M/s. SUMMIT SECUIRITIES LTD. (FORMERLY KEC INFRASTRUCRES LTD), MUMBAI V. ADDL. CIT Rg. - 8(2), MUMBAI

ITA 929/MUM/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93057 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 14-05-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 08-02-2008
• Court: TRIBUNAL
• Department Lawyers: KRISHNA VYAS
• Assessee Lawyers: MANISH V SHAH
• Keywords: Business income; Depreciation; Opportunity of being heard; Rule of consistency; Earning of tax free income; Bad and doubtful debts
• Section: 43B; 80HHC; 14A; 115JB; 37(1)

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 929/M/2008 ( AY: 2003 - 2004 ) ./I.T.A. NO. 930/M/2008 ( AY: 2004 - 2005 ) KEC INFRASTRUCTURES LTD., (FORMERLY KNOWN AS KEC INTERNATIONAL LTD), CEAT MAHAL, 463, ANNI BESANT ROAD, WORLI, MUMBAI - 30. / VS. ADIT, RANGE 8(2), MUMBAI. ./ PAN : AAACK4279J ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 957/M/2008 ( AY: 2003 - 2004 ) ./I.T.A. NO. 958/M/2008 ( AY: 2004 - 2005 ) ADIT, RANGE 8(2), MUMBAI. / VS. KEC INFRASTRUCTURES LTD., (FORMERLY KNOWN AS KEC INTERNATIONAL LTD), CEAT MAHAL, 463, ANNI BESANT ROAD, WORLI, MUMBAI - 30. ./ PAN : AAACK4279J ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MANISH V. SHAH / RESPONDENT BY : SHRI KRISHNA VYAS, CIT - DR / DATE OF HEARING : 14.5 .2015 / DATE OF PRONOUNCEMENT : 3.7 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE FOUR APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS INVOLVING TWO ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. OUT OF THE SAID FOUR APPEALS, TWO APPEALS (FOR THE AY 2003 - 04) ARE FILED BY AGAINST THE ORDER OF THE CIT (A) - VIII, 2 MUMBAI DATED 30.11 .2007 AND THE OTHER TWO APPEALS (FOR THE AY 2004 - 05) ARE FILED AGAINST THE ORDER OF THE CIT (A) - VIII, MUMBAI DATED 29.11.2007. SINCE, THE ISSUES RAISED IN ALL THESE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COM BINEDLY AND DISPOSED - OFF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. [CROSS APPEALS FOR THE AY 2003 - 04] ITA NO.929/M/2008 (BY ASSESSEE) 2. THIS APPEAL FILED BY THE ASSESSEE ON 8.2.2008 IS AGAINST THE SAID ORDER OF THE CIT (A) - VIII, MUMBAI DATED 30.11.2007 FOR THE ASSESSMENT YEAR 2003 - 2004. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS, WHICH READ AS UNDER: I. REDUCTION IN THE CLAIM FOR DEPRECIATION ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF REDUCING THE CLAIM FOR ALLOWANCE OF DEPRECIATION FROM RS. 13,80,36,745/ - TO RS. 11,36,62,509/ - . II. DISALLOWANCE OF DEFE RRED REVENUE EXPENSES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE CLAIM IN RESPECT OF DEFERRED REVENUE EXPENSES OF RS. 31,75,656/ - , ON THE GROUND THAT IT REPRESENTS P ENSION PAID TO THE EMPLOYEES WHO HAS TAKEN VOLUNTARY RETIREMENT UNDER THE VRS WHICH IS NOT COVERED U/S 35DDA OF THE ACT, AND BY FOLLOWING HIS ORDER OF THE EARLIER YEARS. II. DISALLOWANCE OF DEFERRED REVENUE EXPENSES ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING A SUM OF RS. 6,29,17,070/ - BEING INTEREST ON LOANS TAKEN FROM ICICI BANK FOR BUSINESS PURPOSES CONVERTED INTO FUNDED INTEREST TERM LOAN BY INVOKING THE PROVISIONS OF SECT ION 43B OF THE ACT. 3. GROUND NO.1 RELATES TO THE DEPRECIATION ALLOWANCE. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT IN THE RETURN OF INCOME, ASSESSEE CLAIMED DEPRECIATION OF RS. 13,80,36,745/ - . DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE CLAIM OF DEPRECIATION FOR THE AY 1999 - 2000 WAS DISTURBED AND THE SAI D DECISION OF THE AO WAS SUSTAINED BY THE CIT (A). T HUS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL ON THAT ISSUE AND TRIBUNAL DECIDED THE SAME AGAINST THE ASSESSEE. IN THE ASSESSMENT FOR THE AY UNDER CONSIDERATION, AO COMPUTED THE DEPRECIATION RELYIN G ON THE WRITTEN DOWN VALUE GENERATED FROM THE WDV FOR THE AY 1999 - 2000. THUS, THE DEPRECIATION FOR THE INSTANT AY REDUCED TO RS. 11,36,62,509/ - FOR THE AY 2003 - 04 . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). 4. DURING THE PRO CEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESEE , CIT (A) DISMISSED THE APPEAL OF THE ASSESSEE ON THIS GROUND. WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE, CIT (A) RELIED ON THE ORDER 3 OF HIS PREDECESSOR FOR THE AY 2004 - 05, DATED 29.12.2009. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NO.1. 5. DURING THE PROCEEDINGS BEFORE US, A T THE OUTSET, LD COUNSEL FOR THE ASSESSEE FILED A CHART, SHOWING THE DETAILS OF COVERED NATURE OF THE ABOVE GROUNDS, AND FAIRLY MENTIONED THAT THE ISSUES RAISED IN THE PRESENT APPEAL MAY BE DECIDED BY CONSIDERING THE DETAILS OF THE SAID CHART. AS PER THE SAID CHART, THE INSTANT GROUND, RELATING TO THE DEPRECIATION ALLOWANCE, WAS DECIDED CONSISTENTLY AGAINST THE ASSESSEE BY THE ORDER S OF THE ITAT IN ASSESSEES OWN CASE FOR THE AY S 1999 - 2000; 2001 - 2002 AND 2002 - 2003. 6. ON HEARING THE BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDERS OF THE TRIBUNAL, WE FIND, THE ISSUE RAISED IN GROUND NO.1 FOR THE AY UNDER CON SIDERATION SHOULD ALSO BE DECIDED AGAINST THE ASSESSEE. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 7. GROUND NO.2 RELATES TO THE DISALLOWANCE OF DEFERRED REVENUE EXPENSES. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT, IN THE R ETURN OF INCOME ASSESSEE CLAIMED A SUM OF RS. 31,75,656/ - BEING THE AMOUNT OF PENSION PAID TO EMPLOYEES, WHO OPTED VRS SCHEME. IN THE ASSESSMENT, AO DISALLOWED THE AFORESAID AMOUNT ON THE GROUND THAT THE SAME CA NNOT BE TREATED ON PAR WITH ONETIME PAYMENT ELIGIBLE FOR DEDUCTION BY INVOKING THE PROVISIONS OF SECTION 35DDA OF THE ACT. ON APPEAL, CIT (A) PARTLY ALLOWED THE ASSESSEES APPEAL ON THIS GROUND BY RELYING ON THE ORDER OF THE CIT (A) FOR THE AY 2004 - 05, DATED 29.12.2007. AGGRIEVED, ASSESSEE FILED T HE PRESENT APPEAL BEFORE US BY RAISING THE GROUND NO.2. 8. DURING THE PROCEEDINGS BEFORE US, BRINGING OUR ATTENTION TO THE SAID CHART, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT AN IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSSEE IN I TS OWN CASE FOR THE AYS 1998 - 99 TO 2002 - 2003, AND THEREFORE, THE INSTANT GROUND MAY ALSO BE DECIDED IN ASSESSEES FAVOUR. 9. ON HEARING THE LD REPRESENTATIVES OF BOTH THE PARTIES ON THIS ISSUE AND ON PERUSAL OF THE SAID ORDERS OF THE ITAT IN ASSESSEE OWN CASE FOR THE AYS 1998 - 99 TO 2002 - 2003, WE FIND THE ISSUE IS DECIDED CONSISTENTLY IN FAVOUR OF THE ASSESSEE. THEREFORE, BY FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE INSTANT GROUND NO.2 IS DECIDED IN FAVOUR OF THE ASSESSEE. THUS, GROUND NO.2 RAISED BY TH E ASSESSEE IS ALLOWED. 4 10. GROUND NO.3 RELATES TO THE DISALLOWANCE U/S 43B OF THE ACT. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT, DURING THE YEAR ASSESSEE CONVERTED INTEREST OF RS. 6,29,17,070/ - INTO FUNDED INTEREST TERM LOAN AND TREATED THE INTEREST AS PAID U/S 43B OF THE ACT IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE O F ITO VS. M.M. AQUA TECHNOLOGIES LTD (143 TAXMAN 43) (DEL.). IN THE ASSESSMENT, AO DISALLOWED THE SAID AMOUNT BY HOLDING THAT THE MERE POSTPONEMENT OF LIABILITY TO PAY INTEREST DOES NOT AMOUNT TO DISCHARGE WHETHER ACTUAL OR CONSTRUCTIVE AND AO RELIED ON T HE DECISION IN THE CASE OF KALPANA LAMPS & COMPONENTS VS. DCIT [255 ITR 491 (MAD.)]. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY . ON APPEAL, CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE BY RELYING ON THE ORDER OF T HE CIT (A) FOR THE AY 2004 - 2005, DATED 29.12.2007 SUBJECT TO THE STIPULATIONS LAID DOWN IN THE SAID ORDER FOR THE AY 2004 - 2005. AGGRIEVED, ASSESSEE RAISED THE ISSUE BEFORE THE TRIBUNAL VIDE GROUND NO.3. 11. DURING THE PROCEEDINGS BEFORE US, IT IS THE CAS E OF THE ASSESSEE THAT ALTHOUGH THE AMOUNT OF RS. 6,29,17,070/ - IS NOT PAID TO THE FINANCIAL INSTITUTION, ASSESSEE IS ENTITLED TO THE BENEFIT OF DEEMED PAYMENT AS THE SAID AMOUNT WAS CONVERTED INTO A TERM LOAN AND THE SAME AMOUNT IS DEDUCTIBLE U/S 43B OF T HE ACT. IN SUPPORT OF THE ABOVE CONTENTION, LD COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS NAMELY; (I) NUCHEM PLASTICK LTD VS. DCIT, 44 TTJ (DEL.) 261; (II) MULA SAHAKAR SAKHAR KARKHANA LTD VS. ITO, 55 TTJ (PUNE) 375; (III) ACIT VS. SHATI DYEING AND FINISHING WORKS, 68 TTJ (AHD.) 214; (IV) COSMO FILMS LTD VS. IAC, 50 TTJ (DEL.) ; (V) DCIT VS. UDAIPUR DISTILLERY CO. LTD., 74 TTJ (JD); (VI) DCIT VS. EICHER TRACTORS LTD., 79 TTJ 158 AND OTHERS. ALTERNATELY, LD COUNSEL SUBMITTED WITHOUT PREJUDICE TO T HE ABOVE, IN CASE, IF THE CLAIM OF THE ASSESSEE IS NOT ACCEPTED, THE SAME MAY BE ALLOWED IN SUBSEQUENT YEARS AS A DEDUCTION ON DISBURSEMENT OF THE LOAN IN RESPECTIVE ASSESSMENT YEARS. 12. AFTER HEARING THE LD COUNSEL FOR THE ASSESSEE AS WELL AS THE LD DR FOR THE REVENUE, WE ARE OF THE OPINION THAT THIS ISSUE SHOULD BE REMANDED TO THE FILE OF THE AO FOR FRESH ADJUDICATION OF THE ISSUE AFTER TAKING INTO CONSIDERATION THE APPLICABILITY OF THE AFORESAID PRECEDENTS TO THE ISSUE UNDER CONSIDERATION AND DECIDE TH E ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5 ITA NO.957/M/2008 (AY 2003 - 2004) (REVENUES APPEAL) 14. THIS APPEAL FILED BY THE REVENUE ON 8.2.2008 IS AGAINST THE ORDER OF THE SAID ORDER OF THE CIT (A) - VIII, MUMBAI DATED 30.11.2007 FOR THE ASSESSMENT YEAR 2003 - 2004. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUND, WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN NOT UPHOLDING THE COMPUTATION OF INCOME FROM HOUSE PROPERTY MADE BY THE ASSESSING OFFICER. 15. BRIEFLY STATED, RELEVANT FACTS IN THIS REGARD ARE THAT IN THE RETURNED INCOME, ASSESSEE DISCLOSED AN AMOUNT OF RS. 12,53,575/ - UNDER THE HEAD HOUSE PROPERTY. IN THE ASSESSMENT, AO REWORKED THE COMPUTATION AND MADE AN ADDITION OF RS. 4,86,023/ - BY HOLDING THAT THE SAID AMOUNT WAS AN UNREALIZED RENT FROM PROPERTY LET OUT TO KAMANI METALLIC OXIDES LTD, KMA LTD., KAMANI TUBES, CHUNILAL B MEHTA & CO., AND M/S. BOMBAY PROCESSORS, AND THEREFORE, THE AFORESAID AMOUNT CANNOT BE CONSIDERED FOR COMPUTING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE ON THIS GROUND BY FOLLOWING THE DECISION OF THE CIT (A) FOR TH E AY 2004 - 2005, DATED 29.12.2007. AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE US. 16. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE SAID CHART FILED ON TO THE REC ORD AND SUBMITTED THAT THIS ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE IN ASSESSEES OWN CASE VIDE ITS ORDER ITA NO.3662/BOM/85 FOR THE AY 1980 - 81. FURTHER, HE FAIRLY MENTIONED THAT FOR THE AYS 2001 - 02 AND 2002 - 03, THE MATTER WAS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. BEFORE US, HE RELIED ON VARIOUS DECISIONS TO SUPPORT HIS CONTENTION THAT THE DEDUCTION OF THE MAINTENANCE CHARGES AND SOCIETY CHARGES FROM RENTAL INCOME. 17. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE CITED ORDERS OF THE TRIBUNAL, WE REMAND THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES . 6 18. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. [CROSS APPEALS FOR THE AY 20 04 - 05 ] ITA NO.930/M/2008 (BY ASSESSEE) 19. THIS APPEAL FILED BY THE ASSESSEE ON 8.2.2008 IS AGAINST THE ORDER OF THE CIT (A) - VIII, MUMBAI DATED 29.11.2007. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: I . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF RESTRICTING THE ALLOWANCE OF DEPRECIATION FROM RS. 12,72,99,386/ - TO RS. 11,17,02,439/ - . II . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE CLAIM IN RESPECT OF THE DEFERRED REVENUE EXPENSES OF RS. 30,90,286/ - WHICH IS PENSION PAID TO THE RETIRED EMPLOYEES WHO HAD TAKEN VOLUNTARY RETIREMENT UNDER THE VRS. III . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING INTEREST CONVERTED INTO LOAN U /S 43B OF THE ACT , ON THE ALLEGED GROUND THAT THE PAYMENT IS BY WAY OF CONVERSION INTO LOAN WOULD NOT BE REGARDED AS ACTUAL PAYMENT. IV . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE PROVISION FOR PROJECT LOSES OF RS. 35 LACS ON THE ALLEGED GROUND THAT IT IS OF CONTINGENT NATURE. V . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE PROVI SION FOR DOUBTFUL DEBTS BY INVOKING THE PROVISIONS OF THE SECTION 36(1)(VII) OF THE ACT WITHOUT CONSIDERING THE FACT THAT THOUGH THE NOMENCLATURE USED IS PROVISION THE APPELLANT HAD ACTUALLY WRITTEN OFF THE DEBTORS ACCOUNT AND SATISFIED THE CONDITIONS O F SECTION 36(1)(VII) R.W.S 36(2) OF THE ACT. VI. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF SETTING OFF OF THE BROUGHT FORWARD LOSSES FROM BUSINESS INCOME INSTEAD OF ALLOWING DEDU CTION U/S 80HHC OF THE ACT, OUT OF THE BALANCE GROSS TOTAL INCOME, IF ANY. 20. IN THIS APPEAL, ASSESSEE RAISED THE ABOVE GROUNDS, WHEREIN GROUND NOS. I, II AND III ARE IDENTICAL TO THAT OF THE GROUNDS RAISED BY THE ASSESSEE FOR THE AY 20 03 - 04 VIDE ITA NO .929/M/2008. SINCE, THE ISSUES RAISED IN GROUND NOS. I, II AND III OF THE INSTANT APPEAL ARE IDENTICAL TO THAT OF THE GROUNDS RAISED BY THE ASSESSEE FOR THE AY 2003 - 04, THE ADJUDICATION GIVEN BY UN ON THESE GROUNDS IN THE ABOVE PARAGRAPHS OF THIS ORDER EQ UALLY APPLIES TO THESE GROUNDS TOO. THAT LEAVES GROUND NOS. IV, V AND VI FOR OUR ADJUDICATION. 21. GROUND NO. IV RELATES TO THE FORESEEABLE LOSSES. BRIEF FACTS IN TH IS REGARD ARE THAT IN THE RETURNED INCOME, ASSESSEE MADE A CLAIM OF RS. 70 LAKHS ON ACCOU NT OF FORESEEABLE LOSSES. IN THE ASSESSMENT, AO DISALLOWED THE SAID AMOUNT AS NOT ALLOWABLE BY HOLDING THAT THE EXPENDITURE IS CONTING ENT IN NATURE AND THE LOSS IN MERCANTILE SYSTEM OF ACCOUNTING IS ONLY ALLOWABLE WHEN THE LIABILITY CRYSTALLIZES AND 7 PRUDE NCE ALONE IS NOT SUFFICIENT FOR CLAIMING THE EXPENSES PRIOR TO ITS OCCURRENCE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) UPHOLD THE ADDITION MADE BY THE AO AND DIRECTED HIM TO VERIFY THE QUANTUM OF DISALLOWANCE BY TAKING INTO ACCOUNT THE ACTUAL CLAIM MADE, WHICH AS PER THE ASSESSEE, IS ONLY TO THE EXTENT OF RS. 35 LAKHS. AGGRIEVED, ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 22. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CHART FILED BY THE ASSESSEE AND RELIED ON VARIOUS DECISIONS TO SUPPORT HIS CONTENTION THAT THE PROVISION MADE FOR THE EXPENSES IS ALLOWABLE U/S 37(1) OF THE ACT. HE FURTHER BROUGHT OUR ATTENTION TO PAGE 40 OF THE PAPER BOOK AND DEMONSTRATED THE ACCOUNTING POLICIES FOLLOWED BY THE ASSESSEE. LD COUNSEL FOR THE ASSESSEE ALSO MENTIONED THAT THE ASSESSEE FOLLOWED THE ACCOUNTING STANDARD 7, WHICH IS RELEVANT FOR CONSTRUCTION CONTRACTS, AS WELL AS A CCOUNTING STANDARD 29, WHICH IS RELEVANT FOR PROVISIONS RELATING TO CONTINGENT LIABILITIES AND CONTINGENT ASSETS AND THEREFORE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE. 23. AFTER HEARING THE LD DR FOR THE REVENUE, WHO RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES, WE ARE THE OPINION THAT THIS MATTER SHOULD BE REMANDED TO THE FILE OF AO TO VERIFY THE ACCOUNTING POLICIES FOLLOWED BY THE ASSESSEE AS WELL AS THE APPLICABILITY OF THE DECISIONS RELIED ON BY THE ASSESSEE AND TO DECIDE THE MATTER AFRESH AFTER A FFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO. IV IS ALLOWED FOR STATISTICAL PURPOSES. 24. GROUND NO. V RELATES TO THE DISALLOWANCE OF PROVISION FOR DOUBTFUL DEBTS. BRIEF FACTS IN THIS REGARD ARE THAT THE ASSESS EE MADE A CLAIM OF PROVISIONS FOR DOUBTFUL DEBTS AMOUNTING TO RS.34,15,35,748/ - . IN THE ASSESSMENT, AO DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUT HORITY. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) RETAINED THE ADDITION MADE BY THE AO. AGAIN AGGRIEVED WITH THE DECISION OF THE CIT (A), ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE INSTANT GROUND. 25 . DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN ASSESSEES OWN CASE FOR THE AY 1999 - 2000. LD COUNSEL RELIED ON VARIOUS 8 DECISIONS, WHEREIN THE SIMILAR ISSUE WAS DECIDED IN ASSESSEES FAVOUR. HE ALSO RELIED ON THE APEX COURT JUDGMENT IN THE CASE OF VIJAYA BANK VS. CIT (323 ITR 166) (SC). 26. AFTER HEARING THE LD REPRESENTATIVES OF BOTH THE PARTIES ON THE ISSUE OF ALLOWABILITY OF PROVISION FO R BAD DEBTS, WE FIND THE IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY ABOVE CITED SUPREME COURT JUDGMENT AS WELL AS THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE AY 1999 - 2000 AND OTHERS. CONSIDERING THE COVERED NATURE OF THE ISSUE, THE GROUND NO. V RAISES BY THE ASSESSEE IS ALLOWED IN ASSESSEES FAVOUR. 27. GROUND NO. VI RELATES TO THE PRIORITY FOR SET OFF OF LOSSES INSTEAD OF DEDUCTION U/S 80 HHC OF THE ACT. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE, IN THE RETURN OF INCOME ASSE SSEE SET OFF RS. 248.01 / - LAKHS OF UNABSORBED LOSSES AND DEPRECIATION , WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. IN THE ASSESSMENT, AO COMPUTED THE DEDUCTION U/S 80HHC SO CLAIMED BY THE ASSESSEE BY REDUCING THE LOSSES WHICH HAVE BEEN CARRIED FORW ARDED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) UPHOLD THE AOS DECISION. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE INSTANT GROUN D. 28. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 29. ON THE OTHER HAND, LD DR HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT (A). HE ALSO MENTIONED THAT AN IDENTICAL IS SUE WAS DECIDED IN FAVOUR OF THE REVENUE BY THE HONBLE SUPREME COURT IN THE CASE OF SHIRKE CONSTRUCTION EQUIPMENTS LTD [291 ITR 380] (SC) AND THEREFORE, THE DECISION TAKEN BY THE AO AS WELL AS THE CIT (A) NEED NOT BE DISTURBED. 30. AFTER HEARING THE LD R EPRESENTATIVES OF BOTH THE PARTIES, WE FIND, THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE ABOVE CITED JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF SHIRKE CONSTRUCTION EQUIPMENTS LTD (SUPRA). CONSIDERING THE BINDING NATURE OF THE JUDGMENT, WE DECI DE THIS ISSUE IN FAVOUR OF THE REVENUE. THUS, THE INSTANT GROUND NO.VI RAISED BY THE ASSESSEE IS DISMISSED. 31. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9 ITA NO.958/M/2008 (AY 2004 - 05) (BY REVENUE) 32. THIS APPEAL FILED BY THE REVENUE ON 8.2.2008 IS AGAINST THE ORDER OF THE CIT (A) - VIII, MUMBAI DATED 29.11.2007. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST PAYMENT OF RS. 9,60,88,000/ - U/S 14A OF THE ACT FOR UTILIZATION OF INTEREST BEARING BORROWED FUNDS TOWARDS INVESTMENT IN SHARES / UNITS WHOSE DIVIDEND IS EXEMPT FROM TAX. 2. ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN NOT UPHOLDING THE COMPUTATION OF INCOME FROM HOUSE PROPERTY MADE BY THE ASSESSING OFFICER. 33. GROUND NO.1 RELATES TO THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE, IN THE RETURNED INCOME, THE ASSESSEE CLAIMED THAT AN AMOUNT OF RS. 6522.51 LAKHS WAS PAID ON ITS SECURED AND UNSECURED LOANS. IN THE ASSESSMENT, AO DISALLOWED A SUM OF RS. 9,60,88,000/ - U/S 14A OF THE ACT OUT OF THE TOTAL SAID CLAIM OF EXPENDITURE BY HOLDING THAT THE INVESTMENTS EARNING TAX FREE INCOME HAVE BEEN ACQUIRED OUT OF BORROWED FUNDS. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE, CIT (A) DELETED THE ADDITION MADE BY THE AO AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. AGGRIEVED WITH THE DECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 34. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE RELI ED ON THE ORDER OF THE CIT (A). HE FURTHER RELIED ON VARIOUS DECISIONS AND ARGUED THAT THE ASSESSEE HAS NOT EARNED TAX EXEMPT INCOME DURING THE UNDER CONSIDERATION ON ALL THE INVESTMENTS, HENCE, NO DISALLOWANCE U/S 14A IS CALLED FOR. HE FURTHER MENTIONED THAT THE ASSESSEE HAS MADE INVESTMENTS IN SUBSIDIARY COMPANIES WHICH ARE CONSIDERED TO BE STRATEGIC INVESTMENTS, AND ON THE SAME THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. IN SUPPORT OF HIS CONTENTION, LD COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS; NAMELY (I) CIT VS. ORIENTAL STRUCTURAL ENGINEERS (P) LTD (216 TAXMAN 92); (II) EIH ASSOCIATED HOTELS LTD VS. DCIT (ITA NO. 1503/MDS/2012); (III) ACIT VS. M/S. CROMPTON GREAVES LTD (ITA NO.6277/M/2012) AND OTHERS. HE FAIRLY MENTIONED THAT AN IDE NTICAL ISSUE WAS DECIDED BY THE ITAT IN ASSESSEES OWN CASE FOR THE AYS 1998 - 99 TO 2002 - 03 AND REMANDED THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 35. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO. 10 36. WE HAVE HEARD BOTH THE PARTIES A ND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL THE DECISIONS CITED BY THE LD COUNSEL FOR THE ASSESSEE. ON PERUSAL OF THE ORDERS OF THE ITAT IN ASSESSEES OWN CASE, WE FIND THE TRIBUNAL CONSISTENTLY REMANDED THE ISSUE TO THE FILE OF AO FOR THE AY S 1998 - 99 TO 2002 - 2003. CONSIDERING THE SAME AS WELL AS FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE REMAND THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO FIND OUT THE NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS UTILIZED FOR INVESTMENT IN SUBSIDIARIES OF THE ASSESSEE COMPANY. AO IS ALSO DIRECTED TO VERIFY WHETHER ANY FRESH INVESTMENTS WERE MADE IN THE UNDER CONSIDERATION. ACCORDINGLY, WE ORDER THE AO TO ADJUDICATE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. THUS, THE GROUND NO.1 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 37. GROUND NO.2 RELATES TO THE COMPUTATION OF INCOME FROM HOUSE PROPERTY. BRIEFLY STATED, RELEVANT FACTS IN THIS REGARD ARE THAT IN THE RETURNED INCOME, ASS ESSEE OFFERED AN AMOUNT OF RS.20,40,500/ - UNDER THE HEAD HOUSE PROPERTY. IN THE ASSESSMENT, AO OBSERVED THAT A SUM OF RS. 4,86,023/ - WAS NOT SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS THE SAME IS AN UNREALIZED RENT FROM TENANTS BEING CONTINUOUS DEFAULTERS. ACCORDINGLY, AO ADDED THE AFORESAID SUM OF RS. 4,86,023/ - AND COMPUTED THE INCOME FROM HOUSE PROPERTY AT RS. 25,26,523/ - INSTEAD OF RS. 20,40,500/ - AS OFFERED BY THE ASSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , CIT (A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE AY 2001 - 2002. AGGRIEVED, REVENUE FILED INSTANT APPEAL BEFORE THE TRI BUNAL BY RAISING THE GROUND NO.2. 38. DURING THE PROCEEDINGS BEFORE THE US, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A). IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE EXPLANATION TO SECTION 23(1) OF THE A CT, THE ACTUAL RENT DOES NOT INCLUDE THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALISE. CONSIDERING THE SAME, THE ADDITION MADE BY THE AO SHOULD BE DELETED. 39. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO. 40. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE MATERIAL PLACED ON RECORD, IN OUR OPINION THE ARGUMENT OF THE LD COUNSEL HAS STRENGTH IN SO FAR THE CONSTITUENTS OF ACTUAL RENT. THE 11 EXPLANATION TO SECTION 23(1) OF THE ACT CLEARLY PURPORTS THAT THE AMOUNT OF ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER SHALL NOT INCLUDE THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALISE . CONSIDERING THE SAME WE ARE OF THE OPINION, THE ISSUE SHOULD BE REMANDED TO THE FILE OF AO TO RECONSIDER THE COMPUTATION OF INCOME FROM HOUSE PROPERTY BY APPLYING THE ABOVE EXPLANATION TO SECTION 23(1) OF THE ACT INSTEAD OF SECTION 24(X) OF THE ACT. ACCORDINGLY, WE REMAND THIS MATTER TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, GROUND NO.2 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 41. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. IN C ONCLUSI ON , TWO APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND TWO APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3.7. 2015. SD/ - SD/ - ( VIJAY PAL RAO ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 3.7. 201 5 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT - 4. / 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI