THE ASSISTANT COMMR. OF INCOME TAX, GANDHIDHAM CIRCLE, GANDHIDHAM-KUTCH V. M/S KUTCH SALT & ALLIED INDUSTRIES LTD., GANDHIDHAM-KUTCH

ITA 366/RJT/2017

AI Insights

The case involves a series of appeals by the Assistant Commissioner of Income Tax, Gandhidham Circle against M/s. Kutch Salt & Allied Industries Ltd., concerning multiple assessment years. The primary issues revolved around the disallowance of various expenses and losses claimed by the assessee, which the assessing officer had added back to the income of the assessee. The Tribunal examined each ground of appeal, including handling losses, interest disallowances, and other business expenses, and found in favor of the assessee based on the submissions and evidence provided, leading to the dismissal of the revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 40485 (ITAT-RAJKOT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Other Referred Cases: Kandla Exports Corporation, Saurashtra Cement & Chemical Industries Ltd., Mahindra Mills Ltd., R.L. Kalthia Engineering & Automobiles (P.) Ltd., Shree Rama Multi Tech Ltd., Samrat Rice Mills (P.) Ltd., Punjab Stainless Steel Inds. V. CIT, Orissa Cement Ltd., H.R. Sugar Factory (P.) Ltd., A. Murali & Co. (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K. C. THACKER; LD
• Assessee Lawyers: SANJAY PUNGLIA; LD
• Keywords: Business income; Additional evidence; Revised return; Revenue expenditure; Business expenditure; Question of law; Depreciation; Rejection of books of accounts; Onus to prove; Commercial expediency; Gift; Capital expenditure; TDS; Wrong claim; Source of fund; Advance ruling; Competent authority; Charitable institution; Non-deduction of tax; Maximum Marginal Rate; Bogus
• Section: 144; 143(3); 195; 64; 48; 43; 22; 13; 37; 36 (1) (iii); 44AB; 37(1); 40(a)(ia); 145(3); 9(1); 9(1); 9(1); 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER IT (SS)A No.233& 234 & 235 & 236 /Rjt/2016 Assessment Year: (2009-10 to 2012-13) (Hybrid Hearing) Asstt. Commissioner of Income Tax, Gandhidham Circle, Gandhidham - Kutch Vs. M/s. Kutch Salt & Allied Industries Ltd., Maitri Bhavan, Plot No.-18, Sector-8, Gandhidham - Kutch Öथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAACT1769L (Appellant) (Respondent) ITA No. 366 /Rjt/2017 Assessment Year: (2013-14) (Hybrid Hearing) Asstt. Commissioner of Income Tax, Gandhidham Circle, Gandhidham - Kutch Vs. M/s. Kutch Salt & Allied Industries Ltd., Maitri Bhavan, Plot No.-18, Sector-8, Gandhidham – Kutch Öथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAACT1769L (Appellant) (Respondent) CO No. 23 & 24 & 25 & 26 /Rjt/2016 Assessment Year: (2009-10 to 2012-13) (Hybrid Hearing) M/s. Kutch Salt & Allied Industries Ltd., Maitri Bhavan, Plot No.-18, Sector-8, Gandhidham - Kutch Vs. Asstt. Commissioner of Income Tax, Gandhidham Circle, Gandhidham – Kutch Öथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAACT1769L (Appellant) (Respondent) Appellant by : Shri K. C. Thacker, Ld. A.R. Respondent by : Shri Sanjay Punglia,Ld.CIT (DR) Date of Hearing : 20/02/2025 Date of Pronouncement : 17/03/2025 Page | 2 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 आदेश / O R D E R Per Bench, This is bunch of nine appeals, out of that five appeals filed by the Revenue and four Cross objections filed by the assessee, pertaining to assessment years 2009-10 to 2013-14, all these appeals filed by the Revenue and Cross Objections filed by the assessee, are directed against the separate orders passed by the Commissioner of Income Tax (Appeals), which in turn arise out of separate assessment orders, passed by the assessing officer, under sections 143(3) r.w.s. 153A(1) (b)/143(3) of the Income Tax Act, 1961,( hereinafter referred to as “the Act”). 2. Since, these five appeals filed by the Revenue and four cross objections of assessee, pertain to the same assessee and identical and common issues are involved, therefore, these appeals of revenue and cross objections of assessee, have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. Although, these appeals filed by the Revenue and Cross-Objections filed by the Assessee, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Revenue as well as cross objections raised by the Assessee. Most of the grounds raised by the Revenue as well as Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of Revenue and the Assessee as well. With this background, we summarize and concise the grounds raised by the Revenue as well as Assessee as follows: (i) Ground No.1. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of washing/ handling loss of salt of Rs.2,67,03,424/-. Page | 3 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 This is Ground No.1 of Revenue`s appeal for assessment year 2009-10 in ITA No. 233/Rjt/ 2016. The above similar and identical ground is raised by the revenue, in other appeals, which are as follows: (a) Ground No.1, in Revenue`s appeal in ITA No.234/Rjt/2016, for assessment year 2010–11, at Rs.5,11,72,998/-. (b) Ground No. 1 in Revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year, 2011–12, at Rs. 5,03,65,370/-. (c ) Ground No.1 in Revenue`s appeal in ITA No. 236/RJT/ 2016, for assessment year 2012–13 at Rs.5,96,99,728/-. (d) Ground No.2 in Revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14, at Rs.9,63,60,980/-. (ii) Ground No.2. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of purchase of group concern of Rs.2,76,70,570/-. This is ground No. 2 of Revenue`s appeal in ITA No. 233/RJT/ 2016 for assessment year 2009 –10. [ There is similar ground No.2 in revenue`s appeal in ITA No.234/RJT/2016, at Rs.3,54,67,402/- (iii). Ground No.3. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of interest under section 36(1)(iii) of Rs.3,16,82,477/- though the assessee had made interest free advances out of interest bearing funds. This is ground No.3 of revenue`s appeal in ITA No. 233/RJT/2016 for assessment year 2009–10. Similar and identical grounds in other appeals of the revenue are as follows: (a)Ground No.3 in revenue`s, appeal in ITA No. 234/RJT/2016, at Rs.2,11,59,251/-. (b). Ground No.2 in revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year 2011–12, at Rs.1,75,45,575/-. (c ) Ground No.2 in revenue`s appeal in ITA No.236/RJT/ 2016, for assessment year 2012–13 at Rs.88,53,458/-. (d) Ground No.1 in revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14 at Rs.1,13,85,927/-. (iv) Ground No.4. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of Brokerage/ Commission expenses of Rs.1,76,35,013/-. [This is ground No.3 of revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year 2011– 12]. (v) Ground No.5. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of iron-ore expenses of Rs.55,89,166/- [ This is ground No.4 of Revenue`s appeal in ITA No. 235/RJT/2016, for assessment year 2011–12] (vi) Ground No.6. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of sale made to group concern of Rs.33,56,700/-. [ This is ground No.5, Page | 4 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 of revenue`s appeal in ITA No. 235/ RJT/2016, for assessment year 2011–12, and Ground No.3, in revenue`s appeal in ITA No. 236/RJT/2016, for assessment year 2012– 13, at Rs.2,29,30,740/-] (vii) Ground No.7. The ld. CIT(A) has erred in law and on facts in allowing the lumpsum amount paid for facilitating access to windmill amounting to Rs.29,78,100/-, to be amortized for the period of 20 years, which comes to Rs.1,48,905/- per year ( 2978100/20) [ This ground No.3, is raised by the revenue, in ITA No. 366/RJT/2017, for assessment year 2013–14.] (viii) Ground No.8. The ld. CIT(A) has erred in law and on facts in allowing the Service Tax relatable to rejection of refund of service tax in the previous year, relevant to the year, under appeal, amounting to Rs.18,27,557/-, without appreciating the fact that this is a prior period expenses. [This is ground No.4 of revenue`s appeal in ITA No.366/RJT/2017, for assessment year 2013-14]. 4. The summarized and concise grounds of cross objections of the assessee are as follows: (i) Ground No.1. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs.1,54,200/-, by treating the same, as capital expenditure, not allowable under section 35D of the Act.[ This is ground No.2 of cross objection No. 23 and ground No. 2 of cross objection No. 24.] (ii) Ground No.2. The ld. CIT(A) has erred in law and on facts in confirming disallowance of depreciation of land cost of windmill to the extent of Rs.4,05,600/- and allowing the said amount as rent on monthly basis. [ This is ground No.3 of cross objection No. 23, Ground No.3 of cross objection No.24, Ground No.2 of cross objection No. 25, Ground No.2 of cross objection No. 26] 5. Now, we shall take above, Revenue`s summarized and concise grounds, one by one, as follows. 6. The summarized and concise ground No.1 of revenue is reproduced below for ready reference: (i) Ground No.1. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of washing/ handling loss of salt of Rs.2,67,03,424/-. This is Ground No.1 of Revenue`s appeal for assessment year 2009-10 in ITA No. 233/Rjt/ 2016. The above similar and identical ground is raised by the revenue, in other appeals, which are as follows: (a) Ground No.1, in Revenue`s appeal in ITA No.234/Rjt/2016, for assessment year 2010–11, at Rs.5,11,72,998/-. Page | 5 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (b) Ground No. 1 in Revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year, 2011–12, at Rs. 5,03,65,370/-. (c ) Ground No.1 in Revenue`s appeal in ITA No. 236/RJT/ 2016, for assessment year 2012–13 at Rs.5,96,99,728/-. (d) Ground No.2 in Revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14, at Rs.9,63,60,980/-. 7. Brief facts qua the summarized and concise ground No.1 of revenue, are as follows: During the assessment proceedings, the assessing officer noticed that certain discrepancy was pointed out by the Special Auditor. The special auditor noticed that assessee maintained production records in computerized accounts (Tally), only. The company claimed washing loss and washing loss during the year from salt produced and reduced from production of salt / stock of salt. During the year, the company has claimed washing loss of 58724 MT ie. 10% on production of 587239 MT and washing loss of 107675 MT, which is 20% of net production 528515 MT (587239 MT less washage loss 58724 MT). In absence of proper stock records at salt manufacturing site and evidences for such claim, it is quite difficult to consider the claim as there is no stock data physically maintained at any stage. Therefore, the assessing officer issued a show-cause notice to the assessee, asking the assessee, to furnish necessary documentary evidences and day to day basic production, wastage loss accounts maintained at site, if any. 8. In response to the notice of the assessing officer, the assessee submitted the following written submission with documentary evidences before the assessing officer, which is reproduced below. “At the outset we submit that shortage/loss of quantity occurs at two different stages. At first stage, while extracting the salt from salt pan/maffer& shifting the same to the platform (production stage) where salt is stacked in heaps and thereafter in transferring the same to washery unit where washing process of the salt is carried out. As stated above the shortage in the first instance comes to about 10% of the manufactured commodity. Such losses occurs due to the reason that when salt is extracted from the salt pan/maffer, there is water-content therein and with the passage of certain period of time the same gets evaporated in sun light and therefore there will be variation in the quantity of the salt at the time of extraction and before the time when the same is shifted to washery unit for mechanized washing process. We also submit that the shortages cannot Page | 6 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 be expected to be at a fixed level and are necessarily variable on account of various factors including the natural forces like heavy rains, cyclones etc. in the salt business. The stock in trade of salt is not kept in well defined sheltered or protected area in packed and stacked bardans with fixed quantity. The salt is kept in big heaps on open land. Such stock has to be regularly washed to remove the dust that would settle in course of time, and in the process the salt gets washed away. The stock also reduces heavily in monsoon due to rains. Statement are enclosed to show that this type of Shortages / Wastages suffered by the assessee company from year to year. At second stage, in this particular case the assessee company has additional process of mechanical Washery and the entire quantity of the salt moves on the conveyer belt in a relatively thin layer and is washed through continuous shower of water thereon in a mechanized process to remove impurities and to reduce calcium and magnesium so that the same can be utilized for industrial purpose. Thus, in addition to the natural forces like monsoon etc., to make the salt look white for being exported its washing is done through washery resulting in more loss and shortage which almost comes around 20% of the total quantity that has gone into mechanized washery unit for washing purpose. We may further submit that the assessee company has to file monthly statement to the Department if the Government of India every month giving particulars often at the end of the previous month, Quantity of Slatt manufactured thing the Month Quantity of Salt removed from the factory on payment of Cees Quantity of Balt removed from the factory for Export without payment of Cess, Quantity of Ball removed other than for Export/ Local Sales and Closing Balance. We are enclosing herewith copies of statements for the Financial Year 2008-09 for your kind perusal and record. We submit that the Officers of the Salt Department also make one or two surprise inspections of the she and check the stock on hand at the time of visit. Based on these statement we have prepared a summary statement which is enclosed herewith for your perusal and record. 9. However, the assessing officer rejected the above reply of the assessee and observed that the contention of the assessee that the handling loss/washing loss should be allowed on the total turnover of the assessee and the actual shortage as per quantity details comes to 4.71%,was not acceptable because the shortage has to be worked out in respect of the production. As per the details, for the year under consideration, the production of salt was 5,87,239, as against shortage of 1,66,399, has been claimed, which is 28.33% of the production of salt. Therefore, the washing loss claimed by the assessee was restricted to 10% and the excess shortage @ 18.33(28.33% - 10%) claimed by the assessee was disallowed. The disallowance of excess washing loss worked out, by the assessing officer is as under: Page | 7 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 Therefore, the excess claim of shortage due to handling/washing loss of Rs. 2,67,03,424/- was disallowed by the assessing officer and added to the total income of the assessee. 10. On appeal, the ld. CIT(A) deleted the addition. The ld CIT(A) noticed that only substantive ground on which the assessing officer has made the addition is that the assessee has suffered and claimed a quantity of washing and handling loss of salt which is considered by him to be higher than what as per his own standard, would be a reasonable loss and second reason cited by the assessing officer was non maintenance of day-to-day quantity records by the assessee. The ld CIT(A) noticed that there is arbitrariness and unreasonableness in the assessing officer`s action is written large on the face of the assessment order The assessing officer even in the face of the categorical submission of the assessee, about filed visits by the Special Auditors to witness the process/stock, has preferred to simply goby the observation of the Special Auditor, completely overlooking the assessee’s submissions. The ld CIT(A) noted that how and why the simple submission of the assessee that claim of washing loss is supported by monthly statement, submitted to the Salt Department and is also supported by certificate of an expert, failed to find assessing officer's approval, and on the other hand why he simply relied on ‘wide variation’ in loss claimed by the assessee across years. The ld CIT(A) observed that the books of accounts are audited u/s 44AB and have not rejected u/s 145(3) by the assessing officer. The elementary rule, is that estimated additions cannot be made without rejection of books of accounts under section 145(3) of the Page | 8 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 Act, on the basis of demonstrated defects in books of accounts, and consequent completion of the assessment as provided u/s 144 of the Act. This aspect has completely been overlooked by the assessing officer while making the addition. 11. The learned CIT(A) also noticed that it is a mystery as to how the assessing officer has arrived at the figure of \"reasonable loss at 10% particularly when even the independent experts have opined that the washing/manufacturing loss is likely in the range of 20.16% to 29.26%, which thus clearly leads to an inescapable conclusion of arbitrariness on the part of the assessing officer. The ld CIT(A) also noted that the business reality of the assessee, that loss also occurs on account of natural forces, loading, unloading and inaccuracy inherent in the transactions due to volumetric quantification, and such loss is in the range of 10% on the overall quantity transacted by the assessee, has also been completely brushed aside by the assessing officer. The ld. CIT(A) observed that the specific business realities of assessee's business – namely, high physical volume and low monetary value per metric ton of the goods transacted, and also stocks getting stored in open and also, the submission before the assessing officer that the quantity loss is a partially derived figure, noticing of higher washing loss or \"wide variation in loss” per se can only, if at all, be a starting point for further probe, enquiry and marshalling of evidences by the assessing officer and certainly not in itself a ground for making any addition. The ld CIT(A) noted that the observation of the assessing officer that day-to-day quantity records of loss are not maintained, is wholly unrealistic and superfluous because maintenance of such day-to-day stock records is patently impossible considering the volume, nature and low value of commodity transacted by the assessee and the certificates from M/s. Gupta & Associates (Assessors) Pvt. Ltd. and from Central Salt & Marine Chemical Research Institute, and the monthly statements to Salt Department, sufficiently support the fact of loss occurring in the manufacturing process of salt and thus repels effectively the observation of the assessing officer about non-maintenance of day-to-day records of loss. The ld Page | 9 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 CIT(A) also noticed that in absence of incriminating material or assets even remotely indicative/leave aside evidencing, of unaccounted sale/purchase by the assessee or excess unaccounted stock or other valuable assets found or seized during the course of search must necessarily lead to a positive finding that claim of washing loss is genuine (and reasonable), as obviously, the surplus unaccounted stock, consequent to alleged excess/bogus claim of washing loss, can't vanish in thin air. Based on these facts and circumstances, the ld CIT(A) deleted the addition. 12. Aggrieved, by the order of the assessing officer, the revenue is in appeal before us. 13. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We note that issue under consideration is squarely covered by the decision of the Co- ordinate Bench, in assessee`s own group case, in ITA No.IT(SS)A No.135/Ahd/2016, Kandla Exports Corporation, order dated 28.02.2025. The arguments of ld. DR for the revenue and ld. Counsel for the assessee, were considered in the group case, and both the Counsels have argued in a similar and identical manner, as argued in the case of Kandla Exports Corporation( supra). The facts and findings of the Co-ordinate Bench in the case of Kandla Exports Corporation( supra), are reproduced below. “49. The summarise and concise ground No.3 of the revenue, is reproduced below for ready reference: 3. Ground No.3:The Ld. CIT(A) has erred in law and on facts in detecting the addition on account of disallowance of handling/ spillage/wastage loss of Rs. 1,35,69,000/-. (This is ground No. 2 in Revenue’s appeal in IT(SS) No. 136/Ahd/2016 for A.Y. 2012-13). 50. Brief facts, qua the issue are that during the assessment proceedings, the assessing officer noticed the discrepancy pointed out by the special auditor and observed that assessee has claimed handling/spillage/wastage loss from salt trading. During the year, the firm has claimed handling/spillage/wastage loss of 18,092 M.T. During the course of audit, the firm was asked to provide explanation Page | 10 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 on such claim with proper evidences. However, no satisfactory written explanation and evidences were provided by the assessee. Therefore, assessing officer, issued a show-cause notice stating that why the handling/spillage/wastage loss of 18,092 M.T. may not be disallowed being non- genuine. 51. In response, to the notice of the assessing officer, the assessee submitted its reply before the assessing officer with documentary evidences, which is reproduced below: “The Assessee- firm submits that they are engaged in the business of trading of goods and commodity. During the year under consideration, they had opening stock and purchases, aggregate quantity of which came to 8,34,887.338 Mt. After considering the sales and closing stock aggregating to 8,16,795.595 Mt; the shortage came to 18,091.743 Mt. Thus, on the turnover of the total quantity of 8,34,887.338 Mt. the shortage of 18,091.743 Mt. works out to 2.17% only which could not be considered high considering the particular facts and circumstances of this line of business. It may also be submitted that the shortages cannot be expected to be at a fixed level and are necessarily variable on account of various factors including the natural forces like heavy rains, cyclones etc. The specific circumstances of the case are explained below. In the salt business the stock in trade of salt is not kept in well defined sheltered or protected area in packed and stacked bardans with fixed quantity The salt is kept in big heaps on open land. Such stock has to be regularly washed to remove the dust that would settle in course of time, and in the process the salt would also get washed away. The stock would also reduce heavily in monsoon due to rains. Due to these reasons the stock of salt is reduced. It may also be mentioned here that the quantity of stock in a heap cannot be actually weighed. Even when the salt is purchased or sold the weight is approximate based on the truck capacity or tonnage. When the purchased salt arrives, it is unloaded on the heap. At the year-end after considering the sales and closing stock the shortage is arrived at. The quantity of closing stock lying in a heap the open plot of land has to be determined by approximation taking into account the size (length and width) of the heap and its height. There is no other way to determine the quantity. It is simply impossible, impracticable and unviable to do weighing of the stock of salt in heap. If one happens to travel to Kutch many such big heaps of salt would be seen. We may submit that the Team of the Special Auditor demanded to see such heaps of salt and the process of washing etc. They were taken to visit several of such heaps where they personally saw the watering/washing of the salt in the heap and the consequential loss of stock with the salt getting washed away. In fact, the Special Auditor had also been informed in writing that as per his demand his Team Members were taken for visit and had seen the process of washing on 05-07-2014 and again on a second occasion on 01- 09-2014. In this background of facts when Team of the Special Auditor having witnessed the process of washing and consequential loss of stock with their own eyes it is really incomprehensible that the Special Auditor has raised the issue and that too by working out in illogical manner highly exaggerated percentage of shortage.” 52. However, the assessing officer rejected the above contention of the assessee and observed that during the course of special audit, the assessee has not submitted any documentary evidence in respect handling/spillage/wastage loss from Salt trading of 18,092 MT. Further, the reply of the assessee in this regard is general nature. The assessee has claimed 18,092 MT of handling/Spillage/wastage loss. The value of such goods at closing rate comes to Rs. 750/- per MT; therefore, the claim of Page | 11 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 handling/Spillage/wastage loss work out to Rs. 1,35,69,000/-, ( 18,092 x Rs.750), hence, the same was disallowed by the assessing officer and added to the total income of the assessee. 53. Aggrieved, by the addition made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A), who has deleted the addition made by the assessing officer. The ld CIT(A) observed that the stock of salt is kept in open and obviously there are spillages and wastages on account of loading, unloading wind, washing, rain and even inaccuracy in quantification of purchase and sale, a reasonable claim of wastage/spillage is bound to be there and cannot be disputed without any adverse material brought on record. Hence, ld. CIT(A) deleted the addition. 54. Learned DR for the revenue argued that during the year, the assessee has claimed handling/spillage/wastage loss of 18,092 M.T and when the assessee was asked to provide explanation on such claim, no satisfactory written explanation and evidences were provided by the assessee. Therefore, assessing officer, has rightly made the addition. 55. On the other hand, learned Counsel for the assessee pleaded that on a total turnover of 8.16 lacs MT, a shortage/handling loss of 18,092 MT, works out only to 2.17% and which is quite reasonable and incidental to the business of the assessee. The ld Counsel further submitted that the salt is kept in heaps in open areas and the spillage/wastage is a necessary aspect of assessee's business. Moreover, the quantity in heap is arrived at only on the basis of physical measurement and experienced estimate, and it is impossible to physically weigh the quantity and there are spillages and wastages on account of loading, unloading wind, washing, rain etc. Therefore, ld. Counsel stated that order passed by the ld. CIT(A) is just and proper, therefore, the same may be upheld. 56. We heard both sides in detail and also perused the records of the case including the paper book filed by the assessee. The necessary facts of the case have already been discussed in paragraphs above. On examination of the facts and circumstances of the case, we find that it is a natural phenomenon that due to loading, unloading wind, washing, rain and even inaccuracy in quantification of purchase and sale, a reasonable claim of wastage/spillage is bound to be there and cannot be disputed without any adverse material brought on record.We find that the addition made by the assessing officer is discussed by the assessing officer in para 5 of the order. The Special Auditor has observed that the assessee has claimed handling/ spillage/wastage loss from salt trading. It is further observed that the assessee has claimed such loss of Rs. 18,092 MT; and that in the absence of proper stack records of salt, and evidences for such claim, it is quite difficult to consider the claim. The assessing officer called for explanation of the assessee on the issue and the assessee's detailed reply has been reproduced by the assessing officer in the assessment order. It was submitted before the assessing officer that on a total turnover of 8.16 lacs MT, a shortage/handling loss of 18,092 MT, works out only to 2.17% and which is quite reasonable and incidental to the business of the assessee. It was further submitted that the salt is kept in heaps in open areas and the spillage/wastage is a necessary aspect of assessee's business. Moreover, the quantity in heap is arrived at only on the basis of physical measurement and experienced estimate, and it is impossible to physically weigh the quantity, the stock of salt, either at the time of purchase or at the time of sale or at the time of quantifying the same at the year end. It has been categorically submitted further by the assessee before the assessing officer Page | 12 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 that the position of stock in heap form and the watering/washing of the salt in such heap form was shown to the team of Special Auditors twice and that thereafter query was raised by the Special Auditors. The loss as claimed is genuine, is forming part of the audited accounts, is arrived at on the basis quantities of purchase/sale and being genuine, needs to be allowed. The assessing officer however, observing that there is no documentary evidence or stock details in respect of such loss, the same cannot be allowed. Thus, the assessing officer made the addition of Rs. 1,35,69,000/-[ @Rs.750 per mt.x18,092 MT). 57.Before, the ld. CIT(A), the assessee reiterated the submissions made before the assessing officer. Additionally, it was submitted by the assessee that the loss of Rs.2.17% claimed during the year under reference is not less as compared to the preceding year, no such disallowance is made or contemplated by the assessing officer in any of the preceding years. Additionally, it was submitted that even during the course of the search, no discrepancy with regard to the stock of salt was found. Besides, no any of the purchases or sales have been doubted by the assessing officer. The books of accounts have been audited with complete quantitative tally for purchase and sale of salt and no defects were found by the Special Auditor or even the assessing officer, in the books of accounts. It was thus, submitted that the action of the assessing officer was based merely on observation of the Special Auditor, has no merit and therefore, the same was deleted by the ld. CIT(A). Having given a considerable thought to the contents of the assessment order and the submissions made on behalf of the assessee, we find that indeed the assessing officer has not doubted or taken any adverse view in any of the years except the year under reference. Considering the fact that the stock of salt is kept in open and obviously there are spillages and wastages on account of loading, unloading wind, washing, rain and even inaccuracy in quantification of purchase and sale, a reasonable claim of wastage/spillage is bound to be there and cannot be disputed without any adverse material brought on record. Similarly, the ld CIT(A) also found favour with the submission of the assessee that during the course of the search, no discrepancy in the stock or evidences with regard to wrong claim of wastage/spillage or of unaccounted sales have been found or seized. Moreover, no such disallowance has even been considered by the assessing officer in any of the other years, that is, in previous years or subsequent years. In view of this, the assessee was right in his submission that the rejection of claim is arbitrary and not justified in law. Accordingly, it was held by ld. CIT(A) that there is no merit in the action of the assessing officer and therefore the addition of Rs. 1,35,69,000/- was deleted by ld CIT(A). In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. The CIT(A) in our view, has rightly deleted the addition. We, thus, decline to interfere with the conclusion so drawn by the CIT(A) whose order is under challenge by the revenue. Therefore, based on these facts and circumstances, we dismiss the summarise and concise ground No.3 of the revenue.” 14. We have gone through the findings of the ld. CIT(A), as noted above, and observed that there is no any infirmity in the conclusion reached by the ld. CIT(A). Therefore, after having regard to the given facts and circumstances of the case, it is difficult to differ with the findings of the ld.CIT(A). Page | 13 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 We also find that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench, in assessee`s own group case, in Kandla Exports Corporation( supra),and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the binding judgment of the Coordinate Bench in assessee’s own group case, we dismiss the summarized and concise ground No.1 raised by the Revenue. 15. In the result, following grounds raised by the revenue, are dismissed. (i)Ground No.1 of Revenue`s appeal for assessment year 2009-10 in ITA No. 233/Rjt/ 2016. (ii) Ground No.1, in Revenue`s appeal in ITA No.234/Rjt/2016, for assessment year 2010–11, at Rs.5,11,72,998/-. (iii) Ground No. 1 in Revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year, 2011–12, at Rs. 5,03,65,370/-. (iv) Ground No.1 in Revenue`s appeal in ITA No. 236/RJT/ 2016, for assessment year 2012–13 at Rs.5,96,99,728/-. (v) Ground No.2 in Revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14, at Rs.9,63,60,980/-. 16. Summarized and concise ground No.2 raised by the revenue, is reproduced below for ready reference: (ii) Ground No.2. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of purchase of group concern of Rs.2,76,70,570/-. This is ground No. 2 of Revenue`s appeal in ITA No. 233/RJT/ 2016 for assessment year 2009 –10. [ There is similar ground No.2 in revenue`s appeal in ITA No. 234/RJT/2016, at Rs.3,54,67,402/- ]. 17. Brief facts qua summarize, and concise ground No.2 of the revenue, are as follows. During the assessment proceedings, the assessing officer noticed the discrepancy pointed out by the Auditor. During the year, Iron Ore of Rs. Page | 14 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 15,83,48,463/- (141890.76 MT) purchased. The most of purchases are made from group concern only, details are as under: Therefore, the assessing officer, observed that the purchases from M/s. Terapanth Foods Ltd, have been made at the average price of Rs. 1217.23 per MT, as against average purchase price of Rs.920.98 from M/s. Nidhi Mining. The assessing officer, therefore, issued a show- cause notice to the assessee, to give justification of high rate to M/s. Terapanth Foods Ltd., along with necessary documentary evidences. 18. In response, to the above show-cause notice, the assessee, submitted written submission along with evidences, before the assessing officer, which are reproduced below: “During the year under consideration the assessee has purchased Iron Ore from M/s. Nidhi Mining Pvt. Ltd. &Terapanth Foods Limited. We have made purchase deal because according to our market enquiry at that time the said price was found to be not more than prevailing market price. The price difference can occur for variety of reasons including the bargaining capacity of the respective concerns like, its need for sale or our need for purchase, quality difference, location etc. All our Purchases and Sales are fully vouched and paid for through account Payee Cheques and therefore they are genuine and cannot be doubted.” 19. However, the assessing officer rejected the contention of the assessee and observed that the reasons given by the assessee for purchase from M/S Terapanth Foods Ltd, @ of Rs. 1227.23 PMT is of general nature and not convincing. The assessee has purchased of Iron Ore from Group concern @ of Rs. 1227.23 Per, MT as against of Rs. 920.98/-Per, MT. Therefore, the assessee has inflated the purchase price @ of Rs. 296.25/- Per, MT. Therefore, the excess claim of purchases was Page | 15 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 worked out by the assessing officer to the tune of Rs. 2,76,70,570/- and the same was added to the total income of the assessee. 20. Aggrieved, by the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition. The ld CIT(A) noted that when the payments are made to associate, as defined u/s 40A(2)(b), the assessing officer has authority in law to substitute the \"market rate\" or ‘arms length’ rate for making any addition. Admittedly, both the parties namely, M/s Terapanth Foods and M/s Nidhi Mining, \"average rates of purchases\" from whom are compared by the assessing officer, are not related parties within the meaning of section 40A(2)(b) of the Act. Moreover, there is no justification for the assessing officer to compare the average purchase price for purchases from two group concerns. Even while making disallowance u/s 40A(2)(b), the statutory mandate is to compare the assessee's rate of payment with the market rate or arms' length price of the commodity/service and there is no presumption that purchases made from other associates or group concern would be necessarily indicative of market rate. The purchase rate from both the associate concerns could be below or above the market rate or vary for a variety of reasons, and therefore, there is no justification in law to make the addition as \"inflated purchases” merely by comparing the purchase price from two group concerns, without bringing in the market rate. The ld CIT(A) noted that except the transactions specified u/s 40A(2)(b), the assessing officer has indeed no authority to substitute the rate of the well documented/evidenced transaction(s) recorded in audited books by arbitrarily holding the purchases to be at \"inflated rates\" without bringing in any evidence of receipt back of part of the purchase price in cash or otherwise. Based on these facts and circumstances, the ld. CIT(A) deleted the addition of Rs.2,76,70,570/-. 21. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us. Page | 16 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 22. Learned DR for the revenue argued that it has been pointed out by the Special Auditor that the iron-ore of 1,41,890.76 MT worth Rs.15,83,48,463/- was purchased from group concerns\" namely, M/s Terapanth Foods Ltd and M/s Nidhi Mining during the year. The assessing officer, on the basis of the observation of the Special Auditor, called upon the assessee to explain the reason as to why the purchases from Terapanth Foods Ltd, has been made at a higher average price of Rs.1217.23 per MT as against average purchase price of only Rs.920.98, from M/s Nidhi Mining. The assessee has failed to provide the reasonable explanation, therefore addition made by the assessing officer may be sustained. 23. On the other hand, ld. Counsel for the assessee pleaded that the price difference as observed by the assessing officer can occur for variety of reasons, including the business needs, quality of goods, location of goods and bargaining capacity of the parties. The ld Counsel stated that all the purchases and sales are fully vouched and paid by account payee cheques and the transactions are completely genuine, therefore, no disallowance, as contemplated by the assessing officer could be made. The ld Counsel also submitted that though both the parties are group concerns, none of them come under the purview of section 40A(2)(b) and hence the assessing officer's action of comparing the purchase price and holding that the purchases from one of them is at inflated rate vis-à-vis those from other, is without any base, particularly when there is no allegation of sham or bogus nature of the transactions or receipt back of cash from M/s Terapanth Foods Pvt. Ltd. Therefore, learned Counsel defended the order passed by the ld. CIT(A) and stated that ld. CIT(A) has passed reasoned and speaking order and therefore, the same should be upheld. 24. We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on Page | 17 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 record. We find merit in the submissions of ld. Counsel for the assessee, to the effect that the price difference, as observed by the assessing officer can occur for variety of reasons, including the business needs, quality of goods, location of goods and bargaining capacity of the parties. We find that all the purchases and sales are fully vouched and paid by account payee cheques and the transactions are completely genuine. We note that though both the parties are group concerns, none of them come under the purview of section 40A(2)(b) of the Act and hence the assessing officer's action of comparing the purchase price and holding that the purchases from one of them is at inflated rate vis-à-vis those from other, is without any authority in law, particularly when there is no allegation of sham or bogus nature of the transactions or receipt back of cash from M/s Terapanth Foods Pvt. Ltd. The purchases by the group concerns and sale by the assessee are duly vouched, paid for by account payee cheques, supported by audited books of accounts. It was further submitted that F.Y. 2008-09 is the first year of trading activity of export of iron-ore by the assessee. The ld CIT(A) gone through the copies of the accounts of iron-ore purchases, and of Terapanth Foods and Nidhi Mining Pvt. Ltd, as in assessee's books. During the proceedings the assessee highlighted that the copies of accounts as available on page no.9, 10, 11 and 12 of the Audit Report (page 249-252 of the paper book), and relied upon by the assessing officer, are not the full and actual copies of relevant accounts, as were available in the books of accounts audited by the Special Auditor, but are merely partial and truncated copies (extracts) of the original accounts, giving only partial information about the transactions. 25. The ld CIT(A) observed that in numerous transactions with both the parties during the year, rate of purchase from Nidhi Mining has been in the range of Rs.3200 to Rs.450 per MT during the year, and similarly rate of purchase from Terapanth Foods has been in the range of Rs.3200 to Rs.800 during the year, and therefore, the Special Auditor's observation based on \"average purchase price” and Page | 18 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 the assessing officer's addition based on such observation are consequence of uncalled for and distorted perspective on facts, and hence also the addition based on such misconceived and erroneous view on facts, cannot be sustained. During the appellate proceedings, the assessee, pointed out from the copy of iron-ore purchases account, that purchases from Nidhi Mining Pvt. Ltd, at Rs.450 per MT on 20/2/2009 and 28/2/2009 for a total of 20750.85 MT are of low grade iron-ore, as against better quality in other transactions, and therefore, there is no rationale for comparing the average purchase price, as has been done by the Special Auditor and the assessing officer. From the copy of iron-ore trading account for the relevant period, depicting a total sales of 37.07 crores, the assessee further pointed out that from the combined purchases made both from Terapanth Foods and Nidhi Mining, for a total of only Rs.15.83 crores (though shipping/freight charges borne by assessee for export sales), the sale realization is to the tune of Rs.37.07 crores and thus, the purchases from both the group concerns are demonstrably at market rate, prevalent at appropriate time and there is absolutely no basis for the assessing officer to make arbitrary and uncalled for addition, which is also without authority in law. As such, the assessing officer's action of comparing the \"average purchase price\" with regard to purchases from parties admittedly not related parties within the meaning of section 40A(2)(b), is absolutely uncalled for in the facts and circumstances of the case. 26. The ld.CIT(A) noted the observation of the assessing officer in the assessment order and found that the assessing officer has not disclosed the reason as to why, despite numerous transactions at varying rates from both the group concerns, the assessing officer, chooses to arrive at an average purchase price and compare such average price of the two group concerns. At this juncture the ld CIT(A) noticed that when the payments are made to associate as defined u/s 40A(2)(b), the assessing officer has authority in law to substitute the \"market rate\" or arms' length rate for making any addition. Admittedly, both the parties namely, Page | 19 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 M/s Terapanth Foods and M/s Nidhi Mining, \"average rates of purchases\" from whom are compared by the assessing officer, are not related parties within the meaning of section 40A(2)(b) of the Act. The ld CIT(A) noted that there is no justification for the assessing officer to compare the average purchase price for purchases from two group concerns. Even while making disallowance u/s 40A(2)(b) of the Act, the statutory mandate is to compare the assessee's rate of payment with the market rate or arms' length price of the commodity/service and there is no presumption that purchases made from other associates or group concern would be necessarily indicative of market rate. The purchase rate from both the associate concerns could be below or above the market rate or vary for a variety of reasons, and therefore, there is no justification in law to make the addition as \"inflated purchases” merely by comparing the purchase price from two group concerns, without bringing in the market rate. The ld CIT(A) also noticed that the range of purchase rate of iron-ore from both the group concerns, the very act of the assessing officer in taking the average rate for comparing the purchases during the whole year has no basis or justification. The ld CIT(A) also observed that the finding of the assessing officer to the effect that purchase from Terapanth Foods is at inflated rate is without any evidence on record or basis and ld CIT(A) further noted that excepting transactions specified u/s 40A(2)(b) of the Act, the assessing officer has indeed no authority to substitute the rate of the well documented/evidenced transaction(s) recorded in audited books by arbitrarily holding the purchases to be at \"inflated rates\" without bringing in any evidence of receipt back of part of the purchase price in cash or otherwise. Based on these facts and circumstances, the ld CIT(A) held that the addition of Rs.2,76,70,570/- is without any merit and hence the same was deleted. 27. About the addition for assessment year 2010–11, the ld. CIT(A) observed as follows: Page | 20 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 “12.3 The assessing officer has discussed the similar addition of Rs.3,54,67,402/- for A.Y.2010- 11 also on page no. 16 to 18 in para 7 of assessment order. The finding of the assessing officer, the submissions made both before the assessing officer and before me and the arguments made before me are exactly identical to the facts and submissions on this issue as discussed above for A.Y.2009-10 excepting one fact that during the year the average higher rate purchase is made from M/s Nidhi Mining as compared to the average rate of purchase from M/s Terapanth Foods Pvt Ltd. The Ld. AR during the course of hearing with regard to this addition for this assessment year, also brought to my notice that as such the assessing officer has overlooked the fact that while for preceding year the \"higher rate\" purchases are from Terapanth Foods Ltd., during the year, the \"higher rate\" purchases are from M/s. Nidhi Mining Pvt. Lad. Further, it was pointed out that for two years if the rates of purchases are averaged out, the purchases from Terapanth Foods Ltd are @ Rs.1201 per MT. from Nidhi Mining Pvt. Ltd., it is @ Rs.1418 per MT and the over-all purchases of 206909 MT for two years is @ Rs.1304 per MT, thus clearly, showing that there is no merit in the action of the assessing officer. Additionally, though found not much relevant by me, the purchase rate from M/s. Nidhi Mining Ltd was increased by way of a debit note which is available on page 297 of the paper book. As can be seen on page no.298, M/s. Nidhi Mining Pvt. Ltd increased the rate by Rs. 1000 per MT for part of the purchases on account of \"SGS Analysis Reports\", certifying the supplied iron-ore with 64%+ Fe. However, at the same time, neither M/s Nidhi Mining Pvt. Ltd nor M/s Terapanth Foods Pvt Ltd, is a relative within the meaning of section 40A(2)(b). In view of this, following the reasoning and rationale as above for A.Y.2009-10, it is held that there is no merit either on facts or in law in the addition on account of purchases made from group concerns for A.Y.2010-11 also.” 28. To conclude, we note that the price difference, as observed by the assessing officer can occur for variety of reasons, including the business needs, quality of goods, location of goods and bargaining capacity of the parties. Besides, except the transactions, specified u/s 40A(2)(b) of the Act, the assessing officer has indeed no authority to substitute the rate of the well documented/evidenced transaction(s) recorded in audited books by arbitrarily holding the purchases to be at \"inflated rates\" without bringing in any evidence of receipt back of part of the purchase price in cash or otherwise. Therefore, after having regard to the given facts and circumstances of the case, in our considered opinion, the action of the ld CIT(A) does not warrant any interference. Accordingly, the ground of appeals of Revenue are dismissed. 29. In the result, following grounds raised by the revenue, are dismissed: (i) Ground No. 2 of Revenue`s appeal in ITA No. 233/RJT/ 2016 for assessment year 2009 –10. Page | 21 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (ii) Ground No.2 in revenue`s appeal in ITA No. 234/RJT/2016, at Rs.3,54,67,402/-. 30. The summarized and concise ground No.3 of the revenue, is reproduced below for ready reference: “(iii). Ground No.3. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of interest under section 36(1)(iii) of Rs.3,16,82,477/- , though the assessee had made interest free advances out of interest bearing funds. This is ground No.3 of revenue`s appeal in ITA No. 233/RJT/2016 for assessment year 2009–10. Similar and identical grounds in other appeals of the revenue are as follows: (a)Ground No.3 in revenue`s, appeal in ITA No. 234/RJT/2016, at Rs.2,11,59,251/-. (b). Ground No.2 in revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year 2011–12, at Rs.1,75,45,575/-. (c ) Ground No.2 in revenue`s appeal in ITA No.236/RJT/ 2016, for assessment year 2012–13 at Rs.88,53,458/-. (d) Ground No.1 in revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14 at Rs.1,13,85,927/-. 31. We note that issue under consideration is squarely covered by the decision of the Co-ordinate Bench, in assessee`s own group case, in ITA No.IT(SS)A No.135/Ahd/2016, Kandla Exports Corporation, order dated 28.02.2025. The arguments of ld. DR for the revenue and ld. Counsel for the assessee, were considered in the group case, and both the Counsels have argued in a similar and identical manner, as argued in the case of Kandla Exports Corporation( supra). The facts and findings of the Co-ordinate Bench in the case of Kandla Exports Corporation( supra), are reproduced below. “10. The Summarize and concise groundNo.1 of Revenue, and ground raised by the assessee, in cross objection No.178/Ahd/2016, for assessment year 2012–13, are identical and common, therefore, we shall adjudicate them together, which are reproduced below for ready reference, as follows: (1)Ground No.1 :The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 68,13,140/-, being disallowance of interest u/s 36(1)(iii) of the Act, though the assessee had made interest free advance out of interest bearing funds.[This ground No.1 is in Revenue’s appeal in ITA No.135/Ahd/2016 for A.Y. 2011-12, This ground No.1 is in ITA No. 136/Ahd/2016 of Revenue’s appeal for A.Y.2012-13 is at Rs. 2,18,04,979/-] The assessee, in his cross objection No.178/Ahd/2016, for assessment year 2012–13, has pressed the following ground of appeal: Page | 22 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 “ The learned CIT(A) has erred in law and on facts in confirming the disallowance made by the assessing officer of Rs.44,40,000/- out of the interest claim” 11. Brief facts of the issue in dispute are stated as under. During the assessment proceedings, the assessing officer called for to ascertain the quantum of secured loan used for business purpose of the concern. On verification of Accounts, it was noticed by the assessing officer that the assessee- firm has taken loan from banks on hypothecation of stock -in- trade and personal properties of partners. The firm has paid interest on such loans amounting to Rs. 3,79,17,821/-, Bank charges Rs. 18,70,159/-, loan documentation charges Rs. 625,989/-. Thus, on borrowed funds interest is given to the banks by the assessee. On verification of Bank Loan Accounts and loan accounts in the computerized accounts, it was observed by the assessing officer that the assessee- firm has given loan to some group concerns, against which there is no business transactions, hence it appears to be not for business purpose and no interest is charged on such loans. Therefore, during the assessment proceedings, the assessing officer, issued notice to the assessee, asking the assessee to furnish the nature of transactions and immediate source of advancement of such interest free advances. 12. In response to the above notice of the assessing officer, the assessee submitted its reply before the assessing officer with documentary evidences, which is reproduced below: “As desired we are furnishing herewith copies of the concerned Group concerns, of the bank accounts from the books and also the bank statements. Further, we may submit for your kind information that the assessee-firm has huge funds of Rs. 28,34,76,940/-as against this interest-free advances of Rs.4,35,00,000/- were given us on 31.03.2011. It may further be submitted that out of Rs. 4,35,00,000/- Rs. 2,15,00,000/- were given to M/s. Maharaja Salt Works for purchase of Salt in the earlier year. As the said party has not supplied the Salt to the assessee-firm a Civil suit is filed against them in Gandhidham Court. Therefore, the advance mentioned to that extent are given for commercial consideration having business purpose. Further, there was no relationship attracting Section 40A(2)(b) of Act. As far as Opening Credit Balance of Rs. 1,26,868/-in the Account of M/s. Friends Mercantile Pvt. Ltd., are concern it may be submitted that the assessee- firm maintains two accounts (ie. Bill Account and Loan Account) in their books of M/s. Friends Mercantile Pvt. Ltd., and as per the bill account an amount of Rs. 1,26,868/-is payable to them. Your Honour will kindly see that disallowance is not called for on the facts of the case.” 13. However, assessing officer rejected the contention of the assessee and observed that assessee has paid interest on loan of Rs. 2,44,20,256/-. At the same time, the assessee has given loans and advances against which no interest have been charged. The details of the same are given by the assessing officer in the assessment order in table format, in para No.7.The assessing officer noticed that assessee has not given any specific reply on the points raised above. The assessee has simply stated that the interest free advances have been made out of the interest free capital and surplus funds. However, looking to the capital and reserved surplus of the assessee and the investment in fixed assets, it was found by the assessing officer that no interest free funds were available with the assessee for giving interest free advances to the group concerns. Therefore, as per assessing officer, disallowance u/s 36(1)(iii) of the I.T. Act, 1961, is warranted. In respect of loans and advance given to M/s Maharaja Salt Works Co. Pvt. Ltd. it was submitted by the assessee that the assessee -firm has given advance of Rs. 2,05,00,000/- for the purchase of salt to the company. However, the said party failed to supply salt and the assessee has filed civil suit in the Civil Court, Gandhidham. As this is business advance against the purchase of goods, it should not be considered as interest free loans and advances. However, in respect of other loans and advances the assessee has not proved commercial expediency. Page | 23 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 Considering above facts, the assessing officer held that the advances were not made due to commercial expediency and for the purpose of business except in the case of M/s. Maharaja Salt Works Co. Pvt. Ltd. The assessee has not proved the nexus that non- interest bearing fund have been utilized for the purpose of giving non- interest bearing loans and advances and have not discharged onus cast upon it. Therefore, the corresponding interest @ 12% on loans and advance which works out to Rs. 68,13,104/- are as under : 14.Therefore, assessing officer, made the addition in the hands of the assessee, to the tune of Rs.68,13,104/-. 15. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the assessing officer. The ld. CIT(A) observed that the relevant facts are discussed in para 7 of the assessment order and the very same issue was considered by him at length in connection with the appeal for AY. 2009-10. The facts are identical, subject, however, to the facts that as at the year of end, the assessee’s balance sheet clearly shows interest free advances to some individuals totaling to Rs. 2 Crores., about which neither any business relation not any expediency is either prima facie evident, or claimed, or established. Though, as the interest free funds available with the assessee, and therefore, following his decision in AY 2009-10, the ld CIT(A) held that no disallowance u/s. 36(1)(iii) needs to be upheld, therefore, the disallowance of Rs. 68,13,104/- was deleted by the ld. CIT(A). 16. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. Page | 24 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 17. Shri Sanjay Punglia, Ld. CIT(DR), for the Revenue, has vehemently argued that assessee, during the course of assessment proceedings, has not established, the availability of interest free funds, and assessee has not proved the commercial expediency. The learned DR for the revenue, relied on various decisions listed by the assessing officer, in his assessment order and submitted that assessee does not have interest free funds and never established the commercial expediency. The learned DR thus reiterated that the assessee has not discharged the onus of proving that interest free advances have gone out for interest free funds of the assessee. The learned DR for the revenue, relied on the following decisions: (i) Decision of Hon’ble Allahabad High Court in the case of CIT v. Sahu Enterprise (P.) Ltd. reported in (2013) 352 ITR 8 (Allahabad). (ii). Decision of Hon’ble ITAT, Hyderabad in the case of Sushee Hi Tech Constructions (P.) Ltd. v. DCIT reported in (2013) 33 taxman.com 236 (Hyd.). (iii) Decision of Hon’ble ITAT, Chandigarh in the case of ACIT v. Spray Engineering Devices Ltd. reported in (2012) 23 taxman.com 267 (Chandigarh). (iv)The Hon’ble ITAT, Delhi in the case of ACIT v. Samrat Rice Mills (P.) Ltd. reported in (2012) 23 taxman.com 350 (Delhi). (v).Hon’ble Delhi High Court in the case of Punjab Stainless Steel Inds. V. CIT, reported in (2010) 324 ITR (Delhi). (vi).The Hon’ble Delhi High Court in the case of CIT v. Orissa Cement Ltd., reported in (2002) 258 ITR 365 (Delhi). (vii)The Hon’ble Kerala High Court in the case of CIT v. V.I. Baby & Co., reported in (2002) 254 ITR 248 (Kerala). (viii)The Hon’ble Allahabad High Court in the case of CIT v. H.R. Sugar Factory (P.) Ltd., reported in (1991) 187 ITR 363 (Allahabad). (ix) Decision of Hon’ble Madras High Court in the case of A. Murali & Co. (P.) Ltd. V. ACIT, reported in (2013) 357 ITR 580 (Madras). 18. The ld. CIT -DR for the revenue, by referring to the above judgements, stated that in the assessee`s case, there are mixed funds and the assessee could not establish any commercial expediency. It is the duty of the assessee to explain before the assessing officer that whatever loans were raised by the assessee, were used for business purposes. If the assessee had advanced certain funds to sister concerns, there would be a very heavy onus on the assessee to discharge before the assessing officer to the effect that inspite of pending terms, loans and working capital loans, on which the assessee is incurring liability to pay interest, there was justification to advance loans to sister concerns for non-business purposes. 19.The ld. DR further stated that during the appellate proceedings, the assessee submitted a chart showing interest free advances and interest free funds available, which is placed at page number 11 of the order of the ld. CIT(A). The ld. DR pointed out that first of all, this chart was not there before the assessing officer and such chart was submitted first time before the ld. CIT(A). Hence it is an additional evidence and therefore this matter may be remitted back to the file of the assessing officer for fresh adjudication. The ld. DR further stated that in the above chart, the assessee has used the sundry creditors, as a Page | 25 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 source of funds, which is not acceptable because the assessee purchases the goods from the sundry creditors, which forms part of the stock of the assessee, hance, no interest free funds available from sundry creditors, therefore, these sundry creditors should not be part of the interest free funds. Therefore, ld. DR contended that since the assessee has mislead the figures, therefore, addition made by the assessing officer may be sustained. 20. On the other hand, Learned Counsel for the assessee, Shri K. C. Thacker, vehemently argued that assessee, has huge funds of Rs.28,34,76,940/-, available, as on 31-03-2011, on which no interest is payable, as against interest-free advances given to parties of Rs.4,35,00,000/-. This included Rs.2,15,00,000/- given to Maharaja Salt Works, as advance for purchase of salt. The said party failed to supply salt. Therefore, a civil suit is filed against Maharaja Salt Works for recovery. Thus, the advance was given for commercial consideration for the purpose of business. There was also no instance of relationship attracting section 40A(2)(b) of the Act. The assessee also furnished the bank accounts, as per books, statement of accounts, from the banks and accounts of these concerns, as called for by the assessing officer. The assessee had also supplied detailed statement showing secured loans, interest-free funds advances etc. by letter filed on 20- 11-2014 for all the financial years 2005-06 to 2011-12, to examine as a bird eye, overall position of the group. The assessing officer in his \"conclusion\" has found that the claim disallowable, making vague observation that looking to the capital and reserved surplus and the investment in fixed assets it was found by the assessing officer that no interest-free funds were available with the assessee for giving interest-free advances to these concerns. Thus, assessing officer has accordingly made disallowance of Rs.68,13,104/-, on the ground that the assessee has not discharged the onus of proving nexus of non -interest bearing fund has been utilized for giving interest-free advances. 21. In this regard, Ld. Counsel submitted that the onus to prove the nexus between the interest bearing loans and interest-free advances is upon the assessing officer and not upon the assessee. The assessee had produced before the assessing officer, the ledger accounts of the concerned parties and also the bank book as well as the bank statements, as demanded by the assessing officer. With these details made available, as required by the assessing officer, it was for the assessing officer to show nexus before making the disallowance of Rs.68,13,104/-. Further, the assessing officer states that \"looking to the capital and reserve and surplus and investment in fixed assets\" no interest-free funds were available, when the fact is that there are no fixed assets of the assessee, as the assessee is a trading concern. Thus, the assessing officer has gone by wrong notion that capital and reserves are blocked in fixed assets in making the disallowance. The ld Counsel further submitted that the disallowance is made by the assessing officer invoking section 36 (1) (iii) of the Act, however, from the data furnished it would be seen that the assessee has EPC/PCFC loans taken against the stock and export receivables and mortgage loan against the property, the assessee has submitted the details of stock in trade and sundry debtors (export) aggregating to Rs.32.55 Crores and interest-free funds of Rs.28.34 Crores, during the year.Thus, it is clear that the capital borrowed for the purpose of business has been apparently used for the purpose of business. The assessing officer has disregarded huge interest-free funds of Rs.28.34 Crores, during the year. The assessing officer has relied upon various decisions which are not applicable to the facts of the assessee`s case. The assessing officer has admittedly not established nexus between capital borrowed and interest-free advances, despite of having lot of information and documents before him, and has ignored the substantial interest-free funds available to the assessee. These aspects have been considered in several judicial pronouncements. The ld. Counsel for the assessee, relied on the following binding judgments of the Jurisdictional High Court of Gujarat and others, which are mentioned below: Page | 26 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (i). ACIT.v. Gujarat Narmada Valley Fertilizers Co. Ltd. (20 14)222 Taxman 28 (Mag)/42 taxmann.com 579 (Guj.)(HC) (ii). CIT.v. Amod Stamping (P.) Ltd. (2014) 223 Taxman 256 (Guj.)(HC) (iii). CIT v. Rajendra Brothers (2014)52 taxmann.com 334/(2015) 228 Taxman 348(Mag.) (Guj.)(HC) (iv). CIT v. Shree Rama Multi Tech Ltd. (2013) 219 Taxman 162 (Mag.) (Guj.)(HC) (v). CIT v. R.L. Kalthia Engineering & Automobiles (P.) Ltd. (2013) 215 Taxman 9 (Mag.) (Guj.)(HC) (vi). CIT v. Mahanagar Gas Ltd. (2014) 221 Taxman 80 (Mag.) / 42 taxmann.com 40 (Bom.)(HC) (vii). Reliance Industries.v. Addl. ACIT (2014) 159 TTJ 349/55 SOT 8 (Mum.) (Trib.). 22. Learned Counsel further submitted that a chart showing interest free advances and interest free funds available, which is placed at page number 11 of the order of the ld. CIT(A), was submitted by the assessee before the Ld. CIT(A) to explain the overall position of the group and the figures mentioned in that chart were already available before the assessing officer, therefore, just to submit some figures in a presentation form, does not mean that it is an additional evidence, therefore, for the examination of the same figures, the matter should not be remitted back to the file of the assessing officer. Further, learned Counsel also submitted that assessee does not wish to rely on that chart, which is placed at page number 11 of the order of the Ld.CIT(A), without helping that chart, the assessee has made out a good case, in his favour. The Ld. Counsel also stated that assessee has not used the sundry creditors, as a source of funds. Apart from the sundry creditors, the assessee has enough interest free funds, which is available, to give interest free advance to sister concern. Therefore, ld. Counsel argued that ld. CIT(A) has passed a speaking order, therefore order of the ld. CIT(A) on this issue, may be upheld. 23. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessing officer has made the disallowance u/s. 36(1) (iii) of the Act, out of claim of interest payment on loans taken by the assessee. We find that the provisions of section 36 (1) (iii) of the Act, are enabling provisions, whereby interest claimed is required to be allowed, as a deduction to the assessee, provided the claim is genuine. For the sake of clarity and also being pertinent, we reproduce the provisions of section 36(1) (iii) of the Income Tax Act 1961, ( to the extent useful for our analysis), as follows: \"Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) ……; (ia)……..; (ib)…….- (ii)…….; (iia) [Ommited by the Finance Act,1999, w.e.f. 1-4-2000;] Page | 27 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession, Provided…… Explanation.-……..,” 24.The above provision mandates that payment of interest on loans borrowed for business purpose shall be allowed. Therefore, the assessing officer is obliged to allow the payment of interest on loans taken for business purpose. If, however, the Assessing Officer seeks to make disallowance of interest by invoking the provision of section 36 (1) (iii) of the Act, it is for the assessing officer to establish that interest is paid on the loans, not used for business or that it is diverted for non-business purpose, provided the assessee has submitted all the details before the assessing officer for this purpose, as and when called by the assessing officer, then burden shifts on the assessing officer to explain the assessee that based on the documents and evidences interest bearing funds were used by the assessee for giving interest free advances for non-business purposes. In the assessee`s case under consideration, the assessee submitted details and documents and explained before the assessing officer that had enough interest free funds available for giving interest free advances. There is no failure on the part of the assessee to submit relevant documents and evidences before the assessing officer to prove that sufficient interest free funds available in the Balance Sheet of the assessee. We find that in the assessee`s case, the assessee has taken interest-bearing loans for specific purposes, and the facts that these loans are actually used for the stated business purposes could be verified from paper-book pages 281 & 282 of the assessee`s paper book.We find that the issue of interest-free advances made to the parties, as mentioned by the Special Auditor, the assessing officer required the assessee to make compliance, as shown below. \"You are requested to furnish copies of the bank accounts as appeared in your account books and bank statements furnished by the banks, through which the transactions of advancing amounts were made by you with the aforesaid parties so that the immediate source of funds can be examined.\" The above question of the assessing officer, reflects the assessing officer's intention to find immediate source of interest-free advances to the listed parties, as per the mandate of the section 36(1) (iii) of the Act. In the order of assessing officer, under appeal, the assessing officer has recorded that the accounts called for by him were produced by the assessee, including documents and evidences. The assessing officer has, however, not brought on record facts/material based on his examination of the accounts and has not established the immediate source of interest-free advances to be the interest-paid loans received by the assessee. When the burden shifts on the assessing officer, then it is duty of the assessing officer to find out the mistakes and errors in the documents so submitted by the assessee.The whole exercise is to be based on facts and it is the duty of the assessing officer to marshal all the facts and come to a logical conclusion about the income of the assessee for the year under consideration. For that we rely on the Judgment of Hon'ble Supreme Court in case of Sreelekha Bannerjee (491 ITR 122), wherein it was held that “ ..... before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence, which it has in possession ...” 25. We find that instead, the assessing officer made unverified and wrong statement that \"no interest-free funds were available with the assessee\" and irrelevant statement that \"the assessee has also not furnished any details or evidence to establish that impugned advances were given for business expediency\". The assessing officer has failed to realize that the obligation to establish business expediency would arise on the part of the assessee only when the assessing officer has discharged his obligation to show ( provided Page | 28 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 the assessee has filed all documents and evidences, as required by the assessing officer, to explain the interest free funds) that any part of interest-bearing loans have been diverted for non-business purposes. In this regard, reliance is placed upon the judgment of Hon'ble Delhi High Court, reported in (2011) 331 ITR 0502, wherein it was held as follows: \"12. In the instant case, from the orders of the CIT (A) and that of Tribunal, as reproduced above, in paras 3 and 6, we note that the assessee was maintaining a bank account with mixed common funds in which all deposits and withdrawals were made. There was no specific instance noted by the assessing officer in respect of any direct nexus between the borrowed fund and the said advances made to the subsidiaries. The assessing officer had made general observations without going into the depth of the matter and without pointing out any specific instance where an interest- bearing borrowing was advanced to the subsidiaries or establishing that the borrowings made by the assessee were not for business purposes.\" 26. We find that the issue of disallowance u/s.36 (1) (iii) of the Act, out of the claim of interest, arose in the assessment proceedings, on account of the report of the Special Auditor, who had only mentioned that the assessee has taken loans from Banks/Financial institutions and has paid interest. The Special Auditor, then, gave a list of parties who were given interest-free loans and also provided their ledger accounts (page 19/paper- book). When the Spl. Auditor was able to provide such information/ledger accounts from the books of account, obviously he had scanned through the entire ledger meticulously and thoroughly. However, while he could find the accounts listed by him, his discerning eye failed him to find accounts reflecting huge interest-free receipts by assessee from sister concerns, despite there being ledger accounts of sister concerns, reflecting interest free funds provided to the assessee. Further, the Spl. Auditor mentioned in his list, accounts of Friends Mercantile Pvt. Ltd. and Gautam Freight Pvt. Ltd, in receipt of interest-free advances from assessee, entailing disallowance of Rs.40,49,780/- but again failed to notice the ledger accounts of the very same parties, reflecting huge amounts owed to them by the assessee, towards purchases and services expenses. The ld Counsel submitted before the Bench, two ledger accounts, not noticed by the Spl. Auditor and also by the Assessing Officer, and working of interest impact of these accounts vis-à-vis the disallowance of Rs.40,49,780/- made in respect of the said parties. It would be noticed that as a matter of fact, considering the amount due to these two parties in trading accounts, interest payable to them worked out to more Rs.62,46,112/-, than the interest disallowed by the assessing officer. Therefore, even on facts, the disallowance of Rs.40,49,780/- is the result of lack of inquiry by the assessing officer. Further, scanning of the entire ledger and picking up and choosing only such accounts (of interest-free advances) by the Spl. Auditor, again failed him to notice the accounts of other sister concerns providing huge interest-free funds to assessee, like: (i) Friends & Friends Shipping Pvt. Ltd., (ii) Friends Salt Works and Allied Industries and (iii) Kandla Agro& Chemicals Pvt. Ltd. Therefore, ld Counsel argued that assessee have sufficient interest-free funds that the assessee has used for interest-free advances. Even before the CIT (A), assessee mentioned that assessee has huge interest free funds received from sister concerns. The assessee submitted ledger accounts of these three sister concerns, Friends & Friends Shipping Pvt. Ltd., Friends Salt Works and Allied Industries and Kandla Agro& Chemicals Pvt. Ltd., with corresponding bank-books to corroborate the transactions in the ledger accounts and working of interest that would have been payable at the rate of 12% Page | 29 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (applied by the assessing officer) but not actually paid. This would make it amply clear that the Group as a whole followed a policy not charge interest when funds are made available to sister concerns, as these advances are out of interest free funds. 27. We find that learned CIT (A) gave importance to the fact that all the Group concerns happened to make such interest-free advances to one or the other concern, as per the needs of the business of the Group, which is more or less the same and complimentary to each other. The CIT (A) also noticed that similar disallowances were made in almost every case when each such concern happened to have received interest-free loans or given interest-free loans at some point of time. The ld Counsel pointed out that two concerns of the group, namely, Friends Mercantile Pvt. Ltd. and Gautam Freight Pvt. Ltd, in respect of which disallowance of over Rs.40 lakhs has been made, were in the subsequent year recipients of interest-free loans from the assessee. The CIT (A) also took notice of the fact that all the concerns were in paying tax in the highest tax-bracket and therefore there was no justification in making such disallowances in every case. 28. It is also a settled-principle that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his business. The Hon'ble Apex Court in the case of Sassoon J David and Co. (P) Ltd vs CIT Bombay (118 ITR 261)(SC) held that expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction for the same. Even the Hon'ble Karnataka High Court in the case Commissioner of Income-tax vs Motor Industries Company Limited (1907) (223 ITR 112) was of the view that the commercial expediency of a businessman's decision to incur, an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from a business point of view and have to be respected by the authorities no matter that it may appear, latter, that the expenditure incurred was unnecessary or avoidable. The assessing officer ought not to have questioned the commercial prudence of the transaction entered into by the assessee, businessman, when there was nothing on record to show that the transaction was not genuine. It is a settled principle of law that business or commercial expediency has to be judged from the perspective of the businessman and not of the Revenue, since it is the businessman who is being benefited from the services rendered and also it is he who knows to what extent the benefit ensures to him. Reliance in this regard may be placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Dhanrajgiri Raja Narasingirji, reported in 91 ITR 544 (SC), wherein it was held that \"it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure. 29. We find that assessee pleaded before the assessing that advances are out of interest- free funds available with the assessee and filed copy of accounts of parties and bank statements and subsequently also pleaded business expediency. The ld CIT(A) noted that all the business concerns of the group are assessed at the maximum marginal rate and therefore question of inference of any tax avoidance does not arise. It is also stated that the different concerns of the group have interdependent business operations and business activity of one concern cannot be carried out without availing services from other concerns. In this background, the requirements of business fund by each concern have to be examined. If one concern of the group faces urgent requirement of fund and the other concern is in a position to provide the same so that business interest of both the concerns are protected, any amount advanced without charging interest to/from such concerns is necessarily for the purpose of business/commercially expedient and in respect of providing/receiving such non- interest bearing advances, no question of making any disallowance should arise, as held by the Supreme Court in the case of S A Builders v. CIT 288 ITR 1, the findings of the Hon`ble court is reproduced below: Page | 30 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 “…..In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1)(iii) because in Section 37 also the expression used is \"for the purpose of business\". It has been consistently held in decisions relating to Section 37 that the expression \"for the purpose of business\" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Thus in Atherton vs. British Insulated & Helsby Cables Ltd (1925)10 TC 155 (HL), it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business…The expression \"commercial expediency\" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of. business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits......” 30.During the course of hearing, based on the audited balance-sheets for respective years, the ld. Counsel has also submitted the following position of interest-free funds from year to year to buttress the argument that the assessing, in the face of submissions made, and easily verifiable from the records available with him and produced before him, clearly erred in not appreciating the argument canvassed before him that the interest free advances have been made clearly out of interest-free funds available with the assessee and that there really remained nothing further to be established. The assessing has ignored this fact and has taken recourse to section 36(1)(iii) by making disallowance in all connected group cases. Therefore, we find that judgements on which ld DR for the revenue has relied, are distinguishable on facts and do not apply to the assessee under consideration. We find that the disallowance is made by the assessing officer by invoking section 36 (1) (iii) of the Act. From the data furnished it would be seen that the assessee has EPC/PCFC loans taken against the stock and export receivables and mortgage loan against the property. The assessee has submitted the details of stock in trade and advance against goods aggregating to Rs.60.74 Crores and interest-free funds of Rs.46.84 Crores during the year. Thus, it is clear that the capital borrowed for the purpose of business has been apparently used for the purpose of business. The assessing officer, has disregarded huge interest-free funds of Rs.46.84 Crores, during the year. Thus, we find that assessing officer has admittedly not established nexus between capital borrowed and interest-free advances, despite of having data and information with him, and has ignored the substantial interest-free funds available to the assessee. These aspects have been considered in several judicial pronouncements, some of which are binding judgments of the Jurisdictional High Court of Gujarat, which are as follows: (i). ACIT.v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2014)222 Taxman 28 (Mag.)/42 taxmann.com 579 (Guj.)(HC) Page | 31 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (ii). CIT.v. Amod Stamping (P.) Ltd. (2014) 223 Taxman 256 (Guj.)(HC) (iii). CIT v. Rajendra Brothers (2014) 52 taxmann.com 334 / (2015) 228 Taxman 348(Mag.) (Guj.)(HC) (iv). CIT v. Shree Rama Multi Tech Ltd. (2013) 219 Taxman 162 (Mag.) (Guj.) (HC) (v). CIT v. R.L. Kalthia Engineering & Automobiles (P.) Ltd. (2013) 215 Taxman 9 (Mag.) (Guj.)(HC) 31. Therefore, we find that it is not the case of the assessing officer that the interest free advances given by the assessee were withdrawn by the sister concern and utilized for personal purpose such as buying of property by the directors or making donations or gifts, as is the case, in many of the decisions cited by the assessing officer. In fact, short term advances to meet with urgent requirements of sister concerns with whom regular business is also transacted on daily basis, is squarely covered under the phrase \"for the purpose of business\" occurring in section 36(1)(iii) as well as 37(i) of the Act. Thus, there is no tax-avoidance angle also, there can be no justification for assessing officer to have made a disallowance when firstly advance is made out of interest free funds and secondly the interest-bearing loans are deployed for the purposes for which the funds are borrowed and also there is manifest business expediency, and assessing officer has not demonstrated the personal or non-business or purely charitable use by the recipient. For that reliance is placed on the judgement of the jurisdictional High Court of Gujarat in the case of RL Kalthia Engineering & Automobiles (P.) Ltd,[2013] 33 taxmann.com 14 (Gujarat), wherein it was held as follows: “6.It is well established proposition that when the Revenue fails to establish any nexus between the borrowed funds and the funds diverted/lent, any denial of allowances of interest under Section 36[1](iii) is not permissible. In the instant case, as both the authorities have held concurrently on the basis of material available that sufficient amount of interest-free funds were available with the assessee-respondent and therefore also, there is no justification in interfering with the decision of both these authorities. Resultantly, the question of law proposed is answered accordingly.\" 32.Deployment of fund available with one concern of the group, whether or not interest bearing, to other sister concern, to meet with business requirements of later with which the former has extensive business, cannot be termed as used not for business purpose as the term \"for the purposes of business\" is of wide import, and includes even the business of the associate. Therefore, we are of the view that when the recipient is not demonstrated by the assessing officer to have utilized the interest-free funds for personal, non-business or purely charitable purpose, the prudence of the businessman himself in making the interest-free advance is critically relevant and possibly decisive for a finding of business expediency, particularly if and when the recipient of interest free funds is also taxed at maximum rate. The facts of the case, in our view are also thus squarely covered by the Supreme Court decisions in the cases of M/s. S A Builders (supra) Gujarat HC decisions in Kalathia Engineering and Gujarat Narmada Valley Fertilizers ( supra). Therefore, based on these facts and circumstances, we do not find any infirmity in the order of the ld. CIT (A).That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.” 32. As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench, in assessee`s own group case, in ITA No.IT(SS)A Page | 32 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 No.135/Ahd/2016, Kandla Exports Corporation(supra), and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the binding judgment of the Coordinate Bench(supra), we dismiss the grounds raised by the revenue. 33. In the result, following grounds of the revenue, are dismissed: (i)Ground No.3 of revenue`s appeal in ITA No. 233/RJT/2016, for assessment year 2009–10. (ii)Ground No.3 in revenue`s, appeal in ITA No. 234/RJT/2016, at Rs.2,11,59,251/-. (iii). Ground No.2 in revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year 2011–12, at Rs.1,75,45,575/-. (iv ) Ground No.2 in revenue`s appeal in ITA No.236/RJT/ 2016, for assessment year 2012–13 at Rs.88,53,458/-. (v) Ground No.1 in revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14 at Rs.1,13,85,927/-. 34. The summarized and concise ground No.4 of revenue is reproduced below for ready reference: (iv) Ground No.4. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of Brokerage/ Commission expenses of Rs.1,76,35,013/-. [This is ground No.3 of revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year 2011– 12]. 35. Brief facts qua the ground No.4 of Revenue are that assessing officer made addition on account of Brokerage/ Commission expenses of Rs.1,76,35,013/-. The assessing officer has discussed the issue in para 5 of assessment order. Based on the observations of the Special Auditor, the assessing officer called upon the assessee to explain the fact as to the expenses of Rs. 1,76,35,013/-, debited on 30/03/2011 and credited to Expenses Payable Account with narration that US $ Page | 33 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 3,98,711.57 is shown payable as commission and brokerage on export of raw cotton. The reply of the assessee has been reproduced by the assessing officer. The assessee submitted before the assessing officer that the amount is rightly claimed as an expenditure and the same is payable, as per the agreed terms, to the agents based in Dubai, Indonesia and Pakistan who found buyers for the export effected by the assessee. Further, it was submitted that the payments have been made in the subsequent financial years 2011-12 to 2013-14.The assessing officer however, observed that in view of provisions of section 5(2)(b) r.w.s 9(1) of the Act, the expenditure involves the income accruing or arising to the recipient parties in India and such income being in the form of commission/brokerage, the TDS was deductible. The failure of the assessee in this behalf entails addition in view of AAR decision in the case of SKF Boilers & Dryers Pvt. Ltd reported in (2012) 15 taxmann.com 325. Thus, the assessing officer made the addition of Rs. 1,76,35,013/-. 36. On appeal, the ld. CIT(A) deleted the addition. The ld CIT(A) observed that the assessing officer has mainly relied on AAR decision in SKF Boilers(supra) to hold against the assessee with regard to brokerage and commission paid outside India for services enjoyed out of India. The facts are squarely covered by the decision of ITAT Rajkot Bench in Rimtex Industries, wherein it was held that AAR decisions cannot be applied in other cases and also that no tax is deductible from payment/credit for services enjoyed outside India. Moreover, there is no doubt about the genuineness of the claim and expenses. Thus, the addition of Rs.1,76,35,013/- for non-deduction of tax u/s 40(a)(ia) made by the assessing officer has no basis or merit and hence the same was deleted by ld. CIT(A). Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us. Page | 34 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 37. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 38. On the other hand, learned Counsel for the assessee argued that relied on the decision of Rajkot Bench of ITAT, in the case of Rimtex Industries, in ITA No.315/RJT/2013, dated 8/10/2015 and contended that the payment made to non- residents for services enjoyed outside the territory of India are not within the purview of section 195, as no sum in the hands of the recipients, is chargeable under the Act. The Ld. Counsel submitted that the decisions of AAR are applicable only to the petitioner before AAR and there is express bar against the applicability of AAR's decision, as a precedent in other cases and therefore, the assessing officer has grossly erred in law in relying on the AAR decision in the case of SKF Boilers and Dryers Pvt. Ltd (supra). Therefore, learned Counsel, contended that order passed by the ld. CIT(A) may upheld. 39. We have considered the rival submissions and perused the relevant finding given in the impugned orders. We find that assessing officer has in his conclusion part stated that the assessee's submission is not acceptable as provision of Section 5(2)(b) r.w.s.9(1) of the Act, deals with scope of total income whereby the income of non-resident includes all income from whatever source derived, which accrues or arises or deemed to accrue or arises in India. According to assessing officer source of commission income earned by non-resident is in India, hence provision of Section 195 of the Act would be applicable, for which he relies on the decision of AAR - New Delhi in the case of SKF Boilers and Driers P. Ltd. (2012) 15 taxmann.com 325. Accordingly the assessing officer disallowed the expense of Rs. 1,76,35,013/- on the ground that the tax was required to be deducted u/s 195 of the Act. Page | 35 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 40. We find that while the assessing officer has agreed that the claim of brokerage was genuine expense and not a provision but has disallowed the same because according to the assessing officer, tax is not deducted u/s 195 of the Act. In taking this view, the assessing officer has relied upon the Advance Ruling of the AAR cited above. We note that the decision of the AAR would apply only in the case of the assessee and this issue is squarely covered by the binding decision of the ITAT, Rajkot Bench in the case of ACIT Vs. Rimtex Industries in ITA No. 315/RJT/2013 rendered on 08-10-2015. The Tribunal has also considered the AAR Ruling referred to above and has decided the issue in favour of the assessee. We also rely upon the binding decision of the ITAT, Rajkot Bench in the case of Rimtex Industries(supra). Besides, there is no doubt about the genuineness of the claim and expenses. Thus, the addition of Rs. 1,76,35,013/- for non-deduction of tax u/s 40(a)(ia) of the Act, made by the assessing officer has no basis on merit and hence the same was rightly deleted by ld CIT(A).The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A), and dismiss the ground raised by the revenue. 41. In the result, ground No.3 of revenue`s appeal in ITA No. 235/RJT/ 2016, for assessment year 2011–12, is dismissed. 42. The summarized and concise ground No.5 of revenue is reproduced below for ready reference: (v).Ground No.5. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of iron-ore expenses of Rs.55,89,166/- [ This is ground No.4 of Revenue`s appeal in ITA No. 235/RJT/2016, for assessment year 2011–12] 43. Brief facts qua the ground No.5 of Revenue are that assessing officer made addition on account of Iron Ore Expenses at Rs.1,16,88,834/-.The assessing officer had discussed the issue on page no.13 to 17 in para 6of the order. It is seen that the Special Auditor made an observation that an amount of Rs. 1,16,88,834/ has been Page | 36 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 provided and debited towards \"Iron-Ore Export Expenses, though no export of iron-ore took place during the period under reference. The assessing officer called upon the assessee to explain why the same should not be disallowed in view of the fact that in the absence of export, the expense is booked merely to reduce the income of the assessee- company. The reply of the assessee has been reproduced by the assessing officer and is available on page no. 17 of the paper book. It was explained therein that the amount of Rs. 1,16,88,834/-includes an amount of Rs. 39,84,974/- being the amount adjusted by New Manglore Port Trust, in respect of demand, vide their letter dated 22/12/2010, towards differential license fees for preceding periods in respect of plot allotted to the assessee by the Port. The copy of this letter was enclosed with the submission (paper book page no.62-64), pointing out that the communication for liability, though pertaining to the period w.e.f. 7/2/2007, was received during FY 2010-11, the liability has been accepted by the assessee and therefore, the amount has rightly been claimed. The assessee put reliance before the assessing officer on Jurisdictional High Court judgements in Saurashtra Cement & Chemical Industries Ltd. and Mahindra Mills Ltd. reported in 213 ITR 523 and 334 ITR 254 respectively for the proposition that the claim crystallized during the year under reference by way of receipt of demand notice though pertaining to previous period, is an allowable claim. 44. Similarly, the other component of the claim to the tune of Rs.77,03,859/- was explained before the assessing officer to be relatable to service tax charged by the service provider for services enjoyed by the assessee-company during preceding period in connection with export of iron-ore to overseas countries. As explained before the assessing officer, as per notification issued by CBEC, service tax paid on export of goods is refundable to exporters subject to compliance of certain conditions. In anticipation of such refund, the service charges were debited by the assessee at the net amounts excluding the component of service tax, totalling to Rs.77,03,859/-. The claims of such refunds of the assessee were claimed to have Page | 37 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 been rejected by the Competent Authorities during the period under reference and therefore, the claim was argued to be rightly made and allowable. The assessing officer however, expresses his opinion on page 17 to the effect that the expenditure with regard to both the service tax and differential license fees pertain to the periods earlier to the previous year under reference and therefore, not allowable. The assessing officer also observes that the assessee has not filed any proof of having \"finally accepted the liability and actual payment of the same, without any dispute pending before any Court of law. Thus, in substance holding the expenditure relatable to previous period, the assessing officer disallowed the claim of the assessee. 45. On appeal, the ld. CIT(A) partly deleted the addition, therefore revenue is in appeal before us. 46. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 47. On the other hand, learned Counsel for the assessee, reiterated the submissions made before the learned CIT(A). 48. We have heard both the parties. During the appellate proceedings, the assessee has explained before learned CIT(A) with regard to the claim of differential rent demanded by the Manglore Port Trust, amounting to Rs.39,84,974/-, vide page no.62-64 of the paper book, which is a communication dated 22/11/2010, from Sr. Accounts Officer of Manglore Port Trust. With regard to the component of service tax of Rs. 74,87,341/-, the assessee submitted vide para 4.4 of the written submissions before the ld CIT(A) that part of the service tax liability debited amounting to Rs.56,59,784/- is accepted by the assessee and is undisputed, while the balance amount of Rs.18,27,557/- has been contested in Page | 38 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 higher forum and therefore, this part of liability not having crystallized in law, is rightly disallowed by the assessing officer. In sum total, the assessee pleaded before the ld. CIT(A) that liability to the extent of Rs.98,61,277/- has crystallized during the year on account of the communications for quantified liability having been received from Manglore Port Trust and Service Tax Department during the period under reference, which have not been further contested and therefore, the assessing officer has erred in not following the binding decisions in the case of Saurashtra Cement and Mahindra Mills cited before him. The ld CIT(A) noticed the binding decision in Saurashtra Cement & Chemical Industries Ltd. 213 ITR 523, reproduced by the assessing officer on page 16 of his order, clearly lays down a rule that once the liability though pertaining to previous period has arisen during the previous year on account of either the receipt of communication raising the liability or on account of rejection of the claim of refund, the liability is supposed to have arisen during the year of receipt of such communication regardless of the fact as to which period the same pertains. Once such demand/rejection is claimed not to have been contested, the same would also stand crystallized during the period of receipt/rejection of claim, unless the assessing officer brings evidence of further contests of such claim by the assessee on record. Thus, ld CIT(A)found that the communication from Manglore Port Trust, dated 22/11/2010 deducting an amount of Rs.39,84,974/-from the caution money deposit which as per statement enclosed thereto showing the amount of deduction to be \"Dues to be recovered from the assessee\", clearly implies that the liability has crystallized during the year and the facts relating to this claim are squarely covered by the decision in Saurashtra Cement & Chemical Industries Ltd. (supra). 49. With regard to liability regarding rejection of claim of refund of service tax, the assessee had submitted a chart along with the copies of relevant communications from the Service Tax Department, before the ld. CIT (A), which is reproduced below: Page | 39 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 50. After perusal of the accompanying orders/communications, The ld CIT(A) noted that the communication from the Service Tax Department as mentioned above in the table excepting the communication pertaining to an amount of Rs.16,04,192/- dated 29/12/2010 (the correct date appears to be 23/02/2011), all other communications pertaining to a balance amount of Rs.40,55,592/- are not in the nature of orders of the Competent Authority, communicating the rejection of the claim, but are in fact communications requiring further information or supporting documents from the assessee for further consideration of the claim of the refund. Thus, out of the claim of Rs.56,59,784/, the claim pertaining to only Rs. 16,04,192/- is evidenced to be rejected by, the Competent Authority and therefore having crystallized in law during the period under reference. The claim with regard to the balance amount has not been evidenced to be rejected by Competent Authority during the period under reference, though prima facie, the assessee might have received the final communication of rejection subsequent to the dates mentioned in the table, the copies of which have not been submitted by the assessee. In view of this and in view of the material available on record, the ld CIT(A) held that the liability for an amount of Rs.39,84,974/- (Manglore Port Trust) and Rs. 16,04,192/- (service tax refund rejection) totalling to Rs.55,89,166/ is evidenced to have crystallized during the year under reference and hence clearly allowable u/s 37(1) of the Act. It is further held that the liability of an amount of Rs. 18,27,557/- being contested by the assessee before higher forum has not Page | 40 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 crystallized in law during the current period and therefore, claim of expenditure to this extent has rightly been rejected by the assessing officer. With regard to the balance amount of claim made by the assessee i.e. Rs.38,72,111/-, the assessing officer is directed to verify on the basis of documents to be submitted by the assessee whether the final orders of rejection of claims of refund have been issued by the Competent Authority during F.Y. 2010-11. If the assessee is able to submit the relevant copies of orders of final rejection of claims of refund of service tax issued during F.Y.2010-11, and if the same is also certified by the assessee to be uncontested further, the liability shall obviously be considered to have been crystallized during the year and in that eventuality, the full or part of the amount as may be the case, shall be allowed by the assessing officer. The assessee's failure to submit the requisite documents shall result in rejection of the claim of expenditure, partly or fully, as the case may be. In view of this, the addition of Rs. 18,27,557/-was confirmed by ld CIT(A), while addition of Rs.55,89,166/- was deleted by ld CIT(A). With regard to balance amount of Rs.38,72,111/-, the ld.CIT(A) directed the assessing officer, to follow the directions expeditiously given by ld. CIT(A). This way, the ld. CIT(A), partly allowed the claim of the assessee. We have gone through the above findings of the ld. CIT(A) and noted that there is no any infirmity in the conclusion so reached by the ld. CIT(A).Therefore, after having regard to the given facts and circumstances of the case, it is difficult to differ with the findings of the ld. CIT(A). Accordingly, the ground of appeal of Revenue is dismissed. 51. In the result, Ground No.4 of Revenue`s appeal in ITA No. 235/RJT/2016, for assessment year 2011–12, is dismissed. 52. The summarized and concise ground No.6 of revenue is reproduced below for ready reference: Page | 41 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (vi) Ground No.6. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of sale made to group concern of Rs.33,56,700/-. [ This is ground No.5, of revenue`s appeal in ITA No. 235/ RJT/2016, for assessment year 2011–12, and Ground No.3, in revenue`s appeal in ITA No. 236/RJT/2016, for assessment year 2012– 13, at Rs.2,29,30,740/-] 53. Brief facts qua ground No.6 of revenue are that during the assessment proceedings, the assessing officer made addition on account of Sale made to Group Concerns at Rs.33,56,700/-.The assessing officer has discussed the issue in para 7 of his assessment order. It has been observed by the Special Auditor that the sale made to M/s. Friends Salt Works & Allied Industries Ltd., M/s. Kandla Export Corporation and M/s Terapanth Foods Pvt. Ltd. are at average rate of Rs. 350/- Rs.350/- and Rs. 275/- per MT respectively and further that sale made to Terapanth Foods Ltd, is at relatively lesser rate. On the basis of this observation of the Special Auditor, the assessing officer called upon the assessee to explain. The assessee's reply has been reproduced by the Ld. assessing officer on page 18 of the order. The assessee submitted before the assessing officer that the sales are fully vouched, none of the parties is \"relative within the meaning of section 40A(2)(b) of the Act, and that the transactions are genuine and therefore, no addition would be justified. Moreover, the assessee submitted that higher rate is for washed salt and lower rate is for unwashed salt and therefore, no adverse inference merely on the basis of rate of sale can and should be drawn. The assessing officer, however, under conclusion part, observed that assessee has \"not furnished any documentary evidence\" for the sale of washed salt to Kandla Export & Friends Salt Works and that of unwashed salt to Terapanth Foods Pvt. Ltd, and therefore, he brings to tax the amount of Rs.33,56,700/- @ Rs. 75 on quantity \"sold at lesser rate to Terapanth Foods Pvt. Ltd. 54. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the assessing officer. The ld. CIT(A) noticed that none of the parties is a 'relative' Page | 42 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 within the meaning of section 40A(2)(b) of the Act, and thus, there is no reason or material with the assessing officer for the conclusion that the transaction is at a higher or lower rate The simple truth is that the assessee, as indeed any assessee, is free to transact its affairs as best suited to itself and no one can be compelled by the assessing officer to maximize its profits. Moreover, and in any case, neither Kandia Exports Corporation nor Friends Salt Works & Allied Industries Ltd, nor Terapanth Foods Pvt. Ltd, are relative of the assessee, within the meaning of section 404(2)(b) of the Act. Even if they are relative, section 40A(2)(b) of the Act, can be applied only with respect to higher expenditure and not with respect to lesser receipt of sale consideration. Based on these facts and circumstances, the ld. CIT (A) deleted the addition, therefore revenue is in appeal before us. 55. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, learned Counsel for the assessee, reiterated the submissions made before the learned CIT(A). 56. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We find that before the ld. CIT(A) assessee submitted the sample copies of invoices issued to Terapanth Foods Pvt.Ltd and the other two concerns to emphasize further that while M/s Kandla Exports Corporation and M/s. Friends Salt Works & Allied Industries exported the salt sold to them at higher rate, as is evident from the fact that the salt was dispatched directly to the vessels M.V. ACS Diamond and M. V. AS HI YA STAR, while salt sold to Terapanth Foods Pvt. Ltd. was delivered locally. The assessee further submitted before ld CIT(A) that in the very invoices referred to by the Special Auditor, the mention about the different nature of quality of salt sold to Page | 43 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 three parties was evident. At the end, the assessee submitted that there is no provision in the Act authorizing the assessing officer to make the addition, on a conjecture that the assessee has while making a sale, not made appropriate profit, and as such the addition is wholly arbitrary. The ld. CIT(A) noticed that none of the parties is a 'relative' within the meaning of section 40A(2)(b) of the Act, and thus, there is no reason or material with the assessing officer for the conclusion that the transaction is at a higher or lower rate The simple truth is that the assessee, as indeed any assessee, is free to transact its affairs as best suited to itself and no one can be compelled by the assessing officer to maximize its profits. Moreover, and in any case, neither Kandia Exports Corporation nor Friends Salt Works & Allied Industries Ltd, nor Terapanth Foods Pvt. Ltd, are relative of the assessee, within the meaning of section 404(2)(b) of the Act. Even if they are relative, section 40A(2)(b) of the Act, can be applied only with respect to higher expenditure and not with respect to lesser receipt of sale consideration. The ld CIT(A) also noticed that there is valid basis for different rates of sale. Moreover, there is also neither an allegation nor any evidence of unaccounted receipt from these purchaser parties. In view of this, the addition, being wholly arbitrary has no authority or validity in law and therefore the ld. CIT(A) deleted the addition of Rs.33,56,700/-. 57. The relevant observations of ld. CIT (A) for assessment year 2012–13 are as follows: “The Ld. assessing officer has discussed the similar addition of Rs.2,29,30,740/- for A.Y:2012-13 also on page no.11 to 13 in para 5 of the assessment order. The finding of the Ld. assessing officer, the submissions made both before the assessing officer and before me and the arguments made before me are exactly identical to the facts and submissions on this issue as discussed above for A.Y.2011-12. In view of this, following the reasoning and rationale as above, it is held that there is no merit either on facts or in law in the addition on account of sale made to group concerns for A.Y.2012-13 also. The addition of Rs.2,29,30,740/- therefore stands deleted. The assessee would get equivalent relief and related ground would stand allowed.” Page | 44 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 58. Therefore, after having regard to the given facts and circumstances of the case, in our considered opinion, the action of the ld.CIT(A) does not warrant any interference. Accordingly, the ground of appeal of Revenue are dismissed. 59. In the result, following grounds of appeal of the revenue are dismissed: (i)Ground No.5, of revenue`s appeal in ITA No. 235/ RJT/2016, for assessment year 2011–12. (ii) Ground No.3, in revenue`s appeal in ITA No. 236/RJT/2016, for assessment year 2012–13, at Rs.2,29,30,740/-. 60. The summarized and concise ground No.7 of revenue is reproduced below for ready reference: “(vii) Ground No.7. The ld. CIT(A) has erred in law and on facts in allowing the lumpsum amount paid for facilitating access to windmill amounting to Rs.29,78,100/-, to be amortized for the period of 20 years, which comes to Rs.1,48,905/- per year ( 2978100/20) [ This ground No.3, is raised by the revenue, in ITA No. 366/RJT/2017, for assessment year 2013–14.]” 61. Brief facts qua ground No.7 of revenue`s appeal are that the issue, regarding, the disallowance of depreciation on Wind Mills has been dealt with by the assessing officer, in paragraph 7 of the assessment order. The assessing officer called for the assessee's explanation as to why depreciation on land cost should not be disallowed and why the depreciation on wind mill should not be computed as per opening written down value (WDV) of the last year. The assessee submitted before the assessing officer that they have claimed depreciation @ 80% on the charges paid for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill. Depreciation is claimed @ 80% on such charges paid in advance for several years. It was also contended that these expenses were in the nature of rent that could have been claimed as revenue expenditure admissible u/s 37(1) of the Act. It was contended that the character of expense paid as rent remains to be of revenue nature irrespective of the fact that the same is paid in advance for several years. In support of this Page | 45 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 contention the assessee relied upon the judgment of Gujarat High Court in the case of Dy. CIT V. Sun Pharmaceuticals Ind. Ltd. reported in 227 CTR (Guj) 206. The assessee accordingly requested the assessing officer to allow the entire expense as revenue expenditure u/s 37(1) of the Act, if not allowing depreciation @ 80% on the charges paid for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill.The assessing officer, after observing that depreciation is not allowable on the land charges as per Appendix-1, disallowed the depreciation on land facilitation charges to the extent of Rs. 649/-. 62. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly deleted the addition made by the assessing officer, therefore, the revenue is in appeal before us. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld. Counsel for the assessee, defended the order passed by the ld. CIT(A). 63. We have heard the Learned Counsel appearing on behalf of the respective parties at length. Before ld. CIT(A), the assessee has argued that assessing officer should have allowed the amount, as rent u/s 37(1) of the Act, by relying upon the judgment of the Gujarat High Court reported in 227 CTR (Guj) 206. It was also contended the assessing officer, ought to have allowed the depreciation @ 80% on the charges paid for use of the land for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill i.e. temporary approach road. The assessee has relied on the Hon'ble Bombay High Court's judgment in the case of CIT Vs. Infrastructure Leasing & Financial Service Ltd. 69 Taxman.Com 20 (Bombay) wherein issue, under consideration has been dealt by the Hon'ble court and decided in favour of the assessee. However, during the appellate proceedings, before learned CIT(A), the assessee did not press for Page | 46 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 allowance of depreciation on land for access to wind mills and agreed that similar to and following the order of ld CIT(A)`s predecessor in earlier years in the case of the assessee, may be followed, and the amortized value of land cost paid to M/s Suzlon be allowed u/s 37 of the Act. 64. The ld. CIT(A) noted that the assessing officer has rightly disallowed the claim of depreciation on land as no depreciation has been provided in the Income Tax Act & Income Tax Rules for land and that neither the land nor the right in land, as submitted is a depreciable asset. This also is not the case of the assessee that roads have been made on the land where the wind mill is situated and that such roads belong to the assessee. However, ld. CIT(A) agreed for the lumpsum amount paid by the assessee towards land-for facilitating access to wind mill, which can be amortized for the period involved and such amortized amount can be treated as rent and allowed u/s 37(1) of the Act. Accordingly, lumpsum amount paid amortized over 20 years which comes to Rs.1,48,905/-, per year (on the basis of Rs.29,78,100/20) were paid to M/s Suzlon Energy Ltd, against Invoice No. SEL/KAR/Lease/11-12/027 dated 31.03.2012 for the period of 20 Years (i.e. Rs.29,78,100/20)) shall be allowed by the assessing officer against the depreciation originally claimed of Rs. 14,29,488/-. However the assessing officer shall also check and ensure that the cumulative amount so allowed to the assessee, which does not exceed the lumpsum amount paid to lessor or owner. We have gone through the above conclusion reached by the ld. CIT (A) and noted that there is no any infirmity in the conclusion, so reached. That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 65. In the result, ground No.3, raised by the revenue, in ITA No. 366/RJT/2017, for assessment year 2013–14, is dismissed. Page | 47 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 66. The summarized and concise ground No.8 of revenue is reproduced below for ready reference: (viii).Ground No.8. The ld. CIT(A) has erred in law and on facts in allowing the Service Tax relatable to rejection of refund of service tax in the previous year, relevant to the year, under appeal, amounting to Rs.18,27,557/-, without appreciating the fact that this is a prior period expenses. [This is ground No.4 of revenue`s appeal in ITA No.366/RJT/2017, for assessment year 2013-14]. 67. Brief facts qua ground No.8 of revenue`s appeal are that during the assessment proceedings, the assessing officer disallowed the claim of service tax relatable to rejection of refund of Service Tax in the previous year relevant to the year under appeal, Rs.18,27,557/-. On appeal, the ld. CIT(A) allowed the appeal of the assessee, therefore the revenue is in appeal before us. 68. We have considered the rival submissions and perused the relevant finding given in the impugned orders. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld. Counsel for the assessee, defended the order passed by the ld. CIT(A). We find that before ld. CIT (A), the assessee has filed the following written submission, which is reproduced below for ready reference: “The assessee submits that for the first time in the year under appeal the assessee is required to raise the claim at the appellate stage regarding claim of service tax relatable to rejection of refund of Rs. 18,27,557/- in the previous year relevant to the year under appeal. The relevant facts are that in the earlier years the assessee had exported iron ore to overseas buyers and for such exports they had received services from service providers who charged Service-Tax along with their Service Charges. Normally, the assessee would claim the expenses incurred for the payment of service charges and also the service tax paid to the service providers in the concerned year. However, as far as the service tax is concerned the assessee did not make the claim as expense in view of the Notification issued by the CBEC to the effect that Service-Tax paid on export of goods would be refundable to the exporter subject to compliance of certain conditions. Therefore, the assessee had debited and claimed in earlier years only the net expenditure exclusive of Service-Tax by way of service charges in their books and the service tax component was accounted for and carried to the Balance Sheet as recoverable deposit to be claimed as refund. However, the refund claim of the assessee was rejected by the Service Tax Department. Such rejection of the claim by the Service Tax Department was ordered in respect of the claim of Rs. 77,03,859/-. Due to rejection of claim, the expense that was treated as recoverable deposit was required to be claimed as expense in the Page | 48 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 year in which it crystallized due to rejection of the claim. In the assessment proceedings, the assessee had claimed the entire amount of Rs.77,03,859/- on the basis of rejection of claim. However, during the appellate proceedings the assessee restricted our claim to Rs.56,59,784/- as out of Rs.77,03,859/- only Rs.56,59,784/- had crystallized in the AY 2011-12 and since the balance amount of Rs. 18,27,557/- had crystallized during the year under appeal the assessee requested that the same may be considered/allowed as expenses of the year under appeal. Since this position of partial claim in the A. Y. 2011- 12 emerged in the assessment proceedings late by which time the assessment proceedings for the year under appeal had been closed it was not possible to claim the said amount either by way of revised return of income or by making application for the purpose. Considering the fact that the CIT (A) has co-terminus jurisdiction, and part of the claim has been considered in appeal for A. Y. 2011-12, we submit that the claim of Rs. 18,27,557/- may kindly be entertained and the assessing officer may be directed to allow the same.” 69. Therefore, the assessee has prayed the ld. CIT (A) to direct the assessing officer to allow the claim of service tax of Rs. 18,27,557/-. 70. It was further submitted that the order rejecting the claim of refund having been passed by the Service Tax Dept. in the previous year relevant to AY 2011- 12, the said amount of Rs.77,03,859/-, was claimed as expense in that year. The assessing officer, however disallowed the claim of deduction and therefore a ground was taken in appeal for AY 2011-12, seeking relief of Rs.77,03,859/-. In appellate proceedings the assessee restricted the claim to Rs.56,59,784/- only as claim of refund of Rs. 18,27,557/- was finally rejected in the previous year relevant to AY 2013-14. As it happened, the assessment proceedings for AY 2013-14 came to be completed on 07-03-2016 whereas the appellate order for the AY 2011-12 was passed on 22-03-2016. Since the assessee did not have clarity as to the appellate decision on its request for restricting the claim up to Rs.56,59,784/- and admissibility of the balance of Rs. 18,27,557/- in A. Y. 2013-14 until its appeal was decided on 22-03-2016, the claim for the balance could not be made before the assessing officer prior to completion of assessment on 07-03-2016. It was pointed out by the assessee that the assessee's request for allowing the claim to the extent of Rs.56,59,784/- in appeal for AY 2011-12 and to uphold disallowance of the balance Rs. 18,27,557/- relatable to AY 2013-14, was dealt with in the appellate order (paragraph 18.5 & 18.6) whereby the assessing officer was directed Page | 49 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 to delete the disallowance of Rs. 16,04,192/- and for the balance of Rs.39,84,974/- to verify whether the final orders of rejection of claims of refund have been issued by the competent Authority during FY 2010-11 and if these orders are not contested further, to consider the amount of Rs.39,84,974/- to have crystalized during the year and to allow the same in AY 2011-12. The disallowance of the balance Rs. 18,27,557/- relatable to A. Y. 2013-14 was confirmed having not crystallized during the year. 71. The assessee submitted that the CIT (A) as the first appellate authority has co-terminus jurisdiction with the assessing officer and accordingly has jurisdiction over not only the subject matter of appeal but over the subject matter of assessment for which reliance has been placed upon the judgment of the Hon. Supreme Court reported in 66 ITR 443 quoting the judgment of the Hon. Allahabad High reported in 105 ITR 344 that \"the statute provides that, once an assessment comes before the AAC, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the ITO not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the ITO and determined in the course of the assessment.\" 72. The ld.CIT(A) reproduced from his predecessor's order in No.CIT(A)- 12/538-541/CC 2(3)/14-15 dated 22/03/2016, in the case of the assessee on the issue of allowability of service tax paid in relation to export of iron ore (which was not claimed by debiting to the account as the same was to be received by way of refund from the Service Tax Department but the refund was denied) :- \"I have carefully considered the material available on record and the rival -contentions available before me. I have also perused the Authorities relied upon by the assessee. At the outset, I observe that the binding decision in Saurashtra Cement & Chemical Industries Ltd. 213 ITR 523, reproduced by the Ld. assessing officer on page 16 of his order, clearly lays down a rule that once the liability though pertaining to previous period has arisen during the previous year on account of either the receipt of communication raising the ability or on account of rejection of the claim of refund, the liability is supposed to have arisen during the year of receipt of such communication regardless of the fact as to which period the same pertains. Once such demand/rejection Page | 50 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 is claimed not to have been contested, the same would also stand crystallized during the period of receipt/rejection of claim, unless the assessing officer brings evidence of further contests of such claim by the assessee on record. Thus, I find that the communication from Manglore Port Trust, dated 22/11/2010 deducting an amount of Rs.39,84,974/-from the caution money deposit which as per statement enclosed thereto showing the amount of deduction to be \"Dues to be recovered from the assessee\", clearly implies that the liability has crystallized during the year and the facts relating to this claim are squarely covered by the decision in Saurashtra Cement & Chemical Industries Ltd. (supra).\" \"After perusal of the accompanying orders/communications, I find that the communication from the Service Tax Department as mentioned above in the table excepting the communication pertaining to an amount of Rs16,04,192/- dated 29/12/2010 (the correct date appears to be 23/02/2011), all other communications pertaining to a balance amount of Rs.40,55,592/- are not in the nature of orders of the Competent Authority, communicating the rejection of the claim, but are in fact communications requiring further information or supporting documents from the assessee for further consideration of the claim of the refund. Thus, out of the claim of Rs 56,59,784/-, the claim pertaining to only Rs. 16,04,192/- is evidenced to be rejected by the Competent Authority and therefore having crystallized in law during the period under reference. The claim with regard to the balance amount has not been evidenced to be rejected by Competent Authority during the period under reference, though prima facie, the assessee might have received the final communication of rejection subsequent to the dates mentioned in the table, the copies of which have not been submitted by the assessee. In view of this and in view of the material available on record, I hold that the liability for an amount of Rs.39,84,974/- (Manglore Port Trust) and Rs. 16,04,192/(service tax refund rejection) totalling to Rs.55,89,166/ is evidenced to have crystallized during the year under reference and hence clearly allowable u/s 37(1). It is further held that the liability of an amount of Rs. 18,27,557/-being contested by the assessee before higher forum has not crystallized in law during the current period and therefore, claim of expenditure to this extent has rightly been rejected by the assessing officer. With regard to the balance amount of claim made by the assessee i.e. Rs. 38,72,111/-, the assessing officer is directed to verify on the basis of documents to be submitted by the assessee whether the final orders of rejection of claims of refund have been issued by the Competent Authority during F.Y. 2010-11. If the assessee is able to submit the relevant copies of orders of final rejection of claims of refund of service tax issued during F.Y.2010-11, and if the same is also certified by the assessee to be uncontested further, the liability shall obviously be considered to have been crystallized during the year and in that eventuality, the full or part of the amount as may be the case, shall be allowed by the assessing officer. The assessee's failure to submit the requisite documents shall result in rejection of the claim of expenditure, partly or fully, as the case may be. In view of this, the addition of Rs. 18,27,557/- is confirmed while addition of Rs.55,89,166/- is deleted. With regard to balance amount of Rs.38,72,111/-, the assessing officer shall follow the directions expeditiously. In the result, the ground 3(v) partly succeeds.\" 73. It is noted by the ld. CIT(A) that present claim of the assessee was not before the assessing officer and therefore, ld CIT(A) was of the view that sending these additional claim evidences to the assessing officer for his examination and Page | 51 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 comments would not serve any purpose in favour of the revenue and that the incumbent is competent to make an order as deemed fit which would include a direction to the assessing officer. Following the order of predecessor, the ld CIT(A) directed to the assessing officer to verify on the basis of documents to be submitted by the assessee, whether the final orders of rejection of claims of refund have been issued by the Competent Authority during F.Y. 2010-11 and if the same is also certified by the assessee to be uncontested further, the liability shall obviously be considered to have been crystallized during the year and in that eventuality, the full or part of the amount as may be the case, shall be allowed by the assessing officer. The assessee's failure to submit the requisite documents shall result in rejection of the claim of expenditure, partly or fully, as the case may be. Therefore, after having regard to the given facts and circumstances of the case, in our considered opinion, the action of the Ld. CIT(A) does not warrant any interference. Accordingly, the ground of appeal of the Revenue is dismissed. 74. In the result, Ground No.4 of revenue`s appeal in ITA No.366/RJT/2017, for assessment year 2013-14, is dismissed. 75. Now we shall adjudicate the summarized and concise ground No.1 of cross objections of the assessee, which is reproduced below for ready reference: (i) Ground No.1. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs.1,54,200/-, by treating the same, as capital expenditure, not allowable under section 35D of the Act. [ This is ground No.2 of cross objection No. 23 and ground No. 2 of cross objection No. 24.] 76. We have heard both the parties. We note that section 35D of the Income Tax Act, 1961 allows an assessee (Indian company or resident individual engaged in business) to claim a deduction for certain preliminary expenses incurred before the commencement of business or in connection with an extension of an existing business. Purpose of Expenses, that is, the expenditure must be incurred before the commencement of business, or in connection with an extension of an existing industrial undertaking. We direct the assessing officer to examine the conditions Page | 52 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 mentioned in section 35D of the Income tax Act, 1961, and if the assessee fulfils, the conditions mentioned in section 35D of the Act, the claim of the assessee should be allowed. Therefore, for statistical purposes, the cross objections raised by the assessee are allowed. 77. In the result, cross objections filed by the assessee are allowed for statistical purposes. 78. Now we shall adjudicate the summarized and concise ground No.2 of cross objections of the assessee, which is reproduced below for ready reference: (ii) Ground No.2. The ld. CIT(A) has erred in law and on facts in confirming disallowance of depreciation of land cost of windmill to the extent of Rs.4,05,600/- and allowing the said amount as rent on monthly basis. [ This is ground No.3 of cross objection No. 23, Ground No.3 of cross objection No.24, Ground No.2 of cross objection No. 25, Ground No.2 of cross objection No. 26] 79. This issue we have already adjudicated in para No.63 to 64 of this order. We are of the view that land is not depreciable asset, hence, no appreciation should be provided on land. Therefore, we dismiss this cross objections filed by the assessee. 80. In the combined result, all appeals of the revenue are dismissed, whereas cross objections filed by the assessee are partly allowed to the extent indicated above. Order is pronounced on 17.03.2025 in the Open Court. Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot (True Copy) िदनांक/ Date: 17 /03/2025 *Ranjan Page | 53 ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Rajkot "