M/S. BUNGE INDIA PVT. LTD, MUMBAI V. THE DCIT 10(1), MUMBAI

ITA 1779/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1423 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 12-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: ARVIND SONDE
• Keywords: Capital asset; Depreciation; Business expenditure; Additional depreciation; Proportionate interest; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI R.V.EASWAR, PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A. NO.1779/M/2008 ASSESSMENT YEAR : 2004-05 M/S. BUNGE AGRIBUSINESS (INDIA) PVT. LTD. (NOW KNOWN AS BUNGE INDIA PVT. LTD.) IL & FS CENTRE, 7 TH FLOOR, QUADRANT D PLOT C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 PAN NO.: AABCB6833E VS. DY. COMMISSIONER OF I.T. 10(1), MUMBAI. (APPELLANT) (RESPONDENT) & I.T.A. NO. 384/JP/2009 ASSESSMENT YEAR : 2004-05 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KOTA VS. M/S. BUNGE INDIA PVT. LTD. NH-12, RAMGANJ BALAJI, BUNDI PAN NO.: AAACG7034K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE. RESPONDENT BY : SHRI SATBIR SINGH. O R D E R PER T.R.SOOD, AM: THESE APPEALS FILED BY THE ASSESSEE AND REVENUE A RE DIRECTED AGAINST THE ORDER DATED 03.01.2008 OF COMMISSIONER OF INCOME TAX (APPEALS)-X, MUMBAI AND RELATES TO THE ASSESSMENT Y EAR 2004-05 & DATED 27.03.2009 OF COMMISSIONER OF INCOME TAX (APPEALS), KOTA AND RELATES TO THE ASSESSMENT YEAR 2004-05. 2 I.T.A.NO.1779/MUM/2008 A.Y 04-05 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE OBSERVATI ON OF THE DEPUTY COMMISSIONER OF INCOME TAX 10(1), MUMBAI (DC IT) THAT SINCE THE APPELLANT HAS USED THE ASSETS ACQUIRED FR OM HINDUSTAN LEVER LIMITED (HLL) ONLY FOR ONE MONTH, I T IS ENTITLED FOR PROPORTIONATE DEPRECIATION FOR THE PERIOD OF 33 [THIRTY THREE] DAYS. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE DCIT IN DISALLOWING THE PROVISION FOR TRADE DISCOUNT OF RS. 1,14,64,800/- . 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE DCIT IN DISALLOWING THE PROPORTIONATE INTEREST EXPENSES OF RS.12,20,171 AND RS.3,76,432 OUT OF EXPENSES INCURRED ON ESTABLI SHMENT [BEING PAYMENTS TO AND PROVISION FOR EMPLOYEES AS SHOWN IN THE AUDITED ACCOUNTS] AS ATTRIBUTABLE TOWARDS EARNI NG OF DIVIDEND INCOME AND DISALLOWING THE SAME UNDER SECT ION 14A OF THE INCOME TAX ACT. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE DCIT IN DISALLOWING AS REVENUE EXPENDITURE THE PROPORTIONAT E NON COMPETE FEES OF RS.9,69,833/- OUT OF THE PAYMENT OF RS.5,29,00,000/- MADE BY THE APPELLANT TO HLL. 3. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G THE YEAR ASSESSEE HAS PURCHASED EDIBLE OILS AND BAKERY FATS DIVISION OF HINDUSTAN LEVER LIMITED VIDE AN AGREEMENT DATED 28- 8-2003 FOR A TOTAL CONSIDERATION OF RS.93.07 CRORES. LATER ON, W.E.F. 1-10-2003 ASSESSEE COMPANY AMALGAMATED WITH GCPIL PVT. LTD. THE ASSESS EE CLAIMED DEPRECIATION FOR SIX MONTHS ON THE ASSETS PURCHASED FROM HINDUSTAN LEVER LTD. FURTHER DEPRECIATION OF SIX MONTHS WAS CLAIMED BY GCPIL PVT. LTD. IN RESPONSE TO A QUERY THAT WHY DEPRECIATION SHOULD NO T BE ALLOWED IN THE RATIO OF NUMBER OF DAYS FOR WHICH ASSETS WERE USED BY THESE TWO COMPANIES, IT WAS SUBMITTED THAT THE ASSETS WERE PU RCHASED W.E.F. 1-09- 2003 AND THE CLAIM FOR DEPRECIATION HAS BEEN CLAIME D FOR SIX MONTHS IN TERMS OF FIFTH PROVISO TO SEC.32[1] BECAUSE LATER O N ASSETS WERE TRANSFERRED TO GCPIL PVT. LTD. HOWEVER, AO DID NOT ACCEPT THIS EXPLANATION. ACCORDING TO HIM, BECAUSE OF FIFTH PROVISO THE TOTAL DEPRECIA TION CANNOT EXCEED THE DEDUCTION CALCULATED AT THE PRESCRIBED RATE AS IF T HE AMALGAMATION HAD NOT 3 TAKEN PLACE. SINCE ASSESSEE HAD ACQUIRED THE ASSETS ON 29-8-2003 AND SAME WERE TRANSFERRED DUE TO AMALGAMATION ON 1-10-2 003, THEREFORE, ASSESSEE HAS USED THE ASSETS ONLY FOR ONE MONTH AND , ACCORDINGLY, HE CALCULATED THE ALLOWABLE DEPRECIATION AS UNDER: TOTAL DEPRECIATION CLAIMED RS.21,29,83,217 LESS: EXCESS DEPRECIATION ON BRAND (AS THE VALUE OF BRAND WAS TAKEN AT RS.48 CRORES INSTEAD OF RS.52,88,50,000 RS. 61,06,250 RS.20,68,76,967 DEPRECIATION ON B/F ASSETS RS. 11,14,2543 DEPRECIATION ON ASSETS ACQUIRED DURING THE YEAR RS .20,57,62,714 NO. OF MONTHS USED BY THE ASSESSEE : 1 NO. OF MONTHS USED BY AMALGAMATING COMPANY: 6 DEPRECIATION FOR 1 MONTHS = 205762714X1/7 RS. 2,9 3,94,673 THUS, THE DEPRECIATION ALLOWABLE WORKS OUT AT RS.2 ,93,94,673 4. ON APPEAL, LD. CIT(A) DECIDED THE ISSUE VIDE PAR A 4.3 WHICH READS AS UNDER: 4.3 I HAVE EXAMINED THE ISSUE. THE 6 TH PROVISO TO SEC.32, CLEARLY OVERRIDES THE 3 RD PROVISO, TO SEC.32. THE 3 RD PROVISO TO SECTION 32 PROVIDES THAT DEPRECIATION SHOULD BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT THE PRESCRIBED PERCENTAGE IF THE ASSE T IS PUT TO USE FOR LESS THAN 180 DAYS. THE 6 TH PROVISO FURTHER LAYS DOWN THAT IN THE CASE OF AN AMALGAMATION, THE DEPRECIATION BETWEEN THE AM ALGAMATED AND THE AMALGAMATING COMPANIES SHALL BE COMPUTED IN THE RATIO OF DAYS FOR WHICH THE ASSETS ARE USED BY THEM. THE PROVISO ALSO LAYS DOWN THAT THE TOTAL DEDUCTION SHALL NOT EXCEED THE DEDUC TION WHICH WOULD BE ELIGIBLE IF THE AMALGAMATION HAD NOT TAKEN PLACE . THUS, IT IS CLEAR THAT THE OBJECTIVE OF THE 6 TH PROVISO IS TO ENSURE THAT THE DEPRECIATION DOES NOT EXCEED THE TOTAL AMOUNT, WHICH WOULD BE AL LOWABLE IF NO AMALGAMATION HAS TAKEN PLACE. IN THE INSTANT CASE, THE APPELLANT COMPANY PURCHASED THE ASSETS ON 28-08-03. IF NO AMA LGAMATION HAD TAKEN PLACE, THE APPELLANT COMPANY WOULD HAVE BEEN ELIGIBLE FOR 100% DEPRECIATION. IN THE CIRCUMSTANCES, A HARMONIO US READING OF THE 3 RD PROVISO AND 6 TH PROVISO, OF SECTION 32, WOULD IMPLY THAT THE TOTAL DEPRECIATION ELIGIBLE ON THE ASSETS OF THE AMALGAMA TING COMPANY, ELIGIBLE AT THE RATE OF 100% OF THE DEPRECIATION AL LOWABLE FOR THE FULL YEAR, WOULD BE DISTRIBUTED IN THE RATIO OF NO. OF D AYS FOR WHICH THEY WERE PUT TO USE DURING THE PREVIOUS YEAR BY THE AMA LGAMATING AND THE AMALGAMATED COMPANIES. IN THIS CASE THE APPELLA NT COMPANY IS THE AMALGAMATING COMPANY AND M/S GCPIL IS THE AMALG AMATED COMPANY. THE AMALGAMATION TOOK PLACE W.E.F. 01-10-2 003. THE MEANS, THAT THE AMALGAMATED COMPANY USED THE ASSETS OF THE AMALGAMATING COMPANY FOR 180 DAYS. ON THE OTHER HAN D, WITH REGARD TO ASSETS PURCHASED FROM HLL, THE AMALGAMATING COMP ANY USED THE 4 ASSETS FROM 29-08-03 TO 30-09-03 I.E. 33 DAYS. IN O THER WORDS, THE ASSETS PURCHASED FROM HLL WERE PUT TO USE BY THE AM ALGAMATING AND AMALGAMATED COMPANIES FOR 213 DAYS. HENCE, 100% DEP RECIATION ON THE ASSETS OF HLL, AT THE PRESCRIBED RATE, SHOULD B E APPORTIONED IN THE RATIO OF 33:180 BETWEEN THE AMALGAMATING AND AMALGA MATED COMPANIES. 5. BEFORE US, LD. COUNSEL OF THE ASSESSEE REFERRED TO THE SECOND PROVISO TO SEC.32[1] AND POINTED OUT THAT THIS PROVISO PUTS RESTRICTION ON CLAIM OF DEPRECIATION WHEN THE ASSET IS ACQUIRED DURING THAT YEAR AND IF THE SAME HAS BEEN USED FOR A PERIOD LESS THAN HUNDRED AND EI GHTY DAYS IN THAT YEAR, THEN THE CLAIM OF DEPRECIATION HAS TO BE RESTRICTED TO 50% OF THE TOTAL CLAIM. SINCE IN THE CASE BEFORE US, ASSETS WERE ACQ UIRED ON 29-8-2003, THEREFORE, NATURALLY, ASSESSEE COMPANY ASSUMING THA T NO AMALGAMATION HAD TAKEN PLACE, WOULD BE ENTITLED FOR DEPRECIATION FOR THE FULL YEAR SINCE ASSETS WERE USED FOR MORE THAN 180 DAYS. THEREFORE, AS PER THIS PROVISO, ASSESSEE WAS ENTITLED TO FULL DEPRECIATION. 6. THE LD. COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT THE FIFTH PROVISO WOULD COME INTO OPERATION IN THE CASE OF AM ALGAMATION. HE CARRIED US THROUGH THE FIFTH PROVISO TO SEC.32[1] AND POINT ED OUT THAT THIS RESTRICTION WOULD APPLY ONLY IN THE CASE OF AMALGAM ATIONS OR SUCCESSIONS. THE RESTRICTION CLEARLY PROVIDES THAT TOTAL DEPRECI ATION OF AMALGAMATING I.E. ASSESSEE COMPANY AND AMALGAMATED COMPANY CANNOT EXC EED THE DEDUCTION CALCULATED AT THE RATE PRESCRIBED WHICH W OULD MEAN THE TOTAL DEPRECIATION. HE SUBMITTED THAT BOTH THESE PROVISOS ARE FOR DIFFERENT PURPOSES AND HAVE TO BE READ SEPARATELY. THE FIFTH PROVISO CLEARLY TALKS OF THE RESTRICTION BY ASSUMING THAT TOTAL DEPRECIATION HAS TO BE CALCULATED AS IF NO AMALGAMATION OR DEMERGER HAS TAKEN PLACE, THE N SUCH DEPRECIATION HAS TO BE ALLOCATED IN SUCH A MANNER AND PROPORTION THAT IT DOES NOT EXCEED THE TOTAL CLAIM WHICH IS PERMISSIBLE UNDER T HE LAW. THE AO AND THE CIT(A) HAVE READ THE RESTRICTION PROVIDED IN FIFTH PROVISO INTO SECOND PROVISO ALSO, WHICH IS NOT PERMISSIBLE BECAUSE SECO ND PROVISO PROVIDES THE BASIS FOR ALLOWING TOTAL DEPRECIATION AND RESTRICTS THE DEPRECIATION TO 50% ONLY IN CASES WHERE THE ASSET HAS BEEN USED FOR LES S THAN 180 DAYS. SINCE 5 ASSESSEE HAS PURCHASED THE ASSET ON 29-8-2003 THE A SSESSEE WAS NATURALLY ENTITLED TO FULL DEPRECIATION BECAUSE ASS ETS WERE USED FOR MORE THAN 180 DAYS. ONCE THE CLAIM WAS ALLOWABLE FOR FUL L YEAR, THEN THE SAME HAS TO BE ONLY ALLOCATED IN TERMS OF FIFTH PROVISO. HE FURTHER SUBMITTED THAT ASSESSEE WOULD HAVE NO OBJECTION IF, BOTH THE DEPRE CIATIONS ARE ALLOWED TO THE AMALGAMATED COMPANY, BUT IN NO CASE, CLAIM FOR FULL DEPRECIATION CAN BE CURTAILED. 7. ON THE OTHER HAND, LD.DR STRONGLY SUPPORTED THE ORDER OF THE AO. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. ADMITTEDLY, THE ASSETS HAVE BEEN PURCHASED BY THE ASSESSEE COMPANY VIDE AGREEMENT DATED 28-8-2003. THEREFORE, INITIALLY THE CLAIM OF DEPRECIATION HAS TO BE EXAMINED IN THE LIGHT OF SEC.32[1]. NOW THERE IS A RESTRICTION PROVIDED BY SECOND PROVISO WHICH READS AS UNDER: PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO IN CLAUSE (I) OR CLAUSE (II) [OR CLAUSE (IIA)], AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UN DER THIS SUB- SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTE D TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) [OR CLAUSE (IIA)], AS T HE CASE MAY BE :] THUS, THE ABOVE RESTRICTION MAKES IT CLEAR THAT IN CASE AN ASSET HAS BEEN ACQUIRED DURING THE YEAR AND USED FOR THE PURPOSE O F BUSINESS FOR LESS THAN 180 DAYS THEN CLAIM OF DEPRECIATION IS REQUIRE D TO BE RESTRICTED TO THE 50% OF THE NORMAL RATE. THIS, IN TURN, WOULD MEAN T HAT WHERE AN ASSET HAS BEEN USED FOR MORE THAN 180 DAYS, THEN DEPRECIATION HAS TO BE ALLOWED FOR THE FULL YEAR. THE ROLE OF THIS PROVISO IS ONLY TO RESTRICT THE DEPRECIATION TO 50% WHERE ASSETS HAVE BEEN USED FOR LESS THAN 180 D AYS. PERHAPS THE LEGISLATURE HAS MADE A THUMB RULE FOR ALLOWANCE OF DEPRECIATION FOR USAGE OF ASSETS IN THE CASE OF LESS THAN SIX MONTHS AND M ORE THAN SIX MONTHS. THE BUSINESS MAN MAY PURCHASE THE ASSET AT ANY POIN T OF TIME DURING THE YEAR AND DEPRECIATION HAS NOT BEEN PROVIDED TO BE A LLOWABLE ON 6 PROPORTIONATE BASIS FROM DAY-TO-DAY. MEANING THEREB Y THAT SOMEBODY BUYS AN ASSET ON APRIL 2, THEN DEPRECIATION IS NOT RESTR ICTED TO 364 DAYS OR IN OTHER CASE WHEN ASSET IS PURCHASED ON MARCH 30 AND USED FOR THE BUSINESS, THEN DEPRECIATION IS ALLOWABLE ONLY FOR O NE DAY. THE RULE PROVIDED BY SECOND PROVISO IS THAT EITHER THE DEPRE CIATION WOULD BE ALLOWED FOR FULL YEAR AS LONG AS THE ASSET IS USED FOR MORE THAN 180 DAYS AND IF THE SAME IS USED FOR LESS THAN 180 DAYS, THE N DEPRECIATION IS TO BE ALLOWED AT THE RATE OF 50% OF PRESCRIBED RATES. 9. NOW, LET US EXAMINE THE FIFTH PROVISO TO SEC.32[ 1]WHICH READS AS UNDER: PROVIDED ALSO THAT THE AGGREGATE DEDUCTION, IN RESPECT OF DEPRECIATION OF BUILDINGS, MACHINERY, PLANT OR FURN ITURE, BEING TANGIBLE ASSETS OR KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS , LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ALLOWABLE TO THE PR EDECESSOR AND THE SUCCESSOR IN THE CASE OF SUCCESSION REFERRED TO IN CLAUSE (XIII) AND CLAUSE (XIV) OF SECTION 47 OR SECTION 170 OR TO THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY IN THE CASE OF AMALGAMATION, OR TO THE DEMERGED COMPANY AND THE RE SULTING COMPANY IN THE CASE OF DEMERGER, AS THE CASE MAY BE , SHALL NOT EXCEED IN ANY PREVIOUS YEAR THE DEDUCTION CALCULATE D AT THE PRESCRIBED RATES AS IF THE SUCCESSION OR THE AMALGA MATION OR THE DEMERGER, AS THE CASE MAY BE, HAD NOT TAKEN PLACE, AND SUCH DEDUCTION SHALL BE APPORTIONED BETWEEN THE PREDECES SOR AND THE SUCCESSOR, OR THE AMALGAMATING COMPANY AND THE AMAL GAMATED COMPANY, OR THE DEMERGED COMPANY AND THE RESULTING COMPANY, AS THE CASE MAY BE, IN THE RATIO OF THE NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED BY THEM.] THE ABOVE PROVISO APPLIES IN THE CASE OF PREDECESSO R AND SUCCESSOR REFERRED TO IN CLAUSES (XIII) AND (XIV) OR SEC.170 OR TO THE AMALGAMATING AND AMALGAMATED COMPANY. THE PROVISO FURTHER CLEARLY PR OVIDES THAT TOTAL DEPRECIATION HAS TO BE CALCULATED BY ASSUMING THAT NO AMALGAMATION HAS TAKEN PLACE AND THEN LATER ON SUCH DEPRECIATION HAS TO BE CALCULATED OR APPORTIONED IN THE RATIO OF NUMBER OF DAYS FOR WHIC H THE ASSETS HAVE BEEN USED. THIS CAN BE UNDERSTOOD BY THE FOLLOWING EXAMP LE: 7 9.1 LET US ASSUME THAT AN ASSET IS ACQUIRED BY THE ASSESSEE COMPANY FOR RS.1000/- ANY TIME BEFORE 30 TH SEPTEMBER. IN THAT CASE THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION OF RS.100 [IF RAT E OF DEPRECIATION IS AT 10%]. THIS IS SO BECAUSE IF THE ASSET IS USED FOR M ORE THAN 180 DAYS, FULL DEPRECIATION IS ALLOWABLE. NOW, LET US ASSUME THAT IF AMALGAMATION TAKES PLACE ON 1 ST OCTOBER, THEN FIFTH PROVISO WOULD COME INTO PLAY. THE FIRST REQUIREMENT OF FIFTH PROVISO IS THAT AMALGAMATION H AS TO BE IGNORED, WHICH MEANS ASSESSEE WAS ENTITLED TO TOTAL DEPRECIATION O F RS.100/- WHICH HAS TO BE APPORTIONED BETWEEN THE AMALGAMATING COMPANY AND AMALGAMATED COMPANY. SINCE AS OBSERVED ABOVE, DEPRECIATION HAS NOT BEEN MADE ALLOWABLE FROM DAY-TO-DAY BASIS, THEREFORE THE AMAL GAMATING COMPANY WOULD BE ENTITLED TO THE DEPRECIATION FOR THE FIRST SIX MONTHS I.E. RS.50 AND BALANCE RS.50 WOULD BE ALLOWABLE TO THE AMALGAMATED COMPANY. AS WE HAVE SEEN THAT THE FIFTH PROVISO ITSELF MANDATE THA T BEFORE APPORTIONMENT THE FACT OF AMALGAMATION HAS TO BE IGNORED AND FIGU RE OF TOTAL DEPRECIATION HAS TO BE DETERMINED. NOW IN THE EXAMPLE TAKEN BY U S SINCE TOTAL DEPRECIATION HAS BEEN FOUND TO BE ALLOWABLE AT RS.1 00/- NATURALLY THE APPORTIONMENT HAS TO BE DONE OUT OF THIS RS.100/-. SINCE THE AMALGAMATED COMPANY HAD USED THE ASSETS FOR SIX MON THS THE ALLOCATION CAN BE FIFTY FIFTY. 10. IN THE CASE BEFORE US THE ASSETS HAVE BEEN ACQU IRED AND USED FROM 29-8-2003 IN THIS CASE, THEREFORE, PROPORTION ADOPT ED BY THE ASSESSEE AS FIFTY FIFTY SEEMS TO BE CORRECT. THOUGH THIS PROPOR TION CAN BE CHANGED 1/7 TO AMALGAMATING COMPANY AND 6/7 TO AMALGAMATED COMP ANY BECAUSE THE AMALGAMATING COMPANY HAS USED THE ASSETS ONLY FOR O NE MONTH OUT OF THE TOTAL USAGE OF SEVEN MONTHS. HOWEVER, THIS APPORTIO NMENT HAS TO BE DONE OUT OF THE TOTAL DEPRECIATION WHICH WAS ALLOWABLE A T 100% IN VIEW OF THE SECOND PROVISO. IN VIEW OF THIS DISCUSSION, WE ARE OF THE OPINION, THAT ASSESSEE I.E. AMALGAMATING COMPANY HAS RIGHTLY CLAI MED THE DEPRECIATION FOR THE FIRST SIX MONTHS BECAUSE ONLY DEPRECIATION OF SIX MONTHS HAS BEEN CLAIMED IN THE CASE OF AMALGAMATED COMPANY. THEREFO RE, WE SET ASIDE THE 8 ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE DEPRECIATION FOR SIX MONTHS. 11. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSE SSEE HAD MADE A CLAIM FOR PROVISION FOR TRADE DISCOUNT A MOUNTING TO RS.1,14,64,800/-. IN RESPONSE TO A QUERY THAT WHY S UCH PROVISION SHOULD NOT BE DISALLOWED, ASSESSEE EXPLAINED THAT SALES WE RE BEING EFFECTED AT THE PREVAILING MARKET PRICE UNDER ESSENTIAL COMMODITIES ACT AND GOODS WERE MARKED WITH MAXIMUM RETAIL PRICE [MRP]. THE ASSES SEE SELL THE GOODS TO THE DISTRIBUTORS AT THE PREVAILING MARKET PRICE AND RECORDED THE SALES AT SUCH PRICE. SINCE THERE WAS FREQUENT FLUCTUATIONS I N THE PRICE OF FINISHED GOODS AND WHENEVER THERE WAS REDUCTION IN PRICE WIT HIN A FEW DAYS AND IF THE DISTRIBUTORS HAD UNSOLD PRODUCTS, THEN THE DIST RIBUTORS WERE REQUIRED TO SELL SUCH UNSOLD PRODUCTS TO THE CUSTOMERS AT MR P WHICH RESULTED IN LOSSES TO THE DISTRIBUTORS. IN ORDER TO COMPENSATE THE DISTRIBUTORS SUCH LOSSES ON ACCOUNT OF REDUCTION IN MRP, ASSESSEE USE D TO OFFER TRADE DISCOUNTS TO SUCH DISTRIBUTORS WHICH WERE EQUIVALEN T TO THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE ASSESSEE SELLS THE P RODUCT TO THE DISTRIBUTORS AND THE PRICE AT WHICH THE DISTRIBUTOR S SELL THE PRODUCT TO THE CUSTOMERS. INITIALLY ONLY A PROVISION IS CREATED TI LL THE TIME THE DISTRIBUTORS SELL THE PRODUCTS TO THE CUSTOMERS AND, THEREFORE, SUCH LIABILITY HAD CRYSTALISED. RELIANCE WAS ALSO PLACED ON SOME CASE LAWS. THE AO OBSERVED THAT U/S.37 ONLY EXPENDITURE WHICH HAS ALREADY BEEN INCURRED COULD BE ALLOWED AND, THEREFORE, POINT WAS OF NOT ALLOWING O R DISALLOWING THE SAID CLAIM AS DEDUCTION, BUT WHEN TO ALLOW SUCH DEDUCTIO N. HE ALSO OBSERVED THAT DISCOUNTS OF THE CURRENT YEAR ARE ALLOWED BUT THOSE BELONGING TO THE LATER YEAR WOULD NOT BE ALLOWED AS DEDUCTION DURING THE CURRENT YEAR BECAUSE ASSESSEE HAS NOT FURNISHED THE DETAILS SUCH AS NAMES AND ADDRESSES OF THE DISTRIBUTORS AND CUSTOMERS AND THE AMOUNT OF ACTUAL DISCOUNT ALLOWABLE AGAINST SUCH DISTRIBUTION ETC., AGAINST WHOM THESE LIABILITIES HAVE BEEN DETERMINED. 9 12. ON APPEAL, ACTION OF THE AO WAS CONFIRMED AS TH E ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 13. BEFORE US, ASSESSEE HAS FILED CERTAIN DOCUMENTS AS PER LETTER DATED MAY 16, 2011 WHICH COULD NOT BE FILED BEFORE THE AO OR CIT(A) BECAUSE THE DOCUMENTS PERTAINING TO 2005 WERE DESTROYED IN THE FLOODS OF JULY, 2005. IT WAS REQUESTED THAT THESE DOCUMENTS MAY BE ADMITT ED AS ADDITIONAL EVIDENCE. THESE DOCUMENTS ALSO CONTAINED A LETTER F ROM CROWN RELOCATIONS WHICH HAD ADDRESSED A LETTER TO THE ASSESSEE IN WHI CH IT IS STATED THAT ASSESSEES RECORDS CARTONS AND CONTENTS WITHIN HAVE BEEN LOST AND/OR DAMAGED IN THE UNPRECEDENTED HEAVY RAINS. IN VIEW O F THESE FACTS, THESE DOCUMENTS WERE ADMITTED SUBJECT TO THE OBJECTION OF THE LD.DR THAT IN CASE THESE DOCUMENTS ARE ADMITTED, THEN SAME HAS TO BE REMANDED BACK TO THE FILE OF THE AO. 14. BOTH THE PARTIES MADE DETAILED ARGUMENTS. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE AO HAS NOT DENIED THE CONTENTION THAT NO SUCH DISCOUNT HAS BEE N MADE, BUT IT IS ONLY THE YEAR OF ALLOWABILITY WHICH HAS BEEN DISPUTED BE CAUSE RELEVANT DETAILS WERE NOT BEFORE HIM. IN THE DOCUMENTS FILED BEFORE US, A NOTE ON TEMPORARY PRICE REDUCTION PROCESS, FLOW CHART AND INTERNAL WO RKING OF THE PROVISION HAVE BEEN FILED. SOME SAMPLE DOCUMENTS PREPARED BY THE SALES DEPARTMENT AND SAMPLE OF TEMPORARY PRICE REDUCTION FROM BAKERY FATS DIVISION SUBMITTED BY THE DISTRIBUTORS, AS WELL AS SAMPLE PRICE CIRCULARS HAVE BEEN FILED. THOUGH THESE DOCUMENTS RELATE TO L ATER YEAR, BUT IT WAS MENTIONED THAT IN EARLIER YEARS ALSO SIMILAR ISSUE WAS INVOLVED AND THE ALLOWABILITY CAN BE CONSIDERED ON THE BASIS OF THES E DOCUMENTS FOR THE LATER YEAR. THEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) IN RESPECT OF THIS GROUND AND REMAND THE SAME TO THE FILE OF THE AO FOR RE-EXAMINATION OF THE ISSUE IN THE LIGHT OF THE ADDITIONAL DOCUMENTS FILED BEFORE US VIDE LETTER DATED 16 TH MAY, 11. 10 16. GROUND NO.3 : IN RESPECT OF THIS GROUND THE ISSUE REGARDING DISALLOWANCE OF EXPENSES AMOUNTING TO RS.3,76,432/- WAS NOT PRESSED AND, THEREFORE, THIS PART OF THE GROUND IS DISMISSE D AS NOT PRESSED. 17. AS FAR AS THE ISSUE REGARDING DISALLOWANCE OF I NTEREST IS CONCERNED, AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE HAS INVESTED A SUM OF RS.4,02,50,903/- IN MUTUAL FUNDS AND INCOME FROM TH E SAME WAS CLAIMED TO BE EXEMPT. THE ASSESSEE WAS ASKED TO EXPLAIN WHY EXPENSES RELATABLE TO THE EARNING OF THE EXEMPTED INCOME SHOULD NOT BE DI SALLOWED. IT WAS EXPLAINED THAT INVESTMENT WAS MADE OUT OF THE SURPL US FUNDS AND THE ASSESSEE HAD RETAINED EARNING OF RS.12.24 CRORES, T HEREFORE, ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT ED INCOME. HOWEVER, AO DID NOT AGREE WITH THIS SUBMISSIONS AND CALCULAT ED THE PROPORTIONATE INTEREST AND EXPENDITURE AMOUNTING TO RS.12,20,171/ - PLUS RS.3,76,432/- [TOTALING RS.15,96,603] AND DISALLOWED THE SAME U/S .14A. 18. ON APPEAL, THE DISALLOWANCE WAS CONFIRMED BY TH E LD. COUNSEL OF THE ASSESSEE. CIT(A). 19. BEFORE US, LD. COUNSEL OF THE ASSESSEE REFERRED TO PAGE 3 OF THE PAPER BOOK AND POINTED OUT THAT DURING THE YEAR RES ERVE AND SURPLUS OF THE ASSESSEE HAVE INCREASED FROM RS.6.65 CRORES TO RS.13.20 CRORES. THEN HE REFERRED TO PAGE 4, WHICH IS A COPY OF THE PROFI T AND LOSS ACCOUNT AND POINTED OUT THAT DURING THE YEAR PROFIT AFTER TAX I S RS.6,64,10,044/- WHICH HAS LED TO INCREASE IN THE RESERVE AND SURPLUS. HE ARGUED THAT INVESTMENT IN MUTUAL FUNDS OF RS.4,02,50,903/- WAS MADE OUT OF THE ACCUMULATED PROFITS. HE AGAIN REFERRED TO THE BALANCE SHEET AT PAGE-3 AND POINTED OUT THAT IN THE PREVIOUS YEAR INVESTMENTS WERE ONLY OF RS.19,000/- WHICH CLEARLY SHOW THAT INVESTMENTS IN MUTUAL FUNDS HAVE BEEN MADE ONLY IN THIS YEAR AND THAT TOO OUT OF THE ACCUMULATED PROFI TS, THEREFORE, NO BORROWED FUNDS HAVE BEEN UTILIZED AND DISALLOWANCE OF INTEREST AGAINST TAX 11 FREE INVESTMENT IS NOT JUSTIFIED. IN ANY CASE, EVEN IF THE BORROWED FUNDS ARE CONSIDERED, EVEN THEN AN ASSUMPTION HAS TO BE MADE THAT INVESTMENTS WERE OUT OF INTEREST FREE FUNDS AND IN THIS REGARD HE RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. REL IANCE UTILITIES & POWERS LTD. [313 ITR 340] AND THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF INDIA VS. CIT [134 ITR 219. 20. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE P ROFITS EARNED BY THE ASSESSEE WOULD ACCRUE TO THE ASSESSEE ONLY AT THE E ND OF THE YEAR AND NOT FROM DAY-TO-DAY AND, THEREFORE, IT CANNOT BE TREATE D AS PROFITS WERE AVAILABLE FOR MAKING INVESTMENTS IN TAX FREE INVEST MENTS. IN ANY CASE, ASSESSEE HAS MADE BORROWINGS OF RS.121 CRORES. THIS CLEARLY SHOWS THAT INVESTMENTS HAVE BEEN PARTLY FROM INTEREST BEARING FUNDS ALSO. 21. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT THERE WERE NO BORROWINGS IN THE PREVIOUS YEAR AND ASSESSE E HAD ACQUIRED UNITS FROM HLL AND BORROWINGS WERE SPECIFICALLY MADE FOR THE PURPOSE OF ACQUISITION OF UNITS AS WELL AS REQUIREMENT OF WORK ING CAPITAL OF THAT UNIT. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. A PERUSAL OF BALANCE SHEET AT PAGE-3 OF THE PAPER BOOK CLEARLY SHOWS THA T THE SHARE CAPITAL OF THE ASSESSEE IS OF RS.25 LACS AND IN THE YEAR ENDIN G 31-3-2003 THERE WERE ACCUMULATED PROFITS AMOUNTING TO RS.6,56,23,077/-. AT THE SAME TIME NO INVESTMENTS WERE MADE IN THAT YEAR EXCEPT FOR A SMA LL INVESTMENT OF RS.19,000/- IN THE FORM OF NSC. THE INVESTMENT OF R S.4,02,50,903/- HAS BEEN MADE DURING THE YEAR ONLY. AT THE SAME TIME DU RING THE YEAR THE PROFIT AFTER TAX WAS RS.6,64,10,044/- WHICH MADE TO TAL ACCUMULATED PROFITS TO RS.13,20,33,121/-. THOUGH ASSESSEE HAS M ADE BORROWINGS OF RS.121 CRORES BUT THERE WERE NO BORROWINGS IN THE P REVIOUS YEAR. DURING THE YEAR ASSESSEE HAS ACQUIRED UNITS FROM HLL AND A PPARENTLY IT IS CLEAR THAT BORROWINGS HAVE BEEN MADE FOR THE ACQUISITIONS OF THESE UNITS FROM 12 HLL. IN ANY CASE, IT HAS ALREADY BEEN HELD BY THE H ON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS . DCIT [43 DTR 171] THAT RULE 8D IS NOT OF RETROSPECTIVE APPLICATION AN D CANNOT BE APPLIED BEFORE A.Y 2007-08. FURTHER, HON'BLE HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD. [SUPRA]HAS CLEARLY HELD THAT IF THERE WERE FUNDS AVAILABLE, BOTH INTEREST FREE AND INTEREST BE ARING, THEN A PRESUMPTION WOULD ARISE THAT INTEREST FREE FUNDS HA VE BEEN GENERATED FOR INVESTMENTS. THEREFORE, WE ARE OF THE VIEW THAT IN THIS CASE INTEREST COULD NOT HAVE BEEN DISALLOWED U/S.14A AND, ACCORDINGLY, WE DELETE THE ADDITION ON ACCOUNT OF INTEREST. THIS GROUND IS PARTLY ALLOW ED. 23. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD CLAIMED A SUM OF RS.9,69,833/- AS PRO-RATA NON COMPETE FEE PAID TO H LL. THE AO DISALLOWED THE SAME BY HOLDING THAT IT IS A CAPITAL EXPENDITUR E. 24. ON APPEAL, LD. COUNSEL OF THE ASSESSEE. CIT(A) CONFIRMED THE DECISION OF THE AO BY HOLDING THAT PAYMENT OF NON C OMPETE FEE WOULD BE AN ENDURING ADVANTAGE TO THE ASSESSEE. 25. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT IN VIEW OF THE LATER CLAIM FOR FULL NON COMPETE FEE THIS GROUND MA Y BE DISMISSED. 26. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED TH E ORDER OF THE CIT(A). 27. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND IN VIEW OF THE CLAIM OF THE ASSESSEE THAT FULL AMOUNT OF NON COMPETE FEE BY WAY OF AN ADDITIONAL GROUND AS WELL AS CONCESSION OF LD. COUNSEL OF THE ASSESSEE THIS GROUND IS DISMISSED. 13 28. IN ADDITION TO THE ABOVE, ASSESSEE HAS RAISED T WO ADDITIONAL GROUNDS. THE FIRST ADDITIONAL GROUND RAISED IS AS U NDER: THE LEARNED ASSESSING OFFICER ERRED IN NOT ALLOWIN G A DEDUCTION FOR THE ENTIRE NON COMPETE FEE OF RS.5,29,00,000/- PAID BY THE APPELLANT COMPANY TO HINDUSTAN LEVER LIMITED EVEN THOUGH THE EXPENSES HAS CRYSTALISED DURING THE YEAR. IN ADDITION TO THE ABOVE, ASSESSEE HAS RAISED THE F OLLOWING ADDITIONAL GROUND: WITHOUT PREJUDICE TO GROUND 2, THE LEARNED ASSESSI NG OFFICER ERRED IN NOT ALLOWING DEPRECIATION IN RESPECT OF NON COMPETE FEES OF RS.5,29,00,000 PAID TO HINDUSTAN LEVER LIMITED. 29. ADDL.GROUND NO.1 : AT THE OUT SET LD. COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TECUMSEH INDIA (P) LTD. VS. ADDL. CIT [127 ITD 1 (DEL) (S.B). 30. ON THE OTHER HAND, LD. DR ALSO RELIED ON THE DE CISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TECUMSEH INDIA (P) LTD. VS. ADDL. CIT [SUPRA]. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT ASSESSEE HAS ALSO RAISED SECOND ADDITIONAL GROUND A ND WHILE ADJUDICATING THE SAME IT WAS FOUND IN THE LATER PARAS THAT AO HA S OBSERVED IN PARA-8 OF HIS ORDER THAT IN THE AGREEMENT WITH HLL THERE WAS NO SEPARATE VALUE OF THE NON COMPETE FEE AND WHILE ADJUDICATING THE SECO ND ADDITIONAL GROUND WE HAVE REMITTED THAT MATTER TO HIS FILE FOR DETERM INATION OF THE AMOUNT OF NON COMPETE FEE. WE FURTHER FIND THAT THE SPECIAL B ENCH OF THE TRIBUNAL IN THE CASE OF TECUMSEH INDIA (P) LTD. VS. ADDL. CIT [ SUPRA] HAS CLEARLY HELD THAT AN EXPENDITURE INCURRED ON WARDING OFF OF COMP ETITION IN BUSINESS FROM A RIVAL DEALER WILL CONSTITUTE CAPITAL EXPENDI TURE AND IS NOT ALLOWABLE U/S.37[1]. THEREFORE, RESPECTFULLY FOLLOWING THIS D ECISION WHILE CONFIRMING THE ORDER OF THE LD. CIT(A), WE DIRECT THE AO NOT T O ALLOW AS BUSINESS 14 EXPENDITURE THE AMOUNT OF NON COMPETE FEE WHICH MAY BE DETERMINED BY HIM. 32. ADDL. GROUND NO.2 : THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT EVEN IF THE NON COMPETE WAS HELD TO BE OF CAPITAL N ATURE, EVEN THEN SAME HAS TO BE CONSTRUED AS INTANGIBLE ASSET AND ACCORDI NGLY DEPRECIATION HAS TO BE ALLOWED AND IN THIS REGARD HE RELIED ON THE D ECISION OF CHENNAI TRIBUNAL IN THE CASE OF ACIT VS. REAL IMAGE TECH (P ) LTD. [120 TTJ 983]. 33. ON THE OTHER HAND, LD. DR SUBMITTED THAT THIS I SSUE WAS NEVER ADJUDICATED BY THE AO OR LD. COUNSEL OF THE ASSESSE E. CIT(A). THEREFORE, MATTER MAY BE SET ASIDE TO THE FILE OF THE AO. 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT IN THE CASE OF ACIT VS. REAL IMAGE TECH (P) LTD. [SUPR A], AFTER ANALYZING THE PROVISIONS OF SEC.32[1][II] IT WAS HELD THAT NON CO MPETE FEE WOULD CONSTITUTE CAPITAL ASSET AND DEPRECIATION WAS ULTIMATELY HELD TO BE ALLOWABLE. HOWEVER, WE FIND THAT THE AO VIDE PARA-8 OF HIS ORD ER HAS OBSERVED THAT NON COMPETE FEE WAS NOT MENTIONED IN THE AGREEMENT AS A SEPARATE PAYMENT. THEREFORE, HE SHOULD FIND OUT THE AMOUNT O F NON COMPETE FEE DETERMINED BY THE ASSESSEE AND ACCORDINGLY ALLOW DE PRECIATION IN VIEW OF THE DECISION THE CHENNAI TRIBUNAL IN THE CASE OF AC IT VS. REAL IMAGE TECH (P) LTD. [SUPRA]. 35. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 15 I.T.A.NO.384/M/09 REVENUES APPEAL 36. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWIN G GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), KOTA HAS ERRED IN: 1. NOT CONFIRMING THE DISALLOWANCE OF RS.72,84,308 MADE BY THE AO OUT OF VARIOUS GROUND UNDER MISCELLANEOUS EXPENS ES, VIZ. HOTEL ACCOMMODATION EXPENSES OF RS.13,39,584/-; MEM BERSHIP AND SUBSCRIPTION EXPENSES OF RS.1,94,655/-; GUEST H OUSE EXPENSES OF RS.3,84,549/-; POOJA EXPENSES OF RS.1,8 6,379/-; MEMBERSHIP EXPENSES OF RS.7,95,439/- WITHOUT APPREC IATING THE FACT THAT THE AO HAD DISALLOWED THESE EXPENSES FOR WANT OF DETAILS AND JUSTIFICATION FOR THESE EXPENSES AS MEN TIONED IN THE ASSESSMENT ORDER AND IGNORING THE FACT THAT THE ASS ESSEE FAILED TO DISCHARGE ITS ONUS BY NOT FURNISHING THE DETAILS AND EVIDENCES AS ASKED FOR BY THE AO 2. NOT CONFIRMING THE DISALLOWANCE OF RS.81,66,667 / MADE BY THE AD ON ACCOUNT OF CAPITAL EXPENDITURE OF NON-COMPETE FEE CLAIMED AS REVENUE EXPENDITURE, WITHOUT APPRECIATIN G THE FACT THAT THE PAYMENT WAS FOR INCREASING PROFITABILITY/B ENFIT FOR FUTURE. 3. NOT CONFIRMING THE DISALLOWANCE OF RS,52,74,093 / MADE BY THE 40 ON ACCOUNT OF CAPITAL EXPENDITURE OF NON-COMPETE FEE CLAIMED AS REVENUE EXPENDITURE, WITHOUT APPRECIATING THE FA CT THAT THE PAYMENT WAS FOR INCREASING PROFITABILITY/BENFL5 FOR FUTURE AND IGNORING THE FACT THAT THE ASSESSEE FAILED TO DISCH ARGE ITS ONUS BY NOT EXPLAINING THE DIFFERENT TREATMENT BY THE CO MPANY OF SIMILAR NATURE OF ITEM. 4. NOT CONFIRMING THE DISALLOWANCE OF RS. 15,00,00 0/- MADE BY THE AD ON ACCOUNT OF PROVISION FOR OBSOLETE STOCK WITHO UT APPRECIATING THAT THE ASSESSEE WAS NOT ABLE TO SUBS TANTIATE HIS CLAIM IN A JUSTIFIABLE MANNER. 5. NOT CONFIRMING THE DISALLOWANCE OF RS.4,34,84,5 12/.. MADE BY THE AD OUT OF LEGAL AND PROFESSIONAL FEES EXPENSES WITHOUT APPRECIATING THE FACT THAT ON THE PREVAILING MARKET CONDITIONS THE EXPENSES WERE HIGH AND IGNORING THE FACT THAT T HE ASSESSEE FAILED TO DISCHARGE ITS ONUS BY NOT EXPLAINING THE PURPOSE FOR WHICH THE PAYMENT WAS MADE. 6. NOT CONFIRMING THE DECISION OF AO TO RESTRICTIO N ON EFFLUENT TREATMENT PLANTS AND BOILERS TO 25% WITHOUT APPRECI ATING THE FACT THAT THE AO HAD SPECIFICALLY MENTIONED THAT TH E EVIDENCE RELATING TO THE RELEVANT PLANTS & MACHINERIES HAVE NOT BEEN FLIED AND FROM THE DETAILS GIVEN IN AUDIT REPORT IT CANNO T BE ASCERTAINED WHETHER 100% & 80% DEPRECIATION IS ALLO WABLE OR NOT AND FROM THE DEPRECIATION CHART ITSELF IT WAS C LEAR THAT NO 16 NEW MACHINERY WAS ADDED IN THE BLOCK AS SUCH ON THE OLD PLANT & MACHINERY THE DEPRECIATION WAS ALLOWABLE 25%. 7. DIRECTING TO ADOPT DEPRECIATION ON ASSETS TAKEN OVER FROM HLL. AT RS. 18,16,01,958/ WITHOUT APPRECIATING THE FACTS DISCUSSED BY THE AO IN THE ASSESSMENT ORDER AND IGNORING THE FACT THAT THE ASSESSEE FAILED TO DISCHARGE ITS ONUS BY NOT FU RNISHING THE REQUIRED DETAILS AND EVIDENCES. 37. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT AO DISALLOWED THE EXPENSES TO THE TUNE OF RS.72,84,308 /- ON ACCOUNT OF FOLLOWING ITEMS: HOTEL ACCOMMODATION EXP. RS.13,39,584.00 MEMBERSHIP AND SUBSCRIPTION RS. 1,84,655.00 GUEST HOUSE EXPENSES RS. 3,84,549.00 POOJA EXPENSES RS. 1,86,379.00 MEMBERSHIP FEES RS. 20,000.00 AIR TICKETS RS.43,63,702.00 BUSINESS PROMOTION EXPENSES RS. 7,95,439.00 RS.72,84,308.80 THESE EXPENSES WERE DISALLOWED BY THE AO BY OBSERVI NG THAT NO DETAILS HAVE BEEN FILED. 38. BEFORE THE CIT(A) IT WAS CONTENDED THAT ALL THE DETAILS WERE DULY FILED VIDE LETTERS DATED 13 TH SEPTEMBER, 2003 AND 24 TH NOVEMBER, 2003. THE AO HAS NOT DISPUTED THAT ASSESSEE HAD INCURRED THESE E XPENSES, STILL DISALLOWANCE HAS BEEN MADE. THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT ASSESSEE HAS ALREADY FILED THE DETAI LS VIDE TWO LETTERS DATED 13TH SEPTEMBER, 2003 AND 24TH NOVEMBER, 2003 AND NO FURTHER DETAILS WERE ASKED BY THE AO. 39. BEFORE US, LD. DR SUPPORTED THE ORDER OF THE AO . ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND ALSO POINTED OUT THAT DETAILS WERE FILED BEFORE THE AO AND ARE ALSO PLACED IN THE PAPER BOOK VIDE PAGES 20 TO 90 OF THE PAPER BOOK. 17 40. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT LD. CIT(A) HAS GIVEN A CLEAR FINDING THAT WHEN TWO LETTERS WERE FI LED BEFORE THE AO GIVING DETAILS OF THE EXPENSES AND AO HAD NOT ASKED FOR AN Y FURTHER DETAI,S THEREFORE, DISALLOWANCE MADE WAS NOT JUSTIFIED. EVE N BEFORE US, LD. DR COULD NOT POINT OUT WHICH OTHER DETAILS WERE REQUIR ED AND, THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A) . 41. GROUND NOS.2 & 3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT AO HAD DISALLOWED A SUM OF RS.81,66,667/- BEING CLAIM FOR REVENUE EXPENDITURE FOR NON COMPETE FEES PAID TO HLL AND RS .52,74,093/- BEING NON COMPETE FEES PAID TO PRESTIGE FOODS, BECAUSE SA ME WERE TREATED AS CAPITAL EXPENDITURES AND EVEN ASSESSEE HAD ALSO CAP ITALIZED THESE EXPENSES. 42. ON APPEAL, LD. CIT(A) DELETED THE ADDITION BECA USE SUCH AMOUNTS WERE PAID FOR A DEFINITE PERIOD AND WOULD LEAD TO I MPROVE PROFITABILITY. 43. BEFORE US, LD. DR SUBMITTED THAT THE ISSUE REGA RDING CLAIM FOR NON COMPETE FEE IS SQUARELY COVERED IN FAVOUR OF THE RE VENUE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TE CUMSEH INDIA (P) LTD. VS. ADDL. CIT [SUPRA]. 44. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUPPORTED THE ORDER OF THE AO. 45. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE TECUMSEH INDIA (P) LTD. VS. ADDL. CIT [SUPRA] HAS CLEARLY HE LD THAT THE BUSINESS EXPENDITURE INCURRED ON WARDING OFF OF COMPETITION IN BUSINESS FROM A RIVAL DEALER WOULD CONSTITUTE A CAPITAL EXPENDITURE AND IS NOT ALLOWABLE BUSINESS EXPENDITURE. RESPECTFULLY FOLLOWING THIS D ECISION, WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE. 18 46. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTED THAT ASSESSEE HAS D EBITED A SUM OF RS.15 LAKHS ON ACCOUNT OF PROVISION FOR OBSOLETE ST OCK AND SINCE NO DETAILS WERE FILED THIS CLAIM WAS NOT ALLOWED. 47. ON APPEAL, IT WAS MAINLY SUBMITTED THAT DURING THE YEAR ASSESSEE COMPANY UNDER WENT A MERGER AND HAD DECIDED TO CHAN GE THE NAME OF THE COMPANY FROM GEEPEE CEVAL PROTEINS AND INVESTMENTS PVT. LTD. TO BUNGE INDIA PVT. LTD. AFTER THIS COMPANY STARTED USING TH E TRADE NAME BUNGE AFTER THE DATE OF MERGER THE ASSESSEE COMPANY WAS C ARRYING THE BUSINESS STOCK FOR PACKAGING MATERIAL UNDER THE PRINTED NAME GPCIL WHICH WAS NO LONGER USABLE AND THAT IS WHY THE CLAIM WAS MADE. R ELIANCE WAS ALSO PLACED ON CERTAIN CASE LAWS. AFTER CONSIDERING THE SUBMISSIONS, LD. CIT(A) OBSERVED THAT THROUGH LETTERS DATED 13-9-2006 THE N ATURE FOR PROVISION FOR OBSOLETE STOCK WAS EXPLAINED. FURTHER VIDE LETTER D ATED 24-11-06 IT WAS ALSO EXPLAINED THAT ASSESSEE COMPANY HAD UNDERGONE MERGE AND THE SUBSEQUENT PACKAGING MATERIAL STOCK HAD TO BE CHANG ED. THE LD. CIT(A) ALSO FOUND THAT SINCE STOCK COULD NOT BE USED BECAU SE OF CHANGE IN NAME, HE ALLOWED THE LOSS. 48. BEFORE US, LD. DR SUBMITTED THAT NO DETAILS OF OBSOLETE STOCK WERE FILED BEFORE THE AO AND, THEREFORE, DISALLOWANCE MA DE WAS JUSTIFIED. 49. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THROUGH LETTERS DATED 13TH SEPTEMBER, 2006 IT WAS C LEARLY INFORMED THAT PROVISION FOR OBSOLETE STOCK WAS FOR UNUSABLE STOCK . LATER ON VIDE LETTER DATED 24-11-06 IT WAS FURTHER EXPLAINED THAT THE CO MPANY HAD UNDERGONE THE MERGER AND HAD STARTED USING THE NEW BRAND NAME BUNGE, THEREFORE, EARLIER PACKING MATERIAL WAS OF NO USE AND THAT IS WHY THE SAME WAS WRITTEN OFF. BEYOND THIS AO NEVER ASKED FOR ANY DET AILS AND, THEREFORE, DELETION BY THE LD. CIT(A) IS JUSTIFIED. 50. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE LD. CIT(A) HAS GIVEN A FINDING THAT DETAILS WERE GIVEN REGARDI NG CHANGE OF NAME OF THE 19 COMPANY DUE TO MERGER RESULTING IN PACKING MATERIAL BECOMING OBSOLETE. BEYOND THIS, AO NEVER ASKED FOR ANY OTHER DETAILS. MOREOVER, ASSESSEE COULD NOT HAVE USED THE OLD PACKING MATERIAL BECAUS E OF CHANGE IN THE BRAND NAME AND, THEREFORE, LD. COUNSEL OF THE ASSES SEE. LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION AND, ACCORDINGLY, WE CONFIRM HIS ORDER. 51. GROUND NO.5 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT AO DISALLOWED LEGAL AND PROFESSIONAL EXPENSES AMOUNTIN G TO RS.4,36,84,512/- BECAUSE NO DETAILS WERE FILED AND ONLY NAMES OF REC IPIENTS WERE GIVEN. THE AO DISALLOWED A SUM OF RS.50 LACS OUT OF THE TOTAL CLAIM OF RS.4,86,84,512/- AND DISALLOWED THE BALANCE. 52. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT DET AILS WERE GIVEN VIDE LETTERS DATED 13TH SEPTEMBER, 2006 AND 24TH NOVEMBE R, 2006 THESE EXPENSES WERE INCURRED BY PAYMENT TO CHARTERED ACCO UNTANTS AND OTHER PROFESSIONALS OUT OF THE DAY-TO-DAY MATTER AND LAST PART OF EXPENSES RELATE TO FEE FOR RESTRUCTURING OF AN INTERNATIONAL COMMOD ITY TRADE. LD. CIT(A) OBSERVED THAT VIDE ANNEXURE ATTACHED TO LETTER DATE D 13-9-06 ASSESSEE HAD GIVEN REASON FOR INCREASE IN THE EXPENSES UNDER THI S HEAD AND HAD ALSO GIVEN THE PURPOSE FOR WHICH SUCH EXPENDITURE WAS IN CURRED. FURTHER DETAILS WERE FILED VIDE LETTER DATED 24-11-06. HE A LSO OBSERVED THAT ASSESSEE WAS REQUIRED TO INCUR HEAVY EXPENDITURE FO R THE TAKEOVER OF BUSINESS OF HLL AND PRESTIGE FOODS AND SUCH EXPENSE S WERE NECESSARY, HENCE, HE DELETED THE ADDITION. 53. BEFORE US, LD. DR SUPPORTED THE ORDER OF THE AO . ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSI ONS MADE BEFORE THE LD. CIT(A). 54. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION BECAUSE SUFFICIENT D ETAILS WERE FILED VIDE 20 LETTERS DATED 13TH SEPTEMBER, 2006 AND 24TH NOVEMBE R, 2006 AND ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) . 55. GROUND NO.6 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSE SSEE HAD CLAIMED 100% DEPRECIATION ON EFFLUENT TREATMENT PLANTS. THE AO RESTRICTED THE DEPRECIATION TO 25% BY OBSERVING THA T NECESSARY DETAILS HAVE NOT BEEN FILED. 56. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THESE P LANTS WERE TAKEN OVER IN VIEW OF THE TAKING OVER OF THE PLANT OF HLL AND PRESTIGE FOODS. HE ALSO NOTED THAT ASSESSEE HAD ALREADY SUBMITTED THE REQUI RED DOCUMENTS WITH RELEVANT DETAILS BY LETTER DATED 26.12.2006 AND HE ACCORDINGLY DISALLOWED THE SAME. 57. BEFORE US THE LD. DR RELIED ON THE ORDER OF THE AO. 58. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A) AND ALSO SUBM ITTED THAT ALL THE RELEVANT DETAILS WERE FILED VIDE LETTER DATED 26.12 .2006. 59. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SINCE PLANT WAS TAKEN OVER FROM HINDUSTAN LEVER LTD. AND PRESTIGE F OODS LTD. AND THE RELEVANT DETAILS WERE FILED, THEREFORE, THE ASSESSE E WAS ENTITLED TO FULL DEPRECIATION AT THE RATE OF 100%. WE FIND NOTHING W RONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 60. GROUND NO.7: AFTER HEARING BOTH THE PARTIES, WE FIND THAT AO HAD RESTRICTED THE DEPRECIATION ON ASSETS PURCHASED FRO M HINDUSTAN LEVER LTD. TO 25%, AS NO NEW MACHINE WAS PURCHASED BY THE ASSE SSEE. 61. ON APPEAL, THE DEPRECIATION WAS ALLOWED BY THE LD. CIT(A). 62. BEFORE US THE LD. DR SUBMITTED THAT IF HINDUSTA N LEVER LTD. HAD ALREADY CLAIMED DEPRECIATION THEN DEPRECIATION COUL D BE ALLOWED ONLY AT 21 REDUCED RATES. IN THIS REGARD, HE REFERRED TO THE P ROVISO OF SECTION 32 UNDER CLAUSE (IIA). 63. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THIS RESTRICTION WAS IN RESPECT OF ADDITIONAL DEPRE CIATION. HE READ OUT THE CLAUSE (IIA) AND EXPLAINED THAT PROVISO HAS BEEN IN SERTED UNDER CLAUSE (IIA) WHICH ALLOW ADDITIONAL DEPRECIATION OF 20% AND, THE REFORE, WOULD NOT APPLY TO THE NORMAL DEPRECIATION. 64. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT CLAUSE (IIA) OF SECTION 32 READS AS UNDER :- (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND IN STALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UN DER CLAUSE (II) : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATI ON BY THE ASSESSEE WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREM ISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODAT ION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; O R (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COS T OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION OF ANY ONE PREVIOUS YEAR. THE CLAUSE ITSELF APPLIES TO THE ASSETS ACQUIRED AF TER MARCH, 2005 AND DEALS WITH THE ADDITIONAL DEPRECIATION. THEREFORE, IT IS CLEAR THAT RESTRICTION WOULD APPLY ONLY TO THE ADDITIONAL DEPRECIATION. TH E ASSETS ACQUIRED FROM OTHER COMPANIES CANNOT BE DENIED DEPRECIATION OR LO WER DEPRECIATION 22 ALLOWED IN VIEW OF THIS CLAUSE. THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 65. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 22/6/__ JUNE, 2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 22/6/2011. P/-*