Narangs International Hotels P.Ltd, ... vs Addl Cit Rg 1(2), Mumbai on 30 November, 2018

[Cites 24, Cited by 1]

Income Tax Appellate Tribunal - Mumbai

Narangs International Hotels P.Ltd, ... vs Addl Cit Rg 1(2), Mumbai on 30 November, 2018

आयकर अपीऱीय अधिकरण "B" न्यायपीठ मुंबई में ।

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI

BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER

आयकर अपीऱ सं./I.T.A. No.369, 370, 721 & 722/Mum/2013
(नििाारण वर्ा / Assessment Year : 2006 -07 ,2007-08, 2008-09, 2009-10)

Narangs International बिाम/ ACIT-1(2)
Hotels Private Ltd. Aayakar Bhavan,
Ambassador Hotel, v. Mumbai 400020
Churchgate,
Mumbai-400020
स्थायी ऱेखा सं./ PAN: AAACN2084L

(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)

Assessee by: Shri. Vipul Joshi,
Assessee by : Shri. S.K Mitra (DR)

सुनवाई की तारीख /Date of Hearing : 04.09.2018
घोषणा की तारीख /Date of Pronouncement : 30.11.2018

आदे श / O R D E R

PER Bench:

These four appeals, filed by assessee, being ITA No. 369 , 370, 721 &
722/Mum/2013, are directed against separate appellate order(s)
dated 31.10.2012 for AY 2006-07 and 2007-08 respectively and dated
01.11.2012 for AY 2008-09 and 2009-10 respectively , passed by
learned Commissioner of Income Tax (Appeals)-2, Mumbai (hereinafter
called "the CIT(A)"), , the appellate proceedings had arisen before
learned CIT(A) from separate assessment order(s) dated 30.12.2009
and 07.12.2010 passed by learned Assessing Officer (hereinafter
called "the AO") u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961
(hereinafter called "the Act") for AY 2006-07 and 2007-08 respectively
and dated 29.12.2010 and 30.12.2011 passed by the AO u/s 143(3) of
I.T.A. No.369,370,721 & 722/Mum/2013

the 1961 Act respectively . Since common issues are involved, these
appeals were heard together and disposed of by this common order.
First , we shall take up appeal of the assessee for AY 2006-07. Since
common issues are involved our decision for AY 2006-07 shall apply
mutatis mutandis to the same issues in AY 2007-08, 2008-09 and
2009-10 respectively.

2. The grounds of appeal raised by the assessee in the memo of
appeal filed with the Income-Tax Appellate Tribunal, Mumbai
(hereinafter called "the tribunal") for AY 2006-07 in ITA
No.369/Mum/2013, reads as under:-

"On the facts and in law:

1. Disallowance out of travelling expenses :
Rs.3,19,386/-

1) The ld. CIT(A) erred in sustaining the disallowance
of Rs.3,19,386/- out of travelling expenses incurred by the
appellant and that relying on the grounds taken by the ld.
predecessor CIT(A) in A.Y. 2005-06.

The appellants submits that since then the assessment for
A.Y. 2005-06 has been set-aside by the Hon'ble ITAT.

The appellant further submits that, in any case, the
disallowance is excessive.
2. Disallowance of Rs. 1,56,449/- termed as
penalties and fine:

i) The ld. CIT(A) erred in sustaining the disallowance
of Rs.1,56,449/-for the expenditure incurred and termed
by the appellant as penalties and fine.

ii) The appellant submits that these payments were
not made for any infringement of law, and are only
compensatory in nature.
3. Disallowance out of vehicle expenses :
Rs.90,000/-

i) The Id. CIT(A) erred in sustaining the disallowance
of Rs.90,000/- incurred by the appellant on vehicle
expenses, and for that relying on the grounds taken by the
ld. predecessor CIT(A).

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ii) The ld. CIT(A) erred in failing to appreciate that part of
car running expenses were recovered from the Directors.

iii) He further erred in failing to appreciate that if at all the
entire expenditure incurred by the appellant was for
business purposes and fully allowable in the hands of the
appellant.

iv) The appellants submits that since then the
assessment for A.Y. 2005-06 has been set-aside by the
Hon'ble ITAT.

v) The appellant further submits that, in any case, the
disallowance is excessive.

4. Disallowance of expenses incurred for Pali Hill
Bunglow: Rs.5,00,000/-

i) The ld. CIT(A) erred in upholding the addition made
by the A.O. on estimate at Rs. 5 lacs by holding as
incurred on account of personal/non-business element and
not made wholly and exclusively for business purposes.

ii)The ld. CIT(A) erred in upholding the addition or Rs. 5
lacs incurred by the appellant on the company's property
at Pali Hill and for that relying on the grounds taken by the
ld. predecessor in the appellate order for A.Y. 2005-06.

iii) The appellant submits that the assessment for A.Y.
2005-06 has been set-aside by Hon'ble ITAT.

iv) The appellant submits that, in any case, the
disallowance of Rs. 5 lacs on estimate is excessive.

5. Claim for deduction u/s 80IA:

i) The ld. CIT(A) erred in upholding the A.O.'s action in
denying the deduction of Rs. 75,85,911/- claimed u/s
80IA.

ii) The Id. CIT(A) erred in failing to appreciate that in all
assessments from A.Y. 1996-97 to A.Y. 2002-03 the
appellant's claim for deduction u/s 80IA has been allowed
by the A.O. and that the disallowance was made by the
A.O. on technical ground that return of income was not
filed by the due date u/s 139(1).

iii) The ld. CIT(A) erred in failing to appreciate that the
appellant had genuine and reasonable reason for its
failure to furnish return of income in time and that a liberal
view ought to have been taken as held by various courts.
6. Disallowance u/s 14A r.w.s. 8D:

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The ld. CIT(A) erred in upholding disallowance at 10% of
dividend earned, whereas no disallowance u/s 14A r.w.s.
8D was justified.

7. Non-consideration of expenses disallowed in earlier
years and claimed as deductions in A.Y. 2006-07, subject
to the outcome in the pending assessments pursuant to
ITAT orders for earlier years:

i) The ld. CIT(A) erred in not considering the following
disallowances/additions;

a) Prior period expenses: Rs. 27,40,436/-.

b) Non-deduction of TDS: Rs. 4,48,69,244/-.

c) Prior period adjustment (net): Rs. 31,74,810/-.

ii) The appellant submits that the above claims are
alternate claims and made without prejudice to the
outcome in the pending assessments pursuant to the
orders of the ITAT for earlier years.

Your appellant craves leave to add to, alter, amend or
delete all or any of the grounds of appeal on or before the
date of hearing.

3. The brief facts of the case are that assessee is engaged in
the business of hotel and flight kitchen. The assessee did not
filed return of income within due date as prescribed u/s. 139(1)
of the Act, or even within the time allowed u/s. 139(4) of the
1961 Act. A notice u/s. 148 of the 1961 Act was issued to the
assessee by the AO on 18.06.2008 after recording the reasons .
The assessee did not file return of income within period of 30
days allowed by the said notice issued by the AO u/s 148 of
the 1961 Act. The assessee instead filed a letter dated
14.07.2008 stating that the assessee is compiling information
from books of accounts from various units in order to file
return of income and further time of three months were sought
by the assessee for preparation and filing of return of income.
However, even after lapse of three months no return of income
was filed by the assessee . The reminders were issued by
Revenue from time to time while assessee kept on postponing

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I.T.A. No.369,370,721 & 722/Mum/2013

filing of return of income on the ground that litigation is going
on between two factions of promoter family which is delaying
finalization and adoption of accounts. The aforesaid dispute
was before Hon'ble Supreme Court and in I.A No. 3/2009 in
connected petition (C) No. 92 of 2008 in connected petition (C)
149/2003 in CA no. 366/1998 , wherein vide orders dated 14th
May, 2009, the Hon'ble Supreme Court was pleased to pass
following orders:

"Without prejudice to the rights and contentions of the
parties appearing before us, we direct M/s. BSR & Co. to
prepare and audit the accounts of the Company for the
Financial Year 2001,2002, 2003, 2004, 2005, 2006, 2007,
2008 and 2009 by 9th July 2009.

The matter to come up on 13th July 2009,

At this stage, we do not wish to pass any orders in terms
of prayer clause (b) of the I.A.

M/s. BSR & Co. is also directed to submit a status report
on the account before the next date.

It is made clear that the non-applicant, if so advised, may
file a reply to the I.A before the next date of hearing."

The said order of Hon'ble Supreme Court is filed by the assessee and
is placed in file , wherein directions were issued by Hon'ble Supreme
Court to M/s. BSR & Co., Chartered Accountants to prepare and audit
the accounts of the assessee company for the financial year(s)
2001,2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009 by 9th
July, 2009 . After the audit was taken up in pursuance to aforesaid
directions of the Hon'ble Supreme Court , the assessee finally filed
return of income with Revenue declaring total income of Rs.
32,01,80,474/- along with its letter dated 01.12.2009. The AO
intimated to the assessee vide letter dated 10.12.2009 that there were
some defects in the return of income filed by the assessee on
01.12.2009. The defects were removed by the assessee by filing fresh
return of income on 24.12.2009 wherein the income declared was Rs.

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33,71,53,047/- . With this back ground, we now proceed to
adjudicate this appeal filed by the assessee for AY 2006-07.

4. Disallowance of Foreign Travelling expenditure of Rs. 2,19,386/-
and Domestic Travel expenses of Rs.1,00,000/- , aggregating to Rs.
3,19,386/- . These expenses were disallowed by the AO on the
grounds that spouses/family members of Directors have also travelled
along with Directors and it could not be proved that the
spouses/family members of Director's visit / expenses were wholly
and exclusively connected with the business of the assessee. The
assessee has only given bald statement that in many business trips,
presence of spouse is desirable. The AO rejected the contentions of the
assessee as the assessee failed to discharge its onus to prove that the
expenses were incurred wholly and exclusively for the purposes of its
business and only bald statements were made without any evidences
being placed on record. It was observed by the AO that even in
domestic travelling, the assessee has booked expenses on trips by
family members of the Directors for which no cogent
explanation/evidence was given by the assessee to prove that these
expenses were wholly and exclusively incurred for business of the
assessee , which led to an addition of an aggregate amount of Rs.
3,19,386/- towards travelling expenses both foreign and domestic ,
out of total travelling expenses of Rs. 91,36,776/- claimed by the
assessee in the return of income, vide assessment order dated
30.12.2009 passed by the AO u/s 143(3) read with section 147 of the
1961 Act.

4.2 The matter reached before the Ld. CIT(A) at the behest of the
assessee as the assessee filed first appeal before learned CIT(A). The
Ld. CIT(A) was pleased to dismiss the appeal of the assessee by
following his decision for the earlier year AY 2005-06 , vide appellate
order dated 31.10.2012 passed by learned CIT(A), which is reproduced
here under:-

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" 5.3 I have gone through the issue. It is seen that the
appellant could not furnish any evidence to show that the
traveling expenses of the directors' family members are
connected with the business carried on by the appellant.
Similar issue also arose before my predecessor for
adjudication in A.Y.2005-06 and my predecessor has held
that these expenses are personal expenses and upheld the
addition made for AY 2005-06.
5.4 There is no change in facts consistent with the view
taken for AY 2005-06 the addition is sustained.
Ground no. 2 is dismissed."

4.3 Now the matter has reached before tribunal as the assessee had
filed second appeal before the tribunal. The Ld. Counsel for the
assessee at the outset submitted that these were travelling expenses
which were incurred in connection with visits of spouses and children
accompanying Directors of the assessee company. It was submitted
that Ld. CIT(A) has merely followed decision of the earlier assessment
year i.e. AY 2005-06. It was submitted that tribunal in assessee's own
case for AY 2005-06 was pleased to set aside and restore the matter
back to the file of AO for fresh adjudication for AY 2005-06 in ITA no.
3840/Mum/2010 , vide orders dated 07.11.2012. It was submitted
that said orders of tribunal for AY 2005-06 is placed in paper book
filed by the assessee with tribunal , at page no. 134 to 139 . It was
submitted that in all fairness this issue should be restored back to the
file of AO for fresh adjudication . Our attention was also drawn to page
no. 140 to 145, wherein Form No. 35 dated 9th April 2014 ( filed with
learned CIT(A) on 10-04-2014) for AY 2005-06 , Grounds of appeal
and Statement of Facts for AY 2005-06 filed before Ld. CIT(A) for AY
2005-06 to challenge the assessment framed in pursuance to the
appellate order passed by the tribunal dated 07.11.2012 is placed,
wherein this issue is claim to be adjudicated afresh by AO in
pursuance to the directions of the tribunal vide assessment order
dated 25.02.2014 u/s 143(3) read with Section 254 of the 1961 Act.

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The assessee has however not placed the said assessment order
passed by the AO in pursuance to direction of the tribunal.

4.4. The Ld. DR raised no objection to the restoration of this issue
arising in the ground of appeal back to the file of AO for fresh
adjudication

4.5 After considering rival contentions and perusing the material on
record , we are of the considered view that this issue of disallowance
of Foreign Travelling Expenses and Domestic Travelling Expenses,
aggregating to Rs. 3,19,386/- is to be restored back to the file of AO
for fresh adjudication on merits in accordance with law and we restore
this issue back to file of AO for fresh adjudication after considering the
submissions of the assessee , as while passing appellate order , the
learned CIT(A) has followed the appellate order passed by his
predecessor for AY 2005-06 which itself was set aside by the tribunal.
Needless to say that the AO shall provide proper and adequate
opportunity of being heard to the assessee in accordance with
principles of natural justice in accordance with law. The relevant
explanations/evidences submitted by the assessee in its defence shall
be admitted by the AO and adjudicated on merits in accordance with
law. This ground of appeal number 1 filed by the assessee is allowed
for statistical purposes. We order accordingly.

5. The second issue pertains to penalties and fines disallowed to
the tune of Rs. 1,56,449/-. The AO observed from the details of
miscellaneous expenses furnished during the course of assessment
proceedings which as per AO included an amount of Rs. 1,56,449/-
towards penalties and fines . The assessee was asked by the AO to
explain the same. The assessee furnished detail and it was observed
by the AO that these are in nature of penal payments toward luxury
tax etc. and the same is not allowable as business deduction. Thus,
the AO disallowed an amount of Rs. 1,56,449/- and added back the

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said sum to the income of the assessee , vide assessment order dated
30.12.2009 passed u/s 143(3) read with Section 147 of the 1961 Act.

5.2. The matter travelled to Ld. CITA(A) at the behest of the assessee
as the assessee filed first appeal. The assessee contended before
learned CIT(A) that these payments are compensatory in nature. The
learned CIT(A) was pleased to dismiss the contentions of the assessee
by holding as under, vide appellate order dated 31.10.2012 :-

" 6.2 I have gone through the issue. The appellant
has only stated that these payments are not paid for any
infringement of law and the payments are only
compensatory in nature. But the appellant has not
substantiated its contentions with evidences. In view of
this, addition is sustained.

Ground No. 3 is dismissed."

5.3. The assessee has come in an appeal before the tribunal and it
is contended before the tribunal that payments are compensatory in
nature and are not paid for infringement of any law. The detail of said
penalties are placed in paper book at page no. 106 to 118. On Perusal
of these details which are placed in paper book filed with tribunal , we
have observed that these expenses are toward traffic challan, interest ,
tax etc and in all fairness to both the parties , the matter need to be
set aside and restored to file of the AO who shall analysis each and
every claim of these expenses as claimed by the assessee. The onus
is on the assessee to place all details before the AO and If these
expenses are found to be penal in nature and hit by explanation 1 to
section 37(1), the same shall be disallowed by the AO in set aside
proceedings but if the same are found to be compensatory in nature
the same shall be allowed by the AO. The complete details are not
furnished by the assessee and the assessee is directed to provide
details with respect to each of these expenses claimed by the assessee
with cogent evidences to substantiate that these payments are not
penal in nature. Thus, we are restoring this issue back to the file of
AO for fresh adjudication after considering the submissions of the

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assessee. Needless to say that the AO shall provide proper and
adequate opportunity of being heard to the assessee in accordance
with principles of natural justice in accordance with law. The relevant
explanations/evidences submitted by the assessee in its defence shall
be admitted by the AO and adjudicated on merits in accordance with
law. This ground of appeal number 2 filed by the assessee is allowed
for statistical purposes. We order accordingly.

6. Disallowance of Vehicle Expenses of Rs. 90,000/-. The AO observed
that the assessee has incurred vehicle expenses and it has yet to
determine the perquisite entitlement of each of the Directors vide note
8 of the Auditors report as well as the expenses incurred by assessee
on behalf of its Directors. The AO also observed that in earlier years
assessments, the disallowance has been made on account of personal
use of vehicles by the Director. The assessee was asked to explain as
to what are the expenses under the head vehicle expenses which are
incurred for personal/non business purposes. The assessee did not
give any detail rather it submitted that these expenses are be allowed
as per law keeping in mind contractual obligation. The AO rejected
contentions of the assessee holding that the auditors of the assessee
company has stated that perquisite entitlement of the directors were
yet to be fixed and personal usage of the vehicles cannot be ruled out
and hence the entire expenses cannot be allowed as business
expenditure. The AO followed the earlier year order for AY 2005-06
and an disallowance of Rs. 90,000/- was made keeping in view that
personal element cannot be ruled out in the vehicle expenses in
respect of personal/non business use of vehicle by the three directors
as the same has not been incurred wholly and exclusively for business
purpose of the assessee , vide assessment order dated 30.12.2009
passed u/s 143(3) r.w.s. 147 of the 1961 Act.

6.2 The matter reached Ld. CIT(A) at the behest of the assessee as the
assessee filed first appeal with learned CIT(A). The assessee submitted
that part of vehicles were used for company's business. The assessee

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submitted that part of the car running expenses were recovered from
the Directors and the disallowance is excessive rather no disallowance
is called for. The learned CIT(A) was pleased to dismiss the appeal of
the assessee by following decision of his predecessor for AY 2005-06
and sustained disallowance of Rs. 90,000/- as was made by the AO
vide appellant order dated 31.10.2012, by holding as under:-

" 7.3 I have gone through the issue. I find that this
issue is a repetitive issue. My predecessor has decided the
issue in A.Y. 2005-06 against the appellant. Para 24 of the
appellate order is extracted below:

Ground of appeal number five is against addition of any
amount of Rs. 90,000/- on account personal use of
vehicles. The auditors in their special auditors report
stated that details of personal use of vehicles was not
provided to them. Before assessing officer appellant
contended that in terms of the ITAT order disallowance of
an amount of Rs. 6,600/- per directors should be
adequate. Assessing Officer has categorically observed
that the order relied upon by the appellant pertain to year
1990 and has no significance for the A.Y. under
consideration. He has particularly argued that looking to
the inflation and interest and costs over a period of 16
years disallowance of Rs. 30,000/- per year per director is
justified. I have perused the facts of the case. I find that 16
years back Hon'ble Tribunal had confirmed the
disallowance of Rs. 6,600/-. If we just take into account
the cost inflation index, the disallowance made by the
assessing officer would be a most reasonable figure.
Consequently, the disallowance made by assessing officer
is upheld and the ground of appeal is rejected.

The facts are identical to the facts in A.Y. 2005-06. I am of
the view that the family members are also using the cars
of the appellant company and the disallowance made by
the A.O. is reasonable. Addition is sustained."

6.3. The matter has now reached tribunal at the behest of the
assessee as the assessee has filed second appeal against the appellate
order of learned CIT(A). At the outset Ld. Counsel for the assessee
submitted that Ld. CIT(A) has followed the decision of his predecessor
for AY 2005-06 and the AO also followed decision of his predecessor
for AY 2005-06. It was submitted by the Ld. Counsel for the assessee

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that tribunal was pleased to set aside and restore this issue to the file
of the AO for fresh adjudication in assessee's own case while
adjudicating appeal for AY 2005-06 in ITA no. 3840/Mum/2010 , vide
orders dated 07.11.2012 for AY 2005-06 which is placed in paper
book filed with the tribunal at page no. 134 to 139. Our attention was
also drawn to page no. 140 to 145 placed in paper book filed with
tribunal, wherein Form No. 35 dated 9th April 2014 ( filed with
learned CIT(A) on 10-04-2014) for AY 2005-06 , Grounds of appeal
and Statement of Facts for AY 2005-06 as filed before Ld. CIT(A) for AY
2005-06 to challenge the assessment framed in pursuance to the
appellate order passed by the tribunal dated 07.11.2012 is placed,
wherein this issue is adjudicated afresh by AO in pursuance to the
directions of the tribunal .

6.4. The Ld. DR raised no objection to the restoration of this ground
of appeal back to the file of AO for fresh adjudication

6.5 After considering rival contention and perusing the material on
record , we are of the considered view that this issue of disallowance
of Vehicle Expenses, aggregating to Rs. 90,000/- has to be restored
back to the file of AO for fresh adjudication on merits in accordance
with law and we restore this issue back to file of AO for fresh
adjudication after considering the submissions of the assessee , as
while passing appellate order , the learned CIT(A) has followed the
appellate order passed by his predecessor for AY 2005-06 which itself
was set aside by the tribunal.. Needless to say that the AO shall
provide proper and adequate opportunity of being heard to the
assessee in accordance with principles of natural justice in
accordance with law. The relevant explanations/evidences submitted
by the assessee in its defence shall be admitted by the AO and be
adjudicated on merits in accordance with law. The issue in this
ground of appeal filed by the assessee is allowed for statistical
purposes. We order accordingly.

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7. The next issue concerns itself with the expenses incurred for Pali
Hill Bungalow owned by the assessee which were disallowed by the AO
to the tune of Rs. 5 lacs on the grounds that part of the said Bungalow
was used for residence of Directors and also perquisite value in the
hands of the Directors as well expenses incurred by the assessee on
behalf of the Directors was not yet determined , as reported by the
Auditors in their audit report vide note number 8 .The AO observed
that the assessee company has not quantified the expenses in respect
to Pali Hill bungalow which were incurred for personal/non business
in nature and the assessee has generally stated that these expense to
be allowed keeping in view mind the contractual obligations of the
assessee. The AO rejected the contentions of the assessee and
observed that the auditors of the assessee company has stated that
the perquisite entitlement of directors are yet to be fixed. The AO
observed that total expenses on Repair and Maintenance of Pali Hill
bungalow amounted to Rs. 50,37,807/- . The AO also observed that
besides other expenses like electricity expenses, rates and taxes etc.
are accounted for under respective heads . The AO also observed that
expenses which are billed under Pali Hill Bungalow were in the nature
of bills for painting, polish of furniture, woodwork, stone work etc/
and some element of personal expenditure of Directors cannot be
ruled out in such expenses. It was also observed that perquisite
entitlement of the Directors is yet to be finalized and considering the
same , the AO disallowed Rs. 5 lac on account of expenses incurred
with respect to Pali Hill Bungalow on account of personal/non
business element , as expenditure not being incurred wholly and
exclusively for the purposes of the business of the assessee, vide
assessment order dated 30.12.2009 passed u/s 147 read with Section
143(3) of the 1961 Act.

7.2. The matter reached Ld. CIT(A) at the behest of the assessee
wherein the assessee filed first appeal against assessment order
passed by the AO. The assessee contended that Pali Hill Bungalow

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was owned by assessee and used for business purposes. The assessee
prayed before learned CIT(A) to allow the entire expenses. The learned
CIT(A) upheld the disallowance as were made by AO by holding as
under, vide appellate order dated 31.10.2012 passed by learned
CIT(A):-

" 8.4 I have gone through the issue. This issue is a
repetitive issue and my predecessor has already decided
the issue against the appellant in the appellate order for
A.Y. 2005-06, Para 23 of the appellate order for A.Y. 2005-
06 is extracted below :

I have perused the facts of the case. The property is
ownership of appellant company is not in doubt.
According to Assessing Officer property is not being
used by appellant at all. This contention of
assessing officer was controvented by appellant on
the basis of an order of Hon'ble ITAT Mumbai where
it has been confirmed that 25% of the property is
being used for business of appellant company. No
other evidence has either been filed before
assessing officer or before me. It is necessary to look
into the decision of Hon'ble ITAT. This decision was
delivered as long back as 1986. More than 20 years
in the past. The utilization of the property is a
question of fact and is bound to be major change in
the utilization of the property particularly because
the family tree grows and therefore, leading to
shortage of space. This is not a conjecture. This is a
logical conclusion drawn from the fact that appellant
is relying on an ITAT order which is 25 years old. To
my mind there is no basis on which one can
conclude that this situation has not changed in the
last 25 years. Appellant ought to have brought on
record detailed evidence that property is being used
by the assessee for its own use. Since this has not
been done, the objection cannot be accepted. As far
as appellant's contention that auditors have not
understood the fact is concerned, it is surprising to
note that appellant is objecting to auditors report, a
report which was prepared in consultation with
appellant and its staff and is essentially a report of
the appellant submitted to the I.T. Department. It is
a different matter that the report was at the instance
of the I. T. Department but nevertheless it is a report
which has been submitted by appellant to the I.T.
Department. How can an appellant object to this

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report of audit when in the course of the audit the
auditors are bound to discuss ever issue with the
representative of appellant before forming their
opinion on any issue. Moreover, in objecting to the
understanding of auditors, no reason has been spelt
out by the appellant. Therefore, the objection against
the audit report is meaningless and cannot
accepted. In any view, looking into the nature of
expenses involved, all the expenses are of personal
nature. There is no prima facie basis to put any iota
of doubt on the observations of the auditors.
Therefore, it is held that the expenditures under
consideration debited to the profit and loss account
are personal in nature and cannot be allowed. The
action of assessing officer is upheld and the ground
of appeal is rejected.

8.5 There is no change in the facts of the case. It is true
that the directors are staying with their families in the
bungalow. The appellant is not also considering any
perquisite in the hands of the directors. I fully agree with
the views of my predecessor expressed in para 23 of the
appellate order for A.Y. 2005-06. In view of this, I am of
the view that the disallowance made by the A.O. is very
reasonable and I uphold the addition made by the A.O.

Ground No. 5 is dismissed."

Thus in nut-shell, the Ld. CIT(A) followed the decision of his
predecessor in AY 2005-06, while coming to conclusion against the
assessee for impugned assessment year 2006-07, wherein the appeal
of the assessee stood dismissed.

7.3. The matter has now reached tribunal at the behest of the
assessee who has filed second appeal with tribunal against the
appellate order passed by learned CIT(A). The Ld. Counsel for the
assessee submitted at the outset that the assessee's appeal for AY
2005-06 has been adjudicated by tribunal wherein the issue has been
restored to the file of AO for fresh adjudication in ITA No.
3840/Mum/2010 vide orders dated 07.11.2012 . The said order is
placed in paper book at page number 134 to 139 , filed with the
tribunal . It was submitted that Ld. CIT(A) has followed the decision
for AY 2005-06 and in all fairness this issue needs to be restored to

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I.T.A. No.369,370,721 & 722/Mum/2013

the file of AO for fresh adjudication after considering the contention of
the assessee.

7.4 The learned DR did not objected to the restoration of this issue to
the file of the AO for fresh adjudication on merits in accordance with
law.

7.5 After considering rival contentions and perusing the material on
record , we are of the considered view that this issue of disallowance
of Expenses relating to Pali Hill Bungalow, aggregating to Rs.
5,00,000/- has to be restored back to the file of AO for fresh
adjudication on merits in accordance with law and we restore this
issue back to file of AO for fresh adjudication after considering the
submissions of the assessee, as the learned CIT(A) followed the
decision of his predecessor for AY 2005-06 which itself was set aside
by the tribunal. Needless to say that the AO shall provide proper and
adequate opportunity of being heard to the assessee in accordance
with principles of natural justice in accordance with law. The relevant
explanations/evidences submitted by the assessee in its defence shall
be admitted by the AO and adjudicated on merits in accordance with
law. This ground of appeal number 4 filed by the assessee is allowed
for statistical purposes. We order accordingly.

8. The ground number 5 raised by the assessee concerns itself
with disallowance of deduction u/s. 80IA of the 1961 Act to the tune
of Rs. 75,85,911/- . The assessee had in its return of income claimed
deduction to the tune of Rs. 75,85,911/- u/s. 80IA in respect of wind
mills installed in Tamil Nadu . The assessee had also filed Auditor's
Report in form no. 10CCB along with the return of income. The
impugned assessment year is AY 2006-07 while the return of income
was originally filed on 01st December 2009 wherein the assessee filed
the said claim of deduction u/s 80IA along with audit report in form
no. 10CCB. The said return of income was defective and on being
pointed out by the AO, the assessee removed the defect and filed

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I.T.A. No.369,370,721 & 722/Mum/2013

another return of income on 24-12-2009. It is undisputed fact
between rival parties that the return of income was not filed within the
time prescribed u/s. 139(1) and also it was not filed within the time
prescribed u/s. 139(4) of the 1961 Act. The AO notified the assessee
that return of income was not filed within due date as prescribed u/s
139(1) and the assessee is not eligible for deduction u/s. 80IA. The
assessee in its reply dated 29.12.2009 submitted that it has complied
with all the conditions as were stipulated under section 80IA(7) of the
1961 Act and the deduction should be allowed to the assessee. The AO
rejected the contentions of the assessee by referring to the provisions
of Section 80AC of the 1961 Act which stipulated that deductions u/s.
80IA is not allowable to tax-payer unless return of income is furnished
before the due date as specified u/s. 139(1) of the 1961 Act. The
assessee submitted before the AO that it has a genuine reason for
failure to furnish return of income in time . The contention was also
raised by the assessee that in earlier assessment years , the Ld. CIT(A)
was pleased to delete penalty levied by the AO u/s. 271F in respect of
failure to furnish return of income. Thus, it was prayed that liberal
view may be taken in respect of non-filing of return of income on or
before the due date . The AO rejected the contentions of the assessee
keeping in view clear and unambiguous provisions of Section 80AC of
the 1961 Act wherein no exception has been provided as the return of
income was not filed in time within due date as prescribed u/s 139(1)
of the 1961 Act, the AO disallowed the claim of deduction u/s. 80IA,
vide assessment order dated 30.12.2009 passed u/s 143(3) read with
Section 147 of the 1961 Act.

8.2 The matter reached Ld. CIT(A) at the behest of the assessee
wherein the assessee filed first appeal against assessment order and
the summarised contentions of the assessee as submitted before
learned CIT(A) are as under:-

" 9.1 During the appellate proceedings, the appellant
submitted that disallowance was made on technical
ground that return of income was not filed by the due date

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I.T.A. No.369,370,721 & 722/Mum/2013

u/s. 139(1), hence claim u/s. 80IA was rejected. Pursuant
to the order dated 14.5.2009, of the Supreme Court audit
could be completed on 11.12.2009 and return filed on
1.12.2009 followed by revised return on 24.12.2009. It
was further submitted that section 80IA being a machinery
provision, requires to be liberally interpreted in the special
circumstances of the case.

1. CIT Vs Contimeters Electricals P. Ltd. (2009) 178
Taxman 422 (Del)

2. CIT Vs Ace Multitaxes Systems P. Ltd. (2009) 317
ITR 307 (Kar)

3. CIT Vs Medicaps Ltd. (2010) 323 ITR 554 (MP)"

8.3 The learned CIT(A) was pleased to reject the contentions
of the assessee, vide appellate order dated 31.10.2012, by
holding as under:

"9.2 I have gone through the issue. The provisions of
Section 80AC was introduced by the Finance Act 2006
and it is effective from A.Y. 2006-07. The provision of
section 80AC of the I.T.Act is loud and clear that the
assessee will not be entitled for claim u/s 80IB of the
I.T.Act unless they file the return within the time allowed
u/s. 139(1) of the I.T.Act. No exception are provided in the
section. The A.O. was not given any discretion to relax the
stipulation. In these circumstances, I uphold the A.O.s
action in denying the deduction claimed u/s 80IB of the
I.T.Act."

8.4 Now the matter has reached tribunal at the behest of the
assessee wherein the assessee has filed an second appeal against the
appellate order passed by learned CIT(A). the Ld. Counsel for the
assessee at the outset submitted that there was a delay in filing of
return of income for the impugned AY which was filed much beyond
the time prescribed u/s 139(1) and also even beyond the time
prescribed u/s 139(4) of the 1961 Act and the assessee claim for
deduction u/s 80IA was not allowed by the authorities below in view
of newly inserted Section 80AC which was inserted by Finance Act,

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I.T.A. No.369,370,721 & 722/Mum/2013

2006 wef 01.04.2006. Our attention was drawn to page no 141 of the
paper book filed with the tribunal, wherein Statement of Facts for AY
2005-06 filed before the Ld. CIT(A) is placed challenging the
assessment framed by the AO vide orders dated 25.2.2014 passed u/s
143(3) read with the Section 254 of the 1961 Act. It is submitted that
accounts for all these years from financial year 2001 to 2009 could
not be finalised due to litigation/dispute between the promoters of the
assessee and it is only in pursuance of directions of Hon'ble Supreme
Court vide orders dated 14th May, 2009 , M/s BSR & Co. Chartered
Accountants were appointed to complete the accounts and carry out
audit of the accounts of the assessee company for financial year 2001
to 2009 . The aforesaid dispute was before Hon'ble Supreme Court
and in I.A No. 3/2009 in connected petition (C) No. 92 of 2008 in
connected petition (C) 149/2003 in CA no. 366/1998 , vide orders
dated 14th May, 2009, the Hon'ble Supreme Court was pleased to pass
following orders:

The matter to come up on 13th July 2009,
At this stage, we do not wish to pass any orders in terms
of prayer clause (b) of the I.A.

M/s. BSR & Co. is also directed to submit a status report
on the account before the next date.

It is made clear that the non-applicant, if so advised, may
file a reply to the I.A before the next date of hearing."

It was submitted that it is only on the basis of audited accounts
prepared and drawn by said firm M/s B S R & Company , Chartered
Accountants pursuant to the directions as are contained in the
aforesaid orders of the Hon'ble Supreme Court , the assessee was able
to file return of income in the month of December 2009 and claim for
deduction u/s. 80IA was made in the said return of income duly

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I.T.A. No.369,370,721 & 722/Mum/2013

supported by audit report in form no. 10CCB was submitted. It is
claimed that the said claim of deduction u/s 80IA was with respect to
wind mills installed by the assessee at Tamil Nadu. It was submitted
that for earlier years, the claim of deduction u/s 80IA was allowed. It
was also submitted that Section 80AC was inserted by Finance Act,
2006 wef 01.04.2006 and this is the first year when this condition of
filing of return of income within due date prescribed u/s 139(1) has
come into effect for claiming deduction u/s 80IA of the 1961 Act. It
was submitted that this Section 80AC is directory in nature and not
mandatory. Our attention was also drawn to the appellate order of the
Ld. CIT(A) for AY 2003-04 dated 01.12.2006 wherein Penalty levied
u/s 271F of the 1961 Act for failure to furnish return of income for AY
2003-04 was deleted by Ld. CIT(A) , which is placed in paper
book/page no. 132 to 133. It was submitted that there was a dispute
between the promoters which has led to the non preparation of the
accounts in time as well as non furnishing of the return of income
with revenue in time. Our attention was also drawn to orders of
tribunal for AY 2002-03 in ITA no. 5346/Mum/2008 vide orders
dated 11.05.2009 which is placed in paper book/ page no. 146-154 to
contend that claim of the assessee for deduction u/s 80IA was
restored by tribunal to the file of the AO for denovo determination of
claim of deduction u/s 80IA. The assessee has relied upon decision of
Hon'ble Andhra Pradesh High Court in the case of CIT v. Sri. S.
Venkataiah in ITA no. 114/2013 , vide orders dated 26.07.2013 ,
wherein claim of deduction of the assessee u/s 80IC was allowed by
Hon'ble Andhra Pradesh High Court despite the fact return of income
was filed beyond the time stipulated u/s 139(1) which was admittedly
in violation of Section 80AC of the 1961 Act.The assessment year
before Hon'ble Andhra Pradesh High Court was AY 2008-09 which
was post insertion of Section 80AC by the Finance Act,2006 wef
01.04.2006. At this stage it was confronted to the Ld. Counsel for the
assessee that Hon'ble Supreme Court has recently held vide Five
Judge Constitution Bench in the case of Commissioner of

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I.T.A. No.369,370,721 & 722/Mum/2013

Customs(Imports),Mumbai v. Dilip Kumar and Company & others in
civil appeal no. 3327 of 2007 vide orders dated 30th July 2018 that
exemption provisions are to be strictly construed.

8.5. The Ld. DR submitted that matter can be restored to file of AO

8.6 We have considered rival contention and have perused the
material on record. We have observed that the assessee has made a
claim of deduction to the tune of Rs. 75,85,911/- u/s. 80IA of the
1961 Act with respect to the Wind Mills installed in Tamil Nadu . The
assessee has admittedly filed return of income in the month of
December 2009 which was admittedly beyond the time stipulated u/s
139(1) and also the return of income was filed beyond the time
stipulated u/s 139(4) of the 1961 Act. There is no dispute that the
return of income was not filed within the time prescribed u/s 139(1) of
the 1961 Act. The assessee has submitted that its claim of deduction
u/s 80IA was denied by Revenue in this year under consideration
based on newly inserted provision in the 1961 Act wherein Section
80AC was inserted by Finance Act, 2006 wef 01.04.2006. The said
Section clearly mandates that in order to grant deduction u/s 80IA ,
the return of income has to be filed within the due date as stipulated
u/s 139(1) which undisputedly the assessee did not comply with. The
Section 80AC as was applicable for the impugned assessment year is
reproduced hereunder:

"Deduction not to be allowed unless return furnished.

80AC. Where in computing the total income of an assessee of the
previous year relevant to the assessment year commencing on the 1st
day of April, 2006 or any subsequent assessment year, any deduction is
admissible under section 80-IA or section 80-IAB or section 80-IB or
section 80-IC, no such deduction shall be allowed to him unless he
furnishes a return of his income for such assessment year on or before
the due date specified under sub-section (1) of section 139.]"

The return of income for the impugned assessment year is not clearly
filed within the time prescribed u/s. 139(1) nor was it filed within time

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I.T.A. No.369,370,721 & 722/Mum/2013

prescribed u/s 139(4) of the 1961 Act. The return of income was filed
in the month of December 2009 while the impugned assessment year
under consideration is AY 2006-07. The provisions of newly inserted
Section 80AC of the Act clearly mandate that for claiming of
deduction u/s. 80IA , the return of income is to be filed within due
date as prescribed u/s. 139(1) of the Act. The assessee has , however,
supported its return of income with audit report in form no 10CCB. It
is claimed that the assessee and /or is Promoters/Directors were
having dispute/litigation which ultimately reached Hon'ble Supreme
Court which was the main reasons for non compliance by way of non
finalisation of the accounts by the assessee which led to delay in filing
of return of income with the Revenue in time as prescribed u/s 139(1)
of the 1961 Act. The assessee had not finalized its accounts for
financial year 2001 to 2009 and Hon'ble Supreme Court was pleased
to issue directions vide orders dated 14.05.2009 as under:-

The matter to come up on 13th July 2009,

At this stage, we do not wish to pass any orders in terms
of prayer clause (b) of the I.A.

M/s. BSR & Co. is also directed to submit a status report
on the account before the next date.

It is made clear that the non-applicant, if so advised, may
file a reply to the I.A before the next date of hearing."

The assessee has taken a plea that there was a reasonable cause for
not furnishing of its return of income in time as stipulated u/s 139(1)
of the 1961 Act which was mainly the dispute/litigation between the
assessee and/or its promoters/directors. The tribunal in the case of
ITO v. S. Venkataiah reported in (2012) 22 taxmann.com 2(Hyd.) while
adjudicating appeal for AY 2008-09 has accepted reasonable cause for
delay in filing of return of income beyond time stipulated u/s 139(1)

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for allowing deduction u/s 80IC despite in breach of Section 80AC of
the 1961 Act. This matter went to Hon'ble Andhra Pradesh High Court
at the behest of Revenue wherein the appeal of the Revenue was
dismissed by Hon'ble Andhra Pradesh High Court on the grounds that
it does not raises any substantial question of law. It is now settled by
the Constitution Bench of Hon'ble Supreme Court in the case of
Commissioner of Customs(Imports),Mumbai v. Dilip Kumar and
Company & others in civil appeal no. 3327 of 2007 vide orders dated
30th July 2018 that exemption provisions are to be strictly construed.
The conclusion arrived at by Hon'ble Supreme Court in the aforesaid
decision are as under:

"52.To sum up, we answer the reference holding as under

(1) Exemption notification should be interpreted strictly; the burden of
proving applicability would be on the assessee to show that his case
comes within the parameters of the exemption clause or exemption
notification.

(2) When there is ambiguity in exemption notification which is subject to
strict interpretation, the benefit of such ambiguity cannot be claimed by
the subject/assessee and it must be interpreted in favour of the
revenue.

(3) The ratio in Sun Export case (supra) is not correct and all the
decisions which took similar view as in Sun Export Case (supra)
stands overruled."

The assessee is directed to produce complete details of
litigation/dispute between the assessee and/or between
promoters/directors along with relevant orders of the Hon'ble Courts
before the AO to prove that there was an impossibility of getting the
accounts prepared and audited for the relevant year under
consideration due to said dispute/litigation. Every dispute/ litigation
between the tax-payer and/or between its promoters/directors cannot
be a reason/justification for not complying with the statutory
requirements as otherwise every tax-payer in this complex business
environment will take refuge for non compliances of statutory
obligation under the umbrella of inter-se disputes/litigations which is

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I.T.A. No.369,370,721 & 722/Mum/2013

quite common in this complex business environment. The onus is on
the assessee to prove that the assessee is entitled for deduction u/s
80IA of the 1961 Act and that it had met all the requirements of
provisions of Section 80IA and that its case comes strictly within the
parameters of the conditions as are stipulated under Section 80IA
read with Section 80AC of the 1961 Act and it is only in the case of
supervening impossibility of the performance which caused delay in
finalisation of accounts and consequent delay in filing of return of
income within time stipulated u/s 139(1) of the 1961 Act which could
be considered as a reasonable cause for not complying with
requirements stipulated u/s 80AC for filing return of income within
time as mandated u/s 139(1). Thus, doctrine of supervening
impossibility has to be pressed and proved by the assesseee for which
onus is on the assessee. If in every situation of dispute/litigation
interse between tax-payer and/or between promoters , the claim of
deduction u/s 80IA of the 1961 Act is allowed despite return of
income being filed beyond time as stipulated u/s 139(1), then
Section 80AC will become otiose. The said Section 80AC was a newly
inserted section which was inserted by Finance Act, 2006 w.e.f.
01.04.2006 which has been specifically brought in by Parliament to
grant exemption to those tax-payers who file their return within due
date as prescribed u/s 139(1) and this is the first year when the said
section is applicable. With the aforesaid observations, we are restoring
this issue back to the file of the AO for fresh adjudication of the issue
on merits in accordance with law. The assessee is directed to produce
all relevant records concerning dispute /litigation as well relevant
orders of Hon'ble Courts before the AO to prove supervening
impossibility of performance. We order accordingly.

9. The ground number 6 concerns itself with disallowance under
section 14A of the 1961 Act r.w.r. 8D of the Income Tax Rules, 1962.
The disallowance was made by the AO of Rs.16,102/- u/s 14A of the
1961 Act. The assessee has received dividend income of Rs. 26,134/-

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which was claimed as an exempt income u/s 10(34) of the 1961 Act.
The learned CIT(A) restricted the disallowance u/s 14A to 10% of the
dividend income received by the assessee. The assessee has now filed
an appeal with the tribunal against the appellate order of learned
CIT(A). The Ld. Counsel for the assessee at the outset submitted that
this ground of appeal bearing number 6 is not pressed and the same
may be dismissed as not being pressed. The learned DR raised no
objection to dismissal of this ground of appeal as not been pressed.
After hearing both the parties and perusing material on record , we
dismiss this ground no. 6 raised by the assessee in memo of appeal
filed with the tribunal as not been pressed. We order accordingly.

10. The assessee has also raised ground no. 7 wherein the assessee
has stated that there was non- consideration of expenses disallowed in
earlier year and claimed as deduction in AY 2006-07, subject to the
outcome in the pending assessments pursuant to ITAT orders for
earlier years. It was submitted that Ld. CIT(A) has erred in not
considering following disallowance/additions.

a) Prior period expenses: Rs. 27,40,436/-.

b) Non-deduction of TDS: Rs. 4,48,69,244/-.

c) Prior period adjustment (net): Rs. 31,74,810/-.

The assessee has not pressed this ground of appeal before the tribunal
nor was it pressed before learned CIT(A) . The learned CIT(A)
dismissed the said grounds of appeal not been pressed. Under these
circumstances , we are also dismissing this ground of appeal as not
been pressed. We order accordingly.

11. The assessee has also raised an additional ground of appeal
before the tribunal which is concerning claim of deduction u/s
80HHD of the 1961 Act, , as under:-

" On the facts and circumstances of the case and in
law, the assessing officer ought not to have made an
addition of Rs 1,27,79,045 u/s 80HHD of the income Tax

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I.T.A. No.369,370,721 & 722/Mum/2013

Act, 1961 as the reserve has been utilized for purchase of
fixed assets."

It is claimed that the basic facts relating to this issue was before the
learned AO during assessment proceedings . It is claimed that the AO
erred in making addition of Rs.1,27,79,045/- u/s 80HHD of the 1961
Act on the grounds that reserves created in the financial year ended
31.03.2000 was not utilised for purchase of fixed assets as mandated
u/s 80HHD of the 1961 Act and the decision of the AO vide
assessment order is perverse.The assessee has filed additional paper
book containing 24 pages in which the assessee has filed audited
financial statements for the financial year ended 31.03.2000 to
31.03.2005(PB/page 3-23) . The assessee has also filed summary of
additions made to fixed assets from 31.03.2001 to 31.03.2011, as
under to contend that the assessee did made purchases of fixed assets
and finding of the AO is perverse:-

Details Of additions to Fixed Assets

(Amount in Rs.)
AMBO AMMA AMAU DFK BFK Croissants Windmill Total
Financial Year ended
31/03/2001 2,654,991 1,440,662 86,276 6,565,699 200,472 25,045 24,075 10,997,220

31/03/2002 2,627,627 308,103 63,812 9,146,758 1,394,507 107,646 - 13,648,453

31/03/2003 14,426,263 1,820,833 3,298,537 9,434,737 26,124,308 781,651 - 55,886,329

31/03/2004 6,132,350 922,998 577,716 17,843,901 51,039,079 6,696,812 - 83,212,856

31/03/2005 2,750,909 1,687,542 417,798 30,151,860 12,099,046 537,523 3,200 47,647,878

31/03/2006 2,325,569 1,069,150 1,999,541 16,649,655 5,717,782 372,895 - 28,134,592

31/03/2007 2,531,413 5,854,894 2,996,961 3,421,367 11,607,363 136,136 - 26,548,134

31/03/2008 36,228,072 3,952,290 182,077 11,436,712 1,601,014 1,229,451 - 54,629,616

31/03/2009 3,928,045 6,072,068 2,516,027 8,557,827 8,737,462 1,375,590 - 31,187,019

31/03/2010 4,357,427 3,238,990 562,240 4,209,611 2,433,299 1,655,754 - 16,457,321

31/03/2011 3,079,667 1,636,154 837,115 216,614 2,634,937 744,305 - 9,148,792

11.2. The Ld. DR submitted that this claim was not raised before Ld.
CIT(A) and this claim is raised for the first time before the tribunal
and it requires verification by learned AO whether all the conditions as
stipulated under Section 80HHD are met or not. It was submitted that

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I.T.A. No.369,370,721 & 722/Mum/2013

the learned AO vide assessment order specifically added back said
reserve to the income of the assessee on the grounds that the assessee
has not utilised the reserve as mandated u/s 80HHD.

11.3 We have considered rival contentions and perused the material
on record . We have observed that the AO has specifically added back
unutilised reserves earlier created for the year ended 31.03.2000 u/s
80HHD to the tune of Rs. 1,27,79,045/- to the income of the assessee
on the grounds that the said reserves were not utilised for purchase of
fixed assets. The assessee has now made a claim that the AO erred in
adding back said reserve u/s. 80HHD for FY ended 31st March, 2000
to the income of the assessee for the impugned assessment year as
the assessee has duly utilised the said reserves created in financial
year ended 31.03.2000 as required u/s. 80HHD for which details were
filed vide additional paper book (Page number 24), as under:-