MAHINDRA REALTY & INFRASTRUCTURE DEVELOPERS LTD ( NOW MERGED WITH MAHINDRA ENGINEEERING & CHEMICAL PRODUCTS & CHEMICAL PRODUCTS LTD), MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 1256/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48669 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 13-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 16-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS VANDANA SAGAR; MRS KU SUM INGALE
• Assessee Lawyers: H P MAHAJANI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Opportunity of being heard; Bad and doubtful debts; Notional interest; Revised return; Revenue expenditure; Capital expenditure
• Section: 80HHC; 14A; 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J,MUMBAI BEFORE SHRI T.R. SOOD (AM) & SMT. ASHA VIJAYARAGHAV AN (JM) I.T.A.NO.1256/MUM/2010 :: A.Y. 2001-02 I.T.A.NO.1257/MUM/2010 : : A.Y. 2002-03 M/S. MAHINDRA REALTY & INFRASTRUCTURE DEVELOPERS LTD., (NOW MERGED WITH MAHINDRA ENGG. & CHEMICAL PRODUCTS LTD.), GATEWAY BLDG., APOLLO BUNDER, WORLI, MUMBAI-400 001. PAN: AAACM4116G VS. DY.COMMR. OF INCOME-TAX-2(2), R.NO.549, AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400 020. APPELLANT RESPONDENT I.T.A.NO. 1258/MUM/2010 :: A.Y. 2001-02 I.T.A.NO. 1259/MUM/2010 :: A.Y. 2002-03 I.T.A.NO. 1260/MUM/2010 :: A.Y. 2003-04 I.T.A.NO. 1261/MUM/2010 :: A.Y. 2004-05 M/S. MAHINDRA ENGG. & CHEMICAL PRODUCTS LTD., GATEWAY BLDG., APOLLO BUNDER, WORLI, MUMBAI-400 001. PAN: AAACM5764A VS. INCOME-TAX OFFICER-2(2)(2), AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400 020. APPELLANT RESPONDENT I.T.A. NO. 1183/MUM/2010 :: A.Y. 2001-02 DY.COMMR. OF INCOME-TAX-2(2), R.NO.545, AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400 020. VS. M/S. MAHINDRA ENGG. & CHEMICAL PRODUCTS LTDD., GATEWAY BLDG., APOLLO BUNDER, WORLI, MUMBAI- 400 001. PAN: AAACM5764A APPELLANT RESPONDENT ASSESSEE BY SHRI H.P. MAHAJANI. DEPARTMENT BY MRS. KU SUM INGALE & MRS. VANDANA SAGAR. O R D E R PER BENCH : I.T.A.NO. 1256/MUM/2010: IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL : ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN ENHANCING DISALLOWANCE U/S. 14A TO THE TUNE OF RS.531.52 LAKHS APPLYING RULE 8D. 2. WITHOUT PREJUDICE TO GROUND NO.1 ABOVE, THE LEAR NED CIT(A) ERRED IN CONSIDERING DEBENTURES OF RS.17.60 CRORES AS TAX-FREE INVESTMENT AND WRONGLY INCLUDED IT IN THE COMPUTATI ON OF DISALLOWANCE U/S.14A WITHOUT APPRECIATING THE FACT THAT INCOME FROM DEBENTURES IS TAXABLE AND HENCE SHOULD NOT FORM PAR T OF INVESTMENT IN THE PRESCRIBED FORMULA UNDER RULE 8 D. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF PROVISION FOR FORESEEABLE LOSSES ON CONTRACT AMOUNTING TO RS.460. 77 LAKHS. THE CIT(A) FAILED TO APPRECIATE THAT THE LOSS WAS BOOKE D AS PER THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED AND AS M ANDATED BY ACCOUNTING STANDARD 7 ON CONSTRUCTION CONTRACT. GROUND NOS.1 & 2 : 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD MA DE INVESTMENTS AMOUNTING TO RS.93.96 CRORES. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAD DEBITED INTEREST AMOUNTING TO RS.35.26 CRORES AND, THEREFORE, THE AS SESSEE WAS REQUESTED TO SHOW CAUSE WHY INTEREST PAID ON BORROWED FUNDS SHOU LD NOT BE ATTRIBUTED TO THE INVESTMENTS IN SHARES AND DISALLOWED U/S.14A. IN RE SPONSE, IT WAS SUBMITTED THAT THE INVESTMENTS HAD BEEN MADE FOR THE PURPOSE OF B USINESS CONSIDERATION AND CAPITAL APPRECIATION AND NOT ONLY FOR EARNING DIVID END. IT WAS ALSO SUBMITTED THAT IF ANY INTEREST WAS TO BE DISALLOWED, THEN THE SAME WOULD WORK OUT TO RS.2,34,93,943/-. WORKING OF THE SAME WAS FURNISHED . THE AO OBSERVED AS UNDER : THE CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTABLE AS THE INTEREST BEARING FUNDS HAVE BEEN INVESTED IN SHARES FROM WHI CH ASSESSEE RECEIVES DIVIDEND INCOME WHICH IS EXEMPT AS PER SEC TION 10(33), THEREFORE THE PROVISIONS OF SECTION 14A ARE ATTRACT ED IN THIS CASE. THE WITHOUT PREJUDICE CALCULATION OF DISALLOWANCE U /S.14A OF THE ASSESSEE IS ACCEPTABLE. THEREFORE RS.2,34,93,943/- IS DISALLOWED AS ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 3 PER SECTION 14A AND IS ADDED BACK TO THE TOTAL INCO ME OF THE ASSESSEE. 3. ON APPEAL, SIMILAR SUBMISSIONS WERE REITERATED. THE LD. CIT(A) ISSUED NOTICE FOR ENHANCEMENT IN VIEW OF THE DECISION OF T HE SPECIAL BENCH IN TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL INVESTMENT LTD. (2 008) 26 SOT 603 (MUM.) (SB). BEFORE HIM, THE FIGURE FOR DISALLOWANCE UNDER RULE 8D WAS WORKED OUT AT RS.3.76 CRORES. HOWEVER, AFTER APPLYING RULE 8D, TH E LD. CIT(A) WORKED OUT THE DISALLOWANCE AT RS.5.31 CRORES AND ACCORDINGLY DISA LLOWED A SUM OF RS.5,31,52,000/-. 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT IT HAS ALREADY BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) THAT RULE 8D CANNOT BE APPLIED RETROSPECTIVELY. HE FURTHER SUBMITTED THAT DISALLOW ANCE OF RS.2,34,93,943/-, WHICH WAS WORKED OUT BEFORE AO AND DISALLOWED BY HI M, MAY BE TREATED AS REASONABLE EXPENDITURE AND HE WOULD HAVE NO OBJECTI ON IF THE DISALLOWANCE IS CONFIRMED. 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER OF CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT IT HAS ALREADY BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD. (SUPRA) THAT RULE 8D HAS NO RETROSP ECTIVE APPLICATION. SINCE THE YEAR UNDER CONSIDERATION BEFORE US IS ASSTT. YEAR 2 001-02, RULE 8D CANNOT BE APPLIED. HOWEVER, AT THE SAME TIME, THE HONBLE HIG H COURT HAS FURTHER HELD THAT AO HAS TO WORK OUT THE REASONABLE DISALLOWANCE. SIN CE BEFORE AO THE DISALLOWANCE WAS WORKED OUT AT RS.2,34,93,943/- AND WHICH HAS ALREADY BEEN ACCEPTED BY AO, WE SET ASIDE THE ORDER OF LD. CIT( A) AND DIRECT THE AO TO TREAT ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 4 THE DISALLOWANCE OF RS.2,34,93,943/- AS REASONABLE DISALLOWANCE. THUS, THESE GROUNDS ARE PARTLY ALLOWED. GROUND NO. 3: 7. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED A PROV ISION FOR FORESEEABLE LOSSES AMOUNTING TO RS.460.77 LAKHS. ACCORDING TO HIM, THI S WAS ONLY A PROVISION AND THEREFORE THE SAME WAS DISALLOWED. 