M/s. TTK LIG Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1791/CHNY/2011

• Counselvise Citation: 179121714 RSA 2011
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-10-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 09-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Difference of opinion; Royalty expenses; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 80HHC; 234B; 14A; 80IB; 37(1); 80G; 147; 148; 2; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D B ENCH C HENN AI BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI S.S.GODARA , JUDICIAL MEMBER .. ITA NO S . 1791 TO 1796 /MDS./ 20 11 ASSESSMENT YEAR S : 200 2 - 03 TO 2007 - 08 M/S.TTK LIG LTD., NO.6,CATHED RAL ROAD, CHENNAI 600 006. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI. PAN AABCT 1184 G (APPELLANT) (RESPONDENT) ITA NO S . 1826 TO 1830 /MDS./20 11 ASSESSMENT YEAR S :200 2 - 03 , 2004 - 05, 2005 - 06,2006 - 07,2007 - 08 ITA NO.2 027/MDS/11 A.Y. 2003 - 04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI. VS. M/S.TTK LIG LTD., NO.6,CATHEDRAL ROAD, CHENNAI 600 006. PAN AABCT 1184 G (APPELLA NT) (RESPONDENT) ASSESSEE BY : SHRI R.VIJAYARAGHAVAN ADVOCATE REVENUE BY : SHRI K E B RENGARAJAN JR.STANDING COUNSEL DATE OF HEARING : 11 . 1 0.12 DATE OF PRONOUNCEMENT : 31 . 1 0.12 ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 2 O R D E R PER BENCH : ITA NOS.1791 & 1826/MDS/11(A.Y. 2002 - 03) THESE CROSS APPEALS; FILED AT THE BEHEST OF THE ASSESSEE AND THE REVENUE RESPECTIVELY, EMANATE FROM COMMON ORDER OF CIT(A) III, CHENNAI PASSED IN CASE NO.585/08 - 09/A.III DATED 29. 08. 11 FOR ASSESSMENT YEAR IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 2. THE FACTS APROPOS ARE THAT THE ASSESSEE IS A COMPANY , ENGAGED IN THE BUSINESS OF MANUFACTURING RUBBER CONTRAC EPTIVE I.E. CONDOM S. ON 28.1 0.02, IT FILED ITS RETURN FOR ASSESSMENT YEAR 2002 - 03 DECLARING TOTAL INCOME OF ` 13,09,22,390/ - . THE ASSESSING OFFICER FINALIZED SUMMARY ASSESSMENT UNDER SECTION 143(1) OF THE ACT ON 04.07.2003. THEREAFTER , ON 08.02.07, HE ISSUED A NOTICE TO THE A SSESSEE UNDER SECTION 148 READ WITH SECTION 147 OF THE ACT , REOPENING THE ASSESSMENT QUA ASSESSEE S CLAIM OF EXPENDITURE REGARDING LOGO CHARGES AND ROYALTY PAYMENT ( TECHNICAL KNOW - HOW FEES ) . ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 3 3. IN THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXA MINED THE ASSESSEE S CLAIM OF DEDUCTION U /S 80 - IB OF THE ACT AMOUNTING TO ` 2,93,65,335/ - ; ROYALTY PAYMENT ( TECHNICAL KNOW - HOW FEES ) AND LOGO CHARGES WHICH WERE TREATED AS REVENUE EXPENDITURE BY THE ASSESS EE AS WELL AS ISSUE OF DEDUCTION UNDER SECTION 80HH C OF THE ACT. 3.1. THE ASSESSEE, IN ASSESSMENT, HAD CLAIMED A SUM OF ` 2,93,65,335/ - AS DEDUCTION UNDER SECTION 80 - IB OF TH E ACT REGARDING ITS UNIT AT PALLAVARAM ( NEAR CHENNAI ). IN SUPPORT OF THE CLAIM, ITS CONTENTION BEFORE ASSESSING OFFICER WAS THAT TH E CASE WAS COVERED UNDER EIGHTH SCHEDULE OF THE ACT AND IMPUGNED ASSESSMENT YEAR WAS THE EIGHTH YEAR OF THE CLAIM @ 30% OF THE ELIGIBLE PROFITS DERIVED . FURTHER, REGARDING A.O. S OBJECTION RAISED WITH REFERENCE TO THE QUA ASSESSEE S CLAIM ON THE GROUND TH AT THE SAME WAS COV ERED WITHIN THE MEANING OF ENTRIES AT SERIAL NOS.27 & 28 OF THE ELEVENTH SCHEDULE OF THE ACT , THE ASSESSEE S CLARIFICATION WAS THAT THE W ORD RUBBER THEREIN, POINTED TOWARDS MANUFACTURE OF CROWN CORKS OR PILFER PROOF CAPS AND NOT TO WARDS MANUFACTURE OF RUBBER CONTRACEPTIVES IN HAND AS THE SAME IS A PRODUCT ALTOGETHER DIFFERENT WITH OUT ANY REFERENCE TO THE SCHEDULE. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 4 4. THE A.O. WAS NOT CONVINCED WITH THE ASSESSEE S EXPLANATION . SO, VIDE ASSESSMENT ORDER DATED 31 ST DECEMBER, 2008, REPELLING ASSESSEE S CONTENTION, HE HELD THAT THE ASSESSEE S PRODUCT (RUBBER CONTRACEPTIVE) WAS IN FACT AN ARTICLE OR THING COVERED BY ITEMS 27 & 28 OF THE ELEVENTH SCHEDULE AS CONTAINED IN OF THE ACT. HE ALSO DECLINED ASSESSEE S CLAIM OF DEDUCTION UND ER SECTION 80 - IB (2) BY HOLDING THAT THE ASSESSEE S CASE WAS NOT OF A SMALL SCALE UNDERTAKING BEIN G COVERED BY ELEVENTH SCHEDULE AND HE ALSO RECORDED A FINDING ITS UNIT WAS LOCATED IN A CANTONMENT AREA (NOT SPECIFIED UNDER EIGHTH SCHEDULE), THEREFORE , IT WAS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80 - IB OF THE ACT. 5. LIKEWISE, IN THE ASSESSMENT EARLIER FINALIZED(SUPRA) , THE ASSESSEE HAD CLAIMED TECHNICAL ROYALTY (TECHNICAL KNOW - HOW FEE ) AND LOGO CHARGES AS REVENUE EXPENDITURE. IN SUPPORT OF ROYALTY CLAIM , ITS PLEA WAS THAT ON 07.03.2000, IT HAD ENTERED INTO AN AGREEMENT TO OBTAIN TECHNICAL INPUTS IN THE NATURE OF NEW FORMULATIONS TO UPGRADE QUALITY OF CONTRACEPTIVES WITH AN ENTI TY, NAMELY M/S.LRC PRODUCTS OF U.K . THE ROYALTY CONSIDERATION ; IN LIEU THEREOF WAS AGRE ED @ 2% OF THE TOTAL SALES IN THE SHAPE OF ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 5 TECHNICAL KNOW - HOW FEE , PAYABLE BY THE ASSESSEE FOR A PERIOD OF FIVE YEARS. THE A.O. DID NOT AGREE AND TREATED THE ROYALTY FEE @ 2% AS CAPITAL IN NATURE AND HELD THAT DESPITE THIS FACTUAL POSITION THE ASSESSEE HAD CALCULATED IT ON GROSS SALE S BASIS. 6 . AT THE SAME TIME, THE A.O. ALSO C ONSIDERED THE ASSESSEE S CLAIM OF LOGO CHARGES. IN HIS OPINION, THE ASSESSEE HAD AGREED TO PAY ITS GROUP CONCERN, NAMELY M/S.T.T.KRISHNAMACHARI & CO. FOR LICENSE TO USE OF ITS TRADE NAME AND MONOGRAM TTK WITH REGARD TO SALE OF ITS PRODUCTS AFTER DISPLAYING MONOGRAM, TRADE MARK ETC WITH EFFECT FROM 01.04.2000 BY PAYING LOGO CHARGES @ 2% OF THE TOTAL SALES. IN A.O S OPINION, THE SAID CHARGES WERE ALS O IN THE SHAPE OF CAPITAL EXPENDITURE BEING RELATED TO AN INTANGIBLE ASSET. 6.1. ACCORDINGLY, THE A.O. ADDED AN AMOUNT OF ` 2,35,90,677/ - EACH FOR TECHNICAL KNOW - HOW FEE AND LOGO CHARGES. AT THE SAME TIME, H E ALSO ALLOWED DEPRECIATION ON THE SAME @ 25 % . 7 . NOT ONLY THIS, AS THE RECORD OF THE CASE REVEALS, IN THE RE - AS S ESSMENT PROCEEDINGS, THE ASSESSING OFFICER ALSO TOOK ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 6 COGNIZANCE OF ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT; WHEREIN IT HAD DECLARED FOREIGN EXCHANGE GAIN FROM THE EXPORT PROCEEDS AS ` 1,99,99,305/ - . W HILE COMPUTING TURNOVER, IT HAD ADOPTED VALUE OF SALE PROCEEDS INCLUSIVE OF FOREIGN EXCHANGE GAINS AND FOB VALUE OF THE PROCEEDS WERE T AKEN AS ` 79,19,97,600/ - A FTER MAKING DEDUCTION FROM PROFITS UNDER THE HEAD EXPORT PROFITS , INTEREST AND INCENTIVES AMOUNTING TO ` 41,31,182/ - , ` 89,82,424/ - AND ` 4,52,225/ - RESPECTIVELY I.E. TOTAL OF ` 1,35,65,831/ - . THE ASSESSEE HAD EXCLUDED 90% OF THE ABOVE AMOUNT I.E. ` 1,22,09,248/ - FOR THE PURPOSE OF COMPUTING INCOME UNDER SECTION 8 0HHC OF THE ACT. IT HAD ALSO INCLUDED IN ITS PROFIT AND LOSS ACCOUNT AN INTEREST AMOUNT OF ` 89,92,424/ - ; FOREIGN EXCHANGE GAIN OF ` 1,10,37,114/ - AS WELL AS MISCELLANEOUS INCOME OF ` 95,35,027/ - AND RETURNED BACK PROVISION AS NO LO N G ER REQUIRED OF ` 1,43, 535/ - . IN A.O. S OPINION, THE ABOVE SAID INTEREST HAD TO BE ASSESSED AS INCOME OTHER SOURCES . THEREFORE, A.O. HELD IN APPROPRIATE INCLUSION OF 90% OF INTEREST FROM PROFIT AND LOSS ACCOUNT REGARDING DEDUCTION/S 80HHC . THEREFORE, HE REDUCED THE INTERE ST INCOME FROM ASSESSEE S PROFIT AND ASSESSED IT UNDER THE HEAD OTHER SOURCES AFTER PLACING RELIANCE ON THE DECISION OF HON BLE APEX COURT REPO RTED AS 262 ITR 278 TITLED PANDIAN CHEMICALS LTD. VS. CIT. H E REFERRED TO ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 7 EXPLANATION (BAA) TO SEC.80HHC AN D EXCLUDED 90% OF THE ASSESSEE S RECEIPTS IN THE NATURE OF BROKERAGE, COMMISSION, RENT ETC. AND RECOMPUTED DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN THIS MANNER, THE ASSESSING OFFICER COMPUTED THE ASSESSEE S TAXABLE INCOME AS UNDER: - DEDUCTI ON U/S 80HHC IS COMPUTED AS UNDER: EXPORT TURNOVER 79,19,97,610 TOTAL TURNOVER 1,18,36,96,370 PROFITS OF THE BUSINESS 30,21,77,396 LESS: DEDUCTION U/S 80HHC(BAA)(1) FOREIGN EXCHANGE GAIN 1,10,37,114 MISCELLANEOUS INCOME INCLUDING SCRAP SA LES ETC. 95,35,024 PROVISION NO LONGER REQUIRED WRITTEN BACK 1,43,535 2,07,15,673 90% OF 2,0715,673 1,86,44,106 ADJUSTED PROFITS OF BUSINESS 28,35,33,290 ADJUSTED PROFITS X ETO/TTO 28,35,33,290 X 79,19,97,610 1,18,36,96,370 = 18,97,08,859 HENCE 80HHC DEDUCTION ALLOWABLE IS 70% OF 18,97,08,859 I.E. `.13,27,96,201/ - . HENCE, THE TOTAL INCOME IS COMPUTED AS UNDER: BUSINESS INCOME AS RETURNED 27,57,73,805 ADD: TECHNICAL KNOWHOW FEES: 2,35,90,677 ADD: LOGO CHARGES 2,35,90, 677 4,71,81,354 32,29,55,159 LESS: DEPRECIATION @ 25% ON `.4,71,81,354 1,17,95,339 31,11,59,820 LESS: INTEREST INCOME 89,82,424 ASSESSED BUSINESS INCOME 30,21,77,396 ADD: INTEREST INCOME 89,82,424 GROSS TOTAL INCOME 31,11,59,820 LESS: D EDUCTION U/S 80G 12,50,000 DEDUCTION U/S 80IB (AS DISCUSSED ABOVE) - ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 8 DEDUCTION U/S 80HHC (AS DISCUSSED ABOVE) 13,27,96,201 13,40,46,201 TOTAL INCOME ASSESSED U/S 143(3) R.W.S 147 17,71,13,619 AGGRI EVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) WHEREIN IT RAISED THE GROUNDS CHALLENGING DISALLOWANCE MADE BY A.O. UNDER SEC.80 - IB, ROYALTY AND LOGO EXPENDITURE AND THAT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 8. AS WE NOTICE FROM THE CIT(A) S ORDER, THE FINDING OF THE AO REGARDING DISALLOWANCE UNDER SECTION 80 - IB HAVE BEEN CONFIRMED. REGARDING ROYALTY FEE , THE CIT(A) HAS EXAMINED CASE LAW OF SOUTHERN SWITCH GEAR LTD. IN 232 ITR 359(SC) AND CIT VS. IAEC PUMPS LTD. IN 232 ITR 316(SC) AND HELD TH AT SINCE THE HON BLE COURT HAD RENDERED DECISION IN CASE OF SOUTHERN SWITCH GEAR LTD. LAT T ER IN POINT OF TIME THAN THE OTHER JUDGEMENT, THEREFORE, THE SAID JUDGEMENT WOULD BE APPLICABLE QUA THIS CASE AS WELL. IN THE LIGHT THEREOF, THE CIT(A) HAS CONCL UDED THAT SINCE THE ASSESSEE DID NOT LEAD ANY EVIDENCE THAT IT HAD ALREADY PRODUCED CONTRA CEPTIVES WITHOUT TECHNICAL KNOW - HOW HAVING BEEN ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 9 OBTAINED F ROM M/S.LRC PRODUCTS, UK(SUPRA), THE CLAIM OF REVENUE EXPENDITURE WAS AS RAISED BY THE ASSESSEE IS LIABLE TO BE RESTRICTED TO 75%. IN THIS MANNER, THE ASSESSING OFFICER S DISALLOWANCE MADE HAS BEEN UPHELD FOR BALANCE 25% AMOUNT ONLY. 9 . SIMILARLY, REGARDING LOGO CHARGES(SUP RA), THE CIT(A) HAS HELD THE IT TO BE REVENUE EXPENDITURE AFTER CONCLUDING THAT THE CL AIM OF THE ASSESSEE THAT LOGO AGREEMENT DID NOT CONFER ANY OWNERSHIP; WHOLLY AND PARTIALLY IN ITS FAVOUR, SO THE SAID PLEA CONTAINED MERIT. FURTHER , THE CIT(A) HAS ALSO UPHELD THE ASSESSING OFFICER S FINDINGS REGARDING ASSESSEE S C LAIM UNDER SECTION 80HHC( SUPRA) AND ITS SUBMISSION PLEADING EXCLUSION @ 90% OF THE FOREIGN EXCHANGE GAINS FROM BUSINESS PROFITS, MISCELLANEOUS INCOME AND DEPB GAINS HAVE BEEN ALLOWED FOR STATISTICAL PURPOSES BY ISSUING NECESSARY DIRECTION TO THE ASSESSING OFFICER. 9 .1. IT IS I N THIS BACKDROP OF FACT S THAT BOTH PA RTIES HAVE PREFERRED THESE APP EALS. THE ASSESSEE S GROUNDS IMPUGNE THE CIT(A ) S ORDER CONFIRMING THE ASSESSING OFFICER S FINDINGS ON THE ISSUES OF 80 - IB, RESTRICTING ITS CLAIM OF ROYALTY TO THE EXTENT O F 75%. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 10 9.2. ON THE OTHER HAND, THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS WRONGLY UPHELD THE CLAIM OF ROYALTY EXPENDITURE AS RAISED BY THE ASSESSEE TO THE EXTENT OF 75% AND THAT OF LOGO CHARGES (SUPRA) IN TOTO. 10 . REITERATING THE GROUNDS RAISED, THE A.R SUBMITTED THAT THE CIT(A) HAS WRONGLY CONFIRMED THE FINDINGS OF ASSESSING OFFICER QUA DEDUCTION CLAIMED UNDER SECTION 80 - IB, ROYALTY EXPENSES AND SEC.80HHC DEDUCTION. 11 . THE D.R. ON THE OTHER HAND, HAS SUPPORTED THE FINDINGS OF THE CIT(A) AS ASSAIL ED BY THE ASSESSEE AND ALSO SUBMITTED THAT ON ROYALTY AND LOGO EXPENSES, THE CIT(A) HAS WRONGLY MODIFIED THE ASSESSI NG OFFICER S FINDINGS(SUPRA). 12. SINCE BOTH PARTIES ARE AT VARIANCE IN THEIR RESPECTIVE STANDS , WE PROPOSE TO FRAME ONLY THE FOLLOWING I SSUES FOR OUR ADJUDICATION. A) WHETHER THE CIT(A) HAS RIGHTLY UPHELD THE DISALLOWANCE MADE BY ASSESSING OFFICER QUA ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION 80 - IB OF THE ACT? ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 11 B) WHETHER THE CIT(A) HAS ERRED IN RESTRICTING THE ASSESSEE S CLAIM OF ROYALTY FEE @ 75% AS CLAIMED BY BOTH THE PARTIES. IF SO, WHETHER THE CIT(A) S FINDINGS ARE LIABLE TO BE MODIFIED OR UPHELD ? C) WHETHER THE CIT(A) HAS RIGHTLY HELD THE LOGO CHARGES (SUPRA) AS CLAIMED BY THE ASSESSEE TO BE REVENUE EXPENDITURE? ALTHOUGH THE A SSESSEE HAS RAISED GROUNDS CHALLENGING THE CIT(A) S ORDER REGARDING SEC.80HHC DEDUCTION (SUPRA) , BUT AFTER ARGUING FOR SOME TIME, THE A.R. DID NOT SERIOUSLY PRESS THE PLEA, BECAUSE THE VARIOUS FRETS OF THE CLAIM HAVE BEEN ALLOWED BY CIT(A) FOR STATISTICAL P URPOSES. THEREFORE, NO ISSUE REGARDING ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION.80HHC IS BEING FRAMED. ACCORDINGLY, OUR ISSUE - WISE FINDINGS ARE AS UNDER: - ISSUE(A) 13 A) IN SUPPORT OF THE ISSUE , A.R. HAS VEHEMENTLY ARGUED ON THE BASIS OF ASSESSEE S PLEA RAISED IN THE GROUNDS OF APPEAL AND SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS CIT(A) HAVE WRONGLY DECLINED ITS CLAIM OF DEDUCTION UNDER SECTION 80 - IB ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 12 OF THE ACT BY RELYING ON ENTRIES NO.27 & 28 AS WELL AS BY HOLDING THAT SINCE ASSESSEE S UNIT IS ESTABLISHED IN A CANTONMENT AREA, THEREFORE, IT IS NOT ALLOWED FOR DEDUCTION. TO BUTTRESS THE SUBMISSION , FOLLOWING CASE LAWS HAVE ALSO BEEN CITED 1. 237 ITR 367(BOMBAY HIGH COURT ); SHREE PRODUCTS VS.CIT 2. 234 ITR 207(BOMBAY HIGH COURT ); CIT VS.HI ND FILTERS PVT. LTD 3. 228 ITR 683(KERALA HIGH COURT); CIT VS KERALA RUBBER AND RECLAIMS LTD. AND PRAYED FOR ACCEPTANCE OF THE ISSUE IN ASSESSEE S FAVOUR. 13.1. ON A QUERY PUT UP BY THE BENCH AS TO WHETHER THE ISSUE IS COVERED BY THE DECISION OF CO - ORDINATE BENCH OF CHENNAI ITAT IN THE CASE OF M/S.MRF LTD. DATED 11.03.2011 IN ITA NOS.1374 TO 1377/MDS./2010 ( IN WHICH ONE OF US ABRAHAM P GEORGE A.M. WAS A MEMBER OF THE BENCH), THE A.R. VERY FAIRLY PRODUCED COPY OF THIS SAID DECISION AND SUBMITTED THAT THE SAME DOES NOT TAKE INTO ACCOUNT THE ABOVE SAID CASE S CITED. 14 . THE REVENUE IN TURN, HAS CHOSEN TO STRONGLY RELY UPON THE ORDER OF CIT(A) AND REASONS CONTAINED THEREIN. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 13 15. WE HAVE CONSIDERED THE ISSUE AT LENGTH AND ALSO PERUSED THE RELEVANT FINDINGS AS WELL AS CASE LAWS CITED. ADMITTEDLY, THE ASSESSEE IS A MANUFACTURE OF RUBBER CONTRACEPTIVES,( CONDOMS ) , WHO HAS CLAIMED DEDUCTION UNDER SECTION 80 - IB REGARDING ITS UNIT AT PALLAVARAM, NEAR CHENNAI. THE A.O. AS WELL AS THE CIT(A) HAVE DECLINE D THE CLAIM ON THE GROUND THE PRODUCT FALLS UNDER ENTRIES 27 & 28 OF THE ELEVENTH SCHEDULE OF THE ACT AND THE UNIT IS LOCATED IN A CANTONMENT AREA. THE CIT(A) HAS NOT SPECIFICALLY DECIDED THE LA T TER OBJECTION AND UPHELD THE A.O. S FIRST CONCLUSION R EGARDING ELEVENTH SCHEDULE POST OF YEARS APPLICABILITY OF THE FACTS OF THE CASE. CO MING TO THE STATUTORY PROVISION ITSELF, IT IS CLEAR THAT SEC.80 - IB OF THE ACT PROVIDES DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. BUT T HE SAME IS NOT WITHOUT ANY CONDITION . THE SUB - SECTION(2 ) OF SEC.80 - IB IMPOSE CERTAIN CONDITIONS WHICH HA VE TO BE FULFILLED. THE SAME ARE REPRODUCED AS UNDER: - SECTION 80 - IB - DEDUCTION IN RESPECT OF PR OFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKING. - (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB - SECTIONS (3) TO ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 14 (11) (S UCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AM OUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : - (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF AN INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE - ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF A NY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; (III) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE, OR OPERATES ONE OR MORE COLD STORAGE PLANT OR PLANTS, IN ANY PART OF INDIA : PROVIDED THAT THE CONDITION IN THIS CLAUSE SHAL L, IN RELATION TO A SMALL SCALE INDUSTRIAL UNDERTAKING OR AN INDUSTRIAL UNDERTAKING REFERRED TO IN SUB - SECTION (4) SHALL APPLY AS IF THE WORDS 'NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE' HAD BEEN OMITTED. EXPLANATION 1 : FOR THE PURPOSES OF CLAUSE (II), ANY MACHINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OTHER THAN THE ASSESSEE SHALL NOT BE REGARDED AS MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY : - (A) SUCH ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 15 MACHINERY OR PLANT WAS NOT, AT ANY TIME PREVIOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE, USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDIA FROM ANY COUNTRY OUTSIDE INDIA; AND (C) NO DEDUCTION ON ACCOUNT OF DEPRECIATIO N IN RESPECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PROVISIONS OF THIS ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PERIOD PRIOR TO THE DATE OF THE INSTALLATION OF THE MACHINERY OR PLANT BY THE ASSESSEE. EXPLANA TION 2 : WHERE IN THE CASE OF AN INDUSTRIAL UNDERTAKING, ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PURPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE OF THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTAL VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB - SECTION, THE CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH; (IV) IN A CASE WHERE THE INDUSTRIAL UNDERT AKING MANUFACTURES OR PRODUCES ARTICLES OR THINGS, THE UNDERTAKING EMPLOYS TEN OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF POWER, OR EMPLOYS TWENTY OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. SINCE THERE IS FURTHER STIPULATION IN THE ABOVE PROVISION THAT THE ARTICLE OR THING AS MANUFACTURED OR PRODUCED BY THE CONCERNED ASSESSEE SHOULD NOT BE COVERED BY THE ELEVENTH SCHEDULE OF THE ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 16 ACT, WE ALSO DEEM IT APPROPRIATE TO REPRODUC E HEREIN BELOW T HE NECESSARY ITEM S AS FOLLOWS: ELEVENTH SCHEDULE ITEM NO.27: CROWN CORKS OR OTHER FITTINGS OF CORK, RUBBER, POLYETHYLENE OR ANY OTHER MATERIAL. ITEM NO.28: PILFER PROOF CAPS FOR PACKAGING OR OTHER FITTINGS OF CORK, RUBBER, POLYETHYLENE OR ANY OTHER M ATERIAL. IT IS THE CASE OF THE ASSESSEE THAT ITS PRODUCT MANUFACTURE D , I.E. RUBBER CONTRACEPTIVES OR CONDOMS, ARE NOT COVERED BY ARTICLES 27 & 28 WHEREAS THE REVENUE S STAND IS THAT THE SAME IS HIT BY THE SAID SCHEDULE. NOW, THE MOOT QUESTION BEFORE US AS TO WHETHER A CONDOM IS COVERED BY THE ELEVENTH SCHE DULE ENTRIES NOS.27 & 28 OR NOT? AFTER PERUSING THE STATUTORY PROVISIONS, WE ARE OF THE OPINION THAT ENTRY NO .27 PERTAINS TO CROWN CORKS OR OTHER FITTINGS OF CORK, RUBBER, POLYETHYLENE OR ANY OTHER MA TERIAL. IN OTHER WORDS, THE SAME COVERS THE CASE OF RUBBER FITTINGS WHEREAS ENTRY - 28 COVERS CASES OF PILFER PROOF CAPS FOR PACKAGING OR OTHER FITTINGS OF RUBBER. THE TWO ENTRIES ABOVE CITED I.E. ITEM NOS. 27 & 28 ENVISAGE DIFFERENT CONTEXTUAL REFERENCES I.E. CROWN CORKS AND OTHER FITTINGS OF CORK AND RUBBER AND PILFER PROOF CAPS . IF WE ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 17 ANALYZE THE USAGE OF A CONDOM , WE ARE CONSTRAINED TO HOLD THAT IT IS A SHEATH OF RUBBER FITTING , MADE TO FIT OVER SEXUAL ORGAN FOR PREVENTION OF SEXUAL TRANSMITTED DISEAS ES AND UNWANTED PREGNANCIES. SINCE THE STATU T E RESTRICTS THE SCOPE OF THE DEDUCTION PROVISION, THAT TOO UNEQUIVOCALLY THAT OTHER FITTINGS OF RUBBER ARE INCLUDED IN THE LIST OF ARTICLES OR THINGS MANUFACTURED, IN THE ABSENCE OF ANY OTHER EXPLANATION OR S O, WE SEE NO REASON TO INTERFERE IN THE WELL REASONED FIN DINGS OF CIT(A). WE REITERATE THAT WHETHER OR NOT A RUBBER PRODUCT IS AN ARTICLE OR THING COVERED BY ELEVENTH SCHEDULE DEPENDS ON THE NATURE AND CHARACTERISTIC OF THE PRODUCT MANUFACTURE D AND NOT ON THE CASE LAWS SETTLING LEGAL PRINCIPLES AS T HERE CANNOT BE ANY STRAIGHT JACKET FORMULA DEFINING ITS PURVIEW. SO FAR AS TO THE CASE LAWS CITED BY THE A.R IS CONCERNED, IN OUR OPINION , THE PRODUCT S INVOLVED IN THE SAME WERE ALTOGETHER DIFFERENT I.E. R UBBER STOPPERS, CIGARETTE FILTER S , RUBBER COMPOUND S FOR UTILIZATION IN RUBBER INDUSTRIES. THEREFORE, THE SAME ARE NOT RELEVANT QUA ADJUDICATION OF THE INSTANT ISSUE. WE ALSO NOTICE THAT IN M/S.MRF LTD CASE (SUPRA), IT HAD BEEN OBSERVED AS UNDER: - 22. TH E LAST ISSUE OF THIS APPEAL IS REGARDING WITHDRAWAL OF 80IA BENEFITS. THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 15,14,97,778/ - UNDER SECTION 80IA OF THE ACT. INITIALLY, THIS WAS ALLOWED BUT IN RE - ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 18 ASSESSMENT PROCEEDINGS THIS DEDUCTION WAS WITHDRAWN BECAUSE THE COMPANY S PRODUCTS WERE NOT FOUND TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA AS IT MANUFACTURES ARTICLES SPECIFIED IN ELEVENTH SCHEDULE OF THE ACT. ITEM 27 OF ELEVENTH SCHEDULES APPENDED TO THE INCOME TAX ACT, 1961 READS AS UNDER: CROWN CORKS OR OTHER FITTINGS OF CORK, RUBBER, POLYETHYLENE OR ANY OTHER MATERIAL. 23. A BARE READING OF THIS SCHEDULE MAKES IT AMPLY CLEAR THAT MANUFACTURE OF TYRES OF RUBBER WHICH FALLS UNDER ITEM 27 WHICH EXCLUDE THE ITEM FROM THE BENEFIT OF SECTION 80IA. IN T HIS SCHEDULE, CROWN CORKS, OR OTHER FITTINGS OF CORK, RUBBER, POLYETHYLENE OR ANY OTHER MAT E RIAL HAS BEEN MENTIONED CLEARLY. THE USE OF THE WORDS CROWN CORKS MAKES IT ABUNDANTLY EVIDENT THAT OTHER FITTINGS OF CORK OR R UBB ER ARE ALSO HIT BY THIS PROVISIO N AND THE ARGUMENT OF THE LD. A.R TH A T T H E RUBBER FITTINGS WILL TAKE COLOUR FROM CROWN CORKS IS NOT SUSTAINABLE IN THE EYES OF LAW. THE MEANING OF THIS ITEM NO.27 IS VERY CLEAR AND THE STATUTE HAS INTENDED TO DEBAR MANUFACTURE OF RUBBER FITTINGS FROM SUCH BENEFIT. THE USE OF WORD OR IN BETWEEN CROWN CORKS OR OTHER FITTINGS OF RUBBER SIMPLY EXPLICITLY SAY SO. THERE IS NO QUESTION OF FURTHER INTERPRETATION REGARDING THE SAME. THERE IS NO DISPUTE BETWEEN THE PARTIES REGARDING THE FACT THAT TYRE IS A RUBBER FITTING. THE MATERIAL USED FOR TYPE IS DEFINITELY RUBBER AS PER ITEM NO.27 OF ELEVENTH SCHEDULE WHICH PRESCRIBES THE LIST OF ARTICLES OR THINGS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA, DISENTITLES THE ASSESSEE FROM THIS CLAIM. THE DECISIO NS RELIED ON BY THE LD. A.R ARE ENTIRELY ON DIFFERENT FACTS AND THEY ARE NOT AT ALL RELEVANT. THEREFORE, THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03 STANDS DISMISSED. TAKING CUE FROM THE SAME, AND IN VIEW OF OUR ABOVE ANALYSIS OF THE FACTS O F THE CASE, WE HOLD THAT THE ASSESSEE S PRODUCE MANUFACTURE D IS AN ITEM COVERED BY ITEM NO S .27 & 28 OF ELEVENTH ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 19 SCHEDULE OF THE ACT BEING A RUBBER FITTING . ACCORDINGLY, WE HOLD THAT THE CIT(A) HAS RIGHTLY UPHELD THE REJECTION OF ASSESSEE S CLAIM OF DEDUC TION/S 80IB OF THE ACT. S O , THE ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. ISSUE NO.(B) 16 . IN SUPPORT OF THIS ISSUE, THE CONTENTION OF THE ASSESSEE IS THAT ITS CLAIM OF ROYALTY EXPENDITURE @ 2% OF THE TOTAL SALES PAID TO M/S. L RC PRODUCTS LTD. AS TECHNICAL KNOW - HOW FEE IS LIABL E TO ACCEPTED IN TOTO INSTEAD 75% AS UPHELD BY CIT(A). THE A.R HAS SUBMITTED THAT THE ASSESSEE HAD ONLY OBTAINED FEW TECHNICAL INPUTS FROM THE ENTITY CONCERNED AFTER PAYING CONSIDERATION WITHOUT TRANSFER OF ANY OWNER - SHIP OF LICENSE . IT IS FURTHER ARGUED THAT THE PAYMENT IS ONLY IN LIEU OF RIGHT OF USAGE OF ADVANCE TECHNOLOGY MADE AVAILABLE BY M/S.LRC PRODUCTS AND THE ASSESSEE PAYS THE REMUNERATION @ 2% OF THE TOTAL SALES. BY REFERRING TO CASE LAW REL IED UPON BY THE CIT(A), THE A.R. HAS ARGUED THAT THE CASE LAW OF SOUTHERN SWITCHGEAR(SUPRA), IS NOT APPLICABLE IN PRESENT CASE. PER HIM , IN THIS SITUATION, CASE LAW OF M/S.IAEC PUMP LTD.(SUPRA) WOULD BE APPLICABLE. FURTHER, HE HAS ALSO DRAWN SUPPORT FRO M THE FOLLOWING CASE S : - ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 20 1. CIT VS. IAEC PUMP LTD. IN 232 ITR 316(SC) 2. CIT VS. G4S SECUTITIES SYSTEM IN 338 ITR 46 3. CIT VS PANASONIC CARBON INDIA LTD. IN TC(A) NO. 552 TO 556/2010 DATED 12.07.10 OF HON BLE MADRAS HIGH COURT. 4. ORDER OF CHENNAI TRIBUNAL IN INDIA JAPAN LIGHTING P LTD VS. ACIT IN ITA NOS. 676 TO 678/MDS./2010 AND ACIT VS. INDIA JAPAN LIGHTING IN ITA 862/10 5. ORDER OF CHENNAI TRIBUNAL IN THE CASE OF PANASON IC CARBON INDIA LTD IN ITA NO.1968 TO 1973/08 6. ORDER OF CHENNAI TRIBUNAL IN THE CASE OF NIPPO BATTERIES CO LTD VS. ACIT IN 7 ITR (TRIB) 303 - 2011 A ND PRAYED FOR ACCEPTANCE OF ISSUE IN FAVOUR OF THE ASSESSEE. 17 . OPPOSING THE A SSESSEE S ARGUMENT, THE REVENUE HAS SUBMITTED THAT EARLIER, THERE WAS AN AGREEMENT BETWEEN ASSESSEE AND M/S.LRC PRODUCTS. AFTER SOMETIME, THEY RESCINDED THE AGREEMENT AND ASSESSEE STARTED MANUFACTURING CONTRACEPTIVES ALONE BY PAYING NON - COMPETE FEE TO OTH ER ENTITY FOR A PERIOD OF FIVE YEARS. THE D.R. EMPHASIZED THAT THE ASSESSING OFFICER HAD RIGHTLY HELD THE ROYALTY IN THE SHAPE OF TECHNICAL KNOW - HOW AS CAPITAL EXPENDITURE , WHICH HAS BEEN S T RONGLY UPSET BY CIT(A). SO, HIS MAIN ARGUMENT IS TH A T A.O S ORDER REJECT ING THE ASSESSEE S CLAIM BE UPHELD. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 21 1 8 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AT LENGTH AND ALSO GONE THROUGH RELEVANT FINDINGS AND CASE LAWS. THERE IS NO QUARREL BETWEEN THE PARTIES THAT THE ASSESSEE AND OTHER ENTITY, NAMELY M/S.LRC PROD UCTS HAD ENTERED INTO AN AGREEMENT DATED 07.03.00 AND 01.04.05 F OLLOWED BY SUPPLEMENTARY AGREEMENTS DATED 13.07.01 & 28.03.07 RESPECTIVELY. THE RELEVANT CLAUSES IN THE AGREEMENT ARE REPRODUCED AS FOLLOWS: - LRC IS THE OWNER OF CERTAIN DATA AND INFORMATIO N RELATING TO NEW FORMULATIONS IN THE MANUFACTURE OF RUBBER CONTRACEPTIVES WHICH I T HAS AGREED TO MAKE AVAILABLE ON A CONTINUOUS BASIS TO TTK - LIG FOR UPGRADING QUALITY OF RUBBER CONTRACEPTIVES BY TTK - LIG IN THEIR PLANTS IN INDIA TTK LIG HAS AGREED TO RECE IVE SUCH DATA AND INFORMATION UPON THE FOLLOWING TERMS AND CONDITIONS: DEFINITION INFORMATION MEANS INFORMATION AND DATA SUPPLIED BY LRC OR GENERATED BY TTK - LIG PURSUANT TO THIS AGREEMENT, WHETHER WRITTEN GRAPHIC OR ORAL INCLUDING OPERATING INSTRUCTION S, DESIGNS, MATERIALS, PRODUCTION SPECIFICATIONS, FORMULAE, DRAWINGS, BLUE PRINTS AND OTHER TECHNICAL AND COMMERCIAL INFORMATION, TOGETHER WITH ANY SAMPLES OR SPECIMENS THEREOF, BUT EXCLUDING: (A) INFORMATION WHICH AT THE TIME OF DISCLOSURE IS IN THE PUBL IC DOMAIN (B) INFORMATION WHICH SUBSEQUENT TO DISCLOSURE BECOMES PART OF THE PUBLIC ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 22 DOMAIN BY PUBLICATION OR OTHERWISE (OTHER THAN THROUGH DISCLOSURES BY TTK - LIG IN BREACH OF THIS AGREEMENT. (C) INFORMATION WHICH MAY BE RECEIVED BY TTK - LIG FROM ANY T HIRD PARTY HAVING THE RIGHT TO DISCLOSE THE SAME TO TTK - LIG, PROVIDED THAT SUCH INFORMATION WAS NOT OBTAINED BY THE SAID THIRD PARTY IMPROPERLY. LRC INCLUDES ANY OF ITS WHOLLY - OWNED SUBSIDIARIES AS DEFINED BY SECTION 736 OF THE U K COMPANIES ACT, 1985 UNDERTAKING BY TTK - LIG TTK - LIG HEREBY AGREES (A) TO USE THE INFORMATION SOLELY FOR THE PURPOSE MENTIONED A ABOVE FOR WHICH PURPOSE IT SHALL COMMUNICATE THE INFORMATION SOLELY TO THOSE OF ITS EMPLOYEES WHO REASONABLY REQUIRE THE SAME FOR THE PURPOSES HE REOF AND WHO ARE BOUND TO TTK - LIG BY LIKE OBLIGATIONS AS TO CONFIDENTIALITY. (B) NOT OTHERWISE TO DISCLOSE THE INFORMATION TO ANY PERSON FIRM OR COMPANY WITHOUT THE PRIOR WRITTEN PERMISSION OF LRC (C) UPON CONCLUSION OF THE PURPOSE AS AFORESAID OR SOON ER AT LRC S REQUEST, TO RETURN ALL THE INFORMATION TO LRC TOGETHER WITH ALL COPIES OF WRITTEN AND GRAPHIC MATERIAL AND TO RETAIN NO COPIES THEREOF AND PROVIDE LRC WITH A CERTIFICATE THAT NO COPIES HAVE BEEN RETAINED. WHEREAS BOTH THE PARTIES HERETO CONS IDER IT NECESSARY AND EXPEDIENT TO RECORD SUCH TERMS AND CONDITIONS IN WRITING BY THIS DEED OF AGREEMENT NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL COVENANTS AND OBLIGATIONS HEREIN CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS: ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 23 1. IN CONSIDERATION OF THE NEW FORMULATIONS BEING MADE AVAILABLE BY LRC, TTK LIG SHALL PAY TO LRC A TECHNICAL KNOWHOW FEE, A SUM EQUIVALENT TO 2% (TWO PERCENT) OF THE TOTAL ANNUAL SALES TURNOVER OF THE COMPANY ON QUARTERLY RESTS, SUBJECT TO DEDUCTION OF TAX AT SOURCES AS APPLICABLE UNDER THE PROVISIONS OF INDIAN INCOME TAX ACT, 1961 AND SUBJECT TO APPROVAL UNDER THE FOREIGN EXCHANGE REGULATION ACT, 1973 AND OTHER APPLICABLE ACT AND REGULATIONS IN INDIA. 2. THIS AGREEMENT SHALL BE N FORCE FOR A PERIOD OF FIVE YEARS EFFECTIVE 1 ST APRIL 2000 AND MAY BE RENEWED THEREAFTER BY MUTUAL CONSENT OF BOTH THE PARTIES. THE RENEWAL OF THIS AGREEMENT MAY BE EFFECTED BY BOTH THE PARTIES HERETO BY EXCHANGE OF LETTERS SIGNED BY PERSONS DULY AUTHORISED IN THIS BEHALF. 3. WITH OUT PREJUDICE TO THE PROVISIONS OF ANY CLAUSE HEREIN, IN THE EVENT OF ANY BREACH OF THIS AGREEMENT OR DEFAULT THEREUNDER COMMITTED BY TTK - LIG, LRC MAY CALL UPON TTK - LIG TO SET RIGHT SUCH BREACH OR DEFAULT WITHIN A PERIOD OF 30 DAYS AND IF TTK - LIG SHOULD FA IL TO SET RIGHT THE BREACH OR DEFAULT WITHIN SUCH PERIOD, LRC SHALL BE ENTITLED TO SERVE A NOTICE IN WRITING ON TTK - LIG TERMINATING THIS AGREEMENT AND THIS AGREEMENT SHALL STAND TERMINATED IMMEDIATELY ON SERVICE OF SUCH NOTICE. 4. TTK - LIG SHALL BE ENTIT LED TO TERMINATE THIS AGREEMENT WITHOUT ASSIGNING ANY REASON WHATSOEVER BY GIVING THREE MONTHS NOTICE IN WRITING SERVED ON LRC. 5. THE OBLIGATIONS OF CONFIDENTIALITY CONTAINED HEREIN SHALL CONTINUE FOR A PERIOD OF FIVE YEARS AFTER THE TERMINATION OR EXPIR Y OF THE AGREEMENT FOR WHATEVER REASON. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 24 18 .1. IN THE SUBSEQUENT AGREE MENT DATED 01.04.05 AS WELL, WE HAVE COME ACROSS THE SAME SET OF CLAUSES. IT IS TH EREFORE, CLEAR THAT ASSESSEE S OBLIGATION TO PAY ROYA LTY @ 2%(SUPRA) ST EMS FROM THE TERMS INCORPORAT ED IN THE AGREEMENTS. WE NOTICE THAT IN THE SAID AGREEMENTS, THERE IS NO COVENANT GRANTING EXCLUSIVE RIGHTS OF TECHNICAL KNOW - HOW OR TITLE IN FAVOUR OF THE ASSESSEE PERTAINING TO TECHNICAL INPUTS AS OBTAINED FROM THE OTHER ENTITY. FURTHER, THE ELEMENT OF ENDURABILIT Y IS ALSO NOWHERE FORTHCOMING AND EVEN DUR A TION OF THE AGREEMENT IS NOT INDEFINITE I.E. IT IS FOR A PERIOD OF FIVE YEARS. IN ADDITION TO THIS, THERE IS NO CLAUSE OF EXCLUSIVE USAGE IN FAVOUR OF ASSESSEE FOR USING THE TECHNICAL INPUTS . IN THESE CIRCUMSTANCES, IN OUR OPINION, THE CASE LAW OF M/S.SOUTHERN SWITCH GEAR (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE AS IN THE SAID CASE, THE NON - COMPETE CLAUSE WAS THERE WHEREIN THE FOREIGN COMPANY CONCERNED HAD AGREED NOT TO MANUFACTURE S IMILAR PRODUCTS IN INDIA AND NOT TO GIVE RIGHTS OF MANUFACTURE TO OTHERS. T HE INSTANT CASE IS RATHER COVERED BY CAS E LAW OF M/S.IAEC PUMPS LTD. , WHEREIN THE LICENSE TO USE THE INTELLECTUAL KNOW - HOW WAS FOR TEN YEARS WITH CLAUSES FOR RESCINDING THE AGREEME NT BEFORE THE EXPIRY OF SAID TIME PERIOD AS WELL. SI MIL ARLY IN THE CASE OF M/S.G4S SECURITIES SYSTEM, THERE WAS NO EXCLUSIVE USE OF THE TECHNICAL KNOW - HOW AND ROYALTY WAS ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 25 PAYABLE ON YEAR TO YEAR BASIS AND THE HON BLE DELHI HIGH COURT HAD HELD THAT THE OWNERSHIP RIGHTS OF THE TRADE MARK AND KNOW - HOW THROUGHOUT VESTED WITH THE FOREIGN COMPANY AND ON THE EXPIRATION OR TERMINATION OF THE AGREEMENT THE ASSESSEE WAS TO RETURN ALL THE KNOW - HOW OBTAINED BY IT UNDER THE AGREEMENT. THE PAYMENT OF ROYALTY WAS ALSO TO BE ON YEAR TO YEAR BASIS ON THE NET SALES OF THE ASSESSEE AND AT NO POINT OF TIME WAS THE ASSESSEE ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE KNOW - HOW AND TRADE MARK. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE AS ROYALTY WAS REVENUE EXPEND ITURE AND WAS DEDUCTIBLE UNDER SECTION 37(1) OF THE INCOME - TAX ACT, 1961. ACCORDINGLY WE ARE OF THE VIEW THAT THE CIT(A) HAS NOT RIGHTLY DELETED THE DISALLOWANCE OF EXPENDITURE AS MADE BY THE ASSESSING OFFICER TO THE TUNE OF 25%. THEREFORE , WE HOLD THA T THE PAYMENT MADE BY THE ASSESSEE IN THE SHAPE OF TECHNICAL KNOW - HOW FEE BY WAY OF ROYALTY @ 2% OF THE GROSS SALES IS REVENUE EXPENDITURE. SO, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 26 ISSUE NO.C 19 . IN SUPPORT OF THIS ISSUE, THE REVENUE HAS DRAWN OUR ATTENTION TO ASSESSMENT ORDER HOLDING LOGO CHARGES (SUPRA) AS CAPITAL EXPENDITURE AND SUBMITTED THAT THE CIT(A) HAS STRONGLY UPSET THE WELL REASONED ASSESSMENT ORDER. TO BUTTRESS THE PLEA, THE D.R HAS REITERATED THE SUBMISSIONS RAISED IN THE G ROUNDS OF APPEAL. 19.1 ON THE OTHER HAND, THE A.R. HAS RELIE D ON CIT(A) S ORDER AND SUBMITTED THAT SINCE THE BRAND NAME/LOGO NAMELY TTK CARRIED SIGNIFICAN T VALUE IN THE MARKET, T HEREFORE, THE ASSESSEE HAD AGREED TO PAY LOGO CHARGES TO THE CONCER NED ENTITY, NAMELY TTK & CO. HE ALSO INVITED OUR ATTENTION TO AGREEMENT IN QUESTION REGARDING LOGO CHARGES DATED 31.3.00 & 06.05.00 ARRIVED AT BETWEEN THE ASSESSEE AND M/S.TTK & CO. PER HIM , THE SAID AGREEMENT WAS ALSO APPROVED BY THE GOVERNMENT OF INDIA . IN ADDITION TO THIS, HE ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAWS. 1. CIT VS G4S S ECURITIES SYSTEM 338 ITR 46 2. DCIT VS. DCM BENETTON IN 9 DTR 587 (DEL TRIB) ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 27 3. RPG TRANSMISSIONS LTD. VS. ACIT IN ITA NOS.1036 & 1058/MDS/2005. 4. SHRIRAM PISTONS AND RINGS LTD. VS. CIT 307 ITR 363 20 . WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ISSUE AND ALSO PERUSED THE RELEVANT FINDINGS, CONTENTS OF PAPER BOOK REFERRED AND CASE LAW CITED. UNDISPUTED FACTS ARE THAT VIDE AGREEMENT IN QUES TION, THE ASSESSEE HAD AGRE ED TO PAY ANOTHER ENTITY VIDE AGREEMENT DATED 31.3.00/6.5.00 FOR USING THE MONOGRAM, NAMELY TTK . THE RELEVANT EXTRACT OF THE SAID AGRE EMENT A S AVAILABLE IN THE PAPER BOOK READ S AS UNDER: - WHEREAS TTK HAS BEEN IN THE BUSINESS OF VARIOUS CONSUMER AND PHARMACEUTICALS PRODUCTS AND HAS BEEN MARKETING AND DISTRIBUTING THE CONSUMER AND PHARMACEUTICALS PRODUCTS FOR OVER FIVE DECADES AND HAS EARNED A WIDE REPUTATION AND HAS CREATED A STRONG IMAGE AND AWARENESS ON THE MINDS OF PUBLIC A ND HAS ALSO EVOLVED AN ORIGINAL ARTISTIC WORK IN THE FORM OF A MONOGRAM ENTITLED TTK (HEREINAFTER REFERRED TO AS THE SAID MONOGRAM) WHICH HAS ESTABLISHED AN IDENTITY OF ITS OWN IN THE PUBLIC MINDS RELATING TO THE QUALITY OF THE PRODUCTS AND OTHER SERVICE S, AS WELL AS THE STATURE OF THE ORGANIZATION. WHEREAS TTK IS THE OWNER OF THE COPYRIGHT OF THE SAID MONOGRAM HAVING SECURED A REGISTRATION OF THE SAID COPYRIGHT UNDER NO.A - 39006/83 UNDER THE COPYRIGHT ACT, 1957. WHEREAS TTK LIG, A COMPANY ALREADY IN T HE BUSINESS OF MANUFACTURE OF RUBBER CONTRACEPTIVES IS DESIROUS OF PROMOTING AND STRENGTHENING ITS BUSINESS BASE BY ESTABLISHING A PROPER IDENTITY IN THE ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 28 MINDS OF PUBLIC AT LARGE WHICH WILL CREATE A STRONG MARKETING BASE FOR THE PRODUCTS OF THE COMPANY AN D REFLECT AN IMMEDIATE IDENTITY IN THE MINDS OF THE PUBLIC WITH REFERENCE TO THE PRODUCTS SERVICES AND STATURE OF THE LICENSES AND FOR THE PURPOSE HAS APPROACHED TTK FOR LICENSE AND PERMISSION TO USE THE SAID MONOGRAM ON OR IN RELATION TO THE GOODS MANUFAC TURED AND MARKETED BY TTK LIG AND IN RELATION TO OTHER BUSINESS ACTIVITIES OF TTK LIG. WHEREAS TTK HAD ACCEDED TO THE REQUEST OF TTK LIG TO GRANT LICENSE AND PERMISSION TO TTK LIG TO USE THE SAID MONOGRAM, SUBJECT TO CERTAIN TERMS AND CONDITION, WHI CH TERMS AND CONDITIONS IN WRITING BY THIS DEED OF AGREEMENT. WHEREAS BOTH THE PARTIES HERETO CONSIDER IT NECESSARY AND EXPEDIENT TO RECORD SUCH TERMS AND CONDITIONS IN WRITING BY THIS DEED OF AGREEMENT. NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AN D OF THE MUTUAL COVENANTS AND OBLIGATIONS HEREIN CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS: 1. TTK HEREBY CONFIRMS HAVING LICENSED AND PERMITTED THEUSE OF THE SAID MONOGRAM BY TTK - LIG FOR A PERIOD OF THREE YEARS WITH EFFECT FROM 1 ST APRIL 2000, AS PER A PPROVAL ACCORDED BY THE GOVERNMENT OF INDIA VIDE LETTER NO.2/M - 7964 DATED 3 RD MAY, 2000. COPY OF GOVERNMENT APPROVAL IS ANNEXED TO THIS AGREEMENT. 2. THE LICENSE AND PERMISSION GRANTED BY TTK IN FAVOUR OF TTK - LIG AS AFORESAID, SHALL ENTITLE TTK - LIG, SO LONG AS THIS AGREEMENT IN FORCE, TO USE THE SAID MONOGRAM ON OR IN RELATION TO THE GOODS OF TTK - LIG AND IN RELATION TO THE BUSINESS ACTIVITIES OF TTK - LIG, INCLUDING THE USE OF THE SAID MONOGRAM ON STATIONERY, TRADE LITERATURE, PACKING OF GOODS, LABELS, WRAPPERS AND ADVERTISEMENTS OF TTL - LIG. TTK - LIG SHALL NOT UNDER ANY CIRCUMSTANCES TRANSFER OR ASSIGN ANY OF THEIR RIGHTS UNDER THIS AGREEMENT. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 29 3. TTK - LIG ACCEPTS THAT THE SAID MONOGRAM SHALL BE USED BY TTK - LIG UNDER THIS AGREEMENT IN A MANNER INDICATIVE OF THE FAC T THAT THE COPYRIGHT IN THE SAID MONOGRAM IS OWNED BY TTK. ILLUSTRATIVE OF THE WORDS TO APPEAR IN CLOSE PROXIMITY TO THE SAID MONOGRAM, FOR THE PURPOSE OF CARRYING OUT THE REQUIREMENTS OF THIS CLAUSE ARE: 1981 T.T.KRISHNAMACHARI & CO 1. WHEN THE SAID MONOG RAM IS USED ON OR IN RELATION TO THE GOODS OF TTK - LIG A UNIT 1981 T.T.KRISHNAMACHARI & CO WHEN THE SAID MONOGRAM IS USED OTHERWISE IN RELATION TO THE NAME OF TTK - LIG 4. THE AGREEMENT SHALL BE IN FORCE FOR A PERIOD OF THREE YEARS EFFECTI VE FROM 1 ST APRIL, 2000 AND MAY BE RENEWED THEREAFTER BY THE CONSENT OF BOTH THE PARTIES, SUBJECT TO GOVERNMENT APPROVAL. 5. THE RENEWAL OF THIS AGREEMENT MAY BE EFFECTED BY BOTH THE PARTIES HERETO BY EXCHANGE OF LETTERS SIGNED BY PERSONS DULY AUTHORIZED IN THIS BEHALF. 6. IN CONSIDERATION OF THE SAID LICENSE AND PERMISSION GRANTED BY TTK., TTK - LIG SHALL PAY TO TTK AS NON - REFUNDABLE LICENSE FEE, A SUM EQUIVALENT TO TWO PERCENT OF THE TOTAL SALES OF THE COMPANY ON QUARTERLY REST. T HE ABOVE SAID AGREEME NT FOR USING THE MONOGRAM IN QUESTION, WAS ALSO APPROVED BY DEPARTMENT OF COMPANY AFFAIRS, MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS, GOVERNMENT OF INDIA VIDE ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 30 LETTER DATED 03.05.00, WHICH IS REPRODUCED HEREUNDER BELOW: - 1. IN EXERCISE OF THE POWE RS DELEGATED TO THE UNDERSIGNED BY THE GOVERNMENT OF INDIA UNDER SECTION 637 OF THE COMPANIES ACT, 1956 IN NOTIFICATION NO.GSR 563 E DATED 19.08.93,I, THE REGIONAL DIRECTOR, DEPARTMENT OF COMPANY AFFAIRS, CHENAI - 6, DO HEREBY APPROVE UNDER PROVISO TO SUB SE CTION (1) OF SECTION 297 OF THE COMPANIES ACT, FOR ENTERING INTO CONTRACT WITH M/S.T.T.KRISHNAMACHARI & CO. FOR LICENSING USE OF TRADE NAME AND LOGO THEREOF IN CONSIDERATION OF PAYMENT OF 2% LICENSE FEE CALCULATED ON THE TOTAL SALES OF THE COMPANY FOR A PE RIOD OF 3 YEARS WITH EFFECT FROM 1.4.2000. 2. THE APPROVAL ACCORDED IN PARA 1 ABOVE IS SUBJECT TO THE FOLLOWING CONDITIONS: (I) THE CONTRACT SHALL BE FOR A PERIOD OF 3 YEARS WITH EFFECT FROM 1.4.2000 TO 31.3.2003. (II) THE TOTAL VALUE OF SERVICES TO BE AVAILED FROM THE CONTRACTEE PARTY HEREIN SHALL NOT EXCEED THE LIMIT MENTIONED IN PARA 1 ABOVE DURING THE CONTRACT PERIOD. (III) THE PRICES TO BE PAYABLE FOR THE SERVICES TO BE OBTAINED FRO M THE CONTRACTEE PARTY SHALL BE REASONABLE AND SHALL NOT BE HIGH ER THAN THE PREVAILING MARKET RATES. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 31 (IV) THE COMPANY SHALL ENSURE THAT THE CONTRACT WITH THE CONTRACTEE PARTY IS COMPETITIVE AND IS NOT LESS ADVANTAGEOUS TO IT AS COMPARED TO SIMILAR CONTRACTS WITH OTHER PARTIES. 3. THIS APPROVAL HAS BEEN ACCORDED WI THOUT PREJUDICE TO ANY ACTION THAT MAY BE REQUIRED TO BE TAKEN BY THE COMPANY UNDER ANY OTHER PROVISIONS OF THE COMPANIES ACT, 1956 OR ANY OTHER LAW IN FORCE. DATED AT CHENNAI THE 27 TH DAY OF APRIL 2000 . THERE IS HARDLY ANY DISPUTE BETWEEN THE PARTI ES ABOUT THE FACTUM OF PAYMENT MADE BY ASSESSEE OF LOGO CHARGES @ 2% OF THE GROSS SALES. THE ONLY STRIFE IS THAT PER REVENUE, IT IS CAPITAL EXPENDITURE WHEREAS THE ASSESSEE S PLEA OF TREATING IT AS A REVENUE EXPENDITURE STANDS ACCEPTED BY CIT(A). WE FIN D THAT IN EXACTLY THE SIMILAR CIRCUMSTANCES, THE HON BLE DELHI HIGH COURT IN THE CASE OF G4S SECURITIES SYSTEM HAD HELD AS UNDER: - THE OWNERSHIP RIGHTS OF THE TRADE MARK AND KNOW - HOW THROUGHOUT VESTED WITH THE FOREIGN COMPANY AND ON THE EXPIRATION OR TER MINATION OF THE AGREEMENT THE ASSESSEE WAS TO RETURN ALL THE KNOW - HOW OBTAINED BY IT UNDER THE AGREEMENT. THE PAYMENT OF ROYALTY WAS ALSO TO BE ON YEAR TO YEAR BASIS ON THE NET SALES OF THE ASSESSEE AND AT NO POINT OF TIME WAS THE ASSESSEE ENTITLED TO BEC OME THE EXCLUSIVE OWNER OF THE KNOW - HOW AND TRADE MARK. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE AS ROYALTY WAS REVENUE EXPENDITURE AND WAS DEDUCTIBLE UNDER SECTION 37(1) OF THE INCOME - TAX ACT, 1961. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 32 20 .1. SIMILARLY, THE CO - ORDINATE BENCH OF DELH I ITAT IN THE CASE OF DCM BENETTON(SUPRA) HAS ALSO HELD USAGE OF SUCH BRAND NAME ETC. TO BE REVENUE EXPENDITURE BY OBSERVING AS FOLLOWS: - FROM THE AGREEMENT IT IS CLEAR THAT THE ASSESSEE WAS ONLY GRANTED NON - ASSIGNABLE LICENCE, RIGHT AND PRIVILEGE WITH REFERENCE TO THE LICENSED MARKS TO MANUFACTURE ON THE MARK AND DISTRIBUTE THE LICENSED PRODUCT IN INDIA AND TO USE THE EXPRESSIO N BENETTON . THE ASSESSEE DID NOT BECOME THE OWNER OF THE LICENSED MARKS OR THE HOLDER OF THE TRADE - MARKS. SUCH LICENSE MAR KS AT ALL TIMES REMAIN THE PROPERTY OF THE LICENSOR. THE LICENSE WAS INITIALLY GRANTED FOR A PERIOD FROM OCTOBER, 1992 TILL FALL/WINTER SEASON OF 1999 - 2000. HOWEVER, TO CONTINUE TO USE THE LICENSE MARK FOR MANUFACTURING OF THE LICENSED PRODUCTS, THE ASS ESSEE WAS TO PAY ROYALTY @ % % OF THE AMOUNT OF NET SALES. BY PAYING THE ROYALTY THE ASSESSEE DID NOT ACQUIRE ANY RIGHT IN THE LICENSES TRADE - MARKS. ONLY THE PRODUCTS MANUFACTURED BY THE ASSESSEE I.E. GARMENTS WILL BEAR THE LICENSED MARKS FOR WHICH THE L ICENSE HAS BEEN GRANTED. ACCORDINGLY, IT CAN BE SAID THAT THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET BUT HAS MERELY PAID TO THE LICENSOR FOR USE OF SUCH TRADE - MARKS. THEREFORE, EXPENSES ARE TO BE TREA T ED AS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDI TURE. THE ASSESSEE WAS REQUIRED TO PAY ROYALTY EVERY YEAR. BUT FOR PAYMENT OF ROYALTY, EVERY YEAR THE ASSESSEE COULD NOT CONTINUE RECEIVING THE LICENSE TO USE THE LICENSES ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 33 MARKS ON THE PRODUCTS MANUFACTURED BY IT. THUS MAKING PAYMENT EVERY YEAR IT CANNOT BE SAID THAT THE ASSESSEE RECEIVED ADVANTAGE OF ENDU RING NATURE PRIMARILY TO BRING IT AS CAPITAL EXPENDITURE. TAKING CUE FROM THE SAME, WE HOLD THAT IN THE INSTANT CASE ALSO , TITLE OF THE LOGO IN QUESTION HAS NOT PASSED OVER TO THE ASSESSEE. FURTHER , THERE IS NO ACQUISITION OF ASSETS OR PART OF ANY CAPITAL ASSET. USAGE OF LOGO BY THE ASSESSEE IS ONLY FOR DISPLAYING IT ON THE PRODUCT MANUFACTURED I.E. RUBBER CONTRACEPTIVES . THAT TOO, FOR A LIMITED PERIOD AS PROVIDED IN THE AGREEMENT IN LIEU OF PAY MENT @ 2% OF THE GROSS SALES. WHEN WE APPLY THE TENOR OF THE CASE LAW ABOVE CITED TO THE FACTS OF THE INSTANT CASE, WE HOLD THE INSTANT LOGO CHARGES ARE ALSO REVENUE EXPENDITURE WITHIN THE MEANING OF SEC.37 OF THE ACT IN THE NATURE OF WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF ASSESSEE S BUSINESS. CONSEQUENTLY, WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF THE CIT(A). THEREFORE, THE SAME ARE HEREBY UPHELD. 21 . IN VIEW OF OUR DISCUSSION, THE ASSESSEE S APPEAL STANDS PARTLY ALLOWED WHEREAS THAT APP EAL BY THE REVENUE IS DISMISSED. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 34 ITA NOS. 1792 & 2027/MDS./11 (A.Y. 2003 - 04) 22 ) THESE CROSS APPEALS; FILED ON BEHALF OF THE ASSESSEE AND REVENUE RESPECTIVELY, EMANATE FROM COMMON ORDER OF CIT(A) III, CHENNAI PASSED IN CASE NO.585/08 - 09/A.III DATED 29.08.11 FOR ASSESSMENT YEAR 2003 - 04 IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 23 ) BRIEF FACTS OF THE CASE ARE THAT ON 30.11.2003, THE ASSESSEE HAD FILED ITS RETURN DECLARING INCOME OF ` 33,86, 22,762/ - , THE A.O PROCESSED THE RETURN ON 16.12.03 AND COMPLETED SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 14.02 .06. HOWEVER, ON 23.03.10, HE SERVED NOTICE TO THE ASSESSEE UNDER SECTION 148 READ WI TH SEC.147 OF THE ACT, REOPENING THE ASSE S SMENT ON THE FOLLOWING GROUNDS: - THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 13.11.03 ADMITTING TOTAL INCOME OF ` 33,86,22,760/ - . IN THIS CASE, ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 14.02.2006. ASSESSEE HAS CREDITED AN AMOUNT OF ` 1,9 6,38,132/ - AS GROSS INTEREST RECEIPT. WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC, 90% OF INTEREST INCOME AMOUNTING TO ` 1,76,74,314/ - HAS BEEN REDUCED FROM ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 35 BUSINESS INCOME. THE ENTIRE INTEREST INCOME IS TO BE TAXED UNDER INCOME FROM OTHER SOURCES FOLLOWING DECISION IN THE CASE OF M/S.PANDIAN CHEMICAL LTD. VS. CIT 262 ITR 278(SC). HENCE, THE BALANCE 10% OF INTEREST INCOME AMOUNTING TO ` 19,63,813/ - IS TO BE REDUCED IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. IF THIS IS CONSIDERED, THE E XCESS DEDUCTION ALLOWED WORKS OUT TO ` 6,16,250/ - IN FURTHERANCE TO THE NOTICE, THE ASSESSEE DID NOT FILE ANY FRESH RETURN . RATHER IT WROTE A LETTER DATED 24.09.10 REITERATING ITS EARLIER RETURN . THEREAFTER, THE ASSESSING OFFICER FINALIZED THE R EASSESSMENT AND RE - COMPUTED THE DEDUCTION UNDER SECTION 80HHC OF THE ACT, BY REDUCING 10% INTEREST INCOME FROM THE BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION; DISALLOWED AN AMOUNT OF ` 2,69,18,881/ - EACH TOWARDS ROYALTY, LOGO CHARGES AS WELL AS EXCLUDED PROFITS ON SALE OF DEPB ENTITLEMENTS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 - IB OF THE ACT, AND LEVIED INT E REST UNDER SECTION 234B AND SEC.234C OF THE ACT VIDE ORDER DATED 31.12.10. 24 ) AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL WHEREIN IT CHALLEN GED THE REASSESSMENT ON THE ISSUE OF LEGALITY AS WELL AS ON MERITS. WE NOTICE THAT THE CIT(A) HAS TURNED DOWN ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 36 ASSESSEE S PLEA OF CHALLENGING THE REOPENING ON LEGALITY. ON MERITS, THE CIT(A) HAS ENHANCED AND CONFIRMED WITHDRAWAL OF DEDUCTION UNDER SECT ION 80 - IA OF THE ACT, RESTRICTED THE ROYALTY DISALLOWANCE TO 25% AS MADE BY ASSESSING OFFICER, UPHELD THE ASSESSEE S CLAIM ON LOGO CHARGES. HOWEVER, REGARDING DEDUCTION UNDER SECTION 80HHC, THE CIT(A) HAS A FFIRMED FINDI N G S OF ASSESSING OFFICER. I N THIS B ACK DROP, THE ASSESSEE IS ASSAILING THE CIT(A) S ORDER ON LEGALITY OF REOPENING, ORDER RESTRICTING CLAIM OF ROYALTY EXPENSES TO THE EXTENT OF 75% ONLY, ORDER OF CIT(A) CONFIRMING THE ASSESSING OFFICER S ORDER HOLDING THAT PROFIT ON SAL E OF DEPB ENTITLEMENT IS NOT EL IGIBLE FOR DEDUCTION UNDER SECTION 80 - IB OF THE ACT AND FURTHER CONFIRMING THE EXCLUSION OF 10% OF THE INTEREST INCOME WHILE COMPUTING DEDUCTION/S.80HHC OF THE ACT AND ASSESSING THE SAME UNDER THE HEAD INCOME FROM OTHER SO URCES AS WELL AS ENHA NCEMENT OF WITHDRAWAL OF 80 - IA BY CIT(A). 24.1. ON THE OTHER HAND, THE REVENUE IS AGGRIEVED AGAINST THE CIT(A S ORDER IN RESTRICTING THE DISALLOWANCE OF ROYALTY EXPENDITURE TO 25% ONLY OF THE AMOUNT DISALLOWED BY THE A.O. AND IN ACCEPTING THE ASSESSE E S CLAIM OF EXPENDITURE PERTAINING TO LOGO CHARGES. BOTH REPRESENTATIVES HAVE ALSO RE - ASSERTED THEIR ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 37 RESPECTIVE GROUNDS BEFORE US. SINCE PARTIES ARE AT VARIANCE IN THEIR RESPECTIVE STANDS QUA CORRECTNESS OF CIT(A) S ORDER , WE FR AME FOLLOWING ISSUES FOR OU R ADJUDICATION. A) WHETHER REOPENING, IN QUESTION, RESORTED BY A.O. AND UPHELD BY CIT(A) VIDE NOTICE DATED 23.03.10 SERVED ON THE ASSESSEE, OF THE ASSESSMENT FINALIZED UNDER SECTION 143(3) ON 14.02.06 IS LIABLE TO BE MODIFIED OR UPHELD, PER RESPECTIVE ST ANDS OF THE PARTIES? B) IF THE FIRST ISSUE IS DECIDED AGAINST THE ASSESSEE, AND IN FAVOUR OF REVENUE, WHETHER THE CIT(A) HAS ERRED ON MERITS IN CONFIRMING AND MODIFYING THE FINDINGS OF THE ASSESSING OFFICER ON THE GROUNDS OF DEDUCTION UNDER SECTIONS 80 - IA, 8 0IB & 80HHC, ROYALTY EXPENSES AND LOGO CHARGES(SUPRA). ISSUE NO.(A) 25 ) IN SUPPORT OF THE ISSUE, THE ARGUMENT S ADVANCED BY THE ASSESSEE ARE THAT IN THE INSTANT CASE, THE ASSESSING OFFICER HAD FINALIZED THE ASSESSMENT UNDER SECTION 143(3) ON 14.02.06. T HEREAFTER, REOPENING NOTICE WAS ISSUED ON 23.03.10 I.E. WELL BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF T HE RELEVANT ASSESSMENT YEAR 2 003 - 04 WHICH ENDED ON 31 ST MARCH, 2004. IN ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 38 THE LIGHT THEREOF, THE A.R ARGUED THAT EVEN IN THE REASONS RECORDED FO R REOPENING, THERE IS NO ALLEGATION AGAINST THAT T HERE HAD BEEN ANY FAILURE ON ITS PART OF ASSESSEE IN DISCLOSING FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. IN THIS REGARD, HE HAS REFERRED TO THE PROVISION CONTAINED IN T HE STATUTE AND SUBMITTED THE REASONS CONTAINED ARE MERE CHANGE OF OPINION BY ASSESSING OFFICER, WHICH IS NOT A GROUND TO RE - OPEN ANY ASSESSMENT FINALIZED WELL BEYOND FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. ACCORDINGLY, HE PRAYED FOR ACCEPTANC E OF THE APPEAL IN ASSESSEE S FAVOUR. 26 ) ON BEHALF OF REVENUE, D.R HAS CHOSEN TO STRONGLY SUPPORT THE FINDINGS OF THE CIT(A) AS WELL AS REA S ONS CONTAINED THEREIN. 27 ) WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AT LENGTH AND ALSO GON E THROUGH THE RELE VANT FINDINGS AND STATUTORY PROVISIONS. UNDISPUTEDLY, THE ASSESSEE; BEING AN EXPORTER, HAD CLAIMED DEDUCTION UNDER SECTION 80HHC AND FILED ALL NECESSARY PARTICULAR BEFORE A.O. WHO HAD FINALIZED THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 14 .02.06. THE IMPUGNED ASSE SSMENT YEAR IS 2003 - 04 I.E. THE PERIOD FROM 01.04.03 TO ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 39 31.03.04. WE DEEM IT APPROPRIATE TO REPRODUCE THE RELEVANT PROVISION OF SEC.147 OF THE ACT SEC.147 IF THE [ASSESSING] OFFICER [HAS REASON TO BELIEVE] THAT ANY INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 , ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESC APED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE 26 ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB - SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR: A BARE PERUSAL OF THE FIRST PROVISO AS INCORPORATED IN THE ACT MAKES IT AMPLY CLEAR THAT AN A SSESSMENT FINALIZED CAN BE REOPENED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AS WELL AS AFTER FOUR YEARS OF THE END OF THE RELEVANT ASSESSMENT YEAR. HOWEVER, THE LEGISLATURE IN ITS ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 40 WISDOM HAS ITSELF DISTINGUISHED BOTH INSTANCES I.E. WHEN AN ASSESSMENT IS TO BE REOPENED AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR; THERE HAS TO BE FAILURE ON ASSESSEE S PART IN DISCLOSING FULLY AND TRULY ALL MATERIAL NECESSARY FOR ASSESSMENT. 28) THE INSTANT CASE ALSO PE RTAINS TO LA T T ER INSTANCE EXISTENCE WHEREIN THE ASSESSMENT WAS FINALIZED ON 14.02.06 AND IT WAS REOPENED VIDE NOTICE DATED 23.03.10. A PERUSAL OF THE REASONS REC ORDED, MAKES IT CLEAR THAT THERE IS NO ALLEGATION AGAINST THE ASSESSEE THAT THERE WAS ANY FAI LURE ON ITS PART IN NOT DISCLOSING FULL AND TRUE PARTICULARS REGARDING ITS CLAIM OF DEDUCTION UNDER SECTION 80HHC AS NECESSARY FOR THE ASSESSMENT. THEREFORE, THE RE - OPENING, IN OUR OPINION, DOES NOT WITHSTAND THE TEST OF FIRST PROVISO OF SEC.147 . WE A LSO NOTICE THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAVE SPECIFICALLY CONSIDERED THE THIN LINE PROVIDING REOPENING OF AN ASSESSMENT IN TWO DIFFERENT SCENARIOS(SUPRA) . THE REASONS CONTAINED IN THE NO TICE FURTHER MAKE IT UN - AMBIGU OUS THAT THE ASSES SING OFFICER HAD EARLIER ACCEPTED THE ASSESSEE S CLAIM OF DEDUCTION DURING THE ASSESSMENT ALREADY FINALIZED . L ATER ON, I.E. FORMED ANOTHER OPINION ON MERITS. THI S, IN OUR CONSIDERED VIEW , IS NOTHING BUT ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 41 MERE CHANGE OF OPINION BY ASSESSING OFFICER WHICH I S NOT PERMISSIBLE IN THE EYES OF LAW. WE REITERATE THE TRITE PROPOSITION OF LAW THAT AN ASSESSMENT ALREADY FINALIZED CAN ONLY BE REOPENED UNDER THE SPECIFIC INSTANCES STATED UNDER SECTION 147 OF THE ACT ; AND NOT BEYOND THE C I RCUMSTANCES STATED THERE IN . THEREFORE, WE HOLD THAT THE REOPENING IN QUESTION IS NOT VALID IN THE EY E S OF LAW. HENCE, WE ACCEPT THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. ISSUE NO.(B) 29 ) SINCE THE ISSUE OF VALIDITY OF REOPENING IN QUESTION HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE, THEREFORE, WE DO NOT DEEM IT APPROPRIATE TO DECIDE THE ISSUE NO.2 ON MERITS AS THE SAME NOW ENJOYS ACADEMIC IMPORTANCE ONLY. 29 ) ACCORDINGLY, THE APPEAL FI LED BY THE ASSESSEE IS ACCEPTED AND THAT OF THE REVENUE IS DISMISSED. ITA NOS. 1793 & 1827/MDS./11(A.Y. 2004 - 05) 30. THESE APPEALS FILED BY THE ASSESSEE AND THE REVENUE RESPECTIVELY, ARISE FROM COMMON ORDER OF CIT(A) III, CHENNAI ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 42 PASSED IN CASE NO.585/08 - 09/A.III DATED 29.08.11 FOR IMPUGNED ASSESSMENT YEAR IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 31 ) IN ASSESSEE S APPEAL, THE FOLLOWING SOLE SUBSTANTIAL GROUND IS RAISED: - 2. THE CIT(A) ERRED IN CONFIRMING 25% OF THE ROYALTY EXPENDITURE AS CAPITAL EXPENDITURE AND THE REMAINING 75% AS REVENUE EXPENDITURE. 31.1. SIMILARLY, IN REVENUE S APPEAL, THE SUBSTANTIVE GROUNDS RAISED READ AS UNDER: - 2.1. THE CIT(A) ERRED IN HOLDING THAT 75% OF THE ROYALTY PAYMENT SHOULD BE ALLOWED AS REVENUE EXPENDITURE AND 25% OF THE ROYALTY PAYMENT SHOULD B E TREATED AS CAPITAL EXPENDITURE. 3.1. THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF LOGO CHARGES WAS RE IN NATURE AND DELETING THE ADDITION. BOTH REPRESENTATIVES APPEARING FOR THE RESPECTIVE PARTIES ARE IN UNISON THAT THE FACTS OF THE CASE ARE SIMILAR TO THOSE INVOLVED IN ITA NO.1791/MDS./11 DECIDED HEREIN ABOVE I.E. PAYMENT OF ROYALTY EXPENDITURE AND THAT OF LOGO CHARGES . THEY FURTHER ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 43 CLARIFIED THAT IN ASSESSEE S APPEAL, THE ONLY GROUND IS FOR ACCEPTING ASSESSEE S CLAIM OF ROYALTY PAYMENT ON TECHNICAL KNOW - HOW FEE AS REVENUE EXPENDITURE, WHICH HAS BEEN ACCEPTED @75% BY THE CIT(A). THE REVENUE S PLEA RAISED IN THE GROUNDS OF APPEAL REPRODUCED ABOVE IS FOR TREATING ROYALT Y AS WELL AS LOGO CHARGES AS CAPITAL EXPENDITU RE, A S HELD BY THE ASSESSING OFFICER BUT REVERSED BY CIT(A) TO THE EXTENT ABOVE SAID. 32. WE HAVE PERUSED GROUND STATED ABOVE AS WELL AS FACTS OF THE CASE. WE NOTICE THAT IN INSTANT APPEALS, ONLY ISSUES OF ROYALTY AND LOGO CHARGES ARE INVOLVED WH ICH HAVE BEEN CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE AND CAPITAL EXPENDITURE BY THE REVENUE. SINCE IN CROSS - APPEALS PERTAINING THE ASSESSMENT YEAR 2002 - 03 (SUPRA) , WE HAVE ALREADY HELD THAT THE ROYALTY PA YMENT AS WELL AS LOGO CHARGES TO BE REVENUE EXPENDITURE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, WE SEE NO REASON TO DEVIATE FROM THE SAID FINDINGS. CONSEQUENTLY, THE ASSESSEE S APPEAL IS ACCEPTED AND THAT FILED BY REVENUE IS DISMISSED. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 44 ITA NOS.1794, 1828/MDS./11 (A.Y.2005 - 06) 33. THESE CROSS APPEALS; FILED ON BEHALF OF THE ASSESSEE AND REVENUE RESPECTIVELY, HAVE BEEN PREFERRED AGAINST THE COMMON ORDER OF CIT(A) III, CHENNAI PASSED IN CASE NO.585/08 - 09/A.III DATED 29.08.11 FOR IMPUGNED ASSESSMENT YEAR IN PROCEEDINGS UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 34 ) IN ASSESSEE S APPEAL, THE SOLE SUBSTANTIVE GROUND RAISED IS HEREBY REPRODUCED AS FOLLOWS. 2. THE CIT(A) ERRED IN CONFIRMING 25% OF THE ROYALTY EXPENDITURE AS CAPITAL EXPENDITURE AND THE REMAINING 75% AS REVENUE EXPENDITURE. 34.1. IN THE SAME MANNER, THE SUBSTANTIAL GROUNDS IN REVENUE S APPEAL AS AGITATED ARE ALSO REPRODUCED HEREUNDER: 2.1. THE CIT(A) ERRED IN HOLDING THAT 75% OF THE ROYALTY PAYMENT SHOULD BE ALLOWED AS REVENUE EXPENDITURE AND 25% OF THE ROYALTY PAYMENT SHOULD BE TREATED AS CAPITAL EXPENDITURE. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 45 3.1. THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF LOGO CHARGES WAS RE IN NATURE AND DELETING THE ADDITION. 4.1. THE CIT(A) ERRED IN RESTRICTING THE DIS ALLOWANCE UNDER SECTION 14A TO 2% OF THE EXEMPT INCOME, PLACING RELIANCE ON THE DECISION OF THE HON BLE ITAT, CHENNAI IN THE CASE OF SUNDARAM FINANCE LTD. IN ITA NO.845 TO 847/MDS./98 DATED 2.12.2002 AND THE HON BLE ITAT, MUMBAI IN THE CASE OF GODREJ AGROV ET LTD V ACIT (2010 TIOL 616 ITAT MUM) 4.2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ISSUE HAS NOT BECOME FINAL AND OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4.3. THE CIT(A) ERRED IN HOLDING THAT RULE 8D COULD NOT BE INVOK ED IN RESPECT OF ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2008 - 09, RELYING ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO (328 ITR 81). 4.4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO (328 ITR 81) HAS NOT BECOME FINAL. WE HAVE PERUSED THE ABOVE SAID GROUNDS. IT TRANSPIRES THAT APART FROM GROUND S NOS.4.1. TO 4.4 OF THE REVENUE (SUPRA), RE ST OF THE GROUNDS ONLY PERTAIN TO THE ISSUES OF ROYALTY PA YMENT CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, WHICH HAS BEEN ACCEPTED ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 46 IN PART BY CIT(A) @ 75% INSTEAD OF DISALLOWANCE MADE BY THE ASSESSING OFFICER AT 100% AND SIMILAR CLAIM REGARDING LOGO CHARGES AS PAID BY THE ASSESSEE; WHICH WAS DISALLOWED BY T HE ASSESSING OFFICER BY TERMING IT AS CAPITAL EXPENDITURE, BUT ACCEPTED BY THE CIT(A) AS REVENUE EXPENDITURE. EVEN BOTH THE LEARNED REPRESENTATIVES HAVE FAIRLY STATED THAT THESE GROUNDS ON LEGALITY AS WELL AS ON MERITS STAND ADJUDICATED IN ITA NOS.1791 & 1 826/MDS/11 PERTAINING TO ASSESSMENT YEAR 2002 - 03(SUPRA). 35 ) WE HAVE CONSIDERED THE FAIR STATEMENTS AT THE BAR MADE BY THE BOTH THE LEARNED REPRESENTATIVES AND ALSO PERUSED THE RELEVANT FACTS OF THE CASE AND FIND THAT THE ABOVE STATEMENTS TO BE TRUE. IN VIEW OF THE FACT THAT WE HAVE ACCEPTED THE ASSESSEE S CONTENTION QUA PAYMENT ON ROYALTY AND LOGO CHARGES IN ITA NOS.1791 & 1826/MDS./11 AS REVENUE EXPENDITURE AND I N VIEW OF THE FACT THAT BOTH PLEAS ARE SQUARELY COVERED ON MERITS, WE ACCEPT THE ASSESSEE S CONTENTION OF CLAIMING ROYALTY PAYMENT TO BE REVENUE EXPENDITURE. SIMILARLY, THE CIT(A) S ORDER TREATING LOGO CHARGES AS REVENUE EXPENDITURE IS ALSO UPHELD. ACCORDINGLY, IN THESE APPEALS, THE ONLY ISSUE SURVIVES IS AS TO WHETHER THE CIT(A) HAS RIGHTLY R ESTRICTED THE DISALLOWANCE UNDER ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 47 SECTION 14A TO 2% OF THE EXEMPT INCOME INSTEAD OF DISALLOWANCE MADE B Y THE ASSESSING OFFICER ? 36 ) THE FACTS OF THE ISSUE ARE THAT IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSE E HAD SHOWN DIVIDEND INCOME OF ` 49,46,427/ - COUPLED WITH LONG TERM CAPITAL GAIN S ARISING FROM MUTUAL FUNDS OF ` 3,13,43,540/ - AS EXEMPT INCOME. THE ASSESSING OFFICER WHILST FINALIZING THE ASSESSMENT RELIED ON SPECIAL BENCH DECISION OF ITAT, MUMBAI IN CASE OF ITO VS . DAGA CAPITAL MANAGEMENT 119 TT J 289 AND MADE DISALLOWANCE OF ` 10,56,700/ - BY APPLYING RULE - 8D VIDE ASSESSMENT ORDER DATED 18.12.08 . 37) IN APPEAL PREFERRED BY THE ASSESSEE, THE CIT(A) WHILST MODIFYING THE A.O. S FINDINGS, HAS HELD AS UNDER: - I HAVE CAREFULLY CONSID E RED THE FACT S OF THE CASE AND THE SUBMISSIONS MADE BY THE LD. A.R. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE A.O AND A.R. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V DCIT, 328 ITR 81 (BOM.) HELD THAT THE NOTIFICATION N O.S.O.547(E) PRESCRIBING THE METHOD OF DETERMINING THE AMOUNT OF EXPENDITURE, UNDER SUB - SECTION OF (2) OF SECTION 14A READ WITH RULE 8D HAS COME IN FORCE FROM 24.3.08 I.E. FROM ASSESSMENT YEAR 2008 - 09. HENCE, IT IS NOT APPLICABLE FOR THE PRESENT ASSESSMEN T YEAR 2005 - ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 48 06. THE HON BLE COURT HAS, HOWEVER, HELD THAT THE A.O. CAN APPLY SEC 14A(1) ON REASONABLE BASIS FOR THE ASSESSMENT YEARS TO WHICH RULE 8D WAS NOT APPLICABLE. IT IS SEEN FROM THE DETAILS THAT THE APPELLANT HAD SHARE CAPITAL AND RESERVES OF ` 146,17,54,663/ - . ON THE OTHER HAND, THE INVESTMENT IN THE TAX - FREE INCOME TERRITORY WAS ` 46,86,10,627/ - THE APPELLANT HAS EARNED TAX FREE INCOME OF ` ` 3,62,89,967/ - SOME AMOUNT OF EXPENDITURE ON TRACKING THE INVESTMENT, ENCASHING THE DIVIDEND WARRANTS, BANK CHARGES, SALARY ON PERSONNEL OF TREASURY DEPARTMENT AS ALSO COMMON ADMINISTRATION AND GENERAL EXPENDITURE IS REQUIRED TO EARN THE EXEMPT INCOME. IT WOULD BE REASONABLE TO ESTIMATE 2% OF THE EXEMPT INCOME AS EXPENDITURE ATTRIBUTABLE TO THE DIVIDEND INCOME/INCOME FROM MU TUAL FUND. THIS IS SUPPORTED B Y THE DECISIONS OF THE HON BLE ITAT CHENNAI IN THE CASE OF SUND A RAM FINANCE LTD IN ITA NO.845 TO 847/MDS./98 DATED 02.12.2002 AND HON BLE ITAT MUMBAI IN THE CASE OF GODREJ AGROVET LTD V ACIT [2010 - TIOL - 61 6 - ITAT - MUM] HENCE, THE A.O IS DIRECTED TO DISALLOW 2 PERCENT AS EXPENDITURE IN EARNING THE EXEMPT INCOME. THIS GROUND IS PARTLY ALLOWED. THEREFORE, THE REVENUE IS AGGRIEVED. 38 ) BEFORE US, THE D.R REPRESENTING REVENUE HAS REITERATED THE SUBMISSION S M ADE IN THE GROUNDS OF APPEAL AND PRAYED FOR ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 49 RESTORING THE A.O. S ORDER. THE A.R ON THE OTHER HAND HAS SUBMITTED THAT THE HON BLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ AND BOYCE MF G. CO. LTD. IN 328 ITR 81 HAS HELD THAT RULE 8D OF THE INCOME TAX RUL ES, 1962 IS ONLY APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008 - 09 . IN ADDITION TO THIS, HE HAS DRAWN SUPPORT FROM CIT(A) S ORDER AND REASONS CONTAINED THEREIN. 39 ) WE HAVE HEARD BOTH PARTIES AT LENGTH QUA THIS ISSUE AND ALSO PERUSED THE RELEVANT F INDINGS. THE IMPUGNED ASSESSMENT YEAR IS 2005 - 06. IT IS NOTICED THAT THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE UNDER SECTION 14A HAD RELIED UP ON RULE - 8D AND THE SPECIAL BENCH DECISION OF MUMBAI ITAT(SUPRA). IT IS UNDISPUTED FACT THAT AFTER THE DEC ISION OF SPECIAL BENCH, THE HON BLE BOMBAY HIGH COU RT HAD HELD THAT RULE 8D IS APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008 - 08 I.E. NOT QUA IMPUGNED ASSESSMENT YEAR 2005 - 06. IT IS IN THE LIGHT OF SAID DECISION THAT THE CIT(A) HAS INTERFERED IN THE FI NDINGS OF THE ASSESSING OFFICER AND UPHELD THE DISALLOWANCE @ 2%(SUPRA). THOUGH IN THE GROUNDS, IT IS THE STAND OF THE REVENUE THAT THE DECISION OF HON BLE BOMBAY HIGH COURT IS YET TO ATTAIN FINALITY, BUT THIS HALF HEARTED PLEA, IN OUR OPINION, HARDLY DES ERVES ANY ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 50 ACCEPTANCE. BE THAT IT MAY, MERELY BY RAISING A PLEA, A DECISION OF HON BLE HIGH COURT DOES NOT LOOSE ITS APPLICABILITY. THEREFORE, WE HOLD THAT THE CIT(A) HAS RIGHTLY INTERFERED IN REACHING THE FINDINGS OF THE ABOVE SAID. CONSEQUENTLY, WE UPHOLD THE SAME AND DECIDE THE ISSUE IN ASSESSEE S FAVOUR. 40 ) IN VIEW OF OUR ABOVE DISCUSSION, ASSESSEE S APPEAL STANDS ALLOWED AND THAT OF THE REVENUE IS DECLINED. ITA NOS.1795 , 1829/MDS./11 (A.Y.20 06 - 07 ) 41 . THESE CROSS APPEALS BY THE ASSESSEE AN D REVENUE RESPECTIVELY, HAVE BEEN PREFERRED AGAINST COMMON ORDER OF CIT(A) III, CHENNAI PASSED IN CASE NO.585/08 - 09/A.III DATED 29.08.11 FOR ASSESSMENT YEAR 2006 - 07 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 42 . IN ASSESSEE S APPEAL, THE SOLE SUBSTANTIVE GROUND RAISED IS HEREBY REPRODUCED AS FOLLOWS. 2. THE CIT(A) ERRED IN CONFIRMING 25% OF THE ROYALTY EXPENDITURE AS CAPITAL EXPENDITURE AND THE REMAINING 75% AS REVENUE EXPENDITURE. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 51 4 2 .1. IN THE SAME MANNER, T HE SUBSTANTIAL GROUNDS IN REVENUE S APPEAL AS AGITATED ARE ALSO REPRODUCED HEREUNDER: 2.1. THE CIT(A) ERRED IN HOLDING THAT 75% OF THE ROYALTY PAYMENT SHOULD BE ALLOWED AS REVENUE EXPENDITURE AND 25% OF THE ROYALTY PAYMENT SHOULD BE TREATED AS CAPITAL EXP ENDITURE. 3.1. THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF LOGO CHARGES WAS RE IN NATURE AND DELETING THE ADDITION. 4.1. THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A TO 2% OF THE EXEMPT INCOME, PLAC ING RELIANCE ON THE DECISION OF THE HON BLE ITAT, CHENNAI IN THE CASE OF SUNDARAM FINANCE LTD. IN ITA NO.845 TO 847/MDS./98 DATED 2.12.2002 AND THE HON BLE ITAT, MUMBAI IN THE CASE OF GODREJ AGROVET LTD V ACIT (2010 TIOL 616 ITAT MUM) 4.2. THE CIT(A) OUGH T TO HAVE APPRECIATED THAT THE ISSUE HAS NOT BECOME FINAL AND OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4.3. THE CIT(A) ERRED IN HOLDING THAT RULE 8D COULD NOT BE INVOKED IN RESPECT OF ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2 008 - 09, RELYING ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO (328 ITR 81). ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 52 4.4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO (328 ITR 81) HAS NO T BECOME FINAL. 43 . BOTH THE LEARNED REPRESENTATIVES HAVE STATED AT THE BAR THAT OUR FINDINGS QUA ISSUE NO.2 IN ITA NO.1791 AND 1826/MDS./11 DECIDED HEREIN ABOVE COVER GROUND NO.2 OF THE ASSESSEE S APPEAL AND GROUNDS NOS.2.1 & 3.1. OF THE REVENUE S APPE AL I.E. PAYMENTS PERTAINING TO ROYALTY EXPENDITURE AND L OGO CHARGES WHICH HAVE BEEN HELD TO BE REVENUE EXPENDITURE IN FAVOUR OF THE ASSESSEE. FURTHER, THE PARTIES ALSO AGREE THAT QUA GROUNDS NOS.4.1 TO 4.4 AS WELL I.E. DISALLOWANCE UNDER SECTION 14A, OUR FINDINGS IN SOLE ISSUE FRAMED IN ITA NO.1828/MDS./11 PERTAINING TO ASSESSMENT YEAR 2005 - 06 (SUPRA) SQUARELY COVER THE GRIEVANCE OF THE REVENUE. 44 . WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTIES AND ALSO PERUSED T HE RELEVANT GROUNDS IN QUESTION. WE FIND THT IN A.Y 2002 - 03 APPEALS DECIDED HEREINABOVE, WE HAVE ALREADY HELD PAYMENTS OF ROYALTY AND LOGO CHARGES AS REVENUE EXPENDITURE IN FAVOUR OF THE ASSESSEE. SIMILARLY, IN ASSESSMENT Y EAR 2005 - 06, THE REVENUE HAS RAISED THIS VERY GROUND OF DISALL OWANCE UNDER ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 53 SECTION 14A , WHICH STANDS DECIDED IN FAVOUR OF THE ASSESSEE. BY FOLLOWING THE SAME ANALOGY, WE UPHOLD THE CIT(A) S ORDER IN THIS ASSE SSMENT YEAR AS WELL AND DECLINE TO INTERFERE IN WELL REASONED FINDINGS OF THE CIT(A). 45 . IN VIEW OF OUR ABOVE CONCLUSIONS, APPEAL FILED BY THE ASSESSEE IS ALLOWED WHEREAS THAT OF THE REVENUE IS HEREBY DISMISSED. ITA NOS.1796 , 1830/MDS./11 (A.Y.2007 - 08 ) 46 . THESE CROSS APPEALS; FILED AT THE BEHEST OF THE ASSESSEE AND THE REVENUE RESPECTIVELY, EMANATE FROM COMMON ORDER OF CIT(A) III, CHENNAI PASSED IN CASE NO.585/08 - 09/A .III DATED 29.08.11 FOR ASSESSMENT YEAR 2007 - 08 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 47 . IN ASSESSEE S APPEAL, THE SUBSTANTIVE GROUND S RA ISED READ AS FOLLOWS. 2. THE CIT(A) ERRED IN CONFIRMING 25% OF THE ROYALTY EXPENDITURE AS CAPITAL EXPENDITURE AND THE REMAINING 75% AS REVENUE EXPENDITURE. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 54 3. THE CIT(A) ERRED IN CONFIRMING THAT PROFIT ON SALE OF DEPB ENTITLEMENT IS NOT ELIGIBLE FOR DEDUCTI ON UNDER SECTION.80IB. 47 .1. IN THE SAME MA NNER, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 2.1. THE CIT(A) ERRED IN HOLDING THAT 75% OF THE ROYALTY PAYMENT SHOULD BE ALLOWED AS REVENUE EXPENDITURE AND 25% OF THE ROYALTY PAYMENT SHOULD BE TREATED AS CAPITAL EXPENDITURE. 3.1. THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF LOGO CHARGES WAS RE IN NATURE AND DELETING THE ADDITION. 4.1. THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A TO 2% OF THE EXEMPT INCOME, PLACING RELIANCE ON THE DECISION OF THE HON BLE ITAT, CHENNAI IN THE CASE OF SUNDARAM FINANCE LTD. IN ITA NO.845 TO 847/MDS./98 DATED 2.12.2002 AND THE HON BLE ITAT, MUMBAI IN THE CASE OF GODREJ AGROVET LTD V ACIT (2010 TIOL 616 ITAT MUM) 4.2. TH E CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ISSUE HAS NOT BECOME FINAL AND OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 55 4.3. THE CIT(A) ERRED IN HOLDING THAT RULE 8D COULD NOT BE INVOKED IN RESPECT OF ASSESSMENT YEARS PRIOR TO ASS ESSMENT YEAR 2008 - 09, RELYING ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO (328 ITR 81). 4.4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO (328 ITR 81) HAS NOT BECOME FINAL. 48 . ON BEHALF OF THE ASSESSEE, A.R HAS SUBMITTED BEFORE US THAT APART FROM GROUND NO.4 IN ASSESSEE S APPEAL, ALL OTHER ISSUES OF ROYALTY EXPENDITURE, LOGO CHARGES AND THAT OF DISALLOWANCE UNDER SECTION 14A SOUGHT TO BE RA IS ED IN BOTH APPEALS STAND ADJUDICATED AGAINST THE REVENUE BY OUR CONCLUSION S HEREIN ABOVE IN ITA NOS 1791 & 1826/MDS./11 FOR A.Y. 2002 - 03 . IT IS THE SUBMISSION OF THE A.R THAT IN THE ABOVE SAID LEAD CASE, WE HAVE ALREADY HELD THE ABOVE EXPENDITURE TO BE REVENUE IN NATURE. THEREAFTER, THE A.R HAS REFERRED TO THE SOLE ISSUE FRAMED AND DECIDED BY US IN ITA NO.1828/MDS/11 FOR A.Y.2005 - 06 PERTAINING TO DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEREIN WE HAVE UPHELD THE ORDER OF CIT(A) RESTRICTING THE DISA LLOWANCE @ 2% OF THE EXEMPT INCOME. IN THE LIGHT THEROF, THE A.R HAS SUBMITTED THAT THE SAID GROUND IS ALSO COVERED BY ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 56 OUR ABOVE DISCUSSION IN THE CONNECTED CASES DECIDED HEREIN ABOVE. 49 . THE D.R REPRESENTING THE REVENUE HAS NOT SERIOUSLY OPPOSED THE S UBMISSIONS OF THE ASSESSEE. ACCORDINGLY, SINCE THE GROUNDS RAISED ABOVE OF ROYALTY AND LOGO CHARGES AS WELL AS D ISALLOWANCE UNDER SECTION 14A ARE COVERED BY OUR DECISION HEREINABOVE, WE DECIDE THE SAME IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5 0 . NOW WE PROPOSE TO DECIDE GROUND NO.3 IN ASSESSEE S APPEAL PERTAI NING TO PROFIT ON SALE OF DEPB ENTITLEMENT, WHICH HAS NOT BEEN HELD ELIGIBLE FOR DEDUCTION UNDER SECTION 80 - IB BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). 51 . FACTS APROPOS A RE THAT IN THE ASSESSMENT, THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80 - IB OF THE ACT OF ` 1,19,29,606/ - WHICH INCLUDED INCOME FROM SALE OF DEPB ENTITLEMENT. THE ASSESSING OFFICER DECLINED THE ASSESSEE S CLAIM AND HELD THAT THOUGH THE DEPB COULD B E RELATED TO INPUTS CONSUMED, BUT SINCE THE SOURCE OF THE DEPB SOLD IS GOVERNMENT S SCHEME, THEREFORE, THE SAME CANNOT BE HELD TO ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 57 HAVE BEEN DERIVED FROM AN INDUSTRIAL UNDERTAKING. WHILST HOLDING SO, THE ASSESSING OFFICER PLACED RELIANCE ON TWO DECISIONS O F HON BLE SUPREME COURT IN THE CASE OF (I) PANDIAN CHEMICALS LTD. VS. CIT [2003] 129 TAXMAN 539 & (II) CIT VS.V.K.RAVINDRANATHAN NAIR [2007] 295 ITR 228. 52 . IN ASSESSEE S APPEAL , THE CIT(A) HAS UPHELD THE A.O. S FINDING BY OBSERVING AS UNDER: - 7.2 I H AVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY AO AND AR. I FIND THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA V. CIT, 317 ITR 218(SC) IS SQ UARELY APPLICABLE TO THE FACTS OF THE APPELLANT. THE HON'BLE SUPREME COURT IN THE ABOVE CASE HAS HELD THAT DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT FORM PART OF THE NET PROFIT OF INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 80I/80 - IA/80 - I B OF THE ACT. IT WAS HELD THAT SEC 80 - IB AND SEC 80 - IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. IT WAS FURTHER STATED THAT DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRA L GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80 - IB : THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK DO NOT FALL WITHIN THE EXPRESSION 'PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING' UNDER SECTION 80 - IB. RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 58 INCOME FROM SALE OF DEPB ENTITLEMENT IS HELD AS NOT ELIGIBLE FOR DEDUCTION U/S 80 - IB. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO IS SUSTAINED AND THE GROUND IS DISMISSED. IT IS IN THIS BACKDROP THAT THE ASSESSEE HAS RAISED ITS GR IEVANCE . 53 . BY REITERATING THE PLEA RAISED IN GROUND, A.R. HAS ASSAILED THE ORDER OF THE CIT(A) IN CONF IRMING THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER AND CONTENDED THA T THE HON BLE SUPREME COURT IN CASE OF TOPMAN EXPORTS VS. CIT [2012] 342 ITR 49 HAS HELD THAT PROFIT ON TRANSFER OF CREDIT OF DEPB IS PROFIT WITHIN THE MEANING OF SECTION 28(IIIB). IT IS FURTHER SUBMITTED BY THE A.R THAT SINCE THE A.O AS WELL AS THE CIT(A) HAVE NOT DETERMINED THE FACE VALUE OF THE DEPB SOLD AS WELL AS THE PROFIT IN ACCORDANCE WITH HON BLE SUPREME COURT JUDGMEN T, THE MAT T ER MAY BE REMITTED BACK TO THE A.O. 54 . O N THE OTHER HAND, THE REVENUE HA S STRONGLY PLACED RELIANCE ON THE ORDER OF THE CIT(A) AND PRAYED FOR REJECTION OF THE GROUND IN HAND. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 59 55 . WE HAVE HEARD BOTH PARTIES AND ALSO PERUSED RELEVANT FINDING S AS WELL AS CASE LAW CITED (SUPRA). IT EMERGES THAT THE ASSESSEE BEING AN EXPORTER WAS HAVING DEPB ( DUTY ENTITLEMENT PASS BOOK ) . IT PREFERRED TO SELL THE SAME AND STATED THE RECEIPT IN THE ASSESSMENT PROCEEDINGS BY WAY OF INCOME AND DEDUCTION/S 80 - IB OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION . THE CIT(A) HAS ALSO CONFIRMED THE ASSESSING OFFICER S FINDINGS. IT IS NOTICED THAT THE HON BLE SUPREME COURT IN THE ABOVE SAID CASE HAS HELD THAT IT IS NOT THE SALE PRICE OF DEPB OR DFRC ( DUTY FREE REPLENISHMENT CERTIFICATE ) WHICH HAS TO BE T AKEN INTO CONSIDERATION FOR THE PURPOSE OF TAXABILITY. RATHER THEIR LORDSHIPS OF THE HON BLE APEX COURT HAVE BEEN PLEASED TO HO LD THAT IT IS THE NET PROFIT INSTEAD OF SALE PRICE OF DEPB, WHICH HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ASSE SSMENT . COMING TO THE FACTS OF THE INSTANT CASE, WE SEE THAT THE A.O. AS WELL AS THE CIT(A) HAVE NOT ADVERTED TO THESE VITAL ASPECTS OF THE ISSUE INVOLVED. FACED WITH THIS SITUATION, WE DEEM IT APPROPRIATE THAT THE ASSESSING OFFICER SHALL RE - EXAMINE THE ISSUE IN ACCORDANCE WITH LAW AFTER TAKING INTO CONSIDERATION THE JUDGEMENT OF HON BLE APEX COURT QUOTED ABOVE AND PASS A FRESH ORDER AFTER GIVING ADEQUATE OPPORTUNITY ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 60 OF HEARING TO THE ASSESSEE. THE ASSESSEE WOULD ALSO BE AT LIBERTY TO LEAD COGENT EVIDENC E IN SUPPORT OF ITS CLAIM, IF ANY. 5 6 . TO SUM UP, (I) FOR A.Y. 2002 - 03, ITA NO.1791/MDS./11 BY ASSESSEE IS PARTLY ACCEPTED AND ITA NO.1826/MDS./11 BY REVENUE IS DISMISSED. (II) FOR A.Y. 2003 - 04, ITA NO.1792/MDS./11 BY ASSESSEE IS ALLOWED AND ITA NO.2027/MDS./11 BY REVENUE IS DISMISSED. (III) FOR A.Y. 2004 - 05, ITA NO.1793/MDS./11 BY ASSESSEE IS ALLOWED AND ITA NO.1827/MDS./11 BY REVENUE IS DISMISSED. (IV) FOR A.Y. 2005 - 06, ITA NO.1794/MDS./11 BY ASSESSEE IS ALLOWED AND ITA NO.1828/MDS./11 BY REVENUE IS DISMISSED. (V) FOR A.Y . 2006 - 07, ITA NO.1795/MDS./11 BY ASSESSEE IS ALLOWED AND ITA NO.1829/MDS./11 BY REVENUE IS DISMISSED. (VI) FOR A.Y. 2007 - 08, ITA NO.1796/MDS./11 BY ASSESSEE IS PARTLY ALLOWED AND ITA NO.1830/MDS./11 BY REVENUE IS REJECTED. ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 61 ORDER P R ONOUNCED ON WEDNESDAY, 31 ST THE OCTOBER, 2012 AT CHENNAI . SD/ - SD/ - (ABRAHAM P GEORGE ) ( S.S.GODARA ) ACCOUNTNT MEMBER JUDICIAL MEMBER CHENNAI, DATED 31 ST OCTOBER , 2012 . K S SUNDARAM COPY TO: ASSESSEE / AO / CIT (A) / CIT / D.R. / GUA RD FILE ITA . 1791 TO 1796 & 1826 TO 1830 /MDS/ 11 TTK 62