INDFOS INDUSTRIES LTD, MUMBAI V. ACIT CIR 2(2), MUMBAI

ITA 2065/MUM/2010

• Counselvise Citation: 206519914 RSA 2010
• Duration Of Justice: 4 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 10-04-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 12-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: HEENA DOSHI
• Keywords: Depreciation; Principle of natural justice; Competent authority; Revenue expenditure; Capital expenditure
• Section: 32; 28; 11; 43B; 139; 80HHC

Judgement Text

, VKBZ VKBZ VKBZ VKBZ INCOME TAX APPELLATE TRIBUNAL,MUMBAI - I BENCH. , ! ! ! ! , ,, , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & VIVEK VAR MA,JUDICIAL MEMBER /. ITA NO.2065/MUM/2010, # # # # $ $ $ $ / ASSESSMENT YEAR-2003-04 INDFOS INDUSTRIES LTD. MEGHAL INDUSTRIAL ESTATE, GALA NO.22, 1 ST FLOOR, DEVI DAYAL ROAD, MULUND-WEST,MUMBAI-400080 VS ITO 2(2)(1) AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI-400020 PAN: AAACI2581H ( %& / APPELLANT) ( '(%& / RESPONDENT) #)* #)* #)* #)* + + + + / ASSESSEE BY : HEENA DOSHI , + / REVENUE BY : SHRI ASHOK SURI # # # # , ,, , *- *- *- *- / DATE OF HEARING : 10-04-2014 ./$ , *- / DATE OF PRONOUNCEMENT : 30-04-2014 # # # # , 1961 , ,, , 254 )1( *0* *0* *0* *0* 1 1 1 1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM # # # # : CHALLENGING THE ORDER DATED 31.12.2009 OF THE CIT(A )-5,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEANED CIT(A) HAS ERRED IN NOT DECIDING THE GROUND NO.2 IN THE APPEAL BEFORE HIM AS REGARDS THE COMPUTATION OF DEDUCTION U/S.80HHC BY CONSIDERING THE ASSESSED INCOME FOR THE PURPOSE OF COMPUTING THE PROFIT OF THE BUSINESS INSTEAD OF RETURNED INCOME.HE OUGHT TO HAVE DIRECTED THE LEARN ED ACIT ACCORDINGLY. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING AN ADDITION OF RS.27,94,454/-U/S 2(24)(X ) READ WITH 36 (1)(VA) ON ACCOUNT OF DELAY IN DEPOSITING EMPLOYEES CONTRIBUTION TO PROVIDENT FUN D/ESIC.HE OUGHT NOT TO HAVE DONE SO. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE PAYMENT OF TECHNICAL-SERVICE FEES AG GREGATING TO RS.1,56,72,099/- PAID TO HINDUSTAN AERONAUTIC LIMITED (HAL)BEING RS.1,47,32, 388/- AND DRES LIMITED AMOUNTING TO RS. 9,39,711/-AS CAPITAL EXPENDITURE ASSET AND ALLOWING DEPRECIATION THEREON .SIMILARLY, CONSULTANCY CHARGES OF RS. 8,11,140/- PAID TO KAP CO. LTD. HAS BEEN TREATED AS CAPITAL EXPENDITURE/ASSET AND ALLOWING DEPRECIATION THEREON.THE LEARNED CIT(A) HA S ERRED IN NOT CONSIDERING THE EXPENDITURE AS REVENUE EXPENDITURE. HE OUGHT NOT TO HAVE DONE SO. YOUR APPELLANTS CRAVE LEAVE TO ADD, TO ALTER, TO MO DIFY ANY OF THE AFORESAID GROUNDS OR TAKE AN ADDITIONAL GROUND OF APPEAL, IF NEED BE. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF PRESSURE & TEMPERATURE CONTROL, HYDRAULIC TROLLEY & OVERLOAD PROTECTOR,FILED ITS RE TURN OF INCOME ON 31.03.2004 DECLARING TOTAL INCOME OF RS.2,12,15,032/-.ASSESSING OFFICER (AO) F INALISED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT, ON 28.02.2006,DETERMINING THE TOTAL INCOME AT RS. 4,61,71,500/-. 2. FIRST GROUND OF APPEAL IS ABOUT NOT DECIDING THE GR OUND OF APPEAL NO.2 IN THE APPEAL BY THE FIRST APPELLATE AUTHORITY(FAA).AS PER THE AUTHORISED REPR ESENTATIVE(AR),ASSESSEE HAD RAISED A SPECIFIC ISSUE ABOUT DEDUCTION TO BE COMPUTED U/S.8 0HHC,BUT SAME WAS NOT ADJUDICATED BY HIM. WE FIND THAT ASSESSEE HAD CONTENTED BEFORE THE FAA, THAT AO HAD ERRED IN WORKING OUT THE 2 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. DEDUCTION UNDER SECTION 80HHC BY CONSIDERING THE RE TURNED INCOME INSTEAD OF THE ASSESSED INCOME FOR THE PURPOSE OF COMPUTING THE PROFITS OF THE BUSINESS.WE FURTHER FIND THAT FAA HAD NOT DECIDED THE ISSUE,THOUGH HE HAD DELIBERATED UPON TH E OTHER ISSUES RELATED WITH COMPUTATION OF 80HHC DEDUCTION.IN THESE,CIRCUMSTANCES,WE ARE OF TH E OPINION THAT IN THE INTEREST OF JUSTICE, MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE F AA FOR FRESH ADJUDICATION OF THE ISSUE.HE WILL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 3. NEXT GROUND OF APPEAL PERTAINS TO ADDITION OF RS.27 ,94,454/-,U/S.2(24)(X) R.W.S.36 (1)(VA) OF THE ACT,ON ACCOUNT OF DELAY IN DEPOSITING EMPLOYEES CO NTRIBUTION TO PROVIDENT FUND/ESIC.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESS EE HAD NOT DEPOSITED EMPLOYEESCONTRIBUTIO- N,AMOUNTING TO RS.27.94 LAKHS,ON TIME WITH THE GOVE RNMENT AGENCIES.AO ADDED THE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. IN THE APPELLATE PROCEEDINGS,AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT RELIANCE COULD BE PLA CED ON THE CASE OF IMP POWER LTD.(9 SOT 156),THAT SECTION 43B WAS NOT APPLICABLE WHERE EMPL OYEES CONTRIBUTION TO PF AND ESI WAS NOT DEPOSITED IN TIME, THAT IN SUCH MATTER DEDUCTION WA S NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 2(24)(X)AND36 (1)(V)OF THE ACT.REFERRING TO THE BOA RD CIRCULAR NO.495 DATED 22.09.1987, HE FURTHER HELD THAT THE OBJECT OF THE SECTION WAS TO TAKE MEASURES FOR PENALISING THE EMPLOYERS WHO MISUTILISED THE CONTRIBUTIONS,THAT BY AMENDMENT OF FINANCE ACT 2003,SECOND PROVISO TO SECTION 43B WAS DELETED AND THE FIRST PROVISO WAS AMENDED,T HAT CORRESPONDINGLY NO CHANGE IN THE PROVISION TO SECTION 36(1)(VA) WAS MADE,THAT THE LE GISLATURE,IN ITS WISDOM DID NOT THINK IT PROPER TO PROVIDE THE EMPLOYERS ANY LENIENCY IN RESPECT OF THE DEPOSIT OF THE EMPLOYEES CONTRIBUTION, THAT IN A WELFARE STATE, THE INTEREST OF THE EMPLOY EE SHOULD BE TAKEN CARE OF , THAT THE PROVISIONS OF SECTION 43B WERE NOT APPLICABLE IN THE MATTER UNDER APPEAL.HE ALSO RELIED UPON DECISIONS OF MADAUS PHARMACEUTICALS P.LTD(24SOT180) AND RANISATI FABRIC MILLS P.LTD (309ITR-AT,117). FINALLY,HE HELD THAT THE AO WAS JUSTIFIED IN ADDING EMPLOYEESCONTRIBUTION AS INCOME IN TERMS OF PROVISIONS OF SECTION 2 (24) (X) R.W.S.36(1)(VA) OF THE ACT. 3.2. BEFORE US,AR SUBMITTED THAT ISSUE WAS DECIDED IN FA VOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE UTTRANCHAL HIGH COURT DELIVERED IN THE CASE OF KICHHA SUGAR CO.LTD.(356ITR351).HE FAIRLY CONCEDED THAT HONBLE GUJARAT HIGH COURT IN THE MATTER OF GUJARAT STATE CORPORATION ROAD TRANSPORT CORPORATION AND OTHERS (TAX APPEAL NO.637 OF 2013 AND OTHERS)HAD DECIDED THE ISSUE AGAINST THE ASSESSEE.HE FURTHER STATED THAT AMOUNT IN DISPUTE WAS DEPOSITED BEFORE DUE DATE.DR SUPPORTED THE ORDER OF THE FAA AND ARGUED THAT DECI SION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE CORPORATION ROAD TRANSPORT CO RPORATION(SUPRA)WAS THE LATEST AND IN IT A SERIES OF DECISIONS HAD BEEN CONSIDERED AS AGAINST THE ORDER OF THE HONBLE UTTRAKHAND WHEREIN NOT EVEN A SINGLE JUDGMENT WAS CONSIDERED. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE ARE OF THE OPINION THAT FOR DECIDING THE ISSUE OF LATE PAYMENT OF EMPL OYEES CONTRIBUTION,WE HAVE TO REFER SECTION 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE ACT.SEC TION 2(24)(X)READ AS UNDER: INCOME INCLUDES ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURANCE ACT,1948 (34 OF 1948), OR ANY OTHE R FUND FOR THE WELFARE OF SUCH EMPLOYEES ; AS PER SECTION 36(1)(VA),THE ASSESSEE WILL GET THE DEDUCTION FOR THE PAYMENT OF THE EMPLOYEES CONTRIBUTION MADE ON OR BEFORE THE DUE DATE.WE WILL LIKE TO REPRODUCE THE SECTION : (VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF H IS EMPLOYEES TO WHICH THE PROVISIONS OF SUB- CLAUSE(X) OF CLAUSE (24) OF SECTION 2 APPLY,IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE,DUE D ATE MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEES CON TRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE 3 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFIC ATION ISSUED THERE UNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE ; WE FIND THAT SPECIAL BENCH OF THE KOLKATA TRIBUNAL IN THE MATTER OF I. T. C.LTD.(299ITR-AT-341) HAS DEALT THE ISSUE OF EMPLOYEES CONTRIBUTION AS U NDER: FROM THE COMBINED READING OF SECTIONS 2(24)(X) AND 36(1)(VA),THE POSITION EMERGES THAT ANY CONTRIBUTION MADE BY THE EMPLOYEES TO ANY PROVIDENT FUND,SUPERANNUATION FUND, EMPLOYEES STATE INSURANCE FUND OR ANY OTHER FUND FOR THE WELFARE O F SUCH EMPLOYEES RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES SHALL BE DEEMED TO BE INCOME OF THE A SSESSEE FOR THE RELEVANT YEAR. HOWEVER,THE ASSESSEE WILL GET THE DEDUCTION THEREFORE UNDER SE CTION 36(1)(VA) ONLY IF HE DEPOSITS THE SUM RECEIVED FROM EMPLOYEES BEFORE THE DUE DATE SPECIFI ED UNDER THE ACT,RULE,ORDER OR NOTIFICATION GOVERNING THE FUNDS MENTIONED ABOVE.THUS THE PROVIS ION OF SECTION 43B, WHICH IS APPLICABLE IN RESPECT OF THE EMPLOYERS CONTRIBUTION,IS QUITE DIF FERENT THAN THE PROVISION OF SECTION 36(1)(VA) WHICH IS APPLICABLE IN RESPECT OF THE EMPLOYEES C ONTRIBUTION.SO FAR AS THE EMPLOYERS CONTRIBUTION IS CONCERNED,AS PER THE PROVISO TO SEC TION 43B,THE DEDUCTION IS PERMISSIBLE IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FILIN G OF THE RETURN AS SPECIFIED UNDER SECTION 139(1) OF THE INCOME-TAX ACT,1961.BUT IN RESPECT OF THE EMPLOYEES CONTRIBUTION,THE DEDUCTION WOULD BE PERMISSIBLE ONLY IF THE PAYMENT IS MADE BE FORE THE DUE DATE AS PROVIDED IN THE RESPECT - TIVE ACT,RULE,ORDER OR NOTIFICATION GOVERNING SUCH FUND, I.E.PROVIDENT FUND, SUPERANNUATION FUND, EMPLOYEES STATE INSURANCE FUND OR ANY OTHER SIMIL AR FUND FOR THE WELFARE OF THE EMPLOYEES.WE MAY MENTION THAT THE PAYMENT MADE WITHIN THE GRACE PERIOD PERMISSIBLE UNDER THE ACT,RULE, ORDER OR NOTIFICATION OF THE RESPECTIVE FUND WOULD BE CON SIDERED TO BE PAYMENT MADE WITHIN THE DUE DATE AS PER THE EXPLANATION TO SECTION 36(1)(VA).BY PRO VIDING THE GRACE PERIOD,THE COMPETENT AUTHORITY GOVERNING THE RELEVANT FUND PERMITS THE EMPLOYERS T O MAKE THE DEPOSITS WITHIN SUCH EXTENDED TIME AS COVERED BY GRACE PERIOD.THEREFORE, THE PAYMENT M ADE WITHIN THE GRACE PERIOD WOULD BE CONSIDERED TO BE PAYMENT MADE WITHIN DUE DATE UNDE R THE RESPECTIVE ACT, RULE, ORDER OR NOTIFICATION WITHIN THE MEANING OF THE EXPLANATION TO SECTION 36(1)(VA). FROM THE ABOVE DISCUSSION AND IT BECOMES CLEAR THAT THE PROVISIONS;DEALING WITH LATE PAYMENT OF THE EMPLOYEES CONTRIBUTION AND EMPLOYERS CONTRIBU TION TOWARDS CERTAINS FUNDS;ARE NOT SAME. ONE IS GOVERNED BY SECTION 43B AND THE OTHER IS REG ULATED BY SECTIONS 2(24)(X)AND 36(1)(VA) OF THE ACT.NOW,WE WOULD LIKE TO DISCUSS THE DECISIONS OF HONBLE HIGH COURTS OF UTTARAKHAND AND GUJARAT.WHILE DECIDING THE APPEAL OF THE ASSESSEE,H ONBLE UTTARAKHAND HIGH COURT HELD THAT DUE DATE MENTIONED IN 36(1)(VA)IS THE DUE DATE MENTIONE D IN SECTION 43B(B) OF THE ACT.WE FIND THAT WHILE DECIDING THE MATTER HONBLE COURT HAS NOT DEA LT WITH ANY OF THE CASES DECIDED BY OTHER COURTS ON THE ISSUE AND THE DECISION OF THE SPECIAL BENCH OF KOLKATA TRIBUNAL WAS NOT BROUGHT TO THE NOTICE OF THE HONBLE COURT. IN THE MATTER OF GUJARAT STATE CORPORATION ROAD TRA NSPORT CORPORATION (SUPRA),DECIDED BY THE HONBLE GUJARAT HIGH COURT ALL THE DECISION AVAILAB LE ON THE ISSUE AND CITED BEFORE IT WERE DISCUSSED IN LENGTH.HONBLE COURT HAD HEARD 11 APPE ALS ON THE IDENTICAL ISSUE.AS PER THE HONBLE COURT,IN ALL THE APPEALS SHORT QUESTION WHICH WAS P OSED FOR CONSIDERATION WAS WITH RESPECT TO THE DISALLOWANCE OF THE AMOUNT BEING EMPLOYEESCONTRIBU TION TO PF ACCOUNT/ESI CONTRIBUTION WHICH ADMITTEDLY WHICH THE CONCERNED ASSESSEE DID NOT DEP OSIT WITH THE PF DEPARTMENT /ESI DEPARTMENT WITHIN DUE DATE UNDER THE PF ACT AND/OR ESI ACT.ADV OCATES APPEARING ON BEHALF OF THE RESPECTIVE PARTIES WERE HEARD AT LENGTH,AS PER THE HONBLE C OURT.AFTER CONSIDERING THE RIVAL SUBMISSIONS,HONBLE COURT REFERRED TO THE PROVISION S OF SECTION 2(24)(X),36(1)(VA)AND 43B(B)OF THE ACT AND HELD AS UNDER : 7.06.CONSIDERING THE AFORESAID PROVISIONS OF THE ACT,AS PER SECTION 2(24)(X),ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND SET UP UNDER THE PROVISIONS OF ESI ACT OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES SHALL BE TREATED AS AN INCOME. SECTION 36 OF THE ACT DEALS WITH THE DEDUCTIONS IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 AND AS PER SECTION 36(1)(VA) SUCH SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH PRO VISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF 4 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. SECTION 2 APPLY, THE ASSESSEE SHALL BE ENTITLED TO DEDUCTION OF SUCH AMOUNT IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 IF SUCH SUM IS CRE DITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE I.E. DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT THE EMPLOYEES CO NTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND, IN THE PRESENT CASE, THE PROVIDENT F UND AND ESI FUND UNDER THE PROVIDENT FUND ACT AND ESI ACT. SECTION 43B IS WITH RESPECT TO CERTAIN DEDUCTIONS ONLY ON ACTUAL PAYMENT. IT PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISIONS OF THE ACT, A DEDUCTION OTHERWISE LIABLE UNDER THE ACT IN RESPECT OF (B) ANY SUM PAYA BLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATIO N FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF THE EMPLOYEES IN COMPUTING THE INCOM E REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. IT APPEARS THAT PRIOR TO THE AMENDMENT OF SECTION 43B OF THE ACT VIDE FINANCE ACT, 2003, AN ASSESSEE WAS ENTITLED TO DEDUCTIONS WITH RESPECT TO THE SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF C ONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER F UND FOR THE WELFARE OF THE EMPLOYEES (EMPLOYERS CONTRIBUTION) PROVIDED SUCH SUM EMPLOYE RS CONTRIBUTION IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HI S CASE FOR FURNISHING RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PR EVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AND THE EVIDENCE OF SUCH PAYMENT IS FU RNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. IT ALSO FURTHER PROVIDED THAT NO DEDUCTION SHALL, IN RESPECT OF ANY SUM REFERRED TO IN CLAUSE (B) I.E. WITH RESPECT TO THE EMPLOYERS CONTRIBUTIO N, BE ALLOWED UNLESS SUCH SUM IS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF CHEQUE OR DRAFT OR BY A NY OTHER MODE ON OR BEFORE THE DUE DATE AS DEFINED IN EXPLANATION BELOW CLAUSE (VA) OF SUB-SEC TION (1) OF SECTION 36 AND WHERE SUCH SUM HAS BEEN MADE OTHERWISE THAT IN CASH, THE SUM HAS BEEN REALISED WITHIN 15 DAYS FROM THE DUE DATE. BY THE FINANCE ACT 2003, SECOND PROVISO OF SECTION 43B OF THE ACT HAS BEEN DELETED AND FIRST PROVISO TO SECTION 43B HAS ALSO BEEN AMENDED WHICH IS REPRO DUCED HEREINABOVE. THEREFORE, WITH RESPECT TO EMPLOYERS CONTRIBUTION AS MENTIONED IN CLAUSE (B) OF SECTION 43(B), IF ANY SUM TOWARDS EMPLOYERS CONTRIBUTION TO ANY PROVIDENT FUND OR SU PERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF THE EMPLOYEES IS ACTU ALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETU RN OF THE INCOME UNDER SUB-SECTION (1) OF SECTION 139, ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 43B ON ACTUAL PAYMENT AND SUCH DEDUCTION WOULD BE ADMISSIBLE FOR THE ACCOUNTING YE AR.HOWEVER, IT IS REQUIRED TO BE NOTED THAT AS SUCH THERE IS NO CORRESPONDING AMENDMENT IN SECTION 36(1) (VA). DELETION OF SECOND PROVISO TO SECTION 43B VIDE FINANCE ACT 2003 WOULD BE WITH RES PECT TO SECTION 43B AND WITH RESPECT TO ANY SUM MENTIONED IN SECTION 43(B) (A TO F) AND IN THE PRESENT CASE, EMPLOYERS CONTRIBUTION AS MENTIONED IN SECTION 433(B). THEREFORE, DELETION OF SECOND PROVISO TO SECTION 43B AND AMENDMENT IN FIRST PROVISO TO SECTION 43B BY FINANCE ACT, 200 3 IS REQUIRED TO BE CONFINED TO SECTION 43B ALONE AND DELETION OF SECOND PROVISO TO SECTION 43B VIDE AMENDMENT PURSUANT TO THE FINANCE ACT, 2003 CANNOT BE MADE APPLICABLE WITH RESPECT TO SECTION 3 6(1)(VA) OF THE ACT. THEREFORE, ANY SUM WITH RESPECT TO THE EMPLOYEES CONTRIBUTION AS MENTIONED IN SECTION 36(1)(VA), ASSESSEE SHALL BE ENTITLED TO THE DEDUCTION OF SUCH SUM TOWARDS THE EMPLOYEES CONTRIBUTION IF THE SAME IS DEPOSITED IN THE ACCOUNTS OF THE CONCERNED EMPLOYEES AND IN THE CONC ERNED FUND SUCH AS PROVIDENT FUND, ESI CONTRIBUTION FUND, ETC. PROVIDED THE SAID SUM IS CR EDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNTS IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE UNDER THE PROVIDENT FUND ACT, ESI ACT, RULE,ORDER OR NOTIFICATION ISSUED THEREUND ER OR UNDER ANY STANDING ORDER,AWARD, CONTRACT OR SERVICE OR OTHERWISE. IT IS REQUIRED TO BE NOTED THAT AS SUCH THERE IS NO AMENDMENT IN SECTION 36(1) (VA) AND EVEN EXPLANATION TO SECTION 36(1)(VA) IS NOT DELETED AND IS STILL ON THE STATUT E AND IS REQUIRED TO BE COMPLIED WITH. MERELY BECAUSE WITH RESPECT TO EMPLOYERS CONTRIBUTION SECOND PROVISO TO SECTION 43B WHICH PROVIDED THAT E VEN WITH RESPECT TO EMPLOYERS CONTRIBUTION [(SECTION 43(B)B], ASSESSEE WAS REQUIRED TO CREDIT AMOUNT IN THE RELEVANT FUND UNDER THE PF ACT OR ANY OTHER FUND FOR THE WELFARE OF THE EMPLOYEES ON OR BEFORE THE DUE DATE UNDER THE RELEVANT ACT,IS DELETED,IT CANNOT BE SAID THAT SECTION 36(1)(VA)IS ALSO AMENDED AND/OR EXPLANATION TO SECTION 36(1)(VA) HAS BEEN DELETED AND/OR AMENDED. IT IS ALSO REQUIRED TO BE NOTED AT THIS STAGE THAT AS PER THE DEFINITION OF INCOME AS PER SECTION 2(24)(X),ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND SET UP UNDE R THE PROVISIONS OF ESI ACT OR ANY OTHER FUND 5 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. FOR THE WELFARE OF THE SUCH EMPLOYEES IS TO BE TREA TED AS INCOME AND ON FULFILLING THE CONDITION AS MENTIONED UNDER SECTION 36(1)(VA),THE ASSESSEE SHAL L BE ENTITLED TO DEDUCTION WITH RESPECT TO SUCH EMPLOYEESCONTRIBUTION.SECTION 2(24)(X) REFERS TO A NY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION AND DOES NOT REFER TO EMP LOYERS CONTRIBUTION. UNDER THE CIRCUMSTANCES AND SO LONG AS AND WITH RESPECT TO ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH PROVISIONS OF SUB-CLAUSE (X) OF SUB-SECTION 2 4 OF SECTION 2 APPLIES, ASSESSEE SHALL NOT BE ENTITLED TO DEDUCTION OF SUCH SUM IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 UNLESS AND UNTIL SUCH SUM IS CREDITED BY THE ASSESSEE TO THE E MPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE AS MENTIONED IN EXPLANATI ON TO SECTION 36(1)(VA). THEREFORE,WITH RESPECT TO THE EMPLOYEES CONTRIBUTION RECEIVED BY THE ASSES SEE IF THE ASSESSEE HAS NOT CREDITED THE SAID SUM TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR F UNDS ON OR BEFORE THE DUE DATE MENTIONED IN EXPLANATION TO SECTION 36(1) (VA), THE ASSESSEE SHA LL NOT BE ENTITLED TO DEDUCTIONS OF SUCH AMOUNT IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HE ACT. HONBLE COURT HAD CONSIDERED THE JUDGMENTS OF ALOM EXTRUSIONS LTD.(312ITR306),ALEMBIC GLASS INDUSTRIES LTD.(278ITR331),SABARI ENTERPRISES (298ITR141),PAMWI TISSUES LTD. (313ITR 137) NIPSO POLYFABRIKS LTD.(350ITR327),WHILE ARRIVI NG AT THE ABOVE CONCLUSION.IT FURTHER HELD: THEREFORE, BY DELETING SECOND PROVISO TO SECTION 4 3B BY FINANCE ACT, 2003, IT CANNOT BE SAID THAT SECTION 36(1) (VA) IS AMENDED AND/OR EXPLANATION BE LOW CLAUSE (VA) OF SUBSECTION (1) OF SECTION 36 IS DELETED, WHICH IS WITH RESPECT TO EMPLOYEESCONT RIBUTION... 7.12.NOW, SO FAR AS THE RELIANCE PLACED UPON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SARABHAI SONS LTD. (SUPRA), BY THE LEARNED COUNSEL APPEARING ON B EHALF OF THE ASSESSEE AND HIS SUBMISSION THAT IF TWO VIEWS ARE POSSIBLE A ND DIFFERENT HIGH COURTS HAVE TAKEN A PARTICULAR VIEW, THIS COURT MAY NOT TAKE A DIFFERENT VIEW, IS CONCERNED, WE ARE OF THE OPINION THAT IN THE PRESENT CASE, AND AS DISCUSSED HEREINABOVE, ONLY ON E VIEW IS POSSIBLE AS CANVASSED ON BEHALF OF THE REVENUE AND AS OBSERVED BY UNDER SECTION HEREIN ABOVE AND WE ARE NOT IN AGREEMENT WITH THE VIEW TAKEN BY THE HIMACHAL PRADESH HIGH COURT; KARN ATAKA HIGH COURT; RAJASTHAN HIGH COURT AND PUNJAB AND HARYANA HIGH COURT IN THE CASES REFE REED TO HEREINABOVE, AND THEREFORE, THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE TO FOLLOW THE DECISIONS OF THE DIFFERENT HIGH COURTS REFEREED TO HEREINABOVE AND/OR NOT TO TAKE A CONTRA RY VIEW CANNOT BE ACCEPTED. 8.00.IN VIEW OF THE ABOVE AND FOR THE REASONS STATE D ABOVE, AND CONSIDERING SECTION 36(1)(VA) OF THE INCOME TAX ACT, 1961 READ WITH SUB-CLAUSE (X) O F CLAUSE 24 OF SECTION 2, IT IS HELD THAT WITH RESPECT TO THE SUM RECEIVED BY THE ASSESSEE FROM AN Y OF HIS EMPLOYEES TO WHICH PROVISIONS OF SUB- CLAUSE (X) OF CLAUSE (24) OF SECTION (2) APPLIES, T HE ASSESSEE SHALL BE ENTITLED TO DEDUCTION IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 WITH RESPECT TO SUCH SUM CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUND S ON OR BEFORE THE DUE DATE MENTIONED IN EXPLANATION TO SECTION 36(1)(VA). CONSEQUENTLY, IT IS HELD THAT THE LEARNED TRIBUNAL HAS ERRED IN DELETING RESPECTIVE DISALLOWANCES BEING EMPLOYEES CONTRIBUTION TO PF ACCOUNT / ESI ACCOUNT MADE BY THE AO AS, AS SUCH, SUCH SUMS WERE NOT CRED ITED BY THE RESPECTIVE ASSESSEE TO THE EMPLOYEES ACCOUNTS IN THE RELEVANT FUND OR FUNDS ( IN THE PRESENT CASE PROVIDENT FUND AND/OR ESI FUND ON OR BEFORE THE DUE DATE AS PER THE EXPLANATI ON TO SECTION 36(1)(VA) OF THE ACT I.E. DATE BY WHICH THE CONCERNED ASSESSEE WAS REQUIRED AS AN EMP LOYER TO CREDIT EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE PROVIDENT FUND UNDER THE PROVIDENT FUND ACT AND/OR IN THE ESI FUND UNDER THE ESI ACT. CONSEQUENTLY, ALL THESE APPEALS ARE ALLOWED AND THE IMPUGNED JUDGMENT AND ORDERS PASSED BY THE TRIBUNAL IN DELETING THE DISALLOWANCES MADE BY THE AO ARE HEREBY QUASHED AND SET ASIDE AND THE DISALLOWANCES OF THE RESPECTIVE SUMS WITH RESPECT T O THE PROVIDENT FUND / ESI FUND MADE BY THE AO IS HEREBY RESTORED. IN OUR HUMBLE OPINION,THE ORDER OF THE HONBLE GUJA RAT HIGH COURT HAS DEALT THE ISSUE THREAD BARE AFTER CONSIDERING THE JUDGMENTS OF VARIOUS HIGH COU RTS AND THE HONBLE APEX COURT.IF THE LEGISLATURE IN ITS WISDOM THOUGHT IT FIT TO INTRODU CE AMENDMENT IN SECTION 43 B AND TO LEAVE THE 6 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. PROVISIONS OF SECTION 36(1)(VA)INTACT THEN WE HAVE TO FOLLOW ITS DECISION AND INTENTION.ALLOWING AN ASSESSEE TO KEEP THE EMPLOYEES CONTRIBUTION BEY OND GRACE PERIOD ENVISAGED IN THE RESPECTIVE ACTS WOULD RESULT IN UNDUE ENRICHMENT OF THAT ASSES SEE.LAW CAN NEVER ALLOW SUCH EVENTUALITY TO HAPPEN.ONCE THE CONTRIBUTION FROM THE EMPLOYEES IS RECEIVED BY AN ASSESSEE,IT BECOMES CUSTODIAN OF THE CONTRIBUTION AND IT HAS NO RIGHT T O KEEP IT BEYOND DUE DATE OR TO USE IT.BY NOT DEPOSITING THE CONTRIBUTION IN STIPULATED FUNDS,ASS ESSE DEPRIVES THE EMPLOYEES OF THE BENEFITS WHICH ACCRUE TO THEM IF CONTRIBUTION IS DEPOSITED I N TIME.GENERALLY,DEDUCTION FOR SPECIFIED FUNDS ARE MADE FROM THE SALARIES OF THE EMPLOYEES FOR SPE CIFIC PURPOSES,SO IT IS PART OF WELFARE MEASURE UNDERTAKEN BY THE STATE.BY NOT DEPOSITING SUCH CONT RIBUTIONS IN TIME ASSESSEE,HARMS THE EMPLOYEES AS WELL AS THE SOVEREIGN.SO,THERE IS JUST IFICATION IN TREATING IT THE INCOME OF THE ASSESSEE AND TO TAX IT.IN LIGHT OF THE ABOVE DISCUS SION,WE WANT TO FOLLOW THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT. HERE,WE WOULD ALSO LIKE TO MENTION THAT THE JUDGMEN T DELIVERED BY THE HONBLE SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS LTD.(88ITR192) IS NO T APPLICABLE TO THE FACTS OF THE CASE.IN THAT MATTER HONBLE APEX COURT WAS DEALING WITH PENALTY PROVISIONS.HONBLE COURT WAS DEALING WITH THE EXPRESSION THE AMOUNT OF TAX, IF ANY, PAYABLE B Y AN ASSESSEE IN THE CONTEXT OF SECTION 271 (1) (A)OF THE ACT.IT WAS FOUND THAT THERE COULD BE TWO REASONABLE CONSTRUCTION OF THE SAID EXPRESSION. HONBLE COURT IN THOSE CIRCUMSTANCES HELD THAT IF T WO REASONABLE CONSTRUCTIONS WERE POSSIBLE CONSTRUCTION FAVOURABLE TO ASSESSEE SHOULD BE PREFE RRED. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER AND SAME READS AS UNDER: THERE IS NO DOUBT THAT THE ACCEPTANCE OF ONE OR TH E OTHER INTERPRETATION SOUGHT TO BE PLACED ON SECTION 271(1)(A)(I) BY THE PARTIES WOULD LEAD TO S OME INCONVENIENT RESULT, BUT THE DUTY OF THE COURT IS TO READ THE SECTION, UNDERSTAND ITS LANGUAGE AND GIVE EFFECT TO THE SAME. IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQUENCE OF GIVING EFFECT TO I T MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY.ON THE OTHER HAND, IF TWO REASONABLE CONS TRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST B E ADOPTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCTION RECOGNISED BY THIS COURT IN SEVERAL OF ITS DECISIONS. HENCE, ALL THAT WE HAVE TO SEE IS,WHAT IS THE TRUE EFFECT OF THE LANGUAGE EMPLOYED IN SECTION 271(1)(A)(I). IF WE FIND THAT LANGUAGE TO BE AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ON E, THEN WE HAVE TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSEE, MORE PARTICULARLY SO BE CAUSE THE PROVISION RELATES TO IMPOSITION OF PENALTY. PLAIN READING OF THE ABOVE PORTION OF THE JUDGMENT CLEARLY PROVES THAT BEFORE TAKING ANY DECISION ADJUDICATION AUTHORITIES ARE SUPPOSED TO READ THE R ELEVANT SECTION OF THE ACT,TO UNDERSTAND ITS LANGUAGE AND TO GIVE EFFECT TO THE SAME.BESIDES,IF THE LANGUAGE THE ACT IS AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ONE,THEN ONLY ONE SHOULD ADOPT T HAT INTERPRETATION WHICH FAVOURS THE ASSESSEE.IN THE CASE UNDER CONSIDERATION THERE IS N O AMBIGUITY IN THE LANGUAGE OF SECTIONS 2(24) (X)AND 36(1)(V)OF THE ACT.IT IS THE ASSESSEE,WHO WA NTS TO BRING AMBIGUITY IN THESE SECTIONS BY IMPORTING THE LANGUAGE OF SECTION 43B.IN OUR OPINIO N THERE IS NO CONFUSION OR AMBIGUITY IN THE DEFINITION OF INCOME AS ENVISAGED BY THE SECTION2( 24)(X)OF THE ACT NOR THERE CAN BE ANY DIFFEREN - CE OF OPINION ABOUT THE PROVISIONS OF SECTION 36(1) (V).BOTH THE SECTIONS ARE PLAIN AND SIMPLE AND CONVEY ONLY ONE MEANING.THERE IS NO NEED TO FOLLOW ANY OTHER CONSTRUCTION.SO,WE ARE DISMISSING GROUND NO. 4. LAST GROUND OF APPEAL IS ABOUT PAYMENT OF TECHNICAL -SERVICE FEES AGGREGATING TO RS.1,56,72, 099/-,PAID BY THE ASSESSEE AND THAT WAS TREATED AS CAPITAL EXPENDITURE BY THE AO.DURING THE ASSESSMENT PROCEEDINGS,HE FOUND THAT THE ASSESSEE H AD PAID RS.1.56 CRORES TO HINDUSTAN AERO - NAUTIC LIMITED(HAL) AND DRESSER INDUSTRIES LIMITED( DIL),THAT IT HAD ALSO PAID RS.81.11 LAKHS TO KAP CO.LTD.(KCL).AFTER CONSIDERING THE FACTS OF THE CASE,AO HELD THAT THE ASSESSEE HAD PAID TECHNICALFEES TO HALFOR PROVIDING TECHNICAL KNOW-HO W IN RESPECT OF MANUFACTURING OF HYDRAULIC SERVICE CONTROLLER,THAT IT ALSO PAID RS.9,39,711/-T O DIL FOR PROVIDING TECHNICAL KNOW-HOW IN 7 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. RESPECT OF MANUFACTURING OF ASHOCROFT RANGE OF PRES SURE AND TEMPERATURE CONTROLLERS,THAT A PAYMENT OF RS.81,11,140/- WAS MADE TO KAP CO.LTD.FO R CONSULTANCY CHARGES,THAT THE ASSESSEE HAD CLAIMED THE EXPENDITURE AS REVENUE EXPENDITURE. REFERRING TO THE EXPL.4 TO SECTION 32,AO HELD THAT THE TERM KNOW-HOW MEANT ANY INDUSTRIAL INFOR MATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURING OR PROCESS OF GOODS OR IN THE WORKING OF THE MINE,OIL WELL OR OTHER SOURCES OF MINERAL DEPOSITS,THAT THE ASSESSEE WAS HAVING RIGHT TO USE THE KNOW-HOW AND THERE WAS NO EMBARGO IN THE USE OF THESE KNOW-HOW EVEN AFTER THE EXPIRY OF THE AGREEMENT AS THE SAME COULD BE RENEWED,THAT SUCH A RIGHT WAS TO BE TREATED AS D EEMED OWNERSHIP FOR THE PURPOSE OF SECTION 32(1)(II) OF THE ACT,THAT THE PAYMENTS FOR TECHNICA L KNOW-HOW HAD RESULTED INTO ENDURING BENEFIT, AND HENCE THE SAME WERE OF CAPITAL NATURE.AO ALLOWE D DEPRICIATION @ 20% ON THE EXPENDITURE,AS PER THE PROVISIONS OF SECTION 32 OF THE ACT. 4.1. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE FACTS OF THE CASE,FAA HELD THAT THERE WAS NO MERIT IN THE CONTENTIONS OF THE ASSESSEE,THA T THE APPELLANT ITSELF HAS ADMITTED;THAT APART FROM THE FACT THAT SUCH PAYMENT MADE TO HAL WAS CAL LED AS TECHNICAL SERVICE FEE;THE FACT WAS THAT THE ASSESSEE ITSELF HAD DEVELOPED HYDRAULIC SERVIC E TROLLEY AT THE REQUEST OF AND WITH THE GUIDANCE AND INITIATIVE FROM HAL,THAT SAME WAS DEVELOPED AND MANUFACTURED BY THE ASSESSEE AS PER THE TECHNICAL KNOW-HOW AND INTELLECTUAL PROPERTY PROVID ED BY THE HAL.REFERRING TO CLAUSE 1.3 AND 1.5 OF THE AGREEMENT HE HELD THAT IT WAS A CASE OF TRANSFER OF TECHNICAL KNOW-HOW TO THE ASSESSEE FOR UNLIMITED PERIOD,THAT SUCH A TRANSACTION HAD AL L THE FEATURES OF KNOW-HOW AND WAS FULLY COVERED BY THE EXPLANATION 4 TO SECTION 32(1)(II) O F THE ACT, AS RIGHTLY-POINTED OUT BY THE AO.WITH REGARD TO THE PAYMENT TO DIL,HE HELD THAT T HERE WAS TRANSFER OF TECHNOLOGY,THAT PERUSAL OF VARIOUS CLAUSES REVEALED THAT THE ASSESSEE HAD E NTERED INTO AGREEMENT BEING DESIROUS OF BEING A LICENCEE OF DIL FOR MANUFACTURE AND SALE OF CERTAIN ITEMS,THAT THE TECHNICAL INFORMATION SHARED PERTAINED TO PRODUCT DESIGNS, FORMULAE, TEST DATA, TOOLS, DESIGNING,THAT THE ASSESSEE WAS GRANTED LICENCE FOR EXCLUSIVE MANUFACTURE AND SALE AS WELL AS USE OF TECHNICAL INFORMATION.HE FURTHER HELD THAT THE ASSESSEE WAS ELIGIBLE FOR RECEIVING TECHNI CAL SERVICES AND INFORMATION RELATING TO MANUFACTURE FROM KCL,THAT PAYMENT MADE BY THE ASSES SEE TO KCL WERE NOT OF REVENUE NATURE. FINALLY,HE UPHELD THE ORDER OF THE AO. 4.2. BEFORE US,AR ARGUED THAT THE AGREEMENTS WERE ONLY F OR FIVE YEARS AND WERE RENEWABLE AT THE OPTIONS OF EACH PARTY,THAT QUESTION OF ENDURING BEN EFIT DID NOT ARISE,THAT AS PER CLAUSE 1.6 OF THE AGREEMENT WITH HAL AND CLAUSE 2(8) OF THE AGREEMENT WITH DIL, ASSESSEE HAD GIVEN RIGHT TO USE OF TECHNICAL KNOW-HOW/INFORMATION,THAT THE ASSESSEE WAS EXPRESSLY PROHIBITED FROM DIVULGING THE INFORMATION TO ANY ONE,THAT THE PAYMENT WERE OF REC URRING NATURE AND WERE RELATED TO THE PRODUCTI -ON,THAT THE AGREEMENT OF DIL WAS ENTERED IN TO BEF ORE 01.04.1998 I.E.ON 7.7.1995,THAT PROVISIONS OF SECTION 32(1)(II) DID NOT APPLY TO THE FACTS OF THE CASE,THAT THE SAID CLAUSE WAS ABOUT INTANGIBLE ASSET ACQUIRED ON/OR AFTER 1.4.1995,THAT THE PAYMEN T OF KCL REPRESENTED THE TECHNICAL CONSULTAN - CY FEES AS PER AGREEMENT DT.19.12.2001 FOR A PERIOD OF FIVE YEARS-COMMENCING FROM 5.3.2002, THAT THE SERVICES RENDERED BY KCL WERE IN THE NATURE OF ADVISORY CAPACITY IN DAY TO DAY MATTER AND HAD NOTHING TO DO WITH THE ACQUISITION OF KNOW-HOW ETC, THAT IN THE EARLIER YEARS SIMILAR EXPENDITURE WAS ALLOWED BY THE AO.HE REFERRED TO THE PAGES NO.1 19,120,128,130 AND 133 OF THE PAPER BOOK(PB).HE FURTHER SUBMITTED THAT AO HAD NOT ALLOW ED DEPRECIATION EVEN AFTER CONSIDERING THE KNOW-HOW AN INTANGIBLE ASSETS,THAT DEPRECIATION SHO ULD BE ALLOWED TO THE ASSESSEE,IF THE EXPENDITURE INCURRED BY THE ASSESSEE IS TREATED CAP ITAL EXPENDITURE.DR SUPPORTED THE ORDER OF THE FAA. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AGREEMENT WITH HAL AND DIL WERE ENTERED IN TO BY TH E ASSESSEE IN THE YEAR 2000 AND 1995 RESPECTIVELY FOR THE FIRST TIME.AGREEMENTS WITH HAL PROVIDED THAT THE ASSESSEE WOULD NOT SELL 8 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. DIRECTLY THE TROLLEY TO ANY OTHER PARTY IN OR OUT I NDIA DURING THE CURRENCY OF THE AGREEMENT,THAT HAL MIGHT GIVE LICENCE TO THE ASSESSEE TO USE THE K NOW HOW TO MANUFACTURE TROLLEY FOR EXPORT,THAT IT WAS IN APPLICATION UP TO JULY,2005,T HAT IT WOULD TREAT THE DESIGN,REPORTS, PROCESSES, DRAWINGS,SPECIALISATION AND TECHNICAL INFORMATION P ERTAINING TO MANUFACTURE OF TROLLEY AS CONFIDE - NTIAL AND WOULD NOT DIVULGE TO ANY THIRD PARTY WITH OUT PRIOR PERMISSION OF HAL.THUS,IT IS CLEAR THAT THE ASSESSEE WAS ALLOWED TO USE KNOW-HOW AND T ECHNOLOGY ONLY AND IT COULD NOT PART WITH THE KNOWLEDGE WITHOUT THE PERMISSION OF HAL.SIMILARLY,D IL HAD ALSO ALLOWED IT TO USE PARTICULAR TECHNOLOGY AND IT WAS SPECIFICALLY MENTIONED IN THE AGREEMENT THAT ALL THE TECHNICAL INFORMATION WOULD BELONG TO DIL AND WOULD BE ITS EXCLUSIVE PROP ERTY.THE ASSESSEE WAS BARRED FROM DISCLOSING INFORMATION WITH THIRD PARTY.IN THESE CIRCUMSTANCES IT CANNOT BE HELD THAT EXPENDITURE INCURRED BY IT TOWARDS PAYMENT TO THESE TWO COMPANIES WAS OF CA PITAL NATURE,AS ASSESSEE HAD NOT ACQUIRED A THING THAT RESULTED IN PROVIDING ENDURING BENEFITS. BOTH THE COMPANIES HAD ALLOWED THE ASSESSEE TO USE THEIR TECHNOLOGY FOR A CERTAIN PERIOD.WE FIND T HAT THE PROVISIONS OF SECTION 32(1)(II) OF THE ACT WERE APPLICABLE FROM 01.04.1998 AND THE AGREEME NTS WERE ENTERED IN TO BEFORE FIRST DAY OF APRIL,1998.IN THESE CIRCUMSTANCES,INVOKING OF THESE PROVISIONS BY THE AO CANNOT BE HELD TO BE JUSTIFIED. WE FIND THAT IN EARLIER ASSESSMENT YEARS ASSESSEE H AD CLAIMED THE SAME EXPENDITURE UNDER THE HEAD REVENUE EXPENDITURE AND THE AO HAD ACCEPTED IT S CLAIM.EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS THE PAYMENT TO HAL,DIL AND KCL,2000-01,2001 -02,2002-03,2003-04 CAN BE TABULATED AS UNDER : AY DIL HAL KCL 1999-2000 8,94,160/- 67,65,295/- 91,117/- 2000-2001 10,81,040/- 68,77,217/- 6 ,39,535/- 2001-2002 8,29,140/- 1,46,01,092/- 6 ,38,246/- 2002 - 200 3 9,39,711/ - 1,47,32,388/ - 8,11,140/ - WHILE PASSING ORDER FOR THE YEAR UNDER CONSIDERATIO N THE AO HAS NOT MENTIONED THE REASONS WHICH COMPELLED HIM NOT TO FOLLOW THE ORDERS OF THE EARLI ER YEARS. IF THE FACTS AND CIRCUMSTANCES WERE SIMILAR TO THE FACTS OF PREVIOUS YEARS THEN THERE W AS NO JUSTIFICATION FOR TREATING THE EXPENDITURE AS CAPITAL.WE ARE AWARE THAT RES JUDICATA DO NOT APPLY TO THE PROCEEDINGS OF THE ACT. BUT,PRINCIPLES OF NATURAL JUSTICE DEMAND THAT REASONS HAVE TO BE RECO RDED,IF AN AO WANTS TO FASTEN TAX LIABILITY TO AN ASSESSEE IN A SUBSEQUENT YEAR FOR AN ITEM THAT HAD BEEN ALLOWED IN EARLIER YEAR.WE HAVE NOT FOUND ANY REASON IN THE ORDER OF THE AO FOR DEVIATING FRO M THE ORDER OF THE EARLIER YEARS.THUS,CONSIDERING THE TWIN FACTORS-NATURE OF T HE EXPENDITURE AND TREATMENT GIVEN BY THE AO TO SUCH EXPENDITURE IN EARLIER YEARS-WE ARE OF THE OPINION THAT ORDER OF THE FAA HAS TO BE REVERSED. WE FIND THAT IN THE CASE OF KCL AGREEMENT WAS FOR P ROVIDING CONSULTANCY TO THE ASSESSEE AT A FIX RATE FOR A SPECIFIED TIME.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION THAT EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS PAYMENT TO KCL WAS OF REVENUE NATURE.IN THIS CASE ALSO AO HAD ALLOWED THE EXPENDITURE IN EARLIER YEARS.SO,WE WOULD LIKE TO RE VERSE THE ORDER OF THE FAA FOR THE PAYMENT MADE TO KCL. GROUND NO.3 IS ALLOWED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FIL ED BY THE ASSESSEE STANDS PARTLY ALLOWED. 2*3 #)* 4 5 , 0 1*3 6 , * 78. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL,2014 . 9 ITA NO. 2065/MUM/2010 INDFOS INDUSTRIES LTD. 1 , ./$ : ;# 30 VIZSY VIZSY VIZSY VIZSY , 201 4 / , 0 < SD/- SD/- ( ! ! ! ! / VIVEK VARMA) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, ;# /DATE: 30 TH APRIL,2014. SK 1 1 1 1 , ,, , '*! '*! '*! '*! =!$* =!$* =!$* =!$* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT (A) / > ? , 4. THE CONCERNED CIT / > ? 5. DR I BENCH, ITAT, MUMBAI / !@0 '*# VKBZ VKBZ VKBZ VKBZ , . . . 6. GUARD FILE/ 0 2 (!* (!* (!* (!* '* '*'* '* //TRUE COPY// 1# / BY ORDER, A / 7 DY./ASST. REGISTRAR , /ITAT, MUMBAI