M/s. Balrampur Chini Mills Ltd., Kolkata v. DCIT, Central Circle - XIX, Kolkata, Kolkata

ITA 504/KOL/2011 | 2008-2009
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 50423514 RSA 2011
Assessee PAN AAACB9373Q
Bench Kolkata
Appeal Number ITA 504/KOL/2011
Duration Of Justice 4 month(s) 1 day(s)
Appellant M/s. Balrampur Chini Mills Ltd., Kolkata
Respondent DCIT, Central Circle - XIX, Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-07-2011
Assessment Year 2008-2009
Appeal Filed On 28-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE /AND !' . #$ . ) [BEFORE HONBLE SRI MAHAVIR SINGH JM & HONBLE SHR I C. D. RAO AM] % % % % / I.T.A NO. 504/KOL/2011 &' () &' () &' () &' ()/ // / ASSESSMENT YEAR : 2008-09 M/S. BALARAMPUR CHINI MILLS LTD. VS DEPUTY COMMI SSIONER OF INCOME-TAX (PAN AAACB 9373 Q) CENTRAL CIRCLE-XIX KOLKATA. (+ /APPELLANT ) (-.+ / RESPONDENT ) FOR THE APPELLANT: SHRI S. K. TULSIYAN FOR THE RESPONDENT: SHRI SUMANTA SINHA !/ / ORDER PER MAHAVIR SINGH JM ( ) THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A) CENTRAL-II KOLKATA IN APPEAL NO.90/CC-XIX/CIT(A)C-II/10-11 VIDE DATED 23. 02.2011. THE ASSESSMENT WAS FRAMED BY DCIT CENTRAL CIRCLE-XIX KOLKATA U/S. 143(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008- 09 VIDE HIS ORDER DATED 10.11.2010. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO DISALLOWING EXPENDITURE ATTRIBUTABLE T O EXEMPTED INCOME DIVIDEND BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT R.W.S. RULE 8D OF INCOME-TAX RULES 1962 (HEREINAFTER REFERRED TO AS THE RULES). FOR THIS THE ASSESSE E HAS RAISED FOLLOWING GROUND NOS. 1 2 AND 7: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN CONFIRMING THE LD. A.O.S ORDER DISALLOWING A SUM O F RS.3 90 63 218 AS EXPENDITURE ATTRIBUTABLE TO EXEMPT DIVIDEND INCOME OF RS.1 08 7 2 574 IN TERMS OF SEC.14A OF THE I.T. ACT 1961 READ WITH RULE-8D OF THE I.T. RULES 1962 . 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.3 90 63 218/- U/S.14A OF THE INCOME TAX ACT 1961 BY APPLYING RULE-8D OF THE INCOME TAX RULES 1962 DIS REGARDING THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSEE AT RS. 1 49 995/- DULY SUPPORTED BY THE CERTIFICATE OBTAINED FROM ITS STATUTORY AUDITORS. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) ERRED IN SUSTAINING THE ADDITION OF RS.3 90 63 218 BEING THE DISALLOWANCE U/S.14A OF THE ACT/RULE 8D OF THE RULES TO THE NET PROFIT OF THE ASSESSEE C OMPANY FOR THE PURPOSE OF COMPUTATION OF ITS BOOK PROFIT UNDER THE PROVISIONS OF SEC. 115 JB OF THE I.T. ACT 1961. 2 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR INDU STRIAL ALCOHOL BIO-COMPOST FERTILIZERS AND GENERATION OF POWER IN THE FORM OF STEAM AND ELECTR ICITY. ITS HEAD OFFICE IS AT CALCUTTA BUT ITS FACTORIES POWER UNDERTAKINGS DISTILLERY UNDERTAKI NG ETC. ARE LOCATED AT VARIOUS PLACES IN U.P. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS CLAIMED EXEMPT INCOME OF DIVIDEND AT RS.1 08 72 574/- AND O FFERED A SUM OF RS.1 49 995/- AS EXPENSES ATTRIBUTABLE TO SUCH EXEMPT INCOME AND DISALLOWED F ROM ITS CLAIM UNDER THE PROVISIONS OF SECTION 14A OF THE ACT AND THIS WAS SUPPORTED BY CE RTIFICATE FROM ITS STATUTORY AUDITORS. THE AO NOTED THAT THE ASSESSEE COMPANY HAS NOT COMPUTED THE DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE RULES AND ACCORDINGLY BY INVOKING R ULE 8D(II) OF THE RULES MADE DISALLOWANCE BY STATING THAT IN THE IMMEDIATE PRECEDING YEAR TH E ASSESSEES CLAIM IS ALSO DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R .W.S. RULE 8D OF THE RULES. IT WAS ALSO NOTED BY AO THAT THE ASSESSMENT ORDER FOR AY 2007-0 8 WAS UPHELD BY CIT(A) CENTRAL-II KOLKATA VIDE HIS ORDER DATED 06.07.2010. THE AO FO LLOWING THE DECISION OF CIT(A) FOR AY 2007-08 COMPUTED DISALLOWANCE AS PER RULE 8D2(II) A ND 8D2(III) OF THE RULES AND MADE DISALLOWANCE AT RS.3 90 63 218/-. AGGRIEVED ASSES SEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE AO VIDE PAR A 4.1 AND 4.2 OF HIS APPELLATE ORDER AS UNDER: 4.1. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. THE UNDERSIGNED IS NOT EMPOWERED TO DECIDE THE VALIDITY OF RULE D OR ADMIT SUCH AN APPEAL OF APPELLANT U/S. 246A OF THE I. T. ACT. THE CONSTITU TIONAL VALIDITY OF RULE 8D CAN BE CHALLENGED VIDE PETITION UNDER ARTICLE 226 OF THE C ONSTITUTION BEFORE THE EMPOWERED COURTS. THEREFORE THE ISSUE OF UNREASON ABILITY OF RULE 8D IN THIS GROUND OF APPEAL OF APPELLANT IS IGNORED. 4.2. APPELLANT HAS ITSELF ADMITTED THAT SOME EXPEND ITURE HAS BEEN INCURRED TO EARN EXEMPT DIVIDEND INCOME AND APPELLANT ESTIMATED SUCH EXPENDITURE AT RS.1 49 995/-. NO METHOD OF ESTIMATION OR DETERMINATION OF SUCH EXPEN DITURE OF RS.1 49 995/- HAS BEEN GIVEN BY THE APPELLANT EXCEPT FOR STATING THAT THIS EXPEN DITURE HAS BEEN CERTIFIED BY STATUTORY AUDITOR. APPELLANT HAS NOT MAINTAINED ACCOUNTS IN SUCH A MANNER WHERE ALL EXEMPT INCOMES THE CORRESPONDING EXPENDITURES THE CORRES PONDING FUNDS AND THE CORRESPONDING INVESTMENTS HAVE BEEN SEPARATELY MAINTAINED AND SUC H SEPARATE PROFIT & LOSS ACCOUNT AND BALANCE SHEET HAVE BEEN CERTIFIED BY ANY AUDITO R. NON MAINTENANCE OF SEPARATE ACCOUNTS IN RESPECT OF EXEMPTED INCOME AND THE FACT THAT APPELLANT HAS MADE ITS OWN ESTIMATION OF EXPENDITURE TO EARN EXEMPT INCOME IS SUFFICIENT REASON FOR SATISFACTION OF ASSESSING OFFICER HAVING REGARDS TO THE ACCOUNTS O F APPELLANT TO ESTIMATE EXPENDITURE U/S. 14A(2) OF THE I. T. ACT READ WITH RULE 8D OF THE I. T. RULES. FURTHER A CERTIFIED ESTIMATE OF SUCH EXPENDITURE BY A STATUTORY AUDITOR CANNOT OVER RIDE THE ESTIMATION OF EXPENDITURE AS PRESCRIBED IN INCOME TAX RULES. IN VIEW OF THESE F ACTS AND POSITION OF LAW I HOLD THAT ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXPEND ITURE OF RS.3 90 63 218/- CONSISTING OF INTEREST OF RS.3 38 47 524/- AND INDIRECT EXPENDITU RE OF RS.52 15 694/- TO EARN EXEMPT INCOME U/S. 14A OF THE I. T. ACT. AGGRIEVED ASSESSEE CAME IN APPEAL BEFORE TRIBUNAL. 3 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FIRST ARGUMENT MADE BY THE LD. COUNSEL BEFORE U S WAS THAT THE ASSESSEE ADMITTEDLY EARNED DIVIDEND INCOME AT RS.1 08 72 574/- AND CLAIMED EXE MPT U/S. 34/35 OF THE ACT. LD. COUNSEL FOR THE ASSESSEE STATED THAT IT HAS INCURRED EXPENDITUR E TO THE SUM OF RS.1 49 995/- AS EXPENDITURE WAS RELATING TO EARNING OF EXEMPT DIVIDEND INCOME A ND THIS WAS DISALLOWED SUO MOTU BY THE ASSESSEE IN VIEW OF CERTIFICATE OF ITS STATUTORY AU DITORS. LD. COUNSEL FOR THE ASSESSEE STATED THAT THERE IS NO OTHER EXPENDITURE EXCEPT DISALLOWED BY ASSESSEE WHICH IS RELATABLE TO EXEMPTED INCOME AND THE LOWER AUTHORITIES I.E. NEITHER AO NO R CIT(A) HAS PROVED ANY NEXUS OR EXPENDITURE ATTRIBUTABLE TO EXEMPTED INCOME DESPITE THE FACT THAT ALL BOOKS OF ACCOUNT AND OTHER DETAILS EXPLAINING THAT NONE OF THE EXPENDITURE IS RELATABLE TO EXEMPTED INCOME IS DISALLOWABLE. THE LD. COUNSEL FOR THE ASSESSEE FIRST OF ALL FIL ED A STATEMENT SHOWING SOURCES OF FUNDS AND ITS UTILIZATION DURING THE FY 2007-08 RELEVANT TO THIS AY 2008-09. THE RELEVANT STATEMENT IS BEING REPRODUCED AS IT IS: BALARAMPUR CHINI MISSS LIMITED ASSESSMENT YEAR 2008-09 STATEMENT SHOWING SOURCES OF FUND AND ITS UTILIZATI ON DURING THE FINANCIAL YEAR 2007-08 SOURCES OF FUND CALCULAT ION SHEET SL. NO. AMOUNT (RS. IN LACS) UTILISATION OF FUND CALCULAT ION SHEET SL. NO AMOUNT (RS IN LACS) AVERAGE OWNED CAPITAL EMPLOYED AVERAGE RUPEE TERM LOANS/ECBS EMPLOYED FOR PROJECTS CASH CREDIT FACILITIES/ BANK BORROWINGS FOR WORKING CAPITAL (LNCLUDING EXCISE LOANS FROM BANK) 1 2 3 98542.26 78503.34 69124.26 AVERAGE INVESTMENTS ACQUIRED OUT OF OWNED FUNDS AVERAGE NET FIXED ASSETS ACQUIRED OUT OF OWNED CAPITAL AVERAGE NET FIXED ASSETS ACQUIRED OUT OF RUPEE TERM LOANS/ECBS AVERAGE NET CURRENT ASSETS FINANCED BY CASH CREDIT FACILITIES/ BANK BORROWINGS FOR WORKING CAPIT AL (INCLUDING EXCISE LOANS FROM BANK) AVERAGE WORKING CAPITAL UTILISED FOR MODERNISATION/ EXPANSION 6 7 7 8 7 10431.39 88110.87 78503.34 65417.70 3706.56 4 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 BOOK ENTRY FOR DEFERRED TAX LIABILITY AVERAGE SOURCES OF FUNDS AS PER AUDITED BALANCE SHEET AS ON 31 .03.2008 4 5 12951.91 259121.75 AVERAGE NET FIXED ASSETS AMOUNT BLOCKED OUT OF THE SAME. (IN FORM OF DEPRECIATION) AVERAGE AMOUNT OF MISC. EXP. NOT W/OFF AVERAGE APPLICATION OF FUNDS AS PER AUDITED BALANCE SHEET AS ON 31 .03.2008 7 9 10 12630.71 321.20 259121.75 1) AVERAGE NET FIXED ASSETS - (RS.88110.87 + RS. 78503 .34 + RS. 3706.56 + RS. 12630.71)LACS = RS. 182951.48 FURTHER LD. COUNSEL ALSO FILED CALCULATION SHEET O F OPENING APPLICATION OF FUNDS AND CLOSING APPLICATION OF FUNDS FOR THE ENTIRE FY 2007-08 RELE VANT TO THIS ASSESSMENT YEAR. THIS CALCULATION SHEET IS BEING REPRODUCED AS IT IS: BALARAMPUR CHINI MILLS LIMITED ASSESSMENT YEAR 2008-09 CALCULATION SHEET SL. NO. PARTICULARS CALCULATION PARTICULARS CALCULATION WOR KINGS (RS IN LACS) AMOUNT (RS IN LACS) 1 2 3 4 AVERAGE OWNED CAPITAL EMPLOYED AVERAGE RUPEE TERM LOANS1ECBS EMPLOYED FOR PROJECTS CASH CREDIT FACILITIES / BANK BORROWINGS FOR WORKING CAPITAL (LNCLUDING EXCISE LOANS FROM BANK) BOOK ENTRY FOR DEFERRED TAX LIABILITY (OP. SHARE CAPITAL & RESERVES AND SURPLUS PLUS CL. SHARE CAPITAL & RESERVES AND SURPLUS)/2 (OP.SECURED LOANS + CL SECURED LOANS- EXCISE LOANS AND CC FACILITIES FROM BANKS + DEPOSIT AGAINST CONV. WARRANTS)/2 (OP.CC FACILITIES+ CL. CC FACILITIES + OP. UNSECURED LOANS FROM BANKS + CL. UNSECURED LOANS FROM BANKS + EXCISE LOANS FROM BANKS)/2 (OP. DEFERRED TAX LIABILITY + CL. DEFERRED TAX LIABILITY)/2 (10271844+94366.07)/2 (142900.22+109934.96- 11643-510-37616.52- 1359.52-45619.47+920)/2 (45619.47 + 38976.04 +7 500 + 34000 + 11643 + 510)/2 (12483.9+13419.91)/2 98542.26 78503.34 69124.26 12951.91 5 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 5 AVERAGE SOURCES OF FUNDS (OP.SOURCES OF FUNDS + CL. SOURCES OF FUNDS)/2 (293022.56+225220.94)/2 259121.75 6 AVERAGE INVESTMENTS ACQUIRED OUT OF OWNED FUNDS (OP. INVESTMENTS + CL. LNVESTMENTS)/2 (20562.12+300.65)/2 10431.39 7 AVERAGE NET FIXED ASSETS (OP. NET FIXED ASSETS + CL. NET FIXED ASSETS)/2 (191908.44+173994.51)/2 182951.4 8 AVERAGE NET CURRENT ASSETS FINANCED BY CASH CREDIT FACILITIES / BANK BORROWINGS FOR WORKING CAPITAL (INCLUDING EXCISE LOANS FROM BANK) (OP.NET CURRENT ASSETS + CL. NET CURRENT ASSETS)/2 (80302.35+50533.04)/2 65417.70 9 AVERAGE AMOUNT OF MISC. EXP. NOT W/OFF (OP. MISC. EXP NOT W/OFF + CL. MISC.EXP NOT W/OFF)12 (249.65+392.74)/2 321 .20 10 AVERAGE APPLICATION OF FUNDS (OP. APPLICATION OF FUNDS + CL. APPLICATION OF FUNDS)/2 (293022.56+225220.94)/2 259121.75 THE LD. COUNSEL FOR THE ASSESSEE FILED BALANCE SHEE T FOR THE YEAR ENDING 31 ST MARCH 2008 AND COMPARED THE SAME WITH THE BALANCE SHEET FOR THE YE AR ENDING 31 ST MARCH 2007 AND SHOWED THAT THE RESERVE AND SURPLUS AS ON 31 ST MARCH 2007 WAS AT RS.94366.07 (IN LACS) AND AS AG AINST THE SAME RESERVES AND SURPLUS (INCLUDING SHARE CAPI TAL) BECOMES AT RS.102718.44 (IN LACS). THE LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO LOAN FUNDS AND THE POSITION WAS STATED AS UNDER: LOAN FUNDS 31.03.2008 31.03.2007 A) SECURED LOANS 142900.22 109934.06 B) UNSECURED LOANS 34000.00 7500.00 176900.22 117434.96 LD. COUNSEL FOR THE ASSESSEE ALSO STATED THAT EVEN THERE IS REDUCTION IN DEFERRED TAX LIABILITY FROM 31 ST MARCH 2007 AT RS.13419.91 (IN LACS) TO RS.12483.9 0 (IN LACS) AS ON 31 ST MARCH 2008. LD. COUNSEL ALSO STATED THAT NO LOAN AMOUNT IS PUT IN INVESTMENT AS IS CLEAR FROM THE ABOVE POSITION AS THE INVESTMENTS IN THE NET FIXED ASSET HAS INCREASED IN ASSESSMENT YEAR 2008-09 FROM 2007-08 AS UNDER: 6 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 31.3.2008 31.03.2007 NET FIXED ASSET 191908.44 (IN LACS) 173994.51 ( IN LACS) INVESTMENTS 20562.12 (IN LACS) 300.65 ( IN LACS) NET CURRENT ASSET 80302.35 (IN LACS) 50533.44 ( IN LACS) MISCELLANEOUS EXPENDITURE 249.65 (IN LACS) 392.74 (IN LACS) IN VIEW OF THESE FACTS LD. COUNSEL FOR THE ASSESSE E STATED THAT THERE IS NO EXPENDITURE ATTRIBUTABLE TO EXEMPTED INCOME QUA ADMINISTRATIVE EXPENSES INTEREST EXPENSES OR ANY OTHER DIRECTLY RELATED EXPENDITURE. LD. COUNSEL FOR THE ASSESSEE ACCORDINGLY STATED THAT IN THE PRESENT CASE RULE 8D OF THE RULES INVOKED B Y THE LOWER AUT HORITIES IS WITHOUT ANY BASIS. HE STATED THAT IN VIEW OF THE ABOVE FACTS THE PICTURE IS VERY CLEA R THAT THERE IS NO INVESTMENT FROM INTEREST FREE OR INTEREST BEARING LOANS AND THERE IS NO DIRECTLY RELATED EXPENSES RELATING TO EXEMPTED INCOME I.E. DIVIDEND INCOME. HENCE HE URGED THE BENCH TO DELETE THE ADDITION. 5. ON THE OTHER HAND THE LD. DR STATED THAT THE RU LE 8D OF THE RULES IS NOW MANDATORY AND HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE HAS UPHELD THE VALIDITY OF THIS RULE AND IT IS APPLICABLE FOR AND FROM AY 2008-09 A S HELD BY HONBLE BOMBAY HIGH COURT. HE STATE THAT THE AO AND CIT(A) HAS RIGHTLY COMPUTE D THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE RULES. BUT THE LD. DR COULD NOT POINT OUT ANY DEFECT IN THE STATEMENT SHOWING SOURCES OF FUND AND ITS UTILIZATION FILED BY THE ASSESSEE AS ALSO THE CALCULATION SHEET OF OPENING APPLICATIO N OF FUNDS AND CLOSING APPLICATION OF FUNDS. 6. WE FIND THAT DURING THE PREVIOUS YEAR ENDED ON 3 1.03.2008 ASSESSEE EARNED DIVIDEND INCOME OF RS. 1 08 72 574/- WHICH WAS EXEMPT U/S. L 0(34)/(35) OF THE INCOME TAX ACT 1961AND ASSESSEE IN ITS RETURN OF INCOME OFFERED FO R DISALLOWANCE A SUM OF RS. 1 49 995/- AS REASONABLE EXPENDITURE RELATING TO EARNING OF ITS E XEMPT DIVIDEND INCOME. HOWEVER ASSESSING OFFICER DISALLOWED A SUM OF RS.3 90 63 218/- OF DIV IDEND INCOME EARNED BY THE ASSESSEE IN TERMS OF SECTION 14A BY APPLYING RULE 8D OF THE RUL ES WHILE ASSESSING THE TOTAL INCOME OF THE ASSESSEE. THE BREAK-UP OF THE SAID DISALLOWANCE AS PER RULE-8D MADE BY THE ASSESSING OFFICER IS AS UNDER: I) INTEREST EXPENDITURE DISALLOWED AS PER RULE-8D 3 38 47 524.00 II) 0.5% OF AVERAGE VALUE OF INVESTMENTS DISALLOWED 52 15 694.00 UNDER RULE 8D 3 90 63 218.00 WE FIND THAT THE COMPUTATION SO MADE BY ASSESSEE WA S CERTIFIED BY ITS STATUTORY AUDITORS AND THIS FACT HAS BEEN RECORDED BY AO AS WELL AS CIT(A) . WE FIND FROM THE ORDERS OF THE LOWER AUTHORITIES THAT NONE OF THEM HAD POINTED OUT ANY D EFECT IN THE CORRECTNESS OF THE ASSESSEES 7 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 CLAIM OF EXPENDITURE AMOUNTING TO RS. 1 49 995/- AS CERTIFIED BY ITS AUDITORS. WE FIND FROM THE ABOVE STATEMENT SHOWING SOURCES OF FUNDS AND ITS UT ILIZATION DURING FY 2007-08 THAT ASSESSEE BORROWED MONEY PRIMARILY FOR ITS MAIN BUSINESS ACTI VITIES OF MANUFACTURE AND SALE OF SUGAR INDUSTRIAL ALCOHOL FERTILIZER GENERATION AND DIST RIBUTION OF POWER ETC AND NO PART OF BORROWED MONEY HAD ANY DIRECT LINK OR NEXUS WITH TH E INVESTMENTS MADE BY ASSESSEE COMPANY WHICH HAD YIELDED TAX-FREE DIVIDEND INCOME. THE ASS ESSEE HAD SUBSTANTIAL CAPITAL OF ITS OWN I.E. SHARE CAPITAL PLUS RESERVES AMOUNTING TO RS.9 4 366.07 LAKHS (AS ON 31.03.2007) AND RS.102 718.44 LAKHS (AS ON 31.03.2008) AVERAGING AT RS.98 542.26 LAKHS WHICH IS MORE THAN 9 TIMES OF THE AVERAGE VALUE OF INVESTMENTS AMOUNTIN G TO RS. 10431.39 LAKHS COMPUTED BY THE AO IN THE ASSESSMENT ORDER ITSELF. WE HAVE TAKEN NO TE FROM THE SAID STATEMENT THAT THE ASSESSEE HAD UTILIZED ITS ENTIRE BORROWINGS IN THE FORM OF TERM LOANS/ECBS FOR SETTING-UP GREENFIELD PROJECTS / EXPANSION OF EXISTING PROJECT S SIMILARLY BORROWINGS IN THE FORM OF CASH CREDIT FACILITIES WERE UTILIZED FOR ITS DAY TO DAY REQUIREMENTS OF WORKING CAPITAL TO RUN THE BUSINESS. AS PER FUND FLOW STATEMENT IT IS CLEAR TH AT ENTIRE AMOUNT OF INVESTMENTS YIELDING TAX- FREE DIVIDEND INCOME TO THE ASSESSEE WERE ACQUIRED FROM ITS OWNED FUNDS REPRESENTED BY THE SHARE CAPITAL AND FREE RESERVES AND NEITHER LONG TE RM BORROWINGS IN THE FORM OF TERM LOANS ECBS ETC. NOR SHORT TERM BORROWINGS IN THE FORM OF CASH CREDIT FACILITIES ETC. WERE USED FOR THE PURPOSE OF ACQUISITION OF INVESTMENTS AT ANY TI ME DURING THE PREVIOUS YEAR AS IS EVIDENT FROM STATEMENT PREPARED ON THE BASIS OF AUDITED BAL ANCE SHEET AS AT 31.03.2008. 7. IN VIEW OF THE ABOVE FACTS NOW WE HAVE TO GO TO RULE 8D OF THE RULES WHICH IS BEING REPRODUCED AS IT IS: 8D. (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MA DE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDI TURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR HE SHALL DETERMINE THE AMOUNT OF EXP ENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS NAMELY : (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXP ENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATT RIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AN AMOUNT COMPUTED IN ACCORDANC E WITH THE FOLLOWING FORMULA NAMELY:- A X B C 8 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTERES T OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURR ED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING LIT THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE-HALF PERCENT OF THE AV ERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE THE TOTAL ASSET S SHALL MEAN TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INCREA SE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REV ALUATION OF ASSETS. FROM RULE 8D OF THE RULES IT IS CLEAR THAT THE AO CAN INVOKE THIS RULE IN CASE HE IS NOT SATISFIED WITH REGARD TO THE ACCOUNT OF ASSESSEE THAT THE CLA IM OF EXPENDITURE MADE BY ASSESSEE IS NOT CORRECT AND THE CLAIM MADE BY ASSESSEE THAT NO EXPE NDITURE HAS BEEN MADE IN RELATION TO INCOME WHICH DO NOT FORM PART OF TOTAL INCOME UNDER THE AC T HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANC E WITH THE PROVISIONS OF RULE 8D(2) OF THE RULES. EVEN THE PROVISIONS OF SECTION 14A(2) CLEAR LY STATES THAT THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS PRESCRIBED (UNDER RULE 8D OF THE RULES) IF THE AO HAVING REGARD TO THE ACCOUNT OF T HE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE PROVISIONS OF THIS ACT. THE PROVISIONS OF SECTION 14A WAS ENACTED BY THE FINANCE ACT 2001 B Y RETROSPECTIVE EFFECT W.E.F. 1.4.1962 WHICH POSTULATED THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELAT ION TO INCOME WHICH DO NOT FORM PART OF TOTAL INCOME UNDER THE ACT BY AN ASSESSEE. THE MEMORANDU M EXPLAINING THE PROVISION IN THE FINANCE BILL 2001 PROVIDES REASONS FOR INSERTION O F SECTION 14A IN THE ACT AND THE SAME ARE REPORTED IN (2001) 248 ITR (ST.)192 AND AT PAGE 195 AND 196 WHICH ARE AS UNDER: 'CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME AS THESE ARE EXEMPT UNDER VARIOUS PROVISIONS OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXEMPT INCOME . THIS IN EFFECT MEANS THAT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CAT EGORIES OF INCOME IS BEING USED TO 9 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 REDUCE ALSO THE TAX PAYABLE ON THE NON-EXEMPT INCO ME BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THIS IS AGAINST THE BASIC PRINCIPLES OF TAXATION WHEREBY ONLY THE NET INCOME I.E. GROSS INCOME MINUS THE EXPENDITURE IS TAXED. ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPE CT OF THE NET INCOME. EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY AR E RELATABLE TO THE EARNING OF TAXABLE INCOME. IT IS PROPOSED TO INSERT A NEW SECTION 14A SO AS TO CLARIFY THE INTENTION OF THE LEGISLATURE SINCE THE INCEPTION OF THE INCOME-TAX ACT 1961 T HAT NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSE E IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME-TAX ACT. THE PROPOSED AMENDMENT WILL TAKE EFFECT RETROSPECTI VELY FROM APRIL 1 1962 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT Y EAR 1962-63 AND SUBSEQUENT ASSESSMENT YEARS.' FROM THE ABOVE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL 2001 CLEARLY SUGGESTS THAT THE EXPENSES INCURRED CAN BE ALLOWED ONLY TO T HE EXTENT THAT THEY ARE RELATABLE TO EARNING OF THE TAXABLE INCOME AND EXPENSES RELATABLE TO EXEMPT ED INCOME ARE TO BE DISALLOWED. 8. HERE IN THE PRESENT CASE THERE IS NO LINKAGE OR NEXUS BETWEEN THE FUNDS BORROWED BY ASSESSEE AND THE IMPUGNED INVESTMENTS HENCE NO IN TEREST EXPENDITURE CAN BE DISALLOWED BY MECHANICALLY APPLYING THE PROVISIONS OF RULE 8D OF THE RULES. THE ASSESSEE HAS EXPLAINED THAT THE SHARE CAPITAL AND RESERVES THAT IS ITS OW N FUNDS WERE UTILISED FOR THE PURPOSE OF INVESTMENT IN SHARES FOR EARNING DIVIDEND INCOME AN D THIS HAS NOT BEEN NEGATED BY LOWER AUTHORITIES I.E. NEITHER CIT(A) NOR AO. THE ASSESS EE HAS EXPLAINED EACH AND EVERY INVESTMENT WITH SOURCES OF FUNDS AND ITS UTILIZATION AS WELL A S OPENING APPLICATION OF FUNDS AND CLOSING APPLICATION OF FUNDS AS NOTED ABOVE. IT IS AN ADMI TTED POSITION IN LAW THAT EXPENDITURE CAN BE DISALLOWED U/S.14A OF THE ACT IF AND ONLY IF IT IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. FROM THE FACTS OF THE P RESENT CASE IT IS CLEAR THAT THERE IS NO LINK WITH EXPENDITURE FOR EARNING OF DIVIDEND INCOME INC URRED BY THE ASSESSEE AND ONCE THE FACTS ARE CLEAR NO DISALLOWANCE CAN BE MADE BY INVOKING RULE 8D OF THE RULES. NEITHER THE AO NOR CIT(A) HAS RECORDED ANY FINDING THAT HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE THEY ARE NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPE NDITURE MADE BY ASSESSEE OR THE CLAIM MADE BY ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED I N RELATION TO INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR THE RELEVANT ASSESSMENT YEAR. IN THE ABSENCE OF ANY SUCH FINDING FACTS OF THE PRESENT CASE SHOWS THAT THE I NVESTMENT IN SHARES WAS MADE OUT OF OWN CAPITAL EMPLOYED AND NOT FROM BORROWED FUNDS NO DI SALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE CAN BE MADE BY INVOKING RULE 8D OF THE RULES. ACCORDINGLY IN THE GIVEN FACTS AND CIRCUMSTANCES WE DELETE THE ADDITION AND ALLOW THI S ISSUE OF ASSESSEES APPEAL. 10 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 9. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF AO IN REDUCING THE CLAIM OF DEDUCTION U/S.801A OF THE ACT BY DEDUCTING PROPORTIONATE HEAD OFFICE EXPENSES ON TURNOVER BASI S. FOR THIS THE ASSESSEE HAS RAISED FOLLOWING GROUND NOS. 3 TO 6: 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD.CIT(A) ERRED IN SUSTAINING THE LD. A.O.S ORDER REDUCING THE ASSESS EES CLAIM OF DEDUCTION U/S.80-IA OF THE I.T. ACT 1961 FROM RS.109 61 26 467 TO RS.107 14 75 223 AFTER DEDUCTING PROPORTIONATE HEAD OFFICE EXPENSES OF RS.2 46 51 24 4 ON TURNOVER BASIS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LEARNED CIT(A) ERRED IN SUSTAINING THE LD. A.O.S ORDER REDUCING THE ASSESS EES CLAIM OF DEDUCTION U/S.80-IB OF THE I.T. ACT 1961 FROM RS.5 13 91 657 TO RS.4 63 56 020 AFTER DEDUCTING PROPORTIONATE HEAD OFFICE EXPENSES OF RS.50 35 637 ON TURN-OVER B ASIS. 5. THAT WHILE SUSTAINING THE LD. A.O.S ORDER REDU CING THE ASSESSEES CLAIM OF DEDUCTION U/S.80-1A/80-IB OF THE I.T. ACT 1961 AS IN GROUND NOS. 3 AND 4 ABOVE THE LD. CIT(A) ARBITRARILY REJECTED THE ASSESSEES SUBMISSIONS SUP PORTED BY SEVERAL JUDICIAL DECISIONS HOLDING THAT INDIRECT EXPENSES OR EXPENSES WHICH HA VE A REMOTE CONNECTION SHOULD BE IGNORED AND ONLY EXPENDITURE DIRECTLY RELATABLE TO OR HAVE DIRECT NEXUS WITH THE INDUSTRIAL UNIT SHOULD BE DEDUCTED. 6. THAT WHILE DISMISSING THE ASSESSEES SUBMISSION THAT THE H.O. EXPENSES SHOULD NOT BE DISALLOWED THE LD. CIT(A) ERRED IN OBSERVING THAT THE ASSESSEE HAD NOT IDENTIFIED THE DIRECT H.0. EXPENSES OR THAT IT ITSELF WORKED OUT T HE PRO-RATA ALLOCATION OF H.O. EXPENDITURE OF RS. 16.89 CRORES ON THE BASIS OF TUR NOVER. 10. THE AO DISALLOWED DEDUCTION U/S. 80IA OF THE AC T AFTER DEDUCTING PROPORTIONATE HEAD OFFICE EXPENSES ON TURNOVER BASIS. THE CIT(A) ALSO CONFIRMED THE ACTION OF AO EXACTLY ON SAME FACTS AND SAME REASONING AS UNDER: 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND S UBMISSIONS OF APPELLANT. I HAVE DECIDED SAME ISSUE WITH ALMOST IDENTICAL FACTS IN M Y APPELLATE ORDER FOR ASSESSMENT YEAR 2007-08 IN APPEAL NO 133/CC-XIX/CIT(A)-C-I1/KO L/09-10. THE ONLY ADDITION IN THE ARGUMENT OF APPELLANT IN THE CURRENT APPEAL IS THAT THAT THE ASSESSING OFFICER SHOULD HAVE BIFURCATED THE DIRECT OR INDIRECT EXPENDITURES OUT OF HO EXPENSES WHICH WERE ALLOCATED TOWARDS 80IA/ 80IB UNITS AND THE ASSESSIN G OFFICER SHOULD HAVE CONSIDERED ONLY THE DIRECT EXPENDITURE ON 801A/ 801B UNITS OUT OF HO EXPENDITURES. HOWEVER I FIND THAT APPELLANT ITSELF HAS ALSO NOT IDENTIFIED THE H .O. EXPENDITURES WHICH MAY BE CONSIDERED AS DIRECT EXPENDITURE TOWARDS 80IA/80IB UNITS EITHER ON THE BASIS OF SPECIFIC IDENTIFICATION METHOD OR ON THE BASIS OF ANY REASON ABLE METHOD OF ESTIMATION. APPELLANT HAS TAKEN THE SAME ARGUMENT AS IN ASSESSMENT YEAR 2 007-08 THAT NONE OF THE H.O. EXPENDITURES ARE FOR ANY OF THE 80IA/ 80IB UNITS AN D THIS PRESUMPTION IS NOT SUPPORTED BY ANY EVIDENCE OR EVEN PROBABILITY. IN FACT APPELL ANT HAD ITSELF WORKED OUT THE PRO RATA ALLOCATION OF ENTIRE HO EXPENDITURE OF RS. 16.89 CR ORE ON THE BASIS OF TURNOVER OF EACH ELIGIBLE UNIT U/S 80IA OR 80IB DURING THE ASSESSMEN T PROCEEDINGS. I THEREFORE DO NOT FIND ANY REASON TO DISTURB THE ALLOCATION OF HO EXPENSES MADE TOWARDS ELIGIBLE 80IA AND 80IB UNITS DURING THE ASSESSMENT PROCEEDINGS FOR RU NNING SUCH UNITS BY THE ASSESSING OFFICER FOLLOWING MY OWN APPELLATE ORDER FOR ASSESS MENT YEAR 2007-08 IN APPEAL NO L33/CC-XIX/CIT(A)-C-II/KOL./09-10. I CONFIRM THE AC TION OF ASSESSING OFFICER TO ALLOCATE H.O. EXPENSES OF RS. 2 46 51 244/- BEING T HE PROPORTIONATE H.O. EXPENSES TOWARDS ELIGIBLE 80IA UNITS AND I ALSO CONFIRM THE ACTION OF THE ASSESSING OFFICER IN REDUCING THE APPELLANTS CLAIM OF DEDUCTION U/S.80I B BY ITS PROPORTIONATE H.O. EXPENSES 11 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 OF RS. 50 35 637/- AND REDUCING THE CLAIM OF DEDUCT ION OF APPELLANT U/S 801B OF THE I. T. ACT ACCORDINGLY I MUST ADD HERE THAT EVEN AFTER RE DUCING THE CLAIM MADE U/S 80IA AND 80IB BY THE APPELLANT ASSESSING OFFICER HAS DETERM INED THE ALLOWABLE CLAIM U/S 80IA AT RS. 107. 14 CRORE AND CLAIM U/S 80IB AT RS. 4.64 CR ORE. THE GROSS TOTAL INCOME OF APPELLANT HAS BEEN DETERMINED A LOSS OF RS.(-)189 1 3 04 166 BY THE ASSESSING OFFICER AND THEREFORE SUCH REDUCTION IN ALLOWABLE CLAIM OF DEDUCTION U/S 80IA OR U/S 80IB WILL NOT MAKE ANY DIFFERENCE TO THE TOTAL INCOME OF APPE LLANT WHICH IS DETERMINED AT NIL BY THE ASSESSING OFFICER. 11. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE STATED THAT SIMILAR ISSUES WAS INVOLVED IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 7-08 BEFORE ITAT A BENCH KOLKATA IN ITA NO.1650/KOL/2010 AND TRIBUNAL VIDE ORDER DATED 24.6.2011 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE EXACTLY ON SIMILAR FACTS. L D. SR. D.R HOWEVER CONCEDED THAT THE FACTS IN THE PRESENT YEAR ARE EXACTLY IDENTICAL HENCE TRIBU NAL CAN DECIDE THE ISSUE. WE FIND THAT THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME WE A RE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED. IN ORDER TO ARRIVE AT T HE SAID CONCLUSION WE WOULD FIRST REFER TO THE UNDISPUTED FACTS ON RECORD. 11.1. THE UNDISPUTED FACTS ON RECORD ARE THAT THE A SSESSEE MADE A CLAIM U/S 80IA/80IB OF THE ACT DULY SUPPORTED BY THE AUDITORS REPORT AN D FORM NO.10CCB. IT IS ALSO AN UNDISPUTED FACT THAT IDENTICAL CLAIMS QUA THESE UND ERTAKINGS IN THE VERY SAME MANNER AND THE VERY SAME SET-UP HAVE BEEN ALLOWED U/S 143(3) P ROCEEDINGS. 11.2. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESS EE FOLLOWING THE EARLIER YEARS CONSTANT PRACTICE HAS REDUCED FROM THE PROFITS OF THESE UNDE RTAKINGS THE EXPENDITURE DIRECTLY RELATED TO THESE UNDERTAKINGS. 11.3. IT IS SEEN THAT IN THE COURSE OF ASSESSMENT P ROCEEDINGS THE AO SPECIFICALLY DIRECTED THE ASSESSEE TO SUBMIT CALCULATION IN A CE RTAIN MANNER MAKING THE PRO RATA DISALLOWANCE OF THE EXPENDITURE ON THE BASIS OF ITS TURN OVER. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE SAID CALCULATIONS WERE GIVEN B Y THE ASSESSEE UNDER PROTEST REPEATING THAT DIRECT EXPENSES OF THE UNDERTAKINGS HAD ALREAD Y BEEN ACCOUNTED FOR. THE AO AS PER RECORD CHOSES NOT TO NEGATIVELY COMMENT ON IT AND M ERELY INSIST FOR PROVIDING CALCULATIONS IN A CERTAIN MANNER. COMPLIANCE MADE U NDER PROTEST HAS BEEN HELD AGAINST THE ASSESSEE SINCE RELYING ON SAME THE DEDUCTIONS C LAIMED WERE REDUCED TO RS.98 80 78 140/- U/S 80IA OF THE ACT AND 64 81 301 /- U/S 80IB OF THE ACT AS AGAINST THE CLAIM OF RS.101 55 74 745 AND RS.2 74 96 600/- RESP ECTIVELY. THE ASSESSEE HAS ALL ALONG BEEN CONTESTING THAT THE DIRECT EXPENSES INCURRED I N THE SPECIFIC UNDERTAKINGS HAD ALREADY BEEN REDUCED BY THE ASSESSEE FROM THE PROFITS OF TH E SAID UNDERTAKINGS WHICH WAS DULY SUPPORTED BY THE AUDITORS REPORT AND FORM NO.10CCB. IT IS ALSO A MATTER OF RECORD THAT IDENTICAL CLAIMS MADE BY THE ASSESSEE IN AN IDENTIC AL MANNER HAVE BEEN ALLOWED TO THE ASSESSEE. FOR THESE VERY UNDERTAKING OVER THE YEARS AT TIMES AS OLD AS SINCE 2000-01 ASSESSMENT YEAR. IT IS ALSO AN UNDISPUTED FACT THAT THE AUTHORITIES HAVE NOWHERE POINTED OUT THAT ANY EXPENDITURE WHICH HAD BEEN INCURRED BY THE HEAD OFFICE PERTAIN DIRECTLY TO THE UNDERTAKINGS FOR WHICH DEDUCTION U/S 80IA/80IB OF THE ACT HAD BEEN CLAIMED. IT IS SEEN THAT THE TAX AUTHORITIES HAVE PROCEEDED ON THE FOOTING THAT SOME EXPENSES MUST HAVE BEEN INCURRED BY THE HEAD OFFICE SUSPICION CANNOT S UPPLANT EVIDENCE. SINCE THERE IS NO SHORT COMING POINTED OUT IN THE ACCOUNTING OF THE A SSESSEE NO EFFORT HAS BEEN MADE TO SHOW THAT ANY SPECIFIC EXPENDITURE INCURRED UNDER T HE HEAD OFFICE ACTUALLY PERTAINED TO THE UNDERTAKINGS FOR WHICH DEDUCTION IS BEING WRONG LY CLAIMED. THIS ACTION PURELY BASED 12 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 ON SUSPICION IGNORING THE FACTS ON RECORD IS NOT IN ACCORDANCE WITH LAW. ACCORDINGLY IN THE PECULIAR FACTS ON RECORD WE FIND THAT THE ORDER S OF THE AO AND THE CIT(A) DESERVE TO BE SET ASIDE. 11.4. IN ARRIVING AT THE CONCLUSION ARRIVED AT WE H AVE ALSO TAKEN INTO CONSIDERATION THE VARIOUS CASE LAWS RELIED UPON BY THE PARTIES BEFORE THE BENCH WE ARE FORTIFIED BY THE PRINCIPLE LAID DOWN IN THE ORDER OF THE KOLKATA BEN CH OF THE TRIBUNAL IN THE CASE OF M/S. TIDE WATER OIL (I) LTD WHICH ON FACTS FULLY SUPPORT S THE CASE AT HAND AS THE CO-ORDINATE BENCH HAS ON THE FACTS AVAILABLE BEFORE IT HAS HELD THAT DEDUCTION U/S 80IA ALLOWED BY THE CIT(A) WAS TO BE RESTORED BY THE TRIBUNAL TO THE FI LE OF THE AO IN VIEW OF RULE 46A VIOLATIONS GIVING DIRECTIONS THAT DIRECT EXPENSES H AD TO BE REDUCED FROM THE SILVASA UNIT AND SINCE FRESH EVIDENCE HAD BEEN ENTERTAINED BY TH E CIT(A) WITHOUT FURNISHING THE SAME TO THE AO. THE FACTS WERE REQUIRED TO BE VERIFIED. THUS THIS DIRECTION OF THE TRIBUNAL FULLY SUPPORTS THE CASE AT HAND AS THERE CAN BE NO TWO OP INIONS ON THE PRINCIPLE THAT DIRECT EXPENSES PERTAINING TO THE ELIGIBLE UNITS HAD NECES SARILY TO BE REDUCED FROM THE PROFITS OF THE SAID UNITS SO AS TO ARRIVE AT THE DEDUCTION CLA IMED. IN THE SECOND ROUND IT IS SEEN THAT ON RECORD IT WAS EVIDENT THAT HEAD OFFICE HAD ACCOU NTED FOR OFFICE EXPENDITURE OF SILVASA UNIT AS SUCH REDUCTION OF THE SAID DIRECT EXPENSES FROM THE PROFIT OF SILVASA UNIT HAD TO BE DONE THIS DOES NOT MANDATE THAT IN A CASE WHERE DI RECT EXPENSES HAVE ALREADY BEEN ACCOUNTED FOR IN THE ELIGIBLE UNITS EVEN THEN A PRO PORTION OF HEAD OFFICE EXPENSES ON THE BASIS OF SUSPICIONS MUST BE FURTHER REDUCED. THE OR DER OF THE CO-ORDINATE BENCH HAS BEEN COMPLETELY MIS-APPLIED ON FACTS. IN ORDER TO REDUCE THE PROFITS OF THE ELIGIBLE UNIT AND BURDEN THE ASSESSEE IT IS FIRST NECESSARY TO SHOW T HAT SPECIFIC EXPENDITURE RELATABLE TO THE UNITS WERE INCURRED BY THE HEAD OFFICE WHETHER THE CONNECTION IS DIRECT OR REMOTE CAN BE LOOKED INTO ONLY AFTER THAT HERE NO EFFORTS WHATSOE VER HAVE BEEN MADE TO SHOW THAT ANY SPECIFIC EXPENDITURE INCURRED BY THE HEAD OFFICE IN FACT PERTAINED TO THE ELIGIBLE UNIT. WHEN THE RATIO LAID DOWN BY THE APEX COURT IN THE C ASE OF LIBERTY INDIA LTD. IS CONSIDERED THEN IT IS EMINENTLY CLEAR THAT DIRECT C ONNECTION WITH THE ELIGIBLE PROFITS IS NECESSARILY TO BE THERE FOR INCOME AS CONSIDERED BY THE APEX COURT. IN THE FACTS OF THE PRESENT CASE ALL THE RELEVANT DETAILS ARE AVAILABLE BEFORE THE AO BEFORE WHOM IT IS REPEATEDLY AGITATED THAT EXPENSES DIRECTLY CONNECTE D TO THE UNITS HAVE ALREADY BEEN ACCOUNTED FOR. NECESSARY EVIDENCES AUDITORS CERTIF ICATE BOOKS OF ACCOUNTS SEPARATELY MAINTAINED FOR THE UNITS AND THE HEAD OFFICE ARE AV AILABLE THE AO REFUSES TO LOOK INTO THE SAME AND INSISTS ON APPLYING PROPORTIONATE DISALLOW ANCE ON A PRO-RATA BASIS AND WHEN THE ASSESSEE AGAIN AGITATES PROVIDING THE DETAILS B Y WAY OF A CHART MADE AVAILABLE TO THE CIT(A) FROM THE SAME EVIDENCE. THE AO AGAIN REFUSES TO LOOK INTO IT AND INSISTS THAT IT IS NEARLY IMPOSSIBLE. THIS OBDURATE ATTITUDE OF REPEAT EDLY REFUSING TO LOOK INTO NECESSARY FACTS IS UNFORTUNATE. NO DOUBT IF THE ACCOUNTS OF A N ASSESSEE ARE UNRELIABLE OR ARE NOT IN THE MANNER AS PER THE REQUIREMENTS OF THE LAW THEN IN SUCH A SITUATION AT TIMES IT BECOMES INCUMBENT TO RESORT TO PRO-RATA PROPORTIONATE DISAL LOWANCE OF EXPENSES. AS IT MAY IN CERTAIN SITUATIONS BE THE BEST POSSIBLE METHOD. HOW EVER IN ORDER TO APPLY THE SAME IT IS FIRST AND FOREMOST NECESSARY TO HOLD THAT THE ACCOU NTS ARE NOT RELIABLE/MAINTAINED AS PER LAW WHICH IS NOT THE FACT IN THE PRESENT PROCEEDING S. TO APPLY SUCH A METHOD TO THE FACTS AT HAND WOULD BE A TRAVESTY OF JUSTICE AS THE REPEA TED STAND OF THE ASSESSEE ALL ALONG HAS BEEN THAT THE EXPENSES DIRECTLY CONNECTED WITH THES E UNITS HAVE ALREADY BEEN ACCOUNTED FOR IN COMPUTING THE INCOME OF THE ELIGIBLE UNIT. N O FAULT OR SHORTCOMING HAS BEEN POINTED OUT BY THE DEPARTMENT. THE LAW REQUIRES THAT THE PR OFIT OF EVERY UNIT HAD TO BE COMPUTED AS IF IT WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE RELEVANT PREVIOUS YEARS AND SUCH EXPENDITURE INCURRED BY THE HEAD OFFICE TO THE EXTENT IT IS RELATING TO THE BUSINESS UNIT ELIGIBLE FOR DEDUCTION US 80IA/80IB SHOULD BE DEDUCTED WHILE DETERMINING PROFIT OF THE SAID UNIT AS ELIGIBLE DEDUCTION U/S 80IA/80IB. THIS PRINCIPLE HAS BEEN FOLLOWED BY THE CO-ORDINATE BENCH IN THE FIRST ROUND AS WELL AS IN THE SECOND ROUND IN THE CASE OF TIDE WATER. NO MATERIAL HAS BEEN PLACED ON RECORD TO SHO W THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS NOT FOLLOWED THIS PRINCIPLE. 13 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 11.5. COMING TO THE OTHER JUDGEMENTS REFERRED TO BE FORE US IT IS SEEN THAT THE HONBLE APEX COURT IN THE CASE OF PANDIAN CHEMICALS LIMITED VS CIT 267 ITR 278 HAS DWELT AT LENGTH ON THE WORDING DERIVED FROM AND ATTRIBUTA BLE TO THEIR LORDSHIPS IN THE CASE OF LIBERTY INDIA LTD. 218 ITR 317 ALTHOUGH IN THE C ONTEXT OF DUTY DRAW BACK AND DEPB INCENTIVES ALSO HAD AN OCCASION TO HOLD THAT CONNOT ATION OF THE WORDS DERIVED FROM IS NARROWER IN MEANING AS COMPARED TO THAT OF THE WORD S ATTRIBUTABLE TO BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO CO VER SOURCE NOT BEYOND THE FIRST DEGREE. THE PRINCIPLE LAID DOWN BY THE APEX COURT I N THE SAID JUDGEMENT FULLY SUPPORTS THE CLAIM OF THE ASSESSEE. CONSIDERING THE GENERAL HEAD OFFICE EXPENSES WHICH ARE NOT AS PER RECORD DIRECTLY INCURRED FOR THE SAID SPECIFIC UNITS THEY CANNOT BE SAID TO BE SUCH EXPENSES WHOSE CONNECTION TO THE UNIT IS OF THE FIR ST DEGREE. AS SUCH THESE EXPENSES ON A PROPORTIONATE BASIS CANNOT BE USED TO REDUCE THE PR OFITS OF THE SAID UNDERTAKINGS PURELY BASED ON SUSPICION. IT IS THE DUTY OF THE DEPARTME NT TO PLACE MATERIAL ON RECORD ON THE BASIS OF WHICH THE CLAIM OF THE ASSESSEE CAN BE REJ ECTED. ACCORDINGLY IT IS SEEN THAT THE JUDGEMENTS OF THE APEX COURT IN THE CASE OF LIBERTY INDIA LTD. AND PANDIAN CHEMICALS LTD. FULLY SUPPORT THE CASE OF THE ASSESSEE. THE F ACTS AND CIRCUMSTANCES PERTAINING TO THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. TIDE WATE R OIL (I) LTD. AS HAS BEEN OBSERVED THEREIN HAVE BEEN WRONGLY APPLIED TO THE FACTS OF T HE PRESENT CASE. THE PRINCIPLE LAID DOWN IN FACT FULLY SUPPORTS THE CASE OF THE ASSESSE E. ACCORDINGLY IN TERMS OF THE DETAILED REASONS GIVEN HEREIN ABOVE ON FACTS AND POSITION OF LAW THE CLAIM OF THE ASSESSEE IN GROUND NO.3 AND 4 ARE ALLOWED. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOU R OF ASSESSEE AND AGAINST REVENUE IN ASSESSEES OWN CASE FOR AY 2007-08 TAKING A CONSIS TENT VIEW AND RESPECTFULLY FOLLOWING THE SAME WE ALLOW THIS ISSUE OF THE ASSESSEES APPEAL. 12. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING LEVY OF INTEREST U/S.234B & 234C OF THE ACT. 13. THE CHARGING OF INTEREST U/S. 234B AND C OF THE ACT BEING CONSEQUENTIAL RELIEF ONLY AO IS DIRECTED TO RE-COMPUTE THE INTEREST AFTER GIVING EFFECT TO THE ORDER OF TRIBUNAL. HENCE NEED NO ADJUDICATION. 14. IN THE RESULT THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29.7.2011. SD/- SD/- . #$ #$#$ #$ . !' (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( $' $' $' $') )) ) DATED 29TH DAY OF JULY 2011 01 &23 4 JD.(SR.P.S.) 14 ITA 504/K/2011 M/S. BALARAMPUR CHINI MILLS LTD.. A .Y.08-09 !/ 5 - 6!(7- COPY OF THE ORDER FORWARDED TO: 1 . + / APPELLANT M/S. BALARAMPUR CHINI MILLS LTD. 234/3 A A.J.C. BOSE ROAD FMC FORTUNA KOLKATA-700 020 2 -.+ / RESPONDENT DCIT CC-XIX KOLKATA. 3 . /& ( )/ THE CIT(A) KOLKATA 4. /& / CIT KOLKATA 5 . >? -& / DR KOLKATA BENCHES KOLKATA . -/ TRUE COPY !/&@/ BY ORDER 3 /ASSTT. REGISTRAR .