M/S. TECHNOVA IMAGING SYSTEMS LTD, MUMBAI V. THE DCIT-7(3), MUMBAI

CO 292/MUM/2007

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6001 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 21-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 21-11-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGLE
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER. ITA NOS.5514/MUM/2007 (ASSESSMENT YEAR : 2002-03) TECH NOVA IMAGING SYSTEMS (P) LTD., LAXMI MILLS ESTATE, OFF. DR. E. MOSES ROAD, MAHALAXMI, MUMBAI-400 011 PAN NO.AAACT2165J . APPELLANT. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7(3), AAYAKAR BHAVAN, MUMBAI. . RESPONDENT. ITA NO. 5527/MUM/07 (ASSESSMENT YEAR : 2002-03) DY. COMMISSIONER OF INCOME TAX 7(3), AAYAKAR BHAVAN, MUMBAI. . APPELLANT. VS. TECHNOVA IMAGING SYSTEMS (P) LTD., MAHALAXMI, MUMBAI-400 011 . RESPONDENT. C.O. NO.292/MUM/2007 (IN ITA NO.5527/MUM/07) (ASSESSMENT YEAR : 2002-03) TECHNOVA IMAGING SYSTEMS (P) LTD., MAHALAXMI, MUMBAI-400 011 ..APPELLANT. VS. DY. COMMISSIONER OF INCOME TAX 7(3), AAYAKAR BHAVAN, MUMBAI. ..RESPONDENT. AS SESSEE / CROSS OBJECTOR BY : SHRI YOGESH THAR. RE VENUE BY : MS. KUSUM INGLE. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 2 - O R D E R PER D.K. AGARWAL : THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E ARE DIRECTED AGAINST THE ORDER DATED 14.6.07 PASSED BY THE LD. C IT(A) FOR THE A.Y. 2002-03. AGAINST THE REVENUES APPEAL, THE ASSESSEE HAS ALSO FILED THE C.O. BOTH THESE APPEALS AND C.O. ARE DISPOSED OF BY THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OFFSET PRI NTING ETC., FILED RETURN DECLARING TOTAL INCOME AT RS.69754140/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.71587760/- AFTER MAKIN G CERTAIN DISALLOWANCES INCLUDING THE PART OF DISALLOWANCE OF DEDUCTION U/S 80HHC VIDE ORDER DATED 28.2.2005 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL THE LD. CIT(A) PARTLY ALLOWED THE RELIEF. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. ITA 5514/MUM/07 (ASSESSEES APPEAL) 4. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF 1% U/S 14A OF THE ACT. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 3 - 5. GROUND NO. 1 IN REVENUES APPEAL IN ITA NO. 5527/M/2007 FOR THE SAME A.Y. 2002-03 IS AGAINST THE RELIEF ALLOWED BY THE L D. CIT(A) OUT OF DISALLOWANCE MADE U/S 14A. 6. SINCE THE ISSUE INVOLVED IS COMMON, BOTH THESE G ROUNDS ARE CONSIDERED AS COMMON GROUND FOR THE SAKE OF CONVENIENCE AND DISPO SED OF ACCORDINGLY. 7. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A. O. OBSERVED THAT THE ASSESSEE COMPANY HAS SHOWN DIVIDEND INCOME OF RS.40 27520/- OTHERWISE EXEMPT U/S 10(33) OF THE ACT. BESIDES, THE A.O. AL SO FOUND THAT MAJOR INVESTMENT OF RS.202.21 LACS HAS BEEN MADE IN ACQUI SITION OF SHARES OF THREE SUBSIDIARY AND OTHER COMPANIES NAMELY M/S TECHNOVA GRAPHICS PVT. LTD. RS.167.59 LACS, M/S SUN PAPER LTD., RS.5.00 LACS & M/S TECHNOVA IMAGING SYSTEMS USA RS.28.67 LACS. THE A.O. FURTHER OBSERV ED THAT THE ASSESSEE COMPANY HAS CLAIMED INTEREST OF RS.563.99 LACS IN T HE P&L A/C. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE INTEREST AS ALLO CABLE TO THE INVESTMENT SHOULD NOT BE DISALLOWED. THE ASSESSEE COMPANY WAS ALSO ASKED TO PROVE THE NEXUS OF FUNDS UTILISED FOR MAKING INVESTMENT. IN REPLY, THE ASSESSEE FILED ITS WRITTEN SUBMISSIONS WHICH HAS BEEN SUMMARISED BY TH E A.O. AT PAGE NO. 10 OF THE ASSESSMENT ORDER AS UNDER: (I) INVESTMENTS WERE NOT MADE OUT OF BORROWED FUNDS (II) NO EXPENDITURE WAS INCURRED TO EARN DIVIDEND (III) ALTERNATIVELY THE INTEREST AMOUNT PROPORTION ATE TO DIVIDEND INCOME SHOULD HAVE BEEN CONSIDERED RATHER THAN THE TOTAL VALUE OF INVESTMENTS. (IV) THE INVESTMENTS YIELDED BENEFITS BY WAY OF VAR IOUS SERVICES AND QUOTAS. THE INCOME BY WAY OF DIVIDEND WAS THEREFOR E BUSINESS INCOME; ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 4 - (V) THE DIRECT NEXUS OF PAYMENTS WITH REGARD TO IN VESTMENTS MADE WAS ESTABLISHED WITH BANK ENTRIES AND BALANCE AS ON THAT PARTICULAR DAY OF INVESTMENT. HOWEVER, THE A.O. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND THE APPELLATE ORDER FOR THE ASST. YEARS 2000-01 AND 200 1-02 IN ASSESSEES OWN CASE, RESTRICTED THE DISALLOWANCE TO RS.1,87,660/- I.E BEING 5% OF RS.37,53,211/- OF THE AMOUNT EARNED AS DIVIDEND EXC LUDING DIVIDEND RECEIVED FROM TECHNOVA GRAPHICS PRIVATE LIMITED, SARASWAT CO -OP. BANK AND INTEREST RECEIVED ON NATIONAL SAVING CERTIFICATE AND HENCE A DDED RS.187660/- TO THE INCOME OF THE ASSESSEE. 8. ON APPEAL, THE LEARNED CIT(A) WHILE OBSERVING TH AT FOR EARNING DIVIDEND THERE IS NO REQUIREMENT OF EXPENDITURE RESTRICTED T HE DISALLOWANCE TO 1% OF THE INCOME SO EARNED ON THE GROUND THAT THE ADMINISTRAT IVE EXPENSES LIKE SENDING A PERSON TO THE BANK, TELEPHONICALLY ENQUIRY ABOUT TH E SHARES AND GETTING THE UPDATES OR THE FEED BACK ABOUT THE ACTIVITIES OF TH E COMPANY OR THE STATUS OF THE DIVIDEND CANNOT BE RULED OUT AND HENCE PART REL IEF WAS ALLOWED AS AFORESAID. 9. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN TECH NOVA GRAPHI CS VS. ACIT AND VICE VERSA IN ITA NO.4036, 4700/MUM/04 AND C.O. NO.75/MUM/05 F OR THE ASST. YEAR 2000-01 DT.27.07.2007 WHEREIN THE TRIBUNAL WHILE OB SERVING THAT OWN FUND OF THE ASSESSEE IN THE FORM OF SHARE CAPITAL AND RESER VES AND SURPLUS IS MUCH IN EXCESSIVE, UPHELD THE ORDER OF THE LEARNED CIT(A) I N DELETING THE DISALLOWANCE ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 5 - MADE BY THE A.O. HE ALSO PLACED ON RECORD THE COPY OF THE ORDER OF THE TRIBUNAL. 10. ON THE OTHER HAND, THE LEARNED D.R. WHILE RELYI NG ON THE ORDER OF THE A.O. SUBMITS THAT IN VIEW OF THE PROVISIONS OF SECT ION 14A, SOME REASONABLE DISALLOWANCE IS CALLED FOR AND THE A.O. AFTER CONSI DERING THE FACTS AND CIRCUMSTANCES OF THE CASE HAS RIGHTLY DISALLOWED 5% OF THE AMOUNT EARNED AS DIVIDEND, THEREFORE, THE SAME BE RESTORED AND THE R ELIEF ALLOWED BY THE LEARNED CIT(A) BE REVERSED. 11. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE FACTS ARE NOT IN DISPUTE. WE FURTHER FIND THAT RECENTLY THE HONBLE JURISDICTION AL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT AND ANOTHER (2010) 328 ITR 81 (BOM) HAS HELD (PAGE 138) : (V) THE PROVISIONS OF RULE 8D OF THE RULE WHIC H HAVE BEEN NOTIFIED W.E.F. 24.3.2008, SHALL APPLY WITH EFFECT FROM ASST. YEAR 2008-09. (VI) EVEN PRIOR TO THE ASST. YEAR 2008-09 WHEN RULE 8D WAS NOT APPLICA BLE, THE A.O. HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTIO N 14A. FOR THAT PURPOSE, THE A.O. IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHI CH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE A.O. MUST ADOPT A REASONABLE BASIS OR METHOD CO NSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES. RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE DECIS ION, WE ARE OF THE VIEW THAT SOME DISALLOWANCE IS CALLED FOR UNDER SECTION 14A A ND THE DECISION OF THE TRIBUNAL (SUPRA) RELIED ON BY THE LEARNED COUNSEL F OR THE ASSESSEE IS NOT APPLICABLE IN VIEW OF THE DECISION OF THE HONBLE J URISDICTIONAL HIGH COURT (SUPRA). CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS FULLY J USTIFIED IN RESTRICTING THE ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 6 - DISALLOWANCE AT 1% OF SUCH INCOME SO EARNED. WE H OLD AND ORDER ACCORDINGLY. THE GROUNDS TAKEN BY THE ASSESSEE AND REVENUE ARE, THEREFORE, REJECTED. 12. GROUND NOS.2(A) TO 2(E) READ AS UNDER : 2(A) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE D OCUMENTATION CHARGES REIMBURSED BY THE DEALER BORE THE STAMP OF RECEIPT REFERRED TO IN CLAUSE (BAA) IN THE EXPLANATION TO SECTION 80HHC OF THE ACT. THE APPELLANT CONTENDS THE REIMBURSALS DO NOT REPRE SENT INCOME OR RECEIPT WITHIN THE MISCHIEF OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT AND THE DIRECTION OF THE CIT(A) BE SET ASIDE. (B) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE RECEIPTS BY WAY OF SALE OF SCRAP (RS.12,513) AND ANNUAL MAINTENANCE CONTRACTS (RS.155,23,367) SHOULD NOT BE INCLUDED IN THE PROFITS OF THE BUSINESS BY ASCR IBING TO THESE RECEIPTS THE CHARACTER OF RECEIPTS DESCRIBED IN CLAUSE (BAA) IN THE EXPLANATION TO SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THAT THE DIRECTION WHICH PROCEE DS FROM MISCONCEPTION AND TRUNCATED READING OF THE PROVISIONS OF CLAUSE (BAA ) IN THE EXPLANATION TO SECTION 80HHC OF THE ACT BE SET ASIDE. (C) THE LEARNED CIT(A) ERRED IN DIRECTING THAT FOR THE CASH DISCOUNT (RS.74,21,521) TO BE ELIGIBLE FOR INCLUSION IN PROF ITS AND GAINS OF BUSINESS SHOULD HAVE BEEN RECEIVED WITH REGARD TO THE PURCHASES OF RAW MATERIALS USED FOR MANUFACTURE OF ITEMS THAT HAD BEEN EXPORTED AND IN ABSENCE OF SUCH CORRELATION THAT CASH DISCOUNT BE TREATED AS ANY OT HER RECEIPT REFERRED TO IN CLAUSE (BAA) IN THE EXPLANATION TO SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THE DIRECTION OF THE CIT(A) WHI CH FLOWS FROM ERRONEOUS READING OF SECTION 80HHC OF THE ACT BE SET ASIDE. (D) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE S UNDRY CREDIT BALANCES WRITTEN BACK (RS.804,591) WOULD NOT FORM PART OF ANY PROFI T OF THE EXPORT BUSINESS UNLESS THE SAME HAS BEEN CLAIMED AGAINST PURCHASES RELATED TO EXPORT ONLY. THE APPELLANT PRAYS THE DIRECTION OF THE CIT(A) BA SED ON ERRONEOUS INTERPRETATION OF SECTION 80HHC OF THE ACT BE SET A SIDE. (E) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AMOUNT REPRESENTED BY INSURANCE CLAIM (RS.652,405) HAD TO BE TREATED AS ANY OTHER RECEIPT AND UNDERGO THE TREATMENT ENVISAGED IN THE EXPLANATION (BAA). ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 7 - THE APPELLANT PRAYS THE DIRECTION OF THE CIT(A) BE SET ASIDE INSOFAR AS IT DIRECTS TREATMENT OF INCOME UNDER SECTION 80HHC FOR EXCLUSION OF THE AMOUNT TO THE EXTENT OF 90% FROM THE PROFITS AND GAINS OF BUSINESS. 13. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE ASSESSE E COMPANY HAS CLAIMED THAT THE RECEIPT OF THE FOLLOWING ITEMS SHOULD NOT BE REDUCED TO THE EXTENT OF 90% FOR THE PURPOSE OF COMPUTING PROFITS OF THE BUS INESS IN VIEW OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT:- AMOUNT RS. RECOVERY OF DOCUMENTATION CHARGES 17,67,357 SALE OF MISCELLANEOUS SCRAP. 12,513 SERVICES AND AMC FOR SALE OF EQUIPMENTS 1,55,23,367 CASH DISCOUNT 74,21,521 SUNDRY BALANCES W/OFF 8, 04,591 INSURANCE CLAIM 6,52,405 TOTAL : 2,61,81,754 HOWEVER, THE A.O. WHILE COMPUTING THE DEDUCTION UND ER SECTION 80HHC HAS ADDED THE ABOVE RECEIPTS TO THE TOTAL TURNOVER OF T HE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 14. ON APPEAL, THE LEARNED CIT(A) HAS DISCUSSED THE ABOVE ISSUES AS UNDER : (I) AS REGARDS TO THE RECOVERY OF DOCUMENTATION CHARGES OF RS.17,67,357, HE OBSERVED AND HELD THAT IN THE ABOV E ITEM, THERE IS NO SALE ELEMENT TO GIVE IT A COLOUR OF TURNOVER. HOWEVER, THE AMOUNT SHALL BE TAKEN AS ANY OTHER RECEIPTS UNLESS IT IS EXPLICITLY AND CA TEGORICALLY ESTABLISHED BY THE APPELLANT THAT THE SAME HAD DIRECT NEXUS WITH THE E XPORT ACTIVITY. ONCE IT IS FOUND THAT IT IS ANY OTHER RECEIPT, THEN THE NATURA L CONSEQUENCES OF REDUCTION AS GIVEN IN THE CLAUSE (BAA) OF EXPLANATION TO SECT ION 80HHC WOULD FOLLOW. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 8 - (II) AS REGARDS THE ISSUE OF SALE OF MISCELLANEOUS SCRAP OF RS.12,513, HE HELD THAT SALE OF MISCELLANEOUS SCRAP OF RS.12,513 WOULD NOT BE INCLUDED IN THE PROFITS OF THE BUSINESS. (III). AS REGARDS SERVICES AND AMC FOR SALE OF EQUI PMENTS OF RS.1,55,23,367, HE HELD THAT THE SAME LOGIC APPLIES TO THE OTHER RE CEIPTS LIKE SERVICES AND AMC FOR SALE OF EQUIPMENTS. (IV). AS REGARDS THE CASH DISCOUNT OF RS.74,21,521, HE OBSERVED AND HELD THAT THE DISCOUNT RECEIVED BY NO STRETCH OF IMAGINATION IS A TURNOVER, AS THE ASSESSING OFFICER HAS CONSIDERED, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE SUBJECT TO THE PRODUCTION OF EVIDENCE BEFORE THE AS SESSING OFFICER THAT THE ENTIRE DISCOUNT HAD BEEN RECEIVED WITH REGARD TO TH E PURCHASES OF RAW MATERIALS USED FOR MANUFACTURE OF ITEMS THAT HAD BE EN EXPORTED AND IN THE ABSENCE OF SAME, THE AMOUNT SHALL BE TAKEN AS OTHER RECEIPT AND CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC WILL APPLY. (V). AS REGARDS TO THE SUNDRY BALANCES WRITTEN OFF OF RS.8,04,591, THE LD. CIT(A) OBSERVED AND HELD THAT THE SAME WAS LIABILIT Y WRITTEN OFF AND HAD PROFIT ELEMENT IN IT BUT IN NO WAY WAS THE PART OF THE TUR NOVER. HOWEVER, THIS AGAIN WOULD NOT FORM PART OF ANY PROFIT OF THE EXPORT BUS INESS UNLESS THE SAME HAS BEEN CLAIMED AGAINST PURCHASES RELATED TO EXPORT ON LY, DIRECTED THE ASSESSING OFFICER TO VERIFY THE SAME, OTHERWISE IT WOULD BECO ME OTHER RECEIPTS AND WOULD SUFFER THE TREATMENT ENVISAGED IN CLAUSE (BAA) OF E XPLANATION TO SECTION 80HHC. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 9 - (VI). AS REGARDS THE INSURANCE CLAIM OF RS.6,52,405 , THE LEARNED CIT(A) OBSERVED AND HELD THAT THE AMOUNT RECEIVED FROM THE DAMAGES OF GOODS ON TRANSIT CANNOT BE TAKEN AS THE TURNOVER OF THE BUS INESS. HOWEVER, IT WOULD DEFINITELY COME UNDER ANY OTHER RECEIPTS AND WOUL D SUFFER THE TREATMENT ENVISAGED IN CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. 15. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS AS UNDER : (I) WITH REGARD TO THE DOCUMENTATION CHARGES OF RS. 17,67,357, HE SUBMITS THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER R AND INDIA P. LTD. (2010) 323 ITR 429 (BOM). (II) WITH REGARD TO SALE OF MISCELLANEOUS SCRAP OF RS.12,513, HE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF TRIBUNAL IN THE CASE OF ACIT VS. PAN GLATT PHARMA TECHNOLOGIES PVT. LTD. IN ITA NOS.4816, 4820/MUM/08 AND C.O. NOS.1 & 2/MUM/09 FOR A.YS 2003 -04 AND 2004-05 ORDER DT.9.9.2009. HE ALSO PLACED ON RECORD THE COP Y OF THE ORDER OF THE TRIBUNAL. (III) WITH REGARD TO THE SERVICES & AMC FOR SALE OF EQUIPMENTS OF RS.1,55,23,367, HE SUBMITS THAT THE ISSUE IS COVER ED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N DRESSER RAND INDIA P. LTD. (SUPRA). ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 10 - (IV) WITH REGARD TO CASH DISCOUNT OF RS.74,21,521, HE SUBMITS THAT THE ABOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL IN PAM GLATT PHARMA TEHCNOLOGIES PVT. LTD. (SUPRA). (V) WITH REGARD TO SUNDRY BALANCES OF RS.8,04 ,591, HE SUBMITS THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS : I) CIT VS. ABDUL REHMAN INDUSTRIES (293 ITR 475) (MAD) II) ACIT VS. M/S. DIAMOND DYE CHEM LTD. (ITA NO.3342/MU M/2006) (PAGE 2 PARA7) III) EXTRUSION PROCESS (P) LTD. VS. ITO (106 ITD 336) (B OM) IV) EASTERN INTERNATIONAL HOTELS LTD. VS. DCIT (93 ITD 233) (MUM) (VI) WITH REGARD TO THE INSURANCE CLAIM OF R S6,52,405, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS ALSO C OVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS : I) CIT VS. PFIZER LTD. (2010 TIOL 460 HC MUM IT): (20 11) 330 ITR 62 (BOM) II) GUJARAT ALKALIES VS. DCIT (82 ITD 135) (AHD) III) EASTERN INTERNATIONAL HOTELS LTD. VS. DCIT (93 ITD 233) (MUM) 16. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE WHILE RELYING ON THE ORDER OF THE ASSESSING OFFICER ALSO RELIED O N THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANAT HAN NAIR (2007) 295 ITR 228 (SC) IN RESPECT OF SALE OF SCRAP. SHE THEREFORE , SUBMITS THAT THE ORDER PASSED BY THE A.O. BE UPHELD. 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE DECID E THE ABOVE SUB-ISSUES AS UNDER:- ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 11 - (I) WITH REGARD TO THE APPLICABILITY OF CLAUSE (BAA ) OF EXPLANATION TO SECTION 80HHC TO THE DOCUMENTATION CHARGES REIMBURSED, WE F IND MERIT IN THE PLEA OF THE PARTIES THAT THE ISSUE IS COVERED AGAINST THE A SSESSEE BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN DRESSER RAND INDIA P. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD - HELD ACCORDINGLY, THAT 90 PER CENT OF RECOVERY OF F REIGHT, INSURANCE AND PACKING RECEIPTS AMOUNTING TO RS.49,14,076, SALES T AX SET OFF/REFUND AMOUNTING TO RS.38,33,148 AND SERVICE INCOME OF RS. 2,89,17,545 HAD TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF SPECIAL DEDUCTION UNDER SECTION 80HHC. SINCE THE REIMBURSEMENT OF DOCUMENTATION CHARGES FA LL UNDER THE CATEGORY OF ANY OTHER RECEIPTS OF SIMILAR NATURE, THEREFORE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF DRESSER RAND INDIA P. LTD. (SUPRA) HOLD THAT 90% OF THE SAME HAS TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC OF T HE ACT. (II) WITH REGARD TO THE SALE OF SCRAP, WE OBSERVE T HAT THE COMPUTATION U/S. 80HHC IS MADE ON THE BASIS OF PROFIT EARNED WHICH H AS BEEN DEFINED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION AS REDUCED BY 90% OF SUCH INCOME SUCH AS INTEREST, RENT, COMMISSION OR OTHER INCOME OF SIMILAR NATURE. THE SCRAP GENERATION IS PART OF THE MANUFACTURING A CTIVITY AND THEREFORE INCOME ARISING FROM SCRAP SALES IS AN OPERATIONAL I NCOME OF THE COMPANY. THEREFORE, IN OUR VIEW THE SCRAP SALES HAS TO BE TR EATED AS PART OF THE BUSINESS PROFITS AND 90% OF THE SAME IS NOT REQUIRED TO BE E XCLUDED AS PER CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC. THIS VIEW ALSO FI NDS SUPPORT FROM THE DECISION OF THE TRIBUNAL IN PAM GLATT PHARMA TECHNO LOGIE PVT. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT THAT THE INCOME GENER ATED FROM SALE OF SCRAP IS ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 12 - VERY MUCH PART OF THE BUSINESS INCOME OF THE ASSESS EE AND IT DOES NOT FALL WITHIN ANY OF THE EXCEPTION MENTIONED IN CLAUSE 1 O F EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. AS REGARDS THE DECISION RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CASE OF K. RAVIN DRANATHAN NAIR (SUPRA), THE SAID DECISION IS ON THE ISSUE OF PROCESSING CHARGES AND NOT ON THE ISSUE OF SALE OF SCRAP. THEREFORE, THE SAME IS DISTINGUISHABLE A ND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE HOLD AND ORDER ACCORDINGLY. (III) AS REGARDS, THE AMC CHARGES, WE ARE OF THE VI EW THAT THIS ISSUE IS ADMITTEDLY COVERED AGAINST THE ASSESSEE AS PER THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DRESSER RA ND INDIA P. LTD. (SUPRA), THEREFORE, THIS ISSUE IS DECIDED AGAINST THE ASSESS EE. (IV). AS REGARDS, THE ISSUE OF CASH DISCOUNT, W E FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CAS E OF PAM GLATT PHARMA TECHNOLOGIES PVT. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD (PARA 18):- THAT CASH DISCOUNT WHICH THE ASSESSEE RECEIVED FROM ITS SUPPLIERS WILL GO TO REDUCE ITS COST OF SALE AND THUS INTIMATELY CONNECT ED WITH THE BUSINESS OF THE ASSESSEE. IT CANNOT BE EQUATED WITH THE RECEIPTS I N THE NATURE OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPTS OF SIMILAR NATURE REFERRED TO IN CLAUSE 1 OF EXPLANATION (BAA) TO SEC TION 80HHC OF THE ACT. WE THEREFORE DIRECT THAT THAT 90% OF THE CASH DISCOUNT RECEIVED BY THE ASSESSEE FROM SUPPLIERS SHOULD NOT BE EXCLUDED FROM THE PROF ITS OF THE BUSINESS. IN THE ABSENCE OF ANY DISTINGUISHABLE FEATURES BROU GHT ON RECORD BY THE REVENUE, WE DIRECT THE ASSESSING OFFICER TO TREAT T HE CASH DISCOUNT AS BUSINESS PROFITS AND 90% OF THE SAME IS NOT REQUIRED TO BE E XCLUDED. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 13 - (V) AS REGARDS THE ISSUE OF SUNDRY CREDIT BALANCE , WE FIND MERIT IN THE PLEA TAKEN BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-OR DINATE BENCH OF THE TRIBUNAL IN DIAMOND DYE CHEM LTD. (SUPRA) WHEREIN IT HAS BEE N HELD THAT THE WRITTEN BACK SUPPLIERS AND RIGHT BACK CUSTOMERS CANNOT BE C ONSIDERED AS A RECEIPT BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT CHARGE S OR ANY OTHER RECEIPT OF SIMILAR NATURE. ALL THESE ITEMS ARE CONNECTED WITH THE OPERATIONS OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE RECEIPT OF SUNDRY CREDIT BALANCE HAS TO BE TREATED AS PART OF THE BUS INESS PROFIT AND 90% OF THE SAME IS NOT REQUIRED TO BE EXCLUDED AS PER CLAUSE ( BAA) EXPLANATION TO SECTION 80HHC. (VI). AS REGARDS INSURANCE CLAIM, WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PFIZER LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT T HE CLAIM ON ACCOUNT OF INSURANCE FOR THE STOCK IN TRADE DID NOT CONSTITUTE A RECEIPT OF SIMILAR NATURE WITHIN THE MEANING OF EXPLANATION (BAA), NOT LIABLE TO BE REDUCED TO THE EXTENT OF 90%. RESPECTFULLY FOLLOWING THE SAME, DEDUCTION U/S. 80HHC IS ALLOWED ON THIS ISSUE. WE HOLD AND ORDER ACCORDINGLY. THE GROU NDS TAKEN BY THE ASSESSEE ARE, THEREFORE, PARTLY ALLOWED. 18. GROUND NO.3 READ AS UNDER : THE LEARNED CIT(A) ERRED IN HOLDING THAT 90% OF T HE FOLLOWING RECEIPTS THOUGH ARISING FROM THE APPELLANTS CONDUCT OF BUSINESS BO TH LOCAL AND EXPORT, HAD TO BE REDUCED FROM THE PROFITS AND GAINS OF BUSINESS TO A RRIVE AT THE PROFITS OF BUSINESS DEFINED IN CLAUSE (BAA) OF SECTION 80HHC O F THE ACT. A) INTEREST RECEIVED. RS. 36,54,644 ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 14 - B) INTEREST ON STAFF LOAN RS. 2,500 C) RENT/LEASE RENT RS. 12,74,950 D) S. TAX REFUND RS. 24,53,983 E) COMMISSION RS. 2,20,606 F) SALES TAX SET OFF RS.1,35,53,629 RS.2,11,60,312 THE APPELLANT PRAYS THAT THE DECISION WHICH CONTEMP LATES DEDICATED ORGANIZATION FOR EXPORT ACTIVITY ALONE DOES VIOLENC E TO SECTION 80HHC(3) OF THE ACT BE SET ASIDE. 19. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS AS UNDER : A) WITH REGARD TO THE INTEREST RECEIVED ON CREDIT FACI LITIES TO DEALERS AND CUSTOMERS RS.29,87,762 AND INTEREST ON LOAN FROM ST AFF RS.6,66,882 AGGREGATING TO RS.36,54,644 TO BE REDUCED @ 90% IN VIEW OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC, HE SUBMITS THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS : I) CIT VS. ALFA LAVAL INDIA 295 ITR 451 (SC) II) ITAT ORDER FOR A.Y. 2001-02 IN ASSESSEES OWN CASE IN ITA NO.1413-2416/MUM/05) (PARA 6 PG NO.5-6) III) CIT VS. SOCIEDADE DE FOMENTO INDUSTRIAL LTD. (ITA 2 0 OF 2003)(BOMBAY). B) WITH REGARD TO THE INTEREST ON LOAN FROM STAFF OF R S.2,500/- HE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN SOCIEDADE DE FOMENTO I NDUSTRIAL LTD. (SUPRA). C) WITH REGARD TO THE RENT/LEASE RENT RS.12,74,950, HE SUBMITS THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN TECH NOVA IMAGING SYSTEMS PV T. LTD. FOR THE ASST. YEARS 2000-01 AND 2001-02 IN ITA 1413 & 2416/MUM/20 05 DATED 19.3.2009 AND ITA NOS.4036 & 4700/MUM/04 C.O. NO.73 /MUM/05 ORDER DATED 27.7.2007 (SUPRA). HE ALSO PLACED ON RECORD T HE COPY OF THE SAID ORDERS OF THE TRIBUNAL. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 15 - D) WITH REGARD TO THE SALES TAX REFUND OF ` 24,53,983/-, HE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE ORDER OF THE TRIBUNAL IN ACIT VS. M/S. KSB PUMPS LIMITED IN ITA NOS. 5566 &5567/MUM/05 AND IN M/S. KSB PUMPS LIMITED VS. AC IT IN ITA NOS. 5540 & 5541/MUM/05 FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 DT.7.10.2008 AND IN ACIT VS. M/S. DIAMOND DYE CHEM LTD. IN ITA NO.3342/MUM/06 FOR A.Y. 2002-03 ORDER DT.27.1.2010. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDERS OF THE TRIBUNAL. E) WITH REGARD TO THE COMMISSION OF RS.2,20,606, LEARN ED COUNSEL FOR THE ASSESSEE VERY FAIRLY SUBMITS THAT THE ISSUE IS COVE RED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEARS 2000-01 AND 2001-02 (SUPRA). F) WITH REGARD TO THE SALES TAX SET OFF OF RS.1,35,53, 629, HE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALFA L AVAL INDIA 295 ITR 451 (SC) AND THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASST. YEAR 2001-02 (SUPRA). 20. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER AND LD. CIT(A). 21. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE. AFTER CONSIDERING THE FACTS AND CIRCUMSTA NCES OF THE CASE AND THE DECISIONS RELIED ON BY THE PARTIES, WE DECIDE THE A BOVE ISSUES AS UNDER : A) WITH REGARD TO THE INTEREST INCOME OF RS.29,87,7 62/- RECEIVED ON ACCOUNT OF CREDIT FACILITIES TO DEALERS AND CUSTOME RS, WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE A BOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR T HE ASST. YEAR 2001-02 ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 16 - (SUPRA) WHEREIN IT HAS BEEN HELD VIDE PARA 6.5 OF T HE ORDER DT.19.3.2009 AS UNDER : 6.5 AFTER HEARING BOTH THE SIDES, WE FIND THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS .34,45,239 AS INTEREST FROM THE CUSTOMERS AND DEALERS. ACCORDING TO THE REVENUE ABOVE INTEREST FROM CUSTOMERS AND DEALERS FALLS WIT HIN THE CLAUSE (BAA) AND THEREFORE, 90% OF THE SAME SHOULD BE EXCLUDED F ROM THE PROFITS OF THE BUSINESS. HOWEVER, WE FIND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ALFA LAVAL (INDIA) LTD. VS. DCIT REPORTED I N 266 ITR 418 HAS HELD THAT INTEREST FROM CUSTOMERS AND SALES TAX SET OFF RECEIVED BY THE ASSESSEE BEING ASSESSED AS PART OF THE BUSINESS PRO FITS; UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION THE S AME COULD NOT BE EXCLUDED WHILE CALCULATING DEDUCTION U/S. 80HHC OF THE ACT. WE FIND WHEN THE REVENUE CHALLENGED THE ABOVE DECISION OF T HE HONBLE BOMBAY HIGH COURT, THE HON'BLE SUPREME COURT HAS DISMISSED THE APPEAL FILED BY THE REVENUE WHICH IS REPORTED IN 295 ITR 451. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUN D RAISED BY THE ASSESSEE IS ALLOWED. IN THE ABSENCE OF ANY DISTINGUISHABLE FEATURES BROU GHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE ABOVE, SET A SIDE THE ORDER PASSED BY THE CIT(A) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. (B) WITH REGARD TO THE INTEREST ON LOAN FROM STAFF RS.6,66,882 AND RS.2,500, WE FIND THAT THE ABOVE ITEMS OF INCOME OF INTEREST HAVE NO ELEMENT OF EXPORT TURNOVER AND ARE CONSEQUENTLY LIABLE TO BE EXCLUDED TO THE EXTENT I.E. STIPULATED IN CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC. TH ERE IS NO DISCUSSION IN THE DECISIONS RELIED ON BY THE ASSESSEE ON THE ISSUE OF INTEREST ON LOAN FROM STAFF. THEREFORE, THE SAID DECISIONS RELIED ON BY THE LEAR NED COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THIS BEING SO AND KEEPING IN VIEW THE DECISION OF THE HO N'BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) WHEREIN IT H AS BEEN HELD THAT ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 17 - INDEPENDENT INCOME LIKE RENT, COMMISSION, BROKERAGE , ETC THOUGH IT FORMED PART OF THE GROSS TOTAL INCOME HAD TO BE REDUCED BY 90% AS CONTEMPLATED IN CLAUSE (BAA) EXPLANATION TO 80HHC IN ORDER TO ARRIVE AT BU SINESS PROFITS, WE ARE OF THE VIEW THAT 90% OF INTEREST ON STAFF LOAN ` 666882 AND ` 2500/- HAD TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF SPECIAL DEDUCTION U/S. 80HHC. WE HOLD AND ORDER ACCORDINGLY. (C TO F) WITH REGARD TO THE ISSUE IN SUB GROUND (C) , RENT / LEASE RENT RS.12,74,950 (D) SALES TAX REFUND OF RS.24,53,983 (E) COMMISSION OF RS.2,20,606 AND (F) SALES TAX SET OFF OF RS.1,35,53 ,629, WE ARE OF THE VIEW THAT THE ABOVE ITEMS ARE SQUARELY COVERED AGAINST THE AS SESSEE BY THE DECISION OF HON'BLE SUPREME COURT IN K. RAVINDRANATHAN NAIR (SU PRA) AND THE RECENT DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF DRESSER RAND INDIA P. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD - HELD ACCORDINGLY, THAT 90 PER CENT OF RECOVERY OF FREIGHT, INSURANCE AND PACKING RECEIPTS AMOUNTING TO RS.49,14,076, SALES T AX SET OFF/REFUND AMOUNTING TO RS.38,33,148 AND SERVICE INCOME OF RS.2,89,17,54 5 HAD TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF SPECIAL DEDUCTION UND ER SECTION 80HHC. ACCORDINGLY, GROUND NO.3 TAKEN BY THE ASSESSEE IS P ARTLY ALLOWED. 22. GROUND NO.4 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF DEPRECIATION ON SOFTWARE TREATED AS CAPITAL EXPENDITURE. 23. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BEN CH OF THE TRIBUNAL IN AMWAY INDIA ENTERPRISES VS. DY. CIT (2008) 111 ITD 112 (D EL.) (SB), THEREFORE THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 18 - 24. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND M ERIT IN THE PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE DECISI ON OF THE SPECIAL BENCH OF THE TRIBUNAL IN AMWAY INDIA ENTERPRISES VS. DY. CIT (2008) 111 ITD 112 (DEL.) (SB) WHEREIN IT HAS BEEN HELD VIDE PARA-59 APPEARIN G AT PAGE 170 OF 111 ITD AS UNDER : 59. OUR CONCLUSIONS ON THE ISSUE UNDER CONSIDERATI ON THUS CAN BE SUMMARIZED AS UNDER :- (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT MATTER LICENCE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBLE ASSET AND BECOMES OWNER THEREOF AS HELD ABOVE RELYING ON THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF TCS(SUPRA). (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOME S OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A S HORT SPAN OF TIME, IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE I S SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE. A NY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN B E CONSIDERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATU RE AND THE FUNCTIONAL TEST AS DISCUSSED ABOVE ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENE FIT ARE SATISFIED, THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER S OFTWARE IS CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF IT S UTILITY TO A BUSINESSMAN AND HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLA YS IN HIS BUSINESS. IN OTHER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT A ND RELEVANT BECAUSE OF THE PECULIAR NATURE OF THE COMPUTER SOFTWARE AND ITS PO SSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHING EITHER CAPITAL OR REVENUE FIEL D OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAPITAL OR REVEN UE FIELD. IN PARA-60 IT HAS BEEN OBSERVED THAT AFTER HAVING L AID DOWN THE CRITERIA FOR DETERMINING THE NATURE OF EXPENDITURE ON ACQUISITIO N OF SOFTWARE, WHETHER CAPITAL OR REVENUE THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE FACTS OF THE CASE IN THE LIG HT OF THE CRITERIA LAID DOWN IN PARA-59 OF THE ORDER SUPRA, AND IF THE ASSESSING OF FICER COMES TO THE CONCLUSION THAT THE EXPENDITURE IS CAPITAL EXPENDIT URE THEN HE SHOULD ALLOW DUE DEPRECIATION. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 19 - RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE SP ECIAL BENCH OF THE TRIBUNAL WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHOR ITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO FILE OF THE ASSESSING OFFIC ER WHO SHALL DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL (SUPRA), AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ITA 5527/M/2007, A.Y. 2002-03 (REVENUES APPEAL) 24. GROUND NO. 1 IS AGAINST THE RELIEF ALLOWED BY T HE LD. CIT(A) OUT OF DISALLOWANCE MADE U/S 14A. 25. THIS GROUND HAS ALREADY BEEN ADJUDICATED BY US IN PARA NOS. 5 TO 11 OF THIS ORDER WHEREIN IN PARA 11 OF THIS ORDER, WE UPH OLD THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A). ACCORDINGLY, THE GROUND TAKEN B Y THE REVENUE IS REJECTED. 26. GROUND NO. 2 & 3 READ AS UNDER:- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT SALE OF SCRAP WOULD NOT FORM PART O F TOTAL TURNOVER WITHOUT APPRECIATING THE FACT THAT SALE OF SCRAP HAS DIRECT LINK WITH THE TURNOVER. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN HOLDING THAT SERVICES & AMC (ANNUAL MAINTENANCE CHARGES) FOR SALE OF EQUIPMENTS AMOUNTING TO ` 1,55,23,367/- WOULD NOT FORM PART OF TOTAL TURNOVE R WITHOUT GIVING ANY SPECIFIC FINDINGS. 27. THESE TWO GROUNDS HAVE ALREADY BEEN ADJUDICATED BY US AS GROUND NO. 2(B) IN ASSESSEES APPEAL IN PARA NOS. 12 TO 17 OF THIS ORDER. FOR THE REASONS AS ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 20 - STATED IN PARA 17(II) AND 17(III) OF THIS ORDER, TH E GROUND NO. 2 TAKEN BY THE REVENUE IS, THEREFORE, REJECTED AND THE GROUND NO. 3 IS ALLOWED. C.O. NO. 292/M/2007 (BY ASSESSEE). 28. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OUT OF DISALLOWANCE MADE U/S 14A. 29. THIS GROUND HAS ALREADY BEEN ADJUDICATED BY US IN PARA NOS. 5 TO 11 OF THIS ORDER IN UPHOLDING THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A). ACCORDINGLY, THE GROUND TAKEN BY THE ASSESSEE DOES NOT CALL FOR ANY FRESH ADJUDICATION AND HENCE REJECTED. 30. GROUND NO. 2 & 3 READ AS UNDER:- 2. THE RESPONDENT SUBMITS THE LEARNED CIT(A) ON A CONSIDERATION OF THE DECISIONS AND THE PROVISIONS OF SEC. 80HHC OF THE A CT RIGHTLY HELD THAT THE PROCEEDS FROM SALE OF SCRAP AMOUNTING TO ` 12,513/- ARE NOT INCLUDIBLE IN TOTAL TURNOVER. 3. THE RESPONDENT SUBMITS THE LEARNED CIT(A) ON A C ONSIDERATION OF THE DECISIONS AND THE PROVISIONS OF SEC. 80HHC OF THE A CT RIGHTLY HELD THAT THE RECEIPTS PURELY OF SERVICE NATURE, BEING SERVICE AN D ANNUAL MAINTENANCE CHARGES OF ` 1,55,23,367/-, ARE NOT INCLUDIBLE IN TOTAL TURNOVE R. 31. THESE TWO GROUNDS HAVE ALREADY BEEN ADJUDICA TED BY US AS GROUND NO. 2(B) IN ASSESSEES APPEAL IN PARA NOS. 12 TO 17 OF THIS ORDER. FOR THE REASONS AS STATED THEREIN, THE GROUNDS TAKEN BY THE ASSESSEE D OES NOT CALL FOR ANY FRESH ADJUDICATION AND HENCE REJECTED. ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 21 - 32. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE, THE REVENUES APPEAL IS PARTLY ALLOWED AND ASSESSEES C.O. IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8.04.2011 SD/- SD/- (PRAMOD KUMAR) ( D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIA L MEMBER MUMBAI, 8.4.2011. *GPR TRUE COPY COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, MUMBAI. 6. GUARD FILE. BY ORDER DY./ASST.REGISTRAR, ITAT, MUMBAI ITA NOS.5514 & 5527/MUM/07 & C.O. NO.292/MUM/07 - 22 - DATE INITIAL 1. DRAFT DICTATED ON 28.3 . 11 ,1.4.11 2. DRAFT PLACED BEFORE AUTHOR 5 .4.11 3. DRAFT PROPOSED & PLACED BEFORE SECOND MEMBER 4. DRAFT DISCUSSED & APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO A.R. 9. DATE OF DISPATCH OF ORDER.