Bher India Ltd., Pune V. Addl CIT Circle-8, Pune

ITA 1375/PUN/2010

• Counselvise Citation: 137524514 RSA 2010
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 22-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH VERMA; ANN KAPTHUAMA
• Assessee Lawyers: R D ONKAR
• Keywords: Business income; Depreciation; Opportunity of being heard; Question of law; Bad and doubtful debts; Right to appeal; Capital receipt; Benefit of exemption; Revised return; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 80C; 143(3); 153A; 10B; 32; 145; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1375/PN/10 AND ITA NO. 1013/PN/2010 (ASSTT.YEARS : 2004-05 AND 2005-06) BEHR INDIA LIMITED, 29, MILESTONE, PUNE NASHIK HIGHWAY, VILLAGE KURLI, TALUKA KHED, PUNE 410501. .. APPEL LANT PAN NO. AABCB2186L VS. ACIT, RANGE-8, PUNE .. RESPONDENT ITA N0. 1352/PN/10 AND ITA NO. 1014/PN/2010 (ASSTT.YEARS : 2004-05 AND 2005-06) DCIT, CIRCLE-8, PUNE. .. APPELLANT BEHR INDIA LIMITED, 29, MILESTONE, PUNE NASHIK HIGHWAY, VILLAGE KURLI, TALUKA KHED, PUNE 410501. .. APPEL LANT PAN NO. AABCB2186L ASSESSEE BY : SHRI R.D. ONKAR RESPONDENT BY : SHRI MUKESH VERMA & MS. ANN KAPTHUAMA DATE OF HEARING : 13-03-2013 DATE OF PRONOUNCEMENT : 06-05-2013 ORDER PER R.K. PANDA, AM : ITA NO.1375/PN/2010 FILED BY THE ASSESSEE AND ITA NO.1352/PN/2010 FILED BY THE REVENUE ARE CROSS APPE ALS AND ARE DIRECTED AGAINST THE ORDER DATED 11-08-2010 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT YEAR 2004-05. ITA NO.1013/PN/2010 FILED BY THE ASSESSEE AND ITA NO.1014/PN/2010 FILED BY THE REVENUE ARE CROSS APPEALS AND ARE DIRECTED AGAINST THE ORDER DATED 31-03-2010 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT YEAR 2005-06. SINCE COMMON GROUNDS H AVE BEEN TAKEN BY THE ASSESSEE AND THE REVENUE IN THESE CROSS APPEALS , THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. 2 ITA NO.1352/PN/2010 (A.Y. 2004-05) (BY REVENUE) : 2. GROUNDS OF APPEAL NO. 1 TO 6 BY THE REVENUE RELA TE TO ONE ISSUE WHICH READ AS UNDER : 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD.CIT(A) HAS ERRED IN OVERLOOKING THE FACT THAT THERE WAS NO DIC HOTOMY OF EOU AND NON-EOU UNITS OF THE ASSESSEE IN RESPECT OF OPERATIONS OF ACCOUNT ING A FACT WHICH WAS EVIDENT FROM THE ASSESSEES OWN SUBMISSION OF CONSOLIDATED BALANCE SH EET OF BOTH UNITS BY WAY OF REVISED RETURN FOR A.Y. 2004-05 AND NO SEPARATE BOOKS WERE PRODUCED IN RESPECT OF EOU UNIT DURING ASSESSMENT PROCEEDINGS U/S 143(3) FOR THE YE AR UNDER CONSIDERATION. 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE SET OFF OF UNABSORBED DEPRECI ATION OF RS.70,36,530/- AND INCREASING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 10B OF THE IT. ACT, 1961 TO THAT EFFECT ?' 3. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD.CIT(A) HAS ERRED IN HOLDING THAT IN COMPUTING EXEMPTION WHICH IS IN RESPECT OF PROFITS AND GAINS OF A HUNDRED PERCENT EXPORT ORIENTED UNIT ONLY, THERE IS NO SCOPE FOR SET OFF OF UNABSORBED DEPRECIATION OF EARLIER YEAR OF THE NON-EOU UNIT WI THOUT APPRECIATING THAT THERE IS NO SUCH PROVISION IN THE ACT. 4. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD.CIT(A) HAS ERRED IN RELYING ON THE DECISION OF THE HON'BLE ITA T IN THE CASE OF SCIENTIFIC ATLANTA INDIA TECHNOLOGY PVT. LTD. (2010) TIOL 534 ITAT(MAD ) SPL. BENCH. 5. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD.CIT(A) HAS FAILED IN APPRECIATING THE FACT THAT THE ACT DOES N OT HAVE A PROVISION TO ENTITLE THE ASSESSEEE OF NON SET OFF OF UNABSORBED DEPRECIATION . 6. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE A.O. HAS RIGHTLY SET OFF THE UNABSORBED DEPRECIATION OF THE EARLIER YEAR OF THE NON-EOU UNIT AGAINST THE PROFIT S OF EOU UNIT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A LIMITED COMPANY ENGAGED IN MANUFACTURE OF AUTOMOTIVE AIR CONDITIONI NG SYSTEMS, PARTS AND COMPONENTS THEREOF, HEAT EXCHANGERS AND VENTILATION UNITS FOR PASSENGER CARS. IT FILED RETURN OF INCOME DECLARING NIL INCO ME AS PER REGULAR PROVISIONS OF INCOME TAX ACT AFTER SETTING OFF OF B ROUGHT FORWARD LOSSES AND DECLARING BOOK PROFIT U/S.115JB OF THE INCOME TAX A CT AMOUNTING TO ` 5,94,04,898 ON 29-10-2004. THE RETURN WAS ACCOMPAN IED WITH TAX AUDIT REPORT, PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN ON 16-11-2005 DECLARING NIL IN COME AS PER REGULAR PROVISIONS AND BOOK PROFIT U/S.115JB OF THE ACT AT ` 3,26,60,037/-. IN THE 3 REVISED RETURN, CLAIM OF ` 68,01,159/- MADE ON ACCOUNT OF CAPITAL RECEIPT DUE TO PREPAYMENT OF SALES TAX DEFERRAL WAS WITHDRAWN A ND CLAIM WAS MADE BY WAY OF NOTE ONLY. THE ADDITIONAL CLAIM WAS MADE IN THE REVISED RETURN ON ACCOUNT OF INTEREST PROVISION OF EXCISE REVERSED AN D DEDUCTION U/S.10B OF THE INCOME TAX ACT. IN THE REVISED RETURN, THE ASSESSE E MADE A CLAIM U/S.10B AMOUNTING TO ` 2,25,41,489 AND CONSEQUENTLY ALSO REDUCED THE SAME FROM THE BOOK PROFIT. ON BEING ASKED BY THE AO TO EXPLAIN A S TO HOW IT WAS ENTITLED FOR CLAIM U/S 10B OF THE I.T. ACT SPECIFICALLY IN V IEW OF CARRIED FORWARD LOSSES OF EARLIER YEARS, THE ASSESSEE SUBMITTED AS UNDER: 'THE COMPANY HAS CLAIMED DEDUCTION OF RS. 2,25,41,4 89/- U/S 10B OF THE I. T. ACT IN RESPECT OF PROFITS AND GAINS DE RIVED BY ITS 100% EOU FROM EXPORT OF HEAT EXCHANGERS MANUFACTURED BY ABOV E UNDERTAKING. THE REPORT U/S 10B IN FORM NO. 56G HAS BEEN FILED WITH THE REVISED RETURN OF INCOME. THE COMPANY HAS CLAIMED THE DEDUCTION U/S 10B ON THE PROFITS AND GAINS DERIVED BY 100% EOU WITHOUT SETTING OFF THE ACCUMULATED LOSSES PERTAINI NG TO NON- ELIGIBLE UNDERTAKING. IN THIS RESPECT, THE ASSESSEE COMPANY RELIES ON THE DECISION OF SUPREME COURT IN THE CASE OF CANARA WORKSHOP LTD. (161 ITR 120) '. 3.1 HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. HE OBSERVED FROM THE REVISED RETURN OF I NCOME FILED BY THE ASSESSEE THAT FOR THE PURPOSE OF CALCULATION OF INC OME OF EOU THE ASSESSEE HAS REDUCED AND SET OFF ONLY THE UNABSORBED DEPRECI ATION BROUGHT FORWARD FROM A.Y. 2003-04 AMOUNTING TO RS.70,36,530/-. HE O BSERVED THAT IT IS NOT KNOWN AS TO HOW THE ASSESSEE DETERMINED THE FIGURE OF RS.70,36,530/- BECAUSE AS PER THE ASSESSMENT ORDER OF A.Y.2003-04 THE UNABSORBED DEPRECIATION LOSS OF A.Y. 2003-04 WAS ONLY RS.5,08, 721/-. ON THE CONTRARY, THERE WAS SUBSTANTIAL DEPRECIATION LOSS FOR A.Y. 19 98-99, 1999-2000 AND 2001-02. THERE WERE BUSINESS LOSSES OF RS.19,73,34, 979/- FOR A.Y. 2000-01 AND 2001-02. HE OBSERVED THAT ORIGINALLY BOTH THE UNITS OF THE ASSESSEE I.E. UNIT FOR MANUFACTURING OF HEAT EXCHANGERS (NOW CLAI MED AS 100% EOU) AND 4 THE UNIT FOR MANUFACTURING HVAC WERE SET UP IN THE DOMESTIC TRAFFIC AREA. WITH EFFECT FROM 10.4.2002 THE HEAT EXCHANGERS UNIT WAS CONVERTED INTO A 100% EOU. THEREFORE, HE WAS OF THE OPINION THAT THE ASSESSEE CANNOT CONTEND THAT IN EARLIER YEARS WHATEVER LOSSES WERE INCURRED AND CARRIED FORWARD WERE PERTAINING TO THE NON-ELIGIBLE UNIT. HE WAS OF THE OPINION THAT IN VIEW OF THE DECISION OF THE SUPREME COURT THE CA RRIED FORWARD LOSSES COULD NOT BE SET OFF FROM THE PROFIT OF THE ELIGIBL E UNIT. HE FURTHER OBSERVED THAT ALTHOUGH THE ASSESSEE HAS CLAIMED THAT IT HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR THE 2 UNITS BUT THE FACT IS THAT AS SESSEE NEVER FILED SEPARATE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FOR THE 2 UNITS IN THE RETURN OF INCOME. FOR THE YEAR UNDER CONSIDERATION ALSO THE ASSESSEE HAS FILED A CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS ACCO UNT ALONG WITH ORIGINAL RETURN OF INCOME. ONLY IN THE REVISED RETURN THE A SSESSEE FILED A SEPARATE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNIT AND NO SEPARATE BALANCE SHEET WAS FILED. IN VIEW OF THE ABOVE, THE AO WAS NEVER HAVI NG AN OPPORTUNITY TO EXAMINE UNIT WISE PROFIT OR LOSS AND CONSEQUENTLY T HERE WAS NO OCCASION TO SEGREGATE UNIT-WISE UNABSORBED DEPRECIATION AND BUS INESS LOSS WHICH WAS ALLOWED TO BE CARRIED FORWARD. SINCE THERE WAS SUB STANTIAL AMOUNT OF CARRIED FORWARD DEPRECIATION AND BUSINESS LOSSES THERE WAS NO PROFIT AVAILABLE TO THE ASSESSEE TO MAKE A CLAIM U/S.10B. THE AO THEREFORE REJECTED THE CLAIM MADE U/S.10B. 3.2 IN APPEAL THE LD. CIT(A) FOLLOWING THE ORDER FO R A.Y. 2005-06 ALLOWED THE CLAIM OF THE ASSESSEE. TO MAKE THE THI NGS CLEAR WE REPRODUCE THE FINDING OF THE LD. CIT(A) IN THE APPEAL FOR A.Y . 2005-06 ON THIS ISSUE WHEREIN HE HAS OBSERVED AS UNDER : 5 26. FROM THE ABOVE, IT CAN BE SEEN THAT THE APPELL ANTS SUBMISSION UNDER THIS GROUND ARE THREE FOLD. FIRSTLY, IT IS SUBMITTED THA T UNABSORBED DEPRECIATION TO THE TUNE OF RS.70,36,530/- HAS ALREADY BEEN SET OFF AGAINST INCOME TO AY 2004- 05 AND, THEREFORE, IT CANNOT BE SET OFF AGAIN FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION ( A.Y.2005-06). THIS IS A MATTER OF F ACTUAL VERIFICATION AND CLEARLY IF THE AMOUNT HAS ALREADY BEEN SET OFF IN AN EARLIE R YEAR, THE SAME CANNOT BE SET OFF AGAIN IN THE CURRENT YEAR. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THE FACT AS REGARDS THIS CONTENTION AND TAKE NECESSARY CORRECTIVE ACTION WHILE GIVING APPEAL EFFECT. 27. SECONDLY, IT IS SUBMITTED BY THE LEARNED AR THAT AN AMOUNT O F RS.26,26,633/- SET OFF AGAINST THE PROFIT OF THE EL IGIBLE EOU WAS ACTUALLY THE DEPRECIATION OF THE ERSTWHILE NON-ELIGIBLE UNIT LOC ATED IN DOMESTIC TARIFF AREA (DTA) AND THE SAME RELATES TO A YEAR WHEN THE ELIGI BLE EOU HAD NOT EVEN CAME 'INTO EXISTENCE . IT IS FURTHER SUBMITTED THAT THE ENTIRE AMOUNT OF UNABSORBED DEPRECIATION OF THE NON-ELIGIBLE UNIT (INCLUDING TH E SAID AMOUNT OF RS.26,26,633/- ) HAS BEEN FULLY SET OFF AGAINST PRO FITS AND GAINS OF BUSINESS FOR THE A.Y. UNDER CONSIDERATION ,AND, THEREFORE, THE S AME CANNOT AGAIN BE SET OFF AGAINST THE PROFIT OF THE EOU. 28. THIRDLY, IT IS SUBMITTED BY THE LEARNED A.R. THAT DEDUCTION UNDER SEC.10B WHICH FALLS IN CHAPTER-ILL IS REQUIRED TO BE MADE W HILE COMPUTING INCOME UNDER THE HEAD PROFIT & GAINS OF BUSINESS AND NOT FROM GROSS TOTAL INCOME AS ENVISAG ED UNDER CHAPTER VI-A. 29. I HAVE GIVEN CAREFUL CONSIDERATION TO THE MATTE R. CHAPTER III OF THE I.T. ACT HAS BEEN EXPLAINED AS FOLLOWS IN SAMPATH LYENGAR'S 'LAW OF INCOME TAX' (10 TH EDITION , VOL.1, PAGE 1248): 'IN THIS CHAPTER (SECTIONS 10 TO 13A), THE STATUTE PROCEEDS TO CARVE OUT CERTAIN CATEGORIES OF EXEMPTIONS. INCOMES FALLI NG WITHIN THESE CATEGORIES ARE COMPLETELY EXEMPT FROM THE PURVIEW O F THE ACT IN AS MUCH AS THEY ARE NOT AT ALL TO BE INCLUDED IN THE T OTAL INCOME OF THE ASSESSEE. THESE TYPES OF EXEMPTIONS HAVE TO BE DIST INGUISHED FROM CERTAIN TYPES OF INCOME WHICH ARE INCLUDED IN THE T OTAL INCOME OF THE ASSESSEE BUT IN RESPECT OF WHICH THE STATUTE PROVIDES RELIEF BY WAY OF DEDUCTION IN COMPUTING THE TOTAL INCOME (CHAPTER VI A) BY GRANTING REBATE OF TAX (CHAPTER VII) AND BY GRANTIN G CERTAIN RELIEF FROM THE TAX PAYABLE ( CHAPTERS VIII AND IX)' 30. SUCH BEING THE SCHEME OF EXEMPTION UNDER CHAPTER-IL L UNDER WHICH SEC.10B FALLS, I AM OF THE VIEW THAT IN COMPUTING EXEMPTION WHICH IS IN RESPECT OF PROFITS AND GAINS OF A HUNDRED PERCENT EXPORT ORIENTED UNIT ONLY, THERE IS NO SCOPE FOR SET OFF OF UNABSORBED DEPRECIATION OF EARLIER YEARS OF THE NON-EOU UNIT. ACCORDINGLY, I HOLD THAT THE-SAID AMOUNT OF RS.26,26,633/- WAS N OT TO BE SET OFF AGAINST THE PROFITS AND GAINS OF THE EOU UNIT FOR COMPUTING THE QUANTUM OF EXEMPTION ALLOWABLE UNDER SEC.10B. 31. AS SUCH, THIS GROUND OF APPEAL MAY BE TREATED AS ALLOWED. 3.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 6 3.4 THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY REL IED ON THE ORDER OF THE ASSESSING OFFICER. REFERRING TO PARA 4 AT PAGE 8 OF THE ASSESSMENT ORDER FOR A.Y. 2005-06 HE SUBMITTED THAT THE UNIT WAS FOR MANUFACTURING HEAT EXCHANGE WAS ORIGINALLY ESTABLISHED IN THE DOMESTIC TRAFFIC AREA ON 01-04-2000. IT WAS CONVERTED TO 100% EOU AS PER AP PROVAL GIVEN ON 08-10-2001. THE DATE OF COMMENCEMENT OF MANUFACTUR ING AS 100% EOU WAS 10-04-2002. HE SUBMITTED THAT THE LOSS WAS PER TAINING TO A UNIT WHICH WAS NON-EOU. HE SUBMITTED THAT THE LD. CIT(A) HAS REACHED THE CONCLUSIONS BECAUSE OF WRONG APPRECIATION OF FACTS. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GLOBAL VANTEDGE (P) LTD. VS. DCIT REPORTED IN 37 SOT 1 HE SUBMITTED THAT LOSS OF THE SAME UNIT HAS TO BE ADJUSTED FOR 10A/10B DEDUCTION. HE ALSO RELIED ON THE DECISION OF THE BANGALORE BENCH OF THE ITAT REPORTE D IN 13 SOT 470. 3.5 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND SUBMITTED THAT DEDUCTION U/S 10B HAS BEEN DENIED BY THE A.O. BY OB SERVING THAT THERE WAS NO PROFIT AVAILABLE TO MAKE A CLAIM U/S 10B DUE TO SUB STANTIAL AMOUNT OF UNABSORBED DEPRECIATION AND BUSINESS LOSS OF NON 10 B UNDERTAKING INCURRED PRIOR TO COMING INTO EXISTENCE OF 10B UNDERTAKING. REFERRING TO PAGES 39 TO 44 OF PAPER BOOK NO.2 HE SUBMITTED THAT THE ASSESSEE HAD FILED REVISED RETURN TOGETHER WITH THE PRESCRIBED REPORT IN FORM 56G DULY CERTIFI ED BY THE ACCOUNTANT AS REQUIRED U/S 10B. ALL THE REQUIREMENTS HAD BEEN FUL FILLED. THERE IS NO REQUIREMENT TO MAINTAIN SEPARATE SET OF BOOKS FOR THE 10B UNDERTAKING AND PROFIT THEREOF COULD BE PROPERLY DEDUCED FROM THE RECORDS. REFERRING TO PAGE 45 OF THE PAPER BOOK NO.2, HE SUBMITTED THAT THE ASSESSEE HAD RIGHTLY SET OFF THE UNABSORBED DEPRECIATION OF THE 10B UNDERTAKING ITSE LF BROUGHT FORWARD FROM THE PRECEDING A.Y. 2003-04 AT RS.70,36,530/-FROM THE PR OFITS. THE FACT HAS BEEN 7 DULY NOTED BY THE A.O. IN THE SUCCEEDING A.Y. 2005- 06. REFERRING TO PAGE NOS. 49 AND 50 OF THE PAPER BOOK NO.2 HE SUBMITTED THAT THE A.O. HAS PASSED ORDER U/S154 RECTIFYING ORDER GIVING EFFECT AFTER DUE VER IFICATION OF AFORESAID FIGURES FOR THE A.Y. 2005-06. 3.6 THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT DEDUCTION U/S 10B HAS TO BE MADE AT SOURCE I.E. BY EXCLUDING PROF IT OF 10B UNDERTAKING FROM THE INCOME OF THE UNDERTAKING ITSELF PRIOR TO COMPU TATION OF PROFITS & GAINS OF BUSINESS UNDER CHAPTER IV. THEREFORE, THE QUESTI ON OF SETTING OFF OF LOSSES OF ANY NON 10B UNDERTAKING AGAINST PROFITS OF 10B U NDERTAKING DOES NOT ARISE. SIMILARLY AS PER THE PROVISIONS OF SECTION 7 2 (2) UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORB ED DEPRECIATION TREATED AS CURRENT DEPRECIATION U/S 32 (2) IS REQUIRED TO BE S ET OFF. HE SUBMITTED THAT THE PROPOSITIONS ARE UPHELD BY THE HONBLE KARNATAKA HI GH COURT IN THE CASE OF YOKOGAWA INDIA LTD. REPORTED IN 21 TAXMANN.COM 154/ 341 ITR 385 AND BY HONBLE BOMBAY HIGH COURT IN THE CASE OF BLACK & VE ATCH CONSULTING P. LTD. 72 DTR 252 AND IN HINDUSTAN UNILEVER LTD. 325 ITR 102. HE ACCORDINGLY SUBMITTED THAT THE APPEAL FILED BY THE REVENUE ON THIS ISSUE HAS TO BE DISMISSED. 3.7 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BLACK & VEATCH CONSULT ING PVT. LTD. REPORTED IN 72 DTR 252 HAS HELD THAT DEDUCTION U/S.10A IN RESPE CT OF THE ALLOWABLE UNIT U/S.10A HAS TO BE ALLOWED BEFORE SETTING OFF BROUGH T FORWARD LOSSES OF A NON- SECTION 10A UNIT. THE RELEVANT OBSERVATION OF THE H ONBLE HIGH COURT AT PARA 3 READS AS UNDER : 8 3. SECTION 10A IS A PROVISION WHICH IS IN THE NATU RE OF A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A D IVISION BENCH OF THIS COURT WHILE CONSTRUING THE PROVISIONS OF SECTION 10B IN H INDUSTAN UNILEVER LTD VS. DEPUTY COMMISSIONER OF INCOME TAX VS. DY. CIT (2011 ) 237 CTR (BOM.) 287 : (2010) 38 DTR (BOM) 91 : (2010) 325 ITR 102 (BOM) A T PARA 24. THE SUBMISSION OF THE REVENUE PLACED ITS RELIANCE ON THE LITERAL READ ING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVE D BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL IN COME OF THE ASSESSEE. THE DEDUCTION UNDER SECTION 10A, IN OUR VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS I S ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SECTION 72 WHICH DEALS WITH THE C ARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI-A. SECTI ON 80A(1) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SH ALL BE ALLOWED FROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTIO N 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A GROSS TOTAL INCOME TO ME AN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE REVENUE IN ES SENCE SEEKS TO ATTAIN IS TO TELESCOPE THE PROVISIONS OF CHAPTER VI-A IN THE CON TEXT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER SECTION 10A, WHICH WOULD NOT BE PER MISSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREOF, SUCH AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCE S, THE DECISION OF THE TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAI N AND EVIDENT THAT THE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CON STRUED, THE APPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBSTANTIAL QUES TION OF LAW AND SHALL ACCORDINGLY STAND DISMISSED. THERE SHALL BE NO ORDE R AS TO COSTS. 3.8 SIMILARLY, THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. REPORTED IN 341 ITR 385 HAS HEL D AS UNDER : 32. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY EVEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF S. 10A BY EXERCISING H IS OPTION UNDER SUB-S. (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSE E TO OPT IN AND OPT OUT OF S. 10A. IN THE YEAR WHEN THE ASSESSEE HAS OPTED OUT , THE NORMAL PROVISIONS OF THE ACT WOULD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE S UBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI -A. IF IN SUCH A YEAR, THE ASSESSEE HAS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO INTER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFT ER CAN BE CARRIED FORWARD FOR BEING SET OFF AGAINST PROFITS OF THE SU BSEQUENT ASSESSMENT YEARS IN THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO MERITS A SIMILAR TREATMENT. 33. AS THE INCOME OF 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE LOSS OF NON 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10A UNIT UNDER S. 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS UNDER S. 10A ARE NOT TO BE INCLUDED IN THE INCOME O F THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSE E OF ANY PROFITS AND GAINS 9 OF BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE U NDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER S. 72 (2), UNABSORBED BUSI NESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION UNDER S. 32(2) IS TO BE SET OFF. AS DE DUCTION UNDER S. 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSE E, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. IN THAT VIEW OF TH E MATTER, THE APPROACH OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO TH E AFORESAID STATUTORY PROVISIONS AND THE CIT(A) AS WELL AS THE TRIBUNAL W ERE FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRANTIN G THE BENEFIT OF S. 10A TO THE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTI ON OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. 3.9 IN VIEW OF THE DECISIONS CITED ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, GROUNDS RAIS ED BY THE REVENUE ARE DISMISSED. 4. GROUND OF APPEAL NO.7 BY THE REVENUE READS AS UN DER : 7. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW THE CIT(A) HAS ERRED IN HOLDING THAT INTEREST PROVISION OF RS.38,3 5,199/- ON ACCOUNT OF EXCISE DUTY LIABILITY IS A ASCERTAINED LIABILITY AND IS NOT TO BE ADDED TO BOOK PROFIT U/S.115JB OF THE I.T. ACT 1961 WHEN THE A.O. HAS HELD THE SAME TO BE A CONTINGENT AND UNASCERTAINED LIABILITY. 4.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE IN THE COMPUTATION OF INCOME HAS MADE THE FOLLOWING PROVISION WHICH WE RE ADDED BACK IN THE COMPUTATION OF INCOME : A. INTEREST PROVISION ON EXCISE CLAUSE 17K RS.38,3 5,199/- B. PROVISION FOR DOUBTFUL DEBTS RS.52,15,971/- HE NOTED THAT ALTHOUGH THE ASSESSEE HAS ADDED BACK THE ABOVE AMOUNTS FOR THE PURPOSE OF COMPUTING ITS INCOME, HOWEVER, NONE OF THESE PROVISIONS WERE CONSIDERED FOR COMPUTING BOOK PROFITS. ACCORD ING TO THE ASSESSING OFFICER SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IT HAS TO DEBIT THE EXPENDITURE ONLY WHEN IT ACCRUES A ND THAT THE LIABILITY SHOULD BE AN ASCERTAINED LIABILITY WHICH SHOULD BE QUANTIF IABLE ATLEAST TO REALISTIC LEVEL. HE, THEREFORE, WAS OF THE OPINION THAT THE PROVISIONS MADE BY THE 10 ASSESSEE ARE CONTINGENT IN NATURE. HE, THEREFORE, ADDED THE SAME TO THE TOTAL INCOME FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT . 4.2 IN APPEAL THE LD. CIT(A) HELD THAT THE PROVISIO N OF INTEREST PAYABLE ON EXCISE DUTY IS AN ASCERTAINED LIABILITY AND IS NOT TO BE ADDED TO THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. THE RELEV ANT OBSERVATION OF THE LD.CIT(A) READS AS UNDER : 35. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AS REGARDS RS.38,35,199/- BEING INTEREST PAYABLE ON EXCISE DUTY, THE LEARNED AR SUBMITTED THAT THE SAME WAS PURSUANT TO THE DEMAND RAISED BY THE CENTRAL EXCISE DEPARTMENT IN THE RELEVANT PREVIOUS YEAR AND THAT THE APPELLANT HAD OBTAINED A LEGAL OPINION THAT INTEREST LIABILITY WO ULD BE ATTRACTED AND PROVIDED FOR THE KNOWN LIABILITY IN THE BOOKS OF ACCOUNT IN CONSONANCE WITH MANDATORY ACCOUNTING STANDARD-I NOTIFIED BY THE CBDT UNDER SE CTION 145 AND ALSO IN ACCORDANCE WITH WELL RECOGNIZED PRINCIPLES OF PRUDE NCE IN ACCORDANCE WITH MERCANTILE METHOD OF ACCOUNTING CONSISTENTLY FOLLOW ED BY THE APPELLANT. THE APPELLANT SUBMITS THAT THE PROVISION FOR INTEREST P AYABLE ON EXCISE DUTY WAS A CRYSTALLIZED LIABILITY PURSUANT TO THE DEMAND RAISE D BY THE CENTRAL EXCISE DEPARTMENT AND THEREFORE WAS DEDUCTIBLE IN COMPUTIN G BOOK PROFITS UNDER SECTION 115JB. IN VIEW OF THE EXPLANATION PROVIDE D BY THE LEARNED AR, I AM OF THE VIEW THAT THE PROVISION FOR INTEREST ' PAYABLE ON E XCISE DUTY BEING AN ASCERTAINED LIABILITY IS NOT TO BE ADDED TO 'BOOK PROFIT' FOR T HE PURPOSES OF SECTION 115JB. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED 4.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 4.4 THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4.5 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND SUBMITTED THAT THE INTEREST ON EXCISE DUTY PAYABLE BY THE ASSESSEE WAS PROVIDED FOR IN THE BOOKS OF ACCOUNT ON THE BASIS OF WELL RECOGNIZED PRINCIPL E OF ACCRUAL AND PRUDENCE LAID DOWN IN MANDATORY ACCOUNTING STANDARD-1 ISSUED BY THE ICAI, RECOGNIZED AND REQUIRED TO BE FOLLOWED UNDER THE CO MPANIES ACT AND ALSO IN 11 CONSONANCE WITH THE ACCOUNTING STANDARD I NOTIFIED UNDER SECTION 145 BY THE CBDT. HE SUBMITTED THAT THE SAID PROVISION FO R INTEREST PAYABLE WAS FOR THE KNOWN LIABILITY AND THE AUDITED PROFIT & LOSS A CCOUNT WAS DRAWN UP IN ACCORDANCE WITH PART II AND III OF SCHEDULE VI TO T HE COMPANIES ACT. THE SAID PROVISION FOR INTEREST ON EXCISE DUTY PARTOOK THE CHARACTER OF STATUTORY DUE U/S 43B AND THEREFORE WAS ADDED BACK IN THE COM PUTATION OF TOTAL INCOME UNDER NORMAL TAX PROVISIONS. HE SUBMITTED THAT THE CIT(A) ON THE AFORESAID BASIS HAS GIVEN THE FINDING THAT THE SAID LIABILITY WAS AN ASCERTAINED LIABILITY AND OUGHT NOT TO HAVE BEEN ADDED BACK TO THE BOOK P ROFITS DETERMINED UNDER PROVISIONS OF SEC. 115 JB. HE ACCORDINGLY SUBMITTE D THAT THE GROUND BY REVENUE ON THIS ISSUE BE DISMISSED. 4.6 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE ASSESSEE HAD S UBMITTED BEFORE THE LD. CIT(A) THAT THE INTEREST PAYABLE ON EXCISE DUTY WAS ON THE BASIS OF DEMAND RAISED BY THE CENTRAL EXCISE DEPARTMENT. THE LD. D EPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE ABOVE. SIN CE THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND SINCE THE L IABILITY WAS A CRYSTALLIZED LIABILITY PURSUANT TO THE DEMAND RAISED BY THE CENT RAL EXCISE DEPARTMENT, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E SAME BEING AN ASCERTAINED LIABILITY WAS DEDUCTIBLE WHILE COMPUTIN G THE BOOK PROFITS U/S.115JB. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD. CIT(A) WE FIND NO INFIRMITY IN HIS ORDER ON THIS ISSUE. ACCORDINGLY, THIS GROUND BY THE REVENUE IS DISMISSE D. 12 ITA NO.1375/PN/2010 (BY ASSESSEE) (A.Y. 2004-05) : 5. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. THE LD. CIT(A) ERRED IN CONFIRMING ADDITION TO THE TOTAL INCOME OF THE APPELLANT OF NOTIONAL SURPLUS RS.70,69,074/- (R S.68,01,159/- PLUS RS.2,67,915/-) THAT HAD ARISEN ON SETTLEMENT OF SAL ES TAX DEFERRAL LOAN BEING THE DIFFERENCE BETWEEN NET PRESENT VALUE WORK ED OUT BY APPLYING DISCOUNTING TECHNIQUE AND SALES TAX DEFERRAL PAYABL E IN FUTURE. 5.1 THE ASSESSEE HAS ALSO TAKEN THE ADDITIONAL GROU ND ON THIS ISSUE WHICH READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT PRAYS THAT THE LEARNED CIT(APPEALS)-V, PUNE BE DIRECTED TO : 1. EXCLUDE FROM THE TOTAL INCOME OF THE APPELLANT, THE AMOUNT OF NOTIONAL SURPLUS OF RS.70,69,074 DUE TO PREMATURE R EPAYMENT OF DEFERRED SALES TAX LOAN AT NET PRESENT VALUE FOR TH E A.Y. 2004-05 WHICH IS TAXED IN THE ASSESSMENT ORDER AS PART OF T HE TOTAL INCOME OF THE APPELLANT; AND 2. TO TREAT THE SAID SURPLUS AMOUNT AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 5.2 BRIEFLY THE FACTS ARE THAT THE AO NOTED THAT IN THE ORIGINAL RETURN THE ASSESSEE HAS REDUCED AN AMOUNT OF ` 68,01,159 BEING PROFIT ON PREPAYMENT OF SALES TAX DEFERRED. HOWEVER, IN THE REVISED RET URN OF INCOME FILED ON 16- 11-2005 THE ASSESSEE HAS WITHDRAWN THE CLAIM OF ` 68,01,159 AS PER THE COMPUTATION OF INCOME, BUT MADE THE CLAIM BY WAY OF NOTE STATING AS UNDER : THE COMPANY HAS AVAILED THE BENEFITS OF DEFERRAL O F SALES TAX LIABILITY UNDER THE SALES TAX DEFERRAL SCHEME OF SICOM LTD. DURING THE PREVIOUS YEAR 2003-04, THE COMPANY HAS PREPAID A PART OF THIS LIABILITY AT ITS NET PRESENT VALUE CONSEQUENT TO WHICH A GAIN OF `68,01,159 ACCRUED TO THE COMPANY WHICH WAS CREDIT3ED TO THE PROFIT AND LOSS ACCOUNT. THE COMPANY IS OF THE VIEW THAT SUCH A GAIN CONSTIT UTES A CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX. NEVERTHELESS, ON A CONSERVA TIVE BASIS, THE COMPANY HAS INCLUDED THIS AMOUNT IN THE COMPUTATION OF TOTAL IN COME. HOWEVER, THE COMPANY RESERVES THE RIGHT TO CLAIM TH E PROFIT ON PREPAYMENT OF SALES TAX DEFERRAL LIABILITY AS A CAPITAL RECEIPT EXEMPT FROM TAX AND MAKE APPROPRIATE SUBMISSIONS IN THIS REGARD IN THE COURSE OF ASSESSM ENT PROCEEDINGS FOR THE FINANCIAL YEAR ENDED MARCH 31,2004. THE INCLUSION OF THE ABOV E AMOUNT IN THE COMPUTATION OF TOTAL INCOME SHOULD NOT BE REGARDED AS ACKNOWLED GEMENT BY THE COMPANY OF THE TAXABILITY OF THIS AMOUNT. 13 IN THIS CONNECTION, THE COMPANY WISHES TO POINT OUT THAT IN SUBHASH CHANDRA SARVESHKUMAR V CIT 132 ITR 619 (ALL.), THE HIGH COU RT LAID DOWN THE PRINCIPLE THAT A CLAIM SHOULD NOT BE DENIED MERELY BECAUSE IT HAS NOT BEEN MADE IN THE TAX RETURN. IF THE NECESSARY PARTICULARS FOR ALLOWING THE CLAIM ARE SUBSEQUENTLY ON RECORD, THE ASSESSING AUTHORITY SHOULD CONSIDER THEM AND ALLOW THE CLAIM OF THE ASSESSEE IS OTHERWISE LEGALLY ENTITLED TO THE RELIEF AS PER THE LAW. THE COMPANY THEREFORE SUBMITS THAT THIS MATTER SHOULD BE EXAMINED IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AND APPROPRIATE RELIEF BE GRANTED TO TH E COMPANY.' 5.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT A NOTE ON THE CLAIM MA DE, THE BASIS OF WHICH THE DEFERRAL AMOUNT OF ` 68,01,159 HAS BEEN ARRIVED AND TO SUBMIT COPIES OF CERTIFICATE OF ENTITLEMENT ISSUED BY THE SALES TAX DEPARTMENT. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER : 'DEFERRED SALES TAX AMOUNT OF RS.23.67 CRORES AS ON 31.3.04 REPRESENT AN INTEREST FREE AMOUNT AVAILED UNDER THE 'SCHEME OF INCENTIVES 1993 FROM THE STATE INDUSTRIAL AND INVESTMENT CORPORATION OF MAHARASHTRA LTD' FOR DEFERRAL OF SALES TAX LIABILITY. AS PER THE PROVISIONS OF THIS SCHEME, TH E COMPANY WILL REPAY THE AMOUNT IN 10 HALF YEARLY INSTALMENTS AFTER JANUARY, 2010. THE AMOUNT OF RS.23.67 CRORES AS ON 31.3.2004 REPRESENTS THE SALES TAX COLLECTED FRO M THE CUSTOMERS AND DEFERRED.' THE ASSESSEE HAS ALSO .ENCLOSED COPY OF THE ELIGIBI LITY CERTIFICATE DT. 31.12.99. VIDE LETTER DT. 26.12.06, THE ASSESSEE HAS ALSO SUBMITTE D THE COPY OF CERTIFICATE ISSUED BY THE DY. COMMISSIONER OF 'SALES TAX (ADM) 2, PUNE DIVISI ON, PUNE. ON PERUSAL OF THE CERTIFICATE, IT WAS OBSERVED THAT FOR THE YEAR 1999 -2000, THE ASSESSEE HAD COLLECTED BST RS.1,20,97,694/- WHICH WAS ALLOWED TO BE DEFERR ED IN VIEW OF CERTIFICATE OF ENTITLEMENT ISSUED TO THE ASSESSEE. THE ASSESSEE HA S PREPAID THE AMOUNT ON 24-12-03 BASED ON NET PRESENT VALUE (NPV). AS PER THE PR OCEDURE, THE NPV WAS WORKED OUT AT RS.50,28,620/-. THUS, IN PLACE OF LIABILITY OF PAYMENT OF RS.1,20,97,694/-, THE ASSESSEE HAS PAID AMOUNT OF RS.50,28,620, RESULTING INTO THE GAIN OF RS.70,69,074/-. (IT IS NOT KNOWN AS TO HOW ASSESSEE HAS ADOPTED THE FIGURE OF RS.68,01,159/-). THE GAIN ON ACCOUNT OF CESSATION OF LIABILITY HAS BEEN TREATED AS CAPITAL RECEIPT BY THE ASSESSEE. IT IS WORTHWHILE TO MENTION THAT IN THE YEAR OF COLLECTION OF SALES TAX FROM CUSTOMERS, THE ASSESSEE HAS CLAIMED DEDUCTION U/.S. 43B OF THE I.T. ACT BECAUSE THE DEFERRED SALES TAX HAS BEEN TREATED AS PAID TO THE GOVERNMENT, FOR THE PURPOSE OF SECTION 43B OF THE I.T. ACT.. 5.4 HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCE D WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. HE NOTED THAT TO BRING ANY AMOUNT UNDER THE TAX NET U/S 41(1), FOLLOWING CONDITIONS M UST BE SATISFIED : (I ) AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN T HE ASSESSMENT FOR ANY YEAR IN RESPECT OF EXPENDITURE OR TRADING LIABILITY INCURRE D BY THE ASSESSEE. 14 (II) SUBSEQUENTLY, THE ASSESSEE HAS OBTAINED WH ETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH EX PENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. IN THE CASE OF THE ASSESSEE BOTH OF THE ABOVE COND ITIONS ARE SATISFIED TO BRING THE AMOUNT OF RS.68,01,159/- UNDER THE TAX NET U/S 41(1 ) OF THE IT. ACT. DURING F.Y. 1999- 2000 RELEVANT TO A.Y. 2000-01, THE ASSESSEE HAS COL LECTED THE AMOUNT OF RS.1,20,97,694/- ON ACCOUNT OF SALES TAX WHICH WAS A TRADING LIABILITY FOR THE ASSESSEE AND THE DEDUCTION OF THIS LIABILITY WAS ALLOWED TO THE ASSESSEE U/S. 43B OF THE IT. ACT AS ADMITTED BY THE ASSESSEE. THUS, THE FIRST CONDITION IS SATISFIED IN THE CASE OF THE ASSESSEE. FURTHER, THE ASSESSEE HAS OBTAINED BENEFI T OF RS.70,69,074/- FROM GOVERNMENT OF MAHARASHTRA IN RESPECT OF TRADING LIA BILITY BY WAY OF CESSATION THEREOF. THUS, THE SECOND CONDITION IS ALSO SATISFIED IN THE CASE OF ASSESSEE TO APPLY THE PROVISIONS OF SECTION 41 (1) OF THE IT. 5.5 RELYING ON A COUPLE OF DECISIONS HE REJECTED TH E CONTENTION OF THE ASSESSEE THAT THE RECEIPT OF ` 70,69,074/ ON ACCOUNT OF CESSATION OF DEFERRED TAX LIABILITY IS CAPITAL IN NATURE. HE ACCORDINGLY MADE ADDITION OF ` 2,67,915 BEING DIFFERENCE IN SALES TAX DEFERRAL BENEFIT. HE NOTED THAT THE ASSESSEE HAS DEBITED THE FIGURE OF BENEFIT AT ` 68,01,159 WHEREAS AS PER THE CERTIFICATE THE ACTUAL BENEFIT IS ` 70,69,074/ HE THEREFORE ADDED THE DIFFERENCE OF ` 2,67,915 TO THE TOTAL INCOME OF THE ASSESSEE. 5.6 BEFORE THE CIT(A) THE ASSESSEE STATED THAT IT D OES NOT WISH TO PRESS THE GROUND RELATING TO THE GAIN ON PREPAYMENT OF SALES TAX LIABILITY AT ` 70,69,074. THE LEARNED CIT(A) THEREFORE DISMISSED THE GROUND. 5.7 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE OF TAXABILITY OF NOTIONAL SURPLUS IS A PURE QUESTION OF LAW. REL EVANT FACTS ARE ON RECORD AND REQUIRED NO FURTHER INVESTIGATION. THE ISSUE H AS A BEARING ON THE TAX LIABILITY OF THE ASSESSEE. HE SUBMITTED THAT ALTHO UGH THE ASSESSEE HAS TAKEN THE GROUND BEFORE THE TRIBUNAL FOR EXCLUSION OF THE SAID SURPLUS FROM ITS TOTAL INCOME FOR A.Y. 2004-05, HOWEVER, SINCE THE ABOVE G ROUND WAS NOT PRESSED BEFORE THE LD. CIT(A), THEREFORE, THE ASSESSEE UNDE R ABUNDANT PRECAUTIONS HAS TAKEN THE ADDITIONAL GROUND REQUESTING FOR EXCL USION OF THE NOTIONAL 15 SURPLUS FROM THE TOTAL INCOME AND TREATING THE SAID AMOUNT AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. HE SUBMITTED THAT EVEN THOU GH THE ASSESSEE HAD INCLUDED THE SAID NOTIONAL SURPLUS IN COMPUTING THE TOTAL INCOME DECLARED IN THE REVISED RETURN OF INCOME UNDER AN ERRONEOUS IMP RESSION AND MISTAKEN BELIEF OF LAW AFTER EXCLUDING THE SAID AMOUNT FROM THE TOTAL INCOME IN THE ORIGINAL RETURN OF INCOME, IT CANNOT BE SAID THAT T HERE WAS ACQUIESCENCE OR AGREEMENT WITH THE LAW. HE SUBMITTED THAT IT IS A WELL SETTLED PRINCIPLE THAT THERE CAN BE NO CONCESSION ON THE ISSUE OF LAW. HE SUBMITTED THAT THE LEGAL ISSUE WAS NOT PRESSED BEFORE THE LD. CIT(A) AS AT T HE RELEVANT POINT OF TIME OF HEARING CONTRARY DECISION OF MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF SCHENECTADY SPECIALITY ASIA PVT. LTD. REPORTED IN 2 9 SOT 1 WAS IN EXISTENCE ACCORDING TO WHICH NOTIONAL SURPLUS WAS TAXABLE U/S .41(1) OF THE INCOME TAX ACT. HOWEVER, THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. WAS IN FAVOUR OF THE ASSESSEE. FURTHER, THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF S.I. GROUP INDIA LTD. REPORTED IN 32 6 ITR 117 HAS HELD THAT PROVISIONS OF SECTION 41(1)(A) ARE NOT APPLICABLE T O REMISSION OR CESSATION OF LIABILITY. HE SUBMITTED THAT SINCE THE NECESSARY F ACTS ARE ON RECORD AND SINCE THE ISSUE HAS A BEARING ON THE TAX LIABILITY AND IN VOLVES QUESTION OF LAW, THEREFORE, THE ASSESSEE HAS RAISED THIS ADDITIONAL GROUND. 5.8 REFERRING TO THE DECISION OF THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF ADITYA BIRLA NUVO LTD. VS. ACIT REPORTED IN 131 ITD 51 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S HELD THAT A LEGAL QUESTION ARISES IN CASE OF THE ASSESSEE AS TO WHETHER SALES TAX SUBSIDY GRANTED BY THE STATE GOVERNMENT WAS OF THE NATURE OF THE CAPITAL R ECEIPT AND COULD NOT BE TAXED. IT WAS HELD THAT ADJUDICABILITY OF THE GROU ND IS DIFFERENT FROM THE ADMISSIBILITY OF THE GROUND. ACCORDINGLY, THE ADDI TIONAL GROUND WAS 16 ADMITTED AND THE ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR PASSING A FRESH ORDER. 5.9 REFERRING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF NTPC LTD. REPORTED IN 229 ITR 383 HE SUBMITTED THAT THE APEX COURT IN THE SAID DECISION HAS HELD THAT THE TRIBUNAL HAS JURISD ICTION TO ENTERTAIN ADDITIONAL GROUND AND EXAMINE QUESTION OF LAW RAISE D FOR THE FIRST TIME BEFORE IT SO LONG AS RELEVANT FACTS ARE ON RECORD I N RESPECT OF THAT ITEM AND WHICH WAS CONSEQUENT TO SPECIAL BENCH DECISIONS WHE REBY IT WAS FOUND THAT ITEM TAXED IN THE HANDS OF THE ASSESSEE WAS NOT TAX ABLE. IN THAT CASE ALSO, THE ITEM OF INCOME WAS OFFERED TO TAX BY THE ASSESSEE A ND ASSESSMENT WAS COMPLETED ON THAT BASIS. FURTHER, THE INCLUSION OF SAID ITEM OF INCOME WAS NEITHER CHALLENGED BY THE ASSESSEE NOR CONSIDERED B Y THE CIT(A) AND THE LEGAL ISSUE WAS RAISED FOR THE FIRST TIME BEFORE TH E TRIBUNAL. HE SUBMITTED THAT IN THAT CASE ALSO THE ISSUE WAS NOT CHALLENGED BEFORE THE CIT(A). 5.10 REFERRING TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. REPORTED IN (2012) TAXMANN.COM 429 (MUM) (SB) HE SUBMITTED THAT THE SPECIAL BENCH OF THE TRIBUNAL HAS IMPLICITLY UPHELD THE PROPOSITION THAT IF THE QUEST ION OF LAW ARISING FROM FACTS ON RECORD IS NOT ALLOWED TO BE RAISED BEFORE THE TR IBUNAL IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF THE APPELLANT ITSELF CO NSTITUTES GRIEVANCE OF THE ASSESSEE WHICH SHOULD BE REDRESSED BY ALLOWING SUCH A QUESTION TO BE RAISED. RELYING ON VARIOUS OTHER DECISIONS HE SUBMITTED THA T THE ADDITIONAL GROUND RAISED BY THE ASSESSEE SHOULD BE ADMITTED AND THE G ROUND BE DECIDED IN FAVOUR OF THE ASSESSEE BY DIRECTING THE ASSESSING O FFICER TO EXCLUDE THE NOTIONAL SURPLUS ON PREPAYMENT OF SALES TAX DEFERRA L FROM THE TOTAL INCOME OF 17 THE ASSESSEE AND TREAT THE SAID AMOUNT AS CAPITAL R ECEIPT NOT CHARGEABLE TO TAX FOR THE IMPUGNED ASSESSMENT YEAR. 5.11 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND STRONGLY OPPOSED THE ADMISSION OF THE ADDITIONAL GROUND RAIS ED BY THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAS CONSCIOUSLY NOT PRE SSED THE GROUND BEFORE CIT(A) FOR WHICH HE HAS DISMISSED THE GROUND RAISED BEFORE HIM. REFERRING TO THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTHERN FOUNDATION PVT. LTD. VS. ACIT REPORTED IN 324 ITR 7 6 HE SUBMITTED THAT ISSUE NOT CONSIDERED IN ASSESSMENT ON CONSENT FROM ASSESSEE CANNOT BE TAKEN UP IN APPEAL. REFERRING TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF C.K. GOPINATHAN VS. CIT REPORTED IN 260 ITR 213 HE SUBMITTED THAT ALTERNATE CONTENTION NOT RAISED BEFORE THE AO AND C IT(A) CANNOT BE ENTERTAINED BY ITAT SINCE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY IN THIS ANGLE AND FULL FACTS ON THE ISSUE ARE NOT A VAILABLE ON RECORD. REFERRING TO THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. G.S. RICE MILLS REPORTED IN 136 ITR 761 HE SUBMITTED THA T CLAIM FOR RELIEF NOT MADE BEFORE THE ITO AND WHEN THERE IS NO MATERIAL A VAILABLE ON RECORD SUPPORTING SUCH CLAIM THE TRIBUNAL CANNOT DIRECT TH E ITO TO EXAMINE THE CLAIM ON MERITS. HE ACCORDINGLY SUBMITTED THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE SHOULD NOT BE ADMITTED. 5.12 THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIN DER SUBMITTED THAT THE VARIOUS DECISIONS RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THOSE CASES THE ASSESSEE HAD FAILED TO MAKE OUT A CASE TH AT THE ISSUE RAISED BEFORE APPELLATE AUTHORITIES INVOLVED A MISTAKEN BELIEF OF FACT OR LAW AND HAD FAILED 18 TO PUT FULL FACTS OR MATERIAL ON RECORD. IN THE IN STANT CASE HOWEVER FULL FACTS ARE ON RECORD AND THE ISSUE INVOLVED IS A PURE QUES TION OF LAW. 5.13 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT C ASE THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME HAS REDUCED AN AMOUNT OF RS.68,01,159/- BEING PROFIT ON PREPAYMENT OF SALES TAX DEFERRED. HOWEVE R, IN THE REVISED RETURN OF INCOME THE ASSESSEE HAS WITHDRAWN THE ABOVE CLAIM B UT IN THE NOTES HAS MENTIONED THAT SUCH A GAIN CONSTITUTES A CAPITAL RE CEIPT WHICH IS NOT CHARGEABLE TO TAX. IN THE ASSESSMENT THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AND INCLUDED THE SAME IN THE TOTAL INCOME U/S.41(1) OF THE I.T. ACT. ALTHOUGH THE ASSESSEE HAD PREFERRED AN APPEAL BEFORE THE CIT(A) ON THIS ISSUE, HOWEVER, THE SAME WAS NOT PRESSED BEFOR E HIM FOR WHICH THE LD. CIT(A) DISMISSED THE GROUND RAISED BY THE ASSESSEE. NOW THE ASSESSEE HAS RAISED THE GROUND BEFORE THE TRIBUNAL THROUGH A REG ULAR GROUND AS WELL AS AN ADDITIONAL GROUND. 5.14 IT IS THE CASE OF THE REVENUE THAT THE ORIGINA L GROUND DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A). SINCE THE ASSESSEE HAD CONSCIOUSLY ACCEPTED THE ADDITION, THEREFORE, THE REGULAR GROUND AS WELL AS THE ADDITIONAL GROUND SHOULD NOT BE ADMITTED AND SHOULD BE REJECTED. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE GROUND IS A LEGAL ONE AND FULL FACTS ARE ON RECORD, THEREFORE, THE ADDITIONAL GROUND RAI SED BY THE ASSESSEE SHOULD BE ADMITTED FOR ADJUDICATION. IT IS ALSO THE ARGUM ENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF NTPC LTD. (SUPRA) EVEN THOUGH THE INCOME WA S OFFERED TO TAX BY THE 19 ASSESSEE AND ASSESSMENT WAS COMPLETED ON THAT BASIS , STILL THE ASSESSEE IS ENTITLED TO RAISE THE ISSUE BEFORE THE TRIBUNAL IN SHAPE OF AN ADDITIONAL GROUND. 5.15 WE FIND THE HONBLE SUPREME COURT IN THE CASE OF NTPC LTD. (SUPRA) HAS HELD AS UNDER (SHORT NOTES) UNDER SECTION 254 OF THE INCOME TAX ACT, 1961 THE APPELLATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE POWE R OF THE TRIBUNAL IN DEALING WITH APPEALS IS THUS EXPRESSED IN THE WIDEST POSSIBLE TE RMS. THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIE S IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW . IF, FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON TAXABLE ITEM IS TAXED OR A PERMISSIBLE D EDUCTION IS DENIED, THERE IS NO REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RA ISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE REL EVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM. THERE IS NO REASON TO RESTRIC T THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). BOTH THE ASSE SSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS OBJ ECTIONS BEFORE THE TRIBUNAL. THE TRIBUNAL SHOULD NOT BE PREVENTED FROM CONSIDERI NG QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS, ALTHOUGH NOT RAISED EARL IER. THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSUES ARISING OUT OF THE APPEAL BEFORE THE COMMISSIONER (APPEALS), IS TOO NARROW A VIEW TO TAK E OF THE POWERS OF THE TRIBUNAL. UNDOUBTEDLY, THE TRIBUNAL HAS THE DISCRETION TO AL LOW OR NOT TO ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON REC ORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTI ON IN ORDER TO CORRECTLY ASSESSEE THE TAX LIABILITY OF AN ASSESSEE. DURING THE ASSESSMENT YEAR 1978-79, THE ASSESSEE HA D DEPOSITED ITS FUNDS WHICH WERE NOT IMMEDIATELY REQUIRED ON SHORT-TERM D EPOSITS WITH BANKS. INTEREST RECEIVED ON SUCH DEPOSITS DURING THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1978-79 AMOUNTED TO RS.22,84,994. T HIS WAS OFFERED BY THE ASSESSEE FOR ASSESSMENT AND THE ASSESSMENT WAS COMP LETED ON THAT BASIS. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), A NUMBER OF GROUNDS WERE TAKEN BY THE ASSESSEE CHALLENGING THE ASSESSMENT. H OWEVER, THE INCLUSION OF THIS AMOUNT OF RS.22,84,994 WAS NEITHER CHALLENGED BY TH E ASSESSEE NOR CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS). FROM T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. THE INCLUSION OF THE SAID AMOUNT OF RS.22 ,84,994 WAS NOT OBJECTED TO EVEN IN THE GROUNDS OF APPEAL AS ORIGINALLY FILED B EFORE THE TRIBUNAL. HOWEVER, BY A FORWARDING LETTER DATED JULY 16, 1983, THE FOLLOW ING ADDITIONAL GROUNDS WERE SOUGHT TO BE RAISED BY THE ASSESSEE : (1) THAT THE SUM OF RS.22,84,994 DEDUCTED FROM STATEMENT OF EXPENDITURE DURING CONSTRUCTION CANNOT BE INCLUDED IN THE TOTAL INCOME. (2) THAT ON ADMISSION (ERRONEOUS), NO INCOME (THE SUM OF RS.22,84,994) COULD BE INCLUDED IN THE TOTAL INCOME , AND (3) THAT THE AUTHORITIES BELOW HAD ERRED AND FAILED IN THEIR DUTY IN NOT ADJ UDICATING THE FACTS AND EVIDENCE ON RECORD AND MECHANICALLY INCLUDED RS.22, 84,994 IN THE TOTAL INCOME. 20 THE ASSESSEE CONTENDED THAT IT LEARNT THAT THE INTE REST EARNED BEFORE THE SETTING UP OF BUSINESS WAS NOT TAXABLE AS INCOME AND IT WEN T TO REDUCE THE CAPITAL COST OF THE PLANT AND HENCE INCLUDED THE ABOVE THREE GRO UNDS IN ITS GROUNDS OF APPEAL. HOWEVER, THE TRIBUNAL DECLINED TO ENTERTAIN THE THR EE ADDITIONAL GROUNDS. THE TRIBUNAL DIRECTLY REFERRED TO THE SUPREME COURT THE QUESTION WHETHER WHERE, ON THE FACTS FOUND BY THE INCOME-TAX AUTHORITIES, A QU ESTION OF LAW AROSE (ALTHOUGH NOT RAISED BEFORE THE AUTHORITIES) WHICH BORE ON TH E TAX LIABILITY OF THE ASSESSEE THE TRIBUNAL HAD JURISDICTION TO EXAMINE THE SAME : HELD, THAT THE TRIBUNAL HAD JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH AROSE FROM THE FACTS AS FOUND BY THE INCOME-TAX AUTHORITI ES AND HAVING A BEARING ON THE TAX LIABILITY OF THE ASSESSEE. [MATTER REMANDED TO TRIBUNAL FOR CONSIDERATION OF N EW GROUNDS RAISED BY THE ASSESSEE ON THE MERITS]. 5.16 WE FIND THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF ALL CARGO LOGISTICS LTD. HAS HELD AS UNDER (HEAD NOTES) : SECTION 253 OF THE INCOME-TAX ACT, 1961 APPELLA TE TRIBUNAL APPEALS TO ASSESSMENT YEARS 2004-05 TO 2009-10 WHETHER QUESTION WHICH HAS NOT BEEN RAISED BEFORE ANY OF THE LOWER AUTHORITIES AND OBVIOUSLY NOT DECIDED BY ANY ONE OF THEM, CANNOT LEAD TO A GRIEVANCE IN RESPECT OF WHICH A GROUND CAN BE VALIDLY TAKEN IN MEMORANDUM OF APPEAL HELD, YES IN COURSE OF APPELLATE PROCEEDINGS BEFORE TRIBUNAL, ASSESSEE RAISED A GROU ND THAT ASSESSMENT ORDER WAS INVALID AS JURISDICTION OF ASSESSING OFFICER TO MAK E ASSESSMENT UNDER SECTION 153A WAS VITIATED REVENUES OBJECTION WAS THAT SI NCE AFORESAID GROUND WAS NOT TAKEN BEFORE COMMISSIONER (APPEALS), HIS DECISION W AS NOT AVAILABLE IN THIS MATTER AND, CONSEQUENTLY, THAT GROUND DID NOT ARISE OUT OF ORDER OF LOWER AUTHORITIES IT WAS NOTED FROM RECORDS THAT ASSESS EE HAD CHALLENGED ASSESSMENT ON MERITS BEFORE COMMISSIONER (APPEALS), HOWEVER, T HERE WAS NO DISPUTE RELATING TO JURISDICTION OF ASSESSING OFFICER TO MA KE ASSESSMENT WHETHER ON FACTS, ASSESSEE COULD NOT RAISE GROUND RELATING TO JURISDICTION OF ASSESSING OFFICER TO PASS ASSESSMENT ORDER FOR FIRST TIME BEFORE TRIB UNAL HELD, YES WHETHER, HOWEVER, IN VIEW OF FACT THAT QUESTION RAISED WAS A QUESTION OF LAW AND ALL MATERIAL FACTS WERE AVAILABLE ON RECORD, IT COULD B E ADMITTED FOR DECISION AS AN ADDITIONAL GROUND HELD, YES [PARTLY IN FAVOUR OF ASSESSEE]. 5.17 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF ADITYA BIRLA NUVO VS. ACIT (SUPRA) AFTER CONSIDERING SERIES OF D ECISIONS HAS OBSERVED AS UNDER: 2.13.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING RAISING OF ADDI TIONAL GROUND FOR THE FIRST TIME BEFORE TRIBUNAL REGARDING EXCLUSION OF THE SALES-TA X EXEMPTION OF RS.1,14,51,012/- PROVIDED TO THE ASSESSEE BY THE UP GOVERNMENT WHICH WAS INCLUDED IN TOTAL SALES IN THE COMPUTATION OF TOTAL INCOME. THE ASSESSEE HAS NOT CLAIMED DEDUCTION ON ACCOUNT OF THE SAID EXEMPTION EITHER BEFORE THE AO OR BEFORE THE CIT(A) AND THE AMOUNT WAS INCLUDED IN TH E SALES FIGURE OF RS.928.36 CRORES. THE ASSESSEE RAISED THIS ISSUE FOR THE FIR ST TIME BEFORE THE TRIBUNAL AFTER THE ORDER DT.23 RD OCT.,2003 OF THE MUMBAI SPECIAL BENCH OF THE TRIBU NAL IN CASE 21 OF DY.CIT VS. RELIANCE INDUSTRIES LTD.(SUPRA) AS PE R WHICH SALES-TAX EXEMPTION BENEFIT WAS CAPITAL RECEIPT, NOT TAXABLE WAS DELIVE RED. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE COULD NOT HAVE RAISED THE GROUND BEFORE THE AO OR CIT(A) AS THE DECISION OF THE TRIBUNAL WAS AVAILABLE ONLY AFT ER PASSING OF THE ORDER BY CIT(A). 2.13.5 WE FIND THAT THE PRINCIPLE RELATING TO ADMI SSION OF ADDITIONAL GROUND BEING A LEGAL GROUND FOR THE FIRST TIME BEFO RE THE TRIBUNAL IS SETTLED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF NATION AL THERMAL POWER CO. LTD. VS. CIT (SUPRA) IN WHICH THE HONBLE SUPREME COURT HELD THAT QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD IN THE A SSESSMENT PROCEEDINGS HAS TO BE ALLOWED TO BE RAISED IF IT IS NECESSARY TO CONSI DER THE QUESTION OF LAW IN ORDER TO CORRECTLY ASSESSEE THE TAX LIABILITY OF THE ASSE SSEE IN THIS CASE THE ASSESSEE HAD AVAILED SALES-TAX EXEMPTION OF RS.1,14,51,012/- WHI CH WAS ALREADY ON RECORD BEFORE THE AO AS THE SAME WAS INCLUDED IN THE TOTA L SALES FIGURE OF RS.928.36 CRORES. THIS CLAIM OF THE ASSESSEE HAS NOT BEEN CO NTROVERTED BEFORE US BY THE REVENUE. THEREFORE THE FACT THAT THE ASSESSEE HAD AVAILED SALES-TAX EXEMPTION WHICH HAD BEEN SHOWN AS PART OF THE SALES WAS ALREA DY ON RECORD BEFORE THE LOWER AUTHORITIES. IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DY. CIT VS. RELIANCE INDUSTRIES LTD. (SUPRA ) WHICH HELD THAT SALES-TAX SUBSIDY GRANTED BY THE STATE GOVERNMENT WAS OF THE NATURE OF CAPITAL RECEIPT AND COULD NOT BE TAXED, A LEGAL QUESTION DOES ARISE IN CASE OF THE ASSESSEE WHETHER THE SALES-TAX EXEMPTION RECEIVED BY THE ASS ESSEE FROM THE UP GOVERNMENT WAS TAXABLE OR NOT. SUCH QUESTION HAS A DIRECT BEARING ON COMPUTATION OF TAX-LIABILITY OF THE ASSESSEE. THER EFORE IN OUR VIEW THE LEGAL QUESTION RAISED BY THE ASSESSEE AS AN ADDITIONAL GR OUND HAS TO BE ADMITTED. THE ADJUDICABILITY OF THE GROUND IS DIFFERENT FROM THE ADMISSIBILITY OF ADDITIONAL GROUND. IN CASE, FOR ADJUDICATING A GROUND ALREADY ADMITTED, SOME MORE MATERIAL IS REQUIRED THE TRIBUNAL CAN ALWAYS RESTORE THE ISS UE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER CONSIDERING ALL THE RELEVANT FA CTS. BUT ON THIS GROUND, THE ASSESSEE CANNOT BE DENIED ITS RIGHT TO RAISE THE GR OUND WHICH ARISES ON THE BASIS OF FACTS ON RECORD AND WHICH IS RELEVANT FOR DETER MINING THE TAX LIABILITY OF THE ASSESSEE CORRECTLY. WE THEREFORE ADMIT THE ADDITIO NAL GROUND RAISED BY THE ASSESSEE. SINCE ADJUDICATION OF THE GROUND WILL RE QUIRE GOING INTO THE INCENTIVE SCHEME FRAMED BY THE UP GOVERNMENT WHICH WAS NOT AV AILABLE BEFORE THE LOWER AUTHORITIES, THE ISSUE IS RESTORED TO THE FILE OF T HE AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPO RTUNITY OF HEARING TO THE ASSESSEE. 5.18 RESPECTFULLY FOLLOWING THE DECISIONS CITED ABO VE WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AND RESTOR E THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE TH E ISSUE IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF SULZER INDIA LTD. REPORTED IN 47 DTR 329 WHEREIN IT HAS BEEN HELD THA T DEFERRED SALES TAX LIABILITY BEING DIFFERENCE BETWEEN THE PAYMENT OF T HE NET PRESENT VALUE AGAINST THE FUTURE LIABILITY CREDITED BY THE ASSESS EE UNDER THE CAPITAL RESERVE ACCOUNT IS A CAPITAL RECEIPT AND CANNOT BE TERMED A S REMISSION/CESSATION OF 22 LIABILITY AND CONSEQUENTLY NO BENEFIT IS ARISING TO THE ASSESSEE IN TERMS OF SECTION 41(1)(A) OF THE I.T. ACT. 1961. THE ASSESS ING OFFICER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND OF APPEAL NO.1 AND T HE ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO.2 BY THE ASSESSEE READS AS UNDER : 2. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENSES OF RS.13,95,263/- INCURRED BY THE APPELLAN T IN THE ORDINARY COURSE AND WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSIN ESS IN THE RELEVANT PREVIOUS YEAR BY COMING TO HOLD THAT THE EXPENSES WERE OF THE NAT URE OF CAPITAL EXPENDITURE. 6.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE IN THE PROFIT AND LOSS ACCOUNT HAS DEBITED AN AMOUNT OF ` 1,79,06,000 UNDER THE HEAD PRODUCT DEVELOPMENT EXPENSES WRITTEN OFF. IN THE COMPUTAT ION OF INCOME, THE ASSESSEE HAS ADDED BACK THE AMOUNT OF ` 1,65,10,737 AND THE BALANCE AMOUNT OF ` 13,95,263 HAS BEEN CLAIMED AS REVENUE EXPENDITURE. ON BEING ASKED BY THE ASSESSING OFFICER TO SUBMIT THE NOTE ON THE EXP ENDITURE AND TO FURNISH THE COPIES OF THE INVOICES AND THE EXPENDITURE CLAI MED AS REVENUE RECEIPT THE ASSESSEE REPLIED AS UNDER : THE PRODUCT DEVELOPMENT EXPENSES INCURRED ON NEW P RODUCTS ARE CAPITALIZED AND WRITTEN OFF OVER 5 YEARS. HOWEVER, THE PRODUCT DEV ELOPMENT EXPENSES INCURRED ON COMPONENTS FOR THE EXISTING RUNNING MODEL/PRODUCT I S CHARGED OFF DURING THE YEAR. THE AMOUNT OF ` 13.95 LAKHS WAS THE AMOUNT PAID TO IFB INDUSTRIES L TD. FOR THE DEVELOPMENT OF NEW BLOWER MOTORS FOR TATA MOTORS LT D. CARS LIKE INDICA AND INDIGO ETC.. 6.2 THE AO SPECIFICALLY ASKED THE ASSESSEE TO PRODU CE THE COPIES OF INVOICES RAISED BY IFB INDUSTRIES LTD. HOWEVER, NO BILLS WERE PRODUCED BY THE ASSESSEE. THE ASSESSEE ONLY SUBMITTED COPIES O F PURCHASE ORDER RAISED ON THE IFB INDUSTRIES LTD. ON PERUSAL OF THE PURCHASE ORDER THE ASSESSING OFFICER NOTED THAT THE ORDERS WERE RAISED ON 03-04- 2000 AND 13-04-2001. IT 23 IS NOT KNOWN AS TO HOW THE EXPENDITURE ON ACCOUNT O F ORDERS RAISED IN APRIL 2000 AND 2001 HAVE BEEN DEBITED BY THE ASSESSEE IN F.Y. 2003-04. SINCE THE ASSESSEE FAILED TO GIVE PROPER EXPLANATION AND FAIL ED TO PRODUCE THE INVOICES FOR WHICH EXPENSES HAVE BEEN DEBITED THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF ` 13,95,263. 6.3 BEFORE CIT(A) IT WAS SUBMITTED THAT THE SAID AM OUNT WAS PAID TO M/S IFB INDUSTRIES LTD. AGAINST PURCHASE ORDERS RAISED FOR GETTING THE COMPONENT IN QUESTION, I.E. BLOWER MOTOR, MANUFACTURED AND SU PPLIED TO THE ASSESSEE. THE ASSESSEE HAD GIVEN AN ADVANCE FOR GETTING THE C OMPONENTS WHICH WERE GIVEN IN THE ORDINARY COURSE OF CONDUCT OF BUSINESS , PURELY OUT OF BUSINESS EXPEDIENCY, AND IN PURSUANCE OF PURCHASE ORDER RAIS ED ON THE SUPPLIER AND THE TERMS AGREED UPON IN THE SAID PURCHASE ORDER. I T WAS FURTHER SUBMITTED THAT THE SAID ADVANCE WAS NOT IN CONNECTION WITH DE VELOPMENT OF ANY NEW PRODUCT. THE SUPPLIERS, NAMELY, IFB INDUSTRIES LTD. , FAILED TO DEVELOP THE COMPONENTS, I.E. MOTOR BLOWER AS PER THE ASSESSEE'S REQUIREMENT, THEREFORE, THE ADVANCE BECAME IRRECOVERABLE AND WAS ACTUALLY W RITTEN OFF UNDER THE HEAD PRODUCT DEVELOPMENT EXPENSES. 6.4 HOWEVER, THE LEARNED CIT(A) ALSO NOT CONVINCED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF T HE ASSESSING OFFICER BY HOLDING AS UNDER : 12. I HAVE GIVEN CAREFUL CONSIDERATION TO THE MATT ER, BUT I AM NOT CONVINCED BY THE APPELLANT'S EXPLANATION. THE APPELLANT HAD FAILED T O PROVIDE THE REQUISITE INFORMATION ALONG WITH PROOF WHICH SHOULD RIGHTLY H AVE PRESENTED BEFORE THE LEARNED AO AT THE ASSESSMENT STAGE. THE LEARNED AO HAS SPECIFICALLY RECORDED THAT THESE DETAILS WERE CALLED FOR, BUT NOT PROVIDED BY THE APPELLANT, NOR ANY EVIDENCE IN SUPPORT THEREOF WAS ADDUCED. FURTHER, THE EXPLAN ATION PROVIDED BY THE APPELLANT AT THE APPELLATE STAGE, IN MY VIEW, INJEC TS A NEW ELEMENT IN SO FAR AS THE AMOUNT IS NOW BEING CLAIMED TO BE AN IRRECOVERABLE DEBT. NOTABLY, THERE IS A SEPARATE HEAD IN THE ASSESSEE'S PROFIT & LOSS ACCOU NT FOR BAD DEBTS AND CERTAIN AMOUNTS HAVE ALSO BEEN CLAIMED BY THE ASSESSEE THER EUNDER. CONSIDERING THE TOTALITY OF FACTS, I AM OF THE VIEW EXPLANATION WHICH HAS BE EN PROVIDED BY THE APPELLANT 24 AT THE APPELLATE STAGE LACKS CREDIBILITY AND CANNOT BE RELIED UPON AND RELIEF GRANTED ON THAT BASIS. ACCORDINGLY, THE ADDITION IS SUSTAINED AND THIS GRO UND OF APPEAL IS HEREBY DISMISSED. 6.5 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 6.6 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001- 02 AND THE TRIBUNAL ON SIMILAR FACTS HAD HELD THAT PRIMA-FACIE THE EXPENSES WERE TOWARDS TESTING OF PRODUCTS MANUFACTURED BY TH E ASSESSEE. HOWEVER, THE MATTER WAS REMITTED TO THE FILE OF THE ASSESSIN G OFFICER FOR VERIFICATION. AS SUCH FACTUAL ASSERTION WAS NOT MADE BEFORE THE A SSESSING OFFICER. HE ACCORDINGLY SUBMITTED THAT THE ISSUE MAY BE SET-ASI DE TO THE FILE OF THE ASSESSING OFFICER IN THE LIGHT OF THE DIRECTION OF THE TRIBUNAL. 6.7 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO TH E FILE OF THE ASSESSING OFFICER. 6.8 AFTER HEARING BOTH THE SIDES WE FIND THE TRIBUN AL IN ASSESSEES OWN CASE IN ITA NO.779/PN/2010 ORDER DATED 26-03-2012 F OR A.Y. 2001-02 DISCUSSED THE ISSUE AND RESTORED THE ISSUE TO THE F ILE OF THE ASSESSING OFFICER BY HOLDING AS UNDER : 9 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE CRUX OF THE CONTROVERSY REVOLVES AROUND THE NATURE OF THE EXPEN DITURE OF RS 42,21,665/- WHICH HAS BEEN DEBITED IN THE ACCOUNT BOOKS UNDER T HE HEAD PRODUCT DEVELOPMENT EXPENDITURE. THE ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME-TAX (APPEALS) HAS TREATED THE SAME AS CAPITA L EXPENDITURE BY NOTICING THAT IT REPRESENTED SPECIAL DEVELOPMENT COST PAID T O THE FOREIGN COLLABORATOR BEHR GMBH & CO. GERMANY FOR PREPARATION OF DESIGN, DRAWINGS AND DEVELOPMENT OF PROTOTYPE SAMPLES. THE COMMISSIONER OF INCOME-TA X (APPEALS) HAS FURTHER SUPPORTED THE ACTION OF THE ASSESSING OFFICER BY OB SERVING THAT THE CLAIM WAS NOT INITIALLY MADE BY THE ASSESSEE IN ITS RETURN OF INC OME AND WAS MADE ONLY DURING 25 THE COURSE OF ASSESSMENT PROCEEDINGS (IN THE ACCOUN T BOOKS IT WAS TREATED AS DEFERRED REVENUE EXPENDITURE) AND, THEREFORE, THE C ONCLUSION OF THE ASSESSING OFFICER IN TREATING THE SAID EXPENDITURE AS CAPITAL EXPENDITURE HAS BEEN JUSTIFIED. IN SO FAR AS THE LATTER ASPECT IS CONCERNED, IN OUR CONSIDERED OPINION, THE CLAIM HAS TO BE VIEWED ON THE BASIS OF THE APPROPRIATE FA CTS AND LEGAL POSITION THERETO AND NOT ON THE BASIS IN WHICH THE ASSESSEE HAS MADE THE ENTRIES IN THE ACCOUNT BOOKS OR THE CLAIM HAVING BEEN MADE ONLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN OTHER WORDS, THE NATURE OF THE EXPE NDITURE IS TO BE DETERMINED ON THE BASIS OF THE APPLICABLE LEGAL POSITION ALONE . THEREFORE, THE STAND OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN REJECTING T HE CLAIM MERELY ON ACCOUNT OF THE ASSESSEE HAVING PUT-FORTH SUCH CLAIM ONLY AT THE TIME OF ASSESSMENT PROCEEDINGS, IS NOT DETERMINATIVE. SO, HOWEVER, BEF ORE PROCEEDING TO EXAMINE AS TO WHETHER THE EXPENDITURE QUALIFIES TO BE REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE, IT IS SINE QUA NON THAT APPROPRIATE FACTS ARE TAKEN INTO CONSIDERATION. 10. IN THIS CONNECTION, IT APPEARS FROM THE RECORD THAT BOTH THE AUTHORITIES BELOW HAVE PROCEEDED ON THE BASIS THAT THE EXPENDIT URE WAS INCURRED ON PAYMENT TO BEHR GMBH & CO. GERMANY FOR PREPARATION OF DESIGN, DRAWINGS AND DEVELOPMENT OF PROTOTYPE SAMPLES. OSTENSIBLY, THE S AID ASSUMPTION OF FACTS BY THE ASSESSING OFFICER IS ON THE BASIS OF THE STATEM ENTS MADE BY THE ASSESSEE. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) AND , IN A MORE DETAILED MANNER BEFORE US, IT HAS BEEN PLEADED THAT THE EXPE NDITURE WAS ON ACCOUNT OF PRODUCT TESTING AND VALIDATION AND WAS DISTINCT FRO M THE EXPENDITURE FOR PREPARATION OF DESIGN AND DRAWINGS AND DEVELOPMENT OF PROTOTYPE SAMPLES. IN OUR CONSIDERED OPINION, BEFORE ADDRESSING THE LEGAL ASPECTS OF THE CONTROVERSY, IT IS IMPERATIVE THAT THE COMPLETE AND TRUE PARTICULAR S OF THE EXPENDITURE ARE CULLED OUT. BEFORE US, THE ASSESSEE HAS SUBMITTED PHOTOCOP IES OF INVOICES RAISED BY BEHR GMBH & CO. GERMANY, WHICH HAVE BEEN PLACED AT PAGES 26 TO 67 OF THE PAPER BOOK, WHICH PRIMA FACIE SUPPORT THE ASSERTION OF THE ASSESSEE THAT THE EXPENDITURE IS TOWARDS TESTING OF THE PRODUCTS MANU FACTURED BY THE ASSESSEE. SO, HOWEVER, IT IS APPARENT THAT THE AFORESAID FACT UAL ASSERTION WAS NOT MADE BEFORE THE ASSESSING OFFICER. SUCH A PLEA, THOUGH I N A GENERALIZED FORMULATION, WAS MADE BEFORE THE COMMISSIONER OF INCOME-TAX (APP EALS) AS IT APPEARS FROM PARA 17 OF THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS). OF-COURSE THERE IS NO DETERMINATION ON THIS ASPECT MADE BY TH E COMMISSIONER OF INCOME- TAX (APPEALS) WHO HAS PROCEEDED ON THE SAME BASIS A S THAT OF THE ASSESSING OFFICER. BE THAT AS IT MAY, IN OUR VIEW, IT IS IMPE RATIVE THAT THE COMPLETE PARTICULARS OF THE EXPENDITURE ARE CULLED OUT AND S INCE THE SAME REQUIRES FACTUAL APPRECIATION, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. THE ORDERS OF THE AUTHORITIES BE LOW ARE ACCORDINGLY SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF THE ASSESS ING OFFICER, WHO SHALL CULL OUT THE APPROPRIATE FACTS AND THEREAFTER, DETERMINE THE NAT URE OF THE EXPENDITURE IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION, THE ASSES SING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD IN SUPPORT OF ITS CLAIM OF TREATING THE AMOUNT OF EXPENDITURE REPRESENTED BY R S 42,21,665/- AS A REVENUE EXPENDITURE. THE ASSESSING OFFICER SHALL CONSIDER T HE SUBMISSIONS AND MATERIAL THAT MAY BE PUT-FORTH BY THE ASSESSEE AND THEN ADJU DICATE THE MATTER IN ACCORDANCE WITH LAW. WE HOLD SO. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 26 6.9 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE WE RESTORE THE ISSUE TO THE FILE OF THE ASSESS ING OFFICER TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTION GIVEN TH EREIN. GROUND OF APPEAL NO.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STA TISTICAL PURPOSES. ITA NO.1014/PN/2010 (A.Y. 2005-06) (BY REVENUE) : 7. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE SET OFF OF UNABSORBED DEP RECIATION OF RS.26,26,633/- AND INCREASING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 10B OF THE I.T. ACT, 1961 TO THAT EFFECT? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF/THE C ASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT IN COMPUTING EXEMPTION WH ICH IS IN RESPECT OF PROFITS AND GAINS OF A HUNDRED PERCENT EXPORT ORIENTED UNIT ONLY, THERE IS NO SCOPE FOR SET OFF OF UNABSORBED DEPRECIATION OF EARLIER YEARS OF THE NON-EOU UNIT WITHOUT APPRECIATING THAT THERE IS NO SUCH PROVISION IN THE ACT? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) HAS ERRED IN RELYING ON THE DECISION OF THE HON'BLE ITAT IN THE CASE OF SCIENTIFIC ATLANTA INDIA TECHNOLOGY PVT. LTD.(2010) TIOL 534 I TAT(MAD.) SPL. BENCH? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS FAILED IN APPRECIATING THE FACT THAT THE ACT DOES N OT HAVE A PROVISION TO ENTITLE THE ASSESSEE NON SET OFF OF THE UNABSORBED DEPRECIATION ? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE A.O. HAS RIGHTLY SET OFF THE UNABSORBED DEPRECIATION OF THE EARLIER YEARS OF THE NON-EOU UNIT AGAINST TH E PROFITS OF EOU UNIT? 7.1 AFTER HEARING BOTH THE SIDES WE FIND THE ABOVE GROUNDS BY THE REVENUE ARE IDENTICAL TO GROUNDS OF APPEAL NO. 1 TO 6 IN ITA NO.1352/PN/2010. WE HAVE ALREADY DECIDED THE ISSUE S AND THE GROUNDS RAISED BY THE REVENUE HAVE BEEN DISMISSED. FOLLOWI NG THE SAME REASONING THE ABOVE GROUNDS BY THE REVENUE ARE DISMISSED. ITA NO.1013/PN/2010 (A.Y. 2005-06) (BY ASSESSEE) : 8. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN REJECTING THE APPELLANTS CLAIM FOR DEDUCTION OF EX PENDITURE INCURRED RS.1,42,62,575/- (RS.1,24,79,754/- NET OF DEPRECIAT ION) FOR THE IMPROVISATION AND 27 TESTING OF APPELLANTS PRODUCTS BEING REVENUE EXPEN DITURE INCURRED IN THE SAID A.Y. IN THE ORDINARY COURSE AND ON AN ONGOING BASIS IN T HE CONDUCT OF APPELLANTS BUSINESS. 8.1 AFTER HEARING BOTH THE SIDES WE FIND THE ABOVE GROUND IS IDENTICAL TO GROUND OF APPEAL NO. 2 IN ITA NO.1375/PN/2010. WE HAVE DECIDED THE ISSUE IN THE PRECEDING PARAS 6.8 AND 6.9 AND THE MA TTER HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRE CTIONS. FOLLOWING THE SAME RATIO, THIS GROUND BY THE ASSESSEE IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. GROUND OF APPEAL N O.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN REJECTING THE APPELLANTS CLAIM FOR DEDUCTION OF EX PENSES INCURRED IN THE ORDINARY COURSE OF CONDUCT OF BUSINESS RS.59,39,334/- ON SOF TWARE SUPPORT AND LICENSE USER FEES PAID FOR CHANGES TO THE EXISTING CAPITALISED S OFTWARE BY THE APPELLANT FOR SMOOTH AND EFFECTIVE RUNNING OF THE DAY TO DAY BUSI NESS OPERATIONS OF THE APPELLANT. 9.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE HAD REMITTED A SUM OF RS.76,75,184/- TO M/S. BEHR GMBH & CO. FOR XPPS (SOFTWARE). HE NOTED THAT IN THE IMMEDIATELY PRECEDING A.Y. 2004-05 THE PAYMENTS MADE TO M/S. BEHR GMBH & CO. FOR THE SOFTWARE EXPENSES WERE PART OF REPAIRS AND MAINTENANCE. TOTAL AMOUNT OF REPAIRS AND MAINTENAN CE WAS SHOWN IN THE YEAR AT RS.90,22,256/- OUT OF WHICH RS.48,26,255/- WERE RELATED TO SOFTWARE EXPENSES. THESE SOFTWARE EXPENSES WERE CAPITALISED BY THE THEN ASSESSING OFFICER. THE ASSESSING OFFICER NOTED THAT IN THE I MPUGNED ASSESSMENT YEAR THE ASSESSEE HAS MADE PAYMENTS TO M/S. BEHR GMBH & CO. FOR THE SOFTWARE DEVELOPMENT AND THE ENTIRE PAYMENT REPRESENTS CHARG ES FOR SOFTWARE AND THEREFORE IT IS IN THE NATURE OF CAPITAL EXPENDITUR E. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TATA CONSULTAN CY SERVICES VS. STATE 28 OF A.P. REPORTED IN 277 ITR 401 AND THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ARAVALI CONSTRUCTION C O. PVT. LTD., REPORTED IN 259 ITR 30 THE ASSESSING OFFICER TREATED THE ENTIRE EXPENSES OF RS.76,75,184/- AS CAPITAL IN NATURE. HE, HOWEVER, ALLOWED DEPRECIATION @60% AND 30% AS THE CASE MAY BE AND MADE ADDITION O F RS.53,72,628/-. 9.2 IN APPEAL THE LD.CIT(A) HELD THAT AN AMOUNT OF RS.59,39,334/- HAS TO BE HELD AS CAPITAL EXPENDITURE AND THE BALANCE AMOU NT WAS HELD BY HIM AS REVENUE EXPENDITURE. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 9.3 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENSES OF SOFTWARE SUPPORT AND LICENSE FEES ARE INCURRED BY T HE ASSESSEE TO FACILITATE ITS BUSINESS OPERATIONS AND ENABLE THE ASSESSEE TO COND UCT ITS BUSINESS MORE EFFECTIVELY, SMOOTHLY AND EFFICIENTLY. REFERRING T O THE DETAILS OF SOFTWARE SUPPORT AND LICENSE USER FEES PLACED AT PAPER BOOK PAGES 98 TO 100 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAS NOT ACQUIRED ANY RIGHT OR INTEREST IN THE PROPERTY AND THE EXPENSES ARE PURELY REVENUE IN NATURE. REFERRING TO THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. RAYCHEM RPG LTD. REPORTED IN 316 ITR 138 HE SUBMITTED THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES THE HONBLE H IGH COURT HAS HELD THAT THE SOFTWARE EXPENSES ARE ALLOWABLE AS REVENUE EXPE NSES. 9.4 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 9.5 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE ASSESSING OFFICER FOLLOWING HIS ORDER FOR A.Y. 2004-05 TREATED THE ENTIRE EXPENSES OF RS.76,75,183/- AS CAPITAL IN NAT URE AND ALLOWED 29 DEPRECIATION ON THE SAME. WE FIND THE LD. CIT(A) H ELD THAT AN AMOUNT OF RS.59,39,334/- ONLY HAS TO BE TREATED AS CAPITAL EX PENDITURE AND HE ALLOWED THE BALANCE AMOUNT AS REVENUE EXPENDITURE. THE REVE NUE IS IN NOT IN APPEAL FOR THE AMOUNT ALLOWED BY THE LD. CIT(A) AS REVENUE EXPENDITURE. THEREFORE, THE ONLY QUESTION THAT REMAINS TO BE ANS WERED IS THE TREATMENT OF AMOUNT OF RS.59,39,334/- WHICH ACCORDING TO THE ASS ESSEE IS REVENUE IN NATURE AND WHICH ACCORDING TO LD. CIT(A) IS CAPITAL IN NATURE. 9.6 THE ASSESSEE HAS FILED THE DETAILS OF SOFTWARE SUPPORT AND LICENSE USER FEES. FROM THE DETAILS WE FIND THE AMOUNT OF RS.28 ,55,847/- VIDE INVOICE NO.39066597 DATED 30-08-2004 RELATES TO IT SUPPORT FOR XPPS (ERP SYSTEM), USER LICENSE FEE FOR (INTERNET, CAE SOFTWA RE, LOTUS NOTES, EDM, IPD SOFTWARE). SIMILARLY THE BALANCE AMOUNT OF RS. 30,83,487/- VIDE INVOICE NO. 39067633 ALSO RELATES TO THE SAME AS MENTIONED ABOVE. 9.7 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RAYCHEM RPG LTD. HAS ALLOWED THE CLAIM OF THE SOFTW ARE EXPENDITURE BY THE ASSESSEE AS REVENUE EXPENDITURE. THE RELEVANT OBSE RVATION OF THE HONBLE HIGH COURT READS AS UNDER : 2. AS REGARDS THE FIRST QUESTION, ITAT RELYING UPO N ON ITS ORDER IN THE ASSESSEE'S OWN CASE RELATING TO ASSESSMENT YEAR 2001-02 HELD T HAT THE SOFTWARE EXPENDITURE WAS A REVENUE EXPENDITURE. THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2001 AND 2002 HAS BEEN DISMISSED FOR WANT OF R EMOVAL OF OFFICE OBJECTIONS AND THUS THE ORDER PASSED BY THE ITAT FOR THE ASSES SMENT YEAR 2001-2002 HAS ATTAINED FINALITY. MOREOVER, THE TRIBUNAL IN ITS OR DER RELATING THE ASSESSMENT YEAR 2001-02 HAS ALLOWED EXPENDITURE AS REVENUE EXPENDIT URE BY RECORDING THUS: '7. WHEN WE APPLY THIS FUNCTIONAL TEST SUGGESTED BY THE SPECIAL BENCH OF THE TRIBUNAL, WE FIND THAT IMPUGNED SOFTWARE DOES N OT FORM PART OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE AND HENCE T HE SAME IS TO BE DISALLOWED A REVENUE EXPENDITURE. WE HOLD SO BECAUS E WE FIND THAT THE BUSINESS OF THE ASSESSEE COMPANY IS THAT OF MANUFAC TURING OF TELECOMMUNICATION AND POWER CABLE ACCESSORIES AND T RADING IN OIL RETRACING SYSTEM AND OTHER PRODUCTS AND IMPUGNED SO FTWARE IS AN ENTERPRISES RESOURCES PLANNING (ERP) PACKAGE AND HE NCE IT FACILITATE THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAG EMENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFIT ABLY BUT IT IS NOT IN THE NATURE OF PROFIT MAKING APPARATUS. WE, THEREFORE, D ECIDE THIS ISSUE ALSO IN 30 FAVOUR OF THE ASSESSEE AND WE HOLD THAT THIS EXPEND ITURE OF RS.20.60 LAKHS IS OF REVENUE EXPENDITURE. WE HOLD SO BY FOLLOWING THE JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL RELIED UPON BY THE LD AR OF THE ASSESSEE.' 3. IN OUR VIEW, NO FAULT CAN BE FOUND IN THE AFORES AID ORDER OF ITAT HOLDING THAT SOFTWARE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPEN DITURE. 9.8 RESPECTFULLY FOLLOWING THE DECISION OF THE JURI SDICTIONAL HIGH COURT CITED (SUPRA) WE HOLD THAT THE SOFTWARE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THIS GRO UND BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 10. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE RE ADS AS UNDER : THE LD. ASSESSING OFFICER (ACIT, RANGE-8, PUNE) OU GHT TO HAVE EXCLUDED FROM THE TOTAL INCOME OF THE APPELLANT THE AMOUNT OF NOT IONAL SURPLUS OF RS.8,65,69,314/- DUE TO PREMATURE PAYMENT OF DEFERR ED SALES TAX LOAN AT NET PRESENT VALUE FOR THE A.Y. 2005-06 10.1 AFTER HEARING BOTH THE SIDES WE FIND THE ADDIT IONAL GROUND BY THE ASSESSEE IS IDENTICAL TO THE ADDITIONAL GROUND RAIS ED BY THE ASSESSEE IN ITA NO.1375/PN/2010. WE HAVE ADMITTED THE ADDITIONAL G ROUND RAISED BY THE ASSESSEE AND THE MATTER HAS BEEN RESTORED TO THE FI LE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH. FOLLOWING THE SAME RATIO, WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AND RESTOR E THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION OF THE SAME IN THE LIGHT OF OUR DIRECTION IN ITA NO.1375/PN/2010. 11. IN THE RESULT, ITA NO.1352/PN/2010 AND ITA NO.1 014/PN/2010 ARE DISMISSED AND ITA NO.1375/PN/2010 AND ITA NO.1013/P N/2010 ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 6 TH DAY OF MAY 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 6 TH MAY 2013 SATISH 31 COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-V, PUNE 4 THE CIT-V, PUNE 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE