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Case Law Details

Case Name : Nirma Limited Vs ACIT (ITAT Ahmedabad)
Appeal Number : ITA No. 515-516/Ahd/2014
Date of Judgement/Order : 30/06/2023
Related Assessment Year : 2006-07
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Nirma Limited Vs ACIT (ITAT Ahmedabad)

ITAT Ahmedabad held that the amount of refund issued to the assessee will be first adjusted against the interest then, after that against the principal amount.

Facts- The assessee for the year under consideration filed the return of income declaring total income at Rs. nil and further claimed refund of Tax Deducted at Source (TDS) and advance tax paid for Rs. 1,39,77,665/- only. However, the assessment was framed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act dated 30-03-1999 determining total income at Rs. 16,43,11,720/- only.

Consequentially, the AO in giving effect order dated 15-01-2009 determined the amount of refund at Rs. 75,00,281/- without granting interest u/s. 244A of the Act. The assessee filed a rectification application date 11-02-2009 to grant interest u/s. 244A of the Income Tax Act which travelled up to Tribunal and the Tribunal vide order dated 27-03-2015 directed the AO to dispose of the rectification application as per law. AO in the effect giving order granted interest of Rs. 22,12,583/- on the amount of refund for the period March 2004 to January 2009. The amount of refund for Rs. 22,12,583/- being interest u/s. 244A was adjusted against demand of A.Y. 2011-12 as on 04-05-2016.

Thus, the assessee made a claim for additional compensation of interest u/s. 244A of the Act for the period February 2009 to May 2016.

But the AO rejected the claim of the assessee for additional compensation as claimed by the assessee. CIT(A) confirmed the order of AO.

Conclusion- Mumbai Tribunal in the case of Union Bank of India vs. ACIT held that the amount of refund issued to the assessee will be first adjusted against the interest then, after that against the principal amount.

Held that the amount of refund granted to the assessee, first, has to be adjusted against the interest payable to the assessee in the given facts and circumstances. Considering the fact that the amount of refund issued to the assessee for Rs. Rs. 75,00,281/- was first to be adjusted against the interest of Rs. 22,12,583/- then refund of principal amount. Admittedly, the interest for Rs. 22,12,583/- was finally issued to the assessee in the month of May 2016. Thus, the assessee will be entitled to interest under section 244A of the Act for the delay in issuing of refund for Rs. 22,12,583/- which represents the principal amount.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

1. The above captioned appeals have been filed by the assessee and the Revenue against the separate orders of ld. Commissioner of Income-Tax (Appeals) arising in the matter of assessment order passed under section 143(3) of the Income tax Act 1961 (in short, the ‘Act’) involving respective Assessment Years.

1.1 First, we take up ITA No. 515/Ahd/2014, an appeal by the assessee for the AY 2006-07.

2. The assessee has raised the following grounds of appeal:

1) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in the points of law and facts.

2) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of expenses Rs.2,72,563 u/s.37(l)of I.T.Act.

3) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of Rs. 1,66,51,168.

4) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of Rs.48,96,52,916.

5) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding charging interest u/s.234B of I.T. Act forRs.39,14,40,206,

6) In law and in facts and circumstances of the Appellant’s case, the learned CET(A) has grossly erred in dismissing appellant’s ground regarding charging interest u/s.234D of I.T. Act.

7) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding withdrawing interest u/s.244A of I.T. Act.

8) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding initiation of penalty proceedings u/s.271(l)(c) of I.T. Act.

9) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing additional ground regarding allowance of deduction u/s.80IA of I.T. Act on the profit of the power under taking a Bhavnagar.

10) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time.

3. The ground No. 1 of assessee’s appeal is general in nature and does not require any separate adjudication. Hence, the same is dismissed as infructuous.

4. The next issue raised by the assessee vide ground No. 2 of its appeal is that the learned CIT(A) erred in confirming the disallowance of expenses for Rs. 2,72,563/- under section 37(1) of the Act.

5. The assessee during the year claimed expenses towards general public utility for Rs. 30,07,849/- only. The list of such expenses is reproduced on page 51 in the order of the ld. CIT-A. It was submitted that it (the assessee) has made contribution towards general public utility in the locality where its business premises are situated in order to maintain harmony with local environment. Accordingly, it was contented that the same are incurred wholly and exclusively for the purpose of the business.

5.1 However, the AO disagreed with the reasoning of the assessee and held that the assessee failed to explain the nexus of such expenditure with the business. Thus, the AO disallowed the same under the provisions of section 37(1) of the Act and added to the total income of the assessee.

6. On appeal by the assessee, the learned CIT(A) following the order of his predecessor in the own case of the assessee for AY 2008-09 deleted the addition made by the AO in part by observing as under:

9.6 It is seen that appellant’s factories are located at village: Mandali, Savali, Near Baroda and Moraiya. Many of the staff and worker are residing in the vicinity of these areas. In view of these facts, I am of the opinion that donation/payments are nothing but an exercise of maintaining good relation and improving the vicinity area by which employees can get benefits, who stay in the nearby areas as well as advertisement of the appellant company for the benefit of appellant’s business. Appellant had placed reliance in the cases of CIT V/s.Madura Coats Ltd. 24 DTR 24 (Mad) and C!T v/s. Madras Refinery Ltd. reported at 266 ITR 170 (Mad.) My predecessor while deciding the appeal for Asst.Year: 2008-09 allowed certain claims of the appellant. Following the order of my predecessor for Asst.Year: 2008-09 in the case of appellant as well as considering submissions made by the appellant I allow the claim in respect of following payments. The A.O. is directed to allow the same accordingly u/s.37(1) of Income-tax Act.

1 Donation given to Mandali Gram Panchayat u/s.SOG of IT. Act 50,000/-
2 Payment made for construction work of Primary School at Savali 76,44,286/-
3 Payment made to Moraiya Seva Prathmik Sala 11,000/-
4 Payment made to Kunpad Primary Shaia 5,000/-
5 Gujarat Gaurav Din Ujavani Samiti, Collector Kacheri, Bhavnagar 1,00,000/-
 
6 Bhavnagar District of TalatiAssociation 25,000/-
  Total 78,35,286/-

9.7 Regarding the other expenses claimed by the appellant, I am not in agreement with the appellant which are not incurred wholly and exclusively for the purpose of business u/s.37(1) of IT. Act. In the absence of cogent Evidences, disallowance of balance amount of Rs. 11,72,563/- claimed by the appellant u/s.37(1) of Income-tax Act.

9.8 The appellant submitted receipts u/s.80G in respect of payments to four parties aggregating to Rs.4,10,000/-. Since these donations are exempt u/s.80G(2), the A.O is directed to treat this expenditure as donation and allow relief as per the provisions of section 80G of I.T Act.

7. Being aggrieved by the order of the learned CIT(A), both the assessee and the Revenue are in appeal before us. The assessee is in appeal against the confirmation of the addition by the learned CIT-A for Rs. 2,72,563.00 whereas the Revenue is in appeal against the deletion of the addition made by the learned CIT-A for Rs. 26,69,286.00 (wrongly written as Rs. 17,69,286.00) in ITA No. 685/AHD/2014 on the following ground of appeal:

The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 17,69,286/- on account of disallowance of expenses u/s.37(1) of I.T Act.

8. The ld. AR before us filed a paper book running from pages 1 to 323 and contended that all the expenses were incurred for the smooth running of the business. These expenses were incurred in the areas where the factories of the assessee were located. Furthermore, it is the prerogative of the assessee to decide the expenses to be incurred for the purpose of the business and the revenue is not expected to sit on the armchair of the assessee to decide the expenses to be incurred for the commercial purposes.

9. On the other hand, the ld. DR before us contended that there was no nexus of the expenses incurred by the assessee with its business and therefore the same cannot be allowed as deduction.

10. Both the ld. AR and DR before us vehemently supported the order of the authorities below as favourable to them.

11. We have heard the rival contentions and perused the materials available on record. We have perused the list of nature of expenses incurred under the head general public utility expenses and find that the payments were made to gram panchayat, schools, social or religious welfare groups, hospitals which are working in the localities where assessee’s factories or other premises are situated. Generally, these types of expenses incurred to maintain good relationship with the people in locality which also helps in image building of the business organizations. There are several instances where business houses incur expenses voluntary which may not directly be linked to the business carried out by such business houses or may not yield direct/ immediate benefit to the trade but same can indirectly facilitate in carrying on the business in long run. The Hon’ble Supreme Court in the case of Sri Venkata Satyanarayna Rice Mill Contractors Co vs CIT reported in 223 ITR 101 held that any expenditure incurred by the assessee which has commercial expediency will be allowable as business income as long as same is not made by way of penalty for infraction of law. The Hon’ble bench further held that any contribution made by the assessee toward public welfare in connection with the running of business will be allowed as deduction under section 37 of the Act. The relevant observation of Hon’ble Supreme Court is extracted as under:

From the aforesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee’s business or which results in the benefits to the assessee’s has to be regarded as an allowable deduction under section 37(1).

11.1 In the case on hand, the present assessee made payment towards general public utility to various schools, welfare bodies, religious samitiee’s etc in the locality where its factories or other business premises are located. In our considered opinion, these expenses ultimately help/benefit in carrying on the business of the assessee. Thus, we hereby direct the AO to delete the addition made by him. Accordingly, the ground of appeal of the assessee is hereby allowed whereas the ground of appeal of the Revenue is hereby dismissed.

12. The next issue raised by the assessee vide ground No. 3 of its appeal is that the learned CIT(A) erred in confirming the disallowance of Rs. 11,66,51,168/- made by the AO on account of loss of loans & advances.

13. The assessee company during the financial years 2000-01 to 2003-04 has given loan & advance to one Shri Babubhai Ramanlal Patel in his personal capacity as well as to his propriety concern namely M/s Ajay Structural Engineering Works. As per the assessee, the party namely Shri Babubhai Ramanlal Patel was to pay interest on such loans & advances at the rate varying between 15%, 12%, 12%, 12% and 6% for the different accounting years. As on 6th March 2006, there was outstanding loan & advance to the impugned party including interest was at Rs. 32,16,51,167/- only. Due to a dispute regarding the claim of outstanding amount, the mater reached to for arbitration before the sole arbitrator Hon’ble justice S.B. Mazumdar (retired from Hon’ble Supreme court). The Hon’ble arbitrator vide order dated 3rd August 2006 held that the assessee company was not able to prove the claim of interest on such loan and advance and finally directed the party namely Shri Babubhai Ramanlal Patel to pay an amount of Rs. 20,50,00,000/- for full and final settlement of the loan and advance.

13.1 The assessee in accordance with the arbitration award has written of the sum of ₹11,66,51,168/- (being difference between amount due as per books of assessee and claim awarded by the arbitrator) in the profit and loss account of as not recoverable. However, the AO disallowed the claim of the assessee by observing as under:

6.7. In view of the above discussion, it is held that,

(a) that the claim of assessee regarding write off of advance has been made by passing entry in the accounts on 31.03.2006, when the Arbitration Order on which the assessee relies is dated 03.08.2006. Further, the communication referred to by the Arbitrator received from both the parties is also of June 2006. Therefore, this write off of advance could have arisen only on 03.08.2006 (A.Y.2006-07). Therefore, the claim of write off of advance in A.Y.2005-06 of the assessee is incorrect.

(b) The purpose for which these advances were given has not been clarified by the assassee. Since Ajay Structural Engineering Works is engaged in the business of construction, these advances could only be related to construction activity and is therefore, not a trade debt. Accordingly, this claim of loss being made by the assessee is a capital loss.

(c) Bad Debts of any loans or advance is allowable only in the cases of assessee engaged in the business of financing. Assessue admitted not being in this line of business, the bad debt is not allowable.

(d) The assessee has not proved that the conditions laid down in section36(2) and 36(1)(vii) of the I.T. Act are satisfied in its case.

(e) The legal position is that the debt has to be “Bad”. The assessee has to prove that sufficient efforts were made to recover these advances. From the details filed by the assessee, advances are continuously being given even though interest (as claimed by the assessee) is not forthcoming. Further, instead of approaching Court, or initiating suitable recovery measures, the assessee in mutual agreement with Babubhai R. Patel approaches the Arbitrator. Request is made for a non reasoned award and so the full facts of the case are not available. Therefore, the assessee has not been able to prove that the debt / advance is actually bad.

(f) Surrounding circumstances strongly suggests that in lieu of this write off of advance, land has been passed on by Babubha! R. Patel to Nirma Group at the nominal price. Hence, the transactions of write off of advance are colourable device intended to defraud the revenue.

In view of the above facts and circumstances also the legal position, advances written off of Rs. 11,66,51,168/- are disallowed. Since the assessee has furnished inaccurate particulars of income, penalty proceedings u/s.271(1)(c) are initiated separately.

14. The aggrieved assessee preferred an appeal to the learned CIT(A) and submitted that it is carrying out financial transaction of lending money on year-to-year basis and earned interest income on the same which was duly offered to tax as business income. Therefore, any loss arising in carrying out the activity of money lending should be considered as revenue loss. The impugned amount of claim of Rs. 11,61,51,168/- was based on arbitration award given by the retired justice of Hon’ble supreme court wherein full and final settlement reached for Rs. 20.5 crores against the total outstanding of Rs. 32,16,51,168/- only. The assessee further submitted that there cannot be nexus between the money lent to Shri Babubhai Ramanlal Patel and land transaction between impugned party and its associate concern/individual.

15. The learned CIT(A) after considering the facts confirmed the disallowances made by the AO by observing as under:

11.6 I have carefully considered the rival contention. Appellant’s claim is that it had business transactions with Shri Babubhai R. Patel. It has also been claimed that the appellant is in the business of financing and therefore is entitled to write off of the pсncipal amount also. In connection it is seen that the main object clause of the appellant company does not include the business of financing or money lending.) The appellant company also does not have any license of money lending neither is it registered as NBFC. Just because of one of the clauses of Memorandum of Association Articles of Association of the company includes the activity of financing does not entitle the appellant to claim the status of a money Tender. Appellant is merely utilizing surplus funds available with it for earning of interest from some of the parties. For an activity to qualify into that of lender it was required to be conducted in a business like and systematic manner. Reliance is placed on the decision of Hon ‘ble Karnataka High Court in the case of CIT vs Epsilon Advisors Pvt. Ltd. 80 DTR 366 in which it was held as under

34. On an examination of these circumstances, in the exercise undertaken by the assessing officer and the appellate authority it was reveals that the business activity of the assessee was not as a part of advancing of moneys or money lending activity, though Sri Parthasarathy, learned counsel for the assessee has very vehemently urged that the assessing officer and the appellate authority themselves had confirmed this view that a sum of Rs 75 lakh allowed as deduction, which was an inter-corporate deposit, was part of money lending activity of the assessee and that the assessee had considerable amount of interest income from the deposit made or amount advanced to other customers or associates, that in itself is not the cсterion for deciding as to whether the activity was a money lending activity of the assessee or its business was money lending, as it pointed out by SriThirumalesh, learned standing counsel for the appellant-assessee that the assessee did not hold any permission or licence or was recognized as a money lender nor was it recognized as a financial institution, banking ornon-banking, which has the business of receiving deposits and lending money, both for interest.

35. It is never the case of the assessee that it had been receiving deposits on payment of interest and it was lending money. Either on facts or from the activity carried on by the assessee or from the circumstance, the tribunal could have never used the reasoning of the assessing officer or the appellate authority to conclude that the assessee should be taken to be carrying on the activity of money lending as a business activity and therefore on the same reasoning the amount of Rs 5,34crore advanced to its sister concern also should be allowed. This view is not supportable for more than one reason that it is not based on any material on record; that there was nothing on record to indicate that the assessee had been recognized as money lender in terms of any legal provisions or business practice and the mere fact that the assessing officer and the appellate authority have opined correctly or otherwise that deposit of Rs 75 qualifies for deduction under Section 36(1)(vii) of the Act being a deposit made in the money lending business activity of the assessee automatically entails the assessee to a like deduction in respect of the advance to extent of Rs 5.34 crore also as a deduction under the very provision of law without more. The assessee’s mam business activity was only in providing services in telecommunication technology and not in money lending activity.

36. While it may be true that in terms of No 23 of the objects clause of Memorandum and Articles of Association of the Company, the assessee could have carried on this activity incidental to its main business, it was not made known as to whether the assessee was carrying this business also in a systematic manner. Mere fact that the assessee had made some inter- corporate deposits and the assessee earned income by way of interest in itself is not a circumstance to conclude that it was carrying on money lending activity as part of its business activity.

To qualify to claim of bad debt the appellant has to substantively prove that it is engaged in the business of money lending on regular basis. There are very few instances of loans granted by the appellant which do not qualify it to assume the character of money lending business. The claim is not allowable on merit.

It is further seen that the appellant has passed the entry of bad debt on the basis of arbitration award given on 4.11.2006. This award was therefore passed in the FY.2006-07 pertaining to A.Y.2007-08. Therefore even if activities of the appellant are accepted to be that of money lending the bad debt would be allowable only in A.Y.07-08 when they would crystallize and become determinate. I also agree with the findings of the A.O. that there were transactions for the purpose of sale of land between Shri Babubhai R. Patel and the Vice Chairman of the appellant company which is not suspicion as established by the A.O. The interest payments by Shri Babubhai R. Patel have not been substantially proved by the appellant neither any resolution passed for undertaking money lending activities to specific person has been submitted.

Therefore, I agree with the views of AO and the disallowance of bad debt of Rs. 11,66,51,168/- is upheld. The ground of appeal is dismissed.

16. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.

17. The learned AR before us submitted that the interest on the impugned loan was offered to tax in the earlier year as business income and therefore the same should be allowed as deduction in the event of non-recovery of such interest from the party. It was also pointed out by the learned AR that it is not necessary to have a license from the RBI for advancing money on interest. It was the decision of the assessee to extend the loan on an interest basis to the party discussed above.

18. On the other hand, the learned DR before us vehemently supported the order of the authorities below.

19. We have heard the rival contentions of both the parties and perused the materials available on record. The 1st controversy arises whether the claim made by the assessee based on the award of the arbitrator dated 3 August 2006 relates to the year in dispute i.e F.Y. 2005-06 corresponding to A.Y. 2006-07. As per the AO, the order for the arbitration was made on 3 August 2006 and therefore if at all the assessee wishes to make a claim based on such award, the same can be made only in the previous year 2006-07 corresponding to the assessment year 2007-08 and not in the year under consideration. There is no confusion that the order of the arbitration was made on 3rd August 2006 based on the application made by the parties i.e. the assessee and the party being Shri Babubhai Ramanlal Patel which was made sometime in the month of June 2006 whereas the books of accounts of the assessee were closed as on 31 March 2006. In the present case, the balance sheet for the period ending as on 31 March 2006 was prepared and signed dated 31st August 2006 and return was filed as on 5th January 2007 whereas the order of the arbitrator was made dated 3rd August 2006. In other words, it can be said that loss to the assessee was known at the time of signing the audited financial statements. The accounting principles also provide if it is likely that a contingency will result in a loss to the enterprise, then it is prudent to provide for that loss in the financial statements. Thus, the assessee cannot be denied the deduction as discussed above merely for the reason that the order of the arbitrator was passed after the balance sheet date. Thus, it is transpired that the assessee was known to the fact of the loss of ₹11.66 crores in accordance with the award of the arbitration before filing the return of income. Therefore, the event for writing off the loss certainly occurred after the balance sheet date but before signing the financial statements and filing the income tax return.

19.1 The 2nd controversy arises whether the loan advanced by the assessee to Shri Babubhai Ramanlal Patel who is engaged in the activity of structural engineering works is capital in nature or it is trading advance? In this connection we note that the assessee, since past several years, has been extending loans and advances to different parties and interest accrued from such loan has been offered to tax under the head business income. Thus, it is transpired that the act of advancing loan on interest is one of the business activities of the assessee. Moreover, we note that even advances given in the year 1996-97 and the element of interest thereon has been offered to tax under the head business which was also accepted by the revenue in the earlier years. Thus, in the year consideration, it cannot be said that the advances given by the assessee based on interest was on capital account. At this juncture, we note that the Hon’ble Karnataka High Court in the case of Pranava Electronics Pvt. Ltd. Vs DCIT reported in 124 taxmann.com 242 has observed as under:

6. We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of clause 13 of the memorandum of Association, it is evident that one of the object’s of the assessee is to lend money and the assessee has been engaged in money lending business since its inception from financial year 2004-05. The schedule of loans and advances is a continuing feature in all the past years and has been accepted by the department as part of business by taxing the income under the head ‘income from business’. However, the fact that assessee has been carrying on the money lending business and it has been taxed so under the head business for past 9 years has been over looked. It is pertinent to mention here that holding of money lending licence is not a prerequisite for allowing a claim of bad debts as is held by Supreme Court in TRF Ltd. Supra and it is enough if the irrecoverable debt is written off in the books of accounts. It is also pertinent to note that non charging of interest is not fatal to the claim for deduction. However, the aforesaid aspect of the matter has not been appreciated by the tribunal. Alternatively, the claim of the assessee under section 37(1) of the Act has also not been examined.

19.2 Likewise, we note that the Hon’ble Madras High Court in the case of CIT Vs Southern Polymers Pvt. Ltd. reported in 20 taxmann.com 847 has observed as under:

7. It is seen from the order of the Tribunal that it had, in an elaborate manner, considered the claim of the assessee as well as the Revenue, on the aspect of the assessee doing business in money-lending. A perusal of the order of the Tribunal and the assessment order shows that right from the assessment years 1991-92 to 2000-01, the assessee had been consistently receiving interest from the money-lending business as a business income and the same was offered as business income, the Revenue accepted the claim of the assessee in the assessment made for the earlier years under section 143(3) of the Income-tax Act. Even for the assessment year 2000-01, the interest arising out of the same transaction was offered as business income, which was allowed by the Assessing Officer. Having considered the detailed working of the assessee as regards the interest received by the assessee from the various borrowers right from the assessment years 1991-92 to 1999-2000, the Tribunal pointed out that admittedly, the debtor had deducted tax at source before paying interest to the assessee. The Tribunal found that the copies of the statement filed before it showed that the assessee had been continuously receiving interest income and the same was offered for assessment and had, in fact, been assessed so. Having regard to the abundant material available in this regard that the assessee had money-lending business, the Tribunal rightly held that apart from manufacturing activity, the assessee was doing money-lending business, as part of its business. Even though the finding of the Tribunal as regards the memorandum and articles of association containing the clause on carrying on of the business may not be correct, yet, there are hardly any material before us to support the Revenue’s case that the assessee did not have money-lending business as part of its business. The Tribunal considered the decision of this court reported in Ace Investments ( P.) Ltd. v. CIT [2000] 244 ITR 166 (Mad), as regards the need to look at the substance of the transaction for the purpose of finding out whether the assessee could be said to have business in money-lending. The reference as regards the substance of the transaction assumes relevance in a case where the transaction itself is of such a dubious character that one may not know whether the transaction falls under a particular character as, namely, money-lending business. A perusal of the statement filed before the authorities below shows that apart from M/s. Dyes and Pigments India, the assessee had money transactions with other concerns too, which were treated as part of the money-lending business. In the circumstances, we have no hesitation in confirming the finding of the Tribunal that the assessee had money-lending business also as part of its business. Given the fact that the assessee had been carrying on business in money-lending, which had been accepted so by the Revenue, and in the absence of any other material to show that the memorandum and articles of association of the company did not permit carrying on of money-lending business, the only question that survives for us to consider is whether the amount advanced by the assessee to the extent of Rs. 40 lakhs was really in the nature of a loan.

19.3 Based on the above, it can be concluded that the assessee is engaged in the business of moneylending and therefore once the amount lent in normal course of business become irrecoverable/bad. The benefit of deduction as business loss to the assessee cannot be denied on the reasoning that there was no license available to it for carrying out the moneylending business.

19.4 As regards the conditions specified under section 36(2) read with section 36(1)(vii) of the Act, i.e. amount of bad debt written off as irrecoverable in the books of account is subject to the condition that income should have been offered in the year of writing off or in earlier years out of such bad debt. In this regard, we note that the assessee written off amount as irrecoverable as well as has offered interest income from the loan extended to impugned party in earlier years which can be verified from ledger copy of party placed at pages 80 to 97 for the period starting from 08-09-1997 to 31-03-2006. Thus, the conditions specified under section 36(2) r.w.s. 36(1)(vii) of the Act have been satisfied.

19.5 Regarding the non-recovery of the advances given by the assessee, we note that it is not necessary to prove non-recovery of loan from the party by the assessee. The accounting entries made in the books of accounts are sufficient for claiming the deduction on account of such non-recovery of loan. It is the wisdom of the assessee to decide whether the loan is to be written off as non-recoverable from the party. Both the assessee and the party have approached the arbitrator with the consent to abide by the same where it was decided that the debtor party will pay Rs. 20.5 crore as full and final settlement against total outstanding of Rs. 32,16,51,167/- (including interest). The AO cannot question on the order of the arbitrator how it was worded. Thus, the assessee written off the balance amount which becomes irrecoverable after the award of arbitration.

19.6 Be that as may be, the assessee extended loans and advances to impugned party in earlier years and charged interest at specified rate and account of the party was further debited with accrued interest. Now the assessee has written off part amount as irrecoverable in the books of account. The Hon’ble Supreme Court in the case of T.R.F. Ltd vs. CIT reported in 323 ITR 397 held that the assessee is not required to establish that the debt has become irrecoverable as such mere writing off as irrecoverable is sufficient to claim the deduction. The relevant observation of Hon’ble supreme court extracted as under:

“4. This position in law is well-settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.”

19.7 In view of the above we hold that the assessee cannot be denied the claim merely on the reasoning that the assessee has not been able to take necessary steps for the recovery of the loan/interest from the party.

19.8 The last controversy arises whether the assessee has adopted the colourable device by writing off the loan/interest as not recoverable to avoid the tax liability. The onus lies upon the revenue to prove based on the documentary evidence that the assessee has adopted the colourable device. From the reading of the order of the AO, no detail is forthcoming about the land purchased by the group of the assessee at the alleged nominal price. The AO was expected to prove the impugned transaction of the purchase of land by the group company of the assessee based on the documentary evidence suggesting that the land has been purchased by the group company at the nominal price which has ultimately resulted the low-income tax liability on the assessee. Thus, in the absence of necessary details, we’re not inclined to confirm the order of the authorities below. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee hereby allowed.

20. The next issue raised by the assessee vide ground No. 4 of its appeal is that the learned CIT(A) erred in confirming the disallowance of Rs. 48,96,52,916/- on account of provision for doubtful loans and advances.

21. The AO during the assessment proceeding found that an amount of Rs. 48,96,52,916/- being provision for doubtful advances was appearing in the profit and loss account under the head manufacturing and administrative expenses. The impugned provision was made against the loan and advances given in the earlier to the parties detailed as under:

Rin Finance 31,441,081
East West Polyart Ltd. 51,698,494
Edeal Petro Products Ltd. 409,558,610
492,698,185
Less: written back

Shree Rama Multi Tech Ltd.

3,045,269
Total 489,652,916

21.1 On question by the AO, the assessee during the assessment proceedings submitted that the loan was extended to these parties in earlier years and substantial income being interest aggregating to Rs. 35,62,59,006/- was offered to tax from the loan & advances in earlier years. But the financial condition of these parties worsened, and they were not able to repay the amount of loan hence the same was claimed as an expenditure. However, the AO disallowed the claim of the assessee for various reason summarized as under:

(a) that these amounts of Rs.48,96,52,916/- are appearing in the Audited Accounts as provisions for doubtful advances. The provision for doubtful debts are allowable only in the case of a financial Institutions, schedule banks, etc. as per provision of section 36(1)(vila).

(b) that the claims of interest being offered to tax on above loan transactions are not verifiable. Further, it is seen that the assessee has also debited the principal amount as an expenditure.

(c) that the transaction with these concerns to whom loan has been given are not genuine and are in the nature of colourable device as discussed in detail above.

(d) that the primary conditions laid down in section 36 of I.T. Act have not been satisfied and the assessee has not been able to prove that these advances have become “Bad”.

22. Aggrieved assessee preferred an appeal before the learned CIT(A). The learned CIT(A) confirmed the disallowances made by the AO for two reasons. The first reason is that the assessee is not in the business of money lending, hence not eligible to claim the deduction for loan extended as loan for non-business purpose on account of non-recovery. The secognd reason being the impugned amount represents provision only whereas to claim bad debts it is necessary to write off the amount as irrecoverable in the books of account. The relevant finding of the learned CIT(A) is extracted as under:

12.6 I have already held while deciding the 10th ground of appeal that the appellant is not engaged in the business of money lending and advances given by it by charging interest is only incidental to the business. This cannot be treated as an activity of money lending in absence of any systematic business of taking deposits on interest and lending the same or having a money lending license. The appellant merely utilized funds available with it to earn some income. Following the stand taken while deciding the 10th ground of appeal the action of A.O. in disallowing the claim of provision for doubtful advances amounting to Rs. 48,96,52,916/- is upheld.

In addition the claim has been made only in respect of the provision and the debt has not been written off in the books of accounts which is the primary condition for claim u/s.36(1)(vii). The allowability of bad debt on the provisions has been rejected by number of judicial forums. Reliance is placed on the decision of Haryana State Industrial Development Corporation (2012) 344 ITR 460 (P&H) in which it has been held that Section 36(1)(vii) provides for deduction in the computation of taxable profits of any debt or part thereof, which is proved to have become a bad debt in the previous year subject to the fulfilment of the conditions specified in sub-section (2) of section 36. The proviso to section 36(1)(vii) stipulates that the amount of deduction relating to any debt or part thereof which is claimed to have become bad debt shall be limited to the amount by which such debt or part thereof exceeds the balance in the provision for bad and doubtful debts account made under that clause. Section 36(1)(viia) of the Act was introduced with a view to provide for grant of deduction in respect of provision for bad debt made by all the banks and financial institution. In other words, to the extent to which the provision for bad and doubtful debts has been allowed under section 36(1)(viia), there can be no deduction under section 36(1)(vii) in view of the provisions of section 36(2)(v) of the Act.

The Tribunal held that the assessee had created provision for bad and doubtful debts during the year under section 36(1)(viia) and the said amount had to be reduced from the actual bad debts claimed under section 36(1)(vii) in view of the proviso appended thereto. The finding of the Tribunal clearly shows that the assessee was not entitled to have deduction of the sum of Rs. 19,77,535/- which was the provision for bad and doubtful debt made during the current year.

Reliance is also placed on the decision of Hon’ble Supreme Court in the case of HCL Comnet Systems and Services Ltd. reported in 305 ITR 409.

In view of the above, 11 ground of appeal is dismissed.

23. Being aggrieved by the order of learned CIT(A) the assessee is in appeal before us.

24. The learned AR before us contended that income on such loan by way of interest was offered to tax under the head business and profession which was also accepted by the revenue and therefore any loss on account of non-recovery of the loan should be allowed as business loss. It was also pointed out by the learned AR that it is not necessary for the assessee to have the license from the RBI for granting the loan to the parties as discussed above. However, the learned AR fairly agreed that the assessee this year has made the provision for nonrecovery of the loan but the same was actually written of in the later year. If the deduction of such a provision is disallowed in the year under consideration, then the same should be allowed in the year in which such provision has actually been written off in the books of accounts.

25. On the other hand, the learned DR before us the reiterated the findings of the authorities below.

26. We have heard the rival contention of both the parties and perused the materials available on record. The facts of the issue on hand have been elaborated in previous paragraphs, therefore we are not inclined to repeat the same for the sake of brevity and convenience. The first question before us is whether the assessee is in the business of money lending or not and consequently the loan and advances given became irrecoverable is eligible for deduction as business loss or not. This question has been answered by us while adjudicating the immediate previous ground of appeal of the assessee i.e. ground no.-3 where we vide paragraph no. 19 of this order have held that the assessee is also engaged in the business money lending. Thus, we are not in agreement with the finding of learned CIT(A) to this extent.

26.1 Moving ahead, as per the provision of section 36(1)(vii) the amount of bad or part thereof will be allowed as deduction in the previous year in which written off as irrecoverable in the books of accounts. This principle has also been confirmed by various judicial pronouncements. In the case of the present assessee both the lower authority being the AO and the learned CIT(A) have given concurrent finding that the amount claimed as deduction represents provision only and no amount of bad debt or part thereof is written off as irrecoverable in the books of account. We further note the learned AR for the assessee before us also submitted that amount of bad debt has actually been written off in the A.Y. 2010- 11 and made alternate prayer that if the claim disallowed in the year under consideration, then same should be allowed in the A.Y. 2010-11 in which the amount was actually written off. Thus, considering the fact that the amount of bad debt or part thereof was not written off as irrecoverable in the year consideration therefore we hold that the assessee is not eligible to claim the deduction of bad debt in the year under consideration. However, the assessee will be eligible to claim deduction of the same in the year in which bad debts actually written off as irrecoverable i.e. A.Y. 2010-11 as claimed by the learned AR subject to verification. Hence, the grounds of the appeal of the assessee is hereby dismissed in the light of the above discussion.

27. The next issues raised by the assessee vide ground Nos. 5 to 8 of its appeal are either consequential or premature to decide. Hence, the same are dismissed accordingly as infructuous.

28. The next issue raised by the assessee vide ground No. 9 of its appeal is that the learned CIT(A) erred in dismissing the additional ground raised before him for claiming the deduction under section 80IA of the Act.

29. The necessary facts are that the assessee during the appellate proceeding before the learned CIT(A) raised additional ground of appeal wherein it was contended that the power undertaking located at Bhavnagar is eligible for deduction under section 80IA of the Act. But the deduction under section 80IA of the Act on the said unit was not claimed at the time of filing the return of income since total income was declared at Rs. NIL. However, the AO assessed the income in the assessment framed under section 143(3) of the Act at Rs. 449,07,95,360/- only. Therefore, the amount eligible for deduction under section 80IA of the Act should be provided. The assessee in support of its claim furnished audit report of eligible undertaking and claimed that similar deduction was allowed by the ld. CIT(A) in its own case for the AY 2004-05.

30. However, the learned CIT(A) dismissed the additional ground of appeal of the assessee by observing as under:

I have carefully considered the contention made by the appellant. Hon ’ble Supreme Court in the case of Goetz India Ltd. 284 ITR 323 has held that any claim for deduction not made in the return cannot be made except by way of filing revised return. In the case of appellant , no revised return was filed for making the claim. Hence, the claim is not acceptable. The additional ground of appeal raised by appellant is dismissed.

31. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

32. The learned AR before us contended that the deduction was not claimed by the assessee as there was no positive income but on account of the disallowance made by the AO, there was positive income to the assessee and therefore the assessee becomes entitled for the deduction provided under section 80-IA of the Act. It was further contended by the learned AR that the assessee has been allowed the deduction under section 80 IA of the Act in the earlier assessment year. Therefore, according to the learned AR, the assessee cannot be denied for the deduction under section 80 IA of the Act for the year under consideration.

33. On the other hand, the learned DR before us vehemently supported the order of the authorities below.

34. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we note that the revenue has admitted the claim of the assessee for the deduction under section 80-IA of the Act in the earlier years with respect to its power undertaking located at Bhavnagar. The learned CIT(A) in the assessment year 2004-05 has allowed the deduction to the assessee under section 80IA of the Act and the same was not challenged by the revenue. Likewise, the ITAT in the own case of the assessee for the assessment 2003-04 in ITA No. 1599/AHD/2013 vide order dated 19 April 2018 has dismissed the appeal of the revenue. Thus, we are of the view that the assessee is eligible for deduction under section 80 IA of the Act with respect of power undertaking at Bhavnagar. Nevertheless, it is pertinent note that the assessee in the year under consideration has not claimed any deduction under section 80 IA of the Act for the simple reason that it has offered the income under the provisions of MAT. As such the assessee has declared NIL income under normal computation of income. Thus, there was no occasion for the assessee to claim the deduction in the return of income under section 80IA of the Act. As such, the issue of claiming the deduction under section 80IA of the Act has come on the surface once the AO has made the disallowance of various expenses while computing the income under normal computation of income in the assessment framed under section 143(3) of the Act.

34.1 However, the authorities below have denied the benefit of deduction to the assessee on the reasoning that such deduction was not claimed in the return of income. In doing so, the revenue authorities have referred the judgement of

Hon’ble Supreme Court in the case of Goezte India Ltd reported in 284 ITR 323. The relevant extract of the judgement is under:

4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authoсty and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs.

34.2 On perusal of the above judgement, there remains no ambiguity to the fact that it is the only AO who has no power under the statute to entertain a claim of deduction otherwise than by filing a revised return. However, there is no restriction on the power of the CIT(A) and ITAT being quasi-judicial authority. Thus, we are of the view that the learned CIT(A) should have accepted the claim of the assessee by extending the benefit of deduction envisaged under the provisions of section 80IA of the Act. Accordingly, we set aside the finding of the learned CIT(A) and direct the AO allow the deduction to the assessee under section 80IA of the Act as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed.

35. The assessee, vide applications dated 26-03-2019, 02-03-2020 and 15-02- 2021 pleaded before us for the admission of the additional grounds of appeal which read as under:

Additional ground of appeal vide letter dated 26-03-2019

In law and in facts and circumstances of the Appellant’s case on an alternate plea, if the addition on account of provision for doubtful advances of Rs.48,96,52,916/- is confirmed, in part or full, for Asst. Year 2006-07, then the said claim should be allowed in the Asst year 2010-11 when advances were actually written off.

Additional ground of appeal vide letter dated 02-03-2020

In law and in facts and circumstances of the Appellant’s case sales tax benefit of Rs.92,63,80,395/- should be excluded from the book profit u/s. 115JB of the I.T. Act.

Additional ground of appeal vide letter dated 15-02-2021

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess(education cess) paid on incme tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, (‘the Act’) while computing the taxable income.

The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

36. At the outset, we note that the additional ground of appeal raised by the assessee vide letter dated 15-02-202 1 involving the issue of deduction of CESS has not been pressed by the learned AR for the assessee. Therefore, the same is dismissed as being not pressed.

37. Coming to the additional ground of appeal raised vide letter dated 26-03- 2019 and 02-03-2020, it was pleaded by the assessee in the application filed for the admission of the additional ground that the issues raised in the additional grounds of appeal are legal in nature and go to the root of the matter. The necessary facts qua such legal grounds are already available on record as they are arising from the order of authorities below. Accordingly, it was prayed by the learned AR for the assessee that the same should be admitted for adjudication.

38. On the other hand, the learned DR opposed admitting the additional grounds of appeal on the reasoning that they were not raised before the authorities below.

39. We have heard both the parties and perused the materials available on record. The Hon’ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT reported in 229 ITR 383 has held as under:-

“ Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier.

39.1 From the above, it is transpired that the view that the Tribunal is confined only to those issues arising out of the appeal before Commissioner (Appeals) is too narrow a view to describe the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from the facts which were on record during the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. Since, the claim of the assessee is purely legal claim and entire facts are available on record, thus, it is not justified in not admitting the purely legal ground raised by the assessee for the first time. Accordingly, we admit the additional grounds raised by the assessee.

40. As far as the issue of exclusion of sales tax benefit of Rs. 92,63,70,395/- from the computation of minimum alternate tax under the provisions of section 115JB is concerned, we note that the AO while assessing the income under normal provisions of the Act treated the benefit of sale tax exemption as revenue receipt and added to the total income of the assessee. On appeal by the assessee, the learned CIT(A) held the same as capital receipt not liable to be taxed under the Act. On second appeal by the Revenue before us in ITA No. 685/AHD/2014, we have confirmed the order of the learned CIT(A) vide paragraph no. 62 of this order i.e. impugned sales tax benefit are in the nature of capital receipt not liable to tax. Thus, the question arises that a receipt which is not taxable under the normal provision of the Act can be made subject to tax under the scheme of MAT as provided under section 115JB of the Act. The question has been answered by the Hon’ble Calcutta High Court in the case of CIT vs. Ankit Metal & Power Ltd reported in 109 taxmann.com 93 wherein the Hon’ble bench held that once any receipt which is not income under the provision of section 2(24) of the Act i.e. not liable to be tax then such receipt cannot be included in the book profit under section 115JB of the Act. The relevant observation of the Hon’ble Court is extracted as under:

27. In this case since we have already held that in relevant assessment year 2010-11 the incentives ‘Interest subsidy’ and ‘Power subsidy’ is a ‘capital receipt’ and does not fall within the definition of ‘Income’ under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961.

40.1 In view of the above, respectfully following the ratio laid down by the Hon’ble Calcutta High Court in the case discussed above, we hereby direct the AO to exclude the sales tax benefit from the computation of book profit under section 115JB of the Act. Thus, the additional ground of appeal of the assessee vide letter dated 02-03-2020 is hereby allowed.

41. Coming to the issue raised by the assessee vide additional ground appeal filed vide letter dated 26-03-2019. The assessee vide impugned additional ground of appeal pleaded the bench that if claim of provision for doubtful advance for Rs. 48,96,52,916/- is not allowed then such claim should be allowed in the A.Y. 2010- 11 in which the same was written off. In this regard we note that the issue of allowance of deduction of impugned provision for doubtful advance has been raised by the assessee vide ground no-4 of this appeal and we while adjudicating the same, have considered the plea of the learned AR for the assessee and given direction that the claim of the assessee should be allowed in A.Y. 2010-11 subject to the verification. Hence, the issue raised by additional ground of appeal become infructuous and we accordingly dismiss the same.

Coming to ITA No. 685/Ahd/2014, an appeal by the Revenue for AY 2006-07

43. The Revenue has raised following grounds of appeal:

i) The CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 15,71,96,4288/- on account of Disallowance of interest expenses on DDEs .

ii) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 8,79,65,829/- on account of Interest written back in books of account on DDBs.

iii) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 99,19,95,360/- on account of Sales tax benefit,

iv) The CIT(A) has further erred in law and on facts in deleting the addition of Rs.209,41,67,551/- on account of Set off of losses and depreciation of demerged undertaking of Sachana division of Core Healthcare Ltd.

v) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 17,69,286/- on account of disallowance of expenses u/s.37(1) of I.T Act.

vi) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 66,37,143/- on account of Disallowance of transportation charges paid to GAS Authoсty of India of u/s 40 (a) (ia) of Income -tax Act.

(vii) The CIT(A) has further erred in law and on facts in deleting the addition-of
Rs. 11,68,377/- on account of Depreciation on Heavy Vehicles.

(ix) On the facts end circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

(x) It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

44. The first issue raised by the Revenue vide ground No. 1 of its appeal is that the learned CIT(A) erred in deleting the disallowances of interest expenses of Rs. 15,71,96,428/- on deep discount bonds (DDBs).

45. The necessary facts are that the assessee has issued different series of deep discount bonds (DDBs) in earlier years which were having the maturity date in the subsequent years. The assessee was claiming the interest/discount (being difference between the price of the bonds when allotted and the price at which same will be redeemed on maturity) on pro rata basis. Accordingly, the assessee in the year under consideration also claimed interest expenses of Rs. 15,71,96,428/- only. However, the AO disallowed the same for the following reasons:

i. The assessee company is cash rich company and still collecting fund by issuing DDBs to the related persons and claiming the losses/ expenses which is nothing but tax saving device and the same is not permissible in the light of the judgment of Hon’ble Gujarat High Court in case of Shri Shankarlal Balabhai reported in 69 ITR 186 which was also approved by the Hon’ble Supreme Court in case of Mcdowell & Co. Ltd reported in 154 ITR 148

ii. On conjoint reading of provision of section 36(1)(iii) & (iiia), section 2(48) & (47), section 112(1) and section 194A of the Act, it can be seen that deduction of interest/discount on zero coupon bond on pro rata basis (i.e. during the life of the bond) can be allowed to specified assessee being Infrastructure companies/fund/PSU for the bonds issued after 01-06-2005 as revenue expense, otherwise the same should be treated as capital gain loss on maturity date. However, the assessee company is neither an infrastructure company/fund/PSU nor the bonds were issued after 01-06-2005.

iii. The date of redemption, liability to incur cost (being interest/discount/premium) is not certain in a situation where the assessee buys back the bonds before the maturity. Therefore, no cost can be determined before the maturity period.

iv. As per the provisions of section 193 of the Act, if the assessee claims any interest on securities on an accrual basis, then the TDS should be deducted on such debiting of interest. However, the assessee has not deducted TDS on the same.

45.1 In view of the above, the AO disallowed the interest expense of Rs. 15,71,96,428/- on deep discount bonds (DDBs) and added to the total income of the assessee.

46. On appeal by the assessee, the learned CIT(A) deleted the disallowance made by the AO by following the order of this Tribunal in the own case of the assessee for AY 2002-03. The relevant finding of the learned CIT(A) reads as under:

3.3 On verification of case records, it has been observed that this issue has been decided by Hon. ITAT, Bench: “A1, Ahmedabad in the case of appellant in the combined appellate order vide ITA . No. 1245/Ahd/2006 dtd. 13th July, 2009 for Asst.Year: 2002-03. ITAT discussed this issue in details in para 4 to 26 of the order. The concluding para 26 of the aforesaid order is reproduced for ready reference.

“26. Having held that the assessee is entitled to proportionately claim the expenditure towards discount/interest on the DDBs on accrual basis in the year under appeal., we direct the AO to correctly work out the amount of deduction to the extent it relates to the year under appeal. In view of the foregoing, ground no.3 taken by the assessee is allowed subject to the aforesaid observations.”

3.4 Following the above ITAT order in the case of appellant for A.Y. 2002-03 I hold that the appellant is entitled to pro rata interest expenditure pertaining to current A.Y. 2006-07. The A.O is directed to allow the pro-rata interest expenditure after necessary verification. The second ground of appeal is allowed accordingly.

47. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

48. The learned DR before us vehemently supported the order of the AO.

49. On the other hand, the learned AR before us contended that the issue on hand is covered in favour of the assessee by the order this tribunal in its own case for the AYs 2002-03 to 2004-05. The ld. AR vehemently supported the order of the ld. CIT-A.

50. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the issue on hand is covered in favour of the assessee by the order of this tribunal in its own case of the assessee for A.Y. 2002-03 bearing ITA No. 1245/AHD/2006. The relevant finding of the coordinate bench of this Tribunal is extracted as under:

16. We have carefully considered the rival submissions. The short issue is whether the amount of difference between the issue price and par value/deemed face value of DDBs, which has been treated as interest by the assessee as well as by the Department, is liable to be allowed. The case of the Department for making the impugned disallowance is that the expenditure has not accrued in the year under appeal and that it would accrue only at the time of maturity of the DDBS. The case of the asessee, on the other hand, is that the impugned expenditure deserves to be allowed on proportionate basis in the year under appeal for the reason that it not only relates to the year under appeal but has also been incurred in the year under appeal for the purposes of the business and therefore it should be allowed as deduction. Let us consider the issue first from the accounting point of view and then from the legal point of view.

17. It is not at all in dispute that the assessee maintains its accounts on accrual basis; rather the Companies Act mandates the assessee to do so. Accrual basis of accounting (also referred to as mercantile basis) is the method of recording transactions by which revenues, costs, assets and liabilities are recognised in the accounts in the period in which they accrue, i.e., when transactions occur rather than when they are settled by receipt or payment in cash. This results in matching the accomplishments (i.e., revenues) with the efforts (ie., costs) in a given period. Therefore, two essential features of accrual basis of accounting are: (a) Revenues are recognized as they are earned; and (b) For determining the periodic income, costs are matched against revenues so recognised or against the time period to which they relate. The matching concept is thus an integral part of accrual accounting. In fact, they are often used interchangeably. The matching concept requires proper allocation of costs into appropсate periods so that relevant incomes and expenses are matched to work out the correct profits in a given accounting period. This view is well fortified by the judgment in Taparia Tools Ltd., 260 ITR 102, 116 (Bom.) in which the Hon ‘ble High… Cot has explained the matching concept thus:

“’….Therefore, under the mercantile system of accounting, in order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed (expenses). Under the mercantile system of accounting, this matching is required to be done on accrual basis. Under this matching concept, revenue and income earned during an accounting period irrespective of actual cash in-flow is to be compared with expenses incurred during the same period irrespective of actual out-flow of cash.”

18. to the provisions of section 145(2), the Central Government has notified Accounting Stapdards to be followed for income-tax purposes. According to Paragraph 6(b) of the aforesaid Notification, “Accrual” refers to the “assumption that revenues and costs are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the period to which they relate.” The aforesaid definition has now statutory force and therefore has to be followed. According to the said definition, two conditions must be satisfied to constitute “Accrual”. They are: (1) the revenues and costs are required tribe recognized as they are earned or incurred (and not as money is received or paid); and (ii) the revenues and costs so recognized must be recorded in the financial statements of the periods to which they relate. Thus mere incurrence of liability or cost is not sufficient. The incurrence of liability/cost should be recognized and recorded in the financial statements of the periods to which they relate. The thrust of the aforesaid definition is also on the determination of periodic revenues and costs in order to correctly work out the profits in a given accounting period for income tax purposes.

19. The focus of accounting principles and practices as well as the income-tax law is to ensure that only correct or real profits are worked out in a given accounting period, i.e., previous year and brought to tax. In other words, both the revenues and cost OF LAks to achieve the same object. Section 28 taxes the profits and gains of the must match and re/ate to the accounting period. Section 28 of the Income-tax Act a/ LAW Pess or piofession of the previous year, e.g., accounting period which, substance, requires matching the accomp/ishments (ie., revenues), with efforts (ie, expenses incurred) in a given accounting period. Both the revenues as well as costs/expenses re/ating to a particu/ar year must be accounted for in that year itse/f to arrive at the correct or rea/ pmfits. There is a p/ethora of authorities, e.g., Kedarnath Jute Manufacturing Co. Ltd. v. CIT, 82 ITR 363 (SC) and Madeva Upendra Sinai v. Union of India, 98 JTR 209 (SC), etc., for the proposition that the profits assessab/e under section must be rea/ profits to be ascertained on ordinaiyprincio/es of trading and commerda/ accounting. If the assessee is under a /iabi/ity or /iabi/ity has been incurred in re/ation to a given period or is bound to make a certain payment fmm me gross profits, the profits and gains can on/y be the net amount after the said /iabi/ity or amount is deducted from the gross profits or mce,ts.

20. It is evident on bare perusa/ of the Infomiation Memorandum of both the series of DDBS that the /iabi/ity towards discount or interest was incurred in that vely year in which the DDBS were issued. The assessee was contractually bound to discharge it at the time of maturity of DDBS. The assessee had no e/ement of discretion in this beha/f By Lcsuing the debentures at a discount, me assessee-company incurred the ilabi/ity in the year of issue of debentures to pay the discount at the time of maturity but such payment was to secure the benefit over a number of years. And therefore such /iabi/ity was not to be allowed in its entirety in the year of Lcsue of DDBS as the entire /iabi/ity did not re/ate to that year. Here comes the re/evance of matching pñnao/e. Since there was a continuing benefit to me business of the assessee over the entire period, the ilabi/ity was required to be spread over the entire period of the DDB5. Besides, there is no dispute that the funds boirowed through DDB5 were used for the purposes of the business in the year under appea/ and hence the expenses, e.g., discount/interest, etc, re/ating thereto wou/d deserve to be accounted for in and allocated to the year under appea/ on pro-rata basis. Tested on the aforesaid princio/es, the assessee is entit/ed to succeed in its daim as the discount/interest worked out on proportionate basis not on/y re/ated to the accounting period under appea/ but was a/so incurred to achieve the accomp/ishments, L. e., the profits of the year under appea/. The mere fact that the impugned /iabi/ity was to be discharged at the time of maturity/redemption of DDBS will not defeat the daim of the assessee as the factum of actua/ payment is irre/evant in dedding upon the daim under the accrua/ system of accounting

21. Now /et us turn to the spedfic provisions of /aw governing the daim. The focus Section 37 of the Income-tax Act is to allow deduction in respect of any expenditure t being (i) expenditure of me nature described in sections 30 to 36 (ii) persona/expenditure or (ii) capita/expenditure) /aid out or expended wholly and exdusive/y for the purposes of the business. It is we//-estab/ished princio/e of /aw that the daim of the assessee is /iab/e to be allowed if it satisfies all the ingredients of the section which APPELLATE allows me deduction. The judgment in Madras Industria/ Investment Corporation, 225 ITR 802 (SC) comprehensive/y examines all the aforesaid aspects of the case and /ays down the pñncio/es governing such daims. In that case, the assessee had issued. debentures at a discount on 10th December 1966, redeemab/e after 12 years. The issue price of debenture of /Zs 100/- was Rc.98. The tota/ amount of discount on the entire icsue was 1cs.3 /akhs while the pro-rata discount, £ e., the proportionate amount of discount for the period of sA months ending with June 30, 1967 was /Zs 12,500/-, taking the period of 12 years which was the period of redemption and dMding the tota/ amount of discount by 12 years. Re/evant propositions /aid down by the Hon ‘b/e Supreme Couit in the aforesaid judgment can be summed up as under:

(i) When a company icsues debentures at a diccount, it incurs a /iabi/ity to pay a amount than what it has borrowed, at a future date. The /iabi/ity to pay the discounted amount over and above amount received for the debentures is a liability which has been incurred by the company for the purposes of its business in order to generate funds for its business activities. The amounts so obtained by issue of debentures are used by the company for the purposes of its business. This would therefore be expenditure.

(ii) The Hon’ble Supreme Court cited, with approval, the observations made in India Cements Ltd., 60 ITR 52 (SC), that (a) the loan obtained is not an asset or advantage of an enduring nature; (b) the expenditure was made for securing the use of money for a certain period; and (c) it irrelevant to consider the object with which the loan was obtained.

(iii) By Issuing the debentures at a discount, the assessee incurs the liability to pay the discount in the year of issue of debentures but such payment is to secure a benefit over a number of years. Since there is a continuing benefit to the business of the assessee over the entire period, the liability should be spread over the period of the debentures.

22. The factual matrix of the case before us is almost identical with the one in Madras Industrial Investment Corporation Ltd. (supra). In this view of the matter, the law as laid down in the aforesaid judgment would squarely cover the issue involved in the case before us as well. In the case before us, the assessee has issued DDBS at a price lower than their par value/deemed face value, i.e., the value at which they were required to be redeemed upon expiry of redemption period. The liability towards proportionate discount incurred by the assessee was a liability not only in praesenti although it was payable in future but also related to the accounting period under appeal. Besides, it was not only quantifiable but was also actually quantified by the assessee, which has not been disputed by the Department. The matching principle of accounting also requires that the expenditure relatable to a particular year must be allocated to that year otherwise it would lead to distortion in profits. The assessee is therefore entitled to the deduction of proportionate amount of discount in the year under appeal in terms of the principles laid down in the aforesaid judgment and for the reasons aforesaid.

23. Section 36(1)(i) deals with the deductibility of interest on capital borrowed for the purposes of the business. The only condition required to be satisfied for claiming the deduction u/s 36(1)(iii) is that the claim of interest should be with reference to the capital borrowed for the purposes of the business. As already stated earlier, there is not even an allegation by the Department that the capital was not borrowed for the purposes of the business. Therefore the claim of the assessee, which remains uncontroverted by the Department, that the capital was borrowed for the purposes of the business has to be accepted and is accordingly accepted. Since the liability incurred by the assessee towards interest is with reference to the borrowed capital utilized for the purposes of its business in the year under appeal and also that it relates to the year under appeal, the assessee, in our view, is entitled to succeed in its claim for deduction on pro-rata basis. We hold accordingly.

FLAWpective orders for denying the deduction claimed by the assessee. These are:

The AO and the learned CIT(A) have made various other observations in their respect6ive orders for denying the deduction claimed by the assessee. These are

(i) The assessee-company is a cash-сch company;

(ii) There was no need to raise the funds through DDBS;

(iii) The investors in the DDBS belong to the same group to which the assessee belongs;

(iv) The investors in DDBS have not offered corresponding income to tax in their respective hands;

(v) Since the assessee did not deduct the tax at source in terms of section 193, it could not be allowed to claim deduction on account of interest liability;

(vi) Insertion of Clause (illa) in section 36 made it abundantly clear that “pro- rata discount could be allowed in respect of Zero Coupon Bonds alone issued by an infrastructure capital company or infrastructure capital fund or public sector company after 1.6.2005 and therefore such a concession could not be extended in respect of earlier assessment years and that too to the assessee-company which was neither an infrastructure company nor a public sector company;

(vii) The device adopted by the assessee was a tax avoidance device and therefore such device was to be ignored.

25. It is submitted on behalf of the assessee that all the aforesaid observations have no direct bearing on the issue and therefore are not relevant in deciding upon the claim of the assessee under section 36(1)(ii)/37 of the Income-tax. We are in agreement with the aforesaid submissions. In our view, the assessee is entitled to succeed in its claim for deduction under section 36(1)(ii)/37 so long as he fulfils all the conditions prescribed therein. We have already held earlier that the assessee not only satisfies all the conditions stipulated by the aforesaid provisions but also that the case of the assessee is covered by the principles laid down by the Hon ‘ble Supreme Court in Madras Industrial Investment Corporation (supra).

26. Having held that the assessee is entitled to proportionately claim the expenditure discount/interest on the DDBS on accrual basis in the year under appeal, we direct the AO to correctly work out the amount of deduction to the extent it relates to the year under appeal. In view of the foregoing, ground no.3 taken by the assessee is allowed subject to the aforesaid observations.

50.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before us, no material was placed on record to point out any distinguishing feature in the facts of the case of earlier A.Y and the year under consideration. Thus, respectfully following the order of the tribunal in the own case of the assessee as discussed above, we do not find any reason to interfere in the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.

51. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of interest written back in the books on repurchase of DDBs for Rs. 8,79,65,829/- only.

52. The AO during the assessment proceedings found that the assessee in the y.ear under consideration has made buyback of 175 DDB on which it incurred actual discount/premium of Rs. 34.06 crores whereas the assessee against such bonds has already claimed interest expenses on accrual basis for Rs. 42.86 crores leading to difference of Rs. 8,79,65,829/- which was written back in the books. However, the assessee has not offered the same to tax in the return filed for the year under consideration since interest/discount claimed for Rs. 42.86 crore in the earlier year on accrual basis was disallowed by the AO. However, the AO found that the order of the AO for earlier year has been reversed by the ld. CIT(A) and the matter is pending before higher authority. Therefore, the AO added the same to the total income of the assessee on protective basis subject to outcome of identical issue pending before higher authority.

53. On appeal by the assessee, the learned CIT(A) allowed the ground of appeal of the assessee subject to verification. The relevant finding of the learned CIT(A) is extracted as under:

5.3 This issue is also covered by the order of Hon.lTAT, Bench: A, Ahmedabadjor A.Yrs,.2002-03 and.2004-05 dtd. 13th July, 2009. The relevant portion of the order passed by Hon. ‘lTAT is reproduced for immediate reference.

“26. Having held that the assesses is entitled to proportionately claim the expenditure towards discount/interest on the DDBs on accrual basis in the year under appeal, we direct the AO to correctly work out the amount of deduction to the extent it relates to the year under appeal. In view of the foregoing, ground no.3 taken by the assessee is allowed subject to the aforesaid observations.”

5.4 As per the direction of Hon’ble ITAT the interest on DDBs has been allowed in the earlier year on accrual basis. The write back of excess provision was on the basis of the accounting practice of the appellant. Since out of 400 DDBs, 175 DDBs were ,; repurchased by the appellant, A.O. is directed to verify, if the interest I allowed till purchase on 175 DDBs has exceeded the consideration paid while repurchase, towards interest, then the same would be added to the income for the year. Otherwise appellant succeeds. The ground of appeal is accordingly decided.

54. Being aggrieved order of the learned CIT(A), the Revenue is in appea before us.

56. On the other hand, the learned AR before us reiterated that there is no ambiguity in the direction of the ld. CIT-A. As such the ground of the assessee was allowed by the ld. CIT-A after necessary verification. The learned AR before us vehemently supported the order of the ld. CIT-A.

57. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee in the earlier assessment year claimed interest expenses on 400 DDB on pro-rata basis. Out of said 400 DDB the assessee bought back 175 DDB in the year under consideration. The AO alleged that interest claimed by the assessee in earlier year on pro-rata basis on impugned 175 DDB was in excessive for Rs. 8,79,65,829/- than actual interest incurred on buyback of the same and added the same to the total income of the assessee on protective basis subject to allowances of claim made in earlier years. The assessee before the learned CIT(A) contended that interest expenses claimed in earlier years on pro-rata basis has been allowed by the ITAT. However, the AO while passing effect giving order has not allowed the excessive claim of Rs. 8,79,65,829/- only. The learned CIT(A) in view the above directed the AO to verify the fact whether interest was allowed more than actual cost, then the same should be added to the income of the year otherwise no addition is to be made. Considering the facts in totality as discussed above, we do not find any infirmity in the order of the learned CIT(A). As such, the learned CIT(A) rightly held that if claim of interest on 175 DDB allowed is more than actual interest cost incurred on buyback, then such excess interest should be added to the total income otherwise no addition is required to be made on the same if the interest claimed is not more than actual interest cost. Hence, the ground of appeal of the Revenue is hereby dismissed.

58. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO on account of sales tax benefit of Rs. 99,19,95,360/-

59. The assessee during the year received sales tax subsidy aggregating to Rs. 99,19,95,360/- for two units namely Alindrra Unit Broada and Kalatalav Unit Bhavnagar under the backward area development scheme. The impugned subsidy was treated as capital receipt by the assessee. However, the AO found that the impugned subsidy was received in the form of exemption on sales tax on sale and purchases of different products. Hence, the same is directly linked to the turnover of the assessee. Therefore, as per the AO, the same should be treated as revenue receipt. The AO further held that had impugned subsidy been for the investment in plant & machinery, then the same should have been reduced from the original cost of the plant & machinery as prescribed under explanation 10 to section 43 of the Act. The AO accordingly treated the subsidy received by the assessee as revenue receipt and added to the total income of the assessee.

60. On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO by observing as under:

6.4 It is seen that addition made on account of sales-tax subsidy treating as revenue receipt was deleted by my predecessor in the case of appellant for Asst.Year: 2008-09 vide appellate order No.CIT(A)-XI/94/Cir.5/10-11 dtd. 27th February, 2012 following the order of ITAT of appellant vide ITA No. 1245/Ahd/2006 dtd. 13-7-2009 for Asst.Year: 2002-03. Following the above orders, it is held that sales-tax subsidy may be treated as capital receipt Vide this ground, appellant originally claimed Sales-tax benefit of Rs.99,19,95,360/- . Subsequently, vide submission dtd.10th December, 2013 appellant claimed Sales-tax benefit of Rs.92,63,70,395 as per sales-tax assessment orders for F.Y. 2005-06 in respect of following two units:

(i) For Alindra unit Rs.69,74,96,294
(ii) For Kalatalav unit Rs.22 88,73.471
Total Rs.92,63,70,395

I direct the AO to allow the claim of the appellant to the extent of Rs.92,63,70,395 as against original claim made by the appellant vide this ground for Rs.99,19,95,360/- as per the order of sales-tax authorities. This ground of appeal is treated as allowed.

61. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

61.1. The learned DR before us reiterated the findings contained in the assessment order.

61.2 On the other hand, the learned AR before us submitted that issue on hand is covered in favour of the assessee by the judgment of Hon’ble Gujarat High Court in its own case bearing Tax appeal No. 226 of 2010. The learned AR before us vehemently supported the order of the ld. CIT-A.

62. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the issue on hand was also in dispute in earlier year i.e. AY 2004-05 which traveled up-to the Hon’ble Gujarat High in tax appeal No. 226 of 2010 where following question was framed:

2. The question of law framed at the time of admitting Tax Appeal No.226 of 2010 reads as under:—

“Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by CIT (A) and thereby holding that amount of Sales-tax incentive received by the assessee is a capital receipt?”

62.1 The Hon’ble bench answered the above question in favour of the assessee by holding as under:

12. We have heard both the learned counsel and perused the record. We have also gone through the decisions cited before us. After considering the material on record, we are of the view that the issues involved in these appeals are squarely covered by the decisions of this Court in Birla VXL Ltd. (supra) and in Munjal Auto Industries Ltd. (supra). Therefore, the questions of law posed for our consideration in these appeals are answered in favour of the assessee and against the department. Accordingly, all these appeals are dismissed.

62.2 Respectfully following the finding of the Hon’ble Gujarat High Court in the own case of the assessee, we do not find any reason to interfere in the finding of the learned CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed.

63. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 209,41,67,551/- made by the AO on account of setoff of losses and unabsorbed depreciation of a unit of Core Healthcare Ltd. merged with the assessee.

64. The necessary facts are that one of the units of Core Healthcare Ltd was merged with the assessee company w.e.f. from 1st April 2004 and scheme of merger was approved by the Hon’ble Gujarat High Court vide order dated 07-03- 2007. The assessee during the year in the scheme of merger claimed brought forward losses and unabsorbed depreciation of demerged unit for Rs. 209,41,67,551/- only. The assessee also made a similar claim in the immediate previous year i.e. FY. 2004-05 corresponding to AY 2005-06 which was disallowed by the AO. Following the same, the AO also disallowed the claim of losses and unabsorbed deprecation for the year under consideration.

65. On appeal by the assessee, the learned CIT(A) by following the order of his predecessor for AY 2005-06 allowed the claim of the assessee by observing as under:

The Id. CIT(A)-II, Ahmedabad vide order dtd.23-4-2009 had directed the AO to allow benefit of carry forward business loss and unabsorbed depreciation U/S.72A of the I.T. Act to the appellant company. It has been pointed by the appellant that AO has allowed the said claim to the appellant in Asst.Year: 2005-06 following the order of the Id. CIT(A)-ll, Ahmedabad by passing appeal effect order of CIT(A). Moreover, my predecessor while passing appellate order for Asst.Year: 2008-09 has allowed the claim to the appellant the order of Id. CIT(A)-ll. The AO was directed to allow depreciation after giving benefit of carry forward business loss and unabsorbed depreciation u/s.72A of I.T. Act in the A.Y. 2005-06 and subsequent years. Following the above appellate orders in the case of appellant, I direct the AO to allow the claim of appellant. This ground of appeal is allowed.

66. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

66.1 The learned DR before us reiterated the findings contained in the assessment order.

67. On the other hand, the learned AR before us submitted that in the immediate previous year i.e. A.Y. 2005-06, the impugned claim was made for the first time which allowed by the learned CIT(A) and order of the learned CIT(A) was also confirmed by ITAT in the appeal of revenue in ITA No. 2208/AHD/2009. Therefore, the claim of the assessee for the year under consideration should also be allowed. The learned AR before us vehemently supported the order of the ld. CIT-A.

68. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note the issue of claim of losses and unabsorbed depreciation of the unit of Core Healthcare Ltd merged with the assessee arising from AY 2005-06 where the dispute travelled to this Tribunal in ITA No. 2208/AHD/2009. The coordinate bench vide order dated 31st July 2017 decided the issue in the favour of the assessee by observing as under:

4.3 So far as disallowance of set off of losses and depreciation of Rs. 1,64,78,76,612/- in respect of Sachana Division is concerned.

The Appellant company being resulting company acquired unit at Sachana from Core Healthcare Ltd. (CHL) being the demerged company. All the assets and liabilities of Sachana Unit stands transferred to the appellant company. The Scheme was approved by Hon ‘ble High Court vide order dated 01/03/2007. The Scheme was divided into following parts.

Part-I Deals with introduction and definitions. Part-II: Deals with compromise with lenders.

Part-III: Deals with reconstruction of demerged company.

Part-IV: Deals with reorganization of share capital of resulting Part-V: company, Deals with demerger.

Part-VI: Deals with other terms and conditions applicable to the Scheme.

• The scheme of demerger was approved by board of directors and share holders of the appellant company and CHL and also was approved by lenders of CHL.

The scheme contains various clauses. This was a composite scheme whereby the liabilities of CHL got settled prior to demerger and later on Sachana Division got demerger from CHL and transferred to the appellant company.

Para-3 of the Schemes provides as under:

“COMPROMISE WITH LENDERS IN RESPECT OF LIABILITIES

As and by way of a full and final settlement with the Demerged Company in respect of the Liabilities, the Lenders have, upon the Scheme becoming effective, agreed to accept the Settlement Amount towards discharge of the liabilities as detailed in clause 7 of this Scheme. Upon the Scheme becoming effective, the above settlement shall be binding on all the Lenders with effect from the Appointed Date for Reconstruction and shall represent full and inal settlement of the liabilities.”

Para- 7.1.1 of the scheme reads as under: The Resulting Company shall, within three working days of filing of this Scheme with the Court, deposit towards payment of the Settlement Amount a sum of Rs.35 Crore (Rupees Thirty Five Crore only) in a no lien” interest bearing escrow account with ICICI Bank, Ahmedabad Branch, situated at JMC House, Opposite Parimal Garden, S.M. Road, Ahmedabad (hereinafter referred to as the “Escrow Bank’), titled “CHL Lenders’ Discharge Account”. The Resulting Company shall, within three working days of the Court according its sanction to this Scheme in each of the proceedings initiated by the Demerged Company and Resulting Company pay to the Lenders the balance/remainder of the Settlement Amount by depositing the same in the said CHL Lenders’ Discharge Account. As a condition precedent to Scheme becoming effective, the Resulting Company shall notify Arcil and the Escrow Bank, in writing that the ‘escrow’ status of the CHL Lenders’ Discharge Account shall be released. Upon such notification the ‘escow’ status of the CHL Lenders’ Discharge Account shall come to an end and the CHL Lenders’ Discharge Account shall along with the settlement Amount deposited therein forthwith and without any act, deed or instrument belong to, vest in an be operated by Arcil and the liabilities shall be deemed to be discharged. The interest accrued upto the Effective credit of and net taxes shall be paid over to the Resulting Company.”

Thus all the liabilities of the CHL were settled before the transfer of the Demerged Unit. The liabilities in respect of secured lenders of CHL got settled at Rs. 138Crore. All the conditions enumerated in section 2(19AA) of the I.T. Act provides as under:

“(19AA) “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 ( 1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that-

(i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of resulting company by virtue of the demerger;

(ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger;

(iii) the property and liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account before the demerger;

(iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis [except where the resulting company itself is a shareholder of the demerged company];

(v) the shareholders holding not less than three-fourths in value. of the shares in the demerged company (other than shares already held therein) immediately before the demerger, or by a nominee for the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets the demerged company or any undertaking thereof by the result in company.

(vi) the transfer of the undertaking is on a going concern basis;

(vii) the demerger is in accordance with the conditions, if any, notified under sub-section of section 72A by the Central Government in this behalf.”

The Scheme contains two dates namely “appointed date of reconstruction’which is 30-11- 2004 and “appointed date for demerger” which is 01-12-2004. The scheme itself is into two parts. First deals with reconstruction of CHL whereby its liabilities are settled for Rs. 138 crores. That happens 30-11- 2004. Second parts deals with demerger which to take place on 2-12-2004 Thereafter, when on the date on which demerger is take place i.e. on 01-12-2004, the liabilities of demerged hits have already been settled at Rs. 138 Crores. This is the cheme as per para 7.1.2, 7.1.3 and 7.1.4 of the scheme. The YOF LAW ELLATE TR contention of the A.O that there is no basis for reduction of liabilities or that all the liabilities have not been taken over is incorrect infact the appellant took over liabilities in relation to demerged undertaking, para-1. 10.1.5 provides as under:

“All liabilities (contingent or otherwise) pertaining to or relatable to the Demerged undertaking as appearing in the Opening Financial Statement, including:

(a) The debts, liabilities, duties and obligations of the Demerged Company, which arise out of the activities or operations of the Demerged Undertaking.

(b) Specific loans borrowings (including debentures, if any) raised, incurred and utilized solely for the activities or operations f or pertaining to the Demerged Undertaking.

(c) The liabilities (including debentures, if any) other than those referred to in sub-clause

(a) and (b) above, being the amounts of general or multipurpose borrowings of the demerged Company prior to the Appointed Date for Demerged, allocated to the Demerged Undertaking in the same proportion in which the books value of the assets transferred to the Resulting Company under this Scheme to the total value of the assets the Demerged Company on Appointed Date of Demerger.”

The liabilities were scaled down in the hands of CHL only. This is clearly mentioned in the scheme duly approved by Hon ‘ble High Court.

The accounts are duly prepared by the Management of the Company and Auditors opined about the correctness of the financial statement based on the audit. The Auditors verified the liabilities of the Demerged Undertaking which were taken over by the appellant company.

Once Hon ‘ble High Court sanctioned the scheme it binds all concerned. The settlement of debts was carried out by CHL with its lenders of Sachana Division which were taken over by the appellant company. The appellant company is not concerned in the matter of settlement due of CHL. The Rajpur Division continues

The losses were allocated in the proportion of the assets of the Demerged Undertaking.

Accounting treatment in the books of resulting company was a per Para-16 of the Scheme duly sanctioned by Hon ‘ble High Court.

Section 72(A)(4) deals with carry forward set off of demerge undertaking in the hands of resulting company which provides as under:

“(4) anything contained other provisions this Act, in the case of a demerger, the accumulated loss and t allowance for unabsorbed depreciation of the demerged compa shall-

(a) where

(b) Where such loss or unabsorbed depreciation is not dired relatable to the undertakings transferred to the resulting compa be apportioned between the demerged company and the result company in the same proportion in which the assets of undertakings have been retained by the demerged company transferred to the resulting company, and be allowed to the car forward and set off in the hands of the demerged company or resulting company, as the case may be.”

In the present case, the loss and depreciation were allo between CHL and appellant company in the same proportionin which the assets are retained by CHL and assets which have been transferred to the appellant company. Para-8 of the Scheme duly sanctioned by Hon ‘ble High Court which reads as under:

“8 CARRY FORWARD AND SET-OFF OF ACCUMULATED LOSSES AND UNABSORBED DEPRECITION ALLOWANCE UNDER SECTION 72a OF THE INCOAMETAXACT, 1961.

8.1 The Resulting Company shall be allowed to carry rward the accumulated losses and allowance for absorbed depreciation of the Demerger Company as at March 31, 2004 (upto Assessment Year 2004-05) (“Tax Losses”) in accordance with the provisions of Section 72A of the Income Tax Act, 1961. APPELLATE

8.2 In case any clause in this Scheme is in conflict with the definition ‘Demerger’ within meaning of Section 2 (19AA) of the Income-tax Ac 1961, notwithstanding what is stated elsewhere in this Scheme the relevant clause shall stand modified as to be in conformity with the said definition so as to make this Scheme eligible for benefits available under section 72A of the Income Tax Act, 1961. Provided that no such modifications shall be made/effected under this clause which may impact, affect, prejudice and impair in way whatsoever the rights of the Lenders’ to the Settlement Amount (in terms of Clause 7 of this Scheme, absolutely towards discharge of Liabilities) and the new equity shares of the Resulting Company (in terms of Clause 9.4 of this Scheme from the Resulting Company.”

In our considered opinion A.O. and the department is bound by the decision of Hon ‘ble High Court. He has to follow the directions given by the Hon ‘ble court.

The appellant Company claimed the losses to the extent of 98.28% pertaining to demerged undertaking on the basis of 72A(4)(b). Accordingly having complied all the conditions Section 2(19AA) of Income-tax Act and Scheme sanctioned by the Hon ‘ble High Court, the appellant Company is eligible to reduction on Undertaking. loss depreciation pertaining Sachana Depreciation and losses of CHL should be determined as on 31- 03- 2004 and cannot be determined as on 01-12-2004. The depreciation and losses are always to be worked out at the end of the year as per section 72A of Income Tax Act. This is also mentioned in the scheme sanctioned by Hon ‘ble High court at Para-8 of the Scheme. .

4.4 So far as directing to allow depreciation Rs.73,09,18,272/- on tangible assets on the opening w.d.v. in AO Para 7 (Page 32) and in CIT(A) Para 6.3 (Page 29). In this case, Hon ‘ble Tribunal allowed the depreciation in the case of Nirma Industсes Ltd. for the Asst. Year 2001- 02 on Rs.62.50 crores taking the cost of Rs.500 crores. Para 6.1.1 (P.B. Volume II – Page No.310 backside and 311). Thereafter, ITAT has also allowed in the Asst. Year 2004-05 in favour of the assessee. Respectfully following the decision of the Co-ordinating Bench, this Ground of the appeal is allowed.

68.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before us, no material was placed on record to point out any distinguishing feature in the facts of the case of immediate previous AY and the year under consideration. Thus, respectfully following the order of the tribunal in the own case of the assessee as discussed above, we do not find any reason to interfere in the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.

69. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of the general public utility expenses of Rs. 17,69,286/- made by the AO on the reasoning that the same was not incurred wholly and exclusively for the purpose of the business.

70. At the outset, we note that the ground raised by the Revenue has been adjudicated along with assessee’s ground of appeal in ITA No. 515/AHD/2014 for the AY 2006-07. The ground of appeal of the assessee has been decided by us vide paragraph No. 11 of this order in favour of the assessee and against the Revenue. For detailed discussion, please refer to the para of the order. Hence, the ground of appeal of the Revenue is hereby dismissed.

71. The next issue raised by the Revenue is that learned CIT(A) erred in deleting the disallowance of transportation charges for Rs. 66,37,143/- under section 40(a)(ia) of the Act.

72. The AO during the assessment proceedings found that the assessee was purchasing gas from Gas Authority of India Ltd (GAIL). In the invoice issued to the assessee, GAIL besides charging sale price also charged transportation for supply of gas to the factory of the assessee which was shown separately from purchase cost in the books by the assessee. Thus, the AO was of the view that the transportation charges paid by the assessee to the GAIL were in the nature of work contract on which tax under section 194C of the Act ought to have deducted. However, the assessee failed to deduct due taxes. Thus, the AO by invoking the provision of section 40(a)(ia) of the Act disallowed the transportation charges of Rs. 66,37,143/- and added to the total income of the assessee.

73. On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO by observing as under:

.The issue pertains to non deduction of TDS from the of Gas Authority of India Ltd. The Id. CIT(A)-X, Ahmedabad while dealing with the appeal for Asst.Years: 2004-05 to 2006-07 in the case of appellant has held that there was no requirement of deducting TDS in the appeal order No.CIT(a)-X/15,16 &17/06-07 dtd.03-01-2008. The order of Id.CIT(A) was confirmed by Hon. ITAT Bench: A. Ahmedabad in the order passed vide ITA Nos. 1072 to 1074/Ahd/2008 for Asst. Years 2004-05 to 2006-07 dtd. 22nd May, 2008. In view of the above appeal orders, I allow the claim of the appellant and direct the AO to delete the disallowance made towards transportation charges paid to Gas Authority of India Ltd. for Rs. 66,37,143/- u/s.40(a)(ia) of the I.T Act. This ground of appeal is allowed.

74. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

75. The learned DR before us vehemently supported the order of the AO by reiterating the findings contained in the assessment order.

76. On the other hand, the learned AR submitted that the transportation charges were part and parcel of the purchases and therefore the same is outside the purview of TDS. The learned AR before us vehemently supported the order of the ld. CIT-A.

77. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case arises for our adjudication whether the assessee has defaulted for not deducting TDS on the transportation expenses. Admittedly, the assessee was purchasing the natural gas from the Gas Authority of India Ltd (GAIL) which was directly supplied to the factory premises of the assessee for which the GAIL has charged separately for the transportation of such material to the place of the assessee. Finally, the payment was also made by the assessee to GAIL against the purchase of the raw material as well as the transportation charges. Thus, it is transpired that the transportation charges incurred by the assessee is part and parcel of the purchase of the material purchased. Simply, that the assessee has separately disclosed transportation charges in the books of accounts does not make it liable for the deduction of TDS under section 194C of the Act on such transportation charges. The assessee, instead of showing the amount of purchases along with the transportation charges, has shown both the cost of purchase and the transportation charge separately. But such an act of the assessee does not make it liable for the deduction of TDS under the provisions of section 194C of the Act.

77.1 The Hon’ble Gujarat High Court in the identical facts in the case of CIT(TDS) vs. Krishak Bharati Cooperative Limited reported in 27 taxmann.com 304 has held as under:

17. In our view, the agreement essentially was for purchase and sale of gas. Transportation of gas was only a part of the entire sale transaction. Laying down the pipeline and supplying gas through such pipeline were the steps in furtherance of the terms of such a contract. Clear understanding of the parties that the ownership of gas would pass on to the buyer at the delivery point would clearly show that transport of gas by the seller was a step towards execution of contract for sale of gas and there was no contract for carriage of goods. We are not unmindful of the decision of the Apex Court in case of Associated Cement Co. Ltd. (supra) wherein it was observed that Section 194C(1) does not require that a contract to carry out a work or the contract to supply labour to carry out work should be confined to “works contract.” However, in the present case we are not faced with such a situation. We only find that there was no contract between GAIL and the assessee for carriage of goods. Transportation of gas by GAIL was only in furtherance of contract of sale of gas.

18. In view of the above discussion, we are of the opinion that the Tribunal committed no error in coming to the conclusion that the case was not covered under Section I94C of the Act. It may be that the transportation component of gas was paid separately by the assessee to GAIL. Here also the transportation charges did not depend on the consumption of quantity of gas but was of fixed monthly charges to be borne by the assessee as part of the agreement between the parties. The ownership of the gas vested in GAIL till it was transported and delivered to the assessee’s premises at the outlet of the gas metering station. The pipeline was laid down by GAIL and was permitted to be utilized for further onward transportation of gas to other consumers.

77.2 At the same, it also pertinent to highlight that the CBDT after taking cognizance of judgment of Hon’ble Gujarat High Court in case of CIT(TDS) vs. Krishak Bharati Cooperative Limited (supra) vide circular no. 09 of 2012 dated 17- 10-2012clarified that in case of contract of supply of gas the provision of section 194C of the Act will not apply. The relevant portion of the clarification issued by CBDT vide impugned circular reads as under:

4. It is clarified that in case the Owner/Seller of the gas sells as well as transports the gas to the purchaser till the point of delivery, where the ownership of gas to the purchaser is simultaneously transferred, the manner of raising the sale bill (whether the transportation charges are embedded in the cost of gas or shown separately) does not alter the basic nature of such contract which remains essentially a ‘contract for sale’ and not a ‘works contract’ as envisaged in section 194C of the Act. Hence in such circumstances, provisions of Chapter XVII-B of the Act are not applicable on the component of Gas Transportation Charges paid by the purchaser to the Owner/Seller of the gas. The use of different modes of transportation of gas by Owner/Seller will not alter the position.

77.3 Thus in view of the above discussion, we hereby hold that transportation charges paid by the assessee to the GAIL is not in the nature of work contract for the purpose of section 194C of the Act, therefore no default committed by the assessee. Hence the ground of appeal of the revenue is hereby dismissed.

78. The last issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of depreciation on heavy vehicles for Rs. 11,68,377/- only.

79. The AO during the assessment proceedings noticed that the assessee in the block of assets has shown addition of heavy vehicles for Rs. 77,89,177/- which were put to use as on 31st March 2006. The assessee claimed depreciation on the same for half year. However, the AO found that the assessee failed to prove that the vehicles were put to use as on 31st March 2006. Hence, the AO disallowed the depreciation on the same for Rs. 11,68,377/- and added to the total income of the assessee.

80. On appeal by the assessee, the learned CIT(A) deleted the disallowance made by the AO by observing as under:

I have carefully considered rival contentions. It is seen that the trucks purchases by the appellant were second-hand and were therefore ready for use. They were also registered in the name of the appellant. I do not doubt the claim of the use of these trucks since they were also registered in the name of the appellant. Disallowance of depreciation of Rs. 11,68,377/- on these truck by A.O is deleted and 12 the ground of appeal is allowed.

81. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

82. The learned DR before us reiterated the findings contained in the assessment order by supporting the order of the AO.

83. On the other hand, the learned AR before us submitted that vehicles in dispute were ready to use as on 31 March 2006 and therefore the assessee cannot be denied the benefit of the depreciation for the year under consideration. The learned AR before us vehemently supported the order of the ld. CIT-A.

84. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee purchased secondhand trucks and claimed to have put to use on 31st March 2006. However, the AO held that no evidence of put to use as on 31st March 2006 was furnished and accordingly disallowed the deprecation claimed on same. On appeal by the assessee, the learned CIT(A) was pleased to allow the claim of the assessee.

84.1 In this regard, we note that the assessee purchased secondhand trucks from Ashok Leyland Fin. Ltd and this fact can be verified from the vehicle registration form placed on pages 158 to 162 of the paper book. Thus, it is transpired that the impugned truck was ready to use on the date of purchase i.e. 31st March 2006. The only concern of the AO was with regard to put to use. As such, there is no dispute with regard to date of purchase of such truck. Therefore, we can safely assume that the truck was put to use on the date of purchase as claimed by the assessee. It is also pertinent to highlight that there is no reason or material brought by the AO to disbelief the version of the assessee that truck was not put to use on the date of purchase i.e. 31st March 2006. Hence, we do not find any reason to interfere in the finding of the learned CIT-A. Accordingly, the ground of appeal of the revenue is hereby dismissed.

85. In the result, the appeal of the Revenue is hereby dismissed.

Coming to ITA No. 1744/AHD/2016 an appeal by the Revenue for A.Y.  2006-07

86. The only issue raised by the Revenue is that the learned CIT(A) erred in deleting the penalty levied for Rs. 21,02,00,000/- under the provisions of section 271(1)(c) of the Act.

87. The AO in the assessment order made various additions/disallowances and against such addition/disallowances, initiated penalty proceeding under section 271(1)(C) of the Act. Finally, the AO vide penalty order dated 26-03-2015 levied penalty of Rs. 21,02,00,000/- against the following additions/disallowances:

1. General Public utility Expenses Rs. 30,07,849/-
2. Bad debt written off Rs. 11,66,51,168/-
3. Claim of Provision for Doubtful debt Rs. 48,96,52,916/-
4. Prior Period Income Rs. 1,17,56,630/-

87.1 On appeal by the assessee, the ld. CIT-A was pleased to delete the penalty levied by the AO under section 271(1)(c) of the Act.

87.2 Being aggrieved by the order of the ld. CIT-A, the revenue is in appea before us.

87.3 Both the ld. DR and AR before us vehemently supported the order of the authorities below as favorable to them.

88. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that against the first two quantum additions/disallowances, the assessee is in appeal before us in ITA No. 515/AHD/2014 where the quantum additions have been deleted by us vide paragraphs nos. 11 and 19 of this order.

88.1 Thus, from the above there remains no ambiguity that the first two additions/disallowances being General Public Utility Expenses and Bad Debt Written Off based on which the penalty was levied upon the assessee by the AO has ceased to exist. In other words, the quantum additions made by the AO and confirmed by the learned CIT(A) were deleted by the us. Thus, the question of concealment of income or furnishing inaccurate particular of income does not arise and therefore the penalty cannot be sustained. Under the provisions of section 271(1)(c) of the Act, the amount of penalty has been specified which shall not be less than hundred percent of the amount of tax sought to be evaded subject to the maximum limit of 300% of such amount. Under explanation 4 to section 271(1)(c) of the Act, the manner for quantifying the amount of tax sought to be evaded has been specified which has direct nexus with the additions/ disallowances made during the quantum proceedings. Therefore, when the quantum additions/disallowances have been deleted, then the manner of quantifying the amount of penalty under explanation 4 to section 271(1)(c) of the Act as discussed above fails. Accordingly, we are of the view that that there cannot be any penalty with respect to the quantum additions which have been deleted by us.

88.2 Coming to penalty against the disallowances of claim of provision for doubtful advance of Rs. 48,96,52,916/-. In this regard, we note that the assessee against the impugned quantum additions/disallowance is in appeal before us in ITA No. 515/AHD/2014. The quantum appeal of the assessee has been adjudicated by us vide paragraph 20 to 26 of this order where we have found that the assessee is engaged in the business of moneylending and eligible to claim the deduction in case such loan or advances become bad. However, we confirmed the disallowances merely because amount of bad debt was not written off as irrecoverable in the books of account for the year under consideration. We further noted that the amount was actually written off in the A.Y. 2010-11 and accordingly given the direction that the claim of the assessee should be allowed in A.Y. 2010-11. Thus, it is transpired that the claim made by the assessee was neither amounting to furnishing inaccurate particular of income nor the concealment of income. As such, it is the case of claim of the assessee which was not allowable in the year under consideration. To levy the penalty under section 271(1)(c) of the Act there should exist inaccurate claim made with bad intention. Merely certain additions made to the total income will not ipso facto empower the revenue authority to levy penalty under section 271(1)(c) of the Act. Therefore, in our considered view no penalty under section 271(1)(c) of the can be levied on account of disallowances of impugned claim of provision for doubtful debt.

88.3 Coming to the issue of levy of penalty on addition of prior period income for Rs. 1,17,56,630/-. In this regard there was prior period income of Rs. 58,78,315/- but the assessee in the revised return of income inadvertently has shown the same as prior period expenses. However, the assessee during the assessment proceedings admitted the mistake stating that the income was inadvertently treated as an expense. Accordingly, the AO made addition of Rs. 1,17,56,630 to the total income of the assessee which was not contested by the assessee either at the time of assessment proceeding neither before the appellate authority.

88.4 From the above, it is transpired that there was bona fide mistake committed by the assessee which was duly admitted before the AO. It is settled position of law that quantum proceedings and the penalty proceeding are different. Any addition or disallowances made under quantum proceeding do not ipso facto empower the revenue authority to levy penalty under section 271(1)(c) of the Act. In the penalty proceeding it has to be proved by the revenue based on cogent material that the assessee has either concealed income or furnished inaccurate particulars of income. In holding so we draw support and guidance from the judgment of Hon’ble Supreme Court in case Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 wherein it was held as under:

If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.

88.5 As such revenue authority has to prove based on cogent material that the assessee has concealed income willfully with mala fide intention. There is no such finding of the Revenue authority in the penalty proceedings. In the case on hand there is no material on record suggesting that the assessee willfully or with wrong intention furnished inaccurate particulars of income. As such it is a mere case of bona fide mistake committed by the assessee while filing revised return of income which he duly admitted. Thus, in our considered opinion, no penalty should be levied for impugned addition made in the quantum proceeding.

88.6 In view of the above detailed discussion, we hereby uphold the finding of learned CIT(A) and direct the AO to delete the penalty levied by him. Hence, the ground of appeal of the Revenue is hereby dismissed.

88.7. In the result, the appeal of the Revenue is hereby dismissed.

Coming to ITA No. 516/AHD/2014, an appeal by the assessee for AY 2007-08

89. The assessee has raised following grounds of appeal:

1) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in the points of law and facts.

2) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of expenses Rs.6,52,637 u/s.37(l)ofI.T.Act

3) In law and in facts and circumstances of the Appellant’s case, the learned C1T(A)
has grossly erred in confirming disallowance Rs.6,749 u/s. 14A of Income-tax Act.

4) In law. and ,in. facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance Rs.11,66,51,168. The same was claimed in earlier Asst.Year: 2006-07 and alternatively in current Asst.Year.

5) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding charging interest u/s.234B of I.T. Act.

6) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding charging interest u/s.234D of I.T. Act.

7) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding withdrawing interest U/S.244A of I.T. Act.

8) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding initiation of penalty proceedings u/s.271(l)(c) of I.T. Act.

9) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing additional ground regarding allowances of deduction u/s.80IA of I.T Act on the profit of the power project.

10) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time.

90. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of general public utility expenses for Rs. 6,52,637/- under section 37(1) of the Act.

90.1. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2007-08 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2007- 08. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2007-08. Hence, the ground of appeals filed by the assessee is hereby allowed.

91. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of Rs. 6,759/- under section 14A of the Act.

91.1 The AO in the assessment order disallowed an amount of Rs. 6,749/- under the provisions of section 14A as per the working provided by the assessee. Against the addition made by the AO, the assessee preferred an appeal before the learned CIT(A). However, the learned CIT(A) found that the issue was not pressed during the appellate proceeding. Hence the same was confirmed.

92. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

93. At the outset, we note that the learned AR for the assessee before us submitted that he has been instructed by the assessee not to press the issue on hand on account of smallness of amount in dispute. Hence, the ground of appeal of the assessee is hereby dismissed accordingly.

94. The next issue raised by the assessee vide ground No. 4 of its appeal is that the learned CIT(A) erred in confirming the disallowance of bad debt of Rs. 11,66,51,168/- only.

95. At the outset, we note that the issue raised by the assessee in the captioned ground of appeal relates to A.Y. 2006-07 and the assessee was also in appeal for A.Y. 2006-07 before us vide ITA No. 515/AHD/2014 which we have dealt vide paragraph No. 12 to 19 of this order. Thus, the ground of appeal of the assessee for same issue which has already been dealt by us vide aforesaid para of this order is hereby dismissed as infructuous.

96. The next issue raised by the assessee vide ground Nos. 5 to 8 of its appeal are either consequential or premature to decide. Hence, the same are dismissed accordingly as infructuous.

97. The next issue raised by the assessee vide ground No. 9 of its appeal is that the learned CIT(A) erred in dismissing the additional ground raised before him for allowances of deduction under section 80IA of the Act.

98. At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2007-08 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment years 2007- 08. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 34 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment years 2007-08. Hence, the ground of appeal filed by the assessee is hereby allowed.

99. The assessee, vide application dated 02-03-2020 and 15-02-2021, has pleaded before us for admitting the additional grounds of appeal which read as under:

Additional ground vide letter dated 02-03-2020

In law and in facts and circumstances of the Appellant’s case, sales benefit of Rs.58,70,07,586/- should be excluded from the book profit u/s. 115JB of the I.T. Act.

Additional ground vide letter dated 15-02-2021

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess(education cess) paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, (‘the Act’) while computing the taxable income.

The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

100. At the outset, we note that identical additional grounds were raised by the assessee in ITA NO. 515/Ahd/2014 which were accepted by us vide paragraph

Nos. 36 to 40 of this order. Hence, following the same, the additional grounds raised in captioned appeal are also accepted.

101. At the outset, we note that the issues raised by the assessee in its additional grounds of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2007-08. The grounds of appeal of the assessee for the A.Y. 2006-07 have been decided by us vide paragraph No. 36 & 40 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2007-08. Hence, the additional grounds of appeals filed by the assessee are hereby partly allowed.

101.1 In the result, appeal of the assessee is hereby partly allowed.

Coming to ITA No. 686/Ahd/2014, an appeal by the Revenue for AY 2007-08

102. The Revenue has raised following grounds of appeal:

i) The CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 60,83,39,826/-claimed by the Assessee toward interest expenses on Deep Discount Bonds.

ii) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 9,98,90,845/- on account of Interest written back in books of account on DDBs.

iii) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 38,29,13,332/-on account of Sales tax benefit.

iv) The C1T(A) has further erred in law and on facts in deleting the addition of Rs. 237,59,10,531/-on account of Set off of losses and depreciation of demerged undertaking of Sachana division of Core Healthcare Ltd.

v) The C1T(A) has further erred in law and on facts in deleting the addition of Rs. 46,39,21,449/-on account of Depreciation on intangible assets.

vi) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 6,24,764/-on account of Disallowance of expenses u/s 37 (1) of I.T.

vii) The C1T(A) has further erred in law and on facts in deleting the addition of RS. 12,30,29,250/-on account of Benefit on settlement of loan.

vii) The CIT(A) has further erred in law and on facts in deleting the addition of Rs. 6,01,00,000/-. On account of Disallowance of liabilities transferred to capital reserve of U/s.28 (1) of the IT Act.

viii) The CIT(A) has further erred in law and on facts in deleting the addition Rs.350,71,61,552/- on account of difference between assets and liabilities in respect of demerged undertaking of Sachana which assessee had received from Core Health Ltd.

xii) On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

xi) It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-a.side and that of the Assessing Officer be restored.

103. The first issue raised by the Revenue vide ground No. 1 of its appeal is that the learned CIT(A) erred in deleting the disallowance of interest expense of Rs. 60,83,39,826/- on deep discount bonds (DDBs).

104.  At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2007-08 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2007- 08. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 50 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment years 2007-08. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

105.  The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of interest written back in books on the re-purchase of DDBs for Rs. 9,98,90,845/- only.

106.  At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2007-08 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2007- 08. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 57 of this order against the Revenue subject to verification. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2007-08. Hence, the ground of appeal filed by the Revenue is hereby dismissed subject to direction.

107. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made on sales tax benefit of Rs. 38,29,13,332/- only.

108. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2007-08 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2007- 08. The appeal of the Revenue for the A.Y. 2006-07 has been decided by us vide paragraph No. 62 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2007-08. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

109.  The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 237,59,10,531/- made by the AO on account of setoff of losses and unabsorbed depreciation of a unit of Core Healthcare Ltd. merged with the assessee.

110.  At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2007-08 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment years 2007- 08. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 68 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2007-08. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

111.  The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of depreciation on intangible assets for Rs. 46,39,21,449/- only.

112. At the outset, we note that the assessee has acquired brand/trademark in the A.Y. 2003-04 from Nirma Industries Ltd and this is 5th year of its claim. We also note that there is no dispute other than the value of brand/trademark to be adopted for the purpose of the depreciation to be allowed to the assessee. We are of the view that the value of the brand/trademark on which depreciation should be provided can only be determined in the first year itself i.e. A.Y. 2003-04 and deprecation in subsequent year should be allowed on WDV of first year onwards. We find the value of brand/trade in A.Y. 2003-04, on which depreciation should be allowed to the assessee, has been decided at Rs. 249,07,23,831/- by this ITAT in ITA No. 1599 & 1280/Ahd/2013. The relevant ground and finding of the bench read as under:

40. Ground No.5: In this ground of appeal, grievance of the Revenue is that the ld. CIT(A) has erred in law and on facts in holding that correct value of intangible assets of the Nirma Industries was Rs.500 crores and not Rs.53.43 crores as determined by the AO and in directing the AO to allow depreciation on entire written down value of Rs.2,49,07,23,831/-.

41. With the assistance of the ld. representatives, we have gone through the record carefully. Issue whether brand/trademark of Nirma would be taken at Rs.500 crores or its value is to be taken at Rs.53.43 cores considered by the AO has been disputed in the case of Nirma Industries in the Asstt.Year 2003-04. The ld.AO has made disallowance of Rs.61.8 crores out of depreciation claimed which was deleted by the ld.CIT(A). This issue has been considered by us in ITA No. 1738/Ahd/2014 at para 8 of this order. We have followed order of the ITAT in the Asstt.Year 2001-02 wherein value of intangible assets was upheld at Rs.500 crores. Thus, following order in the case of Nirma Industries, para-8 of order onwards, we are of the view that the ld.CIT(A) has rightly taken the value of intangible assets at Rs.500 crores and has rightly allowed depreciation to the assessee. There is no merit in this ground of appeal. It is rejected.

112.1 Thus, in view of the above we uphold the order of the ld. CIT-A and direct the AO to allow the depreciation to the assessee on closing WDV as decided in A.Y. 2003-04. Hence, the ground of appeal of the Revenue is hereby dismissed.

113. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowances of expenses for Rs. 6,24,764/- under section 37(1) of the Act.

114. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2007-08 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2007- 08. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 70 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2007-08. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

115. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 12,30,29,250/- by the AO for the waiver of the loan.

116. The assessee during the assessment proceedings vide letter dated 23-12- 2009 submitted that an amount of Rs. 12,30,29,250/- was credited to profit and loss account representing settlement of loan in the scheme of merger of Sachana Division of Core Healthcare Ltd. There was not claimed any deduction against such loan against the taxable income of the assessee. Therefore, the waiver of the loan cannot be made taxable under section 41 of the Act. Further, the unpaid interest on such a loan was also disallowed under section 43B of the Act. Therefore, the remission of such a loan is not taxable but the same was inadvertently included in computation of income which should be excluded.

117. However, the AO found that whatever the amount offered to tax with respect to impugned loan was offered by the Core Healthcare Ltd which is a distinct assessee. Therefore, the remission of loan liability in the hand of the assessee was correctly credited to profit and loss account as well offered to tax. Further remission of liability on account of demerger is also taxable under the provision of section 28(iv) of the Act. Accordingly, the AO rejected the claim of the assessee made by filing a letter dated 23-12-2009.

118. Aggrieved assessee preferred an appeal before the learned CIT(A) and submitted that the benefit arising on the remission of principal amount of loan liability is not taxable as there was no deduction claimed on principal amount against the taxable income.

119. The learned CIT(A) allowed the appeal of the assessee by following the decision of his predecessor in own case of the assessee for A.Y. 2008-09. The relevant finding of the learned CIT(A) reads as under:

11.4 Identical addition was deleted by my predecessor while deciding the appeal in the case of appellant for Asst. Year: 2008-09 in appeal No. CIT(A)-XI/94/Cir.5/10-11 dtd. 27- 02-2012 after considering the order of Core Healthcare Ltd. v/s. DCIT in ITA No.2543- 2547/Ahd/2007 dtd.5-6-2009 and ratio of Hon’ble Jurisdictional High Court decision in the case of CfT v/s. Chetan Chemicals Pvt.Ltd. (2004) 267 ITR 770 (Guj.) ‘Following the above orders of appellate authorities and Hon ‘ble Jurisdictional High Court, I direct the A.O. not to assess benefit on settlement of loan of s. 12,30,29,250/-. This ground of appeal is allowed.

120. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

121. The learned DR before us reiterated the findings of the AO contained in the assessment order by supporting the order of the AO.

122. On the other hand, the learned AR for the assessee submitted that the waiver of the loan was with respect to the capital account transaction and therefore the waiver of the loan represents the capital receipts in the hands of the assessee which is not chargeable to tax. The learned AR before us vehemently supported the order of the ld. CIT-A.

123. We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the case on hand relates whether the waiver of loan amounting to Rs. 12,30,29,250/- is chargeable in the hands of the assessee either under the provisions of section 28(iv) of the Act or section 41(1) of the Act. To attract the provisions of section 28(iv) of the Act there must be some benefit to the assessee in any form other than the cash arising from business or the exercise of profession. In the present case, the benefit arising to the assessee is in the form of cash, i.e., waiver of loan represents the benefit in the form of cash. The Hon’ble Supreme Court in the case of CIT vs. Mahindra and Mahindra Ltd reported in 93 taxmann.com 32 has observed as under:

On a plain reading of section 28(iv), prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of section 28(iv), the benefit which is received has to be in some other form rather than in the shape of money. In the instant case, it is a matter of record that the amount of Rs.57.74 lakhs is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of section 28(iv) which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the instant case. Hence, in no circumstances, it can be said that the amount of Rs 57.74 lakhs can be taxed under the provisions of section 28(iv).[Para 13]

123.1 From the above discussion, there remains no ambiguity to the fact that the waiver of loan cannot be made subject to tax under the provisions of section 28 (iv) of the Act.

123.2 The next aspect arises whether such waiver of loan can be brought to tax under the provisions of section 41(1) of the Act. To bring any item under the net of income in pursuance to the provisions of section 41(1) of the Act, there has to be recovery either in cash or in-kind in respect of loss, expenditure or trading liability which was allowed as deduction in any of the assessment year. Thus, first, we have to see whether the waiver of loan in the given case represents the loan for the acquisition of the capital assets or it represents the working capital loan.

Again, if the loan is capital loan, used for the purpose of the fixed assets, then the assessee cannot be made subject to tax under the provisions of section 41(1) of the Act. In holding so we draw support and guidance from the judgement of Hon’ble Supreme Court in the case of CIT vs. Mahindra and Mahindra Ltd (supra) where it was held as under:

15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it.

16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between ‘trading liability’ and ‘other liability’. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act.

123.3 However, we note that if the loan relates to the working capital loan, then the waiver of such loan represents the benefit to the assessee in respect of which the expenditure was claimed by the assessee and allowed as deduction to the assessee. Accordingly, such working capital loan has to be treated as income of the assessee within the provisions of section 41(1) of the Act. In holding so, we draw support and guidance from the judgement of Hon’ble Delhi High Court in the case of Logitronics (P) Ltd vs. CIT reported in 9 taxmann.com 302 wherein it was held as under:

23. In the context of waiver of loan amount, what follows from the reading of the aforesaid judgment is that the answer would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account, as per T.V. Sundaram Iyengar & Sons Ltd. ‘s case (supra), the waiver thereof may result in the income more so when it was transferred to Profit and Loss account.

123.4 Now coming to the case on hand, we note that the loan was taken by the Sachana Division of Core Healthcare Ltd. which has been acquired by the assessee company in the scheme of demerger. The learned CIT(A) while dealing with issue on hand found that nature of loan is identical to the nature of loan settlement entered by the assessee in A.Y. 2008-09 which was capital in nature. Thus, the learned CIT(A) held that no addition is required to be made either under section 28(iv) or under section 41(1) of the Act. The finding of learned CIT(A) has nowhere been controverted by the learned DR based on cogent material. Hence, considering the finding of learned CIT(A) that the nature of loan was for capital assets, we hold that no addition under section 41 of the Act is required to made on waiver of such capital loan.

123.5 With regards to the interest, the assessee has clearly stated before the authorities below that the assessee was not allowed the deduction of unpaid interest expenses by virtue of the provisions of section 43(B) of the Act. The relevant extract of the contention of the assessee is reproduced as under:

Interest expenditure, if any, unpaid is already disallowed u/s.43B of Income-tax Act. Hence, Rs. 12,30,29,250 credited to Profit & Loss account should not be taxed.

123.6 It is the precondition for attracting the provisions of section 41(1) of the Act that the assessee must have been allowed the deduction in respect of any expenditure, loss, or trading liability. But in the given case such condition was not complied with as far as unpaid interest is concerned and therefore, we are of the view that the assessee cannot be made subject to tax on account of waiver of interest on the loan as it was never allowed deduction to the assessee in any of the assessment year.

123.7 Thus, in view of the above discussion we do not find any reason to interfere in the finding of the learned CIT(A). Hence, the ground of appeal of the revenue is hereby dismissed.

124. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting addition of Rs. 6,01,00,000/- on account of liabilities transferred to capital account.

125. The assessee during the year under consideration, on merger of Sancha Division of Core Health Ltd, transferred the liabilities being custom duty, demurrage and detention and sales tax liabilities amounting to Rs. 6.01 crores to capital reserve. The AO held that the assessee derived benefit on account of cessation of liabilities in the process of merger/demerger which was liable to be taxed under the provision of section 28(iv) of the Act. Accordingly, the AO added the same to the total income of the assessee.

126. On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO by observing that since the expenditure on account of impugned statutory liability being custom duty and sales tax liability has not been allowed in any of earlier assessment years, therefore writing off the same would not amount to income.

127. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

128. The learned DR before us reiterated the findings of the AO contained in the assessment order by supporting the order of the AO.

129. On the other hand, the learned AR for the assessee submitted that the liabilities written back in the year under consideration were not allowed as deduction in the earlier year and therefore the same cannot be subject to tax in the year in which such liabilities were written off. The learned AR before us vehemently supported the order of the ld. CIT-A.

130. We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the case on hand relates whether the writing off the statutory liabilities being custom duty, demurrage, detention, and sales tax amounting to Rs. 6,01,00,000/- is chargeable in the hands of the assessee either under the provisions of section 28(iv) of the Act or section 41(1) of the Act.

130.1 At the outset, we note similar issue was there in the immediate previous ground of appeal of the Revenue where we hold that to attract the provisions of section 28(iv) of the Act there must be some benefit to the assessee in any form other than the cash arising from business or the exercise of profession. Writing off statutory liability is not a benefit arising in the form of kinds, rather it is in the form of money. Hence, the provisions of section 28(iv) of the Act cannot be applied.

130.2 The next aspect arises whether such writing-off of the liability can be brought to tax under the provisions of section 41(1) of the Act. To bring any item under the net of income in pursuance to the provisions of section 41(1) of the Act, there must be recovery either in cash or in-kind in respect of loss, expenditure or trading liability which was allowed as deduction in any of the assessment year. In the given case, the learned CIT(A) has given clear finding that the deduction on account of impugned statutory liability was never allowed to the assessee. Thus, the very first precondition to invoke the provision of section 41(1) of the Act is not satisfied. Therefore, we do not find any infirmity in the order of the learned CIT(A). Hence the ground of appeal of the Revenue is hereby dismissed.

131. The last issue raised by the Revenue is that the learned CIT(A) erred in deleting addition of Rs. 350,71,61,552/- on account of difference between assets and liabilities taken on merger of Sachana Division of Core Healthcare Ltd.

132. The AO during the assessment proceedings found that the assessee has created capital reserve account of ₹350,71,61,552/- only. On question by the AO, it was submitted that the difference between assets and liabilities brought on occasion of merger of one of the divisions of Core Healthcare Limited were credited to capital reserve account and such entry was passed according to the merger scheme approved by the High Court which do not represent any income liable to be tax.

132.1 However, the AO held that the assessee on one hand is claiming the losses and unabsorbed depreciation brought from scheme of merger against its profit, whereas no income has been offered in respect to the benefit arising in such scheme of merger. As such, the assessee in the scheme of merger acquired assets more than liabilities which resulted in the benefit of ₹ 350,71,61,552/- to the assessee. Accordingly, the AO added the same to the total income the assessee.

133. On appeal by the assessee, the Learned CIT-A deleted the addition made by the AO by observing as under:

14.2 I have considered the contention of the appellant and facts of the case. No benefit of the nature specified under s.28(iv) of I.T. Act has accrued to the appellant. It is merely an accounting entry passed by the appellant. Moreover, the value of the assets in the books is on the basis of Companies Act and does not indicate WDV of the assets after depreciation. The credit to capital reserve is merely to satisfy the requirements of accounting and does not bring any benefit to the appellant. The addition is not called for and is directed to be deleted. The thirteenth ground of appeal is allowed and appellant gets a relief of Rs.350,71,61,552/-.

134. The learned DR before us reiterated the findings of the AO contained in the assessment order by supporting the order of the AO.

135. On the other hand, the learned AR for the assessee submitted that the benefit arising on account of taking over of the divisions in the scheme was representing the capital account transaction and therefore the same cannot be treated as income under the provisions of section 28(iv)/ 2(24) of the Act. The learned AR before us vehemently supported the order of the ld. CIT-A.

136. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee acquired one of the divisions of M/s Core Healthcare Limited in the scheme of demerger approved by the Hon’ble Gujarat High Court. The assessee in the process of demerger received assets having book value of Rs. 964,44,80,456/- and liabilities having book value of Rs. 611,86,73,204/-. Thus, the assessee received net assets of Rs. 352,58,07,252 against which issued share capital of Rs. 1,86,45,700/- as purchase consideration. Accordingly, the net assets over the purchase consideration amounting to Rs. 350,71,61,552/- transferred by the assessee to the capital reserve by the following accounting principle. On the other hand, the revenue wishes to tax the excess amount of book of value of net assets acquired by the assessee under section 28(iv) of the Act.

136.1 On close perusal of the provision of section 28(iv) of the Act, we note that to tax an amount under the impugned provision of the Act following ingredient should be available on record:

i. The assessee should have derived any benefit or perquisite which is in the form of kind whether convertible into money or not.

ii. Such benefit or perquisite should be derived from business or exercise of business or profession.

136.2 In the case on hand the assessee received surplus assets over the liabilities and purchase consideration paid in the scheme of demerger. In our considered opinion such surplus of assets cannot be taxed under section 28(iv) because firstly, such surplus does not arise from carrying on the business, secondly, it is not in the nature of income to be covered u/s 2(24), thirdly, increase in assets and liabilities creating some benefit to the transferee is in the capital field as it is relatable to the non-trading assets and it only affects capital structure of the transferee company.

136.3 Before parting we also not that there was amendment brought in the statute w.e.f. April 1, 2017, which provides that the difference between the consideration and the fair market value of property received by any person is liable to be taxed as income from other sources in the hands of the recipient if they are acquired without consideration or for a consideration that is less than the aggregate fair market value (provided aggregate fair market value of such properties exceeds consideration paid, if any, by more than INR 50,000). However, the Act has provided a specific exemption from the aforesaid provision where capital assets of the amalgamating company are transferred to the amalgamated company in pursuant to a scheme of amalgamation and the amalgamated company is an Indian company. Thus, it also strengthens the fact that legislator does want to tax the benefit or surplus on transfer of assets or liabilities in the scheme of merger, demerger or to say amalgamation. Thus, in view of the above and after considering the facts in totality we do not find any infirmity in the order of the learned CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed.

137. In the result, the appeal of the Revenue is hereby dismissed.

Coming to ITA No. 911/Ahd/2012, an appeal by the assessee for the A.Y. 2008-09

138. The assessee has raised following grounds of appeal:

1) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in the points of law and fads.

2) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in holding sales tax benefit as capital receipt for Rs. 41,55,36,734 instead of Rs.42,30, 14,976.

3) In law and in (acts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in holding that depreciation on intangible assets should be allowed on WDV of current year based on Us. 152. 89 crores being market value in Asst. Year

4) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of expenses of Rs. 12.50.304/- u/s.37 (1) of

5) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in confirming not allowing depreciation Rs.2,45,359/- on disallowance of depreciation Rs. 1 1,68,377/- made in the assessment order for earlier Asst. Year 2006-07.

6) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in holding that charging of interest u/ss.234B; 234C, 234D and withdrawing interest u/s.244A of the Act are mandatory.

7) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in dismissing appellant’s ground regarding initiation of penalty proceedings u/s.271 (l)(c) of Income-tax Act.

8) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time.

139. The first issue raised by the assessee is that the learned CIT(A) erred in holding sales tax benefit of Rs. 41,55,36,734/- only representing capital receipt instead of holding entire benefit of Rs. 42,30,14,976/- as capital receipt.

140. The assessee in computation the income for the year under consideration excluded an amount of Rs. 41,55,36,734/- being sales tax benefit not chargeable to tax under the Act. The assessee during the assessment proceeding submitted that as per revised vat audit report the sales tax benefit was of Rs. 42,30,14,976/- only. Therefore, an amount of Rs. 42,30,14,976/- should be excluded from profit as capital receipt not chargeable to tax. However, the AO disagreed with the contention of the assessee and held that sale tax benefit arises to the assessee is revenue receipt chargeable to tax. Accordingly, the AO made addition of Rs. 41,55,36,734/- the amount which the assessee excluded from the computation of income. On appeal the learned CIT(A) held the sale tax benefit arising to the assessee is capital receipt not chargeable to tax and deleted the addition made by the AO. On subsequent appeal by the Revenue, we have also confirmed the order of the CIT-A vide paragraph 151 of this order.

140.1 Now the assessee before us and prayed that the actual sales tax benefit as per revised vat audit report is of Rs. 42,30,14,976/- whereas amount excluded from the business income for Rs. 41,55,36,734/-only. Therefore, direction should be provided to exclude the amount of Rs. 42,30,14,976/- from business income instead of Rs. 41,55,36,734/- as capital receipt not chargeable to tax. We find force in the contention of the learned AR of the assessee. therefore, we hereby direct the AO to exclude the amount of Rs. Rs. 42,30,14,976/- instead of Rs. Rs. 41,55,36,734/- on account of sales tax benefit being capital receipt. Hence, the ground of appeal of the assessee is hereby allowed.

141. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of deprecation on intangible assets based on market value of same for A.Y. 2001-02 at Rs. 152.89 crore.

141.1 At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment year 2008- 09. The appeal of the Revenue for the AY 2007-08 has been decided by us vide paragraph No. 112 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 2008-09. Hence, the ground of appeal filed by the assessee is hereby allowed.

142. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of general public utility expense for Rs. 12,50,304/- under section 37(1) of the Act.

143. At the outset, we note that the issue raised by the assessee in its grounds of appeal for the AY 2008-09 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2008- 09. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2008-09. Hence, the ground of appeal filed by the assessee is hereby allowed.

144. The next issue raised by the assessee is that the learned CIT(A) erred in not allowing the additional depreciation on account of disallowances of deprecation in earlier assessment year i.e. 2006-07 for the reason that the asset was not put to use in the said assessment year.

145. At the outset, we note that the assessee claimed deprecation on purchase of second-hand truck dated 30-03-2006 in the A.Y. 2006-07 which was disallowed by the AO by holding that the impugned truck was not put to use in the A.Y. 2006-07. On appeal by the assessee, the learned CIT(A) set aside the finding of the AO and held that the assessee is eligible to claim the depreciation allowances from A.Y. 2006-07. On further appeal by the Revenue in ITA No. 685/Ahd/2014 for A.Y. 2006-07, we have confirmed the finding of learned CIT(A) vide Para No. 84 of this order. Thus, the assessee has been allowed the depreciation from A.Y. 2006-07. Therefore, in our considered view the learned CIT(A) has rightly dismissed the claim of the assessee for additional depreciation on the amount disallowed in the AY 2006-07. Hence, the ground of appeal of the assessee is hereby dismissed.

146. The next issue raised by the assessee vide ground Nos. 6 to 8 of its appeal are either general, consequential, or premature to decide. Hence the same are dismissed accordingly as infructuous.

147. The assessee, vide applications dated 01-04-2013, 02-03-2020 and 15-02- 2021 has pleaded before us for admitting the  dditional grounds of appeal which read as under:

Additional ground vide letter dated 01-04-2013

In law and in facts and circumstances of the Appellant’s case the deduction u/s.80IA should be allowed on the profit of the power project.

Additional ground vide letter dated 02-03-2020

In law and in facts and circumstances of the Appellant’s case, sales tax benefit of Rs.41,55,36,734/- should be excluded from the book profit u/s.115JB of the IT Act.

Additional ground vide letter dated 15-02-2021

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess ( education cess) paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, (‘the Act’) while computing the taxable income.

The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

148. At the outset, we note that identical additional grounds were raised by the assessee in ITA NO. 515/Ahd/2014 in the AY 2006-07 which were dealt by us vide paragraph No. 36 to 41 of this order. Hence, following the same the additional grounds raised in captioned appeal are also admitted.

148.1 At the outset, we note that the issues raised by the assessee in its additional grounds of appeal for the AY 2008-09 are identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment years 2008-09. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 36 and 40 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2008-09. Hence, the additional grounds of appeal filed by the assessee are hereby partly allowed.

148.2 In the result, the appeal of the assessee is partly allowed.

Coming to ITA No. 969/Ahd/2012, an appeal by the Revenue for the A.Y.  2008-09

149. The Revenue has raised following grounds of appeal:

i)  The Id. CIT(A) has erred in law and on facts in treating the sales tax subsidy of Rs.41,55,36,734/- as capital receipt, and thereby deleting the addition made by the Assessing Officer.

ii) The Id. CIT(A) has erred in law and on facts in allowing the Assesses fs claim of set-off of brought forward losses and. ‘unabsorbed depreciation of Rs.210,78,03,786/- on account of merger of its demerged undertaking of Core Health Care Ltd.

iii) The Id. CIT(A) has erred in law and on facts in deleting the disallowance of excess claim of depreciation of Rs,34,79,41,087/-, and in directing the Assessing Officer to Work out the WDV of intangible assets with reference to the market value of the assets at Rs. 152.89 crores^as worked out by his Predecessor in the A. Y.2001 -02.

iv) The Id. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,53,33,661/-, being benefit derived by the Assessee on account of demerger.

v) On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

vi) It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

150. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO by treating the benefit of sales tax subsidy of Rs. 41,55,36,734/- only as revenue receipts.

151. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2008-09 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2008- 09. The appeal of the Revenue for the A.Y. 2006-07 has been decided by us vide paragraph No. 62 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2008-09. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

152. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 210,78,03,786/- made on account of setoff of losses and unabsorbed depreciation of demerged unit of Core Healthcare Ltd.

153. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2008-09 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2008- 09. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 68 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2008-09. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

154. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowances of excess depreciation on intangible assets for Rs. 34,79,41,087/- only.

155. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2008-09 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment year 2008- 09. The appeal of the Revenue for the AY 2007-08 has been decided by us vide paragraph No. 112 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 2008-09. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

156. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 1,53,33,661/- on account of benefit of settlement of loan.

157. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2008-09 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment year 2008- 09. The appeal of the Revenue for the AY 2007-08 has been decided by us vide paragraph No. 123 of this order against the revennue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 2008-09. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

157.1 In the result appeal of the Revenue is hereby dismissed.

Coming to ITA No. 2236/Ahd/2015, an appeal by the assessee for the A.Y. 2009-10

158. The assessee has raised following grounds of appeal:

1) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in the points of law and facts.

2) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of expenses Rs. 1,14,6517- u/s.37(l) of I.T. Act.

3) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of payment of Rs.22,05,579/- made to Government of Gujarat.

4) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in holding that charging of interest u/ss.234B; 234C, 234D of the Act is mandatory.

5) In law and in facts and circumstances of the Appellant’s case, the learned CIT (A) has grossly erred in dismissing appellant’s ground regarding initiation of penalty proceedings u/s.271 (l)(c) of Income-tax Act.

6) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time.

159. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of general public utility expense for Rs. 1,14,651/- under section 37(1) of the Act.

160. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the assessee is hereby allowed.

161. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of expense of Rs. 22,05,579/- paid to Government of Gujarat.

162. The AO found that the assessee was allowed to extract salt for its captive consumption. However, the assessee during the year extracted salt and sold outside. Therefore, the Government of Gujarat levied penalty of Rs. 22,05,579/- for infringement of law/condition. Accordingly, the AO disallowed the impugned penalty and added to the total income of the assessee.

163. The aggrieved assessee preferred an appeal before the learned CIT(A) and submitted that the land was given by the Government to it for extraction of salt for its captive consumption. However, a sale of salt was made to outside party. Therefore, a payment of Rs. 22,05,579/- was made for breach of condition. The payment made was in nature of compensation for making additional sale of goods and not in the nature of infringement of law as alleged by the AO.

164. However, the learned CIT(A) dismissed the submission of the assessee and confirmed the addition made by the AO by holding that the payment made to the Government for breach of condition was penal in nature.

165. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

166. The learned AR before us contended that he has been instructed not to press the impugned ground of appeal.

167. On the other hand, the learned DR before us vehemently supported the order of authorities below.

168. We have heard the rival contention of both the parties and perused the materials available on record. At the outset, we note that the learned AR for the assessee at the time of hearing submitted that he has been instructed by the assessee not to press the issue on hand. Hence, the ground of appeal of the assessee is hereby dismissed as not pressed.

169. The next issue raised by the assessee vide ground Nos. 4 to 6 of its appeal are either general, or consequential or premature to decide. Hence the same are dismissed accordingly as infructuous.

170. The assessee, vide application dated 05-03-2020 and 15-02-2021, has pleaded before us for admitting the additional grounds of appeal which read as under:

Additional ground vide .letter dated 05-03-2020

In law and in facts and circumstances of the Appellant’s case, sales tax benefit of Rs.51,66,59,491/- should be excluded from the book profit u/s. 115JB of the I.T Act.

Additional ground vide letter dated 15-02-2021

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess (“education cess”) paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, ( ‘the Act’) while computing the taxable income.

The appellant craves leave to Add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

171. At the outset, we note that identical additional grounds were raised by the assessee in ITA No. 515/Ahd/2014 which were accepted by us vide paragraph No. 36 to 40 of this order. Hence, following the same, the additional grounds raised in captioned appeal are also accepted.

171.1 At the outset, we note that the issues raised by the assessee in its additional grounds of appeal for the AY 2009-10 are identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2009-10. The appeal of the assessee for AY 2006-07 has been decided by us vide paragraph No. 36 and 40 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment years 2009-10. Hence, the additional grounds of appeals filed by the assessee are hereby partly allowed.

172. In the result, the appeal of the assessee is partly allowed.

Coming to ITA 2411/AHD/2015, an appeal by the Revenue for the A.Y.  2009-10

173. The Revenue has raised following grounds of appeal:

1. The Id. CIT(A) has erred in law and on facts in treating the sales tax subsidy of Rs.54,58,47,279/- as capital receipt instead of revenue receipt, and thereby deleting the addition made by the Assessing Officer.

1.1 The Id. CIT(A) has erred in law and on facts by not following the judgments of Hon ‘ble Supreme Court in the case of Sahney Steel and press works ltd. and others v CIT (228 ITR 253) and in the case of Rajaram Maize Products (251 ITR 427).

2. The Id. CIT(A) has erred in law and on facts in allowing the Assessee’s claim of set-off of brought forward losses and unabsorbed depreciation of Rs.96,86,00,918/- on account of merger of its demerged undertaking of Core HealthCare Ltd.

2.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the assessee had taken over only about 97.15% of the assets and 9.33% of liabilities of the Core Healthcare Ltd, and as such the conditions laid down u/s 2(19AA) of the Act were not satisfied.

3. The Id. CIT(A) has erred in law and on facts in deleting the disallowance of excess claim of depreciation of Rs.23,12,67,110/- on intangible assets and in directing the Assessing Officer to work out the WDV of intangible assets with reference to the market value of the assets at Rs.500 Crores. :

4. The Id. CIT(A) has erred in law and on facts in deleting addition to the extent of Rs.23,36,500/- made on account of general public utility expenses.

4.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the assessee had failed to prove within the meaning of section 37(1) that the expenses incurred were wholly and exclusively for the purpose of business.

5. The CIT(A) has erred in law and on facts in deleting the addition of Rs. 15,18,778/- made on account of disallowance u/s.14A of the Act r. w. Rule 8D of the I T Rule.

6. The Id. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 15,98,115/- made On account of product registration expense.

6.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the benefit of the registration of the product is of enduring nature and therefore the expenses are not allowable u/s 37(1) of the Act.

7. The CIT(A) has erred in law and on facts in deleting the addition of Rs. 15,18,778/- made’on account of disallowance u/s. 14A of the Act r. w. Rule 8D of the I T Rule under the MAT provisions.

8. The CIT(A) has erred i’n iaw and on facts in allowing the Assessee’s claim for deduction u/s. 80IA of the Act in respect of its Power Generation Unit at Bhavnagar.

8.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the power generated: was consumed on captive basis and therefore the assessee is not entitled for deduction u/s 80IA.

9. The Id. CIT(A) has erred in law and on facts in deleting the addition made on account of guarantee fee of Rs. 12,48,19,000/-

9.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the addition is based on order u/s.92 CA (3) of the Act.

9.2 The Id. CIT(A) has errsd in law’and on facts by not considering the judgment of Hon ‘ble Mumbai Tribunal in the case of Nimbus Communications Ltd (2013) 34 Taxmann.com 298 wherein it is explained that where higher credit rating of AE is’due to a guarantee by another group member, there was clear benefit accrued to the AEs by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said AEs, guarantee commission should have been charged at Arm’s Length Price.

10. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

11. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

174. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO by treating the benefit sales tax of Rs. 54,58,47,279/- as revenue receipt.

175. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 62 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

176. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 96,86,00,918/- made on account of setoff of losses and unabsorbed depreciation of demerged unit of Core Healthcare Ltd.

177. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the Revenue for the A.Y. 2006-07 has been decided by us vide paragraph No. 68 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

178. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of excess depreciation on intangible assets amounting to Rs. 23,12,67,110/- only.

179. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the Revenue for the AY 2007-08 has been decided by us vide paragraph No. 112 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

180. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of general public utility expense for Rs. 23,36,500/- only.

180.1 At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 70 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

181. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of Rs. 15,18,778/- made under section 14A of the Act.

182. The assessee in the year under consideration earned exempted income in the form of dividend. The AO, by invoking the provisions of section 14A r.w. rule 8D of Income Tax Rule made the disallowance of Rs. 15,18,778/- only. 182.1 On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO by observing as under:

8.3 I have carefully considered appellant’s submission on this issue. Learned Assessing Officer disallowed Rs. 15,18,778 U/S. 14A of Income-tax ;Act, 1961 by applying Rule 8D of Income-tax Rules. According to Assessing Officer since the investment is made in shares from where the income will be tax free, the expenses were disallowed as per the formula given in Rule 8D of Income-tax Rule. According to the appellant company, no expenses were incurred to earn tax free income. The investments were made in earlier year. The appellant had not incurred expenses either interest expenses or other expenses for earning interest tax free income. Moreover no other expenses were also incurred to earn tax free income. The appellant also submitted its share capital and reserves was Rs. 2601.04 crores which is much more than the tax free investment of Rs.6.24 Crores. Reliance was- placed on various decisions as given in the written submission.

I have perused the submission of the appellant. After perusal of the facts I am of the view that the disallowance U/S. 14A is not warranted. The learned Assessing Officer has not pinpointed the nexus to acquire tax free investment out of borrowed funds. The investments were made in earlier year. No case is made out to find out the expenses incurred – interest expenses and other expenses for making tax free investments. Since the capital and reserves of appellant company is Rs. 2601.04 crores which is substantially more than the tax free investment of Rs.6.24 crores, following the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Suzlon Energy Ltd. ( 354 ITR 630) (Guj) I delete the disallowance made u/s. 14A of Income-tax Act for Rs. 15,18,778/-. This ground of appeal is allowed.

183. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

184. The learned DR before us vehemently supported the findings of the assessment order.

185. On the other hand, the learned AR before us submitted that the own fund of the assessee exceeds the amount of investments and therefore there cannot be any disallowance of interest expense under the provisions of section 14A read with rule 8D of Income Tax Rules. The learned AR before us vehemently supported the order of the learned CIT-A.

186. We have heard the rival contentions of both the parties and perused the material available on record. At the outset we note that the assessee company earned dividend income of Rs. 70,75,768/- which was claimed as exempted income under the provision of section 10(38) of the Act. The AO invoked the provisions of section 14A read with rule 8D of the Income Tax Rule and worked out the amount of disallowance at Rs. 15,18,778/- which include disallowances of interest expenses as well as administrative expenses.

186.1 As far as disallowance of interest expenses is concerned, it is fairly settled position of law that if the assessee having interest free fund/own fund then no disallowance of interest under the provision of section 14A r.w.r. 8D of the Act can be made. In holding so, we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 wherein it was held as under:

It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs. 195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7]

186.2 In the case on hand the assessee company has an interest free fund of Rs. 2601.04 crore against the total investment yielding exempted income for Rs. 6.24 crores. Thus, considering the above discussion, no disallowances of interest expense in warranted in the given facts.

186.3 Coming to the issue of disallowance of administrative expenses. In our considered opinion, the contention of the assessee cannot be accepted that no expenditure in relation to the investment was incurred. Therefore, the disallowance of administrative as per rule 8D of the income tax rule needs to be made but such disallowances cannot exceed the amount of exempted income. Therefore, we direct the AO to restrict the disallowance of administrative expenses as per rule 8D of income Tax Rules. Hence, the ground appeal of the revenue is partly allowed.

187. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of product registration expense of Rs. 15,98,115/- only.

188. The AO during the assessment proceedings found that the assessee incurred expenses on product registration and approval in foreign countries and claimed the same as revenue expenditure. The AO held that the expenditure has incurred registration to enable the assessee to sale its product on foreign countries in year under consideration as well as in the subsequent years. Therefore, the assessee from such expenditure is deriving benefit of enduing nature and therefore the same needs to be capitalized. Hence the AO disallowed same and made addition of Rs 15,98,115/- after providing depreciation allowances.

189. On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO by observing as under:

It is seen that the A.O. had disallowed product registration expenses of Rs. 15,98,155/- as in the opinion of the A.O, the benefit derived by the product registration expenses (nay benefit the appellant for many years and accordingly benefit of enduring nature had accrued to the appellant as a result of these expenses. Taking entirety of facts in view, I am not inclined to agree with the contentions of Ld. A.O. The product registration expenses are nothing but the registration expenses incurred to get the pharmaceutical products registered with the local health authorities, association and their counterparts -at the foreign destinations. Without getting the products registered the appellant cannot sell the pharmaceutical product in a specific territory. In view of above, I hold that these expenses are enabling expenses and no new assets having enduring benefit have been created. In this regard reliance is placed on the decision of Cadila Healthcare Ltd., vide ITA No.3140/Ahd/2010. Further the said case is also confirmed by the-jurisdictional High Court in case of Cadila Healthcare Ltd (Tax Appeal No 752 of 2012). Following the above order of Hon. Jurisdictional High Courts. I allow the claim of appellant regarding product Registration expenses of Rs. 15,98,115/-. This ground of appeal is allowed.

190. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

191. The learned DR before us vehemently supported the findings of the assessment order.

192. On the other hand, the learned AR contended that there is no benefit arising out of such product registration expense which is of enduring nature and therefore the learned CIT-A rightly treated such expenses as revenue in nature. The learned AR vehemently supported the order of the learned CIT-A.

193. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that issue on hand is covered in favour of the assessee by the order of the Hon’ble Gujarat High court in the case of CIT vs. Torrent Pharma Ltd. reported in 29 taxmann.com 405 where following question of law was framed:

[B] Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to treat the expenditure of Rs. 28,14,355/- incurred on foreign registration fees as revenue expenses?”

193.1 The Hon’ble bench regarding the above question of law held as under:

Similarly, the expenses for foreign country registration was for business purpose only, because the same helped the assessee in marketing its products in the foreign countries and promoting the sales.

6. For the aforesaid reasons, the Tribunal committed no error. Its findings are proper and in no way are perverse. No substantial question of law arises for consideration.

193.2 Respectfully following the order of the Hon’ble jurisdictional High court in the above-mentioned case, we do not find any infirmity in the order of the learned CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed.

194. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 15,18,778/- while calculating the income under MAT on account of the disallowance under section 14A of the Act.

195. The AO while computing book profit under the provisions of section 115JB of the Act made addition of the amount disallowed under section 14A of the Act in normal computation of income. On appeal by the assessee the learned CIT(A) was pleased to delete the addition made by the AO in the normal provision as well as under the book profit.

196. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

197. The learned DR before us vehemently supported the findings of the assessment order.

198. On the other hand, the learned AR contended that the addition under the normal provisions of the Act cannot be added while determining the income under the provisions of MAT. Thus, such expenses cannot be disallowed while calculating the profit under the provisions of section 115 JB of the Act. Therefore, the learned CIT-A rightly treated such expenses as revenue in nature. The learned AR vehemently supported the order of the learned CIT-A.

199. We have heard the rival contention of both the parties and perused the materials available on record. At the outset we note that the Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowance made u/s 14A r.w.r. 8D cannot be the subject matter of disallowance while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below:

“In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.”

199.1 The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case in h.and. Thus, it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act.

199.2 However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:-

“We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal.

We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.”

199.3 Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra).

199.4 Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 1 15JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore, in the given facts & circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 1 15JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act subject to the maximum adjustment made by the AO. Thus, the ground of appeal of the Revenue is partly allowed.

200. The next issue raised by the Revenue is that the learned CIT(A) erred in allowing the deduction under section 80IA of the Act for Power generation unit at Bhavnagar.

201. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 34 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

202. The last issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition on account of guaranteed fee for Rs. 12,48,19,000/- only.

203. The AO/TPO in the assessment proceedings found that that the assessee has provided foreign Bank Guarantee for the borrowing taken by its USA based AE namely Karnavati Holdings Inc and Searles Valley Minerals Inc to the extent of Rs. 659.62 crores without charging any guaranteed fees. The TPO/AO treating the same as an international transaction and made upward adjustment of Rs. 12,48,19,000/- by applying guarantee fee @ 2.09%.

204. On appeal, the learned CIT (A) held that extension of bank guarantee is not an international transaction. The relevant finding of the learned CIT(A) reads as under:

I have carefully considered appellant’s submission and case laws relied upon by the appellant. On perusal of the factual position and legal position I find that the addition of Rs.12,48,19,000 is required to be deleted. The appellant company furnished bank guarantee to the foreign bank for providing finance to associated enterprise at U.S.A. which is wholly owned subsidiary of the appellant company. Hon ‘ble DelhiTribunal in the case of Bharti Airtel Ltd Vs. CIT (43 taxmann.com 150) held that extending corporate guaranteed not within the purview of international transaction. The Tribunal in this case held as under;

  • Capital financing! transactions {covered by the Explanation to section 92B) are international transactions only if they have any real bearing as distinct from contingent effect on the profits, income, losses or assets of the enterprise;
  • When an assessee extends an assistance to the Associated Enterprise (AEs), which does not cost anything to the assessee, such an assistance or accommodation will not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B(1).
  • Corporate guarantees issued for the benefit of AEs do not cost anything to the issuing enterprise and yet it might provide certain comfort levels to the parties dealing with the AEs;
  • These guarantees do not have any impact on profits, income, losses or assets of the enterprise. Therefore, corporate guarantees do not fall within the scope of the term ‘international transaction’ even after insertion of Explanation to section 92B by Finance Act, 2012 with retrospective effect from 01.04.2002.

Considering the submissions made by appellant as above, it is concluded that the appellant did not incur any costs in providing the corporate guarantee to the associated enterprises and neither was any amount of guarantee commission charged by the appellant. As the transaction did not have any impact on the income, profits, losses or assets of the appellant the same could, not be classified as an international transaction as per the provisions of chapter X of the income tax act. In view of decision of Hon ‘ble Delhi Tribunal, in the case of Bharti Airtel Ltd Vs. CIT (43 taxrriann.com 150), “It is held that, the bank guarantee to the foreign bank for providing finance to associated enterprise at U.S.A. which is wholly owned subsidiary of the appellant company, is not covered within the purview of making any adjustment since it is not international transaction. Following the said decision, I delete the addition made for Rs.12,48,19,000/-. This ground of appeal raised by the appellant is allowed.

205. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

206. The learned DR before us vehemently supported the findings of the assessment order.

207. On the other hand, the learned AR contended that the assessee has not taken any fees against the bank guarantee furnished to the AE and therefore there cannot be any adjustment towards the upward direction with respect to the bank guarantee furnished by the assessee to the AE. The learned AR vehemently supported the order of the learned CIT-A.

208. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee company extended the bank guarantee for the borrowing availed by its AE in USA from foreign banks. The AO/TPO treated the same as international transaction being services provided by the assessee to its AE and accordingly benchmarked the guarantee-fee @ 2.09% of amount of loan for which guarantee extended. The learned CIT(A) by following the order of the Delhi Tribunal in case of Bharti Airtel Ltd vs. CIT reported in 43 taxmann.com 150 held the extension of bank guarantee is not covered under the purview of international transaction.

208.1 In this regard we find that the Hon’ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that corporate guarantee is covered under the limb of international transaction and having bearing on profit and loss account. The relevant finding of the Hon’ble court reads as under:

The concept of bank Guarantees and Corporate Guarantees was explained in the decision of the Hydrabad Tribunal in the case of Prolifics Corpn. Ltd v. Dy. CIT [2015] 55 taxmann.com 226/68 SOT 104 (URO). In the said case, the revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is and additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 92B does not enlarge the scope of the term ‘international transaction’to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfil the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that his position indicates that provision of guarantee always involves risk and there is a service provided to the Associate enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on profit & loss account, but inherent risk cannot be ruled out in providing guarantees. U1 and adjustment are to be made on guarantee commissions on such guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise.

In the light of the above decisions, the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and the order passed by the DRP is to be restored. [Para 76]

208.2 Thus, in view of the above, we hold that the bank/corporate guarantee is an international transaction. Therefore, the same has to be bench marked for determining the ALP. Thus, the issue involved on hand is no longer covered as alleged by the learned AR for the assessee in view of the judgment of Hon’ble Madras High Court as discussed above.

208.3 The next aspects arise to determine the benchmarking for working out the ALP of the impugned international transaction. The TPO/AO in the case on hand has worked out the ALP at 2.09 % and basis of the same has already been elaborated in TPO order. In this regard, we find that the Hon’ble Bombay High Court in case of CIT vs. Everest Kento Cylinders Ltd reported in 58 taxmann.com 254 held that while determining the ALP the rate charged by the bank or financial institution cannot be taken as comparable. The relevant finding of the Hon’ble Court reads as under:

In the present case, it is assessee-company that is issuing corporate guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which apply for issuance of a corporate guarantee are distinct and separate from that of bank guarantee and, accordingly, commission charged cannot be called in question, in the manner TPO has done. The comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed

208.4 Now, the question arises what should be the ALP rate of the commission on corporate guarantee? In this regard we find that The Tribunal in several cases has considered 0.50% (of corporate guarantee given) as ALP rate of Corporate/bank Guarantee commission. Some of these cases are as under:

(i) Videocon Industries Ltd. v. Dy. CIT [2017] 79 taxmann.com 216 (Mumbai – Trib.), Parent company charged commission at 0.25 %. The ALP was determined by the Tribunal at 0.50%.

(ii) Hindalco Industries Ltd. v. Addl. CIT [2015] 62 taxmann.com 181 (Mum.), Parent company charged commission at 0.50% which was considered as at ALP.

(iii) Manugraph India Ltd. v. Dy. CIT [2015] 62 taxmann.com 347 (Mum. – Trib.), The corporate guarantee was not treated as international transaction by the parent company but the Tribunal treated it as international transaction u/s 92B and upheld the ALP of 0.50%, following the order in the case of the assessee for the earlier year. The Tribunal followed Everest Kento Cylinder Ltd. v. Asstt. CIT [2015] 56 taxmann.com 361 (Mum-Trib). It seems that the decision in Bharti Airtel Ltd. (supra) was not referred to in this case.

(iv) Aditya Birla Mincas Worldwide Ltd. v. Dy. CIT [2015] 56 taxmann.com 317/69 SOT 18 (URO) (Mum – ITAT). The assessee had not classified this transaction as international transaction. However, guarantee commission was fixed at 0.50%.

(v) Mylan Laboratories Ltd. v. Asstt. CIT [2015] 155 ITD 1123/63 taxmann.com 179 (Hyd. – Trib.). The assessee admitted corporate guarantee as international transaction, then as against 2% fixed by TPO the Tribunal upheld the claim of the assessee at 0.53% following the decision in Prolifics Corpn. Ltd. v. Dy. CIT [2015] 68 SOT 104 (URO)/55 taxmann.com 226 (HYD – Trib.).

(vi) Everest Kanto Cylinder Ltd. (supra) – Assessee paid guarantee commission at rate of 0.5 per cent for obtaining guarantee. This was accepted as ALP for all corporate guarantees given by the assessee.

(vii) Godrej Consumer Products Ltd. v. Asstt. CIT [2016] 69 taxmann.com 436 (Mumbai – Trib.)– The assessee suo motu benchmarked the commission chargeable on bank guarantee @ 0.25%. It was determined at 0.50%.

208.5 Thus, in view of the above discussed latest development, we are also of the opinion that the extension of corporate/guarantee to AEs is an international transaction which needs to be benchmarked and in view of several order of the tribunal as referred above 0.5% commission on the value of corporate/ bank guarantee will serve the justice to both the assessee and the Revenue. Thus, in view of the above, the ground of appeal of the revenue is hereby partly allowed.

208.6 In the result, the appeal of the Revenue is partly allowed.

Coming to ITA No. 2412/AHD/2015, an appeal by the Revenue for A.Y. 2010-11

209. The Revenue has raised following grounds of appeal:

1. The Id. CIT(A) has erred in law and on facts in treating the sales tax subsidy of Rs.52,42,58,190/- as capital receipt instead of revenue receipt, and thereby deleting the addition made by the Assessing Officer.

1.1 The Id. CIT(A) has erred in law and on facts by not following the judgments of Hon ‘ble Supreme Court in the case of Sahney Steel and press works Ltd. and others v CIT (228 ITR 253) and in the case of Rajaram Maize Products (251 ITR 427).,

2. The Id. CIT{A) has erred in law and on facts in allowing the assessee’s claim of set-off of brought forward losses and unabsorbed depreciation of Rs. 1,31,00,00,000/- on account of merger of its demerged undertaking of Core Health Care Ltd.

2.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the assessee had taken over only about 97,15% of the assets and 9.33% of liabilities of the Core Healthcare Ltd. and as such the conditions laid down u/s 2(19AA) of the Act were not satisfied.

3. The Id. CIT(A) has erred in law and on facts in deleting the disallowance of excess claim of depreciation of Rs.17,34,50,332/- on intangible assets and in directing the Assessing Officer to work out the WDV of intangible assets with reference to the market value of the assets at Rs.500 Crores.;

4. The CIT(A) has erred in law and on facts in deleting the addition of Rs.9,68,231/- made on account of disallowance U/S. 14A of the Act r.w Rule SDof the IT Rule.

5. The CIT(A) has erred in law and on facts in deleting the addition of Rs.9,68,231/- made on account of disallowance U/S. 14A of the Act r.w. Rule 8D of the I T Rule under the MAT provisions.

6. The Id. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 76,86,229/- made on account of product registration expenses,

6.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the benefit of the registration of the product is of enduring nature and therefore the expenses are not allowable u/s 37(1) of the Act.

7. The Id. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,62,88,016/- made on account of disallowance of doubtful advances written off.

7.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the amount in question would not qualify for deduction either u/s36(1)(vii) or 36(1)(1) of the Act.

8. The Id. CIT(A) has erred in law and on facts in treating the consultation for future project expenses of Rs.25,00,000/- paid to IFCI as allowable expenses instead of capital expenses as held by the AO.

8.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the benefit of the consultation for future project expenses is of enduring nature and therefore the expenses are not allowable u/s 37(1) of the Act

9. The Id. CIT(A) has erred in law and on facts in deleting the addition made on account of account of Guarantee Fees and benchmarking of loan totaling to Rs.6,00,00,397/-.

9.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the addition is based on order u/s.92 CA (3) of the Act.

9.2 The Id. CIT(A) has erred in law and on facts by not considering the judjment of Hon ‘ble Mumbal Tribunal in the case of Nimbus Communications Ltd [2013] 34 taxmann.com 298 wherein it is explained that where higher credit rating of AE is due to a guarantee by another group member, there was clear benefit accrued to the AES by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said AES, guarantee commission should have been charged at Arm’s Length Price.

10. The CIT(A) has erred in law and on facts in allowing the assessee’s claim for deduction u/s. 80IA of the Act in respect of its Power Generation Unit at Bhavnagar.

10. 1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the power generated was consumed on captive basis and therefore the assessee is not entitled for deduction u/s 801A.

11. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

12. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

210. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO by treating the sales tax benefit of Rs. 52,42,58,190/- as revenue receipt only.

210.1 At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2010- 11. The appeal of the Revenue for the A.Y. 2006-07 has been decided by us vide paragraph No. 62 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 20 10-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

211. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 131,00,00,000/- made on account of setoff of losses and unabsorbed depreciation of demerged unit of Core Healthcare Ltd.

212. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2010-11 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2010- 11. The appeal of the Revenue for the A.Y. 2006-07 has been decided by us vide paragraph No. 68 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 20 10-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

213. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowances of excess depreciation on intangible assets for Rs. 17,34,50,332/- only.

214. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment years 2010- 11. The appeal of the Revenue for the A.Y. 2007-08 has been decided by us vide paragraph No. 112 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 20 10-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

215. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of Rs. 9,68,231/- made under section 14A of the Act.

215.1 At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2010-11. The appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 186 of this order partly in favour of the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment years 2010-11. Hence, the ground of appeal filed by the Revenue is hereby partly allowed.

216. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 9,68,231/- by the AO while calculating the income under MAT on account disallowance made under section 14A of the Act.

217. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2010-11. The appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 199 of this order partly in favour of Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment year 2010-11. Hence, the ground of appeal filed by the Revenue is hereby partly allowed.

218. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of product registration expense of Rs. 76,86,229/- only.

218.1 At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2010-11. The appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 193 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment year 20 10-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

219. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of doubtful advance written off for Rs. 2,62,88,016/- only.

219.1 At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2010- 11. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 19 of this order in favour of the assessee. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 20 10-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

220. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of project expense paid IFCI for Rs. 25 Lakh only.

221. The assessee during the year made a payment of Rs. 25 Lakh to IFCI Limited for conducting study of updated status of Cement Industry in India and debited the same in the profit loss account as consultation fee. However, the AO disagreed and held that the amount was paid for study report for the future, thus the same is capital expenditure. Accordingly, the AO disallowed the same and added to the total income of the assessee.

222. The aggrieved assessee preferred an appeal before the learned CIT(A) and submitted that no benefit of enduring nature arises from the expenditure incurred for study of updated status of Cement Industry in India nor any asset came into existence. Further, in its manufacturing process of soda, soda ash is generated which can be used as raw material in production of Cement as backward integration. Therefore, the expenditure relates to its present business and same to be allowed as revenue expenditure.

222.1 The learned CIT(A) after considering the facts and submission of the assessee deleted the disallowances made by the AO by observing as under:

10.3 I have carefully considered the submission of the appellant. Appellant is one of the leading manufacturer of Soda Ash in the country. Accordingly, ash is generated in large quantity which will be used in production of cement as backward integration, hence which is part of the same business. After considering the entirety of facts, am not inclined to agree with the contentions of the Id.A.O. as appellant paid consultation fee to IFCI regarding feasibility of study to know updated status of cement industry in India. Accordingly, I am of the opinion that the payment made to IFCI of Rs.25,00,000/- is rightly claimed by the appellant as consultation expenses. The said disallowance made by the Id.A.O. of Rs.25,00,000/- is deleted. This ground of appeal is allowed.

223. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

223.1 Both the learned DR and learned AR before vehemently supported the order of the authorities below to the extent favourable to them.

224. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the AO has disallowed the deduction claimed by the assessee for ₹25 lakhs for the feasibility study conducted by the IFCI Limited to know the updated status of the Cement Industries in India on the reasoning that the impugned expenditure is capital in nature. But the learned CIT(A) allowed the same on the reasoning that the Soda Ash generated in the business of the assessee is used in the cement industries. According to the learned CIT(A), the expenses on the feasibility study was conducted which was in relation to the business carried on by the assessee.

224.1 Now the controversy arises before us whether the assessee is eligible for deduction of the impugned expense treating the same as revenue in nature. Admittedly, the deduction was claimed by the assessee under the provisions of section 37 of the Act. The provision of section 37 of the Act is a residuary provision and provide for deduction of those expenses which have been incurred in the course of the business and the same are not capital/ personal in nature. The learned CIT-A has held that the feasibility study conducted by the assessee was part of the business of the assessee. The basis adopted by the learned CIT-A was that the soda ash generated by the assessee from its manufacturing activity of detergents is used by the cement industries. Admittedly, the assessee is not into the manufacturing activity of the cement. Thus, prime facie appears that the assessee has not incurred such an expense in relation to its business, i.e. manufacturing of detergents. However, we note that there was common management, board of directors, employees and fund for both the activities of the assessee being detergent and cement project. In such facts and circumstances the Hon’ble Gujarat High Court in the case of DCIT Vs. Gujarat Narmada Valley Fertilizers Co. Ltd. reported in 57 taxmann.com 250 has held as under:

The Tribunal found that management of the existing company engagement in production of fertiliser and the proposed company of Seamless Steel Tube project was the same. The expenditure incurred by the assessee from the same fund of the company. There was a unity of control and common business organization, common administration by the existing Board of Directors and the present employees of the company were involved in the said project. The company’s common place of business was supposed to be used to establish the Seamless Steel Tube Project. In such circumstances, it cannot be said that it is altogether a new business of the assessee-company. Considering the facts involved in the present case, in our opinion, the Seamless Steel Tube Project was an expansion of the present business of the assessee which is supported by the objects mentioned in the memorandum of association. However, ultimately the project was given up by the assessee for some reason even otherwise it is a business loss of the existing company. Considering the entire circumstances of the case and the decisions which have been relied upon by the assessee, in our opinion, the Assessing Officer should have allowed the expenditure as revenue expenditure.

Never materialized, whether expenses incurred towards such project was rigthly treated as revenue expense and not as capital expenditure.

In view of the above, we do not find any reason to interfere in the finding of the Ld. CIT-A. Accordingly, we hold that the assessee is eligible for the deduction of such expenses under the provisions of section 37 of the Act. Hence, the ground of appeal of the revenue is hereby dismissed.

225. The last issue raised by the Revenue is that the learned CIT(A) erred in deleting the upward adjustment in TP report for Rs. 6,00,00,397/- made by the AO/TPO on account of guaranteed fee and interest free loans.

226. In the caption ground of appeal, there were involved the disputes of upward adjustment on account of extension of bank guarantee fee as well as benchmarking of interest on loan and advances. As far as the issue of upward adjustment of Rs. 5,86,08,293/- on Corporate/bank Guarantee is concerned, we note that the identical issue was raised by the Revenue in its ground of appeal for the AY 2010-11 in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2010-11. The appeal of the assessee for the A.Y. 2009-10 has been decided by us vide paragraph No. 208 of this order partly in favour of revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment year 2010-11. Hence, the ground of appeal filed by the Revenue to extent of upward adjustment on corporate guarantee is hereby partly allowed.

227. Coming to the issue of benchmarking of interest loan extended to AE. The necessary facts are that the assessee has extended loan amounting to Rs. 84,82,50,000/- to its AE namely Karnawati Holdings Inc USA and charged interest on the same @ 5%. However, the TPO worked out the ALP of interest rate at 5.38% being LIBOR+409.72 basis point and accordingly made an upward adjustment of Rs. 13,92,104/- only.

228. The aggrieved assessee carried the issue before the learned CIT(A) and submitted that there were several orders of different bench of tribunal where it has been held ALP on interest on loan extended to AE in USA would be LIBOR + 200 to 250 basis points. The average LIBOR rate for the year under consideration was 1.28% and taking the basis points of 250 the ALP would be 3.78% whereas it has charged interest @ 5% on the loan extended to AE. Therefore, no further adjustment is required to be made.

228.1 The learned CIT(A) concurred with the submission of the assessee and deleted the upward adjustment made by the TPO for Rs. 13,92,104/- by observing as under:

12.2 I have carefully considered appellant’s submission and case laws relied upon by the appellant. Appellant submitted that Ld. Transfer Pricing Officer passed an order u/s. 92CA(5) r.w.s. 154 of the I. T. Act dtd. 18.07.2014 revised the addition on account of benchmarking of loan to Rs. 13,92,104/-. The copy of the order u/s 92CA(5) r.w.s. 154 of the I. T. Act was furnished. Appellant submitted that loan granted to its AE (subsidiary company) should be computed at LIBOR plus 200 to 250 points. Appellant submitted that considering the fact that the LIBOR rate during FY 09-10 was 1.28% and by applying the higher rate of 250 basis points the total interest percentage comes to 3.78%. Appellant submitted that it charged interest of 5% and there was no justification for the TPO to take the interest rate at 5.38% by considering the basis points at 409.72 instead of the settled rate as accepted by various Tribunals as relied upon by the appellant in the written submission. After considering the entirety of facts, I am inclined to agree with the contention of appellant and the addition made by the A.O. for 32,23,160/-, which is now revised to Rs. 13,92,104/- as per order u/s. 92CA(5) r.w.s. 154 of the I.T. Act dtd. 18.07.2014 passed by TPO. Accordingly, the addition made for Rs. 13,92,104/- is deleted. This ground of appeal raised by the appellant is allowed.

229. Being aggrieved by the order of the learned CIT(A) the revenue is in appeal before us.

229.1 The learned DR before us vehemently supported the findings of the assessment order.

229.2 On the other hand, the learned AR before us reiterated the findings contained in the order of the learned CIT-A. The learned AR vehemently supported the order of the learned CIT-A.

230. We have heard the rival contention of both the parties and perused the materials available on record. Admittedly, the assessee has extended loan & advances to its AE in USA and also charged interest @ 5% on such loan & advance. However, the AO/TPO worked out the ALP of interest at 5.38% being LIBOR + 409.72 basis points and made upward adjustment but the learned CIT(A) was pleased to delete such upward adjustment. The basis adopted by the learned CIT(A) was that there were series of orders of different Tribunal where ALP of interest extended to AE were taken at LIBOR + 200 or 250 basis points as against the ALP taken by the TPO or present assessee at LIBOR + 409.72 basis points. Considering the finding of learned CIT(A) and the series of order of different bench Tribunal as referred by the assessee during the appellate proceeding if we take the ALP in the case of the present assessee at LIBOR + 250 basis points then interest would be at 3.8% whereas assessee has charged interest @ 5% from its AE which is more than the ALP. Therefore, in our considered view no further adjustment is required to be made on account of benchmarking of interest on loan & advances to the AE. Hence, we uphold the order of the learned CIT(A) regarding issue of benchmarking of interest on loan.

230.1 Thus, in view of the above detailed discussion, the upward adjustment with respect to corporate guarantee fee is confirmed in part whereas upward adjustment on benchmarking of interest is deleted. Hence, the ground of appeal raised by the Revenue is hereby partly allowed.

231. The next issue raised by the Revenue is that the learned CIT(A) erred in allowing the deduction under section 80IA of the Act for Power generation unit located at Bhavnagar.

232. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2009- 10. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 34 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2010-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

233. In the result, the appeal of the Revenue is partly allowed.

Coming to CO No. 63/AHD/2019 in ITA No. 2414/AHD/2015, by the assessee for A.Y. 2010-11

234. The assessee has raised the following grounds of objection:

1) In law and in the facts and circumstances of the Respondent’s case, the learned CIT(A) has grossly erred in points of law and facts.

2) In law and in facts and circumstances of the Respondent’s case, if the addition on account of provision for doubtful advances of Rs.48,96,52,916/- is confirmed, in part or full, for Asst. Year 2006-07, then the said claim should be allowed in current Asst. Year 2010-11 when advances were actually written off.

3) Your respondent reserves the right to add, alter, amend or vary all or any of the above Grounds of Cross Objection as may be advised from time to time.

234.1 The only ground of objection raised by the assessee is that if disallowances of bad & doubtful debt claimed in A.Y. 2006-07 is confirmed then same should be allowed in the current A.Y. being the year in which amount was written off in the books of accounts.

235. At the outset, we note that issue on hand is arising from AY 2006-07 wherein the assessee claimed deduction for the provision of doubtful debt which was disallowed by the AO as well by the learned CIT(A). Against the order of learned CIT(A) the assessee preferred further appeal vide ITA No. 515/AHD/2014 which has been dealt by us vide paragraph No. 20 to 26 of this order. While adjudicating the relevant ground of appeal of the assessee in ITA. 515/AHD/2014 we have confirmed the disallowances made by the AO in A.Y. 2006-07 however we directed to the AO to allow the claim of the assessee in the A.Y. 2010-11 i.e. year under consideration subject to verification. Thus, in our considered view the issue raised in the year under consideration vide captioned CO does not require any separate adjudication. Hence the same is hereby dismissed as infructuous.

236. The assessee, vide application dated 05-03-2020 and 15-02-2021 has pleaded before us for admitting the additional grounds of objection which read as under:

Additional ground vide letter dated 05-03-2020

In law and in facts and circumstances of the Repondent’s case, sales tax benefit of Rs. 52,42,58,190/- should be excluded from the book profit u/s. 115JB of the I.T Act.

Additional ground vide letter dated 15-02-2021

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess (education cess) paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income tax Act, (‘the Act’) while computing the taxable income.

The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

237. At the outset, we note that identical additional grounds were raised by the assessee in ITA NO. 515/Ahd/2014 which were accepted by us vide paragraph No. 36 to 40 of this order. Hence, following the same, the additional grounds raised in captioned CO are also accepted.

238. At the outset, we note that the issues raised by the assessee in its additional grounds of objection for the AY 2010-11 are identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006- 07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2010-11. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 36 to 40 of this order in partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2010-11. Hence, the additional grounds of CO filed by the assessee are hereby partly allowed.

239. In the result, the CO of the assessee partly allowed.

Coming to ITA No. 1872/Ahd/2016, an appeal by the assessee for A.Y.  2011-12

240. The assessee has raised following grounds of appeal:

1) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in the points of law and facts.

2) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming part disallowance of expenses Rs.5,13,814/- u/s.37(1) of the I.T Act.

3) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of delayed payment of Rs.2,733/- to RSIC and Rs.40,932/- to Provident Fund aggregating to Rs.43,665/- as per provision of section 2(24)(x) r.w.s 36(1)(va) of the I.T Act.

4) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in confirming disallowance of previous year adjustment of Rs.28,84,009/-

5) In law and in facts and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234B & 234C of the Act is mandatory.

6) In law and in fact and circumstances of the Appellant’s case, the learned CIT(A) has grossly erred in dismissing appellant’s ground regarding initiation of penalty proceedings u/s.271(1)(c) of Income tax Act.

7) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time.

241. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance made by the AO of general public utility expense for Rs. 5,13,814/- under section 37(1) of the Act.

242. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2011-12 is identical to the issue raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the assessee is hereby allowed.

243. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition made by the AO representing the late payment of employee’s contribution of ESIC and EPF for Rs. 2,733/- and Rs. 40,932/- respectively.

244. The AO during the assessment found that the assessee deposited the employee contribution to ESI and EPF for Rs. 2,733/- and 40,932/- after the due date prescribed under relevant Act. Thus, the AO by invoking the provisions of section 2(24)(x) r.w.s. 36(1)(vi) and after placing reliance on the judgment of Hon’ble Gujarat High Court in case of CIT vs. G.S.R.T.C. in tax appeal No. 673/2010 treated the same as income of the assessee and added to the total income.

245. Aggrieved, assessee preferred an appeal before the learned CIT(A).

246. The assessee before the learned CIT(A) submitted that in case of deposit of ESI, there was delay of just 7 days which occurred due to online payment system. Under ESIC, the technology for online payment was introduced for the first time in the year under consideration. Likewise, the delay in the deposit of PF was for 1 or 4 days which is within the grace period of 5 days. Further, the cheque for the payment of PF was issued before the due date but cleared after due date.

Therefore, the delay was beyond its control. Thus, no addition on this account is required to be made.

247. However, the learned confirmed the addition made by the AO by observing as under:

15.2 I have carefully considered the rival contentions as well as the observation of the A O. It can be observed from para-14 of the assessment order that the appellant has failed in depositing employees contribution in respect of ESIC & PF amounting to Rs.2,733/- and Rs.40,932/- respectively totaling to Rs.43.665/-as per the respective due date. The A.O has disallowed the said amount and added to the total income of the appellant as per the provisions of sec.2(24)(x) r.w.s. 36(1 }(va) of the Act. The provisions of section 43B are applicable in respect of employers contribution and in this context it is different from the provisions of sec.36(1)(va). The Hon’ble High Court of Gujarat in the case of CIT vs Gujarat State Road Transport Corporation 265 CTR 64 have held that when the employer has not credited the sum received by it as employees contribution to employees account in relevant fund on or before due date as prescribed in explanation to section 36(1){va), the assessee shall not be entitled to deduction of such amount though he deposits the said sum before the due date prescribed u/s.43B, i.e. prior to filing of return u/s. 139{1) of the l.T.Act. Since in this case, the employees contribution towards ESIC was not deposited before due date as prescribed in Explanation to Section 36{1)(va), accordingly, addition of Rs.43.665/- is confirmed. This ground of appea! is dismissed.

248. The learned AR before us reiterated the contentions made before the authorities below.

249. On the other hand, the learned DR vehemently supported the order of the lower authorities.

250. We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us is to decide whether the payment of employee contribution made by the assessee towards ESI is within the due date as specified under the relevant Act. In this regard, we note that the assessee has made the payment of employee’s contribution beyond the due date as specified under the relevant Act. Therefore, the same cannot be allowed as deduction. We also note that the identical issue has been decided dated 15th Oct, 2018 by the Hon’ble Gujarat High Court in the case of M/s Checkmate Facility and

Electronics Solutions Pvt. Ltd. v/s DCIT reported in Tax Appeal No.1256 of 2018 against the assessee. The head note reads as under:

“Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) Held that:- Provision requires an employer before paying the employee his wages to deduct the employee’s contribution along with the employer’s own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. If not so paid then no deduction 36(1)(va)”

250.1 From the above it is very clear that the payment under section 36(1)(va) would be allowed in respect to the payment of employee contribution towards ESI/EPF if such payment is made on/before due date as specified under the relevant Act (i.e. 15 days from the month for which salary is due). Thus, the payment made by the assessee on account of employee contribution towards ESI/EPF after the due date stands disallowed in view of the judgment in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. v/s DCIT (Supra). We uphold the order of the lower authorities. Hence the ground of appeal of the assessee is dismissed.

251. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of previous year adjustment for Rs. 28,84,009/- only.

252. The assessee during the assessment filed application for deduction on account of certain adjustment pertaining to the previous year which was rejected by the AO after placing reliance on the judgment of Hon’ble Supreme Court in case of Goetze (India) Ltd vs. CIT 284 ITR 323.

253. On appeal by the assessee the learned CIT(A) also dismissed the ground of appeal of the assessee by observing as under:

16.2 I have carefully considered the rival contentions as well as the observation of the A.O in the assessment order. Appellant submitted that for F.Y 2012-13, previous year adjustment net expense Rs.53,70,290/- was debited to P & L a/c. which was disallowed in the Return of Income for A.Y. 2013-14. Out of this sum, net expenditure of Rs.23,98,687/- pertains to A.Y. 2011-12. Appellant submitted that in the books for FY. 2013-14 previous year adjustment net expense pertaining to A.Y. 2011-12 of Rs.4,85,322/- was debited to P & L A/C. The expenses of Rs.4,85,322/- was not claimed in A. Y. 2014-15 which is included in Rs.71,89,034/- and disallowed the same in the Return of Income for A.Y. 2014-15. Necessary supportings were furnished. Appellant submitted that it had claimed expenses as deduction in A.Y. 2011-12 and had disallowed the said expenses in another AY. The A.O. is directed to verify the above furnished by the appellant. The assessee can only claim the expenses in an A.Y. that pertaining to the corresponding P.Y. except under certain circumstances such as crystallization of liability in a particular P.Y. Therefore, I am of the considered opinion that the disallowance of previous year claim was rightly made by the A.O. for A.Y. 2011-12 i.e AY. under consideration. Hence, the addition of Rs.28,84.009/- is hereby confirmed. Thus, this ground of appeal is hereby dismissed.

254. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.

255. The learned AR before us contended that expenses claimed by the assessee were genuine and this fact was also not doubted by the authorities below. Accordingly, the learned AR prayed for the deduction of the expenses in dispute.

256. On the other hand, the learned DR vehemently supported the order of the authorities below.

257. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee has claimed certain expenses in the books of accounts amounting to Rs. 23,98,687.00 in the financial year ending as on 31 March 2013 i.e. previous year 2012-13 corresponding to assessment year 2013-14 but disallowed the same suo moto in the computation of income on the reasoning that these expenses do not pertain to the previous year 2012-13 corresponding to the assessment year 2013-14. However, it was contended by the assessee that these expenses pertain to the year under consideration and therefore the assessee has claimed deduction for the same by way of letter filed during the assessment proceedings. But the AO disallowed the contention of the assessee on the reasoning that such claim was not made in the income tax return or revised income tax return. The AO while doing so has placed reliance on the judgment of Hon’ble Supreme Court in case of Goetze (India) Ltd vs. CIT 284 ITR 323. Subsequently, the learned CIT-A confirmed the order of the AO.

257.1 There is no dispute with the fact that the assessee during the assessment proceedings can make the fresh claim which was not made during in the return of income. The decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) was regarding the limitation of the power of the assessing authority and did not impinge on the power of the Tribunal.

257.2 It is also a fact on record that the learned CIT(A) in his order has observed that the necessary supporting documents of the claim made by the assessee were filed. No defect has been pointed out by the learned CIT(A). Rather, the learned CIT(A) has given categorical finding that assessee can claim the expenses in the assessment year if such expenses pertaining to the corresponding previous year. In the present case, The assessee is only claiming expenditure, which was left out at the time of filing of original income tax return and in any event, the Assessing Officer has power to make upward or downward adjustments in the income returned filed by the assessee and when the assessee had not claimed certain expenditures clearly evident from the records and it comes to the knowledge of the Assessing Officer at the time of assessment proceedings, the Assessing Officer should grant relief to the assessee. Likewise, CBDT’s in its Circular No.14 (XL-35), dated April 11, 1955, directed that the Assessing Officer must not take advantage of the ignorance of the assessee as to his rights. In view of the above and after considering the facts in totality, we set aside the finding of the ld. CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed.

258. The next issue raised by the assessee vide ground Nos. 5 to 6 of its appeal are either general, consequential, or premature to decide. Hence the same are dismissed accordingly as infructuous.

259. The assessee, vide application dated 05-03-2020 and 15-02-2021 has pleaded before us for admitting the additional ground of appeal which read as under:

259.1 Additional ground vide letter dated 05-03-2020

In law and in facts and circumstances of the Appellant’s case, sales tax benefit of Rs.55,0073,308/- should be excluded from the book profit u/s. 115JB of the I.T Act.

259.2 Additional ground vide letter dated 15-02-2021

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess (education cess) paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income tax Act, (‘the Act’) while computing the taxable income.

The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

260. At the outset, we note that identical additional grounds were raised by the assessee in ITA NO. 515/Ahd/2014 which were accepted by us vide paragraph No. 37 of this order. Hence, following the same, the additional grounds raised in captioned appeal are also accepted.

261. At the outset, we note that the issues raised by the assessee in its additional grounds of appeal for the AY 2011-12 are identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2011-12. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 36 to 40 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 2011-12. Hence, the additional grounds of appeal filed by the assessee are hereby partly allowed.

262. In the result, appeal of the assessee is hereby partly allowed.

Coming to ITA No. 2237/AHD/2016, an appeal by the Revenue for A.Y. 2011-12

263. The Revenue has raised following grounds of appeal:

1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.56,21,38,408/- made on account of disallowance of claim of sales tax subsidy holding the same as capital receipts instead of revenue receipts as held by the AO.

2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 13,00,87,749/- made on account of disallowance of excess claim of depreciation on intangible assets.

3. The Ld. CIT(A) has erred in law and on facts in restricting the addition to Rs.5,13,814/- from Rs.36,82,314/- made on account of disallowance of general utility expenses.

4. The Ld. CIT{A) has erred in law and on facts in deleting the disallowance of Rs. 7,65,211/- made u/s. 14A of the Act.

5. The Ld.ClT(A) has erred in law and on facts in deleting the addition made on account of MAT provision u/s. 115JB of the Act of Rs.7,65,211/- in view of disallowance u/s. 14A of the Act.

6. The CIT(A) has erred in law and on facts in deleting the addition of Rs.70,35,164/- made on account of disallowance of product registration expenses.

7. The Ld. CIT{A) has erred in law and on facts in allowing the deduction u/s. 80-IA of the Act claimed in respect of power generation unit at Bhavnagar.

8. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,46,11.492/- made on account of guarantee lees and Rs. 13,52,501/- on account of benchmarking of loan u/s. 92CA(3) of the Act.

9. The CIT(A) has erred in law and on facts in deleting the addition of Rs.5,45,062/- made on account of doubtful advances written off.

10. The CIT(A) has erred in law and on facts in deleting the addition of Rs.4,89,80,354/- made on account of doubtful advances written off.

11. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs,5,14,00,000/- made on account of excess provision written back.

12. On the facts and circumstances of the case, the Ld. Commissioner of Income ia\ (A) ought to have upheld the order of the Assessing Officer.

13. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax A -may be set-aside and that of the Assessing Officer be restored.

264. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO by treating the sales tax benefit of Rs. 56,21,38,408/- as revenue receipt.

265. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the Revenue for the A.Y. 2006-07 has been decided by us vide paragraph No. 62 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 20 11-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

266. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance made by the AO of excess depreciation on intangible assets for Rs. 13,00,87,749/- only.

267. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the Revenue for the AY 2007-08 has been decided by us vide paragraph No. 112 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 20 11-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

268. The next issue raised by the Revenue is that the learned CIT(A) erred in restricting the disallowance of general public utility expense for Rs. 5,13,814/- instead of confirming whole disallowances of Rs. 36,82,314/- only.

269. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 685/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 685/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the Revenue for the AY 2006-07 has been decided by us vide paragraph No. 70 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the assessment year 20 11-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

270. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of Rs. 7,65,211/- made under section 14A of the Act.

271. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2011-12. The appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 186 of this order partly in favour of the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the Revenue is hereby partly allowed.

272. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 7,65,211/- while calculating the book profit under the MAT on account of the disallowance under section 14A of the Act.

273. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2011-12. The appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 199 of this order partly in favour of revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the Revenue is hereby partly allowed.

274. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of product registration expense of Rs. 70,35,164/- only.

275. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 2411/AHD/2015 for the assessment year 2009-10. Therefore, the findings given in ITA No. 2411/AHD/2015 shall also be applicable for the assessment year 2011-12. The appeal of the Revenue for the AY 2009-10 has been decided by us vide paragraph No. 193 of this order against the revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment years 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

276. The next issue raised by the Revenue is that the learned CIT(A) erred in allowing the deduction under section 80IA of the Act for Power generation unit located at Bhavnagar.

277. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 34 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

278. The last issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition on account of guaranteed fee for Rs. 3,46,11,492/- and benchmarking of loan for Rs. 13,52,501/- only.

279. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issues raised by the Revenue in ITA No. 2412/AHD/2015 for the assessment year 2010-11. Therefore, the findings given in ITA No. 2412/AHD/2015 shall also be applicable for the assessment year 2011-12. The appeal of the Revenue for the A.Y. 2010-11 has been decided by us vide paragraph No. 226 to 230 of this order partly in favour of the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the Revenue is hereby partly allowed.

280. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of doubtful advance written off for Rs. 5,45, 062/- only.

281. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 19 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

282. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 4,89,80,354/- made by the AO on excess provision written off.

283. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issues raised by the assessee in ITA No. 515/AHD/2014 for the assessment year 2006-07. Therefore, the findings given in ITA No. 515/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the assessee for the A.Y. 2006-07 has been decided by us vide paragraph No. 19 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006- 07 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

284. The next issue raised by the revenue is that the learned CIT(A) erred in deleting the addition of Rs. 5.14 crores on account of benefit arising on the settlement of loans liabilities.

285. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue in ITA No. 686/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 686/AHD/2014 shall also be applicable for the assessment year 2011- 12. The appeal of the Revenue for the AY 2007-08 has been decided by us vide paragraph No. 123 of this order against the revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2007-08 shall also be applied for the assessment year 20 11-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

286. In the result the appeal of the Revenue is hereby partly allowed.

Coming to ITA No. 2049/Ahd/2017, an appeal by the assessee for the AY 1996-97

287. The only issue raised by the assessee is that the learned CIT(A) erred in rejecting its claim of additional compensation on delayed grant of interest under section 244A of the Act.

288. The facts in brief are that the assessee for the year under consideration filed the return of income declaring total income at Rs. nil and further claimed refund of tax deducted at source and advance tax paid for Rs. 1,39,77,665/- only. However, the assessment was framed by the AO under section 143(3) of the Act dated 30-03-1999 determining total income at Rs. 16,43,11,720/- only. Finally, the dispute reached the Tribunal and an order dated 12-11-2008 was passed. Consequentially, the AO in giving effect order dated 15-01-2009 has determined the amount of refund at Rs. 75,00,281/- without granting interest under section 244A of the Act. The assessee filed a rectification application date 11-02-2009 to grant interest under section 244A of the Act which travelled up to Tribunal and the Tribunal vide order dated 27-03-2015 directed the AO to dispose of the rectification application as per law. The AO in the effect giving order dated 07-08- 2015 granted interest of Rs. 22,12,583/- on the amount of refund for the period March 2004 to January 2009. The amount of refund for Rs. 22,12,583/- being interest under section 244A was adjusted against demand of A.Y. 2011-12 as on 04-05-2016.

288.1 Thus, the assessee made a claim for additional compensation of interest under section 244A of the Act for the period February 2009 to May 2016. But the AO rejected the claim of the assessee for additional compensation as claimed by the assessee.

289. On appeal, the learned CIT (A) was also pleased to confirm the order of the AO by relying on the order of the Tribunal in case of Hirenbhai Karsanbhai Patel vs. ACIT bearing IT(SS)A No 462/AHD/2013.

290. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

290.1. The learned AR before us filed a paper book running from pages 1 to 105 and contended that the amount of refund given by the revenue first should be adjusted against the interest payable by the Revenue. As such the amount of the refund first should be adjusted against the interest payable to the assessee. Accordingly, the ld. AR requested for the grant of interest under the provisions of section 244 A of the Act.

290.2 On the other hand, the learned DR vehemently supported the order of the authorities below.

291. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee has been granted refund of Rs. 75,00,281/- and interest under section 244A of the Act on the same for Rs. 22,12,583/- for the period of March 2004 to January 2009. The dispute is limited to the extent of additional compensation for interest under section 244A of the Act which was granted on a later date. In this regard, we note that the refund amount was determined in the month of January 2009 on which assessee was eligible for interest under section 244A of the Act for Rs. 22,12,583/- till January 2009. Therefore, the total amount due to the assessee on account of refund and interest thereon was for Rs. 97,12,864/- (Rs. 75,00,281/- + Rs. 22,12,583/-). However, refund for Rs. 75,00,281/- was only issued in the month of February 2009 meaning thereby only principal amount of refund was issued to the assessee. Thus, the question arises whether only the refund issued for Rs. 75,00,281/- can be adjusted against the principal amount due or against the interest amount under section 244A of the Act. This question has been answered by Mumbai Tribunal in the case of Union Bank of India vs. ACIT reported in 72 taxmann.com 348 wherein it was held that the amount of refund issued to the assessee will be first adjusted against the interest then, after that against the principal amount. The relevant finding of the Mumbai Tribunal is extracted as under:

“3.10 It is noted from the observations of the Hon’ble Supreme Court that it has been observed that whatever money has been received by the department, it ought to be refunded ex aequo et bono. It is a Latin phrase which means ‘what is just and fair’ or ‘according to equity and good conscience’. Something to be decided ex aequo et bono is something that is to be decided by principles of what is fair and just. A decision-maker who is authorized to decide ex aequo et bono is not bound by legal rules but may take account of what is just and fair. Thus, if we decide the issue before us ex aequo et bono, then it would be decided by the principles of what is fair and just and not necessarily as per strict rule of law. Thus, since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided. Under these circumstances and aforesaid discussion, we find that the judicial propсetary demands that order of the Tribunal of earlier years must be followed and therefore we direct the AO to re-compute the amount of interest u/s. 244A by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Thus, with these directions, the appeal of the assessee is allowed.”

291.1 From the above we hold that the amount of refund granted to the assessee, first, has to be adjusted against the interest payable to the assessee in the given facts and circumstances. Considering the fact that the amount of refund issued to the assessee for Rs. Rs. 75,00,281/- was first to be adjusted against the interest of Rs. 22,12,583/- then refund of principal amount. Admittedly, the interest for Rs. 22,12,583/- was finally issued to the assessee in the month of May 2016. Thus, the assessee will be entitled to interest under section 244A of the Act for the delay in issuing of refund for Rs. 22,12,583/- which represents the principal amount.

291.2 The above principle was also followed and held in favour of assessee by this tribunal in case of Karsanbhai Kacharabhai Patel HUF vs. ITO in ITA No. 183/AHD/2022.

291.3 Before parting, we are also conscious to the fact that the AO has made a reference in his order to the judgment of the Hon’ble Supreme Court in the case of Gujarat Flouro chemicals reported 24 taxmann.com 338. Likewise, the learned CIT-A relied upon the order this tribunal in the case of Hirenbhai Karsanbhai Patel vs. ACIT in IT(ss)A No. 462/Ahd/2013 wherein the coordinate bench after making reference to judgment of Hon’ble Supreme Court in the case of Gujarat Flouro chemicals (supra) decided the issue against the assessee. Though, the facts in case of Hirenbhai Karsanbhai Patel and the facts in the case of present assessee is somewhat identical, but it is important to highlight the issue of adjustment of refund firstly liable to be adjusted toward interest and then towards principal amount. Nevertheless, it is important to note that the impugned orders were not brought to the notice of the Bench. Therefore, we are inclined to deviate from the order coordinate bench of this tribunal in case of Hirenbhai Karsanbhai Patel vs. ACIT (supra) which was passed in different background.

291.4 In view of the above and respectfully following the order of Mumbai tribunal in the case of Union Bank of India vs. ACIT as discussed above and the order of this tribunal in the case of Karsanbhai Kacharabhai Patel HUF vs. ITO(supra), we hereby set aside the finding of the learned CIT(A) and held that the assessee is entitled to additional compensation of interest under section 244A of the Act on account of delay in the issue of refund . Thus, the ground of appeal raised by the assessee is hereby allowed.

292. In the result, the ground of appeal of the assessee is hereby allowed.

293. In the combined results, the outcome of the appeals of the assessee and Revenue are as follows:

Sr.
No.
ITA No. Asstt.
Year
Appeal filed by Result
1-2 515-516/AHD/2014 2006-07 & 2007-08 Assessee Partly Allowed
3-4 685-686/AHD/2014 2006-07 & 2007- 08 Department Dismissed
5 1744/AHD/2016 2006-07 Department Dismissed
6 911/AHD/2012 2008-09 Assessee Partly Allowed
7 969/AHD/2012 2008-09 Department Dismissed
8 2236/AHD/2015 2009-10 Assessee Partly Allowed
9-10 2411 & 2412/AHD/2015 2009-10 & 2010-11 Department Partly Allowed
11 CO. NO. 63/Ahd/2019 (in ITA No.2412/Ahd/2015) 2010-11 Assessee Partly Allowed
12 1872/AHD/2016 2011-12 Assessee Partly Allowed
13 2237/AHD/2016 2011-12 Department Partly Allowed
14 2049/AHD/2017 1996-97 Assessee Allowed

Order pronounced in the Court on 30/06/2023 at Ahmedabad.

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