TMI Blog2011 (8) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax (Appeals) restricted the disallowance to ₹ 68.58 lakhs as against the addition of ₹ 7,89,06,865/- made by the Assessing Officer. The relevant findings of the Commissioner of Income-tax (Appeals) as contained in para 4.3 of his order are worthy of notice, which read as follows: 4.3 The submissions of both sides have been considered. This issue has already been considered by my predecessor in appellant s case in appeal for A.Y 1997-98. In the appellate order for A.Y. 1997-98, my predecessor had held that the sum of ₹ 51 crores given by the appellant to M/s Shivaji Works Ltd (SWL) was for business purpose. This year, the advance to SWL is ₹ 75.35 crores and there is an increase in this advance of ₹ 24 crores. In the AY 1997-97 the AO had held that advance of ₹ 3.81 crores was given out of borrowed funds and applying bank interest @ 18% on this fund, the AO had disallowed interest of ₹ 68.58 lakhs which was confirmed by the CIT(A). In this year, as evident from the assessment order, the opening balance of the borrowed funds was ₹ 3,147,311(000) whereas the closing balance was ₹ 3,082,651(000) whereas the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities Power Ltd. 313 ITR 340 (Bom). On the other hand, the learned Departmental Representative, appearing for the Revenue, has relied upon the order of the Assessing Officer. 4. After carefully considering the rival submissions, we find that identical issue has been restored back to the file of the Assessing Officer in the assessee s own case for the earlier assessment years as stated above. Following the precedent, we restore back to the file of the Assessing Officer for fresh adjudication and to ascertain as to whether the amount advanced to the various companies closely connected to the assessee were made out of the borrowed funds or otherwise and then to decide the issue as per provisions of law after providing assessee a reasonable opportunity of being heard. This Ground is decided as above. 5. The next Ground relates to disallowance out of commission expenses amounting to ₹ 6,38,067/-. The assessee company had claimed inland sales commission to the tune of ₹ 63,89,670/-. On perusal of the details furnished by the assessee, the Assessing Officer held that the assessee was not able to establish as to whether the services have actually been rendered or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 1,21,757/-. Correspondingly, 2% of the depreciation on vehicles at ₹ 46,230/-. Thus the total disallowance amounted to ₹ 1,67,987/-. In appeal, the Commissioner of Income-tax (Appeals), following the orders of his predecessor in assessee s own case for the earlier assessment years 1995-96 to 1997-98, upheld the disallowance made by the Assessing Officer. 9. Before us, the learned Counsel for the assessee submitted that identical issue has been decided in favour of the assessee by the Pune Bench of the Tribunal in the assessee s own case for the assessment years 1995-96 vide ITA No 1039/PN/00 and for assessment year 1997-98 vide ITA No 45, 82/PN/01. 10 After considering the submissions of both the parties, we find that this issue stands decided in favour of the assessee and against the Revenue by the decision of our co-ordinate Bench in the assessee s own case for the assessment year 1995-96 and 1997-98. We further find that the Hon ble Bombay High Court in the case of CIT v. Kirloskar Ferrous Industries Ltd., Pune in Income-tax Appeal No. 622 of 2010 dated 04.07.2011 has made a reference to the above decision of the Tribunal in the assessee s case for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the auditors of the Company as also the auditors under the Income-tax Act, following the parity of reasoning laid down by the Hon ble High Court in the case of Kirloskar Ferrous Industries Ltd. (supra). In this view of the matter, we set aside the orders of the lower authorities on this aspect and the Assessing Officer is directed to delete the ad hoc disallowance of ₹ 2,00,000/- made on this count. This Ground of appeal is accordingly allowed. 16. The last Ground pertains to the disallowance out of aircraft expenses of ₹ 4,65,367/-. Before us, the learned Counsel for the assessee fairly conceded that this issue stands decided against the assessee by the decision of Pune Bench in the assessee s own case for the assessment year 1039/PN/00 for the assessment year 1995-96 and further the same issue was not pressed by the assessee in ITA No 45, 892/PN/01 for the assessment year 1997-98. In view of this admitted position, by following the precedent, we decide the issue against the assessee and in favour of the Revenue. This Ground of appeal is thus dismissed. 17. In the result, assessee s appeal is partly allowed. 18. We shall now take up Revenue s cross appeal vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the rival submissions and have also perused the case law cited by the assessee in support of its case. The only controversy in this Ground is as to whether the assessee can be said to have complied with the requirements of sections 54EA and 54EB of the Act, which provide exemption from capital gain if the net consideration or the amount of capital gain respectively has been invested in the specified Bonds as mandated in sections 54EA and 54EB of the Act. The case made out by the Revenue is that such requirements have not been complied with because investment in specified assets have been made out of borrowings from the Banks and the sale proceeds of the shares giving rise to capital gains has not been utilised for such purposes. The Commissioner of Income-tax (Appeals) observed, by relying upon the decision of the Pune Bench of the Tribunal in the case of DCIT, SR-1, Panaji v. Shri V.S. Dempo Others in ITA Nos 1895 to 1898/PN/90 dated 4.11.1996 that even where the investment in specified assets was out of loan funds, the exemption is available to the assessee. According to the Commissioner of Income-tax (Appeals), source of investment in the specified assets need not be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) directed the Assessing Officer to recompute the capital gain on sale of 130000 bonus shares of Kirloskar Cummins Ltd. at ₹ 1,07,69,27,796/- as against ₹ 1,09,39,24,640/-. Against this decision, Revenue is in appeal before us. 23. On this point, the relevant facts are that in the return of income, assessee had shown that it had sold 3576000 equity shares of Kirloskar Cummins Ltd., and while working out the capital gains, it was claimed that all such bonus shares were acquired after 1.4.1981 and thus the cost of acquisition was taken at NIL. However, during the course of assessment proceedings, the assessee explained that 130000 shares were indeed received prior to 1.4.1981 and, therefore, it sought to exercise the option under section 55(2)(aa) of the Act and claimed the Fair Market Value as on 1.4.1981 at ₹ 39.50 per share as its cost of acquisition to compute the capital gains. In this manner, the cost of acquisition of 130000 shares was taken as ₹ 51,35,000/- and after indexation, the indexed cost of acquisition was claimed at ₹ 1,69,96,850/-. The said amount was claimed as deductible in terms of section 48 of the Act for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and against the Revenue by the decision of our co-ordinate Bench in the assessee s own case for the assessment year 1997-98 (supra) as well as by the aforesaid decisions of the Mumbai Benches (supra). The Tribunal in its order for the assessment year 1997-98 (supra) followed the earlier decision of its co-ordinate Bench in the case of Heinrich dE Fries GmbH (supra) in affirming the stand of the assessee.. Following the precedent, we hereby affirm the directions of the Commissioner of Income-tax (Appeals) to recompute the capital gains and the Revenue fails on this Ground. 27. The next Ground relates to the deletion of disallowance of ₹ 7,20,48,865/- made by the Commissioner of Income-tax (Appeals) out of total disallowance of ₹ 7,89,06,865/- made by the Assessing Officer under section 36(1)(iii) of the Act. 28. We find that against the sustenance of addition of ₹ 68,58,000/- by the Commissioner of Income-tax (Appeals) on this count, the assessee has come up in appeal before us vide ITA No. 257/PN/03 and for the reasons stated elsewhere in this order, we have restored this issue to the file of the Assessing Officer for fresh adjudication and to ascerta ..... 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