M/s. Gujarat Urja Vikas Nigam Board., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 837/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1246 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Proportionate interest; Retrospective amendment; Initiation of penalty proceedings; Commercial expediency; Revised return; Revenue expenditure
• Section: 143(3); 142(1); 14A; 115JB; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI R. P. TOLANI, JM, & SHRI MANISH BORA D, AM. ITA NO. 837/AHD/2012 ASST. YEAR: 2008-09 GUJARAT URJA VIKAS NIGAM LTD., SARDAR PATEL VIDYUT BHAVAN, RACE COURSE CIRCLE, BARODA. VS. ACIT, CIRCLE-1(1), BARODA. APPELLANT RESPONDENT PAN AACCG2861L AND ITA NO. 899/AHD/2012 ASST. YEAR: 2008-09 DCIT, CIRCLE-1(1), BARODA. VS. GUJARAT URJA VIKAS NIGAM LTD., SARDAR PATEL VIDYUT BHAVAN, RACE COURSE CIRCLE, BARODA. APPELLANT RESPONDENT APPELLANT BY SHRI J. P. SHAH, AR RESPONDENT BY SHRI R. I. PATEL, CIT, DR DATE OF HEARING: 2/6/2016 DATE OF PRONOUNCEMENT: 22/6/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THESE ARE CROSS APPEALS AGAINST THE ORDER OF LD. C IT(A)-I, BARODA, DATED 3.2.2012 IN APPEAL NO.CAB-I, 152/10-1 1, PASSED ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 2 AGAINST ORDER U/S 143(3) OF THE IT ACT, 1961 (IN SH ORT THE ACT) FOR ASST. YEAR 2008-09 ON 28.12.2010 BY DCIT, CIRCLE-1(1), BA RODA. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN BUYING AND SELLING OF POWER. ORIGINAL E-RETURN FOR ASST. YEAR 2008-09 WAS FILED ON 29.09.2008 DECLARING TOTAL LOSS AT RS.31.15 CRORES. SUBSEQUENT LY THE RETURN OF INCOME WAS REVISED ON 18.9.2009 DECLARING TOTAL LOS S OF RS.33.01 CRORES. BOOK PROFIT U/S 115JB OF THE ACT WAS WORKED OUT AT RS.2,38,76,190/- IN THE REVISED RETURN AS AGAINST R S.4,25,35,566/- SHOWN IN THE ORIGINAL RETURN OF INCOME. THE CASE WA S SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE AC T WAS ISSUED ON 17.08.2009. FURTHER A NOTICE U/S 143(2) R.W.S. 129 OF THE ACT WAS ISSUED ON 16.8.2010 FOLLOWED BY NOTICE 142(1) OF TH E ACT ALONG WITH QUESTIONNAIRE. NECESSARY DETAILS WERE SUBMITTED. CA SE WAS DISCUSSED AND INCOME WAS ASSESSED AT RS.NIL AND DEE MED INCOME U/S 115JB WAS REVISED AT RS.155.29 CRORES. VARIOUS ADDITIONS WERE MADE TO THE RETURNED INCOME AS WELL AS TO THE BOOK PROFIT AGAINST WHICH ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A) AND GOT PART RELIEF. 3. NOW BOTH THE ASSESSEE AND THE REVENUE ARE IN APP EAL BEFORE US AGAINST THE ORDER OF LD. CIT(A). 4. FIRST WE TAKE UP GROUND NO.1 OF ASSESSEES APPEA L AND THAT OF REVENUES APPEAL WHICH READ AS UNDER :-. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 3 4.1 GROUND NO.1 OF ASSESSEES APPEAL : 1.0 THE LEARNED COMMISSIONER OF INCOME TAX (APRF 5EALS) ERRED IN LAW AND ON FACTS HAS RESTRICTED THE ADDITIONS MADE UNDER SECTION 14A OF THE I T ACT, 1961 TO RS.61,45,72,000/- CONSIDERING THE SAME AS ATTRIBUTA BLE TO EXEMPT DIVIDEND INCOME. IT IS SUBMITTED THAT THE DISALLOWANCE IS UN CALLED FOR AND BE DIRECTED TO BE DELETED. 4.2 GROUND NO. 1 OF REVENUES APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND ID.CIT(APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE OF INTEREST EXPENSE S U/S.L4(A) READ WITH RULE 8D OF RS.15246. 27 LACS TO RS.6145.72 LACS WITHOUT APP RECIATING-THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS AS P ER THE FORMULA GIVEN IN 8D FOR DERIVING PROPORTIONATE INTEREST DISALLOWANCE . 5. GROUND NO.1 OF ASSESSEES APPEAL AND GROUND NO.1 OF REVENUES APPEAL WHICH RELATE TO THE ADDITION MADE U/S 14A OF THE ACT MADE BY LD. ASSESSING OFFICER. DURING THE COURS E OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY LD. ASSESSING OFFICE R THAT ASSESSEE HAS EARNED EXEMPT INCOME OF RS.2,48,67,198/- AND AG AINST THIS INCOME THE EXPENDITURE WAS NOT SHOWN TO HAVE BEEN I NCURRED BY ASSESSEE NOR ANY DISALLOWANCE WAS MADE BY ASSESSEE RELATING TO THE EXPENDITURE RELATING TO EARNING THIS EXEMPT INCOME. LD. ASSESSING OFFICER ALSO OBSERVED THAT INTEREST EXPENDITURE OF RS.131.23 CRORES WAS CLAIMED AND ALSO THERE STOOD INVESTMENT AS ON 3 1.3.2008 AT RS.5582.05 CRORES AND LD. ASSESSING OFFICER WAS OF THE BELIEF THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR MAKIN G INVESTMENT FETCHING EXEMPT INCOME TO THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE SUBMITTED THAT OUT OF RS.131.23 CRORES OF INTEREST EXPENDITURE RS.6.3 CRORES IS PAI D AS GUARANTEE FEES AND RS.126.67 CRORES PAID TO VARIOUS BANKS AND FINA NCIAL INSTITUTIONS ON VARIOUS TYPES OF BUSINESS LOAN. WHILE FRAMING TH E ASSESSMENT LD. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 4 ASSESSING OFFICER APPLIED RULE 8D OF THE IT RULES R .W.S 14A OF THE ACT WHICH CAME INTO EFFECT IN ASST. YEAR 2008-09 AN D APPLYING THE METHOD AS PROVIDED UNDER RULE 8D CALCULATED THE DIS ALLOWANCE U/S 14A OF THE ACT AT RS.152.46 CRORES. AGAINST THIS AD DITION WHEN ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A) THE ADDIT ION U/S 14A OF THE ACT WAS SUSTAINED TO RS.61.46 CRORES BY LD. CIT(A) BY OBSERVING AS UNDER :- 3.2. I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. THERE IS NO DISPUTE THAT APPELLANT HAD MADE INVESTMENTS IN SHARES OF SUBSIDIARIES AND OTHER COMPANIES, INCOME FROM WHICH I.E. DIVIDEND WOULD BE EXEMPT FROM TAXATION. AS PER SECT ION 14A OF THE INCOME TAX ACT, NO DEDUCTION IS TO BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (2011) 15 TAXMANN.COM 390 (DELHI), IF THE EXPENDITURE IN QUESTION HAS A RELATION OR CONNECTION WITH -OR PERT AINS TO EXEMPT INCOME, IT CANNOT BE ALLOWED AS A DEDUCTION, EVEN IF IT OTHERW ISE QUALIFIES UNDER OTHER PROVISIONS OF THE INCOME TAX ACT. THUS, EVEN IF INV ESTMENT IN SHARES ETC. WAS FOR REASONS OF COMMERCIAL EXPEDIENCY AND/OR EXP ENDITURE IN RELATION TO SUCH INVESTMENTS BY WAY OF INTEREST OR OTHER EXP ENSES WAS ALLOWABLE U/S.36(L)(III)/37, THE SAME WOULD NOT BE ALLOWABLE AS DEDUCTION AS PER PROVISIONS OF SECTION 14A. AS HELD BY ITAT'S SPECIA L BENCH IN THE CASE OF CHEMINVEST LTD.(2009) 124 TTJ (DEL) (SB) 577 AND AL SO ITAT AHMEDABAD IN THE CASE OF SHANKER CHEMICAL WORKS (2011) 12 TAX MANN.COM 461 (AHD), IF THERE IS ANY EXPENDITURE IN RELATION TO E ARNING EXEMPT INCOME, THE SAME HAS TO BE DISALLOWED EVEN IF THERE IS NO ACTUA L EARNING OF ANY EXEMPT INCOME. IN THE CASE OF SHANKER CHEMICAL WORKS (SUPR A), IT WAS FURTHER HELD THAT IF INTEREST BEARING BORROWED FUNDS ARE UT ILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES AND THERE IS NO RECEIPT OF DIV IDEND INCOME OR IF THERE IS ONLY MEAGER AMOUNT OF DIVIDEND INCOME, EVEN THEN , WHOLE AMOUNT OF INTEREST EXPENDITURE INCURRED FOR THIS PURPOSE WILL BE SUBJECT TO DISALLOWANCE U/S.!4A. IT WAS HELD IN THE CASE OF SM T. LEENA RAMCHANDRAN (2011) 10 TAXMANN.COM 109 (KERALA) THAT EVEN WHERE UTILIZATION OF BORROWED FUNDS WAS FOR ACQUIRING CONTROLLING INTERE ST IN A COMPANY I.E. FOR BUSINESS PURPOSE, SO FAR AS ACQUISITION OF SHARES W AS FN THE FORM OF INVESTMENT AND ONLY BENEFIT THE ASSESSEE DERIVED TH EREFROM WAS DIVIDEND INCOME NOT ASSESSABLE UNDER THE ACT, DISALLOWANCE U /S.L4A WAS SQUARELY ATTRACTED. IN VIEW OF THIS, APPELLANT'S CONTENTION THAT DISALLOWANCE WAS MADE U/S.36(L)(III) TILL A.Y.2006-07, INVESTMENT IN SHARES WAS UNDER ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 5 FINANCIAL RESTRUCTURING PLAN APPROVED BY GOVERNMENT OF GUJARAT, I.E. INVESTMENTS WERE FOR COMMERCIAL EXPEDIENCY, INVESTM ENTS WERE STRATEGIC INVESTMENTS TO MAINTAIN CONTROL OF BUSINESS, NO DIV IDEND INCOME OR MEAGER DIVIDEND INCOME WAS EARNED FROM SUCH SHARES IN SUBS IDIARIES ETC. ARE NOT TENABLE. APPELLANT'S CONTENTION THAT INVESTMENTS IN SUBSIDIARIES WERE AS PER NOTIFIED BALANCE SHEET AS ON 1.4.2005 BY GOVERN MENT OF GUJARAT, WHICH WAS ACCEPTED BY APPELLANT COMPANY AS IT IS AN D THE LOANS ETC. WERE PRIOR TO SUCH NOTIFICATION, DUE TO WHICH INVESTMENT S IN SHARES OF SUBSIDIARIES COULD NOT BE SAID TO BE OUT OF :ARROWE D FUNDS IS NOW TAKEN UP. PART OF THE LOANS APPEARING ON APPELLANT'S BALANCE SHEET WERE IN FACT RAISED BY ERSTWHILE GEB FOR ACQUISITION OF CAPITAL ASSETS FOR GENERATION, TRANSMISSION OF ELECTRICITY ETC. UNDER THE FINANCIA L RESTRUCTURING PLAN, SUCH LOANS WERE ASSIGNED TO THE 2OPELLANT COMPANY AGAINS T WHICH SHARES IN SUBSIDIARY COMPANIES I.E. GSECL, GETCO ETC. WERE AL SO ALLOTTED. THE UNDERLYING CAPITAL ASSETS ACQUIRED OUT OF SUCH LOAN S ARE APPEARING ON THE BALANCE SHEET OF GSECL, GETCO ETC. AS FAR AS APPELL ANT COMPANY IS CONCERNED, THE INTEREST BURDEN ON SUCH LOANS INHERI TED BY IT FROM GEB IS IN RELATION TO SUCH INVESTMENTS IN SUBSIDIARY COMPANIE S ETC. THUS, MERELY BECAUSE THE LOANS WERE TAKEN PRIOR TO FINANCIAL RES TRUCTURING PLAN DOES NOT MEAN THAT INTEREST ON LOANS INHERITED FROM GEB BY THE APPELLANT COMPANY IS NOT AT ALL IN RELATION TO INVESTMENTS YI ELDING TAX FREE-INCOME. APPELLANT'S CONTENTION THAT DIVIDEND INCOME HAD ALR EADY SUFFERED DIVIDEND DISTRIBUTION TAX, DUE TO WHICH THERE WAS NO LOGIC I N DISALLOWING EXPENDITURE U/S.!4A IS NOT TENABLE SINCE DIVIDEND INCOME IS EXE MPT IN THE HANDS OF APPELLANT WHEREAS DIVIDEND DISTRIBUTION TAX IS TO B E PAID BY THE COMPANY DISTRIBUTING DIVIDEND. APPELLANT'S CONTENTION THAT INVESTMENTS WERE MADE OUT OF FUNDS RECEIVED FROM STATE GOVERNMENT AND OUT OF NET PROFIT OF THE APPELLANT COMPANY, DUE TO WHICH INTEREST ON LOANS R AISED AFTER 1.4.2005 CAN ALSO NOT BE DISALLOWED IS NOW TAKEN UP. APPELLA NT HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF DIVIDEND I NCOME. NEITHER ANY SEPARATE BANK ACCOUNT IS MAINTAINED FOR TAX FREE IN COME AND RELATED EXPENDITURE. AS HELD BY HON'BLE HIGH COURT OF KERAL A IN THE CASE OF CIT, THISSUR VS. DHANALAXMI BANK LTD. (2011) 10 TAXMANN. COM 213 (KERALA), IF THE ASSESSEE HAD A CASE THAT SEPARATE FUNDS AVAILAB LE OR FUNDS SOURCED OTHER THAN THROUGH BORROWING ONLY WERE UTILIZED FOR INVESTMENT IN SECURITIES, BONDS AND SHARES, WHICH YIELDED TAX FREE INCOME, TH EY COULD HAVE MAINTAINED SUCH ACCOUNTS AND PRODUCED THE SAME BEFO RE THE ASSESSING OFFICER WHEN PROPORTIONATE DISALLOWANCE WAS PROPOSE D BY THE ASSESSING OFFICER. THE HON'BLE COURT FURTHER HELD THAT BY SUBSEQUENT AMENDMENT THROUGH SUBSECTION (2) AND BY PRESCRIBIN G RULE 8D THEREIN, WHAT IS ACHIEVED IS TO PRESCRIBE SPECIFIC GUIDELINES FOR D ISALLOWANCE IN CASES WHERE SEPARATE ACCOUNTS ARE NOT AVAILABLE ON EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME. SINCE APPELLANT DID NOT MAINTAIN SEP ARATE ACCOUNTS IN RESPECT ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 6 OF DIVIDEND INCOME, APPLICATION OF RULE 8D TO APPOR TION EXPENDITURE IN RELATION TO EXEMPT INCOME IS JUSTIFIED. IT WAS ALSO HELD IN CASE OF DHANUKA & SONS VS. CIT (CENTRAL)-I BY HON'BLE HIGH COURT OF CALCUTTA (2011) 12 TAXMANN.COM 227 (CAL) THAT MERE FACT THAT SHARES WERE OLD ONES AND NOT ACQUIRED RECENTLY WAS IMMATERIAL; IT WAS FOR ASSESSEE TO SHOW BY PRODUCTION OF MATERIALS THAT THOSE SHARES WERE ACQUIRED FROM FUNDS AVAILABLE IN ITS HAND AT RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN AND SINCE NO SUCH MATERIAL WAS PRODUCED BY THE ASSE SSEE, DISALLOWANCE OF PROPORTIONATE AMOUNT OF INTEREST HAVING REGARD TO T OTAL INCOME AND EXEMPT SOURCE WAS JUSTIFIED. APPELLANT'S CONTENT ION REGARDING INVESTMENTS BEING OLD AND OUT OF INTEREST FREE FUNDS ETC. IS TH EREFORE NOT TENABLE AND IT IS A CASE FALLING U/S. 14A(2) OF THE INCOME TAX ACT REQU IRING DETERMINATION OF EXPENDITURE TO BE DISALLOWED AS PER RULE 8D OF INCO ME TAX RULES. ASSESSING OFFICER HAS APPORTIONED ENTIRE INTEREST OF RS.13122 .56 LAKH UNDER RULE 8D(2)(II); HOWEVER, THE INTEREST TO BE APPORTIONED UNDER CLAUSE(II) OF RULE 8D(2) IS '...... INTEREST DURING THE PREVIOUS WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT....,'. AS PER DETAILS SUBMITTED BY APPELLANT, INTEREST OF RS.167.48 CRORE WAS DIRECTLY ATTRIBUTABLE TO ITS BUSINESS OF BULK PURCHASE AND BULK SALE OF POWER, BEING IN RELATION TO WORKING CAPITAL BORROWINGS. ON OTHER HAND, INTEREST OF RS.33.94 CRO RE ON LOANS RAISED BY GEB AND OUTSTANDING ON 31.3.2008 AND CERTAIN OTHER ITEM S INCLUDED IN TOTAL INTEREST WERE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR IN COME. THE INTEREST TO BE APPORTIONED UNDER RULE 8D(2)(II) WOULD ACCORDINGLY BE AS UNDER:- NET INTEREST CLAIMED RS. 131.22 CRORE ADD: PROVISION OF INTEREST ON GOVT. LOANS RETURNED BACK. RS. 67.80 CRORE INTEREST CAPITALIZED. RS. 7.16 CRORE RS. 206.18 CRORE LESS: INTEREST CLAIMED TO BE ON WORKING CAPITAL BORROWINGS EXCLUSIVELY FOR POWER TRADING BUSINESS. RS. 167.48 CRORE RS. 38.7 CRORE DISALLOWANCE UNDER RULE 8D(2)(II) (38.7 X 552957.24 / 581358.105) = RS. 36.8094 CRORE ADD: DISALLOWANCE UNDER RULE 8D(2)(III) (AS PER ASSESSMENT ORDER). RS. 27.6478 CRORE I.E. RS.61.4572 CRORE ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 7 THUS, INSTEAD OF DISALLOWANCE OF RS.152.4627 CRORE U/S.14A MADE BY THE ASSESSING OFFICER, DISALLOWANCE OF RS.61.4572 CRORE IS DIRECTED TO BE MADE SUBJECT TO VERIFICATION BY THE ASSESSING OFFIC ER THAT INTEREST OF RS.167.48 CRORE WAS IN RELATION TO WORKING CAPITAL LOANS OR OTHER LOANS UTILIZED EXCLUSIVELY FOR POWER TRADING BUSINESS OF APPELLANT COMPANY. 6. NOW THE ASSESSEE IS IN APPEAL AGAINST THE CONFIR MATION OF RS.61.46 CRORES AND REVENUE IS IN APPEAL AGAINST TH E ORDER OF LD. CIT(A) FOR PARTLY DELETING THE DISALLOWANCE U/S 14A OF THE ACT R.W.S. RULE 8D OF THE IT RULES FOR RS.91 CRORES. 7. AT THE OUTSET LD. AR SUBMITTED THAT SIMILAR TYPE OF DISALLOWANCE U/S 14A WAS MADE IN ASSESSEES OWN CASE FOR ASST. Y EARS 2006-07 AND 2007-08 AND THE ISSUE WENT UPTO THE TRIBUNAL IN ITA NO.1820/AHD/2010 & IN ITA NOS.1874 & 1821/AHD/2010 FOR ASST. YEAR 2007-08. LD. AR SUBMITTED THAT THE TRIBUNAL HA S DECIDED THE ISSUE IN ITA NOS.1874 & 1821/AHD/2010 VIDE ORDER D ATED 20.6.2014 BY GIVING REFERENCE TO THE TRIBUNALS ORDER FOR ASS T. YEAR 2006-07 DATED 30.9.2013. LD. AR FURTHER SUBMITTED THAT THE INTEREST EXPENDITURE OF RS.131.22 CRORES EXCLUSIVELY RELATES TO INTEREST PAID ON WORKING CAPITAL LOAN AND BILL DISCOUNTING AND OTHER BUSINESS LOAN SPECIFICALLY GRANTED FOR CARRYING OUT REGULAR BUSIN ESS ACTIVITIES AND THERE HAS BEEN NO DIVERSION OF THE BUSINESS FUND TO THE INVESTMENT A/C. LD. AR FURTHER SUBMITTED THAT AS ON 1.4.2005 W HEN THE COMPANY WAS GIVEN BALANCE SHEET AS NOTIFIED BY THE STATE GO VERNMENT, THE COMPANY HAD TOTAL INVESTMENT OF RS.5580.20 CRORES C ONSISTING OF INVESTMENT IN SUBSIDIARY COMPANY AT RS.5336.43 CROR ES AND INVESTMENT IN OTHER COMPANIES AT RS.243.69 CRORES. DURING THE PERIOD FROM FINANCIAL YEAR 2005-06 TO 2007-08 THE INVESTME NT IN SUBSIDIARY ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 8 COMPANIES HAS INCREASED BY RS.100 CRORES WHEREAS IN VESTMENT IN OTHER COMPANIES INCREASED BY RS.5.05 CRORES. MANDAT ORY INVESTMENT IN SUBSIDIARY AND OTHER COMPANIES WERE MADE FROM TH E FUNDS RECEIVED FROM THE STATE GOVERNMENT AS EQUITY AND BA LANCE OUT OF THE NET PROFIT EARNED BY THE COMPANY DURING THESE YEARS . CONSIDERING THE ABOVE SUBMISSIONS, LD. AR SUBMITTED THAT THE DISALL OWANCE CONFIRMED BY LD. CIT(A) AT RS.61.46 CRORES SHOULD BE DELETED. IN THIS CONNECTION LD. AR ALSO REFERRED AND RELIED UPON THE FOLLOWING JUDGMENTS :- 1. CIT VS. ABHISHEK INDUSTRIES LTD. (P & H) 380 ITR 652 2. CHEMINVEST VS. CIT (DELHI) 378 ITR 33 3. CIT VS. ORIENTAL STRUCTURE ENGINEERS LTD.(DEL) 2 16 TAXMAN 92 4. GARWARE WALL ROPES LTD. VS. ACIT (MUM.TRIB) 65 S OT 86 5. M/S JM FINANCIAL VS. ACIT ITA 4521/MUM/2012 6. INTERGLOBE ENTERPRISE VS. DCIT ITA 1362 & 1032/D EL/2013 7. EIH ASSOCIATE HOTELS LTD. VS. DCIT (CHENNAI) ITA NO.1503/MD/2012 8. GUJARAT ALKALIES VS.DCIT (AHD) ITA NO.2398/AHD/2 012 9. KUNAL CORPORATION VS. ACIT 28 (MUM) ITR (T) 277 10.CIT VS. HLMATSINGKA SIED LTD. (KAR) 69 TAXMANN.C OM 259 8. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN THESE GROUNDS RAISED BY THE ASSESSEE AND THE REVENUE CHALLENGE THE ACTION OF LD. CIT(A). WE OBSERVE THAT AN ADDITION OF RS.152.46 CRORES WAS SUSTAINED, MADE BY LD. ASSESSI NG OFFICER WHICH WAS SUSTAINED TO RS.61.46 CRORES BY LD. CIT(A) AND, THEREFORE, ASSESSEE HAS RAISED THE GROUND AGAINST THE SUSTAINE D ADDITION OF RS.61.46 CRORES WHEREAS REVENUE HAS CHALLENGED THE DELETION OF RS.91 CRORES OUT OF THE DISALLOWANCE U/S 14A OF THE ACT. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 9 10. IN ITA NO.1874/AHD/2010 VIDE ITS ORDER DATED 20 .6.2014 THE TRIBUNAL ADJUDICATED THE ISSUE RELATING TO DISALLOW ANCE U/S 14A AND HELD AS UNDER :- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSES SEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS 1283.95 LAKHS AND THAT THE AS SESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS 18,325.41 LAKHS. THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT DIVIDEND INCO ME. THEREFORE, BY INVOKING THE SECTION 14A READ WITH RULE 8D HE MADE DISALLOWA NCE OF RS 197.80 CRORES. WE FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE THI S TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2 006-07 WHEREIN THE TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER FOR ADJUDICATION AFRESH BY OBSERVING AS UNDER: 2. AT THE OUTSET, OUR ATTENTION HAS BEEN DRAWN ON AN ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE DEPARTMENT READS AS UN DER: '1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OFRS.187.97 CRORES U /S 14A OF THE ACT ON ACCOUNT OF INTEREST ATTRIBUTABLE TO INVESTMENT IN SHARES WITHO UT APPRECIATING THE FACT THAT IN VIEW OF SECTION 106 OF THE INDIAN EVIDENCE ACT, IT WAS UP TO THE ASSESSEE COMPANY TO ADDUCE EVIDENCE THAT ALL THE BORROWINGS WERE USED FOR THE PURPOSES OF BUSINESS AND ITS IS ASSESSEE' S OWN SURPLUS FUND THAT WERE INVESTED IN THE SHARES AND DEPOSITS EARNING EXEMPTED INCOME, AND, E VEN IN CASE OF MIXED FUNDS, THE DISALLOWANCE OF INTEREST COULD BE MADE.' 1(B) AS AN ALTERNATE PLEA, THE ID. CIT(A) ERRED IN NOT UPHOLDING THE ADDITION U/S. 14A ON ACCOUNT OF INTEREST ATTRIBUTABLE TO INVESTME NT IN SHARES TO THE EXTENT IN VIEW OF PROVISIONS OF SECTION 14A READ WITH RULE 8D . ' 3. LEARNED DR HAS PLEADED THAT AN ADDITION OF RS. 1 87.97 CRORES WHICH WAS MADE U/S 14A WAS DELETED BY LEARNED CIT(A), HOW EVER, IT WAS NOT ADJUDICATED AS PER THE GROUNDS OF APPEAL. LEARNED D R HAS ALSO ARGUED THAT THE ASSESSEE WAS REQUIRED TO ADDUCE EVIDENCE T HAT ALL THE BORROWINGS WERE USED FOR THE PURPOSE OF THE BUSINESS AND THE A SSESSEE'S OWN SURPLUS FUNDS WERE INVESTED IN THE SHARES. LEARNED DR HAS ALSO INFORMED THAT IN A.Y. 2007-08, THE ADDITION OF SIMILAR NATUR E WAS UPHELD BY LEARNED CIT(A). HE HAS THUS PLEADED THAT THE ISSUE BEING LE GAL IN NATURE WHICH HAS EMERGED FROM THE FACTS ALREADY ON RECORD, THEREFORE , THE ADDITIONAL GROUND DESERVES TO BE ADMITTED FOR ADJUDICATION. 4. AFTER HEARING BOTH THE SIDES, THE ADDITIONAL GRO UND OF THE REVENUE DEPARTMENT IS HEREBY ADMITTED FOR ADJUDICATION. AT THE OUTSET, IT IS WORTH TO MENTION THAT THE IMPUGNED ADDITION OF RS.18796.82 L ACS WAS MADE BY THE ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 10 AO WITHOUT HAVING ANY DISCUSSION IN RESPECT OF THE APPLICABILITY OF SECTION 14A OF THE IT ACT. LIKEWISE, LEARNED CIT(A) HAS ALS O NOT DISCUSSED THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF I T ACT, HOWEVER, AFTER CONSIDERING THE MERITS OF THE CASE, DELETED THE ADD ITION. WITH THIS CLARIFICATION, WE HAVE EXAMINED THE FACTS AND THE I SSUE AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143( 3), DATED 26.12.2008. IT WAS NOTED BY THE AO THAT THE ASSESSE E HAD CLAIMED A HUGE AMOUNT OF INTEREST EXPENDITURE OF RS. 19360.59 LACS , AS PER THE FOLLOWING BIFURCATION. (RS. IN LACS) PARTICULARS AMOUNT INTEREST ON TERM LOANS 8981.35 WORKING CAPITAL 8184.50 OTHERS 677.63 BANK CHARGES & GUARANTEE FEES 591.65 19435.13 LESS: INTEREST CAPITALIZED 74.54 19 360.59 4.1 AT THE SAME TIME, IT WAS ALSO FOUND BY THE AO T HAT THE ASSESSEE HAD MADE THE INVESTMENT OF RS.5,47,709.74 LACS ON WHICH DIVIDEND EARNED WAS AT RS.508.18 LACS. THE AO'S OBJECTION WAS THAT ON ONE HAND THE ASSESSEE HAS DIVERTED THE HUGE FUNDS TOWARDS SUCH I NVESTMENT HAVING EXEMPTED INCOME AND ON THE OTHER HAND BORROWED HUGE FUNDS OF RS.3,46,272.51 LACS ON WHICH CLAIMED INTEREST OF RS . 19360.59 LACS. THEREFORE, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD DIVERTED THE BORROWED FUNDS FOR EARNING EXEMPTED INCOME. THE ASS ESSEE'S CONTENTION WAS THAT THE INVESTMENT DURING THE YEAR WAS ONLY RS .102.32 LACS AND REST OF THE INVESTMENT WAS MADE IN THE EARLIER YEARS. AC CORDING TO THE AO, IF THE ASSESSEE HAD NOT MADE SUCH INVESTMENT EITHER IN THE YEAR UNDER CONSIDERATION OR IN EARLIER YEARS THEN THE ASSESSEE WOULD NOT HAVE BEEN REQUIRED TO BORROW INTEREST BEARING LOANS. THE AO H AS PLACED RELIANCE UPON THE CASE OF H.R SUGAR FACTORY, 187 ITR 366 (AI D) FOR THE LEGAL PROPOSITION THAT THE ASSESSEE COULD HAVE OTHERWISE AVOIDED ITS LIABILITY OF INTEREST BY NOT GIVING INTEREST FREE FUNDS TO ITS G ROUP CONCERNS. THE ADDITION IN THE QUESTION WAS THUS MADE BY THE AO IN THE FOLLOWING CONCLUSION. 'IN VIEW OF THE ABOVE DISCUSSION AND PROVISION OF L AW, THE INTEREST ATTRIBUTABLE TO THE INVESTMENT IS NOT ALLOWABLE EXP ENDITURE. THE ASSESSEE WAS REQUIRED TO GIVE THE RATES OF INTEREST PAID TO VARIOUS SOURCES. THE ASSESSEE VIDE ITS REPLY DID NOT FURNISH THE RATES O F INTEREST PAID. IT SIMPLY SUBMITTED THAT LOANS FROM VARIOUS BANKS WITH VARYIN G INTEREST RATES WERE OBTAINED. DURING THE YEAR UNDER CONSIDERATION, THE MARKET RATE OF INTEREST WAS 12%. THEREFORE, INTEREST AT THE RATE OF 12% WOR KS OUT TO RS.65725.17 LACS ON INVESTMENTS OF RS.547709.74 LACS. HOWEVER, THE ASSESSEE HAS ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 11 CLAIMED INTEREST EXPENDITURE OF RS.19360.59 LACS AN D HAS SHOWN INTEREST INCOME OF RS.55.59 LACS AND DIVIDEND INCOME OF RS.5 08.18 LACS. HENCE, AGAINST THE INTEREST EXPENDITURE OF RS.19360.59 LAC S ASSESSEE HAS GROWN INTEREST AND DIVIDEND INCOME OF RS.563.77 LACS. THU S, NET DISALLOWANCE IS MADE OF RS.18796.82 LACS.' 5. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE TH E FIRST APPELLATE AUTHORITY WHO HAS DECIDED THE ISSUE IN ASSESSEE'S F AVOUR IN THE FOLLOWING MANNER: 'THUS, THE ONLY TEST TO BE APPLIED IS THAT OF 'COMM ERCIAL EXPEDIENCY'. IN THE INSTANT CASE, IT IS SEEN THAT NO INVESTMENT WAS MADE BY THE ASSESSEE COMPANY BY USING BORROWED FUNDS.THE ENTIRE INVESTME NT, EXCEPT MINOR INVESTMENT OF RS.11.25 LACS WAS INHERITED IN THE DE MERGER EXERCISE. THE INVESTMENT IN SHARES WAS DUE TO THE RESTRUCTURING C ARRIED OUT AT THE BEHEST OF GOG. THE INVESTMENTS WERE IN THE FORM OF SHARES OF SUBSIDIARY COMPANIES AS PAN OF THE FINANCIAL RESTRUCTURING PLA N APPROVED BY THE GOVERNMENT OF GUJARAT WHICH WAS INTEGRAL TO THE DEM ERGER. THIS WAS CLEARLY COMMERCIALLY EXPEDIENT FOR THE APPELLANT CO MPANY. THE BUSINESS ITSELF WAS VIABLE ONLY UNDER THE PLAN OF RESTRUCTU RING, WHICH REQUIRED THE COMPANY TO HAVE CROSS-HOLDINGS IN THE UNBUNDLED COM PANIES OF GEB. IN FACT, THE APPELLANT BECAME THE HOLDING COMPANY OF T HE GENERATING AND TRANSMISSION COMPANIES. LOOKING TO THE FACTS AND CI RCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THERE WAS NO DIVERSI ON OF BORROWED FUNDS FOR NON-BUSINESS PURPOSES. ACCORDINGLY, THE ADDITIO N OF RS. 18796.82 LACS IS DIRECTED TO BE DELETED.' 