DCIT, CENTRAL CIR. VI, KOLKATA vs. M/S J.K. LAKSHMI CEMENT LTD., KOLKATA

आदेश /O R D E R

PER BEMCH:-

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 2 These four appeals by the Revenue are against the separate orders of Commissioner of Income Tax (Appeals)-I, Kolkata dated 28.01.2013, 29.01.2013 & 31.01.2013 and Cross Objection (CO) filed by the assessee arising out of ITA No.612/Kol/2013. Assessments were framed by DCIT, Central Circle-VI, Kolkata u/s 143(3)/115JB of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide their orders31.12.2010, 28.12.2011 & 07.12.2012 for assessment years 2007-08 to 2010-11 respectively. Shri S. Jhajharia and Shri Sujoy Sen, Ld. Authorized Representatives appeared on behalf of assessee and Shri Niraj Kumar, Ld. Departmental Representative represented on behalf of Revenue. 2. All the appeals and CO are heard together and being disposed of by way of this consolidate order for the sake of convenience. First we will deal with ITA No.609/Kol/2013for A.Y. 07-08. 3. Only issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing unabsorbed depreciation brought forward from the assessment years 1992-93 to 1997-98 to be carried forward in the year under consideration. 4. Facts in brief are that assessee is a limited company and engaged in cement manufacturing business. The original assessment was framed u/s 143(3) of the Act vide order dated 19.11.2009 wherein the unabsorbed depreciation of the earlier year was allowed to be carried forward to the year under consideration. The details of unabsorbed depreciation stand as under:- Sl.No A.Y Amount (Rs) 1 92-93 14,02,04,315 2 93-94 11,40,93,432 3 94-95 50,49,72,790 4 95-96 61,19,88,996 5 96-97 Nil 6 97-98 91,09,53,629

The aforesaid brought forward of unabsorbed depreciation was allowed to be carried forward in the year under consideration in the original assessment order completed

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 3 u/s. 143(3) of the Act. Thereafter Ld. CIT in his order u/s 263 of the Act observed that the assessee is entitled to carry forward of unabsorbed depreciation only upto to eight succeeding assessment years. But in the instant case the Assessing Officer in his assessment order has allowed the unabsorbed depreciation to be carried forward beyond the period of eight assessment years. Accordingly, Ld. CIT held the order of AO as erroneous and prejudicial to the interest of Revenue vide his order dated 27.09.2011 and directed the AO to make fresh assessment order as per law after giving opportunity of being heard to assessee. Thereafter the AO in compliance to the direction of Ld. CIT issued notice u/s. 142(1) of the Act on 14.10.2011 provided opportunity for seeking clarification about the unabsorbed depreciation as claimed by assessee as carried forward in the year under consideration. The assessee in response thereto, submitted that no unabsorbed depreciation was set off in the year under consideration. Therefore there is no question of making the wrong claim for unabsorbed depreciation. The assessee also submitted that as per the amended provision of section 32 of the Act the unabsorbed depreciation can be carried forward upto any number of years. However, the AO observed that the depreciation pertains to the AY 1992-93 was set off for an amount of ₹2,19,14,374/- against the income earned in the year under consideration which was wrongly allowed. The AO finally held that the unabsorbed depreciation as discussed above cannot be allowed to be carried forward. 5. Aggrieved assessee preferred an appeal before Ld. CIT(A) who allowed the appeal in favour of assessee by observing as under:- “4. I have perused the relevant orders. The AO had not allowed the set off in respect of unabsorbed depreciation for the assessment years ups to 2001-02 following the decision of the Hon'ble Special Bench of the ITAT Mumbai contained in its order dated 30-06-2010 in the case of M/s Times Guarantee Limited. However, contrary decision has been given by the Hon'ble High Court of Gujarat in its order dated 23-08-2012 in the case of General Motors India (P) Ltd 210 Taxman 20(Guj). The judgment of the Hon'ble High Court of Gujarat has come subsequent to that of the Hon'ble Special Bench of the ITAT and so, given the judicial hierarchy, the judgment of the Hon'ble High Court of Gujarat shall hold the field. The Hon'ble High Court has held that the amendment was applicable from the assessment year 2002-03 which means that any unabsorbed depreciation available to n assessee on the 1st day of April, 2002 has to be dealt with in accordance with the provisions of section

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 4 32(2) as amended by the Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. The Hon'ble High Court also noted that once the CBDT Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensed with the unabsorbed depreciation from the assessment year 1997-98 to 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, and, had to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and consequently, was available for carry forward and set-off against the profits and gains of subsequent years without any limit whatsoever. Following the decision of the Hon'ble High Court of Gujarat in the case of General Motors India (P), it is to be held that the unabsorbed depreciation for the assessment years up to 2001-02 shall be carried forward to the assessment year 2002-03 and become part thereof, and, has to be governed by the provisions of section 32(2) as amended by Finance Act, 2001. The AO is directed accordingly. … ..”

The Revenue, being aggrieved, is in appeal before us on the following ground:- (i) That the Ld. CIT(A) has failed to appreciate that the Hon'ble Gujarat High Court did not have the benefit of the decision of the Special Bench of Hon'ble ITAT Mumbai in the case of Times Guarantee Ltd before arriving at its decision and, thus, the decision of the Hon'ble High Court does not overrule the decision of the Special Bench of Hon'ble ITAT Mumbai and, hence he has erred in allowing the unabsorbed depreciation for the AY 1997-98 and earlier yeas to be carried forward to the subsequent years without any time limit and (ii) That the Department craves the right to add, modify or alter the grounds of appeal during the course of hearing of the case.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 5 succeeding year, the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. It is held that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from assessment year 1997-98 up to the assessment year 2001-02 got carried forward to the assessment year2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever.”

Similarly, we also find that the Hon'ble jurisdictional High Court in GA No. 1930 of 2016 dated 11.08.2016 in the case of CIT vss. M/s India Jute And Industries Ltd. has decided the issue in favour of assessee and against the Revenue. The relevant extract of the order is reproduced below:- “Challenging the aforesaid order the learned Appellate Tribunal was approached by the Revenue unsuccessfully. The learned Tribunal has upheld the appellate order also relying upon the judgment of the Guarat High Court in the case of General Motors India Pvt. Ltd., the views expressed therein by the Gujart High Curt are as follows:- ‘… .. we are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 A.Y 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y 1997-98 upto A.Y 2001-02 got carried forward to the assessment years 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever.

Mr. Dudhoria, learned advocate is unable to show any infirmity in the view taken by the Gujarat High Court and he does not dispute that the cap of eight years was revoked from the assessment year 2002-03.

We are concerned in this case with the assessment year 2007-08. We, as such, are unable to admit the appeal, which is, accordingly, dismissed.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 6 From the above we find that the section 32(2) of the Act was amended by the Finance Act, 1996 whereby the benefit of carry forward of unabsorbed depreciation loss to a period of 8 years was curtailed and the same was brought at par with the unabsorbed business losses. The amended provisions in the case of unabsorbed deprecation were in force till Asst Year 2001-02. Subsequently the amendment was brought in Finance Act, 2001 effective from Asst Year 2002-03 in the provisions to Section 32(2) of the Act and allowed the benefit of carry forward of losses to unlimited period. We find from the Explanatory memorandum to Finance Act, 2001 clearly spells out the intention behind this amendment which is as below:—

"With a view to enable the assessees to conserve sufficient funds to replace capital assets, especially in an era where obsolescence takes place so often, the Bill proposes to dispense with the restriction of 8 years for carry forward and set- off of unabsorbed depreciation." From the above it is clear that the intention of the legislature is to provide the benefit of brought forward unabsorbed depreciation to be allowed for unlimited years. It is a fact that the amendment in section 32(2) by the Finance Act will be effective from 1st April 2002, but intention behind the amendment could only be interpreted as if it has the effect retrospectively.

In addition to above we also find that the Hon'ble jurisdictional High Court in the case of M/s India Jute And Industries Ltd. (supra) after having reliance in the case of General Motors (supra) we hold that the decisions of the Special Bench of ITAT in the case of Times Guarantee has been overruled. Thus we find no reason to interfere with the finding of the Ld. CIT(A). Under the circumstances, this issue of Revenue’s appeal is dismissed. AO is directed accordingly. 8. In the result, Revenue’s appeal is dismissed. Coming to Revenue’s appeal in ITA No.610/Kol/2013 for A.Y. 08-09. 9. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹ 14,28,510/- u/s 40A(9) and 36(1) of the Act on account of staff welfare expenses. 10. The assessee in the year under consideration has incurred expenses on employees’ welfare, the details as under:-

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 7 1 Expenses & subsidy to staff workers club at Rs.1,84,875/- Jaykaypuram 2 Expenses & subsidy to Ladies club at Rs. 47,118/- Jaykaypuram, Sirohi 3 Expenses for running school at Jaykaypuram Rs.11,96,517/- Rs.14,28,510/-

During the course of assessment proceedings, the AO requested the assessee to furnish the details such as total number of student in school, total expense incurred in running the school, number of employees student admitted in school etc., but the assessee failed to furnish the same. Therefore, AO disallowed all the expenses incurred by assessee for running the school. The AO also held the expenses incurred for the staff welfare clubs were not in connection with business of assessee. Therefore, AO disallowed the same and added to the total income of assessee. 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that similar expenses were allowed by Hon'ble Co- ordinate Bench of this Tribunal in assessee’s own case in ITA No.1315/Kol/2006 for the A.Y 1999-00 dated 19.03.2008 and Ld. CIT(A) relying on the order of this Tribunal in assessee’s own case (supra) has deleted the addition made by AO.

The Revenue, being aggrieved, is in appeal before us on the following ground:- “(i) That the Ld. CIT(A) has failed to appreciate that the donation to clubs and expenditure on account of running of schools do not qualify for deduction on a plain reading of section 40A(9) and 36(1) of the Income-tax Act, and, hence, has erred in Law as well as facts of the case in directing to delete the disallowance of Rs.14,28,510/- made on account of Staff Welfare Expenses.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 8 decided by the Co-ordinate Bench of this Tribunal in assessee’s own case in ITA No.1315/Kol/2006 (supra) and the operative portion of the said order is reproduced below:- “5. Heard the rival submissions, peruse the material available on record and the case law cited by the Ld. Authorised Representative of the assessee. we find that this issue is covered in favour of the assessee vide order of the Hon'ble ITAT dated 30.06.2006 relating to assessment year 1995-96 in assessee’s own case while deciding the departmental appeal. The relevant portion of the order dated 30.6.2006 passed by the Tribunal is reproduced hereunder:- ‘We after hearing both the parties and taking into consideration the orders of tax authorities find that since the ld. CIT(A) while deleting the addition has given a categorical finding by observing that it was made for the welfare of the employees and therefore the decision of the Hon'ble Kerala High Court in the case of P. Balakrishnan, Commissioner of Income Tax -vs- Travancore Cochin Chemicals Ltd (supra) was well applicable which has not been rebutted or controverted by the ld. Departmental Representative for the Revenue before us. We, therefore, respectfully following the decision of Hon'ble Kerala High Court reported in 243 ITR 284, confirm the action of ld. CIT(A) and reject the ground raised by the Revenue.’

Respectfully following the said order of the Hon'ble ITAT, we allow this ground in favour of the assessee and hold that the expenses incurred for welfare of the employees does not come within the purview of section 40A(9) of the IT Act, 1961 and in that view deleted the disallowance of Rs.15,17,126/-. This ground of the revenue is, therefore, dismissed.”

We also find that the case of AO is not excessive or unreasonable expenses. In our view the AO before disallowing the school running expenses should have considered the earlier expenses. More over from the submission of the assessee before the ld. CIT-A, we find that the AO disallowed the expenses on the ground that the order of ITAT cited by the assessee at the time of assessment has not reached finality. The ld. DR has not brought anything contrary to the finding of ld. CIT-A. Accordingly respectfully following the precedent as above we hold that there is no infirmity in the order of the ld. CIT(A). Accordingly, we uphold the same. This ground of Revenue’s appeal is dismissed. 14. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹43,05,78,782/- on account of gain on settlement of loan.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 9 The assessee in the year under consideration has settled its loan of ₹191.33 15. crores at ₹138.71 crores which resulted a gain for ₹ 52.62 crores to the assessee. The gain of ₹ 52.62 consist of two parts i.e. principal amount of ₹ 43.06 and another is accrued interest of ₹9.56 crores. The assessee has offered the interest amount of ₹ 9.56 crores to the taxes but claim deduction of ₹43.06 crores as non-taxable. However, the AO treated the principal amount of ₹43.06 crores as business income under the provision of Sec. 28(iv) of the Act which was added to the total income of assessee. 16. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the principal amount of loan was utilized in the fixed asset of assessee and no expense was claimed out of such loan amount availed by it. Ld. CIT(A) after considering the submission of assessee has deleted the addition made by the AO by observing as under:- “I have perused the assessment order. I have also considered the submissions made on behalf of the appellant and the judicial decisions relied upon. In the case of JK Paper Ltd, the Hon'ble ITAT ‘C’ Bench, Ahmedabad after referring to the judgments of the various High Courts has held, under similar facts and circumstances, that the rebate allowed by the lender was not assessable as income u/s. 28(iv) or 41(1). It was explained on behalf of the appellant that the loan under consideration was taken and utilised for acquiring fixed assets which has not been disputed by the AO in his assessment order. In the case of CIT vs Xylon Holding (P) Ltd, the Hon'ble Bombay High Court has held that the cessation of liability on account of repayment of loan taken to purchase capital asset does not result in a revenue receipt and is not taxable u/s. 28(iv) or 41(1). In view of the above, I am of the opinion that the case of the appellant is covered directly by the above decisions of the Hon'ble ITAT Ahmedabad and Bombay High Court. Respectfully following the above decision, the addition of Rs.43,05,78,782/- is directed to be deleted. Ground no 2 is allowed.” The Revenue, being aggrieved, is in appeal before us on the following ground:- “(ii) That the Ld. CIT(A) has failed to appreciate the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Emil Webber –vs- CIT (1993) [200 ITR 483] that anything which can properly be described as income is taxable under the Act unless it is exempted under one or the other provision of the Act, and subsequently, has erred in Law as well as facts of the case in directing to delete the addition of Rs.43,05,78,782/- made on account of Gain on Settlement of Loan.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 10 17. Ld. DR before us heavily relied on the order of AO and he left the issue to the discretion of the Bench whereas Ld. AR for the assessee reiterated the arguments as made before the Ld. CIT(A) and he relied on the order of Ld. CIT(A). 18. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant relates to the gain which assessee has received on account of settlement of the loan. It is undisputed fact that the amount of interest which was waived off by the bank was offered to the tax by the assessee on the ground that interest was claimed as expense in its books of account. However, assessee treated waiver off of the principal amount of loan non-taxable item on the ground that it was utilized for the purchase of fixed assets i.e. business purposes. However the AO treated the same as income of the assessee in terms of the provisions of section 28(iv) of the Act. Now the question arises for our adjudication so as to whether the loan amount written off is income as per the provisions to section 28(iv) of the Act which reads as under:- “Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,- (i) ... ... (ii) ... ... (iii) ... .. [(iv) the value of any benefit or perquisite, whether convertible to money or not, arising from business or the exercise of a profession;]

A plain look at the above statutory provision makes it clear of the above provision it can be inferred that when loans availed for acquiring capital assets have been waived, the waiver cannot be treated as value of any benefit or perquisite arising from business or exercise of profession so as to be treated as assessable income by invoking the provisions of section 28(iv) of the Act. Such waiver cannot also be brought to tax u/s 41(1) of the Act, as no part of the waiver would have been allowed as a deduction in earlier year(s). However, waiver off interest portion out of loan taken for trading activities and other expenditure allowed as deduction in the earlier year(s) would be brought to tax under section 41(1) of the Act in the year(s) of write-back.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 11 The provisions of section 28 of the Act deals with profits and gains of business or profession and clause (iv) thereof says that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under the head "Profits and gains of business or profession". In the instant case, the fact that the loan was utilized for the acquiring of fixed assets has not been disputed by the AO. Thus, it is clear that the instant loan was not utilized for the trading liability of the assessee and therefore the waiver off the same cannot amount to income which is chargeable to tax. In holding so, we find guidance & support from the judgment of Hon'ble Delhi High Court in the case of CIT v. Tosha International Ltd. [2011] 331 ITR 440/[2009] 176 Taxman 187 wherein it was held as under :

“The assessee was engaged in the manufacturing of black and white picture tubes. The assessee-company ran into huge losses and it ultimately became a sick company and registered with the BIFR. Under the one time settlement scheme, the financial institutions and banks required the assessee to pay 60 per cent of the amount due towards principal and waived the entire interest payment. There is no dispute with regard to the waiver of interest payment. The only objection raised by the Assessing Officer is with regard to the waiver of the principal amount to the extent of Rs. 10,47,93,857 which the assessee had directly credited to the Capital Reserve Account. According to the Assessing Officer the assessee had derived benefit on the basis of either depreciation or utilizing the working capital which would have formed part of the earlier years income. According to the Assessing Officer since the loans ceased to exist, this amounted to cessation of liability and, therefore, it has to be treated as an income. Consequently, the Assessing Officer added the said sum of Rs. 10.47 crores in the income of the assessee. The Commissioner of Income-tax (Appeals) deleted the addition by observing that the remission of the principal amount of loan did not amount to income under section 41(1) nor under section 28(iv) nor under section 2(24) of the Income-tax Act, 1961 (hereinafter referred to as the 'said Act'). 3. The revenue went in appeal before the Tribunal against the order of the Commissioner of Income-tax (Appeals) with regard to the deletion of the said sum of Rs 10.47 crores. We note that the Tribunal has examined the case in detail and particularly from the standpoint of the provisions of section 41(1) of the said Act. The Tribunal has observed as under:— "As per our considered view, for attracting the provisions of section 41(1), the first requisite condition to be satisfied is that the assessee should have got deduction or benefit of allowance in respect of loss, expenditure or trading liability incurred by it and subsequently during any previous year, the assessee should have received any amount in respect of such loss, expenditure or trading liability by way of remission or cessation thereof. The remission would become income only if the assessee has claimed deduction in respect of expenditure or trading liability. In Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501, Hon'ble High Court of Bombay held that

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 12 no allowance or deduction having been allowed in respect of loan taken by assessee for purchase of capital assets, section 41(1) was not attracted to remission of principal amount of loan. In the instant case, the assessee has not got any deduction on account of acquisition of capital assets as the same has been reflected in the balance sheet and not in the P and L account, and also the remission of the principal amount of loan so obtained from the bank and financial institution had not been claimed as expenditure or trading liability in any of the earlier previous year. So far as waiver of interest is concerned, the assessee-company itself has treated the same either as income or has not claimed the same as expenditure in the computation of income filed before the lower authorities." 4. We see no reason to interfere with the conclusions of the Tribunal as the same have been rendered on a correct appreciation of law. The principles enunciated in Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom.) are fully applicable and we see no reason to take a different view. 5. Consequently, no substantial question of law arises for our consideration. The appeal is dismissed.” Thus, from the aforesaid legal discussion and facts of the case before us, we find that the order passed by the Ld. CIT(A) is well reasoned and based on correct legal position and, therefore, no interference is called for in his order. Thus, the same is upheld. Ground raised by the Revenue is dismissed.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 13 “I have perused the assessment order. I have also considered the submissions made on behalf f the appellant and the judicial decisions relied upon. In the case of JK Paper Ltd, the Hon'ble ITAT ‘C’ Bench, Ahmedabad after referring to the judgments of the various High Courts has held, under similar facts and circumstances, that the rebate allowed by the lender was not assessable as income u/s. 28(iv) or 41(1). It was explained on behalf of the appellant that the loan under consideration was taken and utilized for acquiring fixed assets which has not been disputed by the AO in his assessment order. In the case of CIT vs. Xylon Holding (p) Ltd, the Hon'ble Bombay High Court has held that the cessation of liability on account of repayment of loan taken to purchase capital asset does not result in a revenue receipt and is not taxable u/s. 28(iv) or 41(1). In view of the above, I am of the opinion that the case of the appellant is covered directly by the above decisions of the Hon'ble ITAT Ahmedabad and Bombay High Court. Respectfully following the above decisions, the addition of Rs.43,05,78,782/- is directed to be deleted. Ground no 2 is allowed.”

The Revenue, being aggrieved, is in appeal before us on the following ground:-

“(iii) That the Ld. CIT(A) has erred in facts and circumstances of the case in admitting, going against the ration laid down by the Hon'ble Supreme Court in the case of Goetze India Ltd –vs-CIT [284 ITR 323 (SC) (2006)], the fresh claim of the assessee in respect of additional depreciation on interest capitalized which was never made by the assessee in the return of income or in the course of assessment and consequently, in directing to allow the additional claim of depreciation of Rs.72,69,648/-.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 14 However, for AY 2006-07, instead of allowing depreciation on W.D.V as on 31.3.2005 as per assessment order for AY 2005-06, Assessing Officer erred in allowing depreciation as per return which does not factor the above mentioned treatment of interest capitalization. Hence, Ld. Counsel stated that suitable directions may be given to the Assessing Officer to rectify the depreciation amount in assessment order for AY 2006-07. We are of the view that opening WDV for AY 2006-07 (i.e. as on 31.03.06) has necessarily to be the closing WDV of the immediately preceding year (i.e. Assessing Officer on 01.04.06) which the AO in his order dated 1912.2007 for AY 2005-06 has recorded at Rs.1557645289. The AO will recomputed the depreciation allowable for AY 2006-07 by adopting the opening WDV at Rs.1557645289. Accordingly, this issue of the assessee’s appeal is allowed for statistical purposes.”

In the background of the above order of this Tribunal in assessee’s own case in ITA No. 1276/Kol/2010 (supra) we do not find any infirmity in the order of Ld. CIT(A). The principles laid down by the Hon’ble Apex Court in the case of Goetze India Ltd. are not applicable to the Hon’ble ITAT. The instant issue is already covered in favour of assessee in its own case. We uphold the same. Accordingly, AO is directed. Revenue’s ground is dismissed. 23. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing unabsorbed depreciation for the AY 1997-98 and earlier years to be carried forward to the subsequent year without any time limit. 24. The facts and issue are same as in ITA No.609/Kol/2013 for A.Y. 2007-08 following our decision on this issue as embodied in para-7 of this order, hence, this ground of Revenue’s appeal is dismissed. AO is directed accordingly. 25. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleing the addition made by the AO for ₹13,85,41,566/- on account of bad debts written off in the computation of income. 26. The AO during assessment observed that the bad debts claimed as deduction by the assessee in computation of income have not been debited in the profit and loss a/c. On question for the aforesaid deduction of bad debts by the AO the assessee submitted that the bad debts have been written off against the provision of bad debt which were created in earlier years. These provisions were created in earlier years by debiting profit & loss account and these were also disallowed and offered to tax. Therefore, the bad debt actually written off in the books were written off against the provisions.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 15 Therefore, the same was not reflected in the profit and loss a/c. However, the AO disregarded the claim of assessee by observing that bad debt has not been debited in the profit and loss a/c and therefore same cannot be allowed as deduction. Thus, the AO disallowed the claim of ₹13,85,41,566/- and added to the total income of assessee. 27. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the provision for the bad debt has already been made in the earlier years in the respective debtor’s account. Therefore, these actual bad debts have been claimed against the provision created for bad debt in the earlier years. Ld. CIT(A) after considering the submissions of assessee has deleted the addition made by the AO by observing as under:- “… … I find that the bad debt has been written off in relation to the books of account by crediting the debtors’ accounts. The judgment of the Hon'ble Kerala High Court 243 ITR 430 relied upon by the AO is distinguishable on acts. In that case, the write-off of was made after the audited accounts were finalized; and consequently, the same was not reflected in the profit and loss account. But, in the present case, there is no dispute that the write-off was actually made by adjusting the debtors’ accounts in the year under appeal and that the profit and loss account was charged in the respective years when the provision was made for such amount. In view of the above, I am of the opinion that the AO was not justified in holding that the claim of bad debt was not allowable as the same was not charged to the profit and loss account of the relevant year. However, the AO has noted that the claim of bad debt in respect of Rs.73,22,461/- pertains to the loan given to M/s Hefzar Chemical Works Ltd. has observed that money lending is not the business of the appellant and that the principal amount of Rs.73,22,461/- was not taken into account in computation of income; and consequently, the principal amount was not shown a business income; and so, the principal amount was allowable as bad debt. I do not find merit in the contentions of the appellant. I agree with the AO that money lending is not the business of the appellant; and so, the principal amount is not allowable as bad debt. The disallowance of Rs.73,22,461/-is confirmed. In the result, the disallowance of Rs.13,85,41,566- is restricted to Rs.73,22,461/-. Ground no. 5 is allowed. Ground no. 6 is dismissed.”

The Revenue, being aggrieved, is in appeal before us on the following ground:-

“(v) That the Ld. CIT(A) has failed to appreciate the accounting treatment of the Bad Debt Written Off and hence he has erred in distinguishing the assessee of the assessee from the case of the decision of Hon'ble Kerala High Court in CIT-vs- Hotel Ambassador (2002) [253 ITR 430(Ker.)], relied upon by the AO and, accordingly, in directing to delete the disallowance to the tune of Rs.13,12,19,105/-.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 16 28. Before us both the parties relied on the order of Authorities Below as favourable to them. 29. We have heard rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that assessee has debited the provision for bad debt in the earlier year which were offered to tax. It is because under the Income tax Act, the provisions for bad debts are not allowable expenses until and unless these are actually written off in the books of account. However, in the year under consideration, the bad debts have actually been written off and adjusted with the provisions which were made earlier years in the books of accounts. The necessary details of the provision made in the earlier year are placed on pages 19 to 22 of the paper book. Now the assessee in the year under consideration has actually been written off the bad debt against the provision which were created in the earlier years. It is also important to note that there is no disputes with regard to the provisions created in the earlier years were offered to tax. There is also no dispute with regard to tax of the provision created in the earlier years. The AO has disallowed the claim of assessee only on the ground that bad debts were not debited in the profit and loss a/c of assessee. It is the established practice once the provision has been created in the books of account against the debtors then the actual bad debt will be written off to the amount of provision only against such provision. Thus, it cannot be inferred that the book debt has not been actually been written off in the books of account. The case law relied upon by the AO CIT Vs. Hotel Ambassador reported in 253 ITR 430 are distinguishable from the facts of the instant as the assessee in that case claimed the bad debts in the reassessment proceedings. The relevant questions before the Hon’ble Kerala High Court were as under : “(2) Whether, the Tribunal was justified in finding that the bad debts for the asst. yr. 1981-82 were written off in the assessee’s books and that the assessee was entitled to deduction of bad debts for a sum of Rs. 1,97,208? (3) Was the Tribunal right in law in directing the ITO to permit the assessee to write off the bad debts for the year 1982-83 when the claim was put forward for the first time during the reassessment proceedings?" The relevant finding of the judgment is reproduced below :

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 17 “We are of the view that the writing off of bad debts cannot be permitted in reassessment proceedings initiated after the finalisation of the accounts.” Thus the principles laid down by the Hon’ble Court cannot be applied in the instant case before us. Therefore, we find no reason to interfere in the order of Ld. CIT(A). We uphold accordingly. This ground of Revenue’s appeal is dismissed. 30. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing the deduction of unabsorbed depreciation u/s. 115JB of the Act though brought forward loss was nil. The assessee in the year under consideration has reduced a sum of ₹12.98 31. crores on account of brought loss being lower of unabsorbed depreciation brought forward from the earlier years. However, the AO observed that there was no brought forward loss and therefore no relief can be given to the assessee on account of brought forward loss while computing the book profit u/s. 115JB of the Act. 32. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who granted relief to assessee by observing as under:- “14. Ground no 8 relates to the computation of book profit u/s. 115JB. The issue which requires adjudication is whether the appellant is entitled to deduction of the lower of the amount of brought forward business loss or unabsorbed depreciation as per the books of account even though the debit balance in the profit and loss account was adjusted against the share premium account and revaluation reserve in pursuance to a scheme of compromise sanction by the Hon'ble High Courts of Orissa and Gujarat. The Ld. AR has submitted that the issue has been decided in the case of the appellant for the assessment years 2006-07 and 2007-08 by the Hon'ble ITAT ‘A’ Bench, Kolkata in ITA No. 1470/Kol/2009 and ITA No.1275-1417/Kol/2010. This issue has been discussed in detail in my order dated the 28th January, 2013 in the case of the appellant for the assessment year 2005-06 in appeal no 23/CC- VI/CIT(A) C-I/11-12. Following the decision, it is held that the adjustment of the debit balance in the profit and loss account with the share premium account and the revaluation reserve made on the 30th September, 2000 has to be excluded while computing the book profit u/s. 115JB. The AO is directed to accordingly determine the amount of brought forward business loss or unabsorbed depreciation for each of the relevant years without taking into consideration the said adjustment; and then, allow the deduction of the lesser of the two amounts while computing the book profit u/s.115JB. Ground no 8is allowed. In ground no. 9, it has been contended that the AO has erred I not recording the tax credit available to the appellant u/s.115JAA. The AO is directed to record his findings regarding the tax credit available to the appellant u/s. 115JAA. Ground no 9 is decided accordingly.”

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 18 The Revenue, being aggrieved, is in appeal before us on the following ground:- “(vi) That the Ld. CIT(A) has failed to appreciate that the lower of brought forward loss or unabsorbed depreciation in the instant case was ‘NIL’, as no loss was brought forward and, hence, has erred in Law as well as facts of the case in directing to re-compute the Book Profit u/s 115JB, excluding the adjustment of the debit balance in the profit & loss account with the share premium account and the revaluation reserve made on 30.09.2000; and”

As the aforesaid order of the Co-ordinate Bench of this Tribunal is binding on us and therefore respectfully following the same, we do not find any infirmity in the order of Ld. CIT(A). We uphold the same. This ground of Revenue’s appeal is dismissed. 35. Last ground in this appeal of Revenue is general in nature and does not call for any separate adjudication. 36. In the result, Revenue’s appeal is dismissed. Coming to Revenue’s appeal in ITA No.611/Kol/2013 for A.Y. 09-10. 37. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹15,98,435/- u/s 40A(9) and 36(1) of the Income-tax Act on account of Staff Welfare Expenses.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 19 38. The facts and issue are same as in ITA No. 610/Kol/2013 for A.Y. 2008-09 of Revenue’s appeal, following our decision on this issue as embodied in para-13 of this order, hence, this ground of Revenue’s appeal is dismissed. 39. Next issue raised by assessee in this appeal is that Ld CIT(A) erred in confirming the order of AO by sustaining the disallowance of additional depreciation for ₹61,79,240/- on account of interest capitalized. 40. The facts and issue are same as in ITA No. 610/Kol/2013 for A.Y. 2008-09 of Revenue’s appeal, following our decision on this issue as embodied in para-22 of this order, hence, this ground of Revenue’s appeal is dismissed. 41. Last ground in this appeal of Revenue is general in nature and does not require any separate adjudication. Coming to Revenue’s appeal in ITA No.612/Kol/2013 for A.Y. 10-11. 42. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹4,10,535/- u/s 40A(9) and 36(1) on account of Staff Welfare Expenses. 43. The facts and issue are same as in ITA No. 610/Kol/2013 for A.Y. 2008-09 of Revenue’s appeal, following our decision on this issue as embodied in para-13 of this order, hence, this ground of Revenue’s appeal is dismissed. 44. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing the unabsorbed depreciation for the A.Y.1997-98 and earlier years to be carried forward to the subsequent years without any time limit. 45. The facts and issue are same as in ITA No. 609/Kol/2013 for A.Y. 2007-08 of Revenue’s appeal, following our decision on this issue as embodied in para-7 of this order, hence, this ground of Revenue’s appeal is dismissed. 46. Next issue raised by the Revenue in this is that Ld. CIT(A) erred in allowing the additional depreciation of ₹52,52,354/- on account of interest capitalized. 47. The facts and issue are same as in ITA No. 610/Kol/2013 for A.Y. 2008-09 of Revenue’s appeal, following our decision on this issue as embodied in para-22 of this order, hence, this ground of Revenue’s appeal is dismissed. 48. Last issue in this appeal of Revenue is general in nature and does not call for any separate adjudication.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 20 49. In the result, Revenue’s appeal is dismissed. Coming to assessee’ CO. No.47/Kol/2013 for A.Y. 10-11. 50. Solitary issue raised by assessee in its CO is that Ld. CIT(A) erred in disallowing the expense of ₹2,02,56,220/- u/s 14A of the Act. 51. The assessee in the year under consideration has declared dividend income and interest income of ₹2,42,95,577/- and ₹3,900/- respectively which was claimed as exempted u/s 10(34), 10(15) of the Act. The assessee has not disallowed any expense in relation to the aforesaid exempted income on the ground that no expense was incurred in connection with the aforesaid income. It was also submitted that the own fund was invested in the impugned assets and therefore no interest expense has been incurred. However, the AO disregarded the claim of assessee by observing that the decision for the purchase / sale and retention of investment are very crucial and top management is always involved in such decision making process. Therefore, the AO invoked the provisions of Rule 8D of the IT Rules, 1962 and accordingly made the disallowance as under:- Sl.No Rule Head of expense Amount (Rs) 1 8D(2)(i) Direct Expenses Nil 2 8D(2)(ii) Interest expense 60,20,220/- 3 8D(2)(iii) Indirect expense 1,42,36,000/-

The aforesaid impugned amount were disallowed u/s 14A r.w.s. Rule 8D of the IT Rules, 1962 and added to the total income of assessee under normal provision of the Act as well as under the provision of Minimum Alternate Tax (MAT). 52. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of Assessing Officer by observing as under:- “4. Ground no 2 relates to disallowance of Rs.2,02,56,220/- by applying the provisions on section 14A. The issue has been decided in my order dated the 29th January, 2013 in the case of the appellant for the am year 2008-09 in Appeal No 157/CC-VI/CIT(A) C-I/10-11. Following the decision, the disallowance of Rs.2,02,56,220/- is confirmed. Ground no 2 is dismissed.”

Being aggrieved by this order of Ld. CIT(A) assessee is in CO before us on the following grounds:-

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 21 “1. That the Commissioner (Appeals) erred in Disallowing expenses of Rs.20256220 u/s/. 14A of the Act read with Rule 8D of the Income tax Rules in:- a) Normal income computed under Chapter-IV of the Act, and b) Book Profit computation u/s. 115JB of the Act.

(ii) REI Agro Industries Ltd. v. DCIT, Central Circle - XVII, Kol in appeal No. 1331 and 1423 (Kol) of 2011 dt. 29.6.2013 for A.Y 2008-09 reported in (2013) 144 ITD 141 (Kol) 'A' Bench.

In both the aforesaid cases it was held by the Hon'ble Co-ordinate Bench of this Tribunal that without recording satisfaction, no disallowance u/s 14A read with Rule 8D can be made. In this connection, Ld. AR also drawn to a decision of Hon'ble Delhi High Court dt. 25.2.2015 reported in (2015) 372 ITR 694 (Del.) in which also it has been very clearly held that without recording satisfaction there could be no question of disallowance U/S 14A read with Rule 8D. The decision of Hon'ble Delhi High Court is reported in 372 ITR 694 (Del). The ld. AR also submitted that no disallowance u/s 14A could be made without recording of satisfaction, and where own funds were sufficient and more than investment in shares and securities and also where receipt of interest was more than interest payment your kind attention is further drawn to the principles enunciated by Honble ITAT 'A' Bench, Kolkata in the case of Damodar Valley Corporation v. Addl. CIT (2016) 180 TT] 82 (Kol-A). The relevant portion of the aforesaid order is reproduced herewith for your kind perusal. - (underlined by us to lay emphasis) a) "On availability of own funds with the assessee for making investments.

(i) We also find that the assessee had got sufficient own funds to make these investments and the learned AO had not brought any nexus between the borrowed fund vis-a-vis the investments made by the assessee. Without doing the same, he cannot directly presume that the investments were made out of borrowed funds. If the actions of the

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 22 learned AO and learned CIT(A) arc to be upheld, then no assessee could make any investments when there is a interest bearing loan to be repaid. The fact of making the investments has to be viewed from the point of commercial expediency and from the point of view of businessman and not from the viewpoint of the Revenue. It is well settled that businessman knows his interest best. We place reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. (2009) 221 CTR (Born) 435: (2009) 19 DTR (Born) 1 : (2009) 313 ITR 340 (Born) in support of our view that if the own funds are available with the assessee and if the same and more than the investments made by the assessee, then it has to be presumed that the investments were made out of own funds and not out of borrowed funds. Hence the provisions of r.8D(2)(ii) cannot be invoked in these circumstances.

b) On non-application of r. 8D(2)(ii) as the assessee had earned net taxable interest Income.

(ii) Reliance placed on the Co-ordinate Bench decision of this Tribunal in the case of Dy. CIT vs. Trade Apartment Ltd. in ITA No.1277/Ko1l2011, dt.30th March 2012 for the asst year 2008 - 09, wherein the grounds raised and decision taken thereon are as below:

(a) That on the facts and circumstances of the case, learned CIT(A) erred in law in deleting the disallowance of Rs.9,86,306 under r. 8D(2)(ii) being a part of total disallowance under s. 14A since he opined in the instant case that there cannot be any interest expenditure left where interest income is more than interest expenditure.

Held - As learned CIT(A) has rightly observed, once there is no net interest expenditure, as is the case before us upon setting off interest credit to P&L a/c no part of interest debited can be disallowed as attributable to earning tax-free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance."

c) On non recording of satisfaction in terms of r. 8D(1)

(iii) We find that the learned AR had directly embarked on r. 8D(2) without recording satisfaction, in terms of r. 8D(1) of the Rules with cogent reason as to why the figure disallowed by the assessee under s. 14A of the Act is incorrect. We find that the learned AO had straightaway embarked upon computing disallowance under r. 8D(2)(iii) of the Rules. We find that this issue has been elaborately dealt with in the following cases:

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 23 CIT vs. Ashish Jhunjhunwala in G.A. No.2990 of 2013 in ITA T No.157 of 2013 dt. 8th January 2014 rendered by Calcutta High Court :

"While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reason for the same. From the facts of the present case, it is noticed that the AO has not considered the claim of the assessee and straightaway embarked upon computing disallowance under r. 8D of the Rules on presuming the average value of investment at ½ percent of the total value. In view of the above and respectfully following the Co-ordinate Bench decision in the case of 1.K. Investors (Bombay) Ltd., supra, we uphold the order of CIT(A)."

CIT vs. R.E.I. Agro Ltd. in G.A. 3022 of2013 in ITAT 161 of2013 dt.23rd December 2013 rendered by Calcutta High Court :

"The AO also disallowed the expenditure under s. 14A of the IT Act, 1961 without first recording that he was not satisfied with the correctness of the claim as regards the claim that no expenditure was made by the assessee. Challenging the order of the Tribunal, the present appeal has been filed. We have heard Mr. Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed."

Hence, we hold that the action of the learned AO in directly embarking on r. 8D(2) of the Rules without recording any satisfaction as mandated in r. 8D(1) of the Rules is not appreciated and hence no disallowance under sec. 14A of the Act by applying rule. 8D of the Rules could be made in the facts of the instant case. In the instant case the assessee corporation has disallowed a sum of Rs.11,08,315/- and no adverse inference has been brought on record and no satisfaction has been recorded with cogent reasons by the AO as to why the said figure computed by the assessee is incorrect. Without satisfying the requirement contemplated in r. 8D(1), the AO had directly proceeded to apply r. 8D(2) in the instant case. Hence, the disallowance under s.14A of the Act cannot be made in the instant case of the assessee corporation for the AYs 2008-09 and 2009-10. Hence, the disallowance made u/s 14A may kindly be deleted. In this connection, this is further to submit that the amount disallowable even if any under Rule 8D(2)(iii) could only be in respect of those investments in respect of which

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 24 dividend income was received and in this connection your kind attention is drawn to the following decisions of Hon'ble ITAT, Kolkata Benches.

(i) DCIT, Central Circle - XVII, Kol v. REI Agro Industries Ltd. order dated 14.5.2013 by ITAT, 'A' Bench, Kolkata in ITA No. 18111Ko1/2012, A.Y 2009-10.

(ii) REI Agro Industries Ltd. v. DC IT, Central Circle - XVII, Kol in appeal No. 1331 and 1423 (Kol) of2011 dt. 29.6.2013 for A.Y 2008-09 reported in (2013) 144 ITD 141 (Kol) 'A' Bench.

Against one of the decision the Department went before Hon'blc jurisdictional High Court and the Hon'ble High Court dismissed the Department's appeal. The other decision of the Department appears to have been accepted by the department as no second appeal have been preferred by the department against such decision. It was held in the aforesaid decisions of ITAT, Kolkata Benches & Hori'ble Delhi Court that disallowance under Rule 8D(2)(ii) and 8D(2)(iii) could only be made in respect of only those investments on which dividend income has been earned during the year. a) As stated earlier Hon'ble Delhi Court in the case of ACB India Ltd. v. ACIT (2015) 374 ITR 108 has also held that that disallowance under Rule 8D(2)(ii) & 8D(2)(iii) could only be with reference to the investment on which dividend income had been earned during the year and this was also the view of Hon'ble Calcutta Tribunal referred above. b) In the case of CIT, Circle - 1, Kolkata v. Teenlok Advisory Services Pvt. Ltd. (2016) 159 ITD 9911 71 taxmann.com 269 (Kol - Trib.) - in this case also it was held by the Hon'ble Tribunal, Kolkata 'A' Bench that disallowance under Rule 8D has to be computed by taking into consideration only those shares which had yielded dividend income in the year under consideration.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 25 placed reliance upon. The issue in the instant case relates to the disallowance made by the lower authorities under the provisions of section 14A of the Act viz-a-viz rule 8D of Income Tax Rules 1962. The assessee has earned exempt income but no corresponding expense was disallowed by the assessee in relation to such income on the ground that no expenditure was incurred. Therefore the AO invoked the provisions of section 14A and rule 8D of Income Tax Rules for the purpose of the disallowance. In the instant case we find that the AO has derived its satisfaction by recording in the assessment order as detailed under :- “3.1.2 … it was observed that no expenditure, in respect to such exempt income which does not form part of the total income, was either debited to the Profit 7 Loss account or disallowed in the computation of total income. Therefore, the assessee-company was requested, vide notice u/s. 142(1), to explain as to why the expenditure incurred in respect to income which does not form part of the total income should not be disallowed within the scope of section 14A of the Income-tax Act, 1961. In reply, the assessee-company, vide its letter dated 06.07.2012 furnished the following explanation: ‘During the year under consideration, dividend of Rs.24295577 was claimed as exempt u/s. 10(33) of the Act and Rs.3900 was claimed as exempt u/s. 10(15) of the Act for which no expenses have been incurred as the company is a manufacturing concern.

Further, we would like to inform that all the investment were made out of our own funds and therefore no interest expense has been incurred in respect to such investments.

Therefore, in view of the above, disallowance u/s. 14A is not called for.

The submission of the assessee company has been considered carefully.”

The Assessing Officer had served notice to the assessee as to why disallowance of expenditure on the exempt income be not made and after receipt of the reply/explanation had clearly stated that the said reply/explanation of the assessee cannot be accepted. And thereafter invoked Rule 8D, which is nothing other than an implied recording of satisfaction as envisaged under sub-section (2) of section 14A of the Act. Thus in the instant case we find that the AO has recorded his satisfaction. As the assessee has not demonstrated by giving the necessary details about the indirect expenditure and interest expenditure justifying that no expenditure has been incurred, therefore the AO had no option except to resort to the provisions to section 14A of the

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 26 Act and Rule 8D of Income Tax Rule. In the case relied upon by the ld. AR i.e. REI Agro Industries Ltd. v. DCIT, Central Circle - XVII, Kol in appeal No. 1331 and 1423 (Kol) of 2011 dt. 29.6.2013 for A.Y 2008-09 reported in (2013) 144 ITD 141, we find that the necessary details were provided by the assessee and therefore the case is distinguishable from the facts of the case in hand. 55.1 We also find that it is the duty of the assessee to prove whether the borrowed fund has been used in the investment on the basis of documentary evidence as held by the jurisdictional High Court in the case of Dhanuka & Sons Vs. CIT reported in 12 taxmann.com 227 wherein it was held as under : The mere fact that those shares were old ones and not acquired recently was immaterial. It was for the assessee to show the source of acquisition of those shares by production of materials that those shares were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it was for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest was payable by the assessee for acquiring those old shares. In the absence of any such material placed by the assessee, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from exempt source. In the absence of any material disclosing the source of acquisition of shares which was within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment.”

Now the issue arises with regard to the quantification of disallowances of the interest as towhether the net interest expenses needs to be considered under the provisions of rule 8D(2)(ii) of Income Tax Rules. In this connection we find that the Hon’ble Tribunal in the case of Dy. CIT v. Trade Apartments Ltd. [IT Appeal No. 1277/Kol/ 2011, dated 30-3-2012] has held that if there is no net interest expenses after setting off the interest expenses with the interest income, then there can be no disallowance of interest expenses u/s. 14A of the Act, as in such a situation, it cannot be said that expenditure by way of interest has been claimed by the Assessee. However in our considered view the proposition laid down by the Hon’ble ITAT in the case of Trade Apartment (Supra) will be applicable when there is direct nexuses between the interest expenses and interest income. The ld. AR has not brought anything on record to establish the nexuses between the interest expenses and interest income. Therefore we

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 27 are not inclined to accept the argument for netting off the interest. Hence, we reject the claim of the assessee. Before us, the ld. counsel for the assessee has raised an alternative contention that even if section 14A read with Rule 8D is held to be applicable in the case of the assessee, the Assessing Officer may be directed to compute the disallowance as per Rule 8D of the IT Rules, by taking into consideration only those shares which have yielded dividend income in the year under consideration. Since this issue raised by the ld. counsel for the assessee as an alternative contention is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the case of CIT Vs. Teenlok Advisory Services Limited reported in 159 ITD 991 (Kol), we direct the Assessing Officer to compute the disallowance as per Rule 8D by taking into consideration only those shares, which have yielded dividend income in the year under consideration. The alternative contention of the ld. counsel for the assessee is accordingly accepted.

ITA No.609-612/Kol/2013 & CO. 47/Kol2013 A.Ys. 07-08 to 10-11 DCIT, CC-VI Kol. Vs. M/s J.K.Lakshmi Cement Ltd. Page 28 In view of above we hold that the AO needs to work out the disallowances independently in relation to exempted income as envisaged in the MAT provisions under the Act. The working for the disallowance of the expenses in relation to exempted income shall be based on the expenses debited in the profit & loss account. Thus in our view the provisions of section 14A read with rule 8D cannot be applied under the provisions of MAT. Thus the assessee's appeal is partly allowed in terms of above.

*Dkp, Sr.P.S �दनांकः- 26/05/2017 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s J.K. Lakshmi Cement Ltd., 7 Council House St, Kol-001 2. राज�व/Revenue-DCIT, Central Circle-VI, 3rd Floor, Aayakar Bhawan, Poorva, E.M.Bye Pas, 110, Shanti Pally, Kolkata-107 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ Sr.Private Secretary Head of office/DDO आयकर अपील�य अ�धकरण, कोलकाता