Delhi High Court

Willard India Ltd. vs Dy. Cit on 28 August, 2003

Equivalent citations: (2004) 87 TTJ Del 102

ORDER

B.R. Jain, A.M.

These cross appeals are directed to be disposed off by a common order.

2. In ground 1(a) to 1(k) in assessed's appeal, the challenge is to the sustenance of disallowance of Rs. 17,15,531 under different heads of account on account of expenses pertaining to earlier years.

3. The assessing officer observed that the assessed is maintaining mercantile system of accounting but expenses incurred by him in the earlier years have been claimed as deductible against the income of the year under appeal. For the reasons given in respect of each such expenditure disallowance has been made and sustained by learned Commissioner (Appeals). The same are dealt hereinunder individually.

4. In ground 1(a) the assessed contends that the amount written off for Rs. 1,664 disallowed by the assessing officer consists of small amounts payable to employees for earlier years. Details are placed at paper book p. 53. These amounts represented adjustments carried out in the books of account on reconciliation of their accounts.

5. Perusal of material on record reveals that the assessed has placed only a copy of account at its paper book p. 53. The learned Commissioner (Appeals) vide para 2.2 of the order has observed that the assessed has not filed any evidence to show that this liability has been ascertained during the year under consideration. Since the liability to pay these amounts were incurred in the earlier years and assessed maintained its accounts on mercantile basis as also for lack of any evidence to support the assessed's contention we do not find any infirmity in the decision taken by the learned Commissioner (Appeals). Disallowance so made is upheld.

6. In ground 1(b) the assessed has challenged sustenance of disallowance of Rs. 1,11,875 stating that the amount represents various amounts written off by the assessed during the year as the same has become irrecoverable. Details are placed in assessed's paper book 54 to 57 where the learned Commissioner (Appeals) out of various debts written off for earlier years sustained disallowance for the amount of debts created in the year under appeal though the same have been taken as income of the year and written off as irrecoverable in the accounts. Likewise in ground 1(c) the petty amounts from staff which could not be recovered and who had left the employment earlier have been written off. The learned Commissioner (Appeals) has sustained the disallowance made by the assessing officer without any cogent reasons.

7. We have heard the parties and perused the material on record. The learned Commissioner (Appeals) vide para 2.3 of the order observed that the assessing officer disallowed the amount of Rs. 1,11,875 for the reason that the debts were raised during the year under consideration and have been written off even though the same has not become bad. The learned Commissioner (Appeals) upheld his order by simply stating that the amounts raised in the years under consideration cannot be said to have become bad. This has been so said without there being any adverse material in possession of the authorities below. It is not disputed that the conditions as laid down under section 36(1)(vii) of the Act were satisfied. The prudence of the businessman for testing as to whether a debt is bad or not has to be accepted. The assessing officer shall not sit in his judgment. Under such circumstances there was no justification in denying the deduction to the assessed. Likewise the claim of the assessed for writing off the balances recoverable from various employees who had left the services aggregating to Rs. 6,745 has been disallowed without appreciating the nature of advance which was made by the assessed for the purpose of his business and recovery of which had become impossible and impracticable. No adverse material were available with the assessing officer to doubt the veracity of the assessed. Under such circumstances we do not find any justification for sustaining of disallowance of petty amounts also comprised in aggregate amount of Rs. 6,745 written off as irrecoverable from various employees who had left the services. Accordingly the assessing officer shall allow deduction of both Rs. 1,11,875 as well as Rs. 6,745. Ground Nos. 1(b) & 1(c) stand allowed.

8. In ground 1(d) the assessed has challenged disallowance of freight charges paid to Aneja Transport & Forwarding Agency at Rs. 1,08,228. assessed's counsel contends that the raw material transported by the said transporter was rejected. Accordingly freight was not paid and was directed to be recovered from the supplier of material/goods. The raw material was accepted after deficiency was removed by the supplier during the year under consideration and the freight was also paid to the transporter. Since freight on raw material is a part of the cost of goods purchased though the same reached the factory of the assessed in the earlier year yet this was liable to be allowed in the year under consideration.

9. On the other hand the learned Departmental Representative relied on the order of authorities below.

10. We have perused the material on record. The assessing officer disallowed the claim for the reason that the assessed was not able to prove with any documentary evidence that there existed any dispute about the supply/receipt of goods by him. The assessed has also not supported his contention of ascertainment of the liability in the year under appeal with any material. Under such circumstances we do not find any error in sustenance of disallowance by the learned Commissioner (Appeals). Ground raised by the assessed stands rejected.

11. In ground 1(e) the assessed has challenged disallowance of Rs. 60,302 on account of freight charges. This is comprised of Rs. 56,000 paid to East India Transport Agency for which bills are claimed to have not been received earlier. It is only on reconciliation of account and after the claim were reconciled, the payment was released. Another amount of Rs. 4,302 which were paid to Union Roadways Corpn. is claimed to be on account of difference in transportation charges for material transported earlier. This amount is also stated to have been settled in the year under consideration.

12. Heard the parties. The assessed is maintaining his account on mercantile basis. For the lapses on the part of the assessed the exchequer shall not suffer. The liability which was ascertained in the earlier years and on which there were no dispute the same cannot be made a subject-matter of deduction in the year under appeal. Claim of the assessed therefore is found without any substance. Ground of assessed stands rejected.

13. In ground No. 1(f) the assessed is aggrieved by the disallowance of Rs. 3,935 on account of traveling expenses. These amounts are claimed to be petty amounts incurred by the employees working in the field as salesmen or complaint attendant, mechanics, etc. and adjusted them against the advances given to them in the earlier years. The bills for these amounts were submitted by them in the year under consideration. That being so the liability was deductible in the year under consideration. The ground of the assessed stands allowed.

14. In ground 1(g) the assessed has challenged sustenance of disallowance of Rs. 34,623 on account of salary and wages. The assessed contended that the amount also consisted of leave traveling allowance of Rs. 14,623 and medical reimbursement expenses of Rs. 6,386 which were adjusted in the books of account during the period under consideration on receipt of details from them. Leave travel allowance has been added twice by considering Rs. 6,284 and Rs. 8,330 (actual amount Rs. 8,339) separately and also the total of the said two amounts again, Medical reimbursement was given to low paid employees after completion of one year. Similarly leave travel entitlement was also given after completion of one year. Since entitlement of both these amounts was ascertained during the period under consideration the same was classified as previous year expenses by the auditors.

15. Heard the parties. Under the given facts, we consider it just and reasonable to restore the matter back to the assessing officer who shall examine the facts of the case vis-a-vis terms of employment and the relevant documents for entitlement of claim and decide the issue afresh in the light of material as may be brought on record. Reasonable opportunity of being heard shall be given.

16. Ground 1(g) relates to the disallowance of raw material and stores amounting to Rs. 4,19,395. This amount also includes two amounts of Rs. 20,559 and Rs. 12,457. These were earlier debited to capital expenses but later on proper reconciliation it was found that these were not incurred for modernization of plants but were a part of the repair and maintenance and therefore were transferred from capital expense to revenue expenses during the year under consideration. The balance expenditure of Rs. 3,86,339 is stated to be pertaining to battery division of the assessed which was located in Secundrabad, District Bullandshar, Uttar Pradesh whereas its head office was in New Delhi where books of account were maintained and wherefrom the payment was released to the suppliers. It was contended that the bills of suppliers were withheld in earlier years because the defective supplies and were accepted during the period under consideration after the defects were removed. The auditors however identified these expenses as prior period expenses on the basis of invoice of the suppliers and receipt of material in the factory though the material was not approved at the time of receipt.

17. On the other hand, the learned Departmental Representative relied on the findings of the authorities below.

18. We have heard the parties with reference to material on record. As regards two expenses of Rs. 20,559 and Rs. 12,457 the learned Commissioner (Appeals) has recorded a finding vide para 2.8 of his order that these were the expenses incurred by the assessed in the earlier year on account of modernization of the plant. In any event the expenditure has not been incurred in the year under consideration. Adjustment of these two amounts in the year under consideration is only an afterthought even though the liability was incurred by the assessed in the earlier years. Before us it has not been proved that the accounts of the assessed are not reliable. The expenses so claimed are therefore found to have been rightly disallowed by the authorities below. As regards the balance expenses of Rs. 3,86,339 the assessed did not produce any material to support his contention nor any entries in the books of account have been shown to prove that the purchase as well as receipt of goods have been accounted for in the year under appeal. No correspondence resting between the assessed and the material suppliers regarding the defect so claimed in the supplies has also been brought on record. assessed maintains his accounts on mercantile basis. Under such circumstances the expenses of the earlier year cannot be allowed in the year under consideration. The decision of the authorities below is therefore upheld and as a result of this ground of the assessed stands rejected.

19. The assessed in ground 1(i) has disputed disallowance of an amount of Rs. 5,24,839 on account of miscellaneous credit notes of customers. It was contended that the amount consists of credit notes issued to the dealers of automotive batteries to settle their claim for warranties, discounts, etc., in respect of sales made in the preceding years. These claims are settled after verification of facts and defect m the products. Since the sales against which these amount were paid were made in earlier years, the auditor classified these expense as prior expenses though the liability crystallized during the period under consideration.

20. We have heard the parties with reference to material on record. The learned Commissioner (Appeals) decided the issue vide para 2.9 of the order. The assessing officer disallowed the claim as no evidence was produced. The learned Commissioner (Appeals) did not agree with the contention of the assessed for the reason that the assessing officer has examined each and every voucher and allowed all such expenses which crystallized during the year under consideration. The impugned disallowance was not found crystallized during the year under consideration. For the failure to supply any cogent material to support his contention, learned Commissioner (Appeals) cannot be said to have erred. Ground of the assessed therefore stands rejected.

21. Ground 1(j) relates to sustenance of disallowance of Rs. 2,95,130 on account of stores and supplies. assessed's counsel has contended that this amount consists of stores issued in the earlier year for modernization of the plant but when during the period under consideration necessary statement was received from the plant, it was found that the stores were used for repairs and maintenance and accordingly claimed as revenue expenses. The auditor however classified the same as prior period expenses merely because they were issued in the preceding year from the stores to the plant without considering that its actual consumption could be in the year under consideration.

22. We have heard the parties with reference to material on record. The stores and supplies were issued in the preceding year. No stock entries were made in the year under consideration. The same were also not shown as stores and supplies in hand as stock at the end of the year it has become opening stock for the year under consideration. The expenditure was incurred as capital expenditure in the preceding year and had no relation with the expenses of the year under consideration. The assessed has also not produced any evidence to show that the stores and supplies have been transferred from plant under modernization for the purpose of repair and maintenance of the year under consideration nor any material produced to substantiate his claim of consumption in the year under consideration. Under such circumstances the disallowance so made needs no interference. Ground of the assessed stands rejected.

23. In ground 1(k), the assessed had challenged disallowance of Rs. 1,48,795 on account of Bank interest and charges. It has been contended by the learned counsel for the assessed that this amount includes a sum of Rs. 1, 16,976 which is not Bank interest but is an expenditure on advertisement incurred in the earlier year but claims were settled during the year under consideration. The amount was paid for publicity by way of banners, roadside painting etc. of automotive batteries in remote areas. Advance were given to the suppliers but their bills were settled during the year under consideration after site verification and deduction for excess claim etc. and the bills were brought in the books of account during the period. However the same was shown under the head Bank charges and other charges. Further a sum of Rs. 10,846 was the rent payable to the landlord which could not be provided earlier. The balance amount of Rs. 20,973 was debited by the Punjab National Bank , Secunderabad for short collection charges recovered by the Bank for earlier periods. Since the same pertained to earlier years the auditor classified the same as prior period expenses. There was no justification in sustaining the disallowance.

24. On the other hand the learned Departmental Representative has strongly relied upon the facts and finding recorded by the authorities below.

25. We have heard the parties with reference to material on record. The assessed maintained his accounts on mercantile basis. The assessed incurred a legal liability in respect of advertisement expense in the earlier years. Merely because the amount have actually been disbursed in the year under consideration, the deduction thereof cannot be allowed in the year under consideration, more so when no dispute existed between the assessed and the parties who provided such services or material to them. This view finds support from the principle laid down on mercantile system of accounting as explained by the apex court in the case of Keshav Mills Ltd. v. CIT (1953) 23 ITR 230 (SC). We therefore, do not find any merit in the claim of the assessed. Disallowance of Rs. 1,16,976 sustained by the learned Commissioner (Appeals) does not call for any interference.

Likewise another expense of Rs. 10,846 on account of rent cannot be treated as an expenditure of the year under consideration. The balance of Rs. 20,973 claimed to have been debited by the Punjab National Bank for short collection charges to the account of the assessed was found to have been charged by the Banks in the earlier years. If the assessed did not carry out the Bank reconciliation in his accounts or failed to make entries in hin books, it cannot be held that there existed any dispute between the Bank and the assessed in respect of such charges. The liability therefore cannot be held as crystallized in the year under appeal. We therefore do not find any merit in the pleas raised by the assessed. The disallowance sustained on this account also does not call for any interference. Ground of the assessed stands rejected.

26. Ground No. 2 relates to the disallowance of Rs. 16,200 incurred by the assessed for payment to Hotel Surya Health Club. These were stated to be the medical expenses incurred on the executive director of the company for his treatment. The assessing officer treated these expenses as his personal expenses. The learned Commissioner (Appeals) vide para 3 of his order upheld the disallowance.

27. We have heard the parties with reference to material on record. The amount of Rs. 16,200 was paid as membership fee for health fitness of the executive director. Terms of employment have not been produced to establish the liability of the assessed-company to meet such expenses. To support plea of illness, no material has been placed on record. Under such circumstances the assessing officer is found justified in holding that the expenses of Rs. 16,200 are personal in nature of the executive director. The order of the learned Commissioner (Appeals) in upholding the disallowance does not call for any interference. The assessed's ground stands rejected.

28. In ground 3 the assessed has challenged sustenance of disallowance of Rs. 50,000 on estimate basis out of foreign travel expenses.

29. We have heard the parties with reference to material on record. The assessed incurred total expenditure on foreign traveling at Rs. 5,43,140. The assessing officer noticed that the assessae had not filed the details of foreign traveling and made estimated disallowance of Rs. 1,00,000. The learned Commissioner (Appeals) observed that the chairman of the company Sh. K.K. Bajoria visited foreign country to attend the meeting of World Economic Forum but also held that expenses of personal nature cannot be ruled out. He, therefore, reduced the disallowance from Rs. 1,00,000 to Rs. 50,000 treating the same as excessive. Since the assessed did not furnish requisite details, we do not find any unreasonableness in the action of the learned Commissioner (Appeals) in sustaining disallowance to Rs. 50,000 on personal account of the chairman of the company. Grounds of the assessed stands rejected.

30. In ground No. 4 the assessed had challenged disallowance of a sum of Rs. 16,959 on account of payment made to clubs by way of subscription/membership fee for various employees of the company.

31. We have heard the parties. It was necessary for the assessed to have membership of clubs in the name of its employees for the purpose of his business. In catena of cases various Benches of Tribunal are allowing such expenditure as necessary business expenditure. A reference is available in Income Tax Officer v. Bright Bros. Ltd. (1984) 18 TTJ (Bom) 377 and also in H.J. Industries v. Income Tax Officer (1988) 26 ITD 259 (Bom). Accordingly the assessing officer is directed to allow the deduction of Rs. 16,959. The assessed's ground stands allowed.

32. In ground 5 of the assessed, the challenge is for sustaining the disallowance of Rs. 1,45,572 towards guest house expenses which included Rs. 25,000 on account of telephone, depreciation, etc. while department in their appeal in grounds 1 and 2 has challenged the relief of Rs. 24,064 given in respect of holiday home in contravention of provisions of section 37(5) of the Act and also on account of depreciation, electricity charges, water, telephone, etc. on guest house/holiday home by giving relief of Rs. 75,000 out of the disallowance of Rs. 1,00,000.

33. We have heard the parties with reference to material on record, Essentially the expenses of Rs. 1,20,572 as well as expenses on account of depreciation, electricity charges, water, telephone etc. have been incurred on maintenance of residential accommodation in the nature of guest house. Provision of section 37(4) start with the non obstant clause and section 37 is a special provision which shall override the general provisions for allowing deduction from sections 30 to 36 for determining income from profits as required to be computed under section 29 of the Act. The learned Commissioner (Appeals) therefore could not have allowed the deduction for depreciation, electricity charges, water, telephone, etc. on guest house covered under sections 30 to 36 of the Act. Likewise the other expenses of Rs. 1,20,572 would not have been allowed as deduction under section 37(4) of the Act. Accordingly the revenue's grounds stand allowed and grounds of the assessed stand rejected.

34. The learned Commissioner (Appeals) has also deleted disallowance of Rs. 24,064 in respect of holiday home in contravention of the provisions contained in section 37(5) of the Act. This is also a special provision which overrides general provisions contained in sections 30 to 36 of the Act. In that view of the matter the learned Commissioner (Appeals) is found to have erred in allowing deduction in respect of expenses on maintenance of holiday home by the assessed. His order is therefore set aside and order of the assessing officer is restored. Ground No. 1 of the revenue stands allowed. :

35. Ground No. 6 in assessed's appeal relates to sustenance of disallowance of Rs. 50,000 on estimate basis out of advertisement and publicity expenses for the reason that they are in the nature of entertainment. The assessing officer noticed that the assessed has claimed disbursement and publicity expenses on Rs. 2,38,743 but no details were filed. Considering the past history of the case the assessing officer considered that some of the expenses are for entertainment and disallowed a sum of Rs. 50,000 over and above a disallowance of Rs. 49,173 offered by the assessed himself.

36. We have heard the parties with reference to material on record. assessed is found to have himself estimated a sum of Rs. 49,173 as entertainment expenses which were included in the advertisement and publicity expenses. The said disallowance was made by the assessed on estimate basis. No actual basis were provided. Element of entertainment has not been denied. Past history also shows that such expenditure was included in the advertisement and publicity expenses. That being so a further disallowance of Rs. 50,000 made by the assessing officer is found to be reasonable. No interference is called for in the order of the learned Commissioner (Appeals). assessed's ground stands rejected.

37. In ground No. 7 the assessed has challenged disallowance of depreciation of Rs. 6,54,723 on generator installed for the purpose of business though the same was purchased in the books of sugar division of the company.

38. The assessed contends that the claim was disallowed because the generator was purchased by making payment in the name of sugar division of the assessed which were under installation. This has been so done without confronting the assessed and also because such a disallowance was made in summary assessment and stood confirmed by the learned Commissioner (Appeals). However the fact remains that the Tribunal has already adjudicated on this issue and deleted the disallowance. It was also submitted that the said generator was recorded in the books of sugar division but the appellant used the same in the existing business and was thus eligible for deduction.

39. We have heard the parties with reference to material on record. The order of the Tribunal where one of us the learned JM was a party and has written the judgment considered this issue in the context of prima facie adjustment made under section 143(1)(a) of the Act. Since the assessing officer could not make prima facie adjustment without affording an opportunity to the assessed, the Tribunal set aside his decision to the limited extent. The actual user part of the asset in the hands of the assessed has not been examined nor there was any material before the Tribunal to find out a fact whether there has been any use of the asset by the assessed in his existing business, it cannot be held conclusively that the issue stood finally adjudicated. In that view of the matter and keeping in view the text of the judgment into consideration we are not inclined to agree with the assessed that the deletion of disallowance of Rs. 6,54,723 on. account of depreciation on generator could not have been made in the scrutiny assessment made under section 143(3) of the Act. The assessed has however contended that he was not afforded any opportunity to substantiate his claim about the use of asset in the existing business though the investment in generator was made in the sugar business of the assessed. That being so there has been a denial of opportunity to the assessed for which we restore the matter to the assessing officer with a direction to enquire into the fact of use of the asset after affording opportunity to the issue and decide the claim in accordanca with law.

40. In ground No. 8 the assessed has challenged disallowance of interest amounting to Rs. 81,11,121 while the revenue in their appeal in ground 4 have challenged the deduction of interest amounting to Rs. 67,07,466 directed to be allowed by the learned Commissioner (Appeals) by ignoring the fact that the interest amount pertained to the funds invested in the sugar division which was still under construction stage and the business of which has not yet been set up.

41. The assessing officer disallowed interest of Rs. 1,48,18,950 on borrowed capital used in the sugar division as the same was still under construction. He also referred to note No. 7 of the auditor's report which was relevant to the issue. The assessed however claimed that the interest had been paid on the borrowed capital which was taken for the purpose of the business of the company and the expenditure so incurred is allowable as revenue expenditure under section 86(1) (iii) of the Act. The assessing officer did not accept the claim of the assessed for the reason that the assessed had three separate divisions which are separate businesses having factories at different places, the divisional offices having administrative and other control are also at different places, separate books of account are there, Bank account are also separate, the accounts are audited separately but are consolidated for the purpose of income-tax purposes and thus there was no inter- connection, inter-linking, inter-dependence as claimed by the assessed. The sugar division was found to be still under installation and the interest on capital invested in sugar division therefore was not to be allowed as a revenue expenditure. Out of the total interest payment of Rs. 2,50,81,124 the assessed had incurred interest expenditure on the bridge loan taken from the financial institutions and the amount of such interest of Rs. 1,46,86,096 which was incurred on the bridge loan was found partly utilized in the jute division and the battery division who have paid interest of Rs. 10,68,255 and Rs. 91,94,319 aggregating to Rs. 1,02,62,574. The balance of interest was treated as incurred for utilization of funds in sugar division. This was quantified at Rs. 44,23,522 and treated as expenditure incurred during construction period. The same were treated as capital in nature and not liable as revenue expenditure. The remaining interest of Rs. 1,03,95,027 (Rs. 2,50,81,124 - Rs. 1,46,86,096) was found to have been incurred and comprised of interest amounting to Rs. 8,46,874 on a loan taken from Century Textile for Rs. 55 lakhs. This loan was found invested and utilized in sugar division. The amount of Rs. 8,46,874 was also treated as capital and not allowable as revenue expenditure. The balance of interest of Rs. 95,48,152 (Rs. 1,03,95,026 - Rs. 8,46,874) was found to be comprised of the interest of Rs. 28,46,686 pertaining to the earlier years and Rs. 67,07,466 relatable to the year under appeal but found credited to the jute division on the plea that the fund of jute mills were invested in the sugar division. This was also not allowed as the same was to be capitalized for the reason that this expenditure also pertained to the sugar division. The assessing officer therefore out of the total claim of interest payment of Rs. 2,50,81,124 allowed only an amount of Rs. 1,02,62,174 as revenue expenditure and balance of Rs. 1,48,18,950 was disallowed.

42. The learned Commissioner (Appeals) allowed relief of Rs. 67,07,461 after having a detailed discussion from paras 11.11 to 11.16 of his order which are reproduced herein below and confirmed the balance of disallowance :

11.11. I have carefully considered the detailed submissions of the learned counsel and the detailed reasons given by the assessing officer in the assessment order. Coming to the facts of the case which are admitted and are as per the audited accounts, the assessed claimed payment of interest of Rs. 2,50,81,124 in the sugar division on the funds stated to be borrowed for the sugar division. Out of this interest payment, an amount of Rs. 10,68,225 and Rs. 91,94,319 was attributed to the funds utilized by the jute division and the battery division and to this extent, the assessing officer has already allowed the expenses as revenue expenses. There was another item of interest of Rs. 8,46,874 which pertains to the interest on a loan taken from M/s Century Textiles amounting to Rs. 55 lakhs and was stated to be utilized in the sugar division. There was another item of Rs. 95,48,152 which was shown as interest payable to jute division by the sugar division and this interest was credited as income in the jute division. This consisted of two parts, Rs. 28,46,686 which was the interest pertaining to last year and Rs. 67,07,466 which pertains to the year under consideration. The jute division paid a total interest of Rs. 77,81,073 to the Bank on the funds borrowed from the Bank s by the jute division. In the P&L a/c of the jute division, interest payment of Rs. 10,79,606 was only claimed because the total payment of Rs. 77,81,073 was reduced by the interest of Rs. 67,01,466 receivable from the sugar division. All these entries were passed by transfer entries in the books. The assessing officer has not allowed the payment of this interest on the ground that the payment of interest by the sugar division has to be capitalized. On the other hand, the payment of interest by the jute division is not allowable because the jute division has not utilized the funds borrowed for its own business purpose, but has been transferred to the sugar division and, therefore, this interest paid by the jute division is also not allowable. A number of decisions have been reported from both the sides in support.

11.12. As far as the interconnection of three divisions of the assessed-company is concerned, the three divisions are altogether separate and distinct and rather located at different places and even have different divisional offices. They have their own separate books of accounts, Bank accounts and even the decisions in respect of that divisions are taken locally. Though they are a part of the assessed-company as a whole but they are fully independent as far as their own business is concerned, A mere transfer of finished products from one division to another division does not mean that they are inter-dependent in the sense it should be. Even the conduct of the assessed while consolidating the accounts of the three divisiong clearly shows that the three divisions are totally independent. Therefore, it is difficult to accept the submissions of the learned counsel that the three divisions being inter-dependent on each other, the expenses on the loans borrowed for any division whether it is sugar, jute or battery, should be allowed as a revenue expenses even though if a part has been utilized in sugar division under installation.

11.13. Coming to the item of Rs. 1,46,86,096 the assessing officer admitted the submissions of the assessed that a part of this interest expenses pertains to the loans utilized in jute division and battery division though the expenses were booked in the sugar division and claimed in the sugar division are allowable expenses. It means that the claim of the assessed that payment of interest of Rs. 2,50,81,124 in the sugar division was made cannot be accepted on the fact of it and the assessed has made adjustment entries in the sugar division, perhaps, to paint a rosy picture for the public consumption when an interest of Rs. 95,48,152 was shown as income in the jute division though there was no such income and this was a mere transfer entry. In fact, whether any loans taken by the jute mills have been transferred to the sugar division or have been utilized by the jute division has not been brought on record because as per the statement of the learned counsel, the jute division had obtained the loaps from the Bank in earlier years when there was no such sugar division. These loans were against the hypothecation of jute stocks and as per the submissions made herein above, the jute division of the assessed had stocks worth Rs. 5,59,25,175 as on 3-3-1992, and Rs. 5,83,56,203 as on 31-3-1993 against which the cash credit limits were Rs. 1,80,54,469 and Rs. 2,20,41,541, respectively. The jute division made a book profit of Rs. 2.21 crores during the year and the total amount given to the sugar division as at the end of the year was Rs. 3,93,33,573 which included a sum of Rs. 2,93,28,669 as on 1-4-1992 and thus a title over Rs. 1 crore was given by the jute division to the sugar division and I agree with the submission of the learned counsel that interest amounting to Rs. 95 lakhs or Rs. 67 lakhs could not become due for this year as on Rs. 1 crore. This amount given to the sugar division in earlier years is stated to be out of the income accrual of the jute division as it has a reserve amounting to Rs. 4.13 crores besides capital investment of Rs. 10.11 crores. The jute division is stated to have borrowed a sum of Rs. 3.47 crores from the State Bank of India on 1-4-1991, when even the construction of the sugar plant did not commence.

11.14. Keeping these facts in view, as far as the jute division is concerned, it has shown interest income from sugar division amounting to Rs. 95,48,152. In the P&L a/c it has debited interest expenses at Rs. 10,79,606 though the actual interest payment was Rs. 77,81,073 and this was reduced on account of interest receivable of Rs. 67,01,466 from sugar division pertaining to this year. If the fitness of the things, it would be fair that the interest paid by jute division amounting to Rs. 77,81,073 is allowed as revenue expenses. As the assessing officer has already allowed expenses of Rs. 10,79,606 in the jute division, the assessed could get a further relief of Rs. 67,07,466 for interest payment. As this interest payment to this extent has been allowed in the jute division in order to nullify its effect in the sugar division, expenses to the extent of Rs. 67,07,466 would not be allowed to be capitalized in the sugar division. As far as the second element of Rs. 28,46,686 is concerned, this is the interest element up to 31-3-1992, shown as receivable from the sugar division. As it pertains to earlier year, and the system of accounting of the assessed is mercantile, this cannot be allowed in the year under consideration.

11.15. Coming to the element of interest of Rs. 1,46,86,096, the assessing officer has already allowed interest of Rs. 1,02,62,574 as interest pertaining to bridge loan utilized by jute division and battery division, the remaining amount of Rs. 44,23,522 (Rs. 1,46,86,096) - (Rs. 1,02,62,574) pertains to the sugar division and, therefore, cannot be allowed as revenue expenses and has been correctly disallowed by the assessing officer.

11.16. In the result, it is held that the assessed- company has three separate divisions which are independent of each other and has separate books of accounts. Primarily the expenses incurred in the sugar division has to be capitalized as per the norms laid down by various decisions. Though the sugar division has shown interest payment of Rs. 2,50,81,124 as discussed above, a part of the expenditure does not pertain to it. The assessing officer has already allowed expenses to the extent of Rs. 1,02,62,574 as pertaining to jute/battery division. A further sum of Rs. 67,07,466 has been allowed as relief as this was the interest paid by the jute division to the Bank for the loans borrowed. The remaining interest should, therefore, be held as pertaining to sugar division and, therefore, should be allowed to be capitalized and the assessing officer was justified in not allowing the same as revenue expenditure.

43. Before us the learned counsel for the assessed has stated that the assessed has been in business as a manufacturer since inception in 1976. He was manufacturing automotive batteries and jute goods earlier. From assessment year 1991-92, it started installation of sugar factory. There was a common management and all the activities were controlled from one place. The fund borrowed were also used for all the units. Bridge loans raised during the year against the debentures to be issued were also not secured against the assets of the sugar division but were secured against personal guarantee of directors for which reference is borne at assessed's paper book p. 123 in the notes of account. The bridge loan was also used for all the units of the assessed and no dispute has been raised by the assessing officer on this fact. The assessing officer also did not say that different directors were in charge of different units of the company nor that these units were not being managed by the common board of directors. Merely to have separate books of account by each of the factories/units due to local sales-tax laws, excise laws, etc. or by treating separate P&L a/c for each of the units for the purpose of appreciation of working of these units it cannot be said that there was not a common management or that common fund or common administration is not there. It was pleaded that there existed complete inter-lacing, inter- connection and inter- dependence of the units and this is also proved from the fact that fund from one unit were being transferred to another unit under instruction from the common management. The assessing officer has also stated so at internal pp. 13 and 14 of his order for disallowing the interest and considering the sale as income of jute division. The learned counsel for the assessed further states that the interest otherwise also cannot be assessed as income because none can make profit from himself as has been held by Hon'ble Supreme Court in Kikabhai Prem Chand v. CIT (1953) 24 ITR 506 (SC). Reference was also drawn to the same proposition to the decision of Ram Lal Bachai Ram v. CIT (1946) 14 ITR 1 (All) and another decision of the Madras High Court in Parasram Jethanand & Ors. v. CIT (1956) 29 ITR 818 (Mad). The learned counsel also contends that the Tribunal in assessed's own case for the same very assessment year in ITA No. 1502/Del/1996, dated 14-3-2001, has given a finding that overall management and unity of control of all the divisions was with the assessed. This has been so said by relying on the decision of Hon'ble Supreme Court in Veecumsees v. CIT (1996) 220 ITR 185 (SC) where it was held that installation of a new plant for a different project does not amount to new business and interest payable on loans taken for the said plant for the period when the new plant was under installation was acknowledged as an allowable expenses. The assessed has also relied on another judgment of the jurisdictional High Court in the case of Prem Spining & Weaving Mills Ltd. v. CIT (1975) 98 ITR 20 (All) in support of the contentions given in para 10 in the written submission before the learned Commissioner (Appeals), copy placed at assessed's paper book pp. 5 to 11, besides relying on various judgment cited before him.

44. The revenue on the other hand while supporting the finding recorded by the assessing officer and the learned Commissioner (Appeals) in respect of sustaining the disallowance of interest for Rs. 81,11,121 but stated that the learned Commissioner (Appeals) has gone wrong in allowing a deduction of interest for Rs. 67,07,466 without appreciating the, correct facts of the case and by showing disregard to the correctness of entries in the books of account which were duly audited and correctness was not in doubt at any stage. The addition has been deleted merely for asking by the assessed and actual utilization of funds on the basis of which the interest liability has been credited has not been appreciated by the learned Commissioner (Appeals). A relief of Rs. 67,07,466 so given by the learned Commissioner (Appeals) needs to be set aside and a prayer was made to restore the order of the assessing officer.

45. We have heard the parties with reference to material on record and precedents relied upon by them and also taken ourselves through the orders of both the authorities.

46. The first issue which is relevant for consideration is as to whether the observations of the Tribunal in ITA No. 1502/Del/1995, dated March, 2001 for the same assessment year where one of us, the learned JM, was a party to the order are conclusive and binding to the issue under consideration as to whether several units constituted one and the same business or not. We have perused this order of the Tribunal carefully. This issue before the Tribunal in the assessed's case was regarding prima facie adjustment in processing the return under section 143(1) (a) of the Act on account of bad debts written off and depreciation on generator. Para 6 of the said order of the Tribunal on which heavy reliance has been placed is reproduced hereunder :

"We have heard the rival submissions and perused the material on record. It is seen that there is no dispute over the fact that the assessed's business consisted of jute division, battery division and sugar division. No doubt, sugar division was an addition to the other two existing divisions but the overall management and unity of control was with the assessed. Despite the fact that businesses were located at different geographical places, the position of law is that if the business is composite and there is unity of management and control, then, the expense pertaining to different divisions are allowable and for this proposition we find support from the decision of the apex court in the case of Veecumsees v. CIT (supra). As such, we are of the opinion that the expenses pertaining to the depreciation on generator could not have been prima facie adjusted under section 143(1) (a) of the Act without affording the assessed an opportunity and the order to this extent is set aside."

47. In this order the Tribunal observed that the assessed's business consisted of three divisions, namely, jute division, battery division and sugar division. The Tribunal also observed that overall management and unity of control was with the assessed. The Tribunal also found that the businesses were located at different geographical places. The Tribunal also noticed the legal proposition as laid down in Veecumsees v. CIT (supra) and thus formed an opinion that the expenses pertaining to the depreciation on generator could not have been prima facie adjusted under section 143(1) (a) of the Act without affording an opportunity and to that extent the order of the assessing officer was set aside. From this order of the Tribunal it is thus evident that the Tribunal constituted the issue in the context of prima facie adjustment only and the question whether one or more lines of business constituted one business or different businesses did not come under its consideration. The observations made regarding overall management and unity of control were not in the context of one business or the different businesses. Even otherwise there was no such material nor the context in which the observations of overall management and unity of control was made, The Tribunal also did not say that there were inter-lacing, interconnection and inter-dependence of each unit and various businesses constituted one business. What the Tribunal said or observed was in a different context and the same shall not constitute a precedent nor a fact found by it. The Hon'ble Supreme Court in the case of State of Punjab v. Baldev Singh (1999) 6 SCC 172 a Bench comprising of five Hon'ble Judges has laid down that everything said in a decision does not constitute a precedent. A decision has to considered in the context in which it was rendered. In this view of the matter and as observed herembefore what the Tribunal in its order at para 6 on the issue of composite business has said shall not bind us and on the issue, the Tribunal shall be at liberty to arrive at its own conclusion. -

48. The assessing officer has found as a matter of fact that the assessed is having separate factories at different places, the divisional offices of the manufacturing units of all these factories where different products are to be/being manufactured are also having different divisional offices at different places. It was held that the business are separate distinct businesses because the batteries are manufactured at Secunderabad with its divisional head office at Delhi. The jute is being manufactured at Chitvalash, Andhra Pradesh with its divisional head office at Calcutta and the manufacturing unit for sugar at Bullandshar. All the three units are having separate books of account, separate Bank accounts and all the accounts are audited separately for which separate balance sheet and P&L a/c are being drawn. These facts have not been denied by the assessed nor any material to disprove the findings of the authorities below has been placed before us. It has also not been shown that the assessed is having common fund. It is also not the case that if business of assessed is closed the other unit/business cannot be conveniently carried on thereafter. Interdependence is thus not proved. Separate sales-tax and other licenses have been taken. Each unit can stand on its own for which separate management is vested with divisional offices. The consolidated balance sheet and P&L a/c is prepared for legal compulsion of Companies Act, 1956, and other statutes. Since the assessed has not placed any material to show that there is interrelation of any activities nor that the nature of different transactions is such that they are so inter-related and inter-laced to fall within the purview of same business nor the assessed has proved with any documentary evidence that the funds are kept in the common Bank account and are managed and used from the common kitty, merely for saying that there is a inter- connection, interlacing or inter-dependence cannot be accepted. In the absence of having disproved the fact already found by the authorities below we are not inclined to agree with the assessed's counsel that the three different businesses constituted the same business and accordingly we do not find any error in the findings arrived at by the authorities below, We, therefore, uphold that the three units of the assessed were three distinct and separate businesses having no inter- connection, inter-lacing or inter- dependence on each other and on the plea of one business the claim for deduction of expenses cannot be allowed.

49. Now coming to the break up of the expenses disallowed by the assessing officer we find that an amount of Rs. 28,46,686 was a liability incurred by the assessed for interest up to 31-3-1992, which was the preceding year. The assessed maintains its accounts on mercantile basis. According to that system the expenditure has to be debited the moment a legal liability has been incurred and before it is actually disbursed. Such a system has also been explained by the apex court in the case of Keshav Mills Ltd. v. CIT (supra). In respect of the amount of Rs. 28,46,686 the assessed incurred liability in the earlier year. The disallowance thereof so made is therefore upheld.

50. Another amount of interest expenditure which was treated as capital in nature by the assessing officer but the learned Commissioner (Appeals) reversed his decision is for Rs. 67,07,466. The assessed borrowed funds on interest in his jute business. The total interest paid was Rs. 77,81,073. He however charged Rs. 10,79,606 as expenditure in the P&L a/c of jute business and balance amount of Rs. 67,07,466 was shown as recoverable from the sugar division. The assessed's claim for deduction of the entire amount of interest as revenue expenditure was not accepted and a disallowance of Rs. 67,07,466 included in the total disallowance of the interest was treated as a capital expenditure as the funds to the tune of Rs. 3,93,33,573 were invested in the sugar division from its jute business which was still under construction stage. The learned Commissioner (Appeals) however did not agree with the conclusion of the assessing officer for the reason that out of Rs. 3,93,33,573 which was the debt outstanding as at the end of the relevant year, an amount of Rs. 2,93,28,669 was amount due and recoverable on the opening day on 1-4-1992, and thus on the amount which was little over Rs. 1 crore given by the jute division during the year under consideration could not fetch interest of Rs. 67 lakhs. The debt which was recoverable on the opening day was advanced in the earlier years from internal accruals of the jute division and from available reserves besides it had old borrowings. Since the assessing officer himself has allowed expenses of Rs. 10,79,606 he considered that this balance of Rs. 67,07,466 was also deductible as revenue expenditure and to that extent the capitalization made by the assessing officer was not approved.

51. Material placed before us has been perused. Precedents relied upon have also been considered. The principle as enunciated by the apex court in Kikabai Prem Chand v. CIT (supra) that a person cannot make profit from himself does not need any deliberation and is uniformly acceptable principle. In the case before us the funds of his jute business were transferred to the sugar division on which interest had also accrued. The assessed's liability in jute division which was considered in its accounts as revenue in nature were only to the extent of Rs. 10,79,606. The amount advanced to his sugar business during the year got mixed up with the amount which was recoverable on 1-4-1992. The funds which were also transferred to the sugar division were mixed funds of jute business. Once the funds got mixed it was not necessary to establish any nexus of the funds which was transferred during the year alone. This position stands approved by the decision of Madras High Court in the case of K Somasundararn & Bros. v. CIT (1999) 238 ITR 939 (Mad). Correctness of accounts were also accepted by the assessing officer. His plea that the .interest were charged by mere book entries and to show a rosy picture to the public before the learned Commissioner (Appeals) was of no merit when the assessment has been framed by accepting the authenticity and correctness of the accounts. Entries in books maintained by the assessed in regular course were considered as relevant by the assessing officer. Such entries are a prima facie proof and basis to justify the correctness thereof. The book entries so made by the assessed did create a legal obligation on him. This has also been laid down in the case of CIT v. Thanthi Trust (1999) 239 ITR 502 (SC). Once the funds were found not utilized for the purpose of earning income in jute business and stood diverted or utilized in the sugar business the interest so paid in jute division was essentially to be a part of income of sugar business and the same could not have been charged for reducing the profit/income of the jute business. The sugar business was undergoing construction activities. The interest liability so incurred in the sugar business though the funds were raised in jute business were necessarily to be capitalized. This action of the assessing officer was a justified action. Once the funds were got mixed the reasons taken by the learned Commissioner (Appeals) did not have any sanctity for allowing deduction to the assessed. We are therefore, satisfied that the learned Commissioner (Appeals) has erred in allowing the deduction of Rs. 67,07,466 as revenue expenditure. His decision is therefore set aside and the decision of the assessing officer stands restored inter alia allowing capitalization of the interest amount of Rs. 67,07,466 in the sugar division. With this the revenue's ground 4 stands allowed.

52. Likewise balance of interest of Rs. 8,46,874 in assessed's ground which has not been allowed as revenue expenditure, we have already upheld the action of the learned Commissioner (Appeals) that the assessed's several businesses did not constitute one business. Under the facts and circumstances that the loan and funds have been utilized in the sugar business on which the rest of the liability over and above the previous year expenditure of Rs. 28,46,686 contained in the total disallowance of Rs. 8,11,11,121 in the assessed's ground relate to the fund utilized in the sugar business. Since this was separate business the amount of liability so incurred on interest by the assessed is not held to be incurred for the purpose of the business for earning income under the head 'income from business or profession' the assessing officer disallowed the same and treated as capital expenditure for good and justified reasons whose action stands confirmed by the learned Commissioner (Appeals). In the absence of any contrary material, the same does not call for any interference. As a result, assessed's ground 8 stands rejected.

53. In ground No. 9 the assessed has disputed sustenance of disallowance of Rs. 1,11, 12,423 on account of debenture issue expenses.

54. During the year under consideration the assessed incurred expenses amounting to Rs. 1,11,12,423 for issuing fully convertible debentures into shares which were to be issued within 12 months. In his accounts the expenses were treated as capital expenditure but in the return a deduction was claimed as revenue expenditure.

55. The assessing officer vide order sheet dated 20-12-1995, required the assessed to show as to how such expenses incurred for raising the capital requirement can be allowed as revenue expenditure.

56. The assessed's explanation thereto was that debentures are loans raised by a going concern. All monies spent by an assessed to raise loans for the business of the assessed during the period for commencement of the business are logically and lawfully acceptable as revenue expenditure. The utilization of loans raised is not material so far as deduction of expenses incurred to raise the loan is concerned. It has been further stated that the expenses are allowable as business expenses under section 37(1) of the Act.

57. The explanation of the assessed was not acceptable for the reason that the object of the issue was for raising capital for the new sugar project which was still under construction and as such the expenditure so incurred was treated as a capital expenditure. Since the expenditure was capital in nature it was also considered outside the purview of deduction allowable under section 37(1) of the Act.

58. Before the learned Commissioner (Appeals) the assessed vehemently argued that the issue for raising the debenture was for the purpose of the business of the assessed and the expenses incurred thereon were for the purpose of business and an allowable deduction under section 37(1) of the Act. Reliance was placed on various decisions as referred in para 12.2 of his order inter alia decision in India Cement Ltd. v. CIT (1966) 60 ITR 52 (SC). CIT v. Oswal Spinning & Weaving Mills Ltd. (1986) 160 ITR 426 (P&H), Premier Automobiles Ltd. v. CIT (1971) 80 ITR 415 (Bom), Warner Hindustan Ltd. v. CIT (1988) 171 ITR 224 (AP), CIT v. Kisenchand Chellara (India) (P) Ltd. (1981) 130 ITR 385 (Mad), Orissa Cement Ltd. v. CIT (1969) 73 ITR 14 (Del) and CIT v. Modi Industries (1993) 200 ITR 341 (Del). It was also submitted before the learned Commissioner (Appeals) that if the deduction is not allowed as revenue expenditure, deduction under section 35D should be allowed as all the conditions for the same have been fully met.

59. The learned Commissioner (Appeals) after considering the detailed submissions and the case laws cited before him was fully satisfied that the expenses have been incurred in the fully convertible debenture issue which was primarily made for raising funds for the sugar division which was still under construction at the relevant time. He also observed that the expenses have been incurred for raising funds before commencement of business in sugar division and the same are therefore not allowable. It was also stated by him that the expenditure is not allowable as revenue expenditure as the view of the assessing officer is supported by the decision of Hon'ble Allahabad High Court in Upper Doaba Sugar Mills Ltd. v. CIT (1979) 116 ITR 928 (All). The assessed's alternate plea for allowing deduction under section 35D was also not entertained and adjudicated as the assessed did not make any such claim in the IT return nor raised. any such plea before the assessing officer.

60. Before us the learned counsel for the assessed contends that debentures were loans and therefore all expenses incurred to raise the loan are revenue expenses. It is not material that the debentures were to be converted after 12 months into equity shares. At the time of issue of debentures what the assessed raised was loan. The lenders were not to become the members of the company as on the said date nor they were entitled to any dividend on the debentures. Similarly they did not have any right in the equity capital of the company or a shareholder on the date of issue of debentures. They carried a risk of loan for 12 months till the debentures were converted into shares. Conversion of debentures into shares involves two processes. One repayment of loan and secondly receipt of fund into equity in books of account. Full independent exercise by filing declarations and other legal formality in undertaken at that time. On issue of debentures a loan is credited in the books of account and is accordingly shown. There is no increase in the equity capital account at that time. What happens after issue of debentures is not material because what was raised at the time of public issue was a loan by way of debentures. Besides reference to case laws before the learned Commissioner (Appeals) placed. at assessed's paper book pp. 12 and 13. Reference was also made to the decision of Supreme Court in India Cement Ltd. v. CIT (supra). It was also contended that the object with which the loan was raised and the, period for which it is held are not material for allowing the deduction. In this view of the matter it was contended that the learned Commissioner (Appeals) has erred in upholding the disallowance.

61. The learned Departmental Representative however supports the facts and findings recorded by the authorities below. The expenditure incurred for issue of debentures was stated to be of capital in nature as the assessed had undertaken to convert fully all such debentures into shares which decision was taken at the time of issuing prospectus itself and before receiving any money from such persons who had an assurance of receiving shares from the company. These were to be treated as share issue expenses in the garb of debenture issue expenses and thus are not deductible as revenue expenditure on any account.

62. We have heard the parties with reference to material brought on record and case laws relied upon. The assessed incurred an aggregate expenditure of Rs. 1,11,12,423. Under the head 'debenture issue expenses'. Prospectus was also issued with the assurance that all the debentures are fully convertible into share capital within a period of 12 months from the date of issue of such debentures. The applicants who subscribed to the debentures were under no doubt on the day one that they will be issued equity shares at a specified time and at a specified value and such allotment is automatic. The intention of the assessed was also manifest in the prospectus itself right at the beginning and all along that the debentures so issued are to be fully converted into the share capital. Such a capital was to become a part of the permanent capital structure of the company within a short period of 12 months from the date of allotment of debentures. From the facts brought on record it is evident that the assessed was under obligation to convert the debentures into the equity shares by an automatic process. Mere book entries would not alter the factual state of capital raising by the assessed and the debenture holders were not to perform any part from their sides. They even did not have any right to refund of the money as also it could not have been termed as debt incurred by the company. It is a settled law that if the expenditure is incurred for obtaining the loan the same is allowable as revenue expenditure in view of the judgment of Hon'ble Supreme Court in the case of India Cement Ltd. v. CIT (supra). On the same analogy the expenditure on public issue of debentures would be allowable as a revenue expenditure if the debenture remains as a loan in the company. But where the expenditure is incurred on the public issue of shares directly or through the medium of fully convertible debentures in a short period the same is to be treated as a capital expenditure not deductible under section 37 of the Act. This ratio emerges' from the decision of the apex court in the case of Brooke Bond India Ltd. v. CIT (1997) 225 ITR 798 (SC) and also Punjab State Industrial Corpn. v. CIT (1997) 225 ITR 792 (SC). It is also a settled legal position that the nomenclature of the document is not relevant. What is relevant is the true nature of the transaction which in this case has been found to be for raising of share capital under the nomenclature of issue of debentures by the assessed. Similar issues as that of the assessed also came for consideration before Delhi Bench of the Tribunal in Sona Steering System Ltd. v.Dy. CIT (2003) 78 TTJ (Del) 213 and also in Network Ltd. v. Dy. CIT (2003) 78 TTJ (Del)(TM) 98 as also in Banco Products (India) Ltd. v. Dy. CIT (1997) 63 ITD 370 (Ahd). We therefore, hold that the fully convertible debentures issued by the assessed which had characteristics of equity shares cannot be termed as a debt incurred and were augmentation of equity base of the company for which share capital was to be issued by automatic method of conversion and as such any expenditure incurred thereon was a capital expenditure. The same therefore, was not deductible under section 37 of the Act.

63. The assessed however in the grounds before us has made an alternate plea for allowing deduction under section 35D of the Act. The learned Commissioner (Appeals) is found to have rejected the plea of deduction under section 35D for the reason that the assessed neither claimed the deduction in the IT return nor raised the same before the assessing officer during the course of assessment proceedings. Also there was no ground before him. He therefore, declined to adjudicate the issue for the first time at the stage of hearing.

64. Sec. 36D deals with a statutory deduction. The assessed had made claim of revenue expenditure, the same was denied to him by both the authorities. This was a legal claim and it was incumbent upon the learned Commissioner (Appeals) to have adjudicated upon the issue when such a plea was raised before him. More so when the powers of the learned Commissioner (Appeals) are co-terminus with that of the assessing officer. A legal burden was cast upon him to have examined the claim of the assessed and decide the issue in accordance with law. This has not been done. However the matter requires verification of fact and various conditions under which such deduction can be allowed under section 35D of the Act. We, therefore, restore the matter on the file of the assessing officer with a direction to examine the facts and the conditions as prescribed under section 35D for allowing amortisation of expenses. He shall however afford a reasonable opportunity of being heard before taking any decision on the issue.

65. In ground 10 the assessed's counsel states that the disallowance made needs rectification as there was mistake apparent from record on account of nomenclature. The learned Departmental Representative does not object to this the assessing officer shall verify and make necessary rectification in accordance with law if necessary. He shall however afford a reasonable opportunity of being heard to the assessed.

66. Ground 11 has not been pressed the same is dismissed as not pressed.

67. In revenue's ground 3 the challenge is to the deletion of cash credit of Rs. 1 lakh. The revenue has contended that the learned Commissioner (Appeals) erred in deleting the addition though the assessed has failed to prove the creditworthiness of M/s Paltan International (P) Ltd. The facts as to whether the amount was security against. supplies of goods from this party was also not ascertained and the learned Commissioner (Appeals) accepted the plea merely for saying though the same was not raised before the assessing officer. It was therefore, contended that the learned Commissioner (Appeals) erred in deleting the addition. The matter needs to be resorted to the assessing officer for examining the correctness of the facts and decide the issue afresh. assessed's counsel also did not object to restoration of this issue to the assessing officer. That being so we restore this issue back to the assessing officer. He shall afford a reasonable opportunity of being heard to the assessed before deciding the issue afresh in accordance with law.

68. In the result appeal of the revenue stands allowed and the assessed's appeal stands partly allowed.