ACIT, Circle-3(1), Dhule V. M/s. Shrikrishna Khandsary Sugar Mill, Nandurbar

ITA 995/PUN/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5232 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 18-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RA J IV HARIT
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 995/PN/2012 (ASSTT.YEAR : 2009-10) ACIT, CIRCLE-3(1), AAYKAR BHAVAN, SAKRI ROAD, DHULE. .. APPELLANT VS. M/S. SHRIKRISHNA KHANDSARY SUGAR MILLS, S.NO.153, AKALKUWA ROAD, TALODA, DISTRICT : NANDURBAD .. RESPONDENT PAN NO.AAGFS 1508P APPELLANT BY : SHRI RAJIV HARIT RESPONDENT BY : SHRI SUNIL GANOO DATE OF HEARING : 26-07-2013 DATE OF PRONOUNCEMENT : 13-08-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 05-03-2012 OF THE CIT(A) I, NASHIK RELATING TO ASS ESSMENT YEAR 2009-10. 2. GROUND OF APPEAL NO.1 BY THE REVENUE READS AS UN DER : 1. THE LD.CIT(A) ERRED IN FACTS AND IN LAW IN DELE TING THE DISALLOWANCE OF RS.40,09,551/- MADE ON ACCOUNT OF D EDUCTION CLAIMED U/S.80IA(4)(IV)(A) OF THE I.T. ACT. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED FROM THE POWER MANUFAC TURING, TRADING, AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31-03-2009 THAT THE ASSESSEE IS SELLING STEAM AND POWER TO M/S. SHRIKRISHNA KHANDSA RI SUGAR MILL (OWN MILL). ON PERUSAL OF THE ACCOUNTS OF SHRIKRISHNA P OWER MILLS UNIT-II HE OBSERVED THAT THE ASSESSEE IS CLAIMING DEDUCTION U/ S.80IA(4)(IV)(A) OF THE 2 INCOME TAX ACT TO THE TUNE OF RS.69,97,472/-. FROM THE AUDIT REPORT IN FORM 10CCB HE OBSERVED THAT OUT OF THE SALE OF RS.1 ,77,40,174/- THE ASSESSEE IS SELLING STEAM OF RS.1,01,66,625/- AND E LECTRICITY OF RS.75,73,549/- TO KHANDSARI UNIT RELATED TO POWER M ANUFACTURING TRADING AND PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER CHAPTER VI-A (U/S.80IA) OF RS.69,97,472/-. HE OBSERVED THAT AS PER POWER MANUFACTURING, TRADING AND PROFIT AND LOSS AC COUNT THE TOTAL RECEIPT WAS SHOWN AT RS.1,77,40,174/- (SALE OF STEA M RS.1,01,66,625 + SALE OF ELECTRICITY RS.75,73,549/-) AND NET PROFIT WORKS OUT TO RS.69,97,472/-. HE OBSERVED FROM THE KHANDSARI MANUFACTURING ACCOUN T THAT THE STEAM GENERATED IN POWER UNIT WAS SOLD TO KHANDSARI UNIT (OWN-UNIT) AND INCOME GENERATED BY SALE OF STEAM WAS TAKEN TO POWER UNIT. THUS PROFIT ON WHICH THE DEDUCTION OF RS.69,97,472/- WAS COMPUTED INCLUD ED RECEIPT OF RS.1,01,66,625/- TOWARDS SALE OF STEAM NOT DIRECTLY ACCRUING FROM THE BUSINESS OF THE ASSESSEE. THEREFORE, CONSIDERING P ROPORTIONATE EXPENDITURE THE AO DISALLOWED AN AMOUNT OF RS.40,09,551/- BEING EXCESS DEDUCTION CLAIMED AND ADDED THE SAME TO THE TOTAL INCOME OF T HE ASSESSEE. 2.2 IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE BY HOLDING AS UNDER : 5.3 I HAVE CAREFULLY CONSIDERED THE ENTIRE FACTS OF THE CASE, THE ASSESSMENT -ORDER, AND ALSO CONSIDERED THE SUBM ISSION OF THE APPELLANT AND ARGUMENTS A.RS. AS CITED SUPRA, ASSESSING OFFICER HAS PARTLY DISALLOWED THE CLAIMED U/S. U/S.80-IA(4) (I V)(A) OF THE I. T. ACT. WHILE DOING SO, IT IS INTER ALIA STATED THAT ' THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER CHAPTER VI-A (U/S.80IA) OF RS.69,97,472/-. AS PER POWER MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT TOTAL RECEIPT WAS SHOWN RS.1,77,40 ,174/-(SALE OF STEAM RS.1,01,66,625+ SALE OF ELECTRICITY RS.75,73, 549/-) AND NET PROFIT IS WORKS OUT TO RS.69,97,472/-. IT IS SEEN F ROM THE KHANDSARI MANUFACTURING ACCOUNT THAT THE STEAM GENERATED IN P OWER UNIT WAS SOLD TO KHANDSARI UNIT (OWN-UNIT) AND INCOME GENERA TED BY SALE OF 3 STEAM WAS TAKEN TO POWER UNIT. THUS PROFIT ON WHICH THE DEDUCTION OF RS.69,97,472/- WAS COMPUTED INCLUDED RECEIPT OF RS.1,01,66,625/- TOWARDS SALE OF STEAM NOT DIRECTLY ACCRUING FROM THE BUSINESS OF THE ASSESSEE. THEREFORE, PROPORTION ATELY CONSIDERING THE EXPENDITURE, THE AMOUNT OF RS.40,09,551/- CONSI DERED AS EXCESS DEDUCTION CLAIMED IS HEREBY DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE.' 5.3.1 I HAVE ALSO GONE THROUGH THE SUBMISSION FI LED BY THE APPELLANT BEFORE A.O. VIDE DT: LETTERS DT.26-07-201 1; 08-11-2011 AND 09-12-2011, COPIES OF WHICH ARE SUBMITTED BY THE AP PELLANT CITED SUPRA. I HAVE ALSO GONE THROUGH THE COPIES OF THE A SSESSMENT ORDERS FOR A.YRS. A. YRS. 2002-03; 2003-04; 2004-05; 2005- 06 & 2006-07, WHICH ARE FILED BY THE APPELLANT CITED SUPRA, WHERE IN UNDER THE SIMILAR SET OF FACTS AND CIRCUMSTANCE OF THE CASE, SUCH DEDUCTION U/S/80 IA(4) (IV)(A) OF THE I T ACT WAS ALLOWED BY THE DEPARTMENT IN THE APPELLANT'S OWN CASE ITSELF, IN RESPECT OF PROF IT EARNED ON GENERATION OF POWER OF SALE OF STEAM. 5.3.2 A.O HAS NEITHER GIVEN ANY COGENT REASONS F OR SUCH DISALLOWANCE OF CLAIM OF DEDUCTION U/S. U/S.80-IA(4 ) (IV)(A) OF THE I T ACT IN RESPECT OF PROFIT EARN ON GENERATION OF POWE R OF SALE OF STEAM, NOR POINTED OUT ANY VIOLATION OF THE SAID PROVISION OR NON FULFILLMENT OF ANY CONDITION TO ALLOW THE DEDUCTION CLAIMED U/S . 80-IA(4) (IV)(A) OF THE I T ACT. 5.3.3 I FURTHER FIND THAT A.O HAS NOT POINTED OU T ANY THING AS TO HOW STEAM IS NOT A POWER AND NOT ELIGIBLE FOR DE DUCTION U/S.80- IA(4) (IV)(A) OF THE I T ACT. MERELY BECAUSE OF, A. O OBSERVED, THAT THE STEAM GENERATED IN POWER UNIT WAS SOLD TO KHANDSARI UNIT (OWN- UNIT) AND INCOME GENERATED BY SALE OF STEAM WAS TAK EN TO POWER UNIT, AND PROFIT ON WHICH THE DEDUCTION OF RS.69,97 ,472/- WAS COMPUTED INCLUDED RECEIPT OF RS.1,01,66,625/- TOWAR DS SALE OF STEAM NOT DIRECTLY ACCRUING FROM THE BUSINESS OF THE ASS ESSEE, AND HENCE, THE DEDUCTION CLAIMED THEREON TO PROPORTIONATELY OF RS.40,09,551/-, CANNOT BE DISALLOWED . 5.4.4 IT IS PERTINENT TO NOTE HERE THAT UNDER THE SIMILAR SET OF FACTS AND CIRCUMSTANCE OF THE CASE, SUCH DEDUCTION U/S.80-IA(4) (IV)(A) OF THE I T ACT WAS ALLOWED BY THE DEPARTMENT IN THE APPELLANT'S OWN CASE IT-SELF, AS CAN BE OBSERVED FROM THE COPIES OF ASSESSMENT ORDERS OF EARLIER YEARS, REFERRED ABOVE. FURTHER, I HAVE C AREFULLY GONE THROUGH THE DECISIONS CITED SUPRA RELIED UPON BY TH E APPELLANT, AND I AM OF THE CONSIDERED OPINION THAT THE DEDUCTION CLA IMED BY THE APPELLANT ON GENERATION OF STEAM -POWER IS ALSO CERTAINLY ELIGIBLE FOR DEDUCTION U/S.80-IA(4) (IV)(A) OF THE I T ACT. THE HON SUPREME COURT IN CIT VS. TANFACT INDUSTRIES LTD S.L.P (C)NO .18537 OF 2009 REPORTED IN [2009] 319 ITR (ST) WHEREIN, WHILE APPL YING SECTION 80IA 4 OF INCOME TAX ACT, THE HON SC TOOK A VIEW THAT THE VALUE OF STEAM USED FOR CAPTIVE CONSUMPTION BY ASSESSEE WAS ENTITL ED TO BE DEDUCTED UNDER SECTION 80-IA OF THE ACT. AS SUCH IT IS CERTA INLY SETTLED POSITION OF LAW, THAT APPELLANT IS CERTAINLY ELIGIBLE FOR DE DUCTION UNDER SECTION 80-IA OF THE ACT, FOR THE VALUE OF STEAM USED FOR C APTIVE CONSUMPTION BY APPELLANT ASSESSEE. 5.4.5 CONSIDERING ENTIRE FACTS AND PRINCIPLES LAI D DOWN IN THE DECISION, I AM OF THE OPINION THAT IT IS SETTLED PO SITION OF LAW THAT THE ENERGY IS CAPACITY TO DO WORK. IN THIS CASE, THE ST EAM DEFINITELY PRODUCES THERMAL ENERGY, WHICH EVAPORATES WATER FRO M CANE JUICES TO PRODUCE SUGAR. THEREFORE, STEAM PRODUCED/EXTRACT ED FROM TURBINE HAS A CAPACITY OF PRODUCING THERMAL ENERGY WHICH EV APORATES WATER FROM SUGARCANE JUICES TO PRODUCE SUGAR, AND 'CAN DE FINITELY BE QUALIFIED AS POWER', AND THEREFORE, DEFINITELY BE E LIGIBLE FOR THE BENEFIT AVAILABLE UNDER S. 80-IA(IV). ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE, I FIND THAT THE OBSERVATI ONS OF THE ASSESSING OFFICER THAT IT IS ONLY THE ELECTRICAL FORM OF ENER GY WHICH QUALIFIES FOR DEDUCTION UNDER S. 80-IA, IS NOT CORRECT ESPECIALLY WHEN THE LEGISLATURE HAS NOT USED THE WORD ELECTRICITY'. TH E VARIOUS COURTS HAVE DEFINED THE 'STEAM' TO BE A FORM OF POWER AND EQUATED THE SAME WITH POWER OR AT PAR WITH POWER. UNDER THE CIR CUMSTANCE, DISALLOWANCE OF CLAIM CANNOT BE SUSTAINED. THEREFOR E, ADDITION MADE BY THE A.O OF RS.40,09,551/- IS HEREBY DELETED. THI S GROUND OF APPEAL IS, THEREFORE, ALLOWED. 2.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 2.4 THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RE LIED ON THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT THE LD.CI T(A) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT DEDUCTION HAS BE EN ALLOWED IN EARLIER ASSESSMENT YEARS BY THE DEPARTMENT, THAT STEAM USED FOR CAPTIVE CONSUMPTION BY ASSESSEE WAS ENTITLED TO DEDUCTION, THAT STEAM CAN DEFINITELY BE QUALIFIED AS POWER AND THAT STEAM EQU ATED WITH POWER OR AT PAR WITH POWER. HE SUBMITTED THAT THE ORDER OF CIT(A) IS ERRONEOUS SINCE HE HAS NOT APPRECIATED PROPERLY SUB-SECTION 5 OF SECTI ON 80IA OF THE I.T.ACT. WHICH READS AS UNDER: 5 NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT , THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (I) APPLY SHALL , FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UN DER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUC CEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSES SMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT , ASSESSMENT YEAR UPTO AND INCLUDING THE ASSESSMENT YEAR FOR WHI CH THE DETERMINATION IS TO BE MADE.' 2.5 HE SUBMITTED THAT THE ASSESSEE IS DERIVING INCO ME FROM DIFFERENT SOURCES I.E. ON SALE OF ELECTRICITY AND ON SALE STE AM. THE SALE PROCEEDS OF STEAM DOES NOT DIRECTLY ACCRUE FROM THE BUSINESS OF ASSESSEE. THEREFORE, IN VIEW OF THE ABOVE PROVISION, THE LD. CIT(A) SHOULD HAVE UPHELD THE ORDER OF THE AO. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) BE SET-ASIDE AND THAT OF THE AO BE RESTORED. 3. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT UNDER I DENTICAL FACTS AND CIRCUMSTANCES THE DEPARTMENT, IN THE PRECEDING YEAR S, HAS ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, THERE SHOULD NOT BE AN Y DEVIATION. HE ALSO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TANFACT INDUSTRIES LTD. WHEREIN THE HONBLE HIGH C OURT HAS DISMISSED THE APPEAL FILED BY THE DEPARTMENT AGAINST THE DECISION OF THE TRIBUNAL HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U /S.80IA OF THE ACT ON THE VALUE OF STEAM USED FOR CAPTIVE CONSUMPTION OF THE ASSESSEE. HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS DISMISSED THE SL P FILED BY THE REVENUE. HE ACCORDINGLY SUBMITTED THAT THE ORDER O F LD.CIT(A) BEING IN ACCORDANCE WITH LAW BE UPHELD. HE ALSO RELIED ON T HE DECISION OF MUMBAI 6 BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DCW LTD. VS. ADDL. CIT & VICE VERSA REPORTED IN 2010-TIOL-489-ITAT-MUMBAI. 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING O FFICER DISALLOWED THE CLAIM OF DEDUCTION U/S.80IA(4) ON THE GROUND THAT T HE PROFIT ON WHICH THE DEDUCTION OF RS.69,97,472/- COMPUTED INCLUDES RECEI PT OF RS.1,01,66,625/- TOWARDS SALE OF STEAM NOT DIRECTLY ACCRUING FROM TH E BUSINESS OF THE ASSESSEE. THEREFORE, AFTER CONSIDERING PROPORTIONA TE EXPENDITURE THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.40,09, 551/- AS EXCESS DEDUCTION. FROM THE VARIOUS DETAILS FURNISHED BY T HE ASSESSEE BEFORE THE LD.CIT(A) WE FIND SIMILAR CLAIM OF THE ASSESSEE WAS ALLOWED BY THE REVENUE IN THE PRECEDING ASSESSMENT YEARS, I.E. A.Y . 2003-04 TO 2006-07 IN SCRUTINY ASSESSMENTS. WE FIND THE HONBLE MADRAS H IGH COURT IN THE CASE OF CIT VS. TANFACT INDUSTRIES LTD. HAS UPHELD THE D ECISION OF THE TRIBUNAL HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DED UCTION U/S.80IA OF THE ACT ON THE VALUE OF STEAM USED FOR CAPTIVE CONSUMPT ION. FOLLOWING THE ABOVE DECISION THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DCW LTD. VS. ADDL. CIT (SUPRA) HAS HELD THAT STEAM PROD UCED BY THE ASSESSEES ELIGIBLE UNIT IS A BY-PRODUCT AND INCOME FROM SALE OF STEAM IS THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND ACCORDI NGLY DEDUCTION U/S.80IA WAS ALLOWED. IN VIEW OF THE ABOVE DECISIONS AND CO NSIDERING THE FACT THAT THE DEPARTMENT WAS ALLOWING SUCH CLAIM OF THE ASSES SEE IN THE PRECEDING ASSESSMENT YEARS IN SCRUTINY ASSESSMENT WE FIND NO INFIRMITY IN THE ORDER OF LD.CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE. WE, THEREFORE, UPHOLD THE 7 ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUND RA ISED BY THE REVENUE IS DISMISSED. 5. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS UN DER : 2. THE LD.CIT(A) ERRED IN FACTS AND IN LAW IN DELE TING THE DISALLOWANCE OF RS.3,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE INCURRED IN RESPECT OF INCOM E OF UNIT ELIGIBLE FOR DEDUCTIBLE UNIT BUT DEBITED UNDER THE P&L ACCOU NT OF KHANDSARI UNIT (NON DEDUCTION UNIT). 5.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT IN T HE PROFIT AND LOSS ACCOUNT OF POWER UNIT-II ASSESSEE HAS DEBITED VERY SMALL AMOUNT TOWARDS THE ADMINISTRATIVE EXPENSES. HE OBSERVED THAT NO S ALARY EXPENSES, TELEPHONE EXPENSES, AUDIT FEE EXPENSES HAS BEEN DEB ITED IN THE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNIT. FURTHER THE EXA CT BIFURCATION OF EXPENSES IN RESPECT OF INCOME OF DEDUCTIBLE UNIT AND NON DED UCTIBLE UNIT IS NOT ASCERTAINABLE. HENCE HE DISALLOWED AN AMOUNT OF RS .3,00,000/- ON ADHOC BASIS BEINGS LAID OUT FOR THE PURPOSE OF DEDUCTIBLE INCOME FROM THE KHANDSARI UNIT AND ADDED TO THE TOTAL INCOME. 5.2 IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE BY HOLDING AS UNDER : 6.3 I HAVE CAREFULLY CONSIDERED THE ENTIRE FACTS O F THE CASE, THE ASSESSMENT ORDER, AND ALSO CONSIDERED THE SUBMISSIO N OF THE APPELLANT AND ARGUMENTS A.R'S. AS CITED SUPRA, WHIL E DISALLOWING AN AMOUNT OF RS.3,00,000/-, IT IS INTER ALIA STATED BY A.O THAT :' IT HAS BEEN OBSERVED THAT IN THE PROFIT AND LOSS ACCOU NT OF POWER UNIT -II, THE ADMINISTRATIVE EXPENSES IS DEBITED VERY SM ALL AMOUNT. IT HAS BEEN OBSERVED THAT NO SALARY EXPENSES, TELEPHON E EXPENSES, AUDIT FEE EXPENSE, CAR EXPENSES ETC HAVE BEEN DEBIT ED IN THIS ACCOUNT. SINCE THE EXACT BIFURCATION OF EXPENSES IN RESPECT OF INCOME DEDUCTIBLE UNIT AND NON DEDUCTIBLE UNIT IS NOT ASCE RTAINABLE, AND HENCE AN AMOUNT OF RS.3,00,000/-ON THIS ACCOUNT IS CONSIDERED AS LAID OUT FOR THE PURPOSE OF DEDUCTIBLE INCOME BUT D EBITED UNDER 8 THE PROFIT AND LOSS ACCOUNT OF KHANDSARI UNIT, IS H EREBY DISALLOWED AND ADDED TO THE TOTAL INCOME. I HAVE ALSO GONE THROUGH THE SUBMISSION FILED BY TH E APPELLANT BEFORE A.O VIDE LETTERS DT. LETTERS DT.26 -07-2011; 08-11- 2011 AND 09-12-2011, COPIES OF WHICH ARE SUBMITTED BY THE APPELLANT CITED SUPRA. IT IS OBSERVED FROM THE ASSE SSMENT ORDER THAT THE APPELLANT HAS MAINTAINED SEPARATE SETS OF BOOKS OF ACCOUNTS AND RECORDS OF EXPENDITURE OF EACH UNIT SEPARATELY. THE ASSESSING OFFICER HAS NOT SPECIFICALLY PINPOINTED WHICH EXPEN DITURE ARE PERTAINS TO THE POWER UNITS AND REQUIRES TO BE DISA LLOWED. IT IS ALSO OBSERVED THAT THE ID. A.O HAS MADE AD-HOC DISA LLOWANCES, ASSUMING THAT THE EXPENDITURE DEBITED TO THE KHANDS ARI UNIT AND TOLL UNIT AND OTHER UNITS ARE INCLUSIVE OF EXPENSES PERTAINING TO THE POWER UNIT -II, AND DISALLOWED AD-HOC EXPENSES OF R S. 3,00,000/- OUT OF KHANDSARI UNIT, WITHOUT ANY COGENT REASONS. UNDER THE CIRCUMSTANCES, CONSIDERING THE PRINCIPLES LAID DOWN IN THE ABOVE CITED DECISIONS RELIED UPON BY THE APPELLANT, THE A D-HOC DISALLOWANCE MADE BY THE A.O CANNOT BE SUSTAINED. THEREFORE, ADDITION MADE BY THE A.O OF RS. 3,00,000/- IS HEREB Y DELETED. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. 5.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 5.4 THE LD. DEPARTMENTAL REPRESENTATIVE WHILE SUPPO RTING THE ORDER OF THE AO SUBMITTED THAT THE CIT(A) DELETED THE ADDITI ON ON THE GROUND THAT AO HAS NOT PIN POINTED WHICH EXPENDITURE WAS PERTAI NING TO POWER UNIT-II AND THE ADDITION WAS WITHOUT COGENT REASONS. HE SU BMITTED THAT IN THE P&L ACCOUNTS OF UNIT II THE ASSESSEE HAS DEBITED THE EX PENSE OF RS.82,43,374/- WHICH EXCLUDES DEPRECIATION OF RS. 2,499,328/- AND INCLUDES BAGGASE PURCHASE OF RS. 62,30,000/-THUS, IF THE BAGGASE PUR CHASE OF RS.62,30,000/- IS EXCLUDED, THE BALANCE EXPENSES DEBITED REMAINS A T RS.20,13,374/- WHICH IS ABOUT 12% OF THE GROSS PROCEEDS WHEREAS IN THE I NELIGIBLE UNIT SUCH RATIO IS ON THE HIGHER SIDE. 9 5.5 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT AO HAS NOT P INPOINTED ANY DEFECTS IN THE BOOKS OF ACCOUNTS, THEREFORE, NO DISALLOWANC E SHOULD HAVE BEEN MADE. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS NOT DEBITED ANY EXPENSES TOWARDS SALARY, TELEPH ONE, AUDIT FEE ETC. IN THE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNIT AND TH E ENTIRE EXPENSES ON THE ABOVE HEADS HAVE BEEN DEBITED TO THE PROFIT AND LOS S ACCOUNT OF THE INELIGIBLE UNIT. WE DO NOT FIND MUCH FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE NO DEFECTS WERE POINTED OUT BY THE ASSESSING OFFICER, NO ADDITION SHOULD HAVE BEEN MAD E. IN OUR OPINION, WITHOUT THE ASSISTANCE OF THE STAFF/EMPLOYEES THE B USINESS OF THE ELIGIBLE UNIT CANNOT BE RUN. THEREFORE, SOME EXPENDITURE TO WARDS SALARY, TELEPHONE ETC. SHOULD HAVE BEEN DEBITED TO THE PROFIT AND LOS S ACCOUNT OF THE ELIGIBLE UNIT. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT SOME REASONABLE AMOUNT SHOU LD HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF THE AB OVE HEADS. SINCE THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS.3 LAKHS WHICH IN OUR OPINION IS JUST AND REASONABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFORE, WE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTIN G TO RS.3 LAKHS IS UPHELD. THIS GROUND BY THE REVENUE IS ACCORDINGLY ALLOWED. 10 7. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS UN DER : 3. THE LD.CIT(A) ERRED IN FACTS AND IN LAW IN DELE TING THE DISALLOWANCE OF RS.1,15,875/- ON ACCOUNT OF INTERES T DEBITED UNDER P&L ACCOUNT. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED FROM THE BALANCE SHEET THAT THE ASSESSEE HAS GIVEN INTEREST FREE HAND LOAN TO SHRI DEVKINANDAN J AJODIYA RS.1,73,750/-, BODHANI KANIYA ACHUTRAO RS.1,50,000/-, KISAN SONU A HIRRAO RS.20,000/-, OMPRAKASH SHYAMLAL RS. 1,50,000/-, RAMESH M. CHHAJ ED RS.1,00,000/- AND BHAGVATI PRASAD KISANLAL RS.50,000/-. HE OBSER VED THAT THE ASSESSEE IS PAYING INTEREST ON THE BORROWED AMOUNT AND ALSO CHA RGING INTEREST @18% FROM OTHER PERSON, I.E. VINOD PRABHUDAYAL AGRAWAL @ 18%. THEREFORE, HE DISALLOWED AN AMOUNT OF RS.1,75,878/- BEING INTERES T @18% ON RS.6,43,750/-. 7.2 IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE BY HOLDING AS UNDER : 7.3 I HAVE CAREFULLY CONSIDERED THE ENTIRE FACTS OF THE CASE, THE ASSESSMENT ORDER, AND ALSO CONSIDERED THE SUBMISSIO N OF THE APPELLANT AND ARGUMENTS A.RS. AS CITED SUPRA, WHILE DISALLO WING AN AMOUNT OF RS.1,15,875/-, IT IS INTER ALIA STATED BY AO THAT ASSESSEE IS PAYING INTEREST ON AMOUNT BORROWED AS WELL AS CHARGING THE INTEREST AT 18% FROM OTHER PERSONS, I.E. VINOD PRABHUDAYAL AGRAWAL AT 18 %. THEREFORE, INTEREST AT 18% ON RS.6,43,750/ COMES TO RS.1,15,87 5/- WHICH IS REDUCED FROM THE INTEREST DEBITED UNDER PROFIT AND LOSS ACCOUNT AND ACCORDINGLY DISALLOWED AND ADDED TO THE TOTAL INCOM E. 7.3.1 I FIND FROM THE SUBMISSION OF THE APPELLATE THAT APPELLANT HAS GIVEN THE ABOVE STATED INTEREST FREE ADVANCES DURING THE FINANCIAL YEAR 2002-03, RELEVANT TO ASSESSMENT YEA R 2003-04. 1 FURTHER OBSERVED THAT THE THEN A.O HAS NOT DISALLOW ED UNDER THE SIMILAR SET OF FACTS, IN SCRUTINY ASSESSMENT ORDER ORDERS PASSED FOR A. YRS. 2003-04; 2004-05; 2005-06; 2006-07; 2007-08 & 2008-09, COPIES OF WHICH ARE FILED BY THE APPELLANT ON RECOR D WITH SUBMISSION. 11 7.3.2. FURTHER THE A.O HAS NOT ESTABLISHED ANY NEX US THAT INTEREST BEARING FUNDS WERE UTILIZED FOR THE ABOVE GIVEN AMOUNTS. THEREFORE, DISALLOWANCE MADE OUT OF INTEREST PAID C ANNOT BE SUSTAINED. 7.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 7.4 THE LD. DEPARTMENTAL REPRESENTATIVE WHILE SUPPO RTING THE ORDER OF THE AO SUBMITTED THAT SINCE THE ASSESSEE IS PAYING INTEREST @18% ON UNSECURED LOANS, THEREFORE, GIVING ADVANCES FREE OF INTEREST IS BEYOND HUMAN PROBABILITIES AND AGAINST COMMERCIAL EXPEDIEN CY. THEREFORE, THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITIO N. FURTHER, THE LD.CIT(A) HAS NOT GIVEN ANY FINDING AS TO WHETHER T HE ASSESSEE WAS HAVING ANY INTEREST FREE FUNDS AVAILABLE TO IT. IT IS NOT KNOWN AS TO WHETHER IN THE PAST THE AO HAS AT ALL EXAMINED THIS ISSUE WHICH FO RMED THE BASIS FOR DELETING THE ADDITION BY THE LD.CIT(A). HE ACCORDI NGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET-ASIDE AND THAT OF THE AO BE RESTORED. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO RELIED ON THE DECI SION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHIS HEK INDUSTRIES LTD. REPORTED IN 286 ITR 1. 7.5 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) RELIED ON THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE PETROPRODUCTS LTD. RE PORTED IN 313 ITR 340. HE SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT FUNDS FOR GIVING INTEREST FREE ADVANCES TO ITS SISTER CONCERNS, THEREFORE, NO DISALLOWANCE IS CALLED FOR. 12 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST FROM THE LOANS GIVEN T O VARIOUS PERSONS AMOUNTING TO RS.6,43,750/- FOR WHICH THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.1,15,875/- BEING INTEREST @18% WHICH T HE ASSESSEE IS PAYING ON THE BORROWED FUNDS AND ALSO CHARGING AT THE SAME RATE FROM VINOD PRABHUDAYAL AGRAWAL. WE FIND THE LD.CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS GIVEN THE INTEREST FREE ADVANCES DURING F.Y. 2002-03 AND NO DISALLOWANCE WAS MADE IN THE SCRUTIN Y ASSESSMENT ORDERS PASSED FOR A.YRS. 2003-04 TO 2008-09. HE ALSO OBSE RVED THAT THE AO HAS NOT ESTABLISHED ANY NEXUS THAT INTEREST BEARING FUN DS WERE UTILIZED FOR THE ABOVE GIVEN AMOUNTS. 8.1 IT IS THE ARGUMENT OF THE LD. DEPARTMENTAL REPR ESENTATIVE THAT IT IS NOT KNOWN AS TO WHETHER THE AO HAS EXAMINED THE ABO VE ISSUE WHICH FORMED THE BASIS FOR DELETING THE ADDITION. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS HAVING SUFFIC IENT INTEREST FREE FUNDS FOR GIVING INTEREST FREE ADVANCES TO THE ABOVE NAMED PE RSONS AND THEREFORE NO DISALLOWANCE IS CALLED FOR. THE LD. DEPARTMENTAL R EPRESENTATIVE COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LD.CIT(A) THAT SUCH INTEREST FREE ADVANCES WERE GIVEN DURING F.Y. 2002-03 RELEVANT TO A.Y. 2003-04 AND NO DISALLOWANCE OF INTEREST HAS BEEN MADE IN THE SCRU TINY ASSESSMENT ORDERS PASSED FOR A.Y. 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 AND 2008-09 RESPECTIVELY. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST SINCE THE AO IN THE PRECEDING 13 ASSESSMENT YEARS HAS CONSISTENTLY ACCEPTED THE INTE REST FREE ADVANCES GIVEN TO VARIOUS PERSONS AND NO SUCH DISALLOWANCE HAS BEE N MADE. NOTHING CONTRARY WAS BROUGHT TO OUR NOTICE BY THE LD. DEPAR TMENTAL REPRESENTATIVE AGAINST THE ORDER OF THE CIT(A). 8.2 WE FURTHER FIND FROM THE ASSESSMENT ORDER THAT THE AO WHILE DISCUSSING THE ISSUE AT PARA 5.3 OF THE ORDER HAS N OT ASKED THE ASSESSEE TO EXPLAIN THE AVAILABILITY OF INTEREST FREE FUNDS OR THE NEXUS OF INTEREST BEARING FUNDS BEING DIVERTED FOR INTEREST FREE ADVANCES. T HERE IS NO WHISPER IN THE ORDER AS TO WHETHER THE AO HAS AT ALL CONFRONTED TH E ASSESSEE ON THIS ISSUE. THEREFORE, UNDER THE PECULIAR FACTS AND CIRCUMSTANC ES OF THE CASE WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE D ISALLOWANCE. WE ACCORDINGLY UPHOLD THE SAME AND GROUND RAISED BY TH E REVENUE IS DISMISSED. 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 13 TH DAY OF AUGUST 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 13 TH AUGUST 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, NASHIK 4. THE CIT-I, NASHIK 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE