ACIT, New Delhi V. M/s Kribhco Shyam Fertilizers Ltd., New Delhi

ITA 852/DEL/2011

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9313 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY RANJAN MS IRA KAPOOR
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Earning of tax free income; Cost of acquisition; Wholly owned subsidiary; Valuation report
• Section: 271(1)(c); 43B; 14A; 37(1); 32; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.764/DEL./2011 (ASSESSMENT YEAR : 2006-07) KRIBHCO SHYAM FERTILIZERS LTD., VS. ITO (OSD), C 165, 1 ST FLOOR, RANGE 5, NARAINA INDUSTRIAL AREA, PHASE-1, NEW DELHI. NEW DELHI 110 028. (PAN : AACCK6999B) ITA NO.765/DEL./2011 (ASSESSMENT YEAR : 2007-08) KRIBHCO SHYAM FERTILIZERS LTD., VS. ACIT, C 165, 1 ST FLOOR, CIRCLE 5 (1), NARAINA INDUSTRIAL AREA, PHASE-1, NEW DELHI. NEW DELHI 110 028. (PAN : AACCK6999B) ITA NO.3508/DEL./2011 (ASSESSMENT YEAR : 2008-09) ITA NO.5696/DEL./2015 (ASSESSMENT YEAR : 2009-10) ITA NO.4622/DEL./2014 (ASSESSMENT YEAR : 2010-11) KRIBHCO SHYAM FERTILIZERS LTD., VS. ACIT, A 60, KAILASH COLONY, CIRCLE 5 (1), NEW DELHI 110 048. NEW DELHI. (PAN : AACCK6999B) ITA NO.764/DEL./2011 & 11 ORS, 2 ITA NO.851/DEL./2011 (ASSESSMENT YEAR : 2006-07) ITA NO.852/DEL./2011 (ASSESSMENT YEAR : 2007-08) ITA NO.3569/DEL./2011 (ASSESSMENT YEAR : 2008-09) ITA NO.248/DEL./2014 (ASSESSMENT YEAR : 2009-10) ITA NO.5616/DEL./2014 (ASSESSMENT YEAR : 2010-11) ITA NO.4963/DEL./2015 (ASSESSMENT YEAR : 2011-12) ACIT, VS. KRIBHCO SHYAM FERTILIZERS LTD., CIRCLE 5 (1), C 165, 1 ST FLOOR, NEW DELHI. NARAINA INDUSTRIAL AREA, PHASE-1, NEW DELHI 110 028. (PAN : AACCK6999B) ITA NO.247/DEL./2014 (ASSESSMENT YEAR : 2008-09) ACIT, VS. KRIBHCO SHYAM FERTILIZERS LTD., CIRCLE 5 (1), C 165, 1 ST FLOOR, NEW DELHI. NARAINA INDUSTRIAL AREA, PHASE-1, NEW DELHI 110 028. (PAN : AACCK6999B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY RANJAN, ADVOCATE MS. IRA KAPOOR, CA REVENUE BY : SHRI J.K. MISHRA, CIT DR SMT. NAINA SOIN KAPIL, SENIOR DR DATE OF HEARING : 04.12.2018 DATE OF ORDER : 17.12.2018 ITA NO.764/DEL./2011 & 11 ORS, 3 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE AFORESAID CROSS APPEALS FILED BY THE ASSESSEE A ND THE REVENUE ARE BEING DISPOSED OFF BY WAY OF CONSOLIDAT ED ORDER TO AVOID REPETITION OF DISCUSSION. 2. THE APPELLANT, M/S. KRIBHCO SHYAM FERTILIZERS LT D. (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FIL ING THE PRESENT APPEALS, SOUGHT TO SET ASIDE THE IMPUGNED ORDERS DA TED 02.12.2010, 02.12.2010, 10.05.2011, 28.07.2015 & 14.07.2014 PA SSED BY LD. CIT (APPEALS)-VIII, NEW DELHI/ CIT (APPEALS)-5, DE LHI QUA THE ASSESSMENT YEARS 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 RESPECTIVELY ON THE FOLLOWING GROUNDS INTER ALIA TH AT:- ASSESSEES APPEALS ITA NO.764/DEL/2011 (AY 2006-07) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN REJECTING THE GROUND OF APPEAL RAISED BY THE APPELLANT-COMPANY BEFORE HIM C HALLENGING THE VALIDITY OF THE ASSESSMENT ORDER ON THE GROUND THAT THE SAID ORDER IS BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DI SALLOWANCE OF RS.90,204 MADE BY THE ASSESSING OFFICER FROM OUT OF REPAIRS AND MAINTENANCE EXPENDITURE, WHICH IS A LEGITIMATE BUSI NESS EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DI SALLOWANCE OF ITA NO.764/DEL./2011 & 11 ORS, 4 DEDUCTION CLAIMED BY THE ASSESSEE OF RS.29,68,000 B EING BUSINESS EXPENDITURE INCURRED BY THE APPELLANT COMPANY IN RE SPECT OF PROFESSIONAL FEES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DI SALLOWANCE OF RS.29,62,500 MADE BY THE ASSESSING OFFICER BEING DE PRECIATION CLAIMED BY THE APPELLANT COMPANY ON CAPITAL SPARES. ITA NO.765/DEL/2011 (AY 2007-08) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN REJECTING THE GROUND OF APPEAL RAISED BY THE APPELLANT-COMPANY BEFORE HIM C HALLENGING THE VALIDITY OF THE ASSESSMENT ORDER ON THE GROUND THAT THE SAID ORDER IS BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DI SALLOWANCE OF DEPRECIATION OF RS.1,17,81,748 MADE BY THE ASSESSIN G OFFICER BEING DEPRECIATION CLAIMED BY THE APPELLANT COMPANY ON CAPITAL SPARES. ITA NO.3508/DEL/2011 (AY 2008-09) 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN REJECTING THE ASSESSEES CLAIM FOR DEPRECIATION OF RS.1,00,14,486 ON CRITICAL PARTS OF PLANT AND MACHINERY KEPT AS ST ANDBY. ITA NO.5696/DEL/2015 (AY 2009-10) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE IMPUGNED ORDER PASSED BY ID. (IT (A) IS BAD IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5429632/- AS PRIOR PERIOD INCOME, MADE BY THE LD . AO THROUGH AN ORDER PASSED U/S 154. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE RECTIFICATION I GNORING THE FACT THAT HIGHER INCOME HAD ALREADY BEEN ASSESSED I N EARLIER YEARS BY WAY OF REDUCTION OF DEPRECIATION ON THE BA SIS OF LETTER ITA NO.764/DEL./2011 & 11 ORS, 5 FILLED BY THE ASSESSEE AND ONCE AN INCOME IS ALREAD Y ASSESSED IN EARLIER YEAR THE SAME CANNOT BE AGAIN ASSESSED IN A CURRENT YEAR AS IT WILL AMOUNT TO DOUBLE TAXATION. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE RECTIFICATION O N AN ISSUE WHICH IS HIGHLY DEBATABLE. ITA NO.4622/DEL/2014 (AY 2010-11) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,25,000/- UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING T HE FACT THAT LD. A.O. HAD NOT RECORDED ANY SATISFACTION ABOUT TH E CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HA S BEEN INCURRED ON EARNING DIVIDEND INCOME BY THE ASSESSEE . 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD. CIT (A) ERRED IN SUSTAINING ADDITION U/S 43B OF THE ACT IN RESPECT OF SALES TAX LIABILITY OF RS.104,39,210/- 3. THE APPELLANT, ACIT, CIRCLE 5 (1), NEW DELHI (HE REINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESEN T APPEALS, SOUGHT TO SET ASIDE THE IMPUGNED ORDERS DATED 02.12.2010, 02.12.2010, 10.05.2011, 15.10.2013, 14.07.2014 & 07.05.2015 PAS SED BY LD. CIT (APPEALS)-VIII, NEW DELHI/ CIT (APPEALS)-V, DE LHI QUA THE ASSESSMENT YEARS 2006-07, 2007-08, 2008-09, 2009-10 , 2010-11 & 2011-12 RESPECTIVELY ON THE FOLLOWING GROUNDS INT ER ALIA THAT:- REVENUES APPEALS ITA NO.851/DEL/2011 (AY 2006-07) 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONE OUS & CONTRARY TO FACTS & LAW. ITA NO.764/DEL./2011 & 11 ORS, 6 2. ON THE FACTS AND IN THE CIRCUMSTANCE OR THE CASE AND IN LAW THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.17,12,93,314/- AND RS.4,87,50,000/- MADE BY T HE A.O. BY DISALLOWING THE DEPRECIATION INTANGIBLE ASSETS INTA NGIBLE BENEFITS. 2.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED B Y THE A.O AND THE FACT THAT THE ITEMS IN QUESTION ARE NOT LIS TED IN PART B OF I.T RULES 1962. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW. THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.85,14,636/- U/S 35D OF THE I.T ACT ON ACCOUNT OF PRELIMINARY EXPENSES. 3.1 THE LD. CIT (A) IGNORED THE FACTS RECORDED BY A .O AND THE FACT THAT THE EXPENSES IN QUESTION WERE MADE FO R ACQUIRING NEW ASSETS . ITA NO.852/DEL/2011 (AY 2007-08) 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONE OUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.29,97,63,300/- AND RS.9.01,87,000/- MADE BY T HE A.O. BY DISALLOWING THE DEPRECIATION INTANGIBLE ASSETS INTA NGIBLE BENEFIT RESPECTIVELY. 2.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED BY THE A.O AND THE FACT THAT THE ITEMS IN QUESTION ARE NOT LIS TED IN PART B OF I.T RULES 1962. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.85,14,636/- U/S 35D OF THE I.T ACT ON ACCOUNT OF PRELIMINARY EXPENSES. 3.1 THE LD. CIT (A) IGNORED THE FACTS RECORDED BY AO AND THE FACT THAT THE EXPENSES IN QUESTION WERE MADE FOR AC QUIRING NEW ASSETS. ITA NO.764/DEL./2011 & 11 ORS, 7 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.94,141/- BEING THE PRIOR PERIOD EXPENSES. 4.1 THE LD. CIT (A) IGNORED THE FACTS RECORDED BY A.O AND THE FACT THAT THE ASSESSEE IS MAINTAINING THE MERCA NTILE SYSTEM OF ACCOUNTING. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW. THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.18,40,403/- BEING THE DIFFERENCE IN THE BALAN CE OF CREDITORS. 4.1 THE LD. CIT (A) IGNORED THE FACTS RECORDED BY A.O AND THE FACT THAT THE ASSESSEE DID NOT ACCOUNT FOR THE CREDIT NOTES RECEIVED FROM THE CLIENTS. ITA NO.3569/DEL/2011 (AY 2008-09) 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONE OUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.22,46,82,475/- BEING THE DEPRECIATION ON INTA NGIBLE ASSETS. 2.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED BY THE A.O AND THE FACT THAT NO DEPRECIATION IS ALLOWABLE ON I NTANGIBLE ASSETS AS PER I.T. ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS.7,66,59,375/- BEING THE DISALLOWANCE OF 15% OF T HE WVD OF INTANGIBLE ASSETS. 3.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED B Y THE AO AND THE FACT THAT THE ASSESSEE DID NOT FILE NECESSA RY DOCUMENTS TO SUBSTANTIATE ITS CLAIM. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS.85,14,636/- U/S 35D OF THE ACT BEING THE DISALLO WANCE ON ACCOUNT OF PRELIMINARY EXPENSES. ITA NO.764/DEL./2011 & 11 ORS, 8 4.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED B Y A.O AND THE FACT THAT THE ASSESSEE DID NOT FILE NECESSARY D OCUMENTS TO SUBSTANTIATE ITS CLAIM. ITA NO.248/DEL/2014 (AY 2009-10) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE DE PRECIATION OF RS.16,86,16,856/- ON INTANGIBLE ASSETS IGNORING THE FINDINGS RECORDED BY THE A.O. THAT SAME BEING NOT ALLOWABLE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING 1/5 TH OF THE PRELIMINARY EXPENSES OF RS.85,14,636/-? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING DEPREC IATION ON INTANGIBLE ASSETS OUT OF PLANT & MACHINERY OF RS.6, 51,60,469/- WITHOUT PROPER VERIFICATION? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING DEPREC IATION IN RESPECT OF CAPITAL SPARES AND PARTS OF THE PLANT & MACHINERY TO THE AMOUNT OF RS.85,12,313/- ONLY ON PURCHASE BASIS U/S 32 OF THE LT. ACT, 1961? ITA NO.5616/DEL/2014 (AY 2010-11) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DEPRECIATION O F RS.12,64,62,643/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN ALLOWING 1/5 TH OF THE PRELIMINARY EXPENSES OF RS.85,14,636/-. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION ON IN TANGIBLE ASSETS OUT OF PLANT & MACHINERY OF RS.5,53,86,398/- WITHOUT PROPER VERIFICATION. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION IN RE SPECT OF ITA NO.764/DEL./2011 & 11 ORS, 9 CAPITAL SPARES AND PART OF THE PLANT & MACHINERY TO THE AMOUNT OF RS.72,35,466/- ONLY ON PURCHASE BASIS U/S 32 OF THE LT. ACT, 1961. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN ALLOWING PRIOR PERIOD EXPEN SES OF RS.15,13,126/-. ITA NO.4963/DEL/2015 (AY 2011-12) 1. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON INTANGIBLE ASSET S OF RS.9,48,46,982/-. 2. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ESTIMATED ASSETS OF RS.4,70,78,439/. 3. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON SPARE MACHINERY PARTS OF RS.61,50,146/-. 4. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION ON ACCOUNT OF DISALLOWANCE OF EXPENSES ON VEHICLE REPAIR & MAI NTENANCE OF RS.7,96,706/-. 4. APPELLANT, ACIT, CIRCLE 5 (1), NEW DELHI (HEREIN AFTER REFERRED TO AS THE REVENUE), BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.10.2013 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, NEW DELH I QUA THE ASSESSMENT YEAR 2008-09 DELETING THE PENALTY LEVIED U/S 271(1)(C) ON THE GROUNDS INTER ALIA THAT :- ITA NO.764/DEL./2011 & 11 ORS, 10 ITA NO.247/DEL/2014 (AY 2008-09) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE P ENALTY U/S 271(1)(C) FOR CONCEALMENT OF THE PARTICULARS OF ITS INCOME OR FURNISHING INACCURATE PARTICULARS OF ITS INCOME OF RS.79,45,080/- 2. THAT THE ORDER OF THE LD. CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE IDENTICAL CONTROVERSY IN ALL THE AFORESAID CROSS AP PEALS FILED BY THE ASSESSEE AS WELL AS REVENUE AT HAND ARE : ASSESSEE COMPANY IS INTO THE BUSINESS OF MANUFACTURING AND SALE OF UREA AND AMMONIA. IN AY 2006-07, ASSESSING OFFICER MADE DISALLOWANCE OF RS.29,62,500/- CLAIMED BY THE ASSESSEE AS DEPRECIAT ION ON SPARE PARTS OF RS.3.95 CRORES BY TREATING THE EXPLANATION SUBMITTED BY THE ASSESSEE AS NOT SATISFACTORY, THE LD. CIT (A) ALSO CONFIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON CAPITAL SPARES ON RS.3.95 CRORES BY OBSERVING THAT THE ASSE SSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM. AO MADE DISALLOWANCE OF RS.17,12,93,314/- BEING THE DEPRECIATION CLAIMED BY THE ASSESSEE ON INTANGIBLES BY DECLINING THE CONTENTION OF THE A SSESSEE THAT THE VALUE OF INTANGIBLE BENEFITS CAN ALSO BE ASSIGNED T O THE COST OF AMMONIA PLANT AS PURGE GAS IS A PRODUCT FROM AMMONI A PLANT. HOWEVER, LD. CIT (A) DELETED THE DISALLOWANCE OF DE PRECIATION MADE BY THE AO. ITA NO.764/DEL./2011 & 11 ORS, 11 6. AO ALSO MADE ADDITION OF RS.4,87,50,000/- ON ASS UMED INTANGIBLES BY DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE ON THE GROUND THAT THE STATED EXPENSES ARE EITHER CAPI TAL IN NATURE OR CAN BE CATEGORIZED AS PRE-OPERATIVE EXPENSES. 7. AO ALSO DISALLOWED AN AMOUNT OF RS.85,14,636/- C LAIMED BY THE ASSESSEE ON ACCOUNT OF PRELIMINARY EXPENSES ON THE GROUND THAT PAYMENT TO REGISTRAR OF COMPANIES (ROC) OF AUTHORIZ ED CAPITAL IS NOT ADMISSIBLE U/S 35D OF THE ACT AND ALSO THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE UNDER WHICH CLAUSE OF SECTIO N 35D THE CLAIM OF PRELIMINARY EXPENSES IS COVERED. 8. AO ALSO DISALLOWED AN AMOUNT OF RS.5,00,000/- BE ING CLAIMED BY THE ASSESSEE ON ACCOUNT OF PROFESSIONAL/ FEES PAID ON SALES-TAX MATTER. AO ALSO DISALLOWED AN AMOUNT OF RS.3,00,000/-, RS.15,000/-, RS.16,53,000/- AND RS.5,00,000/- CLAIM ED BY THE ASSESSEE ON ACCOUNT OF PAYMENT FOR LEGAL FEES ON EX EMPTION, CONSULTATION FEE FOR TRANSFER OF EMPLOYEES, FEE PAI D TO PDIL AND ON ACCOUNT OF PURCHASE OF STAMP PAPERS RESPECTIVELY. 9. IN AYS 2007-08 & 2008-09, AO ALSO DISALLOWED AN AMOUNT OF RS.1,17,81,748/- AND RS.1,00,14,486/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF CAPITAL SPARES RESPECTIVELY ON THE SA ME GROUND. 10. IN AYS 2006-07, 2007-08, 2008-09, 2009-10 AND 2 010-11, AO DISALLOWED AN AMOUNT OF RS.17,12,93,314/-, RS.29 ,97,63,300/-, ITA NO.764/DEL./2011 & 11 ORS, 12 RS.22,48,22,475/-, RS.16,86,16,856/- AND RS.12,64,6 2,643/- RESPECTIVELY ON ACCOUNT OF DEPRECIATION ON INTANGIB LES AND AO ALSO DISALLOWED DEPRECIATION ON ASSUMED INTANGIBLES OF RS.4,87,50,000/-, RS.9,01,87,500/-, RS.7,66,59,375/ -, RS.6,51,60,469/- AND RS.5,53,86,398/- IN AYS 2006-0 7, 2007-08, 2008-09, 2009-10 AND 2010-11 RESPECTIVELY. SIMILAR LY, AO ALSO DISALLOWED AMOUNT OF RS.85,14,636/- EACH IN AYS 200 6-07, 2007- 08, 2008-09, 2009-10 AND 2010-11 CLAIMED BY THE ASS ESSEE ON ACCOUNT OF PRELIMINARY EXPENSES U/S 35D. IN AY 200 7-08, AO ALSO DISALLOWED AN AMOUNT OF RS.18,40,403/- ON ACCOUNT O F DIFFERENCE IN BALANCE OF CREDITORS AND RS.94,141/- ON ACCOUNT OF TRAVELLING EXPENSES. IN AY 2010-11, AO ALSO DISALLOWED AN AMO UNT OF RS.15,13,126/- CLAIMED BY THE ASSESSEE ON ACCOUNT O F PRIOR PERIOD EXPENSES. 11 . THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BY WAY OF FILING APPEALS WHO HAS PARTLY ALLOWED THE AP PEALS. FEELING AGGRIEVED, THE ASSESSEE AS WELL AS REVENUE HAVE COM E UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT CROSS APP EALS. 12. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.764/DEL./2011 & 11 ORS, 13 ASSESSEES APPEAL GROUND NO.1 OF ITA NO.764/DEL/2011 (AY 2006-07), ITA NO.765/DEL/2011 (AY 2007-08) & ITA NO. 5696/DEL/2015 (AY 2009-10) 13. GROUND NO.1 OF ASSESSEES APPEAL IN ITA NOS. 764/DEL/2011, 765/DEL/2011 & 5696/DEL/2015 FOR AYS 2006-07, 2007-08, 2009-10 IS GENERAL IN NATURE, HENCE NEEDS NO SPECIFIC ADJUDICATION. ASSESSEES APPEAL GROUND NO.4 OF ITA NO.764/DEL/2011 (AY 2006-07) GROUND NO.2 OF ITA NO.765/DEL/2011 (AY 2007-08) GROUND NO.1 OF ITA NO. 3508/DEL/2011 (AY 2008-09) REVENUES APPEAL GROUND NO.4 OF ITA NO.248/DEL/2014 (AY 2009-10) ITA NO.5616/DEL/2014 (AY 2010-11) GROUND NO.3 OF ITA NO. 4963/DEL/2015 (AY 2011-12) 14. ASSESSEE CLAIMED DEPRECIATION OF RS.29,62,500/- ON CAPITAL SPARE PARTS OF RS.3.95 CRORES ON THE GROUND THAT TH E SAME ARE CRITICAL ITA NO.764/DEL./2011 & 11 ORS, 14 SPARES TO BE KEPT READY FOR MANUFACTURING PROCESS. AO/CIT(A) HAVE DISALLOWED THIS DEPRECIATION ON THE GROUND THA T ASSESSEE HAS FAILED TO SPELL OUT AS TO WHICH OF THE CRITICAL SPA RE PART WAS READY AND ALSO NO EVIDENCE TO SUBSTANTIATE ITS CLAIM HAS BEEN BROUGHT ON RECORD. 15. AO DISALLOWED AN AMOUNT OF RS.85,12,313/ AND RS.72,35,466/- FOR AYS 2009-10 & 2010-11 RESPECTIVE LY CLAIMED BY THE ASSESSEE AS DEPRECIATION ON CAPITAL SPARES. HOWEVER, THE LD. CIT (A) HAS ALLOWED THE SAME WHICH IS NOW UNDER CHA LLENGED BEFORE THE TRIBUNAL BY WAY OF FILING THE APPEALS BY THE REVENUE. 16. UNDISPUTEDLY, THE LD. CIT (A) HAS ALLOWED THE I DENTICAL CLAIM OF DEPRECIATION ON CLAIM OF SPARE PARTS IN CASE OF ASSESSEE FOR AY 2009-10 AND 2010-11 BY FOLLOWING THE DECISION RENDE RED BY HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. INSILCO LIMITED (SUPRA) AS WELL AS BY FOLLOWING THE DECISION RENDER ED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CONTINENTAL CARBON INDIA LTD. VS. ITO 2012 (7) TMI 34 . 17. HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. INSILCO LIMITED (SUPRA) DEALT WITH THE IDENTICAL ISSUE AND HAS DECI DED IN FAVOUR OF THE ASSESSEE. THE RATIO OF THE JUDGMENT IS UNDER SECTION 32 OF THE ACT EXPRESSION USED FOR THE PURPOSE OF BUSINESS ALSO INCLUDES EMERGENCY SPARES WHICH EVEN THOUGH READY F OR USE ARE NOT ITA NO.764/DEL./2011 & 11 ORS, 15 AS A MATTER OF FACT USED DURING RELEVANT PERIOD AS THE SAME ARE KEPT AS SPARE PARTS TO A FIXED ASSET AND IN ALL PROBABIL ITY BE USELESS ONCE THE ASSET IS DISCARDED. SO, THE DEPRECATION U/S 32 OF THE ACT ON CAPITAL SPARES IS ALLOWABLE EXPENSES EVEN THOUGH TH EY HAVE NOT BEEN PUT TO USE DURING THE RELEVANT PERIOD. IN THE INST ANT CASE, IT IS NOT IN DISPUTE THAT THE CAPITAL SPARES WERE PURCHASED AND KEPT READY FOR USE IN CASE OF EMERGENCY BY THE ASSESSEE AND AS SUC H ALLOWABLE EXPENSES ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON CAPITAL SPARES. 18. SO, FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CIT VS. INSILCO LIMITED (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT (A) HAS ERRED IN DISALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF DEPRECATION ON CAPITAL SPARE S DURING AYS 2006-07, 2007-08 & 2008-09, HENCE AO IS DIRECTED TO ALLOW THE SAME AFTER DUE VERIFICATION OF CAPITAL SPARES PURCH ASED DURING THE YEAR UNDER ASSESSMENT. SO, GROUND NO.4 IN ITA NO.7 64/DEL/2011 (AY 2006-07), GROUND NO.2 IN ITA NO.765/DEL/2011 (A Y 2007- 08) AND GROUND NO.1 IN ITA NO. 3508/DEL/2011 (AY 20 08-09) IN ASSESSEES APPEALS ARE DETERMINED IN FAVOUR OF THE ASSESSEE. 19. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E ALSO OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY ALLOWE D THE CLAIM OF THE ASSESSEE FOR DEPRECIATION OF CAPITAL SPARES IN AYS 2009-10, ITA NO.764/DEL./2011 & 11 ORS, 16 2010-11 AND 2011-12. ACCORDINGLY, GROUND NO.4 IN I TA NO.248/DEL/2014 (AY 2009-10) & ITA NO.5616/DEL/2014 (AY 2010-11) AND GROUND NO.3 IN ITA NO. 4963/DEL/2015 ( AY 2011- 12) OF THE REVENUES APPEALS ARE DETERMINED AGAINST THE REVENUE. ASSESSEES APEAL GROUND NO.2 OF ITA NO.764/DEL/2011 (AY 2006-07) 20. GROUND NO.2 IN ITA NO.764/DEL/2011 FOR AY 2006- 07 IN ASSESSEES APPEAL IS NOT PRESSED DUE TO SMALLNESS O F THE AMOUNT. ASSESSEES APEAL GROUND NO.3 OF ITA NO.764/DEL/2011 (AY 2006-07) 21. AO AS WELL AS LD. CIT (A) HAVE DISALLOWED AN AM OUNT OF RS.29,68,000/- CLAIMED BY THE ASSESSEE (ON ACCOUNT OF PROFESSIONAL LEGAL FEE ON SALES-TAX MATTER OF RS.5,00,000/-, FOR TAKING LEGAL OPINION ON EXEMPTIONS AND CONCESSIONS OF RS.3,00,00 0/-, PAYING CONSULTATION FEE FOR TRANSFER OF EMPLOYEES OF RS.15 ,000/-, ON ACCOUNT OF FEE PAID TO PDIL OF RS.16,53,000/- AND A MOUNT FOR PURCHASE OF STAMP PAPERS OF RS.5,00,000) ON THE GRO UND THAT ALL AFORESAID PAYMENTS CLAIMED BY THE ASSESSEE PERTAIN TO THE ACQUISITION OF UREA FERTILIZER PLANT AT SHAHJAHANPU R AND AS SUCH ITA NO.764/DEL./2011 & 11 ORS, 17 FORMED THE PART OF THE ACQUISITION COST ITSELF AND CANNOT BE TREATED AS REVENUE EXPENSES. IT IS THE CASE OF THE ASSESSE E THAT THE ENTIRE AFORESAID PAYMENT OF RS.29,68,000/- WAS MADE FOR BU SINESS PURPOSES AND AS SUCH, ALL THE EXPENSES ARE IN THE N ATURE OF SUSTAINABLE BUSINESS EXPENDITURE AND ALLOWABLE U/S 37(1) OF THE ACT. UNDISPUTEDLY, THE ASSESSEE COMPANY WAS INCORPORATED ON 08.12.2005 AND THE FERTILIZER PLANT AT SHAHJAHANPUR WAS HANDED OVER TO IT ON 18.01.2006. AO AS WELL AS CIT (A) HAVE DI SALLOWED THE AFORESAID EXPENSES CLAIMED BY THE ASSESSEE ON THE S OLE GROUND THAT SINCE THE PROMOTERS OF THE ASSESSEE COMPANY ARE ALR EADY IN THE LINE OF FERTILIZER INDUSTRY, THE SAID PROMOTERS HAVE MAN AGED THE AFFAIRS OF THIS COMPANY FROM THEIR OWN RESOURCES AND EVEN OTHE RWISE TILL 1.01.2006, IT CANNOT BE SAID THAT THE ASSESSEE COMP ANY HAS SET UP THEIR BUSINESS. 22. WE ARE OF THE CONSIDERED VIEW THAT TO DECIDE TH E CONTROVERSY AT HAND, THE DATE OF SETTING UP OF THE BUSINESS IS A RELEVANT DATE TO ALLOW OR DISALLOW THE EXPENSES CLAIMED BY THE ASSES SEE U/S 37(1) OF THE ACT. TO UNDERSTAND THE CONTROVERSY AT HAND, TH E ASSESSEE HAS BROUGHT ON RECORD THE CHRONOLOGY OF EVENTS AS TO PU RCHASE OF THE BUSINESS OF THE ASSESSEE COMPANY WHICH IS EXTRACTED FOR READY PERUSAL AS UNDER:- ITA NO.764/DEL./2011 & 11 ORS, 18 SR.NO. DATE OF EVENT EVENT REMARKS 1. 03.11.2005 AGREEMENT TO SELL BETWEEN SHYAM BASIC INFRASTRUCTURE PROJECTS PVT. LTD.(SBIP) & OSWAL CHEMICALS & FERTILIZERS LTD.(OCFL) CONSIDERATION = 1900 CRORE + BOOK VALUE ON 13/01/2006 OF CURRENT ASSETS (EXCL. MACHINERY & ELEC. SPARES) AS PER SCH. 'D' OF THIS AGREEMENT (REF: AY 06-07/ VOL.2/ P- 129, 142) 2. 05.11.2005 JOINT VENTURE AGREEMENT BETWEEN SBIP & KRIBHCO AGREEMENT TO FORM SPECIAL PURPOSE VEHICLE (SPV) NAMED AS 'KRIBHCO SHYAM FERTILIZERS LTD.' TO ACQUIRE & RUN THE FERTILIZER PLANT. 3. 08.12.2005 INCORPORATION OF KSFL (REF: AY 06-07/ VOL.2/ P-155) 4. 23.12.2005 ADDENDUM NO.1 TO 'AGREEMENT TO SELL DATED 03.11.2005' WAS MADE BETWEEN SBIP & OCFL BY THIS ADDENDUM, RIGHT TO PURCHASE FACTORY & OTHER ASSETS WAS TRANSFERRED TO NEWLY FORMED COMPANY 'KRIBHCO SHYAM FERTILIZERS LTD.'. KSFL HAD 60% SHAREHOLDING OF KRIBHCO & 40% SHAREHOLDING OF STL FERTILIZERS PVT. LTD.- A WHOLLY OWNED SUBSIDIARY OF SBIP. (REF: AY 06-07/VOL.2/ P-143) 5. 13.01.2006 ADDENDUM NO.2 TO 'AGREEMENT TO SELL DATED 03.11.2005' WAS MADE BETWEEN SBIP & OCFL NOT IMPORTANT FOR THE ISSUES BEFORE ITAT (REF: AY 06-07/VOL.2/ P-144) 6. 16.01.2006 ADDENDUM NO.3 TO 'AGREEMENT TO SELL DATED OCFL AGREED TO HAND OVER MANAGEMENT CONTROL TO KSFL W.E.F. ITA NO.764/DEL./2011 & 11 ORS, 19 03.11.2005' WAS MADE BETWEEN SBIP & OCFL 18.01.2006 (REF: AY 06-07/VOL.2/ P-147) 7. 18.01.2006 MANAGEMENT WAS TAKEN OVER BY KSFL (REF: AY 06-07/VOL.L/ P-3(BK), 163 (BK) 8. 31.03.2006 SALE AGREEMENT BETWEEN OCFL & KSFL TOTAL FINAL CONSIDERATION RS.1908 CRORE (REF: AY 06-07/VOL.L/ P-160) 9. 06.04.2006 PDIL -VALUE ASSESSMENT REPORT SUBMISSION BY PDIL VALUE 1902.5 CRORE INCL. SPARES BUT EXCL. VALUE OF OTHER CURRENT ASSETS & CURRENT LIABILITIES (REF: AY 06-07/VOL.L/ P-123) 10. 05.05.2006 ADDENDUM TO VALUE ASSESSMENT REPORT BY PDIL IT PROVIDED BREAK UP OF SPARES INTO REVENUE SPARES & CAPITAL SPARES BESIDES OTHER THINGS. (REF: AY 06-07/VOL.L/ P-126(BK) 11. 31.10.2006 SALE DEED EXECUTION BETWEEN OCFL & KSFL (REF: AY 06-07/VOL.L/ P-188) 23. PERUSAL OF THE CHRONOLOGY OF EVENTS EXTRACTED A BOVE APPARENTLY SHOWS THAT THE BUSINESS ACTIVITIES WERE STARTED BY THE ASSESSEE COMPANY W.E.F. 03.11.2005 WHEN AGREEMENT T O SELL BETWEEN SHYAM BASIC INFRASTRUCTURE PROJECTS PVT. LT D. AND OSWAL CHEMICALS & FERTILIZERS LTD. (OCFL) WAS ENTERED INT O AND THEREAFTER ASSESSEE COMPANY WAS INCORPORATED ON 08. 12.2005. ITA NO.764/DEL./2011 & 11 ORS, 20 24. NOW, THE QUESTION ARISES FOR DETERMINATION IS : - AS TO WHETHER THE ASSESSEE COMPANY IS ENTITLED FOR CLAIMING BUSINESS EXPENDITURE FROM THE DATE OF COMMENCEMENT OF ITS BUSINESS I.E. 18.01.2006 OR FRO M THE DATE OF SETTING UP OF THE BUSINESS? 25. WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASS ESSEE COMPANY HAS INCURRED EXPENSES FOR MAKING PROFESSION AL FEE FOR TAKING LEGAL OPINION ON SALES-TAX MATTER; PAID LEGA L FEE FOR TAKING LEGAL OPINION ON EXEMPTIONS AND CONCESSIONS AND THE N CONSULTATION FOR TRANSFER OF EMPLOYEES ON TAKE OVER AND THEN PAI D FEE TO PDIL AND THEN FOR PURCHASE OF STAMP PAPERS; IT CERTAINLY AMOUNTS TO BUSINESS EXPENSES FOR SETTING UP THE BUSINESS THOUG H INCURRED PRIOR TO COMMENCEMENT OF THE BUSINESS. BECAUSE WITHOUT A NY OF THE AFORESAID LEGAL AND PROFESSIONAL OPINIONS, THE BUSI NESS WOULD NEVER HAVE BEEN SET UP. 26. IDENTICAL ISSUE HAS COME UP BEFORE THE HONBLE HIGH COURT OF BOMBAY IN CASE CITED AS WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT (1954) 26 ITR 151 (BOM.) WHEREIN IDENTICAL ISSUE AS TO WHETHER BUSINESS EXPENDITURES ARE TO BE ALLOWED FRO M THE DATE OF SETTING UP OF THE BUSINESS OR FROM THE COMMENCEMENT OF THE BUSINESS. 27. HONBLE BOMBAY HIGH COURT IN CASE CITED AS WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT (SUPRA) DECIDED THE CONTROVERSY IN ITA NO.764/DEL./2011 & 11 ORS, 21 FAVOUR OF THE ASSESSEE BY HOLDING THAT ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEM ENT OF THE BUSINESS ARE PERMISSIBLE DEDUCTIONS BY RETURNING FO LLOWING FINDINGS:- FOR THE PURPOSE OF A BUSINESS THE PREVIOUS YEAR BE GINS FROM THE DATE OF THE SETTING UP OF THE BUSINESS. TH EREFORE IT IS ONLY AFTER THE BUSINESS IS SET UP THAT THE PREVI OUS YEAR OF THAT BUSINESS COMMENCES AND IN THAT PREVIOUS YEAR T HE EXPENSES INCURRED IN THE BUSINESS CAN BE CLAIMED AS PERMISSIBLE DEDUCTIONS. ANY EXPENSES INCURRED PRIOR TO THE SETTING UP OF A BUSINESS WOULD OBVIOUSLY NOT BE PER MISSIBLE DEDUCTIONS BECAUSE THOSE EXPENSES WOULD BE INCURRED AT A POINT OF TIME WHEN THE PREVIOUS YEAR OF THE BUSINES S WOULD NOT HAVE COMMENCED. THERE IS DIFFERENCE BETWEEN THE TWO EXPRESSIONS 'SETTING UP' AND 'COMMENCED'. THE EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN OXF ORD ENGLISH DICTION 'TO PLACE ON FOOT' OR 'TO ESTABLISH , AND IN CONTRADICTION TO 'COMMENCE'. THE I . A W EN A BUSIN ESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEF ORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MA Y BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUS INESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED A ND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSIN ESS AND BEFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENS ES DURING INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2). IN THE INSTANT CASE, THE ASSESSEE-COMPANY ACTUALLY COMMENCED BUSINESS ONLY ON 1-11-1946, WHEN IT PURCH ASED A GROUNDNUT OIL MILL AND WAS IN A POSITION TO CRUSH GROUNDNUT AND PRODUCE OIL. BUT PRIOR TO THIS THERE WAS A PERIOD WHEN THE BUSINESS COULD BE SAID TO HAVE BEEN SET UP AND THE COMPANY WAS READY TO COMMENCE BUSINESS, AND IN THE VIEW OF THE TRIBUNAL ONE OF THE MAIN FACTORS WA S THE PURCHASE OF RAW MATERIALS FROM WHICH AN INFERENCE C OULD BE DRAWN THAT THE COMPANY HAD SET UP ITS BUSINESS; BUT THAT WAS NOT THE ONLY FACTOR THAT THE TRIBUNAL HAD TAKEN INTO CONSIDERATION. THE TRIBUNAL HAD, ON SCRUTINISING TH E VARIOUS DETAILS OF THE EXPENSES, CAME TO THE CONCLU SION THAT THESE EXPENSES DID NOT SHOW THAT THE BUSINESS WAS S ET UP PRIOR TO 1-9-1946. THUS, IT COULD NOT BE SAID THAT THE DECISION ITA NO.764/DEL./2011 & 11 ORS, 22 OF THE TRIBUNAL WAS BASED UPON A TOTAL ABSENCE OF A NY EVIDENCE. THEREFORE, THERE WAS EVIDENCE BEFORE THE TRIBUNAL TO HOLD THAT THE ASSESSEE-COMPANY SET UP ITS BUSINE SS AS FROM 1.9.1946. 28. THE DECISION RENDERED BY HONBLE HIGH COURT OF BOMBAY IN WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE BECAUSE, IN THE INSTANT CASE, BUSINESS OF THE ASSESSEE WAS SET UP F ROM THE DATE OF ENTERING INTO AGREEMENT FOR ACQUISITION OF THE FERT ILIZER PLANT AND WITHOUT EXPERT LEGAL AND FINANCIAL OPINION THE ENTI RE DEAL WOULD NOT HAVE BEEN THROUGH. THE MOMENT THE ASSESSEE HAS TAK EN FIRST STEP FOR SETTING UP THE BUSINESS, IT IS ESTABLISHED THAT THE BUSINESS HAS BEEN SET UP AND THE ASSESSEE BECAME ENTITLED FOR EX PENSES OF THE PREVIOUS YEAR. 29. MOREOVER INCURRENCE OF THE EXPENSES HAVE NOT BE EN DISPUTED BY THE REVENUE. THE REVENUE HAS ONLY DISALLOWED TH E EXPENSES ON THE GROUND THAT THE BUSINESS HAS NOT BEEN COMMENCED DURING THE PREVIOUS YEAR AND AS SUCH NOT ALLOWABLE WHEREAS SUC H EXPENSES ARE TO BE TREATED AS BUSINESS EXPENSES FROM THE DATE OF SETTING UP OF THE BUSINESS WHICH IS CERTAINLY 03.11.2005. MOREOVER, FINANCE OF THE ASSESSEE COMPANY ARE AUDITED ONE AND NO MISTAKE HAS BEEN POINTED OUT. SO, WE ARE OF THE CONSIDERED VIEW THAT THE AO AS WELL AS CIT (A) HAVE ERRED IN DISALLOWING THE EXPENSES, HENCE E XPENSES OF ITA NO.764/DEL./2011 & 11 ORS, 23 RS.29,68,000/- ARE ORDERED TO BE ALLOWED AS BUSINES S EXPENSES INCURRED FOR SETTING UP THE BUSINESS OF THE ASSESSE E COMPANY DURING THE PREVIOUS YEAR. SO, GROUND NO. GROUND NO.3 IN I TA NO.764/DEL/2011 (AY 2006-07) OF ASSESSEES APPEAL I S ALLOWED. ASSESSEES APPEAL GROUNDS NO.2, 3 & 4 OF ITA NO.5696/DEL/2015 (AY 2009-10) 30. AO BY INVOKING THE PROVISIONS CONTAINED U/S 154 OF THE ACT DISALLOWED AN AMOUNT OF RS.54,29,632/- ON ACCOUNT O F PRIOR PERIOD INCOME ON THE GROUND THAT FROM THE PERUSAL OF ASSES SMENT RECORD, HE HAS NOTICED THAT IN THE COMPUTATION OF INCOME, A SSESSEE HAS REDUCED THE PRIOR PERIOD INCOME OF RS.54,42,139/- F ROM THE TOTAL INCOME DURING THE YEAR UNDER ASSESSMENT. WE ARE OF THE CONSIDERED VIEW THAT THIS ADDITION MADE BY THE AO IS NOT SUSTA INABLE FOR TWO REASONS : ONE, THAT WHEN THE COMPUTATION OF INCOME WAS THERE BEFORE THE AO AT THE TIME OF COMPLETION OF ASSESSME NT U/S 143 (3) OF THE ACT, THE SAME CANNOT BE TREATED AS A MISTAKE APPARENT ON RECORD AS IT NEEDS DETAILED INVESTIGATION BY PROVID ING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE; AND TWO, THAT IT IS STILL A DEBATABLE ISSUE IF THE PRIOR PERIOD INCOME CAN BE ADDED AS IN COME U/S 154 OF THE ACT. MOREOVER, IT IS REVENUE NEUTRAL BECAUSE T HE ASSESSEE COMPANY IS RUNNING INTO LOSS. SO, IN THESE CIRCUMS TANCES, THE ITA NO.764/DEL./2011 & 11 ORS, 24 ADDITION MADE BY THE AO IS NOT SUSTAINABLE, HENCE G ROUNDS NO.2, 3 & 4 IN ITA NO.5696/DEL/2015 (AY 2009-10) IN ASSESSE ES APPEAL IS DETERMINED IN FAVOUR OF THE ASSESSEE. ASSESSEES APPEAL GROUND NO.1 OF ITA NO.4622/DEL/2014 (AY 2010-11) 31. AO BY INVOKING THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D (III) MADE DISALLOWANCE OF RS.1,25,000/-. CIT (A) CONFIRMED THE ADDITION. 32. UNDISPUTEDLY, ASSESSEE HAS EARNED DIVIDEND INCO ME OF RS.5,403/- DURING THE YEAR UNDER ASSESSMENT. IT IS THE CASE OF THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE DURING THE YEAR UNDER ASSESSMENT AND CONTENDED THAT AT THE MOST, DISALLOWANCE CANNOT BE MORE THAN THE EXEMPT INCOME. 33. FIRST OF ALL, AO HAS NOT RECORDED DIS-SATISFACT ION AS TO THE WORKING OUT MADE BY THE ASSESSEE THAT NO EXPENSES H AVE BEEN INCURRED TO EARN THE MEAGER DIVIDEND INCOME RATHER PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH R ULE 8D IN A MECHANICAL MANNER WHICH IS NOT PERMISSIBLE. 34. HONBLE DELHI HIGH COURT IN JUDGMENT CITED AS MAXOPP INVESTMENT LTD. (SUPRA) WHILE DECIDING THE IDENTICAL ISSUE HELD AS UNDER :- ITA NO.764/DEL./2011 & 11 ORS, 25 SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB- SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSE D COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINAT ION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. T HE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERM INING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF . SUB- SECTION (2) OF SECTION 14A . PRIOR TO THAT, THE ASS ESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. SO, EVEN FOR THE PRE-RULE 80 PERIOD, WHENEVER THE ISSUE OF SECTI ON 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST O F ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN' RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE T O VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING O FFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGAR D TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14 A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFIC ER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE AS SESSING OFFICER IS NOT, ON THE BASIS OF THE OBJECTIVE CRITE RIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SH ALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO . HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 35. SIMILARLY, HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT 394 ITR 449 ( SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAINED UNDER RULE 8D OF THE RULES BY OBSERVING A S UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A F ORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME ITA NO.764/DEL./2011 & 11 ORS, 26 WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATI SFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATI ON IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, W HAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE T HE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOUL D BECOME APPLICABLE. 36. MOREOVER, ASSESSEE WAS IN POSSESSION OF SUFFICI ENT INTEREST FREE FUNDS AT ITS DISPOSAL TO MAKE INVESTMENT. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT D ISALLOWANCE U/S 14A IN THIS CASE CANNOT BE MORE THAN RS.5,403, THE EXEMPT INCOME EARNED DURING THE YEAR UNDER ASSESSMENT. SO, AO IS DIRECTED TO DISALLOW THE AMOUNT OF RS.5,403/- ONLY INSTEAD OF R S.1,25,000/-. CONSEQUENTLY, GROUND NO.1IN ITA NO.4622/DEL/2014 (A Y 2010-11) IN ASSESSEES APPEAL IS PARTLY DETERMINED PARTLY IN FAVOUR OF THE ASSESSEE. ASSESSEES APPEAL GROUND NO.2 OF ITA NO.4622/DEL/2014 (AY 2010-11) 37. AO BY INVOKING THE PROVISIONS CONTAINED U/S 43B OF THE ACT MADE ADDITION OF RS.1,04,39,210/- ON ACCOUNT OF NON -PAYMENT OF STATUTORY DUES OF OUTSTANDING SALES-TAX PERTAINING TO THE MONTH OF MARCH, 2010 BEFORE THE DUE DATE OF FILING THE RETUR N OF INCOME. IT ITA NO.764/DEL./2011 & 11 ORS, 27 WAS THE DEFENCE OF THE ASSESSEE THAT THE AMOUNT OF SALES-TAX HAS BEEN CONVERTED INTO A LOAN BY THE GOVERNMENT OF UTT AR PRADESH THROUGH PICUP BUT AO NOTICED THAT THE SALES-TAX DUE S UPTO 28.02.2010 AMOUNTING TO RS.32,76,18,868/- WERE CONV ERTED INTO LOAN AND THE BALANCE OUTSTANDING OF RS.1,04,39,210/ - FOR THE MONTH OF MARCH, 2010 WAS CONVERTED INTO LOAN VIDE LETTER DATED 08.04.2011 I.E. AFTER THE DUE DATE OF FILING THE RE TURN OF INCOME. 38. THE ISSUE IN CONTROVERSY HAS BEEN DECIDED BY TH E HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. MINDA WIRELINKS (P.) LTD. (2013) 40 TAXMANN.COM 111 (DELHI) IN THE LIGHT OF THE CBDT CIRCULAR BY HOLDING THAT IN CASE THE SALES-TAX LIABILITY OF AN ASSESSEE WAS CONVERTED INTO A LOAN WITHIN RELEVANT PREVIOUS YEAR, ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION FOR THE SA ME. THIS IS ALSO MANDATE OF THE CIRCULAR NO.674 DATED 29.12.1993 ISS UED BY THE CBDT. 39. COORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE IDENTICAL ISSUE IN CASE CITED AS TEESTA AGRO INDUSTRIES LTD. VS. DCIT 2018 (5) TMI 1019 ITAT KOLKATA ALSO ALLOWED THE DEDUCTION OF UNPAID SALES-TAX CONVERTED INTO LOAN. IN THE INSTANT CASE, SINCE ASSESSEE HAS GOT OUTSTANDING DUES ON AC COUNT OF SALES- TAX CONVERTED INTO LOAN BY THE GOVERNMENT OF UP (TH ROUGH PICUP), THE ASSESSEE IS HELD TO HAVE COMPLIED WITH THE PROV ISIONS CONTAINED ITA NO.764/DEL./2011 & 11 ORS, 28 U/S 43B OF THE ACT. SO, WE ARE OF THE CONSIDERED V IEW THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION THEREOF AND AS S UCH, GROUND NO.2 IN ITA NO.4622/DEL/2014 (AY 2010-11) IN ASSESSEES APPEAL IS DETERMINED IN FAVOUR OF THE ASSESSEE. REVENUES APPEAL GROUND NO.1 OF ITA NO.851/DEL/2011 (AY 2006-07) ITA NO.852/DEL/2011 (AY 2007-08) ITA NO.3569/DEL/2011 (AY 2008-09) 40. GROUND NO.1 IN ITA NO.851/DEL/2011 (AY 2006-07) , ITA NO.852/DEL/2011 (AY 2007-08) AND ITA NO.3569/DEL/20 11 (AY 2008-09) IS GENERAL IN NATURE, HENCE DOES NOT REQUI RE ANY SPECIFIC ADJUDICATION. REVENUES APPEAL GROUND NO.2 OF ITA NO.851/DEL/2011 (AY 2006-07) ITA NO.852/DEL/2011 (AY 2007-08) GROUNDS NO.2 & 3 OF ITA NO.3569/DEL/2011 (AY 2008-09) GROUNDS NO.1 & 3 OF ITA NO.248/DEL/2014 (AY 2009-10) ITA NO.5616/DEL/2014 (AY 2010-11) GROUNDS NO.1 & 2 OF ITA NO.4963/DEL/2015 (AY 2011-12) 41. AFORESAID GROUNDS RAISED BY THE REVENUE ARE QUA DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON INTANGIBLES ITA NO.764/DEL./2011 & 11 ORS, 29 AS WELL AS DEPRECIATION ON ASSUMED INTANGIBLES. EX CEPT FOR DIFFERENCE IN AMOUNTS, THE FACTS ARE IDENTICAL IN A LL THE APPEALS. SO, AFOREMENTIONED GROUNDS IN APPEALS FILED BY THE REVE NUE FOR AYS 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 AND 201 1-12 ARE BEING DISPOSED OFF IN ONE-GO TO AVOID REPETITION OF DISCUSSION. 42. UNDISPUTEDLY, PURCHASE CONSIDERATION OF RS.1,90 8 CRORES QUA FERTILIZER PLANT HAS BEEN ALLOCATED TOWARDS DIFFERE NT HEADS OF FIXED ASSETS AND OTHER ASSETS ON THE BASIS OF REPORT AND VALUATION MADE BY PROJECT & DEVELOPMENT INDIA LTD. (PDIL), A GOVERNME NT OF INDIA UNDERTAKING. ASSESSEE CLAIMED DEPRECIATION ON INTA NGIBLES @ 25%. AO, BY DECLINING THE CONTENTIONS RAISED BY TH E ASSESSEE, DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE ON INTANGIBLES BEING THE VALUE ASSIGNED TO POTENTIAL SURPLUS POWER GENERATION FROM GAS TURBINES AND FROM SALE OF ARGON GAS BEING THE S AME NOT COVERED BY PART-B OF THE INCOME-TAX RULES. 43. HOWEVER, THE LD. CIT (A) ALLOWED THE SAME AND O RDERED THE AO TO DELETE THE ADDITION. SIMILARLY, AO ALSO MADE ADDITION CLAIMED BY THE ASSESSEE ON ACCOUNT OF DEPRECIATION ON ASSUMED INTANGIBLES TO THE EXTENT OF 50% OF 15% OF RS.65 CR ORES AS CLAIMED BY THE ASSESSEE. THE LD. CIT (A) DELETED THE ADDIT ION MADE BY THE AO ON ACCOUNT OF DEPRECIATION OF ASSUMED INTANGIBLE S WHICH ORDER IS NOW UNDER CHALLENGE BEFORE THE TRIBUNAL. ITA NO.764/DEL./2011 & 11 ORS, 30 44. IT IS THE CASE OF THE ASSESSEE THAT THE VALUATI ON OF INTANGIBLE BENEFITS CAN ALSO BE ASSIGNED TOWARDS AMMONIA PLANT AS PURGED GAS IS A PRODUCT FROM AMMONIA PLANT AND SIMILARLY INTAN GIBLE BENEFITS FROM POWER SALE CAN BE ATTRIBUTED TO THE COST OF TU RBINES. ASSESSEE ALSO CLAIMED THAT OTHER INTANGIBLE BENEFITS LIKE RI GHT TO PRODUCE UREA USING NATURAL GAS, APM CONTRACT AND PMT CONTRACT ET C. 45. UNDISPUTEDLY, ASSESSEE HAS PAID AN AMOUNT OF RS .125 CRORES FOR PURCHASE OF APPROVALS, LICENSES, PERMITS, REGIS TRATION, ETC. TO RUN ITS BUSINESS, OVER AND ABOVE THE PURCHASE PRICE OF RS.1,777 CRORES, FOR INTANGIBLES. THE LD. CIT (A) DELETED THE ADDIT ION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED ON INTANGIBLE ASSETS BY FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN CASE CITED AS CIT VS. TECHNO SHARES & STOCKS LTD. (2010) 327 IT R 323 (SC) . 46. UNDISPUTEDLY, THE ASSESSEE CLAIMED DEPRECIATION ON INTANGIBLES ON THE BASIS OF VALUATION MADE BY PDIL, A GOVERNMENT OF INDIA UNDERTAKING WHICH HAS SPECIFICALLY MADE VA LUATION OF TANGIBLES AND INTANGIBLE ASSETS. THE VALUATION REP ORT GIVEN BY PDIL IS AVAILABLE AT PAGES 355 TO 391 OF THE PAPER BOOK. WHEN WE EXAMINE PARA 8 AT PAGES 355 & 356 OF THE VALUATION REPORT, IT SHOWS THAT A VALUATION OF ASSETS I.E. LAND AND LAND DEVEL OPMENT, PLANT & MACHINERY, PLANT AND NON-PLANT BUILDING, OFFICE EQU IPMENTS, ITA NO.764/DEL./2011 & 11 ORS, 31 VEHICLES, FURNITURE, SPARES, ETC., HAS BEEN MADE. IN PARA 8.1.7 OF THE VALUATION REPORT, A NOTE HAS BEEN GIVEN THAT, INTANGIBLE ASSETS AND THEIR VALUE HAS BEEN DISCUSSED IN DETAIL IN CHAPTER VII OF THIS REPORT, WHICH ARE PRESENTED IN ANNEXURE VII . PERUSAL OF ANNEXURE VII, AVAILABLE AT PAGE 359 OF THE PAPER BOOK, HAS C ATEGORICALLY MADE THE VALUATION OF INTANGIBLE ASSETS, WHICH IS EXTRAC TED AS UNDER FOR READY PERUSAL :- INTANGIBLE ASSETS (RS. LAKHS) SL. NO. PARTICULARS CURRENT VALUE VALUE ADJUSTMENT FOR OPERATING PERIOD ASSET VALUE AS ON 18.01.2006 1.0 DUE TO POWER GENERATION 7700 0 7700 2.0 DUE TO ARGON RECOVERY PLANT 4800 0 4800 TOTAL 12500 0 12500 NOTE IN ADDITION TO ABOVE, THERE ARE NUMBER OF OTHER INT ANGIBLE ASSETS AS DETAILED IN THE REPORT. THOUGH DIRECT AND INDIRECT BENEFITS OF THESE ASSETS ARE SUBSTANTIAL, IT IS NOT POSSIBLE TO QUANT IFY THE SAME. HENCE, VALUES AGAINST THESE ITEMS HAVE NOT BEEN SHOWN. 47. WHEN WE FURTHER EXAMINE CHAPTER VII AT PAGES 37 0 TO 372 OF THE PAPER BOOK, BENEFITS OF INTANGIBLES HAVE BEEN G IVEN IN DETAIL BEFORE EVALUATING THE SAME AT RS.125 CRORES. BROAD LY, BENEFITS OF INTANGIBLES SPECIFICALLY PURCHASED BY THE ASSESSEE INTER ALIA THAT RIGHT OF UREA PRODUCTION IN THE FERTILIZER PLANT, G AS SUPPLIED FOR SHAHJAHANPUR FERTILIZER PLANT, LOCATIONAL ADVANTAGE AS SHAHJAHANPUR IS LOCATED IN A HIGHLY AGRICULTURE INTENSIFIED AREA , TRAINED MANPOWER, ITA NO.764/DEL./2011 & 11 ORS, 32 SALE OF SURPLUS POWER, PRODUCTION AND SALE OF ARGON , SALE AND SURPLUS OF AMMONIA, AND THEREBY VALUED THE TOTAL IN TANGIBLE BENEFITS TO THE TUNE OF RS.125 CRORES. 48. A DETAIL OF APPROVALS/LICENCES/PERMITS/REGISTRA TION FOR BUSINESS, WHICH ARE INTANGIBLE ASSETS, IS GIVEN BY THE PDIL IN VALUATION REPORT AT PAGES 497 & 498 OF THE PAPER BO OK. 49. AO DISALLOWED THE DEPRECIATION ON THE SOLE GROU ND THAT WHEN DEPRECIATION ON THE TANGIBLE ASSETS HAS ALREADY BEE N AVAILED OF BY THE ASSESSEE, NO DEPRECIATION ON INTANGIBLE IS ALLO WABLE. 50. NOW, THE QUESTION ARISES FOR DETERMINATION ON T HIS ISSUE IS :- AS TO WHETHER IN CASE OF A SLUMP SALE OF A FERTILI ZER PLANT, DEPRECIATION OF INTANGIBLES VIZ. APPROVALS, LICENCES, PERMITS, REGISTRATION, ETC. TO RUN THE BU SINESS IS ALLOWABLE? 51. HONBLE SUPREME COURT IN TECHNO SHARES & STOCKS LTD. V. CIT [2010] 327 ITR 323 (SC) HELD THAT A MEMBERSHIP CARD OF BOMBAY STOCK EXCHANGE (BSE) IS AN INTANGIBLE ASSET, WHICH INCLUDED RIGHT OF NOMINATION WAS A LICENCE OR AKIN TO LICENCE ON WHICH DEPRECIATION IS ALLOWABLE U/S 32(1)(II) OF TH E ACT. HOWEVER, HONBLE SUPREME COURT INDICATED THAT THIS DECISION WAS STRICTLY CONFINED TO RIGHT OF MEMBERSHIP CONFERRED BY BSE ME MBERSHIP CARD. ITA NO.764/DEL./2011 & 11 ORS, 33 52. HONBLE DELHI HIGH COURT IN AREVA T & D INDIA LTD. VS. DCIT 345 ITR 421 (DELHI) DECIDED THE IDENTICAL ISSUE REGARDING SALE OF INTANGIBLE ASSETS IN CASE OF SLUM P SALE IN FAVOUR OF THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- APPLYING THE PRINCIPLE OF EJUSDEM GENERIS, WHICH PR OVIDES THAT WHERE THERE ARE GENERAL WORDS FOLLOWING PARTICULAR AND SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHALL BE CON FINED TO THINGS OF THE SAME KIND, AS. SPECIFIED FOR INTERPRETING TH E EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' S PECIFIED IN SECTION 32(1)(II), IT IS SEEN THAT SUCH RIGHTS NEED NOT ANSWER THE DESCRIPTION OF 'KNOW-HOW, PATENTS, TRADEMARKS, LICE NSES OR FRANCHISES' BUT MUST BE OF SIMILAR NATURE AS THE S PECIFIED ASSETS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SP ECIFIC INTANGIBLE ASSETS REFERRED IN SECTION 32(1)(II) PRE CEDING THE TERM 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFORESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AF TER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADDITIONALLY USED, CLEARL Y DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMST ANCES, THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTED TO ONLY SIX CATEGORIES OF ASSETS, VIZ., KNOW-HOW, PATE NTS, TRADEMARKS, COPYRIGHTS, LICENSES OR FRANCHISES. THE NATURE OF ' BUSINESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHIC H ALL THE AFORESAID SIX ASSETS FALL. ALL THE ABOVE FALL IN TH E GENUS OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRA DE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF THE BUSINESS. IN THE CIRCUMSTANCES, IT IS OBSERVED THAT IN CASE OF THE A SSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; EMPLOYEES AND KNOW-HOW , WERE ALL ASSETS, WHICH WERE INVALUABLE AND RESULT IN CARRYIN G ON THE TRANSMISSION AND DISTRIBUTION BUSINESS BY THE ASSES SEE, WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFEROR, W ITHOUT ANY INTERRUPTION. THE AFORESAID INTANGIBLE ASSETS WERE, THEREFORE, COMPARABLE TO A LICENSE TO CARRY OUT THE EXISTING T RANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR; IN THE ABSENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WOULD HAV E HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE G ESTATION PERIOD WHEREAS BY ACQUIRING THE AFORESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AN D RUNNING BUSINESS. [PARA 13] ITA NO.764/DEL./2011 & 11 ORS, 34 IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT TH E SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEME NT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIM ILAR NATURE' SPECIFIED IN SECTION 32(1)(II) AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION UNDER THAT SECTION. [PARA 14] 53. COORDINATE BENCH OF THE TRIBUNAL IN CASE CITED AS M/S. CONTROLS & SWITCHGEAR CONTRACTORS LTD. VS. DCIT (IT A NO.511/DEL/2011 ORDER DATED 22.06.2016) BY FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CA SE OF AREVA T & D INDIA LTD. VS. DCIT (SUPRA) HELD AS UNDER :- 10.WE ARE OF THE CONSIDERED VIEW THAT TYPE TEST CERTIFICATION FEES AND CUSTOMER APPROVAL FEES AR E CERTAINLY INTANGIBLE ASSETS BEING BUSINESS CLAIMS, BUSINESS INFORMATION, CONTRACTS AND KNOW-HOW ETC., WHICH WERE INTANGIBLE AND WITHOUT WHICH THE ASSESSE E WOULD HAVE NO BUSINESS TO START WITH. THUS, RIGHTS OF THE SIMILAR NATURE SPECIFIED IN SECTION 32(1)(II) O F THE ACT ARE ELIGIBLE FOR DEPRECIATION. 54. SIMILARLY, COORDINATE BENCH OF THE TRIBUNAL IN THYSSENKRUPP ELEVATOR (INDIA) (P.) LTD. VS. ACIT (2014) 50 TAXMANN.COM 279 (DELHI TRIB) ALSO DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT, WHERE THE ASSESSEE ACQUIRED ELEVATED DIVISION BUSINESS OF ANOTHER COMP ANY ON SLUMP BASIS, EXCESS CONSIDERATION PAID BY ASSESSEE OVER A ND ABOVE THE VALUE OF NET ASSETS WAS TO BE CONSIDERED AS GOODWIL L U/S 32(1)(II), AS SUCH ELIGIBLE FOR DEPRECIATION. SO, THE ANSWER TO THE QUESTION FRAMED IS IN AFFIRMATIVE. ITA NO.764/DEL./2011 & 11 ORS, 35 55. SO FAR AS ISSUE OF DELETION OF DISALLOWANCE OF ASSUMED INTANGIBLES MADE BY THE AO IS CONCERNED, LD. CIT (A ) HAS RIGHTLY HELD THAT THERE IS NO BASIS FOR THE AO TO ASSUME TH AT FURTHER 10% OF THE TOTAL CONSIDERATION OF RS.1,908 CRORES IS TO BE TREATED AS INTANGIBLES NOT ELIGIBLE FOR DEPRECIATION U/S 32(1)(II) OF THE ACT AS THE TOTAL SALE CONSIDERATION OF RS.1,908 CRORES HAS BEEN PAID IN TERMS OF THE AGREEMENT TO SELL BETWEEN ASSESSEE AND OSWAL CHEMICAL & FERTILIZERS LIMITED. WHEN THE VALUE OF SPECIFIC ITEMS HAS BEEN PUT BY PDIL UNDER DIFFERENT HEADS, AS DISC USSED IN THE PRECEDING PARAS, THERE IS NO SCOPE FOR GUESSWORK OR ASSUMPTION FOR SUCH DISALLOWANCE OF DEPRECIATION OF ASSUMED INTANG IBLES. MOREOVER, THIS ISSUE IS CONSEQUENTIAL BECAUSE WHEN THE ASSESSEE IS OTHERWISE FOUND TO BE ENTITLED FOR DEPRECIATION ON INTANGIBLES, FURTHER DEPRECIATION ON ASSUMED INTANGIBLES IS NOT SUSTAINABLE. 56. FOLLOWING THE DECISION RENDERED BY HONBLE HIGH COURT AND COORDINATE BENCH OF THE TRIBUNAL DISCUSSED IN THE P RECEDING PARAS, WHICH ARE SQUARELY APPLICABLE TO THE FACTS AND CIRC UMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT WHEN IN TH E VALUATION REPORT, WHICH IS GIVEN BY PDIL, A GOVERNMENT OF IND IA UNDERTAKING, INTANGIBLES ASSETS AND THEIR BENEFITS HAVE BEEN SPECIFICALLY VALUED AND THE ASSESSEE HAD PAID A SUM OF RS.125 CRORES IN A SLUMP SALE AGREEMENT FOR APPROVALS, LIC ENCES, PERMITS, ITA NO.764/DEL./2011 & 11 ORS, 36 REGISTRATION TO RUN THE BUSINESS OVER AND ABOVE THE TOTAL PRICE OF FERTILIZER PLANT I.E. RS.1,444 CRORES, THE SAME ARE INTANGIBLES AND DEPRECATION THEREON IS ALLOWABLE U/S 32(1)(II) OF T HE ACT APART FROM THE DEPRECIATION CLAIMED BY THE ASSESSEE ON TANGIBL E ASSETS. SO, FINDING NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED BY LD. CIT (A), GROUND NO.2 OF ITA NO.851/DEL/2011 (AY 200 6-07) & ITA NO.852/DEL/2011 (AY 2007-08); GROUNDS NO.2 & 3 OF ITA NO.3569/DEL/2011 (AY 2008-09), GROUNDS NO.1 & 3 OF ITA NO.248/DEL/2014 (AY 2009-10) & ITA NO.5616/DEL/2014 (AY 2010-11) AND GROUNDS NO.1 & 2 OF ITA NO.4963/DEL/20 15 (AY 2011-12) OF REVENUES APPEALS ARE DETERMINED AGAINS T THE REVENUE. REVENUES APPEAL GROUND NO.3 OF ITA NO.851/DEL/2011 (AY 2006-07) ITA NO.852/DEL/2011 (AY 2007-08) GROUND NO.4 OF ITA NO.3569/DEL/2011 (AY 2008-09) GROUND NO.2 OF ITA NO.248/DEL/2014 (AY 2009-10) ITA NO.5616/DEL/2014 (AY 2010-11) 57. AO DISALLOWED AN AMOUNT OF RS.85,14,636/- BEING 1/5 TH OF EXPENSES OF RS.2,25,07,200/- CLAIMED BY THE ASSESSE E ON ACCOUNT OF PRELIMINARY EXPENSES BEING PAID TO ROC AND RS.2 CRO RES BEING ITA NO.764/DEL./2011 & 11 ORS, 37 INCURRED BY SHYAM BASIC INFRASTRUCTURE PROJECTS PVT . LTD. FOR DUE DILIGENCE REPORT, DRAFTING AGREEMENTS, ETC., PREPAR ATION OF MEMORANDUM OF ASSOCIATION AND RS.65,980/- BEING PAI D TO S.S. KOTHARI MEHTA & COMPANY WITH REGARD TO INCORPORATIO N OF KRIBHCO SHYAM FERTILIZERS LTD. U/S 35D BY RELYING U PON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. HINDUSTAN INSECTICIDES LTD. (2001) 250 ITR 338 (DEL HI) ON THE GROUND THAT PAYMENT TO ROC FOR INCREASED AUTHORIZED SHARE CAPITAL IS NOT ADMISSIBLE U/S 35D. 58. UNDISPUTEDLY, AT THE TIME OF REGISTRATION OF TH E ASSESSEE COMPANY, ITS AUTHORIZED SHARE CAPITAL OF RS.750 CRO RES UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND PAYMENT OF RS .2 CRORES WAS MADE TO ROC BY KRIBHCO. IT IS ALSO NOT IN DISP UTE THAT THIS AMOUNT HAS BEEN CLAIMED BY THE ASSESSEE AS PRELIMIN ARY EXPENSES U/S 35D(2)(C)(III) OF THE ACT. ASSESSEE HAS PLACED ON RECORD THE DOCUMENTARY EVIDENCE QUA AMOUNT OF EXPENSES CLAIMED AS PRELIMINARY EXPENSES, AVAILABLE AT PAGES 96 TO 115, PARTICULARLY PAGE 107, WHICH IS PROPOSAL PUT UP BY CHIEF MANAGER , F&A FOR APPROVING THE OBJECT REQUIRED FOR INCORPORATION OF THE COMPANY FOR ACQUISITION OF ASSETS OF OCFL LOCATED AT SHAHJAHANP UR, UP. 59. WHEN WE EXAMINE THE FACTS THERE IS NO AMBIGUITY THAT THE AMOUNT CLAIMED BY THE ASSESSEE U/S 35D(2)(C)(III) W AS INCURRED ITA NO.764/DEL./2011 & 11 ORS, 38 TOWARDS REGISTRATION OF THE COMPANY AS A NEW CONCER N AND NOT FOR INCREASING AUTHORIZED SHARE CAPITAL. SO, IN THESE CIRCUMSTANCES, THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT I N CIT VS. HINDUSTAN INSECTICIDES LTD. (SUPRA), RELIED UPON BY THE AO, IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE. SO, LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO QUA CLAIM OF PRELIMINARY EXPENSES MADE U/S 35D AND AS SUCH, THER E IS NO SCOPE TO INTERFERE INTO THE FINDINGS RETURNED BY THE LD. CIT (A). CONSEQUENTLY, GROUND NO.3 OF ITA NO.851/DEL/2011 (A Y 2006- 07) & ITA NO.852/DEL/2011 (AY 2007-08); GROUND NO.4 OF ITA NO.3569/DEL/2011 (AY 2008-09) AND GROUND NO.2 OF IT A NO.248/DEL/2014 (AY 2009-10) & ITA NO.5616/DEL/2014 (AY 2010-11) OF REVENUES APPEALS ARE DETERMINED AGAINS T THE REVENUE. REVENUES APPEAL GROUND NO.4 OF ITA NO.852/DEL/2011 (AY 2007-08) 60. GROUND NO.4 OF ITA NO.852/DEL/2011 (AY 2007-08 ) IS NOT PRESSED BECAUSE OF SMALLNESS OF AMOUNT INVOLVED. ITA NO.764/DEL./2011 & 11 ORS, 39 REVENUES APPEAL GROUND NO.4 (RENUMBERED OTHERWISE GROUND NO.5) OF ITA NO.852/DEL/2011 (AY 2007-08) 61. AO MADE ADDITION OF RS.18,40,403/- AFTER GOING THROUGH THE CONFIRMATION OF THE CREDITORS, NAMELY, INDIAN OIL C ORPORATION (IOC) ON THE GROUND THAT THE SAME HAS NOT BEEN ACCO UNTED FOR CREDIT NOTE DATED 31.1.2007 TILL 31.03.2007. HOWEV ER, LD. CIT (A) DELETED THE ADDITION ON THE GROUND THAT WHEN THE SA ME AMOUNT OF RS.18,40,403/- HAS BEEN ACCOUNTED FOR IN THE SUBSEQ UENT YEARS AND IN BOTH THE ASSESSMENT YEARS, THE NET RESULT IS LOS S THEN THERE IS NO JUSTIFICATION IN DISALLOWING THE AMOUNT IN QUESTION IN ASSESSMENT YEAR IN QUESTION. THIS IS A FACTUAL ISSUE DECIDED BY THE LD. CIT (A) AND THERE IS NO NEED TO INTERFERE INTO THE FINDINGS RETURNED BY THE LD. CIT (A), HENCE GROUND NO.4 (RENUMBERED OTHERWISE GR OUND NO.5) OF ITA NO.852/DEL/2011 (AY 2007-08) OF REVENUES AP PEAL IS DETERMINED AGAINST THE REVENUE. REVENUES APPEAL GROUND NO.5 OF ITA NO.5616/DEL/2014 (AY 2010-11) 62. LD. CIT (A) HAS APPARENTLY ERRED IN ALLOWING TH E PRIOR PERIOD EXPENSES OF RS.15,13,126/- BECAUSE ASSESSEE ITSELF HAS ADMITTED BEFORE AO WHEN CONFRONTED THAT THE AMOUNT OF RS.15, 13,126/- WAS ITA NO.764/DEL./2011 & 11 ORS, 40 ERRONEOUSLY NETTED AND OFFERED TO BE ADDED FOR COMP UTATION OF TAXPAYERS INCOME. FOR READY PERUSAL, PARA 8 OF TH E ASSESSMENT ORDER IS EXTRACTED AS UNDER :- 8. PERUSAL OF TAX AUDIT REPORT SHOWS THAT THERE W AS PRIOR PERIOD EXPENSES OF RS.90,47,81,124/-. HOWEVER, IN T HE COMPUTATION OF INCOME, ASSESSEE ADDED THE AMOUNT OF RS.90,32,67,998/- AFTER NETTING THE PRIOR PERIOD IN COME OF RS.15,13,126/-. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE AMOUNT WAS ADDED AFTER NETTING OFF. IN RESPONSE, THE ASSESSEE COMPANY FILED A LETTER DA TED 15/01/2013 IN WHICH IT IS SUBMITTED THAT THE AMOUNT OF RS.15,1 3,126/- WAS ERRONEOUSLY NETTED AND THE SAME IS BEING OFFERED TO BE ADDED FOR THE COMPUTATION OF TAXABLE INCOME. HENCE, THE AMOUN T OF RS.15,13,126/- IS HEREBY DISALLOWED ON ACCOUNT OF P RIOR PERIOD EXPENSES AND ADDED TO THE TOTAL INCOME OF THE ASSES SEE FOR THE YEAR UNDER CONSIDERATION. 63. IN VIEW OF THE FINDINGS RETURNED BY THE AO, THE LD. AR FOR THE ASSESSEE CONCEDED THAT THE LD. CIT (A) HAS ERRE D IN DELETING THE ADDITION OF RS.15,13,126/-. IN THESE CIRCUMSTANCES , WHEN THE ASSESSEE HAS ERRONEOUSLY NETTED THE AMOUNT OF RS.15 ,13,126/-, THE QUESTION OF ALLOWING THE SAME AS PRIOR PERIOD EXPEN SE DOES NOT ARISE. SO, GROUND NO.5 OF ITA NO.5616/DEL/2014 (A Y 2010-11) OF REVENUES APPEAL IS DETERMINED IN FAVOUR OF THE REVENUE. REVENUES APPEAL GROUND NO.4 OF ITA NO.4963/DEL/2015 (AY 2011-12) 64. AO DISALLOWED AN AMOUNT OF RS.7,96,706/- BEING 10% OF RS.79,67,061/- CLAIMED BY THE ASSESSEE AS EXPENSES UNDER THE HEAD VEHICLE REPAIR AND MAINTENANCE IN ORDER TO EXCLUD E PERSONNEL ITA NO.764/DEL./2011 & 11 ORS, 41 EXPENSES BOOKED UNDER IT. PERUSAL OF THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) DELETING THE ADDITION OF RS.7,96 ,706/- SHOWS THAT THE LD. CIT (A) AFTER APPRECIATING THE FACT THAT TH E ASSESSEE COMPANY IS SITUATED AT SHAHJAHANPUR AND ITS HEADQUA RTER IS AT NOIDA AND ASSESSMENTS ARE MADE AT BAREILLY AND ITS APPELLATE JURISDICTION IS AT DELHI AND LUCKNOW AND IT IS HAVI NG LARGE WORK FORCE, THE TRAVELLING IS COMMERCIAL NECESSITY. MOR EOVER, THE LD. CIT (A) HAS RIGHTLY OBSERVED THAT THERE IS NO EVIDE NCE OR MATERIAL AVAILABLE WITH THE AO TO WORK OUT PERSONNEL USE OF VEHICLE RATHER HE HAS PROCEEDED TO ESTIMATE THE SAME WHICH IS NOT PERMISSIBLE WHEN ACCOUNTS OF THE ASSESSEE ARE AUDITED ONE AND H AS BEEN DULY ACCEPTED BY THE REVENUE. SO, THERE IS NO ILLEGALIT Y OR PERVERSITY IN THE FINDINGS RETURNED BY THE LD. CIT (A), HENCE GRO UND NO.4 OF ITA NO.4963/DEL/2015 (AY 2011-12) OF REVENUES APPE AL IS DETERMINED AGAINST THE REVENUE. 65. RESULTANTLY, THE APPEALS FILED BY THE ASSESSEE BEING ITA NOS.764/DEL/2011 (AY 2006-07), 765/DEL/2011 (AY 200 7-08), 3508/DEL/2011 (AY 2008-09) & 5696/DEL/2015 (AY 2009 -10) ARE ALLOWED AND ITA NO.4622/DEL/2014 (AY 2010-11) IS PA RTLY ALLOWED; AND THE APPEALS FILED BY THE REVENUE BEING ITA NOS.851/DEL/2011 (AY 2006-07), 852/DEL/2011 (AY 200 7-08), 3569/DEL/2011 (AY 2008-09), 248/DEL/2014 (AY 2009-1 0) & ITA NO.764/DEL./2011 & 11 ORS, 42 4963/DEL/2015 (AY 2012) ARE DISMISSED AND ITA NO.5616/DEL/2014 (AY 2010-11) IS PARTLY ALLOWED. REVENUES APPEAL (U/S 271(1)(C) OF THE ACT) ITA NO.247/DEL/2014 (AY 2008-09) 66. ON THE BASIS OF COMPLETED ASSESSMENT U/S 143 (3 ) OF THE ACT, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE IN ITIATED AGAINST THE ASSESSEE BY WAY OF ISSUANCE OF NOTICE BY MAKING NUMEROUS ADDITIONS, OUT OF WHICH, ADDITION OF RS.1,33,60,273 /- AND ADDITION OF RS.1,00,14,486/- ON ACCOUNT OF SALES-TAX NOT PAI D & DISALLOWED U/S 43B AND DISALLOWANCE OF DEPRECIATION ON SPARE P ARTS RESPECTIVELY WAS CONFIRMED AND REMAINING ADDITION W AS DELETED BY THE LD. CIT (A). DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE, AO PROCEEDED TO LEVY THE PENALTY OF RS.79,45,080/- @ 100% FOR FURNISHING INACCURATE PARTICULARS BY THE ASSESSEE T O THE EXTENT OF INCOME OF RS.2,33,74,759/-. 67. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE PENALTY BY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 68. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.764/DEL./2011 & 11 ORS, 43 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 69. UNDISPUTEDLY, PENALTY HAS BEEN LEVIED FOR DISAL LOWANCE OF CLAIM OF THE ASSESSEE ON ACCOUNT OF SALES-TAX NOT P AID AND FOR DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSE E ON SPARE PARTS. PERUSAL OF PARA 9 OF THE PENALTY ORDER GOES TO SHOW THAT THE PENALTY HAS BEEN LEVIED BY THE AO FOR CONCEALMENT O F PARTICULARS OF ITS INCOME AND FURNISHING OF INACCURATE PARTICUL ARS OF INCOME. IT IS SETTLED PRINCIPLE OF LAW THAT IN ORDER TO INITIA TE THE PENALTY PROCEEDINGS, A VALID SHOW-CAUSE NOTICE AS REQUIRED U/S 271(1)(C) READ WITH SECTION 274 IS REQUIRED TO BE ISSUED TO T HE ASSESSEE SO AS TO MAKE HIM AWARE AS TO UNDER WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY IS GOING TO BE LEVIED. 70. BUT, IN THE INSTANT CASE, AO EVEN AT THE TIME O F PASSING THE PENALTY ORDER WAS NOT AWARE IF THE ASSESSEE HAS CONCEALED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF I TS INCOME RATHER PREFERRED TO LEVY THE PENALTY ON BOTH THE ACCOUNTS . RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HONBLE KA RNATAKA HIGH COURT IN CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY & ORS. 359 ITR 565 (KARN.) , AFFIRMED BY HONBLE SUPREME COURT. 71. SO, THE LD. CIT (A) HAS RIGHTLY DELETED THE PEN ALTY ON THIS ACCOUNT. FURTHERMORE, WHEN AS PER OUR FINDINGS RET URNED IN THE ITA NO.764/DEL./2011 & 11 ORS, 44 PRECEDING PARAS WHILE DECIDING THE GROUNDS IN THE R ESPECTIVE APPEAL FILED BY THE ASSESSEE, THE ADDITION ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED, HAS BEEN DELETED, PENALTY CANNOT SURVI VE AND AS SUCH, HAS TO BE DELETED. IN NUTSHELL, WHEN THERE IS NO A DDITION, THERE CANNOT BE ANY PENALTY. RELIANCE IN THIS REGARD IS PLACED ON DECISION RENDERED BY HONBLE SUPREME COURT IN CASE CITED AS K.C. BUILDERS V. ASSISTANT COMMISSIONER OF INCOME-TAX [2 004] 265 ITR 562 (SC) . 72. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THERE IS NO SCOPE FOR INTERFERENCE INTO THE IMPUGNED ORDER PASSED BY LD. CIT (A), HENCE APPEAL BEING ITA NO.247/DEL/2014 (AY 2008-09) FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DAY OF DECEMBER, 2018. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 17 TH DAY OF DECEMBER , 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.