Gujarat Gas Financial Services Limited, Ahmedabad v. The Income Tax Officer, Ward - 4(1), Ahmedabad

ITA 1095/AHD/2006 | 2002-2003
Pronouncement Date: 31-10-2013 | Result: Allowed

Appeal Details

RSA Number 109520514 RSA 2006
Bench Ahmedabad
Appeal Number ITA 1095/AHD/2006
Duration Of Justice 7 year(s) 5 month(s) 27 day(s)
Appellant Gujarat Gas Financial Services Limited, Ahmedabad
Respondent The Income Tax Officer, Ward - 4(1), Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 31-10-2013
Date Of Final Hearing 12-09-2013
Next Hearing Date 12-09-2013
Assessment Year 2002-2003
Appeal Filed On 04-05-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K TYAGI JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI ACCOUNTAN T MEMBER GUJARAT GAS FINANCIAL SERVICES LIMITED 2 SHANTISADAN SOCIETY NR. PARIMAL GARDEN ELLISBRIDGE AHMEDABAD (APPELLANT) VS INCOME TAX OFFICER WARD 4(1) AHMEDABAD (RESPONDENT) ACIT CIRCLE-4 AHMEDABAD (APPELLANT) VS GUJARAT GAS FINANCIAL SERVICES LIMITED 2 SHANTISADAN SOCIETY NR. PARIMAL GARDEN ELLISBRIDGE AHMEDABAD (RESPONDENT) ITA NO. 35 /AHD/2005 ASSESSMENT YEAR 2001-02 ITA NO. 515/AHD/2005 ASSESSMENT YEAR 2001-02 ITA NO. 1095/AHD/2006 ASSESSMENT YEAR 2002-03 I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 2 GUJARAT GAS FINANCIAL SERVICES LIMITED 2 SHANTISADAN SOCIETY NR. PARIMAL GARDEN ELLISBRIDGE AHMEDABAD (APPELLANT) VS ACIT CIRCLE-4 AHDMEDABAD (RESPONDENT) REVENUE BY: SRI SUBHASH BAIN CIT-D.R. ASSESSEE BY: SRI S.N. SOPARKAR A.R. DATE OF HEARING : 12-09-2013 DATE OF PRONOUNCEMENT : 31-10-20 13 / ORDER PER : D.K. TYAGI JUDICIAL MEMBER:- THE APPEALS IN ITA NOS. 35/AHD/2005 & 515/AHD/2005 ARE CROSS APPEALS AGAINST THE ORDER OF LD. CIT(A)-VIII AHMED ABAD DATED 30/11/2004 FOR A.Y. 2001-02 AND ITA NO. 1095/AHD/2006 IS ASSE SSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-VIII DATED 07/03/2006 FOR A .Y. 2002-03. 2. SINCE ALL THESE APPEALS BELONG TO SAME ASSESSEE THEY ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. FIRST WE WILL TAKE UP CROSS APPEALS IN ITA NOS. 35/ AHD/2005 & 515/AHD/2005. 3. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE PARTIES :- I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 3 ASSESSEE:- 1. THE LEARNED CIT (APPEALS) HAS ERRED IN CONF IRMING DISALLOWANCE OF RS. 2 52 41 464/- OUT OF BAD DEBTS WRITTEN OFF. THE LEARNED CIT (APPEALS) HAS NOT GRANTED BAD DEBTS IN THE NATURE O F BILL DISCOUNTING AND INTER CORPORATE DEPOSITS. IT IS SUBMITTED THAT THE ASSESSEE IS A FINANCE COMP ANY AND IS HAVING ACTIVITIES IN THE NATURE OF LEASING HIRE PURCHASE BILL DISCOUNTING INTER CORPORATE DEPOSITS AND INVESTMENTS. THE INCOM E OF THE COMPANY IS THEREFORE IN THE NATURE OF LEASE RENT HIRE CHAR GES DISCOUNTING CHARGES INTEREST AND DIVIDEND INCOME WHICH IS OFF ERED AS BUSINESS INCOME ONLY. IN RESPECT OF BILL DISCOUNTING AND IN TER CORPORATE DEPOSIT THE COMPANY HAD DULY OFFERED SAID INCOME F ROM TIME TO TIME. EVEN IN EARLIER YEARS SUCH AMOUNTS WRITTEN OFF AGAI NST DUES OF BILLS DISCOUNTING AND INTER CORPORATE DEPOSITS WERE DULY ALLOWED IN ASSESSMENT ONLY. IT IS THEREFORE SUBMITTED THAT TH E SAID SUM OF RS. 2 52 41 464/- BE ALLOWED AS BAD DEBTS. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT THE SAID AMOUNT TO RESPECTIVE PARTIES WERE GIVEN IN THE ORDINARY COURS E OF THE BUSINESS AND HENCE THE SAME BE GRANTED AS BUSINESS LOSS. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMIN G DISALLOWANCE OF RS. 60.000/- TOWARDS ADMINISTRATIVE AND OTHER EXPENSES CORRELATING THE SAME AS EXPENDITURE INCURR ED IN EARNING DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. ON THE B ASIC OF THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT NO SPECIFIC EXPENDITURE HAVE BEEN INCURRED FOR THE PURPOSE OF E ARNING DIVIDEND OUT OF ADMINISTRATIVE AND OTHER EXPENSES. IT IS THE REFORE SUBMITTED THAT THE DISALLOWANCE OF RS. 60 000/- BE DELETED. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THA T DISALLOWANCE IS VERY EXCESSIVE AND THE SAME BE REDUCED TO MINIMUM. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT GRANTING PROVISION MADE FOR NON PERFORMING ASSETS OF RS. 1 32 12 521/- AS PAR THE DIRECTIVES OF RESERVE SANK OF INDIA. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 4 IT IS SUBMITTED THAT THE ABOVE PROVISION HAS BEEN M ADE AS PER THE REQUIREMENTS OF LAW AND HENCE IT IS SUBMITTED THAT THE SAME BE GRANTED. REVENUE:- 1. THE LD CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN ALLOWING THE BAD DEBTS CLAIM OF RS 12 52 424/- WITHOUT APPRE CIATING THE FACT THAT THE ASSESSEE WHO IS IN BUSINESS OF LEASING AN D HIRE/PURCHASE IS NOT ENGAGED IN BUSINESS OF MONEY LENDING OR BANKING AND THEREFORE IS NOT ELIGIBLE FOR WRITE OFF OF PRINCIPAL AMOUNT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND AS WELL AS O N FACTS IN DELETING THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES AMOUNTING TO RS.22 7 840/- U/S. L4-A OF THE I T A CT. 3. THE LD. CIT(A) HAS ERRED IN LAW AND AS WELL A S ON FACTS IN DIRECTING THE A.O. NOT TO INCLUDE LEASE INCOME OF R S. 4 44 367/- IN RESPECT OF VARIOUS ASSETS GIVEN ON LEASE. 4. GROUND NO. 1 IN ASSESSEES APPEAL AND GROUND NO. 2 OF REVENUES APPEAL RELATE TO ALLOWABILITY OF BAD DEBT CLAIMED B Y ASSESSEE. 5. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT FOLLOWING BAD DEBT CLAIMS HAVE BEEN MADE IN RESPECT OF FIVE PARTIES. SR. NO. PARTICULARS NATURE AMOUNT (RS.) 1 OVERSEAS SYNTHETICS LTD BILL DISCOUNTING 1 21 88 127/- 2 MAFATLAL INDUSTRIES LTD INTER-CORPORATE DEPOSIT 83 53 684/- 3 PRECESSION FASTNESS INTER-CORPORATE DEPOSIT 53 70 000/- 4 HANSKAMAL GROVER HIRE PURCHASE 12 11 182/- 5 OTHER PARTIES (SUNDRY BALANCES WRITTEN OFF) HIRE PURCHASE 41 242/- I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 5 TOTAL 2 71 64 235 AO ISSUED SHOW CAUSE AS TO WHY THIS CLAIM SHOULD NO T BE DISALLOWED SINCE RELEVANT INCOME TOTALING TO RS. 2 71 64 235/- HAS N OT BEEN OFFERED TO TAX IN ANY OF THE ASSESSMENT YEAR AS CONTEMPLATED U/S. 36( 1)(VII) R.W.S. 36(2) OF THE ACT. ASSESSEES REPLY WAS THAT THE PRINCIPAL AMOUN T IN RESPECT OF INTEREST DEPOSITS HAVE BEEN WRITTEN OFF AS PER RESERVE BANK OF INDIAS GUIDELINES AND ALSO SUBMITTED THAT SINCE THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF BANKING/MONEY LENDING AND SINCE THE ASSESSEE-COM PANY IS REGISTERED WITH RBI U/S. 451(A) OF THE BANKING REGULATION ACT THE AMOUNT WRITTEN OFF WAS ADMISSIBLE. SINCE THE SAME HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THE RESPECTIVE PARTIES IT WAS SUBMITTED THAT THE C ONDITIONS OF SECTION 36(2) WERE SATISFIED IN ASSESSEES CASE. HOWEVER AO WAS OF THE VIEW THAT EXCEPT FOR RS. 6 70 347/- BEING TAX OFFERED IN THE PROFIT AND LOSS ACCOUNT IN THE CASE OF OVERSEES SYNDICATE LTD NONE OF THE OTHER ITEMS CLAIMED AS BAD DEBT HAVE BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AND TH EREFORE IN VIEW OF THE ABOVE PROVISIONS OF THE ACT CLAIM WAS NOT TENABLE. HE FURTHER OBSERVED THAT THE MAIN INCOME OF THE ASSESSEES COMPANY BY WAY OF LEASE INCOME OF RS. 14.8 CRORE HIRE PURCHASE INCOME AT RS. 3.77 CRORE AND OTHER INCOMES WERE VERY NOMINAL LIKE BILL DISCOUNTING OF RS. 0.13 CROR E AND INTEREST INCOME OF RS. 0.55 CRORE. HE THEREFORE DID NOT ACCEPT THE PL EA OF THE ASSESSEE THAT THE CASE WAS COVERED U/S. 36(2) WHEREBY THE ASSESSEE-CO MPANY WAS TO BE TREATED AS ENGAGED IN THE BUSINESS OF BANKING AND MONEY LEN DING WITH RESPECT TO THE AMOUNT WRITTEN OFF AND CLAIMED U/S. 36(1)(VII) R.W. S. 36(2). IT WAS FURTHER OBSERVED BY AO THAT IN THE BOOKS OF ACCOUNT THE AMO UNTS WRITTEN OFF ARE RS. 1 63 31 615/- NOT THE ENTIRE AMOUNT OF RS. 2 71 64 237/-. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 6 6. BEFORE LD. CIT(A) ASSESSEES SUBMISSION WAS THAT FIRST THE AMOUNTS WERE PROVIDED AS PROVISION FOR DOUBTFUL DEBTS IN TH E PROFIT AND LOSS ACCOUNT. THEREAFTER THE AMOUNT WAS TAKEN TO THE RESPECTIVE PARTYS ACCOUNT AND THE OBSERVATION OF THE AO WAS THEREFORE NOT CORRECT THA T THE PARTIES ACCOUNT HAVE NOT BEEN WRITTEN OFF. THE RELIANCE WAS ALSO PLACED UPON THE DECISION OF SUPREME COURT IN THE CASE OF CIT VS. NANITAL BANK 5 5 ITR 707 AND THE DECISION OF GUJARAT HIGH COURT DECISION IN THE CASE OF CIT VS. GIRISH BHAGWAT 256 ITR 772 TO SUPPORT ITS CLAIM THAT THE A MOUNTS WRITTEN OFF IN RESPECT OF LOANS GIVEN IN THE COURSE OF BUSINESS WE RE ALLOWABLE TO BE CLAIMED AS BAD DEBT AND THE SAME WERE ADMISSIBLE AS AND WHE N THE AMOUNTS WERE WRITTEN OFF. 7. AFTER TAKING INTO CONSIDERATION THE SUBMISSION O F THE ASSESSEE LD. CIT(A) GAVE PART RELIEF TO THE ASSESSEE BY OBSERVIN G AS UNDER:- 3.3 1 HAVE PERUSED THE FACTS BROUGHT ON RECORD BY THE AO. AS DISCUSSED ABOVE THE MAIN INCOME OF THE APPELLANT I S FROM LEASE AND HIRE PURCHASE TOTALING TO RS. 18. 57 CRORES. OUT OF RS. 42.55 CRORES AVAILABLE FUNDS WHICH REPRESENT MORE THAN 90% OF TH E TOTAL FUNDS HAVE BEEN UTILIZED FOR THE BUSINESS OF LEASING. HAV ING REGARD TO THE FACTS BROUGHT ON RECORD I AM INCLINED TO HOLD THAT THE BAD DEBT CLAIM U/S. 36(L)(VII) R.W S. 36(2) IN RESPECT OF OVERSEAS SYNTHETICS LTD RS. 1 21 88 127/- MAFATLAL INDUSTRIES LTD. RS. 83 53 68 4/- AND PRECESSION FASTENERS LTD. RS. 53 70 000/- CANNOT BE CONSIDERED AS REGULAR TRANSACTIONS IN THE BUSINESS OF BANKING OR MONEY LE NDING SINCE THEY ARE IN RESPECT OF BILL DISCOUNTING AND INTER-CORPOR ATE DEPOSITS. BILL DISCOUNTING CANNOT BE EQUATED WITH THE BUSINESS OF BANKING AND IS A SEPARATE CATEGORY OF BUSINESS AND IT IS ADMITTED TH AT THE VARIOUS BILLS WINCH ARE DISCOUNTED FOR ARE NOT APPEARING IN PROFI T AND LOSS ACCOUNT ITEMS AS ON 31.3 2001. SIMILARLY IN RESPECT OF MAF ATLAL INDUSTRIES LTD AND PRECESSION FASTENERS LTD THE AMOUNTS RELATE TO VARIOUS ADVANCES/DEPOSITS MADE BY THE APPELLANT COMPANY WHI CH HAVE BEEN MADE OUT OF DEPOSITS RECEIVED BY THE APPELLANT COM PANY ITSELF FROM VARIOUS COMPANIES INCLUDING ITS PARENT COMPANY. SUC H RECEIPT OF I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 7 ADVANCES/DEPOSITS AND FURTHER ADVANCEMENT OF THE DE POSITS IN OTHER CONCERNS IS NOT THE REGULAR BUSINESS OF THE APPEL LANT/THE ALTERNATIVE PLEA OF THE APPELLANT'S REPRESENTATIVE IN RESPECT OF THESE ITEMS THAT THE SAME MAY BE CONSIDERED AS BUSINESS LOSS U/S 28 OF THE INCOME TAX ACT CANNOT BE ACCEPTED. NO EVIDENCES HAD BEEN ADDUC ED BY THE APPELLANT COMPANY BEFORE THE AO EXCEPT THAT IN THE CASE OF MAFATLAL INDUSTRIES LTD. THE AMOUNTS HAVE BEEN WRITTEN OFF SINCE THE SAID COMPANY HAS GONE INTO BIFR AND THE AMOUNTS HAVE BEE N WRITTEN OFF IN THE BOOKS. IN RESPECT OF OVERSEAS SYNTHETICS LTD. AND PRECESSION FASTENERS LTD. DEDUCTION IS CLAIMED ON THE BASIS O F AMOUNTS WRITTEN OFF IN THE BOOKS. MERELY WRITING OFF IN THE BOOKS O F ACCOUNT WOULD NOT MAKE THE CLAIM AS BUSINESS EXPENDITURE AND ALSO THE FACT THAT THE FINAL OUTCOME OF THE CLAIM OF THE APPELLANT IN RESPECT OF MAFATLAL INDUSTRIES LTD WHEREBY PROCEEDINGS ARE PENDING WITH BIFR HAS N OT REACHED FINALITY. IN VIEW OF THE SAME THE ALTERNATIVE PLEA OF THE APPELLANT U/S. 28 CAN ALSO NOT BE ACCEPTED IN RESPECT OF THESE ITE MS. HOWEVER IN RESPECT OF BAD DEBT CLAIM OF RS. 12 11 182/- IN RES PECT OF HANSKAMAL GROVER WHO HAS SINCE EXPIRED AND RS 41 2427- IN RE SPECT OF OTHER PARTIES WHEREBY THE TRANSACTIONS RELATE TO HIRE PUR CHASE WHICH IS ONE OF THE MAIN BUSINESS OF THE APPELLANT COMPANY THE CLAIM OF THE APPELLANT U/S. 36(1)(VII) R.W.S 36(2) IS JUSTIFIED AND THE CLAIM IS ALLOWED. THE AO IS DIRECTED TO ALLOW BAD DEBT CLAI M IN RESPECT OF THESE 2 PARTIES NAMELY SR. NO. 4 AND 5 DISCUSSED AT PAGE 2 OF THE ORDER. ACCORDINGLY THE DISALLOWANCE OF RS. 2 64 93 888/- IS REDUCED TO RS. 2 52 41 464/- AND THE APPELLANT COMPANY GETS RELIEF OF RS. 12 52 424/- ON THIS GROUND 8. AGGRIEVED NOW BOTH THE PARTIES ARE BEFORE US. A SSESSEE IS IN APPEAL IN RESPECT OF CONFIRMING OF DISALLOWANCE OF RS. 2 52 4 1 464/- FOR BAD DEBT WRITTEN OFF THAT WERE IN THE NATURE OF BILL DISCOUN TING AND INTER-CORPORATE DEPOSITS WHILE REVENUE IS IN APPEAL IN RESPECT OF B AD DEBT ALLOWED BY LD. CIT(A) OF RS. 12 52 424/- IN RESPECT OF ASSESSEES BUSINESS OF HIRE PURCHASE. AT THE TIME OF HEARING LEARNED COUNSEL OF THE ASSES SEE AT THE OUTSET SUBMITTED THAT ISSUE IN RESPECT OF CLAIM OF ASSESSEE OF BAD D EBT IN RESPECT OF ITS BUSINESS OF HIRE PURCHASE IS NOW COVERED IN FAVOUR OF ASSESS EE BY THIS TRIBUNALS DECISION IN THE CASE OF ASSESSEE FOR A.Y. 2004-05 T HEREFORE LD. CIT(A) ORDER I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 8 DESERVES TO BE CONFIRMED ON THIS ISSUE. AS FAR AS CLAIM OF ASSESSEE OF BAD DEBT OF RS. 1 21 58127/- RELATING TO BILL DISCOUNTI NG WAS CONCERNED RELIANCE WAS PLACED ON THE SAME DECISION OF TRIBUNAL. AS FA R AS BAD DEBT WRITTEN OFF RS 1 37 23 684/- IN RESPECT OF M/S. MAFATLAL INDUST RIES AND PRECISION FASTERS WHICH WERE IN THE NATURE OF INTER-CORPORATE DEPOSIT S WAS CONCERNED RELIANCE WAS PLACED ON THE DECISION OF DELHI TRIBUNAL (THIRD MEMBER) IN THE POYSHA OXGEN PVT. LTD VS. ACIT IN IT APPEAL NO. 3457 (DEL HI) OF 2004 A.Y. 2001-02 [19 SOT 711(DELHI)]. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF AO. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THE ISSUE IN RESPECT OF BAD DEBT CLAIM OF THE ASSESSEE OF RS. 12 52 424/- IN THE NORMAL COURSE OF ASSESSEES BUSINESS OF HIRE PURCHA SE IS COVERED IN ASSESSEES FAVOUR BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 THEREFORE RELIEF GIVEN BY LD. CIT(A) IS HEREBY UPHELD. AS FAR AS BAD DEBT CLAIM OF REMAINING AMOU NT OF RS. 2 52 41 464/- WHICH IS IN THE NATURE OF BILL DISCOUNTING AND INTE R-CORPORATE DEPOSITS IS CONCERNED THE MATTER REQUIRES FRESH ADJUDICATION BY THE AO AS TO WHETHER THE RATIO AS LAID DOWN IN THE CASE LAWS NOW RELIED BY ASSESSEE IS APPLICABLE TO THE FACTS OF THIS CASE OR NOT. FOR THIS PURPOSE MA TTER IS RESTORED BACK TO THE FILE OF AO. 10. IN THE RESULT ASSESSEES GROUND NO. 1 IS ALLOWE D FOR STATISTICAL PURPOSE WHILE THAT OF REVENUES APPEAL IS DISMISSED. 11. THERE IS NO GROUND NO. 2 IN ASSESSEES APPEAL. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 9 12. GROUND NO. 3 OF ASSESSEES APPEAL AND GROUND NO . 2 OF REVENUES APPEAL RELATE TO DISALLOWANCE U/S. 14A OF THE ACT O F INTEREST OF RS. 22 27 840/- AND RS. 1 20 000/- OUT OF ADMINISTRATIV E EXPENSES. 13. DURING THE ASSESSMENT PROCEEDINGS AO OBSERVED THAT THE ASSESSEE- COMPANY HAS MADE INVESTMENTS OF RS. 319.9 LACS WHIC H RELATE TO INVESTMENT WHERE INCOME WAS EXEMPT U/S. 10(33). IT WAS ALSO N OTED BY THE AO THAT DIVIDEND INCOME OF RS. 98 716/- HAD NOT BEEN SHOWN BY THE ASSESSEE- COMPANY AND CLAIMED AS EXEMPT. HAVING REGARD TO TH E FUNDS AVAILABLE WITH THE ASSESSEE AND BORROWED FUNDS THE AO MADE THE FO LLOWING DISALLOWANCE. COST OF FUND INVESTED IN SHARES= INVESTMENT IN SHAR ES X INTEREST EXPENSES =TOTAL FUNDS AVAILAB LE =31993354X26438914 383120796 = 22 07 840/- 14. LD. CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER:- 4.1 IN THIS RESPECT THE APPELLANT 1 A REPRESENTATIVE SHRI N B SHAH IN THE FIRST PLACE HAS STATED THAT THE FIGURE OF RS. 319 93 LACS RELATE TO EXEMPT INCOME IS NOT CORRECT AS TAKEN BY THE AO IT IS SUBMITTED THAT INVESTMENT IN THIS RESPECT ARE AS UNDER: SR. NO. PARTICULARS INVESTMENT MADE RUPEES (IN LAKHS) INCOME EXEMPT RUPEES INCOME OFFERED RUPEE 1 INVESTMENT IN GOVERNMENT SECURITIES (AS REQUIRED BY RBI) 307.24 - 37 65 701 2 INVESTMENT IN SHARES (NET) 12.17 98 716 - 3 INVESTMENT IN DEBENTURES 0.52 - 18 195 TOTAL 319.93 98.716 37 84 496 I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 10 IT IS THEREFORE PLEADED THAT TAX FREE INVESTMENTS A RE ONLY RS. 12.17 LACS AND OTHER INVESTMENT OUT OF RS 319.93 LACS ARE IN GOVERNMENT SECURITIES/DEBENTURES WHICH ARE TAXABLE. FURTHER MY ATTENTION IS DRAWN TO INVESTMENT OF RS. 98.716/- IN THE WRITTEN SUBMISSIONS FILED AND IT IS POINTED OUT THAT THE INVESTMENTS HAVE BEE N MADE IN EARLIER YEARS COMMENCING FROM F.Y. 94-95 TO 98-99 AND HAS S TRONGLY ARGUED THAT THE APPELLANT COMPANY HAD ITS OWN FUNDS OF RS. 12.15 CRORES AS ON 31.3.95 RS. 24.87 CRORES AS ON 31.3.96 RS. 39. 21 CRORES AS ON 31 3. 97 RS 46.34 CRORES AS ON 31.3.98 RS 59.57 CRORES AS O N 31.3.99 RS. 59.00 CRORES AS ON 31.3.2000 AND RS. 67.65 CRO RES AS ON 31.3.2001. A DETAILED CHART AS PER ANNEXURE-10 HAS BEEN SUBMITTED IN THE PAPER BOOK FILED BEFORE ME AT PAGE A-40 OF THE SAID PAPER BOOK REPRESENT INVESTMENT IN SHARES WHICH ARE EXEMPT UND ER THE ACT HAVE ALSO BEEN INDICATED IN THE SAID CHART AND APPEARING RIGHT FROM F.Y. 94-95. HAVING REGARD TO THE ABOVE FACTUAL POSITION WHICH IS FOUND TO BE CORRECT WITH REFERENCE TO THE BALANCE SHEET OF T HE RELEVANT FINANCIAL YEAR THE PLEA OF THE APPELLANT COMPANY THAT NO BOR ROWED FUNDS HAVE BEEN UTILIZED FOR THE SMALL INVESTMENT OF RS 12.17 LACS WHERE INCOME IS CLAIMED TO BE EXEMPT IS THEREFORE VALID AND JUST IFIED. ACCORDINGLY THE ACTION OF THE AO IN MAKING PROPORTIONATE DISALL OWANCE OUT OF INTEREST EXPENDITURE OF RS 2 64 .38 914/- ON THIS GROUND IS THEREFORE NOT AT ALL JUSTIFIED. THE ADDITION OF RS. 22 07 84 0/- CANNOT BE SUSTAINED AND ACCORDINGLY DIRECTED TO THE DELETED. THE OTHER ADDITION OF RS. 1 20 000/- U/S. 14A HAS B EEN DEALT WITH BY THE LD. CIT(A) AS UNDER:- THE SECOND PART OF DISALLOWANCE U/S. 14A RELATES T O RS. 1 20 000/- @ RS. 10 000/- PER MONTH FOR 12 MONTHS BY CORRELATING THAT EXPENDITURE RELATE TO EARNING OF INCOME WHICH IS TAX FREE. IN THIS RESPECT HAVING REGARD TO THE TOTAL INVESTMENTS MADE OF RS. 12.17 L ACS AND TAX FREE INCOME EARNED OF RS. 98 716/- I WOULD CONSIDER IT REASONABLE AND FAIR THAT DISALLOWANCE OF RS. 60 000/- ON THIS ACCOUNT AS SOME PART OF THE MAN POWER AND RESERVES WOULD CERTAINLY BE UTILIZED FOR EARNING SUCH INVESTMENT. THE APPELLANT GETS RELIEF OF RS. 60 00 0/- OUT OF THIS AMOUNT OF RS. 1 20 000/-. TO SUMMARIZE THE TOTAL ADDITION U/S. 14A IS REDUCED TO RS. 60 000/- AS AGAINST RS. 23 27 840/- AND THE APPELLANT GETS RELIEF OF RS. 22 67 840/- ON THIS ACCOUNT ACCO RDINGLY . I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 11 15. AGGRIEVED BY THIS ORDER NOW BOTH THE PARTIES AR E BEFORE US. ASSESSEE IS IN APPEAL IN RESPECT OF CONFIRMING OF DISALLOWAN CE OF RS. 60 000/- IN RESPECT OF EXPENSES INCURRED FOR EARNING DIVIDEND I NCOME WHILE REVENUE IS IN RESPECT OF DELETING OF DISALLOWANCE OF PROPORTIONAT E INTEREST OF RS. 22 07 840/- MADE BY AO U/S. 14A OF THE ACT. AT THE TIME OF HEARING LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT UNLESS THERE WAS PROOF OF ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE TO EARN THE EX EMPT INCOME NO DISALLOWANCE CAN BE MADE U/S. 14A OF THE ACT. HE T HEREFORE PRAYED THAT THE DISALLOWANCE CONFIRMED BY LD. CIT(A) MAY ALSO BE DE LETED. LD. DR ON THE OTHER HAND SUBMITTED THAT THE ISSUE MAY BE SENT BAC K TO THE FILE OF AO FOR FRESH ADJUDICATION AS LD. CIT(A) HAS GIVEN RELIEF T O THE ASSESSEE ON THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE BEFORE HIM WHICH WAS NOT BEFORE THE AO AND LD. CIT(A) HAS NOT CARED TO OBTAI N THE REMAND REPORT ON THIS ADDITIONAL EVIDENCE. 16. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT LD. CIT(A) HAS CONSIDERED ADDITIONAL EVIDENCE IN TH E FORM OF DETAILS OF ASSESSEES OWN FUNDS BEING AVAILABLE TO HIM TO INVE ST TO MAKE INVESTMENT TO EARN EXEMPT INCOME ON WHICH COMMENTS OF AO WERE ALS O NOT OBTAINED BY THE LD. CIT(A). THEREFORE WE ARE INCLINED TO ACCE PT THE PRAYER OF LD. D.R. THAT ISSUE DESERVES FRESH ADJUDICATION AT THE END O F AO AFTER TAKING INTO CONSIDERATION THE ADDITIONAL EVIDENCE PRODUCED BY A SSESSEE BEFORE LD. CIT(A). 17. IN THE RESULT GROUND NO. 3 OF ASSESSEES APPEAL AND GROUND NO. 2 OF REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOS E. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 12 18. GROUND NO. 4 IN ASSESSEES RELATES NON-GRANTING OF DEDUCTION ON ACCOUNT OF DIMINUTION IN VALUE OF INVESTMENT RELAT ES THE PROVISION FOR NON- PERFORMING ASSETS OF RS. 1 32 12 521/-. 19. LD. CIT(A) HAS DEALT THIS GROUND AS UNDER:- THIS RELATES TO NON GRANTING OF DEDUCTION ON ACCOU NT OF DIMINUTION IN VALUE OF INVESTMENT. IT IS SUBMITTED BY THE APPELLA NT'S REPRESENTATIVE THAT THE PROVISION FOR NON-PERFORMING ASSETS OF RS. 1 32 12 521/- HAD BEEN MADE AS PER THE REQUIREMENTS OF RBI WHICH HAS NOT BEEN ALLOWED BY THE AO. THIS HAS BEEN DISCUSSED BY THE AO AT PA RA 3.6 PAGE 4 OF THE ORDER AND IT HAS BEEN STATED BY HIM THAT PART A MOUNT HAS BEEN DISALLOWED IN THE STATEMENT OF INCOME BY THE APPELL ANT ITSELF AND THEREFORE SEPARATE CLAIM HAS BEEN MADE FOR RS. 2 71 64 237/- AS BAD DEBT. THIS GROUND OF APPEAL HAS BEEN SEPARATELY ADJ UDICATED AS PER GROUND NO 3 ABOVE AND DOES NOT REQUIRE TO BE ADJUDI CATED SEPARATELY. RELIANCE OF THE APPELLANT'S REPRESENTATIVE ON THE D ECISION OF ITAT DELHI BENCH 82 TTJ 259 IN THE CASE OF TEDCO INVESTM ENT & FINANCE SERVICES PVT LTD CANNOT BE APPLIED TO THE FACTS OF THE CASE AND THE FINDINGS HAVE BEEN GIVEN IN GROUND NO 3 HAVING REGA RD TO THE FACTS OF THE CASE AND THE PROVISIONS OF SECTION 3G(1)(VII) R .W.S 36(2) OF THE INCOME TAX ACT. 20. AT THE TIME OF HEARING LEARNING COUNSEL OF THE ASSESSEE CONCEDED THAT THE ISSUE INVOLVED IN THIS GROUND IS COVERED AGAINS T THE ASSESSEE AND IN FAVOUR OF REVENUE BY THE DECISION OF MADRAS HIGH CO URT IN THE CASE OF TN POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPOR ATION LTD VS. JCIT 280 ITR 491. THEREFORE THE SAME IS DISMISSED. 21. GROUND NO. 5 IN ASSESSEES APPEAL IS GENERAL AN D DOES NOT REQUIRE ADJUDICATION. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 13 22. GROUND NO. 3 IN REVENUES APPEAL RELATES TO LEA SE INCOME OF RS. 4 44 367/- FROM VARIOUS ASSETS. LD. CIT(A) HAS DEA LT WITH THIS GROUND AS UNDER:- THIS RELATES TO NON-DELETION OF LEASE INCOME OF RS . 4 44 367/ IN RESPECT OF VARIOUS ASSETS GIVEN ON LEASE ON WHICH N O DEPRECIATION HAS BEEN ALLOWED IN AY. 96-97. THIS GROUND APPEARS TO B E CONSEQUENTIAL TO THE FINDING OF THE ORDER FOR A Y. 96-97 AND THE AO IS DIRECTED TO GIVE CONSEQUENTIAL EFFECT AS PER THE ORDER OF THE E ARLIER YEARS INCLUDING ORDER NO. CIT(A)-VIII/ITO/4(2)/21/02-03 D ATED 27-09-2004 FOR AY 1996-97. THE DIRECTIONS IN RESPECT OF THE S AME MAY BE FOLLOWED FOR THIS YEAR ALSO. SINCE IT IS CONSEQUENTIAL TO THE FINDING ON THIS IS SUE BY THE TRIBUNAL FOR A.Y. 1996-97 NO SEPARATE FINDING IS REQUIRED BY US. THI S GROUND IS ACCORDINGLY DISPOSED OFF. 23. GROUND NO. 4 & 5 IN REVENUES APPEAL IS GENERAL AND THUS DO NOT REQUIRE ANY ADJUDICATION. 24. IN THE COMBINED RESULT BOTH THE APPEALS ARE PA RTLY ALLOWED FOR STATISTICAL PURPOSE. NOW COMING TO ITA NO. 1095/AHD/2006 25. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER PASSED BY CIT (APPEALS) IS BAD IN LA W AND ON FACTS AND HENCE IT IS SUBMITTED THAT THE SAME BE CANCELL ED AND BE SUITABLY MODIFIED. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMIN G DISALLOWANCE OF BAD DEBTS OF RS. 2 71 07 143/-. THE LEARNED CIT (APPEALS) HAS NOT GRANTED BAD DEBTS IN THE NATURE O F BILL DISCOUNTING I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 14 AND HIRE PURCHASE TRANSACTIONS. ON THE BASIS OF FAC TS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT THE SAME IS ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF LAW AND HENCE IT IS SUBMITTED THAT THE SAME BE GRANTED ACCORDINGLY. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMIN G DISALLOWANCE OF CONSULTANCY FEES OF RS. 15 77 350/- PAID TO ERNST & YOUNG. ON THE BASIS OF FACTS AND CIRCUMSTANCES OF T HE CASE IT IS SUBMITTED THAT THE SAME IS REVENUE EXPENDITURE INCU RRED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY AND HENCE T HE SAME BE GRANTED ACCORDINGLY. 4. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT CONSI DERING THE MATTER RELATING TO ALLOWANCE OF LEASE EQUALIZATION OF RS. 3 66 02 456/- SUBMITTED TO A.O. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS VIDE POINT NO. 6 OF LETTER DATED 24.2.2005. IT IS SUBMIT TED THAT SAME BE GRANTED ACCORDINGLY. 5. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT CONSI DERING THE MATTER PERTAINING TO ALLOWANCE OF PROVISION OF NON- PERFORMING ASSETS OF RS. 2 22 96 657/- MADE PURSUANT TO THE REQUIREMENT OF RESERVE BANK OF INDIA. IT IS SUBMITTED THAT THE SAME WAS DU LY SUBMITTED TO THE A.O. FOR HIS CONSIDERATION VIDE POINT NO. 9 OF THE LETTER DATED 12.2.2005. IT IS SUBMITTED THAT THE SAME BE GRANTED ACCORDINGLY. 26. GROUND NO. 1 IS GENERAL AND DOSES NOT REQUIRE A NY ADJUDICATION. 27. GROUND NO. 2 RELATES TO CONFIRMING OF DISALLOWA NCE OF RS. 2 71 7143/- OF BAD DEBTS WRITTEN OFF THAT WERE IN THE NATURE OF BILL DISCOUNTING AND HIRE PURCHASE TRANSACTION. 28. AT THE TIME OF HEARING AT THE OUTSET LEARNED CO UNSEL OF THE ASSESSEE SUBMITTED THAT LD. CIT(A) HAS FOLLOWED THE ORDER F OR A.Y. 2000-01 WHILE DECIDING THIS ISSUE. HE THEREFORE PRAYED THAT IT W ILL BE COVERED BY THE ORDER OF THE TRIBUNAL FOR A.Y. 2001-02. LD. DR RELIED ON THE ORDER OF AO. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 15 29. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE I S NOT CORRECT WHEN HE SAYS THAT LD. CIT(A) HAS FOLLOWED ITS ORDER FOR A.Y. 200 1-02 WHILE DECIDING THIS ISSUE AS IN THE YEAR 2001-02 BAD DEBT IN RESPECT O F HIRE PURCHASE BUSINESS OF THE ASSESSEE WAS ALLOWED BY LD. CIT(A) WHICH IS NOT THE CASE DURING THE YEAR UNDER APPEAL. HOWEVER WE HAVE CONFIRMED THE A CTION OF LD. CIT(A) DURING THE ASSESSMENT YEAR 2001-02 BY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES CASE FOR A.Y. 2004-05. THER EFORE AO IS DIRECTED TO EXAMINE WHETHER THE FACTS OF THIS YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2004-05 WHEREIN BAD DEBT WRITTEN OFF BY THE ASSESSE E IN THE CASE OF ITS BUSINESS OF HIRE PURCHASES WERE ALLOWED BY THE TRIB UNAL. AS FAR AS BAD DEBT IN RESPECT OF BILL DISCOUNTING IS CONCERNED THE MA TTER WAS RESTORED TO THE FILE OF AO DURING THE ASSESSMENT YEAR 2001-02. FOLLOWIN G THE SAME ISSUE RELATING TO BILL DISCOUNTING IS RESTORED BACK TO TH E FILE OF AO FOR FRESH ADJUDICATION. THIS GROUND IS ALLOWED FOR STATISTIC AL PURPOSE. 30. GROUND NO. 3 RELATES TO DISALLOWANCE OF SUM OF RS. 15 77 550/- THE CONSULTATION FEE PAID TO ERNST & YOUNG WHICH HAS BE EN CONFIRMED BY LD. CIT(A). 31. BRIEF FACTS OF THE CARE ARE THAT THE AO NOTED T HAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT COMPANY HAS MADE PAYMEN T TO M/S. ERNST & YOUNG TOWARDS THE CONSULTANCY TO THE TUNE OF RS 15 77 550/- . ON VERIFICATION IT WAS FOUND THAT THE STUDY CARRIED OU T BY E&Y WAS RELATED TO COMPETE RESTRUCTURING OF THE APPELLANT COMPANY. THE STUDY WAS COMMISSIONED BY GUJARAT GAS COMPANY LTD. AND THE RE PORT WAS ALSO I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 16 SUBMITTED TO GUJARAT GAS COMPANY LIMITED ONLY. SEVE RAL OTHER ISSUES WERE ALSO NOTED WITH REGARD TO THE STUDY CARRIED OUT BY E&Y. AS A RESULT A SHOW CAUSE NOTICE WAS ISSUED ON 21 2 2005. TO WHICH THE ASSESSEE COMPANY HAS SUBMITTED ITS REPLY TO THE AO. FROM THE SUBMISSION OF THE ASSESSEE THE AO NOTED THAT IT IS A FINDING OF FACT THAT THE REPORT WAS SUBMITTED TO GUJARAT GAS COMPANY LIMITED BY E&Y. FURTHER THE STUDY WAS CO MMISSIONED BY GGCL AND NOT THE ASSESSEE COMPANY WHO IS A SUBSIDIARY OF GGCL. THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED DUE TO THE F OLLOWING REASONS- THE PURPOSE OF THE STUDY WAS TO GET ADVICE FROM E& Y REGARDING THE STEPS NEEDED FOR MORE EFFICIENT AND EFFECTIVE FUNCT IONING OF GGCL AND THE ASSESSEE COMPANY I.E. THE GROUP AS A WHOLE. TH IS WAS THE UNDERLINED PRINCIPLE OF THE STUDY. AS A RESULT THE E & Y WAS ASKED TO SUBMIT REPORT REGARDING THE RESTRUCTURING OF THE AS SESSEE COMPANY SO THAT OPERATIONS OF THE GROUP BECOME MORE EFFICIENT AND EFFECTIVE. THE STEPS SUGGESTED BY CONSULTANT IN ITS REPORT INCLUDE D AMALGAMATION OF THE ASSESSEE COMPANY WITH GGCL DEMERGER SALE OF TH E BUSINESS OF LEASING ETC. IN ADDITION TO SEVERAL OTHER STEPS. HAD THE OBJECTIVE BEEN TO IMPROVE THE EFFICIENT AND EFFECTIVENESS OF ASSES SEE COMPANY ONLY NOT OF THE GROUP THEN E& Y WOULD HAVE NOT SUGGESTED THE AMALGAMATION OR SALE OF BUSINESS AS THE OPTIONS AT ALL. IT WAS NOT UNDERLINED PRINCIPLE OF STUDY AT ALL THAT THE ASSES SEE COMPANY WOULD REMAIN IN EXISTENCE. IN SUCH A SCENARIO IT IS NOT DIFFICULT TO UNDERSTAND FOR WHOSE PURPOSE THE STUDY WAS MEANT. OBVIOUSLY AT LEAST NOT FOR THE PURPOSE OF ASSESSEE COMPANY. (II) ALTHOUGH PAYMENT MIGHT HAVE BEEN MADE BY THE A SSESSEE COMPANY IT CANNOT BE A DECIDING FACTOR. NO COMPAN Y CAN BE SUPPOSED TO CLAIM AN EXPENDITURE FOR CONDUCTING A S TUDY FOR ITS EXTINCTION. FOR CLAIMING AN EXPENDITURE IT IS ESS ENTIAL THAT THE EXPENDITURE IS LAID OUT OR EXPENDED FOR THE PURPOSE OF BUSINESS. IN LIGHT OF AFORESAID DISCUSSION IT CANNOT BE SAID THE STUDY WAS MEANT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. H AD THE STUDY WAS MEANT FOR RESTRUCTURING FOR EXPANSION OF THE BUSINE SS OR IMPROVING THE EFFICIENCY IT WOULD HAVE BEEN AN EXPENDITURE FOR T HE PURPOSE OF BUSINESS OF ASSESSEE COMPANY. BUT IT WAS NOT THE C ASE. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 17 THEREFORE IT CANNOT BE SAID THAT THE STUDY WAS COM MISSIONED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE COMPANY. H ENCE THE EXPENDITURE MADE TOWARDS SUCH CONSULTANCY CANNOT BE TREATED AS EXPENDITURE ALLOWABLE U/S. 37 OF THE INCOME TAX ACT 1961. 32. IT WAS ALSO NOTED THAT EVEN IF SUCH EXPENDITURE WAS CONSIDERED AS LAID OUT AND EXPENDED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY IT CANNOT BE SAID TO BE IN THE NATURE OF REVENUE AS T HE STUDY WAS MEANT FOR COMPLETE RESTRUCTURING OF THE ASSESSEE COMPANY AND SUGGESTIONS GIVEN BY E&Y WERE QUITE RADICAL HAVING IMPACT OF ENDURING NA TURE. THE AO ALSO INFERRED THAT ALTHOUGH NO ACTION AHS BEEN TAKEN ON THE SUGGESTIONS OF CONSULTANT IT CANNOT BE RULED OUT THAT THE POSSIBI LITY OF ANY ACTION IN FUTURE. THEREFORE SUCH AN EXPENDITURE QUALIFY AS CAPITAL EXPENDITURE AND IT CANNOT BE ALLOWED U/S 37 OF THE ACT. IN THIS REGARD RE LIANCE WAS PLACED ON THE FALLOWING DECISIONS: (I) SAUTRASHTRA CEMEMNT AND CHEMICAL IND. LTD. 196 ITR 237 (GUJ) (II) BENGAL AND ASSAM INVESTORS LTD. V CIT 142 ITR 156 (KOL) (III) JAYASHREE TEA AND INDUSTRIES LTD V CIT 80 TAX MAN 169 (KOL) 33. IN VIEW OF THE ABOVE THE AO DISALLOWED PAYMEN T MADE TO E&Y OF RS. 15 77 550/- AS CONSULTANCY CHARGES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 34. DURING APPELLATE PROCEEDING BEFORE LD. CIT(A) ASSESSEES SUBMISSION ON THIS ISSUE WAS THAT DURING THE YEAR U NDER REVIEW BECAUSE OF SPECIAL BUSINESS ACTIVITIES OF FINANCE COMPANY M/S . ERNST & YOUNG CONSULTANTS WERE APPOINTED TO LOOK INTO THE POSSIBI LITIES OF THE RESTRUCTURING OF THE COMPANY CONSIDERING VARIOUS ASPECTS. THIS ST UDY WAS CARRIED OUT CONSIDERING THE NATURE OF BUSINESS OF THE COMPANY A ND WAS PURELY IN THE I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 18 INTEREST OF THE COMPANY. THE ASSESSEE HAS SUBMITTE D COPIES OF THE BILLS OF THE SAID COMPANY AS WELL AS COPY OF ACCOUNT TO SHOW THAT IT WAS FOR THE PURPOSE OF BUSINESS OF THE COMPANY. 35 IT WAS FURTHER SUBMITTED THAT THIS WAS NO LONGE R CAPITAL EXPENDITURE AS NO ENDURING BENEFIT WAS GOING TO BE RECEIVED OUT OF IT. FURTHER THEY HAVE DISCUSSED VARIOUS ALTERNATIVES CONSIDERING THE BUSINESS OF THE COMPANY. IT WAS ALSO SUBMITTED THAT THIS STUDY MADE CONSIDER ING THE BUSINESS PERSPECTIVE AND WHAT SHOULD BE THE APPROACH TO THAT BUSINESS ACTIVITY IN FUTURE AS SEVERAL FINANCE COMPANIES HAVE A PREMATUR E DEATH BECAUSE OF TYPICAL NATURE OF BUSINESS ACTIVITIES. IT WAS ALS O SUBMITTED THAT THE CASE LAWS CITED BY THE AO ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF T HE ASSESSEE COMPANY. IT WAS ALSO SUBMITTED THAT CONSIDERING T HE NATURE AND RISK OF BUSINESS OF FINANCE THE COMPANY HAD TO CARRY OUT THE STUDY OF THE SAID BUSINESS AND VARIOUS OPTIONS AVAILABLE OPTIONS MA INLY CONSIDERING THE VULNERABLE RISK INVOLVED IN THE BUSINESS MORE SO WHEN BANKING FINANCE WAS EASILY AVAILABLE. THE COMPANY HAD THUS PAID CON SULTANCY FEES FOR CARRYING OUT THIS STUDY. RELIANCE WAS PLACED ON TH E DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF ITC LTD. V. JCIT 95 TTJ 1017 AND ALSO IN TH E CASE OF HINDUSTAN PETROLEUM CORPORATION LTD V. DCIT 96 I TD 186 (MUMBAI). 36. AFTER TAKING INTO CONSIDERATION THESE SUBMISSIO NS OF THE ASSESSEE LD. CIT(A) CONFIRMED THE ACTION OF AO. BEFORE US LEARN ED COUNSEL OF THE ASSESSEE REITERATED THE SAME SUBMISSION AS MADE BEF ORE LOWER AUTHORITIES AND COPY OF THE REPORT FROM M/S. E & Y FOR WHICH CO NSULTATION FEE OF RS. 15 75 555/- WAS PAID WAS SUBMITTED. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF LOWER AUTHORITIES. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 19 37. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THIS REPORT WAS PREPARED BY M/S E & Y ON THE DIRECTIONS OF GUJARAT GAS COMPANY LTD AND TH E REPORT WAS ALSO SUBMITTED TO GUJARAT GAS COMPANY LTD. IT IS ALSO NOT IN DISPUTE THAT STUDY CARRIED BY E & Y RELATED TO AMALGAMATION AND MERGER FOR EFFICIENT AND EFFECTIVE FUNCTIONING OF GUJARAT GAS COMPANY LTD AN D OTHER GROUP COMPANIES. WE FURTHER FIND THAT THE FINDING OF LD. CIT(A) THAT THE BILLS ORIGINALLY PREPARED BY E & Y WERE IN THE NAME OF GU JARAT GAS COMPANY LTD ONLY WAS NOT DISPUTED BEFORE US. SINCE THE STUDY WAS COMMISSIONED BY THE GUJARAT GAS COMPANY LTD FOR EFFICIENT AND EFFECTIVE FUNCTIONING OF GUJARAT GAS COMPANY LTD ONLY IT CANNOT BE SAID THAT THIS E XPENDITURE WAS INCURRED FULLY AND EXCLUSIVELY FOR CARRYING ON BUSINESS OF T HE ASSESSEE. THEREFORE WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND THE SAME IS HEREBY UPHELD. THIS GROUND OF ASSESSEE IS DISMISSED. 38. GROUND NO. 4 RELATES TO ALLOWANCE OF LEASE EQUA LIZATION OF RS. 3 66 02 456/- LD. CIT(A) HAS DEALT THIS GROUND AS UNDER:- 6.1 THE LEARNED COUNSEL SUBMITTED THAT VIDE LETTER DATED 24.02.2005 THE AO WAS REQUESTED TO GRANT AN AMOUNT OF LEASE EQ UALIZATION AS DEDUCTION. HOWEVER THE AO HAS NOT GRANTED THE SAME . THE ABOVE DEDUCTION WAS ASKED ON THE BASIS OF JUDGMENT OF HON BLE HYDERABAD TRIBUNAL IN THE CASE OF JCIT V . PACT SECURITIES & FINANCIAL LTD. 86 ITD 115 (HYD). 6.2 1 FIND THAT THIS ISSUE HAS NOT BEEN DISCUSS ED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER. THE APPELLANT HAD NOT CLAIMED ANY DEDUCTION IN THE RETURN OF INCOME OR IN COMPUTATION OF INCOME. THEREFORE THIS IS NOT EMANATING FROM THE ORDER OR FROM THE STATEMENT OF INCOME. ACCORDINGLY THIS GROUND IS INFRUCTUOUS AND DISMISSED. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 20 HOWEVER IF THERE IS ANY ERROR ON FACTS ON RECORD THE APPELLANT IS FREE TO FILE PETITION U/S. 154 OF THE ACT. IT IS CLEAR FROM THE ABOVE THAT THIS GROUND IS NOT COMING OUT OF THE ORDER OF LOWER AUTHORITIES AND THEREFORE DOES NOT REQUIRE AN Y ADJUDICATION ON OUR PART. 39. GROUND NO. 5 RELATES TO ALLOWANCE OF PROVISION OF NPA OF RS. 2 22 96 657/-. 40. THIS GROUND HAS BEEN DEALT WITH BY LD. CIT(A) AS UNDER:- 7. AS PER GROUND NO. 8 THE APPELLANT HAS OBJECTE D THAT THE AO HAS NOT CONSIDERED THE FACTS STATED VIDE POINT NO. 7 OF LETTER DATED 12.02.2005 FOR ALLOWING A SUM OF RS. 2 22 96 657/- BEING PROVISION FOR NON PERFORMING ASSETS AS IT IS MADE AS PER THE REQUIREMENTS OF RESERVE BANK OF INDIA. IT WAS SUBMITTED THAT SINC E THE SAME IS LEGAL REQUIREMENT OF THE APEX BODY THE SAME MAY BE GRANT ED ACCORDINGLY. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE TRIBUNAL IN THE CASE OF TEDCO INVESTMENT AND FINANCIAL SERVICES P. LTD 82 TTJ 259 AND THE DECISION OF HON'BLE CHENNAI TRIBUNAL IN THE CASE OF SANMAR FINANCIAL LIMITED 86 ITD 602. 7.1 I FIND THAT THIS ISSUE HAS NOT BEEN DISCUSSED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER. THIS CLAIM HAS ALSO NOT BEEN REFLECTED IN THE RETURN OF INCOME OR COMPUTATION OF INCOME. T HEREFORE THIS GROUND IS ALSO NOT EMANATING EITHER FROM THE ASSESS MENT ORDER OR ON ACCOUNT OF STATEMENT OF INCOME. ACCORDINGLY THIS GROUND IS NOT ADMITTED. HOWEVER IF THERE IS ANY ERROR ON FACTS O N RECORD THE APPELLANT IS FREE TO FILE PETITION U/S 154 OF THE A CT. SINCE THIS GROUND IS ALSO NOT COMING OUT FROM ORDER S OF LOWER AUTHORITIES DOES NOT REQUIRE ANY ADJUDICATION ON OUR PART AND T HE SAME IS HEREBY DISMISSED AS INFRUCTUOUS. I.T.A NOS 35 515/AHD/2005 & 1095/AHD/2006 A.Y . 2001-02 &2002-03 PAGE NO GUJARAT GAS FINANCIAL SERVICES LTD VS. ITO 21 41. IN THE COMBINED RESULT BOTH THE APPEALS OF ASS ESSEE AS WELL AS THAT OF REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 31/10/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER/ /