MANGALORE REFINERY AND PETROCHEMICALS LTD,MUMBAI vs. ADDL CIT 3(2), MUMBAI

आदेश / O R D E R Per Shri Sandeep Gosain, Judicial Member: These cross appealsfiled by the assessee as well as revenueare against the order of Commissioner of Income Tax (Appeals)-13, Mumbai dated 08.03.13 for AY 2008-09. 2. Since all the issuesinvolved in these two appeals are common, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity.

ITA No. 4448/Mum/2013 (AY 2008-09) 3. First of all we take up assessee’s appeal in ITA No. 4448/Mum/2013 for assessment year 2008-09 as lead case. The grounds of appeal are mentioned herein below:- GROUND I: Disallowance of freight charges u/s 40 (a) (i) of the Income Tax Act 1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-4, Mumbai ["CIT (A)"] erred in confirming the action of the Assessing Officer [" the AO"] with respect to the

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disallowance of freight charges u/s 40 (a) (i) of the Income Tax Act, 1961 ("the Act") amounting to Rs. 66,66,00,074/-.

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GROUND II: Treating interest on bank deposits of Rs. 14,09,14,185/-, interest on inter-corporate deposits of Its. 8,66,55,657/- and Miscellaneous interest of Rs. 54,84,380/- as "Income from other sources" 1. On the facts and circumstances of the case and in law, the CIT (A) erred in confirming the action of the AO of assessing the interest on bank deposits, interest on inter- corporate deposits and miscellaneous interest received by the Appellant, of Rs. 14,09,14,185/, Rs. 8,66,55,657/- and Rs. 54,84,380/- respectively, under the head as "Income from Other Sources" instead of Business Income as returned by the Appellant.

GROUND III: Addition on account of provision for advances doubtful of recovery while computing book profit u/s. 115JB of the Act: Rs. 3,14,60,094/-

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GROUND IV: Disallowance u/s. 14A of the Act r.w. Rule8D of the Income Tax Rules, 1962 ('the Rules"): Rs. 3,84,26,370/- 1. On the facts and circumstances of the case and in law, CIT(A) erred in confirming the action of the AO in disallowing a sum of Rs. 3,84,26,370/- u/s. 14A of the Income the Act being the disallowance u/s 14A of the Act r.w. Rule 8D.

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evidence. The CIT(A) also erred in not admitting the additional evidence.

GROUND V: Claim of depreciation: 1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in not allowing depreciation on enhanced Capital work-in-progress as a result of assessing interest income in A.Y. 2000-01 & A.Y. 2001- 02 amounting to Rs. 1,04,05,348/- and Rs. 2,30,10,414/-, respectively which were separately assessed under the head Income from Other Sources in those years.

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GROUND VI: Addition on account of provision for advances doubtful of recovery under normal provisions of the Act: Rs. 3,14,60,094/- 1. On the facts and circumstances of the case and in law, the CIT (A) erred in confirming the action of the AO in respect to addition on account of provision for advances doubtful of recovery amounting to Rs. 3,14,60,094/- under normal provisions of the Act.

GROUND VII: The Appellant craves leave to add, to amend, to alter and/ or to delete all or any of the above grounds of appeal.

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2176,76,35,224/- under normal provision and book profit of Rs.1735,07,43,174/- as per the provisions of section 115313 of the Act. 5. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. 6. Aggrieved by the order of Ld. CIT(A), the assesseeas well as revenue have filed their respective appeals before us. However at present we are dealing with the appeal filed by the assessee on the grounds mentioned herein above.

Ground No. I. 7. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) inconfirming the action of the AO with respect to the disallowance of freight charges u/s 40 (a) (i) of the Income Tax Act, 1961 8. Ld. AR appearing on behalf of the assessee submitted before us that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in ITA No. 1240/Mum/2010 for AY 2006-07in assessee’s own case.The

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relevant portion of the said order is contained in para no. 6.3 which is reproduced below:-

6.3. We have heard the rival submissions and perused the materials above.We find that the FAA has held that payment to the shipping company for use of ship would be royalty,that the provisions of section 44B were applicable to the facts of the case,that only payments made to shipping companies of specified countries would not attract payment of taxes,that TT'.s.were made from Mumbai,that payment was not made through banks located outside India.He had also relied upon the case of Poonipuhar Shipping(supra).

6.3.1.Before proceeding further,it would be useful to understand the scheme of section dealing with income of shipping companies.ln section 44B of the Act, no procedure for assessment and collection of tax is provided. Non-obstante clause refers only to sections 28 to 43A of the Act. In other words, income from shipping accrued or deemed to have accrued to a non- resident shipowner or charterer falls outside the scope of the trade and business normally so understood. The incidence of tax under section 44B of the Act is on a non-resident engaged in the business of operation of

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ships owned or chartered by him or it, and if such income constituted the amounts earned on account of the carriage of passengers, livestock, mail or goods shipped from any port in India and the amount so received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods, etc.In the case beforeus,the AO or the FAA has not established the basic fact that payment made by the assessee fall within the scope of the provisions of Section 44B.

6.3.2.It is said that the Act,being a taxing statute,has to be understood by reference to its language and that it is not the function of the judicial forums to stretch a taxing statute to rope in items of income which are not explicitly covered by the relevant taxing provision. No income can be brought to taxation on the basis of the intention or scheme of the Act. Section 5(2) of the Act,levies a tax on the total income of a non-resident; this provision is subject to the provisions of the Act and, therefore, obviously,chargeability of an item of income has to be proved by the AO who wants to tax it.As far as the provisions of TDS are concerned there is no need to say that same would be applicable only if the income is chargeable to tax.The words of section 195(1) in clear terms, lay down that tax at source is

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deductible only from "sums chargeable" under the provisions of the Act, i.e., chargeable uls.4,5 and 9 of the Act.In the case under consideration, the basic fact of chargeability of the disputed amount has not been proved.The shipping companies are not residents of India nor they are having permanent establishment in India. Payments by the assessee were through TJ'.s.The FAA has held that as the payments were not made in foreign bank so the income has to be treated arisen in India.He was of the opinion that if the payments were made in foreign country only then the payments would have been considered to be covered by the instructions issued by the CBDT.In our opinion,tlie FAA had taken a very extreme view-In the present age of technical advancement it cannot be imagined that TDS provisions will not be applicable only if payments are made in a foreign country and payment made by TT.s in India is not payment outside India.The idea behind the Memorandums referred in the earlier paragraphs is to ensure that shipping companies should be subjected to the TDS provisions,if they receive payment in India.We find that in case of Avon (supra) the assessee had made TT.s. at Hyderabad and the Tribunal had held that such payments were covered by the Memorandums. Therefore,we are of the opinion that payments made through TT.s.,even though made

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via SBI Mumbai,by the assessee to foreign shipping companies is as per the provisions of the CBDT Memorandums and therefore,TDS provisions would not be applicable in the case under conside -ration.As far as the matter of Poompuhar(supra) is concerned it is sufficient to say that fact of both the cases are clearly distinguishable,The Tribunal in that matter had decided that the assessee should have a regularity of business of operating ship as a condition to attract section 44 B of the Act.Therefore,by importing that ratio the FAA had wrongly held that payment received was royalty.We would also like to reproduce the relevant portion of the ordér,dealing with the similar issue,of the Avon Organic Ltd-(supra) and it reads as under: "6 We have heard rival submissions and perused the material on record. As revealed from the assessment order, the AO has come to the conclusion that the commission payments were deemed to have been received in India only because the telegraphic transfer of the remittances towards commission was made from a bank in India. Apart from these things, the AO has got no other material on record to show that the foreign agents either rendered any services in India or have any permanent establishment in India. Only because the remittances towards commission were

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telegraphically transferred to the foreign agents from the banks in Hyderabad will not lead to the inference that the income to the foreign agents accrued or arose in India in terms of section 5(2)(a) of the Act. The ITAT, Hyderabad Bench in the case of Dr. Reddy 's Laboratories (supra) took note of the decision of the Hon'ble Supreme Court in the case of Transmission Corpn. of A.P (supra) and held in the following manner: 'In the case of Transmission Corporation (supra), the facts were that the assessee had entered into certain agreements with certain foreign parties for supply of equipments. Another set of contracts entered into were for assembling, erection, testing and commissioning of the equipment. Pursuant to these contracts, payments were made by the assessee to the foreign parties without deducting tax under s. 195 of the Act. The contention of the assessee was that s. 195 would be applicable only where the payment to the non resident is wholly income chargeable to tax as it provides that any person responsible for paying to a non resident 'any sum chargeable under the provisions of this Act', shall, at the time of payment, deduct income tax thereon at the rates in force. in other words, the contention was that when the payments made to the non resident were not entirely income, but a trading

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receipt, there is no question of deduction of income tax at the source as the section does not provide for it. To this contention, the Supreme Court answered that the assessee who made the payments to the non residents was under an obligation to deduct tax at source u/s 195 of the Act in respect of the sums paid to them under the contracts entered into. It ,further held that the obligation of the assessee to deduct tax u/s 195 is limited only to the appropriate proportion of income chargeable under the Act. Thus, it can be seen that the said judgment in fact helps the assessee. The second question answered by the Supreme Court can be understood to mean that the obligation of the assessee to deduct tax u/s 195 is not there when the payment made to the non resident does not contain any proportion of income therein. In our view, right from the beginning, not only on the basis of the circulars of the Board, but also on the basis of the decision of the Tribunal in its own case, the assessee firmly believed that no part of the income paid to the foreign agent was taxable in India. Therefore, there was no question of deducting any tax at source on any proportion of the payment made to the non-residents. Thus, the judgment in the case of Transmission Corporation (supra) does not advance the case of the department in the present appeal. Finally, it may be pertinent to note that

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Circular No. 786 dated 7-2-2000 i.e., the same has been issued after the judgment was rendered in the case of Transmission Corporation (supra) i.e., on 17- 8-1999. The facts in the assessee 's case remain governed by the Board Circular and hence, in the final analysis, respectfully following the earlier order of the Tribunal in the assessee 's own case, we uphold the order of the CIT (A) deleting the disallowance." 7. In case of Divis Laboratories Ltd. (supra), the ITA T, Hyderabad Bench while interpreting the provisions contained under s. 195 held that unless the income is liable to tax in India, there is no obligation to deduct tax. In order to determine whether the income can be deemed to accrue or arise in India, it has to be consistent in the context of section 9. As per section 9, the basic criteria provided in the section is about accrual of or arising of income in India by virtue of connection with the property in India or control or management vested in India. Unless these conditions were satisfied, it cannot be held that income has accrued or arisen in India. This Tribunal further held that section195 has to be read along with charging sections 4, 5 and 9 of the Act. The provisions contained u/s 195 were not meant that the moment there is a remittance, the obligation to deduct TDS automatically arise.Considering the fact that the

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AO has not brought any material on record to show that the foreign agents have rendered any part of t e services in India or have a permanent establishment and business connection in India, it ccqzot be said that any part of the commission payment made to them accrued or arisen in di requiring deduction of tax u/s 195(1) of the Act. We are also fortified by the decision of th IT T Bombay Bench discussed above. In the aforesaid view of the matter, we fully agree it the finding of the CIT (A) that no disallowance u/s 40(a)(i) could be made. We therefore ujJh9ld the order of the CIT (A) and dismiss the ground raised by the department." Considering the above,first ground of appeal is decided in favour of the assessee.

Ld. AR further submitted that the identical ground has also been decided by the Coordinate Bench of Hon’ble ITAT in ITA 3588/Mum/13 for AY 2007-08 in assessee’s own case. The copy of the order of Hon’ble ITAT is attached in the legal paper book placed at page no. 94-102. The relevant portion of the said order contained in para no. 2 which is reproduced below:-

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6.3.2 It is said that the Act,being a taxing statute, has to be understood by reference to its language and that it is not the function of the judicial forums to stretch a taxing statute to rope in items of income which are not explicitly covered by the relevant taxing provision. No income can be brought to taxation on the basis of the intention or scheme of the Act. Section 5(2) of the Act, levies a tax on the total income of a non-resident; this provision is subject to the provisions of the Act and, therefore, obviously, chargeability of an item of income has to be proved by the AO who wants to tax it.As far as the provisions of TDS are concerned there is no need to say that same would be applicable only if the income is chargeable to tax.The words of section 195(1) in clear terms, lay down that tax at source is deductible only from “sums chargeable” under the provisions of the Act, i.e., chargeable u/s.4,5 and 9 of

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the Act.In the case under consideration, the basic fact of chargeability of the disputed amount has not been proved.The shipping companies are not residents of India nor they are having permanent establishment in India. Payments by the assessee were through TT.s.The FAA has held that as the payments were not made in foreign bank so the income has to be treated arisen in India.He was of the opinion that if the payments were made in foreign country only then the payments would have been considered to be covered by the instructions issued by the CBDT.In our opinion,the FAA had taken a very extreme view.In the present age of technical advancement it cannot be imagined that TDS provisions will not be applicable only if payments are made in a foreign country and payment made by TT.s in India is not payment outside India.The idea behind the Memorandums referred in the earlier paragraphs is to ensure that shipping companies should be subjected to the TDS provisions,if they receive payment in India.We find that in case of Avon (supra) the assessee had made TT.s. at Hyderabad and the Tribunal had held that such payments were covered by the Memorandums. Therefore,we are of the opinion that payments made through TT.s.,even though made via SBI Mumbai,by the assessee to foreign shipping companies is as per the provisions of the CBDT

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Memorandums and therefore,TDS provisions would not be applicable in the case under conside -ration.As far as the matter of Poompuhar(supra) is concerned it is sufficient to say that fact of both the cases are clearly distinguishable.The Tribunal in that matter had decided that the assessee should have a regularity of business of operating ship as a condition to attract section 44 B of the Act.Therefore,by importing that ratio the FAA had wrongly held that payment received was royalty.We would also like to reproduce the relevant portion of the order,dealing with the similar issue,of the Avon Organic Ltd.(supra) and it reads as under:

“6. We have heard rival submissions and perused the material on record. As revealed from the assessment order, the AO has come to the conclusion that the commission payments were deemed to have been received in India only because the telegraphic transfer of the remittances towards commission was made from a bank in India. Apart from these things, the AO has got no other material on record to show that the foreign agents either rendered any services in India or have any permanent establishment in India. Only because the remittances towards commission were telegraphically transferred to the foreign agents from

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the banks in Hyderabad will not lead to the inference that the income to the foreign agents accrued or arose in India in terms of section 5(2)(a) of the Act. The ITAT, Hyderabad Bench in the case of Dr. Reddy's Laboratories (supra) took note of the decision of the Hon'ble Supreme Court in the case of Transmission Corpn. of A.P (supra) and held in the following manner: "In the case of Transmission Corporation (supra), the facts were that the assessee had entered into certain agreements with certain foreign parties for supply of equipments. Another set of contracts entered into were for assembling, erection, testing and commissioning of the equipment. Pursuant to these contracts, payments were made by the assessee to the foreign parties without deducting tax under s. 195 of the Act. The contention of the assessee was that s. 195 would be applicable only where the payment to the non resident is wholly income chargeable to tax as it provides that any person responsible for paying to a non resident 'any sum chargeable under the provisions of this Act', shall, at the time of payment, deduct income tax thereon at the rates in force. In other words, the contention was that when the payments made to the non resident were not entirely income, but a trading receipt, there is no question of deduction of income tax at the source as the section does not

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provide for it. To this contention, the Supreme Court answered that the assessee who made the payments to the non residents was under an obligation to deduct tax at source u/s 195 of the Act in respect of the sums paid to them under the contracts entered into. It further held that the obligation of the assessee to deduct tax u/s 195 is limited only to the appropriate proportion of income chargeable under the Act. Thus, it can be seen that the said judgment in fact helps the assessee. The second question answered by the Supreme Court can be understood to mean that the obligation of the assessee to deduct tax u/s 195 is not there when the payment made to the non resident does not contain any proportion of income therein. In our view, right from the beginning, not only on the basis of the circulars of the Board, but also on the basis of the decision of the Tribunal in its own case, the assessee firmly believed that no part of the income paid to the foreign agent was taxable in India. Therefore, there was no question of deducting any tax at source on any proportion of the payment made to the non-residents. Thus, the judgment in the case of Transmission Corporation (supra) does not advance the case of the department in the present appeal. Finally, it may be pertinent to note that Circular No.786 dated 7-2-2000 i.e., the same has been issued after the judgment was rendered in the case of

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Transmission Corporation (supra) i.e., on 17-8-1999. The facts in the assessee's case remain governed by the Board Circular and hence, in the final analysis, respectfully following the earlier order of the Tribunal in the assessee's own case, we uphold the order of the CIT (A) deleting the disallowance." 7. In case of Divis Laboratories Ltd. (supra), the ITAT, Hyderabad Bench while interpreting the provisions contained under s. 195 held that unless the income is liable to tax in India, there is no obligation to deduct tax. In order to determine whether the income can be deemed to accrue or arise in India, it has to be consistent in the context of section 9. As per section 9, the basic criteria provided in the section is about accrual of or arising of income In India by virtue of connection with the property in India or control or management vested in India. Unless these conditions were satisfied, it cannot be held that income has accrued or arisen in India. This Tribunal further held that section195 has to be read along with charging sections 4, 5 and 9 of the Act. The provisions contained u/s 195 were not meant that the moment there is a remittance, the obligation to deduct TDS automatically arise.Considering the fact that the AO has not brought any material on record to show that the foreign agents have rendered any part of the services in India or have a permanent

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establishment and business connection in India, it cannot be said that any part of the commission payment made to them accrued or arisen in India requiring deduction of tax u/s 195(1) of the Act. We are also fortified by the decision of the ITAT Bombay Bench discussed above. In the aforesaid view of the matter, we fully agree with the finding of the CIT (A) that no disallowance u/s 40(a)(i) could be made. We therefore uphold the order of the CIT (A) and dismiss the ground raised by the department. ” Considering the above, first ground of appeal is decided in favour of the assessee.”

Respectfully following the above order,we allow first Ground of appeal raised by the assessee.

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by the coordinate bench of Hon’ble ITAT Mumbai in assessee’s own case in ITA No. 1240/Mum/10 for AY 2006- 07 and ITA No. 3588/Mum/2013 for AY 2007-08. Since the factual as well as legal position remains same, therefore while maintaining judicial consistency and respectfully following the decision of the coordinate bench which are applicable mutatis mutandis in the present case. Accordingly, we allow this ground of appeal raised by the assessee.

Ground No. II. 11. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action of the AO with respect oftreating interest income on bank deposits of Rs. 14,09,14,185/-, interest income on inter-corporate deposits of Rs. 8,66,55,657/- and Miscellaneous interest income of Rs. 54,84,380/- as ‘Income from other sources’ instead of ‘business income’ as claimed by the assessee.

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Firstly we are dealing with claim of assessee for treating interest income on bank deposits and interest income on inter-corporate deposits as ‘business income’.

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raising monies for its business. The amounts received from applicants were deposited with the cash. credit account in the bank. After allotment, the excess application monies were to be returned to the applicants. Under the Companies Act, 1956, the company is obliged to transfer the excess monies to a separate bank account. The assessee-company therefore transferredsuch monies from the cash credit account in the bank to a separate term deposit account This deposit earned interest of Rs.49.00.277 which the assessee claims Should be assessed under the head "business". The claim was rejected by the income-tax authorities on the ground that the interest did not arise from the normal business activity of the assessee, that even the balances in the term deposit did not arise from any business activity and that the balances depended upon the claim made by the debenture-applicants.

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from the cash credit account to a separate bank account the interest liability(on the cash credit account) increased considerably and therefore the interest earned on the term deposit account will have to go to reduce the interest on the cash credit account. 25. The question before us is whether there is sufficient nexus between the interest and the business of the assessee-company so that it can be taxed under the head profits "profits and gains of business". The debentures represent the borrowing made by the assessee. The act of borrowing monies for the purpose of the business is an act incidental to the business. Interest paid on debentures issued by a company is allowed as a deduction if it is found that the monies have been borrowed for the purpose of the business. The assessee has collected monies by issuing debentures. The entire monies, including the excess monies, were deposited in the cash credit account with the bank Once the debentures are allotted, the excess monies received from unsuccessful applicants have to be transferred to a separate bank account as per the provisions of the Companies Act. About this there is no dispute.Accordingly, the assessee transferred the excess monies to a term deposit account from which they would be ultimately returned to the unsuccessful applicants. These monies earned interest for the

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assessee. Now, had the monies continued in the cash credit account, then as rightly pointed out on behalf of the assessee, the interest liability on the cash credit account would be lesser, leaving a larger profits for the assessee. Now merely because the law requires the excess monies to be transferred to a separate bank account en which interest is earned, should the result be something different is the question. In our opinion, it should not be. Basically, the interest has been earned on monies that were available to the assessee only because of the act of borrowing, which is a normal incident of any business. Thus, the monies were collected only in the course of the business. The interest liability on the cash credit account went up because of the transfer of funds to the term deposit account. Whichever way it is looked at, we areol the view that there is no escape from the conclusion that the interest earned on the term deposit should be considered as part of the income incidental to the business, it should be allowed to be adjusted against paid on the cash credit account so that the same result namely,a larger profits of the business are available to the assessee. Such adjustment is I4missibte only because the interest arose out of an activity which is incidental to the business. The interest paid on the cash credit account, which is undeniably an

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expenditurerelating to the business, is closely linked with the interest received by the assessee on the short term deposits made out of excess monies collected on account of debentures and therefore they have to be adjusted against each other, which is to be done only under the head 'business'. It has to be remembered that the excess monies were transferred .only from the cash credit account. The position should not be in any way different from what it would have been, if the monies had continued in the cash credit account itself. For these reasons, we hold that the interest on the term deposit, representing the excess monies returnable to the unsuccessful debenture applicant, should be assessed under the head ‘business’ as claimed by the assessee. This ground is allowed.

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the coordinate bench of Hon’ble ITAT Mumbai in assessee’s own case in ITA No. 76/Mum/2003 for AY 1999-2000.Since the factual as well as legal position remains same, therefore while maintaining judicial consistency and respectfully following the decision of the coordinate bench which are applicable mutatis mutandis in the present case.Accordingly, we allow this ground of appeal raised by the assessee.

Now we are dealing with the claim of assessee regarding treating Miscellaneous interest income of Rs. 54,84,380/- as "Business Income" 15. As per this ground, the claim of the assessee regarding treating Misc. Interest Income as ‘business income’ is concerned, It was submitted by Ld. AR that as per the facts of the present case, the assessee sells its finished products to companies (other than oil marketing companies) on receipt of advance payment from them. However some of the parties lift products on credit by submitting Bank Guarantees. In such cases, the assessee charges interest from the date of sale to the date of actual payment by such parties. It was further submitted that during FY 2007-08 the company received interest of Rs. 4,45,44,070/-

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mainly on account of Bank Guarantee Sales which have been booked under miscellaneous interest. The break-up of Miscellaneous Interest of Rs. 4,45,44,070/- has been placed on record in the factual paper book filed by the assessee.

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assessee at page no. 42 of the factual paper book. It is needless here to mention that before passing the order, the AO shall provide opportunity to the assessee. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Resultantly this ground raised by the assessee is allowed for statistical purposes.

Ground No. III. 18. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action of the AO with respect to addition on account of provision for advances doubtful of recovery amounting to Rs. 3,14,60,094/- while calculating book profit u/s. 115JB of the Act by applying clause (c) to explanation to section 115JB of the Act.

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the Coordinate Bench of Hon’ble ITAT in ITA No. 3588/Mum/2013 for AY 2007-08 in assessee’s own case. The relevant portion of the order of Hon’ble ITAT in ITA No. 3588/Mum/13 for AY 2007-08 contained in para no. 4, which is reproduced below:-

4.Ground No.3 is about addition on account of provision for advances doubtful of recovery while computing book profit u/s. 11 5JB of the Act.During the assessment proceedings,the AO found that the assessee had had made provision for advances doubtful of recovery,amounting to Rs.5.64 crores. He held that the liability on account of provision for doubtful debts and advances was not an ascertained liability, that same was to be added to the book profit of the assessee invoking the provision of section 11 5JB of the Act. 4.1.Before the FAA the assessee made submissions and relied upon certain case laws.After considering the available material the FAA held that the provision was not against any ascertained liability, that same was to be added to book profit as per clause (c)of Explanation 1 below sub section 2 of section 115 JB.

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4.2.Before us,the AR stated that the liability was not unascertained. He relied upon the cases of Vijaya Bank(190taxmann257); Tainwala Chemicals & Plastics India Ltd.(47S0T116); and Vodafone Essar Gujarat Ltd. (Tax Appeal No.749 of 2012-dtd. 4/8/2017).The DR left the issue to the discretion of the Bench.

4.3.We have heard the rival submissions and perused the material on record. In the case of Tainwala Chemicals and Plastics India Ltd.(supra),one of the question of law raised by the department was as under "(k) Whether, on the facts and circumstances of the case the Tribunal was justified in upholding the decision of the CIT(A) in deleting the addition on account of provisions for doubtful debts to the book profit u/s.115JB of the Act The Hon'ble High Court while dealing with the other question i.e., question (c )alongwithquestion (k) held as under "3. In so far as question (c) is concerned, the Tribunal by the impugned order has followed the decision of the Apex court in the matter of Vijaya Bank V/s. Commissioner of Income Tax reported in 322 ITR 166, wherein it has been held that once

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the provision of doubtful debt has been debited to the profit and loss account and corresponding provision has been credited or reduced from the debtors account in the balance sheet, then, this would amount to writing off In the present case, the Tribunal recorded a finding of fact that the respondent — assessee has debited the provision of doubtful debt to the profit and loss account and correspondingly reduced the assets by reducing the amount of unsecured loans. On the aforesaid facts, the Tribunal held that this would amount to writing off of the debt. Thus, on examination of facts it concluded that the respondent — assessee has written off the loan and would be entitled to the claim of bad debts. The Tribunal by the impugned order also recorded a finding of fact that once the respondent— assessee has lent surplus money and offered the interest to tax as business income, then the activity of the respondent — assessee of lending money is a business activity. Therefore, the debt qualifies for deduction under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961. In view of the finding of fact recorded by the Tribunal that the provision has been written off and reliance placed on the decision of the Apex

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Court in the matter of Vijaya Bank (supra), we see no reason to entertain question (c). 8. In so far as question (k) is concerned, the grievance of theRevenue is that for the purpose of computing profits under Section 115JB, the provision of doubtful debts has to be added. In view of our decision to question (c) above, issue of adding back the provisions for the purpose of computing book profits does not survive. This is particularly so in view of the fact that the Tribunal has recorded a finding of fact that the provision has been written off Accordingly, we see no .reason to entertain question (k)." We find that the assessee had debited the provision for doubtful debts to the profit and lossaccount and had credit the corresponding provisions from the balance sheet.Considering the above Ground No.3 is decided in favour of the assessee.

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orders passed by lower authorities, we find that the identical question involved in the present ground has already been decided by the coordinate bench of Hon’ble ITAT Mumbai in assessee’s own case in ITA No. 3588/Mum/2013 for AY 2007-08. Since the factual as well as legal position remains same, therefore while maintaining judicial consistency and respectfully following the decision of the coordinate bench which are applicable mutatis mutandis in the present case. Accordingly, we allow this ground of appeal raised by the assessee.

Ground No. IV. 22. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) erred in confirming the action of the AO in disallowing a sum of Rs. 3,84,26,370/- u/s. 14A of the Income the Act being the disallowance u/s 14A of the Act r.w. Rule 8D.

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amounting to Rs. 14,98,12,925/- on investments in two scheme of UTI Mutual Funds viz. Liquid Fund Cash Plan and UTI Liquit plus plan. The AO has made a disallowance u/s 14A of the Act r.w.r. 8D amounting to Rs. 3,84,26,370/-. It was further submitted that the dividend income is subject to tax u/s 115-R of the Act and hence it cannot be regarded as exempt income. It was further submitted that the question of applying the provisions of section 14A cannot arise as it will only amount to double taxation. It was further submitted that without prejudice, the total investments made in the Mutual Funds during the year under consideration and which are existing as on March 31, 2008 is only Rs. 6,178.56 millions as against operating cash profit of Rs. 15,830.22 millions. Similarly, against the share capital and reserves of Rs. 37,829.43 millions as on March 31, 2008 the tax free investments are only Rs. 7178.58 millions. Ld. AR submitted its arguments by raising first proposition by arguing that applicability of rule 8D is not automatic and in this respect relied upon the decision in the case of Godrej and Boyce Manufacturing Co. Ltd. Vrs. DCIT (2017) (81 taxman.com111) (SC).

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Ld. AR further raised arguments on second proposition of law by submitting that the assessee had own sufficient funds /net worth as compared to the investment made by the assessee. In this respect, reliance was place on the decision of Hon’ble Bombay High Court in the case of CIT Vrs. Reliance Utilities & Power Ltd. (313 ITR 340). Ld. AR also drawn our attention to the chart showing the details of average investments and average net worth, contained at page no. 17 of the order of Ld. CIT(A) in order to show that the assessee had sufficient own fund /net worth. Ld. AR further submitted that a petition for admitting additional evidence before the Ld. CIT(A) under rule 46A of IT rules 1962 was moved, however Ld. CIT(A) had not admitted the said additional evidences. Thus those additional evidences have also been placed on record before us which starts from page no. 45 to 71 of the paper book which is in the shape of copy of interest working, copy of minutes, copy of Board resolution, copy of job profiles of employees, copy of form 16 of employees, copy of DPE/Guidelines/III/28, copy of DPE/guidelines/III/32, copy of rent working, copy of electricity expenses working and copy of telephone expenses working.

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Ld. AR further raised arguments on the third proposition that the AO was under an obligation to examine the computation made by assessee and only if, on an objective satisfaction recorded by the AO with regard to the incorrectness of the working, the AO can proceed to apply provisions of rule 8D(2) (iii) of the I.T. rules 1962 and thus relied upon M/s Raptakos Brett & Co. Ltd. Vrs. ACIT (ITA No. 7490/Mum/13) (Mum).

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to whether the assessee has sufficient own funds /net worth as compared to the investments made by the assessee. In order to reach to a logical conclusion, the AO is required to verify the documents relied upon by the assessee. Thus, we allow the request of additional evidence of the assessee as the documents, which the assessee wants to rely by way of additional evidence goes to the roots of the case. Be that as it may, considering the interest of justice as well as the factual position, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction to verify whether the assessee was having sufficient funds i.e. more than the investments and recomputed disallowance u/s 14A r.w.r. 8D after examining the nexus of borrowed funds with the investments income which is exempt from tax. While doing so the AO will take into account only that portion of interest bearing funds which have been utilized for making investments income, which is not includible in computing total income under the Act. The AO is further directed to verify and consider the documents placed on record by way of additional evidence and also the judgment of CIT Vrs. Reliance Utilities & Power Ltd. (313

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ITR 340) and thereafter pass afresh order of assessment. It is needless here to mention that before passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assessee. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Resultantly, this ground isallowed for statistical purposes.

Ground No. V 26. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in not allowing depreciation on enhanced capital work-in-progress as a result of assessing interest income in A.Y. 2000-01 & A.Y. 2001-02 amounting to Rs. 1,04,05,348/- and Rs. 2,30,10,414/-, respectively which were separately assessed under the head Income from Other Sources in those years.

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Considering the decision of Coordinate Bench of Hon’ble ITAT in assessee’s own case, we direct the AO accordingly. Resultantly, this ground is allowed.

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Ground No. VI. 28. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action of the AO in respect to addition on account of provision for advances doubtful of recovery amounting to Rs. 3,14,60,094/- under normal provisions of the Act.

Ld. AR further submitted that theidentical grounds have already been decided by the Coordinate Bench of Hon’ble ITAT in ITA No. 3588/Mum/2013 for AY 2007-08 in assessee’s own case. The relevant portion of the order of Hon’ble ITAT in ITA

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No. 3588/Mum/13 for AY 2007-08 contained in para no. 6, which is reproduced below:-

6.1.Before us, the AR contended that similar issue was dealt by the Tribunal in the cases of LML Ltd.(72laxmann.com2O7)andKEC Intl.Ltd.(33taxmann.com243),Tainwala Chemicals (47S0T169).We find that in the case of LML Ltd. (süpra),the Tribunal has held that once the provision for doubtful debts has been debited to P&L account and corresponding provision had been reduced from debtors account in balance sheet then same would amount to writing off of the debts, that all the conditions laid down uls.36(1) would be fulfilled. As stated earlier the assessee has passed necessary entries in P&L account as well as in the Balance sheet.Therefore,we allow Ground No.5.

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ITA No. 4436/M/2013 for AY 2008-09. 33. Now we take up appeal filed by revenue in ITA No. 4436/Mum/2013 for AY 2008-09 on the grounds mentioned herein below:- 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in treating the

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interest of Rs. 4,00,00,000/- received from New Mangalore Port Trust as business income instead of income from other sources as held by the Assessing Officer ."

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Ground No. 1 & 2 34. These grounds raised by the revenue are inter-connected and inter-related and relates to challenging the order of Ld. CIT(A) in treating the interest of Rs. 4,00,00,000/- received from New Mangalore Port Trust as business income instead of income from other sources as held by the Assessing Officer and also in treating the interest of Rs. 49,16,289/-, Rs. 5,55,117/-,Rs. 1,90,94,600/- and Rs. 4,45,44,070/- being interest and recovery of discount charges, interest on housing loan, interest on oil Bonds and interest - miscellaneous respectively as business income instead of income from other sources as held by the Assessing Officer, therefore we thought it fit to dispose of by this common order.

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dealt with the above grounds raised by the revenue in its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 7 of its order and the same is reproduced below:-

i. Interest on bank deposits - Income from other sources

ii. Interest on inter-corporate deposits, it is also from the surplus funds and similar to interest on bank deposits, therefore, it is also held taxable underthe head- Income from other sources.

iii. Interest on NMPT - Income from business and profession

iv. Interest and recovery on discount charges - Income from business and profession

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V. Interest on housing loan - Income from business and profession

vi. Interest on oil bonds - Income from business and profession

vii. Interest - miscellaneous - Rs.4,45,44,0701-

The assessee has provided detail of interest under this head at page 47 of the factual paper-book, which is as follows:

'DETAILS OF INTEREST-MISCELLANEOUS Particulars Amount(Rs.) BG Sales 3,90; 59.690 CAPS 12,105 Interest on Advance against Equity 5,72,538 Interest on mobilization advance & retention money - M/s. NR. Pate] & Co. 11,57,364 Interest on deposit - Mescom Ltd. 3,14,791 Interest charges on mobilization advance & retention money 1,68,068 Interest charged towards advance against equity and other payments on behalf ofKRPL 29,41,504 Interest on mobilization advance – INFINITYLAB 3,15,892 Other Deductions 2,118 TOTAL 4,45,44,070" Interest from miscellaneous sources was also examined in the case of the assessee for A.Y. 07-08 and the facts of the case are same, therefore, following the decision for A.Y. 07-08, interest from BG Sales on bank guaranteeRs.3,90,59,690/-, which is received from

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buyers on sales is held taxable as business income, whereas, remaining other interest under the head interest - miscellaneous have been rightly taxed under the head income from other sources by the A.O. In result, the ground of appeal is partly allowed.

After having heard the counsels for both the parties at length and also on perusal of the documents as well as the orders passed by lower authorities, we find that the identical question involved in the present case has already been decided by the coordinate bench of Hon’ble ITAT Mumbai in assessee’s own case in ITA No. 76/Mum/2003 for AY 1999-2000, ITA No. 1463/Mum/08 for AY 2001-02, ITA No. 7341/Mum/08 & CO No. 104/Mum/09 for AY 205-06, ITA No. 1240/Mum/10 for AY 2006-07 and ITA No. 3588/Mum/13 for AY 2007-08. Since the factual as well as legal position remains same, therefore while maintaining judicial consistency and respectfully following the decision of the coordinate bench which are applicable mutatis mutandis in the present case. Accordingly, we dismiss these ground of appeal raised by the revenue.

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Ground No. 3 36. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in allowing higher depreciation to the extent of Rs. 15,35,39,722/- without appreciating the fact that the same was restricted by the A.0 consequent to allowance of depreciation for A.Y 2001-02.

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"Brief facts of the matter are that the appellant had not claimed depreciation in the A. Yrs. 1998- 99, 1999-00, 2000-01 and 2001-02 in view of the decision of CIT Vs. Mahindra Mills 243 ITR 56 (S. C.). However for the A. Yr.2001 -02, the A. 0. allowed the depreciation though the same was not claimed by the assessee. Keeping in view the allowance of depreciation allowed in the A. Yr.2001 -02, the A. 0. restricted the depreciation to Rs.2, 46,97,36,332/- as against Rs.2, 68,13,08,076/- claimed by the assessee.

At the time of hearing of the appeal, the AR for the appellant submitted that the Explanation -5 to Section 32 of the Act was inserted with effect from 01. 04.2002 i.e. from A. Yr.200203 due to which depreciation has to be allowed to the assessee irrespective of any claim made or not made by the assessee. The A. 0., however, has wrongly applied the provisions retrospectively for the A. Yr.2001- 02 and thus, forcefully thrusted the depreciation allowance on the appellant inspite of the ruling of the Supreme Court in the case of CIT Vs. Mahindra Mills 243 ITr 56(S. C.) not to force depreciation allowance on the assessees if the same is not claimed in the return ofin come.

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I find that identical issue had come up before my Ld. Predecessor while hearing appeals for the A. Yrs.2001-02, 2002-03, 2003-04, 2004-05 and 2005-06 wherein, they have held that in view of the Hon 'ble Supreme Court decision in the case of CIT Vs. Mahindra Mills 243 ITR 56 (S. C) depreciation allowance cannot be forced on the assessee in case the same has not been claimed by it and that the amendment pertaining to explanation 5 to section 32 was introduced from the A. Yr.2002-03 and as such cannot be applied retrospectively. Respectfully following the same, I allow the ground in favour of the appellant on this issue. Accordingly, the A.0. is directed to recalculate the depreciation without adjusting the WDVof the A. Yr.2001 -02."

There is no change in facts, therefore, respectfully following the decision of my id. predecessor, the A.O. is directed to recalculate the depreciation without adjusting the written down value of the A.Y. 01-02. In result, the ground of appeal is allowed.

After having heard the counsels for both the parties at length and also on perusal of the documents as well as the orders passed by lower authorities, we find that the identical question

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involved in the present case has already been decided by the coordinate bench of Hon’ble ITAT Mumbai in assessee’s own case in ITA No. 3236/Mum/2008 for AY 2003-04, ITA No. 6835/Mum/08 for AY 2004-05, ITA No. 1240/Mum/10 for AY 2006-07 and ITA No. 3588/Mum/13 for AY 2007-08. Since the factual as well as legal position remains same, therefore while maintaining judicial consistency and respectfully following the decision of the coordinate bench which are applicable mutatis mutandis in the present case. Accordingly, we dismiss this ground of appeal raised by the revenue. Ground No. 4 & 5 38. These ground raised by the revenue are consequential in nature, thus requires no specific adjudication. 39. In the net result, the appealsfiled by the assessee stands allowed and appeal filed by the revenue stands dismissed. Order pronounced in the open court on 8th June, 2018 Sd/- Sd/- (G. S. Pannu) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 08.06.2018 Sr.PS. Dhananjay

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आदेशकीप्रनिनलनपअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent आयकरआयुक्त(अपील) / The CIT(A) 3. 4. आयकरआयुक्त/ CIT- concerned 5. यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,

.उप/सहधयकपंजीकधर (Dy./Asstt.Registrar) आयकरअपीलीयअनर्करण, मुंबई/ ITAT, Mumbai