8. ON APPEAL BEFORE CIT(A), IT WAS SUBMITTED THAT T HE ASSESSEE WAS FOLLOWING PERCENTAGE COMPLETION METHOD OF ACCOUNTING AS PRESC RIBED UNDER ACCOUNTING STANDARD 7 ON CONSTRUCTION CONTRACTS BY THE INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA. AS PER THIS METHOD, THE INCOME WAS BEING DECLARED ON ANTICIPATORY BASIS AND THEREFORE ANTICIPATORY LOSSES WERE ALSO ACCOUNT ED FOR. THE LD. CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE VIDE PARA 17, WHICH IS AS UNDER : 17. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AN D FIND NO MERIT IN THE CONTENTIONS OF THE APPELLANT. PERUSAL OF THE PROFIT AND LOSS ACCOUNT REVEALS THAT THE APPELLANT HAS DISCLOSED IN COME AND ALSO EXPENSES FROM THE VARIOUS PROJECTS UNDERTAKEN AS RE CEIPTS AMOUNT GO RS.5373.26 LAKH WHILE THE EXPENSES ON PROJECTS H AS BEEN DISCLOSED AT RS.2906.72 LAKH AS PER SCHEDULES 9 AND 10 OF THE BALANCE SHEET. OVER AND ABOVE, SUM OF RS.460.77 LAK H HAS BEEN CLAIMED AS DEDUCTIBLE, BEING PART OF OTHER EXPENSES OF RS.1604.90 LAKH AS PER SCHEDULE-13. THE APPELLANT HAS CLAIMED THAT SUCH FORESEEABLE LOSS PERTAINING TO A PROJECT CALLED MAH INDRA PARK, GHATKOPAR AND THE PROJECT NGE. IT MAY BE STATED HER E THAT THE APPELLANT HAS NOT FURNISHED THE SUPPORTING OF THE E XACT WORKING OF SUCH LOSS. IT IS NOTICED FROM ANNEXURE ENCLOSED WIT H THE SUBMISSION WHICH SHOWED WORKING OF SUCH LOSS, THE PROJECTS ARE SPREAD OVER TO MANY YEARS AND IS IN INCIPIENT STAGE STARING FROM T HE YEAR UNDER CONSIDERATION TO FY 2004. THERE APPEARS TO BE NO SA LES REALIZATIONS, NO SALE OF FLATS, NO ACTUAL EXPENDITURE INCURRED. O NLY AS PER PROJECTIONS, THE APPELLANT HAS ARRIVED AT THE LOSS WHICH IS ALSO NOT SUPPORTED BY ANY REPORT AUTHENTICATED BY ANY TECHNI CAL EXPERT. IT APPEARS THAT ENTIRE WORKING MADE IN AN AD HOC MANNE R IS COMPLETELY DIVORCED FROM THE GROUND REALITIES OR THE ACTUAL WO RK DONE. THE APPELLANT HAS PLACED UNDUE EMPHASIS ON ACCOUNTING S TANDARDS AS-7 FOR CLAIMING THE LOSS BUT NO SUCH WORKING HAS BEEN PROVIDED IN CONSONANCE WITH THE SAID NORMS. IN SUCH A SITUATION , THE SAID LOSS CANNOT BE CONSIDERED TO BE ASCERTAINED IN ANY MANNE R. ACCORDINGLY, ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 5 THE ACTION OF THE AO IN DISALLOWING THE SAME AS MER E PROVISION IS UPHELD . 9. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE CIT(A). 10. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPOR TED THE ORDER OF CIT(A). 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT NO DETAILS FOR FUTURE LOSSES WERE FURNISHED BEFORE AO OR CIT(A). L OSSES CANNOT BE CLAIMED MERELY ON THE BASIS OF PROJECTION. SOME DETAILS ARE REQUIRED TO BE FILED TO SHOW HOW THE ASSESSEE WAS ANTICIPATING THOSE LOSSES FOR WHICH CLAIM HAS BEEN MADE. HOWEVER, IT SEEMS, THE ASSESSEE HAS NOT BEEN GIVEN PROPER OPPORTUNITY OF BEING HEARD REGARDING THIS ISSUE. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRE CTION TO RE-EXAMINE THE ISSUE AFTER OBTAINING DETAILS ON PROJECTED LOSSES. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1183/MUM/2010: 13. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUND : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY DISAL LOWING SOFTWARE EXPENDITURE AMOUNTING TO RS.11,25,785/- BEING EXPEN SES INCURRED FOR PURCHASE OF SOFTWARE RELATING TO AUTO CAD, MS O FFICE AND MS WINDOWS, WHICH ARE CAPITAL IN NATURE. 14. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD MADE CLAIM FOR SOFTWARE EXPENSES AMOUNTING TO RS.11,25,785/-. IT WAS FURTHER NOTICED THAT SUCH AN EXPENDITURE WAS INCURRED FOR DIFFERENT COMPUTER PACKAGES. AFTER ELABORATE DISCUSSION, IT WAS HELD TO BE A CAPITAL EXPENDITURE AND ONLY DEPRECIAT ION WAS ALLOWED. THE LD. CIT(A) ALLOWED THE CLAIM ON THE BASIS OF DECISION O F SPECIAL BENCH OF TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT (2008) 21 SOT 1 (DEL)(SB). ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 6 15. BEFORE US, THE LD. D.R. SUBMITTED THAT THOUGH T HE CIT(A) HAS MENTIONED ABOUT THE DECISION OF SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISES V. DCIT (SUPRA), BUT EXPENDITURE INCURRED BY THE ASSES SEE HAS NOT BEEN TESTED ON THE PARAMETERS GIVEN BY THE SPECIAL BENCH. SHE FURT HER SUBMITTED THAT THE ASSESSEE HAD INCURRED MAJOR EXPENDITURE FOR PURCHAS ING AUTO CAD AND MS OFFICE WHICH CANNOT BE CONSIDERED AS ONLY SUPPLEMENTS OF T HE SOFTWARE. 16. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE SOFTWARE PURCHASED BY THE ASSESSEE WAS DEFINITELY C OVERED AS REVENUE EXPENDITURE BY THE DECISION OF SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THOUGH THE CIT(A) HAS MENTIONED THE DECISION OF SPECIAL BE NCH IN THE CASE OF AMWAY INDIA ENTERPRISES, BUT HOW THE EXPENDITURE INCURRED BY THE ASSESSEE IS COVERED BY THE DECISION IS NOT DISCUSSED. THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK T O THE FILE OF AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE IN THE LIGHT OF D ECISION OF SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA). 18. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ITA NO.1257/MUM/2010: 19. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF ENTIRE INTEREST EXPENDITURE OF RS.1400.66, WITHOUT APPRECIATING THE FACT THAT INTEREST IS ALLOWABLE U/S.36(1)(III) AS THE FUNDS W ERE BORROWED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. THE LEANE D CIT9A) ERRED IN HOLDING THAT THERE WAS NO NEXUS OF MONIES BORROWED WITH THE BUSINESS OF THE APPELLANT. THE LEARNED CIT(A) FURTH ER ERRED IN HOLDING THAT THE SAID INTEREST WAS IN ANY EVENT DIS ALLOWABLE U/S.14A READ WITH RULE 8D. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT PROVISIONS OF RULE 8D WAS NOT APPLICABLE TO THE YEAR UNDER ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 7 APPEAL AND THEREFORE, OUGHT TO HAVE DIRECTED THE AO TO AT LEAST ACCEPT THE AMOUNT OF DISALLOWANCE COMPUTED BY THE A PPELLANT U/S.14A. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF ADVANCE WRITTEN OFF TO THE TUNE OF RFS.678.79 LAKHS EITHER AS BAD DEBT OR AS A BUSINESS EXPENDITURE OR AS A BUSINESS LOSS UNDER AP PROPRIATE PROVISIONS OF THE INCOME-TAX ACT, 1961. GROUND NO. 1 : 20. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E AO NOTICED THAT THE ASSESSEE MADE A CLAIM FOR INTEREST PAYMENT AMOUNTIN G TO RS.1400.66 LAKHS. THE AO NOTICED THAT THE ASSESSEE HAS ALREADY SOLD ITS B USINESS CONSEQUENT TO THE DE- MERGER OF ASSESSEES BUSINESS AND RECEIPTS FROM BUS INESS AND PROFESSION WERE NIL. THE BORROWINGS WERE MADE ONLY FOR INVESTMENT I N SHARES WHICH WERE HELD AS INVESTMENT. THEREFORE, INTEREST WAS NOT ALLOWABLE U /S.14A AND ACCORDINGLY HE DISALLOWED THE INTEREST. 21. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT IN VESTMENTS WERE MADE AS PART OF THE BUSINESS TOWARDS FURTHERANCE OF BUSINES S ACTIVITIES OF THE ASSESSEE COMPANY, FOR WHICH RELIANCE WAS PLACED ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (28 8 ITR 1). THE LD. CIT(A) DID NOT ACCEPT THE SUBMISSIONS AND DECIDED THE ISSUE AGAINS T THE ASSESSEE VIDE PARA-5 OF HIS ORDER, WHICH IS AS UNDER : 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACT. IT IS NOTICED FROM THE PROFIT AND LOSS ACCOUNT THAT DURING THE YEAR UN DER CONSIDERATION, THE APPELLANT HAS O INCOME FROM BUSINESS ACTIVITIES , RATHER ONLY INCOME CREDITED IS MAINLY ON ACCOUNT OF DIVIDEND. O N THE DEBIT SIDE, ON THE OTHER HAND, THERE IS NO EXPENDITURE ON PERSO NNEL, PROJECT EXPENSES ETC. WHICH ONCE AGAIN CONFIRM THE FACT HAT NO BUSINESS ACTIVITY WAS CARRIED ON BY THE APPELLANT. IN SUCH A SITUATION, IT CAN BE SAFELY CONCLUDED THAT THE INTEREST DEBITED TO TH E ACCOUNTS IS HAVING NO NEXUS WITH THE BUSINESS AND IT NOT ALLOWA BLE UNDER SECTION 36(1)(III) OF THE ACT. SINCE THE INTEREST IS DIRECT LY ATTRIBUTABLE TO DIVIDEND WHICH IS EXEMPT FROM TAX, ENTIRE INTEREST IS LIABLE TO BE DISALLOWED IN TERMS OF RULE 8D R.W. SECTION 14A OF THE ACT WHICH HAS BEEN DONE BY THE AO. IN THIS CONNECTION, REFERENCE COULD BE MADE ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 8 TO THE DECISION IN THE CASE IF INSAALLAH INVESTMENTS LD. VS. ITO (2008) 23 SOT 130 (DEL) IN WHICH, IT WAS OBSERVED THAT THE PHRASE INCOME WHICH DOES NOT FORM PART OF THE TOTA L INCOME USED IS SNOT LIMITED TO ONLY CASES WHERE INCOME CANNOT BE I NCLUDED INCOME WHETHER RECEIVED OR NOT. THE ASSESSING OFFICER IN T HAT PARTICULAR, AS IN THE PRESENT CASE, DISALLOWED DEDUCTION U/S.36(1) (III) OF THE INTEREST PAID ON BORROWED FUND USED IN INVESTMENT I N SHARES WHICH WAS CLAIMED AS BUSINESS EXPENDITURE SINCE INVESTMEN T COULD NEITHER RESULT INTO CAPITAL GAINS OR DIVIDEND AND IN BOTH THE SITUATIONS, NO DEDUCTION OF INTEREST COULD BE ALLOWED. IN ANOTHER CASE OF KANKHAL INVESTMENTS AND TRADING CO. P.LTD. VS. ACIT(2008) 3 01 ITR (AT) 359 (MUM) WHERE BORROWED FUND WAS USED FOR PURCHASE OF SHARES WHICH WERE NOT PURCHASED AS STOCK-IN-TRADE B UT FOR LONG TERM INVESTMENTS AND THE INCOME WAS BEING OFFERED AS LON G TERM CAPITAL GAINS, IT WAS HELD THAT SINCE THE DIVIDEND INCOME W AS EXEMPT, NO DEDUCTION OF INTEREST COULD BE ALLOWED. IN THE LIGH T OF SUCH FACTS AND THE EMERGING POSITION OF LAW, IT IS HELD THAT THE A O WAS JUSTIFIED IN DISALLOWING THE CLAIM FOR DEDUCTION OF ENTIRE INTER EST AND IN IGNORING THE WORKING OF DISALLOWANCE U/S.14A AS MADE BY HE A PPELLANT. ACCORDINGLY, THE ADDITION MADE IS UPHELD . 22. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REFE RRED TO PAGE 1 OF THE PAPER BOOK AND POINTED OUT THAT THERE WAS LOSS IN THE BUS INESS WHICH HAS ALSO BEEN ASSESSED AS BUSINESS LOSS. HE ALSO SUBMITTED THAT I N THE IMMEDIATE PRECEDING YEAR THE INCOME FROM ICD AND DEBENTURES WAS ASSESSE D AS BUSINESS INCOME AND THEREFORE IN THIS YEAR THERE WOULD BE SOME BUSINESS INCOME AND ACCORDINGLY INTEREST SHOULD HAVE BEEN ALLOWED U/S.36(1)(III). 23. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT ALL THE BUSINESS ASSETS HAVE BEEN HIVED OFF BY THE ASSESSEE COMPANY AND IN THIS REGARD SHE REFERRED TO PARA 1 TO 4 OF THE ASSESSMENT ORDER. ONCE THE ASSESSEE WAS NOT DOING ANY BUSINESS ACTIVITY, THE INTEREST COULD NOT BE ALLOWED U/S.36( 1)(III). 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. D.R. DURING THE YEAR, IN A S CHEME OF RECONSTRUCTION AND DEMERGER UNDER SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956, WHICH WAS SANCTIONED BY THE HONBLE BOMBAY HIGH COURT, THE AS SETS OF INFRASTRUCTURE AND REALTY BUSINESS WERE DEMERGED AND GIVEN TO GESCO C ORPORATION LTD. AFTER THIS, ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 9 THE ASSESSEE IS NOT LEFT WITH ANY BUSINESS. THE OTH ER ASSETS REPRESENT ONLY INVESTMENTS IN SHARES AND THEREFORE INTEREST CANNOT BE ALLOWED U/S.36(1)(III). MERELY BECAUSE THE INTEREST ON DEBENTURES AND ICD W AS ASSESSED IN THE EARLIER YEARS BUSINESS INCOME, THAT WILL NOT MAKE ANY DIFF ERENCE. IN FACT, THE LD. CIT(A) HAS ONLY FOLLOWED THE DECISION OF THE TRIBUNAL IN T HE CASE OF KANKHAL INVESTMENTS & TRADING CO.P. LTD. VS. ACIT 301 ITR (AT) 359. IN THIS CASE, IT WAS OBSERVED AS UNDER : THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORR OWED CAPITAL UNDER SECTION 36 OF THE INCOME-TAX ACT, 1961, FOR T HE ASSESSMENT YEARS 1998-99 AND 1999-2000. IN THE COURSE OF THE A SSESSMENT PROCEEDINGS, IT WAS FOUND BY THE ASSESSING OFFICER THAT SHARES WERE NOT PURCHASED AS STOCK-IN-TRADE BUT AS LONG TERM IN VESTMENTS AND THE INCOME ARISING FROM SALE OF SHARES WAS BEING OF FERED UNDER THE HEAD CAPITAL GAINS. THUS, THE CONTENTION OF THE A SSESSEE THAT BORROWED FUNDS WERE UTILIZED FOR BUSINESS PURPOSES WAS REJECTED. FURTHER, NO SUCH CLAIM WAS ALLOWABLE UNDER THE OTHE R HEADS AS DIVIDEND INCOME WAS EXEMPT UNDER SECTION 10(330 OF THE ACT. THEREFORE, THE CLAIM OF THE ASSESSEE WAS DISALLOWED . THIS WAS CONFIRMED BY THE COMMISSIONER (APPEALS). ON THE ABOVE FACTS, IT WAS HELD AS UNDER : HELD, THAT THERE MUST BE RECEIPT EITHER ACTUAL OR ON ACCRUAL BASIS BEFORE A DEDUCTION CAN BE ALLOWED THEREFROM. CONSEQ UENTLY, IF RECEIPTS, IN RESPECT OF WHICH EXPENDITURE IS INCURR ED, ARE CONSIDERED UNDER OTHER HEADS, THEN QUESTION OF DETERMINING ANY INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFES SION DOES NOT ARISE. IN THE CASE OF A COMPANY IN THE BUSINESS OF HOLDING SHARES, IF INVESTMENT IN SHARES IS DISPOSED OF THEN INCOME THE REFROM HAD TO BE COMPUTED ONLY UNDER THE SPECIFIED HEAD CAPITAL GAI NS. FURTHER DIVIDEND INCOME INCOME IS ALSO TO BE COMPUTED UNDER THE HEAD INCOME FROM OTHER SOURCES IF SUCH INCOME IS TAXAB LE. SINCE DIVIDEND INCOME WAS EXEMPT UNDER SECTION 10(33) OF THE ACT, THE QUESTION OF COMPUTING SUCH INCOME DID NOT ARISE. TH ERE WAS NO OTHER RECEIPT ARISING OR ACCRUING TO THE ASSESSEE F ROM THE BUSINESS OF HOLDING INVESTMENT IN SHARES. THE ASSESSEE WAS N OT ENTITLED TO DEDUCT THE INTEREST PAYMENT FROM INTEREST INCOME FR OM HOLDING OF DEBENTURES AS THERE WAS NO NEXUS BETWEEN THE BORROW ED FUNDS AND INVESTMENT IN DEBENTURES. ADMITTEDLY, THE BORROWED FUNDS WERE UTILISED FOR THE PURCHASE OF SHARES AND THEREFORE I NTEREST PAID COULD NOT BE SET OFF AGAINST THE INCOME BY WAY OF INTERES T ON DEBENTURES. THE INTEREST WAS NOT DEDUCTIBLE. ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 10 IN THE CASE BEFORE US, THE FACTS ARE IDENTICAL. INV ESTMENTS MADE BY THE ASSESSEE WERE FOUND BY THE AO TO BE HELD UNDER INVESTMENT AN D THEREFORE INTEREST CANNOT BE ALLOWED. ACCORDINGLY, WE FIND NOTHING WRONG WITH THE ORDER OF CIT(A) AND CONFIRM THE SAME. GROUND NO. 2: 24. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD WRITTEN OFF AD VANCES AMOUNTING TO RS.678.79 LAKHS. ON A REQUEST TO FURNISH THE DETAIL S, THE ASSESSEE COMPANY RESPONDED AS UNDER : DURING THE YEAR UNDER CONSIDERATION, THE COMPANY H AS WRITTEN OFF CERTAIN DOUBTFUL ADVANCES AMOUNTING TO RS.678.79 CR ORES AND SAME WAS DEBITED TO P/L ACCOUNT. THE COMPANY CONTEND THA T THE SAID WRITE OFF ADVANCES ARE ALLOWABLE LU/S.37 OF THE I.T . ACT 1961. SINCE NO DETAILS WERE SUBMITTED OR THE CIRCUMSTANCE S UNDER WHICH SUCH ADVANCES WERE WRITTEN OFF, THE AO DISALLOWED THE CLAIM. 25. BEFORE THE LD. CIT(A), IT WAS MAINLY SUBMITTED THAT THE ASSESSEE HAD PLACED CERTAIN INTER-CORPORATE DEPOSITS WITH VARIO US COMPANIES AND SUBSCRIBED TO SOME DEBENTURES. SINCE INTEREST WAS NEVER RECEIVED AND THE FINANCIAL POSITION OF SUCH COMPANIES HAD BECOME BAD, THE AMOUNT WAS WRITT EN OFF. THE LD. CIT(A) DECIDED THE ISSUE VIDE PARA-8, WHICH IS AS UNDER : 8. ON CAREFUL CONSIDERATION OF THE ABOVE FACTS, I DO NOT FIND ANY INFIRMITY IN THE CONCLUSION DRAWN BY THE AO. THE AP PELLANT ITSELF IS NOT SURE UNDER WHICH PROVISION OF THE ACT SUCH ADVA NCES COULD BE ALLOWED AS DEDUCTION. IN SO FAR AS DEDUCTION U/S.37 IS CONCERNED, IT IS RIGHTLY POINTED OUT BY THE AO THAT ONUS LIES ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THE APPELLANT HAS NOT BEE N ABLE TO RETORT TO THE SPECIFIC REQUIREMENTS OF THE AO MADE IN THIS REGARD. EVEN DURING APPEAL PROCEEDINGS, MERELY NAMES OF A FEW CO MPANIES HAVE BEEN SUBMITTED WITH RESPECTIVE AMOUNTS OF LOANS/ADV ANCES AND INTEREST WRITTEN OFF UNILATERALLY. THERE IS NO EVID ENCE THAT SUCH COMPANIES HAD BEEN BECOME FINANCIALLY WEAK WHICH NE CESSITATED SUCH WRITE OFF. THERE IS NO CONFIRMATION IN THIS RE GARD FROM ANY OF THEM NOR THEIR ANNUAL ACCOUNTS HAVE BEEN SUBMITTED IN SUPPORT OF ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 11 SUCH A CONTENTION. MOREOVER, THE APPELLANT HAS WRIT TEN OFF AND CLAIMED DEDUCTION NOT ONLY OF INTEREST BUT ALSO LOA NS WHICH ARE STATED TO BE ADVANCES THOUGH THE SAME BEING CAPITAL SUMS COULD NOT BE ALLOWED AS REVENUE EXPENDITURE. THE APPELLANT IS NOT ENGAGED IN MONEY LENDING BUSINESS AND SUCH WRITING OFF OF LOAN COULD NOT BE ALLOWED AS DEDUCTION U/S. 37(1) OF THE ACT. IT WOUL D BE WORTHWHILE TO RELY ON THE DECISION IN THE CASE OF SALEM MAGNESITE P. LTD. (2009) 180 TAXMAN 545 (BOM) IN WHICH THE ASSESSEE WHICH WAS SOLELY IN THE BUSINESS OF MINING HAD LENT CERTAIN S UM TO A SUBSIDIARY COMPANY WHICH LATER SUFFERED A LOSS AND WAS NOT IN A POSITION TO REPAY THE LOAN WHICH THE ASSESSEE WROTE OFF AND CLA IMED DEDUCTION. THE CLAIM WAS DISALLOWED AS THE LOAN GRANTED DID NO T SPRING DIRECTLY FROM THE BUSINESS AND WAS NOT INCIDENTAL TO IT. THU S, THE AO ;RIGHTLY DISALLOWED THE CLAIM OF DEDUCTION U/S.37. IN SO FAR AS THE ALTERNATIVE PLEA FOR CONSIDERING DEDUCTION IN TERMS OF SECTION 36(1)(VII), THERE IS ABSOLUTELY NO MERIT IN HE CLAIM. THE APPELLANT HAS NOT BROUGHT ON RECORD ANY MATERIAL FACT TO SUPPORT THE CLAIM THAT SUCH ADVANCES WERE IN THE NATURE OF DEBTS AND HAD BEEN PASSED THR OUGH THE TRADING ACCOUNT IN EARLIER YEARS. THEREFORE, THE PR OVISIONS OF SECTION 36(2) HAVING BEEN NOT SATISFIED, IT IS HELD THAT TH E AO WAS FULLY JUSTIFIED IN DISALLOWING THE CLAIM OF DEDUCTION. TH E ADDITION MADE IS, THEREFORE, UPHELD. 26. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). HE ALSO RELIED ON THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT (323 ITR 397). 27. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT SINCE DETAILS FOR SUCH WRITE OFF WERE NOT AVAILABLE, THE CLAIM WAS CORRECTLY DIS ALLOWED. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT DETAILS WERE NOT AVAILABLE BEFORE AO OR CIT(A). IT IS NOT C LEAR HOW AMOUNTS GIVEN ON DEBENTURES CAN BE WRITTEN OFF AS A BAD DEBT. THEREF ORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF AO WITH A DIRECTION TO RE-EXAMINE THE SAME AFTER EXAMI NING ALL DETAILS WHICH MAY BE FURNISHED BEFORE THE AO. 29. IN THE RESULT, HE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1258/MUM/2010 : 30. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS : ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 12 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E LEARNED AO IN REJECTING THE CLAIM OF THE APPELLANT FOR DEDUCTION OF TECHNICAL FEES OF RS.22,82,663 EITHER AS A BUSINESS EXPENDITURE OR A BUSINESS LOSS ALLOWABLE IN THE YEAR UNDER APPEAL. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT TH AT THE CLAIM FOR DEDUCTION OF THE AMOUNT IN QUESTION WAS MADE BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS OF THE YEAR UNDER APPEAL ONLY FOR THE REASON THAT THE CLAIM WAS REJEC TED BY THE AO IN ASSESSMENT PROCEEDINGS FOR AY 2000-01 WHEN IT WAS M ADE IN THE FIRST PLACE AND WAS THEREFORE WITHOUT PREJUDICE TO THE CONTENTION OF THE APPELLANT THAT IT WAS ALLOWABLE IN AY 2000-01. 31. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING THE YEAR THE ASSESSEE HAS MADE A CLAIM FOR PAYMENT OF TECHNICAL FEES AMOU NTING TO RS.22,82,663/- WHICH WAS NOT ALLOWED IN THE ASSESSMENT YEAR 2000-0 1 AND THAT IS WHY THE SAME CLAIM WAS MADE AGAIN. THE AO DISALLOWED THE CLAIM B Y OBSERVING THAT THE SCOPE OF ASSESSMENT PROCEEDINGS U/S.143(3)(I) IS LIMITED AND, THEREFORE, THIS CLAIM WAS NOT ALLOWED. 32. BEFORE THE CIT(A), IT WAS MAINLY SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH FARUKAWA ELECTRIC COMPANY LT D., JAPAN. THROUGH THIS AGREEMENT, THE JAPANESE COMPANY WAS TO GRANT A LICE NCE TO MANUFACTURE AND SELL CERTAIN COMPONENTS AND PARTS MANUFACTURED ON THE BA SIS OF TECHNICAL INFORMATION AND KNOWHOW TO BE PROVIDED BY FARUKAWA ELECTRIC COM PANY LTD. THE ASSESSEE COMPANY PAID A LUMP SUM CONSIDERATION FOR THIS WHIC H WAS PAYABLE IN THREE INSTALLMENTS AND THE FIRST INSTALLMENT WAS PAYABLE IMMEDIATELY ON THE SIGNING OF AGREEMENT. THE AGREEMENT WAS APPROVED BY RBI. THE A SSESSEE COMPANY REMITTED A SUM OF RS.18,16,631/- ON 26-10-1998 AND ALSO EFFECTED THE PAYMENT OF TAX. SINCE FARUKAWA ELECTRIC COMPANY LTD. COULD NOT MEET THE TIME SCHEDULE AS PER THE AGREEMENT AND FURTHER THE PROPOSAL TO M ANUFACTURE CONTRACTED COMPONENTS WAS ABANDONED, THE TECHNICAL KNOWHOW AGR EEMENT WITH FARUKAWA ELECTRIC COMPANY LTD. WAS TERMINATED. ACCORDINGLY, THE AMOUNT ALREADY PAID ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 13 INCLUSIVE OF TAX WAS WRITTEN OFF IN THE ACCOUNTS F OR THE YEAR ENDED 31-03-2000. THIS CLAIM WAS DISALLOWED BY THE AO BY HOLDING THAT THE CLAIM WAS OF CAPITAL NATURE AND, IN ANY CASE, SINCE THE TECHNICAL AGREEM ENT WAS TERMINATED IN FINANCIAL YEAR 2000-01, THE SAME COULD NOT BE CONSI DERED IN ASST. YEAR 2000-01. IT WAS ARGUED THAT THIS CASE WAS A CASE OF BUSINESS LOSS WHICH HAS BEEN SUFFERED DURING THE ORDINARY COURSE OF BUSINESS. THE LD. CIT (A), AFTER CONSIDERING THE SUBMISSIONS, DECIDED THE ISSUE VIDE PARA 14, WHICH IS AS UNDER : 14. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AN D FIND NO MERIT IN THE CONTENTIONS OF THE APPELLANT. IT IS ITSELF H AS ADMITTED IN NO UNCERTAIN TERMS THAT THE DEDUCTION IS ALLOWABLE IN AY 2000-01 WHILE THE PRESENT APPEAL PERTAINS TO AY 2001-02. THUS, TH ERE IS NO REQUIREMENT FOR GOING INTO THE MERITS OR OTHERWISE OF THE SAID CLAIM AND APPLICABILITY OF THE RELEVANT PROVISIONS OF THE ACT. THE APPELLANT HAS WRITTEN OFF THE SAID AMOUNT IN THE ACCOUNTS PER TAINING TO AY 2000-01. AS SUCH, THERE IS ABSOLUTELY NO BASIS FOR CLAIMING DEDUCTION IN THE YEAR UNDER CONSIDERATION. MOREOVER, THE SAID CLAIM HAS BEEN MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS AND NO T BY WAY OF ANY REVISED RETURN FILED U/S.139(5) OF THE ACT. THE REFORE, THE SAID DEDUCTION IS OTHERWISE ALSO NOT ALLOWABLE IN VIEW O F THE DECISION OF HONBLE SUPREME COURT IN GOETZE (INDIA) LD. VS. CIT (2006) 284 ITR 323 (SC) IN WHICH IT HAS BEEN HELD THAT WITH REGARD TO THE DEDUCTION CLAIMED AFTER FILING OF THE RETURN, THE AO HAS NO P OWER TO ENTERTAIN CLAIM MADE OTHERWISE THAN BY WAY OF REVISED RETURN. ACCORDINGLY, THE ACTION OF THE AO IS UPHELD. 33. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). HE ALSO SUBMITTED THAT THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (I) LTD. VS. CIT (284 ITR 323 ) IS NOT APPLICABLE BECAUSE THE MUMBAI BENCH OF TRIBUNAL HAS ALREADY HELD IN THE CA SE OF NATHPAL JHAKRI JOINT VENTURE VS. ACIT (37 SOT 160) THAT A RELIEF CANNOT BE DENIED MERELY ON TECHNICAL GROUNDS. ON A QUERY BY THE BENCH, HE FAIR LY ADMITTED THAT APPEAL IS PENDING FOR ASSTT. YEAR 2000-01 AND ALSO THAT NO RE VISED RETURN WAS FILED FOR MAKING THIS CLAIM. 34. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPOR TED THE ORDER OF CIT(A). ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 14 35. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (SUPRA) IS AS UNDER : THE QUESTION RAISED I THIS APPEAL RELATES TO WHETH ER THE APPELLANT ASSESSEE COULD MAKE A CLAIM FOR DEDUCTION OTHER THA N BY FILING A REVISED RETURN. THE ASSESSMENT YEAR IN QUESTION WAS 1995-96. THE RETURN WAS FILED ON NOVEMBER 30, 1995, BY THE APPEL LANT FOR THE ASSESSMENT YEAR IN QUESTION. ON JANUARY 12, 1998, T HE APPELLANT SOUGHT TO CLAIM A DEDUCTION BY WAY OF A LETTER BEFO RE THE ASSESSING OFFICER. THE DEDUCTION WAS DISALLOWED BY THE ASSESS ING OFFICER ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE IN COME-TAX ACT TO MAKE AMENDMENT IN THE RETURN OF INCOME BY MODIFYING AN APPLICATION AT THE ASSESSMENT STAGE WITHOUT REVISIN G THE RETURN. THIS APPELLANTS APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS ALLOWED. HOWEVER, THE ORDER OF THE FU RTHER APPEAL OF THE DEPARTMENT BEFORE THE INCOME-AX APPELLATE TRIBU NAL WAS ALLOWED. THE APPELLANT HAS APPROACHED THIS COURT AN D HAS SUBMITTED THAT THE TRIBUNAL WAS WRONG IN UPHOLDING THE ASSESS ING OFFICERS ORDER. HE HAS RELIED UPON THE DECISION OF THIS COUR T IN NATIONAL THERMAL POWER COMPANY LTD. V. CIT (1998) 229 ITR 38 3, TO CONTEND THAT IT WAS OPEN TO THE ASSESSEE TO RAISE THE POINT S OF LAW EVEN BEFORE THE APPELLATE TRIBUNAL. THE DECISION IN QUESTION IS THAT THE POWER OF THE T RIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTERTAIN FOR THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOES NOT IN ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY F ILING A REVISED RETURN. IN THE CIRCUMSTANCES OF THE CASE, WE DISMIS S THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE ISSUE IN THIS CA SE IS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT I MPINGE ON THE POWER OF THE INCOME-TAX APPELLATE TRIBUNAL UNDER SE CTION 254 OF THE INCOME-TAX ACT, 1961. THERE SHALL BE NO ORDER AS TO COSTS. THE HIGHLIGHTED PORTION CLEARLY SHOWS THAT THE DECI SION WOULD NOT AFFECT THE POWERS OF TRIBUNAL IN TERMS OF THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF NATIONAL POWER THERMAL CO. LTD. V. CIT (229 ITR 383) WHEN THE ISSUE IS RAKED UP BEFORE THE TRIBUNAL FOR THE FIRST TIME. THIS MEA NS THAT IF A CLAIM HAS BEEN MADE BEFORE THE AO AND THE SAME HAS BEEN REJECTED B ECAUSE NO REVISED RETURN HAS BEEN FILED, THEN, SINCE THE AO HAS NO SUCH POWE R, SUCH CLAIM HAS TO BE REJECTED. THAT IS WHY THE CLAIM OF ASSESSEE WAS REJ ECTED IN THE CASE OF GOETZE ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 15 (INDIA) LTD. ALSO. IN THE CASE OF NATHPAL JHAKRI JO INT VENTURE, THE ISSUE WAS THAT THE ASSESSEE HAD CLAIMED CERTAIN EXPENDITURE ON CON STRUCTION OF TEMPORARY STRUCTURE, OUT OF WHICH 95% OF THE EXPENDITURE WAS ALLOWED AND 5% WAS NOT ALLOWED BECAUSE THE PROJECT WAS COMPLETE ONLY UPTO 95%. THE CLAIM FOR BALANCE AMOUNT WAS MADE IN LATER YEARS WITHOUT REVISING THE RETURN. BEFORE THE TRIBUNAL, THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F GOETZE (INDIA) LTD. WAS CITED AND THE TRIBUNAL OBSERVED THAT WE FIND THAT THE RELIANCE OF THE REVENUE ON THIS JUDGMENT IS PARTLY CORRECT. BUT, HOWEVER, LAT ER ON, IT WAS OBSERVED THAT RELIEF COULD NOT BE DENIED MERELY ON TECHNICALITIES . IT SEEMS, THE TRIBUNAL HAS NOT NOTED THE PORTION OF THE ORDER OF HONBLE SUPREME C OURT WHICH HAS BEEN HIGHLIGHTED BY US. IT HAS BEEN CLEARLY OBSERVED BY THE HONBLE SUPREME COURT THAT THE POWERS OF TRIBUNAL WILL NOT BE AFFECTED WH EN THE TRIBUNAL IS ENTERTAINING THE CLAIM FOR THE FIRST TIME A POINT OF LAW. THERE FORE, WHEN THE CLAIM WAS MADE BEFORE THE AO WITHOUT REVISING THE RETURN, SUCH CLA IM IS NOT ALLOWABLE AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GO ETZE (INDIA) LTD. WOULD CLEARLY APPLY. IN ANY CASE, WE FURTHER FIND THAT IN THE CASE BEFORE US THE CLAIM WAS DISALLOWED, NOT MERELY BECAUSE THE AGREEMENT WA S TERMINATED IN FINANCIAL YEAR 2000-01, BUT IT WAS ALSO DISALLOWED BECAUSE IT WAS HELD TO BE OF CAPITAL NATURE AND THAT ISSUE IS STILL PENDING FOR ADJUDICA TION AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE BEFORE THE CIT(A). THEREFOR E, THE INTEREST OF ASSESSEE IS NOT AFFECTED. IN VIEW OF THIS DISCUSSION, WE CONFIR M THE ORDER OF LD. CIT(A). 36. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. ITA NO.1259/MUM/2010: 37. IN THIS APPEAL, THE ASSESSEE HAS RAISED VARIOUS GROUNDS BUT BASICALLY 4 DISPUTES ARE INVOLVED, WHICH ARE AS UNDER : (1) CONFIRMATION OF ADDITION ON ACCOUNT OF NOTIONAL INTEREST AMOUNTING58,72,500/-. ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 16 (2) CONFIRMATION OF ADDITION ON ACCOUNT OF CAPITAL EXPENDITURE INCURRED ON REPAIRS & MAINTENANCE. (3) CONFIRMATION OF ADDITION ON ACCOUNT OF ADDITION AMOUNTING TO RS.10,00,000/- ON ACCOUNT OF PROPORTIONATE PREMIUM ON REDEMPTION OF DEBENTURES. (4) CONFIRMATION OF ADDITION ON ACCOUNT OF EXCLUSIO N FROM PROFITS 90% OF SERVICE CHARGES, PREMIUM ON DEBENTURES AND M ISC. INCOME. ISSUE NO. (1): 37. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE COMPANY HAD PLACED A DEPOSIT OF RS.4.35 CRORES IN FINANCIAL YEAR 2000-01 WITH MAHINDRA CONSTRUCTIO N CO. LTD. (FOR SHORT MCCL). IT WAS CLAIMED THAT THE FINANCIAL POSITION OF THIS COMPANY WAS NOT GOOD AND, THEREFORE, INTEREST AMOUNTING TO RS.58,72,500/- WAS WAIVED. THE AO NOTED THAT THOUGH THE ASSESSEE HAD MADE A PROVISION FOR DOUBTF UL DEBTS IN RESPECT OF THIS ADVANCE, BUT THE SAME WAS ADDED TO THE COMPUTATION OF INCOME, WHICH MEANS PROVISION FOR DOUBTFUL DEBTS HAD BEEN NULLIFIED. HE FURTHER NOTED THAT DEPOSIT WAS GIVEN IN FINANCIAL YEAR 2000-01 AND WAS TREATED DOU BTFUL IN THE SAME YEAR WITHOUT ANY BASIS. HE WONDERED HOW A DEPOSIT GIVEN TO A SISTER CONCERN COULD BE TREATED AS DOUBTFUL IN THE YEAR OF ADVANCE ONLY WIT HOUT ASCERTAINING THE TRUE FINANCIAL POSITION AND ACCORDINGLY THIS AMOUNT OF RS.58,72,500/- WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. 38. ON APPEAL BEFORE THE CIT(A), IT WAS AGAIN EMPH ASIZED THAT INTEREST WAS WAIVED ON THE BASIS OF INTERIM ASSESSMENT OF FINANC IAL CONDITION OF MCCL. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVING THAT THE RE WAS NO EVIDENCE TO SHOW THAT THE FINANCIAL CONDITION OF MCCL WAS POOR. 39. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND EMPHASIZED THAT IN TEREST WAS WAIVED MAINLY ON THE INTERIM ASSESSMENT OF FINANCIAL POSITION OF MCC L. ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 17 40. ON THE OTHER HAND, THE LD. D.R. SUPPORTED THE O RDERS OF AO AND CIT(A). 41. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT NO EVIDENCE WAS PRODUCED BEFORE LOWER AUTHORITIES TO PROVE THAT THE FINANCIAL POSITION OF MCCL HAS REALLY BECOME BAD. IT IS VERY STRANGE THAT ADVANCE GIVEN IN THE SAME YEAR HAS BEEN TREATED AS DOUBTFUL. HOWEVER, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO TH E FILE OF AO FOR RE-EXAMINATION AS THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED TH AT OPPORTUNITY TO PRODUCE EVIDENCE REGARDING POOR FINANCIAL HEALTH OF MCCL WA S NOT GIVEN. THE ASSESSEE IS DIRECTED TO PRODUCE EVIDENCE AND THE AO IS DIRECTED TO PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE AND THEN DECIDE THE ISS UE IN ACCORDANCE WITH LAW. ISSUE NO. (2): 42. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAD CLAIMED EXPENDITUR E ON REPAIRS & MAINTENANCE AMOUNTING TO RS.8,93,406/- AS PER DETAILS BELOW : SL.NO. PARTICULARS AMOUNT (RS.) 1 NETWORK INSTALLATION AND COLOR MONITOR 5,700/- 2 TULLU MAKE WATER PUMP/TANK 4,200/- 3 WATER TANK 2,050/- 4 CLAMPING CYLINDER 2,23,677/- 5 CUSTOM DUTY ON CLAMPING CYLINDER 1,29,357/- 6 BED EXTENSION FOR WINDING M/C 60,823/- 7 UPGRADATION OF PC 13,000/- 8 HEATING CATRIDGE 1,00,710/- 9 MS OFFICE 2000 STANDARD/PROFESSIONAL 32,589/- 10 MS OFFICE 2000 SMALL BUSINESS 3,21,300/- TOTAL 8,93,406 ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 18 THE AO OBSERVED THAT THE ASSETS PURCHASED AND CLAIM ED AS REPAIRS WERE PART OF THE BIGGER ASSET AND, THEREFORE, THEY WERE OF CAPIT AL NATURE AND ACCORDINGLY HE ALLOWED ONLY DEPRECIATION @ 25%. 43. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITIO N VIDE PARA 13, WHICH IS AS UNDER : 13. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS. I T IS EVIDENT FROM THE FACTS STATED ABOVE THAT ALL THE PLAT AND MACHIN ERIES ARE CAPITAL ASSETS ACQUIRED FOR THE FIRST TIME. THERE IS NOTHIN G ON RECORD TO SHOW THAT THE SAME WERE REPLACEMENT OF THE EXISTING ASSE TS OR WERE MEANT FOR UPGRADATION, MORE SPECIFICALLY IN THE CAS E OF COMPUTER SOFTWARE IN THE FORM OF MS OFFICE. ACCORDINGLY, NO INTERFERENCE IS CALLED FOR IN THE MATTER AND THE ADDITION MADE IS U PHELD. 44. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT THE NATURE OF EXPENDITURE WAS CLEARLY OF REVENUE NATURE AND, THER EFORE, THESE EXPENSES SHOULD BE ALLOWED. 45. ON THE OTHER HAND, THE LD. D.R. POINTED OUT THA T THE NATURE OF EXPENDITURE WAS CLEARLY OF CAPITAL NATURE E.G. PURCHASE OF COLO R MONITOR OR WATER TANK OR CLAMPING CYLINDER CANNOT BE TREATED AS ITEMS OF REV ENUE NATURE. 46. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT SOME OF THE ITEMS SEEM TO BE REVENUE NATURE BUT SOME ITEMS ARE CLEARLY OF CAPITAL NATURE. THEN, THERE IS A CASE OF INSTALLATION OF SO FTWARE OF MS OFFICE. HOWEVER, AS REQUESTED BY THE LD. COUNSEL OF THE ASSESSEE TO DEC IDE THE MATTER ONE WAY OR THE OTHER, WE ESTIMATE THAT A SUM OF RS.5,00,000/- OUT OF THESE ITEMS MAY BE TREATED AS REVENUE EXPENDITURE AND THE BALANCE AS C APITAL EXPENDITURE. AS FAR AS THE BALANCE CAPITAL EXPENDITURE IS CONCERNED, DEPRE CIATION @ 25% AS ADMITTED BY THE LD. COUNSEL OF THE ASSESSEE SHOULD BE GIVEN IN THE YEAR UNDER CONSIDERATION AS WELL AS IN FUTURE YEAS. ISSUE NO. (3) : ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 19 47. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ASSESSEE HAD CLAIMED TOWARDS REDUCTION OF PREMIUM ON REDEMPTION OF DEBE NTURES AMOUNTING TO RS.10,00,000/-. IN THE YEAR 2000, THE ASSESSEE HAD SUBSCRIBED TO 10,00,000 UNSECURED OPTIONAL CONVERTIBLE DEBENTURES OF MAHIND RA HOLIDAYS & RESORTS INDIA LTD.. THESE DEBENTURES WERE REDEEMABLE AT THE END O F 5 YEARS AND THERE WAS AN OPTION FOR EARLY REDEMPTION. ON 03-04-2002, THESE D EBENTURES WERE PREMATURELY REDEEMED AT A PREMIUM OF RS.50,00,000/-. THE RESUL TANT PREMIUM OF RS.50,00,000/- WAS OFFERED AND BROUGHT TO TAX IN AS STT. YEAR 2003-04. HOWEVER, IN THE ACCOUNTS, PROPORTIONATE AMOUNT OF RS.10,00,0 00/- WAS SHOWN IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THAT IS WHY THE SAME WAS SOUGHT AS A DEDUCTION. THE AO AS WELL AS THE CIT(A) REJECTED T HE CLAIM. 48. BOTH THE PARTIES WERE HEARD. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE SET ASIDE THE ORDER OF CIT(A) AND REMIT THE MATTER TO THE FILE OF AO WITH A DIRECTION TO VERIFY IF THE WHOLE AMOUNT HAS BEEN SU BJECTED TO TAX IN ASSTT. YEAR 2003-04, THEN THE AMOUNT OF RS.10,00,000/- HAS TO B E REDUCED IN THE CURRENT YEAR. OTHERWISE, THE AO MAY DECIDE THE ISSUE AS PER LAW. ISSUE NO. (4) : 49. AS FAR AS THE ITEMS PERTAINING TO PREMIUM ON D EBENTURES AMOUNTING TO RS.10,00,000/- AND MISC. INCOME AMOUNTING TO RS.19, 23,637/- EXCLUDED FROM THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U /S.80HHC WAS NOT PRESSED BEFORE US. HOWEVER, AS FAR AS EXCLUSION OF SERVICE CHARGE FROM BUSINESS PROFITS AMOUNTING TO RS.7,44,270/- IS CONCERNED, THE SAME W AS EXCLUDED FROM BUSINESS PROFITS BY THE AO UNDER CLAUSE (BAA) OF SUB-SEC. 4( C) OF SEC. 80HHC. THE DECISION OF AO WAS CONFIRMED BY THE LD. CIT(A). 50. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT RECENTLY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PFI ZER LTD. HAS OBSERVED THAT IT ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 20 IS NOT ALWAYS NECESSARY THAT OTHER RECEIPTS SHOULD HAVE NEXUS WITH EXPORT ACTIVITY AND THEREFORE THE SAME CANNOT BE REDUCED U NDER CLAUSE (BAA). IN THIS REGARD, HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PFIZER LTD. (233 CTR 521). 51. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. DRESSER RAND INDIA P. L TD. (323 ITR 429) HAS CLEARLY EXPLAINED WHY CERTAIN RECEIPTS HAVE TO BE EXCLUDED FROM THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U/S.80HHC. IN THIS CASE, T HE DECISION OF CIT V. BANGALORE CLOTHING CO. (260 ITR 371) HAS BEEN OVERR ULED AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIV V. RAVINDR ANATHAN NAIR (295 ITR 228) HAS BEEN FOLLOWED. SHE ALSO RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. K.K. DOSHI & CO. (245 ITR 849 ) WHEREIN IT WAS SPECIFICALLY HELD THAT AMOUNT OF SERVICE CHARGE COLLECTED HAD N O DIRECT NEXUS WITH EXPORTS AND THEREFORE THE SAME COULD NOT BE TAKEN INTO ACCO UNT FOR CALCULATING THE DEDUCTION U/S.80HHC. 52. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THE ASSESSEE HAD COLLECTED SERVICE CHARGE FROM ELECTRIC ITY BOARD IN INDIA WHICH HAS NO NEXUS WITH EXPORT ACTIVITY. FURTHER, IN THE CASE OF CIT V. PFIZER LTD. THE ISSUES RAISED WERE IN RESPECT OF INSURANCE CLAIM, WRITING OFF OF SUNDRY RECEIPTS AND INCOME FROM HOUSE PROPERTY AND IT IS ONLY WITH REFE RENCE TO INSURANCE CLAIM THAT RELIEF WAS ALLOWED BY THE HONBLE COURT BY OBSERVIN G THAT IF STOCK OF THE ASSESSEE GETS DESTROYED, THEN, INSTEAD OF RECEIVING SALE CON SIDERATION, IF THE ASSESSEE HAS RECEIVED INSURANCE CLAIM, THAT WOULD ALSO AMOUNT TO SALE PROCEEDS ONLY AND THEREFORE THIS CASE CANNOT BE TAKEN AS PRECEDENT FO R SERVICE CHARGE. IN THE CASE OF CIT V. K.K. DOSHI (SUPRA), IT WAS CLEARLY OBSERV ED THAT AMOUNT COLLECTED AS SERVICE CHARGES, WHICH HAD NO NEXUS WITH EXPORT ACT IVITY, COULD NOT BE TAKEN INTO ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 21 ACCOUNT FOR CALCULATING DEDUCTION U/S.80HHC. IN ANY CASE, THE HONBLE BOMBAY HIGH COURT RECENTLY CONSIDERED VARIOUS DECISIONS FO R EXCLUSION OF VARIOUS ITEMS UNDER CLAUSE (BAA) IN THE CASE OF CIT V. DRESSER RA ND INDIA P. LTD. AND IT WAS OBSERVED AS UNDER : SUB-SECTION (1) OF SECTION 80HHC OF THE INCOME-TAX ACT, 1961, CONTEMPLATES A DEDUCTION TO AN ASSESSEE BEING AN IN DIAN COMPANY OR A PERSON RESIDENT IN INDIA AND ENGAGED IN THE BU SINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH T HE SECTION APPLIES. THE DEDUCTION IS TO BE ALLOWED IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE TO THE EXTENT OF PROFITS REF ERRED TO IN SUB- SECTION (1B) DERIVED BY THE ASSESSEE FROM THE EXPOR T OF SUCH GOODS OR MERCHANDISE. CLAUSE (A) OF SUB-SECTION (3) OF SE CTION 80HHC PROVIDES A FORMULA FOR DETERMINING THE PROFITS DERI VED FROM SUCH EXPORT. THE PROPORTION BETWEEN THE EXPORT TURNOVER AND THE TOTAL TURNOVER OF THE BUSINESS IS APPLIED TO THE PROFITS OF THE BUSINESS, IN ORDER TO DETERMINE THE EXTENT TO WHICH THE PROFITS ARE TO BE REGARDED AS BEING DERIVED FROM EXPORT. EXPLANATION (BAA) WHICH WAS INSERTED BY THE FINANCE ACT OF 1991 DEFINES THE EXP RESSION PROFITS OF THE BUSINESS. PROFITS OF THE BUSINESS, AS EXPLA NATION (BAA) WOULD POSTULATE, HAVE TO BE FIRST COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER THE PROVISIO NS OF SECTIONS 28 AND 44D OF THE ACT. THEY HAVE TO BE REDUCED BY (I) NINETY PER CENT. OF THE INCENTIVE INCOME REFERRED TO IN CLAUSES (I IIA), (IIIB) AND (IIIC) OF SECTION 28 OR ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OF ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS; AND (II) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSE E SITUATE OUTSIDE INDIA. IN CIT V. K. RAVINDRANATHAN NAIR [20 07] 295 ITR 228 THE SUPREME COURT HELD THAT INDEPENDENT INCOME LIKE RENT, COMMISSION, BROKERAGE, ETC., THOUGH IT FORMED PART OF THE GROSS TOTAL INCOME HAD TO BE REDUCED BY 90 PER CENT. AS C ONTEMPLATED IN EXPLANATION (BAA) IN ORDER TO ARRIVE AT BUSINESS PR OFITS. THE RATIONALE FOR THIS WHICH IS INDICATED IN THE JUDGMENT OF THE SUPREME COURT IS THAT PROFIT INCENTIVES AND ITEMS WHICH CONSTITUTE I NDEPENDENT INCOMES HAVE NO ELEMENT OF EXPORT TURNOVER AND ARE CONSEQUENTLY LIABLE TO BE EXCLUDED TO THE EXTENT THAT IS STIPULA TED IN EXPLANATION (BAA). THE DECISION IN CI V. BANGALORE CLOTHING CO. [2003] 260 ITR 371 TO THE EXTENT TO WHICH IT LAYS DOWN A PRINCIPLE OF LAW AT VARIANCE WITH THE SUBSEQUENT JUDGMENT OF THE SUPREME COURT I N RAVINDRANATHAN NAIRS CASE 295 ITR 228 WOULD ;NOT T HEREFORE HOLD THE FIELD UNDER THE JUDGMENT OF THE SUPREME COURT. IN CIT V. BABY MARINE EXPORTS [2007] 290 ITR 323 THERE IS NOTHING IN THE JUDGMENT OF THE SUPREME COURT TO SUGGEST THAT THE JUDGMENT I N CIT V. BANGALORE CLOTHING CO. [2008] 260 ITR 371 WAS NEITH ER EXPRESSLY OR IMPLIEDLY APPROVED. THE AMBIT OF EXPLANATION (BAA) HAS BEEN CONSIDERED BY THE JUDGMENT OF THE SUPREME COURT IN RAVINDRANATHAN NAIRS CASE 295 ITR 228. THE LEGISLA TIVE POLICY UNDERLYING THE PROVISION IS THAT ITEMS WHICH ARE UN RELATABLE TO THE ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 22 EXPORT ACTIVITY MUST BE EXCLUDED IN THE COMPUTATIO N OF BUSINESS PROFITS IN ORDER TO PREVENT A DISTORTION IN THE COM PUTATION OF THE DEDUCTION UNDER SECTION 80HHC. WHAT PROVISION SHOUL D BE MADE CONSISTENT WITH THE LEGISLATIVE POLICY UNDERLYING S ECTION 80HHC IS A MATTER FOR PARLIAMENT TO DETERMINE. THE DUTY OF THE COURT IS TO INTERPRET THE LANGUAGE OF THE PROVISION. THE INTERP RETATION OF THE PROVISION BY THE SUPREME COURT IS BINDING AND HAS T O BE FOLLOWED. AND THEN HELD AS UNDER : HELD ACCORDINGLY, THAT 90 PER CENT. OF RECOVERY OF FREIGHT, INSURANCE AND PACKING RECEIPTS AMOUNTING TO RS.49,14,076, SAL ES TAX SET OFF/REFUND AMOUNTING TO RS.38,33,148 AND SERVICE IN COME OFRS.2,89,17,545 HAD TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF SPECIAL DEDUCTION UNDER SECTION 80HHC. THEREFORE, FOLLOWING THE ABOVE DECISION, WE HOLD TH AT CIT(A) HAS CORRECTLY HELD THAT THE AMOUNT RECEIVED ON ACCOUNT OF SERVICE CHAR GES HAS TO BE EXCLUDED FROM BUSINESS PROFITS FOR THE PURPOSE OF COMPUTING DEDUC TION U/S.80HHC. 53. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1260/MUM/2010: 53. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING TWO DISPUTES : (1) CONFIRMATION OF ACTION OF AO IN CONFIRMING NOTI ONAL INTEREST AMOUNTING TO RS.38,31,286/-. (2) FAILURE OF THE CIT(A) TO GIVE DIRECTION TO ALL OW DEPRECIATION ON THE ITEMS TREATED AS CAPITAL EXPENDITURE IN THE EAR LIER YEAR. DISPUTE NO.(1): 54. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ISSUE IS IDENTICALLY SAME AS ADJUDICATED IN ITA NO.1259/MUM/2010 IN ASSESSEES O WN CASE WHEREIN THE ISSUE REGARDING NOTIONAL INTEREST HAS BEEN SET ASIDE BY U S VIDE PARA 41 OF THIS ORDER TO THE FILE OF AO FOR RE-EXAMINATION AFTER CONSIDERING THE EVIDENCE REGARDING FINANCIAL HEALTH OF MCCL. THEREFORE, IN THIS YEAR A LSO, WE REMIT THE ISSUE BACK TO THE FILE OF AO WITH SIMILAR DIRECTION. ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 23 DISPUTE NO.(2): 55. AFTER HEARING BOTH THE PARTIES, WE FIND THAT WE HAVE ALREADY HELD WHILE ADJUDICATING ITA NO.1259/MUM/2010 IN RESPECT OF CLA IM OF REPAIRS THAT A SUM OF RS.5,00,000/- IS TO BE TREATED AS REPAIRS AND BALA NCE AMOUNT AS CAPITAL EXPENDITURE. THEREFORE, DEPRECIATION HAS TO BE ALLO WED ON THE BALANCE AMOUNT AND WE DIRECT THE AO TO ALLOW DEPRECIATION @ 25% ON THE BALANCE AMOUNT WHICH HAS BEEN TREATED BY US AS CAPITAL EXPENDITURE. 56. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1261/MUM/2010: 57. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING DISPUTE: (1) CONFIRMATION OF ACTION OF AO IN CONFIRMING NOTI ONAL INTEREST AMOUNTING TO RS.38,31,286/-. 58. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ISSUE IS IDENTICALLY SAME AS ADJUDICATED IN ITA NO.1260/MUM/2010 IN ASSESSEES O WN CASE WHEREIN THE ISSUE REGARDING NOTIONAL INTEREST HAS BEEN SET ASIDE BY I S VIDE PARA 41 OF THIS ORDER TO THE FILE OF AO FOR RE-EXAMINATION AFTER CONSIDERING THE EVIDENCE REGARDING FINANCIAL HEALTH OF MCCL. THEREFORE, IN THIS YEAR A LSO, WE REMIT THE ISSUE BACK TO THE FILE OF AO WITH SIMILAR DIRECTION. 59. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 60. TO SUM UP, ITA NO.1256 & 1257/MUM/2010 BY THE A SSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES, ITA NO.1258/MUM/2 010 BY THE ASSESSEE IS DISMISSED, ITA NO.1259/MUM/2010 BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, ITA NOS. 1260 & 1261/MUM/2010 BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES, WHILE ITA NO.1183 /MUM/2010 BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 24 ORDER PRONOUNCED ON THE 27TH DAY OF APRIL, 20 11. SD/- SD/- (SMT.ASHA VIJAYARAGHAVAN) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 27TH APRIL , 2011. NG: COPY TO : 1.ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-5,MUMBAI. 4 CIT-2,MUMBAI. 5.DR,J BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NOS.1256 TO 1261 &1183/M/10 MAHINDRA REALTY & INFRASTRUCTURE 25 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 18-04-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 21-04-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER