Nirma Limited, Ahmedabad V. The ACIT.,Circle-5, Ahmedabad

ITA 1280/AHD/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8476 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-07-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 06-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA M AGARWAL; SAURABH SINGH
• Keywords: Gift; Depreciation; Question of law; Valuation report; Notional interest; Capital receipt; Revised return; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 115JB; 80IB; 32; 147; 28

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO.177/AHD/2010 ASSTT.YEAR 2003-2004 AND ITA NO.1599/AHD/2013 WITH CO NO.202/AHD/2013 ASSTT.YEAR 2003-2004 DCIT, CIR.5 AHMEDABAD. VS. M/S.NIRMA LIMITED NIRMA HOUSE ASHRAM ROAD AHMEDABAD. PAN : AAACN 5350 K ITA NO.1738/AHD/2014 ASSTT.YEAR 2003-2004 DCIT, CIR.5 AHMEDABAD. VS. M/S.NIRMA INDUSTRIES NIRMA HOUSE ASHRAM ROAD AHMEDABAD. ./ ITA NO.1280/AHD/2013 / ASSTT. YEAR: 2003-2004 M/S.NIRMA LIMITED NIRMA HOUSE ASHRAM ROAD AHMEDABAD. PAN : AAACN 5350 K VS. DCIT, CIR.5 AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR AND SHRI HIMANSHU SHAH, AR REVENUE BY : APARNA M. AGARWAL, CIT-DR AND SHRI SAURABH SINGH, SR.DR ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 2 ! / DATE OF HEARING : 14/03/2018 '#$ ! / DATE OF PRONOUNCEMENT: 19/04/2018 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: IN THE CASE OF NIRMA LIMITED ASSESSEE AND REVENUE, BOTH ARE IN CROSS-APPEALS AGAINST ORDER OF LD.CIT(A)-XI, AHM EDABAD DATED 12.3.2013 PASSED FOR ASSTT.YEAR 2003-04. APART FRO M FILING CROSS APPEAL, THE ASSESSEE HAS FILED CROSS OBJECTION BEAR ING NO.202/AHD/2013 ON RECEIPT OF NOTICE IN REVENUES A PPEAL BEARING ITA NO.1599/AHD/2013. IN THIS CASE REVENUE HAS FIL ED ITA NO.177/AHD/2010 AGAINST ORDER OF THE LD.CIT(A)-II, DATED 4.11.2009 PASSED IN THE ASSTT.YEAR 2003-04. THIS A PPEAL HAS ARISEN OUT OF PENALTY PROCEEDINGS IMPOSED UNDER SEC TION 271(1)(C) OF THE INCOME TAX ACT. IN THE CASE OF NIRMA INDUST RIES, REVENUE ALONE IS IN APPEAL AGAINST ORDER OF LD.CIT(A)-XI, A HMEDABAD DATED 10.3.2014 PASSED FOR ASSTT.YEAR 2003-04. 2. AS FAR AS CROSS OBJECTION OF THE ASSESSEE IN THE CASE OF NIRMA LTD., LD. COUNSEL FOR ASSESSEE DID NOT PRESS THE CO ON THE GROUND THAT GROUNDS TAKEN IN THE CO HAVE ALREADY BEEN TAKE N IN THE APPEAL FILED BY THE ASSESSEE. ACCORDINGLY, CO NO.2 02/AHD/2013 IS DISMISSED. 3. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.177/AH D/2010. 4. THE GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT( A) HAS ERRED IN LAW AND ON FACTS IN CANCELLING PENALTY OF RS.9,4 3,48,749/- IMPOSED BY THE AO UNDER SECTION 271(1)(C) OF THE AC T. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 3 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 1.12.2003 DECLARING TOTAL INCOM E OF RS.98,69,75,310/-. AN ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) ON 24.3.2006 AT A TOTAL INCOME OF RS.2,55,31,93,621/-. THE MAJOR ADDITION MADE BY AO RELATES TO DISALLOWANCE OF INTEREST EXPENSES PERTAINING TO DEE P DISCOUNT BONDS (DDB FOR SHORT), DISALLOWANCE OF CLAIM UNDER SECTION 80IA AND 80IB IN RESPECT OF WIND FARM DIVISION AND DISALL OWANCE OF DEDUCTION UNDER SECTION 80IA IN RESPECT OF MARAIYA DIVISION. THE LD.AO INITIATED PENALTY PROCEEDINGS AND PASSED ORDE R UNDER SECTION 271(1)(C) ON 31.3.2008 IMPOSING PENALTY OF RS.9,43,48,749/-. ON APPEAL, THE LD.CIT(A) HAS DEL ETED THIS PENALTY VIDE IMPUGNED ORDER DATED 4.11.2009. 6. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET SUBMITTED THAT ASSESSMENT ORDER DATED 24.3.2006 PASSED IN THE CASE OF ASSESSEE WAS CHALLENGED BEFORE THE LD.CIT(A). THE LD.FIRST APPELLATE AUTHORITY HAS DECIDED THE APPEAL OF THE A SSESSEE IN QUANTUM PROCEEDINGS EX PARTE VIDE ORDER DATED 8.2.2007. THIS ORDER OF THE LD.CIT(A) WAS CHALLENGED IN ITA NO.818 /AHD/2017. THE TRIBUNAL HAS ALLOWED APPEAL OF THE ASSESSEE STA TISTICALLY AND SET ASIDE ORDER OF THE LD.CIT(A). TRIBUNAL RESTORE D ALL THESE ISSUES TO THE FILE OF THE LD.CIT(A). THE FINDING RECORDED BY THE TRIBUNAL IN PARA-4 OF THE ORDER DATED 18.3.2008 READS AS UNDER: 4. AT THE TIME OF HEARING, THE LEARNED AR OF THE A SSESSEE SUBMITTED US THAT IN THE GROUP CASE OF NIRMA INDUST RIES LTD AND NIRMA CHEMICAL WORKS LTD., THE LEARNED CIT(A) H AD PASSED THE APPELLATE ORDERS EXPARTE AND ON FURTHER APPEAL, THE ITAT,AHMEDABAD IN ITA NO.L049/AHD/2007 AND ITA NO.1050/ /AHD/2007 RESPECTIVELY VIDE ITS CONSOLIDAT ED ORDER ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 4 DT.28.9.2007 HAS SET ASIDE THE ORDERS OF THE CIT(A) AND RESTORED BACK THE CASES TO HIS FILE TO DECIDE THE S AME IN ACCORDANCE WITH LAW AFTER GIVING ASSESSEE AN OPPORT UNITY OF BEING HEARD. IN THAT CASE, IT WAS CONTENDED THAT TH E ASSESSEE VISITED OFFICE OF CIT(A) ON 7.2.12007 AND BEING BUSY THE HEARING COULD NOT TAKE PLACE. IN THE PRESE NT CASE, THE LEARNED AR OF THE ASSESSEE TOOK SIMILAR CONTENT ION AND PLEADED THAT IT IS NOT CORRECT TO STATE ON THE PART OF THE CIT(A) THAT THE ASSESSEE DID NOT APPEAR ON 7.2.2007 . IN FACT THE ASSESSEE VISITED OFFICE OF THE CIT(A) BUT THE C ASE COULD NOT TAKE PLACE BECAUSE THE CIT(A) WAS FOUND BUSY OT HERWISE. THE ASSESSEE HAS ALSO SUBMITTED AFFIDAVIT IN THIS R EGARD AND THE AVERMENTS MADE THEREIN COULD NOT BE CONTROVERTE D BY THE LEARNED DR. THUS, THE FACTS OF THE PRESENT CASE BEING SIMILAR WITH THAT IN THE OTHER GROUP CASES REFERRED TO ABOVE, WE WOULD FOLLOW THE ORDER OF THE ITAT DT.28.9.2007 AND DOING SO, WE SET ASIDE THE ORDER OF THE CIT(A) IN T HE PRESENT CASE AND RESTORE THE CASE BACK TO HIS FILE TO DECID E THE SAME IN ACCORDANCE WITH LAW AFTER GIVING ASSESSEE AN OPP ORTUNITY OF BEING HEARD. 5. SINCE WE HAVE SET ASIDE THE ORDER BACK TO THE FI LE OF THE CIT(A) AS DISCUSSED IN THE FOREGOING PARAGRAPH, THE OTHER GROUNDS ON MERIT ARE NOT ADJUDICATED. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. WE FIND THAT SUB-CLAUSE (III) OF SECTION 271(1)(C) PROVIDES MECHANISM FOR QUANTIFICATION OF PENALTY. IT CONTEMPLATES THAT THE ASSESSEE WOULD BE DIRECTED TO PAY A SUM IN ADDITION TO TAXES, IF ANY, PAYABLE BY HIM, WHICH SH ALL NOT BE LESS THAN , BUT WHICH SHALL NOT EXCEED THREE TIMES THE A MOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF INC OME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, THE QUANTIFICATION OF THE PENALTY IS DEPENDED UPON THE ADDITION MADE TO THE INCOME OF THE ASSESSEE. IN THE PRESENT, QUA NTUM ADDITION ON WHICH PENALTY HAS BEEN IMPOSED WAS CHALLENGED BE FORE THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 18.3.200 8 (SUPRA) SET ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 5 ASIDE ALL ISSUES AND RESTORED TO THE FILE OF LD.CIT (A) FOR FRESH ADJUDICATION. SAME IS NOW ADJUDICATED BY THE LD.CI T(A). THEREFORE, WE DEEM IT APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER OF LD.CIT(A), BECAUSE IT BASED ON AN ORDER WHICH HA S ALREADY BEEN SET ASIDE. THE QUESTION, WHETHER PENALTY IS TO BE IMPOSED OR NOT BE REQUIRED TO BE ADJUDICATED AGAIN BY THE LD.CIT(A ) ON THE BASIS OF FRESH ORDER PASSED BY HER. THEREFORE, THIS APPE AL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.1738/AHD/2014 (REVENUES APPEAL) (M/S.NIRMA INDUSTRIES_) 8. IN THE FIRST GROUND OF APPEAL, REVENUE HAS PLEAD ED THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS. 61,48,20,284/- WHICH WAS ADDED BY THE AO BY MAKING DISALLOWANCE OU T OF DEPRECIATION ON BRANDS AND TRADEMARKS. 9. BRIEF FACTS OF THE CASE ARE THAT THE LD.AO HAS OB SERVED THAT THE ASSESSEE HAS TAKEN COST OF ASSETS UNDER THE HEA D BRAND/TRADEMARK AT RS.500 CRORES. WHILE PASSING AS SESSMENT ORDER FOR ASSTT.YEAR 2001-02, THE COST WAS DETERMIN ED AT RS.53 CRORES, AND ACCORDINGLY DEPRECIATION WAS CALCULATED . DETAILS OF DEPRECIATION CLAIMED IN THE RETURN AND ULTIMATELY A LLOWED BY THE AO HAS BEEN SUBMITTED BY THE ASSESSEE IN WRITTEN SU BMISSIONS FILED BEFORE THE LD.CIT(A). SUCH DETAILS READ AS U NDER: SR. ASSTT. YEAR RETURN OF INCOME ASSESSMENT ORDER T RIBUNAL 1. 2001-02 RS.62,50,00,000/- RS.6,62,50,000 DELETED DISALLOWANCE 2, 2002-03 RS.109,37,56,250 RS.11,59,37,500/- - 3 2003-04 RS.68,77,17,971/- RS.7,28,97,688/- CURRENT APPEAL PENDING BEFORE CIT(A) ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 6 10. THE AO HAS DISALLOWED DEPRECIATION ALLEGED TO H AVE BEEN TREATED AS EXCESS AND MADE AN ADDITION OF RS.61,48, 20,283/-. 11. DISSATISFIED WITH THIS DISALLOWANCE, THE ASSESS EE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) WHO DELETED T HE DISALLOWANCE BY OBSERVING THAT IN THE ASSTT.YEAR 20 01-02 ISSUE TRAVELLED UPTO THE TRIBUNAL, AND THE TRIBUNAL VIDE ORDER DATED 24.1.2013 PASSED IN ITA NO.386 & 658/AHD/2010 ACCEP TED THE CLAIM MADE BY THE ASSESSEE THAT COST OF BRAND/TRADE MARKS WOULD BE TAKEN AT RS.500/- CORES. DEPRECIATION WAS TO BE CALCULATED ACCORDINGLY. IN THIS WAY, THE LD.CIT(A) DELETED TH E DISALLOWANCE. 12. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESS EE BY THE ORDER OF THE ITAT PASSED IN ASSTT.YEAR 2001-02 IN THE ASS ESSEES APPEAL BEARING ITA NO.386/AHD/2010, AND THE REVENUES APPE AL IN ITA NO.658/AHD/2010. COPY OF ORDER OF THE TRIBUNAL HAS BEEN PLACED AT PAGE NO.27 TO 38 OF THE PAPER BOOK. HE DREW OUR ATTENTION TOWARDS PAGE NO.34 OF THE PAPER BOOK WHEREIN THE TR IBUNAL HAS MADE DISCUSSION ON THIS ISSUE. THE LD.DR WAS UNABL E TO CONTROVERT THIS CONTENTION OF THE LD.COUNSEL FOR TH E ASSESSEE. 13. ON DUE CONSIDERATION OF THE ABOVE, WE FIND THAT THE TRIBUNAL HAS MADE DETAILED ANALYSIS IN THE ASSTT.YEAR 2001-0 2. DISCUSSION MADE BY THE TRIBUNAL ON THE ISSUE READS AS UNDER: 3.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND THE JUDGEMENTS CITED BY BOTH THE SIDES. FIRST OF ALL, WE REPRODUCE THE PROVISIONS OF SECTION 43(1) AND ITS EXPLANATION (3) WHICH ARE AS UNDER: ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 7 '43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLE SS THE CONTEXT OTHERWISE REQUIRES (1) 'ACTUAL COST' MEANS THE ACTUAL COST5 OF THE ASS ETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COS T THEREOF, IF ANY, AS HAS BEEN MET5 DIRECTLY OR INDIR ECTLY BY ANY OTHER PERSON OR AUTHORITY: [PROVIDED THAT WHERE THE ACTUAL COST OF AN ASSET, B EING A MOTOR CAR WHICH IS ACQUIRED BY THE ASSESSEE AFTER THE 31ST DAY OF MARCH, 1967, [BUT BEFORE THE 1ST DAY OF MARCH, 1975,] AND IS USED OTHERWISE THAN IN A BUSIN ESS OF RUNNING IT ON HIRE FOR TOURISTS, EXCEEDS TWENTY- FIVE THOUSAND RUPEES, THE EXCESS OF THE ACTUAL COST OVER SUCH AMOUNT SHALL BE IGNORED, AND THE ACTUAL COST THEREOF SHALL BE TAKEN TO BE TWENTY-FIVE THOUSAND RUPEES.] EXPLANATION 1.--WHERE AN ASSET IS USED IN THE BUSIN ESS AFTER IT CEASES TO BE USED FOR SCIENTIFIC RESEARCH RELATED TO THAT BUSINESS AND A DEDUCTION HAS TO BE MADE UND ER [CLAUSE (II) OF SUB-SECTION (1)] OF SECTION 32 IN R ESPECT OF THAT ASSET, THE ACTUAL COST OF THE ASSET TO THE ASSESSEE SHALL BE THE ACTUAL COST TO THE ASSESSEE A S REDUCED BY THE AMOUNT OF ANY DEDUCTION ALLOWED UNDE R CLAUSE (IV) OF SUB-SECTION (1) OF SECTION 35 OR UND ER ANY CORRESPONDING PROVISION OF THE INDIAN INCOME-TAX AC T, 1922 (11 OF 1922). [EXPLANATION 2.--WHERE AN ASSET IS ACQUIRED BY THE ASSESSEE BY WAY OF GIFT OR INHERITANCE, THE ACTUAL COST OF THE ASSET TO THE ASSESSEE SHALL BE THE ACTUAL CO ST TO THE PREVIOUS OWNER, AS REDUCED BY-- (A) THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED UND ER THIS ACT AND THE CORRESPONDING PROVISIONS OF THE IN DIAN INCOME-TAX ACT, 1922 (11 OF 1922), IN RESPECT OF AN Y PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1ST DAY OF APRIL, 1988; AND (B) THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1988, AS IF ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 8 THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLOCK OF ASSETS.] EXPLANATION 3.--WHERE, BEFORE THE DATE OF ACQUISITION BY THE ASSESSEE, THE ASSETS WERE AT ANY TIME USED BY ANY OTHER PERSON FOR THE PURPOSES OF H IS BUSINESS OR PROFESSION AND THE 11[ASSESSING] OFFICE R IS SATISFIED THAT THE MAIN PURPOSE OF THE TRANSFER OF SUCH ASSETS, DIRECTLY OR INDIRECTLY TO THE ASSESSEE, WAS THE REDUCTION OF A LIABILITY TO INCOME-TAX (BY CLAIMING DEPRECIATION WITH REFERENCE TO AN ENHANCED COST), T HE ACTUAL COST TO THE ASSESSEE SHALL BE SUCH AN AMOUNT AS THE 11[ASSESSING] OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE 12[JOINT COMMISSIONER], DETERMINE HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. ' 3.4 WE FIND THAT IN THE PRESENT CASE, THE ENTIRE CA SE OF THE A.O. IS BASED ON EXPLANATION (3) TO SECTION 43(1) A S REPRODUCED ABOVE. AS PER THIS EXPLANATION, WE ARE O F THE CONSIDERED OPINION THAT THE A.O. CAN DETERMINE THE ORIGINAL COST OF THE ASSETS FOR ALLOWING DEPRECIATION TO THE ASSESSEE ONLY IF HE IS SATISFIED THAT THE MAIN PURPOSE OF TR ANSFER OF SUCH ASSET, DIRECTLY OR INDIRECTLY TO THE ASSESSEE, WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EX TRA DEPRECIATION WITH REFERENCE TO AN ENHANCED COST. IT IS NOT SUFFICIENT THAT ONE OF THE MAIN PURPOSES WAS THIS. HENCE, IN OUR HUMBLE OPINION, THIS IS THE FIRST PREREQUISITE THAT THE A.O. HAS TO ESTABLISH THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSET WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EXTRA DEPRECIATION ON ENHANCED COST. IN ORDER TO ES TABLISH THIS, IT HAS TO BE ESTABLISHED THAT APART FROM CLAI MING ADDITIONAL DEPRECATION ON ENHANCED COST, THERE IS N O OTHER MAIN PURPOSE FOR ACQUIRING THE ASSET IN QUESTION. I N THE PRESENT CASE, THE A.O. IS ONLY DISPUTING THE VALUAT ION OF INTANGIBLE ASSET I.E. THE TRADEMARK ACQUIRED BY THE ASSESSEE FROM RELATED PARTIES WITHOUT EVEN MAKING AN ALLEGAT ION THAT SUCH ACQUISITION OF ASSETS WAS NOT HAVING ANY MAIN PURPOSE EXCEPT CLAIMING EXTRA DEPRECIATION. THIS CAN BE EXP LAINED BY WAY OF AN EXAMPLE ALSO. 'LET US ASSUME THAT MR. 'A' PURCHASES A MACHINE WHI CH IS VERY MUCH REQUIRED BY HIM FOR HIS BUSINESS PURPOSE BUT FOR SUCH ACQUISITION OF MACHINE BY HIM, HE PAID SOME EX TRA PRICE AS PER THE A.O. THIS IS NOT THE CASE OF THE A.O. TH AT USING OF MACHINE FOR BUSINESS PURPOSE IS NOT THE MAIN PURPOS E OF ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 9 ACQUIRING OF MACHINE AND IN THAT SITUATION, IN OUR HUMBLE OPINION, THE A.O. CANNOT INVOKE EXP.(3) TO SECTION 43(1) OF THE ACT. IN OUR CONSIDERED OPINION, THIS REQUIREMEN T HAS BEEN SPECIFIED IN EXPLANATION (3) TO TAKE CARE OF V ARIOUS SITUATIONS WHERE THE ASSESSEE MAY BE FORCED TO PAY EXTRA CONSIDERATION FOR ACQUIRING AN ASSET OR ANYTHING EL SE FOR BUSINESS PURPOSE. SUCH EXTRA CONSIDERATION MAY BE R EQUIRED TO BE PAID FOR MANY REASONS SUCH AS, SCARCITY OF TH AT PARTICULAR ITEM, INABILITY OF THE ASSESSEE TO MAKE TIMELY PAYMENT OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS A ND, THEREFORE, HE MAY BE FORCED TO PURCHASE THE MACHINE /THE ASSET ON CREDIT AND FOR THIS REASON ALSO, HE MAY BE REQUIRED TO PAY EXTRA CONSIDERATION. THERE MAY BE OTHER REAS ONS ALSO AND BECAUSE OF THIS, LEGISLATURE HAD THOUGHT IT FIT AND PROPER TO PUT THIS RESTRICTION IN EXPLANATION (3) TO SECTI ON 43(1) AND ONLY WHERE THE A.O. IS SATISFIED THAT THE MAIN PURP OSE OF TRANSFER OF AN ASSET IS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EXTRA DEPRECIATION ON ENHANCED COST, TH EN ONLY THE A.O. CAN DETERMINE THE ACTUAL COST OF THE ASSET S OF THE ASSESSEE FOR THE PURPOSE OF ALLOWING DEPRECATION TO THE ASSESSEE AND UNLESS THIS CONDITION IS FULFILLED BY THE A.O., IN OUR CONSIDERED OPINION, THE A.O. CANNOT INVOKE THIS EXPLANATION.' 3.5 IN THE PRESENT CASE, WE HAVE GONE THROUGH THE E NTIRE ASSESSMENT ORDER DATED 23.03.2006 PASSED BY THE A.O . U/S143(3) READ WITH SECTION 147 OF THE INCOME TAX A CT, 1961 BUT THERE IS NO MENTION THAT THE MAIN PURPOSE OF TH IS TRANSFER OF ASSET IN QUESTION WAS FOR CLAIMING EXTR A DEPRECIATION AND THE A.O. HAS SIMPLY DISCUSSED ABOU T THE VALUATION OF THIS ASSET IN QUESTION WITHOUT MAKING ANY MENTION AS TO WHAT WAS THE MAIN PURPOSE FOR TRANSFE R OF THIS ASSET. ON PAGE 24 OF THE ASSESSMENT ORDER, THE A.O. HAS STATED THAT THE MAIN PURPOSE OF TRANSFER OF THIS AS SET WAS TO REDUCE THE TAX LIABILITY OF THE ASSESSEE AND HE HAS FURTHER STATED THAT THE DETAILED OBSERVATION IN THIS REGARD ARE GIVEN IN THE FOLLOWING PARAS AND THEREAFTER, IN PARA 14.1 TO 14.13, THE A.O. HAS DISCUSSED ABOUT THE VARIOUS VALUATION REPORTS BUT THERE IS NO MENTION ABOUT ANY BASIS ON WHICH HE IS ALLEGING THIS THAT MAIN PURPOSE OF TRANSFER OF THIS ASSET WAS TO REDUCE THE TAX LIABILITY OF THE ASSESSEE. EVEN I F THE A.O.'S ALLEGATION HAS SOME FORCE THAT SOME EXTRA PRICE HAD BEEN PAID BY THE ASSESSEE FOR ACQUIRING THIS ASSET, THIS IS NOT ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 10 SUFFICIENT IN ORDER TO INVOKE EXP.(3) TO SECTION 43 (1), AND THE A.O. HAS TO ESTABLISH THAT THE MAIN PURPOSE OF THIS TRANSFER OF ASSET TO THE ASSESSEE WAS TO REDUCE TAX LIABILITY OF THE ASSESSEE AND IN OUR CONSIDERED OPINION, THE A.O . HAS MISERABLY FAILED ON THIS ASPECT. EVEN IF ALL THE AL LEGATIONS OF THE A. O. ARE ACCEPTED, IN THE ABSENCE OF ANY ALLEG ATION SUPPORTED BY COGENT MATERIAL TO THE EFFECT THAT BUS INESS USE OF THE ASSET IN QUESTION WAS NOT EVEN ONE OF THE MA IN PURPOSES, IT HAS TO BE ACCEPTED THAT BUSINESS USE O F THE ASSET WAS AT LEAST ONE OF THE MAIN PURPOSES EVEN IF NOT THE ONLY MAIN PURPOSE AND HENCE, THE ALLEGATION OF THE A.O. THAT MAIN PURPOSE OF TRANSFER OF THIS ASSET WAS TO REDUC E THE TAX LIABILITY OF THE ASSESSEE CAN BE AT THE BEST ONE OF THE MAIN PURPOSES BUT IT CERTAINLY CANNOT BE MAIN PURPOSE. T HIS IS NOT SUFFICIENT TO INVOKE THIS EXPLANATION (3) TO SECTIO N 43 (1). IN FACT, IN THE PRESENT CASE, THE A.O. HAS NOT EVEN MA DE ANY ATTEMPT OR ALLEGATION ON THIS ASPECT AND NOTHING HA S BEEN BROUGHT ON RECORD BY THE A.O. THAT THE ASSET IN QUE STION WAS NOT ACQUIRED BY THE ASSESSEE WITH MAIN PURPOSE BEIN G BUSINESS PURPOSE AND, THEREFORE, THE MAIN PURPOSE O F ACQUISITION OF THIS ASSET WAS TO REDUCE THE TAX LIA BILITY OF THE ASSESSEE. HENCE, IN OUR CONSIDERED OPINION, THE A.O . DID NOT FULFILL THE PRE REQUIREMENT OF INVOKING EXP.(3) TO SECTION 43(1) OF THE INCOME TAX ACT, 1961. 3.6 MOREOVER, WHILE DETERMINING THE VALUE OF THE AS SET IN QUESTION AFTER INVOKING EXP.(3) TO SECTION 43(1), T HE A.O. HAS IGNORED FOUR VALUATION REPORTS SUBMITTED BY THE ASSESSEE FROM VARIOUS FIRMS OF THE CHARTERED ACCOUNTANTS WIT HOUT GETTING A VALUATION DONE BY ANY INDEPENDENT VALUER. AS PER THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT, RENDER ED IN THE CASE OF ASWIN VANASPATI INDUSTRIES (SUPRA), AS HAS BEEN CITED BY THE LD. A.R. IN THE BRIEF WRITTEN NOTE, IT WAS HELD BY HON'BLE GUJARAT HIGH COURT THAT SINCE THERE IS A RE PORT BY THE REGISTERED VALUER, IT IS INCUMBENT UPON THE AUTHORI TY TO DISLODGE THE SAME BY BRINGING ADEQUATE MATERIAL ON RECORD IN THE FORM OF DEPARTMENTAL VALUATION REPORT BECAUS E IN THE ABSENCE OF THE SAME, A TECHNICAL EXPERT'S OPINION ( REGISTERED VALUER REPORT) CANNOT BE DISLODGED BY ANY AUTHORITY BY MERELY IGNORING THE SAME . IN THE PRESENT CASE, THE A.O. HAS NOT BROUGHT ON RECORD ANY VALUATION REPORT FROM ANY INDEPENDENT VALUER. WHEN THIS ASPECT WAS CONFRONTED TO LD. D.R., IT WAS SUBMITTED BY HIM THAT THE A.O. HAD PRO CEEDED ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 11 ON THE SAME BASIS OF VALUATION AS HAS BEEN DONE BY THE CHARTERED ACCOUNTANT FIRM M/S. RSM & CO. AND ONLY C HANGE MADE BY THE A.O. IS THE RATE OF ROYALTY WHICH HAS B EEN TAKEN BY HIM @ 0.5% OF THE TURNOVER WHEREAS, THE SAME WAS CONSIDERED BY THE C.A. FIRM @ 4% AND THE A.O. HAS A LSO GIVEN VARIOUS REASONS FOR THIS IN PARA 14.3 TO 14.1 3 OF THE ASSESSMENT ORDER. IN THIS REGARD, WE FIND THAT THE A.O. HAD PROCEEDED ON THE BASIS OF PAST HISTORY FOR VALUATIO N AND EVEN AS PER PAST HISTORY, THE ROYALTY RATE WAS 1% BUT TH E A.O. HAS CONSIDERED IT @ .5% BECAUSE THE TRADE MARKS WERE AS SIGNED WITHOUT GOODWILL OF THE BUSINESS. THE A.O. HAS TOTA LLY IGNORED THE TERMS AND CONDITIONS FOR THE TRADEMARK GIVEN TO NL AND NCCL I.E. NIRMA LTD. AND NIRMA CHEMICALS LTD BY NCW L AS PER WHICH, ROYALTY WAS PAYABLE BY THESE TWO COMPANI ES TO NCWL @1% FOR THE PERIOD FROM 01.04.1998 TO 31.03.20 00, @2% DURING 01.04.2000 TO 31.03.2002 AND @ 4% FROM 01.04.2002 ONWARDS. IN OUR CONSIDERED OPINION, FOR THE PURPOSE OF VALUING THE ASSET, PAST ROYALTY RATE AND PAST INCOME CANNOT BE THE GUIDING FACTOR AND THE GUIDING FACTOR HAS TO BE THE INCOME EXPECTED IN FUTURE FROM SUCH A SSET I.E. THE ROYALTY IN THE PRESENT CASE. WHEN THE EXPECTED ROYALTY IS @2% DURING 01.04.2000 TO 31.03.2002 AND 4% FROM 01.04.2002 ONWARDS, FOR THE PURPOSE OF VALUATION OF TRADEMARK IN QUESTION, WE DO NOT FIND FAULT IN ADOP TING 4% RATE OF ROYALTY BEING AGREED RATE OF ROYALTY FROM 0 1.04.2002 FOR THE PURPOSE OF VALUATION OF TRADE MARK AS HAS B EEN DONE BY RSM & CO., CHARTERED ACCOUNTANTS. REGARDING THIS ALLEGATION OF THE A.O. THAT GOODWILL WAS NOT TRANSF ERRED BY NCWL TO NCCL AND NL, WE ARE OF THE CONSIDERED OPINI ON THAT IT HAS NO BEARING ON THE VALUATION OF TRADE MARK BE CAUSE WE ARE CONSIDERING THE AMOUNT THE ASSESSEE IS PAYING F OR THE ASSET AND WHAT INCOME IS EXPECTED FROM THE ASSET. T HIS IS NOT THE CASE OF THE A.O. THAT THE SUB LICENSE TO NL AND NCCL BY NCWL WAS NOT ACQUIRED BY THE ASSESSEE COMPANY IN FULL. WHATEVER HAS BEEN SUB-LICENSED TO NL AND NCCL, THE SAME WAS ACQUIRED IN FULL BY THE ASSESSEE COMPANY AND, T HEREFORE, THE ROYALTY RATE EXPECTED BY THE ASSESSEE COMPANY I N FUTURE HAS TO BE ACCEPTED @ 4% AS PER THE AGREEMENT BETWEE N NCCL AND NL WITH NCWL AND EVEN IF THE SAME IS WITHO UT GOODWILL, IT MAKES NO DIFFERENCE SINCE THE ASSESSEE COMPANY IN FUTURE IS ASSURED OF 4% ROYALTY AND THE SAME HAS TO BE ADOPTED FOR THE PURPOSE OF VALUATION. MOREOVER, AS PER REMAINING THREE VALUATION REPORTS ALSO, THE VALUE W ORKED OUT ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 12 BY THESE VALUERS WAS MORE THAN RS. 500 CRORES PAID BY THE ASSESSEE. WE ALSO FIND THAT IN ONE OF THESE REPORTS BY DELLOITE, EVEN THE METHOD ADOPTED FOR VALUATION IS DIFFERENT AND STILL THE VALUE WORKED OUT IS MORE THAN RS. 500 CRORES AND NO DEFECT HAD BEEN POINTED OUT IN THE METHOD AD OPTED BY DELLOITE AND HENCE, FOR THIS REASON ALSO, THE PR ICE PAID BY THE ASSESSEE CANNOT BE SAID TO BE EXCESSIVE OR UNRE ASONABLE WARRANTING ANY DISALLOWANCE OF DEPRECIATION. 3.7 IN VIEW OF OUR ABOVE DISCUSSION, WE FIND THAT T HE ACTION OF THE A.O. IS NOT JUSTIFIED FOR TWO REASONS. THE F IRST REASON IS THIS THAT HE HAS NOT FULFILLED THE PRE REQUIREMENT FOR INVOKING THE PROVISION OF EXP.(3) TO SECTION 43(1) OF THE IN COME TAX ACT, 1961. THE SECOND REASON IS THIS THAT EVEN AFTE R INVOKING THIS EXP.(3) TO SECTION 43(1) RIGHTLY OR WRONGLY, T HE A.O. HAS NOT WORKED OUT THE VALUE OF THE ASSET IN QUESTION I N THE PROPER MANNER. HE HAS IGNORED THE VALUATION REPORT OF VARIOUS TECHNICAL EXPERTS SUCH AS RSML & CO. C.A. A ND OTHERS AND INSTEAD OF OBTAINING THE DEPARTMENTAL VA LUATION REPORT OR ANY OTHER REPORT OF ANY OTHER INDEPENDENT VALUER, THE A.O. HAS MADE HIS OWN EXERCISE FOR VALUATION OF THE ASSET IN QUESTION ALTHOUGH IT CANNOT BE ACCEPTED TH AT THE A.O. IS A TECHNICAL EXPERT FOR VALUATION OF THE ASS ET IN QUESTION. MOREOVER, THE A.O. HAS ADOPTED THE ROYALT Y RATE OF PAST INSTEAD OF EXPECTED ROYALTY RATE IN FUTURE. EV EN FROM THE PAST ROYALTY RATE, HE HAS REDUCED 50% INCOME ON THIS BASIS THAT THE GOODWILL WAS NOT TRANSFERRED AND SUB -LICENSED BY NCWL TO NL AND NCCL BUT HE HAS FORGOTTEN THAT TH E INCOME OF THE ROYALTY IS NOT BEING AFFECTED ON THIS COUNT AND IT IS NOT MATERIAL AS TO WHETHER THE SAME IS WITH G OODWILL OR WITHOUT GOODWILL. HENCE, WE HAVE SEEN THAT EVEN THE VALUATION DONE BY THE A.O. IS NOT PROPER AND THEREF ORE, THE ACTION OF THE A.O. IS NOT JUSTIFIED. 14. RESPECTFULLY FOLLOWING ORDER OF THE ITAT IN ASS ESSEES OWN CASE ON SIMILAR ISSUE, WE DO NOT FIND ANY MERIT TO INTERFERE IN THE ORDER OF THE LD.CIT(A). THIS GROUND IS REJECTED. 15. GROUND NO.2: IN THIS GROUND, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW CARRY FORWARD OF UNABSORBED LOSS AND UNABSORBED DEPRECIAT ION ON THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 13 BASIS OF VALUE AS PER RECORDS, AND AFTER GIVING EFF ECT TO VARIOUS APPELLATE ORDERS, IGNORING THE FACT THAT RELATED IS SUES HAVE NOT REACHED THEIR FINALITY AND PENDING BEFORE THE HONB LE HIGH COURT OF GUJARAT. 16. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. BASICALLY, IT IS A CO NSEQUENTIAL ISSUE ON THE BASIS OF RE-DETERMINATION OF VALUE OF BRAND AND TRADEMARKS BY THE AO. FIGURES OF UNABSORBED DEPRECIATION AND LOSS HAVE CHANGED IN EARLIER YEARS. IN OTHER WORDS, THE ASSE SSEE TOOK THE VALUE OF BRAND AT RS.500.00 CRORES WHICH WAS REDUCE D BY THE AO AT RS.53 CRORES. THIS HAS GIVEN RISE TO DIFFERENT VALUATION FOR UNABSORBED DEPRECIATION AND UNABSORBED LOSS. IF TH IS VALUE HAS BEEN ACCEPTED THEN AGAIN FIGURE OF UNABSORBED DEPRE CIATION AND LOSS WOULD CHANGE. THUS, THE LD.CIT(A) HAS RIGHTL Y DIRECTED THE AO FOR RE-COMPUTATION OF UNABSORBED DEPRECIATION AN D LOSS FOR CARRY FORWARD. IT IS PERTINENT TO OBSERVE THAT AS AND WHEN THIS FIGURE AND ANY OTHER FIGURE OR OTHER WOULD CHANGE O N THE BASIS OF ORDER GIVING EFFECT OF HIGHER AUTHORITIES CONSEQUEN TIAL EFFECT WOULD BE GIVEN. THUS, THERE IS NO MERIT IN THIS GROUND O F APPEAL, IT IS REJECTED. 17. GROUND NO.3 AND 4: BOTH THESE GROUNDS ARE INTER CONNECTED WITH EACH OTHER. REVENUE HAS PLEADED THAT THE LD.C IT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF R S.40,99,56,735/- WHICH WAS ADDED BY THE AO BY MAKING DISALLOWANCE ON INTEREST EXPENDITURE CLAIMED ON DEEP DISCOUNT BOND. SIMILAR LY, THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.2,65 ,24,193/- WHICH WAS ADDED BY THE AO ON ACCOUNT OF DISALLOWANCE OF I NTEREST ON ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 14 OFCPN INCURRED BY THE ASSESSEE FOR RE-PURCHASE OF S UCH BONDS AND THEIR REDEMPTION. 18. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 1.12.2003 DECLARING TOTAL INCOM E AT RS.1,25,84,851/-. THE CASE OF THE ASSESSEE WAS SEL ECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) ISSUED ON 8.3.2004. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.19,77,69,469/- ON DEEP DISCOUNT BOND, OF RS.21,2 1,87,266/- ON OFCPN AND RS.2,65,24,193/- ON REPURCHASE OF OFCP N. THE ASSESSEE COMPANY HAS ISSUED DDB OF RS.400 CRORES. THE FACE VALUE OF BOND WAS RS.1 CRORE. THE ISSUE PRICE OF B OND WAS RS.1.50 CRORES. AS PER THE SCHEME, THERE WILL BE N O INTEREST DURING THE CURRENCY OF BOND. FACE VALUE OF EACH BO ND I.E. RS.1.50 CRORES WILL BE PAYABLE ON MATURITY. THE MATURITY P ERIOD WAS OF SEVEN YEARS AND FIVE MONTHS FROM DEEMED DATE OF ALL OTMENT. SIMILARLY, THE ASSESSEE-COMPANY HAS ISSUED OFCPN AT RS.400 CRORES FACE VALUE WAS RS.33,750/- AND ISSUE PRICE W AS RS.25,000/-. THERE WILL BE NO INTEREST DURING THE CURRENCY OF BOND. THE FACE VALUE OF EACH BOND I.E. RS.33,750/- WILL BE PAYABLE ON MATURITY. MATURITY PERIOD WAS OF FIVE Y EARS FROM THE DEEMED DATE OF ALLOTMENT. QUESTION AROSE WHETHER O N ACCRUAL SYSTEM OF ACCOUNTING THE ASSESSEE SHOULD CLAIM INTE REST EXPENDITURE OR NOT. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS CLAIMED NOTIONAL INTEREST WHICH IS NOT AN ASCER TAINED LIABILITY, BECAUSE IT HAS TO PAY INTEREST ON MATURITY OF THE B OND. SIMILARLY, THE ASSESSEE HAS RE-PURCHASED CERTAIN OFCPN AND INC URRED INTEREST EXPENDITURE. THE LD.AO DISALLOWED THIS IN TEREST ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 15 EXPENDITURE TO THE ASSESSEE. ON APPEAL, THE LD.CI T(A) DELETED DISALLOWANCE BY FOLLOWING ORDER OF THE ITAT IN EARL IER YEARS. FINDING RECORDED BY THE LD.CIT(A) ON THIS ISSUE REA DS AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE FINDINGS GIVEN BY THE AO AND THE WRITTEN ARGUMENTS SUBMITTED BY THE APPELLANT. THE APPELLANT HAD CLAIM ED INTEREST EXPENSES ON DEEP DISCOUNT BONDS ON A PRO RA TA BASIS OVER THE PERIOD OF BORROWING. THE AO HELD THA T PRO RATA BASIS EXPENSES CANNOT BE ALLOWED AS THE HOLDERS HAV E NOT OFFERED THE INCOME ON ACCRUAL BASIS. IT HAS BEEN PO INTED OUT BY THE APPELLANT THAT THE ISSUE OF EXPENSES OF DEEP DISCOUNT BONDS IS DECIDED IN ITS FAVOUR BY ITAT AHMEDABAD IN ITS OWN CASE FOR A Y 2004 - 05 AND 2005 - 06. IT IS NOTED THAT THE CLAIM OF THE APPELLANT IS CORR ECT THE HON'BLE ITAT AHMEDABAD HAS DECIDED THE ISSUE IN ITA NUMBER 386 & 658/AHD/2010 IN ITS OWN CASE FOR A Y 2 001- 02 BY ORDER DATED 14/1/2013 AND ITA NUMBER 3946- 47/AHD/2008 FOR A Y 2004-05 AND 2005-06 BY ORDER DA TED 13/07/2009. THE ISSUE HAS BEEN DISCUSSED IN PARA 15 9 AND 167 ON PAGE 60 AND 61. IT HAS BEEN HELD BY THE HON' BLE ITAT THAT THE INTEREST EXPENSES SHOULD BE ALLOWED ON PRO RATA BASIS FOR THE PERIOD OF HOLDING OF THE BONDS. RESPEC TFULLY FOLLOWING THE JUDGEMENT, THE ADDITION MADE BY THE A SSESSING OFFICER IS DIRECTED TO BE DELETED. THE AO HAS ALSO DISALLOWED THE INTEREST/DISCOUNT CO ST OF RS. 2,65,24,193/- CLAIMED BY THE APPELLANT ON THE OFCPN S REPURCHASED DURING THE YEAR. THE APPELLANT HAD ISSU ED THESE OFCPNS IN FINANCIAL YEAR 2001 - 02. THE APPELLANT C LAIMED INTEREST EXPENDITURE ON PRO RATA BASIS IN THE FIRST YEAR. SUBSEQUENTLY IN THE NEXT YEAR, THAT IS, IN THE CURR ENT ASSESSMENT YEAR THESE OFCPNS WERE REPURCHASED BY TH E APPELLANT AND THE DIFFERENCE BETWEEN THE REPURCHASE PROCEEDS AND THE COST AS PER THE BOOKS OF ACCOUNTS WAS CLAIMED BY THE APPELLANT AS REVENUE EXPENDITURE IN THE CURRENT YEAR ITSELF. THE AO DISALLOWED THE CLAIM. IT IS NOTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY ORDER OF THE HONOURABLE ITAT IN THE CASE OF NIRM A LTD FOR ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 16 A Y 2002 - 03 (PARA-88 TO 91 IN ITA NUMBER 1245/AHD /2006 AND 2280/AHD/2004). THE HONOURABLE TRIBUNAL HAS HEL D THAT THE EXPENSES INCURRED TOWARDS REPURCHASE OF DDBS (D EEP DISCOUNT BONDS) BEFORE MATURITY IS REVENUE EXPENDITU RE. SINCE THESE OFCPNS ARE SIMILAR IN NATURE AND ARE IN THE NATURE OF BONDS ON WHICH CERTAIN INTEREST IS PROMISE D AT THE END OF THE MATURITY PERIOD BUT AN OPTION HAS ALSO B EEN GIVEN TO CONVERT THE SAME INTO EQUITY AT CERTAIN VALUE, T HE JUDGEMENT WOULD BE APPLICABLE IN THE PRESENT CIRCUM STANCES ALSO. RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONOU RABLE ITAT, THE CALCULATION MADE BY THE APPELLANT IN WORK ING OUT THE COST OF THE UNITS AS ON 01/04/2002 AND THE DIFF ERENCE BETWEEN REPURCHASED PROCEEDS AND COST AS EXPENDITUR E WAS RIGHT AND ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO IS DIRECTED TO BE DELETED. 19. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE ORDER OF THE ITAT PASSED IN THE ASSTT.YEARS 2004-05, 2005-06 AND 2001- 02. COPIES OF THESE ORDER HAVE BEEN PLACED ON RECO RD. THE LD.DR WAS UNABLE TO CONTROVERT THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 20. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS A ND GONE THROUGH THE RECORD. THE ITAT HAS CONSIDERED THIS IS SUE VIDE ORDER DATED 13.7.2009 PASSED IN ITA NO.3724/AHD/2008 IN T HE CASE OF NIRMA LTD., AND ITA NO.3946-47/AHD/2008 IN THE CASE OF NIRMA INDUSTRIES FOR ASSTT.YEAR 2004-05 AND 2005-06. THI S ORDER IN THE ASSESSEES OWN CASE ON THIS ISSUE WAS FOLLOWED BY I TAT IN ASSTT.YEAR 2001-02 IN ITA NO.386/AHD/2010 AND 658/A HD/2010. THIS ORDER WAS PASSED ON 24.1.2013. THE FINDING OF ITAT READS AS UNDER: 6.2.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHER EAS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT (A). HE ALS O SUBMITTED THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASS ESSEE BY THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 17 TRIBUNAL DECISION RENDERED IN THE CASE O NIRMA LTD. VS DCIT AND DCIT VS NIRMA INDUSTRIES LTD. IN I.T.A.NO. NO. 3725, 3946 AND 3947/AHD/2008 DATED 03.07.2009, COPY OF WHICH I S AVAILABLE ON PAGES 120- 181 OF THE PAPER BOOK. IN P ARTICULAR, OUR ATTENTION WAS DRAWN TO PARA 26 OF THIS TRIBUNAL DECISION WHICH IS AVAILABLE ON PAGE 131 OF THE PAPER BOOK. 6 .2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE TRIBUNAL DECISION CITED BY THE LD. A.R. WE FIND THAT IN THOSE CASES ALSO, THE GROUND RAISED BEFORE THE TRIB UNAL WAS REGARDING DIRECTION OF LD. CIT(A) CONFIRMING THE DI SALLOWANCE OF RS.4072.70 LACS BEING INTEREST RELATING TO DEEP DIS COUNT BONDS SERIES A & B AND IT WAS HELD BY THE TRIBUNAL IN THA T CASE THAT THE ASSESSEE IS ENTITLED TO PROPORTIONATE CLAIM OF EXPENDITURE TOWARDS DISCOUNT/INTEREST OF DDBS ON ACTUAL BASIS I N THE YEAR OF APPEAL AND THE A.O. WAS DIRECTED TO CORRECTLY WORK OUT THE SAME AND TO ALLOW DEDUCTION TO THE EXTENT IT RELATE S TO THE YEAR UNDER APPEAL. IN THE PRESENT CASE, LD. CIT (A) HAS DECIDED THIS ISSUE BY FOLLOWING THIS VERY ORDER OF THE TRIBUNAL CITED BEFORE US AND HE HAS GRANTED RELIEF TO THE ASSESSEE WITH SIMI LAR DIRECTIONS TO THE A.O. AS HAS BEEN GIVEN BY THE TRIBUNAL IN TH E CASE OF NIRMA LTD. (SUPRA). HENCE, WE DO NOT FIND ANY RE ASON TO TAKE A CONTRARY VIEW IN THE PRESENT CASE AND SINCE THE O RDER OF LD. CIT (A) IS IN LINE WITH THE TRIBUNAL ORDER IN THE C ASE OF NIRMA LTD., WE DECLINE TO INTERFERE IN THE ORDER OF LD. C IT(A) ON THIS ISSUE. THIS GROUND IS ALSO REJECTED. RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BE NCH, WE DO NOT FIND ANY MERIT IN THESE GROUND OF APPEAL. THEY ARE REJECTED. 21. GROUND NO.5: IN THIS GROUND, GRIEVANCE OF THE R EVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION O F RS.1,79,56,195/- WHICH WAS ADDED BY THE AO ON ACCOU NT OF NOTIONAL INTEREST INCOME CONSIDERED AS ACCRUED FROM INVESTMENT. 22. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY HAD PURCHASED CERTAIN OFCPN OF OTHER COMPANIES AS INVES TMENT. THESE INSTRUMENTS WERE HAVING MATURITY DATE IN THE YEAR 2006 AND 2007. THE ASSESSEE DID NOT SHOW INTEREST INCOM E ON ACCRUAL ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 18 BASIS AND CLAIMED THAT IT WILL ACCOUNT INTEREST INC OME ON RECEIPT BASIS. THE AO DID NOT ACCEPT THIS CONTENTION OF TH E ASSESSEE AND WORKED OUT INTEREST INCOME ON ACCRUAL BASIS OF THES E INVESTMENTS. HE ACCORDINGLY MADE ADDITION. DISSATISFIED WITH TH E ADDITION ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). IT WAS CONTENDED THAT IDENTICAL ISSUE WAS CONSIDERED BY TH E ITAT IN THE CASE OF KULGAM HOLDINGS P.LTD., AND OTHERS. COPY O F THE TRIBUNALS ORDER IN ITA NO.1259/AHD/2006 WAS PLACED BEFORE THE LD.CIT(A). THE LD.CIT(A) HAS ACCEPTED CONTENTIONS O F THE ASSESSEE AND DELETED ADDITION. 23. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT PASSED IN ITA NO.1266/AHD/2006 IN THE ASSESSEE S OWN CASE FOR THE ASSTT.YEAR 2002-03. HE PLACED ON RECORD COP Y OF THE TRIBUNALS ORDER DATED 31.12.2008. THE LD.DR ON TH E OTHER HAND RELIED ON THE ORDER OF THE AO. 24. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. WE FIND THAT THE TRIBUNAL IN THE ASSES SEES OWN CASE HAS FOLLOWED THE FINDING OF THE ITAT IN THE CASE OF KULGAM HOLDINGS P.LTD., (SUPRA). THE TRIBUNAL IN THAT CAS E HAS OBSERVED THAT OFCPN HAVE THEIR MATURITY DATES, AND OPTION AS GIVEN TO THE ASSESSEE EITHER TO PURCHASE SHARES BY SURRENDERING OFCPN OR GET MATURITY VALUE. THUS, THE TRIBUNAL WAS OF THE VIEW THAT INTEREST INCOME HAS NOT MATERIALIZED IN THE CASE OF THE ASSE SSEE BECAUSE IF THEY ARE REDEEMED ON MATURITY THEN GAIN ACCURSED ON SUCH INVESTMENT WILL BE LONG TERM CAPITAL GAIN, AND IF T HEY ARE CONVERTED INTO SHARES THEN NOTHING WOULD COME TO TH E ASSESSEE. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 19 RELEVANT FINDING OF THE TRIBUNAL IN THE CASE OF KUL GAM HOLDINGS P.LTD.. (SUPRA) ON THIS ISSUE READS AS UNDER: 2.8.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE OR DERS OF AUTHORITIES BELOW. WE FIND THAT ADMITTEDLY, THE INC OME WAS OFFERED BY THE ASSESSEE ITSELF VIDE LETTER DATED 11 .08.2004 ALTHOUGH UNDER PROTEST AND THIS IS ALSO TRUE THAT T HIS ISSUE WAS NEVER RAISED BEFORE THE AUTHORITIES BELOW AND T HE SAME IS RAISED BEFORE US BY WAY OF THIS ADDITIONAL GROUN D. IDEALLY, IN SUCH A SITUATION, WE GENERALLY RESTORE BACK THE ISSUE TO THE FILE OF LD. CIT (A) OR TO THE A.O. FOR THEIR DE CISION FIRST. BUT IN THE PECULIAR FACTS OF THE PRESENT CASE, AS PE R WHICH A LEGAL ISSUE HAS TO BE DECIDED AS TO WHETHER AS PER THE TERMS OF OFCPN OF NIRMA INDUSTRIES LTD., IT CAN BE SAID T HAT ANY INCOME IS ACCRUING ON YEAR TO YEAR BASIS OR NOT, WE FEEL THAT SINCE THE TERMS OF ISSUE ARE VERY MUCH AVAILABLE BE FORE US AND THE SAME WERE AVAILABLE BEFORE THE AUTHORITIES BELOW ALSO, THE ISSUE CAN BE DECIDED AT OUR LEVEL AND, TH EREFORE, IT IS NOT NECESSARY THAT WE MUST RESTORE BACK THIS ISS UE TO THE FILE OF THE A.O. /LD. CIT(A). HENCE, WE PROCEED TO DECIDE THIS ISSUE AFTER CONSIDERING THE FACTS AS PER THE ISSUE DETAILS OF OFCPN OF NIRMA INDUSTRIES LTD. AVAILABLE ON PAGES 7 -14 OF THE PAPER BOOK AND AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES. 2.8.4 AS PER THE ISSUE DETAILS OF THESE OFCPNS OF N IRMA INDUSTRIES LTD. AVAILABLE ON PAGE 7 OF THE COMMON P APER BOOK, WE FIND THAT THE ISSUE PRICE OF THESE DEBENTU RES WAS RS.25000 EACH HAVING FACE VALUE OF RS.33750/-. THE TENURE WAS 5 YEARS FORM THE DATE OF ALLOTMENT. ONE SUCH OF CPN IS CONVERTIBLE INTO 2500 EQUITY SHARES OF RS.10 EACH A T PAR AT THE OPTION OF THE INVESTOR TO BE I.T.A.NO. NOS.3758,3759,3763,3764, 3765,4155 AND 4156/AHD/200 7 EXERCISED AT THE END OF 5TH YEAR FROM THE DATE OF A LLOTMENT AND IF SUCH OPTION IS NOT EXERCISED BY THE ASSESSEE THEN ASSESSEE WILL GET THE AMOUNT OF RS.33750/- BEING TH E FACE VALUE OF EACH OFCPN AFTER FIVE YEARS. THESE FACTS A RE VERY IMPORTANT THAT IN THE INITIAL FOUR YEARS, THE ASSES SEE IS NOT ELIGIBLE TO DECIDE AS TO WHETHER HE IS GOING TO EXE RCISE THE OPTION OF CONVERTIBILITY OR NOT AND SUCH OPTION IS TO BE EXERCISED ONLY IN THE LAST QUARTER OF THE 5TH YEAR AND THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 20 ASSESSEE WILL GET SHARES AT THE END OF THE PERIOD O F FIVE YEARS AND NO INTEREST AS SUCH IS PAYABLE TILL MATURITY EV EN IF THE ASSESSEE DOES NOT OPT FOR CONVERSION. THIS IS IMPOR TANT FACT THAT IF THE ASSESSEE DOES NOT OPT FOR CONVERSION IN TO EQUITY SHARES, THE ASSESSEE WILL GET RS.33750/- FOR EACH O FCPN AFTER THE EXPIRY OF PERIOD OF FIVE YEARS FROM THE D ATE OF ALLOTMENT. THIS IS ALSO A FACT THAT THESE DEBENTURE S ARE TRANSFERABLE DURING THIS PERIOD OF FIVE YEARS AND T HE COMPANY IS ALSO ELIGIBLE TO PURCHASE DEBENTURES AT DISCOUNT , AT PAR OR AT PREMIUM IN THE OPEN MARKET OR OTHERWISE. HENCE, IN THIS EARLIER PERIOD ALSO, EVEN IF ASSESSEE IS NOT OPTING FOR CONVERSION IN EQUITY SHARES, THE ASSESSEE CAN SELL THE DEBENTURES IN THE OPEN MARKET OR TO THE ISSUER COMP ANY AND IT IS QUITE NATURAL THAT IN THE OPEN MARKET, SUCH D EBENTURES WILL COMMAND SUCH PRICE WHICH WILL INCLUDE OFFER PR ICE + PROPORTIONATE ACCRETION ON ACCOUNT OF DIFFERENCE IN THE ISSUE PRICE AND FACE VALUE WHICH CAN BE CONSIDERED AS INT EREST ALTHOUGH NO SUCH NOMENCLATURE IS GIVEN FOR THIS ACC RETION IN THE ISSUE DETAILS. 25. THERE IS NO DISPARITY ON FACTS. THIS ORDER HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2002-03. THUS, RESPECTFULLY FOLLOWING ORDER OF THE ITAT WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL, IT IS REJE CTED. 26. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 27. ITA NO.1599/AHD/2013NIRMA LIMITED (AY: 2003-04) 28. THIS IS AN APPEAL BY THE REVENUE. IN THE FIRST GROUND OF APPEAL, REVENUE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.24,71,32,934/- CLAIMED BY THE ASSESSEE TOWARDS INTEREST EXPENDITURE ON DEEP DISCO UNT BONDS SERIES A, B, C AND DEEP DISCOUNT BONDS VESTED INTO T HE ASSESSEE- COMPANY UPON DEMERGER OF OPERATING DIVISION OF NIRM A INDUSTRIES LTD. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 21 29. THE AMOUNT MENTIONED BY THE REVENUE IS NOT A CO RRECT FIGURE. OUT OF TOTAL CLAIM OF RS.24.74 CRORES, THE LD.CIT(A) HAS GRANTED RELIEF TO THE EXTENT OF RS.22,75,11,447/-. A DISALLOWANCE TO THE EXTENT OF RS.1,96,21,487/- HAS BEEN CONFIRME D WHICH IS DISCERNIBLE FROM THE FINDING OF THE LD.CIT(A) RECOR DED IN PARA 3.5 OF HIS ORDER. 30. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D ISSUED SECURED REDEEMABLE DEEP DISCOUNT BONDS SERIES A, B, C IN ORDER TO RE-FINANCE EXISTING SHORT TERM DEBT AND PART FIN ANCE OF NORMAL CAPITAL EXPENDITURE OF THE COMPANY. SIMILARLY, DEE P DISCOUNT BONDS WERE ISSUED BY NIRMA INDUSTRIES WHICH WERE ACQ UIRED BY THE ASSESSEE UNDER SCHEME OF DEMERGER. THE SALIENT FEATURES OF TERMS AND CONDITIONS OF ISSUE HAVE BEEN HIGHLIGHTED BEFORE THE AO WHICH READS AS UNDER: PARTICULARS DDB SERIES A DDB SERIES B DDB SERIES C DDB OF NIRMA INDUSTRIES LTD. ON DEMERGER ISSUE SIZE RS.350 CRORES RS.100 CRORES RS.100 CRORES RS.400 CRORES FACE VALUE (PER BOND) RS.1,50,000/- RS.1,15,500/- RS.1,00,000/- RS.1,00,00,000 ISSUE VALUE (PER BOND) RS.1,00,000/- RS.1,00,000/- RS.1,13,000/- RS.1,50,00,000 31. THE EXACT BREAK OF THE DISALLOWANCE HAS BEEN NO TICED BY THE LD.CIT(A) WHILE TAKING COGNIZANCE OF THE ASSESSEES GROUNDS OF APPEAL, AND SUCH BREAK READS AS UNDER: SR.NO. GROUND NO. DISALLOWED INTEREST PARTICULARS OF DDBS 1. 3 9,57,90,860 DDB SERIES A 2. 4 9,38,58,181 DDB SERIES B 3. 5 1,79,30,000 DDB SERIES C 4. 5 3,95,53,893 DDB VESTED INTO APPELLANT COMPANY UPON DEMERGER ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 22 32. THE AO WAS OF THE OPINION THAT LIABILITY OF PAY MENT OF SUCH INTEREST HAD NOT ACCRUED TO THE ASSESSEE BECAUSE IN TEREST ON THESE DEEP DISCOUNT BONDS WAS REQUIRED TO BE PAID AT THE TIME OF MATURITY. HENCE, IN HIS OPINION, IT WAS NOT ASCERT AINED LIABILITY AND THE ASSESSEE CANNOT CLAIM IT PROPORTIONATELY IN THE YEAR IN DISPUTE. ACCORDINGLY HE DISALLOWED IT. ON APPEAL, THE LD.CI T(A) HAS DELETED DISALLOWANCE BY FOLLOWING ORDERS OF THE ITAT PASSED IN THE CASE OF NIRMA INDUSTRIES. BRIEF FINDING OF THE LD.CIT(A) RE ADS AS UNDER: 3.5 PERUSAL OF THE HON'BLE ITAT'S ORDER REVEALS TH AT THIS ISSUE STANDS COVERED BY THE ABOVE SAID ORDER. HON'B LE ITAT HAD GONE INTO DETAILS OF THE OBJECTIONS RAISED BY T HE A.O. IN THE ASSESSMENT ORDER. RESPECTFULLY FOLLOWING THE DE CISION OF HON'BLE ITAT, I HOLD THAT DISALLOWANCE OF INTEREST ON DDBS CLAIMED ON PRO RATA BASIS IS UNTENABLE. IT IS FURTH ER SEEN THAT THE A.O. MADE A DISALLOWANCE OF INTEREST ON DDBS OF RS.24,71,32,934/-. ON THIS ISSUE THE APPELLANT VIDE ITS LETTER DATED 20.2.2013 SUBMITTED THAT THE INTEREST EXPENSE S ON DDBS ON PRO RATA BASIS FOR THE YEAR UNDER CONSIDERAT ION WORKS OUT TO RS..22,75T11,441/-. SINCE THE APPELLAN T ITSELF IS CONTENDING THAT THE CORRECT AMOUNT OF ACCRUED INTER EST ON DDBS IS RS.22,75,11,447/- ACCORDINGLY, DISALLOWAN CE TO THE EXTENT OF RS.1,96,21,487/- (24,71,32,934 22,75,11,447) IS CONFIRMED. THE APPELLANT WILL GET A RELIEF OF RS.22,75,11,447/-) 33. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. AN IDENTICAL ISSUE C AME UP IN THE CASE OF NIRMA INDUSTRIES. WHILE ADJUDICATING GROUN D NOS.3 AND 4 WE HAVE CONSIDERED THIS ISSUE IN PARA 17 OF THIS OR DER. WE HAVE FOLLOWED ORDER OF THE ITAT PASSED IN EARLIER YEARS AND HELD THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON DE EP DISCOUNT BONDS IS AN ALLOWABLE EXPENDITURE ON ACCRUAL BASIS I N THIS YEAR ALSO. FOLLOWING THE ORDER OF THE ITAT IN EARLIER Y EARS, AND IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT TH E LD.CIT(A) HAS ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 23 FOLLOWED ORDER OF THE ITAT AND ALLOWED PRORATA DEDUCTION OF INTEREST EXPENDITURE. THERE IS NO ERROR IN ORDER O F THE LD.CIT(A), HENCE, THIS GROUND OF APPEAL IS REJECTED. 34. GROUND NO.2: IN THIS GROUND OF APPEAL, GRIEVANC E OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA OF RS. 95,98,355/-. 35. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D A WIND FARM DIVISION WHICH HAS GENERATED ELECTRICITY. IT CLAIME D DEDUCTION UNDER SECTION 80IA OF THE ACT AT THE RATE OF 30% ON THE INCOME OF RS.3,19,94,515/-. THIS DEDUCTION WAS DISALLOWED BY THE AO ON THE GROUND THAT ELECTRICITY PRODUCED BY THE ASSESSE E WAS CONSUMED BY MANDALI DIVISION. IN OTHER WORDS, IT W AS A CAPTIVE POWER PLANT. THE LD.AO OBSERVED THAT ELECTRICITY I S NOT COVERED UNDER DEFINITION OF GOODS OR ARTICLES, ACCORDINGL Y, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 8 0IA. THE LD.CIT(A) HAS DELETED THE DISALLOWANCE BY OBSERVING THAT IN THE ASSTT.YEAR 2004-05, THE LD.CIT(A) HAS ALLOWED APPEA L OF THE ASSESSEE AND HELD THAT EVEN FOR CAPTIVE CONSUMPTION , ELECTRICITY PRODUCED BY THE ASSESSEE WOULD BE ELIGIBLE FOR GRAN T OF DEDUCTION UNDER SECTION 80IA. THE LD.COUNSEL FOR THE ASSESSE E CONTENDED THAT ORDER OF THE LD.CIT(A) DATED 26.9.2008 PASSED IN THE ASSTT.YEAR 2004-05 HAS BEEN ACCEPTED BY THE DEPARTM ENT AND NOT CHALLENGED IN FURTHER APPEAL. CONSIDERING THIS STA ND OF THE REVENUE IN SUBSEQUENT YEARS, WE DO NOT FIND ANY ERR OR IN THE ORDER OF THE LD.CIT(A). THE LD.CIT(A) HAS RIGHTLY DELETED DISALLOWANCE OF RS.95,98,355/-. THIS GROUND OF APP EAL IS REJECTED. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 24 36. GROUND NO.3: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO NOT TO INCLUDE INTER DIVISION TRA NSFER WHILE COMPUTING TOTAL TURNOVER FOR THE PURPOSE OF 80HHC. 37. BRIEF FACTS OF THE CASE ARE THAT THERE WAS INTER -DIVISION TRANSFER OF GOODS FROM ONE UNIT TO OTHER UNIT. THE STAND OF THE ASSESSEE WAS THAT IT IS NOT A SALE THEREFORE, THIS INTER-DIVISIONAL TRANSFER OF GOODS CANNOT BE TAKEN IN TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THIS PLEA OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO. HOWEVER, ON A PPEAL, THE LD.CIT(A) DIRECTED THE AO NOT TO TAKE INTER-DIVISIO NAL TRANSFER AS A PART OF TOTAL TURNOVER. THE LD.CIT(A) HAS GIVEN TH IS DIRECTION ON THE BASIS OF ITATS ORDER PASSED IN ITA NO.2280/AHD /2004 FOR THE ASSTT.YEAR 2002-03 IN THE ASSESSEES OWN CASE. CON SIDERING ORDER OF THE ITAT IN THE ASSTT.YEAR 1998-99 AND 2002-03, WE ARE OF THE VIEW THAT INTER-DIVISIONAL TRANSFER OF GOODS CANNOT BE CONSIDERED AS SALE FOR THE PURPOSE OF TAKING THAT COMPONENT AS A PART OF TOTAL TURNOVER. THE LD.CIT(A) HAS RIGHTLY EXCLUDED THIS COMPONENT FROM THE TOTAL TURNOVER. WE DO NOT FIND ANY MERIT IN TH IS GROUND OF APPEAL. IT IS REJECTED. 38. GROUND NO.4: IN THIS GROUND OF APPEAL, GRIEVANC E OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ALLOW ASSESSEES CLAIM FOR UNAB SORBED DEPRECIATION OF DEMERGED COMPANY VIZ. NIRMA INDUSTR IES. 39. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO N OTE THAT OPERATING DIVISION OF NIRMA INDUSTRIES WAS MERGED WITH APPELL ANT COMPANY ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 25 I.E. NIRMA INDUSTRIES W.E.F. 1.2.2003. THIS MERGER WAS APPROVED BY THE HONBLE GUJARAT HIGH COURT. THE ISSUE OF VA LUATION OF INTANGIBLE ASSETS IN THE HANDS OF NIRMA INDUSTRIES HAS BEEN DECIDED BY ITAT IN ITA NO.386/AHD/2010 DATED 24.1.2 013. THIS MERGER WAS COMPLETED AND ASSESSMENTS FOR THE ASSTT. YEAR 2001- 02, 2002-03 AND 2003-04 IN THE CASE OF NIRMA INDUST RIES WERE COMPLETED, THEREFORE, THE LD.CIT(A) HAS DIRECTED TH E AO TO TAKE INTO CONSIDERATION UNABSORBED DEPRECIATION AND LOSS AS ON 1.2.2003 IN THE OPERATING DIVISION OF NIRMA INDUSTR IES SHOULD BE ACCOUNTED FOR IN THE ACCOUNTS OF NIRMA LTD. I.E. RE SPONDENT HEREIN. WE DO NOT FIND ANY ERROR IN THIS DIRECTION OF THE C IT(A) BECAUSE ONCE DEMERGER HAS BEEN APPROVED BY THE HONBLE HIGH COURT, THEN ALL ASSETS AND LIABILITIES OF DEMERGED COMPANY WOULD BE TAKEN INTO CONSIDERATION IN THE NEW COMPANY. CARRY FORWARDED UNABSORBED DEPRECIATION AND LOSS HAS TO BE GIVEN EF FECT IN THE NEW COMPANY. THE LD.CIT(A) HAS RIGHTLY DIRECTED THE AO TO GIVE BENEFIT OF CARRY FORWARDED OF UNABSORBED LOSS AND D EPRECIATION OF NIRMA INDUSTRIES. HENCE, THIS GROUND OF APPEAL IS REJECTED. 40. GROUND NO.5: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT CORRECT VALUE OF INTANGIBLE ASSETS OF THE NIRMA INDUSTRIES WAS RS.500 CRORES AND NOT RS.53.43 CRORE S AS DETERMINED BY THE AO AND IN DIRECTING THE AO TO ALL OW DEPRECIATION ON ENTIRE WRITTEN DOWN VALUE OF RS.2,4 9,07,23,831/-. 41. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. ISSUE WHETHER BRAND/ TRADEMARK OF NIRMA WOULD BE TAKEN AT RS.500 CRORES OR ITS VALUE IS TO BE TAKEN ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 26 AT RS.53.43 CORES CONSIDERED BY THE AO HAS BEEN DIS PUTED IN THE CASE OF NIRMA INDUSTRIES IN THE ASSTT.YEAR 2003-04. THE LD.AO HAS MADE DISALLOWANCE OF RS.61.8 CRORES OUT OF DEPRECIA TION CLAIMED WHICH WAS DELETED BY THE LD.CIT(A). THIS ISSUE HAS BEEN CONSIDERED BY US IN ITA NO.1738/AHD/2014 AT PARA 8 OF THIS ORDER. WE HAVE FOLLOWED ORDER OF THE ITAT IN THE ASSTT.YEA R 2001-02 WHEREIN VALUE OF INTANGIBLE ASSETS WAS UPHELD AT RS .500 CRORES. THUS, FOLLOWING ORDER IN THE CASE OF NIRMA INDUSTRI ES, PARA-8 OF ORDER ONWARDS, WE ARE OF THE VIEW THAT THE LD.CIT(A ) HAS RIGHTLY TAKEN THE VALUE OF INTANGIBLE ASSETS AT RS.500 CROR ES AND HAS RIGHTLY ALLOWED DEPRECIATION TO THE ASSESSEE. THER E IS NO MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 42. GROUND NO.6: IN THIS GROUND OF APPEAL GRIEVANC E OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN HOLDING THAT SALES-TAX INCENTIVE WAS CAPITAL RECEIPTS AND NOT REVENUE RECE IPT AS HELD BY THE AO. 43. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT THIS ISSUE WAS CONSIDERED IN THE CASE OF THE A SSESSEE IN EARLIER YEARS AND DISPUTE TRAVELLED UPTO THE HONBL E GUJARAT HIGH COURT IN TAX APPEAL NO.226 OF 2010 AND OTHERS. HON BLE COURT HAS CONSIDERED THE FOLLOWING QUESTION OF LAW: WHETHER APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN REVERSING ORDER PASSED BY THE LD.CIT(A) AND THEREBY HOLDING THAT AMOUNT OF SALES-TAX INCENTIVE RECEIVED BY THE ASSESSEE IS CAPITAL RECEIPT ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 27 44. THIS QUESTION HAS BEEN REPLIED IN FAVOUR OF THE ASSESSEE VIDE ITS DECISION DATED 8.6.2016. COPY OF THE HONBLE H IGH COURTS ORDER HAS BEEN PLACED ON PAGE NO.166 OF THE PAPER B OOK. 45. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD AND JUDGMENT OF HONBLE GUJARAT HIGH COURT AND FIND THAT HONBLE HIGH COURT HAS UPHELD CONCLUS ION OF THE TRIBUNAL FOR TREATING SALES-TAX SUBSIDY AS CAPITAL RECEIPT. THE LD.CIT(A) FOLLOWED THIS DECISION IN THE IMPUGNED OR DER, AND THEREFORE, HER ORDER DOES NOT CALL FOR ANY INTERFER ENCE. IN VIEW OF ABOVE, THIS GROUND OF APPEAL IS REJECTED. 46. GROUND NO.7: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN HOLDING THAT A SUM OF RS.94,74,24,668/- COULD NOT BE ADDED IN THE BOOK PR OFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 47. BRIEF FACTS OF THE CASE ARE THAT ON VERIFICATION OF ACCOUNTS, THE LD.AO OBSERVED THAT THE ASSESSEE HAS WRITTEN OF F RS.94,74,24,668/- AS LICENCE FEE ON 31.3.2003. HE FURTHER OBSERVED THAT THE ASSESSEE IS BEING ASSESSED FOR TH E PURPOSE OF LEVY OF TAX UNDER MAT PROVISION, AND THEREFORE, BY WRITING OFF OF THIS AMOUNT, IT HAS REDUCED ITS LIABILITY UNDER THE MAT SUBSTANTIALLY. THE LD.AO CONFRONTED THE ASSESSEE W ITH A QUERY VIZ. EXPLAIN AS TO HOW THIS CAPITALIZED LICENCE FEE CAN BE WRITTEN OFF AND CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOU NT FOR THE ASSTT.YEAR 2003-04. THE ASSESSEE MADE DETAILED RE PLY WHICH HAS BEEN REPRODUCED BY THE AO AS WELL AS BY THE CIT(A). ACCORDING TO THE ASSESSEE, AFTER DEMERGER OF OPERATING DIVISION OF NIRMA LIMITED WITH THE ASSESSEE EFFECTING FROM 1.2.2003, THE ASSESSEE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 28 HAD ACQUIRED, INTER ALIA , BRANDS AND TRADEMARKS RELATED TO WHICH THE COMPANY HAD EARLIER PAID LICENCE FEES TO KISAN INDUSTRIES. IN OTHER WORDS, AFTER DEMERGER TRADEMARK VESTED IN THE ASSESSEE. SO IT BECAME OWNER OF THE TRADEMARK ITSELF FOR WHIC H THE ALLEGED LICENCE FEE WAS BEING PAID EARLIER. WITH THIS BACKG ROUND, THE ASSESSEE HAS WRITTEN OFF THE LICENCE FEES, BUT IT H AS NOT CLAIMED DEDUCTION. SUBMISSIONS GIVEN BY THE ASSESSEE AND R EPRODUCED BY THE AO IN THIS COMMUNICATION READS AS UNDER: OUR SUBMISSIONS: PURSUANT TO THE DEMERGER OF THE OPERATING DIVISION OF NIRMA INDUSTRIES LTD. WITH THE COMPANY EFFECTIVE FROM 01- 02-03, SINCE THE COMPANY HAD ACQUIRED, INTER ALIA THE BRAN DS AND TRADE MARKS RELATED TO WHICH THE COMPANY HAD EARLIE R PAID LICENCE FEES TO KISAN INDUSTRIES, AS STATED IN (I) ABOVE, SO AS TO HOLD RIGHT TO SUPPLY 20% OF THE SALES UNDER THE SAID BRAND NAME. ACCORDINGLY UPON THE ACQUISITION UNDER THE DEMERGER, EFFECTIVE FROM() 1-02-2003. THE ASSESSEE HAS ACQUIRED THE TRADE MARKS RELATED TO WHICH THE COMPA NY HAS PAID LICENCE FEES TO HOLD PARTIAL RIGHTS, THEREBY T HOUGH THE RIGHT UNDER THE 'LICENCE FEES' (THE VALUE OF THE LI CENCE WAS RELATED TO ITS RIGHT TO SUPPY UPTO 20% OF THE NIRMA BRAND SALES) HAS EXISTED, THE 'TRADE MARK' IN FORM OF THE ASSET ACQUIRED UNDER THE DEMERGER HAS VIRTUALLY MERGED WI TH THE EXISTING RIGHT UNDER THE 'LICEENEE FEES' WITH THE ' TRADE MARK', THE ASSESSEE HAD THE LICENCE IN RESPECT OF T RADE MARKS., THEN IT BECAME THE OWNER OF THE VERY TRADE MARKS, IN VIEW OF THIS THE ASSESSEE APPARENTLY BECAME THE OWN ER OF AN ASSET WHICH ORIGINALLY WAS LICENCED TO IT. A MAN CA NNOT BE LICENCCE OF HIS OWN PROPERTY. THE LICENCE WHICH IS AN INFERIOR RIGHT WOULD MERGE INTO SUPERIOR RIGHT OF OWNERSHIP, THEREFORE THE COST OF THE LICENCE HAS TO BE W/OFF IN THE BOOK S OF ACCOUNTS, THE COMPANY HAS WRITTEN OFF THE WRITTEN D OWN VALUE AS AT 31.01.2003 OF LICENCE FEES OF RS. 94.74,24,667/-. THE WDV OF THE SAME HAS BEEN WORKED OUT AS UNDER. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 29 PARTICULARS AMOUNT REMARKS LICENCE FEES - (GROSS AMOUNT) 1.34.00,0 0.000 REFER SCHEDULE 5 TO ANNUAL REPORT - ORIGINAL DEPRECIATION AT BEGINNING 01-04 - 27.71,12, 000 OPENING. WDV AS PER HOOKS 1.06,28,8 8.000 DEPRECIATION FIX THE YEAR 02-03 13,85,56, 000 10.34% OF GROSS AMOUNT AS PER ORIGINAL ACCOUNTS R EVERSAL OF DEPRECIATION TOR THE PERIOD FROM 01.02.03 IN 31.03.03 PURSUANT TO DEMERGER - 2.30. 92.66 7 (13,85,56,000*2/12) WDV OF LICENSE FEES AS AT AT 30.01.03 94,74,24, 777 AMOUNT WRITTEN OFF PURSUANT TO DEMERGER IN THIS REGARD, WE WISH TO CLARIFY THAT THOUGH THE ASSESSEE HAS WRITTEN OFF THE 'LICENCE FEES' IN THE HOOKS OF ACCOUNT THE SAME HAS NOT BE CLAIMED AS DEDUCTION IN THE COMPUTATION AS CONCEIVED IN YOUR ABOVE QUERY. PLEAS E NOTE THE AMOUNT WRITTEN OFF BY WAY OF DEPRECIATION IN TH E BOOKS OF ACCOUNT, IS ADDED BACK IN THE COMPUTATION OF INCOME IN RESPECT OF THE MORAIYA (DETERGENT DIVISION). AO'S QUERY IT EXPLAIN (IS TO HOW THIS LICENCE HAS CEASED TO E XIT AS ON 3/-3-03 WITHOUT A SALE OR SURRENDER OF THE SAME SO THAT (HERE WAS HEED TO WRITE-OFF THE SAME. OUR SUBMISSIONS: AS REGARDS TO THE CESSATION OF THE EXISTENCE OF THE LICENCE AND NEED 1.0 WRITE OFF THE SAME, PLEASE NOTE THAT T HOUGH THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 30 ASSET HAS NOT CEASED TO EXIST THE AMOUNT IS REQUIRE D TO HE WRITTEN OFF IN THE HOOK OF ACCOUNTS IN ORDER TO AVO ID DUPLICATION OF EVALUATION, AND WE REQUEST REFE RENCE TO OUR REPLY IN PARA (II) HEREIN ABOVE. UNQUOTE THE POSITION IS CLEAR, THAT THE ASSESSEE HAD THE LI CENCE IN RESPECT OF TRADE MARKS', THEN IT BECAME THE OWNER O F THE VERY TRADE MAILS, IN VIEW OF THIS THE ASSESSEE APPA RENTLY BECAME THE OWNER OF AN ASSET WHICH ORIGINALLY WAS L ICENCED TO IT. A MAN CANNOT BE LICENCEE OF HIS OWN PROPERTY , THE LICENCE WHICH IS AN INFERIOR RIGHT WOULD MERGE INTO SUPERIOR RIGHT OF OWNERSHIP, THEREFORE THE COST OF THE LICEN CE HAS TO BE W/OFF IN THE BOOKS OF ACCOUNTS. THE ABOVE EXACTLY CLARIFY THE POINTS RAISED BY YOUR GOOD SELF RE. THE REASONS FOR W/OFF ETC. WE HAVE TO FURTHER S TATE THAT, THE COMPUTATION OF BOOK PROFIT U/S. I 15.J B IS COMP UTATION BASED ON THE BOOK PROFIT OF THE ASSESSEE AS PER THE COMPANY L.AW, AND THE ACCOUNTS AS FURNISHED IN THE REVISED RETURN OF THE COMPANY ARE PUBLISHED ACCOUNTS, AS MADE OUT GIV ING EFFECT TO THE DIRECTIONS OF THE HON. GUJARAT HIGH C OURT, AND DULY ADOPTED BY THE GENERAL BODY OF THE COMPANY AS PER THE PROVISIONS OF THE COMPANY LAW AND THERE IS NO SCOPE () F ENHANCING ( NOR DISTURBING IN ANY WAY) THE SAID BOO K PROFIT BY ANY AMOUNT WHATSOEVER EXCEPT FOR THE ITEMS SPECI FIED IN (A) TO (F) OF THE EXPLANATION TO SEC. 115.JB( I); FU RTHER PLEASE NOTE THAT THERE IS NO PROVISION UNDER THE COMPANY L AW WHICH REQUIRES THE WRITE OFF OF CAPITAL EXPENDITURE 'BELO W THE LINE' OF HOOK PROFIT. WE RELY ON THE DECISION THE SUPREME COURT IN THE CASE OF APOLLO TYRES VS CIT 255 ITR 273' VIDE SUB CLAUSE (G) OF PARA 7 OF YOUR SUBJECT NOTIC E, YOUR GOODSELF HAVE SOUGHT EXPLANATION AS TO WHY 'SINCE N O SUCH ASSET AS LICENCE FEE EXISTED' THE DEPRECIATION CLAI MED BY THE ASSESSEE OIL THE ASSET 'L ICENCE TEE' SHOULD NOT BE CONSIDERED AS INCOME U/S. 41 (I) OF THE ACT. KINDLY REFER TO THE HEREINABOVE QUOTE OF THE RELEVA NT SUBMISSIONS MADE THE SAID ASSET WAS VERY MUCH EXIST ED AND CLAIM FOR DEPRECIATION IS VERY MUCH ELIGIBLE.' 48. SOMEHOW, THE LD.AO DID NOT ACCEPT CONTENTIONS O F THE ASSESSEE. HOWEVER, ON APPEAL THE LD.CIT(A) HAS ACC EPTED THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 31 CONTENTIONS OF THE ASSESSEE AND HELD THAT THE AO HA S NO POWER TO MAKE ADJUSTMENT OF BOOK PROFIT APART FROM THE ONE P ROVIDED IN EXPLANATION 1 UNDER CLAUSE (A) TO (F). BEFORE US, THE LD.COUNS EL FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE HONBL E SUPREME COURT IN THE CASE OF APOLLO TYRES VS. CIT, 255 ITR 273 AND CONTENDED THAT PROFIT AND LOSS ACCOUNT OF THE ASSES SEE WAS PREPARED ACCORDING TO PART-II AND PART-III OF SCHED ULE-VI TO THE COMPANIES ACT, 1956 AND AUDITORS HAVE DULY AUTHENTI CATED THIS ACCOUNT. THESE WERE APPROVED BY THE BOARD OF DIRECT ORS. THUS, THE AO HAS NO POWER TO TINKER WITH THESE ACCOUNTS. HE HAS NOT MADE ANY ADJUSTMENT AS PROVIDED IN CLAUSE (A) TO (F ) UNDER EXPLANATION 1 TO SECTION 115JB. 49. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIR CUMSTANCES, WE FIND THAT THE LD.CIT(A) HAS RECORDED A CATEGORIC AL FINDING THAT THE AO NOWHERE BROUGHT ON RECORD THAT ACCOUNTS OF T HE ASSESSEE WERE NOT DRAWN AS PER PART-II AND PART-III OF THE S CHEDULE-VI OF THE COMPANIES ACT; WHEREAS THE ACCOUNTS ARE PREPARE D ACCORDINGLY AND IF PROFITS ARE COMPUTED, THE ACCOUN TS ARE AUDITED AND APPROVED IN THE BOARD OF DIRECTORS MEETING, THE N THE AO HAS NO POWER TO MAKE ADJUSTMENT. THE ISSUE IN DISPUTE IS COVERED BY DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F APOLLO TYPRES (SUPRA) AND THE LD.CIT(A) HAS CORRECTLY APPLIED THI S DECISION. THEREFORE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 50. GROUND NOS.8 AND 9: THESE ARE GENERAL GROUNDS OF APPEAL, WHICH DO NOT REQUIRE RECORDING OF ANY SPECIFIC FIND ING, HENCE DISMISSED. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 32 51. IN THE RESULT, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. IT IS DISMISSED. 52. NOW WE TAKE THE APPEAL NO.1280/AHD/2013 ASSTT.YEAR 2003-04 BY NIRMA LIMITED. 53. FIRST GROUND OF APPEAL TAKEN BY THE ASSESSEE IS GENERAL GROUND OF APPEAL, WHICH DOES NOT REQUIRE ANY SPECIF IC FINDING TO BE RECORDED, HENCE REJECTED. 54. GROUND NO.2: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE ASSESSEE IS THAT THE LD.CIT(A)HAS ERRED IN REDUCING ELIGIBLE PROFIT OF MORAIYA DIVISION FOR GRANT OF DEDUCTION UNDER SE CTION 80IA OF RS.1,15,00,957/-. 55. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S CLAIMED DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT, 1961 ON THE UNDERTAKING OF MORAIYA DIVISION. THE LD.AO HAS RE DUCED ELIGIBLE PROFIT OF THIS UNDERTAKING. THE CASE OF THE AO IS THAT THE ASSESSEE HAD SHOWN LOSS OF RS.46,31,65,493/- IN CORPORATE DI VISION. OUT OF WHICH RS.44.35 CRORES LOSS WAS WITH RESPECT TO INTE REST EXPENDITURE INCURRED BY THE ASSESSEE ON ISSUANCE OF DEEP DISCOUNT BONDS (DDB FOR SHORT). IN OTHER WORDS, TH E ASSESSEE HAS ISSUED DDB ON WHICH IT HAS CLAIMED INTEREST EXPE NDITURE ON ACCRUAL BASIS. THE LD.AO DISALLOWED INTEREST EXPEN DITURE OF THE ASSESSEE TO THE EXTENT OF RS.24.71 CRORES. HE WORK ED OUT NET LOSS OF CORPORATE DIVISION AT RS.21.60 CRORES AND BY TAK ING THIS FIGURE HE ALLOCATED PRO RATA LOSS TO THE MORAIYA DIVISION IN THE RATIO OF TURNOVER. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 33 56. ON APPEAL, THE LD.CIT(A) HAS OBSERVED THAT SINC E INTEREST EXPENDITURE INCURRED ON DDB WAS PARTLY DISALLOWED BY THE AO THIS FINDING WAS REVERSED BY THE ITAT IN EARLIER YEARS A ND IN THE IMPUGNED ORDER, INTEREST EXPENDITURE ON DDB HAS BEEN ALLOWED TO THE ASSESSEE, THEREFORE NET LOSS OF THE CORPORATE D IVISION WOULD BE ENHANCED FROM RS.21.60 CROES TO RS.44.35 CRORES. I N THIS WAY, THE LD.CIT(A) HAS ISSUED A NOTICE FOR ENHANCEMENT O F INCOME TO THE ASSESSEE UNDER SECTION 251(1)(A) ON 5.3.2014. ACCORDING TO THE LD.CIT(A) CORPORATE DIVISION LOSS IS TO BE ALLO CATED PROPORTIONATELY IN THE RATIO OF TURNOVER TO ALL DIV ISIONS OF THE ASSESSEE. THUS, THE LD.CIT(A) HAS ENHANCED THE AMO UNT BY WHICH ELIGIBLE PROFIT FOR DEDUCTION UNDER SECTION 80IA IS TO BE REDUCED REPRESENTING LOSS ALLOCATED TO MORAIYA DIVISION FRO M THE CORPORATE DIVISION. THE AO HAS DISALLOWED A SUM OF RS.71,42, 992/- WHICH HAS BEEN FURTHER ENHANCED BY THE LD.CIT(A) TO RS.1, 15,00,950/-. THUS, THE ISSUE BEFORE THE TRIBUNAL IS WHETHER PROF IT OF MORAIYA DIVISION FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA IS TO BE REDUCED BY ALLOCATING LOSS OF CORPORATE DIVISION IN THE RATIO OF TURNOVER ?. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING ORDER OF THE LD.CIT(A) CONTENDED THAT IF THE LOSS FROM TH E CORPORATE DIVISION IS BEING ALLOCATED TO THIS UNIT, THEN PROF IT OF OTHER DIVISIONS OUGHT TO BE ALLOCATED WHICH WOULD ENHANCE ELIGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80IA. HE FURTHER CONTEN DED THAT BASICALLY LOSS OF CORPORATE DIVISION IS THE RESULT OF INTEREST EXPENDITURE INCURRED ON DDB. IF DETAILS OF FUND AVA ILABLE WITH MORAIYA DIVISION AND ITS ASSETS ARE BEING CONSIDERE D, THEN IT WOULD REVEAL THAT THIS CONCERN DOES NOT REQUIRE ANY FUNDS FOR RUNNING OF ITS ACTIVITIES. HE TOOK US THROUGH SUBMISSIONS FIL ED BEFORE THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 34 LD.CIT(A) WHICH ARE REPRODUCED IN PARA 6.2 OF THE I MPUGNED ORDER. IT READS AS UNDER: 6.2 DURING THE APPELLATE PROCEEDINGS APPELLANT VI DE ITS LETTER DATED 20.3.2011 MADE FOLLOWING SUBMISSIONS:- 'GROUND NO.9: ALLOCATING LOSS OF CORPORATE DIVISION : VIDE DISCUSSION AT PARA 8 ON PAGE NO. 24 OF THE ASS ESSMENT ORDER, THE ID. A.O. REDUCED THE PRO-RATA LOSS OF CO RPORATE DIVISION ON THE BASIS OF TURNOVER BY RS.2,3 8,09,97 4 FROM THE PROFIT OF GENERAL DIVISION AT MORAIYA WHILE WORKING OUT DEDUCTION U/S.80IA OF I.T. ACT. A) IT IS SUBMITTED THAT THE APPELLANT COMPANY MAINT AINED SEPARATE BOOKS OF ACCOUNTS OF MORAIYA DIVISION. THE PROFIT IS CORRECTLY REFLECTED AND ELIGIBLE FOR DEDUCTION U/S. 80IA OF I.T. ACT. THE LOSS OF CORPORATE DIVISION SHOULD NOT BE R EDUCED FROM THE PROFIT OF THIS DIVISION. B) PROFIT & LOSS ACCOUNT OF CORPORATE DIVISION IS E NCLOSED HEREWITH.(ANNEXURE - J) PERUSAL OF THE SAME WOULD S HOW THAT NO EXPENDITURE IS INCURRED WHILE WORKING OF THE ACT IVITIES OF THIS DIVISION. C) IT IS SUBMITTED THAT THIS DIVISION AT MORAIYA EA RNED PROFIT OF RS.28,92,21,330 DURING PREVIOUS YEAR 2002-03 CORRESPONDING TO ASST. YEAR 2003-04. THIS WOULD SHO W THAT THERE IS SURPLUS OF INTERNAL ACCRUALS. THIS UNDERTA KING WOULD NOT REQUIRE FINANCE TO RUN THE ACTIVITIES OF THE UN IT. MOREOVER, EVEN DURING THE EARLIER YEAR, THIS UNIT EARNED A SU BSTANTIAL PROFIT. HENCE, THE ACCUMULATED SURPLUS IS SUBSTANTI ALLY HIGHER. THE PROFIT OF THE LAST TWO YEARS AS ON 31.0 3.2002 AND 31.03.2001 WAS RS. 27,91,97,143 AND RS. 17,78,89,74 7 RESPECTIVELY. D) IT IS FURTHER SUBMITTED THAT CORPORATE DIVISION INCURRED INTEREST EXPENSES OF NET AMOUNT OF RS.46,30,55,511 (INTEREST EXPENSES RS.55,17,03,195 - INTEREST INCOM E RS.8,86,47,684). THE INTEREST EXPENSES IS INCLUSIVE OF INTEREST ON DDES AS PROVIDED IN BOOKS OF ACCOUNT AN D ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 35 CONTESTED VIDE GROUND NOS. 3 TO 6. IT IS SUBMITTED THAT FIXED ASSETS OF THIS DIVISION OF MORAIYA IS RS.31,95,28,4 55 AS AGAINST AGGREGATE FIXED ASSETS OF RS.2125.30 CRORES OF THE APPELLANT COMPANY AS ON 31-3-2003. STATEMENT ENCLOS ED MARKED ANNEXURE:K' THIS SHOWS THAT IN THIS DIVISION THERE IS A SMALL PORTION OF FIXED ASSETS AS AGAINST FIXED AS SETS IN OTHER PLACES OF THE APPELLANT COMPANY. THE PROFIT O F THIS DIVISION IS RS.28,92,21,330 WHICH IS MUCH MORE THAN FINANCE REQUIRED TO RUN THE GENERAL DIVISION AT MORAIYA. TH E INTERNAL ACCRUAL OF THIS DIVISION IS SUBSTANTIALLY HIGHER TH AN THE FUNDS REQUIREMENTS. HENCE, NO PORTION OF THE INTEREST OF CORPORATE DIVISION SHOULD BE ALLOCATED TO THIS DIVISION AT MO RAIYA. E) AS REGARDS EXPENSES OTHER THAN INTEREST, IT IS S UBMITTED THAT THIS DIVISION HAS NO CONNECTION WITH EXPENDITU RE. IT IS AN INDEPENDENT UNIT FOR MANUFACTURING OF GOODS. HENCE, THE LOSS OF CORPORATE DIVISION SHOULD NOT BE ALLOCATED TOWARDS PROFIT OF THIS DIVISION FOR THE PURPOSE OF DEDUCTION U/S.80IA OF I.T. ACT.' 6.3 ON THIS ISSUE THE APPELLANT VIDE HIS LETTER DATED 20.2.2013 FURTHER SUBMITTED AS UNDER :- '2. PARA 2 OF YOUR LETTER AS PER RETURN OF INCOME LOSS IN CORPORATE DIVISION WAS RS.46,31,65,493/-. IN THE ASSESSMENT ORDER PASSED U/S.143(3) OF I.T. A CT, THE INTEREST/ DISCOUNT ON DDES MADE FOR RS.24,71,32,934 7- IN THE ASSESSMENT ORDER. THE LOSS OF CORPORATE DIVISIO N WORKED OUT TO RS.21,60,32,559/- ON ACCOUNT OF DISALLOWANCE OF INTEREST/ DISCOUNT ON DDES. HON'BLE TRIBUNAL ALLOWED THE CLAIM FOR ASST. YEARS 2002-03 AND 2004-05 VIDE ORDER DATED 13-07-2009. COPY WAS ENCLOSED IN ANNEXURE E VIDE SUBMISSION DTD.20.03.20 12. THOUGH DEDUCTION IS NOT ALLOWED DURING ASST. YEAR 2 003-04. HOWEVER, AS PER DIRECTION OF HON'BLE TRIBUNAL THE P RO-RATA ALLOWANCE OF DDB COMES TO RS.22,75,11,624 AS PER WOR KING ENCLOSED MARKED AS ANNEXURE B. THEREFORE THE REVISED LOSS ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 36 OF THE CORPORATE DIVISION WILL BE RS.44,35,44,183 A S PER THE FOLLOWING CALCULATION. PARTICULARS AMOUNT(RS.) CORPORATE LOSS AS PER RETURN OF INCOME (46,3 1,65,493) ADD: DISALLOWANCE IN THE ASSESSMENT ORDER 24,71, 32,934 LESS: RELIEF GRANTED BY ITAT - DDES . (AS PER PRORATA CALCULATION) (22, 75,11,624) REVISED LOSS 44,35,44,183/- WITHOUT PREJUDICE TO THE ABOVE, IT IS HUMBLY SUBMIT TED THAT NO PART OF BORROWING IS INVESTED IN THE WIND FARM UN IT AS SEEN FROM THE PROFIT AND LOSS ACCOUNT AND BALANCE SH EET CORRESPONDING TO ASST. YEARS 2003-04 AND 2002-03 .T HE STATEMENT OF DEPRECIATION ALLOWABLE U/S.32 OF I.T. ACT SHOWS THAT THERE IS NO ADDITION TO FIXED ASSETS. COPIES O F THE RETURN OF INCOME, DEPRECIATION STATEMENT AND PROFIT AND LO SS ACCOUNT FOR ASST. YEAR 2002-03 AND 2003-04 ARE ENCL OSED MARKED AS ANNEXURE-C. MOREOVER, THE TOTAL REVENUES WERE GENERATED FROM CAPTIVE CONSUMPTION. IT SHOWS THAT THERE IS NO FUND INVESTED IN WIND FARM DIVISION. HENCE NO P ORTION OF INTEREST EXPENSES DEBITED IN THE CORPORATE DIVISION IS ALLOCATED TO WIND FARM DIVISION. 57. ON THE STRENGTH OF THE ABOVE SUBMISSIONS, HE CO NTENDED THAT ELIGIBLE PROFIT OF MORAIYA DIVISION NEED NOT TO BE REDUCED. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE LD.CIT(A). SHE CONTENDED THAT THE LD.CIT(A) HAS GONE THROUGH ALL T HE DETAILS, AND THEREAFTER FOLLOWED ORDER OF THE ITAT IN THE CASE O F ASIAN BROWN BOVERI AND HAS RIGHTLY REDUCED THE ELIGIBLE PROFIT. 58. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE T HROUGH THE RECORD CAREFULLY. THE ASSESSEE HAD CONTENDED THAT IT HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNTS OF MORAIYA D IVISION. PROFIT HAS BEEN COMPUTED ACCORDING TO BOOKS OF ACCOUNTS MA INTAINED WITH REGARD TO MORAIYA DIVISION. ON DUE CONSIDERAT ION OF THE FINDING OF THE LD.CIT(A), WE ARE OF THE VIEW THAT A S FAR AS ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 37 PROPOSITION FOR ALLOCATING OF THE EXPENDITURE FROM HEAD OFFICE TO THE CONCERNED DIVISION, WHICH IS ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION 80IA IS CONCERNED, IT IS ALLOCABLE. SIMPLE REASON IS THAT WHILE COMPUTING THE PROFIT ONE HAS TO TAKE NOT E OF ALL THE EXPENDITURE WHICH ARE DIRECTLY OR INDIRECTLY ATTRIB UTABLE TO EARNING OF SUCH ELIGIBLE PROFIT. FOR DIRECT EXPENDITURE SE PARATE BOOKS OF ACCOUNTS ARE BEING MAINTAINED AND THEY MUST BE DEBI TED IN THE MORAIYA DIVISION ITSELF. THE QUESTION IS, WHETHER THERE IS ANY ELEMENT OF EXPENDITURE WHICH WERE INCURRED AT CORPO RATE DIVISION AND THEY ARE RELATABLE TO MORAIYA DIVISION. IF YES , THEN THAT DIRECT/INDIRECT EXPENDITURE OUGHT TO BE DEBITED. I F IT IS NOT POSSIBLE TO DISSECT THE EXPENDITURE OR IDENTIFY THE EXPENDITURE RELATABLE TO MORAIYA DIVISION; BUT FROM THE MISC. E XPENDITURE, IF IT IS DISCERNIBLE THAT SOME OF THE EXPENDITURE MUST HA VE BEEN ATTRIBUTABLE TO THIS CONCERN, THEN THOSE EXPENDITUR E ARE TO BE IDENTIFIED BY FOLLOWING SOME FORMULA; FOR EXAMPLE, THEY CAN BE ALLOCATED IN PROPORTIONATE TO THE TURNOVER OR SOME OTHER METHODS. THE FINDING OF THE LD.CIT(A) TO THE EXTENT OF ABOVE PROPOSITION IS NOT DISTURBED. THE QUESTION IS, WHETHER INTEREST E XPENDITURE OF RS.44.35CRORES REPRESENTING DDB HAS ANY RELATIONSHIP WITH THE ACTIVITIES OF MORAIYA DIVISION. THE ASSESSEE HAS P OINTED OUT THAT ITS PROFIT FOR THE LAST TWO YEARS WAS RS.2791.97 LA KHS AND RS.1779.89 LAKHS. FIXED ASSETS OF THIS DIVISION IS OF RS.3195.28 LAKHS, AS AGAINST FIXED ASSETS OF THE COMPANY AT RS .2125.30 CRORES. THE DDBS WERE ISSUED BY THE COMPANY FOR RA ISING CAPITAL. IT IS TO BE SEEN WHETHER THIS CAPITAL WAS BEING USE D FOR THE PURPOSE OF ACQUIRING ASSETS IN THIS DIVISION. ASSE SSEE POINTED OUT THAT FIXED ASSETS OF THIS DIVISION IS OF RS.3195.28 LAKHS (ROUGHLY RS.31 CRORES), AS AGAINST AGGREGATED FIXED ASSETS O F THE COMPANY ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 38 AT RS.2125.30 LAKHS. SIMILARLY PROFIT FOR THE LAST TWO YEARS IN THE MORAIYA DIVISION WAS RS.27.91 CRORES AND RS.17.79 C RORES. THESE TWO YEARS PROFIT WOULD EASILY TAKE CARE OF ANY FUND REQUIRED AT THIS UNDERTAKING. THUS, THE LD.REVENUE AUTHORITIES HAVE FAILED TO POINT OUT DEPLOYMENT OF ANY INTEREST BEARING FUNDS FOR WH ICH INTEREST EXPENDITURE HAS BEEN INCURRED AT THE CORPORATE DIVI SION OF THIS UNIT. IN THAT CASE, IT IS NOT ADVISABLE TO REDUCE ELIGIBLE PROFIT IN THE RATIO OF TURNOVER. WE ALLOW THIS GROUND OF APPE AL AND DELETE DISALLOWANCE. 59. GROUND NO.3: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN EXCLUDI NG 90% OF THE GROSS INTEREST INCOME FROM ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE TRAVEL LED TO THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE. HE PLACED ON RECORD COPY OF THE HONBLE HIGH COURTS D ECISION IN TAX APPEAL NO.423 OF 2007. THE HONBLE HIGH COURT HAS HELD THAT ONLY NET INTEREST INCOME IS TO BE EXCLUDED FOR THE PURPO SE OF DEDUCTION UNDER SECTION 80HHC. THE QUESTION FRAMED BY THE HO NBLE HIGH COURT READS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, APPELLATE TRIBUNAL IS JUSTIFIED IN LAW IN DIRECTING TO EXCLUDE THE NET INTEREST INCOME FOR THE PURPOSE OF DEDUCTIO N UNDER SECTION 80HHC OF THE ACT ? 60. THIS QUESTION HAS BEEN REPLIED IN FAVOUR OF THE ASSESSEE BY FOLLOWING DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT RASAYAN LTD., 343 ITR 89 (SC). CONSIDERING T HE ABOVE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E ASSESSEES OWN ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 39 CASE, WE REMIT THIS ISSUE TO THE FILE OF AO FOR RE- WORKING OF ELIGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80HHC. THE LD.AO SHALL EXCLUDE NET INTEREST INCOME FROM THE ELIGIBLE PROFI T. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 61. GROUND NO.4: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN HOLDING THAT DEDUCTION UNDER SECTION 80IA OF THE ACT SHOULD BE REDUCED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 62. THE LD.COUNSEL FOR THE ASSESSEE, AT THE VERY OU TSET SUBMITTED THAT THIS QUESTION HAS ALSO BEEN CONSIDERED BY THE HONBLE HIGH COURT IN TAX APPEAL NO.423 OF 2007. THE QUESTION F RAMED BY THE HONBLE HIGH COURT READS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, APPELLATE TRIBUNAL IS JUSTIFIED IN LAW IN HOLDING T HAT PROVISIONS OF SECTION 80IA(9) DO NOT RESTRICT THE DEDUCTION UN DER OTHER SECTIONS OF CHAPTER VIA TO THE EXTENT OF ELIGIBLE I NCOME FOR DEDUCTION UNDER SECTION 80IA 63. THE LD.REVENUE AUTHORITIES ARE OF THE VIEW THAT WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC DEDUCTION GRANTED TO THE ASSESSEE UNDER SECTION 80IA IS TO BE REDUCED. HOWEVER, THIS DECISION OF HONBLE HIGH COURT WAS IN FAVOUR OF THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS MAT TER HAS BEEN REFERRED TO LARGER BENCH OF THE HONBLE SUPREME COUR T AND THE ISSUE IS PENDING. HE PRAYED THAT THIS ISSUE BE SET ASIDE TO THE AO AND TO BE ADJUDICATED AFRESH AFTER DECISION OF HON BLE SUPREME COURT. THE LD.DR ON THE OTHER HAND IS UNABLE TO CO NTROVERT HIS PROPOSITION. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 40 64. WE FIND THAT IN TAX APPEAL NO.423 OF 2007 HONB LE HIGH COURT HAS ALSO TAKEN COGNIZANCE OF THIS FACT BY REC ORDING THE FOLLOWING FINDING IN THE ORDER: 6. SIMILAR ISSUE AS DECIDED IN TAX APPEAL NO.763 O F 2009 IS BEFORE THE HONBLE APEX COURT WHICH IS PENDING F OR ADJUDICATION. ACCORDINGLY, ISSUE NO.(B) RAISED IN THIS APPEAL IS PRESENTLY ANSWERED IN FAVOUR OF THE ASSESSEE IN VIEW OF DECISION OF THIS COURT IN TAX APPEAL NO.763 OF 2009 SUBJECT TO THE FINAL OUTCOME OF THE AFORESAID APPEAL PENDIN G BEFORE THE HONBLE APEX COURT WHICH SHALL BE BINDING TO TH E ASSESSEE AND THE AO WILL GIVE EFFECT ACCORDINGLY. 65. TAKING INTO CONSIDERATION THIS ASPECT, WE REMIT THIS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION IN ACCORDANC E WITH LAW. 66. GROUND NO.5: IT READS AS UNDER: 5. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELLANT COMPANY'S CASE, THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) HAS GROSSLY ERRED IN HOLDING THAT FOLLOWI NG INCOMES SHOULD BE REDUCED FOR THE PURPOSE OF DEDUCTION U/S. 80HHC OF I.T. ACT. A) JOB WORK INCOME RS. 2,30,289 B) EXCHANGE RATE DIFFERENCE RS. 1,11,69,348 C) PROFIT ON SALE OF ASSETS RS. 25,16,962 D) MISC. EXPENSES RS.4,44,26,137 E) DIVIDEND INCOME RS. 2,14,275 67. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. SO FAR AS JOB WORK I NCOME RECEIPT IS CONCERNED, THIS WAS CONSIDERED BY HONBLE HIGH COUR T IN TAX APPEAL NO.46 OF 2007. HE PLACED ON RECORD COPY OF HONBLE HIGH COURT DATED 24.6.2016. THE QUESTION FRAMED BY THE HONBLE HIGH COURT READS ASUNDER: ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 41 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , APPELLATE TRIBUNAL IS JUSTIFIED IN LAW IN HOLDING T HAT INCOME FROM JOB WORK CHARGES AND SALES TAX REFUND IS DERIV ED FROM AN INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF DEDUC TION UNDER SECTION 80HH & 80I. 68. THIS QUESTION HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. HOWEVER, WE ARE OF THE VIEW THAT INCOME MIGHT BE RE SULTED TO THE ASSESSEE FROM JOB WORK, BUT WHETHER IT HAS BEEN DER IVED FROM EXPORT ACTIVITIES, THERE IS A VITAL DIFFERENCE BETW EEN SECTIONS 80HHC AND 80I. THE INCOME SHOULD RESULT FROM EXPOR T ACTIVITIES ONLY THEN IT WILL QUALIFY FOR GRANT OF DEDUCTION UN DER SECTION 80HHC. THE ASSESSEE CANNOT DRAW ANY BENEFIT FROM J UDGMENT OF HONBLE HIGH COURT WHICH IS WITH REGARD TO SECTION 80HH AND 80I. THE LD.CIT(A) HAS RIGHTLY DECLINED THE GRANT OF DED UCTION OF THESE ITEMS. 69. THE NEXT ITEM OF WHICH DEDUCTION UNDER SECTION 80HHC IS CLAIMED IS EXCHANGE RATE DIFFERENCE OF RS.112,53,94 2/-. WE FIND THAT THE LD.CIT(A) HAS RECORDED A FINDING THAT THIS RATE DIFFERENCE WAS RECEIVED IN RESPECT OF VARIOUS FOREIGN CURRENCY LOAN REPAYMENT. THE LD.CIT(A) HAS ALLOWED DEDUCTION OF RS.84,594/- WHICH REPRESENTED EXCHANGE RATE DIFFERENCE ON THE R EALIZATION OF EXPORT PROCEEDS. THE LD.COUNSEL FOR THE ASSESSEE R ELIED UPON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. PRIYANKA GEMS VS. ACIT, 367 ITR 575. WE FI ND THAT THIS DECISION HAS BEEN CONSIDERED BY THE LD.CIT(A), AND THEREAFTER ON VERIFICATION OF THE DETAILS, THE LD.CIT(A) ACCEPTED CASE OF THE ASSESSEE IN PRINCIPLE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A). IF SALE PROCEEDS OF EXPORTED ITEMS COUL D NOT BE REALIZED BY THE ASSESSEE AND ON ACCOUNT OF EXCHANGE FLUCTUAT ION THE ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 42 ASSESSEE RECEIVED MORE SALE PROCEEDS, THEN THE TOTA L AMOUNT WILL QUALIFY FOR GRANT OF DEDUCTION UNDER SECTION 80HHC. HOWEVER, THE LD.CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS TA KEN VARIOUS FOREIGN CURRENCY LOANS AND ON REPAYMENT OF WHICH EX CHANGE GAIN WAS THERE. THESE ARE NOT RELATED TO EXPORT ACTIVIT IES OF THE ASSESSEE, HENCE, THE LD.CIT(A) HAS RIGHTLY DISALLOW ED THE CLAIM OF THE ASSESSEE. 70. WITH REGARD TO PROFIT ON SALE OF ASSET IS CONCE RNED, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSE SSEE ITSELF HAS NOT INCLUDED THIS AMOUNT IN THE ELIGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80HHC. WE REMIT THIS ISSUE TO THE FILE OF THE AO FOR VERIFICATION AND RE-ADJUDICATION. IF THE ASSESSEE ITSELF HAS EXCLUDED THIS AMOUNT, THEN IT SHOULD NOT BE AGA IN EXCLUDED OTHERWISE THAT WILL BE DOUBLE EXCLUSION. SIMILARLY , DIVIDEND INCOME HAS NOT BEEN INCLUDED BY THE ASSESSEE. THE LD.AO SHALL VERIFY THIS ASPECT ALSO, AND IF IT IS FOUND THAT TH E DIVIDEND INCOME HAS NOT BEEN INCLUDED BY THE ASSESSEE IN THE ELIGIB LE PROFIT, THEN IT SHOULD NOT BE EXCLUDED AGAIN. 71. AS FAR AS MISC. INCOME IS CONCERNED, THE LD.CIT (A) HAS DULY NOTICED ITS BREAK UP AND THEREAFTER DISALLOWED THE SAME. THE FINDING OF THE LD.CIT(A) READS AS UNDER: 7.18.7 MISC. INCOME RS.4,44,26,137/- THE APPELLANT HAS CLAIMED DEDUCTION U/S.80HHC ON MI SC. INCOME OF RS.4,44,26,137/-. THE DETAILS OF MISCELLA NEOUS INCOMES ARE GIVEN AS UNDER:- PARTICULARS AMOUNT RS. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 43 INSURANCE CLAIM 33,592,543 MISCELLANEOUS INCOME 467,004 REFUND 1,193,533 TRANSPORT INCOME 483,624 SERVICE CHARGES INCOME 60,000 SALES TAX REFUND 2,085,402 KASAR VATAV 8,965 AGRICULTURE INCOME 63,149 TRUCK HIRE CHARGES 3,552,506 RENT RECEIVED 136,879 LEASE RENT 2,760,000 OFFICE RENT A/C. 12,000 ROYALTY INCOME 10,532 TOTAL 44,426,137 DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS GIVEN A VERY GENERAL REPLY IN RESPECT OF ALLOWANCE OF DEDUC TION U/S.80HHC ON THESE INCOMES. PERUSAL OF THE ABOVE IN COMES REVEALS THAT NONE OF THESE INCOMES HAVE SPRUNG FROM THE EXPORT TURNOVER. IN FACT THE APPELLANT HAS FAILED T O FILE ANY EVIDENCES ON RECORD TO INDICATE THAT THESE INCOME A RE HAVING DIRECT BEARING ON EXPORT TURNOVER. SINCE THESE INCO MES HAVE NOT SPRUNG FROM THE EXPORT TURNOVER, ACCORDINGLY, I HOLD THAT THESE INCOMES ARE NOT ELIGIBLE TO BE CONSIDERED AS PROFITS OF BUSINESS IN RESPECT OF WHICH DEDUCTION U/S.80HHC IS AVAILABLE. THE APPELLANT ALSO CONTENDED THAT THE EX PENSES INCURRED TO EARN THESE INCOMES SHOULD BE SET OFF AG AINST THE MISCELLANEOUS INCOME FOR THE PURPOSES OF SEC. 80HHC . HOWEVER, THE APPELLANT HAS FAILED TO PRODUCE ANY EV IDENCE TO ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 44 PROVE THE FACT THAT ANY EXPENDITURE WAS INCURRED TO EARN THESE INCOMES. ACCORDINGLY, THIS CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED. IN VIEW OF ABOVE FACTS, I HOLD THAT THE APPELLANT I S NOT ELIGIBLE TO CLAIM DEDUCTION U/S.80HHC ON MISCELLANE OUS INCOME OF RS.4,44,26,137/-. 72. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD. A PERUSAL OF BREAK-UP OF MISC. INCOME REPRODUCED BY THE LD.CIT(A) WOULD INDICATE THAT ALL THE ITEMS WERE NOT SPRANG FROM EXPORT TURNOVER EXCEPT SOME ELEMENT OF EXPORT TURNOVER INVOLVED IN INSURANCE CLAIM. IT IS PERTIN ENT TO OBSERVE THAT IF THE CLAIM REPRESENTED EXPORTED GOODS WHICH HAVE BEEN DAMAGED IN TRANSIT, THEN SUCH RECEIPT COULD BE CONS IDERED AS DERIVED FROM EXPORT OF ARTICLES. IT CAN BE UNDERST OOD BY WAY OF FOLLOWING EXAMPLE; VIZ. AN ASSESSEE IS ENGAGED IN M ANUFACTURE AND EXPORT OF SEA-FOODS. IT HAS EXPORTED FROZEN SE A-FOOD. ON ACCOUNT OF SOME MISHAPS, DUE TO ELECTRICITY FAILURE , FISHES GOT DAMAGED/DECAYED IN TRANSIT AND THE ASSESSEE RECEIVE D CLAIM. THIS CLAIM WOULD BE CONSTRUED AS DERIVED FROM EXPORT ACT IVITIES. ON THE OTHER HAND, A CLAIM HAS BEEN RECEIVED BY AN ASS ESSEE ON ACCOUNT OF SOME DAMAGE TO THE PLANT & MACHINERY, TH EN THAT WOULD NOT QUALIFY FOR CONSIDERATION FOR GRANT OF DE DUCTION UNDER SECTION 80HHC. NEITHER THE AO, NOR THE LD.CIT(A) H AS DETERMINED NATURE OF INSURANCE CLAIM IN THE IMPUGNED ORDER. T HEREFORE, WE DEEM IT APPROPRIATE TO SET ASIDE THIS LIMITED ISSUE TO THE FILE OF AO. THE LD.AO FIRST DETERMINE THE NATURE OF INSURANCE C LAIM IN THE LIGHT OF THE ABOVE DISCUSSION, AND THEN DECIDE ITS INCLUS ION OR EXCLUSION FROM ELIGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER S ECTION 80HHC. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 45 AS FAR AS OTHER ITEMS ARE CONCERNED, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A). THIS GROUND OF APPEAL IS PARTLY ALLOWED. 73. GROUND NO.6: THE ISSUE INVOLVED IN THIS APPEAL IS WHETHER DEPRECIATION ON INTANGIBLE ASSETS AFTER MERGER IS T O BE ALLOWED ON TAX WRITTEN DOWN VALUE OF RS.2,49,07,23,831/- OR BO OK WDV VALUE OF RS.4,29,16,89,375/-. THE LD.REPRESENTATIVE HAVE SUBMITTED THAT THIS ASPECT HAS BEEN CONSIDERED BY THE LD.CIT( A) ON THE BASIS OF ITAT ORDER PASSED IN THE CASE OF GODREJ INDUSTR IES LTD. VS. ACIT, REPORTED IN 124 TTJ 499. IN THIS DECISION, T HE TRIBUNAL HAS HELD THAT DEPRECIATION ON TRANSFERRED ASSETS COULD BE ALLOWED ON THE TAX WRITTEN DOWN VALUE OF THE ASSETS. 74. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE DEE M IT APPROPRIATE TO TAKE NOTE OF DISCUSSION MADE BY THE LD.CIT(A) WHEREBY DISCUSSION MADE BY THE ITAT IN THE CASE OF GODREJ INDUSTRIES LTD. (SUPRA) HAS BEEN REPRODUCED. RELEV ANT PART OF THE CIT(A)S ORDER READS AS UNDER: 10.7 IT IS ALSO SEEN THAT THE SCOPE OF AMENDED PRO VISIONS OF EXPLANATION 2B TO SECTION 43(6) WAS DISCUSSED BY HON BLE ITAT IN THE CASE OF GODREJ INDUSTRIES LTD. VS. ACIT , MUMBAI (2009) 124 TTJ 499. FOR THE SAKE OF BREVITY, THE CONCLUDING PARA OF THIS ORDER IS REPRODUCED AS UNDER :- 'AFTER HEARING RIVAL CONTENTION WE FIND THAT THE CU RRENT ASSESSMENT YEAR I.E., 2002-03, THE APPLICABLE WORDI NGS IN EXPLANATION 2B ARE 'WRITTEN DOWN VALUE OF THE TRANSFERRED ASSETS AS APPEARING IN THE BOOKS OF ACC OUNT OF THE DEMERGED COMPANY'. THE ISSUE IS WHETHER BOOK VALUE OR TAX WRITTEN DOWN VALUE IS TO BE TAKEN. THE LEGISLATURE HAD MADE IT CLEAR WITH EFFECT FROM 1-4- 2004 BY THE FINANCE ACT, 2003 WHERE THE WORDINGS 'AS APPEARING IN THE BOOKS OF ACCOUNT' HAVE BEEN OMITTE D, THAT WHAT IS TO BE TAKEN IN THE 'TAX WRITTEN DOWN V ALUE' ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 46 AS OPPOSED TO WRITTEN DOWN VALUE AS APPEARING IN TH E BOOKS OF ACCOUNT. THE LAW ON EFFECT OF OMISSION OF CERTAIN WORDS IN T HE ACT HAS BEEN DEALT BY TWO DECISIONS OF THE CONSTITUTIONAL BENCH OF THE SUPREME COURT IN THE CA SE OF RAYALA CORPN. (P). LTD. V. DIRECTOR OF ENFORCEME NT [1969] 2 SCC 412 AND KOLHAPUR CANESUGAR WORKS LTD. V. UNION OF INDIA [200] 2SCC 536 WHERE THERE ARE OBSERVATIONS TO THE EFFECT THAT A OMISSION OF A PRO VISION IS DIFFERENT FROM REPEAL AND SECTION 6 OF THE GENER AL CAUSES ACT APPLIES TO THE REPEALED LAW AND NOT TO OMISSION. IN THE CASE ON HAND, THE SUBSEQUENT OMISSION OF CERTAIN WORDS I.E., 'AS APPEARING IN TH E BOOKS OF ACCOUNT' HAS TO BE INTERPRETED AS IF SUCH WORDS WERE NEVER IN THE SECTION, AS ITS OMISSION IS WITHOUT A SAVING CLAUSE. WRITTEN DOWN VALUE HAS TO BE TAKEN AS PER THE MEANING OR DEFINITION GIVEN IN THE ACT. EVEN BEFORE THE OMISSION OF TERMS 'AS APPEARING IN THE BOOKS OF ACCOUNT', THE EMPHASIS OF THE LEGISLATURE IN EXPLANATION 2B, IN OUR HUMBLE OPINION, IS THE WRITT EN DOWN VALUE OF THE TRANSFERRED ASSET. THE OMISSION O F THESE WORDS 'AS APPEARING IN THE BOOKS OF ACCOUNT' WITH EFFECT FROM 1-4-2004, IN OUR HUMBLE OPINION, I S CURATIVE AND THUS RETROACTIVE. HENCE, WE UPHOLD THE FINDINGS OF THE DEMERGED COMPANY SHALL CONSTITUTE T HE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS OF THE RESULTING COMPANY.' 10.8 THE ABOVE DISCUSSION MAKES IT VERY CLEAR THAT THE AMENDMENT MADE BY FINANCE ACT, 2003, IN THE EXPLANATION 2B TO SECTION 43(6) OF THE IT.ACT IS CUR ATIVE IN NATURE AND THUS THE SAME IS RETROACTIVE. TAKING INTO ACCOUNT THE PROVISIONS OF SECTION 2(19AA), 49(2C), 49(2D), 72A AND EXPLANATION 2A & 2B OF SECTION 43(6) , THE HON'BLE ITAT HAD HELD THAT THE TAX WRITTEN DOWN VALUE OF THE TRANSFERRED ASSETS OF THE DEMERGED COMPANY SHALL CONSTITUTE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS OF THE RESULTING COMPANY. THIS CASE PERTAINS TO A.Y.2002-03 AND IS VERY RELEVANT FOR TH E CASE IN HAND AS THE ASSESSMENT YEAR INVOLVED IS A.Y.2003-04. TAKING ENTIRETY OF FACTS IN VIEW AND RESPECTFULLY FOLLOWING THE RATIO OF GODREJ INDUSTRI ES LTD. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 47 (SUPRA), I HOLD THAT THE DEPRECIATION ON THE TRANSF ERRED ASSETS SHOULD BE ALLOWED ON THE TAX WDV OF THESE ASSETS, AS IT WAS APPEARING IN THE BOOKS OF ACCOUNT S OF DEMERGED COMPANY AT THE APPOINTED DATE I.E. 1.2.2003. THE FACTS AVAILABLE ON RECORD INDICATE TH AT THE TAX WDV OF THESE ASSETS IN THE BOOKS OF ACCOUNT S OF NIL ON THE APPOINTED DATE WAS RS. 2,49,07,23,831/-. THE A.O. IS DIRECTED TO ALLOW DEPRECIATION ON THIS WDV AND ALLOW CONSEQUENTIAL RELIEF TO THE APPELLANT. 75. AFTER GOING THROUGH THE ORDER OF THE LD.CIT(A) WE DO NOT FIND ANY ERROR IN IT, BECAUSE, IT IS IN CONSONANCE WITH THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF GODREJ INDUSTRIES LTD. VS. ACIT (SUPRA). THEREFORE, THIS GROUND OF APPEAL IS REJECTED. 76. GROUND NO.7 TO 9 READ AS UNDER: 7. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS GROSSLY ERRED IN HOLDING THAT DEDUCTION U/S.80IA SH OULD NOT HEAL LOWED ON THE PROFITS OF POWER UNDERTAKING AT BHAVNAGAR. 8. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE A PPELLANT'S CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS GROSSLY ERRED IN CONFIRMING LEVY OF INTEREST U/SS.2 34B AND 234C OF THE I.T.ACT. 9. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED COMMISSIONER OF INCOM E-TAX (APPEALS) HAS GROSSLY ERRED IN NOT DEALING WITH THE GROUND OF LEVY OF INTEREST U/S.234D OF THE I.T. ACT. IT IS SU BMITTED THAT IN VIEW OF AMENDMENT W.E.F. 01-06-2003, INTEREST U/ S.234D OF I.T. ACT CANNOT BE LEVIED FOR THE CURRENT ASSESS MENT YEAR. 77. AT THE TIME OF HEARING, LD.COUNSEL FOR THE ASSE SSEE DID NOT PRESS GROUND NO.1 AND CONTENDED THAT GROUND NO.7, 8 AND 9 ARE CONSEQUENTIAL IN NATURE. THEREFORE, ALL THESE GROU NDS ARE REJECTED. ITA NO.1280/AHD/2013 AND OTHERS DCIT VS. NIRMA LTD AND OTHERS 48 78. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 79. IN COMBINED RESULT, APPEAL OF REVENUE IN ITA NOS.1599/AHD/2013 WITH CO.NO.202/AHD/2013 AND ITA NO.1738/AHD/2014 ARE DISMISSED WHEREAS APPEAL OF RE VENUE IN ITA NO.177/AHD/2010 IS ALLOWED FOR STATISTICAL PURP OSE. APPEAL OF THE ASSESSEE IN ITA NO.1280/AHD/2013 IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE COURT ON 19 TH APRIL, 2018. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER