The Dycit Baroda Circle-1, Baroda V. M/S Camphor & Allied Prod Ltd, Baroda

ITA 1955/AHD/2001

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0406 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 19-11-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 06-09-2001
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: C N SHAH
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Cost of acquisition; Bad and doubtful debts; Notional interest; Commercial expediency; Revenue expenditure; Capital expenditure; Set aside; Capital Gains
• Section: 271(1)(c); 143(3); 142(1); 37(1); 143(1); 41(2); 143(2); 264; 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 19.11.09 DRAFTED ON:20.11.0 9 ITA NO.1955/AHD/2001 ASSESSMENT YEAR : 1998-1999 THE DY. COMMISSIONER OF INCOME TAX, BARODA CIRCLE-1, BARODA. VS. CAMPHOR & ALLIED PRODUCTS LTD., PLOT NO.3, GIDC, ESTATE, NANDESARI, BARODA. PAN/GIR NO. : (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA SR. D.R. RESPONDENT BY: SHRI C.N.SHAH A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF CIT(APPEALS)-I, BARODA, DATED 31.05.2001 IN APPEAL NO.CAB/I-28/2001 -2002 IN ASSESSMENT YEAR 1998-99. 2. GROUND NO.1(I) OF THE APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING I) TO DELETE THE PRIMA FACIE ADJUSTMENTS MADE. THE APP EAL ON THIS ISSUE DOES NOT ARISE OUT OF ORDER PASSED UNDER SECTION 14 3(3) OF ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30.11.98 AT AN INCOME OF RS.3,64,68,138 /-. PROCESSING OF THE RETURN WAS DONE ON 16.05.1999 MAKING FOLLOWING DISALLOWANC ES. 1. CLUB FEES RS. 10,800 2. PREVIOUS YEAR EXP. RS. 35,859 3. UNPAID BONUS RS. 59,495 4. DEDUCTION U/S 80-M RS. 7,500 5. DEDUCTION U/S 80-G IN ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 2 - ABSENCE OF PROOF RS. 4,500 6. EXCESS CLAIM OF DEDUCTION U/S.80-HHC RS.14,51,098 RS. 15,69,252 NO APPEAL AGAINST THE PROCESSING OF THE RETURN WAS FILED BY THE ASSESSEE. THEREAFTER, NOTICE UNDER SECTION 143(2) WAS ISSUED ON 7.09.1999 AND NOTICE UNDER SECTION 142(1) ISSUED ON 17.07.2000. THE ASSESSMEN T UNDER SECTION 141(3) WAS MADE ON 16.02.2001, WHEREIN IN THE COMPUTATION OF I NCOME, THE LEARNED ASSESSING OFFICER MADE ADDITION OF THE ABOVE EXPENS ES WHICH WERE DISALLOWED WHILE PROCESSING THE RETURN UNDER SECTION 143(1). 4. THE ASSESSEE FILED APPEAL BEFORE THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) CHALLENGING THE PRIMA FACIE ADJUSTMENT OF RS.15,69,262/- ON THE GROUND THAT THE DISALLOWANCES WERE MADE OF AMOUNTS WHICH ISSUES ARE DEBATABLE IN NATURE AND RELIED ON THE DECISION OF HON'BLE BOM BAY HIGH COURT IN THE CASE OF KATAU JUNKAR LTD. V/S. K.S.PATHANIA & CO. 196 ITR 5 5 AND ALSO ON THE CBDT CIRCULAR NO.689 DATED 29.08.1994 AND SUBMITTED THAT THE PRIMA FACIE ADJUSTMENT MADE BY THE LEARNED ASSESSING OFFICER AND ADDITION TAX CHARGED WAS NOT JUSTIFIED AND HENCE, SHOULD BE DELETED. THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSE E AND DELETED THE ADDITION. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT THE ASSESSEE DID NOT FILE APPEAL AGAINST THE ORDER PASSED UNDER SECT ION 143(1) ON 16.05.1999 WHEREIN THE PRIMA FACIE DISALLOWANCES WERE MADE BY THE LEARNED ASSESSING OFFICER. THE LEARNED ASSESSING OFFICER HAS NOT MAD E ANY DISALLOWANCE OF EXPENSES IN THE ORDER PASSED UNDER SECTION 143 BUT HAS ADDED THE AMOUNT AS WERE DISALLOWED IN THE PRIMA FACIE ADJUSTMENT MADE WHILE PROCESSING THE RETURN OF INCOME. THEREFORE, THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION ON THE GROUND TH AT FOR DEBATABLE ISSUES NO PRIMA FACIE ADJUSTMENT CAN BE MADE WHILE PROCESSING THE R ETURN UNDER SECTION 143(1) OF THE ACT. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 3 - 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT THE ORDER UNDER SECTION 143(1) WAS MERGED WITH THE ORDE R PASSED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143(3) AND THEREFO RE, THE ADDITION MADE IN THE ASSESSMENT UNDER SECTION 143(3) WHERE RIGHTLY APPEA LED AGAINST THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THEREFORE, TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS RIGHT IN DELETING THE ADDIT ION MADE BY THE LEARNED ASSESSING OFFICER WHILE MAKING PRIMA FACIE ADJUSTME NT TO THE RETURNED INCOME WHILE PROCESSING THE SAME UNDER SECTION 143(1). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER MADE ADJUSTMENTS IN RESPECT OF VA RIOUS ITEMS IN THE INTIMATION PASSED UNDER SECTION 143(1) OF THE ACT AGAINST WHIC H NO APPEAL WAS PREFERRED BY THE ASSESSEE. THE AMOUNTS WHICH WERE ADJUSTED BY TH E LEARNED ASSESSING OFFICER IN THE INTIMATION UNDER SECTION 143(1) WERE AGAIN A DDED BACK BY THE LEARNED ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT AGAINST WHICH THE ASSESSEE PREFERRED APPEAL BEFORE THE LEAR NED COMMISSIONER OF INCOME TAX(APPEALS) WHICH IS THE IMPUGNED ORDER BEFORE US. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHILE DECIDING APPEAL, AGAIN ST THE ORDER PASSED UNDER SECTION 143(3) DELETED THE ADJUSTMENTS MADE UNDER S ECTION 143(1) IN THE FIRST GROUND OF APPEAL ON THE GROUND THAT SUCH ADJUSTMENT S WERE OF DEBATABLE NATURE. THE REVENUE HAS TAKEN THE INSTANT GROUND OF APPEAL AGAINST THE ABOVE DELETION OF ADJUSTMENTS BY THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS). HOWEVER, WE FIND THAT THE VARIOUS ADJUSTMENTS WERE AGAIN CONSID ERED INDIVIDUALLY BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE SUBSEQUENT GROUND TAKEN BEFORE HIM AND DECIDED THE GROUNDS ON MERIT ALSO. W E ARE IN AGREEMENT WITH THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE THAT AS THE APPEAL PREFERRED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT AGAINST THE INTIMATION PASSED UNDER SECTION 143(1), THE LEARNED COMMISSIONER OF ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 4 - INCOME TAX(APPEALS) SHOULD NOT HAVE DELETED THE ADD ITION ON THE GROUND THAT ADJUSTMENTS MADE UNDER SECTION 143(1) WERE DEBATABL E IN NATURE MORE SO WHEN GROUNDS FOR EACH OF THE ADJUSTMENTS WHICH WERE REPE ATED IN THE ORDER PASSED UNDER SECTION 143(3) WERE TAKEN SEPARATELY BEFORE H IM AND WHICH WAS ALSO DECIDED BY HIM ON THE MERITS. THEREFORE, WE SET ASI DE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF T HE ABOVE ISSUE AND ALLOW THIS GROUND OF APPEAL OF REVENUE. HOWEVER, WE WOUL D LIKE TO CLARIFY THAT OUR ABOVE FINDING SHALL HAVE NO IMPACT ON THE VARIOUS A DJUSTMENTS IN RESPECT OF WHICH SEPARATE GROUNDS WERE TAKEN AGAIN BEFORE THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ADJUDICATED THOSE AGAIN ON MERIT SUBSEQUENTLY IN HI S ORDER. 8. GROUND NO.1(II) OF THE APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING II) TO DELETE THE ADDITION OF RS.1,69,000/- BEING LEGAL AND PROFESSIONAL EXPENSES TREATED AS REVENUE IN NATURE. THE SAID EXP ENDITURE IS CAPITAL IN NATURE. 9. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, ON PERUSAL OF LEGAL AND PROFESSIONAL EXPENSES CLAIMED BY THE ASSESSEE, THE LEARNED ASSESSING OFFICER FOUND THAT FOLLOWING EXPENSES ARE OF CAPITAL NATURE. (I) RS. 30,000/- PAID TO SHRI J. G. MEHTA FOR NEW P ROPOSED PROJECT AT BARODA. (II) RS. 54,000/- PAID TO G.P. SAVLANI FOR PURCHASE OF PLANT AND MACHINERY. (III) RS. 85,000/- PAID TO IYER VISHWANATH & CO. FO R SALE OF INDUSTRIAL UNDERTAKING. THE LEARNED ASSESSING OFFICER ALSO OBSERVED THAT TH E NEW PROJECT OF THE ASSESSEE AT BARODA HAS NOT YET STARTED AND EXPENSES RELATING TO THE SAME HAVE BEEN CAPITALIZED BY THE ASSESSEE. THE EXPENSES UNDER TH E HEAD LEGAL AND PROFESSIONAL EXPENSES RELATED TO NEW AND ALTOGETHER DIFFERENT PR OJECTS AT BARODA ARE ALSO TREATED AS CAPITAL. WITH REGARD TO PAYMENT OF RS.54,000/- T O SHRI G. P. SALVANI, THE LEARNED ASSESSING OFFICER FOUND THAT THE ASSESSEE H AS SUBMITTED THAT IT IS MADE ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 5 - FOR THE PURCHASE OF PLANT AND MACHINERY. THEREFORE, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE PAYMENT IS SPECIFICALLY IDENTIFIA BLE FOR PURCHASE OF CAPITAL ASSET AND WAS CAPITAL IN NATURE. REGARDING THE PAYMENT OF RS.85,000/-, THE LEARNED ASSESSING OFFICER OBSERVED THAT IT IS NOT IN DISPUT E THAT THE PAYMENT WAS MADE IN CONNECTION WITH THE SALE OF CAPITAL ASSETS I.E. IND USTRIAL UNDERTAKING. THEREFORE, HE DISALLOWED THE SAME AS CAPITAL EXPENDITURE RELYING ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF SHRI DIGVIJAY WOOLEN MILL LTD. VS. CIT 204 ITR 393 (GUJ) AND AMBIKA MILLS LTD. VS. CIT 225 ITR 264 (GUJ.). 10. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT SINCE SOME TECHNICAL PERSON S WERE CONSULTED FOR BRINGING INTO EXISTENCE THE NEW PROJECT, ACCORDINGLY, THE LE GAL AND PROFESSIONAL FEES WAS PAID TO THEM WHICH WAS DISALLOWED BY THE LEARNED AS SESSING OFFICER ON THE GROUND THAT THIS WAS FOR COMING UP OF NEW PROJECT. THE ASSESSEE SUBMITTED THAT WHEN A CONCERN IS GOING ON WELL, GENERALLY THE ASSE SSEE TRIES TO FIND OUT THE NEW AVENUES TO OPEN FOR ITS BUSINESS PURPOSES AND FOR W HICH CONSULTATIONS ARE MADE FROM EXPERTS IN THOSE FIELDS. IT WAS NOT NECESSARY THAT THE NEW PROJECT MAY COME UP BUT THE CONSULTATION FEES HAS TO BE PAID TO THE TECHNICAL EXPERTS WHO WILL NOT GIVE FREE ADVICE TO THE ASSESSEE. SINCE, SUCH CONSU LTATION IS DONE IN ORDER TO FIND OUT POSSIBILITIES OF ESTABLISHING A NEW PROJECT WHI CH MAY COME UP OR NOT, IT CANNOT BE SAID THAT SUCH EXPENSES ARE NOT RELATING TO BUSI NESS EXPENSES. FURTHER, MERE TAKING OF ADVICE WILL NOT CREATE A NEW ASSET FOR TH E ASSESSEE. THEREFORE, IT WAS SUBMITTED THAT THE EXPENSES ARE ALLOWABLE EXPENSES AND THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE SAME. 11. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS, AND GOING THROUGH THE MATERIAL ON RECO RD, ACCEPTED THE SUBMISSIONS OF THE ASSESSEE THAT THESE EXPENSES WERE INCURRED I N ORDER TO EXPLORE THE POSSIBILITIES OF OPENING OF NEW AVENUES FOR THE BUS INESS PURPOSES, THE SAME ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 6 - CANNOT BE DISALLOWED AS EXPENSES INCURRED FOR BRING ING UP NEW ASSETS, WHICH HAVE NOT COME INTO EXISTENCE. HENCE, HE DELETED THE DISA LLOWANCE. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF LEARNED ASSESSING OFFICER. 13. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F ALEMBIC CHEMICAL WORKS LTD. VS. COMMISSIONER OF INCOME TAX (1989)177 ITR 3 77, WHERE IT WAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE ON TECHNICAL K NOW-HOW FEES, EVEN IF MADE IN ONE LUMP-SUM, WHICH PERTAINS TO THE EXISTING BUSINE SS OF THE ASSESSEE AND IS IN RESPECT OF IMPROVEMENT IN THE EXISTING PROCESS AND TECHNOLOGY IS A REVENUE EXPENDITURE AND IS ALLOWABLE AS DEDUCTION. HE ALSO RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF ANTIFRICTI ON BEARING CORPORATION VS CIT (1978) 114 ITR 335 (BOM.), WHEREIN IT WAS HELD THAT ROYALTY PAID TO A FOREIGN COLLABORATOR FOR PROVISION OF TECHNICAL KNO W-HOW IN A RESTRICTED MANNER FOR A RESTRICTED USE DURING THE AGREEMENT PERIOD, N OT RESULTING IS ABSOLUTE TRANSFER OF ANYTHING OR ACQUISITION OF ANY ASSET OF ENDURING CHARACTER, IS A REVENUE EXPENDITURE. HE ALSO RELIED ON DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT STEEL TUBES LTD. (2002) 258 ITR 235 (GU J.) WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF FEES PAID TO AN ADVOCATE FOR RECOVERING THE SUM PAID AS ADVANCE FOR AN ABORTED T RANSACTION FOR PURCHASE OF A CAPITAL ASSET WAS ALLOWABLE AS REVENUE EXPENDITURE. HENCE, HE PLEADED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) SHOULD BE CONFIRMED. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER FOUND FROM THE DETAILS OF LEGAL E XPENSES THAT CERTAIN EXPENSES WHICH WERE CAPITAL IN NATURE WERE INCLUDED UNDER TH IS HEAD. ACCORDING TO THE ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 7 - LEARNED ASSESSING OFFICER, LEGAL EXPENSES OF RS.30, 000/- WAS INCURRED IN RESPECT OF NEW PROJECT AT BARODA WHICH WAS NOT COMMENCED DU RING THE YEAR UNDER CONSIDERATION. HE FURTHER OBSERVED THAT ALL OTHER EXPENSES INCURRED IN RESPECT OF THAT PROJECT WAS CAPITALIZED BY THE ASSESSEE. HE TH EREFORE, OPINED THAT RS.30,000/- WAS ALSO CAPITAL EXPENDITURE FOR THE NEW PROJECT AT BARODA. LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE IDENTIFI ED LEGAL EXPENSES OF RS.54,000/- PAID TO G.P.SAVLANI AS INCURRED FOR ACQUIRING PLANT AND MACHINERY. HE THEREFORE, TREATED THE SAID EXPENDITURE AS CAPITAL IN NATURE. ACCORDING TO THE LEARNED ASSESSING OFFICER, LEGAL EXPENSES RS.85,000/- WAS INCURRED IN RESPECT OF SALE OF CAPITAL ASSET AND THEREFORE, THE SALE WAS IN CAPITA L NATURE. THUS, THE LEARNED ASSESSING OFFICER DISALLOWED RS.1,69,000/- OUT OF L EGAL AND PROFESSIONAL CHARGES AS CAPITAL IN NATURE. ON APPEAL, THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) DELETED THE ENTIRE ADDITION BY OBSERVI NG THAT NO NEW ASSET WAS ACQUIRED BY THE ASSESSEE WITHOUT EXAMINING OR BRING ING ON RECORD THE RESULT OF EACH OF THE EXPENDITURE IN QUESTION. WE FIND THAT T HE ASSESSEE COULD NOT BRING ON RECORD ANY MATERIAL TO CONTROVERT THE FINDING OF TH E LEARNED ASSESSING OFFICER THAT EXPENSES OF RS.30,000/- WAS INCURRED IN RESPECT OF NEW PROJECT AT BARODA WHICH WAS UNDER CONSTRUCTION AT THE END OF THE RELEVANT Y EAR AND RS.54,000/- WAS INCURRED FOR ACQUIRING NEW PLANT AND MACHINERY. WE FIND THAT THE ASSESSEE HAS BROUGHT NO MATERIAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OR BEFORE US TO SHOW THAT VARIOUS EXPENSES INCURRED IN RESPECT OF ITS NEW PROJECT AT BARODA WERE NOT CAPITALIZED BY IT OR TO SHOW THAT T HE EXPENSES OF RS 54,000/- WAS NOT IN CONNECTION WITH THE ACQUISITION OF NEW PLANT AND MACHINERY. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFYING IN HOLDING THAT THE EXPENDITURE OF RS.30,000/- AND RS.54,000/- HAVE NOT RESULTED IN ACQUISITION OF NEW CAPITAL ASSETS. WE ARE FULLY IN AGREEMENT WITH THE OPINION OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT LEGAL EXPENSES OF RS.85,000/- BEI NG INCURRED FOR SALE OF ASSETS WERE NOT INCURRED FOR ACQUISITION OF ANY NEW ASSET AND THEREFORE, WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE. THE DECISION RELIED UPON BY THE LEARNED AUTHORISED ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 8 - REPRESENTATIVE OF THE ASSESSEE ARE TO THE EFFECT TH AT WHERE EXPENDITURE INCURRED ARE NOT FOR ACQUISITION OF NEW CAPITAL ASSETS THEN THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. THUS, IN OUR CONSIDERED OPINI ON, THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN TREATING RS.30,000/- AS IN CURRED IN CONNECTION WITH THE NEW PROJECT AT BARODA WHICH WAS IN PROCESS OF BEING SET UP AND THE EXPENDITURE OF RS.54,000/- INCURRED IN CONNECTION WITH THE ACQUISI TION OF NEW PLANT AND MACHINERY WERE CAPITAL IN NATURE, WE THEREFORE, MOD IFY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO THE ABOVE EX TENT. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 15. THE GROUND NO. 1(III) OF THE APPEAL READS AS U NDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING III) TO DELETE THE DISALLOWANCE OF RS.25,000/- BEING DEP OSIT FOR CAR BOOKING WRITTEN OFF AS BAD DEBTS. THE DEPOSIT NOT R ECOVERED IS NOT A BAD DEBT WITHIN THE MEANING OF SECTION 36(2)(1) OF THE ACT AND IS ALSO NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. 16. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PAID RS.25,000/- TO STANDARD MOTOR FOR CAR BOOKING. THE ASSESSEE COULD NOT RECOVER THIS AMOUNT AND THEREFORE, THE SAME WAS RETURN OF AS BAD DEBT. THE LEARNED ASSESSING OFFICER OBSERVED THAT SECTION 36( 2) OF THE ACT PROVIDES THAT ONLY THOSE DEBTS ARE ALLOWABLE WHICH ARE WRITTEN OF IN THE BOOKS OF ACCOUNT AND ARE INCLUDED IN THE INCOME OF THAT YEAR OR OF EARLI ER YEARS. HE ALSO OBSERVED THAT BAD DEBTS ARE NOT COVERED BY GENERAL SECTION 37 AS THE SPECIFIC SECTION FOR DEALING WITH THE CLAIM IS MENTION IN THE ACT. FURTHER, ADVA NCE GIVEN TO STANDARD MOTORS HAS NEITHER BEEN INCLUDED IN THE INCOME OF THE YEAR AND IN THE SALES OF THE EARLIER YEARS AND THEREFORE, THE SAME IS DISALLOWED UNDER S ECTION 36 (2) OF THE ACT. 17. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) OBSERVED THAT RS.25,000/- WAS PAID AS DEPOSIT AGAIN ST BOOKING OF THE CAR TO STANDARD MOTOR COULD NOT BE RECOVERED BECAUSE THE C OMPANY STANDARD WAS ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 9 - CLOSED. THEREFORE, THE SAME WAS WRITTEN OF AS IRREC OVERABLE AND WAS ALLOWABLE AS REVENUE EXPENDITURE AND DIRECTED THE LEARNED ASSESS ING OFFICER TO ALLOW THE DEDUCTION THE SAME TO THE ASSESSEE. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED ASSESSING OFFICER. 19. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE RELIED ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CAS E OF CIT VS. ANAJANI KUMAR CO. LTD. (2003) 259 ITR 114 (RAJ.) WHEREIN IT WAS H ELD THAT IRRECOVERABLE ADVANCE PAYMENT MADE BY ASSESSEE FOR ACQUISITION OF A CAPIT AL ASSET WHICH DID NOT MATERIALIZE WAS ALLOWABLE AS BUSINESS LOSS. HENCE, IT WAS HIS SUBMISSION THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) SHOULD BE CONFIRMED. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS ADVANCED RS.25,000/- TO STANDARD MOTOR FOR ACQUISITION OF A CAR FOR THE PURPOSES OF HIS BU SINESS. AS THE SAID STANDARD MOTOR CLOSED DOWN ITS BUSINESS, THE ADVANCE GIVEN B Y THE ASSESSEE BECAME IRRECOVERABLE AND THE ASSESSEE HAS WRITTEN OFF THE SAID AMOUNT IN ITS BOOKS OF ACCOUNT AS IRRECOVERABLE AND CLAIMED DEDUCTION IN R ESPECT THEREOF. THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUN D THAT THE SAME IS NOT ALLOWABLE AS BAD DEBT UNDER SECTION 36(1)(VI) AS TH E SAID DEBT WAS NEVER INCLUDED IN THE COMPUTATION OF INCOME AND THEREFORE, THE CON DITION SPECIFIED UNDER SECTION 36(2) WAS NOT FULFILLED. THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) DELETED THE ABOVE DISALLOWANCE ON THE GROUND THAT A DVANCE HAD BECOME IRRECOVERABLE. WE FIND THAT IT IS NOT IN DISPUTE TH AT THE ADVANCE WAS GIVEN IN THE COURSE OF THE BUSINESS FOR ACQUIRING AN ASSET FOR T HE PURPOSES OF BUSINESS WHICH BECAME IRRECOVERABLE AND THEREFORE, WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 10 - ASSESSEE. IN OUR CONSIDERED OPINION, IF SUCH BUSINE SS LOSS IS NOT ALLOWABLE UNDER SECTION 36(1)(VI) THEN THE SAME IS CLEARLY ALLOWABL E UNDER SECTION 37(1) OF THE ACT. OUR ABOVE VIEW FINDS SUPPORT FROM THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA VS CIT (1958) 34 ITR 10. FURT HER, AS THE ADVANCE IN QUESTION HAS RESULTED IN ACQUISITION OF A CAPITAL A SSET OF ENDURING NATURE IN OUR CONSIDERED OPINION AT THE TIME OF WRITE OFF OF THE SAME THE AMOUNT SHALL BEAR THE CHARACTER OF REVENUE. FOR THIS SUPPORT MAY BE DRAWN FROM THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS SUNDRAM IYENGER & SONS LTD. (1996) 221 ITR 344 (SC). FURTHER, WE ALSO FIND TH AT THE ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE RAJASTHAN HIGH COURT ANJANI KUMAR CO. LTD. (SUPRA). WE THEREFORE, CONFIR M THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS TH IS GROUND OF APPEAL OF THE REVENUE. 21 THE GROUND NO.1(IV) OF THE APPEAL READS AS UNDER . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING IV) TO DELETE THE ADDITION OF EARLIER YEARS EXPENSES OF RS.35,858/-. 22. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED FROM THE TAX AUDIT REPORT THAT PREVIOUS YEAR EXPENS ES HAVE BEEN CLAIMED DEDUCTION BY THE ASSESSEE AMOUNTING TO RS.35,858/-. THE LEARN ED ASSESSING OFFICER FOUND THAT SUCH EXPENSES ARE AS UNDER: TELEPHONE EXP. RS. 9,723/- GENERAL EXP. RS. 775/- TRANSPORTATION ON SALE RS.22,805/- OTHER EXPENSES RS. 2,555/- RS. 35,858/- IN THE OPINION OF THE LEARNED ASSESSING OFFICER THE NATURE OF THE ABOVE EXPENSES SHOWS THAT THEY ARE ASCERTAINED LIABILITY. FURTHER, THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS MERCANTILE, AND THEREFO RE THE PREVIOUS YEAR EXPENSES CLAIMED BY THE ASSESSEE ARE NOT ALLOWABLE AND DISAL LOWED THE ABOVE EXPENSES. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 11 - 23. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) OBSERVING THAT SIMILAR POINT HAS BEEN DEALT WITH BY HIM IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1991-92 DIRECTED THE LEARNED ASSESS ING OFFICER TO ALLOW DEDUCTION FOR THE SAME. THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE OF THE ASSESSEE RELIED ON THE DECISION OF HON'BLE G UJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES :LTD. VS. CIT 213 ITR 529 AND SUBMITTED THAT IT HAS BEEN HELD BY THE HON'BLE HIGH COURT THAT THE BILLS HAVE BEEN RECEIVED BY THE ASSESSEE FOR EXPENDITURE IN THE YEA R UNDER CONSIDERATION AND THE LIABILITY WAS ACCRUED AND FASTENED ON THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AND FOLLOWING THE SAID DECISION IN ASSESSEES OWN C ASE IN ASSESSMENT YEARS 1991-92 AND 1992-93 IN ITA NO. 1457 AND 1458/AHD/20 01 ORDER DATED 28.06.2006, THE APPEAL OF THE REVENUE WAS DISMISSED . AS THE FACTS ARE SIMILAR, THEREFORE, THE APPEAL OF THE REVENUE SHOULD BE DISM ISSED IN THIS YEAR ALSO. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE SUBMISSIONS OF THE ASSESSEE. 25. AFTER HEARING BOTH THE PARTIES, WE FIND THAT B OTH THE HAVE AGREED THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNA L IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 1991-92 AND 1992-93, WHEREIN SIMILA R ADDITIONS WERE DELETED ON SIMILAR FACTS. THEREFORE, RESPECTFULLY FOLLOWING TH E SAME THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 26. THE GROUND NO.1(V) OF THE APPEAL READS AS UNDE R:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING V) TO DELETE THE DISALLOWANCE UNDER SECTION 40A(9) OF RS.10,800/- BEING CLUB EXPENSES. 27. THE BRIEF FACTS OF THE CASE ARE THAT FROM THE T AX AUDIT REPORT, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS IN CURRED RS.10,800/- TOWARDS CONTRIBUTION TO CAP CLUB INCLUDING LADIES CLUB. TH E LEARNED ASSESSING OFFICER ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 12 - DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 40A (9) AS IN HIS VIEW THE CLUB FACILITY HAS NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE. 28. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) FOLLOWING HIS ORDER OF THE ASSESSMENT YEAR 1991-92 ALLOWED TH E DEDUCTION CLAIMED BY THE ASSESSEE. 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE SUBMISSIONS OF THE ASSESSEE. 30. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 1991-92 AND 1992-93 IN ITA NO. 1457 AND 1458/AHD/2001 ORDER DATED 28.06.2006 WHEREIN THE TRIBUNAL FOLLOWI NG THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. BHARAT PETROLEUM CORPORATION LTD. 252 ITR 43, WHEREIN IT WAS HELD THAT THE TRIBUNAL FOUND THA T THE ASSESSEE HAS A RIGHT TO ISSUE DIRECTIVES OF THE CLUB WHICH WERE BINDING ON THE CL UB. EXPENDITURE WAS INCURRED BY THE CLUB ON ACCOUNT OF SPORTS TOURNAMENT OUTSIDE THE CLUB IN WHICH THE ASSESSEE TOOK PART. THE ASSESSEE REIMBURSED THE EXPENSES INC URRED BY THE CLUB. THEREFORE, SECTION 40A (9) WAS NOT APPLICABLE. DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF RS.2,60,283/- BEING STAFF SPORTS AND W ELFARE EXPENSES UNDER SECTION 40A(9) OF THE ACT WAS NOT JUSTIFIED, DELETED THE D ISALLOWANCE. THEREFORE, FOLLOWING THE SAID DECISION, THE GROUND OF APPEAL O F THE REVENUE SHOULD BE DISMISSED. 31. AFTER HEARING BOTH THE PARTIES, WE FIND THAT B OTH THE HAVE AGREED THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNA L IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 1991-92 AND 1992-93, WHEREIN SIMILA R ADDITIONS WERE DELETED ON SIMILAR FACTS. THEREFORE, RESPECTFULLY FOLLOWING TH E SAME THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 13 - 32. GROUND NO.1(VI) OF THE APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING VI) TO DELETE THE DISALLOWANCE OF RS.47,926/- BEING EXP ENSES RELATED TO SALES PROMOTION, OTHER SELLING EXPENSES, GIFTS, ETC . THE EXPENDITURE COULD NOT BE PROVED FOR THE PURPOSE OF BUSINESS ACT IVITY. 33. THE BRIEF FACTS OF THE CASE ARE THAT ON PERUSA L OF THE DETAILS OF OTHER EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT, THE LEAR NED ASSESSING OFFICER FOUND THAT ASSESSEE HAS CLAIMED FOLLOWING EXPENSES. SALES PROMOTION EXPENSES RS. 1,49,833/- OTHER SELLING EXP.- RS. 3,14,965/- GIFTS. RS. 14,465/- RS.4,79,263/- THE LEARNED ASSESSING OFFICER OBSERVING THAT NON BU SINESS ELEMENT IN THE ABOVE EXPENSES CANNOT BE DENIED DISALLOWED 1/10 OF THE E XPENDITURE CLAIMED BY THE ASSESSEE. 34. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) AGREEING WITH THE SUBMISSIONS OF THE ASSESSEE THAT THE EXPEN SES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE DELETE D THE DISALLOWANCE. 35. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 36. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE DISALLOWANCE OF EXPENSES WAS MADE ON AD-HOC BASIS W ITHOUT SPECIFYING WHICH EXPENDITURE WERE NOT INCURRED FOR THE BUSINESS OF T HE ASSESSEE. HENCE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED I N DELETING THE SAME. 37. AFTER HEARING BOTH THE PARTIES, WE FIND THAT WH ILE MAKING THE DISALLOWANCE OF EXPENDITURE OUT OF THE EXPENSES CLAIMED UNDER TH E HEAD SALES PROMOTION ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 14 - EXPENSES, OTHER SELLING EXPENSES AND GIFTS, THE LEA RNED ASSESSING OFFICER HAS NOT POINTED OUT WHICH EXPENSES WERE NOT INCURRED FOR TH E BUSINESS OF THE ASSESSEE. IN ABSENCE OF THE SAME, IN OUR CONSIDERED OPINION, NO DISALLOWANCE CAN BE MADE OUT OF THE GENUINE BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE. HENCE, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 38. THE GROUND NO.1(VII) OF THE APPEAL READS AS UND ER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING VII) TO DELETE THE ADDITION OF RS.60,46,000/- ON ACCOUNT OF VALUATION OF CLOSING STOCK OF FINISHED GOODS. THE EXCISE DUTY SH OULD BE CONSIDERED AS MANUFACTURING EXPENSES AND AN ELEMEN T OF COST, FOR INVENTORY VALUATION. THE EXCISE DUTY PAYABLE ON FIN ISHED GOODS SHOULD BE INCLUDED IN THE COST. THIS VIEW IS ALSO E XPRESSED BY THE INSTITUTE OF C.A.S GUIDELINES COVERED IN INSTRUCTI ON NO.1389 DATED 24.3.81 ISSUED BY CBDT. 39. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT IN THE AUDITED ACCOUNT FILED ALONG WITH THE RE TURN OF THE INCOME EXCISE DUTY OF RS.60.46 LACS IS NOT INCLUDED IN THE VALUE OF FI NISHED STOCK BY THE ASSESSEE FOR THE REASON THAT IT WAS FOLLOWING CONSISTENT METHOD OF ACCOUNTING OF NOT INCLUDING EXCISE DUTY IN THE CLOSING STOCK. ACCORDINGLY TO TH E LEARNED ASSESSING OFFICER, EXCISE DUTY IS AN OVERHEAD EXPENDITURE ATTRACTED ON MANUFACTURING OF GOODS. THE ASSESSEE HAS TO INCLUDE IT IN THE VALUE OF STOCK EV EN IF THE SAME IS NOT DEBITED TO THE PROFIT & LOSS ACCOUNT DUE TO THE REASON THAT IT IS NOT ACTUALLY PAID UNDER SECTION 43B. THEREFORE, HE MADE ADDITION OF RS.60,4 6 LACS TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF UNDERVALUATION OF STOCK OF F INISHED GOODS. 40. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVING THAT SIMILAR ISSUE WAS DECIDED BY HIM IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 1997-98, FOLLOWING THE SAME AND FOR THE SAME R EASONS HE DELETED THE ADDITION. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 15 - 41. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 42. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE STANDS DECIDED IN THE FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.1731-1735/AHD/200 1 FOR ASSESSMENT YEAR 1992-93 TO 1997-98 AND ITA NOS. 3740-3741/AHD/2003 IN ASSESSMENT YEAR 2000-01 & 2001-02 BY CONSOLIDATED ORDER OF THE TRIB UNAL DATED 16.05.2008. FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REV ENUE SHOULD BE DISMISSED. 43. AFTER HEARING BOTH THE PARTIES, WE FIND THAT IN THE ASSESSMENT YEAR 1992- 93 TO 19997-98 AND 2000-01 & 2001-02 SIMILAR ADDITI ON MADE BY THE LEARNED ASSESSING OFFICER WAS DELETED BY THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) AND THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) WAS CONFIRMED BY THE TRIBUNAL AND APPE AL OF THE REVENUE WAS DISMISSED. THE TRIBUNAL HELD THAT WHERE THE CLOSING STOCK HAS BEEN VALUED AT COST, THE EXCISE DUTY LIABILITY CANNOT BE INCLUDED IN VAL UATION OF THE CLOSING STOCK. IN OUT VIEW FOR ASCERTAINING THE VALUATION OF CLOSING STOCK UPTO ASSESSMENT YEAR 1998-99 THE EXCISE DUTY LIABILITY CANNOT BE INCLUDE D IN VALUATION OF CLOSING STOCK. FACTS BEING IDENTICAL RESPECTFULLY FOLLOWING THE SA ID ORDER OF THE TRIBUNAL, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) AND WE DISMISSED THE GROUND OF THE APPEAL OF THE REVENUE. 44. THE GROUND NO.1(VIII) OF THE APPEAL READS AS UN DER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING VIII) TO DELETE THE DISALLOWANCE OF RS.3,14,000/- OUT OF STAFF WELFARE EXPENSES. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 16 - 45. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT IN THE WELFARE EXPENSES OF RS.66.82 LACS, EXPE NDITURE OF STAFF WELFARE, CANTEEN AND FESTIVAL CELEBRATION IS INCLUDED OF RS.31,40,00 0/-. THESE EXPENSES CANNOT BE VERIFIED FULLY WITH THE BUSINESS. THEY HAVE BEEN IN CURRED IN CASH AND THEIR GENUINENESS ALSO CANNOT BE PROVED. HE THEREFORE, DI SALLOWED 1/10 OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AND MADE ADDITI ON OF RS.3,14,000/-. 46. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVING THAT AD-HOC DISALLOWANCE OF 10% OF STAFF WELFARE EX PENSES, CANTEEN EXPENSES AND FESTIVAL EXPENSES WAS DELETED IN THE ASSESSEES OWN APPEAL OF ASSESSMENT YEAR 1996-97. FOLLOWING THE SAME AND FOR THE SAME REASON , HE DELETED THE ADDITION MADE IN THIS YEAR ALSO. 47. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 48. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE DISALLOWANCE OF EXPENSES WAS MADE ON AD-HOC BASIS W ITHOUT SPECIFYING WHICH EXPENDITURE WERE NOT INCURRED FOR THE BUSINESS OF T HE ASSESSEE. HENCE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED I N DELETING THE SAME. 49. AFTER HEARING BOTH THE PARTIES, WE FIND THAT WH ILE MAKING THE DISALLOWANCE OF EXPENDITURE OUT OF THE EXPENSES CLAIMED UNDER TH E STAFF WELFARE, THE LEARNED ASSESSING OFFICER HAS NOT POINTED OUT WHICH EXPENSE S WERE NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE. IN ABSENCE OF THE SAME, I N OUR CONSIDERED OPINION, NO DISALLOWANCE CAN BE MADE OUT OF THE GENUINE BUSINES S EXPENDITURE CLAIMED BY THE ASSESSEE. HENCE, WE CONFIRM THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISS THIS GROUND OF APPEAL OF T HE REVENUE. 50. GROUND NO.1(IX) OF THE APPEAL READS AS UNDER:- ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 17 - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING IX) TO DELETE THE DISALLOWANCE OF RS.3,76,224/- OUT OF MISCELLANEOUS EXPENSES. THE EXPENSES INCURRED FOR THE NON BUSINES S PURPOSE. 51. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT IN THE WELFARE EXPENSES OF RS.66.82 LACS, EXPE NDITURE ON STAFF WELFARE, CANTEEN AND FESTIVAL CELEBRATION IS INCLUDED OF RS. 31,40,000/-. THESE EXPENSES CANNOT BE VERIFIED FULLY WITH THE BUSINESS. NOT ONL Y THIS, THEY ARE INCURRED IN CASH AND THEIR GENUINENESS ALSO CANNOT BE PROVED. LOOKIN G TO THE ABOVE NATURE OF EXPENSES AS WELL AS NON BUSINESS ELEMENT INCLUDED I N THE ABOVE EXPENSES, 1/10 TH DISALLOWANCE OUT OF ABOVE IS MADE WHICH COMES TO RS .3,14,000/-. PERUSAL OF THE MISCELLANEOUS EXPENSES OF RS.277.89 LACS REVEALED T HAT IT INCLUDES THE EXPENSES UNDER THE FOLLOWING HEADS: I. MISC. EXPENSES. RS. 40,931 II. POOJA EXPENSES RS. 760 III. MESSING EXPENSES RS. 100,885 IV. CAR EXPENSES RS.2911,417 V. TELEPHONE EXPENSES RS.30,77,463 VI. ENTERTAINMENT EXPENSES RS. 467,075 VII. GENERAL EXPENSES RS. 4,90,760 VIII. GUEST HOUSE EXPENSES. RS. 324,688 IX. GIFT AND PRESENTATION ARTICLES. RS. 110,493 RS.75,24,492 NATURE OF THESE EXPENSES REVEALED THAT GUEST HOUSE CAN BE USED BY THE GUEST RELATED TO BUSINESS AS WELL AS NON BUSINESS. NO REC ORD WITH REGARD TO THE ABOVE IS AVAILABLE. THE RELATION OF GUEST TO THE PEOPLE REL ATED TO THE BUSINESS IS ALSO NOT SUBMITTED. MOREOVER, NATURE OF RELATION OF MISCELLA NEOUS AND GENERAL EXPENSES COULD NOT BE SUBMITTED. ENTERTAINMENT EXPENSES ARE INCLUDED IN MANY OTHER HEAD AND IT CANNOT BE SAID THAT IT RELATES EXCLUSIVELY F OR ENTERTAINMENT OF BUSINESS GUEST. MOREOVER, TELEPHONES INSTALLED AT VARIOUS PLACES AR E ALSO USED FOR PERSONAL PURPOSES FOR WHICH NO RECOVERIES ARE MADE. THIS ALSO INCLUDED EXPENSES RELATED TO THE TELEPHONE AT THE RESIDENCE AT THE MANAGING D IRECTOR AS WELL AS THE VEHICLES ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 18 - EXCLUSIVELY USED BY MANAGING DIRECTOR AND THEIR FAM ILY MEMBER. THOUGH THE RELATION OF ABOVE EXPENSES WITH THE BUSINESS CANNOT BE DENIED BUT LOOKING TO THE POSSIBILITY OF INVOLVEMENT OF NON BUSINESS ELEMENT IN THE ABOVE EXPENSES AS WELL AS LOOKING TO THE NON VERIFIABILITY OF ABOVE EXPENS ES, 5% DISALLOWANCE OUT OF ABOVE EXPENSES IS MADE WHICH COMES TO RS.3,76,224/- . 52. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS), OBSERVING THAT IT IS SUBMITTED BEFORE HIM THAT AS LAID DOWN B Y DECISION OF THE TRIBUNAL IN THE CASE OF B.A. & BROTHERS BOMBAY P. LTD. VS. ACIT ITA 6146 (MUM) 1996, THE ASSESSEE BEING A BODY CORPORATE AND AN ARTIFICIAL J URIDICAL PERSON A HAVING OWN LEGAL EXISTENCE THERE WAS NO QUESTION OF THERE BEIN G AN ELEMENT OF PERSONAL USE OF CAR. THE DECISION IN METALIZING EQUIPMENT CO. PVT. LTD. VS. DCIT 70 TTJ 358 WAS ALSO CITED BEFORE HIM, WHEREIN IT WAS HELD THAT IN CASE OF A COMPANY, THERE CANNOT BE A DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF TELEPHONE OR VEHICLE FOR NON BUSINESS PURPOSES AND THAT LEARNED ASSESSING OF FICER HAS NOT SHOWN ANY SPECIFIC INSTANCE OF DISALLOWANCE DIRECTED THE LEAR NED ASSESSING OFFICER TO DELETE AD-HOC DISALLOWANCE OF RS.3,76,224/- BEING 5% OUT O F MISCELLANEOUS EXPENSES OF RS.75,24,472/-. 53. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 54. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE DISALLOWANCE OF EXPENSES WAS MADE ON AD-HOC BASIS W ITHOUT SPECIFYING WHICH EXPENDITURE WERE NOT INCURRED FOR THE BUSINESS OF T HE ASSESSEE. HENCE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED I N DELETING THE SAME. 55. AFTER HEARING BOTH THE PARTIES, WE FIND THAT WH ILE MAKING THE DISALLOWANCE OF EXPENDITURE OUT OF THE EXPENSES CLAIMED UNDER TH E MISCELLANEOUS EXPENSES, THE LEARNED ASSESSING OFFICER HAS NOT POINTED OUT WHICH EXPENSES WERE NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE. IN ABSENCE OF THE SAME, IN OUR CONSIDERED OPINION, ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 19 - NO DISALLOWANCE CAN BE MADE OUT OF THE GENUINE BUSI NESS EXPENDITURE CLAIMED BY THE ASSESSEE. HENCE, WE CONFIRM THE ORDER OF THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISS THIS GROUND OF APPE AL OF THE REVENUE. 56 GROUND NO.1(X) OF THE APPEAL READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING X) TO DELETE THE ADDITION OF RS.8,86,500/- ON ACCOUNT OF INTEREST CLAIMED WHICH IS FOR NON BUSINESS PURPOSE. 57. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID HEAVY INTEREST TO THE BANKS, FINANCIAL INSTITUTIONS AND UNSECURED DEPOSIT S. ON ONE HAND, IT IS PAYING HEAVY INTEREST ON BORROWED FUNDS WHILE ON OTHER HAN D, IT HAS ADVANCED INTEREST FREE ADVANCES/LOANS OF RS.49,25,000/-TO MULBARY INV ESTMENT & TRADING COMPANY. THE ADVANCE TO THE ABOVE COMPANY IS FOR NO N BUSINESS PURPOSE. ABOVE COMPANY IS ASSESSED TO TAX SEPARATELY AT MUMBAI AND NO TAXABLE INCOME IS SHOWN BY IT. ON ONE HAND, THE ASSESSEE HAS CLAIMED MORE I NTEREST ON BORROWED FUNDS DIRECTLY ADVANCED TO THE ABOVE COMPANY WHILE ON OTH ER HAND, THE ABOVE COMPANY HAS NOT SHOWN ANY INCOME. AS THE BORROWED FUNDS OF THE ASSESSEE COMPANY ARE UTILISED FOR NON BUSINESS PURPOSES, THEREFORE, THE CLAIM OF INTEREST IS DISALLOWED AT THE RATE OF 18%. THE DISALLOWANCE OF INTEREST COME TO RS.8,86,500/- RELIANCE IS PLACED IN THE CASE OF M/S. K.SOMASUNDARAM & BROS. V S. CIT 238 ITR 939 (MADRAS). 58. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVING THAT SIMILAR ISSUE WAS DECIDED BY HIM IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1996-97 AND 1997-98 AND THE LEARNED ASSESSING OFFIC ER HAS NOT DRAWN ANY NEXUS BETWEEN THE BORROWED FUNDS IN WHICH INTEREST IS PAI D AND INTEREST FREE ADVANCES DIRECTED THE LEARNED ASSESSING OFFICER TO DELETE TH E ADDITION FOR THE SAME REASON GIVEN IN PARA NO.20 PAGE 11 OF THE APPEAL ORDER FOR THE ASSESSMENT YEAR 1996-97. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 20 - 59. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 60. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE STANDS DECIDED IN THE FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.1731-1735/AHD/200 1 FOR ASSESSMENT YEAR 1992-93 TO 1997-98 AND ITA NOS. 3740-3741/AHD/2003 IN ASSESSMENT YEAR 2000-01 & 2001-02 BY CONSOLIDATED ORDER OF THE TRIB UNAL DATED 16.05.2008. FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REV ENUE SHOULD BE DISMISSED. 61. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 1992 -93 TO 1997-98 TO 2000-01 & 2001-02 WHEREIN THE TRIBUNAL CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE BY OBSERVED AS UNDER: THE BRIEFLY STATED FACTS LEADING TO THIS ISSUE ARE THAT THE LEARNED ASSESSING OFFICER DISALLOWED A SUM OF RS.9,94,500/- RS.10,59, 500/-, AND EACH RS.6,33,500/- FOR THE ASSESSMENT YEAR 1996-97, 1997 -98, 2000-01 AND 2001- 02 BEING INTEREST PAID BY THE ASSESSEE ON INTEREST BEARING LOANS HAVE DIVERTED FOR NON-BUSINESS PURPOSES. THE FACTS ARE BEING DISCUSSED FOR THE LEAD YEAR BEING THE VERY FIRST YEAR AND THE SAME WI LL APPLY FOR ALL THE ASSESSMENT YEARS, FACTS BEING IDENTICAL. IT WAS CLA IMED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT A SUM OF RS.10 LA CS HAVE BEEN ADVANCED TO SARNKYO ELECTRONICS LTD. AND A SUM OF RS.45.25 LACS HAVE BEEN GIVEN TO MULBERRY INVESTMENT AND TRADING COMPANY (MITC IN SH ORT) WHICH A SUBSIDIARY OF THE ASSESSEE-COMPANY. THE LEARNED ASS ESSING OFFICER DISALLOWED THE NOTIONAL INTEREST CHARGEABLE ON THES E AMOUNTS @ 18% TREATING THE SAME AS THE AMOUNT INVESTED FOR NON-BU SINESS PURPOSES. IT WAS EXPLAINED BEFORE THE LOWER AUTHORITIES AND EVEN NOW BEFORE US THAT A SUM OF RS.10 LACS HAVE BEEN ADVANCED TO SARNKYO ELECTRONIC S LTD. HAVE BEEN TREATED AS BAD DEBTS BECAUSE THAT COMPANY HAS BEEN CLOSED N OW AND SO THERE IS NO QUESTION OF CHARGING OF NOTIONAL INTEREST AND SECON D AMOUNT OF 45.25 LACS HAS BEEN ADVANCED TO ITS SUBSIDIARY COMPANY AND AMO UNT INVESTED IN SUBSIDIARY COMPANY CANNOT BE SAID TO HAVE BEEN INVE STED FOR NON-BUSINESS ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 21 - PURPOSES. FOR THIS THE ASSESSEES COUNSEL RELIED ON THE CASE LAW OF THE HON'BLE APEX IN THE CASE OF S.A. BUILDERS LTD. V. C IT (APPEALS) AND ANOTHER (2007) 288 ITR 1 (SC), IT IS HELD THAT INTEREST ON BORROWED FUND IS ALLOWABLE AS BUSINESS EXPENDITURE IF ADVANCED THE SAME AS FREE O F COST TO SUBSIDIARY COMPANY ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE EX PRESSION BUSINESS OCCURRING UNDER THE PROVISION OF SECTION 36(1)(III) IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME PROFIT S OR GAIN AND THIS HAS BEEN CONSISTENT VIEW OF THE SUPREME COURT AS HELD I N MAHADEV PRASAD JATA V. CIT AIT 1979 SC 1291. THE CIT(A) ALLOWED THE CLA IM BY TREATING THIS AS INVESTMENT FOR BUSINESS PURPOSES AND THE LD. D.R. C OULD NOT CONTROVERT THIS FINDING AT THE TIME OF HEARING BEFORE US. WE FIND T HAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE APEX COURT IN TH E CASE OF S.A. BUILDERS LTD. (SUPRA). ACCORDINGLY, WE UPHOLD THE ORDER OF C IT(A) AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 62. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF THE TRIB UNAL. THE FACTS BEING IDENTICAL RESPECTFULLY FOLLOWING PRECEDENT, WE CONFIRM THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISS THI S GROUND OF APPEAL OF THE REVENUE. 63. THE GROUND NO.1(XI) OF THE APPEAL READS AS UND ER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING XI) TO DELETE CAPITAL EXPENDITURE ON SCIENTIFIC RESEARC H RS.2,13,546/-. 64. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PURCHASED PLANT AND MACHINERY , FURNITURE AND FIXTURE, OFFICE EQUIPMENTS, LABORATORY EQUIPMENTS AND ELE. EQUIPMEN TS AND CLAIMED DEDUCTION UNDER SECTION 35 OF THE INCOME TAX ACT, 1961 FOR TH E WHOLE AMOUNT. ABOVE PURCHASES ARE MADE FOR MALTI CHEM IND. BARODA. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS ASKED AS TO WHY 100% CLAIM UNDE R SECTION 35 OF THE ACT SHOULD NOT BE DISALLOWED ON FURNITURE AND FIXTURES AND OFFICE EQUIPMENTS DUE TO THE REASON THAT THEY ARE NOT CONNECTED WITH SCIENTI FIC/RESEARCH. THEY ARE USED FOR GENERAL PURPOSE. ONLY PLANT AND MACHINERY, LAB. EQU IPMENTS, AND ELE. EQUIPMENTS ARE USED FOR THE PURPOSE OF SCIENTIFIC RESEARCH. IN COMPLIANCE TO THE ABOVE, IT IS ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 22 - SUBMITTED THAT THESE ASSETS MAY NOT BE USED DIRECTL Y FOR SCIENTIFIC RESEARCH BUT THEY ARE CONNECTED WITH THE RESEARCH ACTIVITY AND T HEREFORE, 100% ALLOWABLE UNDER SECTION 35D OF THE I.T.ACT, 1961. I HAVE GONE THRO UGH THE SUBMISSIONS AND FIND THAT THE ISSUE RELATED TO ABOVE IS DISCUSSED IN THE ORDER OF ASSESSMENT YEAR 1996- 97 & 1997-98 IN WHICH DEDUCTION UNDER SECTION 35D IS NOT ALLOWED ON FURNITURE AND FIXTURE, OFFICE EQUIPMENTS AND VEHICLES. TAKING THE SIMILAR VIEW, DEDUCTION OF RS.3655/- ON ACCOUNT OF PURCHASE OF FURNITURE AND F IXTURE AND RS.2,80,409/- ON PURCHASE OF OFFICE EQUIPMENTS IS DISALLOWED. HOWEVE R, DEPRECIATION AT THE RATE OF 10% ON FURNITURE AND FIXTURE AND 25% ON OFFICE EQUI PMENTS IS ALLOWED. AFTER ALLOWING DEPRECIATION, THE DISALLOWANCE IS CALCULAT ED AS UNDER: FURNITURE AND FIXTURE. RS. 3,655 OFFICE EQUIPMENTS RS. 2,80,409 RS. 2,84,064 LESS: DEPRECIATION RS. 70,467 DISALLOWANCE RS. 2,13,596 . 65. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVED THAT SIMILAR ISSUE WAS DECIDED BY HIM IN ASSESSEES OWN APPEAL FOR THE ASSESSMENT YEAR 1996-97 AND 1997-98. ACCORDINGLY, WE DIRECTED THE LEARNED ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE ON SIMIL AR LINES AS DECIDED IN ASSESSEES APPEAL FOR THE ASSESSMENT YEARS 1996-97 AND 1997-98 . 66. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 67. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE STANDS DECIDED IN THE FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.1731-1735/AHD/200 1 FOR ASSESSMENT YEAR 1992-93 TO 1997-98 AND ITA NOS. 3740-3741/AHD/2003 IN ASSESSMENT YEAR 2000-01 & 2001-02 BY CONSOLIDATED ORDER OF THE TRIB UNAL DATED 16.05.2008. FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REV ENUE SHOULD BE DISMISSED. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 23 - 68. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE WHER EIN THE TRIBUNAL HELD AS UNDER:- 33. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOTICED THAT THE A SSESSEE HAS CLAIMED THE EXPENDITURE ON SCIENTIFIC RESEARCH AT RS.5,58,285/- AND RS.3,48,223/-. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DIS CUSSED THE FACTS IN HIS ORDER FOR THE ASSESSMENT YEAR 1996-97 AND DELETED T HE ADDITION VIDE PARA 13 OF HIS APPELLATE ORDER, WHICH READS AS UNDER: 13. THE NEXT GROUND OF APPEAL RELATES TO THE DISA LLOWANCE OF RS.8,12,421/- PM. ACCOUNT OF SCIENTIFIC RESEARCH EXPENSES. DURING THE COURSE OF HEARING, THE LD. REPRESENTATIV E FOR THE APPELLANT BROUGHT TO MAY NOTICE THAT THIS EXPENDITU RE INCLUDES RS.53,916/- SPENT FOR FURNITURE AND FIXTURES AND RS .7,58,505/- SPENT FOR PURCHASE OF VEHICLES. THESE EXPENSES ARE NECESS ARY FOR THE SCIENTIFIC RESEARCH BECAUSE WITHOUT FURNITURE AND FIXTURES THE SCIENTIFIC LAB CANNOT RUN AND WITHOUT THE VEHICLE IT MAY NOT BE POSSIBLE FOR THE EMPLOYEES TO COME TIMELY AND DEVOT E FULL TIME TO THE SCIENTIFIC RESEARCH WING OF THE BUSINESS. HE FU RTHER PLEADED THAT SINCE BOTH THE EXPENSES ARE EXCLUSIVELY NECESSARY F OR THE SCIENTIFIC RESEARCH WORK, THE SAME SHOULD BE ALLOWED TO THE AS SESSEE. IN THIS CONNECTION, HE FURTHER PLEADED THAT THE LD. LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THESE EXPE NSES WITHOUT PROPERLY APPRECIATING THE FACT OF THE CASE. HE ALSO OBJECTED TO THE FINDING GIVEN BY THE LEARNED ASSESSING OFFICER THAT THESE ASSETS ARE FOR GENERAL USE AND NOT FOR SCIENTIFIC RESEARCH PUR POSES ONLY. THE LD. REPRESENTATIVE VEHEMENTLY ARGUED BEFORE ME THAT THESE EXPENSES ARE EXCLUSIVELY MEANT FOR THE SCIENTIFIC R ESEARCH BECAUSE THE FURNITURE AND FIXTURES FITTED IN THE SCIENTIFIC LAB CANNOT BE TREATED AS THE FURNITURE FOR GENERAL USE. LIKEWISE THE VEHI CLE WHICH HAS BEEN EARMARKED FOR BRINING THE EMPLOYEES ENGAGED IN SCIENTIFIC RESEARCH ONLY, ALSO CANNOT BE SAID TO BE OF GENERAL USE. HE FURTHER BROUGHT TO MY NOTICE THAT EVEN THE REGISTRATION OF THE VEHICLE WITH THE RTO HAS BEEN DONE FOR TRANSPORTING THE STAFF OF THE SCIENTIFIC RESEARCH CENTRE ONLY. PLACING THESE FACTS BEFORE ME , THE LD. REPRESENTATIVE FOR THE APPELLANT PLEADED THAT THE T REATMENT GIVEN BY THE LEARNED ASSESSING OFFICER BY TREATING THESE ASS ETS AS GENERAL ASSETS OF THE COMPANY AND ALLOWING NORMAL DEPRECIAT ION ON THEM IS NOT JUSTIFIED AND THE ADDITION MADE TO THIS EXTENT SHOULD BE DELETED. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 24 - FROM THE ABOVE FACTS IN IS CLEAR, IT IS A FACT THA T THE EXPENDITURE INCLUDES RS.53,916/- SPENT FOR FURNITURE AND FIXTURES AND RS .7,58,505/- FOR PURCHASE OF VEHICLES. THESE EXPENSES ARE NECESSARY FOR THE SCIE NTIFIC RESEARCH REASON BEING WITHOUT THIS EXPENDITURE THE LAB CANNOT RUN. IT IS ALSO A FACT THAT THE REGISTRATION OF THE VEHICLES WITH THE RTO HAS BEEN DONE FOR THE TRA NSPORTATION OF THE STAFF OF THE SCIENTIFIC RESEARCH ONLY. WE ARE IN FULL AGREEMENT WITH THE ORDER OF THE CIT(A) THAT THESE ARE NECESSARY EXPENDITURE FOR THE PURPOS E OF SCIENTIFIC RESEARCH AND ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) ALLOWING THIS EXPENDITURE. SIMILAR ARE THE FACTS IN THE ASSESSMENT YEAR 1997-98 IN ITA NO. 1735/AHD/2001, ACCORDINGLY, WE ALLOW THE EXPENDITURE IN THIS YEAR ALSO. THIS IS SUE OF THE REVENUES APPEAL IS DISMISSED. 69. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF THE TRIB UNAL. THE FACTS BEING IDENTICAL RESPECTFULLY FOLLOWING PRECEDENT, WE CONFIRM THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISS THI S GROUND OF APPEAL OF THE REVENUE. 70. GROUND NO.1(XII) OF THE APPEAL OF THE REVENUE R ELATES TO DELETION OF DISALLOWANCE IN RESPECT OF MODVAT CREDIT CLAIM OF R S.4,46,605/- IN RESPECT OF CAPITAL ASSETS. 71. AFTER HEARING THE RIVAL SUBMISSION AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE UTILISED MODVAT C REDIT OF RS. 4,46,605/- IN DISCHARGING ITS EXCISE DUTY LIABILITY BEING EXCISE DUTY ALREADY PAID BY HIM AT THE TIME OF PURCHASE OF CAPITAL ASSET. THE LEARNED ASSE SSING OFFICER DISALLOWED THE SAME BY HOLDING THAT EXCISE DUTY WAS NOT ACTUALLY P AID BY THE ASSESSEE NOR THE SAME REDUCES ANY ITEM DEBITED IN PROFIT & LOSS ACCO UNT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DIS ALLOWANCE FOLLOWING HIS ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 25 - ORDER PASSED FOR THE ASSESSMENT YEAR 1996-97 IN THE CASE OF THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDER OF THE LEARNED ASSESSING OFFICER WHILE LEARNED AUTHORISED REPRESEN TATIVE OF THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE WAS DECIDED BY THE T RIBUNAL IN CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 1996-97 AND 1997-98 IN ITA NOS.1734 & 1735/AHD/2001 FOR ASSESSMENT YEAR 2000-01 AND 2001- 02 IN ITA NOS. 3740 & 3741/AHD/2003 VIDE CONSOLIDATED ORDER DATED 16.05.2 004. WE FIND THAT ASSESSEE HAS INCURRED EXCISE DUTY LIABILITY BECAUSE OF ITS M ANUFACTURING CERTAIN GOODS WHICH WAS DEBITED BY IT IN ITS PROFIT AND LOSS ACCO UNT CLAIMED AS DEDUCTION BECAUSE THE SALE WAS SHOWN AT GROSS AMOUNT INCLUDIN G EXCISE DUTY COLLECTED. FURTHER, THE SUBMISSION OF THE LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE THAT EXCISE DUTY PAID ON PURCHASE OF CAPITAL ASSET WAS REDUCED FROM THE COST OF THE CAPITAL ASSETS WHILE CALCULATING DEPRECIATION WAS N OT DISPUTED BY THE DEPARTMENT. WE FIND THAT THE EXCISE DUTY WAS INCURRED BY THE AS SESSEE BECAUSE OF MANUFACTURING OF CERTAIN GOODS IN COURSE OF ITS BUS INESS AND THEREFORE, THE SAME WAS A BUSINESS EXPENDITURE ALLOWABLE AS DEDUCTION S UBJECT TO THE PROVISIONS OF SECTION 43B. FURTHER IT IS OBSERVED THAT THE EXCISE DUTY TO THE EXTENT OF RS. 4,46,605/- WAS ACTUALLY PAID BY THE ASSESSEE BY AVA ILING MODVAT CREDIT AS PER THE PROVISIONS OF EXCISE LAWS. THUS, IN OUR CONSIDERED OPINION, THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT EXCISE DU TY TO THE EXTENT OF RS.4,46,605/- WAS NOT ACTUALLY PAID BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS CLAIMED DEDUCTION OF EXCISE DUTY AS BECAUSE THE SAME WAS A BUSINESS E XPENDITURE INCURRED IN COURSE OF ITS BUSINESS FOR BUSINESS OF MANUFACTURING. WE T HEREFORE, DO NO FIND ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN DELETING THE SAID DISALLOWANCE OF RS.4,46,605/- AND THEREFORE, T HE SAME IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 72. GROUND NO.1(XIII) OF THE APPEAL READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 26 - XIII TO TAX THE SALE CONSIDERATION OF RS.6,46,93,53 1/- OF PROFOOL SENTINEL DIVISION AS PER SECTION 50 OF THE ACT AND ADJUST AND SALE CONSIDERATION OF DEPRECIABLE ASSETS APART WDV OF BL OCK OF ASSETS AND NOT WITH THE INDIVIDUAL UNIT IN RESPECT OF FIXE D DEPRECIABLE ASSET AND GRANT THE BENEFIT OF INDEXATION AS PER 2 ND PROVISO TO SECTION 48 OF THE I.T.ACT. 73. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER HAS OBSERVED THAT PROFEEL DIVISION WAS HAVING ITS BUSINESS ESTABLISHM ENT AT BARODA AND A BRANCH AT PONDICHERRY. AS PER AGREEMENT ENTER ED INTO BETWEEN THE ASSESSES COMPANY AND THE PURCHASER OF ABOVE UNIT NAMELY, SUP REME AGENCY LTD., MUMBAI ON 08.08.97, THE TRANSFEROR WILL TRANSFER TO THE TR ANSFEREE THE SAID UNDERTAKING AS A GOING CONCERN WITH EFFECT FROM 1ST OCT. 1997. THE PROPERTY COVERED UNDER MOD IS THE ENTIRE ASSETS OF PROFEEL DIVISION CONSISTING OF LAND, BUILDING AND OTHER FIXED ASSETS INCLUDING SPARES AND STORES AS PER ANNEXURE.1 OF AGREEMENT TOGETHER WITH ALL THE INVENTORIES DEPOSITS AND ADVANCES AND OTHER MISC. ASSETS SUCH AS FURNITURE AND FIXTURES, VEHICLES, OFFICE EQUIPMENTS ETC. AS P ER ASSETS REGISTERS OF THE SAID UNDERTAKING INCLUDING TRADE NAME, PROFIT AND OTHER TRADE NAME IF ANY BUT EXCLUDING BOOK DEBTS AND CASH AND BANK BALANCES. IT IS ALSO AGREED THAT NO TRADE LIABILITIES OF THE UNDERTAKING HAS BEEN TRANSFERRED TO THE TRANSFEREE. AS PER THIS AGREEMENT, ASSETS OF THE UNDERTAKING WOULD BE TRANS FERRED FOR RS.5.21 LACS PLUS THE VALUE OF INVENTORIES AND DEPOSITS /ADVANCES AND UNEXPIRED INSURANCE POLICY WOULD ALSO BE TRANSFERRED AT THE AGREED PRICE. DURING THE PROCESS OF SALE OF ABOVE UNDERTAKING AS A GOING CONCERN, THE ASSESSEE RECEIV ED RS . 6,46,93,531/-. THE ASSESSEE RECEIVED THE ABOVE AMOUNT OUT OF SALE CON SIDERATION OF THE FOLLOWING ASSETS, VALUE OF WHICH ON THE DATE OF SALE IS AS UNDER: STORES AND SPARES. R S .35,800 INVENTORIES. R S .100,00,000 ASSETS OF PONDICHERRY RS.16,56,138 LOANS, ADVANCES AND DEPOSITS RS. 9,37,397 FIXED ASSETS (LAND, BUILDING, PLANT AND MACHINERY, FURNITURE AND FIXTURES & OTHERS W.D.V. ON FIXED ASSETS AS PER WORKING ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 27 - GIVEN BY THE ASSESSEE WITH LETTER DTD.17.12.2000) RS.180,93,351 RS.3,07,22,786 IN THE W.D.V. ON FIXED ASSETS, WDV OF LPG PLANT IS NOT INCLUDED AS THE W.D.V. OF LPG PLANT HAS BECOME NIL AS PER DISCUSSION MADE IN A.Y.1996-97 & 1997- 98. AS DISCUSSED IN THIS ORDER ABOVE, LIABILITIES ARE NOT TRANSFERRED TO THE TRANSFEREE AS MENTIONED IN THE AGREEMENT. AGAINS T THE COST OF RS.3,07,22,786/-, ON ALL THE ASSETS ON THE DATE OF TRANSFER TO THE T RANSFEREE, THE ASSESSEE RECEIVED RS .6,46, 93,531/-. THE ASSESSEE RECEIVED SURPLUS OF R S.3,39,70,757/-. IN THE RETURN OF INCOME THE ASSESSEE HAS SHOWN ONLY LONG TERM CAP ITAL GAIN ON SALE OF LAND BY BIFURCATING THE SALE PRICE OF RS.71,00,000/- TO T HE LAND AFTER ADOPTING INDEXED COST OF IMPROVEMENT. LONG TERM CAPITAL GAIN IS SH OWN OF RS.56,49,481/-. REGARDING OTHER ASSETS IN THE SHAPE OF BUILDING, PL ANT AND MACHINERY FURNITURE AND FIXTURE, VEHICLES ETC. THE ASSESSEE HAS REDUCED THE BLOCK OF ASSETS AND THE DEPRECIATION IS CLAIMED ON THE REDUCED W.D.V. THE INVENTORIES AND STORES AND SPARES AS WELL AS ASSETS OF PONDICHERRY, LOANS A ND ADVANCES ARE TRANSFERRED AT BOOK VALUE AND THEREFORE NO PROFIT IS SHOWN AGA INST THE ABOVE. THUS, ASSESSEE PAID ONLY TAXES OF RS. 10,25,868/- BEING LONG TERM CAPITAL GAIN ON S ALE OF LAND ONLY DESPITE RECEIVING THE SALE CONSIDERATION OF RS . 6,46,93,531/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS ASKED AS TO WHY SALE OF PROFEEL SENTINEL DIVISION SHOULD NOT BE TREATED AS SALE O F INDUSTRIAL UNDERTAKING AS A GOING CONCERN AND WHATEVER SURPLUS IS RECEIVED AF TER TRANSFER OF ALL THE ASSETS OF UNIT SHOULD NOT BE TAXED AS SHORT TERM CAPITAL GA IN. IT WAS ALSO BROUGHT TO THE NOTICE OF THE ASSESSEE THAT INDUSTRIAL UND ERTAKING IS A GOING CONCERN. ASSESSEE'S ATTENTION WAS ALSO DRAWN TO THE FOLLO WING JUDGMENTS 1. KLLLICK NIXON & CO. VS. CIT 49 ITR 244 ( BOMBAY) 1963. 2. C.I.T. VS. RAMAKRISHNAN 73 ITR 356 ( KERALA) 1969. 3. HINDUSTAN TIN WORKS VS. C.I.T. TAXATION 32 -103 1972 ( ALL.) 4. C.I.T. VS. CHANDAN & BHARAT ENTERPRISES 151 ITR MF1( BOMBAY) 1985- 5. C.I.T. VS. F.X. PARERA & SONS PVT.LTD .,184 ITR 461 (KERALA) 1990. 6. INDIAN BANK LTD. VS. C.I.T. 153 ITR 282C MADRAS) 1985. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 28 - 7. KARVALVES VS. CIT 60 TAXMAN 483/1971 ITR 95( KERALA) 1992. 8. WEST COAST ELECTRIC SUPPLY CORPN. LTD. V S. CIT 107 ITR 483 (MADRAS) 1977. 9. ARTEX MANUFACTURING CO. VS. C.I.T. 131 ITR 559( GUJARAT) 1981. ATTENTION OF THE ASSESSEE WAS ALSO DRAWN TO THE CIRCULAR NO.23D OF 1965 OF C.B.D.T. IN WHICH IT IS MENTIONED THAT THE CAPITAL GAIN AS WELL AS GIFT TAX WHEREVER SUITABLE PROVISIONS OF THE ACT FOUND APPLICABLE SHOULD BE CONSIDERED IN THE TRANSACTION BETWEEN THE PERSON AND THE COMP ANY. IN COMPLIANCE TO THE ABOVE, IT IS SUBMITTED THAT THE ABOVE JUDGMENTS WIL L NOT APPLY TO THE CASE OF THE ASSESSEE DUE TO THE REASON THAT THE ASSESSEE HAS TR ANSFERRED ONLY ONE UNIT OF THE ASSESSEE COMPANY AND NOT WHOLE UNDERTAKING AS A GOI NG CONCERN. IT IS ALSO SUBMITTED THAT THE SIMILAR TYPE OF ISSUE RAISED IN ASSESSMENT YEAR 1990-91 IN THE CASE OF PINE CHEMICAL LTD. WHEN THE ASSESSEE PURCHA SED THE ABOVE COMPANY. IN THAT YEAR THE ASSESSEE TREATED THE UNDERTAKING AS A GOING CONCERN AND DID NOT PAY TAXES. THE ASSESSING OFFICER CALCULATED THE CAPITAL GAIN TAX ON EACH ASSET BASIS AND LEARNED CIT(A) HAS ALSO CONFIRMED IT ON THE BAS IS OF SEC.50 OF THE I.T.ACT,1961. EVEN I.T.A.T. HAS ALSO CONFIRMED THE ORDER. IT IS SUBMITTED THAT THERE SHOULD NOT BE DEVIATION FROM THE PRINCIPLES A DOPTED IN EARLIER YEARS IN THE SAME CASE. ON THE BASIS OF ABOVE, IT IS REQUESTED T HAT ONLY LONG TERM CAPITAL GAIN ON SALE OF LAND WOULD BE TAXABLE AND REST OF THE SA LE CONSIDERATION WOULD BE SET OFF AGAINST THE W.D.V. UNDER SECTION 50 OF THE ACT. I HAVE GONE THROUGH THE SUBMISSIONS AND FIND THAT THE PRINCIPLES OF RES JUD ICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS. IF THE NEW FACTS HAVE COME IN PICTURE SUBSEQUENT TO THE APPLICATION OF ONE PRINCIPLE IN A PARTICULAR ASSESS MENT YEAR, DEVIATION CAN BE MADE FROM THE EARLIER ASSESSMENT YEAR. THERE IS NO DOUBT THAT THE ASSESSEE HAS SOLD PROFEEL SENTINEL DIVISION AS A GOING CONCERN. THIS HAS BEEN MENTIONED IN THE AGREEMENT BETWEEN THE ASSESSEE AND THE TRANSFEREE. EVEN THOUGH THE ASSESSEE HAS NOT SOLD THE WHOLE BUSINESS BUT HAS SOLD ITS ABSOLU TELY SEPARATE 4I UNIT FOR WHICH SEPARATE BOOKS OF ACCOUNTS WARE MAINTAINED AND SEPA RATE PROFIT WAS CALCULATED. LOOKING TO THE ABOVE, PRINCIPLES OF CAPITAL GAIN ON SALE OF PROFEEL DIVISION ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 29 - WOULD BE APPLICABLE AS A GOING CONCERN. AS DISC USSED SOMEWHERE IN THIS ORDER, THE JUDGMENTS QUOTED WOULD SAY THAT THE INDUSTRI AL UNDERTAKING AS A GOING CONCERN IS A CAPITAL ASSETS. THEREFORE CAPITAL GAIN IS TO BE CALCULATED ON SALE OF WHOLE UNDERTAKING AND NOT ON ANY ASSETS IN PIEC E. AS PER SEC.45 OF THE I.T.ACT, ANY PROFIT OR GAIN ARISING FROM TRANSFER OF CAPITAL ASSETS WILL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GAINS'. FOR THE PURPOSE OF TAXING CAPITAL GAIN, THE ASSETS SHOULD BE CAPITA L ASSETS AND THERE SHOULD BE TRANSFER OF IT. AS PER DECISION OF HON'BLE S UPREME COURT IN THE CASE OF KAMATAKA SYNDICATE LTD. VS. ADDL.CIT 155 ITR 681, CAPITAL ASSETS MUST INCLUDE THE PROPERTY OF ANY KIND BY THE ASSESSEE ON THE SURFACE OF EARTH. IT IS ALSO MENTIONED IN THE ORDER THAT THE DESCRIPTION CANNOT CHANGE THE CHARACTER OF PROPERTY IF OTHERWISE IT IS A CAPITAL ASSET. AL SO HON'BLE DELHI HIGH COURT IN THE CASE OF SHIVSHAKARLAL VS. CIT 155 ITR 433 HAS HELD THAT WHETHER THE CONCERNED PROPERTY IS CAPITAL ASSETS MUST BE DET ERMINED AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND JUDICIAL PRINCIPLES LAID DOWN BY COURTS ON SIMILAR ISSUE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HOW THE COST OF UNDERTAKING WOULD BE CALCULATED IN VIEW OF DECISION BE OF HON'BLE SUP REME COURT IN THE CASE OF C.I.T. VS. SHRINIVAS SHETTY 728 ITR 294. IN THIS REGARD, IT IS WORTHWHILE TO BRING TO THE NOTICE OF THE AUTHORISED REPRESENTATIVE THAT WORKING OF COST OF UNDERTAKING IS NOT DIFFICULT. THE UNDERTAKING CO NSISTS OF ALL THE ASSETS AND LIABILITIES. THE VALUE OF ASSETS OR LIABILITIE S IS TO BE CALCULATED NET AND THAT NET ASSET VALUE IS THE COST OF UNDERTAKING. HON'BL E SUPREME COURT IN THE CASE OF C.I.T. VS. SRHNIVAS SHETTY HAS HELD THAT COST OF AC QUISITION MENTIONED IN SEC. 48 IMPLIES THE DATE OF ACQUISITION AND IF COST OF ACQU ISITION OR DATE OF ACQUISITION ASSETS CANNOT BE DESCRIBED WITHIN THE MEANING OF SE C. 45, ITS TRANSFER CAN NOT BE SUBJECTED TO INCOME-TAX UNDER THE HEAD ' CAPITAL GA INS'. IT FURTHER HELD THAT IF THERE IS TRANSFER OF WHOLE CONCERN AND PRICE IS NOT INDIC ATED AGAINST DIFFERENCE AND DEFINITE ITEMS HAVING REGARD TO THEIR VALUE, THEN, IN SUCH CASE, AGREED PRICE CANNOT BE APPORTIONED IN A PIECE AND WHATEVER SOLD IN SUCH CASE, THE COURT STATED IS NOT ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 30 - INDIVIDUAL ITEM OF PROPERTY FORMING PART OF AGGREGA TE BUT THE CAPITAL ASSETS CONSISTING OF BUSINESS OF WHOLE CONCERN OR UNDERTAK ING. THE COURT ALSO ADDED THAT IT ARISE FOR CONSIDERATION FROM POINT OF VIEW OF TA XING IS ONLY GAIN IN RESPECT OF THAT TRANSACTION AND NOTHING ELSE. HON'BLE SUPREME COURT IN THE CASE OF CIT VS, MUGHANEERAM & COMPANY HAS ALSO STATED THAT WHERE SA LE WAS OF A CONCERN AS A WHOLE AND SLUM PRICE WAS PAID THEN WHAT IS RESULTED FROM APPRECIATION ON CAPITAL WILL BE CAPITAL GAIN CHARGEABLE TO TAX. THE ASSESSE E HAS SOLD AND RECEIVED THE SALE CONSIDERATION OF HS. 6,46,93,531/- AND TRANSFERRED ALL THE ASSETS, THEREFORE THERE IS NO DISPUTE ON IT. LOOKING TO THE FACT THAT WHOLE UN DERTAKING IS SOLD AS A GOING CONCERN THEREFORE WHATEVER IS RECEIVED BY THE ASSES SEE CANNOT BE APPORTIONED TO A PARTICULAR ASSET AND CANNOT BE CALCULATED AS CAPI TAL GAIN ON SALE OF ITEM IN DIFFERENT PIECES. AS THE UNDERTAKING IN ITSELF IS A CAPITAL ASSETS, THEREFORE CAPITAL GAIN IS TO BE CALCULATED ON WHOLE UNDERTAKING ITSEL F. THE ASSESSEE ADJUSTED SALE CONSIDERATION OF ASSET ON ALTOGETHER DIFFERENT ASSETS OF DIFFERENT UNITES TWO UNITS AS TWO UNITS ARE SEPARATE AND THEIR BOOKS OF ACCOUNT S WERE ALSO SEPARATE NO ADJUSTMENT CA BE MADE OUT OF SALE OF ASSETS. SO FA R AS DATE OF ACQUISITION OF UNDERTAKING IS CONCERNED, THE ASSESSEE PURCHASED UNDERTAKING IN THE YEAR 1990 AND SUBSEQUENTLY, SOME ADDITIONS IN THE ASSET WERE MADE. IT PURCHASED STOCK AND SPARES ON DAY TO DAY BASIS. THE STOCK IN TRADE AND CERTAIN ADDITIONS MADE IN THE UNDERTAKING WITHIN 36 MONTHS ARE SHORT TERM CAPITAL ASSETS. THOSE ASSETS ARE DEPRECIABLE ASSETS AND THEREFORE WHATEVER W.D.V. IS LEFT MAINLY THAT IS OF ACCOUNT OF ADDITION MADE WITHIN THREE YEARS. NOT O NLY THIS, STOCK IN TRADE AND OTHER CURRENT ASSETS CANNOT BE TREATED AS LONG TE RM CAPITAL GAIN. IN VIEW OF ABOVE, INDUSTRIAL UNDERTAKING SOLD BY THE ASSESSEE IS TREATED AS SHORT TERM CAPITAL ASSETS AND CAPITAL GAIN IS CALCULATED AS U NDER: NET ASSET VALUE AS DISCUSSED SOMEWHERE IN EARLIER PARAS RS. 3,07,22,786 LESS: SALE CONSIDERATION RECEIVED BY THE ASSESSEE O N FIXED ASSETS AND CURRENT ASSETS. RS. 6,46,93,531 SHORT TERM CAPITAL GAIN .. RS. 3,39,70,745 ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 31 - SIMILAR SITUATION AROSE IN THE CASE OF INDUSTRIAL M ACHINERY ASSOCIATES, GIDC ESTATE, ODHAV, AHMEDABAD FOR A.I.1993-94 IN WHICH S ALE OF UNDERTAKING WAS TREATED AS SALE OF SHORT TERM CAPITAL ASSET AND SUR PLUS RECEIVED AGAINST NET ASSET VALUE WAS TAXED AS SHORT TERM CAPITAL GAIN. THIS ST AND TAKEN BY THE DEPARTMENT HAS BEEN CONFIRMED BY CIT(A), AHMEDABAD AND THE MATTER IS LYING BEFORE THE I.T.A.T. BENCH, AHMEDABAD. SIMILAR ISSUE ALSO AROSE IN THE CASE OF BIOPHRAMA LTD., BARODA AND IN THAT CASE ALSO SURPLUS RECEIVED FROM TRANSFER AT SALE OF UNDERTAKING WAS TAXED AS SHORT TERM CAPITAL GAIN AR ID HON'BLE CIT(A) HAS ALSO CONFIRMED THE STAND TAKEN BY THE DEPARTMENT. LOOKIN G TO THE ABOVE, SALE OF PROFEEL DIVISION BY THE ASSESSEE IS TREATED AS SALE OF I NDUSTRIAL UNDERTAKING AND SHORT TERM CAPITAL GAIN OF RS.3,39,70,745/- IS TA XED. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT ARE INITIATED FOR FU RNISHING INACCURATE PARTICULARS OF INCOME. LONG TERM CAPITAL GAIN SHOWN BY THE AS SESSEE OF RS. 56 ,49,481/- IS ALSO TAXED ON PROTECTIVE BASIS AS THE SAME HAS BEEN DISCLOSED BY THE ASSESSEE. IF THE SHORT TERM CAPITAL GAIN IS DISCUSSED IN T HIS ORDER IS CONFIRMED IN APPEAL, RELIEF WITH REGARD TO THE LONG TERM CAPITAL GAIN W OULD BE GIVEN U/S 154 OF THE I.T.ACT. THE ASSESSEE HAS DEDUCTED BROUGHT FORW ARD LOSS OF RS . 5,20,137/- RELATED TO A.Y-. 1994-95 FROM THE LONG TERM CAPITA L GAIN OF THIS YEAR. AS PER RETURN OF INCOME AS WELL AS PER ASSESSMENT ORDER OF A.Y.1994-95 THERE IS NO SUCH UNABSORBED LOSSES AND THEREFORE SET OFF OF RS. 5,20,137/-IS NOT ALLOWED AGAINST THE LONG TERM CAPITAL GAIN SHOWN BY THE AS SESSEE. THE ASSESSEE HAS CLAIMED DEPRECIATION ON REDUCED W.D.V. BY SALE O F CERTAIN ASSETS. THE DEPRECIATION CLAIMED BY THE ASSESSEE IS NOT INT ERFERED AT THIS TIME. IF THE SHORT TERM CAPITAL GAIN CALCULATED AS PER THIS ORDER I S CONFIRMED IN APPEAL, DEPRECIATION WILL ALSO BE ALTERED ACCORDINGLY. 74. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) THE ASSESSEE SUBMITTED AS UNDER:- 3. IN RETURN OF INCOME, THE APPELLANT HAS SHOWN LO NG TERM CAPITAL GAIN OF RS.56,49,481/-. REGARDING OTHER ASSETS IN THE SHAPE OF BUILDING, PLANT AND MACHINERY, FURNITURE AND FIXTURES VEHICLES ETC, THE APPELLANT COMPANY HAD ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 32 - REDUCED THE BLOCK OF ASSETS AND DEPRECIATION IS CLA IMED ON THE REDUCED W.D.V. 3.4 DURING THE COURSE OF HEARING THE LD. REPRESENTA TIVE FOR THE APPELLANT DREW MY ATTENTION TO THE HON'BLE TRIBUNALS DECISIO N IN ITA NO.4112/AHD/1993 OF 1990-91 IN APPELLANTS OWN CASE WHERE UNDER IDENTICAL CIRCUMSTANCES THE CAPITAL GAINS SO MADE ON SALE OF INDUSTRIAL UNDER TAKING AS TAXED BY THE DEPARTMENT UNDER SECTION 50 FOLLOWING THE RATIO LAID DOWN BY HON'BLE SUPREME COURT IN CIT V/S. ARTAX MFG. CO.LTD . 227 ITR 260. IN THAT CASE, THE ASSESSEE TREATED THE UNDERTAKING AS A GOI NG CONCERN BUT THE LEARNED ASSESSING OFFICER CALCULATED CAPITAL GAIN O N EACH ASSET BASIS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ED IT ON THE BASIS OF SECTION 50 OF THE I.T.ACT, 1961. EVEN THE HON'BLE I TAT AHMEDABAD BENCH IN ITA NO.4112/AHD/1993 OF 1990-91 CONFIRMED THE ORDER . BUT THE LEARNED ASSESSING OFFICER UNDER IDENTICAL FACTS DEVIATED FR OM THE PRINCIPLES ADOPTED BY THE DEPARTMENT IN EARLIER YEAR ON THE SAME POINT . 3.6 THE LD. REPRESENTATIVE FOR THE APPELLANT COMPAN Y ALSO DREW MY ATTENTION TO THE RATIO LAID DOWN BY ITAT BOMBAY BEN CH A IN ITA NO.8618/BOM. 1989 IN THE CASE OF J.K.CHEMICALS LTD. V. ACIT IN WHICH CASE THE ASSESSEE HAD SOLD OFF THE ENTIRE PLANT AND MACH INERY AND IT WAS HELD THAT IN CASE OF DEPRECIABLE ASSET , COMPUTATION HAS NOT BE MADE AS PER SECTION 50 AND IT WAS TO BE ASSESSED AS BUSINESS INCOME. 3.7 HE FURTHER SUBMITTED THAT THOUGH THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO TAX CASES IN VIEW OF THE SUPREME COURT DEC ISION IN THE CASE OF RADHASOAMI SATSANG VS. CIT (100 CIT (30 ITR 618), THE DEPARTMENT MUST BE VERY SLOW TO DEPART FROM THE PAST PRACTICE AND ACCO RDINGLY THE CAPITAL GAINS FOR THE CONCERNED YEARS BE COMPUTED AS PER SECTION 50. 3.8 HE ALSO DREW MY ATTENTION TO HON'BLE SUPREME CO URT DECISION IN UNION OF INDIA V/S. KAMALAKSHI FINANCE CORPORATION LTD. (1991-55 ELT 433) IN WHICH APEX COURT HAS LAID DOWN THAT THE DECISION O F THE HON'BLE TRIBUNAL WOULD BE BINDING ON THE LOWER AUTHORITIES. HE ALSO REFERRED TO DECISION ON THE LOWER AUTHORITIES. HE ALSO REFERRED TO DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SUN EXPORT & ORS. V/S. COLLECTOR OF CUSTOMS 1989-(22 ECR 67 (CEGAT SRB) WHEREIN IT HAS CATEGORICALLY BEEN HELD IN PARA 7, PAGE 69, AS UNDER: DECISIONS OF HIGHER AUTHORITIES ARE BINDING EVEN ON QUASI JUDICIAL AUTHORITIES. WE ARE ALSO UNABLE TO AGREE WITH THE F URTHER CONTENTION THAT THE COLLECTOR (APPEALS) OUGHT TO HAVE RELIED UPON THE D ECISION OF SRB GEGAT ORDER NO.196/88 DATED 21/4/1988 IN THE CASE OF M/S. M.M.EXPORTS, BECAUSE THE CASE DECIDED BY THE TRIBUNAL IS ON IDENTICAL FA CTS AS FOUND IN APPELLANTS CASE. ALSO THAT DECISION WAS AVAILABLE BEFORE THE C OLLECTOR (APPEALS), WHEN HE DECIDED THE PRESENT APPEALS AND HIS RELIANCE THE REON IS IN CONSONANCE WITH THE PRINCIPLE THAT IN THEIR SYSTEM, DECISIONS OF HIGHER AUTHORITIES ARE BIDING ON LOWER AUTHORITIES AND QUASI JUDICIAL TRIB UNAL ARE ALSO BOUND BY THIS DISCIPLINE. ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 33 - IN VIEW OF THE ABOVE DECISIONS, HE SUBMITTED THAT T HE LEARNED ASSESSING OFFICER WAS BOUND TO APPLY THE PRINCIPLES LAID DOWN BY THE HON'BLE TRIBUNAL IN THE CASE OF ERSTWHILE PINE CHEMICALS LT D. (NOW THE APPELLANT AFTER AMALGAMATION VIDE HIGH COURT ORDER). 3.9 THE LEARNED REPRESENTATIVE ALSO SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN RELYING ON HER ORDER IN THE CASE OF (A) INDUSTRIAL MACHINERY ASSOCIATES AND (B) BIOPHARMA LTD. WHICH A CCORDING TO HER HAS BEEN CONFIRMED BY CIT(A), PENDING BEFORE TRIBUNAL. HOWEVER, COPIES OF THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) WERE NOT MADE AVAILABLE TO THE APPELLANT COMPANY AND HENCE IT WAS FLAGRANT VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE SINCE THE EVIDENCE CO LLECTED BEHIND THE BACK OF THE ASSESSEE HAS BEEN USED AGAINST THE ASSESSEE WIT HOUT GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RELIANC E WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF R .B. SHREERAM DURGAPRASAD AND FATECHAND NURSING DAS (176 ITR169). 3.10. IT WAS FURTHER SUBMITTED THAT NO CAPITAL GAIN COULD EVEN OTHERWISE ACCRUE ON SALE OF INDUSTRIAL UNDERTAKING FOR A SLU MP PRICE AS IT IS IMPOSSIBLE TO WORK OUT THE COST OF ACQUISITION AND COST OF IMP ROVEMENT AS WELL AS TO INDEX THE SAME. 74. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD AS UNDER:- 3.11. HAVING HEARD THE REPRESENTATIVE OF THE APPELL ANT COMPANY, I AM OF THE VIEW THAT THE DECISION OF GUJARAT HIGH COURT, I N THE CASE OF ARTEX MFG. CO. LTD. V/S. CIT (131 ITR 559) RELIED UPON BY THE LEAR NED ASSESSING OFFICER IS NO LONGER GOOD LAW SINCE THE SAID DECISION HAS BEEN OV ERRULED BY THE HON'BLE SUPREME COURT IN CIT VS. ARTEX MANUFACTURING CO. (2 27ITR260). WE ARE BOUND BY JUDICIAL DISCIPLINE IN RESPECT OF BINDING NATURE AS LAID DOWN BY HON'BLE SUPREME COURT IN CASES OF UNION OF INDIA VS . KAMALAKSHI FINANCE CORPORATION LTD. (1991 55ELT 433) AND SUN EXPORT CORPORATION & ORS. VS. COLLECTOR OF CUSTOMS 1989 (22) ECR 67 (CAGAT SRB). ACCORDINGLY U RESPECTFULLY FOLLOW THE HON'BLE TRIBUNAL DECISION O F AHMEDABAD C BENCH IN APPEAL NO.4112/AHD/1993 IN THE APPELLANTS OWN CASE ON IDENTICAL FACTS IN ASSESSMENT YEAR 1990-91WHERE HON'BLE TRIBUNAL HAS H ELD THAT : THE FACTS ON RECORD THUS CLEARLY INDICATE THAT IT IS NOT THE CASE OF TRANSFER AND SALE OF A GOING CONCERN FOR A LUMP SUM CONSIDER ATION. THE ASSESSEE HAS ACTUALLY SOLD VARIOUS ITEMS OF ASSETS BELONGING TO PINSEL UNIT AS PER AGREEMENT DATED 17/4/1989 AND THEREFORE, PROVISIONS OF SECTION 50(2) ARE CLEARLY APPLICABLE AND THE SURPLUS OF THE SALE CONS IDERATION OVER THE WDV IN RESPECT OF BLOCK ASSETS LIKE BUILDING, FURNITURE AN D FITTINGS, PLANT, AND MACHINERY ARE LIABLE TO BE ASSESSED AS SHORT TERM C APITAL GAIN. THE ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 34 - CONTENTION OF THE LEARNED COUNSEL THAT THE SALE CON SIDERATION ATTRIBUTABLE TO EACH BLOCK OF ASSETS HAS NOT BEEN INDICATED IN THE SALE AGREEMENT IS FACTUALLY INCORRECT. WE HAVE ALREADY REPRODUCED VARIOUS CLAUS ES OF THE SALE AGREEMENT AS WELL AS THE SUPPLEMENTARY AGREEMENT WHICH CLEARL Y INDICATE THAT THE SALE CONSIDERATION HAS BEEN SPECIFICALLY ATTRIBUTED TO V ARIOUS ASSETS HELD BY PINSEL UNIT AT THE TIME OF TRANSFER. IN THE FACTS OF THE C ASE THE DECISION OF HON'BLE SUPREME COURT IN CIT V/S. ARTEX MFG. CO. LTD. WOULD APPLY IN THE SAID DECISION THEIR LORDSHIPS HELD AT PAGE 276 OF THE RE PORT. IT IS NO DOUBT TRUE THAT THAT IN THE AGREEMENT THE RE IS NO REFERENCE TO THE VALUE OF THE PLANT, MACHINERY AND DEAD STOCK . BUT ON THE BASIS OF THE INFORMATION THAT WAS FURNISHED BY THE ASSESS EE BEFORE THE INCOME TAX OFFICER, IT BECAME EVIDENT THAT THE AMOU NT OF RS.11,50,400/- HAD BEEN ARRIVED AT BY TAKING INTO C ONSIDERATION THE VALUE OF THE PLANT, MACHINERY AND DEAD STOCK AS ASS ESSED BY THE VALUER AT RS.15,87,296/-. THIS IS NOT A CASE IN WHI CH IT CANNOT BE SAID THAT THE PRICE ATTRIBUTED TO THE ITEMS TRANSFERRED IS NOT INDICATED AND HENCE SECTION 41(2) OF THE 1961 ACT CANNOT BE APPLI ED. WE ARE, THEREFORE, UNABLE TO AGREE WITH THE VIEW OF THE HIG H COURT THAT SECTION 41(2) OF THE 1961 ACT CANNOT BE APPLIED. WE ARE, THEREFORE, UNABLE TO AGREE WITH THE VIEW OF THE HIGH COURT THA T SECTION 41(2) OF THE 1961 ACT IS NOT APPLICABLE. 3.12 THE FACTS IN THIS YEAR UNDER REFERENCE STAND O N A STRONGER FOOTING INASMUCH AS CONSIDERATION WITH REGARD TO VARIOUS AS SETS HAS BEEN INDICATED IN THE SALE AGREEMENT ITSELF AND AGAIN AT THE TIME OF TAKE OVER, ADJUSTMENTS WITH REGARD TO VARIOUS ITEMS LIKE CASH AND BANK BAL ANCE, STOCK INVENTORIES ETC. HAVE BEEN MADE. SINCE ARTEC MFG. COS CASE IS THE DIRECT AUTHORITY IN SUPPORT OF THE VIEW TAKEN BY THE APPELLANT, IT IS N OT CONSIDERED NECESSARY TO DISCUSS THE VARIOUS OTHER DECISIONS RELIED UPON BY THE LEARNED ASSESSING OFFICER. ACCORDINGLY, I DIRECT THE LEARNED ASSESSIN G OFFICER TO TAX THE SALE CONSIDERATION OF RS.6,46,93,531/- RECEIVED ON SALE OF INDUSTRIAL UNDERTAKING AS PER SECTION 50 AND ADJUST THE SALE CONSIDERATION IN RESPECT OF DEPRECIABLE ASSETS AGAINST THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AND NOT THE INDIVIDUAL UNIT OF THE ASSESSEE AND RE-COMPUTE AND GRANT THE BENEFIT OF INDEXATION AS CONTAINED IN 2 ND PROVISO TO SECTION 48 OF THE INCOME TAX ACT, 1961. 75 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LEARNED ASSESSING OFFICER. 76. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS). ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 35 - 77. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE TRANSFERRED ITS PROFEEL DIVISION BUSINESS ESTABLIS HMENT AT BARODA AND BRANCH AT PONDICHERRY AS PER AGREEMENT ENTERED INTO BETWEEN T HE ASSESSEE AND THE PURCHASER OF THE ABOVE UNIT NAMELY SUPREME AGENCY LTD., MUMBA I ON 8.08.1997, WHICH PRODUCED THAT THE TRANSFEROR SHALL TRANSFER TO THE TRANSFEREE THE SAID UNDERTAKING AS A GOING CONCERN W.E.F. 1.10.1997. THE PROPERTY COVE RED UNDER MOU AS THE ENTIRE ASSETS OF PROFEEL DIVISION CONSISTING OF LAND, BUIL DING AND OTHER FIXED ASSETS INCLUDING SPARES AND STORES AS PER ANNEXURE-1, OF A GREEMENT TOGETHER WITH ALL THE INVENTORIES, DEPOSITS AND ADVANCES AND OTHER MISCEL LANEOUS ASSETS SUCH AS FURNITURE AND FIXTURES VEHICLES, OFFICE EQUIPMENTS ETC. AS PER ASSET REGISTER OF THE SAID UNDERTAKING INCLUDING TRADE NAME, PROFIT AND O THER TRADE NAME BUT EXCLUDING BOOK DEBT AND CASH AND BANK BALANCES. IT IS ALSO AG REED THAT NO TRADE LIABILITIES OF THE UNDERTAKING HAS BEEN TRANSFERRED TO THE TRANSFE REE. THE ASSESSEE ACQUIRED THE SAID PROFEEL DIVISION IN 1990 BY WAY OF PURCHASE. T HE MAIN DISPUTE BEFORE US IS WHETHER THE ABOVE TRANSFER IS SLUM SALE BY THE ASSE SSEE OF THE INDUSTRIAL UNDERTAKING BY THE ASSESSEE OR IT IS A CASE OF TRAN SFER OF VARIOUS ASSETS FOR CONSIDERATION. ACCORDING TO THE LEARNED ASSESSING O FFICER THE SALE WAS FOR A CONSOLIDATED AMOUNT OF RS.521 LACS PLUS THE VALUE OF INVENTORIES AND DEPOSITS/ADVANCES AND UNEXPIRED INSURANCE POLICIES AT THE AGREED PRICE. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAS RECEIVED TOTAL CONSIDERATION OF RS.646.93 LACS IN RESPECT OF THE ABOVE TRANSFER. AS PER THE LEARNED ASSESSING OFFICER, THIS WAS A CASE FOR SLUM SALE OF A UNIT BY THE ASSESSEE. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) HELD THAT SALE CONSIDERATION WITH REGARD TO VARIOUS ASSETS HAS BEE N INDICATED IN THE SALE AGREEMENT ITSELF AND AGAIN AT THE TIME OF TAKE OVER , ADJUSTMENTS WITH REGARD TO VARIOUS ITEMS LIKE CASH AND BANK BALANCES, STOCK IN VENTORIES, ETC. HAVE BEEN MADE. IN VIEW OF THIS, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OPINED THAT THIS IS NOT A CASE OF TRANSFER OF INDUSTRIAL UNDERTAKING AS A SLUM SALE BUT IT IS A CASE OF ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 36 - TRANSFER OF VARIOUS ASSETS BY THE ASSESSEE. WE FIND THAT SUPREME COURT IN THE CASE OF CIT VS. ARTEX MANUFACTURING CO. (1997) 227 ITR 2 76 HELD AS UNDER: - IT WAS THE ADMITTED CASE OF THE ASSESSEE BEFORE TH E ITO THAT THE PLANT, MACHINERY AND DEAD STOCK HAD BEEN REVALUED BY A VAL UER AT THE TIME OF THE AGREEMENT FOR SALE AND THE AMOUNT OF RS. 11,50,400 WAS FIXED AFTER TAKING INTO ACCOUNT THE VALUE OF THE PLANT, MACHINERY AND DEAD STOCK AT RS. 15,87,296 AS PER VALUATION BY THE VALUER. THIS SHOW S THAT AT THE TIME OF EXECUTION OF THE AGREEMENT ON 31ST MARCH, 1967 THE VALUE OF THE PLANT, MACHINERY AND DEAD STOCK THAT WERE TRANSFERRED WAS RS. 15,87,296. IT IS NO DOUBT TRUE THAT IN THE AGREEMENT THERE IS NO REFERE NCE TO THE VALUE OF THE PLANT, MACHINERY AND DEAD STOCK. BUT ON THE BASIS O F THE INFORMATION THAT WAS FURNISHED BY THE ASSESSEE BEFORE THE ITO IT BEC AME EVIDENT THAT THE AMOUNT OF RS. 11,50,400 HAD BEEN ARRIVED AT BY TAKI NG INTO CONSIDERATION THE VALUE OF THE PLANT, MACHINERY AND DEAD STOCK AS ASS ESSED BY THE VALUER AT RS. 15,87,296. THIS IS NOT A CASE IN WHICH IT CANNOT BE SAID THAT THE PRICE ATTRIBUTED TO THE ITEMS TRANSFERRED IS NOT INDICATE D AND, HENCE S. 41(2) CANNOT BE APPLIED. IT IS, THEREFORE, NOT POSSIBLE T O AGREE WITH THE VIEW OF THE HIGH COURT THAT S. 41(2) IS NOT APPLICABLE. BUT THE LIABILITY UNDER S. 41(2) IS LIMITED TO THE AMOUNT OF SURPLUS TO THE EXTENT OF D IFFERENCE BETWEEN THE WRITTEN DOWN VALUE AND THE ACTUAL COST. ARTEX MFG. CO. VS. CIT (1981) 21 CTR (GUJ) 31 : (1981) 131 ITR 559 (GUJ) : TC 29R.22 1 SET ASIDE ON THIS POINT 78. WE FURTHER FIND THAT ON THE SAME DATE, THE HON 'BLE SUPREME COURT IN THE CASE OF CIT VS. ELECTRIC CONTROL GEAR MFG. CO. (199 7) 227 ITR 278(SC), HAS HELD THAT THERE BEING NOTHING TO INDICATE THE PRICE ATTR IBUTABLE TO ASSETS LIKE MACHINERY PLANT OR BUILDING OUT OF CONSIDERATION RECEIVED ON TRANSFER OF BUSINESS AS A GOING CONCERNS, IT COULD NOT BE SAID THAT ANYTHING IN EXC ESS OF WDV WAS RECEIVED BY THE ASSESSEE. SECTION 41(2) IS THEREFORE, NOT APPLI CABLE. 79 THUS, ON A PERUSAL OF THE ABOVE TWO DECISIONS OF THE HON'BLE SUPREME COURT, WE FIND THAT IN A CASE WHERE VALUE OF EACH O F THE ASSETS IS IDENTIFIED SEPARATELY AT THE TIME OF TRANSFER OF THE ASSET THE N SUCH TRANSFER IS TRANSFER OF INDIVIDUAL ASSETS BY THE ASSESSEE AND IN A CASE WHE RE THE TRANSFER IS MADE AT A CONSOLIDATED PRICE WITHOUT IDENTIFYING CONSIDERATIO N FOR EACH OF THE ASSETS SEPARATELY THEN THE SAME IS A CASE OF SLUM SALE OR SALE OF INDUSTRIAL UNDERTAKING. WE FIND THAT THE LEARNED ASSESSING OFFICER HAS STAT ED THAT SALE PRICE EXCEPT FOR INVENTORIES DEPOSITS AND ADVANCES AND UNEXPIRED POL ICY OF INSURANCE WAS AGREED ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 37 - FOR A SUM OF RS.521 LACS AND IT IS ALSO OBSERVED TH AT ASSESSEE HAS SHOWN SALE PRICE OF LAND AT RS.71 LACS BY BIFURCATING THE CONSOLIDAT ED SALE PRICE. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS OBSERVED TH AT SALE CONSIDERATION WITH REGARD TO VARIOUS ASSETS HAS BEEN INDICATED IN THE SALE AGREEMENT ITSELF. THUS, WE FIND THAT OBSERVATIONS OF BOTH THE LOWER AUTHORITIE S ARE CONTRADICTORY. WE FIND THAT LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS BRO UGHT NO MATERIAL ON RECORD IN SUPPORT OF HIS ABOVE FINDINGS TO THE EFFE CT THAT SALE CONSIDERATION OF VARIOUS ASSETS WAS INDICATED IN THE AGREEMENT TO SA LE. TO RESOLVE THIS ISSUE, ONE HAS TO GO THROUGH THE SAID AGREEMENT AND OTHER CONN ECTED DOCUMENTS. HOWEVER, WE FIND THAT BOTH THE PARITIES BEFORE US HAVE NOT F ILED COPY OF THE SALE AGREEMENT AND THE CONNECTED DOCUMENTS. IN ABSENCE OF THE SAME , IT IS NOT POSSIBLE FOR US TO ADJUDICATE THE ISSUE COMPLETELY. IN THE ABOVE CIRC UMSTANCES IN OUR CONSIDERED OPINION, IT SHALL BE FAIR AND IN THE INTEREST OF JU STICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR PROPER VE RIFICATION AND THEREAFTER, ADJUDICATION OF THE ISSUE AFRESH IN LIGHT OF THE AB OVE MENTIONED TWO DECISIONS OF THE HON'BLE SUPREME COURT. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES IN RESPECT OF THIS ISSUE AND RESTORE TH E MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH I N THE LIGHT THE DECISION MADE HEREINABOVE AFTER ALLOWING REASONABLE OPPORTUNITY O F HEARING TO THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. 80. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED IN THE MANNER INDICATED ABOVE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 27/11/2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 27/11 /2009 PREPARED AND COMPARED BY : PARAS # ITA NO .1955/AHD/2001 M/S.CAMPHOR & ALLIED PRODUCTS LTD. ASST.YEAR -1998-99 - 38 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD