MAHINDRA & MAHINDRA LTD, MUMBAI V. ADDL CIT CIR 2(2), MUMBAI

ITA 1448/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8408 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Assessee Lawyers: HARISH MAHAJAN
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Rule of consistency; Notional interest; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 143(1); 201; 80IC; 80IC; 48; 13; 22; 92CA; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI, BENCH J BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI M BALAGANESH, ACCOUNTANT MEMBER (VIRTUAL HEARING) ITA NO. 1448/MUM/2016 ASSESSMENT YEAR : 2005 2006 MAHINDRA & MAHINDRA LTD., MAHINDRA TOWERS, WORLI, MUMBAI 400 018 PAN AAACM3025E VS ADDL CIT CIRCLE 2(2)(2), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 4647/MUM/2016 ASSESSMENT YEAR : 2005 2006 ADDL CIT CIRCLE 2(2)(2), MUMBAI VS MAHINDRA & MAHINDRA LTD., MAHINDRA TOWERS,WORLI, MUMBAI 400 018 PAN AAACM3025E (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI HARISH MAHAJAN -AR FOR THE REVENUE : SHRI A MOHAN CIT-DR DATE OF HEARING : 23.06.2020 DATE OF PRONOUNCEMEN T : 29.06.2020 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: 1. THESE CROSS APPEAL ARE DIRECTED AGAINST THE ORDER O F LEARNED COMMISSIONER OF INCOME TAX-57, MUMBAI (LD CIT), DAT ED 29.12.2015 FOR ASSESSMENT YEAR 2005-06. 2. THE REVENUE IN ITS APPEAL IN ITA NO. 4647/MUM/2016 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS 33,99,000/ - MADE BY THE ASSESSING OFFICER BEING THE PROVISION FOR PENDING LABOUR DEMA ND WITHOUT APPRECIATING ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 2 THAT THE SAME WAS CONTINGENT IN NATURE AND ONLY AN ESTIMATED LIABILITY REGARDING INCREMENTAL WAGES BEFORE THE FINAL AGREEM ENT WAS ENTERED INTO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING PRORATE PREMIUM OF RS.13.03 C RORES PAYABLE ON REDEMPTION OF FOREIGN CURRENCY CONVERTIBLE BONDS (F CCB) WITHOUT APPRECIATING THAT THESE BONDS ARE FULLY CONVERTIBLE INTO EQUITY SHARES OF THE COMPANY AND THEREFORE, SUCH EXPENSES ARE TO BE TREA TED AS CAPITAL EXPENDITURE, 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE QT(A) HAS ERRED IN ALLOWING EXPENDITURE OF RS.3.77 CRORES INCURRED BY THE ASSESSEE COMPANY IN RELATION TO ISSUE OF FOREIGN CURRENCY BO ND WHICH ARE FULLY CONVERTIBLE INTO THE EQUITY SHARES OF THE COMPANY AND THEREFORE, SUCH EXPENSES ARE TO BE TREATED AS CAPITAL EXPENDITURE AS SUCH EX PENDITURE LEADS TO ENHANCEMENT OF THE CAPITAL STRUCTURE OF THE COMPANY , 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE C IT(A) HAS ERRED IN ALLOWING THE DISCOUNT ON ISSUE OF EMPLOYEE STOCK OP TION SCHEME IN ACCORDANCE WITH THE PRINCIPLE LAID DOWN BY THE BANGALORE SPECI AL BENCH IN THE CASE OF BIOCON LTD (ITA N0.248, 368 TO 371 & 1206/BAN/2010) , WHEN THE DECISION HAS NOT BEEN ACCEPTED AND FURTHER APPEAL HAS BEEN FILED BEFORE THE KARNATAKA HIGH COURT ON THIS ISSUE. 3. THE ASSESSEE IN ITS CROSS APPEAL IN ITA NO. 1448/MU M/2016 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: GROUNDS OF APPEAL BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISSI ONER OF INCOME TAX (APPEALS) [CIT(A)] 57, MUMBAI THE APPELLANT SUBMITS - FOLLOWING GROUNDS OF APPEAL FOR YOUR SYMPATHETIC CONSIDERATION : 1. ADJUSTMENT U/S 92CAF3) ARM'S LENGTH PRICE OF IN TERNATIONAL TRANSACTIONS - INTEREST ON DELAYED RECEIVABLE - ADJUSTMENT OF RS . 36.89,8607- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE APPELLANT CONTENDS THAT CIT(A) ERRED IN CONFIRMING THE ADJUST MENT OF RS. 36,89,860 MADE TO THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION S BY THE TRANSFER PRICING OFFICER AS PER ORDER MADE U/S 92CA OF THE ACT ON AC COUNT OF DELAYED RECOVERY OF TRADE RECEIVABLES OF INTERNATIONAL TRANSACTIONS WITH AN ASSOCIATED ENTERPRISES. THE ADDITION BE DELETED. WITHOUT PREJUDICE, THE LEARNED CIT(A) OUGHT TO HAVE APPLIED THE RATE OF 2 % BEING RATE OF BORROWING UNDER EXPORT PACKING CREDIT OR ANY OTHER LOWER RATE OF INTEREST INSTEAD OF THE RATE OF 6.75% APPLIED BY TH E TPO BEING THE AVERAGE COST OF CAPITAL TO THE APPELLANT. 2. DISALLOWANCE U/S. 40AF9) - RS. 5,62,886 REPRES ENTING THE ACTUAL EXPENSES INCURRED AND RS. 13,01,000/- BEING CONTRIBUTION TO MAHINDRA ACADEMY A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE APPELLANT CONTENDS THAT THE LEARNED CIT(A) ERRED IN CONFIRMIN G DISALLOWANCE OF DEDUCTION ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 3 OF RS. 5,62,886/-, BEING THE ACTUAL EXPENDITURE INC URRED DURING THE YEAR ON EMPLOYEE WELFARE. B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE APPELLANT CONTENDS THAT THE LEARNED CIT{A) ERRED IN CONFIRMIN G DISALLOWANCE OF A SUM OF RS 13,01,000V- REPRESENTING AMOUNT PAID TO MAHINDRA ACADEMY. THE APPELLANT CONTENDS THAT THE SCHOOL RUN BY MAHINDRA ACADEMY WA S FOR THE BENEFIT OF NOT ONLY FOR COMPANY'S EMPLOYEES BUT FOR OTHER LOCAL RE SIDENTS ALSO. PROVISIONS OF SECTION 40A(9) ARE NOT APPLICABLE TO EITHER OF THE ABOVE PAYMENTS. 3. PROVISION FOR WARRANTIES - RS. 37,41,07,000 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF PROVISION F OR WARRANTIES AS ON 31 -03- 2005 AS BEING IN THE NATURE OF A CONTINGENT LIABILI TY REJECTING THE CONTENTION OF THE APPELLANT THAT THE PROVISION WAS MADE ON A SCIE NTIFIC BASIS AND WAS HENCE ALLOWABLE. 4. EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT - RS. 6.03,65,475/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF ACIT IN DISAL LOWING THE FOLLOWING SUMS TREATING THE SAME AS CAPITAL EXPENDITURE A) EXPENDITURE OF RS. 87,06,882/- RELATED TO JOINT VENTURE WITH RENAULT B) EXPENDITURE OF RS. 3,89,82,5967- RELATED TO JOIN T VENTURE WITH JIANGLING TRACTORS C) PROFESSIONAL FEE PAID RS. 58,00,0007- TOWARDS PR OJECT 'ALPHA/DELTA' D) TRAVEL EXPENSES OF RS. 64,10,529/- IN RELATION T O MERGERS AND ACQUISITIONS E) PROJECT EXPENSES WRITTEN OFF - RS. 4,65,468/- 5. EURO IV PROJECT EXPENSES - RS. 59,12,167 ( DISAL LOWANCE NET OF DEPRECIATION RS. 44,34,126/-) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF ACIT IN NOT A LLOWING FULL DEDUCTION IN RESPECT OF EXPENDITURE OF RS. 59,12,167 INCURRED IN RESPECT OF TECHNICAL ASSISTANCE AGREEMENT ENTERED INTO WITH AVL LIST GMB H TREATING THE SAME AS BEING CAPITAL IN NATURE THEREBY ALLOWING ONLY DEPRE CIATION U/S. 32 OF THE ACT. WITHOUT PREJUDICE TO ABOVE, THE CIT (A) OUGHT TO HA VE ALLOWED THE ABOVE SUM AS A DEDUCTION U/S.35 OF THE ACT. 6. DEVELOPMENT EXPENSES - HORIZON III & IV PROJECT TRACTORS - RS. 1.56.20.605 DISALLOWANCE NET OF DEPRECIATION RS. 1, 36,68.030/-) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ACIT IN N OT ALLOWING DEDUCTION FOR DEVELOPMENT EXPENSES OF RS. 1,56,20,6057- AND INSTE AD ALLOWING ONLY DEPRECIATION U/S. 32 OF THE ACT. WITHOUT PREJUDICE TO ABOVE, THE CIT (A) OUGHT TO HA VE ALLOWED THE ABOVE SUM IN ITS ENTIRETY AS A DEDUCTION U/S. 35 OF THE ACT. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 4 WITHOUT PREJUDICE TO THE ABOVE. THE APPELLANT FURTH ER CONTENDS THAT, IN ANY EVENT, THE CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 94,92,5477- INCLUDED IN THE ABOVEMENTIONED AMOUNT BEING EXPENDITURE INCU RRED BY THE APPELLANT BY WAY OF PERSONNEL COST IN RESPECT OF COMPANY'S OWN P ERSONNEL WORKING FOR THE PROJECT AND CERTAIN OTHER EXPENDITURE LIKE MATERIAL COST AND OTHER OVERHEADS RELATING TO THE PROJECT. 7. EXPENSES ON PROJECT MANAGEMENT OF CYLINDRICAL BLOCK - RS. 9.00,000 (DISALLOWANCE NET OF DEPRECIATION BEING RS. 7,87,50 0/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF ACIT IN NOT A LLOWING DEDUCTION AS REVENUE EXPENDITURE IN RESPECT OF EXPENSES ON PROJECT MANAG EMENT OF CYLINDRICAL BLOCK OF RS. 9,00,000 AND THEREBY ALLOWING ONLY DEPRECIAT ION U7S. 32 OF THE ACT. 8. WAIVER OF LIABILITY ON PREPAYMENT OF SICOM LOA N RS. 21.25,12,643/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF ACIT IN BRING ING TO TAX AN AMOUNT OF RS. 21,25,12,6437- BEING THE SUM WHICH WAS WAIVED ON PR EPAYMENT OF SICOM LOAN, TREATING THE SAME AS REVENUE INCOME . THE LEARNED CIT(A) ERRED IN NOT APPLYING THE RATIO OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCITVS. SULZER INDIA LTD. 42 SOT 457 (2010),134 TTJ 385 (MUM SB) AS CONFIRMED BY THE BOM BAY HIGH COURT VIDE ORDER DATED 5 TH DECEMBER.2014 WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. THE CONTENTION OF THE APPELLANT THAT THE AMOUNT IN QUESTION WAS A CAPITAL RECEIPT NOT EXIGIBLE TO TAX BE ACCEPTED. 9. SPECIAL PENSION - RS. 52,85.600/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ACIT OF D ISALLOWING RS. 52,85,6007- [TOTAL EXPENDITURE OF RS. 66,06,8787- LESS ALLOWED RS. 13,21,4007- (BEING 175TH OF 66,06,8787-) U7S. 35DDA] REJECTING THE CONTENTIO NS OF THE APPELLANT THAT THE LIABILITY SO DETERMINED BY ACTUARIAL VALUATION WAS FULLY ALLOWABLE IN THE YEAR UNDER APPEAL. 10. INTEREST ON INCOME-TAX REFUND RS. 100,80,000/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE APPELLANT CONTENDS THAT THE CIT(A) ERRED IN UPHOLDING THE ACT ION OF THE ACIT AND THEREBY NOT ACCEPTING ITS CONTENTION THAT INTEREST ON INCOM E TAX REFUND ARISING OUT OF INTIMATION PASSED U7S 143(1) WAS NOT TAXABLE IN THE YEAR OF ISSUE OF INTIMATION AS SUCH INTEREST WAS PROVISIONAL IN NATURE AND LOSE S ITS IDENTITY ONCE A FINAL REFUND 7 DEMAND GETS DETERMINED BASED ON THE ASSESS MENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 5 11. DISALLOWANCE OF DEDUCTION UNDER SECTION 80IC-RS . 6,47,00,000/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE APPELLANT CONTENDS THAT THE CIT (A) ERRED IN CONFIRMING ACTIO N OF THE ACIT IN RESTRICTING THE DEDUCTION U/S 80-IC TO RS. 7.35 CRORES AS AGAIN ST RS. 13.82 CRORES CLAIMED BY THE APPELLANT. WITHOUT PREJUDICE TO THE ABOVE THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE BY OBSERVING THAT THE APPELLANT HAS FAILED TO 'SHOW THAT SUBSTANTIAL EXPANSION HAD HAPPENED WHEN IN FACT, THAT WAS NOT REASON FOR THE PARTIAL DISALLOWANCE BY THE AO. IN ANY EVENT THE SAID OBSERVATION IS FACTUA LLY INCORRECT. 12. DISALLOWANCE OF CAPITAL LOSS ON SALE OF R&D ASS ETS OF RS. 73.42,5167- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF CLAIM FOR DEDUCTION OF C APITAL LOSS ON SALE OF R&D ASSETS OF RS. 73,42,516 AND THEREBY NOT ACCEPTING T HE APPELLANT'S CONTENTION THAT SUCH LOSS WAS CORRECTLY CLAIMED UNDER THE PROV ISIONS OF ACT. 4. BRIEF FACTS OF THE CASE AS GATHERED FROM THE ORDERS OF LOWER AUTHORITIES THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND SALE OF ON-ROAD AUTOMOBILES, AGRICULTURAL TRACTOR, IMPLEMEN TS, ENGINE PARTS AND ACCESSORIES OF MOTOR VEHICLE, RENDERING SERVICES, P ROPERTY DEVELOPMENT ACTIVITY, FINANCING, INVESTMENT AND TRANSPORT SOLUT IONS, FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 28 OCTOB ER 2005, DECLARING THE TOTAL INCOME OF 545,57,72,052/-. THE RETURN OF INCOME WAS ACCOMPANIED BY AUDIT REPORT IN FORM 3CEB, REPORTING INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES, AS REQ UIRED UNDER SECTION 92E. ON REPORTING INTERNATIONAL TRANSACTION BEYOND THE P RESCRIBED LIMIT, THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PR ICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP). THE TPO VID E ITS ORDER DATED 31 JANUARY 2008 SUGGESTED ADJUSTMENT OF 36,89,860/- ON ACCOUNT OF THE LATE PAYMENT OF RECOVERY OF COST OF CAPITAL FROM AS SOCIATED ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 6 ENTERPRISES(AE). ON RECEIPT OF ORDER OF TPO THE ASS ESSING OFFICER PASSED DRAFT ASSESSMENT ORDER BY MAKING VARIOUS OTHER ADDI TIONS AND DISALLOWANCES ON CORPORATE ISSUES. 5. THE ASSESSEE INSTEAD OF FILING OBJECTION BEFORE DIS PUTE RESOLUTION PANEL (DRP), EXERCISED ITS OPTION FOR FILING APPEAL BEFOR E COMMISSIONER OF INCOME TAX (APPEALS) {CIT(A)}. THE LEARNED CIT(A) G RANTED PARTIAL RELIEF TO THE ASSESSEE WITH REGARD TO ADDITION ON A CCOUNT OF PENDING LABOUR DEMAND, ALLOWED PRORATE PREMIUM ON DEDUCTION OF FOR EIGN CURRENCY CONVERTIBLE BONDS (FCCB), ALLOWED EXPENDITURE ON FC CB AND ALSO ALLOWED DISCOUNT ON ISSUE OF EMPLOYEE STOCK OPTION SCHEME (ESOP), HOWEVER THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AND OTHER ADDITIONS/DISALLOWANCE IS WERE UPHELD. THUS, FURTHE R AGGRIEVED THE ASSESSEE HAS FILED ITS APPEAL, THE REVENUE ALSO FIL ED IT CROSS APPEAL AGAINST DELETING THE VARIOUS ADDITIONS/ DISALLOWANCES. 6. WE HAVE HEARD THE SUBMISSION OF LEARNED AUTHORIZED REPRESENTATIVE (AR) FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRE SENTATIVE (DR) FOR THE REVENUE AND CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW. 7. AT THE OUTSET OF HEARING THE LEARNED AUTHORIZED REP RESENTATIVE (LD AR) FOR THE ASSESSEE SUBMITS THAT ALL THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THEIR APPEAL ARE COVERED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE BY THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE OR THE ORDERS OF THE HIGHER COURTS. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT IN ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 7 ASSESSEES APPEAL MOST OF THE GROUNDS OF APPEAL ARE COVERED EITHER IN FAVOUR OF THE ASSESSEE OR AGAINST THE ASSESSEE. TH E ASSESSEE HAS ALREADY FILED SHORT WRITTEN NOTES NARRATING THE VARIOUS GRO UNDS OF APPEAL AND THE REFERENCE OF THE ORDERS OF TRIBUNAL OR THE HIGHER C OURTS, BY WHICH THE VARIOUS GROUNDS OF APPEAL ARE COVERED. THE LD. DR FOR THE REVENUE ACCEPTED THAT HE HAS ALREADY RECEIVED THE SHORT WRI TTEN NOTES FURNISHED BY THE ASSESSEE. IN VIEW OF THE AFORESAID BACKGROUND, FIRSTLY, WE SHALL DISCUSS THE VARIOUS GROUND OF APPEAL RAISED BY REVE NUE IN ITS APPEAL. ITA NO. 4647/M/2016 BY REVENUE . 8. GROUND NO-1 IS GENERAL AND NEED NO ADJUDICATION. GR OUND NO. 2 RELATES TO DELETING THE ADDITION OF RS 33,99,000/- BEING THE P ROVISION FOR PENDING LABOUR DEMAND. THE LD AR FOR THE ASSESSEE SUBMITS T HAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN AS SESSEES OWN CASE FOR AY 2006-07,IN ITA NO.8597/MUM/2010, WHEREIN THE SI MILAR RELIEF WAS ALLOWED BY THE TRIBUNAL. 9. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE AS SESSING OFFICER MADE THE DISALLOWANCE OF RS. 33,99,000/- BY TAKING VIEW THAT IT IS CONTINGENT IN NATURE. THE LD CIT(A) ALLOWED RELIEF TO THE ASSESSE E BY FOLLOWING THE DECISIONS OF TRIBUNAL 1992-93 TO 1998-99. WE HAVE S EEN THAT THE ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 8 COORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 8597/MUM/2010, ON SIMILAR SET OF FACTS PASS ED THE FOLLOWING ORDER; 10.GROUND NUMBER 10 IS ABOUT TO THE PROVISION FOR P ENDING LABOUR DEMAND AMOUNTING TO RUPEES 78.45 LAKHS. AS PER THE AO PROV ISION FOR LABOUR DEMAND WAS UNDER NEGOTIATION AT CERTAIN LOCATIONS O F THE COMPANY AND ULTIMATE SETTLEMENT WAS CONTINGENT ON THE CONCLUSIO N OF THE NEGOTIATIONS. AS PER THE AO IN THE ANNUAL GENERAL BODY MEETING SA ID LIABILITY WAS ACCEPTED AS CONTINGENT IN NATURE. RELYING UPON THE CASE OF I NDIAN MOLASSES CO. PVT. LTD HE DISALLOWED THE SAID AMOUNT. 10.1.THE AR SUBMITTED THAT TRIBUNAL HAD DECIDED THE ISSUE IN ITS FAVOUR FOR THE ASSESSMENT YEARS. 1992-93 TO 1996-1997.HE ALSO REFERRED TO THE DECISION OF THE HON'BLE, HIGH COURT OF BOMBAY IN THE CASE OF UNITED MOTORS. DR SUPPORTED THE ORDER OF THE AO. FROM THE RECORDS, IT IS CLEAR THAT THE ISSUE IN QUE STION HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN EARLIER YEARS. FOR THE AY 1996-97 MUMBAI TRIBUNAL DECIDED THE ISSUE OF PROVISION FOR PENDING LABOUR DEMAND AS UNDER : '...THAT THE DEDUCTION IS ALLOWABLE IN RESPECT OF T HE ESTIMATED LIABILITY REGARDING INCREMENTAL WAGES BEFORE THE FINAL AGREEM ENT WAS ENTERED IN TO.' WHILE DECIDING THE SAID ISSUE TRIBUNAL RELIED UPON THE JUDGMENT OF UNITED MOTORS AND THE APPELLATE ORDERS. FOR EARLIER YEARS OF THE ASSESSEE. 10.2. RESPECTFULLY FOLLOWING THE ORDERS OF THE EARL IER YEARS IN ASSESSEE'S OWN CASE AND THE PRINCIPLES ENUMERATED BY THE HON'BLE H IGH COURT OF BOMBAY WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 11. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE, WHEREIN THE SIMILAR RELIEF IS ALLOWED TO THE ASSESSEE, THUS, RE SPECTFULLY FOLLOWING THE SAME WE DO NOT FIND ANY ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY LEARNED CIT(A). IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 9 12. GROUND NO. 3 RELATES TO DELETING THE ADDITION OF RS 13,03,51,586/- BEING PRORATE PREMIUM PAYABLE ON REDEMPTION OF FOREIGN CURRENCY CONVERTIBLE BOND (FCCB). THE LD AR FOR THE ASSESSEE SUBMITS THAT TH IS GROUND OF APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN AS SESSEES OWN CASE FOR AY 2006-07, IN ITA NO.8597/MUM/2010, WHEREIN THE S IMILAR RELIEF WAS ALLOWED BY THE TRIBUNAL. 13. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE AS SESSING OFFICER DISALLOWED THE PREMIUM PAID ON FCCB HOLDING THAT BE ING CAPITAL AND CONTINGENT. THE LEARNED CIT(A) ALLOW RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL IN EARLIER YEARS. WE HAVE SEEN THAT THE COORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 200 6-07 IN ITA NO. 8597/MUM/2010, ON SIMILAR SET OF FACTS PASSED THE F OLLOWING ORDER; 5.NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF P RO RATA PREMIUM OF RS.5.39 CRORES PAYABLE ON REDEMPTION OF 'FOREIGN CU RRENCY CONVERTIBLE BONDS'(FCCB).AS PER THE AO THE BONDS WERE CONVERTIB LE INTO SHARES AND, THEREFORE, COULD NOT BE CONSTRUED AS A BORROWING, T HAT THEY INCREASED CAPITAL BASE OF THE COMPANY AND THAT THE EXPENDITURE INCURR ED WAS CAPITAL IN NATURE. THE AR SUBMITTED THAT FCCB WERE A FORM OF B ORROWING THAT THEY WERE SHOWN IN THE BALANCE- SHEET UNDER LOANS THAT P REMIUM PAYABLE ON REDEMPTION WAS COST OF BORROWING, THAT OPTION OF CO NVERSION OF BONDS INTO SHARES WAS ONLY WITH THE BOND HOLDERS, THAT CONVERS ION WAS A SUBSEQUENT EVENT WHICH DID NOT CHANGE THE INITIAL CHARACTER OF THE BONDS OF A DEBT, THAT ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 10 IN THE EVENT OF REDEMPTION PAYMENT OF PREMIUM WAS M ANDATORY, THAT PREMIUM BEING A COST OF BORROWING WAS ALLOWABLE ON TIME, THAT PREMIUM WAS NEITHER CAPITAL NOR CONTINGENT IN NATURE, THAT ISSUE OF FCCB HAD BEEN HELD TO BE REVENUE IN APPELLANT IS OWN CASE FOR THE ASSESSMENT YEAR 1997-98 (ITA/7845/M/2004).DR SUPPORTED THE ORDER OF THE AO. IN THE MATTER OF CRANE SOFTWARE INTERNATIONAL LTD. (ITA /741 AND 742 BANGALORE / 2010) ISSUE OF FCCB HAVE BEEN DISCUSSED AS UNDER '...THE EXPENSES WERE INCURRED IN CONNECTION WITH T HE ISSUE OF FCCB. AS THE BONDS WERE CONVERTIBLE, THE ASSESSING AUTHORITY TREATED THE BOND PROCEEDS AS INCREASED TO CAPITAL. ACCORDINGLY, HE T REATED THE EXPENDITURE OF RS.6.63 CRORES. AS CAPITAL IN NATURE IS, IT WAS INCURRED FOR RAISING THE CAPITAL OF THE ASSESSEE COMPANY. THE SAID EXPENDITU RE WAS DISALLOWED. ASSESSEE CLAIMED THE EXPENSES IS DEDUCTIBLE AS THE EXPENSES WERE INCURRED TO RAISE LOAN FINANCE. THE ASSESSING AUTHO RITY HELD THAT THE BOND HOLDERS AT THE OPTION TO CONVERT THE BONDS TO EQUIT Y SHARES, AND THEREFORE, THE COLLECTION OF FUNDS FOR THE ISSUE OF BONDS NEEDS TO BE TREATED AS TO INCREASE THE CAPITAL AND, THEREFORE, THE CONNECTED EXPENSES WOULD BE CAPITAL IN NATURE AND HANDS DISALLOWED. WE AGREE WITH THE VIEW OF THE CIT (A) THAT THE EXPENSES ARE NOT CAPITAL IN NATURE. AS ON 31.03.2006, THE PREVIOUS YEAR ENDING FOR THE ASSESS MENT YEAR 2006-07, THE FUNDS COLLECTED BY THE ASSESSEE COMPANY THROUGH THE ISSUE OF THE FOREIGN CURRENCY CONVERTIBLE BONDS, WERE IN THE NAT URE OF LIABILITY. THE ASSESSEE COMPANY WAS BOUND TO DISCHARGE IS THE BOND S NEW DATES. THE ASSESSEE WAS PAYING INTEREST IS TO BOND HOLDERS. IT IS CLEAR THAT THE BOND FINANCE WAS IN THE NATURE OF LOAN FINANCE. IT BECOM ES THE CAPITAL OF THE COMPANY ON LEAVE IN THE BOND HOLDERS. AND EXERCISE THEIR OPTION AT THE APPROPRIATE TIME IN FUTURE. THAT CONVERSION IS ONLY A FUTURE EVENT, THAT MAY OR MAY NOT HAPPEN, DEPENDING ON THE OPTION EXER CISED BY THE BOND HOLDERS. THEREFORE, THE POSSIBLE EQUITY CHARACTER O F THE FUNDS ITA NO. 8597/MUM/2010 WAS CONTINGENT ON THE ASSESSED WHETHE R BONDS WOULD BE CONVERTED OR NOT, IN A FUTURE DATE. THE NATURE O F A PRESENT-DAY LOAN FUND CANNOT BE HELD EQUITY FUND ON THE BASIS OF SUC H CONTINGENCY. AS FAR ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 11 AS THE NATURE OF THE FUNDS FOR THE ASSESSMENT YEAR 2006 - 07 IS CONCERNED, IT WAS A LIABILITY IN THE NATURE OF LOAN, THAT TOO INTEREST-BEARING LOAN. IF THE FUNDS ARE DATED AS EQUITY CAPITAL FOR THE ASSESSMEN T YEAR 2006 - 07 HOW THE PAYMENT OF BOND INTEREST WOULD BE JUSTIFIED IN LAW, IS LAW DOES NOT PERMIT PAYMENT OF INTEREST ON A COMPANY'S EQUITY CA PITAL.' IN THE CASE OF SECURE METRES LTD.(321 ITR 61)HON'BL E RAJASTHAN HC HAS HELD 'ADMITTEDLY, THE DEBENTURES, WHEN A SHOOT IS A LOA N, AND, THEREFORE, WHETHER IT IS CONVERTIBLE, OR NONCONVERTIBLE, DOES NOT MILITATE AGAINST THE NATURE OF THE DEBENTURE, BEING LOAN, AND, THEREFORE , THE EXPENDITURE INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE .' FOLLOWING THE ABOVE DECISION OF THE RAJASTHAN HIGH COURT, THE HON 'BLE KARNATAKA HIGH COURT IN THE CASE OF ITC HOTELS LTD.(334 ITR 109) H ELD THAT EVEN IF THE DEBENTURE IS TO BE CONVERTED INTO A SHARE AT A LATE R DATE,THE EXPENDITURE SO INCURRED FOR COLLECTION OF DEBENTURE IS TO BE TR EATED AS AN EXPENDITURE OF REVENUE NATURE . 5.1 RESPECTFULLY FOLLOWING THE DECISIONS OF THE ABO VE REFERRED HON'BLE COURTS WE HOLD THAT EXPENSES INCURRED IN CONNECTION WITH T HE ISSUE OF FCCB WERE REVENUE IN NATURE. 15. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE, WHEREIN THE SIMILAR RELIEF IS ALLOWED TO THE ASSESSEE, THUS, RE SPECTFULLY FOLLOWING THE SAME WE DO NOT FIND ANY ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY LEARNED CIT(A). IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 16. GROUND NO. 4 RELATES TO DELETING THE ADDITION OF EXPENSES OF RS 3,77,69,799/- ON FCCB. THE LD AR FOR THE ASSESSEE SUBMITS THAT THIS GROUND OF APPEAL IS ALSO COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07, IN ITA NO.8597/MUM/2010, W HEREIN THE SIMILAR RELIEF WAS ALLOWED BY THE TRIBUNAL. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 12 17. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. 18. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE AS SESSING OFFICER DISALLOWED THE EXPENSES ON FCCB HOLDING IT AS CAPIT AL. THE LEARNED CIT(A) ALLOW RELIEF TO THE ASSESSEE BY FOLLOWING TH E DECISION OF TRIBUNAL. WE HAVE SEEN THAT THE COORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 8597/MUM/2010, ON SI MILAR SET OF FACTS PASSED THE FOLLOWING ORDER; 2.6. GROUND 1.E.DEALS WITH EXPENDITURE INCURRED FO R ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS(FCCB).AR SUBMITTED THAT THE SAME ISSUE HAD ARISEN IN THE ASSESSMENT YEAR 1997-98 AND THAT THE TRIBUNAL VIDE ITS ORDER DATED 29.10.2009 ITA/ 7845/MUM/2004 HAD DECIDED THE MATTER IN APPELLANT'S FAVORITE. RESPECTFULLY FOLLOWING THE SA ID DECISION,WE HOLD THAT THE EXPENDITURE INCURRED WITH REGARD TO FCCB IS REVENUE IN NATURE. 19. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE, WHEREIN THE SIMILAR RELIEF IS ALLOWED TO THE ASSESSEE, THE CIT( A) WHILE GRANTING RELIEF TO THE ASSESSEE FOLLOWED ORDER OF THE TRIBUNAL, TH US, RESPECTFULLY FOLLOWING THE SAME WE DO NOT FIND ANY ILLEGALITY AN D INFIRMITY IN THE ORDER PASSED BY LEARNED CIT(A). NO CONTRARY FACTS O R LAW IS BROUGHT TO OUR NOTICE. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED 20. GROUND NO. 5 RELATES TO ALLOWING DISCOUNT ON EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) OF RS. 852,376/. THE LD AR FOR THE ASSESSE E SUBMITS THAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF SPECIAL BENCH OF ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 13 BANGALORE TRIBUNAL IN BICON LTD (ITA NO. 248/MUM/36 8 TO 1206/BANG/2010, THE LD CIT(A) GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF SPECIAL BENCH. FURTHER I N ASSESSEES OWN CASE FOR AY 2011-12 TO 2013-14 IN ITA(S) NO. 7382/MUM/2 017, 719/MUM/ & 1449/MUM/2016, THE COORDINATE BENCH OF TRIBUNAL I N ASSESSEES OWN CASE ALSO ALLOWED SIMILAR RELIEF TO THE ASSESSEE. 21. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. 22. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE AS SESSING OFFICER DISALLOWED THE CLAIM BY TREATING IT AS CAPITAL. TH E LD CIT(A) ALLOWED RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN BICON LTD (SUPRA). WE HAVE SEEN THAT TH E COORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2011-12 T O 2013-14 IN ITA(S) NO. 7382/MUM/2017, 719/MUM/ & 1449/MUM/2016 ALSO A LLOWED SIMILAR RELIEF BY PASSING THE FOLLOWING ORDER ; 13.1. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT DURING THE FINANCIAL YEAR 2012 -13 PERTAINING TO ASSESSMENT YEAR 2013-14, THE COMPANY HAS CLAIMED DEDUCTION TOW ARDS ESOP EXPENDITURE OF RS. 47,03,67,525/- ON THE BASIS OF OPTIONS EXERCISED. O PTIONS GRANTED UNDER ESOP SCHEME VEST IN 5 EQUAL INSTALLMENTS FROM DATE OF TH E GRANT. DURING THE YEAR UNDER CONSIDERATION, OPTIONS EXERCISED WAS FOR 6,46,308 S HARES OUT OF OPTIONS GRANTED ON 28TH JANUARY, 2011 AND 14TH DECEMBER, 2011. THE EXE RCISE PRICE OF OPTIONS GRANTED ON 28TH JANUARY 2011 AND 14TH DECEMBER 2011 WAS RS. 5/- PER SHARE AND MARKET ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 14 PRICE PER SHARE WAS RS. 733.05 ON 28TH JANUARY, 201 1 AND 729.90 ON 14TH DECEMBER 2011. ESOP COST WORKING FOR THE YEAR UNDER CONSIDER ATION IS AS UNDER: ITA NO.1449/MUM/2016 AND OTHER APPEALS MAHINDRA AND MAHINDRA LIMITED SR GRANT DATE MARKET PRICE EXERCISE NO OF OPTIONS E SOP COST NO ON GRANT PRICE EXERCISED DATE (B) (C) (D) (A) [(B-C)*D] 1 28 .01.2011 733.05 5 590,113 42,96,31,770 2 14.12.2011 729.90 5 56,195 4,07,35.7 55 TOTAL 646,308 47,03,67,525 13.2. THIS SUM OF RS.47,03,67,525/- WA S CLAIMED AS DEDUCTION BY THE ASSESSEE IN THE RETURN OF INCOME, WHICH WAS SOUGHT TO BE DISALLOWED BY THE LD. AO IN THE ASSESSMENT ON THE GROUND THAT THE SAID EXPENDITURE WAS INCURRED FOR INCREASING SHARE CAPITAL OF THE ASSESS EE COMPANY. THE LD. AO ALSO OBSERVED THAT EMPLOYEES STOCK OPTION WILL GIVE ENDU RING BENEFIT TO THE ASSESSEE COMPANY FROM THE EMPLOYEES WHO HAVE AVAILE D THE SCHEME. THE LD. AO BY PLACING RELIANCE ON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., REPORTED IN 225 ITR 792 AND BROOKE BOND INDIA LTD., REPORTED IN 225 ITR 798 HELD THAT THE SAID EXPENDITURE WOULD BE CAPITAL IN NATURE. THIS ACTION WAS UPHELD BY THE LD. DRP. WE FIND THAT THIS ISSUE IS NOW SETTLED BY THE SPECIAL BENCH OF THE BA NGALORE TRIBUNAL IN THE CASE OF BIOCON LTD., IN FAVOUR OF THE ASSESSEE, WHEREIN IT HAS BEEN HELD THAT THE DEDUCTION IS TO BE ALLOWED FOR THE DIFFERENCE BETWEEN THE EXE RCISE PRICE OF THE OPTION AND THE MARKET PRICE AT THE TIME OF EXERCISE OF THE OPTION. WE FIND THAT IN THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED DEDUCTION FOR THE DIFFERENCE BETWEEN THE EXERCISE PRICE AND THE MARKET PRICE ON THE DATE OF GRANT OF OPTION. THIS TRIBUNAL WHILE RENDERING THE DECISION FOR THE A.Y.2009-10 IN ASSESSEE'S OWN CASE HAD RESTORED THIS ISSUE TO THE FILE OF THE LD. AO TO CO NSIDER THE CLAIM OF DEDUCTION IN THE LIGHT OF THE SPECIAL BENCH DECISION IN THE CASE OF BIOCON LTD., WE FIND THAT THE LD. AR FAIRLY SUBMITTED THAT IN ITA NO.1449/MUM/2016 AND O THER APPEALS MAHINDRA AND MAHINDRA LIMITED PRINCIPLE, THIS ISSUE IS DECIDED I N FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH IN THE CASE OF BIOCON LTD., BUT STILL IN THE INTEREST OF JUSTICE, A SPECIFIC DIRECTION NEED TO BE GIVEN TO THE LD. AO TO ALLOW D EDUCTION IN RESPECT OF ALL OPTIONS EXERCISED DURING THE YEAR EQUAL TO THE DIFFERENCE B ETWEEN THE EXERCISE PRICE AND THE MARKET PRICE AT THE TIME OF EXERCISE OF THE OPT ION, AS HELD IN THE CASE OF BIOCON LTD, INSTEAD OF THE MARKET PRICE AT THE TIME OF GRA NT OF OPTION. WE FIND LOT OF FORCE IN THE SAID ARGUMENT OF THE LD. AR AND DIRECT THE L D. AO ACCORDINGLY. ACCORDINGLY, THE CONCISE GROUND NO.11 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 23. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE, THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. HOWEV ER, WE DIRECT THE ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 15 ASSESSING OFFICER TO FOLLOW ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2011-12 TO 2013-14 IN ITA(S) NO. 7382/MUM/20 17, 719/MUM/ & 1449/MUM/2016 DATED 19.06.2020 AND DETERMINE THE AMOUNT OF DEDUCTION. 24. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 1448/MUM/2016 BY ASSESSEE . 25. GROUND NO. 1 RELATES TO TP ADJUSTMENT OF RS. 36,89 ,860/- BEING NOTIONAL INTEREST ON DELAYED COLLECTION OF RECEIVABLE AMOUNT FROM AE. THE LD. AR OF THE ASSESSEE SUBMITS THAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y . 2004-05 IN ITA NO. 6360/MUM/2013. THE LD. AR OF THE ASSESSEE FURTHER S UBMITS THAT THE DELAY COLLECTION OF ACCOUNTS RECEIVABLE DOES NOT CO NSTITUTE AN INDEPENDENT INTERNATIONAL TRANSACTION HAS NOT BEEN ACCEPTED BY THE TRIBUNAL, HOWEVER, RELIEF HAS BEEN ALLOWED WITH RES PECT OF RATE OF INTEREST TO BE CHARGED. 26. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIE D UPON THE ORDER OF TPO/LD. CIT(A). 27. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TPO PROPOSED ADJU STMENT ON ACCOUNT OF INTEREST OF RS. 36,89,860/- DUE TO DELAY IN COLL ECTION OF RECEIVABLE FROM ASSESSEES ASSOCIATE ENTERPRISES BY TAKING VIEW THA T SUCH EXTENDED CREDIT PERIOD SHOULD HAVE BEEN ENTAILED INTEREST COST AS P ER NORMAL BUSINESS ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 16 PRACTICE AND THE ASSESSEE FAILED TO RECOVER SUCH CO ST. THE TPO APPLIED INTEREST RATE OF 6.75%, WHICH WAS THE AVERAGE COST OF CAPITAL FOR THE ASSESSEE DURING THE YEAR. 28. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF TPO WAS CONFIRMED BY FOLLOWING THE ORDER FOR A.Y. 2004-05. WE HAVE NOTED THAT IN ASSESSEES APPEAL FOR A.Y. 2004-05, THE TRIBUNAL ALLOWED PART RELIEF TO THE ASSESSEE. THE SUBMISSION OF ASSESSEE THAT INTEREST ON SUCH DE LAY PAYMENT DOES NOT CONSTITUTE INTERNATIONAL TRANSACTION WAS REJECTED. THE TRIBUNAL RESTRICTED THE ADDITION ON ACCOUNT OF DELAY RECEIVABLE CALCULA TED ON THE BASIS OF EXPORT PACKAGE CREDIT @ 1.92%, INSTEAD OF COST OF C APITAL RATE AS PROPOSED BY TPO. DURING THE YEAR UNDER CONSIDERATIO N, WE HAVE NOTED THAT EXPORT PACKAGE CREDIT RATE FURNISHED BY ASSESS EE BEFORE THE TPO AT 2%. THEREFORE, CONSIDERING THE RATIO OF THE DECISIO N OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 IN ITA NO. 636 0/MUM/2013, WE DIRECT THE AO TO RE-COMPUTE THE TP ADJUSTMENT BY AD OPTING THE RATE OF 2% IN PLACE OF 6.75%. IN THE RESULT, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 29. GROUND NO.2 RELATES TO DISALLOWANCE UNDER SECTION 4 0A(9). THIS GROUND OF APPEAL COMPRISES TWO AMOUNTS, (I) RS. 5,62,886/- BEING EXPENDITURE INCURRED ON EMPLOYEE WELFARE AND (II) RS. 13,01,000 /- BEING PAYMENT MADE TO MAHINDRA ACADEMY, WHICH RUNS EDUCATIONAL IN STITUTION, WHERE CHILDREN OF ASSESSEES EMPLOYEE AND OTHERS TAKE EDU CATION, THE LD.AR OF ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 17 THE ASSESSEE SUBMITS THAT FIRST AMOUNT OF RS. 5.62 LAKHS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES CASE FOR A.Y. 19 96-97 IN ITA NO. 3659/MUM/2012 WHEREIN THE TRIBUNAL ALLOWED THE RELI EF FOR DEDUCTION ON SUCH ACTUAL EXPENDITURE. THE LD. AR OF THE ASSESSEE SUBMITS THAT SIMILAR ORDER WAS FOLLOWED IN A.Y. 2000-01 AND AGAIN IN A.Y . 2002-03, 2003-04 & 2004-05. AS FAR AS SECOND AMOUNT IS CONCERNED, SI MILAR ISSUE IN A.Y. 2006-07 IN ITA NO. 8597/MUM/2010, THE TRIBUNAL SET- ASIDE THE ISSUE TO THE FILE OF AO, WHEREIN THE LD. CIT(A) ALLOWED RELI EF TO THE ASSESSEE IN ITS ORDER DATED 03.11.2015 IN APPEAL IT-35/14-15, FURTH ER SIMILAR RELIEF WAS ALLOWED IN A.Y. 2007-08 BY LD. CIT(A) VIDE ORDER DA TED 06.10.2016. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT THE DRP IN CLAIM FOR A.Y. 2011-12 ALLOWED THE OBJECTION IN RESPECT OF THESE T WO EXPENSES. THE LD. AR OF THE ASSESSEE ALSO RELIED UPON THE DECISION OF TRIBUNAL IN STATE BANK OF INDIA (SBI) IN ITA NO. 4736/MUM/2010. 30. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 31. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE RECORD CAREFULLY. THE AO DISALLOWED BOTH THE CLAIMS BY TAKING VIEW THAT THESE CLAIMS ARE HIT BY PROVISO OF SECTION 40A(9). THE LD. CIT(A) AFFIRMED THE ACTION OF AO THAT THE DRP FOR A.Y. 200 6-07, 2007-08 AND 2009-10 TREATED THE SAME AS HIT BY PROVISO OF SECTI ON 40A(9). ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 18 32. FOR THE FIRST COMPONENT, WE HAVE NOTED THAT IN APP EAL FOR A.Y. 2004-05, THE ASSESSEE WAS ALLOWED RELIEF ON SIMILAR CLAIMED. WE HAVE FURTHER NOTED THAT SIMILAR RELIEF WAS GRANTED BY TRIBUNAL IN APPE AL FOR A.Y. 2002-03, 2003-04 & 2004-05. WE HAVE FURTHER NOTED THAT SO FA R AS SECOND AMOUNT IS CONCERNED, THE SIMILAR ISSUED (CLAIM) WAS RESTO RED BY TRIBUNAL TO THE FILE OF AY IN AY 2006-07. HOWEVER, THE SECOND ROUND OF LITIGATION, THE LD. CIT(A) HAS ALLOWED THE SAME CLAIM OF ASSESSEE V IDE ORDER DATED 03.11.2015, COPY OF WHICH IS AVAILABLE ON RECORD. F URTHER, SIMILAR RELIEF WAS GRANTED BY LD. CIT(A) FOR A.Y. 2007-08 VIDE ORD ER DATED 06.10.2016. WE HAVE NOTED THAT THE ASSESSEE HAS BEEN ALLOWED RE LIEF ON SIMILAR CLAIM, CONSISTENTLY EITHER BY TRIBUNAL OR BY LD. CIT(A), T HEREFORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE AO IS DIRECTED TO ALL OW BOTH THE CLAIM. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 33. GROUND NO.3 RELATES TO PROVISION FOR WARRANTY. THE LD. AR OF THE ASSESSEE SUBMITS THAT THIS GROUND OF APPEAL IS ALSO COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES CASE IN APPEAL FOR A.Y. 2004 -05. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT BALANCE IS AS ON 31.0 3.2004 IN THE PROVISION ACCOUNT WAS RS. 33.83 CRORE, WHILE UTILIZATION DURI NG THE YEAR WAS RS. 24.21 CRORE BEING 72%. THE AO DISALLOWED THE SAME B Y TAKING VIEW AS A CONTINGENT LIABILITY. THE LD. AR OF THE ASSESSEE SU BMITS THAT UTILIZATION OF 72% IS REASONABLE, ESPECIALLY IN VIEW OF CONTINUOUS SALE OF VEHICLES ON A DAILY BASIS AND INCURRENCE OF EXPENDITURE ON WARRAN TY ON A DAILY BASIS. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 19 THE LD. AR OF THE ASSESSEE FAIRLY SUBMITS IN EARLIE R YEARS, THE TRIBUNAL SET-ASIDE THE ISSUE TO THE FILE OF AO FOR FRESH ADJ UDICATION. HOWEVER, FOR A.Y. 1997-98, THE ISSUE WAS DECIDED BY TRIBUNAL IN FAVOUR OF ASSESSEE AND THE APPEAL OF REVENUE WAS DISMISSED BY HONBLE HIGH COURT IN ITA NO. 901/2011 DATED 15.04.2014. FOLLOWING THE ORDER OF HONBLE HIGH COURT, THE AO IN ASSESSMENT FOR A.Y. 2015-16 ALLOWE D THE CLAIM OF WARRANTY VIDE ASSESSMENT ORDER UNDER SECTION 14(3) DATED 31.10.2019. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT IN A RECENT DECISION BY TRIBUNAL FOR A.Y. 2011-12 & 2013-14 IN ITAS NO. 738 3/MUM/2017, 719/MUM/2017 & 1449/MUM/2016, THE TRIBUNAL ALLOWED THE PROVISION OF WARRANTY IN FAVOUR OF ASSESSEE. ACCORDINGLY, THE LD. AR OF THE ASSESSEE SUBMITS THAT AFTER THE DECISION OF HONBLE HIGH COU RT, WHICH IS ACCEPTED BY REVENUE BY ALLOWING SIMILAR CLAIM OF WARRANTY IN ASSESSMENT FOR A.Y. 2015-16, THE ISSUE IS NOW SETTLED IN FAVOUR OF ASSE SSEE. 34. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 35. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE RECORD CAREFULLY. WE HAVE NOTED THAT THE HONBLE HI GH COURT IN APPEAL FOR A.Y. 1997-98 AFFIRMED THE ORDER OF TRIBUNAL VID E ORDER DATED 15.04.2014. WE HAVE FURTHER NOTED THAT AO IN ASSESS MENT FOR A.Y. 2015- 16 VIDE ORDER PASSED UNDER SECTION 143(3) DATED 31. 10.2019 ALLOWED THE CLAIM OF WARRANTY. WE HAVE FURTHER NOTED THAT IN A RECENT DECISION DATED ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 20 19.06.2020 IN APPEAL FOR A.Y. 2011-12 & 2013-14 , T HE SAME RELIEF WAS ALLOWED BY CONSIDERING THE DECISION OF HONBLE HIGH COURT FOR A.Y. 1997-98. CONSIDERING THE AFORESAID DECISION OF CO- ORDINATE BENCH, WE DIRECT THE AO TO DELETE THE ENTIRE ADDITION ON ACCO UNT OF PROVISION FOR WARRANTY. 36. GROUND NO.4 RELATES TO EXPENDITURE DEBITED TO PROFI T & LOSS ACCOUNT. WE HAVE NOTED THAT THIS GROUND OF APPEAL CONSIST OF FIVE CLAIMS I.E. (A) EXPENDITURE RELATING TO JOINT VENTURE WITH RENAULT OF RS. 87,06,882/- (B) EXPENDITURE RELATED TO JOINT VENTURE WITH JIANGLING TRACTORS OF RS. 3,89,82,596/- (C) PROFESSIONAL FEES TOWARDS PROJECT ALPHA / DELTA OF RS. 58,00,000/- (D) TRAVEL EXPENSES OF RS. 64,10,529/- IN RELATION TO MERGERS AND ACQUISITIONS AND (E) PROJECT EXPENSES WRITTEN O FF OF RS. 4,65,468/-. 37. THE LD AR FOR THE ASSESSEE SUBMITS THAT SO FAR AS E XPENDITURE RELATING TO JOINT VENTURE WITH RENAULT OF RS. 87,06,882/- IS CO NCERNED, THE SIMILAR CLAIMS IN AY 2011-12 TO 2012-13 WAS TREATED AS CA PITAL EXPENDITURE AND CONFIRMED THE SAME AS TO BE A PART OF COST OF IMPRO VEMENT IN ORDER DATED 19.06.2020. ON THE OTHER HAND THE LD DR SUPPORTED THE ORDER OF LOWER AUTHORITIES. 38. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF LOWER AUTHORITIES AND FIND THE ASSESSING OFFICER TREATED THE EXPENDITURE RELATING TO JOINT VENTURE WITH RENAULT AS CAPITAL I N NATURE AS DISCUSSED IN PARA 4.1 OF HIS ORDER. THE LD CIT(A) AFFIRMED THE O RDER OF ASSESSING ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 21 OFFICER BY FOLLOWING THE ORDER OF TRIBUNAL IN AY 2 006-07 FOR AS DISCUSSED IN PARA 9.4 OF THE IMPUGNED ORDER. WE HA VE NOTED THAT THE TRIBUNAL IN RECENT DECISION FOR AY 2011-12 TO 2012- 13 HAS TREATED THE SIMILAR EXPENDITURE AS CAPITAL EXPENDITURE AND CONF IRMED THE SAME AS TO BE A PART OF COST OF IMPROVEMENT IN ORDER DATED 19. 06.2020. CONSIDERING THE DECISION OF TRIBUNAL, WE DIRECT THE ASSESSING O FFICER TO FOLLOW THE ORDER OF TRIBUNAL FOR AY 2011-12 TO 2012-13. 39. FOR EXPENDITURE RELATING TO JOINT VENTURE WITH JI ANGLING TRACTORS OF RS. 3,89,82,569/- IS CONCERNED, THE LD AR FOR THE ASSES SEE SUBMITS THAT THE SIMILAR CLAIMS IN AY 2011-12 TO 2012-13 WAS TREATE D AS CAPITAL EXPENDITURE AND CONFIRMED THE SAME AS TO BE A PART OF COST OF IMPROVEMENT IN ORDER DATED 19.06.2020. ON THE OTHE R HAND THE LD. DR SUPPORTED THE ORDER OF LOWER AUTHORITIES. 40. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF LOWER AUTHORITIES AND FIND THE ASSESSING OFFICER TREATED THE EXPENDITURE RELATING TO JOINT VENTURE WITH JIANGLING TRACTOR AS CAPITAL IN NATURE AS DISCUSSED IN PARA 4.2 OF HIS ORDER. THE LD CIT(A) A FFIRMED THE ORDER OF ASSESSING OFFICER BY FOLLOWING THE ORDER OF TRIBUN AL IN AY 2006-07, AS DISCUSSED IN PARA 9.4 OF THE IMPUGNED ORDER. WE HA VE NOTED THAT THE TRIBUNAL IN RECENT DECISION FOR AY 2011-12 TO 2012- 13 HAS TREATED THE SIMILAR EXPENDITURE AS CAPITAL EXPENDITURE AND CONF IRMED THE SAME AS TO BE A PART OF COST OF IMPROVEMENT IN ORDER DATED 19. 06.2020. CONSIDERING ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 22 THE DECISION OF TRIBUNAL, WE DIRECT THE ASSESSING O FFICER TO FOLLOW THE ORDER OF TRIBUNAL FOR AY 2011-12 TO 2012-13. 41. FOR EXPENDITURE OF PROFESSIONAL FEE TOWARDS PROJEC T ALPHA/DELTA OF RS. 58,00,000/-, THE LD AR FOR THE ASSESSEE SUBMITS THA T THE ASSESSEE PAID PROFESSIONAL FEE TO VARIOUS CONSULTANTS, LEGAL DOCU MENTATION FEE ETC, IN CONNECTION WITH ACQUISITION OF ENTITIES WHO ARE IN SIMILAR BUSINESS. THE ASSESSING OFFICER DISALLOWED THE SAME BY TREATING A S CAPITAL IN NATURE. THE LD CIT(A) AFFIRMED THE ACTION OF ASSESSING OFFICER BY FOLLOWING THE ORDER OF TRIBUNAL IN AY 2006-07. THE LD AR FOR THE ASS ESSEE SUBMITS THAT OUT OF TOTAL EXPENSES OF RS. 58,00,000/-, RS. 52,00,000 /- WAS IN RELATION TO ACQUISITION WHICH DID NOT MATERIALIZED. AND EXPENSE S OF RS. 6,00,000/- THE LD AR FOR THE ASSESSEE SUBMITS IT SHOULD BE TRE ATED AS PART OF INVESTMENT AS HELD BY TRIBUNAL IN AY 2011-12 TO 201 2-13 IN ORDER DATED 19.06.2020. THE LD. AR FOR THE ASSESSEE SUBMITS THA T SO FAR AS EXPENSES OF RS. 52LAKHS ARE CONCERNED, AS NO ACQUISITION WAS MATERIALIZED AND NOT RESULTED IN ANY CAPITAL ASSET AND IT SHOULD BE ALLO WED AS REVENUE EXPENSES. ON SIMILAR ISSUE IN APPEAL FOR AY 1999-20 00, SIMILAR CLAIM WAS ALLOWED AS REVENUE EXPENSES AND ON APPEAL BEFOR E TRIBUNAL IN ITA NO. 2344/MUM/2009 THE ASSESSEE WAS ALLOWED RELIEF A S REVENUE EXPENDITURE. THE REVENUE FILED APPEAL BEFORE HIGH C OURT VIDE ITA NO. 450 OF 2017, AND THE SAME WAS DISMISSED. ON THE O THER HAND THE LD. DR SUPPORTED THE ORDER OF LOWER AUTHORITIES. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 23 42. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. SO FA R AS THE EXPENSES OF RS. 6.00 LAKHS ARE CONCERNED, WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LD AR FOR THE ASSESSEE IT SHOULD BE TREATED AS PART OF INVESTMENT AS HELD BY TRIBUNAL IN AY 2011-12 TO 2012-13 IN ORDER DATED 19.06.2020. HOWEVER, WITH REGARD TO EXPENSES OF RS. 52 LAKHS WE HAVE NOTED THAT THE LOWER AUTHORITIES HAVE NOT DISPUTED THE EXPENSES. W E HAVE FURTHER NOTED THAT IN AY 1999-2000, THE ASSESSEE CLAIMED EXPENSES ON ACCOUNT OF FOUNDRY, WHICH WAS LATER ON ABANDONED BY THE ASSESS EE BEING NOT FOUND VIABLE. THE ASSESSING OFFICER TREATED THE SAME AS C APITAL EXPENDITURE, THE LD CIT(A) AFFIRMED THE ACTION OF ASSESSING OFFICER. HOWEVER, ON APPEAL BEFORE TRIBUNAL THE SAME WAS ALLOWED AS REVENUE EXP ENDITURE IN ITA NO. 2344/MUM/2009 DATED 24.07.2015. THE REVENUE FILED A PPEAL AGAINST ALLOWANCE OF SUCH CLAIM AS REVENUE EXPENSES, THE AP PEAL OF THE REVENUE WAS DISMISSED VIDE ITA NO. 450 OF 2017 DATED 10 JUN E 2019. CONSIDERING THE DECISION OF TRIBUNAL FOR AY 1999-20 00, WHICH WAS AFFIRMED BY BOMBAY HIGH COURT, THUS, ON SIMILAR PRI NCIPLES THE EXPENSES OF PROFESSIONAL FEE OF RS. 52 LAKHS ARE ALLOWED AS REVENUE EXPENSES. 43. NEXT COMPONENT OF EXPENSES OF RS. 64,10,529/- RELA TES TO TRAVEL EXPENSES RELATED WITH MERGERS AND ACQUISITIONS. THE LD AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE INCURRED EXPENSE S ON TRAVELLING FOR MERGERS AND ACQUISITION OF ENTITIES ENGAGED IN SIMI LAR BUSINESS. THE ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 24 ASSESSING OFFICER DISALLOWED THE SAME BY TAKING VIE W THAT THE MERGERS AND ACQUISITION OF ENTITIES ARE NOT THE BUSINESS OF THE ASSESSEE AND THUS IT WAS NOT FOR THE PURPOSE OF THE BUSINESS. THE LD CIT (A) AFFIRMED THE ACTION OF THE ASSESSING OFFICER BY FOLLOWING THE OR DER OF TRIBUNAL FOR AY 2006-07. THE LD AR FOR THE ASSESSEE SUBMITS THAT T HE SIMILAR CLAIMS IN AY 2011-12 TO 2012-13 WAS TREATED AS CAPITAL EXPEND ITURE AND CONFIRMED THE SAME AS TO BE A PART OF COST OF IMPROVEMENT IN ORDER DATED 19.06.2020. ON THE OTHER HAND THE LD. DR SUPPORTE D THE ORDER OF LOWER AUTHORITIES. 44. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE ORDER OF LOWER AUTHORITIES AND FIND THE ASSESSING OFFICER TREATED THE EXPENDITURE AS CAPITAL IN NATURE AS DISCUSSED IN PARA 4.3 OF HI S ORDER. THE LD CIT(A) AFFIRMED THE ORDER OF ASSESSING OFFICER BY FOLLOWI NG THE ORDER OF TRIBUNAL IN AY 2006-07, AS DISCUSSED IN PARA 9.4 OF THE IMPUGNED ORDER. WE HAVE NOTED THAT THE TRIBUNAL IN RECENT DECISION FOR AY 2011-12 TO 2012-13 HAS TREATED THE SIMILAR EXPENDITURE AS CAPI TAL EXPENDITURE AND CONFIRMED THE SAME AS TO BE A PART OF COST OF IMPRO VEMENT IN ORDER DATED 19.06.2020. CONSIDERING THE DECISION OF TRIBUNAL, W E DIRECT THE ASSESSING OFFICER TO FOLLOW THE ORDER OF TRIBUNAL FOR AY 2011 -12 TO 2012-13. 45. NEXT COMPONENT OF EXPENSES WRITTEN OFF OF RS. 4,65 ,468/-. THE LD AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE INCURRED CER TAIN EXPENSES RELATING TO DEVELOPMENT OF THREE WHEELER VEHICLES, SINCE THE PROJECT WAS NOT ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 25 METALIZED, THE EXPENSES WAS WRITTEN OFF. THE ASSESS ING OFFICER TREATED THE SAME AS CAPITAL IN NATURE. THE LD CIT(A) AFFIRMED T HE ACTION OF THE ASSESSING OFFICER. THE LD AR FOR THE ASSESSEE SUBM ITS THAT THIS CLAIM IS SIMILAR TO THE SECOND PART OF THIRD CLAIM UNDER THI S GROUND OF APPEAL AND AS SUCH NO NEW ASSET WAS CREATED FOR DERIVING ENDUR ING NATURE OF BENEFIT, THUS, EXPENDITURE MAY BE ALLOWED AS REVENUE EXPENDI TURE. ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDER OF LOWER AUTHO RITIES. 46. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE ORDER OF LOWER AUTHORITIES AND FIND THE ASSESSING OFFICER TREATED THE EXPENDITURE AS CAPITAL IN NATURE AS DISCUSSED IN PARA 4.2 OF HI S ORDER. THE LD CIT(A) AFFIRMED THE ORDER OF ASSESSING OFFICER AS DISCUSS ED IN PARA 9.4 OF THE IMPUGNED ORDER. CONSIDERING THE DECISION OF TRIBUNA L FOR AY 1999-2000 (ON THE ISSUE OF EXPENDITURE OF ACQUISITION WHICH C OULD NOT MATERIALIZED), WHICH WAS AFFIRMED BY BOMBAY HIGH COURT, THUS, ON S IMILAR PRINCIPLES, WHEN NO NEW ASSET IS CREATED FOR DERIVING ENDURING BENEFITS, THE EXPENSES OF WRITTEN OFF OF RS. 4,65,468/- ARE ALLO WED AS REVENUE EXPENSES. IN THE RESULT THIS GROUND OF APPEAL IS P ARTLY ALLOWED. 47. GROUND NO.5 RELATES TO EURO IV PROJECT EXPENSES. T HE LD. AR OF THE ASSESSEE SUBMITS THAT THIS EXPENDITURE REPRESENTS T HE PAYMENT FOR TECHNICAL CONSULTANTS TO UPGRADES THE ENGINES TO MA KE NORMALLY OF EMISSION AS ALSO TO MAKE VEHICLES AN ECO-FRIENDLY. THE AO TREATED THE SAID EXPENDITURE AS CAPITAL IN NATURE. THE LD. CIT( A) CONFIRMED THE ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 26 TREATMENT AS CAPITAL EXPENDITURE BY FOLLOWING THE O RDER OF TRIBUNAL FOR A.Y. 2006-07. THE LD. AR OF THE ASSESSEE SUBMITS TH AT THE TRIBUNAL IN ITS ORDER HELD THAT SUCH CAPITAL EXPENDITURE IS CAPITAL IN NATURE AND ASSESSEE IS ENTITLED TO DEPRECIATION THEREON. THE LD. AR OF THE ASSESSEE SUBMITS THAT ORDER OF A.Y. 2006-07 WAS FOLLOWED IN A.Y. 200 1-02 AND IN A.Y. 2002-03. 48. PER CONTRA, THE LD. DR FOR THE REVENUE SUPPORTED TH E ORDER OF LOWER AUTHORITIES. 49. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE RECORDS. WE HAVE NOTED THAT THE AO TREATED THE EXPE NSES INCURRED ON EURO IV PROJECT AS CAPITAL IN NATURE. THE LD. CIT(A ) AFFIRMED THE ACTION OF AO BY FOLLOWING THE ORDER OF TRIBUNAL FOR A.Y. 2 006-07. HOWEVER, WE HAVE NOTED THAT THE TRIBUNAL WHILE TREATING THE EXP ENSES AS CAPITAL IN NATURE ALLOWED THE DEPRECIATION TO THE ASSESSEE IN PARA 3-4 OF THE ORDER; SIMILAR ORDER WAS FOLLOWED IN A.Y. 2001-02 & 2002-0 3. THEREFORE, WE DIRECT THE AO TO ALLOW THE DEPRECIATION BY FOLLOWIN G THE ORDER OF TRIBUNAL FOR A.Y. 2006-07 IN ITA NO. 8597/MUM/2010. IN THE RESULT, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 50. GROUND NO.6 RELATES TO DEVELOPMENT EXPENSES AND HOR IZON III & IV PROJECT EXPENSES. THE LD. AR OF THE ASSESSEE SUBMIT S THAT EXPENDITURE REPRESENTS THE PAYMENT TO VARIOUS CONSULTANTS FOR D EVELOPING NEW RANGE OF TRACTORS AND ALSO UPGRADATION OF EXISTING RANGE OF TRACTORS. THE WORK ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 27 INVOLVED SUGGESTIONS, MODIFICATIONS AND REVIEWING I N RESPECT OF CERTAIN TECHNICAL ASPECTS IN THE DEVELOPMENT OF RANGE OF TR ACTORS. 51. IN ALTERNATIVE SUBMISSION, THE LD. AR OF THE ASSESS EE SUBMITS THAT IT WAS A PURE RECURRING REVENUE EXPENDITURE AND SHOULD BE AL LOWED UNDER SECTION 37(1) . THE LD. AR OF THE ASSESSEE EXPLAINED THAT T HESE EXPENSES CONSIST OF TWO COMPONENTS I.E. (I) CONSULTANCY FEES OF RS. 61.28 LAKHS AND STAFF COST OF RS. 94.92 LAKHS (TOTAL RS. 156.20 LAKHS). T HE AO TREATED THE SAID ENTIRE EXPENDITURE AS CAPITAL IN NATURE. THE LD. CI T(A) CONFIRMED THE ACTION OF AO BY FOLLOWING THE ORDER OF TRIBUNAL FOR A.Y. 2006-07. THE LD. AR FOR THE ASSESSEE EXPLAINED THAT SO FAR AS CO NSULTANCY FEES ARE CONCERNED, THE TRIBUNAL IN A.Y. 2006-07 HELD THAT S UCH EXPENSES ARE CAPITAL IN NATURE AND THE ASSESSEE IS ENTITLED FOR DEPRECIATION. SO FAR AS EXPENSES OF STAFF COST, THE CLAIM WAS TREATED AS RE VENUE EXPENDITURE AND WAS ALLOWED TO THE ASSESSEE. THE ORDER FOR A.Y. 200 6-07 WAS FOLLOWED IN A.Y. 2000-01 & 2002-03. 52. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 53. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE RECORD. WE HAVE NOTED THAT THE AO TREATED BOTH THE CLAIM I.E. CONSULTANCY FEES AND STAFF COST AS CAPITAL IN NATUR E. WE HAVE NOTED THAT CONSULTANCY FEES WAS TREATED AS CAPITAL IN NATURE I N APPEAL FOR A.Y. 2006- 07 AND ALLOWED DEPRECIATION. SO FAR AS EXPENSES OF STAFF COST, SIMILAR ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 28 CLAIM WAS TREATED AS REVENUE EXPENDITURE, THEREFORE , BY FOLLOWING THE ORDER OF TRIBUNAL FOR AY 2006-7, WE DIRECT THE AO T O TREAT THE CONSULTANCY FEES AS CAPITAL IN NATURE AND ALLOWED T HE DEPRECIATION. SO FAR AS EXPENSES OF STAFF COST IS CONCERNED, THE SIMILAR CLAIM WAS ALLOWED AS REVENUE EXPENDITURE BY TRIBUNAL IN APPEAL FOR A.Y. 2006-07. THEREFORE, WE DIRECT THE AO TO ALLOW THE STAFF COST AS A REVEN UE EXPENDITURE TO THE ASSESSEE. IN THE RESULT, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 54. GROUND NO.7 RELATES TO EXPENSES ON PROJECT MANAGEME NT OF CYLINDRICAL BLOCK. THE LD. AR OF THE ASSESSEE SUBMITS THAT HE I S NOT PRESSING THIS GROUND OF APPEAL. CONSIDERING THE SUBMISSION OF ASS ESSEE, THIS GROUND OF APPEAL IS DISMISSED AS NOT PRESSED. 55. GROUND NO.8 RELATES TO WAIVER OF LIABILITY ON PREPA YMENT OF SICOM LOAN OF RS. 21.25 CRORE. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE PACKAGE SCHEME OF INCENTIVES INTRODUCED BY THE GOVE RNMENT OF MAHARASHTRA FROM TIME TO TIME, PROVIDE FOR DEFERRAL OF SALES TAX FOR 10 YEARS IN RESPECT OF NASIK UNIT. PAYMENT OF SALES TA X COLLECTED ON SALES, WAS DEFERRED TO PROVIDE FOR MORE CASH IN THE HANDS OF COMPANY. SUCH DEFERRED TAXES ARE PAYABLE IN 5 EQUAL ANNUAL INSTAL LMENTS (EAI) STARTING FROM 11 TH YEAR, THE AMOUNT OF DEFERRED TAX CONVERTED INTO LO AN AND REFLECTED AS SUCH IN THE FINANCIAL STATEMENT. THE G OVERNMENT OF MAHARASHTRA DUE TO PAUCITY OF FUND WITH IT, VIDE TR ADE CIRCULAR DATED 12 TH DECEMBER 2002, CAME OUT WITH A SCHEME WHICH PERMITT ED TAX PAYERS TO ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 29 PRE-PAY SUCH LOAN LIABILITY AT ITS NET PRESENT VALU E (NPV). ARITHMETICALLY, NPV IS ALWAYS LOWER THAN THE FULL A MOUNT AND THE GAP BETWEEN THE TWO IS MORE WHEN THE DURATION OF THE PA YMENT IS LONG. IN ASSESSEES CASE, THE LOAN LIABILITY OF RS. 34.61 CR ORE RELATING TO F.Y. 2001- 02 WHICH WAS TO BE PAID ON AND FROM F.Y. 2012-13, W AS PREPAID IN F.Y. 2004-05 AT AN AMOUNT OF RS. 13.36 CRORE. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE DIFFERENCE BETWEEN THE GROSS AMOUN T OF LIABILITY AND THE AMOUNT PRESENTED DISCOUNTED VALUE IS A CAPITAL RECE IPT. THE AO REJECTED THE CLAIM ON ACCOUNT OF SALE TAX IS REVENUE EXPENDI TURE AND WAIVER IS OF SALES TAX AND NOT OF LOAN. THE AO FURTHER HELD THAT THIS IS A CASE OF A BENEFIT ARISING FROM THE EXERCISE OF BUSINESS, THUS , CHARGEABLE UNDER SECTION 28(IV). THE LD. CIT(A) AFFIRMED THE ORDER O F AO. 56. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE SIMILAR ISSUE FOR A.Y. 2004- 05 WAS RESTORED BACK TO THE FILE OF AO TO EXAMINE T HE SCHEME AND DECIDE THE ISSUE. THE AO WHILE GIVING EFFECT TO THE ORDER OF AO AFTER EXAMINING THE SCHEME ALLOWED THE CLAIM TO THE ASSESSEE BY FOL LOWING THE DECISION OF HONBLE SUPREME COURT IN CASE OF BALAKRISHNA INDUST RIES (CA NO. 19587 OF 2017). THUS, THE ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE AT THE LEVEL OF ASSESSING OFFICER ITSELF. IT WAS EXPLAINED THA T THE SIMILAR ISSUE OF TAXABILITY OF GAIN ARISING ON PREPAYMENT OF SUCH SA LES TAX LOAN UNDER 1983 PACKAGE SCHEME OF INCENTIVE WAS EXAMINED BY SP ECIAL BENCH OF TRIBUNAL IN SULZER INDIA LIMITED (ITA NO. 2944/MUM/ 2007) ( 44DTR ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 30 329) AND IT WAS HELD THAT IT WAS CAPITAL RECEIPT AN D COULD NOT BE TERMED AS REMISSION OR CESSATION OF LIABILITY. 57. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASS ESSEE ALSO RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CIT VS. MCDOWELL & CO. LTD. [2014] 52 TAXMANN.COM 15 (KARNATAKA HIGH C OURT), GRINDWELL NORTON LIMITED IN ITA NO. 528/MUM/2012 & 5800/MUM/2 013), GENERAL ELECTRODES & EQUIPMENTS LTD. (155 ITR 787), CIT VS. BHAVNAGAR BONE AND FERTILIZER LTD. (166 ITR 316), D.P. SANDU BROTH ERS CHEMBER (P) LTD. (273 ITR 1) & ALCHEMIC P. LTD. (130 ITR 168) (GUJ.) . 58. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 59. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO REJECTED T HE CLAIM OF ASSESSEE ON THE GROUND THAT SALE TAX IS REVENUE EXPENDITURE AND NOT OF LOAN. THE AO ALSO HELD THAT THIS IS A CASE OF BENEFIT ARISING FROM THE EXERCISE OF BUSINESS, HENCE, CHARGEABLE TO TAX UNDER SECTION 28 (IV). THE LD. CIT(A) CONFIRMED THE ORDER OF AO. WE HAVE NOTED THAT SIMIL AR ISSUE IN A.Y. 2004-05 WAS RESTORED TO THE FILE OF AO WITH THE DIR ECTION TO CONSIDER THE SCHEME AND TO DECIDE THE ISSUE AFRESH. THE ASSESSEE HAS PLACED ON RECORD THE COPY OF DECISION OF HONBLE SUPREME COURT IN CA SE OF BALAKRISHNA INDUSTRIES (SUPRA). ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 31 60. WE HAVE NOTED THAT THE SPECIAL BENCH OF TRIBUNAL IN SULZER INDIA LIMITED IN ITA NO. 2944/MUM/2007, IT WAS HELD THAT IT WAS A CAPITAL RECEIPT AND COULD NOT BE TERMED AS A REMISSION OR CESSATION OF LIABILITY. THE ORDER OF SPECIAL BENCH WAS UPHELD BY HONBLE BOMBAY HIGH COU RT IN CASE REPORTED IN 369 ITR 717. THE SPECIAL BENCH IN SULZE R INDIA LTD. (SUPRA) HELD THAT PREMATURE RE-PAYMENT OF LOAN AT PRESENT D ISCOUNTED VALUE DOES NOT RESULT IN WAIVER OR CESSATION OF LIABILITY. THE SAID AMOUNT BEING CAPITAL IN NATURE, PROVISION OF SECTION 28 & 41 WOU LD NOT APPLY. THE HONBLE SUPREME COURT AFFIRMED THE ORDER OF HONBLE BOMBAY HIGH COURT IN SULZER INDIA LTD. (SUPRA) REPORTED IN 93 T AXMANN.COM 32 (SC). THUS, CONSIDERING THE DECISION OF SPECIAL BENCH AFF IRMED BY HONBLE BOMBAY HIGH COURT, THE AMOUNT IN QUESTION IS CAPITA L IN NATURE AND THE PROVISION OF SECTION 28 & 41 IS NOT APPLICABLE. EVE N OTHERWISE THE ASSESSING OFFICER FOR AY 2004-05 HAS ALREADY ACCEPT ED THE STAND (CLAIM) OF THE ASSESSEE, WHILE GIVING EFFECT TO THE ORDER O F TRIBUNAL. THEREFORE, THIS GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED . 61. GROUND NO. 9 RELATES TO SPECIAL PENSION BASED ON AC TUARIAL VALUATION. THE LD. AR OF THE ASSESSEE SUBMITS THAT HE IS NOT P RESSING THIS GROUND OF APPEAL. CONSIDERING THE SUBMISSION OF LD. AR OF THE ASSESSEE, THIS GROUND OF APPEAL IS DISMISSED. 62. GROUND NO.10 RELATES TO INTEREST ON INCOME TAX REFU ND. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE REFUND AND THE INTERE ST GRANTED BY REVENUE IS ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 32 ONLY PROVISIONAL IN NATURE AS THE SAME ARE SUBJECT TO VARIATION ON COMPLETION OF REGULAR ASSESSMENT AND IT LOSE THEIR IDENTITY ONCE FINAL TAX LIABILITY IS DETERMINED ON COMPLETION OF REGULAR AS SESSMENT. THE AO IN PARA-11 OF THE ASSESSMENT ORDER HELD THAT INCOME RE CEIVED IN A.Y. 2005- 06 IS TAXABLE IN THE SAME YEAR. THE LD. CIT(A) CONF IRMED THE ACTION OF AO BY FOLLOWING THE ORDER OF A.Y. 2003-04 & 2004-05 . THE LD. AR OF THE ASSESSEE FAIRLY SUBMITS THAT THIS GROUND OF APP EAL WAS DECIDED AGAINST THE ASSESSEE IN A.Y. 2004-05. CONSIDERING THE ADMIS SION OF ASSESSEE THAT SIMILAR GROUND OF APPEAL WAS HELD AGAINST THE ASSES SEE IN A.Y. 2004-05, THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 63. GROUND NO.11 RELATES TO PART DISALLOWANCE OF DEDUCT ION UNDER SECTION 80IC. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE A SSESSEE CLAIMED DEDUCTION OF RS. 13.82 CRORE IN RESPECT OF EXISTING TRACTOR MANUFACTURING UNIT AT RUDRAPUR IN THE STATE OF UTTARANCHAL, REPRE SENTING 100% OF THE PROFITS OF THE UNDERTAKING FOR F.Y. 2004-05 (APRIL 2004 TO MARCH 2005). THE LD. AR FURTHER SUBMITS THAT THE SAID UNIT WAS S ET-UP SOMEWHERE IN F.Y. 1999-2000. NO INCENTIVE DEDUCTION WAS CLAIMED IN RESPECT THEREOF AT ANY TIME IN THE PAST. DURING THE PERIOD UNDER CO NSIDERATION, THE UNDERTAKING UNDERTOOK SUBSTANTIAL EXPANSION WHICH GOT COMPLETED AT THE END OF DECEMBER 2004. THUS, THE ASSESSEE CLAIME D DEDUCTION UNDER SECTION 80IC IN VIEW OF EXPANSION. THE LD. AR OF TH E ASSESSEE FURTHER EXPLAINED THAT THE AO WHILE ACCEPTING THE CLAIM OF ASSESSEE RESTRICTED THE ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 33 DEDUCTION OF CLAIM UNDER SECTION 80IC TO THE PROFIT DERIVED FOR THE PERIOD FROM JANUARY 2005 TO MARCH 2005 (AS EXPANSION WAS C OMPLETED IN DECEMBER 2004 TO MARCH 2005). THE AO TOOK HIS VIEW THAT PROFIT EARNED AFTER SUBSTANTIAL EXPANSION WAS COMPLETED CAN BE SA ID TO BE ELIGIBLE FOR THE BENEFIT OF THE SAID PERIOD AND NOT THE PROFIT O F FULL YEAR. THE LD. CIT(A) AFFIRMED THE ACTION OF AO BY TAKING VIEW THA T ASSESSEE HAS NOT DEMONSTRATED SUBSTANTIAL EXPENSES. 64. THE LD. AR OF THE ASSESSEE SUBMITS THAT DEDUCTION A LLOWED IN SECTION 80IC(1), READ WITH 80IC(2)(A)(II) READ WITH 80IC(3) (II) IS OF PROFIT DERIVED BY UNDER TAKING AS WHOLE. THE LD AR OF THE ASSESS EE FURTHER EXPLAINED THAT INITIAL AY IS DEFINED IN SECTION 80IC(8)(V). T HE LD. AR OF THE ASSESSEE WOULD SUBMIT THAT THE CLOSE READING 80IC(1 ), 80IC(2)(A)(II) ,80IC(3)(II) AND 80IC(8)(IV) CLEARLY EXPLAINED THAT DEDUCTION IS ALLOWABLE IN RESPECT OF PROFIT DERIVED BY AN INDUSTRIAL UNDER TAKING WHEN IT QUALIFIES MANUFACTURES OR PRODUCE OR ANY ARTICLE AFTER SUBSTA NTIAL EXPANSION DURING THE YEAR IN WHICH EXPANSION IS COMPLETED. THE DEDUC TION IS ALLOWABLE FROM THE ASSESSMENT RELEVANT TO THE PREVIOUS YEAR I N WHICH UNDERTAKING COMPLETES SUBSTANTIAL EXPANSION. 65. THE LD. AR OF THE ASSESSEE EMPHASIZED THAT SCHEME O F THE SECTION DOES NOT ENVISAGE TWO UNDERTAKING, ONE THE ORIGINAL AND THE OTHER SUBSTANTIAL EXPANSION THEREOF. IT SPEAKS OF ONLY ONE UNDERTAKIN G AND THE PROFITS DERIVED THEREFROM AND DEDUCTION IN RESPECT THEREOF. THE SECTION DOES NOT ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 34 PROVIDE FOR DEDUCTION OF PROFITS DERIVED AFTER SUBS TANTIAL EXPANSION BUT PROFITS OF EXISTING UNDERTAKING. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF AARHAM SOFTRONICS (102 TAXMANN.COM 343) AND MAHABIR INDUSTRIES (256 TAXMAN 201). 66. TO BUTTRESS HIS SUBMISSIONS THE LD. AR OF THE ASSE SSEE ALSO MADE RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN GOD REJ SOAPS PVT. LTD. (169 ITR 537), RENDERED IN THE CONTEXT OF THE ERSTW HILE SECTION 80J, WHICH ALLOWED FOR AN INCENTIVE DEDUCTION AT THE RAT E OF 6% OF THE CAPITAL EMPLOYED IN THE ELIGIBLE UNDERTAKING, WHEREIN IT WA S HELD THAT THE 6% DEDUCTION WAS TO BE ALLOWED WITHOUT HAVING REGARD T O THE PERIOD FOR WHICH THE INDUSTRIAL UNDERTAKING WORKED. ACCORDINGL Y, THE LD. AR OF THE ASSESSEE SUBMITS THAT THE RATIO OF DECISION WOULD A LSO APPLY IN HIS CASE THAT THE DEDUCTION UNDER SECTION 80IC IS ALLOWABLE FROM THE INITIAL A.Y. ON THE PROFIT OF THE WHOLE OF THE INITIAL ASSESSMEN T YEAR. THE LD. AR OF THE ASSESSEE PRAYED THAT THE CLAIM IS ALLOWABLE WITH RE FERENCE TO THE FULL YEARS OF PROFIT FROM THE UNDERTAKING, THOUGH SUBSTANTIAL UNDERTAKING WAS COMPLETED ON 20 TH DECEMBER 2004. 67. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 68. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT THE AO RESTRICTED THE CLAIM OF ASSESSEE BY TAKING VIEW THA T THE ONLY PROFIT EARNED ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 35 AFTER SUBSTANTIAL EXPANSION CAN BE SAID TO BE ELIGI BLE FOR THE BENEFIT UNDER THE SAID SECTION AND NOT THE PROFIT OF THE FULL YEA R. THE LD. CIT(A) UPHELD THE ACTION OF AO AND ALSO HELD THAT THE ASSESSEE HA S NOT DEMONSTRATED THE SUBSTANTIAL EXPENSES. FOR APPRECIATION OF SECTION 8 0IC THE RELEVANT SUB- SECTIONS AND CLAUSES OF SECTION 80IC ARE READ AS UN DER: S 80-IC(1) (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), THERE SHALL, IN ACCORDANCE W ITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). S 80-IC(2)(A)(II) (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BEF ORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED I NFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR I NDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDU STRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH T HE SCHEME FRAMED AND NOTIFIED36 BY THE CENTRAL GOVERNMENT IN THIS REGARD , IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; S. 80-IC(3)(II) (II) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE R EFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) OR SUB-CLAUSE (II) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR FIVE ASSESSM ENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TW ENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE, ASSESSEE IS A COMPANY) OF THE P ROFITS AND GAINS. 80-IC(8)(V) (V) 'INITIAL ASSESSMENT YEAR' MEANS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING OR THE ENTER PRISE BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS, OR COMME NCES OPERATION OR COMPLETES SUBSTANTIAL EXPANSION; 69. A CLOSE READING OF THE AFORESAID PROVISION SHOWS TH AT THE ASSESSEE WOULD BE ENTITLED FOR A DEDUCTION FOR THE WHOLE OF THE PR OFIT DERIVED BY EXISTING UNDERTAKING; ON ITS EXPANSION, THERE IS NO PROVISIO N FOR SPLITTING THE PROFIT FOR ENTITLEMENT OF PROFIT IN A PART OF THE YEAR. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 36 70. THE HONBLE SUPREME COURT IN AARHAM SOFTRONICS (SUP RA) HELD THAT SECTION 80-IC MAKES SPECIAL PROVISIONS IN RESPECT O F CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES. SECTION 80-IC WAS INSERTED BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1-4-2004. AS PER THIS PROVISION, CERTAIN UNDERTAKINGS OR ENTERPRISES IN C ERTAIN SPECIAL CATEGORY STATES ARE ALLOWED DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SECTION 80-IC(3). THE PROVISIONS OF SECTION 80-IC P ROVIDED DEDUCTION TO MANUFACTURING UNITS SITUATED IN THE STATE OF SIKKIM , HIMACHAL PRADESH AND UTTARANCHAL AND NORTH-EASTERN STATES. THE DEDUC TION WAS PROVIDED TO NEW UNITS ESTABLISHED IN THE AFORESAID STATES, AND ALSO TO EXISTING UNITS IN THOSE STATES IF SUBSTANTIAL EXPANSION WAS CARRIED O UT. THE DEDUCTION WAS AVAILABLE AT THE RATE OF 100 PER CENT FOR TEN ASSES SMENT YEARS FOR THE UNITS LOCATED IN NORTH-EASTERN AND IN THE STATE OF SIKKIM AND FOR THE UNITS LOCATED IN HIMACHAL PRADESH, THE DEDUCTION WAS AVAI LABLE AT THE RATE OF 100 PER CENT FOR FIVE YEARS AND AT THE RATE OF 25 P ER CENT FOR NEXT FIVE YEARS. THE HONBLE SUPREME COURT FOLLOWED ITS EARLI ER DECISION IN MAHABIR INDUSTRIES (SUPRA). 71. CONSIDERING THE AFORESAID DECISION, WE ARE OF THE V IEW THAT THE DEDUCTION IS ELIGIBLE ON THE BASIS OF ANNUAL PROFIT AND NOT F OR ANY SPLIT/BROKEN PERIOD. WE ARE ALSO IN THE AGREEMENT WITH THE CONTE NTION OF LD. AR OF THE ASSESSEE ON THE RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT GODREJ SOAPS PVT. LTD.(SUPRA), WHICH IS BASED ON ERSTWHILE SECTION 80J WHEREIN ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 37 INCENTIVE DEDUCTION WAS ALLOWED @ 6% OF CAPITAL EMP LOYED IN THE ELIGIBLE UNDERTAKING WITH REGARD TO THE PERIOD FOR WHICH UNDERTAKING WORKED. IN VIEW OF THE AFORESAID DEDUCTION, WE DIRE CT THE AO TO ALLOW THE DEDUCTION FOR WHOLE OF THE YEAR. IN THE RESULT, TH IS GROUND OF APPEAL IS ALLOWED. 72. GROUND NO.12 RELATES TO DISALLOWANCE OF CAPITAL LOS S ON SALE OF R&D ASSETS. THE LD. AR OF THE ASSESSEE SUBMITS THAT ASS ESSEE CLAIMED DEDUCTION UNDER SECTION 35(1)(IV) IN RESPECT OF CAP ITAL EXPENDITURE ON RESEARCH AND DEVELOPMENT ACTIVITY. CAPITAL ASSETS A RE CONTINUED TO BE HELD BY THE ASSESSEE IN NORMAL COURSE OF ITS BUSINESS AN D NOT CLAIMING ANY DEPRECIATION UNDER SECTION 32. THUS, WHENEVER ANY C APITAL ASSETS HELD FOR R&D IS TRANSFERRED; THE GAIN OR LOSS HAS TO BE COMP UTED UNDER SECTION 48 OF THE ACT. THE AO HELD THAT SALE OF R&D ASSETS HAS TO BE TREATED AS PER THE SPECIAL PROVISIONS OF SECTION 41(3). THE LD. CI T(A) CONFIRMED THE ACTION OF AO BY FOLLOWING THE ORDER OF TRIBUNAL FOR A.Y. 2006-07. THE LD. AR OF THE ASSESSEE FAIRLY CONSIDERED THAT THE S IMILAR ISSUE WAS DECIDED AGAINST THE ASSESSEE IN A.Y. 2006-07 IN ITA NO. 859 7/MUM/2010. CONSIDERING THE SUBMISSION OF LD. AR OF THE ASSESSE E THAT SIMILAR ADDITION/DISALLOWANCE WAS HELD AGAINST THE ASSESSEE BY TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07, THUS, THE GRO UND OF APPEAL RAISED BY ASSESSEE IS DISMISSED. 73. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ITA NOS .4647& 1448/MUM/2016 M/S. MAHINDRA & MAHINDRA LIMITED. 38 ORDER PRONOUNCED IN THE OPEN COURT ON 29/06/2020 SD/- SD/- (M BALAGANESH) (PAWAN SI NGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 29/06/2020 SK COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, J BENCH, ITAT, MUMBAI BY ORDER, ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI