GRAPHITE INDIA LTD.,KOLKATA vs. ADDI. COMMISSIONER OF INCIME TAX, RANGE - 11, KOLKATA

In Grounds No. 1 to 3 of this appeal, the assessee has disputed the following disallowances made by the Assessing Officer and confirmed by the ld. CIT(Appeals):- Ground No. 1- Travelling expenses..............Rs.52,902/-; Ground No. 2- Entertainment expenses.......Rs.50,000/- & Ground No. 3- Gift & Presentation................Rs.50,000/-

The assessee in the present case is a Company, which is engaged in the business of manufacture of graphite electrodes and other graphite

The above disallowances made by the Assessing Officer were challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and although a detailed submission was made by the assessee in support of its case that the disallowances so made by the Assessing Officer were not sustainable, the ld. CIT(Appeals) declined to interfere with the action of the Assessing Officer making the said disallowances on the ground that the amounts disallowed were petty.

At the time of hearing before us, the ld. Counsel for the assessee has raised a limited contention that the ld. CIT(Appeals) having not given any decision on merit of these issues, the matter may be remitted back to him for deciding these issues on merit. Although the ld. D.R. has raised objection in this regard by pointing out that these issues have already been examined by the Assessing Officer on merit, the fact remains that there is no decision rendered by the ld. CIT(Appeals) on merit of these issues inspite of the fact that a detailed submission was made by the assessee before him. We, therefore, consider it fair and proper and in the interest of justice to remit the issues relating to these three disallowances back to the ld. CIT(Appeals) for deciding the same on merit

The issue raised in Ground No. 4 relates to the assessee’s claim for deduction on account of expenditure of Rs.56,274/- incurred on Defence Research Development Laboratory under section 35(1)(i).

During the course of assessment proceedings, a letter was filed by the assessee claiming deduction of Rs.56,274/- under section 35(1)(i) on account of expenditure incurred on Defence Research Development Laboratory. Since the said claim was not made by the assessee either in the original return or by filing a revised return, the Assessing Officer did not entertain the same. On appeal, the ld. CIT(Appeals) also did not allow the claim of the assessee on this issue observing that the relevant expenses were not claimed by the assessee in the books of account and the required particulars in respect of the same were not furnished by the assessee.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly contended by the ld. Counsel for the assessee, even if the claim on this issue was not made by the assessee by filing a revised return, the appellate authorities including the ld. CIT(Appeals) are empowered to consider the same on merit as held, inter alia, by the Hon’ble Bombay High Court in the case of CIT –vs.- Pruthvi Brokers & Shareholders Pvt. Limited reported in 349 ITR 336. Moreover, the entries in the books of account are not conclusive for deciding the claim of the assessee for any deduction as held by the Hon’ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Limited –vs.- CIT reported in 82 ITR 363 and since the relevant details were furnished by the assessee before the Assessing Officer as well as before the ld. CIT(Appeals) in support of its claim on this issue as submitted by the ld. Counsel for the assessee, we are of the view that the ld. CIT(Appeals) ought to have decided this issue on merit.

As regards the issue involved in Ground No. 5 relating to the assessee’s claim for depreciation on the basis of modified written down value of assets as per the latest order for the immediately preceding year, it is observed that the ld. CIT(Appeals) has already given a direction to the Assessing Officer vide his impugned order to verify and allow the claim of the assessee on this issue. The assessee, in our opinion, therefore, cannot be said to have any grievance on this issue and accordingly, Ground No. 5, raised by it, is liable to be dismissed.

Ground No. 6 raised in the appeal of the assessee is not pressed by the ld. Counsel for the assessee at the time of hearing before us. The same is, accordingly, dismissed as not pressed.

Grounds No. 7(a) and 7(b) involve a common issue relating to the allocation of interest in computing profit of the power generating unit eligible for deduction under section 80IA.

