DCIT CEN CIR 8, V. THE BOMBAY DYEING & MFG CO LTD,

ITA 2180/MUM/2000

• Counselvise Citation: 218019914 RSA 2000
• Duration Of Justice: 13 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 1994-1995
• Appeal Filed On: 27-04-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D AGARWAL
• Assessee Lawyers: MAHDUR AGARWAL
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Notional interest; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 80HHC; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO.2139/MUM/2000 ASSESSMENT YEAR: 1994-95 THE BOMBAY DYEING & MFG. CO. LTD. NEVILLE HOUSE, J. N. HEREDIA MARG, BALLARD ESTATE, MUMBAI-.400 001 VS. DCIT CENTRAL CIRCLE-8 MUMBAI. (APPELLANT) (RESPONDENT) ITA NO.2180/MUM/2000 ASSESSMENT YEAR: 1994-95 DCIT CENTRAL CIRCLE-8 MUMBAI. VS. THE BOMBAY DYEING & MFG. CO. LTD. NEVILLE HOUSE, J. N. HEREDIA MARG, BALLARD ESTATE, MUMBAI-.400 001 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACT 2328 K ASSESSEE BY : SHRI MAHDUR AGARWAL REVENUE BY : SHRI S.D. AGARWAL DATE OF HEARING : 30.10.2013 DATE OF PRONOUNCEMENT : 08.01.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD.CIT(A), CENTRAL CIRCLE, MUMBAI DATED 18.02.2000 FOR THE ASSESSMENT YEAR 1994-95. BOTH THE APPEALS ARE HEAR D TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 2 ASSESSEES APPEAL ITA NO. 2139/MUM/2000 2. GROUND NO. 1 RELATES TO THE DECISION OF THE LD.C IT(A) IN CONFIRMING THE DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE O N ACCOUNT OF BOILER LEASE RENT OF RS.8,10,212/-. THE RELEVANT FACTS ARE THAT A BOILER VALUED AT RS.1.65 CRORES WAS TAKEN ON LEASE BY THE ASSESSEE COMPANY FROM BBTCL I N THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE SAI D BOILER WAS PURCHASED BY M/S. BBTCL FROM THE ASSESSEE COMPANY. THE ASSESSEE HAD D EBITED THE SUM OF RS.8,10,212/- TO THE P & L A/C AS LEASE RENT PAID T O M/S. BBTCL FOR BOILER. THE AO NOTED THAT THIS BOILER WAS SOLD BY THE ASSESSEE TO THE ABOVE CORPORATION IN THE EARLIER YEAR AND WAS TAKEN ON LEASE BY THE ASSESSEE . THE AO, AFTER OBSERVING A SIMILAR CLAIM OF LEASE RENT WAS DISALLOWED IN THE E ARLIER YEARS, FOLLOWING THE EARLIER ASSESSMENT ORDER, DISALLOWED THE SIMILAR CLAIM THIS YEAR ALSO. ON APPEAL, THE LD.CIT(A) BY RELYING ON HIS OWN ORDER FOR THE ASSES SMENT YEAR 1993-94 IN THE ASSESSEES OWN CASE, CONFIRMED THE SAID DISALLOWANC E MADE BY THE AO. AGGRIEVED BY THE IMPUGNED DECISION THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 2.1 AT THE OUTSET IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE TRIBUNAL, IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1992-9 3 AND 1993-94, HAS ALLOWED A SIMILAR CLAIM OF DEDUCTION IN ITS FAVOUR, WHICH IN TURN HAS RELIED ON THE EARLIER ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1988-1989 T O 1990-91. NEEDLESS TO MENTION THAT THE ORDER OF THE LD.CIT(A) FOR THE ASSESSMENT YEAR 1993-94 IN THE ASSESSEES OWN CASE, WHICH HAS BEEN RELIED BY THE AUTHORITIES BELOW FOR THE IMPUGNED DECISION FOR THE YEAR UNDER CONSIDERATION HAS BEEN REVERSED BY THE TRIBUNAL. IN THE ABSENCE OF ANY DISTINGUISHING FACTS BROUGHT ON RECORD BY TH E REVENUE FOR THE YEAR UNDER CONSIDERATION, WE, FOLLOWING THE EARLIER DECISIONS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, DECIDE THIS GROUND IN FAVOUR OF THE ASSES SEE AND DELETE THE DISALLOWANCE/ADDITION MADE/CONFIRMED BY THE LOWER A UTHORITIES ON THIS COUNT. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 3. GROUND NO. 2 RELATES TO THE DECISION OF THE LD.C IT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ENTERTAIN MENT EXPENSES OF RS.88,213/-. THE RELEVANT FACTS ARE THAT THE AO, IN THE ASSESSME NT FRAMED, DISALLOWED 70% OF THE ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 3 EXPENSES CLAIMED BY THE ASSESSEE ON TEA, SNACKS ETC . FOR VISITORS AND THE EXPENSES INCURRED FOR PROVIDING FOOD TO EMPLOYEES WHILE ON L EAVE AT HOLIDAY HOME. ON APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY TH E AO BY FOLLOWING HIS OWN ORDER FOR THE EARLIER ASSESSMENT YEAR 1992-93 IN TH E ASSESSEES OWN CASE. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED T HIS GROUND IN THE APPEAL BEFORE US. 3.1 HAVING NOTED THAT A SIMILAR ISSUE HAS BEEN CONS IDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1992-9 3 AND 1993-94 AND DECIDED THE ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REV ENUE, FOLLOWING THE SAID DECISION OF THE TRIBUNAL IN THE CONTEXT OF SIMILAR SET OF FA CTS FOR THE YEAR UNDER CONSIDERATION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FA VOUR OF THE REVENUE. RESULTANTLY, THE DECISION OF THE LD.CIT(A) ON THIS COUNT IS UPHE LD. GROUND NO 2 IS DISMISSED . 4. GROUND NO. 3 RELATES TO THE DECISION OF THE LD.C IT(A) IN CONFIRMING THE ADDITION MADE BY THE AO BY TREATING THE TECHNICAL K NOW HOW FEES OF RS.64,12,875/- AS INCOME SUBJECT TO TAX. IT IS NOTED THAT THE TRIB UNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1990-91, THE YEAR IN WHICH THE GENESIS OF THE DISPUTE HAS ARISEN, WHILE DECIDING A SIMILAR ISSUE HAS OBSERVED THAT THE IMPUGNED AMOUNT HAS BEEN TAXED IN THE YEAR 1998-99 AND THE SAME CANNOT BE TAXED AGAIN IN THE YEAR 1990-91. HENCE THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO WITH A VIEW TO VERIFY THAT THE IMPUGNED TECHNICAL KNOW HOW FEES HAS BEEN TAXED IN THE YEAR 1998-99 AND IF THE CONTENTION IS FOUND CORRECT, THE N THE SAME CANNOT BE TAXED AGAIN. FOLLOWING THE SAID ORDER OF THE TRIBUNAL, WE RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH THE SIMILAR DIRECTION TO VERIFY WHET HER THE IMPUGNED TECHNICAL KNOW HOW FEES HAS BEEN TAXED IN THE YEAR 1998-99 AND IF THE CONTENTION IS FOUND CORRECT, THEN THE SAME CANNOT BE TAXED AGAIN. ACCORDINGLY, GROUND NO 3 IS ALLOWED FOR STATISTICAL PURPOSE. 5. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF DEDU CTION CLAIMED U/S 80HH, 80I AND 80IA. THE RELEVANT FACTS ARE THAT DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE COMPANY CLAIMED DEDUCTION U/S 88IA IN RESP ECT OF UNIT OF DMT DIVISION. IN THE COMPUTATION OF PROFITING AND GAINS IN RESPECT O F THAT UNIT, THE ASSESSEE HAD ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 4 SHOWN A LOSS OF RS.1408.35 LAKHS. WHILE ARRIVING AT THE SAID LOSS, THE ASSESSEE HAD INCLUDED THE FOLLOWING ITEMS NAMELY:- A) INTEREST RECEIVED FROM CUSTOMER FOR DELAYED PAYM ENTS RS. 100.21 LAKHS B) INTEREST ON ICD RS. 7.71 LAKHS C) DIVIDEND ON INTER-CORPORATE DEPOSITS RECEIVED ON UNITS OF UTI RS.94.79 LAKHS D) INTEREST ON STATUTORY DEPOSITS, STAFF LOAN RS.33 .12 LAKHS E) SALES TAX SET-OFF RS.25.874 LAKHS F) INSURANCE CLAIM RS. 5.83 LAKHS HOWEVER, IN THE ASSESSMENT FRAMED, THE AO DISALLOWE D THE SAID ITEMS OF INCOME CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD.CIT(A) B Y RELYING ON HIS OWN ORDER IN THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 1993-94, CO NFIRMED THE ACTION OF THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 5.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD ON THE ISSUE OF DEDUCTION CLAIMED ON INTEREST RECEIVED FROM CUST OMERS FOR DELAYED PAYMENTS OF RS.100.21 LAKHS, THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1992-93 AND 1993-94 HAS DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. HOWEVER, ON THE ISSUES OF INTEREST ON ICD OF RS.7.7 1 LAKHS, DIVIDEND OF INTER- CORPORATED DEPOSITS RECEIVED ON UNITS OF UTI OF RS. 94.79 LAKHS AND INTEREST OF STATUTORY DEPOSITS AND STAFF LOAN AMOUNTING TO RS.3 3.12 LAKHS, THE TRIBUNAL FOR THE ASSESSMENT YEAR 1992-93 & 1993-94, ON SIMILAR ISSUE S DECIDED THE MATTER AGAINST THE ASSESSEE AND IN FAVOUR OF THE DEPARTMENT. IN TH E ABSENCE OF ANY CONTRADICTORY FACTS BROUGHT ON RECORD BY THE REVENUE, WE DECIDE T HE ALLOWABILITY OF DEDUCTION ON THE SAID ISSUES IN THE SIMILAR MANNER AS EARLIER DE CIDED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 1992-93 & 1993-94 AFOREMENTIONED. O N THE ISSUE OF DEDUCTION CLAIMED ON ACCOUNT OF SALES TAX SET-OFF OF RS. 25.8 74 LAKHS AND INSURANCE CLAIM OF RS.5.83 LAKHS, IT IS OBSERVED THAT THERE IS NO FIND ING BY THE AO OR THE LD.CIT(A) IN THE EARLIER YEARS AS WELL AS FOR THE YEAR UNDER CON SIDERATION IN THE ASSESSMENT/APPELLATE ORDERS. THEREFORE, IT IS JUST AND PROPER TO SET ASIDE THE LIMITED ISSUE OF ALLOWABILITY OF DEDUCTION ON THESE TWO COU NTS TO THE FILE OF THE AO TO DECIDE THE MATTERS AFRESH AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT AND ORDER ACCORDINGLY. ACCORDINGLY , GROUND NO. 4 IS PARTLY ALLOWED . ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 5 6. GROUND NO. 5 PERTAINS TO THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF NOTIONAL INTEREST PAID TO BANK ON OVER DRAFT ACCOUNT AMOUNTING TO RS.5,548/-. IT IS OBSERV ED THAT SIMILAR DISALLOWANCE OF NOTIONAL INTEREST PAID TO THE BANK ON OVER DRAFT AM OUNT HAS BEEN DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 1992-93 & 1993-94. IN THE ABSENCE OF ANY DISTINGUISHING FACTS DURING THE YEAR UNDER CONSIDERATION, FOLLOWING THE SAID DECISION OF THE TRIBUNAL, WE DEL ETE THE ADDITION/DISALLOWANCE OF NOTIONAL INTEREST PAID TO BANK ON OVER DRAFT ACCOUN T. GROUND NO. 5 IS ALLOWED. 7. GROUND NO. 6 IS NOT PRESSED BY THE ASSESSEE AND HENCE THE SAME REQUIRES NO ADJUDICATION. 8. GROUND NO. 7 (I) RELATES TO THE DISALLOWANCE OF DEDUCTION OF RS.72,45,570/- CLAIMED U/S 80HHC BY THE ASSESSEE COMPANY. THE RELE VANT FACTS ARE THAT THE ASSESSEE COMPANY CLAIMED A SUM OF RS.72,45,570/- AS DEDUCTION WHICH REPRESENTED 90% OF THE EXPORT INCENTIVES RECEIVED BY IT. ACCORD ING TO THE ASSESSEE, 90% OF THE EXPORT INCENTIVES SHOULD BE ALLOWED TO IT AS PER TH E PROVISO BELOW SUB-SECTION (3) OF SECTION 80HHC WITHOUT OFF-SETTING THE LOSS AS WORKE D OUT UNDER THE SAID SUB SECTION. HOWEVER, IN THE ASSESSMENT FRAMED, THE AO DID NOT A CCEPT THE CONTENTION OF THE ASSESSEE ON THE REASON THAT WHILE WORKING OUT THE D EDUCTION U/S 80 HHC, AT THE FIRST STAGE, WHEN THE PROFIT AND LOSS FROM THE MANUFACTUR ING OPERATION IS WORKED OUT, IT RESULTED IN A LOSS, AS 90% OF THE EXPORT INCENTIVES ARE REMOVED FROM THE PROFITS AND GAINS AND ARE ADDED ONLY AT THE LAST STAGE OF FORMU LA. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF DEDUCTION AS THERE IS NO PR OFIT, THERE IS NO QUESTION OF ADDING PROPORTIONATE EXPORT INCENTIVE TO THE PROFIT UNDER THE PROVISO TO SUB SECTION (3) OF 80 HHC DOES NOT ARISE. ON APPEAL, THE LD.CIT(A) BY RELYING ON VARIOUS DECISIONS CONFIRMED THE SAID DISALLOWANCE MADE BY THE AO. AGG RIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN TH E APPEAL BEFORE US. 8.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE SAID ISSUE IS COVERED AGAINST THE ASSESSEE IN VIEW OF THE DECISIONS OF THE APEX COURT IN THE CASES OF IPCA LABORATORY LTD. VS. DCIT (2004) 266 ITR 521 (SC) , WHEREIN IT HAS BEEN HELD AS FOLLOWS: ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 6 WE ARE CONCERNED WITH THE WORDINGS OF SUB-SECTION (3)(C) OF SECTION 80HHC. IT WOULD NOT BE DENIED THAT THE WORD PROFIT IN SE CTION 80HHC(1) AND SECTIONS 80HHC(3)(A) AND 80HHC(3)(B) MEANS A POSITI VE PROFIT. IN OTHER WORDS IF THERE IS A LOSS, NO DEDUCTION WOULD BE AVA ILABLE UNDER SECTIONS 80 HHC(1) OR 3(A) OR 3(B). IN ARRIVING AT THE FIGURE O F POSITIVE PROFIT, BOTH THE PROFITS AND LOSSES WILL HAVE TO BE CONSIDERED. IF T HE NET FIGURE IS A POSITIVE PROFIT, THE ASSESSEE WILL BE ENTITLED TO A DEDUCTIO N. IF IT IS A LOSS, THE ASSESSEE WILL NOT BE ENTITLED TO ANY DEDUCTION. SUB-SECTION (3)(C) AND SECTION 80 HHC DEAL WITH CASES WHERE THE EXPORT IS OF BOTH SELF-MA NUFACTURED GOODS AS WELL TRADING GOODS. AS PER SUB-SECTION (1) OF SECTION 80 HHC(3) A DEDUCTION CAN BE PERMITTED ONLY IF THERE IS A POSITIVE PROFIT IN THE EXPORTS OF BOTH SELF- MANUFACTURED GOODS AS WELL AS TRADING GOODS. IF THE RE IS A LOSS IN EITHER, THAT LOSS HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE O F COMPUTING PROFITS. SECTION 80AB HAS BEEN GIVEN AN OVERRIDING EFFECT OV ER ALL OTHER SECTIONS CONTAINED IN CHAPTER VIA, INCLUDING SECTION 80HHC. IF THE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT, NOT ONLY PROFITS BUT ALSO LOSSES HAVE TO BE TAKEN INTO ACCOUNT. THE TERM PROFIT MEANS A POSITIVE PROFIT. IT IS NOT NECESSARY THAT THE WORD PROFIT MUST HAVE THE SAME MEANING. THE MEANING OF THE WORD PROFIT WILL DEPEND ON THE CONTEXT IN WHICH IT IS USED. FOR PURPOSES OF COMPUTATION U/S 80HHC(3), BOT H PROFITS AS WELL AS LOSSES HAVE TO BE TAKEN INTO ACCOUNT. THE WORD PRO FIT IN SECTION 80HHC(3) WILL MEAN PROFIT AFTER TAKING INTO CONSIDERATION LO SSES, IF ANY. THE TERM PROFIT IN SECTION 80HHC BOTH IN SUB-SECTION (1) AND SUB-SE CTION (3) MEANS A POSITIVE PROFIT WORKED OUT AFTER TAKING INTO ACCOUN T THE LOSSES, IF ANY. THUS THE WORD PROFIT HAS THE SAME MEANING IN SECTIONS 80HHC(1) AND (3). SAME VIEW HAS BEEN REITERATED BY THE HONBLE APEX C OURT IN THE CASE OF A . M. MOOSA VS. CIT(2007) 294 ITR 1 (SC). THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DEC ISION OF THE LD.CIT(A) IN CONFIRMING THE SAID DISALLOWANC E. GROUND NO. 7(I) IS DISMISSED. 9. GROUND NOS. 7(II) & 7(III) ARE NOT PRESSED BY TH E ASSESSEE AND HENCE THE SAME REQUIRE NO ADJUDICATION. 10. GROUND NO. 8 RELATES TO THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ORDER OF THE AO IN TREATING THE IMPUGNED CAPITAL RECEIPT OF RS.21 LAKHS BEING GAINS ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS AS INCOME FROM SPECULATION BUSINESS. IT IS NOTED THAT THE DECISION OF THE LD.C IT(A) IS BASED ON HIS EARLIER DECISION IN THE ASSESSEES OWN CASE ON SIMILAR CLAI M OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1993-94 AND THE SAID DECISION OF TH E LD.CIT(A) HAS ALSO BEEN CONFIRMED BY THE TRIBUNAL. IN THE ABSENCE OF ANY CO NTRADICTORY FACT BROUGHT ON RECORD BY THE ASSESSEE, FOLLOWING THE SAID DECISION OF THE TRIBUNAL, WE DECIDE THIS ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 7 ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REV ENUE. ACCORDINGLY, GROUND NO. 8 IS DISMISSED. 11. GROUND NO. 9 IS REGARDING TAXABILITY OF EXCHANG E PROFIT OF RS.29.13 LAKHS ON REPATRIATION OF GDR FUNDS. THE RELEVANT FACTS ARE T HAT DURING THE YEAR CONSIDERATION, THE ASSESSEE COMPANY MADE A GLOBAL DEPOSITORY RECEI PT (GDR) ISSUE OUTSIDE INDIA WHICH WAS SUBSCRIBED TO BY OVERSEAS INVESTORS. THE SAID ISSUE WAS CLOSED ON 2 ND DECEMBER, 1993 AND ON THE SAME DAY ALLOTMENT GDR WA S MADE. THE BUYING RATE FOR US DOLLARS WAS RS.31.30. ACCORDING TO THE REVENUE, WHEN THESE FUNDS WERE CONSEQUENTLY REPATRIATED INTO INDIA AT A DIFFERENT POINT OF TIME, THE ASSESSEE RECEIVED MORE INDIAN RUPEES RESULTING IN A GAIN OF RS.29.13 LAKHS AND IN THE ASSESSMENT FRAMED, THE AO HELD THAT THE GAINS OF RE PATRIATION WERE ON REVENUE ACCOUNT. ACCORDINGLY, THE SAME WAS BROUGHT TO TAX A GAINST THE ASSESSEE CLAIMING IT ON ACCOUNT OF CAPITAL ACCOUNT. ON APPEAL, THE LD.CI T(A) WHILE ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE GAIN IS ON ACCO UNT OF CAPITAL ACCOUNT AND NOT TAXABLE AS REVENUE RECEIPT, HAD OBSERVED THAT THE G DR FUNDS HAD BEEN UTILIZED FOR CAPITAL INVESTMENT INCLUDING REPAYMENT OF FOREIGN C URRENCY LOANS AVAILED EARLIER FOR PURCHASE OF PLANT AND MACHINERY OR FOR MODERNIZATIO N/EXTENSION OF INDUSTRIAL UNIT AND THEREFORE, THE LD.CIT(A) DIRECTED THE AO TO RED UCE COST OF CAPITAL ASSET TO THE EXTENT OF GAIN AROSE TO ASSESSEE COMPANY ON REPATRI ATION OF FOREIGN CURRENCY AND ACCORDINGLY RECALCULATE THE DEPRECIATION ALLOWANCE ON THE RELEVANT BLOCKS OF ASSETS AS PER LAW. 11.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD, WE AGREE WITH THE FINDINGS OF THE LD.CIT(A) THAT THE GAIN WH ICH HAVE ARISEN ON ACCOUNT OF CONVERSION OF FOREIGN CURRENCY INTO INDIAN RUPEES O N REPATRIATION OF FOREIGN CURRENCY HELD ABROAD IS ON ACCOUNT OF CAPITAL ACCOUNT AND AS SUCH THE SAID AMOUNT IS NOT TAXABLE AS REVENUE RECEIPT FOR THE REASONS STATED B Y THE LD.CIT(A) AT PARA 14.5 OF HIS ORDER. ALSO, THE GAINS CANNOT BE BROUGHT TO TAX U/S 45 OF THE ACT AS THE TRANSACTION DOES NOT COME WITHIN THE PURVIEW OF THE EXPRESSION TRANSFER AS DEFINED U/S 2(47) OF THE ACT. HOWEVER, AS REGARDS THE DIREC TION TO REDUCE COST OF CAPITAL ASSET TO THE EXTENT OF GAIN AROSE TO ASSESSEE COMPA NY ON REPATRIATION OF FOREIGN CURRENCY AND ACCORDINGLY RECALCULATE THE DEPRECIATI ON ALLOWANCE ON THE RELEVANT ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 8 BLOCKS OF ASSETS AS PER LAW, IT IS PERTINENT TO MEN TION THAT SECTION 43 A OF THE ACT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE G DR ISSUE DOES NOT RELATE TO ANY INCREASE OR DECREASE IN THE LIABILITY OF THE ASSESS EE AS EXPRESSED IN INDIAN RUPEES LINKED WITH PAYMENT. IN VIEW OF THAT MATTER, WHILE UPHOLDING THE FINDINGS OF THE LD.CIT(A) THAT THE IMPUGNED GAIN WHICH HAVE ARISEN ON ACCOUNT OF CONVERSION OF FOREIGN CURRENCY INTO INDIAN RUPEES IS ON ACCOUNT O F CAPITAL ACCOUNT AND THE SAID AMOUNT IS NOT TAXABLE AS REVENUE RECEIPT, THE DIREC TION OF THE LD.CIT(A) TO REDUCE COST OF CAPITAL ASSET TO THE EXTENT OF GAIN AROSE T O ASSESSEE COMPANY ON REPATRIATION OF FOREIGN CURRENCY IS NOT JUSTIFIABLE. ACCORDINGLY , GROUND NO. 9 IS ALLOWED. 12. GROUND NO. 10 RELATES TO THE DECISION OF THE LD .CIT(A) IN CONFIRMING DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSE E COMPANY ON ISSUE OF THE FIRST GLOBAL DEPOSITORY RECEIPTS OF RS.727.84 LAKHS. IN T HE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE COMPANY ISSUED 54,34,782 /- GDRS TO FOREIGN INVESTORS AND IN CONNECTION WITH THE SAID ISSUE IT HAD INCURR ED EXPENSES AGGREGATING RS.727.84 LAKHS. ACCORDING TO THE AO, THE SHARE CAP ITAL OF THE ASSESSEE COMPANY HAD GONE UP CONSEQUENT UPON THE ISSUE OF GDRS AND T HE EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY WITH INCREASING OR ADDITION TO THE EXISTING SHARE CAPITAL AND AS SUCH MUST BE TREATED AS ON CAPITAL ACCOUNT. THEREFORE, THE AO DISALLOWED THE EXPENDITURE AS NOT ALLOWABLE U/S 37(1) OF THE ACT. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO. ON THE ISSUE OF ALT ERNATE CLAIM OF THE ASSESSEE THAT THE DEDUCTION HAD TO BE ALLOWED U/S 35D OF THE ACT, THE LD.CIT(A) REJECTED THE SAID CONTENTION AS NO MATERIAL EVIDENCE WAS PRODUCED BY THE ASSESSEE EITHER DURING THE ASSESSMENT OR APPELLATE PROCEEDINGS IN SUPPORT OF T HE CLAIM THAT THE CAPITAL INVESTMENT WAS FOR THE PURPOSE OF MODERNIZING THE T EXTILE DIVISION. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GRO UND IN THE APPEAL BEFORE US. 12.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE HONBLE APEX COURT IN THE CASE OF BROOKE BOND INDIA LTD VS CIT REPORTED IN 225 ITR 798 HAS HELD THAT THOUGH THE I NCREASE IN THE CAPITAL RESULTS IN EXPANSION OF THE CAPITAL BASE OF THE COM PANY AND INCIDENTALLY THAT WOULD HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HE LP IN THE PROFIT MAKING, THE ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 9 EXPENSES INCURRED IN THAT CONNECTION STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE IS DIRECTLY RELAT ED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. HENCE, THE EXPENDITURE INCURRE D BY THE ASSESSEE IS CAPITAL EXPENDITURE. IN VIEW OF THE SAID RATIO, THE DEDUCTI ON OF EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY U/S 37(1) OF THE ACT IS NOT LEGALL Y TENABLE AS THE SHARE CAPITAL OF THE ASSESSEE COMPANY HAD GONE UP CONSEQUENT UPON TH E ISSUE OF GDRS AND THE EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY WI TH INCREASING OR ADDITION TO THE EXISTING SHARE CAPITAL. THEREFORE, WE DO NOT FI ND ANY INFIRMITY IN THE DECISION OF THE AUTHORITIES BELOW IN HOLDING THAT THE EXPENDITU RE MUST BE TREATED ON CAPITAL ACCOUNT AND THE SAME IS NOT ALLOWABLE U/S 37(1) OF THE ACT. 12.1.1 ON THE ISSUE OF ALTERNATE CLAIM OF THE ASSES SEE THAT THE DEDUCTION HAD TO BE ALLOWED U/S 35D OF THE ACT, THE LD.AR OF THE ASSESS EE HAS STATED THAT IN THE NET PROCEEDS OF GDR ISSUE AMOUNTING TO 149.22 CRORES, A N AMOUNT OF RS.48.05 CRORES AND RS.16.76 CRORES HAVE BEEN INCURRED BY THE ASSES SEE IN CONNECTION WITH RE- PAYMENT OF FOREIGN CURRENCY LOAN AND INVESTING IN P SU BONDS. THE SAID EXPENDITURE IS RELATED TO THE EXPENSES INCURRED BY THE ASSESSEE IN CONNECTION WITH MODERNIZATION OF THE DMT DIVISION OF THE ASSESSEE COMPANY. THE PE RUSAL OF THE COPY OF THE ANNUAL REPORT FOR THE YEAR 1993-94 SUGGESTS THAT THE ASSES SEE COMPANY EXPANDED THE DMT DIVISION DURING THE YEAR UNDER CONSIDERATION AND TH E PLANT HAS BEEN SHUT DOWN FOR A PERIOD TO COMPLETE THE MAJOR REVAMPING INVOLVED IN THE EXPANSION. ALSO, THE PERUSAL OF THE BALANCE SHEET AS ON MARCH 1994 INDICATES THA T THERE IS A RAISE IN THE FIXED ASSETS FROM 390.97 CRORES AS ON 31.03.1993 TO 610.7 1 CRORES AS ON MARCH 1994. SCHEDULE 5 ON FIXED ASSET INDICATES THAT THERE IS A N ADDITION OF 218.47 CRORES IN GROSS BLOCK DURING THE YEAR UNDER CONSIDERATION. TH ESE FACTS RESULTS IN THE PRESUMPTION THAT THE ASSESSEE HAS INCURRED EXPENDIT URE IN MODERNIZATION OF THE DMT DIVISION OF THE ASSESSEE COMPANY. DUE TO THE RE ASON THAT THE PLANT HAS BEEN SHUT DOWN OVER A PERIOD OF TIME TO COMPLETE THE MAJ OR REVAMPING INVOLVED IN THE EXPANSION, THE FACT THAT THERE IS NO INCREASE IN TH E PRODUCTION CANNOT BE A DECISIVE TEST TO NEGATIVELY CONCLUDE THAT THERE HAS NO MODER NIZATION OF THE DMT DIVISION. HOWEVER, IT IS NOT CLEAR WHETHER THE AMOUNTS OF RS. 48.05 CRORES AND RS.16.76 CRORES ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 10 INCURRED BY THE ASSESSEE IN CONNECTION WITH RE-PAYM ENT OF FOREIGN CURRENCY LOAN AND INVESTING IN PSU BONDS IS FOR THE PURPOSE OF MODERN IZATION OF THE DMT DIVISION OF THE ASSESSEE COMPANY AS CLAIMED. IN VIEW OF THAT MA TTER, WE ARE OF THE VIEW THAT IT IS JUST AND PROPER TO REMIT THE ISSUE BACK TO THE F ILE OF THE AO TO VERIFY WHETHER THE AMOUNTS OF RS.48.05 CRORES AND RS.16.76 CRORES INCU RRED BY THE ASSESSEE IN CONNECTION WITH RE-PAYMENT OF FOREIGN CURRENCY LOAN AND INVESTING IN PSU BONDS IS FOR THE PURPOSE OF MODERNIZATION OF THE DMT DIVISIO N OF THE ASSESSEE COMPANY AND ACCORDINGLY DECIDE THE ALLOWABILITY OF DEDUCTION CL AIMED BY THE ASSESSEE UNDER 35D OF THE ACT AFTER GIVING REASONABLE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. WE DIRECT AND ORDER ACCORDINGLY. RESULTANTLY, GROUND NO 10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. GROUND NO. 11 RELATES TO THE DECISION OF THE LD .CIT(A) REGARDING THE DISALLOWANCE OF EXPENDITURE INCURRED IN CONNECTION WITH ISSUE OF NON CONVERTIBLE DEBENTURE (NCD)/ SECURED PREMIUM NOTES (SPN) AMOUNT ING TO RS.56,80,081/-. IT IS PERTINENT TO MENTION THAT AFTER CONSIDERING THE FAC TS IN TOTO, THE ISSUE RAISED BY THE ASSESSEE ON THIS GROUND IS COVERED BY THE DECISIONS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. JCIT (2010) 36 SOT 348 (MUM) AND THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SECURE METERS LTD. (2010) 321 ITR 611 (RAJ) WHICH HAS BEEN CONFIRMED BY THE HONBLE APEX COURT WHEREIN IT HAS BEEN HELD THAT THE EXPENSES IN RELATION TO THE ISSUE OF DEBEN TURES ARE ALLOWABLE U/S 37(1) OF THE ACT AS REVENUE EXPENDITURE. FOLLOWING THE SAID RATIO, WE DELETE THE IMPUGNED ADDITION MADE/CONFIRMED BY THE AUTHORITIES BELOW ON THIS COUNT. GROUND NO. 11 IS ALLOWED. REVENUES APPEAL ITA NO. 2180/MUM/2000 14. APROPOS GROUND NO. 1, BOTH THE PARTIES MENTIONE D THAT THIS ISSUE IS CONNECTED TO THE ISSUE RAISED IN GROUND NO 9 OF THE ASSESSEE S APPEAL AND ADJUDICATED BY US IN THE PARAGRAPHS ABOVE OF THIS ORDER. ON A SIMILAR IS SUE, THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1993-94, HAS HELD THAT THE ISSUE STANDS COVERED BY THE SPECIAL BENCH DECISION IN THE CASE OF APOLLO TYRES LTD (2004) 89 ITD 235 (DEL) (SB) WHICH IS RELEVANT FOR THE PROPOSITION TH AT THE GAINS ON CANCELLATION ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 11 FORWARD FOREIGN EXCHANGE FALLS UNDER THE CAPITAL GA IN THEREFORE, THESE GAINS ARE CAPITAL RECEIPTS. SUCH GAINS SHOULD BE REDUCED FROM THE COST OF THE MACHINERY WITHIN THE MEANING OF SECTION 43A(1) OF THE ACT. FOLLOWING THE SAID ORDER, GROUND NO. 1 IS DISMISSED. 15. APROPOS GROUND NO. 2, THE ISSUE ON EXCHANGE PRO FIT ON REPATRIATION OF EURO ISSUE FUND, IS CONNECTED TO THE ISSUE RAISED IN GRO UND NO 8 OF THE ASSESSEES APPEAL AND ADJUDICATED BY US IN THE PARAGRAPHS ABOVE OF TH IS ORDER. IN THE SAID ADJUDICATION, WE HAVE UPHELD THE FINDINGS OF THE LD .CIT(A) THAT THE IMPUGNED GAIN WHICH HAVE ARISEN ON ACCOUNT OF CONVERSION OF FOREI GN CURRENCY INTO INDIAN RUPEES IS ON ACCOUNT OF CAPITAL ACCOUNT AND THE SAID AMOUNT I S NOT TAXABLE AS REVENUE RECEIPT. ON THE ISSUE RAISED BY THE REVENUE THAT THE EXPENDI TURE TO THE EXTENT OF RS.28.43 LAKHS INCURRED FOR THE PURPOSE OF ISSUE OF NCD IS T O BE REGARDED AS REVENUE EXPENDITURE, THE SAID ISSUE IS CONNECTED TO THE ISS UE RAISED IN GROUND NO 11 OF THE ASSESSEES APPEAL AND ADJUDICATED BY US IN THE PARA GRAPHS ABOVE OF THIS ORDER. AS ADJUDICATED BY US, THE ISSUE STANDS COVERED BY THE DECISIONS OF THE TR IBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. JCIT (2010) 36 SOT 348 (MUM) AND THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SECURE METERS LTD. (2010) 321 ITR 611 (RAJ) WHICH HAS BEEN CONFIRMED BY THE HONBLE APEX COURT WHEREIN IT HAS BEEN HELD THAT THE EXPENSES IN RELATION TO THE ISSUE OF DEBEN TURES ARE ALLOWABLE U/S 37(1) OF THE ACT AS REVENUE EXPENDITURE. THEREFORE, GROUND NO 2 IS DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08 TH DAY OF JANUARY 2014. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 08.01.2014 *SRIVASTAVA ITA NO.2139/MUM/2000 ITA NO.2180/MUM/2000 THE BOMBAY DYEING & MFG. CO. LTD. ASSESSMENT YEAR: 1994-95 12 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR J BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.