The DCIT, Circle-5,, Ahmedabad v. Nova Petrochemicals Ltd.,, Ahmedabad

ITA 49/AHD/2008 | 2004-2005
Pronouncement Date: 13-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 4920514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 49/AHD/2008
Duration Of Justice 3 year(s) 10 day(s)
Appellant The DCIT, Circle-5,, Ahmedabad
Respondent Nova Petrochemicals Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 13-01-2011
Date Of Final Hearing 02-12-2010
Next Hearing Date 02-12-2010
Assessment Year 2004-2005
Appeal Filed On 02-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.49/AHD/2008 ASSESSMENT YEAR :2004-05 DATE OF HEARING:2.12.10 DRAFTED:7.61111 DCIT CIRCLE-5 AHMEDABAD V/S . NOVA PETROCHEMICALS LTD. 71 CITY CENTRE SWASTIK CHAR RASTA NAVRANGPURA AHMEDABAD PAN NO.AAACN5419K (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI K.MADHUSUDAN SR-DR RESPONDENT BY:- SHRI S.N.SOPARKAR SR-AR & SHRI J.T. SHAH AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XI AHMEDABAD IN APPEAL NO. CIT(A)-XI/306/2006- 07DATED 18-10-2007. THE ASSESSMENT WAS FRAMED BY AC IT CIRCLE-5 AHMEDABAD U/S143(3) R.W.S. 144A OF THE INCOME-TAX A CT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 29- 12-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF DEPRECIATION BEING HAL F OF THE NORMAL RATE OF ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 2 CAPTIVE POWER PLANT. FOR THIS REVENUE HAS RAISED T HE FOLLOWING GROUND NO.1 :- 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.63 66 750/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION BEING HALF OF THE NORMAL RATE OF DEPRECIATION ON ASSETS OF CAPTIVE POWER PLANT. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE DETAILS IN THE DEPRECIATION SCHEDULE THAT THE ASSESSEE-COMPANY HAS ADDED CERTAIN ASSETS WHICH WERE USED FOR POWER GENERATION AND CLAIM DEPR ECIATION AT THE FULL RATE ON THE GROUND THAT THE SAME HAVE BEEN USED FOR WHOL E OF THE YEAR. ACCORDING TO AO IT HAS NOT GENERATED ANY UNIT OF ELECTRICITY POWER TILL SEP.03 AND THEREFORE HE DISALLOWED 50% DEPRECIATION STATING T HAT WHILE PUTTING FORTH ITS CLAIM FOR FULL RATE OF DEPRECIATION IN RESPECT OF C APTIVE POWER PLANT IT DID NOT FURNISH THE COPY OF SUCH STATEMENTS SENT TO THESE C ONTROLLING AUTHORITIES AS A TOKEN OF PROOF THAT THY HAD GENERATED POWER BEFORE 30-09-2003. ACCORDING TO THE ASSESSING OFFICER THE GUJARAT ELECTRICITY BOARD (GEB FOR SHORT) WAS ALSO TO BE SATISFIED BY NECESSARY INQUIRIES IN RELATION TO TESTING OF ENERGY METER BY GEB FOR MEASURING THE ENERGY OR POWER GENERATED BY THE GENERATING UNITS AND THESE ENERGY METERS SHALL NOT INCLUDE THE POWER CONSUMED BY THE ASSESSEE-COMPANY FROM THE SUPPLY OF GEB TO KEEP THE DISTINCT USE OF CAPTIVE POWER USE AND AVOID THEFT OF ELECTRICITY POWER. FUR THER ACCORDING TO ASSESSING OFFICER THE COMPETENT AUTHORITY I.E. GUJARAT ELECTR ICITY REGULATORY COMMISSION (GERC FOR SHORT) HAS CONVEYED ITS FORMAL CONSENT ON 30-09-2003 AS EVIDENT FROM THE COPY OF CONSENT LETTER AND PRIOR TO 30-09- 2003 THE CAPTIVE POWER UNIT CANNOT BE COMMENCED AND ASSESSEE DID NOT FILE ANY E VIDENCES TO SHOW THAT THE TRIAL RUN WAS TAKEN UP AND SOME UNITS OF ELECTR ICITY POWER WERE GENERATED AND UTILIZED TO RUN PLANT AND MACHINERY OF THE ASSE SSEE OTHER UNITS. ACCORDINGLY HE HELD THAT THE MAJOR WORK OF POWER PL ANT WAS CONTINUED EVEN AFTER 30-09-2003 AND FROM THE DETAILS OF ELECTRICIT Y EXPENSES SHOWS THAT UNITS GENERATED AND UTILIZED THROUGH D.G. SETS CAPTIVE P OWER UNIT AND POWER ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 3 SUPPLIED BY THE GEB THE ASSESSEE-COMPANY ITSELF HA S NOT SHOWN ANY PRODUCTION TILL SEP03 AND EVEN FOR TRIAL RUN WHICH NORMALLY GENERATES ELECTRICAL ENERGY WHICH IS TO BE USED BY THE OTHER UNITS OF TH E ASSESSEE. ACCORDING TO THE ASSESSING OFFICER IN VIEW OF THESE DETAILS AND CORRESPONDENCE MADE WITH GEB ETC. THE CAPTIVE POWER PLANT OF THE ASSESSEE-C OMPANY WAS UNDER CONSTRUCTION AND NEW PLANT AND MACHINERY WERE BOUGH T FOR INSTALLATION PURPOSES. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFO RE CIT(A). THE CIT(A) AFTER CONSIDERING THE ARGUMENTS OF AR ALLOWED THE C LAIM OF ASSESSEE- COMPANY BY HOLDING THAT TRIAL RUN WAS DONE IN THE M ONTH OF SEP03 AND RELEVANT FINDING IN PARA-2.2.2 TO 2.2.4 WHICH READ AS UNDER:- 2.2.2 AS IT IS EVIDENT FROM THE SUBMISSIONS AND CO PIES OF CORRESPONDENCES MADE BY THE APPELLANT WITH THE GEB IN THE MOTH OF JULY AND AUGUST 2003 IT CAN BE SAID THAT THE ASSE TS IN QUESTION WERE PUT ON TRIAL RUNS IN THE MONTH OF SEPTEMBER 2003 IT CAN BE SAID THAT THE ASSETS IN QUESTION WERE PUT ON TRIAL RUNS IN THE MONTH OF SEPTEMBER 2003. HOWEVER THE ASSESSING OFFICER IS OF THE OPIN ION THAT SINCE THE COMMERCIAL PRODUCTION HAD COMMENCED ONLY IN THE MON TH OF OCTOBER 2003 THE APPELLANT CANNOT GET THE FULL DEPRECIATIO N. ACCORDINGLY OUT OF THE DEPRECIATION CLAIMED ONLY 50% DEPRECIATION IS A LLOWED WHICH PERTAINS TO SIX MONTHS PERIOD ONLY. 2.2.3 AS IT COULD BE SEEN FROM THE CORRESPONDENCES WITH GEB THAT THE APPELLANT HAD PURCHASED THE PLANTS AND MACHINERIES DURING THE RELEVANT PERIOD AND HAD PUT TO USE FOR BUSINESS IN SEPTEMBER 2003 ITSELF BY INSTALLING THE MACHINERIES AND EVEN BY CONDUCTING T RIAL RUNS. 2.2.4. THEREFORE HAVING CONSIDERED THE FACTS AND C IRCUMSTANCES OF THE CASE I AM INCLINED TO AGREE WITH THE CONTENTIONS P UT FORTH BY THE A.R OF THE APPELLANT. IN THESE CIRCUMSTANCES THE ASSESSIN G OFFICER IS NOT JUSTIFIED IN MAKING DISALLOWANCE ON CAPTIVE POWER P LANT. THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.63 66 750/- ON ACCOUNT OF DEPRECIATION IS THEREFORE DELETED. AGGRIEVED NOW REVENUE CAME IN APPEAL BEFORE TRIBUN AL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE ASSESSEES PAPER BOOK. WE FIND FROM THE PAPER BOOK OF ASSESSEE IN WHICH A SSESSEE HAS ATTACHED ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 4 LETTER RECEIVED FROM GEB BARODA DATED 07-05-2001 WHEREIN THE CONSENT FOR INSTALLATION OF 6.16 KV OF CAPTIVE POWER PLANT FOR THE UNIT OF ASSESSEE-COMPANY WAS GIVEN WHICH IS ENCLOSED AT PAGE-58 OF ASSESSEES PAPER BOOK. FURTHER THE CONSENT FOR INSTALLATION OF DIESEL GENERATING S ET WAS ALSO ENCLOSED AT ASSESSEES PAPER BOOK AT PAGE 60 WHICH IS DATED 27- 09-2001. THERE IS ANOTHER LETTER GERC FOR CONSENT FOR INSTALLATION OF GENERATING SET 1500 KV CAPACITY TO WORK AS STAND ALONE CAPTIVE SYSTEM DATE D 30-09-2003 BY WHICH GERC HAS CONSENTED FOR INSTALLING GENERATING SET. T HE ASSESSEE HAS ALSO PAID CHARGES OF RS.1 87 500/- VIDE DD NO.476522 DAT ED 12-09-2003 DRAWN IN FAVOUR OF GERC PAYABLE AT AHMEDABAD I.E. ONE TIME A PPLICATION CLEARANCE CHARGE FOR GRANT OF CONSENT FOR SETTING UP OF 7.5MW CAPTIVE POWER PROJECT WHICH IS DATED 17-09-2003 AND IN LIEU OF CONSENT WA S GRANTED BY GEB VIDE LETTER DATED 05-09-2002 WHICH IS ENCLOSED AT PAGE-62 OF ASSESSEES PAPER BOOK. THE LD. SR-DR POINTED OUT THAT ASSESSEE HAS N OT CARRIED OUT ANY PRODUCTION AND NO EVIDENCE IN SUPPORT OF ITS CLAIM WAS FURNISHED THAT ANY PRODUCTION WAS CARRIED OUT BY THE ASSESSEE. EVEN NO TRIAL RUN WAS CARRIED OUT AND BY THIS THE CONDITION OF GEB WAS THAT DETAILS S HALL BE REGULARLY FURNISHED TO THE OFFICE OF SUPERINTENDENT ENGINEER (O&M) EXEC UTIVE ENGINEER (O&M) IN THE PRESCRIBED PRO FORMA OF THE BOARD AND EVEN THE ASSESSEE HAS TO SUBMIT ANNUAL DATA DULY CONSOLIDATED FOR MONTHLY DATA AND SAME SHALL BE FURNISHED TO THE COMMERCIAL DEPARTMENT AT THE END OF FINANCIAL Y EAR. BUT NO SUCH DETAIL EITHER FOR TRIAL PRODUCTION OR OF REGULAR PRODUCTIO N WAS EVER SUBMITTED TO GEB. THE LD. SR-DR REFERRED TO CONDITION TWELVE OF LETTE R DATED 05-09-2002 AS MENTIONED ON PAGE-63 OF ASSESSEES PAPER BOOK AND INNER PAGE OF LETTER I.E. PAGE-62. ON A SPECIFIC QUERY FROM THE BENCH LD. CO UNSEL FOR THE ASSESSEE FAIRLY STATED THAT IN THE EVENTUALITY OF THE UPHOLD ING THE DISALLOWANCE OF DEPRECIATION HE ALTERNATIVELY SUGGESTED THAT THIS D EPRECIATION SHOULD BE ALLOWED IN THE NEXT YEAR. WE ARE OF THE VIEW THAT A SSESSEE THAT WHILE PUTTING FORTH ITS CLAIM FOR FULL RATE OF DEPRECIATION IN RE SPECT OF CAPTIVE POWER PLANT DID NOT FURNISH THE COPY OF SUCH STATEMENTS IF ANY SEN T TO THESE CONTROLLING AUTHORITIES AS A TOKEN OF PROOF THAT IT HAD GENERAT ED POWER BEFORE 30-09-2003. ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 5 FURTHER THE GEB WAS ALSO TO BE SATISFIED BY NECESS ARY INQUIRIES IN RELATION TO TESTING OF ENERGY METER BY GEB FOR MEASURING THE EN ERGY OR POWER GENERATED BY THE GENERATING UNITS AND THESE ENERGY METERS SHA LL NOT INCLUDE THE POWER CONSUMED BY THE ASSESSEE-COMPANY FROM THE SUPPLY OF GEB TO KEEP THE DISTINCT USE OF CAPTIVE POWER USE AND AVOID THEFT O F ELECTRICITY POWER. IT IS ALSO SEEN THAT THE COMPETENT AUTHORITY I.E. GERC HAS CON VEYED ITS FORMAL CONSENT ON 30-09-2003 AS EVIDENT FROM THE COPY OF CONSENT L ETTER AND IT IS EVIDENT THAT PRIOR TO 30-09-2003 THE CAPTIVE POWER UNIT CANNOT BE COMMENCED AND ASSESSEE DID NOT FILE ANY EVIDENCES TO SHOW THAT TH E TRIAL RUN WAS TAKEN UP AND SOME UNITS OF ELECTRICITY POWER WERE GENERATED AND UTILIZED TO RUN PLANT AND MACHINERY OF THE ASSESSEE OTHER UNITS. IT IS A LSO A FACT THAT THE MAJOR WORK OF POWER PLANT WAS CONTINUED EVEN AFTER 30-09- 2003. FURTHER IT IS ALSO PERTINENT TO MENTION HERE THAT IN THE DETAILS OF EL ECTRICITY EXPENSES WHICH SHOW THE UNITS GENERATED AND UTILIZED THROUGH D.G. SETS CAPTIVE POWER UNIT AND POWER SUPPLIED BY THE GEB THE ASSESSEE-COMPANY ITS ELF HAS NOT SHOWN ANY PRODUCTION TILL SEP03 AND EVEN FOR TRIAL RUN WHICH NORMALLY GENERATES ELECTRICAL ENERGY WHICH IS TO BE USED BY THE OTHER UNITS OF TH E ASSESSEE. THUS IF ALL THESE DETAILS AND CORRESPONDENCE MADE WITH GEB ETC . ARE CONSIDERED IT IS PROVED BEYOND DOUBT THAT THE CAPTIVE POWER PLANT OF THE ASSESSEE-COMPANY WAS UNDER CONSTRUCTION AND NEW PLANT AND MACHINERY WERE BOUGHT FOR INSTALLATION PURPOSES. IN VIEW OF THESE FACTS WE A RE OF THE CONSIDERED VIEW THAT THE ASSESSEES CAPTIVE POWER PLANT WAS NOT REA DY FOR TRIAL RUN OR COMMERCIAL PRODUCTION TILL 30 TH SEP. OF THE RELEVANT YEAR AND ACCORDINGLY THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE DEPREC IATION. WE CONFIRM THE SAME. HOWEVER THE ALTERNATIVE PLEA OF THE ASSESSEE S COUNSEL SHRI S.N.SOPARKAR THAT DEPRECIATION BE ALLOWED ON THIS P LANT IN THE NEXT YEAR WE ARE IN FULL AGREEMENT WITH THE PLEA AND DIRECT THE AO TO ALLOW THE DEPRECIATION IN THE NEXT YEAR. THIS ISSUE OF REVENUES APPEAL IS ALLOWED WITH THE ABOVE DIRECTION. ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 6 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION OF FOREIGN TRAVEL EXPENSES AT RS.7 36 021/-. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.7 36 021/- ON ACCOUNT OF DISALLOWANCE OF FOREIGN TRAVEL EXPENSES . 6. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS REQUIRE D THE ASSESSEE TO FURNISH THE DETAILS OF FOREIGN TRAVEL EXPENSES OF RS.7 36 0 21/- AND TO SUBSTANTIATE THE SAME BY FILING EVIDENCES FOR THE PURPOSES OF FOREIG N TOUR ETC. THE ASSESSEE SUBMITTED THE DETAILS OF EXPENDITURE INCURRED FOR V ISIT TO BANGKOK IN RESPECT OF SHRI MOHAN GUPTA JYOTIPRASAD CHIRIPAL SHYAM GUPTA AND SHRI MOHAN GUPTA OF RS.1 86 117/- AND REST OF THE EXPENDITURE I.E. R S.5 49 204/- FOR FOREIGN TECHNICIANS FROM MOSCOW FOR SETTING UP PLANT AND MA CHINERY. THE ASSESSEE CLAIMED TO HAVE INCURRED THE EXPENDITURE FOR PAYMEN T TO FOREIGN TECHNICIANS AS UNDER:- DATE COU NTRY FROM WHERE TECHNICIAN WAS CALLED FOR NAME OF VISITOR- TECHNICIAN AMOUNT SPENT PURPOSE 10.09.2003 RUSSIA MOSCOW RUSSIAN EXPERT 34061 FOR D.G. SET 19.11.2003 JAPAN JAPAN EXPERT 241348 FOR FDY LINES 5.12.2003 JAPAN JAPAN EXPERT 273785 FOR FDY LINES THE ASSESSING OFFICER IN VIEW OF THE ABOVE DETAILS STATED THAT THESE EXPENSES RELATES TO INSTALLATION/COMMENCEMENT ON DG SETS ETC . AND ADDED TO THE LOAN ON CAPITAL ASSETS DURING THE YEAR UNDER CONSIDERATI ON. THE AO FURTHER NOTED THAT THE ASSESSEE-COMPANY HAS ACQUIRED DG SET AND F DY LINES UNDER THE HEAD OF PLANT AND MACHINERY OF ELECTRICAL INSTALLAT IONS IN VIEW OF SCHEDULE TO DEPRECIATION CHART AND HE DISALLOWED THESE EXPENSES BUT SINCE THE EXPENSES INCURRED WAS GENUINE HE ALLOWED THE DEPRECIATION ON LY. AGGRIEVED ASSESSEE ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 7 PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALLOWED T HE CLAIM OF ASSESSEE BY GIVING FOLLOWING FINDING IN PARA-3.2.2 OF HIS APPELLATE ORDER:- THEREFORE HAVING CONSIDERED THE FACTS AND CIRCUMS TANCES OF THE CASE IT APPEARS THAT THE EXPENDITURE INCURRED FOR FOREIG N TRAVEL IS ONLY FOR BUSINESS PURPOSE SINCE THE DIRECTORS FOREIGN VISIT IS IN CONNECTION WITH CUSTOMERS MEET ONLY. THEREFORE THESE EXPENSES ARE ALLOWABLE AS BUSINESS EXPENSES. WITH REGARD TO EXPENSES INCURRED TOWARDS FOREIGN TECHNICIANS I AM OF THE OPINION THAT THE EXPENSES ARE IN NATURE OF REPAIRS AND MAINTENANCE. HENCE THE SAID EXPENSES C AN NOT BE TREATED AS A CAPITAL NATURE. ACCORDINGLY THE A.O IS DIRECT ED TO DELETE THE ADDITION MADE BY HIM AT RS.7 36 021/-. THUS THIS G ROUND OF APPEAL IS ALLOWED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE ARGUMEN TS OF LD. COUNSEL FOR THE ASSESSEE THAT AS REGARDS TO FOREIGN TRAVELS EXPENSE S OF DIRECTORS NAMELY SHRI MOHAN GUPTA SHRI JYOTIPRASAD CHIRIPAL SHRI S HYAM GUPTA AND SHRI MOHAN GUPTA HAD VISITED BANGKOK TO ATTEND THE MEET ORGANIZED BY RELIANCE INDUSTRIES LTD. WHO IS A MAJOR SUPPLIER OF RAW MAT ERIALS TO THE ASSESSEE- COMPANY. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE IT WAS A CUSTOMERS MEET WHICH WAS ORGANIZED BY RELIANCE INDUSTRIES LT D. AND ALL DOCUMENTS AND VOUCHERS WERE FURNISHED BEFORE ASSESSING OFFICER AN D CIT(A). WE FURTHER FIND THAT ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.5 4 9 204/- BEING INCURRED ON FOREIGN TECHNICIANS WHO HAD COME TO INDIA TO REPAI R OF MACHINERY. SINCE THIS EXPENDITURE WAS INCURRED BY ASSESSEE ON THE GROUND THAT FOREIGN TECHNICIANS HAVE COME TO REPAIR THE MACHINERY THIS IS ALLOWABL E EXPENDITURE BUT THE AO DISALLOWED ONLY ON THE PREMISE THAT THE EXPENDITURE IN RESPECT OF INSTALLATION BE TREATED AS CAPITAL EXPENDITURE. HE STATED THAT I NSTALLATION AND REPAIR OF MACHINERY BY FOREIGN TECHNICIAN AND EXPENDITURE INC URRED ON THE VISIT OF FOREIGN COUNTRY IS REVENUE EXPENDITURE. WE FIND THA T BOTH THE PLEA OF LD. COUNSEL FOR THE ASSESSEE THAT THE DIRECTORS OF ASSE SSEE-COMPANY MADE A FOREIGN VISIT IN CONNECTION WITH CUSTOMER MET AT BA NGKOK AND THAT ALSO ORGANIZED BY RELIANCE INDUSTRIES LTD. WHICH IS A M AJOR SUPPLIER OF RAW MATERIAL TO THE ASSESSEE ARE BUSINESS EXPENDITURE A S ALLOWABLE. IN VIEW OF THE ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 8 ABOVE FACTS AND CIRCUMSTANCES ACCORDINGLY WE ALLO W THE CLAIM OF ASSESSEE AND UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ELECTRICAL INSTALLATION OF SOFTW ARE DIVISION. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 :- 3. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.15 166/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ELECTRI CAL INSTALLATION OF SOFTWARE DIVISION. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING O FFICER DISALLOWED THE DEPRECIATION ON ELECTRICAL INSTALLATION OF RS.60 66 2/- CLAIMED BY ASSESSEE- COMPANY AT 25% WHICH WORKS OUT AT RS.15 166/- BY HO LDING THAT NO BUSINESS ACTIVITIES AS REFLECTED IN THE STATEMENT OF FACTS O F THE ASSESSEE IS CARRIED OUT AND DISALLOWED THE SAME BY STATING THAT ASSESSEE HA S NOT USED THIS BLOCK OF ASSETS FOR ITS BUSINESS. AGGRIEVED ASSESSEE PREFER RED APPEAL BEFORE CIT(A). THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE BY STATING THIS EXPENDITURE INCURRED IS ONLY IN CONNECTION WITH ELECTRICAL INSTALLATION IN FACTORY PREMISES AND FACTORY PREMISES IS VERY MUCH USED FOR THE PURPOSES OF BUSI NESS. BEFORE US REVENUE NOW COULD NOT CONTROVERT THE FINDINGS OF CIT(A) THA T THE ELECTRICAL INSTALLATIONS WERE USED FOR THE PURPOSE OF BUSINESS IN ITS FACTOR Y PREMISES. ACCORDINGLY WE AGREE WITH THE CIT(A) AND UPHOLD THE SAME. THIS ISS UE OF REVENUES APPEAL IS DISMISSED. 10. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF LOSS ON CAPITAL ASSETS . FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO.4 :- ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 9 4. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.3 02 832/- ON ACCOUNT OF DISALLOWANCE OF LOSS ON CAPITAL ASSETS. 11. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSING OFFICER NOTICED DURING THE ASSESSMENT PROCEEDINGS FROM THE DETAILS OF ASSETS THAT IT HAS SOLD MOTOR CAR BAJAJ TEMPO FOR WHICH ASSESSING OFFICER HAS GIVEN WORKING AS UNDER:- BAJAJ TEMPO MERCEDSE BENZ LANCER CAR SALE CONSIDERATION RS.1 00 000/- RS.12 31 000/- RS.5 21 000/- COST OF VEHICLES RS.3 94 761/- RS.31 36 469/- RS.9 35 394/- NET LOSS RS.2 94 761/- RS.19 05 469/- RS.4 14 394/- ADD: DEPRECIATION AVAILED ON SLM BASIS RS.2 61 283/- RS. 6 61 274/- RS.1 31 711/- CAPITAL LOSS RS. 33 478/- RS.12 44 195/- RS.2 82 683/- ACCORDINGLY ASSESSING OFFICER WORKED OUT THE DIFFE RENCE AND WHICH REMAINED EXPLAINED AT RS.3 02 832/- AS THE ASSESSEE HAS SHOW N CAPITAL LOSS OF RS.15 60 356/- AGAINST WHICH ACTUAL LOSS WAS AT RSS .12 57 524/-. ACCORDINGLY AO DISALLOWED THE SAME. AGGRIEVED ASSESSEE PREFERR ED APPEAL BEFORE CIT(A) AND CIT(A) ALLOWED THE CLAIM OF ASSESSEE. AGGRIEVE D NOW REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE ARGUMEN TS OF LD. COUNSEL FOR THE ASSESSEE AS WELL AS FROM THE RECORDS THAT THE CLAIM OF ASSESSEE WAS THAT ON THE TRANSACTION THE ASSESSEE INCURRED LOSS OF RS.1 5 60 756/- AND ALSO EARNED PROFIT OF RS.3 02 832/- AND RESULTANT WAS LOSS AT R S.12 56 524/- WHICH WAS SHOWN BY ASSESSEE IN PROFIT AND LOSS ACCOUNT. WE FI ND THAT THE ARGUMENT OF LD. COUNSEL OF ASSESSEE IS CONVINCING THAT THE ASSE SSING OFFICER HAS WORKED OUT THE DISALLOWANCE UNDER WRONG IMPRESSION THAT TH E ASSESSEE HAS DISALLOWED ONLY RS.12 57 524/- WHEREAS ACTUALLY AS SESSEE HAS CLAIMED THE LOSS AT RS.15 60 356/-. ACCORDINGLY WE FIND NO REA SON TO INTERFERE WITH THE ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 10 ORDER OF CIT(A) AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 13. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER U/S 36(1)(III) OF THE ACT. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO.5 :- 5. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.32 77 800/- ON ACCOUNT OF DISALLOWANCE OF INTEREST OF RS.32 77 80 0/- UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT 1961. 14. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSEE REQUIRED TO FURNISH THE DETAILS IN RESPECT OF LOAN AND ADVANCE OF RS.1 LAKH ONLY THE RELEVANT QUESTIONNARY ISSUED BY ASSESSING OFFICER D ATED 05-02-2006 AS REPRODUCED BY HIM WHICH READS AS UNDER:- WITH REFERENCE TO LOANS AND ADVANCES ABOVE RS.1 LA KH GIVEN BY THE COMPANY GIVE DETAILS REGARDING THE NAME AND ADDRES S OF THE PARTIES TO WHOM THE SAME HAS BEEN ADVANCED. GIVE PARTY-WISE DE TAILS OF INTEREST RECEIVED AND INTEREST PAID INCLUDING RATE OF INTERE ST. IN CASE INTEREST HAS NOT BEEN CHARGED OR CHARGED AT LOWER RATE BY YOU ON CERTAIN LOANS AND ADVANCES EXPLAIN WHY CORRESPONDING INTEREST ON BOR ROWED FUNDS SHOULD NOT BE DISALLOWED U/S.36(I)(III). PLEASE FUR NISH THE COPIES OF ACCOUNTS IN RESPECT OF OUTSTANDING LOANS AND ADVANC ES GIVEN INDICATING THE BUSINESS PURPOSE. FROM THE PERUSED OF THE DETAILS FILED IN THIS REGAR D IT IS SEEN THAT PAN AND ADDRESS OF THE PARTIES HAVE NOT BEEN FURNISHED. NO PARTY-WISE DETAIL OF INTEREST PAYMENTS AND INTEREST RECEIVED HAS BEEN SUBMITTED. FROM THE PERUSAL OF SCHEDULE-19 TO BALANCE SHEET IT IS SEEN THAT RS.2.71 CRORES HAS BEEN ADVANCED TO THE RELATED PARTIES. IN THE ABSENCE OF ANY DETAILS OF INTEREST PAID AND RECEIVED AND THE PURPO SE FOR WHICH MONEY HAS BEEN ADVANCED THE ASSESSEE VIDE LETTER DATED 1 8-12-2006 WAS ONCE AGAIN ASKED TO SHOW CAUSE WHY PROPORTIONATE IN TEREST EXPENSES BE NOT DISALLOWED U/S.36(I)(III). THE ASSESSING OFFICER WITHOUT GOING INTO THE DETAIL S MADE THE DISALLOWANCE BY HOLDING THAT ASSESSEE HAS INCURRED EXPENDITURE O F RS.21.68 CRORES OF INTEREST INCLUDING THE PAYMENT OF RS.2.38 CRORES OV ER AND ABOVE INTEREST ON TERM LOAN WORKING CAPITAL LOSS AND BANK CHARGES. A CCORDINGLY HE DISALLOWED ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 11 A SUM OF RS.32 77 800/- FOR NON-BUSINESS PURPOSE. A GGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) AFTER CO NSIDERING THE SUBMISSION OF ASSESSEE ALLOWED THE CLAIM OF ASSESSEE. AGGRIEVE D NOW REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT AS PER AUDI T BALANCE-SHEET FOR THE YEAR UNDER CONSIDERATION THE PAID UP CAPITAL RESE RVES AND INTEREST FREE BORROWINGS WERE MUCH HIGHER AND IN EXCESS OF INTERE ST FREE ADVANCES. THESE FACTS WERE VERY MUCH ON RECORD IN THE BALANCE SHEET AND GROUPING FILED WITH ITR AND IT MAY BE SEEN THAT THE PAID UP CAPITAL AND RESERVES HAVE INCREASED FROM RS.7710.11 LACS TO RS.8063.14 LACS I.E. INCREA SE OF RS.353.03 LACS AND INTEREST FREE BORROWINGS HAVE INCREASED FROM RS.292 1.21 LACS TO RS.3709.92 LACS AT THE END OF THE YEAR AS PER THE LIST ATTACHE D HEREWITH. THIS LIST ALSO FORMS PART OF GROUPING OF BALANCE-SHEET WHICH HAS B EEN FILED WITH THE ITR. FURTHER THERE WERE INTEREST FREE BORROWING TO THE TUNE OF RS.37 09 92 328/- AND DETAILS OF WHICH ARE ATTACHED HEREWITH AND WERE AVAILABLE ON THE RECORD OF ASSESSING OFFICER. THE ASSESSEES OWN FUND I.E. PAI D UP CAPITAL AND RESERVES WERE MUCH MORE THAN INTEREST FREE ADVANCE HENCE NO DISALLOWANCE IS CALLED FOR U/S.36(I)(III) OF THE ACT. ACCORDINGLY WE UPHO LD THE ORDER OF CIT(A) ON THIS ISSUE AND REVENUES ISSUE IS DISMISSED. 16. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 13/01/2011 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 13/01/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. ITA NO.49/AHD/2008 A.Y. 2004-05 DCIT CIR-5 ABD V. NOVA PETROCHEMICALS LTD. PAGE 12 2. THE REVENUE. 3. THE CIT(APPEALS)-XI AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD