M/S. PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD., V. THE DY CIT CIR 7(1),

ITA 1499/MUM/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59763 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-01-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 23-02-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: HARESH G BUCH
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Search and seizure; Opportunity of being heard; Question of law; Cost of acquisition; Difference of opinion; Commercial expediency; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 43B; 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.1499/MUM/05(A.Y. 1999-2000) ITA NO.1500/MUM/2005(A.Y.2001-02) ITA NO.119/MUM/2009(A.Y.2001-02) M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMITED, P&G PLAZA, CARDINAL GRACIAS ROAD, CHAKALA, ANDHERI (E), MUMBAI 400 099. PAN :AAACP 6332M (APPELLANT) VS. DCIT/ACIT CIR.7(1), AAYKAR BHAVAN, MUMBAI 20. (RESPONDENT) ITA NO.1241/MUM/2005(A..Y. 2001-02) ACIT CIR.7(1), AAYKAR BHAVAN, MUMBAI 20. (APPELLANT) VS. M/S. PROCTER & GAMPLE HYGINE AND HEALTH CARE LIMITED, P&G PLAZA, CARDINAL GRACIAS ROAD, CHAKALA, ANDHERI (E), MUMBAI 400 099. PAN :AAACP 6332M (RESPONDENT) ASSESSEE BY : SHRI HARESH G.BUCH REVENUE BY : SHRI SUBACHAN RAM DATE OF HEARING : 17/01/2012 DATE OF PRONOUNCEMENT : 25 / 01/2012 ORDER PER N.V.VASUDEVAN, J.M: ITA NO.1499/MUM/2005 IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 15/12/2004 OF CIT(A)-19, MUMBAI RELATIN G TO ASSESSMENT YEAR 1999-2000. THE GROUNDS OF APPEAL RAISED BY THE ASS ESSEE READ AS FOLLOWS: M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 2 GROUND I 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XIX, MUMBAI [CIT (A)) ERRED IN CONFIRMING THE ACTION OF THE D EPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7 (1), MUMBAI [A.O.] IN MAK ING A REASSESSMENT U/S. 147. 2. THE APPELLANT PRAYS THAT THE REASSESSMENT BE QUA SHED AND TREATED AS BAD IN LAW. GROUND II 1. THE CIT (A) ERRED IN REDUCING AN AMOUNT OF RS. 3 6,21,82,320/-, BEING THE DEDUCTION U/S 801B, FROM THE PROFITS OF T HE BUSINESS FOR CALCULATING THE DEDUCTION U/S 8OHHC. 2. THE APPELLANT PRAYS THAT THE DEDUCTION U/S 8OHHC IN RESPECT OF PROFITS FROM 801B UNITS BE CALCULATED BY REDUCING T HE AMOUNT OF DEDUCTION U/S 801B FROM THE DEDUCTION U/S 8OHHC AND NOT FROM THE PROFITS OF THE BUSINESS, WHICH FORMS THE BASIS FOR CALCULATING THE DEDUCTION U/S 8OHHC. 2. THE ASSESSEE IS A COMPANY, ENGAGED IN MANUFACTUR ING AND MARKETING OF CONSUMER PRODUCTS. THE ASSESSEE HAD FILED ITS O RIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 1999-2000 ON 22/11/1999 DEC LARING RS.12,65,86,090/-, AS ITS INCOME. THE ORIGINAL ASS ESSMENT ORDER U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS PASSED ON 27/3/2002 ASSESSING INCOME AT RS. 37,50,03,400/-. THE AO REOPENED THE ASSESSMENT U/S. 147 OF THE ACT BY ISSUING NOTICE U/S. 148 ON 12/06/2003 FO R THE REASON THAT WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE ACT, TH E DEDUCTION U/S. 80 IB OF RS. 3,21,82,320/- HAS NOT BEEN REDUCED FROM PROFITS OF BUSINESS WHILE COMPUTING DEDUCTION U/S. 80 HHC. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 3 3. IN THE REASSESSMENT PROCEEDINGS, THE AO HELD THA T THE DEDUCTION U/S.80-HHC OF THE ACT HAD BEEN CLAIMED BY INCLUDING IN THE PROFITS OF BUSINESS PROFITS FROM HONDA UNIT AND KUNDAIM UNIT IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA. ACCORDIN G TO THE AO ALLOWING SUCH A CLAIM WOULD AMOUNT TO ALLOWING CLAIM FOR DOU BLE DEDUCTION. I.E. BOTH U/S. 80IA AND U/S. 80 HHC, IN RESPECT OF THE SAME P ROFIT. ACCORDING TO THE AO, SUCH A CLAIM NOT ONLY DEFIES LOGIC AND COMMON S ENSE, BUT IS ALSO SPECIFICALLY PROHIBITED IN LAW AS PER THE EXPRESS P ROVISIONS OF SUB-SECTION 9 OF SECTION 80IA. THE AO THEREAFTER REFERRED TO THE PROVISIONS OF SUB-SECTION 9 OF SECTION 801A WHICH READS AS UNDER: WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN INDUST RIAL UNDERTAKING OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAI MED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT YEAR, DEDUCTI ON TO THE EXTENT OF SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER A NY OTHER PROVISIONS OF THIS CHAPTER UNDER THE HEADING C- DEDUCTIONS IN RESPECT OF CERTAIN INCOMES, AND SHALL IN NO CASE EXCEED THE PROFITS AN D GAINS OF SUCH ELIGIBLE BUSINESS OF INDUSTRIAL UNDERTAKING OR ENTE RPRISE, AS THE CASE MAY BE. THE AO HELD THAT IN VIEW OF THE ABOVE CLEAR-CUT PRO VISIONS, THE PROFITS ADMISSIBLE FOR DEDUCTION ULS.8OLA ARE TO BE EXCLUDE D IN COMPUTING DEDUCTION U/S.8OHHC OF THE ACT. THE DEDUCTION U/S.8OLA HAS BE EN DETERMINED AT RS.32,75,62,323/- AND RS. 3,46,19,997/- FOR HONDA U NIT AND KUNDAIM UNIT. THE ABOVE AMOUNTS TOTALING RS. 36,21,82,320/- WERE REDUCED FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF DEDUCTION U /S.8OHHC AND DEDUCTION U/S. 80 HHC WHICH WAS EARLIER ALLOWED TO THE ASSESS EE IN THE ASSESSMENT ORDER U/S.143(3) OF THE ACT WAS REDUCED TO RS. 161, 03,822/- AS AGAINST THE DEDUCTION ALLOWED AT RS. 3,29,55,999/- IN THE ORIGI NAL ORDER U/S. 143(3). 4. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDER OF THE AO. THE ASSESSEE HAD ALSO CHALLENGED THE VALIDITY OF IN ITIATION OF REASSESSMENT M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 4 PROCEEDINGS UNDER SECTION 147 OF THE ACT ON THE GRO UND THAT THE SAME WAS DONE PURELY ON CHANGE OF OPINION. THIS WAS ALSO RE JECTED BY THE REVENUE AUTHORITIES. HENCE THE ABOVE APPEAL BY THE ASSESSE E BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSUE SOUGHT TO BE CANVASSED BY THE ASSESSEE IN GROUND NO.II IS NO LO NGER RES INTEGRA AND HAS BEEN CONCLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT. LTD. VS. DCIT 332 ITR 42(BOM) WHEREI N THE HONBLE BOMBAY HIGH COURT HELD AS FOLLOWS: SECTION 80-IA(9) OF THE INCOME-TAX ACT, 1961, PROV IDES THAT THE DEDUCTION TO THE EXTENT OF PROFITS ALLOWED UNDER SE CTION 80-IA(1) WOULD NOT BE ALLOWED UNDER ANY OTHER PROVISIONS. IT MEANS THAT THE DEDUCTIONS ALLOWABLE UNDER OTHER PROVISIONS UNDER H EADING C OF CHAPTER VI-A WOULD BE ALLOWED TO THE EXTENT OF PROF ITS AS REDUCED BY THE PROFITS ALLOWED UNDER SECTION 80-IA(1). THE SEC OND PART OF SECTION 80-IA(9) DOES NOT REFER TO THE METHOD OF COMPUTING DEDUCTION UNDER OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A. T HUS, SECTION 80- IA(9) SEEKS TO CURTAIL THE ALLOWANCE OF DEDUCTION A ND NOT THE COMPUTATION OF DEDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A OF THE ACT. THE LEGISLATURE HAS USE D SPECIFIC WORDS WHENEVER IT INTENDS TO AFFECT THE COMPUTATION OF DE DUCTION. AS THE WORDS USED IN SECTION 80-IA(9) RELATE TO ALLOWANCE AND NOT COMPUTATION OF DEDUCTION, IT CANNOT BE INFERRED THA T SECTION 80-IA(9) WAS INSERTED WITH A VIEW TO AFFECT COMPUTATION OF D EDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A. S INCE SECTION 80- IA(9) USES THE WORDS 'SHALL NOT BE ALLOWED', THE SE CTION SEEKS TO RESTRICT THE ALLOWANCE OF DEDUCTION AND NOT THE COMPUTATION OF DEDUCTION UNDER ANY OTHER SECTIONS UNDER HEADING C OF CHAPTER VI-A OF THE ACT. THEREFORE THE REASONABLE CONSTRUCTION OF SECTION 80 -IA(9) WOULD BE THAT WHERE THE DEDUCTION IS ALLOWED UNDER SECTION 8 0-IA(1), THEN THE DEDUCTION COMPUTED UNDER OTHER PROVISIONS UNDER HEA DING C OF CHAPTER VI-A HAVE TO BE RESTRICTED TO THE PROFITS O F THE BUSINESS THAT REMAIN AFTER EXCLUDING THE PROFITS ALLOWED AS DEDUC TION UNDER SECTION 80-IA, SO THAT THE TOTAL DEDUCTION ALLOWED UNDER TH E HEADING C OF CHAPTER VI-A DOES NOT EXCEED THE PROFITS OF THE BUS INESS. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 5 THE HONBLE HIGH COURT HELD, THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT SECTION 80-IA(9) OF THE ACT, MANDATES THAT THE AMOUNT OF PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) OF THE ACT HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WHILE COMPUTING DEDUCTION UNDER ANY OTHER PROVISIONS UNDE R HEADING C IN CHAPTER VI-A OF THE ACT. 6. IN THE LIGHT OF THE DECISION OF THE HONBLE BOM BAY HIGH COURT WE ARE OF THE VIEW THAT THE REDUCTION OF ALLOWANCE UNDER SECT ION 80HHC MADE BY THE AO IN THE REASSESSMENT PROCEEDINGS CANNOT BE SUSTAI NED. THE SAME IS HEREBY DELETED. IN VIEW OF THE DECISION OF THE DEC ISION ON MERITS, WE ARE OF THE VIEW THAT THE VALIDITY OF INITIATION OF REASSES SMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT IS PURELY ACADEMIC AND CALLS FOR NO ADJUDICATION. 7. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALL OWED. ITA 1241/M/05 & 1500/M/05:A.Y. 2001-02: 8. ITA NO.1241/M/05 IS AN APPEAL BY THE REVENUE WHI LE ITA NO.1500/M/05 IS AN APPEAL BY THE REVENUE. BOTH THE SE APPEALS ARE DIRECTED AGAINST THE ORDER OF CIT(A)-19 MUMBAI, DATED 30/11/ 2004 RELATING TO ASSESSMENT YEAR 2001-02. 9. WE WILL TAKE UP FOR CONSIDERATION THE ASSESSEE S APPEAL VIZ., ITA NO.1241/MUM/05: 10. GROUND NO.I & II RAISED BY THE ASSESSEE READS AS FOLLOWS: GROUND I 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XIX, MUMBAI [CIT (A)] ERRED IN CONFIRMING THE ACTION OF THE D EPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7 (1), MUMBAI [A.O.] IN DIS ALLOWING THE DEPRECIATION OF RS.11, 46,803/- ON OFFICE PREMISES OF THE APPELLANT AT MATULYA CENTRE AND FURTHER IN TAXING THE RENTAL COM PENSATION OF M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 6 RS.1,08,00,000/- UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME. 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF DEP RECIATION BE DELETED AND THAT THE RENTAL COMPENSATION RECEIVED IN RESPEC T OF OFFICE PREMISES BE CONSIDERED AS BUSINESS INCOME AS CLAIMED BY TH E APPELLANT. WITHOUT PREJUDICE TO THE ABOVE GROUND II 1. THE LEARNED CIT (A) ERRED IN ALLOWING DEDUCTION U/S. 24(1)(I) ON A CONDITIONAL BASIS THEREBY REVERTING THE MATTER TO T HE A.O. TO VERIFY THE DETAILS OF REPAIRS EXPENDITURE INCURRED IN CONNECTI ON WITH THE HOUSE PROPERTY AND DIRECTING THAT THE SAME BE ALLOWED ONL Y ON FURNISHING OF THE RELEVANT DETAILS. 2. THE APPELLANT PRAYS THAT DEDUCTION U/S. 24(1)(I) BE ALLOWED UNCONDITIONALLY. 11. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF MANUFACTURING AND SALE OF MEDICINES AND VARIOUS PERSONAL HEALTH C ARE PRODUCTS. THE ISSUE RAISED IN GROUND NO.I IS WITH REGARD TO RENTAL INCO ME FROM LETTING OUT OF THE PROPERTY MATULYA CENTER OWNED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN THE AFORESAID PROPERTY TO A GROUP COMPANY M/S. PROCTOR & GAMBLE HOME PRODUCTS LTD. FOR RS. 1,08,00,000/- PER ANNUM. THE ASSESSEE HAD CLAIMED THAT INCOME FROM LETTING WAS INCOME FROM BUSINESS A ND THAT DEPRECIATION ON THE AFORESAID BUILDING SHOULD ALSO BE ALLOWED AS TH E ASSET WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE AO WAS OF THE VIEW THAT INCOME FROM AFORESAID PROPERTY SHOULD BE ASSESSED UNDER TH E HEAD INCOME FROM HOUSE PROPERTY AND DEPRECIATION CLAIMED BY THE ASSE SSEE SHOULD NOT BE ALLOWED. HE WAS OF THE VIEW THAT RENTAL INCOME FR OM THE PROPERPTY HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE UNDER SECTION 22 OF THE INCOME TAX ACT 1961(THE ACT) UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. THE AO M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 7 ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FO R DEPRECATION AND FURTHER BROUGHT THE RENTAL INCOME IN QUESTION TO TAX UNDER SECTION 22 OF THE ACT. 12. THE PLEA OF THE ASSESSEE THAT THE INCOME FROM LETTING OUT OF PROPERTY HAD TO BE CONSIDERED AS INCOME FROM BUSINESS WAS BASED ON THE FACT THAT THE PROPERTY WAS LEASED TO A SISTER COMPANY OF THE ASSS ESSEE M/S.PROCTOR & GAMBLE HOME PRODUCTS LTD. UNDER A BUSINESS ARRANGEM ENT BETWEEN THE ASSESSEE AND SISTER COMPANY WHEREBY THE SISTER COMP ANY AGREED TO COMPENSATE THE ASSESSEE FOR USE OF SPACE. ACCORDIN G TO THE ASSESSEE THE PREMISES IN QUESTION WAS ALSO OCCUPIED BY THE EMPLO YEES OF THE ASSESSEE AND WERE FUNCTIONING FROM THE SAME PREMISES AND US ED THE SAME SET OF INFRASTRUCTURE AS IS AVAILABLE IS ASSESSEES SISTE R CONCERN. THE ASSESSEE FURTHER SUBMITTED IT WAS THE MANUFACTURER AND DI STRIBUTOR OF ALL ITS PRODUCTS UPTO MARCH1993. THEREAFTER, WITH A VIEW T O TAKE ADVANTAGE OF THE MERITS OF SPECIALIZATION, THE DISTRIBUTION TASK WA S ALLOTTED TO A NEW COMPANY (NAMELY PROCTER & GAMBLE DISTRIBUTION CO. LTD. PGD C) IN APRIL1993 AND SUBSEQUENTLY TO PGHP IN NOVEMBER1998 WHEN THIS BU SINESS OF PGDC WAS COMMENCED BY PGHP. ONE OF PGHPS ACTIVITY WAS THAT OF DISTRIBUTION OF THE ASSESSEES PRODUCTS. WITH A VIEW THAT THIS ACTIVITY IS SMOOTHLY TAKEN OVER AND IS CARRIED ON WITHOUT ANY INTERRUPTION, THE ASSESSE E, IN ITS OWN BUSINESS INTERESTS, AGREED TO ALLOW THE USE OF ITS SET INFRA STRUCTURE NAMELY- PREMISES COMPUTERS, OFFICE EQUIPMENTS, TELEPHONES ETC. FOR A COMPOSITE CONSIDERATION. ACCORDING TO THE ASSESSEE WHEN A PRINCIPAL ALLOWS T HE USE OF ITS PREMISES TO ITS AGENT WITH THE UNDERSTANDING THAT THE SAME SHOU LD BE USED ENTIRELY FOR THE BUSINESS OF THE PRINCIPAL ONLY AND FOR NO OTHER PURPOSE WHATSOEVER THE COMPENSATION RETAINS THE CHARACTER OF BUSINESS INCO ME. IT WAS ARGUED THAT THE PRINCIPAL COULD EITHER ADJUST THE COMPENSATION IN THE MARGINS OR COMMISSION PAYABLE TO THE AGENT OR COULD SHOW THEM SEPARATELY. IF MARGINS WERE TO BE ADJUSTED, ONLY THE NET EXPENDITURE WOULD BE CLAIMABLE AS M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 8 BUSINESS EXPENDITURE. THE ASSESSEE POINTED OUT THA T THERE WAS NO SUCH ADJUSTMENT. THE ASSESSEE ARGUED THAT BOTH THE ARRA NGEMENTS IDENTICAL AND IN THE CIRCUMSTANCE IT WAS NOT JUSTIFIABLE TO TRE AT EXPENDITURE AS BUSINESS EXPENDITURE AND INCOME AS RENTAL INCOME. THE RENT AL INCOME SHOULD BE CONSIDERED AS AN INTEGRAL PART OF THE BUSINESS OF T HE ASSESSEE WHEN THE PGDC DEALS IN THE PRODUCTS OF THE ASSESSEE AND OF N ONE OTHERS. 13. THE ARGUMENTS DID NOT FIND FAVOUR WITH THE AO. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL ISSUE HAD COME UP FOR CONSIDERATI ON IN ASSESSEES OWN CASE IN ITA NO.845/MUM/03 FOR AY 95-96 AND THIS TRIBUNAL HELD AS FOLLOWS: 6.3 AS REGARDS THE RENTAL INCOME, THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAD LET OUT THE BUILDING TO PROCTER AND GA MBLE DISTRIBUTION CO. LTD. FOR EFFECTIVE AND SMOOTH DISTRIBUTION OF PRODUCTS AND SUCH LETTING OUT HAD ADVANCED THE BUSINESS INTEREST. MO REOVER, LETTING OUT THE PROPERTY WAS ALSO ONE OF THE OBJECTS OF THE ASS ESSEE COMPANY AND ACCORDINGLY IT HAS BEEN CLAIMED THAT THE RENTAL INC OME SHOULD BE ASSESSED AS BUSINESS INCOME. 6.4 WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE MATERIAL CAREFULLY. THERE IS NO MATERIAL TO SHOW THAT BUILDI NG HAS BEEN LET OUT BY THE ASSESSEE AS PART OF ANY BUSINESS ARRANGEMENT SO THAT THE RENTAL INCOME COULD BE CONSIDERED AS INCIDENTAL BUSINESS I NCOME. MERELY BECAUSE THE BUILDING HAS BEEN LET OUT TJ THE DISTRI BUTOR OF THE ASSESSEE, THE RENTAL INCOME CANNOT BE TREATED AS BUSINESS INC OME IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT LETTING OUT WAS NECESS ARY FOR THE PURPOSE OF BUSINESS. SIMILARLY, MERELY BECAUSE ONE OF THE O BJECTS OF THE ASSESSEE WAS LETTING OUT OF THE PROPERTY, IT CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THE ASSESSEE WAS ACTUALLY DO ING BUSINESS IN LETTING OUT BUILDINGS. THERE IS NO MATERIAL TO SHOW THAT THE ASSESSEE WAS DOING ANY ORGANIZED ACTIVITY OF LETTING OUT BUI LDINGS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME CANNOT BE ACCEPTED AND THE ORDER OF THE CIT (A) IS UPHELD. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 9 14. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL WE HOLD THAT THE INCOME IN QUESTION HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. 15. AS FAR GROUND NO.II IS CONCERNED THE SAME HAS T O BE DISMISSED IN VIEW OF THE CONCLUSION THAT THE INCOME IN QUESTION IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THUS GROUND NO.I IS PARTLY ALL OWED WHILE GROUND NO.II IS DISMISSED. 16. GROUND NO.III & IV RAISED BY THE ASSESSEE READ AS FOLLOWS: III & IV. GROUND III 1. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN RESPECT OF ADDITION TO THE VALUE OF CLOSING STOCK ON ACCOUNT O F UNUTILIZED MODVAT OF RS.1,51,02,496. 2. THE APPELLANT PRAYS THAT THE ADDITION TO CLOSING ST OCK BE DELETED. GROUND IV: 1. THE CIT(A) ERRED IN REJECTING GROUND NO.VI BEFORE H IM ON THE ALLEGED GROUND THAT NO QUANTUM RELIEF BE GRANTED IN RESPECT OF THE MODVAT ELEMENT IN OPENING STOCK. 2. THE APPELLANT PRAYS THAT THE MATTER OF QUANTUM BE R EVERTED BACK TO THE AO TO VERIFY THE ELEMENT OF MODVAT CREDIT IN TH E OPENING STOCK AND GRANT APPROPRIATE RELIEF. 17. IN THE COURSE OF ASSESSMENT PROCEEDING, THE ASS ESSEE WAS ASKED TO FURNISH DETAILS OF UNUTILIZED MODVAT RELATING TO CL OSING STOCK-IN-TRADE. THE ASSESSEE FURNISHED THE SAID DETAILS VIDE ANNEXURE- 14 TO ITS LETTER DT. 10.112003 AS PER WHICH THE UNUTILIZED MODVAT CREDIT RELATABLE TO CLOSING STOCK-IN-TRADE WORKS WAS RS. 15,102,496/-. THE ASSE SSEE WAS ASKED TO EXPLAIN WHY THE ABOVE UNUTILISED MODVAT CREDIT OF R S. 15,102,496/- SHOULD NOT BE INCLUDED IN THE VALUATION OF CLOSING STOCK A S PER THE PROVISIONS OF SEC. I45A OF THE ACT. IN RESPONSE TO THE SAME, THE ASSES SEE FILED A COPY OF THE TAX AUDIT REPORT WHEREIN IT WAS MENTIONED THAT THERE WA S NO IMPACT ON THE PROFIT & LOSS ACCOUNT DUE TO THE DEVIATION FROM THE METHOD OF VALUATION PRESCRIBED UNDER SEC. 145A OF THE ACT. THE CONTENTION OF TH E ASSESSEE WAS NOT M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 10 ACCEPTED BY THE AO AND HE WAS OF THE VIEW THAT AS T HE PROVISIONS OF SEC. 145A OF THE ACT THE AMOUNT OF UNUTILIZED MODVAT CRE DIT HAD TO BE ADDED IN THE VALUE OF CLOSING STOCK. HE HELD THAT THE CLOSI NG STOCK OF THE ASSESSEE COMPANY WAS UNDERVALUED TO THE EXTENT OF SUCH NON-I NCLUSION OF MODVAT CREDIT OF RS. 15,102,496/- AND THE PROFIT OF THE CO MPANY WAS UNDER-REPORTED TO THE ABOVE EXTENT. THEREFORE, AN AMOUNT OF RS. 15,102,496/- WAS ADDED TO THE VALUE OF DOSING STOCK AND THE TOTAL INCOME O F THE ASSESSEE COMPANY WAS ENHANCED TO THAT EXTENT. 18. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. THE ISSUE RAISED IN GROUND NO.3 IS NO LONGER RESIN TEGRA AND HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD., 297 ITR 77 , WHEREIN THE HONBLE D ELHI HIGH COURT HELD THAT WHENEVER ADJUSTMENT ON ACCOUNT OF MODVAT CRED IT IS MADE CORRESPONDING ADJUSTMENT IS ALSO TO BE MADE TO OPEN ING STOCK. THE AFORESAID VIEW HAS ALSO BEEN ACCEPTED BY THE HONBL E BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS. 318 ITR 116 (BOM ). THE ISSUE IS THEREFORE REMANDED TO THE AO TO CONSIDER THE SAME A FRESH IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENT REFERRED TO ABOVE. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CASE HAWKINS COOKERS LTD. VS. ITO IN ITA NO.505/MUM/04 DATED 11/ 8/2008, WHEREIN HONBLE ITAT MUMBAI BENCH HAD ALSO EXAMINED THE ISS UE IN THE LIGHT OF THE PROVISIONS OF SECTION 43B OF THE ACT. WE ARE OF TH E VIEW THAT EVEN THIS ASPECT MAY BE RAISED BY THE ASSESSEE BEFORE THE AO AND THE AO IS DIRECTED TO CONSIDER THE SAME. THUS GROUND NO.III & IV ARE TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. 19. GROUND NO.V RAISED BY THE ASSESSEE READS AS FOL LOWS: M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 11 GROUND V 1. THE CIT(A) ERRED IN RESTRICTING DEPRECIATION @ 2 5% BATTERY OPERATED PALLET TRUCK AS AGAINST 100% AS CLAIMED BY THE APPE LLANT. 2. THE APPELLANT PRAYS DEPRECIATION ON BATTERY OPER ATED PALLET TRUCK BE ALLOWED@ 100% AS CLAIMED BY THE APPELLANT. 20. THIS GROUND OF APPEAL CAN BE CONVENIENTLY DECID ED TOGETHER WITH GROUND NO. 4 RAISED BY THE REVENUE IN ITS APPEAL W HICH READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEPRECIAT ION @ 100% ON FORK LIFT IGNORING THE FACT THAT DEPRECIATION @100% IS T O BE ALLOWED ONLY ON ELECTRICALLY OPERATED VEHICLE AND FORK LIFT IS NOT SUCH A VEHICLE. 21. THE ASSESSEE CLAIMED 100% DEPRECIATION OF FORK LIFT WORTH RS. 16,55,740/- AND BATTERY OPERATED PALLET TRUCK WORTH RS. 7,34,051/-. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE AFORESAID TWO ASSETS WHICH FALL UNDER THE SUB-BLOCK (XIII) OF BLOCK III(3) SCHEDULE -I TO THE IT RULES, 1962 (RULES) OF THE TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE UNDER RULE 5 OF THE INCOME TAX RULES, 1962. THIS SUB-BLOCK (XIII ) LISTS THE RENEWAL ENERGY SAVING DEVICES WHICH INCLUDES AS ITEM (O) ELECTRI CALLY OPERATED VEHICLES INCLUDING BATTERY POWERED FUEL CELL POWERED VEHICLE S. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE TWO ASSETS WHICH T HE ASSESSEE HAS INCLUDED UNDER THE AFORESAID HEAD VIZ., A) AFORK4 LIFT AND B) A BATTER OPERATED PALLET TRUCK THESE ASSETS WERE ELECTRICALLY OPERATE D IN THE PLANT WAREHOUSE FOR MOVING MATERIALS AND FINISHED GOODS. HENCE THE SE DEFINITELY QUALIFY AS ELECTRICALLY OPERATED VEHICLES. THE ASSESSEE ALSO P OINTED OUT THAT THESE ASSETS ARE ADDITIONS TO SUCH ASSETS IN THE PLANT AN D COULD BE IN THE NATURE OF REPLACEMENT OF AN EXISTING OLD PALLET TRUCK. THE A SSESSEE ALSO SUBMITTED THAT THE AFORESAID TWO ITEMS CANNOT BE CONSIDERED A S VEHICLES BECAUSE THESE ASSETS ARE VEHICLES USED IN THE MANUFACTURING PLANT FOR THE PURPOSE OF M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 12 MOVING MATERIALS AND FINISHED GOODS WHICH IS AN ES SENTIAL PART OF THE MANUFACTURING ACTIVITY. HENCE THESE ASSETS HAVE TO BE CLASSIFIED UNDER THE BLOCK PLANT & MACHINERY. THE ASSESSEE ALSO SUBMIT TED THAT THE BLOCK OF ASSETS MOTOR CARS COVERS SPECIFICALLY MOTOR CAR S AS SUGGESTED BY THE NAME OF THE BLOCK AND NOT VEHICLES IN GENERAL. HE NCE THESE TWO ASSETS CANNOT BE CLASSIFIED UNDER THE BLOCK MOTOR CARS. 22. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND HE HELD AS FOLLOWS: 8.3 THE EXPLANATION OF THE ASSESSEE IS, HOWEVER, N OT ACCEPTABLE AS THE APPENDIX-I TALKS ABOUT BATTERY POWERED VEHICLES. TH E ASSESSEE HAS BEEN USING THE FORK LIFT AND THE PALLET TRUCK INSID E THE FACTORY FOR SHIFTING OF MATERIAL. THE FORK LIFT & THE PALLET TR UCK IS NOT REGISTERED AS A VEHICLE UNDER THE MOTOR VEHICLES ACT. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE FORK LIFT AND THE PALLET TRUCK IS A BATTERY POWERED VEHICLE IS REJECTED AND ACCORDINGLY, THE DEPRECIA TION CLAIMED AT 100% RATE IS DISALLOWED. DEPRECIATION IS, HOWEVER ALLOWE D AT 25% APPLICABLE TO PLANT AND MACHINERY. IN THE RESULT, DEPRECIATION TO THE EXTENT OF RS.1,792,343/- IS DISALLOWED. PENALTY PROCEEDINGS U /S.271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE INI TIATED SEPARATELY. 23. ON APPEAL BY THE ASSESSEE THE CIT(A) WAS OF THE FOLLOWING VIEW: 9.3 I HAVE CARELLY CONSIDERED THE MATTER. IN MY CO NSIDERED OPINION, THE APPELLANT ASSESSEE IS JUSTIFIED TO CLAIM DEDUCT ION @100% IN RESPECT OF THE FORK LIFTS. AS PER THE DEFINITION OF VEHICL E AS PER SECTION 2(28) OF THE MOTOR VEHICLES ACT, 1988, IT DOES NOT INCLUDE T HE VEHICLE OF A SPECIAL TYPE ADAPTED FOR USE ONLY IN A FACTORY OR I N ANY OTHER ENCLOSED PREMISES OR A VEHICLE HAVING LESS THAN FOUR WHEELS FITTED WITH ENGINE CAPACITY OF NOT EXCEEDING 25 CUBIC CENTIMETER. THE VEHICLE MEANS ANY MECHANICALLY PROPELLED VEHICLE ADAPTED FOR USE UPON ROADS WHETHER THE POWER OF PROPULSION IS TRANSMITTED THERETO FROM AN EXTERNAL OR INTERNAL SOURCES. THE ELECTRIC FORK LIFT TRUCK IS F OUR WHEELED. IT WAS PURCHASED FROM GODREJ. I HAVE REFERRED TO THE LITE RATURE AND FIND THAT IT IS COVERED BY THE DEFINITION OF VEHICLES. HOWEVE R THE POSITION REGARDING THE PALLET TRUCKS IS DIFFERENT. THE PALLE T TRUCKS ARE BATTERY OPERATED BUT FROM THE LITERATURE IT IS SEEN THAT IT IS A VEHICLE HAVING M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 13 LESS THAN FOUR WHEELS. DEPRECIATION, THEREFORE, IS ALLOWABLE AT THE RATE OF 25% OF THE DISCUSSION MADE ABOVE, GROUND APPEAL NO. 8 IS PARTLY ALLOWED. 24. AGGRIEVED BY THE ORDER OF THE CIT(A) ALLOWING D EPRECIATION ON FORK LIFT AT 100% REVENUE HAS RAISED GROUND NO.4 BEFORE THE T RIBUNAL. AGGRIEVED BY THE ORDER OF THE CIT(A) IN ALLOWING DEPRECIATION ON LY AT 25% ON PALLET TRUCK THE ASSESSEE HAS RAISED GROUND NO.V BEFORE THE TRI BUNAL. 25. WE HAVE HEARD THE RIVAL SUBMISSION. APPENDIX 1 III TO THE INCOME TAX RULES GIVES THE DEPRECIATION ALLOWABLE ON MACHINERY AND PLANT. APPENDIX-1 III(3) GIVES A LIST OF ITEMS OF MACHINERY AND PLANT WHICH ARE ENTITLED TO 100% DEPRECIATION. IN CLAUSE (XIII) (RENEWABLE ENERGY D EVICES) ARE LISTED AS PLANT AND MACHINERY WHICH ARE ENTITLED FOR DEPRECIATION A T 100%. BELOW CLAUSE (XIII) A LIST OF RENEWABLE ENERGY DEVICES ARE GIVEN . ITEM O IN THAT LIST CONTAINED FOLLOWING DESCRIPTIONS: ELECTRICALLY OPERATED VEHICLES INCLUDED BATTERY POWERED OR FUEL CELL POWERED VEHICLES THE REQUIREMENT OF A VEHICLE BEING REGISTERED UNDE R MOTOR VEHICLE AT 1988 CANNOT BE EXTENDED TO THE CATEGORY OF VEHICLES REFE RRED TO ITEM-O REFERRED TO ABOVE. WE HAVE TO KEEP IN MIND THAT THESE VEHICLES OPERATE WITHIN THE PLANT AND DO NOT PLY ON PUBLIC ROADS. IN OUR VIEW THE TE ST WOULD BE WHETHER THEY ARE RENEWABLE ENERGY DEVICES AND THEY ARE VEHICLES IN COMMON PARLANCE. THE DICTIONARY MEANING OF VEHICLE AS GIVEN IN OXFOR D ENGLISH REFERENCE DICTIONARY IS ANY CONVEYANCE FOR TRANSPORTING PEO PLE, GOOD ETC. ESPECIALLY ON LAND. IN OUR VIEW THE DEVICES ON WHICH THE ASS ESSEE CLAIMED 100% DEPRECIATION SATISFY THIS REQUIREMENT AS THEY CARRI ED GOODS ON LAND ALBEIT WITHIN THE FACTORY. THESE PROVISIONS ALLOWING DEPR ECIATION AT 100% BEING BENEFICIAL PROVISION CALLS FOR BROAD INTERPRETATION . APART FROM THE ABOVE WE M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 14 ALSO NOTICE THAT BATTERY OPERATED VEHICLES PLYING IN PUBLIC ROADS WAS NOT IN VOGUE AT THE RELEVANT POINT OF TIME WHEN THESE PROV ISIONS WERE INTRODUCED AND, THEREFORE, IT CANNOT BE SAID THAT THESE PROVIS IONS INTENDED TO COVER VEHICLE AS PER THE MOTOR VEHICLE ACT 1988. WE ALSO FIND THAT THESE DEVICES WERE BATTERY OPERATED AND RENEWABLE ENERGY SAVING D EVICES. WE ACCORDING DIRECTED THAT DEPRECIATION AT 100% SHOULD BE ALLOWE D AS CLAIMED BY THE ASSESSEE. 26. GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED WHILE GROUND NO.V RAISED BY THE ASSESSEE IS ALLOWED. 27. GROUND NO.VI RAISED BY THE ASSESSEE WAS NOT PRE SSED AND THE SAME IS DISMISSED AS NOT PRESSED. 28. GROUND NO.VII RAISED BY THE ASSESSEE READS AS F OLLOWS: GROUND VII 1. THE CIT (A) ERRED IN DISALLOWING THE EXPENDITURE OF RS. 1,17,500/- INCURRED ON SPLIT AIR-CONDITIONERS ON THE ALLEGED G ROUND THAT IT IS CAPITAL IN NATURE. 2. THE APPELLANT PRAYS THAT DISALLOWANCE BE DELETED . 29. THE ASSESSEE HAD CLAIMED DEDUCTION OF A SUM OF RS.1,17,500/- BEING EXPENDITURE INCURRED ON INSTALLATION OF 2 TON & 1. 5 TON WALL MOUNTED SPLIT AC. THIS WAS CLAIMED AS PART OF THE EXPENDITURE ON REPAIRS AND MAINTENANCE OF BUILDING WHICH WAS TO THE TUNE OF RS . 1,23,12,229/-. THE AO WAS OF THE VIEW THAT IT WAS AN EXPENDITURE FOR A CQUIRING CAPITAL ASSET. THE OFFICE IN WHICH THIS WAS INSTALLED WAS RENTED P REMISES. DESPITE THE ABOVE THE AO WAS OF THE VIEW THAT THE EXPENDITURE W AS CAPITAL EXPENDITURE INCURRED FOR ACQUIRING CAPITAL ASSET AND HE DISALLO WED THE CLAIM FOR DEDUCTION. ON APPEAL BY THE ASSESSEE THE CIT(A) CO NFIRMED THE ORDER OF AO. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 15 30. WE ARE OF THE VIEW THAT ORDER OF THE CIT(A) ON THIS ISSUE HAS TO BE ACCEPTED. THE EXPENDITURE IN QUESTION WAS FOR ACQU IRING INDEPENDENT ITEMS OF AIR CONDITIONERS, WHICH IS CAPITAL ASSET. THE S AME CANNOT BE CLAIMED AS A REVENUE EXPENDITURE. THE ASSESSEE WAS ALLOWED DEPR ECIATION ON THE SAME. WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS ACCEPTABLE. GROUND NO.VII IS ACCORDINGLY DISMISSED. 31. GROUND NO.VIII RAISED BY THE ASSESSEE READS A S FOLLOWS: GROUND VIII 1. THE CIT (A) ERRED IN DISALLOWING THE EXPENDITURE INCURRED FOR REPLACEMENT OF MODEMS AT ITS OFFICE OF RS.5, 60,000 /- CLAIMED BY THE APPELLANT ON THE ALLEGED GROUND THAT IT IS CAPITAL IN NATURE. 2. THE APPELLANT PRAYS THAT DISALLOWANCE BE DELETED . 32. THE ASSESSEE HAD REPLACED MODEMS AND THE SAME W AS CLAIMED AS REVENUE EXPENDITURE. MODEMS ARE PART OF COMPUTERS. THE AO HELD THAT IT WAS AN INDEPENDENT ITEM OF PLANT AND MACHINERY AND WAS A CAPITAL EXPENDITURE. AO ALLOWED THE DEPRECIATION AT 25%. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A MO DEM IS A PART OF THE COMPUTER AND NOT AN INDEPENDENT ITEM OF A PLANT. R EPLACEMENT OF SUCH PART OF COMPUTER HAS TO BE CONSIDERED AS REVENUE EXPENDI TURE. THE CLAIM OF THE ASSESSEE IS THEREFORE, DIRECTED TO BE ACCEPTED. GR OUND NO.VIII IS ACCORDINGLY ALLOWED. 34. GROUND NO.IX RAISED BY THE ASSESSEE READS AS FO LLOWS: GROUND IX: M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 16 1. THE CIT(A) ERRED IN GRANTING DEPRECIATION @ 25 % ON MOULDS AND DIES BY REJECTING THE APPELLANTS CLAIM OF AMORTIZAT ION OVER A PERIOD OF FOUR YEARS. 2. THE APPELLANT PRAYS THAT DEPRECIATION BE ALLOWE D AS CLAIMED. 35. THE ASSESSEE CLAIMED AS REVENUE EXPENDITURE DED UCTION WHILE COMPUTING INCOME FROM BUSINESS EXPENDITURE ON MOULD S AND DIES. THE ASSESSEE AS ALREADY STATED IS IN THE BUSINESS OF MA NUFACTURING PERSONAL HEALTH CARE PRODUCTS. THE PRODUCTS ARE SOLD IN ATT RACTIVE PLASTIC CONTAINERS. THE PERSON WHO SUPPLIES THE PACKING MATERIAL MAKES MOULDS AND DIES FOR MAKING PACKING MATERIAL/CONTAINERS. THE ASSESSEE R EIMBURSES THE COST OF THE MOULDS AND DIES TO THE SUPPLIER OF PACKING MATE RIAL. ACCORDING TO THE ASSESSEE BECAUSE OF CHANGE IN CONSUMER DESIRES AND PATTERN, THE CONTAINERS ARE USED FOR A SHORT PERIOD AND ARE OFTEN CHANGED . THEREFORE, THE COST OF MOULDS AND DIES WERE TREATED AS REVENUE EXPENDITURE . ALTERNATIVELY THE ASSESSEE CLAIMED AS FOLLOWS: WITHOUT PREJUDICE TO THE ABOVE, WE SUBMIT THAT IF THE ALLEGED COST OF ACQUISITION OF MOULDS AND DIES IS TO BE TREATED AS FIXED ASSET THE DEPRECIATION ADMISSIBLE ON THE SAME IS @40% SINCE T HE SAID ASSETS FALL UNDER THE HEAD MOULDS USED IN RUBBER AND PLASTIC G OODS FACTORIES UNDER SUB-BLOCK ( 2(III) OF THE BLOCK III (PART A) MACHINERY AND PLANT OF THE TABLE OF RATES AT WHICH DEPRECIATION IS ADMI SSIBLE UNDER RULE 5 OF THE INCOME TAX RULES, 1962. 36. THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR THE FOLLOWING REASONS: 12.4 THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPT ABLE AS THE ASSESSEE HAS PAID FOR ACQUIRING THE MOULDS AND DIES AND THE MOULDS AND DIES ARE THE PROPERTY OF THE ASSESSEE AND NOT OF THE SUP PLIERS AS THE ASSESSEE HAS BEEN BILLED BY THE SUPPLIERS FOR THE C OST OF THE MOULDS AND DIES. IT IS AN ADMITTED FACT THAT THE MOULDS AN D DIES ARE HAVING A LONG LIFE AND THE SAME ARE NOT IN THE NATURE OF ITE MS REQUIRED FOR DAY TO DAY UPKEEP OF THE BUSINESS OF THE ASSESSEE. THE BENEFIT DERIVED BY THE ASSESSEE BY ACQUIRING THE MOULDS & DIES IS ONE OF AN ENDURING NATURE. THEREFORE, THE EXPENDITURE ON MOULDS AND DI ES IS HELD TO BE IN M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 17 THE NATURE OF CAPITAL EXPENDITURE ON WHICH DEPRECIA TION WOULD BE ALLOWABLE AS PER THE PROVISIONS OF THE I.T.ACT. THE ASSESEE SUBMITTED THE DETAILS OF ACQUISITION OF MOULDS AND DIES FROM WHICH IT WAS NOTED THAT MOULD AND DIES TO THE EXTENT OF RS.58,349,920/ - HAVE BEEN ACQUIRED IN F.Y.1999-00 AND TO THE EXTENT OF RS.8,5 77,640/- HAVE BEEN ACQUIRED IN F.Y.2000-01. THE ASSESSEE IS IN TH E FAST MOVING CONSUMER GOODS BUSINESS AND HENCE, DEPRECIATION CAN NOT BE ALLOWED ON THE MOULDS AND DIES AT THE RATE OF 400/0 AS ALTE RNATIVELY CLAIMED BY THE ASSESSEE. DEPRECIATION IS ALLOWED AT THE GEN ERAL RATE OF 25/O APPLICABLE TO PLANT AND MACHINERY. THE DEPRECIATION ON THE MOULDS AND DIES FOR A.Y.200 1-02 IS WORKED OUT AS UNDER - PARTICULARS RS. COST OF ACQUSITION OF MOULDS & DIES FOR 58,349,920 A.Y.2000-01 DEPRECIATION FOR A.Y.2000-01 @25% 14,587,480 -------------- OPENING W.D.V FOR A.Y.2001-02 43,762,440 ADD: ACQUIRED DURING THE A.Y.2001-02 8,577,640 ------------- 52,340,080 DEPRECIATION FOR A.Y.2001-02 @ 25% 13,085,020 12.5 IN THE RESULT, THE DEPRECIATION ON MOULDS & DI ES CLAIMED AT RS.L6,73L,890/- AS PART OF OTHER EXPENSES IS DISALL OWED AND DEPRECIATION OF RS. 13,085,020/- IS ALLOWED AS PER THE RATES SPECIFIED IN THE INCOME TAX ACT/RULES. PENALTY PROCEEDINGS U/ S.271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE INI TIATED SEPARATELY. 37. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. 38. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS AS WERE MADE BEFORE LOWER AUTHORITIES. THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE COST OF MOLDS AND DIES IS ACTUAL COST OF PACKING MATERIAL CONSUMED WHICH SHOULD BE CHARGED TO THE P&L ACCOUNT IN THE YEAR OF M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 18 ACQUISITION BUT THE ASSESSEE TAKING INTO ACCOUNT TH E FACT THAT THE MOLDS AND DIES HAVE A LIFE OF 4 YEARS AMORTIZED THE COST OVER A PERIOD OF 4 YEARS AND CLAIMED DEDUCTION AS REVENUE EXPENDITURE OVER A PER IOD OF 4 YEARS. THE LEARNED D.R. RELIED ON THE ORDER OF THE CIT(A). 39. HAVING CONSIDERED THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE DESERVES TO BE ACCEPTED. CONSIDERING THE FACT THAT THE DIES AND MOLDS ARE ACTUALLY ACQUIRED BY TH E PACKING MATERIAL SUPPLIER AND CONSIDERING THE FACT THAT THE COST OF SUCH MOLDS AND DIES ARE REIMBURSED BY THE ASSESSEE TO THE PACKING MATERIAL SUPPLIER, THE ASSESSEE CANNOT BE SAID TO HAVE ACQUIRED A CAPITAL ASSET IN THE FORM OF MOLDS AND DIES. THEY HAVE TO BE RIGHTLY TREATED AS PART OF T HE COST OF PACKING MATERIAL IN THE YEAR IN WHICH THE ASSESSEE PAYS COST OF THE MOLDS AND DIES TO THE SUPPLIER OF PACKING MATERIAL. THE PERIOD OF USE OF THESE DIES AND MOLDS ARE ALSO VERY LITTLE AS THE TASTES AND PREFERENCES OF C ONSUMERS KEEP CHANGING AND THE ASSESSEE HAS TO CHANGE THE DESIGN OF THE PA CKING MATERIALS OFTEN. THE TEST OF ENDURING BENEFIT IS THEREFORE NOT SATIS FIED. THE ASSESSEE ON A CONSERVATIVE BASIS AMORTIZED SUCH COST FOR A PERIOD OF 4 YEARS AND CLAIMED DEDUCTION IN 4 YEARS. IN OUR VIEW THE CLAIM MADE B Y THE ASSESSEE IS ACCEPTABLE. THE AO IS DIRECTED TO ALLOW THE DEDUCT ION AS REVENUE EXPENDITURE. IN VIEW OF THE ABOVE THE QUESTION OF ALLOWING HIGHER DEPRECIATION ON MOLDS AND DIES DOES NOT ARISE FOR C ONSIDERATION. GROUND NO.IX IS ACCORDINGLY ALLOWED. 40. GROUND NO.X RAISED BY THE ASSESSEE READS AS FOL LOWS: GROUND X 1. THE CIT(A) ERRED IN DISALLOWING EXPENDITURE INCURRE D ON PROFESSIONAL FEES AMOUNTING TO RS. 89,92,014/- ON THE ALLEGED GROUND THAT THE EXPENDITURE WAS NOT A LIABILITY OF THE APPELLANT COMPANY. 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE BE DELETE D. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 19 41. THE ASSESSEE HAD CLAIMED AS DEDUCTION A SUM OF RS. 89,92,014/- UNDER THE HEAD PROFESSIONAL FEES. THE BREAK UP OF THE AFORESAID EXPENDITURE IS AS FOLLOWS. NATURE OF EXPENDITURE RS. EXPENSES ON CONDUCTING RAIDS ON SPURIOUS AND COUNTERFEIT PRODUCTS 619,691 EXPENSES ON INSTITUTING AND DEFENDING LEGAL SUITS (INCLUDES COURT FEES, NOTICES TO MANUFACTURERS OF SPURIOUS PRODUCTS AND PAYMENTS TO COUNSELS FOR ADVI CE AND APPEARANCE IN COURT) 7,719,974 EXPENSES ON BRAND REGISTRATION 115,730 PAYMENT TO PROFESSIONALS FOR WORK RELATED TRADE MAT TERS 536,618 42. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN VID E NOTICE U/S.142(1) DT.10.12.2003 THE NEED TO INCUR SUCH EXPENDITURE AL ONG WITH COPY OF AGREEMENT WITH THE TRADEMARK OWNERS AND SAMPLE BILL S FOR THESE EXPENSES THE ASSESSEE FILED AN EXPLANATION VIDE LETTER DT.16 .12.2003. THE SAME IS REPRODUCED BELOW: AS IS APPARENT FROM THE DETAILS ATTACHED THESE ARE EXPENSES INCURRED TO FIGHT COURT CASES WITH THE PEOPLE WHO HAVE BEEN INFRINGING THE TRADEMARKS OF THE PRODUCTS OF THE ASSESSEE COMPANY AND ALSO THE WORKS OF THE FIRM WHICH ARE INVOLVED IN MAKING SUC H SPURIOUS AND PASS-OFFS OF THE PRODUCTS OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS BEEN FACING A LOT OF PROBLEMS IN SELLIN G THE PRODUCTS OF THE COMPANY ON ACCOUNT OF THESE FAKE PRODUCTS, PASS -OFFS, SPURIOUS PRODUCTS ETC. IN ORDER TO CURB SUCH GROWING ISSUES AND PROBLEMS IT WAS IMPERATIVE AND NECESSARY FOR THE COMPANY TO TAK E SUCH STEPS TO PROTECT THE BUSINESS OF THE ASSESSEE COMPANY. THUS THIS EXPENDITURE IS INCURRED TO PROTECT THE BUSINESS OF THE COMPANY AND HENCE IS AN EXPENDITURE REQUIRED FOR COMMERCIAL EXPEDIENCY. ALS O AS LICENSED USERS OF THE TRADEMARKS AND BRANDS THE ASSESSEE COM PANY IS RESPONSIBLE FOR THE PROTECTION OF THE TRADEMARKS IT IS LICENSED TO USE. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 20 43. THE RELEVANT PART OF CLAUSE 8.1 OF THE AGREEMEN T FOR THE PRODUCT WHISPER REFERRED TO BY THE ASSESSEE IN ITS EXPLAN ATION IS REPRODUCED AS UNDER : CLAUSE -8.1 THE USER UNDERTAKES TO BEING TO THE NO TICE OF THE PROPRIETOR ALL CASES OF INFRINGEMENT AND/OR PASSING OFF OF THE SAID TRADE MARKS OR REGISTRATION OR ATTEMPTED REGISTRATI ON OF THE SAID TRADE MARKS OR OF ANY TRADE MARKS SIMILAR THERETO. IN THE EVENT OF THE PROPRIETOR UNDERTAKING ANY OPPOSITION TO OR ANY ACT ION TO RESTRAIN OR PUNISH SUCH ACT OR ACTS, THE USER AGREES TO CO-OPER ATE FULLY AND FREELY WITH THE PROPRIETOR AND IF REQUIRED BY THE PROPRIET OR SHALL PERMIT THE PROPRIETOR TO UNDERTAKE SUCH OPPOSITION OR ACTION IN THE NAME OF THE USER. THE COSTS OF ANY SUCH ACTION SHALL BE BORNE B Y THE PARTIES IN SUCH PROPORTION AS MAY BE MUTUALLY AGREED UPON. 44. AS CAN BE SEEN FROM THE ABOVE CLAUSE, THE COST OF ACTION FOR PROTECTION OF THE TRADEMARK AS ARE TO BE BORNE BY THE ASSESSEE AND THE TRADE MARK OWNER IN SUCH PROPORTION AS MAY BE MUTUALLY AGREED UPON. THE AO CALLED UPON THE ASSESSEE TO PRODUCE COPY OF USER AGREEMENT S WITH OTHER TRADEMARK OWNERS AND TO PRODUCE THE COPY OF TERMS MUTUALLY AG REED UPON AS PER CLAUSE 8.1 OF THE USER AGREEMENT FOR THE TRADE MARK WHISPER. 45. ACCORDING TO THE AO, THE ASSESSEE DID NOT PRODU CE ANY OTHER AGREEMENT FOR USE OF TRADEMARK AND ALSO DID NOT PRODUCE ANY T ERMS WHICH WERE MUTUALLY AGREED TO AS PER CLAUSE 8.1 OF THE USER AG REEMENT FOR THE TRADEMARK WHISPER. THE ASSESSEE FILED A FURTHER EXPLANATION V IDE LETTER DT. 18.12.2003 AND THE SAME IS REPRODUCED BELOW - IN THIS RESPECTS, WE SUBMIT THAT THE EXPENDITURE I NCURRED ON PROTECTING THE TRADEMARK OF PRODUCTS LAUNCHED AND S OLD IN INDIA, BEING A LOCAL ISSUE WHICH IMPACTS THE BUSINESS OF T HE ASSESSEE COMPANY ONLY, IS THE SOLE RESPONSIBILITY OF THE ASS ESSEE COMPANY BEING THE LICENSED USER OF THE TRADEMARKS IN INDIA. IT WILL BE CLEARLY EVIDENT M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 21 FIRM THE SAMPLE INVOICES PRODUCED IN THE PREVIOUS S UBMISSION DATED DECEMBER 16,2003 AND MARKED THEREIN AS ANNEXURE 3(A ) TO 3(C) THAT THE SUITS FOR TRADEMARK PROTECTION ARE INSTITUTED IN THE NAME OF THE ASSESSEE COMPANY AND CONSEQUENTLY, THE ASSESSEE C OMPANY IS FULLY RESPONSIBLE FOR THE PROTECTION OF TRADEMARKS LICENS ED TO IT IN INDIA. FURTHER THE EXPENSES INCURRED ON DEFENDING SUITS F OR TRADEMARK PROTECTION ARE REIMBURSED BY PROCTOR & GAMBLE CO . INC., USA ONLY IN CASES WHERE THE MATTER INVOLVES TRADEMARK PROTECTIO N OF BRANDS NOT YET LAUNCHED IN INDIA. THIS IS THE MUTUALLY AGREED SHARING OF TRADEMARK PROTECTION EXPENSES BETWEEN THE TWO PAR TIES IN CONSIDERATION. THIS IS ALSO LOGICAL AND REASONABLE AS THERE IS NO REASON WHY THE LICENSOR SHOULD BEAR THE COST OF PROTECTING TRADEMARKS WHICH NEITHER IMPACT ITS OWN BUSINESS NOR IMPACT ANY OTHE R INCOME SINCE THE ASSESSEE COMPANY DOES NOT PAY ANYTHING FOR THE USE OF THESE TRADEMARKS. 46. THE AO WAS OF THE VIEW THAT IT WAS APPARENT FROM THE FACTS DISCUSSED ABOVE, THAT THE ASSESSEE WAS NOT THE OWNER OF THE T RADEMARKS IN RESPECT OF WHICH IT HAS INCURRED EXPENDITURE TO PREVENT INFRIN GEMENT AND MISUSE THEREOF. AS PER THE ONLY AGREEMENT FOR USE OF TRADE MARK WHICH HAS BEEN PRODUCED BY THE ASSESSEE, THE EXPENDITURE ON SUCH L EGAL ACTION WAS TO BE SHARED ON THE BASIS OF TERMS WHICH WERE TO BE MUTUA LLY AGREED UPON. NO SUCH MUTUALLY AGREED TERMS WERE PRODUCED BY THE ASS ESSEE DESPITE BEING ASKED TO DO SO. THE AO THEREFORE PRESUMED THAT THER E ARE NO SUCH MUTUALLY AGREED TERMS IN EXISTENCE. SO THE AO WAS OF THE VIE W THAT THE LIMITED ISSUE THAT AROSE FOR CONSIDERATION WAS AS TO WHETHER IN S UCH CIRCUMSTANCES, THE ASSESSEE HAD INCURRED THE EXPENDITURE WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. 47. THE AO HELD THAT THE ASSESSEE AS PART OF THE T ECHNICAL KNOW-HOW AGREEMENT AND ROYALTY FOR KNOW-HOW WAS PAYING THE O WNER OF THE TRADE MARK. HE HELD THAT THERE WAS AN INDIRECT PAYMENT B Y THE ASSESSEE FOR EXPLOITING THE COMMERCIAL POTENTIAL OF SUCH TRADEMA RK. THE AO WAS OF THE VIEW THAT THE EXPENDITURE DOES NOT SATISFY THE TEST OF SEC.37 OF THE I.T.ACT AS IT CANNOT BE SAID TO BE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 22 PURPOSE OF THE ASSESSEES BUSINESS. THE CLAIM OF R S.89,92,014/- BY WAY OF PROFESSIONAL FEES WAS , THEREFORE, DISALLOWED AND A DDED TO THE TOTAL INCOME. 48. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE DECISION OF THE ITAT DELH I IN THE CASE OF DCIT VS. MARUTI COUNTRYWIDE AUTO FINANCE PVT. LTD., ITA NO. 2181 TO 2183/DEL/10 DATED 29/4/11. THE ISSUE BEFORE THE HONBLE DELHI BENCH OF THE TRIBUNAL WAS THAT THE ASSESSEE INCURRED EXPENDITURE ON ADVER TISEMENT WHICH RESULTED IN BENEFITS TO MARUTI UDYOG LTD. THE DISALLOWANCE WAS MADE BY THE REVENUE ON THE GROUND THAT THE ASSESSEE WAS NOT OBLIGED TO INCUR THESE EXPENSES AND THAT THE BENEFIT OF THIS EXPENDITURE GOES TO A THIR D PARTY. THE TRIBUNAL HELD AS FOLLOWS: 14.WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE GENUINENESS AND THE ACTUAL INCURRENCE OF THESE EXPENDITURES HAVE NOT BEEN DOUB TED BY THE ASSESSING OFFICER. THE REASON ASSIGNED BY THE ASSES SING OFFICER TO MAKE THE DISALLOWANCE IS THAT THE ASSESSEE BY INCUR RING THESE EXPENDITURES HAS PROMOTED THE BRAND BELONGING TO MA RUTI UDYOG LTD. IN OUR OPINION, THE ASSESSING OFFICER IS NOT RIGHT IN HOLDING SO. THE ASSESSEE HAS BEEN AUTHORIZED TO DEAL, FINANCE THE A UTOMOBILE PRODUCED BY THE MARUTI. THE PROMOTION OF THE BRAND NAME MARUTI WILL DIRECTLY PROMOTE THE BUSINESS OF THE ASSESSEE. IT C ANNOT BE SAID THAT THE ASSESSEE FOR THE PURPOSE OF BENEFITING MARUTI U DYOG LTD. HAD INCURRED THOSE EXPENDITURES. ACCORDING TO THE CASE LAW RELIED UPON BY THE ASSESSEE BEFORE THE CIT (A), IT HAS BEEN CLEARL Y LAID DOWN THAT IF THE EXPENDITURES ARE INCURRED FOR THE PURPOSE OF BUSINE SS OF THE ASSESSEE AND IF INCIDENTALLY THOSE EXPENDITURE BENEFIT THE O THER PARTY, THEN ALSO NO PART OF THOSE EXPENDITURES COULD BE DISALLOWED O N THE GROUND THAT THE ASSESSEE DID NOT INCUR SUCH EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) VIDE WHICH THE IMPUGNED DISALLOWANCE HAS BEEN DELETED. WE, THEREFORE, UPHOLD HIS ORDER ON THIS ISSUE FOR B OTH THE YEARS I.E., 20086 AND 2006-07. THE GROUND NO.3 IN RESPECT OF BO TH THESE YEARS ARE DISMISSED M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 23 49. APART FROM THE ABOVE LD. COUNSEL FOR THE ASSESS EE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS, WHEREIN A VIEW W AS TAKEN THAT IF AN EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S, THE FACT THAT A THIRD PARTY DERIVES BENEFIT BY REASON OF SUCH EXPENDITURE WOULD NOT BE A GROUND TO REJECT THE CLAIM FOR DEDUCTION. 1. CIT VS. CHANDULAL KESHAVLAL & CO., (38 ITR 6010(SC) 2. SASSON J. DAVID AND CO. P. LTD. VS. CIT (118 ITR 26 1) (SC) 3. STAR INDIA (P) LTD. VS. ADDL. CIT (103 ITD 73) (ITA T MUMBAI)(MAD) 50. THE LD. D.R ON THE OTHER HAND RELIED ON THE ORD ER OF THE CIT(A). 51. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALREADY SEEN CLAUSE (8)(I) OF THE USER AGREEMENT DATED 7/8/2003 BETWEEN THE ASSESSEE AND THE OWNER OF THE TRADEMARK. IT IS CLEAR FROM T HE SAID CLAUSE THAT THE ASSESSEE HAD TO BEAR THE EXPENSES FOR PROTECTING T HE TRADEMARK AND INFRINGEMENT THEREOF. WE ARE OF THE VIEW THAT THE ASSESSEE WOULD DERIVE A BENEFIT BY ANY LEGAL RECOURSE TAKEN BY THE PROPRIET OR OF THE TRADEMARK FOR PROTECTING THE TRADEMARK. IF THE ASSESSEE DOES THA T ON ITS OWN EVEN THAT WOULD PROTECT THE BUSINESS INTEREST OF THE ASSESSEE . WE ARE ALSO OF THE VIEW THAT THE AGREEMENT CLEARLY ENVISAGES THAT THE ASSES SEE WILL BEAR COST AS MUTUALLY AGREED BETWEEN THE ASSESSEE AND THE OWNER OF THE TRADEMARK. WE ARE OF THE VIEW THAT THERE IS NO REQUIREMENT FOR AN Y FURTHER WRITTEN AGREEMENT BETWEEN THE OWNER OF THE TRADEMARK AND TH E ASSESSEE FOR SHARING OF COST. THE GENUINENESS OF THE PAYMENT AND THE PU RPOSE OF THE PAYMENT BY THE ASSESSEE IS NOT DISPUTED. AS HELD IN THE DECIS IONS RELIED UPON BY THE ASSESSEE THE FACT THAT A THIRD PARTY ALSO DERIVES B ENEFIT BY REASON OF INCURRING OF EXPENDITURE BY THE ASSESSEE IS NO GROU ND TO DENY DEDUCTION OF M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 24 EXPENDITURE WHICH IS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CLAIM MAD E BY THE ASSESSEE FOR DEDUCTION HAS TO BE ACCEPTED. GROUND NO.X IS ACCOR DINGLY ALLOWED. 52. GROUND NO.XI RAISED BY THE ASSESSEE READS AS FO LLOWS: GROUND XI 1. THE CIT (A) ERRED IN CONFIRMING THE ACTION OF TH E A.O. OF REDUCING THE DEDUCTION U/S 801B IN RESPECT OF HONDA AND KUNDIAM UNITS (ELIGIBLE UNITS) BY ALLOCATING EMPLOYEE COST, DEPRECIATION, CAPITAL EXPENDITURE ON R &D OF HEAD OFFICE TO THE ELIGIBLE UNITS AND TH EREBY ALLOWING IT ONLY AT RS. 16,32,20,354/- AND RS.39, 63,17,937/- AS AGA INST RS. 24,98,92,706/- AND RS. 48,54,31,689/- RESPECTIVELY CLAIMED BY THE APPELLANT. 2. HE FURTHER ERRED IN CONFIRMING THE ACTION OF THE A.O. OF REDUCING PROFITS OF ELIGIBLE UNITS BY EXCLUDING CERTAIN ITEM S OF OTHER INCOME FROM THE PROFITS OF ELIGIBLE UNITS. 3. THE APPELLANT PRAYS THAT THE DEDUCTION U/S 801A OF THE ACT BE ALLOWED AS CLAIMED BY THE APPELLANT. 53. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL I SSUE HAD COME UP FOR CONSIDERATION IN ASSESSEES OWN CASE AND THIS TRIBU NAL IN ITA NO.845/M/03 FOR A.Y 1995-96 ON IDENTICAL ISSUE HELD AS FOLLOWS : 7. THE DISPUTE RAISED IN GROUND NO.6 IS REGARDING CLAIM OF DEDUCTION U/S 8OHH, THE ASSESSING OFFICER CONPUTED DEDUCTION U/S 8OHH OF RS 4,58,01,456/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF RS 382.31 LAKHS AN D ALSO RESEARCH AND DEVELOPMENT EXPENDITURE AMOUNTING TO RS 3,32,65 ,709/- AND RS 99,55,561/-. THE ASSESSEE HAD NOT ALLOCATED ANY PAR T OF THE ABOVE EXPENDITURE TO M/S MEDOK UNIT IN RESPECT OF WHICH D EDUCTION U/S 8OHH HAD BEEN CLAIMED. THE ASSESSING OFFICER ALLOCA TED THE EXPENDITURE TO MEDOK UNIT IN THE RATIO OF THE TURNO VER OF THE MEDOK UNIT TO THE TOTAL TURNOVER. HE ALSO DID NOT CONSIDE R THE INCOME FROM OTHER SOURCES AMOUNTING TO RS 5,82,91,029/- IN THE COMPUTATION OF DEDUCTION U/S 8OHH. THE ASSESSEE ALSO CLAIMED DEDUC TION U/S 8OHH IN RESPECT OF AMOUNT ADDED OF RS 1,99,06,216/- U/S 43B, WHICH HAD M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 25 BEEN DISALLOWED BY THE ASSESSING OFFICER. THE ASSES SING OFFICER, THUS ALLOWED DEDUCTION U/S 8OHH AT RS 2,30,91,331/- IN P LACE OF RS 4,88,01,456/- CLAIMED BY THE ASSESSEE. IN APPEAL, T HE CIT (A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER, AGGRI EVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE REC ORDS AND CONSIDERED THE MATTER CAREFULLY. THE DEDUCTION U/S 8OHH IS TO BE ALLOWED IN RESPECT OF BUSINESS PROFIT COMPUTED UNDE R THE PROVISIONS OF THE ACT. THEREFORE ANY ADDITION MADE TO THE BUSINES S INCOME U/S 436 HAS TO BE CONSIDERED AS PART OF THE BUSINESS INCOME FOR COMPUTATION OF DEDUCTION U/S 80H1-F. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) IN RELATION TO DISALLOWANCE OF DEDUCTION ON ACCOUNT OF ADDITION U/S 436 AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 7.2 AS REGARDS THE ALLOCATION OF INTEREST EXPENDITU RE TO MEDOK UNIT IS CONSIDERED, WE FIND THAT THIS ISSUE IS COVERED BY T HE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 1989-90 IN ITA NO.8280/MUM/1992 IN WHICH THE TRIBUNAL HELD THAT ONLY THE INTEREST PAYABLE ON THE BANK OVERDRAFT HAS TO B AL LOCATED TOWARDS THE MEDOK UNIT. WE, THEREFORE, FOLLOWING THE SAID DECIS ION DIRECT THE ASSESSING OFFICER TO VERIFY THIS ASPECT AND ALLOCAT E INTEREST TO MEDOK UNIT ONLY IN RELATION TO INTEREST ATTRIBUTABLE TO O VERDRAFT. AS REGARDS THE R&D EXPENSES, IN OUR VIEW, ONLY ACTUAL RESEARCH & DEVELOPMENT EXPENDITURE INCURRED IN RELATION TO MEDOK UNIT CAN BE ALLOCATED. IN THIS CASE, THERE IS NO MATERIAL PLACED ON RECORD TO SHOW THAT ANY RESEARCH AND DEVELOPMENT EXPENDITURE HAD BEEN INCUR RED BY MEDOK UNIT. THE ALLOCATION HAS BEEN MADE ON ESTIMATE ON T HE BASIS OF TURNOVER, WHICH IN OUR VIEW IS NOT CORRECT. THE ASS ESSEE HAD MAINTAINED SEPARATE ACCOUNTS FROM WHICH IT COULD BE EASILY FOUND OUT WHETHER THE EXPENDITURE HAD BEEN INCURRED OR NOT BU T NO MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENUE TO PROVE, THAT THE ASSESSEE HAD INCURRED ANY SUCH EXPENDITURE IN RELATION TO MEDOK UNIT. THEREFORE, IN OUR VIEW, THE EXPENDITURE CANNOT BE ALLOCATED TO TH E MEDOK UNIT ON ESTIMATE. THIS VIEW IS ALSO SUPPORTED BY THE JUDGME NT OF HONBLE MADRAS HIGH COURT IN CASE OF BRAKES INDIA LTD (161 TAXMAN 47) ON WHICH THE RELIANCE HAS BEEN PLACED BY THE LEARNED AUTHORIZED REPRESENTATIVE. WE, THEREFORE, SET ASIDE THE ORDER OF CIT (A) ON THIS POINT AND ALLOW THE CLAIM OF THE ASSESS. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 26 54. RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE TRIBUNAL WE DIRECT THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION U/S. 80 IB OF THE ACT BY ALLOCATING HEAD OFFICE EXPENSES TO PROFITS DERIVED FROM HONDA UNIT AND KUNDAIM UNIT. 55. GROUND NO. XII RAISED BY THE ASSESSEE READS AS FOLLOWS: GROUND XII 1. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN INCLUDING THE AMOUNT RECEIVED ON SALE OF SCRAP AND DISPOSAL O F EMPTY CONTAINERS AS PART OF TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 8OHHC. 2. HE FURTHER ERRED IN CONFIRMING THE ACTION OF THE A.O. OF REDUCING ELIGIBLE PROFITS OF BUSINESS BY EXCLUDING CERTAIN I TEMS OF OTHER INCOME FROM THE PROFITS OF THE BUSINESS FOR DEDUCTION U/S. 8OHHC 3. THE APPELLANT PRAYS THAT THE DEDUCTION U/S 8OHHC BE ALLOWED AS CLAIMED BY THE APPELLANT. 56. AS FAR AS THE CLAIM TO INCLUDE THE SCRAP SALE A ND DISPOSAL OF EMPTY CONTAINERS AS PART OF THE TURNOVER FOR CALCULATING DEDUCTION UNDER SECTION 80 HHC OF THE ACT IS CONCERNED, WE FIND THAT THE TR IBUNAL IN ASSESSEES OWN CASE FOR A.Y 1999-2000 AND 2000-01 WAS PLEASED TO H OLD AS FOLLOWS: 13. GROUND NO. VI(1) PERTAINS TO INCLUDING THE AMO UNT RECEIVED ON SALE OF 4 SCRAP AND DISPOSAL OF EMPTY CONTAINERS A S PART OF TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER S ECTION 8OHHC. 14. IT WAS SUBMITTED THAT THIS GROUND IS ALSO COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH. I N ASSESSEES ON CASE IN ITA NO. 3216/MUM/2005 DATED 14TH NOVEMBER 2 006 WHEREIN THE ASSESSEE HAS RELIED ON THE FOLLOWING DECISION S OF THE TRIBUNAL FOR THE PROPOSITION THAT THE INCOME GENERATED FROM SCRAP SALES CANNOT BE HELD TO BE FORMING PART OF THE TOTAL TURNOVER: - M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 27 I. ITO VS. JAGRAON EXPORTS 124 TAXMAN 220 (CHD.) II. COFTAB EXPORTS VS. ITO ITA NO. 918/MUM/ 1999 III. BHD INDUSTRIES LTD. VS. JCIT ITA NO. 2584/MUM/ 2000 IV. SKF BEARINGS VS. DCIT ITA NO. 1858/MUM! 1998 SINCE THE ISSUE IS SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, THE GROUND OF THE ASSESSEE IS ALL OWED. 57. RESPECTFULLY FOLLOWING THE SAID DECISION WE DI RECT THE AO TO INCLUDE THE AMOUNT IN QUESTION AS PART OF THE TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 80 HHC OF THE ACT. 58. AS FAR AS OTHER INCOME IS CONCERNED THE SAME IS MAINLY ON ACCOUNT OF INTEREST ON SURPLUS FUNDS EARNED BY THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR COMPANY LTD ., 326 ITR 56 (BOM), THE HONBLE HIGH COURT FOLLOWED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF RAVINDRANATHAN NAIR, 295 ITR 228(SC). IN THE AFORESAID DECISION THE HONBLE BOMBAY HIGH COURT CONSIDERED THE FOLLOW ING QUESTION OF LAW: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE TRIBUNAL WAS CORRECT IN HOLDING TH AT NET INTEREST ON FIXED DEPOSITS IN BANKS RECEIVED BY THE ASSESSEE CO MPANY SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 80HH OF THE ACT AND NOT THE GROSS INTEREST ? THE HONBLE BOMBAY HIGH COURT AFTER REFERRING TO TH E PROVISO BELOW EXPLANATION BAA OF SECTION 80 HHC OF THE ACT HELD THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST ARE TO BE EXCLUDED FROM BUSINESS PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80 HHC OF THE ACT AS THESE RECEIPTS HAVE NO NEXUS WITH THE EXPORT ACTIVI TY. SINCE EXPENSES INCURRED IN EARNING INCOME BY WAY OF INTEREST, BROK ERAGE, COMMISSION ETC. ALSO GO INTO COMPUTATION OF BUSINESS PROFIT PARLIAM ENT THOUGHT IT FIT TO EXCLUDE ONLY 90% OF THE RECEIPTS IN ORDER TO ENSURE THAT THE EXPENDITURE M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 28 WHICH IS INCURRED BY THE ASSESSEE IN EARNING RECEIP TS WHICH HAVE GONE INTO THE COMPUTATION OF BUSINESS PROFITS IS TAKEN CARE O F. THE HONBLE COURT FURTHER HELD THAT THE PARLIAMENT HAS APPROVED ADHOC DEDUCTION OF 10% FROM SUCH INCOMES ON ACCOUNT OF EXPENSES INCURRED IN EAR NING THE RECEIPTS. ONCE THE PARLIAMENT HAS SO LEGISLATED IT CANNOT BE SAID THAT 90% GROSS INTEREST RECEIVED BY THE ASSESSEE HAS TO BE REDUCED FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 80HHC AND NOT THE NET INTEREST. IN CIT VS. RAVINDRANATHAN NA IR (SUPRA) THE HONBLE SUPREME COURT EQUATED PROCESSING CHARGES DERIVED BY THE ASSESSEE BY PROCESSING CASHEW NUTS FOR OTHER EXPORTERS WAS NOT INCOME OF THE NATURE REFERRED TO IN THE PROVISO TO EXPLANATION BAA OF S ECTION 80 HHC OF THE ACT AND CANNOT BE SAID TO BE PROFIT DERIVED FROM THE BU SINESS OF EXPORT. THUS INTEREST INCOME WAS CONSIDERED TO BE NOT RELATED TO EXPORT AND THEREFORE NOT TO BE CONSIDERED AS INCOME FROM BUSINESS FOR COMPUT ING DEDUCTION U/S.80HHC OF THE ACT. IN VIEW OF THE DECISION OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR (SUPRA) THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED AS THE SAID INTEREST INCOME WOULD BE INCOM E NOT CONNECTED WITH THE EXPORT ACTIVITY AND, THEREFORE, OUTSIDE THE PUR VIEW OF PROFITS OF BUSINESS. 59. GROUND NO.XIII RAISED BY THE ASSESSEE READS AS FOLLOWS: GROUND XIII: 1. THE CIT (A) ERRED IN REDUCING AN AMOUNT OF RS. 5 5,95,38,291/-, BEING THE DEDUCTION U/S 801B, FROM THE PROFITS OF T HE BUSINESS FOR CALCULATING THE DEDUCTION U/S 8OHHC. 2. THE APPELLANT PRAYS THAT THE DEDUCTION U/S 8OHHC IN RESPECT OF PROFITS FROM 801B UNITS BE CALCULATED BY REDUCING THE AMOUNT OF DEDUCTION U/S 801B FROM THE DEDUCTION U/S 8OHHC AND NOT FROM THE PROFITS OF THE BUSINESS, WHICH FORMS THE BASIS FOR CALCULATING THE DEDUCTION U/S 8OHHC. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 29 60. THE AFORESAID GROUND HAS TO BE DECIDED IN FAVO UR OF THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT. LTD. VS. DCIT 332 ITR 42(BOM) WHICH WE HAVE REFERRED TO IN THE APPEAL OF THE ASSESSEE FOR AY 99-2000 IN THE EA RLIER PART OF THIS ORDER. CONSEQUENTLY, THE DEDUCTION U/S. 80 IB SHOULD NOT B E REDUCED FROM THE PROFITS OF THE BUSINESS ON WHICH DEDUCTION U/S. 80 HHC IS ALLOWED. 61. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED. ITA NO.1241/MUM/2005, A.Y.2001-02: (REVENUES APPEA L) 62. THE REVENUE IS IN APPEAL AGAINST THE ORDER DA TED 30/11/2004 OF CIT(A)XIX , MUMBAI RELATING TO THE ASSESSMENT YE AR 2001-02. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS: 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE A DVERTISEMENT EXPENDITURE AS REVENUE EXPENDITURE. 1(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE FACTS OF THE C ASE OF CIT VS. PATEL INTERNATIONAL FILMS LTD. 102 ITR 219 ARE ALTOGETHER DIFFERENT FROM THE CASE OF THE ASSESSEE. 1(C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE VERY NATURE OF ADVERTISEMENT OF FILMS DOES NOT GIVE ANY BENEFIT OF ENDURING NATURE AS THE SAME BECOME USELESS IN THE VERY NEXT YEAR OF CREATION OF ADVERT ISEMENT FILMS EVEN THOUGH THE FILMS ARE PROPERTIES OF THE ASSESSEE AND IT MAY USE THEM FOR ADVERTISEMENT PURPOSES EVEN AFTER 5 OR 10 YEARS AND ERRED IN HOLDING THAT THE RATIO OF THE DECISION OF IAC VS. J OSHI FORMULABS P.LTD. 42 ITJ 259 WILIBE APPLICABLE IN THE CASE OF THE ASS ESSEE. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 30 63. OUT OF ADVERTISEMENT EXPENSES CLAIMED BY THE A SSESSEE FOR THE YEAR, AN AMOUNT OF RS.9,237,230/- WAS INCURRED ON PRODUCT ION OF TELEVISION FILMS AND COMMERCIALS AS PER DETAILS FURNISHED BY THE ASS ESSEE VIDE ANNEXURE 13 TO ITS LETTER DATED 10/11/2003. THE DETAILS OF SUC H EXPENSES ARE AS UNDER : THE AO HELD THAT THE EXPENDITURE WAS OF CAPITAL NAT URE AND ACCORDINGLY DISALLOWED THE CLAIM FOR DEDUCTION. ON APPEAL BY THE ASSESSEE THE CIT(A) FOLLOWING THE ORDER OF THE CIT(A) IN ASSESSEES OWN CASE IN EARLIER YEAR, WHEREBY THE EXPENDITURE WAS HELD TO BE REVENUE EXP ENDITURE, DELETED THE ADDITION MADE BY THE AO GIVING RISE TO GROUND NO.1 BY THE REVENUE BEFORE THE TRIBUNAL. 64. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NO TICE THAT HONBLE ITAT IN ASSESSEES OWN CASE IN ITA NO.4541 & 5009/M/04 FOR A.Y 1997-98 AND 1998-99 SIMILAR ISSUE HAD COME UP FOR CONSIDERATION AND THIS TRIBUNAL HELD AS FOLLOWS: M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 31 10. GROUND NO. 4 PERTAINS TO ADDITION OF RS.61,45, 000/- IN RESPECT OF EXPENDITURE INCURRED ON PRODUCTION OF FILMS FOR ADV ERTISING THE PRODUCTS OF THE ASSESSEE. 11. IT WAS THE ASSESSEE CONTENTION THAT THE EXPENDI TURE WAS INCURRED FOR ADVERTISEMENT OF PRODUCTS BEING MANUFACTURED/MA RKETED BY IT IN THE ONGOING BUSINESS AND NO THERE IS ENDURING BENEF IT. THE AO RELIED ON THE DECISION OF CIT VS. PATEL INTERNATIONAL FILM LTDLO2 ITR 219 WHICH WAS CONFIRMED BY THE CIT(A). THIS ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEC BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GEOFFREY MANNER & CO. LTD. 180 TAXMAN 87 WHERE IN THE ABOVE DECISION WAS DISTINGUISHED AND HELD TH AT EXPENDITURE WAS REVENUE IN NATURE IF THE SAME WAS INCURRED IN THE O NGOING BUSINESS. RESPECTFULLY FOLLOWING THE SAID DECISION, THE GROUN D RAISED BY THE ASSESSEE IS ALLOWED. FOLLOWING THE SAID DECISION WE UPHOLD THE ORDER OF CIT(A) AND DISMISS GROUND NO.1 RAISED BY THE REVENUE. 65. GROUND NO.2 RAISED BY THE REVENUE READS AS FOL LOWS: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LCL. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1 0 LAKHS MADE BY THE ASSESSING OFFICER OUT OF THE FOREIGN TRAVEL EXPENSE S OF RS. 36,598,998/- IGNORING THE FACT THAT THE ASSESSEE FAILED TO FURNI SH THE PURPOSE OF THE VISIT AND SUCH DISALLOWANCE MADE IN THE EARLIER YEA RS WAS CONFIRMED BY THE CIT(A). 66. THE ASSESSEE HAS INCURRED FOREIGN TRAVELLING EX PENSES OF RS.36,598,998/-. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF FOREIGN TRAVEL EXPENSES INDICATING THE PURPOSE OF SUCH FORE IGN TRAVEL. IN RESPONSE TO THIS, THE ASSESSEE FILED THE DETAILS OF FOREIGN TRA VELLING EXPENSES EMPLOYEE WISE. ACCORDING TO THE AO NO SUBMISSION WAS GIVEN REGARDING THE PURPOSE OF THE VISIT. HE WAS OF THE VIEW THAT IN THE ABSENC E OF CLEAR CUT DESCRIPTION OF THE PURPOSE OF THE VISIT, IT WAS NOT POSSIBLE TO KN OW AS TO WHY THESE PERSONS TRAVELLED ABROAD AND HOW THE FOREIGN TRAVELLING WAS IN CONNECTION WITH M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 32 BUSINESS PURPOSE OF THE ASSESSEE COMPANY. THE AO AL SO NOTICED THAT IN THE FINAL ACCOUNTS THAT THE ASSESSEE HAD IMPORTED CAPIT AL GOODS DURING THE YEAR OF RS. 15,227,638/-. HE WAS OF THE VIEW THAT SOME P ERSONS MUST HAVE VISITED ABROAD FOR THE PURPOSE OF PURCHASE OF CAPITAL GOODS . THE EXPENSES INCURRED ON PURCHASE OF A CAPITAL ASSET WOULD ALSO BE IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE, KEEPING THE TOTALITY OF ALL THE FACTS AND GOING BY TREATMENT GIVEN IN EARLIER YEARS ON THIS ISSUE, AN AMOUNT OF RS. 1,000,000/- WAS DISALLOWED ON ESTIMATION OUT OF FOREIGN TRAVEL EXPENSES AS BEING CAPITAL EXPENDITURE. 67. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT THE ASSESSEE FURNISHED ALL THE DETAILS AND THOSE DETAILS SHOWED THAT THE E XPENDITURE IN QUESTION WAS REVENUE EXPENDITURE AND WAS INCURRED FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE. NO DEFECTS HAVE BEEN POINTED OUT IN THE CLAIM MADE BY THE ASSESSEE. THE ADDITION HAS BEEN MADE ON ADHOC BASI S AND, THEREFORE, THE SAME CANNOT BE SUSTAINED. 68. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HA S RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 69. BEFORE US IT IS NOT IN DISPUTE THAT SIMILAR ISS UE HAD COME UP FOR CONSIDERATION IN ASSESSEES OWN CASE FOR A.Y 1996- 97 TO 1998-99 IN ITA NO.3076/M/04 AND THIS TRIBUNAL HELD AS FOLLOWS: 17. THE AO DISALLOWED ABOUT 5% OF THE EXPENDITURE ON ADHOC BASIS ON THE REASON THAT THE ASSESSEE HAS NOT FURNISHED THE EXACT PURPOSE OF THE VISIT FOR EACH EMPLOYEE. THE CIT(A) HAS CONFIRM ED THAT AS A REASONABLE DISALLOWANCE. IT WAS THE SUBMISSION THAT ASSESSEE IS A GLOBAL MNC WITH OPERATIONS IN 160 COUNTRIES AND EXP ORTS TO MANY COUNTRIES. ALL THE EXPENDITURE WAS INCURRED ON THE EMPLOYEES FOR THEIR FOREIGN VISIT FOR THE PURPOSE OF BUSINESS AND NO C APITAL EXPENDITURE WAS INVOLVED. IT WAS FURTHER SUBMITTED THAT TAX AUD ITORS ALSO GAVE DETAILS BUT NO DISALLOWANCE WAS CONSIDERED. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 33 17.1 ON CONSIDERATION OF THE DETAILS AND THE FACTS ON RECORD WE ARE IN AGREEMENT WITH THE ASSESSEE SUBMISSIONS. FIRST OF A LL NO SUCH DISALLOWANCE WAS MADE IN ANY OF THE EARLIER YEARS A ND THIS CLAIM WAS A RECURRING ONE. SECONDLY THE EXPENDITURE WAS INCURRE D ON EMPLOYEES AND THE DETAILS OF THE TRIPS AND NATURE WAS FURNISH ED. CONSIDERING THE BUSINESS ACTIVITY OF THE ASSESSEE AND NATURE OF EXP ENDITURE WE ARE OF THE OPINION THAT ANY ADHOC DISALLOWANCE WAS NOT W ARRANTED. AO IS DIRECTED TO DELETE THE SAME. GROUND IS ALLOWED. 70. WE ARE OF THE VIEW THAT IN THE PRESENT YEAR AL SO THE ASSESSEE FURNISHED ALL THE DETAILS REGARDING FOREIGN TRAVEL EXPENSES. THE AO MADE THE ADDITION FOR THE SIMPLE REASON THAT THE ASSESSEE HAD IMPOR TED CAPITAL ASSETS DURING THE PREVIOUS YEAR AND SOME OF THE FOREIGN TRAVELLIN G EXPENSES COULD BE FOR PURCHASE OF CAPITAL GOODS. THE AO PROCEEDED PURELY ON SURMISES. THE AO HAS ALSO RELIED ON THE DISALLOWANCE MADE IN THE EAR LIER ASSESSMENT YEARS WHICH HAVE ALREADY BEEN DELETED BY THE TRIBUNAL. I N VIEW OF THE ABOVE, WE HOLD THAT THE ADDITION WAS RIGHTLY DELETED BY THE C IT(A). GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 71. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLL OWS: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE P AYMENT IN FOREIGN EXCHANGE FOR THE PURCHASE OF SOFTWARE OF RS. 16,93, 794/- WITHOUT APPRECIATING THAT PAYMENT IS TOWARDS ROYALTY COVERE D U/S.40(A)(I). 72. AS PER THE NOTES TO ACCOUNTS, THE ASSESSEE HAS INCURRED EXPENSES IN FOREIGN EXCHANGE TO THE EXTENT OF RS. 11,386,868/- IN RESPECT OF OTHER MATTERS. OUT OF THIS AMOUNT, AN AMOUNT OF RS.1,693 ,794/- WAS INCURRED ON PURCHASE OF SOFTWARE. THE ASSESSEE WAS ASKED TO EXP LAIN WHY TAX HAS NOT BEEN DEDUCTED AT SOURCE. IT WAS EXPLAINED BY THE AS SESSEE VIDE LETTER DATED M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 34 05.12.2003 THAT THERE WAS NO DEDUCTION ON PAYMEN TS FOR THE PURCHASE OF SOFT WARE AS THIS IS PURCHASE OF SOFTWARE WHICH DO ES NOT WARRANT ANY TAX DEDUCTION THE EXPLANATION OF THE ASSESSEE WAS N OT ACCEPTED BY THE AO. HE WAS OF THE VIEW THAT IN ANY SOFTWARE ACQUISITION , THE PURCHASER MERELY, OBTAINS A LICENSE TO USE THE SOFTWARE. THE PAYMENT FOR ACQUISITION OF THE LICENSE TO USE THE SOFTWARE WOULD BE IN THE NATURE OF ROYALTY AND TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE U/S. 195 BY THE ASSESS EE. HE HELD THAT AS THE ASSESSEE HAS FAILED TO DO SO, THE PAYMENT IN FOREIG N EXCHANGE FOR THE SOFTWARE OF RS. 1,693,794/- WOULD BE HIT BY THE PRO VISIONS OF SEC.40(A) AND THE CLAIM FOR DEDUCTION OF THE PAYMENT IN QUESTION WAS DISALLOWED. THE AMOUNT OF RS. 1,693,794/- WAS, THEREFORE, ADDED TO THE TOTAL INCOME OF THE ASSESSEEE. 73. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED TH E ADDITION MADE BY THE AO HOLDING THAT THE PAYMENT IN QUESTION WAS NOT ROY ALTY AND THAT THE PAYEE WAS A NON RESIDENT AND THERE IS NO FINDING BY THE A O THAT THE PAYEE HAS PE IN INDIA. AGGRIEVED BY THE ORDER OF THE CIT(A) REV ENUE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. 74. THE LD. D.R SUBMITTED THAT THE FACTS WITH REGAR D TO THE NATURE OF PURCHASE BY THE ASSESSEE ARE NOT CLEAR EITHER FROM THE AOS ORDER OR FROM THE CIT(A)S ORDER AND, THEREFORE, THE MATTER SHOULD BE REMANDED TO THE AO FOR FRESH CONSIDERATION. THE LD. COUNSEL FOR THE ASSES SEE ON THE OTHER HAND RELIED ON THE DECISION OF THE SPECIAL BENCH OF ITAT , DELHI IN THE CASE OF MOTOROLA INC. 96 TTJ 1(DEL) (SB). 75. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE EXACT NATURE OF PAYMENT MADE BY THE ASSESSEE HAS NOT BEEN PROPERLY SPELT OUT EITHER IN THE ORDER OF THE AO OR CIT(A) OR BEFORE U S. IN THE CIRCUMSTANCES IT M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 35 WOULD BE JUST AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE ISSUE AFRESH. THE ASSESSEE IS DIRECTED TO GIVE THE EXACT NATURE OF THE SOFTWARE WHETHER PURCH ASED OUTRIGHT OR ON MERE LICENSE BASIS AND THE PURPOSE FOR WHICH THE SAME WA S PURCHASED. THE AO WILL DECIDE THE ISSUE AFTER AFFORDING THE ASSESSEE OPPORTUNITY OF BEING HEARD. 76. GROUND NO.4 HAS ALREADY BEEN DECIDED WHILE DECI DING THE GROUND NO.5 RAISED BY THE ASSESSEE. FOR THE REASONS STATED THE REIN THIS GROUND OF APPEAL IS DISMISSED. 77. GROUND NO.5 RAISED BY THE REVENUE READS AS FOLL OWS: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS . 27,91,962/- ON ACCOUNT OF DESTRUCTION OF OBSOLETE STOCK IN TRADE, FOLLOWING THE DECISION IN ASSESSEES OWN CASE FOR A.Y. 1996-97 AND THE DEC ISION OF ASSESSEES SISTER CONCERN, MIS. PROCTER & GAMBLE DISTRIBUTION CO.LTD., FOR THE EARLIER YEAR WHICH HAS NOT BEEN ACCEPTED BY THE DEP ARTMENT. 78. THE ISSUE RAISED BY THE REVENUE IS IDENTICAL TO THE ISSUE WHICH WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE I N A.Y 1996-97. THIS TRIBUNAL ON IDENTICAL ISSUE IN ITA NO.6486/M/04 FOR A.Y 1999-2000 HELD AS FOLLOWS: 37. VIDE GROUND NO. 3 THE REVENUE CONTENDS THAT TH E CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.27,91,962/- ON ACCO UNT OF DESTRUCTION OF OBSOLETE STOCK-IN-TRADE. IT WAS SUBMITTED THAT S IMILAR GROUND RAISED BY THE REVENUE IN ITA NO. 3833/MUM/2004 FOR A.Y. 19 96-97 HAS BEEN REJECTED BY THE TRIBUNAL HOLDING THAT HAVING REGARD TO THE FACT THAT THE DEDUCTION OF OBSOLETE STOCK WORKS OUT TO LESS THAN. 1% WE ARE OF THE VIEW THAT THE CLAIM OF DEDUCTION IS REASONABLE. THE REFORE WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. RESP ECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, AS THE ISSUE IS SIMILA R WE REJECT THE GROUND OF THE REVENUE. M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 36 FOLLOWING THE AFORESAID DECISION WE UPHOLD THE ORDE R OF THE CIT(A) AND DISMISS GROUND NO.5 RAISED BY THE REVENUE. 79. GROUND NO.6 RAISED BY THE REVENUE READS AS FOL LOWS: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO GRANT DEPRE CIATION @ 6O% ON SRIS SOFTWARE IGNORING THE FACT THAT THERE IS NO SP ECIFIC MENTION IN THE SCHEDULE TO ALLOW DEPRECIATION 60%. 80. THE ASSESSEE CLAIMED DEPRECIATION ON ACQUIRING SRIS SOFTWARE AT 60% AT THE RATES APPLICABLE TO COMPUTERS. THE AO TREAT ED THE SOFTWARE AS INDEPENDENT ITEM OF ASSET BEING A LICENCE AND RESTR ICTED THE CLAIM OF DEPRECIATION TO 25%. THE ASSESSEE EXPLAINED BEFORE CIT(A) THAT SRIS SOFTWARE IS A REPORTING SYSTEM SET UP IN THE PLANT OF THE COMPANY TO GENERATE REPORTS ON INVENTORY TRACKING AND TO IDE NTIFY MISSES. THE ASSESSEE EXPLAINED THAT THE HARDWARE REQUIRED FOR SRIS SOFTW ARE WAS TREATED AS DEPRECIABLE ASSET UNDER BLOCK OF COMPUTERS AND THE SOFTWARE WHICH IS AN INTEGRAL PART OF THE ASSESSEE WAS ALSO CAPITALIZED AND DEPRECIATION CLAIMED AT 60%. THE CIT(A) HELD THAT SOFTWARE WAS DEPRECIABL E ASSET ONLY FROM 2003- 04 BUT WAS INTANGIBLE ASSET. THE CIT(A) HELD THAT SINCE IT WAS PART OF THE COMPUTER IT HAS TO BE TREATED AS COMPUTERS ELIGIBLE FOR DEPRECIATION AT 60%. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HA S RAISED GROUND NO.5 BEFORE THE TRIBUNAL. 81. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSUE AS TO WHETHER DEPRECIATION HAS TO BE ALLOWED AT 60% OR 25% FOR A. Y 2001-02 ON SOFTWARE IS NO LONGER RES-INTEGRA AND HAS BEEN DECIDED BY TH E SPECIAL BENCH OF THE ITAT IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCI T, 111 ITD 112 (DEL), WHEREIN IT WAS HELD THAT DEPRECIATION ON COMPUTER S OFTWARE HAS TO BE ALLOWED AT 25% PRIOR TO 1/4/2003 AND THAT IS ONLY F ROM A.Y 2003-04 M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 37 COMPUTER SOFTWARE ARE ENTITLED TO DEPRECIATION AT 6 0%. THE REASONING OF THE CIT(A) THAT SOFTWARE WAS PART OF THE COMPUTER AND H AD TO BE TREATED AS COMPUTER IN OUR VIEW IS CONTRARY TO THE CLAIM OF TH E ASSESSEE. THE ASSESSEE HAD ITSELF CLAIMED DEPRECIATION TREATING SOFTWARE A S A SEPARATE AND INDEPENDENT ITEM OF CAPITAL ASSET. IN VIEW OF THE AFORESAID DECISION OF THE SPECIAL BENCH, WE REVERSE THE ORDER OF THE CIT(A) A ND RESTORE THE ORDER OF THE AO. GROUND NO.6 RAISED BY THE REVENUE IS ALLOWED. 82. GROUND NO.7 RAISED BY THE REVENUE READS AS FOLL OWS: 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE. AO TO EXCLUDE TH E SALES TAX FROM THE TOTAL TURNOVER FOR THE COMPUTATION OF DEDUCTION U/S 8OHHC RELYING ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE O F SUDARSHAN CHEMICAL LTD. (245 ITR 769 ) WHICH HAS NOT BEEN ACC EPTED BY THE DEPARTMENT. 83. THE ISSUE SOUGHT TO BE RAISED BY THE REVENUE IN GROUND NO.7 NO LONGER RES- INTEGRA AND HAS BEEN NOW SETTLED BY THE HONB LE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS, 290 ITR 667 (S C), WHEREIN IT WAS HELD THAT SALES TAX HAS TO BE EXCLUDED FROM THE TOTAL T URNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80 HHC OF THE ACT. THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SUDARSHAN CHEMICAL INDUSTRIES LTD. (SUPRA) HAS BEEN APPROVED. IN VIEW OF THE ABO VE GROUND NO.7 RAISED BY THE REVENUE IS DISMISSED. 84. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ITA NO.119/MUM/2009: A.Y 2001-02: 85. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER OF THE AO IMPOSING PENALTY ON THE ASSESSEE UNDER SECTION 271 (1)(C) OF THE INCOME TAX ACT 1961 (THE ACT). M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 38 86. THE FACTS AND CIRCUMSTANCES UNDER WHICH PENALTY UNDER SECTION 271(1)(C) WAS IMPOSED ON THE ASSESSEE ARE AS FOLLO WS: 87. AS WE HAVE ALREADY SEEN, THE ASSESSEE IS A COMP ANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF MEDICINES AND VARIOUS PERSONAL HEALTH CARE PRODUCTS. THE ISSUE BEFORE THE AO WAS AS TO WHETHER RENTAL INCOME FROM LETTING OUT OF THE PROPERTY MATULYA CEN TER OWNED BY THE ASSESSEE WAS TO BE CONSIDERED AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE OR INCOME FROM HOUSE PROPERTY WHICH WAS TH E VIEW OF THE ASSESSING OFFICER. THE ASSESSEE HAD GIVEN THE AFORESAID PROP ERTY TO A GROUP COMPANY M/S. PROCTOR & GAMBLE HOME PRODUCTS LTD. FOR RS. 1, 08,00,000/- PER ANNUM. THE ASSESSEE HAD CLAIMED THAT INCOME FROM L ETTING WAS INCOME FROM BUSINESS AND THAT DEPRECIATION ON THE AFORESAI D BUILDING SHOULD ALSO BE ALLOWED AS THE ASSET WAS USED FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE. THE AO WAS OF THE VIEW THAT INCOME FROM AFORESAID P ROPERTY SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND DEPRECIATION CLAIMED BY THE ASSESSEE SHOULD NOT BE ALLOWED. HE WAS OF THE VIEW THAT RENTAL INCOME FROM THE PROPERTY HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE UNDER SECTION 22 OF THE INCOME TAX ACT 1961(THE ACT ) UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AO ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECATION AND FURTHER BROUGHT THE RE NTAL INCOME IN QUESTION TO TAX UNDER SECTION 22 OF THE ACT. 88. THE PLEA OF THE ASSESSEE THAT THE INCOME FROM LETTING OUT OF PROPERTY HAD TO BE CONSIDERED AS INCOME FROM BUSINESS WAS BASED ON THE FACT THAT THE PROPERTY WAS LEASED TO A SISTER COMPANY OF THE ASSS ESSEE M/S.PROCTOR & GAMBLE HOME PRODUCTS LTD. UNDER A BUSINESS ARRANGEM ENT BETWEEN THE ASSESSEE AND SISTER COMPANY WHEREBY THE SISTER COMP ANY AGREED TO COMPENSATE THE ASSESSEE FOR USE OF SPACE. ACCORDIN G TO THE ASSESSEE THE M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 39 PREMISES IN QUESTION WAS ALSO OCCUPIED BY THE EMPLO YEES OF THE ASSESSEE AND WERE FUNCTIONING FROM THE SAME PREMISES AND US ED THE SAME SET OF INFRASTRUCTURE AS IS AVAILABLE IS ASSESSEES SISTE R CONCERN. THE ASSESSEE FURTHER SUBMITTED IT WAS THE MANUFACTURER AND DISTR IBUTOR OF ALL ITS PRODUCTS UPTO MARCH1993. THEREAFTER, WITH A VIEW TO TAKE AD VANTAGE OF THE MERITS OF SPECIALIZATION, THE DISTRIBUTION TASK WAS ALLOTTED TO A NEW COMPANY (NAMELY PROCTER & GAMBLE DISTRIBUTION CO. LTD. PGDC) IN A PRIL1993 AND SUBSEQUENTLY TO PGHP IN NOVEMBER1998 WHEN THIS BU SINESS OF PGDC WAS COMMENCED BY PGHP. ONE OF PGHPS ACTIVITY WAS THAT OF DISTRIBUTION OF THE ASSESSEES PRODUCTS. WITH A VIEW THAT THIS ACTIVITY IS SMOOTHLY TAKEN OVER AND IS CARRIED ON WITHOUT ANY INTERRUPTION, THE ASSESSE E, IN ITS OWN BUSINESS INTERESTS, AGREED TO ALLOW THE USE OF ITS SET INFRA STRUCTURE NAMELY- PREMISES COMPUTERS, OFFICE EQUIPMENTS, TELEPHONES ETC. FOR A COMPOSITE CONSIDERATION. ACCORDING TO THE ASSESSEE WHEN A PRINCIPAL ALLOWS T HE USE OF ITS PREMISES TO ITS AGENT WITH THE UNDERSTANDING THAT THE SAME SHOU LD BE USED ENTIRELY FOR THE BUSINESS OF THE PRINCIPAL ONLY AND FOR NO OTHER PURPOSE WHATSOEVER THE COMPENSATION RETAINS THE CHARACTER OF BUSINESS INCO ME. IT WAS ARGUED THAT THE PRINCIPAL COULD EITHER ADJUST THE COMPENSATION IN THE MARGINS OR COMMISSION PAYABLE TO THE AGENT OR COULD SHOW THEM SEPARATELY. IF MARGINS WERE TO BE ADJUSTED, ONLY THE NET EXPENDITURE WOULD BE CLAIMABLE AS BUSINESS EXPENDITURE. THE ASSESSEE POINTED OUT THA T THERE WAS NO SUCH ADJUSTMENT. THE ASSESSEE ARGUED THAT BOTH THE ARRAN GEMENTS IDENTICAL AND IN THE CIRCUMSTANCE IT WAS NOT JUSTIFIABLE TO TRE AT EXPENDITURE AS BUSINESS EXPENDITURE AND INCOME AS RENTAL INCOME. THE RENTA L INCOME SHOULD BE CONSIDERED AS AN INTEGRAL PART OF THE BUSINESS OF T HE ASSESSEE WHEN THE PGDC DEALS IN THE PRODUCTS OF THE ASSESSEE AND OF N ONE OTHERS. 89. THE ARGUMENTS DID NOT FIND FAVOUR WITH THE AO. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. WHILE DECIDING THE APPEAL M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 40 OF THE ASSESSEE WE HAVE ALREADY HELD THAT THE INCOM E IN QUESTION HAD TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES FOLLOWING THE DECISION IN ASSESSEES OWN CASE BY THE TRIBUNAL MUMBAI IN IT A NO.845/MUM/03 FOR AY 95-96 WHEREIN THIS TRIBUNAL HELD AS FOLLOWS: 6.3 AS REGARDS THE RENTAL INCOME, THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAD LET OUT THE BUILDING TO PROCTER AND GA MBLE DISTRIBUTION CO. LTD. FOR EFFECTIVE AND SMOOTH DISTRIBUTION OF PRODUCTS AND SUCH LETTING OUT HAD ADVANCED THE BUSINESS INTEREST. MO REOVER, LETTING OUT THE PROPERTY WAS ALSO ONE OF THE OBJECTS OF THE ASS ESSEE COMPANY AND ACCORDINGLY IT HAS BEEN CLAIMED THAT THE RENTAL INC OME SHOULD BE ASSESSED AS BUSINESS INCOME. 6.4 WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE MATERIAL CAREFULLY. THERE IS NO MATERIAL TO SHOW THAT BUILDI NG HAS BEEN LET OUT BY THE ASSESSEE AS PART OF ANY BUSINESS ARRANGEMENT SO THAT THE RENTAL INCOME COULD BE CONSIDERED AS INCIDENTAL BUSINESS I NCOME. MERELY BECAUSE THE BUILDING HAS BEEN LET OUT TJ THE DISTRI BUTOR OF THE ASSESSEE, THE RENTAL INCOME CANNOT BE TREATED AS BUSINESS INC OME IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT LETTING OUT WAS NECESS ARY FOR THE PURPOSE OF BUSINESS. SIMILARLY, MERELY BECAUSE ONE OF THE O BJECTS OF THE ASSESSEE WAS LETTING OUT OF THE PROPERTY, IT CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THE ASSESSEE WAS ACTUALLY DO ING BUSINESS IN LETTING OUT BUILDINGS. THERE IS NO MATERIAL TO SHOW THAT THE ASSESSEE WAS DOING ANY ORGANIZED ACTIVITY OF LETTING OUT BUI LDINGS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME CANNOT BE ACCEPTED AND THE ORDER OF THE CIT (A) IS UPHELD. 90. IT IS IN RESPECT OF THE DISALLOWANCE OF DEPREC IATION AND TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AS AGAINST THE CLAIM OF THE ASSESSEE THAT IT WAS BUSINESS INCOME THAT PENALTY WAS IMPOSE D ON THE ASSESSEE BY THE AO WHICH WAS CONFIRMED BY THE CIT(A). WE FIND THAT THE ASSESSEE HAD MADE COMPLETE DISCLOSURE OF ALL THE FACTS. THE ASS ESSEE HAD MADE A CLAIM THAT RENTAL INCOME RECEIVED WAS TO BE ASSESSED AS I NCOME FROM BUSINESS BASED ON THE UTILITY OF THE PREMISES FOR THE ASSESS EES BUSINESS ALSO. ON THE SAME BASIS CLAIM FOR DEPRECIATION WAS ALSO MADE. T HE AO CAME TO THE M/S. PROCTER & GAMBLE HYGIENE AND HEALTH CARE LIMIT ED, 41 CONCLUSION THAT THE INCOME IN QUESTION WAS INCOME F ROM HOUSE PROPERTY. ULTIMATELY THE TRIBUNAL HELD THAT THE INCOME IN QUE STION WAS INCOME FROM OTHER SOURCES. THUS IT APPEARS TO US THAT THERE WA S NO CONCEALMENT OF ANY PARTICULARS OF INCOME AND IT WAS A CASE ON DIFFEREN CE OF OPINION REGARDING THE HEAD OF INCOME UNDER WHICH RENTAL INCOME HAVE TO B E ASSESSED. IT IS ALSO SIGNIFICANT TO NOTE THAT THE TRIBUNAL IN THE QUANTU M PROCEEDINGS ULTIMATELY DID NOT AGREE WITH THE AO AND IT TOOK THE VIEW THAT THE RENTAL INCOME WAS INCOME FROM OTHER SOURCES. IN SUCH CIRCUMSTANCES W E ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE SAID TO HAVE FURNISHED INACC URATE PARTICULARS OF INCOME. WE, THEREFORE, HOLD THAT IT IS NOT A FIT C ASE FOR IMPOSING PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE PENALTY IM POSED IS DIRECTED TO BE DELETED. THE APPEAL OF THE ASSESSEE IS ALLOWED. 91. IN THE RESULT, ITA NO.1499/M/05 IS ALLOWED, WH ILE ITA NO.1241 & 1500/M/05 ARE PARTLY ALLOWED, WHILE ITA NO.119/M/20 09 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH DAY OF JAN. 2012. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 25 TH JAN.2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.