Court No. 3 Case :- INCOME TAX APPEAL No. - 5 of 2016 Appellant :- Pr. Commissioner Of Income Tax-I Aayakar Bhawan Lucknow Respondent :- M/S Jai Prakash Associates Ltd. Hazratganj Lucknow Counsel for Appellant :- Ghan Shyam Chaudhary Counsel for Respondent :- Namit Sharma Hon'ble Sudhir Agarwal,J. Hon'ble Dr. Kaushal Jayendra Thaker,J. 1. Heard Sri Ghan Shyam Chaudhary, learned counsel for appellant and Sri Namit Sharma, learned counsel for respondent. 2. This appeal under Section 260A of Income Tax Act, 1961 ( hereinafter referred to as "Act, 1961") has arisen from judgment and order dated 29.4.2015 passed by Income Tax Appellate Tribunal, Lucknow Bench 'A' Lucknow (hereinafter referred to as "Tribunal") in Income Tax Appeal No.563/LKW/2014 relating to Assessment Year (hereinafter referred to as "A.Y.") 2009-10. 3. Appellant herein is Commissioner of Income Tax, Lucknow ( hereinafter referred to as "Revenue") who has lost before Tribunal, hence this appeal. 4. following substantial questions of law were formulated in this appeal are as under: "1.) Whether on facts and in circumstances of case learned Income Tax Appellate Tribunal was justified in dismissing departmental appeal in respect of addition of Rs.1,56,786/- made on account of depreciations on Iraqi assests without appreciating material brought on records and facts of case. 2.) Whether on facts and in circumstances of case learned Income Tax Appellate Tribunal was justified in dismissing departmental appeal in respect of addition of [2] Rs.6,52,16,092/- on account of depreciation on temporary erections by holding that durable structures made of cement, bricks and steels and designed to last 10 to 15 years qualified as purely temporary structures eligible for depreciation @ 100% under Income Tax Rules, 1962. 3.) Whether on facts and in circumstances of case learned Income Tax Appellate Tribunal was justified in dismissing departmental appeal in respect of addition of Rs.2,46,000/- on account of disallowance of interest on borrowings because it is contrary to decision of Punjab and Haryana Court in case of CIT Vs. Abhishek Industries Ltd. (2006) 286 ITR 1, even though assessee had given interest free advances to sister concerns and other for non business purposes. 4.) Whether on facts and in circumstances of case learned Income Tax Appellate Tribunal was justified in dismissing departmental appeal in respect of addition of Rs.45,10,040/- made on account of retention money without appreciating facts of case and material brought on records. 5.) Whether on facts and in circumstances of case Learned Income Tax Appellate Tribunal was justified in dismissing departmental appeal in respect of additions of Rs.52,01,960/- and Rs.51,29,658/- on account of disallownaces of manufacturing expenses and miscellaneous expenses respectively in P & L account, without appreciating facts of case and material brought on records. 6) Whether on facts and in circumstances of case learned Income Tax Appellate Tribunal was justified in dismissing departmental appeal in respect of additions of Rs.1,12,05,26,953/- on account of disallowances of deduction u/s 801A, without appreciating facts of case and material brought on records." 5. No separate questions of law have been accepted for adjudication in this appeal, but by order dated 20th January, 2016, this appeal was directed to be connected with Income Tax Appeals No. 23 [3] of 2007, 24 of 2007, 35 of 2007, 87 of 2008, 88 of 2008, 111 of 2008, 112 of 2008, 150 of 2008, 33 of 2009, 40 of 2010 and 96 of 2007. Income Tax Appeal No.87 of 2008, involving similar questions of law, has already been decided vide judgment dated 24.1.2017 and appeal has been dismissed. Order passed by this Court in Income Tax Appeal No. 87 of 2008 is reproduced as under :- " 1. Heard Sri Alok Mathur, learned counsel for appellant and Sri Namit Sharma, learned counsel for respondent. 2. This appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as "Act, 1961") has arisen from judgment and order dated 22.10.2007 passed by Income Tax Appellate Tribunal, Lucknow Bench, Allahabad (hereinafter referred to as "Tribunal") in ITA No. 626/Luc./2006 for Assessment Year 2002-03. 3. Appellant framed 5 substantial questions of law and this Court admitted appeal on 08.05.2008 on questions mentioned in memo of appeal, but today when case was taken up for hearing, after some arguments, learned counsel for revenue pointed out that questions no. I, II, III & V are basically founded on appreciation of facts and in absence of anything to show that findings are perverse, or there is any misreading of document, or that any relevant evidence has been ignored, these questions do not give rise to any substantial question of law. 4. Learned counsel for Revenue at this stage, also stated, at outset, that substantial question of law is question no. IV and that may be considered and decided by this Court. This question reads as under: "IV. Whether on facts and in circumstances, learned Tribunal was right in dismissing departmental appeal in respect of disallowance of interest on borrowed amount of Rs. 3,25,03,000.00." 5. Assessing Authority (hereinafter referred to as ''A.A.') in assessment order dated 29.03.2005 has dealt with issue of disallowance of interest as under: "5. Disallowance of Interest:- From examination of Balance Sheet of company for Financial Year 2001-02, it was found that company has advanced interest free loans/advances to various parties with whom it had no business transactions. details of such loans which are outstanding as on 31/03/2002, have been furnished in Annexure-4 of letter dated 20/07/2004. details are same on which interest was disallowed in Asstt. Year 2001-02. As per these details [4] total of non-interest bearing loans were Rs. 2600.20 lakhs last year. This year balance of non-interest bearing loans is same i.e. Rs. 2600.20 lakhs as per details furnished by assessee. From scrutiny of details it has been noticed that interest in following were not charged. Sl. PARTY NAME OPENING CLOSING NET ADD AMOUNT No BALANCE BALANCE PAYMENT OPENING WHICH DURING BALANCE INTEREST YEAR DISALLOW ED Non-Interest Bearing Advances (Average Interest Rate 12.50%) 1. Friends Construction Corp. 2.50 2.50 0.00 0.00 2.50 2. Sequence Estate Pvt. Ltd. 30 30.00 0.00 0.00 30.00 3. Radiant Portifolio Funds 1596.08 1,596.08 0.00 0.001 596.08 4. HMG Time India Ltd. 430.81 430.81 0.00 0.00 430.81 5. Progressive Consultants 25.00 25.00 0.00 0.00 25.00 Ltd. 6. Manvi Finance 469.31 469.31 0.00 0.00 469.31 7. Dewan Automibile 9.00 9.00 0.00 0.00 9.00 8. Sharma Associate 12.50 12.50 0.00 0.00 12.50 9. Black Stone Mining Pvt. 20.00 20.00 0.00 0.00 20.00 Ltd. 10 Nipjiv International 5.00 5.00 0.00 0.00 5.00 Total 2,600.20 2,620.20 - - 2,620.20 It is thus clear that on one hand assessee company is borrowing money from Banks and financial institutions and paying interest during this financial year on other hand it has given interest free advances to parties without transacting any business whatsoever. Total expenditure incurred on interest payment during year as per Balance Sheet Schedule-'P' is Rs. 169,42 crores. On total borrowings, average rate of interest paid is 12.5%, which is worked out as under:- Total Secured & Unsecured loans Rs. 1,355.19 crores Interest paid on above Rs. 169.04 crores Average rate of Interest 12.50% 6. During course of assessment proceedings, Sri K. B. Aarwal, submitted that addition on account of interest upto date of search has been deleted by Ld. CIT(A), Lucknow, on ground that no interest bearing funds were utilized for making aforesaid advances and hence no interest should be disallowed in this year. decision of Ld. CIT(A) has not been accepted by Department and as such no congizance is taken on this argument. Moreover period of Block assessment does not pertain to this Asstt. year. Hence interest @ 12.5% on [5] advance given Rs. 2600.20 crore on which no interest has been charged is disallowed which worked at Rs. 3,25,03,000/-." (emphasis added) 6. Findings aforesaid show that addition on account of interest upto date of search was deleted by Commissioner of Income Tax (Appeals), Lucknow, (hereinafter referred to as ''CIT(A)', on ground that no interest bearing funds were utilised for making any interest free loans/advances to various parties and hence, no interest should be disallowed in year in question, but A.A. has discarded aforesaid deletion made by CIT (A) only on ground that department has not accepted decision of CIT (A). So long as CIT (A)'s order is not upset, it was not open to A.A. to ignore same. Therefore, addition made by him was apparently illegal. This is what has been found by CIT (A) and Tribunal in appeal preferred against assessment order dated 29.03.2005. CIT(A) has dealt with aforesaid issue in paras 7, 8 & 9 as under: "7. Regarding addition of Rs. 3,25,03,000/- Assessing Officer has mentioned in order that from examination of balance sheet of company for financial year 2001-02 it was found that company has advanced interest free loan to various parties with whom it had no business transaction. details of such loans which are outstanding as on 31.3.2002, have been furnished in Annexure-4 of letter dated 20.7.2004. details are same on which interest was disallowed in assessment year 2001-02. Accordingly, AO worked out proportionate interest @ 12.5% which amounted to Rs.3,25,03,000/-. 8. It has been argued by Ld. Counsels of applicant that disallowance relates to balances in business accounts and is liable to be deleted as same is contrary to accepted past decision as no disallowance of such interest was made in any of past assessments. Assessing Officer made disallowance of interest without showing any nexus between interest bearing funds and loans and advances and without giving any substantive basis as to how said loans and advances are stated to be for non business purposes. Assessing Officer has not appreciated fact that appellant had substantial non interest bearing funds of its own. addition on similar account was made in block assessment of company for period 1.4.89 to 2.7.99 where said disallowance has been fully deleted in appeal by CIT (Appeals) with finding that assessee company has not diverted any interest bearing funds for any non business purpose. It was also argued that during year no new advances have been taken. Further my attention was drawn to decision given by me in case of appellant in assessment years 1999-2000, 20000- [6] 01 and 2001-02 in this respect. 9. I have considered arguments placed before me by Ld. Counsels of appellant. similar issue has been decided by me in case of appellant in assessment year 1999-2000 vide order dated 9.11.2004 in Appeal No. CIT(A)-I/264/CC-III/Lko/02- 03-234, in assessment year 2000-01 vide order dated 27.12.2004 in Appeal No. CITt(Appels-I/39/CC-III/Lko/03-04/298 and in assessment year 2001-02 vide order in Appeal No.CIT(A)- I/223/CC-III/Lko/04-05/460 dated 29.3.95. As there is no change in set of facts, addition of Rs. 3,25,03,000/- made by AO is deleted." (emphasis added) 7. Tribunal in appeal preferred by Revenue has also noted that in ITA 187/Luc/04, relating to assessment year 2000-01, decided on 17.11.2006, Tribunal has already upheld view taken by CIT (A). Findings recorded by Tribunal in para-55 of order reads as under: "55 We have considered rival submissions and have perused record of case. It is stated that if assessee has utilized its non- interest bearing funds for giving non- interest bearing advances then no disallowance is called for. AO has merely gone by fact that assessee had given interest free advances to different concerns of assessee's group. He has not commented upon actual sources from where these advances were given. In block assessment for period ending on 2.7.1999, it has been clearly observed as noted above that assessee was having sufficient own funds to finance interest free advances. These facts being not controverted no disallowance is called for. We, accordingly, confirm, order of Ld. CIT(A) on this issue. ground is dismissed." 8. Aforesaid decision dated 17.11.2006 relating to assessment year 2000- 01 also has been followed to confirm finding of CIT (A) in present case also. Learned counsel for Revenue could not dispute that there was no basic difference in facts between earlier A.Y. and A.Y. in question. 9. That being so, we find nothing wrong in view taken by CIT (A) and Tribunal. Hence aforesaid question is answered against Revenue and in favour of assessee. 10. Appeal is dismissed accordingly." 6. Similarly Income Tax Appeal No. 111 of 2008 decided vide judgment 30.3.2017 involved similar questions of law which have been answered against Revenue and appeal has been dismissed. order passed by this Court in Income Tax Appeal No. 111 of 2008 is [7] reproduced as under:- 1. Heard Sri Alok Mathur, for appellant and Sri Namit Sharma, Advocate, for respondents. 2. This appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as "Act, 1961") has been filed challenging judgment and order dated 31.12.2007 passed by Income Tax Appellate Tribunal, Lucknow Bench 'A', Lucknow (hereinafter referred to as "Tribunal") in Income Tax Appeal No. 416/Luc/2004, relating to Assessment Year 2003-04. 3. Following substantial questions of law are formulated in this appeal: "(i) Whether on fact and in circumstances of Income Tax Appellate Tribunal was right in dismissing departmental appeal in respect of addition of Rs. 3,43,864.00 made on account of deprecations on Iraqi assets without appreciating material brought on records and facts of case. (ii) Whether on facts and in circumstances of Income Tax Appellate Tribunal was right in dismissing appeal of department in respect of addition of Rs. 6,05,81,891.00 on account of deprecation of depreciation on temporary erections by holding that durable structures made of cement, bricks and steels and designed to last 10 to 15 years qualified as purely temporary structures eligible for depreciation @ 100% under Income Tax Rules, 1962. (iii) Whether on facts and in circumstances of Income Tax Appellate Tribunal was right in dismissing departmental appeal in respect of disallowance of interest on borrowing amounting to Rs. 3,09,16,000.00 on account of disallowance of interest on borrowing even though assessee had given interest free advance to sister concerns and other for non business purposes. (iv) Whether on facts and in circumstances of Income Tax Appellate Tribunal was right in dismissing departmental appeal in respect of addition of Rs. 79,58,63,603.00 lacs made on account of retention money without appreciating facts of case and material brought on records. (v) Whether on facts and in circumstances of Income Tax Appellate Tribunal was right in dismissing appeal of department in respect of disallowance of Rs. 25,27,000/- on account of share issue expenses debited in P & L account, contrary to decision of Hon'ble Supreme Court in case of PIDC Ltd. Vs. CIT reported in 225 ITR 972." 4. So far as question-(i) is concerned, we find that there is finding of fact recorded by Tribunal after noticing that Assessing Officer computed [8] foreign currency translation difference as income as per accounting principle and only on notional basis. In this regard, Tribunal has recorded its finding which reads as under: "8. As could be seen from computation reproduced by AO in assessment order, this difference had arisen on translation of overseas account in Head Office account at end of year on exchange rate prevalent on last day of accounting year. AO in assessment year 1993-94, had observed that this difference arose as it was in different accounts appearing in books at exchange rate prevailing on first day of accounting year were translated in Indian Rupees at closing date. difference was adjusted in accounts of foreign currency translation difference. amount of this difference was notional debit/credit and did not represent any loss or income for purpose of computing taxable income under Income-Tax Act. entries on this account were made only for balancing books. Therefore, this exercise was merely done on account of incorporating trial balance appearing in Iraqi branch in Head Officer books in Indian currency. Since no actual gain accrued to assessee, there was no question of taxing this amount. We, accordingly, confirm order of ld. CIT(A) following precedent and in view of aforementioned discussion." 5. aforesaid finding having not been shown to be incorrect or contrary to record, we answer Question-(i) against Revenue. 6. So far as Questions-(ii) and (iv)are concerned, it is purely question of fact and do not give rise to any substantial question of law, hence need not be answered. 7. So far as Question-(iii) is concerned, counsel for parties states that it is squarely covered by judgment of this Court dated 24.01.2017 passed in Income Tax Appeal No. 87 of 2008 (Commissioner of Income Tax Vs. M/S Jai Prakash Industries Pvt. Ltd.) wherein similar question was answered against Revenue and in favour of Assessee. 8. For reasons stated in our judgment dated 24.1.2017 passed in Income Tax Appeal No. 87 of 2008 (supra) Question-(iii) is also answered against Revenue. 9. In respect of Question (v), Tribunal has clearly recorded finding that issues of expenses is covered under Section 35D of Act, 1961 and, therefore, Assessee is entitled for disallowance and we do not find anything wrong in order of Tribunal. Question (v), therefore, is also answered against Revenue. 10. In result, appeal fails and is dismissed accordingly. 7. Learned counsel for appellant fairly stated that questions of [9] law raised in this appeal are squarely covered by aforesaid judgments. 8. In view of above, substantial questions of law formulated in this appeal are answered against Revenue and in favour of Assessee. 9. Appeal is accordingly dismissed. Order Date :- 18.4.2017 Mukesh Pr. Commissioner of Income-tax-I, Lucknow v. Jai Prakash Associates Ltd