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TMI Blog2013 (9) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner Of Income tax. [2001 (5) TMI 134 - ITAT AHMEDABAD-A] - Interest paid on funds borrowed for business purpose, including for the purpose of setting of anew unit of the existing running business was allowable u/s 36(1)(iii) of the Act - While examining the applicability of this tribunal decision, we have noted above that interest expenditure will be allowable if it was found that borrowed fund were used for the purpose of setting up of a new unit of the existing running business - borrowed funds were not used for setting up of a new unit of an existing running business but it was setting up of a new unit for production of an altogether new product i.e. power whereas the existing business of the assessee was production of lignite - Since this aspect was not fulfilled in the present case, even interest expenditure was not allowable in the present case u/s 36(1)(iii) because in the present case, the product to be manufactured by the new unit was an altogether new product – Decided against Assessee. Disallowance as per Explanation u/s 37(1) - salary to staff against the guidelines of Gujarat Govt- Whether the expenditure incurred by the assessee was for any purpose which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prescribed period - the expenses cannot be held even U/s. 43B of the Act and the addition/ made therefore cannot be sustained and accordingly deleted - as per the provisions of Section 43B, deduction had to be allowed with regard to these expenses because the payment was made before the due date of filing of return of income – Decided against Revenue. - I.T.A. Nos. 128, 186/ Ahd/2005, 1114/Ahd/2006, 1244, 1245/Ahd/2007 I.T.A.No. 402/Ahd/2005, 1036/Ahd/2006, and 1182, 1184, 4483/Ahd/2007, - - - Dated:- 25-5-2012 - Shri D. K. Tyagi And Shri A. K. Garodia, JJ. Appellant by: Shri S. N. Soparkar, Sr. Adv. Shri J. T. Shah, Adv. Respondent by: Shri D. P. Gupta, CIT DR ORDER PER BENCH:- Out of this bunch of ten appeals, there are various appeals of the assessee and the revenue for different assessment years against separate orders of Ld. CIT(A) VIII, Ahmedabad. All these appeals were heard together and are being disposed off by way of this common order for the sake of convenience. 2. First, we take up the appeal of the assessee for the assessment year 2000-01 in I.T.A.No. 128/Ahd/2005. 2.1 Ground No.1 is regarding disallowance of ₹ 91273931/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1990-91 in I.T.A.No. 3232/Ahd/1996, which is available in the paper book page 6 and the relevant paras are 16-18. He further submitted that the 2nd such decision of the tribunal is in assessee s own case for the assessment year 1992-93 in I.T.A.No. 936/Ahd/199 and the relevant portion is available on pages 8-9 of the decision paper book and the relevant para is para 2. It was also submitted that the 3rd such decision is in respect o assessment year 1994-95, 1996-97 and 1997-98 in I.T.A.No. 89, 90 91/Ahd/2001 and the relevant portion of this tribunal order is available on pages 42-49 and the ultimate conclusion of the Tribunal is in para 33. He further submitted that although in assessment year 1998-99 and 1999-2000, as per Tribunal order dated 16.11.2007, available on pages 77-83 of the paper book, the issue was restored to the file of the A.O. but in the subsequent tribunal decision dated 31.08.2009 for the assessment year 1997-98 on pages 71-73 of the paper book, the same issue was decided in favour of the assessee. 2.2.2 Ld. D.R. supported the orders of authorities below. 2.2.3 We have considered the rival submissions, perused the material on record and have go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered against the assessee by various tribunal decisions in assessee s own case for earlier years such as assessment year 1998-99 and 1999-2000 in I.T.A.No. 999 and 1000/Ahd/2003, which is available on pages 78-79 of the paper book and for the assessment year 197-98 in I.T.A.No. 91/Ahd/2001, which is available on page 60 para 50 of the paper book. Respectfully following these earlier tribunal decisions, this issue is decided against the assessee and accordingly, ground No.3 of the assessee s appeal is rejected. 2.4 Ground No.4 is regarding initiation of penalty proceedings. This ground is premature and hence, rejected. 2.5 Ground No.5 is regarding charging of interest u/s 234B and 234C of the Act and this issue is consequential and hence, no adjudication is called for at this stage. 2.6 In the result, this appeal of the assessee stands partly allowed. 3. Now, we take up assessee s appeal for the assessment year 2001-02 in I.T.A.No. 186/Ahd/2005. 3.1 Ground No.1(a) is regarding confirmation of disallowance of ₹ 2231740/- being the expenditure on project Mata No Madh holding the same as capital in nature. It was agreed by both the sides that this issue is identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of power generation in the earlier assessment years including assessment year 2000-01 as has been noted by Ld. CIT(A) on page 2 of his order. In the light of these facts, we examine the applicability of various judgements cited by the Ld. A.R. - The first judgement cited by the Ld. A.R. is the tribunal decision rendered in the case of United Phosphorus Ltd. Vs JCIT (supra). As per this tribunal decision, it was held by the tribunal that the assessee is entitled for deduction on account of interest paid on funds borrowed for business purpose including for the purpose of setting up of a new unit of existing running business u/s 36(1)(iii) irrespective of the fact whether such a new unit has commenced production or not in the year under consideration. This tribunal decision supports the case of the assessee regarding alternative contention in respect of granting deduction for the interest part if it is ultimately held that the unit being set up out of borrowed funds in question is a new unit of the existing running business. This aspect we will decide later. - The 2nd decision cited by the Ld. A.R. is the judgment of Hon ble Madras High Court rendered in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture of raw material for an existing business. In fact the final product of the existing unit is the raw material for the new unit and, therefore, this judgement of Hon ble Delhi High Court is also not applicable in the present case. - The next judgement cited by the Ld. A.R. is also the judgment of Hon ble Delhi High Court rendered in the case of CIT Vs Denso India Ltd (supra). In that case, the assessee was manufacturing auto electrical parts and the expenditure in question was incurred for setting up of a separate cell for developing import substitute components. Under these facts, it was held by the Hon ble Delhi High Court that such expenditure is revenue expenditure. In the present case, the facts are different. The unit being set up will not result into any substitute of import component being used by the existing unit and, therefore, this judgement is also not applicable in the present case. - The next judgment cited by the Ld. A.R. is the judgement of Hon ble Punjab Haryana High Court rendered in the case of CIT Vs Escorts (supra). In that case, this finding was recorded by Ld. CIT(A) that the expenditure incurred by the assessee was in respect of development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was engaged in the business of manufacturing intra venus injection of two types i.e. LVP and SVP. During the relevant year, the assessee company installed three more machines in addition to the existing three machines for the production of the same product resulting in substantial increase in the capacity of manufacturing of the product. Under these facts, it was held by the Hon ble Gujarat high Court that the interest expenditure is to be allowed even if the machines purchased out of borrowed funds were not put to use in the relevant year. In the present case, this is not the factual position that the same equipments is the existing equipments were purchased. In the present case, a power project altogether is being set up and the assessee is not in the business of power generation up to assessment year 2000-01 and, therefore, the facts in the present case are different. Hence, this judgement of Hon ble Gujarat High Court is also not applicable in the present case. - The last judgment cited by the Ld. A.R. is the judgment of Hon ble Apex Court rendered in the case of DCIT vs Core Health care Ltd. As per this judgement, Hon ble Apex Court has simply confirmed the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delines issued by the Government of Gujarat dated 28.08.1998 referred to at page 7 of the order and is also against Article No.192 of the Articles of Corporation. It is further noted by Ld. CIT(A) that it was submitted by the Ld. A.R. that the expenses have been approved by the Board of Directors and are not contrary to the provisions of Companies Act 1956. Ld. CIT(A) was not satisfied and he confirmed the disallowance on this basis that this is covered under Explanation to Section 37 of the Income tax Act, 1961. Now, the assessee is in further appeal before us. 3.3.2 It is submitted by the Ld. A.R. that there is no violation of any law and, therefore, deduction should be allowed. As against this, the Ld. D.R. supported the order of the authorities below. 3.3.3 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this disallowance was confirmed by Ld. CIT(A) on this basis that the same is covered by Explanation to Section 37(1) of the Income tax Act, 1961. As per the Explanation, it is seen that if any expenditure being incurred by the assessee is for any purpose which an offence or which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, whichever is lower, for the closing stock. It was held by Ld. CIT(A) that since the write off is supported by the report of various technical committees/personnel, the same is to be allowed but it cannot be ruled out that spares of the machinery could not be having any value including scrap value. He held that 25% of the total amount should be considered as scrap value and to this extent, the disallowance should be confirmed. Now, the assessee is in further appeal for 25% disallowance confirmed by Ld. CIT(A) and the revenue is in appeal for 75% disallowance deleted by Ld. CIT(A). 3.4.2 It was submitted by the Ld. A.R. that scrap value will be accounted for and offered to tax as and when realized. Ld. D.R. sported the assessment order. 3.4.3 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that in the facts and circumstance of the present case, writing off of the value of closing stock should be allowed to the extent it brings the value of closing stock at level with cost or market price whichever is lower. The market price of obsolete items of stock will be definitely very low than its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No.1 is regarding deletion of disallowance of ₹ 5 lacs being depreciation on multimodal project at Ambaji. 4.2 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the tribunal decision in assessee s own case for the assessment year 1998-99 and 1999-2000 in I.T.A.No. 1392 and 1422/Ahd/2003. He further submitted that the relevant portion of this tribunal order is at para 19-23 which are available on page 81-82 of the decision paper book. He further submitted that this tribunal order was followed by the tribunal in assessment year 1997-98 in I.T.A.No. 2728/Ahd/2000 and the relevant discussion is in para 84 of the Tribunal order on page 76 of the decision paper book. 4.2.1 Ld. D.R. of the revenue although supported the order of the A.O. but he could not point out any difference in facts in the present year as compared to earlier three years for which the tribunal decision had been cited by the Ld. A.R. Hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the revenue is rejected. 4.3 Ground No.2 of the revenue s appeal is regarding deletion of disallowance of prior period expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses have not been proved in the books of accounts, the deductions cannot be allowed. On the other hand, assessee's representative Shri Shah has stated that the liability for bonus and royalty was realized and crystallized during the accounting period ending 31/03/2001 which is not disputed by the Assessing Officer. The disallowance has been made on the ground that the liability has not been provided in the books of accounts for the year 2000-01. Having regard to the decision of Kedarnath Jute Manufacturing Co. Ltd Vs CIT of the Supreme Court (82 ITR 363) I am inclined to accept the argument of the assessee that if liability is crystallized during the year, the same is allowable even if not claimed in the books of accounts. The fact that the liability or expenses are covered U/s. 43B, the disallowances also cannot be upheld since the liability has been filed before filing of return of income within the prescribed period and the reference was made to the Assessing Officer vide letter dtd. 23/02/2004 whereby proof of payment had also been attached. A copy of the same has also been furnished to me, at page 40 of the paper book. In view of the above facts, the expenses cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made on account of obsolete stock to ₹ 82049/-. 5.3.1 It was agreed by both the sides that this issue is identical to ground No.3 of the assessee s appeal in assessment year 2001-02 and ground No.4 of the revenue s appeal in that year. 5.3.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that in the assessment year 2001-02, we have confirmed the order of Ld. CIT(A) on this issue and the grounds of the assessee as well as of the revenue were rejected. In that year, disallowance was confirmed by Ld. CIT(A) to the extent of 25% of the total claim of the assessee for provision on account of obsolete stock/stores. In the present year also, Ld. CIT(A) has confirmed the disallowance to the extent of 25% of the total claim as in assessment year 2001-02 and hence, as per our decision for assessment year 2001-02 as per para 3.4.3 above, in the present year also, ground No.3 of the assessee s appeal as well as ground No.4 of the revenue s appeal are rejected. 5.4 Ground No.4 of the assessee s appeal is regarding confirming disallowance of ₹ 33473931/- in respect of depreciation cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1990-91 in I.T.A.No. 3232/Ahd/1996. He further submitted that the relevant discussion is in para 14-15 of the tribunal order which can be seen on page 6 of the decision paper book. Ld. D.R. submitted that the assessee could not establish that the expenses have crystallized during the present year and, therefore, this ground should be rejected. 5.6.2 The connecting ground in revenue s appeal is ground No.3 as per which revenue is aggrieved regarding deletion of disallowance of prior period expense of ₹ 43,81,470/-. 5.6.3 While deciding this issue, Ld. CIT(A) had explained regarding each and every expenses and where assessee could establish that the expenditure had crystallized in this year, he has allowed deduction and where he found that assessee could not establish that the expenditure has crystallized in this year, he has confirmed this disallowance. In the tribunal order for assessment year 1990-91, the disallowance was deleted by the tribunal on this basis that the expenses in question had crystallized during the relevant year. In the light of the facts of the present case, we feel that the order of Ld. CIT(A) in the present year is in line with the tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the case of CIT Vs Bokaro Steel Ltd. as reported in 236 ITR 315 (S.C.) and Bongaigaon Refinery and Petrochemicals Ltd. Vs CIT as reported in 251 ITR 329 (S.C.). Ld. D.R. supported the order of Ld. CIT(A). 5.8.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgements cited by the Ld. A.R. We find that Ld. CIT(A) has followed the judgement of Hon ble Apex Court rendered in the case of Tuticorin Alkali Chemicals ltd. as reported in 227 ITR 172 (S.C.). In the case of Bokaro Steels Ltd. (supra) and in the case of Bongaigaon Refinery and Petrochemicals Ltd. (supra), this judgment of Hon ble Apex Court rendered in the case of Tuticorin Alkali Chemicals Ltd. (supra) was duly considered and it was held that when the income earned is directly connected and incidental to construction of the plant by the assessee, the same is capital receipt and not income of the assessee from any independent source. In the present case, we find that when the A.O. made this addition, there is no discussion as to whether these two incomes were directly connected or incidental to construction of plant by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee. Ground No.2 of the revenue s appeal is rejected. 6.4 Grounds No.3 4 of the revenue s appeal are already decided by us along with the connected grounds of the assessee s appeal. 6.5 Grounds No.5 6 are general. 6.6 In the result, appeal of the revenue is dismissed. 7. Now, we take up the cross appeals of the revenue in I.T.A.No. 1182/Ahd/2007 and the assessee in I.T.A.No. 1244/Ahd/2007 for the assessment year 2000-01, which are directed against the ore of Ld. CIT(A) VI, Ahmedabad dated 26.12.2006 in respect of penalty imposed by the A.O. u/s 271(1)(c) which was partly deleted by Ld. CIT(A) as per the impugned order. 7.1 At the very outset, it was submitted by the Ld. A.R. that after the appeal effect order passed by the A.O. on 31.01.2007, which is available on pages 30-31 of the relevant paper book, the assessed income of the assessee stands at ₹ 780811972/-. He further submitted that as per the original assessment order passed by the A.O. on 24.03.2003, copy of which is available on pages 8-16 of the paper book, it can be seen that the return of income was filed by the assessee declaring total income at ₹ 882773178/-. He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the case in deleting the penalty of ₹ 3,44,79,852/- levied u/s 271(1)(c) of the Income tax Act, 1961 after holding that no penalty u/s 271(1(c) was leviable in respect of disallowance of project expenses of Akri Mota Power Project of ₹ 9,65,82,220/-. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the A.O. 3. It is, therefore, prayed that he order of Ld. CIT(A) may be cancelled and that of the A.O. may be restored to the above effect. 9.1 Ld. D.R. supported the penalty order. It was submitted by the Ld. A.R. that the quantum appeal of the assessee for this year is also heard on the same day in which assessee has raised a ground regarding disallowance of project expenses of Akri Mota Power Project of ₹ 96582220/-. He submitted that if the disallowance is deleted then no penalty can be leviable. He also submitted that even if the disallowance is confirmed then also penalty is not justifiable because this is held by Ld. CIT(A) that the disallowance is merely a rejection of debatable claim and the assessee had made full disclosure in the return of income. He supported the order of Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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