Ita/40/2011 Of The Commissioner Of Income Tax v. M/S.apollo Tyres Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE S.V.BHATTI WEDNESDAY, THE 10TH DAY OF APRIL 2019 / 20TH CHAITHRA, 1941 ITA.No.40 of 2011 AGAINST THE ORDER OF INCOME TAX APPELLATE TRIBUNAL,COCHINBENCH IN ITA No.429/COCH/2006 DATED 5.10.2010 ofI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: THE COMMISSIONER OF INCOME TAX-ICOCHIN. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENTSRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: M/S.APOLLO TYRES LTD.6TH FLOOR, CHERUPUSHPAM BUILDINGS,, SHANMUGHAM ROAD, KOCHI 682 031.BY ADVS.SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHAN ITA No.40 of 2011 2 SRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOSSRI.V.B.UNNIRAJ THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10.04.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R.RAMACHANDRA MENON & S.V.BHATTI, JJ. ============================= ITA No.40 of 2011 ============================= Dated this the 10[th] day of April, 2019 JUDGMENT Bhatti, J. The Commissioner of Income Tax-I, Cochin is the appellant.The subject matter of instant tax appeal is the assessment orderspassed for the year 2002-03. 2. The appellant and the respondent for short are referred as'Revenue' and the 'assesee' respectively. 3. For convenience the following dates are noted at the outset. On 28.10.2002, the assessee filed the tax return for theassessment year 2002-2003. On 17.3.2004, the assessee filed revisedreturn. On 12.4.2004, notice under Section 148 of the Income TaxAct (for short the 'Act') was issued by the Assistant Commissioner ofIncome Tax (I), Ernakulam. The assessee through communicationdated 29.04.2004 requested the assessing officer to treat the revisedreturn dated 17.3.2004 as the return filed in pursuance of notice ITA No.40 of 2011 4 issued under Section 148 of the Act. The Assessing Officer (for short'A.O.') vide assessment order dated 24.2.2006 determined the total taxpayable by the assessee as`13,95,78,296/-. The assessee aggrieved bythe order of assessment dated 12.12.2008 filed appeal before theCommissioner of Appeals in Appeal No.ITA 80/R-1/E/CIT-II/05-06.The Commissioner of Appeals allowed the appeal in part. TheRevenuefiled ITA No.429/Coch/2006 before the Income TaxAppellate Tribunal and the appeal was allowed in part by theTribunal. Hence the Tax Appeal before this Court under Section260(A) of the Act. The A.O. made a few important additions andalso disallowed a few substantial deductions claimed by the assessee.For brivity the conspectus of consideration by the statutoryauthorities till the disposal of ITA No.429/2006 is stated in thefollowing table. ITA No.40 of 2011 5 4. The Commissioner of Appeals allowed the appeal in part and set aside the addition made by the A.O. to an extent of`1,20,000/- being repair charges relating to buildings let out toSmall Industries Development Bank of India (SIDBI). Thedisallowed portion of depreciation amounting to `31,66,617/-restricted the disallowance to `3,30,000/-. In other words, the claim ITA No.40 of 2011 7 ITA No.40 of 2011 5 4. The Commissioner of Appeals allowed the appeal in part and set aside the addition made by the A.O. to an extent of`1,20,000/- being repair charges relating to buildings let out toSmall Industries Development Bank of India (SIDBI). Thedisallowed portion of depreciation amounting to `31,66,617/-restricted the disallowance to `3,30,000/-. In other words, the claim ITA No.40 of 2011 7 of assessee is allowed to an extent of`31,66,617—`3,30,000=`28,36,617/-. The disallowance of entertainmentexpenditure amounting to `1,63,815/- is set aside and deduction tothe said extent was permitted. The disallowance of expenditure byreference to Section 14A is set aside and held that the appellant isentitled to deduction both in law and fact. The next major head ofdisallowance ordered by the A.O. is `32,69,65,146/- paid by theassessee to Gujarat Petro Electricals Ltd. (GPEL), a joint ventureestablished by the assessee and the Government of Gujarat. Theattendant circumstances in this behalf are that the assessee as ashare-holder, with about 51% shares in GPEL, was obliged, whileimplementing a scheme approved by BIFR and also as a businessexigency paid to GPEL from reserve fund a sum of `32.70 croresand had written off the debt of GPEL in its Books of Accounts.The deduction is claimed as business or trading loss. The A.O.disallowed the entire claim of Rs.32.70 crores. The Commissionerof Appeals allowed the deduction and held that the claim forsetting off from the profits made by the assessee is lawful andpermissible. The Commissioner of Appeals likewise set aside the ITA No.40 of 2011 8 order of A.O. disallowing the claim of `2,72,79,645/- paid by theassessee to the employees towards bonus for the assessment year2002-2003 and held that the payment of bonus satisfies therequirement of Section 43B of the Income Tax Act. TheCommissioner of Appeals set aside the disallowance claimed underSection 80-IA in respect of the new industrial undertaking, i.e. thepower generating unit at Baroda. The Commissioner of Appealsremanded the claims relating to interest falling under Section 80(h)(h)(c) of the Act to A.O. and accordingly, partly allowed the appealand remanded the matter to A.O. The rejection of claim underSection 115JB by A.O. is set aside and disallowance ordered byA.O. is set aside. The revenue filed the appeal against the orderdated 24.4.2006 of Commissioner of Appeals before the Tribunal.The Tribunal, through the order impugned before this Court,rejected the appeal in toto except to the extent of a fewadditions/disallowance. 5. The revenue challenges the orders of Commissioner ofAppeals and the order of Tribunal by raising the followingsubstantial questions. 1. Whether, on the facts and in the circumstances of the case, the assessee company is entitled to claim deduction of`4,38,829/- as club expenses incurred towards membershipfee and subscription? 2. Whether on the facts and in the circumstances of thecase, the Tribunal is right in law in interfering with thedisallowance of interest of `15,59,046/- on the investmentmade from pool of funds? 3(a) Whether, on the facts and in the circumstances of thecase is not the assessment order denying the claim of theassessee company which had advanced a sum of `32.70crores to Gujarat Petro Electrical Ltd., a companypromoted by the assessee and had written off the amountby transfer from general Reserve Account justified, validand in accordance with law and the ITAT is right in law ininterfering with the such denial of the claim? (b) The Tribunal is right in law in interfering with thedenial of `32,69,65,146/- by the Assessing Officer? 4. Whether on the facts and in the circumstances of thecase, the Tribunal is right in law in allowing the deductionfor the bonus in the Asst. Year 2002-03 claimable and paidin the asst. year 2001-02? 3(a) Whether, on the facts and in the circumstances of thecase is not the assessment order denying the claim of theassessee company which had advanced a sum of `32.70crores to Gujarat Petro Electrical Ltd., a companypromoted by the assessee and had written off the amountby transfer from general Reserve Account justified, validand in accordance with law and the ITAT is right in law ininterfering with the such denial of the claim? (b) The Tribunal is right in law in interfering with thedenial of `32,69,65,146/- by the Assessing Officer? 4. Whether on the facts and in the circumstances of thecase, the Tribunal is right in law in allowing the deductionfor the bonus in the Asst. Year 2002-03 claimable and paidin the asst. year 2001-02? 5 (a) Whether, on the facts and in the circumstances ofthe case and sections 115JA and JB being similar shouldnot the ITAT have, in the light of the decision of theSupreme Court reported in 255 ITR 273, held that in thecontext of computation of book profit under section115JB no adjustment other than provided in the statutecould be made; (b) Whether on the facts and in the circumstances ofthe case should not the ITAT have agreed with thecomputation of book profit by the Assessing Officer? 6. We have heard the learned Standing Counsel for Revenue Sri Christopher Abraham and the learned Senior CounselMr.Joseph Markos for the assessee. We may at the outset point outthat the counsel appearing for both the parties have substantiallyreiterated the submissions made before the Tribunal or theappellate authority. The learned Standing Counsel appearing forRevenue reiterates the substantial questions of law framed in thisappeal and these contentions are examined firstly by relying on theconcurrent findings of fact recorded by the CIT [Appeals] and theIncome Tax Appellate Tribunal and finally whether thesecontentions present a substantial question of law under Section260A of the Act or not. The arguments of the counsel are mainlyaddressed on admissibility of club expenses i.e., (i) towards membership fee and subscription; (ii) accepting deduction of interest earned on the investment madefrom pool of funds; ITA No.40 of 2011 11 (iii) business loss claimed by assessee on writing off bad debt ofGPEL; (iv) payment of bonus due for the year 2001-02 in the assessmentyear whether is a claimable deduction or not. Point No.I 7. The background circumstances of this point are that theassessee claimed `4,38,829/- as admissible club expenses. The saidsum comprises of membership fee of `2,75,014/- and amount spenttowards other services at `1,63,815/-. The A.O. disallowed theexpenses of `1,63,815/-. On appeal, the Commissioner of Appealsset aside the disallowance and the finding of Commissioner wasconfirmed by the Tribunal through the order under appeal. Thecounsel appearing for both the parties submit that the extent towhich the assessee is entitled to claim as permissible deduction isno more res integra, by the decision of thisCourt in ITA No.1347of 2009 dated 13.3.2019. Both the counsel state that the assessee isentitled to claim deduction to the extent of subscription ormembership fee if paid by the assessee but not incidental expensesincurred by the employees/member of the assessee. The conclusionrecorded by this Court on club membership expenses in ITA ITA No.40 of 2011 12 1347/2009 reads thus: ITA No.40 of 2011 12 1347/2009 reads thus: 18. Another issue involved in the appeal is in relation to theexpenditure claimed by the assessee towards payment of 'clubmembership fee' of `3,02,841/-. It was contended by theAssessee that the membership fee was incurred forfurtherance of business of the Assessee and since 'usageexpense' was not claimed, it was never to be treated aspersonal expense of the members. This plea was repelled bythe Assessing Officer holding that the expenditure was ofpersonal in nature. But, the version of the Assessee wasaccepted by the Commissioner of Income Tax(Appeals) in theappeal preferred by the Assessee, following similar orderspassed in the Assessee's own case for the assessment years1998-99 and 1991-92, whereby the additions made by theAssessing Officer had been deleted. 19. In the appeal preferred by the Revenue, the Tribunalnoted that the decision of the Tribunal under similarcircumstances in respect of the assessment year 1991-92 (inthe Assessee's own case) had been accepted by the Revenueand that the said finding was supported by the decisions ofother High Courts as well, which stood in favour of theAssessee. It was accordingly, that the order passed by theCommissioner of Income Tax (Appeals) in favour of theassessee was upheld and the appeal preferred by the Revenuewas dismissed in relation to the challenge against 'clubexpenses'. The finding arrived at by the Tribunal is wellsupported by reasons. The amount spent for acquiringmembership in the Clubs stands on a different pedestal fromthe amounts incurred for availing materials supplied orservice provided in the clubs. This Court finds that the saidissue is to be answered in favour of the assessee. It is declaredaccordingly. 8. The order of Commissioner of Appeals and the Tribunal ITA No.40 of 2011 13 having regard to above decision, to the extent of granting complete deduction to amount spent towards club membership fee andincidental expenses is untenable. Hence is liable to be set aside andaccordingly set aside, and this issue is remitted to A.O. forverification of the actual expenses incurred by the assessee and passrevised orders. The point is answered in favour of the revenue asindicated above and the matter remitted to A.O. for passing ordersafter examining the accounts on the actual extent of expensesincurred by the assessee in this behalf and grant deduction to theactual expenses incurred by the assessee by keeping in viewd theratio laid down by this Court in ITA 1347/2009. Point - II 9. The next substantial question deals with disallowance ofinterest of `15,59,046/- on the investment made from pool offunds. 10. The substantial question reads thus: Whether on the facts and in the circumstances of the case, the Tribunal is right in law in interfering with thedisallowance of interest of `15,59,046/- on the invest madefrom pool of funds. Point - II 9. The next substantial question deals with disallowance ofinterest of `15,59,046/- on the investment made from pool offunds. 10. The substantial question reads thus: Whether on the facts and in the circumstances of the case, the Tribunal is right in law in interfering with thedisallowance of interest of `15,59,046/- on the invest madefrom pool of funds. 11. The assessee received dividend from UTI mutual fund andthe Bank of India aggregating to `10,59,119/- and reduced from thenet profit under Explanation (ii) below the second proviso to subsection (2) of section 115JB by treating the said income to which theprovisions of section 10(33) of the Act would apply. The A.O.disallowed the said deduction by holding that the assessee for theprevious assessment year in an appeal pending before the ApexCourt has taken a different stand from the stand taken in thepresent assessment year. Separate accounts are not maintained forthe investment in mutual fund independent of the business carriedout for the year under consideration. The assessee claims that theinvestment in mutual funds is made from out of own funds, i.e.non-interest-bearing funds, cannot therefore be accepted. Theinvestment made is from an inseparable fund of interest and non-interest-bearing funds and therefore, the investment carries with itboth the ingredients. The assessee failed to establish that theborrowed funds have no direct nexus with the investments in unitsof mutual funds, and added `15,59,046/- to the net income of the ITA No.40 of 2011 15 assessee. The Commissioner of Appeals held that the inclusion of interest in the net income of the assessee is without properverification of the accounts and held that the assessee is entitled todeduction amounting to `15,59,046/- under Section 115JB. In other words, inclusion of interest in the net income is unsustainable. The Tribunal, after considering the rival contentions, held as follows: “13. Ground No.3 : After hearing both the parties,we find that during assessment proceedings AO noted thatassessee has reduced a sum of `10,59,119/- being dividendreceived from UTI Mutual fund and Bank of India fromthe book profits u/s 115JB. He further noticed that noamount of expenditure has been reduced from this. Onenquiry, it was submitted that no borrowed funds were usedfor buying these units and, therefore, there was no nexusbetween the borrowed funds and interest free investments.It was noted by the AO that such funds were being investedfrom the pool of funds and the same argument was takenby the assessee in the earlier year before the Supreme Courtin the case reported at 255 ITR 273. Further, no separateaccounts were being maintained for investments in mutualfund. Since, according to the AO, investment was madefrom the common pool of fund, he allocated theproportionate amounting to `15,59,046/-.” 12. The Tribunal set aside the order of Commissioner of Appeals by referring to the view taken by this Court in the case ofCIT v Leena Ramachandran (judgment dated 14[th] June 2010) andremitted the matter to A.O. for fresh consideration with a direction ITA No.40 of 2011 16 12. The Tribunal set aside the order of Commissioner of Appeals by referring to the view taken by this Court in the case ofCIT v Leena Ramachandran (judgment dated 14[th] June 2010) andremitted the matter to A.O. for fresh consideration with a direction ITA No.40 of 2011 16 to verify whether the units of UTI mutual funds were purchased onaccount of trading or investment. If the shares/investment is intrading account, then by following the decision of the Kerala HighCourt in the case of Leena Ramachandran, no expenditure can bedisallowed under section 36(1)(iii). However, if they are on accountof investment, then reasonable expenditure which is directlyattributable to earning such dividend, income may be disallowed.In other words, the Tribunal directed the A.O. to re-consider theparticular entries, keeping in view the ratio laid down by this Courtin Leena Ramachandran's case and redetermine the tax liability.After perusing the reasons recorded by the Tribunal and thedecision in Leena Ramachandran's case, we are of the view that nosubstantial question is made out for interfering with the order ofremand on this issue by the Tribunal. In our considered view theremand to A.O. is justified and no interference is warranted in theappeal. The findings of Tribunal in this behalf are tenable, does notwarrant interfering and the point is answered accordingly. Point No.III ITA No.40 of 2011 17 13. The assessee claimed deduction of `33,56,74,286/- incomputing the book profit under Section 115JB and the saiddeduction claimed in the return was disallowed by the A.O. therebyadding to the book profit of the assessee. The circumstances leadingto the investment made by the assessee as joint venture participantin Gujarat Petro Electrical Ltd. (GPEL) are stated in sufficient detailin the order of the Tribunal. The revenue does not dispute thecorrectness of the narration of statement of facts noticed by theTribunal or the Commissioner of Appeals. Therefore, to the limitedextent now required, we may refer to the undisputed circumstances.`relied on by the parties in this behalf33,56,74,286/- disallowedincludes a sum of `32.70 crores paid by the assessee from reservefunds of GPEL as guarantor of Bank loans. The assessee as part ofits business expansion designs, decided to gain foot hold in theState of Gujarat and in fact established a Tyres Manufacturing unitat Baroda, State of Gujarat. As part of this business design forayedinto forming GPEL with Gujarat Industrial and InvestmentCorporation (GIIC). Thus set up a new business through the jointvenutre company known as GPEL. The assessee had acquired ITA No.40 of 2011 18 `51,80,000 equity shares of `10/- each in GPEL which comes to37.45% of share capital of GPEL. The assessee stood as guarantor toloans borrowed from Banks by GPEL. GPEL went before BIFR andit was finally ordered to be wound up, thereby the assessee being theguarantor to GPEL had to ultimately pay `32,69,65,146/- to thefinancial institutions/Banks under one-time settlement. In thesecircumstances, the assessee has written off the debt of GPEL andclaimed the amount of `32.70 crores as allowable deduction in thereturns filed for subject year. The A.O. while adding back a sum ofRs.33.56 crores noted that the direct nexus between the assessee andthe business of GPEL is disbelieved, and that there was noconnection between the assessee and GPEL, none of the products ofGPEL are used by the assessee company. The repayment of loan bythe assessee cannot be treated as revenue expenditure and the losssuffered by the assessee has no direct and proximate nexus betweenthe business operations of the assessee and GPEL. According toA.O., GPEL was a separate entity. The liabilities of GPEL, if clearedby the assessee, cannot be treated as business expenditure and hencehas disallowed the deduction and added `32.70 crores to the income ITA No.40 of 2011 19 of the assessee. 14. Mr.Christopher Abraham places reliance on the reasons recorded by the A.O. and argues the following two substantialquestions: 1 (a) Whether, on the facts and in the circumstances of thecase is not the assessment order denying the claim of theassessee company which had advanced a sum of `32.70 croresto Gujarat Petro Electrical Ltd., a company promoted by theassessee and had written off the amount by transfer fromgeneral Reserve Account justified, valid and in accordancewith law and the ITAT is right in law in interfering with thesuch denial of the claim? (b) The Tribunal is right in law in interfering with the denialof `32,69,65,146/- by the Assessing Officer? 2 (a) Whether, on the facts and in the circumstances of thecase and sections 115JA and JB being similar should not theITAT have, in the light of the decision of the Supreme Courtreported in 255 ITR 273, held that in the context ofcomputation of book profit under section 115JB noadjustment other than provided in the statute could bemade; (b) Whether on the facts and in the circumstances ofthe case should not the ITAT have agreed with thecomputation of book profit by the Assessing Officer? 15. At the outset we may state that the argument of therevenue is not that law does not allow deduction of bad debts as ITA No.40 of 2011 20 expense or business loss suffered by the assessee. The argument ofrevenue is that in the admitted circumstances, allowing suchdeduction is not correct and the disallwance ordered by A.O. oughtto have been maintained by the Tribunal and Commissioner ofAppeals. The revenue can make out a substantial question that theconcurrent findings of fact noted and recorded by theCommissioner of Appeals and the Income Tax Appellate Tribunalare based on no evidence and/or while arriving at the said finding,relevant evidence has not been taken into consideration orinadmissible evidence has been taken into consideration or legalprinciples have not been applied in appreciating the evidence orwhether the evidence has been misread or that the orders in appealhave misinterpreted or wrongly applied law to the issue on hand.Therefore unless one or the other grounds is made out, the revenuecan't successfully challenge the findings of fact recorded by theCommissioner of Appeals and the Tribunal. We are for the purposeof appreciating the findings under challenge find it useful to referto the order of the Tribunal. 16. The Tribunal has considered each one of the contentions ITA No.40 of 2011 21 urged by the revenue in this behalf and the gist of the findingsreads thus: 16. The Tribunal has considered each one of the contentions ITA No.40 of 2011 21 urged by the revenue in this behalf and the gist of the findingsreads thus: "39. We have considered the rival submissions carefullyin the light of the material on record as well as thedecisions cited by both the parties. We find that theassessee in order to establish a foothold for extension oftis business in the State of Gujarat entered into anagreement with GIIC for establishment of the project byfloating GPEL which was incorporated on June 28, 1990.Later on, a shareholders agreement was entered into on 2[nd]May, 1991 through which assessee along with GIIC was totake 51% of the quity, out of which 11% was to be givento GIIC and balance 40% to the assessee. The assessee wasdesignated as an associated aprtner and the day-to-daymanagement as well as operations of this project wereentrusted to the assessee. The assessee company wasallowed to depute fur directors in the Board GPEL,whereas GIIC was to have only two members on theGPEL. The chairman and Managing Director of GPELwere also to be the nominee of the assessee company.Further, assessee company was entrusted the role ofarranging finances for this project which was formanufacture of copper clad laminates as per the letter ofintent by Government of India. Accordingly, assesseesubscribed to the share capital of GPEL for a sum of `5.18crores. An advance of `5 crores in two transcriptsamounting to `2.43 crores in F.Y.1997-98 and `2.57crores in F.Y.1998-99 was also given. Assessee also stoodguarantor to the loans granted to GPEL by banks andfinancial institutions. The operations of the GPEL wereunsatisfactory right from its inception and ultimatelyGPEL was referred to BIFR on 11.8.1997 and later on aRehabilitation Scheme was proposed which has beenconfirmed by the Hon'ble Gujarat High Court. As perthis Rehabilitation Scheme, copy of which is placed at pages 188 to 202 of the paper book, mainly restructuringof loan term liability as well as reduction of share capitalwas proposed. Certain sacrifices were also required to bemade by Government of Gujarat as well as Government ofIndia. As per para-3 of the scheme ATL was accepted asguarantor of the loans to GPEL to make payaments ofentire principal term loan and 50% of the simple interestto banks and financial institutions the debenture holderswere also required to waive 50% of the interest. TheGovernment of Gujarat was required to (i) defer thepayment of purchase tax on the basis of interest freedeposits (ii) to defer sales tax liability, (iii) to defer octroiduty and (iv) to defer electricity duty. The CentralGovernmetn to grant - (i) an exemption from sec.41(1) ofthe Incoem Tax Act, (ii) an exemption from sec.36(1) ofthe Act, (iii) to exempt the company from the provisionsof sections 100 to 102 of the Companies Act, 1956 and(iv) to exempt the company from the applicability fromthe provisions of sec.81A of the Companies Act. 40. The assessee company was further exempted fromcompliance of sec.372 of the Companies Act and fromSEBI Regulations. Even Ahmedabad ElectricityCorporation was required to make minimum demandcharges and penalty thereon as well as to ensureuninterrupted power supply to GPEL. The equity capitalwas also required to be written down by 90%. In view ofthis scheme, assessee company made payments in the formof guarantees and/or payment of loans and interestcharges to banks and financial institutions whichamounted to `32.70 crores. In its board meeting held on26.6.2002 it was decided that the amount recoverable fromGPEL was not recoverable considering the over all factsand financial health of GPEL and, therefore, it wasdecided to write off the same. It was further decided inthis meeting that this amount should be withdrawn fromthe general reserve. Accordingly, assessee has made claimfor this loss during the A.Y. 2002-03 i.e. The eyar under consideration before us. 41. This claim has been not allowed by the AO because,according to him, there was no direct business connectionbetween the assssee and GPEL. The products of GPELwere not being used by the assessee in its manufacturingprocess. The activities of GPEL had no connection withthat of the assessee and, therefor,e loss suffered by theassessee has no direct and proximate nexus between thebusiness operations carried on by it or incidental to itsbusiness. It was further observed that in any case it was aloan repayment and, therefore, it cannot be termed asrevenue loss. It was also noted that GPEL was a separateentity and assessed as such and, therefore liabilities createdby it did not automatically became the businessexpenditure of the assessee. The alternate claim u/s.36(1)(vii) was also rejected by observin that assessee was not inthe business of banking or money lending and even thedecision of the Hon'ble Calcutta High Court in the caseof Turner Morisson & co. V CIT (supra) was distinguishedby observing that in that case money was advanced to asubsidiary company on the winding up and int he rpesentcase GPEL was not the subsidiary and it has also not beenwound up. It was also noted that resolution for writingoff this claim was passed on 26.6.2002 and, therefore, thisamount could not be claimed in the present year. AO alsoplaced reliance on the decision of the Hon'ble SupremeCourt in the case of CIT v Birla Bros (P) Ltd. (supra) todisallow this claim. 42.The Id CIT(A) has allowed the relief mainly on thebasis that it was a legitimate business decision. The jointventure entered into by the assessee company was with thegovernment of Gujarat and it was not an arrangement tosiphon off the money and the payments have been madein terms of the settlement approved by BIFR. 43. On the above acts we are required to find out whetherassessee's claim is allowable. For this, we need to look at the proper aspect of the whole issue. The assessee is acompany engaged in the manufacture and sale of tyres andtubes but at the same time it is authorised by clauseIIIB(6) of "objects incidental or ancillary to the attainmentof the main object" which reads as under: "6. To amalgamate, enter into partnership or into anyarrangements for sharing profits, union of interests, co-operation, joint-adventures, or reciprocal concessions orfor limiting competition with any person or companycarrying on or engaged in or about to carry on or engagein or which can be carried on in conjunction therewith orwhich is capable of being conducted so as to directly orindirectly benefit the company." 43. On the above acts we are required to find out whetherassessee's claim is allowable. For this, we need to look at the proper aspect of the whole issue. The assessee is acompany engaged in the manufacture and sale of tyres andtubes but at the same time it is authorised by clauseIIIB(6) of "objects incidental or ancillary to the attainmentof the main object" which reads as under: "6. To amalgamate, enter into partnership or into anyarrangements for sharing profits, union of interests, co-operation, joint-adventures, or reciprocal concessions orfor limiting competition with any person or companycarrying on or engaged in or about to carry on or engagein or which can be carried on in conjunction therewith orwhich is capable of being conducted so as to directly orindirectly benefit the company." The above clause clearly shows that to meet the aspirationof becoming a diversified company the above clauseauthorised it to enter into any partnership or arrangeentto start any business. Therefore, for getting into the newbusiness a letter of intent was got issued from Governmentof India to start new business of production andmanufacture of copper clad laminates and the companyknown as GPEL was incorproated in May 2,1999. Theassessee with specific intention of establishing its footholdin the State of Gujarat for expansion of its existingbusiness of tyre entered into collaboration with theGovernment of Gujarat through GIIC to start a newcompany. Because of this agreement, assessee has beensuccessfully able to establish Asia's largest business plant atLimda near Baroda in the State of Gujarat. Therefore, it isclear that whatever was being tried to be achieved throughGIIC was a larger business interest or what in other wordsis known as commercial expediency. The Hon'bleSupreme Court in the case of S.A.Builders Ltd. V CIT(supra) has given the following definition of commercialexpediency at pacitum-26: "The expression "commercial expediency" is an expressionof wide import and includes such expenditure such as a prudent businessma incurs for the purpose of business.The expenditure may not have been incurred under anylegal obligation, but yet it is allowable as a businessexpenditure if it was incurred on grounds of commercialexpediency". 44. The assessee having though achieved its major objectof establishing its tyre business at Limda but in themeantime the opeations of GPEL were not runningsatisfactorily. Ultimately, GPEL went to BIFR and ascheme of rehabilitation was framed which has beenconfirmed by the Hon'ble Gujarat High Court. Ascontended by the Ld. Counsel of the assessee every stakeholder of GPEL was to make some sacrifices. Para 3 ofthe Rehabilitation Scheme provides for following: i.Financial institutions and banks were required toaccept principal amounts of loan only @ 50% of thesimple interest outstanding. ii.For this, they were directed to accept the assesseecompany as guarantor of the loans and ultimately onetime payment of the principal and 50% interest wasprescribed; iii.Debenture holders were to sacrifice 50% of theinterest iv.Government of Gujarat was required to deferpayment of purchase tax on interest free basis and wasalso required to defer sales tax liability as well as octroiduty and electricity duty; v.Central Government was required to grantexemption u/s.41(1) of the I.T. Act for remission ofliability and to give exemption u/s.36(1)(iii) of the I.T.Act for notional interest on promoters contribution. The government was further required to exempt the companyfrom the provisions of sections 100 to 102 of theCompanies Act regarding alteration/deduction of sharecapital; vi.Further it was required to grant exemption from theprovisoins of sec.81A of the Companies Act andcompliance of SEBI gruidelines for issue of optionalconvertible debentures. iv.Government of Gujarat was required to deferpayment of purchase tax on interest free basis and wasalso required to defer sales tax liability as well as octroiduty and electricity duty; v.Central Government was required to grantexemption u/s.41(1) of the I.T. Act for remission ofliability and to give exemption u/s.36(1)(iii) of the I.T.Act for notional interest on promoters contribution. The government was further required to exempt the companyfrom the provisions of sections 100 to 102 of theCompanies Act regarding alteration/deduction of sharecapital; vi.Further it was required to grant exemption from theprovisoins of sec.81A of the Companies Act andcompliance of SEBI gruidelines for issue of optionalconvertible debentures. vii.The government was also required to grantexemption to ATL i.e., the assessee company fromcompliance of provisions of sec.370A of the CompaniesAct; viii. The Ahmedabad Electricity Corporation wasrequired to waive minimum demand charges and penaltyfrom the date of discontinuation to the date ofreconnection and was further directed to ensureuninterrupted power of supply. ix.The assessee company was specifically required tobring in capital of `291 lakhs towards the rehabilitationscheme. The payment made by the assessee is, in fact, towardscompliance of the Rehabilitation Scheme. It clearly showsthat the assessee company was trying to rehabilitate theoperations of the GPEL but still the same could not berevived. Therefore, in addition to the above compulsionsby the order of the BIFR, the assessee company was furtherrequired to defend its reputation by paying to thefinancial institutions and bankers towards discharge of itsguaranteed liabilities and other liabilities as proposed bythe BIFR. Failure to pay these liabilities would haveexposed the assessee company of getting black listed andlosing the face from financial institutions and banks forits future projects. In fact, when the whole situation is looked from this angle, it seems that the assessee companyhad no choice but to pay the amount. Even the delay formaking these payments would have led the assesseecompany into further trouble in the sense that liabilitiesof financial institutions and banks would have gone upfurther. 45.Thus, it is clear that payments were made out of thecommercial expediency and as observed by the Hon'bleSupreme Court in the case of in the case of S.A. Buildersthat even if there is no necessity to make the paymentsand such payments are made voluntarily on the groundsof commercial expediency, then such claim has to beallowed. We would like to reproduce the relevantobservations which are given at placitum 24 of thejudgment as under: “Thus in Atherton v. British insulated & Helsby CablesLtd. (1925) 10 Tax Cases 155 (HL), it was held by theHouse of Lords that in order to claim a deduction, it isenough to show that the money is expended, not ofnecessity and with a view to direct and immediate benefit,but voluntarily and on grounds of commercial expediencyand in order to indirectly facilitate the carrying on thebusiness. The above test in Atherton's case (supra) hasbeen approved by this Court in several decisions eg.Eastern Investments Ltd vs. CIT (1951) 20 ITR 1 (SC),CIT v. Chandulal Keshvlal & Co. (1960) 38 ITR 601 (SC)etc. The Hon'ble Apex Court has further at placitum-35 whileapproving the decision of Hon'ble Delhi High Court inthe case of CIT vs. Dalmia Cement (B) Ltd. [254 ITR 377]observed as under: “We agree with the view taken by the Delhi High Courtin CIT v. Dalmia Cement (Bharat) Ltd (2002) 174 CTR(Del) 188: (2002) 254 ITR 377 (Del) that once it is The Hon'ble Apex Court has further at placitum-35 whileapproving the decision of Hon'ble Delhi High Court inthe case of CIT vs. Dalmia Cement (B) Ltd. [254 ITR 377]observed as under: “We agree with the view taken by the Delhi High Courtin CIT v. Dalmia Cement (Bharat) Ltd (2002) 174 CTR(Del) 188: (2002) 254 ITR 377 (Del) that once it is established that there was nexus between theexpenditure and the purpose of the business (whichneed not necessarily be the business of the assesseeitself), the Revenue cannot justifiably claim to put itselfin the armchair of the businessman or in the positionof the board of directors and assume the role to decidehow much is reasonable expenditure having regard tothe circumstances of the case. No businessman can becompelled to maximize its profit. The IT authoritiesmust put themselves in the shoes of the assessee and seehow a prudent businessman would act. The authoritiesmust not look at the matter from their own viewpointbut that of a prudent businessman. As already statedabove, we have to see the transfer of the borrowed fundsto a sister-concern from the point of view ofcommercial expediency and not from the point of viewwhether the amount was advanced for earning profits.” From the above observations it become clear that claimhas to be allowed even if it is not necessary to makesuch payments if the payments had been madevoluntarily on the grounds of commercial expediency.Further it is not necessary that such business should bethat of assessee itself. In the case before us though theamounts have been made in respect of GPEL butbasically assessee was trying to establish the newbusiness through GPEL and was also trying to achievethe larger business interest by establishing furtherfactory in the State of Gujarat and it has been done alsoby establishment of tyre manufacturing unit at Limdanear Baroda. 17. While dealing with Section 115JA and 115JB held as follows: The above clearly shows that any amount withdrawnfrom any reserve is to be allowed to be reduced.However, proviso to above clause puts a restriction thatsuch reduction is permitted only if such amounts were added back to the book profits in the earlier year.Before the AO the details of reserve created in earlieryears were also filed. These general reserves were statedto be reserves which were created after debiting theprofit & loss account. However, AO has rejected thesame on the premise that strictly speaking the same hasnot been added to the book profits because in thoseyears assessee suffered tax under the normal provisions.This is not the correct way of interpreting the conceptof MAT. The MAT provisions sections 115JA and 115JBwere introduced in the statute because certaincompanies which are also known as zero tax companieswere though declaring profits in the books and werealso paying dividends but because of deductionsprescribed under the Act not tax was being paid. Toavoid that situation, minimum alternate tax what isnow generally known as MAT was prescribed so thateven zero tax companies paid some amount of tax.Therefore, if a company has suffered tax under thenormal provisions which is naturally higher to the 30%of the book profits, then it is not necessary that suchcompany should simultaneously be levied MAT alsobecause that would amount to double taxation.Therefore, the profits which have already suffered taxunder the normal provisions and were credited to thegeneral reserve are now withdrawn to meet the assessee'sliabilities, the same has to be reduced even from thebook profits so that the profits taxed earlier do notsuffer tax again and that is why the Legislature hasprovided the reduction of amounts withdrawn fromreserve under clause (I) of Explanation 1 to sec.115JB. 18. The Tribunal held that the contention of A.O. if accepted literally amounts to deciding the priorities of the businessexigencies of the assessee, as long as the truthfulness of the entries 18. The Tribunal held that the contention of A.O. if accepted literally amounts to deciding the priorities of the businessexigencies of the assessee, as long as the truthfulness of the entries ITA No.40 of 2011 30 is not doubted and it is not a caseof syphoning of moneythrough cheap fictitious entries, the Tribunal held that there wasno need to interfere with the findings recorded by theCommissioner of Appeals. 19. The learned counsel for the revenue contends that theGPEL is not a subsidiary of assessee company and that the writingoff debt of GPEL in the books of assessee is completelyimpermissible. While answering the said contention, we mayquickly add that the revenue is not disputing the entries in booksof accounts and circumstances considered either by theCommissioner of Appeals or the Tribunal. Therefore, for allpurposes the findings recorded by the Tribunal and theCommissioner of Appeals are findings of fact. No perversity ispointed out to us for deeper examination into this contention orchange the effect of the entries by accepting the contention as asubstantial question of law. Further the case of revenue is not thatthe deduction is unavailable in law, but the argument proceedsthat the assessee could not have claimed the writing off bad debt asa business loss in the peculiar circumstances of the case while ITA No.40 of 2011 31 computing total income. The instant argument or question doesnot satisfy the requirements of Section 260A of the Act, viz. that asubstantial question of law arises for consideration of this Court. 20. In the singular facts and circumstances of this case, andparticularly for the subject assessment year, we are of the view thatthe assessee has established that the memorandum of association,authorised the assessee to expand its business into new areas i.e.incorporating GPEL etc. The Tribunal has recorded a finding offact that the assessee has, in fact, established one of the biggest tyremanufacturing companies in the State of Gujarat and with a viewto expand its business activities incorporated GPEL. GPEL onaccount of technical glitches in sharing know-how provided by theforeign collaborator could not take off on expected lines, resultingin cash loss etc. GPEL was referred to BIFR as sick industry. BIFRnotified a scheme for operation or reviving GPEL. BIFR, underthe scheme had equally distributed the obligations both to Gujaratinfrastructure Development company and the assessee. Theassessee, as part of implementation of a scheme accepted by BIFRhad to clear the debt of GPEL as guarantor. The Tribunal refers to ITA No.40 of 2011 32 a circular of reserve bank. It says that (a) business entity of the corporation commits defaultas guarantor also attracts disadvantage in creditrating. The assessee who takes a well informeddecision permissible in law and as per the standardaccountancy practices, it is not for the revenue tosuggest the manner in which the said situation ofhonouring the directions in the sch