In the computation of income under section 115JA of the Act, the assessee had claimed deduction of a sum of Rs.4,57,61,320/- under section 80IA being the profit derived from the new Industrial Undertaking engaged in generation of power. Separate financial statements were maintained by the assessee for the power generating unit and from the perusal of the same, the Assessing Officer found that out of the total loans of Rs.15,00,00,000/- availed by the assessee from Exim Bank, a sum of Rs.12,70,99,300/- was utilized for the purpose of power unit, while the remaining amount was utilized by the assessee for other units. He was also of the view that out of the total cost of power plant of Rs.14,69,67,446/-, a sum of Rs.1,98,68,146/- was invested by the assessee from the funds received from the parent Company. He, therefore,

The ld. Counsel for the assessee took us through the copies of written submission made on this issue before the Assessing Officer as placed at pages no. 11, 12, 15 & 19 to show that the entire amount of loan taken from Exim Bank was meant for the purpose of power generating unit and the same was accordingly utilized for the same unit.

The ld. D.R., on the other hand, strongly relied on the orders of authorities below in support of the revenue’s case on this issue and submitted that it is being a case of mixed funds, onus was on the assessee to establish the nexus between the borrowed funds and their utilization by filing Fund Flow Statement and/or utilization certificate from Bank. He contended that the assessee, however, has failed to discharge this onus and the authorities below, therefore, were fully justified in allowing the claim of the assessee for interest only on proportionate basis.

We have considered the rival submissions and also perused the relevant material available on record. A perusal of the written submission filed by the assessee on this issue before the authorities below (copies placed in the paper book at pages 15 to 26) shows that the entire loan from Exim Bank was availed by the assessee for the purpose of power generating unit. However, in order to establish that the said loan was indeed entirely used for the purpose of power generating unit, the

As regards the issue involved in Ground No. 7(c) relating to increase in allocation of interest to power generating unit by Rs.10,20,004/-, it is observed that this issue has arisen as a result of a dispute regarding the method applied for calculating the interest on loan. While the Assessing Officer, according to the ld. Counsel for the assessee, has worked out the interest on daily basis, the assessee has computed the same on monthly basis as done by the Bank. In this regard, the contention raised by the ld. D.R. before us is that there is nothing brought on record by the assessee to show that interest was being charged by the Bank on monthly basis. In this regard, both the sides have agreed that whatever method is followed by the Bank, the same needs to be adopted for the purpose of computing interest allocable to the power generating unit. We, therefore, restore this issue to the file of the Assessing Officer with a direction to compute the interest allocable to the power generating unit on the same basis as adopted by the concerned Bank.

The issue involved in Ground No. 8 relates to the assessee’s claim for interest under section 244A of the Act on refund of self-assessment tax paid. 18. After considering the rival submissions and perusing the relevant material available on record, it is observed that the claim of the assessee for interest under section 244A on refund of self-assessment tax paid was denied by the ld. CIT(Appeals) relying on the order of his predecessor in

As regards the issue involved in Ground No. 9 relating to the assessee’s claim for interest on delayed payment, the ld. Counsel for the assessee has relied on the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Limited –vs.- CIT (2006) 2 SCC 508. The ld. D.R., on the other hand, has relied on the subsequent decision of the Hon’ble Supreme Court in the case of CIT –vs.- Gujarat Fluoro Chemicals reported in 358 ITR 291, wherein it was held by the Hon’ble Apex Court, after taking into consideration its earlier decision rendered in the case of Sandvik Asia Limited (supra), that the assessee is entitled to claim only that interest from revenue, which is provided for under statute and no other interest on such statutory interest. Since there is no provision in the statute for payment of interest on interest as claimed by the assessee, we respectfully follow the decision of the Hon’ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra) and uphold the impugned order

In Ground No. 10, the assessee has challenged the action of the ld. CIT(Appeals) in reducing its claim for deduction under section 80IA by Rs.37,61,801/-. 21. While computing deduction under section 80IA in respect of a new power plant installed at Bangalore, the realisable market value of power was taken by the assessee on the basis of the rate of Karnataka Electricity Board. The rate so taken was inclusive of Duty/tax element of Rs.0.20 per unit. As per the decision rendered by the Tribunal in assessee’s own case for A.Ys. 1999-2000 and 2001-2002, the rate charged by the State Electricity Board excluding the Duty/tax element was required to be considered as realisable market value. A notice of enhancement, therefore, was issued by the ld. CIT(Appeals) to the assessee and since he did not find merit in the explanation offered by the assessee in response to the said notice, the ld. CIT(Appeals) followed the decision of the Tribunal rendered in assessee’s own case for A.Ys. 1999-2000 and 2001- 2002 and directed the Assessing Officer to reduce the amount of Rs.37,61,801/- from the amount of value of electricity for the purpose of computing deduction under section 80IA.

We have heard the arguments of both the sides on this issue and also perused the relevant material on record. Although the ld. Counsel for the assessee has relied on the unreported decision of the Hon’ble Gujarat High Court in the case of CIT –vs.- Shah Alloys Limited (Tax Appeal No. 2092 of 2010 dated 22/11/2011) in support of the assessee’s case, it is observed from the copy of the order of the Hon’ble Gujarat High Court placed on record that this issue is not considered on merit by Their Lordships. The ld. Counsel for the assessee has also relied on the decision of the Mumbai Bench of ITAT in the case of DCW Limited –vs.- Addl. CIT reported in 37 SOT 322 (Mum.) and the decision of the Ahmedabad Bench of ITAT in the case of Garden Silk Mills Limited –vs.- Addl. CIT (ITA No.

The issue involved in Ground No. 11 relates to the disallowance of Rs.66,72,385/- made by the ld. CIT(Appeals) on account of assessee’s claim for foreign exchange loss treating the same as speculative loss.

In the Profit & Loss Account, a sum of Rs.1,90,39,518/- was debited by the assessee on account of exchange loss. The said loss was inclusive of a loss of Rs.66,72,385/- arising as a result of change on account of rupee liability due to exchange difference as on the last day of the accounting year. In the assessment completed under section 143(3), the claim of the assessee for entire loss was allowed by the Assessing Officer. The ld. CIT(Appeals), however, issued an enhancement notice on this issue and since the explanation offered by the assessee in reply to the said notice was not found acceptable by him, the ld. CIT(Appeals) enhanced the income of the assessee by Rs.66,72,385/- by disallowing the claim of the assessee for loss to that extent treating the same as speculative loss.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly contended by the ld. Counsel for the assessee, this issue is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Woodward Governor (P) Limited reported in 312 ITR 254, wherein it was held that the loss suffered by the assessee on account of exchange difference as on the date of the balance-sheet is

During the course of appellate proceedings before the Tribunal, the assessee has moved an application for admission of the additional ground as under:- “That on the facts and in the circumstances of the case, necessary directions may be given to the A.O. to compute deduction u/s. 80HHC on the basis of book profits for the purpose of Section 115JA of the Act”.

As the issue raised by the assessee in the additional ground is purely a legal one and all the material facts relevant thereto are on record as admitted even by the ld. D.R., we have admitted the additional ground raised by the assessee by relying on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Limited –vs.- CIT reported in 229 ITR 383.

As regards the merit, the ld representatives of both the sides have agreed that the issue raised by the assessee in the additional ground is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Bhari Information Technology Systems (P) Limited reported in 340 ITR 593, wherein it was held that while computing book profit under section 115JA, deduction claimed by the assessee under section 80HHC has to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. The ld. D.R., however, has contended that this issue may be restored to the file of the Assessing Officer for working out the deduction under section 80HHC on the basis of adjusted book profit in the light of the decision of the Hon’ble Supreme Court in the case of Bhari Information Technology Systems (P) Limited as well as the relevant observations recorded by the ld. CIT(Appeals) at