Daimler Chrysler India Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax, Kolhapur

CO 50/PUN/2004

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 4159 (ITAT-PUNE)
• Duration Of Justice: 13 year(s) 10 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-06-2018
• Assessment Year: 1998-1999
• Appeal Filed On: 29-09-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Opportunity of being heard; Wholly owned subsidiary; Bad and doubtful debts; Block assessment; Commercial expediency; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 40A(3); 37(1); 32; 148; 15

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1381/PUN/2003 / ASSESSMENT YEAR : 1998-09 DAIMLER CHRYSLER INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS MERCEDES BENZ INDIA LTD.,) SECTION 15A, CHIKHALI VILLAGE, PIMPRI, PUNE 411 018 PAN : AABCM1789L . /APPELLANT VS. DCIT, CIRCLE-8, PUNE . / RESPONDENT . / ITA NO.1325/PUN/2003 / ASSESSMENT YEAR : 1998-09 DCIT, CIRCLE-8, PUNE . /APPELLANT VS. DAIMLER CHRYSLER INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS MERCEDES BENZ INDIA LTD.,) SECTION 15A, CHIKHALI VILLAGE, PIMPRI, PUNE 411 018 PAN : AABCM1789L . / RESPONDENT C.O.NO.50/PUN/2004 (ARISING OUT OF ITA NO.1325/PUN/2003 A.Y. 1998-1999 DAIMLER CHRYSLER INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS MERCEDES BENZ INDIA LTD.,) SECTION 15A, CHIKHALI VILLAGE, PIMPRI, PUNE 411 018 PAN : AABCM1789L . CROSS OBJECTOR VS. DCIT, CIRCLE-8, PUNE . RESPONDENT ASSESSEE BY : SHRI PRAMOD ACHUTHAN REVENUE BY : SHRI RAJEEV KUMAR, CIT / DATE OF HEARING : 18.06.2018 / DATE OF PRONOUNCEMENT: 08.08.2018 2 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE 3 APPEALS UNDER CONSIDERATION FOR THE COMMON A.Y. 1998-1999. ITA NOS.1381 AND 1325/PUN/2003 ARE THE CR OSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE. C.O. NO.50/PUN/200 4 IS FILED BY THE ASSESSEE. 2. THE ISSUES RAISED IN THE CROSS OBJECTION ARE IDENTICA L TO THE ISSUES RAISED IN THE APPEAL OF THE ASSESSEE. THEREFORE, A S PER LD. COUNSEL FOR THE ASSESSEE, THE CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. ACCORDINGLY, THE SAID C.O. IS DISMISSE D AS SUCH. THAT LEAVES THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE FOR ADJUDICATION. 3. THE GROUNDS RAISED BY THE REVENUE AS WELL AS THE AS SESSEE IN THE APPEALS ARE EXTRACTED HERE AS UNDER : GROUNDS BY REVENUE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.37,80,388/- MA DE ON ACCOUNT OF RELOCATION EXPENSES, AS IT IS IN THE NATURE OF ENDU RING BENEFIT TO THE ASSESSEE AND DOES NOT PARTAKE THE CHARACTER OF REVE NUE EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.47,71,593/ - MADE OUT OF TRAVELLING EXPENSES, AS IT IS NOT VERIFIABLE THAT T HE ENTIRE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF ASSESSEES BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) ERRED IN DELETING THE ENTIRE ADDITION OF RS.10,000/ - LAKHS (SIC) MADE OUT OF TELEPHONE EXPENSES SINCE THE PERSONAL USE OF TEL EPHONE CANNOT BE RULED OUT. 4. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE AO BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 3 GROUNDS BY ASSESSEE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A)-III, PUNE HAS ERRED IN : 1. DISALLOWING RS.12,55,52,666/- TOWARDS PORTION OF TH E TECHNICAL KNOW-HOW EXPENSES PAID IN KIND AND CLAIMED BY THE A SSESSEE UNDER SECTION 35AB OF THE INCOME TAX ACT, 1961. 2. DISALLOWING EXPENDITURE OF RS.9,79,25,959/- IN RESP ECT OF WRITE OFF CWIP DUE TO DISCONTINUATION OF MB CAR MODEL SERIES W 124 3. DISALLOWANCE RS.25,600/- PAID TOWARDS MEMBERSHIP FE E OF POONA GOLF CLUB & HYATT REGENCY NEW DELHI, PAID FOR MANAG ING DIRECTOR & OTHER EXECUTIVES AS EXPENDITURE NOT FOR THE PURPOSE OF BUSINESS. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY OF THE ABOVE GROUND(S) OF APPEAL. 5. THE APPELLANT MAY BE GIVEN AN OPPORTUNITY FOR PERSO NAL HEARING BEFORE DECIDING THE ISSUE. 4. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MERCEDES BENZ P ASSENGER CARS IN INDIA. ASSESSEE FILED THE RETURN DECLARING LOSS OF RS.85.28 CRORES (ROUNDED OFF). AT THE END OF THE ASSESSMENT PROCEEDINGS U /S.143(3) OF THE ACT, THE AO REDUCED THE SAID LOSS. THE ASSESSEES LOSS IS DETE RMINED AT LOSS OF RS.54,90,17,409/-. AO MADE VARIOUS ADDITIONS AND THE DETAILS OF ADDITIONS ARE EXTRACTED HERE AS UNDER : NET LOSS AS PER PROFIT & LOSS A/C. 124,61,48,833 PROFIT ON SALE INVESTMENT 28,45,218 ADD : I) DEPRECIATION AS PER BOOKS 284,812,204 II) WEALTH TAX 2,291,391 III) PRODUCT WARRANTY EXPENSES 30,656,095 IV) MISC. EXPENSES WRITTEN OFF 5,037,402 V) LEAVE EQUALIZATION RESERVE 2,02,71,804 VI) PROVISION FOR GRATUITY 7,82,750 VII) CASH PAYMENT 40A(3) 51,622 VIII) CUSTOM DUTY PAYABLE 4,15,19,739 IX) PROVISION FOR BAD DEBTS 1,08,67,587 X) PROVISION FOR WRITE OFF ON MATERIAL/FINISH GOODS 19,13,60,149 XI) EXCESS INTEREST PROVISION REVERSED 1,72,87,043 XII) DONATION 35,500 XIII) STAMP/REGISTRATION CHARGES ON INCREASE IN SHARE CAPITAL 68,47,448 XIV) PROVISION FOR UNREALIZED LOSS ON FOREIGN EXCHANGE 1,76,52,992 4 XV) ASSETS WRITTEN OFF 4,98,93,086 XVI) DISALLOWANCE CAPITAL LOSS 9,79,25,924 XVII) LOSS ON SALE OF ASSETS 1,76,88,375 XVIII) REALLOCATION OF EXPENSE 37,80,388 XIX) INTEREST PAYMENT OF DAIMLER BENZ 2,32,28,218 XX) RENOVATION EXPENSES 21,78,402 XXI) PAYMENTS TO CLUBS 1,67,600 XXII) OUT OF TRAVELLING EXPENSES 47,71,593 XXIII) OUT OF TELEPHONE EXPENSES 10,00,000 83,01,07,312 41,60,41,521 ADD : DEPRECIATION 9,56,75,000 DEDUCTION U/S.35D 81,966 DEDUCTION U/S.35AB 3,63,88,653 WARRANTY EXPENSES 36,75,487 13,58,21,106 BUSINESS INCOME/LOSS 55,18,62,627 INCOME FROM SHORT TERM CAPITAL GAIN 28,45,218 TOTAL INCOME/LOSS 54,90,17,409 : DENOTES THE DISPUTED ADDITIONS IN THESE CROSS A PPEALS. OUT OF THE ABOVE ADDITIONS, THE ADDITIONS U/S.35AB OF THE ACT, WRITE OFF OF CAPITAL WORK IN PROGRESS QUA MERCEDES BENZ I NDIAS CAR OF MODEL W124, CLUB EXPENSES, RELOCATION EXPENSES, OTHER ADHO C DISALLOWANCES ON ACCOUNT OF TRAVEL AND TELEPHONE EXPENDITU RE ARE THE CONTENTIONS/ISSUES BEFORE THE TRIBUNAL BY BOTH THE PARTIES. 5. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE RAISED VARIOUS ISSUES AND THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE AS SESSEE. WHILE THE ISSUES RELATING TO DISALLOWANCE U/S.35AB OF THE ACT, CA PITAL WORK IN PROGRESS AND THE CLUB EXPENSES ARE DECIDED AGAINST T HE ASSESSEE, THE OTHER ISSUES ON ACCOUNT OF RELOCATION EXPENSES, ADHOC EX PENSES ON ACCOUNT OF TRAVEL AND TELEPHONE EXPENSES ARE ALLOWED IN FA VOUR OF THE ASSESSEE. ACCORDINGLY, BOTH PARTIES ARE IN APPEAL BY VIR TUE OF THE CROSS APPEALS BEFORE THE TRIBUNAL. 6. WE SHALL TAKE UP THE APPEAL-WISE ADJUDICATION IN THE FO LLOWING PARAGRAPHS. FIRSTLY, WE TAKE UP THE APPEAL OF THE REVENUE. 5 ITA NO.1325/PUN/2003 BY REVENUE A.Y. 1998-1999 7. FROM THE GROUNDS EXTRACTED ABOVE, THERE ARE THREE ISSUES WHICH ARE AGITATED BY THE REVENUE AND SUMMARIZED AS UNDER : A. DELETION OF DISALLOWANCE OF RELOCATION EXPENSES MAD E BY THE AO CONSIDERING THE SAME TO BE PERSONAL EXPENSES. B. DELETION OF ADHOC DISALLOWANCE OF TRAVELLING EXPENS ES MADE BY THE AO CONSIDERING THE SAME TO BE NON-BUSINESS EXPENDITURE . C. DELETION OF ADHOC DISALLOWANCE OF TELEPHONE EXPENSE S MADE BY THE AO CONSIDERING THE SAME TO BE NON-BUSINESS EXPENDIT URE. ISSUE-WISE ADJUDICATION 8. DISALLOWANCE OF RELOCATION EXPENSES AMOUNTING TO RS.37,80,388/-: THE FACTS RELATING TO THAT THE ASSESSEE EMPLOYS SPECIALISTS/EXPATRIATES IN VARIOUS FIELDS FROM DAIMLER CHRYSLER PROJECT CONSULTANT (DCPC). THERE IS AN AGREEMENT IN THIS REGARD. ACCORDING TO THE AGREEMENT, ASSESSEE IS UNDER CONTRACTUAL OBLIGATION T O PAY THE EXPENSES ON TRAVEL TO THE SAID SPECIALISTS/EXPATRIATES AN D THEIR FAMILIES AS WELL AS TRANSPORTATION OF THEIR FURNITURE ETC. TO AND FR O FROM INDIA. THESE EXPENSES WHICH ARE BORNE BY THE ASSESSEE ARE IN THE NATURE OF SALARY PAID TO THE EXPATRIATES. THESE PAYMENTS ARE TAX ABLE IN THEIR HANDS ACCORDING TO THE PROVISIONS OF THE INCOME TAX ACT . THE EXPENSES INCURRED ON TRAVEL AND TRANSPORTATION CONSTITUTES REVEN UE EXPENDITURE. THEREFORE, THE SAME IS DEBITED TO THE PROFIT AND LOSS ACC OUNT AS THEY ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINES S OF THE ASSESSEE. HOWEVER, THE AO DID NOT ALLOW THE SAID CLAIM FO R WANT OF EVIDENCE AND HELD THAT IN THE ABSENCE ANY MATERIAL EVIDEN CE TO SHOW THAT THE SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE SAME CONSTITUTES PERSONAL EXPENSES. HOWEV ER, DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE FURNISHED REQUISITE I NFORMATION 6 BEFORE CIT(A). ON PERUSAL OF THE SAME AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CLAIMS OF THE ASSESSEE WERE ALLOWED IN FAVOUR OF THE ASSESSEE. IN THE PROCESS, THE CIT(A) RELIED ON THE FINDING OF HIS PREDECESSOR FOR THE SUBSEQUENT A.Y. 1999-2000. AGGRIEVE D WITH THE RELIEF GRANTED BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US WITH THE GROUNDS EXTRACTED ABOVE. 9. LD. DR FOR THE REVENUE RELIED ON THE ORDER OF AO DUTIFULLY. 10. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSE E FILED WRITTEN SUBMISSIONS STATING THAT THE DECISION OF THE CIT(A) IN GRAN TING RELIEF TO THE ASSESSEE ON THIS ACCOUNT FOR THE A.Y. 1999-2000, W AS AFFIRMED BY THE ITAT IN ITS ORDER DATED 31-03-2009. COPY OF THE SA ID ORDER IS PLACED IN PAGES 1056 TO 1062 OF THE PAPER BOOK. IN THE WRITTE N SUBMISSIONS, ASSESSEE SUBMITTED THAT SIMILAR CLAIM WAS ALLOWED IN THE SUB SEQUENT ASSESSMENT YEARS 2001-02 AND 2002-03 AS REVENUE EXP ENDITURE. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE PLEADED FOR CONFIR MING THE RELIEF GRANTED BY THE CIT(A) ON THE ISSUE OF ENDURING BENEFIT OF RELOCATION EXPENSES AS REVENUE INCOME. 11. ON HEARING BOTH THE SIDES ON THIS ISSUE, WE PERUSED THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.936/PN/2003 AND C.O.NO.27/PN/2004, DATED 31-03-2009 FOR THE A.Y. 1999-200 0. THE TRIBUNAL VIDE THE DISCUSSION GIVEN IN PARA NO.5 OF THE SAID O RDER DISMISSED THE GROUND RAISED BY THE REVENUE AND HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, WE FIND IT APPROPRIATE T O EXTRACT THE FINDING GIVEN BY THE TRIBUNAL HERE AS UNDER : 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSEE INCURRED THE RELOCATION EXPENSES IN RESPECT OF EXPERTS COMING FROM ABROAD T O WORK WITH IT FOR A PERIOD OF 2 TO 3 YEAR AND TRAVELLING AND THE EXPENS ES RELATING TO TRANSFER, LODGING AND BOARDING WERE BORNE BY THE ASSESSEE AS PER THE AGREEMENT 7 OF SERVICE EMPLOYMENT WITH SUCH EXPERTS. THESE EXP ENSES WERE FOR THE PURPOSE OF BUSINESS AND WERE PART OF THE COST OF EM PLOYEES SERVICES. NO ENDURING BENEFIT HAD ACCRUED TO THE ASSESSEE EITHER IN THE CAPITAL FIELD AND THERE WAS NO CREATION OF ANY CAPITAL ASSET NOR IT AFFECTED THE FIXED CAPITAL OF THE ASSESSEE. THE EXPERTS WHO CAME FOR THE PERIOD OF 2 TO 3 YEARS RETURNED AFTER THE CONTRACT PERIOD WAS OVER. THEREFORE, IT IS NOT CORRECT TO SAY THAT ANY ENDURING BENEFIT ACCRUED TO THE ASSESSEE WHICH COULD BE HELD AS DISALLOWABLE AS CAPITAL EXPENDITUR E. THE SERVICES OF SUCH EXPERTS WERE UNDERTAKEN ONLY FOR THE CONTACT A ND IMPROVEMENT OF THE BUSINESS. IN THIS VIEW OF THE MATTER, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE IMPUGNED AD DITION. THE GROUND NO.1 RAISED BY THE REVENUE IS THUS REJECTED. REVENUE HAS NOT BROUGHT ANYTHING ON RECORD TO DEMONS TRATE THE FACTS OF THE ISSUE FOR THE YEAR UNDER CONSIDERATION ARE A NYWAY DIFFERENT. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE O RDER OF CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERE NCE. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 12. ISSUE NO.2 RELATING TO ADHOC DISALLOWANCE ON ACCOUN T OF TRAVEL EXPENSES RS.47,71,593/- AND TELEPHONE EXPE NSES (RS.10,00,000/-). FACTS RELATING TO THIS ISSUE INCLUDE THAT THE ASSESSEE CLAIMED TRAVELING EXPENSES AND CONVEYANCE EXPENSES AMOU NTING TO RS.47,71,593/- AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT. AO FOUND THE ABSENCE OF THIRD PARTY VOUCHERS AND THERE FORE, ON ADHOC BASIS, I.E., 10% OF THE CLAIM, WAS DISALLOWED. SIMILARLY, OUT OF TE LEPHONE EXPENSES CLAIMED AMOUNTING TO RS.1,84,14,978/-, AN ADHOC SU M OF RS.10 LAKHS WAS DISALLOWED. IN THE FIRST APPELLATE PROCEEDIN GS, THE CIT(A) GRANTED RELIEF RELYING ON THE ORDER OF HIS PREDECESS OR IN THE ASSESSEES OWN CASE FOR THE A.Y. 1999-2000. 13. LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO. 14. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE CLAIM OF EXPENDITURE ON ACCOUNT OF TRAVELLING EXPENSES/CONVEYAN CE EXPENSES AS WELL AS THE TELEPHONE EXPENSES ARE GENUINE AND ADOPT ING THE ADHOC MANNER OF MAKING DISALLOWANCE IS UNSUSTAINABLE IN LAW. HE SUB MITTED 8 THAT THE ASSESSEE HAS SCRUPULOUSLY MAINTAINED THE REQU ISITE EVIDENCES AFTER DUE PROCESS OF INTERNAL AUDIT SYSTEM AND THEREFORE , NO DISALLOWANCE IS CALLED FOR ON THIS ACCOUNT. THE FACT THAT T RIBUNAL DISAPPROVED THE MANNER OF MAKING SUCH DISALLOWANCE IN THE ASSESSEES OWN CASE FOR THE A.Y. 1999-2000 WAS DEMONSTRATED BY BR INGING OUR ATTENTION TO THE DECISION OF TRIBUNAL, COPY OF WHICH IS PLACE D AT PAGES 1056 TO 1062 OF THE PAPER BOOK. 15. AFTER HEARING BOTH THE SIDES AND ON PERUSAL OF THE O RDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2009-10 (SUPR A), WE FIND THE TRIBUNAL HAS NOT APPROVED THE SYSTEM OF MAKING ADH OC DISALLOWANCE ADOPTING THE FLAT RATE OF 10%. CONTENTS OF P ARA NO.9 OF THE ORDER OF TRIBUNAL ARE RELEVANT. FOR THE SAKE OF COMP LETENESS, THE SAID PARA IS EXTRACTED AS UNDER : 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT ALL THE EXPEN SES WERE INCURRED FOR THE PURPOSES OF BUSINESS AND THE DETAILS THEREOF WERE F URNISHED BEFORE THE AO. THE EXPENSES WERE BOOKED AGAINST VOUCHERS WHIC H WERE DULY SUPPORTED BY TICKETS AND OTHER BILLS INCURRED BY TH E EMPLOYEES OF THE COMPANY FOR THE PURPOSE OF TRAVELLING. THE AO HAS N OT POINTED OUT ANY INSTANCE AS TO IN WHICH SIT COULD BE TERMED AS PERS ONAL OR NOT INCURRED FOR THE PURPOSE OF BUSINESS. THE ADHOC DISALLOWANCE OF 10% WAS ARBITRARY AND WITHOUT ANY BASIS. THE ASSESSEE IS A PRIVATE L IMITED COMPANY HAVING LARGE TURNOVER AND FOR THAT REASON AND CONSI DERING THE NATURE OF BUSINESS OF THE ASSESSEE THE EXPENSES ON TRAVELLING ARE ALSO QUITE LARGE. IN SUCH A SITUATION, ADHOC DISALLOWANCE IS NOT CALL ED FOR. THE AO HAS NOT FOUND EVEN A SINGLE INSTANCE TO SHOW THAT ANY PART OF THE TRAVELLING EXPENSES WAS NOT INCURRED FOR THE PURPOSE OF BUSINE SS. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION. REVENUE HAS NOT BROUGHT ANYTHING ON RECORD TO DEMONS TRATE THE FACTS OF THE ISSUE FOR THE YEAR UNDER CONSIDERATION ARE A NYWAY DIFFERENT. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE AS SESSEES CLAIM FOR ALLOWING THE TRAVELLING AND CONVEYANCE EXPENSES IS ALLOWED IN FAVOUR OF THE ASSESSEE. TO THAT EXTENT, THE ORDER OF CI T(A) IS FAIR AND 9 REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. GROUND NO.2 RAISE D BY THE REVENUE IS DISMISSED. 16. FURTHER, THE ISSUE OF ADHOC DISALLOWANCE ON ACCOUNT O F TELEPHONE EXPENSES, IS RAISED FOR THE FIRST TIME IN THIS YEAR. AO MADE DISALLOWANCE OF A PORTION OF EXPENDITURE ON ADHOC BASIS. TH ERE IS NO FINDING OF FACT WHY SUCH DISALLOWANCES ARE CALLED FOR IN THIS AS SESSMENT YEAR, WHEN THE CLAIM OF THE ASSESSEE IS ALLOWED IN THE EARLIE R ASSESSMENT YEARS. HOWEVER, IT IS THE CLAIM OF THE ASSESS EE BEFORE US THAT THE VERY FACT THE MANNER OF MAKING DISALLOWANCE ON A DHOC BASIS IS NOT APPROVED BY THE TRIBUNAL, THEREFORE, THE APPROACH OF THE AO RESORTING TO SUCH ADHOC DISALLOWANCE OF THE CLAIM ON ACCOU NT OF TELEPHONE EXPENSES SHOULD ALSO BE NOT APPROVED BY THE TRIBUNAL. 17. ON HEARING BOTH THE SIDES, WE FIND IT RELEVANT TO EXT RACT THE FINDING OF CIT(A) GIVEN IN PARA NO.8.3 OF HIS ORDER AND THE SA ME IS REPRODUCED AS UNDER : 8.3 THE SUBMISSIONS HAVE BEEN CONSIDERED. I AGREE WITH THE APPELLANTS REPRESENTATIVE THAT THE ADHOC DISALLOWA NCE IS NOT SUPPORTED BY ANY MATERIAL TO SHOW THAT ANY SUCH PART OF THE E XPENSES WAS NOT INCURRED FOR THE PERSONAL USE. SIMILAR ISSUE WAS C ONSIDERED IN THE APPELLANTS OWN CASE FOR A.Y. 99-00 (SUPRA) AND DIS ALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. THE FACT BEING SIMILAR, FOLLOWING THAT DECISION, THE ADDITION IS DELETED. CONSIDERING THE ABOVE OF THE TRIBUNAL AGAINST THE ADHOC DISALLOWANCE IN ASSESSEES OWN CASE AND THE DECISION OF C IT(A) ON THIS ISSUE, WE ARE OF THE OPINION THAT THE DISALLOWANCE MADE BY THE AO ON THIS TELEPHONE EXPENSES CANNOT BE SUSTAINED. ACCORDING LY, GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 10 WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE. ITA NO.1381/PUN/2003 ASSESSEE A.Y. 1998-1999 19. FOLLOWING ISSUES NEED ADJUDICATION IN THIS APPEAL : A. DENIAL OF DEDUCTION U/S.35AB OF THE ACT IN RELATION TO TECHNICAL KNOW- HOW FEES PAID IN KIND. B. DISALLOWANCE OF EXPENDITURE IN RELATION TO WRITE OF F OF CAPITAL WORK IN PROGRESS (CWIP) DUE TO DISCONTINUATION OF MB INDIA CAR MODEL W 124. C. DISALLOWANCE OF PAYMENT TOWARDS MEMBERSHIP FEES FOR POONA GOLF CLUB AND HYATT REGENCY NEW DELHI, FOR MANAGING DIRE CTOR AND OTHER EXECUTIVES OF THE COMPANY CONSIDERING THE SAME AS N ON-BUSINESS EXPENDITURE. ISSUE WISE ADJUDICATION : 20. DENIAL OF CLAIM OF DEDUCTION U/S.35AB OF THE ACT - FACTS : REGARDING THE DENIAL OF DEDUCTION U/S.35AB OF THE ACT IN R ELATION TO THE TECHNICAL KNOW-HOW FEES PAID IN KIND AMOUNTING TO RS.12,55,52 ,666/-, THE BACKGROUND FACTS INCLUDE THAT THE ASSESSEE WAS INCO RPORATED ON 22-11-1994. ASSESSEE (DCIPL) ALSO CALLED AS MB-INDIA OR MBIPL IS A JOINT VENTURE INVOLVING DAIMLER BENZ AG (DBAG) AND TATA E NGINEERING AND LOCOMOTIVE COMPANY LTD. (TELCO) AT THE TIME OF INCOR PORATION. AS PER THE JOINT VENTURE AGREEMENT, THE CONTRIBUTION AGREE MENT WAS ENTERED IN JUNE 1994 BETWEEN DAIMLER BENZ AG, MERCEDES B ENZ AG (MBAG) AND TELCO. ACCORDING TO WHICH, MBAG-A SUBSIDIARY OF DBAG, WAS TO PROVIDE DCIPL THE INDIAN COMPANY, THE TECHNICAL K NOW-HOW FOR MANUFACTURE OF PASSENGER CARS IN INDIA. DBAG HAD AN OP TION TO CONVERT THE SUM PAYABLE BY DCIPL AS ITS CAPITAL CONTRIBU TION. ACCORDINGLY, BEING THE IST INSTALLMENT, DBAG THE PANCHAYAT GERMANY WAS ALLOTTED 3,72,42,800 EQUITY SHARES WORTH RS.37,24,28,00 0/- (DM 18.8 MILLION) IN NOVEMBER 1995. IN THIS CONNECTION, THE AO G RANTED 11 NOC FOR SUCH ALLOTMENT AND THE TDS AMOUNTING TO RS.8.05 CRORES (ROUNDED OFF) WAS DONE AS PER THE RULES ON THE SAID ALLOTM ENT. A TDS CERTIFICATE WAS ISSUED IN THE NAME OF MBAG WHO SUPPLIED THE TECHNICAL KNOW-HOW TO THE ASSESSEE. SUBSEQUENTLY, THE SECOND IN STALMENT WAS RECORDED AS PAYABLE IN THE A.Y. 1996-97 AND ALLOTTED SHAR ES WORTH RS.42.30 CRORES. IN THIS CONNECTION, ASSESSEE MADE TDS OF RS.8.43 CRORES (AROUND) AS PER THE RULES IN THIS REGARD. IT WAS INFORMED THAT TWO OTHER INSTALMENTS OF THE PAYMENT WERE WAIVED. A TA BLE SHOWING THE DETAILS OF PAYMENT OF INSTALMENTS AND THE QUANTITATIVE DETA ILS OF RS.16,19,41,319/- IS GIVEN AS UNDER : PARTICULARS FIRST INSTALMENT (RS.) SECOND INSTALMENT (RS.) TOTAL (RS.) SHARES ALLOTTED 37,24,28,000 42,30,00,000 79,54,28,000 TDS 8,50,13,600 8,43,36,800 16,93,50,400 LESS : TDS REFUND (1,05,28,000) -- (1,05,28,000) R&D CESS 2,36,14,680 2,53,66,840 4,89,81,520 TOTAL 47,05,28,280 53,27,03,640 1,00,32,31,920 THE TOTAL AMOUNT OF RS.1,00,32,31,920 WAS CLAIMED A S A DEDUCTION OVER THE ASSESSMENT YEARS AY 1995-96 TO AY 2001-02 AY DEDUCTION CLAIMED (RS.) DEDUCTION ALLOWED (RS.) DEDUCTION UNDER DISPUTE (RS.) 1995-96 8,01,76,046 8,01,76,046 0 1996-97 16,89,59,987 3,63,88,653 13,25,71,334 1997-98 16,89,59,987 3,63,88,653 13,25,71,334 1998-99 16,19,41,319 3,63,88,653 12,55,52,666 1999-00 16,72,05,320 3,46,33,986 13,25,71,334 2000-01 16,72,05,320 3,46,33,986 13,25,71,334 2001-02 8,87,83,941 1,82,83,944 7,04,99,997 TOTAL 1,00,32,31,920 27,68,93,921 72,63,37,999 21. IN THE YEAR UNDER CONSIDERATION, ASSESSEE CLAIMED DE DUCTION IN RESPECT OF TECHNICAL KNOW-HOW FEE U/S.35AB OF THE ACT AM OUNTING TO RS.16,19,41,319/- FOR THE A.Y. 1998-99 IN THE RETURN OF INCOM E FILED U/S.139(1) OF THE ACT (REF. TABLE ABOVE). OUT OF THIS AMOUN T, RS.3,63,88,653/- WAS PAID BY WAY OF TDS AND THERE IS NO DIS PUTE ABOUT 12 THE ALLOWING OF CLAIM OF DEDUCTION IN THIS REGARD. HOWEVER, TH E BALANCE AMOUNT OF RS.12,55,52,666/- (RS.16,19,41,319 RS.3,63,88,653) IN THE SUBJECT MATTER OF LITIGATION NOW. DURING THE ASSESSMEN T PROCEEDINGS, THE SAID MANNER OF PAYMENT TOWARDS THE LIABILITY OF TECHN ICAL KNOW-HOW SUPPLIED BY MBAG TO ASSESSEE WAS NOT ACCEPTED BY THE AO. AO IS OF THE OPINION THAT THE SAID ALLOTMENT OF SHARES TOWARDS CAP ITAL CONTRIBUTION IN DCIPL-THE INDIAN COMPANY, DOES NOT AMOUN T TO EXPENDITURE AT ALL TO BECOME ELIGIBLE FOR CLAIM OF DEDUCTION U/ S.35AB OF THE ACT. AO RELIED HEAVILY ON THE JUDGMENT OF HONBLE SU PREME COURT IN THE CASE OF CIT VS. EIMCO & KCP LTD. 242 ITR 659. CIT (A) UPHELD THE SAID DISALLOWANCE FOLLOWING HIS ORDER LATER FOR THE A.Y. 1999-2000. 22. STATUS OF SIMILAR ISSUE IN EARLIER A.YRS. (A): AN ATTEMPT WAS MADE BY THE REVENUE TO DENY THE CLAIM US.35AB OF THE AC T IN THE A.YRS. 1995-96, 1996-97 AND 1997-98 EITHER UNDER THE PROVISION S OF SECTION 148 OR U/S.263 OR U/S.154 OF THE ACT, AS THE CASE MAY B E. IN ALL THESE 3 YEARS, THE PROCEEDINGS WERE QUASHED FOR ONE REASON OR THE OTHER ON TECHNICAL GROUNDS. IN EFFECT, THIS ISSUE IS NOT YET DECIDED CONCLUSIVELY BY THE TRIBUNAL OR ANY OTHER JUDICIAL BODY ON MERITS. THE REFORE, THE ISSUE RAISED IN THIS YEAR REQUIRES TO BE ADJUDICATED FOR T HE FIRST TIME ON MERITS. (B) FURTHER, IT IS ALSO RELEVANT TO NOTE THAT SIMILAR ADDITION W AS MADE IN THE A.Y. 1999-2000 AND THE MATTER REACHED THE TRIBUN AL. THE TRIBUNAL REMANDED THE ISSUE TO THE REVENUE AUTHORITIES. IN THE SECOND ROUND OF THE PROCEEDINGS, THE ISSUE AGAIN REACHED THE TR IBUNAL, WHICH WILL HAVE TO BE DECIDED BASED ON THE OUTCOME OR THE ISS UE IN THIS ASSESSMENT YEAR. FURTHER ALSO, IT IS MENTIONED THAT AOS CONTINUED TO DENY THE CLAIM OF DEDUCTION FOR THE LATER A.YRS. 2000-01 AN D 2001-02 TOO. 13 23. DURING THE ASSESSMENT/FIRST APPELLATE PROCEEDINGS, AS EVIDENT FROM THE ORDERS OF THE AO AND THE CIT(A), IT IS EVIDENT TH AT THE CLAIM OF THE ASSESSEE IS NOT ALLOWED FOR THE REASON THAT THE ALLOT MENT OF EQUITY SHARES TOWARDS THE LIABILITY DOES NOT AMOUNT TO PAID A ND FURTHER, SUCH SQUIRING UP OF LIABILITY FALLS SHORT OF THE MEANING OF THE EXPRE SSION LUMP SUM CONSIDERATION OR IT DOES NOT AMOUNT TO CONS IDERATION TOO. IT IS THE REASONING OF THE AO THAT THE ALLOTMENT OF SHARE S DOES NOT AMOUNT TO INCURRING OF ANY EXPENDITURE OR PAYMENT OF LUM P SUM CONSIDERATION. CONSEQUENTLY, AS PER AO, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.35AB OF THE ACT ON ACCOUNT OF TECHNICAL FEE FOR TRANSFER OF TECHNICAL KNOW-HOW. AO RELIED HEAVILY ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT VS. EIMCO & KCP LTD. (SUPRA). FU RTHER, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEES COUN SEL BEFORE THE CIT(A)/AO IN CONNECTION WITH THE ADJUDICATION OF THE SAME IS SUE IN A.Y. 1999-2000. (PARA 2 AND ITS OTHER PARAGRAPHS ARE RELEVAN T). NOTHING MUCH IS DISCUSSED BY THE CIT(A) IN HIS ORDER FOR THIS YEAR. 2.2 THE APPELLANTS REPRESENTATIVE REITERATED THE ARGUMENTS GIVEN BEFORE THE ASSESSING OFFICER AND THIS ISSUE WAS ALS O DECIDED IN APPEAL IN RESPECT OF A.Y. 1999-2000 IN THE CASE OF THE APPELL ANT VIDE APPELLATE NO. DATED AND THE ISSUE WAS CONSIDERED AGAINST THE APPE LLANT AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONF IRMED. FOLLOWING THAT ORDER BEING ON THE SAME ISSUE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED AND THE GROUND OF AP PEAL IS REJECTED. 24. AGGRIEVED WITH THE SAME, THE ASSESSEE IS IN APPEAL BEFO RE THE TRIBUNAL. BEFORE THE TRIBUNAL 25. ARS ARGUMENTS : SHRI PRAMOD ACHUTHAN, LD. COUNSEL FOR THE ASSESSEE ALONG WITH HIS PARTNERS APPEARED BEFORE US AND FILED A WRITTEN 14 NOTE ON THIS ISSUE GIVING VARIOUS PROPOSITIONS. TO SUM UP , IT IS THE CASE OF THE LD COUNSEL FOR THE ASSESSEE WAS CRITICAL OF AO RE LYING ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT VS. EIMCO & KCP LTD. (SUPRA) AND HELD THAT THE SAME IS INAPPLICABLE TO THE FACT S OF THE PRESENT CASE. ACCORDING TO LD. AR, THEREFORE, THE CLAIM OF THE AS SESSEE SHOULD BE ALLOWED. FURTHER, REFERRING TO THE JUDGMENT OF BOMBAY HIGH COUR T IN THE CASE OF CIT VS. PAUL BROTHERS 216 ITR 548, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE CLAIM OF DEDUCTION U/S.35AB IS UND ISTURBED IN THE FIRST ASSESSMENT YEAR OF THE CLAIM OF DEDUCTION U/S.35A B OF THE ACT, THE AO CANNOT DISTURB THE SIMILAR CLAIM IN THE SUBSEQUENT YEARS. ON MERITS OF THE PROVISIONS OF SECTION 35AB OF THE ACT, LD. COU NSEL ANALYSED THE PROVISIONS OF THE SAID SECTION AND MENTIONED THAT THE MEANING OF EXPRESSIONS PAID AND LUMP SUM CONSIDERATION ARE MET IN SUBSTANCE. FURTHER, DIFFERENTIATING THE EXPRESSIONS, I.E. EX PENDITURE AND CONSIDERATION', LD. COUNSEL SUBMITTED THAT THE EXPRE SSION CONSIDERATION IS NOT SIMILAR IN MEANING TO THE EXPENDITUR E AS REFERRED TO BY THE AO IN HIS ORDER. EXPANDING THE SAME , LD. COUNSEL SUBMITTED THAT EXPENDITURE RESTRICTS ITSELF TO SOMETHING ; WHEREAS THE EXPRESSION CONSIDERATION CAN BE IN THE NATURE OF MANDA TORY PAYMENT OR ACT OR ABSTINENCE FROM DOING SOMETHING AT THE DESIRE OF THE PARTIES. HE ALSO RELIED ON THE JUDGMENT OF SUPREME COURT IN THE C ASE OF CHANDROJI RAO VS. CIT 77 ITR 743 WHICH DIFFERENTIATES THE TERMS EXPENDITURE AND CONSIDERATION. APPLYING THE SAME PRIN CIPLE TO THE FACTS OF THE PRESENT CASE, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE EXPRESSION CONSIDERATION IS ALREADY DEFINED BY THE P ROVISIONS OF SECTION 2(D) OF THE INDIAN CONTRACTS ACT, 1872 AND SUBMITT ED THAT THE WORD EXPENDITURE IS UNDEFINED. HE ALSO DREW OUR ATTENT ION TO THE 15 PROVISIONS OF SECTION 269A OF THE I.T. ACT AND SUBMITTED T HAT THE APPARENT CONSIDERATION IS DEFINED AND THE SAID DEFINITION H ELPS THE ASSESSEES LINE OF ARGUMENTS. ON THE MEANING OF CONSIDER ATION QUA THE INDIAN CONTRACTS ACT, 1872, LD. COUNSEL RELIED ON VARIO US DECISIONS WHICH ARE EXTRACTED IN PARA 27 OF THE WRITTEN NOTE. LD. COUNSEL RELIED ON THE JUDGMENT OF SUPREME COURT IN THE CASE CIT VS. N AINITAL BANK LTD. 62 ITR 638 STATING THAT THE TERM EXPENDITURE INC LUDES THE PAYMENT IN KIND. IT IS THE ARGUMENT SUBMITTED BEFORE US WITHOUT PREJUDICE TO THE OTHER ARGUMENTS. IN THIS REGARD, STA TING THAT THE PROVISION OF SECTION 35AB OF THE ACT, BEING A DEDUCTION P ROVISION NEEDS TO BE INTERPRETED LIBERALLY AND FOR THIS, LD. COUNSEL RELIED ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALL IND IA LAKSHMI COMMERCIAL BANK OFFICERS UNION AND OTHERS 150 ITR 1 FOR T HE PROPOSITION ON LIBERAL INTERPRETATION. HE FURTHER SUBMITTED THE HEADING OF SECTION 35AB OF THE ACT STATES EXPENDITURE AND KNO W-HOW AND THERE IS NO SUCH REQUIREMENT IN THE SECTION THAT WHAT C AN BE DEDUCTED HAS TO BE NECESSARILY EXPENDITURE. THE TERM CONSIDE RATION USED IN SECTION 35AB OF THE ACT IS UNDERSTOOD TO HAVE A WIDER M EANING THAN EXPENDITURE. HE SUBMITTED THAT, WHILE EXPENDITURE RESTR ICTS ITSELF TO SOMETHING WHICH IS PAID OUT OF THE POCKETS OF THE ASSESSE E, THE CONSIDERATION CAN BE IN THE NATURE OF MONETARY PAYMEN T OR ANY ACT OR ABSTINENCE FROM DOING SOMETHING AT THE DESIRE OF CONCERN ED PARTIES. HE FURTHER SUBMITTED THAT THE TERM CONSIDERATION WOULD INC LUDE PAYMENT IN KIND AND SWAPPING OF SHARES FOR THE LIABILITIES. FOR THIS P ROPOSITION, HE RELIED ON VARIOUS DECISIONS. H SUBMITTED THAT MEANING O F THE TERM LUMP SUM USED IN SECTION 35AB OF THE INCOME TAX ACT INCLUDE PAYMENT OF CONSIDERATION IN INSTALMENTS IF THE SAME IS FIXED U PFRONT AND RELIED ON VARIOUS DECISIONS. 16 FURTHER, LD. COUNSEL RELIED ON THE DECISION OF PUNE BENCH IN THE ASSESSEES OWN CASE FOR THE A.YRS. 1996-97, 1997-1998 A ND MENTIONED THAT THE TRIBUNAL MADE SOME REFERENCES TO THE ISSUES U NDER CONSIDERATION THOUGH THE RE-ASSESSMENT ORDERS/REVISIONS ORDERS WAS QUASHED ON TECHNICAL GROUNDS. LD. COUNSEL MENTIONED THA T, IN THE CONTEXT OF THE OBSERVATION OF THE TRIBUNAL IN OWN CASE, IT IS SIMPLY A METHOD OF ACCOUNTING, MODE OF PAYMENT THE ALLOTMENT OF SHA RES TO CLEAR THE DEBT DEFINITELY HAS NOT CHANGED THE CHARACTER OF P AYMENT OF LUMP SUM CONSIDERATION (PARA NO.37 OF THE WRITTEN NOTE) PAID FOR ACQUISITION OF THE TECHNICAL KNOW-HOW. THEREFORE, THE CLAIM OF DEDUCTION U/S.35AB OF THE ACT IS ALLOWABLE. FURTHER, ON THE APPLICATION OF SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. EIMCO & KCP LTD. (SUPRA), LD. COUNSEL SUBM ITTED THAT THE SAID JUDGMENT IS INAPPLICABLE TO THE FACTS OF THE PRES ENT CASE AND THE DETAILS ARE GIVEN IN PARA NO.39 AND 40 OF THE WRITTEN NOTE. HE ALSO FURNISHED REBUTTAL TO THE CONCLUSIONS IN THE ORDER OF CIT(A ) FOR THE A.Y. 1999-2000 IN HIS NOTE. REFERRING TO THE EXPRESSION TERM PAID USED IN THE SUB- SECTION (1) OF SECTION 35AB OF THE ACT, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE SAID EXPRESSION WAS DEFINED IN SECTION 43(2) OF THE ACT, WHICH MEANS ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD O F ACCOUNTING UPON THE BASIS OF WHICH PROFITS AND GAINS ARE COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION . REFERRING TO THE PROVISIONS OF SECTION 35ABA OF THE ACT, LD. AR FURTHER SUBMITTED THAT WHEREVER THE LEGISLATURE INTENDED THE PAYMENT BY TRANSFER OF MONEY, IT HAS PROVIDED SO, I.E. ACTUALLY PAID AND, IN ABSENCE OF SUCH SPECIFIC LANG UAGE THE PROVISIONS OF SECTION 35AB OF THE ACT CANNOT BE INTERPRET ED AGAINST THE 17 ASSESSEE. APPLYING THE SAID DEFINITION, LD. COUNSEL REASONED THAT THE MOMENT THE SHARES ARE ALLOTTED BY THE ASSESSEE TO CLEA R THE DEBT, THE PAYMENT IS COMPLETED AND THEREFORE, IT IS A CASE OF ACT UALLY PAID AND IN THAT CASE, THE CONDITIONS SPECIFIED IN THE SUB-SECTION (1) OF SECTION 35AB STANDS MET. FURTHER, ELABORATING THE TERM PAID, L D. COUNSEL FOR THE ASSESSEE RELIED ON THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. RAYMOND LTD., JUDGMENT OF KARNATAKA HIGH COURT IN THE CASE OF AMCO POWER SYSTEMS LTD.(SUPRA) AND THE DECISION OF PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF KALYANI STEELS LTD. DCIT 59 TTJ 31 6 (PUNE). LD. COUNSEL FOR THE ASSESSEE MADE THE FOLLOWING PRAYER : FURTHER, WHERE ACCOUNTS ARE SETTLED BY WAY OF ENTR IES IN THE BOOKS OF ACCOUNTS AND NOT 'ACTUALLY PAID BY WAY OF MONEY', T HE SAME SHOULD ALSO BE TREATED AS 'PAID' OR INCURRED'. IN THIS REGARD, RELIANCE IS PLACED ON THE DECISION IN CASE OF TELETHERM INSTRUMENTS CO (P.) L TD. VS ACIT (1993) 45 ITD 203 (MAD) (REFER PAGE 981 TO 984 OF THE PAPER B OOK) WHERE THE DEFINITION OF THE TERM 'PAID' AS GIVEN UNDER SECTIO N 43(2) WAS APPLIED IN THE CONTEXT OF SECTION 35AB TO MEAN THAT ON EXECUTI ON OF THE AGREEMENT ENTIRE AMOUNT CAN BE SAID TO HAVE BEEN 'PAID' AS PE R THE MERCANTILE METHOD OF ACCOUNTING. HENCE, BASED ON THE AFORESAID JUDICIAL PRECEDENTS, IT IS OUR HUMBLE SUBMISSION THAT THE TERM 'PAID' DOES NOT REQUIRE AC TUAL PAYMENT IN CASH. THE TERM 'PAID' INCLUDES EVEN INCURRENCE OF LIABILI TY AS PER THE MERCANTILE METHOD OF ACCOUNTING AND THE SAME ALSO INCLUDES ADJ USTMENT BY WAY OF ACCOUNTING ENTRIES WITHOUT ACTUAL CASH OUTFLOW. ACC ORDINGLY, WHERE THE LIABILITY TOWARDS TECHNICAL KNOW-HOW FEE IS INCURRE D BY MB INDIA UPON SIGNING THE TECHNICAL KNOW-HOW AGREEMENT WITH MBAG, AND FURTHER THE SAID LIABILITY IS SETTLED BY ISSUING SHARES TO DBAG , THE SAME SHOULD BE CONSIDERED TO HAVE SATISFIED THE TERM 'PAID' FOR SE CTION 35AB. IT IS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE T HAT, BY ALLOTMENT OF SHARES, BY THE ASSESSEE TO DAIMLER BENZ AG AT THE INS TANCE OF MBAG WHO SUPPLIED THE TECHNICAL KNOW-HOW TO THE ASSESSEE AS PER THE CONTRACTUAL AGREEMENT, THE CONDITIONS RELATING TO THE LUM P SUM CONSIDERATION AND PAID ARE MET. THEREFORE, THE CLAIM OF THE ASSESSEE RELATING TO DEDUCTION U/S.35AB OF THE ACT IS ALLOWABLE. 18 FURTHER, HE SUBMITTED THAT THESE PROVISIONS OF SECTION 3 5AB OF THE ACT, BEING BENEFICIAL ONE THERE IS A REQUIREMENT OF INTE RPRETING THE PROVISIONS IN FAVOUR OF THE ASSESSEE. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING JUDGMENTAL LAWS : 1. BAJAJ TEMPO LTD. VS. CIT 196 ITR 188 2. CIT VS. M/S.VEGETABLES PRODUCTS LTD. 88 ITR 192 3. GANNON DUNKERLY & CO. LTD. VS. CBDT 159 ITR 162 (BO M.) LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONCE THE AS SESSEE INCURS ANY COST TOWARDS ACQUISITION OF KNOW-HOW, THE DEDU CTION FOR THE SAME WAS ALWAYS INTENDED TO BE ALLOWED TO THE ASSESSEE . IN THIS REGARD, HE REFERRED TO AMENDMENT OF SECTION 32 BY THE F INANCE ACT, 1998 WHICH ALLOWS THE DEPRECIATION ON THE INTANGIBLE ASSETS , SUCH AS KNOW-HOW ACQUIRED ON OR AFTER 01-04-1998. HE SUBMITTED THAT THE MB INDIA ISSUED SHARES IN LIEU OF GENUINE PRE-EXISTING DEBT AND THE SAME SHOULD BE CONSIDERED FOR CONSIDERATION IN CASH. IN THIS RE GARD, HE SUBMITTED THAT, AS PER THE COMPANY LAW PROVISIONS, THE IS SUE OF SHARES AGAINST A GENUINE DEBT IS HELD TO BE ISSUE OF SHARES FOR CASH. LD. COUNSEL FURTHER SUBMITTED THAT MERE DISCHARGE OF LIABILITY BY WAY OF ALLOTMENT OF SHARES WOULD NOT CHANGE THE CHARACT ER OF LUMP SUM CONSIDERATION PAID FOR ACQUISITION OF TECHNICAL KNOW-HOW. L D.COUNSEL RELIED ON THE DECISION OF ITAT, PUNE IN THE ASSESSEES OWN CASE FOR THE A.YRS. 1996-97 AND 1997-98. LD. COUNSEL DISTINGUISHED THE DECISION RELIED ON THE REVENUE AUTHORITIES FOR DENYING DEDUCTION U/S.35AB OF THE ACT IN TH E CASE OF CIT VS. EIMCO KCP LTD. 242 ITR 659 (SC). THE REASONS ARE GIVEN BELOW : A. IN THE EIMCO CASE THE ASSESSEE CLAIMED THE DEDUC TION UNDER SECTION 37(1) WHEREAS IN MB INDIA ' S CASE , THE DEDUCTION IS CLAIMED UNDER SECTION 35AB WHICH WAS INTRODUCED LATER IN THE POIN T OF TIME DUE TO CHANGE IN INTENTION OF THE GOVERNMENT (TO ATTRACT F LOW OF TECHNOLOGY INTO 19 INDIA) TO ALLOW DEDUCTION FOR SUCH PAYMENTS. IN MB INDIA ' S CASE , THE TRANSFER OF TECHNICAL KNOW-HOW FOR CONSIDERATIO N (BETWEEN MB INDIA AND MBAG) AND ALLOTMENT OF SHARES (BY MB INDIA TO DBAG) ARE TWO SEPARATE TRANSACTIONS ENTERED AFTER I NCORPORATION OF THE COMPANY . HOWEVER , IN EIMCO WHERE THERE WAS ONLY A SINGLE TRANSACTION I OBLIGATION OF CONTRIBUTION OF CAPITAL BY THE SUBS CRIBERS, WHICH WAS MADE BY EIMCO BY WAY OF CONTRIBUTION OF TECHNICAL KNOW-H OW . B. SUPREME COURT DECISION IN EIMCO WAS IN THE CONTE XT OF DEDUCTION UNDER SECTION 37, WHICH REQUIRED AN ITEM TO BE 'EXP ENDITURE' IN ORDER TO BE DEDUCTED AS COMPARED TO WORDS 'IUMPSUM CONSIDERA TION' USED IN SECTION 35AB WHICH IS WIDER THAN THE TERM 'EXPENDIT URE' . C. IT SHOULD BE NOTED THAT IN MB INDIA'S CASE, IT W AS MUCH AFTER INCORPORATION AND DATE OF THE TECHNICAL KNOW-HOW AG REEMENT THAT DAIMLER BENZ AG EXERCISED ITS OPTION TO CONTRIBUTE TO SHARE CAPITAL IN KIND BY TAKING OVER MB INDIA'S LIABILITY TO MB AG T OWARDS TECHNICAL KNOWHOW. HOWEVER, IN CASE OF EIMCO, THE SUBSCRIBERS TO THE MEMORANDUM OF ASSOCIATION AT THE VERY OUTSET AGREED THAT SHARE CAPITAL WOULD BE CONTRIBUTED IN KIND AS A PART OF SUBSCRIPT ION CAPITAL. D. RELIANCE IS ALSO PLACED ON THE JUDICIAL PRONOUNC EMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME TAX VS REINZ TALBRAS PVT. LID. (2001) 252 ITR 637 (DEL) (R EFER PAGE 968 TO 970 OF THE PAPER BOOK). WHILE INTERPRETING THE RATIO OF EI MCO DECISION, THE HON'BLE HIGH COURT HELD THAT THE AMOUNT ATTRIBUTABL E TO TECHNICAL KNOW- HOW WHICH IS DISCHARGED BY WAY OF ISSUE OF SHARES B Y A NEW COMPANY WAS NOT REVENUE EXPENDITURE, BUT IT IS TO BE TREATE D AS CAPITAL EXPENDITURE. THUS, THE DELHI HC HAS NOT TREATED TEC HNICAL KNOW-HOW AS CONTRIBUTION TOWARDS SHARE CAPITAL BUT A CAPITAL EX PENDITURE. E. HON'BLE ITAT IN MB INDIA'S OWN CASE FOR AY 1996- 97 AND AY 1997-98 HAS ALSO RIGHTLY OBSERVED THAT THE SUPREME COURT DECISION IN EIMCO (SUPRA) IS NOT APPLICABLE TO THE FACTS OF MB INDIA. F. HONBLE MADRAS HIGH COURT IN EIMCOS CASE ITSELF REFERS TO PAYMENT OF TECHNICAL KNOW-HOW AS A CONSIDERATION IN TWO SEPARATE PLACES IN ITS ORDER. HE FURTHER SUBMITTED THAT AO ISSUED NOC TO MB INDIA LTD ., IN ORDER TO ISSUE EQUITY SHARES TOWARDS REMITTANCE OF TECH NICAL KNOW-HOW FEES. THUS, THE AO AGREED TO PAY THE TECHNICAL KNOW-HO W FEES BY WAY OF ISSUE OF EQUITY SHARES. ALSO, MB INDIA LTD. DEDUCTED REQUIS ITE TAXES AT SOURCE WHILE MAKING THE SAID PAYMENT. THE FACT OF DEDUC TION OF TDS EVIDENCES THE SAME. LD. COUNSEL REFERRED TO THE BUDGET SPEECH 1985 FOR EXPLAINING THE PURPOSE OF PROVISIONS INSERTED BY FINANCE ACT, 1985 AND R ELIED ON 20 COUPLE OF DECISIONS. THUS, LD. COUNSEL FOR THE ASSESSEE PR AYED FOR ALLOWING DEDUCTION U/S.35AB OF THE ACT TO THE ASSESSEE. 26. DRS ARGUMENTS : PER CONTRA, LD. DR FOR THE REVENUE MADE THE FOLLOWING SUBMISSIONS : 3. THE FIRST INSTALLMENT OF THIS LUMP SUM CONSIDER ATION FOR THE TECHNICAL KNOW-HOW WAS PAYABLE IN MB INDIAS BOOKS IN THE FY 1994-95, I.E. AY 1995-96 AND DAIMLER AG OPTED TO CONTRIBUTE THIS SUM PAYABLE BY MB INDIA TO MBG AS ITS CAPITAL CONTRIBUTION AND ACCORDINGLY, WAS ALLOTTED 3,72,42,800 EQUITY SHARES ON 27 TH NOVEMBER, 1995 (I.E. AY 1996-97). THE SECOND INSTALLMENT OF THIS LUMP SUM C ONSIDERATION FOR THE TECHNICAL KNOW-HOW WAS PAYABLE IN MB INDIA'S BO OKS IN THE FY 1995-96 I.E. AY 1996-97 AND DAIMLER AG OPTED TO CON TRIBUTE THIS PAYABLE BY MB INDIA AS ITS CAPITAL CONTRIBUTION AND ACCORDINGLY WAS ALLOTTED 4,23,00,000 SHARES ON 16 TH MARCH, 1996, I.E. AY 1996-97. 4. MB INDIA CLAIMED DEDUCTIONS U/S 35AB OF THE IT ACT FOR RS.16,72,05,320 FOR THE AY 1999-2000 OUT OF WHICH R S.13,25, 71,334/- WAS DISALLOWED AND RS.3,46,33,986/ - PAID IN CASH WAS ALLOWED. 5. THE CONTENTION OF THE ASSESSING OFFICER(NOW REFERRE D AS AO) WAS THAT TECHNICAL KNOW-HOW FEES DISCHARGED BY WAY OF A LLOTMENT OF SHARES DOES NOT AMOUNT TO 'EXPENDITURE' IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF EIMCO K.C.P. L TD. V. CIT [2000] 109 TAXMAN 151(SC). THUS THE REVENUE HEAVILY RELIED ON THE ABOVE REFERRED JUDGEMENT AND THEREFORE, THE RELIANCE IS P LACED ON THE ORDERS OF THE AO AND THE LD. CIT(A) IN THIS REGARD BY THE UNDERSIGNED. 6. THE LD. CIT(A) VIDE ORDER DATED 29 TH MAY, 2003 UPHELD THE DISALLOWANCE U/S. 35AB. THE HON'BLE ITAT VIDE APPEAL 968/PN/03 REMANDED BACK THE MATTER TO THE AO STATING THAT ADJ UDICATION ON ADMISSIBILITY OF THE SAID DEDUCTION CAN ONLY BE DON E IN THE FIRST YEAR OF THE DEDUCTION. NOW THE FIRST YEAR I.E. THE FY 19 94-95 RELEVANT TO THE AY 1995-96 THE AO REOPENED THE ASSESSMENT PROCEEDIN GS U/S 147, WHICH WAS QUASHED BY THE HON'BLE ITAT ON ACCOUNT OF TECHNICAL GROUNDS AS THE REASSESSMENT PROCEEDINGS WERE NOT HE LD TO BE VALID. THE CONTENTION OF THE REVENUE THEREFORE, IS THAT AD JUDICATION ON ADMISSIBILITY ON DEDUCTION U/S. 35AB COULD NOT BE EXAMINED ON MERITS AND, THEREFORE, DEDUCTION U/S. 35AB CANNOT BE SAID TO HAVE BEEN ALLOWED IN THE AY 1995-96 I.E. THE FIRST YEAR ON ME RIT. DURING THE COURSE OF THE HEARING BEFORE THE HON'BLE ITAT, THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF DCIT BANGALORE VS ACE MULTIAXES SYSTEM LTD. [(2017) 88 TAXMANN.COM 69 (SC) WAS RELIED UPON TO MAKE A PROPOSITION THAT EACH ASSESSMENT YEA R IS A DIFFERENT ASSESSMENT YEAR, EXCEPT FOR BLOCK ASSESSMENT. THE H ON'BLE SUPREME COURT ON THE ISSUE OF LIBERAL INTERPRETATION HAS HE LD THAT CONSTRUING LIBERALLY DOES NOT MEAN IGNORING CONDITIONS FOR EXE MPTION. THE COPY OF THE IMPUGNED CASE LAW HAS ALREADY BEEN SUBMITTED BE FORE THE HON'BLE BENCH DURING THE COURSE OF THE ARGUMENT MAD E BY THE UNDERSIGNED. 7. DURING THE COURSE OF THE ARGUMENT, THE UNDERSIGNED HAD ALSO RELIED ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS TRIUMPH INTERNATIONAL FINANCE (I) LIMITED [2 012] 22 TAXMANN.COM 138 (BORN.) TO MAKE A PROPOSITION THAT WHERE LOAN DEPOSIT HAS BEEN REPAID MERELY DEBITING ACCOUNT THR OUGH JOURNAL 21 ENTRIES THE ASSESSEE HAS CONTRAVENED THE PROVISIONS OF SECTION 269T OF THE INCOME TAX ACT, 1961. DURING THE RELEVANT AS SESSMENT YEAR IT WAS OBSERVED THAT INSTEAD OF REPAYING LOAN AND RECE IVING SALE PRICE OF SHARES BOTH PARTIES HAD AGREED THAT THE SAID AMO UNT I.E. A LOAN AND SALE CONSIDERATION TO BE SET OFF IN THEIR RESPE CTIVE BOOKS BY JOURNAL ENTRIES. IN THE IMPUGNED CASE BEFORE US THE ASSESSEE HAS THE TECHNICAL KNOW-HOW FEES HAS BEEN DISCHARGED BY WAY OF ALLOTMENT OF SHARES BY MERELY ENTERING INTO JOURNAL ENTRIES AND THEREFORE CANNOT BE TERMED AS 'LUMP SUM CONSIDERATION' FOR PAYMENT O F TECHNICAL KNOW-HOW AS PER THE PROVISION OF SECTION 35AB OF TH E I T ACT, 1961. THE REFERRED ORDER HAS ALREADY BEEN SUBMITTED BY TH E UNDERSIGNED DURING THE COURSE OF THE HEARING. 8. THE ARGUMENT OF THE LD. COUNSEL FOR THE APPELLANT T HAT THE WORD 'CONSIDERATION' USED IN SECTION 35 OF THE INCOME TA X ACT, 1961 INCLUDES PAYMENT IN CASH OR IN KIND IS DIFFICULT TO BE ACCEPTED FOR THE SIMPLE REASON THAT HEADING OF SECTION 35AB ITSELF I S 'EXPENDITURE ON KNOW-HOW'. FROM THE PERUSAL OF LANGUAGE OF THE SECT ION 35AB(1) WHICH IS REPRODUCED HERE : ................................. ................................. IT CAN BE CLEARLY SEEN THAT CONSIDERATION HAS TO BE PAID IN CASH AND NOT IN KIND AS CLAIMED BY THE APPELLANT. THE WORDING IN THE SECTION 'PAID' AND AMOUNT 'SO PAID' IS QUITE CLEAR AS AMOUNT CANNO T BE USED IN KIND. 9. THE ABOVE ISSUE IS ALSO SUPPORTED BY THE HON'BLE HI GH COURT OF BOMBAY IN THE CASE OF CIT VS BHARAT BIJLEE LTD.(201 4) 46 TAXMANN.COM 257 (BORN.). THE HON'BLE BOMBAY HIGH COURT HELD THA T CONSIDERATION DETERMINED BY PARTIES IN TERMS OF ALLOTMENT OR ISSUE OF BONDS / PREFERENTIAL SHARES WAS NOT A SALE AND IT WAS A CAS E OF EXCHANGE. THE COPY OF THE JUDGEMENT DELIVERED BY THE BOMBAY HIGH COURT IS ENCLOSED. DECISION OF THE TRIBUNAL 27. WE HEARD BOTH THE PARTIES ON THIS LEGAL ISSUE OF ALLOWA BILITY OF DEDUCTION U/S.35AB OF THE ACT. WE HAVE ALSO PERUSED THE WRITTEN SUBMISSIONS AS WELL AS THE CASE LAWS PLACED BEFORE US BY BOTH THE REPRESENTATIVES. IN FACT, SOME OF THE PARAGRAPHS OF THE WRITTEN SUBMISSIONS FROM BOTH THE SIDES ARE EXTRACTED IN THIS ORD ER CONSIDERING THE IMMEDIATE RELEVANT OF THE SAME. THEREFORE, WE PROCEE D TO ADJUDICATE THIS ISSUE AS PER THE CONTENTS IN THE SUCCEEDING PARAGR APHS. A. THE PROVISIONS OF SECTION 35AB : THE PROVISIONS OF SECTION 35AB OF THE ACT RELATING TO EXPENDITURE ON KNOW-HOW IS EXTRA CTED HERE AS UNDER : 22 35AB(1) SUBJECT TO THE PROVISIONS OF SUB-SECTION ( 2), WHERE THE ASSESSEE HAS PAID IN ANY PREVIOUS YEAR [RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR BEFORE THE IST DAY OF APRIL, 1998] ANY LUMP SUM CONSIDERATION FOR ACQUIRING ANY KNOW-HOW FOR USE FOR THE PURPOSE OF HIS BUSINESS, ONE-SIXTH OF THE AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIOUS YEAR, AND THE BALANCE AMOUNT SHALL BE DEDU CTED IN EQUAL INSTALMENTS FOR EACH OF THE FIVE IMMEDIATELY SUCCEE DING PREVIOUS YEARS. EXPLAINING OF THE PROVISIONS : THE ABOVE PROVISION PROVIDES FOR ALLOWING DEDUCTION EQUIVALENT OF 1/6 TH OF THE AMOUNT PAID BY THE ASSESSEE FOR ACQUIRING KNOW-HOW FOR USE FOR THE PURPOSE OF HIS BUSINESS IN ANY PREVIOUS YEAR SPECIFIED IN THE SUB-SECTION (1). THE S AID DEDUCTION IS ALLOWABLE IN SIX EQUAL INSTALMENTS ON FULFILLMENT OF THE BASIS OF PAID AND ANY LUMP SUM CONSIDERATION. EXPRESS ION PAID AND SO PAID BECOMES SIGNIFICANT. THE BALANCE OF THE AMOUNT, SO PAID, SHALL BE DEDUCTIBLE IN EQUAL INSTALMENTS FOR EACH OF THE FIVE IMMEDIA TELY SUCCEEDING PREVIOUS YEARS. IN THE INSTANT CASE, THE ABO VE PROVISIONS NEED TO BE APPLIED IN THE FACTUAL MATRIX WHERE ASSESSEE ACQUIRED THE KNOW-HOW FROM MBAG, A GERMANY BASED 100% SUBSIDIARY OF T HE DBAG, A FLAGSHIP COMPANY OF THE GROUP. THE CONSIDERATION INVOLVED IS DM 56.6 MILLION. AFTER CONSIDERING THE SUM WAIVED OF BY THE SUPPLIER, FOR UNSPECIFIED REASONS, THE ASSESSEE WAS TO PAY DM 18.8 MILLION BEFORE 01-04-1995. IN TERMS OF INDIAN RUPEES (INR) THE TOTAL AM OUNT PAYABLE BY THE ASSESSEE TO THE SUPPLIER OF KNOW-HOW IS RS.100.32 CRORES. ASSESSEE DISCHARGED THIS LIABILITY FOR ISSUING THE SHARES WOR TH RS.47,05,28,280/- IN THE FIRST INSTALMENT AND THE SHARES WO RTH RS.53,27,03,640/- IN THE SECOND INSTALMENT. DISCHARGE OF T HE LIABILITY DID NOT HAPPEN IN TERMS OF ACTUAL PAYMENT OF MONEY IN CAS H OR BANK TO THE ACTUAL SUPPLIER OF THE KNOW-HOW. INSTEAD, ASSESSEE A LLOTTED SHARES TO THE FLAGSHIP COMPANY AFTER MAKING REQUISITE TDS WORTH O F AMOUNT RS.17 CRORES (ROUNDED OFF) OUT OF TOTAL SUM PAYABLE OF RS.10 0.32 CRORES. 23 THIS AMOUNT IS CREDITED TO THE GOVERNMENT TOO AS PER T HE TDS PROVISIONS. THERE IS NO DISPUTE ABOUT IT. IT IS NOT KNOW N AS TO WHY ASSESSEE DID NOT ALLOT SHARES TO THE SUPPLIER OF THE KNOW-HOW, I.E. MBAG AND INSTEAD, ALLOTTED THE SHARES TO THE DBAG, THE FLAGSHIP COMPANY? ASSESSEE COULD NOT DEMONSTRATE BEFORE US SPECIFYING THE REASONS AS TO WHY THE ASSESSEE DID NOT ALLOT SHARES TO THE SUPPLIER OF THE KNOW-HOW. IT IS ALSO NOT KNOWN AS TO UNDER WHAT CIRCUMSTANCES, TH E MBAG MANDATED THE ASSESSEE TO ALLOT THE SHARES TO DBAG. FUR THER, IT IS NOT KNOWN IF THE LIABILITY OF MBAG IS DISCHARGED OR NOT TILL DAY. LD . COUNSEL COULD NOT FILE THE BOOK ENTRIES IF ANY ON THIS ISSUE IN THE B OOKS OF ACCOUNT OF THE SUPPLIER OF THE KNOW-HOW. IN ANY CASE, TH E ASSESSEE FAILED TO ACTUALLY PAY THE MONEY TO MBAG AND THE LIABILITY W AS NOT DISCHARGED BY WAY OF PAYMENT OF ACTUAL MONEY TO THE MBA G. FURTHER, IT IS ALSO NOT KNOWN AS TO WHY MBAG WAIVED OF PART OF TH E CONSIDERATION PAYABLE IN THE CONTEXT OF ACQUIRING OF THE KNOW-HOW. DM 19 MILLION WAS WAIVED OF FOR SOME UNKNOWN REASONS AND NET AMOUNT IS RS .100.32 CRORES ONLY. ASSESSEE CONSIDERED THE SAME AS DEDUCTIO N U/S.35AB OF THE ACT, DEDUCTIBLE IN VARIOUS ASSESSMENT YEARS COMMENCIN G FROM 1995-96 ONWARDS. THE FOLLOWING CHART SHOWS THE TRANSACT ION AMONG MB INDIA LTD., MBAG AND DBAG : WITH THIS LEGAL AND FACTUAL BACKGROUND OF THE ISSUE, WE PROC EED TO EXPLAIN IF THE EXPRESSION PAID USED IN THE SUB-SECTION ( 1) OF SECTION 35AB COVERS THIS ARRANGEMENT OF ASSESSEE IN NOT PAYING THE MONEY AT DBAG (100% SUBSIDIARY OF MBAG) MBAG, GERMANY (SUPPLIER OF TECHNICAL KNOW-HOW) ASSESSEE OR MB INDIA LTD. OR DCIPL SHARES ALLOTTED WORTH RS.110.32 CR. WORTH RS.100.32 CR 24 ALL TO THE SUPPLIER MBAG AND ALLOTTING OF SHARES EQUIVALENT O F RS.100.32 CRORES TO THE DBAG, THE FLAGSHIP COMPANY OF THE ASSESSEE. B. MEANING PAID, ACTUALLY PAID ETC.: DURING THE PROCEEDINGS BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E EXPRESSION PAID USED IN THE SUB-SECTION (1) OF SECTION 35AB IS BROAD ENOUGH TO INCLUDE THE TRANSACTIONS UNDER SCRUTINY INVOLVING THE ELEME NT OF SHARES TO THE DBAG WHO IS NOT THE ACTUAL SUPPLIER OF THE KNOW-H OW. KNOW- HOW IS ACTUALLY SUPPLIED BY THE MBAG. IT IS AN ADMITTED FACT THAT THE ASSESSEE DID NOT MAKE THE PAYMENT IN CASH/BANKING CHAN NELS TO THE MBAG, THE SUPPLIER OF THE KNOW-HOW. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE DID NOT ALLOT ANY SHARES LEAVE ALONE WORTH OF RS.100.32 CRORES TO THE SUPPLIER OF THE KNOW-HOW. THE ALLOTMENT IS D ONE TO THE DBAG. NOTHING IS BROUGHT TO OUR NOTICE TO DEMONSTRATE THE REASONS FOR MAKING THIS KIND OF ALLOTMENT TO DBAG. INTERPRETING THE MEANING OF THE EXPRESSION PAID, LD. COU NSEL SUBMITTED THAT THE SAID EXPRESSION IS GENERIC IN NATURE A ND WIDE ENOUGH TO ACCOMMODATE THE ABOVE TRANSACTIONS UNDER C ONSIDERATION. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT WH EREVER THE ACTUAL PAYMENT OF MONEY/BANKING CHANNEL IS INVOLVED, THE EXPRESSION ACTUA LLY PAID IS USED IN OTHER SECTIONS OF THE ACT. IN THIS REGA RD, HE BROUGHT OUR ATTENTION TO THE PROVISIONS OF SECTION 35ABA, RELATING TO EXPENDITURE FOR OBTAINING THE RIGHT TO USE SPECTRUM FOR RENDERING SERVICE S. IN THE SECTION, THE FOLLOWING EXPRESSION IS USED WHEN IT CAME TO ALLO WING THE CLAIM OF DEDUCTION, I.E. FOR WHICH THE PAYMENT HAS ACTUALLY BEEN MADE TO OBTAIN A RIGHT TO USE SPECTRUM. FURTHER, HE BROUGHT OUR ATTENTION TO THE PROVISIONS OF SECTION 43 RE LATING TO DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFIT S AND GAINS OF 25 BUSINESS OR PROFESSION AND SUBMITTED THAT CLAUSE (2) DEFINE S THE TERM PAID AND THE SAME IS EXTRACTED HERE AS UNDER : (2) ' PAID' MEANS ACTUALLY PAID OR INCURRED ACCORDI NG TO THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH THE PROFITS OR G AINS ARE COMPUTED UNDER THE HEAD' PROFITS AND GAINS OF BUSINESS OR PR OFESSION' THIS DEFINITION OF PAID IS APPLICABLE TO THE PROVISIONS OF SECT ION 35AB OF THE ACT. RELYING ON VARIOUS DECISIONS INCLUDING THE DECISIO N OF KALYANI STEELS LTD. VS. DCIT REPORTED IN 59 TTJ 316 AND OTHERS, LD . COUNSEL FOR THE ASSESSEE SUBMITTED THAT PAID MEANS ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING. 28. ON THE OTHER HAND, THE CASE OF THE REVENUE IS THAT THE EXPRESSION PAID ALWAYS MEANS ACTUALLY PAID OR INCURRED REFERS TO SQUIRING UP THE LIABILITIES BY WAY OF BOOK ENTRIES. IN THE ASSESSEES CASE , AS PER THE AO, THE AMOUNT IS NOT ACTUALLY PAID TO THE SUPPLIER OR INCU RRED ON ACCRUAL BASIS INVOLVING THE SUPPLIER. THE ALLOTMENT OF SHARES IS DONE TO THE DBAG WHO HAS NOTHING TO DO WITH THE SUPPLY OF THE KNOW -HOW TO THE ASSESSEE. FURTHER, IT IS THE CASE OF THE REVENUE THAT E VEN IF IT IS DEEMED AS SHARES ALLOTTED TO THE MBAG, SUPPLIER OF THE KNOW-HOW, IT IS A CASE OF EXCHANGE OF TECHNICAL KNOW-HOW AGAINST THE ALLOTMENT O F SHARES AND THE SAME IS OUTSIDE THE SCOPE OF THE EXPRESSIONS PAID OR ACTUALLY PAID, AS THE CASE MAY BE. 29. ON HEARING BOTH THE SIDES ON THE MEANING OF THE EXP RESSION PAID, WE ARE OF THE OPINION THAT THE EXPRESSION PAID IS ALREADY DEFINED IN THE STATUTE WHICH MEANS ACTUALLY PAID. THE USE OF T HE EXPRESSION ACTUALLY PAID IN SECTION 35ABA OF THE ACT IS NECESSARY IN THE CONTEXT OF ACTUAL PAYMENT AND NOT OTHERWISE. THEREFORE, THE EXPRES SIONS USED IN SECTION 35AB AND THE EXPRESSION ACTUALLY PAID IN SECT ION 35ABA HAS TO BE INTERPRETED AFTER CONSIDERING THE DEFINITION SPECIFYING TH E SAID 26 EXPRESSION PAID IN SECTION 43(2) OF THE ACT. IF THE SAME IS CONSIDERED, IN OUR VIEW, THE SHARES SO ALLOTTED BY THE ASSESSEE CANN OT BE CONSIDERED AS ALLOTTED TOWARDS THE LIABILITY TO THE MBAG, THE SUPPLIER O F THE COMPANY. LD. COUNSEL FOR THE ASSESSEE COULD NOT DEMONST RATE AS TO WHY THE SHARES WERE ALLOTTED TO THE DBAG AND IF THE SAID ALLOTMENT WAS DONE FOR SQUARING UP OF ANY LIABILITIES BETWEEN MBAG TO DBAG . ON THIS ISSUE, IT IS A FAILURE TO DISCHARGE THE ONUS FROM THE ASSESS EES SIDE. NOTWITHSTANDING THE SAME, WE ALSO FIND IF THE ALLOTMENT OF SH ARES CONSTITUTE EXCHANGE OF SHARES AGAINST ACQUISITION OF KNOW -HOW. NORMALLY, THE EXCHANGE OCCURS BETWEEN THE PARTIES WITH REFERENCE TO THE GOODS. IT MAY INVOLVE MONEY WORTH AND CERTAINLY NOT TH E MONEY ALONE. IN EFFECT, THE PAYMENT BECOMES RELEVANT ISSUE ONLY WITH R EFERENCE TO THE MONEY WHEREVER THE SQUARING UP OF THE ENTRIES ARE INVOLV ED ON ACCRUAL BASIS, THE EXPRESSION INCURRED WAS USED IN THE PROVISION S OF SECTION 43(2) RELATING TO DEFINITION PAID. IN THE INSTANT CASE, THE ASSESSEE HAS NEITHER PAID NOR ALLOTTED SHARES TO THE SUPPLIER OF THE KN OW-HOW. THEREFORE, WE ARE OF THE OPINION THAT THE ARGUMENTS RAIS ED BY THE LD. COUNSEL FOR THE ASSESSEE ARE NOT LEGALLY SUSTAINABLE ON T HIS ISSUE. ACCORDINGLY, THE SAME ARE DISMISSED. C. ANY LUMP SUM CONSIDERATION : COMING TO THE MEANING OF THE EXPRESSION ANY LUMP SUM CONSIDERATION USED IN THE PROV ISIONS OF SECTION 35AB OF THE ACT, THE ASSESSEE RELIES ON THE PRO VISIONS OF SECTION 269A RELATING TO THE DEFINITION OF APPARENT CONSIDERATION. THE SAID DEFINITION WAS GIVEN IN RELATION TO ANY IMMOVABLE PROPERTY TR ANSFERRED OR EXCHANGE OR TAKEN ON LEASE ETC. THE SAME DOES NOT IMPLY TO DEFINE THE EXPRESSION ANY LUMP SUM CONSIDERATION USED IN THE PROVISIONS OF SECTION 35AB OF THE ACT. FURTHER, LD. COUNSEL REFERRED TO THE DEFINITION CONSIDERATION VIDE THE CONTRACT ACT, (SUPRA) AND WE FIND T HE SAME IS 27 DIFFERENT QUA THE EXPRESSION EXPENDITURE WITHIN THE MEAN ING OF ANY LUMP SUM CONSIDERATION IF IT COVERS THE IMPUGNED TRANSACT ION OF ALLOTMENT OF SHARES TO THE DBAG, WHO IS THE SISTER CONCER N. IT IS A CASE WHERE ASSESSEE NEVER PAID MONEY DIRECTLY TO THE SUPP LIER OF THE TECHNICAL KNOW-HOW OR ALLOTTED EQUIVALENT VALUE OF SHARES TO THE SUPPLIER. IN OUR VIEW, IT IS NOT A STRAIGHT CASE OF MAKING PAYMENT/ALLOTTING SHARES TO THE SUPPLIER OF THE TECHNICAL K NOW-HOW. THE EXPRESSION CONSIDERATION IS NOT SYNONYMOUS WITH TH E WORD EXPRESSION EXPENDITURE USED IN SECTION 37(1) OF THE ACT DESPITE THE FACT THE TITLE OF SECTION 35AB REFERS TO THE WORD EXPRESSION EXPENDITUR E. D. LIBERAL INTERPRETATION : REGARDING THE ARGUMENTS LINKED TO THE LIBERAL INTERPRETATION OF THE PROVISIONS OF SECTION 35AB OF TH E ACT, IT IS OUR OBSERVATION THAT THE SAID PROVISIONS ARE OBVIOUSLY D EDUCTION ORIENTED PROVISIONS. THE ONUS IS ON THE ASSESSEE TO DEM ONSTRATE THE FACTS LEADING TO THE APPLICABILITY OF THE SAID SECTION. AS DET AILED IN THE PRECEDING PARAGRAPHS OF THIS ORDER THE INFORMATION RELATING TO THE RELATIONSHIP BETWEEN THE DBAG AND MBAG ARE NOT COMING FO RTH FROM ACROSS THE BORDERS. IT IS AN ADMITTED FACT THAT THE REASONS ARE AB SENT AS TO WHY THE SHARES WERE ALLOTTED TO THE NON SUPPLIER OF T HE TECHNICAL KNOW-HOW. WE UNDERSTAND HAD THE ASSESSEE EVENTUALLY ALLOTTED THE SHARES DIRECTLY TO THE SUPPLIER, OUR INFERENCE COULD HAVE BEEN DIFFERENT. THE PAYMENT BY WAY OF ALLOTMENT OF SHARES IS NEVER TO TH E SUPPLIER OF THE TECHNICAL KNOW-HOW IN THIS CASE WHICH MAKES INAPPLICABILIT Y OF THE PRINCIPLE OF LIBERAL INTERPRETATION TO THE FACTS OF THE PRESEN T CASE. THE TRANSACTIONS BETWEEN THE ASSESSEE ON ONE SIDE AND THE MBAG AND DBAG ON OTHER SIDE ARE NOT TRANSPARENT SO FAR AS THE TRANSACTIONS BETWEEN THE MBAG AND DBAG ARE CONCERNED. 28 E. JUDGMENT IN THE CASE OF EIMCO K.C.P. LTD. : FURTHER, THE APPLICABILITY OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EIMCO KCP LTD., REPORTED IN 242 ITR 659 (SC), WE FIND THE L D. COUNSEL FOR THE ASSESSEE IS RIGHT IN STATING THAT THE SAID DECISION WAS DELIVERED IN THE CONTEXT OF THE PROVISIONS OF SECTION 37(1) OF THE ACT QUA THE EXPENDITURE AND THE REVENUE EXPENDITURE. FACTS OF THIS CASE INCLUDE THAT THE SAID COMPANY WAS FLOATED ORIGINALLY BY THE AMER ICAN COMPANY AS WELL AS INDIAN COMPANY. THE TECHNICAL KNOW-HOW WAS S UPPLIED TO THE INDIAN COMPANY AGAINST WHICH SHARES WERE ALLOTTED BY THE INDIAN COMPANY DIRECTLY TO THE FOREIGN COMPANY IN LIEU OF TRANSFE R OF TECHNICAL KNOW-HOW. ALLOTMENT WAS NOT FOR THE SISTER CONCERN OF TH E AMERICAN COMPANY. THE FACTS OF THIS CASE ARE NOT APPLICABLE TO TH E CASE ON HAND WHERE THE DISTINGUISHABLE FACTS INCLUDE (1) THE APPLICABILITY OF PROVISIONS OF SECTION 35AB OF THE ACT; (2) THE SHARES WERE ALLOTTED T O THE OTHER GROUP CONCERN (DBAG) OF THE SUPPLIER (MBAG) AND NOT TO T HE SUPPLIER OF THE TECHNICAL KNOW-HOW; (3) ABSENCE OF FACTS/INFORMATION LEAD ING THE SUPPLIER OF THE KNOW-HOW TO ALLOT THE SHARES BY THE ASSE SSEE COMPANY TO THE DBAG ETC. IN ANY CASE, THIS DECISION WAS RELIED UPON BY THE AO OUT OF CONTEXT. THEREFORE, IT IS OUR CATEGORICAL FINDING THAT THE AO AND THE CIT(A) ERRED IN RELYING ON THIS JUDGMENT WHICH IS DELIVE RED IN CONNECTION WITH THE EXPENDITURE OR OTHERWISE AND THE REVENUE EXPENDITURE OR OTHERWISE. FURTHER, ON THE APPLICATION OF RATIO OF JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF AMCO POWER SYSTEMS LTD., JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RAY MOND LTD. AND THE ORDER OF THE TRIBUNAL IN THE CASE OF KALYANI STE ELS LTD. (SUPRA), WE FIND THESE DECISIONS WERE DELIVERED IN THE CONTEXT OF P AYMENTS TO THE SUPPLIER OF THE TECHNICAL KNOW-HOW WHEREAS THE FACTS OF T HE PRESENT 29 CASE DIFFER IN PRINCIPLE AS THE SHARES WERE ALLOTTED NOT TO THE SUPPLIER OF THE COMPANY BUT TO GROUP CONCERN OF THE SUPPLIER. FURT HER, THERE IS NO INFORMATION ON THE REASONS WHICH LED THE ASSESSEE TO MAK E ALLOTMENT OF SHARES TO DBAG AND NOT TO THE SUPPLIER MBAG. F. REGARDING THE LD. COUNSELS OBSERVATION ABOUT LINKING T HE ISSUE TO THE TRIBUNAL ORDERS FOR THE A.YRS. 1996-97 AND OTHER S ARE CONCERNED, WE FIND THE OBSERVATION LINKED TO THE METHOD OF ACCOUNTING IS A CASUAL OBSERVATION AND IT DOES NOT PROVIDE ANY CONCLUSIVE RATIO WHICH IS USEFUL FOR ADJUDICATION OF THE PRESENT APPEAL. THEREFORE, THE SAM E ARE DISMISSED AS INFRUCTUOUS. FROM THE ABOVE ANALYSIS FROM VARIOUS ANGLES, I.E. (A) THE PROVISIONS OF SECTION 35AB OF THE ACT; (B) THE MEANING PAID AND ACTUALLY PAID; (C) ANY LUMP SUM CONSIDERATION; (D) LIBERAL INTERPRETATION; (E) JUDGMENT IN THE CASE OF EIMCO K.C.P. LTD.; AND (F) LINKING THE ISSUE TO THE TRIBUNAL ORDERS FOR A.Y. 1996-97 A ND OTHERS, WE FIND THE FACTS RELATING TO NOT SQUARING UP THE LIABILITY DIREC TLY WITH THE SUPPLIER-MBAG AND ALLOTMENT OF SHARES TO THE DBAG ARE PE CULIAR TO THE FACTUAL MATRIX OF THIS CASE. IN EFFECT, THE SUPPLIER DID NOT RECEIVE ANY PAYMENT LITERALLY TO ITS ACCOUNT EITHER IN THE FORM OF CAS H OR IN THE FORM OF KIND FROM THE ASSESSEE. AS SUCH, IT IS THE ADMITTED POS ITION THAT THERE IS NO DIRECT CASE LAW ON ANY ONE OF THE ISSUES D ISCUSSED IN (A) TO (F) ABOVE. THEREFORE, WE ARE OF THE OPINION THAT DESPITE THE LABORIOUS ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE, TH E GROUND NO.1 RAISED BY THE ASSESSEE NEED TO BE DISMISSED. ACCORDING LY, THE GROUND NO.1 OF THE ASSESSEES APPEAL IS DISMISSED. 30. ISSUE RELATING TO WRITE OFF OF THE CAPITAL WORK-IN- PROGRESS : DURING THE ASSESSMENT, ASSESSEE WROTE OFF AN AMOUNT OF 30 RS.9,79,25,979/- AS AN ALLOWABLE CAPITAL WORK IN PROGRESS. TH E SAME RELATES TO DISALLOWANCE OF EXPENDITURE IN RELATION TO WRITE OFF OF CAPITAL WORK IN PROGRESS DUE TO DISCONTINUATION OF INDIA CAR MODE L W-124. RELEVANT FACTS INCLUDE THAT THE ASSESSEE (MB INDIA) IS ENGA GED IN THE MANUFACTURING AND SALE OF MERCEDES BENZ PASSENGER CARS IN THE INDIAN MARKET. VARIOUS CARS WERE BROUGHT THROUGH SEMI KNOCKE D DOWN (SKD) OR COMPLETELY KNOCKED DOWN (CKD) CONDITION TO BE ASSEMBLE D AND SOLD IN INDIA. THERE WAS A JOINT VENTURE AGREEMENT BETWEEN DAIMLER CHRYSLER AG AND TELCO IN F.Y. 1994-95 IN THIS REGARD AND THE ASSESSE E PLANNED TO INTRODUCE W 124 SERIES CARS. THE MACHINERY R EQUIRED FOR SETTING UP OF THE MANUFACTURING ACTIVITY WERE IMPORTED AND ASSESSEE COMMENCED THE ACTIVITY OF MANUFACTURING OF THE VEHICLES TO SOME EXTENT. NECESSARY APPROVALS FROM THE DIRECTOR GENERAL OF FOREIGN TRADE WERE ALSO OBTAINED. HOWEVER, PART OF THE MACHINERY REMAINED TO BE INSTALLED AND THE SAME WAS NOT DONE. MEANWHILE, DUE TO UNCERTAIN TY OF DEMAND IN THE MARKET FOR MODEL NO. W-124, THE ASSESSEE COULD NOT MEET THE TARGETS. ASSESSEE APPROACHED THE MINISTRY OF INDUSTRY TO AMEND ITS PROJECT IMPORT CERTIFICATE FOR PROCURING THE REMAINING ASSE TS. THE PART MACHINERY, WHICH WAS REMAINED TO BE INSTALLED, WERE DISCARDE D AND THE PROJECT WAS ABORTED AFTER OBTAINING PERMISSION FROM THE R EGULATORY AUTHORITIES. THUS, A SUM OF RS.9,79,25,929/- WAS WRITTEN OFF CONSIDERING THE SAME AS DEDUCTION WHILE COMPUTING THE TOT AL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE SAID WRITE OFF WAS CERTIFIED BY THE TAX. 31. THE AO DENIED THE DECISION ON THE GROUND THAT THE S AID LOSS CONSTITUTES A CAPITAL LOSS AND NOT ALLOWABLE AS DEDUCTION. AO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE WRITE OFF SHOULD BE CONSIDERED AS CAPITAL LOSS U/S.45 OF THE ACT ELIGIBLE TO BE CARRIED FORWARD FOR SET OFF IN 31 FUTURE. THE CIT(A) UPHELD THE DISALLOWANCE ON THE BASIS TH AT EXPENDITURE INCURRED WITH A VIEW TO ACQUIRE A CAPITAL ASS ET AND THEREFORE, NEEDS TO BE TREATED AS CAPITAL EXPENDITURE. 32. BEFORE THE TRIBUNAL IN THIS REGARD, LD. COUNSEL FOR TH E ASSESSEE MADE VARIOUS ARGUMENTS AND FILED THE WRITTEN SUBMISSIONS. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARTS ARE EXTRACTED AS UNDER : 72. INCOME UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION IS TO BE COMPUTED AS PER PROVISIONS OF SECTION 28 OF THE ACT (I.E. THE CHARGING SECTION). IT HAS BEEN PRINCIPAL LY HELD IN NUMEROUS JUDICIAL PRECEDENTS THAT EXPENDITURE/LOSSES INCURRE D IN CONNECTION WITH BUSINESS OPERATIONS ARE DEDUCTIBLE IN DERIVING PROF ITS/INCOME OF THAT BUSINESS EVEN IN CASES WHERE THE SAME MAY NOT BE EX PLICITLY PROVIDED IN THE ACT. 73. HON ' BLE ITAT IN ITS ORDER DATED 21 JANUARY 2009 IN CASE OF MS INDIA FOR AY 1999-00 , IN RELATION TO SIMILAR MATTER OF WRITE OFF OF FACTO RY L AYOUT EXPENSES DUE TO ABANDONMENT OF THE PLANS FOR NEW FACTORY , HAD OBSERVED THAT THE DECISION FOR WRITING OFF OF EXPEN SES OF A NEW PLANT WAS BASED ON COMMERCIAL EXPEDIENCY OF THE APPELLANT. HE NCE , THE SAME HAS TO BE TREATED AS BUSINESS LOSS DEDUCTIBLE UNDER SEC TION 28 OF THE ACT. THE RELEVANT OBSERVATIONS OF THE HON ' BLE ITAT ARE REPRODUCED BELOW : (REFER PAGES 690 TO 754 OF THE PAPER BOOK) : 'SUCH A CLAIM CAN AT BEST BE EXAMINED ON THE TOUCHS TONE OF PRINCIPLES REGARDING ADMISSIBILITY OF BUSINESS LOSSES, BUT THA T EXERCISE HAS NOT BEEN DONE BY ANY OF THE AUTHORITIES BELOW.......HE CLAI M OF DEDUCTION AROSE WHEN THE EXPENSES WERE WRITTEN OFF, AND AS SUCH BUSINESS LOSS WAS INCURRED, ON THE GROUND OF COMMERCIAL EXPEDIENCY - AN ACT WHICH CERTAINLY HAPPENED IN THE FINANCIAL YEAR RELEVANT T O THE ASSESSMENT YEAR BEFORE US. HOWEVER, THERE IS NO MATERIAL BEFORE US TO SUPPORT THE FACTUAL CONTENTIONS EMBEDDED IN THE STAND OF THE ASSESSEE, NOR HAVE THE RELATED FACTS BEEN ASCERTAINED BY ANY AUTHORITIES BELOW. TH EREFORE, WE CONSIDER IT FIT AND PROPER TO REMIT THIS ISSUE ALSO TO THE F ILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO IN THE LIGHT OF OUR ABOVE OBSERVATIONS. LET THE ASSESSING OFFICER EXAMINE ALL THE FACTUAL CONTENTIO NS AND LEGAL PLEAS OF THE ASSESSEE BY WAY OF SPEAKING ORDER IN ACCORDANCE WITH THE LAW AND AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSE SSEE. THIS ISSUE IS ALSO ACCORDINGLY REMITTED TO THE FILE OF THE ASSESSING O FFICER.' (EMPHASIS SUPPLIED) (REFER PARA 105 ON PAGE 752 OF THE PAPER BOOK). 74. SIMILARLY, IN THE PRESENT CASE, WITH THE INITIAL PLAN TO MANUFACTURING 20,000 CARS PER YEAR, MS INDIA HAD PL ANNED TO ESTABLISH A NEW FACTORY FOR W 124 MODEL. HOWEVER, DUE TO UNCERT AINTY IN THE MARKET ENVIRONMENT, THE W 124 SERIES OF MODELS WAS UNABLE TO PENETRATE THE MARKET AND GENERATE THE TARGETED SALES. AS A RESULT , MB INDIA DECIDED TO ALTER ITS PRODUCT PROFILE AND INTRODUCE A NEW MODEL IN THE MARKET WITH A LOWER SALES TARGET OF 6,000 CARS PER YEAR. SUCH LOW VOLUME OF 6000 CARS PER YEAR AND CHANGE IN MODEL DID NOT JUSTIFY THE IM PLEMENTATION OF INDUSTRIALIZATION PHASE PRIMARILY DUE TO THE FOLLOW ING REASONS: HIGHER INVESTMENT IN BUILDING AND INFRASTRUCTURE FO R A VOLUME OF 6,000 UNITS WERE UNJUSTIFIABLE INSTALLING FIVE TIMES THE CAPACITY THAN REQUIRED (100/ DAY AS 32 AGAINST 20/DAY) WOULD HAVE RESULTED IN UNDERUTILIZATION OF CAPACITY WHICH WOULD LEAD TO INEFFICIENCY AND LOSSE S MORE MANPOWER TO RUN AND MAINTAIN THE ASSEMBLY LINE (PROPOSED 82 WORKSTATION AS AGAINST THE REQUIRED 25 WORK STAT ION) EXCESSIVE CYCLE TIME DUE TO LOW VOLUME AS IT WOULD REQUIRE TO PASS 82 WORKSTATION TAKING 24 MINUTES AS AGAINST 7 . 2 MINUTES PER OPERATOR . MODIFICATION AND INSTALLATION COST WERE VERY HIGH ( AROUND RS 2 CRORES) . THIS REQUIRED CHANGE IN THE POWER GRID FROM 380 VOL TS TO 415 VOLTS ETC . FURTHER THE INSTALLATION DEMANDED MAJOR MODIF I CATION TO ACCOMMODATE CHANGE OF LINE FROM W124 SERIES TO W 21 0 SERIES. IN VIEW OF THE ABOVE COMMERCIAL EXPEDIENCY AND TO A VOID FUTURE BUSINESS LOSSES, MB INDIA DECIDED TO DISCARD THE PARTS OF TH E MACHINERY, FORMING PART OF CWIP, PROCURED FOR INDUSTRIALIZATION PHASE. THUS, DUE TO ABANDONMENT OF THE PLANS FOR INDUSTRIALIZATION, THE PARTS OF THE MACHINERY COULD NOT HAVE BEEN OF ANY USE TO RESULT IN ENDURING BENEFIT FOR THE APPELLANT. HENCE, IT IS OUR HUMBLE SUBMISSI ON THAT THE SAME SHOULD BE TREATED AS BUSINESS LOSS OF THE APPELLANT INCURRED DUE TO COMMERCIAL EXPEDIENCY. 33. IN SUPPORT OF HIS SUBMISSIONS, LD. COUNSEL FOR THE ASSES SEE PLACED HIS RELIANCE ON THE FOLLOWING JUDGMENTAL LAWS GIVING BRIE F DETAILS OF THE FINDINGS IN THOSE CASES : 1. M/S. BINNAL CEMENT LTD. VS. CIT INCOME TAX APPEAL NO.265 OF 2009 (CAL.) 2. CIT VS. ANJANI KUMAR CO. LTD. 259 ITR 114 3. EXCEL INDUSTRIES LTD. VS. DCIT 86 TTJ 840 (MUMBAI) 4. LAWKIM LTD. VS. JCIT 1 SOT 908 (MUM.) 5. CIT VS. M/S. IDEA CELLULAR LTD. APPEAL NO.516 OF 2015 (BOMBAY HIGH COURT) THUS, IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN A CASE WHERE ASSESSEE HAD A PROPOSAL TO EXPAND BUSINESS INTO DIFFERENT PRODUCT LINES OF MANUFACTURING OF CARS, I.E. W-124 AND WHEN T HE PROJECT HAS TO BE ABORTED FOR THE REASONS OF BUSINESS OPERATIONS OF THE ASS ESSEE, SUCH EXPENDITURE ALTHOUGH CAPITAL IN NATURE, IS REQUIRED TO BE ALLOWED AS BUSINESS EXPENDITURE FOR THE YEAR UNDER CONSIDERATION . THE SAID EXPENSES ARE ALLOWABLE U/S.37(1) OF THE ACT. REFERRING TO TH E CASES REFERRED ABOVE, HE SUBMITTED THAT IN ALL THOSE CASES ABO RTED EXPENSES, 33 WHICH MAY BE CAPITAL IN NATURE, ARE FOUND AS ALLOWABLE DEDU CTION U/S.37(1) OF THE ACT. 34. PER CONTRA, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF AO/CIT(A). ESSENTIAL CORE ARGUMENT OF THE REVENUE IS TH AT THE SAID EXPENSES BEING CAPITAL IN NATURE ARE NOT ALLOWABLE EXPENSE S AGAINST THE BUSINESS INCOME OF THE ASSESSEE. OTHERWISE, LD. DR DID NO T SUBMIT THAT THE CAR SERVICES W-124 IS NOT PART OF THE BUSINESS OF THE ASSESS EE. 35. WE HEARD BOTH THE SIDES ON THIS ISSUE AND PERUSED T HE ORDERS OF THE REVENUE AS WELL AS THE DECISIONS RELIED ON BY THE LD. COUNSEL FOR TH E ASSESSEE. ESSENTIALLY, THE CASE OF THE REVENUE IS THAT T HE EXPENDITURE OF RS.9,79,25,979/- RELATED TO THE CAR SERIES OF W-124, CONS TITUTES THE CAPITAL EXPENDITURE WITH ENDURING NATURE. CIT(A) HELD IT SO AS PER THE REASONING GIVEN IN PARA NO.3.3 OF HIS ORDER. THE DETAILS ARE EXTRACTED AS FOLLOWS : 3.3 THE SUBMISSIONS HAVE BEEN CONSIDERED. ADMITTE DLY THE EXPENSES INCURRED BY THE APPELLANT WAS FOR PLANT AND MACHINE RY (CAPITAL ASSET) FOR THE USE IN THE PROPOSED NEW FACTORY. THE EXPENSES NO DOUBT WAS CAPITAL IN NATURE. AN EXPENDITURE INCURRED WITH A VIEW TO ACQUIRE CAPITAL ASSET MUST BE TREATED AS A CAPITAL EXPENDITURE. IN FANCY CORPN. LTD. VS. CIT 162 ITR 827 (BOM.) IT WAS HELD THAT THE MERE FACT T HAT ATTEMPT TO ACQUIRE CAPITAL ASSET FAILED, WOULD NOT CHANGE THE CAPITAL NATURE OF THE EXPENDITURE. THE DECISION IN ALEMBIC CHEMICAL WORK S LTD. 177 ITR 377 (SC) RELIED UPON BY THE APPELLANTS REPRESENTATIVE IS NOT APPLICABLE TO THE FACTS OF THE CASE. IN THAT CASE THE DECISION WAS I N REGARD TO THE IMPROVISATION IN THE PROCESS AND TECHNOLOGY WHICH W AS SUPPLEMENTED TO THE EXISTING BUSINESS. IN THE CASE OF THE APPELLAN T IT IS A DIRECT EXPENSES FOR ACQUIRING NEW CAPITAL ASSET. IN 196 ITR 845 (C AL.) THE EXPENDITURE ON MISCELLANEOUS EXPENSES AND LAW CHARGES INCURRED ON PROPOSED FACTORY PROJECT WAS HELD AS DEDUCTIBLE EXPENSES. BUT IN TH E CASE OF THE APPELLANT THE EXPENSES WAS SQUARELY INCURRED FOR THE PURCHASE OF MACHINERY FOR THE PRODUCTION OF W 124 SERIES OF MERCEDESE BENZ CARS. THIS IS BEYOND DOUBT EXPENDITURE INCURRED FOR CAPITAL ASSET. THER EFORE, THE CLAIM OF THE DEDUCTION OF CAPITAL EXPENSES IS NOT ALLOWABLE IS T HEREFORE REJECTED. HOWEVER, THE ABOVE FINDING IS GIVEN BY THE CIT(A) AGAINST TH E ASSESSEE WITHOUT CONSIDERING THE FOLLOWING LEGAL PROPOSITIONS EXISTING AT THE RELEVANT POINT OF TIME. IT IS THE CASE OF THE ASSESSEE TH AT THE PROJECT 34 INDUSTRIAL PRODUCTION PHASE, I.E. STARTING A NEW FACTORY FOR MANUFACTURING PASSENGER CAR SERIES W-124 MODEL WAS ABAN DONED AS IT COULD NOT PENETRATE THE MARKET AND GENERATE THE TARG ETED SALES. FURTHER, THE ASSESSEES COUNSEL CITES THAT WHEN THE ASSESSEE WROTE OFF THE FACTORY LAYOUT EXPENSES IN THE A.Y. 1999-2000, THE S AME WAS FINALLY ALLOWED BY THE TRIBUNAL VIDE ORDER DATED 21-01-2009. THE WRITE OFF OF THE SAID SUM OF RS.9,79,25,979/- CONSTITUTES BUSINESS LOSS. RELYING ON THE VARIOUS DECISIONS, LD. COUNSEL DEMONSTRATED THAT THE SAID CLAIM IS ALLOWABLE AS THE PROJECT FAILED TO TAKE OFF EVENTUALLY. REFER RING TO THE CALCUTTA HIGH COURT JUDGMENT IN THE CASE OF M/S. BINANI CE MENT LTD. VS. CIT ( A CASE OF CONSTRUCTION OF A NEW FACILITY WHICH IS AB ANDONED AT THE WORK IN PROGRESS STAGE), CIT VS. ANJANI KUMAR CO. LT D. 259 ITR 114 (RAJ.) (A CASE WHERE ASSESSEE MADE ADVANCE FOR PURCHASE OF AGRICULTURAL LAND FOR SETTING UP A BROILER FACTORY WHICH IS EVENTUALLY AB ANDONED AND THEREFORE ADVANCE BECAME IRRECOVERABLE), EXCEL INDUSTRIES LTD. VS. DCIT 86 TTJ 840 (MUMBAI) (A CASE OF INCURRING OF PROJECT EXPENSE S ON A NEW PROJECT WHICH IS ABANDONED CLAIMED AS ALLOWABLE EXPENSES), L AWKIM LTD. VS. JCIT 1 SOT 907 (MUMBAI) ( A CASE OF ACQUIRING TECHNIC AL KNOW- HOW FOR MANUFACTURING OF NEW LINE OF PRODUCTS WHICH WAS LATE R ABANDONED, CIT VS. M/S. IDEA CELLULAR LTD. APPEAL NO.516 OF 2 015 BOMBAY HIGH COURT ( A CASE OF CLAIM OF CAPITAL EXPENDITURE O N PROJECT FOR SETTING UP OF CONSTRUCTION OF A CELL TOWER WHICH WAS AB ANDONED DUE TO NON-SUITABILITY) ETC. LD. COUNSEL SUBMITTED THAT IN ALL THE SE CASES, THE EXPENDITURE WAS CLAIMED U/S.37(1) OF THE ACT AND THE SAME WERE ALLOWED EVENTUALLY. DRAWING OUR ATTENTION TO THE FACTS OF EXPENDITURE OF PART OF MACHINERY, LD. COUNSEL SUBMITTED THAT THE SAID MAC HINERY WAS NEVER INSTALLED AND CAPITALIZED AND THE SAME INDICATES THAT THE ASSET NEVER CAME INTO EXISTENCE CANNOT HAVE ANY ENDURING BENEFIT. 35 36. ON CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, WE FIND THE DECISION OF CIT(A) GIVEN IN PARA NO.3.3 OF HIS ORDER IS NOT CO MPLETE IN ALL RESPECT WHICH INCLUDES THAT THE CIT(A)/AO NEVER DISCUSSED THE DETAILS OF THE SAID EXPENDITURE ON ONE SIDE AND APPLICABILITY OF THE RELEVANT LEGAL PROPOSITIONS ON THE OTHER WHILE DECIDING THE ISSUE BY THE CIT(A). IT IS UNDERSTOOD THAT EVERY CASE HAS ITS PECULIAR FACTS BUT THE PHILOSOPHY RELATING TO THE DECISION TO DESCRIBE PARTICULAR E XPENDITURE AS CAPITAL OR REVENUE IS ALREADY DISCUSSED BY THE HONBLE JU RISDICTIONAL HIGH COURT AS WELL AS HONBLE APEX COURT. THE LEGAL PRO POSITIONS DESCRIBED BY OTHER HIGH COURTS ALSO CONTRIBUTE TO THE E VOLUTION OF THOUGHT ON THIS ISSUE. THEREFORE, IN OUR VIEW, THERE IS REQ UIREMENT OF REMANDING THIS ISSUE TO THE FILE OF AO FOR WANT OF A DECISION ON FACTS AS WELL AS APPLICATION OF LEGAL PROPOSITIONS. AS SUCH, WE NEVER H AD THE BENEFIT OF KNOWING THE DETAILS OF EXPENDITURE AMOUNTING TO RS.9,79,25,979/- AGGREGATED UNDER THE HEAD CAPITAL WORK IN PROGRESS. IT IS RELEVANT TO KNOW WHAT ARE THE DETAILS OF BREAK-UP OF THE EXPENDITURE ON ONE SIDE AND THE GENUINENESS OF THE SAME ON THE OTHER. NEITHER THE AO NOR THE CIT(A) HAS EXAMINED THIS ANGLE OF T HE CLAIM OF THE ASSESSEE. THEREFORE, IN THE SET-ASIDE PROCEEDINGS, AO IS DIRECTED TO EXAMINE THE SAME AND DECIDE THE ISSUE AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY , RELEVANT GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 37. ALLOWABILITY OF CLUB EXPENDITURE : COMING TO THE LAST ISSUE RAISED BY THE ASSESSEE TOWARDS MEMBERSHIP FEE FOR POONA GOLF CLUB AND HYATT REGENCY NEW DELHI, FOR THE MANAGING DIRECTOR, AO DISA LLOWED THE SAME AS NON-BUSINESS EXPENSES AND MADE ADDITION OF RS.25 ,600/- AND THE SAME WAS CONFIRMED BY THE CIT(A). 36 38. BEFORE US, LD. COUNSEL FOR THE ASSESSEE FILED THE WRITTEN SUBMISSIONS AND SUBMITTED THAT PARA NO.79 TO 86 CONTAIN THE RELEVANT DISCUSSION, DECISION OF THE AO/CIT(A) AS WELL THE ASSESSEES CONTENTIONS. 39. RELEVANT FACTS OF THE CASE INCLUDE THAT ASSESSEE MADE PAYMENT OF RS.1,67,600/- TO VARIOUS CLUBS AND HOTELS FOR CONDUCTING MEETING/CONFERENCES FOR THE EMPLOYEES OF THE ASSESSEE. A SSESSEE CLAIMED THE SAID EXPENSES AS BUSINESS EXPENSES. AO DISALLO WED THE SAID EXPENSES TREATING THE SAME AS PERSONAL IN NATURE A ND NOT WHOLLY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. CIT(A) GAVE PART RELIEF TO THE ASSESSEE AND RESTRICTED THE DISALLOWANCE TO RS.25,600/-. 40. ON THIS ISSUE, LD. COUNSEL FILED THE WRITTEN SUBMISSIONS AN D THE SAME ARE REPRODUCED HERE AS UNDER : 83. THE COMPANY HAD ALSO INCURRED EXPENSES FOR OBT A I NING MEMBERSHIP IN THE POONA CLUB GOLF COURSE AND HYATT REGENCY HOTEL, DELHI, FOR BENEFIT OF THE EMPLOYEES AND FOR CONDUCT ING MEETING AND CONFERENCES IN THE HOTELS . 84. THUS , THE ABOVE EXPENDITURE ARE INCURRED PURELY TO SERVE BUSINESS PURPOSE OF THE APPELLANT . 85. THE APPELLANT WISHES TO RELY ON THE FOLLOWING D ECISIONS, WHERE CLUB EXPENSES ARE ALLOWED AS BUSINESS EXPENDITURE: OTIS ELEVATOR CO. (INDIA) LTD VS CIT (1992) 195 ITR 682 (BOM) (REFER PAGES 1014 TO 1017 OF THE PAPER BOOK) CIT VS. LUBRIZOLLNDIA LTD (2013) 218 TAXMANN 69 (BO M) (REFER PAGES 1018 TO 1020 OF THE PAPER BOOK) INTERVALVE (INDIA) LTD VS ACIT (ITA NO.1812 & 1813/ PN/13) (PUNE ITAT) (REFER PAGES 1021 TO 1032 OF THE PAPER BOOK) THERMAX LIMITED VS. ADDL. CIT (ITA NO. 1245/PN/2005) (PUNE ITAT) (REFER PAGES 1033 TO 1038 OF THE PAPER BOOK) TATA TECHNOLOGIES LIMITED VS JCIT (ITA NOS. 18 & 19 /PN/2012, ITA NOS. 36 & 37/PN/2012, ITA NOS. 2114 & 2115/PN/2 013, ITA NO. 2083/PN/2013) (PUNE ITA T) (REFER PAGES 103 9 TO 1055 OF THE PAPER BOOK) CIT VS. UPPER INDIA STEEL MANUFACTURING & ENGG. CO. LTD (2014) 227 TAXMANN 173 (P&H) CIT VS. GROZ BECKERT ASIA LTD (2013) 351 ITR 196 (P &H - FB) 86. FURTHER, IN CASE OF A COMPANY WHICH IS AN INANI MATE PERSON , THERE COULD BE NO JUSTIFICATION FOR DISALLOWANCE ON THE G ROUND OF PERSONAL OR NON - BUSINESS COMPONENT . IN SUPPORT OF THIS, THE APPELLANT WOULD LIKE TO PLACE RELIANCE ON THE FOLLOWING DECISIONS: 37 SAYAJI IRON & ENGG CO . VS . CIT (2002) (253 ITR 749) (GUJ) (REFER PAGES 1063 TO 1067 OF THE PAPER BOOK) ADOR TECHNOLOGIES LTD V DCIT (112 TTJ 24) (PUNE ITA T) (REFER PAGES 1068 TO 1083 OF THE PAPER BOOK) BAJAJ AUTO FINANCE LTD . V DCIT (112 TTJ 437) (PUNE ITAT) (REFER PAGES 1084 TO 1090 OF THE PAPER BOOK) BAJAJ FINANCE LTD VS DCIT (ITA NO . 1175 AND 1273/PN/2012) (PUNE ITAT) (REFER PAGES 1091 TO 1100 OF THE PAPER BOOK) 41. ON THE OTHER HAND, LD. DR FOR THE REVENUE SUBMITTED THAT THE ORDER OF THE CIT(A) IS REASONABLE AND THE SAME MAY BE CONFIRMED. 42. ON HEARING BOTH THE SIDES ON THIS LIMITED ISSUE OF ALLOWAB ILITY OF CLUB EXPENSES, WE FIND THAT THE ASSESSEE CLAIMED RS.1,67,60 0/- IN THE ACCOUNT AND THE CIT(A) GRANTED PART RELIEF TO THE ASSESS EE CONFIRMING THE SUM OF RS.25,600/- ONLY. ON CONSIDERING THE ABOVE, WE FIND THERE IS NO DISPUTE ON THE FACT OF CLAIM OF CLUB EXPENSES OF RS.1,67,60 0/- IN THE ACCOUNT. AO DISALLOWED THE SAME SUSPECTING THE PERSONAL NATURE OF THE EXPENDITURE. AO PLACED HIS RELIANCE ON THE AUDITORS REPO RT (PARA NO.8 OF THE ASSESSMENT ORDER). AS PER THE DISCUSSION GIVEN B Y THE CIT(A) IN PARA NO.5 AND ITS SUB-PARAS, WE FIND CIT(A) RESTRICTED THE DISALLOWANCE TO RS.25,600/- (GOLF COURSE FEE OF RS.14,600/- FOR DR. VOLKAR AND SHRI LEOFFLER) AND OTHER PAYMENT OF CLUB MEMBERSHIP IN RESPECT O F MR. THOMAS WEIGAND AND DR. TILL BECKER DEFREITAS. CONSIDERING T HE APPEARANCE OF INDIVIDUAL NAMES OF THE EMPLOYEES, THE CIT(A) H ELD THAT THESE ARE IN THE NATURE OF PERSONAL EXPENDITURE. CONTEN TS OF PARA NO.5.3 ARE RELEVANT. ON PERUSAL OF THE NOTE GIVEN BY THE LD. COUNSEL FOR THE ASSESSEE WHICH IS EXTRACTED ABOVE, WE FIND THE FACT S OF THE DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISH ABLE. IT IS NOT THE CASE OF THE ASSESSEE THAT THE EMPLOYEES WERE NOT BENEFITTED AND THE EXPENDITURE IS WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PUR POSES OF THE ASSESSEE. FOR THE SAKE OF COMPLETENESS, WE REPRODUCE T HE FINDING GIVEN BY THE CIT(A) IN PARA NO.5.3 OF HIS ORDER AND THE SAME READS AS UNDER : 38 5.3 THE SUBMISSIONS HAVE BEEN CONSIDERED. THE EXP ENDITURE INCURRED FOR THE ANNUAL SUBSCRIPTION OF THE POONA GOLF COURS E OF DR. VOLKAR AND SHRI R. LEOFFLER IS CLEARLY THE PERSONAL EXPENSES O F THE EMPLOYEES AND IT HAS NO CONNECTION WITH THE BUSINESS OF THE APPELLAN T. SIMILAR WERE THE EXPENSES IN REGARD TO THE MEMBERSHIP OF THE TWO EXE CUTIVES FOR HYATT REGENCY, DELHI WHICH ARE THE PERSONAL EXPENSE OF TH E EXECUTIVES NOT CONNECTED WITH THE BUSINESS OF THE APPELLANT BUT IN CURRED BY THE APPELLANT. THEREFORE, THE SUM OF RS.7,300/-; RS.7, 300/- & RS.11,000/- ARE NOT FOR THE PURPOSE OF THE BUSINESS OF THE APPE LLANT AND THEREFORE ARE NOT AN ALLOWABLE EXPENSES. IN REGARD TO THE MEMBER SHIP OF THE APPELLANT WITH TELCO SENIOR OFFICIALS CLUB PAID AT RS.10,000/ - P.M. IS IN REGARD TO THE SPORTS AND RECREATION FACILITIES AVAILED BY THE GERMAN EXPATIATE EMPLOYEES WORKING FOR THE APPELLANT. THEREFORE, IT IS HELD AS EXPENDITURE INCURRED FOR THE STAFF WELFARE. THE MEMBERSHIP OF THE CHAMBERS WITH TAJ MAHAL HOTEL, MUMBAI IS FOR AVAILING FACILITIES OF T HE HOTEL IN THE AREA CALLED THE CHAMBERS WHERE THE HOTEL WAS PROVIDING FACILITIES FOR BUSINESS ASSISTANCE AND MEETINGS AND THEREFORE EVEN THAT IS HELD AS INCURRED FOR THE PURPOSE OF BUSINESS. THE APPELLAN T SHALL GET PART RELIEF ON THIS GROUND. CONSIDERING THE ABOVE, WE FIND THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE. ACCORDINGLY, THIS PART OF GROUND RAISED BY TH E ASSESSEE IS DISMISSED. C.O.NO.50/PUN/2004 ARISING OUT OF ITA NO.1325/PUN/2003 A.Y.1998-99 43. THE CAPTIONED CROSS OBJECTION WAS RAISED WITH THRE E ISSUES; (1) RELOCATION EXPENSES AMOUNTING TO RS.37,80,388/-; (2) TRAVELLING EXPENSES AMOUNTING TO RS.47,71,593/-; AND (3) TELEPHONE EXP ENSES AMOUNTING TO RS.10 LAKHS. 44. ASSESSEE RAISED THESE ISSUES MERELY TO SUPPORT TH E RELIEF GRANTED BY THE CIT(A). REVENUE IS ALREADY IN APPEAL ON THESE THR EE ISSUES. WE HAVE ALREADY ADJUDICATED THEM VIDE ITA NO.1325/PUN/2003 AND DISMISSED ALL THE THREE ISSUES RAISED BY THE REVENUE AND IN FAVOUR OF THE ASSESSEE. CONSIDERING THE SAME, WE ARE OF THE OPINIO N THAT ADJUDICATION OF THESE ISSUES RAISED BY THE ASSESSEE BECO MES AN ACADEMIC EXERCISE. THEREFORE, THE CROSS OBJECTIONS RAISE D BY THE ASSESSEE ARE DISMISSED AS ACADEMIC. 39 45. IN THE RESULT, THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. 46. TO SUM UP, THE APPEAL ITA NO.1381/PUN/2003 OF THE ASSES SEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE APPEAL ITA NO.1325/PUN/2003 OF THE REVENUE AS WELL AS THE CROSS OB JECTION NO.50/PUN/2004 OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 08 TH DAY OF AUGUST, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 08 TH AUGUST, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// SENIOR PRIVA TE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-III, PUNE 4. THE CIT(A)-IV, PUNE 5. , , A BENCH PUNE; 6. / GUARD FILE.