Nirma Industries Ltd.,, Ahmedabad vs Assessee

Nirma Ltd., Dy.CIT, Circle-5, Nirma House, Ashram Road, Ahmedabad. Ahmedabad. PAN:AAACN 5350 K (Appellant) (Respondent) ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd. For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -2-

ITA No.1389 & 1442/Ahd/2011 A.Y.1999-00

Dy.CIT, Circle-5, Vs Nirma Ltd., Ahmedabad. 2nd Floor, C.U. Shah Chambers Ashram Road, Ahmedabad.

Nirma Ltd., Dy.CIT, Circle-5, Nirma House, Ashram Road, Ahmedabad. Ahmedabad. PAN:AAACN 5350 K (Appellant) (Respondent)

ITA No.1440/Ahd/2011 A.Y.1998-99

Nirma Ltd. Vs Dy.CIT, Circle-5, Nirma House, Ahmedabad. Ashram Road, Ahmedabad. PAN:AAACN 5350M (Appellant) (Respondent)

Revenue by : Shri, Dinesh Singh, Sr.D.R., Assessee(s) by : Shri S.N. Soparkar, A.R.

सन ु वाई क तार ख/Date of Hearing : 12/06/2015 घोषणा क तार ख /Date of Pronouncement: 30/06/2015

आदे श/O R D E R

PER S.S. GODARA, JUDICIAL MEMBER

This is a batch of 7 appeals. The assessee has filed ITA No.1440/Ahd/2011 in A.Y. 1998-99 against the order of CIT (A)-II, ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -3-

Ahmedabad dated 1-3-2011in proceedings u/s. 143(3) r.w.s. 254 of the Income Tax Act,1961 hereafter the Act". The assessment year 1999-2000 involves two sets of cross appeals filed by the Revenue and assessee i.e. ITA No.1388 & 1389/Ahd/2011 and 1441 & 1442/Ahd/2011against two separate orders; both dated 1-3-2011of the CIT (Appeals)-II, Ahmedabad in proceedings u/s.143(3) r.w.s. 147 and 143(3) r.w.s. 254 of the Act; respectively. The assessement year 2000-01 involves assessee's appeal ITA No.4135/Ahd/2007 against order of the CIT(A)-II, Ahmedabad dated 11-9-2007 in proceedings under sec. 143(3) r.w.s. 147 of the Act. The last assessment year 2004-05 involves assessee's yet another appeal ITA 1173/Ahd/2011 against the order of CIT-III Ahmedabad dated 28-3- 2011 in proceedings u/s.263 of the Act.

2. We proceed serial-wise in order of appeals for the sake of convenience and brevity.

Assessee's appeal ITA 4135/Ahd/2007 Assessment Year 2000-01

3. This appeal raises following grounds:

"1. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in points of law and facts.

2. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming issue of Notice u/s.148 of I.T. Act.

3.In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming re-assessment order passed u/s. 147 of I.T. Act.

4. In law and in facts and circumstances of the Appellant's case, the Id. Commissioner of Income-tax (Appeals) has erred in confirming vyaj badla income of Rs.41,43,543 as interest income instead of short term capital gain.

ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -4-

5. In law and in facts and circumstances of the Appellant's case, the Id. Commissioner of Income-tax (Appeals) has erred in not appreciating Appellant's contention that amount of Rs.41,43,543 is already assessed under the head capita] gain as well as interest income, which is not permissible under the Act.

6. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in holding that levy of interest u/ss. 234A, 234B and 234C of I.T. Act is consequential.

7. In law and in the facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in rejecting Appellant's ground regarding initiation of penalty proceeding u/s.271(1)(c) of I.T. Act.

8. Your appellant reserves the right to add, alter, amend all or any of the above grounds of Appeal as may be advised from time to time."

4. Now we come to assessee's main grounds. Its grounds no.1 and 8 are found to be general in nature. Grounds no.2 and 3 challenge validity of the reopening in question. The assessee does not press for the same. The same are dismissed as not pressed.

5. The assessee's ground no.4 and 5 challenge the CIT(A) order confirming the Assessing Officer's action in treating vyaj badla income of Rs.41,43,543/- as interest income instead of short term capital gains. There is no dispute about facts and figures. The assessee had set off the aforesaid amount of short term capital gains against carried forward capital losses of assessment year 1996-97. The Assessing Officer issued a section 148 notice dated 30.7.2004 seeking to treat the same as interest income. The assessee intealia submitted that there ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -5-

existed no element of price and negative risk in its transaction, the vyaj badla in question had been considered as lending against security of shares and only credit risk would exist etc. The Assessing Officer framed re-assessment rejecting these pleas and treated the assessee's short term capital gains arising from vyaj badla in question as interest income.

6. The CIT(A) has relied upon his identical order passed in the case of assessee's group concern for rejecting its contention as under:

4. Ground No.5 relates to the taxing of vyaj badala income of Rs.41,43,543/- as interest income and not as capital gain as shown by the appellant. The reasons given in the assessment order for this issue and the submissions made on behalf of the appellant are similar to those arising in other appeals of the cases of the same group. In all such cases the modus operandi is almost similar. In one of the cases namely Kisan Discretionary Family Trust in Appeal No.CIT(A) XII/CC 1(1)/87/03-04 the CIT(Appeals)-XII had vide appellate order dated 17-

12-2003 for A.Y. 2000-01 considered similar issue. The arguments raised on behalf of the assessee in that case were similar to those advanced in this case. The CIT (Appeals) has in that case confirmed the order of the A.O. holding that vyaj badala transactions are finance transactions and income arising therefrom is to be taxed as interest income. Following the said appellate order, I also confirm the action of the A.O. on this issue. This ground of appeal is, therefore, dismissed.

5. In ground No.6 it is submitted by the appellant that the income of Rs.41,43,543/- is already included in the returned income as short term capital gain and now it is being assessed as interest income and thus it amounts to taxing the same income twice.

On consideration of the facts of the appellant's case, I find that as observed in the reasons recorded for reassessment, though the appellant had shown this income as short term capital gain, the same was adjusted against carried forward long term capital loss and thus this income was not reflected in the income shown by the appellant. The ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -6-

argument that the addition made results into double taxation is, therefore, not correct to this extent. However, I may also observe that the adjustment of such income against long term capital loss brought forward for earlier was not required as it is held that it is not short term capital gain. Hence the carried forward long term capital loss will not be adjusted as shown in the return and will be carried forward for subsequent year. The A.O. is, therefore, directed to modify his computation to the above extent."

7. Heard rival contentions and perused the case file. We put a specific query to the assessee about the final outcome of the issue in its group concerns case. It replies in negative and does not point out any distinction on facts or law. We affirm the CIT(A) finding under challenge in these circumstances. The assessee's ground no.4 is dismissed and ground no.5 is treated as consequential to the same.

8. The assessee's grounds no.6 and 7 challenge charging of interest u/ss. 234A, 234B, 234C & initiation of penalty u/s.271(1)(c) of the Act; respectively. The parties are in unison that the same are consequential in nature to the main proceedings. These grounds are rejected accordingly.

9. The case file further reveals that the assessee has filed a petition dated 18.5.2009 seeking leave to raise an additional ground challenging the Assessing Officer's action in charging interest u/s.234D of the Act. The same is reiterated in the course of hearing as well. Case law of (2014) 369 ITR 635 (All.) titled ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -7-

as CIT vs. Jagan and Co. is also quoted in support. We have given our thoughtful consideration. The Assessing Officer's order in question dated 24.3.2006. assessee's grounds of appeal before the lower appellate authority, the CIT(A) order under challenge as well as the demand notice dated 24.3.2006 do not contain any such issue of interest u/s.234D of the Act. We observe in these facts that the assessee's additional ground is not found to require our adjudication. The assessee's additional ground petition dated 18.5.2009 stands rejected accordingly.

10. Assessee's appeal ITA 4135/Ahd/2007 is dismissed.

Assessee's appeal ITA 1173/Ahd/2011 Assessment Year 2005-06

11. The assessee submits in the course of hearing that in view of the Assessing Officer consequential order passed in furtherance to the CIT's Section 263 order under challenge, it does not wish to press the instant appeal. The Revenue does not raise any objection. We accept the assessee's above stated submission and dismiss the instant appeal as not pressed.

12. Assessee's appeal ITA 1173/Ahd/2011 is dismissed as having been rendered infructuous.

ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -8-

Revenue's appeal ITA 1388/Ahd/2011 with Assessee's cross appeal no.1441/Ahd/2011 Assessment Year 1999-00

13. The Revenue's sole substantive grievance in its appeal is against CIT(A) order deleting depreciation disallowance of Rs.1,49,43,270/- on sales tax incentive as made by the Assessing Officer in the course of re-assessment framed on 31.12.2007. The assessee's grounds challenge the lower appellate order upholding validity of the reopening in question.

14. The assessee-company started getting benefit of sales tax subsidy from the impugned assessment year onwards in respect of its detergent complex, Alindra and Soda S. Project (Chemical Complex) at Kalatalav, Bhavnagar. The state government issued the relevant subsidy schemes dated 26.7.1991 and 11.9.1995; respectively. The former one provided sales tax exemption to the tune of 90% on the fixed capital investment in land, new building, other construction on plant/machinery for a period of 14 years from the date of commencement of the commercial production. The latter one envisaged the same benefits to the tune of 80% of the fixed capital assets. Per Assessing Officer, these schemes indirectly met cost of the assets and the same was liable to be excluded from net cost thereof as per section 43(1) Explanation (10) applicable w.e.f. 1.4.1999. He issued a section ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06 -9-

148 notice and framed reassessment on 31.12.2007 by observing that since the assessee had failed to establish that the sales tax liability was for carrying out capital investment, it amounted to a revenue receipt to be added in the total income. He turned down assessee's plea treating the subsidy to be a grant or reimbursement of the assets cost by reiterating the above stated statutory provision. This resulted in the impugned disallowance of Rs.1,49,43,270/-.

15. The assessee preferred appeal. It challenged validity of the reopening in question as well as the Assessing Officer's action on merits. The CIT(A) has followed the tribunal's order in ITA 1425/Ahd/2006 for assessment year 2002-03 holding that the incentive provided is in the form of sales tax exemption and not towards meeting the cost of any particular asset. A co-ordinate bench holds that the requisite conditions of Sec. 43(1) Explanation-10 are nowhere satisfied. It has observed that a subsidy or an incentive is in capital field, but at the same time it may not be asset specific. It has accordingly been held that the impugned subsidy or incentive cannot be taken into account for reducing the cost of assets. It has been finally concluded that such a cost of asset can only be reduced by a subsidy or grant which is to meet directly or indirectly the cost of assets in question.

ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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16. We have confronted the Revenue with the above said findings. It fails to point out any distinction on facts or law. We find that the tribunal's earlier order relates to the very subsidy schemes (supra). It has also been held that the authorities below have wrongly treated the same to be revenue receipt as in the impugned assessment year as well. We adopt consistency in these circumstances and affirm the CIT(A) findings under challenge. The Revenue's sole substantive ground fails.

17. The Revenue's appeal ITA 1388/Ahd/2011 is dismissed on merits. This renders the assessee's cross appeal no.1441/Ahd/2011 challenging validity of the reopening infructuous.

Revenue's appeal ITA 1389/Ahd/2011 & Assessee's appeal ITA 1442/Ahd/2011 (Assessment Year 1999-00)

18. We come to the Revenue's appeal ITA 1389/Ahd/2011. Its first ground challenges the CIT(A) order directing the Assessing Officer to allow deduction u/s.80HH and 80IA on exchange rate difference (Mandali Division) of Rs.1,56,350/-. We do not find any discussion much less an elaborate one in the Assessing Officer's order dated 28.12.2007. The CIT(A) holds that the assessee's plea of impugned deduction in respect of this ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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exchange rate difference is covered by the tribunal's decision of the tribunal in Priyanka Gems vs. ACIT 94 TTJ 557 (Ahm.). The hon'ble jurisdictional high court has affirmed the said decision in its judgment reported as (2014) 367 ITR 575 (Guj.) CIT vs. Priyanka Gems and holds that such an income is directly related to assessee's export business and it could not be been removed beyond the first degree. The Revenue fails to point out from the case record that the assessee's force in exchange gains fluctuation are not connected to its export activities. We affirm the CIT(A) findings in these facts and reject the Revenue's first substantive ground.

19. The Revenue's second substantive ground assails correctness of the lower appellate order deleting disallowance of section 80HHC and 80IA deduction regarding interest on debtors (Mandali Division) of Rs. 12,96,576/-. The CIT(A) has followed decision of hon'ble jurisdictional high court reported as (2006) 283 ITR 402 (Guj.) Nirma Industries Ltd. Vs. DCIT in assessee's own case in assessment year 1992-93 holding as under:

"However, the parties having made elaborate submission, the matter may be examined from a slightly different angle. When the assessee enters into a contract for sale of its products it could either stipulate

(a) that interest at the specified rate would be charged on the unpaid sale price and added to the outstanding till the point of time of realization, or (b) that in case of delay the payment for sale of products worth Rs.100 to carry the sale price of Rs.102 for first ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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month's delay, Rs. 104 for the second month's delay, Rs. 106 for the third month's delay and so on. If the contention of the Revenue is accepted, merely because the assessee has described the additional sale proceeds as interest in the case of a contract as per illustration (a) above, such payment would not be profits derived from the industrial undertaking, but in the case of illustration (b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking, this can never be because in sum and substance these are only two modes of realising sale consideration, the object being to realise the sale proceeds at the earliest and without delay. The purchaser pays a higher sale price if it delays payment of the sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. It is not the assessee's business to lend funds and earn interest. The distinction drawn by the Revenue is artificial in nature and is neither in consonance with law nor commercial practice. The Tribunal was, therefore, not justified in holding that while computing deduction under section 80-1 of the Act, interest received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking as the same cannot be stated to have been derived from the business of the industrial under taking".

20. We have confronted the Revenue a specific query to prove that the impugned sums of Rs.12,96,576/- have not arisen from the assessee's trade debts. It replies in negative. Nor any infirmity is pointed out in the assessee's books of account. We follow the hon'ble jurisdictional high court decision in these facts and hold that once the assessee's interest in question has arisen from trade debtors, the same could not have been disallowed for the purpose of impugned deduction u/ss. 80HHC and 80IA of the Act. The Revenue's second substantive ground fails.

ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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21. The Revenue's next ground is against the CIT(A) directions directing the Assessing Officer to excluded sales tax and excise duty while working out section 80HHC deduction. The same is stated to be in contravention of section 145A of the Act. The case file reveals that a co-ordinate bench of the tribunal in assessee's case for assessment year 2002-03 has relied on the judgment of hon'ble apex court in CIT vs. Lakshmi Machine Works, 290 ITR 667 (SC) holding that excise duty and sales tax do not involve any element of turnover and hence, they have to be excluded. The Revenue fails to point out any distinction on facts involved in the impugned assessment year vis-à-vis those in assessment year 2002-03. The assessee submits that the Revenue has not challenged the said findings in any higher forum. This plea is also not rebutted. We follow decision of the co-ordinate bench in these facts and affirm the CIT(A) findings under challenge. The Revenue's third ground is rejected.

22. This leaves us with the Revenue's fourth and last ground seeking to restore the Assessing Officer's action treating sales tax subsidy benefit as a capital receipt. We have already held hereinabove that a sales tax subsidy is a capital receipt only ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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(supra).We adopt the very reasoning herein as well and reject the Revenue's arguments.

23. The Revenue's appeal ITA 1389/Ahd/2011 is dismissed.

24. Now we come to the assessee's appeal ITA No.1442/Ahd/2011 raising following substantive grounds.

"2. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of deduction u/ss.80HH, 80IA & 80HHC of Income-tax Act in respect of the following incomes:

i) Interest on fixed deposits (Mandali division) Rs.

1,77,47,758

ii) Interest on loan (Mandali division) Rs.7,14,01,912

3) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming that interest expenditure should not be reduced for working out deduction u/ss.80IA & 80HH of Income-tax Act.

4) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming that expenses should not be reduced from the insurance claim income for working out deduction u/s. 80IA of Income-tax Act.

5) In law and in facts and circumstances of the Appellant's case, the learned C1T(A) has grossly erred in confirming disallowance of depreciation on wooden structure for Rs. 13,70,603.

6) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of expenditure Rs.5,35,61,516 of Soda Ash project and Rs.40,57,968 of LAB project.

7) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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depreciation Rs.39,00,750 on Soda Ash Project and Rs.2,199 on LAB End Project.

8) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in holding that charging of interest u/ss.234B and 234C is consequential."

25. The assessee submits at the very outset that its grounds no.2 to 4 relate to interest on fixed deposits, loans, interest expenditure and reduction of expenses from the insurance claim for the purpose of deductions claimed u/ss. 80HH, 80HHC and 80IA of the Act. It quotes the decision of hon'ble jurisdictional high court in Tax Appeal No.358 of 2014 for A.Y.1998-99 and also the other judgment reported as (2014) 367 ITR 12 (Guj.) in its own case directing the authorities below to adopt netting formula i.e. the total receipts minus the expenditure incurred in relation thereto for the purpose of excluding it from the deduction claimed u/s.80HH or 80I in the light of the hon'ble apex court decision reported as ACG Associated Capsules P. Ltd. vs. CIT (2012) 343 ITR 89 (SC). The same relief is prayed herein as well. The Revenue does not raise any serious objection to the same. We follow the aforesaid case law in these circumstances and direct the Assessing Officer to adopt netting formula qua assessee's grounds no.2 to 4 raised in these appeal. These grounds are accepted for statistical purpose.

ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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26. The assessee's next substantive ground challenges disallowance of depreciation on wooden structures of Rs.13,70,650/-. The Assessing Officer observed that the assessee did not furnish original purchase bill and installation details of the structure in question. He noticed that the bills produced in support of the claim had been raised in assessee's group concern namely M/s. Nirma Management Services Pvt. Ltd. only. This expenditure related to modification work carried on in the fifth floor of the Nirma House, Ashram Road Ahmedabad. The Assessing Officer cited above stated reasons for making disallowance of Rs.13,70,603/- pertaining to depreciation on the wooden structure in question.

27. The CIT(A) has upheld the Assessing Officer's findings. He holds that the purchase bills of the items in question are not in the assessee's name and no installation details are forthcoming.

28. Heard rival contentions. Case file perused. The assessee submits to have paid its group concern for the impugned wooden structure installed in the office during job work assignment. It states that the relevant invoices had been raised in the name of its sister concern which were later on reimbursed. It is further contended that this group concern has ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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not made any addition to the block of assets in the impugned assessment year for claiming the very relief. The Revenue quotes the CIT(A) findings in support. There is no dispute between the parties that the relevant invoices stood issued in the name of assessee's group concern. The assessee fails to prove existence of any agreement with its group concern to first purchase the wooden structure in its name, install it and thereafter get the same reimbursed. It also fails to provide installation details thereof despite clear findings of both the lower authorities. We reiterate that the present is second round of proceedings upto the tribunal. Thus, we hold that the assessee's claim in question amounting to Rs.13,70,603/- has been rightly disallowed by both the lower authorities for want of necessary factual evidence. The assessee's corresponding ground is accordingly rejected.

29. The assessee's next substantive ground challenges the CIT(A) order confirming disallowance of expenditure of Rs.5,35,61,516/- of soda ash project and Rs.40,57,968/- of the LAB project. The Assessing Officer refers to the tribunal's direction in the earlier round of litigation holding that the common indirect revenue expenditure pertaining to existing as well as new units e.g. Auditor's fees, director's remuneration is allowable. The Assessing Officer noticed from details of both ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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soda ash and LAB project and observed that no relief was allowable since none of the expenditure was of common indirect revenue nature. This resulted in the impugned disallowance of expenditure of Rs.5,35,61,516/- relating to soda ash project and Rs.40,57,968/- relating to LAB project.

30. The CIT(A) has also affirmed the Assessing Officer's findings in the order under challenge. He agreed with the assessee's submission that in A.Y. 1997-98 the tribunal had held identical expenses to be revenue in nature. However, he refers to the tribunal's order in the earlier round of litigation dated 30.8.2006 giving specific finding that there is no substance in assessee's submission that the impugned expenditure is incurred for expansion of existing business unit u/s.37(1) of the Act. The same appears to be the precise reason that the CIT(A) has inferred that the direct revenue expenditure in question for new units is related to purchase and installation of plant, machinery, land and building etc to be capitalized. The Assessing Officer's findings accordingly stand confirmed in the lower appellate order.

31. Heard rival contentions and case record perused. The assessee refers to the hon'ble high court's order in assessment year 1998-99 in tax appeal no.385 of 2014 as well as the case ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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law of CIT vs. Rane (Madras) Ltd. 215 ITR 250 to argue in favour of its claim. It has not placed on record the tribunal's earlier order (supra) holding that the expenditure in question has not been incurred in expansion of the already existing units of business. We observe in these facts that earlier observations of the ld. co-ordinate bench have attained finality. The assessee's paper book does not contain any cogent evidence to rebut the same. We find no reason to take a different view on facts in this consequential round of litigation. The above stated case law stands distinguished on facts accordingly. The assessee's corresponding ground fails. However, an alternative contention at this stage is also raised that if the impugned expenditure is held to be capital in nature, it is entitled for consequential depreciation relief. We find that this plea requires examination at the Assessing Officer's behest in facts of the case. We entertain this alternative plea and direct the Assessing Officer to pass a fresh order as per law. The assessee's alternative contention is allowed for statistical purpose.

32. The assessee's next substantive ground seeks depreciation relief of Rs.39,00,750/- on soda ash project and Rs.2,199/- on LAB END Project. The assessee claim to have used these assets in its plant at Bhavnagar. It further stated to have been owning them for being used in business purposes. The CIT(A) holds ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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that even if these assets were used during construction of the project, the impugned depreciation claim is not allowable before commencement of the production. And also that the same have to be capitalized till the date of such commencement.

33. We have heard rival contentions. The lower appellate authority draws a presumption that even if the assessee's assets are used during the construction of the project, depreciation in question cannot be allowed before commencement of the production. It does not give any specific after examining the assessee's books and other relevant supportive details. The assessee quotes hon'ble Madras high court decision (supra) and that of the tribunal in assessment year 1997-98 and 1998-99 allowing the very relief. We find that the hon'ble Madras high court dealt with a case of revenue expenditure arising from expansion of existing business units and not that of depreciation. Similar is the factual position in assessee's cases decided by the tribunal in assessment year 1997-98 and 1998-99 allowing identical claims of revenue expenditure. Therefore, we proceed to decide this issue independently. The Assessing Officer's order is silent on the impugned depreciation claimed. This is not the Revenue's case in appellate order that the assessee has not put its assets in question in ready to use condition even if its commercial production has not ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

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commenced. We quote the case law of hon'ble Delhi high court in CIT vs. Integrated Technologies Ltd. dated 16.12.2011 in these facts holding that it is not necessary to actually put to use the plant and machinery in question but such a depreciation claim is allowable even if the assets in question are kept ready for being used in the business concern. The Revenue fails to point out any judicial precedent to the contrary. We accept the assessee's corresponding ground in its favour.

34. The assessee's last substantive ground of interest u/ss. 234B and 234C is treated as consequential.

Assessee's appeal ITA 1442/Ahd/2011 is partly allowed.

Assessee's appeal ITA 1440/Ahd/2011 (Assessment year 1998-99)

35. The assessee's first ground pleads that the CIT(A) has grossly erred in holding that the Assessing Officer had correctly calculated deduction u/s.80HHC for Rs.18,08,000/- by taking adjusted business profits of Rs.7217.51 lacs instead of Rs.10,444.21 lacs. It places on record Annexure-A comprising of the appropriate computation of deduction u/s.80HHC. It is further stated that the Assessing Officer while passing consequential order dated 27.3.2015 has allowed its deduction ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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claimed by taking into account correct adjusted business profits of Rs.10326.75 lacs. A copy of this order is placed on record. The Revenue does not raise any objection to this factual position. We observe in these facts and circumstances that the Assessing Officer's consequential order hereinabove rendered the assessee's first ground infructuous. Ordered accordingly.

36. The assessee's second ground of interest sections 234B and 234C is treated as consequential in nature.

37. The assessee's third substantive ground challenges interests charged u/s.234D of the Act amounting to Rs.7,34,974/-. The Assessing Officer's order dated 28.12.2007 does not contain any such direction of interest computation u/s.234D of the Act. The assessee raised a corresponding ground before the CIT(A). The same is rejected as under:

"5 The ground No.5 is against the charging of interest u/s.234D of the I.T. Act for Rs.7,34,974/-.

5.1 The appellant has submitted that the CIT(A) has already deleted the said interest vide order dated 05.09.2007 and the same should be deleted. It was also submitted that interest u/s.234D is not applicable for A.Y.1998-99 as the provision of section 234D was introduced by the Finance Act, 2003 w.e.f. 01.06.2003 and thus, the provision was applicable only from A.Y.2004-05 onwards and not prior assessment years.

5.2 I have considered the facts and the submissions. I do not agree with the appellant's views. The CIT(A) vide order dated 27.08.2004 and 05.09.2007 has deleted the interest charged by following the Hon'ble ITAT Ahmedabad Bench decision in the case of S.K. Patel ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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Family Trust where it was held that section 234D was introduced w.e.f. 01.06.2003 and not applicable to the earlier assessment years and also interest u/s.234B cannot be charged u/s.154 of the Income- tax Act. However, this view of the Hon'ble ITAT has not been upheld by the Hon'ble High Court in the case of CIT vs Kerala Chemicals & Proteins Ltd. (323 ITR 584), has held as under:

"Interest u/s.234D - chargeability - applicability of section 234D - Tribunal holding that interest under section 234D was not chargeable as the provision was applicable only from A.Y.2004-05

- not justified - section 234D was introduced w.e.f. 1st June, 2003 and not with reference to any assessment year - interest chargeable for the period from 1st June, 2003 till completion of regular assessment."

Following this decision of the Hon'ble Kerala High Court, it is held that the Assessing Officer was justified in charging the interest u/s.234D of the I.T. Act which is upheld and the appellant's ground is rejected."

38. Heard both sides and record perused. The assessee refers to the earlier order of the tribunal deleting similar interest thereby upholding the CIT(A) order dated 5.9.2007. It is further stated that the hon'ble jurisdictional high court has admitted the Revenue's appeal on 10.12.2014 against the said decision. However, it does not quote any decision against that of the hon'ble Kerala high court relied upon in the lower appellate order extracted hereinabove. We uphold the CIT(A) findings in these circumstances and reject the assessee's last ground.

Assessee's appeal ITA No.1440/Ahd/2011 is dismissed.

39. To sum up, Assessee's appeals ITA Nos.4135/A/2007 and 1440/Ahd/2011 are dismissed, ITA No. 1173/Ahd/2011 & ITA No.4135/Ahd/2007, 1173, 1388, 1389, 1441, 1442, 1440/Ahd/2011 Nirma Ltd.

For A.Ys. 1998-99, 1999-00, 2001-01, 2005-06

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1441/Ahd/2011 are dismissed as having been rendered infructuous and ITA No. 1442/Ahd/2011 is partly allowed. The Revenue's appeals ITA Nos.1388 & 1389/Ahd/2011 are dismissed.

Order pronounced in the Court on this day, the 30th,June, 2015 at Ahmedabad.

Sd/- Sd/- (G.D. AGRAWAL) (S.S. GODARA) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 30 /06/2015 S.A.Patki, Sr. P.S. आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं"धत आयकर आयु$त / Concerned CIT

4. आयकर आयु$त(अपील) / The CIT(A)-III, Ahmedabad

5. 'वभागीय *त*न"ध, आयकर अपील य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड/ फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation- 22.06.15, 23.06.15, 25.06.15 & 26.06.15 Direct on Computer

2. Date on which the typed draft is placed before the Dictating Member- 26.06.2015 Other Member ...................

3. Date on which the approved draft comes to the Sr.P.S./P.S. 29-6-2015.

4. Date on which the fair order is placed before the Dictating Member for Pronouncement 30-6-2015

5. Date on which the fair order comes to the Sr.P.S. 30-6-2015...................

6. Date on which the file goes to the Bench Clerk-.....................

7. Date on which the file goes to the Head Clerk..................................

8. The date on which the file goes to the Assistant Registrar for signature on the order..........................

9. Date of Despatch of the Order..................