SANDVIK ASIA LTD., Pune V. CIT CIR 8, Pune

ITA 112/PUN/2006

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2472 (ITAT-PUNE)
• Duration Of Justice: 10 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-02-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 27-01-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Assessee Lawyers: JEHANGIR D MISTRI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Retrospective amendment; Bad and doubtful debts; Scheme of amalgamation; Capital receipt; Revised return; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 244A; 80HHC; 234B; 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 1439 /PN/20 0 4 / ASSESSMENT YEAR : 199 9 - 200 0 SANDVIK ASIA LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE 411012 . / APPELLANT PAN: AACCS6638K VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE . / RESPONDENT . / ITA NO. 14 68 /PN/20 04 / ASSESSMENT YEAR : 1999 - 2000 THE ASST. COMMISSIONER OF INCOME TAX, THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE . / APPELLANT VS. SANDVIK ASIA LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE 411 012 . / RESPONDENT PAN: AACCS6638K . / ITA NO. 1 12 /PN/20 0 6 / ASSESSMENT YEAR : 2000 - 01 SANDVIK ASIA LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE 411012 . / APPELLANT PAN: AACCS6638K VS. THE DY . C OMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE . / RESPONDENT ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 2 . / ITA NO. 11 3 /PN/20 06 / ASSESSMENT YEAR : 200 1 - 0 2 SANDVIK ASIA LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE 411012 . / APPELLANT PAN: AACC S6638K VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE . / RESPONDENT ASSESSEE BY : SHRI JEHANGIR D. MISTRI REVENUE BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 03 . 0 2 .201 6 / DATE O F PRONOUNCEMENT: 30 . 0 3 .201 6 / ORDER PER SUSHMA CHOWLA, J M : PER SUSHMA CHOWLA, J M : OUT OF THIS BUNCH OF APPEALS, CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT (A) - III , PUNE , DATED 12 . 0 7 .20 0 4 RELATING TO ASSESSMENT YEAR 199 9 - 200 0 AGA INST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE HAS ALSO FILED TWO APPEALS AGAINST SEPARATE ORDERS OF CIT(A) - III, PUNE DATED 28.10.2005 AND 28.11.2005 RELATING TO ASSESSMENT YEARS 2000 - 01 AND 2001 - 02 A GAINST RESPECTIVE ORDERS PASSED UNDER SECTION 143(3) OF THE ACT. 2 . T HIS BUNCH OF APPEALS RELATE TO THE SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 3 3. THE LEARNED AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT MAJORLY THE ISSUES RAISED BOTH IN ASSESSEES APPEAL AND APPEAL OF THE REVENUE WERE COVERED BY THE EARLIER ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTA TIVE FOR THE ASSESSEE FILED TABULATED CHART OF ISSUES INVOLVED IN ALL THE YEARS AND MADE REFERENCE TO DIFFERENT ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE. WE PROCEED TO DECIDE THE PRESENT BUNCH OF APPEALS BY THIS CONSOLIDATED ORDER. 4 . THE ASSESSEE I N ITA NO.1439/PN/2004 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 DEDUCTION U ND ER SECTION 37(1) OF THE INCOME - TAX ACT, 1961 ('THE ACT') IN RESPECT OF EXPENDITURE ON COMPUTER SOFTWARE 1.1 T H E LEARNED COMMISSIONER OF INCOME - TAX (APPE A LS ) - ILL, PUNE ['T HE CIT ( A) ] ERRED IN UPHOLDING THE DISALLOWANCE IN RESPECT OF EXPENDITURE ON COMPUTER SOFTWARE AGGREGATING TO RS. 1,900,060 INCURRED IN THE PREVIOUS YEAR. 1.2 AS THE SAID EXPENDITURE DID NOT RESULT IN ANY ENDURING BENEFIT FOR SANDVIK 1.2 AS THE SAID EXPENDITURE DID NOT RESULT IN ANY ENDURING BENEFIT FOR SANDVIK ASIA LTD ('THE APPELL ANT'), THE CITCA) OUGHT TO HAVE TREATED THE SAME AS A DEDUCTIBLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT AND REVERSED THE DISALLOWANCE. 1.3 THE APPELLANT PRAYS THAT IT BE GRANTED DEDUCTION UNDER SECTION 37(1) IN RESPECT OF THE AFORESAID EXPENDITURE IN CURRED DURING THE YEAR. 2 EXEMPTION UNDER SECTION 10(33) OF THE ACT IN RESPECT OF DIVIDEND INCOME ON MASTER SHARES AND OTHER UNITS OF UNIT TRUST OF INDIA ('UT I ') 2.1 THE CIT(A) ERRED IN REJECTING THE APPELLANT'S CLAIM THAT DIVIDEND INCOME OF RS.1 , 268 , 541 ON MASTER SHARES AND OTHER UNITS OF UTI IS EXEMPT UNDER SECTION 10(33) OF THE ACT, THE LEARNED CIT(A) OUGHT TO HAVE TREATED THE SAID DIVIDEND AS EXEMPT AND EXCLUDED THE SAME FROM THE TOTAL INCOME OF THE APPELLANT. 2.2 THE APPELLANT PRAYS THAT THE AFO RESAID DIVIDEND SHOULD BE CONSIDERED AS EXEMPT AND EXCLUDED FROM THE TOTAL INCOME OF THE APPELLANT. 3 COMPUTATION OF BOOK PROFITS U ND ER SECTION 80 HH C OF THE ACT 3.1 FOR THE PURPOSES OF COMPUTING BOOK PROFITS UNDER SECTION 115JA OF THE ACT, THE CIT(A) ERRED IN REDUCING THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT BASED ON THE DEDUCTION ALLOWABLE UNDER THE SAID SECTION. IN COMPUTING THE BOOK PROFITS FOR THE PURPOSES OF SECTION 115JA OF THE ACT, THE CIT(A) OUGHT TO HAVE REDUCED THE PRO FITS ELIGIBLE FOR DEDUCTION UNDER ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 4 SECTION 80HHC, BASED ON THE BOOK PROFITS AS PER THE PROFIT AND LOSS ACCOUNT, AS ADJUSTED BY THE AMOUNTS REFERRED TO IN SECTION 115JA . THE APPELLANT PRAYS THAT FOR THE PURPOSES OF COMPUTING BOOK PROFITS UNDER SECTION 115 JA OF THE ACT, THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC OF THE ACT (WHICH ARE TO BE REDUCED FROM THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT) SHOULD BE COMPUTED BASED ON THE BOOK PROFITS AND NOT ON THE DEDUCTION ALLOWABLE UNDER SECTION 80HHCOF THE ACT. 3.2 WITHOUT PREJUDICE TO GROUND NO. 3.1 ABOVE, THE CIT(A) ERRED IN HOLDING THAT THE GROSS COMMISSION AND INTEREST INCOME SHOULD BE EXCLUDED IN COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC, WHICH IN TURN ARE TO BE REDU CED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JA OF THE ACT . THE APPELLANT PRAYS THAT FOR THE PURPOSES OF COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTI ON 115JA OF THE ACT, ONLY THE NET COMMISSION AND INTEREST INCOME SHOULD BE EXCLUDED. 3.3 WITHOUT PREJUDICE TO GROUND NO.3.1 ABOVE, THE CIT(A) ERRED IN REJECTING THE APPELLANT'S CLAIM THAT INTEREST OF RS . 12,714,842 (COMPRISING INTEREST ON INCOME - TAX REFUN D OF RS . 12,046,639, NSC INTEREST OF RS. 336,249, BANK INTEREST OF RS. 235,759 AND OTHER INTEREST OF RS.96,195) BE INCLUDED IN COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH, IN TURN, ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JA OF THE ACT. THE APPELLANT PRAYS THAT THE AFORESAID INTEREST BE INCLUDED IN COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115J A OF THE ACT. 3.4 WITHOUT PREJUDICE TO GROUND NO. 3. I ABOVE, IN COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH IN TURN ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JA OF THE ACT, THE CIT(A) ERRED I N SETTING OFF THE LOSS COMPUTED UNDER CLAUSES (A), (B) AND (C) OF SUB SECTION (3) OF SECTION 80HH C OF THE ACT FROM THE PROFITS DERIVED IN RESPECT OF THE SUMS REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 OF THE ACT. THE APPELLANT PRAYS THAT IN COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JA OF THE ACT, ONLY THE PROFITS DERIVED IN RESPECT OF THE SUMS REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 OF THE ACT, SHOULD BE CONSIDERED, WITHOUT NETTING OFF THEREFROM ANY LOSSES COMPUTED UNDER CLAUSES (A), (B) AND (C) OF SUB SECTION (3) OF SECTION 80HHC OF THE ACT. 3.5 WITHOUT PREJUDICE TO GROUND NO. 3.1 ABOVE, IN COMPUTING THE PR OFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JA OF THE ACT, THE CIT(A) ERRED IN REJECTING THE APPELLANT'S CLAIM THAT INCOME DISTRIBUTED ON MASTER SHARES AND OTHER UNITS OF UTI SHOULD BE INCLUDED IN PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH ARE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UND ER SECTION 115JA OF THE ACT. THE APPELLANT PRAYS THAT WITHOUT PREJUDICE TO GROUND NO. 2 AND 3.1 ABOVE, TH E AFORESAID DIVIDEND INCOME SHOULD BE CONSIDERED AS 'PROFITS OF BUSINESS' WHILE COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH HAVE TO BE REDUCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JA OF THE ACT. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 5 5. FURTHER, THE ASSESSEE FURTHER RAISED ADDITIONAL GROUNDS OF APPEAL, WHICH READ AS UNDER: - ADDITIONAL GROUND 1: DEDUCTION UNDER SECTION 35AB OF THE INCOME TAX ACT, 1961 (THE ACT) IN RESPECT OF LUMP SUM KNOW HOW FEES OF RS.1,47,07,778/ - TH E LEARNED CIT(A) OUGH T TO HAVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF RS.1,47,07,778/ - IN RESPECT OF LUMP SUM KNOW HOW FEES U/S.35AB OF THE IT ACT. ADDITIONAL GROUND 2: ASSESSEE ENTITLED TO DEDUCTION OF EXCHANGE FLUCTUATION LOSS. THE LEARNED CIT(A) OUGHT TO H AVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF APPROPRIATE PART OF EXCHANGE FLUCTUATION LOSS OF RS. 51,72,000/ - 6 . THE CLAIM OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT THE ADDITIONAL GROUNDS OF APPEAL RAISED WERE CONSEQUENTIAL TO THE EARLIER ORDER PASSED BY THE TRIBUNAL AND HENCE, WERE ADMISSIBLE. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, ADMITTED THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN EARLIER YEARS. 8 . WE ADMIT THE AD DITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE BEING CONSEQUENTIAL AND PROCEED TO DECIDE THE PRESENT APPEAL. 9 . BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF TUNGSTEN CARBIDE TOOLS . FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME DECLARING LOSS OF RS. 46,21,840/ - . THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING LOSS OF RS. 4,47,77,470/ - AND DECLARED INCOME OF RS.80,00,855/ - UNDER SECTION 115JA O F THE ACT. THE ASSESSING OFFICER HOWEVER, MADE VARIOUS ADDITIONS AND ASSESSED THE LOSS AT RS. 16,72,660/ - UNDER THE NORMAL PROVISIONS ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 6 OF THE ACT AND DETERMINED THE INCOME OF RS. 89,41,258/ - UNDER SECTION 115JA OF THE ACT. 1 0 . THE CIT(A) ALLOWED CERTAIN REL IEF TO THE ASSESSEE, AGAINST WHICH THE REVENUE IS IN APPEAL AND THE ISSUES WHICH HAVE BEEN SUSTAINED BY THE CIT(A), AGAINST WHICH THE ASSESSEE IS IN APPEAL. 1 1 . THE FIRST ISSUE RAISED BY THE ASSESSEE VIDE GROUND OF APPEAL NO.1 IS AGAINST THE DISALLOWANCE OF EXPENDITURE ON COMPUTER SOFTWARE OF RS. 19,00,060/ - INCURRED DURING THE YEAR. THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF COMPUTER SOFTWARE EXPENDITURE OF RS.38.68 LAKHS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SPENT MAJOR PART OF EXPEND ITURE FOR ACQUIRING SOFTWARE, WHICH WOULD HEL P THE ASSESSEE IN CARRYING ON OF ITS BUSINESS OPERATIONS. SINCE THE BENEFIT OF ACQUIRING SUCH SOFTWARE WOULD BE OF ENDURING NATURE, THEREFORE, THE SAID EXPENDITURE WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSE SSING OFFICER. 1 2 . THE CIT(A) CONSIDERED THE NATURE OF EXPENDITURE IN DETAIL AND HELD THAT THE EXPENDITURE OF RS. 10,08,998/ - PAID TO M/S. SOFTCELL AND RS.8,04,000/ - ALSO PAID TO M/S. SOFTCELL AND SUM OF RS. 87,062/ - SPENT ON SOFTWARE WERE CAPITAL EXPENDITU RE, ON WHICH THE ASSESSEE WAS ENTITLED TO DEPRECIATION AND BALANCE SUM OF EXPENDITURE BEING FOR MAINTENANCE OF SOPIC SYS TEMS, SWEDEN OF RS. 8,74,000/ - AND OTHER EXPENDITURE WERE REVENUE IN NATURE. 1 3 . THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.1 IS IN AP PEAL AGAINST THE ORDER OF CIT(A) . ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 7 1 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO S . 1841 & 1842/PN/2012 AND ITA NOS.2053 & 2054/PN/2012, RELATING TO ASSES SMENT YEARS 2002 - 03 & 2003 - 04, ORDER DATED 31.12.2014 AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY ALLOWING CLAIM OF THE ASSESSEE. 1 5 . WE FIND THAT SIMILAR ISSUE OF ALLOWANCE OF COMPUTER SOFTWARE EXPENSES AS REVENUE EXPENDITURE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002 - 03, WHEREIN IT WAS HELD AS UNDER: - 22. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE ISSUE STANDS SQUARELY DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LUBRIZOL INDIA LTD. REPORTED IN 37 TAXMANN.COM 294 (BOM.) WHERE IT HAS BEEN HELD THAT EXPENSES INCURRED TO OBTAIN THE APPLICATION SOFTWARE WHICH HAS TO BE UPGRADED FROM TIME TO TIME DUE TO CHANGE IN TECHNOLOGY H AS TO BE ALLOWED AS REVENUE EXPENDITURE. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT AT PARA 3 OF THE ORDER READS AS UNDER : THE ORDER READS AS UNDER : 3. SO FAR AS QUESTION B IS CONCERNED, THE TRIBUNAL HAS HELD THAT THE COMPUTER SOFTWARE EXPENSES INCURRED BY THE RESPONDENT - ASSESSEE WAS REVENUE IN NATURE. THE EXPENSES WERE INCURRED TO OBTAIN THE APPLICATION SOFTWARE WHICH GETS UPGRADED FROM TIME TO TIME DUE TO CHANGE IN TECHNOLOGY. THIS LICENCE BEING FOR LIMITED PERIOD WOULD HAVE TO BE RENEWED FROM TIME TO TIME. IN THE AFORE SAID CIRCUMSTANCES, THE TRIBUNAL HELD THAT CONSIDERING THE NATURE OF THE SOFTWARE LICENCE I.E. APPLICATION SOFTWARE, THE SAME HAS TO BE ALLOWED AS A REVENUE EXPENDITURE. IN VIEW OF THE FINDING OF FACT ARRIVED AT FURTHER BY THE TRIBUNAL THAT THE EXPENSES HA VE BEEN INCURRED ON APPLICATION SOFTWARE WHICH IS FOR A LIMITED TIME FRAME AND HAS TO BE RENEWED FROM TIME TO TIME, WE SEE NO REASON TO ENTERTAIN QUESTION B AS FRAMED BY THE REVENUE. 22.1 RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COU RT CITED (SUPRA), THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 6 . THE ASSESSEE DURING THE YEAR ALSO CLAIMS TO HAVE PURCHASED SIMILAR COMPUTER SOFTWARE I.E. APPLICATION SOFTWARE FOR UPGRADING ITS SYST EMS, HENCE THE SAME IS TO BE ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF ASSESSEE, IN ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 8 LINE WITH ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2002 - 03 IN APPEAL FILED BY THE REVENUE. WE ALSO FIND SUPPORT FROM RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN C IT VS. RAYCHEM RPG LTD. (2012) 346 ITR 138 (BOM) . THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXPENDITURE IN TOTALITY AND DEPRECIATION ALREADY ALLOWED SHOULD BE WITHDRAWN. THE GROUND OF APPEAL NO.1 IS THUS, ALLOWED . 1 7 . THE ISSUE IN GROUND OF APPEAL NO.2 IS AGAINST THE ORDER OF CIT(A) IN NOT ALLOWING DEDUCTION UNDER SECTION 10(33) OF THE ACT ON DIVIDEND INCOME OF RS.12,68,541/ - EARNED ON MASTER SHARES AND OTHER UNITS OF UTI. 1 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ITA NO.339/PN/2004 RELATING TO ASSESSMENT YEAR 1998 - 99, ORDER DATED 11.12.2015. THE TRIBUNAL (SUPRA) HAD TAKEN NOTE OF THE FACT THAT UP TO ASSESSMENT YEAR 1999 - 2000, INCOME RECEIVED IN RES PECT OF UNITS OF UTI WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 L OF THE ACT. THUS, THE DIVIDEND INCOME WAS NOT TAXABLE. THE TRIBUNAL IN ASSESSMENT YEAR 1998 - 99 IN TURN RELIED ON THE RATIO LAID DOWN IN ASSESSEES OWN CASE IN ITA NO. 579/PN/2000 RELATING TO ASSESSMENT YEAR 1995 - 96, ORDER DATED 04.11.2010. THE ISSUE ARISING IN THE PRESENT YEAR I.E. ASSESSMENT YEAR 1999 - 2000 IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL AND HENCE FOLLOWING THE SAME, GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS DISMISSED. 19 . THE ISSUE IN GROUND OF APPEAL NO. 3 IS AGAINST THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ASSESSING OFFICER HAD PARTIALLY ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 9 ALLOWED THE DEDUCTION CLAIMED UNDER SECTION 80HHC OF THE ACT AND IN RESPECT OF FOLLOWING RECEIPTS HELD THAT THE SAME ARE NOT INCLUDIBLE IN ELIGIBLE PROFITS OF BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT : - I. INTEREST ON IT REFUND - RS.1,20,46,639/ - II. NSC INTEREST - RS. 3,36,249/ - III. BANK INTEREST - RS.2,35,759/ - IV. OTHER INTEREST - RS. 96,195/ - 2 0 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 1997 - 98 IN RESPECT OF FIRST THREE ITEMS AND FOURTH ITEM OF RECEIPTS WAS SIM ILAR IN NATURE. 2 1 . WE FIND THAT THE ISSUE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT ON SIMILAR NATURE OF RECEIPTS WAS CONSIDERED BY TRIBUNAL IN ITA NO.525/PN/2003 RELATING TO ASSESSMENT YEAR 1997 - 98 , ORDER DATED 10.04.2015 . THE TRIBUNAL HELD AS UNDER: 35. THE ISSUE IN GROUND OF APPEAL NO.2.1 RAISED BY THE ASSESSEE IS AGAINST THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ITEMS CONSIDERED BY THE AUTHORITIES BELOW FOR EXCLUSION FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTIN G PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT WERE AS UNDER: - A) INTEREST ON INTER - CORPORATE DEPOSITS OF RS.71,93,000/ - ; B) BANK INTEREST OF RS.2,54,000/ - ; C) NSC INTEREST OF RS.35,000/ - ; AND D) INTEREST RECEIVED ON INCOME - TAX REFU NDS OF RS.7,08,000/ - 36. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ABOVE SAID ISSUE OF EXCLUSION OF ITEMS OF INCOME ENLISTED IN GROUND OF APPEAL NO.2.1 WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CA SE IN ITA NO.580/PN/2000, RELATING TO ASSESSMENT YEAR 1996 - 97, ORDER DATED 02.02.2001. THE TRIBUNAL VIDE PARA 29 ON PAGE 20 HAD CONSIDERED THE SAID RECEIPTS AND VIDE PARA 31 HAD HELD THAT THE INTEREST EARNED ON DEPOSITS WITH MIDC, MSEB AS WELL AS INTEREST ON OUTSTANDING AMOUNT FROM THE CUSTOMERS ARE ASSESSABLE UNDER THE HEAD PROFIT & GAIN OF THE BUSINESS. HOWEVER, THE CONTENTION OF ASSESSEE IN RESPECT OF OTHER ITEMS I.E. INTEREST RECEIVED FROM EMPLOYEES, BANK INTEREST, INTEREST RECEIVED ON INCOME TAX, I NTER CORPORATE DEPOSITS, HAD NO NEXUS BETWEEN INCOME EARNED AND THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE SAME ARE TO BE ASSESSED AS INCOME FROM OTHER ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 10 SOURCES. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ITEMS OF INCOME I.E. INTEREST ON I NTER - CORPORATE DEPOSITS, BANK INTEREST, NSC INTEREST AND INTEREST RECEIVED ON INCOME - TAX REFUNDS ARE THE ITEMS TO BE EXCLUDED WHILE COMPUTING PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE GROUND OF APPEAL NO.2.1 IS THUS, DISMISSED. 2 2 . THE ISSUE ARISING BEFORE US IS IDENTICAL AND WE H O LD THAT RECEIPTS OF INCOME I.E. INTEREST ON IT REFUND, NSC INTEREST, BANK INTEREST AND OTHER INTEREST ARE NOT ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. IT MAY BE CLARIFIED HERE TH AT THE ASSESSEE HAD RAISED ISSUE OF COMPUTATION OF BOOK PROFITS UNDER SECTION 115JA OF THE ACT CONSEQUENT TO REWORKING OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. HOWEVER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ONLY STRESSED AND REFERRED TO ISSUE IN GROUND OF APPEAL NO.3.3 AND NO OTHER ISSUE IN 3.1, 3.2, 3.4 AND 3.5 WAS STRESSED . HENCE, WE DISMISS GROUND OF APPEAL NO.3 TO 3. 5 . THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS DISMISSED. 2 3 . THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL NO.1, WHICH IS CONSEQUENTIAL TO THE SAID ISSUE DECIDED IN ASSESSMENT YEARS 1997 - 98 AND 1998 - 99 . THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH AB SANDVIK COROMAN T , SWEDEN AND HAD MADE PAYMENT FOR ACQUISITION OF TECHNICAL KNOW - HOW . THE TRIBUNAL I N ITA NO.525/PN/2003, RELATING TO ASSESSMENT YEAR 1997 - 98 VIDE ORDER DATED 10.04.2015 HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 35AB OF THE ACT ON LUMP SUM KNOW - HOW FEES PAID. THE TRIBUNAL VIDE PARAS 13 TO 34 HELD AS UNDER: - 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD ENTERED INTO AN AGREEMENT WITH AB SANDVIK COROMANT, SWEDEN (HEREINAFTER REFERRED TO AS SANDVIK) AND M/S. SANDVIK ASIA LTD. THE AGREEMEN T DATED 18.01.1997 IS PLACED AT PAGES 1 TO 27 OF THE PAPER BOOK I. AS PER PREAMBLE TO THE AGREEMENT, IT WAS ACKNOWLEDGED THAT SANDVIK WAS THE LEADING COMPANY IN THE WORLD IN CEMENTED CARBIDE AND HIGH SPEED STEEL CUTTING TOOLS AND ALSO CUTTING TOOLS SYST EM FOR METAL WORKING. M/S. SANDVIK WAS IN POSSESSION OF EXTENSIVE KNOW - HOW REGARDING THE MANUFACTURE, MARKETING AND SALE OF SUCH PRODUCTS AS WELL AS OF ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 11 PATENT AND TRADE MARKS RELATING THERETO. ON THE OTHER HAND, THE ASSESSEE WAS SUPPLYING DIFFERENT TYPES OF PRODUCTS TO SANDVIK FOR SALE THROUGH ITS INTERNATIONAL SALES ORGANIZATION. IT IS FURTHER PROVIDED IN THE SAID PREAMBLE WHEREAS, SAL, HAS EXPRESSED AN INTEREST IN OBTAINING LONG TERM ACCESS TO SANDVIK KNOW - HOW AS WELL AS PATENT RIGHTS FOR THE PURPOSE O F MANUFACTURING, MARKETING AND SELLING CERTAIN CEMENTED CARBIDE PRODUCTS, PRIMARILY IN INDIA BUT ALSO OUTSIDE INDIA. IN THE DEFINITION CLAUSE, PRODUCTS ARE DEFINED AS UNDER: - 1.6 'PRODUCTS' SHALL MEAN SUCH CEMENTED CARBIDE CUTTING TOOLS (INCLUDING SPARES ) AND CUTTING TOOL SYSTEMS FOR METAL WORKING BEING EITHER MANUFACTURED BY THE APPLICATION OF SANDVIK KNOW - HOW (PROCESSES) OR BEING DEVELOPED BY OR ON BEHALF OF SANDVIK, WHICH ARE LICENSED BY SANDVIK TO SAL HEREUNDER. THE PRESENT GROUP OF SUCH TOOLS AND SYSTEMS ARE IDENTIFIED IN APPENDIX A:1 HERETO, AND ANY FURTHER GROUPS OF SUCH TOOLS AND SYSTEMS ARE TO BE IDENTIFIED IN APPENDIX A:2, A:3 ETC., SUCH FURTHER APPENDIX OR APPENDICES TO FORM AN INTEGRAL PART OF THIS AGREEMENT. 14. FURTHER, SANDVIK KNOW - HOW IS DEFINED AS UNDER: - 1.7 'SANDVIK KNOW - HOW' SHALL MEAN ALL SPECIFICATIONS, DRAWINGS, PROCEDURES, PROCESSES, PERFORMANCE AND PROCUREMENT STANDARDS, AND ALL OTHER RELATED INFORMATION NECESSARY FOR OR USEFUL FOR THE MANUFACTURE ACCORDING TO ARTICLE 2 AND B EING SPECIFIED IN APPENDIX B ATTACHED HERETO. 15. AS PER CLAUSE 2.1 TO THE AGREEMENT, SANDVIK SHALL MAKE AVAILABLE TO THE ASSESSEE THE SANDVIK KNOW - HOW AND THE ADVICE AND ASSISTANCE OF ITS EXPERTS ALSO. FURTHER, AS PER CLAUSE 2.2 OF THE AGREEMENT, THE A SSESSEE SHALL HAVE THE RIGHT TO USE THE SANDVIK KNOW - HOW AND ADVICE PROVIDED FOR THE PURPOSE OF RIGHT TO USE THE SANDVIK KNOW - HOW AND ADVICE PROVIDED FOR THE PURPOSE OF DESIGNING AND OR MANUFACTURING THE PRODUCTS IN INDIA. FURTHER, AS PER CLAUSE 2.3 OF THE AGREEMENT, IT WAS AGREED UPON THAT SANDVIK KNOW - HOW AND THE ADVICE AND ASSISTANCE TO BE PROVIDED BY THE SANDVIK SHALL BE GIVEN TO THE EXTENT REQUIRED BY THE ASSESSEE TO BE ABLE TO MANUFACTURE THE PRODUCTS WITH QUALITY CORRESPONDING TO THE QUALITY REACHED IN SANDVIK OWN PRODUCTION OF THE PRODUCTS. UNDER CLAUSE 2.4 OF THE AGRE EMENT, IT IS ENLISTED THE NATURE OF ADVICE AND ASSISTANCE TO BE PROVIDED BY SANDVIK TO ASSESSEE IN THE FIELD OF MANUFACTURING, RAW MATERIAL AND PACKAGING. FURTHER, UNDER CLAUSE 2.6 OF THE AGREEMENT, IT WAS AGREED THAT SANDVIK SHALL MAKE PROVISION FOR TRAI NING OF INDIVIDUAL MEMBERS OF TECHNICAL STAFF OF ASSESSEE. UNDER CLAUSE 2.7 OF THE AGREEMENT, SANDVIK WAS TO MAKE AVAILABLE THE ASSESSEE MARKETING AND SALES EXPERTS FOR THE PURPOSE OF ADVISING AND ASSISTING THE ASSESSEE IN RELATION TO MARKETING AND SALES OF THE PRODUCTS AT PRICES AND OTHER TERMS AND CONDITIONS TO BE AGREED UPON. FURTHER, UNDER CLAUSE 2.8 OF THE AGREEMENT, THE SAID ASSISTANCE AND SERVICES PROVIDED BY THE SANDVIK DOES NOT SHOULDER ANY RESPONSIBILITY UPON SANDVIK FOR THE WAY AND THE MANNER I N WHICH SANDVIK KNOW - HOW AND ADVICE ARE APPLIED BY THE ASSESSEE. CLAUSE 3 OF THE AGREEMENT TALKS ABOUT LICENSE. CLAUSE 3.1 OF THE AGREEMENT READS AS UNDER: - 3.1 SAL IS HEREBY GRANTED THE RIGHT AND LICENSE TO USE THE SANDVIK PATENT RIGHTS AND THE SANDVI K KNOW - HOW FOR THE MANUFACTURE IN INDIA OF THE PRODUCTIONS, AND FOR THE MARKETING AND SALE OF THE PRODUCTS IN INDIA AND ELSEWHERE THROUGH THE SANDVIK SALES ORGANIZATION PROVIDED, HOWEVER, THAT SANDVIK SHALL HAVE THE FINAL RULING AS TO THE SALE OF PRODUCTS MANUFACTURED BY SAL IN EUROPE AND NORTH AMERICA. THIS ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 12 LICENSE DOES NOT INCLUDE THE RIGHT TO ASSIGN IT OR GRANT SUBLICENSES UNDER IT. 16. AS PER CLAUSE 3.1 OF THE AGREEMENT, THE ASSESSEE WAS GRANTED THE RIGHT AND LICENSE TO USE THE SANDVIK PATENT RIGHTS AND THE SANDVIK KNOW - HOW FOR THE MANUFACTURE IN INDIA. HOWEVER, THE LICENSE DID NOT INCLUDE THE RIGHT TO ASSIGN IT AND GRANTS SUBLICENSES UNDER IT. HOWEVER, SANDVIK HAD FINAL SAY AS TO THE SALE OF PRODUCTS MANUFACTURED BY THE ASSESSEE IN EUROPE AND NORTH AMERICA, BUT NO SUCH CONTROL WAS IN RESPECT OF SALE OF PRODUCTS IN INDIA AND ELSEWHERE THROUGH SANDVIK SALES ORGANIZATION. UNDER CLAUSE 3.2 OF THE AGREEMENT, THE ASSESSEE HAD THE RIGHT, SUBJECT TO SANDVIK APPROVAL TO APPLY FOR OR MAINTAIN SUCH PATENT/S I N THE NAME OF SANDVIK OR THE RELEVANT SUBSIDIARIES. A SECRECY CLAUSE VIS - - VIS USE OF SANDVIK KNOW - HOW WAS AGREED UPON BETWEEN THE PARTIES UNDER CLAUSE 5 OF THE AGREEMENT, WHICH READS AS UNDER: - SAL SHALL KEEP ALL SANDVIK KNOW - HOW AS WELL AS ALL ADVICE AND ASSISTANCE PROVIDED BY SANDVIK AND ITS SUBSIDIARIES STRICTLY CONFIDENTIAL AND SECRET BOTH DURING THE SUBSISTENCE OF THIS AGREEMENT AND THEREAFTER AND SHALL NOT DISCLOSE THE SAME TO ANY PERSON WHATSOEVER EXCEPT TO THOSE EMPLOYEES ENGAGED IN THE MANUFACT URE, MARKETING AND SALE OF THE PRODUCTS IN INDIA TO WHOM IT SHALL BE ESSENTIAL TO DISCLOSE THE SAME AND SAL SHALL TAKE ALL REASONABLE MEASURES TO PREVENT SUCH EMPLOYEES FROM DISCLOSING THE SAME, TO OTHERS. THE FOREGOING SHALL NOT RELATE TO ANY INFORMATION WHICH SAL CAN SHOW BY WRITTEN RECORD TO HAVE BEEN IN ITS POSSESSION AT THE TIME OF ITS DISCLOSURE BY SANDVIK OR WHICH IS OR BECOMES PUBLIC KNOWLEDGE THROUGH NO FAULT OF SAL'S PART. THE SANDVIK KNOW - HOW MAY BE USED BY SAL FOR THE PURPOSE OF THE DESIGN, MAN UFACTURING, MARKETING AND SALE OF THE PRODUCTS ONLY. 17. UNDER CLAUSE 6.1 OF THE AGREEMENT, IT WAS AGREED THAT THE ASSESSEE SHALL PAY SANDVIK THE LUMP SUM AS STATED IN ARTICLE 6.5 AND ALSO ROYALTY. AS PER CLAUSE 6.2, ROYALTY WAS FIXED AT 5% OF NPS FOR S ALES BY THE ASSESSEE OF PRODUCTS WITHIN INDIA AND 8% OF NPS FOR SALES BY THE ASSESSEE OUTSIDE INDIA. AS PER CLAUSE 6.5, IT IS PROVIDED THAT THE ASSESSEE HAS TO PAY TO SANDVIK IN SWEDEN A LUMP SUM CORRESPONDING TO US$ 2 MILLION. THE SAID LUMP SUM WAS TO B E PAID IN THREE INSTALLMENTS I.E. 1/3 RD AT THE DATE OF APPROVAL BY THE AUTHORITIES, 1/3 RD AT THE DELIVERY OF SANDVIK KNOW - HOW AND 1/3 RD AT THE COMMENCEMENT OF PRODUCTION, BUT NOT LATER THAN FOUR YEARS FROM THE RECEIPT OF SANDVIK KNOW - HOW. THE VALIDITY OF THE SAID AGREEMENT WAS FOR A PERIOD OF 7 YEARS AS PER CLAUSE 7.2 OF THE AGREEMENT. THE EFFECTS OF TERMINATION ARE ENLISTED IN CLAUSE 8 OF THE AGREEMENT, WHICH READS AS UNDER: - 8. EFFECTS OF TERMINATION 8 . 1 NOTWITHSTANDING THE EXPIRATION OF THIS AGREEMENT, SAL SHALL HAVE THE RIGHT, SUBJECT TO THE COMPLIANCE WITH THE OBLIGATIONS IN RESPECT THEREOF IMPOSED BY THIS AGREEMENT, TO CONTINUE WITHOUT ANY LIMIT OF TIME AND WITHOUT ANY CHARGE USING ANY UNPATENTED SANDVIK KNOW - HOW MADE AVAILABLE TO SAL PURSUANT TO THI S AGREEMENT. 8 . 2 AT THE TERMINATION OF THE AGREEMENT PURSUANT TO ARTICLE 7.2 SAL SHALL FURTHER HAVE THE RIGHT TO CONTINUE TO USE THE SANDVIK KNOW - HOW AND THE INVENTIONS BEING THE OBJECT OF THE SANDVIK PATENT RIGHTS PROVIDED, HOWEVER, THAT ROYALTY, NOTWITHST ANDING THE TERMINATION OF THE AGREEMENT SHALL ALWAYS, SAVE AS STATED IN THE LAST PARAGRAPH, BE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 13 PAYABLE AS STATED HEREIN WITH REGARD TO ALL PRODUCTS MANUFACTURED DURING A PERIOD OF SEVEN YEARS FROM THE COMMENCEMENT OF COMMERCIAL PRODUCTION OF THE PRODUCTS. AFTER THE EXPIRATION OF SAID PERIOD SAL SHALL HAVE THE RIGHT TO USE THE SANDVIK KNOW - HOW IN ALL COUNTRIES FREE OF CHARGE AND TO USE IN INDIA ALSO FREE OF CHARGE ANY INVENTION UNDER THE SANDVIK PATENT RIGHTS (INDIAN), AS TO THE SALE BY SAL OUTSIDE INDIA OR FOR USE OUTSIDE INDIA OF ANY PRODUCT INCORPORATING AN INVENTION UNDER SANDVIK PATENT RIGHTS SUCH SALE IS SUBJECT TO CONTINUOUS - AS LONG AS THE RELEVANT SANDVIK PATENT RIGHTS ARE VALID - PAYMENT OF ROYALTY AS STATED HEREIN WITH REGARD TO PRODUCTS BEING EI THER USED OR SOLD IN A COUNTRY WHERE ANY PATENT WITHIN THE SANDVIK PATENT RIGHTS IS MAINTAINED. 8 . 3 SHOULD THIS AGREEMENT TERMINATE PREMATURELY ACCORDING TO ARTICLE 7.3 THEN ANY SUMS PAYABLE UNDER ARTICLE 6 SHALL BE DUE WITH RESPECT OF SUCH PART OF THE AGREEM ENT YEAR IN QUESTION AS THE AGREEMENT HAS BEEN VALID AND BE MADE WITHIN TWO MONTHS FROM THE DATE OF EXPIRY OF THIS AGREEMENT. SAL'S RIGHTS ACCORDING TO ARTICLE 2 AND ARTICLE 3 SHALL THEN TERMINATE WITH IMMEDIATE EFFECT. 8 . 4 THE TERMINATION OF THIS AGREEMENT S HALL NOT EFFECT SAL'S SECRECY OBLIGATIONS ACCORDING TO ARTICLE 5 ABOVE OR ITS OBLIGATION UNDER THIS ARTICLE U, WHICH OBLIGATIONS SHALL CONTINUE TO APPLY AS SET OUT IN THOSE ARTICLES. 18. EVEN AFTER THE TERMINATION OF THE AGREEMENT, IT IS PROVIDED THAT TH E ASSESSEE SHALL HAVE THE RIGHT SUBJECT TO THE COMPLIANCE WITH THE OBLIGATIONS, TO CONTINUE WITHOUT ANY TIME LIMIT AND WITHOUT ANY CHARGE THE USE OF UN - PATENTED SANDVIK KNOW - HOW MADE AVAILABLE TO IT UNDER THE AGREEMENT, VIDE CLAUSE 8.1 OF SANDVIK KNOW - HOW MADE AVAILABLE TO IT UNDER THE AGREEMENT, VIDE CLAUSE 8.1 OF THE AGREEMENT. U NDER CLAUSE 8.2, THE TERMINATION OF THE AGREEMENT PURSUANT TO ARTICLE 7.2 I.E. THE TERM OF AGREEMENT FOR A PERIOD OF 7 YEARS, THE ASSESSEE SHALL FURTHER HAVE THE RIGHT TO CONTINUE TO USE THE SANDVIK KNOW - HOW AND THE INNOVATIONS BEING THE OBJECT OF SANDVIK PATENT RIGHTS. NOTWITHSTANDING THE TERMINATION OF THE AGREEMENT, THE ROYALTY SHALL BE PAYABLE WITH REGARD TO ALL PRODUCTS MANUFACTURED DURING THE PERIOD OF 7 YEARS FROM THE COMMENCEMENT OF COMMERCIAL PRODUCTION OF THE PRODUCTS. AFTER THE EXPIRY OF SAID P ERIOD, THE ASSESSEE SHALL HAVE THE RIGHT TO USE SANDVIK KNOW - HOW IN ALL THE COUNTRIES FREE OF CHARGE AND TO USE IN INDIA ALSO FREE OF CHARGE. FURTHER, THE TERMINATION OF AGREEMENT ALSO COULD NOT AFFECT THE ASSESSEES SECRECY OBLIGATION TO SANDVIK. THE CL AIM OF THE ASSESSEE BEFORE US IS THAT THE EXPENDITURE INCURRED ON THE ACQUISITION OF TECHNICAL KNOW - HOW WAS FOR THE RIGHT TO USE THE TECHNOLOGY AND UNDER THE SAID AGREEMENT, NO RIGHT WAS ASSIGNED TO THE ASSESSEE IN THE TECHNICAL KNOW - HOW. SINCE THE ASSESS EE HAD ONLY ACQUIRED THE RIGHT TO USE THE TECHNOLOGY, THE SAID EXPENDITURE INCURRED BY THE ASSESSEE WAS CLAIMED TO BE REVENUE EXPENDITURE. HOWEVER, AS POINTED OUT BY US IN THE PARAS HEREINABOVE, THE ASSESSEE WHILE FILING THE RETURN OF INCOME HAD CLAIMED S AID EXPENDITURE TO BE ALLOWABLE UNDER THE PROVISIONS OF SECTION 35AB OF THE ACT. 19. THE PROVISIONS OF SAID SECTION 35AB READ AS UNDER: - 35AB. (1) SUBJECT TO THE PROVISIONS OF SUB - SECTION (2), WHERE THE ASSESSEE HAS PAID IN ANY PREVIOUS YEAR 44 [RELEVAN T TO THE ASSESSMENT YEAR COMMENCING ON OR BEFORE THE 1ST DAY OF APRIL, 1998] ANY LUMP SUM CONSIDERATION FOR ACQUIRING 45 ANY KNOW - HOW FOR USE FOR THE PURPOSES OF HIS BUSINESS, ONE - SIXTH OF THE AMOUNT SO PAID SHALL BE DEDUCTED IN ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 14 COMPUTING THE PROFITS AND GA INS OF THE BUSINESS FOR THAT PREVIOUS YEAR, AND THE BALANCE AMOUNT SHALL BE DEDUCTED IN EQUAL INSTALMENTS FOR EACH OF THE FIVE IMMEDIATELY SUCCEEDING PREVIOUS YEARS. (2) WHERE THE KNOW - HOW REFERRED TO IN SUB - SECTION (1) IS DEVELOPED IN A LABORATORY, UNIVE RSITY OR INSTITUTION REFERRED TO IN SUB - SECTION (2B) OF SECTION 32A, ONE - THIRD OF THE SAID LUMP SUM CONSIDERATION PAID IN THE PREVIOUS YEAR BY THE ASSESSEE SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT YEAR, AND THE BALANCE AMOUNT SHALL BE DEDUCTED IN EQUAL INSTALMENTS FOR EACH OF THE TWO IMMEDIATELY SUCCEEDING PREVIOUS YEARS. 46 [(3) WHERE THERE IS A TRANSFER OF AN UNDERTAKING UNDER A SCHEME OF AMALGAMATION OR DEMERGER AND THE AMALGAMATING OR THE DEMERGED COMPANY IS ENTITLED TO A DEDUCTION UNDER THIS SECTION, THEN, THE AMALGAMATED COMPANY OR THE RESULTING COMPANY, AS THE CASE MAY BE, SHALL BE ENTITLED TO CLAIM DEDUCTION UNDER THIS SECTION IN RESPECT OF SUCH UNDERTAKING TO THE SAME EXTENT AND IN RESPECT OF THE RESIDUAL PERIOD AS IT WOULD HAVE BEEN ALLOWABLE TO THE AMALGAMATING COMPANY OR THE DEMERGED COMPANY, AS THE CASE MAY BE, HAD SUCH AMALGAMATION OR DEMERGER NOT TAKEN PLACE.] EXPLANATION. FOR THE PURPOSES OF THIS SECTION, 'KNOW - HOW' MEANS ANY INDUSTRIAL INFORMATION OR TECH NIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDING THE SEARCHING FOR, DISCOVERY OR TESTING OF DEPOSITS OR THE WINNING OF ACCESS THERETO).] [EXPENDITURE FOR OBTAINING LICENCE TO OPERATE TELECOMMUNICATION SERVICES.] SERVICES.] 20. THE SECTION PROVIDES THAT WITHIN THE STIPULATED PERIOD, WHERE ANY LUMP SUM CONSIDERATION IS PAID FOR ACQUIRING ANY KNOW - HOW FOR USE OR FOR THE PURPOSE OF BUSINESS, THEN 1/6 TH OF THE AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING PROFITS AND GAINS OF THE BUSINESS FOR THAT YEAR. THE YEAR UNDER APPEAL, IN WHICH THE ASSESSEE HAS CLAIMED THE SAID DEDUCTION FALLS WITHIN THE STIPULATED PERIOD AS PROVIDED UNDER SECTION 35AB OF THE ACT. 21. THE FIRS T ISSUE WHICH HAS TO BE ADDRESSED IS WHETHER THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION IN ENTIRETY, FOR WHICH RELIANCE WAS PLACED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN ALEM BIC CHEMICAL WORKS CO LTD VS CIT (SUPRA). THE PLEA OF THE ASSESSEE IN THIS REGARD, WAS THAT THE EXPENDITURE INCURRED BY THE ASSESSEE OVER A PERIOD OF SEVEN YEARS EVEN IF WAS AN EXPENDITURE OF ENDURING BENEFIT AND APPLYING THE RATIO LAID DOWN BY THE HONBL E SUPREME COURT IN EMPIRE JUTE CO LTD VS CIT (SUPRA) AND ALSO ALEMBIC CHEMICAL WORKS CO LTD VS CIT (SUPRA), SUCH EXPENDITURE IS TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT AND THE PROVISIONS OF SECTION 35AB OF THE ACT WERE NOT APPLICABLE. FU RTHER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN JONAS WOODHEAD AND SONS (INDIA) LTD. VS. CIT (1997) 224 ITR 342 (SC) FOR THE SIMILAR PROPOSITION OF WHAT IS THE MEANING OF EN DURING BENEFIT. IN THE FACTS OF THE CASE BEFORE THE HONBLE SUPREME COURT, THE ASSESSEE HAD ACQUIRED NEW TECHNOLOGY FOR THE MANUFACTURE OF A PRODUCT AND PAYMENT WAS MADE FOR TECHNICAL KNOW - HOW, WHICH WAS FOR THE BETTERMENT OF THE PRODUCT IN QUESTION, WHIC H WAS ALREADY PRODUCED AND WHERE EVEN ON THE EXPIRY OF AGREEMENT, THE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 15 ASSESSEE DEEMED TO DERIVE BENEFITS AND MANUFACTURE THE PRODUCT IN THE FACTORY. THE ISSUE WAS WHETHER THE ENTIRE PAYMENT MADE COULD BE HELD AS REVENUE EXPENDITURE, THE HONBLE HIGH COURT HAD DISALLOWED 25% OF THE SUM PAID AS ROYALTY AS CAPITAL EXPENDITURE NOT ALLOWABLE AS REVENUE EXPENDITURE, WHICH WAS UPHELD BY THE HONBLE SUPREME COURT. 22. FURTHER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED ON THE RATIO LAID DOWN BY HONBLE MADRAS HIGH COURT IN CIT VS. SIMPSON AND CO. LTD. (1999) 239 ITR 83 (MAD) FOR THE PROPOSITION THAT THE ACQUISITION OF TECHNICAL KNOW - HOW RELATING TO MANUFACTURE OF AUTOMOBILE ENGINES, WAS NOT OF ENDURING BENEFIT AND AMOUNT PAID FOR ACQUIRING SUCH TECHNICAL KNOW - HOW WAS REVENUE EXPENDITURE. SIMILAR PROPOSITION HAD BEEN LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. I.A.E.C. (PUMPS) LTD. (1998) 232 ITR 316 (SC) ON WHICH FURTHER RELIANCE WAS PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. IN ALL THESE CASE LAWS, THE DISTINCTION DRAWN WAS BETWEEN CAPITAL AND REVENUE EXPENDITURE AND IF REVENUE IN NATURE, THEN ITS ALLOWABILITY UNDER SECTION 37(1) OF THE ACT. 23. ANOTHER RELIANCE WAS PLACED UPON BY THE LEARNED AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE WAS ON THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN DCIT VS. METALMAN AUTO (P.) LTD. (2001) 78 ITD 327 (CHD.) FOR THE PROPOSITION THAT WHERE THE EXPENDITURE RESULTED IN IMPROVING EXISTING PRODUCTS ALREADY MANUFACTURED BY THE ASSESSEE AND DID NOT RELATE TO SETTING UP OF ALTOGETHER NEW PRODUCT OR FOR SETTING UP OF NEW UNIT, SUCH EXPENDITURE WOULD BE REVENUE IN NATURE, SINCE THE BENEFIT ACQUIRED BY IT WAS NOT OF ENDURING NATURE TO PUT IN THE CATEGORY OF CAPITAL EXPENDITURE. THE TRIBUNAL IN THAT CASE HELD THAT THE PROVISIONS OF SECTION 35AB WOULD BE APPLICABLE TO THE CONSIDERATION PAID FOR ACQUIRING TECHNICAL KNOW - HOW, WHICH WOULD OTHERWISE BE DISALLOWABLE AS BEING ON CAPITAL ACCOUNT. FURTHER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE KOLKATA BENCH OF THE TRIBUNAL IN WELLMAN INCANDESCENT RATIO LAID DOWN BY THE KOLKATA BENCH OF THE TRIBUNAL IN WELLMAN INCANDESCENT INDIA LTD. VS. DCIT (1995) 55 ITD 338. HOWEVER, THE FACTS OF PRESENT CASE ARE DIFFERENT, WHERE THE ASSESSEE HAD ACQUIRED THE TECHNICAL KNOW - HOW FOR PRODUCTION OF NEW ITEMS AND HENCE TH E RATIO OF ABOVE DECISION WAS NOT APPLICABLE. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN REPLY HAD POINTED OUT THAT THE ISSUE HAS NOW BEEN SETTLED BY THE HONBLE SUPREME COURT IN DRILCOS (INDIA) (P.) LTD. VS. CIT (2012) 25 TAXMANN.COM 228 (SC), WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR ACQUIRING KNOW - HOW, WHICH IN TURN WAS TO BE USED IN THE BUSINESS OF THE ASSESSEE, SECTION 35AB OF THE ACT WOULD COME INTO PLAY AND SECTION 37(1) OF THE ACT WOULD H AVE NO APPLICATION. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT INDORE BENCH OF THE TRIBUNAL IN CIT VS. BRIGHT AUTOMOTIVES & PLASTICS LTD. (2004) 141 TAXMAN 582 (MP ), WHEREIN IT WAS HELD THAT IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 35AB, IT MAY NOT BE NECESSARY FOR THE ASSESSEE TO ACTUALLY BECOME ABSOLUTE OWNER OF KNOW - HOW. WHERE THE ASSESSEE IS ABLE TO RUN HIS BUSINESS EFFECTIVELY WITH THE AID OF KNOW - HOW OBT AINED BY HIM PURSUANT TO AN AGREEMENT ON PAYMENT OF CONSIDERATION, THEN THE PROVISIONS OF SECTION 35AB OF THE ACT GETS ATTRACTED AND IT WAS FURTHER HELD THAT THE SAID PROVISIONS ARE ALSO ATTRACTED EVEN IN THOSE CASES WHERE RIGHT IS NOT ACQUIRED ABSOLUTELY, BUT FOR LIMITED PERIOD. FURTHER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE AHMEDABAD BENCH OF THE TRIBUNAL IN APS - STAR INDUSTRIES LTD. VS. DCIT (2003) 86 ITD 182 (AHD), WHEREIN THE PROVISIONS OF SECTION 35AB OF THE ACT WERE APPLIED TO LUMP SUM PAY MENT FOR ACQUIRING TECHNICAL KNOW - HOW BY OBSERVING THAT EVEN IF BOTH THE PROVISIONS I.E. SECTION ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 16 35AB AND 37(1) OF THE ACT ARE APPLICABLE IN RESPECT OF ANY EXPENDITURE, SECTION 35AB WOULD APPLY AND SUCH EXPENDITURE WOULD BE OUTSIDE THE PURVIEW OF SECTION 3 7(1) OF THE ACT. IT WAS THUS, HELD THAT WHERE THE ASSESSEE HAD ACQUIRED A BENEFIT OF ENDURING NATURE AND THE EXPENDITURE IN CONNECTION THEREOF BEING CAPITAL IN NATURE, WAS NOT DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. THE LEARNED DEPARTMENTAL REPRESENTA TIVE FOR THE REVENUE FURTHER POINTED OUT THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN ALEMBIC CHEMICAL WORKS CO LTD VS CIT (SUPRA) RELATED TO PRE - INTRODUCTION OF SECTION 35AB OF THE ACT. 25. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE REFERRING TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN DRILCOS (INDIA) (P.) LTD. VS. CIT (SUPRA) POINTED OUT THAT THE ASSESSEE DID NOT RECEIVE ANY KNOW - HOW AND REGARDLESS OF THE SAME, SECTION 35AB OF THE ACT WAS APPLIED AND THE ALTERNATE PLEA WAS ALLOWED BY THE HONBLE SUPREME COURT. IN RESPECT OF RATIO LAID DOWN BY THE HONBLE MADHYA PRADESH HIGH COURT, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE FACTS OF THE CASE OF THE ASSESSEE WERE DISTINGUISHABLE AND IN RESPECT OF THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN APS - STAR INDUSTRIES LTD. VS. DCIT (SUPRA), THE ISSUE WAS WHETHER IT FELL WITHIN THE REALM OF CAPITAL OR REVENUE EXPENDITURE. 26. THE HONBLE SUPREME COURT IN ALEMBIC CHEMICAL WORKS CO LTD VS CIT (SUPRA) WHILE DECIDING THE ISSUE OF ALLOWABILITY OF EXPENDITURE ON ACQUISITION OF KNOW - HOW, FOR WHICH LUMP SUM PAYMENT WAS MADE HELD THAT IDEA OF ONCE FOR ALL PAYMENT AND ENDURING BENEFIT ARE TO BE TREATED AS SOMETHING AKIN STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF CAPITAL OR REVENUE, A JUDICIAL FETISH. IT WAS FURTHER HELD THAT THERE WAS NO SINGLE DEFINITIVE CRITERION WHICH BY ITSELF IS DETERMINATIVE WHETHER A PARTICULAR OUTLAY IS CAPITAL OR REVENUE. ANOTHER RELIANCE WAS PLACED BY THE LEARNE D AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE RATIO LAID DOWN BY HONBLE APEX COURT IN EMPIRE JUTE CO LTD VS CIT (SUPRA) FOR THE PROPOSITION OF TEST OF ENDURING BENEFIT. THE HONBLE APEX COURT (SUPRA) FOR THE PROPOSITION OF TEST OF ENDURING BENEFIT. THE HONBLE APEX COURT WHILE APPLYING THE TEST FOR DETERMINING WHETHER THE EXPE NDITURE WAS CAPITAL OR REVENUE IN NATURE, OBSERVED THAT THERE MAY BE CASES WHERE EXPENDITURE EVEN IF INCURRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. THE HONBLE APEX COURT FURTHER PROPOUNDED THAT WHAT WAS MATERIAL TO BE CONSIDERED WAS THE NATURE OF ADVANTAGE IN COMMERCIAL STRENGTHS AND ONLY WHEN THE ADVANTAGE WAS IN THE CAPITAL FIELD, THEN THAT EXPENDITURE WOULD BE DISALLOWED ON THAT ACCOUNT. THE PLEA OF THE ASS ESSEE WHILE PLACING RELIANCE ON THE RATIOS LAID DOWN BY HONBLE SUPREME COURT WAS THAT THE PAYMENT FOR TECHNICAL KNOW - HOW EVEN FOR ENDURING BENEFIT WAS ON REVENUE ACCOUNT AND HENCE, WAS TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. IT MAY BE PUT ON RECORD THAT BOTH THESE DECISIONS WERE DELIVERED PRIOR TO INTRODUCTION OF SECTION 35AB OF THE ACT, WHICH WAS INSERTED BY THE FINANCE ACT, 1985, W.E.F. 01.04.1986. 27. IN THE FACTS OF CASE BEFORE THE HONBLE SUPREME COURT IN DRILCOS (INDIA) (P.) LTD. VS. CIT (SUPRA), THE ASSESSEE HAD ACQUIRED TECHNICAL KNOW - HOW UNDER AN AGREEMENT FOR CONSIDERATION, WHICH WAS TO BE PAID IN INSTALLMENTS. THE QUESTION FOR DETERMINATION WAS WHETHER THE EXPENDITURE COULD BE CLAIMED AS DEDUCTION UNDER SECTION 37 OF THE ACT . THE HONBLE APEX COURT HELD AS UNDER: - 5. THE CONTENTION OF THE ASSESSEE IS THAT SECTION 35AB OF THE ACT IS NOT APPLICABLE TO THIS CASE. WE FIND NO MERIT IN THE SAID CONTENTION. SUB - SECTION (1) OF SECTION 35AB OF THE ACT CLEARLY STATES THAT WHERE THE ASSESSEE HAS PAID IN ANY PREVIOUS YEAR ANY LUMP SUM CONSIDERATION FOR ACQUIRING ANY KNOW - HOW FOR USE FOR THE PURPOSES OF HIS BUSINESS, THEN ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 17 ONE - SIXTH OF THE AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIO US YEAR AND THE BALANCE AMOUNT SHALL BE DEDUCTED IN EQUAL INSTALMENTS FOR EACH OF THE FIVE IMMEDIATELY SUCCEEDING PREVIOUS YEARS. EXPLANATION TO THE SAID SECTION SAYS THAT THE WORD 'KNOW - HOW' MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIST I N THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE. IF ONE CAREFULLY ANALYZES SECTION 35AB OF THE ACT, IT IS CLEAR THAT PRIOR TO 1 ST APRIL, I986 THERE WAS SOME DOUBT AS TO WHETHER SUCH EXPENDITURE COULD FALL UNDER SECTION 37 OF THE ACT. T O REMOVE THAT DOUBT SECTION 35AB OF THE ACT STOOD INSERTED. IN SUB SECTION (1) OF SECTION 35AB OF THE ACT, THERE IS A CONCEPT OF AMORTIZATION OF EXPENDITURE. IN THE PRESENT CASE, IT IS TRUE THAT ON ACCOUNT OF CERTAIN DISPUTES WHICH AROSE BETWEEN THE PARTIE S, THE BALANCE AMOUNT WAS NOT PAID BY THE ASSESSEE TO THE AMERICAN COMPANY. HOWEVER, THE WORD 'FOR IN SECTION 35 AB OF THE ACT, WHICH IS A PREPOSITION IN ENGLISH GRAMMAR, HAS TO BE EMPHASISED WHILE INTERPRETING SECTION 35AB OF THE ACT. SECTION 35AB OF THE ACT SAYS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE, THE TECHNICAL ASSISTANCE AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE AMERICAN COMPANY FOR ACQUIRING KNOW - HOW WHICH WAS, IN TURN, TO BE USED IN THE BUSINESS OF THE ASSESSEE. ONCE SECTION 35AB OF THE ACT COMES INTO PLAY, THEN SECTION 37 OF THE ACT HAS NO APPLICATION. 28. A BARE READING OF SECTION 35AB OF THE ACT BRINGS OUT THE INTENT OF THE LEGISLATURE IN INSERTING TH E SAID SECTION. SECTION 35AB OF THE ACT INSERTED BY FINANCE ACT, 1985 LAYS DOWN THAT WHERE THE ASSESSEE HAS PAID IN ANY PREVIOUS YEAR ANY LUMP SUM CONSIDERATION FOR ACQUIRING ANY KNOW - HOW FOR USE FOR THE PURPOSE OF ITS BUSINESS 1/6 TH OF THE AMOUNT SO PA ID SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIOUS YEAR AND THE COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIOUS YEAR AND THE BALANCE AMOUNT SHALL BE DEDUCTED IN EQUAL INSTALLMENTS FOR EACH OF THE FIVE IMMEDIATELY SUCCEEDING PREVIOUS YEARS. EXPLANATION, APPENDED BELOW THE SECTI ON, DEFINES KNOW - HOW AND READS AS UNDER: - FOR THE PURPOSE OF THIS SECTION, KNOW - HOW MEANS ANY INDUSTRIAL INFORMATION OF TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL WELL OR OTHER SOURCES OF MINER AL DEPOSITS (INCLUDING THE SEARCHING FOR, DISCOVERY OR TESTING OF DEPOSITS OR THE WINNING OF ACCESS THERETO). 29. SECTION 35AB OF THE ACT DOES NOT SPEAK OF THE NATURE OF EXPENDITURE I.E. WHETHER CAPITAL OR REVENUE, BUT TALKS OF CONSIDERATION PAID FOR ACQ UISITION OF TECHNICAL KNOW - HOW. THUS, WHERE THE ASSESSEE HAS PAID CONSIDERATION FOR ACQUIRING TECHNICAL KNOW - HOW, AS IN FACTS OF PRESENT CASE, WHICH IS TO BE USED FOR CARRYING ON ITS BUSINESS, THEN SUCH EXPENDITURE FALLS IN THE REALM OF SECTION 35AB OF TH E ACT, IRRESPECTIVE OF THE FACT WHETHER THE EXPENDITURE IS IN CAPITAL OR REVENUE FIELD. IN VIEW THEREOF, WE FIND NO MERIT IN RELIANCES PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON SERIES OF DECISIONS TO DRAW DIFFERENCE BETWEEN REVENUE AND CAPITAL EXPENDITURE. 30. ANOTHER ASPECT OF THE ISSUE IS WHETHER SUCH EXPENDITURE IS ALLOWABLE UNDER SECTION 37 OF THE ACT. THE AHMEDABAD BENCH OF THE TRIBUNAL IN APS - STAR INDUSTRIES LTD. VS. DCIT (SUPRA) ON THE SAID ISSUE HELD AS UNDER: - 19 . REGARDING THE APPLICABILITY OF SECTION 37(1) WE HAVE HELD ABOVE THAT THE LUMP SUM CONSIDERATION PAID BY THE ASSESSES WOULD FALL WITHIN ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 18 THE PURVIEW OF SECTION 35AB AND THEREFORE WOULD BE EXCLUDED FROM THE AMBIT OF SECTION 37(1). WITHOUT PREJUDICE TO THE AFORESAID CONCLUSION REACHED BY US IN THE PRECEDING PARAGRAPHS, WE MAY POINT OUT THAT THE EXPENDITURE IN QUESTION IS CLEARLY OF THE NATURE OF CAPITAL EXPENDITURE AND ON THIS GROUND ALSO IT WOULD NOT BE DEDUCTIBLE BUSINESS EXPENDITURE UNDER SECTION 37(1). T HE LUMP SUM CONSIDERATION OF RS.14,50,249/ - HAS BEEN PAID BY THE ASSESSES FOR ACQUIRING TECHNICAL KNOWHOW FOR AN INDEFINITE PERIOD. THERE IS NO STIPULATION, AS WE HAVE ALREADY NOTED ABOVE, IN THE COLLABORATION AGREEMENT FOR THE RETURN OF DOCUMENTATION, DRA WINGS AND DESIGNS ON EXPIRATION OF THE AGREEMENT ALTER 10 YEARS TO THE GERMAN COMPANY AND THERE IS NO BAR ON THE ASSESSES IN CONTINUING WITH THE MANUFACTURE OF THE CONTRACT PRODUCTS BY UTILISATION OF THE TECHNICAL KNOWHOW EVEN AFTER THE PERIOD OF 10 YEARS. THE ASSESSES HAS THUS ACQUIRED A BENEFIT OF ENDURING NATURE AND THE EXPENDITURE IN CONNECTION THEREOF IS CAPITAL IN NATURE. IN SUPPORT OF THE VIEW TAKEN BY US RELIANCE IS PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF CIT V INDIAN OXYGEN LID. I199 6) 218 ITR 337 WHEREIN THE SUPREME COURT HELD THAT SINCE THE INDIAN COMPANY WAS NOT ENTITLED TO USE THE TECHNICAL KNOWHOW AFTER THE TERMINATION OF THE AGREEMENT, IT COULD NOT BE SAID THAT INDIAN COMPANY HAD INCURRED THE EXPENDITURE FOR THE PURPOSES OF BRIN GING INTO EXISTENCE AN ASSET OR ADVANTAGE OF AN ENDURING NATURE. A SIMILAR TEST BASED ON THE FACT WHETHER THE TECHNICAL KNOWHOW COULD BE USED AFTER THE TERMINATION OF THE AGREEMENT HAS BEEN APPROVED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. IAEC (PUMPS) LTD [1998] 232 ITR 316 FOR DETERMINING WHETHER THE EXPENDITURE IS CAPITAL OR REVENUE IN NATURE. APPLYING THE RATIO OF THE AFOREMENTIONED DECISIONS OF THE APEX COURT IN THE INSTANT CASE, SINCE THE ASSESSEE IS ENTITLED TO USE THE TECHNICAL INFORMATI ON FOR THE MANUFACTURE OF THE PRODUCTS EVEN AFTER THE TERMINATION OF THE AGREEMENT AND THE DOCUMENTATION, DRAWINGS ARE NOT TO BE RETURNED BACK ON EXPIRY AND THE DOCUMENTATION, DRAWINGS ARE NOT TO BE RETURNED BACK ON EXPIRY OF THE AGREEMENT AFTER 10 YEARS, THE EXPENDITURE IS DEARLY CAPITAL IN NATURE AND OUTSIDE THE PURVIEW OF SECTION 37(1). 20. THERE IS NO DISPUTING THE FACTS THAT ACQUISITION OF THE TECHNICAL KNOWHOW BY THE ASSESSEE COMPANY FOR MANUFACTURE OF NEW TEXTILE MACHINERY COMPONENTS AS SPECIFIED IN THE AGREEMENT WITHOUT ANY LIMITATION WITH REGARD TO UTILISATION PERIO D THEREOF HAS RESULTED IN AN ENDURING BENEFIT TO THE ASSESSEE WHICH LIES IN THE CAPITAL FIELD. THE EXPENSES HAVE ESSENTIALLY RESULTED IN AUGMENTATION AND EXPANSION OF THE PROFIT - EARNING APPARATUS OF THE ASSESSEE COMPANY. SUCH EXPENSES WHICH ARE INEXTRICABL Y CONNECTED WITH THE CAPITAL STRUCTURE OF THE COMPANY WOULD CLEARLY BE OF CAPITAL NATURE AND THEREFORE OUTSIDE THE PURVIEW OF SECTION 37(1). IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD V. CIT [1980] 124 ITR 1 AND ALEMBIC CHEMICAL WORKS CO. LTD V. CIT [1989] 177 ITR 377 THAT IF THE EXPENSES INCURRED BY THE ASSESSEE ARE IN THE CAPITAL FIELD AND ARE INEXTRICABLY CONNECTED WITH THE CAPITAL STRUCTURE OF THE COMPANY. SUCH EXPENSES WOULD BE HELD LO BE CAPITAL IN NATURE. APPLYING THE PRI NCIPLES ENUNCIATED BY THE HON'BLE SUPREME COURT IN THE AFORESAID JUDICIAL PRONOUNCEMENTS, THE CONCLUSION IS IRRESISTIBLE THAT THE EXPENSES UNDER QUESTION ARE DEARLY OF CAPITAL NATURE AND ARE THEREFORE, OUTSIDE THE PURVIEW OF SECTION 37(1). THE VARIOUS DOC UMENTS SUCH AS DRAWINGS, DESIGNS, CHARTS, PLANS INCLUDED IN THE TECHNICAL DOCUMENTATION PROVIDED BY THE FOREIGN COLLABORATOR OBVIOUSLY FORM THE TOOLS BY USING WHICH THE BUSINESS OF MANUFACTURING THE TEXTILE MACHINERY SPARE PARTS WAS TO BE DONE BY THE ASSES SEE AND FOR ACQUIRING SUCH TECHNICAL KNOWHOW THROUGH THESE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 19 DOCUMENTS, A LUMP SUM PAYMENT WAS MADE. THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE AS AND BY WAY OF PURCHASE PRICE OF SUCH DOCUMENTATION AND WAS OF A CAPITAL NATURE INASMUCH AS THE DOCUMENTATIO N PROVIDED ID THE ASSESSEE WAS A TOOL OF HIS TRADE WITH WHICH HE CARRIED ON HIS BUSINESS. THE CAPITAL ASSET ACQUIRED BY THE ASSESSEE VIS - A - VIS THE TECHNICAL KNOWHOW IN THE SHAPE OF DRAWINGS, DESIGNS, CHARTS, PLANS AND OTHER LITERATURE FELL WITHIN THE DEFI NITION OF 'PLANT' AND THE EXPENDITURE INCURRED FOR ACQUIRING THE SAME WAS CAPITAL EXPENDITURE. THE DECISION OF SUPREME COURT IN THE CASE OF SCIENTIFIC ENGG. HOUSE (P.) LTD. V. CIT [1986) 157 ITR 86 FULLY SUPPORTS THE VIEW ADOPTED BY US. 31. IN VIEW OF IN TRODUCTION OF PROVISIONS OF SECTION 35AB OF THE ACT WHICH WERE INSERTED BY THE FINANCE ACT, 1985 W.E.F. 01.04.1986, WE ARE OF THE VIEW THAT IN CASES OF PAYMENT OF LUMP SUM CONSIDERATION FOR ACQUIRING TECHNICAL KNOW - HOW, THE PROVISIONS OF SECTION 35AB OF TH E ACT ARE ATTRACTED AND THE EXPENDITURE IS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT, WHICH IS GENERAL PROVISION AND SPECIFICALLY EXCLUDES EXPENDITURE COVERED UNDER SECTIONS 30 TO 36 OF THE ACT. CONSEQUENTLY, THE SAID EXPENDITURE IS TO BE AMORTIZED UND ER SECTION 35AB OF THE ACT AND CANNOT BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH THE LIABILITY TO PAY THE SAID AMOUNT ACCRUES. THE HONBLE SUPREME COURT IN DRILCOS (INDIA) (P.) LTD. VS. CIT (SUPRA) HAD HELD THAT AFTER INSERTION OF SECTION 35AB OF THE ACT, WHERE THE EXPENDITURE IS TO BE USED IN BUSINESS OF ASSESSEE, SECTION 35AB OF THE ACT WOULD COME INTO PLAY AND THE PROVISIONS OF SECTION 37(1) OF THE ACT ARE NOT APPLICABLE FOR UNITS ESTABLISHED PRIOR TO 01.04.1998. FOLLOWING THE SAME PARITY OF REASON ING, WE HOLD THAT PROVISIONS OF SECTION 35AB OF THE ACT ARE TO BE APPLIED TO THE LUMP SUM CONSIDERATION PAID FOR ACQUISITION OF TECHNICAL KNOW - HOW BY THE ASSESSEE. 32. ANOTHER PLEA RAISED BY THE ASSESSEE WAS THAT THE ASSESSEE HAD ONLY 32. ANOTHER PLEA RAISED BY THE ASSESSEE WAS THAT THE ASSESSEE HAD ONLY ACQUIRED THE RIGHT T O USE THE TECHNICAL KNOW - HOW. THE READING OF CLAUSES OF AGREEMENT WITH SPECIAL REFERENCE TO CLAUSE 8 I.E. EFFECT OF TERMINATION OF AGREEMENT REFLECTS THAT THE ASSESSEE HAD ACQUIRED THE SAID TECHNICAL KNOW - HOW IN PERPETUITY. EVEN AFTER THE TERMINATION OF PERIOD OF AGREEMENT I.E. 7 YEARS, THE ASSESSEE HAD THE RIGHT TO USE THE SAID TECHNICAL KNOW - HOW AND CONTINUE TO MANUFACTURE THE ITEMS USING BOTH THE PATENTED AND UN - PATENTED SANDVIK KNOW - HOW PROVIDED BY SANDVIK TO IT. AS PER THE AGREEMENT, THE TECHNICAL K NOW - HOW IN SUCH CIRCUMSTANCES, WAS ACQUIRED BY THE ASSESSEE BY PAYING THE CONSIDERATION AGAINST THE PURCHASE OF THE SAID TECHNICAL KNOW - HOW AND WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE THAT THE CONSIDERATION TO BE PAID IN INSTALLMENTS WAS PAID FOR THE USE OF TECHNICAL KNOW - HOW AND NOT FOR THE ACQUISITION OF TECHNICAL KNOW - HOW AND HENCE NOT COVERED UNDER SECTION 35AB OF THE ACT. THE SECTION ITSELF PROVIDES THAT ANY LUMP SUM CONSIDERATION PAID FOR ACQUIRING ANY KNOW - HOW, FOR USE, FOR THE PURPOSE OF HIS B USINESS IS TO BE DEDUCTED IN SIX INSTALLMENTS. UNDER THE AGREEMENT, THE TECHNICAL KNOW - HOW RECEIVED BY THE ASSESSEE WAS IN RELATION TO PRODUCTION OF NEW TYPE OF CEMENTED CARBIDE PRODUCTS, AND ACQUISITION GAVE RISE TO COMING INTO EXISTENCE OF ASSET AND ADV ANTAGE OF ENDURING BENEFIT AND THE SAME IS ENVISAGED IN SECTION 35AB OF THE ACT. THERE IS PASSAGE OF RIGHTS, KNOW - HOW AND TECHNOLOGY UNDER THE AGREEMENT, AND THE SAID ASSET AND ADVANTAGE HAD BEEN ACQUIRED FOR USE IN BUSINESS OF THE ASSESSEE AND THE SAME C OULD BE USED BY ASSESSEE EVEN AFTER THE TERM OF AGREEMENT. WE HOLD THAT THE ASSESSEE HAVING ACQUIRED THE TECHNICAL KNOW - HOW IS TO BE SUBJECTED TO THE PROVISIONS OF SECTION 35AB OF THE ACT VIS - - VIS ITS CLAIM OF DEDUCTION OF THE SAID AMOUNT. THE CIT(A) VI DE OBSERVATIONS ON PAGE 11 OF APPELLATE ORDER HAD HELD THAT THE LIABILITY FOR PAYMENT OF TECHNICAL KNOW - HOW ACCRUED IN ASSESSMENT YEAR 1997 - 98 ITSELF AND ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 20 THE DEDUCTION UNDER SECTION 35AB OF THE ACT HAD TO BE ALLOWED ON FULL AMOUNT. THE REVENUE IS NOT IN A PPEAL AGAINST THE SAID OBSERVATIONS OF THE CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD AND WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 35AB OF THE ACT ON THE FULL AMOUNT I.E. RS.8.82 CRORES. THE AHMEDABAD BE NCH OF THE TRIBUNAL IN APS - STAR INDUSTRIES LTD. VS. DCIT (SUPRA) HAD ALSO HELD THAT WHAT IS MATERIAL FOR SECTION 35AB OF THE ACT IS NOT THE ACTUAL AMOUNT PAID DURING THE YEAR BUT THE AMOUNT IN RESPECT OF WHICH LIABILITY HAD BEEN INCURRED FOR ACQUIRING TECH NICAL KNOW - HOW. WE HOLD SO. THE CIT(A) AFTER HOLDING THE ASSESSEE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 35AB OF THE ACT ON THE FULL AMOUNT, HAD NOT ALLOWED THE CLAIM OF THE ASSESSEE IN VIEW OF NON - DEDUCTION OF TAX AT SOURCE ON THE BALANCE TWO INSTAL LMENTS, WHICH WERE PAID IN THE SUCCEEDING ASSESSMENT YEARS, IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. ADMITTEDLY, THE ASSESSEE HAD DEDUCTED TAX AT SOURCE ON THE INSTALLMENT PAID DURING THE FINANCIAL YEAR AND HAS PAID TAX AT SOURCE ON THE B ALANCE INSTALLMENTS IN THE SUCCEEDING YEARS. IN THIS REGARD, WE FIND MERIT IN THE PLEA OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THIS WAS AT BEST OF THE CASE OF SHORT DEDUCTION OF TAX AND NOT NON - DEDUCTION OF TAX AT SOURCE AND THERE WAS N O MERIT IN INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 33. THE PUNE BENCH OF THE TRIBUNAL IN ITA NO.758/PN/1999 & CO NO.58/PN/2005 AND ANOTHER, IN ASSESSEES OWN CASE HAD HELD AS UNDER: - 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. LOOKING AT THE CONSPECTUOUS OF FACTS AS EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW, IT APPEARS THAT THOUGH THE CLAIM OF THE ASSESSEE IS UNDER HEAD 'PROVISION FOR DOUBTFUL DEBTS', IN ACTUALITY THE CLAIM IS BASED ON CERTAIN DEDUCTIONS CLAIMED TO B E MADE BY THE GOVERNMENT BUYERS AS LIQUIDATED DAMAGES FOR LATE SUPPLY OF GOODS, ETC. THE COMMISSIONER OF INCOME - TAX (APPEALS) IN HIS ORDER DATED 28.11.1997 HAS REFERRED TO TWO JOURNAL (APPEALS) IN HIS ORDER DATED 28.11.1997 HAS REFERRED TO TWO JOURNAL ENTRIES IN THIS REGARD AND ON THAT BASIS DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM, SUBJECT TO THE VERIFICATION THAT THE LIABILITY CRYSTALISED IN THIS YEAR OR NOT. OSTENSIBLY, IF THE AFORESAID FACTUAL MATRIX NOTED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND WHICH WAS REQUIRED TO BE VERIFIED IS JUSTIFIED, THE CLAIM WOULD BE ALLOWABLE AS SUCH. WE ALSO FIND THAT THE ASSESSING OFFICER IN HIS ORDER DATED 10.3.1998 HAS NOT CARRIED OUT THE DIRECTIONS OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN ITS PROPER PERSPECTIVE, BUT HAS MERELY GONE BY THE FACT THAT THE CLAIM HAS BE EN MADE UNDER 'PROVISION FOR DOUBTFUL DEBTS'. IN OUR CONSIDERED OPINION, IT WOULD MEET THE ENDS OF JUSTICE IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO CONSIDER THE TRUE NATURE OF THE CLAIM IN THE LIGHT OF THE OBSERVATI ONS OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN PARA 6.3 OF HIS ORDER DATED 28.11.1997 AND NOT BE GUIDED BY MERELY THE NOMENCLATURE OF THE HEAD UNDER WHICH THE CLAIM HAS BEEN MADE. NEEDLESS TO SAY, IN CARRYING OUT THE AFORESAID EXERCISE, THE ASSESSING O FFICER SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, ON THIS ISSUE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 20. THE APPEAL BY THE REVENUE VIDE ITA NO 113/PN/98 I S DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DATED 28.11.1997 PERTAINING TO THE ASSESSMENT YEAR 1994 - 95 AND THE CROSS OBJECTION IN CO NO 58/PN/2005 BY THE ASSESSEE ALSO EMANATES FROM THE SAME ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS). ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 21 21. IN THE APPEAL OF THE REVENUE, FOLLOWING TWO GROUNDS HAVE BEEN RAISED: ' (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN DELETING THE ADDITION OF RS 1,99,43,610/ - MADE BY THE AO ON ACCOUNT OF EXCISE DUTY PA YMENT ON FINISHED GOODS WHICH IS NOT INCLUDED IN THE VALUE OF CLOSING STOCK. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN TAXING THE NET OF INTEREST AND THUS GIVING RELIEF FOR INTEREST PAID BY THE ASSESSEE TO THE I.T DEPAR TMENT.' 22. THE FIRST GROUND RELATES TO AN ADDITION OF RS 1,99,43,610/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATION OF CLOSING STOCK OF FINISHED GOODS DUE TO EXCISE DUTY PAYABLE. THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS DELETED THE ADDITION BY OBSERVING THAT SIMILAR ISSUE WAS CONSIDERED IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 1992 - 93 AND 1993 - 94 IN FAVOUR OF THE ASSESSEE. 23. BEFORE US, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT FOR THE ASSESSMENT YEAR 1992 - 93, SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO 119/PN/96 DATED 13.9.2011 IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE PRECEDENT, COPY OF WHICH HAS BEEN PLACED ON RECORD, THE DECISION OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DELETING THE ADDITIO N OF RS 1,99,43,610/ - ON ACCOUNT OF EXCISE DUTY PAYABLE ON FINISHED GOODS NOT INCLUDED IN THE VALUATION OF CLOSING STOCK IS HEREBY AFFIRMED. THUS, REVENUE FAILS ON THIS GROUND. 24. THE FACTS IN RELATING TO SECOND GROUND ARE THAT DURING THE YEAR, THE 24. THE FACTS IN RELATING TO SECOND GROUND ARE THAT DURING THE YEAR, THE ASSES SEE RECEIVED INTEREST OF RS 25,63,992/ - FROM THE INCOME - TAX DEPARTMENT AND ALSO PAID INTEREST OF RS 10 LAKHS TO THE DEPARTMENT. THE CLAIM OF THE ASSESSEE WAS THAT ONLY THE NET INTEREST SHOULD BE CHARGED TO TAX. THIS PLEA WAS REJECTED BY THE ASSESSING OFFIC ER WHEREAS THE COMMISSIONER OF INCOME - TAX (APPEALS) ALLOWED THE PLEA OF THE ASSESSEE IN VIEW OF THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF R N AGARWAL V. ITO. AGAINST SUCH A DECISION, REVENUE IS PRESENTLY IN APPEAL BEFORE US. 25. BEFOR E US, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE AROSE IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1992 - 93 IN ITA NO 119/PN/96 (SUPRA) WHEREIN THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE, BY WAY OF A MA JORITY DECISION VIDE ORDER DATED 13.9.2011 (SUPRA). IT HAS BEEN HELD THAT THE ASSESSEE IS ASSESSABLE IN RESPECT OF THE GROSS INTEREST RECEIVED FROM THE INCOME - TAX DEPARTMENT AND NOT MERELY ON THE NET INTEREST REMAINING AFTER SET OFF OF INTEREST PAID TO THE DEPARTMENT. THE INTEREST PAYMENT HAS ALSO NOT BEEN HELD TO BE DEDUCTIBLE FROM INTEREST RECEIVED IN ORDER TO ARRIVE AT THE ASSESSABLE INCOME. IN THIS VIEW OF THE MATTER, THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) ON THIS ISSUE IS SET AS IDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. THUS, ON THIS GROUND REVENUE SUCCEEDS. 26. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 22 34. IN VIEW THEREOF, WE ALLOW THE ALTERNATE PLEA RAISED BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 35AB OF THE ACT ARE TO BE APPLIED ON THE TOTAL LIABILITY OF RS.8.82 CRORES AND 1/6 TH ON SAID AMOUNT IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF THE ASSESSEE. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, PARTLY ALLOWED. 2 4 . THE ISSUE ARISI NG BEFORE US IS IDENTICAL AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 35AB OF THE ACT @ 1/6 TH OF THE TOTAL KNOW - HOW FEES PAID OF RS.8.82 CRORES. THE ADDITIONAL GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 2 5 . THE ISSUE IN ADDITIONAL GROUND OF APPEAL NO.2 IS AGAINST DISALLOWANCE OF DEDUCTION CLAIMED OF APPROPRIATE PART OF EXCHANGE FLUCTUATION LOSS OF RS. 51,72,000/ - . THE CASE OF THE ASSESSEE BEFORE US IS THAT TH IS ISSUE AROSE IN ASSESSMENT YEAR 1998 - 99 AND TRIBUNAL HELD THAT THE SAME WAS ALLOWABLE IN VARIOUS YEARS AND THE MATTER WAS SET - ASIDE TO ASSESSING OFFICER. VARIOUS YEARS AND THE MATTER WAS SET - ASIDE TO ASSESSING OFFICER. 2 6 . WE FIND THAT THE TRIBUNAL IN ITA NO.339/PN/2004 , RELATING TO ASSESSMENT YEAR 199 8 - 9 9 , ORDER DAT ED 11.12.2015 HAD ADJUDICATED IDENTICAL CLAIM OF DEDUCTION ON ACCOUNT OF EXCHANGE FLUCTUATION LOSS OF RS.51,72,003/ - . THE ASSESSEE BEFORE US HAS ALSO CLAIMED IDENTICAL AMOUNT OF LOSS. THE TRIBUNAL HAD SET - ASIDE THE ISSUE TO ASSESSING OFFICER TO RE - COMPUT E THE LOSS IN RESPECTIVE YEARS, HOLDING AS UNDER: - 8. GROUND NO. 6 OF THE APPEAL AND FINDINGS THEREON ARE AS UNDER: 6. DEDUCTION UNDER SECTION 37(1) OF THE ACT ON ACCOUNT OF EXCHANGE FLUCTUATION LOSS OF RS.51,72,003. 6.1 THE LEARNED CIT(A) ERRED IN REJ ECTING THE APPELLANT'S CLAIM THAT EXCHANGE FLUCTUATION LOSS OF RS.51,72,003 IS DEDUCTIBLE UNDER SECTION 37( 1) OF THE ACT. THE ABOVE LOSS WAS INCURRED BY THE APPELLANT ON ACTUAL PAYMENT OF TECHNICAL KNOW - HOW FEES PAID ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 23 DURING THE YEAR AND ON RESTATEMENT OF OUTSTANDING LIABILITY AT THE EXCHANGE RATE PREVAILING ON 3 1 MARCH 1998. THE APPELLANT PRAYS THAT THE ABOVE LOSS BE ALLOWED UNDER SECTION 37(1) OF THE ACT. 8.1 THE LD. AR SUBMITTED THAT THE EXCHANGE FLUCTUATION LOSS WAS SUFFERED BY THE ASSESSEE ON ACTUAL PAYMENT OF TECHNICAL KNOW - HOW FEE PAID DURING THE YEAR. THE LD. AR REFERRED TO TABLE 5 IN THE LIST OF THE TABLE PLACED BEFORE US AND SUBMITTED THAT DEDUCTION ALLOWABLE U/S. 35AB AND EXCHANGE DIFFERENCES HAVE BEEN WORKED OUT IN ACCORDANCE WITH THE DECISIO N OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. WOODWARD GOVERNOR INDIA P. LTD. REPORTED AS 312 ITR 254 (SC). THE RELEVANT TABLE ON WHICH THE LD. AR HAS PLACED RELIANCE IS AS UNDER: TABLE 5 : DEDUCTION ALLOWABLE U/S. 35 AB AND EXCHANGE DIFFERENCES IN ACCORDANCE WITH SUPREME COURT DECISION IN WOODWARD GOVERNER (312/ITR/254) AY TOTAL BASED ON WHICH SEC 35AB TO BE ALLOWED AMOUNT ALLOWED U/S. 35AB BASED ON RS.8,82,46,665 EXCHANGE DIFFERENCES TOTAL 1997 - 98 8,82,46,665 1,47,0 7,778 - 1,47,07,778 1998 - 99 9,34,83,668 1,47,07,778 29,47,684 1,47,07,778 1999 - 00 9,34,83,668 1,47,07,778 22,24,316 1,47,07,778 2000 - 01 9,34,83,668 1,47,07,778 - 1,47,07,778 2001 - 02 9,34,83,668 1,47,07,778 - 1,47,07,778 2002 - 03 9,34,83,668 1,47,07,778 - 1,47,07,778 2003 - 04 9,34,83,668 1,47,07,778 - - 2003 - 04 9,34,83,668 1,47,07,778 - - TOTAL >>>>> 8,82,46,668 51,72,000 9,34,18,668 8.2 ON THE OTHER HAND THE LD. DR OBJECTED TO THE SAME AND SUBMITTED THAT THERE IS NO INFIRMITY IN THE FINDINGS OF THE AUTHORITIES BELOW ON THIS ISSUE. 8.3 WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE ARE OF THE VIEW THAT IF THE EXCHANGE FLUCTUATION LOSS HAS BEEN WRONGLY COMPUTED, THE SAME HAS TO BE REWORKED. WE DEEM IT A PPROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR RE - COMPUTING EXCHANGE FLUCTUATION LOSS AND ARRIVE AT THE CORRECT AMOUNT OF DEDUCTION U/S. 37(1) OF THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE ST ATISTICAL PURPOSES. 2 7 . THE CLAIM OF THE ASSESSEE BEFORE US IS IDENTICAL AS CLAIMED IN ASSESSMENT YEAR 1998 - 99 . F OLLOWING THE SAME PARITY OF REASONING, WE REMIT THIS ISSUE ALSO BACK TO ASSESSING OFFICER, WHO SHALL DETERMINE THE AMOUNT, WHICH IS TO BE AL LOWED IN THE HANDS OF ASSESSEE IN THE PRESENT YEAR ON ACCOUNT ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 24 OF EXCHANGE FLUCTUATION LOSS. THE ADDITIONAL GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 28 . THE REVENUE IN ITA NO.1468/PN/2004, RELATING TO ASSESSMENT YEAR 1999 - 2000 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 01. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF VRS EXPENDITURE TREATING IT AS REVENUE IN NATURE. 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT INTEREST ON CUSTOMERS AND HUNDIES, INTEREST ON MSEB/MIDC ARE HELD AS PART OF BUSINESS INCOME. 2.2 THE LD. CIT(A) OUGHT TO HAVE HELD THAT INTEREST ON CUSTOMERS AND HUNDIES, INTEREST ON MSEB/MIDC AS 'INCOME FROM OT HER SOURCES' AND TO KEEP OUT OR PURVIEW OF CLAUSE (BAA) TO SEC. 80HHC. 2.3 THE LD. CIT(A) OUGHT TO HAVE FOLLOWED THE RATIO OF THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. 262 ITR 278 (SC) WHEREIN IT WAS HELD THAT SUCH INCOME CANNOT BE TREATED AS DERIVED FROM EXPORT BUSINESS. 2.4 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE FIRST APPELLATE 2.4 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE FIRST APPELLATE AUTHORITIES HAVE ALL THE POWER OF ASSESSING OFFICER IN DETERMINATION OF THE INCOME OF THE ASSESSEE AS HELD IN CIT VS. KANPUR COAL SYND ICATE 53 ITR 225 (SC) AND IN JUTE COMPANY OF INDIA LTD. VS. CIT 187 ITR 688 (SC). 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT LOSS, IF ANY, WOULD BE ALLOWED TO BE SET OFF AGAINST 90% OF SUM REFERRED IN CLAUSE (IIIA) (IIIB) & (IIIC) IN THE SAME PROPORTION AS THE EXPORT TURNOVER AS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS. 3.2 THE LD. CIT(A) OUGHT TO HAVE FOLLOWED THE HON. SUPREME COURT DECISION IN THE CASE OF IPCA LABORATORIES LTD. (266 ITR 521) AND JURISDICTIONAL HIGH COURT DECISION DELIVERED IN ITA NO.376 OF 2003 (ITA NO.5211/BOM/2003) DT. 04/08/2004, WHEREIN, IT IS HELD THAT IN CASE OF LOSS FROM EXPORT BUSINESS, NO DEDUCTION IS TO BE ALLOWED U/S. 80HHC. 04. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING TO EXCLUDE SALES - TAX AND EXCISE DUTY COLLECTED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 80HHC. 05. THE ORDER OF THE LD. CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER B E RESTORED. 06. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 25 29 . THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS AGAINST ORDER OF CIT(A) IN ALLOWING THE CLAIM OF VRS EXPENDITURE. 30 . THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DEBITED SUM OF RS.4,00,39,000/ - AS EXPENDITURE ON ACCOUNT OF VOLUNTARY RETIREMENT SCHEME. THE EXPLANATION OF THE ASSESSEE WAS THAT IN ORDER TO REDUCE THE SIZE OF WORKFORCE, THE ASSESSEE COMPANY HAD OFFERED COMPENSATION TO WORKERS WHO AVAILED OF THE VRS SCHEME. THE ASSESSEE FURTHER EXPLAINED THAT IT ACHIEVED THE REDUCTION IN NUMBER OF ITS WORKERS AND DID NOT CLOSE ANY PART OF ITS BUSINESS OPERATIONS AND HENCE, THE EXPENSES INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE EFFICIENT RUNN ING OF BUSINESS. THE ASSESSING OFFICER TOOK NOTE OF THE PREAMBLE OF THE SCHEME, UNDER WHICH THE PURPOSE OF SCHEME WAS TO REDUCE THE MANPOWER TO ENABLE THE COMPANY TO MANAGE ITS AFFAIRS IN A MORE ECONOMIC AND EFFICIENT MANNER. THE ASSESSEE CLAIMED THAT BY VIRTUE OF THIS SCHEME, THE ASSESSEE HAD INCURRED EXPENDITURE WHICH IN TURN, WOULD REDUCE ITS MANPOWER AND WOULD DRAW BENEFIT OF ENDURING NATURE. THE ASSESSING OFFICER IN TURN, SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY THE ENTIRE EXPENDITURE SHOULD NO T BE TREATED AS CAPITAL EXPENDITURE, IN TURN, THE ASSESSEE PLACED RELIANCE ON DIFFERENT DECISIONS OF HONBLE SUPREME COURT AND SUBMITTED THAT THE SAID EXPENDITURE COULD NOT BE TREATED AS CAPITAL EXPENDITURE. THE ASSESSING OFFICER IN THIS REGARD OBSERVED T HAT WHAT HAD TO BE SEEN WAS WHETHER OR NOT SUCH BENEFITS OF ENDURING NATURE HAD BROUGHT INTO EXISTENCE THE CAPITAL ASSET. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHILE REDUCING THE MANPOWER, THE ASSESSEE HAD BEEN ABLE TO RESTRUCTURE ITS HUMAN RESOURCES , THEREBY INCREASING ITS PROFITABILITY, PRODUCTIVITY, COMPETITIVENESS AND FURTHER INDUCTION OF TECHNOLOGY AND HAD DERIVED BENEFIT OF ENDURING NATURE. THE AMOUNT PAID UNDER THE VRS SCHEME ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 26 WAS HELD TO BE COMPENSATORY IN NATURE PAYABLE TO THE CONCERNED EMPLO YEES WHOSE CASES WERE APPROVED FOR VOLUNTARY RETIREMENT SCHEME. THE ASSESSING OFFICER THUS, HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM OF DEDUCTION OF RS.4,00,39,000/ - . 31 . THE CIT(A) AFTER TAKING NOTE OF VARIOUS RELIANCES PLACED UPON BY THE LE ARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE NOTED THAT THE VRS SCHEME FLOATED BY THE ASSESSEE WAS FOR THE EMPLOYEES IN ORDER TO REDUCE WORKFORCE SO AS TO RUN THE BUSINESS MORE EFFICIENTLY, THE SAID EXPENDITURE WAS INCURRED ON THE GROUND OF COMMERCIAL EXIGENCY AND HENCE, WAS INCURRED FOR THE PURPOSE OF BUSINESS. THE CIT(A) FURTHER HELD THAT THE BENEFITS COULD NOT BE HELD TO BE IN CAPITAL FIELD EVEN THOUGH COULD BE ENDURING IN SOME SENSE. THE CIT(A) THUS, HELD THAT THE EXPENDITURE WAS INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WAS REVENUE EXPENDITURE. 32 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN THIS REGARD. 33 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT WHERE THE EXPENDITURE WAS OF END URING BENEFIT, THEN THE SAID EXPENDITURE IS A CAPITAL EXPENDITURE AND IS ALSO COVERED UNDER SECTION 35DDA OF THE ACT. 34 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT THE ISSUE IS SQUARELY COVERED BY THE RAT IO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BHOR INDUSTRIES LTD. (2003) 264 ITR 180 (BOM) AND THE HONBLE HIGH COURT OF MADRAS IN CIT VS. SIMPSON & CO. LTD. (1998) 230 ITR 703 (MAD). IT WAS FURTHER POINTED OUT BY THE LEARNED ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 27 AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE THAT THE COMMISSIONER HAD APPROVED THE SCHEME OF VRS UNDER SECTION 10(10C) OF THE ACT 35 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FLOATED A VRS SCHEME AND THE OBJECT OF THE SAID SCHEME WAS TO REDUCE THE WORKFORCE OF ASSESSEE COMPANY. UNDER THE SAID SCHEME, THE EMPLOYEES OF THE ASSESSEE COMPANY WERE OFFERED RETIREMENT BENEFITS AND THE ASSESSEE HAD DEBITED SUM OF RS.4,00,39,000/ - . THE OBJECT OF THE SAID SCHEME BY WAY OF REDUCING NUMBER OF WORKERS WAS IN ORDER TO EFFICIENTLY RUN BUSINESS OF THE ASSESSEE COMPANY AND THE ASSESSEE FURTHER CLAIMS THAT AFTER THE SAID OBJECT WAS ACHIEVED, THERE WAS NO NEED TO CLOSE ANY PART OF BUSINESS OPERATIONS. THE ASSESSEE CLAIMED THE SAID EXPENDITURE TO BE REVENUE IN NATURE, WHEREAS THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE SAID EXPENDITURE HAD ENDURING BENEFIT, THE SAME WAS CAPITAL IN NATURE. 3 6. WE FIND THAT SIMILAR ISSUE OF ALLOWABILITY OF VRS EXPENSES AROSE BEFOR E THE HONBLE BOMBAY HIGH COURT IN CIT VS. BHOR INDUSTRIES LTD. (SUPRA) AND IT WAS HELD THAT THE EXPENDITURE WAS OF REVENUE IN NATURE AND ALLOWABLE AS DEDUCTION IN COMPUTING PROFITS OF THE ASSESSEE COMPANY . I N TURN, RELIANCE WAS PLACED ON THE RATIO LAID D OWN BY THE HONBLE SUPREME COURT IN CIT VS. ASHOK LEYLAND LTD. (1972) 86 ITR 549 (SC), WHEREIN IT WAS HELD THAT COMPENSATION PAID FOR TERMINATION OF SERVICES OF MANAGING AGENTS IN ORDER TO SAVE BUSINESS EXPENDITURE IN THE ACCOUNTING PERIOD AS WELL AS DURIN G SUBSEQUENT YEARS, THE HONBLE SUPREME COURT HELD THAT BY AVOIDING CERTAIN EXPENDITURE, THE COMPANY DID NOT ACQUIRE ANY INCOME YIELDING ASSET AND THE SAME WAS ALLOWABLE AS ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 28 DEDUCTION. APPLYING THE SAID RATIO, THE HONBLE BOMBAY HIGH COURT IN CIT VS. BHOR INDUSTRIES LTD. (SUPRA) HELD THAT THE VRS EXPENSES WERE INCURRED BY THE COMPANY TO SAVE ON THE EXPENDITURE AND SINCE THE EXPENDITURE WAS NOT RELATABLE TO ANY INCOME YIELDING ASSET, THE REVENUE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS TO BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED AND IT COULD NOT BE SPREAD OVER NUMBER OF YEARS EVEN THOUGH THE ASSESSEE HAD WRITTEN IT OFF IN ITS BOOKS OVER A PERIOD OF YEARS. 37 . THE HONBLE HIGH COURT OF MADRAS IN CIT VS. SIMPSON & CO. LTD. (SUPRA), IN TURN, RELIED ON THE RATIO LAID DOWN IN CIT VS. GEORGE OAKES LTD. (1992) 197 ITR 288 (MAD) ALSO HELD THAT THE MATTER OF AMOUNT PAID TO EMPLOYEES UNDER VRS SCHEME PERTAINS TO BUSINESS CONSIDERATION AND EXPEDIENCY AND THE EXPEN DITURE INCURRED BY THE ASSESSEE IN THIS REGARD WAS FOR THE PURPOSE OF BUSINESS AND ALSO WITH A VIEW TO MAINTAIN GOOD RELATIONSHIP WITH THE LABOUR AND SUCH AN EXPENDITURE HAD TO BE CONSIDERED AS HAVING BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 38 . THE ISSUE ARISING BEFORE US IS THUS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BHOR INDUSTRIES LTD. (SUPRA) AND THE HONBLE HIGH COURT OF MADRAS IN CIT VS. SIMPSON & CO. LTD. (SUPRA). THE ASSESSEE H AD INCURRED THE AFORESAID EXPENDITURE ON VRS SCHEME FLOATED BY IT IN ORDER TO REDUCE NUMBER OF ITS WORKFORCE FOR SMOOTH AND EFFICIENT RUNNING OF ITS BUSINESS OPERATIONS AND HENCE, THE SAID EXPENDITURE HAD BUSINESS EXPEDIENCY AND WHERE THE EXPENDITURE WAS I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF RUNNING BUSINESS, THE SAME IS ALLOWABLE AS REVENUE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 29 EXPENDITURE. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE. 39 . THE ISSUE IN GROUND OF APPEAL NO.2 RAISED B Y THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN HOLDING THAT THE INTEREST ON CUSTOMERS AND HUNDIES, INTEREST ON MSEB/MIDC WERE PART OF BUSINESS INCOME AND HAD TO BE CONSIDERED AS PART OF ELIGIBLE PROFITS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 40 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.580/PN/2000, RELATING TO ASSESSMENT YEAR 1996 - 97, ORDER DATED 02. 02.2001. 41 . WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 1996 - 97 VIDE PARA 30 HAD HELD THAT THE INTEREST RECEIVED ON DEPOSITS WITH MIDC/MSEB CUSTOMERS AND INTER - CORPORATE DEPOSITS PART TAKE THE NATURE OF BUSINESS AND HENCE, ASSESSABLE UNDER THE HEAD P ROFITS AND GAINS OF BUSINESS. ACCORDINGLY, THESE AMOUNTS SHALL BE INCLUDED IN THE BUSINESS INCOME FOR THE PURPOSE OF RELIEF UNDER SECTION 80HHC OF THE ACT. WHERE THERE WAS NO NEXUS BETWEEN INCOME EARNED AND BUSINESS ACTIVITY OF THE ASSESSEE, THE SAID AM OUNTS WERE HELD TO BE ASSESSABLE AS INCOME FROM OTHER SOURCES. WE FIND THAT THE ISSUE ARISING BEFORE US IS IN RESPECT OF INTEREST ON CUSTOMERS AND HUNDIES, INTEREST ON MSEB/MIDC AND THE SAME ARE TO BE INCLUDED AS PROFITS AND GAINS OF BUSINESS AND ARE ELIG IBLE FOR CLAIMING DEDUCTION UNDER SECTION 80HHC OF THE ACT. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 30 42 . THE ISSUE IN GROUND OF APPEAL NO.3 BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN HOLDING THAT LO SS, IF ANY, WOULD BE ALLOWED TO BE SET OFF AGAINST 90% OF SUM REFERRED IN CLAUSE (IIIA), (IIIB) AND (IIIC) IN THE SAME PROPORTION AS THE EXPORT TURNOVER AS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS. 43 . THE REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) IN ALLOWING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT ON THE LOSS FROM EXPORT BUSINESS. FURTHER, THE REVENUE HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN IPCA LABORATORIES LTD. VS. DCIT REPORTED IN 266 ITR 521 (SC) 44 . TH E LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE 17 AT PARA 8 AND POINTED OUT THAT THE GROUND OF APPEAL RAISED BY THE REVENUE IS MIS - PLACED AS THE PRESENT ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 45 . THE PERUSAL OF ORDER OF CIT(A) AT PAGE 8 REFLECTS THAT THE CIT(A) HAD HELD THAT CONSIDERING THE PROVISIONS OF SECTION 80HHC(1) OF THE ACT, THAT IN CASE OF LOSS, THE EFFECT OF PROVISO TO SECTION 80HHC(3) OF THE ACT WOULD BE TO ALLOW SET OFF OF LOSS BY 90% OF SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) & (IIIC) IN THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF BUSINESS. OTHERWISE, IT WOULD TANTAMOUNT TO ALLOW DEDUCTION UNDER SECTION 80HHC OF THE ACT MORE THAN THE PROFITS DERIVED BY THE ASSESSEE FROM EXPO RT OF SAID GOODS OR MERCHANDISE. THEREFORE, THE CLAIM OF THE ASSESSEE WAS REJECTED BY CIT(A). ACCORDINGLY, WE HOLD THAT GROUND OF APPEAL NO.3 RAISED IS MIS - PLACED AND HENCE, THE SAME IS DISMISSED. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 31 46 . NOW, COMING TO GROUND OF APPEAL NO.4 I.E. AGAINST TH E DIRECTION OF CIT(A) IN EXCLUDING SALES TAX AND EXCISE DUTY COLLECTED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 47 . WE FIND THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE ORDER OF HONBLE SUPREME COURT IN CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC), WHEREIN IT HAS BEEN HELD THAT WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT AND WHILE COMPUTING TOTAL TURNOVER, BOTH SALES TAX AND EXCISE DUTY CANNOT FORM PART OF TURNOVER AND SUCH TAXES HAVE TO BE EXCLUDED FROM TOTAL TURNOVER UNDER SECTION 80HHC(3) OF THE ACT. FOLLOWING THE SAME DIRECTIVE, WE FIND NO ERROR IN THE ORDER OF CIT(A) AND ACCORDINGLY, WE DISMISS THE GROUND OF APPEAL NO.4 RAISED BY THE REVENUE. 48 . THE GROUNDS OF APPEA L NO.5 AND 6 RAISED BY THE REVENUE ARE GENERAL IN NATURE AND ARE DISMISSED. 49 . THE ASSESSEE IN ITA NO.112/PN/2006 , RELATING TO ASSESSMENT YEAR 2000 - 01 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ADDITION OF CONSIDERATION TOWARDS DEVELOPMENT AND OTH ER RIGHTS RECEIVED AS CAPITAL GAINS THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS . 3,030,000 WITH REFERENCE TO THE CONSIDERATION RECEIVED TOWARDS SALE OF DEVELOPMENT AND OTHER RIGHTS IN RESPECT OF LAND BY TREATING THE SAME AS CAPITAL GAINS. THE APPELLA NT PRAYS THAT THE CONSIDERATION RECEIVED TOWARDS SALE OF DEVELOPMENT AND OTHER RIGHTS IN RESPECT OF LAND CONSTITUTES A CAPITAL RECEIPT, NOT TAXABLE UNDER THE ACT. 2. DISALLOWANCE OF SOFTWARE EXPENSES THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF THE DEDUCTION IN RESPECT OF SOFTWARE EXPENSES OF RS . 2,320,000 BY TREATING ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 32 THE SAME AS CAPITAL EXPENDITURE. THE APPELLANT PRAYS THAT THE IMPUGNED BE TREATED REVENUE EXPENDITURE AND ALLOWED ACCORDINGLY. 3. DISALLOWANCE OF DEDUCTION TOWARDS LIQUIDATED DAMAGES THE LEARNED CIT(A) ERRED IN CONFIRMING THE DI SALLOWANCE OF THE DEDUCTION TOWARDS DAMAGES AGGREGATING TO RS . 1,101,473 BY TREATING THE SAME AS PAYMENT FOR INFRACTION OF LAW. THE APPELLANT PRAYS THAT THE IMPUGNED DAMAGES, BEING CONTRACTUAL IN NATUR E, S H OULD BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT. 4. SET OFF OF INTEREST PAID UNDER SECTION 220, 234B AND 234C AGAINST INTEREST RECEIVED UNDER SECTION 244A THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF SET - OFF OF INTEREST P AID UNDER SECTION 220, 234B AND 234C OF THE ACT AGGREGATING TO RS . 6,592,331 AGAINST INTEREST RECEIVED UNDER SECTION 244A OF THE ACT. THE APPELLANT PRAYS THAT THE IMPUGNED INTEREST PAID UNDER SECTION 220, 234B AND 234C OF THE ACT SHOULD BE ALLOWED TO SET O FF AGAINST INTEREST RECEIVED UNDER SECTION 244A OF THE ACT. 5. REDUCTION OF NINETY PER CENT OF GROSS RECEIPTS THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THAT NINETY PER CENT OF GROSS RECEIPTS IN RELATION TO INTEREST, RENT AND COMMISSION SHOULD BE REDUCE D FROM THE PROFITS OF THE BUSINESS IN COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THAT IN COMPUTING DEDUCTION UNDER SECTION 80HHC NINETY PER CENT OF NET INTEREST, NET RENT AND NET COMMISSION SHOULD BE EXCLUDED FROM THE PROFITS O F THE BUSINESS. 6. DISALLOWANCE OF DEDUCTION UNDER SECTION 35AB OF THE ACT THE LEARNED CIT(A) HAS ERRED IN ENHANCING THE ASSESSED INCOME BY RS.5,322,114 BEING DISALLOWANCE OF DEDUCTION UNDER SECTION 35AB OF THE ACT. THE APPELLANT PRAYS THAT THE IMPUGNE D BE ALLOWED AS DEDUCTION UNDER SECTION 35AB OF THE ACT. 50 . THE ASSESSEE HAS R AI SED ADDITIONAL GROUNDS OF APPEAL AS UNDER: - ADDITIONAL GROUND 1: DEDUCTION UNDER SECTION 35AB OF THE INCOME TAX ACT, 1961 (THE ACT) IN RESPECT OF LUMP SUM KNOW HOW FEES OF RS.1,47,07,778/ - THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF RS.1,47,07,778/ - IN RESPECT OF LUMP SUM KNOW HOW FEES U/S 35AB OF THE IT ACT. ADDITIONAL GROUND 2: ASSESSEE ENTITLED TO DEDUCTION OF EXCHANGE FLUCTUATION LOSS. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF APPROPRIATE PART OF EXCHANGE FLUCTUATION LOSS OF RS.51,72,000/ - ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 33 51 . THE ADDITIONAL GROUNDS OF APPEAL RA ISED BY THE ASSESSEE ARE SIMILAR TO ADDITIONAL GROUNDS OF AP PEAL IN ITA N O .1439/PN/2004 AND BEING LEGAL, ARE ADMITTED FOR ADJUDICATION. 52 . THE ISSUE IN GROUND OF APPEAL NO.1 IS AGAINST THE ADDITION MADE WITH REFERENCE TO CONSIDERATION RECEIVED TOWARDS SALE OF DEVELOPMENT AND OTHER RIGHTS. 5 3. BRIEFLY, IN THE F ACTS RELATING TO THE ISSUE, THE ASSESSEE HAD CREDITED SUM OF RS.91,45,400/ - ON ACCOUNT OF SALE OF DEVELOPMENT AND OTHER RIGHTS IN RESPECT OF LAND. THE CLAIM OF THE ASSESSEE WAS THAT THE SAME WAS CAPITAL RECEIPT AND HENCE EXCLUDED WHILE COMPUTING THE TOTAL INCOME. THE SAID AMOUNT WAS RECEIVED BY ASSESSEE FROM M/S. DAD HE CONSTRUCTIONS PVT. LTD. , AS CONSIDERATION FOR ASSIGNMENT OF DEVELO PMENT AND OTHER RIGHTS AND SINCE THERE WAS NO ACTUAL TRANSFER OF LAND, THERE WAS NO SCOPE OF COMPUTING CAPITAL GAINS . THE ASSESSING OFFICER, HOWEVER, HELD OTHERWISE. IT WAS OBSERVED BY HIM THAT, AS WAS EVIDENT FROM THE AGREEMENT, THE APPELLANT HAD HANDED OVER PHYSICAL POSSESSION OF THE LAND TO THE DEVELOPERS AND HAD ALSO GRANTED IRREVOCABLE POWER OF ATTORNEY TO THE DEVELOPER S WHO ON THE STRENGTH OF THE SAID POWER OF ATTORNEY COULD DEVELOP THE LAND IN THE MANNER AND TO THE EXTENT THEY DEEMED FIT AND COULD ALSO SELL THE LAND TO THE PROSPECTIVE BUYERS SUBJECT TO CERTAIN TERMS AND CONDITIONS STIPULATED IN THE EXEMPTION ORDER ISSU ED BY THE GOVERNMENT OF MAHARASHTRA UNDER THE URBAN LAND CEILING ACT. THUS, WHAT WAS PENDING WAS MERE FORMAL CONVEYANCING OF THE LAND. IT WAS REASONED OUT BY THE ASSESSING OFFICER THAT THE TRANSACTION THUS RESORTED TO AMOUNTED TO PART PERFORMANCE OF A CONT RACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 34 TRANSFER OF PROPERTY ACT AND WOULD THUS COME WITHIN THE AMBIT OF SECTION 2(47)(V) OF THE INCOME - TAX ACT, 1961, WHICH CAME INTO EFFECT FROM THE ASSESSMENT YEAR 1988 - 89. IN THIS CONTEXT, HE ALSO PLACED REL IANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. VS. CIT, 239 ITR 775, WHEREIN DEPRECIATION HAD BEEN HELD AS ADMISSIBLE TO THE ASSESSEE WHO WAS IN POSSESSION OF A BUILDING ON PART PAYMENT OF PRICE. ACCORDINGLY, THE ASS ESSING OFFICER CAME TO THE CONCLUSION THAT THE AMOUNT OF RS.91 ,45,000 / - HAD TO BE ASSESSED AS CAPITAL GAINS. HOWEVER, AS SUMS OF RS.42,95,400 / - AND RS.18,20,000 / - HAD BEEN ALREADY CONSIDERED FOR ASSESSMENT FOR THE ASSESSMENT YEARS 1991 - 92 & 1995 - 96 RESPEC TIVELY, HE ASSESSED ONLY THE BALANCE AMOUNT OF RS.30,30,000 / - (IT SHOULD HAVE BEEN RS.30,50,000 / - ) FOR THE PRESENT ASSESSMENT YEAR UNDER THE HEAD LONG TERM CAPITAL GAINS. 54 . BEFORE THE CIT(A), THE ASSESSEE MADE NEW PLEA AS UNDER: - 8.2.1 DURING THE CO URSE OF THE APPEAL PROCEEDINGS, THE APPELLANT AND ITS LEARNED AUTHORIZED REPRESENTATIVE FILED COPIES OF THE AGREEMENTS ENTERED INTO THE EARLIER YEARS IN THE MATTER OF ASSIGNMENT OF DEVELOPMENT RIGHTS. THE FIRST AGREEMENT WAS DATED 4.1.1990 AND THE CONSIDER ATION INVOLVED THEREIN, IN RESPECT OF ASSIGNMENT OF 3,695 SQ.MTRS. OF LAND, WAS RS.42,95,400/ - . THIS AMOUNT WAS ASSESSED FOR THE ASSESSMENT YEAR 1991 - 92. THEN THERE WERE AGREEMENTS DATED 26.4.1994 & 22.2.1995 ASSIGNING DEVELOPMENT RIGHTS IN RESPECT OF FURT HER LAND ADMEASURING 2377.0 SQ.MTRS. EACH. THE CONSIDERATION FOR SUCH ASSIGNMENT WAS RS.9,10,000/ - EACH. THESE TWO AGREEMENTS WERE RELEVANT TO THE ASSESSMENT YEAR 1995 - 96. IN THE ASSESSMENT FOR THE SAID ASSESSMENT YEAR, THE CUMULATIVE CONSIDERATIONS OF RS. 18,20,000/ - WERE BROUGHT TO TAX UNDER THE HEAD 'LONG TERM CAPITAL GAINS'. THE APPELLANT ALSO FILED COPY OF A LETTER DATED 5.5.1992 ADDRESSED TO SHRI VIJAY NARAYAN DADHE, MANAGING DIRECTOR OF M/S. DADHE CONSTRUCTION PVT. LTD. WHEREBY THE FORMER WAS GIVEN AU THORISATION TO MAKE CONSTRUCTIONS TO THE EXTENT 49,239.49 SQ.FT. FROM OUT OF THE TOTAL AREA OF 61,548.30 SQ.FT. ON WHICH IT (THE APPELLANT) WAS REQUIRED TO MAKE CONSTRUCTION FOR ITS OWN USE AS PER THE EXEMPTION ORDER. THE APPELLANT INFORMED SHRI DADHE THAT 'THE BALANCE CONSTRUCTION OF 49,239.49 SQ.FT. MAY BE UTILISED BY YOU IF POSSIBLE AT SUCH PLACE ON OUR EARLIER SURRENDERED LAND FOR CONSTRUCTION OF FLATS,' AND, FOR THIS PURPOSE, HE COULD APPROACH THE STATE GOVERNMENT, IF NECESSARY, TO GET THE EXEMPTION OR DER SUITABLY MODIFIED. THE CONSIDERATION PAYABLE FOR THE ABOVE FRESH ASSIGNATION WAS STIPULATED AT RS.24 ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 35 LAKHS. THE APPELLANT FILED YET ANOTHER LETTER DATED 12.7.1993 ADDRESSED TO SHRI VIJAY NARAYAN DADHE WHEREBY THE LATTER WAS REQUIRED TO PAY RS.5 LAKHS T O THE APPELLANT AS SECURITY DEPOSITS / ADDITIONAL AMOUNT IN CONNECTION WITH THE ALLOTMENT OF DEVELOPMENT RIGHTS IN RESPECT OF LAND AD MEASURING 11161 SQ.MTRS. APART FROM SUBMITTING THE ABOVE AGREEMENTS/LETTERS ETC., THE APPELLANT ALSO FURNISHED DETAILS OF THE PAYMENTS RECEIVED FROM TIME TO TIME AND COMPRISED IN THE TOTAL AMOUNT OF RS.91,45,400/ - . IN THE DETAILS THUS FURNISHED, A SUM OF RS.1,50,000/ - STATED TO HAVE BEEN RECEIVED ON DECEMBER 31, 1999, WAS SHOWN ADDITIONALLY. IT WAS ARGUED BY THE APPELLANT THA T THE ENTIRE RECEIPTS WERE CAPITAL IN NATURE AND, THEREFORE, COULD NOT BE TAXED. 55 . THE CIT(A) FORWARDED THE SUBMISSIONS OF ASSESSEE TO ASSESSING OFFICER AND WHO REPORTED AS UNDER: - 8.3 THE VARIOUS SUBMISSIONS THUS MADE WERE PUT ACROSS TO THE ASSESS ING OFFICER SINCE IT APPEARED THAT THE SAME HAD NOT BEEN FILED AT THE TIME OF THE ASSESSMENT. THE ASSESSING OFFICER WAS SPECIFICALLY ASKED AS TO HOW THE SUM OF RS.30,30,000/ - WAS BROUGHT TO TAX FOR THE PRESENT ASSESSMENT YEAR WHEN AS PER THE APPELLANT T HE TRANSACTIONS HAD TAKEN PLACED DURING THE EARLIER YEARS AND AN AGGREGATE SUM OF RS.60,95,400/ - HAD ALSO BEEN ALREADY BROUGHT TO TAX IN THE ASSESSMENTS FOR THE ASSESSMENT YEARS 1991 - 92 & 1995 - 96. IN HIS REPLY DATED 16.8.2004, THE ASSESSING OFFICER INF ORMED THAT ALTHOUGH THE APPELLANT HAD RECEIVED THE PAYMENTS FROM TIME TO TIME, NO INFORMATION IN RESPECT OF SUCH PAYMENTS HAD BEEN FURNISHED ALONG WITH THE RETURNS OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEARS VIZ. ASSESSMENT YEARS 1993 - 94, 1994 - 95, 1997 - 98 & 1999 - ASSESSMENT YEARS VIZ. ASSESSMENT YEARS 1993 - 94, 1994 - 95, 1997 - 98 & 1999 - 00, AND THAT SUCH INFORMATION WAS FILED FOR THE FIRST - TIME ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2000 - 01. THE ASSESSING OFFICER ALSO REPORTED THAT EVEN THOUGH THIS ISSUE, I.E. TAXABILITY OF RS.30,30,000/ - , HAD BEEN RAISED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THIS ASSESSMENT YEAR, THE APPELLANTS AUTHORIZED REPRESENTATIVE HAD NOT RAISED ANY OBJECTION WHATSOEVER. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION MADE ON THIS SCORE BE CONFIRMED. 56 . THE CIT(A) WAS OF THE VIEW THAT SUBMISSIONS MADE BY THE ASSESSEE NEED SCRUTINY AND AFTER ANALYZING VARIOUS ASPECTS OF THE ISSUE IN PARAS 8.4.1 AND 8.4.2 AT PAGES 11 TO 14 OF APPELLATE ORDER, HAD SET - ASIDE THE ISSUE TO ASSESSING OFFICER TO EXAMINE THE ASSESSABILITY OF IMPUGNED RECEIPT OF RS.30,30,000/ - UNDER SECTION 45 R.W.S. 2(47) OF THE ACT. 57 . THE ASSESSEE HAS MOVED GROUND OF APPEAL NO.1 AGAINST THE ORDER OF CIT(A). ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 36 58 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ADMITTED THAT THERE WAS NO GRIEVANC E EXCEPT INORDINATE DELAY IN ADJUDICATION BY THE ASSESSING OFFICER. WE DISMISS THIS GROUND OF APPEAL WITH DIRECTION TO ASSESSING OFFICER TO CARRY OUT THE DIRECTIONS OF CIT(A) AT THE EARLIEST AND DECIDE THE ISSUE. 59 . THE ISSUE RAISED VIDE GROUND OF APPEA L NO.2 AGAINST DISALLOWANCE OF SOFTWARE EXPENSES IS SIMILAR TO GROUND OF APPEAL NO.1 IN ASSESSMENT YEAR 1999 - 2000 AND FOLLOWING OUR DECISION IN PARAS HEREINABOVE, WE ALLOW THIS GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE. 60 . THE NEXT GROUND OF APPEAL NO .3 IS AGAINST DISALLOWANCE OF LIQUIDATED DAMAGES OF RS.11,01,173/ - BY TREATING THEM AS PAYMENT FOR INFRACTION OF LAW. 61 . BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE THAT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBITED SUM OF RS.11,15,000/ - ON ACCOUNT OF LIQUIDATED DAMAGES. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE SAID AMOUNT WAS SHORT PAID BY THE CUSTOMERS ON ACCOUNT OF DELAY IN DELIVERY OF GOODS. THE CASE OF THE ASSESSEE WAS THAT THESE AMOUNTS WERE ON ACCOUNT OF CONTRACTU AL OBLIGATIONS AND WERE NOT FOR CONTRAVENTION OF ANY LAW. THE ASSESSING OFFICER REJECTING THE CONTENTION OF ASSESSEE NOTED THAT THE SAME WAS HELD AS NON - DEDUCTIBLE IN THE CASE OF ROHTAK TEXTILE MILLS VS. CIT (1997) 226 ITR 485 (DEL) TO BE IN THE NATURE OF PENALTY, HENCE, DEDUCTION OF RS.11,15,000/ - CLAIMED BY THE ASSESSEE WAS DISALLOWED. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 37 62 . BEFORE THE CIT(A), THE CLAIM OF THE ASSESSEE WAS THAT THE SAID PAYMENTS WERE NOT PENAL IN NATURE AND WERE DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. IT WAS ALSO POIN TED OUT THAT THE DECISION IN ROHTAK TEXTILES MILLS VS. CIT (SUPRA) WAS NOT RELEVANT SINCE THE SAID DECISION RELATED TO INFRACTION UNDER SECTION 14B OF THE EMPLOYEES PROVIDENT FUND ACT, 1952 AND NOT CONTRACTUAL PAYMENTS MADE ON ACCOUNT OF LATE DELIVERIES. ANOTHER PLEA RAISED BY THE ASSESSEE WAS THAT IDENTICAL ISSUE WAS INVOLVED IN THE APPEAL FOR ASSESSMENT YEAR 1999 - 2000 AND THE CIT(A) HAD ALREADY ALLOWED THE CLAIM OF ASSESSEE HOLDING THAT THE CUSTOMERS HAD DEDUCTED THE AMOUNTS IN THE NORMAL INSTANCE OF BUS INESS AND HENCE, WERE ALLOWABLE AS BUSINESS EXPENDITURE. THE CIT(A) INFORMED THE ASSESSEE THAT SINCE THE ISSUE IS ONE OF THE FACTS, THE RELEVANT FACTS HAD TO BE CONSIDERED THAT THE DAMAGES ACTUALLY RELATED TO SUPPLY OF GOODS WHICH HAD BEEN ACCOUNTED FOR A S INCOME AND WHETHER THE LIABILITY IN RESPECT OF DAMAGES WERE CONTRACTUAL IN NATURE AND WHETHER THE CONTRACTUAL LIABILITIES GOT CRYSTALLIZED DURING THE YEAR. THE ASSESSEE IN RESPONSE, FILED LIST OF PARTIES WHO HAD MADE THE DEDUCTION S. HOWEVER, EVIDENCE W AS FILED ONLY IN RESPECT OF ONE CASE OF DEDUCTION OF RS.13,527/ - , OTHER DETAILS / EVIDENCES CALLED FOR WERE NOT FURNISHED . DURING THE SUBSEQUENT HE ARING , THE ASSESSEE WAS GIVEN ANOTHER OPPORTUNITY TO FURNISH DETAILS. HOWEVER, THE LEARNED AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE ARGUED THAT WHEN THE MATTER WAS AL READY COVERED BY THE ORDER OF CIT(A) FOR THE PRECEDING ASSESSMENT YEAR, IT WAS NOT AT ALL NECESSARY TO FURNISH ANY MORE DETAILS IN THIS MATTER AND IN ANY CASE, IT WAS NOT POSSIBLE TO DIG OUT THE EVIDENCE AFTER LAPSE OF SO MANY YEARS. THE CIT(A) NOTED HIS JURISDICTION TO EXAMINE ALL THE FACTS RELEVANT TO THE ISSUE AGITATED BEFORE HIM AND ALSO NOTED HIS POWER OF ENHANCEMENT AND REITERATED THE ISSUE INVOLVED IS ONE OF THE FACTS AND UNLESS THE FACTS INVOLVED IN TWO ASSESSMENT YEARS WERE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 38 IDENTICAL ON ALL FOURS, THE DECISION TAKEN IN RESPECT OF ANY ONE YEAR COULD NOT BE APPLIED. THE CIT(A) WAS OF THE VIEW THAT WHERE THE ASSESSEE HAS FAILED TO ESTABLISH ITS CASE AS TO WHEN THE LIABILITY IN RESPECT OF PA YMENTS TOWARDS DAMAGES GOT CRYSTALLIZED, AND IN THE ABSENCE OF ANY EVIDENCE FILED, THERE WAS NO MERIT IN THE CLAIM OF ASSESSEE AND THE SAME WAS REJECTED. HOWEVER, THE CIT(A) ALLOWED RELIEF IN RESPECT OF SUM OF RS.13,527/ - FOR WHICH THE EVIDENCE WAS FILED AND CONFIRMED THE DISALLOWANCE OF RS. 11,01,473/ - , AGAINST WHICH THE ASSESSEE IS IN APPEAL. 63 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US POINTED OUT THAT THE DETAILS OF LIQUIDATED DAMAGES ARE PLACED AT PAGES 109 TO 117 OF THE PAPER BOOK. HE FURTHER POINTED OUT THAT THE CIT(A) HAD DISALLOWED THE CLAIM OF ASSESSEE FOR INFRACTION OF LAWS, WHEREAS THE CUTTING TOOLS WERE SUPPLIED TO GOVERNMENT AGENCIES AND WHERE THE SUPPLIES WERE NOT MADE IN TIME, THEN 1% WAS TO BE DEDUCTED. OUR ATTENTI ON WAS DRAWN TO THE PURCHASE ORDER PLACED AT PAGE 109 OF PAPER BOOK AND FURTHER AT PAGE 112 OF THE PAPER BOOK, WHERE THE COPY OF INVOICE IS ATTACHED AND THE COPY OF CREDIT NOTES AT PAGE 114 OF THE PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT THE SIMILAR AMOUNT WAS ALLOWED IN ASSESSMENT YEAR 1999 - 2000 AND AS AGAINST THE RETURN OF INCOME FILED OF RS. 7.26 CRORES , DEDUCTION CLAIMED WAS VERY MEAGER. 6 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE PRINCIPLE S OF RES JUDICATA ARE NOT APPLICABLE AND WHERE THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE, HOW IT COULD BE SAID THAT THE CLAIM IS ALLOWABLE IN THE HANDS OF ASSESSEE FOR THE YEAR UNDER CONSIDERATION. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 39 65 . WE HAVE HEARD THE RIVAL CONTENT IONS AND PERUSED THE RECORD. THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF LIQUIDATED DAMAGES PAID BEING THE AMOUNT CHARGED BY THE COMPANY, FOR NOT DELIVERING THE GOODS IN TIME. THE CASE OF THE ASSESSEE BEFORE US IS THAT IN THE PURCHASE ORDER ITSELF I T WA S MENTIONED THAT IN CASE THE SUPPLIES WE RE NOT MADE WITHIN TIME, THEN THE LIQUIDATED DAMAGES FOR THE SAME WE RE LEVIABLE @ 1% PER MONTH SUBJECT TO MAXIMUM LIMITS. OUR ATTENTION WAS DRAWN TO THE PURCHASE ORDER OF ONE CONCERN WHICH IS PLACED AT PAGE 109 OF PAPER BOOK AND ACCOMPANYING DOCUMENTS IN THIS REGARD. ADMITTEDLY, THE ASSESSEE HAS FURTHER PLACED ON RECORD ANNEXURE 4 DETAILING THE LIST OF LIQUIDATED DAMAGES DATE - WISE PAID BY THE ASSESSEE. THE PERUSAL OF LIQUIDATED DAMAGES REFLECT THE PAYMENTS TO T HE TUNE OF RS.1,82,181/ - ON 18.05.1999, RS. 1,01,000/ - ON 18.05.1999 AND RS.1,59,485/ - ON SAME DATE. FURTHER, THE ASSESSEE HAS CLAIMED RS.1,20,000/ - ON 31.03.2000 ALONG WITH OTHER DETAILS ON DIFFERENT DATES . T HE TOTAL OF THE LIST OF LIQUIDATED DAMAGES IS RS.11,15,441 / - . THE CASE OF THE ASSESSEE THAT IT HAD PAID THE AFORESAID LIQUIDATED DAMAGES FOR NOT DELIVERING THE GOODS IN TIME AND WHICH WA S IN ACCORDANCE WITH PURCHASE ORDERS PLACED BY THE RESPECTIVE GOVERNMENT AGENCIES, IS ALLOWABLE IN CASE THE ASSESSE E FURNISHES EVIDENCE IN RESPECT THEREOF. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FURNISHED ONLY ONE EVIDENCE TO EXPENDITURE CLAIMED OF RS.13,527/ - , WHICH WAS ALLOWED BY THE CIT(A). HOWEVER, THE ASSESSEE BEFORE THE CIT(A) , AGGRESSIVELY ST ATED THAT THE DETAILS COULD NOT BE PRODUCED BECAUSE OF LAPSE OF TIME AND TIME AND AGAIN RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE CIT(A) IN EARLIER YEARS. UNDOUBTEDLY, THE SAID RATIO HAS SOME BEARING IN DECIDING THE ISSUE, BUT WHERE THE ISSUE IS P URELY FACTUAL AND BOTH BEFORE THE ASSESSING OFFICER AND CIT(A) , ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 40 THE ASSESSEE DOES NOT FURNISH THE DETAILS, THE SAID EXPENDITURE CANNOT BE ALLOWED IN THE ABSENCE OF DETAILS. EVEN BEFORE US, THE ASSESSEE HAS FURNISHED ONE SET OF DOCUMENTS. HOWEVER, THE ASS ESSEE HAS FAILED TO FURNISH MAJORITY OF EVIDENCES JUSTIFYING HIS CLAIM . T HOUGH THE ASSESSEE HAS STATED THAT IT IS DIFFICULT FOR HIM TO DIG OUT THE DETAILS FOR EARLIER YEARS , H OWEVER, FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE , WE DEEM IT FIT TO RESTORE T HE ISSUE TO THE FILE OF ASSESSING OFFICER AND DIRECT THE ASSESSEE TO FURNISH REQUISITE DETAILS BEFORE THE ASSESSING OFFICER IN ORDER TO ESTABLISH ITS CLAIM. THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 66 . THE ISSUE IN GROUND OF APPEAL NO.4 IS AGAINST DISALLOWANCE OF SET OFF OF INTEREST PAID AGAINST INTEREST RECEIVED. 67 . THE ASSESSEE HAD SET OFF INTEREST PAID UNDER SECT IONS 220, 234B, 234C OF THE ACT TOTALING RS.65,92,331/ - AGAINST INTEREST RECEIVED FROM DEPARTMENT UNDER SECTION 244 OF THE ACT. BOTH THE AUTHORITIES BELOW HAD DENIED THE SET OFF OF INTEREST PAID AGAINST INTEREST RECEIVED. THE LEARNED AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE BY THIRD MEMBER IN ITA NO.119/PN/1996 RELATING TO ASSESSMENT YEAR 1992 - 93 , ORDER OF THIRD MEMBER DATED 02.06.2011. FOLLOW ING THE SAME PARITY OF REASONING, WE HOLD THAT THE INTEREST PAID UNDER SECTIONS 220, 234B AND 234C OF THE ACT CANNOT BE SET OFF AGAINST INTEREST RECEIVED UNDER SECTION 244 OF THE ACT. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, DISMISSED. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 41 6 8 . THE ISSUE IN GROUND OF APPEAL NO.5 IS AGAINST THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 69 . THE PLEA OF THE ASSESSEE WAS THAT 90% OF NET RECEIPTS OF INTEREST, RENT AND COMMISSION SHOULD BE REDUCED UNDER SECTION CLAUSE (1) OF EXPLANA TION (BAA) TO SECTION 80HHC OF THE ACT FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ISSUE IS SETTLED BY APEX COURT IN ACG ASSOCIATE CAPSULES PVT. LTD. VS. CIT (2012) 343 ITR 89 (SC) . IT HAS BEEN HELD BY THE APEX COURT THAT ONLY 90% OF NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) WHICH IS ACTUALLY INCLUDED IN THE PROFITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF BUSINESS FOR DETERMINING PROFITS OF THE BUSINESS UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80 HHC OF THE ACT. THE HONBLE SUPREME COURT HELD AS UNDER: - 10. UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT, NINETY PER CENT. OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, NINETY PER CENT. OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR N ATURE INCLUDED IN ANY SUCH PROFITS ARE TO BE DEDUCTED FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE EXPRESSION INCLUDED ANY SUCH PROFITS WOULD MEAN ONLY SUCH RECEIPTS BY WAY OF BROKERAGE, C OMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE, IF ANY QUANTUM OF THE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, I NTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IS ALLOWED AS EXPENSES UNDER SECTIONS 30 TO 44D OF THE ACT AND IS NOT INCLUDED IN THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, NINETY PER C ENT. OF SUCH QUANTUM OF RECEIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION (BAA) FROM THE PROFITS OF THE BUSINESS. IN OTHER WORDS, ONLY NINETY PER CENT. OF THE NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) WHICH IS ACTUALLY INCLUD ED IN THE PROFITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING PROFITS OF THE BUSINESS OF THE ASSESSEE UNDER EXPLANATION (BAA) TO SECTION 80HHC . 11. FURTHER, EXPLANATION (BAA) HAS TO BE CONSTRUED ON ITS OWN LANGUAG E AND AS PER THE PLAIN NATURAL MEANING OF THE WORDS USED IN IT, THE WORDS RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS WILL NOT ONLY REFER TO THE NATURE OF RECEIPTS BU T ALSO THE QUANTUM OF RECEIPTS INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION REFERRED TO IN THE FIRST PART OF EXPLANATION (BAA). ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 42 12. ACCORDINGLY, IF ANY QUANTUM OF ANY RECEIPT OF THE NATU RE MENTIONED IN CLAUSE (1) OF EXPLANATION (BAA) HAS NOT BEEN INCLUDED IN THE PROFITS OF BUSINESS OF AN ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, NINETY PER CENT. OF SUCH QUANTUM OF THE RECEIPT CANNOT BE DEDUCTED UND ER EXPLANATION (BAA) TO SECTION 80HHC. 70 . THE CASE OF THE ASSESSEE BEFORE AUTHORITIES BELOW WAS THAT ON N ETTING, THERE WOULD NOT BE ANY INTEREST OR RENT TO BE CONSIDERED UNDER CLAUSE (BAA) SINCE THE INTEREST AND RENT PAYMENTS WERE FAR IN EXCESS OF INTER EST AND RENT RECEIPTS. THE COMMISSION ON N ETTING WOULD WORK TO RS.20,48,883/ - . THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF ASSESSEE AND ALLOW THE CLAIM AS PER RATIO LAID DOWN BY THE APEX COURT IN ACG ASSOCIATE CAPSULES PVT. LTD. VS. CIT (SUP RA) . THE GROUND OF APPEAL NO.5 IS THUS, ALLOWED. 71 . THE ISSUE IN GROUND OF APPEAL N O .6 IS AGAINST DISALLOWANCE OF DEDUCTION UNDER SECTION 35AB FOR RS.53,22,114/ - . 72 . DURING THE APPELLATE PROCEEDINGS, NOTICE OF ENHANCEMENT WAS ISSUED TO THE ASSESSEE. THE ISSUE WAS THE DEDUCTION ALLOWABLE UNDER SECTION 35AB OF THE ACT. THE ASSESSEE HAD CLAIMED AND DEDUCTION UNDER SECTION 35AB OF THE ACT , WHICH WAS ALLOWED AT RS. 1,56,56,000/ - . HOWEVER, THE CIT(A) NOTED THAT IN ASSESSMENT YEARS 1997 - 98 AND 1998 - 99, DEDU CTION WAS ALLOWED TO THE EXTENT OF RS.1,55,80,611/ - ONLY. HENCE, DIFFERENTIAL OF RS.53,22,114/ - WAS ADDED AS INCOME OF ASSESSEE . 73 . THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 35AB OF THE ACT AND QUANTUM OF DEDUCTION HAS ALREADY BEEN DECIDED BY TRIBUNAL IN ITA NO.525/PN/2003 RELATING TO ASSESSMENT YEAR 1997 - 98. THE ASSESSING OFFICER HAS BEEN DIRECTED TO COMPUTE THE DEDUCTION @ 1/6 TH OF RS.8.82 CRORES. THE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 43 TRIBUNAL HAS FURTHER APPLIED THE SAID RATIO IN ASSESSMENT YEAR 1998 - 99 (SUPRA) . I N THE P ARAS HEREINABOVE WHILE DECIDING THE ADDITIONAL GROUND OF APPEAL NO.1 RAISED BY ASSESSEE IN ASSESSMENT YEAR 1999 - 2000 ALSO SIMILAR DIRECTIONS HAVE BEEN GIVEN. 74 . FURTHER, WE FIND THE ASSESSEE IN THE PRESENT APPEAL HAS ALSO RAISED ADDITIONAL GROUND OF APPE AL NO.1 ON SAME ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 35AB OF THE ACT AS IN ASSESSMENT YEAR 1999 - 2000 . FOLLOWING THE SAME LINE OF REASONING, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DEDUCTION UNDER SECTION 35AB OF THE ACT IN THE HANDS OF ASSESSEE AS PER OUR DIRECTIONS IN ASSESSMENT YEAR 1999 - 2000. THE GROUND OF APPEAL NO.6 AND ADDITIONAL GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE ARE ALLOWED. 7 5. FURTHER, THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL NO.2 AGAINST DISALLOWANCE OF DEDUCTION CLAIMED OF APPROPRIATE PART OF EXCHANGE FLUCTUATION LOSS . THE ISSUE RAISED IS SAME AS IN ASSESSMENT YEAR 1999 - 2000 AND FOLLOWING THE SAME REASONING, THIS ISSUE IS ALSO REMITTED BACK TO ASSESSING OFFICER. THE ADDITIONAL GROUND OF APPEAL NO.2 RAI SED BY THE ASSESSEE IS THUS, ALLOWED. 76 . THE ASSESSEE IN ITA NO.113/PN/2006 RELATING TO ASSESSMENT YEAR 2001 - 02 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. DISALLOWANCE OF SOFTWARE EXPENSES THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION IN RESPECT OF SOFTWARE EXPENSES OF RS.4,141,000 BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE APPELLANT PRAYS THAT SOFTWARE EXPENSES OF RS 4,141,000 FOR THE FINANCIAL YEAR ENDED 31 MARCH 2001 SHOULD BE TREATED AS A ALLOWABLE REVENUE EXPEND ITURE. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 44 2. DISALLOWANCE OF DEDUCTION TOWARDS LIQUIDATED DAMAGES THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE DEDUCTION TOWARDS LIQUIDATED DAMAGES AMOUNTING TO RS.583,000 BY TREATING THE SAME AS PAYMENT FOR INFRACTION OF LAW. THE APPELLA NT PRAYS THAT THE DEDUCTION TOWARDS LIQUIDATED DAMAGES AMOUNTING TO RS.583,000 WAS CONTRACTUAL IN NATURE AND SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT. 3. DISALLOWANCE OF CAR EXPENSES THE LEARNED CIT(A) ERRED IN CONFIRMING THE AD - HO C DISALLOWANCE TO THE EXTENT OF RS.50,000 TOWARDS CAR EXPENSES BY TREATING THE SAME AS INCURRED FOR PERSONAL / NON - BUSINESS PURPOSES. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.50,000 TOWARDS CAR EXPENSES SHOULD BE DELETED AS THE SAME HAS BEEN INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESSES. 4. DISALLOWANCE OF COMMUNICATION EXPENSES THE LEARNED CIT(A) ERRED IN CONFIRMING THE AD - HOC DISALLOWANCE TO THE EXTENT OF RS.50,000 TOWARDS COMMUNICATION EXPENSES BY TREATING THE SAME AS INCURRED F OR PERSONAL / NON - BUSINESS PURPOSES. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.50,000 TOWARDS COMMUNICATION EXPENSES SHOULD BE DELETED AS THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESSES 5. SET OFF OF UNABSORBED DEPRE CIATION OF TITEX INDIA PRIVATE LIMITED THE LEARNED CIT(A) ERRED IN CONFIRMING SET OFF OF UN ABSORBED THE LEARNED CIT(A) ERRED IN CONFIRMING SET OFF OF UN ABSORBED DEPRECIATION OF TITEX INDIA PRIVATE LIMITED (AMALGAMATED WITH THE APPELLANT IN THE FINANCIAL YEAR ENDED 31 MARCH 2001) RELATING TO ASSESSMENT YEAR ('AY') 1999 - 2000 AND AY 2000 - 2001, WHILE CALCULATING 'PROFITS OF THE BUSINESS' FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THAT THE UNABSORBED DEPRECIATION OF TITEX INDIA PRIVATE LIMITED SHOULD NOT BE REDUCED IN COMPUTING THE 'PROFITS OF THE BUSINESS' FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. 6. TOTAL TURNOVER UNDER SECTION 80HHC TO INCLUDE SCRAP SALES THE LEARNED CIT(A) HAS ERRED IN CONFIRMING INCLUSION OF SCRAP SALES IN 'TOTAL TURNOVER' WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THAT THE SCRAP SALES OF RS.14,420,000 SHOULD BE EXCLUDED FROM THE 'TOTAL TURNOVER' WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. 7. SET OFF OF LO SSES OF TRADING ACTIVITY AGAINST MANUFACTURING ACTIVITY THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SET OFF OF LOSS FROM EXPORT OF TRADING GOODS AGAINST PROFITS FROM EXPORT OF MANUFACTURED GOODS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THAT LOSS FROM EXPORT OF TRADING GOODS SHOULD NOT BE SET OFF AGAINST PROFIT FROM EXPORT OF MANUFACTURED GOODS WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 45 8. REDUCTION OF NINETY PER CENT OF GROSS RECEIPTS THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THAT NINETY PER CENT OF GROSS RECEIPTS IN RELATION TO RENT AND SERVICE CHARGES, INTEREST AND COMMISSION SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE APPELLA NT PRAYS THAT WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC NINETY PER CENT OF NET RECEIPTS IN RELATION TO RENT AND SERVICE CHARGES, INTEREST AND COMMISSION SHOULD BE EXCLUDED FROM THE PROFITS OF THE BUSINESS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2001. 9. SET OFF OF INTEREST PAID UNDER SECTION 220 AGAINST INTEREST RECEIVED UNDER SECTION 244A THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF SET - OFF OF INTEREST PAID UNDER SECTION 220 OF THE ACT AMOUNTING TO RS.82,180 AGAINST INTEREST RECEIVED UND ER SECTION 244A OF THE ACT. THE APPELLANT PRAYS THAT THE DEDUCTION OF RS.82,180 ON ACCOUNT OF INTEREST PAID UNDER SECTION 220 OF THE ACT, SHOULD BE ALLOWED TO SET OFF AGAINST INTEREST RECEIVED UNDER SECTION 244A OF THE ACT. 10. LEVY OF INTEREST UNDER SE CTION 234D THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234D FROM 1 JUNE 2003 TILL THE DATE OF THE ASSESSMENT ORDER. THE APPELLANT PRAYS THAT THE INTEREST UNDER SECTION 234D OF THE ACT IS NOT LEVIABLE ON THE REFUND ISSUED IN JUNE 2002, AS SECTION 234D OF THE ACT HAS BEEN INSERTED AFTER THE DATE ON WHICH THE IMPUGNED REFUND WAS ISSUED. 11. ADDITION OF INTEREST FOR AY 1999 - 2000 UNDER SECTION 244A AS 'INCOME FROM OTHER SOURCES' THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS .402,663 WITH REFERENCE TO THE INTEREST RECEIVED UNDER SECTION 244A IN RESPECT OF AY 1999 - 2000 BY TREATING THE SAME AS 'INCOME FROM OTHER SOURCES' FOR THE FINANCIAL YEAR ENDED 31 MARCH 2001. THE APPELLANT PRAYS THAT THE INTEREST RECEIVED UNDER SECTION 244A OF THE ACT IN RESPECT OF AY 1999 - 2000 SHOULD NOT BE TREATED AS 'INCOME FROM OTHER SOURCES' FOR THE FINANCIAL YEAR ENDED 31 MARCH 2001 AS THE ASSESSMENT PROCEEDINGS FOR AY 1999 - 2000 WERE STILL IN PROGRESS. 77. THE ASSESSEE ALSO FILED ADDITIONAL GROUNDS OF APPEAL, WHICH READ AS UNDER: - ADDITIONAL GROUND 1: DEDUCTION UNDER SECTION 35AB OF THE INCOME TAX ACT, 1961 (THE ACT) IN RESPECT OF LUMP SUM KNOW HOW FEES OF RS.1,47,07,778 THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTIO N OF RS.1,47,07,778/ - IN RESPECT OF LUMP SUM KNOW HOW FEES U/S.35AB OF THE IT ACT. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 46 ADDITIONAL GROUND 2: ASSESSEE ENTITLED TO DEDUCTION OF EXCHANGE FLUCTUATION LOSS. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF APPRO PRIATE PART OF EXCHANGE FLUCTUATION LOSS OF RS.51,72,000/ - ADDITIONAL GROUND 3: ADVANCES WRITTEN OFF: THE CIT(A) ERRED IN NOT DISPOSING OFF GROUND OF APPEAL NO.2 FIELD BEFORE CIT(A) FOR RS.21,00,000/ - IN RESPECT OF ADVANCES WRITTEN OFF CLAIMED BY THE APP ELLANT IN THE REVISED RETURN OF INCOME. 78. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE IN RESPECT OF COMPUTER SOFTWARE EXPENSES BEING CAPITAL IN NATURE IS IDENTICAL TO THE ISSUE RAISED BY THE ASSESSEE VIDE GROUND OF APPEAL NO.1 IN ITA NO.1439/PN/2004 AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF EXPENDITURE OF RS. 41,41,000/ - . THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED, 79. THE ISSUE IN GROUN D OF APPEAL NO.2 RAISED BY THE ASSESSEE IS IDENTICAL TO 79. THE ISSUE IN GROUN D OF APPEAL NO.2 RAISED BY THE ASSESSEE IS IDENTICAL TO THE ISSUE RAISED VIDE GROUND OF APPEAL NO.3 IN ITA NO.112/PN/2006 RELATING TO ASSESSMENT YEAR 2000 - 01 . FOLLOWING THE SAME PARITY OF REASONING, WE REMIT THE ISSUE TO THE FILE OF ASSESSING OFFICER. TH E GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 80. THE ISSUE IN GROUNDS OF APPEAL NO.3 AND 4 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE OF CAR AND COMMUNICATION EXPENSES AMOUNTING TO RS.50,000/ - EACH BY TREATING THE SAM E AS INCURRED FOR PERSONAL / NON - BUSINESS PURPOSES. 81. THE ASSESSEE BEFORE US IS A LIMITED COMPANY AND NO DISALLOWANCE CAN BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF PERSONAL USE. WE FIND ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 47 SUPPORT FROM THE RATIO LAID DOWN BY THE TRIBUNAL IN ASSESSE ES OWN CASE IN ITA NOS. 1841 & 1842/PN/2012 AND ITA NOS.2053 & 2054/PN/2012, RELATING TO ASSESSMENT YEARS 2002 - 03 & 2003 - 04 , ORDER DATED 31.12.2014 AND WE DIRECT THE ASSESSING OFFICER TO DELETE ADDITION OF RS.50,000/ - EACH TOWARDS CAR AND COMMUNICATION EXP ENSES. THE GROUNDS OF APPEAL NO.3 AND 4 ARE THUS, ALLOWED. 82. NOW, COMING TO GROUND OF APPEAL NO.5 I.E. WITH REGARD TO CLAIM OF DEDUCTION UNDER SECTION 80HHC AND AS TO WHETHER UNABSORBED DEPRECIATION OF TITEX INDIA PVT. LTD. IS TO BE ADJUSTED OR NOT. 8 3. THE ASSESSING OFFICER WHILE PERUSING COMPUTATION FILED BY THE ASSESSEE WITH REGARD TO DEDUCTION UNDER SECTION 80HHC OF THE ACT NOTED THAT WHILE COMPUTING BUSINESS PROFIT, THE INCOME FROM BUSINESS HAD BEEN TAKEN AT RS.17,50,47,080/ - BEFORE SETTING OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION OF LOSSES OF TITEX INDIA PVT. LTD. OF RS.5,83,35,102/ - FOR ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01. THE CASE OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE UNABSORBED DEPRECIATION SHOULD NOT BE REDUCED FR OM INCOME FROM BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ASSESSING OFFICER NOTED FROM THE BARE READING OF SECTION 80HHC OF THE ACT ALONG WITH CLAUSE B(A) OR BB(AA) INDICATES THAT THE PROFITS OF BUSINESS WERE REQUIRED TO BE COM PUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. FURTHER, SECTION 28 AND 29 OF THE ACT CLEARLY LAYS DOWN DIFFERENT TYPES OF CRITERIA CHARGEABLE TO INCOME TAX UNDER THE ABOVE HEAD. THE ASSESSING OFFICER WAS OF THE VIEW THAT UNABSORBED DEPRECIATION OF EARLIER YEAR IS DEEMED TO BE THE CURRENT YEARS DEPRECIATION IN VIEW OF THE PROVISIONS OF ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 48 SECTION 32(2) OF THE ACT AND SECTION 29 OF THE ACT STATES THAT INCOME REFERRED TO IN SECTION 28 OF THE ACT SHALL BE COMPUTED IN ACCORDANCE WITH PROVISIONS CONTAINING IN SECTION 30 TO 43D OF THE ACT, HENCE, THE PROVISIONS OF SECTION 32(2) OF THE ACT HAVE TO BE TAKEN INTO ACCOUNT TO ARRIVE AT THE CORRECT PROFIT OF CURRENT YEAR. IN VIEW THEREOF, THE ASSESSING OFFICER HELD THAT SET OFF OF BROUGHT FORWARD DEPRECIATION LOS S OF RS.5.83 CRORES IS TO BE DEDUCTED FROM THE PROFITS OF BUSINESS BEFORE ALLOWING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 84. THE CIT(A) HELD AS UNDER: - 14.1 IN THIS APPEAL, THE APPELLANT HAS ARGUED THAT THE ASSESSING OFFICER ERRED IN TAKING THE UNA BSORBED DEPRECIATION OF TITEX INDIA PVT. LTD. [MERGED WITH THE APPELLANT WITH EFFECT FROM 1 - 1 - 2001] FOR COMPUTING THE DEDUCTION ADMISSIBLE TO IT UNDER SECTION 80HHC. 14.2. I HAVE CAREFULLY CONSIDERED THE REASONS CITED BY THE ASSESSING OFFICER AS WELL AS THE GROUND RAISED BY THE APPELLANT. THE ADJUSTMENT MADE BY THE ASSESSING OFFICER HAS TO BE CONFIRMED. SECTION 80HHC PROVIDES FOR DEDUCTION TO THE EXTENT OF THE PROFITS DERIVED BY AN ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE TO WHICH THE SAID SECTION APPLIES. SUB - SECTION (3) PRESCRIBES THE MERCHANDISE TO WHICH THE SAID SECTION APPLIES. SUB - SECTION (3) PRESCRIBES THE METHOD BY WHICH SUCH PROFITS, ALSO KNOWN AS EXPORT PROFITS, ARE TO BE DETERMINED. EXPORT PROFIT 'SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE'. AS PER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC [APPEARING BELOW SUB - SECTION 4(C)], 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAI NS OF BUSINESS OR PROFESSION' ........'. THEREFORE, THERE CAN BE NO DISPUTE OVER THE FACT THAT PROFITS OF THE BUSINESS UNDER SECTION 80HHC WILL HAVE TO BE COMPUTED IN THE MANNER OF COMPUTATION PROVIDED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROF ESSION'. SECTION 28 DEALS WITH 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SECTION 29 PRESCRIBES THE MANNER IN WHICH THE ABOVE 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' ARE TO BE COMPUTED. IT HAS BEEN STATED THAT THE COMPUTATION HAS TO BE MADE IN AC CORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTION 32 FORMS PART OF THESE PROVISIONS. AS PER SECTION 32(2), THE UNABSORBED DEPRECIATION ALLOWANCE OF ANY PREVIOUS YEAR SHALL, TO THE EXTENT TO WHICH IT CANNOT BE SET OFF IN THE SAID PREVIOU S YEAR, 'BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS'. IT IS THUS EVIDENT THAT UNABSORBED DEPRECIATION BECOMES PART OF THE CURRENT YEAR'S DEPRECIATION AND ACCORDINGLY COMES INTO THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION AS PRESCRIBED IN SECTION 29. I N THE CIRCUMSTANCES, THE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED IN COMPUTING THE 'PROFITS OF THE BUSINESS' OF THE APPELLANT, FOR THE PURPOSE OF ARRIVING AT THE ADMISSIBLE DEDUCTION UNDER SECTION 80HHC, AFTER SETTING OFF THE UNABSORBED DEPRECIATION OF TH E MERGED ENTITY. THE ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 49 RECOMPUTATION THUS MADE IS ACCORDINGLY CONFIRMED; AND THE GROUND RAISED BY THE APPELLANT IS HEREBY DISMISSED. 85. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 86. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POIN TED OUT THAT TITEX INDIA PVT. LTD. GOT AMALGAMATED WITH THE ASSESSEE COMPANY W.E.F. 01.01.2001 AND THE ISSUE WAS IN RESPECT OF UNABSORBED DEPRECIATION AVAILABLE IN THE HANDS OF SAID ENTITY RELATING TO EARLIER YEARS. THE LEARNED AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE REFERRED TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. SHIRKE CONSTRUCTION EQUIPMENT LTD. (2007) 291 ITR 380 (SC), WHEREIN IT WAS HELD THAT FOR CLAIMING THE DEDUCTION FROM EXPORT BUSINESS, SECTION 80AB OF THE ACT PROVIDES T HAT PROFITS ARE TO BE COMPUTED IN ACCORDANCE WITH PROVISIONS OF THE ACT AND UNABSORBED BUSINESS LOSSES OF EARLIER YEARS ARE TO BE SET OFF. HOWEVER, IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT WHEN THERE IS AMA LGAMATION WITH ANOTHER COMPANY, HOW CAN LOSSES OF THE COMPANY FOR EARLIER YEARS BE CONSIDERED FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT? 87. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 88. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.5 IS ALSO CONNECTED WITH THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF ASSESSING O FFICER IN COMPUTING PROFITS OF BUSINESS WHICH ARE ELIGIBLE FOR ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 50 CLAIMING DEDUCTION UNDER SECTION 80HHC OF THE ACT AFTER SETTING OFF OF UNABSORBED DEPRECIATION OF EARLIER YEARS OF AMALGAMATED COMPANY TITEX INDIA PVT. LTD. THE AMALGAMATION OF THE SAID COMPAN Y WAS ON 01.01.2001 I.E. DURING THE FINANCIAL YEAR ENDING 31.03.2001 AND AFTER AMALGAMATION, PROFITS AND LOSSES OF THE SAID COMPANY GETS MERGED WITH THE PROFITS AND LOSSES OF THE ASSESSEE BEFORE US. ALL THE ASSETS WE RE TAKEN OVER ALSO GET AMALGAMATED. TH E SAID CONCERN HAD CARRIED FORWARD UNABSORBED DEPRECIATION RELATING TO EARLIER YEARS AND AFTER AMALGAMATION, THE ASSESSEE WA S ENTITLED TO CLAIM SET OFF OF SUCH UNABSORBED LOSSES OF TITEX INDIA PVT. LTD., AGAINST ITS OWN BUSINESS PROFITS. ONCE SUCH A CLAIM IS ALLOWABLE IN THE HANDS OF ASSESSEE, THEN THE PROFITS OF ASSESSEE STAND REDUCED ON ACCOUNT OF CLAIM OF UNABSORBED DEPRECIATION. IN ORDER TO WORK OUT THE DEDUCTION UNDER SECTION 80HHC OF THE ACT, SUCH REDUCED PROFITS AFTER SET OFF OF UNABSORBED DEPRECIA TION OF TITEX INDIA PVT. LTD. ARE TO BE CONSIDERED FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. ADMITTEDLY, THE SAID LOSSES RELATE TO AMALGAMATED COMPANY. HOWEVER, UNABSORBED DEPRECIATION BECOMES PART OF CURRENT DEPRECIATION OF THE ASSESSEE CO MPANY AFTER AMALGAMATION AND HENCE, THE PROFITS ARE TO BE RE - COMPUTED AND THE PROFITS AS COMPUTED UNDER THE PROVISIONS OF SECTIONS 28 AND 29 OF THE ACT ARE THE ELIGIBLE PROFITS TO BE CONSIDERED WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE HONBLE SUPREME COURT IN CIT VS. SHIRKE CONSTRUCTION EQUIPMENT LTD. (SUPRA) HAD HELD THAT WHILE DETERMINING THE BUSINESS PROFITS FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, UNABSORBED BUSINESS LOSSES OF EARLIER YEARS UNDER SECTION 72 OF THE ACT SHOULD B E SET OFF. ACCORDINGLY, WE HOLD SO AND THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, DISMISSED. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 51 89. THE ISSUE IN GROUND OF APPEAL NO.6 IS TREATMENT OF SCRAP SALES IN THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 90. THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT THE SAID SCRAP SALE WAS NOT INCLUDABLE IN THE EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. BOTH THE AUTHORITIES BELOW WERE OF THE VIEW THAT THE PROCEEDS R EALIZED ON THE SALE OF SCRAP WERE RECEIVED AND WERE NOT LEVIES AS WAS CASE WITH SALES TAX AND EXCISE DUTIES. ACCORDINGLY, INCLUSION OF SCRAP SALE OF RS.1,44,20,000/ - IN TOTAL TURNOVER WAS MADE, WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. 91. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS IN CIT VS. ASHOK LEYLAND LTD. (2008) 297 ITR 107 (MAD) FOR THE PROPOSITION THAT SCRAP SALE IS NOT TO BE INCLUDED IN THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT . 92. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE . W HILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT SINCE THE ASSESSEE HAS NOT SHOWN EXPORT OF SCRAP AS SUCH, SCRAP SALES WOULD NOT FORM PART OF TOTAL TURNOVER, WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. HENCE, THE SCRAP SALE IS EXCLUDABLE FROM BOTH THE EXPORT AND TOTAL TURNOVER FOR CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT. ACCORDINGLY, WE DIRECT SO. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS ALLOWED. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 52 93. THE NEXT ISSUE VIDE GROUND OF APPEAL NO.7 IS SETTING OFF OF LOSS FROM EXPORT OF TR ADING GOODS AGAINST PROFITS FROM EXPORT OF MANUFACTURED GOODS WHIL E COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 94. THIS ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN IPCA LABORATORIES LTD. VS. DCIT REPORTED IN 266 ITR 521 (SC) , WHEREIN IT HAS BEEN HELD THAT BEF ORE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT, LOSSES FROM TRADING ACTIVITY ARE TO BE ADJUSTED AGAINST PROFITS, IF ANY, OF THE MANUFACTURED GOODS AND THEN BALANCE PROFITS ARE ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 80HHC OF THE ACT . WE HOLD SO AND GROUND OF APPEAL NO.7 IS THUS, DISMISSED. 95. THE ISSUE IN GROUND OF APPEAL NO.8 I.E. REDUCTION OF 90% OF GROSS RECEIPTS OF INTEREST, RENT AND COMMISSION IS TO BE REDUCED WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 96. THIS ISSUE IS IDENTICAL TO THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IN ITA NO.112/PN/2006 AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE DEDUCTION UNDER SECTION 80HHC OF THE ACT IN LINE WITH OUR DIRECTIONS IN RESPECT O F GROUND OF APPEAL NO. 5 IN ASSESSMENT YEAR 2000 - 01 . THE GROUND OF APPEAL NO.8 IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 97. THE ISSUE IN GROUND OF APPEAL NO.9 I.E. DISALLOWANCE OF SET OFF OF INTEREST PAID AGAINST INTEREST RECEIVED IS ALSO SIMILAR TO THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IN ITA NO.112/PN/2006 AND FOLLOWING THE SAME, WE HOLD THAT ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 53 THIS ISSUE IS AGAINST THE ASSESSEE AND GROUND OF APPEAL NO.9 RAISED BY THE ASSESSEE IS DISMISSED. 98. NOW, COMING TO THE ISSUE IN GROUND OF APPEAL NO. 10 I.E. LEVY OF INTEREST UNDER SECTION 234D OF THE ACT . 99. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE ISSUE RAISED VIDE GROUND OF APPEAL NO.10 IS AGAINST THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE B OMBAY HIGH COURT IN CIT VS. INDIAN OIL CORPORATION LTD. (2012) 254 CTR 113 (BOM) . 100. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDIAN OIL CORPORATION LTD. (SUPRA) HAD HELD THAT CONSEQUENT TO ADDITION OF EXPLANATION 2 TO SECTION 234D BY THE F INANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.06.2003 , SECTION 234D OF THE ACT WAS APPLICABLE EVEN TO PERIOD PRIOR TO ASSESSMENT YEAR 2004 - 05 . W HERE THE ASSESSING OFFICER HAD GRANTED REFUND TO THE ASSESSEE UNDER SECTION 143(1) OF THE ACT AND SUBSEQUE NTLY REGULAR ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) OF THE ACT AND TAX DEMAND WAS RAISED UPON THE ASSESSEE, THEN THE ASSESSEE WAS LIABLE TO PAY INTEREST UNDER SECTION 234D OF THE ACT ON EXCESS REFUND GRANTED TO IT. APPLYING THE SAID RATIO, WE UP HOLD THE ORDER OF CIT(A) IN THIS REGARD , THOUGH INTEREST UNDER SECTION 234D OF THE ACT IS TO BE CHARGED FROM 01.06.2003 TO TILL THE DATE OF ASSESSMENT ORDER AND GROUND OF APPEAL NO.10 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 101. THE ISSUE IN GROUND OF APPEAL NO.11 IS WHETHER INTEREST UNDER SECTION 244A OF THE ACT OF RS.4,02,663/ - RECEIVED FOR ASSESSMENT YEAR 1999 - 2000 IS TO ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 54 BE ASSESSED IN ASSESSMENT YEAR 1999 - 2000 ITSELF AS THE ASSESSMENT PROCEEDINGS FOR THE YEAR WERE IN PROGRESS. 102. THE CLAIM OF T HE ASSESSEE BEFORE US WAS THAT IN CASE PURSUANT TO ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT, THE INTEREST UNDER SECTION 244A OF THE ACT IS REDUCED, THEN ONLY THE REDUCED AMOUNT WOULD FORM PART OF INCOME OF THAT YEAR. THE CIT(A) VIDE PARA 21.2 NOTES THAT THE REFUND TO WHICH THE IMPUGNED INTEREST PERTAINS HAD BEEN DETERMINED ON PROCESSING THE ASSESSEES RETURN OF INCOME FOR THE ASSESSMENT YEAR 1999 - 2000 UNDER SECTION 14 3(3) OF THE ACT ON 26.06.2000 AFTER ADJUSTING THE SAID REFUND INCLUDING INTERE ST UNDER SECTION 244A OF THE ACT AGAINST OUTSTANDING DEMAND FOR ASSESSMENT YEAR 1997 - 98. THE ASSESSING OFFICER ISSUED BALANCE REFUND ALONG WITH REFUND FOR ASSESSMENT YEAR 1995 - 96 AND 1998 - 99 ON 30.06.2000. THE INTEREST IN QUESTION WAS GRANTED TO THE ASSE SSEE DURING THE YEAR ENDING 31.03.2001 RELATING TO ASSESSMENT YEAR 2001 - 02 . THE ASSESSING OFFICER HAD WHILE ASSESSING THE INTEREST INCOME FOR ASSESSMENT YEAR 2001 - 02 TREATED THE SAME AS INCOME FROM OTHER SOURCES AND IT IS NOT THE CASE OF ASSESSEE THAT IT HAD NOT RECEIVED THE SAID INTEREST. HENCE, THE ADDITION MADE ON THIS COUNT WAS UPHELD BY CIT(A). THE ASSESSING OFFICER HAD NOTED THAT PURSUANT TO INTIMATION UNDER SECTION 143(1) OF THE ACT, THE ASSESSEE HAD RECEIVED INTEREST UNDER SECTION 244A OF THE ACT AT RS.4,02,663/ - IN RESPECT OF ASSESSMENT YEAR 1999 - 2000 . SINCE THE ASSESSMENT PROCEEDINGS FOR THE SAID YEAR WERE IN PROGRESS AND THE ASSESSEE HAD NOT OFFERED THE SAID INCOME FOR TAXATION, THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT PROCEEDINGS UND ER SECTION 143(3) OF THE ACT, INCLUDED INTEREST UNDER SECTION 244A OF THE ACT OF RS. 4,02,663/ - AS INCOME ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 55 UNDER THE HEAD INCOME FROM OTHER SOURCES RELATING TO ASSESSMENT YEAR 2001 - 02 . 103. WE FIND NO MERIT IN THE GROUND OF APPEAL RAISED BY THE ASSESSEE . THE INTEREST WAS COMPUTED BY THE ASSESSING OFFICER ON 30.06.2000 AND CONSEQUENTLY, THE SAME IS INCLUDABLE IN THE HANDS OF ASSESSEE IN THE YEAR ENDING 31.03.2001, WHICH HAS BEEN SO INCLUDED BY THE AUTHORITIES BELOW. FURTHER, THERE IS NO MERIT IN THE PLE A RAISED BY THE ASSESSEE THAT ONLY INTEREST AS FINALLY DETERMINED COULD BE ASSESSED IN THE HANDS OF ASSESSEE. THE GROUND OF APPEAL NO.11 IS THUS, DISMISSED. 104. NOW, COMING TO ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE, WHICH ARE ADMITTED BEING LEGAL ISSUE S AS ADMITTED IN THE EARLIER YEARS. 105. THE ADDITIONAL GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSEE ARE IDENTICAL TO THE ADDITIONAL GROUNDS OF APPEAL NO.1 AND 2 RAISED IN ASSESSMENT YEAR 1999 - 2000 AND 2000 - 01 AND FOLLOWING OUR DECISION IN THE PARAS HEREINABOVE, WE ALLOW THE ADDITIONAL GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSEE. 106. THE ASSESSEE IN THE PRESENT APPEAL HAS RAISED ANOTHER ADDITIONAL GROUND OF APPEAL NO.3 WITH REGARD TO ADVANC ES WRITTEN OFF AT RS.21 LAKHS AND THE ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) IN NOT DISPOSING OFF THE SAID GROUND OF APPEAL NO.2. ITA NO S . 1439 & 1468 /PN/20 0 4 ITA NOS.112 & 113/PN/2006 S ANDVIK ASIA LTD. 56 107. WE HOLD THAT SINCE SOME OF ISSUES ARE SENT BACK TO THE FILE OF ASSESSING OFFICER FOR GIVING EFFECT TO OUR DIRECTIO NS, WE ALSO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 108 . IN THE RESULT, APPEALS OF THE ASSESSEE RELATING TO ASSESSMENT YEARS 1999 - 2 000, 2000 - 01 AND 2001 - 02 ARE PARTLY ALLOWED AND THE APPEAL OF REVENUE RELATING TO ASSESSMENT YEAR 1999 - 2000 IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF MARCH , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH MARCH , 201 6 . / PUNE ; DATED : 30 MARCH , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPEL LANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - III , PUNE ; 4. / THE CIT - IV, CIT - V , PUNE ; 5. , , / DR A , ITAT, PUNE; / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE