DCIT, CHENNAI V. M/s. Vestas Wind Technology India Pvt. Ltd., CHENNAI

ITA 928/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57907 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 19-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 19-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Bogus purchase; Commercial expediency; Revised return; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NOS.927 & 928/MDS/2011 (ASSESSMENT YEARS : 2006-07 & 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4), CHENNAI - 600 034. (APPELLANT) V. M/S VISTAS WIND TECHNOLOGY INDIA PVT. LTD., NO.298, OLD MAHABALIPURAM RD., SHOLINGANALLUR, CHENNAI - 600 119. PAN : AAACA9274F (RESPONDENT) APPELLANT BY : SHRI ANIRUDH RAI, CIT-DR RESPONDENT BY : SHRI B. RAMAKR ISHNAN, FCA DATE OF HEARING : 19.01.2012 DATE OF PRONOUNCEMENT : 31.01.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE REVENUE AGAINST ORDERS D ATED 18.2.2011 OF COMMISSIONER OF INCOME TAX (APPEALS)-I II, CHENNAI, FOR IMPUGNED ASSESSMENT YEARS. I.T.A. NOS. 927 & 928/MDS/11 2 2. APPEAL FOR ASSESSMENT YEAR 2006-07 IS TAKEN UP F IRST FOR DISPOSAL. REVENUE HAS RAISED FIVE GROUNDS OF WHICH , GROUND NOS.1 AND 5 ARE GENERAL NEEDING NO ADJUDICATION. 3. GRIEVANCE RAISED IN GROUND NO.2 IS THAT LD. CIT( APPEALS) DELETED DISALLOWANCE OF WARRANTY PROVISIONS OF ` 3,16,38,858/-. 4. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD OFFERE D AN INCOME OF ` 3,16,38,858/- IN ITS RETURN, AS EXCESS WARRANTY PRO VISION REVERSED. HOWEVER, BY WAY OF A REVISED COMPUTATION, ASSESSEE SOUGHT WITHDRAWAL OF SUCH INCOME OF ` 3,16,38,858/-. THE AMOUNT OF ` 3,16,38,858/- WAS ARRIVED BY REDUCING THE WARRANTY PROVISION OF ` 10,74,22,129/- FOR THE RELEVANT PREVIOUS YEAR FROM THE TOTAL PROVISIONS OF ` 13,90,60,987/- FOR EARLIER YEARS. AS PER THE ASSES SEE, PROVISIONS MADE FOR EARLIER YEARS WERE DISALLOWED BY THE HONB LE INCOME TAX SETTLEMENT COMMISSION BY THEIR ORDER IN SA NOS. 600 /III/57-2003-IT AND 6000/III/51-2004-IT DATED 24.3.2008, WHEREIN IT WAS HELD THAT SUCH PROVISIONS WERE CONTINGENT LIABILITY AND HENCE NOT ALLOWABLE. SETTLEMENT COMMISSION FOR THIS PURPOSE PLACED RELIA NCE ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE O F CIT V. ROTORK CONTROLS INDIA LTD. (293 ITR 311). AS PER THE ASSE SSEE, THE ORDER OF I.T.A. NOS. 927 & 928/MDS/11 3 SETTLEMENT COMMISSION WAS RECEIVED AFTER THE RETURN FOR IMPUGNED ASSESSMENT YEAR WAS FILED AND THERE WAS NO TIME AVA ILABLE WITH IT FOR FILING A REVISED RETURN. THEREFORE, THROUGH A REVI SED COMPUTATION, IT HAD REVERSED THE EARLIER PROVISIONS WHICH WERE DISA LLOWED BY THE SETTLEMENT COMMISSION AND THIS REVERSAL RESULTED IN THE INCOME OF ` 3,16,38,858/- EARLIER OFFERED BEING WITHDRAWN. ASS ESSEE REQUESTED THE A.O. TO CONSIDER THE REVISED COMPUTATION WHILE COMPLETING ASSESSMENT. HOWEVER, THE A.O. WAS OF THE OPINION THAT THIS WAS A FRESH CLAIM MADE BY THE ASSESSEE AND ASSESSEE COULD NOT MAKE SUCH A FRESH CLAIM OTHERWISE THAN THROUGH A REVISED RETURN. A.O. NOTED THAT ASSESSEE HAD TIME UPTO 31.3.2008 FOR FIL ING A REVISED RETURN AND THERE WERE SEVEN DAYS LEFT AFTER THE DAT E OF THE ORDER OF SETTLEMENT COMMISSION, FOR FILING SUCH A REVISED RE TURN. HAVING NOT FILED A REVISED RETURN, A.O. WAS OF THE OPINION THA T THE CLAIM OF THE ASSESSEE, MADE THROUGH A REVISED COMPUTATION, COULD NOT BE ACCEPTED IN VIEW OF THE DECISION OF HONBLE APEX CO URT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (284 ITR 323). 5. IN ITS APPEAL BEFORE LD. CIT(APPEALS) , PLEADING OF THE ASSESSEE WAS THAT WITHDRAWAL OF INCOME WAS CONSEQUENTIAL TO THE ORDER OF I.T.A. NOS. 927 & 928/MDS/11 4 SETTLEMENT COMMISSION AND THE RATIO OF DECISION OF HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) WO ULD NOT APPLY. AS PER THE ASSESSEE, THIS WAS NOT A FRESH CLAIM, BUT, WAS A REDUCTION REQUIRED TO BE MADE ON ACCOUNT OF PRIOR PERIOD ADJU STMENT OF INCOME. RELIANCE WAS ALSO PLACED ON DECISION OF MUMBAI BENC H OF THIS TRIBUNAL IN THE CASE OF ASIAN PAINTS LTD. V. ADDL. CIT [(TIOL-377-ITAT (MUM)] DATED 23.3.2009 IN SUPPORT. LD. CIT(APPEALS ) WAS APPRECIATIVE OF THIS CONTENTION AND HELD THAT THE C LAIM WAS ALLOWABLE. AS PER THE LD. CIT(APPEALS), HE HAD CO-TERMINUS POW ER THAT OF THE A.O., AND COULD ACCEPT SUCH A CLAIM THOUGH MADE THR OUGH A REVISED COMPUTATION. 6. NOW BEFORE US, LEARNED D.R., ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT ASSESSEE STILL HAD SEV EN DAYS TIME FOR FILING A REVISED RETURN AFTER GETTING THE ORDER OF SETTLEMENT COMMISSION AND HENCE IT COULD NOT JUSTIFY THE FILIN G OF A CLAIM THROUGH A REVISED COMPUTATION. AS PER LEARNED D.R., ASSESS ING OFFICER HAD NO GO BUT TO IGNORE SUCH A REVISED COMPUTATION WITH DRAWING A PART OF THE INCOME, SINCE IN THE ABSENCE OF REVISED RETURN, DECISION OF I.T.A. NOS. 927 & 928/MDS/11 5 HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LT D. (SUPRA) SQUARELY APPLIED. 7. PER CONTRA, LEARNED A.R., FILING A COPY OF THE O RDER OF SETTLEMENT COMMISSION (SUPRA), SUBMITTED THAT THOUGH THE ORDER OF SETTLEMENT COMMISSION WAS DATED 24.3.2008, ASSESSEE COULD NOT LAY HANDS ON SUCH ORDERS BEFORE THE LAST DATE FOR FILING A REVIS ED RETURN. ACCORDING TO HIM, IT WAS CLEARLY HELD IN THE ORDER OF SETTLEM ENT COMMISSION THAT WARRANTY PROVISIONS MADE FOR ASSESSMENT YEARS 1999- 2000 TO 2003- 04 COULD NOT ALLOWED AND HENCE, ASSESSEE HAD NO GO BUT TO MAKE A CLAIM BEFORE THE A.O. FOR REVERSAL OF EXCESS PROVIS ION WRITTEN BACK FOR THE IMPUGNED ASSESSMENT YEAR. ACCORDING TO HIM, LD . CIT(APPEALS) WAS ABSOLUTELY JUSTIFIED IN ALLOWING THE CLAIM IN V IEW OF THE CIRCUMSTANCE OF THE CASE AND IN VIEW OF THE EXTENSI VE POWERS ENJOYED BY HIM IN HIS APPELLATE JURISDICTION. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. INCOME TAX SETTLEMENT COMMISSION IN ITS ORDER DATED 24.3.2008 AT PARA 3 HAS GIVEN A CLEAR FINDING THAT WARRANTY PROV ISION WAS A CONTINGENT LIABILITY AND FOR THIS RELIANCE WAS PLAC ED BY THE SETTLEMENT COMMISSION ON THE DECISION OF HONBLE JURISDICTIONA L HIGH COURT IN THE I.T.A. NOS. 927 & 928/MDS/11 6 CASE OF ROTORK CONTROLS INDIA LTD. (SUPRA). NO DOU BT, THE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT STAND S NOW REVERSED BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF R OTORK CONTROLS INDIA P. LTD. V. CIT (314 ITR 62). BUT, NEVERTHELE SS, APEX COURTS DECISION DATED 12 TH MAY 2009 WAS NOT AVAILABLE EITHER TO THE ASSESSEE OR THE SETTLEMENT COMMISSION OR THE A.O. THE ASSESSEE, PRIOR TO THE RECEIPT OF THE ORDER OF THE SETTLEMENT COMMISSION, IN ITS ORIGINAL RETURN HAD REVERSED THE EXCESS PROVISION M ADE FOR THE EARLIER YEARS AGAINST THE PROVISION FOR THE IMPUGNED ASSESS MENT YEAR. THIS ENDEAVOUR RESULTED IN AN INCOME OF ` 3,16,38,858/-, SINCE THE GROSS EXCESS PROVISION REVERSED WAS ` 13,90,60,987/-, WHEREAS, THE PROVISION FOR WARRANTY WHICH WAS ALLOWABLE FOR THE RELEVANT PREVIOUS YEAR WAS ` 10,74,22,129/- ONLY. NO DOUBT, ASSESSEE WAS VERY W ELL WITHIN ITS RIGHT TO CLAIM THE PROVISION FOR THE REL EVANT PREVIOUS YEAR IN VIEW OF THE DECISION OF HONBLE APEX COURT IN THE C ASE OF ROTORK CONTROLS INDIA P. LTD. (SUPRA). THE QUESTION LEFT HERE IS WHETHER THE EXCESS PROVISION FOR EARLIER YEARS ` 3,16,38,858/-, WHICH STOOD NULLIFIED BY THE SETTLEMENT COMMISSION ORDER, COULD BE WITHDRAWN BY THE ASSESSEE BY WAY OF A REVISED COMPUTATION, OTHER WISE THAN THROUGH A REVISED RETURN. WE FIND MUCH SUBSTANCE I N THE CLAIM OF THE I.T.A. NOS. 927 & 928/MDS/11 7 ASSESSEE THAT SETTLEMENT COMMISSIONS ORDER DATED 2 4.3.2008 MIGHT NOT HAVE BEEN READILY AVAILABLE TO THE ASSESSEE BY 31.3.2008, BEING THE LAST DATE AVAILABLE FOR FILING A REVISED RETURN . IT WAS THEREFORE LEFT WITH NO OTHER GO OTHER THAN TO FILE A REVISED COMPU TATION. ASSESSING OFFICER HAS NOT DISPUTED THAT THE ABOVE AMOUNT COUL D NOT BE CONSIDERED AS INCOME OF THE ASSESSEE FOR IMPUGNED A SSESSMENT YEAR, BUT, DISALLOWED CLAIM FOR WITHDRAWAL ONLY FOR A REASON THAT REVISED RETURN WAS NOT FILED. IF WE HAVE A LOOK AT THE DECISION OF HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LT D. (SUPRA), THERE THE CLAIM WAS FOR DEDUCTION. BUT, ON THE OTHER HAN D, IN THE PRESENT CASE, THE CLAIM WAS FOR A REDUCTION OF INCOME. IN GOETZE (INDIA) LTD.S CASE, A FRESH CLAIM WAS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHEREAS, HERE WE CANNOT SAY THAT THIS WAS A FRESH CLAIM. ON THE OTHER HAND, IT WAS A CONSEQUENTIAL CLAIM ARISING OUT OF DECISION OF SETTLEMENT COMMISS ION. IN ANY CASE, THE DECISION OF HONBLE APEX COURT ONLY CIRCUMSCRIB ES THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT LIMIT THE POWE RS OF APPELLATE AUTHORITIES. LD. CIT(APPEALS) , HAVING CO-TERMINUS POWER THAT OF THE A.O. AND WAS WELL WITHIN HIS RIGHT TO ALLOW A LEGIT IMATE CLAIM OF WITHDRAWAL OF INCOME MADE BY THE ASSESSEE WHICH ARO SE OUT OF I.T.A. NOS. 927 & 928/MDS/11 8 CIRCUMSTANCES WHICH WERE NOT IN ITS CONTROL. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEA LS). 9. GROUND NO.2 TAKEN BY THE REVENUE STANDS DISMISS ED. 10. IN ITS GROUND NO.3, GRIEVANCE RAISED BY THE REV ENUE IS THAT LD. CIT(APPEALS) DELETED A DISALLOWANCE OF ` 3,93,48,570/- PAID TO ONE SHRI PAWAR. 11. SHORT FACTS APROPOS ARE THAT ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT, RECEIVED A REFERENCE FROM ADD ITIONAL COMMISSIONER OF INCOME TAX, SATTARA RANGE, SATTARA, THAT ONE SHRI D.H. PAWAR HAD ENTERED INTO CERTAIN TRANSACTIONS WI TH ASSESSEE- COMPANY AND A SUM OF ` 3,93,48,570/- WAS SHOWN BY THE SAID PAWAR AS ADVANCE RECEIVED BY HIM FROM ASSESSEE. A.O. PUT THE ASSESSEE ON NOTICE AS TO WHY THE AMOUNT, WHICH HAD BEEN CLAI MED BY THE ASSESSEE AS EXPENSE, SHOULD NOT BE DISALLOWED, WHEN SHRI PAWAR HAD SHOWN IT AS ONLY ADVANCE. REPLY OF THE ASSESSE E WAS THAT IT HAD SHOWN THE AMOUNT AS EXPENDITURE BASED ON THE INVOIC ES RAISED BY SHRI PAWAR. ASSESSEE ALSO PRODUCED SOME COPIES OF INVOICES. ASSESSING OFFICER NOTED THAT THE ASSESSEE COULD PRO DUCE INVOICES I.T.A. NOS. 927 & 928/MDS/11 9 ONLY FOR ` 2,73,28,500/-. IN ANY CASE, ACCORDING TO HIM, SINC E SHRI PAWAR HAD TREATED THE AMOUNT OF ` 3,93,48,570/- AS ADVANCE IN HIS HANDS, THE CLAIM COULD NOT BE ALLOWED AS REVENUE EX PENDITURE FOR THE ASSESSEE. HE MADE AN ADDITION OF ` 3,93,48,570/- ON PROTECTIVE BASIS. 12. IN ITS APPEAL BEFORE LD. CIT(APPEALS) , CLAIM O F THE ASSESSEE WAS THAT IT HAD RECEIVED INVOICES FROM SHRI D.H. PA WAR FOR SERVICES RENDERED BY HIM AND EXPENSES WERE PROPERLY ENTERED IN THE BOOKS OF ACCOUNTS. ACCORDING TO ASSESSEE, INVOICES WERE ALS O PRODUCED BEFORE THE A.O. AND MODE OF TREATMENT OF THE AMOUNT S BY SHRI PAWAR IN HIS BOOKS WAS NOT RELEVANT IN SO FAR THE CLAIM O F THE ASSESSEE WAS CONCERNED. LD. CIT(APPEALS) WAS APPRECIATIVE OF T HIS CONTENTION OF THE ASSESSEE. ACCORDING TO HIM, THE FACT OF EXPEND ITURE AND THE GENUINENESS THEREOF WERE NOT DISPUTED. ASSESSEE HA D RIGHTLY CLAIMED SUCH EXPENSES AS REVENUE OUTGO AND DISALLOW ANCE COULD NOT BE MADE. HE, THEREFORE, DELETED THE DISALLOWANCE. 13. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS) , SUBMITTED THAT ASSESSEE IN FIRST PLA CE COULD NOT PLACE BEFORE THE A.O. INVOICES FOR FULL AMOUNT BUT, HAD ONLY PRODUCED I.T.A. NOS. 927 & 928/MDS/11 10 INVOICES FOR PART OF THE CLAIM. SHRI PAWAR HAD SHO WN THE AMOUNT AS ADVANCE AND THEREFORE, ASSESSEE COULD NOT BE ALLOWE D TO CLAIM IT AS REVENUE EXPENDITURE. A.O. WAS VERY MUCH CORRECT IN MAKING THE DISALLOWANCE. 14. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF LD. CIT(APPEALS). 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSING OFFICER HAD PROCEEDED TO MAKE THE DISALLO WANCE BASED ON THE REFERENCE RECEIVED FROM THE ASSESSING OFFICER O F SHRI D.H. PAWAR WHO HAD SHOWN A SUM OF ` 3,93,48,570/- RECEIVED FROM ASSESSEE AS ADVANCE. IT IS UNDISPUTED THAT ASSESSEE HAD PRODUC ED INVOICES FOR ` 2,73,28,500/-. ASSESSING OFFICER HAS NOT DOUBTED T HE CORRECTNESS OF TRANSACTION AT LEAST TO THIS EXTENT. HE HAD MADE A DISALLOWANCE SINCE THE AMOUNT WAS SHOWN AS ADVANCE BY SHRI PAWAR IN HI S BOOKS. EXCEPT THE FACT THAT OUT OF THE CLAIM OF ` 3,93,48,570/-, INVOICES WERE PRODUCED BEFORE A.O. ONLY FOR ` 2,73,28,500/-, NOTHING IS COMING OUT FROM THE RECORD AS TO WHAT WAS THE SERVICE RENDERED BY SHRI PAWAR AND WHY SUCH AN AMOUNT WAS TREATED BY HIM AS ADVANC E IN HIS BOOKS. WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQUIRES A I.T.A. NOS. 927 & 928/MDS/11 11 FRESH LOOK BY THE A.O. WE, THEREFORE, SET ASIDE TH E ORDERS OF LD. CIT(APPEALS) AND A.O. IN THIS REGARD AND REMIT THE ISSUE BACK TO A.O. FOR VERIFYING THE CLAIM WITH EVIDENCE PRODUCED BY THE ASSESSEE IN SUPPORT OF THE CLAIM. IF THE ASSESSEE IS ABLE T O PROVE THAT THE CLAIM WAS BASED ON INVOICES RAISED BY SHRI PAWAR AND IF T HE TRANSACTIONS ARE GENUINE, IT WILL HAVE TO BE ALLOWED IRRESPECTIV E OF THE TREATMENT GIVEN BY SHRI PAWAR IN HIS BOOKS. THE A.O. SHALL G IVE AN OPPORTUNITY TO THE ASSESSEE FOR PROVING ITS CASE. 16. GROUND NO.3 OF THE REVENUE IS ALLOWED FOR STATI STICAL PURPOSE. 17. VIDE ITS GROUND NO.4, REVENUES GRIEVANCE IS TH AT LD. CIT(APPEALS) DELETED A DISALLOWANCE OF INTEREST OF ` 1,62,14,635/-. 18. SHORT FACTS GIVING RAISE TO THIS ISSUE ARE THAT ASSESSEE HAD CLAIMED INTEREST PAYMENTS OF ` 6,03,11,000- ON FIXED LOANS AND ` 42,65,000/- ON OTHER LOANS, IN ITS PROFIT & LOSS AC COUNT . FROM THE BALANCE SHEET, IT WAS NOTED BY THE A.O. THAT ASSESS EE HAD GIVEN LOANS AND ADVANCES TO ITS SUBSIDIARY COMPANIES ` 21,78,46,000/-. ASSESSEE WAS REQUIRED TO EXPLAIN WHY CORRESPONDING INTEREST SHOULD NOT BE DISALLOWED FOR INVESTMENT MADE IN SUBSIDIARY COMPANY OUT OF I.T.A. NOS. 927 & 928/MDS/11 12 LOANS. REPLY OF THE ASSESSEE WAS THAT LOANS AND IN VESTMENTS WERE MADE FROM ITS OWN FUNDS AND WERE NOT MADE OUT OF BO RROWED CAPITAL AND FOR THE RELEVANT PREVIOUS YEAR, IT HAD INCOME O F MORE THAN ` 240 CRORES. AS PER THE ASSESSEE, THE SUBSIDIARY COMPAN IES, WHERE ASSESSEE HAD INVESTED, WERE INCORPORATED IN KARNATA KA TO FACILITATE ASSESSEES BUSINESS INTEREST. HOWEVER, A.O. WAS N OT APPRECIATIVE. ACCORDING TO HIM, THE SUBSIDIARY COMPANIES HAD A SE PARATE ROLE OF PURCHASING LANDS AND SELLING THEM AND THERE WAS NO RATIONALE IN THE CLAIM OF THE ASSESSEE THAT LOANS WERE GIVEN TO SUCH SUBSIDIARY COMPANIES FREE OF INTEREST FOR COMMERCIAL EXPEDIENC Y. HE, THEREFORE, MADE A PRORATA DISALLOWANCE OF ` 1,62,14,635/- OUT OF TOTAL INTEREST CLAIM OF ` 6,45,76,000/-. 19. IN ITS APPEAL BEFORE LD. CIT(APPEALS) , ARGUMEN T OF THE ASSESSEE WAS THAT SUBSIDIARY COMPANIES HAD TO BE FL OATED IN KARNATAKA SINCE ONLY COMPANIES REGISTERED IN KARNAT AKA COULD ACQUIRE LANDS THERE. AS PER ASSESSEE, LANDS WERE R EQUIRED FOR ERECTION OF WIND FARMS AND SUCH LOANS WERE ADVANCED BY THE ASSESSEE FOR ITS BUSINESS INTEREST, SINCE IT HAD SU BSTANTIAL INTEREST IN THE SUBSIDIARY COMPANIES. IN ANY CASE, ACCORDING T O ASSESSEE, THE I.T.A. NOS. 927 & 928/MDS/11 13 LOANS WERE TAKEN IN EARLIER YEARS AND THE TAXABLE I NCOME OF THE ASSESSEE IN VARIOUS YEARS STARTING FROM 2001-02 TIL L THE IMPUGNED ASSESSMENT YEAR 2006-07 TOTALLED TO ` 3,17,68,29,790/-. RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S .A. BUILDERS V. CIT (288 ITR 1), ASSESSEE PLEADED THAT THE COMMERCIAL E XPEDIENCY, FOR HAVING GIVEN THE LOANS STOOD PROVED AND HENCE, THE CLAIM HAD TO BE ALLOWED. LD. CIT(APPEALS) WAS APPRECIATIVE OF THI S CONTENTION OF THE ASSESSEE. ACCORDING TO HIM, ASSESSEE HAD BUSINESS INTEREST IN THE SUBSIDIARY COMPANIES AND OUT OF COMMERCIAL EXPEDIEN CY, IT HAD GIVEN LOANS TO SUCH SUBSIDIARY COMPANIES. EVEN OTHERWISE , IT HAD SUFFICIENT FUNDS FOR GIVING LOANS FREE OF INTEREST AND THERE W AS NO JUSTIFICATION FOR DISALLOWANCE OF INTEREST. HE, THEREFORE, DELETED T HE DISALLOWANCE. 20. NOW BEFORE US, LEARNED D.R. STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS) , SUBMITTED THAT ASSESSEE WAS UNABLE T O SHOW COMMERCIAL EXPEDIENCY FOR GIVING SUCH HUGE LOANS TO SUBSIDIARY COMPANIES. 21. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS) . I.T.A. NOS. 927 & 928/MDS/11 14 22. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. NO DOUBT, THE LOANS WERE GIVEN TO SUBSIDIARY COMPAN IES. ALSO, WITHOUT DOUBT, SUCH SUBSIDIARY COMPANIES WERE ALL I N KARNATAKA AND HAD ACQUIRED LANDS FOR THE PURPOSE OF ERECTION OF W IND FARMS AND THE ASSESSEES BUSINESS WAS TO ERECT, COMMISSION AND SE LL WINDMILLS. IN OUR OPINION, COMMERCIAL INTEREST OF THE ASSESSEE IN ITS SUBSIDIARIES STOOD WELL DEMONSTRATED. THE ROLE PERFORMED BY SUB SIDIARY COMPANIES MIGHT HAVE BEEN DIFFERENT FROM THAT OF TH E ASSESSEE- COMPANY BUT THIS EFFECTUATED THE BUSINESS INTERESTS OF THE ASSESSEE. THERE IS ALSO NO DISPUTE THAT THE TAXABLE INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 TO 2006-07 TOTALLED TO MORE THAN ` 317 CRORES. ASSESSEE THUS HAD MORE THAN SUFFICIENT OWN FUNDS WITH IT FOR GIVING ADVANCE OF ` 21,78,46,000/-. IN THE CASE OF S.A. BUILDERS (SUPRA), HONBLE APEX COURT CLEARLY HELD THAT COMM ERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INC LUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF HIS BUSINESS. ONCE IT IS ESTABLISHED THAT THERE WAS NE XUS BETWEEN THE EXPENDITURE AND PURPOSE OF BUSINESS, HONBLE APEX C OURT HELD, REVENUE COULD NOT ASSUME THE ROLE OF THE BUSINESSMA N TO DECIDE WHAT WAS REASONABLE EXPENDITURE HAVING REGARD TO TH E CIRCUMSTANCES I.T.A. NOS. 927 & 928/MDS/11 15 OF THE CASE. WE ARE, THEREFORE, OF THE OPINION THA T LD. CIT(APPEALS) WAS WELL JUSTIFIED IN RELYING ON THE DECISION OF HO NBLE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA) FOR DELETING THE DISALLOWANCE. 23. GROUND NO.4 OF THE REVENUE STANDS DISMISSED. 24. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2006- 07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 25. NOW, WE TAKE UP REVENUES APPEAL FOR ASSESSMENT YEAR 2005- 06. TWO ISSUES HAVE BEEN RAISED BY THE REVENUE OF WHICH, ONE IS REGARDING DISALLOWANCE OF PRO-RATA INTEREST ON INTE REST FREE FUNDS ADVANCED TO SUBSIDIARIES WHICH WAS DELETED BY LD. C IT(APPEALS) . 26. WE HAVE ALREADY DEALT WITH THIS ISSUE AT PARA 2 2 OF THIS ORDER IN REVENUES APPEAL FOR ASSESSMENT YEAR 2006-07. 27. THIS LEAVES US WITH THE ONLY OTHER ISSUE WHICH IS REGARDING DELETION OF DISALLOWANCE OF ADVANCE OF ` 1,00,92,400/- WRITTEN OFF BY THE ASSESSEE. 28. SHORT FACTS APROPOS ARE THAT THE ASSESSEE HAD, IN THE RELEVANT PREVIOUS YEAR, CLAIMED A DEDUCTION OF ` 1,06,98,000/- AS I.T.A. NOS. 927 & 928/MDS/11 16 IRRECOVERABLE ADVANCES WRITTEN OFF. AS PER THE ASS ESSEE, THE AMOUNT REPRESENTED ADVANCES GIVEN BY IT FOR PURCHASES WHIC H HAD TO BE WRITTEN OFF SUBSEQUENTLY. AGAIN AS PER THE ASSESSE E, THE SUM OF ` 1,06,98,000/- COMPRISED OF FOLLOWING ITEMS:- GREP (INDIA) PRIVATE LIMITED ` 1,00,000 GENERATION CHARGES O&M (TNPL DEPOSIT REVERSAL) ` 2,50,000 GREP (INDIA) PRIVATE LIMITED ` 1,75,980 SIMPLEX CASTINGS LIMITED ` 80,000 SAMBHAV STEEL DISTRIBU TORS ` 1,00,92,401 OUT OF THE ABOVE ` 1,00,92,401/- RELATABLE TO SAMBHAV STEEL DISTRIBUTORS WAS THE DIFFERENCE BETWEEN ` 5,95,43,410/- OFFERED BY THE ASSESSEE BEFORE SETTLEMENT COMMISSION FOR ASSES SMENT YEAR 2004-05, AGAINST THE ACTUAL AMOUNT OF ` 4,94,51,010/-. AS PER THE ASSESSEE, SAID ADVANCE HAD BECOME IRRECOVERABLE AND THEREFORE, WRITTEN OFF IN THE IMPUGNED ASSESSMENT YEAR. ACCOR DING TO IT, THE AMOUNT WAS CONSIDERED AS INCOME FOR ASSESSMENT YEAR 2004-05 AND THEREFORE, ELIGIBLE FOR A WRITE-OFF IN THE IMPUGNED ASSESSMENT YEAR. HOWEVER, THE A.O. WAS NOT IMPRESSED. ACCORDING TO HIM, ASSESSEE WAS NOT A MONEY LENDER TO CLAIM THAT THE AMOUNTS AD VANCED TO SAMBHAV STEEL DISTRIBUTORS AND OTHER PARTIES WERE A PART OF ITS BUSINESS OF MONEY LENDING. ACCORDING TO HIM, ASSES SEE COULD NOT I.T.A. NOS. 927 & 928/MDS/11 17 PROVE THAT THESE DEBTS WERE CONSIDERED IN COMPUTING ITS INCOME FOR ANY OF ITS EARLIER ASSESSMENT YEARS. HE, THEREFORE , DECLINED TO ALLOW THE CLAIM OF WRITE-OFF OF ` 1,06,98,381/-. 29. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT IT HAD OFFERED A SUM OF ` 5,95,43,410/- BEING ADVANCE GIVEN TO SAMBHAV STEEL DISTRIBUTORS, AS INCOME FOR ASSESS MENT YEAR 2004- 05, BEFORE SETTLEMENT COMMISSION AND THE SAID AMOUN T COMPRISED OF PURCHASES OF ` 4,94,51,010/- AND ADVANCE OF ` 1,00,92,400/-. THEREFORE, AS PER THE ASSESSEE, WHAT WAS WRITTEN OF F IN THE IMPUGNED ASSESSMENT YEAR WAS ADVANCE PART ONLY OUT OF TOTAL SUM OF ` 5,95,43,410/- AND BALANCE STOOD OFFERED FOR ASSESSM ENT YEAR 2004- 05. ACCORDING TO ASSESSEE, THE WHOLE OF SUM OF ` 5,95,43,410/- WAS CONSIDERED AS A PART OF INCOME FOR ASSESSMENT YEAR 2004-05 AND IT WAS WELL WITHIN ITS RIGHT TO WRITE-OFF A PART OF IT AS BAD FOR THE IMPUGNED ASSESSMENT YEAR. VIS--VIS THE OTHER ADVANCES, THE RE WERE NO CONTENTIONS MADE BY THE ASSESSEE BEFORE LD. CIT(APP EALS) . LD. CIT(APPEALS) WAS OF THE OPINION THAT THE SUM OF ` 1,00,92,401/-, BEING ADVANCE GIVEN TO SAMBHAV STEEL DISTRIBUTORS S TOOD ALREADY OFFERED BY THE ASSESSEE AS INCOME BEFORE SETTLEMENT COMMISSION I.T.A. NOS. 927 & 928/MDS/11 18 AND THEREFORE, ADDITION IN THIS REGARD WAS NOT CALL ED FOR IN THE IMPUGNED ASSESSMENT YEAR. IN OTHER WORDS, LD. CIT( APPEALS) HELD THAT SUCH AN AMOUNT WAS ALLOWABLE AS BAD DEBT FOR T HE IMPUGNED ASSESSMENT YEAR. HE, THEREFORE, DELETED THE DISALL OWANCE OF ` 1,00,92,401/- OUT OF THE TOTAL DISALLOWANCE OF ` 1,06,98,381/- MADE BY THE A.O. 30. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILIN G THE ORDER OF LD. CIT(APPEALS) , SUBMITTED THAT ASSESSEE HAD, BEFORE SETTLEMENT COMMISSION OFFERED ` 5,95,43,410/- AS INCOME AND WAS NOW TRYING TO CLAIM A PART THEREOF AS BAD DEBT IN THE IMPUGNED AS SESSMENT YEAR. ACCORDING TO LEARNED D.R., THERE WAS NO PURCHASE AN D THE WHOLE OF THE ALLEGED TRANSACTIONS WITH SAMBHAV STEEL DISTRIB UTORS WERE BOGUS AND THEREFORE, WRITE-OFF OF ANY ADVANCE REPRESENTIN G SUCH BOGUS TRANSACTION COULD NOT BE ALLOWED. 31. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS) AND SUBMITTED THAT THE ACTUAL PURCHASE S, WHICH WERE ADMITTED BY THE ASSESSEE BEFORE SETTLEMENT COMMISSI ON AS NOT HAVING BEEN MADE FROM M/S SAMBHAV STEEL DISTRIBUTOR S, CAME TO ` 4,94,51,010/- AGAINST THE OFFERED SUM OF ` 5,95,43,410/-. ACCORDING I.T.A. NOS. 927 & 928/MDS/11 19 TO HIM, THE BALANCE OF ` 1,00,92,400/- WAS AN ADVANCE THAT WAS NOT EXISTING. HENCE, IN ORDER TO WRITE IT OFF FROM THE BALANCE SHEET, THE BAD DEBT CLAIM BECAME IMPERATIVE. THE CLAIM, ACCOR DING TO HIM, SHOULD NOT HAVE BEEN DISALLOWED AND LD. CIT(APPEALS ) WAS CORRECT IN DELETING THIS DISALLOWANCE. 32. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. PARA 2 OF THE ORDER OF INCOME TAX SETTLEMENT COMMIS SION DATED 24.3.2008 DEAL WITH THE PURCHASES CLAIMED TO HAVE B EEN MADE BY THE ASSESSEE FROM M/S SAMBHAV STEEL DISTRIBUTORS. ASSE SSEE HAD CLEARLY ADMITTED BEFORE SETTLEMENT COMMISSION THAT THE CLAIM OF PURCHASE FROM M/S SAMBHAV STEEL DISTRIBUTORS WERE A LL BOGUS. ADDITIONAL INCOME OF ` 9,05,87,044/- RELATING TO ASSESSMENT YEARS 1999-2000 TO 2003-04 WAS ALSO OFFERED BY THE ASSESS EE BEFORE SETTLEMENT COMMISSION. ASSESSEE HAVING ADMITTED TH AT THE WHOLE OF THE PURCHASES FROM M/S SAMBHAV STEEL DISTRIBUTORS W AS BOGUS, NO RELIANCE COULD BE PLACED ON ITS CLAIM THAT THERE WA S AN ADVANCE OF ` 1,00,92,400/- GIVEN BY IT TO M/S SAMBHAV STEEL DIST RIBUTORS. NO DOUBT, ASSESSEE HAD OFFERED ` 5,95,43,410/- FOR ASSESSMENT YEAR 2004-05 AS BOGUS PURCHASES FROM M/S SAMBHAV STEEL D ISTRIBUTORS I.T.A. NOS. 927 & 928/MDS/11 20 BEFORE SETTLEMENT COMMISSION. THIS IS ALSO CLEAR F ROM PARA 2 OF THE ORDER OF SETTLEMENT COMMISSION, WHICH IS REPRODUCED HEREUNDER:- IT IS ADMITTED THAT THE STEEL CLAIMED TO BE PURCHAS ED FROM M/S SAMBHAV STEEL DISTRIBUTORS IS BOGUS. THE APPLICANT HAS DISCLOSED ADDITIONAL INCOME OF ` 9,05,87,044/- RELATING TO AYS 1999-00 TO 2003-04 (PG 1 OF APB II) IN THIS REG ARD. HOWEVER, IN RULE 9 REPORT THE CIT HAS STATED THAT I N AY 2001- 02, THE PURCHASES FROM THIS PARTY IS ` 2,32,40,000/- WHICH SHOULD HAVE BEEN OFFERED, WHEREAS THE APPLICANT HAS OFFERED ONLY ` 1,96,79,595/- AND THUS THERE WAS SHORT DISCLOSURE O F ` 33.70 LAKHS. IN THIS REGARD THE AR POINTED OUT THA T THE AMOUNT OF ` 2,32,40,000/- IS NO DOUBT THE TOTAL PURCHASES FROM SAMBHAV STEEL DISTRIBUTORS FOR THE YEAR ENDED 31.3. 2001 REFLECTED IN THE STATEMENT OF ACCOUNT. HOWEVER, I T IS EXPLAINED THAT THE TOTAL INCLUDES OPENING BALANCE OF ` 10,60,036/- AND REVERSAL OF PURCHASES OF ` 25,01,970/- AS RETURNED. HENCE THE ENTIRE PURCHASE OF STEEL OF ` 1,96,79,595/- IS OFFERED FOR ASST. YEAR 2001-02 WHICH IS THE CORRECT AMOUNT. ON VERIFICATION THE OFFER MADE BY THE APPLICANT IS CORRECT. HENCE, NO ADJUSTMENT IS REQUIRED. IN ADDITION, THE APPLICANT HAS OFFERED ` 5,95,43,410/- IN AY 2004-05 AS ADDITIONAL INCOME. THE TOTAL PAYMENTS T O M/S SAMBHAV STEEL DISTRIBUTORS BEING ` 15,01,30,454/-, THE ENTIRE SUM IS OFFERED. ( ` 9,05,87,044 + 5,95,43,410/-) THE ABOVE FACTS BEING CORRECT, THERE IS NO NEED TO MAKE ANY ADJUSTMENT ON THIS ACCOUNT. NOW THE CLAIM OF THE ASSESSEE IS THAT OUT OF ` 5,95,43,410/-, A SUM OF ` 1,00,92,400/- WAS ONLY AN ADVANCE AND SINCE THIS AM OUNT CONTINUED TO APPEAR IN ITS BALANCE SHEET, IT WAS RE QUIRED TO EFFECT A I.T.A. NOS. 927 & 928/MDS/11 21 WRITE-OFF AND THUS THE CLAIM OF BAD DEBT WAS TO BE ALLOWED. WE ARE UNABLE TO APPRECIATE IT FOR TWO REASONS. IN THE FI RST PLACE, THE CLAIM OF ADVANCE ITSELF CANNOT BE ACCEPTED WHEN BY ASSESSEE S OWN VERSION, ITS TRANSACTIONS OF PURCHASE FROM M/S SAMBHAV STEEL DISTRIBUTORS WERE ALL BOGUS. IN THE SECOND PLACE, IF ALLOWED, T HE EFFECT WILL BE THAT INCOME OF ` 5,95,43,410/- ADMITTED BY THE ASSESSEE BEFORE SETTLEMENT COMMISSION FOR ASSESSMENT YEAR 2004-05 W OULD GET REDUCED BY ` 1,00,92,400/-. IN OUR OPINION, ASSESSEE CANNOT BE ALLOWED TO APPROBATE AND RE-APPROBATE. IT CANNOT S AY THAT THE PURCHASES WERE ALL BOGUS BUT, ADVANCES WERE GENUINE . IT CANNOT SAY PURCHASES WERE BOGUS ONLY FOR SETTLEMENT COMMISSION BUT, THESE WERE TRUE WHEN THE MATTER COMES BEFORE THE TRIBUNAL . WE ARE OF THE OPINION THAT LD. CIT(APPEALS) FELL IN ERROR IN DELE TING THE DISALLOWANCE MADE BY THE A.O. THE DISALLOWANCE OF ` 1,00,92,400/- MADE BY THE A.O. THEREFORE STANDS REINSTATED. 33. GROUND NO.2 STANDS ALLOWED. 34. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2005- 06 IS PARTLY ALLOWED. I.T.A. NOS. 927 & 928/MDS/11 22 35. TO SUMMARISE THE RESULT, BOTH THE APPEALS OF AS SESSMENT YEARS 2005-06 AND 2006-07 OF THE REVENUE ARE PARTLY ALLOW ED, THE LATTER FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON 31 ST JANUARY, 2012. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 31 ST JANUARY, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT-I, CHENNAI (5) D.R. (6) GUARD FILE