Income Tax Appellate Tribunal - AhmedabadAkar Laminators Limited ,, Ahmedabad. vs Assessee on 1 August, 20141        ITA No.858, 927/AHD/2005
                                                       ITA No.1113 & 1198/A/2004
                                                       ITA No.1026/A/2007.
                                                       A Years 2001-02, 00-01 & 2002-03
.
     IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, AHMEDABAD
(BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.)


Sr. No.      I. T. A. No.           Assessment Year            Appeal By

     1       858/AHD/2005               2001-02                Department

     2       927/AHD/2005               2001-02                Assessee

     3.      1113/AHD/2004              2000-01                Assessee

     4.      1198/AHD/2004              2000-01                Department

     5.      1026/AHD/2007              2002-03                Department



Assistant Commissioner of               Vs.       Akar Laminators Limited,
Income Tax, Circle-1,                             1st Floor, Trade Centre,
Kendriya Pratyaksha Bhavan,                       Opp. Stadium Bath,
Nr. Panjara Pole,                                 Stadium Six Roads,
Ambawadi,                                         Ahmedabad.
Ahmedabad.
 (Appellant for Sr.No.1,4 & 5)                    (Respondent for Sr. No.2 & 3)


           PAN: AABCA 2778 H



    Appellant by     : Mr.Vimalendu Verma, CIT (DR)

    Respondent by : Mr.Sunil H.Talati



                                      आदे श)/ORDER(आ



Date of hearing               : 24-06-2014

Date of Pronouncement         : 01 -08-20142        ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.PER BENCH,1. These 5 appeals are against the order of CIT(A)-V, Ahmedabad dated 30.01.2004,
06.12.2004 and 08.12.2006 for A.Ys. 2000-01 to 2002 to 2003 respectively, of the 5
appeals 3 appeals are filed by the Revenue and 2 appeals are filed by the Assessee.2. Before us, at the outset both the parties submitted that various grounds in all the appeals
are identical and therefore the submission made by them in one year would be applicable
to the other years also and therefore all the appeals can be heard together. We therefore
proceed to hear all the appeals together for the sake of convenience and are being
disposed of by this consolidated order.We proceed with the facts for AY 2000-01 (ITA No 1113 & 1198/AHD/2004)3.     The assessee is a limited company stated to be engaged in the business of
manufacturing of packing materials and trading activities. It filed its return of income for AY
2000-01 on 30-11-2000 declaring total income of Rs Nil. The case was selected for scrutiny
and thereafter the assessment was framed u/s 143(3) vide order dated 28.3.2003 and the
total income was determined at Rs 2,91,82,710/-. Aggrieved by the order of AO, assessee
preferred appeal before CIT(A). CIT(A) vide order dated 30.1.2004 granted partial relief to
the Assessee. Aggrieved by the aforesaid order of CIT(A), both the Revenue and Assessee
are in appeal before us.The grounds raised by the Assessee in ITA No 1113/AHD/2004 reads as under:-1. That the learned Assessing officer has erred in law and facts by passing the
       assessment order. The assessment proceeding is bad in law and without jurisdiction
       and therefore the order passed by the learned AO should be quashed.2. That the learned AO has erred in law and facts by disallowing Rs. 524421/-of Hire
       Charges paid to Blue Bends Finance Limited. It should be allowed in full.3. That the learned AO has erred in law and facts by disallowing Rs. 1586540/-
       deferred revenue expenditure incurred. It should be allowed in full as per law.4. That the learned AO has erred in law and facts by disallowing Rs.23627765/- of
       rebates and reversal of claims. It should be allowed in full.3       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.5. That correct tax is to be calculated and proper credit of pre-paid taxes is to be
      given and thereafter-proper interest thereon under section 234B and 234C of the Act
      is to be charged.The first ground of appeal was not pressed and therefore not adjudicated.The second ground of appeal relates to disallowing Rs.5,24,421/- on hire charges
paid to Blue Bell Finance Ltd.4.    AO noticed that Assessee had paid hire charges of Rs 5,24,421/- to Blue Bell
Finance Ltd for plant and machinery. AO noticed that while deciding the issue in AY 1995-
96 A.O had made inquiries and due to non-existence of plant and machinery the A.O had
disallowed the depreciation on the said plant and machinery and also disallowed the
payment of hire charges as being non genuine. For similar reasons and following the earlier
years order, the AO in the present year disallowed the payment.5.    Aggrieved by the order of AO, the assessee preferred appeal before CIT(A). CIT(A)
held that the facts in the current year are identical to that of AY 1999-2000. He therefore
following the order of AY 1999-2000 confirmed the order of AO. Aggrieved by the order of
CIT(A) the assessee is now in appeal before us.6.    Before us, the Ld. A.R. submitted that the disallowance similar to the present
disallowance was made by the AO in AY 1999-2000 against which the Assessee had
preferred appeal before Hon'ble ITAT. Hon'ble ITAT vide order dated 9th Oct. 2006 (ITA No
3763/Ahd/2002) had remitted back the matter to the file of AO to decide the matter on the
basis of reference petition filed in High Court. He placed on page 30 of the paper book the
order of Hon'ble Tribunal. He therefore urged that since the matter in the current year is
identical to that of AY 1999-2000, the matter may be remitted back to the file of AO with
similar directions. The Ld. D.R. did not seriously object to the submission made by ld. A.R.7.    We have heard the rival contentions and perused the material on record. The factual
position is that in AY 1995-96 the AO on the basis on enquiry made, held the transaction4       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.entered by the Assessee with Blue Bell Finance Co. Ltd. to be non genuine. The AO in the
present year, relying on the observation of his predecessor disallowed the payment in A.Y.
1999-2000. Against the order of AO, Assessee had preferred appeal before H'ble Tribunal.
Hon'ble Tribunal vide order dated 9th Oct 2006 (ITA No 3763/Ahd/2003) held as under:"3.    We find the issue to be considered on the basis of the outcome of the Court
      decision, which is pending before the Gujarat High Court in Reference No Company
      Petition No.74 of 1998.We,therefore, set aside the issue back to the file of the A.O.
      to decide the matter on the basis of the outcome of the aforesaid Reference Petition.
      We direct accordingly."8.    Before us, both the parties have admitted that the facts in the year under appeal are
identical to that of AY 1999-2000. We therefore, following the order of the co-ordinate
Bench of Tribunal for A.Y. 1999-2000 remit the matter back to the file of the AO with similar
directions. In result this ground of the Assessee is allowed for statistical purposes.The third ground of appeal relates to disallowing Rs.15,86,540/- being deferred
revenue expenditure.9.    During the course of assessment proceedings A.O. observed that Assessee had in
the books of accounts claimed deferred revenue expenditure of Rs.15,86,540/- but in the
computation the expenses was claimed as revenue expenditure. The assessee submitted
that the deferred revenue expenses incurred were purely of revenue in nature and not of
capital nature. The contention of the assessee was not acceptable to the AO in view of the
fact that in the Balance Sheet, Schedule Q-note X(d) it was stated that deferred revenue
expenditure was incurred prior to commencement of commercial production. The AO
therefore concluded that the said expenditure is not a revenue expenditure and has not
been incurred during the year under consideration and therefore he disallowed it.10.   Aggrieved by the order of AO, Assessee carried the matter in appeal before the
CIT(A). CIT(A) after considering the submissions of the A.R upheld the disallowance made
by AO by holding as under:5        ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
." 6.3. After going through the facts of the case, I find that the contention of the
       appellant is not acceptable because in the balance sheet schedule Q-note X(d) it is
       clearly mentioned that deferred revenue expenditure is incurred prior to
       commencement of commercial production. From this it is clear that the said
       expenditure is not revenue expenditure and not incurred during the year under
       consideration. Hence I find no reason to go against the findings of the A.O. This
       ground of appeal is therefore rejected."11.    Before us, the Ld. A.R. contended that the expenses incurred are revenue in nature
and have been incurred in the normal course of business. He further, submitted that the
expenditure is not of capital in nature and therefore the same should be allowed. On the
other hand the Ld. D.R. relied on the order of the authorities below.12.    We have heard the rival contentions and perused the material on record. The AO in
its order has given a finding that the expenditure is not of revenue in nature and have not
been incurred during the year. The Ld. A.R. could not bring on record any tangible material
to rebut the findings of the AO. In view of these facts, we do not find any reason to interfere
with the order of CIT(A) and therefore uphold the order of the CIT(A). Accordingly this
ground of the Assessee is dismissed.13.    The next ground of appeal relates to the disallowing Rs.2,36,27,765/- of rebates and
reversal of claims.14.    During the course of assessment proceedings the AO noticed that the assessee had
claimed Rs.2,36,27,765/- as an expenditure on account of claims, rebate and reversal
pertaining to transactions entered by it during the earlier years. Assessee furnished the
details and offered explanation. The AO was of the view that since the assessee was
following mercantile system of accounting it should have made provision for these
expenses in the accounts for the relevant years. He was therefore of the view that the
expenditure pertained to the earlier years. AO further observed that the assessee has failed
to establish as to how the amount of claim crystallized during this year and in view of the
fact that no evidence was submitted to support its claims, AO held the expenditure to be
pertaining to earlier years and hence Rs.2,36,27,765/- was disallowed.6       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.15.   The assessee carried the matter in appeal before the CIT(A). CIT(A) upheld the
order of AO by holding as under:-"8.3.   After going through the facts of the case, findings of the A.O. and the
      submission of the A.R., it it found that the appellant's claim is that it could not realize
      sales proceeds hence it has claimed it as unrealized sales-claim in the year under
      appeal. This is a fresh claim this year. Since the sales relate to just one or two years
      before the year under appeal, appellant should have shown the same as debtors
      and after that it could write off. It appears that the appellant made no efforts for its
      recovery. The accounts of the parties who are reputed companies are also running
      and write off cannot be made for a running account. It seems very much impractical
      to conclude that these sales proceeds will not be realized in future. Appellant could
      not discharge its onus that these are bad debts. Therefore, I am satisfied with the
      findings of the A.O. and hold that the claim of the appellant is not tenable. The
      addition is confirmed."16.   Against this confirmation of disallowance by CIT(A), the assessee is now in appeal
before us.17.   Before us the Ld. A.R. submitted that the details of the amounts reversed in the
accounts and placed it on page 71 of the paper book. It was submitted that the amount
reversed represents the liquidated damages and freight charges reversed which were
booked as sales in earlier years and were also offered to tax in the respective years. The
Ld. A.R. further submitted that since the Assessee has written off the amount in its books of
accounts, it has complied with the requirements of the Act and therefore the same should
be allowed as deduction as bad debts. He further relied on the decision of Apex Court in
the case ofTRF Ltd. Vs CIT(2010) 323 ITR 397 (SC).18.   The Ld. D.R. on the other hand submitted that the sales relate to just one or two
years old, the accounts of the parties from whom the amount has been written off are
reputed parties and are running account, the Assessee does not seem to have made
efforts for the recovery. He further submitted that the Assessee could not discharge its7       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.onus to prove the debts to be bad. In view of these facts, the Ld. D.R. submitted that the
AO was right in disallowing the amount.19.    We have heard the rival submissions and perused the material on record. The
undisputed fact is that the amount which have been written off were shown as sales in
earlier years and were also offered to tax in the respective years. The fact that in the year
under appeal, the assessee has debited its Profit and loss account and the amount has
been written off has not been disputed by the Revenue. The H'ble Apex Court in the case
ofT.R.F. Ltd Vs CIT(supra) has held that after 1st April 1989, it is not necessary for the
assessee to establish that the debt has in fact become irrecoverable. It is enough if the bad
debt is written off as irrecoverable in the accounts of the assessee. In view of the aforesaid
facts and respectfully following the decision of Apex Court cited hereinabove, we are of the
view that since the assessee has written off the amount in its Profit and loss Account, the
assessee is entitled to its deduction. Accordingly, we delete the addition made by the AO.
In the result this ground of the Assessee is allowed.20.    The next ground of appeal is against the charging of correct interest after
considering the prepaid taxes and interest u/s 234B, and 234C. Since charging of interest
is consequential to the total income to be determined, the Assessing Officer is directed to
recalculate the interest while giving effect to this order.21.    In the result, the appeal of the assessee is partly allowed.ITA No.1198/Ahd/2004 - A. Y. 2000-01 (Revenue's Appeal).The grounds raised by the Revenue reads as under:-1.    The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,89,68,093/- holding it as deferred revenue expenditure against revenue
       expenditure claimed by the assessee.2,    The ld. CIT(A) has erred in deleting the disallowance of interest of Rs.
       7,96,520/-3.    The ld. CIT(A) has erred in deleting the disallowance of interest of Rs.
       5,16,625/- made on account of interest expenditure relating to exempt income.8       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.22.   The first ground of appeal is regarding confirming of deletion of Rs.1,89,68,093/-
being term loan interest holding it as deffered Revenue expense as against the Revenue
expense claimed by the assessee.23.   A.O noticed that assessee in its books of accounts had deferred certain expenses of
Rs.1,89,68,093/- mostly by capitalizing them. The assessee had claimed the said
expenditure in the statement of income under the head "Term loan interest capitalized for
expansion (under capital work in progress but claimed as revenue expenditure). For its
allowability as deduction, the assessee submitted that its claim of deduction be allowed
following the decision of CIT(A) in earlier years. The assessee also relied on the decision of
Ahmedabad Bench of ITAT in the case of Vadilal Dairy International Ltd reported in ITA
No.500/Ahd/1997 dated 16-9-1998 and Gujarat High Court decision in the case ofCIT vs.
Core Health Ltd.reported in 251 ITR 61. The A.O. rejected the claim of the assessee and
added Rs 1,89,68,093/- to the total income.24.   Aggrieved by the order of AO, assessee carried the matter in appeal before the
CIT(A). The CIT(A) after considering the submissions of the A.R. deleted the addition by
holding as under:-"4.3. I have gone through the facts of the case, assessment order and submission
      of the appellant. It is seen that A.O. has disallowed only on the ground that similar
      disallowance has been deleted by the CIT(A) but the department has preferred
      second appeal in ITAT against the CIT(A)'s order and the same is pending for
      judgment. In view of the facts of this case and the order of CIT(A)-I, Ahmedabad the
      ITAT's decision in the case of Vadilal Dairy International Ltd. and Gujarat High
      Court's decision in the case of Core Health Ltd., addition of Rs.1,89,68,093/- on
      account of rejection of claim of revenue expenses is deleted."25.   Against the order of CIT(A), the Revenue is now in appeal before us. Before us the
Ld. D.R. submitted that the assessee had capitalized the expenses but claimed the said
expenditure as revenue expenditure in its return of income. He thus submitted that in the9       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.aforesaid circumstances, the AO was right in disallowing the claim of the assessee. He
thus urged that the order of the AO be upheld.26.   On the other hand the Ld. A.R. submitted that the CIT(A) had deleted the addition
made by the AO by relying on the decision of the Gujarat High Court in the case ofCore
HealthCare(supra). He further submitted that the decision of the Gujarat High Court has
been approved by H'ble Apex Court and reported in 298 ITR 194 (SC). He thus urged that
the order of the CIT(A) be upheld.27.   We have heard rival contentions and perused the material on record. The factual
matrix of the case is that the assessee had treated the expenses as deferred revenue
expenditure in the books of accounts but claimed as revenue expenditure while filing the
return of income. CIT(A) deleted the addition made by the AO by relying on its decision in
the preceding year, ITAT decision in the case of Vadilal Dairy International Ltd. and Gujarat
High Court's decision in the case ofCore Health Care(supra). The Ld. D.R. before us
could not controvert the above facts nor has brought any binding contrary decision in its
support. In view of these facts, we uphold the action of CIT(A) and accordingly dismiss
this ground of the Revenue.The second ground raised by the Revenue is regarding confirmation of deletion of
Rs.7,96,520/- being interest on advances given to employees.28.   During the course of assessment proceedings the A.O. observed that the assessee
has made advances of Rs.41.39 lakhs to its employees on which no interest has been
charged while on the other hand it has been paid huge amount as interest on borrowed
funds. The assessee replied that the advances have been made in ordinary course of
business and hence the interest thereon should not be disallowed. The AO was of the view
that the assessee has failed to establish exactly the purpose for which advances have been
made and how same are related to business. In view of this and relying on the provisions of
section 36(1)(iii) of the Act, he disallowed a sum of Rs.7,45,020/- being calculated @ 18%
on Rs.41.39 lakhs as interest paid by the assessee holding it to be for the purposes other
than business. The AO also observed that assessee had advanced Rs 2.85 lacs on which10       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.no interest was charged. The AO held that the assessee had failed to establish the purpose
for which advances have been made and how the same are related to business. In view of
this and relying on the provisions of section 36(1)(iii) of the Act, he disallowed a sum of
Rs.51,500/- being calculated @ 18% on Rs.2,85,000/- as interest paid by the assessee for
purposes other than business. Thus the total disallowance of Rs 7,96,520/- was made by
the AO.29.   Aggrieved by the order of AO, Assessee carried the matter in appeal before the
CIT(A). CIT(A) after considering the submissions of the appellant deleted the addition by
holding as under :-"7.3.     I have gone through the findings of the A.O. and the facts narrated by the
      Ld. Counsel on behalf of the appellant. It is submitted by the appellant that the
      advances are old and no such disallowances have been made and that the A.O. has
      failed to establish that the interest bearing fund has been utilized for non business
      purposes. It is submitted by the appellant that it had ample fund at its disposal from
      which the advances have been made."The Madras High Court in the case ofCIT vs. Hotel Savera(1998) 585, 591, 592
      has delivered that for disallowance of the interest, or a part of it, paid on money
      borrowed for the business purposes, it is essential that a clear finding should be
      given by the authority concerned that the borrowed money or part of it has been
      utilized for non-business purposes. Where the assessee has both, his own money
      as well as borrowed money, a presumption can arise that the money lent, even free
      of interest, came out of his own funds.In view of the above, the A.O. is not justified in disallowing the interest, without any
      specific findings. The A.O. is therefore directed to allow the claim of the interest paid
      in full as claimed. The disallowance and addition of Rs.7,96,520/- on this point is
      deleted."30.   Aggrieved by the decision of the CIT(A), the Revenue is now in appeal before us.
Before us, the Ld. D.R. submitted that the Assessee has failed to establish the purpose for
which the advance was granted and how it related to business. He therefore urged that in
such circumstances the order of the A.O. be upheld. On the other hand the Ld. A.R.11      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.submitted that it had ample funds at its disposal from which the advances were made. It
was further submitted that the advances were given in earlier years and no disallowance
has been made in earlier years. He thus relied on the order of CIT(A).31.   We have heard the rival contentions and perused the material on record. The facts
are that the A.O. had made additions by estimating the interest rate at 18% on the amount
outstanding. The AO has not brought any material on record to prove that the advance is
not for the purpose of business. The Hon'ble Madras High Court in the case ofCIT vs.
Hotel Savera(1998) 585, 591, 592 has held that for disallowance of the interest, or a part
of it, paid on money borrowed for the business purposes, it is essential that a clear finding
should be given by the authority concerned that the borrowed money or part of it has been
utilized for non-business purposes. In the present case no such finding has been given by
the AO. The finding of CIT(A) could also not be controverted by the Ld. D.R. In view of the
these facts, we find no reason to interfere with the order of the CIT(A). We accordingly
uphold the order of CIT(A) and dismiss this ground of the Revenue.32.   The last ground of appeal raised by the Revenue is regarding deleting the
disallowance of interest of Rs.5,16,625/- made on account of interest expenditure relating
to exempt income.33.   The A.O. observed that the assessee has shown dividend income of Rs.29,81,475/-
which was claimed as exempt u/s. 10(33) of the Act. The assessee submitted that the
dividend income is received on shares of Sharp Industries Ltd. The assessee was asked to
furnish the expenses incurred for earning the dividend income and asked to explain as to
why interest paid to earn dividend income should not be disallowed. Assessee submitted
that the shares of Sharp Industries Ltd. have been acquired mainly out of non-interest
bearing fund, realizations from business and therefore there is no expenditure for earning
dividend income. The reply of the Assessee was not found acceptable to the AO and he
therefore disallowed Rs.5,16,625/- calculated @ 18% on Rs.28,70,139/- (cost of
investment) being the interest paid on funds as per provision of Section 14A of the Act.12      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.34.    Assessee carried the matter in appeal before the CIT(A). CIT(A) after considering
the submissions of the Assessee deleted the addition by observing as under:-"9.3. After going through the facts of the case I find that the appellant company has
       sufficient interest free funds to the tune of Rs.52.74 crores against the total
       investment to the tune of Rs.11.31 crores and the A.O. has failed to establish the
       nexus that the interest bearing fund has been utilized for the purpose of investments
       under consideration, there is no question of disallowance of interest and there is no
       effective new investment in shares and securities during the year, but there is net
       reduction in the investment to the tune of Rs.2.77 crores and there is no such
       disallowance in earlier year. Since the A.O. could not prove that the relevant
       investments is out of interest bearing borrowed funds, I hold that the A.O. is not
       justified in estimating the interest expenses for earning dividend income. I therefore
       delete the addition made of Rs.5,16,625/- on this count. This ground of appeal is
       allowed."35.    Aggrieved by the action of CIT(A), the Revenue is now in appeal before us. Before
us, the Ld. D.R. submitted that the assessee has earned exempt income and as per the
provisions of section 14A, the expenditure incurred has to be disallowed. He submitted that
even the H'ble Bombay High Court in the case of Godrej Boyce vs. DCIT 328 ITR 71 (Bom)
(supra) has held that though Rule 8D is applicable from AY 2008-09 but prior to AY 2008-
09, reasonable expenditure needs to be disallowed. He thus relied on the order of the A.O.
On the other hand the Ld. A.R. submitted that the provisions of rule 8D does not apply to
the year under appeal. Further, to disallow an expenditure u/s 14A, a finding of the
expenditure has to be given. In the absence of such finding no disallowance can be made
u/s 14A. The A.R. further submitted the investment in shares were made in F.Y. 1996-97
and 1997-98 and in the year of investments, Assessee was having sufficient own funds. He
also placed on record the copy of the account on pages 27 to 29 of the paper book. He
therefore submitted that in the present case no disallowance u/s 14A can be made. He thus
relied on the order of CIT(A).36.    We have heard the rival contentions, perused the material on record. The
undisputed fact is that the Assessee has received dividends on shares which have been13     ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.claimed as exempt u/s 10(33). The investment in shares have been made in FY 1996-97
and 1997-98. CIT(A) has given a finding that the Assessee was having interest free funds
to the tune of Rs 52.74 crores against the total investment of Rs 11.34 crores and thus the
interest free funds were in excess of the investments. He also noted that the AO has failed
to establish nexus and prove that the interest bearing funds have been used to make
investments and there has been no effective investments in the current assessment year.
These findings of CIT(A) could not be controverted by Ld. D.R. In view of these facts, we
find no reason to interefere with the order of CIT(A). We accordingly uphold the order of the
CIT(A) in deleting the addition made by AO. Thus this ground of the Revenue is
dismissed.37.   In the result the appeal of the Revenue is dismissed.We now proceed with ITA No. 858/AHD/2005 for A.Y. 2001-0238.   The only effective ground of appeal raised by the Revenue in this appeal reads as
under:-"1.   The Ld. CIT (A) has erred in law and on facts in deleting the additions on
      account of(i)      Prior period adjustment of Rs.1,01,26,985/-(ii)     Interest free advances of Rs.7,50,420/-
      (iii)    Interest on capital asset of Rs.2,27,64,818/-

      Deletion of prior period adjustments:-39.   During the course of assessment proceedings AO observed that the assessee has
claimed the expenses which were incurred in earlier years. AO was of the view that those
expenses were not allowable in the year under appeal as the same should have been
claimed in respective years to which it pertained. The expenses were in the nature of hire
charges, legal charges, purchases etc. The A.O. also noted that since the assessee was
following mercantile system of accounting and receipts and expenses are accounted on14       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.accrual basis, therefore the expenses claimed by the assessee were not allowable in the
year and he accordingly disallowed the expenses of Rs 1,01,26,985/-.40.   Aggrieved by the order of the A.O. assessee carried the matter in appeal before the
CIT(A). After considering the submissions of the Assessee, CIT (A) deleted the addition by
holding as under:-"(2)(iv) I have considered the submissions made by the Ld. Authorised
      Representative and have gone through the assessment order. The copy of
      computation of total income for the year makes it clear that the appellant company
      has itself disallowed prior period expenses of Rs.1,01,26,985/- and by disallowing
      the amount again there will be a double addition. The A.O. is therefore directed to
      confirm the fact and delete impugned disallowance."41.   Being aggrieved by the above decision of CIT(A), the Revenue is now in appeal
before us.42.   Before us, the Ld. D.R. relied on the order of lower authorities. The Ld. A.R. on the
other hand reiterated the submissions made before AO and CIT(A). He further submitted
that while computing the taxable income, the assessee had suo moto disallowed the
expenses and added to the total income. He placed on record the computation of total
income at page 2 of the paper book. He thus submitted that the disallowance once again by
the AO results into double disallowance. He therefore urged that the order of CIT(A) be
upheld.43.   We have heard the rival contentions and perused the material on record. The factual
position that emerges is that while computing the total income, the assessee had suo moto
made disallowance and added Rs 1,01,26,985/- to the total income. The AO had again
disallowed the aforesaid expenditure while passing the assessment order. The act of AO in
disallowing again the prior period expenditure amounts to double addition of the same
expenditure. CIT(A) has also given a finding that the action of A.O. of disallowing the
expenditure which has already been disallowed by the assessee results into double15       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.addition. These facts have not been controverted by the Revenue. In view of these facts,
we find no infirmity in the order of CIT(A) and therefore no interference is called for on this
ground. This ground of the Revenue is therefore dismissed.44.    The second part of first ground of appeal is regarding the deletion of Rs.7,50,000/-
on account of interest free staff advances.45.    On verification of Schedule J of the Balance Sheet, AO noticed that assessee has
advanced money to staff which included advances to the following persons.Mr. A. I. Ayer        Rs. 10,00,000
       Mr. N.Swamy              Rs. 31,69,00046.    A.O. was of the view that the amount of advances was much higher than the usual
advances given to other staff. AO also noted that Assessee did not furnish any reason for
advancing huge advances to the two employees. He therefore calculated interest @ 18%
on the amount advanced and added Rs.7,50,420/- to the income.47.    Aggrieved by the above action of the A.O., the assessee carried the matter in appeal
before CIT(A). CIT(A) after considering the submissions of the A.R. deleted the addition by
holding as under:-" 5(iii) I have considered the submissions made by the Ld. Authorised
       Representative and have gone through the facts on records. It is seen that the A.O.
       has made the disallowance simply stating that the advances are much higher than
       the usual advances given to other staff and further that the assessee has not
       furnished any reasons for such huge advances and has made disallowance
       calculated at the rate of 18% on such advances. The A.O. has not brought out any
       cogent reason for the disallowance. Since on the similar fact, the disallowance of
       Rs.7,96,520/- was deleted by my predecessor in the appellant's own case in the
       earlier assessment year agreeing with such finding, the disallowance of
       Rs.7,50,420/- is directed to be deleted."48.    Aggrieved by the order of CIT(A), Revenue is now in appeal before us.16       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.16.    Before us, the Ld. D.R. submitted that the assessee has not justified its action of
giving such huge amount of loan to its employees. In these circumstances, the amount
advanced to the employees cannot be considered for being used for the purpose of
business and therefore the A.O. had rightly disallowed the interest and accordingly the
action of A.O. should be upheld.49.    The Ld. A.R. on the other hand submitted that the amount was advanced to
employees in the normal course of business. Similar disallowances were made by the A.O.
in the earlier assessment years in the past but the same were deleted by CIT(A). He
therefore urged that the action of the CIT(A) be upheld.50.    We have heard the rival contentions and perused the material on records. We find
that CIT(A) while deleting the addition has noted that disallowance was made by the AO in
the past but the same were deleted by his predecessor. Before us, Revenue could not
controvert the findings of CIT(A). Further, Revenue has not brought any material on record
to demonstrate that whether against the order of CIT(A) of earlier years the matter was
taken by Revenue before Tribunal and that the matter was decided in its favour by the
Tribunal. The Revenue has also not been in a position to demonstrate any tangible reason
for disallowance. In view of the aforesaid facts, we find no reason to interfere with the order
of CIT(A). Thus this ground of Revenue is dismissed.51.    The third part of 1st ground of appeal is with respect to deletion of Rs.2,27,64,818/-
on account of interest on Capital asset.52.    During the course of assessment proceedings A.O. noticed that the assessee has
debited interest and financial charges of Rs.11,29,53,733/- on various term loans taken by
assessee from ICICI, IFCI, IDBI etc. AO noticed that during the year, the assessee has
made additions to plant and machinery of Rs.12,08,95,156/- in April, 2000. It was stated by
the assessee that no interest on loans has been capitalized to fixed assets during the year.
The assessee also had not claimed depreciation on machinery so purchased. The
assessee has shown advances of Rs.55,76,046/- for capital goods under the head "Capital
work in progress for capital goods" and pre-operative expenses to be capitalized. The AO17      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.calculated interest @18% on the expenditure of purchase of new machinery and on the
advance for capital goods as being of capital in nature and accordingly held the interest of
Rs.2,27,64,818/- as not deductibleu/s. 36(1)(iii)of I.T. Act and disallowed the same out of
interest expenses.53.   Assessee preferred appeal against this disallowance before CIT(A). After
considering the submissions of the A.R., CIT(A) allowed the appeal of the assessee by
holding as under :-"      6.(iii) I have gone through the facts of the case and the submission made by
      the appellant on behalf of the appellant. I find that addition made on the similar
      ground have been deleted by the CIT(A) in appellant's case in earlier years. Having
      regard to the finding of my predecessor and the facts and circumstances of the case
      in the earlier years and also considering the legal authority relied upon by the
      appellant, the disallowance/addition of Rs.2,27,64,818/- is ordered to be deleted."54.   Aggrieved by the order of CIT(A), Revenue is now in appeal before us.55.   Before us, the ld. D.R. submitted that the interest expense has been rightly
disallowed by the AO in view of the fact that the interest was on account of the addition
made to the capitals assets and therefore the interest was of capital in nature and therefore
urged that the order of the AO be upheld. The A.R. on the other hand reiterated the
submissions made before AO and CIT(A) and further submitted that on identical facts, the
CIT(A) in earlier years has allowed the deduction and therefore submitted that CIT(A) has
rightly deleted the addition. The ld. A.R. also relied on the order of the Hon'ble Supreme
Court in the case of DCIT vs. Core Health Care Ltd.(2008) 298 ITR 194 (SC).56.   We have heard the rival contentions and perused the material on record. We find
that CIT(A) while deleting the addition has noted that similar additions were made by the
AO in earlier years and the same were deleted by his predecessor. Before us, the Ld. D.R.
could not controvert the findings of CIT(A). Before us, Revenue has also not brought any
material on record to demonstrate that in earlier year, against the order of CIT(A), any18       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.appeal was preferred by Revenue where the order of AO was upheld. We further find that
in the case of DCIT Vs Core Health Care Ltd (supra) the Hon'ble Apex Court has held us
under:"36(1)(iii) of the Income tax Act,1961, has to be read on its own terms: it is a code by
         itself. It makes no distinction between money borrowed to acquire a capital asset or
         a revenue asset. All that the section requires is that the assessee must borrow
         capital and the purpose of the borrowing must be for business which is carried on by
         the assessee in the year of account. Unlikesection 37which expressly excludes an
         expense of a capital nature,section 36(1)(iii)emphasises the user of the capital and
         not the user of the asset which comes into existence as a result of the borrowed
         capital. The Legislature has, therefore, made no distinction insection 36(1)(iii)between "capital borrowed for a revenue purpose" and "capital borrowed for a
         capital purpose". An assessee is entitled to claim interest paid on borrowed capital
         provided that the capital is used for business purpose irrespective of what may be
         the result of using the capital which the assessee has borrowed. "Actual cost" of an
         asset has no relevancy in relation tosection 36(1)(iii).
         The proviso inserted insection 36(1)(iii)by theFinance Act, 2003, with effect from
         April 1, 2004, will operate prospectively.Held, accordingly, that the assessee was entitled to deduction undersection
         36(1)(iii)prior to its amendment by theFinance Act, 2003, in relation to money
         borrowed for purchase of machinery even though the assessee had not used the
         machinery in the year of borrowing.Decision of the Gujarat High Court inDeputy CIT vs. Core Health Care Ltd., (2001)
         251 ITR 61 affirmed on this point."57.      The present appeal before us is with respect to AY 2001-02. Hon'ble Apex Court in
the case of Core Health Care (supra) has held that the proviso inserted insection 36(1)(iii)by theFinance Act2003 with effect from April 1, 2004, will operate prospectively. The
Hon'ble Apex Court has further held that an assessee is entitled to claim interest paid on
borrowed capital provided that the capital is used for business purpose irrespective of what
may be the result of using the capital which the assessee has borrowed. In view of the
totality of the facts and respectfully following the decision of Hon'ble Apex Court in the case
of Core Health Care (supra), we feel that the CIT(A) has rightly deleted the addition made19      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.by the AO. We accordingly uphold the action of the CIT(A) and thus dismiss this ground
of appeal of Revenue.58.    In the result, the appeal of the Revenue is dismissed.Now we take up the appeal of the Assessee being ITA No.927/Ahd/2005 for AY
2001-02.The grounds raised by the assessee reads as under:1.    That the learned CIT(A) ought to have accepted the returned income and notes
attached to the return of income and ought to have allowed our claims made in the return of
income and order passed by the learned AO undersection 144of the Act is against the law
and facts of the case and therefore the addition made therein should be deleted in full.2.     That the learned CIT(A) has erred in law and facts by not allowing the claim of,
claims, rebate & reversal of claim of Rs.8,04,87,441/-. The claim, rebate & reversal claim is
correct, as these are not recoverable and therefore the learned AO should be directed to
allow the said claim in full.3.     That the learned CIT(A) has erred in law and facts by not allowing Rs.2,25,73,649/-out of interest expenses on investment. Since the appellant has sufficient interest free
funds, no part of interest can be disallowed and therefore the learned AO should be
directed to allow the said claim in full.4.     That the learned CIT(A) has erred in law and facts by not allowing Rs.39,50,678/-of
our claim of sundry balance written off. Since the amount has been written off and pertains
to business and income thereon has been reflected, no part of such expenditure can be
disallowed and the learned AO be directed accordingly5.     That the learned CIT(A) has erred in law and facts by not allowing Rs.6 Lacs out of
legal and profession fees expenses. Since the expenditure is for the purpose of business
and its accounts are audited and wherein it has not held as capital expenditure payment,
no part of legal and professional fees can be disallowed and the learned AO be directed
accordingly.6.     That the learned CIT(A) has erred in law and facts by not allowing the Hire Charges
payment to Blue Blends Finance Ltd. of Rs.5,24,421/-.Since the said expenses are for the
purpose of the business and full available details in this regard have been furnished, no
part of it should be disallowed and accordingly the learned AO should be directed to allow
the same in full.7.    That the learned CIT(A) has erred in law and facts by disallowing the Traveling
expenses of Rs.3,20,160/-, being 1/10th of total traveling expenditure. Since the entire20      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.expenditure is for the purpose of business and its accounts are audited, no part of traveling
expenditure can be disallowed and the learned CIT(A) be directed accordingly.59.    Ground No.1 is regarding challenging of order passedu/s.144of the Act.60.    AO in the assessment order has noted that he had issued notice u/s 143(2) on
18.7.2002 and was duly served on the assessee. Thereafter notices were issued and
served u/s 143(2) and 142(1) on various occasions. The assessee was also directed to
produce books of accounts. The assessee had failed to comply with the directions of the
A.O. As the assessee had failed to comply with the directions of the AO, the AO completed
the assessmentu/s 144of the Act. Before us, the Assessee had now challenged the order
passedu/s 144of the Act.61.    Before us, the Ld AR submitted that the order passed by AOu/s 144of the Act was
bad in law and therefore the same be quashed. The Ld. DR on the other hand pointed to
the findings of AO and submitted that due to the non-compliance to the notices by the
Assessee, AO had rightly framed the assessment u/s 144. He thus supported the order of
AO.62.    We have heard the rival submissions and perused the material on record. From the
assessment order it is seen that AO has noted to have issued notices to Assessee on
various occasions but the Assessee failed to comply with the same. Before us, Asseessee
has not brought any material on record to prove the compliance of notices issued by AO. In
view of these facts we are of the view that the AO had rightly passed order u/s 144 and we
accordingly dismiss this ground of appeal.Ground No.2 relates to the confirming disallowance of Rs.8,04,87,441/- on account
of claims, rebate and reversal of claim.63.    During the course of assessment proceedings, the A.O. noticed that the assessee
company has claimed Rs.8,04,87,441/- as expenses on account of claims, rebate and
reversal pertaining to transactions entered by it during the earlier years. The assessee was21       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.requested to furnish full details of the expenses. The assessee furnished details like names
and partywise amounts which have been reproduced on page 5 & 6 of the Assessment
order. The AO was of the view that the assessee has not furnished any reasons regarding
claims, rebates, discount or the nature of expenses. The assessee also failed to furnish the
details and explain as to how the amount of claim crystallised during this year. The AO
observed that similar issue also come up during the course of assessment proceedings for
A.Y. 2000-01 and the same was rejected. Following the findings given in the order of AY
2000-01, the assessee's claim for deduction was denied and disallowances of
Rs.8,04,87,441/- was made to the income.64.   Aggrieved by the order of AO, assessee preferred appeal before the CIT(A). CIT(A)
upheld the order of the AO by holding as under :-"      3(iii) I have considered the submissions of the Ld. A.R. and have gone
      through the facts of the case. It is clear from the facts discussed in the assessment
      order that the assessee has not been able to furnish proper details with evidence
      regarding the claim. It is seen from the facts discussed in the appellate order in the
      appellant's case for A.Y. 2000-01 vide CIT (A)-V, Ahmedabad's order dated 30-1-
      2004 that the appellant's claim is that it could not realize sale proceeds of earlier
      years. Hence it had claimed it as unrealized sale claimed during the year. Such
      claim stands rejected by my predecessor stating that the sales relate to just one or
      two years before the year in appeal when such claim is made for the first time and
      that the appellate appears to have made no efforts for its recovery. Further, that the
      concerned parties are reputed companies having running accounts with the
      assessee and as such write off can be made for running accounts. Further that, it
      seemed very impractical to conclude that the sale profit would not be realized in
      future. Since the appellant could not discharge its onus that these were bad debts,
      my predecessor did not find the claim of the appellant as tenable. I find that the facts
      in respect of the claim are similar in this year, as well. Since the appellant has not
      discharged its onus to prove the claim allowable, finding of the A.O. is considered
      reasonable. This ground of appeal is therefore rejected and the addition of
      Rs.8,04,87,441/- confirmed."65.   Aggrieved by the order of CIT(A), the assessee is now in appeal before us.22       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.66.   Before us the Ld. A.R. submitted that the details of the amounts reversed in the
accounts are placed at page 40-70 of the paper book. It was submitted that the amount
reversed apart from freight charges and liquidated damages mainly represents the
discounts given to the parties in earlier years which were booked as sales in earlier years
and offered to tax in the respective years. The Ld. A.R. further submitted that since the
Assessee has written off the amount in its books of accounts, it has complied with the
requirements of the Act and therefore the same should be allowed as deduction as bad
debts. He further relied on the decision of Apex Court in the case ofTRF Ltd. Vs CIT(2010)
323 ITR 397 (SC).67.   On the other hand the Ld. D.R. submitted that the sales relate to just one or two
years old, the accounts of the parties from whom the amount has been written off are
reputed parties and are running account, the Assessee does not seem to have made
efforts for the recovery and the Assessee could not discharge its onus to prove the debts to
be bad. In view of these facts, the Ld. D.R. submitted that the AO was right in disallowing
the amount.68.   We have heard the rival submissions and perused the material on record. It is
assessee's submission that the amounts which have been written off were shown as sales
in earlier years and were also offered to tax in the respective year. In the year under
appeal, the assessee has debited its Profit and Loss account and the amount was written
off. These facts have neither been disputed nor have been controverted by Revenue. The
Hon'ble Apex Court in the case ofT.R.F. Ltd Vs CIT(supra) has held that after 1st April
1989, it is not necessary for the assessee to establish that the debt has in fact become
irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of
the assessee. In view of the aforesaid facts and respectfully following the decision of Apex
Court, we are of the view that since the assessee has written off the amount in its Profit and
Loss account, the assessee is entitled to its deduction. Accordingly, we direct the deletion
of the addition made by the AO. In the result this ground of the Assessee is allowed.23      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.The third ground of appeal relates to the confirming of disallowance of
Rs.2,25,73,649/- on account of interest expenses on investment.69.   During the course of assessment proceedings A.O. noticed that           assessee has
made major investment in the shares of Vishnu Vijay Packages Ltd., Sharp industries Ltd.,
and Sheth Plastomers Ltd. which are assessee's subsidiary companies and group
companies. The assessee had also made purchases of Rs.12,70,79,584/- and
Rs.5,28,82,005/- from Vishnu Vijay Packages Ltd. and Sharp Industries Ltd respectively
who are the specified personsu/s. 40A(2)(b)of the I.T. Act and to whom the assessee has
provided huge finance in the form of investment and for which the assessee has borrowed
from banks and paid huge interests. According to AO, the shares were purchased to earn
dividend income which is exemptu/s. 10(33)of the I.T. Act. The AO was of the view that
assessee has taken huge term loans and other loans from ICICI, IFCI, IDBI and other
banks and has debited interest of Rs.11,29,53,733/-. Thus according to AO, the assessee
has made investment out of interest bearing fund taken from banks. According to AO, the
basic requirement for claiming deductionu/s. 36(1)(iii)of I.T. Act for interest expenses is
that the amounts must have been borrowed and utilized for business purposes. Since the
assessee has diverted interest bearing funds to its subsidiary company without charging
interest, AO was of the view that the interest payments claimed by the assessee to the
extent of fund diverted interest-free to subsidiary company cannot be treated as business
expenses and the same was not deductibleu/s. 36(1)(iii)of I.T. Act. Further since the
assessee has deployed interest bearing fund for earning exempt income. In view of
provisions ofsection 14Aof I.T. Act, the interest expenses on investment in shares were
also not deductible. The AO calculated interest of Rs 2,25,73,649 (@ 18% on investment of
Rs.12,54,09,139/- in shares of group companies and specified personsu/s. 40A(2)(b)of
the Act) and disallowed it out of total interest payment and added to the income.70.   Being aggrieved by the order of A.O. the assessee carried the matter in appeal
before the CIT(A). CIT(A) upheld the order of the AO by holding as under:24       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
."       4 (iii) I have considered the submissions made by the Ld. A.R. and have gone
       through the assessment order passed by the A.O. It is seen that the appellant
       company had made investments in shares amounting to Rs.12,54,09,139/- and the
       major investments is in the shares of its own subsidiary/ group companies. Further,
       the investment has been made from interest bearing borrowed funds from the banks
       and the appellant has debited huge interest expenses to the tune of
       Rs.11,29,53,733/-.Thus, the facts on record clearly shows that the appellant has
       diverted interest bearing funds to its subsidiary companies without charging interest
       or having any other gain to it. The A.O. has reasonably pointed out the nexus
       between the interest bearing borrowed funds and the non-interest bearing
       investment with subsidiary companies of the appellant. I therefore, agree with the
       findings of the A.O. that the claim of interest made on the funds diverted interest free
       to the subsidiary companies of the appellant, cannot be treated as business expense
       and hence not deductibleu/s. 36(1)(iii)of the I.T. Act. Since the appellant has
       utilized the interest bearing funds for earning exempted income, the interest
       expenses for investment in shares are also not deductible in terms ofsection 14Aof
       the I.T. Act. The disallowance made by the A.O. of Rs.2,25,73,649/- is therefore,
       confirmed."71.    The assessee being aggrieved by the decision of CIT(A) is now in appeal before us.72.    Before us the Ld. A.R. urged that the Assessee has not diverted the funds borrowed
in the form of term loans from financial institutions to acquire the shares of subsidiaries. He
further urged that that no dividend was received during the year under consideration and
therefore no disallowance can be madeu/s 14A. He further submitted that the investments
were made in the past out of own funds and not borrowed funds. He therefore submitted
that no disallowance can be made in the present case. He also relied on the decision in
the case of Hiren Aluminium Ltd. vs. DCIT in ITA No.1259/Ahd/2005 dated 20-3-2009.73.    On the other hand, the Ld. D.R. submitted that as per the provisions ofsection 14A,
the expenditure incurred has to be disallowed. Even the Bombay High Court in the case of
Godrej Boyce Mfg. Co.Ltd. vs. DCIT 328 ITR 81 (Bom.) has held that though Rule 8D is
applicable from AY 2008-09 but prior to AY 2008-09, reasonable expenditure needs to be
disallowed. He thus relied on the order of the lower authorities.25         ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.74.   We have heard the rival submissions and perused the material on record. Before us,
ld. A.R. has submitted that the investments were made in earlier years and in the year the
investments were made, Assessee was having interest free funds and no interest bearing
funds have been used for making investments. Before us, the Assessee has not placed any
material on record to demonstrate the availability of interest free funds or the cash flow
statement in its support. We also find that the neither A.O nor CIT(A) has given any finding
with respect to availability of interest free funds in the year of investments. In such
circumstances, we feel that the issue needs to be re-examined at the end of A.O. We
therefore remit the issue to the file of A.O to decide the issue de novo in the light of the
contentions made by the Assessee and the decision relied by him and thereafter decide the
issue as per law. Needless to state that A.O shall grant adequate opportunity of hearing to
Assessee. Thus this ground is allowed for statistical purposes.The next ground of appeal relates to the confirming of disallowance of Rs
39,50,678/- on account of sundry balance written off.75.    The A.O. found that the assessee has debited various expenses under the head
office expenses which included debits of Rs.39,50,678/- on account of sundry balance
written off. The A.O. held that since the assessee has not furnished any details or
evidences in regard to accounting of income in past and therefore the claim of the
assessee for bad debts was disallowed and added to the income.76.   Being aggrieved by the action of the A.O., assessee preferred an appeal before the
CIT(A). CIT(A) upheld the order of AO by holding as under:-"      Since the appellant has not furnished any details and evidence in order to
      prove that the appellant had accounted any income from the transaction in past. I
      hold that the claim of the assessee has rightly been disallowed by the A.O. and as
      such the addition of Rs.39,50,6768/- is confirmed."77.   Before us, the Ld A.R. placed on page 71 to 76 of the paper book the details of
amount written off. He submitted that since the amount has been written off, the assessee26       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.be allowed deduction and for which he relied on the decision ofTRF(supra). On the other
hand the Ld. D.R. submitted that the AO was right in disallowing the amounts because no
details were submitted before the AO. He therefore requested that the matter may be
remanded back to the AO for verification.78.   We have heard the rival contentions and perused the material on record. The AO
and CIT(A) have given a finding that the assessee had not furnished any details and
evidence in order to prove that the appellant had accounted any income from the
transaction in past. On the other hand, the Assessee in the paper book has submitted the
details of amounts written off. Since the details filed by the Assessee in the paper book
were not before AO, we are of the view that in these circumstances, in the interest of justice
and fair play the matter be remitted to the file of AO for verification. We accordingly remit
the issue to the file of AO with the direction to verify the details and examine the issue as
per the provisions of law and in light of the decision of H'ble Apex court in the case ofTRF
Ltd. Vs CIT(2010) 323 ITR 397 (SC) and thereafter decide the issue as per law. Needless
to state, AO shall grant adequate opportunity of hearing to the Assessee. The Assessee
will also cooperate with the AO and submit all the required details promptly as asked by the
AO. Thus this ground of the assessee is allowed for statistical purposes.The next ground of appeal relates to disallowance of Rs.6,00,000/-on account of
legal and professional fees.79.   The A.O. observed that the assessee has debited expenses of Rs.20,34,115/- under
legal and professional fees for Unit-1 and Unit-II. On verification of account, the AO
observed that Rs.6,00,000/- has been debited on 8-10-2000 as paid by SIL to GE capital
service for management fees. No further details or clarification was made available by the
Assessee. The assessee had also advanced margin money of Rs.1,39,50,376/- to the
above party. The AO was of the view that the expenditure being of enduring benefits and
capital in nature and therefore not allowable and accordingly disallowed the same and
added to the income. Aggrieved by the above action of the A.O. assessee carried the
matter in appeal before the CIT(A).27       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.80.     Before CIT(A) the Ld. A.R. submitted that the legal and professional fee expenses
paid to GE capital Services as management fees and are for the purpose of business and
revenue in nature and further that the accounts are audited, the expenses should not have
disallowed it by treating it in the nature of capital expenditure. CIT(A) observed that though
nature of expenses was in the nature of management fee but in the absence of details
proving the business expediency he upheld the action of A.O.81.     Aggrieved by the action of CIT(A), the assessee is in appeal before us. The Ld. A.R.
submitted that the payment to GE capital was in the nature of management fees and
therefore for the purpose of business. He further submitted that the Assessee is a company
whose accounts are audited by Chartered Accountants, AO has not pointed out as to how
the expenditure is of capital nature. He submitted that in the absence of any evidence, the
expenses cannot be disallowed.82.     The Ld. D.R. on the other hand relied on the order of the A.O and CIT (A).83.     We have heard the rival contentions and perused the material on record. Before us,
it has been submitted that the expenses were incurred for the business of the company and
were revenue in nature. We also note that AO has noted that no details of the expenses
were furnished before him. In these circumstances we feel that the matter be remitted to
the AO to verify the contentions of the Assessee and thereafter decide the issue as per law.
Needless to state that AO shall grant an adequate opportunity of hearing to the assessee.
We also direct the Assessee to furnish all the details called for by the AO promptly so as to
enable him to decide the issue. Thus this ground of the Assessee is allowed for
statistical purposes.84.     The next ground of appeal relates to confirming the disallowance of Rs.5,24,421/-
being hire charges paid to Blue Blends Finance Ltd.85.     Before us, both the parties submitted that the issue is the present ground is identical
to the ground no. 2 in ITA No 1113 for AY 2000-01 and they have same submissions to
make.28       ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.86.   We have heard the rival submissions and perused the material on record. Before us,
both the parties submitted that the facts in the present ground are identical to that ground
no. 2 in AY 2000-01 which have been decided by us hereinabove. We for the same
reasons given while deciding the ground for AY 2000-01 also remit the issue to the file of
A.O with similar directions. Thus this ground is allowed for statistical purposes.87.   The next ground of appeal relates to the disallowance of Rs.3,20,160/- being 1/10th
of travelling expenses.88.   The assessee company has debited travelling expenses Rs.32,01,507/- as against
the expenses of Rs.24,61,450/- debited in immediately preceding. AO observed that the
sales of the company stood decreased from Rs.105.27 crores to Rs.50.70 crores. He was
of the view that prima facie, there appears no reason for increase in travelling expenses.
Considering facts of the case and in absence of any detail of the expenses, the
disallowance at 10% out of travelling expenses was made by AO and added to the income.
Aggrieved by the above action of the A.O. the assessee carried the matter in appeal before
the CIT(A).89.   CIT(A) upheld the order of the AO by holding as under:-"      After considering the submission of the Ld. A.R. and facts on record, I find
      that the appellant has no proper explanation for the increase in travelling expenses.
      In fact no precise details of the expenses incurred have been furnished by the
      appellant and the business expediency of such expenses also remains to be proved.
      The contention made by the Ld. A.R. is also general in nature. I therefore do not find
      any justification to interfere with the disallowance made by the A.O. which is
      confirmed."90.   Before us, the Ld. A.R. contended that the expenses on travelling has been made
during the course of business and for the purpose of business. The AO has not pinpointed
any defect in it. The disallowance has been made only on the basis of surmise and on
adhoc basis. In such a situation the addition made be deleted. The Ld. D.R. on the other29      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.hand stated that the assessee had not furnished any details that were called for by the AO.
In such a situation, the AO was right in estimating and making the disallowance.91.   We have heard the rival contentions and perused the material on record. It is a fact
that the assessee has debited travelling expenses in its profit and loss account and has
claimed it as deduction. The Assessee did not furnish the details before the AO or before
CIT(A). The disallowance has been made on the basis of estimate. The fact of incurring of
expenses of travelling is not disputed. The only dispute is with respect to the quantum of
expenses. The A.O. had disallowed 1/10th of the travelling expenses on estimate basis. We
are of the view that the disallowance made by AO on account of traveling expenses is on
higher side. We are of the view that in such circumstances the adhoc disallowance of Rs. 2
lacs will meet the ends of justice. We accordingly direct the AO to restrict the disallowance
to Rs. 2 lac. Thus this ground of appeal of the assessee is partly allowed.92.   In the result, the appeal of the assessee is partly allowed.I.T.A. No.1026/AHD/2007. - A.Y. 2002-0393.   The only ground raised by the Revenue reads as under:-"     The CIT (A) erred in law and on facts in deleting the disallowance of
      Rs.7,50,420/- made on account of interest on loans given to staff."94.   Before us, both the parties submitted that the facts and circumstances of the present
ground is identical to ground no 2 (ii) in ITA No 858/AHD/2005 for AY 2001-02 and the
submissions made by them while arguing the matter for AY 01-02 would be equally
applicable to the present ground.95.   We have heard the rival submissions and perused the material on record. Before us,
both the parties submitted that the present ground of appeal, the issue, facts and
submissions are identical to that of ground No 2 (ii) in ITA No 858/Ahd/2005 for AY 2001-02. We therefore for the same reasons stated in hereinabove while deciding the ground in
ITA No 858/AHD/2005 (supra) dismiss the ground of the Revenue.30      ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004ITA No.1026/A/2007.A Years 2001-02, 00-01 & 2002-03
.96.      Accordingly, the appeal of the Revenue is dismissed.97.      In the result appeals of Revenue are dismissed and of Assessee are partly allowed.Order pronounced in Open Court on 01 -        08 - 2014.

         Sd/-                                                  Sd/-

      (G.C.GUPTA)                                           (ANIL CHATURVEDI)
 VICE PRESIDENT                                         ACCOUNTANT MEMBER
Ahmedabad.                           TRUE COPY
Rajesh

Copy of the Order forwarded to:-

1.       The Appellant.

2.       The Respondent.

3.       The CIT (Appeals) Valsad.

4.       The CIT concerned.

5.       The DR., ITAT, Ahmedabad.

6.       Guard File.

                                                             By ORDER


                                                       Deputy/Asstt.Registrar
                                                            ITAT,Ahmedabad.