Bharath Beedi Works Pvt. Ltd.,, Mangalore v. Joint Commissioner of Income-Tax, Mangalore

ITA 1903/BANG/2016 | 2007-2008
Pronouncement Date: 29-11-2017 | Result: Dismissed

Appeal Details

RSA Number 190321114 RSA 2016
Assessee PAN AAACB9001B
Bench Bangalore
Appeal Number ITA 1903/BANG/2016
Duration Of Justice 1 year(s) 17 day(s)
Appellant Bharath Beedi Works Pvt. Ltd.,, Mangalore
Respondent Joint Commissioner of Income-Tax, Mangalore
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 29-11-2017
Date Of Final Hearing 03-02-2017
Next Hearing Date 03-02-2017
First Hearing Date 03-02-2017
Assessment Year 2007-2008
Appeal Filed On 11-11-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA ACCOUNTANT MEMBER A ND SHRI LALIET KUMAR JUDICIAL MEMBER APPEAL NO. ASSESSMENT YEARS APPELLANT RESPONDENT ITA NO. 233/BANG/2001 1998-99 THE JOINT COMMISSIONER OF INCOME TAX (ASST.) SPECIAL RANGE MANGALORE. M/S. BHARATH BEEDI WORKS LTD. BHARATH BAGH KADRI ROAD MANGALORE 575 003. ITA NO. 237/BANG/2001 1998-99 M/S. BHARATH BEEDI WORKS LTD. BHARATH BAGH KADRI ROAD MANGALORE 575 003. THE JOINT COMMISSIONER OF INCOME TAX (ASST.) SPECIAL RANGE MANGALORE. ITA NO. 3442 & 3769/BANG/2004 2000-01 & 2001-02 M/S. BHARATH BEEDI WORKS PVT. LTD. BHARATH BAGH KADRI ROAD MANGALORE 575 003. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1) MANGALORE. ITA NO. 1903/BANG/2016 2007-08 M/S. BHARATH BEEDI WORKS PVT. LTD. 15-07-366/1 BHARATH BAGH KADRI ROAD MANGALORE 575 003. PAN: AAACB 9001B THE JOINT COMMISSIONER OF INCOME TAX RANGE 2 MANGALORE. ASSESSEE BY : SMT. SHEETAL BORKAR ADVOCATE REVENUE BY : SHRI N. SUKUMAR ADDL. CIT (DR) DATE OF HEARING : 1 3 . 09 .201 7 DATE OF PRONOUNCEMENT : 29 .11 .2017 O R D E R PER BENCH: OUT OF THESE FIVE APPEALS THERE IS ONE APPEAL OF REVENUE FOR ASSESSMENT YEAR 1998-99 AND THE REMAINING FOUR APPEALS ARE FILED BY THE ASSESSEE IN RESPECT OF ASSESSMENT YEARS 1998-99 2000-01 2001-02 AND 2007 -08. 2. HISTORY OF THESE CASES IS AS FOLLOW. ALL THESE A PPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ALL THESE APPEALS WERE EARLIER DISPOSED OF BY THE T RIBUNAL IN THE YEAR 2007 ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 2 OF 23 AGAINST WHICH THE MATTER WAS CARRIED BY THE REVENUE IN APPEAL BEFORE HON'BLE KARNATAKA HIGH COURT AND AS PER JUDGMENT DATED 17.1 2.2013 IN INCOME TAX APPEAL NO. 800 OF 2007 THE MATTER IN RESPECT OF AS SESSMENT YEAR 2000-01 HAS BEEN RESTORED BACK TO TRIBUNAL FOR FRESH DECISION. SIMILARLY AS PER JUDGMENT OF HON'BLE KARNATAKA HIGH COURT DATED 17.12.2013 PASSE D IN ITA NO. 798/2007 THE MATTER IN RESPECT OF ASSESSMENT YEAR 2001-02 WAS AL SO RESTORED BACK TO THE FILE OF TRIBUNAL FOR FRESH DECISION. IT IS ALSO NOTED I N THE ORDER SHEET ENTRY DATED 25.02.2015 THAT SIMILAR ISSUE WAS CONSIDERED BY HON 'BLE KARNATAKA HIGH COURT IN ITA NO. 2156/2005 IN ASSESSMENT YEAR 1998-99 AND TH E MATTER WAS REMITTED BACK TO THE TRIBUNAL FOR FRESH CONSIDERATION. THE APPEAL FOR ASSESSMENT YEAR 1998-99 WAS NOT POSTED FOR FRESH HEARING BECAUSE TH E REGISTRY WAS AWAITING THE REMITTANCE OF ORIGINAL RECORD FOR THAT YEAR FROM TH E FROM HIGH COURT. IN THIS MANNER THE APPEALS FOR ASSESSMENT YEAR 1998-99 20 00-01 2001-02 WERE PENDING BEFORE THE TRIBUNAL SINCE LONG AND THE APPE AL FOR ASSESSMENT YEAR 2007-08 WAS FILED BY THE ASSESSEE ON 11.11.2016. E VEN AFTER 25.02.2015 THESE APPEALS WERE FIXED FOR HEARING ON SEVERAL DATES BUT FOR ONE REASON OR OTHER HEARING COULD NOT TAKE PLACE. THEREAFTER ON 02.03. 2017 THESE APPEALS WERE HEARD BUT THE MATTER WAS RELEASED SUBSEQUENTLY AS T HE ORDER COULD NOT BE PASSED WITHIN 90 DAYS OF THE HEARING. UNDER THESE FACTS AND IN VIEW OF THIS FACT THAT THESE APPEALS ARE VERY OLD APPEALS BOTH SIDES AGREED THAT THESE APPEALS MAY BE TAKEN AS HEARD AND BOTH SIDES WILL FILE WRIT TEN SUBMISSIONS AND ON THAT BASIS THESE APPEALS MAY BE DISPOSED OF AFTER CONSI DERING WRITTEN SUBMISSIONS BY BOTH SIDES. ACCORDINGLY BOTH HAVE FILED WRITTE N SUBMISSIONS BEFORE US. THE SAME ARE REPRODUCED HEREIN BELOW. THE WRITTEN SUBM ISSIONS FILED BY LD. AR OF ASSESSEE ARE AS UNDER. ASSESSEE'S APPEAL FOR AY 1998-99 ITA NO. 237/01 GROUND NO. 1 TO 7 IS RELATING TO EXCISE DUTY INCLUDED IN CLOSING STO CK IT IS SUBMITTED THAT CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE LD. AO TO THE INCOME OF THE APPELLANT BEING EXCISE DUTY PAYABLE ON LABELED AND UNLABELLED BEEDIES IN CLOSING STOCK WIT HOUT APPRECIATING THE SUBMISSION OF THE APPELLANT THAT EXCISE DUTIES WERE PAID BEFORE FILING THE RETURN OF INCOME. A COPY OF SAME IS ENCLOSED AS ANN EXURE A. FURTHER THE CIT(A) ALSO FAILED TO APPRECIATE THAT IF THE CLOSING STOCK IS ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 3 OF 23 INCREASED THE OPENING STOCK ALSO HAS TO BE REVISED TO AVOID DISTORTION IN PRESENTATION OF ACCOUNTS. FURTHER IT IS SUBMITTED T HAT THE PROCESS OF MANUFACTURING IS COMPLETE ONLY WHEN THE BEEDIES ARE LABELED PACKED AND CLEARED FROM THE FACTORY. INCIDENCE OF EXCISE D UTY ARISES ONLY WHEN THE MANUFACTURED BEEDIES ARE CLEARED FROM THE FACTO RY EITHER TO MARKET OR TO DUTY PAID GODWN AND NOT BEFORE THAT. FURTHER IT IS TO BE NOTED THAT SECTION 43B CANNOT BE INVOKED UNLESS THE SPECI FIED AMOUNTS IN THE SECTION ARE PROVIDED FOR IN THE ACCOUNTS ARE OUTSTA NDING IN THE BALANCE SHEET. GROUND NO. 8 9 10 11 & 12 RESTRICTING INTEREST TO 18% AS AGAINST 21% IT IS SUBMITTED THAT THE AO HAS DISALLOWED 3% INTER EST P.A. STATING THAT THE RATE OF INTEREST IS EXCESSIVE AS COMPARED TO IN TEREST CHARGED BY COMMERCIAL BANK WHICH WAS ESTIMATED AT 18% P.A. BY THE ASSESSING OFFICER WITHOUT APPRECIATING THAT THE SAME WAS PAID AS PER THE BOARD RESOLUTION COPY OF WHICH IS ENCLOSED AS ANNEXURE B (PAGE 11). FURTHER ALL DEPOSITS WERE BROUGHT FROM EARLIER YEA R ON WHICH INTEREST @ 21% WAS PAID AND ALLOWED BY THE DEPARTME NT AND THERE ARE NO FRESH FACTS OR CHANGE IN SITUATION IN ALLOWI NG INTEREST AT LOWER RATE SINCE CONSISTENCY HAS TO FOLLOWED BY DEPARTMEN T. FURTHER IT IS ALSO SUBMITTED THAT INTEREST CHARGED BY COMMERCIAL BANK IS NOT A BENCH MARK TO INDICATE THE PREVAILING INTEREST RATE PAYABLE ON BORROWING FROM NON BANKING SOURCES SUCH AS NDFCS I NDIVIDUAL LENDERS ETC. FURTHER IT IS A WELL KNOWN FACT THAT BANK CREDIT IS FREELY NOT AVAILABLE AND IT IS SADDLED WITH PRESCRIBED PRO CEDURES FURTHER COMMERCIAL BANKS CHARGE INTEREST ON QUARTERLY REST WHICH WORKS OUT TO BE HIGHER RATE ON ANNUAL BASIS. FURTHER BY CONS IDERING ALL THE COSTS ATTACHED TO BANK IT WORKS OUT TO BE MORE THAN 23%. IT IS ALSO BROUGHT TO RECORD THAT DEPOSIT RECEIVED WERE UNSECU RED AND UNENCUMBERED AND AS SUCH EXPENSIVE PROCEDURE OF PRO VIDING SECURITY AND MORTGAGE OF PROPERTY DOESN'T ARISE. HE NCE INTEREST OF 21% ON SUCH DEPOSIT WAS REASONABLE JUSTIFIED. EVEN THE INCOME TAX ACT ITSELF PROVIDES INTEREST ON CAPITAL @18% P.A. T HEREFORE THE INTEREST CHARGED AT 21% IS REASONABLE AND JUSTIFIED AND SHOULD BE ALLOWED. WE FURTHER SUBMIT THAT THE LD A O IS NOT JUSTIFIED IN TRAVELLING BEYOND HIS SCOPE OF ASSESSMENT AND ASSUMING THE SHO ES OF THE MANAGEMENT AND THEREBY PRESUMING THE NEED OF BORROW AL AND TIMING OF THE BORROWAL THAT THE ASSESSE OUGHT TO HAVE FOLL OWED WITHOUT UNDERSTANDING THE NATURE ASSESSEE'S BUSINESS. WE BE G TO SUBMIT THAT THE ASSESSE NEED TO HAVE SUFFICIENT LIQUID FUNDS IN THE FORM OF BANK FD'S ETC IN THE BUSINESS AS MAJOR PART OF THE COST IS LABOUR/WAGES PAYMENT YEARLY PROCUREMENT OF THE RAW MATERIALS A ND VOLATILE FLUCTUATIONS IN RAW MATERIAL PRICES ETC. THESE FACT S HAVE BEEN COMPLETELY OVERLOOKED BY THE LD A O AND ALSO LD.CIT (A) BUSINESS ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 4 OF 23 DEPARTMENTAL APPEAL FOR THE AY 1998-99 GROUND NO. 2 RESTRICTING INTEREST @ 18% WHEN THE BORROWINGS ARE NOT RELATING TO ASSESSEE'S BUSINESS. THE FINDING FOR THE ABOVE ISSUE IS ON PAGE 14 PARA GRAPH 12 OF CIT(A) ORDER. IT IS SUBMITTED THAT INTEREST PAID ON CAPITAL BORRO WED WAS FOR THE PURPOSE OF BUSINESS ONLY AND THE APPELLANT HAS GONE ON RECORD TO ESTABLISH THE PURPOSE FOR WHICH THE ADDITIONAL AMOU NT WAS BORROWED AND THE SAME IS OUGHT TO BE ALLOWED U/S 36 (1)(III) OF THE ACT AS HELD BY THE HONBLE SUPREME COURT IN THE CAS E OF S.A. BUILDERS REPORTED IN 288 ITR 01(SC) 2006. FURTHER THE AO HAS NOT DISCHARGED THE ONUS OF PROVING OR ESTABLISHED THE F ACT THAT INCREMENTAL BORROWINGS HAS BEEN DIVERTED BY THE APP ELLANT TO AN ACTIVITY OTHER THAN ACTIVITY OF THE APPELLANT. FURT HER THE CIT(A) ONLY AFTER HAVING SATISFIED THE SAME THE CIT(A) RES TRICTED THE INTEREST @ 18% AS AGAINST 21% CLAIMED BY THE ASSESS EE. (PARAGRAPH 14 PAGE 17 OF CIT(A) ORDER) DEPARTMENT HAS ACCEPTED THE SAME IN WRITTEN SUBMISSIONS AND HENCE DEPARTMEN T CANNOT STEP INTO SHOES OF ASSESSEE. GROUND NO .3 UNEXPLAINED COST OF CONSTRUCTION. IT IS SUBMITTED THAT WHEN THE VALUATION MADE BY DVO AND COST OF CONSTRUCTION AS DECLARED BY THE ASSESSEE IN HIS BOO K IS MEAGER THE ACTUAL COST OF CONSTRUCTION HAS TO BE CONSIDERE D SINCE IT IS AN AUDITED BOOKS OF ACCOUNTS AND BOOKS ARE AUDITED AND NOT REJECTED BY THE AO. FURTHER THE SAME HAS BEEN APPRECIATED B Y THE CIT(A) IN PARAGRAPH 17 PAGE 17 OF CIT(A) ORDER. FURTHER W E WOULD ALSO LIKE TO PLACE RELIANCE ON DELHI HIGH COURT DECISION IN THE CASE OF CIT VS AMBIENCE DEVELOPERS AND INFRASTRUCTURE PVT L TD. COPIES ENCLOSED ASSESSEE'S APPEAL FOR AY 2000-2001 ITA NO 3442/04 GROUND NO. 2 - RESTRICTING INTEREST TO 18% AS AGAIN ST 21% (SAME AS 1998-99) GROUND NO. 3 - 14A THE ABOVE GROUND IS NOT PRESSED BY THE ASSESSEE GROUND NO. 4 AND 5 DEPRECIATION ON LORRIES BEING RESTRICTED @ 25% AS AGAINST 40% CLAIMED BY THE APPELLANT AS PER SCHE DULE ENCLOSED IT IS SUBMITTED THAT THE APPELLANT RUNS LORRIES ON HIRE TO TAKE BAZAAR LOADS OF CARGO FROM VARIOUS PLACES AND COLLE CTED LORRY ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 5 OF 23 HIRE AMOUNTS AND THE INCOME EARNED ON SUCH LORRY HI RE WAS ACCEPTED BY THE DEPARTMENT AS BUSINESS INCOME. CIT( A) ALSO DID NOT DISPUTE THE FACT THAT APPELLANT HAS CARRIED ON THE BUSINESS OF RUNNING THE MOTOR LORRIES ON HIRE. IN PRECIDING YEA RS IN SIMILAR SITUATIONS THE APPELLANT HAD CLAIMED THE DEPRECIATI ON @ 40% WHICH WAS ALLOWED AND HENCE A COPY OF THE ASSESSMEN T ORDER OF THE PREVIOUS YEAR WHICH IS 1998-99 AND 2006-07 AND THE SAME IS ENCLOSED AS ANNEXURE D FOR YOUR REFERENCE. FURTHER THE ASSESSING OFFICER HAS TO FOLLOW THE CO NSISTENCY IN THIS ISSUE WHILE CONCLUDING THE ASSESSMENT AS HELD BY VA RIOUS JUDICIAL PRECEDENCES. (I) ITO VS SRI DEV ENTERPRISE 192 ITR 165 (II) CIT VS SOUTH INDIA CORPORATION (AGENCIES) LTD 293 ITR 237 ASSESSEE'S APPEAL FOR AY 2001-2002 ITA NO 3769/04 GROUND NO. 2 3 & 4 - RESTRICTING INTEREST TO 18% A S AGAINST 21% (SAME AS 1998-99) GROUND NO 5 PENALTY ON DELAY IN PAYMENT OF ENTRY TAX THE ASSESSEE HAS NOT PRESSED THE ABOVE GROUND. GROUND NO. 6 DEPRECIATION ON LORRIES BEING RESTRI CTED @ 25% AS AGAINST 40% CLAIMED BY THE APPELLANT AS PER SCHEDUL E ENCLOSED (SAME AS 2000-2001) ASSESSEE'S APPEAL FOR AY 2007-2008 ITA NO 1903/20 16 GROUND NO. 1 DEPRECIATION ON LORRIES BEING RESTRI CTED @ 25% AS AGAINST 40% CLAIMED BY THE APPELLANT AS PER SCHEDUL E ENCLOSED GROUND NO. 2 PART OF ARREARS OF WAGES DISALLOWED U/S 43 B THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS 1 99 23 883/- AS EXCESS CLAIM OF PROVISION U/S 43B OF THE ACT. IT IS SUBMITTED THAT THE ARREARS OF WAGES WERE MADE AS PER TRI-PARTY AGREEME NT ENCLOSED WHICH ELABORATES THE METHOD CALCULATING BACK WAGES PAYABLE TO WORKERS WHO ARE IN SERVICE FROM 1.11.1996 AND REMAI NING IN SERVICE UPTO 5.10.2006 HENCE IT IS A CONTRACTUAL PAYMENT A S PER TRI-PARTY AGREEMENT AND SEC 43B DOES NOT APPLY AS PER THE DEC ISION OF KOLKATTA TRIBUNAL IN THE CASE OF SPENCER RETAIL LTD VS PCIT 2. FURTHER THE AGREEMENT DOES NOT SPECIFY THE MODUS O F COMPETITION OF BACK WAGES TO SUCH BEEDI WORKERS WHO HAD ONLY WORKE D FOR PART OF THE YEAR SPECIFIED IN TABLE GIVEN BELOW HENCE THE APPELLANT ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 6 OF 23 REASONABLY ESTIMATED A SUM OF RS. 42 55 235/- AS WAGES PAYABLE FROM SUCH WORKERS WHO HAS WORKED FOR PAST 10 YRS AN D INCLUDED THE SAME AGGREGATING A SUM OF RS. 16 90 98 179/- PROVID ED IN THE ACCOUNT. HENCE THE ARREARS OF WAGES IS CALCULATED A CCURATELY AND HAS BECOME CRYSTALLIZED LIABILITY DURING THE YEAR. THE TABLE EXPLAINS THE FOLLOWING: PARTICULARS AMOUNT 1. GROSS ARREARS OF WAGES AS PER TRIPARTITE AGREEMENT RS. 21 90 03 800/- 2. EPF 4 06 67 029/ - 3. PROVISIONS OUGHT TO HAVE MADE 17 83 36 771 LESS PROVIDED IN FY 2004 - 05 1 34 93 827 TOTAL 16 48 42 944 ADD: ARREARS OF WAGES WHO HAS WORKED FOR PART OF THE YEAR IN PAST 10 YEARS 42 55 235 PROVISION MADE BY THE APPELLANT 16 90 98 179 THE CIT(A) FAILED TO APPRECIATE THE FACT THAT OBSER VATION BY THE ASSESSING OFFICER THAT BACK WAGES INCLUDING BONUS I S NOT CORRECT SINCE AS PER PARAGRAPH 5 CLAUSE 1 OF PART 1 OF TER MS OF SETTLEMENT OF TRIPARTITE AGREEMENT THE BACK WAGES INCLUDE 16. 43 STATUTORY BENEFIT. THE AGREEMENT DOES NOT SPECIFY STATUTORY B ENEFIT AS BONUS. THE LIABILITY OF BONUS ARISES ONLY ON PAYMENT OF WA GES HENCE IN APPELLANT'S CASE PROVISION MADE TANTAMOUNT TO ARREA RS OF WAGES BUT NOT BONUS AS ALLEGED BY ASSESSING OFFICER. HENC E ASSESSING OFFICER IS NOT JUSTIFIED IN SPLITTING THE ARREARS O F WAGES IN DIFFERENT COMPONENT BASED ON THE FACTS SUBSEQUENT TO THE EVEN T AFTER THE PROVISION MADE IN THE BOOKS OF ACCOUNTS WHICH IS DU LY ACCOUNTED. IT IS TO BE NOTED THAT THE SECTION 43B IS APPLICABL E ONLY TO STATUTORY BONUS NOT TO OTHER STATUTORY BENEFITS. THE MEMORAND UM OF UNDERSTANDING (TRIPARTITE AGREEMENT) IS CLEARLY STA TE THAT THE WAGES AGREED UPON THEREIN TO BE PAID IN ARREARS. HENCE IT IS PRAYED THAT AFTER CONSIDERING THE SUBM ISSION THE APPEAL MAYBE ALLOWED. 3. THE WRITTEN SUBMISSIONS FILED BY THE REVENUE ARE AS UNDER. 1. ON ADDITION MADE ON EXPENDITURE NOT RELATED TO B USINESS. THE INSTANT CASE THE ASSESSMENT WAS COMPLETED BY MA KING A DISALLOWANCE ON INTEREST PAYMENT AS EXPENDITURE NOT RELATING TO BUSINESS. THE ASSESSEE COMPANY BORROWED FROM ITS DI RECTOR AND SHAREHOLDERS AND CLAIMED DEDUCTION AT 21%. THE REAS ON ADDUCED FOR THE BORROWING IS FOR THE EXPANSION OF BUSINESS WHICH DID NOT ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 7 OF 23 MATERIALIZE THE AO DISALLOWED THE CLAIM RELYING ON THE APEX COURT DECISION IN THE CASE OF THE LIQUIDATORS OF PUSA LTD VS CIT (25 ITR 265). AND CENTRAL PROVINCES MANAGANESE ORE CO. LTD VS CIT ( 5 ITR 734). THE CIT(A) UPHELD THE ADDITION OF INTERES T AT 18% AND DELETED THE BALANCE. IN THIS CONNECTION KIND REFERE NCE IS INVITED TO PARA 14 AT PAGE 16 OF ORDER OF CIT(A). THERE IN THE CIT(A) GAVE A CLEAR FINDING THAT THERE WAS NO NEED TO BORROW FUND S FOR ASSESSEE OWN BUSINESS HOWEVER HOLDING THAT MAKING DEPOSIT I N BANK IS PERMITTED BY ARTICLES AND MEMORANDUM OF ASSOCIATION THE CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT MAKING DEPOSI TS IN BANKS OUT OF SURPLUS AMOUNT IS ONLY AN ANCILLARY OBJECT OF TH E ASSESSEE COMPANY AND THE SAME CANNOT BE CONSTRUED AS FOR THE PURPOSE OF BUSINESS. 2. ON ADDITION MADE UNDER SECTION 69B BASED ON THE VALUATION REPORT FILED BY THE ASSESSEE THE AO MADE AN ADDITION UNDER SECTION 69B. THE CIT(A) DELE TED THE ADDITION ACCEPTING THE CONTENTION OF THE ASSESSEE THE EXPENDITURE CANNOT BE SAME AS THE ACTUAL EXPENDITURE. THE CIT(A ) HAS NOT GIVEN ANY SPECIFIC FINDING FOR DELETING THE ADDITION MADE . RELIANCE IS PLACED ON DECISION OF UTTARAKHAND HIGH COURT IN THE CASE OF SMT. KIRAN LATA (177 TAXMANN 420) WHEREIN IT IS HELD THA T IT DOES NOT MEAN THAT WHATEVER HAS BEEN SHOWN BY THE ASSESSEE M UST BE TAKEN AS A GOSPEL TRUTH. IT IS ALSO TO BE NOTED THAT IN I NSTANT CASE THE VALUATION REPORT WAS FILED BY THE ASSESSEE WITHOUT ANY EXPLANATION FOR THE DIFFERENCE. 4. FIRST WE TAKE UP THE APPEAL OF THE REVENUE FOR A SSESSMENT YEAR 1998-99 IN ITA NO. 233/BANG/2001. THE GROUNDS RAISED BY THE REVEN UE ARE AS UNDER. 1. THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE CIT(A) HAS ERRED IN LAW IN DIRECTING THE ASS ESSING OFFICER TO DISALLOW ONLY SO MUCH OF INTEREST PAID IN EXCESS OF 18% ON THE BORROWALS NOT RELATING TO THE ASSESSEES BUSINESS EVEN AFTER BEING SATISFIED ON FACTS THAT THERE WAS NO NEED TO BORROW FUNDS FOR ITS BUSINESS OF MANUFACTURING AND SALE OF BEEDIES. 3. THE CIT(A) ERRED IN DELETING RS. 1 41 892/- WHIC H REPRESENTED THE UNEXPLAINED COST OF CONSTRUCTION ON THE GROUND THAT THE ESTIMATE CANNOT BE THE SAME AS ACTUAL EXPENDITURE. 4. THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THA T THE ADDITION TOWARDS UNEXPLAINED COST OF CONSTRUCTION IS BASED ON THE AS SESSEE'S OWN ESTIMATE SUPPORTED BY VALUER'S REPORT. ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 8 OF 23 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF CIT(APPEALS ) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 5. REGARDING THE FIRST ISSUE I.E. DISALLOWANCE OF I NTEREST PAID IN EXCESS OF 18% ON THE BORROWED FUNDS THE OBJECTIONS OF THE AO ARE NO TED IN PARA NO. 6.3 AND 6.4 OF THE ASSESSMENT ORDER WHICH ARE REPRODUCED HEREINBEL OW FOR THE SAKE OF READY REFERENCE. 6.3 THE ASSESSEE'S CONTENTION THAT IT HAD AN INTENT ION OF STARTING A BRANCH IN ORISSA APPEARS TO HAVE REMAINED ON PAPER AS THE SAME HAS NOT FRUCTIFIED TILL DATE. MOREOVER THE ADDITIONAL OUTL AY WHICH WAS CLAIMED TO HAVE BEEN NECESSARY FOR OPENING A BRANCH IN ORISSA WAS ACCORDING TO THE ASSESSEE'S OWN VERSION WAS AROUND RS.15 TO 20 CRORE S. THE ASSESSEE DURING THE RELEVANT PERIOD HAD FIXED DEPOSITS OF MO RE THAN THE SAID AMOUNT. THEREFORE THERE WAS NO NECESSITY OF TAKING ADDITIONAL FUNDS AT MORE THAN THE MARKET RATE EVEN IF IT IS ASSUMED THA T THE ASSESSEE HAD AN INTENTION OF OPENING A BRANCH AT ORISSA. IN VIEW OF THIS THE EXPENDITURE THAT HAS BEEN INCURRED IN RESPECT OF THESES ADDITIO NAL DEPOSITS CANNOT HE SAID TO BE FOR THE PURPOSE OF BUSINESS. THE SUPREME COURT HELD THE WORDS 'USED FOR THE PURP OSES OF BUSINESS OR PROFESSION' OBVIOUSLY MEAN 'USED FOR THE PURPOSE OF ENABLING THE OWNER TO CARRY ON THE BUSINESS OR PROFESSION AND EA RN PROFITS IN THE BUSINESS OR PROFESSION'. IN OTHER WORDS THE MACHIN ERY OR PLANT MUST BE USE IN WHATEVER SENSE THAT WORD IS TAKEN FOR T HE PURPOSE OF THAT BUSINESS WHICH IS ACTUALLY CARRIED ON AND THE PROFI TS OF WHICH ARE ASSESSABLE AT LEAST FOR A PART OF THE ACCOUNTING Y EAR CONCERNED. IF THE MACHINERY AND PLANT HAVE NOT AT ALL BEEN USED A T ANY TIME DURING THE ACCOUNTING YEAR NO ALLOWANCE CAN BE CLAIMED UN DER THIS SECTION IN RESPECT OF THEM [THE LIQUIDATORS OF PUSA LTD VS CIT (25 ITR 265). THE EXPRESSION 'USED FOR THE PURPOSES OF THE BUSINE SS' IN THESE PROVISIONS MEANS 'USED FOR THE PURPOSES OF THE BUSI NESS DURING THE ACCOUNTING YEAR' AND NOT MERELY THAT THE MACHINERY ETC. MUST HAVE BEEN USED FOR OTHER PURPOSES (CENTRAL PROVINCES MANGANES E ORE CO. LTD. VS CIT) (5 ITR 734). 6.4 IN VIEW OF THE ABOVE THE LEARNED AUTHORIZED RE PRESENTATIVE'S CONTENTION THAT THE INTEREST PAID/PAYABLE IN RESPEC T OF THESE LOANS ARE ALLOWABLE AS A BUSINESS EXPENDITURE CANNOT BE ACCEP TED AS THESE AMOUNTS WERE NOT USED FOR THE PURPOSE OF BUSINESS D URING THE ACCOUNTING YEAR. AS THE DEDUCTION CANNOT BE ALLOWED WHILE COMPUTING THE BUSINESS INCOME UNDER SECTION 28 TO 37 OF THE I NCOME TAX ACT THE CLAIM OF THE ASSESSEE WILL BE DISALLOWED. ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 9 OF 23 6. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE CIT(A) ON THIS ISSUE THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA NO. 14 OF I TS ORDER WHICH IS REPRODUCED HEREINBELOW FOR THE SAKE OF READY REFERENCE. 14. WHILE DISCUSSING ISSUE NO.2 THE CASE OF DISALL OWANCE OF INTEREST U/S.40A(2) I HAVE MADE A FAIRLY DETAILED ANALYSIS OF THE FINANCIAL POSITION OF THE ASSESSEE AS ON 31-3-1997 AND 31-3-1 998 AND POINTED OUT THAT THERE WAS NO NEED OF THE FUNDS BORROWED FR OM SHAREHOLDERS AND DIRECTIONS THERE WAS NO NEED TO BORROW FUNDS FO R ITS BUSINESS OF MANUFACTURE AND SALE OF BEEDIES. THAT OBSERVATION I S APPLICABLE IN RESPECT OF THE ADDITIONAL BORROWALS ALSO. BUT THIS IS A CLOSELY HELD COMPANY AND IF THE PEOP LE WHO ARE CONTROLLING THE AFFAIRS OF THE COMPANY BORROW FUND S FROM THEMSELVES WHO ARE THE SHAREHOLDERS AND DIRECTORS PAYING HIGH INTEREST AND UTILISING IT ONLY FOR INVESTMENT IN FIXED DEPOSITS AND CURREN T ACCOUNT IN BANK AND OTHER DEPOSITS AND INVESTMENTS WHICH YIELD LOW RETU RN THEY CAN ALSO FIND REASONS FOR THE BORROWAL WHICH SUIT THEM. WHETHER THE REASONS ARE GENUINE OR MADE UP IT CAN CONTEND THAT IT IS NOT F OR THE ASSESSING OFFICER TO DECIDE HOW ITS BUSINESS IS TO BE CONDUCTED. THE POSITION BEING THAT THE MONEY BORROWED WAS NOT USED FOR NON- BUSINESS PURPOSES (MAKING DEPOSIT IN BANKS IS PERMI TTED BY ARTICLES AND MEMORANDUM OF ASSOCIATION) THE ASSESSEE CAN HAVE A CASE THAT THE EXPENDITURE BY WAY OF INTEREST ON BORROWED MONEY WA S WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. I WOUL D IN THE CIRCUMSTANCE CONSIDER IT TO BE NOT A VERY FRUITFUL EXERCISE TO D EAL WITH THE CLAIM OF THE ASSESSEE AS OF INTEREST ON BORROWAL FOR NON-BUSINES S PURPOSES. HOWEVER THE OBSERVATIONS MADE IN THE CONTEXT OF IS SUE NO.2 IN THE CONTEXT OF DISALLOWANCE OF INTEREST ON OPENING BALANCE OF SIMILAR BORROWALS IS APPLICABLE HERE ALSO. IF THE ASSESSEE TOOK LOAN ON THE SECURITY OF THE HUGE FIXED DEPOSITS IT HAD IN BANKS THE BANKS WOULD HAVE CHARGED ONLY 1% OR SO HIGHER THAN THE INTEREST THAT IS GIVEN TO THE ASSESSEE ON THE FIXED DEPOSITS AS IS CUSTOMARY I.E. AT BEST THE ASSESSEE WOULD HAVE HAD TO INCUR ONLY ABOUT 13% OR 14% INTER EST ON SIMILAR BORROWAL IF MADE FROM BANKS. IF IT INVITED DEPOSIT S FROM PUBLIC AND AVAILED DEPOSITS FROM PUBLIC ALSO THE INTEREST PAY ABLE WOULD HAVE BEEN ONLY 14% OR SO. CONSIDERING THESE IT IS QUITE CLEAR THAT THE MARKET VALUE OF THE FACILITIES I.E. AVAILABILITY OF BORROWED FUN DS WOULD HAVE BEEN ONLY AROUND 14% OR SLIGHTLY HIGHER (INCLUDING OTHER COST S IF THE ASSESSEE WENT FROM BORROWING FROM PUBLIC) IN THE CIRCUMSTANC E. THE ASSESSING OFFICER HAS CONSIDERED 18% AS FAIR MARKET VALUE OF THE FACILITIES WHILE DEALING WITH INTEREST ON OPENING BALANCE OF BORROWA LS FROM THE SHAREHOLDERS AND DIRECTORS. I HAVE HELD THAT THIS IS QUITE FAIR WHILE DEALING WITH ISSUE NO.2. I WOULD FOLLOW THE FINDING HERE ALSO AND HOLD THAT THE CASE IS FOR ESTIMATING THE FAIR MARKET VAL UE OF THE FACILITY AT 18% PER ANNUM ON THE ADDITIONAL BORROWALS DURING TH IS YEAR AND FOR DISALLOWING THE EXCESS APPLYING SEC.40A(2) OF THE I .T. ACT. ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 10 OF 23 7. FROM READING OF THE RELEVANT PARA OF THE ORDER O F CIT (A) REPRODUCED FROM THE ASSESSMENT ORDER AND FROM THE ORDER OF CIT(A) IN RE SPECT OF THIS ISSUE WE FIND THAT THE OBJECTION OF THE AO IS THIS THAT THIS BORR OWING FROM DIRECTORS AND SHAREHOLDERS IS NOT FOR BUSINESS PURPOSE. THE AO H AS NOTED THAT EVEN AS PER THE ASSESSEES CONTENTION IF THE ASSESSEE HAD AN I NTENTION OF STARTING A BRANCH IN ORISSA THE SAME APPEARS TO HAVE REMAINED ON PAP ER BECAUSE IT HAS NOT FRUCTIFIED TILL THE DATE OF PASSING THE ASSESSMENT ORDER. BEFORE US ALSO IT IS NOT SHOWN THAT IT HAS COME INTO EXISTENCE. THE AO HAS A LSO NOTED THAT ADDITIONAL OUTLAY WHICH WAS CLAIMED TO HAVE BEEN NECESSARY FOR OPENING A BRANCH IN ORISSA WHICH WAS ACCORDING TO THE ASSESSEES OWN VERSION W AS AROUND RS. 15 TO 20 CRORES AND THE ASSESSEE DURING THE RELEVANT PERIOD HAD FIXED DEPOSITS OF MORE THAN THE SAID AMOUNT AND THEREFORE THERE WAS NO NE CESSITY OF TAKING ADDITIONAL FUNDS AT INTEREST AT MORE THAN THE MARKET RATE EVEN IF IT IS ASSUMED THAT THE ASSESSEE HAD AN INTENTION OF OPENING A BRANCH IN OR ISSA. THE AO HAS REFERRED TO TWO JUDGMENTS AS REPORTED IN 25 ITR 265 AND 5 ITR 7 34 AS PER WHICH THE TERM USED FOR THE PURPOSES OF BUSINESS OR PROFESSION M EAN THAT USED FOR THE PURPOSE OF ENABLING THE OWNER TO CARRY ON THE BUSINESS OR P ROFESSION AND EARN PROFITS IN THE BUSINESS OR PROFESSION. THEREFORE FOR THE PUR POSE OF ALLOWING DEDUCTION U/S.36 (1) (III) IN RESPECT OF INTEREST ON BORROWED FUNDS IT HAS TO BE LOOKED INTO THAT THE BORROWED FUNDS WERE USED IN FACT FOR BUSIN ESS PURPOSE AND MERE INTENTION IS NOT SUFFICIENT TO ALLOW DEDUCTION U/S. 36(1)(III) OF IT ACT. THE LD. CIT(A) HAS ALSO NOTED THE DETAILS OF LIABILITY SIDE AND AS SET SIDE OF ASSESSEE AS ON 31.03.1998 ON PAGE NO. 10 OF ITS ORDER AND AS PER T HE SAME AS AGAINST BORROWING OF RS. 9.05 CRORES FROM DIRECTORS/ SHAREH OLDERS OF ASSESSEE COMPANY AS ON 31.03.1997 THERE WAS FIXED DEPOSITS WITH BAN KS OF RS. 18.49 CRORES ON THAT DATE AGAINST UNSECURED LOAN FROM DIRECTORS AND SHAREHOLDERS OF RS. 14.26 CRORES AS ON 31.03.1998 THE FIXED DEPOSITS WITH BA NKS AS ON 31.03.1998 WAS TO THE EXTENT OF RS. 23.10 CRORES. HENCE IT IS ABUND ANTLY CLEAR THAT THE BORROWED FUNDS WERE NOT USED FOR ANY BUSINESS PURPOSE AND TH ESE WERE PARKED WITH BANKS AS FIXED DEPOSIT. AS PER THE NOTING OF CIT(A) ON P AGE NO. 16 OF HIS ORDER MAKING DEPOSITS IN BANKS IS PERMITTED BY ARTICLES AND MEMO RANDUM OF ASSOCIATION AND THEREFORE THE ASSESSEE CAN HAVE THE CASE THAT THE EXPENDITURE BY WAY OF ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 11 OF 23 INTEREST ON BORROWED MONEY IS WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF ITS BUSINESS. THIS IS ONE THING THAT MAKING DEPOSITS I N BANK IS PERMITTED BY ARTICLES AND MEMORANDUM OF ASSOCIATION AND THIS IS TOTALLY A DIFFERENT THING THAT MAKING DEPOSITS IN BANKS IS BUSINESS OF THE ASSESSEE. EVE N AS PER CIT(A) OR AS PER THE ASSESSEE THIS IS NOT THE BUSINESS OF THE ASSESSEE TO MAKE DEPOSITS IN BANKS AND THEREFORE MERELY BECAUSE MAKING DEPOSITS IN BA NKS IS NOT DEBARRED BY ARTICLES AND MEMORANDUM OF ASSOCIATION OF THE COMPA NY IT CANNOT BE SAID THAT MAKING DEPOSITS IN BANKS IN SUCH HUGE AMOUNT BY USE OF THE BORROWED FUND IS FOR BUSINESS PURPOSE. THE CIT(A) HAS FOLLOWED A JUDGME NT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. BOMBAY SAMACH AR LTD. AS REPORTED IN 974 ITR 723. BUT WE FIND THAT THIS JUDGMENT IS NOT APP LICABLE IN THE FACTS OF THE PRESENT CASE. IN THAT CASE IT WAS HELD BY HON'BLE BOMBAY HIGH COURT THAT THE ISSUE IN DISPUTE WAS REGARDING ALLOWABILITY OF BUSI NESS EXPENDITURE IN THE FACTS THAT THE ASSESSEE DID NOT CHARGE ANY INTEREST IN RE SPECT OF DEBIT BALANCES WITH SOME CONCERNS. IN PARA NO. 4 OF THIS JUDGMENT IT IS NOTED BY HON'BLE BOMBAY HIGH COURT THAT THE AO AND CIT(A) WERE INCORRECT IN HOLDING THAT THE BALANCES DUE FROM BOMBAY CHRONICLE PVT. LTD. WAS IN RESPECT OF ANY LOANS ADVANCED BY THE ASSESSEE TO THAT COMPANY. IT WAS NOTED THAT TH E SAID BALANCE WAS IN RESPECT OF THE COMMON ACCOUNT BETWEEN THE PARTIES IN CONNEC TION WITH THE EXPENDITURE IN RELATION TO THE BUSINESS AGREED TO BE INCURRED IN C OMMON AND ALLOCATED IN RESPECTIVE SHARES AT THE END OF THE YEAR. IN THE S AME PARA THIS IS ALSO NOTED BY THE HONBLE HIGH COURT THAT THE CAPITAL BORROWED BY THE ASSESSEE FROM THE OUTSIDERS ON THE OTHER HAND WAS ADMITTEDLY USED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND IT WAS ALSO NOT DISPUTED TH AT NO PART OF THE BORROWED CAPITAL HAD BEEN UTILIZED FOR THE PURPOSE OF ADVANC ING LOAN EITHER TO MESSRS. BOMBAY CHRONICLE PVT. LTD. OR TO MESSRS. CAMA NORTO N & CO. ON THIS BASIS IT WAS HELD THAT DISALLOWANCE OF INTEREST EXPENDITURE IS NOT JUSTIFIED. IN THE PRESENT CASE THE FACTS ARE TOTALLY DIFFERENT. IN THE PRES ENT CASE THE AO HAS SHOWN BY BRINING COGENT MATERIAL ON RECORD THAT THE BORROWIN G OF FUND FROM THE DIRECTORS AND SHAREHOLDERS IS NOT FOR BUSINESS PURPOSE BECAUS E AGAINST SUCH BORROWING OF RS. 9.05 CRORES AS ON 31.03.1997 AND RS. 14.26 CROR ES AS ON 31.03.1998 ASSESSEE WAS HAVING FD WITH BANKS OF RS. 18.49 CORE S AND RS. 23.10 CRORES ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 12 OF 23 RESPECTIVELY. UNDER THESE FACTS THE INTEREST EXPE NDITURE ON THESE BORROWED FUNDS IS NOT ALLOWABLE U/S. 36(1)(III) BECAUSE THE ASSESSEE COULD NOT ESTABLISH THAT THE BORROWING IS FOR BUSINESS PURPOSE. HENCE ON THIS ISSUE WE REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE AO. ACCORD INGLY GROUND NO. 2 OF THE REVENUES APPEAL IS ALLOWED. 8. REGARDING GROUND NO. 3 OF THE REVENUES APPEAL WE FIND THAT ON THIS ISSUE IT IS NOTED BY THE AO IN PARA NO. 7 OF THE ASSESSMENT ORD ER THAT THE ASSESSEE CONSTRUCTED A BUILDING AT AN ADMITTED COST OF RS. 3 3 10 592/- WHICH WAS CLAIMED TO HAVE BEEN COMPLETED DURING THE YEAR AND ON THE R EQUEST OF THE AO THE ASSESSEE FILED VALUATION REPORT ABOUT THE COST OF C ONSTRUCTION AS PER WHICH THE COST WAS ESTIMATED AT RS. 34 52 484/-. THE AO MADE ADDITION OF RS. 1 41 892/- BEING THE DIFFERENCE IN THESE TWO FIGURES U/S. 69B OF THE IT ACT. THIS ADDITION WAS DELETED BY CIT(A) ON THIS BASIS THAT THERE IS NO MU CH DIFFERENCE IN THE COST ADMITTED BY THE ASSESSEE WHICH IS ON THE BASIS OF T HE ACCOUNTS AND THE COST ESTIMATED BY THE APPROVED VALUER. WE ALSO FIND THAT THE DIFFERENCE IS LESS THAN 5% OF THE ADMITTED COST. FOR SUCH A SMALL DIFFEREN CE BETWEEN THE ACTUAL COST AS PER BOOKS OF ACCOUNTS AND ESTIMATED COST AS PER THE VALUER NO ADDITION IS JUSTIFIED. WE THEREFORE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. GROUND NO. 3 IS REJECTED. 9. IN THE RESULT THE APPEAL OF THE REVENUE FOR ASS ESSMENT YEAR 1998-99 IS PARTLY ALLOWED. 10. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 1998 1999 IN ITA NO. 237/BANG/2001. 11. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER . 1. THE ORDER OF THE C.T.T. (A) IS OPPOSED TO FACTS OF THE CASE AND PRINCIPLES OF LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE A.O TO THE INCOME OF YOUR APPELLANT A SUM OF RS. 14 14 061/- BEING THE EXCISE DUTY PAYABLE ON LABELED AND UNLABELED BEEDIES IN CLOSING STOCK. ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 13 OF 23 3. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE CONTENTION OF THE APPELLANT THAT IF THE VALUE OF CLOSING STOCK OF A Y EAR IS INCREASED THE OPENING STOCK OF THE YEAR ALSO NEEDS TO BE REVISED ON THE SAME BASIS IN ORDER TO AVOID DISTORTION IN THE PROFITS OF THE YEA R. 4. THE LEARNED CIT(A) ERRED IN REJECTING THE CONTEN TION OF YOUR APPELLANT THAT THE PROCESS OF MANUFACTURE IN THE CA SE OF BEEDIES IS COMPLETE ONLY WHEN THEY ARE LABELLED PACKED MOVED FROM THE FACTORY TO THE GODOWN AND AT THAT POINT ALONE EXCISE DUTY IS P AYABLE. 5. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN TREATING DUTY PAYABLE ON LABELED AND UNLABELED BEED IES AS PART OF THE COST OF VALUING THE CLOSING STOCK OF THE YEAR. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN REJECTING THE CONTENTION OF THE APPELLANT THAT A ME THOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT FOR THE PAST MA NY YEAR CANNOT BE DISTURBED ARBITRARILY. 7. THE CIT(A) FURTHER ERRED IN REJECTING THE CONTE NTION OF YOUR APPELLANT THAT ONLY ON ITEM DEBITED TO MANUFACTURIN G AND TRADING ACCOUNT CAN BE RECKONED AS PART OF COST FOR VALUING CLOSING STOCK ON COST BASIS. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN HOLDING THAT INTEREST PAID BY AN APPELLANT ON MONEY S BORROWED FROM ITS DIRECTORS AND SHARE HOLDER IN EXCESS OF 18% P.A. IS UNREASONABLE AND UPHOLDING DISALLOWANCE BY THE A/O OF SUCH EXCESS. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN HOLDING THAT THE INTEREST CALCULATED AT 21% PAID BY THE APPELLANT ON MONEYS BORROWED BY IT FROM ITS DIRECTORS AND SHARE HOLDERS IS EXCESSIVE AS COMPARED TO INTEREST CHARGED BY COMMERCIAL BANKS WHICH WAS ABOUT 18% P.A. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN HOLDING THAT THE INTEREST PAID TO ITS DIRECTORS AND SHAREHOLDERS IN EXCESS OF 18% P.A. IS UNREASONABLE AS THE APPELLANT COULD HAVE MOBILISED DEPOSITS FROM GENERAL PUBLIC AT 14% P.A. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN HOLDING THAT THE INTEREST PAID TO ITS DIRECTORS AND SHAREHOLDERS IN EXCESS OF 18% P.A IS UNREASONABLE AS THE APPELLANT COULD HAVE RAISED LOANS ON THE SECURITY OF ITS FIXED DEPOSITS AT THE RATE OF ABOUT 12% TO 13%. 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 14 OF 23 IN CONFIRMING THE VIEW OF THE AO THAT INTEREST PAID ON THE LOANS RAISED BY THE APPELLANT IN THE YEAR OF ACCOUNT FROM ITS DI RECTORS AND SHAREHOLDERS IN EXCESS OF 18% P.A. IS UNREASONABLE. 13. THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234A & B OF THE IT. ACT 1961. 14. THE APPELLANT. CRAVES LEAVE TO ADD TO AMEND AL TER OR DELETE ANY OF THE FOREGOING GROUNDS. 12. GROUND NO. 1 IS GENERAL. REGARDING GROUND NOS. 2 TO 7 IN RESPECT OF ADDITION OF RS. 14 14 061/- ON ACCOUNT OF EXCISE DUTY PAYABLE O N LABELED AND UNLABELED BEEDIES IN CLOSING STOCK IT HAS BEEN SUBMITTED BY LD. AR OF ASSESSEE THAT THE CIT(A) HAS CONFIRMED THIS ADDITION WITHOUT APPRECIA TING THE SUBMISSION OF THE ASSESSEE THAT EXCISE DUTY WERE PAID BEFORE FILING T HE RETURN OF INCOME. IN THIS REGARD WE FIND THAT IT IS NOTED BY CIT(A) ON PAGE NO. 7 OF IS ORDER THAT IT DOES NOT HAVE THE DETAILS OF PAYMENT OF EXCISE DUTY IN THE M ONTHS FOLLOWING PREVIOUS YEAR 1997-98 AND THEREFORE HE HAS NOT GIVEN CATEGORICAL FINDING ON THIS ASPECT REGARDING ALLOWABILITY OF DEDUCTION U/S. 43B OF THE IT ACT AND HE DIRECTED THE ASSESSEE TO PRODUCE EVIDENCE BEFORE THE AO TO SHOW THAT THE EXCISE DUTY WAS PAID ON OR BEFORE 30.11.1998 AND ON SAME THE AO SH OULD EXAMINE THE SAME AND ALLOW DEDUCTION U/S. 43B. WE FIND NO INFIRMITY IN THIS DIRECTION OF CIT(A) AND HENCE ON THIS ISSUE WE DECLINE TO INTERFERE IN TH E ORDER OF CIT(A). 