BBF Industries Limited, Ludhiana v. JCIT (OSD), Ludhiana

ITA 1163/CHANDI/2012 | 2007-2008
Pronouncement Date: 20-11-2014 | Result: Partly Allowed

Appeal Details

RSA Number 116321514 RSA 2012
Assessee PAN AAACB9276E
Bench Chandigarh
Appeal Number ITA 1163/CHANDI/2012
Duration Of Justice 2 year(s) 11 day(s)
Appellant BBF Industries Limited, Ludhiana
Respondent JCIT (OSD), Ludhiana
Appeal Type Income Tax Appeal
Pronouncement Date 20-11-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 20-11-2014
Date Of Final Hearing 29-10-2014
Next Hearing Date 29-10-2014
Assessment Year 2007-2008
Appeal Filed On 09-11-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI T.R.SOOD ACCOUNTANT MEMBER ITA NO.1162 & 1163/CHD/2012 ASSESSMENT YEAR: 2006-07 & 2007-08 M/S B.B.F. INDUSTRIES LTD. V THE JCIT (OSD) (FORMERLY KNOWN AS CIRCLE 1 BHARAT BOX FACTORY LTD. LUDHIANA. 181 BEAMTPURA CHANDIGARH ROAD LUDHIANA. PAN: AAACB9276E & ITA NO.596/CHD/2013 ASSESSMENT YEAR: 2008-09 M/S B.B.F. INDUSTRIES LTD. V THE ACIT (FORMERLY KNOWN CIRCLE 1 AS BHARAT BOX FACTORY LTD. LUDHIANA. 181 BEAMTPURA CHANDIGARH ROAD LUDHIANA. PAN: AAACB9276E & I TA NO.695/CHD/2013 ASSESSMENT YEAR: 2008-09 THE DCIT M/S B.B.F. INDUSTRIES LTD. CIRCLE-I (FORMERLY KNOWN LUDHIANA. AS BHARAT BOX FACTORY LTD. 181 BEAMTPURA CHANDIGARH ROAD LUDHIANA. & ITA NO.1164/CHD/2012 ASSESSMENT YEAR: 2009-10 M/S B.B.F. INDUSTRIES LTD. V THE JCIT(OSD) (FORMERLY KNOWN CIRCLE 1 AS BHARAT BOX FACTORY LTD. LUDHIANA. 181 BEAMTPURA CHANDIGARH ROAD LUDHIANA. PAN: AAACB9276E 2 & ITA NO.1253/CHD/2012 ASSESSMENT YEAR: 2009-10 THE ACIT M/S B.B.F. INDUSTRIES LTD. CIRCLE-I (FORMERLY KNOWN LUDHIANA. AS BHARAT BOX FACTORY LTD. 181 BEAMTPURA CHANDIGARH ROAD LUDHIANA. & ITA NO.214/CHD/2014 ASSESSMENT YEAR: 2010-11 M/S B.B.F. INDUSTRIES LTD. V THE DCIT (FORMERLY KNOWN CIRCLE 1 AS BHARAT BOX FACTORY LTD. LUDHIANA. 181 BEAMTPURA CHANDIGARH ROAD LUDHIANA. PAN: AAACB9276E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUDHIR SEHGAL REVENUE BY : SHRI MANJIT SINGH DATE OF HEARING : 03.11.2014 DATE OF PRONOUNCEMENT : 20.11.2014 O R D E R PER BHAVNESH SAINI JM THE ABOVE CROSS APPEALS FOR DIFFERENT ASSESSMENT YE ARS ARE DIRECTED AGAINST DIFFERENT ORDERS OF LD. CIT(APPEAL S)-I LUDHIANA FOR ABOVE ASSESSMENT YEARS. SINCE ISSUES ARE MOSTLY IDENTICAL AND COMMON THEREFORE ALL CROSS APPEALS WERE HEARD TOGETHER AND DISPOSED OF THROUGH THIS COMMON CONSOLIDATED OR DER. 3 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES PERUSED THE FINDING OF AUTHORITIES BELOW AND CONSID ERED THE MATERIAL AVAILABLE ON RECORD. 3. THE APPEALS ARE DECIDED ISSUE-WISE ON DIFFERENT GROUNDS OF APPEAL AS UNDER. ISSUE NO. 1 ( RE-OPENING OF THE ASSESSMENT U/S 147/148 OF THE A CT) 4. THIS ISSUE ARISES IN ASSESSMENT YEAR 2006-07 AND 2007-08. IN ASSESSMENT YEAR 2006-07 THE ASSESSEE FILED RETU RN OF INCOME ON 29.11.2006 SHOWING INCOME OF RS.1 58 69 445/-. THE RETURN WAS SELECTED FOR SCRUTINY AND ASSESSED UNDER SECTIO N 143(3) OF THE INCOME TAX ACT VIDE ORDER DATED 26.11.2008 AND ASSESSED ACCORDINGLY. THE ASSESSMENT WAS REOPENED AFTER REC ORDING REASONS FOR RE-OPENING OF THE ASSESSMENT ON 09.03.2 011 AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT ON DATED 30.11.20 11 REJECTING THE CLAIM OF ASSESSEE FOR DEDUCTION UNDER SECTION 8 0IB OF THE ACT IN RESPECT OF SUBSIDIES CREDITED TO THE EXPENSES WI THOUT SHOWING SEPARATELY AS REVENUE RECEIPTS. THE ASSESSEE RAISE D THE OBJECTIONS BEFORE ASSESSING OFFICER WHICH WERE DISP OSED OF BY THE ASSESSING OFFICER VIDE LETTER DATED 14.11.2011. THE ASSESSING OFFICER HAD OBSERVED THAT THE ASSESSEE HA D CLAIMED DEDUCTION UNDER SECTION 80IB ON ACCOUNT OF FREIGHT INSURANCE AND INTEREST ON WORKING CAPITAL SUBSIDIES WHICH WAS NOT PERMISSIBLE IN VIEW OF THE JUDGEMENTS OF HON'BLE SU PREME COURT IN THE CASE OF CIT VS STERLING FOODS 237 ITR 579 (S .C) AND OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S NAHAR 4 EXPORTS LTD. VS CIT 204 CTR 464. THE ASSESSEE CHAL LENGED THE RE-OPENING OF THE ASSESSMENT BEFORE LD. CIT(APPEALS ). THE ASSESSEE'S SUBMISSIONS ARE REPRODUCED IN THE IMPUGN ED ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT ALL THE F ACTS WERE ALREADY AVAILABLE WITH THE DEPARTMENT AND NO NEW FA CT HAS COME INTO EXISTENCE TO ENABLE THE DEPARTMENT TO RE-OPEN THE CASE UNDER SECTION 147 OF THE ACT. THE ASSESSEE FILED C OMPLETE DETAILS FOR CLAIMING DEDUCTION UNDER SECTION 80IB O F THE ACT BEFORE ASSESSING OFFICER AT ASSESSMENT STAGE AND IT IS A CASE OF CHANGE OF OPINION THEREFORE RE-OPENING IS NOT JUS TIFIED. THE ASSESSEE ALSO EXPLAINED THE JUSTIFICATION FOR CLAIM ING DEDUCTION UNDER SECTION 80IB OF THE ACT AND ASSESSING OFFICER AFTER EXAMINING SAME WITH APPLICATION OF MIND ACCEPTED T HE CLAIM OF ASSESSEE. THEREFORE ON THE SAME FACTS ASSESSING OFFICER IS NOT PERMITTED TO REOPEN THE ASSESSMENT UNDER SECTION 14 7 OF THE ACT. THE ASSESSEE ALSO RELIED UPON CERTAIN JUDGEME NTS IN SUPPORT OF HIS CONTENTIONS. HOWEVER THE LD. CIT(A PPEALS) DID NOT AGREE WITH SUBMISSIONS OF THE ASSESSEE AND RELY ING UPON THE SAME JUDGEMENTS WHICH HAVE BEEN RELIED UPON BY THE ASSESSING OFFICER HELD THAT THE ASSESSING OFFICER CANNOT BE SAID TO HAVE CHANGED HIS OPINION WHILE RE-OPENING THE ERRONEOUS ASSESSMENT FRAMED BY HIS PREDECESSOR AND ACCORDINGLY RE-OPENI NG WAS HELD TO BE JUSTIFIED. 5. IN ASSESSMENT YEAR 2007-08 THE ASSESSEE FILED RETURN OF INCOME ON 30.10.2007 SHOWING INCOME OF RS. 1 24 64 800/- AND WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SIM ILARLY ASSESSMENT WAS REOPENED UNDER SECTION 147 BY RECORD ING THE REASONS ON DATED 09.03.2011 AS WERE RECORDED IN PRE CEDING 5 ASSESSMENT YEAR 2006-07 AND ASSESSMENT UNDER SECTIO N 143(3) READ WITH SECTION 147 OF THE ACT WAS FRAMED ON 30.1 1.2011 AND CLAIM OF ASSESSEE UNDER SECTION 80IB ON SUBSIDY WAS DENIED AND INCOME WAS ACCORDINGLY COMPUTED. THE ASSESSEE FILE D SIMILAR OBJECTIONS BEFORE ASSESSING OFFICER WHICH WERE REJE CTED VIDE LETTER DATED 14.11.2011. THE ASSESSEE CHALLENGED TH E RE-OPENING IN THE ASSESSMENT BEFORE LD. CIT(APPEALS) AND SAME SUBMISSIONS HAVE BEEN MADE WHICH WERE HOWEVER NOT CONSIDERED F AVOURABLY BY LD. CIT(APPEALS) AND HELD THAT THE ASSESSING OFF ICER CANNOT BE SAID TO HAVE CHANGED HIS OPINION FOR RE-OPENING OF THE ASSESSMENT AND ACCORDINGLY REJECTED THE CLAIM OF AS SESSEE. 6. THE ASSESSEE IS IN APPEAL IN BOTH THE YEARS CHAL LENGING THE RE-OPENING OF THE ASSESSMENT BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND REFERRED TO THE O RIGINAL ASSESSMENT FRAMED IN WHICH THE ASSESSING OFFICER A FTER ELABORATE DISCUSSION ALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION UNDER SECTION 80IB IN RESPECT OF UNIT-I AND UNIT-II AT SAMBA IN ASSESSMENT YEAR 2006-07 AND ALSO MADE PART DISALLOW ANCE. HE HAS ALSO SUBMITTED THAT THE SAME DECISIONS WHICH AR E NOW REFERRED TO IN THE REASONS RECORDED FOR RE-OPENING OF THE ASSESSMENT HAVE ALREADY BEEN CONSIDERED BY THE ASSE SSING OFFICER IN ORIGINAL ASSESSMENT ORDERS. HE HAS REFE RRED TO THE REPLIES FILED BY ASSESSEE AT ORIGINAL ASSESSMENT ST AGE IN ASSESSMENT YEAR 2006-07 AND STATED THAT COMPLETE FA CTS WERE DISCLOSED TO THE ASSESSING OFFICER AT ASSESSMENT ST AGE THEREFORE IT IS A CLEAR CASE OF CHANGE OF OPINION FOR RE-OPENING OF 6 THE ASSESSMENT WHICH IS NOT PERMISSIBLE IN LAW. HE HAS REFERRED TO REPLY OF THE ASSESSING OFFICER DATED 14.11.2011 IN WHICH ASSESSING OFFICER ADMITTED IT TO BE A CASE OF CHANG E OF OPINION. HE HAS RELIED UPON SAME DECISIONS WHICH WERE RELIED UPON BEFORE THE ASSESSING OFFICER AND 274 ITR 186 (D) 31 8 ITR 295 (D) 320 ITR 56 (S.C) AND 339 ITR 535 (GUJRAT). 8. ON THE OTHER HAND LD. DR SUBMITTED THAT IT IS A CASE OF VALID RE-OPENING OF THE ASSESSMENT AND RELIED UPON DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KALYANJI MAVJI & CO. V CIT 102 ITR 287. THE LD. DR SUBMITTED THAT NO ALTERNAT E PLEA CAN BE TAKEN BY THE ASSESSEE IN THE PROCEEDINGS UNDER S ECTION 148 OF THE ACT. THE LD. DR ALSO RELIED UPON DECISION IN T HE CASE OF A.L.A. FIRM VS CIT 189 ITR 285 (S.C). 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIA L AVAILABLE ON RECORD. THE HON'BLE FULL BENCH OF DEL HI HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 256 ITR 1 B Y FOLLOWING CIRCULAR NO. 549 OF CBDT HELD THAT ON MERE CHANGE O F OPINION OF AO CANNOT BE A GROUND FOR RE-ASSESSMENT AND THAT AM ENDMENT OF SEC. 147 W.E.F. 1.4.89 HAS NOT ALTERED THE POSIT ION. HONBLE GUJRAT HIGH COURT IN THE CASE OF GARDEN SILK MILLS P. LTD. 237 ITR 668 HELD THAT HOWEVER WIDE THE SCOPE OF TAKING ACTION U/S 148 OF IT ACT IT DOES NOT CONFIRM JURISDICTION ON CHANGE OF THE INTERPRETATION OF A PARTICULAR PROVISION EARLIER AD OPTED BY THE ASSESSING AUTHORITY. FOR COMING TO THE CONCLUSION T HAT THERE HAS BEEN EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR TH AT THERE HAS BEEN UNDER ASSESSMENT OR ASSESSMENT AT A LOWER RATE OR FOR APPLYING OTHER PROVISIONS OF EXPLANATION 2 TO SEC. 147 IT MUST 7 BE ON MATERIAL AND IT SHOULD HAVE NEXUS FOR HOLDING SUCH OPINION CONTRARY TO WHAT HAS BEEN EXPRESSED EARLIER . EVEN AFTER THE AMENDMENT OF SEC. 147 MERE CHANGE OF OPINION D OES NOT CONFIRM JURISDICTION ON THE ITO TO INITIATE PROCEED ING FOR REASSESSMENT MERELY BY RESORTING TO EXPLANATION 1 T O SEC. 147. HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER P AINTS INDIA LTD. 245 ITR 648 HELD WHEN ANY PARTICULAR ISSUE HAS BEEN CONSIDERED BY THE ITO AND CIT(A) AND WHEN THERE IS NO FAILURE TO DISCLOSE THE FACTS THE REASSESSMENT PROCEEDINGS AR E NOT VALID. HON'BLE SUPREME COURT IN THE CASE OF CIT VS. FORANE R FRANCE 264 ITR 566 HELD REASSESSMENT NOT ON BASIS OF MER E CHANGE OF OPINION LAW SAME BEFORE AND AFTER AMENDMENT BY DI RECT TAX LAWS. HON'BLE SUPREME COURT IN THE CASE OF INDIAN O IL CORPORATION 159 ITR 956 HELD THAT NO CASE U/S 148 IS MADE OUT WHEN THE FACTS WERE KNOWN ALL ALONG WITH TO THE REV ENUE WHILE MAKING THE ORIGINAL ASSESSMENT. HON'BLE SUPREME COU RT IN THE CASE OF ASSOCIATED STONE INDUSTRY LTD. 224 ITR 560 HELD THAT THE ASSESSEE SHALL HAVE TO DISCLOSE ONLY THE PRIMAR Y FACTS. 10. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS ORIENT CRAFT LTD. 354 ITR 536 HELD AS UNDER HELD DISMISSING THE APPEAL THAT THE REASONS DISCLOSED THAT THE ASSESSING OFFICER REACHED THE BE LIEF THAT THERE WAS ESCAPEMENT OF INCOME 'ON GOING THROUGH THE RETURN OF INCOME 'FILED BY THE ASSESSEE AFTER HE ACCEPTED THE RETURN UNDER SECTION 143(1) WITHOUT SCRUTINY AND NOTHING MORE. THIS WAS NOTHIN G BUT A REVIEW OF THE EARLIER PROCEEDINGS AND AN ABUS E OF POWER BY THE ASSESSING OFFICER. THE REASONS RECORDED BY THE ASSESSING OFFICER DID CONFIRM THE APPREHENSION ABOUT THE HARM THAT A LESS STRICT INTERPRETATION OF THE WORDS 'REASON TO BELIEVE' VIS -A- VIS AN INTIMATION ISSUED UNDER SECTION 143(1) COULD CAUSE TO THE TAX REGIME. THERE WAS NOTHING IN THE REASONS RECORDED TO SHOW THAT ANY TANGIBLE MATERIAL HAD COME INTO THE POSSESSION OF THE ASSESSING OFFIC ER 8 SUBSEQUENT TO THE ISSUE OF THE INTIMATION. THE NOTI CE REFLECTED AN ARBITRARY EXERCISE OF THE POWER CONFER RED UNDER SECTION 147. 11. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V A TUL KUMAR SWAMI 362 ITR 693 HELD AS UNDER : A VALID REOPENING OF ASSESSMENT HAS TO BE BASED ONL Y ON TANGIBLE MATERIAL TO JUSTIFY THE CONCLUSION THAT TH ERE IS ESCAPEMENT OF INCOME. HELD ACCORDINGLY DISMISSING THE APPEAL THAT THE N OTE FORMING PART OF THE RETURN FILED FOR THE ASSESSMENT YEAR 1999-2000 CLEARLY MENTIONED AND DESCRIBED THE NATUR E OF THE RECEIPT UNDER A NON-COMPETE AGREEMENT. THE REAS ONS FOR THE NOTICE UNDER SECTION 147 OF THE INCOME-TAX ACT 1961 NOWHERE MENTIONED THAT THE REVENUE CAME UP WI TH ANY OTHER FRESH MATERIAL WARRANTING REOPENING OF ASSESSMENT. THEREFORE MERE CONCLUSION OF THE PROCEEDINGS UNDER SECTION 143(1) IPSO FACTO DID NOT PERMIT INVOCATION OF POWERS FOR REOPENING THE ASSESSMENT. 12. HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V VARDHMAN INDUSTRIES 363 ITR 625 HELD AS UNDER : THE ESSENTIAL AND INVIOLABLE CONDITION PRECEDENT FO R REASSESSMENT IS THE REASON TO BELIEVE THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. SUCH A RE ASON HAS TO BE ESSENTIALLY TRACEABLE TO DISCOVERIES AND SATISFACTION FROM NEW AND HITHERTO UNEXPLORED SOURC ES AND MATERIALS AND NOT TO A VIEW OF THE ASSESSING OF FICER DIFFERENTIALLY ORIENTED ON THE BASIS OF THE SAME IN PUTS ONCE CONSIDERED AND APPLIED. HELD ACCORDINGLY THAT A PERUSAL OF THE ORIGINAL ASSESSMENT ORDER MADE IT ABUNDANTLY CLEAR THAT THE ASSESSING OFFICER HAD NOT ONLY REFERRED TO THE DOCU MENTS AND RECORDS FOUND IN COURSE OF THE SURVEY UNDER SEC TION 133A OF THE INCOME-TAX ACT 1961 FROM THE BUSINESS AND OFFICE PREMISES OF THE ASSESSEE BUT ALSO THOSE WERE TEST CHECKED AND EVALUATED IN UNDERTAKING THAT EXERCIS E. THE ENDEAVOUR ON THE PART OF THE ASSESSING OFFICER TO I NITIATE A RE-ASSESSMENT PROCEEDINGS UNDER SECTION 147/148 O F THE ACT ON THE PURPORTED GROUND THAT THE SAME RECORDS/DOCUMENTS DISCLOSED THAT THE AMOUNT OF RS.33 72 583/- HAD ESCAPED ASSESSMENT WAS UNCONVINCING AND UNTENABLE AS WELL. THE NOTICE OF RE- ASSESSMENT WAS NOT VALID AS IT WAS BASED ON MERE CHANGE OF OPINION OF THE ASSESSING OFFICER. 9 13. HON'BLE BOMBAY HIGH COURT IN THE CASE OF TITANO R COMPONENTS LTD. V ACIT 343 ITR 183 HELD AS UNDER : WHERE A REASSESSMENT IS SOUGHT TO BE MADE AFTER FOU R YEARS THE POWER CONFERRED BY SECTION 147 OF THE INC OME- TAX ACT 1961 DOES NOT PROVIDE A FRESH OPPORTUNITY TO THE ASSESSING OFFICER TO CORRECT AN INCORRECT ASSESSMEN T MADE FILLER UNLESS THE MISTAKE IN THE ASSESSMENT SO MADE IS THE RESULT OF A FAILURE OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIALS FACTS NECESSARY FO R ASSESSMENT. THERE IS A DIFFERENCE BETWEEN A WRONG CLAIM MADE BY AN ASSESSEE AFTER DISCLOSING ALL THE TRUE AND MATERIAL FACTS AND A WRONG CLAIM MADE BY THE ASSESSEE BY WITHHOLDING THE MATERIAL FACTS FULLY AN D TRULY. IT IS ONLY IN THE LATTER CASE THAT THE ASSES SING OFFICER WOULD BE ENTITLED TO PROCEED UNDER SECTION -147. HELD ALLOWING THE PETITION THAT THE ASSESSING OFFICER HAD NOT RECORDED THE FAILURE ON THE PART OF THE PETITIONER TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT YEAR 1997-98. WHAT WAS RECORDED WAS THAT THE PETITIONER HAD WRONGLY CLAIMED CERTAIN DEDUCTIONS WHICH HE WAS NOT ENTITLED TO. THE REASSESSMENT PROCEEDINGS INITIATED IN THE YEAR 2004 WERE NOT VALID. 14. CONSIDERING THE ABOVE LEGAL PROPOSITIONS DECIDE D IN THE ABOVE CASES IT IS CLEAR THAT AO IS NOT JUSTIFIED I N REOPENING THE ASSESSMENT ON MERE CHANGE OF OPINION. 15. IN THIS CASE THE ORIGINAL ASSESSMENT ORDER IN ASSESSMENT YEAR 2006-07 WAS PASSED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 26.11.2008 (PB-19) THE ASSESSING OFFICE R CONSIDERED THE CLAIM OF ASSESSEE UNDER SECTION 80IB IN RESPECT OF UNIT NO. I AND UNIT NO. II AT SAMBA (J&K) AND CONSIDERED THE O THER INCOMES WHICH HAVE BEEN CREDITED FOR CLAIMING SUCH DEDUCTION. THE EXPLANATION OF THE ASSESSEE IS NOTED IN THE ORI GINAL ASSESSMENT ORDER AND THE ISSUE OF SUBSIDY WHICH IS CONSIDERED IN RE-OPENING OF THE ASSESSMENT WAS CONSIDERED IN T HE LINE OF JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF STERLING 10 FOODS (SUPRA) DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S NAHAR EXPORTS LTD. (SUPRA) DECI SION OF HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMIC ALS V CIT 262 ITR 278 AND DECISION OF THE HON'BLE PUNJAB & HA RYANA HIGH COURT IN THE CASE OF LIBERTY INDIA V CIT (SUPRA) AN D SUBSTANTIAL CLAIM OF ASSESSEE HAS BEEN ACCEPTED EXCEPT MINOR DI SALLOWANCE MADE ABOUT ISSUE OF DEDUCTION U/S 80IB OF THE ACT I N RESPECT OF UNIT-I AND UNIT-II AT SAMBA. 16. THE LD. COUNSEL FOR THE ASSESSEE REFERRED T O AUDIT REPORT FOR CLAIMING DEDUCTION UNDER SECTION 80IB OF THE AC T COPIES OF WHICH ARE FILED IN THE PAPER BOOK IN WHICH ASSESSEE DISCLOSED ALL COMPLETE FACTS FOR RECEIPT OF SUBSIDY FOR THE PURPO SE OF DEDUCTION IN RESPECT OF UNIT NO. I AND UNIT NO. II AT SAMBA. THE REPLIES OF THE ASSESSEE ARE ALSO REFERRED TO DURING THE COURSE OF ARGUMENTS IN PB- 34 AND PB- 43 IN WHICH THE ASSESSE E DISCLOSED COMPLETE FACTS AND MATERIAL BEFORE ASSESSING OFFICE R AT THE ORIGINAL ASSESSMENT STAGE AS TO HOW THE ASSESSEE WA S ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB IN RESPECT OF UNIT I A ND UNIT II AT SAMBA. THE ASSESSING OFFICER AFTER CONSIDERING TH E COMPLETE DETAILS AND INFORMATION BEFORE HIM ACCEPTED THE CL AIM OF ASSESSEE OF DEDUCTION UNDER SECTION 80IB OF THE ACT FOR UNIT NO. I AND UNIT NO. II AT SAMBA IN THE ORIGINAL ASSESSME NT PROCEEDINGS EXCEPT WITH SOME MINOR VARIATION. THE ASSESSING OFFICER SUBSEQUENTLY REOPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT IN RESPECT OF CLAIM UNDER SECTION 80 IB IN RESPECT OF UNIT I AND UNIT II AT SAMBA. THE REASONS RECORD ED ON 06.03.2011 FOR ASSESSMENT YEAR 2006-07 ARE REPR ODUCED AS 11 UNDER : THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2 006-07 ON 29.11.2006 SHOWING INCOME OF RS.1 58 69 445/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) AT AN ASSESSED INCOME OF RS. 2 15 83 398/- VIDE ORDER DATED 26.11.2008. IT HAS COME TO THE NOTICE OF THE UNDERSIGNED THAT T HE ASSESSEE HAD RECEIVED THE FOLLOWING SUBSIDIES IN THE SAID ASSESS MENT YEAR WHICH HAVE BEEN CREDITED TO RESPECTIVE EXPENDITURE ACCOUNTS. BY CREDITING THE SUBSIDIES TO THE EXPENSES ACCOUNT WITHOUT SHOWING THEM SEPARATELY AS REVENUE RECEIPTS THE ASSESSEE HAS IN EFFECT INCL UDED THESE SUBSIDIES IN PROFITS DERIVED FROM BUSINESS FOR THE SAID ASSESSMEN T YEAR AND HAS CLAIMED DEDUCTION U/S 80IA/IB ON THESE RECEIPTS. THE DETAILS OF THESE SUBSIDIES ARE AS FOLLOWS : THE ASSESSEE HAS TREATED THE ABOVE RECEIPTS AS PRO FITS DERIVED FROM THE BUSINESS OF THE ASSESSEE AND CLAIMED DEDUCTION U/S 801A/1B. BUT THESE RECEIPTS CAN AT BEST BE TREATED AS PROFITS 'ATTRIBU TABLE TO' THE BUSINESS OF THE ASSESSEE BECAUSE THERE IS NO DIRECT NEXUS BETWEEN T HESE RECEIPTS AND THE BUSINESS OF THE ASSESSEE. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS STE RLING FOODS 237 ITR 579 HAS HELD THAT THE WORD DERIVED FROM IS DISTIN CT FROM THE WORD 'ATTRIBUTABLE TO ' WHICH HAS A BROADER IMPORT AND COULD INCLUDE RECEIP TS FROM SOURCES OTHER THAN THE ONES DERIVED FROM THE BUSINE SS OF INDUSTRIAL UNDERTAKING. THE DICTIONARIES STATE THAT THE WORD D ERIVED IS USUALLY FOLLOWED BY THE WORD FROM AND IT MEANS ; GET OR TRACE FROM A SOURCE; ARISE FROM ORIGINATE IN SO THE ORIGIN OR FORMATION OF. WHEN T HE WORD 'DERIVED FROM' IS USED TO EXPLAIN THAT ONE WORD IS DERIVED FROM ANOTH ER IT BASICALLY MEANS THAT SOURCE OF THAT WORD IS ANOTHER WORD. THE HON'BLE SUPREME COURT IN THE CASE OF ML/S LIBER TY INDIA VS. CIT 225 CTR 233 (SC) 2009 HELD THAT 'WE ARE OF THE VIEW THA T DUTY DRAWBACK DEPB UNIT-L SAMBA DG SETS RS.355323/- CREDITED TO DG SET ACCOUNT FREIGHT INWARD 1657502/- CREDITED TO FREIGHT INWARD ACCOUNT INSURANCE 461800/- CREDITED TO INSURANCE ACCOUNT INTEREST OF WC 1215795/- CREDITED TO INTEREST OF WC ACCOUNT ISO 9001-2000 CERTIFICATION 24996/- CREDITED TO ISO 9001-2000 ACCOUNT TOTAL 37 1541 6/- UNIT II SAMBA DG SETS 2500000/- CREDITED TO DG SET ACCOUNT FREIGHT INWARD 4401087/- CREDITED TO FREIGHT INWARD ACCOUNT INSURANCE 1453800/- CREDITED TO INSURANCE ACCOUNT INTEREST OF WC 1290372/- CREDITED TO WC ACCOUNT TOTAL 9645259/- 12 BENEFITS REBATES ETC. CANNOT BE CREDITED AGAINST T HE COST OF MANUFACTURE OF GOODS DEBITED IN THE P&L A/C FOR THE PURPOSES OF SE CTION 80IA/IB AS SUCH REMISSIONS WOULD CONSTITUTE INDEPENDENT SOURCE OF I NCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UND ERTAKING.' SIMILARLY HON'BLE ITAT AMRITSAR BENCH IN THE CASE OF SHREE BALAJI ALLOYS VS. ITO HELD THAT CENTRAL EXCISE REFUND AND INTERES T SUBSIDY ARE NOT ELIGIBLE FOR DEDUCTIONS U/S 80IB. I HAVE THEREFORE REASONS TO BELIEVE THAT THE ABOV E MENTIONED INCOME AMOUNTING' TO RS.1 33 60 675/- HAS ESCAPED ASSESSME NT AS THESE PROFITS HAVE BEEN TREATED TO BE INCOME ELIGIBLE FOR DEDUCTION U/S 80IB AND DEDUCTION HAS BEEN CLAIMED ON THEM. 17. THE ASSESSEE THEREAFTER FILED OBJECTIONS BEFORE ASSESSING OFFICER EXPLAINING THAT HOW ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB IN RESPECT OF UNIT I A ND UNIT II AT SAMBA HOWEVER THE ASSESSING OFFICER REJECTED THE O BJECTIONS OF THE ASSESSEE VIDE LETTER DATED 14.11.2011 (PB- 57). IN THIS LETTER ASSESSING OFFICER ACCEPTED THAT MISTAKE HAS BEEN DE TECTED WHICH LED TO CHANGE OF OPINION. IT IS THEREFORE CLEAR THAT ALL FACTS WERE KNOWN TO THE REVENUE DEPARTMENT AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS IN RESPECT OF CLAIM UNDER SE CTION 80IB OF THE ACT FOR SAMBA UNITS AND THE ASSESSING OFFICE R VERIFIED ALL THE FACTS AND THERE WAS NO FAILURE ON THE PART OF T HE ASSESSEE TO DISCLOSE COMPLETE FACTS BEFORE ASSESSING OFFICER AT ASSESSMENT STAGE. NO NEW MATERIAL HAS COME IN EXISTENCE AND P OSSESSION OF THE ASSESSING OFFICER FOR RE-OPENING OF THE ASSESSM ENT. NO TANGIBLE MATERIAL WAS FOUND AGAINST ASSESSEE AND NO FRESH MATERIAL CAME ON RECORD FOR RE-OPENING OF THE ASSES SMENT. THE DECISIONS WHICH ARE REFERRED TO IN THE REASONS FOR RE-OPENING OF THE ASSESSMENT I.E. DECISION OF THE HON'BLE SUPREME COURT IN THE CASES OF STERLING FOODS AND LIBERTY INDIA LTD. (SUP RA) WERE ALREADY CONSIDERED BY ASSESSING OFFICER WHILE PASSI NG THE 13 ORIGINAL ASSESSMENT ORDER. THEREFORE IT IS CLEARL Y A CASE OF CHANGE OF OPINION ON THE PART OF THE ASSESSING OFFI CER AND THEREFORE ON MERE CHANGE OF OPINION RE-OPENING OF THE ASSESSMENT COULD NOT BE HELD TO BE VALID AND JUSTIF IED. 18. CONSIDERING THE ABOVE PROPOSITIONS OF LAW DEC IDED IN VARIOUS JUDGEMENTS QUOTED ABOVE IT IS CLEAR THAT A SSESSING OFFICER IS NOT JUSTIFIED IN RE-OPENING THE ASSESSME NT ON MERE CHANGE OF OPINION. THE LD. COUNSEL FOR THE ASSESSE E ON THE BASIS OF THE REPLIES FILED BEFORE ASSESSING OFFICER AT THE ORIGINAL ASSESSMENT PROCEEDINGS HAS BEEN ABLE TO PROVE THAT ASSESSEE DISCLOSED ALL PRIMARY FACT BEFORE ASSESSING OFFICER AT THE TIME OF MAKING ORIGINAL ASSESSMENT ORDER DATED 26.11.2008. THE ASSESSING OFFICER AFTER EXAMINING THE REPLIES AND DETAILS ON RECORD ACCEPTED THE SUBSTANTIAL CLAIM OF ASSESSEE OF DEDUCTION UNDER SECTION 80IB IN RESPECT OF UNITS AT SAMBA. T HUS THE ASSESSING OFFICER FORMED THE OPINION ON THE BASIS O F THE FACTS AND MATERIAL ON RECORD BY ACCEPTING THE CLAIM OF AS SESSEE ON THE SAME ISSUE ON WHICH ASSESSMENT WAS REOPENED. THE D ECISION CITED BY LD. DR WOULD NOT SUPPORT THE CASE OF THE R EVENUE BECAUSE OF THE FINDINGS RECORDED ABOVE. 19. CONSIDERING THE ABOVE DISCUSSION WE DO NOT FI ND ANY JUSTIFICATION FOR THE AUTHORITIES BELOW TO JUSTIFY THE RE-OPENING OF THE ASSESSMENT. THE RE-OPENING OF THE ASSESSEE IS THUS CLEARLY BAD IN LAW AND IS LIABLE TO BE QUASHED. WE ACCORD INGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN ASSESS MENT YEAR 2006-07 AND QUASH THE RE-OPENING OF THE ASSESSMENT UNDER SECTION 147/148 OF THE ACT. APPEAL OF ASSESSEE IS ALLOWED IN ASSESSMENT YEAR 2006-07 ON THIS GROUND. 14 20. IN ASSESSMENT YEAR 2007-08 THE ASSESSING OFFIC ER SIMILARLY RECORDED THE REASONS FOR RE-OPENING OF THE ASSESSME NT UNDER SECTION 147 OF THE ACT ON 09.03.2011 COPY OF THE S AME IS FILED IN THE PAPER BOOK AT PAGE 20-21 OF THE PAPER BOOK. SAME ARE NOT REPRODUCED HERE FOR THE SAKE OF BREVITY. THE AS SESSEE SIMILARLY FILED OBJECTIONS OF RE-OPENING OF THE ASS ESSMENT BEFORE ASSESSING OFFICER WHICH WERE REJECTED BY ASSESSING OFFICER VIDE LETTER DATED 14.11.2011 IN WHICH THE ASSESSING OFFI CER REPLIED THAT IT IS A CASE OF MISTAKE HAS BEEN DETECTED WHI CH LED TO CHANGE OF OPINION. THE LD. CIT(APPEALS) ALSO CONFI RMED RE- OPENING OF THE ASSESSMENT ON THE SAME REASONS WHICH HAVE BEEN NOTED IN ASSESSMENT YEAR 2006-07. IT IS THEREFORE A CLEAR CASE WHERE NO TANGIBLE OR FRESH MATERIAL HAS BEEN FOUND OR CAME INTO POSSESSION OF THE ASSESSING OFFICER AGAINST THE ASS ESSEE FOR RE- OPENING OF THE ASSESSMENT. THE DIFFERENCE IS THAT IN ASSESSMENT YEAR 2006-07 ASSESSING OFFICER PASSED THE ORDER U NDER SECTION 143(3) OF THE ACT HOWEVER IN ASSESSMENT YEAR 2007- 08 ASSESSING OFFICER PROCESSED THE RETURN UNDER SECTIO N 143(1) OF THE ACT. 21. WE MAY NOTE HERE THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN ITS UNREPORTED DECISION IN ITA NO. 52 OF 2 012 IN THE CASE OF ARUN KUMAR GOYAL VS CIT DATED 21.11.2012 CO NSIDERING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F RAJESH JHAVERI STOCK BROKERS PVT. LTD. 291 ITR 500 HELD TH AT IT IS EXPLICIT FROM THE POST AMENDMENT DECISIONS CITED AB OVE THAT ONCE THERE ARE REASONS FOR THE ASSESSING OFFICER TO BELI EVE WHETHER SUCH REASONS ORIGINATE OUT OF THE RECORD ALREADY SC RUTINIZED OR OTHERWISE HE SHALL BE WITHIN HIS COMPETENCE TO INI TIATE THE RE- 15 ASSESSMENT PROCEEDINGS. SINCE IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSING OFFICER HAS PROCESSED THE RET URN UNDER SECTION 143(1) AND HAS NOT FORMED ANY OPINION ON TH E MATERIAL AVAILABLE ON RECORD THE ABOVE DECISION OF THE JURI SDICTIONAL HIGH COURT SQUARELY APPLY AGAINST THE ASSESSEE AND IS BI NDING ON THE SUBORDINATE COURTS AND THE TRIBUNAL. THEREFORE IT MAY NOT BE A CASE OF QUASHING OF RE-ASSESSMENT PROCEEDINGS IN TH E YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2007-08 THIS GR OUND IS THEREFORE AGAINST THE ASSESSEE AND IS DISMISSED. ISSUE NO. 2 ( DEDUCTION UNDER SECTION 80IB - SUBSIDIES) 22. THIS ISSUE OF DEDUCTION UNDER SECTION 80IB ON V ARIOUS SUBSIDIES ARISES IN ALL THE ASSESSMENT YEARS UNDER APPEALS IN THE APPEALS FILED BY THE ASSESSEE. BOTH THE PARTIE S MAINLY ARGUED IN ASSESSMENT YEAR 2006-07 ON THIS ISSUE AND STATED THAT THE ORDER IN THAT CASE MAY BE FOLLOWED IN OTHER YEA RS THEREFORE FOR THE PURPOSE OF DISPOSAL OF ALL THE ASSESSEE'S APPEALS ON THIS ISSUE THE FACTS AND FINDINGS ARE T AKEN FROM ASSESSMENT YEAR 2006-07. 23. THE ASSESSEE CONTENDED BEFORE LD. CIT(APPEALS) THAT ASSESSING OFFICER HAS WRONGLY DENIED THE CLAIM OF D EDUCTION UNDER SECTION 80IB OF THE ACT ON ACCOUNT OF VARIOUS SUBSIDIES BY NOT TREATING THE SAME AS PART OF PROFITS. THE ASSE SSING OFFICER IN THIS REGARD HAS OBSERVED THAT THE ASSESSEE COMPA NY HAD RECEIVED SUBSIDY FROM STATE GOVERNMENT ON ACCOUNT O F FREIGHT INSURANCE AND INTEREST ON WORKING CAPITAL AND THE S AME WERE CLAIMED TO BE IN THE NATURE OF CAPITAL RECEIPTS IN VIEW OF RECENT 16 JUDGEMENT OF HON'BLE JAMMU & KASHMIR HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS 333 ITR 335. THE ASSESSING OFFICER HOWEVER RELIED UPON JUDGEMENT OF HON'BLE APEX COURT IN THE CASE OF CIT V STERLING FOODS 237 ITR 579 TO HOLD TH AT DEDUCTION WOULD BE AVAILABLE ONLY IF THE PROFIT AND GAINS WER E DERIVED FROM ELIGIBLE BUSINESS AND NOT ONLY ATTRIBUTABLE TO THE SAME. THE JUDGEMENT OF THE APEX COURT WAS WITH REFERENCE TO T HE INTEREST INCOME AND INCOME FROM SALE OF IMPORT ENTITLEMENTS. THE ASSESSING OFFICER THEREFORE CONCLUDED THAT SUBSID IES UNDER CONSIDERATION AMOUNTED TO INCOME WHICH WAS ONLY ATT RIBUTABLE TO THE ELIGIBLE BUSINESS BUT WAS NOT DERIVED THERE FROM. THE ASSESSING OFFICER FURTHER DREW STRENGTH FROM THE JU DGEMENT OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS LIBERT Y INDIA 225 CRT 233 WHEREIN IT WAS HELD THAT DUTY DRAWBACK DEP B BENEFITS REBATES ETC. CANNOT BE CREDITED AGAINST T HE COST OF MANUFACTURE OF GOODS AND FOR THE PURPOSE OF SECTION 80IA/80IB WOULD CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYON D THE FIRST DEGREE NEXUS BETWEEN THE PROFITS AND INDUSTRIAL UND ERTAKING. THE ASSESSING OFFICER APPLIED THE RATIO OF JUDGEMEN T OF CIT VS LIBERTY INDIA (SUPRA) TO HOLD THAT THE REVENUE SUBS IDIES RECEIVED BY THE ASSESSEE WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. THE ASSESSING OFFICER HOWEVER D ID NOT COMMENT UPON THE CLAIM OF THE ASSESSEE THAT THE IMP UGNED SUBSIDIES WERE IN THE NATURE OF CAPITAL RECEIPTS AS HELD BY HON'BLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS (SUPRA). 17 24. THE ASSESSEE CHALLENGED THE FINDINGS OF THE A SSESSING OFFICER BEFORE LD. CIT(APPEALS) AND FILED THE SUB MISSIONS WHICH ARE NOTED IN THE IMPUGNED ORDER AS UNDER : THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDE R CONSIDERATION ARE THAT THE APPELLANT HAD TWO UNITS LOCATED IN SAM BA IN THE STATE OF JAMMU AND KASHMIR AND ALL THESE UNITS BEING ENGAGED IN THE MANUFACTURING ACTIVITY WERE ELIGIBLE FOR CLAIM OF DE DUCTION UNDER SECTION 80-IB OF THE ACT. THE APPELLANT HAD FILED THE RETUR N OF INCOME WHEREIN THE DEDUCTION U/S 80-IB WAS CLAIMED IN RESPECT OF TH E PROFITS OF BOTH THE TWO UNITS AT SAMBA AND SUCH DEDUCTION WAS CLAIMED B ASED ON THE REPORT OF THE CHARTERED ACCOUNTANT OF THE APPELLANT. IT IS SUBMITTED THAT THE ABOVE UNITS ARE ELIGIBLE FOR CERTAIN SUBSIDIES AS PER THE SCHEME OF GOVERNMENT AND IN ACCORDANCE WITH SUCH SCHEME THE A PPELLANT HAD BOOKED VARIOUS SUBSIDIES NAMELY FREIGHT SUBSIDY IN SURANCE SUBSIDY AND INTEREST SUBSIDY IN UNIT-I SAMBA & 'UNIT-II S AMBA. THE ASSESSING OFFICER DISALLOWED THE DEDUCTION U/S 80-IB AMOUNTIN G TO RS 33 60 093/- FOR UNIT-I AND RS. 71 45 259/- FOR UNIT-II BY HOLDING THAT THE SUBSIDY RECEIPTS ARE NOT ELIGIBLE FOR DEDUCTION U/S 80-IB OF THE ACT. AT THE OUTSET IT IS SUBMITTED THAT ALL THESE RECEIP TS IN THE NATURE OF SUBSIDIES AND BENEFITS ARE CAPITA} RECEIPTS NOT CHA RGEABLE TO TAX AND THERE IS NO QUESTION OF ANY DISALLOWANCE OF DEDUCTI ON U/S 80-IB ON RECEIPTS. THE VARIOUS SUBSIDIES ARE RECEIVED ONLY I N PURSUANCE TO INDUSTRIAL POLICY AND OTHER CONCESSIONS ANNOUNCED F OR THE JAMMU AND KASHMIR VIDE GOVERNMENT OF INDIA MINISTRY OF COMME RCE AND INDUSTRY (DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION)'S O FFICE MEMORANDUM OF JUNE 14 2002. IT IS SUBMITTED THAT AS PER THE P OLICY OF JAMMU & KASHMIR GOVERNMENT THE VARIOUS INCENTIVES WOULD BEC OME AVAILABLE TO INDUSTRIAL UNITS ENTITLED THERETO FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION AND THE FACT THAT THESE WERE NOT GRANTED FOR CREATION OF NEW ASSETS CANNOT BE THE SOLE CRITERIA FOR DETERMINING THE NATURE OF SUBSIDY. THE FACT THAT SUCH INCENTIVES W ERE PROVIDED TO ACHIEVE A PUBLIC PURPOSE SHOULD ALSO BE CONSIDERED TO DETERMINE THE NATURE OF SUBSIDY AND HENCE SUCH SUBSIDY COULD NOT BE CONSTRUED AS A PRODUCTION OR OPERATIONAL INCENTIVE FOR THE BENEFIT OF THE ASSESSEE. THE NEW INITIATIVES IN TERMS OF THE MEMORANDUM OF THE STATE OF JAMMU & KASHMIR POLICY WERE AIMED AT PROVIDING REQ UISITE INCENTIVES AS WELL AS ENABLING ENVIRONMENT FOR INDUSTRIAL DEVE LOPMENT IMPROVING AVAILABILITY OF CAPITAL AND INCREASE IN MARKET -ACC ESS SO AS TO GIVE A FILLIP TO PRIVATE INVESTMENT IN THE STATE. THESE FI SCAL INCENTIVES WERE TO BE PROVIDED TO THE NEW INDUSTRIAL UNITS AND SUBSTAN TIAL EXPANSION OF EXISTING UNITS. THE NEW INDUSTRIAL UNITS AND EXISTI NG INDUSTRIAL UNITS ON THEIR SUBSTANTIAL EXPANSION AS DEFINED SET UP IN GROWTH CENTER INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CENTERS AND O THER LOCATIONS LIKE INDUSTRIAL ESTATES PARKS EXPORT PROCESSING ZONES COMMERCIAL ESTATES ETC AS NOTIFIED BY THE CENTRAL GOVERNMENT WERE EN TITLED TO 100% DUTY EXEMPTION FOR A PERIOD OF 10 YEARS FROM THE ELATE O F COMMENCEMENT OF COMMERCIAL PRODUCTION. ALL NEW INDU STRIES IN THE NOTIFIED LOCATIONS WERE ELIGIBLE FOR CAPITAL INVEST MENT SUBSIDY @ 15% 18 OF THEIR INVESTMENT IN PLANT AND MACHINERY SUBJECT TO A CEILING OF RS 30 LAKHS WHEREAS THE EXISTING UNITS WERE ENTITLE D TO SUBSIDY ON SUBSTANTIAL EXPANSION AS DEFINED BESIDES THESE T HERE ARE OTHER CONCESSIONS LIKE INTEREST SUBSIDY 3% ON THE WORKIN G CAPITAL AND INSURANCE PREMIUM SUBSIDY TO THE EXTENT OF 100% ON INVESTMENT TOO WAS PERMISSIBLE TO THE NEW EXISTING UNITS ON THEIR SUBSTANTIAL EXPANSION FOR A PERIOD OF 10 YEARS. THUS THE ASSESSEE HAS RECEIVED THE VARIOUS SUBSIDI ES ONLY AS PER THE POLICY OF THE STATE GOVERNMENT OF JAMMU & KASHMIR A ND THERE HAS BEEN A VERY RECENT JUDGMENT OF THE HON'BLE HIGH COU RT IN THE CASE OF SHRI BALAJI ALLOYS 333 1TR 335 WHEREIN IT HAS BEEN HELD THAT THE INCENTIVES IN THE NATURE OF EXCISE DUTY REFUND INT EREST SUBSIDY INSURANCE SUBSIDY ETC GIVEN TO UNITS WHO HAVE SET UP THEIR PRODUCTION FACILITY AT THE DESIGNATED AREA IN-'J&K ARE ALL CAPITAL RECEIPTS NOT CHARGEABLE TO TAX AND ACCORDINGLY WE WISH TO SU BMIT THAT ALL THESE INCENTIVES RECEIVED BY THE ASSESSEE MAY NOT BE TREA TED AS TAXABLE INCOME OF THE ASSESSEE AND THEREFORE THE DISALLOWAN CE OF DEDUCTION UNDER SECTION 80IB DOES NOT ARISE AT ALL THE ABOVE JUDGMENT HAS SINCE BEEN FOLLOWED BY THE HON'BLE AMRITSAR BENCH OF THE IT AT IN THE CASE OF THE SAME PARTY FOR THE AY 2006-07 VIDE THEIR ORDER 21.06.2011 IN ITA NO. 163/ASR/2010 THUS RELYING UPON THE ABOVE JUDGM ENT IT IS SUBMITTED THAT THERE CANNOT BE QUESTION OF DISALLOW ANCE OF DEDUCTION U/S 80-1B OF THE ACT. THE TOTAL INCOME OF THE APPEL LANT IS TO BE COMPUTED BY EXCLUDING THE ABOVE CAPITAL RECEIPTS AND THEREAFTER DEDUCTION U/S 80IB IS TO BE ALLOWED TO THE APPELLANT SINCE T HESE RECEIPTS ARE NOT FORMING PART OF THE TOTAL INCOME THERE IS NO QUESTION OF MAKING ANY KIND OF DISALLOWANCE. WITHOUT TO OUR SUBMISSIONS EVEN IF WE CONSIDER TH E VARIOUS SUBSIDIES RECEIVED BY THE ASSESSEE AS REVENUE SUBSI DIES THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF DEDUCTION U/S 80- IB OF THE ACT AS THERE IS NO NET INCOME ARISING TO THE ON ACCOUNT OF RECEI PT OF ABOVE SUBSIDIES AS IT ONLY GOES TO REDUCE THE RELEVANT EXPENDITURE WHERE SUCH SUBSIDY INCOME IS CREDITED BY THE ASSESSEE. THE ACCOUNTING TREATMENT OF THE VARIOUS SUBSIDIES IS CLEARLY MENTIONED IN ANNEXURE 'P' OF THE TAX AUDIT REPORT AND THE SAME IS FORMING PART OF THE PAPER BO OK IT HAS BEEN CLEARLY STATED THAT THE SUBSIDY RECEIVED IS DULY CR EDITED IN THAT ACCOUNT FOR WHICH THE SAME HAS BEEN RECEIVED. FURTHER IT IS ALSO SUBMITTED THAT THE COPY OF ACCOUNT OF DISTRICT INDUSTRIAL CENTRE W HEREIN THE VARIOUS SUBSIDIES RECEIVED BY THE ARE SHOWN ALONG WITH THE COPY OF ACCOUNTS OF VARIOUS SUBSIDIES WERE ALSO DULY FILED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. FOR THE SAKE OF CONVENIENCE THE RELEVA NT INFORMATION IS TABULATED HEREUNDER: UNIT SAMBA PARTICULARS EXPENDITURE SUBSIDY NET EXPENDITU RE DEBITED TO P&L ACCOUNT INTEREST 3479141 1215795 2263346 FREIGHT 6537136 1657502 4879634 INSURANCE 633205 461800 171405 UNIT II SAMBA INTEREST 2900444 1290372 1610072 FREIGHT 52218964 4401087 47817877 INSURANCE 1946496 1453800 492696 19 THUS FROM THE ABOVE CHART IT IS MORE THAN EVIDENT THAT THE PURPOSE WHICH THE SUBSIDY HAS BEEN RECEIVED WHICH I S ALSO OBVIOUS FROM THE NAME OF SUCH SUBSIDY AND THE MANNER OF DETERMINATION OF THE QUANTUM OF SUBSIDY THE SUBSIDY IS NOTHING B UT A REDUCTION TO THE SPECIFIC COST OF THE ASSESSEE DUE TO THE INC ENTIVES OFFERED BY THE GOVERNMENT AND AS SUCH THERE IS NO NET INCOME TO THE ASSESSEE WHICH FORMS PART OF THE TOTAL INCOME ON .AC COUNT OF THESE SUBSIDIES THE ABOVE FACTUAL POSITION HAS ALS O NOT BEEN DENIED BY THE ASSESSING OFFICER THE ABOVE VIEW IS DIRECTLY SUPPORTED BY THE RECENT JUDGMENTS OF THE JURISDICTIONAL BENCH OF THE ITAT WHEREIN IT HA S BEEN CONCLUDED THAT IF THE NATURE OF THE ABOVE SUBSIDIES ARE CONSIDERED TO BE REVENUE THEN THE ASSESSING OFFICER MUST CONSI DER THE EXPENSE INCURRED BY THE ON ACCOUNT OF THE SAME AND ONLY THEN THE DEDUCTION IF ANY UNDER SECTION 80-I8 OF THE ACT HAS TO BE CALCULATED. THE JUDGMENTS ARE DISCUSSED HEREUNDER : A. DINESH KUMAR V ITO IN ITA NO. 914 975 & 976/CHD/2007 (ITAT-CHD BENCH ) 'HOWEVER CONSIDERING THAT IT IS REVENUE IN NATURE DIRECT THE ASSESSING OFFICER TO SET OFF THE EXPENSES TO WHICH THE FREIGHT SUBSIDY DIRECTLY LINKED THE SAME VIEW HAS BEAN TAK EN FOR THE ASSESSMENT YEAR 2001-02 IN ASSESSEE'S OWN CASE IN I TA MO 1129/CHANDI/2005 ORDER DATED 4.5.2006.' B. SHRI SUNIL GUPTA VS. ITO NO. ITA NO 977/CHD/2007 (ITAT- CHD BENCH) 'HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE PR ECEDENT RELIED UPON BY THE ASSESSEE WE DIRECT THE ASSESSING OFFIC ER TO RE- COMPUTE THE DEDUCTION UNDER SECTION 8Q-IA/IB BY EXC LUDING THE SUM OF FREIGHT SUBSIDY CALCULATED AFTER SETTING OFF .THE EXPENSES WHICH ARE DIRECTLY LINKED TO IT ' THE HON'BLE BENCH HAS PLACED RELIANCE ON THE JUDG MENT OF SHRI DINESH KUMAR (SUPRA) AT THE TIME OF GIVING THE SAID D ECISION JUDGEMENT OF THE HON'BLE ITAT CHANDIGARH BENCH IN ITA NO. 293/CHD/2010 IN THE CASE OF SAME PERSON ABOVE I .E SHRI SUNIL GUPTA WHEREIN IT HAS BEEN CLEARLY HELD AS UNDER; THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD RECEIVED SUBSIDY OF RS 12 33 836/- AS AGAINST EXPENDITURE ON FREIGHT PA ID RS.23 02 756/-. AFTER SETTING OFF OF THE FREIGHT SUB SIDY RECEIVED AGAINST THE EXPENDITURE INCURRED ON THE SAME THE RES ULTANT IS A LOSS AND ACCORDINGLY NO ADJUSTMENT IS REQUIRED TO BE MAD E IN THE PROFITS OF BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA /80IB. OF THE ACT.' EVEN IN THE CASE OF THE ASSESSEE THE FACTS ARE SIM ILAR AND UNDER SUCH CIRCUMSTANCES THE EXPENSES WHICH ARE DIRECTLY ATTRIBUTABLE TO THE SUBSIDIES RECEIVED HAVE TO BE REDUCED IN ORD ER TO CALCULATE THE AMOUNT IF ANY OVER AND ABOVE THE EXPENDITURE WH ICH IS LEFT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 8Q- IB 20 BESIDES THE ABOVE THERE IS THE LATEST JUDGMENT OF THE SUPREME COURT IN THE CASE OF ACG ASSOCIATE CAPSULES PVT. LTD V/S CIT (CENTRAL) WHEREIN IT HAS BEEN HELD AS UNDER : 'IN OTHER WORDS NINETY PER CENT OF NOT THE GROSS - RENT OR GROSS INTEREST BUT; ONLY THE NET INTEREST OR NET RENT WH ICH HAS BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OR PROFESSION IS T O BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO S ECTION 80- HHC FOR DETERMINING THE PROFITS OF THE BUSINESS.' THUS IN THE ABOVE JUDGMENT THE HON'BLE SUPREME COU RT HAS AFFIRMED THE ISSUE THAT FOR THE PURPOSE OF COMPUTAT ION OF DEDUCTION ONLY THE NET OTHER INCOME CAN BE EXCLUDE D AND IT IS NOT THE GROSS RECEIPT ON ACCOUNT OF SUCH INCOME WH ICH CAN BE EXCLUDED WHICH IS PRECISELY WHAT THE. ASSESSING OFF ICER HAS DONE IN THE CASE OF THE APPELLANT. THE ASSESSING OFFICER IN HIS ORDER HAS DISCUSSED TH E DEFINITION OF SUBSIDY WHEREIN IT HAS BEEN THAT SUBSIDY IS IN T HE NATURE OF PECUNIARY ASSISTANCE TO THE ENTREPRENEURS FROM T HE GOVERNMENT SO AS TO ENCOURAGE THE ESTABLISHMENT OF THE INDUSTRIES IN THE BACKWARD AREAS. FURTHER THE A SSESSING OFFICER HAS RELIANCE ON THE JUDGMENTS OF THE HO N'BLE SUPREME COURT OF INDIA IN THE CASE OF STERLING FOO DS 257 1TR 579 AND LIBERTY 225 CTR 233 TO HOLD THAT SUBSIDY IN COME IS NOT ELIGIBLE FOR DEDUCTION U/S 80-IB IN THIS REGAR D IT IS SUBMITTED THAT THERE IS NO QUESTION OF DISCUSSING T HE ABOVE SAID ISSUE AS THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION ON ACCOUNT OF SUBSIDIES RECEIVED BY IT AS THERE IS NO NET INCOME IN ACCOUNT OF SUBSIDIES RECEIVED BY THE ASSESSEE AND THE ABOVE JUDGMENTS HAVE BEEN DULY CONSIDERED BY THE HON'BLE ITAT CHANDIGARH BENCH IN THE CASES DISCUSSED IN PARA 3.6 ABOVE WHEREIN IT HAS BEEN HELD THAT ONLY THE NET INCOME ( IF ANY) ON ACCOUNT OF SUBSIDIES IS TO BE CONSIDERED FOR CONSID ERING THE CLAIM OF DEDUCTION U/S 80-IB. THUS IN VIEW OF THE ABOVE FACTUAL LEGAL POSITION TH ERE CANNOT BE ANY DISALLOWANCE U/SEC 80-IB OF THE ACT ON BOTH THE FACTORS STATED ABOVE FIRSTLY ON ACCOUNT OF CAPITAL RECEIPT AS PER THE JUDGMENT OF THE HON'BLE J&K HIGH COURT AND SECONDLY IF THE SAME IS TREATED AS REVENUE RECEIPT EVEN IN THAT CASE THERE CANNOT BE ANY DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT AS THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION ON ACCOUN T OF THE SUBSIDIES AS THERE IS NO NET INCOME FROM THE VARIOUS SU BSIDIES RECEIVED BY THE ASSESSEE. 25. THE LD. CIT(APPEALS) HOWEVER DID NOT ACCEPT CO NTENTION OF THE ASSESSEE AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 10 TO 11 OF THE APPE LLATE ORDER ARE 21 REPRODUCED AS UNDER : 10. I HAVE CONSIDERED THE BASIS OF ADDITION MADE B Y THE ASSESSING OFFICER AND THE ARGUMENTS OF THE AR ON TH E ISSUE THE FIRST ISSUE TO BE DECIDED HERE IS THAT WHETHER THE AM OUNTS RECEIVED BY THE APPELLANT IN THE FORM OF FREIGHT IN SURANCE AND INTEREST SUBSIDY ARE IN THE NATURE OF CAPITAL OR REVEN UE RECEIPT. THE HON'BLE J & K HIGH COURT IN THE CASE OF SH. BALAJI A LLOYS 333 ITR 335 HAS VERY CATEGORICALLY HELD THE IMPUGNED SUBSIDI ES TO BE CAPITAL IN NATURE AND NOT CHARGEABLE TO TAX. THE AS SESSING OFFICER HOWEVER HAS OBVIATED THE NECESSITY TO REBUT THE ASSESSEE'S CLAIM IN THIS REGARD THE HON'BLE IT AT C HANDIGARH BENCH IN THE OF DINESH KUMAR VS. ITO HAS DEALT WITH AND REFERRED TO THE OBSERVATION OF THE HON'BLE TRIBUNAL IN THE CASE OF ITO VS. KIRAN ENTERPRISES WHERE THE RELEVANT FIND INGS WERE GIVEN AT PARA 6 AS UNDER : WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIV AL CONTENTIONS. THE ISSUE AS TO WHETHER THE FREIGHT S UBSIDY IS TO BE ADJUSTED AGAINST THE FREIGHT PAID BY THE IN WORKIN G OUT THE PROFITS AND GAINS OF BUSINESS DERIVED FROM THE INDUSTRIA L UNDERTAKING FOR THE PURPOSE OF COMPUTATION OF DEDUC TION U/S 80IA CAME UP FOR CONSIDERATION OF THE CHANDIGARH BENCH O F _ THE TRIBUNAL IN THE CASE OF ITO VS. KIRAN ENTERPRISES (SU PRA}. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE BY HOLDI NG THAT THE TRANSPORT SUBSIDY WAS GRANTED BY THE GOVERNMENT TO REDUCE THE COST OF INPUTS AND AS SUCH THE SAID AMOUNT WAS TO BE ADJUSTED AGAINST THE EXPENDITURE INCURRED BY THE AS SESSEE SIMILAR VIEW WAS TAKEN IN THE CASE OF ACIT VS MAHARAJ PACKAGING (P) LTD ITA NO 151/CHANDI/2001 ASSESSMENT YEAR 1997-98 AND SUBSEQUENTLY THE FOLLOWIN G CASES ALSO :- I) ITO VS M/S ANIRUDH MINERALS & CHEMICALS ITA 1284/CHANDI/04 / A.Y. 2001-02 II) DINESH KUMAR PAONTA SAHIB VS ITO ITA NO. 1129/CHANDI/2005. IT WOULD BE PERTINENT TO REFER TO PARA 6 & 7 OF THE ORDER OF THE TRIBUNAL WHICH EXPLAINS THE REASONING FOR TAKING THE VIEW IN FAVOUR OF THE ASSESSEE. I HAVE GIVEN BY CAREFUL CONSIDERATION -TO RIVAL CONTENT IONS. IN THE CASE OF KIRAN ENTERPRISES (SUPRA) CHANDIGARH BENCH OF THE TRIBUNAL HAS EXPRESSED THE VIEW THAT THE TRANSPORT S UBSIDY IS LINKED WITH THE INCURRING OF EXPENDITURE BY THE ASSES SEE. IT* HAS BEEN POINTED OUT BY THE CHANDIGARH BENCH OF THE TRIB UNAL THAT TRANSPORT SUBSIDY REDUCES THE COST OF IN-PUTS AS RES ULT OF WHICH THE ASSESSEE IS ABLE TO EARN MORE PROFITS FROM INDUS TRIAL UNDERTAKING ADMITTEDLY DELHI BENCH OF THE TRIBUNAL DID NOT AGREE WITH THE VIEW EXPRESSED BY CHANDIGARH BENCH OF TRIBUNAL HON'BLE GUJRAT HIGH COURT IN THE CASE OF CIT V. INDIA GELATINE & 22 CHEMICALS LTD. (2005) 275 ITR 284 HAS EXPRESSED THE SAME VIEW IN RESPECT OF DUTY DRAW BACK AS EXPRESSED BY THE CHA NDIGARH BENCH OF THE TRIBUNAL THEIR LORDSHIPS HAVE HELD AS U NDER:- 'THAT DUTY DRAWBACK IS SPECIFICALLY TO REDUCE THE C OST OF MANUFACTURING THE GOODS. THE VERY SCHEME OF DUTY DR AWBACK IS FRAMED AND EMBODIES IN THE STATUTORY PROVISIONS IN OR DER TO RELIEVE THE GOODS TO BE EXPORTED OF THE BURDEN OF CU STOMS DUTIES AND EXCISE DUTIES. AS CUSTOMS DUTIES AND EXCISE DUTIES ARE ADMITTEDLY AN INTEGRAL PART OF THE COST OF PRODU CTION ANY RECEIPTS BY WAY OF REIMBURSEMENT OF SUCH DUTIES ARE INEXTRICABLY LINKED WITH THE' COST OF PRODUCTION WH ICH HAS TO BE REFLECTED IN THE PROFIT AND LOSS ACCOUNT OF THE ASS ESSEE THEREFORE DUTY DRAWBACK WAS 'DERIVED FROM' 1 ' THE INDUSTRIAL UNDERTAKING AND ELIGIBLE FOR DEDUCTION U/S 80J OF THE ACT.' 'HON'BLE MADRAS HIGH COURT HOWEVER IN THE OF CIT VS JAMEEL LEATHERS AND UPPERS (2000) 216 ITR 97 (MAD) HAVE EXPRESSED THE VIEW IN FAVOUR OF THE REVENUE. SUBSEQU ENTLY THE SAME HIGH COURT HAS REITERATED THE VIEW IN THE CASE OF CIT VS. VISWANATHAN & CO (2003) 261 ITR 737 (MAD.)' LT IS EVIDENT THAT THERE ARE CONFLICTING VIEWS AVAI LABLE IN RESPECT OF THE ISSUE INVOLVED IN THIS CASE SINCE THE DECISION OF CHANDIGARH H OF THE- TRIBUNAL IS IN FAVOUR OF THE W HICH IS ALSO SUPPORTED BY HON'BLE GUJRAT HIGH COURT I RESPEC TFULLY FOLLOW THE SAME PREFERENCE TO THE DECISION OF HON'BLE MADRA S HIGH COURT AND HON'BLE DELHI BENCH OF THE TRIBUNAL (SUPRA) AND ' HOLD THAT AMOUNT OF RS.1 18 402/- HAS GOT TO BE SET OFF AGAIN ST THE FREIGHT INCURRED BY THE ASSESSEE AND ACCORDINGLY TH E ASSESSEE WOULD BE ENTITLED TO DEDUCTION. OF PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING SO WORKED I ACCORDINGLY ALLOW T HE GROUND RAISED BY THE ASSESSEE. THE HON'BLE TRIBUNAL REFERRED TO THE CONTRARY VIEW TAKEN BY PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S LIBERTY INDIA LTD AS UNDER:- WE ARE OF THE VIEW THAT FOR THE REASONING ADOPTED B Y THE HON'BIE SUPREME COURT INCOME OF THE ASSESSEE FREE D UTY DRAW BACK CANNOT BE HELD TO BE INCOME DERIVED FROM SPECIFIED BU SINESS ' THE DECISION OF THE JURISDICTIONAL HIGH COURT' AD MITTEDLY IS RELEVANT FOR TREATMENT OF DUTY DRAW FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S 80IA. SO HOWEVER IN THE CASE OF INDIA GELATINE CHEMICALS LTD (SUPRA) GUJRAT HIGH COURT H AS ALSO CONSIDERED THE ISSUE RELATING TO THE DUTY DRAW BACK RECEIVED B Y THE ASSESSEE. IN OUR CONSIDERED VIEW THE DUTY DRAW BACK IS MATERIAL FREIGHT SUBSIDY. IN THE CASE OF DUTY DRAW BACK ASSESSEE PAYS THE DUTY WHICH ON THE BASIS OF THE SCHEME IS REFUNDED TO THE ASSESSE E/ADJUSTED. IN THE CASE OF FREIGHT SUBSIDY INCURS THE EXPENDITURE P ART OF WHICH IS REIMBURSED TO THE ASSESSEE. WE ARE THEREFORE OF T HE CONSIDERED 'VIEW THAT THE PRINCIPLE OF LAW AND DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE OF LIBERTY INDIA LTD IS SQUARELY APPLICABLE IN RESPECT OF THE FREIGHT SUBSIDY AS WELL AS WE 23 THEREFORE RESPECTFULLY FOLLOWING THE PRINCIPLE LAI D DOWN BY THE JURISDICTIONAL HIGH COURT (IN THE CASE OF LIBERTY IN DIA LTD (SUPRA) HOLD THAT THE FREIGHT SUBSIDY GRANTED-TO THE ASSESSEE IS NOT TO BE ADJUSTED AGAINST THE FREIGHT PAID BY THE ASSESSEE AND THE AM OUNT IS NOT TO BE TAKEN INTO ACCOUNT IN WORKING OUT THE PROFITS AN D GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING. SINCE THE DECISION OF THE CIT( APPEALS) FOR ALL THE THREE ASSESSMENT YEARS IS CONTRARY TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LIBERTY IND IA LTD (SUPRA) WE SET ASIDE HIS ORDERS RELATING TO THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER.' 11. THE PERUSAL OF THE ORDER OF THE HON'BLE ITAT I N THE CASE OF DINESH KUMAR VS. ITO MENTIONED SUPRA SHOWS THAT DET AILED ANALYSIS OF OF ALLOW ABILITY OF DEDUCTION UNDER SECTION IN OF I T SUBSIDY HAS BEEN DONE AND IN PROCESS THE JUDGEMENT OF HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF M/S LIBERTY INDIA HAS ALSO BEEN IT HAS B EEN MADE AMPLY CLEAR THAT THE SUBSIDIES IN ARE REVENUE IN NATURE A ND CAN NOT' BE SAID TO BE DERIVED FROM THE ELIGIBLE BUSINESS. THE DECISION OF THE HON'BLE ITAT RELIED UPON BY THE ASSESSING OFFICER A LSO CONCURS WITH THE VIEW EXPRESSED BY HON'BLE JURISDICTIONAL HIGH COURT ON THE ISSUE HOWEVER THE DIRECTION BY THE HON'BLE ITAT IN THE SAID CASE TO THE ASSESSING OFFICER TO ALLOW SETTING OFF OF EXPENSES O N FREIGHT AGAINST THE SUBSIDY RECEIVED SEEMS TO BE CONTRARY TO THE MAIN J UDGEMENT IN THE CASE IT IS CLEAR THAT THE HON'BLE JURISDICTIONAL HIG H COURT HAS HELD THE FREIGHT SUBSIDY TO BE REVENUE IN NATURE AS WELL AS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA/80IB AND THEREFORE RES PECTFULLY FOLLOWING THE SAME THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING THE DEDUCTION IS CONFIRMED. 26. THE LD. COUNSEL FOR THE ASSESSEE REITERATED SUB MISSIONS MADE BEFORE LD. CIT(APPEALS) AND ALSO FILED BRIEF S YNOPSIS AND COPIES OF VARIOUS JUDGEMENTS IN SUPPORT OF HIS CONT ENTION AND SUBMITTED THAT UNIT I AND II OF THE ASSESSEE FOR W HICH SUBSIDIES HAVE BEEN RECEIVED ARE SITUATED IN SAMBA ( STATE O F J & K ) AND FILED COPIES OF THE INDUSTRIAL POLICIES OF STATE OF J & K AS PER CENTRAL POLICY AND STATE POLICY WIT ALL NOTIFICATIO NS AND SUBMITTED THAT THE SAME INDUSTRIAL POLICY HAS BEEN CONSIDERED BY HON'BLE J & K HIGH COURT IN THE CASE OF SHREE BA LAJI ALLOYS AND OTHERS (SUPRA) AND HELD THE SUBSIDIES/INCENTIVE S TO BE CAPITAL RECEIPTS IN THE HANDS OF ASSESSEE. HE HAS FURTHER SUBMITTED THAT ITAT AMRITSAR BENCH (SPECIAL BENCH) IN THE CASE OF SHRI VINOD KUMAR JAIN VS ITO IN ITA NO. 65/2010 CONSIDERED 24 THE IDENTICAL QUESTION AND VIDE ORDER DATED 26.10.2 012 BY FOLLOWING THE DECISION IN THE CASE OF SHEE BALAJI A LLOYS AND OTHERS (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE. COPY OF THE JUDGEMENT IS PLACED ON RECORD. HE HAS FURTH ER SUBMITTED THAT HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS MEGHALAYA STEELS LTD. 356 ITR 235 CONSIDERING THE J UDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY IN DIA VS CIT 317 ITR 218 AND OTHER DECISIONS DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE AND SIMILAR VIEW WAS TAKEN IN THE CASE OF PATKAI COAL PRODUCTS PVT. LTD. VS CIT 356 ITR 528 (GAU). 27. THE LD. COUNSEL FOR THE ASSESSEE THEREFORE SU BMITTED THAT AUTHORITIES BELOW WERE NOT JUSTIFIED IN DENYING DED UCTION UNDER SECTION 80IB OF THE ACT TO THE ASSESSEE ON THE AFOR ESAID SUBSIDIES AND WITH REGARD TO THE ALTERNATE CONTENTI ON HE HAS SUBMITTED THAT COMPLETE DETAILS WERE FILED BEFORE A UTHORITIES BELOW AND SUBSIDY IS NOTHING BUT REDUCTION TO THE S PECIFIC COST OF THE ASSESSEE DUE TO THE INCENTIVES OFFERED BY TH E GOVERNMENT. SINCE NO NET INCOME IS LYING WITH THE ASSESSEE ON A CCOUNT OF SUBSIDIES RECEIVED THEREFORE VARIOUS DECISIONS OF THE TRIBUNAL SQUARELY APPLY IN FAVOUR OF THE ASSESSEE AS IS ARGU ED BEFORE LD. CIT(APPEALS). COPIES OF THE SAME ORDERS OF THE TRI BUNAL ARE PLACED IN THE PAPER BOOK FOR CONSIDERATION. HE HAS THEREFORE SUBMITTED THAT ADDITION IS WHOLLY UNJUSTIFIED IN TH E CASE OF THE ASSESSEE. 28. ON THE OTHER HAND LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND RELIED UPON DECISION OF THE A PEX COURT IN THE CASE OF LIBERTY INDIA VS CIT (SUPRA). 25 29. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSES SEE PLACED ON RECORD COPY OF THE SCHEME DATED 14.06.2002 WHICH IS NEW INDUSTRIAL POLICY AND OTHER CONCESSIONS FOR STATE O F J&K AND THREE TYPES OF SUBSIDIES ARE THERE WHICH IS UNDER I .E.; I) 3% CAPITAL SUBSIDY ON WORKING CAPITAL LOAN II) 90% TRANSPORT SUBSIDY FROM DESIGNATED RAIL HEA D III) 100% INSURANCE PREMIUM ON CAPITAL INVESTMENT FOR THE PURPOSES OF DETERMINING WHETHER SUBSIDY IS A CAPITAL OR REVENUE IN NATURE ONE HAS TO GO TO THE SCHEME OF SUBSIDY AND PURPOSE FOR WHICH SUBSIDIES HAVE BEEN G IVEN. 30. IT IS NOT IN DISPUTE THAT THE ASSESSEE OBTAINED SUBSIDIES IN QUESTION IN RESPECT OF UNIT NO. I AND II SAMBA WHIC H FALLS IN TERRITORY OF STATE OF J&K AND THE DISPUTE OF DISALL OWANCE OF DEDUCTION UNDER SECTION 80IB PERTAINS TO SAMBA UNIT ONLY WHICH IS IN THE STATE OF J&K. THE SCHEME HAS NOT BEEN DI SPUTED BY THE REVENUE DEPARTMENT AND THE SAID SCHEME PROVIDES INC ENTIVES TO NEW INDUSTRIAL UNITS AND SPECIALLY EXPANSION OF EXI STING UNITS GENERATE EMPLOYMENT THROUGH ACCELERATION OF INDUSTR IAL DEVELOPMENT IN PUBLIC INTEREST. 31. THE HON'BLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS & OTHERS VS CIT (SUPRA) HAVE DISCUSSED IN DE TAIL THE NEW INDUSTRIAL POLICY FOR THE STATE OF J&K DATED 14.06. 2002 WHICH IS ALSO MATTER IN ISSUE IN THE CASE OF THE PRESENT ASS ESSEE AND BY VIRTUE OF THE SAME POLICY THE SUBSIDIES HAVE BEEN RECEIVED BY THE ASSESSEE BECAUSE THE ASSESSEE'S UNITS ARE ALSO LOCATED IN SAMBA (J&K). THEREFORE THE FACTS AND POLICY OF GRA NTING 26 SUBSIDIES IN THE CASE OF THE ASSESSEE AND IN THE CA SE OF SHREE BALAJI ALLOYS & OTHERS (SUPRA) ARE SAME AND HAVE BE EN ANALYZED AND DISCUSSED. THE HON'BLE J&K HIGH COURT IN THE C ASE OF SHREE BALAJI ALLOYS & ORS VS CIT (SUPRA) HIGHLIGHTED THE SAME SCHEME DISCUSSED AND REFERENCE WAS ALSO MADE TO THE JUDGEM ENTS OF HON'BLE SUPREME COURT IN THE CASES OF PONNI SUGARS & CHEMICALS LTD. AND ORS. AND SAHNEY STEEL & PRESS WO RKS LTD. AND THE PURPOSES FOR WHICH THE SUBSIDY IS GIVEN HAS BEEN CONSIDERED. ANOTHER JUDGEMENT OF HON'BLE SUPREME C OURT IN THE CASE OF MEPCO INDUSTRIES LTD. VS CIT HAS ALSO BEEN CONSIDERED. HON'BLE J&K HIGH COURT CONSIDERING THE SCHEME OF GR ANTING SUBSIDIES AND THE FACTS IN THE LIGHT OF VARIOUS JUD GEMENTS OF HON'BLE SUPREME COURT AND OTHERS IN THE CASE OF SHR EE BALAJI ALLOYS & ORS VS CIT (SUPRA) HELD THE SUBSIDIES TO B E CAPITAL IN NATURE AND HELD AS UNDER : THE TRIBUNAL HAS RELIED UPON FIVE FACTORS TO HOLD TH E INCENTIVES IN QUESTION AS PRODUCTION INCENTIVES BUT WITHOUT DEALING WITH THAT PART OF THE SCHEME WHEREBY UNEMPLOYMENT IN THE STATE HAD BEEN INTENDED TO BE ERADICATED CREATING ATMOSPHE RE FOR ACCELERATED INDUSTRIAL DEVELOPMENT TO PROVIDE EMPLOY MENT OPPORTUNITIES TO DEAL WITH THE SOCIAL PROBLEM OF UN EMPLOYMENT. THIS WAS A LOPSIDED INTERPRETATION OF THE NEW INDUSTR IAL POLICY AND CONCESSIONS FORMULATED BY THE CENTRAL GOVERNMENT FO R THE STATE OF JAMMU & KASHMIR VIDE OFFICE MEMORANDUM OF 14TH JUNE 2002. PERUSAL OF THE OFFICE MEMORANDUM DT 14 TH JUNE 2002 INDICATING NEW INDUSTRIAL POLICY AND OTHER CON CESSIONS FOR THE STATE OF JAMMU & KASHMIR MAKES IT EXPLICIT THAT THE CONCESSIONS WERE ISSUED TO ACHIEVE TWIN OBJECTS VIZ. (I ) ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE STATE O F JAMMU & KASHMIR WHICH HAD BEEN FOUND LAGGING BEHIND IN SUCH DEVELOPMENT AND (II) GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU & KASHMIR. AMENDMENT INTRODUCED TO THE OFFICE 'MEMORANDUM VIDE NOTIFICATION OF 28TH NOV. 2003 OF THE GOVERNMENT OF INDIA MINISTRY OF COMMERCE AND INDUSTRY (DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION) ELOQ UENTLY DEMONSTRATES THE CENTRAL GOVERNMENT'S INTENTION IN EXTENDING THE INCENTIVES. THE GOVERNMENT'S OBJECTIVE AS CONVEY ED BY THE PRIME MINISTER AT SRINAGAR ON 19TH APRIL 2003 WAS FOR CREATION OF ONE LAC EMPLOYMENT AND SELF-EMPLOYMENT OPPORTUNITIES IN JAMMU & KASHMIR STATE. TO ACHIEVE THIS PURPOSE AND OBJECTIVE IT WAS INTER ALIA PROVIDED IN THE CENTRAL EXCISE NOTIFICATIONS THAT THE EXEMPTIONS CO NTAINED IN 27 THE NOTIFICATIONS WOULD BE AVAILABLE ONLY ON PRODUC TION OF CERTIFICATE FROM GENERAL MANAGER OF THE CONCERNED D ISTRICT INDUSTRY CENTRE TO THE JURISDICTIONAL DY. CCE OR TH E ASSTT. CCE AS THE CASE MAY BE TO THE EFFECT THAT THE UNI T HAD CREATED REQUIRED ADDITIONAL REGULAR EMPLOYMENT WHI CH WOULD NOT HOWEVER INCLUDE EMPLOYMENT PROVIDED BY THE IN DUSTRIAL UNITS TO DAILY WAGERS OR CASUAL EMPLOYEES ENGAGED I N THE UNITS. A CLOSE READING OF THE OFFICE MEMORANDUM AND THE AMENDMENT INTRODUCED THERETO WITH PARA NO. 3 APPEARIN G IN THE CENTRAL EXCISE NOTIFICATION NOS. 56 AND 57 OF LLTH NOV . 2002 MAKES IT AMPLY CLEAR THAT THE ACCELERATION OF DEVEL OPMENT OF INDUSTRIES IN THE STATE WAS CONTEMPLATED WITH THE O BJECT OF GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU & KA SHMIR AND THE GENERATION OF EMPLOYMENT SO CONTEMPLATED W AS NOT ONLY CASUAL OR TEMPORARY; BUT WAS ON THE OTHER HAND OF PERMANENT NATURE. CONSIDERED THUS THE PARAMOUNT CONSIDERATION OF THE CENTRAL GOVERNMENT IN PROVIDIN G THE INCENTIVES TO THE NEW INDUSTRIAL UNITS AND SUBSTANT IAL EXPANSION OF THE EXISTING UNITS WAS THE GENERATION OF EMPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DEVELOP MENT TO DEAL WITH THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE ADDITIONALLY CREATING OPPORTUNITIES FOR SELF-EMPLOY MENT HENCE A PURPOSE IN PUBLIC INTEREST. IN THIS VIEW OF THE M ATTER THE INCENTIVES PROVIDED TO THE INDUSTRIAL UNITS IN TERM S OF THE NEW INDUSTRIAL POLICY FOR ACCELERATED INDUSTRIAL DEVELOP MENT IN THE STATE FOR CREATION OF SUCH INDUSTRIAL ATMOSPHERE AN D ENVIRONMENT WHICH WOULD PROVIDE ADDITIONAL PERMANENT SOURCE OF EMPLOYMENT TO THE UNEMPLOYED IN THE STATE OF JAMM U & KASHMIR WERE IN FACT IN THE NATURE OF CREATION OF NE W ASSETS OF INDUSTRIAL ATMOSPHERE AND ENVIRONMENT HAVING THE P OTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SU CH INCENTIVES DESIGNED TO ACHIEVE PUBLIC PURPOSE CANNOT BY ANY STRETCH OF REASONING BE CONSTRUED AS PRODUCTION OR O PERATIONAL INCENTIVES FOR THE BENEFIT OF ASSESSEES ALONE. THUS LOOKING TO THE PURPOSE OF ERADICATION OF THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATION OF THE INDUS TRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA T HAT LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT WHICH IS CER TAINLY A PURPOSE IN THE PUBLIC INTEREST THE INCENTIVES PROVIDED B Y THE OFFICE MEMORANDUM AND STATUTORY NOTIFICATIONS ISSUED IN THIS BEHALF TO THE ASSESSEES CANNOT BE CONSTRUED AS MER E PRODUCTION AND TRADE INCENTIVES AS HELD BY THE TRI BUNAL. MAKING OF ADDITIONAL PROVISION IN THE SCHEME THAT I NCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS ENT ITLED THERETO FROM THE DATE OF COMMENCEMENT OF THE COMME RCIAL PRODUCTION AND THAT THESE WERE NOT REQUIRED FOR CREA TION OF NEW ASSETS CANNOT BE VIEWED IN ISOLATION TO TREAT THE INCE NTIVES AS PRODUCTION INCENTIVES AS HELD BY THE TRIBUNAL FOR TH E MEASURE SO TAKEN APPEARS TO HAVE BEEN INTENDED TO ENSURE TH AT THE INCENTIVES WERE MADE AVAILABLE ONLY TO THE BONA FIDE I NDUSTRIAL UNITS SO THAT LARGER PUBLIC INTEREST OF DEALING WIT H UNEMPLOYMENT IN THE STATE AS INTENDED IN TERMS OF T HE OFFICE MEMORANDUM WAS ACHIEVED. FOR ALL WHAT HAS BEEN SAID ABOVE THE FINDING OF THE TRIBUNAL THAT THE EXCISE DUTY REF UND INTEREST SUBSIDY AND INSURANCE SUBSIDY WERE PRODUCTION INCEN TIVES HENCE REVENUE RECEIPT CANNOT BE SUSTAINED. THE FIND ING OF THE TRIBUNAL THAT THE INCENTIVES WERE REVENUE RECEIPT I S ACCORDINGLY SET ASIDE HOLDING THE INCENTIVES TO BE CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEES.CIT VS. PONN I SUGARS & CHEMICALS LTD. & ORS. (2008) 219 CTR (SC) 105 : (2 008) 13 DTR (SC) 1 : (2008) 306 ITR 392 (SC) MEPCO INDUSTRIE S LTD. VS. CIT (2009) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 30 5 : 2009 (7) SCC 564 AND SAHNEY STEEL & PRESS WORKS LTD. ETC . VS. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC) R ELIED ON; 28 SHREE BALAJI ALLOYS VS. ITO (2010) 127 TTJ (ASR) 129 : (2010) 33 DTR (ASR)(TRIB) 67 SET ASIDE. 32. THE ITAT AMRITSAR SPECIAL BENCH IN THE CASE OF SHRI VINOD KUMAR JAIN VS ITO & ORS IN ITA NO. 65/2010 VIDE ORD ER DATED 26.10.2012 CONSIDERING THE IDENTICAL QUESTION DECI DED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING JUDGEMENT OF THE HON'BLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS & ORS VS CIT (SUPRA) AND HELD IN PARA 4 TO 6 AS UNDER : 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CARE FULLY IN THE LIGHT OF MATERIAL ON RECORDS AS WELL AS DECISIONS CITED BY THE PARTIES. IN THIS CASE ASSESSEE HAD RECEIVED EXCISE D UTY REFUND AMOUNTING TO RS. 19 98 09 716/-AND HAS CLAIMED DEDU CTION U/S 80IB OF THE INCOME-TAX ACT 1961 ON THE INCOME CORR ESPONDING TO THE RECEIPT OF THE SAID REFUND. THE AO AFTER DET AILED DISCUSSION REJECTED THE CLAIM OF THE ASSESSEE. ON APP EAL ADDITIONAL GROUND WAS TAKEN BEFORE THE ID. CIT(A) THAT RECEIPT OF EXCISE DUTY REFUND SHOULD BE CONSIDERED AS CAPITAL RE CEIPT.. THE LD. CIT(A) AFTER CONSIDERING THE ADDITIONAL GROUND DE CIDED THIS ISSUE AGAINST THE ASSESSEE BY FOLLOWING THE DECISION O F THE IT AT AMRITSAR BENCH AMRITSAR IN THE CASE OF M/S SHREE B ALAJI ALLOYS KATHUA VS. INCOME TAX OFFICER KATHUA IN I TA NO.255(ASR)/2009 AND IN THE CASE OF M/S. RAVENBHEL H EALTHCARE PVT. LTD. JAMMU VS. INCOME TAX OFFICER WARD 1(2) JAMMU IN ITA NO. 305(ASR)/2009 DATED 26.11.2009 BY OBSERV ING THAT THE TRIBUNAL HAS CONSIDERED ALL THE ASPECTS OF THE ISSUE. IT IS OBSERVED THAT ASSESSE'S UNIT IS LOCATED IN JAMMU AND ASSESSEE IS ALSO BEING ASSESSED TO TAX IN JAMMU TH EREFORE THE DECISION OF HON'BLE J & K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS VS. CIT AND ANOTHER (SUPRA) (WHERE EVEN ASSE SSEE WAS ALSO ONE OF THE PARTY) HAS TO BE TREATED AS DECISIO N OF JURISDICTIONAL HIGH COURT WHICH IS BINDING ON US. NO DOUBT THE HON' BLE SUPREME COURT HAS ADMITTED THE SLP AGAINST THIS DECISION VID E ORDER DATED 18.11.2011 BUT NO STAY HAS BEEN GRANTED AGAINST THE OPERATION OF THE ORDER OF J & K HIGH COURT. THEREFORE IN OUR C ONSIDERED OPINION THE DECISION OF THE HON'BLE J & K HIGH COURT I N THE CASE OF SHREE BALAJI ALLOYS V. CIT AND ANOTHER (SUPRA) IS SQ UARELY APPLICABLE. A CAREFUL PERUSAL OF THIS JUDGMENT SHOWS THAT THE HON'BLE J & K HIGH COURT HAS DISCUSSED THE NATURE OF SCHEME IN DETAIL AND THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. VS. CIT (1997) 228 I TR 253 (SC) AND CIT VS. PONNI SUGARS AND CHEMICALS LTD. (2008) 306 ITR 392(SC) AND OBSERVED AS UNDER: '26 A PERUSAL OF THE OFFICE MEMORANDUM DATED JUNE 14 2002 INDICATING NEW INDUSTRIAL POLICY AND OTHER CONCESSIONS FOR THE STATE OF JAMMU AND KASHMIR MAK ES 29 IT EXPLICIT THAT THE CONCESSIONS WERE ISSUED TO ACHI EVE TWIN OBJECTS VIZ. (I) ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF JAMMU AND KASHMIR WHICH HAD BEEN FOUND LAGGING BEHIND IN SUCH DEVELOPMENT AND (II) GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU & KASHMIR. 27 AMENDMENT INTRODUCED TO THE OFFICE MEMORANDUM VIDE NOTIFICATION OF NOVEMBER 28 2003 OF THE GOVERNMENT OF INDIA MINISTRY OF COMMERCE AN D INDUSTRY (DEPARTMENT OF INDUSTRIAL POLICY AND PROMOT ION) ELOQUENTLY DEMONSTRATES THE CENTRAL GOVERNMENT'S INTENTION IN EXTENDING THE INCENTIVES. THE GOVERNMENT 'S OBJECTIVE AS CONVEYED BY THE HON'BLE PRIME MINISTER A SRINAGAR ON APRIL 19 2003 WAS FOR CREATION OF ONE LAKH EMPLOYMENT AND SELF-EMPLOYMENT OPPORTUNITIES IN JAMMU AND KASHMIR STATE. 28 TO ACHIEVE THE PURPOSE AND OBJECTIVE REFERRED TO HEREINABOVE IT WAS INTER ALIA PROVIDED IN THE CEN TRAL EXCISE NOTIFICATIONS THAT THE EXEMPTIONS CONTAINED IN THE NOTIFICATIONS WOULD BE AVAILABLE ONLY ON PRODUCTION OF CERTIFICATE FROM GENERAL MANAGER OF THE CONCERNED DISTRICT INDUSTRIES CENTRE TO THE JURISDICTIONAL DE PUTY COMMISSIONER OF CENTRAL EXCISE OR THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE AS THE CASE MAY BE T O THE EFFECT THAT THE UNIT HAD CREATED REQUIRED ADDITI ONAL REGULAR EMPLOYMENT WHICH WOULD NOT HOWEVER INCLUDE EMPLOYMENT PROVIDED BY THE INDUSTRIAL UNITS TO DAILY WAGERS OR CASUAL EMPLOYEES ENGAGED IN THE UNITS. 29 A CLOSE READING OF THE OFFICE MEMORANDUM AND THE AMENDMENT INTRODUCED THERETO WITH PARAGRAPH NO. 3 APPEARING IN THE CENTRAL EXCISE NOTIFICATION NOS. 5 6 AND 57 OF NOVEMBER 11 2002 THUS MAKES IT AMPL Y CLEAR THAT THE ACCELERATION OF DEVELOPMENT OF INDUSTRIES IN THE STATE WAS CONTEMPLATED WITH THE O BJECT OF GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU AND KASHMIR AND THE GENERATION OF EMPLOYMENT SO CONTEMPLATED WAS NOT ONLY CASUAL OR TEMPORARY; BUT WAS ON THE OTHER HAND OF PERMANENT NATURE. 30 CONSIDERED THUS THE PARAMOUNT CONSIDERATION OF THE CENTRAL GOVERNMENT IN PROVIDING THE INCENTIVES TO THE NEW INDUSTRIAL UNITS AND SUBSTANTIAL EXPANSION OF T HE EXISTING UNITS WAS THE GENERATION OF EMPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DEVELOPMENT TO D EAL WITH THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE ADDITIONALLY CREATING OPPORTUNITIES FOR SELF-EMPLOYMEN T HENCE A PURPOSE IN PUBLIC INTEREST. 31 IN THIS VIEW OF THE MATTER THE INCENTIVES PROVIDED TO THE INDUSTRIAL UNITS IN TERMS OF THE NE W INDUSTRIAL POLICY FOR ACCELERATED INDUSTRIAL DEVELO PMENT IN THE STATE FOR CREATION OF SUCH INDUSTRIAL ATMOS PHERE 30 AND ENVIRONMENT WHICH WOULD PROVIDE ADDITIO NAL PERMANENT SOURCE OF EMPLOYMENT TO THE UNEMPLOYED IN HE STATE OF JAMMU AND KASHMIR WERE IN FACT IN THE NATURE OF CREATION OF NEW ASSETS OF INDUSTRIAL ATMOSP HERE AND ENVIRONMENT HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SUCH INCENTIVE S DESIGNED TO ACHIEVE PUBLIC PURPOSE CANNOT BY ANY STRETCH OF REASONING BE CONSTRUED AS PRODUCTION O R OPERATIONAL INCENTIVES FOR THE BENEFIT OF ASSESSES ALONE. 32 THUS LOOKING TO THE PURPOSE OF ERADICATION OF THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STAT E BY ACCELERATION OF THE INDUSTRIAL DEVELOPMENT AND REM OVING BACKWARDNESS OF THE AREA THAT LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT WHICH IS CERTAINLY A PURPOSE IN THE PUBLIC INTEREST THE INCENTIVES PROVI DED BY THE OFFICE MEMORANDUM AND STATUTORY NOTIFICATIONS ISSUED IN THIS BEHALF TO THE APPELLANTS-ASSESSEES CANNOT BE CONSTRUED AS MERE PRODUCTION AND TRADE INCENTIVES AS HELD BY THE TRIBUNAL. 33 MAKING OF ADDITIONAL PROVISION IN THE SCHEME THAT INCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS ENTITLED THERETO FROM THE DATE OF COMMENCEMENT OF T HE COMMERCIAL PRODUCTION AND THAT THESE WERE NOT REQU IRED FOR CREATION OF NEW ASSETS CANNOT BE VIEWED IN ISOL ATION TO TREAT THE INCENTIVES AS PRODUCTION INCENTIVES AS HELD B Y THE TRIBUNAL FOR THE MEASURE SO TAKEN APPEARS TO HA VE BEEN INTENDED TO ENSURE THAT THE INCENTIVES WERE MA DE AVAILABLE ONLY TO THE BONA FIDE INDUSTRIAL UNITS S O THAT LARGER PUBLIC INTEREST OF DEALING WITH UNEM PLOYMENT IN THE STATE AS INTENDED IN TERMS OF THE OFFICE MEMORANDUM WAS ACHIEVED. 34 THE OTHER FACTORS WHICH HAD WEIGHED WITH THE TRIBUNAL IN DETERMINE THE INCENTIVES AS PRODUCTION INCENTIVES MAY NOT BE DECISIVE TO DETERMINING THE CHARACTER OF THE INCENTIVE SUBSIDIES WHEN IT IS FO UND AS DEMONSTRATED IN THE OFFICE MEMORANDUM AMENDMENT INTRODUCED THERETO AND THE STATUTORY NOTIFICATION TOO THAT THE INCENTIVES WERE PROVIDED WITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT TO ERADICATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT.' 5. ON THE BASIS OF THE ABOVE OBSERVATIONS THE HON' BLE J&K HIGH COURT HAS HELD AS UNDER : '35. FOR ALL WHAT HAS BEEN SAID ABOVE THE FINDING O F THE TRIBUNAL ON THE FIRST ISSUE THAT THE EXCISE DUTY RE FUND INTEREST SUBSIDY AND INSURANCE SUBSIDY WERE PRODUCT ION INCENTIVES HENCE REVENUE RECEIPT CANNOT BE SUSTAINE D BEING AGAINST THE LAW LAID DOWN BY THE HON'BLE SUPRE ME 31 COURT OF INDIA IN SAHNEY STEEL CASE (1997) 228 ITR 25 3 AND PONNI SUGARS CASE (2008) 306 ITR 392. 36. THE FINDING OF THE TRIBUNAL THAT THE INCENTIVES WERE REVENUE RECEIPT IS ACCORDINGLY SET ASIDE HOLDING T HE INCENTIVES TO THE CAPITAL RECEIPT IN THE HANDS OF THE ASSESSES.' 6. IN VIEW OF THE ABOVE DECISION WHICH IS BIN DING IN NATURE ON THIS SPECIAL BENCH AS OBSERVED EARLIER WE HOLD T HAT REFUND OF EXCISE DUTY IS TO BE TREATED AS CAPITAL RECEIPT IN T HE HANDS OF THE ASSESSEE. ACCORDINGLY THE FIRST QUESTION IS DECIDED IN FAVOUR OF THE ASSESSEE. 33. THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF C IT VS MEGHALAYA STEELS LTD. 356 ITR 235 CONSIDERING VARIO US JUDGEMENTS INCLUDING JUDGEMENT OF THE HON'BLE SUPRE ME COURT IN THE CASE OF LIBERTY INDIA VS CIT (SUPRA) HELD AS UNDER : TRANSPORT SUBSIDY POWER SUBSIDY INSURANCE SUBSID Y & INTEREST SUBSIDY RECEIVED BY ASSESSEE WHICH HELP IN REDUCING RUNNING COST OF INDUSTRIAL UNDERTAKING IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB/80IC. 34. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE JUDGEMENTS IT IS CLEAR THAT THE SAME SCHEME OF GRA NT OF SUBSIDY HAVE BEEN CONSIDERED BY HON'BLE J&K HIGH COURT IN T HE CASE OF SHREE BALAJI ALLOYS & ORS VS CIT (SUPRA) IN WHICH T HE ASSESSEE UNIT WAS ALSO FOUND TO BE SITUATED IN STATE OF J&K AND IN THE CASE OF THE ASSESSEE ALSO THE UNITS ARE SITUATED A T SAMBA (J&K) THEREFORE WHEN THE SCHEMES OF GRANT OF SUBSIDY HAV E BEEN CONSIDERED BY HON'BLE J&K HIGH COURT THE SAME VIEW SHALL HAVE TO BE ADOPTED IN THE CASE OF THE PRESENT ASSESSEE F OR GRANT OF DEDUCTION UNDER SECTION 80IB ON THE IDENTICAL FACTS IN WHICH THE SUBSIDIES WERE HELD TO BE CAPITAL IN NATURE. NO OTH ER CONTRARY 32 DECISION OF JURISDICTIONAL HIGH COURT OR OF THE SPE CIAL BENCH HAVE BEEN CITED BEFORE US. 35. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO INVIT ED OUR ATTENTION TO THE ORDER OF ITAT CHANDIGARH BENCH A IN THE CASE OF SAFARI BIKES LTD. VS JCIT ITA NO. 253/2013 DATED 29.05.2014 COPY OF WHICH IS PLACED AT PAGE 117 OF THE PAPER BO OK CONTAINING JUDGEMENTS IN WHICH THE TRIBUNAL CONSIDERED THE ISS UE OF GRANT OF SUBSIDY IN WHICH THE JUDGEMENT OF THE HON'BLE SU PREME COURT IN THE CASE OF SAHNEY STEELS & PRESS WORKS LTD. (SU PRA) AND PONNI SUGARS & CHEMICALS LTD. (SUPRA) HAVE BEEN DIS CUSSED AND AFTER DISCUSSING THE OBJECTS OF THE POLICY HELD THA T THE SUBSIDIES CLEARLY OF CAPITAL NATURE AND SET ASIDE THE ORDERS OF AUTHORITIES BELOW. THE SAID ORDER OF THE CHANDIGARH BENCH IS A LSO ON THE SAME REASONING AS HAVE BEEN ADOPTED BY HON'BLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS & ORS VS C IT (SUPRA). THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO FILED CAT ENA OF ORDERS OF ITAT CHANDIGARH AND AMRITSAR BENCH IN WHICH BY FOLLOWING THE JUDGEMENT OF THE HON'BLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS & ORS VS CIT (SUPRA) THE TRIBU NAL HAD TAKEN THE SAME VIEW IN FAVOUR OF THE ASSESSEE. THE COPIE S OF THE SAID ORDERS OF DIFFERENT BENCHES OF THE TRIBUNAL ARE PLA CED ON RECORD IN THE NAME OF M/S R.N. KNITFAB PVT. LTD. M/S FINE AROMATICS M/S HARI NAGAR SUGAR MILLS M/S SINGLA CABLES SHRI AMIT JAIN PROP. M/S J.K. POLYPACK M/S SHIVAM METAL SHAPER IN DUSTRIES AND M/S TRIMURTI MENTHOL INDUSTRIES. IN ALL THE OR DERS IT WAS HELD THAT DIFFERENT SUBSIDIES RECEIVED BY ASSESSEE ARE CAPITAL IN NATURE AND ALLOWED DEDUCTION UNDER SECTION 80IB. C ONSIDERING THE ABOVE DISCUSSION AND JUDGEMENTS CITED ABOVE IT IS CLEAR THAT 33 THE VARIOUS SUBSIDIES RECEIVED BY ASSESSEE ARE CAPI TAL SUBSIDIES AND ARE NOT LIABLE TO BE TAXED. 36. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RAISE D ALTERNATE PLEA THAT SAID SUBSIDY HAD BEEN CREDITED TO THE RES PECTIVE EXPENSE ACCOUNT AND SPECIFIC COST TO THE ASSESSEE G OT REDUCED AND FOR THAT PURPOSE NETTING IS ALLOWED WHICH HAS BEEN HELD TO BE SO IN FAVOUR OF THE ASSESSEE BY ITAT CHANDIGARH BENCH IN VARIOUS DECISIONS IN THE CASES OF DINESH KUMAR VS I TO SUNIL KUMAR VS ITO WHICH RELATES TO TRANSPORT SUBSIDY AND FREIGHT SUBSIDY. THE ASSESSEE HAS ALSO GIVEN DETAILS OF TH E SAME WHICH IS REPRODUCED IN THE WRITTEN SUBMISSIONS OF THE ASS ESSEE IN THE IMPUGNED ORDER AS IS ALSO REPRODUCED ABOVE WHICH CL EARLY SHOWS THAT AFTER REDUCING THE SUBSIDY FROM THE EXPENDITUR E INCURRED NO FURTHER INCOME IS LEFT WITH THE ASSESSEE UNDER T HESE HEADS. SUBSIDY IS NOTHING BUT REDUCTION TO SPECIFIC COST D UE TO INCENTIVES OFFERED BY GOVERNMENT. NO NET INCOME IS LEFT WITH ASSESSEE. THEREFORE WHEN NO INCOME IS LEFT TO THE ASSESSEE UNDER THE HEADS OF ABOVE SUBSIDIES THERE WERE NO Q UESTIONS OF MAKING ANY DISALLOWANCE AGAINST THE ASSESSEE. 37. THE LD. CIT(APPEALS) WITHOUT GIVING ANY COGENT REASONS AS TO WHY HE HAS NOT FOLLOWED THE ORDERS OF THE JURISD ICTIONAL ITAT CHANDIGARH BENCH HAS REJECTED THE CLAIM OF ASSESSE E BY MERELY OBSERVING THAT THESE ORDERS SEEMS TO BE CONTRARY TO THE MAIN JUDGEMENTS IN THE CASE. THE LD. CIT(APPEALS) HAS N O AUTHORITY TO MAKE ANY COMMENT UPON THE JUDGEMENTS OF THE SUPE RIOR TRIBUNALS AND THE COURTS. IT MAY ALSO BE NOTED HER E THAT HON'BLE GAUHATI HIGH COURT IN ITS RECENT DECISIONS IN THE CASES 34 OF MEGHALAYA STEELS AND PATKAI COAL PRODUCTS PVT. L TD. VS CIT (SUPRA) CONSIDERING THE ISSUE IN DETAIL IN THE LIGH T OF THE JUDGEMENTS OF THE HON'BLE SUPREME COURT HELD THAT T HE TRANSPORT SUBSIDY INSURANCE SUBSIDY AND INTEREST S UBSIDY ARE IN-FACT DERIVED FROM INDUSTRIAL UNDERTAKING AND IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. 38. CONSIDERING THE ABOVE DISCUSSION IT IS CLEAR T HAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY JU DGEMENT OF HON'BLE J&K HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS & ORS VS CIT (SUPRA) AND JUDGEMENT OF THE SPECIAL BENCH O F THE TRIBUNAL IN CASE OF VINOD KUMAR JAIN (SUPRA) AND OT HERS AND AUTHORITIES BELOW ARE NOT JUSTIFIED IN DENYING DEDU CTION UNDER SECTION 80IB OF THE ACT. THE ASSESSEE IS ALSO ENTI TLED FOR RELIEF ON ALTERNATE CONTENTION AND WOULD BE ENTITLED TO SE T OFF OF THE EXPENSES UNDER THE GRANT OF ABOVE SUBSIDIES ON VARI OUS ISSUES. CONSIDERING THE ABOVE DISCUSSION WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO GRANT DEDUCTION TO THE ASSESSEE UNDER SECTION 80IB OF THE ACT AND DELETE AND ADDITION ACCORDINGLY. THIS GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED IN ASSESSMENT YEAR 2006-07. 39. THE SAME ISSUE ARISES IN REMAINING APPEALS OF T HE ASSESSEES THEREFORE FOR FOLLOWING THE SAME REASON FOR DECISION AS HAVE BEEN GIVEN IN ASSESSMENT YEAR 2006-07 THE ORDERS OF AUTHORITIES BELOW IN REMAINING ASSESSMENT YEARS UND ER APPEALS ARE ALSO SET ASIDE AND IT IS DIRECTED THAT ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80IB OF THE AC T. 35 40. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ON THE ISSUE OF DEDUCTION UNDER SECTION 80IB OF THE ACT ARE ALLOWED . ISSUE NO. 3 ( ISSUE OF SECTION 80IB ON INTER UNIT INVESTMENTS INTEREST ALLOCATION ON DEEMED BASIS ) 41. THIS ISSUE ARISES IN ASSESSMENT YEAR 2008-09 AN D 2009-10 IN ASSESSEE'S APPEAL AS WELL AS IN DEPARTMENTAL APP EAL. IN ASSESSMENT YEAR 2008-09 ASSESSEE RAISED GROUND NO. 2 CHALLENGING THE ORDER OF THE LD. CIT(APPEALS) IN UP HOLDING THE PART ADDITION AS MADE BY ASSESSING OFFICER BY REDUC ING THE CLAIM OF DEDUCTION UNDER SECTION 80IB ON ACCOUNT OF INTER EST @ 11% ON INTER-UNIT INVESTMENT AS AGAINST 12% CHARGED BY THE ASSESSING OFFICER. THE REVENUE ON GROUND NO. 1 IN THEIR APPEA L CHALLENGED ORDER OF LD. CIT(APPEALS) IN REDUCING THE DISALLOWA NCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 42. THE ASSESSING OFFICER ON THIS ISSUE OBSERVED TH AT THE INTEREST EXPENDITURE ON THE INVESTMENTS MADE BY THE LUDHIANA UNIT IN THE OTHER UNIT LOCATED AT SAMBA HAD NOT BEE N ALLOCATED TO THE RESPECTIVE UNITS. THE ASSESSING OFFICER REF ERRED TO PROVISIONS OF SECTION 80IA(8) AND (10) AND OPINED T HAT THE ASSESSEE COMPANY WAS TRANSFERRING FUNDS BORROWED ON INTEREST FROM THE NON ELIGIBLE UNIT AT LUDHIANA TO THE ELIGI BLE UNITS AND THE CORRESPONDING INTEREST WAS NOT BEING ALLOCATED WHICH HAD LED TO THE INFLATION IN THE PROFITS OF ELIGIBLE UNITS. THIS ADJUSTMENT LED TO THE DISALLOWANCE OF CLAIM UNDER SECTION 80IB TO THE TUNE OF RS. 65 18 254/- AND RS. 72 00 576/- ( LIMITED TO THE EXPENDITURE ACTUALLY CLAIMED) IN RESPECT OF UNIT NO . 1 & 2. 36 43. THE ASSESSEE CHALLENGED ADDITION BEFORE LD. CIT (APPEALS) AND ASSESSEE'S SUBMISSIONS ARE INCORPORATED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT THE ASSESSEE COMPANY WAS FORMED IN THE YEAR 1996 AND SINCE THEN IT HAS BEEN CARRYING OUT ITS MANUFACTURING ACTIVITY OF BUS INESS IN LUDHIANA UNIT WHICH IS ALSO PRESENTLY THE HEAD OFFI CE OF THE COMPANY. THE SAID LUDHIANA UNIT HAS BEEN EARNING P ROFITS YEAR AFTER YEAR AND THE COMPANY HAD SUBSEQUENTLY ESTABLI SHED MANUFACTURING UNITS IN STATE OF J&K. IT WAS SUBMIT TED THAT ALL THE REMAINING UNITS ARE PART OF THE SAME ASSESSEE C OMPANY. IT WAS CLARIFIED THAT FROM TIME TO TIME THE LUDHIANA UNIT BEING THE HEAD OFFICE HAD TRANSFERRED FUNDS TO THE THREE UNI TS FOR BUSINESS PURPOSES. THE LUDHIANA UNIT OF THE ASSESSE E IS HAVING SUFFICIENT CAPITAL RESERVES AND SURPLUS AND ACCUMU LATED PROFITS FROM WHICH SUCH FUNDS HAVE BEEN TRANSFERRED FROM TI ME TO TIME. THE DETAILS OF OPENING BALANCE OF INVESTMENTS MADE BY THE LUDHIANA UNIT IN THREE UNITS LOCATED AT SAMBA (J&K) WERE TABULATED IN THE WRITTEN SUBMISSIONS AND DETAILS OF CAPITAL AND RESERVES WERE ALSO FURNISHED. IT WAS THEREFORE S UBMITTED THAT ASSESSEE COMPANY HAS SUFFICIENT OWN CAPITAL TO MAKE INVESTMENTS IN OTHER THREE UNITS AT SAMBA (J&K). I T WAS SUBMITTED THAT EACH OF THE UNIT MAINTAINED INDEPEND ENT AND SEPARATE BANK ACCOUNT WHICH ALSO MEANS THAT BORROWI NGS MADE BY EACH UNIT OF THE COMPANY ARE SEPARATE AND INDEPE NDENT. EACH UNIT IS ALSO MAINTAINING SEPARATE AND INDEPEND ENT BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT FUNDS WERE TRANSFER RED FOR THE PURPOSE OF BUSINESS THEREFORE COULD NOT BE QUESTI ONED BY THE ASSESSING OFFICER AND HE HAS PLACED RECOURSE ON SEC TION 80IA(8) 37 AND (10) WRONGLY FOR THE PURPOSE OF MAKING DISALLOW ANCE. THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 80IB ON AC COUNT OF NOTIONAL EXPENDITURE NOT INCURRED. THE ASSESSING OF FICER HAS TOTALLY IGNORED THE FACT THAT THERE IS NO NEXUS BET WEEN THE AMOUNT BORROWED BY THE LUDHIANA UNIT AND THE AMOUNT INVESTED BY THE UNIT WITH OTHER INTER-UNITS. THE ASSESSEE A LSO MADE ADDITIONAL SUBMISSIONS BEFORE LD. CIT(APPEALS) REIT ERATING THE SAME STAND THAT ALL FUNDS FINALIZED FROM THE BANK W ERE UTILIZED FOR THE FIXED ASSETS BEING LAND AND BUILDING AND MA CHINERY AND ALL WORKING CAPITAL BORROWED HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. THEREFORE ADDITION IS UNJUSTIFIED. 44. IT WAS FURTHER SUBMITTED THAT ASSESSING OFFICER HAS ERRED IN APPLYING THE RATE OF 12% BY ASSUMING THAT ALL INVES TMENTS MADE BY THE LUDHIANA UNIT IN UNIT NO. I AND II ARE OUT O F BORROWED FUNDS. MOREOVER IF ANY ADDITION HAS TO BE MADE I T CANNOT BE MADE @ 12% AS THE AVERAGE BORROWINGS OF THE ASSESSE E COMPANY ARE @ 11% WHICH CAN ALSO BE VERIFIED. THE COMPLETE DETAILS WERE SUBMITTED IN THIS REGARD. 45. THE LD. CIT(APPEALS) CONSIDERING EXPLANATION O F THE ASSESSEE IN PRINCIPLE CONFIRMED THE ORDER OF ASSES SING OFFICER. HOWEVER INTEREST ALLOCATED TO ALL THE THREE UNITS WAS REDUCED IN THE RATIO OF BORROWED/NON-BORROWED FUNDS AND APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. THE FINDINGS OF LD. C IT(APPEALS) IN PARA 10 OF THE APPELLATE ORDER ARE REPRODUCED AS UN DER : 10. I HAVE CONSIDERED THE BASIS OF ADDITION MADE BY THE ASSESSING OFFICER AND THE ARGUMENTS OF THE AR ON TH E ISSUE. I AM IN AGREEMENT WITH THE VIEW OF THE ASSESSING OF FICER THAT IF ANY FUNDS BORROWED ON INTEREST BY THE LUDHI ANA UNIT HAVE BEEN TRANSFERRED TO THE ELIGIBLE UNITS T HEN 38 INTEREST ON THE SAME SHOULD BE DEBITED IN THE P & L ACCOUNT OF SUCH ELIGIBLE UNITS ONLY. IN THIS REGARD THE APPELL ANT WAS DIRECTED TO FILE ANY EVIDENCE TO SHOW THAT THE FUND S TRANSFERRED TO THE ELIGIBLE UNITS BY THE LUDHIANA U NIT WERE FROM SELF-GENERATED FUNDS AND NOT FROM BORROWINGS O N INTEREST. THE APPELLANT COULD ONLY MAKE A CLAIM THAT SUCH TRANSFERS WERE FROM SELF GENERATED FUNDS BUT NO EVI DENCE IN THIS REGARD COULD BE PLACED ON RECORD. AS AGAINST THIS THE PERUSAL OF THE AVAILABILITY OF FUNDS AS PER THE BAL ANCE SHEET OF LUDHIANA UNIT SHOWS THAT THE FUNDS HAVE B EEN RAISED FROM FINANCIAL INSTITUTION ON INTEREST APART FROM THE INTERNAL ACCRUAL/CAPITAL CONTRIBUTIONS. TH IS MEANT THAT IN ORDER TO TRANSFER THE APPROPRIATE INTEREST DEBITS TO THE ELIGIBLE UNITS ONLY WAY OUT WAS TO FIND OUT THE RATIO OF BORROWED/NON BORROWED FUNDS. THE DATA IN THIS REGA RD HAS BEEN SUBMITTED BY THE APPELLANT AS BELOW :- 'CALCULATION OF ALLOCATION OF INTEREST EXPENDITURE OF LUDHIANA UNIT FOR THE FUNDS INVESTED IN SAMBA (J & K) UNITS BASED ON RATIO BETWEEN CAPITAL & BORROWED FUNDS OF UDHIANA UNITS FOR THE FINANCIAL YEAR 2008-09 PARTICULAR S UNIT-1 UNIT-II UNIT-ILL TOTAL CAPITAL FROM LUDHIANA INVESTED IN UNITS 5 43 18 787 5 93 58 704 4 04 08 147 15 40 85 638 PROPORTIONATE CAPITAL INVESTED OUT OF BORROWED FUNDS 30961708 3 38 34 461 2 30 32 644 8 78 28 813 INTEREST RATE (AVERAGE) 11% 11% 11% INTEREST TO BE ALLOCATED 34 05 788 37 21 791 25 33 591 96 61 170 THEREFORE THE INTEREST TO BE ALLOCATED TO THE THRE E UNITS COMES TO RS. 34 05 788/- RS. 37 21 7917- AND RS. 25 33 591/ - RESPECTIVELY. THE ADDITION MADE BY THE ASSESSING OF FICER IS THEREFORE CONFIRMED TO THE EXTENT MENTIONED ABOVE. PARTICULARS AMOUNT % CAPITAL AS ON 31/03/2008 AS PER BALANCE SHEET (INCLUDING RESERVE & SURPLUS) 48 67 76 840 43 BORROWED FUNDS AS ON 31/03/2009 AS PER BALANCE SHEET (SECURED LOANS & UNSECURED LOANS) 65 34 63 902 57 1 14 02 40 742 100 39 46. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED TH AT ASSESSEE HAS OWN CAPITAL AND RESERVES AND INTEREST FREE FUND S WITH LUDHIANA UNIT AND NO BORROWED FUNDS HAD BEEN TRANSF ERRED TO THE UNIT AT J&K. THEREFORE ADDITION IS WHOLLY UNJ USTIFIED. 47. ON THE OTHER HAND LD. DR RELIED UPON ORDER OF THE ASSESSING OFFICER. 48. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS SPE CIFICALLY NOTED THAT INTEREST EXPENDITURE ON THE INVESTMENTS MADE B Y THE LUDHIANA UNIT IN THE OTHER UNITS LOCATED AT SAMBA H AD NOT BEEN ALLOCATED TO RESPECTIVE UNITS. THE ASSESSING OFFIC ER THEREFORE CORRECTLY REFERRED TO PROVISIONS OF SECTION 80IA(8) (10) OF THE ACT BECAUSE THE ASSESSEE COMPANY WAS TRANSFERRING FUNDS BORROWED ON INTEREST FROM THE NON ELIGIBLE UNIT AT LUDHIANA TO THE ELIGIBLE UNITS AND THE CORRESPONDING INTEREST WAS NOT BEING ALLOCATED WHICH HAD LED TO THE INFLATION IN THE PROFITS OF EL IGIBLE UNITS. THE FINDING OF FACT RECORDED BY ASSESSING OFFICER H AVE NOT BEEN ASSAILED THROUGH ANY MATERIAL ON RECORD. THE LD. C IT(APPEALS) IN ORDER ALSO CONFIRMED THE SAID FINDINGS OF THE ASSES SING OFFICER. THE LD. CIT(APPEALS) HOWEVER DIRECTED THE ASSESSEE TO FILE ANY EVIDENCE TO SHOW THAT THE FUNDS TRANSFERRED TO THE ELIGIBLE UNITS BY THE LUDHIANA UNIT WERE FROM SELF GENERATED FUNDS AND NOT FROM BORROWINGS ON INTEREST. HOWEVER NO EVIDENCE HAS BEEN FILED BEFORE LD. CIT(APPEALS) IN THIS REGARD AND EV EN NOTHING IS POINTED OUT DURING THE COURSE OF ARGUMENTS BEFORE U S. THE LD. CIT(APPEALS) THEREFORE PERUSED THE BALANCE SHEET OF LUDHIANA 40 UNIT WHICH SHOWS THAT FUNDS HAVE BEEN RAISED FROM F INANCIAL INSTITUTION ON INTEREST APART FROM INTERNAL ACCRUAL /CAPITAL CONTRIBUTIONS. THE LD. CIT(APPEALS) THEREFORE OB SERVED THAT THIS WOULD MEAN THAT IN ORDER TO TRANSFER THE APPRO PRIATE INTEREST DEBITS TO THE ELIGIBLE UNITS ONLY WAY OUT WAS TO FIND OUT THE RATIO OF BORROWED/NON-BORROWED FUNDS AND IN THI S REGARD DATA WAS FURNISHED BY THE ASSESSEE WHICH IS REPRODU CED IN THE FINDINGS OF LD. CIT(APPEALS) NOTED ABOVE. SINCE T HE DATA PRODUCED BY THE ASSESSEE CLEARLY SUPPORT THE FINDIN G OF LD. CIT(APPEALS) FOR ALLOCATION OF THE INTEREST TO THE THREE UNITS THEREFORE THERE SHOULD NOT HAVE ANY GRIEVANCE LEFT FOR THE ASSESSEE TO AGITATE THE FINDING OF FACT RECORDED BY THE LD. CIT(APPEALS) IN THIS REGARD. THE LD. CIT(APPEALS) THEREFORE ON THE BASIS OF MATERIAL PRODUCED BEFORE HIM CORRECTLY ALLOCATED THE INTEREST TO THE THREE UNITS AND CORRECTLY REDUCED T HE SAME ADDITION IN PROPORTION/RATIO OF BORROWED/NON-BORROW ED FUNDS. 49. THE LD. DR ALSO COULD NOT CONTRIBUTE ANYTHING O N THIS ISSUE DURING THE COURSE OF ARGUMENTS. THEREFORE WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(APPEALS) IN R EDUCING ADDITION ON THIS ISSUE. 50. THE LD. CIT(APPEALS) THEREFORE CONSIDERING TH E MATERIAL BEFORE HIM CORRECTLY ALLOWED THE CLAIM OF THE ASSES SEE PARTLY ON WHICH NO FURTHER INTERFERENCE IS REQUIRED. THE GRO UND NO. 2 OF APPEAL OF ASSESSEE AND GROUND NO. 1 OF DEPARTMENTAL APPEAL ARE ACCORDINGLY DISMISSED. 51. IN ASSESSMENT YEAR 2009-10 ASSESSEE RAISED SIM ILAR GROUND NO. 2 ON THE SAME ISSUE AND REVENUE RAISED G ROUND NO. 1 41 IN THEIR DEPARTMENTAL APPEAL ON THE IDENTICAL ISSUE . FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2008-09 BOTH THE GRO UNDS OF APPEAL ARE DISMISSED. 52. IN THE RESULT APPEALS OF ASSESSEE AND DEPARTME NTAL APPEALS ON THIS ISSUE IN ASSESSMENT YEAR 2008-09 AND 2009-1 0 ARE DISMISSED. ISSUE NO. 4 (DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT) 53. THIS ISSUE ARISES IN ASSESSMENT YEAR 2008-09 IN APPEAL OF THE ASSESSEE ON WHICH ASSESSEE RAISED GROUND NO. 3 CHALLENGING THE ADDITION OF RS. 7 09 562/- BY APPLYING PROVISIO NS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT. THE A SSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HAD MADE INV ESTMENTS IN SHARES AND MUTUAL FUNDS ON WHICH EXEMPT INCOME A CCRUED AND NO DISALLOWANCE IN RESPECT OF EXPENDITURE INCUR RED TO EARN THE EXEMPT INCOME HAVE BEEN MADE. THE ASSESSEE HO WEVER CLAIMED BEFORE ASSESSING OFFICER THAT NO EXPENDITUR E HAD BEEN INCURRED TO EARN EXEMPT INCOME. THE ASSESSING OFFI CER CONCLUDED THAT ASSESSEE COMPANY HAD NOT BEEN ABLE T O ESTABLISH THE CLAIM THAT NO EXPENDITURE HAD BEEN INCURRED AND THEREFORE DISALLOWANCE HAD TO BE WORKED OUT BY APPLYING RULE 8D OF THE ACT. THE SUBMISSIONS OF THE ASSESSEE ARE RECORDED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLA INED THAT AS ON 31.03.2008 INVESTMENTS AMOUNTING TO RS. 1.68 CR ORES IN SHARES AND MUTUAL FUNDS WERE STANDING IN THE BALANC E SHEET OF LUDHIANA UNIT OF ASSESSEE COMPANY. FURTHER OUT OF TOTAL INVESTMENTS OF RS. 1.68 CRORES MADE BY LUDHIANA UNI T 42 INVESTMENTS AMOUNTING TO RS. 67 64 635/- WERE MADE IN THE PARTNERSHIP FIRM NAMELY J.C. MANUFACTURING COMPANY AND INVESTMENTS AMOUNTING TO RS. 10 LACS WERE MADE IN T HE SUBSIDIARY COMPANY NAMELY BHARAT PAPER LTD. AND RES T OF THE INVESTMENTS WERE MADE IN THE MUTUAL FUNDS OF VARIOU S COMPANIES. SIMILAR INVESTMENTS AMOUNTING TO RS. 30 LACS WERE ALSO STANDING IN THE BALANCE SHEET OF UNIT II SAMBA OUT OF WHICH INVESTMENTS AMOUNTING TO RS. 25 LACS WERE MADE IN T HE CURRENT YEAR IN MUTUAL FUNDS OF VARIOUS COMPANIES AND INVES TMENTS AMOUNTING TO RS. 25 LACS MADE IN EARLIER YEARS WERE SOLD OUT BY THE UNIT II. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS ALSO EARNED DIVIDEND INCOME OF RS. 2 56 117/- WHICH WAS EXEMPT FROM TAX UNDER SECTION 10 OF THE A CT. THE ASSESSING OFFICER WITHOUT HAVING ANY EVIDENCE WAS OF THE VIEW THAT ASSESSEE MUST HAVE INCURRED SOME EXPENSES TO E ARN THE EXEMPT INCOME AND APPLIED PROVISIONS OF SECTION 14A OF THE ACT. IT WAS SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE EXEMPT INCOME AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FILED REPLIES IN WHIC H IT WAS SUBMITTED THAT INVESTMENTS IN SHARES AND MUTUAL FUN DS HAVE BEEN MADE IN THE EARLIER YEARS AND IT IS ONLY THE I NVESTMENT IN SISTER CONCERN WHICH HAS INCREASED AND FURTHER NO F RESH INVESTMENTS HAVE BEEN MADE OUT OF BORROWED FUNDS. IT WAS SUBMITTED THAT IT IS SETTLED LAW THAT WHERE NO EXPE NDITURE HAD BEEN INCURRED BY THE ASSESSEE COMPANY TO EARN EXEMP T INCOME NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CAL LED FOR. FURTHER MOST OF THE LOANS TAKEN BY THE ASSESSEE CO MPANY FROM THE BANKS ARE IN THE FORM OF TERM LOANS AND WORKING CAPITAL 43 LIMITS AND IT WAS CLARIFIED THAT INTEREST PAID ON T ERM LOANS AVAILED BY THE ASSESSEE IS DULY CAPITALIZED AND ALL THE WORKING CAPITAL LIMITS HAVE BEEN UTILIZED BY THE ASSESSEE F OR SMOOTH FUNCTIONING OF THE BUSINESS. THE ASSESSEE RELIED U PON SEVERAL DECISIONS INCLUDING THE DECISION IN THE CASE OF CIT V HERO CYCLES 323 ITR 518 (P&H) IN WHICH IT WAS HELD DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPEND ITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPEN DITURE HAS BEEN INCURRED DISALLOWANCE UNDER SECTION 14A CANNO T STAND. IT WAS THEREFORE SUBMITTED THAT SINCE ASSESSING OFFI CER HAS NOT RECORDED ANY SATISFACTION OF INCURRING OF ANY EXPEN DITURE BY ASSESSEE THEREFORE ADDITION IS WHOLLY UNJUSTIFIED . 54. THE LD. CIT(APPEALS) HOWEVER DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE AND CONFIRMED THE ADDITION. THE LD. CIT(A PPEALS) FURTHER OBSERVED THAT THE DECISION CITED BY THE ASS ESSEE ARE CLEARLY DISTINGUISHABLE ON FACTS. 55. THE LD. COUNSEL FOR THE ASSESSEE REITERATED T HE SUBMISSIONS MADE BEFORE LD. CIT(APPEALS). HE HAS S UBMITTED THAT AT THE TIME OF MAKING ADDITION THE AUTHORITIE S BELOW HAVE CONSIDERED THE AMOUNTS WHICH IS MADE AS INVESTMENT IN SUBSIDIARY COMPANIES NAMELY BHARAT PAPER LTD. AND J .C. MANUFACTURING COMPANY. IT WAS SUBMITTED THAT SAID I NVESTMENTS HAVE NOT BEEN DONE IN ORDER TO EARN ANY EXEMPT INCO ME IN THE FORM OF DIVIDEND INCOME. THESE INVESTMENTS ARE LON G TERM INVESTMENTS AND NO DECISION IS REQUIRED IN MAKING T HE INVESTMENTS OR ITS DIS-INVESTMENTS ON REGULAR BASIS BECAUSE 44 THESE INVESTMENTS ARE STRATEGIC IN NATURE IN THE SU BSIDIARY COMPANIES ON LONG TERM INVESTMENTS AND THEREFORE N O DIRECT OR INDIRECT EXPENDITURE IS INCURRED. THE PURPOSE OF I NVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME BUT HAVING CONT ROL AND BUSINESS PURPOSES AND CONSIDERATION. THE PURPOSE O F INCORPORATION OF BHARAT PAPER LTD. WAS TO HAVE BACK WARD INTEGRATION FOR ASSESSEE WHEREIN THE FINISHED PRODU CT SUPPLIED BY BHARAT PAPER LTD. WAS THE RAW MATERIAL FOR THE A SSESSEE AND THUS PURPOSE OF INVESTMENT WAS NEITHER TO HAVE DIV IDEND INCOME AND NOR ANY ACTUAL DIVIDEND WAS EARNED. HE HAS ALS O SUBMITTED THAT THE ASSESSING OFFICER IN SUBSEQUENT ASSESSMENT YEAR 2009- 10 AND 2010-11 HAVE NOT ANY SIMILAR ADDITION WITH R EGARD TO THE INVESTMENTS MADE IN THE SUBSIDIARY COMPANIES. HE H AS THEREFORE SUBMITTED THAT SINCE INVESTMENT HAD BEEN MADE IN THE SUBSIDIARY COMPANIES AND PARTNERSHIP FIRM WHICH IS IN THE NATURE OF COMMERCIAL EXPEDIENCY THEREFORE NO DISAL LOWANCE CAN BE MADE. HE HAS RELIED UPON FOLLOWING CASES : 1. JM FINANCIAL LTD. V ADDL. CIT ITA NO. 4521/MUM/2012 ITAT MUMBAI BENCH MUMBAI 2. INTERGLOBE ENTERPRISES LTD. V DCIT ITA NO. 1362/DEL/2013 ITAT DELHI BENCH NEW DELHI. 3. CIT V ORIENTAL STRUCTURAL ENGINEERS P.LTD. ITA NO. 605/2012 HIGH COURT OF DELHI AT NEW DELHI. 4. EIH ASSOCIATED HOTELS V DCIT ITA NO. 1503/MAD/2012 ITAT CHENNAI BENCH CHENNAI 5. GARWARE WALL ROPEWAYS LTD. V ADDL CIT ITA NO. 5408/MUM/2012 ITAT MUMBAI BENCH MUMBAI. (COPIES OF THE SAME ARE FILED ON RECORD.) 55(I) THE LD. DR HOW EVER RELIED ON ORDERS OF AUTHORITIES BELOW. 45 56. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. THE ASSESSEE'S COUNSEL HAS SP ECIFICALLY PLEADED THAT NO INVESTMENTS HAVE BEEN MADE IN THE Y EAR UNDER CONSIDERATION AND ONLY PART INVESTMENTS HAVE BEEN M ADE IN SUBSIDIARY COMPANIES. HOWEVER THE A.O. HAS SPECIFI CALLY OBSERVED THAT ASSESSEE COMPANY HAD MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS ON WHICH EXEMPT INCOME ACCR UED AND NO DISALLOWANCE IN RESPECT OF EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME HAVE BEEN MADE. THE A.O. CONSIDERIN G EXPLANATION OF THE ASSESSEE CONCLUDED THAT ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH THE CLAIM THAT NO EXPENDITUR E HAD BEEN INCURRED AND THEREFORE DISALLOWANCE HAD TO BE WORKE D OUT BY APPLYING RULE 8D OF THE ACT. IT IS ALSO NOT IN DIS PUTE THAT ASSESSEE EARNED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. THE ITAT CHANDIGARH BENCH IN THE CA SE OF M/S CHADHA SUPER CARS P.LTD. VS ACIT IN ITA 1241/2011 E TC. BY CONSIDERING SECTION 10(2A) IN THE LIGHT OF VARIOUS DECISIONS ON THE MATTER IN ISSUE INCLUDING THE JUDGEMENT IN THE CASE OF HERO CYCLES (SUPRA) AND JUDGEMENT OF HON'BLE PUNJAB & HA RYANA HIGH COURT IN THE CASE OF CIT VS PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. DATED 18.07.2011 AND MEMORANDUM EX PLAINING SECTION 14A IN THE LIGHT OF RULE 8D OF IT RULES HEL D AS UNDER : THUS ABOVE RULE WAS FOUND TO BE VALID AND RATIONAL. COMING BACK TO THE CASE IN HAND THE PERUSAL OF THE ASSESSMENT ORDER SHOWS AS OBSERVED EARLIER NO WHER E BEFORE THE ASSESSING OFFICER OR THE ID. CIT(A) THE ASSESSEE HAS MADE A SPECIFIC MENTION TO SHOW WHICH PARTICULAR FUNDS WERE BORROWED FOR WHICH PARTICULAR REQUIREMENT AND IN THE ABSENCE OF SUCH SPECIFIC UTILIZATION RULE 8D WOULD BE APPLICABLE. PERUSAL O F THE ASSESSMENT ORDER SHOWS THAT DISALLOWANCE U/S 14A HAS BEEN WORKED OUT ON THE BASIS OF RULE 8D WHICH I S AS OBSERVED EARLIER APPLICABLE IN CASE OF THE ASSESSEE . THEREFORE WE SET ASIDE THE ORDER OF THE ID. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 57. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE DETAILED ORDER OF THIS BENCH IN THE CASE OF M/S CHADHA SUPER CARS P. LTD. (SUPRA) WE DO NOT FIND ANY JUSTIFICATION TO I NTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. 46 58. IN THE RESULT GROUND NO. 3 OF THE APPEAL OF TH E ASSESSEE IN ASSESSMENT YEAR 2008-09 IS DISMISSED. ISSUE NO. 5 (ADDITION OF 2% ON ADVANCES GIVEN BY ASSESSEE TO B PL ) 59. THIS ISSUE ARISES IN DEPARTMENTAL APPEAL IN ASS ESSMENT YEAR 2008-09 ON GROUND NO. 2 IN WHICH REVENUE CHALL ENGED THE DELETION OF ADDITION OF RS. 14 34 018/- MADE BY ASS ESSING OFFICER ON ACCOUNT OF ADVANCES TO SISTER CONCERN WH ILE THE ASSESSEE IS PAYING MORE INTEREST ON BORROWED FUNDS. THE ASSESSING OFFICER HAS OBSERVED THAT ASSESSEE COMPAN Y HAS GIVEN ADVANCES OF RS. 21.75 CR TO ITS SUBSIDIARY COMPANY M/S BHARAT PAPER LTD. @ 10% INTEREST AND PAYING INTEREST ON SE CURED LOANS @ 12% AND THERE WERE NO BUSINESS EXIGENCIES FOR DOI NG SO. THE ASSESSEE CLAIMED BEFORE ASSESSING OFFICER THAT THER E IS NO NEXUS BETWEEN BORROWED FUNDS AND THE AMOUNT ADVANCED TO T HE ABOVE COMPANY AND IT IS A MATTER OF COMMERCIAL EXIGENCY T O GRANT LOAN TO THE SISTER CONCERN @ 10%. THE ASSESSING OFFICER APPLIED RATIO OF THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1 (P&H) TO HOLD THAT EXCESS INTEREST ON BORROWED FUNDS @ 2% TO THE TUNE OF RS. 14 34 018/- WAS DISALLOWED. THE ASSESSEE'S WRI TTEN SUBMISSION IS REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT ASSESSEE COMPANY HA S GIVEN ADVANCES OF RS. 4.47 CR TO SUBSIDIARY COMPANY AND I NTEREST @ 10% HAS BEEN RECEIVED WHICH HAS BEEN SHOWN AS INCOM E UNDER THE HEAD OTHER INCOME AND TDS HAS ALSO BEEN DEDUC TED. THE FIGURE OF RS. 21.75 CR AS MENTIONED IN THE AUDIT RE PORT IS CLOSING BALANCE OF TOTAL AMOUNT OF LOAN STANDING IN THE NAM E OF M/S BHARAT PAPER LTD. IN THE BOOKS OF THE ASSESSEE COMP ANY. IT WAS SUBMITTED THAT M/S BHARAT PAPER LTD. IS SUBSIDIARY COMPANY OF THE ASSESSEE AND FUNDS HAVE BEEN GIVEN FOR THE PURP OSE OF COMMERCIAL EXIGENCY ON WHICH PROPER INTEREST HAS BE EN CHARGED. IT IS NOT A CASE WHERE FUNDS HAVE BEEN ADVANCED WIT HOUT ANY EXIGENCY. THE COMPLETE DETAILS OF UTILIZATION OF F UNDS WERE FURNISHED AT THE ASSESSMENT STAGE AND ALL FUNDS HAV E BEEN USED 47 ONLY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE REL IED UPON DECISION OF THE APEX COURT IN THE CASE OF M/S S.A. BUILDERS 288 ITR 1. IT WAS SUBMITTED THAT DECISION IN THE CASE OF M/S ABHISHEK INDUSTRIES (SUPRA) IS NOT APPLICABLE TO TH E FACTS OF THE CASE. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS S UFFICIENT INTEREST FREE FUNDS AND THERE IS NO NEXUS BETWEEN T HE BORROWED FUNDS AND THE AMOUNTS ADVANCED TO THE ABOVE COMPANY . THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN SUPPORT O F CONTENTION THAT ADDITION IS UNJUSTIFIED. 60. THE LD. CIT(APPEALS) ACCEPTED CONTENTION OF TH E ASSESSEE AND NOTED THAT THE ASSESSING OFFICER HAS WRONGLY AP PLIED RATIO OF THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF ABHISHEK INDUSTRIES ( SUPRA ) AS THIS IS NO T A CASE WHERE ASSESSEE HAD DIVERTED FUNDS TO THE SISTER CONCERN W ITHOUT CHARGING ANY INTEREST RATHER INTEREST HAS BEEN DUL Y CHARGED BY THE ASSESSEE WHICH FACT IS NOT CONTROVERTED BY THE ASSESSING OFFICER. THE LD. CIT(APPEALS) ALSO FOUND THAT FUNDS HAVE BEEN ADVANCED TO SISTER CONCERN ON INTEREST BASIS AND TH US COMMERCIAL EXPEDIENCY IS DULY ESTABLISHED AND FOUND THAT DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S MARC AUTO INDUSTRIES LTD. 57 DTR 113 IS APPL ICABLE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION. 61. THE LD. DR RELIED UPON ORDER OF THE ASSESSING O FFICER ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE REITER ATED SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. 62. IT IS NOT IN DISPUTE THAT M/S BHARAT PAPER LTD. IS SUBSIDIARY COMPANY OF THE ASSESSEE. THE ASSESSEE H AS NOT 48 DIVERTED BORROWED FUNDS FOR ANY BUSINESS PURPOSES. THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON R ECORD TO PROVE ANY NEXUS BETWEEN BORROWED FUNDS AND THE FUND S ADVANCED TO SUBSIDIARY COMPANIES. THE ASSESSEE HAS NOT GIVEN FUNDS TO THE SUBSIDIARY COMPANY WITHOUT ANY INTERES T RATHER IT IS A FACT THAT ASSESSEE HAS CHARGED INTEREST @ 10% ON THE FUNDS GIVEN TO THE SUBSIDIARY COMPANIES. IN THE CASE OF M/S MARC AUTO INDUSTRIES LTD. AS NOTED IN THE APPELLATE ORD ER IT WAS HELD THAT TRIBUNAL HAVING CONSIDERED THE EVIDENCE ON PROPER APPRECIATION OF MATERIAL HAVING CONFIRMED THE ORDER OF THE LD. CIT(APPEALS) DELETING DISALLOWANCE OF INTEREST EXPE NDITURE AS ASSESSING OFFICER HAD NOT ESTABLISHED THAT BORROWED FUNDS WERE DIVERTED FOR INVESTMENT IN SISTER CONCERN NO INTER VENTION IS REQUIRED IN THE ORDER OF THE TRIBUNAL. SINCE THE ASSESSEE HAS BUSINESS RELATION WITH THE SUBSIDIARY COMPANY AND F UNDS HAVE BEEN GIVEN TO THE SUBSIDIARY COMPANY SUBJECT TO INT EREST THEREFORE ASSESSING OFFICER COULD NOT EXAMINE THE REASONABLE INTEREST CHARGED BY THE ASSESSEE. THE ASSESSING OF FICER CANNOT STEP INTO THE SHOE OF THE BUSINESSMAN AS TO HOW MUC H THE BUSINESSMAN HAS TO EARN PROFIT OUT OF THE SAME TRAN SACTION. 63. THE LD. CIT(APPEALS) CONSIDERING TOTALITY OF T HE FACTS AND CIRCUMSTANCES CORRECTLY DELETED THE ADDITION. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( APPEALS) IN DELETING THE ADDITION. THE GROUND NO. 2 OF DEPARTM ENTAL APPEAL IS ACCORDINGLY DISMISSED. 49 ISSUE NO. 6 (REVISED CLAIM UNDER SECTION 80IB) 64. THIS ISSUE ARISES IN DEPARTMENTAL APPEAL IN ASS ESSMENT YEAR 2008-09 ON GROUND NO. 3 IN WHICH REVENUE CHALL ENGED THE ORDER OF LD. CIT(APPEALS) IN ALLOWING DEDUCTION UND ER SECTION 80IB AT RS. 45 35 176/- IN RESPECT OF UNIT NO. II SAMBA WHICH WAS NOT CLAIMED AS PER REVISED RETURN. THE ASSESSI NG OFFICER IN THIS REGARD HAS OBSERVED THAT HE CANNOT ENTERTAIN C LAIM OF DEDUCTION OTHERWISE THAN BY FILING REVISED RETURN. THE ASSESSING OFFICER APPLIED THE RATIO OF THE DECISION OF THE SU PREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V CIT 284 ITR 323 T O HOLD THAT CLAIM OF ASSESSEE CANNOT BE ACCEPTED. THE ASSESSEE CHALLENGED BEFORE LD. CIT(APPEALS) THAT ASSESSING OFFICER HAS ERRED IN NOT ALLOWING CLAIM OF DEDUCTION UNDER SECTION 80IB OF R S. 45 35 176/- IN RESPECT OF UNIT II SAMBA WHICH WAS CLAIMED AS LESS DUE TO INADVERTENT ERROR. THE ASSESSEE'S WRIT TEN SUBMISSION IS INCORPORATED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE HAS EXPLAINED THAT A LESSER CLAIM WAS MADE OF DEDUCTION UNDER SECTION 80IB IN RESPECT OF UNIT II SAMBA WHILE PREP ARING RETURN INADVERTENTLY. THE COMPUTATION OF INCOME AND OTHER DETAILS CLEARLY SHOW THE PROPER CLAIM OF ASSESSEE. IT WAS SUBMITTED THAT AT THE ASSESSMENT STAGE ASSESSEE FILED APPLICATION BEFORE ASSESSING OFFICER FOR ALLOWING PROPER CLAIM UNDER S ECTION 80IB OF THE ACT. THE ASSESSEE RELIED UPON DECISION OF HON'B LE PUNJAB & HARYANA HIGH COURT IN THE CASE RAMCO INTERNATIONAL REPORTED IN 221 CTR 49 IN WHICH IT WAS HELD ASSESSEE HAVING DULY FURNISHED THE DOCUMENTS AND SUBMITTED FORM NO. 10CC B DURING THE ASSESSMENT PROCEEDINGS CLAIMING DEDUCTION UNDE R SECTION 50 80IB WHICH WAS NOT CLAIMED IN THE RETURN DEDUCTION IS ADMISSIBLE EVEN IN THE ABSENCE OF REVISED RETURN. THE ASSESSEE ALSO RELIED UPON LATEST JUDGEMENT OF HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT V METALMAN AUTO P. LTD. 336 ITR 434 IN WHICH IT WAS HELD MERE OMISSION TO CLAIM EXEMPTION UNDER SECTION 10(35) IN THE RETURN COULD NOT DEBAR ASSESSEE FROM CLAIMING THE SAME. TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDE R OF LD. CIT(APPEALS) ACCEPTING THE ASSESSEE'S CLAIM NO SUB STANTIAL QUESTION OF LAW ARISES. IT WAS SUBMITTED THAT IN BOTH THE ABOVE JUDGEMENTS HON'BLE PUNJAB & HARYANA HIGH COURT CON SIDERED THE DECISION IN THE CASE OF GOETZE (INDIA) LTD. (SU PRA). THE LD. CIT(APPEALS) CONSIDERING EXPLANATION OF THE ASSESS EE IN THE LIGHT OF THE ABOVE JUDGEMENT NOTED THAT ALL FACTS A ND MATERIAL WERE PRODUCED BEFORE ASSESSING OFFICER THEREFORE E VEN IF ASSESSEE DID NOT MAKE CLAIM OF DEDUCTION UNDER SECT ION 80IB IN THE RETURN OF INCOME THE CLAIM OF ASSESSEE IS ALLO WABLE AND ACCORDINGLY ALLOWED THE CLAIM OF ASSESSEE. 65. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE J UDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF M/S RAMCO INTERNATIONAL AND METALMAN AUTO PVT. LTD.(SUP RA). BY FOLLOWING THE SAME DECISION WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. ISSUE NO. 7 66. IN ASSESSMENT YEAR 2009-10 IN THE APPEAL OF THE ASSESSEE THE ASSESSEE HAS RAISED GROUND NO. 3 4 & 5 CHALLEN GING THE 51 DISALLOWANCE UNDER SECTION 36(1)(III) DISALLOWANCE OF INTEREST @ 12% ON CAPITAL ADVANCES AND DISALLOWANCE UNDER SECT ION 14A OF THE ACT. IN ASSESSMENT YEAR 2010-11 ASSESSEE RAISE D GROUND NOS. 2 & 3 ON ACCOUNT OF DISALLOWANCE UNDER SECTION 36(1)(III) AND DISALLOWANCE UNDER SECTION 14A OF THE ACT. 67. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT HE WOULD NOT BE PRESSING THESE GROUNDS OF APPEAL IN BOTH ASSESSM ENT YEARS AND SEEKS PERMISSION TO WITHDRAW THESE GROUNDS OF A PPEAL OF THE ASSESSEE IN BOTH THE APPEALS. IN VIEW OF THE SUBMI SSION OF LD. COUNSEL FOR THE ASSESSEE GROUND NOS. 3 4 & 5 IN A SSESSMENT YEAR 2009-10 AND GROUND NOS. 2 & 3 IN ASSESSMENT YE AR 2010-11 IN THE APPEALS OF THE ASSESSEE ARE DISMISSED AS WIT HDRAWN. 68. NO OTHER POINT IS ARGUED OR PRESSED IN ALL THE APPEALS. 69. IN THE RESULT THE APPEAL OF THE ASSESSEE IN AS SESSMENT YEAR 2006-07 IS ALLOWED WHEREAS THE REMAINING APPEALS OF THE ASSESSEE IN ASSESSMENT YEAR 2007-08 2008-09 2009- 10 AND 2010-11 ARE PARTLY ALLOWED. BOTH THE APPEALS OF TH E REVENUE ARE HOWEVER DISMISSED. 70. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER 2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 TH NOVEMBER 2014. POONAM COPY TO: THE APPELLANT THE RESPONDENT THE CIT(A) THE CIT DR ASSISTANT REGISTRAR ITAT CHANDIGARH