ORDER

Shailendra Kumar Yadav, Judicial Member - These two set of cross appeals are arising out form the respective orders of CIT(A)-VI, Ahmedabad, dated 29.12.2006 for A.Y. 2003-04 & CIT (A)-VIII, Ahmadabad, dated 26.11.2007 for A.Y. 2004-05. So, they are being disposed of by way of this common order for the sake of convenience.

2. In ITA No. 1185/Ahd/2007 for A.Y. 2003-04, Revenue has filed the appeal on the following grounds:

2.1 In I.T.A. No. 1246/Ahd/2007 for A.Y. 2003-04, assessee has filed the appeal on the following grounds:

3. First we take up Revenue's appeal in ITA No. 1185/Ahd/2007 for A.Y. 2003-04.

3.1 First issue in Revenue's appeal is with regard to estimated disallowance of depreciation of Rs. 5 lacs on the assets of Multi Metal Project. Assessee's claim is that even though machines in the Multi Metal Project were not actually used during the year, still claim of depreciation is allowable since the machineries were put in a condition ready to use. The said disallowance made by Assessing Officer were deleted by CIT(A) by observing that similar disallowances were deleted in A.Y. 1997-98 to 2000-01. Before us ld. Departmental Representative and requested to set aside the order of CIT(A) on the issue and restored that of the Assessing Officer on the issue. On other hand ld. Authorized Representative pointed out that CIT(A) has followed its decision for A.Y. 1997-98 to 2000-01 and Tribunal in ITA No. 402/Ahd/2005 for A.Y. 2001-02 vide para 4.2 - 4.2.1 has decided the similar issue in favour of assessee by observing as under:

"4.2 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the tribunal decision in assessee's own case for the assessment year 1998-99 and 1999-2000 in I.T.A. No. 1392 and 1422/And/2003. He further submitted that the relevant portion of this tribunal order is at para 19-23 which are available on page 81-82 of the decision paper book. He further submitted that this tribunal order was followed by the tribunal in assessment year 1997-98 in I.T.A. No. 2728/Ahd/2000 and the relevant discussion is in para 84 of the Tribunal order on page 76 of the decision paper book.

4.2.1 Ld. D.R. of the revenue although supported the order of the A.O. but he could not point out any difference in facts in the present year as compared to earlier three years for which the tribunal decision had been cited by the Ld. A.R. Hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the revenue is rejected."

Similar view has been taken in assessee's own case in Gujarat Mineral Development Corporation Ltd. v. Commissioner Of Income-Tax, Gujarat. [2013] 140 ITD 603/[2012] 28 taxmann.com 181 (Ahd.) for A.Y. 2002-03.

3.2 Nothing contrary has been brought to our knowledge in this regard. Facts being similar, so following the same reasoning, we are not inclined to interfere in the finding of CIT(A) who has deleted the disallowance of Rs. 5 lacs made by Assessing Officer on account of depreciation related to Multi Metal Project. Same is upheld.

4. Next issue in Revenue's appeal is regarding disallowance of Rs.18,76,968/- on account of prior period charges. In this regard ld. Authorized Representative relied on the decision of i. Saurashtra Cement & Chemical Industries Ltd. v. CIT [1995] 213 ITR 523/80 Taxman 61 (Guj.) , ii. CIT v. Modipon Ltd. [2011] 334 ITR 102/[2012] 205 Taxman 89/18 taxmann.com 294 (Delhi) iii. CIT v. Jagatjit Industries Ltd. [2010] 339 ITR 382/194 Taxman 158/7 taxmann.com 21 (Delhi) . Assessee has claimed prior period expenses of Rs. 76,98,986/-. Assessing Officer disallowed the claim stating that examination of the details furnished by assessee show that the liability to pay expenditure had crystallized in the previous accounting year itself. As the assessee is following mercantile system of accounting provision should have been made in the earlier years itself. The stand of Authorized Representative has been that complete details of prior period expenses were furnished. Assessing Officer has disallowed the claim by making general observations without discussion of various details in this regard.

4.1 In appeal, CIT(A) having considered the various details, deleted the disallowance of Rs.18,76,968/- made on account of prior period charges by Assessing Officer. Rest was confirmed.

4.2 Both are in appeal before us. Revenue is opposing relief of Rs.18,76,968/- on this account while assessee is also in appeal against confirming the disallowance of Rs.58,22,018/-of prior period charges. In this regard, ld. Departmental Representative supported the order of Assessing Officer while ld. Authorized Representative pointed out that Gujarat Mineral Development Corporation Ltd. v. Commissioner Of Income-Tax, Gujarat. (supra) in A.Y. 2001-02, has restored similar matter to Assessing Officer by observing as under:

"4.3.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the decision cited by the Ld. A.R. We find that in assessment year 1990-91, it is observed by the Tribunal in para 15 of the tribunal order that the liability has crystelised during the year under consideration and there is no dispute on this fact that on this basis of order of Ld. CIT(A) was upheld by the tribunal in that year. In the present year, no finding is given by Ld. CIT(A) as to whether the expenses in question have utilized during this year or not. It is further noted by Ld. CIT(A) on page 4 of his order that the A.O. has not given this finding that the expense did not crystelise during the present year. Therefore, in our considered opinion, this fact has to be brought out on record as to whether the expenses in question have crystelised during this year and if the assessee is able to do so, no disallowance should be made. The A.O. should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee. Ground No.2 of the revenue's appeal is allowed for statistical purposes."

4.3 Facts being similar, so following the same reasoning, we restore this issue to Assessing Officer with similar direction and to be more precise. Assessing Officer will pass necessary order as per law after providing due opportunity of being heard to assessee. As a result, this ground in both assessee's and Revenue's appeals, is allowed for statistical purpose. Since, we are restoring this issue for the reasons discussed above, we are refraining to make any comment on the merit of the issue at hand. This will take care of Revenue's ground no.2 as well as assessee's ground no.4. Assessing Officer is directed accordingly.

5. Next issue raised in Revenue's appeal is with regards to disallowance of alternative claim of assessee to tax only interest portion of lease rental by disallowance of depreciation of Rs.2,00,34,358/- on assets leased to Gujarat State Road Transport Corporation (hereinafter referred as "GSRTC'). Assessee claimed that it had entered into lease transaction with GSRTC in F.Y. 1993-94, 1996-97 and 1999-2000. Lease rent received were offered for taxation and assessee had claimed depreciation on assets (buses) leased to GSRTC. It was also stated on behalf of assessee that for some assessment years the Department had accepted the transaction as genuine. However, in some assessment years transaction was not regarded as lease transaction but as purely financial year transaction. It was pointed out before CIT(A) that for A.Ys. 1997-98 to 2001-02, the claim of assessee was that nature of transaction entered into with GSRTC was of the type of leasing transaction was accepted and depreciation on buses leased was allowed. However, in A.Y. 2000-01 onwards the CIT(A) sustained the action of Assessing Officer in disallowing the claim of depreciation. Transaction was treated as a pure financial transaction. CIT(A) sustained the disallowance of depreciation. However, CIT(A) also directed Assessing Officer not to tax the entire lease rentals to be taxed. For this year also the disallowance of depreciation was sustained. As transaction is treated as financial transaction, Assessing Officer was directed to only tax the interest portion out of lease rentals offered as income by assessee.

5.1 Before us, ld. Authorized Representative pointed out that in assessee's own case in Gujarat Mineral Dev. Corpn. Ltd. (supra) for A.Y. 2000-01 vide para 2.1.2 has decided the similar issue in favour of assessee by observing as under:

"2.1.2 We have considered the rival submissions, perused the material on record and have gone through the order of authorities below and we find that this issue is covered against the assessee by the decision of Special bench of the Tribunal rendered in the case of Indusind Bank Ltd. (supra) and, therefore, respectfully following the decision of Special bench of the Tribunal, this issue is decided against the assessee. In addition to holding this that in the case of financial lease, lessor is not entitled to depreciation, it is also held by the Special bench of the Tribunal in the case of Indusind Bank Ltd. (supra) that the entire lease rental received by the assessee lesser, cannot be considered as income and only the interest component of lease rental finance charge i.e. interest, should be recognized as income. The decision of Ld. CIT(A) is on this very line and hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground is rejected."

5.2 Facts being similar, so following the same reasoning, we are not inclined to interfere in the finding of CIT(A), who has directed the Assessing Officer to tax the interest portion out of lease rentals offered as income by assessee. Same is uphold.

6. Next issue is with regards to disallowance u/s. 14A of Rs.58,68,355/-. Assessing Officer made disallowance of Rs.60,75,409/- u/s. 14A.

6.1 Matter was carried before First Appellate Authority, wherein it was stated on behalf of assessee that assessee has subscribed to bonds issued by Ahmedabad Municipal Corporation and had invested Rs. 10 crores in F.Y. 2001-02 relevant to A.Y. 2002-03. During previous year relevant to assessment year under consideration in appeal i.e. 2003-04, assessee had received tax free interest of Rs.90 lakhs. Assessing Officer had disallowed a sum of Rs.60,75,409/- as relating to expenditure incurred for earning above income. The disallowance made by Assessing Officer is as under:

Stand of assessee had been that disallowance made was without any logic. What assessee had received is only interest warrants during the year and all it had done was to deposit these interest warrants in the bank account. No expenditure was incurred. There is also no requirement to disallow interest as assessee has interest free funds. Therefore, disallowance u/s. 14A is misconceived. CIT(A) considered the arguments of assessee and observed that assessee's past earning and interest free funds and loans funds have lost their individual identities and as these funds formed a common pool, the interest disallowed by Assessing Officer is sustained as disallowance of administrative expenses practically no expenditure was incurred as all that has to be done to realize the interest is to deposit interest warrants in bank. The expenditure incurred is very negligible. No disallowance on this ground is called for. Therefore, disallowance of Rs.58,68,385/- was deleted.

6.2 Revenue is in appeal against relief of Rs.58,68,385/- by its ground no.4 while assessee is in appeal against confirmation of disallowance u/s. 14A of Rs.2,15,024 vide ground no.8 being pro-rata expenses for tax free bonds of AMC. Ld. Departmental Representative supported the order of Assessing Officer on the issue while ld. Authorized Representative supported the relief granted and opposed the confirming disallowance of Rs.2,15,024/- being pro-rata expenses for tax free bonds of assessee. Ld. Authorized Representative submitted that assessee corporation earned Rs.90 lacs tax free interest from tax free fund of Ahmedabad Municipal Corporation of Rs.10 crore. Assessing Officer disallowed Rs.2,15,024 on account of proportionate interest expenses and Rs.58,60,385/- on account of proportionate administrative expenses, total disallowance of Rs.60,75,409/-. In this regard assessee submitted as under:

As discussed above, issue of disallowance of interest expenses has been decided against assessee. In this regard, stand of assessee has been that as assessee has four more interest free funds in the form of share capital and reserve & surplus and current year profit then it is presumed that investment made from interest free funds. Further as regards to use of interest bearing fund, it is expected of Department to establish nexus between interest bearing funds borrowed and those invested by assessee. In this regard, assessee placed reliance on following judicial pronouncements:

In this legal and factual background, ld. Authorized Representative submitted that disallowance in question made in respect of interest expenses should be deleted. On other hand ld. Departmental Representative supported the order of CIT(A) on the issue.

6.3 After going through rival submissions and material on record, we find that Hon'ble Gujarat High Court Gujarat Industrial Development Corpn Ltd. (supra) has held that it is expected of Department to establish a nexus between interest bearing funds borrowed and those invested by assessee respondent only when it is shown that interest free funds are not available with assessee, question would arise of fastening tax liability on assessee. In the said case, respondent assessee had not used borrowed funds, for the purpose of investment in equity shares. For deduction claimed u/s. 80M of Act, on dividend income of these shares, both the Commissioner (Appeals) and the Tribunal have rightly allowed interest free expenses incurred for earning dividend and allowed deduction u/s. 80M on net income received and Revenue having failed to establish that respondent had incurred any expenses for earning dividend income from the amount borrowed, they have rightly not added sum of Rs.6.62 crore invoking provisions of Section 14A which does not permit deduction of expenditure incurred in relation to income not includible in total income. Similar view has been taken in Amod Stamping (P.) Ltd. (supra), Torrent Power Ltd. (supra) and other decisions relied by assessee. In view of above, no disallowance of interest expenses is required because revenue is expected to establish a nexus between interest bearing funds borrowed and these invested by the assessee. In such situation, disallowance u/s. 14A of Act is not justified. Assessing Officer is directed accordingly. Accordingly appeal of revenue on this issue is dismissed and that of assessee is allowed as discussed above.

7. In result, appeal of Revenue is dismissed.

8. Now we take assessee's appeal in ITA No.1246/Ahd/2007 for A.Y. 2003-04.

8.1 First issue is with regards to disallowance of Rs.99,62,450/- being expenditure of lignite project at Mata no Madh holding it to be preoperative expenses. Assessing Officer made disallowance of project expenses of Mata no Madh of Rs.99,62,450/-. Assessee's claim was that it is engaged in mining of lignite. During year under consideration it has continued the activity of expansion of its business at Mata no Madh. Assessee also claimed before Assessing Officer that ITAT in its own case for A.Y. 1995-96 had allowed the claim of assessee by following decision of ITAT for A.Y. 1990-91 in assessee's own case. Assessing Officer held that expenditure incurred is capital in nature. Further assessee itself had capitalized expenditure as pre-operative expenditure in its books of account. Assessing Officer has also stated in the order that CIT(A) for A.Y. 2000-01 had confirmed similar disallowance in respect of expenses relating to project. Details of expenditure as contained in assessee's letter dated 18.11.2005 to the Assessing Officer are as under:

"During the year under review, the assessee company incurred certain expenditure for the project at Mata No Madh, the details of which are as under: Sr. No. Description Amount (Rs.) 1. Opening Balance 54763037 2. Salaries, Wages & Allowances 1569235 3. Contribution to P.F./FPF etc. 147081 4. Welfare/Terminal expenses 571762 5. Consumption of Stores 212110 6. Repairs & Maintenance - Machinery 342139 - Others 184106 7. Rent, Rates & Taxes 31663 8. Insurance Charges 39252 9. Traveling, Conveyance & Vehicle expenses 29529 10 Stationery, Printing. Postage, Telephone, Advt. & Publicity Expenses 41931 11 General Charges 2042294 12 Miscellaneous Mining Expenses 3097373 13 Share Loan Interest written off - 14 Rent Charges 42000 15 Transportation charges - 16. Over - burden Removal expenses 1921623 17 Financial charges 312 18 Previous Year's Expenses 59515 19 Depreciation 344364 65439326 65213851

All the above expenses were treated as pre-operative expenses in the books of account. The total expenditure incurred during the year under review is Rs.10450814/-(Closing Balance Rs.65213851 - Opening Balance Rs.54763037). Out of the total expenses the company has claimed deduction as under- "Total expenses incurred Rs. 10450814 Less: Depreciation not claimed Rs. 344364 Less: Bonus disallowed u/s.43B Rs. 144000 Total amount claimed Rs. 9962450"

Pre-operative expenses were capitalized in the books of accounts in accordance with Accounting guidelines issued by the Institute of Chartered Accountants of India. Assessee placed reliance before CIT(A) on the order of CIT(A) for A.Y. 2002-03, wherein similar issue was decided following ITAT observation in assessee's own case as discussed above. In this background, CIT(A) observed that ITAT, Ahmadabad Bench considered the issue of allowability of interest borrowed for the purpose of implementation of project in the nature of expansion of assessee's existing business, in case of Gujarat State Fertilizer & Chemicals Ltd. (supra) (GSFL) (supra). In this regard, ld. Authorized Representative pointed out that ITAT, Ahmadabad 'D' Bench in Gujarat Mineral Dev. Corpn. Ltd. (supra) for A.Y. 2002-03, vide para 2.2.3, has decided similar issue in favour of assessee by observing as under:

"2.2.3 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the various tribunal decisions cited by the Ld. A.R. of the assessee. Ld. D.R. could not point any difference in the facts in the present year as compared to the earlier years for which Tribunal decisions are available. In the combined tribunal order for the assessment years 1994-95, 1996-96 and 1997-98 in para 25 of this tribunal order, this fact is noted by the tribunal that the issue in dispute was regarding expenses incurred in respect of Boxite project at Ghadsesa and Lignite project at Mata No Madh. It is further noted by the tribunal in para 28 of the tribunal decision that the A.O. disallowed the expenditure of Mata No Madh project by treating the same as capital expenditure. It is further noted by the tribunal that it was submitted by the Ld. A.R. before the tribunal that this issue is covered in favour of the assessee by the tribunal decision in the assessee's own case in I.T.A. No. 3232/Ahd/1996 for the assessment year 1990-91 as per order dated 05.05.2005 and also for assessment year 1992-93 in I.T.A. No. 936/Ahd/1999 as per tribunal order dated 12.07.2005. As per this tribunal order for the assessment year 1994-95, 1996-97 and 1997-98, the issue in dispute was decided in favour of the assessee by respectfully following the earlier tribunal order for the assessment years 1990-91 and 1992-93. Regarding the tribunal order for assessment year 1998-99 and 1999-2000 in which the issue was restored by the Tribunal to the A.O., we find that in the subsequent order, the Tribunal has decided the issue in favour of the assessee although the earlier tribunal order was not brought to the notice of the tribunal But since, we feel that in the facts of the present case, the later order should be followed. In the present year also, Ld. D.R. could not point out any difference in facts and hence, we do not find any reason to take a contrary view in the present year. Therefore, by respectfully following earlier tribunal decisions as discussed above, we decide this issue in favour of the assessee in the present year also. This ground of the assessee is allowed."

Similar issue for A.Y. 2001-02 in Gujarat Mineral Development Corporation Ltd. v. Commissioner Of Income-Tax, Gujarat. (supra) has been decided in favour of assessee by observing as under:

"3.1 Ground No.l(a) is regarding confirmation of disallowance of Rs.2231740/- being the expenditure on project Mata No Madh holding the same as capital in nature. It was agreed by both the sides that this issue is identical to ground No.2 raised by the assessee in the assessee's appeal for the assessment year 2000-01 and hence, the same can be decided on similar line. In that year, this issue was decided by us in favour of the assessee as per para 2.2.3 above and on the same lines, in this year also, this issue is decided in favour of the assessee. This ground of assessee is allowed."

8.2 Nothing contrary has been brought to our knowledge in this regard. Moreover, CIT(A) following A.Y. 03-04 decided issue against assessee. At this stage, ld. Authorized Representative pointed out that issue was decided against assessee following decision of CIT(A) in Gujarat State Fertilizer on similar point. Ld. Authorized Representative further pointed out that subsequently this issue in Gujarat State Fertilizer & Chemicals Ltd. (supra) has been decided in favour of assessee by Hon'ble Gujarat High court as reported in Gujarat State Fertilizer & Chemicals Ltd. (supra), wherein Hon'ble Gujarat High Court held as under:

"5. Considering the facts of the present case and the decision of the hon'ble Supreme Court, we are of the view that the Tribunal was not right in law in disallowing the interest of Rs.27,96,95,759/- paid in respect of capital borrowed for the purpose of its business being the second caprolactum plant under installation. This tax appeal is, therefore, allowed. The question formulated by this court is answered in the negative, that is, in favour of the assessee and against the Revenue."

Nothing contrary was brought to our knowledge. Facts being similar, so following the same reasoning, Assessing Officer is directed to delete the disallowance of Rs. 99,62,450/- on expenditure of project Mata no Madh.

9. Next issue is with regards to disallowance of Rs.55,89,17,419/- being expenditure on power project at Akri Mota and further rejecting the claim of interest and financial charges of Rs.50,33,77,067/- forming part of total expenditure of Rs.55,89,17,419/- being not allowable u/s. 36(1)(iii) of the Act. In this regard, it was fairly admitted by ld. Authorized Representative that this issue has been decided against assessee in assessee's own case in Gujarat Mineral Development Corporation Ltd. v. Commissioner Of Income-Tax, Gujarat. (supra) for A.Y. 2001-02 vide para 3.2 by observing as under:

"3.2.4 As per above discussion, we have seen that none of the judgements cited by the Ld. A.R. is rendering any help to the assessee in the present case except the tribunal decision rendered in the case of United Phosphorus Ltd. (supra). In that case, it was held by the Tribunal that interest paid on funds borrowed for business purpose, including for the purpose of setting of a new unit of the existing running business is allowable u/s 36(l)(iii) of the Act. While examining the applicability of this tribunal decision, we have noted above that interest expenditure will be allowable if it is found that borrowed fund were used for the purpose of setting up of a new unit of the existing running business. As per above discussion, while examining the applicability of various other judgments, we have seen that borrowed funds were not used for setting up of a new unit of an existing running business but it was setting up of a new unit for production of an altogether new product i.e. power whereas the existing business of the assessee was production of lignite. Since this aspect is not fulfilled in the present case, even interest expenditure is not allowable in the present case u/s 36(l)(iii) because in the present case, the product to be manufactured by the new unit is an altogether new product.

3.2.5 In view of the above discussion, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the assessee is rejected including the alternative contention."

Similar view has been taken in assessee's own case in Gujarat Mineral Dev. Corpn. Ltd. (supra) for A.Y. 2002-03 against assessee.

9.1 Nothing contrary has been brought to our knowledge in this regard. Facts being similar, so following the same reasoning, we are not inclined to interfere in the order of CIT(A) who has held that in view of admitted factual position that Akri Mota Power project is not extension of its existing business. This is the first power project being put by assessee. It is undisputed that assessee did not have any business of power generate in earlier. In the light of above, factual legal discussion has been done in above assessee's appeal, we are not inclined to interfere in the finding of CIT(A) who has confirmed the disallowance of Rs.55,89,17,419/- being expenditure of power project at Akri Mota because assessee was never in business of generation of power. Same is upheld.

10. Next ground is with regards to disallowance of depreciation of assets used for implementation of projects- i. Rs.3,44,364/- for Mata no Madh lignite project ii. Rs. 1,12,46,815/- for Akri Mota power project

Assessing Officer made disallowance of depreciation of non attract name of Mata no Madh of Rs.3,44,364/- and on assets of Akri Mota Power project of Rs. 1,12,46,815/-, which are confirmed by CIT(A).

10.1 Before us, ld. Authorised Representative submitted similar disallowance of depreciation of assets used for Mata no Madh Lignite project, has been decided in favour of assessee in Gujarat Mineral Dev. Corpn. Ltd. (supra) for A.Y. 2002-03 vide para 5.5 by observing as under:

"5.5.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. Regarding the claim of the assessee in respect of depreciation claimed of Rs.343800/-on the assets used in Mata No Madh project, we are of the considered opinion that the expenses incurred for this project were allowed as revenue expenditure in earlier year included deprecation on those asset which were used in the implementation of this projects and, therefore, in the present year also, the same is allowable-. Regarding the depreciation claimed on the assets used in Akri Mota Power Project, we are of the considered opinion that since the expenses incurred in respect of Akri Mota Project were not allowable by us in the earlier year, the claim of deprecation on those assets which were used during implementation of Akri Mota Power Project is not allowed as revenue expenditure and the same have to be included in preoperative expenses of Akri Mota Power Project. We hold accordingly. This ground is partly allowed."

10.2 Nothing contrary has been brought to our knowledge in this regard. Facts being similar, Assessing Officer is directed to allow depreciation of claim of Rs.3,44,364/- on the assets used in Mata no Madh project for the reason discussed above. Regarding allowability of depreciation of Rs.1,12,46,815/- for Akri Mota Power Project as discussed above, similar issue has been decided against assessee as discussed above. Ld. Authorized Representative claimed that it was not claimed so no question of disallowance on the point. In view of above, we restore this issue to Assessing Officer with direction to verify the fact of claim of depreciation. In case it was claimed then it has to be disallowed as discussed above and in case it was not claimed there is no question of disallowance of same. Assessing Officer is directed accordingly. So second limb of this issue is allowed for statistical purpose.

11. Next issue is with regards to disallowance of Rs.58,22,018/- being prior period expenses. This issue has been taken up in this order in ground no.2 of Revenue's appeal in para nos. 4 to 4.3 which will take care of this. Assessing Officer is directed accordingly.

12. Next issue is with regards to disallowance of Rs.2,06,516/- being salary to staff at residence of Chairman. Assessing Officer and CIT(A) had followed A.Ys. 2001-02 & 02-03 and decided this issue against assessee. Ld. Authorized Representative before us pointed out that this issue in ITA No. 186/Ahd/2005 for A.Y. 2001-02 has been decided in favour of assessee vide para 3.3 by observing as under:

"3.3.3 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this disallowance was confirmed by Ld. CIT(A) on this basis that the same is covered by Explanation to Section 37(1) of the Income tax Act, 1961. As per the Explanation, it is seen that if any expenditure being incurred by the assessee is for any purpose which an offence or which is prohibited by law, the same shall not be allowed. Hence, it is to be seen that as to whether in the present case, the expenditure incurred by the assessee is for any purpose which is an offence and/or which is prohibited by law and if it is not so, these provisions of explanation to Section 37(1) is not attracted. As per the submission of Ld. CIT(A) and as per the finding of Ld. D.R., this expenditure is in violation of the guidelines issued by the Government of Gujarat dated 28.08.1998 and is against Article 192 of the Articles of Corporation. In our considered opinion, this will not tantamount to an offence and also it does not tantamount to an expenditure which is prohibited by law. The guidelines of the Government of Gujarat and the Articles of Corporation cannot be considered as law of the Country. Hence, in our considered opinion, this disallowance is not justified. If the expenditure is incurred in violation of the guidelines of Government of Gujarat and against Article 192 of the assessee corporation then the remedy lies somewhere else and action can be taken as per law against the person responsible for such violation but this cannot be the basis for making disallowance of expenses without proving that it is not for the purpose of assessee's business. This is not the claim of the revenue that this expenditure is not for the purpose of business and therefore, this disallowance is deleted. This ground of the assessee is allowed."

Similar view has been taken on similar issue in ITA NO. 114/Ahd/2006 for A.Y. 2002-03 in favour of assessee. We have no reason to deviate from facts being similar, so following same reasoning, disallowance of Rs.2,06,516/- being salary to staff at residence of Chairman is directed to be deleted.

13. Next is issue is with regards to disallowance of Rs.2,00,34,358/-. Assessing Officer made disallowance of Rs. 2,00,34,358/- being depreciation on assets/buses leased to GSRTC. CIT(A) following A.Y. 2000-01 has confirmed the disallowance of Rs.2,00,34,358/- being depreciation on assets/buses leased to GSRTC.

13.1 Ld. Authorized Representative pointed out that in Gujarat Mineral Development Corporation Ltd. v. Commissioner Of Income-Tax, Gujarat. (supra) for A.Y. 2000-01, this issue has been decided against assessee vide para 2.1 as discussed above to be seen in the light of decision in Revenue's appeal ground no.3. Accordingly, the order of CIT(A) on this issue is dismissed.

14. Next issue is with regards to addition of miscellaneous income of -

Assessee's claim was miscellaneous income should be set off against expenditure. If that was done, there will be no case for disallowance. This issue was considered by CIT(A) for earlier assessment years. The claim was not found acceptable as any income arising before completion of project has to be held taxable. In view of this, this ground was rejected by CIT(A).

14.1 Ld. Authorized Representative pointed out that in ITA No. 1114/Ahd/2006 for A.Y. 2002-03 vide para 5.8, similar issue has been restored to Assessing Officer by observing as under:

"5.8.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgements cited by the Ld. A.R. We find that Ld. CIT(A) has followed the judgement of Hon'ble Apex Court rendered in the case of Tuticorin Alkali & Chemicals ltd. as reported in 227 ITR 172 (S.C.) . In the case of Bokaro Steels Ltd. (supra) and in the case of Bongaigaon Refinery and Petrochemicals Ltd. (supra), this judgment of Hon'ble Apex Court rendered in the case of Tuticorin Alkali & Chemicals Ltd. (supra) was duly considered and it was held that when the income earned is directly connected and incidental to construction of the plant by the assessee, the same is capital receipt and not income of the assessee from any independent source. In the present case, we find that when the A.O. made this addition, there is no discussion as to whether these two incomes were directly connected or incidental to construction of plant by the assessee or not. In the order of Ld. CIT(A) also, there is no finding on this aspect of the matter. Before us also, although reliance was placed by the Ld. A.R. on these two judgements of Hon'ble Apex Court but this fact is not available on record as to whether the income in question were directly connected and incidental to construction of plant by the assessee or not. Under these facts, and in the interest of justice, we feel that this issue should go back to the file of the A.O. for a fresh decision in the light of these tow judgements of Hon'ble Apex Court relied upon by the Ld. A.R. before us. Hence, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision in the light of above discussion after providing adequate opportunity of being heard to the assessee. This ground of the assessee is allowed for statistical purposes."

14.2 Facts being similar, so following the same reasoning, this issue is restored to Assessing Officer with similar direction.

15. Issue of 14A as raised in assessee's appeal has been taken care while deciding this issue in Revenue's appeal in para 6, wherein we have allowed assessee's appeal on this point. Assessing Officer is directed accordingly.

16. As a result, this appeal of assessee is partly allowed as indicated above.

17. In ITA No. 543/Ahd/2008 for A.Y. 2004-05, Revenue has filed the appeal on the following grounds:

17.1 In I.T.A. No. 1324/Ahd/2008 for A.Y. 2004-05, assessee has filed the appeal on the following grounds:

18. First we take Revenue's appeal in ITA No. 543/Ahd/2008 for AY. 2004-05.

18.1 First issue in Revenue's appeal is with regards to estimated disallowance on account of depreciation of Rs.5 lac related to Multi Metal Project. Assessing Officer made estimated disallowance on account of depreciation of Rs. 5lacs related to Multi Metal Project. CIT(A) following A.Y. 03-04 has decided the similar issue in favour of assessee. The order of CIT(A) in A.Y. 03-04 has been discussed and decided in favour of assessee vide para 3 of this order in Revenue's appeal. Facts being similar, so following same reasoning we are not inclined to interfere in the order of CIT(A) who has deleted the estimated disallowance on account of depreciation of Rs. 5 lacs related to Multi Metal Project. Same is upheld.

19. Next issue is with regards to holding that only interest portion of lease rent is to be taxed. CIT(A) has decided this issue in favour of assessee which has been confirmed by us vide para 5 of this order in Revenue's appeal for A.Y. 2003-04. Facts being similar, so following same reasoning, we are not inclined to interfere in the order of CIT(A) who has held that only interest portion of lease rent to be taxed. Same is upheld.

20. Next issue in Revenue's appeal is with regards to disallowance of administrative expenses of Rs.19,01,476/- u/s. 14A. Similar issue has been decided by us in favour of assessee vide para 6 of this order for A.Y. 2003-04. Facts being almost similar, so following same reasoning, we are not inclined to interfere in the order of CIT(A) who has deleted the disallowance of administrative expenses of Rs. 19.01.476/-made u/s. 14A. Same is upheld.

21. In result, this appeal of Revenue is dismissed.

22. Assessee's appeal in ITA No. 1324/Ahd/2008.

22.1 At the outset of hearing, ld. Authorized Representative pointed out that there is a delay of 40 days in filing assessee's appeal. The reason for the same has stated to be communication gap between different departments of assessee's Corporation. Finding force in the submission of ld. Authorized Representative, we condone the delay.

23. Coming on the merit, first issue in assessee's appeal is with regards to disallowance of Rs. 8,20,38,417/- being expenditure on project of Mata no Madh. Assessing Officer made disallowance of Rs. 8,20,38,417/- being expenditure on project of Mata no Madh. CIT(A) following decision of A.Y. 03-04 has decided the issue against assessee. We have decided this issue in favour of assessee vide para 8 of this order for A.Y. 2003-04, which has been followed by lower authorities. Facts being similar, so following same reasoning, Assessing Officer is directed to delete the disallowance of Rs.8,20,38,417/- being expenditure on project of Mata no Madh.

24. Next issue in assessee's appeal is with regards to disallowance of Rs.9,72,58,596/- being expenditure on power project at Akri Mota. CIT(A) following 03-04 has decided this issue against assessee, which has been confirmed by us in A.Y. 03-04 vide para 9 of this order. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has confirmed the disallowance of Rs.9,72,58,596/- being expenditure on power project at Akri Mota because same is new line of business done by assessee for first time.

25. Next issue is with regards to disallowance of Rs.23,49,626/- incurred on lignite project at Bhavnagar. Similar issue arose in A.Y. 2003-04 which has been decided in favour of assessee vide para no.8 of this order. Facts being similar, so following same reasoning, issue is decided in favour of assessee. Assessing Officer is directed accordingly.

26. Next issue is with regards to disallowance of expenses of Rs. 3,04,93,607/- incurred on lignite project at Tadkeshwar. Issue in this ground is similar to that of similar expenses in earlier grounds on lignite project at Bhavnagar. Facts being similar so following same reasoning, this issue is also decided in favour of assessee.

27. Next issue is with regards to disallowance of depreciation on assets used for implementation of Project, (i) Rs. 3,15,881/-for Mata no Madh lignite Project (ii). Rs. 1,05,10,539/- for Akri Mota Power Project and (iii) Rs. 48,347/- for lignite project at Tadkeshwar. CIT(A) following A.Y. 03-04 has decided issue of Mata no Madh lignite project in favour of assessee. Issue of Akri Mota Power project has been decided against assessee and issue of depreciation on assets used for implementation of projects for lignite project at Tadkeshwar in favour of assessee. Issue of depreciation on assets used for implementation of projects at Mata no Madh lignite project has been decided by us in favour of assessee vide para 10 of this order for A.Y. 2003-04. Following same logic on this issue in this year as well is decided in favour of assessee. The issue of depreciation on assets used for implementation of project Akri Mota power project of Rs. 1,05,10,539/- has come in A.Y. 03-04 which has been decided against assessee by CIT(A). In second appeal we have set aside similar issue to Assessing Officer vide para 10 of this order. Facts being similar, so following same reasoning, this issue is set aside to Assessing Officer with similar direction. Regarding disallowance of depreciation on assets used for implementation of projects for lignite project at tadkeshwar of Rs.48,347/-. We find that this issue has bearing of the decision of disallowance of expenses of Rs.3,04,93,607/- incurred on lignite project at Tadkeshawar , which has been decided in favour of assessee by immediately preceding para. So, on same analogy, this issue is decided in favour of assessee. Thus, this issue is partly allowed.

28. Next issue is with regards to confirmation of disallowance of Rs.33,27,718/- being prior period expenses. This similar issue arose in assessee's appeal for 03-04, wherein order of this issue has been set aside to Assessing Officer vide para 4. In case, case before us, CIT(A) has already set aside the matter to Assessing Officer, so no interference is called for from us. We uphold the same.

29. Next issue is with regards to disallowance of Rs. 4,080/-being salary to staff at the residence of chairman. CIT(A) following earlier year 2003-04, has decided issue against assessee, which has been reversed by us vide para 12 of this order in favour of assessee. Facts being similar, so following same reasoning, disallowance of Rs.4,080 being salary of staff at the residence of Chairman is directed to be deleted.

30. Next issue is with regards to disallowance of Rs. 1,20,15,615/- being depreciation on assets/buses lease to GSRTC. CIT(A) following 03-04 has decided this issue against assessee, which has been confirmed by us vide para 13 of this order. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has confirmed the disallowance of Rs.1,20,15,615/- being depreciation on assets/buses lease to GSRTC.

31. Next issue is with regards to disallowance of Rs.4,42,276/- being interest expense to tax free income u/s. 14A. Similar issue has to be decided in 03-04 vide para 6 of this order. Assessing Officer is directed accordingly.

32. Assessee has raised additional grounds with regards to employees contribution of Rs.1,11,06,377/- paid after due date but before filing of return of income. This issue has been decided by Hon'ble Gujarat High Court against assessee as reported in CIT v. Gujarat State Road Transport Corpn. 29. [2014] 366 ITR 170/223 Taxman 398/41 taxmann.com 100 (Guj.) in view of this order of CIT(A) on the issue is upheld, who has not allowed assessee's contribution to PF of Rs.1,11,06,377/- paid after due date so same is decided against assessee. As a result, this appeal of assessee is partly allowed.

33. In result, all appeals of Revenue are dismissed and that of assessee are partly allowed as indicated above.

RANJAN