6. WITH THIS FACTUAL BACKGROUND, WE HAVE HEARD BOTH THE SIDES. LEARNED DR HAS PRIMARILY PLACED RELIANCE ON A DECISION OF R ESPECTED SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF ITO V/S. DAGA C APITAL MANAGEMENT PVT. LTD., 117 ITD 169 (MUM) (SB). LEARNED DR HAS A LSO PLEADED THAT IN ONE OF THE ASSESSMENT YEAR, I.E., IN A.Y. 2007-08 L EARNED CIT(A) HAD SUSTAINED THE SAME NATURE OF ADDITION. FROM THE FAC TS OF THE CASE, WE HAVE NOTED THAT THERE WAS RE-STRUCTURING ACCORDING TO WHICH ERSTWHILE GEB WAS DEMERGED INTO SEVEN DIFFERENT COMPANIES. POST R ESTRUCTURING; THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE FIRST YE AR OF OPERATION OF THE ASSESSEE COMPANY. ON ONE HAND, THOSE WERE THE FACTS WHICH WERE RELIED UPON BY THE LEARNED CIT(A). HOWEVER, ON THE OTHER H AND, THE AO HAS REPRODUCED SOME OF THE REPLIES OF THE ASSESSEE THRO UGH WHICH IT WAS CLAIMED THAT THE SAID INVESTMENT WAS NOT MADE BY TH E ASSESSEE COMPANY OUT OF THE BORROWED FUNDS BUT FROM THE CONSUMERS, C ONTRIBUTION AND SUBSIDIARIES. THERE WAS A REFERENCE OF THE ANNUAL A CCOUNTS OF THE YEAR 2005-06. THE ASSESSEE HAS ALSO INFORMED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAD INVESTED ONL Y A SUM OF RS.11.25 LACS. REST OF THE INVESTMENTS WERE THE SHARE CAPITA L OF THE SUBSIDIARY COMPANIES AS PER THE TERMS OF THE FINANCIAL RESTRUC TURING PLAN APPROVED BY THE GOVERNMENT OF GUJARAT. WE HAVE NOTED THAT TH E LEARNED CIT(A) HAS GRANTED RELIEF ONLY ON THE GROUND THAT THE ASSESSEE COMPANY HAD BECOME ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 12 THE HOLDING COMPANY AND THE INVESTMENTS WERE IN THE FORM OF SHARES OF SUBSIDIARY COMPANIES WHICH WAS AN INTEGRAL PART OF THE DEMERGER ARRANGEMENT. THEREFORE, IT WAS NOTHING BUT COMMERCI AL DECISION. 6.2 ACCORDING TO US, THE ISSUE HAS BEEN MIXED UP BY THE REVENUE DEPARTMENT. THE FIRST STEP SHOULD BE TO EXAMINE THE SCHEME OF DEMERGER AND THEREAFTER THE ISSUE COULD HAVE BEEN STREAMLINE D. AS PER THE DEFINITION OF 'DEMERGER' PRESCRIBED U/S.2(19AA) MEANS; THE TRA NSFER PURSUANT TO A SCHEME OF ARRANGEMENT BY A DEMERGED COMPANY OF ITS ONE OR MORE UNDERTAKINGS TO ANY RESULTING COMPANY IN SUCH A MAN NER THAT ALL THE PROPERTY OF THE UNDERTAKING/UNIT BEING TRANSFERRED BY THE DEMERGED COMPANY IMMEDIATELY BEFORE THE DEMERGER, WHICH BECO MES THE PROPERTY OF THE RESULTING COMPANY BY VIRTUE OF THE DEMERGER. THEREFORE, IT WAS NECESSARY FOR THE AO TO EXAMINE THE BALANCE SHEET O F THE DEMERGED COMPANY AND THE POSITION OF THE ACCOUNTS OF THE UND ERTAKING WHICH IS DEMERGED WITH THE RESULTING COMPANY. THE AO HAS TO EXAMINE THE LIABILITIES RELATED TO THE SAID UNDERTAKING WHETHER BEING TRANSFERRED UNDER THE SCHEME OF ARRANGEMENT WHICH WERE IN EXISTENCE I MMEDIATELY BEFORE THE DEMERGER. THE AO HAS TO EXAMINE THE VALUE OF TH E PROPERTY IN THE BOOKS OF ACCOUNTS IMMEDIATELY BEFORE THE DEMERGER W HICH WAS TRANSFERRED. THE AO HAS ALSO TO EXAMINE THE FINANCI AL POSITION OF THE 'RESULTING COMPANY', AS DEFINED U/S.2(41A) OF IT AC T. IN GENERAL, AN UNDERTAKING OF THE DEMERGED COMPANY IS TRANSFERRED IN A DEMERGER SCHEME AND AS A RESULT A RESULTING COMPANY COMES IN TO EXISTENCE. THE RESULTING COMPANY IN CONSIDERATION OF SUCH TRANSFER OF AN UNDERTAKING OF THE DEMERGERD COMPANY ISSUES SHARES TO THE SHARE HO LDERS OF THE DEMERGED COMPANY. THEREFORE, THE RESPONSIBILITY OF THE 'RESULTING COMPANY' WAS ALSO REQUIRED TO BE ASCERTAINED BY THE AO. THIS IS THE FIRST ASPECT, WHICH WAS NOT EXAMINED BY THE AO AND THE OR DER OF THE REVENUE AUTHORITIES ARE SILENT ON THIS SUBJECT. 6.3 NEXT QUESTION IS ABOUT THE HUGE AMOUNT OF INTER EST EXPENDITURE CLAIMED BY THE ASSESSEE. THE AO IS REQUIRED TO EXAM INE FIRST THE CORRECTNESS OF THE CLAIM. WHETHER THE INTEREST ON T ERM LOANS, BANK CHARGES AND GUARANTEE FEES WERE IN RESPECT OF THE B USINESS OF THE ASSESSEE. THEREAFTER, THE AO IS ALSO REQUIRED TO GI VE A CLEAR FINDING ABOUT THE BORROWINGS MADE BY THE ASSESSEE ON WHICH THE SA ID INTEREST WAS PAID. THE NEXT STEP IS THAT THE AO HAS TO EXAMINE THE SOU RCES OF THE FUNDS WHICH WERE INVESTED FOR EARNING THE DIVIDEND INCOME . IF THE SOURCE OF SUCH INVESTMENT IS OUT OF THE INTEREST BEARING BORROWING S, THEN ONLY THE QUESTION OF DISALLOWANCE OF INTEREST WOULD ARISE, OTHERWISE NOT. ON THE OTHER HAND, THE CLAIM OF THE ASSESSEE IS THAT THERE WERE SUFFIC IENT NON INTEREST BEARING RESERVES OR SURPLUS AVAILABLE. THE AO IS REQUIRED T O INVESTIGATE THE CORRECTNESS OF THE CLAIM THAT WHETHER THE ASSESSEE HAD SUFFICIENT NON INTEREST BEARING FUND AVAILABLE AND IN WHAT FORM TH OSE WERE UTILIZED BY THE ASSESSEE. IF THE ASSESSEE IS IN A POSITION TO DEMON STRATE THAT THE NON- ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 13 INTEREST BEARING FUNDS HAVE ACTUALLY BEEN INVESTED TO EARN EXEMPTED INCOME THEN THE ASSESSEE'S CLAIM IS LEGALLY CORRECT . THEREAFTER, THE QUESTION OF THE INVOCATION OF SECTION 14A COMES INT O PLAY. AS FAR AS THE APPLICABILITY OF THE DECISION OF SPECIAL BENCH IS C ONCERNED THE SAME NOW STOOD COVERED BY THE DECISION OF HON'BLE BOMBAY HIG H COURT PRONOUNCED IN THE CASE OF GODREJ AND BOYCE, 328 ITR 81 (BOM). FOR THE SAKE OF COMPLETENESS HEREIN BELOW REPRODUCED A PORTION OF A N ITAT ORDER VIZ., ADITYA MIDCALS AS FOLLOWS: '5. WITH THIS BRIEF BACKGROUND, WE HAVE EXAMINED TH E FACTS OF THE CASE AS ALSO THE LAW PRONOUNCED IN THIS REGARD. 6. AS FAR AS THE ASSESSING OFFICER'S ACTION IS CONC ERNED, THE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF A CALCULATION OF THE PROP ORTIONATE INTEREST ALLEGED TO BE ATTRIBUTABLE TO THE INVESTMENT EARNING EXEMPTED DIVIDEND INCOME. IT IS ALSO TO BE NOTED THAT WHILE DOING SO FOR THE YEARS UNDER CO NSIDERATION THE A.O. HAS NOT FOLLOWED THE PAST METHOD OF CALCULATION OF THE DISA LLOWANCE. AS PER AO IT WAS SEEN THAT THE WORKING OF DISALLOWANCE WAS WRONG BEC AUSE WHILE CALCULATING THE PROPORTIONATE INTEREST ATTRIBUTABLE TO DIVIDEND INC OME THE RATIO OF DIVIDEND INCOME AND TOTAL SALES HAVE BEEN TAKEN THOUGH THERE WAS NO DIRECT RELATION BETWEEN THE TWO. THE ASSESSING OFFICER HAD THUS MADE THE CALCUL ATION AFTER TAKING INTO ACCOUNT THE PROPORTION OF THE INTEREST ON THE RATIO BETWEEN THE INVESTMENT IN SHARES AND TOTAL ASSETS INCLUDING INVESTMENT IN SH ARES. APART FROM THIS, THERE IS NOTHING IN THE ASSESSMENT ORDER WHICH CAN ESTABLISH THE NEXUS OF UTILIZATION OF BORROWED INTEREST-BEARING FUNDS DIVERTED TOWARDS IN VESTMENT IN DEBENTURES. BUT THERE ARE OTHER DISCUSSIONS IN THIS VERY ASSESSMENT ORDER WHEREIN THE PROVISIONS OF SECTION 36(L)(III) OF THE ACT HAVE ALSO BEEN TOU CHED UPON. THE ASSESSING OFFICER WAS EXPECTED TO CORRELATE THE SAID DISCUSSI ON WITH THE EXEMPTED DIVIDEND INCOME U/S. 10(33) OF THE ACT. AS FAR AS THE LAW PR ONOUNCED IN THIS REGARD IS CONCERNED, FIRST OF ALL, WE HAVE TO FOLLOW A LATEST DECISION OF HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. MUMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 12/08/2010, { NOW REPORTED AS 328 ITR 8 1(BOM) } WHEREIN THE HON'BLE HIGH COURT HAS UPHELD THE CONSTITUTIONAL VA LIDITY OF SECTION 14A OF THE I.T. ACT, 1961 AND HELD THAT THE ASSESSING OFFICER SHOUL D DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR IN DIRECT) IN RELATION TO DIVIDEND INCOME AND/OR INCOME FROM MUTUAL FUND WHICH DO NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED U/S.14A OF THE I.T. ACT, 196 1. IT HAS ALSO BEEN DIRECTED THAT THE ASSESSING OFFICER CAN ADOPT A REASONABLE B ASIS FOR EFFECTING THE APPORTIONMENT. IT HAS ALSO BEEN OBSERVED BY THE HON 'BLE COURT THAT WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PR OVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUN TS AND MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.1. IN THIS JUDGEMENT AT THE END, THE HON'BLE COUR T HAS ALSO RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQUIRE D WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE INVESTMENTS AND THE BORR OWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED IN RELATION TO EXEMPTE D INCOME IS TO BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED BY THE ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 14 ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RATH ER, THE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH I NVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT THE PROVISO TO SECTION 14A OF THE A CT WAS EFFECTIVE FROM 2001-02. THE HON'BLE COURT HAS ALSO POINTED OUT THE IMPORTAN CE OF RULE 8D OF THE I.T.RULES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB-SECTIONS (2) & (3) WERE MADE APPLICABLE WITH EFFECT FROM 01/04/200 7. THE PROVISO WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 11/05/2001 , HOWEVER RULE 8D WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULES, 2008 BY PUBLIC ATION IN THE GAZETTE DATED 24/03/2008; REPRODUCED BELOW:- 'A) THE ITAT HAD RECORDED A FINDING IN THE EARLIER ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEEN MA DE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT THERE IS NO NEXU S BETWEEN THE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECIS IONS WAS THE DISALLOW ABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME E ARNED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER S ECTION 14A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME CAN BE DISALL OWED ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E EXPENDITURE CLAIMED BY THE ASSESSEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, IN VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDER COULD BE EFFECTIVELY MADE F ROM ASSESSMENT YEAR 2001- 2002 ONWARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE APPLICABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSME NT YEAR 2001 -2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLOWANCE UNDE R SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SU PRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITENESS IN THE APPROACH OF THE REVENUE WOU LD NOT APPLY TO THE FACTS OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE IN TRODUCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. THE RE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOULD HAVE NO RELEVAN CE IN CONSIDERING DISALLOWANCE IN ASSESSMENT YEAR 2002-2003 IN THE LIGHT OF SECTIO N 14A OF THE ACT. 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HAV E COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING O FFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE I N RELATION TO THE EARNING OF INCOME WHICH DOES NOT FORM PAN OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTENT OF THE DISALLOWANCE. THE ASSESS ING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPP ORTUNITY TO THE ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERED TO BE RELEVA NT AND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLI ER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMA ND THE PROCEEDINGS BACK TO THE ASSESSING OFFICER FOR A FRESH DETERMINATION. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 15 CONCLUSION: 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FAL LING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TAX ACT 1961, AS WAS A PPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOT AL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS O F SECTION 14A(1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTRIBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF THE COMPANY. THE COMPANY IS CHARGEAB LE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHARG E OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDERS. IN T HE HANDS OF THE SHAREHOLDER AS THE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEN D DOES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RUL ES AS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRE S THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT O FFEND ARTICLE 14 OF THE CONSTITUTION;; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 TH MARCH, 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RU LE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISION S OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUT Y BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. THE ASSESSING O FFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SH ALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR IN DIRECT) IN RELATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DOES NOT FO RM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OF FICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CAS E.' ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 16 6.4 DUE TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT, IT IS LEGALLY CORRECT TO REFER THIS ISSUE BACK TO THE STAGE OF TH E AO TO BE DECIDED DE NOVO AS PER THE GUIDELINES OF THE HON'BLE COURT. TH E OUTCOME OF THE ABOVE DISCUSSION IS THAT THE 'ADDITIONAL GROUND' RAISED B Y THE REVENUE MAY BE TREATED AS ALLOWED BUT ONLY FOR STATISTICAL PURPOSE . 8. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES PO INTED OUT BY THE DEPARTMENTAL REPRESENTATIVE, FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT WE RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR ADJUDICATION AFRESH WITH THE SAME DIRECTIONS AS GIVEN BY THE TRIBUNAL I N THE ASSESSMENT YEAR 2006- 07 IN THE ABOVE QUOTED ORDER. NEEDLESS TO MENTION T HAT HE SHALL ALLOW REASONABLE AND PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE B EFORE ADJUDICATING THE ISSUE. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOS E. 11. WE FURTHER OBSERVE THAT RULE-8D OF THE IT RULES CAME INTO EFFECT FROM ASST. YEAR 2008-09 WITH RESPECT TO PROV ISIONS OF SECTION 14A OF THE ACT WHICH READS AS FOLLOWS :- SEC. 14A. EXPENDITURE INCURRED IN RELATION TO INCO ME NOT INCLUDIBLE IN TOTAL INCOME.(1)FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS C HAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFIC ER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOW ER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCI NG THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. 2. NEW RULE 8D : 2.1 IN EXERCISE OF THE POWERS GIVEN IN S. 14A(2) C. B.D.T. HAS ISSUED A NOTIFICATION NO. S.O. 547(E) ON 24-3-2008 (299 ITR (ST) 88). THIS NOTIFIC ATION AMENDS THE INCOME-TAX RULES BY INSERTION OF A NEW RULE 8D PROVIDING FOR A 'METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME'. READING THIS RULE IT IS EVIDENT THAT THE RULE ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 17 PROVIDES FOR DISALLOWANCE OF NOT ONLY DIRECT EXPEND ITURE INCURRED FOR EARNING THE EXEMPT INCOME BUT ALSO FOR DISALLOWANCE OF PROPORTIONATE INDIRECT EXPENDITURE. THIS IS CLEARLY CONTRARY TO THE MAIN OBJECTIVE WITH WHICH S. 14A WAS ENACTED. 2.2 BROADLY STATED, THE NEW RULE 8D PROVIDES AS UND ER : (I) THE METHOD PRESCRIBED IN THE RULE IS TO BE APPL IED ONLY IF THE AO IS NOT SATISFIED WITH : (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE INC URRED FOR EARNING THE EXEMPT INCOME MADE BY THE ASSESSEE OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDIT URE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. (II) THE METHOD PRESCRIBED IN THE RULE STATES THAT THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF THE FOLLOWING AMOUNTS : (A) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. (B) IN THE CASE OF INTEREST ON BORROWED FUNDS WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, THE AMOUNT COMPUTED IN ACCORDANC E WITH THIS FOLLOWING FORMULA : A X B C A = AMOUNT OF INTEREST, OTHER THAN THE AMOUNT OF IN TEREST WHICH IS DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME STATED IN (A) ABOVE. B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE S HEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT ACCOUNTING YEAR. C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT ACCOUNTING YEA R. THE TERM TOTAL ASSETS MEANS TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INC REASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. (C) AN AMOUNT EQUAL TO % OF THE AVERAGE OF THE VA LUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SH EET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT ACCOUNTING YEAR. 12. WE ALSO OBSERVE THAT LD. ASSESSING OFFICER APPL IED THE FACTS AND FIGURES OF THE ASSESSEE COMPANY INTO THE METHOD PROVIDED UNDER RULE 8D OF THE IT RULES BECAUSE ASSESSEE WAS HAVING AN AVERAGE INVESTMENT OF RS.5529.57 CRORES , INTEREST PAID DUR ING THE YEAR AT RS.131.22 CRORES AND EXEMPT INCOME OF RS.249 CRORES . GOING THROUGH THESE FIGURES LD. ASSESSING OFFICER FELT AP PROPRIATE TO APPLYING THE METHOD OF RULE 8D BUT DID NOT LOOK INTO THE FOL LOWING FACTS :- ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 18 (I) AS ON 1.7.205 WHEN THE COMPANY WAS GIVEN A BALA NCE SHEET DULY NOTIFIED BY THE STATE GOVT., THE COMPANY HAD T OTAL INVESTMENT OF RS.5580.20 CRORES CONSIDERING ALL IN VESTMENT IN SUBSIDIARY COMPANIES AT RS.5336.43 CRORES, INVESTME NT IN OTHER COMPANIES AT RS.243.69 CRORES AND BALANCE IN PETTY INVESTMENT. (II) OPENING BALANCE OF INVESTMENT AS ON 1.4.2007 S TOOD AT RS.5477.16 CRORES. (III) FEW INVESTMENTS WERE MADE DURING FINANCIAL YE AR 2005-06 TO 2007-08 AND IN SUBSIDIARY COMPANIES AND FUNDS FOR T HE SAME WERE PARTLY RECEIVED FROM STATE GOVERNMENT AS EQUIT Y AND REMAINING FROM NET PROFIT EARNED. (IV) INTEREST EXPENDITURE OF RS.131.32 CRORES REPRE SENTS MOSTLY THE INTEREST PAID ON BILL DISCOUNTING OF IPPS AND WORKI NG CAPITAL LOAN FROM BANKS WHICH ARE SPECIFICALLY MEANT FOR THE BUS INESS PURPOSE; AND (V) TOTAL EXEMPT INCOME EARNED BY ASSESSEE DURING T HE YEAR STOOD AT RS.249 CRORES. 13. WE OBSERVE THAT LD. ASSESSING OFFICER HAS MADE DISALLOWANCE U/S 14A OF THE ACT WITHOUT EXAMINING THE FACTS REFE RRED ABOVE WHICH WERE VERY CRUCIAL TO REACH AT THE FINAL DISALLOWANC E U/S 14A OF THE ACT. THERE ARE SERIES OF JUDGMENTS OF THE CO-ORDINATE BE NCHES THAT THE DISALLOWANCE U/S 14A OF THE ACT SHOULD NOT EXCEED THE EXEMPT INCOME EARNED DURING THE YEAR AND ALSO DECISIONS WH EREIN THE DISALLOWANCE U/S 14A OF THE ACT ON ACCOUNT OF INTER EST EXPENDITURE ARE HELD TO BE INCORRECT IF THE ASSESSEE HAS SUFFIC IENT EQUITY AND GENERAL RESERVE TO COVER THE INVESTMENTS. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 19 14. WE ARE, THEREFORE, OF THE VIEW THAT APPLYING TH E DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1874 & 1821/AHD/2010 FOR ASST. YEAR 2007-08 IS DATED 20.6. 2014 THE MATTER IS SET ASIDE TO THE FILE OF ASSESSING OFFICER TO EX AMINE THE FACTS AND FIGURES OF THE CASE IN THE LIGHT OF OUR OBSERVATION S MADE ABOVE IN ORDER TO ARRIVE AT A FINAL CONCLUSION AS TO WHETHER DISALLOWANCE U/S 14A IS TO BE MADE AND IF SO, THEN THE AMOUNT THEREO F WHICH IN NO CASE SHOULD EXCEED THE EXEMPTED INCOME EARNED BY AS SESSEE DURING THE YEAR UNDER APPEAL. IT IS NEEDLESS TO MEN TION THAT LD. ASSESSING OFFICER SHALL ALLOW REASONABLE AND SUFFIC IENT OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE SAM E. THESE GROUNDS OF ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 15. NOW WE TAKE GROUND NO.3 OF ASSESSEES APPEAL WH ICH READS AS BELOW :- 3.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING THE ENHANCEMENT OF BOOK PROFIT COMPUT ED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 BY RS.61,45,72,000/- ON AC COUNT OF DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 16. AT THE OUTSET LD. AR SUBMITTED THAT THIS GROUND RELATES TO THE DISALLOWANCE UNDER SECTION 14A OF THE ACT DUE TO WH ICH BOOK PROFIT U/S 115JB WAS ENHANCED BY LD. ASSESSING OFFICER AND THE FATE OF THIS GROUND DEPENDS ON THE DECISION TO BE TAKEN FOR GROU ND NO.1 RAISED BY THEM. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 20 17. WE OBSERVE THAT THIS GROUND IS INCIDENTAL TO GR OUND NO.1. AS WE HAVE ALREADY DECIDED WHILE ADJUDICATING GROUND N O.1 THAT THE MATTER BE SET ASIDE TO THE FILE OF ASSESSING OFFICE R FOR LOOKING AFRESH INTO THE DISALLOWANCE MADE U/S 14A OF THE ACT AS PE R OUR OBSERVATIONS MADE IN PARAS 12,13 & 14 ABOVE, WE ACC ORDINGLY SET ASIDE THE MATTER REFERRED IN THIS GROUND TO THE FIL E OF ASSESSING OFFICER TO RECOMPUTED BOOK PROFIT U/S 115JB OF THE ACT ON T HE BASIS OF DISALLOWANCE, IF ANY, TO BE MADE BY LD. ASSESSING O FFICER AS REFERRED IN GROUND NO.1 ABOVE FOR CALCULATING THE DISALLOWAN CE, IF ANY, U/S 14A OF THE ACT. ACCORDINGLY, THIS GROUND IS ALSO ALLOWE D FOR STATISTICAL PURPOSES. 18. GROUND NO.2 OF ASSESSEES APPEAL READS AS UNDER :- 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIA TION AMOUNTING TO RS.9,17,49,861/- ON THE BASIS THAT CERTAIN ITEMS IN CLUDED UNDER THE HEAD COMPUTERS DO NOT QUALIFY FOR DEPRECIATION @ 60% UND ER THE INCOME TAX ACT, 1961. 19. BRIEF FACTS RELATING TO THIS GROUND ARE THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERV ED THAT DEPRECIATION CLAIMED ON CERTAIN ITEMS IN THE NATURE OF PLANT AND MACHINERY @ 60% CLAIMING THEM UNDER THE BLOCK OF CO MPUTERS, AND THE ISSUE WAS POINTED TO THE LD. AR OF THE ASSESSEE . VIDE SUBMISSIONS DATED 24.12.2010 ASSESSEE AGREED BEFORE LD. ASSESSING OFFICER ON THE MISTAKES AND SUBMITTED REVISED DEPRE CIATION TABLE REDUCING TOTAL DEPRECIATION CLAIM BY RS.9174986/-. ON THE BASIS OF THIS SUBMISSION LD. ASSESSING OFFICER MADE DISALLOW ANCE OF DEPRECIATION AT RS.9174986/-. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 21 20. PURSUANT THERETO ASSESSEE PREFERRED APPEAL BEFO RE LD. CIT(A) AGAINST THIS DISALLOWANCE CLAIMING THAT THE ADDITIO N IN PLANT AND MACHINERY ALSO INCLUDES THE COST TOWARDS ANNUAL MAI NTENANCE CHARGES, COST OF RECORDER MACHINES, LCD PROJECTOR ETC. OUT OF WHICH SOME OF THE EXPENSES ARE FULLY ALLOWABLE DURING THE YEAR AND ON SOME OF THE MACHINES DEPRECIATION @ 60% IS ALLOWABL E BUT AT THE TIME OF FRAMING ASSESSMENT ORDER DEPRECIATION HAS B EEN ALLOWED AT REDUCED RATES. HOWEVER, LD. CIT(A) CONFIRMED THE AD DITION TOWARDS DISALLOWANCE OF DEPRECIATION AT RS.9174986/- BY OBS ERVING AS UNDER:- 7.2. I HAVE CONSIDERED THE MATTER. ASSESSING OFFI CER HAS NOT HELD THAT ENTIRE EXPENDITURE INCURRED OF RS.164,75,39,828/-, I.E. ADDITION TOWARDS COMPUTER ASSETS WAS NOT OF CAPITAL NATURE. APPELLAN T'S SUBMISSIONS IN THIS REGARD ARE THEREFORE NOT RELEVANT. THE DISPUTE IS R EGARDING RATE OF DEPRECIATION APPLICABLE ON SUCH ASSETS. AS PER RATE S OF DEPRECIATION APPLICABLE FOR A.Y.2008-09, COMPUTER SOFTWARE WAS E LIGIBLE FOR 60% RATE OF DEPRECIATION AS PRESCRIBED IN NEW APPENDIX-I OF INC OME TAX RULES. THE ASSETS ON WHICH ASSESSING OFFICER DID NOT ALLOW 60% DEPRECIATION RATE WERE FURNITURE AND FIXTURES I.E. PANELS, RACKS ETC. AND ASSETS SUCH AS RECORDER MACHINES, LCD PROJECTORS, ELECTRICAL WORKS , AIR CONDITIONING, PUBLIC ADDRESS SYSTEM, COST TOWARDS AMC AND ATC ETC . ASSETS OF THIS KIND CAN NEITHER BE SAID TO BE 'COMPUTERS' NOR 'COMPUTER SOFTWARE'. DEPRECIATION RATE AT THE RATE OF 60% WAS NOT APPLIC ABLE ON SUCH ASSETS AND THE ASSESSING OFFICER RIGHTLY ALLOWED DEPRECIATION AT RATE APPLICABLE TO BLOCKS OF FURNITURE & FIXTURES AND NORMAL PLANT AND MACHINERY. DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION OF RS. 9,17,49,861/- IS CONFIRMED. 21. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE US. 22. LD. AR REITERATED THE SUBMISSIONS MADE BEFORE T HE LD. CIT(A) AND ALSO SUBMITTED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF ASSESSING OFFICER BEFORE WHOM FRESH WORKING OF DEPR ECIATION SHALL BE ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 22 PROVIDED IN THE LIGHT OF VARIOUS FACTS SUBMITTED BE FORE LD. CIT(A) SO AS TO ARRIVE AT THE CORRECT CLAIM OF DEPRECIATION ON C OMPUTERS. 23. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND, ASSESSEE IS AGGRIEV ED WITH THE DISALLOWANCE OF DEPRECIATION OF RS.9174986/- CLAIME D ON THE COMPUTERS. WE FIND THAT DURING THE ASSESSMENT PROCE EDINGS ASSESSEE HAS HIMSELF SUBMITTED THE REVISED COMPUTAT ION OF DEPRECIATION ON THE COMPUTERS AND HAS AGREED THAT D EPRECIATION HAS BEEN CLAIMED EXCESS BY RS.9174986/-. THEREAFTER THE MATTER WHICH WAS ALMOST CLOSED DUE TO THE SUBMISSION MADE BY ASS ESSEE, WAS REVIVED BACK BY THE ASSESSEE BY RAISING GROUND AGAI NST THIS ADDITION BEFORE LD. CIT(A) AND GAVE VARIOUS DETAILS AND DOCU MENTS SUPPORTING THE GROUND THAT DEPRECIATION DISALLOWED NEEDS TO BE RE-WORKED AS VARIOUS TYPES OF EXPENDITURE WHICH ARE FULLY ALLOWA BLE DURING THE YEAR ARE INCLUDED IN ADDITION OF BLOCK OF ASSETS, COMPU TERS AND SIMILARLY THERE ARE VARIOUS MACHINES WHICH ARE ACTUALLY ELIGI BLE FOR DEPRECIATION @ 60% HAVE BEEN SUBJECTED TO DEPRECIATION @ 15% ONL Y. WE FURTHER OBSERVE THAT LD. CIT(A) HAS LOOKED INTO THIS ASPECT AND HAS OPEN THE WAY FOR EXAMINING THE RELATES FACTS TOWARDS CALCULA TION OF CORRECT DEPRECIATION IN THE BLOCK OF ASSETS RELATING TO COM PUTERS BY WAY OF OBSERVING THE RELATED FACTS IN HIS DECISION. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 23 25. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVE N CIRCUMSTANCES THIS ISSUE NEEDS TO GO BACK TO THE FILE OF LD. ASSE SSING OFFICER FOR RE- EXAMINATION AND CALCULATION OF DEPRECIATION ON COMP UTERS IN THE LIGHT OF SUBMISSIONS MADE BY ASSESSEE BEFORE LD. CIT(A) A FTER GIVING SUFFICIENT AND REASONABLE OPPORTUNITY TO THE ASSESS EE FOR PROVIDING NECESSARY DETAILS SO AS TO ARRIVE AT THE CORRECT AM OUNT OF DEPRECIATION ON COMPUTERS FOR WHICH THE ASSESSEE IS ELIGIBLE. AC CORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 26. GROUND NOS.4 & 5 OF ASSESSEES APPEAL READ AS U NDER :- 4.0 THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS HAS DISMISSED THE GROUND RELATING TO THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE I T ACT. 5.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND ON FACT HAS DISMISSED THE GROUND RELATING TO THE INITIATION OF PENALTY PROCEEDING UNDER SECTION 271B OF THE INCOME TAX ACT, 1961. 27. THESE TWO GROUNDS ARE PREMATURE, HENCE NEED NO ADJUDICATION. 28. GROUND NO. 6 READS AS UNDER :- 6.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE INCOME TAX ACT, 1961, 29. THIS GROUND IS CONSEQUENTIAL. 30. GROUND NO.7 IS AS UNDER :- 7.0 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, DE LETE OR MODIFY ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF T HIS APPEAL. 31. THIS GROUND IS GENERAL IN NATURE, HENCE NEEDS N O ADJUDICATION. ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 24 32. NOW WE TAKE UP GROUND NO.2 OF REVENUES APPEAL WHICH READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID.CIT(APPEALS) ERRED IN DELETING THE ADDITION ON A CCOUNT OF DISALLOWANCE OF CLAIM OF GUARANTEE FEES OF RS.4.76 CRORES WITHOUT A PPRECIATING THAT THE DISALLOWANCE WAS MADE AS THE SAME ARE ENDURING NATU RE IN THE ASSESSEE'S BUSINESS. 33. IN THE BOOKS OF ACCOUNTS ASSESSEE HAS CLAIMED A N EXPENDITURE TOWARDS GUARANTEE FEES OF RS.4.76 CRORES PAID TO GO VERNMENT OF GUJARAT BUT THE SAME WAS HELD AS CAPITAL EXPENDITUR E BY LD. ASSESSING OFFICER ON THE BASIS OF HIS OBSERVATIONS THAT ASSESSEE IS GOING TO DERIVE BENEFITS IN THE FORM OF RESTRUCTURI NG THE DEBT, RESCHEDULING OF REPAYMENT SCHEDULE, REDUCTION IN IN TERNET ETC. OVER A LONG PERIOD OF TIME WHICH ARE IN THE RANGE OF MORE THAN 5 YEARS AND THE ASSESSEE WILL DERIVE ADVANTAGE OF ENDURING NATU RE. 34. IN APPEAL BEFORE LD. CIT(A) THE IMPUGNED ADDITI ON OF RS.4.76 CRORES TOWARDS TREATING IT A GUARANTEE AND AS CAPIT AL EXPENDITURE WAS DELETED BY LD. CIT(A) BY APPLYING THE JUDGMENT OF H ON. SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD. 60 ITR 52 ( SC) BY OBSERVING AS UNDER :- 4.2 I HAVE CONSIDERED FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. GUARANTEE FEE WAS AN ANNUAL RECURRING EXPENDITURE I NCURRED BY THE APPELLANT. GUARANTEE FEE WAS PAYABLE TO GOVERNMENT OF GUJARAT EVERY YEAR IN RESPECT OF LOANS TAKEN BY APPELLANT AND GUA RANTEED BY GOVERNMENT OF GUJARAT. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD. 60 ITR 52 (SC), LOAN CANNOT BE TREATED AS ASSET OR ADVANTAGE RESULTING IN ENDURING BENEFIT. GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT WAS IN CONNECTION WITH RAISIN G OF LOANS AND ENDURING BENEFIT OR ADVANTAGE COULD NOT BE SAID TO HAVE RESULTED BY TAKING ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 25 SUCH LOANS. ONLY IF THE ASSETS ACQUIRED OUT OF SUCH LOANS WERE NOT PUT TO USE TILL THE END OF PREVIOUS YEAR, I.E. 31.3.2008, GUARANTEE FEES TO SUCH EXTENT, I.E. IN RESPECT OF SUCH LOANS ONLY NEEDS TO BE CAPITALIZED AS COST OF SUCH ASSETS. APPELLANT HAS CERTIFIED THAT GUARANTEE FEE WAS PAID IN RESPECT OF LOANS FOR ACQUISITION OF CAPITAL ASSETS WHICH WE RE PUT TO USE PRIOR TO 1.4.2007. GUARANTEE FEES OF RS.4,76,00,000- IS DIRE CTED TO BE ALLOWED AS REVENUE EXPENDITURE, SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER OF THE CERTIFICATE FILED DURING APPELLATE PROCEEDINGS, I.E . LOANS ON WHICH GUARANTEE FEES WAS PAID WERE FULLY UTILIZED AND THERE WAS NO CAPITAL WORK-IN-PROGRESS IN RESPECT OF SUCH LOANS DURING F.Y.2007-08. 35. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 36. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . 37. ON THE OTHER HAND, LD. AR AT THE OUTSET SUBMITT ED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF GUJARAT ENERGY TRA NSMISSION CORPN. LTD. VS. ACIT, CIRCLE-1(1), BARODA IN ITA NO.704 & 761/AHD/2012 FOR ASST. YEAR 2008-09 PRONOUNCED ON 12.06.2015. 38. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE DECISION REFERRED AN D RELIED UPON BY BOTH THE PARTIES. THROUGH THIS GROUND REVENUE HAS C HALLENGED THE ACTION OF LD. CIT(A) DELETING THE DISALLOWANCE OF G UARANTEE FEES AT RS.4.76 CRORES. 39. WE OBSERVE THAT LD. AR HAS REFERRED AND RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF GUJARAT ENE RGY TRANSMISSION CORPN. LTD. (SUPRA), WHEREIN SIMILAR ISSUE REGARDIN G THE CLAIM OF GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT HAS BE EN DEALT WITH BY ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 26 THE TRIBUNAL AS TO WHETHER THE GUARANTEE FEES IS AN EXPENDITURE OF CAPITAL IN NATURE OR REVENUE IN NATURE AND HAS OBSE RVED AS UNDER :- 35. WE FIND THAT THE TRIBUNAL IN ITS ORDER DATED 8. 5.2015 CITED SUPRA HAS HELD AS UNDER: '6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE LD.CIT(A) DECIDED THESE ISSUES IN PARAS- 5.2 & 5.3 AND 6.2 RESPECTIVELY BY OBSERVING AS UNDER:- '5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A R AND THE FACTS OF THE CASE. THE ISSUE RELATING TO WHETHER AN ITEM OF EXPENDITURE LIES IN THE CAPITAL OR THE REVENUE FIELD HAS EXERCISED THE COURTS IN NUMEROUS CASES. FROM AN ANALYSIS OF SUCH CASES A FE W GUIDING PRINCIPLES/TESTS CAN BE IDENTIFIED. ONE OF THE IMPO RTANT TESTS FOR CATEGORIZING ANY EXPENDITURE AS CAPITAL IN NATURE I S WHETHER THE LAYING OUT OF THE IMPUGNED EXPENDITURE RESULTS IN T HE ACQUISITION OF CREATION OF ANY NEW ASSET. WHERE NO SUCH ASSET IS C REATED, IT WOULD BE INDICATIVE OF AN EXPENDITURE WHICH WAS NOT CAPIT AL IN NATURE. ANOTHER TEST RELATES TO THE PRINCIPLE OF 'ENDURING BENEFIT'. 'ENDURING BENEFIT' MAY BE IN THE FORM OF LONG LASTI NG USE OF AN ASSET OR THE ACQUISITION OF A RIGHT TO EXPLOIT CERT AIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT CASE, THE ASSESSEE D ID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COMMERCIAL TECHNOLOGY OR PROCESS , AND NEITHER WAS THE BENEFIT 'ENDURING', SINCE THE PAYMENT OF GU ARANTEE COMMISSION WAS AN ANNUAL CHARGE. THE BENEFIT DERIVE D FROM PAYMENT OF SUCH COMMISSION THUS LASTED FOR EXACTLY ONE YEAR ONLY. SUCH ITA NO.704 AND 761/AHD/2012SHORTLIVED BENEFIT CANNOT BE CATEGORIZED AS 'ENDURING'. HENCE, I AM INCLINED TO THE VIEW THAT THE PAYMENT OF GUARANTEE COMMISSION WAS A REVENUE EXPEN DITURE. 5.3. FURTHER, THE JURISDICTIONAL BENCH OF ITAT HAD OCCAS ION TO CONSIDER THE ALLOWABILITY OF GUARANTEE COMMISSION PAID TO A DIRECTOR OF THE COMPANY IN RESPECT OF LOANS TAKEN FROM THE BANK. IN THE CASE OF HIMALAYA MACHINERY PVT.LTD. (ITA NO.738/AHD/2009) F OR AY 2006-07, THE TRIBUNAL HELD, VIDE ORDER DT.5.6.2009, FOLLOWING THE DECISION OF THE RAJASTHAN HIGH COURT IN CIT V. METALISING EQUIPMENT CO.PVT.LTD ., 8 DTR 12, THAT THE PAYMENT OF COMMISSION FOR GUARANTEEING REPAYMENT OF LOAN WAS ALLOWABLE AS REVENUE EXPENSE. IN THE INSTANT CASE, THE LOAN HAS BEEN GUA RANTEED BY THE GOVERNMENT OF GUJARAT. HENCE, QUITE APART FROM THE OTHER SOUND REASONS FOR TREATING THE EXPENDITURE AS REVENUE, IT WOULD BE UNREALISTIC TO SAY THAT THE APPELLANT COMPANY COULD DERIVE ANY UNDUE ADVANTAGE OR COLLATERAL BENEFIT BY MAKING SUC H PAYMENT TO ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 27 THE GOG. IN VIEW OF THE TOTALITY OF THE CIRCUMSTANC ES, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN TREATING T HE PAYMENT OF GUARANTEE COMMISSION (RS.8,39,04,550/-) AS CAPITAL IN NATURE. THE ADDITION IS DIRECTED TO BE DELETED. 6.2. I HAVE CON SIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE JURISDICTIONAL BENCH OF ITAT HAS HELD IN THE CASE O F SHRI RAMA MULTI TECH VS. ACIT, 92 TTJ 568, THAT IN DETERMININ G THE NATURE OF EXPENDITURE INCURRED FOR OBTAINING LOAN, IT IS IRRE LEVANT TO CONSIDER THE PURPOSE OF LOAN. THE AMOUNT SPENT ON STAMP DUTY , LAWYER FEES, ETC. FOR OBTAINING LOAN SECURED BY CHARGE ON ITS FI XED ASSETS IS A REVENUE EXPENDITURE, BECAUSE THE TRANSACTIONS WERE ENTERED INTO DIRECTLY TO FACILITATE THE BUSINESS OF THE COMPANY AND PAYMENT OF CONSULTANCY CHARGES WAS MADE ON GROUND OF COMMERCIA L EXPEDIENCY. IN INDIA CEMENTS LTD. VS. CIT , 60 ITR 52, THE SUPREME COURT HAD ALSO HELD THAT THE EXPENDITURE INCURRED F OR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD WAS REVENUE EXPEN DITURE. IN THE INSTANT CASE, THE ASSESSEE HAS SECURED THE LOAN BY CREATING A CHARGE (HYPOTHECATION OF ITS ASSETS). HENCE THE RATIO OF T HE ABOVE MENTIONED TWO CASES WOULD SQUARELY APPLY. ACCORDING LY, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLO WANCE OF RS.45,24,582/-, WHICH IS DIRECTED TO BE DELETED.' 6.1 THE LD.CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL PASSED IN ITA NO.738/AHD/2009 FOR AY 2006-07 IN THE CASE OF HIMAL AYA MACHINERY PVT.LTD., DATED 5.6.2009 AND IN THE CASE OF SHRI RA MA MULTI TECH VS. ACIT REPORTED AT 92 TTJ 568. 6.2. THE LD.CIT-DR COULD NOT DISTINGUISH THE FACTS OF THE CASE, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER O F THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THESE TWO GROUNDS RAISED IN TH E REVENUE'S APPEAL ARE REJECTED.' 36. DR COULD NOT POINT OUT ANY GOOD REASON AS TO WH Y THE ABOVE QUOTED ORDER OF THE TRIBUNAL SHOULD NOT BE FOLLOWED FOR THE YEAR UN DER CONSIDERATION. IN THE ABSENCE OF DISTINGUISHING FEATURES BEING POINTED OU T BY THE DR, AND THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE ABOVE Q UOTED DECISION OF THE TRIBUNAL, WE CONFIRM THE ORDER OF THE CIT(A), AND DISMISS THI S GROUND OF APPEAL OF THE REVENUE. 40. WE ARE OF THE VIEW THAT THE ISSUE RAISED IN THI S GROUND IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BEN CH REFERRED ABOVE IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORPN. ( SUPRA) AND ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 28 RESPECTFULLY FOLLOWING THE SAME, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. THIS GROUN D OF REVENUE IS DISMISSED. 41. GROUND NO.3 OF REVENUES APPEAL READS AS UNDER :- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN TAW, THE ID.CIT(APPEALS) ERRED IN DIRECTING THE ASSESSING OF FICER TO EXCLUDE THE PROVISIONS FOR GRATUITY OF RS.44.36 LACS WHICH IS A N UNASCERTAINED LIABILITY FOR THE COMPUTATION OF BOOK PROFIT U/S115JB OF THE ACT. 42. THE ASSESSEE DID NOT ADD THE PROVISIONS FOR GRA TUITY OF RS.44.36 LACS ON THE BASIS THAT THE SAME WAS MADE O N ACTURIAL VALUATION, BUT LD. ASSESSING OFFICER DID NOT FIND T HE CONTENTION OF ASSESSEE ACCEPTABLE BECAUSE OF HIS VIEW THAT PROVIS IONS MADE AS ACTURIAL VALUATION DOES NOT MAKE ASCERTAINED LIABIL ITIES AND THE FACTS REMAINED THAT IT IS MAINLY A PROVISION WHICH NEED T O BE ADDED BACK TO PROFIT FOR COMPUTING THE TAX LIABILITY ON THE BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT AND THE WAS TAKEN UP BEFORE THE LD. CIT(A) AND DECISION WAS GIVEN IN FAVOUR OF ASSESSEE BY LD. CIT(A), WHO FOLLOWED THE DECISION OF HIS PREDECESSO R FOR ASST. YEAR 2006-07 AND 2007-08. 43. AGGRIEVED, REVENUE IS IN NOW IN APPEAL BEFORE T HE TRIBUNAL.. 44. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . 45. WHEREAS THE LD. AR AT THE OUTSET SUBMITTED THAT THE ISSUE IN THIS GROUND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 29 THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. GUJA RAT URJA VIKAS LTD. IN ITA NO.1820/AHD/2010 FOR ASST. YEAR 2006-07. 46. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE DECISION REFERRED BY LD. AR. THROUGH THIS GROUND REVENUE HAS CHALLENGED THE ACTION OF LD . CIT(A) DELETING THE ADDITION MADE BY LD. ASSESSING OFFICER FOR ADDI NG THE PROVISIONS FOR GRATUITY AT RS.44.36 LACS TO THE BOOK PROFIT CA LCULATED U/S 115JB OF THE ACT. WE FIND THAT IN ASSESSEES OWN CASE SIMILA R ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF DCIT VS. GUJARAT URJA VIKAS LTD.(SUPRA) WHEREIN IT WAS HELD AS UNDER :- 20. AFTER EXAMINING THE FACTS OF THE CASE, LEARNED CIT(A) HAS REFERRED THE CASE OF BHARAT EARTH MOVERS, 245 ITR 428 AND CERTAIN DECISI ONS OF THE TRIBUNAL AND THEN CAME TO THE CONCLUSION THAT THE PROVISION FOR GRATU ITY WAS MADE ON ACTURIAL VALUATION; HENCE, IT WAS NOT AN UNASCERTAINED LIABI LITY. IN OUR OPINION, THERE WAS NO FALLACY IN THE SAID VERDICT OF LEARNED CIT(A) BE CAUSE THE ASSESSEE HAS DEMONSTRATED THAT THE PROVISION FOR GRATUITY WAS MA DE ON THE BASIS OF SPECIFIC CALCULATION AND IT WAS NOT AN UNASCERTAINED LIABILI TY. IN THE CASE OF ESAR MOTORS LIMITED, 82 TTJ, IT WAS HELD BY THE RESPECTED CO-OR DINATE BENCH THAT THE PROVISION FOR GRATUITY BASED UPON ACTURIAL VALUATIO N WAS NOT AN UNASCERTAINED LIABILITY WHICH COULD BE ADDED BACK WHILE COMPUTING THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB . RESPECTFULLY FOLLOWING THIS DECISION, NO INTERFER ENCE IS REQUIRED IN THE VIEW TAKEN BY LEARNED CIT(A). THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED. 47. FROM GOING THROUGH THE ABOVE DECISION WE OBSERV E THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE IN ITS OWN CASE AS REFERRED ABOVE PARAGRAPH AND RESPECTFULLY FOLLOWING THE ABOVE ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 30 DECISION OF THE CO-ORDINATE BENCH, WE FIND NO REASO N TO CALL FOR ANY INTERFERENCE WITH THE ORDER OF LD. CIT(A). WE UPHOL D THE SAME. THIS GROUND OF REVENUE IS DISMISSED. 48. OTHER GROUND IS GENERAL IN NATURE, WHICH NEEDS NO ADJUDICATION. 49. IN THE RESULT, THE APPEAL OF ASSESSEE AND THAT OF THE REVENUE BOTH ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 JUNE, 201 6 SD/- SD/- (R.P. TOLANI) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 22/6/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 837 & 899/AHD/2012 ASST. YEAR 2008-09 31 1. DATE OF DICTATION: 16/06/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 17/06/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK:2 2/6/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: