Punjab Stainless Steel Industries,, v. ACIT, Circle-19(1),,

ITA 1786/DEL/2006 | 2002-2003
Pronouncement Date: 29-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 178620114 RSA 2006
Assessee PAN AAAFP4223G
Bench Delhi
Appeal Number ITA 1786/DEL/2006
Duration Of Justice 5 year(s) 9 month(s) 10 day(s)
Appellant Punjab Stainless Steel Industries,,
Respondent ACIT, Circle-19(1),,
Appeal Type Income Tax Appeal
Pronouncement Date 29-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 29-02-2012
Date Of Final Hearing 21-02-2012
Next Hearing Date 21-02-2012
Assessment Year 2002-2003
Appeal Filed On 19-05-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO.1910/DEL/2006 ASSESSMENT YEAR : 2002-03 DCIT CIRCLE 19(1) NEW DELHI. VS. M/S PUNJAB STAINLESS STEEL INDUSTRIES B-61 WAZIRPUR INDUSTRIAL AREA NEW DELHI. PAN : AAAFP4223G ITA NO.1786/DEL/2006 ASSESSMENT YEAR : 2002-03 M/S PUNJAB STAINLESS STEEL INDUSTRIES B-61 WAZIRPUR INDUSTRIAL AREA NEW DELHI. PAN : AAAFP4223G VS. ACIT CIRCLE 19(1) VIKAS BHAWAN NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI H. MITTER CA REVENUE BY : SHRI NIRANJAN KAULI CIT DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THESE ARE CROSS APPEALS. THEY ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 28 TH FEBRUARY 2006 FOR ASSESSMENT YEAR 2002-03. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE RE AD AS UNDER:- 1.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. A.O. IN DENYING THE ENTIRE CLAIM OF DEDUCTION OF RS.16598514/- U/S 80HHC OF THE INCOME TAX ACT 1961. ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 2 1.2 THAT WITHOUT PREJUDICE TO THE FOREGOING GROUNDS THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT BY VIRTUE OF INSER TION OF CLAUSE (IIID) IN SECTION 28 AND AMENDMENT OF CLAUSE ( BAA) IN THE EXPLANATION TO SECTION 80HHC BY THE TAXATION LAWS (AMENDMENT) ACT 2005 IT IS ONLY 90% OF THE PROFITS ON TRANSFER OF DEPB CREDITS (I.E. THE TOTAL SALE CONSIDERATION AS R EDUCED BY THE DEPB CREDIT ALLOWED BY THE GOVERNMENT) THAT HAS TO BE REDUCED FROM THE PROFITS OF THE BUSINESS. THE LD. CIT (A) HAS ERRED IN HOLDING THAT IT IS 90% OF THE TOTAL SALE CONSIDE RATION THAT HAS TO BE REDUCED FROM THE PROFITS OF THE BUSINESS. 1.3 THAT WITHOUT PREJUDICE TO THE FOREGOING GROUNDS THE LD. CIT (A) HAS ERRED IN NOT DIRECTING THE A.O. TO COMPUTE TH E DEDUCTION U/S 80HHC ON THE BASIS OF THE INCOME ASSESSE D UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS AND NOT ON THE BASIS OF THE BUSINESS PROFITS SHOWN IN THE RETURN OF INCOME F OR THE PURPOSES OF DETERMINING WHETHER THERE WAS POSITIVE OR N EGATIVE INCOME. HE HAS IGNORED THE DEFINITION OF PROFITS OF BUSINESS AS DEFINED IN CLAUSE (BAA) OF THE EXPLANATION TO SECTION 8 0HHC. 1.4 THAT WITHOUT PREJUDICE TO THE FOREGOING GROUNDS THE LD. CIT (A) FAILED TO APPRECIATE THAT NOTWITHSTANDING THE FACT TH AT THE TURNOVER OF THE APPELLANT EXCEEDED RS.10 CRORES THE APPELLANT IS STILL ENTITLED TO DEDUCTION UNDER THE PROVISO INSERTED IN SUB SECTION (3) OF SECTION 80HHC FOR THE REASON THAT THE APPELLANT HAD NO OPTION OF EXERCISING THE OPTION BETWEE N DUTY DRAW BACK AND DEPB THE DEPB BEING THE ONLY SCHEME APPLICABLE TO THE APPELLANT. 2.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT (A) HAS ERRED IN SUSTAINING DISALLOWANCE OF RS.2228232/- OUT OF INTEREST PAID BY THE APPELLANT IN RE SPECT OF OVERDRAFT/CASH CREDIT ACCOUNT THE DISALLOWANCE HAVING BEEN CALCULATED WITH REFERENCE TO THE INTEREST FREE DEBIT BALAN CE IN THE ACCOUNT OF THE SISTER CONCERN M/S KESHO RAM INDUSTRI ES. 2.2 THAT THE IMPUGNED DISALLOWANCE OF RS.2228232/- OU T OF INTEREST PAYMENT IS WHOLLY ARBITRARY ERRONEOUS AND ILL EGAL IN AS MUCH AS HE FAILED PROPERLY TO APPRECIATE AND ATTACH DUE WEIGHT TO THE FOLLOWING FATS AND EVIDENCE OF THE CASE: (A) THAT THE APPELLANT HAD ITS OWN INTEREST FREE FUNDS AGGREGATING TO RS.22.72 CRORES AT THE BEGINNING OF THE Y EAR AND RS.24.37 CRORES AT THE END OF THE YEAR WHICH FAR EXCEEDED THE INTEREST FREE ADVANCES OF ONLY RS.1.70 CR ORES AT THE BEGINNING OF THE YEAR AND 1.67 CRORES AT THE END OF THE YEAR IN THE ACCOUNT OF THE SISTER CONCERN. (B) THAT IT WAS A CASE OF MIXED FUNDS AND INTEREST FREE FUNDS NAMELY TRADING RECEIPTS PARTNERS CONTRIBUTIONS INTERES T FREE BORROWINGS AND PROFITS OF THE BUSINESS INCLUDING THOSE OF THE ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 3 CURRENT YEAR WERE DEPOSITED IN THE SAME COMMON CASH CR EDIT ACCOUNT NAMELY PUNJAB & SIND BANK AND IT CANNOT BE PRESUMED THAT INTEREST FREE ADVANCES COULD NOT BE MADE O UT OF INTEREST FREE FUNDS LYING DEPOSITED IN THE SAID ACCO UNT. (C) THAT CASH PROFITS GENERATED DURING THE YEAR AND LYI NG DEPOSITED IN THE CASH CREDIT ACCOUNT ALONE AMOUNTED TO 3. 09 CRORES. 2.3 THAT WITHOUT PREJUDICE TO THE FOREGOING GROUND AND WITHOUT IN ANY MANNER DETRACTING THEREFROM IN ANY CASE THE LD. CIT (A) HAS ERRED IN DISALLOWING INTEREST ON THE OPENI NG DEBIT BALANCE I.E. THE DEBIT BALANCE AS ON 01.04.2000 IN TH E ACCOUNT OF THE SISTER CONCERN ON WHICH NO INTEREST HAS BEEN DI SALLOWED BY THE DEPARTMENT IN THE EARLIER YEARS I.E. PRIOR TO 01 .04.2000. THE DISALLOWANCE OF RS.2228232/- WAS THEREFORE ARBITR ARY AND SHOULD HAVE BEEN RESTRICTED TO THE TRANSACTIONS IN THE ACC OUNT DURING THE RELEVANT YEAR. 2.4 THAT WITHOUT PREJUDICE TO FOREGOING GROUNDS NO.2.1 2.2 AND 2.3 THE LD. CIT (A) HAS FURTHER ERRED IN NOT EXCLU DING FROM THE DEBIT BALANCE IN THE ACCOUNT OF THE SISTER CONCERN THE AMOUNTS OF TRADE DEBITS MADE IN THE ACCOUNT IN THE EARLIE R YEARS. 2.5 THAT WITHOUT PREJUDICE THE CREDIT BALANCE IN THE SAI D BANK ACCOUNT STOOD REDUCED TO RS.8949153/- AS ON 01.04.2001 RS.969088/- AS ON 20.06.2001 AND RS.2693322/- AS ON 13.11.2001 AS AGAINST WHICH ADVANCES TO SISTER CONCERN AMOUNTED TO RS.1.70 CRORES AT THE BEGINNING OF THE YEAR AND RS.1.67 CRORES AS ON 31.02.2002. WITHOUT PREJUDICE THE DISALLOWANCE COULD AT WORST BE CONFINED TO INTEREST ON TH E SUM OF RS.8949153/- BEING THE OPENING BALANCE IN THE CASH CREDIT ACCOUNT. SUCH INTEREST @ 14.50% ON RS.8949153/- WORKE D OUT TO RS.1297627/- ONLY. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN SUSTAINING DISALLOWANCE TO THE EXTENT OF RS.4377897/- BEING 15% OF THE TOTAL POLISHING CHARG ES OF RS.29185982/- PAID BY THE APPELLANT. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN OBSERVING THAT IT WAS ONLY WHEN THE APPELLANT WAS CONFRONTED WITH THE FACT THAT THE APPELLANT HA D WRONGLY CLAIMED DEPRECIATION IN RESPECT OF FIXED ASSE TS AT KUNDLI FOR THE FULL YEAR INSTEAD FOR OF THE HALF YEAR AS THE F ACTORY HAD COMMENCED EFFECTIVE COMMERCIAL PRODUCTION DURING OCTOB ER 2000. THE LD. CIT (A) FAILED TO CONSIDER THAT THE TRIAL OF THE MANUFACTURING HAVING COMMENCED IN SEPTEMBER 2001 THE APPELLANT WAS JUSTIFIED IN CLAIMING FULL DEPRECIATION. HE FURTHER FAILED TO APPRECIATE THAT THE APPELLANT WITHOUT ANY ENQUIRY ON ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 4 THE POINT BY THE LD. A.O. HAD VOLUNTARILY BROUGHT THE ABO VE FACT TO THE NOTICE OF THE LD. A.O. 5. THE APPELLANT CRAVES PERMISSION TO AMEND ALTER WITHDRAW OR ADD ANY GROUND OF APPEAL AT THE TIME OF HEA RING OF THE APPEAL. 1.1 THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E LD. CIT (A) HAS ERRED IN RESTRICTING THE DISALLOWANCE ON A CCOUNT OF POLISHING CHARGES AT RS.4377897/- OUT OF THE ADDITION M ADE BY THE A.O. THE APPELLANT RAVES LEAVE FOR PERMISSION FOR ADDITION/ALTERATION TO THE GROUND OF APPEAL DURING THE CO URSE OF HEARING. 1.2 THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS AND IT WAS REQUESTED THAT THE SAME MAY BE ADMITTED BEI NG LEGAL GROUNDS:- THAT THE RETROSPECTIVE APPLICATION WITH EFFECT FROM 1.4.1998 OF THE PROVISO TO SECTION 80HHC BY TAXATION LA WS (AMENDMENT) ACT 2005 WAS ULTRA VIRES AND CONSTITUTIONALL Y INVALID. 2. REFERRING TO THE ADDITIONAL GROUNDS IT WAS SUBMITT ED BY THE LEARNED AR THAT THE AFOREMENTIONED GROUND IS A LEGAL GROUND AND SHOULD BE ADMITTED. AFTER HEARING BOTH THE PARTIES WE FIND THAT IN THE AFOREMENTIONED ADDITIONAL GROUND THE ASSESSEE HAS CHALLE NGED THE CONSTITUTIONAL VALIDITY OF THE PROVISIONS OF SECTION 8 0HHC AND IT WAS POINTED OUT TO THE LD. COUNSEL THAT THE TRIBUNAL HAS NO AUTHORITY TO EXAMINE THE CONSTITUTIONAL VALIDITY OF THE PROVISIONS AS THE TRIBUNAL IS AN AUTHORITY CONSTITUTED UNDER THE PROVISIONS OF THE I NCOME-TAX ACT 1961. THEREFORE AFTER HEARING BOTH THE PARTIES WE DECLINE TO ADMIT THE AFOREMENTIONED ADDITIONAL GROUND RAISED BY THE A SSESSEE AS THE SUBJECT MATTER OF THE AFOREMENTIONED ADDITIONAL GROU ND CANNOT BE ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 5 ADJUDICATED BY THE TRIBUNAL AND IF IT CANNOT BE ADJ UDICATED THEN THE QUESTION OF ADMISSION THEREOF DOES NOT ARISE. THE ADDIT IONAL GROUND RAISED BY THE ASSESSEE IS DISMISSED IN THE MANNER AFORESAID. 3. NOW COMING TO THE GROUNDS RAISED BY THE ASSESSEE GRO UND NOS.1.1 TO 1.4 RELATES TO GRANT OF DEDUCTION TO THE A SSESSEE U/S 80HHC ON THE STRENGTH OF DEPB CREDIT. THE TURNOVER OF THE ASSESSEE EXCEEDS ` 10 CRORE. RECENTLY HONBLE SUPREME COURT VIDE DE CISION IN THE CASE OF M/S TOPMAN EXPORTS VS. CIT IN CIVIL APPEAL NO.1699 OF 2012 ARISING OUT OF SLP (C) NO.26558 OF 2010 DATED 8 TH FEBRUARY 2012 HAS UPHELD THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN M /S TOPMAN EXPORTS AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICALS HAS BEEN OVERRULED. A FTER HEARING BOTH THE PARTIES WE CONSIDER IT JUST AND PROPER TO RE STORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO DECID E THE ISSUE RAISED BY THE ASSESSEE WITH REGARD TO DEDUCTION U/S 80HHC ON TH E BASIS OF THE AFOREMENTIONED DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S TOPMAN EXPORTS AFTER GIVING THE ASSESSEE A REASONABLE OPP ORTUNITY OF HEARING IN THIS REGARD AND AFTER BRINGING ALL THE RE LEVANT FACTS ON RECORD. WE DIRECT ACCORDINGLY. THESE GROUNDS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID . 4. SO AS IT RELATES TO GROUND NOS.2.1 TO 2.5 IT HAS BE EN THE CONTENTION OF THE LEARNED AR THAT THOUGH THIS ISSUE HA S BEEN DECIDED AGAINST THE ASSESSEE BUT ON FACTS THE MATTER SHOULD BE R ESTORED BACK TO THE FILE OF ASSESSING OFFICER. HE SUBMITTED THAT THE DISALLOWANCE HAS WRONGLY BEEN CALCULATED BY THE ASSESSING OFFICER. ACCO RDING TO HIS CONTENTION THE INTEREST DISALLOWANCE SHOULD BE RESTRIC TED ONLY TO THE AMOUNTS WHICH ARE LINKED OR FOUND TO BE ADVANCED BY THE ASSESSEE AS THE INTEREST FREE ADVANCES OUT OF ITS CASH CREDIT LIMIT ON WHICH THE INTEREST PAID HAS BEEN CLAIMED. THE FACTS RELATING TO THIS ISSUE ARE THAT ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 6 THE ASSESSING OFFICER HAD FOUND THAT THE ASSESSEE HAD DEBIT ED ` 1 00 34 524/- TO THE PROFITS & LOSS ACCOUNT UNDER TH E HEAD INTEREST AS FOLLOWS:- (A) PAYMENTS TO BANK RS. 99 72 508/- (B) PAYMENTS TO PARTNERS ON THEIR FIXED CAPITAL @ 18% PER ANNUM RS. 1 80 000/- (C) PAYMENT TO KOTAK MAHINDRA PVT. LTD. RS. 39 456/- TOTAL RS.1 01 91 964/- LESS : INTEREST RECEIVED ON FDRS RS. 1 57 440/- NET INTEREST DEBITED IN P&L A/C RS.1 00 34 524/ - 5. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS ALSO PAYING HUGE INTEREST ON FUNDS BORROWED B Y IT FROM BANK. ON THE OTHER HAND IT WAS MAKING INTEREST FREE ADVANCES TO ITS SISTER CONCERN NAMELY M/S KESHO RAM INDUSTRIES AGAINST W HOSE NAME THE INTEREST FREE ADVANCES AS AT THE END OF THE YEAR H AVE BEEN SHOWN AT ` 1 66 63 346/-. IT IS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THESE INTEREST FREE ADVANCES WERE MADE BY THE ASSESSEE TO ITS SISTER CONCERN OUT OF PUNJAB AND SIND BANK CURRENT A/C NO .40 AND THERE IS A DIRECT NEXUS BETWEEN INTEREST BEARING FUNDS AND INTERE ST FREE ADVANCES AND THUS IT IS A CASE OF DIVERSION OF INTEREST FREE FUNDS OUT OF BORROWED FUNDS FOR MAKING INTEREST FREE ADVANCES. IN THIS MANNER THE ASSESSING OFFICER CALCULATED THE DISALLOWANCE @ 14.5 % BY WORKING OUT A DISALLOWANCE OF ` 22 28 232/-. THE ASSESSEE MADE VARIOUS SUBMISSIONS TO THE ASSESSING OFFICER SHOWING THAT AMPLE INTE REST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE. IT WAS ALSO SUBMIT TED THAT THERE WERE CASH CREDITS GENERATED OUT OF WHICH SUCH FU NDS CAN BE SAID TO HAVE BEEN ADVANCED AND THUS IT WAS PLEADED THAT THE DISALLOWANCE SHOULD NOT BE MADE. ALTERNATIVELY IT WAS SUBMITTED T HAT TOTAL OVERDRAFT BALANCE IN THE CASH CREDIT ACCOUNT WAS ONLY ` 92 61 795/- AS ON 1 ST APRIL 2001 AND ` 9 69 088/- AS ON 20 TH JUNE 2001 AND ` ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 7 26 93 322/- AS ON 13 TH NOVEMBER 2001 AND THUS THE DISALLOWANCE AT WORST CAN BE CONFIRMED TO THE DEBIT BALANCE IN THE C ASH CREDIT ACCOUNT AND NOT ON THE ENTIRE LOAN ADVANCED TO THE SISTER CON CERN. LEARNED CIT (A) HAS REJECTED ALL THESE CONTENTIONS OF THE ASSESSEE AND HAS CONFIRMED THE DISALLOWANCE. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. ADMIT TEDLY THE ISSUE IN EARLIER YEARS HAS BEEN DECIDED AGAINST THE ASSESSEE AND THE ORDER OF THE TRIBUNAL UPHOLDING SUCH DISALLOWANCE HAS ALSO BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT AND THE D ECISION IS STATED TO BE REPORTED AS 324 ITR 396. THE ASSESSEE WAS HAVING OPEN ING DEBIT BALANCE IN THE ACCOUNT OF M/S KESHO RAM INDUSTRIES OF ` 1 75 49 633/- WHICH HAS BEEN REDUCED TO ` 1 66 63 346.35 AS AT THE END OF THE YEAR. THEREFORE THE AMOUNT ON WHICH INTEREST DISALLOWANCE HAS BEEN CONFIRMED UPTO 31 ST MARCH 2001 IS A SUM OF ` 1 75 49 633.35. NOW IT HAS BEEN THE CONTENTION OF THE ASSESSEE THAT THE DEBIT B ALANCE IN THE ACCOUNT OF KESHO RAM INDUSTRIES HAS DECREASED TO ` 1 66 63 346 AS AT THE END OF THE YEAR. IT IS ALSO THE CASE OF THE ASSESSEE THAT DURING THE YEAR CERTAIN PAYMENTS WERE RECEIVED AND GIVEN AND T HEREFORE DISALLOWANCE OF INTEREST SHOULD BE RESTRICTED TO THE AM OUNT ACTUALLY UTILIZED BY THE ASSESSEE FOR THIS PURPOSE OUT OF INTEREST BEARING BORROWED FUNDS. IT IS ALSO THE CASE OF THE ASSESSEE THAT F OR COMPUTING SUCH DISALLOWANCE REFERENCE SHOULD ALSO BE MADE TO THE BANK ACCOUNT OF THE ASSESSEE ON WHICH IT HAS PAID THE INTEREST. THE T OTAL INTEREST BURDEN OF THE ASSESSEE AS DESCRIBED EARLIER IS A SUM OF ` 1 01 91 964/- OUT OF WHICH THE MAJOR AMOUNT OF INTEREST PAID BY TH E ASSESSEE TO BANK IS A SUM OF ` 99 72 508/-. THE ASSESSING OFFICER HAS GIVE N THE CALCULATION OF INTEREST IN ANNEXURE-A ATTACHED TO TH E ASSESSMENT ORDER. HE HAS WORKED OUT THE DEBIT IN THE ACCOUNT OF M/S KESH O RAM INDUSTRIES ON DAY-TO-DAY BASIS WITHOUT RELATING THE SAME TO THE BANK ACCOUNT OF THE ASSESSEE OUT OF WHICH THE AMOUNT HAS BEEN STATED TO BE ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 8 PAID. THE AMOUNT WHICH HAS BEEN OBTAINED BY THE ASSESSE E FROM THE AFOREMENTIONED CURRENT ACCOUNT AND DIRECTLY ADVANCE D TO M/S KESHO RAM INDUSTRIES SHOULD BE CONSIDERED FOR DISALLOWANCE. T HEREFORE THE DISALLOWANCE SHOULD BE COMPUTED BY TAKING THE AFOREME NTIONED AMOUNT OF ` 1 75 49 633/- AS ON 1 ST APRIL 2001 AS BEING UTILIZED BY THE ASSESSEE OUT OF INTEREST BEARING FUNDS AS UPTO THE SAID DAT E THE INTEREST DISALLOWANCE IS MADE AND SUSTAINED ONLY ON THE BASIS THAT FOR MAKING SUCH ADVANCE THE ASSESSEE HAS UTILIZED THE INTEREST BEARING BORROWED FUNDS AND IT HAS SO BEEN ESTABLISHED BY THE ORD ER OF TRIBUNAL FOR ASSESSMENT YEAR 2001-02 WHICH HAS BEEN CONFIRMED BY HONBLE HIGH COURT. THEREAFTER THE DECREASING OR INCREASING DEBIT BALANCE SHOULD BE CONSIDERED ON DAY-TO-DAY BASIS AND IF THE SAID AMOUNT HAS COME FROM THE INTEREST BEARING BORROWED FUNDS OF THE ASSESSEE AND IT HAS BEEN DIRECTLY ADVANCED TO KESHO RAM INDUSTRIES ACCO UNT THEN THE SAME SHOULD BE TAKEN FOR THE PURPOSE OF DISALLOWANCE OF INTEREST. THEREFORE ON PRINCIPLE WE HOLD THAT THE DISALLOWANC E HAS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER BUT IT HAS TO BE CALCULAT ED IN THE MANNER THAT OPENING BALANCE OF ` 1 75 49 633.35 SHOU LD BE CONSIDERED TO BE MADE OUT OF INTEREST BEARING BORROWED FUND AND THEREAFTER DAY- TO-DAY CALCULATION SHOULD BE MADE AND IF THE AMOUNT IS FOUND TO BE ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN OUT OF INTE REST BEARING BORROWED FUNDS WHICH INCLUDE THE ASSESSEES AFOREMENTION ED CURRENT ACCOUNT IN PUNJAB & SIND BANK THEN RELATED DISALLOW ANCE SHOULD BE MADE. WE DIRECT ACCORDINGLY. FOR STATISTICAL PURPOSE S THIS GROUND OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED IN THE MANNER A FORESAID. THEREFORE THE GROUND NOS.2.1 TO 2.5 ARE DISPOSED OF I N THE MANNER AFORESAID. 7. SO AS IT RELATES TO GROUND NO.3 OF THE ASSESSEE WHICH IS COMMON WITH THE GROUND RAISED BY THE DEPARTMENT THE DISALLO WANCE ON ACCOUNT OF POLISHING CHARGES WAS MADE BY THE ASSESSING OFFICER TO THE EXTENT ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 9 OF ` 2 91 85 982/- AND THIS DISALLOWANCE HAS BEEN SUSTAI NED TO THE EXTENT OF 15% BY THE CIT (A) WHICH IS COMPUTED AT ` 43 77 897/-. IT WAS SUBMITTED THAT THIS GROUND IS COVERED BY THE EARLIE R DECISION OF THE TRIBUNAL THE COPIES OF WHICH WERE PROVIDED TO US AND ARE PLACED ON RECORD. THIS ISSUE WAS FIRST DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 26 TH NOVEMBER 2009 IN WHICH THE ORDER OF THE CIT (A) WAS UPHELD IN WHICH 15% DISALLOWANCE WAS C ONSIDERED PROPER. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FR OM THE SAID DECISION ARE REPRODUCED BELOW:- 9.8 FROM FACTS DISCUSSED ABOVE IT IS CLEAR THAT THE AS SESSEE HAS NOT LED SUFFICIENT EVIDENCE TO PROVE THE GENUINENES S OF ITS CLAIM OF POLISHING EXPENSES OF RS.3 02 74 918/-. F ROM THE ORDERS OF TAX AUTHORITIES BELOW IT BECOMES CLEAR THAT THE Y HAVE NOT DISPUTED THAT IN THE MANUFACTURING BUSINESS OF UTENSIL S THE ASSESSEE HAS TO INCUR THE POLISHING EXPENSES. ON THE FACE OF ITS 50% OF DISALLOWANCE MADE BY THE ASSESSING OFFICER OU T OF THE TOTAL ASSESSEES CLAIM OF POLISHING ESPECIALLY WITHOU T ANY BASIS IS DEFINITELY ON A HIGHER SIDE WHEREAS 15% DISALLOW ANCE MADE BY THE LD. CIT (A) APPEARS TO BE QUITE FAIR AND REASON ABLE. ACCORDINGLY THE ORDER OF THE LD. CIT (A) IN RESTRICTIN G THE DISALLOWANCE @ 15% AS DETAILED IN HIS ORDER IS UPHE LD AND GROUND OF APPEAL TAKEN BY THE REVENUE AND GROUND OF TH E APPEAL OF THE ASSESSEE ARE REJECTED. 8. THEREAFTER THE TRIBUNAL FOLLOWED THIS DECISION FO R ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 18 TH JUNE 2010 AND ALSO FOR ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 27 TH JANUARY 2011. THEREFORE AFTER HEARING BOTH THE PARTIES WE DECLINE TO INTERFERE I N THE ORDER PASSED BY THE LEARNED CIT (A) ON THIS ISSUE AND THIS GROUND IN BOTH THE APPEALS IS DISMISSED. 9. GROUND NO.4 OF THE ASSESSEE RELATES TO GRANT OF DEPRE CIATION IN RESPECT OF FIXED ASSETS AT KUNDLI. IT HAS BEEN NOTED IN THE ASSESSMENT ORDER THAT EFFECTIVE COMMERCIAL PRODUCTION OF THIS P LANT WAS COMMENCED IN THE OCTOBER 2001 ONLY THEREFORE A.O . RESTRICTED THE DEPRECIATION TO 50% AND HAS MADE DISALLOWANCE OF ` 27 27 488/-. ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 10 LEARNED CIT (A) HAS UPHELD THIS DISALLOWANCE ON THE GR OUND THAT THE ASSESSEE DID NOT PLACE ON RECORD DOCUMENTARY EVIDENCE T O SUBSTANTIATE ITS CONTENTION THAT TRIAL PRODUCTION OF T HE PLANT TOOK PLACE MUCH EARLIER IN AUGUST-SEPTEMBER 2001. THE LEARNED AR WAS REQUIRED TO SUBMIT WHAT IS THE DOCUMENTARY EVIDENCE ACCORDING TO WHICH IT CAN BE SAID THAT THE TRIAL PRODUCTION OF THE SAID UNIT HA D STARTED IN AUGUST- SEPTEMBER 2001. HE EXPRESSED HIS INABILITY TO PRODUC E ANY DOCUMENTARY EVIDENCE IN THIS REGARD. HOWEVER HE SUB MITTED THE COMMENCEMENT OF COMMERCIAL PRODUCTION IS IN OCTOBER 2001 ITSELF ESTABLISHES THE FACT THAT THE TRIAL PRODUCTION HAD COM MENCED MUCH BEFORE THAT. WE DO NOT FIND ANY SUBSTANCE IN SUCH ARG UMENT OF THE LEARNED AR. IN THE ABSENCE OF ANY EVIDENCE WHICH EST ABLISHES THAT TRIAL PRODUCTION TOOK PLACE IN AUGUST-SEPTEMBER 2001 WE DECLINE TO INTERFERE IN THE SUSTENANCE OF DISALLOWANCE. THERE IS N O MATERIAL BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE THAT TR IAL PRODUCTION HAD ACTUALLY COMMENCED IN THE MONTH OF AUGUST SEPTE MBER 2001. THEREFORE THIS GROUND OF THE ASSESSEE IS REJECTED. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID AND THE DEPARTMENTAL APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 29.02.20 12. SD/- SD/- [B.C. MEENA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 29.02.2012. DK ITA NO.1786/DEL/2006 ITA NO.1910/DEL/2006 11 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES