JUDGMENT

Dama Seshadri Naidu, J. - Facts:

Respondent-Assessee Company mines and exports iron ore, besides dealing in shipping and shipbuilding, manufacturing and selling low-ash metallurgical coke. In September 2009, it filed its return declaring a total income of Rs. 2007,48,80,920/-. The appellate Department processed the return of income under section 143 (1) and took the case up for scrutiny. First, ACIT, Circle-I, Panaji, notified the assessee under section 143 (2) of Income Tax Act. Later, the case was assigned to the Joint Commissioner of Income Tax, Range-1, Panaji, who issued a notice under section 129 of the Act in August 2011. In response to the notices, the assessee furnished information and produced the relevant documents.

2. Eventually, on 30.12.2011, the Assessment Officer did the following:

(a) Disallowed expenditure of Rs. 12,29,25,049/- under section 14A of the IT Act, read with Rule 8D of IT Rules;

(b) Declared that the assessee was ineligible for deduction of expenditure incurred on 'Scientific Research and Developments' (R&D) under section 37 of Act. So, the AO disallowed the expenditure of Rs. 1,94,55,376/- and added it back to the profit and loss account;

(c) Following the pattern of assessment for AY 2006-07 regarding the same assessee, the AO disallowed the commission payment. As a result, Rs. 9,88,29,729/- was added back to the total income;

(d) Rs. 1,55,76,549/- was added back to the total income. It was on account of demurrages the assessee paid to a shipping company in Pakistan;

(e) The assessee claimed as expenditure education cess and fringe benefit tax, totalling to Rs. 19,72,00,814/-. But that was disallowed.

(f) The assessee claimed deductions under section 10B of the Act for its three EOUs, totalling to Rs. 4,51,27,84,122/-. But the AO disallowed the benefits claimed by the assessee for all the three units.

(g) The foreign remittances of Rs. 57,80,379/- (sale proceeds) relating to 100% EOU of Assessee's Amona Division was not received within the time limit specified under section 10B of the Act. So, the AO disallowed the deduction of that amount, too.

(h) The assessee showed notional loss of Rs. 9.08 crores on foreign exchange transactions. The AO treated that loss from forward contracts as speculation loss and, accordingly, disallowed that loss of Rs. 1,59,00,000/-.

(i) The assessee claimed additional depreciation on metallurgical coke division, totalling to Rs. 10,91,79,435/- on purchase of new plant and machinery during the year. That was disallowed.

(j) The AO also disallowed Rs. 61,35,482/-, the expenditure the assessee incurred to increase the authorised share capital.

(k) The AO also initiated penalty proceeding under section 271(l)(c) of the Act for furnishing inaccurate particulars of income.

3. Aggrieved, the assessee appealed to the Commissioner of Income Tax (Appeals), Panaji. The Ld. CIT(Appeals), through Order, dated 31/08/2012, allowed the appeal in part :

(a) Confirmed the disallowance under section 14A of the Act;

(b) Deleted the addition of expenditure on disallowance of expenditure on R & D.

(c) Confirmed the disallowance of commission paid to non-resident agents.

(d) Confirmed the disallowance of demurrage payment u/s. 40(a)(i) of the Act.

(e) Confirmed the disallowance of education cess.

(f) Confirmed disallowance of deductions u/s.10B regarding the three EOUs. (g) Deleted the additions made because of the losses in foreign exchange transactions.

(h) Confirmed the disallowance of additional depreciation.

(i) Deleted the expenditure incurred in respect of bonus shares.

Sl. No.

Assessment Order

CIT (Appeals) Order

(a)

Disallowed expenditure of Rs. 12,29,25,049/- under section 14A of the IT Act, read with Rule 8D of IT Rules;

Confirmed the disallowance under section 14A of the Act;

(b)

Declared that the assessee was ineligible for deduction of expenditure incurred on 'Scientific Research and Developments' (R&D) under section 37 of Act. So, the AO disallowed the expenditure of Rs.1,94,55,376/- an