Gujarat Gas Co. Ltd.,, Ahmedabad v. The ACIT., Circle-4,, Ahmedabad

ITA 2211/AHD/2004 | 1998-1999
Pronouncement Date: 28-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 221120514 RSA 2004
Assessee PAN AAACG5600M
Bench Ahmedabad
Appeal Number ITA 2211/AHD/2004
Duration Of Justice 6 year(s) 7 month(s) 20 day(s)
Appellant Gujarat Gas Co. Ltd.,, Ahmedabad
Respondent The ACIT., Circle-4,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 28-02-2011
Assessment Year 1998-1999
Appeal Filed On 08-07-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.2211/AHD/2004 (ASSESSMENT YEAR:-1998-99) & ITA NO.36/AHD/2005 (ASSESSMENT YEAR:-2001-02) GUJARAT GAS COMPANY LIMITED. 2 SHANTISADAN SOCIETY NEAR PARIMAL GARDEN ELLIS-BRIDGE AHMEDABAD V/S ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-4[EARLIER ADDL. COMMISSIONER OF INCOME-TAX SPECIAL RANGE- 8 ] AHMEDABAD PAN: AAACG 5600 M [APPELLANT] [RESPONDENT] ITA NO.134/AHD/2005 (ASSESSMENT YEAR:-2001-02) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-4 AHMEDABAD V/S GUJARAT GAS CO. LIMITED. 2 SHANTISADAN SOCIETY NEAR PARIMAL GARDEN ELLIS- BRIDGE AHMEDABAD [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI SANJAY R SHAH AR REVENUE BY:- SHRI ANIL KUMAR DR O R D E R A N PAHUJA: THESE APPEALS- ITA NO.2211/AHD/2004 FILED BY THE ASSESSEE AGAINST AN ORDER DATED 25-03-2004 OF THE L D. CIT(APPEALS)- X AHMEDABAD FOR THE ASSESSMENT YEAR (AY) 1998-99 AND CROSS APPEALS AGAINST AN ORDER DATED 03-11-2004 OF THE CI T(A)-VIII AHMEDABAD FOR THE ASSESSMENT YEAR 2001-02 RAISE T HE FOLLOWING GROUNDS:- ITA NOS.2211/A/04 & 36-134/A/05 2 ITA NO.2211/AHD/2004- AY:- 1998-99[ASSESSEE] 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM MADE U/S.80-I & 80-IA ON THE GROUND THAT ACTIVITY OF YOUR APPELLANT CANNOT BE HELD AS M ANUFACTURE OR PRODUCTION OF ARTICLE OR THING. YOUR APPELLANT SUBMITS THAT IT IS ENGAGED IN MANUFACTURING AND/OR PRODUCING ARTICLES NOT SPECIFI ED IN NINTH SCHEDULE. YOUR APPELLANT SUBMITS THAT AS IT FULFILLS ALL THE CONDITIONS LAID CLOWN FOR CLAIM OF RELIEF U/S.80-I & 80-IA OF THE ACT THE LE ARNED CIT (APPEALS) OUGHT TO HAVE GRANTED DEDUCTION U/S.8O-I & 80-IA OF THE I .T. ACT. YOUR APPELLANT SUBMITS THAT DEDUCTION AS CLAIMED U/S.80-I/80-IA BE ALLOWED NOW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.11 07 179/- BEING REIMBURSEMENT OF 50% OF INTEREST ON HOUSING LOAN TAKEN BY THE EMPLOY EES ON WRONG PREMISES. YOUR APPELLANT SUBMITS THAT IT HAS NEVER MENTIONED THAT IN ASSESSMENT YEAR 1996-97 SUCH DISALLOWANCE HAS BEEN CONFIRMED AS ALLEGED BY THE LEARNED CIT(A). ON THE CONTRARY IN T HE WRITTEN SUBMISSION FILED BEFORE THE CIT(A) YOUR APPELLANT HAS STATED THAT DISALLOWANCE HAS BEEN DELETED BY THE CIT(A) IN ASSESSMENT YEAR 1996- 97. YOUR APPELLANT FURTHER SUBMITS THAT IT HAS NOT GIVEN ANY LOAN TO T HE EMPLOYEES BUT THE EMPLOYEES OF THE ASSESSEE COMPANY HAVE TAKEN LOAN F ROM THE PARTIES OTHER THAN THE ASSESSEE COMPANY AND THE COMPANY HAS ACTUALLY REIMBURSED 50 PER CENT OF THE INTEREST PAID ON THE LOAN TAKEN BY THE EMPLOYEES. THE REIMBURSEMENT OF INTEREST IS ACTUAL PAYMENT AND NO BOOK ADJUSTMENT AS OBSERVED BY THE LEARNED COMMISSIONER (APPEALS). FURTHER THE AMOUNT OF INTEREST REIMBURSED TO THE EMPLOYEES HAS BEEN TREATED AS PART OF SALARY AND TAX AT SOURCE HAS BEEN DEDUCTED AT THE APPROPRIATE RATE. YOUR APPELLANT FURTHER SUBMITS THAT THE EXPENDITURE HAS BEEN INCURRED TO KEEP HEALTHY RELATIONS WITH THE EMPLOYEES OF THE CO MPANY AND IN THE NATURE OF STAFF WELFARE EXPENSES. IT IS SUBMITTED T HAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND INCID ENTAL TO THE BUSINESS AND THEREFORE THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS) IS NOT AT ALL JUSTIFIED IN CONFIRMING THE DISALLOWANCE. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DISALLOWANCE MADE BE DELETED NOW. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1 69 782/- TREATI NG IT AS NON-BUSINESS EXPENDITURE ON CERTAIN ASSUMPTIONS AND PRESUMPTIONS . YOUR APPELLANT SUBMITS THAT EXPENDITURE REPRESENTS THE EXPENDITURE INCURRED ON SWEETS DISTRIBUTED TO THE STAFF MEMBERS ON THE OCCASION OF DIWALI FESTIVAL AND THE EXPENDITURE INCURRED ON GAS DAY - 5TH SEPTEMBER - E VERY YEAR WHEN POOJA WAS DONE FOLLOWED BY LUNCH TO THE EMPLOYEES - THE EXPENSES ARE INCURRED WITH A VIEW TO KEEP GOOD RELATION WITH THE EMPLOYEES OF THE COMPANY AND ARE IN THE NATURE OF STAFF WELFARE. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CO MMISSIONER OF INCOME- TAX (APPEALS) IS NOT AT ALL JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE AS NON-BUSINESS EXPENDITURE. IT IS SUBM ITTED THAT IT BE SO HELD NOW AND DISALLOWANCE MADE BE DELETED NOW. ITA NOS.2211/A/04 & 36-134/A/05 3 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.33 303/- BEING AM OUNT SPENT AS A SUBSIDY GIVEN TOWARDS SUPPLY OF GAS CONNECTION TO T HE EMPLOYEES OF THE COMPANY CONSIDERING THE SAME AS NON-BUSINESS EXPEN DITURE. YOUR APPELLANT SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT CORRECT IN OBSERVING IN HIS ORDER THAT THE C HARGES FOR GAS CONNECTION ARE NOT ACTUALLY MADE AVAILABLE TO THE EMPLOYEES B UT ADJUSTED IN THE COMPANY'S ACCOUNT. IN FACT YOUR APPELLANT HAS NOT MADE ANY BOOK ADJUSTMENT. THE EMPLOYEES OF THE APPELLANT COMPANY HAVE PAID GAS CONNECTION CHARGES TO A COMPANY OTHER THAN THE ASSE SSEE COMPANY AND THE ASSESSEE COMPANY - GUJARAT GAS COMPANY LIMITED HAVE ACTUALLY REIMBURSED A PART OF THE GAS CONNECTION CHARGES OF THE EMPLOYEES. YOUR APPELLANT SUBMITS THAT SUCH REIMBURSEMENT OF GAS CO NNECTION CHARGES IS ACTUAL PAYMENT AND NOT THE BOOK ADJUSTMENT AS OBSER VED BY THE LEARNED COMMISSIONER (APPEALS). YOUR FURTHER APPELLANT SUBM ITS THAT THE EXPENDITURE HAS BEEN INCURRED TO KEEP HEALTHY RELAT IONS WITH THE EMPLOYEES OF THE COMPANY AND IN THE NATURE OF STAFF WELFARE EXPENSES. IT IS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND INCIDENTAL TO THE BUSINESS AND THEREFO RE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT AT ALL JUSTIFIED IN CONFIRMING THE DISALLOWANCE. IT IS SUBMITTED THAT IT BE SO HEL D NOW AND DISALLOWANCE MADE BE DELETED NOW. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1 98 01 130/- BEI NG INTEREST ON BORROWINGS MADE FOR HAZIRA - ANKLESHWAR PIPELINE PR OJECT (HAPI). THE MAIN BUSINESS OF YOUR APPELLANT IS NATURAL GAS DIST RIBUTION THROUGH PIPELINES STARTED SINCE 1989. THE ASSESSEE COMPANY HAS ALREADY GOT A 930 KM LONG PIPELINE NETWORK IN PLACE STARTING FROM ANKLESHWAR AND BHARUCH AND THE HAPI PROJECT WAS MERELY AN INCREASE OF 73 KMS PIPELINE FROM HAZIRA TO ANKLESHWAR. THE HAPI PROJECT WAS NOT A NEW LINE OF BUSINESS OF THE ASSESSEE COMPANY BUT SIMPLY AN EXT ENSION OF THE SAME BUSINESS UNDERTAKEN WITH A VIEW TO INCREASE THE GAS DISTRIBUTION NETWORK. AS THE INTEREST HAS BEEN PAID IN CONNECTION WITH BO RROWINGS MADE FOR LAYING THE NEW PIPE LINES OF HAPI PROJECT - EXPANSI ON OF ITS EXISTING BUSINESS THE SAME IS ADMISSIBLE AS DEDUCTION U/S.3 6(L)(III) OF THE I.T. ACT. YOUR APPELLANT SUBMITS THAT IT BE SO HELD NOW AND D EDUCTION AS CLAIMED BE ALLOWED NOW. WITHOUT PREJUDICE YOUR APPELLANT SUBMITS THAT IF I T IS HELD THAT THE INTEREST ON BORROWINGS MADE FOR HAZIRA-ANKLESHWAR PIPE PROJE CT IS NOT ADMISSIBLE U/S.36(L)(III) OF THE I.T. ACT THEN IT IS ENTITLED TO DEPRECIATION ON THE AMOUNT OF INTEREST WHICH HAS BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT BUT NO DEPRECIATION HAS BEEN CLAIMED WHEN THE PROJECT STAR TED PRODUCTION IN SUBSEQUENT ASSESSMENT YEAR. YOUR APPELLANT SUBMITS THAT THE APPROPRIATE DIRECTION BE GIVEN TO GRANT DEPRECIATION ON THE AMO UNT OF INTEREST CLAIMED AS DEDUCTION U/S.36(I)(III) BUT DISALLOWED AS CAPI TAL EXPENDITURE. IT IS SUBMITTED THAT IT BE SO DONE NOW ITA NOS.2211/A/04 & 36-134/A/05 4 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR DOUBTFUL DEBTS OF RS.45 16 000/- ON CERTAIN ASSUMPTIONS AND PRES UMPTIONS AND WITHOUT ANY BASIS. YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED CIT(A) IS NOT AT ALL CORRECT AND ALSO NOT JUSTIFIED IN MAKING CERTAI N OBSERVATIONS WHILE PASSING THE ORDER. YOUR APPELLANT SUBMITS THAT IT H AS PURCHASED THE ASSETS FROM ALTOGETHER A DIFFERENT COMPANY AND THE SAME AS SETS WERE LEASED TO RAJINDER STEELS LTD. YOUR APPELLANT FURTHER SUBMITS THAT THE TRANSACTION WITH RAJINDER STEELS LTD. IS NOT A TRANSACTION OF S ALE AND LEASE BACK AS ALLEGED BY THE CIT(A). FURTHER THE VARIOUS ALLEGATI ONS/OBSERVATIONS MADE BY THE CIT(A) IN HIS ORDER ARE WITHOUT ANY BASIS AN D FAR FROM TRUTH. THE TRANSACTION ENTERED WITH RAJINDER STEELS LTD. WAS A SIMPLE LEASE OF ASSETS. YOUR APPELLANT SUBMITS THAT SINCE THE AMOUNT OF LEA SE RENT DUE FROM RAJINDER STEELS LTD. IS FOUND TO BE NOT RECOVERABLE INSPITE OF LEGAL SUITS FILED THE APPELLANT HAS MADE THE PROVISION BY DEBI TING THE AMOUNT TO THE PROFIT & LOSS ACCOUNT. IN FACT IN ASSESSMENT YEAR 1 999-2000 THE PARTY'S ACCOUNT HAS BEEN WRITTEN OFF. YOUR APPELLANT SUBMIT S THAT IN THE FACTS AND CIRCUMSTANCES OF ITS CASE AND IN VIEW OF THE DECISI ON OF THE JURISDICTIONAL HIGH COURT AND THE INCOME TAX APPELLATE TRIBUNAL A HMEDABACL THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE ALLOWED THE CLAIM. YOUR APPELLANT SUBMITS THAT IT BE SO ALLOWED NOW. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2 30 218/- OUT OF MISCELLANEOUS EXPENSES OF RS.6 79 214/- ON THE GROUND THAT EXPENS ES TOWARDS FAMILY MEET LPG DAY EXPENSES EMERGENCY WORK EXPENSES FOR DIWALI ETC. ARE NOT IN THE NATURE OF BUSINESS EXPENDITURE. YOUR APP ELLANT SUBMITS THAT THE EXPENSES INCURRED BY IT TOWARDS FAMILY MEET LPG DA Y EMERGENCY WORK EXPENSES DURING DIWALI PERIOD ETC. ARE IN THE INTER EST OF THE BUSINESS AND THEREFORE ALLOWABLE U/S.37(1) OF THE ACT. IT IS FU RTHER SUBMITTED THAT WHEN THE ENTIRE EXPENDITURE OF RS.6 79 214/- IS INCURRED FOR BUSINESS PURPOSES THERE IS NO JUSTIFICATION IN CATEGORISING AN AMOUNT OF RS.2 30 218/- AS NOT EXPENDED FOR BUSINESS PURPOSES AND DISALLOWING IT. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES THE COMMISSION ER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE DISALL OWANCE MADE BY THE ASSESSING OFFICER. IT IS SUBMITTED THAT IT BE SO HE LD NOW. 8. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS REPLACEMENT OF DEFECTIVE METERS OF RS.23 46 862/- CONSIDERING T HE SAME AS CAPITAL IN NATURE. YOUR APPELLANT SUBMITS THAT REPLACEMENT OF THE DEFECTIVE METERS BY NEW ONES IS NOTHING BUT REPAIRS TO THE PLANT AND MA CHINERY INSTALLED FOR THE PURPOSE OF SUPPLYING THE GAS TO THE USERS. YOUR APP ELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES THE EXPENDITURE INCURR ED IS ALLOWABLE U/S.31/37 OF THE ACT. YOUR APPELLANT SUBMITS THAT T HE CLAIM FOR DEDUCTION OF RS.23 46 862/- BE DIRECTED TO BE ALLOWED. ITA NOS.2211/A/04 & 36-134/A/05 5 9. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN RETAINING THE ADDITION OF RS.1 00 000/- OUT OF THE ADDITION OF RS.2 00 000/- ON ACCOUNT OF ALLEGED SALE OF DEFECTIVE METERS. YOU R APPELLANT SUBMITS THAT NEITHER ANY SALE TOOK PLACE NOR THERE IS ANY SALE V ALUE OF DEFECTIVE METERS. UNDER THE FACTS AND CIRCUMSTANCES THERE IS NO JUST IFICATION ON THE PART OF THE LEARNED ASSESSING OFFICER IN ESTIMATING THE INC OME FROM THE ALLEGED SALE OF SCRAP. YOUR APPELLANT SUBMITS THAT AS THE A DDITION IS BASED ON PRESUMPTIONS AND SURMISES THE SAME IS OUGHT TO BE DELETED. IT IS SUBMITTED THAT IT BE SO CLONE NOW. 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.9 05 000/- BEING THE EXPENDITURE INCURRED FOR MARKET SURVEY OF NEW AREA FOR THE SALE OF PRODUCTS AS WELL AS MARKETING THE PRODUCE IN 5 KG. CYLINDERS ETC. YOUR APPELLANT SUBMITS THAT MARKETING THE L.P.G. IN A SMALLER CONTAINER OF 5 KG S. CANNOT BE CONSIDERED AS LAUNCHING OF A NEW PRODUCT SO AS TO T REAT THE EXPENDITURE AS CAPITAL IN NATURE. SIMILARLY EXPENDITURE INCURR ED TO EXPLORE THE MARKET POSITION OF OTHER AREAS OF THE COUNTRY CAN NOT BE C ONSIDERED AS CAPITAL EXPENDITURE. YOUR APPELLANT SUBMITS THAT THE EXPEND ITURE HAS BEEN INCURRED FOR THE PURPOSE OF INCREASING THE SALES. I N THE FACTS AND CIRCUMSTANCES IT IS SUBMITTED THAT THE EXPENDITURE BEING IN THE NATURE OF SALES PROMOTION EXPENSES THE SAME IS ALLOWABLE U/S .37(1) OF THE ACT. YOUR APPELLANT SUBMITS THAT IT BE SO HELD NOW AND D EDUCTION AS CLAIMED BE ALLOWED NOW. YOUR APPELLANT PRAYS FOR LEAVE TO ADD ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPE AL. ITA NO.36/AHD/2005-AY:- 2001-02[ASSESSEE] 1. THE ORDER PASSED BY THE COMMISSIONER OF INCOME-T AX (APPEALS) IS ERRONEOUS ON LAW AND FACTS AND THEREFORE REQUIRES T O BE MODIFIED. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM MADE U/S.80-I/ 80-IA ON THE GROUND THAT ACTIVITY OF YOUR APPELLANT CANNOT BE HELD AS M ANUFACTURE OR PRODUCTION OF ARTICLE OR TILING. YOUR APPELLANT SUBMITS THAT I T IS ENGAGED IN MANUFACTURING AND/OR PRODUCING ARTICLES NOT SPECIFI ED IN ELEVENTH SCHEDULE. YOUR APPELLANT SUBMITS THAT AS IT FULFILS ALL THE CONDITIONS LAID DOWN FOR CLAIM OF RELIEF U/S.80-I / 80-IA OF THE AC T THE LEARNED CIT (APPEALS) OUGHT TO HAVE GRANTED DEDUCTION U/S.80-I / 80-IA OF THE I.T. ACT. YOUR APPELLANT SUBMITS THAT DEDUCTION AS CLAIMED U/ S.80-I/80-IA BE ALLOWED NOW. ITA NOS.2211/A/04 & 36-134/A/05 6 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER AS RE GARDS NON-GRANT OF DEPRECIATION ON THE ASSETS LEASED TO RAJASTHAN STAT E ELECTRICITY BOARD (RSEB)- (A STATE GOVERNMENT UNDERTAKING FORMED UND ER THE STATE ELECTRICITY SUPPLY ACT) ON THE GROUND THAT THE AGRE EMENTS MADE WITH RSEB IS NOTHING BUT A DEVICE OF TAX AVOIDANCE AND TOTAL LY INCORRECT. YOUR APPELLANT SUBMITS THAT THERE IS NO JUSTIFICATION IN NOT GRANTING DEPRECIATION OF RS.93 33 112/- BEING THE DEPRECIATION ON THE ASS ETS LEASED TO RAJASTHAN STATE ELECTRICITY BOARD (RSEB). YOUR APPELLANT SUBM ITS THAT IT HAD PURCHASED THE VARIOUS ASSETS FROM RAJASTHAN STATE E LECTRICITY BOARD (A STATE GOVERNMENT UNDERTAKING FORMED UNDER THE STAT E ELECTRICITY SUPPLY ACT) AND LEASED BACK TO THE SAID RSEB. YOUR APPELLA NT HAS ENTERED INTO LEASE AGREEMENT AND IT IS REGULARLY RECEIVING THE L EASE RENT FROM RAJASTHAN STATE ELECTRICITY BOARD. YOUR APPELLANT FURTHER SUB MITS THAT LEASING IS A MODERN MODE OF FINANCING. NEVERTHELESS IT REMAINS THAT THE OWNERSHIP OF THE ASSETS LEASED HAS BEEN TRANSFERRED AND DOES NOT BECOME THE LOAN REPAYABLE. YOUR APPELLANT ENTERED INTO THE LEASE AG REEMENTS - GENUINE TRANSACTIONS WITH THE INDEPENDENT AND UNRELATED PAR TIES - STATE GOVERNMENT UNDERTAKINGS. THE TRANSACTION WAS ENTERE D INTO BETWEEN THE PARTIES AT ARM'S LENGTH AND THAT THE LEASE RENT REC EIVED HAS BEEN OFFERED TO TAX. YOUR APPELLANT FURTHER SUBMITS THAT IN THE HAN DS OF THE SELLER THE DEPARTMENT ACCEPTED THE TRANSACTION AS SALE TO THE APPELLANT COMPANY AND LEASE BY US TO THEM WHEREAS IN THE HANDS OF THE APP ELLANT THE DEPARTMENT TAKES EXACTLY OPPOSITE STAND. YOUR APPELLANT FURTHE R SUBMITS THAT THERE IS NO JUSTIFICATION IN STATING THAT THE TRANSACTION BE TWEEN THE APPELLANT COMPANY AND THE LESSEE WAS PREORDAINED AND PRE-PLAN NED AND ONLY FOR AVAILING THE DEPRECIATION. YOUR APPELLANT SUBMITS T HAT IN THE FACTS AND CIRCUMSTANCES AS THE ASSETS ARE OWNED AND USED FOR THE PURPOSE OF THE BUSINESS IT IS ENTITLED TO DEPRECIATION ON THE ASS ETS LEASED TO RAJASTHAN STATE ELECTRICITY BOARD AS CLAIMED. IT IS SUBMITTED THAT IT BE SO ALLOWED NOW. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1 65 352/- BEING INTEREST PAYABLE FOR THE YEAR ON UNPAID PURCHASE PRICE OF PLANT AND MACHINER Y ACQUIRED ON DEFERRED PAYMENT BASIS. YOUR APPELLANT SUBMITS THAT IT HAS PURCHASED THE PLANT & MACHINERY ON DEFERRED PAYMENT BASIS AND UTI LIZED THE SAME FOR THE PURPOSE OF BUSINESS DURING THE YEAR. YOUR APPELLANT SUBMITS THAT THE LEARNED ASSESSING OFFICER FAILED TO CONSIDER THE BO ARD'S CIRCULAR LETTER BEARING F.NO.10/76/82-IT(A-L) DATED 13-09-1965 CLAR IFYING THE POSITION OF ALLOWABILITY OF INTEREST PAYABLE ON UNPAID PURCHASE PRICE OF PLANT & MACHINERY. YOUR APPELLANT SUBMITS THAT INTEREST PAY ABLE ON UNPAID PURCHASE PRICE OF PLANT & MACHINERY AFTER THE DATE OF COMMENCEMENT OF BUSINESS IS ALLOWABLE AS BUSINESS REVENUE EXPENDITU RE. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT AT ALL JUSTIFIED IN CONFIRMING THE DISALLOWANCE. YOUR APPELLANT SUBMITS THAT IT BE SO HELD NOW AND DEDUCTION AS CLAIMED BE GRANTED NOW. ITA NOS.2211/A/04 & 36-134/A/05 7 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE PART OF DISALLOWANCE MADE BY THE ASS ESSING OFFICER BY INVOKING PROVISIONS OF SECTION 14A OF THE I.T. ACT. YOUR APPELLANT SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) IS NOT JUSTIFIED IN HOLDING THAT PROPORTIONATE OF THE FOLLOWING EXPENSE S SHOULD BE CONSIDERED FOR THE PURPOSE OF EARNING THE EXEMPTED DIVIDEND IN COME U/S. 10(33) OF THE ACT: (A) INTEREST ON DEFERRED PAYMENT CREDIT RS.1 65 3 52/- (B) INTEREST ON WORKING CAPITAL RS.19 130/- (C) INTEREST ON DELAYED PAYMENT OF SALES-TAX RS.84 011 /- (D) ADMINISTRATIVE EXPENSES RS.26 30 14 000/- YOUR APPELLANT SUBMITS THAT IT HAS NOT INCURRED ANY EXPENDITURE AS ALLEGED FOR EARNING THE EXEMPTED DIVIDEND INCOME U/S. 10(33 ) OF THE ACT. YOUR APPELLANT FURTHER SUBMITS THAT THE INVESTMENTS IN S HARES HAVE BEEN MADE FROM ITS OWN FUND AND NO AMOUNT HAS BEEN BORROWED F OR THE PURPOSE OF INVESTMENT. THEREFORE THERE IS NO JUSTIFICATION IN CONSIDERING THE PROPORTIONATE INTEREST FOR THE PURPOSE OF INVOKING PROVISIONS OF SECTION 14A OF THE I.T. ACT. FURTHER YOUR APPELLANT SUBMITS TH AT IT HAD NOT INCURRED ANY EXTRA ADMINISTRATIVE EXPENDITURE FOR EARNING THE TA X-FREE INCOME. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANC ES NO DISALLOWANCE SHOULD BE MADE U/S. 14A OF THE INCOME-TAX ACT 1961 . WITHOUT PREJUDICE YOUR APPELLANT SUBMITS THAT DISA LLOWANCE MADE BY INVOICING PROVISIONS OF SECTION 14A IS VERY EXCESSI VE AND THE SAME SHOULD BE SUBSTANTIALLY REDUCED. IT IS SUBMITTED THAT IT B E SO DONE NOW. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.32 618/- BEING TH E AMOUNT OF DEBIT BALANCES WRITTEN OFF. YOUR APPELLANT SUBMITS THAT T HE AMOUNT HAS BEEN WRITTEN OFF AS THE SAME WERE OUTSTANDING SINCE LONG TIME FROM VARIOUS PARTIES WHICH INCLUDES AMOUNT RECEIVABLE FO R SUPPLY OF GAS SHORTAGES CLAIMS ETC. YOUR APPELLANT SUBMITS THAT AS THE AMOUNT WRITTEN OFF AND THE LOSS AROSE DURING THE COURSE OF BUSINESS AND INCIDENTAL TO BUSINESS THE SAME SHOULD BE ALLOWED AS DEDUCTION. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE DELETED THE DISALLOWANCE FOR DEDUCTION WHICH HAS BEEN WRITTEN O FF BY MAKING NECESSARY ENTRIES BY WRITING OFF THE PARTIES' ACCOU NTS. IT IS SUBMITTED THAT IT BE SO ALLOWED NOW. YOUR APPELLANT PRAYS FOR LEAVE TO ADD ALTER AN D/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF A PPEAL ITA NOS.2211/A/04 & 36-134/A/05 8 ITA NO.134/AHD/2005- AY:-2001-02[REVENUE] 1. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE / ADDITION OF RS.28 33 362/- BEING REI MBURSEMENT OF HOUSING LOANS TO THE EMPLOYEES DISREGARDING THE FACT THAT S UCH EXPENDITURE IS NOT INCURRED OUT OF ANY LEGAL OR CONTRACTUAL OBLIGATION NOR SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS BUT WAS PAID TO THE EMPLOYEES EX GRATIS. 2. THE LD. CIT(A) ERRED IN SAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.4 73 171/- BEING EXPENDITURE ON ACCOUNT OF DIWALI AND FESTIVAL EXPENSES DISREGARDING THE FACT THAT SU CH EXPENDITURE HAS NOT BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOS E OF THE BUSINESS . 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING DISALLOWANCE OF RS.64 077/- BEING THE AMOUNT OF SUB SIDIZED GAS CONNECTION TO THE EMPLOYEES DIS REGARDING THE FACT THAT SUCH EXPENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF THE BUSINESS BUT WAS PAID EX-GRATIS. 4. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS.3 04 40 54 7/- DISREGARDING THE FACT THAT THE ASSESSEE HAS NOT ESTABLISHED BEFORE T HE AO AS TO THE FULFILLMENT OF THE CONDITIONS LAID DOWN U/S 36(2) O F THE IT ACT 1961 AND THAT THE AMOUNT IN QUESTION IS NOT A TRADE DEBT BUT INV ESTMENT MADE FOR NEW BUSINESS. 5. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.4 84 823/- BEING EXPENDITURE ON SPAR ES WRITTEN OFF DISREGARDING THE FACT THAT SPARES WRITTEN OFF WILL HAVE SCRAP VALUE. 6. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.3 05 030/- BEING EXPENDITURE ON ACCO UNT OF GIFTS AND PRESENTATION ETC. DISREGARDING THE FACT THAT SUCH E XPENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 7. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.7 47 507/- ON ACCOUNT OF FOREIGN TRA VEL EXPENSES DI REGARDING THE FACT THAT SUCH EXPENDITURE HAS NOT BE EN INCURRED 8. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.3 07 03 789/- MADE U/S 14A OF TH E ACT DISREGARDING THE FACT THAT THE ASSESSEE COMPANY HAD NO SUFFICIEN T FUNDS TO MAKE INVESTMENT TO EARN DIVIDEND INCOME BUT HAD UTILIZED ITS BORROWED FUNDS FOR INVESTMENT. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NOS.2211/A/04 & 36-134/A/05 9 10. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO MAY BE RESTORED TO THE ABO VE EXTENT. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF T HE ASSESSEE FOR THE AY 1998-99 & GROUND NO.2 IN THEIR APPEAL FOR TH E AY 2001-02 FACTS IN BRIEF AS PER RELEVANT ORDERS FOR THE AY 1998-99 ARE THAT RETURN DECLARING INCOME OF RS.35 52 11 779/- FILED ON 30-11-1998 BY THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF PR OCESSING AND DISTRIBUTION OF NATURAL GAS & LIQUEFIED PETROLEUM GAS AFTER BEING PROCESSED ON 5.2.2001 U/S 143(1) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE COMPANY CLAIMED DEDUCTION OF RS.1 1 43 13 939.38 U/S 80I OF THE ACT @ 30% & 25% OF PROFITS IN RESPECT OF SURAT AND ANKLESHWAR UNITS RESPECTIVELY. RELYING UPON HIS OW N ORDERS FOR THE AYS 1993-94 AND 1994-95 THE AO DISALLOWED THE CL AIM IN THE YEAR UNDER CONSIDERATION. 2.1 LIKEWISE THE CLAIM FOR DEDUCTION OF RS. 14 0 3 18 552/-U/S 80IA OF THE ACT WAS DISALLOWED IN THE AY 2001-02 . 3. ON APPEAL THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO IN THE AY 1998-99 IN THE FOLLOWING TERMS:- 4.[I] CLAIM U/S.801 & 80IA:- THE SAID CLAIM WAS MA DE FOR A.Y. 93-94 TO 95-96 AND THE SAME WAS DISALLOWED BY THE A.O. AND T HE CIT(A) HAS ALSO CONFIRMED FOR ALL THE THREE YEARS. THEREFORE THE A PPELLANT HAS NOT OFFERED ANY FURTHER EXPLANATION IN VIEW OF THE DETAILED DIS CUSSION MADE IN THEIR OWN CASE IN THE APPELLATE ORDER FOR A.Y. 93-94. TO CLAIM DEDUCTION U/S.80I/ 80IA THERE ARE CONDITIONS TO BE FULFILLED. AS PER SECTION 801(2) LIKE THE ASSESSEE SHOULD BE AN INDUSTRIAL UNDERTAKING NOT F ORMED BY SPLITTING OR RECONSTRUCTION OF EXISTING BUSINESS NOT FORMED BY TRANSFER OF NEW BUSINESS OF PLANT AND MACHINERY OR PREVIOUSLY USED FOR THE P URPOSE THE INDUSTRIAL UNDERTAKING MANUFACTURE OR PRODUCE ANY ARTICLE OR T HING NOT BEING AN ARTICLE OR THING SPECIFIED IN 11 TH SCHEDULE AND AN INDUSTRIAL UNDERTAKING WHO MANUFACTURE OR PRODUCE A THING OR AN ARTICLE HA VING 10 OR MORE WORKERS WHERE THE MANUFACTURING PROCESS IS CARRIED ON WITH THE HELP OF ITA NOS.2211/A/04 & 36-134/A/05 10 POWER OR WITH 20 OR MORE WORKERS IN CASE OF A MANUF ACTURING UNIT CARRIED ON WITHOUT THE AID OF POWER. THERE IS DETAILED DISC USSION IN THEIR OWN CASE IN THE ORDER PASSED BY THE CIT(A) FOR A.Y. 93-94 9 4-95 & 95-96. RELYING ON THE SAME THE CLAIM U/S.801 & 801A IS HEREBY REJE CTED. 3.1 LIKEWISE IN THE AY 2001-02 THE LD. CIT(A) UPHELD THE ACTION OF THE AO. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN THESE TWO ASSESSM ENT YEARS. THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION DATED 6- 10-2006 IN THE ASSESSEES OWN CASE FOR THE AY 1993- 94 IN ITA NO.1895/AHD/2002. FOLLOWING THIS DECISION THE ITAT VIDE THEIR ORDER DATED 2.1.2007 IN ITA NOS.2606 TO 2608/AHD./2002 FO R THE AYS 1994- 95 TO 1996-97 AS ALSO IN ORDER DATED 30-01-2009 IN ITA NO.3446/AHD/2004 FOR THE AY 2000-01 ALLOWED THE CLA IM OF THE ASSESSEE. THE LEARNED DR ON THE OTHER HAND DID NO T DISPUTE THESE SUBMISSIONS OF THE LD. AR. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITA T. WE FIND THAT THE ITAT VIDE THEIR ORDER DATED 6-10-2006 IN ITA NO .1895/AHD/2002 FOR THE ASSESSMENT YEAR 1993-94 HELD AS UNDER: '2.7(VII) AFTER EXAMINING THE ISSUE FROM VARIOUS AN GLES NOW KEEPING IN VIEW ALL THAT DISCUSSION WE RETURN BACK TO MAIN ISSUE WHETHER THE ASSESSEE IS ENGAGED IN PRODUCING ANY AR TICLE OR THING. THE NATURAL GAS IS A PRODUCT OF OIL EXTRACTION ACTI VITY. THIS OCCURS IN NATURAL FORM ALONG WITH OTHER FOSSIL FUEL. AS SUCH THE GAS IN THIS NATURAL FORM IS CRUDE AND CANNOT BE USED BY INDUSTR IAL OR DOMESTIC CONSUMERS. THE GAS IS SUPPLIED BY GAS AUTHORITY OF INDIA LTD. (GAIL) AS IT IS EXTRACTED BY ONGC FROM OIL WELLS. A T ASSESSEE COMPANY'S STAGE THE PROCESS OF MAKING GAS CONSUMABL E FOR INDUSTRIAL OR DOMESTIC PURPOSES TAKES PLACE. SUCH PROCESS IS A HIGHLY TECHNICAL CONTROLLED AND REGULATED PROCESS AS THE GAS IS VERY INFLAMMABLE AND HAZARDOUS. FOR THIS PURPOSE THE PL ANT IS ITA NOS.2211/A/04 & 36-134/A/05 11 MAINTAINED AS PER AMERICAN NATIONAL STANDARD INSTIT UTE AND BRITISH STANDARD. THE CRUDE GAS IS AS MUCH DISTRIBUTABLE BU T THE SAME CANNOT BE PUT TO INDUSTRIAL COMMERCIAL USE. THIS IS EVIDENT FROM THE FACT THAT GAIL SUPPLIES CRUDE GAS WITHOUT MAKIN G IT DECONTAMINATED ODOR/ZED SUITABLE FOR CONSUMPTION. T HE ASSESSEE COMPANY IS PROCESSING GAS FOR REMOVING CHEMICAL AND PHYSICAL IMPURITIES SUCH AS WATER DUST PARTICLES AND OIL O DORIZING AND OPTIMALLY PRESSURIZING THROUGH FILTRATION AND DEPRE SSURIZING THAT MAKES THE RAW GAS A SALE/ABLE COMMODITY WHICH HAS D ISTINCT FUNCTIONAL ATTRIBUTES. THUS THE ASSESSEE C OMPANY IS ENGAGED IN PRODUCING THE DECONTAMINATED O DOR/ZED AND OPTIMALLY PRESSURIZED GAS WITH THE HELP OF HIGH PRE CISION INSTRUMENTS IN RIGID ATMOSPHERIC AND PRESSURE COND ITIONS WHICH ARE OF GREAT IMPORTANCE IN ENSURING THE FINAL QUALITY O F THE GAS WHICH HAS TO CONFIRM THE QUALITY STANDARDS. AT EVERY STAGE OF THE PROCESS THERE HAVE TO BE RIGID QUALITY STANDARDS AND EVEN A VERY MINUTE VARIATIONS OR DEFECT COULD RENDER THE GAS TOTALLY W ORTHLESS. IT THEREFORE FOLLOWS THAT THE ASSESSEE C OMPANY IS AN INDUSTRIAL UNDERTAKING ENGAGED IN PRODUCING THE DEC ONTAMINATED ODORIZED AND OPTIMALLY PRESSURIZED GAS SATISFIED TH E CONDITION OF PRODUCING ARTICLE OR THING FOR BEING ENTITLED TO DE DUCTION U/S 80I/80IA. 5.1 FOLLOWING THE AFORESAID DECISION THE ITAT ALLO WED THE CLAIM IN THE AYS. 1994-95 TO 1996-97 AND IN THE AY 2000-01 ALSO . 5.2 INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEARS UNDER CONSIDERATION ARE SIMILAR TO THE FACTS IN THE AFORE SAID YEARS FOLLOWING THE VIEW TAKEN BY THE ITAT IN THEIR AFORE SAID DECISIONS IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS WE H AVE NO HESITATION IN ALLOWING THE CLAIM FOR DEDUCTION U/S 80I/80IA IN THE YEARS UNDER CONSIDERATION. THEREFORE GROUND NO.1 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 & GROUND NO.2 IN THEIR APPEAL F OR THE AY 2001-02 ARE ALLOWED. 6. GROUND NO.2 IN THE APPEAL OF THE ASSESSEE FOR TH E AY 1998-99 RELATES TO DISALLOWANCE OF RS.11 07 179/- WHILE GRO UND NO.1 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 RELATES TO DISALLOWANCE OF RS.28 33 362/- BEING REIMBURSEMENT OF 50% OF INTER EST ON HOUSING ITA NOS.2211/A/04 & 36-134/A/05 12 LOAN TAKEN BY THE EMPLOYEES. THE AO NOTICED IN THE AY 1998-99 THAT THE ASSESSEE REIMBURSED AN AMOUNT OF RS.11 07 179/ - ON ACCOUNT OF 50% OF THE INTEREST ON HOUSING LOAN TO ITS EMPLO YEES. TO A QUERY BY THE AO AS TO WHY THE SAID AMOUNT SHOULD NOT BE D ISALLOWED THE ASSESSEE WHILE RELYING ON THEIR SUBMISSIONS IN THE EARLIER YEARS CONTENDED THAT THE EXPENDITURE INCURRED FOR THE PUR POSE OF BUSINESS WAS ADMISSIBLE AS DEDUCTION. HOWEVER THE AO DID NO T ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND CONCLUDED THAT SINC E THE ASSESSEE COMPANY IS ALSO PAYING THE INTEREST ON LOAN TO OTHE RS THE INTEREST REIMBURSED TO THE EMPLOYEES CANNOT BE SAID TO BE IN CURRED FOR THE PURPOSE OF BUSINESS RESULTING IN DISALLOWANCE OF RS.11 07 179/-. 6.1 LIKEWISE IN THE AY 2001-02 THE AO DISALLOWE D AN AMOUNT OF RS.28 33 362/- ON THE GROUND THAT THE ASSESSEE WAS PAYING INTEREST ON LOANS TO OTHERS. 7. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISALL OWANCE IN THE AY 1998-99 WITH THE FOLLOWING OBSERVATIONS:- 4[III] REIMBURSEMENT OF 50% INTEREST ON HOUSING LO AN TO EMPLOYEES:- IT IS STATED BY THE AR THAT THE EXPENDITURE IS INCURRED F OR THE PURPOSE OF BUSINESS TO KEEP HEALTHY RELATIONS WITH THE EMPLOYE ES. THEREFORE IT IS IN THE NATURE OF STAFF WELFARE EXPENSES AND IT IS ALSO CLAIMED THAT THE REIMBURSEMENT OF THE INTEREST IS TREATED AS PART OF SALARY AND PERKS. THEREFORE IT SHOULD BE ALLOWED AS BUSINESS EXPENDI TURE. IT IS SUBMITTED BY THE ASSESSEE THAT IN A.Y. 96-97 IN THEIR OWN CASE T HE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THE GROUND THA T THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS ARID NOT IN TH E NATURE OF STAFF WELFARE BECAUSE IT IS BOOK ADJUSTMENT ENTRY. SINCE THE APPE LLANT COMPANY IS SANCTIONED HOUSING LOAN TO THE EMPLOYEES 50% OF TH E INTEREST THEREON IS BEING REIMBURSED BY THE BOOK ADJUSTMENT AND NOT BY ACTUAL PAYMENT. THE COMPANY IS ALREADY PROVIDING LOAN FACILITY AT THE L OWER RATE OF INTEREST TO THEIR EMPLOYEES WHICH AT THE BEST CAN BE TREATED AS STAFF WELFARE EXPENSES. HOWEVER 50% INTEREST REIMBURSEMENT ALONE IS NOT DIRECTLY CONNECTED WITH THE BUSINESS ACTIVITY' OF THE COMPAN Y AND NOT FALLING UNDER STAFF WELFARE EXPENSES. THUS IN THE REASONS MENTIO NED BY THE LEARNED CIT(A) FOR A.Y. 96-97 IN THE SAME CASE AND IN VIEW OF THE ABOVE DISCUSSION THE SAME IS NOT ALLOWED. ITA NOS.2211/A/04 & 36-134/A/05 13 7.1 HOWEVER IN THE AY 2001-02 THE LD. CIT(A) A LLOWED THE CLAIM WHILE REFERRING TO DECISION OF HIS PREDECESSOR I N THE AY 1996-97. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN THE AY 1998-99 WH ILE THE REVENUE IS IN APPEAL IN THE AY 2001-02. THE LEARNED AR ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 30-12-2008 IN TH E ASSESSEES OWN CASE FOR THE AY 2002-03 IN ITA NO.1501/AHD/2006 AND THE DECISION 30-01-2009 OF THE TRIBUNAL FOR THE AY 2000 -01 IN ITA NO.3446/AHD/2004. THE LEARNED DR ON THE OTHER HAND DID NOT DISPUTE THESE SUBMISSIONS OF THE LD. AR 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITAT. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 2.1.2007 OF THE ITAT IN THE ASSESSEES OWN C ASE FOR THE AY 1995-96 & 1996-97 IN ITA NOS. 2548 & 2549/AHD./2002 WHEREIN IT WAS HELD 17. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MAT ERIAL ON RECORD. IT HAS NOT BEEN DISPUTED THAT REIMBURSEMENT OF PORTION OF INTEREST INCURRED FOR AVAILING HOUSING LOAN AND PRO VIDING GAS CONNECTION SUBSIDY WAS AS PER THE GENERAL HRD POLIC IES OF THE GAS COMPANY. AS FAR AS ASSESSEE IS CONCERNED EXPENDITU RE REPRESENTS CHARACTER OF BUSINESS EXPENDITURE AS THAT WAS INCUR RED ON EMPLOYEES AS PER AGREED HRD POLICIES INDIRECTLY A SSESSEE COULD HAVE GIVEN HIGHER SALARIES. THESE REIMBURSEMENTS AR E TO BE TAKEN AKIN TO ALLOWANCE/PERQUISITES OF THE SALARIES WHICH ARE TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE. IN VIEW THEREOF WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ALLOWING THESE EXPENSES. THESE GROUNDS ARE OF REVENUE'S APPE ALS ARE DISMISSED. ' 9.1. FOLLOWING THE AFORESAID DECISION THE ITAT ALL OWED A SIMILAR CLAIM IN THE AY 2000-01 IN THEIR ORDER DATED 30.1.2009 IN ITA NO . 3464/AHD./2004 AS ALSO IN THE AY 2002-03 IN THEIR ORDER DATED 31.12.2008 IN I TA NO. 1501/AHD./2006. ITA NOS.2211/A/04 & 36-134/A/05 14 9.2. INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEARS UNDER CONSIDERATION ARE SIMILAR TO THE FACTS IN THE ASSES SMENT YEARS 1995- 96 1996-97 2000-01 & 2002-03 FOLLOWING THE VIEW T AKEN BY THE ITAT IN THEIR AFORESAID DECISIONS IN THE ASSESSEE S OWN CASE WE HAVE NO HESITATION IN ALLOWING THE CLAIM OF THE ASS ESSEE IN THE YEARS UNDER CONSIDERATION. THEREFORE GROUND NO.2 I N THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 IS ALLOWED WHILE GROUND NO.1 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 IS DIS MISSED. 10. GROUND NO.3 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998- 99 RELATES TO DISALLOWANCE OF EXPENSES OF RS.1 69 7 82/-. ON SWEETS DISTRIBUTION ON DIWALI & GAS DAY EXPENSES WHILE GRO UND NO.2 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 RELATES TO A SIMILAR DISALLOWANCE OF RS.4 73 171/-. THE AO NOTICED IN TH E AY 1998-99 THAT THE ASSESSEE COMPANY INCURRED A SUM OF RS.27 5 70/- TOWARDS DIWALI EXPENSES AND A SUM OF RS.1 42 212/- TOWARDS EXPENSES UNDER THE HEAD GAS DAY EXPENSES. SINCE THESE EXPE NSES WERE IN NO WAY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY THE AO DISALLOWED THE SUM OF RS.1 69 782/- . 10.1 FOLLOWING HIS FINDINGS IN THE EARLIER YEARS THE AO DISALLOWED AN AMOUNT OF RS.4 73 171/- ON ACCOUNT OF DIWALI AND FESTIVAL EXPENSES IN THE AY 2001-02 ALSO. 11. ON APPEAL THE LEARNED CIT(A) FOLLOWING HIS DEC ISION FOR THE AY 1997-98 UPHELD THE DISALLOWANCE IN THE AY 1998-99 W HILE IN THE AY 2001-02 CLAIM WAS ALLOWED FOLLOWING HIS DECISION F OR THE AY 1992- 93. 12. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN THE AY 1998-99 WH ILE THE REVENUE IS IN APPEAL IN THE AY 2001-02. THE LEARNED AR ON B EHALF OF THE ITA NOS.2211/A/04 & 36-134/A/05 15 ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 30-01-2009 IN IT A NO.3446/AHD/2004 FOR THE AY 2000-01 IN THE ASSESSEE S OWN CASE. THE LEARNED DR ON THE OTHER HAND DID NOT DISPUTE THESE SUBMISSIONS OF THE LD. AR. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE ITAT . WE FIND THAT THE ITAT VIDE THEIR ORDER DATED 30-01-2009 IN THE ASSES SEES OWN CASE FOR AY 2000-01 IN ITA NO.3446/AHD/2004 HELD AS UNDE R:- 9. GROUND NO. II) RELATES TO DELETION OF DISALLOWA NCE OF AN AMOUNT OF RS.1 69 628 (NOT RS.1 63 691) ON ACCOUNT OF DIWALI / FAMILY MEETING AND GAS DAY CELEBRATIONS. THE AO DISALLOWED THE CLAIM S INCE THESE EXPENSES WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE F OLLOWING HIS OWN ORDERS FOR THE PRECEDING YEARS. ON APPEAL THE ID. CIT(A) FOLLOWING HIS OWN DECISION DATED 21-5-2002 FOR THE AY 96-97 ALLOWED THE CLAIM. 9.1 THE REVENUE IS IN APPEAL AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED BY THE DECISION DATED 2.1.2007 OF THE ITAT IN THEIR OWN CASE FOR THE AYS 1994-95 TO 1996-97 IN ITA NOS. 2547 TO 2549 /AHD./2002 WHEREIN THE ITAT RELYING UPON THEIR OWN DECISION DATED 29. 7.2005 IN THE ASSESSEE'S OWN CASE IN ITA NOS. 1331/AHD./1999 FOR THE AY 1992-93 ALLOWED THEIR CLAIM IN TERMS OF PARA 11 -12 OF THEI R ORDER. 9.2 A SIMILAR CLAIM WAS ALLOWED BY THE ITAT IN THEI R DECISION DATED 6.10:2006 FOR THE AY 1993-94 IN ITA NO.1928/AHD./20 02 AND DECISION DATED 20.2.2008 IN ITA NO.95&96/AHD./2008 FOR THE A YS. 2003-04 & 2004- 05. 9.3 IN THE LIGHT OF AFORESAID DECISIONS FOLLOWING THE PRINCIPLES OF JUDICIAL CONSISTENCY WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE TD;. CIT(A). THEREFORE GROUND NO. II) OF THE APPEAL OF T HE REVENUE IS DISMISSED. 14. INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS OBTAINING IN THE ASSESSMENT YEARS 1992-93 TO 1996-97 2003-04 & 2004-05 FOLLOWI NG THE CONSISTENT VIEW TAKEN BY THE ITAT IN THEIR AFORESAI D DECISIONS IN THE ITA NOS.2211/A/04 & 36-134/A/05 16 ASSESSEES OWN CASE WE HAVE NO HESITATION IN ALLO WING THE CLAIM OF THE ASSESSEE IN THE YEARS UNDER CONSIDERATION. THE REFORE GROUND NO.3 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998- 99 IS ALLOWED WHILE GROUND NO.2 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 IS DISMISSED. . 15. GROUND NO.4 IN THE APPEAL OF THE ASSESSEE FOR T HE AY 1998-99 RELATES TO DISALLOWANCE OF SUBSIDY GIVEN TOWARDS SU PPLY OF GAS CONNECTION TO EMPLOYEES-RS.33 303/- WHILE GROUND NO .3 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 RELATES TO SIMILAR DISALLOWANCE OF RS.64 077/-. THE AO NOTICED IN THE AY 1998-99 THAT THE ASSESSEE COMPANY REIMBURSED A SUM OF RS.33 303/ -IN THE AY 1998-99 & RS.64 077/- IN THE AY 2001-02 BEING THE SUBSIDY TOWARDS GAS CONNECTION CHARGES TO THE EMPLOYEES. THOUGH THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT WAS GIVEN AS PER THE PRACTICE FOLLOWED BY THE ASSESSEE COMPANY THE AO HOWEVER DID NOT ACCEPT THE SUBMISSIONS AND DISALLOWED THE EXPENDITURE REL YING UPON HIS FINDINGS IN THE EARLIER YEARS. 16. ON APPEAL THE LEARNED CIT(A) CONFIRMED THE DIS ALLOWANCE IN THE AY 1998-99 IN THE FOLLOWING TERMS:- [V] SUBSIDY FOR GAS CONNECTION TO STAFF- RS.33 303 /- :- IT IS RAISED BY THE APPELLANT THAT TO MAINTAIN HEALTHY RELATION WITH TH E EMPLOYEES THE COMPANY HAS SPENT ON THE SUBSIDY TOWARDS THE SUPPLY OF GAS CONNECTION TO THE EMPLOYEES. IT IS ARGUED THAT THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS AND INCIDENTAL TO THE BUSINESS ACTIVITY H ENCE REQUESTED TO DELETE THE SAME. IN THIS RESPECT THE APPELLANT HAS RELIED ON ONE FACTOR THAT IT IS INCIDENTAL TO BUSINESS AND EXPENSES ARE IN THE NATU RE OF STAFF WELFARE. IT IS SEEN BY ME THAT THE A.R. IS RELYING AN THE CI T(A)'E ORDER IN THE SAME CASE FOR A.Y. 1996-97 WHERE SUCH AMOUNT IS ALLOWED. BUT IN THE APPELLATE ORDER EXCEPT TREATING THE SAME AS INCIDENTAL TO BUS INESS THE FACTS OF THE CASE ARE NOT MENTIONED. THE FACT REMAINS THAT AS ST ATED BY THE A.O. HOLDING THAT THE EXPENSES ARE NOT MEANT FOR THE BUS INESS ACTIVITY BECAUSE THE APPELLANT COMPANY IS ALREADY PROVIDING HOUSING LOAN TO THEIR ITA NOS.2211/A/04 & 36-134/A/05 17 EMPLOYEES AND REIMBURSED TO SOME AN EXTENT IN CASE OF INTEREST PAYMENT. BUT PROVIDING THE SUBSIDY TOWARDS THE GAS CONNECTI ON CHARGES IS NOT DIRECTLY RELATED TO THE BUSINESS EXPENSES. THE SAID CHARGES ARE NOT ACTUALLY MADE AVAILABLE TO THE EMPLOYEES BUT ADJUS TED IN THE COMPANYS ACCOUNTS. THUS EVENTUALLY IT IS A PAPER ENTRY AND NOT DIRECTLY CONNECTED WITH THE BUSINESS ACTIVITY OF THE COMPANY AND NOT A CTUALLY SPENT. THEREFORE THE SAME IS BEING CONFIRMED. 16.1 HOWEVER IN THE AY 2001-02 THE LD. CIT(A) ALLOWED THE CLAIM FOLLOWING HIS DECISION IN THE AY 2000-01. 17 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN THE AY 1998-99 WH ILE THE REVENUE IS IN APPEAL IN THE AY 2001-02. THE LEARNED AR ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 30-12-2008 IN TH E ASSESSEES OWN CASE FOR THE AY 2002-03 IN ITA NO.1501/AHD/2006 AND THE DECISION 30-01-2009 OF THE TRIBUNAL FOR THE AY 2000 -01 IN ITA NO.3446/AHD/2004. THE LEARNED DR ON THE OTHER HAND DID NOT DISPUTE THESE SUBMISSIONS OF THE LD. AR 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE TRI BUNAL REFERRED TO BY THE LEARNED AR ON BEHALF OF THE ASSESSEE. WE FIN D THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THE ASSESSEES OWN CASE FOR THE AY 2002-03 THE TRIBUNAL VIDE THEIR ORDER DATED 30-12- 2008 HELD AS UNDER:- 3 AT THE OUTSET THE LEARNED AR OF THE ASSESSEE SU BMITTED THAT THE ISSUES INVOLVED IN THE ABOVE GROUNDS ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ITA NOS.254 7 TO 2549 AND 2604 TO 2608/AHD/2002 AND 2672/AHD/2002 IN ASSESSEES OWN C ASE PERTAINING TO THE AYS 1992-93 TO 1996-97 AND ITA NO.95 AND 96/AHD /2008 AND CO NO.48 AND 49/AHD/2008 IN ASSESSEE'S OWN CASE PERTAI NING TO THE AYS 2003-04 AND 2004-05. THE LEARNED DR ON THE OTHER H AND DID NOT DISPUTE THE ABOVE SUBMISSIONS SAVE AND EXCEPT SUPPORTING TH E IMPUGNED ORDERS OF THE AUTHORITIES BELOW. ITA NOS.2211/A/04 & 36-134/A/05 18 4. HAVING HEARD BOTH THE PARTIES WE HAVE CAREFULLY GONE THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND ALSO T HE DECISIONS OF THE 1.TAT REFERRED TO IN THE FOREGOING PARAGRAPH AS REL IED ON BY THE LEARNED AR OF THE ASSESSEE. WE FIND THAT IN ITA NO.2547/AHD /2002 AND OTHERS VIDE CONSOLIDATED ORDER DT. 2-1-2007 IN ASSESSEE'S OWN CASE WHILE DECIDING THE ISSUE REGARDING ADDITION O! REIMBURSEM ENT OF INTEREST ON HOUSING LOAN TAKEN BY THE EMPLOYEES TO THE EMPLOYEE S THE TRIBUNAL VIDE PARAGRAPH 17 HAS HELD AS UNDER: '17. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MA TERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT REIMBURSEMENT OF PORTION OF INTEREST INCURRED FOR AVAILING OF HOUSIN G LOAN AND PROVIDING GAS CONNECTION SUBSIDY WAS PER THE GENERAL HRD POLI CIES OF THE GAS COMPANY. AS FAR AS ASSESSEE IS CONCERNED THIS EXPENDITURE REPRESENTS CHARACTER OF BUSINESS EXPENDITURE AS THA T WAS INCURRED ON EMPLOYEES AS PER AGREED HRD POLICIES INDIRECTLY ASSESSEE COULD HAVE BEEN GIVEN HIGHER SALARIES. THESE REIMBU RSEMENTS ARE TO BE TAKEN AKIN TO ALLOWANCE/PERQUISITES OF THE SA LARIES WHICH ARC TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE. IN VIEW THEREOF WE FIND NO INFIRMITY IN' THE ORDER OF CIT(A) ALLOWING THESE EXPENSES. THESE ARE GROUNDS OF REVENUE'S APPE ALS ARE DISMISSED.'' SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO.95 AND 96/AHD/2008 CONSOLIDATED ORDER DT .20-2-2008 PERTAINING TO THE AYS 2003-04 AND 2004-05. 5. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT AS DISCUSSED IN THE FOREGOING PARAGRAPH WE DISMISS THE GROUND NO. 1 AN D 3 RAISED BY THE REVENUE AND UPHELD THE IMPUGNED ORDER OF THE LEARNE D CIT(A) IN THIS REGARD. GROUND NO. 1 AND 3 ARE THEREFORE DISMISSE D. 18.1 SIMILARLY CLAIM WAS ALLOWED BY THE ITAT IN THEIR ORDER DATED 30-01-2009 FOR THE AY 2000-01 19. INDISPUTABLY SINCE THE FACTS OBTAINING IN TH E YEARS UNDER CONSIDERATION ARE SIMILAR TO THE FACTS IN THE ASSES SMENT YEARS 1992- 93 TO 1996-97 2000-01 2002-03 TO 2004-05 FOLLOWING THE VIEW TAKEN BY THE ITAT IN THEIR AFORESAID DECISIONS IN THE AS SESSEES OWN CASE WE HAVE NO HESITATION IN ALLOWING THE CLAIM OF THE ASSESSEE IN THE YEARS UNDER CONSIDERATION. THEREFORE GROUND NO.4 I N THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 IS ALLOWED WHILE GR OUND NO.3 IN THE APPEAL OF THE REVENUE IS DISMISSED. ITA NOS.2211/A/04 & 36-134/A/05 19 20. GROUND NO.5 IN THE APPEAL OF THE ASSESSEE FOR T HE AY 1998-99 RELATES TO DISALLOWANCE OF INTEREST ON BORROWINGS F OR HAZIRA ANKLESHWAR PIPE LINE PROJECT- RS.1 98 01 130/-. IN THE STATEMENT OF TOTAL INCOME ACCOMPANYING THE RETURN THE ASSESSEE CLAIMED THAT THE COMPANY CAPITALIZED THE INTEREST PAID / PROVIDED F OR IN THE BOOKS OF ACCOUNTS IN RESPECT OF BORROWINGS FROM VARIOUS FINA NCIAL INSTITUTIONS BANKS ETC. BY WAY OF NCDS FOR THE HAZIRA ANKLESHWA R PIPE LINES PROJECT. THE PROJECT WAS UNDER EXECUTION AS ON 31-3 - 1998.HOWEVER IT WAS CLAIMED THAT THE INTEREST PAID DURING THE RELEVANT YEAR UPTO DATE OF COMMISSIONING OF PLANT WAS ADMISSIBLE AS DEDUCTION U/S 36(1)(III) OF THE ACT WHILE COMPUTING THE INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS THE EXPENDI TURE HAD BEEN INCURRED IN RESPECT OF CAPITAL BORROWED FOR THE PUR POSE OF SAME BUSINESS. ACCORDINGLY A SUM OF RS.38 80 278/- AFTE R SETTING OFF THE INTEREST EARNED OF RS.1 59 20 852/- ON DEPLOYMENT O F TEMPORARY / SHORT TERM SURPLUS FUNDS OUT OF NCD MONEYS WAS CLAI MED AS DEDUCTION IN COMPUTATION OF TOTAL INCOME. INTER ALI A THE ASSESSEE RELIED ON DECISIONS OF VARIOUS HIGH COURTS. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUN D THE EXPENDITURE WAS INCURRED FOR ACQUIRING OR BRINGING INTO EXISTEN CE AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS AND IS THUS CAPI TAL IN NATURE. THE AO INTER ALIA RELIED UPON DECISIONS IN THE CASE OF ASSAM BENGAL C EMENT CO. LTD. VS. CIT (1955) 27 ITR 34(SC) AND DALMIA JAIN & CO. LTD. VS. CIT (1971) 81 ITR 754 (SC). AS A RESULT THE CLAIM OF THE ASSESSEE OF RS .1 98 01 130/- IN THE STATEMENT OF INCOME AS REVENUE EXPENDITURE WAS REJECTED RES ULTING IN DISALLOWANCE OF RS.38 80 278/-. 21. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO IN THE FOLLOWING TERMS:- [VI](I.) INTEREST ON BORROWED CAPITAL OF RS.1 98 0 1 130:- IT IS SUBMITTED BY THE A.R. THAT SINCE THE APPELLANT IS ENGAGED IN THE BUSINESS OF SUPPLY OF ITA NOS.2211/A/04 & 36-134/A/05 20 GAS THROUGH PIPE LINE AT BHARUCH ANKLESHWAR AND SU RAT AND FOR THE PURPOSE OF EXPANSION THE APPELLANT HAS BORROWED LOA N FOR LAYING DOWN THE PIPE LINE BETWEEN HAZIRA & ANKLESHWAR. THEREFORE T HE INTEREST ON BORROWED CAPITAL IS FOR THE PURPOSE OF EXPANSION OF THE EXISTING BUSINESS. THEREFORE ALLOWABLE U/S. 36(1)(III) OF THE INCOME- TAX ACT. THE APPELLANT HAS RELIED ON THE FOLLOWING DECISIONS. - CALICO DYEING & PRINTING WORKS V/S. CIT 34 ITR 2 65 (BOM.) - CIT V/S. ALEMBIC GLASS INDS. LTD. 103 ITR 716 (G UJ.) - ITO V/S. JYOTI SWITCH GEARS LTD. 42 TTJ 579 (ITA T A'BAD) - CIT V/S. NATIONAL PAROXIDE LTD. 182 ITR 411 (ST) (SC) - IN THIS CASE THE SUPREME COURT HAS REJECTED THE SPECIAL LEAVE PE TITION FILED BY THE DEPARTMENT AGAINST THE JUDGEMENT DATED 21/10/82 OF GUJARAT HIGH COURT AND GUJARAT HIGH COURT HAS ALSO DISMISSE D THE REFERENCE APPLICATION ON THIS QUESTION. - TATA CHEMICALS LTD. V/S. DCIT 72 ITD 1 (ITAT MU MBAI) - THE ORDER OF THE ICT(A) IN CASE OF GUJARAT STATE FERTILIZERS & CHEMICALS LTD. FOR A.Y. 90-91& 91-92. (II) IT IS STATED BY THE A.O. 'THAT THE PROJECT IS UNDER EXTENSION ON 31-3- 98. IT MEANS THAT THE ASSESSEE COMPANY HASS BORROWE D THE FUNDS BEFORE STARTING OF THE PROJECT AND CLAIMED THE INTEREST OF RS.38 80 278/- AFTER SETTING OFF THE INTEREST EARNED OF RS.1 59 20 852/- FOR DEPLOYING THE SURPLUS FUNDS OUT OF NCD MONEY WHICH IS CLAIMED FOR DEDUCTI ON IN THE COMPUTATION BUT NOT DEBITED IN THE ACCOUNTS. THERE FORE THE AO HAS TREATED THAT THE EXPENSES OF LAYING OF THE PIPE LIN E FOR A LONG DISTANCE IS OF CAPITAL NATURE BECAUSE THE SAME GIVES AN ENDURING B ENEFIT TO THE ASSESSEE. SINCE THE PROJECT HAS NOT STARTED THE SA ME CANNOT BE CLAIMED AS REVENUE EXPENSES. THEREFORE RELYING ON THE SUPR EME COURT DECISION IN THE CASE OF ASSAM BENGAL CEMENT CO. V/S. CIT 27 ITR 34 AND DALMIA JAIN & CO. 81 ITR 754 THE A.O. HAS DECIDED THAT THE EXP ENDITURE IS CAPITAL IN NATURE AND NOT A REVENUE EXPENDITURE. THEREFORE THE A.O. HAS ALSO APPRECIATED THAT THE APPELLANT HAS NOT DEBITED THE SAME IN THE PROFIT & LOSS ACCOUNT THE CLAIM OF INTEREST OF RS.38 80 278 /- BUT THE SAME IS CLAIMED IN THE FORM OF THE NOTES. THEREFORE THE A. O. HAS DISALLOWED THE SAME AS A REVENUE EXPENDITURE AND HAS ALSO TAXED TH E INTEREST EARNED OUT OF IDLE FUNDS DEPLOYED TILL THE TIME THEY ARE UTILI ZED FOR THE BUSINESS PURPOSE AND INTEREST THEREON AS INCOME FROM OTHER S OURCES OF RS.1 59 20 852/- U/S.56 OF THE INCOME-TAX ACT. IN DOING SO HE HAS RELIED UPON THE SUPREME COURT J DECISION IN THE CASE OF TU TICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V/S. CIT 227 ITR 17 2 THAT THE INTEREST ON THE BORROWED FUND PRIOR TO THE COMMENCEMENT OF THE BUSI NESS IS ASSESSABLE AS INCOME U/S.56 OF THE INCOME-TAX ACT. (III) I HAVE GONE THROUGH THE ARGUMENTS MADE BY THE ARS AND THE ORDER- PASSED BY THE A.O. AND IT IS SEEN THAT THE UTILIZAT ION OF THE FUNDS BORROWED ITA NOS.2211/A/04 & 36-134/A/05 21 BEFORE THE COMMENCEMENT OF THE PROJECT IS TO BE CAP ITALIZED ALONG WITH THE COST OF THE PROJECT SINCE THE SAME IS INVESTME NT IN THE NATURE OF CAPITAL EXPENDITURE. THE SUPREME COURT IN THE CASE OF TUTIC ORIN ALKALI CHEMICALS & FERTILIZERS LTD. V/S. CIT REFERRED ABOVE HAS HEL D THAT PRIOR TO THE COMMENCEMENT OF THE BUSINESS ANY INTEREST INCOME EA RNED OUT OF BORROWED FUND IS TO BE TREATED AS INCOME FROM OTHER SOURCES. THUS THE A.O. HAS RIGHTLY DISALLOWED THE CLAIM OF INTEREST O N BORROWED CAPITAL NOT DEBITED TO PROFIT & LOSS ACCOUNT BUT CLAIMED IN TH E FOOT NOTES OF RS.38 80 278/- IS HEREBY CONFIRMED AND ALSO CONSIDE RING THE TOTAL INTEREST INCOME SO EARNED FROM THE BORROWED FOND BEFORE THE COMMENCEMENT OF THE BUSINESS OF RS.1 59 20 852/- IS RIGHTLY ADDED B ACK TO THE TOTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THUS BOT H THE ACTIONS OF THE A.O. ARE HEREBY CONFIRMED IN VIEW OF DETAILED DISCU SSION HELD FOR A.Y. 97- 98 IN THE ORDER DATED 25/3/2004. 22. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LEARNED CIT(A) CONTENDED THAT THE HAPI PROJECT WAS NOT A NE W LINE OF BUSINESS OF THE ASSESSEE COMPANY BUT SIMPLY AN EXT ENSION OF THE SAME BUSINESS UNDERTAKEN WITH A VIEW TO INCREASE TH E GAS DISTRIBUTION NETWORK. AS THE INTEREST HAS BEEN PAID IN CONNECTION WITH BORROWINGS FOR LAYING THE NEW PIPE LINES OF HA PI PROJECT - EXPANSION OF ITS EXISTING BUSINESS THE SAME IS ADM ISSIBLE AS DEDUCTION U/S.36(L)(III) OF THE I.T. ACT. ALTERNATI VELY THE ASSESSEE CLAIMED DEPRECIATION ON THE CAPITALIZED AMOUNT. THE LD. AR ADDED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 30.1.2009 OF THE ITAT IN THE ASSESSE ES OWN CASE IN ITA NO.3464/AHD/2004FOR THE AY 2000-01.ON THE OTHE R HAND THE LD. DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF TH E ASSESSEE. 23. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISION OF THE ITAT. WHILE ADJUDICATING A SIMILAR ISSUE THE ITAT CONCLUDED IN THEIR AFORESAID DECISION DATED 30.1.20 09 IN THE AY 2000-01 AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. THE ISSUE REGARDING CLAIM FOR DEDUCTION OF INTEREST ON BORROWED FUNDS HAS NOW ITA NOS.2211/A/04 & 36-134/A/05 22 BEEN SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE AFORESAID CASE OF CORE HEALTH CARE LTD. (SUPRA) WHEREIN IT WAS H ELD: IN THE CASE OF CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 THIS COURT OBSERVED THAT INTEREST PAID ON THE BORROWING UTILISED TO BRI NG INTO EXISTENCE A FIXED ASSET WHICH HAS NOT GONE INTO PRODUCTION GOES TO ADD TO THE COST OF INSTALLATION OF THAT ASSET. IT WAS FURTHER OBSERVED THAT IF THE SAID BOR ROWING WAS NOT 'FOR THE PURPOSE OF BUSINESS' INASMUCH AS NO BUSINESS HAD COME INTO EXISTENCE IT MUST FOLLOW THAT IT WAS MADE FOR THE PURPOSE OF ACQUIRING AN AS SET WHICH COULD BE PUT TO USE FOR DOING BUSINESS AND HENCE INTEREST PAID ON SUCH BORROWING WOULD GO TO ADD TO THE COST OF THE ASSETS SO ACQUIRED. IN OUR VIEW THE ABOVE OBSERVATIONS HAVE TO BE CONFI NED TO THE FACTS IN THE CASE OF CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 (SC). IT WAS A CASE WHERE THE COMPANY HAD NOT YET STARTED PRODUCTION WHEN IT BORR OWED THE AMOUNT IN QUESTION. THE MORE APPROPRIATE DECISION APPLICABLE TO THE PRESENT CASE WOULD BE THE JUDGMENT. OF THIS COURT IN THE CASE OF INDIA CE MENTS LTD. V. CIT [1966] 60 ITR 52 IN WHICH IT HAS BEEN OBSERVED THAT FOR CONSIDERIN G WHETHER PAYMENT OF INTEREST ON BORROWING IS REVENUE EXPENDITURE OR NOT THE PURPOSE FOR WHICH THE BORROWING IS MADE IS IRRELEVANT. IN OUR VIEW SECTI ON 36(1)(III) OF THE 1961 ACT HAS TO BE READ ON ITS OWN TERMS. IT IS A CODE BY ITSELF . SECTION 36(1)(III) IS ATTRACTED WHEN THE ASSESSEE BORROWS THE CAPITAL FOR THE PURPO SE OF HIS BUSINESS. IT DOES NOT MATTER WHETHER THE CAPITAL IS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET BECAUSE ALL THAT THE SECTION REQUIRES IS THAT THE ASSESSEE MUST BORROW THE CAPITAL FOR THE P URPOSE OF HIS BUSINESS. THIS DICHOTOMY BETWEEN THE BORROWING OF A LOAN AND ACTUAL APPLICATION THEREOF IN THE PURCHASE OF A CAPITAL AS SET SEEMS TO PROCEED ON THE BASIS THAT A MERE TRANSACTION OF BORROWING D OES NOT BY ITSELF BRING ANY NEW ASSET OF ENDURING NATURE INTO EXISTEN CE AND THAT IT IS THE TRANSACTION OF INVESTMENT OF THE BORROWED CAPITAL I N THE PURCHASE OF A NEW ASSET WHICH BRINGS THAT ASSET INTO EXISTENCE. T HE TRANSACTION OF BORROWING IS NOT THE SAME AS THE TRANSACTION OF INV ESTMENT. IF THIS DICHOTOMY IS KEPT IN MIND IT BECOMES CLEAR THAT THE TRANSACTION OF BORROWING ATTRACTS THE PROVISIONS OF SECTION 36(1)( III). THUS THE DECISION OF THE BOMBAY HIGH COURT IN CALICO DYEING AND PRINT ING WORKS [1958] 34 ITR 265 AND THE JUDGMENT OF THE SUPREME COURT IN INDIA CEM ENTS LTD. [1966] 60 ITR 52 HAVE BEEN GIVEN WITH REFERENCE TO THE BORROWINGS M ADE FOR THE PURPOSES OF A RUNNING BUSINESS WHILE THE DECISION OF THE SU PREME COURT IN CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 WAS GIVEN WITH REFERENCE TO THE BORROWINGS WHICH COULD NOT BE TREATED AS MADE FOR THE PURPOSES OF BUSINESS AS NO BUSINESS HAD COMMENCED IN THAT CASE. THEREFORE THERE IS NO INCONSISTENCY BETWEEN THE ABOVE DECISIONS. CONCLUSIONS ITA NOS.2211/A/04 & 36-134/A/05 23 FOR THE ABOVE REASONS WE HOLD THAT THE ASSESSING O FFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS. 1 56 76 000 IN RESPECT O F BORROWINGS UTILISED FOR PURCHASE OF MACHINES. ACCORDINGLY THE ABOVE QUESTI ON IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 11.1. THE AFORESAID DECISION HAS SUBSEQUENTLY BE EN FOLLOWED IN JCIT VS. UNITED PHOSPHOROUS LTD. 299 ITR 9(SC) ACIT VS. ARVI ND POLYCOT LTD. 299 ITR 12(SC) AND CIT VS. ISHWAR BUVAN HOTELS LTD. 215CTR 14(SC) . 11.2. IN THE LIGHT OF THESE DECISIONS OF THE APEX COURT WE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISAL LOWANCE OF INTEREST OF RS.1 23 03 371/- .THERE BEING NO INFIRMITY IN THE F INDINGS OF LD. CIT(A) WE UPHOLD HIS ORDER. THUS GROUND NO. IV) IN THE APPEAL OF TH E REVENUE IS DISMISSED WHILE GROUND NO. 1 IN THE CROSS OBJECTION BY THE ASSESSEE IS ALLOWED. THEREFORE THE ALTERNATIVE GROUND NO. 2 RAISED IN THE CROSS-OBJE CTION BY THE ASSESSEE DOES NOT SURVIVE FOR ADJUDICATION AND IS ACCORDINGLY DISMIS SED.. 24. INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS & CIRCUMSTAN CES IN THE ASSESSMENT YEAR 2000-01 FOLLOWING THE VIEW TAKEN B Y THE ITAT IN THEIR AFORESAID DECISION IN THE ASSESSEES OWN CAS E WE HAVE NO HESITATION IN ALLOWING THE CLAIM OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THEREFORE GROUND NO.5 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 IS ALLOWED WHILE THE ALTERNATIVE CLAIM RAISED BY THE ASSESSEE DOES NOT SURVIVE FOR OUR ADJUDICATION. 25. GROUND NO.6 IN THE APPEAL OF THE ASSESSEE FO R THE AY 1998- 99 RELATING TO DISALLOWANCE OF RS.45 16 000/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS OF RS.45 16 000/- WAS NOT PRESSED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE THE AMOUNT HAVING BEEN NOT WRITTEN OFF IN THE YEAR UNDER CONSI DERATION. THEREFORE THIS GROUND IS DISMISSED AS SUCH. 26. GROUND NO.7 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 RELATES TO DISALLOWANCE OF MISCELLANEOUS EXPENSES O F RS.6 79 214/- ON ACCOUNT OF LPG DAY EXPENSES EMERGENCY WORK EXPE NSES AND ITA NOS.2211/A/04 & 36-134/A/05 24 DIWALI ETC.. THE AO OBSERVED THAT THE ASSESSEE DID NOT OFFER ANY SPECIFIC EXPLANATION IN RESPECT OF NATURE OF THESE EXPENSES. SINCE THE FAMILY MEET EXPENSES AND GAS DAY EXPENSES ETC. WERE NOT IN THE NATURE OF BUSINESS EXPENDITURE HAVING NOT BEEN INCURRED FOR EARNING ANY BUSINESS PROFIT NOR THE ASSESSEE OFFER ED ANY EXPLANATION REGARDING PURPOSE OF EXPENSES INCURRED UNDER THE HEAD EMERGENCY WORK EXPENSES FOR DIWALI THE AO DISALL OWED A LUMPSUM AMOUNT OF RS.4 00 000/- OUT OF TOTAL AMOUNT OF RS.6 70 944/-. 27. ON APPEAL THE LEARNED CIT(A) RESTRICTED THE DI SALLOWANCE TO RS.2 30 218/- IN THE FOLLOWING TERMS:- [X] DISALLOWANCE OF RS.4 00 000/- OUT OF MISC. EXP ENSES:- IT IS CLAIMED BY THE ARS. THAT OUT OF THE TOTAL MISC. EXPENSES OF RS.6 79 214/- A LUMP- SUM ADDITION OF RS.4 00 000/- HAS BEEN MADE BY THE A.O. THE ENTIRE MISC. EXPENSES INCLUDES EXPENSES FOR FAMILY MEET AND LPG DAY EXPENSES OF RS.3 45 942/-- GAS DAY EXPENSES OF RS.1 42 212/- A ND DISTRIBUTION OF SWEETS DURING DIWALI AND SHUT DOWN EXPENSES WRONGLY STATED AS EMERGENCY EXPENSES OF RS.1 82 800/-. IT IS STATED B Y THE A.RS. THAT CIT(A) FOR A.Y. 96-97 HAS ALLOWED THE LPG DAY EXPENSES AND GAS DAY EXPENSES AND IT WAS POINTED OUT THAT THE A.O. HAS DISALLOWED GAS DAY EXPENSES TWICE ONCE IN PARA 4 OF THE ASSESSMENT AND SECONDL Y VIDE PARA-11 OF THE ASSESSMENT ORDER WHICH WILL AMOUNT TO DOUBLE ADDITI ON. FURTHER IT IS ARGUED THAT THE DISTRIBUTION OF SWEETS IS NOTHING BUT A STAFF WELFARE EXPENSES IT ALSO INCLUDES BONI AND PRESENTS TO OUT SIDERS AND EXPENSES INCURRED ON ACCOUNT OF CLOSURE OF MACHINERY DURING DIWALI FESTIVAL THUS IT IS IN THE NATURE OF STAFF WELFARE EXPENSES. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE ARS . AND SEEN THAT AS CLAIMED BY THEM THE GAS DAY EXPENSES ARE DISALLOWED TWICE ONCE IN PARA- 4 OF THE ASSESSMENT ORDER ALONG WITH THE DIWALI EXP ENSES OF RS.27 570/- (TOTAL RS.1 69 789/-) AND AGAIN AS PER PARA-11 OF T HE ASSESSMENT ORDER EQUAL AMOUNT OF RS.1 42 212/- FOR GAS DAY EXPENSES HAS BEEN DISALLOWED WHILE DISALLOWING MISCELLANEOUS EXPENSES OF RS.4 00 000/- OUT OF TOTAL MISCELLANEOUS EXPENSES O F RS.6 70 944/-. THE A.O. IN PARA-4 OF THE ASSESSMENT ORDER HAS HELD THA T GAS DAY EXPENSES AND DIWALI EXPENSES ARE NOT CONNECTED WITH THE BUSI NESS ACTIVITY OF THE COMPANY. SIMILARLY WHILE DISALLOWING LUMP-SUM AM OUNT OF RS.4 00 000/- OUT OF MISC. EXPENSES OF RS.6 70 944/- IT IS STATE D BY THE A.O. THAT NO SPECIFIC EXPLANATION WAS OFFERED IN RESPECT OF SUCH EXPENSES AND HE HAS ITA NOS.2211/A/04 & 36-134/A/05 25 TREATED THE FAMILY MEET EXPENSES AND GAS DAY EXPEN SES AS NON- BUSINESS EXPENDITURE. HOWEVER HE HAS DISALLOWED LUMP-SUM AMOUNT OF RS.4 00 000/- OUT OF RS.6 70 944/-. IT IS ALSO SEEN THAT NO DETAILED BREAK-UP OF THE EXPENSES HAVE BEEN FILED EITHER BEFORE THE A .O. OR BEFORE ME WHICH CAN BE SEEN FROM THE BODY OF THE ORDER IN PARA-11 OF THE ASSESSMENT ORDER. IT IS VERY DIFFICULT TO ARRIVE AT A CONCLUSI ON THAT WHETHER SUCH EXPENSES ARE MEANT FOR BUSINESS PURPOSE OR NOT UNLE SS A DETAILED VERIFICATION IS MADE IN RESPECT OF EACH EXPENDITURE FOR WHICH NO DETAILS HAVE BEEN FILED BY THE APPELLANT. HOWEVER ACCEPTIN G THE DOUBTFUL ADDITION OF RS.1 42 212/- IN RESPECT OF GAS DAY EXPENSES ON E ADDITION IS DIRECTED TO BE DELETED OF RS.1.42.212/-. COMING TO THE FAMIL Y MEET EXPENSES LPG DAY EXPENSES GAS DAY EXPENSES DISTRIBUTION OF SW EETS DURING DIWALI AND THE EXPENSES INCURRED DURING THE SHUT DOWN OF THE M ACHINERY THERE IS NO DETAILED BREAK-UP AND THE ASSESSEE HAS NOT PROVED A S TO HOW THESE EXPENSES ARE DIRECTLY-INDIRECTLY CONNECTED TO THE BUSINESS ACTIVITY OF THE COMPANY. AT THE SAME TIME THE ASSESSEE CANNOT CLAIM THE SAME AS STAFF WELFARE EXPENSES UNLESS HE PROVES THAT BY SPENDING SUCH AMOUNTS STAFF WELFARE MEASURES HAVE BEEN TAKEN-UP AND PROFIT OF T HE COMPANY HAS INCREASED. THUS THERE ARE NO DETAILS AVAILABLE O N THE RECORDS. HOWEVER THE EXPENSES INCURRED DURING THE SHUT DOWN OF THE M ACHINERY CAN BE ALLOWED. THUS IN VIEW OF THE SAME THE A.O. HAS ALL OWED RS.2 70 944/- FOR THIS PURPOSE AND OTHER PURPOSE OF STAFF WELFARE IF ANY. THEREFORE THE ADDITION OF RS.4 00 000/- IS HEREBY CONFIRMED. BUT THE ADDITION OF RS.1 69 782/-[1 42 212/- GAS DAY EXPENSES + 27 570/ - DIWALI EXPENSES] ARE ALREADY CONFIRMED IN PARA 4(IV) ABOVE SO NO FU RTHER ADDITION IS CONFIRMED. THUS THE NET ADDITION CONFIRMED IS RS.2 30 218/-(4 00 000 - 1 69 782). 28. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 6-1-2006 IN THE ASSESSEES OWN CASE FOR THE AY 1993-94 IN ITA NO.1895/AHD/2002 AND THE DECISION DATED 30-01-2009 FOR THE AY 2000-01 IN ITA NO.3464/ AHD/2004. ON THE OTHER HAND THE LD. DR DID NOT OPPOSE THESE SUB MISSIONS ON BEHALF OF THE ASSESSEE 29. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORECITED DECISIONS OF THE IT AT. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THE ASSESSEE S OWN CASE THE ITA NOS.2211/A/04 & 36-134/A/05 26 ITAT VIDE THEIR DATED 30-01-2009 FOR THE AY 2000-01 IN ITA NO.3464/AHD/2004 CONCLUDED AS UNDER: 9. GROUND NO. II) RELATES TO DELETION OF DISALLOWA NCE OF AN AMOUNT OF RS.1 69 628 (NOT RS.1 63 691) ON ACCOUNT OF DIWALI/ FAMILY MEETING AND GAS DAY CELEBRATIONS. THE AO DISALLOWED THE CLAIM SINCE THESE EXPENSES WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE FOLLOW ING HIS OWN ORDERS FOR THE PRECEDING YEARS. ON APPEAL THE ID. CIT(A) FOL LOWING HIS OWN DECISION DATED 21-5-2002 FOR THE AY 96-97 ALLOWED THE CLAIM . 9.1 THE REVENUE IS IN APPEAL AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED BY THE DECISION DATED 2.1.2007 OF THE ITAT IN THEIR OWN CASE FOR THE AYS 1994-95 TO 1996-97 IN ITA NOS. 2547 TO 2549 /AHD./2002 WHEREIN THE ITAT RELYING UPON THEIR OWN DECISION DATED 29. 7.2005 IN THE ASSESSEE'S OWN CASE IN ITA NOS. 1331/AHD./1999 FOR THE AY 1992-93 ALLOWED THEIR CLAIM IN TERMS OF PARA 11 -12 OF THEI R ORDER. 9.2 A SIMILAR CLAIM WAS ALLOWED BY THE ITAT IN THEI R DECISION DATED 6.10:2006 FOR THE AY 1993-94 IN ITA NO.1928/AHD./20 02 AND DECISION DATED 20.2.2008 IN ITA NO.95&96/AHD./2008 FOR THE A YS. 2003-04 & 2004- 05. 9.3 IN THE LIGHT OF AFORESAID DECISIONS FOLLOWING THE PRINCIPLES OF JUDICIAL CONSISTENCY WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE TD;. CIT(A). THEREFORE GROUND NO. II) OF THE APPEAL OF T HE REVENUE IS DISMISSED. 30. INDISPUTABLY SINCE THE FACTS OBTAINING IN TH E YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS IN THE ASSES SMENT YEARS 1992- 93 TO 1996-97 2000-01 &2003-04 TO 2004-05 FOLLOWI NG THE VIEW TAKEN BY THE ITAT IN THEIR AFORESAID DECISIONS IN THE ASSESSEES OWN CASE WE HAVE NO HESITATION IN ALLOWING THE CLAIM OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THEREFORE GROUND NO. 7 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 IS ALLOWED. 31. GROUND NO.8 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998-99 RELATES TO DISALLOWANCE OF EXPENSES ON REPLACEMENT OF DEFECTIVE METERS RS.23 46 862/- WHILE GROUND NO. 9 RELATES TO ADDITION OF RS.1 LAC ON SALE OF DEFECTIVE METERS. THE AO NOTICED THA T THE ASSESSEE CLAIMED AN AMOUNT OF RS.23 46 862/- TOWARDS REPLAC EMENT OF ITA NOS.2211/A/04 & 36-134/A/05 27 DEFECTIVE OLD METERS . TO A QUERY BY THE BENCH THE ASSESSEE STATED THAT THEY SUO MOTU REPLACED DEFECTIVE METERS AND A S A RESULT REVENUE OF THE COMPANY ENHANCED. SINCE THE EXPENDIT URE WAS IN THE NATURE OF REPAIRS THE ASSESSEE ARGUED THAT THE SAM E MAY BE ALLOWED AS REVENUE EXPENDITURE. HOWEVER THE AO REJ ECTED THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH THE DETAILS OF CONSUMPTION OF METERS ITS CLOSING STOCK AND ANY CORRESPONDENCE OR RECEIPT OF REPLACEMENT OF METERS FROM THE USERS. SINCE METERS WERE PART AND PARCEL OF GAS LINE WHILE THE ASSESSEE CLAIMED DEPRECIATION ON GAS LINE THE AO CONCLUDED THAT THE COST OF METER WILL BE CAPITAL EXPENDITURE AND N OT REVENUE EXPENDITURE RESULTING IN. DISALLOWANCE OF RS.23 4 6 862/-. THE AO SIMULTANEOUSLY ALLOWED DEPRECIATION @ 25% ON RS.23 46 862/- I.E. RS.5 86 716/-.MOREOVER SINCE THE ASSESSEE DID NOT ACCOUNT FOR STOCK OF OLD METERS THE AO ALSO ADDED AN AMOUNT OF RS. 2 LACS ON ACCOUNT OF SALE OF SCRAPPED METERS. 32. ON APPEAL THE LEARNED CIT(A) ADJUDICATED THE I SSUE IN THE FOLLOWING TERMS:- [XI](I) DISALLOWANCE OF RS.23 46 862/- - REPLACEME NT OF DEFECTIVE METERS :- THE ARS HAVE RELIED ON THE FOLLOWING CASES TO CONSI DER THE REPLACEMENT OF OLD METER WITH CURRENT METERS. - ADDL.CIT V/S. DESAI BROTHERS 108 ITR 14 Z(GUJ.J - NATHUMAL BANKATLAL PARIKH V/S.CTI 122 ITR 168 ( A.P.) - K.C.P. LTD. V/S. ITO 38ITR15(HYD.) - I.A.C. V/S. NUCHEM PLASTICS LTD. 35 TTJ 559 (DEL HI) - OSWAL WOOLEN LTD. V/S. ITO 27 TTJ 535 AND AN ALTERNATIVE ARGUMENT HAS BEEN TAKEN UP THAT THE VALUE OF EACH METER IS HARDLY RS.1000/- THEREFORE IT IS LESS TH AN RS.5000/- FOR CLAIMING DEPRECIATION AT THE RATE OF 100%. (II) THE A.O. IN HIS ORDER IN PARA NO. 12 HAS STATE D THAT THESE METERS WERE USED TO READ THE CONSUMPTION OF THE GAS BY THE CUSTOMERS AND REPLACEMENT OF THE OLD METERS WILL NOT IMPROVE THE REVENUE BECAUSE THIS IS NOT A PART OF MACHINERY BY FITTING THE SAME THE EFF ICIENCY OF THE MACHINERY IMPROVES. HOWEVER THE A.O. HAS DISALLOWED THE SAME FOR NOT FILING THE ITA NOS.2211/A/04 & 36-134/A/05 28 DETAILS OF CONSUMPTION OF METERS ITS CLOSING STOCK AND CORRESPONDING RECEIPTS FOR THE REPLACEMENT FROM THE USERS. IT IS FURTHER STATED BY THE A.O. THAT WITHOUT METER GAS PIPE LINE HAS NO VALUE. IN F ACT SUCH METERS WILL INCREASE THE VALUE OF THE GAS PIPE LINE. THEREFORE ANY EXPENDITURE IN THE FORM OF ADDITION TO GAS PIPE LINE BY FIXING THE MET ERS CANNOT BE SAID AS REVENUE EXPENDITURE. HOWEVER WITHOUT ACCEPTING THE STATEMENT BY THE APPELLANT THE A.O. HAS MADE THE ADDITION OF RS.23 46 862/- AND FURTHER ALLOWED DEPRECIATION AT THE RATE OF 25% ON THE SAME WHICH COMES TO RS.5 86 716/-. (III) I HAVE GONE THROUGH THE ARGUMENTS MADE BY THE A.R. AND SEEN THAT NO DETAILED DOCUMENTARY EVIDENCES ARE FILED BEFORE ME AS TO HOW THE COMPANY HAS PURCHASED METERS WORTH RS.23 46 862/- HOW THE SAME ARE UTILIZED BY THE COMPANY LIKE THE ASSESSEE HAS NOT F ILED ANY PROOF OF REPLACEMENT AND FITTING UP OF THE NEW METERS ALONG WITH ITS EXPENSES. THE DECISION HE HAS RELIED UPON ARE IN RESPECT OF REVEN UE EXPENDITURE. HOWEVER THE APPELLANT HAS NOT FILED THE BASIC FACT S LIKE REMOVAL OF OLD METERS PURCHASE OF NEW METERS FITTING OF NEW METE RS AND SALE OF SCRAP IN THE FORM OF OLD METERS. THEREFORE IN THE ABSENCE O F ANY FACTUAL EVIDENCE FOR HE ENTIRE TRANSACTION IT IS VERY DIFFICULT TO CONSIDER THE SAME FOR 100% DEPRECIATION FOR ASSETS BELOW RS.5000/-. THUS THE AR HAS NOT PROVED BEFORE THE AO AND BEFORE ME THE ACTUAL PURCHASE AND FITTING OF THE METERS. THEREFORE THE ADDITION MADE BY THE AO IS HEREBY CO NFIRMED. 32.1 AS REGARDS ADDITION ON ACCOUNT OF SCRAP TH E LD. CIT(A) REDUCED THE AMOUNT TO RS.1 LAC AS UNDER: IT IS ARGUED BY THE AR THAT REPLACED OLD METERS HAV E NO SCRAP VALUE. THEREFORE REQUESTED TO DELETE THE SAME. WHEREAS I T IS STATED BY THE AO IN THE ORDER THAT THE ASSESSEE HAS NOT ACCOUNTED FO R ANY SCRAP / REPLACED METERS AND HE HAS ESTIMATED SUCH SCRAP VALUE AT RS. 2 00 000/- AND ADDED BACK TO THE INCOME . (II) I HAVE GONE THROUGH THE ARGUMENTS MADE BY THE AR AND SEEN THAT OUT OF THE REPLACEMENT OF THE OLD METERS THE ASSES SEE HAS SPENT RS.23 46 862/- AS CLAIMED BY HIM. HOWEVER IF IT IS CONSIDERED THAT OLD METERS WERE PURCHASED AT HALF OF THE VALUE WHICH CO MES TO RS.11 73 431/- AND THE AO HAS CONSIDERED THE SCRAP VALUE AT RS.2 0 0 000/- WHICH APPEARS TO BE ON THE HIGHER SIDE. THEREFORE THE SA ME IS CONSIDERED AT RS.1 00 000/- ON ESTIMATION BASIS SINCE NO DETAILS ARE AVAILABLE. THUS THE ASSESSEE GETS THE RELIEF OF RS.1 00 000/- ON ACCOUN T OF THIS ADDITION. 33. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE WHILE REFERRING TO THEIR LETTER DATED 23.2 .2001 ADDRESSED TO ITA NOS.2211/A/04 & 36-134/A/05 29 JCIT SPL RANGE [PAGE 131 TO 138 OF THE PB] CONTEND ED THAT 6000 SECOND HAND METERS WERE IMPORTED VIDE BILL DATED 10 .1.1996 @ RS. 400 PER METER AND OLD DEFECTIVE METERS WERE REPLAC ED. THEREFORE THE EXPENDITURE ON REPLACEMENT OF DEFECTIVE METERS WAS ALLOWABLE. ON THE OTHER HAND THE LD. DR POINTED OUT THAT SI NCE RELEVANT DETAILS OF REMOVAL OF OLD METERS PURCHASE OF NEW M ETERS FITTING OF NEW METERS AND SALE OF SCRAP IN THE FORM OF OLD METERS OR ANY EVIDENCE OF REPLACEMENT WERE NOT SUBMITTED BEFORE THE AO OR THE LD. CIT(A) TH E CLAIM COULD NOT BE ALLOWED. TO A QUERY BY THE BENCH THE LD. AR AGREED TO SUBMIT T HE RELEVANT DETAILS AND SUBMITTED THAT MATTER MAY BE RESTORED TO THE FILE O F THE AO FOR THAT PURPOSE. THE LD. DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF O F THE ASSESSEE . 34. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) UPHELD THE DI SALLOWANCE OF RS.23 46 862/- MAINLY ON THE GROUND THAT THE ASSESS EE DID NOT FURNISH THE RELEVANT DETAILS OF REMOVAL OF OLD METERS PURCHASE OF NEW METERS FITTING OF NEW METERS AND SALE OF SCRAP IN THE FORM OF OLD MET ERS OR ANY EVIDENCE OF REPLACEMENT OF OLD METERS BEFORE HIM OR THE AO . NOW WHEN THE LD. AR HAS AGREED TO FURNISH THE RELEVANT DETAILS AND EVIDENC E WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUES RAISED IN THE AFORESAID GROUND NOS. 8 &9 OF THE APPEAL RELATING TO REPLACEMENT OF OLD METERS AN D SALE THEREOF AS SCRAP AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT O PPORTUNITY TO THE ASSESSEE. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL T HE AO SHALL BRING OUT CLEARLY AS TO WHETHER OR NOT THE OLD METERS WERE ACTUALLY R EPLACED AND HAD BEEN SOLD AS A SCRAP. WITH THESE OBSERVATIONS GROUND NOS. 8 & 9 IN THE APPEAL ARE DISPOSED OF. 35. GROUND NO.10 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1998- 99 RELATES TO DISALLOWANCE OF EXPENDITURE INCURRED ON MARKET SURVEY. THE AO NOTICED THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS.9 05 000/- TOWARDS MARKET SURVEY FOR EXPANDING M ARKET IN GUJARAT AND MADHYA PRADESH WITH THE LAUNCH OF NEW PRODUCTS I.E. ITA NOS.2211/A/04 & 36-134/A/05 30 SMALL 5 KG. LPG CYLINDERS. THE MARKET SURVEY WORK W AS HANDED OVER TO M/S SPAN ASSO. PVT. LTD. AND GALLLUP MBA INDIA P VT. LTD. HOWEVER THE AO WAS OF THE OPINION THAT THE MARKET SURVEY WAS CONDUCTED TO START A NEW BUSINESS IN NEW AREAS WITH THE LAUNCH OF NEW 5 KG. LPG CYLINDERS AND THEREFORE IT WAS IN THE NATURE OF PROJECT EXPENSES/CAPITAL EXPENSES AND QUALIFIED FOR DEDUCTION U/S 35D OF THE ACT. THE AO ACCORDINGLY DISALLOWED AN AMOUNT OF RS.9 05 000/- AND ALLOWED DEDUCTION U/S 35D AT 1/10 TH OF RS.9 05 000/- I.E. RS.90 500/-. 36. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO IN THE FOLLOWING TERMS:- [XII] DISALLOWANCE OF RS.9 05 000/- MARKET SURVEY EXPENSES :- IT IS ARGUED BY THE AR THAT THE COMPANY IS ENGAGED IN BOT TLING AND MARKETING OF LPG WHICH HAS STARTED BUSINESS DURING THE FY 95- 96 WITH ITS OWN OUTLETS. DURING THE YEAR 5 KGS. CYLINDER IS LAUNCH ED IN THE MARKET TO ASSESS THE VIABILITY OF NEW CYLINDER EXPENSES ARE INCURRED TO SEE THE EFFECTIVENESS OF THE MARKET. A PERIODIC RESEARCH WA S CONDUCTED AND WORK WAS ASSIGNED TO GALLUP MBA INDIA & CO. AND SPAN ASS OCIATES PVT. LTD. FURTHER IT IS CLAIMED THAT THE EXPENSES ARE FOR TH E SALES PROMOTION WHICH ARE TO BE ALLOWED U/S 37(1) OF THE ACT RELYING ON T HE CASE LAWS LIKE CIT VS. ALUMINIUM INDS. LTD. 80 TAXMAN 243 (KER) ASSOCIAT ED MARKETING AGENCY VS. ITO 43 ITD 543 (MAD) AND CIT VS. KIRLOSKAR ENGI NEERING LTD. 157 ITR 762 (BOM). IT IS HELD BY THE AO IN THE ORDER IN PARA-13 THAT SUCH EXPENSES ARE IN THE NATURE OF CAPITAL EXPENSES COMING U/S 35D OF THE IT ACT. IT IS ALSO STATED THAT THE DETAILS OF SUCH EXPENSES WERE NOT AVAILABL E BEFORE THE AO AND ALSO BEFORE ME. IN THE ABSENCE OF THE DETAILS OF EX PENDITURE THE SAME IS NOT ALLOWED. THE APPELLANT HAS NOT ESTABLISHED THE NEXUS BETWEEN SUCH EXPENSES AND THE BUSINESS ACTIVITY OF THE APPELLANT COMPANY. THEREFORE THE SAME IS CONFIRMED. 37. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE SUBMITTED THAT EXPENDITURE INCURRED IN RES PECT OF ADDITION OF SAME PRODUCT IN DIFFERENT PACKING (QUANTITY) DID NOT MEAN THAT NEW PRODUCT HAD BEEN LAUNCHED BY THE COMPANY. INTER ALIA THE LEARNED AR RELIED UPON DECISIONS IN CIT VS. ALUMIN IUM INDUSTRIES ITA NOS.2211/A/04 & 36-134/A/05 31 LTD. 214 ITR 541( KERALA) AND ASSOCIATED MARKETING AGENCIES VS. ITO 43 ITD 543(ITAT).TO A QUERY BY THE BENCH AS TO WHETHER DETAILS OF SUCH EXPENSES WERE AVAILABLE BEFORE THE AO AND THE LD. CIT(A) THE LD. AR SUBMITTED THAT MATTER MAY BE RESTORED TO THE FILE O F THE AO . THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDINGS OF THE LE ARNED CIT(A). 38. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) UPHELD THE DI SALLOWANCE MAINLY ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH THE RELEVANT DETAILS OF MARKET SURVEY OR ANY EVIDENCE THEREOF BEFORE HIM OR THE A O . NOW WHEN THE LD. AR HAS AGREED TO FURNISH THE RELEVANT DETAILS AND EVI DENCE WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUES RAISED IN GROUND NO.10 OF THE APPEAL RELATING TO MARKET SURVEY AFRESH IN ACCORDANCE WIT H LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE BRINGING OUT CLEARLY A S TO WHETHER OR NOT THE CLAIM FALLS WITHIN THE PROVISIONS OF SEC. 35 D OF THE ACT . WITH THESE OBSERVATIONS GROUND NO. 10 IN THE APPEAL IS DISPOSED OF. 39. GROUND NO.3 IN THE APPEAL OF THE ASSESSEE FOR THE AY 2001-02 RELATES TO DISALLOWANCE OF DEPRECIATION OF RS.93 3 3 112/- ON PLANT AND MACHINERY GIVEN ON LEASE TO RAJASTHAN STATE ELE CTRICITY BOARD [RSEB]. RELYING UPON HIS OWN ORDER FOR THE AY 1999- 2000 AND DECISION OF THE ITAT SPECIAL BENCH MUMBAI IN THE C ASE OF ICICI LTD. VS. DCIT IN ITA NO. 3300/MUM/1997 AS ALSO THE DECI SION OF THE HONBLE SUPREME COURT IN MCDOWELL & CO. VS. CTO 15 4 ITR 148 (SC) THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON ASSETS OF SALE AND LEASE BACK TRANSACTIONS. 40. ON APPEAL THE LEARNED CIT(A) WHILE REFERRING T O HIS FINDINGS IN THE AY 2000-01 DIRECTED IN THE FOLLOWING TERMS:- 7.1 BEFORE ME THE APPELLANT'S REPRESENTATIVE SHRI D J SHAH AND SHRI ANUJ MEHTA HAVE SUBMITTED THAT IN CASE THE TRANSACT ION IS NOT HELD AS ITA NOS.2211/A/04 & 36-134/A/05 32 GENUINE LEASE TRANSACTION THEN ONLY THE INTEREST EL EMENT IN THE LEASE RENTALS SHOULD BE ADDED TO THE INCOME AND THE PRINC IPAL AMOUNT RECOVERED SHOULD BE EXCLUDED FROM THE TOTAL INCOME 7.2 DURING THE COURSE OF HEARING THE APPELLANT'S R EPRESENTATIVE HAS ALSO TAKEN UP ADDITIONAL GROUND OF APPEAL IN THIS R ESPECT STATING THAT DEEMED RECOVERY OF PRINCIPAL AMOUNT OF RS.2 46 90 9 15/- SHOULD BE IGNORED FROM THE TOTAL INCOME AND ONLY THE INTEREST PORTION SHOULD BE BROUGHT TO TAX AND NOT THE ENTIRE LEASE RENTAL RECE IVED RS.2 75 37 050/-. THE ADDITIONAL GROUND RAISED WAS FORWARDED TO THE A .O. I.E. DCIT CIRCLE-4 AHMEDABAD FOR HIS COMMENTS WHICH HAVE BEEN RECEIVED AS PER TELLER DATED 7.10.2004. THE SAME WERE ALSO FORWARDED TO TH E APPELLANT FOR COUNTER COMMENTS WHICH HAVE BEEN GIVEN ON 2.11.2004 . IT HAS BEEN SUBMITTED BY THE APPELLANT'S REPRESENTATIVE THAT TH E SAID GROUND IS LINKED WITH THE ORIGINAL GROUND OF CLAIM OF DEPRECIATION A ND IS NOT INDEPENDENT GROUND AS SUCH. RELIANCE IS ALSO PLACED ON THE DECI SION OF SUPREME COURT IN THE CASE OF NTPC LTD. VS. CIT 229 ITR 383 THAT TAXING AUTHORITIES ARE REQUIRED TO ASSESS THE CORRECT TAX LIABILITY. RELIA NCE IS ALSO PLACED ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF NEW I NDIA INDUSTRIES LTD. VS. CIT 207 ITR 1010. 7.3 AFTER CONSIDERING THE SUBMISSIONS MADE BEFORE M E AND ALSO THE POINTS RAISED BY THE AO IT IS HELD THAT THE GROUND RAISED IS LINKED WITH THE CLAIM OF THE APPELLANT FOR DEPRECIATION AND IN CASE THE SAME IS NOT TO BE ALLOWED AS SUCH THE INCOME WHICH IS WRONGLY TREATED AS INCOME IS REQUIRED TO BE RECTIFIED. SIMILAR DIRECTIONS HAD BEEN GIVEN BY THE UNDERSIGNED IN EARLIER ASSESSMENT YEAR ALSO INCLUDING THE ORDER DA TED 30.9.2004 IN THE APPELLANT'S OWN CASE FOR A.Y. 2000-01 REFERRED ABOV E. FOLLOWING THE SAID OBSERVATIONS THE AO IS DIRECTED TO RECOMPUTE THE A LLOWABLE DEPRECIATION/INTEREST INCOME AFTER EXCLUDING PRINC IPAL AMOUNT AFTER VERIFICATION AND AFTER GIVING OPPORTUNITY TO THE AP PELLANT IN THIS RESPECT. 41. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE SQUARELY IS COVER ED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT IN THE ASSESSEES OWN CASE IN ITA NO.2026/AHD/2004 FOR THE AY 1995-96 AND ORDER DATE D 30-01-2009 IN ITA NO.3446/AHD/2004 FOR AY 2000-01 . THE LEARNE D AR FURTHER POINTED OUT THAT THE HONBLE GUJARAT HIGH COURT DI SMISSED THE TAX APPEAL FILED BY DEPARTMENT IN ASSESSEES OWN CASE V IDE ORDER DATED 10-09-2008 IN TAX APPEAL NO.444 OF 2008FOR THE AY 1 995-96. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDIN GS OF THE LD. CIT(A). ITA NOS.2211/A/04 & 36-134/A/05 33 42. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE THE TRIBUNAL VIDE ORDER DATED 30-01-2009 IN THE ASSESSE ES OWN CASE IN ITA NO.3446/AHD/2004 FOR THE AY 2000-01 CONCLUDED A S UNDER :- 4.2. HAVING HEARD BOTH THE PARTIES AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DECISIONS OF THE TRIBUNAL AND HONBLE JURISDICTIONAL HIGH COURT RELIED ON BY THE LEARNED AR ON BEHALF OF THE ASSESSEE WE FIND THAT A SIMILAR ISSUE IN THIS CASE HAS ALREA DY BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CAS E FOR THE AY 1995-96 VIDE ORDER DATED 10.9.2008 IN TAX APPEAL NO. 444 OF 2008 WHEREIN HONBLE JURISDICTIONAL HIGH COURT HELD AS UNDER; 5. IN RELATION TO THE TRANSACTION AFTER REFERR ING TO AN EARLIER ORDER OF THE TRIBUNAL THE TRIBUNAL IN THE PRESENT CASE RECORDED THE FOLLOWING FINDINGS: 10.9 RESPECTFULLY FOLLOWING THE AFORESAID CASE WE FIND THAT IN THE CASE BEFORE US THE INVOICES ARE IN THE NAME OF THE ASSES SEE AS IS CLEAR(COPY OF THESE INVOICES APPEARING AT PAGE 59 TO 63 OF THE PA PER BOOK).SIMILAR TRANSACTION WAS HELD TO BE GENUINE TRANSACTION BY H ONBLE RAJASTHAN HIGH COURT IN THE CASE OF RSEB(SUPRA) THEREFORE TRANSACT ION IN QUESTION IS HELD TO BE GENUINE ONE AND THEREFORE WE SET ASIDE THE ORD ER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION TO THE ASSESSEE. 6. WITH REFERENCE TO DECISION OF RAJASTHAN HIGH COU RT AS APPEARING IN THE ORDER OF TRIBUNAL THE SAME RELATES TO THE DECISION REPOR TED IN (2006) 204 CTR(RAJ) 415 IN THE CASE OF CIT VS. RAJASTHAN STATE ELECTRICITY BOARD. THE QUESTION BEFORE THE RAJASTHAN HIGH COURT WAS IN RELATION TO DISALLOWANC E OF PAYMENT OF LEASE RENTALS ON THE TRANSACTION OF SALE-CUM-LEASE BACK AGREEMENT AND RAJASTHAN HIGH COURT HAS FOUND THAT THE TRIBUNAL HAS RIGHTLY APPRECIATED THE FACTS AND CORRECTLY FOUND THE TRANSACTION TO BE GENUINE AND SUCH A TRANSACTIO N COULD NOT BE TREATED TO BE PERVERSE. 7. ADMITTEDLY THE TRANSACTION IN QUESTION WHICH T HE HIGH COURT OF RAJASTHAN WAS CALLED UPON TO DEAL WITH IS THE SAME TRANSACTION WH ICH HAS BEEN FOUND TO BE GENUINE BY THE TRIBUNAL IN THE PRESENT CASE. THE LE ASE RENTAL PAID BY RAJASTHAN STATE ELECTRICITY BOARD HAS BEEN FOUND BY RAJASTHAN HIGH COURT TO BE ALLOWABLE DEDUCTION AS THE TRANSACTION IS GENUINE. CORRESPOND INGLY IN THE HANDS OF THE ASSESSEE COMPANY THE SAID LEASE RENTAL HAS BEEN TA XED AS BUSINESS INCOME AND THE SAME HAS NOT BEEN DISTURBED BY THE ASSESSING OF FICER DESPITE HAVING INITIATED ACTION U/S 147 OF THE ACT FOR TREATING THE TRANSACT ION AS A NON-GENUINE TRANSACTION. ITA NOS.2211/A/04 & 36-134/A/05 34 8. IN THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE WHETHER THE TRANSACTION OF LEASING OUT ELECTRICAL EQUIPMENTS TO RAJASTHAN E LECTRICITY BOARD IS GENUINE OR NOT IS BASED UPON APPRECIATION OF EVIDENCE ON RECOR D AS FOUND BY THE TRIBUNAL BY REFERRING TO THE VARIOUS DOCUMENTS LIKE INVOICE ETC ..IN THE ABSENCE OF ANY EVIDENCE TO SHOW ANYTHING TO THE CONTRARY NO LEGAL INFIRMITY EXISTS IN THE IMPUGNED ORDER OF THE TRIBUNAL SO AS TO GIVE RISE T O ANY QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW AS PROPOSED OR OTHERWISE. THE APPEAL IS ACCORDINGLY DISMISSED. 4.3 MOREOVER THE ITAT C BENCH AHMEDABAD IN ASSE SSEES OWN CASE IN THEIR DECISION DATED.20.2.2008 IN ITA NOS.95 AND 96/AHD/ 2008 FOR THE AYS 2003-04 AND 2004-05 FOLLOWING AN EARLIER ORDER OF THE TRI BUNAL FOR THE ASSESSMENT YEAR 1995-96 HAVE UPHELD THE ORDER OF THE LEARNED CIT( A) IN ALLOWING THE CLAIM OF THE ASSESSEE. 4.4 IN THE LIGHT OF AFORESAID DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE OF THE AY 1995-96 AND DECIS ION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN STATE E LECTRICITY BOARD(SUPRA) AS ALSO DECISION OF THE TRIBUNAL FOR THE AYS 2003-04 & 2004 -05 FACTS AND ISSUE BEING ADMITTEDLY SIMILAR IN THE ASSESSMENT YEAR UNDER CON SIDERATION WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT TH E ASSESSING OFFICER TO ALLOW THE DEPRECIATION AS CLAIMED BY THE ASSESSEE. THERE FORE GROUND NO. 3 IN THE APPEAL OF THE ASSESSEE IS ALLOWED. 43. INDISPUTABLY SINCE THE FACTS OBTAINING IN TH E YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS IN THE ASSES SMENT YEARS 1995- 96 2000-01 2003-04 & 2004-05 FOLLOWING THE VIEW TA KEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE IN THE AY 1995-96 AND BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN STATE ELECTRICITY BOARD(SUPRA) AS ALSO BY THE ITAT IN THEIR AFORESAID DECISIONS IN THE ASSESSEES OWN CASE WE HAVE NO HESITATION IN ALLOWING THE CLAIM OF THE ASSESSEE IN THE YEAR UNDER CONSIDERAT ION. THEREFORE GROUND NO.3 IN THE APPEAL OF THE ASSESSEE FOR THE A Y 2001-02 IS ALLOWED. 44. GROUND NO.4 IN THE APPEAL OF THE ASSESSEE FOR T HE AY 2001-02 RELATES TO DISALLOWANCE OF RS.1 65 352/- ON ACCOUNT OF INTEREST PAYABLE ON UNPAID PURCHASE PRICE OF PLANT AND MACHI NERY ACQUIRED ON CREDIT. RELYING UPON THE DECISION OF THE HON'BL E SUPREME COURT ITA NOS.2211/A/04 & 36-134/A/05 35 IN THE CASE OF BOMBAY STEAM NAVIGATION CO. (1953) ( P) LTD. VS. CIT (1965) 56 ITR 52 THE AO OBSERVED THAT AN AGREEME NT TO PAY THE BALANCE OF CONSIDERATION DUE BY THE PURCHASER DOES NOT IN TRUTH GIVE RISE TO LOAN. SINCE THE ASSESSEE COMPANY IS IN THE BUSINESS OF THE DISTRIBUTION OF THE NATURAL GAS AND THERE WAS NO CO NNECTION BETWEEN THE LEASING RESORTED TO BY THE ASSESSEE AND ITS PRI NCIPAL BUSINESS THE AO CONCLUDED THAT THE LEASING WAS ONLY A SUBTER FUGE TO AVOID THE INCIDENCE OF THE TAXATION AND THE RELATIONSHIP BETW EEN THE ASSESSEE AND ITS LESSEE WAS CONTRIVED ONE. SINCE THE MONIES WERE NOT FOR THE PURPOSE OF THE BUSINESS OR PROFESSION IN RESPECT OF THE CAPITAL BORROWED NOR EXPENDITURE HAD BEEN LAID OUT OR EXPE NDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROF ESSION THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF INTEREST ON THE DEFERRED PAYMENT CREDIT. 45. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISALL OWANCE FOLLOWING HIS DECISION IN THE AY 2000-01 . 46. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION DATED 30-01-2009 OF THE ITAT IN THE ASSESS EES OWN CASE FOR AY 2000-01 IN ITA NO.3446/AHD/2004.THE LEARNED DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF THE ASSESSEE. 47. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THE ASSESSEES OWN CASE FOR THE AY 2000-01 IN ITA NO.34 46/AHD/2004 THE TRIBUNAL IN THEIR ORDER DATED 30-01-2009 ALLOWE D THE CLAIM OF THE ASSESSEE IN PARA 6.3 OF THEIR ORDER. INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEAR UNDER CONSIDERATION ARE SIMIL AR TO THE FACTS & CIRCUMSTANCES IN THE AY 2000-01 FOLLOWING THE VIEW TAKEN BY THE ITAT IN THEIR AFORESAID DECISION IN THE ASSESSEES OWN CASE WE ITA NOS.2211/A/04 & 36-134/A/05 36 HAVE NO HESITATION IN ALLOWING THE CLAIM OF THE ASS ESSEE IN THE YEAR UNDER CONSIDERATION. THEREFORE GROUND NO.4 IN THE APPEAL OF THE ASSESSEE FOR THE AY 2001-02 IS ALLOWED. 48. GROUND NO.5 IN THIS APPEAL OF THE ASSESSEE AND GROUND NO. 8 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 RELATE TO DISALLOWANCE OUT OF THE FOLLOWING EXPENSES: (A) INTEREST ON DEFERRED PAYMENT CREDIT RS.1 65 3 52/- (B) INTEREST ON WORKING CAPITAL RS. 19 130/- (C) INTEREST ON DELAYED PAYMENT OF SALES-TAX RS. 84 011/- (D) ADMINISTRATIVE EXPENSES RS.26 30 14 000/- U/S 14A OF THE ACT. SINCE THE ASSESSEE CLAIMED EXE MPTION OF INCOME OF RS.4 31 66 098/- U/S 10(33) OF THE ACT R EFERRING TO DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F RAJASTHAN STATE WAREHOUSING CORPORATION LTD. VS. CIT 245 ITR 150 THE AO DISALLOWED AN AMOUNT OF RS.3 45 16 057/- AS PER TH E FOLLOWING WORKING:- A TOTAL INTEREST PAYMENT 108203000 B TOTAL FUNDS AVAILABLE 2804719000 C. COST OF FUND (TAKING BOTH BORROWED FUND AND OWN FUND TOGETHER) A/B 0.0385789 D INVESTMENT IN SHARES 802876000 E COST OF FUND INVESTED IN SHARES (A/B)*D SALES AND OTHER RECEIPTS 3205354000 F TOTAL RECEIPTS 3205354000 G DIVIDEND BEING EXEMPT 43166098 H ADMINISTRATIVE AND OTHER EXPENSES 263014000 I AMOUNT OF DISALLOWANCE (H*G)/F 3 541 976 .4 TOTAL DISALLOWANCE U/S 14A E + I 3 45 16 057 ITA NOS.2211/A/04 & 36-134/A/05 37 49. ON APPEAL THE LEARNED CIT(A) DECIDED THE ISSUE IN THE FOLLOWING TERMS:- 9.1 BEFORE ME THE APPELLANT'S REPRESENTATIVE HAS SUBMITTED THAT THE AO IS NOT JUSTIFIED IN THE COMPUTATION ADOPTED SINCE T HE EXPENDITURE WHICH HAS BEEN APPORTIONED IS NOT CO-RELATED WITH THE EARNING OF THE EXEMPTED INCOME. THE DETAILS OF INTEREST EXPENDITURE OF RS.1 0 82 02 833/- HAVE BEEN GIVEN BEFORE ME AT PAGE 25 OF THE PAPER BOOK IN WHI CH THE FOLLOWING INTEREST EXPENDITURE HAS BEEN DEDUCTED. . (I) INTEREST ON DEBENTURE RS.10 68 99 986/- (II) INTEREST ON DEFERRED PAYMENT CREDIT RS. 1 65 352/- (III) INTEREST ON WORKING CAPITAL RS. 19 130/- (IV) INTEREST ON DELAYED PAYMENT OF SALES TAX RS. 84 011/- (V) INTEREST PROVISION ON GIDC LEASE RENT RS. 6 75 729/- (VI) INTEREST ON CUSTOMER DEPOSITS RS. 3 58 626/- ----------------------- TOTAL RS.10 82 02 833/- 9.2 THE SAME ARE BRIEFLY DISCUSSED AS UNDER: (I) INTEREST ON DEBENTURE : THIS RELATES TO THE INTEREST EXPENDITURE ON FUNDS BORROWED FOR HAPI PROJECT THIS ISSUE HAD COME UP IN A.Y. 2000-01 ALSO AND THIS EXPENDITURE WAS DIRECTED TO BE EXCLUDED WH ILE WORKING THE PROPORTIONATE DISALLOWANCE U/S. 14A. (II) INTEREST ON GIDC LEASE RENT : INTEREST OF RS.6 75 729/- HAS BEEN PAID TO GIDC AND ON PERUSING THE APPELLANT'S CONTENTION THAT IT IS NOT CO-RELATED WITH THE DIVIDEND EARNING IS JUSTIFIED. THIS ITEM I S THEREFORE NOT REQUIRED TO BE EXCLUDED WHILE WORKING PROPORTIONATE DISALLOWANC E . (III) INTEREST ON CUSTOMER DEPOSIT : THIS EXPENSES OF RS.3 58 626/- IS PAID TO DEPOSITS OF THE CUSTOMERS AND IT IS PLEADED THAT THE SAME IS NOT LINKED WITH THE EARNING OF DIVIDEND INCOME. THE CON TENTION OF THE APPELLANT IS VALID AS HELD IN A.Y. 2000-01 ALSO AFTER GOING T HROUGH THE SUPPORTING EVIDENCES AVAILABLE IN FORM OF FIXED DEPOSIT AS DIS CUSSED ABOVE THE AO IS THEREFORE DIRECTED TO EXCLUDE THE ABOVE THREE ITEM S WHILE MAKING DISALLOWANCE OUT OF INTEREST EXPENDITURE OF RS.10 8 2 02 000/-. IN RESPECT OF OTHER ITEMS WORKED BY THE AO THE SAME IS IN CONFOR MITY WITH THE SECTION ITA NOS.2211/A/04 & 36-134/A/05 38 14A AND THE ACTION OF THE AO IS VALID AND UPHELD AN D THE AO IS DIRECTED TO RECOMPUTE THE DISALLOWANCE AS ABOVE . 50. BOTH THE ASSESSEE AS WELL AS REVENUE ARE NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEA RNED CIT(A). THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT A SIMILAR ISSUE WAS RESTORED TO THE FILE OF THE AO FOR RECOMPUTING THE DISALLOWANCE IN THE LIGHT OF PROVISIONS OF SUB-SECTION (2) AND ( 3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES 1962 IN THE ASSESSEES OWN CASE FOR THE AY 2000-01 IN ITA NOS. 3446& 3464/ AHD/2004. WHILE EXPLAINING THE NATURE OF INTEREST AND ADMINIS TRATIVE EXPENSES THE LD. AR RELIED UPON THE DECISIONS IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM ) AND HERO CYCLES LTD 178 TAXMAN 484(P&H).THE LEARNED DR ON T HE OTHER HAND SUPPORTED THE FINDINGS OF THE AO. 51. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS RELIED UPO N BY THE LEARNED AR. WE FIND THAT THE AO MADE AN ESTIMATED PROPORTIO NATE DISALLOWANCE OF AFORESAID EXPENSES SINCE THE ASSES SEE EARNED EXEMPT INCOME. THE LD. CIT(A) FOLLOWING HIS DECISIO N FOR THE AY 2000-01 REDUCED THE DISALLOWANCE. IN THAT YEAR A S IMILAR ISSUE WAS RESTORED TO THE FILE OF THE AO BY THE ITAT FOR RECO MPUTING THE DISALLOWANCE IN THE LIGHT OF PROVISIONS OF SUB-SECT ION (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES 1962 IN ITA NOS. 3446& 3464/AHD/2004 FOLLOWING THE DECISION DATED 22.10.2008 OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. IN ITA NO.8057/MUM./200 3. 51.1 WE FURTHER FIND THAT RECENTLY HONBLE BOMB AY HIGH COURT IN THEIR DECISION DATED 12.8.2010 IN CASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI. IN THE ITA NO. 626/2010 WHILE ADJUDICATING A SIMILAR I SSUE IN THE CONTEXT OF PROVISIONS OF SEC. 14A OF THE ACT AND RULE 8D OF TH E IT RULES 1962 CONCLUDED ITA NOS.2211/A/04 & 36-134/A/05 39 THAT RULE 8D INSERTED W.E.F 24.3.2008 CANNOT BE R EGARDED AS RETROSPECTIVE BECAUSE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATIN G EXPENDITURE RELATABLE TO TAX- FREE INCOME. IT APPLIES ONLY W.E.F AY 2008-09. FOR THE ASSESSMENT YEARS WHERE RULE 8D DOES NOT APPLY THE AO WILL HAVE TO DETERMI NE THE QUANTUM OF DISALLOWABLE EXPENDITURE BY A REASONABLE METHOD HAV ING REGARD TO ALL FACTS AND CIRCUMSTANCES THE HONBLE HIGH COURT CONCLUDED. 51.2. HONBLE SUPREME COURT IN THEIR DECI SION DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD. 326 ITR 1 INTER ALIA OBSERVED THAT FOR ATTRACTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. HONBLE APEX COURT OBSERVED IN THE CONTEXT OF PROVISIONS SEC.14 A OF THE ACT IN THE FOLLOWING TERMS: 17. THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EFF ECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTIO N IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCO ME (SEE CIRCULAR NO. 14 OF 2001 DATED 22-11-2001). IN OTHER WORDS SECTION 14 A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSE S INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PA RTLY TO THE TAXABLE INCOME. IN THE ABSENCE OF SECTION 14A THE EXPENDITURE INCURRE D IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. TH E MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AN D AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO E XEMPT INCOME. THE BASIC REASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UNDER CE RTAIN PROVISIONS OF THE ACT. IN THE PAST THERE HAVE BEEN CASES IN WHICH DEDUCTI ON HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOULD MEAN THAT TAX INCENTIVES TO CERTAIN INCOMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX T HE NET INCOME I.E. GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY THE EXEM PTION IS ALSO IN RESPECT OF NET INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF SECTION 14A. IN SECT ION 14A THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER TH IS CHAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UN DER CHAPTER IV WOULD FALL WITHIN SECTION 14A. THE NEXT PHRASE IS 'IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART ITA NOS.2211/A/04 & 36-134/A/05 40 OF TOTAL INCOME THEN THE RELATED EXPENDITURE IS OU TSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. FURTHER SECTION 14 S PECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEA BLE AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY T O TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEA BLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF T HE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE DIVIDEND INCOM E IS NOT A PART OF THE TOTAL INCOME THE EXPENDITURE/DEDUCTION THOUGH OF THENATU RE SPECIFIED IN SECTIONS 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TO TAL INCOME COULD NOT BE ALLOWED AGAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON- TAXABLE HAS IN PRINCIPLE BEEN NOW WIDENED UNDER S ECTION 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECTIONS 15 TO 59 IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A REFERS TO EXPENDITURE ON R ENT TAXES SALARIES INTEREST ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FO R (SEE SECTIONS 30 TO 37) 51.3. WE ALSO FIND THAT HONBLE KERALA HIGH COUR T IN THEIR DECISION DATED 17.6.2010 IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRAN IN ITA.NO. 1784 OF 2009 HELD IN THE CONTEXT OF PRO VISIONS OF SEC.14A OF THE ACT AS UNDER: 4. ON FACTS WE FIND THAT THE INTEREST PAID BY THE ASSESSEE DURING THE PREVIOUS YEAR FOR THE FUNDS BORROWED FOR ACQUISITION OF SHAR ES IN THE COMPANY WAS AT THE RATE OF 24% P.A. AND THE TOTAL INTEREST PAID IN THE ACCOUNTING YEAR ALONE IS AS MUCH AS RS.17 44 310/-. IT IS ON RECORD THAT ASSESS EE HAD RECEIVED ONLY A DIVIDEND INCOME OF RS.3 LAKHS AND NO OTHER BENEFIT IS DERIVED FROM THE COMPANY FOR THE BUSINESS CARRIED ON BY IT. THE DISALLOWANCE PROHIBITED UNDER SECTION 14A IS EXPENDITURE INCURRED FOR EARNING ANY INCOME WHIC H DOES NOT CONSTITUTE TOTAL INCOME OF THE ASSESSEE. IN OTHER WORDS ANY EXPENDI TURE INCURRED FOR EARNING ANY INCOME WHICH IS NOT TAXABLE UNDER THE ACT IS NOT A N ALLOWABLE EXPENDITURE. DIVIDEND INCOME IS EXEMPT UNDER SECTION 10(33) OF T HE INCOME TAX ACT AND SO MUCH SO DIVIDEND EARNED BY THE ASSESSEE ON THE SHA RES ACQUIRED BY HER WITH BORROWED FUNDS DOES NOT CONSTITUTE TOTAL INCOME IN THE HANDS OF THE ASSESSEE. SO MUCH SO IN OUR VIEW DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFICER. IN FACT THE TRIBUNAL ITSELF HAS ESTIMATED DISALLOWANC E OF RS.2 LAKHS BY APPLYING SECTION 14A. WE DO NOT KNOW HOW THE TRIBUNAL CAN RE STRICT THE DISALLOWANCE TO RS.2 LAKHS AND ALLOW BALANCE ABOVE RS.15 LAKHS WHEN THE WHOLE BORROWED FUNDS WERE UTILISED BY THE ASSESSEE FOR PURCHASE OF SHARE S IN THE COMPANY. IN OUR VIEW THE REASONING GIVEN BY THE TRIBUNAL FOR DISALLOWANC E OF RS.2 LAKHS I.E. BY APPLYING SECTION 14A SQUARELY APPLIES FOR THE INTEREST PAID ON BORROWED FUNDS BECAUSE IT IS ON RECORD THAT THE ENTIRE FUNDS BORROWED WERE UT ILISED FOR ACQUISITION OF SHARES BY THE ASSESSEE IN THE COMPANY. IN FACT IN OUR VIE W ASSESSEE WOULD BE ENTITLED ITA NOS.2211/A/04 & 36-134/A/05 41 TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT ON BORROWED FUNDS UTILISED FOR THE ACQUISITION OF SHARES ONLY IF SHAR ES ARE HELD AS STOCK IN TRADE WHICH ARISES ONLY IF THE ASSESSEE IS ENGAGED IN TRADING I N SHARES. SO FAR AS ACQUISITION OF SHARES IS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT ASSESSEE DERIVED IS DIVIDEND INCOME WHICH IS NOT ASSESSABLE UNDER THE A CT THE DISALLOWANCE UNDER SECTION 14A IS SQUARELY ATTRACTED AND THE ASSESSING OFFICER IN OUR VIEW RIGHTLY DISALLOWED THE CLAIM. AS ALREADY POINTED OUT THE C ALCUTTA HIGH COURT DECISION WHICH PERTAINS TO THE PERIOD PRIOR TO INTRODUCTION OF SECTION 14A HAS NO APPLICATION. THE DECISION OF THE SUPREME COURT ALSO DOES NOT APPLY BECAUSE IN THIS CASE APART FROM INVESTMENT IN SHARES OF THE CO MPANY THERE IS NOTHING TO INDICATE THAT THE ASSESSEE'S BUSINESS WAS FULLY LIN KED WITH THE BUSINESS OF THE LEASING COMPANY OR THAT ASSESSEE'S BUSINESS IS SOLE LY DEPENDENT ON THE BUSINESS OF THE LEASING COMPANY. IN FACT THE WHOLE TRANSACTION WAS A TOTAL FIASCO IN AS MUCH AS AS AGAINST RS.17 44 310/- PAID TOWAR DS INTEREST ON BORROWED FUNDS SERVICED AT THE RATE OF INTEREST OF 24% P.A. THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR WAS A MEAGRE SUM OF RS.3 LAKHS. THIS ONLY SHOWS THAT THE BUSINESS CARRIED ON BY THE LEAS ING COMPANY WAS NOT VERY SUBSTANTIAL TO JUSTIFY THE ASSESSEE'S INVESTMENT TH ROUGH BORROWED FUNDS. THEREFORE IN OUR VIEW THE PRINCIPLE OF COMMERCIAL EXPEDIENCY GONE INTO BY THE SUPREME COURT DOES NOT APPLY TO THE FACTS OF THIS C ASE. THEREFORE WE HOLD THAT THE TRIBUNAL IN PRINCIPLE RIGHTLY HELD THAT THE UTI LISATION OF BORROWED FUNDS FOR ACQUISITION OF SHARES WILL NOT ENTITLE THE ASSESSEE FOR CLAIMING DEDUCTION OF INTEREST PAID ON SUCH BORROWED FUNDS. HOWEVER WE H OLD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN ALLOWING THE CLAIM IN EXCESS OF RS.2 L AKHS. FOR THE SAME REASONING APPLIED BY THE TRIBUNAL THE ASSESSEE IS NOT ENTITL ED TO DEDUCTION OF ANY AMOUNT TOWARDS INTEREST PAID ON FUNDS BORROWED BY WAY OF F IXED DEPOSITS TAKEN FOR ACQUISITION OF SHARES IN THE COMPANY WHICH HE LPED THE ASSESSEE ONLY TO EARN SOME DIVIDEND. 51.4 HONBLE PUNJAB & HARYANA HIGH COURT IN THEI R DECISION IN CIT VS. HERO CYCLES LTD. 323 ITR 518 ALSO OBSERVED THAT DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAS BEEN INCURRED DISALLOWANCE UNDER SECTION 14A CANNOT STAND. 51.5 AS IS APPARENT FROM THE IMPUGNED ORDER SINC E THE LD. CIT(A) HAVE NOT PASSED A SPEAKING ORDER ON THE ISSUE NOR H AD THE BENEFIT OF THE VIEW TAKEN IN THE AFORESAID DECISIONS WE CO NSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUES RAISED IN THE GROUND NO.5 IN THE APPEAL OF THE ASSESSEE AS ALSO GROUND NO.8 IN THE APPEAL OF THE R EVENUE AFRESH IN ITA NOS.2211/A/04 & 36-134/A/05 42 ACCORDANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIA L PRONOUNCEMENTS INCLUDING THOSE REFERRED TO ABOVE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE TH E LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS GROUND NO.5 IN THE APPEAL OF THE ASSESSEE AS ALSO GROUND NO.8 IN THE APPEAL OF THE R EVENUE FOR THE AY 2001-02 ARE DISPOSED OF. 52. GROUND NO.6 IN THIS APPEAL BY THE ASSESSEE FOR THE AY 2001-02 RELATES TO DISALLOWANCE OF RS.32 618/- BEING THE AM OUNT OF DEBIT BALANCE WRITTEN OFF. THE AO NOTICED THAT THE ASSESS EE HAD WRITTEN OFF DEBIT BALANCES AMOUNTING TO RS.32 618/- COMPRISING SMALL AMOUNTS OUTSTANDING SINCE LONG FROM VARIOUS PERSONS. THERE BEING NO OTHER JUSTIFICATION THE AO DISALLOWED THE SAID AMOUNT OF RS.32 618/-. 53. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISALL OWANCE IN THE FOLLOWING TERMS:- GROUND NO.15 : THIS RELATES TO DISALLOWANCE OF RS.32 618/- BEING MISC. EXPENDITURE WRITTEN OFF. NO DETAILS HAVE BEEN GIVEN BEFORE THE AO AND THE ARGUMENTS BEFORE THE AO HAVE BEEN REITERATED BEFORE ME. IT IS STATED THAT THESE ARE SMALL AMOUNTS OF VARIOUS DEFECTIVE GOODS ADVANCES GIVEN ETC. IN THE ABSENCE OF ANY SPECIFIC DETAILS THE SAME CA NNOT BE ALLOWED AS BUSINESS EXPENDITURE AND THE ADDITION ON THIS COUNT IS CONFIRMED. 54. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION DATED 30-01-2009 OF THE ITAT IN THE ASSESS EES OWN CASE FOR AY 2000-01 IN ITA NO.3446/AHD/2004.THE LEARNED DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF THE ASSESSEE. 55. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THE ASSESSEES OWN CASE FOR THE AY 2000-01 IN ITA NO.34 46/AHD/2004 ITA NOS.2211/A/04 & 36-134/A/05 43 THE TRIBUNAL IN THEIR ORDER DATED 30-01-2009 HAD R ESTORED THE MATTER TO THE FILE OF THE AO FOR READJUDICATION IN THE FOL LOWING TERMS: 12.2 WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE WE FIND THAT DESPITE OPPORTUNITY ALLOWED THE ASSES SEE DID NOT FURNISH BEFORE THE AO THE RELEVANT DETAILS AND EVIDENCE IN SUPPORT OF DEBTS HAVING BECOME BAD DURING THE YEAR. HOWEVER BEFORE THE ID. CIT(A) THE ID. AR ON BEHALF OF THE ASSESSEE SUBMITTED THE RELEVANT SUPPO RTING EVIDENCE. WITHOUT CONFRONTING THE SAID EVIDENCE TO THE AO TH E ID. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. EVEN BEFORE US MERELY NAME AND AMOUNT DUE FROM THE 14 PARTIES HAVE BEEN PLACED AT PAGE 154 OF THE PAPER BOOK. RECENTLY IN THE CASE OF DHALL ENTERPRIS ED AND ENGINEERS P. LTD. V. CIT 295 ITR 481 (GUJ) HON'BLE JURISDICTION AL HIGH COURT HELD THAT EVEN IF WE GO BY THE PLAIN READING OF CLAUSE (VII) THE REQUIREMENT FOR ALLOWING DEDUCTION ON ACCOUNT OF BAD DEBT IS TH AT BAD DEBT SHOULD BE WRITTEN OFF AS IRRECOVERABLE. MERE DEBITI NG THE AMOUNT IS NOT SUFFICIENT. THE REQUIREMENT IS THAT THE ASSESSE E SHOULD ALSO PROVE THAT THE DEBT HAS BECOME BAD IN THAT PARTICUL AR YEAR.' 12.3 IN VIEW OF THE FOREGOING WHEN THE RELEVANT DE TAILS AND EVIDENCE WERE NOT SUBMITTED BEFORE THE AO IN THE INTEREST OF JUSTICE AND FAIR PLAY WE VACATE THE FINDINGS OF THE ID. CIT(A) AND RESTORE THE ISSUE BA CK TO THE FILE OF THE AO WITH THE DIRECTIONS TO ALLOW ANOTHER OPPORTUNITY TO THE ASSE SSEE TO FURNISH THE RELEVANT DETAILS AND EVIDENCE IN SUPPORT OF THEIR CLAIM FOR DEDUCTION OF BAD DEBTS IN TERMS OF PROVISIONS OF SEC. 36(1)(VII) OF THE ACT AND TH EREAFTER ADJUDICATE THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPOR TUNITY TO THE ASSESSEE KEEPING IN VIEW .INTER ALIA THE AFORESAID DECISION OF HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHALL ENTERPRISED AND ENGINEERS P LTD. (SUP RA). WITH THESE DIRECTIONS GROUND NO. V) IN THE APPEAL OF THE REVENUE IS DISPO SED OF. 55.1 INDISPUTABLY SINCE THE FACTS OBTAINING IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS & CIRCUMSTAN CES IN THE AY 2000-01 FOLLOWING THE VIEW TAKEN BY THE ITAT IN TH EIR AFORESAID DECISION IN THE ASSESSEES OWN CASE WE HAVE NO H ESITATION IN RESTORING THE MATTER TO THE FILE OF THE AO FOR READ JUDICATION IN THE LIGHT OF AFORESAID DIRECTIONS OF THE ITAT IN THE AY 2000-01. THEREFORE GROUND NO.6 IN THE APPEAL OF THE ASSESSE E FOR THE AY 2001-02 IS DISPOSED OF . 56. NEXT GROUND NO.4 IN THE APPEAL OF THE REVENUE R ELATES TO DISALLOWANCE OF RS.3 04 40 547/- ON ACCOUNT OF BAD DEBTS. THE AO ITA NOS.2211/A/04 & 36-134/A/05 44 NOTICED THAT THE ASSESSEE HAD WRITTEN OFF A SUM OF RS.3 04 40 547/- IN THE NAME OF PETROLEUM INFRASTRUCTURE LTD. TO A Q UERY BY THE AO THE ASSESSEE EXPLAINED VIDE LETTER DATED 20.02.2004 AS UNDER: 'IN EARLIER ASSESSMENT YEARS TO MEET THE GROWING DE MAND FOR LPG AND OTHER PETROLEUM PRODUCTS THE GOVERNMENT OF INDIA H AS ACCORDED VERY HIGH PRIORITY FOR THE DEVELOPMENT OF PORT INFRASTRUCTURE FACILITY. WE HAVE IDENTIFIED THIS AS ONE OF THE GROWTH A R EAS FOR EXPANSION OF BUSINESS WHICH IS SUPPORTING TO ITS LPG PARALLEL MARKETING BUSINES S. ACCORDINGLY WE SET UP A JOINT VENTURE COMPANY WITH BHARAT PETROLEUM CO RPORATION LTD. FOR DEVELOPMENT OF IMPORT TERMINALS OF SOME EXISTING/NE W PORTS ALONG WITH SUITABLE INFRASTRUCTURE. WE SIGNED A JOINT VENTURE AGREEMENT WITH BPCL AND DONE THE NECESSARY FORMALITIES AND ESTABLISHED A JOINT VENTURE COMPANY IN THE NAME OF PETROLEUM INFRASTRUCTURE LTD . (PIL). EACH OF THE PARTICIPATING COMPANY TOOK UP 50% INITIAL PAID UP E QUITY CAPITAL OF RS.1500 LACS. WE GAVE RS.290 00 000/- TO PETROLEUM INFRASTR UCTURE LTD. FOR THE PURPOSE OF DOING BUSINESS AND ALSO RS.1440547/- TO MEET THE EXPENDITURE OF BUSINESS. HOWEVER ULTIMATELY THE JOIN VENTURE C OULD NOT SUCCEED AND PIL HAS BEEN PUT UNDER CREDITORS VOLUNTARY WINDING UP. DURING THE YEAR GGCL PURSUED AN OPPORTUNITY TO SELL THE COMPANY AS A GOING CONCERN. HOWEVER THE OFFER FELL THROUGH DUE TO EXTRANEOUS R EASONS. THERE BEING NO OTHER ALTERNATIVE WE HAVE WRITTEN OFF THE AMOUNT. I T IS SUBMITTED THAT IF THE BAD DEBT WRITTEN OFF IS NOT ALLOWED AS A BAD DEBT W ITHIN THE MEANING OF SECTION 36(1)(VII) THEN THE SAME SHOULD BE ALLOWED AS A TRADING TOSS WHILE COMPUTING THE PROFIT U/S 28(1). ON THE FACTS OUR CASE THE DEBT OWED BY THE PIL TO GUJARAT GAS CO. LTD. WAS A DEBT WHICH SPRANG DIRECTLY FROM THE BUSINESS OF THE COMPANY AND WAS INCIDENTAL TO IF IN VIEW OF THE FACTS STATED AB OVE.' 56.1 HOWEVER THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THE AMOUNT HAVING BEEN INVESTED FOR SETTING UP A JOIN T VENTURE COMPANY IN THE NAME OF PETROLEUM INFRASTRUCTURE LTD. SINCE THE SAI D AMOUNT WAS NOT A TRADE DEBT AS SUCH AND REPRESENTED CAPITAL INVESTMENT MADE BY THE ASSESSEE IN JOINT VENTURE PROJECT THE AO REJECTED THE CLAIM U/S 36(1 )(VII) OF THE ACT. THE AO FURTHER CONCLUDED THAT AMOUNT WRITTEN OFF WAS NOT DEDUCTIBL E AS A TRADING LOSS BECAUSE THERE HAS NOT BEEN ANY TRANSACTION OF TRADE OR OTHE R BUSINESS DEAL BETWEEN THE ASSESSEE AND SAID PIL. ACCORDINGLY WHILE RELYING U PON DECISIONS IN A.V. THOMAS & CO. V. CIT 48 ITR 67(SC) K. J. SOMAIYA & SONS PV T. LTD. 156 ITR 605( BOMBAY)& INDIQUIP LTD. VS. CIT 202 ITR 417(BOMBAY) THE AO DISALLOWED THE AMOUNT OF RS.3 04 40 547/- ITA NOS.2211/A/04 & 36-134/A/05 45 57. ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 10.1 BEFORE ME THE APPELLANTS REPRESENTATIVE SH RI D J SHAH HAS FURNISHED COPY OF BALANCE SHEET OF PETROLEUM INFRAS TRUCTURE LIMITED AS ON 31 ST MARCH 2003. IT IS SEEN THAT THE TOTAL SHAREHOLDIN G OF THE SAID COMPANY WAS RS.15 CRORE FOR A.Y 2003-04. THE SAID COMPANY HAS SHOWN LOSS OF RS.151 057 266/- I.E. ENTIRE CAPITAL HAS BEEN WIPED OFF. IT IS THEREFORE PLEADED BY THE ASSESSEE THAT THE AMOUNTS ADVANCED T O THE SAID COMPANY HAVE BEEN WRITTEN OFF AS UNDER: DATE AMOUNT WRITTEN OFF 22-12-2000 RS. 14 36 397 22-12-2000 RS.2 90 00 000 10.2 THIS HAS BEEN DONE BY WAY OF TWO SEPARATE ENTR IES COPIES OF ACCOUNTS OF PIL FOR THE RELEVANT PERIOD HAVE BEAN F URNISHED AT PAGE 6 TO 17 OF THE PAPER BOOK. IN VIEW OF THE ABOVE FACTUAL POSITION IT IS PLEADED THAT ALL THE NECESSARY CONDITIONS FOR CLAIM OF BAD DEBT HAVE BEEN SATISFIED. 10.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D THE FACTS REFERRED ABOVE WHICH HAVE BEEN STATED DURING THE COURSE OF H EARING IT IS NOTED THAT FINANCIAL CONDITION OF THE SAID COMPANY NAMELY PI L IS NOT GOOD AND THERE IS LITTLE CHANCES FOR RECOVERY OF THE ADVANCES MADE TO THE SAID COMPANY AND THE APPELLANT HAS WRITTEN OFF THE SAID AMOUNTS IN THE BOOKS OF ACCOUNT THE CLAIM OF BAD DEBT IS THEREFORE VALID AS PER SEC TION 36(2) OF THE INCOME TAX ACT HAVING REGARD TO THE DECISION OF GUJARAT H IGH COURT IN THE CASE OF GIRISH BHAGWAT PRASAD VS. CIT 256 ITR 772. HOWEVER THE SAID AMOUNTS RECOVERED IF ANY IN SUBSEQUENT YEARS ARE REQUIRED TO BE ASSESSED AS AND WHEN IF ANY AMOUNT IS RECOVERED FROM THE SAID PARTY . THE APPELLANT'S REPRESENTATIVE SHRI D J SHAH HAS SUBMITTED THAT AMO UNT OF RS.65 LACS WAS RECOVERED IN SUBSEQUENT YEAR WHICH IS ALREADY BEEN OFFERED IN THE SAID YEAR. THE ADDITION MADE ON THIS COUNT OF RS.3 04 40 547/- CANNOT BE SUSTAINED AND ACCORDINGLY DIRECTED TO BE DELETED. 58. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LOWER AUTHO RITIES WHERE IN IT IS MENTIONED THAT IN EARLIER ASSESSMENT YEARS TO M EET THE GROWING DEMAND FOR LPG AND OTHER PETROLEUM PRODUCTS THE GO VT. OF INDIA ACCORDED VERY HIGH PRIORITY TO THE DEVELOPMENT OF P ORT INFRASTRUCTURE ITA NOS.2211/A/04 & 36-134/A/05 46 FACILITIES. AS ONE OF THE GROWTH AREAS FOR EXPANSIO N OF BUSINESS WHICH IS SUPPORTIVE TO ITS LPG PARALLEL MARKETING B USINESS IT SET UP A JOINT VENTURE COMPANY WITH BHARAT PETROLEUM CORP ORATION LIMITED (BPCL) IN THE NAME OF PETROLEUM INFRASTRUCTURE LTD . (PIL) AND ADVANCED RS.2.90 CRORE FOR THE PURPOSE OF BUSINESS AND RS.14 40 547/- TO MEET THE EXPENDITURE OF BUSINESS. THE JOINT VENTURE DID NOT SUCCEED AND PIL WAS PLACED UNDER CR EDITORS VOLUNTARY WINDING UP. THEREFORE THE ASSESSEE WROTE OFF THE AMOUNT OF RS.3 04 40 547/- AS BAD DEBTS AS PER PROVISIO NS OF SECTION 36(1)(VII) OF THE ACT. INTER ALIA THE ASSESSEE RE LIED UPON DECISIONS IN GOBIND GLASS INDUSTRIES REPORTED AT 110 TAXMAN 1 09(AHD) AND GIRISH BHAGWAT PRASAD REPORTED AT 256 ITR 772 ALLOW ED THE DEDUCTION. ALTERNATIVELY THE ASSESSEE SUBMITTED T HAT THE AMOUNT IS IN THE NATURE OF TRADING LOSS AROSE ADMISSIBLE AS D EDUCTION IN TERMS OF DECISIONS IN CIT V. EQUITORIAL PVT. LTD. (1974) TAXATION 37(3)-82 AND CITVS. ABDUL RAZAK & CO. 136 ITR 825 (GUJ). THE LD. AR ADDED THAT IF THE BAD DEBT IS NOT ALLOWED AS DEDUCTION THEN DISALLOWANCE SHOULD BE REDUCED BY RS.65 LACS BEING THE AMOUNT R ECOVERED AGAINST THESE BAD DEBTS AND OFFERED TO TAX IN ASSES SMENT YEAR 2003- 04. 59. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO DISALLOWED THE CLAIM SINCE THE AFORESAID AMOUNT WAS ADMITTEDLY CAPITAL INVESTMENT IN THE JOINT VENTURE AND DID NOT FULFILL CONDITIONS STIPULATED U /S 36(1)(VII) READ WITH SEC. 36(2) OF THE ACT NOR THE ASSESSEE SUBMITT ED ANY EVIDENCE THAT THE AFORESAID AMOUNT HAD BEEN CONSIDERED AS RE VENUE RECEIPT AND OFFERED TO TAX IN ANY OF THE EARLIER YEARS. INT ER ALIA THE AO RELIED UPON A NUMBER OF DECISIONS NAMELY A.V. THOMA S & CO. V. CIT 48 ITR 67(SC) K. J. SOMAIYA & SONS PVT. LTD. 156 ITR 6 05( BOMBAY)& INDIQUIP LTD. VS. CIT 202 ITR 417(BOMBAY). THE LD. CIT(A) WITHOUT GOING IN TO THESE ASPECTS POINTED OUT BY THE AO OR DECISIONS RELIED UPON BY H IM SIMPLY ALLOWED THE CLAIM ITA NOS.2211/A/04 & 36-134/A/05 47 ON THE GROUND THAT THE CLAIM OF BAD DEBT IS VALID AS PER SECTION 36(2) OF THE ACT HAVING REGARD TO THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF GIRISH BHAGWAT PRASAD VS. CIT 256 ITR 772 . APPARENTLY THE LD. CIT(A) DID NOT ANALYSE NOR CONTROVERTED THE FACTS POINTED OUT BY THE AO NOR EV EN BROUGHT OUT AS TO HOW THE CONDITIONS STIPULATED IN SEC.36(1)(VII) READ WITH S EC. 36(2) OF THE ACT WERE FULFILLED IN THE INSTANT CASE. EVEN THE ALTERNATIVE PLEA ON BEHALF OF THE ASSESSEE THAT THE AMOUNT IS TRADING LOSS HAS NO T BEEN EXAMINED BY HIM. A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VI OLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICI AL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS A REASONED ORDER WHICH SHOULD REFLECT AP PLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEF ORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANI FEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT 1961 MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WR ITING AND SHALL STATE THE POINTS FOR DETERMINATION THE DECISION THEREON AND THE REA SON FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDUR E. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIT Y CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MAY REITERATE THAT A D ECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB (1995)1SCC 760(SC)]. AS IS APPARENT THE IMPUGNED ORDER SUFFERS FROM LACK OF R EASONING AND IS NOT A SPEAKING ORDER. IN VIEW OF THE FOREGOING ESPECIA LLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THE AFORESAID CLAIM OF THE ASSESSEE FOR DEDUCTION OF BAD DEBT WE CONSIDER IT FAIR AND APPROPRIATE TO SE T ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECID ING THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL T HE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MA NDATE OF PROVISIONS OF SEC. ITA NOS.2211/A/04 & 36-134/A/05 48 250(6) OF THE ACT BRINGING OUT CLEARLY AS TO WHETH ER OR NOT THE CONDITIONS STIPULATED U/S 36(1)(VII) READ WITH SEC. 36(2) OF T HE ACT ARE FULFILLED OR THE AMOUNT CAN BE ALLOWED AS TRADING LOSS. WITH THESE O BSERVATIONS GROUND NO 4 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 IS DI SPOSED OF. 60. GROUND NO.5 IN THE APPEAL OF THE REVENUE FOR T HE AY 2001-02 RELATES TO DISALLOWANCE OF RS.4 84 823/- ON ACCOUN T OF STORES WRITTEN OFF. THE AO NOTICED THAT THE ASSESSEE DEBITED A SU M OF RS.4 84 823/- BEING CAPITAL STORES WRITTEN OFF. TO A QUERY BY THE AO THE ASSESSEE REPLIED THE AMOUNT REPRESENTED NON-MOV ING ITEMS OF STORES AND SPARES WHICH WERE UNUSED FOR A LONG TIM E AND HAD BECOME OBSOLETE. THUS THE AMOUNT HAD BEEN WRITTEN OFF. HOWEVER THE AO DID NOT ALLOW THE CLAIM THE ASSESS EE HAVING NOT ESTABLISHED THAT THE CAPITAL STORES WRITTEN OFF HAD BECOME OBSOLETE AND NON-USABLE. 61. ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- GROUND NO.13 : THIS RELATES TO ADDITION OF RS.4 84 823/- BEING A MOUNT ON SPARES WRITTEN OFF. THIS HAS BEEN DISCUSSED BY T HE AO AT PAGE 10 OF THE ORDER. IT WAS THE CASE OF THE AO THAT THE EXPENDITU RE IS NOT ADMISSIBLE. ON THE OTHER HAND THE APPELLANTS REPRESENTATIVE HAS SUBMITTED BEFORE ME THAT SPARES STORES AND SPARES BEING VERY OLD BECAME UNUSABLE HAVING ZERO VALUE AND ACCORDINGLY THE SAME HAD BEEN WRITTE N OFF TREATING THE VALUE AS ZERO AND ALSO DEBITED THE RESPECTIVE ACCOU NTS. IT IS FURTHER CLARIFIED THAT THE AMOUNT WAS NOT EARLIER DEBITED I N THE PROFIT AND LOSS ACCOUNT. IN VIEW OF THE ABOVE FACTUAL POSITION THE EXPENDITURE BEING INCURRED IN THE COURSE OF BUSINESS IS THEREFORE ADM ISSIBLE AND NO ADDITION IN THIS RESPECT IS CALLED FOR WHICH IS ACCORDINGLY DELETED. 62. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED TH E ORDER OF THE AO WHILE THE LD. AR RELIED UPON THE FINDINGS OF THE LD . CIT(A).INTER ALIA THE LD. AR RELIED ON THE DECISION DATED 04-05-2000 OF THE ITAT IN THE CASE OF GUJARAT STATE FERTILIZERS CO. LTD. FOR AY 1 987-88 IN ITA ITA NOS.2211/A/04 & 36-134/A/05 49 NO.623/AHD/1991 & ITA NO.727/AHD/1991 AND KARJAN CO -OPERATIVE COTTON SALES GINNING AND PRESSING SOCIETY VS. CIT ( 1993) 199 ITR 17 (GUJ). 63. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORECITED DECISIONS. ACCORDI NG TO THE ASSESSEE THE AMOUNT OF RS.4 84 823/- REPRESENTED N ON-MOVING ITEMS OF STORES AND SPARES WHICH WERE UNUSED FOR L ONG TIME AND HAD BECOME OBSOLETE WHILE THE AO CONCLUDED THAT THERE W AS NOTHING TO SUGGEST SO. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN KARJAN CO-OPERATIVE COTTON SALES GINNIN G AND PRESSING SOCIETY VS. CIT (1993) 199 ITR 17 (GUJ) OBSERVED TH AT THERE IS A STATUTORY REGULATION UNDER THE COMPANIES ACT THAT U NSERVICEABLE OR DAMAGED SPARES HAVE TO BE PROPERLY VALUED AND THE METHOD OF VALUATION AS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AS APPROVED BY VARIOUS COMMENTATORS ON VALUATION OF INVENTORIES. IN THE L IGHT OF THIS PROVISION THE HONBLE HIGH COURT CONCLUDED THAT .. A SYSTEMATIC REDUCTION IN VALUATION OF THE UNSERVICEABLE NON-MOVING SPARE PARTS IN A SCIENTIFIC BASIS WOULD AMOUNT TO A NORMAL BUSINESS LOSS WHICH COULD BE CHARGED AGAINST THE PROFIT IN THE YEAR OF SUCH VALUATION AS OTHERWISE A BLOCK OF REVENUE ITEMS WOULD REMAIN OUTSIDE THE B OOKS WITHOUT BEING PROPERLY TREATED IN THE INCOME AND EXPENDITURE ACCOUNT THER EBY GIVING A WRONG PICTURE OF THE TRUE INCOME OF THE COMPANY OVER THE YEARS. T HERE IS NO DISPUTE ABOUT THE FACT THAT WHEN THE SPARES WERE PURCHASED OUT OF THE BUSINESS NECESSITY FROM THE COLLABORATORS AS INSURANCE SPARES THEY WERE NOT CAPITALIZED ALONG WITH PLANT AND MACHINERY NOT DEBITED TO THE P&L ACCOUNT OF THE YEAR OF PURCHASE. THE COST OF THE SAME HAS TO BE ACCOUNTED FOR SOMEWHERE AS EX PENDITURE AND THE CORRECT METHOD IS EITHER TO DEBIT P&L ACCOUNT WITH ACTUAL C OST OF SPARES USED DURING THE YEAR OR TO REDUCE THE COST PROPORTIONATE TO THE OBS OLESCENCE SUFFERED FOR NON- USER WEAR AND TEAR OR FOR OTHER REASONS. SINCE THE COMPANY HAS FOLLOWED A SCIENTIFIC METHOD OF THE BASIS OF TECHNICAL ADVICE AND THIS METHOD IS IN CONSONANCE WITH THE APPROVED ACCOUNTING PRINCIPLES THE LOSS CLAIMED ON ACCOUNT OF OBSOLESCENCE HAS TO BE ALLOWED AS A BUSINESS LOS S U/S 28. THE APPELLANT COMPANY HAS ALSO BROUGHT TO MY NOTICE THE AUDITED B ALANCE SHEETS OF SEVERAL COMPANIES BOTH IN PUBLIC AS WELL AS PRIVATE SECTORS TO SHOW THAT THE SAME METHOD AS IN THE CASE OF THE APPELLANT IS BEING FOLLOWED U NIVERSALLY BY ALL THE COMPANIES FOR THE PURPOSE OF CHARGING OBSOLESCENCE TO THE ACC OUNT IN RESPECT OF NON-MOVING SPARE PARTS. THE NAMES OF THESE COMPANIES ARE (1) N ATIONAL FERTILIZERS LTD. (2) RASHTRIYA CHEMICALS & FERTILIZERS LIMITED AND (3) F ERTILIZERS AND CHEMICALS TRAVANCORE LTD. THE DISALLOWANCE IS THEREFORE DEL ETED. ITA NOS.2211/A/04 & 36-134/A/05 50 63.1 IN THE INSTANT CASE THE AO DISALLOWED THE CLAIM SINCE THE ASSESSEE DID NOT ESTABLISH THAT THE CAPITAL STORES WRITTEN OFF HAD BECOME OBSOLETE AND NON-USABLE. THE LD. CIT(A) ALLO WED THE CLAIM WITHOUT RECORDING ANY FINDINGS AS TO WHETHER OR NOT THE ASSESSEE FOLLOWED A SCIENTIFIC METHOD ON THE BASIS OF TECHNI CAL ADVICE WHILE WRITING OFF THE OBSOLETE STORES OR THAT THE METHOD ADOPTED BY THE A SSESSEE WAS IN CONSONANCE WITH THE APPROVED ACCOUNTING PRINCIPLES. EVEN BEFO RE US NO SUCH MATERIAL HAS BEEN PLACED IN ORDER TO ASCERTAIN AS TO WHETHER OR NOT ANY SCIENTIFIC METHOD ON THE BASIS OF TECHNICAL ADVICE WAS FOLLOWED IN WRITI NG OFF THE AFORESAID AMOUNT OF STORES NOR THE LD. AR APPEARING BEFORE US ADVERTED TO THESE ASPECTS. IN THE ABSENCE OF COMPLETE FACTS AS TO THE BASIS OF STORES WRITTEN OFF WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. C IT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE AFRESH IN ACCORDAN CE WITH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE AFORECITED DE CISIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKIN G ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF T HE ACT BRINGING OUT CLEARLY AS TO WHETHER OR NOT ANY SCIENTIFIC METHOD WAS FOLLOWED I N WRITING OF THE STORES. WITH THESE DIRECTIONS GROUND NO. 5 IN THE APPEAL OF TH E REVENUE FOR THE AY 2001-02 IS DISPOSED OF. 64. GROUND NO.6 IN THE APPEAL OF THE REVENUE FOR AY 2001-02 RELATES TO DISALLOWANCE OF RS.3 05 030/- BEING EXPE NDITURE INCURRED ON GIFT & PRESENTATION ARTICLES. THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF RS.3 05 030/- ON ACCOUNT OF GIFT AND P RESENTATION ARTICLES THE EXPENDITURE HAVING BEEN INCURRED GRAT UITOUSLY AND COULD NOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF THE BUSINESS. 65. ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM IN THE LIGHT OF DECISION OF HIS PREDECESSOR IN THE AY 92-93 . ITA NOS.2211/A/04 & 36-134/A/05 51 66. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED AR ON BEH ALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE CI T(A) AND RELIED ON THE DECISIONS IN KARJAN CO-OPERATIVE COTTON SAL ES GINNING AND PRESSING SOCIETY VS. CIT (1993) 199 ITR 17 (GUJ ) CORE HEALTH CARE LTD. VS. DCIT 70 TTJ (AHD) (TM) 490 (AHD) AND SUSSEN TEXTILE BEARINGS LTD. VS. ITO 43 TTJ 319 (AHD). 67. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORECITED DECISIONS. INDISPUT ABLY THE AFORECITED EXPENDITURE ON GIFTS AND PRESENTATION AR TICLES WAS NOT OF A PERSONAL NATURE NOR THE EXPENDITURE INCURRED BY THE ASSESSEE BROUGHT INTO EXISTENCE ANY TANGIBLE ASSETS. EVEN THOUGH THE EX PENDITURE INCURRED MAY BRING TO THE ASSESSEE SOME BENEFIT OF AN ENDURING NATURE THIS ALONE WILL NOT BE SUFFICIENT TO TREAT THE EXPENDITURE AS AN EXPENDI TURE OF CAPITAL NATURE. A FULL BENCH OF THE HONBLE JURISDICTIONAL HIGH COURT IN K ARJAN CO-OPERATIVE COTTON SALES GINNING AND PRESSING SOCIETY V. CIT [1993] 199 ITR 17 HELD THAT THE TRUE TEST OF AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF TRADE OR BUSINESS IS THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL TO HIS TRADE FOR THE PURPOSE OF KEEPING THE TRADE GOING AND OF MAKING IT PAY AND NOT IN ANY OTHER CAPACITY THAN THAT OF A TRADER. IN THE INSTANT CASE THE LD. CIT(A) ALLOWED THE CLAIM FOLLOWING THE DECISION OF HIS PREDECESSOR IN THE AY 1992-93. THERE IS NOTHING TO SUGGEST AS TO WHETHER THE DECISION OF THE LD. CIT(A ) IN THE AY 1992-93 WAS DISPUTED IN FURTHER APPEAL. THERE IS NO MATERIAL ON RECORD TO SHOW THAT ANY PART OF THE SAID EXPENDITURE WAS INCURRED FOR NON-BUSINESS PURPOSES . IN THESE CICUMSTANCES ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFER E WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NO.6 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 IS DISMISSED. ITA NOS.2211/A/04 & 36-134/A/05 52 68. GROUND NO.7 IN THE APPEAL OF THE REVENUE FOR TH E AY 2001-02 RELATES TO DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS.7 47 507/-. THE AO NOTICED THAT THE EXPENDITURE OF RS.7 45 507/ - HAD BEEN INCURRED ON FOREIGN TRAVEL TO ATTEND THE FUNCTION O F B. G. CHAIRMAN AWARD MAY 2000. TO A QUERY BY THE AO THE ASSESSE E FILED WRITTEN SUBMISSIONS DATED 20-02-2004 EXPLAINING THAT THE CO MPANY CONTINUED HEALTH S & ENVIRONMENT PROGRAM (HS & E] IN LINE WITH B. G. GROUP WORLD WIDE POLICY AND THE COMPANY WAS AWAR DED THE B. G. GROUP CHAIRMAN'S AWARD AMONGST 19 GROUP COMPANIES W ORLD WIDE FOR HS & E PERFORMANCE AND THEREFORE THE COMPANY I NCURRED EXPENDITURE OF RS.7 47 507/- ON FOREIGN TRAVELLING OF NINE OFFICERS AND EMPLOYEES FOR ACCEPTING THE AWARD AND ATTENDING THE TRAINING PROGRAM IN U. K. HOWEVER THE AO DISALLOWED THE CLA IM ON THE GROUND THAT THE EXPENDITURE IN QUESTION HAD NOT BEE N INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEE. 69. ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 17.1 BEFORE ME THE APPELLANT'S REPRESENTATIVE HAS GIVEN DETAILS OF THE EXPENDITURE .AND ALSO INVITATION LETTER FROM M/S. B G INTERNATIONAL LOSS PREVENTION DEPARTMENT READING BERKS RG 6 1 PT U. K DATED 29.03.2000 ADDRESSED TO MR. M K SINHA. VICE-PRESIDE NT GUJARAT GAS CO. LTD WHEREBY THE FOLLOWING STAFF MEMBERS WERE INVIT ED FOR THE BUSINESS MEETING ON 14-17 APRIL 2000 AT READING BERKS RG G 1 PT U.K. (I) MR. K D BHOJAWALA (II) MR. SHUVENDU ACHARYA (III) MR. D S LOTE (IV) MS PRIANKA SHAH (V) MS SUNITA (VI) MR. J C PATEL (VII) MR. B D JOSHI (VIII) MR. R M GANDHI 17.2 IN RESPONSE TO THE SAID INVITATION LETTER THE APPELLANT'S REPRESENTATIVE AS PER LETTER DATED 30TN MARCH 2000 SPONSORED THE ABOVE ITA NOS.2211/A/04 & 36-134/A/05 53 8 PERSONS AND ALSO MR. YAKSHESH HALDARIA. IT IS THE REFORE SEEN THAT THE NAME OF MR. YAKSHESH HALDARIA WAS NOT THERE IN THE INVITATION AS SEEN FROM THE LETTER DATED 29TH MARCH 2000. HOWEVER SI NCE THE EMPLOYEES WERE DIRECTED TO ATTEND THE BUSINESS MEETING THE E XPENDITURE CANNOT BE HELD TO BE NOT INCURRED FOR THE BUSINESS PURPOSE. T HE ACTION OF THE AO IS THEREFORE NOT CORRECT AND THE EXPENDITURE IS ADMISS IBLE AND THE ADDITION MADE ON THIS ACCOUNT IS THEREFORE DIRECTED TO BE DE LETED. 70. THE REVENUE IS IN NOW APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A). 71. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY THE ASSESSEE INCURRED THE A FORESAID EXPENDITURE ON FOREIGN TRAVELLING OF NINE OFFICERS/ EMPLOYEES FOR ACCEPTING AWARD GIVEN BY B G GROUP FOR PERFORMANCE IN THE AREA OF HEALTH SAFETY AND ENVIRONMENT ON AN INVITATION FR OM M/S. B G INTERNATIONAL . IN THESE CIRCUMSTANCES ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIF FERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE WITH THE F INDINGS OF THE LD. CIT(A). THEREFORE GROUND NO.7 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 IS DISMISSED. 72. GROUND NO.1 IN THE APPEAL OF THE ASSESSEE FOR THE AY 2001-02 AND GROUND NOS. 9 & 10 IN THE APPEAL OF THE REVENUE FOR THE AY 2001-02 BEING GENERAL IN NATURE DO NOT REQUIRE AN Y SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND IN THE APPEALS OF THE ASSESSEE ALL THESE GROUNDS ARE DISMISSED. ITA NOS.2211/A/04 & 36-134/A/05 54 73. IN THE RESULT APPEAL OF THE ASSESSEE FOR THE AY 1998-99 AND THAT OF THE REVENUE FOR THE AY 2001-02 ARE PARTLY A LLOWED FOR STATISTICAL PURPOSES WHILE THAT OF THE ASSESSEE FOR THE AY 2001-02 IS ALLOWED BUT PARTLY FOR STATISTICAL PURPOSES.. ORDER PRONOUNCED IN THE COURT TODAY ON 28-2-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 28-2-2011 COPY OF THE ORDER FORWARDED TO: 1. GUJARAT GAS CO. LIMITED. 2 SHANTISADAN SOCIETY NEAR PARIMAL GARDEN ELLIS-BRIDGE AHMEDABAD 2. ADDL. COMMISSIONER OF INCOME-TAX SPECIAL RANGE- 8 (NOW ACIT CIRCLE-4) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-X AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-A AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD