVENUE ARE NOW IN APPEAL BEFORE US. ITA NO.504/AHD/2008 (ASSESSEES APPEAL) 3. GROUND NO.1 AND 5 ARE NOT PRESSED AND THEREFORE NOT ADJUDICATED. GROUND NO.6 IS GENERAL IN NATURE AND THEREFORE NOT ADJUDICATED. 4. GROUND NO.2 IS WITH RESPECT TO DISALLOWANCE U/S .14A. A.O. NOTICED THAT ASSESSEE HAD CLAIMED EXEMPT INCOME U/S. 10 OF RS. 5,26,02,435/-. ON VERIFICATION OF THE DETAILS OF BANK EXPENSES, THE A .O. NOTICED THAT THE ASSESSEE HAS PAID RS. 2,79,851/- AS INTEREST. HE WA S OF THE VIEW THAT THE ELEMENT OF ADMINISTRATIVE EXPENSES SUCH AS SALARY O F EXECUTIVES, STAFF, OFFICE RENT AND AMENITIES ETC. FOR EARNING EXEMPT I NCOME CANNOT BE RULED ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 3 OUT. CONSIDERING THE VOLUME OF SHARE TRANSACTIONS H E DISALLOWED THE EXPENDITURE OF 1.15% (1.5% OF RS. 5,26,02,435/-) I. E. RS.7,89,000/-. HE ALSO DISALLOWED INTEREST OF RS. 2,79,851/-. THUS HE MADE AGGREGATE DISALLOWANCE U/S.14A OF RS.10,68,851/-. 5. AGGRIEVED BY THE ORDER OF A.O. ASSESSEE PREFERR ED APPEAL BEFORE THE CIT (A). 6. CIT (A), RELYING ON THE DECISION OF ITAT CHENNAI BENCH IN THE CASE OF SOUTHERN PETRO CHEMICALS INDS. VS. CIT 93 TTJ 161, HELD THAT PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO B E DEDUCTED FOR COMPUTING DIVIDEND INCOME. FURTHER, RELYING ON THE DECISION OF RHYTHM EXPORTS (PVT.) LTD., V/S ITO 12 SOT, 429 (MUM.), WH ERE IT WAS HELD THAT THE EXPENDITURE INCURRED IN RELATION TO EARNING INCOME WHICH IS EXEMPT SHOULD BE TAKEN OUT AND IN CASE THE ASSESSEE FAILS TO DO S O A.O. HAS NO OPTION BUT TO TAKE THE SAME ON PROPORTIONATE BASIS. FOLLOWING THE AFORESAID DECISIONS HE UPHELD THE ORDER OF A.O. 7. AGGRIEVED BY THE ORDER OF CIT (A), ASSESSEE IS N OW IN APPEAL BEFORE US. 8. BEFORE US THE LD. A.R. SUBMITTED THAT SUB-SECTIO N 2 AND 3 WAS INSERTED TO SEC. 14A BY THE FINANCE ACT, 2007 W.E.F . 1-4-2007. IT WAS FURTHER SUBMITTED THAT SUB-SECTION 2 AND 3 ARE PROC EDURAL PROVISIONS HENCE THEY APPLY TO ALL THE ASSESSMENTS MADE ON OR AFTER 1-4-2007. IT WAS FURTHER SUBMITTED THAT AS PER THE REQUIREMENT OF SUB-SECTIO N (2), THE A.O. IS BOUND ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 4 TO VERIFY THE SAID DISALLOWANCE IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED. SINCE NO METHOD WAS PRESCRIBED BEFORE T HE DATE OF ASSESSMENT, PROVISION OF QUALIFICATION FOR DISALLOW ANCE DOES NOT BECOME APPLICABLE. IT WAS THEREFORE, SUBMITTED THAT IN THE ASSESSEES CASE SINCE TILL THE ASSESSMENT WAS COMPLETED NO METHOD WAS PRESCRIB ED FOR COMPUTATION OF DISALLOWANCE, THE DEPARTMENT COULD NOT MAKE THE DISALLOWANCE AT ALL. THE LD. A.R. RELIED ON THE DECISION OF CIT VS. CATH OLIC SYRIAN BANK LTD., (2011) 237 CTR (KER) 164. HE ALSO PLACED RELIANCE O N THE AHMEDABAD BENCH DECISION IN THE CASE OF CLP POWER INDIA PVT. LTD., VS. ITO IN ITA NO.499/AHD/2007 ORDER DATED 31-10-2011.THE LD. A.R. FURTHER SUBMITTED THAT OUT OF THE TOTAL DISALLOWANCE OF RS.10,68,851/ - HE IS NOT PRESSING FOR THE DISALLOWANCE OF RS. 2,79,851/- IN VIEW OF SMALL NESS OF THE AMOUNT HE THUS URGED THAT THE BALANCE DISALLOWANCE OF RS.7,8 9,000/- BE DELETED. 9. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT TH E A.O. WAS VERY MUCH FAIR AND REASONABLE IN DISALLOWING 1.5% OF THE INCOME. HE THUS, SUPPORTED THE ORDER OF THE A.O. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE A.O. HAS DISALLOWED THE A DMINISTRATIVE EXPENSES PERTAINING TO SALARY OF STAFF, RENT ETC. ON ADHOC B ASIS. HE HAS NOT GIVEN A FINDING AS TO THE AMOUNT INCURRED BY ASSESSEE FOR E ARNING EXEMPT INCOME. IN THE CASE OF MAXOPP INVESTMENT LTD. (2011) 64 DTR 122, THE HONBLE HIGH COURT HAS HELD THE EXPRESSION EXPENDITURE INC URRED REFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE BU T THE ACTUAL EXPENDITURE THAT IS IN CONTEMPLATION U/S. 14A(1) IS THE ACTUAL EXPENDITURE ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 5 IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCU RRED IN RELATION TO EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE U/S. 14A. 11. WE FIND THAT THE A.O. HAS ESTIMATED THE EXPENS ES AT 1.5% OF THE EXEMPTED INCOME. HE HAS NOT GIVEN ANY FINDING WITH RESPECT TO THE EXPENDITURE INCURRED ON ADMINISTRATIVE-HEAD BY THE ASSESSEE. THE ASSESSEE HAS SUBMITTED THAT IT HAS INCURRED NO EXPE NDITURE. IN VIEW OF THE TOTALITY OF FACTS AND RELYING ON THE DECISION OF H ONBLE DELHI HIGH COURT WE ARE OF THE VIEW THAT NO DISALLOWANCE WITH RESPECT T O ADMINISTRATIVE EXPENSES CAN BE MADE IN THE PRESENT CASE. WE THUS D ELETE THE DISALLOWANCE. 12. THE THIRD GROUND OF THE ASSESSEE IS WITH RESPEC T TO THE INTER-CORPORATE DEPOSIT (ICD) WRITE OFF OF RS.75 LAKHS. 13. THE ASSESSEE HAD PLACED INTER-CORPORATE DEPOSIT (ICD) OF RS.1 CRORE WITH M/S. M.S. SHOES LTD. IN F.Y. 1993-94. THE SAID COMPANY IS STATED TO HAVE DEFAULTED IN PAYMENT OF PRINCIPAL AS WELL AS I NTEREST FROM F.Y. 1994- 95. ACCORDINGLY THE ASSESSEE FILED RECOVERY SUIT IN DELHI HIGH COURT. THE ASSESSEE HAD WRITTEN OFF THIS AMOUNT AS BAD DEBT IN A.Y.1997-98, AS THE RECOVERY SUIT WAS PENDING. HOWEVER, DURING THE YEAR 2003-04, THE ASSESSEE STATED THAT THEY REACHED A SETTLEMENT WITH THE SAID COMPANY AND RECOVERED RS.25 LAKHS IN FULL AND FINAL SETTLEMENT AGAINST THE CLAIM. THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE A.O. FOR THE REASON THAT THE ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 6 ASSESSEE HAD FINANCED MONEY AS INTER-CORPORATE DEPO SIT TO A COMPANY. ACCORDING TO A.O. THE DEPOSIT GIVEN BY THE ASSESSEE WAS IN THE NATURE OF INVESTMENT FOR THE REASON THAT THE ASSESSEE IS NOT A NON BANKING FINANCING COMPANY. THE A.O. WAS OF THE VIEW THAT INVESTMENT W RITTEN OFF AS NOT RECOVERED IS CAPITAL IN NATURE AND THEREFORE, THE S AME IS NOT COVERED U/S. 36(2) OF THE ACT AND THEREFORE THE SAME CANNOT BE A LLOWED AS EXPENSES. 14. AGGRIEVED BY THE ORDER OF A.O. ASSESSEE CARRIED THE MATTER BEFORE CIT (A). 15. CIT (A) REJECTED THE ASSESSEES PLEA FOR THE RE ASON THAT THE ASSESSEE HAS NOT BEEN DOING THE BUSINESS OF GIVING LOAN AND IS NOT A NON BANKING FINANCIAL COMPANY. HE THEREFORE, HELD THAT THE DEPO SIT WRITTEN OFF CANNOT BE ALLOWED AS A BAD DEBT AND ALSO NOT AS A BUSINESS LO SS AS THE SAME WAS NOT GIVEN DURING THE COURSE OF ITS BUSINESS. HE THEREFO RE, HELD THAT THE AMOUNT WRITTEN OFF WAS A CAPITAL ASSET. 16. AGGRIEVED BY THE ORDER OF CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 17. BEFORE US THE LD. A.R. SUBMITTED THAT THE ASSES SEE SHOULD BE ALLOWED LOSS UNDER THE CAPITAL GAINS FOR THE REASON THAT EV EN A.O. AND CIT (A) HAVE HELD THAT INTER CORPORATE DEPOSIT (ICD) IS A CAPITA L ASSET. HE FURTHER SUBMITTED THAT AS PER SECTION 2(14) CAPITAL ASSET T O MEAN AS PROPERTY OF ANY KIND HELD BY THE ASSESSEE WHETHER OR NOT CONNEC TED WITH HIS BUSINESS BUT DOES NOT INCLUDE THE A.R. SUBMITTED THAT THE MAIN PART OF SECTION ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 7 2(14) PROPERTY OF ANY KIND AND IT IRRELEVANT WHET HER IT IS CONNECTED WITH THE ASSESSEES BUSINESS OR NOT. THE TERM PROPERTY H AS NOT BEEN DEFINED IN THE INCOME TAX ACT AS PER VARIOUS JUDICIAL PRONOUNC EMENTS THE PROPERTY MEANS A BUNDLE OF RIGHTS WHICH THE OWNER CAN LAWFU LLY EXERCISE TO THE EXCLUSION OF ALL OTHERS. IT ALSO MEANS THE RIGHT, TITLE OR INTEREST FOR PAYMENT. THE LD. A.R. THEREFORE SUBMITTED THAT THE ASSESSEE S RIGHT IN THE INTER- CORPORATE DEPOSIT IS A PROPERTY AND HENCE CAN BE TR EATED AS CAPITAL ASSET. HE ALSO RELIED ON THE DECISION OF GUJARAT HIGH COUR T IN THE CASE OF CIT VS. MINOR BABABHAI ALIAS LAVKUMAR KANTILAL (1981) 128 I TR 12 (GUJ.) AND IN THE CASE OF CIT VS. EAST INDIA CHARITABLE TRUST (1994) 206 ITR 152 (CAL.). IT WAS THUS SUBMITTED BY THE LD. A.R. THAT SINCE ICD I S A CAPITAL ASSET AND THE ASSIGNING OF THE DEBT IS A TRANSFER, THE LOSS ARISI NG OUT OF SUCH TRANSFER SHOULD BE ALLOWED AS CAPITAL LOSS. 18. THE LD. D.R. ON THE OTHER HAND, SUBMITTED THAT CASE-LAWS RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS. HE PO INTED OUT THAT IN THE CASE OF CIT VS. MINOR BABABHAI ALIAS LAVKUMAR KANTI LAL (SUPRA), IT WAS NOT A CASE OF TRANSFER AND THEREFORE, THE FACTS ARE DIF FERENT AND CANNOT BE APPLIED IN THE ASSESSEES CASE. IN THE CASE OF CIT VS. EAST INDIA CHARITABLE TRUST (SUPRA) THE FACTS WERE DIFFERENT AS IN THAT C ASE THE TRUST HAD SOME CAPITAL GAIN ON SALE OF SHARES AND UTILIZED THE SAL E PROCEEDS INTER ALIA FOR MAKING FIXED DEPOSITS WITH SOME BANKS AND PUBLIC SE CTOR UNDERTAKINGS. IN THESE CIRCUMSTANCES IT WAS HELD THAT THE INVESTMENT OR DEPOSIT WAS AN ASSET IN THAT CASE, IT WAS NOT CASE OF TRANSFER AND THEREFORE, THE FACTS ARE DIFFERENT AND IT CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. HE THUS SUBMITTED THAT THE ORDER OF A.O. AND CIT (A) BE UPH ELD. ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 8 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS PLACED DEPOSIT WITH M/S. M. S. SHOES LTD., OF RS.1 CRORE IN F.Y. 1993-9 4 AND THE SAID COMPANY DEFAULTED IN PAYMENT OF PRINCIPAL AS WELL AS INTERE ST FROM F.Y. 1994-95. IN THE YEAR 2003-04 THE ASSESSEE REACHED SETTLEMENT WI TH THE SAID COMPANY AND RECOVERED RS.25 LAKHS WHICH WAS CLAIMED AS BAD DEBT AFTER WRITING IT OFF IN THE BOOKS OF ACCOUNTS. THE A.O. HAD NOT ALLO WED THE EXPENDITURE FOR THE REASON THAT THE ASSESSEE IS NOT IN THE BUSINESS OF NON-BANKING FINANCING COMPANY. FROM THE RECORDS, WE FIND THAT B EFORE THE A.O. AND CIT (A) THE ASSESSEE HAD TAKEN THE PLEA THAT THE WRITE OFF BE ALLOWED AS BUSINESS LOSS OR AS BAD DEBTS. THE ASSESSEE HAD NOT TAKEN THE PLEA OF CONSIDERING THE SAME TO BE A CAPITAL LOSS AND ITS A LLOWABILITY BEFORE THE A.O. OR CIT (A). THIS PLEA IS TAKEN FOR THE FIRST T IME BEFORE US. WE ARE THEREFORE OF THE VIEW THAT IN THE MATTER OF FAIRNES S, THE MATTER OF ALLOWABILITY OF RS.75 LAKHS AS CAPITAL LOSS NEEDS TO BE EXAMINED AS IT WAS NOT EXAMINED EARLIER. IN VIEW OF THESE FACTS WE ARE OF THE VIEW THAT THE MATTER BE REMITTED BACK TO THE FILE OF A.O. FOR ITS VERIFI CATION AND TO DECIDE IT AS PER LAW. WE THUS REMIT THIS GROUND TO THE FILE OF A.O. WITH A DIRECTION TO EXAMINE IT IN ACCORDANCE WITH LAW AND AFTER GIVING REASONAB LE OPPORTUNITY OF HEARING TO ASSESSEE. THUS, THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSES. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.773/AHD/2008. (REVENUES APPEAL) ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 9 FIRST GROUND OF THE REVENUE IS REGARDING DELETING O F DISALLOWANCE OF CONTRIBUTION OF MEHASUL BHAWAN AMOUNTING TO RS.20,0 0,000/-. 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT ASSESSEE HAS MADE PAYMENT OF RS.20 LAKHS AS CONTRIB UTION FOR CONSTRUCTION OF MEHASUL BHAVAN (COLLECTOR OFFICE), A NEW BUILDING KNOWN AS JAN SEVA KENDRA. THE ASSESSEE SUBMITTED THAT T HE COLLECTOR AND DISTRICT MAGISTRATE AHMEDABAD HAD ISSUED A LETTER D ATED 3-10-2003 REQUESTING THE ASSESSEE TO CONTRIBUTE TOWARDS CONST RUCTION AND THE COLLECTOR WAS EXPECTING A SPONSORSHIP FROM THE ASSE SSEE. IN THE LETTER OF COLLECTOR IT WAS ALSO STATED THAT IF THE ASSESSEE P AYS RS.20 LAKHS AS SPONSORSHIP, THE NAME OF THE ASSESSEE WILL BE EXHIB ITED AT APPROPRIATE PLACE. PURSUANT TO THE LETTER OF COLLECTOR, THE ASS ESSEE MADE PAYMENT AND CLAIMED IT AS EXPENDITURE. THE A.O. WAS OF THE VIEW THAT THE EXPENDITURE OF RS.20 LAKHS WAS NOT A BUSINESS EXPENDITURE U/S. 37( 1) OF THE ACT. HE ACCORDINGLY DISALLOWED THE ENTIRE EXPENDITURE. AGG RIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT (A). 22. BEFORE CIT (A), THE ASSESSEE SUBMITTED THAT THE EXPENDITURE WAS ALLOWABLE U/S. 37(1) AS IT WAS INCURRED FOR THE PUR POSE OF ITS BUSINESS. IT WAS FURTHER SUBMITTED THAT BY INCURRING OF EXPENDIT URE THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET. THE ASSESSEE ALSO PLACE D RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GO DHRA ELECTRICITY CO., 225 ITR 746, CIT VS. MADRAS REFINERIES LTD., 266 I TR 170 AND ADDL. CIT ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 10 VS. KUBERSIGH BHAGWADAS (118 ITR 379) (MP). CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, DELETED THE ADDITION B Y HOLDING AS UNDER:- 4.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE APPELLANT ALONG WITH THE CASE LAWS AS RELIED UP ON. I AM INCLINED TO AGREE WITH THE VIEWS OF THE APPELLANT. I AM OF THE VIEW THAT BY INCURRING SUCH EXPENDITURE, THE APPELLANT HAS NOT A CQUIRED ANY CAPITAL ASSET, BUT THE SAME WAS INCURRED IN THE INTEREST OF ITS BUSINESS. BY FOLLOWING THE DECISIONS AS RELIED UPON, I HOLD THAT THE DISALLOWANCE MADE IN THIS COUNT WAS NOT JUSTIFIED ADDITION. THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE SO MADE. 23. AGGRIEVED BY THE ACTION OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 24. BEFORE US THE LD. D.R. SUBMITTED THAT THE EXPEN DITURE INCURRED WAS NOT FOR BUSINESS PURPOSES. HE THUS RELIED ON THE OR DER OF THE A.O. 25. ON THE OTHER HAND THE A.R. SUBMITTED THAT THE E XPENDITURE IS A BUSINESS EXPENDITURE. HE ALSO PLACED ON RECORD AT PAGE 21 TO 26 COPY OF THE DECISION IN THE CASE OF ACIT VS. GUJARAT NARMAD A VALLEY FERTILIZERS CO. LTD., WHERE THE HONBLE GUJARAT HIGH COURT RELYING ON THE DECISION OF SHRI VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT (223 ITR 101 (SC) HAS ALLOWED THE DEDUCTION OF RS.25 LAKHS GIVEN TO NARMADA INTEGRATED RURAL AND ENVIRONMENTAL DEVELOPMENT SOCI ETY U/S. 37(1) OF THE ACT. HE ALSO PLACED RELIANCE ON THE SUPREME COURT D ECISION IN THE CASE OF SHRI VENKATA SATYARAYANA RICE MILL CONTRACTORS CO. VS. CIT (SUPRA). HE THUS SUBMITTED THAT THE ORDER OF CIT (A) BE UPHELD. ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 11 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE HA D PAID RS.20 LAKHS AS SPONSORSHIP EXPENSES FOR THE CONSTRUCTION OF MEHASU L BHAVAN (COLLECTOR OFFICE) AND CLAIMED IT AS REVENUE EXPENDITURE. THE HONBLE APEX COURT IN THE CASE OF SHRI VENKATA SATYANARAYANA RICE MILL CO NTRACTORS CO. (SUPRA) HAS HELD AS UNDER:- FROM THE AFORESAID DISCUSSION IT FOLLOWS THAT ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CARRYING ON OF THE AS SESSEES BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSEES BUSIN ESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION UNDER SECTION 37 (1) OF THE ACT. SUCH A DONATION, WHETHER VOLUNTARY OR AT THE INSTAN CE OF THE AUTHORITIES CONCERNED, WHEN MADE TO A CHIEF MINISTE RS DROUGHT RELIEF FUND OR A DISTRICT WELFARE FUND ESTABLISHED BY THE DISTRICT COLLECTOR OR ANY OTHER FUND FOR THE BENEFIT OF THE PUBLIC AND WITH A VIEW TO SECURE BENEFIT TO THE ASSESSEES BUSINESS, CANNOT BE REGARDED AS PAYMENT OPPOSED TO PUBLIC POLICY. IT IS NOT AS IF THE PAYMENT IN THE PRESENT CASE HAD BEE MADE AS AN ILLE GAL GRATIFICATION. THERE IS NO LAW WHICH PROHIBITS THE MAKING OF SUCH A DONATION. THE MERE FACT THAT MAKING OF A DONATION FOR A CHARITABL E OR PUBLIC CAUSE OR IN PUBLIC INTEREST RESULTS IN THE GOVERNMENT GIVING PATRONAGE OR BENEFIT CAN BE NO GROUND TO DENY THE ASSESSEE A DED UCTION OF THAT AMOUNT UNDER SECTION 37(1) OF THE ACT WHEN SUCH PAY MENT HAD BEEN MADE FOR THE PURPOSE OF THE ASSESSEES BUSINESS. 27. IN THE PRESENT CASE, THE ASSESSEE HAS PAID RS.2 0 LAKHS FOR CONSTRUCTION OF MEHSUL BHAVAN BUT THE ASSESSEE IS N OT THE OWNER OF THE ASSET AND HAS ALSO NOT ACQUIRED ANY CAPITAL ASSET. THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE LD. D.R. COULD NOT CONTROVERT THE FINDINGS OF CIT (A) BY BRINGING ANY MATERIAL TO THE CONTRARY ON RECORD. IN VIEW OF THESE FACTS AND RESPECTFULLY FOL LOWING THE DECISION OF ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 12 HONBLE APEX COURT IN THE CASE OF ACIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD., WE ARE OF THE VIEW THAT NO IN TERFERENCE IS CALLED TO THE ORDER OF CIT (A) AND WE THUS DISMISS THIS GROUND OF REVENUE. 28. SECOND GROUND IS WITH RESPECT TO THE DELETION O F DISALLOWANCE OF WRITE OFF OF OBSOLETE METERS AMOUNTING TO RS.1,42,57,030/ -. 29. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O . OBSERVED THAT ASSESSEE HAS CLAIMED LOSS ON ACCOUNT OF OBSOLETE ME TERS AMOUNTING TO RS.4,75,23.425/-.THE ASSESSEE EXPLAINED AND JUSTIFI ED THE WRITE OFF BY STATING THAT THEY WERE THREE PHASE ELECTRO MECHANIC AL METERS WHICH CONTAIN MECHANICAL COUNTERS AND IT WERE SUSCEPTIBLE TO TAMP ERING BY THE CONSUMERS. USE OF THESE METERS HAD RESULTED IN A H UGE LOSS OF REVENUE TO ASSESSEE. IN VIEW OF THESE FACTS, THE INVENTORY OF METERS AND OTHER ITEMS AMOUNTING TO RS.4,75,23,425/- WHICH WAS NET OF ITS REALIZABLE VALUE WAS WRITTEN OFF AND THE ASSESSEE CLAIMED IT AS EXPENDIT URE. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT WITH THE INTRODUCTIO N OF TEMPER-PROOF ELECTRONIC METERS, THE ELECTRO-MECHANICAL METERS BE CAME OUTDATED. THE A.O. DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE IN ITS ENTIRETY. HE WAS OF THE VIEW THAT THERE WOULD BE SOME REALIZABLE VAL UE OF THE INVENTORY WHICH IS WRITTEN OFF. HE ACCORDINGLY ESTIMATED THE REALIZABLE VALUE OF THE MECHANICAL METERS TO BE 30% AND ACCORDINGLY DISALLO WED 30% OF THE INVENTORY (RS.1,42,57,030/-) WRITE OFF. 30. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIE D THE MATTER BEFORE THE CIT (A). CIT (A) DELETED THE ADDITION MADE BY T HE A.O. FOR THE REASON ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 13 THAT THE A.O. HAS MADE THE DISALLOWANCE AT 30% OF T HE VALUE WITHOUT ANY BASIS. 31. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 32. BEFORE US THE LD. D.R. SUBMITTED THAT THE A.O. WAS FAIR IN ESTIMATING THE VALUE OF THE INVENTORY WHICH COULD BE RECOVERED AS SALVAGE. HE THUS URGED THAT IN VIEW OF THESE FACTS, THE ORDER OF THE A.O. NEEDS TO BE UPHELD. 33. LD. A.R. ON THE OTHER HAND SUBMITTED THAT THE A SSESSEE HAD VALUED THE INVENTORY AT NET REALIZABLE VALUE. THE ASSESSEE ALSO POINTED OUT TO THE SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY ASSESSE E IN PREPARING ITS ACCOUNTS AND HE POINTED OUT AT PAGE-115 OF THE PAPE R BOOK WHEREIN IT WAS STATED THAT INVENTORIES ARE VALUED AT COST AFTER PR OVIDING FOR OBSOLESCENCE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS RIGHTLY CLAIMED THE NET AMOUNT AS EXPENDITURE AND THERE WAS NO NEED FOR MAKING FUR THER DISALLOWANCE. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS EXPLAINED THAT THE THREE P HASE ELECTRO METERS WERE LYING IDLE SINCE LONG IN THE INVENTORY. IT WAS FOUND THAT THEY WERE SUSCEPTIBLE TO TEMPERING BY THE CUSTOMERS. THE ASSE SSEE HAS CONTACTED SUPPLIERS FOR MODIFICATION OF METERS BUT IT WAS FOU ND TO BE NOT FEASIBLE. IN THE MEANTIME WITH INTRODUCTION OF ELECTRONIC METERS , MECHANICAL METERS BECAME OUTDATED AND OBSOLETE. WE FIND THAT THE SUBM ISSION OF ASSESSEE HAD NOT BEEN DISPUTED BY THE A.O. A.O. HAS PRESUMED THAT 30% VALUE OF ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 14 SUCH METERS WOULD BE REALIZED IN FUTURE AND ACCORDI NGLY MADE DISALLOWANCE. THE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF PRESUMPTION AND WITHOUT PLACING ANY MATERIAL ON REC ORD. FURTHER THE ASSESSEE FOLLOWS THE POLICY OF VALUING INVENTORIES AFTER TAKING INTO CONSIDERATION THE NET REALIZABLE VALUE. IN THE CASE OF INVENTORY WRITTEN OFF, THE ASSESSEE HAD ALREADY CONSIDERED THE SALVAGE VAL UE WHILE WRITING OFF THE OBSOLETE METERS. A.O. HAS NOT BEEN IN A POSITION TO CONTROVERT THE FACTUAL POSITION SUBMITTED BY ASSESSEE. IN VIEW OF THESE F ACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). WE THUS D ISMISS THIS GROUND OF REVENUE. 35. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON - - 2012. ( D.K. TYAGI) (ANIL CHATURVEDI) ` JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XIV, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO 504/ AHD/2008 ITA.NO.773/A HD/2008 A.YR.. 2004-05 15 1.DATE OF DICTATION 1 - 8 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 25 / 9 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 8 -10 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 12 - 10 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 12 - 10 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 12 - 10 -2012. 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..