M/s AKZO NOBEL INDIA LTD. (Formerly known as ICI India Ltd.), Kolkata V. The DCIT, Circle - 10, Kolkata, Kolkata

ITA 1829/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9285 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 30-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2013
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: R N BAJORIA
• Keywords: Capital asset; Business income; Depreciation; Proportionate interest; Cost of acquisition; Bad and doubtful debts; Valuation report; Assessment record; Notional interest; Revised return; Capital expenditure
• Section: 143(3); 2(14); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: K OLKATA [BEFORE SHRI M. BALAGANESH, AM & SHRI PARTHA SARAT HI CHAUDHURY, JM] I.T.A NO.1829/KOL/2013 ASSESSMENT YEAR: 2006-07 AKZO NOBEL INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX, (FORMERLY KNOWN AS ICI INDIA LTD.) CIRCLE-10, KOLK ATA. (PAN: AAACI6297A) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.2121/KOL/2013 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. AKZO NOBEL INDIA LTD. CIRCLE-10, KOLKATA. (FORMERLY KNOWN AS ICI INDI A LTD.) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.1830/KOL/2013 ASSESSMENT YEAR: 2007-08 AKZO NOBEL INDIA LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, (FORMERLY KNOWN AS ICI INDIA LTD.) CIRCLE-10, KOLK ATA. (PAN: AAACI6297A) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.2122/KOL/2013 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. AKZO NOBEL INDIA LTD. CIRCLE-10, KOLKATA. (FORMERLY KNOWN AS ICI INDI A LTD.) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 02.03.2017 DATE OF PRONOUNCEMENT: 08.03.2017 FOR THE ASSESSEE: SHRI R. N. BAJORIA, SR. ADVOCA TE FOR THE REVENUE: SHRI NIRAJ KUMAR, CIT, DR ORDER PER SHRI M. BALAGANESH, AM: THESE CROSS APPEALS BY ASSESSEE AND REVENUE ARE ARI SING OUT OF SEPARATE ORDERS OF CIT(A)-XII, KOLKATA VIDE APPEAL NO. 942/CIT(A)-XII/ CIR-10/09-10 & 434/CIT(A)-XII/R- 10/10-11 DATED 11.03.2013 AND 12.03.2013 RESPECTIVE LY. ASSESSMENTS WERE FRAMED BY 2 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 DCIT & ADDL. CIT, CIRCLE-10, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEARS 2006-07 AND 2007-08 VIDE THEIR SEPARATE ORDERS DATED 31.12.2009 AND 30.12.20 10 RESPECTIVELY. SINCE BOTH THE CROSS APPEALS ARISE OUT OF THE SAME ORDER OF CIT(A), WE D ISPOSE OF THE SAME BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THERE IS A DELAY IN FILING THE APPEALS BY THE R EVENUE FOR THE ASST YEARS 2006-07 AND 2007-08 BY 2 DAYS . THE REASON ADDUCED BY THE REVE NUE IN THE CONDONATION PETITION FOR THE DELAY IS CONVINCING AND HENCE WE HEREBY CONDONE THE DELAY OF 2 DAYS AND ADMIT THOSE APPEALS FOR ADJUDICATION. DISALLOWANCE U/S 14A OF THE ACT 3. THE FACTS OF ASST YEAR 2006-07 ARE ADJUDICATED HEREIN AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR ASST YEAR 2007-08 ALSO AS THE FACTS ARE IDENTICAL EXCEPT WITH VARIANCE IN FIGURES. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 1,14,72,300/- AND INTEREST O N TAX FREE BONDS FOR RS. 4,94,677/- AND CLAIMED THE SAME AS EXEMPT U/S 10 OF THE ACT. THE A SSESSEE DID NOT DISALLOW ANY EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THI S INCOME WHICH DO NOT FORM PART OF TOTAL INCOME. ACCORDINGLY THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WAS SOUGHT TO BE INVOKED. THE ASSESSEE REPLIED THAT INVESTMENT IN ICICI BANK MUTUAL FUND FROM WHERE ASSESSEE HAD RECEIVED DIVIDEND OF RS. 1,14,72,300/- WAS MADE OUT OF OWN FUNDS OF THE ASSESSEE AND BORROWED FUNDS WERE NOT UTILIZED FOR M AKING INVESTMENTS. THE LD AO HOWEVER DID NOT AGREE TO THE CONTENTIONS OF THE ASS ESSEE AND PROCEEDED TO DISALLOW UNDER RULE 8D(2)(II) TO THE TUNE OF RS. 18,59,422/- AND U NDER RULE 8D(2)(III) TO THE TUNE OF RS. 2,12,31,500/-. ACCORDINGLY THE TOTAL DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES WORKED OUT TO RS. 2,30,90,922/-. IN APPE AL, THE LD CIT(A) BY PLACING RELIANCE ON THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD VS DCIT REPORTED IN 126 TTJ 246 (KOL TRIB) HELD THAT ONLY 1% OF EXEMPTED INCOME NEEDS TO BE DISALLOWED IN THE INSTANT CASE. AGGRIEVED, BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 3 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 GROUND NO. 1. FOR AY 2006-07 (ASSESSEE APPEAL): 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE U/S. 14A OF THE ACT. GROUND NO. 2 FOR AY 2006-07 (REVENUE APPEAL): 2. WHETHER LD. CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN ACCEPTING CLAIM OF ASSESSEE AS SLUMP SALE OF RUBBER CHEMICAL UNDERTAKING U/S. 50B CONSID ERING THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA NO.1020/KOL/ 2007 DATED 29.02.2008 AND CONCLUDED THAT THE ISSUE OF DETERMINING OPENING WDV OF PLANT & MACHINERY IS CONSEQUENTIAL TO THE ORDER PASSED FOR AY 2006-07, W HEREAS APPEAL AGAINST THE DECISION OF THE CIT(A)IN RESPECT OF ISSUE OF SALE OF RUBBER CHEMICAL UNDERTAKING IS FILED BEFORE THE HONBLE ITAT FOR AY 2006-07. GROUND NO. 1 FOR AY 2007-08 (ASSESSEE APPEAL): 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE U/S. 14A OF THE ACT. GROUND NO. 3 FOR AY 2007-08 (REVENUE APPEAL) 3. WHETHER LD. CIT(A)-XII, KOLKATA WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE U/S. 14A OF THE I. T. ACT, 1961 AT RS.41,48,626/- OUT OF TOTAL DISALLOWANCE DETERMINED AS AT RS.6,22,29,389/-. 3.2. THE LD AR ARGUED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS R.R .SEN & BROTHERS (P) LTD IN GA NO. 3019 OF 2012 I.T.A.T. NO. 243 OF 2012 DATED 4.1.201 3 . THE LD DR ALSO FAIRLY AGREED FOR ADOPTING THE SAID JUDGEMENT AND DISPOSE OFF THE ISS UE UNDER DISPUTE. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE PRO VISIONS OF RULE 8D OF THE RULES WAS INTRODUCED ONLY WITH EFFECT FROM 24.3.2008 AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO LTD VS DCIT REPORTED IN 328 ITR 81 (BOM) HAD HELD THAT THE PROVISIONS OF RULE 8D COULD BE AP PLIED ONLY FROM ASST YEAR 2008-09 AND ONWARDS AND NOT FOR THE EARLIER YEARS. HOWEVER, TH E PROVISIONS OF SECTION 14A OF THE ACT HAS BEEN INTRODUCED IN THE STATUTE WITH RETROSPECTI VE EFFECT FROM 1.4.1962 AND ACCORDINGLY SOME EXPENDITURE IS REQUIRED TO BE DISALLOWED U/S 1 4A OF THE ACT FOR ASST YEARS PRIOR TO ASST YEAR 2008-09. WE FIND THAT THE ISSUE UNDER DIS PUTE IS SETTLED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS R.R.SEN & BROTHERS (P) LTD IN GA NO. 3019 OF 2012 I.T.A.T. NO. 243 OF 2012 DATED 4.1 .2013 WHEREIN IT WAS HELD THAT 1% OF EXEMPTED INCOME SHOULD HAVE TO BE DISALLOWED U/S 14 A OF THE ACT FOR ASST YEARS PRIOR TO ASST YEAR 2008-09. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT ONLY 1% OF EXEMPTED INCOME IS TO BE DISALLOWED U/S 14A OF THE ACT. WE FIND THAT THE LD CIT(A) IN 4 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 THE INSTANT CASE HAD RIGHTLY DIRECTED THE LD AO TO DISALLOW 1% OF EXEMPTED INCOME. HENCE WE HOLD THAT THE ORDER OF THE LD CIT(A) IN THIS REG ARD DOES NOT CALL FOR ANY INTERFERENCE. HENCE, GROUND NO.1 RAISED BY THE ASSESSEE FOR THE A SST YEARS 2006-07 AND 2007-08 IS DISMISSED AND GROUND NO. 2 RAISED BY THE REVENUE FO R THE ASST YEAR 2006-07 AND GROUND NO. 3 RAISED BY THE REVENUE FOR THE ASST YEAR 2007- 08 IS DISMISSED. 4. ADDITION UNDER SECTION 41(2) OF THE ACT IN RESPE CT OF SALE OF RUBBER CHEMICALS BUSINESS AND BANGALORE LAND AND DISALLOWANCE OF DEPRECIATION THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE DURING THE YEAR SOLD ITS RUBBER CHEMICALS BUSINESS TO PMC RUBBER CHEMICAL INDIA LTD AS A GOIN G CONCERN ON SLUMP SALE BASIS WITH EFFECT FROM 28.12.2005, A JOINT VENTURE COMPANY (JV ) BETWEEN PMC GROUP INTERNATIONAL INC. USA AND THE ASSESSEE COMPANY WITH 51% AND 49% SHARE IN THE JV RESPECTIVELY. FOR THE TRANSFER OF THE BUSINESS, THE ASSESSEE COMPANY SHALL BE ENTITLED FOR CASH CONSIDERATION OF RS 818 LAKHS AND SECURITIES OF RS 982 LAKHS (FAC E VALUE PLUS PREMIUM COMPONENT) CONSISTING OF EQUITY SHARES AND OPTIONALLY CONVERTI BLE DEBENTURES. IN ADDITION, THE ASSESSEE COMPANY WILL ALSO BE ENTITLED TO RECEIVE CONSIDERAT ION AS EARN OUTS AGGREGATING TO A MAXIMUM OF RS 360 LAKHS , IF THE PERFORMANCE DURING THE THREE YEAR PERIOD 2005-06 TO 2007-08 EXCEEDS CERTAIN PERFORMANCE PARAMETERS. WI TH ONLY PROVISIONAL FIGURES OF PERFORMANCE OF RUBBER CHEMICALS BUSINESS DURING THE YEAR BEING AVAILABLE AND IN THE ABSENCE OF CERTAINTY ABOUT THE ACTUAL PERFORMANCE M EETING THE AFORESAID PARAMETERS FOR THE RESPECTIVE YEARS AND FOLLOWING A PRUDENT ACCOUNTING POLICY, THE SECURITIES AND ADDITIONAL CONSIDERATION AS STATED ABOVE WERE TAKEN AT NIL VAL UE IN THE BOOKS OF ACCOUNTS AND ACCORDINGLY THE SAME HAS NOT BEEN CONSIDERED WHILE CALCULATING THE CAPITAL LOSS ON TRANSFER OF BUSINESS. IT WAS EXPLAINED THAT AS PER TERMS O F THE SALE AGREEMENT, THE CONSIDERATION RECEIVED BY THE ASSESSEE COMPANY INCLUDED SECURITIE S OF RS 982 LAKHS CONSISTING OF EQUITY SHARES AND OPTIONALLY CONVERTIBLE DEBENTURES, WHICH WERE SUBJECT TO PUT AND CALL RIGHTS TO THE COMPANY AND PMC, RESPECTIVELY AND THE VALUAT ION OF WHICH WERE CONTINGENT ON CERTAIN PERFORMANCE PARAMETERS TO BE ACHIEVED BY PM C-RC DURING THE YEARS 2005-06 AND 2006-07. DURING THE YEAR 2006-07, THE COMPANY HAS EXERCISED ITS PUT OPTION RIGHT IN RESPECT OF THE 10,00,000 EQUITY SHARES HELD BY IT O N 31 JANUARY 2007 AT NIL VALUE IN VIEW 5 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 OF PMC-RC NOT HAVING MET THE AFORESAID PERFORMANCE FOR 2005-06. THE COMPANY ALSO EXERCISED ITS OPTION TO CONVERT THE OPTIONALLY CONV ERTIBLE DEBENTURES OF FACE VALUE RS 5,98,50,000 INTO 6,44,450 EQUITY SHARES FOR A PRE-A GREED PRICE OF RS 92.87 PER SHARE. THE REALIZABLE VALUE OF THESE SHARES WERE CONTINGENT ON THE ACHIEVEMENT OF CERTAIN PERFORMANCE PARAMETERS BY PMC-RC DURING 2006-07. B ASED ON THE PERFORMANCE IN 2006- 07, THESE SHARES HAVE BEEN CONSIDERED AT NIL VALUE IN THE BOOKS OF ACCOUNTS. PENDING COMPLETION OF CONVERSION FORMALITIES, THE CONVERTIB LE DEBENTURE WERE SHOWN IN SCHEDULE 4 OF THE PUBLISHED ACCOUNTS AT ITS ORIGINAL TERMS OF ISSUE. PURSUANT TO THE ABOVE, THE COMPANYS SHAREHOLDING IN PMC-RC STOOD REDUCED TO 2 4% . IN ADDITION TO THE ABOVE, THE COMPANY WAS ALSO ENTITLED TO RECEIVE CONSIDERATION AS EARN OUTS AGGREGATING TO A MAXIMUM OF RS. 360 LAKHS, IF THE PERFORMANCE OF RMC -PC DURING THE THREE YEAR PERIOD 2005-06 TO 2007-08 EXCEEDED CERTAIN PERFORMANCE PAR AMETERS. IN RESPECT OF THIS, NO EARN OUT WAS EARNED FOR THE YEAR 2005-06 TO 2007-08. 4.1. FROM THE ABOVE, IT WOULD BE CLEAR FROM THE DE VELOPMENTS SUBSEQUENT TO SALE OF THE RUBBER CHEMICALS BUSINESS OF THE COMPANY AS A GOING CONCERN WITH EFFECT FROM 28 TH DEC 2005 , THE COMPANY DID NOT REALIZE ANY ADDITIONAL C ONSIDERATION AND THEREFORE THE SALE OF RUBBER CHEMICALS BUSINESS AS A GOING CONCERN RESULT ED ONLY IN THE LOSS OF RS. 1857 LACS AS PER THE COMPUTATION SHEET SHOWN IN THE RETURN OF IN COME. THE ASSESSEE IN SUPPORT OF HIS CONTENTIONS FILED THE FOLLOWING DOCUMENTS BEFORE TH E LD AO :- A) COPY OF BUSINESS TRANSFER AGREEMENT BETWEEN ASSESSE E AND PMC GROUP INTERNATIONAL INC FOR SALE OF RUBBER CHEMICALS BUSI NESS AS A GOING CONCERN FOR A SLUMP PRICE B) SHAREHOLDERS AGREEMENT PERTAINING TO SALE OF RUBBER CHEMICALS BUSINESS. C) STATEMENT SHOWING DETAILS OF WRITTEN DOWN VALUE (WD V) BLOCKWISE RELATING TO SALE OF RUBBER CHEMICALS BUSINESS. 4.2. IT WAS ALSO POINTED OUT THAT IN RESPECT OF TH E EQUITY SHARES AND OPTIONALLY CONVERTIBLE DEBENTURES, THE PUT AND CALL RIGHTS TO THE COMPANY AND PMC GROUP INTERNATIONAL INC. RESPECTIVELY ARE EXPLAINED IN CL AUSE 18.4 OF THE SHAREHOLDERS AGREEMENT. IN ACCORDANCE WITH THE SAID CLAUSE, THER E WAS NO FURTHER CONSIDERATION FOR THE SHARES PAYABLE BY PMC GROUP INTERNATIONAL INC. AS T HE BUSINESS DID NOT EARN THE MINIMUM 6 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 EARNINGS BEFORE INTEREST, DEPRECIATION AND TAX (EBI DTA) IN RESPECT OF (BOTH THE FIRST LOT OR THE SECOND LOT) OF SHARES. 4.3. THE LD AO SOUGHT TO ADOPT THE TOTAL SALE CONS IDERATION ON TRANSFER OF RUBBER CHEMICALS BUSINESS AT RS. 21.6 CRORES (8.18 + 9.82 + 3.60) . THE ASSESSEE OBJECTED TO THE SAME AND REITERATED THAT ONLY CASH CONSIDERATION OF RS 8.18 CRORES IS TO BE TAKEN WHILE COMPUTING THE LOSS ON TRANSFER OF RUBBER CHEMICALS BUSINESS AND OTHER TWO CONSIDERATIONS STATED WERE NEVER REALIZED BY THE AS SESSEE. IT WAS EXPLAINED THAT THE COST OF ACQUISITION FOR THE COMPUTATION OF CAPITAL LOSS OF RUBBER CHEMICALS BUSINESS WAS TAKEN FROM THE FIXED ASSETS SCHEDULE WHICH GIVES THE WDV FOR EACH OF THE BLOCK OF ASSETS AND THE WORKING CAPITAL DETAILS AS PER AUDITED ACCOUNTS . IT WAS PLEADED THAT SINCE THE RUBBER CHEMICALS BUSINESS WAS AN UNDERTAKING WITHIN THE ME ANING OF EXPLANATION 1 TO SECTION 2(19AA) OF THE ACT AND THE TRANSFER OF THE UNDERTAK ING WAS ON SLUMP SALE TO ANOTHER COMPANY, THE SAME WOULD HAVE TO BE TREATED AS SLUMP SALE OF UNDERTAKING U/S 50B OF THE ACT. IT WAS PLEADED THAT THE SHAREHOLDING OF 49% B Y THE ASSESSEE IN THE JOINT VENTURE COMPANY TO WHICH THE UNDERTAKING HAS BEEN SOLD AS A SLUMP SALE IN NO WAY VITIATES THE NATURE OF THE TRANSACTION BEING SLUMP SALE OF THE B USINESS UNDERTAKING U/S 50B OF THE ACT. 4.4. THE LD AO ADOPTED THE SALE CONSIDERATION OF R UBBER CHEMICALS BUSINESS AT RS. 21.6 CRORES. IN ADDITION, HE ALSO CONSIDERED THE S ALE CONSIDERATION FOR THE LAND AT RS. 22.94 CRORES BASED ON THE CONVEYANCE DEED DT 29.10.2007 F OR THE SAID LAND AND ADJUSTED THE SAME AGAINST THE WDV OF BUILDING AND COMPUTED DEEMED SHO RT TERM CAPITAL GAINS U/S 50 OF THE ACT. THE LD AO DID NOT AGREE TO THE CONTENTION OF T HE ASSESSEE THAT THE RUBBER CHEMICALS BUSINESS UNDERTAKING WAS SOLD ON SLUMP SALE BASIS. ONE OF THE REASONS CITED BY THE LD AO FOR DISALLOWING THE SLUMP SALE WAS REGISTRATION OF LAND BY THE ASSESSEE IN FAVOUR OF THE PURCHASER POST THE SLUMP SALE. HE ACCORDINGLY PROC EEDED TO INVOKE THE PROVISIONS OF SECTION 41(2) OF THE ACT AND BROUGHT THE SAME AS BU SINESS INCOME BY INCREASING THE SALE CONSIDERATION FIGURE WHICH APPARENTLY INCLUDED CONS IDERATION IN THE FORM OF SHARES , OPTIONALLY CONVERTIBLE DEBENTURES AND EARN OUTS B ASED ON FUTURE PERFORMANCES. WHILE WORKING OUT THE PROFIT IN TERMS OF SECTION 41(2) OF THE ACT, THE LD AO ALSO INCLUDED THE SALE CONSIDERATION IN RESPECT OF SALE OF BANGALORE LAND TO THE TUNE OF RS. 98,35,830/- AND SALE OF BELVEDERE ESTATE TO THE TUNE OF 70,00,000/- . 7 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 4.5. THE BRIEF FACTS IN RESPECT OF SALE OF BANGALO RE LAND AND BELVEDERE ESTATE ARE THAT THE ASSESSEE SOLD ITS VACANT LANDS AT BANGALORE FOR RS. 98,35,830/- AND SINCE THE COST OF ACQUISITION OF THE SAID LANDS COULD NOT BE TRACED I N ITS BOOKS, THE ASSESSEE OFFERED THE ENTIRE SALE CONSIDERATION TO CAPITAL GAINS. SIMILARLY THE ASSESSEE HAD LAND AND BUILDING AT BELVEDERE ESTATE WHICH WAS SOLD FOR RS 70,00,000/- AND DISCLOSED LONG TERM CAPITAL LOSS TO THE TUNE OF RS. 58,19,463/- PURSUANT TO INDEXATI ON BENEFIT. ACCORDINGLY, IT OFFERED THE NET LONG TERM CAPITAL GAINS OF RS. 40,16,367/- ( 98 ,35,830 58,19,463) FROM BOTH BANGALORE LANDS AND BELVEDERE ESTATE IN THE RETURN OF INCOME. 4.6. THE LD AO OBSERVED THAT THE ASSESSEE HAD CLAI MED DEPRECIATION OF RS. 1,69,870/- ON RESIDENTIAL BUILDING AND RS. 2,03,21,534/- ON NON -RESIDENTIAL BUILDING. AS THE BLOCK OF ASSETS WITH RESPECT TO BUILDING RESIDENTIAL AND BU ILDING NON RESIDENTIAL HAVE BEEN REDUCED TO NIL AFTER TAKING INTO CONSIDERATION THE SALE CONSIDERATION WITH RESPECT TO RUBBER CHEMICALS BUSINESS AS PER REGISTERED DEED, HENCE TH E DEPRECIATION OF RS. 1,69,870/- AND RS. 2,03,21,534/- ARE NOT ALLOWABLE. ACCORDINGLY, THE DEPRECIATION CLAIMED BY THE ASSESSEE TO THE TUNE OF RS. 2,04,91,404/- WAS DISAL LOWED. SIMILARLY THE LD AO DISALLOWED THE DEPRECIATION ON PLANT AND MACHINERY, COMPUTER A ND FURNITURE TO THE TUNE OF RS. 1,84,15,641/- IN THE ASSESSMENT BY APPLYING THE PRO VISIONS OF SECTION 41(2) OF THE ACT AND BY INCREASING THE SALE CONSIDERATION FOR SALE OF RU BBER CHEMICALS BUSINESS. 4.7. THE LD AO OBSERVED THAT THE ASSESSEE SOLD SE VERAL OF ITS BUSINESS UNDERTAKINGS IN THE PAST ASSESSMENT YEARS AND CLAIMED CAPITAL GAIN / LOSS U/S 45 READ WITH SECTION 48 OF THE ACT. FOR THE RELEVANT YEAR ALSO DEPRECIATION WAS C LAIMED ON THE WOODLANDS PROPERTIES WHEREIN THE RESIDENTIAL BLOCK HAVE BEEN REDUCED TO NIL IN THE PAST ASSESSMENT YEARS. AS THE DEPARTMENT HAS TREATED SALE OF THE UNDERTAKING U/S 50 OF THE ACT , THE DEPRECIATION CLAIMED BY THE ASSESSEE WAS DISALLOWED IN THE PAST ASSESSMENT YEARS BASED ON THE WDV OF THE BLOCK OF ASSETS ARRIVED AT AFTER SETTING OFF OF THE SALE CONSIDERATION OF THE UNDERTAKING TRANSFERRED. FOR THE CURRENT YEAR, THE ASSESSEE CL AIMED DEPRECIATION OF RS. 15,42,44,890/- AS PER COMPUTATION WHEREAS AS PER REDUCED WDV ADOP TED BY THE DEPARTMENT, THE DEPRECIATION COMES TO RS. 14,53,81,853/-. IT WAS ALSO MENTIONED THAT THE ASSESSMENT MADE ON THIS ISSUE IN THE EARLIER YEARS HAD NOT REA CHED FINALITY AS THE SAME IS PENDING IN 8 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 APPEAL. IN ORDER TO MAINTAIN CONSISTENCY FOR THE TIME BEING, THE DIFFERENCE OF RS. 88,63,037/- (15,42,44,890 14,53,81,853) WAS DISAL LOWED ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE. 4.8. THE LD AO INVOKED THE PROVISIONS OF SECTION 4 1(2) OF THE ACT AND INCLUDED THE VALUE OF SALE CONSIDERATION OF BELVEDERE ESTATE AND THAT OF BANGALORE LAND TO THE INCREASED TOTAL SALE CONSIDERATION OF RUBBER CHEMI CALS BUSINESS AND ARRIVED AT THE PROFIT OF RS. 3,50,65,913/- U/S 41(2) OF THE ACT. 4.9. BEFORE THE LD CIT(A), THE ASSESSEE STATED THA T THE FIRST ALLEGATION LEVELED BY THE LD AO THAT THE TRANSFER OF ITS RUBBER CHEMICAL BUSINES S TO PMC RUBBER CHEMICAL INDIA PVT LTD AS A GOING CONCERN ON SLUMP SALE BASIS CAN UNDE R NO STRETCH OF IMAGINATION BE STATED THAT THE SALE WAS MADE TO SELF. IT WAS ARGUED THAT THE SAID COMPANY IS A JOINT VENTURE BETWEEN THE ASSESSEE AND PMC GROUP WITH 49% STAKE O F THE ASSESSEE IN THE JOINT VENTURE COMPANY AND WAS REGISTERED WITH THE REGISTRAR OF CO MPANIES SEPARATELY AND AS SUCH IT IS A SEPARATE LEGAL ENTITY UNDER THE COMPANIES ACT, 1956 . THUS THE TRANSFER OF RUBBER CHEMICAL BUSINESS BY THE ASSESSEE TO A SEPARATE COM PANY HAVING A SEPARATE LEGAL ENTITY CANNOT BE STATED THAT THE TRANSFER WAS MADE BY THE ASSESSEE TO SELF. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PREMIER AUTOMOBILES LTD VS ITO REPORTED IN 264 ITR 193 (BOM ) WHEREIN THE HONBLE COURT APPROVED THE SALE OF THE UNDERTAKING TO A JOINT VEN TURE COMPANY IN WHICH SELLER HAD A STAKE. WITH REGARD TO THE SECOND ALLEGATION LEVEL ED ON THE ASSESSEE THAT SALE DEED HAS BEEN REGISTERED BY THE ASSESSEE IN RESPECT OF LAND AND BUILDING AND HENCE INDIVIDUAL VALUES COULD BE ASSIGNED TO INDIVIDUAL ASSETS SO AS TO FAL L OUTSIDE THE AMBIT OF SLUMP SALE, IT WAS ARGUED DURING THE REMAND PROCEEDINGS BEFORE THE LD AO THAT IN RESPECT OF REGISTRATION OF LAND BY THE ASSESSEE IN FAVOUR OF THE PURCHASER POS T THE SLUMP SALE, WHICH WAS ONE OF THE REASON FOR THE LD AO TO DISALLOW THE SLUMP SALE, RE LIED ON THE PROVISIONS OF EXPLANATION 2 TO SECTION 2(42C) OF THE ACT WHICH READ AS UNDER:- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT THE DETERMINATION OF THE VALUE OF AN ASSET OR LIABILITY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY, REGISTRATION FEES OR OTHER SIMILAR TAXES OR FEES SHALL NOT BE REGARDED A S ASSIGNMENT OF VALUES TO INDIVIDUAL ASSETS OR LIABILITIES. 9 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 ACCORDINGLY, IT WAS ARGUED THAT LAND VALUE REGISTRA TION SHOULD NOT COME IN THE WAY OF SALE OF UNDERTAKING BEING TREATED AS SLUMP SALE SINCE TH IS EXCEPTION HAS BEEN CARVED OUT IN THE STATUTE ITSELF. THE ASSESSEE ALSO PLACED RELIANCE O N THE DECISION OF THE CO-ORDINATE BENCH OF PUNE TRIBUNAL IN THE CASE OF J.B.ELECTRONICS VS JCI T REPORTED IN 130 TTJ 240 (PUNE TRIB) , WHEREIN IT WAS HELD THAT THE QUESTION OF TREATING A SALE AS AN ITEMIZED SALE OF ASSETS ARISES ONLY WHEN SALE CONSIDERATION OF THE BUSINESS IS COM PUTED ON THE BASIS OF VALUES OF SPECIFIC ASSETS AND LIABILITIES. UNLESS, THEREFORE, IT CAN BE ESTABLISHED THAT THE SALE CONSIDERATION IS COMPUTED ON THE BASIS OF VALUE OF SPECIFIC ASSETS A ND LIABILITIES, THE QUESTION OF TREATING THE SALE AS AN ITEMIZED SALE DOES NOT ARISE. IN THE PR ESENT CASE, IT IS AMPLY CLEAR THAT SALE CONSIDERATION OF THE BUSINESS HAS NOT BEEN COMPUTED ON THE BASIS OF VALUES OF SPECIFIC ASSETS AND LIABILITIES AND HENCE, BY NO STRETCH OF IMAGINATION, IT COULD BE STATED THAT THE PRESENT CASE IS A CASE OF ITEMIZED SALE. ACCORDING LY BOTH THE ALLEGATIONS LEVELED BY THE LD AO WERE ASSAILED BY THE AFORESAID ARGUMENTS BY THE ASSESSEE. 4.9.1. WITH REGARD TO THE ADOPTION OF INCREASED SAL E CONSIDERATION OF RS. 21.6 CRORES BY THE LD AO AS AGAINST THE REAL CASH CONSIDERATION OF RS. 8.18 CRORES, THE ASSESSEE ARGUED THAT TRANSFERRED UNDERTAKING DID NOT ULTIMATELY REACH TH E DESIRED EBDITA MARGIN DUE TO WHICH THE ASSESSEE HAD TO EXERCISE PUT OPTION AND THE SHA RES WERE VALUED AT NIL VALUE. FURTHER THE ASSESSEE ALSO DID NOT RECEIVE ANY EARN OUTS F OR THE SAME REASON. HENCE THE CONSIDERATION OF RS. 9.82 CRORES AND RS. 3.60 CRORE S THEREON RESPECTIVELY WERE NEVER RECEIVED BY THE ASSESSEE. THE ASSESSEE PLACED RELIA NCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS GILLANDERS ARBUTHNOT & CO REPORTED IN 87 ITR 407 (SC) WHEREIN THE HONBLE APEX COURT HAD HELD THAT THE EX PRESSION FULL VALUE OF CONSIDERATION CANNOT BE CONSTRUED AS THE MARKET VALUE BUT AS THE PRICE BARGAINED FOR BY THE PARTIES TO THE SALE. THE DICTIONARY MEANING OF THE WORD FULL IS WHOLE OR ENTIRE OR COMPLETE. THE WORD FULL HAS BEEN USED IN THIS SECTION IN CONTRA ST TO A PART OF THE PRICE . THE EXPRESSION FULL VALUE MEANS THE WHOLE PRICE WITHO UT ANY DEDUCTION WHATSOEVER AND IT CANNOT REFER TO THE ADEQUACY OR INADEQUACY OF THE P RICE BARGAINED FOR, NOR HAS ANY NECESSARY REFERENCE TO THE MARKET VALUE OF THE CAPI TAL ASSET WHICH IS THE SUBJECT MATTER OF THE TRANSFER. THE ASSESSEE ALSO IMPRESSED UPON T HE LD CIT(A) ON THE REAL INCOME THEORY AND PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SHOORJI VALLABHDAS AND CO REPORTED IN 46 ITR 144 (S C) IN THAT REGARD. BASED ON THESE 10 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 SUBMISSIONS, THE ASSESSEE IMPRESSED UPON THE LD CIT (A) TO ADOPT THE SALE CONSIDERATION ONLY AT RS. 8.18 CRORES ON TRANSFER OF RUBBER CHEMI CAL BUSINESS AS THE ASSESSEE HAD NOT RECEIVED ANY AMOUNT FROM SECURITIES AND EARN OUTS FROM PMC AS THE PERFORMANCE PARAMETERS WERE NOT MET. THE ASSESSEE ALSO PLACE D RELIANCE ON THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN ITS OWN CASE FOR ASST YEAR 1994-95 WHEREIN THIS TRIBUNAL HAD HELD THAT THE SALE OF FERTILIZER / FIBRE UNDERT AKING IN THE FINANCIAL YEAR AS A GOING CONCERN WAS A SLUMP SALE AND NOT AN ITEMIZED SALE. IT WAS ALSO POINTED OUT THAT BY PLACING RELIANCE ON THE SAID TRIBUNAL ORDER FOR AY 1994-95, THE LD CIT(A) HAD ACCEPTED THE CONTENTION OF THE ASSESSEE THAT ALL THE UNDERTAKING SALES IN PAST YEARS WERE SLUMP SALE WHILE DISPOSING OFF THE APPEAL FOR ASST YEAR 2005-0 6. 4.9.2. IT WAS ALSO STATED THAT THE LD AO OUGHT TO H AVE ADOPTED SALE CONSIDERATION ONLY TO THE EXTENT OF RS 8.18 CRORES BASED ON REAL INCOME THEOR Y AND NOT THE NOTIONAL CONSIDERATION WHICH WAS NEVER RECEIVED BY THE ASSESSEE SINCE PERF ORMANCE PARAMETERS IN SUBSEQUENT YEARS WERE NOT MET. IT WAS STATED THAT AFTER TR EATING THE SLUMP SALE AS ITEMIZED SALE OF ASSETS, THE LD AO REWORKED THE DEPRECIATION AND DIS ALLOWED THE SAME. IN THE REMAND PROCEEDINGS, THE LD AO ACCEPTED TO THE CONTENTIONS OF THE ASSESSEE BY CONCLUDING AS UNDER:- COMMENTS COMBINED READING OF THE ITAT ORDER FOR AY 1994-95 A ND THE CASE OF PREMIER AUTOMOBILES, BRINGS OUT THAT TRANSFER TO A COMPANY IN WHICH ASSESSEE HAS 49% STAKE SHOULD NOT COME IN THE WAY OF THE TRANSACTION BEING TREATED AS A SLUMP SALE. FURTHER, IT MAY ALSO BE STATED THAT AS PER EXPLANAT ION 2 TO SEC. 42C, THE DETERMINATION OF THE VALUE OF AN ASSET OR LIABILITY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY, REGISTRATION FEES ETC SHALL NOT BE REGA RDED AS ASSIGNMENT OF VALUES FOR INDIVIDUAL ASSETS. CONSEQUENTLY, IF THE TRANSACTIO N IS TREATED AS A SLUMP SALE, THE DEPRECIATION WOULD REVERT TO THE AMOUNT ORIGINALLY CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. THE A.O. HAS ALSO PROVIDED RELIEF FOR AY 1995-96, AY 1996-97 AND AY 1997-98 ON THE BASIS OF THE ITAT ORDER FOR A Y 1994-95. 4.9.3. IN RESPECT OF TREATMENT OF SALE OF BANGALORE LAND AS BUSINESS INCOME, THE LD AO IN HIS REMAND REPORT STATED AS UNDER:- ADDITIONAL GROUND NO. 13 TREATING SALE OF BANGALORE LAND AS BUSINESS INCOME FOR AY 2006-07 THE ASSESSEE TREATED THE GAINS ARISI NG FROM THE SALE OF BANGALORE PROPERTY AS INCOME UNDER THE HEAD CAPITAL GAINS. THE AO WHILE PASSING THE ORDER ISSUED UNDER SECTION 143(3) OF THE ACT TREATE D THE GAINS FROM THE SALE OF THE 11 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 BANGALORE LAND AS BUSINESS INCOME BY REDUCING THE SALE VALUE OF THE LAND FROM THE WDV OF THE BUILDING USED FOR THE PURPOSE OF THE BUSINESS UNDER SECTION 41(2) OF THE ACT WITHOUT ASSIGNING ANY REASONS IN THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT. ASSESSEES SUBMISSION: LAND IS A CAPITAL ASSET WITHIN THE MEANING OF SEC TION 2(14) OF THE ACT AND ANY GAINS ARISING FROM THE SALE OF LAND IS TO BE TREATE D AS INCOME UNDER THE HEAD CAPITAL GAINS. THE AO WITHOUT ANY REASONS ERRONEOUSLY TREATED THE PROCEEDS AS BUSINESS INCOME UNDER SECTION 41(2) OF THE ACT. COMMENTS THERE IS NO REASONING GIVEN BY THE AO IN HIS ORDER. THE COMMENTS OF THE ASSESSEE MAY BE CONSIDERED. 4.9.4. IN RESPECT OF DISALLOWANCE OF DEPRECIATION, IT WAS POINTED OUT THAT WHAT HAS BEEN SOLD ALWAYS HAS BEEN AN UNDERTAKING ALONG WITH ALL THE RELATED ASSETS AND LIABILITIES WITHOUT ASSIGNMENT OF VALUES TO INDIVIDUAL ASSETS / LIABILI TIES. HENCE THE SAME NEED TO BE TREATED AS A SLUMP SALE UNDER THE PROVISIONS OF THE ACT. TH E ASSESSEE PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS OWN CASE FOR THE ASST YEAR 1997-98 WHEREIN THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSES SEE PERTAINING TO OPENING WDV. IT WAS ALSO MENTIONED THAT THE LD CIT(A) FOR ASST YEAR 199 4-95 AND 1996-97 HAD ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE SALE OF UNDERTA KING IS A SLUMP SALE AND NOT SALE OF INDIVIDUAL ASSETS. FURTHER, IN AY 2000-01 , 2001-0 2 , 2003-04 , 2004-05 AND 2005-06, THE LD CIT(A) HAD DIRECTED THE LD AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON ADJUSTED WDV OF THE ASSETS CONSIDERING THAT THE PAS T SALES SHOULD BE REGARDED AS SLUMP SALE. SIMILAR DIRECTION WAS PRAYED FOR THE YEARS U NDER APPEAL ALSO BY THE ASSESSEE BEFORE THE LD CIT(A). 4.9.5. THE LD CIT(A) IN RESPECT OF ISSUES RAISED B EFORE HIM VIDE GROUNDS 1 TO 5 TOGETHER AGAINST THE ADDITION OF RS. 3,50,65,913/- U/S 41(2) OF THE ACT GRANTED RELIEF TO THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF THIS TRIBUNA L IN ASSESSEES OWN CASE FOR THE ASST YEAR 1994-95. 12 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 WITH REGARD TO THE DISALLOWANCE OF RS. 88,63,037/- ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON THE WDV OF THE BLOCK OF ASSETS , TH E LD CIT(A) OBSERVED THAT THE DETAILS FILED BY THE ASSESSEE WERE SENT TO LD AO FOR REMAND WHO HAD AGREED TO THE CONTENTIONS OF THE ASSESSEE IN THE REMAND PROCEEDINGS THAT THE ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL FOR ASST YEARS 1997-9 8 AND 2004-05. ACCORDINGLY, THE LD CIT(A) GRANTED RELIEF TO THE ASSESSEE IN THIS REGAR D. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUNDS : GROUND NOS. 1 & 3 OF REVENUE APPEAL FOR AY 2006-0 7: 1. WHETHER LD. CIT(A)-XII, KOLKATA WAS JUSTIFIED IN AC CEPTING CLAIM OF ASSESSEE AS SLUMP SALE OF RUBBER CHEMICAL UNDERTAKING U/S. 50B CONSID ERING THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 1020/KOL /2007 DATED 29.02.2008, WHEREAS APPEAL WAS FILED AGAINST THE HONBLE ITATS DECISIO N FOR AY 1997-98. 3. WHETHER LD. CIT(A)-XII, KOLKATA WAS JUSTIFIED IN ACCEPTING ASSESSEES CLAIM OF DEPRECIATION RS.88,63,037/- ON THE BASIS OF HONBLE ITAT KOLKATAS DECISION IN ASSESSEES OWN CASE FOR AY 1997-98, WHEREAS APPEAL WAS FILED AGAINST THE HONBLE ITATS DECISION FOR AY 1997-98. 4.9.6. THE ASSESSEE STATED THAT THE SALE CONSIDERAT ION OF RS. 98,35,830/- HAS BEEN INCLUDED IN THE TOTAL ADDITION FIGURE U/S 41(2) OF THE ACT I N THE SUM OF RS. 3,50,65,913/- BY TREATING THE SALE CONSIDERATION OF BANGALORE LAND AS PART OF SALE OF RUBBER CHEMICALS BUSINESS. INFACT THE RUBBER CHEMICALS BUSINESS WAS SOLD TO PM C GROUP AND WHERE AS BANGALORE LAND WAS SOLD TO ADVANTA INDIA LTD, WHICH IS A SEP ARATE LEGAL ENTITY AND NOT CONNECTED WITH PMC GROUP. THE LD AO ERRONEOUSLY CLUBBED BOT H THE SALE TRANSACTIONS OF RUBBER CHEMICALS BUSINESS AND SALE OF BANGALORE LAND AND BROUGHT THE SAME TO TAX U/S 41(2) OF THE ACT. THE ASSESSEE PLEADED THAT THE SALE OF BAN GALORE LAND SHOULD BE BROUGHT TO TAX ONLY UNDER THE HEAD CAPITAL GAINS. IT WAS STATED THAT THE PROPERTY AT BANGALORE COMPRISED ONLY OF LAND AND NO BUILDING WAS ATTACHED THEREON AND HENCE THE ENTIRE CONSIDERATION OF RS. 98,35,830/- WAS RIGHTLY ATTRIBUTED TOWARDS LAND PORTION BY THE ASSESSEE. THE LD AO TREATED THE GAINS ARISING FROM SALE OF BANGALORE LA ND AS BUSINESS INCOME AS REDUCING THE SALE VALUE OF THE LAND FROM THE WDV OF THE BUILDING USED FOR THE PURPOSE OF BUSINESS U/S 41(2) OF THE ACT. THE LD CIT(A) NEGATIVED THE CON TENTIONS OF THE ASSESSEE BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE FINDING OF THE A.O. AND THE WRITTEN SUBMISSION FILED BY THE A.R. I THINK THE ASSESSEE SHOULD NOT BE ALLOWED TO TAKE ADVANTAGE ON SIMILAR ISSUES 13 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 ON TWO DIFFERENT OCCASIONS DIFFERENTLY. FLAT IS AL SO A CAPITAL ASSET, BUT ON THE SALE OF FLAT AT BELVEDERE ESTATE THE ASSESSEE HAS BIFURCATE D THE RECEIPT ON ALDN AND BUILDING SEPARATELY AND CITING VARIOUS CASE LAWS ON THIS ISS UE, TAKEN ADVANTAGE FOR THE SAME. HERE ALSO THE LAND AND BUILDING AT BANGALORE WERE U SED FOR BUSINESS PURPOSES. THEREFORE, THE ACTION OF THE A.O. IN REDUCING THE S ALE CONSIDERATION FROM THE WDV OF THE BUILDING SHOULD BE ACCEPTED BY THE ASSESSEE EXTENDING THE SAME LOGIC AND ARGUMENT THAT ASSESSEE ITSELF HAS GIVEN IN ITS FAVO UR RELATED TO SALE OF FLAT AT BELVEDERE ESTATE. ACCORDINGLY, ASSESSEES APPEAL O N THIS GROUND IS DISMISSED . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUND:- GROUND NO. 2 OF ASSESSEE APPEAL FOR AY 2006-07: 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE TREATMENT BY THE AO OF SALE OF BAN GALORE LAND AS BUSINESS INCOME U/S. 41(2) OF THE ACT BY REDUCING THE SALE VALUE OF THE LAND FROM THE WDV OF THE BUILDING BLOCK, WHEN THE SAME WAS CORRECTLY TREATED BY THE A PPELLANT AS INCOME FROM CAPITAL GAINS U/S. 45 OF THE INCOME TAX ACT, 1961. 5. THE LD AR ARGUED THAT IN RESPECT OF BANGALORE P ROPERTY, THE ASSESSEE HAD ONLY LAND THEREON AND NO BUILDING WAS ATTACHED. HE DREW THE ATTENTION OF THE BENCH TO THE SALE DEED OF BANGALORE LAND ENCLOSED IN PAGES 328 TO 337 OF T HE PAPER BOOK. HENCE THE ASSESSEE HAD RIGHTLY ATTRIBUTED THE ENTIRE SALE CONSIDERATIO N OF RS.98,35,830/- TOWARDS LAND ALONE. IT WAS SOLD TO ADVANTA INDIA LTD AND IS NO WAY RELATED TO SALE OF RUBBER CHEMICALS BUSINESS TO PMC GROUP AND ACCORDINGLY THE LD AO ERRED IN CLU BBING BOTH THE SALES TOGETHER AND MAKING IT PART AND PARCEL OF THE SALE OF UNDERTAKIN G AND THEREBY TAXING BOTH U/S 41(2) OF THE ACT. IN RESPECT OF SALE OF BELVEDERE ESTATE, T HE ASSESSEE HAD BOTH LAND AS WELL AS BUILDING AND HENCE THE CONSIDERATION RECEIVED IN TH E SUM OF RS. 70,00,000/- WAS APPORTIONED BETWEEN LAND TO THE TUNE OF RS. 67,04,9 37/- AND TOWARDS BUILDING TO THE TUNE OF RS. 2,95,063/- . HE ARGUED THAT IN ANY CASE, TH E LD CIT(A) HAVING GRANTED RELIEF TO THE TUNE OF RS 3,50,65,913/- WHICH INCLUDED THE ENTIRE SALE CONSIDERATION OF RS. 70,00,000 TOWARDS BELVEDERE ESTATE AND RS 98,35,830/- TOWARD S BANGALORE LAND , OUGHT NOT TO HAVE TAKEN DIFFERENT STAND BY SUSTAINING THE SAID ADDITI ON SEPARATELY. HE ARGUED THAT THE GROUND RAISED BY THE ASSESSEE BEFORE THE LD CIT(A) SPECIFI CALLY WAS FOR A TOTALLY DIFFERENT PURPOSE WITH A PRAYER TO TREAT THE GAINS ARISING FROM SALE OF BANGALORE LAND AS CAPITAL GAINS INSTEAD OF BUSINESS INCOME. 14 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 5.1. THE LD AR RELIED ON THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF EAST INDIA ELECTRIC SUPPLY AND TRACTION CO LTD VS CIT REPORTED IN ( 2003) 263 ITR 243 (CAL) FOR NON-APPLICABILITY OF PROVISIONS OF SE CTION 41(2) OF THE ACT IN THE EVENT OF SLUMP SALE OF RUBBER CHEMICALS BUSINESS UNDERTAKING . 6. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD AO. HE STATED THAT THE LD CIT(A) HAD GRANTED RELIEF TO THE ASSESSEE BY PLACIN G RELIANCE ON THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 1994-95 IN ITA NO. 1020/KOL/2007 DATED 29.2.2008. SINCE THIS ORDER IS CONTESTED BY THE REV ENUE BEFORE THE HONBLE HIGH COURT AND THE SAME IS PENDING DISPOSAL, IN ORDER TO KEEP THE MATTER ALIVE, THE REVENUE HAD RAISED THE GROUNDS BEFORE THIS TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE. WE HAVE GONE THROUGH THE SLUMP SALE AGREEMENT VIDE PAGES 154 TO 211 OF THE PAPER BOOK. WE HAVE GONE THROUGH THE SALE DEED EXECUTED IN RESPECT OF BANGALORE LAND VIDE PAGES 32 8 TO 337 OF THE PAPER BOOK. WE HAVE ALSO GONE THROUGH THE REMAND REPORT OF THE LD AO FILED BEFORE THE LD CIT(A) VIDE PAGES 591 TO 603 OF THE PAPER BOOK. WE FIND THAT THE RUBBER CHEMICALS BUSINESS HAS BEEN SOLD AS AN INDEPENDENT UNDERTAKING TO PMC GROU P. THE LD AO IN HIS REMAND REPORT HAD AGREED TO THE FACT THAT THE SAID UNDERTAKING HA S BEEN SOLD ON SLUMP SALE BASIS BY PLACING RELIANCE ON EXPLANATION TO SECTION 2(42C) O F THE ACT. WE FIND THAT THE ASSESSEES SALE OF UNDERTAKINGS ON SLUMP SALE BASIS HAS BEEN A CCEPTED IN THE PAST BY THIS TRIBUNAL FOR THE EARLIER YEARS. THE SALE IN THE INSTANT YEAR A LSO HAD HAPPENED IN THE SIMILAR FASHION. THE FACTS STATED HEREINABOVE AND EXPLANATIONS OFFER ED BY THE ASSESSEE WITH RESPECT TO THE FACTS OF THE CASE AND THE FINDINGS OF THE LD CIT(A) ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. 7.1. WE FIND THAT THE BANGALORE PROPERTY COMPRISIN G ONLY LAND WAS SOLD TO ADVANTA INDIA LTD WHICH IS TOTALLY INDEPENDENT OF SALE OF R UBBER CHEMICALS BUSINESS UNDERTAKING. SIMILARLY BELVEDERE ESTATE WAS ALSO INDEPENDENTLY S OLD BY THE ASSESSEE WHICH COMPRISES OF BOTH LAND AND BUILDING FOR RS. 70,00,000/- AND V ALUES HAVE BEEN DISTRIBUTED BY THE ASSESSEE TOWARDS LAND AND BUILDING SEPARATELY. HEN CE WE HOLD THAT THE LD AO HAD WRONGLY 15 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 INCLUDED THE SALE CONSIDERATION OF RS. 98,35,830/- IN RESPECT OF SALE OF BANGALORE LAND AND RS 70,00,000/- TOWARDS BELVEDERE ESTATE WHILE C OMPUTING THE BUSINESS INCOME U/S 41(2) OF THE ACT. IN RESPECT OF ADDITION MADE TOW ARDS BANGALORE LAND, THE LD AO HAD ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN THE REM AND REPORT BY STATING THAT THE CONTENTIONS OF THE ASSESSEE MAY BE CONSIDERED AS TH E LD AO HAD NOT ADDUCED ANY REASON IN HIS ASSESSMENT ORDER FOR TREATING THE SAME AS BUSIN ESS INCOME U/S 41(2) OF THE ACT. IN VIEW OF THIS, WE HOLD THAT THE SALE CONSIDERATION OF BAN GALORE LAND TO THE TUNE OF RS. 98,35,830/- AND TOWARDS BELVEDERE ESTATE AT RS 70,0 0,000/- SHOULD NOT BE TREATED AS PART AND PARCEL OF SLUMP SALE OF RUBBER CHEMICALS BUSINE SS UNDERTAKING AND THE GAINS ARISING FROM SALE OF BELVEDERE ESTATE AND BANGALORE LAND SH OULD BE ASSESSED ONLY AS CAPITAL GAINS AS REPORTED BY THE ASSESSEE. 7.2. WE FIND THAT THE ARGUMENTS ADVANCED BY THE AS SESSEE BEFORE THE LD CIT(A) AND FINDINGS GIVEN THEREON IN RESPECT OF SALE OF RUBBER CHEMICALS BUSINESS UNDERTAKING ON SLUMP SALE BASIS HAS NOT BEEN REFUTED BY THE LD DR BEFORE US. WE FIND THAT THE DECISION RELIED UPON BY THE LD AR ON THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF EAST INDIA ELECTRIC SUPPLY AND TRACTION CO LTD REPORTED IN 263 ITR 243 (CAL) IS WELL FOUNDED ON THE NON-APPLICABILITY OF PROVISIONS OF SECTION 41(2) OF THE ACT. 7.3. WITH REGARD TO THE DISALLOWANCE OF RS. 88,63, 037/- ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON THE WDV OF THE BLOCK OF ASSETS , THE LD CIT(A) OBSERVED THAT THE DETAILS FILED BY THE ASSESSEE WERE SENT TO LD A O FOR REMAND WHO HAD AGREED TO THE CONTENTIONS OF THE ASSESSEE IN THE REMAND PROCEEDIN GS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL FOR ASST YEARS 1997-98 AND 2004-05. ACCORDINGLY, THE LD CIT(A) GRANTED RELIEF TO THE AS SESSEE IN THIS REGARD. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A) IN THIS REGARD. 7.4. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWI NG THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 1994-95 IN IT A NO. 1020/KOL/2007 DATED 29.2.2008 WE HOLD AS UNDER :- (A) GROUND NOS. 1 & 3 RAISED BY THE REVENUE IN ITA NO. 2121/KOL/2013 ARE DISMISSED. (B) GROUND NO. 2 RAISED BY THE ASSESSEE IN ITA NO. 1829/KOL/2013 IS ALLOWED. 16 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 1829/KOL/2013 FOR ASST YEAR 2006-07 IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 2121/KOL/2013 FOR ASST YEAR 2006-07 IS DISMISSED. 9. DISALLOWANCE OF PROPORTIONATE INTEREST ATTRIBUTA BLE TO INVESTMENTS, CAPITAL WORK IN PROGRESS AND LOANS TO DIRECTORS AT LOWER RATE OF INTEREST FOR ASST YEAR 2 007-08 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT ASSESSEE HAD EXPENDED AN AMOUNT OF INTEREST TO THE EXTENT OF RS. 2.95 CRORES AND ACCORDINGLY WAS ASKED WHY THE INTEREST SHOULD NOT BE DISALLOWED IN THE SAME LINES AS LAST YEAR ON ACCOUNT OF USE OF FUNDS FOR INVESTMENTS MADE BY THE ASSESSEE, CAPITAL WORK IN PROGRESS AND LOANS TO DIRECTORS. IN RESPONSE, THE ASSESSEE STATED THAT INTEREST EXPENDI TURE REPRESENTED MAINLY BILL DISCOUNTING CHARGES ON ACCOUNT OF SUPPLIER FINANCING ARRANGEMEN TS AND COLLECTION CHARGES OF OUTSTATION CHEQUES. THE ASSESSEE DID NOT BORROW ANY FUNDS DUR ING THE RELEVANT FINANCIAL YEAR AND HENCE THERE COULD BE NO QUESTION OF UTILIZING BORRO WED FUNDS FOR INVESTMENT PURPOSE AND CAPITAL WORK IN PROGRESS. WITH REGARD TO LOANS TO D IRECTORS, IT WAS STATED THAT THE LOANS TO WORKING DIRECTORS WERE GIVEN AT A LOWER RATE OF INT EREST THAN THE RATE PRESCRIBED IN RULE 3 OF THE IT RULES AS PER THE EMPLOYEE COMPENSATION PO LICY OF THE ASSESSEE COMPANY AND THE DIFFERENTIAL RATE OF INTEREST WAS DULY ADDED AS PER QUISITES IN THEIR RESPECTIVE HANDS AND TAX DEDUCTED ACCORDINGLY U/S 192 OF THE ACT. THE LD A O DISREGARDED THE SUBMISSIONS OF THE ASSESSEE AND MADE AN ADHOC DISALLOWANCE TO THE EXTE NT OF 20% OF INTEREST EXPENDITURE JUST TO MAINTAIN CONSISTENCY WITH THE ASSESSMENT ORDER F OR ASST YEAR 2006-07 AND ADDED A SUM OF RS 59,00,000/- TO THE TOTAL INCOME. THE LD CI T(A) UPHELD THE ACTION OF THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS :- GROUND NOS. 2 TO 2.4 OF ASSESSEES APPEAL FOR AY 2 007-08: 2. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 59,00,000/- MADE BY THE AO. 2.1.THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT(APPEALS) ERRED IN UPHOLDING DISALLOWANCE OF INTEREST EXPENDITURE IN T HE ASSESSMENT YEAR UNDER CONSIDERATION WHEN HE HAD DELETED SIMILAR DISALLOWANCE MADE BY TH E AO IN AY 2006-07. 2.2.THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT (APPEALS) ERRED IN APPRECIATING THAT DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THE APPELLANT HAD NOT BORROWED ANY FUNDS AND HENCE, NO INTEREST COULD BE DISALLOWED ON THE 17 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 PRETEXT THAT BORROWED FUNDS WERE UTILIZED FOR THE P URPOSE OF INVESTMENT AND CAPITAL WORK IN PROGRESS OF THE APPELLANT 2.3.THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT (APPEALS) ERRED IN NOT APPRECIATING THAT INTEREST EXPENDED WAS MAINLY ON ACCOUNT OF BILL DISCOUNTING CHARGES FOR SUPPLIER FINANCING ARRANGEMENT AND CHARGES FOR COLLECTION OF OUTSTATION CHEQUES. 2.4. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) ERRED IN HOC DISALLOWANCE OF 20% OF THE INTEREST AMOUNT. 9.1. THE LD AR ARGUED THAT NO LOAN WAS TAKEN BY TH E ASSESSEE COMPANY DURING THE RELEVANT FINANCIAL YEAR WHICH IS EVIDENT FROM THE B ALANCE SHEET OF THE ASSESSEE COMPANY. FURTHER THE INTEREST EXPENDITURE INCURRED DURING TH E RELEVANT FINANCIAL YEAR DID NOT PERTAIN TO INTEREST ON BORROWINGS BUT ON ACCOUNT OF BILL DI SCOUNTING CHARGES FOR DISCOUNTING SUPPLIERS BILLS AND CHEQUE COLLECTION AND OTHER CHA RGES FOR PAYMENTS RECEIVED FROM CUSTOMERS SPREAD ACROSS INDIA. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD VS CIT REPORTED IN 26 ITR 775 (SC) WHEREIN IT WAS HELD THAT THE LD AO CANNOT MAKE DISA LLOWANCE ON PURE GUESS WORK ON ADHOC BASIS WITHOUT REFERENCE TO ANY EVIDENCE OR MA TERIAL. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ADDITIONAL CIT VS JAY ENGINEERING WORKS LTD REPORTED IN 113 ITR 389 (DEL) FROM WHICH AN INFERENCE CAN BE DRAWN THAT WHEN THE AUDITED ANNUAL ACCOUNTS OF THE COMPANY DEPICTED THAT NO LAONS WERE AVAILED BY IT DURING THE RELEVANT FINANCIAL YEAR, T HE LD AO SHOULD NOT HAVE FORCEFULLY MADE THE DISALLOWANCE ON THE ASSUMPTION THAT BORROWED FU NDS WERE UTILIZED FOR MAKING VARIOUS INVESTMENTS , FOR CAPITAL WORK IN PROGRESS AND FOR ADVANCING LOANS TO WORKING DIRECTORS. HE FURTHER STATED THAT THE LOANS TO WORKING DIRECTO RS WERE GIVEN AT CONCESSIONAL RATES AND THE DIFFERENCE IN INTEREST RATE AS PER RULE 3 OF TH E IT RULES WAS DULY TREATED AS BENEFIT / PERQUISITE IN THE HANDS OF THE SAID WORKING DIRECTO RS AND TREATED AS SALARY AND TAX HAS BEEN DEDUCTED AT SOURCE IN TERMS OF SECTION 192 OF THE A CT. THIS FACT IS ALSO MENTIONED BY THE LD AO IN HIS ORDER. MOREOVER, HE ARGUED THAT THIS ADD ITION WAS DELETED BY THE LD CIT(A) IN ASST YEAR 2006-07 VIDE PARA 5 OF HIS ORDER DATED 1 1.3.2013 . MOREOVER, THE LD AO ALSO IN THE REMAND REPORT SUBMITTED FOR THE ASST YEAR 2006- 07 AGREED WITH THE CONTENTIONS OF THE LD AO AND DID NOT DRAW ANY ADVERSE INFERENCE WITH R EGARD TO THE IMPUGNED ISSUE . WHILE THIS IS SO, THERE IS NO REASON FOR THE LD CIT(A) IN THE YEAR UNDER APPEAL TO SHIFT FROM HIS EARLIER DECISION RENDERED ON THE VERY SAME FACTS FO R THE ASST YEAR 2006-07. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 18 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE RELEVANT PAGES OF THE PAPER BOOK OF T HE ASSESSEE. WE FIND THAT THE LD AO HAD CONCEDED IN HIS ASSESSMENT ORDER THAT THE ASSESSEE HAD DEMONSTRATED FROM ITS AUDITED ANNUAL ACCOUNTS WHICH TRANSPIRES THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS DURING THE YEAR AND THAT THE AMOUNT OF INTEREST OF RS. 2.95 CR ORES REPRESENTED MAINLY BILL DISCOUNTING CHARGES ON ACCOUNT OF SUPPLIER FINANCING ARRANGEMEN TS AND COLLECTION CHARGES OF OUTSTATION CHEQUES. WE FIND THAT THIS ISSUE HAS BEEN DECIDE D BY THE LD CIT(A) FOR THE ASST YEAR 2006-07 IN FAVOUR OF THE ASSESSEE BY PLACING RELIAN CE ON THE REMAND REPORT GIVEN BY THE LD AO FOR ASST YEAR 2006-07. FOR THE SAKE OF CONVENIE NCE, THE CONCLUSIONS DRAWN BY THE LD AO IN THE REMAND REPORT FOR ASST YEAR 2006-07 ARE R EPRODUCED HEREUNDER WHICH ARE ENCLOSED IN PAGE 598 OF PAPER BOOK FOR ASST YEAR 20 06-07 BEFORE US :- COMMENTS ON A PERUSAL OF THE ORDER OF CIT(A) FOR AY 2002-03, IT TRANSPIRES THAT THE CIT(A) HAS DECIDED IN FAVOUR OF THE ASSESSEE AND STATED TH AT THE INVESTMENT WAS OUT OF COMPANYS OWN FUNDS. FROM A PERUSAL OF THE ASSESSMENT RECORDS, IT TRANSP IRES THAT THE COMPANY HAD PROVIDED BREAKUP OF INTEREST EXPENDITURE VIDE LETTE R DATED 22 ND DECEMBER 2009. FROM A PERUSAL OF THE BALANCE SHEET FOR FY 2005-06, IT TRANSPIRES THAT NO LOAN WAS OUTSTANDING AS ON 31.03.2006. FROM THE AFORESAID, IT TRANSPIRES THAT THE AMOUNT O F INTEREST OF RS. 3.86 CRORES COULD NOT HAVE BEEN ON ACCOUNT OF SHORT TERM LOAN T AKEN BY THE COMPANY. THUS IT MAY BE CONCLUDED THAT NO LOAN WAS OUTSTANDI NG IN THE BOOKS OF THE COMPANY AS ON 31.03.2006. FURTHER NO LOAN WAS AVAILED BY TH E COMPANY EXCEPT THE LOAN AS STATED FOR 10 DAYS. IN VIEW OF THE ABOVE, SINCE LOAN ITSELF WAS NOT THE RE, THERE SHOULD BE NO CASE OF ATTRIBUTION OF INTEREST TO INVESTMENT IN QUEST INTE RNATIONAL LTD AND TOWARDS CAPITAL WORK IN PROGRESS. WITH REGARD TO NOTIONAL INTEREST ON LOAN TO DIRECTO RS, THE COMPANY HAS STATED THAT THE SAID DIRECTORS WERE EMPLOYEE DIRECTORS WHO HAD AVAILED LOAN AS PER COMPANY POLICY. ONLY BECAUSE THEY WERE DIRECTORS, INTEREST SHOULD NOT BE DISALLOWED ESPECIALLY SINCE TAX HAD BEEN PAID ON THE INTEREST PERQUISITES. BASED ON THESE CATEGORICAL FINDINGS OF THE LD AO, T HE LD CIT(A) DELETED THE DISALLOWANCE OF INTEREST MADE ON ADHOC BASIS FOR THE ASST YEAR 2 006-07. AGAINST THIS ORDER, THE REVENUE 19 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 HAD NOT CHALLENGED THE ISSUE BEFORE US THOUGH THEY HAD PREFERRED AN APPEAL AGAINST OTHER ISSUES FOR THE ASST YEAR 2006-07. IT IS PERTINENT TO NOTE THAT THE ORDER OF THE LD CIT(A) FOR ASST YEAR 2006-07 WAS PASSED ON 11.3.2013 AND THE V ERY SAME LD CIT(A) HAD DISPOSED OFF THE APPEAL FOR THE ASST YEAR 2007-08 ON 12.3.2013. WHILE THIS IS SO, WE DO NOT FIND ANY JUSTIFIABLE REASON FOR THE LD CIT(A) TO SHIFT HIS S TAND FOR THE ASST YEAR 2007-08 ALONE WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES O F THE CASE. WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LD AR THAT NO DISALLOWANCE COULD BE MADE ON AN ADHOC BASIS ON MERE GUESS WORK AND RELIANCE IN THIS REGARD WAS RIGHTLY PLACED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS S UPRA. WE ARE ALSO CONVINCED THAT IN RESPECT OF LOANS TO EMPLOYEE DIRECTORS AT CONCESSIO NAL RATE OF INTEREST, THE DIFFERENCE IN RATE THEREON AS COMPARED WITH RULE 3 OF THE RULES HAS BE EN DULY CONSIDERED AS PERQUISITE IN THE HANDS OF THE SAID EMPLOYEE DIRECTORS AND TAX IS DED UCTED IN TERMS OF SECTION 192 OF THE ACT. THIS FACT HAS NOT BEEN REFUTED BY THE LD DR B EFORE US. IN VIEW OF THE AFORESAID FINDINGS AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HEREBY DIRECT THE LD AO TO DELETE THE DISALLOWANCE MADE IN THE SUM OF RS. 59,0 0,000/- TOWARDS PROPORTIONATE INTEREST . ACCORDINGLY, THE GROUND NOS. 2 TO 2.4 FOR THE ASST YEAR 2007-08 RAISED BY THE ASSESSEE ARE ALLOWED. 10. ADDITION TOWARDS PROFITS OF UNIQEMA BUSINESS RS. 10,84,00,000/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE COMPANY TRANSFERRED ITS UNIQEMA BUSINESS ALONG WITH ITS RISKS AND REWARDS TO CRODA CHEMICALS (INDIA) PRIVATE LIMITED FROM 2.9.2006. HOWEVER, FOR THE PERIOD FROM 2.9.2006 TO 4.1.2007, THE BUSINESS WAS RUN BY THE ASSESSEE COMPANY ON BEHALF OF CRODA CHEMICALS (INDI A) PRIVATE LIMITED (CCIPL). THE INCOME THAT AROSE FROM THE OPERATION OF THE UNIQEMA BUSINESS DURING THE PERIOD 2.9.2006 TO 4.1.2007 WAS PAID BY THE ASSESSEE TO CCIPL AFTER ADJUSTING THE INCOME TAX THEREON WHICH WAS DEPOSITED WITH THE INCOME TAX AUTHORITIES . THE LD AO SOUGHT TO BRING THE PROFITS OF RS. 10,84,00,000/- BEING THE PROFIT DURING THE P ERIOD 2.9.2006 TO 4.1.2007 AS INCOME OF THE ASSESSEE ON THE FOLLOWING GROUNDS :- (A) THE ASSESSEE COMPANY DID NOT BRING ANY THING ON REC ORD TO SHOW HOW THE PROFITS OF THE BUSINESS WERE ARRIVED AT. 20 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 (B) THE ASSESSEE COMPANY ALSO DID NOT PROVIDE DETAILS O F EXPENDITURE AND RECEIPTS OF THE BUSINESS. (C) THE COMPANY DID NOT PROVIDE ANY EVIDENCE TO SUBSTAN TIATE THAT CCIPL HAS TREATED THE PROFITS OF THE BUSINESS AS ITS INCOME AND PAID INCOME TAX ON THE SAME. (D) THE ASSESSEE COMPANY DID NOT PROVIDE ANY EVIDENCE T O BRING OUT THAT THE BUSINESS WAS CARRIED OUT ON BEHALF OF CCIPL. THE LD CIT(A) UPHELD THE ACTION OF THE LD AO. AGGR IEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- GROUND NOS. 3 TO 3.2 OF ASSESSEES APPEAL FOR AY 2 007-08: 3. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT(A) ERRED IN UPHOLDING THE TREATMENT BY THE AO OF PROFITS OF RS. 10,84,00,000/- PERTAINING TO UNIQEMA BUSINESS AS PROFITS OF THE APPELLANT. 3.1. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE RISK AND REWARDS OF THE UNIQE MA BUSINESS WERE ASSUMED BY THE BUYER FROM 2 ND SEPTEMBER 2006 ONWARDS PURSUANT TO THE SALE OF THE BUSINESS AND THAT THESE PROFITS PERTAINED TO THE PERIOD FROM 2 ND SEPTEMBER 2006 TO 4 TH JANUARY 2007, WHEN THIS BUSINESS WAS RUN BY THE APPELLANT ON BEHALF OF THE BUYER. 3.2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE APPELLANT HAS NEITHER CONSIDE RED PROFITS OF THE UNEQUEMA BUSINESS AS THAT OF THE APPELLANTS NOR HAS THE APPELLANT TAKEN CREDIT OF THE TAXES PAID WITH REGARD TO THE AFORESAID PROFITS IN THE RETURN OF INCOME. 10.1. THE LD AR ARGUED THAT THE ASSESSEE COMPANY H AD ALREADY FURNISHED THE BUSINESS VALUATION REPORT AND THE BUSINESS TRANSFER AGREEMEN T RELATING TO UNIQEMA BUSINESS TO THE LD AO AND HENCE IT COULD NOT BE SAID THAT NO IN FORMATION / DETAILS AT ALL WERE FILED BY THE ASSESSEE. HE REFERRED TO NOTE 11 TO SCHEDULE 1 7 OF THE AUDITED ANNUAL ACCOUNTS WHICH CLEARLY DISCLOSED THE COMPUTATION OF PROFITS AND OTHER RELATED DETAILS RELATING TO THE PROFITS OF UNIQEMA BUSINESS. THE RELEVANT NOTE CLE ARLY STATED THAT THE BUSINESS WAS CARRIED ON BEHALF OF CCIPL FOR THE PERIOD IN QUESTION DUE T O WHICH SUCH PROFITS HAVE NOT BEEN ACCOUNTED FOR IN THE BOOKS OF THE ASSESSEE. HE PLA CED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ADDITIONAL CIT VS JAY ENGINEERING WORKS LTD REPORTED IN 113 ITR 389 (DEL) FROM WHICH AN INFEREN CE CAN BE DRAWN THAT WHEN THE AUDITED ANNUAL ACCOUNTS OF THE COMPANY CLEARLY AND UNAMBIGUOUSLY DISCLOSE THE FACTS, THE LD AO CANNOT STATE THAT NO MATERIAL WAS PRODUCED BE FORE HIM. HE FAIRLY STATED THAT LET THIS ASPECT BE EXAMINED BY THE LD AO AS TO WHETHER THE SAID PROFITS OF RS. 10.84 CRORES 21 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 HAVE BEEN INCLUDED IN THE RETURNS OF CCIPL AS ADMIT TEDLY THE ASSESSEE CANNOT BE EXPECTED TO HAVE CONTROL OVER THE AFFAIRS OF CCIPL AND THEIR TAX MATTERS. HE PRAYED THAT IF ON VERIFICATION OF THE SAID FACT, IT IS PROVED THAT CC IPL HAD ACCOUNTED FOR THE SUBJECT MENTIONED PROFITS FOR THE INTERREGNUM PERIOD IN ITS BOOKS AND THEN THE SAME SHALL BE DIRECTED TO BE DELETED IN THE HANDS OF THE ASSESSEE COMPANY. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHOR ITIES. 10.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IN HIS NOTE 11 TO THE NOT ES ON ACCOUNTS ENCLOSED VIDE PAGE 34 OF THE ANNUAL REPORT FOR THE YEAR ENDED 31.3.2007 H AD REPORTED AS UNDER:- NOTES TO THE ACCOUNTS 11.EXCEPTIONAL ITEMS 11. (A) (I) THE UNIQEMA CHEMICALS BUSINESS OF TH E COMPANY WAS TRANSFERRED TO CRODA CHEMICALS (INDIA) PRIVATE LIMITED (CRODA) O N 5 JANUARY 2007, FOR A CONSIDERATION OF RS. 286.83 CRORES (INCLUDING RS. 6.83 CRORES FOR WORKING CAPITAL ADJUSTMENT AS ON DATE OF TRANSFER OF RISK AND REWAR D OF THE BUSINESS). (II) AS PER THE BUSINESS TRANSFER AGREEMENT, SINCE THE RISKS AND REWARDS OF THE BUSINESS WERE ASSUMED BY CRODA FROM 2 SEPTEMBER 200 6, FOR THE PERIOD 2 SEPTEMBER 2006 TO 4 JANUARY 2007 , THE BUSINESS WAS RUN BY THE COMPANY ON BEHALF OF CRODA. ACCORDINGLY, OPERATING RESULTS FOR THE B USINESS FOR THE PERIOD 2 SEPTEMBER 2006 TO 4 JANUARY 2007 HAVE NOT BEEN INCL UDED IN THE ACCOUNTS OF THE CURRENT YEAR, THE DETAILS OF WHICH ARE AS BELOW:- RS LACS GROSS SALES 5814 OTHER INCOME 77 EXCISE DUTY (737) MATERIALS CONSUMED (3193) OTHER EXPENDITURE (877) ------------ PROFIT BEFORE DEPRECIATION, INTEREST AND TAXATION 1084 ------------ THE ABOVE AMOUNT WAS PAID TO CRODA, AFTER : - ADJUSTING TAX (INCLUDING FRINGE BENEFITS TAX) THERE ON, AGGREGATING TO RS. 347 LACS (WHICH HAS BEEN DEPOSITED WITH THE INCOME TAX AUTHORITIES) , AND 22 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 - ADJUSTING CAPITAL EXPENDITURE AND WORKING CAPITAL M OVEMENT FUNDED BY THE COMPANY DURING THE ABOVE PERIOD. (III) PROFIT ON SALE OF THE BUSINESS (SHOWN AS AN E XCEPTIONAL ITEM) AMOUNTING TO RS. 25085 LACS IS AFTER ADJUSTING FROM THE ABOVE CONSID ERATION : - VALUE OF NET ASSETS AS ON THE DATE OF TRANSFER OF R ISK AND REWARD OF THE BUSINESS (ASSETS OF RS. 5671 LACS AND LIABILITIES O F RS. 2757 LACS ) TRANSFERRED TO THE BUYER - PROVISION FOR SITE SEPARATION AND OTHER COSTS RELAT ED TO THE TRANSACTION , EXISTING / PROBABLE OBLIGATIONS ARISING ON SALE OF BUSINESS AND CHARGING OUT UNAMORTIZED EXPENSES TOWARDS VOLUNTARY RETIREMENT S CHEME AGGREGATING RS. 684 LACS. (IV) THE OPERATING RESULTS OF UNIQEMA BUSINESS FOR THE CURRENT YEAR HAVE BEEN CONSIDERED UP TO1 SEPTEMBER 2006, AND HAVE BEEN SHO WN UNDER DISCONTINUED BUSINESS (REFER TO NOTE 24, SCHEDULE 17) . THE AFORESAID DETAILED NOTE ATTACHED IN THE AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE CLEARLY NULLIFIES THE VARIOUS ALLEGATIONS MADE BY T HE LD AO IN HIS ASSESSMENT ORDER. WE ALSO FIND THAT THIS ASPECT WAS BROUGHT TO THE NOTIC E OF THE LD AO BY THE ASSESSEE BY FILING THE TAX AUDIT REPORT IN FORM 3CD WHEREIN THE TAX AU DITOR IN REPLY TO CLAUSE 8(A) AND 8(B) THEREON HAD REPORTED ABOUT THIS ASPECT (ENCLOSED IN PAGE 140 OF PAPER BOOK). WE FIND THAT THE LD AO HAD NOT EXAMINED THE ASPECT AS TO WHETHER THE SUBJECT MENTIONED PROFITS OF RS 10.84 CRORES HAVE BEEN REPORTED IN THE TOTAL PROFIT S OF CRODA (CCIPL) IN ITS BOOKS. HENCE AS FAIRLY CONCEDED BY THE LD AR IN THIS REGARD, WE DEEM IT FIT AND APPROPRIATE, TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD AO, WITH A LIMITED DIRECTION TO VERIFY THE BOOKS OF CCIPL IN ORDER TO KNOW WHETHER RS 10.84 CRORES OF PROFITS HA VE BEEN REPORTED BY THEM IN THEIR BOOKS, AND IF THE SAME IS FOUND TO BE TRUE, THEN TH E SAID ADDITION MADE IN THE HANDS OF THE ASSESSEE COMPANY IS TO BE DELETED. ACCORDINGLY, TH E GROUNDS 3 TO 3.2 RAISED BY THE ASSESSEE FOR THE ASST YEAR 2007-08 ARE ALLOWED FOR STATISTICAL PURPOSES. 11. DISALLOWANCE OF BAD DEBTS RS. 14,43,106/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE WROTE OFF BAD DEBTS IN ITS BOOKS OF ACCOUNTS DURING THE RELEVANT FINANCIAL YEAR TO THE TUNE OF R S. 14,43,106/- AND THE CORRESPONDING INCOME HAD BEEN DULY TAKEN INTO CONSIDERATION FOR C ALCULATION OF TAXABLE INCOME IN THE EARLIER YEARS. THE ASSESSEE COMPANY STATED THAT IT HAD INADVERTENTLY OMITTED TO CLAIM THE 23 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 AMOUNT OF BAD DEBTS IN ITS RETURN AND HAD CLAIMED T HE SAME DURING THE COURSE OF ASSESSMENT. THE LD AO DID NOT CONSIDER THE CLAIM O F THE ASSESSEE AS IT WAS NEITHER MADE IN THE ORIGINAL RETURN NOR IN THE REVISED RETURN BUT C LAIMED ONLY BY WAY OF A LETTER AT THE TIME OF ASSESSMENT PROCEEDINGS. THE LD CIT(A) UPHELD THE DECISION OF THE LD AO ON THE GROUND THAT DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE DID NOT FILE ANY DETAILS REGARDING THE CLAIM OF BAD DEBT. AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE US ON THE FOLLOWING GROUNDS:- GROUND NOS. 4 TO 4.1 OF ASSESSEES APPEAL FOR AY 20 07-08: 4 . THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CAS E AND IN LAW, LD. CIT(A) ERRED IN NOT ADMITTING THE CLAIM OF BAD DEBTS OF THE COMPANY FOR RS.14,43,106/- UNDER THE PROVISIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE A CT. 4.1.THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAS NOT FILED ANY DETAIL S OF BAD DEBTS WITHOUT APPRECIATING THE FACT THAT THE PARTY WISE BREAK UP OF THE BAD DEBTS WERE DULY FILED DURING THE COURSE OF THE HEARING BEFORE LD. CIT(A). 11.1. THE LD AR ARGUED THAT IT WAS PLEADED THAT TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD VS CIT REPORT ED IN 284 ITR 323 (SC) DOES NOT APPLY TO APPELLATE AUTHORITIES AND THE LD CIT(A) OUGHT TO HAVE ENTERTAINED THE BONAFIDE CLAIM OF THE ASSESSEE WITH REGARD TO BAD DEBTS. THERE IS NO DISPUTE ON THE POINT THAT THE ASSESSEE HAD COMPLIED WITH THE PROVISIONS OF SECTION 36(2) O F THE ACT IN RESPECT OF OFFERING INCOME FOR THIS DEBTS IN THE EARLIER YEARS. HE PLACED RE LIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD VS CIT REPO RTED IN 323 ITR 397 (SC) IN SUPPORT OF HIS CLAIM OF DEDUCTION FOR BAD DEBTS. IN RESPON SE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 11.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE CLAIM OF BAD DEBTS WAS NOT ALLOWED TO THE ASSESSEE ONLY ON THE GROUND THAT IT WAS NOT CLAIMED BY THE ASSESSEE IN THE ORIGINAL RETURN AS WELL AS IN THE REVISED RETURN. FROM THE DETAILS OF BAD DEBTS PLACED ON RECORD, WE FIND THAT THE ASSESSEE HAD DULY COMPLIED WITH THE PROVISIONS OF SECTION 36(2) OF THE ACT BY OFFERING THE INCOME IN RESPECT OF SUCH D EBTS IN EARLIER YEARS. WE FIND THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZE INDIA LTD REPORTED SUPRA DOES NOT APPLY TO APPELLATE AUTHORITIES WHEREIN IT HAS B EEN OPINED THAT ALTHOUGH IT IS NOT OPEN FOR THE LD AO TO ENTERTAIN THE CLAIM OF THE ASSESSE E UNLESS THE SAME HAS BEEN MADE BY A 24 ITA NOS.1829-1830 &2121-2122/K/2013 AKZO NOBEL INDIA LTD., AYS 2006-07 & 2007-08 RETURN / REVISED RETURN , THE APPELLATE AUTHORITIES HAVE THE POWERS TO ENTERTAIN THE SAME. WE ALSO PLACE RELIANCE ON THE DECISION OF THE HONB LE APEX COURT IN THE CASE OF T.R.F LTD VS CIT SUPRA WHEREIN IT HAS BEEN OPINED THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT , HAS BECOME IRREC OVERABLE. IT IS ENOUGH IF THE BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF A CCOUNTS OF THE ASSESSEE. HENCE RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE DIREC T THE LD AO TO DELETE THE DISALLOWANCE OF BAD DEBTS MADE IN THIS REGARD. ACCORDINGLY, THE GR OUNDS 4 TO 4.1 RAISED BY THE ASSESSEE FOR THE ASST YEAR 2007-08 ARE ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 1830/KOL/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IN ITA NO. 2122/KOL/2013 IS DISMISSED. 13. TO SUM UP, ITA NO. 1829/KOL/2013 ASSESSEE APPEAL FOR ASST YE AR 2006-07 IS PARTLY ALLOWED ; ITA NO. 2121/KOL/2013 REVENUE APPEAL FOR ASST YEA R 2006-07 IS DISMISSED. ITA NO. 1830/KOL/2013 ASSESSEE APPEAL FOR ASST YE AR 2007-08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES; ITA NO. 2122/KOL/2013 REVENUE APPEAL FOR ASST YEA R 2007-08 IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.03.2017 SD/- SD/- (PARTHA SARATHI CHAUDHURY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 8 TH MARCH, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT AKZO NOBEL INDIA LTD. (FORMERLY KNOWN A S ICI INDIA LTD.), 8B, MIDDLETON STREET, 1 ST FLOOR, KOLKATA-700 071 2 RESPONDENT DCIT, CIRCLE-10, KOLKATA. 3. THE CIT(A), KOLKATA 4. 5. CIT, KOLKATA. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .