ACIT 8(1), MUMBAI V. AVENTIS PHARMA LTD, MUMBAI

ITA 2072/MUM/2010

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9216 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-08-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 15-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SREENIVASARAGHAVAN IYENGAR
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Earning of tax free income; Wholly owned subsidiary; Bad and doubtful debts; Difference of opinion; Corroborative evidences; Revenue expenditure; Set aside
• Section: 271(1)(c); 80HHC; 14A; 274; 80HH; 192; 73; 13; 145(3); 22; 28

Judgement Text

1 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY (JUDICIAL MEMBER) I.T.A. NO.3092/MUM/2006 (ASSESSMENT YEAR 2002-03) SANOFI INDIA LIMITED (FORMERLY AVENTIS PHARMA LIMITED) 54-A, SIR MATHURADAS VASANJI ROAD ANDHERI (E), MUMBAI-400 093 PAN : AACH2736F VS THE ACIT, RANGE-8(1), MUMBAI APPELLANT RESPONDENT I.T.A. NO.2072/MUM/2010 - ASSESSMENT YEAR 2002-03 I.T.A. NO.3187/MUM/2006 - ASSESSMENT YEAR 2002-03 THE ACIT, CIRCLE-8(1), MUMBAI VS SANOFI INDIA LIMIT ED (FORMERLY AVENTIS PHARMA LTD) 54-A, SIR MATHURADAS VASANJI ROAD ANDHERI (E), MUMBAI-400 093 APPELLANT RESPONDENT APPELLANT BY SHRI JD MISTRY (SR.ADV) , ALONG WITH S/SHRI S. M. SHAH & PARAS SAVLA (AR) RESPONDENT BY S/SHRI ASHISH HELIWAL AND SREENIVASARAGHAVAN IYENGAR (DR) DATE OF HEARING 21-05-2021 DATE OF PRONOUNCEMENT 11-08-2021 2 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 O R D E R PER : SAKTIJIT DEY (JM) : CAPTIONED ARE A SET OF CROSS APPEALS AND AN APPEAL BY THE REVENUE ARISING OUT OF TWO SEPARATE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI. WHILE THE CROSS APPEALS ARISE OUT OF QUANTU M PROCEEDINGS FOR ASSESSMENT YEAR 2002-03, THE OTHER APPEAL OF THE RE VENUE IS AGAINST DELETION OF PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE INCO ME TAX ACT, 1961 FOR THE SAME ASSESSMENT YEAR. ITA NO.3092/MUM/2006 (ASSESSEES APPEAL) 2. IN GROUND 1, ASSESSEE HAS CHALLENGED ADDITION MA DE ON ACCOUNT OF ADJUSTMENT TO THE ARMS LENGTH PRICE (ALP, HEREAFTER ) OF EXPORT COMMISSION PAID TO THE OVERSEAS ASSOCIATED ENTERPRISES (AE). 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A SUBSIDI ARY OF AVENTIS PHARMA HOLDING GMBH, WHICH, IN TURN, IS A WHOLLY OWNED SUBSIDIARY OF HOECHST AGTE. AS STATED BY THE TRANSFER PRICING OFFICER (TPO, IN SHORT), ASSES SEE IS PRIMARILY ENGAGED IN MANUFACTURE AND MARKETING OF FORMULATIONS ACROSS TH E THERAPEUTIC SEGMENT OF ANTI INFECTIVE, ARTHRITIS, CARDIOLOGY, CENTRAL NERV OUS SYSTEM, METABOLISM, ONCOLOGY AND RESPIRATORY. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AE S, SUCH AS, IMPORTS OF ACTIVES/FORMULATIONS FROM AE, EXPORT OF FORMULATION S/BULK DRUGS TO AE, PAYMENT OF COMMISSION TO AVENTIS GERMANY, REIMBURSEMENT OF EXPENSES, PURCHASE OF SHARES, PURCHASE OF PATENT RIGHTS AND TRADEMARKS FR OM AE IN GERMANY AND FRANCE, REIMBURSEMENT OF EXPENSES FROM AE. AS IT APPEARS, T HE ASSESSEE AGGREGATED THE TRANSACTIONS RELATING TO IMPORT AND EXPORTS OF ACTI VE FORMULATIONS, BULK DRUGS, 3 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 PAYMENT OF COMMISSION, ETC. AND BENCHMARKED THEM IN THE TRANSFER PRICING STUDY REPORT APPLYING TRANSACTIONAL NET MARGIN METHOD (TN MM). SINCE, THE OPERATING MARGIN SHOWN BY THE ASSESSEE AT 13.83% WAS MORE THA N THE MEAN OPERATING MARGIN OF THE COMPARABLE COMPANIES WORKED OUT AT 7. 69%, THE TRANSACTIONS WERE CLAIMED TO BE AT ARMS LENGTH. APPARENTLY, THE TPO ACCEPTED THE BENCHMARKING OF THE ASSESSEE IN RESPECT OF ALL INTERNATIONAL TRANSA CTIONS, EXCEPT, PAYMENT OF EXPORT COMMISSION TO AE. INSOFAR AS THIS TRANSACTIO N IS CONCERNED, THE TPO HAS TREATED IT AS A COMPLETELY INDEPENDENT AND SEPARATE TRANSACTION AND PROCEEDED TO VERIFY WHETHER THE EXPORT COMMISSION PAID AT 12. 5% OF THE SALES IS AT ARMS LENGTH OR NOT. IN RESPONSE TO QUERY RAISED, THE ASS ESSEE FURNISHED A DETAILED SUBMISSION ALONG WITH SUPPORTING EVIDENCE JUSTIFYING ITS CLAIM THAT COMMISSION PAID AT 12.5% ON SALES IS AT ARMS LENGTH. THE TPO, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE. AFTER REJECTING THE BEN CHMARKING OF THE ASSESSEE, INSOFAR AS IT RELATES TO PAYMENT OF EXPORT COMMISSI ON, THE TPO OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO DEMONSTR ATE THAT THE AE, IN ANY WAY, HAS HELPED IN PROMOTING THE SALES OF THE ASSESSEE. THUS, HE WAS OF THE VIEW THAT IN SUCH CIRCUMSTANCES NO COMMISSION PAYMENT IS WARR ANTED. HOWEVER, CONSIDERING THE QUANTUM OF EXPORT SALES OF THE ASSE SSEE AND THE SERVICES RENDERED BY THE AE, THE TPO ULTIMATELY CONCLUDED TH AT ARMS LENGTH EXPORT COMMISSION OF 3% ON SALES CAN BE ALLOWED. ACCORDING LY, OUT OF THE TOTAL EXPORT COMMISSION PAID OF RS.11,12,85,794/-, THE TPO ALLOW ED AN AMOUNT OF RS.2,97,08,590/-. THE DIFFERENTIAL AMOUNT OF RS.8,1 5,77,203/- WAS PROPOSED FOR ADJUSTMENT TO THE ALP. THE ADJUSTMENT PROPOSED BY THE TPO WAS ADDED TO THE INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER. THE ASSESSEE CONTESTED THE 4 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 AFORESAID ADDITION BEFORE LEARNED COMMISSIONER (APP EALS). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED COMMISSIONER (APPEALS) DETERMINED THE ARMS LENGTH RATE OF COMMISSION AT 5% ON ESTIMATE BASIS. THUS, LEARNED COMMISSIONER (APPEALS) GRANTED PARTIAL RELIEF TO THE ASSESSEE. 4. SHRI J. D. MISTRY, LEARNED SENIOR COUNSEL APPEAR ING FOR THE ASSESSEE SUBMITTED, WHILE THE ASSESSEE HAS BENCHMARKED THE P AYMENT OF EXPORT COMMISSION BY APPLYING ONE OF THE PRESCRIBED METHOD S, BOTH, THE TPO AND LEARNED COMMISSIONER (APPEALS) HAVE DETERMINED THE ALP PURELY ON ADHOC/ESTIMATE BASIS. HE SUBMITTED, WHILE DOING SO, BOTH THE TPO AND LEARNED COMMISSIONER (APPEALS) HAVE FAILED TO APPRECIATE VA RIOUS DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE TO DEMONSTRATE RENDITION OF S ERVICE BY THE AE FOR FACILITATING THE EXPORT SALES. DRAWING OUR ATTENTION TO VARIOUS DOCUMENTARY EVIDENCES PLACED IN THE PAPER BOOK, HE SUBMITTED, THE PROGRESSIVE GR OWTH IN EXPORT SALES CLEARLY INDICATES RENDITION OF SERVICE BY THE AE. HE SUBMIT TED, THE ASSESSEE HAS SPECIFICALLY ENTERED INTO AN AGREEMENT WITH THE AE FOR AVAILING SERVICES FOR ITS EXPORT SALES. HE SUBMITTED, IN PURSUANCE TO SUCH A GREEMENT, THE AE HAS RENDERED SERVICES TO THE ASSESSEE. HE SUBMITTED, THE PAYMENT OF EXPORT COMMISSION AT 12.5% ON SALES WAS ALSO APPROVED BY THE RESERVE BAN K OF INDIA (RBI) AND IS WITHIN THE OUTER LIMIT FIXED BY RBI IN CIRCULAR NO.17 DATE D 19 TH MAY, 1999. THEREFORE, THE PAYMENT OF EXPORT COMMISSION SHOULD BE CONSIDERED T O BE AT ARMS LENGTH. HE SUBMITTED, SINCE PAYMENT OF COMMISSION IS CLOSELY L INKED TO THE TRANSACTIONS OF EXPORTS AND IMPORTS, THEY HAVE TO BE AGGREGATED FOR THE PURPOSE OF BENCHMARKING. WHEREAS, THE TPO HAS SELECTIVELY SEGR EGATED PAYMENT OF 5 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 COMMISSION AS AN INDEPENDENT TRANSACTION FOR BENCHM ARKING WHILE ACCEPTING THE OTHER TRANSACTIONS. HE SUBMITTED, WHEN THE TPO HAS ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD IN RESPECT OF OTHER CLOSELY LINK ED TRANSACTIONS, HE SHOULD NOT HAVE SEGREGATED THE PAYMENT OF COMMISSION. THE LEAR NED SENIOR COUNSEL SUBMITTED, THE ASSESSEE HAS BEEN PAYING EXPORT COMM ISSION FROM ASSESSMENT YEAR 1992-93 ONWARDS AT THE VERY SAME PERCENTAGE AN D NO ADJUSTMENT HAS EVER BEEN MADE TO THE PRICE OF COMMISSION PAYMENT. HE SU BMITTED, IN THE YEAR 1999- 2000, THE TPO MADE SIMILAR ADJUSTMENT; HOWEVER, LEAR NED COMMISSIONER (APPEALS) ALLOWED THE ENTIRE COMMISSION PAID AT 12. 5% FINDING IT TO BE AT ARMS LENGTH. HE SUBMITTED, IN ASSESSMENT YEAR 2005-06, T HE TPO HIMSELF ACCEPTED THE EXPORT COMMISSION PAID AT 12.5% TO BE AT ARMS LENG TH. THUS, HE SUBMITTED, RULE OF CONSISTENCY HAS TO BE FOLLOWED. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TPO AND SUBMITTED THAT THE DEPA RTMENT, IN ITS APPEAL, HAS CHALLENGED THE PARTIAL RELIEF GRANTED BY THE FIRST APPELLATE AUTHORITY. THUS, HE SUBMITTED, THE ADJUSTMENT MADE BY THE TPO SHOULD BE RESTORED. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGH T OF DECISIONS RELIED UPON AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, ASSE SSEE, DURING THE YEAR, HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WIT H ITS OVERSEAS AE. INSOFAR AS IMPORT AND EXPORT OF FORMULATIONS AND BULK DRUGS AN D PAYMENT OF EXPORT COMMISSION TO THE AE IN GERMANY ARE CONCERNED, THE ASSESSEE TREATED THEM AS CLOSELY LINKED AND AFTER AGGREGATING THEM BENCHMARK ED UNDER TNMM. IT IS EVIDENT, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ITS OVERSEAS AE IN GERMANY TERMED AS EXPORT GUARANTEE AGREEMENT FOR EXPLORING FOREIGN MARKET 6 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 AND FACILITATING ITS EXPORT SALES. IN TERMS WITH TH E AGREEMENT, THE ASSESSEE HAS AGREED TO PAY COMMISSION AT 12.5% TO THE AE TOWARDS SERVICE RENDERED BY THE AE. UNDISPUTEDLY, IN THE BENCHMARKING DONE UNDER TNMM, THE TRANSACTIONS RELATING TO IMPORT AND EXPORT OF FORMULATIONS AND BULK DRUGS AS WELL AS PAYMENT OF EXPORT COMMISSION WAS FOUND TO BE AT ARMS LENGTH. BEFORE THE TPO, THE ASSESSEE HAS ALSO FURNISHED SUPPORTING EVIDENCE TO DEMONSTRATE T HAT ASSESSEES FOREIGN EXCHANGE OUTFLOW AT 12.5% IS MUCH LESSER THAN SIMIL AR FOREIGN EXCHANGE OUTFLOW OF COMPARABLES AT 34.05%. 7. THUS, IT IS PATENT AND OBVIOUS, NOT ONLY THE ASS ESSEE HAS BENCHMARKED THE SUBJECT TRANSACTION BY ADOPTING ONE OF THE METHODS P RESCRIBED UNDER THE STATUTE, BUT, IN COURSE OF PROCEEDINGS BEFORE THE TPO ASSESS EE HAS ALSO FURNISHED VARIOUS OTHER EVIDENCES TO SUPPORT ITS BENCHMARKING AND TO FURTHER DEMONSTRATE THAT EXPORT COMMISSION PAID AT 12.5% IS AT ARMS LENGTH. WHEREAS, THE TPO HAS DETERMINED ALP OF COMMISSION AT 3% PURELY ON ADHOC/ ESTIMATE BASIS WITHOUT FOLLOWING ANY OF THE PRESCRIBED METHODS. THOUGH, TH E TPO HAS OBSERVED THAT THE ASSESSEE FAILED TO FURNISH ANY DIRECT DOCUMENTARY E VIDENCE TO DEMONSTRATE THAT SERVICES WERE RENDERED BY THE AE TO WARRANT PAYMENT OF COMMISSION; HOWEVER, HE HAS IMMEDIATELY CONTRADICTED HIMSELF BY STATING THAT THE AE HAS RENDERED NOMINAL SERVICES. THUS, IT IS VERY MUCH CLEAR, THE TPO WHILE REJECTING EXPORT COMMISSION PAID AT 12.5% AND PROPOSING ADJUSTMENT, H AS NOT FOLLOWED THE STATUTORY MANDATE. RATHER, THE DECISION OF THE TPO IN DETERMINING THE ALP OF EXPORT COMMISSION AT 3% IS WITHOUT ANY BASIS AND PU RELY ON CONJECTURES AND SURMISES. THE TPO HAS NOT SHOWN ANY VALID REASON WH Y ASSESSEES CLAIM THAT THE TRANSACTIONS RELATING TO IMPORT AND EXPORT OF FORMU LATIONS AND BULK DRUGS AS WELL 7 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 AS PAYMENT OF EXPORT COMMISSION BEING CLOSELY LINKE D, SHOULD NOT BE AGGREGATED TOGETHER FOR BENCHMARKING PURPOSE. 8. IT IS ALSO RELEVANT TO OBSERVE, LEARNED COMMISSI ONER (APPEALS), WHILE DETERMINING THE ALP OF EXPORT COMMISSION AT 5% ALSO FELL INTO THE SAME ERROR AS THE TPO. THE DETERMINATION OF ALP AT 5% BY LEARNED COMMISSIONER (APPEALS) IS ALSO PURELY ON ADHOC/ESTIMATE BASIS WITHOUT FOLLOWI NG ANY PRESCRIBED METHOD. IT IS RELEVANT TO OBSERVE, BEFORE US, THE ASSESSEE HAS FURNISHED MATERIAL WHICH DEMONSTRATES THAT SINCE ASSESSMENT YEAR 1992-93, TH E ASSESSEE HAD BEEN PAYING COMMISSION ON EXPORT SALES AT THE SAME RATE OF 12.5 %. HOWEVER, IN NONE OF THE ASSESSMENT YEARS TILL ASSESSMENT YEAR 2001-02, THE TPO HAS PROPOSED ANY ADJUSTMENT TO THE RATE AT WHICH EXPORT COMMISSION WA S PAID TO THE AE. IT IS EVIDENT, ONLY IN ASSESSMENT YEARS 2002-03 & 2003-04 , THE TPO HAS PROPOSED ADJUSTMENT. IT IS FURTHER RELEVANT TO OBSERVE, IN A SSESSMENT YEAR 2004-05, THOUGH, THE TPO HAD MADE AN ADJUSTMENT TO THE RATE OF EXPORT COMMISSION BY DETERMINING THE ALP AT 6.6%; HOWEVER, IN AN APPEAL PREFERRED BY THE ASSESSEE LEARNED COMMISSIONER (APPEALS) HAS DELETED SUCH ADJU STMENT. AGAINST THE DECISION OF LEARNED COMMISSIONER (APPEALS), THE DEP ARTMENT HAS NOT PREFERRED ANY FURTHER APPEAL. IT IS ALSO EVIDENT, IN ASSESSM ENT YEAR 2005-06, THE TPO HIMSELF HAS ACCEPTED THE COMMISSION PAID AT 12.5% T O BE AT ARMS LENGTH. THUS, EVEN APPLYING THE RULE OF CONSISTENCY AND PAST HIST ORY RELATING TO SIMILAR TRANSACTION, THE EXPORT COMMISSION PAID AT 12.5% HA S TO BE ACCEPTED TO BE AT ARMS LENGTH. IN VIEW OF THE AFORESAID, WE ARE INCL INED TO DELETE THE ADJUSTMENT MADE TO THE ALP OF EXPORT COMMISSION PAID TO THE AE . THIS GROUND IS ALLOWED. 8 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 9. IN GROUND 2, ASSESSEE HAS CHALLENGED THE DECISIO N OF LEARNED COMMISSIONER (APPEALS) IN NOT ALLOWING FULL DEDUCTION OF VRS AND EARLY RETIREMENT INCENTIVE GRANTED TO EMPLOYEES. 10. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUC TION OF RS.10,21,80,249/- TOWARDS VOLUNTARY RETIREMENT SCHEME (VRS) BENEFITS. RELYING UPON THE ASSESSMENT ORDER PASSED IN THE PRECEDING ASSESSMENT YEAR, THE ASSESSING OFFICER HELD THAT VRS EXPENDITURE CAN BE ALLOWED IF IT IS P AID IN CONNECTION WITH THE EMPLOYEES RETIRING FROM A GOING CONCERN. STATING TH AT THE VRS EXPENDITURE WAS INCURRED IN RESPECT OF A UNIT SITUATED AT MULUND, W HICH HAS BEEN CLOSED DOWN, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION. THE ASS ESSEE CONTESTED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. RELYING UPON THE ORDER PASSED BY HIM IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 19 99-2000, LEARNED COMMISSIONER (APPEALS) HELD THAT ASSESSEE IS ELIGIB LE FOR DEDUCTION ONLY IN RESPECT OF THE AMOUNT THAT HAS THE CHARACTER SIMILA R TO THE PAYMENT THAT THE EMPLOYEES ARE OTHERWISE ELIGIBLE TO RECEIVE ON RETI REMENT OR RESIGNATION EVEN WHEN THERE IS NO CLOSURE OF THE UNIT. WHEREAS, THE BALANCE AMOUNT WHICH IS PAID TOWARDS VRS AND EARLY RETIREMENT INCENTIVE WOULD BE INADMISSIBLE. ACCORDINGLY, HE RESTRICTED THE DISALLOWANCE TO RS.8,25,63,328/-. 11. THE LEARNED SENIOR COUNSEL OF THE ASSESSEE SUBM ITTED, IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, IN ITS OWN CASE IN ASSESSMENT YEARS 2000- 01 & 2001-02. FURTHER, HE SUBMITTED, THE APPEALS FI LED AGAINST THE AFORESAID DECISIONS OF THE TRIBUNAL WERE NOT ADMITTED BY THE HONBLE HIGH COURT. THUS, HE 9 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 SUBMITTED, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. IN ADDITION, HE RELIED UPON THE FOLLOWING DECISIONS:- 1. K RAVINDRANATHAN NAIR VS CIT 247 ITR 178 (SC) 2. CIT VS FOSECO INDIA LTD 352 ITR 320 (BOM) 3. FOSECO INDIA LTD VS ACIT ITA NO.4667/M/2005 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH , FAIRLY SUBMITTED THAT THE ISSUE IS COVERED BY THE EARLIER DECISIONS OF THE TR IBUNAL, HOWEVER, RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED C OMMISSIONER (APPEALS). 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. AS NOTED BY US, IDENTICAL ISSUE CAME UP FOR CONSIDERAT ION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 . T HE TRIBUNAL, WHILE DISPOSING OF THE APPEALS, BOTH, BY ASSESSEE AND REVENUE IN IT A 3703/MUM/2004 AND OTHERS VIDE ORDER DATED 16-04-2014 HAS HELD AS UNDER:- 10.2 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXPENDITURE ON VRS DEBITED AND CLAIMED IN THIS YEAR WERE DULY APPROVED BY THE INCOME TAX DEPARTMENT ITSELF. EVEN DURING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION, WE FOUND THAT MULUND FACTORY WAS WORKING AND THE AO WAS NOT JUSTIFIED IN OBSERVING T HAT EXPENDITURE WAS INCURRED FOR CLOSING THAT UNIT. WE FOUND THAT VARIO US MANUFACTURING UNIT OF ASSESSEE AT MULUND, ANKLESHWAR AND GOA AND UNDER LO AN LICENCE AGREEMENT PART OF THE CORPORATE BUSINESS AND MANY O F THE PROJECTS WHICH WERE BEING MAINTAINED AT MULUND WERE CONTINUED TO B E PRODUCED UNDER LOAN LICENCE AGREEMENT AS THE EXPENDITURE SO INCURR ED ON VRS WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, EVEN IF WE CONSIDER THE SAME UNDER THE PROVISION OF SECTION 37(1), SAME CAN NOT BE DISALLOWED. APPLYING THE PROPOSITION OF LAW LAID DOWN BY HON'BL E SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) AND HON'BLE HIGH COURT IN THE CASE OF FOSECO INDIA LTD.(SUPRA) TO THE FACTS OF TH E INSTANT CASE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITI ES FOR DECLINING THE ASSESSEE'S CLAIM FOR DEDUCTION OF VRS AND EARLY RET IREMENT INCENTIVES PAID TO THE WORKERS. IN THE RESULT GROUND TAKEN BY THE ASSESSEE IS ALLOWED, WHEREAS GROUND REVENUE IS DISMISSED. 10 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 14. SAME VIEW WAS AGAIN EXPRESSED BY THE TRIBUNAL W HILE DECIDING ASSESSEES APPEAL FOR ASSESSMENT YEAR 2001-02 IN ITA NO.8978 A ND 8746/MUM/2004 VIDE ORDER DATED 23-07-2014. NO FACTUAL DIFFERENCE HAS BEEN BROUGHT TO OUR NOTICE IN THE IMPUGNED ASSESSMENT YEAR. THEREFORE, RESPECTFUL LY FOLLOWING THE AFORESAID DECISIONS OF THE CO-ORDINATE BENCH IN ASSESSEES OW N CASE, WE ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE. THIS GROUND IS ALLOWED. 15. IN GROUND 3, ASSESSEE HAS CHALLENGED THE DISALL OWANCE OF DEPRECIATION ON OBSOLETE ASSETS. 16. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRE CIATION OF RS.55,54,989/- ON OPENING WRITTEN DOWN VALUE (WDV) OF BLOCK OF ASSETS . NOTICING THAT SIMILAR CLAIM MADE BY THE ASSESSEE WAS DISALLOWED IN THE PRECEDIN G ASSESSMENT YEAR ON THE GROUND THAT THE ASSETS WERE NOT UTILIZED FOR THE BU SINESS, THE ASSESSING OFFICER, FOLLOWED THE SAME AND DISALLOWED THE DEPRECIATION C LAIMED. THOUGH, THE ASSESSEE CONTESTED THE DISALLOWANCE; HOWEVER, EARNED COMMISS IONER (APPEALS), FOLLOWING THE DECISION TAKEN BY HIM IN EARLIER ASSESSMENT YEA R, UPHELD THE DISALLOWANCE. 13. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUB MITTED, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMEN T YEARS 1998-99, 1999-2000, 2000-01 AND 2001-02 CLAIM OF DEPRECIATION HAS BEEN ALLOWED. HE SUBMITTED, THE AFORESAID DECISIONS OF THE TRIBUNAL HAVE BEEN ACCEP TED BY THE DEPARTMENT AND NO FURTHER APPEALS HAVE BEEN FILED BEFORE THE HONBLE HIGH COURT. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE AFORESAID SUBMISSIONS OF THE ASSESSEE. 11 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. IT IS EVIDENT, ASSESSEES CLAIM OF DEPRECIATION ON THE OPENING WDV OF BLOCK OF ASSETS HAS BEEN DISALLOWED SIMPLY FOR THE REASON THAT SIMI LAR CLAIM MADE BY THE ASSESSEE IN PRECEDING ASSESSMENT YEARS HAS BEEN DISALLOWED. AS BROUGHT TO OUR NOTICE BY LEARNED SENIOR COUNSEL FOR THE ASSESSEE, WHILE DECI DING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 1998-99 TO 2001-02, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OF DEPRECIATION. IN THE LA TEST ORDER PASSED FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO.8978/MUM/2004 & 8 746/MUM/2004 DATED 28-07-2014, THE TRIBUNAL, FOLLOWING ITS EARLIER ORD ER, HAS ALLOWED ASSESSEES CLAIM HOLDING AS UNDER:- 8.1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBU NAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1998-99 AND 1999-2000, WHEREIN THE TRIBUNAL AFTER CONSIDERING THE DECISION IN THE CASE OF G.R.SHIPPING COMPANY AND INDUCTOTHERM INDIA LTD, 73 1TD 529, HELD THAT DEPRECIATION WAS ALLOWABLE ON OBSOLETE ASSETS TO TH E ASSESSEE. HOWEVER, AGAINST THIS DECISION OF THE TRIBUNAL, THE DEPARTM ENT HAS NOT FILED ANY FURTHER APPEAL BEFORE THE HON'BLE HIGH SJPURT. THER EAFTER RELYING THE SAME, THE TRIBUNAL IN ASSESSEE'S OWN SE FOR THE ASSESSMEN T YEAR 2000-01 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.2 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF TH E TRIBUNAL IN ASSESSEE'S OWN CASE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE AO FOR DECLINING ASSESSEE'S CLAIM OF DEPRECIATION ON OBSOLETE ASSETS . 16. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING T HE DECISIONS OF THE TRIBUNAL, AS REFERRED TO ABOVE, WE DELETE THE DISALLOWANCE. THI S GROUND IS ALLOWED. 17. IN GROUND 4, THE ASSESSEE HAS CHALLENGED DISALL OWANCE OF INTEREST EXPENDITURE OF RS.7,264/- UNDER SECTION 14A OF THE ACT. 18. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAD CLAIMED INTE REST EXPENDITURE OF 12 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 RS.1,14,058/-, CONCLUDED THAT A PART OF THE INTERES T EXPENDITURE WOULD BE ATTRIBUTABLE TO EXEMPT INCOME EARNING ACTIVITY, AS, THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR INVESTING IN SHARES. ACCORDINGLY , HE MADE THE IMPUGNED DISALLOWANCE. THOUGH, THE ASSESSEE CONTESTED THE AF ORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS) BY STATING THAT NO P ART OF THE BORROWED FUND WAS UTILIZED FOR INVESTING IN SHARES; HOWEVER, LEARNED COMMISSIONER (APPEALS), RELYING UPON THE ALTERNATIVE CONTENTION OF THE ASSESSEE AND THE REVISED COMPUTATION IN SUPPORT OF THE CLAIM, RESTRICTED THE DISALLOWANCE T O RS.7,264/-. 19. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUB MITTED, SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEARS 1 998-99 TO 2001-02 HAVE BEEN ALLOWED BY THE TRIBUNAL. FURTHER, HE SUBMITTED, APP EAL AGAINST TRIBUNALS DECISION FOR ASSESSMENT YEAR 1998-99 WAS NOT ADMITTED BY THE HONBLE HIGH COURT AND IN OTHER ASSESSMENT YEARS, THE DEPARTMENT HAS NOT FILE D ANY APPEAL. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY AGREED WITH THE AFORESAID SUBMISSIONS OF THE LEARNED SENIOR COUNSEL FOR THE A SSESSEE. 21. HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND, W HILE DECIDING IDENTICAL ISSUE IN PRECEDING ASSESSMENT YEARS, THE TRIBUNAL H AS DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE MADE UNDER SEC TION 14A OF THE ACT. IN THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 200 1-02 (SUPRA), THE TRIBUNAL, FOLLOWING ITS EARLIER DECISIONS, HAS DELE TED THE DISALLOWANCE UNDER SECTION 14A, HOLDING AS UNDER:- 10. GROUND NO.5 IS REGARDING DISALLOWANCE U/S.14A. LEAR NED AR STATED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 1990-91 AND 1998-99 IN FAVOUR OF THE ASSES SEE, AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE HIGH COURT. PRECISE OBSERVATION OF THE TRIBUNAL FOR THE A.Y. 1998-99 RE ADS AS UNDER :- 13 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 '22. THE AO HAS NOT APPLIED SECTION 14A. IN FACT TH IS SECTION WAS NOT IN THE STATUTE DURING THAT YEAR. THE LEARNED CI T(APPEALS) HAS FACTUALLY ANALYZED THE ISSUE AND HAS COME TO A CONC LUSION THAT NO EXPENDITURE CAN BE ATTRIBUTABLE TO THE EARNING OF T AX FREE INCOME. ON THIS FACTUAL MATRIX, WE AGREE WITH THE LEARNED C OUNSEL THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF TOPSTAR MERCANTILE (P) LTD. VS. ACIT 225 CTR (BOM) 351 APPL IES AND THE TRIBUNAL CANNOT SET ASIDE THE ISSUE FOR FRESH ADJUD ICATION FOR APPLYING SECTION 14A. THE HON'BLE HIGH COURT HELD A S FOLLOWS: 'IN THE ABSENCE OF ANY ADVERSE FINDING BY THE AO AG AINST THE ASSESSEE VIS-A-VIS APPLICABILITY OF S. 14A TRIBUNAL , WHILE ACCEPTING THE ASSESSEE'S CONTENTION, WAS NOT CORREC T IN RECORDING THE DIRECTION TO CONSIDER THE APPLICABILI TY OF S. 14A WHILE REMANDING THE MATTER.' 23. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROU ND OF THE REVENUE.' AGAINST THE ABOVE ORDER OF TRIBUNAL, THE REVENUE HA S NOT FILED ANY APPEAL BEFORE THE HIGH COURT. AS THE FACTS AND CIRC UMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOL LOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS DISCUSSED AB OVE, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE UNDER SECTION. 22. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING T HE AFORESAID DECISION OF THE CO- ORDINATE BENCH, WE DELETE THE DISALLOWANCE. THIS G ROUND IS ALLOWED. 23. IN GROUND 5, ASSESSEE HAS CHALLENGED DISALLOWAN CE OF RS.25,11,883/-, BEING EXPENDITURE INCURRED TOWARDS COMPUTER SOFTWARE CHAR GES. 24. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD CLAIMED EXPENDITU RE OF RS,2,04,09,371/- TOWARDS COMPUTER SOFTWARE. BEING OF THE VIEW THAT E XPENDITURE INCURRED BY THE ASSESSEE IS OF CAPITAL NATURE, THE ASSESSING OFFICE R DISALLOWED ASSESSEES CLAIM AND ALLOWED DEPRECIATION @ 60%. WHILE DECIDING THE ISSU E IN APPEAL, LEARNED COMMISSIONER (APPEALS) NOTICED THAT THE ASSESSING O FFICER HAS OBSERVED THAT THE EXPENDITURE WAS INCURRED TOWARDS PURCHASE OF SOFTWA RE SYSTEM FOR UPGRADATION OF THE COMPUTER NETWORK. AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE IN THE 14 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED C OMMISSIONER (APPEALS) OBSERVED THAT THE AMOUNT OF RS.25,11,883/- REPRESEN T PAYMENT FOR ACQUISITION OF SOFTWARE AND PAYMENT MADE TO PROFESSIONALS FOR DEVE LOPMENT OF SOFTWARE. THUS, HE HELD THAT THE ASSESSEES CLAIM OF DEDUCTION TO T HIS EXTENT IS NOT ALLOWABLE, AS, SUCH PAYMENT WOULD NOT BE ADMISSIBLE. 25. DRAWING OUR ATTENTION TO PAGE 192 OF THE PAPER BOOK, LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED, THE PAYMENTS MA DE WERE FOR PURCHASE OF APPLICATION SOFTWARE AND CONSULTANCY CHARGES. THERE FORE, EXPENDITURE CANNOT BE OF CAPITAL NATURE. FURTHER, HE SUBMITTED, THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000. IN ADDITION, HE RELIED UPON THE FOLLOWING DECISIONS:- 1. CIT VS ASAHI INDIA GLASS LTD 346 ITR 329 (DEL) 2. CIT VS AMWAY INDIA ENTERPRISE 346 ITR 341 (DEL) 3. CIT VS RAYCHEM RPG LTD 346 ITR 138 (BOM) 26. THE LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY AGREED THAT THE ISSUE IS COVERED BY THE EARLIER DECISION OF THE TRIBUNAL. 27. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIG HT OF DECISIONS RELIED UPON AND PERUSED MATERIALS ON RECORD. IT IS EVIDENT, THE DISALLOWANCE HAS BEEN MADE ON THE REASONING THAT THE EXPENDITURE INCURRED IS O F CAPITAL NATURE. PER CONTRA, IT IS THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE I S NOT OF CAPITAL NATURE. AS WE FIND FROM RECORD, IT IS THE CLAIM OF THE ASSESSEE T HAT THE ASSESSEE HAD ONLY LICENSE TO USE THE SOFTWARE. IT IS ALSO RELEVANT TO OBSERVE , WHILE DECIDING SIMILAR ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 1999-2000 VI DE ITA NO.4279/MUM/2004 DATED 31-01-2014, THE TRIBUNAL HAS ALLOWED ASSESSEE S CLAIM, HOLDING AS UNDER:- 15 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 2.3,2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY- WE FIND THAT SIMILAR EXPENDITURE ON ACQUISITION OF SOFTWARE HAS BEEN TREATED BY THE TRIBUNAL AS REVENUE EXPENDITURE IN C ASE OF THE ASSESSEE IN A.Y. 1995-96 (SUPRA). THE NATURE OF EXPENDITURE ON ACQUISITION SOFTWARE HAS ALSO BEEN EXAMINED IN DETAIL BY THE HON'BLE HIG H COURT OF DELHI IN CASE OF THE AMWAY INDIA ENTERPRISES (SUPRA) AND IN CASE OF THE ASAHL INDIA SAFETY GLASS LTD (SUPRA). IN CASE OF ASAHI IN DIA SAFETY GLASS LTD, EXPENDITURE HAD BEEN INCURRED ON ACQUISITION OF APP LICATION SOFTWARE FOR EXECUTING TASK IN THE FIELD OF ACCOUNTS, PURCHASES AND INVENTORY MAINTENANCE. THE HIGH COURT HELD THAT THE EXPENDITU RE HAD NOT CREATED ANY NEW ASSET OR NEW SOURCE OF INCOME. IT WAS HELD THAT EXPENDITURE WAS REVENUE IN NATURE. RESPECTFULLY FOLLOW THESE JUDGEM ENT INCLUDING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE IN ASSE SSMENT YEAR 1995-96 (SUPRA), WE SET ASIDE THE ORDER OF CIT(A) AND ALLOW ED THE CLAIM OF THE ASSESSEE. 28. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING T HE AFORESAID DECISION OF THE CO- ORDINATE BENCH, WE DELETE THE DISALLOWANCE. THIS GR OUND IS ALLOWED. 29. IN GROUND 6, THE ASSESSEE HAS CHALLENGED ADDITI ON OF RS.1,83,43,096/- UNDER SECTION 145(3) OF THE ACT ON ACCOUNT OF UNUTILISED MODVAT CREDIT. 30. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER, ON VERIFYING MATERIALS ON RECORD, NOTICED THAT THE ASSESSEE HAD UNUTILIZED MODVAT CREDIT OF RS.6,37,43,762/-. THEREFORE, HE AS KED THE ASSESSEE TO PREPARE THE ACCOUNTS IN CONSONANCE WITH SECTION 145A OF THE ACT. AFTER VERIFYING THE WORKING OF PROFIT AS PER SECTION 145A OF THE ACT, A S FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE DIFFERENCE IN T HE PROFIT OF THE COMPANY IF THE PROVISIONS OF SECTION 145A IS FOLLOWED IS RS.1,83,4 3,096/-. ACCORDINGLY, HE ADDED BACK THE AFORESAID AMOUNT REPRESENTING UNUTILIZED M ODVAT CREDIT TO THE VALUE OF CLOSING STOCK. ASSESSEE CONTESTED THE AFORESAID ADD ITION BEFORE LEARNED COMMISSIONER (APPEALS). LEARNED COMMISSIONER (APPEA LS) DISPOSED OF THE ISSUE BY DIRECTING THE ASSESSING OFFICER TO MAKE ADJUSTMEN T TO THE STOCK, PURCHASE, SALE, 16 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 EXCISE DUTY PAYMENT AND IF, AFTER DOING SO, IT RESU LTS IN ANY DIFFERENCE, THEN RESTRICT THE ADDITION TO THAT EXTENT ONLY. 31. THE LEARNED SENIOR COUNSEL OF THE ASSESSEE SUBM ITTED THAT EVEN IF NO ADJUSTMENT IS MADE ON ACCOUNT OF UNUTILIZED MODVAT C REDIT, IT WILL HAVE NO IMPACT ON THE PROFIT. IN THIS REGARD, HE RELIED UPON THE D ECISION OF THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE FOR ASSESSMENT YEA RS 2006-07 AND 2007-08. FURTHER, HE SUBMITTED, NO SUCH ADJUSTMENT HAS BEEN MADE FROM ASSESSMENT YEAR 2008-09 ONWARDS. HE SUBMITTED, IDENTICAL ISSUE RELA TING TO ADJUSTMENT MADE UNDER SECTION 145A WAS DECIDED IN FAVOUR OF THE ASS ESSEE IN ASSESSMENT YEAR 1999-2000 AND DEPARTMENT HAS NOT FILED ANY APPEAL A GAINST THE DECISION OF THE TRIBUNAL. IN ADDITION, HE RELIED UPON THE FOLLOWIN G DECISIONS:- 1. HAWKINS COOKERS LTD VS ITO (2008) 14 DTR 206 (MU M) 2. CIT VS MAHALAXMI GLASS WORKS (P) LTD (2009) 318 ITR 116 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS). 33. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. APPARENTLY, IDENTICAL ISSUE RELATING TO ADJUSTMENT UNDER SECTION 145A OF THE ACT CAME UP FOR CONSIDERATION IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 1999-2000 (SUPRA). THE TRIBUNAL, WHILE DECIDING THE ISSUE IN THE ORDER REFERRED TO ABOVE, HAS RESTORED IT TO THE ASSESSING OFFICER WITH THE FOLLO WING OBSERVATIONS:- 2.9.1. WE HAVE HEARD BOTH THE PARTIES, PERUSED RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADJU STMENT ON ACCOUNT OF MODVAT CREDIT U/S 145A OF THE INCOME-TAX ACT. UNDER THE SAID PROVISION, VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTO RY HAS TO TIE MADE ON THE BASIS OF METHOD OF ACCOUNTING REGULARLY FOLLOWE D AND FURTHER ADJUSTMENT IS REQUIRED TO BE MADE TO INCLUDE THE AM OUNT OF ANY TAX, DUTY, CESS TO BRING THE GOODS TO THE PLACE OF ITS LOCATIO N CONDITION ON THE DATE OF 17 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 THE VALUATION. THEREFORE, UNDER THE PROVISION U/S 1 45A ADJUSTMENT ON ACCOUNT OF LAX, DUTY ETC HAS TO BE MADE AT ALL STAG ES THAT IS, OPENING STOCK, PURCHASES AND SAFES AND LOSING STOCK. IT HAS BEEN HELD BY THE HON'BLE HIGH COURT OF DELHI IN CASE OF MAHAVIR ALUM INIUM LTD. (295 ITR 77) THAT ADJUSTMENT U/S 145A HAS TO BE MADE BOTH TO THA OPENING STOCK AND CLOSING STOCK. THIS ISSUE THEREFORE IN OUR VIEW REQUIRES FRESH EXARNINATION. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A), AND RESTORE THE MATTER TO OR PASSING A FRESH ORDER AFTER ALLOWING O PPORTUNITY OF HEARING TO ASSESSEE. 34. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING T HE AFORESAID DECISION OF THE CO- ORDINATE BENCH, WE RESTORE THE ISSUE TO THE ASSESSI NG OFFICER WITH SIMILAR DIRECTIONS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 35. THE CORE ISSUE IN GROUND 7 IS WITH REGARD TO PA RT DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80HHC OF THE ACT. HOWEVER, TH IS GROUND HAS THREE SUB GROUNDS. 36. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUC TION UNDER SECTION 80HHC OF THE ACT. AFTER CALLING UPON THE ASSESSEE TO FURNISH THE DETAILS OF INCOME FORMING PART OF THE BUSINESS PROFIT ON WHICH THE ASSESSEE H AS CLAIMED DEDUCTION UNDER SECTION 80HHC OF THE ACT AND VERIFYING THEM, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCLUDED SALES TAX SET OFF IN THE BUSINESS PROFITS AS WELL AS IN THE TURNOVER FOR CLAIMING DEDUCTION UNDER SECTION 80HHC OF THE ACT. FURTHER, HE OBSERVED, THE ASSESSEE HAS ALSO INCLUDED BAD DEBTS RECOVERED DURING THE YEAR AND PROCESSING CHARGES IN THE BUSINESS PROFIT AND TOTAL TURNOVER FOR CLAIMING DEDUCTION UNDER SECTION 80HHC OF THE ACT, INSTEAD OF REDUCING 90% OF SUCH INCOME, IN TERMS OF EXPLANATION (BAA) OF SECTION 80 HHC. WHEREAS, THE ASSESSING OFFICER WAS OF THE VIEW THAT IT HAS TO BE REDUCED B Y 90% FOR CLAIMING DEDUCTION UNDER SECTION 80HHC. NOTICING THE ABOVE, THE ASSESS ING OFFICER CALLED UPON THE 18 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 ASSESSEE TO EXPLAIN, WHY 90% OF THE SALES-TAX SET O FF, BAD DEBTS RECOVERED AND PROCESSING CHARGES SHOULD NOT BE REDUCED FROM THE B USINESS PROFITS FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THOUGH, THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE; HOWEVER, THE ASSESSING OFFICER, REJECTING THE SUBMISSIONS OF THE ASSESSEE REDUCED 90% OUT OF THE INCOME RECEIVED FROM SALES-TAX SET OFF, DEPB ENTITLEMENTS, BAD DEBTS AND PROCESSING FEE BY RESORTING TO OF EXPLANATION (BAA) OF SECTION 80HHC WHILE COMPUTI NG DEDUCTION UNDER THE SAID PROVISION. ASSESSEE CONTESTED THE AFORESAID DECISIO N OF THE ASSESSING OFFICER BEFORE LEARNED COMMISSIONER (APPEALS). AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON R ECORD AS WELL AS THE EXTANT STATUTORY PROVISION, LEARNED COMMISSIONER (APPEALS) UPHELD THE DECISION OF THE ASSESSING OFFICER WITH REGARD TO SALES-TAX SET OFF, BAD DEBTS AND PROCESSING CHARGES. INSOFAR AS DEPB ENTITLEMENT IS CONCERNED, LEARNED COMMISSIONER (APPEALS) HELD THAT THE ASSESSEE WOULD ONLY BE ENTI TLED TO INCLUDE THE VALUE OF DEPB BENEFIT RECEIVABLE DURING THE YEAR IN THE BUSI NESS PROFITS FOR CLAIMING DEDUCTION UNDER SECTION 80HHC OF THE ACT. HE HELD, THE UNUTILIZED DEPB ENTITLEMENT, VALUED AT RS.4,73,55,104/-, WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT IN VIEW OF CLAUSE (BAA) OF EXPLANATION TO THE SAID SECTION. THUS, LEARNED COMMISSIONER (APPEALS) GRANTED PARTIA L RELIEF TO THE ASSESSEE WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80HH C OF THE ACT IN RESPECT OF DEPB ENTITLEMENT. 37. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUB MITTED, IDENTICAL ISSUE IN ASSESSEES OWN CASE HAS BEEN DECIDED BY THE TRIBUNA L IN ASSESSMENT YEARS 2000- 01 AND 2001-02. IN THIS REGARD, HE DREW OUT ATTENTI ON TO THE RELEVANT OBSERVATIONS 19 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 OF THE TRIBUNAL. FURTHER, HE SUBMITTED, AS FAR AS T HE INCOME FROM PROCESSING CHARGES IS CONCERNED, THE TRIBUNAL HAS DIRECTED TO ONLY REDUCE THE NET RECEIPTS FROM ELIGIBLE BUSINESS PROFIT AS PER EXPLANATION (B AA) TO SECTION 80HHC OF THE ACT. HE SUBMITTED, INSOFAR AS INCOME FROM RECOVERY OF BA D DEBT IS CONCERNED, THE SAME CANNOT BE REDUCED FROM BUSINESS PROFIT AS IT I S NOT HIT BY EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. APART FROM RELYING UPO N THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE, LEARNED SENIOR COUNSEL RELI ED UPON THE FOLLOWING DECISIONS AS WELL:- 1. CIT VS PUNJAB STAINLESS STEEL 364 ITR 144 (SC) 2. CIT VS LAXMI MACHINE TOOLS 290 ITR 667 (SC) 38. INSOFAR AS DEDUCTION CLAIMED ON DEPB ENTITLEMEN T, LEARNED SENIOR COUNSEL SUBMITTED, THE DEPARTMENTAL AUTHORITIES HAVE COMMIT TED A FUNDAMENTAL MISTAKE IN HOLDING THAT THE ASSESSEE HAS RECEIVED SUCH INCO ME FROM SALE OF DEPB LICENSE / ENTITLEMENT. PROCEEDING FURTHER, HE SUBMITTED, THE ASSESSEE HAS NOT SOLD ANY DEPB ENTITLEMENT, BUT HAS RECEIVED DEPB ENTITLEMENT WHICH HAS BEEN CREDITED AS INCOME ON ACCRUAL BASIS. FURTHER, DRAWING OUR ATTEN TION TO THE OBSERVATIONS OF THE ASSESSING OFFICER, LEARNED SENIOR COUNSEL SUBMITTED , THE ASSESSING OFFICER HIMSELF HAS STATED THAT THE INCOME RECEIVED FROM DEPB ENTIT LEMENT DOES NOT FALL UNDER SECTIONS 28(IIIA), 28(IIIB) & 28(IIIC) OF THE ACT. FURTHER, THE RECEIPTS FROM DEPB ENTITLEMENT CANNOT BE CONSIDERED TO BE IN THE NATUR E OF BROKERAGE, COMMISSION, RENT, CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATUR E SO AS TO BRING IT WITHIN THE PURVIEW OF EXPLANATION (BAA) TO SECTION 80HHC. HE S UBMITTED, THOUGH, LEARNED COMMISSIONER (APPEALS) HAS AGREED WITH THE ASSESSEE THAT DEPB ENTITLEMENT DOES NOT COME WITHIN THE AMBIT OF EXPLANATION (BAA); HOW EVER, HE HAS ERRONEOUSLY 20 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 HELD THAT THE ASSESSEE WOULD BE ENTITLED TO CLAIM S UCH DEDUCTION ONLY ON THE DEPB ENTITLEMENT RECEIVED AND UTILIZED DURING THE Y EAR. THUS, HE SUBMITTED, SINCE THE RECEIPT FROM DEPB ENTITLEMENT IS NOT COVERED UN DER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT, 90% OF SUCH RECEIPTS CANN OT BE REDUCED FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN SUPPOR T OF SUCH CONTENTION, HE RELIED UPON A DECISION OF THE HONBLE SUPREME COURT IN CASE OF TOPMAN EXPORTS VS CIT 342 ITR 49 (SC) AND THE DECISIONS OF THE TRIBUN AL IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2000-01 AND 2001-02. 39. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFIC ER AND SUBMITTED THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD B E RESTORED. 40. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIG HT OF DECISIONS RELIED UPON AND PERUSED MATERIALS ON RECORD. INSOFAR AS AVAILAB ILITY OF DEDUCTION UNDER SECTION 80HHC OF THE ACT ON SALES-TAX SET OFF IS CO NCERNED, IT IS NOTICED, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2000-01 IN THE ORDER REFERRED TO ABOVE, THE TRIBUNAL HAS DECIDED T HE ISSUE AGAINST THE ASSESSEE HOLDING AS UNDER:- 11. GROUND NO.7 IS IN REGARD TO SALES-TAX SET OFF AND REFUND AMOUNTING TO RS.1,76,85,412 IS LIABLE TO BE INCLUDED IN THE TOTA L TURNOVER FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT AND GROUND NO.8 IS REGARDING PROCESSING CHARGES OF RS.34,97,542 AND BAD DEBTS RE COVERED AMOUNTING TO RS, 89,4757- ARE REQUIRED TO BE REDUCED TO THE EXTENT O F 90% UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC FOR THE PURPOSES O F GRANTING RELIEF. THIS ISSUE OF ELIGIBILITY OF INCOME FROM PROCESSING CHARGES HAS B EEN CONSIDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF AGO ASSOCIATED CAPSULES VS. CIT, 343 ITR 89 (SC). THE TRIBUNAL ALSO IN ASSESSEE'S OWN CASE FOR A.Y.1999-2000, IN ITA NO.4180/MUM/2003, FOLLOWING THE JUDGMENT OF THE HON 'BLE APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (SUPRA), HELD AS UNDER :- '2.10.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY OF PROVISION OF EXPLANATION (BAA) TO 21 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 PROCESSING CHARGES AND SALES TAX REFUND AND SETOFF. AS REGARDS THE PROCESSING CHARGES, THE ISSUES IS COVERED BY THE JU DGEMENT OF HON'BLE SUPREME COURT IN CASE OF RAVINDRANATHAN NAIR (295 I TR 228) IN WHICH IT HAS BEEN HELD THAT THE PROCESSING CHARGES FORM AN I NDEPENDENT ITEM OF INCOME LIKE COMMISSION RENT ETC. AND, THEREFORE, 90 % OF THE SAME IS REQUIRED TO BE REDUCED FROM PROFIT OF BUSINESS AS P ER EXPLANATION (BAA). WE THEREFORE HOLD THE PROCESSING CHARGES WILL BE CO VERED BY EXPLANATION (BAA). THE ISSUE OF APPLICABILITY OF PROVISION OF E XPLANATION (BAA) TO SEALS TAX REFUND HAD BEEN CONSIDERED BY THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF DRESSER RAND (322 ITR 449) IN WHICH IT HAS BEEN HELD THAT RECEIPTS LIKE RECOVERY OF FREIGHT INSURANCE, PACKING CHARGES , SALES TAX REFUND AND SERVICE INCOME WILL NOT BE PART OF BUSINESS PROFIT AND HAS TO BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). SUBSEQUENTL Y, HOWEVER HON'BLE HIGH COURT IN CASE OF PFIZER LTD. (330 ITR 62) AFTE R REFERRING TO THE JUDGEMENT OF IN CASE OF DRESSER RAND (SUPRA) HELD T HAT INSURANCE CLAIM ON STOCK IN TRADE WAS NOT AN INDEPENDENT ITEM OF INCOM E AND THEREFORE HAS TO BE CONSIDERED AS INTEGRAL PART OF BUSINESS PROFI T. HOWEVER, SINCE THE SALES TAX REFUND HAS BEEN SPECIFICALLY CONSIDERED B Y THE HON'BLE HIGH COURT IN CASE OF DRESSER RAND (SUPRA) RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT SALES TAX REFUND AND SET OFF WILL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). FURTHER, THE AL TERNATE CLAIM OF THE ASSESSEE THAT ONLY THE NET RECEIPT SHOULD BE CONSID ERED FOR REDUCTION AS PER EXPLANATION (BAA) IS COVERED BY THE JUDGEMENT O F HON'BLE SUPREME COURT IN CASE OF ACG ASSOCIATED CAPSULES P. LTD. V. CIT (343 ITR 89). WE THEREFORE DIRECT THE ASSESSING OFFICER ONLY THE NET RECEIPT AFTER DEDUCTING EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME, WI LL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA).' 11.1 IN VIEW OF THE ABOVE, THE ISSUE WITH REGARD TO ALLO WING CLAIM OF DEDUCTION IN RESPECT OF SALES TAX SET OFF AND REFUND, THE ASS ESSEE IS NOT ELIGIBLE IN VIEW OF EXPLANATION (BAA) TO SECTION 80HHC. ACCORDINGLY, WE DISMISS THIS GROUND OF ASSESSEE'S APPEAL AND DIRECT THE AO TO REDUCE THE AMOUNT OF SALES TAX REFUND FROM THE ELIGIBLE PROFIT FOR COMPUTING CLAIM OF DED UCTION U/S.80HHC. 41. THE SAME VIEW WAS REITERATED BY THE TRIBUNAL WH ILE DECIDING ASSESSEES APPEAL IN ASSESSMENT YEAR 2001-02 (SUPRA). THAT BEI NG THE CASE, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE CO-ORDINAT E BENCH, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE I SSUE. ACCORDINGLY, GROUND 7(A) IS DISMISSED. 22 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 42. INSOFAR AS AVAILABILITY OF DEDUCTION UNDER SECT ION 80HHC IN RESPECT OF PROCESSING CHARGES, IT IS NOTICED, IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2000-01 (SUP RA). WHILE DECIDING THE ISSUE, THE TRIBUNAL HAS HELD AS UNDER:- 11.2 WITH RESPECT TO CLAIM OF DEDUCTION U/S.80HHC IN RESPECT OF PROCESSING CHARGES, THE ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1999-20 00 AS NARRATED ABOVE. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT T HE AO THAT ONLY NET RECEIPTS AFTER DEDUCTING EXPENDITURE INCURRED FOR E ARNING SUCH INCOME WILL BE CONSIDERED FOR REDUCTION FROM ELIGIBLE BUSINESS PROFIT AS PER EXPLANATION (BAA). MATTER IS RESTORED BACK TO THE F ILE OF THE AO FOR DECIDING AS PER DIRECTION GIVEN BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEAR 1999-2000 IN ASSESSEE'S OWN CASE, AS DISCUSSED HERE INABOVE. 43. THE SAME VIEW WAS REITERATED BY THE TRIBUNAL WH ILE DECIDING ASSESSEES APPEAL FOR ASSESSMENT YEAR 2001-02 (SUPRA). THEREFO RE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMEN T YEARS, WE RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR REDUC ING ONLY THE NET RECEIPT FROM THE ELIGIBLE BUSINESS PROFIT IN TERMS OF EXPLANATION (B AA) TO SECTION 80HHC OF THE ACT. 44. AS REGARDS AVAILABILITY OF DEDUCTION UNDER SECT ION 80HHC ON RECOVERY OF BAD DEBT, WE MAY OBSERVE, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 200001 (SUPRA), THE TRIBUNAL HAS HELD AS UNDER: 17. GROUND NO.(V) IS REGARDING EXCLUDING ONLY PROCESSIN G CHARGES AND BAD DEBTS FROM THE TOTAL TURNOVER WHILE COMPUTING T HE ELIGIBLE DEDUCTION U/S.80HHC. THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BIE SUPREME COURT IN THE CASE OF CIT VS. RAVINDRANATHAN NAIR, 2 95 ITR 228(SC), WHEREIN THE HON'BIE SUPREME COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT '21. AT THE OUTSET, WE MAY STATE THAT, IN THE PRESE NT CASE, WE ARE DEALING WITH THE LAW AS IT STOOD DURING ASSESSMENT YEAR 1993-94. AT THAT TIME SECTION 80HHC(3) OF THE I. T. ACT CONS TITUTED A CODE BY ITSELF. SUBSEQUENT AMENDMENTS HAVE IMPOSED RESTRICTIONS/QUALIFICATIONS BY WHICH THE SAID PROVI SION HAS CEASED TO BE A CODE BY ITSELF. IN THE ABOVE FORMULA THERE EXISTED FOUR 23 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 VARIABLES, NAMELY, BUSINESS PROFITS, EXPORT TURNOVE R, TOTAL TURNOVER AND 90% OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANATION, IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC AIL FOUR VARIABLES HAD TO BE TAKEN INTO ACCOU NT. ALL FOUR VARIABLES WERE REQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTION OF SECTION SOHHC(3) SECURES PROFITS DERIVED FROM THE E XPORTS OF ELIGIBLE GOODS. THEREFORE, IF ALL THE FOUR VARIABLE S ARE KEPT IN MIND, IT BECOMES DEAR THAT EVERY RECEIPT IS NOT INCOME AN D EVERY INCOME WOULD NOT NECESSARILY INCLUDE ELEMENT OF EXPORT TUR NOVER. THIS ASPECT NEEDS 10 BE KEPT IN MIND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION, THE SAID CLAUSE STATED THAT 9 0% OF INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE, COMMISSION , INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDE D IN BUSINESS PROFITS, HAD TO BE DEDUCTED FROM BUSINESS PROFITS C OMPUTED IN. TERMS OF SECTIONS 28 TO 44D OF THE I. T. ACT. IN OT HER WORDS, RECEIPTS CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE REDUCED FROM BUSINESS P ROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) IND ICATES THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES ETC. FORMED PART OF GROSS TOTAL INCOME BEING BUSINE SS PROFITS. BUT FOR THE PURPOSES OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVING 'EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND 'INDEPENDEN T INCOMES' CONSTITUTED PART OF GROSS TOTAL INCOME, THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD N O NEXUS WITH THE EXPORT TURNOVER. THEREFORE, IN THE ABOVE FORMUL A, WE HAVE TO READ ALL THE FOUR VARIABLES. ON READING ALL THE VAR IABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PR OCEEDS FROM EXPORTS. THAT, EVERY RECEIPT IS NOT INCOME UNDER TH E I. T. ACT AND EVERY INCOME MAY NOT TOE ATTRIBUTABLE TO EXPORTS. T HIS WAS THE REASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES L IKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FOR AND ON BEH ALF OF THE GOVERNMENT, SHALL NOT BE INCLUDED IN THE TOTAL TURN OVER IN THE ABOVE FORMULA (SEE: COMMISSIONER OF INCOME TAX, COIMBATOR E V, M/S. LAKSHMI MACHINE WORKS - 2007(6) SCALE 168). 22. IN THE PRESENT CASE, THE PROCESSING CHARGES WERE IN CLUDED IN THE GROSS TOTAL INCOME FROM CASHEW BUSINESS. THAT, EVEN ACCORDING TO ASSESSEE THE SAID CHARGES CONSTITUTED AN IMPORTANT COMPONENT OF GROSS TOTAL INCOME FROM CASHEW BUSINES S. THIS IS NOT DISPUTED. THEREFORE, IN TERMS OF CLAUSE (BAA), 90% OF THE 'INDEPENDENT INCOME' HAD TO BE DEDUCTED FROM GROSS TOTAL INCOME TO ARRIVE AT BUSINESS PROFITS TO WHICH THE FRACTION HAD TO BE APPLIED. SINCE, THE PROCESSING CHARGES CONSTITUTED INDEPENDE NT INCOME SIMILAR TO RENT, COMMISSION, ETC., WHICH FORMED PAR T OF THE GROSS TOTAL INCOME, THE SAME HAD TO BE REDUCED BY 90% AS 24 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 CONTEMPLATED IN CLAUSE (BAA) TO ARRIVE AT BUSINESS PROFITS. THEREFORE, THE SAID PROCESSING CHARGES WERE INCLUDI BLE IN THE TOTAL TURNOVER IN THE FORMULA UNDER SECTION 80HHC(3) OF T HE L.T. ACT. 23. BEFORE CONCLUDING WE STATE THAT THE NATURE OF E VERY RECEIPT NEEDS TO BE ASCERTAINED IN ORDER TO FIND OUT WHETHE R THE SAID RECEIPT FORMS PART OF/OR THAT IT HAS AN ATTRIBUTE O F AN EXPORT TURNOVER. WHEN AN INDIRECT, TAX IS COLLECTED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT THE TAX RECOVERED IS FOR T HE GOVERNMENT. IT MAY BE AN INCOME IN THE CONCEPTUAL SENSE OR EVEN UNDER THE I. T. ACT BUT WHILE WORKING OUT THE FORMULA UNDER SECT ION 80HHC(3) OF THE I. T. ACT AND WHILE APPLYING THE FOUR VARIAB LES ONE HAS TO ASCERTAIN WHETHER THE RECEIPT HAS AN ATTRIBUTE OF E XPORT TURNOVER. AN INDIRECT TAX LIKE EXCISE DUTY DOES NOT HAVE THAT ELEMENT OF EXPORT TURNOVER AS UNDERSTOOD IN THE ABOVE FORMULA. AS STATED ABOVE, IT IS RECOVERED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT THEREFORE, IN THE PRESENT CASES, OUR JUDGMENT IN CO MMISSIONER OF INCOME TAX. COTMHATORE V. M/S. LAKSHMI MACHINS WORK S - 2007(6) SCALE 168, HAS NO APPLICATION. 24. ACCORDINGLY, THE IMPUGNED JUDGMENTS OF THE HIGH COURT AND THE TRIBUNAL ARE SET ASIDE AND THE ABOVE CIVIL APPE ALS FILED BY THE DEPARTMENT ARE ACCORDINGLY ALLOWED WITH NO ORDER AS TO COSTS. 17.1 THIS ISSUE HAS BEEN DISCUSSED BY US AT PARA 1 1.2 HEREINABOVE, ACCORDINGLY THE AO TO RECOMPUTE THE DEDUCTION U/S. 80HHC AFTER EXCLUDING THE NET INCOME FROM PROCESSING CHARGES. H OWEVER, BAD DEBTS RECOVERED IS NEITHER PART OF TOTAI TURNOVER NOR EXP ORT TURNOVER FOR THE PURPOSE OF SECTION 80HHC, THEREFORE, SAME IS REQUIR ED TO BE EXCLUDED FROM ELIGIBLE PROFIT FOR THE PURPOSE OF CLAUSE (BAA ). RESPECTFULLY FOLLOWING THE AFORESAID OBSERVATIONS O F THE COORDINATE BENCH, WE HOLD THAT BAD DEBTS RECOVERED SHOULD BE EXCLUDED FR OM THE ELIGIBLE PROFIT FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 45. THUS, THE ONLY ISSUE WHICH SURVIVES NOW IS REGA RDING AVAILABILITY OF DEDUCTION UNDER SECTION 80HHC OF THE ACT IN RESPECT OF RECEIPTS FROM DEPB ENTITLEMENT. THE CORE ISSUE WHICH NEEDS TO BE LOOKE D INTO IS, WHETHER DEPB ENTITLEMENT IS HIT BY EXPLANATION (BAA) OF SECTION 80HHC, SO AS TO, REDUCE 90% OF SUCH RECEIPT FROM BUSINESS PROFIT FOR COMPUTING DED UCTION UNDER SECTION 80HHC OF THE ACT. AS COULD BE SEEN FROM THE IMPUGNED ASSE SSMENT ORDER, IN COURSE OF 25 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 ASSESSMENT PROCEEDINGS, THE ASSESSEE, VIDE LETTER D ATED 07-12-2004 HAS CATEGORICALLY STATED THAT DEPB ENTITLEMENT IS IN TH E NATURE OF EXPORT INCENTIVE COVERED UNDER SECTION 28(IIIB) OF THE ACT. FURTHER, THE ASSESSEE HAD SUBMITTED, THE DEPB ENTITLEMENT HAS TO BE ALLOWED IN TERMS OF PROVISO TO SECTION 80HHC (III). THE ASSESSING OFFICER REJECTED ASSESSEES CLAIM BY H OLDING THAT RECEIPTS FROM DEPB ENTITLEMENT IS NOT COVERED UNDER SECTIONS 28(IIIA), 28(IIIB) & 28(IIIC) OF THE ACT. HE ALSO HELD THAT SUCH RECEIPTS WOULD FALL UNDER SECTI ON 28(IV) OF THE ACT. ACCORDINGLY, HE HAS DISALLOWED ASSESSEES CLAIM OF DEDUCTION. WH EREAS, LEARNED COMMISSIONER (APPEALS) HAS HELD THAT RECEIPTS FROM DEPB ENTITLEM ENT, ONLY TO THE EXTENT OF RECEIVED AND UTILIZED DURING THE YEAR, WOULD NOT BE COVERED UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. 46. THUS, AS COULD BE SEEN FROM THE AFORESAID DECIS ION OF LEARNED COMMISSIONER (APPEALS), HE HAS NOT AT ALL ADDRESSED THE REASONING OF THE ASSESSING OFFICER THAT DEPB ENTITLEMENT FALLS UNDER SECTION 28(IV) OF THE ACT. LEARNED COMMISSIONER (APPEALS) HAS MOVED IN A COMPL ETELY DIFFERENT DIRECTION BY HOLDING THAT DEPB ENTITLEMENT RECEIVED AND UTILIZED DURING THE YEAR WOULD NOT BE COVERED UNDER EXPLANATION (BAA) OF SECTION 80HHC OF THE ACT. WE FAIL TO UNDERSTAND, HOW AND WHY DEPB ENTITLEMENT ONLY TO TH E EXTENT OF RECEIVED AND UTILIZED DURING THE YEAR WOULD NOT BE COVERED UNDER EXPLANATION (BAA) OF SECTION 80HHC OF THE ACT. IN OUR VIEW, THE NATURE AND CHARA CTER OF DEPB ENTITLEMENT WOULD REMAIN SAME, WHETHER IT IS UTILIZED OR UNUTIL IZED. FURTHER, THE REASONING OF THE ASSESSING OFFICER THAT DEPB ENTITLEMENT IS COVE RED UNDER SECTION 28(IV) REQUIRES THOROUGH EXAMINATION. IT IS ALSO NOTICED, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2000-01 (SUP RA), THE TRIBUNAL HAS DIRECTED 26 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 THE ASSESSING OFFICER TO COMPUTE DEDUCTION ON DEPB LICENSE BY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF T OPMAN EXPORTS VS CIT (SUPRA). FOR BETTER APPRECIATION, THE OBSERVATIONS OF THE TR IBUNAL IN THIS REGARD ARE REPRODUCED BELOW:- 19. GROUND NO.(VII) IS REGARDING DIRECTING THE AO TO CA LCULATE DEDUCTION U/S.80HHC WITHOUT REDUCING 90% OF THE DEPB LICENSE SOLD WITHOUT APPRECIATING THE FACTS OF THE CASE. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT, 342 ITR 49 (SC), WHEREIN THE HON'BLE SUPREME COURT HAS HELD AS UNDER :- THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN A SSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MADE PROFITS ON TRANSFER OF DEPB UNDER CLAUSE (D) OF SECTION 28, HE WOULD NOT GET THE BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THIRD OR FOURTH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROF ITS OF THE BUSINESS* UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT AND THERE IS - , NOTHING IN EXPLANATION (BAA) TO SECTION 80HHC TO SHOW THAT THIS .J-BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVI NG AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES. IN OTHER WORDS, W HERE THE EXPORT TURNOVER OF AN ASSESSEE EXCEEDS RS, 10 CRORES, HE D OES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT, OF EXPO RT INCENTIVE UNDER CLAUSE (HID) OF SECTION 28 TO HIS EXPORT PROFITS, B UT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS, WHICH ULTIMA TELY RESULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT THE HIGH COURT, THEREFORE, WAS NOT RIGHT IN COMING TO THE CONCLUSIO N THAT AS THE ASSESSEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS, 10 CRORES AND AS THE ASSESSEE DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(III), THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVE D ON TRANSFER OF THE DEPB AND WITH A VIEW TO GET OVER THIS DIFFIC ULTY THE ASSESSEE WAS CONTENDING THAT THE PROFITS ON TRANSFER OF THE DEPB UNDER SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL-SETTLED PRINCIPLE OF STATUTO RY INTERPRETATION OF A TAXING STATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGU AGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC READ WITH THE WORDS USED IN CLAUSES (IIID) AN D (IIIE) OF SECTION 28, THE ASSESSEE WAS ENTITLED TO A DEDUCTIO N UNDER SECTION 80HHC ON EXPORT PROFITS, THE BENEFIT OF SUCH DEDUCT ION CANNOT BE DENIED TO THE ASSESSEE. 27 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 THE IMPUGNED JUDGMENT AND .ORDERS OF THE BOMBAY HIG H COURT ARE ACCORDINGLY SET ASIDE. THE APPEALS ARE. ALLOWED TO THE EXTENT INDICATED IN THIS JUDGMENT. THE ASSESSING OFFICER I S DIRECTED TO COMPUTE THE DEDUCTION UNDER SECTION BOHHC IN THE CA SE OF THE APPELLANTS IN ACCORDANCE WITH THIS JUDGMENT THERE S HALL BE NO ORDER AS TO COSTS.' 19.1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED TH E RECORD. AS THE ISSUE IS COVERED BY THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO COMPUTE DEDUCTION ON DEPB SINCE LICENSE SOLD IN TERMS OF DECISION IN THE CASE OF TOPMAN EXPORTS (SUPRA). 47. PERTINENTLY, THE SAME VIEW WAS REITERATED BY TH E TRIBUNAL WHILE DECIDING REVENUES APPEAL FOR ASSESSMENT YEAR 2001-02 (SUPRA ). ON A CAREFUL PERUSAL OF THE OBSERVATIONS OF THE TRIBUNAL REPRODUCED ABOVE, IT A PPEARS THAT THE TRIBUNAL HAS PROCEEDED ON THE BASIS THAT THE INCOME CLAIMED AS D EDUCTION UNDER SECTION 80HHC OF THE ACT ARISES OUT OF SALE OF DEPB LICENSE . HOWEVER, BEFORE US, IT IS THE SPECIFIC CONTENTION OF THE LEARNED SENIOR COUNSEL F OR THE ASSESSEE THAT DEPB ENTITLEMENT HAS NOT ARISEN OUT OF SALE OF DEPB LICE NSE, BUT HAS ACCRUED AS INCOME TO THE ASSESSEE. ON A READING OF THE IMPUGNED ASSES SMENT ORDER AS WELL AS THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS), PRIMA FACIE, WE ARE OF THE VIEW THAT VARIOUS FACTS RELATING TO THE ISSUE EITHE R HAVE NOT BEEN PROPERLY PLACED BEFORE THE DEPARTMENTAL AUTHORITIES OR HAVE NOT BEE N PROPERLY APPRECIATED BY THEM. AT THE COST OF RE-ITERATION, WE MAY OBSERVE T HAT IN THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER, THE ASSESSEE ITSELF H AS STATED THAT DEPB ENTITLEMENT IS AKIN TO CASH ASSISTANCE; HENCE, COVERED UNDER SE CTION 28(IIIB). IN THAT EVENT, CERTAINLY IT WOULD BE COVERED UNDER EXPLANATION (BA A) TO SECTION 80HHC. HOWEVER, ASSESSEES ALTERNATIVE CLAIM THAT IT CAN S TILL AVAIL DEDUCTION UNDER PROVISO TO SECTION 80HHC(3) REQUIRES CONSIDERATION AND WHICH, ACCORDING TO US, HAS NOT BEEN PROPERLY DEALT WITH. IN VIEW OF THE DI SCUSSION HEREINABOVE, WE ARE OF 28 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 THE CONSIDERED OPINION THAT THE ISSUE HAS TO BE RES TORED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION AFTER EXAMINING ALL FACTS AND MATERIALS ON RECORD AND SUBMISSIONS OF THE ASSESSEE, AS WELL AS, IN THE LIGHT OF RATIO LAID DOWN IN THE JUDICIAL PRECEDENTS, INCLUDING, THE DECISION OF HON BLE SUPREME COURT IN CASE OF TOPMANS EXPORTS VS CIT (SUPRA). THE RESTORATION OF THIS ISSUE TO THE ASSESSING OFFICER IS ALSO ESSENTIAL, KEEPING IN VIEW THE OBSE RVATIONS OF THE TRIBUNAL IN ASSESSMENT YEARS 2000-01 AND 2001-02 AND THE COMPLI ANCE MADE BY THE ASSESSING OFFICER TO THE DIRECTIONS OF THE TRIBUNAL IN THOSE ASSESSMENT YEARS. ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE ASSESSIN G OFFICER FOR DECIDING AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. GROUND 7(C) IS ALLOWED FOR STATISTICAL PURPOSES. 48. IN GROUND 8, THE ASSESSEE HAS CHALLENGED THE DI SALLOWANCE OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS.28,41,568/-. 49. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, NOTICING THAT THE ASSESSEE HAS CLAIMED DED UCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF, CALLED FOR THE NECESSARY DETAILS. AFTE R PERUSING THE DETAILS AND EXAMINING RECORD, THE ASSESSING OFFICER FOUND THAT SIMILAR CLAIM MADE BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR WAS DISAL LOWED. FOLLOWING THE SAME, HE DISALLOWED THE CLAIM OF THE ASSESSEE IN THE IMPU GNED ASSESSMENT YEAR AS WELL. ASSESSEE CONTESTED THE DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS). IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED T HAT THE AMOUNT WRITTEN OFF WERE INVOICE ITEMS OF BALANCES, WHICH REMAINED OUTS TANDING FOR LONG AND COULD NOT BE RECOVERED. FURTHER, IT WAS SUBMITTED , THE A SSESSEE HAD AMOUNTS DUE FROM VARIOUS HOSPITALS ON ACCOUNT OF SALES EFFECTED IN T HE YEAR 1998. HOWEVER, DUE TO 29 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 AMALGAMATION, THE AMOUNTS COULD NOT BE RECOVERED IN ABSENCE OF PROPER DOCUMENTATION. THUS, IT WAS SUBMITTED, THE BAD DEBT S WRITTEN OFF HAS TO BE ALLOWED AS DEDUCTION EITHER UNDER SECTION 36(1)(VII ) OR AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT. LEARNED COMMISSIONER (APPEAL S), RELYING UPON HIS ORDER PASSED FOR ASSESSMENT YEAR 2000-01 GRANTED PARTIAL RELIEF TO THE ASSESSEE, WHILE, UPHOLDING DISALLOWANCE FOR THE BALANCE AMOUNT. 50. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUB MITTED, THE ONLY REASON FOR DISALLOWANCE OF ASSESSEES CLAIM IS, THE ASSESSEE H AS NOT PROVED THAT THE DEBT IS NOT RECOVERABLE. HE SUBMITTED, AS PER THE AMENDED P ROVISIONS OF SECTION 36(1)(VII), THERE IS NO REQUIREMENT FOR THE ASSESSE E TO PROVE THAT THE DEBT HAS BECOME BAD AND NOT RECOVERABLE. HE SUBMITTED, ONCE THE DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT, IT HAS TO BE ALLOWED. IN SUPP ORT, LEARNED SENIOR COUNSEL RELIED UPON THE FOLLOWING DECISIONS:- I. TRF LTD VS CIT (2010) 323 ITR 397 (SC) II. ACIT VS GLAXO SMITHKLINE PHARMACEUTICALS LTD ITA NO.6444/MUM/2007, DT 28-01-2011 51. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER. 52. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIG HT OF DECISIONS RELIED UPON AND PERUSED THE MATERIALS ON RECORD. AS PER THE AME NDED PROVISION OF SECTION 36(1)(VII) OF THE ACT, ANY BAD DEBT WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE IS AN ALLOWABLE DEDUCTION. THE EFFECT OF THE AFORESAID STATUTORY PROVISION HAS BEEN LUCIDLY EXPLAINED BY THE HONBLE APEX COURT IN CASE OF TRF LTD VS CIT (SUPRA). THEREFORE, ONCE THE CONDITIONS OF S ECTION 36(1)(VII) ARE FULFILLED, ASSESSEES CLAIM HAS TO BE ALLOWED. KEEPING IN VIEW THE UNCONTROVERTED FACTUAL 30 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 POSITION THAT THE CONDITIONS OF SECTION 36(1)(VII) ARE SATISFIED, WE ALLOW ASSESSEES CLAIM. THIS GROUND IS ALLOWED. 53. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ITA NO.3187/MUM/2006 (REVENUES APPEALQUANTUM) 54. IN GROUND 1, THE REVENUE HAS CHALLENGED THE DEL ETION OF ENHANCEMENT/ADDITION MADE BY THE ASSESSING OFFICER TO THE ANNUAL LETTING VALUE (ALV) OF THE FLAT AT HOECHST HOUSE. 55. AS COULD BE SEEN FROM THE FACTS ON RECORD, THE ASSESSEE HAS LET OUT A FLAT SITUATED AT 5 TH FLOOR OF HOECHST HOUSE. THOUGH, THE ASSESSEE HAD O FFERED RENTAL INCOME FROM THIS PROPERTY; HOWEVER, THE ASSESSING O FFICER WAS OF THE VIEW THAT THE INCOME OFFERED BY THE ASSESSEE DOES NOT REPRESE NT THE CORRECT ALV. ACCORDINGLY, ADOPTING THE RATE OF RS.150 PER SQ.FT. , HE DETERMINED THE ALV OF THE PROPERTY AND ACCORDINGLY, ENHANCED THE INCOME SHOWN FROM THE SAID PROPERTY. ASSESSEE CONTESTED THE AFORESAID ADDITION BEFORE LE ARNED COMMISSIONER (APPEALS). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED COMMISSIONER (APPEALS) HELD THAT THE ENHANCEMENT/ADDITION MADE TO THE ALV OF THE PROPERT Y IS WITHOUT ANY BASIS. THEREFORE, HE DELETED THE ADDITION. 56. BOTH, LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE HAVE AGREED BEFORE US T HAT THE ISSUE IS SQUARELY COVERED BY A NUMBER OF DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FROM ASSESSMENT YEARS 1994-95 TO 2001-02. THE LEARNED SE NIOR COUNSEL SUBMITTED, IN MOST OF THE PRECEDING ASSESSMENT YEARS, THE REVENUE HAS ACCEPTED THE DECISIONS 31 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 OF THE TRIBUNAL. THE LEARNED DEPARTMENTAL REPRESENT ATIVE HAS NOT CONTROVERTED THE AFORESAID SUBMISSION OF LEARNED SENIOR COUNSEL FOR THE ASSESSEE. 57. HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND TH AT THIS IS A RECURRING DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE RIGHT FROM ASS ESSMENT YEAR 1994-95. IN ALL THE PRECEDING ASSESSMENT YEARS, THE ADDITION/ENHANC EMENT MADE TO THE ALV HAS BEEN DELETED AND AS STATED BEFORE US, THE REVENUE H AS ACCEPTED THE DECISION OF THE TRIBUNAL. IN THE LATEST ORDER PASSED FOR ASSESS MENT YEAR 2001-02, THE TRIBUNAL, IN ITA NO.8978 & 8746/MUM/2004 DATED 23.07.2014 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HOLDING AS UNDER:- 6.2 WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE R ECORD AND ORDERS OF THE TRIBUNAL AND FOUND THAT THE VERY SAME ISSUE HAS ALR EADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN TERMS DISCUSSED ABOVE. AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT, THE TRIBUNAL HAS CONCLUDED THAT GROSS ANNUAL RATABLE VALUE OF THE PROPERTY FOR THE PURPOSES OF C OMPUTATION OF HOUSE PROPERTY INCOME IS TO BE DETERMINED AT THE ANNUAL VALUE DETE RMINED BY MUNICIPAL CORPORATION. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, HENCE, RESPECTFULLY FOLLOWING THE DECISIO N OF THE TRIBUNAL, WE DIRECT THE AO TO DETERMINE ALV AT THE VALUE DETERMINED BY MUNI CIPAL CORPORATION FOR THE YEAR UNDER CONSIDERATION. HENCE, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS THE GROUND RAISED BY THE REVENUE IS DISMISSED. 58. IN VIEW OF THE AFORESAID, WE UPHOLD THE DECISIO N OF LEARNED COMMISSIONER (APPEALS) BY DISMISSING THE GROUND RAISED. 59. IN GROUND 2, DEPARTMENT HAS CHALLENGED PARTIAL RELIEF GRANTED BY LEARNED COMMISSIONER (APPEALS) IN RESPECT OF ADJUSTMENT MADE TO ALP OF EXPORT COMMISSION PAID. THIS GROUND IS CORRESPONDING TO GR OUND 1 OF ASSESSEES APPEAL IN ITA NO.3092/MUM/2006, DECIDED BY US IN THE EARLIER PART OF THE ORDER. IN VIEW OF OUR DECISION THEREIN, THIS GROUND HAS BECOME INFRUC TUOUS, HENCE, DISMISSED. 32 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 60. IN GROUND 3, DEPARTMENT HAS CHALLENGED THE DELE TION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SOFTWARE EXP ENDITURE. WHILE DECIDING CORRESPONDING GROUND RAISED BY THE ASSESSEE, BEING GROUND 5 IN ITA NO.3092/MUM/2016, IN THE EARLIER PART OF THE ORDER, WE HAVE ALLOWED ASSESSES CLAIM. IN VIEW OF THE AFORESAID, THIS GROUND OF THE REVENUE HAS BECOME INFRUCTUOUS, HENCE, DISMISSED. 61. GROUND 4 RELATES TO DELETION OF PART OF THE DIS ALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THIS GROUND IS CORRESPONDIN G TO GROUND 4 OF ASSESSEES APPEAL IN ITA NO.3092/MUM/2016 DECIDED IN THE EARLI ER PART OF THE ORDER. IN VIEW OF OUR DECISION THEREIN, THIS GROUND OF THE REVENUE HAS BECOME INFRUCTUOUS, HENCE, DISMISSED. 62. GROUND 5 BEING A GENERAL GROUND, DOES NOT REQUI RE ADJUDICATION. 63. IN GROUND 6, THE DEPARTMENT HAS CHALLENGED THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN DIRECTING THE ASSESSING O FFICER TO EXCLUDE EXCISE DUTY, SET OFF OF SALES TAX REFUND AND RECEIPTS FROM SALE OF SCRAP AS PART OF TOTAL TURNOVER AND NET PROFIT. AS AGREED BEFORE US BY LEARNED COUNSELS APPEARING F OR THE PARTIES, THE ISSUES RAISED IN THIS GROUND HAVE BEEN DECIDED BY THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR. AS COULD BE SEEN FROM TH E ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2000-01 VIDE ITA NO.3703/MUM/2004 AND OTHERS DATED 16-04-2014, THE T RIBUNAL HAS HELD THAT EXCISE DUTY HAS NO ELEMENT OF PROFIT; HENCE, CANNOT BE INCLUDED IN TOTAL TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80HHC. FOR BE TTER APPRECIATION, THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR CONVENIENCE:- 16. GROUND NO.(IV) IN REVENUE'S APPEAL IS REGARDING DIR ECTING THE AO TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER WHI LE COMPUTING THE ELIGIBLE 33 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 DEDUCTION U/S.80HHC. THIS ISSUE HAS BEEN DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS, 290 ITR 667(SC), WHEREIN IT WAS HELD THAT EXCISE DUTY HAS NO ELEMENT OF PROFIT, THEREFORE, NOT INCLUDIBLE IN TOTAL TURNOVER FOR COM PUTING DEDUCTION U/S.80HHC. RESPECTFULLY, FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DIRECTING FOR EXCLUSION OF EXCISE DUTY FROM THE TOTAL TURNOVER FO R COMPUTING DEDUCTION U/S.80HHC. 64. IN VIEW OF THE AFORESAID, WE UPHOLD THE DECISIO N OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. 65. AS REGARDS SET OFF OF SALES-TAX REFUND, WHILE D ECIDING CORRESPONDING ISSUE RAISED IN GROUND 7(A) OF ASSESSEES APPEAL IN ITA N O.3092/MUM/2016, WE HAVE FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01, WHEREIN, IT IS HELD THAT SALES TAX SET OFF AND REFUND ARE NOT ELIGIBLE FOR DEDUCTION IN VIEW OF EXPLANATION (BAA) TO SECTION 8 0HHC. THEREFORE, 90% OF SUCH RECEIPT HAS TO BE EXCLUDED FROM THE BUSINESS PROFIT S AS WELL AS TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. OUR DECISION THEREIN WILL APPLY TO THIS GROUND AS WELL. 66. AS REGARDS RECEIPTS FROM SALE OF SCRAP, WE UPHO LD THE DECISION OF LEARNED COMMISSIONER (APPEALS). 67. IN GROUND 7, THE REVENUE HAS CHALLENGED THE DEC ISION OF LEARNED COMMISSIONER (APPEALS) IN DELETING THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR IMPAIRMENT OF ASSETS WRITTEN BACK WHILE COMPUTING D EDUCTION UNDER SECTION 80HHC. 68. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. WE FIND, THE WRITE BACK OF PROVISIONS FOR IMPAIRMEN T HAS ALREADY BEEN REDUCED IN THE COMPUTATION OF TOTAL INCOME BY THE ASSESSEE. T HEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED COMMISSIONER ( APPEALS). 34 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 69. IN GROUND 8, THE DEPARTMENT HAS CHALLENGED THE DIRECTION OF LEARNED COMMISSIONER (APPEALS) REGARDING RE-COMPUTATION OF INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS FOR DEDUCTION UNDER SECTION 80HHC. 70. LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUBMITT ED, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE IN THE PRECEDING A SSESSMENT YEAR. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE AFORESA ID SUBMISSION OF THE ASSESSEE. 71. AS WE FIND FROM MATERIAL ON RECORD, IDENTICAL I SSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99 TO 2001-02. IN THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 2001-02 IN ITA NOS. 8978 & 8746/MU/2004 DATED 23-07-2014, THE TRIBUNAL FOLLOWING ITS EARLIER ORDERS HAS HELD AS UNDER:- 22.3 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE HAS BEEN DEALT BY THE TR IBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1998-99 IN ITA NO.4179 /MUM/2003, VIDE ORDER DATED 12-12-2012, WHEREIN THE TRIBUNAL HAS UP HELD THE ACTION OF AO FOR COMPUTING PROFIT OF TRADING EXPORT AFTER HAVING DETAILED DISCUSSION, WHICH READS AS UNDER:- '10 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THOUGH, THE ISSUE BEFO RE US IS LIMITED ONLY TO THE EXTENT OF A FINDING OF THE CIT(A) PERTA INING TO THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO BE TAKEN AS PART OF INDIRECT COST FOR WORKING OUT THE DEDUCTION U/S 80HHC (3}(B), HOWEVER, THE SAID FINDING OF THE CIT(A) /S BASED ON THE VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX(APPEALS) THAT U/S SUB.SEC. 3(B) OF SEC. 80HHC, INDIRECT COST ATTRIBUTABLE TO EXPORT INCLUDES THE ITEMS OF EXPENDITURE ONLY IF IT HAS SOME CONNECTION , LINK, ATTRIBUTES TO - ' EXPORT. THIS PROPOSITION PROPOUNDED BY THE CIT(A) I S APPARENTLY AGAINST THE PROVISIONS OF SECTION 80HHC( 3)(B). IF THE PROVISIONS OF SEC 80HHC(3)(B) ARE READ IN CONJUNCTI ON WITH CLAUSE (E) OF EXPLANATION TO THE SAID SUB. SECTION, IT IS CLEAR THAT THE INDIRECT COST . FOR THE PURPOSE OF ALLOCATION UNDER SUB.SEC (3) SHALL BE TAKEN 35 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 AS THE TOTAL INDIRECT COST INCURRED FOR THE TOTAL TURN OVER (LOCAL + EXPORT) AND THE SAME HAS TO BE ALLOCATED IN THE RAT IO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER 10.1 FOR READY REFERENCE, WE QUOTE SEC 80HHC(3)(B) AND CLAUSE (E) OF EXPLANATION AS UNDER: [(3) FOR THE PURPOSES OF SUB-SECTION (1) (A)...................... : (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOO DS, THE PROFITS ' DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TUMOVE R45 IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT COST S AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT; (C)............ , EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, (A).................... (B) .................. (D) (E)'INDIRECT COSTS' MEANS COSTS, NOT BEING DIRECT C OSTS, ALLOCATED IN RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER; (F).............. ; 10.2 IT IS CLEAR FROM THE COMBINED READING OF SUB. SEC. 3(B) AND CLAUSE (E) OF EXPLANATION TO SEC. 80HHC(3) THAT THE PROFIT DERIVED FROM EXPORT OF TRADING GOODS SHALL BE THE EXPORT TU RNOVER OF TRADING GOODS MINUS DIRECT COST AND INDIRECT COST ATTRIBUTA BLE TO SUCH EXPORTS. THE INDIRECT COST HAS BEEN DEFINED UNDER C LAUSE (E) OF EXPLANATION WHICH MEANS THE INDIRECT COST WHICH IS NOT DIRECT COST AND ALLOCATED IN THE RATIO OF EXPORT OF TRADING GOO DS TO THE TOTAL TURNOVER. 10.3 THE TOTAL TURNOVER FURTHER DEFINED UNDER CLAUS E (BA) OF EXPLANATION TO SUB SEC. AC. THEREFORE, THE TOTAL TU RNOVER INCLUDES THE LOCAL SALES AS WELL AS THE EXPORT SAFES REGARDI NG MANUFACTURING GOODS AND TRADING GOODS EXCEPT CERTAIN ITEMS WHICH SHALL BE INCLUDED AS PER CLAUSE (BA). WHEN THE INDIRECT COST HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADIN G GOODS TO THE TOTAL TURNOVER, THEN THE INDIRECT COST SUBJECTED TO BE AL LOCATED IN THE SAID RATIO INCLUDES ALL ITEMS OF INDIRECT COST INCURRED FOR THE TOTAL TURNOVER. 10.4 IT IS MANIFEST FROM THE PLAN READING OF THE RE LEVANT PROVISIONS THAT THE INDIRECT COST FOR THE PURPOSE OF SEC. 80HH C (3)(B) R.W.S CLAUSE (E) OF EXPLANATION DOES NOT RESTRICT THE ITE MS OF EXPENDITURE INCURRED IN RELATION TO EXPORT OF TRADING GOODS ONL Y; BUT THE ENTIRE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER HAS T O BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TO TAL TURNOVER WHICH ITSELF MAKES IT CLEAR THAT ONLY SUCH PORTION OF THE TOTAL INDIRECT COST IN THE RATIO OF EXPORT TURNOVER OF THE TRADING GOODS T O THE TOTAL TURNOVER 36 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 SHALL BE ALLOCATED FOR THE PURPOSE OF COMPUTING THE PROFITS DERIVED FROM SUCH EXPORT U/S 80HHC(3)(B). 10.5 THOUGH THE REVENUE HAS NOT FILED ANY APPEAL AG AINST THE FINDINGS OF THE CIT(A); HOWEVER, THE REVENUE, BEING THE RESPONDENT CAN RAISE AN PLEA AGAINST SUSTAINABILITY OF THE ORD ER OF THE CIT(A); BUT THE EFFECT OF SUCH PLEA WOULD BE ONLY TO THE EX TENT OF DEFENCE AGAINST THE APPEAL AND IF THE RESPONDENT/REVENUE SU CCEEDS IN THE SAID GROUND/PLEA, THEN THE APPEAL OF THE APPELLANT/ ASSESSEE WOULD FAIL. 10.6 THE SCOPE OF RAISING A PLEA AGAINST THE SUSTAI NABILITY OF THE IMPUGNED ORDER AS THE RESPONDENT DEFENDED AGAINST THE APPEAL FILED BY OTHER PARTY HAS BEEN PROVIDED UNDER RULE 2 7 OF ITAT RULES; THEREFORE, THOUGH THE IMPUGNED ORDER OF THE C!T(A) WOULD STAND AND WILL HAVE FULL EFFECT IN SO FAR AS IT IS AGAINS T THE REVENUE; BUT IF THE PLEA RAISED BY THE REVENUE IS ACCEPTED AS REGAR DS THE VALIDITY OF THE IMPUGNED ORDER BUT THEN THE REVENUE SUCCEEDS ON LY TO THE EXTENT THAT THE APPEAL OF THE ASSESSES WOULD FAIT. 10.7 THE SCOPE OF RULE 27 OF ITAT RULES HAS BEEN DI SCUSSED BY THE HON'B!E JURISDICTIONS! HIGH COURT IN THE CASE O F BAMASI (B.R.) V. COMMISSIONER OF INCOME-TAX REPORTED IN 83 ITR 223 AS UNDER, 'BUT EVEN IF THE ASSESSES HAD NOT MADE SUCH A STATEMENT, THE ABOVE JUDGMENT SHOWS THAT THE ASSESSES WOULD BE ENTITLED TO RAISE A NEW GROUND, PROVIDED IT IS A GROUND OF LAW AND DO ES NOT NECESSITATE ANY OTHER EVIDENCE TO BE RECORDED, THE NATURE OF WHICH WOULD NOT ONLY BE A DEFENCE TO THE APPEAL ITSELF, B UT MAY ALSO AFFECT THE VALIDITY OF THE ENTIRE ASSESSMENT PROCEEDINGS. IF THE GROUND SUCCEEDS, THE ONLY RESULT WOULD BE THAT THE APPEAL WOULD FAIL. THE ACCEPTANCE OF THE GROUND WOULD SHOW THAT THE ENTIRE ASSESSMENT PROCEEDINGS WERE INVALID, BUT YET THE TRIBUNAL WHIC H HEARS THAT APPEAL WOULD HAVE NO POWER TO DISTURB OR TO SET ASI DE THE ORDER IN FAVOUR OF THE APPELLANT AGAINST WHICH THE APPEAL HA S BEEN FILED. THE GROUND WOULD SERVE ONLY AS A WEAPON OF DEFENCE AGAINST THE APPEAL, IF THE RESPONDENT HAS NOT HIMSELF TAKEN ANY PROCEEDINGS TO CHALLENGE THE ORDER IN APPEAL, THE TRIBUNAL CANNOT SET ASIDE THE ORDER APPEALED AGAINST. THAT ORDER WOULD STAND AND WOULD HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE RESPONDENT. T HE TRIBUNAL REFUSED TO ALLOW THE ASSESSES TO TAKE UP THIS GROUND UNDER AN INCORRECT IMPRESSION OF TAW THAT IF THE POINT WAS ALLOWED TO BE URGED AND SUCCEEDED, THE TRIBUNAL WOULD HAVE NOT ONLY TO DISM ISS THE APPEAL, BUT ALSO TO SET ASIDE THE ENTIRE ASSESSMENT. THE PO INT WOULD HAVE SERVED AS A WEAPON OF DEFENCE AGAINST THE APPEAL, B UT IT COULD NOT BE MADE INTO A WEAPON OF ATTACK AGAINST THE ORDER I N SO FAR AS IT WAS AGAINST THE ASSESSES.' 10.8 THE CIT(A) HAS GIVEN THE FINDINGS ON THE ISSUE IN PARAS 28 TO 30 AS UNDER:- 37 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 '28. AFTER CAREFUL CONSIDERATION OF THE SUBMISSION, IT HAS TO BE SAID THAT THE SECTION OF THE ASSESSING OFFICER D OES NOT APPEAR TO BE CORRECT. WHAT CANNOT BE IGNORED IS THA T SUBSECTION (3}(B)DEDUCTION INTER-ALIA OF INDIRECT C OST ATTRIBUTABLE TO SUCH EXPORTS. THE PHRASE ATTRIBUTAB LE TO SUCH EXPORT CANNOT BE MISSED OUT. THEREFORE, AN ITEM OF EXPENDITURE CAN BE TAKEN AS COST FOR THE PURPOSE ON LY IF IT HAS SOME CONNECTION, LINK, ATTRIBUTES TO THE EXPORT , IF THE EXPENDITURE IS TOTALLY DISCONNECTED WITH THE EXPORT ACTIVITY, IT CANNOT BE TAKEN AS PART OF THE INDIRECT COSTS, THER EFORE, THE ASSESSING OFFICER HAS DEFINITELY GONE BEYOND WHAT I S PROVIDED IN THE ACT TO WORKOUT THE INDIRECT COST AT TRIBUTABLE TO EXPORT OF TRADING GOODS. 29. IN ORDER TO DETERMINE CORRECTLY THE INDIRECT CO ST, THE APPELLANT'S REPRESENTATIVE WAS ASKED TO FURNISH THE DETAILS OF TRADING EXPORT ACTIVITIES. IN THIS REGARD THE DETAI LS REVEAL THAT THE TRADING GOODS EXPORTS COMPRISE PARTLY OF GOODS IMPORTED AND PARTLY PURCHASED LOCALLY EITHER FROM MUMBAI OR ELSEWHERE. IT WAS SUBMITTED THAT THE MATERIAL DEPAR TMENT OF THE COMPANY PROCURED ITEMS OF TRADING EXPORTS. ALL ACTIONS AND FORMALITIES FOR EXPORTS ARE CARRIED OUT BY EXPO RT DEPARTMENT. EXPENSES OF BOTH THESE DEPARTMENTS ARE BOOKED AS HEAD OFFICE EXPENSES. THE APPELLANT'S REPRESENTATIVE FURNISHED THE DETAILS OF HEAD OFFICE EXPENSES. IT WAS CLAIMED THAT SOME OF THE EXPENSES INCURRED THEREIN ARE FOR DOMESTIC ACTIVITIES AND ON LY EXPENDITURE AMOUNTING TO RS.29,04,71,863/- IS SUCH THAT IS TO BE TAKEN AS SOMEHOW ATTRIBUTABLE TO EXPORTS TO BE T AKEN AS PART DIRECT EXPENSES. A PERUSAL OF THE DETAILS SHOW THAT AS FAR AS THE HEAD OFFICE EXPENSES IS CONCERNED, THE WORKING THEREOF IS CORRECT AND HENCE NEEDED TO BE ACCEPTED. 30 HOWEVER, THE APPELLANT COMPANY EXPORTED TRADING GOODS DURING THE YEAR THAT WERE PROCURED FROM HYDERABAD A ND MUMBAI. AT BOTH THE PLACES THE APPELLANT COMPANY HA S BRANCH OFFICES APART FROM THE HEAD OFFICE BEING LOC ATED IN MUMBAI. THOUGH IT WAS CLAIMED THAT THE JOB OF PROCU REMENT OF TRADING GOODS EXPORTED ARE CARRIED OUT FROM HEAD OFFICE THAT IS HAVING SEPARATE PROCUREMENT AND EXPORT DIVI SIONS, WHILE THE INVOLVEMENT OF BRANCH OFFICE AT MUMBAI CA N BE RULED OUT WITH A SPECIFIC OFFICE FOR THE PURPOSE LO CATED THEREIN, IN RESPECT OF THE BRANCH OFFICE AT HYDERAB AD, THE OTHER PLACE FOR PROCUREMENT, THE SAME CANNOT BE ACC EPTED. HENCE THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO THE EXTENT NOT DIRECTLY RELATED TO DOMESTIC SALE S IS ALSO 38 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 REQUIRED TO BE TAKEN AS PART OF THE INDIRECT COST F OR WORKING OUT DEDUCTION UNDER SECTION 80 HHC (3)(B) OF THE AC T, THE ASSESSING OFFICER SHALL REWORK OUT THE INDIRECT COS T UNDER THE SECTION ACCORDINGLY.' X X X X X X 10.10 AS WE HAVE ALREADY DISCUSSED THAT FOR THE PUR POSE OF SEC. 80HHC(3}(B) R.W.CLAUSE (E) OF EXPLANATION, THE INDI RECT COST TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVE R OF TRADING GOODS TO THE TOTAL TURNOVER HAS TO BE TAKEN AS THE TOTAL FIGURE OF THE INDIRECT COST INCURRED FOR THE TOTAL TURNOVE R AND NOT THE INDIRECT COST DIRECTLY RELATED TO THE EXPORT TURNOV ER AS HELD BY THE C!T(A). X X X X X X X 10.12 IT IS CLEAR FROM THE WORKING OF THE ASSESSING OFFICER THAT FOR DETERMINING THE INDIRECT COST, THE AO HAS REDUCED FROM THE TOTAL COST OF BUSINESS, COST OF GOODS AS WELL AS THE OTHER ITEMS. THEREFORE, WE DO NOT FIND ANY ERROR AS FAR AS THE FORMULA ADOPTED BY THE ASSESSING OFFICER FOR COMPUT ATION OF INDIRECT COST ALLOCATED TO THE EXPORT OF TRADING GO ODS.' 22.4 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE, THE GROUND IN THE REVENUE'S APPEAL IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 72. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE ALLOW THE GROUND RAISED BY THE REVENUE. 73. IN GROUNDS 9 TO 12, THE REVENUE HAS CHALLENGED PARTIAL RELIEF GRANTED BY LEARNED COMMISSIONER (APPEALS) WITH REGARD TO DEDUC TION CLAIMED ON DEPB ENTITLEMENT. 74. THE ISSUE RAISED IN THESE GROUNDS ARE CORRESPON DING TO IDENTICAL ISSUE RAISED BY THE ASSESSEE IN GROUND 7(C) OF ITA NO.3092/MUM/2 016. SINCE, WE HAVE RESTORED THE ISSUE TO THE ASSESSING OFFICER WHILE D ECIDING THE SAID GROUND IN ASSESSEES APPEAL, THERE IS NO NEED FOR SEPARATE AD JUDICATION OF THE ISSUE IN THIS APPEAL. ACCORDINGLY, THESE GROUNDS HAVE BECOME INF RUCTUOUS, HENCE, DISMISSED. 39 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 75. IN GROUND 13, REVENUE HAS CHALLENGED THE PARTIA L RELIEF GRANTED BY LEARNED COMMISSIONER (APPEALS) IN RESPECT OF DISALLOWANCE O F VRS EXPENDITURE. WHILE DECIDING CORRESPONDING GROUND, BEING GROUND 2 RAISE D BY THE ASSESSEE IN ITA NO.3092/MUM/2016 IN THE EARLIER PART OF THE ORDER, WE HAVE FULLY ALLOWED ASSESSEES CLAIM OF DEDUCTION. THUS, THIS GROUND HA VING BECOME INFRUCTUOUS, IS DISMISSED. 76. IN GROUND 14 REVENUE HAS CHALLENGED PART RELIEF GRANTED BY LEARNED COMMISSIONER (APPEALS) IN RESPECT OF BAD DEBTS WRIT TEN OFF. WHILE DECIDING CORRESPONDING GROUND IN GROUND 8 OF ASSESSEES APPE AL IN ITA NO.3092/MUM/2016 IN THE EARLIER PART OF THE ORDER, WE HAVE ALLOWED ASSESSEES CLAIM OF DEDUCTION. THAT BEING THE CASE, THIS GROUN D HAVING BECOME INFRUCTUOUS, IS DISMISSED. 77. IN GROUND 15, THE REVENUE HAS CHALLENGED PARTIA L RELIEF GRANTED BY LEARNED COMMISSIONER (APPEALS) WITH REGARD TO ADDITION MADE UNDER SECTION 145A. WHILE DECIDING CORRESPONDING GROUND, BEING GROUND 6 IN AS SESSEES APPEAL IN ITA NO.3092/MUM/2016 IN THE EARLIER PART OF THE ORDER, WE HAVE DELETED THE ENTIRE DISALLOWANCE. THAT BEING THE CASE, THIS GROUND HAVI NG BECOME INFRUCTUOUS, IS DISMISSED. 78. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ITA NO.2072/MUM/2010 79. IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE DELETION OF PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. 80. BRIEFLY THE FACTS ARE, WHILE COMPLETING THE ASS ESSMENT FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER MADE VARIOUS ADDITIONS AND DISALLOWANCES. 40 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 OUT OF SUCH ADDITIONS/DISALLOWANCES, THE ASSESSING OFFICER INITIATED PROCEEDINGS FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) O F THE ACT ALLEGING CONCEALMENT OF INCOME ON THE FOLLOWING ADDITIONS:- A. SOFTWARE EXPENDITURE - RS. 12,27,147/- B. DEPRECIATION ON OBSOLETE ASSETS - RS.55,54,99 8/- C. VRS EXPENSES - RS.8,24,60,028/- D. BAD DEBTS - RS. 26,41,568/- E. TRANSFER PRICING ADJUSTMENT - RS. 6,67,71,476/ - TOTAL - RS.15,87,58,217/- 81. IN RESPONSE TO SHOW CAUSE NOTICE ISSUED UNDER S ECTION 274 R.W.S. 271(1)(C) OF THE ACT, THOUGH, THE ASSESSEE FURNISHED ITS EXPL ANATION STATING THAT NEITHER THERE IS FURNISHING OF INACCURATE PARTICULARS OF IN COME NOR CONCEALMENT OF INCOME, HOWEVER, THE ASSESSING OFFICER REJECTING THE EXPLANA TION OF THE ASSESSEE IMPOSED PENALTY OF RS.5,66,06,683/-. AGAINST THE ORDER SO P ASSED, ASSESSEE PREFERRED APPEAL BEFORE LEARNED COMMISSIONER (APPEALS). CONSI DERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED COMMISSIONER (APPEALS), BEING OF THE VIEW THAT THE ASSESSEE HAS NEITHER FURNISHED INACCURATE PARTICULARS OF INCOME NOR CONC EALED ITS INCOME, DELETED THE PENALTY IMPOSED. 82. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. ON A READING OF THE IMPUGNED ASSESSMENT ORDER, IT IS V ERY MUCH CLEAR THAT THE ADDITIONS/DISALLOWANCES, BASED ON WHICH PENALTY UND ER 271(1)(C) WAS MADE WERE CLAIMED AS DEDUCTION BY THE ASSESSEE UNDER VARIOUS PROVISIONS OF THE ACT. ONE MORE ADDITION WAS ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT RELATING TO PAYMENT 41 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 OF COMMISSION. AS RIGHTLY OBSERVED BY LEARNED COMMI SSIONER (APPEALS), SUCH DISALLOWANCES CANNOT AUTOMATICALLY LEAD TO THE CONC LUSION THAT THE ASSESSEE HAS EITHER FURNISHED INACCURATE PARTICULARS OF INCOME O R HAS CONCEALED ITS INCOME. WE ALSO AGREE WITH LEARNED COMMISSIONER (APPEALS) T HAT THE ISSUES RELATING TO DISALLOWANCES/ADDITIONS, BASED ON WHICH PENALTY HAS BEEN IMPOSED ARE DEBATABLE ISSUES ON WHICH MORE THAN ONE OPINION IS POSSIBLE. FURTHER, THE TRANSFER PRICING ADJUSTMENT WAS MADE ON PURELY ESTIMATE BASIS. THUS, AS RIGHTLY HELD BY LEARNED COMMISSIONER (APPEALS), SUCH ADDITIONS/DISALLOWANCE S, BASED ON DIFFERENCE OF OPINION, CANNOT LEAD TO THE INFERENCE THAT ASSESSEE HAS EITHER FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED ITS I NCOME SO AS TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT. FURTHER, IT IS A FACT ON RECORD THAT WHILE DECIDING THE APPEAL ARISING OUT OF THE QUANTUM PROC EEDING, LEARNED COMMISSIONER (APPEALS) HAS GRANTED RELIEF TO THE AS SESSEE IN RESPECT OF THE AFORESAID ADDITIONS/DISALLOWANCES WHICH FURTHER GOE S TO PROVE THAT THESE ARE DEBATABLE ISSUES. IN ANY CASE OF THE MATTER, WHILE DECIDING THE QUANTUM APPEALS OF THE ASSESSEE AND THE REVENUE IN THE EARLIER PART OF THE ORDER, WE HAVE DELETED ALL THE DISALLOWANCES/ADDITIONS BASED ON WHICH PENA LTY UNDER SECTION 271(1)(C) OF THE ACT WAS IMPOSED. THAT BEING THE CASE, THE PENAL TY ORDER PASSED UNDER SECTION 271(1)(C) OF THE ACT CANNOT SURVIVE. ACCORDINGLY, W E UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE BY DISM ISSING THE GROUNDS RAISED BY THE REVENUE. 83. IN THE RESULT, APPEAL IS DISMISSED. 42 ITA 3092/MUM/2016 ITA 2072/MUM/2010 ITA NO. 3187/MUM/2006 84. TO SUM UP, ASSESSEES APPEAL IN ITA 3092/MUM/20 06 IS PARTLY ALLOWED; REVENUES APPEAL IN ITA NO.3187/MUM/2006 IS PARTLY ALLOWED AND REVENUES APPEAL IN ITA NO.2072/MUM/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/08/202 1. SD/- SD/- PRAMOD KUMAR SAKTIJIT DEY VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DT : 11/08/2021 PAVANAN COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, MUMBAI 6. GUARD FILE /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI