Thermax Ltd., Pune V. ACIT,-Range-8,, Pune

ITA 1248/PUN/2005

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93832 (ITAT-PUNE)
• Duration Of Justice: 10 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-03-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 17-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: AVINASH AMLE; H P MAHAJANI SHRI BHAVE
• Keywords: Business income; Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 37(1); 194C; 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE: SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO S. 1247 & 1248 /PN/20 05 ASSESSMENT YEAR S : 20 0 0 - 0 1 & 200 1 - 0 2 THERMAX LIMITED, THERMAX HOUSE, 4 BOMBAY PUNE ROAD, SHIVAJINAGAR, PUNE 411005. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. (APPELLANT) (RESPONDENT) PAN NO. AAACT3910D ITA NOS. 1290 & 1291 /PN/20 05 ASSESSMENT YEARS : 200 0 - 0 1 & 200 1 - 0 2 ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. VS. THERMAX LIMITED, THERMAX HOUSE, 4 BOMBAY PUNE ROAD, SHIVAJINAGAR, PUNE 411005. (APPELLANT) (RESPONDENT) PAN NO. AAACT3910D ITA NO. 574 /PN/20 07 ASSESSMENT YEAR : 200 1 - 0 2 THERMAX LIMITED, THERMAX HOUSE, 4 BOMBAY PUNE ROAD, SHIVAJINAGAR, PUNE 411005. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. (APPELLANT) (RESPONDENT) PAN NO. AAACT3910D ASSESSEE BY: SHRI H.P. MAHAJANI, SHRI BHAVE & SHRI AVINASH AMLE REVENUE BY: SMT. M. S. VERMA, CIT DATE OF HEARING : 08-06-2015 DATE OF PRONOUNCEMENT : 30-06-2015 ORDER PER VIKAS AWASTHY, JM : THESE ARE FIVE SET OF APPEALS AGAINST THE ORDER OF COMMIS SIONER OF INCOME TAX (APPEALS)-III, PUNE FOR THE ASSESSMENT YEARS 2000-01 AND 2 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 2001-02. THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE AND TWO APPEALS ARE BY THE REVENUE. ITA NO.1247/PN/2005 HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS) DATED 17.02.2005 FOR THE ASSESSMENT YEAR 2000- 01 PASSED UNDER SECTION 143(3) OF THE ACT. THE REVENUE HAS FILED CR OSS APPEAL IN ITA NO.1290/PN/2005. THE ASSESSEE HAS FILED APPEAL IN IT A NO.1248/PN/2005 AGAINST THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS) DATED 17.02.2005 FOR THE ASSESSMENT YEAR 2001 -02 PASSED UNDER SECTION 143(3) OF THE ACT. THE REVENUE HAS FILED CR OSS APPEAL IN ITA NO.1291/PN/2005. IN ITA NO.574/PN/2007, THE ASSE SSEE HAS IMPUGNED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 18.01.2007 FOR THE ASSESSMENT YEAR 2001-02 PASSED UNDE R SECTION 143(3) R.W.S. 147 OF THE ACT. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALE OF STEAM BO ILERS, WATER EXCHANGERS, WATER TREATMENT PLANT, WATER TREATMENT RE SINS, WATER TREATMENT CHEMICALS, CARBON AND METAL FILM RESISTORS, RELATE D ACCESSORIES AND TREASURY OPERATIONS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2000-01 ON 30.11.2000 DECLARING TOTAL IN COME OF RS.14,88,97,010/-. IN ASSESSMENT YEAR 2001-02, THE ASSES SEE FILED ITS RETURN OF INCOME ON 31.10.2001 DECLARING TOTAL INCOME OF RS.8,20,84,180/-. THE RETURN OF INCOME FOR BOTH THE IMPUGNE D ASSESSMENT YEARS WAS SUBJECT TO SCRUTINY ASSESSMENT. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCES IN THE INCOME RETURNED BY THE ASSE SSEE INTER ALIA, ON ACCOUNT OF : 3 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 (I) DEDUCTION UNDER SECTION 35AB FOR PAYMENT OF TECHNICAL KNOW-HOW FEES; (II) PROVISION FOR WARRANTY; (III) AMORTIZATION OF PREMIUM PAID ON LEASE-HOLD LAND; (IV) PROVISION FOR MEDICAL EXPENSES; (V) RETENTION MONEY; (VI) EXPENDITURE ON PURCHASE OF COMPUTER SOFTWARE; (VII) DEPRECIATION CLAIM @ 100% ON PLANT AND MACHINERY; (VIII) EXPENDITURE ON EARNING TAX-FREE INCOME; (IX) LEASE RENTAL INCOME; (X) CLAIM OF DEDUCTION UNDER SECTION 80HHC; AND, (XI) CLAIM OF DEDUCTION UNDER SECTION 80IA. AGGRIEVED BY THE ASSESSMENT ORDERS IN THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE FILED APPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 3. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE SEPARATE IMPUGNED ORDER FOR ASSESSMENT YEAR 2000-01 AND ASSESS MENT YEAR 2001-02 BOTH DATED 17.02.2005 PARTLY ACCEPTED THE APP EALS OF THE ASSESSEE. AGAINST THE FINDINGS OF THE FIRST APPELLATE AUTH ORITY, BOTH, THE ASSESSEE AND THE REVENUE HAVE COME IN APPEAL BEFORE THE TRIBUNA L. 4. SHRI H.P. MAHAJANI APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED AT THE OUTSET THAT IN BOTH THE ASSESSMENT YEARS I.E. 20 00-01 AND 2001-02 MAJORITY OF THE ISSUES INVOLVED ARE SIMILAR. THE L D. AR OF THE ASSESSEE POINTED OUT THAT MOST OF THE ISSUES RAISED IN T HESE APPEALS ARE ALREADY ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN C ASE IN ITA NO.1245/PN/2005 FOR ASSESSMENT YEAR 1998-99 AND ITA 4 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 NO.1246/PN/2005 FOR THE ASSESSMENT YEAR 1999-2000 VIDE ORDER DATED 15.12.2014. THE LD. DR AGREED WITH THE STATEMENT OF THE LD. AR. 5. SINCE, THE ISSUES RAISED IN THE APPEALS FOR THE ASSESSM ENT YEARS 2000-01 AND 2001-02 ARE COMMON, ALL THE FOUR APPEALS (ITA NOS. 1247, 1248, 1290 & 1291/PN/2005) ARE TAKEN UP TOGETHER FOR A DJUDICATION. THE LD. AR OF THE ASSESSEE HAS PLACED ON RECORD A COPY OF ORDER OF THE TRIBUNAL DATED 15.12.2014 IN ASSESSEES OWN CASE IN ITA NO.1245/PN/2005 AND ITA NO.1246/PN/2005. 6. THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2 000-01 HAS ASSAILED THE FINDINGS OF THE CIT(A) ON FOLLOWING SEVEN GROUNDS :- (I) DISALLOWANCE OF PROVISION FOR WARRANTY OBLIGATION. (II) AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND. (III) DISALLOWANCE OF PROVISION FOR PROFIT EQUALIZATIO NS IN TERMS OF AS-7. (IV) DISALLOWANCE OF EXPENDITURE ON COMPUTER SOFTWARE. (V) DISALLOWANCE OF CLAIM OF DEPRECIATION @ 100% ON PLA NT AND MACHINERY INSTALLED IN PLANT NO.11. (VI) DISALLOWANCE OF EXPENDITURE IN EARNING TAX FREE INCO ME. (VII) ADDITION ON ACCOUNT OF LEASE RENTAL INCOME. 6.1 THE REVENUE IN ITS APPEAL FOR THE SAME ASSESSMENT Y EAR HAS RAISED SIX GROUNDS. IN THE APPEAL OF THE REVENUE GROUND NOS.5 AND 6 ARE GENERAL IN NATURE, THEREFORE, THEY DO NOT REQUIRE ANY ADJ UDICATION. THE GROUND NOS.1 TO 4 IN REVENUES APPEAL ARE AS UNDER :- (I) PROVISION MADE IN ACCORDANCE WITH AS-7 (SAME AS G ROUND NO.III OF ASSESSEES APPEAL). 5 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 (II) CLAIM OF DEPRECIATION @ 100% ALLOWED ON CERTAIN IT EMS OF PLANT (COUNTER TO GROUND NO.V OF ASSESSEES APPEAL). (III) DEDUCTION ALLOWED UNDER SECTION 80IA. (IV) LEASE RENTALS ALLOWED AS BAD DEBTS (COUNTER TO GRO UND NO.VII OF ASSESSEES APPEAL). 7. THE FIRST GROUND IN THE APPEAL OF ASSESSEE IS PROVISION O F WARRANTY. THE ASSESSEE IS PROVIDING WARRANTY FOR A PERIOD OF ONE TO TWO YEARS ON THE PRODUCTS MANUFACTURED BY IT. THE ASSESSEE IS UNDER OBLIGATION TO REPLACE OR REPAIR THE PRODUCT FREE OF COST AGAINST MANUFA CTURING DEFECTS. THE ASSESSEE CREATED PROVISION FOR WARRANTY TO MEET TH ESE REPAIR/REPLACEMENT EXPENDITURE. THE ASSESSING OFFICER DISALL OWED THE SAME BY FOLLOWING THE ORDER OF CIT(A) IN THE EARLIER ASSESSMENT YEARS . 7.1. THE LD. AR OF THE ASSESSEE POINTED OUT THAT IN ASSES SMENT YEAR 1998-99 SIMILAR GROUND WAS RAISED BY THE ASSESSEE. THE CO-ORDINATE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 7.2. AFTER PERUSAL OF THE ORDER OF CO-ORDINATE BENCH DATED 15.12.2014 IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99 A ND 1999-2000 WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSE SSEE. THE FINDINGS OF THE CO-ORDINATE BENCH ON THE ISSUE ARE AS UNDER :- 12. IN THIS CONTEXT, RELEVANT FACTS ARE THAT THE A SSESSEE MADE A PROVISION OF RS.3,45,59,744/- ON ACCOUNT OF PROVISI ON FOR WARRANTY WITH RESPECT TO THE PRODUCTS SOLD. CONSIDERING THE OPEN ING BALANCE OF PROVISION OF RS.2,95,97,441/- THE DIFFERENTIAL AMOUNT OF PROV ISION AMOUNTING TO RS.49,62,303/- WAS DEBITED TO THE PROFIT & LOSS ACC OUNT OF THE YEAR UNDER CONSIDERATION. THE SAID PROVISION WAS MADE BY THE ASSESSEE ON ACCOUNT OF THE FACT THAT IT IS UNDER AN OBLIGATION TO PROVI DE WARRANTY FOR A PERIOD OF ONE TO TWO YEARS ON THE PRODUCTS SOLD BY IT ON ACCO UNT OF ANY MANUFACTURING DEFECT FOUND LATER. IN SUCH A SITUAT ION, ASSESSEE WAS OBLIGED TO REPLACE THE PRODUCT OR REPAIR THE PRODUC T FREE OF COST DURING THE PERIOD OF WARRANTY. THE ASSESSING OFFICER AS WELL AS THE CIT(A) 6 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 DISALLOWED THE DEDUCTION ON THE GROUND THAT THE PRO VISION FOR WARRANTY WAS ONLY A CONTINGENT LIABILITY. THIS STAND OF THE INCOME-TAX AUTHORITIES IS SIMILAR TO THEIR STAND IN THE ASSESSEES OWN CASE I N THE EARLIER ASSESSMENT YEARS. 13. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT IN THE PAST YEARS THE SAID ISSUE HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE. IN-PARTICULAR, A REFERENCE WAS MADE TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 1997-98 VIDE ITA NO.970/PN/2001 DATED 03.09.2014 WHEREIN THE EAR LIER DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 1994-95 AND 1995-96 WAS FOLLOWED AND ISSUE WAS ALLOWED IN FAVOU R OF THE ASSESSEE. FOLLOWING THE AFORESAID PRECEDENTS, WHICH CONTINUE TO HOLD THE FIELD, WE DIRECT THE ASSESSING OFFICER TO GIVE EFFECT TO THE AFORESAID PRECEDENTS, AND THE ASSESSEE ACCORDINGLY SUCCEEDS ON THIS GROUND. SINCE THERE HAS BEEN NO CHANGE IN THE FACTS AND CIRCUM STANCES IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WE RESPECTFULLY FOLLOW THE DECISION OF THE CO-ORDINATE BENCH. THIS GROUND OF APPEAL IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE IN THE SAME TERMS. 8. THE GROUND NO.2 RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND. THE ASSE SSEE HAS DEBITED THE AMORTIZATION PREMIUM PAID ON LEASEHOLD LAND TO MISCELLANEOUS EXPENSES ACCOUNT. THE ASSESSEE CLAIMED THE EXPENDITURE AS REVENUE BY PLACING RELIANCE ON THE JUDGEMENT OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. H.M.T. LIMITED REPORTED A S 203 ITR 820. THE ASSESSING OFFICER DISALLOWED THE AMORTIZATION PREMIU M PAID ON LEASEHOLD LAND BY FOLLOWING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ASSESSMENT YEAR 1993-94. IN APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. 8.1 THE LD. AR OF THE ASSESSEE FAIRLY SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN ASSESSMENT YEARS 1998-99 AND 1999-2000 BY THE TRIBUNAL. WE OBSERVE THAT THIS ISSUE H AS BEEN 7 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 CONSIDERED BY THE CO-ORDINATE BENCH IN ASSESSMENT YEAR S 1998-99 AND 1999-2000 AND HAS DECIDED THE SAME AGAINST THE ASSESS EE WITH THE FOLLOWING OBSERVATIONS :- 15. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR TH E ASSESSEE CONCEDED THAT SIMILAR ISSUE HAS BEEN DECIDED AGAINST THE ASSE SSEE BY THE TRIBUNAL IN THE PAST YEARS AND IN THIS CONTEXT REFERRED TO T HE RECENT ORDER OF THE TRIBUNAL DATED 03.09.2014 (SUPRA) PERTAINING TO ASS ESSMENT YEAR 1997- 98. IT WAS ALSO AN ACCEPTED POSITION THAT THE ISSU E REGARDING ASSESSEES CLAIM FOR DEDUCTION OF PROPORTIONATE PREMIUM OF LEAS EHOLD LAND AMORTIZED AND CHARGED TO THE PROFIT & LOSS ACCOUNT FOR THE YE AR UNDER CONSIDERATION IS LIABLE TO BE DECIDED IN TERMS OF THE JUDGEMENT O F THE HONBLE SUPREME COURT IN THE CASE OF GOVIND SUGAR MILLS LTD. VS. CI T, (1998) 232 ITR 319 (SC) AGAINST THE ASSESSEE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE UPHELD AND ASSESSEE FAILS. ACCORDINGLY, GROUND NO. 2 IN THE APPEAL OF ASSESSEE IS DISMISSED. 9. THE THIRD GROUND RAISED BY THE ASSESSEE IN APPEAL RELA TES TO INCOME RECOGNITION FROM CONTRACT IN ACCORDANCE WITH ACCOU NTING STANDARD 7 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS O F INDIA (ICAI). THE REVENUE IN CROSS APPEAL FOR ASSESSMENT YEAR 2000-01 HA S ALSO RAISED THIS ISSUE AS GROUND NO.1. THE ASSESSEE IS MANUFACTURING BOILERS AND HEAT TRANSFER EQUIPMENTS ON CONTRACT BASIS. THESE CONT RACTS ARE SPREAD OVER A PERIOD OF MORE THAN ONE YEAR. THE ASSESSEE IS R ECOGNIZING INCOME OF THE PROJECTS, ON PROJECT COMPLETION METHOD. THE ASSE SSEE RAISES INVOICE ON THE CLIENT AS PER SCHEDULE OF PAYMENTS. THE BILL S RAISED ARE ALWAYS MORE THAN THE REVENUE THAT SHOULD BE RECOGNIZE D ON THE BASIS OF PROJECT COMPLETION METHOD. THE ADJUSTMENT IS REQUIRED T O BE MADE TO ADJUST EXCESS BILLING. THE ADJUSTMENT IS MADE IN ACCORDAN CE WITH AS 7 BY CREATING A PROVISION CONTRIBUTION EQUALIZATION PROVISION . THE ASSESSING OFFICER REJECTED THIS METHOD OF MAKING ADJUSTMEN T BY THE ASSESSEE. IN THE FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) PARTLY ACCEPTED THE CLAIM OF THE ASSESSEE. AGAINST THE FINDING OF THE 8 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 COMMISSIONER OF INCOME TAX (APPEALS), BOTH, THE ASSESSEE A ND THE REVENUE HAVE COME IN APPEAL. 9.1 WE OBSERVE THAT SIMILAR ISSUE HAD COME UP IN THE APP EAL OF THE ASSESSEE AND THE REVENUE FOR ASSESSMENT YEARS 1998-9 9 AND 1999- 2000. THE CO-ORDINATE BENCH DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIB UNAL READS AS UNDER :- 22. ON THIS ASPECT, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT IN ASSESSMENT YEAR 1997-98, THE TRIBUNAL VIDE ITS ORDE R DATED 03.09.2014 (SUPRA) IN THE ASSESSEES OWN CASE HAS UPHELD THE S TAND OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL ON A SIMILAR ISSUE IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. VS. DCIT VIDE ITA NOS.157 & 158/PN/1995 DATED 11.05.2001 FOR ASSESSME NT YEARS 1990- 91 & 1991-92. THE TRIBUNAL IN ITS ORDER DATED 03.0 9.2014 (SUPRA) NOTED THAT IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. ( SUPRA) WHICH WAS A GROUP COMPANY OF THE ASSESSEE, THE TRIBUNAL UPHELD THE ALLOWABILITY OF PROVISION FOR PROFIT EQUALIZATION WHILE RECOGNIZING INCOMES ON APPLICATION OF PERCENTAGE OF COMPLETION METHOD IN THE CASE OF LONG TERM CONTRACTS IN THE LIGHT OF THE AS-7 ISSUED BY THE ICAI . IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE PRECEDING ASSESSM ENT YEAR, WE DO NOT DEAL WITH THE ISSUE ANY FURTHER EXCEPT DIRECTING TH E ASSESSING OFFICER TO IMPLEMENT THE ORDER OF THE TRIBUNAL DATED 03.09.201 4 (SUPRA) ON THIS GROUND TOO. AS A CONSEQUENCE, WHEREAS GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED THAT OF THE REVENUE IS DISMISSED. THERE HAS BEEN NO CHANGE IN THE FACTS AND CIRCUMSTANC ES IN THE PRESENT YEAR, NOR THERE IS ANY CHANGE IN THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE. WE DO NOT FIND ANY REASON TO DEVIATE FROM THE VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSMENT YEARS 19 98-99 AND 1999-2000. ACCORDINGLY, THIS GROUND IN THE APPEAL OF THE ASSESSEE IS ACCEPTED AND THE GROUND RAISED BY THE REVENUE IN ITS A PPEAL IS DISMISSED. 10. THE FOURTH GROUND RAISED BY THE ASSESSEE IN APPEAL IS EXPENDITURE ON COMPUTER SOFTWARE. THE ASSESSEE DURING THE RELEVANT ASSESSMENT 9 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 PERIOD HAD PURCHASED LICENSE TO USE COMPUTER SOFTWARES LIKE, WINDOWS 95, AUTOCAD, MS OFFICE, FOXPRO, ETC.. THE ASSESSEE TREATED THE EXPENDITURE TOWARDS PURCHASE OF COMPUTER SOFTWARE AS R EVENUE IN NATURE. THE ASSESSING OFFICER HELD THE SAME TO BE CAPITAL EXPENDITURE. IN THE FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS ) CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. 10.1 THE LD. AR OF THE ASSESSEE POINTED OUT THAT AN ID ENTICAL ISSUE WAS RAISED IN THE APPEALS FOR ASSESSMENT YEARS 1998-99 AND 1999-2000 BY THE ASSESSEE, AS WELL AS, THE REVENUE. THE CO-ORDINATE BENCH DISMISSED THIS GROUND RAISED IN THE APPEALS OF BOTH THE PARTIES. 10.2 A PERUSAL OF THE ORDER OF THE CO-ORDINATE BENCH IN A SSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99 AND 1999-2000 SHOW S THAT THE TRIBUNAL FOLLOWED THE JUDGEMENT OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. RAYCHEM RPG. LTD. REPORTED AS 346 I TR 138 (BOM.) AND REJECTED THE GROUND RAISED BY THE ASSESSEE, AS WE LL AS, THE REVENUE BY OBSERVING AS UNDER :- 30. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN OUR CONSIDERED OPINION, THE ISSUE REGARDING THE NATURE OF THE EXPENDITURE INCURRED ON ACCOUNT OF ACQUISITION OF SOFTWARE IS L IABLE TO BE DECIDED IN TERMS OF THE RATIO OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RAYCHEM RPG. LTD., 346 ITR 138 (BOM.). THE HONBLE BOMBAY HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL WHEREBY THE EXPENDITURE INCURRED ON ACQUISITION OF SOFTWARE WHI CH DID NOT FORM PART OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE WAS TRE ATED AS A REVENUE EXPENDITURE. IN THE SAID CONTEXT, IT IS TO BE NOTE D THAT THE CIT(A) HAS GIVEN A FINDING THAT EXPENDITURE OF RS.22,16,107/- WAS IN CURRED ON ACQUISITION OF SOFTWARE CONNECTED WITH THE MANUFACTURING OPERAT IONS OF THE ASSESSEE. SUCH SOFTWARES HAVE BEEN IDENTIFIED AS AUTOCAD, PRO JECT MANAGEMENT SOFTWARE, DESIGNING SOFTWARE, ETC.. THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURING OF BOILERS AND HEAT TRANSFER EQUIPMEN T AND THEREFORE THE AFORESAID SOFTWARES FORM PART OF ITS PROFITS MAKING APPARATUS AND THUS IT IS LIABLE TO BE CONSIDERED AS CAPITAL EXPENDITURE I N VIEW OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RAY CHEM RPG. LTD. (SUPRA). THEREFORE, ASSESSEES GRIEVANCE AGAINST T HE DECISION OF THE CIT(A) 10 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 IN SUSTAINING THE ADDITION OF RS.22,16,107/- IS UNJ USTIFIED HAVING REGARD TO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF RAYCHEM RPG. LTD. (SUPRA). FURTHER, THE CIT(A) HAS RECORDE D A FINDING THAT EXPENDITURE TO THE EXTENT OF RS.17,97,051/- HAS BEE N INCURRED ON ACQUISITION OF ROUTINE STANDARD SOFTWARES SUCH AS W INDOWS 95, MS OFFICE, ETC. WHICH ARE REVENUE IN NATURE. OSTENSIBLY, ASSE SSEES BUSINESS IS OF MANUFACTURING OF BOILERS AND OTHER HEAT TRANSFER EQ UIPMENT AND THE AFORESAID SOFTWARES MERELY FACILITATE ASSESSEES TR ADING OPERATIONS AND/OR ENABLE CONDUCT OF ITS BUSINESS MORE EFFICIENTLY AND THE SAME ARE NOT IN THE NATURE OF THE PROFIT-MAKING APPARATUS OF THE ASSESS EE COMPANY. THEREFORE, IN OUR VIEW, THE CIT(A) MADE NO MISTAKE IN TREATING THE EXPENDITURE OF RS.17,97,051/- INCURRED ON ACQUISITI ON OF ROUTINE STANDARD SOFTWARE AS A REVENUE EXPENDITURE. MOREOVER, THE S AID DECISION OF THE CIT(A) IS IN LINE WITH THE RATIO OF THE JUDGEMENT O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RPG. LTD. (SUPRA) . IN THE RESULT, THE GROUND OF APPEAL NO.7 OF THE ASSESSEE AS WELL AS TH E GROUNDS OF APPEAL NO.7.1 & 7.2 OF THE REVENUE ARE DISMISSED. RESPECTFULLY FOLLOWING THE ORDER OF TRIBUNAL IN EARLIER ASSESS MENT YEARS IN ASSESSEES OWN CASE, WE DISMISS THIS GROUND IN THE APPEAL OF ASSESSEE. 11. THE FIFTH GROUND IN APPEAL OF THE ASSESSEE IS WITH RESPE CT TO CLAIM OF 100% DEPRECIATION ON PLANT AND MACHINERY. THE REVENUE HAS ALSO IMPUGNED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE AS GROUND NO.2 IN ITS APPEAL. 11.1 THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON ITS PLA NT AND MACHINERY IN PLANT NO.3, PLANT NO.4, PLANT NO.8, PLANT NO.10 AN D PLANT NO.11. IN THE FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF ALL THE PLANTS EXCEPT PLANT NO.11. THE ASSESSEE HAS COME IN SECOND AP PEAL WITH RESPECT TO THE CLAIM OF DEPRECIATION @ 100% IN RESPECT OF ITEM OF PLANT NO.11. WHEREAS, THE REVENUE IN ITS APPEAL HAS ASSAILED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN RESPECT OF ALL THE PLANTS EXCEPT PLANT NO.11. 11 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 11.2 SIMILAR CLAIMS WERE MADE BY THE ASSESSEE IN RESPECT O F PLANT NO. 11 AND THE REVENUE IN RESPECT OF OTHER PLANTS (EXCLUDING PLANT NO. 11). THE ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99 AND 1999-2000 AS UNDER :- 35. NOW, WE MAY FIRST TAKE-UP ASSESSEES CLAIM FOR DEPRECIATION 100% WITH RESPECT TO THE PLANT & MACHINERY USED IN THE M ANUFACTURE OF AIR/GAS/FLUID HEATING SYSTEMS. IN THIS CONTEXT, IT IS CLEAR NOTED THAT HAVING REGARD TO THE ENTRY 3(XIII)(R) READ WITH 3(XIII)(E) OF THE DEPRECIATION TABLE ANNEXED TO THE RULES, PLANT & MACHINERY USED FOR TH E MANUFACTURE OF AIR/GAS/FLUID HEATING SYSTEMS IS ELIGIBLE FOR DEPRE CIATION @ 100%. THE PLEA OF THE ASSESSING OFFICER THAT OTHER ITEMS IN EN TRY IN 3(XIII) CONTAIN A REFERENCE TO SOLAR AND THEREFORE ITEM (E) OF ENTR Y 3(XIII) SHOULD ALSO BE READ TO BE REFERRING TO SOLAR AIR/GAS/FLUID HEATING SYSTEMS, IN OUR VIEW, IS NOT JUSTIFIED. THE ASSESSING OFFICER HAS ATTEMPTED TO READ INTO THE STATUTE A WORD WHICH IS CONSPICUOUS BY ITS ABSENCE. THEREF ORE, IN OUR VIEW, HAVING REGARD TO THE ITEM (R) READ WITH ITEM (E) OF ENTRY 3(XIII) OF THE DEPRECIATION TABLE, THE CLAIM OF THE ASSESSEE HAS B EEN RIGHTLY ALLOWED BY THE CIT(A) AND WE FIND NO FORCE IN THE GROUND OF AP PEAL RAISED BY THE REVENUE. 36. NOW, WITH REGARD TO ASSESSEES CLAIM FOR ALLOWA NCE OF DEPRECIATION @ 100% IN RESPECT OF PLANT & MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS IS CONCERNED, THE SAME HAS BEEN APPROPRIATELY DENIED BY THE LOWER AUTHORITIES. THE CIT(A) HAS RIGHTLY POINTED OUT TH AT MACHINERY & PLANT USED IN THE MANUFACTURE OF HEAT PUMPS IS NOT ELIGIB LE FOR DEPRECIATION @ 100% AS IT DOES NOT FIND A PLACE IN ANY OF THE ITEM S IN THE DEPRECIATION TABLE WHICH IS ENTITLED FOR DEPRECIATION @ 100%. O N THIS ASPECT, THE ORDER OF THE CIT(A) IS HEREBY AFFIRMED. THUS, GROUND OF APPEAL NO.8 OF THE ASSESSEE AS WELL AS THE GROUNDS OF APPEAL NOS.8.1 & 8.2 OF THE REVENUE ARE DISMISSED. THE ISSUE RAISED BY BOTH THE SIDES ARE IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE TRIBUNAL. BOTH THE SIDES HAVE NOT BE EN ABLE TO CONTROVERT THE FINDINGS OF THE TRIBUNAL IN EARLIER ASSESSME NT YEARS. WE FIND NO REASON TO TAKE A CONTRARY VIEW. ACCORDINGLY, THE GROUND WITH RESPECT TO CLAIM OF DEPRECIATION IN ASSESSEES APPEAL AND THE APPEAL OF REVENUE IS DISMISSED. 12. THE SIXTH GROUND RAISED BY THE ASSESSEE IN ITS APPE AL IS WITH RESPECT TO THE AMOUNT OF EXPENDITURE ATTRIBUTABLE TO DIV IDEND AND TAX- FREE INTEREST. WE FIND THAT IDENTICAL GROUND WAS RAISED BY ASSESSEE IN 12 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 APPEAL FOR ASSESSMENT YEAR 1998-99 BEFORE THE TRIBUNAL. THE TRIBUNAL DISMISSED THE CONTENTIONS OF THE ASSESSEE WITH FOLLOWING OBSERVATION S :- 45. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT T HE ASSESSING OFFICER ESTIMATED 5% OF GROSS DIVIDEND AND OTHER TAX-FREE I NCOMES AS AN EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME AND DISALLOWED THE SAME. THE CIT(A) FOLLOWING THE DECISION OF HER PREDECESSO R RESTRICTED THE DISALLOWANCE TO 2.5% OF THE GROSS INCOME. NOT BEIN G SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE U S. 46. ON THIS ASPECT, THE LD. REPRESENTATIVE FOR THE ASSESSEE CONCEDED THAT THE DISALLOWANCE AS CONFIRMED BY THE CIT(A) HA S BEEN A SUBJECT- MATTER OF CONSIDERATION BY THE TRIBUNAL IN ASSESSME NT YEAR 1997-98 AND THE SAME STANDS CONFIRMED VIDE ORDER DATED 03.09.20 14 (SUPRA). IN VIEW OF THE AFORESAID PRECEDENT, THE ACTION OF THE CIT(A ) IN RESTRICTING THE DISALLOWANCE TO 2.5% OF THE GROSS INCOME IS HEREBY AFFIRMED. THUS, ASSESSEE FAILS ON THIS GROUND. THE LD. AR OF THE ASSESSEE HAS FAIRLY CONCEDED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN EARLIER ASSESSMENT YEARS. THIS GROUND OF APPEAL IS DISMISSED, ACCORDINGLY. 13. THE SEVENTH GROUND RAISED BY THE ASSESSEE IS WITH R EGARD TO LEASE RENTAL INCOME. THE REVENUE IN ITS APPEAL HAS RAISED SIMILAR ISSUE IN GROUND NOS.4.1 TO 4.5. 13.1 THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASS ESSEE IS ALSO ENGAGED IN THE BUSINESS OF LEASING SOME OF THE PRODUCTS M ANUFACTURED BY IT. IN NOTES ATTACHED TO THE RETURN OF INCOME, THE A SSESSEE HAS MENTIONED THAT LEASE RENTALS OF RS.57,75,268/- HAVE NOT BE EN INCLUDED IN THE TOTAL INCOME. THE METHOD OF ACCOUNTING FOLLOWED BY T HE ASSESSEE IS IN LINE WITH ACCOUNTING STANDARD I PRESCRIBED BY CBDT U NDER SECTION 145 OF THE ACT. THE LEASE RENTALS IN RESPECT OF (I) MODI ALKALIES, (II) INERTIA, (III) PARSRAMPURIA INDUSTRIES LTD. AND (IV) PARSRAMPUR IA INTERNATIONAL LTD. WERE NOT RECEIVED BY THE ASSESSEE. ALL THE AFORESAID COMPANIES WERE IN A VERY BAD FINANCIAL CONDITION AND HAD SU FFERED HUGE 13 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 FINANCIAL LOSSES. SUBSEQUENTLY, THESE COMPANIES WERE REFERR ED TO BIFR, THEREFORE, THE INCOME DID NOT ACCRUE TO THE ASSESSEE AT ALL. THE ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSE E AND MADE ADDITION OF LEASE RENTALS ON THE GROUND THAT THE SAID REN TALS HAD ACCRUED TO THE ASSESSEE, THEREFORE, THE SAME SHOULD HAVE BEEN IN CLUDED IN TOTAL INCOME OF THE ASSESSEE. 13.2 IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEA LS) AGREED WITH THE PROPOSITION OF THE ASSESSING OFFICER, HOWEVER, THE C OMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO GIV E RELIEF TO THE ASSESSEE IN FOLLOWING ASSESSMENT YEAR BY TREATING THE LEA SE RENTAL AMOUNT AS BAD DEBT. THE LD. AR OF THE ASSESSEE CONTEN DED THAT ONCE THE ASSESSEE HAS DECLARED THE AMOUNT AS NON RECOVERA BLE AND HAS WRITTEN-OFF AS BAD DEBTS, THERE IS NO QUESTION OF TAXING TH E SAME. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON TH E DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S M ARUTI SECURITIES LTD. VS. ADDL.CIT IN ITA NO.468/HYD/2009 AND OTH ERS, DECIDED ON 05.09.2014 AND THE JUDGEMENT OF THE HONBLE S UPREME COURT OF INDIA IN THE CASE OF TRF LTD. VS. CIT REPORTED AS 323 ITR 397 (SC). 13.3 ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE C OMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CROSSING OVER FROM ON E ASSESSMENT YEAR TO THE NEXT ASSESSMENT YEAR. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE RESTRICTED TO THE ISSUE IN ASSESS MENT YEAR 2000- 01 ONLY. TO SUPPORT HIS SUBMISSIONS, THE LD. DR PLACED RE LIANCE ON THE JUDGEMENTS OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF ITO VS. MURLIDHAR BHAGWAN DAS REPORTED AS 52 ITR 335 (SC) AND C IT VS. MANICK SONS REPORTED AS 74 ITR 1 (SC). 14 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 THE LD. AR OF THE ASSESSEE CONTROVERTING THE SUBMISSIONS OF THE LD. DR SUBMITTED THAT BEFORE THE COMMISSIONER OF INCOME T AX (APPEALS) THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEAR 2000- 01 AND 2001-02 BOTH WERE PENDING. THE APPEALS OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS WERE DECIDED BY THE COMMISSIONER OF INCOME TAX (AP PEALS) ON THE SAME DATE. THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. C.M. RAJ GARHIA REPORTED AS 121 ITR 778 (PATNA) WHEREIN THE JUDGEMENT OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF ITO VS. MURLIDHAR BH AGWAN DAS (SUPRA) WAS CONSIDERED AND DISTINGUISHED. 13.4 WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY BOTH TH E SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HA VE ALSO CONSIDERED THE JUDGMENTS ON WHICH BOTH THE SIDES HAVE PLACED RELIANCE. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ITS ACCOUNTS ARE SUBJECT TO AUDIT. THE ASSESSEE ADMITTEDLY MAINTAINS BOOKS OF ACCOU NT ACCORDING TO THE MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE ASSESS EE IN ITS BOOKS OF ACCOUNT HAVE NOT RECOGNIZED THE LEASE RENTAL INCOME D UE FROM (I) MODI ALKALIES; (II) INERTIA; (III) PARASRAMPURIA INDUSTRIES LTD.; AND, (IV) PARASRAMPURIA INTERNATIONAL LTD. ON THE GROUND THAT THE SE COMPANIES ARE IN FINANCIAL DISTRESS, THEREFORE, NO RENTAL INCOME IS RECOV ERABLE. IN OUR OPINION, THE CORRECT COURSE OF ACTION WHICH THE ASSES SEE SHOULD HAVE FOLLOWED IS TO RECOGNIZE LEASE RENTAL INCOME FROM THE AFORES AID COMPANIES IN ITS BOOKS AND THEREAFTER SHOULD HAVE CLAIMED THE SAME AS BAD DEBTS. THE CIT(A) HAS UPHELD THE FINDINGS OF THE ASSESSING OFFICER IN PRINCIPLE WHICH IN OUR OPINION IS THE CORRECT PROPOSITION. ACCORDINGL Y, THE SAME IS UPHELD. THE FIRST APPELLATE AUTHORITY DIRECTED THE ASSESS ING OFFICER TO ALLOW CLAIM OF THE ASSESSEE IN SUBSEQUENT ASSESSMENT YEAR AS WRITE OFF OF BAD DEBTS. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS NOT RECEIVED 15 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 RENTAL INCOMES FROM THE AFORESAID COMPANIES IN THE IMPUGNED ASSESSMENT YEAR. SINCE, THE RENTAL INCOMES HAVE NOT BEE N ACTUALLY RECEIVED, THEREFORE, THERE IS NO QUESTION OF INCLUDING THE SA ME IN TAXABLE INCOME. THE CIT(A) ALLOWED THE DEDUCTION OF THE AFORESAID AM OUNT BY WAY OF BAD DEBTS IN SUBSEQUENT ASSESSMENT YEAR, WHICH IS ALSO SIMULTANEOUSLY BEING DECIDED BY HIM. THE ASSESSEE CANNO T CLAIM BAD DEBT UNLESS THE SAME ARE IN FACT WRITTEN OFF IN THE BOOKS OF ACCOUNT. T HIS GROUND OF APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED AND THAT OF THE REVENUE IS ALLOWED. 14. THE REVENUE IN ITS APPEAL FOR ASSESSMENT YEAR 2000-0 1 HAS ASSAILED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPE ALS) WITH RESPECT TO ALLOWABILITY OF DEDUCTION UNDER SECTION 80-IA OF THE ACT TO THE ASSESSEE IN RESPECT OF ITS UNIT WOODPACK. THE LD. AR O F THE ASSESSEE SUBMITTED AT THE OUTSET THAT THIS ISSUE WAS CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN REVENUES APPEAL IN ASSESSMENT YEAR 1998-99 AND ASSE SSMENT YEAR 1999-2000. THE LD. DR ADMITTED THE FACT, HOWEVER, SHE ST RONGLY DEFENDED THE FINDINGS OF ASSESSING OFFICER. 14.1 AFTER PERUSAL OF THE ORDER OF TRIBUNAL IN ITA NO.1288 & 1289/PN/2005 FOR ASSESSMENT YEARS 1998-99 AND 1999-2 000, WE OBSERVE THAT THIS ISSUE WAS RAISED BY THE REVENUE IN ITS APPEAL FOR ASSESSMENT YEAR 1998-99 AS GROUND NO.11. THE CO-ORDIN ATE BENCH AFFIRMED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEA LS) WITH FOLLOWING OBSERVATIONS :- 65. IN THIS GROUND, DISPUTE PERTAINS TO THE ASSESS EES CLAIM FOR DEDUCTION U/S 80-I/80-IA OF THE ACT IN RESPECT OF T WO INDUSTRIAL UNDERTAKINGS, NAMELY, (I) WOODPAC (MANUFACTURING) RS.21.84 LACS; AND, 16 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 (II) PROCESS INTEGRATED BOILERS RS.138.06 LACS. THE ONLY REASON WEIGHING WITH THE ASSESSING OFFICER TO DENY THE DEDUCTION U/ S 80-I/80-IA OF THE ACT IN RESPECT OF THE TWO INDUSTRIAL UNDERTAKINGS WAS T HAT SIMILAR CLAIM WAS REJECTED IN THE RE-ASSESSMENT PROCEEDINGS FOR ASSES SMENT YEAR 1992-93. SUBSEQUENT TO ASSESSMENT YEAR 1992-93, AND UPTO ASS ESSMENT YEAR 1997-98 ALSO THE CLAIM WAS DISALLOWED BY THE ASSESSI NG OFFICER. 66. ON THIS ASPECT, THE CIT(A) NOTED THAT ASSESSMEN T YEAR 1992-93 WAS THE FIRST YEAR WHEN THE ASSESSEE HAD MADE SUCH A CL AIM IN RESPECT OF THE AFORESAID TWO UNDERTAKINGS AS THEY WERE CLAIMED TO HAVE BEEN SETUP IN THE PRECEDING YEAR RELEVANT TO THE ASSESSMENT YEAR 1992-93. THE CLAIM IN ASSESSMENT YEAR 1992-93 WAS INITIALLY ALLOWED IN TH E REGULAR ASSESSMENT U/S 143(3) OF THE ACT. THE CLAIM WAS DISALLOWED IN THE RE-ASSESSMENT PROCEEDINGS CARRIED OUT FOR ASSESSMENT YEAR 1992-93 BY ISSUANCE OF NOTICE U/S 148 OF THE ACT. FOR ASSESSMENT YEAR 199 2-93, THE ACTION OF THE ASSESSING OFFICER TO INITIATE PROCEEDINGS U/S 147/1 48 OF THE ACT WAS QUASHED BY THE APPELLATE AUTHORITIES AND IT HAS BEE N STATED BEFORE US IN THE COURSE OF HEARING THAT THE SAME HAS BEEN AFFIRM ED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS ORDER IN INCOME TAX APPE AL (L) NO.815 OF 2009 DATED 24TH JUNE, 2009. FROM ASSESSMENT YEARS 1993- 94 TO 1997-98 THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80-I/80-IA OF THE ACT HAS BEEN UPHELD BY THE TRIBUNAL VIDE ORDER IN ITA NO.1259 TO 1263/PN/2005 DATED 20.05.2011. AT THE TIME OF HEARING, IT HAS ALSO BE EN BROUGHT OUT THAT THE SAID DECISION OF THE TRIBUNAL HAS SINCE BEEN AFFIRM ED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 30.04.2014. 67. THE AFORESAID FACTUAL MATRIX IS NOT IN DISPUTE AND THEREFORE WE HEREBY AFFIRM THE ORDER OF THE CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80-I/80-IA OF THE ACT WITH RESPECT TO THE INDUSTRIAL UNDERTAKINGS MANUFACTURING PRODUCTS CALLED WOODPAC AND PROCESS INTEGRATED BOILERS. AS A CONSEQUENCE, THE ORDER OF THE CIT(A) IS HEREBY AFFIRMED. 14.2 THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FIND INGS OF THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS. THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEAR UNDER APPEAL ARE IDENTICAL. WE D O NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 15. IN RESULT, THE APPEAL OF THE ASSESSEE AS WELL AS THE A PPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2000-01 ARE PARTLY ACCEP TED, IN THE AFORESAID TERMS. 17 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 16. NOW, WE PROCEED TO DECIDE ITA NO.1248/PN/2005 AND ITA NO.1291/PN/2005 FOR THE ASSESSMENT YEAR 2001-02. 17. IN ASSESSMENT YEAR 2001-02, THE ASSESSEE HAS RAISE D FOLLOWING 11 GROUNDS OF APPEAL :- 1. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING TH E ACTION OF THE ASSESSING OFFICER OF REJECTING THE CONTENTION OF TH E APPELLANT THAT 'RETENTION MONEY' DID NOT ACCRUE TO THE APPELLANT AND WAS ACCO RDINGLY NOT TAXABLE IN THE YEAR UNDER APPEAL. 2. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING AC TION OF THE ASSESSING OFFICER IN ATTRIBUTING RS.15 LACS AS EXPE NDITURE INCURRED IN RELATION TO DIVIDEND AND INTEREST-FREE INCOME REJEC TING THE CONTENTION OF THE APPELLANT THAT NO SUCH EXPENDITURE WAS, IN FACT, IN CURRED FOR EARNING SUCH INCOME AND ACCORDINGLY NONE WAS SO ATTRIBUTABLE. IN ANY EVENT, THE ESTIMATE MADE BY THE AO AND CONFIRMED BY THE CIT(A) IS HIGH-PITCHED. 3. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING DI SALLOWANCE OF THE APPELLANT'S CLAIM FOR PROVISION MADE IN RESPECT OF WARRANTY OBLIGATION LIABILITY IN THE AMOUNT OF RS.1,59,50,143/- (BEING THE DIFFERENCE BETWEEN GROSS YEAR-END LIABILITY OF RS.8,23,29,459/- AND OP ENING PROVISION OF RS.6,63,79,316/-). 4. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING DI SALLOWANCE OF APPELLANT'S CLAIM FOR DEDUCTION OF AMORTISED AMOUNT OF PREMIUM IN RESPECT OF LEASEHOLD LAND IN THE AMOUNT OF RS.2,41 ,534/-. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING ADDITION O F RS.5,60,000/- MADE BY THE ASSESSING OFFICER TO THE INCOME OF THE APPEL LANT WHEN IN FACT HE SHOULD HAVE DELETED THE SAME. 6. THE LEARNED CIT (APPEALS) ERRED IN NOT DISPOSING OF THE GROUND OF APPEAL CONCERNING DISALLOWANCE, AS CAPITAL EXPENDIT URE, AN AMOUNT OF RS.74,78,682/- BEING THE COST OF COMPUTER SOFTWARE. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT APPEALS ERRED IN CONFIRMING DISALLOWANC E OF APPELLANT'S CLAIM FOR DEPRECIATION @ 100% IN RESPECT OF ITEMS OF PLAN T AND MACHINERY INSTALLED IN PLANT NO.11 OF THE COMPANY. 8. THE LEARNED CIT (A) ERRED IN CONFIRMING INCLUSIO N OF THE FOLLOWING ITEMS AS PART OF TOTAL TURNOVER REJECTING THE CONTE NTION OF THE APPELLANT THAT THESE RECEIPTS DID NOT HAVE AN ELEMENT OF TURNOVER BUT WERE IN FACT IN THE NATURE OF INCOME. I. SERVICE CHARGES (USA AND INTERNATIONAL) 4 ,84,92,127 II. EXCHANGE GAIN 1,17,43,146 9. THE LEARNED CIT(A), HAVING CONFIRMED THAT THE FO LLOWING ITEMS OF INCOME WERE RIGHTLY INCLUDED IN TOTAL TURNOVER, ERR ED IN FAILING TO DIRECT THE AO NOT TO EXCLUDE THEM FROM THE PROFITS OF THE BUSI NESS; THE ACTION OF THE AO IN INCLUDING THE SAID RECEIPTS IN TOTAL TURNOVER AND ALSO EXCLUDING THEM 18 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 UNDER EXPLANATION (BAA) HAS, IN ANY EVENT, DOUBLY I MPACTED THE CLAIM OF THE APPELLANT TO DEDUCTION U/S 80HHC: 1 SERVICE CHARGES 4,15,02,309 2 INTERNATIONAL SERVICE CHARGES 69,89,818 THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THAT THE FOLLOWING RECEIPTS MERITED EXCLUSION FROM PROFITS OF THE BUSINESS UNDE R EXPLANATION (BAA): I. MISCELLANEOUS RECEIPTS 2,04,52,388 II. PREMIUM ON FORWARD CONTRACT 2,40,826 II. BROKERAGE 13,05,60,090 10. THE LEARNED CIT(A) FURTHER ERRED IN NOT ACCEPTI NG THE CONTENTION OF THE APPELLANT THAT, IN ANY EVENT, EXCLUSION UNDER E XPLANATION (BAA) SHOULD ALSO BE NET OF DIRECT EXPENSES INCURRED IN RELATION TO THE SAID ITEMS OF INCOME APART FROM 10% DEDUCTION MANDATED BY THE STA TUTE FOR COMMON EXPENSES. 11. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING & ASSESSING INCOME OF RS.2,01,25,745/- UNDER THE HEAD 'OTHER SOURCES' HENCE REJECTING THE CONTENTION OF THE APPELLANT THAT IT WAS ASSESSABLE UNDER THE HEAD 'BUSINESS INCOME' YOUR APPELLANT RESERVES THE RIGHT TO ADD TO, ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEAL, IF NECESSARY. 18. THE FIRST GROUND RAISED BY THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2001-02 RELATES TO RETENTION MONEY FORMING PART OF SALES. THE LD. AR OF THE ASSESSEE STATED AT THE BAR THA T HE IS NOT PRESSING GROUND NO.1 OF APPEAL. IN VIEW OF THE STATEMENT MADE BY LD. AR, WE DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE AS NOT PRESSED . 19. THE SECOND GROUND RAISED BY THE ASSESSEE IN APPEAL IS WITH RESPECT TO THE EXPENDITURE ATTRIBUTABLE TO DIVIDEND AND TAX-FREE INTEREST. THE LD. AR OF THE ASSESSEE MADE STATEMENT THAT HE IS NOT PRES SING THIS GROUND OF APPEAL, AS WELL. ACCORDINGLY, WE DISMISS THIS SECOND GROUND OF APPEAL OF THE ASSESSEE AS NOT PRESSED. 20. THE THIRD GROUND OF APPEAL RAISED BY THE ASSESSEE IN APPEAL IS WITH REGARD TO PROVISION FOR WARRANTY OBLIGATION. SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2000-01 IN ITA NO.1 247/PN/2005. 19 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 UNDISPUTEDLY, THE FACTS AND CIRCUMSTANCES IN THE PRESENT ASSESSMENT YEAR AND THE EARLIER ASSESSMENT YEAR ARE SIMILAR. THEREFO RE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE REASONS STATE D IN PARA 7 ABOVE. 21. THE FOURTH GROUND RAISED BY THE ASSESSEE IS WITH RES PECT TO AMORTIZATION OF PREMIUM ON LEASEHOLD LAND. IDENTICAL ISSUE HA S BEEN CONSIDERED IN THE APPEAL OF THE ASSESSEE IN ASSESSMENT Y EAR 2000-01 IN PARA 8 ABOVE. BOTH THE SIDES ADMIT THAT THE FACTS IN TH E PRESENT ASSESSMENT YEAR ARE SIMILAR TO ASSESSMENT YEAR 2000-01 . THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED FOR THE SIMILAR REASONS AS MENTIONED ABOVE. 22. THE FIFTH GROUND RAISED BY THE ASSESSEE IN APPEAL IS W ITH REGARD TO ADDITION OF RS.5,60,000/-. WE FIND THAT NO SUCH ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. EVEN BEFORE US, THE LD. AR OF THE ASSESSEE HAS NOT MADE ANY SUBMISSION ON THIS GROUND. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 23. THE SIXTH GROUND RAISED BY THE ASSESSEE IN ITS APPE AL IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE ON ACQUIRING COMPUTE R SOFTWARES. THE REVENUE HAS ALSO IMPUGNED THE FINDINGS OF CIT(A) ON TH IS ISSUE IN GROUND NO.5 OF ITS APPEAL. THIS ISSUE HAS BEEN CONSIDERED IN APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2000-01 IN PARAGRAPH 10 ABOVE. THE GROUND OF APPEAL OF ASSESSEE WAS REJECTED BY FOLLOWING THE ORDER OF CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT Y EARS 1998-99 AND 1999-2000. IN THE SAID ASSESSMENT YEARS BOTH, THE ASSESSEE AND THE REVENUE HAD ASSAILED THE FINDINGS OF CIT(A) BEFORE THE T RIBUNAL. THE TRIBUNAL FOLLOWED THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT 20 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 IN THE CASE OF RAYCHEM RPG. LTD. (SUPRA) AND DISMISSED THIS GROUND IN THE APPEAL OF ASSESSEE, AS WELL AS REVENUE. BOTH THE SIDES HAVE NOT B EEN ABLE TO SHOW ANY DISTINGUISHING FACTOR IN THE PRESENT ASSE SSMENT YEAR. WE FIND NO REASON TO DEVIATE FROM THE VIEW TAKEN IN EARLIER ASSESSMENT YEARS. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSE E AND THE REVENUE IS REJECTED FOR THE DETAILS REASONS GIVEN IN PARA 10 HER EINABOVE. 24. THE SEVENTH GROUND RAISED BY THE ASSESSEE IN ITS AP PEAL IS WITH REGARD TO CLAIM OF DEPRECIATION AT THE RATE OF 100% ON P LANT AND MACHINERY INSTALLED IN PLANT NO.11. THE REVENUE IN ITS APPEA L HAS ALSO ASSAILED THE GRANT OF 100% DEPRECIATION ON CERTAIN ITEMS OF OTHER PLANTS. THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US IN THE APPE AL OF THE ASSESSEE AND REVENUE IN ASSESSMENT YEAR 2000-01 IN PA RA 11 ABOVE. BOTH THE SIDES HAVE NOT BEEN ABLE TO SHOW ANY CHANGE IN CIRCUMSTANCES IN THE PRESENT ASSESSMENT YEAR. ACCORDINGLY, THIS GROUN D IN THE APPEAL OF ASSESSEE AS WELL AS REVENUE IS REJECTED FOR SIMILAR REA SONS AS MENTIONED ABOVE IN PARA 11. 25. THE GROUND NOS.8, 9 AND 10 OF APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE FINDINGS OF THE CIT(A) IN RESPECT OF DEDUCTION UN DER SECTION 80HHC CLAIMED BY THE ASSESSEE. ON THE OTHER HAND, THE REVENUE IN GROUND NOS.9 AND 10 OF ITS APPEAL HAS ASSAILED THE RELIEF GR ANTED TO THE ASSESSEE IN COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. 25.1 THE ASSESSING OFFICER REJECTED THE ASSESSEES COMP UTATION OF DEDUCTION UNDER SECTION 80HHC. THE ASSESSING OFFICER WHILE RE- COMPUTING THE DEDUCTION ADDED EXCISE DUTY AND SALES-TAX COLLECTED IN TOTAL TURNOVER. APART FROM THE ABOVE, THE ASSESSING OFFIC ER ALSO ADDED THE FOLLOWING ITEMS IN DETERMINING TOTAL TURNOVER : 21 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 I) SCRAP SALE 23,672,925 II) EXCHANGE GAIN 11,743,146 III) CREDIT BALANCE APPROPRIATED 22,515,762 IV) BAD DEBTS WRITTEN BACK 3,226,906 V) PREMIUM ON FORWARD CONTRACT 240,826 VI) CLAIM & REFUNDS EXCISE 460,823 VII) CLAIM & REFUNDS SALES TAX 5,536,821 VIII) CLAIM & REFUND INSURANCE 3,292,019 IX) EXCESS PROVISION WRITTEN BACK 21,405,169 X) BROKERAGE/INSURANCE 13,056,009 XI) MISCELLANEOUS RECEIPTS 20,452,388 THE ASSESSING OFFICER FURTHER EXCLUDED 90% OF THE FOLLOWING IT EMS FROM THE BUSINESS PROFITS: MISC. INCOME/RECEIPTS 20,452,388 USA SERVICE CHARGES 41,502,309 INTERNATIONAL SERVICE CHARGE 6,989,818 PREMIUM ON FORWARD CONTRACT 240,826 25.2 IN APPEAL BEFORE THE CIT(A), THE ASSESSEE PLACED RELIA NCE ON THE ORDER OF THE TRIBUNAL IN ITA NO.970/PN/2001 FOR ASSESSME NT YEAR 1997-98 IN ASSESSEES OWN CASE. THE CIT(A) IN THE LIGHT O F THE SAID ORDER DELETED ALL THE ADDITIONS EXCEPT EXCHANGE GAIN. THE TRIB UNAL IN ITA NO.970/PN/2001 HAD CONFIRMED THE ADDITION OF EXCHANGE GAIN. THE LD. AR OF THE ASSESSEE SUBMITTED THAT AS REGARDS MISCELLANEOUS RECEIPTS ARE CONCERNED THE SAME ARE COVER ED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. PFIZER LTD. REPORTED AS 233 CTR 521 (BOM). ON T HE OTHER HAND, THE LD. DR VEHEMENTLY SUPPORTED THE ASSESSMENT O RDER ON THIS ISSUE. 22 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 25.3 BOTH SIDES HEARD. WE HAVE EXAMINED THE ORDER OF TH E CO-ORDINATE BENCH IN ITA NO.970/PN/2001 DECIDED ON 03.09.2014 IN ASSE SSEES OWN CASE. WE OBSERVE THAT MAJORITY OF THE ITEMS THAT HAVE BEEN DISPUTED BY THE REVENUE HAVE ALREADY BEEN CONSIDERED BY THE TRIBU NAL AND DECIDED IN FAVOUR OF THE ASSESSEE. THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSE E IN ACCORDANCE WITH THE DECISION OF THE TRIBUNAL REFERRED ABOV E. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE TRIBU NAL. THUS, THE GROUND RAISED BY THE REVENUE IN ITS APPEAL WITH RESPECT TO COMPUTATION OF DEDUCTION UNDER SECTION 80HHC IS REJECTED. 25.4 THE ASSESSEE IN ITS APPEAL HAS IMPUGNED THE FINDINGS O F THE CIT(A) IN HOLDING THAT SERVICE CHARGES (USA AND INTERNATIONAL) AND EXCHANGE GAIN AS A PART OF TOTAL TURNOVER AND THEIR EXCLUSION UNDE R EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. IT IS A WELL-SETTLED LAW THAT WHAT HAS BEEN INCLUDED IN EXPORT TURNOVER THAT IT HAS TO BE INCLU DED IN TOTAL TURNOVER AS WELL. IN OTHER WORDS, WHAT HAS BEEN EXCLUD ED IN EXPORT TURNOVER CANNOT BE INCLUDED IN TOTAL TURNOVER. AS FAR AS MISCELLANEOUS RECEIPTS ARE CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT THE SAME IS COVERED BY THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD. (SUPRA). WE, THEREFORE, REMIT THESE ISSUES TO T HE FILE OF THE ASSESSING OFFICER TO RE-COMPUTE THE DEDUCTION U/S. 80HHC, ACCORDINGLY. THUS, GROUND NOS. 8, 9 AND 10 OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 26. IN GROUND NO.11, THE ASSESSEE HAS ASSAILED THE ORDE R OF THE CIT(A) IN CONFIRMING THE INCOME OF RS.2,01,25,745/- UNDER THE HEAD OTHER SOURCES. THE ASSESSEE CLAIMED THE SAID INCOME UNDER H EAD BUSINESS INCOME. SINCE NO ARGUMENTS WERE FORWARDED BY THE LD. A R OF THE ASSESSEE ON THIS ISSUE THE SAME IS DISMISSED. 23 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 27. NOW, WE TAKE UP THE REMAINING GROUNDS RAISED BY THE REVENUE IN APPEAL FOR ASSESSMENT YEAR 2001-02. THE FIRST ISSUE IN A PPEAL OF THE REVENUE IS WITH RESPECT TO DEDUCTION UNDER SECTION 35AB OF THE ACT ALLOWED IN RESPECT OF LUMP-SUM FEE FOR TECHNICAL KNOW-HOW PA ID IN EARLIER YEARS. THIS GROUND HAS BEEN CONSIDERED BY THE T RIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99. THE CO-ORDINATE BENCH DECIDED THE ISSUE WITH FOLLOWING OBSERVATIONS :- 5. APART FROM THE AFORESAID, ANOTHER ISSUE RELATIN G TO THE DETERMINATION OF DEDUCTION U/S 35AB OF THE ACT BEFO RE THE CIT(A) WAS IN RELATION TO LUMP-SUM FEE FOR KNOW-HOW PAID IN THE E ARLIER YEARS. ON THIS ASPECT, ASSESSEE HAD SUBMITTED BEFORE THE CIT(A) TH AT IN RESPECT OF THE PROCESS KNOW-HOW FEE IN EACH OF THE PAST YEARS IT H AS BEEN CLAIMING DEDUCTION U/S 37(1) OF THE ACT AND THAT THE SAME ST OOD REJECTED. THE ASSESSEE CONTENDED THAT AT LEAST THE DEDUCTION U/S 35AB OF THE ACT CANNOT BE DENIED EVEN IF THE APPEAL OF THE ASSESSEE IS PENDING BEFORE THE TRIBUNAL. THE CIT(A) CONSIDERED THE PLEA OF THE AS SESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 35AB OF TH E ACT IN RESPECT OF THE KNOW-HOW FEE WHOSE INNINGS U/S 35AB OF THE ACT HAD BEGAN IN THE PAST AND WHERE THE BALANCE ELIGIBLE PERIOD U/S 35AB OF T HE ACT WAS NOT OVER. AGAINST THE AFORESAID DECISION OF THE CIT(A), REVEN UE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITS CROSS-APPEAL :- 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW DEDUCTION OF 35A B IN RESPECT OF LUMPSUM FEE FOR KNOW-HOW PAID IN EARLIER YEARS, WHE N IN FACT THE PRESENT APPEAL LIES FOR A.Y. 1998-99 ONLY. 2.2 THE CIT(A) OUGHT TO HAVE RESTRICTED HERSELF ON THE ISSUES RELEVANT FOR A.Y. 1998-99 ONLY AND OUGHT TO HAVE NO T CONSIDERED AND DECIDED THE ISSUES PERTAINING TO EARLIER YEAR W HICH WERE NOT SUBJECT MATTER OF APPEAL. 6. SINCE THE AFORESAID CROSS-GROUNDS IN THE APPEAL OF THE ASSESSEE AND THE REVENUE RELATE TO ASSESSEES CLAIM FOR DEDU CTION OF THE PROCESS KNOW-HOW FEE PAID, THEY ARE BEING TAKEN-UP TOGETHER . 7. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE QUITE FAIRLY SUBMITTED THAT THE PLEA OF THE ASSESSEE FOR DEDUCTION OF EXPENDITURE INCURRED BY WAY OF PROCESS KNOW-HOW FEE U/S 37(1) O F THE ACT IS LIABLE TO BE DECIDED AGAINST THE ASSESSEE FOLLOWING THE JUDGE MENT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S DRILCOS (INDIA) PV T. LTD. VS. CIT, (2012) 348 ITR 382 (SC). THEREFORE, FOLLOWING THE RATIO O F THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S DRILCOS (I NDIA) PVT. LTD. (SUPRA), THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ACQUIR ING PROCESS KNOW-HOW FEE IS TO BE ALLOWED AMORTIZATION IN TERMS OF SECTI ON 35AB OF THE ACT. THEREFORE, IN-PRINCIPLE, THE STAND OF THE REVENUE O N THIS ASPECT IS UPHELD AND THE ASSESSEE FAILS IN ITS GROUND OF APPEAL. 8. IN SO FAR AS THE GROUND OF APPEAL NO.1 OF THE RE VENUE RELATING TO THE CIT(A)S DECISION TO ALLOW DETERMINATION OF DED UCTION U/S 35AB OF THE 24 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 ACT NOT ONLY WITH REFERENCE TO THE AMOUNTS ACTUALLY PAID BUT ALSO WITH REFERENCE TO THE AMOUNTS PAYABLE FOR PROCESS KNOW-H OW IS CONCERNED, THE SAME IN OUR VIEW HAS BEEN APPROPRIATELY DECIDED BY THE CIT(A). NOTABLY, THE CIT(A) HAS NOTICED THAT ASSESSEE IS FOLLOWING T HE MERCANTILE SYSTEM OF ACCOUNTING AND THE WORD PAID HAS BEEN DEFINED IN SECTION 43(2) OF THE ACT TO INCLUDE THE INCURRENCE OF LIABILITY ALSO. I N COMING TO SUCH CONCLUSION, THE CIT(A) HAS FOLLOWED THE JUDGEMENT OF THE HONBL E BOMBAY HIGH COURT IN THE CASE PADAMJEE PULP AND PAPER MILLS LTD. (SUP RA). AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE RE LIED UPON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S AMCO POWER SYSTEMS LTD. VS. ITO VIDE ITA NO.889/BANG/2007 DATE D 13.06.2009 WHEREIN THE APPLICABILITY OF THE DEFINITION OF EXPR ESSION PAID CONTAINED IN SECTION 43(2) OF THE ACT HAS BEEN APPROVED EVEN WHI LE DETERMINING THE DEDUCTION ALLOWABLE U/S 35AB OF THE ACT ON ACCRUAL BASIS. IN THE ABSENCE OF ANY CONTRARY DECISION BROUGHT OUT BY THE LD. DEP ARTMENTAL REPRESENTATIVE BEFORE US, WE HEREBY AFFIRM THE DIRE CTION OF THE CIT(A) ON THIS ASPECT AND ACCORDINGLY REVENUE FAILS ON ITS GR OUND OF APPEAL NO.1. 9. NOW, WE MAY TAKE-UP THE GROUND OF APPEAL NOS. 2. 1 & 2.2 IN THE APPEAL OF THE REVENUE WHEREIN THE CIT(A) HAS DIRECT ED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 35AB OF THE ACT IN R ESPECT OF KNOW-HOW FEE WHOSE INNINGS U/S 35AB OF THE ACT HAVE BEGAN IN THE PAST AND WHERE THE BALANCE ELIGIBLE PERIOD U/S 35AB OF THE ACT WAS NOT OVER. 10. IN THIS CONTEXT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ASSESSING OFFICER HAS BEEN ALLOWING DEDUCTION TO TH E ASSESSEE TO THE EXTENT OF 1/6TH SINCE ASSESSEE ITSELF WAS DEBITING ONLY 1/6TH OF PROCESS KNOW-HOW FEE IN THE PROFIT & LOSS ACCOUNT AND WHAT THE ASSESSING OFFICER WAS REJECTING WAS THE CLAIM OF THE ASSESSEE MADE IN THE COMPUTATION OF INCOME THAT THE FULL AMOUNT SHOULD BE ALLOWED IN TH E FIRST YEAR ITSELF. IN- FACT, IT WAS A COMMON POINT BETWEEN THE PARTIES THA T SO FAR AS THE CLAIM OF DEDUCTION OF 1/6TH COST IS CONCERNED, THE SAME WAS ALLOWED BY THE ASSESSING OFFICER IN THE RESPECTIVE YEARS. IN VIEW OF THE AFORESAID FACTUAL MATRIX, THE DIRECTION OF THE CIT(A) IS QUITE INFRUC TUOUS AND IN-FACT WAS NOT CALLED FOR. AS A CONSEQUENCE, THE DECISION OF THE CIT(A) ON THIS ASPECT IS SET-ASIDE AS BEING INFRUCTUOUS. THUS FOR STATISTIC AL PURPOSES GROUNDS OF APPEAL NO.2.1 & 2.2 OF THE REVENUE ARE TREATED AS A LLOWED. SINCE THE ISSUE RAISED IN THE INSTANT APPEAL OF THE REVE NUE IS IDENTICAL AND BOTH SIDES HAVE NOT BEEN ABLE TO CONTROVER T THE FACTS AND CIRCUMSTANCES IN THE IMPUGNED ASSESSMENT YEAR, WE DECIDE D THE GROUND OF APPEAL OF REVENUE IN SAME TERMS. THUS, THE GROUND OF A PPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 28. THE SECOND GROUND RAISED BY THE REVENUE IN APPEAL IS WITH REGARD TO LEASE RENTALS. THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US IN ASSESSMENT YEAR 2000-01 IN PARA 13 ABOVE. IN ASSESSM ENT YEAR 25 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 2001-02, THERE HAS BEEN NO CHANGE IN THE FACTS AND CIR CUMSTANCES. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 29. THE THIRD ISSUE RAISED BY THE REVENUE IN APPEAL IS WIT H REGARD TO PROVISIONS FOR REIMBURSEMENT OF MEDICAL EXPENSES. THE LD. A R OF THE ASSESSEE SUBMITTED THAT ANNUAL AMOUNT DUE TO EACH EM PLOYEE IS CREDITED TO HIS PERSONAL MEDICAL REIMBURSEMENT ACCOUNT. I T IS LEFT TO THE DISCRETION OF EMPLOYEE TO WITHDRAW THE AMOUNT AS REIMBURS EMENT, AS AND WHEN REQUIRED OR TO ACCUMULATE AND CLAIM AT THE TIME OF RETIREMENT. THE ASSESSING OFFICER HELD THAT SINCE THE AMOUNT HAS NOT BEEN QUANTIFIED OR PAID, UNDER MERCANTILE SYSTEM OF ACCOUNTING, TH E EXPENDITURE CANNOT BE SAID TO HAVE ACCRUED OR CRYSTALLIZ ED. THE CLAIM IS BY WAY OF PROVISION, WITHOUT EXACT QUANTIFICATION. THE ASSE SSING OFFICER DISALLOWED THE SAME. 29.1 IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEAL S) HELD THAT THE MEDICAL REIMBURSEMENT IS AKIN TO LIABILITY OF LEAVE E NCASHMENT. THE AMOUNT TO BE TRANSFERRED UNDER MEDICAL REIMBURSEMEN T SCHEME CAN BE ASCERTAINED DEPENDING UPON THE ENTITLEMENT OF EACH EM PLOYEE OF ASSESSEE COMPANY. THE CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE BY FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT OF IN DIA IN THE CASE OF BHARAT EARTH MOVERS VS. CIT REPORTED AS 245 I TR 428 (SC). THE LD. DR VEHEMENTLY DEFENDED THE ORDER OF THE ASSESSING O FFICER AND PRAYED FOR REVERSING THE FINDINGS OF THE COMMISSIONER OF INC OME TAX (APPEALS) ON THIS ISSUE. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS). 26 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 29.2 BOTH SIDES HEARD. RECORDS PERUSED. WE ARE OF CONS IDERED OPINION THAT THE AMOUNT OF MEDICAL REIMBURSEMENT ARE IN THE NATU RE OF INCENTIVES GIVEN BY THE ASSESSEE TO ITS EMPLOYEES. IT IS THE DISCRETION OF THE EMPLOYEE EITHER TO CLAIM THE AMOUNT AS MEDICAL REIMBUR SEMENT OR TO ACCUMULATE AND WITHDRAW THE AMOUNT AT THE END OF PARTIC ULAR SERVICE. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE COMMISSIONE R OF INCOME TAX (APPEALS) ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEA L OF THE REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. 30. THE FOURTH GROUND RAISED BY THE REVENUE IN ITS APPEA L IS WITH REGARD TO INCOME RECOGNITION FROM THE CONTRACT ACTIVITY IN ACCORDANCE WITH ACCOUNTING STANDARD 7 OF ICAI. SIMILAR ISSUE WAS RAISE D BY THE ASSESSEE AS WELL AS BY THE REVENUE IN ASSESSMENT YEAR 2000-01. THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY PLA CING RELIANCE ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 1998-99. SINCE THE FACTS AND CIRCUMSTANCES IN THE PRESE NT ASSESSMENT YEAR ARE IDENTICAL, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED FOR THE SIMILAR REASONS AS STATED IN PARA 9 ABOVE. 31. THE SIXTH GROUND IN THE APPEAL OF THE REVENUE IS D ELETING OF TDS AMOUNT OF RS.64.93 LAKHS BY THE CIT(A). THE ASSESSEE HAD RECEIVED CERTAIN PAYMENTS FROM ITS CUSTOMERS AFTER DEDUCTION OF TA X AT SOURCE UNDER SECTION 194C OF THE ACT. THE ASSESSEE IN ITS BOOK S OF ACCOUNT HAD ACCOUNTED GROSS RECEIPTS FOR COMPUTING TAXABLE INCOME. F ROM THE ENTIRE TDS ACCOUNTED, THE ASSESSEE WAS UNABLE TO COLLECT CERT IFICATES FROM ITS CUSTOMERS TO THE TUNE OF RS.64,93,000/-. THE ASSESSEE D ECIDED TO WRITE OFF THE VALUE OF TDS CERTIFICATES, NOT RECOVERED. THE ASSES SING OFFICER DISALLOWED THE CLAIM OF ASSESSEE. IN FIRST APPEAL THE CIT(A) A LLOWED THE CLAIM OF ASSESSEE BY PLACING RELIANCE ON THE DECISION OF MUMB AI BENCH OF 27 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 TRIBUNAL IN THE CASE OF M.J. EXPORTS LTD. VS. JCIT REPORTE D AS 88 ITD 18 (BOM.). 31.1 IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ACC OUNTED GROSS AMOUNT IN ITS BOOKS OF ACCOUNTS AND HAS PAID TAX THEREO N. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS NOT RECEIVED TDS CERTIFIC ATES FROM ITS CUSTOMERS TO THE TUNE OF RS.64.93 LAKHS. THE REVENUE H AS NOT CONTROVERTED THE FINDINGS OF THE CIT(A) THAT THE SAID AMOU NT HAS BEEN ACTUALLY WRITTEN OFF BY THE ASSESSEE. WE CONCUR WITH THE FINDINGS OF CIT(A) THAT NON-RECEIPT OF TDS CERTIFICATES IS AKIN TO NON-R ECEIPT OF MONIES FROM DEBTORS. THE MUMBAI BENCH OF THE TRIBUNAL IN T HE CASE OF M.J. EXPORTS LTD. VS. JCIT (SUPRA) UNDER SIMILAR CIRCUMSTANC ES HAD ACCEPTED THE CLAIM OF ASSESSEE. THE LD. AR IN ORDER TO FURTHER BUTTRESS HIS SUBMISSIONS HAS DRAWN SUPPORT FROM THE ORDER OF CO-ORDINATE BENCH OF THE TRIBU NAL IN THE CASE OF KAILASH VAHAN UDYOG LTD. VS. DCIT IN ITA NO.1077/PN/201 1 FOR ASSESSMENT YEAR 2004-05 DECIED ON 31.01.2013. IN THE S AID CASE, THE ASSESSEE HAD NOT RECEIVED TDS CERTIFICATES FROM ITS CUSTO MERS. THE ASSESSEE HAD ALREADY ACCOUNTED FOR THE SAID AMOUNT IN R ESPECTIVE YEARS. THE TRIBUNAL HELD THAT THE ASSESSEE IN EARLIER YEARS HAD CONSIDERED THE ABOVE AMOUNT IN ITS TURNOVER AND SHOWN AS RECEIVABLE FRO M THE PARTIES. SINCE DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS WRITTEN OFF THE SAME, THEREFORE, THE AMOUNT HAS TO BE ALLOWED AS BAD DEBTS. 31.2 IN THE INSTANCE CASE, THE ASSESSEE UNDER SIMILAR CIRC UMSTANCES HAS WRITTEN OFF THE AMOUNT OF TDS CERTIFICATES NOT RECEIVE D. THEREFORE, IN OUR CONSIDERED VIEW IT HAS TO BE ALLOWED AS BAD DEBTS. W E FIND NO 28 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 INFIRMITY IN THE ORDER OF CIT(A). THIS GROUND OF APPEAL IS ACCO RDINGLY, DISMISSED. 32. THE EIGHTH GROUND OF APPEAL OF THE REVENUE IS WITH RE SPECT TO DEDUCTION UNDER SECTION 80-IA CLAIMED BY THE ASSESSEE. THIS ISSUE HAS BEEN CONSIDERED IN ASSESSMENT YEAR 2000-01 IN THE APPE AL OF THE REVENUE. SINCE, THERE HAS BEEN NO CHANGE IN THE FACTS IN THE CURRENT ASSESSMENT YEAR, FOR THE REASON GIVEN IN PARAGRAPH 14 ABOVE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 33. THE GROUND NO.11 AND 12 IN THE APPEAL OF THE REVENU E ARE GENERAL IN NATURE, THEREFORE, THEY REQUIRE NO ADJUDICATION. 34. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSESS MENT YEAR 2001-02 IS PARTLY ACCEPTED AND THE APPEAL OF THE REVEN UE IS ALSO PARTLY ALLOWED. ITA NO.574/PN/2007 FOR A.Y. 2001-02 : 35. IN THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF CIT(A)-III, PUNE DATED 18.01.2007 PASSED UNDER SECTION 143(3) R.W.S. 1 47 OF THE ACT. 35.1 THE ASSESSEE IN THE APPEAL HAS IMPUGNED THE FINDINGS OF THE FIRST APPELLATE AUTHORITY IN CONFIRMING THE DEDUCTION OF PROFITS OF B USINESS MADE BY ASSESSING OFFICER UNDER EXPLANATION (BBA) IN RESPECT OF (I) LEASE RENTAL INCOME RS.1,53,21,000/-; AND, (II) INSURANCE REFUNDS RS.33,92,019/-. THE ASSESSEE IN ITS RETURN OF INCOME WHILE C OMPUTING DEDUCTION UNDER SECTION 80HHC HAD INCLUDED CERTAIN ITEMS VIZ. (I) RENTA L 29 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 INCOME; (II) EXCHANGE GAIN; (III) EXCISE DUTY REFUND; (IV) SALES TAX RE FUND; AND, (V) INSURANCE REFUND IN THE PROFITS OF BUSINESS. IN RE- ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE RE-COMPUTING THE D EDUCTION UNDER SECTION 80HHC REDUCED 90% OF THE INCOMES RECEIVE D BY THE ASSESSEE COMPRISING OF LEASE RENTAL INCOME, EXCHANGE GAIN, E XCISE DUTY REFUND, SALES TAX REFUND AND INSURANCE REFUND. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29.12.2005, T HE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 35.2 THE CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE WITH RESPECT TO EXCHANGE GAIN, EXCISE DUTY REFUND AND SALES TAX REFUND. H OWEVER, IN RESPECT OF INSURANCE REFUND AND LEASE RENTAL INCOME THE C IT(A) UPHELD THE FINDINGS OF THE ASSESSING OFFICER. AGAINST THE ORDER OF T HE CIT(A), THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL. 35.3 SHRI H.P. MAHAJANI APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED THAT BOTH LEASE RENTAL INCOME AS WELL AS INSURANCE REFUN D RECEIVED DURING THE RELEVANT PERIOD ARE INTEGRAL PART OF THE BUSINE SS INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE LD. AR SUBMITTED THAT THE ASSESSEE APART FROM MANUFACTURING AN D SELLING OF STEAM BOILERS, WATER EXCHANGERS, WATER TREATMENT PLANT, C ARBON AND METAL FILM RESISTORS, ETC. IS ALSO ENGAGED IN LEASING OUT PLANT AND MACHINERY. THE LEASE RENTALS ARE PART OF LATTER BUSINESS ACTIVITY. IN RESPECT OF INSURANCE REFUND, THE LD. AR CONTENDED THAT THESE ARE INSURANCE CLAIMS ARISING OUT OF CLAIM OF DAMAGE. THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S PFIZER LTD. REPORTED AS 233 CTR 521 (BOM.) HAS HELD THAT THE CLAIM OF INSURANCE ON ACCOUNT OF STOCK-IN- 30 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 TRADE DOES NOT FALL WITHIN EXPLANATION (BAA) AND THEREFORE, IS NOT LIABLE TO BE REDUCED TO THE EXTENT OF 90%. ON THE OTHER HAND, SMT. M.S. VERMA REPRESENTING THE DEPA RTMENT VEHEMENTLY PLACED RELIANCE ON THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS). 35.4 BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PE RUSED. THE ONLY ISSUE RAISED BY THE ASSESSEE IN APPEAL IS WHETHER L EASE RENTAL INCOMES AND INSURANCE REFUNDS RECEIVED DURING THE RELEVAN T PERIOD FALL WITHIN THE AMBIT OF EXPLANATION (BAA) OF SECTION 80HHC. A B ARE PERUSAL OF SECTION SHOWS THAT DEDUCTION UNDER SECTION 80HHC IS A VAILABLE ON THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCANTILE EXPORTED BY THE ASSESSEE. EXPLANATION (BAA) DEFINES PROFITS OF THE BUSINESS TO BE UNDERSTOOD FOR COMPUTING DEDUCTION UNDER SECTION 80HHC. IT WOULD BE RELEVANT TO READ THE PROVISIONS OF E XPLANATION (BAA) BEFORE DECIDING THE ISSUE :- 80HHC XXXXXX (BAA) PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS REDUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUS ES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS; AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA ; 35.5 AS PER ASSESSEES OWN ADMISSION, THE ASSESSEE IS GIV ING ON LEASE CERTAIN SELF-MANUFACTURED PRODUCTS LIKE EXHAUST GAS BOILER S, VAPOR ABSORPTION HEAD PUMPS, CHILLERS, ETC.. THE INCOME DERIVED FRO M LEASING OUT OF ABOVE MACHINERY IS NOT DIRECTLY LINKED WITH THE EX PORT BUSINESS OF 31 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 THE ASSESSEE, THEREFORE, WE ARE OF CONSIDERED OPINION, THA T THE CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO EXCLUDE 90% OF T HE AMOUNT OF LEASE RENTAL FOR COMPUTING DEDUCTION UNDER SECTION 80HHC. 35.6 THE SECOND ITEM WHICH HAS BEEN EXCLUDED IS INSURANC E REFUNDS. THE CLAIM OF THE ASSESSEE IS THAT THE INSURANCE REFUNDS A RE ON ACCOUNT OF CLAIM OF DAMAGES. THE CONTENTION OF THE LD. AR IS THAT THE INSURANCE CLAIM IS ON THE SAME FOOTING AS THE INCOME REALIZED BY THE ASSESSEE ON SALE OF STOCK-IN-TRADE. THE INSURANCE CLAIM IS THE RESULT OF DAMAGE CAUSED TO THE STOCK-IN-TRADE. IN SUPPORT OF HIS CONTEN TION, THE LD. AR HAS PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF M/S PFIZER LTD. (SUPRA). THE HONBLE BOMBAY HIGH COURT WHILE ACCEPTING THE CLAIM OF THE ASSESSEE HELD, THAT THE INS URANCE CLAIM IS NOT SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CH ARGES, THEREFORE, DOES NOT FALL WITHIN THE MEANING OF EXPLANATION (B AA). IN THE PRESENT CASE, IT IS NOT EVIDENT FROM THE RECORDS WHETHER THE INSURANCE CLAIM IS ON ACCOUNT OF CLAIM OF DAMAGES OF STOCK-IN-TRADE OR ANY OTHER ASSET. IN OUR CONSIDERED OPINION, THIS ISSUE NEEDS A RE-V ISIT TO THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF ASCERTAINING WHET HER THE INSURANCE CLAIM WAS ON ACCOUNT OF DAMAGE CAUSED TO STOC K-IN-TRADE OR ANY OTHER ASSET. IN CASE, THE ASSESSING OFFICER FINDS THAT THE INSURANCE CLAIM IS ON ACCOUNT OF STOCK-IN-TRADE, HE SHALL ALLOW THE SAM E IN TERMS OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF M/S PFIZER LTD. (SUPRA). THE APPEAL OF THE ASSESSEE IS PARTLY ACCEPTED FOR STATISTICAL PURPOSES. 36. RESULTANTLY, APPEALS OF THE ASSESSEE IN ITA NOS.1247 & 1248/PN/2005 FOR ASSESSMENT YEARS 2000-01 AND 2001-0 2 ARE PARTLY ALLOWED AND IN ITA NO.574/PN/2007 FOR ASSESSMENT YEAR 20 01-02 IS 32 ITA NOS.1247 & 1248/PN/2005 ITA NOS.1290 & 1291/PN/2005 ITA NO.574/PN/2007 ALLOWED FOR STATISTICAL PURPOSES. THE APPEALS OF THE REVENU E IN ITA NOS.1290 & 1291/PN/2005 FOR ASSESSMENT YEARS 2000-01 & 2001-02 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 30 TH DAY OF JUNE, 2015 AT PUNE. SD/- SD/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH JUNE, 2015 SUJEET/RK COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - III , PUNE 4 THE CIT - III , PUNE 5 6 T HE DR, ITAT, A BENCH, PUNE. GUARD FILE. //TRUE COPY// BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE