M/s. Sical Logistics Limited, CHENNAI v. DCIT, CHENNAI

CO 186/CHNY/2009 | 2001-2002
Pronouncement Date: 18-10-2010 | Result: Dismissed

Appeal Details

RSA Number 18621723 RSA 2009
Assessee PAN AAACS3789B
Bench Chennai
Appeal Number CO 186/CHNY/2009
Duration Of Justice 11 month(s) 1 day(s)
Appellant M/s. Sical Logistics Limited, CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Cross Objection
Pronouncement Date 18-10-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 18-10-2010
Date Of Final Hearing 18-10-2010
Next Hearing Date 18-10-2010
Assessment Year 2001-2002
Appeal Filed On 16-11-2009
Judgment Text
IN THE INCOMETAX APPELLATE TRIBUNAL: C- BENCH:CHENN AI (BEFORE SHRI ABRAHAM P. GEORGE. ACCOUNTA NT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) ITA NO.534/ MDS/09 ASST. YEAR 2001-02 M/S SICAL LOGISTICS LTD VS. THE DCIT SOUTH INDIA HOUSE CO. RANGE V(1). CHENNAI 73 ARMENIAN ST. CHENNAI 600001 (PAN AAACS3789B) (APPELLANT) (RESPONDENT) ITA NO.1626/MDS/09 ASST. YEAR 2001-02 THE DCIT VS. M/S SICAL LOGISTICS LTD CO. RANGE V(1) CHENNAI CHENNAI 600001 (APPELLANT) (RESPONDENT) C.O NO.186/MDS/09 (IN ITA NO.1626/MDS/09- ASST.YEAR 2001-02) M/S SICAL LOGISTICS LTD VS. THE DCIT CHENNAI 600001 CO.RANGE V(1) CHENNAI (CROSS-OBJECTOR) (RESPONDENT) ASSESSEE BY: RESPONDENT BY: SRI S.SATYANARAYANAN SRI K.E.B.RANGARAJAN JR.STANDING COUNSEL ITA NOS.1626 534 & CO 186/MDS/09 2 ORDER PER ABRAHAM P.GEORGE ACCOUNTANT MEMBER THESE APPEALS AND CROSS-OBJECTIONS ARE DIRECTED AGA INST THE ORDER DATED 06-02-2009 OF THE CIT(A)-V CHENNAI FOR THE ASSESSM ENT YEAR 2001- 02. APPEAL IN ITA NO.534/MDS/09 IS AN APPEAL OF THE ASSESSEE. ITA NO.1626/MDS/09 IS A CROSS APPEAL BY THE REVENUE. AS SESSEE HAS ALSO FILED CROSS-OBJECTION NO.186/MDS/09 AGAINST THE APP EAL OF THE REVENUE. 2. APPEAL OF THE ASSESSEE IS TAKEN UP FIRST FOR DIS POSAL. ASSESSEE HAS TAKEN 14 GROUNDS IN TOTAL OF WHICH GROUND NOS.1 AND 4 ARE GENERAL NEEDING NO ADJUDICATION. ASSESSEE HAS ALSO RAISED A DDITIONAL GROUNDS WHICH THE LD. COUNSEL FOR THE ASSESSEE WITHDREW AT THE TI ME OF HEARING. 3. VIDE ITS GROUNDS 2 AND 3 ASSESSEE ASSAILS THE AC TION OF THE CIT(A) CONFIRMING THE ORDER OF THE AO WHICH ORDER WAS PAS SED ON THE DIRECTIONS GIVEN BY THE CIT UNDER SEC. 263 OF THE INCOME-TAX A CT 1961 (THE ACT FOR SHORT). ACCORDING TO THE ASSESSEE CIT(A) OUGHT TO HAVE DECIDED THE ISSUES BROUGHT UP BEFORE HIM BY THE ASSESSEE ON MERITS. IN ORDER TO ITA NOS.1626 534 & CO 186/MDS/09 3 DEAL WITH THESE GROUNDS OF THE ASSESSEE IT IS NECE SSARY TO DWELL UPON THE HISTORY OF THE CASE. 4. THE ASSESSMENT WAS ORIGINALLY COMPLETED FOR THE IMPUGNED ASSESSMENT YEAR ON 23-03-2004. THIS ASSESSMENT WAS SET ASIDE BY THE CIT INVOKING SEC. 263 VIDE HIS ORDER DATED 27-03-2006. AGAINST THE ORDER OF THE CIT UNDER SEC. 263 OF THE ACT ASSESSEE MOVED I N APPEAL BEFORE THIS TRIBUNAL. THIS TRIBUNAL VIDE ITS ORDER DATED 04-02- 2009 READ ALONGWITH THE ORDER DATED 20-10-2009 IN ITA NO.1280/MDS/06 UP HELD THE ORDER OF THE CIT IN INVOKING REVISIONARY JURISDICTION UND ER SEC. 263 OF THE ACT EXCEPT ON A FEW ISSUES. MEANWHILE THE AO HAD PROCEE DED TO FRAME A FRESH ASSESSMENT IN ACCORDANCE WITH THE DIRECTIONS OF THE CIT UNDER SEC. 263 OF THE ACT. SUCH FRESH ASSESSMENT WAS COMPLETED ON 29-12-2006 IN LINE WITH THE DIRECTIONS OF THE CIT UNDER SEC.263 O F THE ACT. AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE CIT(A) AGAINST THE ORDER OF THE AO UNDER SEC. 143(3) R.W. SEC. 263 OF THE ACT. GROUNDS TAKEN BY THE ASSESSEE BEFORE THE CIT(A) INTER ALIA INCLUDED GR IEVANCES AGAINST RECOMPUTATION OF VACANCY ALLOWANCE IN RESPECT OF A PROPERTY NAMED AS KOLKATA PROPERTY RECOMPUTATION OF INCOME IN RESPEC T OF A PROPERTY NAMED AS ADYAR HOUSE DETERMINATION OF AGRICULTURAL INCOME FROM COFFEE ITA NOS.1626 534 & CO 186/MDS/09 4 ESTATE TREATMENT OF EXPENDITURE INCURRED BY THE AS SESSEE FOR FURNISHING DONE IN A LEASEHOLD PROPERTY NON-GRANTING OF DEDUC TIONS UNDER SEC. 80HHC AND SEC.80IB OF THE ACT SIMULTANEOUSLY AND DI SALLOWANCE OF INTEREST MADE FOR BORROWED FUNDS ALLEGEDLY UTILIZE D FOR GIVING INTEREST FREE LOANS TO SUBSIDIARY COMPANY. THE CIT(A) IN HIS ORDER DATED 06-02- 2009 AGAINST WHICH THIS APPEAL HAS BEEN FILED BY T HE ASSESSEE REFUSED TO CONSIDER THE GROUNDS TAKEN BY THE ASSESSEE EXCEPT F OR ITS GROUND RELATING TO INTEREST DISALLOWANCE. REASON GIVEN BY THE CIT(A ) FOR NOT CONSIDERING THE OTHER GROUNDS RAISED BY THE ASSESSEE HAS BEEN G IVEN AT PARA-2 OF HIS ORDER WHICH IS REPRODUCED HEREUNDER: WITH REFERENCE TO INCOME FROM HOUSE PROPERTY OF T HE KOLKATA AND ADYAR PROPERTIES COMPUTATION OF AGRICULTURAL INCOM E TREATMENT OF THE RENOVATION EXPENDITURE ON LEASEHOLD PREMISES A SSESSMENT OF LONG TERM CAPITAL GAINS ON SALE OF SHADE TREES AND COMPUTATION OF DEDUCTION UNDER SEC. 80HHC IT IS SEEN THAT THE CUI T-III IN HIS ORDER DATED 27-03-2006 HAD GIVEN SPECIFIC INSTRUCTI ONS FOR CARRYING OUT THE MODIFICATIONS IN LINE WITH SUCH DIRECTIONS ISSUED. AS FAR AS THE AO IS CONCERNED DIRECTIONS ISSUED BY THE COMMI SSIONER IN TERMS OF SEC. 263N ARE BINDING. IN THE PRESENT ORDE R WHICH IS UNDER APPEAL ON THE ISSUES LISTED OUT ABOVE THE A O CANNOT BE FAULTED ON MODIFYING THE ASSESSED INCOME TO GIVE EF FECT TO THE DIRECTIONS ISSUED BY THE COMMISSIONER. THE APPROPRI ATE REMEDY IN SUCH A SITUATION WOULD BE FOR THE ASSESSEE COMPANY TO OPPOSE THE DIRECTIONS ISSUED IN TERMS OF SEC. 263 BEFORE THE A PPROPRIATE FORUM WHICH IS THE INCOME-TAX APPELLATE TRIBUNAL. THE ASS ESSEE COMPANY HAS DONE THAT THE CASE HAS BEEN HEARD BY THE HONB LE ITAT AND THEIR ORDER IS AWAITED. FOR THE MOMENT THE AO CANNO T BE FAULTED FOR GIVING EFFECT TO THE DIRECTIONS ISSUED BY THE C IT AND THE APPEAL FILED BY THE ASSESSEE ON THESE ISSUES ARE HEREBY DI SMISSED AS IT CANNOT BE SAID THAT THERE IS ANY ERROR AS FAR AS T HESE ISSUES ARE ITA NOS.1626 534 & CO 186/MDS/09 5 CONCERNED IN THE CONSEQUENTIAL ORDER PASSED BY TH E ASSESSING OFFICER. 5. NOW BEFORE US THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE CIT(A) WAS DUTY BOUND TO CONSIDER THE GROUNDS ON ME RITS WITHOUT SIMPLY AFFIRMING THE ORDER OF THE AO. RELIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF SADHUR AM PATEL AND SONS V. ITO (309 ITR (AT) 1). 6. PER CONTRA THE LD. DR SUBMITTED THAT THE AO HAD WENT BY THE DIRECTIONS OF THE CIT IN HIS ORDER UNDER SEC. 263 O F THE ACT AND THEREFORE THE CIT(A) COULD NOT HAVE CONSIDERED SUC H ISSUES IN FURTHER APPEAL. RELIANCE WAS PLACED BY THE LD. DR ON THE DE CISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF HARDILLIA CHEMICAL S LTD. V. CIT ( (221 ITR 194). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL S UBMISSIONS. IT IS NECESSARY TO GO THROUGH THE GROUNDS RAISED BY THE A SSESSEE BEFORE THE CIT(A) DIRECTIONS OF THE CIT UNDER SEC. 263 OF THE ACT IN RESPECT OF SUCH ISSUES AND ALSO THE FINDINGS OF THE TRIBUNAL I N ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT UNDER SEC. 263OF THE ACT. GROU ND RAISED BY THE ITA NOS.1626 534 & CO 186/MDS/09 6 ASSESSEE IN ITS APPEAL BEFORE THE CIT(A) WITH REGAR D TO RECOMPUTATION OF VACANCY ALLOWANCE IN RESPECT OF KOLKATA PROPERTY RU NS AS UNDER: THE DCIT ERRED IN RECOMPUTING THE VACANCY ALLOWANCE IN RESPECT OF KOLKATA PROPERTY. 8. THIS ISSUE WAS DEALT WITH BY THE CIT IN HIS ORDE R UNDER SEC. 263 AT PARAS 3.4 AND 3.5. THE RELEVANT OBSERVATIONS OF THE CIT ARE REPRODUCED HEREUNDER: 3.4 IN VIEW OF THE ABOVE THE AO IS DIRECTED TO RE COMPUTED THE INCOME FROM HOUSE PROPERTY AT KOLKATA. WHILE DOING SO HE SHOULD ALSO VERIFY FROM THE ASSESSEE WHETHER ANY MUNICIPAL TAX WAS PAYABGLE OR PAID BY THE ASSESSEE ON THE IMPUGNED PR OPERTY. IF YES HE SHOULD FIRST REDUCE THE ALKV AND THEN GIVE THE D EDUCTION FOR REPAIRS AS WELL AS VACANCY ALLOWANCE. 3.5 FOR THE ABAOVE REASONS THE ASSESSMENT ON THIS ISSUE IS SET ASIDE FOR DE NOVO CONSIDERATION. 9. GROUND RAISED BY THE ASSESSEE IN ITS APPEAL BEFO RE THE CIT(A) REGARDING COMPUTATION OF INCOME IN RESPECT OF ADYAR HOUSE ARE REPRODUCED BELOW: THE DCIT ERRED IN RECOMPUTING THE INCOME FROM HOU SE PROPERTY IN RESPECT OF ADYAR HOUSE. THE DCIT OUGHT TO HAVE APPRECIATED THAT ONLY THE ACTUAL RENT SHOULD BE TREATED AS INCOMER FROM HOUSE PROPERTY. WITHOUT PREJUDICE TO THE ABOVE THE INCOME FROM HOUSE PROPERTY COULD BE ADOPTED AS THE MUNICIPAL LETTABLE VALUE. ITA NOS.1626 534 & CO 186/MDS/09 7 10. RELEVANT OBSERVATIONS OF THE CIT ON THIS ISSUE IN HIS ORDER UNDER SEC. 263 OF THE ACT APPEARING AT PARA 4.3 THEREOF I S REPRODUCED HEREUNDER: ON CAREFUL CONSIDERATION OF ASSESSEES SUBMISSION IT IS EVIDENT THAT THE REASON FOR WHICH THE SHOW CAUSE NOTICE HAS BEEN ISSUED IS VINDICATED. AS PER THE SSESSEE ITSELF THE ALV OF T HIS PROPERTY HAS BEEN FIXED BY THE MUNICIPAL CORPORATION IS ` 2 04 968 WHEREAS THE ASSESSEE HAS DECLARED THIS AT ` 42 000 ONLY. FURTHER IT IS SEEN THAT THIS PROPERTY HAS BEEN LET OUT TO A GROUP CONCERN VIZ. MCC FINANCE LTD.. THEREFORE THE RENTAL RECEIVED ARE NO T ON THE BASIS OF AN AGREEMENT ENTERED INTO AT ARMS LENGTH. THE MINI MUM ALV THAT COULD BE ADOPTED FOR THIS PROPERTY IS ` 2 04 978 WHICH IS EQUIVALENT TO THE ALV FIXED BY THE CORPORATION OF CHENNAI. THE REFORE THE AO IS DIRECTED TO EXAMINE THIS ISSUE FROM ALL ANGLE S KEEPING IN VIEW THE PROVISIONS OF SEC.23 AND 24 OF THE IT ACT AND A RRIVE AT THE CORRECT ALV OF ADYAR HOUSE AND RECOMPUTED THE INCOM E FROM THE HOUSE PROPERTY AFTER ALLOWING CORRECT AMOUNT OF MUN ICIPAL TAX PAID. 11. GROUND RAISED BY THE ASSESSEE IN ITS APPEAL BEF ORE THE CIT(A) ON DETERMINATION OF AGRICULTURAL INCOME FROM COFFEE ES TATE IS REPRODUCED HEREUNDER: THE DCIT ERRED IN RE-DETERMINING THE AGRICULTURAL INCOME FROM COFFEE ESTATE BY APPLYING RULE 7B. THE DCIT ERRED IN HOLDING THAT SINCE THE ASSESEE HAS NOT PAID AGRICULTURAL INCOME-TAX IT WOULD BE EXIGIBLE TO IN COMETAX. ITA NOS.1626 534 & CO 186/MDS/09 8 12. OBSERVATIONS OF THE CIT IN HIS ORDER UNDER SEC. 263 ON THE ABOVE ISSUES APPEAR AT PARAS 5.7 AND 5.8 OF HIS ORDER WHI CH ARE REPRODUCED HEREUNDER: 5.7 FURTHER THIS REVISION U/S 263 IS ORDERED TO VE RIFY THE CORRECTNESS OF THE ENTIRE AGRICULTURAL INCOME WHICH IS ADMITTEDLY NOT PROPERTY DECLARED AS STATED IN EARLIER PARAS. THIS APART THERE ARE OTHER ISSUES. HENCE I HOLD THAT THIS SHOW CAUSE NO TICE U/S 263 IS CORRECT AND DOES NOT VIOLATE THE SPIRIT OF THE CIRC ULAR NO.5 OF 2003 DT.22-05-2003. 5.8 AS MANY NEW ISSUES HAVE CROPPED AFTER ENQUIRY THE AO IS DIRECTED TO EXAMINE IN DETAIL ALL THE ISSUES RELATI NG TO AGRICULTURAL INCOME AND TAXABILITY OF NON-AGRICULTURAL PORTION O F INCOME AND COMPUTATION OF CAPITAL GAINS IF ANY ON THE SALE OF AGRICULTURAL ESTATE AND SHADE TREES. 13. GROUND RAISED BY THE ASSESSEE BEFORE THE CIT(A) WITH REGARD TO THE EXPENDITURE INCURRED IN THE LEASEHOLD PROPERTY IS R EPRODUCED HEREUNDER: THE DCIT ERRED IN HOLDING THAT THE EXPENDITURE I NCURRED IN FURNISHING THE LEASEHOLD PROPERTY AS CAPITAL EXPEND ITURE. THE DCIT OUGHT TO HAVE APPRECIATED THAT THE A PPELLANT HAS CARRIED OUT PARTITION WORK FALSE CEILING LIGHT FI XTURES AND LAMPS NETWORK SWITCHES IN THE LEASEHOLD PREMISES. THE EXP ENDITURE SO INCURRED ON TEMPORARY STRUCTURE/FITTINGS WOULD NOT RESULT IN AN ENDURING BENEFIT AND AS SUCH HAS TO BE ALLOWED AS R EVENUE DEDUCTION. 14. THE RELEVANT OBSERVATION OF THE CIT IN HIS ORDE R UNDER SEC. 263 APPEARS AT PARAS 6.10 TO 6.12 THEREOF AND IS REPROD UCED HEREUNDER: ITA NOS.1626 534 & CO 186/MDS/09 9 6.10 ON ENQUIRY AS TO WHY THIS HAS BEEN CLAIME D AS REVENUE EXPENDITURE THE ASSESSEE HAS NOT GIVEN ANY SATISFA CTORY REPLY EXCEPT FURNISHING THE DETAILS. JUST BECAUSE NEW PARTITITIO NS FURNITURES AND FIXTURES HAVE BEEN ERECTED IN A LEASED PREMISES IT CANNOT BE CLAIMED AS A REVENUE EXPENDITURE. THE CLAIM OF THE ASSESSEE IS CONTRARY TO EXPLANATION 1 TO SEC. 32 OF THE IT ACT WHICH READS AS UNDER: WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CONST RUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATIO N TO AND BY WAY OF RENOVATION OR EXTENSION OF OR IMPROVEMEN T TO THE BUILDING THEN THE PROVISIONS OF THIS CLAUSE S HALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED B Y THE ASSESSEE. 6.11 FURTHER IT IS ALSO CONTRARY TO THE CLARIF ICATORY EXPLANATION TO SECTION 30 OF THE IT ACT. 6.12 IN VIEW OF THE ABOVE I HOLD THAT THE EXPE NDITURE INCURRED BY THE ASSESSEE IN THE ABOVE NEW ASSETS IS CAPITAL IN NATURE. THE AO IS DIRECTED TO EXAMINE THIS ISSUE AND ARRIVE AT THE CORRECT QUANTUM AND ALLOW PROPER DEPRECIATION AS PER THE PROVISIONS OF THE IT ACT AND RULES. 15. GROUNDS RAISED BY THE ASSESSEE BEFORE THE CIT(A ) ON DISALLOWANCE RELATING TO ITS CLAIM FOR DEDUCTION UNDER SECTIONS 80HC AND 80IB ARE REPRODUCED HEREUNDER: ITA NOS.1626 534 & CO 186/MDS/09 10 THE DCIT ERRED IN HOLDING THAT THE APPELLANT HAS WRONGLY CLAIMED DEDUCTION UNDER SEC. 80HHC AND 80IB. THE DCIT OUGHT TO HAVE APPRECIATED THAT THE AP PELLANT HAS BEEN MAINTAINING COMMON BOOKS OF ACCOUNTS AND HENCE THE DEDUCTION HAS BEEN COMPUTED BY TAKING THE PROFITS AND GAINS O F THE BUSINESS AS A WHOLE . 16. RELEVANT OBSERVATIONS OF THE CIT IN HIS ORDER U NDER SEC. 263 APPEAR AT PARAS 7.7 TO 7.9 OF HIS ORDER AND ARE REPRODUCED HEREUNDER: 7.7 ON THE STUDY OF EACH DIVISION IT ISSEEN THAT THE SUGAR DIVISION IN WHICH THE ASSESSEE HAS CLAIMED DEDUCTI ON U/S 80HHC IS ACTUALLY A LOSS OF ` 14 23 09 836.26. HOWEVER THE ASSESSEE HAS CLAIMD THIS DEDUCTION ON THE BASIS OF OVERALL PROFI TS OF ITS BUSINESS. THIS IS PRIMA FACIE AGAINST THE PROVISIONS OF THE A CT AND ALSO THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF *IPCA LABORATORY LTD. (266 ITR 521). CONSEQUENTLY IT APPEARS THAT T HE DEDUCTION OF ` 12 76 334 HAS BEEN WRONGLY ALLOWED BECAUSE OF INACC URATE FURNISHING OF DETAILS. 7.8 WITH REGARD TO DEDUCTION U/S 80IB ON THE PROF ITS OF SPECIAL CHEMICALS DIVISION IT IS SEEN THAT ALL THE SALES A RE TO THE GROUP COMPANY GIZ. SPIC LIMITED. WHETHER THE PROVISIONS OF SEC. 80- IB(13) R.W.S. 80IA(9)(A) RELATING TO GROUP COMPANY TRANSACTIONS . ITS PRICING ALLOCATION OF EXPENSES AND OTHER ELIGI BILITY CONDITIONS HAVE NOT AT ALL BEEN LOOKED INTO AS NO DETAILS WERE FURNISHED BY THE ASSESSEE. 7.9 THEREFORE BOTH THESE ISSUES ARE ALSO SENT BAC K TO THE FILE OF THE AO FOR DE NOVO CONSIDERATION AND REDETERMINATIO N AND COMPUTATION OF BOTH THESE DEDUCTIONS. 17. DIRECTIONS OF THE CIT IN HIS ORDER UNDER SEC. 2 63 OF THE ACT NO DOUBT WAS UPHELD BY THIS TRIBUNAL ON EACH OF THE A BOVE POINTS. BUT ITA NOS.1626 534 & CO 186/MDS/09 11 NEVERTHELESS IF WE LOOK AT THE ORDER OF THE CIT UN DER SEC. 263 OF THE ACT EVERY ONE OF THE ABOVE ISSUES WERE SENT BACK B Y HIM TO THE FILE OF THE AO EITHER FOR DENOVO CONSIDERATION OR FOR EXAM INATION OF THE QUANTUM OR FOR EXAMINING THE ISSUES FROM ALL ANGLE S. IN THE CASE OF AGRICULTURAL INCOME THE CIT HAD HIMSELF ASSERTED T HAT NEW ISSUES HAD CROPPED AFTER ENQUIRY. THE AO WAS GIVEN FREEDOM TO DO A FRESH ASSESSMENT CONSIDERING ALL THE ISSUES RELEVANT. IN OUR OPINION AGAINST THE ORDER PASSED BY THE AO BASED ON SUCH DIRECTIONS OF THE CIT UNDER SEC. 263 OF THE ACT WHERE FULL FREEDOM IS GRANTED ON AO AN ASSESSEE COULD FILE AN APPEAL BEFORE THE CIT(A). IN THE CASE OF SA DHURAM PATEL & SONS (SUPRA) OF THE MUMBAI BENCH OF THIS TRIBUNAL RELIED ON BY THE LD. AR ALSO THE CIT HAD GIVEN AO A FREEHAND TO EXAMINE TH E MATTER AFRESH AND TO REDO THE ASSESSMENT IN ACCORDANCE WITH LAW THOU GH THERE WAS A FINDING MADE BY THE CIT ON PARTICULAR POINTS. IT WAS HELD B Y THE BENCH THAT SUCH AN ORDER PASSED BY THE AO IN COMPLIANCE WITH THE DI RECTIONS OF THE CIT AND AFTER EXAMINING THE FACTS OF THE CASE AS DIRECT ED BY THE CIT WAS DEFINITELY APPEALABLE. COMING TO THE DECISION OF TH E HONBLE MUMBAI HIGH COURT IN HARDILLIA CHEMICALS LTD. (SUPRA) REL IED ON BY THE LD. DR NO DOUBT IT WAS HELD BY THEIR LORDSHIPS THAT WHEN THE ITO HAD GIVEN EFFECT TO THE ORDER OF THE CIT WHERE THE CIT HAD GI VEN A DEFINITE FINDING ITA NOS.1626 534 & CO 186/MDS/09 12 ON A POINT THEN ON SUCH A POINT THE ASSESSEE COULD NOT AGITATE A FRESH APPEAL BEFORE THE CIT(A). HOWEVER THE CARDINAL POI NT WHICH LEAD THEIR LORDSHIPS TO GIVE THIS DECISION APPEARS AT PARA-5 T HEREOF. THE DIRECTION OF THE CIT IN THAT CASE WAS AS UNDER: IN THE CIRCUMSTANCES I HEREBY WITHDRAW THE RELIEF UNDER SEC. 80J OF THE ACT GRANTED BY THE INCOME-TAX OFFICER OF A S UM OF 20 51 458 AND DIRECT THE INCOME-TAX OFFICER TO DETE RMINE THE RELIEF AFRESH IN ACCORDANCE WITH THE LAW AFTER GIVI NG AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD IN THIS REGARD. IT WAS HELD BY THEIR LORDSHIPS THAT ON A PLAIN READ ING OF THE ABOVE REVISIONAL ORDER OF THE CIT IT WAS OBVIOUS THAT TH E CIT HAD SPECIFICALLY DECIDED THE POINT IN ISSUE. IT WAS UNDER SUCH CIRCU MSTANCES THAT IT WAS RULED BY THE HONBLE MUMBAI HIGH COURT THAT THE ORD ER OF THE AO GIVING EFFECT TO THE ORDER OF THE CIT UNDER SEC.263 OF THE ACT WAS NOT APPELABLE BEFORE THE CIT(A). HERE ON THE OTHER HAN D THE AO WAS GIVEN A FREE HAND AS ALREADY NOTED BY US ABOVE. WHEN THE AO HAS BEEN GIVEN A FREEHAND AND NEW ISSUES HAD CROPPED UP WE ARE OF T HE OPINION THAT THE ORDER OF THE AO WOULD BE APPELABLE BEFORE THE CIT(A ). THUS IN OUR OPINION ON FACTS THE DECISION OF THE MUMBAI HIGH C OURT IN HARDILLIA CHEMICALS LTD. (SUPRA) WOULD HAVE NO APPLICATION. WE ARE THEREFORE OF THE OPINION THAT THE CIT(A) SHOULD HAVE DECIDED THE CASE ON MERITS ON ITA NOS.1626 534 & CO 186/MDS/09 13 THE GROUNDS RAISED BEFORE HIM BY THE ASSESSEE. GROU ND NOS. 2 AND 3 OF THE ASSESSEE THEREFORE STAND ALLOWED. LD. CIT(A) IS DIRECTED TO CONSIDER THE APPEAL ON MERITS BASED ON THE GROUNDS RAISED BE FORE HIM EXCEPT FOR GROUND NO.13 WHICH HE HAS ALREADY DECIDED IN THE AP PEAL. 18. VIDE ITS GROUND NOS. 3 TO 13 BEFORE US ASSESSE E BRINGS UP THE SAME GROUND RAISED BY IT BEFORE THE CIT(A) WHICH HE HAD REFUSED TO CONSIDER. WE HAVE ALREADY REMANDED THE ISSUES BACK TO THE CIT (A) FOR CONSIDERING THE ISSUES BASED ON MERITS. THEREFORE THESE GROUND S NOW RAISED BEFORE US HAVE BECOME INFRUCTUOUS. ASSESSEE WOULD BE AT LIBER TY TO FILE AN APPEAL BEFORE THIS TRIBUNAL IN CASE ANY OF THE ISSUES ARE DECIDED AGAINST IT BY THE CIT(A). WITH THIS OBSERVATION GROUND NOS.3 TO 13 OF THE ASSESSEE ARE DISMISSED. 19. NOW WE TAKE UP THE CROSS APPEAL OF THE REVENUE. REVENUE IN ITS CROSS APPEAL VIDE ITS GROUND NO.2 IS AGGRIEVED WITH THE CIT(A)S DIRECTION DELETING THE DISALLOWANCE OF PRORATA INTEREST EXPEN DITURE ON ACCOUNT OF LOANS GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN. AO NOTING THAT THE ASSESSEE HAD MADE ADVANCE AMOUNTING TO ` 6351.18 LAKHS AND ADVANCES TO P.F OF ` 1578.16 LAKHS ON WHICH NO INTEREST WAS RECEIVED HE LD THAT THESE ITA NOS.1626 534 & CO 186/MDS/09 14 ADVANCES COULD NOT BE PRESUMED TO HAVE BEEN MADE WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE WORKED OUT THE PRORATA INTEREST OF ` 1225.04 LAKHS ON SUCH AMOUNT AND THIS WAS DISALLOWED. LATER ON IN AN RECTIFICATION ORDER TH E DISALLOWANCE WAQS SCALED DOWN TO ` 530.72 LAKHS BY THE AO. HOWEVER THE CIT(A) ON ASSESSEES APPEAL RELYING ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1989-90 AND ALSO ON THE DE CISION SOF THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD . V. CIT (288 ITR 1) DELETED THE DISALLOWANCE OF INTEREST. 20. NOW BEFORE US THE LD. DR STRONGLY ASSAILED THE ORDER OF THE CIT(A). PER CONTRA THE LD. AR SUPPORTED THE ORDER OF THE CIT(A) ON THIS ISSUE. 21. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE CIT(A) HAD FOLLOWED THE DECISION OF T HIS TRIBUNAL IN ASSESSEES OWN CASE WHERE THE TRIBUNAL HAD CONSIDER ED SIMILAR DISALLOWANCE ON ACCOUNT OF INTEREST FREE ADVANCE GIVEN BY THE AS SESSEE TO THE VERY SAME SUBSIDIARY. THE FINDING OF THE TRIBUNAL IN THIS REG ARD IS REPRODUCED BY THE CIT(A) AT PARA-5 OF HIS ORDER WHICH READS AS UNDER : ITA NOS.1626 534 & CO 186/MDS/09 15 IN REGARD TO DISALLOWANCE MADE OF INTEREST ON BORR OWINGS AS REFERABLE TO ADVANCES GIVEN TO SUBSIDIARIES THE AU THORITIES HAVE TAKEN A SHORT SIGHT. THE ASSESSEE HAS GOT A LOT OF BUS9INESS CONNECTIONS WITH ITS SUBSIDIARIES AND CARRIES ON VA RIOUS ACTIVITIES THROUGH ITS SUBSIDIARIES. THE CONDUCT OF THE ASSESS EE GORES TO SHOW THAT THERE IS NEXUS BETWEEN THE ACTIVITIES OF THE A SSESSEE AND ITS SUBSIDIARIES. THEREFORE DISALLOWANCE MADE OUT OF I NTEREST PAYMENT IS DELETED. REVENUE WAS UNABLE TO BRING BEFORE US ANY DECISION OF THE HIGHER AUTHORITY IN THIS REGARD. THEREFORE WE ARE OF THE OPINION THAT THE CIT(A) WAS JUSTIFIED IN FOLLOWING THE ORDER OF THIS TRIBUN AL IN ASSESSEES OWN CASE FOR THE EARLIER YEAR. THUS WE FIND NO MERIT IN THE GROUND NO.2 RAISED BY THE REVENUE WHICH THEREFORE STANDS DISMISSED. 22. VIDE ITS GROUND NO.3 GRIEVANCE OF THE REVENUE IS THAT INTEREST UNDER SEC.234D OF THE ACT WAS HELD BY THE CIT(A) TO BE NOT CHARGEABLE FOR THE IMPUGNED ASSESSMENT YEAR. 23. THE CIT(A) HAD HELD IN HIS ORDER THAT SEC. 2 34D APPLIED FROM ASST. YEAR 2004-05. THEREFORE ACCORDING TO HIM INT EREST UNDER THE SAID SECTION COULD NOT BE CHARGED FOR THE IMPUGNED ASSES SMENT YEAR. ITA NOS.1626 534 & CO 186/MDS/09 16 24 NOW BEFORE US THE LD. DR SUBMITS THAT IN VIEW OF THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF KERALA CHEMICALS & PROTEINS LTD. (323 ITR 584) INTEREST WAS CHARGEABLE UNDER S EC. 234D FOR THE IMPUGNED ASSESSMENT YEAR. PER CONTRA THE LD. AR RE LIED ON THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF E KTA PROMOTERS (2008)10 DTR 553. 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE RECORD. NO DOUBT HONBLE KERALA HIGH COURT IN THE CASE OF KER ALA CHEMICALS & PROTEINS LTD. (SUPRA) HELD THAT SEC.234D OF THE ACT WHICH WAS INTRODUCED W.E.F. 1-6-2003 WAS NOT WITH REFERENCE TO ANY ASSESSMENT YEAR. THEIR LORDSHIPS HELD THAT INTEREST UNDER THAT SECTION WAS CHARGEABLE FOR THE PERIOD STARTING FROM 1-6-2003 TILL THE COMP LETION OF REGULAR ASSESSMENT. NO DOUBT IN THE CASE OF EKTA PROMOTERS THE SPECIAL BENCH HAD HELD THAT INTEREST UNDER SEC. 234D WAS CHARGEAB LE FROM ASST. YEAR 2004-05 ONLY. IN ANY CASE THE IMPUGNED ASST. YEAR IS 2001-02 AND IF WE APPLY THE DECISION OF THE HONBLE KERALA HIGH COURT NO DOUBT INTEREST CAN BE LEVIED UNDER SEC. 234D OF THE ACT FROM 1-6-2 003. THE CASE BEFORE THE HONBLE KERALA HIGH COURT RELATED TO ASS T. YEAR 1999-2000 AND IT WAS HELD BY THEIR LORDSHIPS THAT INTEREST CO ULD BE LEVIED UNDER SEC. ITA NOS.1626 534 & CO 186/MDS/09 17 234D FROM 1-6-2003 ONWARDS. THEREFORE HERE ALSO IN TEREST UNDER SEC. 234D CAN BE LEVIED ON THE ASSESSEE FROM 1-6-2003 TO THE DATE OF REGULAR ASSESSMENT. IN THIS VIEW OF THE MATTER WE ARE INCL INED TO ALLOW GROUND NO.3 RAISED BY THE REVENUE. 26. GROUND NOS. 1 AND 4 OF THE REVENUE ARE GENER AL NEEDING NO ADJUDICATION. 27. APPEAL OF THE REVENUE IS PARTLY ALLOWED. 28. NOW WE TAKE UP CROSS-OBJECTION OF THE ASSESS EE. ASSESSEE IN ITS CROSS OBJECTION SUPPORTS THE ORDER OF THE CIT(A) WH EREBY HE DELETED THE DISALLOWANCE OF INTEREST MADE ON ACCOUNT OF INTERES T FREE LOANS GIVEN BY THE ASSESSEE TO ITS SUBSIDIARIES. WE HAVE ALREADY D ISMISSED THE RELATED GROUNDS OF THE REVENUE IN ITS APPEAL AGAINST THE OR DER OF THE CIT(A) IN THIS REGARD. THEREFORE THE CROSS-OBJECTION WHICH I S IN SUPPORT OF THE ORDER OF THE CIT(A) HAS BECOME INFRUCTUOUS. CROSS-O BJECTION IS ACCORDINGLY DISMISSED AS INFRUCTUOUS. ITA NOS.1626 534 & CO 186/MDS/09 18 29. TO SUMMARISE THE RESULT APPEAL OF THE ASSES SEE IN ITA NO.534/MDS/09 IS ALLOWED FOR STATISTICAL PURPOSES CROSS APPEAL OF THE REVENUE IN ITA NO.1626/MDS/09 IS PARTLY ALLOWED AND CROSS-OBJECTION OF THE ASSESSEE IN CO NO.186/MDS/09 IS DISMISSED. THE ORDER PRONOUNCED IN OPEN COURT SOON AFTER THE HEARING ON 18- 10-2010. SD/- SD/- ( GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI 18TH OCTOBER 2010 NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.