13. GROUND NOS. 8 TO 12 ARE IN RESPECT OF RESTRICTI NG THE INTEREST EXPENDITURE TO 18% AS AGAINST 21% CLAIMED BY THE ASSESSEE. ON THIS ISS UE THIS IS SUBMITTED BY LD. AR OF ASSESSEE IN WRITTEN SUBMISSIONS THAT INTEREST OF 21% WAS PAID AS PER BOARD RESOLUTION COPY OF WHICH IS AVAILABLE ON PAG E NO. 11 OF WRITTEN SUBMISSIONS. THIS WAS ALSO SUBMITTED THAT ALL THES E DEPOSITS WERE BROUGHT FORWARD FROM EARLIER YEAR ON WHICH INTEREST OF 21% WAS PAID AND ALLOWED BY DEPARTMENT AND THERE IS NO FRESH FACT THAT CHANGE I N SITUATION IN RESPECT OF ALLOWING INTEREST ON EARLIER RATE AND SINCE CONSIST ENCY HAS TO BE FOLLOWED BY DEPARTMENT THE DISALLOWANCE IS NOT JUSTIFIED. IT IS SUBMITTED THAT BANK CREDIT IS NOT FREELY AVAILABLE AND IT IS SADDLED WITH CERTAIN PROCEDURES. IT IS ALSO SUBMITTED THAT COMMERCIAL BANKS CHARGE INTEREST ON QUARTERLY REST WHICH WORKS OUT TO BE HIGHER RATE ON ANNUAL BASIS. THIS IS ALSO SUBMITTE D THAT THE AO IS NOT JUSTIFIED IN ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 15 OF 23 TRAVELLING BEYOND HIS SCOPE OF ASSESSMENT AND ASSUM ING THE SHOES OF THE MANAGEMENT AND THEREBY PRESUMING THE NEED OF BORROW AL AND TIMING OF THE BORROWAL THAT THE ASSESSEE OUGHT TO HAVE FOLLOWED WITHOUT UNDERSTANDING THE NATURE OF ASSESSEES BUSINESS. IT IS ALSO SUBMITTE D THAT ASSESSEE NEEDS TO HAVE SUFFICIENT LIQUID FUNDS IN THE FORM OF BANK FDS ET C. IN THE BUSINESS AS MAJOR PART OF THE COST IS LABOUR / WAGES PAYMENT YEARLY PROCU REMENT OF THE RAW MATERIALS AND VOLATILE FLUCTUATIONS IN RAW MATERIAL PRICES ET C. AND THESE FACTS HAVE BEEN COMPLETELY OVERLOOKED BY THE AO AND CIT(A) AND THER EFORE THE DISALLOWANCE SHOULD BE DELETED. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT AS PER PARA NO. 11 OF THE ORDER OF CIT(A) IT IS STATED BY HIM THAT WHEN THE ASSESSEE IS HAVING SUFFICIENT FDS WITH BANKS THE BANKS PROVIDE LOAN AGAINST SUCH FDS AT AN INTEREST RATE OF 1% HIGHER THAN INTEREST ALLOWED ON FD AND THEREFORE INTEREST PAYMENT OF 21% IS EXCESSIVE. THIS IS NOT THE CASE OF THE ASSESSEE TH AT TO THE EXTENT OF MONEY BORROWED FROM THE DIRECTORS AND SHAREHOLDERS THE A SSESSEE WAS NOT HAVING FDS WITH BANKS THIS IS ALSO NOT THE CASE OF THE ASSESS EE THAT AGAINST FDS WITH BANKS LOAN IS NOT EASILY AVAILABLE AT AN INTEREST RATE WH ICH IS ONLY 1% ABOVE THE INTEREST PAID BY THE BANKS ON FDS. THIS IS ALSO NOT THE CAS E OF THE ASSESSEE THAT INTEREST PAID BY THE BANKS ON FD IS 20% AND THEREFORE IF AN Y MONEY IS BORROWED FROM BANKS BANKS WILL BE CHARGING INTEREST AT A RATE OF 21% I.E. INTEREST BEING PAID ON FD + 1%. CONSIDERING THESE FACTS WE FIND NO INFIR MITY IN THE ORDER OF CIT(A) IN THIS ISSUE ALSO BECAUSE IF THIS ASPECT IS CONSIDERE D STRICTLY THAT ANY INTEREST PAYMENT TO RELATIVES IN EXCESS OF INTEREST RECEIVED ON FD PLUS 1% IS UNREASONABLE THEN THE DISALLOWANCE WOULD HAVE BEEN MUCH MORE BECAUSE INTEREST BEING PAID BY BANKS ON FDS IS NEVER MORE T HAN 12% TO 13% EVEN DURING THAT PERIOD AND HENCE THE INTEREST PAYABLE TO BANK ON BORROWING FROM BANK AGAINST FD WILL BE MAXIMUM 14% PER ANNUM AS NOTED B Y CIT(A) ON PAGE NO. 14 OF ITS ORDER AND THE AO HAS HELD THAT REASONABLE RA TE OF INTEREST IS 18% WHICH IS 4% HIGHER THAN THIS RATE OF 14% WHICH WILL BE PAYAB LE TO BANK IF MONEY IS ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 16 OF 23 BORROWED AGAINST SECURITY OF FD LYING WITH BANKS. HENCE ON THIS ISSUE WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). THESE GROUNDS ARE ALSO REJECTED. 15. THE REMAINING GROUND NO. 13 IS CONSEQUENTIAL BE CAUSE THIS IS REGARDING CHARGING OF INTEREST U/S. 234A AND 234B OF THE IT ACT. 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 1998-99 IS DISMISSED. 17. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2000-01 IN ITA NO. 3442/BANG/2004. THE GROUNDS RAISED BY THE ASSE SSEE ARE AS UNDER. 1. THE ORDER OF THE LEARNED C.I. T. (APPEALS) MANG ALORE IN SO FAR AS AGAINST THE APPELLANT IS OPPOSED TO THE FACTS OF TH E CASE AND PRINCIPLES OF LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED C.I.T. (A) ERRED IN HOLDING THAT INTEREST PAID BY THE APPELLAN T ON MONIES BORROWED FROM THE DIRECTORS AND SHAREHOLDERS IN EXCESS OF 18 % P.A. IS UNREASONABLE AND UPHOLDING THE DISALLOWANCE BY THE AO. TO THAT EXTENT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED C.I.T. (A) ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENDITURE TO THE EXTENT OF RS. 15 000/- AS ALLEGED TO PERTAIN TO EXEMPTED INCOME. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED C.I.T.(A) ERRED IN CONFIRMING THE ALLOWANCE OF DEPRECIATION O N TRUCKS TO 25% AS AGAINST 40% CLAIMED BY THE APPELLANTS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAMED C.I.T(A) ERRED IN RESTRICTING THE DEPRECIATION ON LORRIES PURCHASE D AND PUT TO USE IN BUSINESS DURING 1 ST DAY OF OCTOBER 1998 AND 31 ST MARCH 1999 IN ACCORDANCE WITH THIRD PROVISO TO SEC. 32(1)(II). 6. YOUR APPELLANTS CRAVE FOR LEAVE TO ADD TO AMEND ALTER OR DELETE ANY OF THE FORGOING GROUNDS. 7. FOR THESE GROUNDS AND SUCH OTHER GROUNDS AS ARE ADVANCED AT THE TIME OF HEARING YOUR APPELLANT PRAY THAT THE APPEA L BE ALLOWED. 18. IT WAS AGREED BY BOTH SIDES THAT GROUND NO. 1 I S GENERAL. REGARDING GROUND NO. 2 IT WAS AGREED BY BOTH SIDES THAT ISSUE INVOLVED IS IDENTICAL TO ISSUE INVOLVED IN GROUND NOS. 8 TO 12 IN ASSESSMENT YEAR 1998-99 AND THE SAME MAY BE DECIDED ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 17 OF 23 IN SIMILAR LINE. IN ASSESSMENT YEAR 1998-99 WE HA VE DECIDED THIS ISSUE AGAINST ASSESSEE AND IN THE PRESENT YEAR ALSO THE GROUND N O. 2 OF THE ASSESSEES APPEAL IS REJECTED ON SIMILAR LINES. 19. REGARDING GROUND NO. 3 IT IS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS GROUND IS NOT PRESSED AND ACCORDINGLY THIS GROUND IS REJECTE D AS NOT PRESSED. 20. GROUND NOS. 4 AND 5 ARE IN RESPECT OF ALLOWABIL ITY OF DEPRECIATION ON TRUCKS WHICH HAS BEEN RESTRICTED BY AO TO 25% AS AGAINST 40% CLA IMED BY THE ASSESSEE IT IS SUBMITTED BY LD. AR OF ASSESSEE THAT ASSESSEE RUNS LORRIES ON HIRE TO TAKE BAZAAR LOADS OF CARGO FROM VARIOUS PLACES AND COLLECTED LO RRY HIRE AMOUNTS AND THE INCOME EARNED ON SUCH LORRY HIRE WAS ACCEPTED BY TH E DEPARTMENT AS BUSINESS INCOME AND THEREFORE DEPRECIATION IS ALLOWABLE AT THE RATE OF 40%. THE LD. DR OF REVENUE SUPPORTED THE ORDER OR AUTHORITIES BELOW. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON P AGE NO. 8 OF HIS ORDER CIT(A) HAS FOLLOWED THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF VENEER MILL VS. CIT AS REPORTED IN 201 ITR 764 W HEREIN IT WAS HELD THAT ASSESSEE SHOULD BE ENGAGED IN BUSINESS OF RUNNING T HE VEHICLES ON HIRE AND IF THE ASSESSEE IS MAINLY IN THE BUSINESS OF MANUFACTU RING AND HIRING ASSESSEE IS NOT ENTITLED FOR HIGHER RATE OF DEPRECIATION. ON T HIS ISSUE IT IS NOTED BY AO IN PARA NO. 6 OF THE ASSESSMENT ORDER THAT AS PER THE ASSESSEE THE VEHICLES IN QUESTION WERE USED FOR CARRYING GOODS OF OTHERS ALS O ON RETURN JOURNEYS AFTER DELIVERY OF ASSESSEES OWN GOODS AT DISTANT PLACES AND EARNED INCOME FROM IT AS APPEARING IN P & L ACCOUNT. FROM THESE FACTS NARRA TED BY THE AO IN THE ASSESSMENT ORDER WHICH IS NOT CONTROVERTED BY THE L D. AR OF ASSESSEE BEFORE US IT COMES OUT THAT USER OF TRUCKS ON HIRING IS NOT O N REGULAR BASIS BUT ON AD HOC BASIS AND THEREFORE THIS JUDGMENT OF HON'BLE KARNA TAKA HIGH COURT RENDERED IN THE CASE OF VENEER MILL VS. CIT (SUPRA) IS SQUARELY APPLICABLE AND THEREFORE RESPECTFULLY FOLLOWING THE SAME WE DECLINE TO INTE RFERE IN THE ORDER ON CIT(A) ON THIS ISSUE. BEFORE PARTING WE WOULD LIKE TO DISCU SS TWO JUDGMENTS OF WHICH RELIANCE HAS BEEN PLACED BY LD. AR OF ASSESSEE IN W RITTEN SUBMISSIONS FILED BEFORE US. THESE JUDGMENTS ARE 1. CIT VS. SRI DEV ENTERPRISES ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 18 OF 23 2. CIT VS. SOUTH INDIA CORPORATION (AGENCIES) LTD. 22. THE FIRST JUDGMENT CITED IS JUDGMENT RENDERED I N THE CASE OF CIT VS. SRI DEV ENTERPRISES AS REPORTED IN 192 ITR 165. IN THIS CA SE THE SUBSTANTIAL QUESTION RAISED BEFORE HON'BLE KARNATAKA HIGH COURT WAS THIS AS TO WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT SINCE NO ADDITIONS HAVE BEEN MADE IN EARLIER YEARS THE OPENING DEBIT BALANCE CANNOT BE CONSIDER ED DURING THE CURRENT YEAR AND THAT THE ENQUIRY HAS TO BE LIMITED TO THE INCRE ASE IN THE CURRENT YEAR ONLY . THE DISPUTE IN THAT CASE WAS REGARDING ALLOWABILITY OF INTEREST ON BORROWED CAPITAL. IN THE PRESENT CASE THE DISPUTE IS REGAR DING THE ALLOWABILITY OF DEPRECIATION AT HIGHER RATE AND THE SAME IS DEPENDI NG ON USER IN THE PRESENT YEAR AND IN THAT CASE THE DECISION WAS DEPENDENT O N USER OF BORROWED FUNDS AFTER BORROWING IN EARLIER YEAR I.E. YEAR OF BORROW AL. HENCE IN OUR CONSIDERED OPINION IN THE FACTS OF THE PRESENT CASE THIS JUD GMENT CITED BY LD. AR OF ASSESSEE IS NOT APPLICABLE. 23. THE SECOND JUDGMENT CITED BEFORE US IS THE JUDG MENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS. SOUTH INDIA C ORPORATION (AGENCIES) LTD. AS REPORTED IN 293 ITR 237. IN THAT CASE ALSO THIS W AS THE DISPUTE AS TO WHETHER THERE CAN BE DISALLOWANCE OF INTEREST IN RESPECT OF FUNDS BORROWED IN EARLIER YEAR WHEN THERE WAS NO DISALLOWANCE OF INTEREST IN THE E ARLIER YEAR AND THERE WAS NO FRESH BORROWING. HENCE FOR SAME REASONS THIS JUDG MENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE BECAUSE DISALLOWANCE OF INTEREST I S DEPENDENT ON USER OF BORROWED FUNDS AFTER BORROWING IN EARLIER YEAR I.E. YEAR OF BORROWAL. IN THE PRESENT CASE THE DISPUTE IS REGARDING THE ALLOWABI LITY OF DEPRECIATION AT HIGHER RATE AND THE SAME IS DEPENDING ON USER IN THE PRESE NT YEAR. HENCE IT IS SEEN THAT FACTS AND DISPUTES IN THAT CASE WAS DIFFERENT AND T HEREFORE THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 24. IN VIEW OF THE ABOVE DISCUSSION THIS ISSUE IS ALSO DECIDED AGAINST THE ASSESSEE. 25. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2000-01 IS ALSO DISMISSED. ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 19 OF 23 26. NOW WE TAKE UP THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2001-02 IN ITA NO. 3769/BANG/2004. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE ORDER OF THE LEARNED C.I.T. (APPEALS) MANGA LORE IN SO FAR AS AGAINST THE APPELLANT IS OPPOSED TO THE FACTS OF TH E CASE AND PRINCIPLES OF LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED C.I.T (A) ERRED IN LAW IN SUSTAINING THE DISALLOWANCE U/S 40A (2)(A) AND RESTRICTING THE ALLOWABLE INTEREST TO 17% P.A. AS A GAINST 18% ALLOWED IN THE PRECEEDING YEAR OF ACCOUNT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED C.I.T. (A) ERRED IN HOLDING THAT THE INTEREST PAID BY THE APPE LLANT ON MONIES BORROWED FROM THE DIRECTORS AND SHAREHOLDERS IN EXC ESS OF 17% P.A. AS UNREASONABLE AND IN SUSTAINING THE DISALLOWANCE BY THE ASSESSING OFFICER TO THAT EXTENT. 4. THE LEARNED C.I.T. (A) HAS ERRED IN SUSTAINING T HE DISALLOWANCE OF SIMPLE INTEREST IN EXCESS OF 17% P.A. ON THE DEPOSI TS FROM DIRECTORS AND SHAREHOLDERS U/S 40A(2)(A) IGNORING THE FACT TH AT THE INTEREST AT 18% P.A. WAS ALLOWED AS REASONABLE IN THE IMMEDIATE PRECEEDING YEAR OF ACCOUNT. 5. THE LEARNED C.I.T. (A) HAS ERRED IN RESTRICTING THE ALLOWANCE OF ENTRY TAX PENALTY TO 50% OF THE SUM IGNORING THE FA CT THAT IT IS IN THE NATURE OF INTEREST FOR THE DELAY IN PAYMENT. 6. THE LEARNED C.I.T. (A) HAS ERRED IN SUSTAINING T HE RESTRICTION OF DEPRECIATION ON LORRIES TO 25% AS AGAINST 40% CLAIM ED BY THE APPELLANTS. 7. YOUR APPELLANT CRAVE FOR LEAVE TO ADD ALTER OR AMEND THESE GROUNDS OF APPEAL. 8. FOR THESE GROUNDS AND SUCH OTHER GROUNDS AS ARE ADVANCED AT THE TIME OF HEARING YOUR APPELLANT PRAY THAT THE APPEA L BE ALLOWED. 27. IT WAS AGREED BY BOTH SIDES THAT GROUND NO. 1 I S GENERAL AND REGARDING GROUND NOS. 2 3 AND 4 IT WAS AGREED THAT THIS ISSUE IS S AME AS RAISED BY THE ASSESSEE AS PER GROUND NOS. 8 TO 12 IN ASSESSMENT YEAR 1998- 99 AND GROUND NO. 2 IN ASSESSMENT YEAR 2000-01 AND THE SAME MAY BE DECIDED IN THE PRESENT YEAR ALSO ON SIMILAR LINE. THIS ISSUE WAS DECIDED AGAIN ST THE ASSESSEE FOR ASSESSMENT YEAR 1998-99 AND 2000-01 AND THEREFORE ON THE SIMILAR LINE IN THE ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 20 OF 23 PRESENT YEAR ALSO THIS ISSUE IS DECIDED AGAINST AS SESSEE. ACCORDINGLY GROUND NOS. 2 3 AND 4 ARE REJECTED. 28. REGARDING GROUND NO. 5 IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS GROUND HAS NOT PRESSED AND ACCORDINGLY THIS GROUND IS REJE CTED AS NOT PRESSED. 29. REGARDING GROUND NO. 6 IT WAS SUBMITTED IN THE WRITTEN SUBMISSIONS THAT THIS ISSUE IS IDENTICAL TO GROUND NOS. 4 AND 5 RAISED IN ASSESSMENT YEAR 2000-01 AND THE SAME MAY BE DECIDED ON SIMILAR LINE. IN ASSESS MENT YEAR 2000-01 THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE AND THEREFOR E IN THE PRESENT YEAR ALSO THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 30. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2001-02 IS ALSO DISMISSED. 31. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2007-08 IN ITA NO. 1903/BANG/2016.THE GROUNDS RAISED BY THE ASSESS EE ARE AS UNDER. I. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MANGALURU IS OPPOSED TO LAW AND ON FACTS OF THE CAS E. II. RESTRICTION OF DEPRECIATION CLAIMED ON LORRIES: A) THE LEARNED CIT(A) MANGALURU HAS ERRED IN LAW I N CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFICER AMOUNTING T O RS.8 95 595/- BY RESTRICTING THE DEPRECIATION CLAIMED ON LORRIES AT 15% OF WDV AS AGAINST AT 30% CLAIMED BY THE APPELLANT BY RELYING ON THE FOLLOWING DECISIONS WHICH ARE NOT AT ALL APPLICABLE TO THE A PPELLANT'S CASE. I) CIT VS. GUPTA GLOBAL EXIM (P) LTD. (17 TAXMAN 47 4) (SC) II) VEENEER MILLS VS. CIT (201 ITR 764) (KAR) B) THE LEARNED CIT(A) MANGALURU HAS FAILED TO COMP REHEND THE FACT THAT THE HIGHER RATE OF DEPRECIATION WERE ALLOWED FOR THE PRECEDING PAST SEVERAL YEARS WHICH WERE ALLOWED AND HENCE OUGHT TO HAVE FOLLOWING CONSISTENCY AS HELD BY VARIOUS COURTS. III DISALLOWANCE UNDER SECTION 43B - PROVISION FOR PRIOR PERIOD WAGES: ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 21 OF 23 A) THE LEARNED CIT(A) MANGALURU HAS ERRED IN LAW I N CONFIRMING THE DISALLOWANCE MADE SECTION 43B AMOUNTING TO RS.L 99 23 884/- BY THE AO BEING PART OF THE PROVISION MADE FOR ARREARS OF WAGES. B) THE LEARNED CIT(A) MANGALURU HAS ERRED IN LAW I N HOLDING THAT NO EVIDENCE ON THE RECORD TO SUPPORT THE FRESH CLAIM O F THE APPELLANT BY GROSSLY IGNORING THE TRIPARTITE AGREEMENT AND DETAI LED WRITTEN SUBMISSIONS MADE. IV. THE APPELLANT CRAVES LEAVE TO ADD AMEND OR ALT ER ANY OF THE FORGOING GROUNDS. V. FOR THESE AND ANY OTHER GROUNDS THAT MAY BE URGE D BEFORE THE HON'BLE ITAT IT IS PRAYED THAT THE HON'BLE ITAT MA Y ALLOW THE APPEAL WITH COST. 32. IT WAS AGREED BY BOTH SIDES THAT GROUND NO. 1 I S GENERAL AND THE ISSUE INVOLVED IN GROUND NO. 2 IS SAME WHICH WAS RAISED BY THE ASSESS EE IN ASSESSMENT YEAR 1998-99 AS PER GROUND NOS. 8 TO 12 IN ASSESSMENT Y EAR 2000-01 IN GROUND NOS. 4 AND 5 AND IN ASSESSMENT YEAR 2001-02AS PER GROUND NO. 6 AND THE SAME MAY BE DECIDED ON SIMILAR LINE. IN ALL THE EARLIER YEA RS THIS ISSUE HAS BEEN DECIDED BY US AGAINST ASSESSEE AND THEREFORE IN THE PRESENT Y EAR ALSO THIS ISSUE IS DECIDED AGAINST ASSESSEE. GROUND NO. 2 IS REJECTED. 33. THE NEXT ISSUE IS REGARDING DISALLOWANCE U/S. 4 3B IN RESPECT OF PROVISIONS FOR PRIOR PERIOD WAGES. ON THIS ISSUE IT IS SUBMITTED BY LD. AR OF ASSESSEE THAT THE AO HAS DISALLOWED A SUM OF RS. 1 99 23 883/- AS EXC ESS CLAIM OF PROVISION U/S. 43B OF IT ACT. IT IS ALSO SUBMITTED THAT ARREARS O F WAGES WERE PROVIDED AS PER THIRD PARTY AGREEMENT ENCLOSED WHICH ELABORATES THE METHOD OF CALCULATING BACK WAGES PAYABLE TO WORKERS WHO ARE IN SERVICE FROM 01 .11.1996 AND REMAINING IN SERVICE UP TO 05.10.2006 AND THEREFORE IT IS A CON TRACTUAL PAYMENT AS PER THREE PARTIES AGREEMENT AND SECTION 43B DOES NOT APPLY AS PER THE DECISION OF KOLKATA TRIBUNAL IN THE CASE OF SPENCER RETAIL LTD. VS. PCI T 2. SHE ALSO SUBMITTED THAT THE AGREEMENT DOES NOT SPECIFY THE MODE OF COMPETIT ION OF BACK WAGES TO SUCH BEEDI WORKERS WHO HAD ONLY WORKED FOR PART OF THE Y EAR SPECIFIED IN TABLE GIVEN IN THE WRITTEN SUBMISSIONS AND THEREFORE THE ASSESSEE REASONABLY ESTIMATED A SUM OF RS. 42 55 235/- AS WAGES PAYABLE TO SUCH WORKERS WHO HAS WORKED FOR PAST 10 YEARS AND INCLUDED THE SAME AGGREGATING A SUM OF RS. 16 90 98 179/- ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 22 OF 23 PROVIDED IN THE ACCOUNT. IT IS ALSO SUBMITTED THAT AS PER PARA NO. 5 OF CLAUSE 1 OF PART 1 OF TERMS OF SETTLEMENT OF TRIPARTITE AGREEME NT THE BACK WAGES INCLUDE 16.43% STATUTORY BENEFIT AND THE AGREEMENT DOES NOT SPECIFY THE STATUTORY BENEFIT AS BONUS. IT IS ALSO SUBMITTED THAT LIABIL ITY OF BONUS ARISES ONLY ON PAYMENTS OF WAGES AND THEREFORE IN THE PROVISION M ADE IS FOR ARREARS OF WAGES AND NOT BONUS AS ALLEGED BY THE AO. SHE ALSO SUBMI TTED THAT SECTION 43B IS APPLICABLE ONLY TO STATUTORY BONUS AND NOT TO OTHER STATUTORY BENEFITS AND THEREFORE THE DISALLOWANCE MADE BY THE AO IS NOT J USTIFIED. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN T HIS REGARD WE FIND THAT ON PAGE NO. 4 OF THE ASSESSMENT ORDER COMPLETE DETAILS ARE NOTED BY THE AO IN RESPECT OF STATUTORY BENEFIT OF 16.43% AS PER THE AGREEMENT . AS PER THE AO IT INCLUDES LEAVE WITH WAGES OF 3.1% NATIONAL AND FESTIVAL HOL IDAY WAGES OF 5% AND BONUS OF 8.33%. MOREOVER WE FIND THAT AS PER TERMS OF TR IPARTY AGREEMENT SUBMITTED ALONG WITH WRITTEN SUBMISSIONS IT IS SPECIFIED THA T OUT OF RS. 4 500/- PAYABLE TO EACH WORKER 16.43% WILL BE TREATED AS STATUTORY BE NEFIT AND 20% WERE REMAINING WAGES PAYABLE SHALL BE TO PF AUTHORITY CONCERNED FO R THE RESPECTIVE EMPLOYEES AND HENCE IT IS SEEN THAT AS PER TERMS OF THE AGRE EMENT NO PF IS DEDUCTIBLE FROM THE STATUTORY BENEFIT. IF THE STATUTORY BENEF IT IS IN THE FORM OF WAGES AND SALARY THEN IT CANNOT BE EXCLUDED FROM THE APPLICA BILITY OF PF DEDUCTION. THIS ALSO GOES TO SHOW THAT STATUTORY BENEFIT IS NOT IN THE FORM OF WAGES AND SALARY. THIS IS ALSO VERY IMPORTANT TO NOTE THAT AS PER THE PAYMENT OF BONUS ACT 1965 PAYMENT OF BONUS AT THE RATE OF 8.33% IS A MUST EVE N IF THE ASSESSEE IS RUNNING INTO LOSSES AND THEREFORE THE BIFURCATION OF 16.43 % STATUTORY BENEFIT NOTED BY AO ON PAGE NO. 4 OF THE ASSESSMENT ORDER HAS TO BE ACC EPTED AS CORRECT. IT IS ALSO WORTH NOTING THAT EVEN IF THIS BIFURCATION IS NOT C ORRECT AS CONTENDED BY THE LEARNED AR OF THE ASSESSEE THE ASSESSEE SHOULD HAV E BROUGHT ON RECORD THE CORRECT BIFURCATION OF STATUTORY BENEFIT OF 16.43% WHICH HAS NOT BEEN DONE BY THE ASSESSEE. CONSIDERING ALL THESE FACTS AND IN VIEW OF ABOVE DISCUSSION WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE A LSO. ACCORDINGLY THIS GROUND IS ALSO REJECTED. ITA NOS. 233 & 237/BANG/2001 ITA NOS. 3442 & 3769/BANG/2004 & ITA NO. 1903/BANG/2016 PAGE 23 OF 23 35. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2007-08 IS ALSO DISMISSED. 36. IN THE COMBINED RESULT THE APPEAL OF THE REVEN UE FOR ASSESSMENT YEAR 1998-99 IS PARTLY ALLOWED WHEREAS ALL THE FOUR APPEALS OF T HE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 29 TH NOVEMBER 2017. /MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.