M/S Atul Ltd, Ahmedabad V. The Ito A'Bad Wd 1(1), A'Bad, Ahmedabad

ITA 1093/AHD/2002

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9579 (ITAT-AHMEDABAD)
• Duration Of Justice: 14 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-12-2016
• Assessment Year: 1996-1997
• Appeal Filed On: 17-04-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P SHAH WITH MANISH J SHAH
• Assessee Lawyers: VIBHA BHALLA
• Keywords: Business income; Depreciation; Retrospective amendment; Bad and doubtful debts; Capital receipt; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 80HHC; 80G; 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 1093 & 939/AHD/2002 (ASSESSMENT YEAR: 1996-97) ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG, ELLISBRIDGE, AHMEDABAD- 380006 INCOME TAX OFFICER, WARD- 1 (1), AHMEDABAD V/S V/S INCOME TAX OFFICER, WARD- 1 (1), AHMEDABAD ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG, ELLISBRIDGE, AHMEDABAD- 380006 (APPELLANT) (RESPONDENT) ITA. NOS: 2781 & 3255/AHD/2002 (ASSESSMENT YEAR: 1997-98) ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG, ELLISBRIDGE, AHMEDABAD- 380006 INCOME TAX OFFICER, WARD- 1 (3), AHMEDABAD V/S V/S INCOME TAX OFFICER, WARD- 1 (1), AHMEDABAD ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG, ELLISBRIDGE, AHMEDABAD- 380006 (APPELLANT) (RESPONDENT) ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 2 ITA. NOS: 3838/AHD/2002 & 415/AHD/2003 (ASSESSMENT YEAR: 1999-2000) ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG, ELLISBRIDGE, AHMEDABAD- 380006 INCOME TAX OFFICER, WARD- 1 (3), AHMEDABAD V/S V/S INCOME TAX OFFICER, WARD- 1 (3), AHMEDABAD ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG, ELLISBRIDGE, AHMEDABAD- 380006 (APPELLANT) (RESPONDENT) PAN: AAPPT0319Q APPELLANT BY : MS. VIBHA BHALLA, CIT/DR RESPONDENT BY : SHRI J.P. SHAH WITH MANISH J . SHAH ( )/ ORDER DATE OF HEARING : 22 -12-20 16 DATE OF PRONOUNCEMENT : 04 -01-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 1093 & 939/AHD/2002 ARE CROSS APPEALS BY T HE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE VERY SAME ORDER OF TH E LD.CIT(A)-I, AHMEDABAD DATED 21.01.2002 PERTAINING TO A.Y. 1996- 97, ITA NOS. 2781 & 3255/AHD/2002 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-V, AH MEDABAD DATED 12.08.2002 PERTAINING TO A.Y. 1997-98 AND ITA NO. 3 838/AHD/2002 & 415/AHD/2003 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 3 AGAINST THE ORDER OF THE LD CIT(A)-V, DATED 14.11.2 002 PERTAINING TO A.Y. 1999-2000. 2. THE ABOVE CAPTIONED APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA N0. 1093/AHD/2002 ASSESSEES APPEAL FOR A .Y. 1996-97 3. THE ASSESSEE HAS RAISED FIVE SUBSTANTIVE GROUNDS O F APPEAL. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF LEASE RENT AMOUNTING TO RS. 1,30,36,117/- PAID TO THE ARVIND MILLS AS PER LEASE AGREEMENT ENT ERED WITH THAT COMPANY. 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF VARIOUS DYES, CHEMICALS, CAUSTIC SODA, BASI C DYES AND COLOURS AND ALSO MANUFACTURES CERTAIN ITEMS REQUIRED FOR EXPLOS IVE INDUSTRY AND AGRO- CHEMICALS ETC. 5. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 2,07,69,021/- ON LEASE RENT PAID IN RESPECT OF SALE AND LEASE BACK TRANSACTION ENTERED INTO WITH A RVIND MILLS LTD. DURING F.Y. 1993-94. THE A.O. FURTHER OBSERVED THAT THIS I SSUE HAS BEEN EXAMINED IN DETAILED IN THE ORDER FOR A.Y. 1994-95 WHEREIN I T WAS HELD THAT SALE AND LEASE BACK TRANSACTION WITH ARVIND MILLS LTD. WAS N OTHING BUT A FINANCIAL TRANSACTION AND ACCORDINGLY LEASE RENTALS CONSTITUT ED CAPITAL PAYMENT AND ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 4 HENCE NOT ALLOWABLE. TAKING A LEAF OUT OF THE FINDI NGS GIVEN IN EARLIER ASSESSMENT YEARS, THE A.O. DISALLOWED THE PRINCIPAL REPAYMENT AND SALES- TAX THEREON AMOUNTING TO RS. 1,30,36,117/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) W HO DISMISSED THE APPEAL OF THE ASSESSEE FOLLOWING THE FINDING GIVEN IN A.Y. 1994-95. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OU R ATTENTION TO THE DECISION OF THE TRIBUNAL IN ITA NO. 1800/AHD/2009 F OR A.Y. 1994-95 AND POINTED OUT THAT THE TRIBUNAL HAS RESTORED THE ISSU E TO THE FILES OF THE LD. CIT(A) WITH A DIRECTION TO DECIDE THE SAME AFRESH. 8. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACT S IN ISSUE AND CONSIDERING THE DECISION OF THE CO-ORDINATE BENCH (SUPRA), WE F IND THAT THIS ISSUE WAS CONSIDERED BY THE CO-ORDINATE BENCH AT PARA 8 OF IT S ORDER AND THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READS AS UNDER:- 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE CIT(A) DID NOT HAV E THE BENEFIT OF THE SPECIAL BENCH DECISION IN THE CASE OF INDUS BANK LTD., AND ALSO THE DECISION OF THE TRIBUNAL IN THE CASE OF ARVIND MILLS LTD. WHICH HAS A DIRECT BEARING ON THE ISSUE IN THIS GROUND OF THE APPEAL OF THE REVENUE. IN THE SE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT IT SHALL BE IN THE INTERES T OF JUSTICE TO RESTORE THE ISSUE TO THE FILE OF THE CIT(A) WITH DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE DECISIONS OF THE AHMEDA BAD TRIBUNAL IN THE CASE OF ARVIND MILLS LTD., WHICH HAS DIRECT BEARING ON THE ISSUE AND ALSO IN THE LIGHT OF THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE C ASE OF INDUS BANK LTD., AND ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 5 AFTER ALLOWING DUE OPPORTUNITY OF HEARING TO BOTH T HE PARTIES. WE DIRECT ACCORDINGLY . 9. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDI NATE BENCH, WE DIRECT THE A.O. ACCORDINGLY. GROUND NO. 1 IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 10. GROUND NO. 2 RELATES TO THE ENHANCEMENT OF THE INCO ME BY RS. 87,33,859/- OUT OF LEASE RENT EXPENSES PAYABLE TO ICICI AND ALL OWED BY THE A.O. ON THE BASIS OF METHOD OF ACCOUNTING. 11. ON PERUSAL OF THE FINANCIALS OF THE ASSESSEE, THE A .O. NOTICED THAT THE ASSESSEE HAS DEBITED ON ACCRUAL SYSTEM EXPENDITURE AMOUNTING TO RS. 7,84,86,179/-. THE A.O. FOUND THAT OUT OF THE TOTAL EXPENDITURE, RS. 1,87,03,288/- HAS BEEN TRANSFERRED TO THE PROFIT AN D LOSS ACCOUNT AND BALANCE AMOUNT OF RS. 5,97,82,891/- HAS BEEN CARRIE D FORWARD. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. ASSESSEE F ILED A DETAILED REPLY CLAIMING THAT THE EXPENDITURE OF RS. 7,84,86,179/- WAS CORRECT IN VIEW OF THE COMMERCIALLY ACCEPTED ACCOUNTING PRINCIPLES, AC COUNTING STANDARDS AND STATUTORY PROVISIONS/CASE LAWS. THE ASSESSEE STRONG LY CONTENDED THAT THE COMPANY HAD INCURRED EXPENDITURE ON LEASE RENTAL, L EGAL AND CONSULTANCY FEES AND RETRENCHMENT COMPENSATION WHICH IS ENDURIN G BENEFIT AND, THEREFORE, IT HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE TO BE WRITTEN OFF IN SUBSEQUENT YEARS AND AN AMOUNT OF RS . 1,87,03,288 HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 6 12. THE A.O. WAS OF THE FIRM BELIEF THAT THE AMOUNT OF RS. 18703288/- DEBITED TO PROFIT AND LOSS ACCOUNT ONLY IS ADMISSIBLE AND T HE CLAIM OF THE ASSESSEE OF RS. 59782891/- IN RESPECT OF EXPENDITURE DEFERRE D IN THE BOOKS OF ACCOUNTS BUT CLAIMED AS REVENUE EXPENDITURE WAS DIS ALLOWED. 13. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM. 14. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND AFTER PERUSING THE ASSESSMENT ORDER, THE FIRST APPELLATE AUTHORITY ISS UED A NOTICE OF ENHANCEMENT. ASSESSEE STRONGLY OBJECTED TO THE ENHA NCEMENT NOTICE ISSUED BY THE LD. CIT(A). 15. AFTER CONSIDERING THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE, THE LD. CIT(A) OBSERVED AS UNDER:- IN THE CASE OF APPELLANT THE LEASE AGREEMENT HAVE B EEN ENTERED INTO AND LEASE RENTALS HAVE BEEN FIXED IN SUCH A MANNER THAT IN IN ITIAL 4/5 YEARS ABNORMALLY HIGH LEASE RENTS ARE PAID AND FOR THE REMAINING 25 YEARS THE LEASE RENTS ARE NOMINAL. HENCE THESE HIGH LEASE RENTALS IN INITIAL YEARS HAS BEEN PAID TO SECURE A BUSINESS ADVANTAGE FOR A MUCH LONGER PERIOD OF 29/30 YEARS. THE NOTE REGARDING AVERAGE ANNUAL RENT AS POINTED OUT ALSO PROVE THIS POINT. T HUS IN VIEW OF DECISION OF THE APEX COURT IT IS APPARENT THAT LEASE RENTALS HAVE T O BE SPREAD OVER THE ENTIRE PERIOD OF EXISTENCE OF LEASE AND EVERY YEAR LEASE R ENTALS HAVE TO BE ALLOWED ONLY TO THE EXTENT OF AVERAGE ANNUAL RENTALS DESCRIBED I N THE LEASE AGREEMENTS. IT IS SEEN THAT THE ASSESSING OFFICER HAS ALLOWED A HIGHE R AMOUNT THAN THE AVERAGE ANNUAL RENT. HENCE IN RESPECT OF THESE TWO TRANSACT IONS THE DISALLOWANCE HAS TO BE MORE AND ACCORDINGLY INCOME IS ENHANCED BY RS. 87,3 3,859/- AS MENTIONED IN NOTICE OF ENHANCEMENT DATED 18.12.2001. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 7 TO SUM UP IN RESPECT OF THIS GROUND RELIEF AS DISCU SSED IS TO BE ALLOWED AND INCOME IS ENHANCED BY RS. 87,33,859/. 16. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AU THORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT NOW THE ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS LTD. 372 ITR 605 WHICH WAS FO LLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF GUJARAT STATE FERTILIZERS & CHEMICALS LTD. IN 358 ITR 323. IT IS THE SAY OF THE LD. COUNSEL THAT THE LD. CIT(A) WHILE ENHANCING THE ASSESSMENT HAS RE-WORKED THE LEASE AGREEMENT WHICH IS NOT PERMISSIBLE IN LAW. PER CONTRA, THE LD . D.R. STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 17. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD. COUNSEL, W E HAVE GONE THROUGH THE RELEVANT PART OF THE JUDICIAL DECISIONS RELIED UPON BY THE LD. COUNSEL. THE HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS (SUPRA), REFERRING TO ITS EARLIER DECISION IN THE CASE OF BHARAT EARTH MOVERS LTD. 245 ITR 428 OBSERVED THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DA TE. WHAT SHOULD BE CERTAIN IS THE INCURRING OR THE LIABILITY. IT SHOUL D ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTU AL QUANTIFICATION MAY NOT BE POSSIBLE. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 8 18. THE HONBLE SUPREME COURT FURTHER OBSERVED AS UNDER :- THIS IS DISCERNIBLE FROM THE FOLLOWING PASSAGE IN T HAT JUDGMENT ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FOR THE REVENUE H ERSELF* : 'THE TRIBUNAL, HOWEVER, HELD THAT SINCE THE ENTIRE LIABILITY TO PAY THE DISCOUNT HAD BEEN INCURRED IN THE ACCOUNTING YEAR IN QUESTION, T HE ASSESSEE WAS ENTITLED TO DEDUCT THE ENTIRE AMOUNT OF RS. 3,00,000 IN THAT AC COUNTING YEAR. THIS CONCLUSION DOES NOT APPEAR TO BE JUSTIFIED LOOKING TO THE NATU RE OF THE LIABILITY. IT IS TRUE THAT THE LIABILITY HAS BEEN INCURRED IN THE ACCOUNTING Y EAR. BUT THE LIABILITY IS A CONTINUING LIABILITY WHICH STRETCHES OVER A PERIOD OF 12 YEARS. IT IS, THEREFORE, A LIABILITY SPREAD OVER A PERIOD OF 12 YEARS. ORDINAR ILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. I T CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSES SEE HAS WRITTEN IT OFF I N HIS BOOKS OVER A PERIOD OF YEARS. HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIO D OF ENSUING YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT G IVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YEAR. THUS IN THE CASE OF HINDUSTAN ALUMINUM CORPORATION LTD. V. CIT [1982] 30 CTR (CAL) 363; [1 983] 144 ITR 474 (CAL), THE CALCUTTA HIGH COURT UPHELD THE CLAIM OF THE ASSESSE E TO SPREAD OUT A LUMP SUM PAYMENT TO SECURE TECHNICAL ASSISTANCE AND TRAINING OVER A NUMBER OF YEARS AND ALLOWED A PROPORTIONATE DEDUCTION IN THE ACCOUNTING YEAR IN QUESTION ISSUING DEBENTURES AT A DISCOUNT IS ANOTHER SUCH IN STANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISC OUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY O VER THE ENTIRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PER IOD OF THE DEBENTURES.' 16. THUS, THE FIRST THING WHICH IS TO BE NOTICED IS THAT THOUGH THE ENTIRE EXPENDITURE WAS INCURRED IN THAT YEAR, IT WAS THE A SSESSEE WHO WANTED THE * PAGE 812 OF 225 ITR. PAGE NO : 0618 ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 9 SPREAD OVER. THE COURT WAS CONSCIOUS OF THE PRINCIP LE THAT NORMALLY REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YEAR IN WH ICH IT IS INCURRED, BUT AT THE INSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER , THE COURT AGREED TO ALLOW THE ASSESSEE THAT BENEFIT WHEN IT WAS FOUND THAT TH ERE WAS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENTIRE PERIOD. 17. WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY TH E ORDINARY RULE IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE ASSESSEE CLAIMS THAT EXPENDITURE IN THAT YEAR, THE INCOME-TAX DEPARTMENT CANNOT DENY THE SAME. HOWEVER , IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD THE EXPENDITURE OV ER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY IF THE PRINCIPLE OF 'MATCHIN G CONCEPT' IS SATISFIED, WHICH UP TO NOW HAS BEEN RESTRICTED TO THE CASES OF DEBENTUR ES. 18. IN THE INSTANT CASE, AS NOTICED ABOVE, THE ASSE SSEE DID NOT WANT SPREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FIVE YEARS AS IN THE RETURN FILED BY IT, IT HAD CLAIMED THE ENTIRE INTEREST PAID UPFRONT AS DEDUCTI BLE EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION, WHEN THIS COURSE OF ACTI ON WAS PERMISSIBLE IN LAW TO THE ASSESSEE AS IT WAS IN CONSONANCE WITH THE PROVISION S OF THE ACT WHICH PERMIT THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE YEAR IN WH ICH IT WAS INCURRED, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN THE BOOK S OF ACCOUNT THAT CANNOT BE A FACTOR WHICH WOULD DEPRIVE THE ASSESSEE FROM CLAIMI NG THE ENTIRE EXPENDITURE AS A DEDUCTION. IT HAS BEEN HELD REPEATEDLY BY THIS COUR T THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DETERMINATIVE OR CONCLUSIVE AND THE MATTER IS TO BE EXAMINED ON THE TOUCHSTONE OF THE PROVISIONS CONTAINED IN THE A CT (SEE KEDARNATH JUTE MANUFACTURING CO. LTD. V. CIT* ; TUTICORIN ALKALI C HEMICALS AND FERTILIZERS LTD. V. CIT** ; SUTLEJ COTTON MILLS LTD. V. CIT*** AND U NITED COMMERCIAL BANK V. CIT#. 19. AT THE MOST, AN INFERENCE CAN BE DRAWN THAT BY SHOWING THIS EXPENDITURE IN A SPREAD OVER MANNER IN THE BOOKS OF ACCOUNT, THE ASS ESSEE HAD INITIALLY INTENDED TO MAKE SUCH AN OPTION. HOWEVER, IT ABANDONED THE SAME BEFORE REACHING THE CRUCIAL STAGE INASMUCH AS IN THE INCOME-TAX RETURN FILED BY THE ASSESSEE, IT CHOSE TO CLAIM THE ENTIRE EXPENDITURE IN THE YEAR IN WHIC H IT WAS SPENT/PAID BY INVOKING ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 10 THE PROVISIONS OF SECTION 36(L)(III) OF THE ACT. ON CE A RETURN IN THAT MANNER WAS FILED, THE ASSESSING OFFICER WAS * [1971] 82 ITR 363 (SC) ; [1972] 3 SCC 252. ** [1997] 227 ITR 172 (SC) ; [1997] 6 SCC 117. *** [1978] 4 SCC 358 ; [1979] 116 ITR 1 (SC). '# [1999] 240 ITR 355 (SC); [1999] 8 SCC 338. PAGE NO : 0619 BOUND TO CARRY OUT THE ASSESSMENT BY APPLYING THE P ROVISIONS OF THAT ACT AND NOT TO GO BEYOND THE SAID RETURN. THERE IS NO ESTOPPELS AGAINST THE STATUTE AND THE ACT ENABLES AND ENTITLES THE ASSESSEE TO CLAIM THE ENTI RE EXPENDITURE IN THE MANNER IT IS CLAIMED. 20. IN VIEW OF THE AFORESAID DISCUSSION, WE ARE OF THE OPINION THAT THE JUDGMENT AND THE ORDERS OF THE HIGH COURT AND THE AUTHORITIE S BELOW DO NOT LAY DOWN THE CORRECT POSITION IN LAW. THE ASSESSEE WOULD BE ENTI TLED TO DEDUCTION OF THE ENTIRE EXPENDITURE OF RS. 2,72,25,000 AND RS. 55,00,000, R ESPECTIVELY, IN THE YEAR IN WHICH THE AMOUNT WAS ACTUALLY PAID. THE APPEALS ARE ALLOWED IN THE AFORESAID TERMS WITH NO ORDERS AS TO COSTS. 19. SIMILARLY THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF GUJARAT STATE FERTILIZERS (SUPRA) HAS OBSERVED AS U NDER:- HAVING HELD THE SAID AMOUNT TO BE REVENUE IN NATURE APPLYING THE DECISION OF THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION LTD. (SUPRA), WHEN THE AMOUNT HAS BEEN SPREAD OVER A PER IOD OF SIX YEARS, NO ERROR IS COMMITTED BY BOTH THE AUTHORITIES. ONCE THE EXPENDI TURE IS HELD TO BE REVENUE IN NATURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS, IT CAN BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. HOWEVER, CONSIDERING THE DECISION IN THE CASE OF MADRAS INDUSTRIAL INVES TMENT CORPORATION LTD. (SUPRA), WHEN THE SPREADING IS DONE FOR OVER A PERI OD OF SIX YEARS AND AS THE ASSESSEE-RESPONDENT HAS NO OBJECTION TO SUCH REVENU E EXPENDITURE BEING SPREAD OUT, THOUGH IT COULD HAVE INSISTED FOR THIS AMOUNT ALLOWED IN THE YEAR UNDER ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 11 CONSIDERATION, WITH NO SUCH OBJECTION HAVING BEEN R AISED, THE REVENUE WOULD NOT SUCCEED IN THIS ISSUE AS THE EXPENDITURE IS HELD TO BE REVENUE IN NATURE. THUS, THE SECOND QUESTION ALSO DOES NOT MERIT ANY CONSIDERATI ON. 20. CONSIDERING THE AFOREMENTIONED RATIOS LAID DOWN BY THE HONBLE SUPREME COURT AND THE HONBLE JURISDICTIONAL HIGH COURT, IN OUR CONSIDERED OPINION, WHATEVER EXPENDITURE HAS BEEN ACCRUED DURING THE YE AR UNDER CONSIDERATION HAS TO BE ALLOWED TO BE WRITTEN OFF. WE, THEREFORE, DIRECT THE A.O. TO EXAMINE THE ACCRUAL OF EXPENDITURE FOR THE YEAR UNDER CONSIDERATION AND ALLOW THE SAME IN THE LIGHT OF TH E AFOREMENTIONED RULINGS. WE ACCORDINGLY SET ASIDE THE FINDINGS OF T HE LD. CIT(A) AND RESTORED THE MATTER TO THE FILES OF THE A.O. WITH THE ABOVE DIRECTIONS. 21. IN THE RESULT, GROUND NO. 2 IS TREATED AS ALLOWED F OR STATISTICAL PURPOSES. 22. GROUND NO. 3 RELATES TO NOT ALLOWING LEASE RENT PA YABLE TO ICICI LTD. AMOUNTING TO RS. 5,59,74,000/-. 23. IN OUR CONSIDERED OPINION, THIS GRIEVANCE OF THE AS SESSEE HAS BEEN MERGED WITH THE ISSUE RAISED VIDE GROUND NO. 2 (SUPRA), TH EREFORE NEEDS NO SEPARATE ADJUDICATION. 24. GROUND NO. 4 RELATES TO NOT ALLOWING RS. 1,86,961/- BEING AMOUNT DISALLOWED UNDER RULE 6D OF THE INCOME TAX RULES. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 12 25. AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO. 2782/AHD/2002 FOR A.Y. 1997-98 QUA GROUND N O. 4 OF THAT APPEAL. THE RELEVANT PART READS AS UNDER:- 3.THE FOURTH GROUND RELATES TO THE DISALLOWANCE OF RS.33,198/- UNDER RULE 6D OF THE IT RULES. IN PARA-5 OF THE ASSESSMENT ORDER, TH E AO INVOKED THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT IN CIT VS. CORAMANDEL FERTILIZERS LTD., (1996) 220 ITR 298 TO DISALLOW THE AFORESAID AMOUNT. RULE 6D PROVIDES FOR THE DISALLOWANCE OF TRAVELLING EXPENSES. IN THE RETURN THE ASSESSEE COMPUTED THE DISALLOWANCE BY TAKING INTO CONSIDERATION ALL THE T RIPS UNDERTAKEN BY A PERSON DURING THE RELEVANT ACCOUNTING YEAR. THE AO HOWEVER ENHANCED THE DISALLOWANCE BY A FURTHER SUM OF RS.33,198/- BY CALCULATING THE AMOUNT ALLOWABLE ON THE ACTUAL NUMBER OF DAYS TRAVELLED BY THE EMPLOYEE DURING EAC H TRIP. THE DISALLOWANCE MADE BY THE AO WAS CHALLENGED BEFORE THE CIT(A) AND IT WAS CONTENDED THAT THE ORDER OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE WA S IN ITS FAVOUR. THE CIT(A) HOWEVER REJECTED THE ASSESSEE'S CONTENTION, OBSERVI NG THAT THE JUDGMENT OF THE HIGH COURT OVERRIDES THE ORDERS OF THE TRIBUNAL AND ACCORDINGLY CONFIRMED THE DISALLOWANCE. 4. BEFORE US, IT WAS POINTED OUT ON BEHALF OF THE A SSESSEE THAT THE JUDGMENT OF THE CALCUTTA HIGH COURT IN CIT VS. GENERAL ELECTRIC COM PANY OF INDIA LTD., (2002) 255 ITR 22 WAS IN FAVOUR OF THE ASSESSEE'S CONTENTI ON AND HAVING REGARD TO THE RULE THAT WHERE TWO VIEWS ARE POSSIBLE ON THE INTER PRETATION OF A PROVISION THE VIEW THAT IS IN FAVOUR OF THE ASSESSEE SHOULD BE FO LLOWED, THE DISALLOWANCE MUST BE DELETED FOLLOWING THE CALCUTTA VIEW. WE HAVE EXAMIN ED THE MATTER. WE FIND THAT IN ADDITION TO THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT CITED ABOVE, THERE IS ALSO A JUDGMENT OF THE MADRAS HIGH COURT IN CIT VS. ASHOK LEYLAND LTD., (2002) 253 ITR 425 WHICH HAS TAKEN THE VIEW IN FAVOUR OF T HE AO. THE CALCUTTA HIGH COURT IN ITS JUDGMENT CITED ABOVE HAS DISSENTED FRO M THE MADRAS AND ANDHRA PRADESH HIGH COURTS AND HAS TAKEN THE VIEW WHICH IS IN ACCORDANCE WITH THE VIEW CANVASSED BEFORE US ON BEHALF OF THE ASSESSEE. IN C IT VS. VEGETABLE PRODUCTS ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 13 LTD., (1973) 88 ITR 192, THE SUPREME COURT OBSERVED THAT IF THE COURT FINDS THAT THE LANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ONE, THEN IT SHOULD ADOPT THAT INTERPRETATION WHICH FAVORS THE ASSESSEE. APPLYING THIS ACCEPT THE ASSESSEE'S CONTENTION THAT THE DISALLOWANCE SHOULD BE WORKED OUT UNDER RULE 6D IN THE MANNER LAID DOWN IN THE JUDGMENT OF THE CALCUTTA HIGH COURT AND DIRECT THE AO TO DO SO. THE GROUND IS ALLOWED. 26. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT ON R ECORD BY THE REVENUE RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA). WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED DISALLOWANCE. GROUND NO. 4 IS ACCORDINGLY ALLOWED. 27. GROUND NO. 5 RELATES TO THE DIRECTION TO THE A.O. T O DISALLOW PROPORTIONATE COMMON EXPENSES. 28. BEFORE US, THE LD. COUNSEL FAIRLY CONCEDED THAT HE HAS NO OBJECTION SO FAR AS THE IMPUGNED DIRECTIONS OF THE FIRST APPELLATE AUTH ORITY IS CONCERNED. ON SUCH CONCESSION, GROUND NO. 5 IS DISMISSED. 29. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ITA NO. 939/AHD/2002 REVENUES APPEAL FOR A.Y. 1996-97 30. GROUND NO. 1 RELATES TO THE DELETION OF THE DISALLO WANCE MADE IN RESPECT OF OPENING STOCK AMOUNTING TO RS. 55,73,818/-. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 14 31. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSE E STATED THAT THIS ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF MELMOULD CORPORATION 202 ITR 789. THE LD. D.R. FAIRLY CONCED ED TO THIS. 32. WE HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUES QU A THE DECISION OF THE HONBLE BOMBAY HIGH COURT (SUPRA), THE RELEVANT PAR T OF THE HONBLE HIGH COURT READS AS UNDER:- WHENEVER THERE IS A CHANGE IN THE METHOD OF VALUATI ON, THERE IS BOUND TO BE SOME DISTORTION IN THE CALCULATION OF PROFIT IN THE YEAR IN WHICH THE CHANGE TAKES PLACE. BUT IF THE CHANGE IS BROUGHT ABOUT BONA FIDE AND IS IN ACCORDANCE WITH THE NORMALLY ACCEPTED ACCOUNTING PRACTICE, THERE IS NO REASON WHY SUCH A CHANGE SHOULD NOT BE PERMITTED. UNDOUBTEDLY, THE PROVISO T O SECTION 145 OF THE INCOME- TAX ACT, 1961, LAYS DOWN THAT : ' PROVIDED THAT IN ANY CASE WHERE THE ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISFACTION OF THE ASSESSING OFFICER BUT THE METHO D EMPLOYED IS SUCH THAT, IN THE OPINION OF ASSESSING OFFICER, THE INCOME CANNOT PRO PERLY BE DEDUCED THEREFROM, THEN THE COMPUTATION SHALL BE MADE UPON SUCH BASIS AND IN SUCH MANNER AS THE ASSESSING OFFICER MAY DETERMINE. ' THIS IS NOT SUCH A CASE. THE ONLY QUESTION IS WHETH ER THE OPENING STOCK IS ALSO REQUIRED TO BE REVALUED BY EXCLUDING ALL OVERHEAD E XPENSES WHEN THE ASSESSEE HAS BEEN PERMITTED TO REVISE THE METHOD OF VALUING THE CLOSING STOCK FOR THAT YEAR, AS THE ASSESSEE HAS DECIDED TO ADOPT THIS NEW METHOD O F VALUATION HENCEFORTH. FOR THE REASONS SET OUT ABOVE, THE DIRECTIONS GIVEN BY THE TRIBUNAL TO REVISE AND DETERMINE THE VALUE OF THE OPENING STOCK ALSO BY EX CLUDING ALL OVERHEAD EXPENSES, IS NOT JUSTIFIED. WE ARE NOT CALLED UPON TO DECIDE WHETHER THE METHOD ADOPTED FOR VALUING THE CLOSING STOCK IS IN ACCORDANCE WITH LAW AND/OR ACCOUNTING PRACTICE. THE QUESTION REFERRED TO US IS, THEREFORE, ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 15 33. WE FIND THAT THE FIRST APPELLATE AUTHORITY AFTER CO NSIDERING THE VARIOUS JUDICIAL DECISIONS HAVE COME TO A FINDING THAT THE ASSESSING OFFICER AS TO ADOPT THE VALUE OF OPENING STOCK FOR A.Y. 1996-97 E QUALLY TO THE VALUE OF CLOSING STOCK FOR A.Y. 1995-96 AND ALLOW DEDUCTION FOR THE SAME. IN OUR CONSIDERED OPINION, THIS FINDING OF THE FIRST APPEL LATE AUTHORITY IS IN LINE WITH THE DECISION OF THE HONBLE BOMBAY HIGH COURT (SUPRA), WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDIN GS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 34. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLO WANCE AMOUNTING TO RS. 5,97,82,891/- IN RESPECT OF DEFERRED REVENUE EXPEND ITURE. 35. THIS ISSUE HAS BEEN CONSIDERED BY US IN DETAIL IN A SSESSEES APPEAL IN ITA NO. 1093/AHD/2002 QUA GROUND NO. 2 & 3 OF THAT APPE AL. FOR OUR DETAILED DISCUSSION THEREIN AND FOLLOWING THE DIRECTIONS GIV EN BY US THEREIN, GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE . 36. GROUND NO.3 RELATES TO THE DELETION OF THE ADDITION MADE IN RESPECT OF CAPITALIZED INTEREST OF RS. 1,62,21,881/-. 37. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED AS DEDUCTIBLE IN THE STATEMENT OF TOTAL INCOME INTEREST CAPITALIZED IN BOOKS OF RS. 30,60,4 61/- IN RESPECT OF ATUL UNIT AND IN RESPECT OF ANKLESHWAR UNIT TOTALING TO RS. 1,62,21,881/-. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THIS CLAIM SHO ULD NOT BE DISALLOWED ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 16 IN VIEW OF THE PROVISIONS OF SECTION 145. IT WAS EX PLAINED THAT THE ASSESSEE HAS CAPITALIZED THE INTEREST IN THE BOOKS OF ACCOUN TS ACCORDING TO ITS ACCOUNTING POLICY AND ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE AND IT IS AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. THE A.O. WAS OF THE FIRM BELIEF THAT IN VIEW OF THE COR RECT ACCOUNTING TREATMENT, THE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE. THE A .O. ACCORDINGLY DISALLOWED RS. 1,62,21,881. 38. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM. 39. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND DRAWING SUPPORT FROM THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CORE HEALTHCARE LTD. 251 ITR 194. THE LD. CIT(A) DELETED THE ADDITIONS/DISALLOWANCE. 40. BEFORE US, THE LD. D.R. COULD NOT BRING ANY DISTING UISHING DECISION IN FAVOUR OF THE REVENUE. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 18 00/AHD/1999 FOR A.Y.1994-95. THE RELEVANT FINDINGS OF THE CO-ORDINA TE BENCH READS AS UNDER:- 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE CIT(A) HAS PASSED O A WELL REASONED ORDER ON THIS ISSUE WHILE DECIDING THE ISSUE IN FAVOUR OF TH E ASSESSEE. IN THIS CASE, THE INTEREST EXPENSES WERE CAPITALIZED IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. THE CIT(A) HAS REFERRED TO VARIOUS DECISIONS OF THE HON 'BLE COURTS INCLUDING THAT OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 17 COMMISSIONER OF INCOME-TAX, 82 ITR 363 TO THE EFFEC T THAT THE ALLOWABILITY OF DEDUCTION OF EXPENSES DEPENDS ON THE PROVISION OF L AW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OR ABSENCE O F ENTRIES IN HIS BOOKS OF ACCOUNT WERE NOT DECISIVE OR CONCLUSIVE. WE FIND THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT FINAL WORD ON THE ISSUE AND THAT T HE ISSUE HAS TO BE DECIDED IN ACCORDANCE WITH RELEVANT PROVISIONS O F LAW. WE FIND THAT THE DEDUCTION OF THE AMOUNT OF INTEREST IS ALLOWABLE IN THIS CASE SINCE, THE EXPENSES ARE CLEARLY OF REVENUE IN NATURE, AND THEREFORE, TH E ASSESSEE IS ENTITLED TO A DEDUCTION OF INTEREST UNDER SECTION 36(L)(III) OF T HE ACT. WE FIND THAT THERE IS NO MISTAKE IN THE ORDER OF THE CIT(A) IN HOLDING THAT THE ASSESSEE IS ENTITLED TO ALLOWANCE ON AMOUNT OF INTEREST ON THE BORROWINGS U TILIZED FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY, WHICH WAS FOR THE EXISTING BUSINESS OF MANUFACTURING AND MARKETING OF VARIOUS ITEMS. HOWEV ER, WE FIND IN REPLY TO A SPECIFIC QUESTION FROM THE BENCH THAT WHETHER THE A SSESSEE HAS AVAILED OR WAS GRANTED DEPRECIATION ON THE DISPUTED AMOUNT IN THIS GROUND OF THE APPEAL OF THE REVENUE IN THE SUCCEEDING YEARS (IN ORDER TO AVOID GRANT OF DOUBLE DEDUCTION ON THE SAME AMOUNT TO THE ASSESSEE), THE LEARNED COUNS EL FOR THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN AND ESTABLISH THAT THE NO DE PRECIATION ON THIS AMOUNT HAS BEEN CLAIMED OR ALLOWED BY THE DEPARTMENT IN THE SU CCEEDING ASSESSMENT YEARS. IN THESE FACTS, WHILE WE HOLD THAT THE EXPENDITURE IN QUESTION IS REVENUE IN NATURE AND ALLOWABLE TO THE ASSESSEE, WE DIRECT THE AO TO VERIFY WHETHER DEPRECIATION ON THIS AMOUNT HAS BEEN ALLOWED TO THE ASSESSEE IN THE SUCCEEDING ASSESSMENT YEARS, AND IF SO ALLOWED, THEN NOT TO ALLOW THE INTEREST E XPENSES CLAIMED BY THE ASSESSEE. IN CASE NO DEPRECIATION HAS BEEN ALLOWED TO THE ASS ESSEE ON THIS AMOUNT IN SUCCEEDING ASSESSMENT YEARS, THEN TO ALLOW THE INTE REST AMOUNT IN QUESTION AS REVENUE EXPENDITURE AS A DEDUCTION TO THE ASSESSEE IN THIS YEAR ITSELF. WE DIRECT ACCORDINGLY AND THE GROUND NO. L IS ACCORDINGLY DIS POSED OF. 41. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DECIDE ACCORDINGLY. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 18 42. GROUND NO. 4 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 16,89,379/- BEING ACCRUED LIABILITY IN RESPECT OF PREMIUM @ 5% PAYABLE AT THE TIME OF REDEMPTION OF NON CONVERTIBLE DEBENTURE. 43. AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO. 2311/AHD/1999 FOR A.Y. 1995-96 QUA GROUND N O. 1 OF THAT APPEAL. THE RELEVANT FINDINGS OF THE TRIBUNAL READS AS UNDE R:- 22. THE GROUND NO.L OF THE REVENUE'S APPEAL READS AS UNDER: '1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FATS IN D ELETING THE DISALLOWANCE OF PROVISION MADE AMOUNTING TO RS. 16,98,7397- IN RESP ECT OF ACCRUED LIABILITY IN RESPECT OF PREMIUM PAYABLE AT THE TIME OF REDEMPTIO N OF NON-CONVERTIBLE DEBENTURE.' 23. THE LEARNED DR RELIED ON THE ORDER OF THE AO. T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE OF ACCRUED LIABIL ITY OF PREMIUM PAYABLE AT THE TIME OF REDEMPTION OF NON-CONVERTIBLE DEBENTURE IS COVERED WITH THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MADRAS INDUST RIAL INVESTMENT CORPORATION VS. CIT, 225 ITR 802(SC) WHEREIN SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HE SUBMITTED THAT THE ISSUE IS ALSO COVER ED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE AHMEDABAD TRIBUNAL IN ASSESSEE' S OWN CASE FOR EARLIER ASSESSMENT YEAR 1989-1990 IN ITA NO.3671/AHD/1992. 24. WE HAVE CONSIDERED RIVAL SUBMISSION AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE CIT(A) HAS FOLLOWED TH E DECISION OF THE AHMEDABAD TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO.3671 /AHD/1992 FOR A.Y. 1989-90. WE FIND THAT A PERUSAL OF THE DECISION OF THE IT AT , AHMEDABAD IN ASSESSEE'S OWN CASE FOR THE EARLIER ASSTT. YEAR 1989-90 IN ITA NO. 3671/AHD/1992 MAKES IT CLEAR THAT THE TRIBUNAL HAS DIRECTED THE AO TO COMPUTE TH E DEDUCTION IN ACCORDANCE WITH THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. (SUPRA). WE BEING IN AGREEME NT WITH THE DECISION OF THE ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 19 TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 1989-90 (S UPRA) DIRECT THE AO TO COMPUTE THE DEDUCTION IN ACCORDANCE WITH THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION (SUPRA) AND THE GROUND OF THE APPEAL OF THE REVENUE IS ACCORDINGLY DISPOSED OF. 44. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DECIDE ACCORDINGLY. 45. GROUND NO. 5 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 9,88,740/- IN RESPECT OF PROVISIONS OF INTEREST LIABILITY OF CENT RAL EXCISE REFUND. 46. AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO-ORDINAT E BENCH IN ASSESSEES OWN CASE IN ITA NO. 2311/AHD/1999 FOR A.Y. 1995-96 QUA GROUND NO. 5 OF THAT APPEAL. THE RELEVANT PART READS AS UNDER:- 14. THE GROUND NO.5 OF THE REVENUE'S APPEAL READS AS UNDER: '5. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF INTEREST LI ABILITY OF RS. 9,88,740/- ON CENTRAL EXCISE REFUND.' 15. THE LEARNED DR HAS RELIED ON THE ORDER OF THE A O. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS DINESH MILLS LTD., 302ITR 164 (GUJ). HE REFERRED TO PARA 67 TO 69 OF THE APPELLATE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE ASSESSEE. 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HA VE PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE AMOUNT IN QU ESTION IS PROVISION FOR INTEREST LIABILITY ON CENTRAL EXCISE REFUND. IN REPLY TO SPE CIFIC QUERY FROM THE BENCH THAT WHETHER THE AMOUNT HAS BEEN TAXED IN A LATTER YEAR, IF THE PROVISIONS OF SECTION 41(1) OF THE ACT APPLIES IN THE CASE OF THE ASSESSE E, NO DEFINITE AND CLEAR ANSWER COULD BE GIVEN ON BEHALF OF THE ASSESSEE. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONSIDER IT REASONABLE TO SET ASIDE THE IS SUE TO THE FILE OF THE CIT(A) TO VERIFY BY CALLING FOR A REPORT FROM THE AO, THE REL EVANT FACTS AND THEN TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWI NG DUE OPPORTUNITY OF HEARING TO BOTH THE SIDES. WE DIRECT ACCORDINGLY. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 20 47. RESPECTFULLY FOLLOWING THE FINDINGS OF CO-ORDINATE BENCH (SUPRA), WE DIRECT ACCORDINGLY. 48. GROUND NO. 6 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 52,50,000/- FOR POWER EXPENSES OF EARLIER YEARS. 49. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS CLAIMED POWER EXPENSES OF RS. 52,50,000/- PERTA INING TO EARLIER YEARS. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO HOW THIS CLAIM WAS ADMISSIBLE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE R EPLIED THAT GUJARAT ELECTRICITY BOARD HAS RAISED THE DEMAND FOR RECOVER Y OF ANNUAL MINIMUM CHARGES FOR GRID POWER AND DURING THE YEAR UNDER CO NSIDERATION, THE ISSUE WAS ACTUALLY SETTLED BETWEEN THE GEB AND THE ASSESS EE. AFTER PERUSING THE SETTLEMENT BETWEEN GEB AND THE ASSESSEE, THE A.O. F OUND THAT THE ASSESSEE WAS TO PAY RS. 52.50 LACS AS FULL AND FINA L SETTLEMENT BUT THE FIRST INSTALLATION WAS PAYABLE IN THE MONTH OF MAY, 1996. THE A.O. WAS OF THE FIRM BELIEF THAT THE LIABILITY HAS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY MADE THE DISALLOWANCE OF RS. 52.50 LACS. 50. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM. 51. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD CIT(A) OBSERVED THAT THE LIABILITY GOT SETTLED DURING THE YEAR UNDER CON SIDERATION IN VIEW OF HIGH COURTS ORDER. AS THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, IT IS APPARENT THAT THE LIABILITY ACCRUED DURING THE Y EAR AND ITS PAYMENT AT A ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 21 FUTURE DATE CANNOT RESULT IN DISALLOWANCE. THE LD. CIT(A) DELETED THE ADDITION OF RS. 52.50 LACS. 52. BEFORE US, THE LD. D.R. COULD NOT POINT OUT ANY ERR OR IN THE FACTUAL FINDINGS OF THE FIRST APPELLATE AUTHORITY. THERE IS NO DISPU TE THAT WITH THE ORDER OF THE HONBLE HIGH COURT, THE LIABILITY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION ITSELF. IT IS ONLY THE PAYMENT SCHEDU LE WAS TO START FROM MAY NEXT BUT THIS DOES NOT MEAN THAT THE POWER EXPENSES HAVE TO BE DISALLOWED FOR THE YEAR UNDER CONSIDERATION. SINCE THE LIABILI TY HAS CRYSTALLIZED DURING THIS YEAR ITSELF, WE DO NOT FIND ANY ERROR OR INFIR MITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO.6 IS ACCORDINGLY DISMISSED. 53. GROUND NO. 7 RELATES TO THE DELETION OF THE DISALLO WANCE OF INTEREST OF RS. 63,44,823/- BEING ON FUNDS UTILIZED FOR GIVING INTE REST FREE LOANS TO SISTER CONCERNS. 54. AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO-ORDINAT E BENCH IN ASSESSEES OWN CASE IN ITA NO. 1800/AHD/1999 FOR A.Y. 1995-96 QUA GROUND NO. 2 OF THAT APPEAL. THE RELEVANT PART READS AS UNDER:- 5. THE GROUND NO. 2 OF THE REVENUES APPEAL IS AS U NDER: '2. THE ID.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST OF RS.80,24,000/- BEING INTEREST PAID TO A MIR TRADING CO., AND GUJARAT SYNTHOOD LTD.' 6. THE LEARNED DR REFERRED TO THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER FROM PAGE NO.28 IN PARA-7 THEREOF IN SUPPORT OF THE CASE OF THE REVENUE. HE RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 22 INDS. VS COMMISSIONER OF INCOME-TAX, 324ITR 396 (DE LHI). HE RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE AMOUNT OF INTEREST OF RS.80.24 LAKHS RELATES TO PARTIES VIZ. AMIR TRADING CO. AND GUJARAT SYNTHOOD LTD.('GSL' FOR SHORT). HE SUBMITTED THAT W ITH REGARD TO FIRST PARTY, M/S. AMIR TRADING CO., THE SAME WAS NOT A CASE OF LOSS O F MONEY ADVANCED TO THEM BY THE ASSESSEE-COMPANY, BUT IN FACT ARE OUTSTANDING I N RESPECT OF SHARES SOLD BY THE ASSESSEE TO AMIR TRADING CO., AND THEREFORE NO CASE FOR DISALLOWANCE OUT OF INTEREST PAYMENT WAS MADE OUT BY THE REVENUE. WITH RESPECT TO THE SECOND PARTY, M/S. GUJARAT SYNTHOOD LTD., THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT INITIALLY THE MONEY WAS ADVANCED ON INTEREST BEARIN G LOAN AT THE RATE OF 17% PER ANNUM AND THE INTEREST WAS TAXED IN THE RELEVANT YE ARS AS BUSINESS INCOME OF THE ASSESSEE. SUBSEQUENTLY, THE 'GSL' BECAME SICK AND A S A MATTER OF COMMERCIAL EXPEDIENCY, THE ASSESSEE-COMPANY STOPPED CHARGING I NTEREST SINCE COMMON FINANCIAL INSTITUTIONS WERE LENDING MONEY TO THE AS SESSEE-COMPANY AND 'GSL' AND IT WAS IN THE BUSINESS INTEREST OF THE ASSESSEE TO MAINTAIN GOODWILL WITH VARIOUS FINANCIAL INSTITUTIONS WHICH HAVE BEEN LEND ING MONEY TO THE ASSESSEE. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HA VE PERUSED TH EORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE CIT(A) HAS PASS ED A WELL REASONED ORDER ON THIS ISSUE. WITH REGARD TO THE OUTSTANDING OF AMIR TRADING CO., WE FIND THAT IT WAS NOT A CASE OF LOAN OR MONEY ADVANCED TO M/S. AMIR T RADING CO, BUT THE OUTSTANDING WAS IN RESPECT OF SHARES SOLD TO AMIR T RADING CO., AND THEREFORE THE AMOUNT OUTSTANDING ON ACCOUNT OF SALE OF SHARES CAN NOT BE MADE A CASE FOR DISALLOWANCE OUT OF INTEREST PAYMENT, AS THERE IS N O NEXUS BETWEEN THE INTEREST BEARING LOAN AND THE TRANSACTION. AS REGARDS THE OT HER PARTY, 'GSL', THE REVENUE COULD NOT CONTROVERT THAT INITIALLY THE MONEY WAS A DVANCED AS A LOAN ON INTEREST TAKEN AT THE RATE OF 17% AND THE INTEREST WAS BEING TAXED IN THE RELEVANT YEARS IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME. SUBSE QUENTLY, THE 'GSL' BECAME SICK AND THE ASSESSEE-COMPANY HAS TO STOP CHARGING INTEREST AS A MATTER OF COMMERCIAL EXPEDIENCY BECAUSE THE FINANCIAL INSTITU TIONS LENDING MONEY TO THE ASSESSEE-COMPANY AS WELL AS 'GSL' WERE COMMON AND I T WAS THE DECISION OF THE ASSESSEE THAT IT WAS IN THE INTEREST OF THE ASSESSE E-COMPANY TO MAINTAIN GOODWILL WITH THE FINANCIAL INSTITUTIONS, WHO WERE LENDING M ONEY TO THE ASSESSEE-COMPANY. THE CIT(A) HAS UPHELD THE CONTENTION OF THE ASSESSE E THAT IT HAS DECIDED AS PER COMMERCIAL EXPEDIENCY TO AGREE TO NOT TO CHARGE INT EREST FROM 'GSL', SINCE IT HAD BECOME SICK. IN THESE FACTS AND CIRCUMSTANCES OF TH E CASE, WE HOLD THAT THERE IS NO MISTAKE IN THE ORDER OF THE CIT(A) IN HOLDING THAT ACTION OF THE AO IS NOT JUSTIFIED ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 23 AND THE DISALLOWANCE OF INTEREST MADE WERE DIRECTED TO BE DELETED AS THERE WAS NO NEXUS BETWEEN THE INTEREST BEARING LOAN TAKEN BY TH E ASSESSEE AND ADVANCES MADE. ACCORDING, THE ORDER OF THE CIT(A) ON THIS IS SUE IS CONFIRMED AND THE GROUND NO.2 OF THE REVENUE'S APPEAL IS DISMISSED. 55. RESPECTFULLY FOLLOWING THE FINDING OF THE CO-ORDINA TE BENCH (SUPRA), WE DECLINE TO INTERFERE. GROUND NO. 7 IS ACCORDINGLY D ISMISSED. 56. GROUND NO. 8 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 4,38,000/- ON ACCOUNT OF EXPENDITURE ON ISSUE OF NON CONVERTIB LE AND FULLY CONVERTIBLE DEBENTURES. 57. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED DEBE NTURE ISSUE EXPENSES OF RS. 4,38,397/- AS DEDUCTIBLE REVENUE EXPENDITURE IN THE STATEMENT OF TOTAL INCOME ALTHOUGH THESE EXPENSES ARE DEBITED TO THE S HARE PREMIUM ACCOUNT. THE A.O. WAS OF THE OPINION THAT SINCE THE ASSESSEE HAS GIVEN AN ACCOUNTING TREATMENT WHEREBY THE EXPENSES ARE TREAT ED AS CAPITAL EXPENSES. THEREFORE, THE ASSESSEE CANNOT BE ALLOWED TO DEPART FROM THIS ACCOUNTING TREATMENT IN ITS COMPUTATION OF TOTAL IN COME. THE A.O. ACCORDINGLY MADE THE DISALLOWANCE. 58. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE LD. CIT(A) WAS CONVINCED THAT ENTRIES IN BOOKS OF ACCOUNTS COULD N OT DETERMINE THE DEDUCTIBILITY OF AN EXPENDITURE AND IT IS TO BE GOV ERNED BY PROVISIONS OF LAW. THE LD. CIT(A) WAS OF THE OPINION THAT EXPENDITURE INCURRED ON ISSUE OF DEBENTURE IS AN ALLOWABLE EXPENDITURE IN VIEW OF DE CISION OF THE APEX COURT ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 24 IN THE CASE OF INDIA CEMENTS. THE LD. CIT(A) ACCORD INGLY DELETED THE DISALLOWANCE MADE BY THE A.O. 59. BEFORE US, THE LD. D.R. COULD NOT POINT OUT ANY FAL LACY IN THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. THERE IS NO DISPUTE THAT ACCOUNTING ENTRIES CANNOT DECIDE THE LIABILITY ON OTHERWISE OF AN EXPE NDITURE WHICH IS CLAIMED WITHIN THE FOUR WALLS OF THE INCOME TAX ACT. THE MU MBAI BENCH OF ITAT IN THE CASE OF VOLTAS LTD. 98 TAXMANN.COM 174 HAS HELD THAT EXPENDITURE INCURRED IN CASE OF FULLY CONVERTIBLE DEBENTURES IS ALLOWABLE. 60. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROU ND NO. 8 IS ACCORDINGLY DISMISSED. 61. THE LAST GROUND RELATES TO THE DELETION OF THE ADDI TION OF RS. 9,61,610/-. 62. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED RS. 9,61,610/- AS DEDUCTIBLE U/S. 37 OF THE ACT WHICH WAS CAPITALIZED LOAN PROCE SSING CHARGES. THE A.O. WAS OF THE OPINION THAT SINCE THE ASSESSEE ITSELF H AS CAPITALIZED THE PROCESSING CHARGES, THE SAME CANNOT BE CLAIMED AS E XPENDITURE DEDUCTIBLE U/S. 37 OF THE ACT IN THE COMPUTATION OF TAXABLE IN COME. THE A.O. ACCORDINGLY DISALLOWED RS. 9,61,610/-. 63. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND GOT THE DESIRED RELIEF. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 25 64. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OU R ATTENTION TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GUJARAT ALKALIES & CHEMICALS LTD. 299 ITR 85 AND POINTED OUT THAT A SI MILAR EXPENDITURE WAS ALLOWED BY THE HONBLE SUPREME COURT AS DEDUCTIBLE U/S. 37 OF THE ACT. THE LD. COUNSEL FURTHER STATED THAT A SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORPORATION LTD. IN ITA NO. 1931/AHD/2010. PER CONTRA, THE LD. D.R. FIRMLY STAT ED THAT THE DECISION RELIED UPON BY THE LD. COUNSEL ARE ON DIFFERENT SET OF FACTS AND, THEREFORE, CLEARLY DISTINGUISHABLE. 65. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW. WE FIND THAT THE ONLY REASON FOR DISALLOWING THE EXPENDITUR E GIVEN BY THE A.O. IS THAT INITIALLY THE ASSESSEE HAS CAPITALIZED THE SAM E IN ITS BOOKS OF ACCOUNTS. THEREFORE IN ITS COMPUTATION OF INCOME, THE ASSESSE E CANNOT CLAIM IT AS DEDUCTIBLE U/S. 37 OF THE ACT. ELSEWHERE, WE HAVE H ELD THAT THE ACCOUNTING ENTRIES IN THE BOOKS OF ACCOUNT CANNOT DECIDE THE D EDUCTIBILITY OR OTHERWISE OF AN ALLOWABLE EXPENDITURE. THE JUDICIAL DECISION RELIED UPON BY THE LD. COUNSEL ARE DIRECTLY ON THIS POINT AND, THEREFORE, THE ASSESSEE HAS RIGHTLY DEDUCTED THE EXPENDITURE U/S. 37 OF THE ACT. WE, T HEREFORE, DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. C IT(A). GROUND NO. 9 IS ACCORDINGLY DISMISSED. 66. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ITA NO. 2781/AHD/2002 ASSESSEES APPEAL FOR A.Y. 19 97-98 ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 26 67. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF PROVISI ON FOR BAD DEBTS AMOUNTING TO RS. 3.77 LACS. 68. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS MADE PROVISION FOR DOUBTFUL ADVANCES OF RS. 3.7 7 LACS AND HAS CLAIMED THE SAME. DRAWING SUPPORT FROM THE PROVISION OF SEC TION 36(1)(VII) , THE A.O. WAS OF THE OPINION THAT NO PROVISION FOR DOUBT FUL DEBT IS ALLOWABLE. ACCORDINGLY, RS. 3.77 LACS WERE DISALLOWED. 69. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 70. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND THAT T HE LOWER AUTHORITIES HAVE SIMPLY DISALLOWED THE PROVISION WITHOUT GOING MUCH FURTHER. IN OUR CONSIDERED OPINION, IF THE PROVISION IS REDUCED FRO M THE ASSET SIDE OF THE BALANCE SHEET THEN IT FULFILLS THE REQUIREMENT FOR THE CLAIM AS BAD DEBTS. FURTHER, THE A.O. HAS NOWHERE MENTIONED WHETHER THE ASSESSEE FULFILLS THE CONDITION OF SECTION 36(2) OF THE ACT. IN THE INTER EST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILES OF THE A.O. THE A.O. IS DIRECTED TO VERIFY WHETHER THE PROVISION IS REFLECTED ON THE LIABILITI ES SIDE OF THE BALANCE SHEET OR THE ASSETS SIDE HAS BEEN REDUCED BY THE SAME AND DECIDE THE ISSUE AFRESH AS PER THE PROVISIONS OF THE LAW CONSIDERING THE PROVISIONS OF SECTION 36(2) OF THE ACT. GROUND NO. 1 IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSE. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 27 71. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF LEASE R ENT AMOUNTING TO RS. 1,84,61,317/- PAID TO THE ARVIND MILLS LTD. 72. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 1093/AHD/2002 (SUPRA) QUA GROUND NO. 1 OF THAT APPEAL FOR A.Y. 1996-97. F OR OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. 73. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS. 60, 500/- BEING AMOUNT DISALLOWED UNDER RULE 6D OF INCOME TAX RULES. 74. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 1093/AHD/2002 (SUPRA) QUA GROUND NO. 4 OF THAT APPEAL FOR A.Y. 1996-97 WH EREIN WE HAVE FOLLOWED THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. FOR OUR DETAILED DISCUSSION THEREIN AND RESPECTFULLY FOLLOW ING THE SAME, WE DECIDE ACCORDINGLY. 75. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF GUEST H OUSE EXPENSES OF RS. 2,99,142/-. 76. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS SHOWN GUEST HOUSE EXPENSES AT RS. 13,72,599/- A GAINST WHICH ASSESSEE HAS MADE RECOVERY OF RS. 15,63,230/-. THE A.O. FOUN D THAT THE ASSESSEE HAS MAINTAINED THREE GUEST HOUSES AT ITS UNIT AT ATUL, ANKLESHWAR AND DYESTUFF. THE A.O. WAS OF THE OPINION THAT THE EXPENDITURE ON GUEST HOUSE IS NOT ALLOWABLE AND, THEREFORE, MADE A DISALLOWANCE OF RS . 2,99,142/-. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 28 77. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 78. THERE IS NOT DISPUTE THAT THE ASSESSEE HAS INCURRED EXPENSES ON GUEST HOUSES, IN OUR CONSIDERED OPINION AND THE UNDERSTAN DING OF THE LAW, THE INTENTION OF THE LEGISLATURE AN UNAMBIGUOUS WHICH W AS TO EXCLUDE FROM DEDUCTION THE EXPENSES TOWARDS RENTS, REPAIRS AND A LSO MAINTENANCE OF PREMISES/ACCOMMODATION USED FOR THE PURPOSE OF A GU EST HOUSE OF THE NATURE INDICATED IN SUB-SECTION 4 OF SECTION 37. W E, THEREFORE, DO NOT FIND ANY MERIT IN THIS CLAIM OF THE ASSESSEE. WE DRAW SU PPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BRITANN IA INDUSTRIES LTD. 278 ITR 546. NO INTERFERENCE IS CALLED FOR. GROUND NO. 4 IS ACCORDINGLY DISMISSED. 79. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART. ITA NO. 3255/AHD/2002 REVENUES APPEAL FOR A.Y. 199 7-98 80. GROUND NO. 1 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 6,46,24,799/- BEING DEFERRED REVENUE EXPENDITURE. 81. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 939/AHD/2002 QUA GROUND NO. 2 OF THAT APPEAL FOR A.Y. 1996-97. FOR O UR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 29 82. GROUND NO. 2 RELATES TO THE DELETION OF INTEREST EX PENDITURE OF RS. 1,92,50,548/- INCURRED ON PURCHASE OF PLANT & MACHI NERY OF EXISTING BUSINESS. 83. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 1093/AHD/2002 FOR A.Y. 1996-97 (SUPRA). FOR OUR DETAILED DISCUSSION THEREI N, WE DECIDE ACCORDINGLY. 84. GROUND NO. 3 RELATES TO THE DELETION OF RS. 16,99,3 79/- BEING PROVISION MADE IN RESPECT OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURE. 85. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA N O. 939/AHD/2002 QUA GROUND NO. 4 OF THAT APPEAL. FOR OUR DETAILED DISCU SSION THEREIN, WE HOLD ACCORDINGLY. 86. GROUND NO. 4 RELATES TO THE DELETION OF RS. 72,27,9 81/- BEING INTEREST EXPENDITURE ON OUTSTANDING LOANS/ADVANCES TO SUBSID IARY COMPANIES AND JOINTLY PROMOTED COMPANIES. 87. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 939/AHD/2002 QUA GROUND NO. 7 OF THAT APPEAL (SUPRA). FOR OUR DETAIL ED DISCUSSION THEREIN, WE HOLD ACCORDINGLY. 88. GROUND NO. 5 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 45.90 LACS BEING EXPENDITURE INCURRED ON ISSUE OF CONVERTIBLE DEBENT URE. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 30 89. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 939/AHD/2002 FOR A.Y. 1996-97 (SUPRA) QUA GROUND NO. 8 OF THAT APPEAL. FO R OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. 90. GROUND NO. 6 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 33.06 CRORES. 91. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WIT H BASF OF GERMANY. AS PER THIS AGREEMENT, BASF WOULD DISTRIBUTE CERTAIN D YES IN THE WHOLE OF THE WORLD EXCEPT INDIA AND USA AND THE ASSESSEE COMPANY SHOULD NOT COMPETE BASF WITHIN THE TERRITORY IN RESPECT OF SUC H DYES. PURSUANT TO THIS AGREEMENT BASF PAID RS. 33,06,05,633/- TO THE ASSES SEE AS LUMP SUM PREMIUM. THE A.O. FOUND THAT THIS RECEIPT WAS DECLA RED IN THE PROFIT AND LOSS ACCOUNT AS OPERATING INCOME, BUT WHILE FILING THE RETURN OF INCOME, THIS RECEIPT WAS TREATED AS CAPITAL INCOME. THE A.O. DID NOT CONCUR WITH THE ACTION OF THE ASSESSEE AND MADE AN ADDITION OF RS. 33,06,05,633/-. 92. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND VEHEMENTLY STATED THAT ACCOUNTING ENTRY IN THE BOOKS OF ACCOUNT CANNO T BE INDICATIVE OF THE NATURE OF RECEIPT EVEN IF IT IS CREDITED TO THE PRO FIT AND LOSS ACCOUNT. THE LD. CIT(A) WAS CONVINCED WITH THIS CONTENTIONS OF THE A SSESSEE AND DRAWING SUPPORT FROM THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF M. N. KARANIV 64 ITD 119, HONBLE MADRAS HIGH COURT DECIS ION IN THE CASE OF SARASWATHI PUBLICITIES 132 ITR 297 AND HONBLE SUPR EME COURTS DECISION IN ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 31 THE CASE OF BEST & CO. PVT. LTD. 60 ITR 11 DELETED THE ADDITION OF RS. 33,06,05,633/-. 93. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. THE LD . D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSE L FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AU THORITIES. 94. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT THE AMOUNT OF 33.06 CRORES IS RECEIVED PURSUANT TO NON-COMPETE AGREEMENT WHEREIN THE ASSES SEE WAS RESTRAINED FROM SELLING ITS GOOD IN THE AGREED TERRITORY. HOWE VER, THE ASSESSEE CONTINUES TO DO ITS BUSINESS IN NON RESTRICTED TERR ITORIES. THEREFORE, IN OUR CONSIDERED OPINION, THE AMOUNT OF 33.06 CRORES RECE IVED IN CONSIDERATION OF NON-COMPETE AGREEMENT HAS TO BE TREATED AS CAPIT AL RECEIPT. THE HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEMICA LS PVT. LTD. 332 ITR 602 HAS HELD AND THE RELEVANT PART READS AS UNDER:- 5. THE POSITION IN LAW IS CLEAR AND WELL SETTLED. T HERE IS A DICHOTOMY BETWEEN RECEIPT OF COMPENSATION BY AN ASSESSEE FOR THE LOSS OF AGENCY AND RECEIPT OF COMPENSATION ATTRIBUTABLE TO THE NEGATIVE/RESTRICTI VE COVENANT. THE COMPENSATION RECEIVED FOR THE LOSS OF AGENCY IS A REVENUE RECEIP T WHEREAS THE COMPENSATION ATTRIBUTABLE TO A NEGATIVE/RESTRICTIVE COVENANT IS A CAPITAL RECEIPT. 6. THE ABOVE DICHOTOMY IS CLEARLY SPELT OUT IN THE JUDGMENT OF THIS COURT IN GILLANDERS' CASE (SUPRA) IN WHICH THE FACTS WERE AS FOLLOWS. THE ASSESSEE IN THAT CASE CARRIED ON BUSINESS IN DIVERSE FIELDS BESIDES ACTING AS MANAGING AGENTS, SHIPPING AGENTS, PURCHASING AGENTS AND SECRETARIES. THE ASSESSEE ALSO ACTED AS IMPORTERS AND DISTRIBUTORS ON BEHALF OF FOREIGN PRI NCIPALS AND BOUGHT AND SOLD ON ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 32 ITS OWN ACCOUNT. UNDER AN AGREEMENT WHICH WAS, TERM INABLE AT WILL THE ASSESSEE ACTED AS A SOLE AGENT OF EXPLOSIVES PAGE NO : 0607 MANUFACTURED BY IMPERIAL CHEMICAL INDUSTRIES (EXPOR T) LTD. THAT AGENCY WAS TERMINATED AND BY WAY OF COMPENSATION THE IMPERIAL CHEMICAL INDUSTRIES (EXPORT) LTD. PAID FOR FIRST THREE YEARS AFTER THE TERMINATION OF THE AGENCY TWO- FIFTHS OF THE COMMISSION ACCRUED ON ITS SALES IN TH E TERRITORY OF THE AGENCY OF THE APPELLANT AND IN ADDITION IN THE THIRD YEAR FULL CO MMISSION WAS PAID FOR THE SALES IN THAT YEAR. THE IMPERIAL CHEMICAL INDUSTRIES (EXP ORT) LTD. TOOK A FORMAL UNDERTAKING FROM THE ASSESSEE TO REFRAIN FROM SELLI NG OR ACCEPTING ANY AGENCY FOR EXPLOSIVES. 7. TWO QUESTIONS AROSE FOR DETERMINATION, NAMELY, W HETHER THE AMOUNTS RECEIVED BY THE APPELLANT FOR LOSS OF AGENCY WAS IN NORMAL C OURSE OF BUSINESS AND THEREFORE WHETHER THEY CONSTITUTED REVENUE RECEIPT ? THE SECO ND QUESTION WHICH AROSE BEFORE THIS COURT WAS WHETHER THE AMOUNT RECEIVED B Y THE ASSESSEE (COMPENSATION) ON THE CONDITION NOT TO CARRY ON A C OMPETITIVE BUSINESS WAS IN THE NATURE OF CAPITAL RECEIPT? IT WAS HELD THAT THE COM PENSATION RECEIVED BY THE ASSESSEE FOR LOSS OF AGENCY WAS A REVENUE RECEIPT W HEREAS COMPENSATION RECEIVED FOR REFRAINING FROM CARRYING ON COMPETITIVE BUSINES S WAS A CAPITAL RECEIPT. THIS DICHOTOMY HAS NOT BEEN APPRECIATED BY THE HIGH COUR T IN ITS IMPUGNED JUDGMENT. THE HIGH COURT HAS MISINTERPRETED THE JUDGMENT OF T HIS COURT IN GILLANDERS' CASE (SUPRA). IN THE PRESENT CASE, THE DEPARTMENT HAS NO T IMPUGNED THE GENUINENESS OF THE TRANSACTION. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE HIGH COURT HAS ERRED IN INTERFERING WITH THE CONCURRENT FINDINGS O F FACT RECORDED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUN AL. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. PAYMENT RECEIVED AS NON-COMPETIT ION FEE UNDER A NEGATIVE COVENANT WAS ALWAYS TREATED AS A CAPITAL RECEIPT TI LL THE ASSESSMENT YEAR 2003-04. IT IS ONLY VIDE THE FINANCE ACT, 2002 WITH EFFECT F ROM APRIL 1, 2003 THAT THE SAID CAPITAL RECEIPT IS NOW MADE TAXABLE (SEE SECTION 28 (VA)). THE FINANCE ACT, 2002 ITSELF INDICATES THAT DURING THE RELEVANT ASSESSMEN T YEAR COMPENSATION RECEIVED BY THE ASSESSEE UNDER NON-COMPETITION AGREEMENT WAS A CAPITAL RECEIPT, NOT TAXABLE ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 33 UNDER THE 1961 ACT. IT BECAME TAXABLE ONLY WITH EFF ECT FROM APRIL 1, 2003. IT IS WELL SETTLED THAT A LIABILITY CANNOT BE CREATED RET ROSPECTIVELY. IN THE PRESENT CASE, COMPENSATION RECEIVED UNDER THE NON-COMPETITION AGR EEMENT BECAME TAXABLE AS A CAPITAL RECEIPT AND NOT AS A REVENUE RECEIPT BY SPE CIFIC LEGISLATIVE MANDATE VIDE SECTION 28(VA) AND THAT TOO WITH EFFECT FROM APRIL 1, 2003. HENCE, THE SAID SECTION 28(VA) IS AMENDATORY AND NOT CLARIFICATORY. LASTLY, IN CIT V. RAI BAHADUR JAIRAM VALJI REPORTED IN [1959] 35 ITR 148 IT WAS HELD BY THIS COURT THAT IF A CONTRACT IS ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS, AN Y COMPENSATION RECEIVED FOR ITS TERMINATION (LOSS OF AGENCY) WOULD BE A REVENUE REC EIPT. IN THE PRESENT CASE, BOTH THE COMMISSIONER OF INCOME-TAX PAGE NO : 0608 (APPEALS) AS WELL AS THE TRIBUNAL, CAME TO THE CONC LUSION THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH RANBAXY LED TO LO SS OF SOURCE OF BUSINESS ; THAT PAYMENT WAS RECEIVED UNDER THE NEGATIVE COVENANT AN D THEREFORE THE RECEIPT OF RS. 50 LAKHS BY THE ASSESSEE FROM RANBAXY WAS IN TH E NATURE OF A CAPITAL RECEIPT. IN FACT, IN ORDER TO PUT AN END TO THE LITIGATION, PARLIAMENT STEPPED IN TO SPECIFICALLY TAX SUCH RECEIPTS UNDER NONCOMPETITION AGREEMENT WITH EFFECT FROM APRIL 1, 2003. 8. FOR THE ABOVE REASONS, WE SET ASIDE THE IMPUGNED JUDGMENT OF THE KARNATAKA HIGH COURT DATED OCTOBER 29, 2009, AND RESTORE THE ORDER OF THE TRIBUNAL. CONSEQUENTLY, THE CIVIL APPEAL FILED BY THE ASSESSE E IS ALLOWED WITH NO ORDER AS TO THE COSTS. CIVIL APPEAL NO. 2523 OF 2011 (ARISING OUT OF SLP(C ) NO. 222 OF 2011) 9. FOR THE REASONS GIVEN HEREINABOVE, WE AFFIRM THE JUDGMENT OF THE DELHI HIGH COURT IN CIT V. MANDALAY INVESTMENT PVT. LTD. DECID ED ON JULY 29, 2009 IN I. T. A. NO. 728 OF 2009. CONSEQUENTLY, WE DISMISS THE CIVIL APPEAL FILED BY THE DEPARTMENT AGAINST DECISION OF THE DELHI HIGH COURT DATED JULY 29, 2009 WITH NO ORDER AS TO THE COSTS. 95. DRAWING SUPPORT FROM THE AFOREMENTIONED FINDINGS OF THE HONBLE SUPREME COURT, WE DECLINE TO INTERFERE. GROUND NO. 6 IS ACC ORDINGLY DISALLOWED. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 34 96. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS A LLOWED IN PART FOR STATISTICAL PURPOSE. ITA NO. 3838/AHD/2002 ASSESSEES APPEAL FOR A.Y. 19 99-2000 97. GROUND NO. 1 RELATES TO THE ADDITION OF RS. 1.80 CR ORES BEING DISALLOWANCE ON ACCOUNT OF PROVISION FOR BAD DEBTS. 98. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 2781/AHD/2002 FOR A.Y. 1999-2000 (SUPRA). FOR OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. 99. GROUND NO. 2 RELATES TO THE DENIAL OF EXEMPTION IN RESPECT OF INSURANCE CLAIM RECEIVED FOR DAMAGES. 100. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. F OUND THAT DURING THE YEAR THERE WAS A CYCLONE WIND STORM WHICH DAMA GED WIND MILLS/WIND TURBINES OF THE ASSESSEE AGAINST WHICH NEW INDIA AS SURANCE COMPANY HAS PAID DAMAGES FOR LOSSES SUFFERED TO THE TUNE OF RS. 3,77,62,000/- DRAWING SUPPORT FROM THE PROVISIONS OF SECTION 45 (1A). THE A.O. WAS OF THE FIRM BELIEF THAT THIS COMPENSATION IS TAXABLE AS CAPITAL GAINS. THE A.O. FURTHER OBSERVED THAT EVEN OTHERWISE THIS AMOUNT IS CHARGEA BLE TO TAX U/S. 41 OF THE ACT. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 35 101. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE LD. CIT(A) WAS CONVINCED WITH THE ASSESSEE THAT TAXABILITY OF THE INSURANCE CLAIM AS CAPITAL GAINS IS NOT PERMISSIBLE AS THE AMENDMENT TO SECTIO N 45(1A) IS WITH EFFECT FROM 1.04.2000 AND IS APPLICABLE FROM ASSESSMENT YE AR 2000-01 AND, THEREFORE, NOT RELEVANT FOR THE YEAR UNDER CONSIDER ATION. HOWEVER, THE LD. CIT(A) KEPT SILENT ON THE ISSUE OF TAXABILITY OF TH E SAME U/S. 41 OF THE ACT AS OBSERVED BY THE A.O. 102. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL FOR THE ASSESSEE STATED THAT THOUGH THE ISSUE OF TAXABILITY AS SHORT TERM CAPITAL GAIN HAS BEEN DECIDED BY THE LD. CIT(A) IN FAVOUR OF THE ASSESSEE BUT BY NOT ADJUDICATING THE TAXABILITY OR OTHERWISE U/S. 41 OF THE ACT. THERE IS AN ERROR IN THE ORDER OF THE FIRST APPELLATE AUTHORITY. PER CONTRA, THE LD D.R. STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 103. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT WHILE T AXING THE INSURANCE CLAIM AS SHORT TERM CAPITAL GAIN. THE A.O. HAS ALSO MADE A PASSING REFERENCE TO ITS TAXABILITY U/S. 41 OF THE ACT. ALTHOUGH THE FIRST A PPELLATE AUTHORITY HAS DECIDED THE TAXABILITY UNDER HEAD CAPITAL GAINS I N FAVOUR OF THE ASSESSEE. HE HAS NOT COMMENTED UPON THE TAXABILITY U/S. 41 OF THE ACT. A PERUSAL OF THE ORDER OF THE AUTHORITIES BELOW DO NOT SHOW WHET HER THE DAMAGES HAVE BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT OR NOT. THERE IS NO REFERENCE TO THAT EFFECT IN THE ORDERS OF THE AUTHORITIES BELOW. IF THE ASSESSEE HAS CLAIMED THE DAMAGES DUE TO WIND STORM AND CHARGED T HE SAME TO ITS PROFIT ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 36 AND LOSS ACCOUNT THEN ANY CLAIM RECEIVED FROM THE I NSURANCE CLAIM SHALL BE DEEMED TO BE PROFIT AND GAINS OF BUSINESS OR PROFES SION AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREV IOUS YEAR. THEREFORE, TO THIS LIMITED EXTENT, WE RESTORE THIS ISSUE TO TH E FILES OF THE A.O. THE A.O. IS DIRECTED TO VERIFY WHETHER THE DAMAGES/REPAIRS A ND MAINTENANCE TO THE DAMAGED MACHINERIES DUE TO WIND STORM HAS BEEN CHAR GED TO THE PROFIT AND LOSS ACCOUNT AND IF FOUND TO BE CHARGED TO THE PROFIT AND LOSS ACCOUNT AS EXPENDITURE THEN THE INSURANCE CLAIM MAY BE TAXE D AS PROFITS AND GAINS OF BUSINESS AS PER THE PROVISIONS OF THE LAW. 104. HOWEVER, IN ANY CASE, THE INSURANCE CLAIM CANNOT BE TAXED AS CAPITAL GAINS BECAUSE THE PROVISIONS OF SECTION 45(1A) HAVE BEEN INSERTED WITH EFFECT FROM 01.04.2000 AND, THEREFORE, APPLICABLE F ROM A.Y. 2000-01. SINCE SECTION 45 IS A CHARGING SECTION THEREFORE BEING A CHARGING SECTION CANNOT BE INTERPRETED TO HAVE A RETROSPECTIVE EFFECT UNLES S OTHERWISE PROVIDED BY THE LEGISLATURE. SINCE THE LEGISLATURE HAS MADE EFF ECT THE APPLICABILITY OF THIS SECTION W.E.F.01.04.2000, THEREFORE, THE SAME IS NO T APPLICABLE FOR THE YEAR UNDER CONSIDERATION. WE HOLD ACCORDINGLY. 105. GROUND NO. 3 RELATES TO THE CLAIM OF DEDUCTION U/S. 80HHC AMOUNTING TO RS. 4,44,02,159/- AND U/S. 80G OF RS. 1,60,250/- . 106. A PERUSAL OF THE ORDER OF THE FIRST APPELLATE AUTH ORITY SHOWS THAT THE ASSESSEE HAD NO BUSINESS INCOME DURING THE YEAR UND ER CONSIDERATION AND FOR THIS REASON; THE ASSESSEE DID NOT CLAIM ANY DED UCTION U/S. 80IA OF THE ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 37 ACT. THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80HHC AND 80G OF THE ACT AS THE NET RESULTED INCOME OF THE ASSESSEE IS INCOME FROM CAPITAL GAINS ONLY AND THER E IS NO BUSINESS INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THIS VIEW O F THE FIRST APPELLATE AUTHORITY IS SUPPORTED BY THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF JEYAR CONSULTANT AND INVESTMENT PVT. LTD. IN 373 ITR 87 WHEREIN THE HONBLE SUPREME COURT HAS HELD :- HELD ACCORDINGLY, AFFIRMING THE DECISION OF THE TRI BUNAL AND THE HIGH COURT, THAT SINCE THERE WERE LOSSES IN THE EXPORT BUSINESS, THE QUESTION OF PROVIDING DEDUCTION UNDER SECTION 80HHC DID NOT ARISE AND AS A CONSEQUE NCE, THERE WAS NO QUESTION OF COMPUTATION OF ANY SUCH DEDUCTION IN THE MANNER PROVIDED UNDER SUB-SECTION (3). EVEN ON THE MATTER OF COMPUTATION, THE TRIBUNA L WAS RIGHT IN HOLDING THE DIVIDEND INCOME, INTEREST INCOME, PROFIT OR SALE OF SHARES AND FEES RECEIVED FROM ARRANGING FINANCE FOR CLIENTS HAD TO BE LEFT OUT OF THE RECKONING FOR PURPOSES OF COMPUTING DEDUCTION ADMISSIBLE TO THE ASSESSEE UNDE R SECTION 80HHC. 107. RESPECTFULLY FOLLOWING THE AFOREMENTIONED FINDINGS OF THE HONBLE SUPREME COURT, WE DECLINE TO INTERFERE. GROUND NO. 3 IS ACCORDINGLY DISMISSED. 108. GROUND NO. 4 RELATES TO THE CONFIRMING THE DECISION OF THE A.O. THAT INSURANCE COMPENSATION RECEIVED WILL GO TO REDUCE T HE WRITTEN DOWN VALUE OF THE BLOCK. 109. AS DISCUSSED ELSEWHERE, THE ASSESSEE HAS RECEIVED I NSURANCE CLAIM ON THE DAMAGE OF ITS WIND MILL/WIND TURBINE DUE TO WIND STORM. THE A.O. NOTICED THAT THE ASSESSEE COMPANY HAS REDUCED THE W DV OF PLANT AND ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 38 MACHINERY BY THE AMOUNT OF INSURANCE CLAIM RECEIVED . HOWEVER, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THAT IT HAS WRONGLY REDUCED THE WDV OF PLANT AND MACHINERY AND REQUESTED THE A.O. TO ENHANCE ITS CLAIM OF DEPRECIATION. THIS REQUEST WAS DECLINED BY THE A.O. WHO DID NOT ALLOW THE CLAIM OF ENHANCED DEPRECIATIO N. 110. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 111. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED ITS CLAIM OF ENHANCEMENT OF DEPRECIATION. IT IS THE SAY OF THE L D. COUNSEL THAT THE ASSESSEE HAS WRONGLY REDUCED THE INSURANCE CLAIM FR OM THE WDV OF THE PLANT AND MACHINERY AND, THEREFORE, SHOULD BE ALLOW ED DEPRECIATION WITHOUT REDUCING THE SAME. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 112. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE RELEVANT SECTION 43(6) CONTA INS THE DEFINITION OF WDV AND THE SAME READS AS UNDER:- 6) ' WRITTEN DOWN VALUE' MEANS- (A) IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEA R, THE ACTUAL COST TO THE ASSESSEE; (B) IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT, OR UNDER THE INDIAN INCOME- TAX ACT, 1922 (11 OF 1922), OR ANY A CT REPEALED BY THAT ACT, OR UNDER ANY EXECUTIVE ORDERS ISSUED WHEN THE INDIAN I NCOME- TAX ACT, 1886 (2 OF 1886 ), WAS IN FORCE: ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 39 [ PROVIDED THAT IN DETERMINING THE WRITTEN DOWN VALUE IN RESP ECT OF BUILDINGS, MACHINERY OR PLANT FOR THE PURPOSES OF CLAUSE (II) OF SUB- SECTION (1) OF SECTION 32,' DEPRECIATION ACTUALLY ALLOWED' SHALL NOT INCLU DE DEPRECIATION ALLOWED UNDER SUB- CLAUSES (A), (B) AND (C) OF CLAUSE (VI) OF SUB - SECTION (2) OF SECTION 10 OF THE INDIAN INCOME- TAX ACT, 1922 (11 OF 1922 ), WHERE S UCH DEPRECIATION WAS NOT DEDUCTIBLE IN DETERMINING THE WRITTEN DOWN VALUE FO R THE PURPOSES OF THE SAID CLAUSE (VI);] (C) IN THE CASE OF ANY BLOCK OF ASSETS,- (I) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, THE AGGREGATE OF THE WR ITTEN DOWN VALUES OF ALL THE ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE B EGINNING OF THE PREVIOUS YEAR AND ADJUSTED,- (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FA LLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR; AND (B) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FAILING WITHIN THAT BLOCK, WHICH IS SOLD OR DISCARDED OR DEMOLISHE D OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE, IF ANY, SO, HOWEVER, THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED T HE WRITTEN DOWN VALUE AS SO INCREASED. 113. A PERUSAL OF THE AFOREMENTIONED RELEVANT PART OF TH E SECTION CLEARLY SHOWS THAT IN THE CASE OF ANY BLOCK OF ASSETS, CERT AIN ADJUSTMENT HAS TO BE MADE AND ONE OF SUCH ADJUSTMENT IS BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THE PRE VIOUS YEAR INCLUDING THE AMOUNT OF SCRAP VALUE. 114. CONSIDERING THE RELEVANT PROVISION (SUPRA), WE DO N OT FIND ANY MERIT IN THE CLAIM OF THE ASSESSEE. THEREFORE, WE DECLINE TO INTERFERE. WE HOLD ACCORDINGLY. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 40 115. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 415/AHD/2003 REVENUES APPEAL FOR A.Y. 1999 -2000 116. GROUND NO. 1 RELATES TO THE DELETION OF THE ADDITIO N ON ACCOUNT OF DEFERRED REVENUE EXPENSES OF RS. 15.96 CRORES. 117. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 1093/AHD/2002 (SUPRA) FOR A.Y. 1996-97. FOR OUR DETAILED DISCUSSI ON THEREIN, WE DECIDE ACCORDINGLY. 118. GROUND NO. 2 RELATES TO THE DELETION OF THE ADDITIO N MADE ON ACCOUNT OF INTEREST EXPENDITURE CAPITALIZED ON PLANT AND MA CHINERY. 119. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 939/AHD/2002 FOR A.Y. 1996-97 QUA GROUND NO. 3 OF THAT APPEAL. F OR OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. 120. GROUND NO. 3 RELATES TO THE DELETION OF THE ADDITIO N MADE ON ACCOUNT OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURE. 121. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 939/AHD/2002 FOR A.Y. 1996-97 QUA GROUND NO. 4 OF THAT APPEAL. F OR OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 41 122. GROUND NO. 4 RELATES TO THE DELETION OF THE ADDITIO N MADE ON ACCOUNT OF DEBENTURE ISSUE EXPENSES. 123. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 939/AHD/2002 FOR A.Y. 1996-97 (SUPRA) QUA GROUND NO. 8 OF THAT A PPEAL. FOR OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. 124. GROUND NO. 5 RELATES TO THE DELETION OF THE ADDITIO N MADE ON ACCOUNT OF COST OF CAPITAL JOB ABANDON BUT LATER USED AS CO MPONENTS OF EXISTING MACHINERY AMOUNTING TO RS. 19,36,675/- . 125. THE A.O. HAS CONSIDERED THIS ISSUE AT PARA 12 OF HI S ORDER WHEREIN HE HAS OBSERVED THAT GOING BY THE NOMENCLATURE OF THE EXPENDITURE ITSELF SHOWS THAT IT IS A CAPITAL EXPENDITURE AND, THEREFO RE, REJECTED THE CLAIM OF THE ASSESSEE AND MADE AN ADDITION OF RS. 19.36 LACS . 126. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND SUBMITTED THAT IT HAS PURCHASED CERTAIN SPARE PARTS WHICH WERE TO BE UTILIZED FOR PTSA AND OTSA PLANTS. IT WAS EXPLAINED THAT BOTH THE PLANTS COULD NOT BE COMMISSIONED AND THE EXPENDITURE INCURRED WAS CAPIT ALIZED TOWARDS UN- COMMISSIONED PLANTS. IT WAS FURTHER EXPLAINED THAT CERTAIN PARTS WERE REQUIRED FOR OPERATING PARA CRESON PLANT IN ITS ROU TINE COURSE OF MAINTENANCE AND, THEREFORE, THE SPARE PARTS PURCHAS ED FOR PTSA AND OTSA PLANTS WERE CONSUMED FOR REPAIRS OF PARA CRESON PLA NT AND ACCORDINGLY THE AMOUNT CAPITALIZED EARLIER, DUE TO NON-COMMISSIONIN G OF THE PLANTS WERE ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 42 CLAIMED AS REVENUE EXPENDITURE ON UTILIZATION OF TH E SPARE PARTS FOR THE ROUTINE MAINTENANCE OF THE PARA CRESON PLANT, THE L D. CIT(A) DRAWING SUPPORT FROM THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. 227 ITR 172 OBSERVED THAT ONCE THE NATURE OF EXPENDITURE IS PROVED TO BE THAT OF REVENUE THEN IT IS NOT MATERIAL AS TO WHICH HEAD THE EXPENDITURE IS DEBITED. ADDITION OF RS. 19.36 LACS WAS DELETED. 127. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. THE LD . D.R. COULD NOT POINT OUT ANY FACTUAL ERROR IN THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BE EN STATED EARLIER. 128. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT INITIAL LY THE PARTS WERE CAPITALIZED. THERE IS ALSO NO DISPUTE THAT THE TWO PLANTS FOR WHICH THE PARTS WERE PURCHASED COULD NOT BE COMMISSIONED. IT IS ALS O AN UNDISPUTED FACT THAT FOR THE ROUTINE MAINTENANCE OF PARA CRESON PLA NT, THE PARTS WERE CONSUMED. THE A.O. HAS NOT DISPUTED THAT THE PARTS WERE NEVER CONSUMED FOR THE ROUTINE MAINTENANCE OF THE PLANT; WE FIND T HAT THE A.O. HAS SIMPLY MADE THE DISALLOWANCE ON THE BASIS OF EARLIER ACT O F CAPITALIZATION OF THE ASSESSEE. IN OUR CONSIDERED OPINION, THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD (SUPRA) IN ALLOWING THE CLAIM OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 5 IS ACCORDINGLY DISMISSED. ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 43 129. GROUND NO. 6 RELATES TO THE DELETION OF THE ADDITIO N MADE ON ACCOUNT OF SHORT TERM CAPITAL GAIN OF RS. 2.91 CRORES. 130. THIS ISSUE HAS BEEN ELABORATELY DISCUSSION BY US IN ITA NO. 3838/AHD/2002 FOR A.Y. 1999-2000 QUA GROUND NO. 2 O F THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, WE DECIDE ACCORDINGLY. 131. GROUND NO. 7 RELATES TO THE RECALCULATION OF BOOK P ROFIT. U/S. 115JA. 132. THE A.O. NOTICED THAT THE ASSESSEE HAS COMPUTED INC OME UNDER PROVISIONS OTHER THAN SECTION 115JA AS PER THE PUBL ISHED ACCOUNTS. HOWEVER FOR COMPUTING THE BOOK PROFIT, IT HAS IGNOR ED THE PUBLISHED ACCOUNTS AND PREPARED ENTIRELY NEW PROFIT AND LOSS ACCOUNT. THE A.O. WAS OF THE FIRM BELIEF THAT THE ASSESSEE IS PREPARING P ROFIT AND LOSS ACCOUNT AS PER THE PROVISIONS OF THE COMPANIES ACT AND THE SAM E WAS ALSO LAID DOWN BEFORE THE SHARE-HOLDERS AS WELL AS AND APPROVED BY THE SHARE-HOLDERS AS WELL AS APPROVED BY THE AUDITORS. THEREFORE, THE AS SESSEE SHOULD HAVE COMPUTED THE PROFIT FOR THE PURPOSES OF SECTION 115 JA AS PER ITS PUBLISHED ACCOUNTS. THE A.O. ACCORDINGLY RE-CALCULATED THE BO OK PROFIT. 133. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS OBSERVED THAT AN IDENTICAL ISSUE WAS DECIDED IN A. Y. 1997-98 IN ASSESSEES OWN CASE AND FOLLOWING THE ORDER FOR A.Y. 1997-98 D IRECTED THE A.O. TO RE- COMPUTE THE INCOME U/S. 115JA TAKING INTO CONSIDERA TION THE PROFIT AND ITA NOS 1093 & 939/AHD/2002 AND ORS. . A.YS. 1996-9 7, 1997-98 & 1999-2000 44 LOSS ACCOUNT PREPARED AND SUBMITTED BY THE ASSESSEE FOR THE PURPOSES OF SECTION 115JA OF THE ACT. 134. WE HAVE CONSIDERED THE ORDERS OF THE AUTHORITIES BE LOW. WE FIND MERIT IN THE FINDINGS OF THE FIRST APPELLATE AUTHOR ITY GIVEN AT PARA 13 ON PAGE 14 OF HIS ORDER WHEREIN HE HAS RELIED UPON THE DECISION OF THE TRIBUNAL CALCUTTA BENCH IN THE CASE OF NIPPON DENRO ISPAT LT D. 67 ITD 205, MODERN WOOLLENS LTD. 47 ITD 154 AND SUDARSHAN CHEMICALS IN DUSTRIES LTD. 60 ITD 629. 135. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT BY T HE REVENUE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDIN GS OF THE LD CIT(A). GROUND NO. 7 IS ACCORDINGLY DISMISSED. 136. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 04 - 01- 20 17. SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 04 /01/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED.