THE ASSISTANT COMMR. OF INCOME TAX, GANDHIDHAM CIRCLE,, GANDHINAGAR vs. M/S KUTCH SALT & ALLIED INDUSTRIES LTD.,, GANDHIDHAM

The summarized and concise grounds of cross objections of the assessee are as follows:

The summarized and concise ground No.1 of revenue is reproduced below for ready reference: (i) Ground No.1. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of washing/ handling loss of salt of Rs.2,67,03,424/-. This is Ground No.1 of Revenue`s appeal for assessment year 2009-10 in 2016. The above similar and identical ground is raised by the revenue, in other appeals, which are as follows: (a) Ground No.1, in Revenue`s appeal in 2010–11, at Rs.5,11,72,998/-.

Brief facts qua the summarized and concise ground No.1 of revenue, are as follows: During the assessment proceedings, the assessing officer noticed that certain discrepancy was pointed out by the Special Auditor. The special auditor noticed that assessee maintained production records in computerized accounts (Tally), only. The company claimed washing loss and washing loss during the year from salt produced and reduced from production of salt / stock of salt. During the year, the company has claimed washing loss of 58724 MT ie. 10% on production of 587239 MT and washing loss of 107675 MT, which is 20% of net production 528515 MT (587239 MT less washage loss 58724 MT). In absence of proper stock records at salt manufacturing site and evidences for such claim, it is quite difficult to consider the claim as there is no stock data physically maintained at any stage. Therefore, the assessing officer issued a show-cause notice to the assessee, asking the assessee, to furnish necessary documentary evidences and day to day basic production, wastage loss accounts maintained at site, if any.

In response to the notice of the assessing officer, the assessee submitted the following written submission with documentary evidences before the assessing officer, which is reproduced below. “At the outset we submit that shortage/loss of quantity occurs at two different stages. At first stage, while extracting the salt from salt pan/maffer& shifting the same to the platform (production stage) where salt is stacked in heaps and thereafter in transferring the same to washery unit where washing process of the salt is carried out. As stated above the shortage in the first instance comes to about 10% of the manufactured commodity. Such losses occurs due to the reason that when salt is extracted from the salt pan/maffer, there is water-content therein and with the passage of certain period of time the same gets evaporated in sun light and therefore there will be variation in the quantity of the salt at the time of extraction and before the time when the same is shifted to washery unit for mechanized washing process. We also submit that the shortages cannot ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 be expected to be at a fixed level and are necessarily variable on account of various factors including the natural forces like heavy rains, cyclones etc. in the salt business. The stock in trade of salt is not kept in well defined sheltered or protected area in packed and stacked bardans with fixed quantity. The salt is kept in big heaps on open land. Such stock has to be regularly washed to remove the dust that would settle in course of time, and in the process the salt gets washed away. The stock also reduces heavily in monsoon due to rains. Statement are enclosed to show that this type of Shortages / Wastages suffered by the assessee company from year to year. At second stage, in this particular case the assessee company has additional process of mechanical Washery and the entire quantity of the salt moves on the conveyer belt in a relatively thin layer and is washed through continuous shower of water thereon in a mechanized process to remove impurities and to reduce calcium and magnesium so that the same can be utilized for industrial purpose. Thus, in addition to the natural forces like monsoon etc., to make the salt look white for being exported its washing is done through washery resulting in more loss and shortage which almost comes around 20% of the total quantity that has gone into mechanized washery unit for washing purpose. We may further submit that the assessee company has to file monthly statement to the Department if the Government of India every month giving particulars often at the end of the previous month, Quantity of Slatt manufactured thing the Month Quantity of Salt removed from the factory on payment of Cees Quantity of Balt removed from the factory for Export without payment of Cess, Quantity of Ball removed other than for Export/ Local Sales and Closing Balance. We are enclosing herewith copies of statements for the Financial Year 2008-09 for your kind perusal and record. We submit that the Officers of the Salt Department also make one or two surprise inspections of the she and check the stock on hand at the time of visit. Based on these statement we have prepared a summary statement which is enclosed herewith for your perusal and record.

However, the assessing officer rejected the above reply of the assessee and observed that the contention of the assessee that the handling loss/washing loss should be allowed on the total turnover of the assessee and the actual shortage as per quantity details comes to 4.71%,was not acceptable because the shortage has to be worked out in respect of the production. As per the details, for the year under consideration, the production of salt was 5,87,239, as against shortage of 1,66,399, has been claimed, which is 28.33% of the production of salt. Therefore, the washing loss claimed by the assessee was restricted to 10% and the excess shortage @ 18.33(28.33% - 10%) claimed by the assessee was disallowed. The disallowance of excess washing loss worked out, by the assessing officer is as under:

On appeal, the ld. CIT(A) deleted the addition. The ld CIT(A) noticed that only substantive ground on which the assessing officer has made the addition is that the assessee has suffered and claimed a quantity of washing and handling loss of salt which is considered by him to be higher than what as per his own standard, would be a reasonable loss and second reason cited by the assessing officer was non maintenance of day-to-day quantity records by the assessee. The ld CIT(A) noticed that there is arbitrariness and unreasonableness in the assessing officer`s action is written large on the face of the assessment order The assessing officer even in the face of the categorical submission of the assessee, about filed visits by the Special Auditors to witness the process/stock, has preferred to simply goby the observation of the Special Auditor, completely overlooking the assessee’s submissions. The ld CIT(A) noted that how and why the simple submission of the assessee that claim of washing loss is supported by monthly statement, submitted to the Salt Department and is also supported by certificate of an expert, failed to find assessing officer's approval, and on the other hand why he simply relied on ‘wide variation’ in loss claimed by the assessee across years. The ld CIT(A) observed that the books of accounts are audited u/s 44AB and have not rejected u/s 145(3) by the assessing officer. The elementary rule, is that estimated additions cannot be made without rejection of books of accounts under section 145(3) of the ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 Act, on the basis of demonstrated defects in books of accounts, and consequent completion of the assessment as provided u/s 144 of the Act. This aspect has completely been overlooked by the assessing officer while making the addition.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We note that issue under consideration is squarely covered by the decision of the Co- ordinate Bench, in assessee`s own group case, in No.135/Ahd/2016, Kandla Exports Corporation, order dated 28.02.2025. The arguments of ld. DR for the revenue and ld. Counsel for the assessee, were considered in the group case, and both the Counsels have argued in a similar and identical manner, as argued in the case of Kandla Exports Corporation( supra). The facts and findings of the Co-ordinate Bench in the case of Kandla Exports Corporation( supra), are reproduced below.

Brief facts, qua the issue are that during the assessment proceedings, the assessing officer noticed the discrepancy pointed out by the special auditor and observed that assessee has claimed handling/spillage/wastage loss from salt trading. During the year, the firm has claimed handling/spillage/wastage loss of 18,092 M.T. During the course of audit, the firm was asked to provide explanation ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 on such claim with proper evidences. However, no satisfactory written explanation and evidences were provided by the assessee. Therefore, assessing officer, issued a show-cause notice stating that why the handling/spillage/wastage loss of 18,092 M.T. may not be disallowed being non- genuine.

In response, to the notice of the assessing officer, the assessee submitted its reply before the assessing officer with documentary evidences, which is reproduced below: “The Assessee- firm submits that they are engaged in the business of trading of goods and commodity. During the year under consideration, they had opening stock and purchases, aggregate quantity of which came to 8,34,887.338 Mt. After considering the sales and closing stock aggregating to 8,16,795.595 Mt; the shortage came to 18,091.743 Mt. Thus, on the turnover of the total quantity of 8,34,887.338 Mt. the shortage of 18,091.743 Mt. works out to 2.17% only which could not be considered high considering the particular facts and circumstances of this line of business. It may also be submitted that the shortages cannot be expected to be at a fixed level and are necessarily variable on account of various factors including the natural forces like heavy rains, cyclones etc. The specific circumstances of the case are explained below. In the salt business the stock in trade of salt is not kept in well defined sheltered or protected area in packed and stacked bardans with fixed quantity The salt is kept in big heaps on open land. Such stock has to be regularly washed to remove the dust that would settle in course of time, and in the process the salt would also get washed away. The stock would also reduce heavily in monsoon due to rains. Due to these reasons the stock of salt is reduced. It may also be mentioned here that the quantity of stock in a heap cannot be actually weighed. Even when the salt is purchased or sold the weight is approximate based on the truck capacity or tonnage. When the purchased salt arrives, it is unloaded on the heap. At the year-end after considering the sales and closing stock the shortage is arrived at. The quantity of closing stock lying in a heap the open plot of land has to be determined by approximation taking into account the size (length and width) of the heap and its height. There is no other way to determine the quantity. It is simply impossible, impracticable and unviable to do weighing of the stock of salt in heap. If one happens to travel to Kutch many such big heaps of salt would be seen. We may submit that the Team of the Special Auditor demanded to see such heaps of salt and the process of washing etc. They were taken to visit several of such heaps where they personally saw the watering/washing of the salt in the heap and the consequential loss of stock with the salt getting washed away. In fact, the Special Auditor had also been informed in writing that as per his demand his Team Members were taken for visit and had seen the process of washing on 05-07-2014 and again on a second occasion on 01- 09-2014. In this background of facts when Team of the Special Auditor having witnessed the process of washing and consequential loss of stock with their own eyes it is really incomprehensible that the Special Auditor has raised the issue and that too by working out in illogical manner highly exaggerated percentage of shortage.”

However, the assessing officer rejected the above contention of the assessee and observed that during the course of special audit, the assessee has not submitted any documentary evidence in respect handling/spillage/wastage loss from Salt trading of 18,092 MT. Further, the reply of the assessee in this regard is general nature. The assessee has claimed 18,092 MT of handling/Spillage/wastage loss. The value of such goods at closing rate comes to Rs. 750/- per MT; therefore, the claim of ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 handling/Spillage/wastage loss work out to Rs. 1,35,69,000/-, ( 18,092 x Rs.750), hence, the same was disallowed by the assessing officer and added to the total income of the assessee.

Aggrieved, by the addition made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A), who has deleted the addition made by the assessing officer. The ld CIT(A) observed that the stock of salt is kept in open and obviously there are spillages and wastages on account of loading, unloading wind, washing, rain and even inaccuracy in quantification of purchase and sale, a reasonable claim of wastage/spillage is bound to be there and cannot be disputed without any adverse material brought on record. Hence, ld. CIT(A) deleted the addition.

Learned DR for the revenue argued that during the year, the assessee has claimed handling/spillage/wastage loss of 18,092 M.T and when the assessee was asked to provide explanation on such claim, no satisfactory written explanation and evidences were provided by the assessee. Therefore, assessing officer, has rightly made the addition.

We have gone through the findings of the ld. CIT(A), as noted above, and observed that there is no any infirmity in the conclusion reached by the ld. CIT(A). Therefore, after having regard to the given facts and circumstances of the case, it is difficult to differ with the findings of the ld.CIT(A).

In the result, following grounds raised by the revenue, are dismissed. (i)Ground No.1 of Revenue`s appeal for assessment year 2009-10 in 2016. (ii) Ground No.1, in Revenue`s appeal in 2010–11, at Rs.5,11,72,998/-. (iii) Ground No. 1 in Revenue`s appeal in 2016, for assessment year, 2011–12, at Rs. 5,03,65,370/-. (iv) Ground No.1 in Revenue`s appeal in 2016, for assessment year 2012–13 at Rs.5,96,99,728/-. (v) Ground No.2 in Revenue`s appeal in ITA No. 366/RJT/ 2017, for assessment year 2013–14, at Rs.9,63,60,980/-.

Summarized and concise ground No.2 raised by the revenue, is reproduced below for ready reference:

Brief facts qua summarize, and concise ground No.2 of the revenue, are as follows. During the assessment proceedings, the assessing officer noticed the discrepancy pointed out by the Auditor. During the year, Iron Ore of Rs.

In response, to the above show-cause notice, the assessee, submitted written submission along with evidences, before the assessing officer, which are reproduced below:

However, the assessing officer rejected the contention of the assessee and observed that the reasons given by the assessee for purchase from M/S Terapanth Foods Ltd, @ of Rs. 1227.23 PMT is of general nature and not convincing. The assessee has purchased of Iron Ore from Group concern @ of Rs. 1227.23 Per, MT as against of Rs. 920.98/-Per, MT. Therefore, the assessee has inflated the purchase price @ of Rs. 296.25/- Per, MT. Therefore, the excess claim of purchases was ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 worked out by the assessing officer to the tune of Rs. 2,76,70,570/- and the same was added to the total income of the assessee.

Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.

Learned DR for the revenue argued that it has been pointed out by the Special Auditor that the iron-ore of 1,41,890.76 MT worth Rs.15,83,48,463/- was purchased from group concerns" namely, M/s Terapanth Foods Ltd and M/s Nidhi Mining during the year. The assessing officer, on the basis of the observation of the Special Auditor, called upon the assessee to explain the reason as to why the purchases from Terapanth Foods Ltd, has been made at a higher average price of Rs.1217.23 per MT as against average purchase price of only Rs.920.98, from M/s Nidhi Mining. The assessee has failed to provide the reasonable explanation, therefore addition made by the assessing officer may be sustained.

We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 record. We find merit in the submissions of ld. Counsel for the assessee, to the effect that the price difference, as observed by the assessing officer can occur for variety of reasons, including the business needs, quality of goods, location of goods and bargaining capacity of the parties. We find that all the purchases and sales are fully vouched and paid by account payee cheques and the transactions are completely genuine. We note that though both the parties are group concerns, none of them come under the purview of section 40A(2)(b) of the Act and hence the assessing officer's action of comparing the purchase price and holding that the purchases from one of them is at inflated rate vis-à-vis those from other, is without any authority in law, particularly when there is no allegation of sham or bogus nature of the transactions or receipt back of cash from M/s Terapanth Foods Pvt. Ltd. The purchases by the group concerns and sale by the assessee are duly vouched, paid for by account payee cheques, supported by audited books of accounts. It was further submitted that F.Y. 2008-09 is the first year of trading activity of export of iron-ore by the assessee. The ld CIT(A) gone through the copies of the accounts of iron-ore purchases, and of Terapanth Foods and Nidhi Mining Pvt. Ltd, as in assessee's books. During the proceedings the assessee highlighted that the copies of accounts as available on page no.9, 10, 11 and 12 of the Audit Report (page 249-252 of the paper book), and relied upon by the assessing officer, are not the full and actual copies of relevant accounts, as were available in the books of accounts audited by the Special Auditor, but are merely partial and truncated copies (extracts) of the original accounts, giving only partial information about the transactions.

About the addition for assessment year 2010–11, the ld. CIT(A) observed as follows:

We note that issue under consideration is squarely covered by the decision of the Co-ordinate Bench, in assessee`s own group case, in No.135/Ahd/2016, Kandla Exports Corporation, order dated 28.02.2025. The arguments of ld. DR for the revenue and ld. Counsel for the assessee, were considered in the group case, and both the Counsels have argued in a similar and identical manner, as argued in the case of Kandla Exports Corporation( supra). The facts and findings of the Co-ordinate Bench in the case of Kandla Exports Corporation( supra), are reproduced below.

Brief facts of the issue in dispute are stated as under. During the assessment proceedings, the assessing officer called for to ascertain the quantum of secured loan used for business purpose of the concern. On verification of Accounts, it was noticed by the assessing officer that the assessee- firm has taken loan from banks on hypothecation of stock -in- trade and personal properties of partners. The firm has paid interest on such loans amounting to Rs. 3,79,17,821/-, Bank charges Rs. 18,70,159/-, loan documentation charges Rs. 625,989/-. Thus, on borrowed funds interest is given to the banks by the assessee. On verification of Bank Loan Accounts and loan accounts in the computerized accounts, it was observed by the assessing officer that the assessee- firm has given loan to some group concerns, against which there is no business transactions, hence it appears to be not for business purpose and no interest is charged on such loans. Therefore, during the assessment proceedings, the assessing officer, issued notice to the assessee, asking the assessee to furnish the nature of transactions and immediate source of advancement of such interest free advances.

In response to the above notice of the assessing officer, the assessee submitted its reply before the assessing officer with documentary evidences, which is reproduced below: “As desired we are furnishing herewith copies of the concerned Group concerns, of the bank accounts from the books and also the bank statements. Further, we may submit for your kind information that the assessee-firm has huge funds of Rs. 28,34,76,940/-as against this interest-free advances of Rs.4,35,00,000/- were given us on 31.03.2011. It may further be submitted that out of Rs. 4,35,00,000/- Rs. 2,15,00,000/- were given to M/s. Maharaja Salt Works for purchase of Salt in the earlier year. As the said party has not supplied the Salt to the assessee-firm a Civil suit is filed against them in Gandhidham Court. Therefore, the advance mentioned to that extent are given for commercial consideration having business purpose. Further, there was no relationship attracting Section 40A(2)(b) of Act. As far as Opening Credit Balance of Rs. 1,26,868/-in the Account of M/s. Friends Mercantile Pvt. Ltd., are concern it may be submitted that the assessee- firm maintains two accounts (ie. Bill Account and Loan Account) in their books of M/s. Friends Mercantile Pvt. Ltd., and as per the bill account an amount of Rs. 1,26,868/-is payable to them. Your Honour will kindly see that disallowance is not called for on the facts of the case.”

On the other hand, Learned Counsel for the assessee, Shri K. C. Thacker, vehemently argued that assessee, has huge funds of Rs.28,34,76,940/-, available, as on 31-03-2011, on which no interest is payable, as against interest-free advances given to parties of Rs.4,35,00,000/-. This included Rs.2,15,00,000/- given to Maharaja Salt Works, as advance for purchase of salt. The said party failed to supply salt. Therefore, a civil suit is filed against Maharaja Salt Works for recovery. Thus, the advance was given for commercial consideration for the purpose of business. There was also no instance of relationship attracting section 40A(2)(b) of the Act. The assessee also furnished the bank accounts, as per books, statement of accounts, from the banks and accounts of these concerns, as called for by the assessing officer. The assessee had also supplied detailed statement showing secured loans, interest-free funds advances etc. by letter filed on 20- 11-2014 for all the financial years 2005-06 to 2011-12, to examine as a bird eye, overall position of the group. The assessing officer in his "conclusion" has found that the claim disallowable, making vague observation that looking to the capital and reserved surplus and the investment in fixed assets it was found by the assessing officer that no interest-free funds were available with the assessee for giving interest-free advances to these concerns. Thus, assessing officer has accordingly made disallowance of Rs.68,13,104/-, on the ground that the assessee has not discharged the onus of proving nexus of non -interest bearing fund has been utilized for giving interest-free advances.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessing officer has made the disallowance u/s. 36(1) (iii) of the Act, out of claim of interest payment on loans taken by the assessee. We find that the provisions of section 36 (1) (iii) of the Act, are enabling provisions, whereby interest claimed is required to be allowed, as a deduction to the assessee, provided the claim is genuine. For the sake of clarity and also being pertinent, we reproduce the provisions of section 36(1) (iii) of the Income Tax Act 1961, ( to the extent useful for our analysis), as follows: "Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) ……; (ia)……..; (ib)…….- (ii)…….; (iia) [Ommited by the Finance Act,1999, w.e.f. 1-4-2000;] ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession, Provided…… Explanation.-……..,” 24.The above provision mandates that payment of interest on loans borrowed for business purpose shall be allowed. Therefore, the assessing officer is obliged to allow the payment of interest on loans taken for business purpose. If, however, the Assessing Officer seeks to make disallowance of interest by invoking the provision of section 36 (1) (iii) of the Act, it is for the assessing officer to establish that interest is paid on the loans, not used for business or that it is diverted for non-business purpose, provided the assessee has submitted all the details before the assessing officer for this purpose, as and when called by the assessing officer, then burden shifts on the assessing officer to explain the assessee that based on the documents and evidences interest bearing funds were used by the assessee for giving interest free advances for non-business purposes. In the assessee`s case under consideration, the assessee submitted details and documents and explained before the assessing officer that had enough interest free funds available for giving interest free advances. There is no failure on the part of the assessee to submit relevant documents and evidences before the assessing officer to prove that sufficient interest free funds available in the Balance Sheet of the assessee. We find that in the assessee`s case, the assessee has taken interest-bearing loans for specific purposes, and the facts that these loans are actually used for the stated business purposes could be verified from paper-book pages 281 & 282 of the assessee`s paper book.We find that the issue of interest-free advances made to the parties, as mentioned by the Special Auditor, the assessing officer required the assessee to make compliance, as shown below. "You are requested to furnish copies of the bank accounts as appeared in your account books and bank statements furnished by the banks, through which the transactions of advancing amounts were made by you with the aforesaid parties so that the immediate source of funds can be examined." The above question of the assessing officer, reflects the assessing officer's intention to find immediate source of interest-free advances to the listed parties, as per the mandate of the section 36(1) (iii) of the Act. In the order of assessing officer, under appeal, the assessing officer has recorded that the accounts called for by him were produced by the assessee, including documents and evidences. The assessing officer has, however, not brought on record facts/material based on his examination of the accounts and has not established the immediate source of interest-free advances to be the interest-paid loans received by the assessee. When the burden shifts on the assessing officer, then it is duty of the assessing officer to find out the mistakes and errors in the documents so submitted by the assessee.The whole exercise is to be based on facts and it is the duty of the assessing officer to marshal all the facts and come to a logical conclusion about the income of the assessee for the year under consideration. For that we rely on the Judgment of Hon'ble Supreme Court in case of Sreelekha Bannerjee (491 ITR 122), wherein it was held that “ ..... before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence, which it has in possession ...”

We find that instead, the assessing officer made unverified and wrong statement that "no interest-free funds were available with the assessee" and irrelevant statement that "the assessee has also not furnished any details or evidence to establish that impugned advances were given for business expediency". The assessing officer has failed to realize that the obligation to establish business expediency would arise on the part of the assessee only when the assessing officer has discharged his obligation to show ( provided ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 the assessee has filed all documents and evidences, as required by the assessing officer, to explain the interest free funds) that any part of interest-bearing loans have been diverted for non-business purposes. In this regard, reliance is placed upon the judgment of Hon'ble Delhi High Court, reported in (2011) 331 ITR 0502, wherein it was held as follows: "12. In the instant case, from the orders of the CIT (A) and that of Tribunal, as reproduced above, in paras 3 and 6, we note that the assessee was maintaining a bank account with mixed common funds in which all deposits and withdrawals were made. There was no specific instance noted by the assessing officer in respect of any direct nexus between the borrowed fund and the said advances made to the subsidiaries. The assessing officer had made general observations without going into the depth of the matter and without pointing out any specific instance where an interest- bearing borrowing was advanced to the subsidiaries or establishing that the borrowings made by the assessee were not for business purposes."

We find that the issue of disallowance u/s.36 (1) (iii) of the Act, out of the claim of interest, arose in the assessment proceedings, on account of the report of the Special Auditor, who had only mentioned that the assessee has taken loans from Banks/Financial institutions and has paid interest. The Special Auditor, then, gave a list of parties who were given interest-free loans and also provided their ledger accounts (page 19/paper- book). When the Spl. Auditor was able to provide such information/ledger accounts from the books of account, obviously he had scanned through the entire ledger meticulously and thoroughly. However, while he could find the accounts listed by him, his discerning eye failed him to find accounts reflecting huge interest-free receipts by assessee from sister concerns, despite there being ledger accounts of sister concerns, reflecting interest free funds provided to the assessee. Further, the Spl. Auditor mentioned in his list, accounts of Friends Mercantile Pvt. Ltd. and Gautam Freight Pvt. Ltd, in receipt of interest-free advances from assessee, entailing disallowance of Rs.40,49,780/- but again failed to notice the ledger accounts of the very same parties, reflecting huge amounts owed to them by the assessee, towards purchases and services expenses. The ld Counsel submitted before the Bench, two ledger accounts, not noticed by the Spl. Auditor and also by the Assessing Officer, and working of interest impact of these accounts vis-à-vis the disallowance of Rs.40,49,780/- made in respect of the said parties. It would be noticed that as a matter of fact, considering the amount due to these two parties in trading accounts, interest payable to them worked out to more Rs.62,46,112/-, than the interest disallowed by the assessing officer. Therefore, even on facts, the disallowance of Rs.40,49,780/- is the result of lack of inquiry by the assessing officer. Further, scanning of the entire ledger and picking up and choosing only such accounts (of interest-free advances) by the Spl. Auditor, again failed him to notice the accounts of other sister concerns providing huge interest-free funds to assessee, like: (i) Friends & Friends Shipping Pvt. Ltd., (ii) Friends Salt Works and Allied Industries and (iii) Kandla Agro& Chemicals Pvt. Ltd. Therefore, ld Counsel argued that assessee have sufficient interest-free funds that the assessee has used for interest-free advances. Even before the CIT (A), assessee mentioned that assessee has huge interest free funds received from sister concerns. The assessee submitted ledger accounts of these three sister concerns, Friends & Friends Shipping Pvt. Ltd., Friends Salt Works and Allied Industries and Kandla Agro& Chemicals Pvt. Ltd., with corresponding bank-books to corroborate the transactions in the ledger accounts and working of interest that would have been payable at the rate of 12% ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 (applied by the assessing officer) but not actually paid. This would make it amply clear that the Group as a whole followed a policy not charge interest when funds are made available to sister concerns, as these advances are out of interest free funds.

It is also a settled-principle that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his business. The Hon'ble Apex Court in the case of Sassoon J David and Co. (P) Ltd vs CIT Bombay (118 ITR 261)(SC) held that expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction for the same. Even the Hon'ble Karnataka High Court in the case Commissioner of Income-tax vs Motor Industries Company Limited (1907) (223 ITR 112) was of the view that the commercial expediency of a businessman's decision to incur, an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from a business point of view and have to be respected by the authorities no matter that it may appear, latter, that the expenditure incurred was unnecessary or avoidable. The assessing officer ought not to have questioned the commercial prudence of the transaction entered into by the assessee, businessman, when there was nothing on record to show that the transaction was not genuine. It is a settled principle of law that business or commercial expediency has to be judged from the perspective of the businessman and not of the Revenue, since it is the businessman who is being benefited from the services rendered and also it is he who knows to what extent the benefit ensures to him. Reliance in this regard may be placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Dhanrajgiri Raja Narasingirji, reported in 91 ITR 544 (SC), wherein it was held that "it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure.

We find that assessee pleaded before the assessing that advances are out of interest- free funds available with the assessee and filed copy of accounts of parties and bank statements and subsequently also pleaded business expediency. The ld CIT(A) noted that all the business concerns of the group are assessed at the maximum marginal rate and therefore question of inference of any tax avoidance does not arise. It is also stated that the different concerns of the group have interdependent business operations and business activity of one concern cannot be carried out without availing services from other concerns. In this background, the requirements of business fund by each concern have to be examined. If one concern of the group faces urgent requirement of fund and the other concern is in a position to provide the same so that business interest of both the concerns are protected, any amount advanced without charging interest to/from such concerns is necessarily for the purpose of business/commercially expedient and in respect of providing/receiving such non- interest bearing advances, no question of making any disallowance should arise, as held by the Supreme Court in the case of S A Builders v. CIT 288 ITR 1, the findings of the Hon`ble court is reproduced below:

Brief facts qua the ground No.4 of Revenue are that assessing officer made addition on account of Brokerage/ Commission expenses of Rs.1,76,35,013/-. The assessing officer has discussed the issue in para 5 of assessment order. Based on the observations of the Special Auditor, the assessing officer called upon the assessee to explain the fact as to the expenses of Rs. 1,76,35,013/-, debited on 30/03/2011 and credited to Expenses Payable Account with narration that US $ ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 3,98,711.57 is shown payable as commission and brokerage on export of raw cotton. The reply of the assessee has been reproduced by the assessing officer. The assessee submitted before the assessing officer that the amount is rightly claimed as an expenditure and the same is payable, as per the agreed terms, to the agents based in Dubai, Indonesia and Pakistan who found buyers for the export effected by the assessee. Further, it was submitted that the payments have been made in the subsequent financial years 2011-12 to 2013-14.The assessing officer however, observed that in view of provisions of section 5(2)(b) r.w.s 9(1) of the Act, the expenditure involves the income accruing or arising to the recipient parties in India and such income being in the form of commission/brokerage, the TDS was deductible. The failure of the assessee in this behalf entails addition in view of AAR decision in the case of SKF Boilers & Dryers Pvt. Ltd reported in (2012) 15 taxmann.com 325. Thus, the assessing officer made the addition of Rs. 1,76,35,013/-.

On appeal, the ld. CIT(A) deleted the addition. The ld CIT(A) observed that the assessing officer has mainly relied on AAR decision in SKF Boilers(supra) to hold against the assessee with regard to brokerage and commission paid outside India for services enjoyed out of India. The facts are squarely covered by the decision of ITAT Rajkot Bench in Rimtex Industries, wherein it was held that AAR decisions cannot be applied in other cases and also that no tax is deductible from payment/credit for services enjoyed outside India. Moreover, there is no doubt about the genuineness of the claim and expenses. Thus, the addition of Rs.1,76,35,013/- for non-deduction of tax u/s 40(a)(ia) made by the assessing officer has no basis or merit and hence the same was deleted by ld. CIT(A). Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.

On the other hand, learned Counsel for the assessee argued that relied on the decision of Rajkot Bench of ITAT, in the case of Rimtex Industries, in dated 8/10/2015 and contended that the payment made to non- residents for services enjoyed outside the territory of India are not within the purview of section 195, as no sum in the hands of the recipients, is chargeable under the Act. The Ld. Counsel submitted that the decisions of AAR are applicable only to the petitioner before AAR and there is express bar against the applicability of AAR's decision, as a precedent in other cases and therefore, the assessing officer has grossly erred in law in relying on the AAR decision in the case of SKF Boilers and Dryers Pvt. Ltd (supra). Therefore, learned Counsel, contended that order passed by the ld. CIT(A) may upheld.

We have considered the rival submissions and perused the relevant finding given in the impugned orders. We find that assessing officer has in his conclusion part stated that the assessee's submission is not acceptable as provision of Section 5(2)(b) r.w.s.9(1) of the Act, deals with scope of total income whereby the income of non-resident includes all income from whatever source derived, which accrues or arises or deemed to accrue or arises in India. According to assessing officer source of commission income earned by non-resident is in India, hence provision of Section 195 of the Act would be applicable, for which he relies on the decision of AAR - New Delhi in the case of SKF Boilers and Driers P. Ltd. (2012) 15 taxmann.com 325. Accordingly the assessing officer disallowed the expense of Rs. 1,76,35,013/- on the ground that the tax was required to be deducted u/s 195 of the Act.

In the result, ground No.3 of revenue`s appeal in 2016, for assessment year 2011–12, is dismissed.

The summarized and concise ground No.5 of revenue is reproduced below for ready reference:

Brief facts qua the ground No.5 of Revenue are that assessing officer made addition on account of Iron Ore Expenses at Rs.1,16,88,834/-.The assessing officer had discussed the issue on page no.13 to 17 in para 6of the order. It is seen that the Special Auditor made an observation that an amount of Rs. 1,16,88,834/ has been ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 provided and debited towards "Iron-Ore Export Expenses, though no export of iron-ore took place during the period under reference. The assessing officer called upon the assessee to explain why the same should not be disallowed in view of the fact that in the absence of export, the expense is booked merely to reduce the income of the assessee- company. The reply of the assessee has been reproduced by the assessing officer and is available on page no. 17 of the paper book. It was explained therein that the amount of Rs. 1,16,88,834/-includes an amount of Rs. 39,84,974/- being the amount adjusted by New Manglore Port Trust, in respect of demand, vide their letter dated 22/12/2010, towards differential license fees for preceding periods in respect of plot allotted to the assessee by the Port. The copy of this letter was enclosed with the submission (paper book page no.62-64), pointing out that the communication for liability, though pertaining to the period w.e.f. 7/2/2007, was received during FY 2010-11, the liability has been accepted by the assessee and therefore, the amount has rightly been claimed. The assessee put reliance before the assessing officer on Jurisdictional High Court judgements in Saurashtra Cement & Chemical Industries Ltd. and Mahindra Mills Ltd. reported in 213 ITR 523 and 334 ITR 254 respectively for the proposition that the claim crystallized during the year under reference by way of receipt of demand notice though pertaining to previous period, is an allowable claim.

Similarly, the other component of the claim to the tune of Rs.77,03,859/- was explained before the assessing officer to be relatable to service tax charged by the service provider for services enjoyed by the assessee-company during preceding period in connection with export of iron-ore to overseas countries. As explained before the assessing officer, as per notification issued by CBEC, service tax paid on export of goods is refundable to exporters subject to compliance of certain conditions. In anticipation of such refund, the service charges were debited by the assessee at the net amounts excluding the component of service tax, totalling to Rs.77,03,859/-. The claims of such refunds of the assessee were claimed to have ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 been rejected by the Competent Authorities during the period under reference and therefore, the claim was argued to be rightly made and allowable. The assessing officer however, expresses his opinion on page 17 to the effect that the expenditure with regard to both the service tax and differential license fees pertain to the periods earlier to the previous year under reference and therefore, not allowable. The assessing officer also observes that the assessee has not filed any proof of having "finally accepted the liability and actual payment of the same, without any dispute pending before any Court of law. Thus, in substance holding the expenditure relatable to previous period, the assessing officer disallowed the claim of the assessee.

On appeal, the ld. CIT(A) partly deleted the addition, therefore revenue is in appeal before us.

The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

On the other hand, learned Counsel for the assessee, reiterated the submissions made before the learned CIT(A).

We have heard both the parties. During the appellate proceedings, the assessee has explained before learned CIT(A) with regard to the claim of differential rent demanded by the Manglore Port Trust, amounting to Rs.39,84,974/-, vide page no.62-64 of the paper book, which is a communication dated 22/11/2010, from Sr. Accounts Officer of Manglore Port Trust. With regard to the component of service tax of Rs. 74,87,341/-, the assessee submitted vide para 4.4 of the written submissions before the ld CIT(A) that part of the service tax liability debited amounting to Rs.56,59,784/- is accepted by the assessee and is undisputed, while the balance amount of Rs.18,27,557/- has been contested in ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 higher forum and therefore, this part of liability not having crystallized in law, is rightly disallowed by the assessing officer. In sum total, the assessee pleaded before the ld. CIT(A) that liability to the extent of Rs.98,61,277/- has crystallized during the year on account of the communications for quantified liability having been received from Manglore Port Trust and Service Tax Department during the period under reference, which have not been further contested and therefore, the assessing officer has erred in not following the binding decisions in the case of Saurashtra Cement and Mahindra Mills cited before him. The ld CIT(A) noticed the binding decision in Saurashtra Cement & Chemical Industries Ltd. 213 ITR 523, reproduced by the assessing officer on page 16 of his order, clearly lays down a rule that once the liability though pertaining to previous period has arisen during the previous year on account of either the receipt of communication raising the liability or on account of rejection of the claim of refund, the liability is supposed to have arisen during the year of receipt of such communication regardless of the fact as to which period the same pertains. Once such demand/rejection is claimed not to have been contested, the same would also stand crystallized during the period of receipt/rejection of claim, unless the assessing officer brings evidence of further contests of such claim by the assessee on record. Thus, ld CIT(A)found that the communication from Manglore Port Trust, dated 22/11/2010 deducting an amount of Rs.39,84,974/-from the caution money deposit which as per statement enclosed thereto showing the amount of deduction to be "Dues to be recovered from the assessee", clearly implies that the liability has crystallized during the year and the facts relating to this claim are squarely covered by the decision in Saurashtra Cement & Chemical Industries Ltd. (supra).

With regard to liability regarding rejection of claim of refund of service tax, the assessee had submitted a chart along with the copies of relevant communications from the Service Tax Department, before the ld. CIT (A), which is reproduced below:

The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, learned Counsel for the assessee, reiterated the submissions made before the learned CIT(A).

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We find that before the ld. CIT(A) assessee submitted the sample copies of invoices issued to Terapanth Foods Pvt.Ltd and the other two concerns to emphasize further that while M/s Kandla Exports Corporation and M/s. Friends Salt Works & Allied Industries exported the salt sold to them at higher rate, as is evident from the fact that the salt was dispatched directly to the vessels M.V. ACS Diamond and M. V. AS HI YA STAR, while salt sold to Terapanth Foods Pvt. Ltd. was delivered locally. The assessee further submitted before ld CIT(A) that in the very invoices referred to by the Special Auditor, the mention about the different nature of quality of salt sold to ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 three parties was evident. At the end, the assessee submitted that there is no provision in the Act authorizing the assessing officer to make the addition, on a conjecture that the assessee has while making a sale, not made appropriate profit, and as such the addition is wholly arbitrary. The ld. CIT(A) noticed that none of the parties is a 'relative' within the meaning of section 40A(2)(b) of the Act, and thus, there is no reason or material with the assessing officer for the conclusion that the transaction is at a higher or lower rate The simple truth is that the assessee, as indeed any assessee, is free to transact its affairs as best suited to itself and no one can be compelled by the assessing officer to maximize its profits. Moreover, and in any case, neither Kandia Exports Corporation nor Friends Salt Works & Allied Industries Ltd, nor Terapanth Foods Pvt. Ltd, are relative of the assessee, within the meaning of section 404(2)(b) of the Act. Even if they are relative, section 40A(2)(b) of the Act, can be applied only with respect to higher expenditure and not with respect to lesser receipt of sale consideration. The ld CIT(A) also noticed that there is valid basis for different rates of sale. Moreover, there is also neither an allegation nor any evidence of unaccounted receipt from these purchaser parties. In view of this, the addition, being wholly arbitrary has no authority or validity in law and therefore the ld. CIT(A) deleted the addition of Rs.33,56,700/-.

The relevant observations of ld. CIT (A) for assessment year 2012–13 are as follows:

Brief facts qua ground No.7 of revenue`s appeal are that the issue, regarding, the disallowance of depreciation on Wind Mills has been dealt with by the assessing officer, in paragraph 7 of the assessment order. The assessing officer called for the assessee's explanation as to why depreciation on land cost should not be disallowed and why the depreciation on wind mill should not be computed as per opening written down value (WDV) of the last year. The assessee submitted before the assessing officer that they have claimed depreciation @ 80% on the charges paid for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill. Depreciation is claimed @ 80% on such charges paid in advance for several years. It was also contended that these expenses were in the nature of rent that could have been claimed as revenue expenditure admissible u/s 37(1) of the Act. It was contended that the character of expense paid as rent remains to be of revenue nature irrespective of the fact that the same is paid in advance for several years. In support of this ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 contention the assessee relied upon the judgment of Gujarat High Court in the case of Dy. CIT V. Sun Pharmaceuticals Ind. Ltd. reported in 227 CTR (Guj) 206. The assessee accordingly requested the assessing officer to allow the entire expense as revenue expenditure u/s 37(1) of the Act, if not allowing depreciation @ 80% on the charges paid for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill.The assessing officer, after observing that depreciation is not allowable on the land charges as per Appendix-1, disallowed the depreciation on land facilitation charges to the extent of Rs. 649/-.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly deleted the addition made by the assessing officer, therefore, the revenue is in appeal before us. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld. Counsel for the assessee, defended the order passed by the ld. CIT(A).

We have heard the Learned Counsel appearing on behalf of the respective parties at length. Before ld. CIT(A), the assessee has argued that assessing officer should have allowed the amount, as rent u/s 37(1) of the Act, by relying upon the judgment of the Gujarat High Court reported in 227 CTR (Guj) 206. It was also contended the assessing officer, ought to have allowed the depreciation @ 80% on the charges paid for use of the land for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill i.e. temporary approach road. The assessee has relied on the Hon'ble Bombay High Court's judgment in the case of CIT Vs. Infrastructure Leasing & Financial Service Ltd. 69 Taxman.Com 20 (Bombay) wherein issue, under consideration has been dealt by the Hon'ble court and decided in favour of the assessee. However, during the appellate proceedings, before learned CIT(A), the assessee did not press for ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 allowance of depreciation on land for access to wind mills and agreed that similar to and following the order of ld CIT(A)`s predecessor in earlier years in the case of the assessee, may be followed, and the amortized value of land cost paid to M/s Suzlon be allowed u/s 37 of the Act.

The ld. CIT(A) noted that the assessing officer has rightly disallowed the claim of depreciation on land as no depreciation has been provided in the Income Tax Act & Income Tax Rules for land and that neither the land nor the right in land, as submitted is a depreciable asset. This also is not the case of the assessee that roads have been made on the land where the wind mill is situated and that such roads belong to the assessee. However, ld. CIT(A) agreed for the lumpsum amount paid by the assessee towards land-for facilitating access to wind mill, which can be amortized for the period involved and such amortized amount can be treated as rent and allowed u/s 37(1) of the Act. Accordingly, lumpsum amount paid amortized over 20 years which comes to Rs.1,48,905/-, per year (on the basis of Rs.29,78,100/20) were paid to M/s Suzlon Energy Ltd, against Invoice No. SEL/KAR/Lease/11-12/027 dated 31.03.2012 for the period of 20 Years (i.e. Rs.29,78,100/20)) shall be allowed by the assessing officer against the depreciation originally claimed of Rs. 14,29,488/-. However the assessing officer shall also check and ensure that the cumulative amount so allowed to the assessee, which does not exceed the lumpsum amount paid to lessor or owner. We have gone through the above conclusion reached by the ld. CIT (A) and noted that there is no any infirmity in the conclusion, so reached. That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal

Brief facts qua ground No.8 of revenue`s appeal are that during the assessment proceedings, the assessing officer disallowed the claim of service tax relatable to rejection of refund of Service Tax in the previous year relevant to the year under appeal, Rs.18,27,557/-. On appeal, the ld. CIT(A) allowed the appeal of the assessee, therefore the revenue is in appeal before us.

We have considered the rival submissions and perused the relevant finding given in the impugned orders. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld. Counsel for the assessee, defended the order passed by the ld. CIT(A). We find that before ld. CIT (A), the assessee has filed the following written submission, which is reproduced below for ready reference: “The assessee submits that for the first time in the year under appeal the assessee is required to raise the claim at the appellate stage regarding claim of service tax relatable to rejection of refund of Rs. 18,27,557/- in the previous year relevant to the year under appeal. The relevant facts are that in the earlier years the assessee had exported iron ore to overseas buyers and for such exports they had received services from service providers who charged Service-Tax along with their Service Charges. Normally, the assessee would claim the expenses incurred for the payment of service charges and also the service tax paid to the service providers in the concerned year. However, as far as the service tax is concerned the assessee did not make the claim as expense in view of the Notification issued by the CBEC to the effect that Service-Tax paid on export of goods would be refundable to the exporter subject to compliance of certain conditions. Therefore, the assessee had debited and claimed in earlier years only the net expenditure exclusive of Service-Tax by way of service charges in their books and the service tax component was accounted for and carried to the Balance Sheet as recoverable deposit to be claimed as refund. However, the refund claim of the assessee was rejected by the Service Tax Department. Such rejection of the claim by the Service Tax Department was ordered in respect of the claim of Rs. 77,03,859/-. Due to rejection of claim, the expense that was treated as recoverable deposit was required to be claimed as expense in the ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 year in which it crystallized due to rejection of the claim. In the assessment proceedings, the assessee had claimed the entire amount of Rs.77,03,859/- on the basis of rejection of claim. However, during the appellate proceedings the assessee restricted our claim to Rs.56,59,784/- as out of Rs.77,03,859/- only Rs.56,59,784/- had crystallized in the AY 2011-12 and since the balance amount of Rs. 18,27,557/- had crystallized during the year under appeal the assessee requested that the same may be considered/allowed as expenses of the year under appeal. Since this position of partial claim in the A. Y. 2011- 12 emerged in the assessment proceedings late by which time the assessment proceedings for the year under appeal had been closed it was not possible to claim the said amount either by way of revised return of income or by making application for the purpose. Considering the fact that the CIT (A) has co-terminus jurisdiction, and part of the claim has been considered in appeal for A. Y. 2011-12, we submit that the claim of Rs. 18,27,557/- may kindly be entertained and the assessing officer may be directed to allow the same.”

Therefore, the assessee has prayed the ld. CIT (A) to direct the assessing officer to allow the claim of service tax of Rs. 18,27,557/-.

It was further submitted that the order rejecting the claim of refund having been passed by the Service Tax Dept. in the previous year relevant to AY 2011- 12, the said amount of Rs.77,03,859/-, was claimed as expense in that year. The assessing officer, however disallowed the claim of deduction and therefore a ground was taken in appeal for AY 2011-12, seeking relief of Rs.77,03,859/-. In appellate proceedings the assessee restricted the claim to Rs.56,59,784/- only as claim of refund of Rs. 18,27,557/- was finally rejected in the previous year relevant to AY 2013-14. As it happened, the assessment proceedings for AY 2013-14 came to be completed on 07-03-2016 whereas the appellate order for the AY 2011-12 was passed on 22-03-2016. Since the assessee did not have clarity as to the appellate decision on its request for restricting the claim up to Rs.56,59,784/- and admissibility of the balance of Rs. 18,27,557/- in A. Y. 2013-14 until its appeal was decided on 22-03-2016, the claim for the balance could not be made before the assessing officer prior to completion of assessment on 07-03-2016. It was pointed out by the assessee that the assessee's request for allowing the claim to the extent of Rs.56,59,784/- in appeal for AY 2011-12 and to uphold disallowance of the balance Rs. 18,27,557/- relatable to AY 2013-14, was dealt with in the appellate order (paragraph 18.5 & 18.6) whereby the assessing officer was directed ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 to delete the disallowance of Rs. 16,04,192/- and for the balance of Rs.39,84,974/- to verify whether the final orders of rejection of claims of refund have been issued by the competent Authority during FY 2010-11 and if these orders are not contested further, to consider the amount of Rs.39,84,974/- to have crystalized during the year and to allow the same in AY 2011-12. The disallowance of the balance Rs. 18,27,557/- relatable to A. Y. 2013-14 was confirmed having not crystallized during the year.

The assessee submitted that the CIT (A) as the first appellate authority has co-terminus jurisdiction with the assessing officer and accordingly has jurisdiction over not only the subject matter of appeal but over the subject matter of assessment for which reliance has been placed upon the judgment of the Hon. Supreme Court reported in 66 ITR 443 quoting the judgment of the Hon. Allahabad High reported in 105 ITR 344 that "the statute provides that, once an assessment comes before the AAC, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the ITO not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the ITO and determined in the course of the assessment."

The ld.CIT(A) reproduced from his predecessor's order in No.CIT(A)- 12/538-541/CC 2(3)/14-15 dated 22/03/2016, in the case of the assessee on the issue of allowability of service tax paid in relation to export of iron ore (which was not claimed by debiting to the account as the same was to be received by way of refund from the Service Tax Department but the refund was denied) :- "I have carefully considered the material available on record and the rival -contentions available before me. I have also perused the Authorities relied upon by the assessee. At the outset, I observe that the binding decision in Saurashtra Cement & Chemical Industries Ltd. 213 ITR 523, reproduced by the Ld. assessing officer on page 16 of his order, clearly lays down a rule that once the liability though pertaining to previous period has arisen during the previous year on account of either the receipt of communication raising the ability or on account of rejection of the claim of refund, the liability is supposed to have arisen during the year of receipt of such communication regardless of the fact as to which period the same pertains. Once such demand/rejection ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 is claimed not to have been contested, the same would also stand crystallized during the period of receipt/rejection of claim, unless the assessing officer brings evidence of further contests of such claim by the assessee on record. Thus, I find that the communication from Manglore Port Trust, dated 22/11/2010 deducting an amount of Rs.39,84,974/-from the caution money deposit which as per statement enclosed thereto showing the amount of deduction to be "Dues to be recovered from the assessee", clearly implies that the liability has crystallized during the year and the facts relating to this claim are squarely covered by the decision in Saurashtra Cement & Chemical Industries Ltd. (supra)." "After perusal of the accompanying orders/communications, I find that the communication from the Service Tax Department as mentioned above in the table excepting the communication pertaining to an amount of Rs16,04,192/- dated 29/12/2010 (the correct date appears to be 23/02/2011), all other communications pertaining to a balance amount of Rs.40,55,592/- are not in the nature of orders of the Competent Authority, communicating the rejection of the claim, but are in fact communications requiring further information or supporting documents from the assessee for further consideration of the claim of the refund. Thus, out of the claim of Rs 56,59,784/-, the claim pertaining to only Rs. 16,04,192/- is evidenced to be rejected by the Competent Authority and therefore having crystallized in law during the period under reference. The claim with regard to the balance amount has not been evidenced to be rejected by Competent Authority during the period under reference, though prima facie, the assessee might have received the final communication of rejection subsequent to the dates mentioned in the table, the copies of which have not been submitted by the assessee. In view of this and in view of the material available on record, I hold that the liability for an amount of Rs.39,84,974/- (Manglore Port Trust) and Rs. 16,04,192/(service tax refund rejection) totalling to Rs.55,89,166/ is evidenced to have crystallized during the year under reference and hence clearly allowable u/s 37(1). It is further held that the liability of an amount of Rs. 18,27,557/-being contested by the assessee before higher forum has not crystallized in law during the current period and therefore, claim of expenditure to this extent has rightly been rejected by the assessing officer. With regard to the balance amount of claim made by the assessee i.e. Rs. 38,72,111/-, the assessing officer is directed to verify on the basis of documents to be submitted by the assessee whether the final orders of rejection of claims of refund have been issued by the Competent Authority during F.Y. 2010-11. If the assessee is able to submit the relevant copies of orders of final rejection of claims of refund of service tax issued during F.Y.2010-11, and if the same is also certified by the assessee to be uncontested further, the liability shall obviously be considered to have been crystallized during the year and in that eventuality, the full or part of the amount as may be the case, shall be allowed by the assessing officer. The assessee's failure to submit the requisite documents shall result in rejection of the claim of expenditure, partly or fully, as the case may be. In view of this, the addition of Rs. 18,27,557/- is confirmed while addition of Rs.55,89,166/- is deleted. With regard to balance amount of Rs.38,72,111/-, the assessing officer shall follow the directions expeditiously. In the result, the ground 3(v) partly succeeds."

It is noted by the ld. CIT(A) that present claim of the assessee was not before the assessing officer and therefore, ld CIT(A) was of the view that sending these additional claim evidences to the assessing officer for his examination and ACIT v. Kutchh Salt Allied (AY 2010-11 & 2013-14) ITA 233 to 236, 366 & Co. 23 to 25 comments would not serve any purpose in favour of the revenue and that the incumbent is competent to make an order as deemed fit which would include a direction to the assessing officer. Following the order of predecessor, the ld CIT(A) directed to the assessing officer to verify on the basis of documents to be submitted by the assessee, whether the final orders of rejection of claims of refund have been issued by the Competent Authority during F.Y. 2010-11 and if the same is also certified by the assessee to be uncontested further, the liability shall obviously be considered to have been crystallized during the year and in that eventuality, the full or part of the amount as may be the case, shall be allowed by the assessing officer. The assessee's failure to submit the requisite documents shall result in rejection of the claim of expenditure, partly or fully, as the case may be. Therefore, after having regard to the given facts and circumstances of the case, in our considered opinion, the action of the Ld. CIT(A) does not warrant any interference. Accordingly, the ground of appeal

In the result, cross objections filed by the assessee are allowed for statistical purposes.

Now we shall adjudicate the summarized and concise ground No.2 of cross objections of the assessee, which is reproduced below for ready reference: (ii) Ground No.2. The ld. CIT(A) has erred in law and on facts in confirming disallowance of depreciation of land cost of windmill to the extent of Rs.4,05,600/- and allowing the said amount as rent on monthly basis. [ This is ground No.3 of cross objection No. 23, Ground No.3 of cross objection No.24, Ground No.2 of cross objection No. 25, Ground No.2 of cross objection No. 26] 79. This issue we have already adjudicated in para No.63 to 64 of this order. We are of the view that land is not depreciable asset, hence, no appreciation should be provided on land. Therefore, we dismiss this cross objections filed by the assessee.

In the combined result, all appeals of the revenue are dismissed, whereas cross objections filed by the assessee are partly allowed to the extent indicated above. Order is pronounced on 17.03.2025 in the Open Court.