Deputy Commissioner of Income Tax, Circle- 1 (1), Panaji., Panaji V. M/s Sesa Goa Ltd., Panaji

ITA 92/PAN/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1386 (ITAT-PANAJI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH; RAMESH S MUTAGAR LD DRS
• Assessee Lawyers: DR ANITA SUMANTH; BENICIO MENEZES AGM TAXATION; V SANTHI KUMAR
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Additional depreciation; Earning of tax free income; Retrospective amendment; Commercial expediency; Condonation of delay
• Section: 10AA; 14A; 10B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI, HON'BLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 92/PNJ/2015 : (A.Y 2010 - 11) DY. COMMISSIONER OF INCOME TAX CIRCLE - 1(1), PANAJI (APPELLANT) VS. M/S. SESA GOA LTD. SESA GHOR, 20, EDC COMPLEX, PATTO, PANAJI, GOA (RESPONDENT) PAN : AACCS7101B ITA NO. 100/PNJ/2015 : (A.Y 2010 - 11) M/S. SESA STERLITE LTD. (FORMERLY KNOWN AS M/S. SESA GOA LTD.) SESA GHOR, 20, EDC COMPLEX, PATTO, PANAJI, GOA (APPELLANT) PAN : AACCS7101B VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE - 1, PANAJI (RESPONDENT) ASSESSEE BY : DR. ANITA SUMANTH, ADV. & BENICIO MENEZES, AGM TAXATION & V. SANTHI KUMAR, CA REVENUE BY : K.M. MAHESH & RAMESH S. MUTAGAR, LD. DRS DATE OF HEARING : 10/09/2015 DATE OF PRONOUNCEMENT : 10/09/2015 O R D E R PER GEORGE MATHAN : 1. ITA NO. 92/PNJ/2015 IS AN APPEAL FILED BY THE REVENUE AND ITA NO. 100/PNJ/2015 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), PANAJI - 1 IN ITA NO. 118/PNJ/12 - 13 DT. 11.12.2014 FOR THE A.Y 2010 - 2 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 11. SHRI K.M. MAHESH AND SHRI RAMESH S. MUTAGAR, LD. DR S REPRESENTED ON BEHALF OF THE REVENUE AND DR. ANITA SUMANTH, ADVOCATE, SHRI BENICIO MENEZES, AG M (TAXATION) AND SHRI V. SANTHI KUMAR, CA REPRESENTED ON BEHALF OF THE ASSESSEE. 2. IN ITS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1) THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2) THE LD.CIT (A) ERRED IN DELETING THE ADDITIONS OF RS.1,48,72,062/ - MADE U/S.14A OF THE INCOME - TAX ACT IN ACCORDANCE WITH RULE 8D OF INCOME TAX RULES AS PROVIDED BY THE DECISION GIVEN BY THE MUMBAI SPECIAL BENCH OF ITAT IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT PV T. LTD.(2009) 117 LTD 169 AND IN THE CASE OF LAKSHMI RING TRAVELLERS VS. ACIT ITA 2083/MDS/2011 ORDER DATED 02/03/2012 A.Y. 2008 - 09. 3) THE LD.CIT(A) ERRED IN DELETING THE ADDITIONS OF RS.1,56,68,389/ - U/S.40A(IA) TOWARDS PAYMENT OF COMMISSION TO FOREIGN AGENTS WHERE TDS WAS NOT DEDUCTED IGNORING THE DECISION OF AAR IN THE CASE OF RAJIV MALHOTRA INRE(AAR)2841TR 564 AND SKF BOILERS AND DRIERS PVT LTD WHEREIN IT WAS HELD THAT COMMISSION INCOME PAID TO EXPORT AGENTS TAXABLE IN INDIA IN VIEW OF SEC.5(2)(B) R.W .S. 9(1(I) - FACT THAT THE AGENT IS TO RENDER SERVICE ABROAD AND THE COMMISSION IS TO BE REMITTED TO IT ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE SITUS OF INCOME SINCE INCOME IS FROM A SOURCE IN INDIA. FURTHER CBDT WITHDREW CIRCULAR NO. DATED --- ON THIS ISSUE. 4) THE LD CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS.34,85,71,032/ - MADE U/S.40A(IA) R.W.S. SEC. 195(1) TOWARDS PAYMENT OF DEMURRAGES PAID TO NON - RESIDENT BUYERS OF IRON ORE ON WHICH TDS WAS NOT DEDUCTED BY IGNORING THE BIND ING DECISION OF JURISDICTION HIGH COURT OF BOMBAY, PANAJI BENCH AS IN THE CASE OF CIT VS. ORIENT(GOA) PVT LTD (BOM) 325 ITR 554. 5) THE LD CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.17,19,74,078/ - OF ADDITIONAL DEPRECIATION IN RESPECT OF IRON ORE EXTRACTION AND PROCESSING WHEN THE ACTIVITIES CARRIED OUT BY THE ASSESSEE 3 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) DO NOT AMOUNT TO MANUFACTURE OR PRODUCTION AS DEFINED IN SECTION 2(29BA). 6) THE CIT(A) ERRED IN GRANTING OF DEDUCTION UNDER SECTION 10B BY NOT FOLLOWING THE BINDING DECISION OF TH E SUPREME COURT IN THE CASE OF CHOWGULE & CO. PVT. LTD. VS. UNION OF INDIA 1981 AIR 1014 WHERE IN IT WAS CLEARLY HELD THAT THOUGH THE PROCESSING OF IRON ORE UNDERGOES CHANGES IN PHYSICAL AND CHEMICAL COMPOSITION STILL IT DOES NOT AMOUNT TO MANUFACTURE. THI S DECISION WAS FOLLOWED BY THE ITAT PANAJI BENCH IN THE CASE OF CHOWGULE & CO LTD VS.S ACIT (ITA NO.162/PNJ/2006) FOR REJECTING THE BENEFIT OF 10B TO THE EOU UNIT WHICH IS ENGAGED IN THE PROCESSING OF IRON ORE WITHOUT EXTRACTION. 7) THE LD CIT(A) HAS ERRE D IN DELETING THE ADDITIONS OF RS.818,76,45,096/ - THAT THE PROCESSING OF IRON ORE WITHOUT EXTRACTION IN THE PROCESSING PLANT DOES NOT GIVE RISE TO ANY NEW PRODUCT AND THEREFORE, THE PROCESS IS NOT EVEN PRODUCTION PARTICULARLY WHERE THE PROCESSING HAS BE EN SPECIFICALLY OMITTED FROM THE DEFINITION OF MANUFACTURING W.E.F. 01.04.2001 FOR PURPOSE OF SECTION 10B. 8) THE LD CIT(A) HAS ERRED IN HOLDING THAT THE PROCESSING PLANT (EOU) IN ITSELF WAS MANUFACTURING IRON ORE ERRONEOUSLY PRESUMING THAT THE PROCESS ING PLANT WAS BLENDING IRON ORE AND THAT THE PROCESSED ORE WAS A DISTINCT COMMODITY THAN THE INPUT OF ROM IGNORING THE DECISION OF THE APEX COURT IN THE CASE OF CHOWGULE & CO. PVT. LTD. VS. UNION OF INDIA 1981 AIR 1014 AND BOMBAY HIGH COURT IN THE ASSESSEE S OWN CASE (2004) (ITR 266 ITR 126) WHERE IT HAS BEEN HELD THAT MINING IS AN INTEGRAL PROCESS OF VARIOUS ACTIVITIES STARTING FROM EXTRACTION OF IRON ORE TO BLENDING AND LOADING TO THE SHIP AND THAT THE PROCESS OF PRODUCING ORE OF CONTRACTUAL SPECIFICATION S CANNOT BE SAID TO INVOLVE THE PROCESS OF MANUFACTURING SINCE THE ORE PRODUCED CANNOT BE REGARDED AS AN COMMERCIALLY NEW AND DISTINCT COMMODITY. 9) THE LD.CIT(A) ERRED IN INTERPRETING THE NEW SECTION 2(29BA) THAT THE PROCESSING OF ROM AMOUNTS TO MANUFACTURE OF IRON ORE BY BRINGING INTO EXISTENCE A NEW AND DISTINCT OBJECT OR ARTICLE OR THING BY THE PROCESSING PLANT THE EOU UNIT. 4 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 10) THE LD CIT(A) HAS ERRED IN APPLYING THE DEFINITION OF MANUFACTURE GIVEN IN SEZ ACT 2005 WHICH IS APPLICABLE FOR THE PURPOSE OF ONLY SECTION 10AA IF THE IT ACT WHICH IMPOSES VARIOUS CONDITIONS FOR THE UTILIZATION OF PROFITS. 11) THE LD CIT(A) HAS ERRED IN NOT FOLLOWING THE DECISION OF THE ITAT PANAJI BENCH (COORDINATE BENCH) IN THE CASE OF CHOWGULE & CO LTD VS.S ACIT (ITA NO.162/PNJ/2006) WHERE IT HAS BEEN HELD THAT THE PROCESSING OF IRON ORE WITHOUT EXTRACTION IN THE PROCESSING PLANT DOES NOT GIVE RISE TO ANY NEW PRODUCT BASED ON THE SUPREME COURT DECISION IN THE CASE OF CHOWGULE & CO. PVT. LTD. VS. UNION OF IND IA 1981 AIR 1014, AND THEREFORE, THE PROCESS IS NOT EVEN PRODUCTION PARTICULARLY WHERE THE PROCESSING HAS BEEN SPECIFICALLY OMITTED FROM THE DEFINITION OF MANUFACTURING W.E.F. 01.04.2001 FOR THE PURPOSE OF SECTION 10B. 12) THE LD CIT(A) HAS ERRED IN NOT CONSIDERING NEW EVIDENCE ON FACTS PROVIDED BY THE ASSESSING OFFICER AFTER DECISION OF THE ITAT IN THE ASSESSEES CASE FOR A.Y. 2009 - 10 ON THE ISSUE OF SECTION 10B AS THE POWER OF THE CIT(A) IS COTERMINOUS WITH THE POWER OF THE ASSESSING OFFICER. 13) T HE CIT(A) ERRED AND IGNORED PROVISION OF SECTION 80A(6) IN DIRECTING THE A.O. TO ADOPT 62 FE GRADE ORE RECEIVED BY THE AMONA EOU UNIT FROM CHITRADURGA UNIT 3,45,742MT AT THE RATE OF RS.230 PER MT(RS.192 TAKEN BY THE ASSESSEE PIUS 20% INCREASE) WHEREAS THE ASSESSEE COMPANY ITSELF VALUED 56 GRADE FE TRANSFERRED TO AMONA EOU UNIT BY THE NON EOU UNIT OF AMONA UNIT AT THE RATE OF RS.465 AND DIRECTED THE A.O. TO ADOPT THE AMONA UNIT ORE RATE AT THE RATE OF RS.558 PER MT (PRODUCTION COST SHOWN BY THE ASSESSEE RS.4 65 PLUS 20% INCREASE) OF 56 FE GRADE - VIZ THE DECISION OF THE CIT(A) RESULTED IN VALUATION OF HIGHER GRADE ORE AT THE RATE OF RS.230 WHEN INFACT THE LOWER GRADE ORE ITSELF IS VALUED AT THE RATE OF RS.558 PER MT. THE HIGHER GRADE ORE CANNOT BE VALUED LESS T HAN THE LOWER GRADE ORE WHICH IS ABSURD. 14) THE LD CIT(A) HAS ERRED AND IGNORED PROVISION OF SECTION 80A(6) IN DIRECTING THE A.O. TO VALUE THE ORE TRANSFERRED TO CODLI EOU UNIT OF GOA BY THE NON EOU UNIT OF 19,13,376MT @ THE RATE OF RS.300 PER MT FOR 55 TO 56 GRADE FE WHERE AS FOR THE SAME GRADE FE THE CIT(A) ADOPTED RS.558 PER MT IN THE CASE OF AMONA UNIT OF GOA WITHOUT GIVING ANY 5 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) REASONS. FOR THE SAME GRADE OF ORE THERE CANNOT BE TWO DIFFERENT MARKET RATES. 15) THE LD CIT(A) HAS ERRED AND IGNORED PROVI SION OF SECTION 80A(6) IN CHITRADURGA EOU UNIT OF KARNATAKA ALSO WHERE IN HE DIRECTED THE A.O. TO ADOPT 24,46,051MT OF 62 FE GRADE ORE VALUE AT THE RATE OF RS.230 (RS.192 TAKEN BY THE ASSESSEE PLUS 20% INCREASE) WHEREAS THE MARKET RATE AS PER THE ASSESSEE S OWN WORKING FOR 56 GRADE IS RS.465 FOR AMONA UNIT AND THE CIT(A) DIRECTED TO TAKE THIS AT RS.558 - VIZ THE DECISION OF THE CIT(A) RESULTED IN VALUATION OF HIGHER GRADE ORE AT THE RATE OF RS.230 WHEN INFACT THE LOWER GRADE ORE ITSELF IS VALUED AT THE RATE OF RS.558 PER MT AS PER CIT(A) DECISION. THE HIGHER GRADE ORE CANNOT BE VALUED LESS THAN THE LOWER GRADE ORE WHICH IS ABSURD. 16) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND O RDER OF ASSESSING OFFICER RESTORED. 17) THE APPELLANT CRAVES, LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF THE APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. 18) WHETHER THE CIT(A) IS RIGHT IS NOT FOLLOWING THE ITAT, PANAJI BENCH DECISION IN THE C ASE OF M/S. DEMPO & CO. PVT. LTD., FOR THE A.Y. 2005 - 06 IN ITA NO. 44/PNJ/2009 DATED 13.04.2011 WHEREIN THE HONBLE BENCH HELD THAT PROCESSING OF ORE WITHOUT EXTRACTION DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION FOR THE PURPOSE OF 10B BY RELYING ON THE S UPREME COURT DECISION IN THE CASES OF SESA GOA LTD., 271 ITR 331 AND SUPREME COURT DECISION IN THE CASE OF CHOWGULE & CO. PVT. LTD. V/S UNION OF INDIA (1981) AIR 1014? 19) WHETHER THE CIT(A) IS RIGHT IN IGNORING THE DETAILED REMAND REPORT SUBMITTED BEFOR E HIM BY THE AO WHICH CONTAINS THE SUPPRESSION OF MATERIAL FACTS BY THE ASSESSEE AND ALSO DECISIONS OF THE SUPREME COURT WHICH ARE FOLLOWED BY THE CO - ORDINATE BENCH VIZ. ITAT, PANAJI BENCH IN THE CASE OF M/S. CHOWGULE & CO. LTD., FOR THE A.Y. 2002 - 03 IN IT A NO.184/PNJ/2006 DATED 12.07.2007 AND OF M/S. V.S. DEMPO & CO. PVT. LTD., FOR THE A.Y. 2005 - 06 IN ITA NO. 44/PNJ/2009 DATED 13.04.2011 WHILE DISPOSING THE APPEAL FOR THE A.Y. 2010 - 11? 6 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 3. IN ITS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1.1 THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE TO THE EXTENT OF RS.1,48,72,062/ - MADE BY THE A.O., AS EXPENDITURE INCURRED BY THE APPELLANT BY WAY OF INTEREST ATTRIBUTABLE TO THE EXEMPT INCOME. THE CIT( A) OUGHT TO HAVE APPRECIATED THAT THE WHOLE OF THE AFORESAID EXPENDITURE OF 3.66 CRORES [THE PROPORTIONATE EXPENDITURE OF WHICH HAS BEEN UPHELD BY CIT(A) AS DISALLOWABLE] WAS BEING TOWARDS THE WORKING CAPITAL OF THE BUSINESS, DIRECTLY ATTRIBUTABLE TO THE T AXABLE RECEIPTS; AND HENCE THE SAID AMOUNT COULD NOT HAVE BEEN CONSIDERED BY HIM AS EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME. 1.2 THE LEARNED CIT(A) ERRED IN PRESUMING THE INTEREST OF RS. 3.50 CRORES, PAID ON CASH CREDIT ACCOUNT MAY HAVE DIRECT NEXUS TO THE INVESTMENT MADE, SINCE THE CASH CREDIT ACCOUNT IS A COMMON HOTCH POT FROM WHICH PAYMENTS OF ALL KINDS ARE MADE AS PER THE REQUIREMENTS OF THE ASSESSEE. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD SUFFICIENT FUNDS AND ALL THE INVES TMENT WERE MADE FROM ITS OWN SURPLUS FUNDS AS WAS EVIDENT FROM ITS FINANCIAL STATEMENTS AND THERE WAS NO NEED OF ANY PRESUMPTION. 1.3 THE LEARNED CIT(A) ERRED IN MAKING SUCH ABOVE DISALLOWANCE OF RS. 3.66 CRORES BY IGNORING THE SETTLED LEGAL POSITION THAT ONCE ASSESSEES CLEARLY DEMONSTRATE THAT ITS OWN FUNDS ARE SUFFICIENT TO MAKE INVESTMENT, NO PRESUMPTION ABOUT UTILIZATION OF BORROWED FUNDS COULD BE MADE REGARDING FUNDING OF THE INVESTMENT WITH BORROWED FUNDS. 2.1 THE LEARNED CIT(A) ERRED IN DISALLOWIN G RS.6 CRORES OF INTEREST EXPENDITURE ON FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB), AS NON - BUSINESS EXPENDITURE. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE WHOLE OF THE AFORESAID LOAN WAS BORROWED FOR THE PURPOSE OF THE BUSINESS (AND IN FACT A PART OF THE SAID FUNDS WERE ALREADY UTILIZED BY THE APPELLANT IN ITS BUSINESS OPERATIONS, AND ONLY A PART OF THE SAID FUNDS, WHICH COULD NOT BE IMMEDIATELY UTILIZED, WERE TEMPORARILY PARKED IN THE FIXED DEPOSITS AS PER THE GUIDELINES OF THE RESERVE BANK OF INDIA APPLICABLE ON FCCB, 7 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) AND THAT THE INTEREST EARNED THERE - FROM HAD BEEN CONSIDERED BY THE APPELLANT AS PART OF THE BUSINESS INCOME;) AND HENCE THAT THE WHOLE OF THE INTEREST COST ON THE SAID BORROWINGS, INCLUDING THE AFORESAID RS.6 CRORES, OUGHT TO HAVE BEEN CONSIDERED, AS BUSINESS EXPENDITURE. 2.2 THE LEARNED CIT(A) ALSO ERRED IN DISALLOWING THE PART OF INTEREST EXPENDITURE INCURRED IN RELATION TO INTEREST INCOME FULLY OFFERED TO TAX, WHILE THERE IS NO LEGAL PROVISION TO DISALLOW THE SAME OR LIMITING THE SAM E TO THE EXTENT OF INCOME OFFERED TO TAX. 3.1 THE LEARNED CTT(A) ERRED IN DETERMINING THE INPUT COSTS OF THE IRON - ORES USED IN THE THREE EOU PLANTS BY ADDING PURPORTED MARK - UPS OF RS.61,67,97,321/ - TO THE TOTAL OF THE INPUT COSTS OF THE SAID ORES ADOPTE D BY THE APPELLANT, THERE BY EFFECTIVELY DISALLOWING THE APPELLANTS CLAIM FOR DEDUCTION U/S.10 - B OF THE ACT, IN RESPECT OF THE SAID THREE EOUS, TO THAT EXTENT. THE CIT(A), CONSIDERING THE BASIS ON WHICH THE APPELLANT HAD ADOPTED THE INPUT COSTS OF IRON - ORES USED IN EACH OF EOUS ( AS BRIEFED IN THE STATEMENT OF FACTS, HEREIN), OUGHT NOT TO HAVE MADE THE PURPORTED MARK - UPS TO THE SAID INPUT COSTS, RESULTING IN DISALLOWANCE OF THE APPELLANTS CLAIM FOR DEDUCTION U/S. 10 - B OF THE ACT, TO THE EXTENT OF RS.61, 67,97,321/ - 3.2 THE LEARNED CIT(A) ERRED BY BEING INFLUENCED WITH THE PROFITS OF THE MINING BUSINESS DURING AND YEAR AND THEREBY ARBITRARILY REJECTING THE COST OF CRUDE ORE CONSIDERED BY THE APPELLANT. 3.3 THE LEARNED CIT(A) ALSO ERRED IN ARBITRARILY REJ ECTING THE CONTENTIONS MADE BY THE APPELLANT IN ITS DEMONSTRATION & WORKING OUT THE EFFECT OF PROVISIONS LAID OUT IN SECTION 10(7) R.W. 80 - IA(8) AND THUS ESTABLISHING THAT EFFECTIVELY THE COST OF CRUDE ORE TRANSFERRED FROM ITS OWN MINES IS COMPARABLE TO TH E TEST OF MARKET VALUE. 3.4. EVEN IF ASSUMING THE APPROACH ADOPTED BY THE LEARNED CIT(A) IN ADOPTING THE EXCISE RULE FOR ADDING MARK UP ON INTER UNIT GOODS TRANSFER IS VALID AND APPROPRIATE IN THE FACTS OF THE PRESENT CASE, HE ERRED BY MAKING AD HOC INCRE ASING THE SAME TO 20% AND 100% WHEREAS THE THRESHOLD AS PRESCRIBED UNDER THE RELEVANT RULES IS 10%. 8 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 4. THE APPEAL FILED BY THE ASSESSEE IS DELAYED BY 4 DAYS FOR WHICH THE ASSESSEE HAS FILED THE NECESSARY CONDONATION OF DELAY APPLICATION AND AFFIDAVIT. AS THE ASSESSEE HAS SUBSTANTIATED ITS CASE FOR THE DELAY OF 4 DAYS, THE SAME STANDS CONDONED AND THE APPEAL DISPOSED OFF ON MERITS. 5. IN REGARD TO GROUND NO. 2 OF THE REVENUES APPEAL WHICH IS ON THE ISSUE OF DISALLO WANCE U/S 14A OF THE ACT, IT WAS SUBMITTED BY THE LD. DR THAT IN THE COURSE OF THE ASSESSMENT, THE AO HAD IN PAGE 14 OF HIS ORDER DISALLOWED AN AMOUNT OF RS. 54,15,54,962/ - BY INVOKING THE PROVISIONS U/S 14A R.W.R. 8D. IT WAS THE SUBMISSION THAT THE ASSES SEE OF ITS OWN HAD ALREADY DISALLOWED ADMINISTRATIVE EXPENDITURE OF RS. 23,55,556/ - BUT HAD NOT DISALLOWED ANY PORTION OF THE INTEREST NOR HAD THE ASSESSEE MADE DISALLOWANCE IN RESPECT OF THE AVERAGE VALUE OF THE INVESTMENTS WHICH HAD EARNED THE EXEMPT INC OME. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD IN PAGE 23, PARA 4.4 OF HIS ORDER DELETED THE DISALLOWANCE TO AN EXTENT OF RS. 31,65,80,428/ - . IT WAS THE SUBMISSION THAT THE ASSESSEE HAD EARNED EXEMPT INCOME TO AN EXTENT OF RS. 66,69,11,089/ - . IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD DELETED THE DISALLOWANCE BY HOLDING THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE FOR THE SPECIFIC PURPOSE CANNOT BE TAKEN INTO CONSIDERATION FOR MAKING THE DISALLOWANCE U/S 14A OF THE ACT. IT WAS THE SUBMI SSION THAT THERE IS NO SUCH PROVISION IN THE PROVISIONS OF SEC. 14A OR RULE 8D. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 6. IN REPLY, THE LD. AR SUBMITTED THAT THE GROUND RAISED BY THE REVENUE IS MISCONCEIVED INSO FAR AS THE REVENUE HAS CHALLENGED THE DELETION BY THE LD. CIT(A) OF THE DISALLOWANCE U/S 14A TO AN EXTENT OF RS. 1,48,72,062/ - WHEREAS THE LD. CIT(A) HAS CONFIRMED AN AMOUNT OF RS. 1,48,72,062/ - . IT WAS THE FURTHER 9 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) SUBMISSION THAT AGAINST THIS CONFIRMATIO N OF THE DISALLOWANCE MADE U/S 14A TO AN EXTENT OF RS. 1,48,72,062/ - THE ASSESSEE IS IN APPEAL IN GROUND NOS. 1.1 TO 1.3 OF ITS APPEAL. IT WAS THE SUBMISSION THAT THERE WAS NO DIRECT EXPENDITURE RELATABLE TO THE EXEMPT INCOME AND CONSEQUENTLY, THE PROVISI ONS OF SEC. 14A COULD NOT BE INVOKED IN THE CASE OF THE ASSESSEE. THE LD. AR DREW OUR ATTENTION TO PAGE 2342 OF THE PAPER BOOK , WHICH IS THE COPY OF THE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO S . 72 & 85/PNJ/2012 DT. 8.3.2013 , AND SUBMITTED THAT IN PARA 18 , PAGE 31 OF THE SAID ORDER THE TRIBUNAL HA D FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y 2009 - 10 DELETED THE DISALLOWANCE MADE U/S 14A R.W.R 8D. IT WAS THE SUBMISSION THAT ON IDENTICAL GROUNDS, THE D ISALLOWANCE CONFIRMED BY THE LD. CIT(A) WAS LIABLE TO BE DELETED. AT THIS POINT, IT WAS BROUGHT TO THE ATTENTION OF THE LD. AR THAT THE TOTAL DISALLOWANCE MADE BY THE AO U/S 14A WAS RS. 54,15,54,962/ - AND THE LD. CIT(A) HAS ONLY GIVEN DECISION IN RESPECT OF THE DISALLOWANCE MADE IN RELATION TO THE INTEREST EXPENDITURE TO AN EXTENT OF RS. 33,14,52,490/ - OUT OF WHICH THE LD. CIT(A) HAD CONFIRMED AN ADDITION OF RS. 1,48,72,062/ - AND HAD DELETED THE BALANCE OF RS. 31,65,80,428/ - . IT W AS INFORMED TO THE LEARNE D COUNSEL THAT IN THE ASSESSEES APPEAL, THE ASSESSEE HAS ONLY CHALLENGED THE CONFIRMATION OF THE DISALLOWANCE OF RS. 1,48,72,062/ - . IT WAS ALSO INFORMED TO THE LD. AR THAT THE ASSESSEE ITSELF HAS DISALLOWED AN AMOUNT OF RS. 23,55,556/ - UNDER THE HEAD AD MINISTRATIVE EXPENDITURE IN RESPECT OF THE DISALLOWANCE U/S 14A AND NOW COULD NOT TAKE A STAND THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE IN RESPECT OF EARNING THE EXEMPT INCOME. IT WAS ALSO BROUGHT TO THE ATTENTION OF THE LD. AR THAT UNDER SIMIL AR CIRCUMSTANCES WHEREIN THE COMPUTATION OF THE DISALLOWANCE U/S 14A HAD NOT BEEN PROPERLY MADE BY THE ASSESSEE AND THE AO NOR ADJUDICATED IN ITS ENTIRETY BY THE LD. CIT(A), THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SESA RESOURCES LTD. IN ITA N OS. 252 & 267/PNJ/2015 VIDE ORDER DT. 20.8.2015 HAD RESTORED THE ISSUE TO THE FILE OF THE AO FOR RE - 10 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) ADJUDICATION IN LINE WITH THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD. IN ITA NO S . 1331/KOL/2011 AND 1423/KOL/2011 DT . 19.6.2013 . IT WAS THEN AGREED BY BOTH THE SIDES THAT THE ISSUE OF DISALLOWANCE U/S 14A COULD BE RESTORED TO THE FILE OF THE AO FOR RE - ADJUDICATION. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS NOTICED THAT THE CALCULATION MADE BY THE AO SHOWS THAT THE AO HAS CONSIDERED ALL THE INVESTMENTS WHICH IS NOT PERMISSIBLE WHEREAS THE ASSESSEE HAS NOT PROVIDED A PROPER COMPUTATION OF THE DISALLOWANCE U/S 14A AND THE LD. CIT(A) HAS ALSO NOT CONSIDERED THE CALCULATION PROVIDED UNDER RULE 8D, THE ISSUE OF DISALLOWANCE U/S 14A IS RESTORED TO THE FILE OF THE AO FOR RE - ADJUDICATION IN LINE WITH THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. SESA RESOURCES LTD. IN IN ITA NOS. 252 & 267/PNJ/2015 DT. 20.8.2015 WHEREIN IT HAS BEEN HELD AS FOLLOWS : 4. WE HAVE HEARD THE SUBMISSIONS. A PERUSAL OF THE CALCULATION MADE BY THE AO AT PAGE 5 OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS CONSIDERED ALL THE INVESTMENTS. THIS IS NOT PERMISSIBLE. HERE, IT WAS BROUGHT TO THE ATTENTION OF THE LD. AR THAT THE COMPUTATION OF DEDUCTION U/S 14A WAS LIABLE TO BE MADE IN LINE WITH THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD., KOLKATA IN ITA NOS. 1331/KOL/2011 AND 1423/KOL/2011 DT. 19.6.2013 WHEREIN THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS FOLLOWS : 7 . NOW COMING TO THE MERITS OF THE ISSUE. A PERUSAL OF THE PROVISION OF SECTION 14A(1) CLEARLY SHOWS THE WORDINGS, 'IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. IN THE PRESENT CASE, THIS INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, IS THE DIVIDEND INCOME OF RS.1,32,638/ - . THEREFORE, IF ANY DISALLOWANCE IS TO BE MADE IN RES PECT OF EXPENDITURE INCURRED, IT SHOULD BE IN RELATION TO THIS DIVIDEND INCOME OF RS.1,32,638/ - . IF AN ASSESSEE HAS INVESTED IN SHARES, WHICH COULD GET DIVIDEND OR THERE IS INVESTMENT WHICH GENERATES DIVIDEND INCOME OR EXEMPT INCOME AS ALSO INVESTMENT WHIC H 11 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) DOES NOT GENERATE EXEMPT INCOME, IT IS ONLY SUCH INVESTMENTS IN RESPECT OF WHICH THE DIVIDEND INCOME OR EXEMPTED INCOME HAS BEEN EARNED WHICH CAN BE CONSIDERED WHEN COMPUTING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. A PERUSAL OF THE PROVISIO NS OF RULE 8D ALSO TALKS OF SATISFACTION IN SUB - RULE (1). RULE 8D(2) HAS THREE SUB - PARTS. THE FIRST SUB - PART I.E. (I) DEALS WITH THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THAT ISSUE IS NOT IN DI SPUTE HERE AND THEREFORE, WE DO NOT GO INTO IT IN THIS CASE. IN SECOND SUB - PART I.E.(II), IT IS A COMPUTATION PROVIDED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THIS CLEARLY MEANS THAT IF THERE IS ANY INTEREST EXPENDITURE, WHICH IS DIRECTLY RELATABLE TO ANY PARTICULAR INCOME OR RECEIPT, SUCH INTEREST EXPENDITURE IS NOT TO BE CONSIDERED UNDER RULE 8D(2)(II). IN THE ASSESSEE'S CASE HERE THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE LOANS TAKEN FROM THE BANKS FOR ITS BUSINESS PURPOSE. THERE IS NO ALLEGATION FROM THE BANKS NOR THE AO THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING THE INVESTMENT IN SHARES OR FOR NON - BUSINESS PURPOSES . FURTHER RULE 8D(2)(II) CLEARLY IS WORDED IN THE NEGATIVE WITH THE WORDS 'NOT DIRECTLY ATTRIBUTABLE'. THUS FOR BRINGING ANY INTEREST EXPENDITURE, CLAIMED BY THE ASSESSEE, UNDER THE AMBIT OF RULE 8D(2)(II) IT WILL HAVE TO BE SHOWN BY THE AO THAT THE SAID I NTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. WHY WE SAY HERE THAT IT IS TO BE SHOWN BY THE AO IS ON ACCOUNT OF THE WORDS IN RULE 8D(1) BEING '(1) WHERE THE ASSESSING OFFICER, IS NOT SATISFIED WITH ( A ) TO ( B )** ** ** IN RELATION TO INCOME., HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB - RULE (2). IN THE ASSESSEE'S CASE, ADMITTEDLY, THE ASSESSEE HAS SUBSTANTIAL CAPITAL. THE INCREASE IN THE CAPITAL ITSELF IS TO AN EXTENT OF RS.4 CRORES AND IN RESPECT OF RESERVES AND SURPLUS, THE INCREASE IS RS.112 CRORES. THE LOANS TAKEN DURING THE YEAR ADMITTEDLY ARE FOR THE LETTERS OF CREDIT AND THE ASSESSEE IS BOUND TO PROVIDE THE BANK STOCK STATEMENT AND OTHER DETAILS T O SHOW THE UTILIZATION OF THE LOANS. NO BANK WOULD PERMIT THE LOAN GIVEN FOR ONE PURPOSE TO BE USED FOR MAKING ANY INVESTMENT IN SHARES. THE LD. CIT(A), IT IS NOTICED THAT AFTER CONSIDERING THESE FACTS THAT THE ASSESSEE HAD NOT USED ANY OF ITS BORROWINGS F OR PURCHASING THE SHARES, HAS DELETED 12 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) THE DISALLOWANCE. ON THIS GROUND ITSELF, THE DELETION AS MADE BY THE LD. CIT(A) IS LIABLE TO BE CONFIRMED AND WE DO SO. 7.1 IN ANY CASE, THE WORKING OF THE DISALLOWANCE UNDER SUB - PART (II) OF SUB - CLAUSE (2) OF RULE 8D AS MADE BY THE AO ALSO SUFFERS FROM A SUBSTANTIAL ERROR IN SO FAR AS IN THE SAID RULE IN REGARD TO THE NUMERATOR B, THE WORDS USED ARE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEAR ING IN THE BALANCE - SHEET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR. HERE THE AO HAS TAKEN INTO CONSIDERATION THE INVESTMENT OF RS.103 CRORES MADE THIS YEAR, WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF TH E VALUE OF THE INVESTMENT FROM WHICH THE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THIS IS WHY THE QUESTION OF SATISFACTION IS PROVIDED IN SECTION 14A AND RULE 8D(1), THAT RELATES TO THE ACCOU NTS OF THE ASSESSEE. THUS, IT IS NOT THE TOTAL INVESTMENT AT THE BEGINNING OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF TH E TOTAL INCOME WHICH IS TO BE CONSIDERED. A QUESTION MAY ARISE AS TO WHY THE TERM 'AVERAGE OF THE VALUE OF INVESTMENT' IS THEN USED. THE TERM AVERAGE OF THE VALUE OF INVESTMENT WOULD BE TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. I N ANY CASE, AS WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME, THE FINDINGS OF THE LD. CIT(A) ON THE ISSUE STAND CONFIRMED AND CONSEQUENTLY THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. CONSEQUENTLY, GROUND NO. 2 OF THE REVENUES APPEAL AND GROUND NOS. 1.1 TO 1.3 OF THE ASSESSEES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. HERE, WE MUST ALSO MENTION THAT THOUGH THE ASSESSEE HAS FILED 5 VOLUMES OF PAPERS CONSISTING OF NEARLY 2870 PAGE, ONLY THE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE BEING ITA NO S . 72 & 85/PNJ/2012 DT. 8.3.2013 SHOWN BETWEEN PAGES 234 2 TO 2513 WERE REFERRED TO. CONSEQUENTLY, ALL OTHER PAGES IN THE PAPER BOOK STAND UNADMITTED. 13 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 9. IN RESPECT OF GROUND NO. 3 OF THE REVENUES APPEAL, IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO U/S 40(A)(IA) OF THE ACT TOWARDS PAYMENT OF COMMISSION TO FOREIGN AGENTS WHERE TDS HAD NOT BEEN DEDUCTED. IT WAS THE SUBMISSION THAT THE AO IN PAGES 15 TO 21 OF HIS ORDER HAD DISALLOWED THE PAYMENT OF COMMISSION TO VARIOUS AGENTS WHO WERE NON - RESIDENTS. IT WAS THE SUBMISSION THAT THE LD. CIT(A) IN PAGE 40, PARA 5.4 OF HIS ORDER HAD DELETED THE ADDITION. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y 2009 - 10 BEING ITA NO S . 72 & 85/PNJ/2012 DT. 8.3.2013 FOR DELETING THE DISALLOWANCE. IT WAS THE SUBMISSION THAT THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 10. IN REPLY, THE LD. AR SUBMITTED T HAT THE FIGURE MENTIONED IN THE GROUND OF APPEAL OF THE REVENUE WAS WRONG INSOFAR AS THE DISALLOWANCE WAS TO AN EXTENT OF RS. 5,07,06,761/ - AND THE LD. CIT(A) HAD DELETED THE DISALLOWANCE , WHEREAS THE REVENUE HAS ONLY CHALLENGED THE DELETION TO AN EXTENT O F RS.1,56,68,389/ - . IT WAS THE FURTHER SUBMISSION THAT THE LD. CIT(A) HAD FOLLOWED THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE BEING ITA NO S . 72 & 85/PNJ/2012 DT. 8.3.2013. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE UPHELD. AT THIS POINT IT WAS POINTED TO THE LD. AR THAT IN THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE BEING ITA NO S . 72 & 85/PNJ/2012 DT. 8.3.2013 THE TRIBUNAL HAD NOT CONSIDERED EXPLANAT ION 2 TO SEC. 195 WHICH HAD BEEN INTRODUCED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.1962. IT WAS BROUGHT TO THE LD. COUNSELS ATTENTION THAT IN THE CASE OF ONE OF THE GROUP CONCERNS OF THE ASSESSEE, M/S. SESA RESOURCES LTD. IN ITA NO S. 252 & 267/PNJ/2015 DT. 14 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 20.8.2015, THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAS HELD THE ISSUE AGAINST THE ASSESSEE AS FOLLOWS : 8. WE HAVE CONSIDERED THE SUBMISSIONS. A PERUSAL OF THE ASSESSMENT ORDER IN THE ASSESSEES CASE SHOWS THAT THE AO HAS DISALL OWED THE COMMISSION PAID TO THE FOREIGN AGENTS ON TWO GROUNDS; ONE ON ACCOUNT OF NON - DEDUCTION OF TDS AND SECOND THAT THE EXPENDITURE HAS NOT BEEN PAID FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. A PERUSAL OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SESA GOA LTD. REFERRED TO SUPRA SHOWS THAT THE TRIBUNAL HAS ONLY DECIDED THE ISSUE IN RESPECT OF PAYMENT MADE TO THE AGENTS AS BEING FOR THE PURPOSE OF THE BUSINESS AND COMMERCIAL EXPEDIENCY. THE REASONING GIVEN BY THE AO IN RESPECT OF NON - DEDUCTION OF TDS AND APPLICABILITY OF THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT HAS NOT BEEN ADJUDICATED. IN THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SESA GOA LTD. R EFERRED TO SUPRA, IT IS HELD THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE ITSELF. HOWEVER, IN RESPECT OF THE ISSUE AS TO WHETHER THE ASSESSEE WAS LIABLE TO DEDUCT TDS U/S 195 AND WHETHER THE DISALL OWANCE WAS LIABLE TO BE MADE U/S 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF THE TDS U/S 195(1) OF THE ACT, IT IS NOTICED THAT THE PROVISIONS OF SEC. 195 HAS BEEN AMENDED BY THE INTRODUCTION OF EXPLANATION - II TO THE SAID SECTION BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.1962 WHEREBY IT IS CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB - SECTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO A LL PERSONS, RESIDENT OR NON - RESIDENT, WHETHER OR NOT THE NON - RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. IN VIEW OF THE INTRODUCTION OF EXPLANATIO N - II TO SEC. 195 OF THE ACT, AS THE ASSESSEE HAS NOT DEDUCTED TDS U/S 195, THE DISALLOWANCE MADE BY THE AO BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT WOULD HAVE TO BE RESTORED AND WE DO SO. IN THE RESULT, GROUND NO. 4 OF THE REVENUES APPEA L STANDS ALLOWED. IT WAS THEN SUBMITTED BY THE LD. AR THAT EXPLANATION 2 WAS INTRODUCED FOR THE PURPOSE OF ADDRESSING THE QUESTION OF CHARGEABILITY WHEN AN ENTITY DID NOT HAVE A PRESENCE IN INDIA. IT WAS THE SUBMISSION THAT IN A SITUATION WHERE THE CHARGEABILITY IS NOT I N DISPUTE, THE MERE FACT THAT THE PRESENCE IS NOT THERE SHOULD 15 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) NOT MAKE A DIFFERENCE. THE LD. AR DREW OUR ATTENTION TO THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF M/S. ANAND TRANSPORT PVT. LTD. IN WRIT APPEAL NO. 952 OF 2013 DT. 5.2.2014 WHEREIN IT HAS BEEN ACCEPTED BY THE HON'BLE MADRAS HIGH COURT THAT EXPLANATION 2 TO SEC. 195 AS PER THE 2012 AMENDMENT CANNOT BE PRESSED INTO SERVICE INSOFAR AS UNLESS THE AMOUNT PAID TO THE NON - RESIDENT IS AN AMOUNT CHARGEABLE TO TAX IN INDIA THE PROVIS IONS OF SEC. 195 ITSELF CANNOT BE INVOKED. IT WAS FURTHER SUBMITTED BY THE LD. AR THAT THE AO HAS NOT DISALLOWED THE COMMISSION TO THE NON - RESIDENT BY APPLYING THE PROVISIONS OF SEC. 40(A)(IA) BUT IT WAS IN TERMS OF SEC. 37 , AS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. AT THIS POINT, THE STATEMENT OF FACTS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) WAS VERIFIED AND IT SHOWED THAT THE ASSESSEE HAS IN THE STATEMENT OF FACTS IN THE ISSUE RAISED IN 1(II) CHALLENGED THE DISALLOWANCE MADE BY THE AO BY RAISING ARGUMENT IN RESPECT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT. FURTHER, A PERUSAL OF THE ORDER OF THE LD. CIT(A) SHOWS THAT THE AO HA NOT CONSIDERED THE PROVISIONS OF SEC. 195 OR SEC. 40(A)(IA) OF THE ACT FOR THE PURPOSE OF DISALLOWING TH E COMMISSION PAID TO NON - RESIDENTS. THE LD. CIT(A) HAS DECIDED THE ISSUE OF THE COMMISSION PAYMENT TO NON - RESIDENT IN RESPECT OF THE PROVISIONS OF SEC. 37, BUT HAS NOT DECIDED THE ISSUE IN RESPECT OF DISALLOWANCE BY INVOKING THE PROVISIONS OF SEC. 40(A)(I A) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TDS. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ORDER OF THE LD. CIT(A) AT PAGE 33 SHOWS THAT FOR THE A.Y 2006 - 07 THE AO HAS HELD THAT THERE WAS NO NECESSITY FOR ENGAGING COMMISSION AGENT S AND ACCORDINGLY, THE COMMISSION PAYMENT WAS NOT HELD TO BE ALLOWABLE AS BUSINESS EXPENDITURE U/S 37 OF THE ACT. IT IS NOTICED THAT THE LD. CIT(A) HAS DELETED THIS DISALLOWANCE FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSES SEES OWN CASE IN ITA NO. 72 & 85/PNJ/2012 DT. 8.3.2013 WHEREIN THE CO - 16 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) ORDINATE BENCH OF THIS TRIBUNAL HAS ACCEPTED THAT COMMISSION IS ALLOWABLE U/S 37 ITSELF. THIS IS FOUND AT PARA 27 TO 27.2 IN PAGES 48 TO 50 OF THE ORDER OF THE CO - ORDINATE BENCH OF THI S TRIBUNAL REFERRED TO SUPRA . CONSEQUENTLY, GROUND NO. 3 OF THE REVENUES APPEAL STANDS DISMISSED. 12. IN RESPECT OF GROUND NO. 4 OF THE REVENUES APPEAL, IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) R.W.S. 195(1) TOWARDS PAYMENT OF DEMURRAGE PAID TO NON - RESIDENT BUYERS OF IRON ORE. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS NOW SQUARELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNA L IN THE ASSESSEES OWN CASE IN ITA NO. 72 & 85/PNJ/2012 DT. 8.3.2013 WHEREIN AT PARA 31 TO 33.1 AT PAGES 54 TO 57 THE ISSUE HAS BEEN HELD IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, GROUND NO. 4 OF THE REVENUES APPEAL STANDS DISMISSED. 13. IN RESPECT OF G ROUND NO. 5 OF THE REVENUES APPEAL WHICH WAS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION IN RESPECT OF THE IRON ORE EXTRACTION AND PROCESSING, IT WAS FAI R LY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS SQUAR ELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 72 & 85/PNJ/2012 DT. 8.3.2013 WHEREIN AT PARA 46 TO 46.2 AT PAGES 167 TO 170 THE CO - ORDINATE BENCH OF THIS TRIBUNAL FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE ASSESSEES OWN CASE REPORTED IN 271 ITR 331 HAS ALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION. IN THE CIRCUMSTANCES, GROUND NO. 5 OF THE REVENUES APPEAL STANDS DISMISSED. 14. IN RESPECT OF GROUND NOS. 6 TO 12 OF THE REVENUES APPEAL WHICH IS AGAINST THE ACTION OF THE LD. CIT(A) IN GRANTING DEDUCTION U/S 10B OF THE ACT AND GROUND 17 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) NOS. 13 TO 16 WHICH IS AGAINST THE COMPUTATION U/S 10B, IT WAS SUBMITTED BY THE LD. DR THAT THE LD. CIT(A) HAD NOT CONSIDERED THE NEW EVIDENCES PROVID ED BY THE AO WHEN DECIDING THE ISSUE. THE LD. DR DREW OUR ATTENTION TO PARA 8.3 AT PAGE 55 OF THE ORDER OF THE LD. CIT(A) WHEREIN THE LD. CIT(A) HAS CATEGORICALLY HELD THAT HE WAS NOT CONSIDERING THE NEW EVIDENCES INSOFAR AS THE A.Y 2009 - 10 WAS THE FIRST YEAR OF THE CLAIM OF DEDUCTION U/S 10B AND THE FRESH EVIDENCES, IF ANY, COULD BE CONSIDERED ONLY IN THAT ASSESSMENT. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 15. IN REPLY, THE LD. AR SUBMITTED THAT THE APPEAL FOR THE A.Y 2009 - 10 WAS PENDING BEFORE THE LD. CIT(A) AND THE HEARING FOR THE SAME WAS ALSO CONCLUDED THOUGH THE ORDER HAS NOT BEEN RECEIVED. IT WAS THE SUBMISSION THAT THE SAID FRESH EVIDENCES AS PRODUCED BY THE AO, WHICH WAS FOUND IN THE COURSE OF THE SURVE Y ON THE ASSESSEE, WERE ALSO PRODUCED BEFORE THE LD. CIT(A). IT WAS THE SUBMISSION THAT THIS ISSUE COULD BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION IN LINE WITH HIS DECISION FOR THE A.Y 2009 - 10. 16. WE HAVE CONSIDERED THE RIVAL SUBMI SSIONS. AS IT HAS BEEN ADMITTED THAT THE APPEAL FOR THE A.Y 2009 - 10 IS UNDER ADJUDICATION BEFORE THE LD. CIT(A) AND THAT FRESH EVIDENCES HAVE BEEN FOUND IN THE COURSE OF THE SURVEY CONDUCTED AFTER THE ORDER OF THE TRIBUNAL WHICH HAS BEEN FOLLOWED BY THE L D. CIT(A), WE ARE OF THE VIEW THAT THIS ISSUE IN RESPECT OF GROUND NOS. 6 TO 16 OF THIS APPEAL IN RELATION TO THE CLAIM OF DEDUCTION U/S 10B IS LIABLE TO BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPP ORTUNITY OF BEING HEARD, AND WE DO SO. IN THE RESULT, GROUND NOS. 6 TO 16 OF THE REVENUES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 18 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 17. GROUND NO. 17 IS GENERAL IN NATURE. IN RESPECT OF GROUND NOS. 18 & 19 IT WAS SUBMITTED BY THE LD. DR THA T THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(A) IN NOT FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. DEMPO & CO. PVT. LTD. IN ITA NO. 44/PNJ/2009 DT. 13.4.2011 WHEREIN IT HAS BEEN HELD THAT THE PROCESSING OF IRON ORE WITHOUT EXTRACTION DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION FOR THE PURPOSE OF SEC. 10B AND ALSO AGAINST THE ACTION OF THE LD. CIT(A) IN IGNORING THE DETAILED REMAND REPORT SUBMITTED BEFORE HIM BY THE AO WHICH CONTAINS THE SUPPRESSION OF MATERIAL FACTS BY THE ASSESSEE. IT WAS THE SUBMISSION BY THE LD. DR THAT THE LD. CIT(A) HAD BLINDLY FOLLOWED THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE WHEN FRESH FACTS WERE AVAILABLE AND WERE PLACED BEFORE THE LD. CIT(A). 18. IN REPLY, THE LD. AR SUBMITTED THAT THERE WAS NO REMAND REPORT AND WHAT WAS PLACED BEFORE THE LD. CIT(A) WAS ONLY A LETTER ALONGWITH CERTAIN EVIDENCES. IT WAS FURTHER SUBMISSION THAT THE DECISION RELIED UPON BY THE REVENUE IN THE CASE OF M/S. DEMPO & CO. PVT. LTD. WAS IN A PENALTY PROCEEDINGS AND HAD NO RELATION TO THE FACTS OF THE ASSESSEES CASE. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS THE ISSUE OF DEDUCTION U/S 10B ITSELF HAS BEEN RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION IN RESPECT OF GROUND NOS. 6 TO 16 OF THE REVENUES APPEAL, THE ISSUES RAISED IN THE REVENUES APPEAL IN GROUND NOS. 18 AND 19 MUST ALSO BE RESTORED TO THE FILE OF THE LD. CIT(A), AND WE DO SO. IN THE RESULT, GROUND NOS. 18 AND 19 OF THE RE VENUES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 19 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 20. IN RESPECT OF THE ASSESSEES APPEAL, AS MENTIONED EARLIER, GROUND NOS. 1 TO 1.3 BEING THE ISSUE OF DISALLOWANCE U/S 14A, HAS BEEN RESTORED TO THE FILE OF THE AO FOR RE - ADJUDICATION. 21. IN RESPECT OF GROUND NOS. 2.1 AND 2.2 OF THE ASSESSEES APPEAL, IT WAS SUBMITTED BY THE LD. AR THAT THE ISSUE WAS AGAINST THE ACTION OF LD. CIT(A) IN DISALLOWING RS. 6 CRORES OF INTEREST EXPENDITURE IN RESPECT OF FOREIGN CURRENCY CONVERTIBLE BONDS AS NON - BUS INESS EXPENDITURE. THE LD. AR DREW OUR ATTENTION TO PAGE 71 OF THE ORDER OF THE LD. CIT(A) TO SHOW THAT THIS WAS AN ENHANCEMENT OF THE INTEREST DISALLOWED AS NON - BUSINESS EXPENDITURE. IT WAS THE SUBMISSION THAT NO ENHANCEMENT NOTICE HAS BEEN GIVEN TO THE ASSESSEE . THE LD. AR DREW OUR ATTENTION TO PARA 4.5 AND 4.6 AT PAGES 23 & 24 OF THE ORDER OF THE LD. CIT(A). IT WAS THE SUBMISSION THAT THE ASSESSEE HAD BORROWED AN AMOUNT OF RS. 2,350 CRORES FOR THE EXPANSION OF THE PIG IRON PROJECT AT AMONA DURING THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE HAD UTILISED ONLY RS. 21,26,74,593/ - AND THE BALANCE AMOUNT HAD BEEN KEPT IN FIXED DEPOSITS AS PER THE RBI GUIDELINES. IT WAS THE SUBMISSION THAT THIS DEPOSIT HAD EARNED AN INTEREST OF RS. 39.36 CRORES WHEREAS ON TH E TOTAL LOAN THE ASSESSEE HAD PAID INTEREST OF RS. 45.36 CRORES. IT WAS THE SUBMISSION THAT THE DIFFERENT AMOUNT OF RS. 6 CRORES WAS TREATED BY THE LD. CIT(A) AS NON - BUSINESS EXPENDITURE. IT WAS THE SUBMISSION BY THE LD. AR THAT THE LD. CIT(A) HAS NOT IS SUED ANY ENHANCEMENT NOTICE TO THE ASSESSEE AND CONSEQUENTLY, THIS DISALLOWANCE WAS NOT LIABLE TO BE MADE. AT THIS POINT, IT WAS POINTED OUT TO THE LD. AR THAT IN VIEW OF THE PROVISIONS OF SEC. 36(1)(III) THE AMOUNT OF RS. 45.36 CRORES ITSELF WAS NOT AN A LLOWABLE EXPENDITURE, MORE SPECIFICALLY IN VIEW OF THE PROVISO THEREIN. IT WAS THEN SUBMITTED BY THE LD. AR THAT THAT WAS NOT THE ISSUE IN THE APPEAL. 22. IN REPLY, THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 20 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ORDER OF THE LD. CIT(A) SHOWS THAT THE LD. CIT(A) HAS NOT ISSUED ANY ENHANCEMENT NOTICE TO THE ASSESSEE IN RESPECT OF THE DISALLOWANCE OF RS. 6 CRORES AS MENTIONED IN PARA 4.5 OF HIS ORDER. HOWEV ER, IT IS ALSO NOTICED THAT THE ISSUE OF DEDUCTION U/S 14A HAS BEEN RESTORED TO THE FILE OF THE AO FOR RE - COMPUTATION AND IT IS IN THIS COMPUTATION THAT THE LD. CIT(A) HAS DISALLOWED THE AMOUNT OF RS. 6 CRORES TOWARDS NON - BUSINESS EXPENDITURE. CONSEQUENTL Y, WE ARE OF THE VIEW THAT THE ISSUE OF DISALLOWANCE OF INTEREST AS NON - BUSINESS EXPENDITURE IS LIABLE TO BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION AFTER GRANTING THE ASSESSEE NECESSARY ENHANCEMENT NOTICE AND GRANTING THE ASSESSEE ADEQU ATE OPPORTUNITY TO SUBSTANTIATE ITS CASE. IN THE RESULT, GROUND NOS. 2.1 AND 2.2 OF THE ASSESSEES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 24. IN RESPECT OF GROUND NOS. 3.1 TO 3.4 OF THE ASSESSEES APPEAL, IT WAS THE SUBMISSION BY THE LD. A R THAT THE ISSUE WAS AGAINST THE COMPUTATION OF DEDUCTION U/S 10B. IT WAS THE SUBMISSION THAT AS THIS ISSUE WAS CONNECTED TO GROUND NOS. 13 TO 16 OF THE REVENUES APPEAL WHICH HAS BEEN RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION, THE ISSUE RAISED HEREIN IN GROUND NOS. 3.1 TO 3.4 IN THE ASSESSEES APPEAL COULD ALSO BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION. TO THIS, THE LD. DR DID NOT RAISE ANY OBJECTION. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS NOTICED TH AT THE ISSUE RAISED IN GROUND NOS. 3.1 TO 3.4 OF THE ASSESSEES APPEAL ARE IN RESPECT OF COMPUTATION OF DEDUCTION U/S 10B AND AS THE CALCULATION OF DEDUCTION U/S 10B HAS BEEN RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION IN RESPECT OF GROUND N OS. 13 TO 16 OF THE REVENUES APPEAL, THIS ISSUE IS RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION ON IDENTICAL LINES AFTER GRANTING THE ASSESSEE 21 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) ADEQUATE OPPORTUNITY OF BEING HEARD. CONSEQUENTLY, GROUND NOS. 3.1 TO 3.4 OF THE ASSESSEES APPEA L STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 26. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AS WELL AS THE ASSESSEE STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 /09/2015. S D / - (N.S. SAINI) ACCOUNTANT MEMBER S D / - ( GEORGE MATHAN ) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 10 /09/ 201 5 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , 22 ITA NOS. 92 & 100/PNJ/2015 (A.Y : 2010 - 11) DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 10/09/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 1 /09/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 1 /09/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 1 /09/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 1 /09/2015 SR.PS 6. DATE OF PRONOUNCEMENT 10/09/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 1 /09/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER