The ACIT, Central Circle-1(1), Ahmedabad V. Meghmani Organics Ltd., Ahmedabad

ITA 1879/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76682 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 10-04-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 28-08-2012
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 80HHC; 10B; 10

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] VGENKCKN U;K;IHB *,*] VGENKC KN IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD JH EQDQY JKOR] U;KF;D LNL; ,OA JH ,U-,L- LSUH] YS[K K LNL; DS LE{K BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER & SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 1879/AHD/2012 (ASSESSMENT YEAR 2005-06) & ITA NO. 1880/AHD/2012 (ASSESSMENT YEAR 2007-08) ACIT, CENTRAL CIRCLE-1(1), AHMEDABAD. V/S MEGHMANI ORGANICS LTD. PLOT NO. 183-184, PHASE-II, GIDC INDUSTRIAL ESTATE, VATVA, AHMEDABAD. PAN: AABCM0644E (APPELLANT)/ VIHYKFKHZ (RESPONDENT)/ IZR;FKHZ APPELLANT BY : SHRI SUBHASH BAINS, SR. DR RESPONDENT BY : SHRI S.N. SOPARKAR WITH URVASHI SHODHAN, AR DATE OF HEARING : 10-04-2014 DATE OF PRONOUNCEMENT : 17-04-2014 ( )/ ORDER PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A), AHMEDABAD DATED 27.06.2012 FOR ASSESSMENT YEARS 2005-06 AND 2007-08. 2. GROUND NO. 1 & 2 OF APPEAL FOR ASSESSMENT YEAR 2005- 06 ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DELETING THE ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 2 - ADDITION OF RS 64,08,980/- OUT OF TOTAL ADDITION OF RS 1,48,46,107/- MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 10 B OF THE ACT. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE C LAIMED DEDUCTION U/S 10B FOR RS 12,18,43,843/- ON A TOTAL TURNOVER OF RS 97,98,37,069/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSEE REVISED THE CLAIM FOR DEDUCTION U/S 10B VI DE LETTER DATED 25.10.2010 TO RS 11,34,06,716/- STATING TOTAL TURNO VER RS 105,26,72,313/-. THE ASSESSING OFFICER ALLOWED DED UCTION TO THE ASSESSEE U/S 10B AT RS 10,69,90,590/- ON A TURNOVER OF RS 111,58,00,109/- BY TAKING THE TURNOVER AT CIF VALUE BASE. 4. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHM I MACHINE WORKS (2007) 290 ITR 667 (SC) WHEREIN IT WAS HELD T HAT EXCISE DUTY AND SALES TAX DID NOT EMANATE FROM TURNOVER, S UCH TAX HAS TO BE INCLUDED FROM THE TURNOVER OF THE ASSESSEE FOR C OMPUTING THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC, OTHE RWISE THE FORMULAE U/S 80HHC BECOMES UNWORKABLE, DIRECTED THE ASSESSING OFFICER TO EXCLUDE EXCISE DUTY, FREIGHT AND INSURAN CE FROM THE TOTAL TURNOVER OF THE ASSESSEE WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT. 5. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE I SSUE NOW STANDS COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF GUJARAT AMBUJA EXPORTS LIMITED VS. ITO IN I TA NOS. 2137 & 2511/AHD/2007 ORDER DATED 24.12.2010 WHERE IT WAS H ELD AS UNDER: 27. GROUND NO. 2 OF THE REVENUES APPEAL READS AS UNDER: ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 3 - 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE EXCISE DUTY AT RS 1,11,23,432/- FROM THE TOTAL TURN OVER, FOR COMPUTING DEDUCTION US. 10B OF THE ACT. 28. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. W E FIND THAT THE ISSUE IS ALSO SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF HONBLE APEX COURT IN T HE CASE OF CIT VS. LAKSHMI MACHINE WORKS, 290 ITR 667. IN THI S CASE, THEIR LORDSHIP HELD AS UNDER: SECTION 80HHC OF THE INCOME TAX ACT, 1961 IS A BENEFICIAL SECTION: IT WAS INTENDED TO PROVIDE INCE NTIVE TO PROMOTE EXPORTS. THE INTENTION WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. JUST AS COMMISSION RECEIVED BY THE ASSESSEE IS RELATABLE TO EXPORTS AN D YET IT CANNOT FORM PART OF TURNOVER FOR THE PURPOSES OF SECTION 80HHC, EXCISE DUTY AND SALES TAX ALSO CANNO T FROM PART OF TURNOVER, SO ALSO EXCISE DUTY AND SA LES TAX DO NOT EMANATE FROM SUCH TURNOVER. SINCE EXCIS E DUTY AND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVE R SUCH TAXES HAD TO BE EXCLUDED. COMMISSIONS, INTERE ST, RENT, ETC., DO YIELD PROFITS, BUT THEY DO NOT PARTA KE OF THE CHARACTER OF TURNOVER AND THEREFORE THEY ARE NO T INCLUDIBLE IN THE TOTAL TURNOVER. IF SO, EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNO VER UNDER SECTION 80HHC(3). RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE UPHOL D THE ORDER OF THE CIT(A) ON THIS POINT AND REJECT THE GR OUND NO. 2 OF THE REVENUES APPEAL. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 6. GROUND NO. 3 OF THE APPEAL IN ASSESSMENT YEAR 2 005-06 AND THE SOLE GROUND OF APPEAL IN ASSESSMENT YEAR 20 07-08 ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DELETI NG THE ADDITION OF RS 15,24,011/- IN ASSESSMENT YEAR 2005-06 AND RS 19 ,70,339/- IN ASSESSMENT YEAR 2007-08 MADE ON ACCOUNT OF DISALLOW ANCE OF DEFERRED REVENUE EXPENDITURE. ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 4 - 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE DEBITED DEFERRED EXPENSE S WRITTEN OFF OF RS 15,24,011/- IN THE PROFIT & LOSS ACCOUNT FOR ASS ESSMENT YEAR 2005-06. AS PER THE SUBMISSIONS OF THE ASSESSEE, T HE DETAILS OF SUCH EXPENSES ARE AS UNDER: PARTICULARS AMOUNT RS CAPITAL CONTRIBUTION TO SANAND ECO PROJECT 4,05,000 WATER & DRAINAGE CONTRIBUTION PAID TO GIDC 5,41,141 ROC EXP. FOR INCREASE OF CAPITAL 36,000 RESEARCH & DEVELOPMENT EXP. 1,08,511 GREEN ENVIRONMENT CONTRIBUTION 90,000 IPO EXPENSES 2,43,359 ISSUE EXPENSES 1,00,000 TOTAL EXPENSES 15,24,011 8. THE ASSESSING OFFICER OBSERVED THAT UNDER THE I NCOME TAX ACT, EXPENDITURE CAN BE CLAIMED IN THE YEAR IN WHICH IT IS INCURRED AND THAT EXPENDITURE INCURRED IN A PARTICU LAR YEAR CAN BE AMORTIZED OVER A PERIOD OF TIME ONLY IF IT IS PROVI DED BY SOME SPECIFIC PROVISIONS OF THE ACT SUCH AS SECTION 35D, SECTION 35DD ETC. HE OBSERVED THAT EXISTENCE OF SPECIFIC PROVISIONS S UCH AS SECTION 35D AND 35DD IN THE ACT IMPLIES THAT EXPENDITURE IN CURRED IN A PARTICULAR YEAR HAS TO BE CLAIMED AS EXPENDITURE IN THE SAME YEAR UNLESS ALLOWED TO BE AMORTIZED OVER A PERIOD OF TIM E BY SOME SPECIFIC PROVISIONS OF THE ACT. THUS, HE HELD THAT THE CLAIM OF DEFERRED REVENUE EXPENSE WAS NOT ALLOWABLE BECAUSE IT WAS PRIOR PAID EXPENSES AND SECONDLY, AS EVIDENT FROM THE NOT ES TO ACCOUNTS AND SUBMISSION OF THE ASSESSEE DATED 27.10.2010, EX PENSES ARE IN THE NATURE OF CAPITAL EXPENDITURE. ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 5 - 9. IN THE ASSESSMENT YEAR 2007-08, THE ASSESSING O FFICER OBSERVED THAT THE ASSESSEE HAS DEBITED DEFERRED EXP ENSES WRITTEN OFF OF RS 19,70,339/- IN THE PROFIT & LOSS ACCOUNT AND AS PER THE DETAILS SUBMITTED BY THE ASSESSEE, THE EXPENSES ARE AS UNDER: RS IN LAKHS (I) CAPITAL CONTRIBUTION TO SANAND ECO PROJECT 12.0 0 (II) CAPITAL CONTRIBUTION TO NARODA ENVIRO. PROJECT 1.65 (III) RESEARCH & DEVELOPMENT EXP. 0.64 (IV) WATER & DRAINAGE CONNECTION PAID TO GIDC 5.41 TOTAL 19.70 10. ON APPEAL, THE LD. CIT(A) HELD THAT THE ASSESS EE HAS CLAIMED DEFERRED REVENUE EXPENSES UNDER VARIOUS HEA DS FRO ASSESSMENT YEAR 1995-96 ONWARDS, THE DETAILS OF WHI CH ARE AS UNDER: MEGHMANI ORGANICS LIMITED-VATVA DIVISION STATEMENT OF DEFERRED REVENUE EXPENSES- WRITTEN OFF AS ON 31 ST MARCH 2005 S N PARTICULARS BASIC VALUE ADDITION DURING THE YEAR 1995-96 W/O VALUE 1996- 97 W/O VALUE 1997-98 W/O VALUE 1998-99 W/O VALUE 1999-00 W/O VALUE 2000-01 W/O VALUE 2001-02 W/O VALUE 2002-03 W/O VALUE 2003-04 W/O VALUE 2004-05 W/O VALUE WRITTEN DOWN VALUE 1 GREEN ENVIRONMNT CONTRIBUTION 68394 50.00 1998-99 0.00 0.00 0.00 1367890. 00 1367890. 00 136789 0.00 1367890. 00 1367890. 00 0.00 0.00 0.00 2 GREEN ENVIRONMNT CONTRIBUTION 19500 00.00 1999-00 0.00 0.00 0.00 0.00 390000.0 0 390000. 00 390000.0 0 390000.0 0 390000.0 0 0.00 0.00 3 GREEN ENVIRONMNT CONTRIBUTION 45000 0.00 2000-01 0.00 0.00 0.00 0.00 0.00 90000.0 0 90000.00 90000.00 90000.00 90000.00 0.00 92394 50.00 0.00 0.00 0.00 0.00 1367890. 00 1757890. 00 184789 0.00 1847890. 00 1847890. 00 480000.0 0 90000.00 0.00 MEGHMANI ORGANICS LIMITED-VATVA DIVISION STATEMENT OF PRELIMINARY EXPENSES- WRITTEN OFF AS O N 31 ST MARCH 2004 (UPTO 30.11.03) S N PARTICULARS BASIC VALUE ADDITION DURING THE YEAR 1994- 95 W/O VALUE 1995-96 W/O VALUE 1996- 97 W/O VALUE 1997-98 W/O VALUE 1998-99 W/O VALUE 1999-00 W/O VALUE 2000-01 W/O VALUE 2001-02 W/O VALUE 2002-03 W/O VALUE 2003-04 W/O VALUE 2004-05 W/O VALUE WRITTEN DOWN VALUE 1 PRELIMINARY EXPENSES 528780.00 1994-95 52878.00 52877.00 52877.00 52878.00 52878.00 52878.00 52878.00 52878.00 52878.00 52880.00 52880.00 0.00 2 PRELIMINARY EXPENSES 9000.00 1995-96 0.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 90 0.00 0.00 537780.00 52878.00 53777.00 53777.00 53778.00 53778.00 53778.00 53778.00 53778.00 53778.00 53780.00 900.00 0.00 ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 6 - MEGHMANI ORGANICS LIMITED-AGRO DIVISION STATEMENT OF DEFERRED REVENUE EXPENSES- WRITTEN OFF AS ON 31.03.2005 S N PARTICULARS BASIC VALUE ADDITION DURING THE YEAR 1995-96 W/O VALUE 1996- 97 W/O VALUE 1997-98 W/O VALUE 1998-99 W/O VALUE 1999-00 W/O VALUE 2000-01 W/O VALUE 2001-02 W/O VALUE 2002-03 W/O VALUE 2003-04 W/O VALUE 2004-05 W/O VALUE WRITTEN DOWN VALUE 1 ISSUE EXPENSES 1000000 1995-96 100000 100000 100000 100000 100000 100000 100000 100000 100000 10 0000 0 2 ROC,INCREASE CAPITAL 270000 1996-97 0 27000 27000 27000 27000 27000 27000 27000 27000 27000 270 00 3 ROC,INCREASE CAPITAL 60000 1996-97 0 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 4 ROC,INCREASE CAPITAL 30000 1996-97 0 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 5 EARLY PAYMENT PREMIUM- ICICI 2875000 1996-97 0 291139 873418 873418 837026 0 0 0 0 0 0 6 RESEARCH& DEVELOPMENT 439108 1996-97 0 87822 43911 43911 43911 43911 4391 1 43911 43911 43911 0 7 RESEARCH& DEVELOPMENT 646000 1997-98 0 0 64600 64600 64600 64600 64600 64 600 64600 64600 129200 8 IPO EXP 1216795 2000-01 0 0 0 0 0 243359 243359 2 43359 243359 243359 0 9 SANAND ECO PROJECT LTD. 2025000 2001-02 0 0 0 0 0 0 405000 405000 405000 40 5000 405000 TOTAL 8561903 100000 514961 1117929 1081537 487870 892870 892870 892870 892870 892870 5 70200 MEGHMANI ORGANICS LIMITED-PANOLI DIVISION STATEMENT OF DEFERRED REVENUE EXPENSES- WRITTEN OFF AS ON 31.03.2005 S N PARTICULARS BASIC VALUE ADDITION DURING THE YEAR 1997-98 W/O VALUE 1998-99 W/O VALUE 1999-00 W/O VALUE 2000-01 W/O VALUE 2001-02 W/O VALUE 2002-03 W/O VALUE 2003-04 W/O VALUE 2004-05 W/O VALUE 2005-06 W/O VALUE WRITTEN DOWN VALUE 1 GIDC DRAINAGE EXPENSES 541105 1997 541140.5 541141 541141 541141 541140.5 541141 54114 1 541141 541141 541137.50 2 FEES FOR PRIVATE PLACEMENT 8900000 1997 1780000 1780000 1780000 1780000 1780000 0.00 0.00 0.00 0.00 0.00 TOTAL 14311405 2321141 2321141 2321140.50 2321140.50 541141.00 541141.00 541141.00 541141.00 541141.00 541137.50 HE OBSERVED THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHYAM INTERMEDIARIES IN TAX APPEAL NO. 1365 OF 2006 ORDER DATED 26.06.2007 HAS HELD THAT COMPENSATION TO FORE ST AND ENVIRONMENT DEPARTMENT, CONTRIBUTION TO MASTER POLL UTION PLANT FOR TREATMENT OF EFFLUENTS ARE EXPENSES OF REVENUE NATU RE. HE OBSERVED THAT THE ASSESSEE HAS MADE CONTRIBUTION OF RS 4,05,000/- TO SANAND ECO PROJECT, RS 5,41,141/- TO GIDC FOR WA TER AND DRAINAGE CONTRIBUTION, RS 90,000/- FOR GROUND ENVIR ONMENT CONTRIBUTION, RS 1,08,511/- FOR RESEARCH AND DEVELO PMENT EXPENSES AND HAS SPREAD THESE AMOUNTS IN VARIOUS YEARS. THE REFORE, HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENSE S AS THEY WERE ALLOWABLE AS PER THE DECISION OF HONBLE GUJARAT HI GH COURT IN THE CASE OF SHYAM INTERMEDIARIES (SUPRA). HE ALSO HELD THAT OTHER EXPENSES LIKE ROC, IPO EXPENSES WERE COVERED U/S 35 D AND HENCE WERE ALLOWABLE EXPENDITURE FOR THE SAME REASONS. ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 7 - 11. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER WHEREAS THE LD. AR OF THE ASSESSEE RELIED ON THE OR DER OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION VS. CIT (1997) 225 ITR 802 (SC) AND SUB MITTED THAT THE HONBLE SUPREME COURT HAD HELD THAT ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A N UMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOK S OVER A NUMBER OF YEARS. HOWEVER, THE FACTS MAY BE JUSTIFIED AND THE ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SP READ AND CLAIM IT OVER A PERIOD OF ENSUING YEARS, IN FACT ALLOWING TH E ENTIRE EXPENDITURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YEAR. ISSUING DEBENTURES I S AN INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABI LITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PA YMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENT IRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PER IOD OF THE DEBENTURES. HENCE, IT WAS HIS SUBMISSION THAT THE DEFERRED REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE WAS RIG HTLY ALLOWED BY THE LD. CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMED THE FOLLOWING EXPENSES UNDER THE H EAD REVENUE EXPENDITURE DURING THE ASSESSMENT YEAR 2005-06: PARTICULARS AMOUNT RS CAPITAL CONTRIBUTION TO SANAND ECO PROJECT 4,05,000 WATER & DRAINAGE CONTRIBUTION PAID TO GIDC 5,41,141 ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 8 - ROC EXP. FOR INCREASE OF CAPITAL 36,000 RESEARCH & DEVELOPMENT EXP. 1,08,511 GREEN ENVIRONMENT CONTRIBUTION 90,000 IPO EXPENSES 2,43,359 ISSUE EXPENSES 1,00,000 TOTAL EXPENSES 15,24,011 SIMILARLY THE ASSESSEE CLAIMED FOLLOWING AMOUNTS AS DEFERRED REVENUE EXPENSES IN THE ASSESSMENT YEAR 2007-08: RS IN LAKHS (I) CAPITAL CONTRIBUTION TO SANAND ECO PROJECT 12.0 0 (II) CAPITAL CONTRIBUTION TO NARODA ENVIRO. PROJECT 1.65 (III) RESEARCH & DEVELOPMENT EXP. 0.64 (IV) WATER & DRAINAGE CONNECTION PAID TO GIDC 5.41 TOTAL 19.70 THE ASSESSING OFFICER OBSERVED THAT THESE EXPENSES WERE NOT INCURRED IN THE ASSESSMENT YEAR IN WHICH THE DEDUCT ION WAS CLAIMED BY THE ASSESSEE AS WELL AS THESE WERE CAPIT AL EXPENDITURE. HE THEREFORE, DISALLOWED THE ENTIRE EXPENDITURE CLA IMED BY THE ASSESSEE UNDER THE HEAD DEFERRED REVENUE EXPENSES. 13. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHYAM INT ERMEDIARIES (SUPRA) HAS HELD THAT COMPENSATION TO FOREST AND EN VIRONMENT DEPARTMENT, CONTRIBUTION TO MASTER POLLUTION PLANT FOR TREATMENT OF EFFLUENTS ARE EXPENSES OF REVENUE NATURE. THE LD. CIT(A) PURPORTEDLY FOLLOWING THE ABOVE DECISION OF THE HON BLE GUJARAT HIGH COURT HELD AS UNDER: ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 9 - IT IS SEEN THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. M/S. SHYAM INTERMEDIARIES IN TAX APPEAL NO. 1365 THROUGH ORDER DATED 26.06.2007 HAS HELD THAT COMPENSATION TO THE FOREST AND ENVIRONMENT DEPARTMENT, CONTRIBUTION TO MASTER POLLUTION PLANT FOR TREATMENT OF EFFLUENTS ARE EXPENSES IN THE NATURE O F REVENUE EXPENDITURE. THE APPELLANT HAS MADE CONTRIBUTION OF RS 4,05,000 TO SANAND ECO PROJECT, HAS PAID WATER AND DRAINAGE CONTRIBUTION TO GIDC OF RS 5,41,141, GREEN ENVIRONMENT CONTRIBUTION OF RS 90,000, RESEARCH AND DEVELOPMENT EXPENSES OF RS 1,08,511 AND HAS SPREAD THESE AMOUNTS IN VARIOUS YEARS FOR WHICH ANNEXURE-3 OF THIS ORDER MAY BE REFERRED. THE AO IS DIRECTED TO ALLOW THE ABOVE MENTIONED EXPENSES BECAUSE THESE EXPENSES AS PER HONBLE GUJARAT HIGH COURT DECISION CITED SUPRA ARE REVENUE EXPENSES. OTHER EXPENSES LIKE ROC, IPO EXPENSES ARE COVERED U/S. 35D HENCE NOT DISALLOWABL E. 14. WE FIND THOUGH THE LD. CIT(A) HELD THE FOLLOWI NG EXPENSES NAMELY CAPITAL CONTRIBUTION TO SANAND ECO PROJECT, WATER & DRAINAGE CONNECTION PAID TO GIDC AND RESEARCH & D EVELOPMENT EXPENSES AS REVENUE EXPENDITURE BUT HAD GIVEN NO FI NDING AS TO WHY THESE EXPENSES ARE ALLOWABLE AS DEDUCTION IN TH E ASSESSMENT YEARS UNDER CONSIDERATION. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSES SEE IS MERCANTILE. THEREFORE, EXPENDITURE WHICH AROSE DUR ING THE RELEVANT YEARS ARE ONLY ALLOWABLE AS DEDUCTION TO THE ASSESS EE UNLESS THE LAW OTHERWISE PROVIDES. 15. SIMILARLY, IN RESPECT OF REMAINING EXPENSES, T HE LD. CIT(A) HELD THAT THESE ARE CAPITAL EXPENDITURE ALLO WABLE U/S 35D OF THE ACT. HOWEVER, THE LD. CIT(A) HAS NOT RECORDED ANY FINDING TO THE EFFECT THAT RELEVANT CONDITIONS OF SECTION 35D WERE SATISFIED OR NOT. ITA NOS.1879 & 1880 OF 2012 MEGHMANI ORGANICS LTD. VS. ACIT, CENTRAL CIRCLE-1( 1), AHD. AYS 2005-06 & 2007-08 - 10 - 16. WE FIND THAT THE EXACT NATURE OF EXPENDITURE I N QUESTION WAS NOT BROUGHT ON RECORD EITHER BY ANY OF THE LOWE R AUTHORITIES OR BY ANY OF THE PARTIES BEFORE US. IN ABSENCE OF THE SAME, WE ARE NOT IN A POSITION TO ADJUDICATE THE ISSUE COMPLETEL Y. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE FAIR AND IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO T HE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING THE SAME AFRESH BY PASSING A SPEAKING ORDER ON EACH OF THE VARIOUS EXPENSES INVO LVED IN THE ISSUE AND KEEPING IN VIEW THE DECISION OF THE HONB LE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHYAM INTERMEDIARIES ( SUPRA) AND DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MADRAS INDUSTRIAL INVESTMENT CORPORATION VS. CIT (SUPRA). NEEDLESS TO MENTION THAT PROPER OPPORTUNITY OF HEARING SHALL BE ALLOWED BY THE ASSESSING OFFICER TO THE ASSESSEE BEFORE ADJUDICATI NG THE ISSUE AFRESH AS PER LAW. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 17. IN THE RESULT, THE APPEAL OF THE REVENUE FOR A SSESSMENT YEAR 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURP OSE AND THE APPEAL FOR ASSESSMENT YEAR 2007-08 IS ALLOWED FOR S TATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 17 TH OF APRIL, 2014 AT AHMEDABAD. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER (N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 17/04/2014 GHANSHYAM MAURYA, SR. P.S.