DCIT, CHENNAI V. Ashok Leyland Ltd., CHENNAI

ITA 2825/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8416 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 04-08-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 14-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN C BHARATH IRS
• Keywords: Capital asset; Gift; Business income; Depreciation; Transfer pricing; Business expenditure; Double taxation relief; International transaction; Additional depreciation; Earning of tax free income; Period of limitation; Capital receipt; Time period of passing order; Revised return; Revenue expenditure; Capital expenditure
• Section: 92C; 43B; 80HHC; 14A; 139(5); 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.2825, 2826 & 2827/MDS/2014 # % &% / ASSESSMENT YEARS : 2005-06, 2006-07 & 2007-20 08. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT -II, CHENNAI 600 101. VS. M/S. ASHOK LEYLAND LTD, NO.1, SARDAR PATEL ROAD, GUINDY, CHENNAI 600 032. [PAN AAACA 4651L] ( DEPARTMENT ) ( ASSESSEE ) ./ I.T.A. NOS.2834, 2835, 2836, 2837, 2838 & 2839/MDS/ 2014 # % &% / ASSESSMENT YEARS : 1995-96, 2004-05, 2005-06, 2006-07, 2007-08 & 2008-2009. M/S. ASHOK LEYLAND LTD, NO.1, SARDAR PATEL ROAD, GUINDY, CHENNAI 600 032. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT (APPEALS), CHENNAI 600 101. [PAN AAACA 4651L] ( ASSESSEE ) ( D EPARTMENT ) DEPARTMENT BY : SHRI. ARUN C. BHARATH, IRS, CIT. ASSESSEE BY : SHRI. VIKRAM VIJAYARAGHAVAN, ADVOCATE ! ' ( / DATE OF HEARING : 04-08-2016 )*& ' ( / DATE OF PRONOUNCEMENT : 23-09-2016 ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 2 -: / O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER :- THESE APPEALS FILED BY THE DEPARTMENT AND ASSESSE E ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSI ONER OF INCOME-TAX (APPEALS)-LARGE TAXPAYER UNIT, CHENNAI FOR THE ABOV E ASSESSMENT YEARS. SINCE THE ISSUE INVOLVED IN THESE APPEALS AR E COMMON IN NATURE, THESE APPEALS ARE COMBINED, HEARD TOGETHER, AND DISPOSED OF BY THIS ORDER FOR THE SAKE OF CONVENIENCE. FIRST, W E TAKE UP ASSESSEE APPEAL IN ITA NO.2834/MDS/2014 OF ASSESSMENT YEAR 1 995-1996 FOR ADJUDICATION:- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 2. THE COMMISSIONER OF INCOME TAX (APPEALS), LTU ERRED IN CONFIRMING THE RESTRICTION OF 1.25% OF ISSUE PROCEEDS TO 50% UNDER THE HEAD FEE PAID TO LEAD MANAGERS IN CONNECTION WITH GDR AND DISALLOWING SELLING COMMISSION AND 1.75% OF ISSUE PROCEEDS. 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS), LTU OUGHT TO HAVE APPRECIATED THAT THE SELLING COMMISSION AND FEE PAID TO THE LEAD MANAGERS IS AT PAR WITH THE UNDERWRITING COMMISSION/BROKERAGE PAID FOR THE ISSUANCE OF EQUITY SHARES. HENCE ELIGIBLE FOR DEDUCTION U/S 35D(2)(C)(IV). 2.2 THE BASIS TO ARRIVE AT THE DISALLOWANCE AMOUNT AS 50% OF THE 'MANAGEMENT AND UNDERWRITING FEES' IS ARBITRARY AND UNJUSTIFIED. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 3 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YE AR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASS ESSEE COMPANY CLAIMED A SUM OF =14.21 CRORE BEING EURO ISSUE EXP ENDITURE AS REVENUE IN NATURE. THE ASSESSING OFFICER DISALLOWE D THE SHARE ISSUE EXPENSES AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO PARTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE AND CERTAIN EXPENSES WERE ALLOWED. SUBSEQUENTLY, THE AS SESSEE AS WELL AS THE DEPARTMENT FILED APPEAL AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS) BEFORE THIS TRIBUNAL. THIS TRI BUNAL VIDE ITS ORDER DATED 4.2.2005 REMANDED BACK THE ISSUE TO THE RECORD OF THE ASSESSING OFFICER WITH A DIRECTION TO COMPUTE THE D EDUCTION IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND IN VI EW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ENNAR STEEL AND ALLOY (P) LTD. (261 ITR 347). CONSEQUENTLY THE ASSESSING OFFICER PASSED A GIVING EFFECT ORDER DATED 10.5.2005 WHERE BY OUT OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE, ONLY =16,60 ,762/- WERE TREATED AS ALLOWABLE AS PER ITAT ORDER. AGGRIEVED B Y THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX (APPEALS). ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 4 -: 3.1 THE COMMISSIONER (A) HELD THAT THE ENTIRE EXPENDITU RE INCURRED IN CONNECTION WITH THE EURO ISSUE EXPENSE AS CLAIMED BY THE ASSESSEE IS ALLOWABLE UNDER SECTION 35D(2) (C) OF THE ACT. AGAINST THIS THE REVENUE FILED AN APPEAL BEFORE TRIBUNAL. 3.2 THE TRIBUNAL AFTER HEARING BOTH THE PARTIES AND GOI NG THROUGH THE RECORD OBSERVED AS UNDER IN ITS ORDERS DATED 21.11.2008:- WE NOTE THAT IN THE ORIGINAL ORDER DATED 4.2.2005 , THIS TRIBUNAL HAS MENTIONED THAT THE APPEAL OF THE REVEN UE STANDS DISMISSED. HOWEVER, LATER ON, ON A MISCELLANEOUS P ETITION FILED BY THE REVENUE THIS TRIBUNAL RECTIFIED THE ERROR AND AMENDED THE ORDER BY REMANDING THE APPEAL OF THE REVENUE TO THE RECORD OF THE ASSESSING OFFICER. WE FURTHER NOTE TH AT THE ISSUE IS SETTLED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ENNAR STEEL AND ALLOY (P) LTD (SUPRA) BUT THE ASSES SING OFFICER HAS NOT GIVEN ANY DETAILS AND REASONS FOR DISALLOWI NG A PARTICULAR ITEM. WE SET ASIDE THE ORDERS OF THE LO WER AUTHORITIES AND AGAIN REMAND THE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO PASS A FRESH ORDER IN TERMS OF THE DIRECTIONS OF THIS TRIBUNAL IN ITS ORDER DATED 4.2. 2005 GIVING DETAILS AND REASONS FOR DISALLOWING THE ITEMS OF EX PENDITURE. ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSE 3.3 CONSEQUENT TO THIS, THE ASSESSING OFFICER IN HIS ORDER DT. 29.12.2009, GIVING EFFECT TO THE ORDER OF THE ITAT DATED 21.11.08 , ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 5 -: STATED THAT THE ITAT HAS DIRECTED THE ASSESSING OFF ICER TO EXAMINE THE ISSUE AND PASS FRESH ORDER IN TERMS OF THE DIRE CTIONS OF THE TRIBUNAL IN ITS EARLIER ORDER DATED 4.2.2005 AND AL SO BASED ON THE DECISION OF HON'BLE MADRAS HIGH COURT'S DECISION IN THE CASE OF C IT VS. ENNAR STEEL ALLOY PRIVATE LIMITED. (261 ITR 347 ). AFTER HEARING THE APPELLANT, THE ASSESSING OFFICER HAS COME TO THE C ONCLUSION THAT OUT OF THE CLAIM OF =14,21,52,904 U/S 35D MADE BY THE A SSESSEE , THE LD. ASSESSING OFFICER OBSERVED THAT ONLY THE FOLLOWING AMOUNTS ARE ELIGIBLE FOR AMORTISATION U/S 35D(2)(C)(IV) OF THE ACT (I) LEGAL FEE = 9,55,000/- (II) PRINTING &ADVERTISEMENT OF OFFERING CIRCULAR/ PROSPECTUS = 7,04,762/- (III) LISTING FEE = 100/- (IV) UNDERWRITING COMMISSION =2,71,54,138/- -------------------- TOTAL =2,88,14,900/- --------------------- 1/10 OF =2,88,14,900/- = =28,81,490/- THE AO HAS WORKED OUT THE ABOVE AMOUNT BY FOLLOWIN G THE DIRECTIONS OF THE ITAT, CHENNAI, WHICH HAS IN TURN FOLLOWED THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE O F CIT V. ENNAR STEEL & ALLOY P LTD (261 ITR 347 ). WHILE ARRIVING AT THE UNDERWRITING COMMISSION OF =2,71,54,138 (SUPRA), THE ASSESSING O FFICER HAS VERIFIED PARA 6 OF THE COPY OF THE AGREEMENT OF GDR ISSUE WHICH ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 6 -: STATES AS UNDER:- 'THE COMPANY AGREES TO PAY TO THE MANAGERS ON EACH CLOSING DATE A MANAGEMENT COMMISSION' AND UNDERWRITING COMMISSION OF 1.25% OF THE AGGREGATE. ISSUE PRICE TO THE GDRS ISSUED O N THAT CLOSING DATE, WHICH COMMISSION WILL, TOGETHER WITH SELLING COMMISSION SPECIFIED IN CLAUSE 1 (AJ AND THE AMOUNT OF THE EXPENSES REIMBURSABLE UNDER CLAUSE 14(A), BE DEDUCT ED FROM THE SUBSCRIPTION MONEYS TO BE PAID BY THE MANAGERS AS P ROVIDED IN CLAUSE 8. ' IT WAS NOTICED BY THE LD. ASSESSING OFFICER THAT TH E AGREEMENT WAS FOR THE PAYMENT OF MANAGEMENT COMMISSION' AND 'UN DERWRITING COMMISSION' OF 1.25% OF THE AGGREGATE ISSUE PRICE O F =430 CRORES TO THE GDRS. SINCE THE AGREEMENT IS FOR PAYMENT OF 1.25% FOR BOTH 'MANAGEMENT COMMISSION' AND 'UNDERWRITING COMMISSIO N' SINCE ACT PROVIDES ONLY FOR UNDERWRITING COMMISSION, THE ASSE SSING OFFICER HAS CONSIDERED 50% OF 1.25% OF AGGREGATE ISSUE OF GDR OF =430 CRORES FOR AMORTIZATION U/S.35D(2)(C) (IV) TOWARDS UNDERWRITING COMMISSION. THUS IN THE RESULT, THE CLAIM OF THE ASSESSEE TOWARDS FEE PAID TO LEAD MANAGERS OF =13,03,39,866/- WAS AL LOWED BY THE ASSESSING OFFICER ONLY TO THE EXTENT OF =2,71,54,13 8/- BESIDES ALLOWING LEGAL FEE AND PARKING AND ADVERTISEMENT EX PENDITURE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE CIT(A). 3.3 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) OBSERVED THAT IN VIEW OF THE JUDGEMEN T OF MADRAS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 7 -: HIGH COURT IN ASSESSEES OWN CASE REPORTED IN 349 I TR 663, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 35D(2)(C)(I V) OF THE ACT IN RESPECT OF FOLLOWING EXPENDITURE ONLY:- (A) UNDERWRITING COMMISSION. (B) BROKERAGE AND (C) CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS. HOWEVER, THE ASSESSEE IS NOT ENTITLED FOR MANAGEMEN T COMMISSION PAID BY THE ASSESSEE SINCE THE ASSESSEE PAID BOTH M ANAGEMENT COMMISSION AND UNDERWRITING COMMISSION AT 1.25% OF AGGREGATE ISSUE OF GDR FOR THE PURPOSE OF SELLING OF GDRS T O THE LEAD MANAGERS, THE ONLY 50% OF THE 1.25% OF AGGREGAT E ISSUE OF GDR PAID AS PER AGREEMENT WITH JARDINE FLEMING INTERNAT IONAL INC. DATED 10.03.1995 IS ONLY ALLOWABLE. AGGRIEVED BY THE COM MISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASSESSEE FILED AN A PPEAL BEFORE TRIBUNAL. 3.4 BEFORE US, THE LD. AR RELIED ON THE JUDGEMENT O F ASSESSEES OWN CASE REPORTED IN 349 ITR 663 (MAD) T.C. (APPEAL S) NOS. 1253, 1254 & 1256 OF 2005, DATED 20 TH JUNE, 2012, WHERE THE MEANING OF THE 'EXPANSION' AND 'EXTENSION' WAS ANSWERED IN FAV OUR OF THE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 8 -: ASSESSEE. THE QUESTION RAISED BEFORE THE HIGH COURT IN THE ABOVE CASE IS AS UNDER : WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN EQUATING A PROPOSAL TO 'EXPAND' THE CAPACITY OF PRODUCTION WITH 'EXTENSION' OF INDUSTRIAL UNDERTAKING UNDER SECTION 35D OF THE INCOME-TAX ACT ?' THE HIGH COURT HAS DECIDED THAT EXPANSION AND EXTENSION MEAN THE SAME. ACCORDING TO THE COMMISSIONER OF INCOME-T AX (APPEALS), IN THE INSTANT CASE, TAKING OF BUSINESS ACTIVITY OF TG SL IS CONSIDERED AS EXTENSION OF BUSINESS BY THE ASSESSEE WITHIN THE ME ANING OF SECTION 35D(1)(II) OF THE ACT AND ALSO RELIED ON THE JUDGME NT OF MADHYA PRADESH HIGH COURT IN THE CASE OF SHREE SYNTHETICS LTD VS. CIT 303 ITR 451 WHEREIN HELD THAT EXPENDITURE INCURRED TOWARDS ISS UE OF DEBENTURES WAS IN THE NATURE OF PRELIMINARY EXPENSE S FALLING U/S. 35D(1)(II) AND 35D(1) (II) (C) AND IT IS ALLOWABLE AS DEDUCTION IN A MANNER PROVIDED U/S.35D OF THE ACT. 3.5 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX. 3.6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE JUDGM ENT OF ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 9 -: JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE (C ITED SUPRA) WHEREIN HELD AS UNDER :- THE HIGH COURT OF MADRAS IN ITS T.C.(APPEAL) NO.125 3, 1254 AND 1256 OF 2005 DATED 20.6.2012 HAS ANSWERED THE Q UESTIONS OF THE REVENUE AGAINST IT AND IN FAVOUR OF THE APPE LLANT. HOWEVER, THE QUESTION RAISED BY THE APPELLANT WAS A NSWERED AGAINST THE APPELLANT AND IN FAVOUR OF REVENUE. THE NET RESULT OF THE APPEAL DECIDED BY THE HIGH COURT IS THAT THE AP PELLANT IS ENTITLED TO CLAIM EURO ISSUE EXPENSES U/S 35D(1 )(I I) FOR EXPANSION OF ITS CAPACITY HOLDING THAT THE 'EXPANSI ON' AND 'EXTENSION' MEANS THE SAME. HOWEVER, IT WAS HELD IN THE JUDGMENT THAT THE EXPENSES SHOULD BE ALLOWED ONLY A S PER THE WORDINGS MENTIONED IN THE ACT AND THE WORD 'BEING' USED SHOULD NOT BE TAKEN AS 'ILLUSTRATIVE'. ONLY THOSE E XPENSES WHICH ARE SPECIFIED IN THE 'STATUTE COULD BE ALLOWED AND NOTHING ELSE. THE OBSERVATIONS OF THE HIGH COURT ARE AS UNDER: '20. IN THE LIGHT OF THE LAW THUS DECLARED AS THE M EANING OF THE PHRASE ' BEING', WE HAVE NO HESITATION IN HOLDING THAT THE EXPENDITURE THAT QUALIFIED FOR CONSIDERATI ON UNDER SECTION 35D IS RESTRICTED BY REASON OF USE OF THE PHRASE ' BEING ' . THUS EXPENDITURE INCURRED IN CONNECTION WITH THE ISSUE OF SHARES AND DEBENTURES OF THE COMPANY TO PUBLIC SUBSCRIP T ION , WHICH QUALIFY FOR CONSIDERATION UNDER SECTION 35D, ARE UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS AND NOTHING MORE. THERE IS A RESIDUAL CL AUSE TO SUB CLAUSE D , WHICH SHOWS SUCH OTHER ITEMS OF EXPENDITURE NOT BEING EXPE N DITURE ELIGIBLE FOR ANY ALLOWANCE OR DEDUCTION UNDER ANY OTHER PROVISIONS O F THE ACT AS MAY BE PRESCRIBED. THUS , OTHER THAN WHAT IS CONTEMPLATED UNDER SUB CLAUSE D , IF THERE ARE STILL OTHER EXPENDITURE IN CONNECTION WITH THE COMMENCE O F BUSINESS OR IN CONNECTION WITH THE EXPANSION OF THE INDUSTRIAL UNDERTAKING AFTER THE COMMENCEMENT OF THE BUSINESS OR IN CONNECTION WITH THE SET UP OF A NEW INDUSTRIAL UNIT , THE SAME WOULD ALSO QUALIFY FOR AMORTIZATION UNDER SECTION 35D. IN , THE LIGHT OF THE ABOVE DISCUSSION , WE HOLD THAT THE RATES OF EXPENDITURE WHICH WOULD GO FOR AMORTIZATION UNDER SECTION 350, ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 10 -: PARTICULARLY WITH REFERENCE TO SUB CLAUSE , (C)(IV) OF SUB SECTION (2) OF SECTION 35D, WOULD BE ONLY THOSE EXPENDITURE WHICH ARE SPECIFICALLY MENTIONED : THEREIN AND NOTHING BEYOND. IN THE LIGHT OF THE DECISION OF THIS COURT REFERRED TO ABOVE, WE REJECT . THE RELIANCE PLACED ON THE DECISION OF THE MADHYA PRADESH HIGH COURT BY THE ASSESSEE, REPORTED IN [1986] 162 ITR 819 (COMMISSIONER OF INCOME TAX VS. SHREE SYNTHETICS LTD) . 4 . 2.1 FROM THE CHRONOLOGY OF . EVENTS, IT WAS NOTICED THAT THE APPELLANT HAS FILED THIS APPEAL ON 29.1 . 2010 MUCH BEFORE THE DECISION OF THE MADRAS HIGH COURT (SUPRA) IN APPELL ANT'S OWN CASE WHICH HAS PRONOUNCED ITS ORDER ON 20.6 . 2012. , AFTER THE PRONOUNCEMENT OF THIS ORDER, MOST OF THE ARGUMENTS RAISED BEFORE ME HAVE BEEN . SQUARELY COVERED AND WERE ANSWERED BY THE HON'BLE MADRAS HIGH COURT. NOW THE ISSUE TO BE ANSW ERED BY ME IS TO SEE HOW FAR THE CLAIM OF THE EXPENSES MADE BY THE APPELLANT WITH REGARD TO EURO ISSUE ARE FITTING WITHIN THE AM BIT OF S.35D(2)(C)(IV). TO ANSWER THIS QUESTION, THE PROVI SIONS OF THE ACT U/S 350(2)(C)(IV) V I S-A-VIS THE CLAIM OF EXPENDITURE OF THE APPELLANT ARE REPRODUCED AS UNDER: EXPENDITURE HEADS USED SEC.35D(2)(C)(IV) (I) UNDERWRITING COMMISS I ON, (II) BROKERAGE AND (III) CHARGES FOR DRAFTING, TYPING, PRINTING, AND ADVERTISEMENT OF TH E PROSPECTUS EXPENDITURE HEADS USED BY THE APPELLANT 1. STAY, TRAVEL AND FOOD EXPENSES 2. TELEPHONE 3. LOCAL AUDIT FEES 4. GIFTS 5. STAY , CAR EXPENSES AND FEES 6. LISTING FEES 7. MANAGEMENT FEES 8. OUT OF POCKET EXPENSES 9. LEGAL FEES 10. FEE PAID TO LEAD MANAGERS 11. PRINTING AND ADVER T ISEMENT OF OFFERING CIRCULAR/PROSPEC T S ETC . ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 11 -: OUT OF THE HEADS OF EXPENSES USED BY THE APPELLANT, LEGAL FEE, LISTING FEE, PRINTING AND ADVERTISEMENT WERE A LLOWED FULLY BY THE LD. ASSESSING OFFICER. WITH REGARD TO FEE PAID TO LEAD MANAGERS, EVEN THOUGH THE AO IS IN AGREEMENT' WITH THE APPELLANT TO TAKE THIS HEAD OF EXPENDITURE AS UNDERWRITING COMMISSION, HE HAS RESTRICTED 1.25% OF ISSUE PROCEEDS OF RS.430 CRORES TO 50% IN VIEW OF THE AGR EEMENT OF GDR ISSUE WHICH PROVIDES FOR MANAGEMENT COMMISSI ON AND UNDERWRITING COMMISSION, IN MY CONSIDERED OPINI ON, AO IS JUSTIFIED TO ALLOW LEGAL FEE, LISTING FEE, AND P RINTING & ADVERTISEMENT EXPENSES FULLY AND 50% OF 1.25% CLAIM ED UNDER THE HEAD FEE PAID TO LEAD MANAGERS. THE INTERPRETATION OF THE APPELLANT THAT SELLING COMMIS SION, MANAGEMENT COMMISSION AND UNDERWRITING COMMISSION A RE ALL ONE AND THE SAME AS THAT OF FEE PAID TO LEAD 'M ANAGERS IS NOT ACCEPTABLE IN VIEW OF THE, CLEAR CUT FINDING GIVEN BY THE HON'BLE MADRAS HIGH COURT IN APPELLANT'S OWN CASE I N ITS ORDER IN TAX CASE (APPEAL) NOS.1253, 1254 AND 1256 OF 2005 DATED 20.6.2012. IN VIEW OF THE ABOVE DISCUSS ION, THE GROUND RAISED IS DISMISSED. HENCE, IN OUR OPINION THE LOWER AUTHORITIES TAKEN A CORRECT VIEW OF THE FACT OF THE ASSESSEES CASE AND DIALLOWED MANA GEMENT FEES PAID TO THE LEAD MANAGERS. IT DOES NOT FALL UNDER THE P ROVISIONS OF SEC. 35D(2)(C) (IV) OF THE ACT. ACCORDINGLY, THE GROUND OF THE ASSESSEE IS DISMISSED. 3.7 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.2834/MDS/2014 OF ASSESSMENT YEAR 1995-1996 IS DI SMISSED. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 12 -: 4. ITA NO.2835/MDS/2014 OF ASSESSMENT YEAR 2004-2005 :- THE SOLE SUBSTANTIVE GROUND RAISED BY THE ASSESSEE IS THAT WHILE APPLYING THE PROVISIONS OF CLAUSE (BAA) TO THE EXPL ANATIONS IN SEC. 80HHC OF THE ACT WHILE EXCLUDING 90%OF THE GROSS IN TEREST AND RENT OF THE PROFITS FOR ALLOWING DEDUCTION U/S.80HHC OF THE ACT. THIS FACTOR TO BE CONSIDERED AFTER NETTING NOT THE GROSS OF THE 90%. FOR THIS PURPOSE HE RELIED ON THE JUDGMENT OF SUPREME C OURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD VS. CIT 343 ITR 89 . 4.1 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE ONLY EXPENDITURE INCURRED TO EAR N THESE INCOME TO BE REDUCED FROM THE GROSS RENT OR INTEREST NOT THE RENT OR INTEREST HAVE NO NEXUS WITH THIS INCOME. 4.2 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISION CITED. THE SUPREME CO URT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD (CITED SUPRA) WHEREIN HELD THAT NINETY PER CENT OF NOT THE GROSS RENT OR GROSS INTE REST BUT ONLY THE INTEREST OR NET RENT, WHICH HAD BEEN INCLUDED IN TH E PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, WAS TO BE DEDUCT ED UNDER CLAUSE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 13 -: (1) OF EXPLANATION (BAA) TO SEC. 80HHC FOR DETERMIN ING THE PROFITS OF THE BUSINESS. IN VIEW OF THE ABOVE JUDGMENT 90% OF THE NET INTEREST WHICH HAVE BEEN INCLUDED IN THE PROFITS OF THE BUSINESS OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS TO BE EXCLUDED FOR THE PURPOSE OF APPLYING CLAUSE (1) TO EXPLANATI ON (BAA) TO SEC. 80HHC OF THE ACT. THE SAME IS APPLICABLE IN THE C ASE OF RENT IF THE RENT PAYMENT IS INCLUDED AS BUSINESS EXPENDITURE OF THE ASSESSEE. WITH THESE OBSERVATIONS, WE REMIT THE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER FOR RE-COMPUTATION AFTER GIVING A N OPPORTUNITY TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. 4.3 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2835/MDS/2014 OF ASSESSMENT YEAR 2004-05 IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 5 ITA NO. 2836/MDS/2014 OF ASSESSMENT YEAR 2005-2006 :- THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT TH E COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ALP DE TERMINED BY THE TRANSFER PRICING OFFICER (TPO)/ASSESSING OFFICER AT =2,57,13,271/- IN RESPECT OF TRANSACTIONS ENTERED INTO WITH THE ASSOC IATED ENTERPRISES BASED ON THE DATA ANNEXED TO THE FORM 3CEB FILED ON 31.10.2005 ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 14 -: 5.1 IN THE ASSESSMENT PROCEEDING THE LD. ASSESSING OFFICER MADE A REFERENCE TO TRANSFER PRICING OFFICER (TPO) U/S 92C A (1) OF THE ACT FOR DETERMINING THE ARM'S LENGTH PRICE IN RESPECT OF TR ANSACTION REPORTED IN FORM NO.3CEB FILED BY THE ASSESSEE . THE ASSES SEE FILED A REVISED FORM 3CEB BEFORE THE TPO. THE TPO DETERMINE D THE VARIATION IN ARM'S LENGTH PRICE, IN RELATION TO INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SUB-SEC 1 & 2 OF SEC 92C AT =2,57, 13,271/-. ON THE BASIS OF THE ORDER OF THE TPO U/S 92CA(3), THE ASSE SSING OFFICER ADDED THE SUM OF =2,57,13,271/- TO THE TOTAL INCOME OF THE ASSESSEE. WHILE DOING SO, THE TOLERABLE LIMIT O F 5% VARIATION WAS TAKEN WITH REGARD TO EACH TRANSACTION. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX (APPEALS). THE LD. AUTHORISED REPRESENTATIVE CONTE NTED THAT THE AO HAS DISALLOWED THE DIFFERENCE IN THE PRICE, CHARGE D TO AE AND NON-AE IN PURSUANT TO THE TRANSFER PRICING OFFICER'S ORDER U/S 92CA(3). THE LD. AR ARGUED THAT THE 5% OF THE PRICE VARIATION A S MENTIONED IN THE CBDTS CIRCULAR NO.12/2001 DATED 23.08.2001, IS TO BE APPLIED FOR THE WHOLESOME TRANSACTIONS WITH THE ASSOCIATED ENTE RPRISE (AE) AND NOT ON EACH TRANSACTION WITH THE AE. THE ID.AR HAS FURTHER CONTENDED THAT THE TPO OUGHT TO HAVE APPRECIATED T HAT SEC 139(5) WILL APPLY ONLY FOR FILING OF REVISED RETURN OF INC OME AND CANNOT ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 15 -: EXTEND THE SAME TO FILING OF REVISED WORKING SUBMIT TED BEFORE THE COMPLETION OF TP ASSESSMENT. THE TPO SHOULD HAVE DETERMINED THE DIFFERENCE IN ARM'S LENGTH PRICE ONLY TO THE EXTENT OF THE DIFFERENCE IN EXCESS OF 5% AND NOT THE FULL DIFFERENCE. THE LD. AR RELIED ON THE CASE LAW IN THE CASE OF DEVELOPMENT CONSULTANTS (P) LTD V. DCIT[2008] 23 SOT 455 . THE LD. AR FURTHER SUBMITTED THAT THE VIEW TAKEN BY THE LD. TPO AND ASSESSING OFFICER THAT VIEW TAKEN BY THE TPO AND AO THAT TRANSACTION MEANS EACH TRANSACTION ONLY AND NOT TRANSACTIONS WITH AE AS A WHOLE HAS NOT BEEN SUPPO RTED BY ANY DECISIONS AND AS SUCH IT HAS NO LEGAL SANCTION IF THE ASSESSEE DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT FILED ALONG WITH THE FORM 3CEB HE MAY FURNISH, A REVISED WORKING AT ANY TIME BEFORE THE COMPLETION OF TP ASSESSMENT AND REVISION DOES NOT T ANTAMOUNT TO NON-FILING OF ORIGINAL FORM 3CEB. FOR THIS, LD. AR RELIED ON THE DECISIONS OF A.M. TOD CO. INDIA (P) LTD VS. ITO IN ITA NO.492/MU M/ 2006 DATED 24.06.2009 AND DCIT VS. QUARK SYSTEMS (P ) LTD (2010) 1 TAXMANN.COM (CHD-ITAT) (SB ). IN THE REMAND REPORT, REGARDING THIS ISSUE, THE AO STATED THAT THE SUBMISSION FILED BY T HE ASSESSEE BEFORE THE ID.CIT(A) HAS BEEN CAREFULLY CONSIDERED AND CAN NOT BE ACCEPTED AS THE SUBMISSIONS WERE CONSIDERED BY THE AO AND TH E TPO ALSO. THE ASSESSING OFFICER STATED THAT TOTALLY AGREE WITH THE ORDER PASSED BY THE TPO-I AND THEREFORE THE SUBMISSIONS OF THE ASSESSEE CANNOT ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 16 -: BE ACCEPTED. IN REPLY TO THE REMAND REPORT, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN ARRIVING THE DIFF ERENCE IN ARM'S LENGTH PRICE, THE TPO HAS NOT CONSIDERED THE REVISE D WORKINGS FILED BY THE ASSESSEE. THE TPO HAS NOT DEALT WITH THE ASS ESSEE'S CONTENTION THAT TRANSACTIONS SHOULD BE LOOKED IN W HOLESOME AND NOT INVOICE WISE. THE LD. AR FURTHER STATED THAT ASSES SEE STICK TO THEIR GROUNDS OF APPEAL. AGGRIEVED BY THE ORDER, THE ASSE SSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 5.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) CAREFULLY CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS OF THE LD. AR AND DECISIONS RELIED ON BY THE ID.AR . SIMILAR ISSUE HAS BEEN DECIDED BY 'HIS PREDECESSOR IN ASSESSEE' S OWN CASE FOR A.Y: 04-05 IN ITA NO.419/11-12 DATED 31.10.12 BY CO NFIRMING THE DECISION OF THE AO WHO FOUND THAT THE PRICE VARIATION WITH REGARD TO EACH TRANSACTION WAS MORE THAN TOLERABLE LIMIT OF 5 %. SINCE THE FACTS AND CIRCUMSTANCES FOR BOTH THE YEARS BEING THE SAME, BY FOLLOWING THE DECISION OF THE LD. PREDECESSOR, THE COMMISS IONER OF INCOME TAX (APPEALS) DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBU NAL. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 17 -: 5.3. WE HEARD THE RIVAL SUBMISSION, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS CITED. SIMILAR ISSUE CAME F OR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2006-2007 IN ITA NO.2086/MDS/2010 VIDE ORDER DATED 16.02.2016 WHEREIN HELD AT PARA 10.4 AS UNDER:- 10.4 WE HEARD RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE ARGUMENT OF THE LD. AUTHORISED REPRESENTATIVE THAT THE TPO ERRED IN NOT CONSIDERING THE REVISED WORKING OF ARMS LENGTH PRIC E (ALP) SUBMITTED BY THE ASSESSEE ON 06.01.2009 VERY MUCH BEFORE PASSING OF ORDER BY TPO ON 24.07.2009. THE TPO HAS DISTINGUISHED THE TIME LIMIT OF COMPLETION OF ASSESSMENT AND CONCLUDED THAT REVISED FORM 3CEB IS BARRED BY LIMITATION. THE LD. AUTHORISED REPRESENT ATIVE ALSO DREW ATTENTION TO PROVISIONS OF SEC. 92CA(3) O F THE ACT AND THERE IS NO SPECIFIC TIME LIMIT SPECIFIED FOR FILING REVISED FORM. THE STATUTORY FORM 3CEB IS A REPOR T OF CHARTERED ACCOUNTANT FURNISHED U/S.92E RELATING TO INTERNATIONAL TRANSACTIONS AND SPECIFIC DOMESTIC TRANSACTIONS BASED ON THE DOCUMENTS PRESCRIBED AND MAINTAINED BY THE ASSESSEE IN RESPECT OF INTERNATIO NAL TRANSACTIONS. THE CHARTERED ACCOUNTANT REPORT IS BASED ON THE AUDITED BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE THE INTERNATIONAL TRANSACTION HAVE B EEN INCORPORATED AND ARE AUTHENTICATED. THE REPORT O F THE CHARTERED ACCOUNTANT CANNOT BE RULED OUT AND ALSO F ACTUAL POSITION HAS TO BE CONSIDERED TO CORRECT ANY MISTA KE IN CALCULATING OF ARMS LENGTH PRICE(ALP) FOR VALUATION , AND IT IS EVIDENT THAT THE REVISED FORM 3CEB INCLUDES THE PROPER COMPARABLES IN RESPECT OF VEHICLES, PARTS WHICH ARE INTEGRAL PRODUCT OF COMMERCIAL VEHICLES. THOUGH LD . DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED AGAI NST FILING OF REVISED FORM 3CEB AND LIMITATION PERIOD, WE CONSIDER THE APPARENT FACTS, PROVISIONS OF LAW, EVI DENCE AND THE ACTION OF TPO IN REJECTING THE REVISED FORM 3CEB IS NOT PROPER AS FACTUAL COMPARABLES CERTIFIED BY THE CHARTERED ACCOUNTANT IN REVISED FORM 3CEB CANNOT B E IGNORED AND WE IN THE INTEREST OF JUSTICE, REMIT THE DISPUTED ISSUE TO THE FILE OF THE ASSESSING OFFICE R AND TO ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 18 -: CONSIDER REVISED FORM 3CEB FILED BY THE ASSESSEE F OR ASSESSMENT AND CALCULATION OF ARMS LENGTH PRICE. FU RTHER THE LD. ASSESSING OFFICER SHOULD PROVIDE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE AND PASS THE ORDER. WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND PARTLY ALLOW THE GROUNDS OF ASSESSEE FOR STATISTICAL PURPO SE. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO REMIT THE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER ON SIMILAR DIRECTION. THE GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSE. 6 THE SECOND GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FORMI NG THE DISALLOWANCE BY WRONGLY ASSUMING THAT THE CLAIM IS THE BALANCE OF 50% OF ADDITIONAL DEPRECIATION U/S.32(IIA) OF THE A CT IN THE CURRENT YEAR IN RESPECT OF THE ASSETS ACQUIRED IN THE 2 ND HALF OF PRECEDING YEAR OF =47,96,475/- 6.1 AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-2007 IN ITA NO.2086/MD S/2010, DATED 16.02.2016 WHEREIN IT WAS HELD AS UNDER:- 6.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITE D. PRIME FACIE THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF COMMERCIAL VEHICLES AND ENGINES AND ADDITIONAL DEPRECIATION IS CLAIMED ON LEASED ASSE T OF WINDMILLS. DURING THE PREVIOUS YEAR THE ASSESSEE HAS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 19 -: PURCHASED WINDMILLS LEASED OUT TO OTHERS AND CLAIME D ADDITIONAL DEPRECIATION ON SUCH LEASED ASSETS. ON PERUSAL OF PROVISIONS U/S.32(1)(IIA) OF THE ACT AN D THE DECISIONS RELIED BY THE ASSESSEE WHICH ARE IN LEASI NG BUSINESS AND CANNOT BE BROUGHT INTO CATEGORY OF MANUFACTURE OF COMMERCIAL VEHICLES. THE PROVISIONS ARE VERY CLEAR ON THIS ISSUE. THE CLAIM OF ADDITION AL DEPRECIATION IS IN VIOLATION OF PROVISIONS U/S.32 O F THE ACT WERE DEPRECATION IS ALLOWED. WE ARE OF THE OPIN ION THAT THE DECISIONS RELIED BY THE ASSESSEE ARE NOT DIRECTLY ON THE ISSUE AND DISTINGUISHABLE AND ADDIT IONAL DEPRECATION ON LEASED ASSET DOES NOT FIT INTO THE PROVISIONS OF THE ACT AND WE UPHOLD THE FINDINGS AN D ORDER OF THE ASSESSING OFFICER ON THIS GROUND AND A LLOW THE GROUND IN FAVOUR OF THE REVENUE. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, THE GRO UND RAISED BY THE ASSESSEE IS DISMISSED. 7 THE THIRD GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF DEPRECIATION RESTRICTED TO 5% ON RE SIDENTIAL BUILDINGS. 7.1 AFTER HEARING BOTH THE PARTIES, THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2000-01 IN ITA NO.2445/MDS/2005, VIDE ORDER DATED 27.09.2007 WHERE IN IT WAS HELD AS UNDER:- 6. WE HAVE HEARD. THE PARTIES AT LENGTH. THE SHO RT CONTROVERSY BEFORE US IS THAT IF THE ASSESSEE HAS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 20 -: PROVIDED RESIDENTIAL FLATS TO ITS EMPLOYEES, THEN AT WHAT RATE DEPRECIATION IS TO BE ALLOWED. THE CIT(APPEALS) HAS TRIED TO INTERPRET THE CIRCULAR BY STATING THAT THE BOARD MIGHT HAVE IS SUED THE SAID CIRCULAR IN THE CONTEXT OF THE EMPLOYEES' QUARTERS BUILT IN THE FACTORY PREMISES AND NOT TO THE RESIDENTIAL FLATS WHICH. ARE AWAY FROM THE FACTORY. ON THE PERUSAL OF THE CSDT INSTRUCTIONS/LETTER, WE FIND THAT NO SUCH DISTINCTION IS MADE. IN OUR OPINION, THE CIRCULAR/L ETTER ISSUED AMBIGUOUS LANGUAGE AND NO SECOND INTERPRETATION IS REQUIRED. WE, THEREFORE/HOLD THAT THE AO WAS NOT JUS TIFIED IN RESTRICTING THE DEPRECIATION TO 5% IN RESPECT OF THE FIVE RESIDENTIAL FLATS WHICH ARE USED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. WE, THEREFORE, ALLOW GROUND NO.2 IN FAVOUR OF THE ASSESSEE AND ON THIS ISSUE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) . ACCORDINGLY, THIS GROUND IS DECIDED IN FAVOUR OF TH E ASSESSEE. THE GROUND OF THE ASSESSEE IS ALLOWED. 8. THE FOURTH GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF FOREIGN CURRENCY CONVERTIBLE NOTES ISSUE EXPENSES OF =11,07,13,647/- AS IT GOES TO INCREASE THE CAPITAL BASE OF THE COMPANY. 8.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSING ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 21 -: OFFICER IN THE ASSESSMENT ORDER, STATED THE ASSES SEE COMPANY ISSUED FOREIGN CURRENCY CONVERTIBLE NOTES TO INVEST ORS IN THE OVERSEAS MARKET. THE NOTES BEAR INTEREST AND CONVER TIBLE INTEREST IN GDR'S AND THEREAFTER CONVERTIBLE IN TO SHARES OF FA CE VALUE OF =1/- EACH. THE ISSUE EXPENSES AMOUNTING TO = 11,07,13,64 7/- IS CLAIMED AS DEDUCTION. THE ISSUE EXPENSES ARE DIRECTLY RELATED TO CAPITAL BASE OF THE COMPANY. HENCE RELYING IN THE SUPREME COURT DECISION REPORTED IN 225 ITR 792 PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITE D WHEREIN IT WAS HELD THAT THE CAPITAL EXPENDITURE ALTHOUGH WOULD HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN THE PROFIT MAKING, IT STILL RETAINS THE CHA RACTER OF CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. HENCE FOLLOWING THE APEX COURT DECI SION, THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX (APPEALS). 8.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CASE AN D THE SUBMISSIONS OF THE LD.AR. AND GONE THROUGH THE DEC ISIONS RELIED ON BY THE ID.AR AND THE ASSESSING OFFICER. FROM THE FA CTS OF THE CASE, IT ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 22 -: WAS GATHERED THAT THE FOREIGN CURRENCY LOANS IN THE FORM OF CONVERTIBLE NOTES IS GOING TO EXPAND THE CAPITAL BASE OF THE COMPANY IN THE FORM OF PURCHASE OF PLANT AND MACHIN ERY IN INDIA IN THE COURSE OF TIME. THIS, BEING THE CASE, ANY EXPEN DITURE RELATED TO THE RAISING OF SUCH LOANS SHOULD TAKE THE FORM OF C APITAL EXPENDITURE. THE DECISION OF THE SUPREME COURT RELIED ON BY THE AO IN THE. CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD ( SUPRA) ANSWERS THE QUESTION APPROPRIATELY. IN THE ABOVE CASE, THE SUPREME COURT HAS HELD THAT THE EXPENDITURE PAID TO THE ROC AS FI LING FEE FOR ENHANCEMENT OF CAPITAL BASE OF COMPANY IS CAPITAL I N NATURE. IN VIEW OF THE ABOVE DECISION, THE COMMISSIONER OF INCOME TAX (APPEALS) UPHOLD THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 8.3 WE HEARD BOTH SIDES, PERUSED THE MATERIAL ON RE CORD AND JUDICIAL DECISION CITED. THIS ISSUE CAME FOR CONS IDERATION IN FOLLOWING CASES:- (I) CIT VS. SOUTH INDIA CORPN. (AGENCIES) LTD 290 ITR 2 17. (II) CIT VS. FIRST LEASING CO. OF INDIA LTD 304 IT R 67. (III) CIT VS. SECURE METERS LTD 321 ITR 611. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 23 -: IN ALL THESE JUDGMENTS WHEREIN HELD THAT EXPENDITUR E INCURRED ON ISSUE OF DEBENTURES WHETHER CONVERTIBLE OR NON CON VERTIBLE IS ALLOWABLE AS REVENUE EXPENDITURE. BEING SO, EVEN F OREIGN CURRENCY LOAN IS SUBJECT TO CONVERSION INTO EQUITY ALSO, THE ISSUE EXPENSES WILL BE REVENUE EXPENDITURE ONLY IN VIEW OF THE ABOVE JU DGMENTS. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. THE FIFTH GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREAT ING THE EXCHANGE GAIN ON FCNN AS REVENUE RECEIPTS =10,91,36 ,405/-. 9.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ISSUED FOREIGN CURRENCY CONVERTIBLE NOTES (FCCN). THE LD. ASSESSING OFFICER IN THE ASSESSMENT ORDER STATED THAT THE PRO CEEDS OF THESE NOTES WERE RETAINED OUTSIDE INDIA. THIS PUBLIC DEPO SITS IS INTENDED TO MEET THE CAPITAL EXPENDITURE LIKE PURCH ASE OF PLANT AND MACHINERY ETC., IN INDIA. HOWEVER THE COMPANY PAID INTEREST IN RESPECT OF THE, DEBTS RAISED AT EVERY HALF-YEAR ENDING, I. E' 3RD JUNE AND 3D H APRIL EACH YEAR. THE INTEREST PAYMENT IS TREATED AS REVENUE EXPENDITURE IN. THE ACCOUNTS OF THE ASSESSEE U/S.43A OF THE ACT, IF THERE IS GAIN OR LOSS OWING TO FLUCTUATION IN EXCHA NGE RATE IN RESPECT OF PURCHASE CONSIDERATION PAYABLE TO THE SELLER OF CAPITAL ASSETS LIKE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 24 -: PLANT AND MACHINERY ETC. THE GAINS OR LOSS SHOULD B E ADJUSTED AGAINST THE COST OR WDV OF THE ASSETS. HOWEVER THE DEPOSITS OUT OF THE PROCEEDS OF NOTES, DEBT NOTES ISSUED BY THE ASS ESSEE HAS NO DIRECT NEXUS WITH THE CAPITAL ASSET ACQUIRED BY TH E COMPANY. THE MERE INTENTION OF THE ASSESSEE TO UTILIZE THE PROCEEDS TO FUTURE PURCHASE OF PLANT AND MACHINERY WILL NOT MAKE THE DEPOSIT A: CAPITAL ASSET. THE ASSESSEE HAS RELIED ON THE SUPREME COURT DECISION IN THE CASE OF CIT VS. TATA LOCOMOTIVE & ENGINEERING CO. LTD 60 I TR 40 5. HOWEVER IN ANOTHER DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS CANARA BANK 63 ITR 328 , THE APEX COURT HAS HELD THAT FOREIGN EXCHANGE GAINS ARE ASSESSABLE AS REVENUE RECEIPT. B OTH THE DECISIONS OF THE APEX COURT ARE DELIVERED BEFORE TH E INSERTION OF SECTION 43A OF THE I. T. ACT. THE JURISDICTIONAL M ADRAS HIGH COURT DISCUSSED THE IMPORT OF BOTH THE ABOVE DECISIONS OF THE APEX COURT IN ITS DECISION IN THE CASE OF M/S.UNIVERSAL SPICES REPORTED IN 120 ITR 906. IN THIS DECISION, THE HON'BLE COURT HAS CONSIDERE D THE PRINCIPLE ENUNTIATED BY THE SUPREME COURT AS FOLLOW S:- 'THE LAW MAY, THEREFORE NOW TO BE TAKEN TO BE WELL SETTLED THAT WHETHER PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOR EIGN CURRENCY HELD BY IT, ON CONVERSION INTO ANOTHER CURRENCY, S UCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUN T OR AS A TRADING ASSET OR AS A PART OF CIRCULATING CAPITAL EMBARKED IN THE BUSINESS. BUT IF ON THE OTHER HAND THE FOREIGN CURR ENCY IS HELD AS CAPITAL ASSET OR AS A FIXED CAPITAL SUCH PROFIT OR LOSS WOULD BE OF CAPITAL NATURE'. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 25 -: IN THIS CASE, THE FOREIGN CURRENCY HELD IS NOT DIR ECTLY LINKED WITH THE PLANT AND MACHINERY. THE MERE INTENTION TO USE THE DEPOSIT FOR THE PURCHASE OF CAPITAL ASSET IN FUTURE WILL NOT MAKE THE DEPOSITS A CAPITAL ASSET. MORESOOVER, THE INTEREST PAID BY TH E ASSESSEE ON THE DEPOSIT AMOUNT IS TAKEN ON REVENUE ACCOUNT. HENCE, THE ENTIRE GAINS ON EXCHANGE FLUCTUATION WHICH HAS NO NEXUS WI TH THE CAPITAL ASSETS REPRESENTING PLANT AND MACHINERY ALREADY EXI STING, SECTION 43A IS NOT APPLICABLE AND THE ENTIRE GAIN SHOULD BE TREATED AS REVENUE RECEIPT AND ADDED TO THE TOTAL INCOME. AGA INST THIS, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX (APPEALS). 9.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION S OF THE L D.AR. AND GONE THROUGH THE DECISIONS RELIED ON BY T HE ID.AR AND-THE ASSESSING OFFICER. THE ASSESSEE HAS REAPED THE GAINS OUT OF THE EXCHANGE FLUCTUATION FOR THE AMOUNT UN UTILIZED DURING THE YEAR. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HIS CONSIDERED OPINION, ANY GAIN OUT OF FOREIGN EXCHANGE NEEDS TO BE OFFERED TO TAXATION AND IF THERE IS ANY LOSS THE SAME CAN BE C LAIMED BY FOLLOWING THE SPECIFIED ACCOUNTING STANDARDS. THE S UPREME COURT IN THE CASE OF CIT V. CANARA BANK LTD REPORTED IN 63 ITR 328 RELIED ON ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 26 -: BY THE AO, HAS TAKEN SIMILAR VIEW HOLDING THAT FORE IGN EXCHANGE GAINS ARE ASSESSABLE AS REVENUE RECEIPTS. THE HEAD NOTE OF THE DECISION IS REPRODUCED AS UNDER: SECTION 4 OF THE INCOME-TAX ACT, 1961 (CORRESPONDIN G TO SECTION 3 OF THE INDIAN INCOME-TAX ACT, 1922) - INCOME - CHARGEABLE AS - ASSESSMENT YEAR 1954-55 - ASSESSEE-BANK HAD OPENED ONE BRANCH IN KARACHI ON 15-11-1946 - AFTER PARTITION I.E., ON 18-9-1949, WH EN THERE WAS DEVALUATION OF INDIAN RUPEE, KARACHI BRANCH OF ASSESSEE-BANK HAD WITH IT A SUM OF RS. 3,97,221 - SAID AMOUNT WAS HOWEVER LYING AS 'BLOCKED' OR 'STERLISED' BALANCE AS IT WAS NOT BEING UTILISED TOR INTERNAL BANKING OPERATIONS WITHIN PAKISTAN - ON 1- T- 1953, WHEN STATE BANK OF PAKISTAN PERMITTED ITS REMITTANCE TO INDIA, IN TERMS OF INDIAN CURRENCY ITS VALUE BECAME EQUIVALENT TO RS.5,71,038 - WHETHER, O N FACTS, EXCHANGE DIFFERENCE OF RS:'1,L0,746 RECEIVED BY ASSESSEE COULD BE REGARDED AS CAPITAL GAINS WHICH W AS NOT ASSESSABLE TO INCOME- TAX - HELD, YES SIMILAR VIEW WAS ALSO TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF UNIVERSAL RADIATORS REPORTED IN 120 ITR 906 . THE HEAD NOTE OF THE DECISION IS REPRODUCED AS UNDER : SECTION 28 OF THE INCOME-TAX ACT, 1961-BUSINESS INCOME- ASSESSEE'S GOODS IN TRANSIT FROM USA TO INDIA SEIZE D BY PAKISTAN DURING HOSTILITIES IN SEPTEMBER 1965- ASSE SSEE RECEIVED US $ 45,825 AS COMPENSATION FROM INSURANCE COMPANY IN . OCTOBER 1966-LNDIAN CURRENCY MEANWHILE DEVALUED ON 6-6-1966-ASSESSEE EARNED A SURPLUS OF R S. 1,43,392 REPRESENTING DIFFERENCE BETWEEN PRE-DEVALU TION AND POST- DEVALUATION RUPEE EQUIVALENTS OF $ 45,825- WHETHER DEVALUATION SURPLUS AROSE IN NORMAL COURSE OF BUSINESS-HELD, ON FACTS, YES-WHETHER TAXABLE AS A REVENUE RECEIPT-HELD, ON FACTS, YES FROM THE FACTS OF THE CASE, IT IS GATHERED THAT TH E AMOUNT RAISED THROUGH FCCN WAS MEANT FOR PURCHASE OF PLANT & MACH INERY AND NO ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 27 -: SUCH MACHINERY WAS PURCHASED DURING THE RELEVANT AS ST.YEAR. DUE TO EXCHANGE FLUCTUATION, THE ASSESSEE HAS GAINED FROM ABOVE DEPOSITS. THE AO HAS MADE HIS POINT VERY CLEAR IN HIS ASSESSM ENT ORDER STATING THAT 'THE MERE INTENTION OF THE ASSESSEE TO UTILIZE THE PROCEEDS TO FUTURE PURCHASE OF PLANT AND MACHINERY WILL NOT MAK E THE DEPOSIT A CAPITAL ESSET.' FROM THIS POINT OF VIEW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE LD. ASSESSIN G OFFICER IS RIGHT IN BRINGING TO TAX THE EXCHANGE GAIN TREATING IT AS REVENUE RECEIPT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS OF THE VIEW THAT UNTIL THE AMOUNTS ARE USED FOR PURCHASE OF ANY CAPI TAL ASSET, THE NATURE OF THE AMOUNT WILL REMAIN AS REVENUE ONLY. T HE DECISION IN THE CASE OF EID PARRY LTD (SUPRA) RELIED ON BY THE ASSESSEE IS DISTINGUISHABLE IN FACTS. IN THE CASE OF EID PARRY LTD, THE FUNDS RAISED IN UK WHERE IN FACT UTILIZED FOR THE PURCHASE OF PL ANT AND MACHINERY AND ONLY THE BALANCE AMOUNT WAS REPATRIATED TO INDI A FOR A SPECIFIC PURPOSE AT ENNORE UNIT, TAMILNADU FOR WHICH THE FUN DS WERE RAISED. THE DECISION THEREFORE WILL NOT 'COME TO TH E RESCUE OF THE ASSESSEE. EVEN THE DECISION OF CIT VS.WOODWARD GOVE RNOR INDIA P LTD (312 ITR 254) RELIED ON BY THE ASSESSEE IS ALSO OF NO HELP TO HIM. IN THIS DECISION, THE SUPREME COURT HAS ALLOWED THE LO SS ARISEN OUT OF EXCHANGE FLUCTUATION TO BE CLAIMED AS EXPENDITURE U /S.37(1) TREATING IT AS REVENUE. IT AMOUNTS TO SAY THAT WHEN THE LOSS OUT OF EXCHANGE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 28 -: FLUCTUATION WAS ALLOWED AS EXPENDITURE THE GAIN SHO ULD BE OFFERED AS INCOME FOR TAXATION. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHOLD DECISION TAKEN BY THE AO IS IN ORDER AND UPHOLD THE ADDITION AND DISMISSED THE GROUND OF THE ASSES SEE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE TRI BUNAL. 9.3 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE ISSUE WAS COVER ED BY THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA P. LTD 312 ITR 254 WERE IT WAS HELD THAT INCREASE OR DECREASE IN LIABILITY FOR REPAYMENT OF FOREIGN LOAN IN RESPECT OF ACQUISITION OF AN ASSET HAS TO BE TAKEN INTO ACCOUNT TO MODIFY THE FI GURE OF THE ACTUAL COST IN THE YEAR IN WHICH THE INCREASE OR DECREASE IN LIABILITY ARISES ON ACCOUNT OF FLUCTUATION OF FOREIGN EXCHANGE RATES, I RRESPECTIVE OF THE DATE OF ACTUAL PAYMENT IN FOREIGN CURRENCY. THIS I S AS PER PRE- AMENDED PROVISIONS OF SEC 43A OF THE ACT BEFORE 1 ST APRIL, 2003. HOWEVER, AFTER AMENDMENT THE AFORESAID INCREASE OR DECREASE ONLY TO BE CONSIDERED ONLY AT THE TIME OF MAKING THE ACTUAL PAYMENTS. HOWEVER, EVEN THE AMENDMENT WOULD NOT CHANGE THE CHARACTER OF THE RECEIPT. IN OTHER WORDS, THE INCOME ARISES OUT OF THE TRANSACTION RELATING TO THE CAPITAL ASSETS THEN IT IS ONLY A CA PITAL RECEIPT NOT TO BE TREATED IN REVENUE FIELD SO, AS TO TAX THE SAME AS INCOME OF THE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 29 -: ASSESSEE. IN VIEW OF THIS, WE ARE INCLINED TO HOLD THAT THE INCOME FROM EXCHANGE FLUCTUATION ON FCCN TO BE TREATED AS CAPITAL RECEIPTS. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2836/MDS/2014 OF ASSESSMENT YEAR 2005-2006 IS PA RTLY ALLOWED. 11. ITA NO.2837/MDS/2014 OF ASSESSMENT YEAR 2006-2007 :- THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF ADDITIONAL DEPRECATION ON ELECTRICAL INSTALLATIONS AND EQUIPMENTS =32,76,740/-. 11.1 AFTER HEARING BOTH THE SIDES, WE ARE OF THE OP INION THAT SIMILAR ISSUE WAS CONSIDERED IN ASSESSEES OWN CASE IN ITA NO.2086/MDS/2010 FOR THE ASSESSMENT YEAR 2006-2007, VIDE ORDER DATED 16.02.2015 WHICH WAS FOLLOWED BY US FOR THE A SSESSMENT YEAR 2005-06 HEREINABOVE IN EARLIER PARA 6.1. ACCORDING LY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 12. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE LEVY ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 30 -: OF INTEREST U/S.220(2) OF THE ACT =27,39,108/-. 12.1 THE LD. AR SUBMITTED THAT THE ASSESSEE FILED S TAY PETITION BEFORE ASSESSING OFFICER AS SUCH INTEREST U/S.220(2 ) OF THE ACT CANNOT BE CHARGED. 12.2. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRE SENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEAL S). 12.3 WE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN OUR OPINION FILING OF STAY PETITION CANN OT DISENTITLE THE DEPARTMENT FROM CHARGING INTEREST U/S.220(2) OF TH E ACT. ACCORDINGLY, WE DO NOT FINDING ANY MERIT IN THE ARG UMENT OF THE LD. AUTHORISED REPRESENTATIVE. THIS GROUND OF THE ASSES SEE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2837/MDS/2014 OF ASSESSMENT YEAR 2006-2007 IS DI SMISSED. 14. ITA NO.2838/MDS/2014 OF ASSESSMENT YEAR 2007-2008 :- THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE COM MISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF BALANCE 50% OF ADDITIONAL DEPRECIATION IN THE CURRE NT YEAR IN RESPECT ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 31 -: OF THE ASSETS ACQUIRED IN THE 2 ND HALF OF PRECEDING YEAR =3,34,33,504/-. 14.1 AS DISCUSSED IN ASSESSMENT YEAR 2005-2006 IN I TA NO.2836/MDS/2014 AT PARA 6.1, THIS GROUND OF THE A SSESSEE IS ALLOWED. 15. THE SECOND GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF ADDITIONAL DEPRECATION ON LEASED AS SETS =2,61,84,817/-. 15.1 THIS ISSUE IS COVERED IN FAVOUR OF THE REVENUE IN ASSESSEE OWN CASE BY ORDER OF THE TRIBUNAL IN ASSESSMENT YE AR 2006-07 IN ITA NO.2086/MDS/2010, VIDE ORDER DATED 16.02.2016 A T PARA NO.6.4 AS UNDER:- 6.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITE D. PRIME FACIE THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF COMMERCIAL VEHICLES AND ENGINES AND ADDITIONAL DEPRECIATION IS CLAIMED ON LEASED ASSE T OF WINDMILLS. DURING THE PREVIOUS YEAR THE ASSESSEE HAS PURCHASED WINDMILLS LEASED OUT TO OTHERS AND CLAIME D ADDITIONAL DEPRECIATION ON SUCH LEASED ASSETS. ON PERUSAL OF PROVISIONS U/S.32(1)(IIA) OF THE ACT AN D THE DECISIONS RELIED BY THE ASSESSEE WHICH ARE IN LEASI NG BUSINESS AND CANNOT BE BROUGHT INTO CATEGORY OF ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 32 -: MANUFACTURE OF COMMERCIAL VEHICLES. THE PROVISIONS ARE VERY CLEAR ON THIS ISSUE. THE CLAIM OF ADDITION AL DEPRECIATION IS IN VIOLATION OF PROVISIONS U/S.32 O F THE ACT WERE DEPRECATION IS ALLOWED. WE ARE OF THE OPINION THAT THE DECISIONS RELIED BY THE ASSESSEE A RE NOT DIRECTLY ON THE ISSUE AND DISTINGUISHABLE AND ADDITIONAL DEPRECATION ON LEASED ASSET DOES NOT FIT INTO THE PROVISIONS OF THE ACT AND WE UPHOLD THE FINDINGS AND ORDER OF THE ASSESSING OFFICER ON THIS GROUND AND ALLOW THE GROUND IN FAVOUR OF THE REVENUE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMIS SED. 16. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DIS ALLOWANCE OF ADDITIONAL DEPRECATION ON ASSETS ELIGIBLE FOR 100% DEPRECIATION AND PUT TO USE FOR LESS THAN 180 DAYS. 16.1 SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE T HIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-2007 I N ITA NO.2086/MDS/2010 VIDE ORDER DATED 16.02.2016 WHEREI N HELD AT PARA 4.4 AS UNDER:- 4.4 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHO RISED REPRESENTATIVE DREW ATTENTION TO THE PROVISIONS U/S .32(1)(IIA) OF THE ACT FOR CLAIM OF ADDITIONAL DEPRECIATION AN D ALSO PROVISIONS OF LAW ON CARRY FORWARD. SINCE THE ASS ET WAS PURCHASED DURING THE SECOND HALF OF FINANCIAL YEAR 2004-05 AND ONLY 50% OF DEPRECIATION WAS ALLOWED AND PLEADE D FOR CARRY FORWARD OF BALANCE 50% TO BE CLAIMED IN THE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 33 -: ASSESSMENT YEAR 2006-07. ON PERUSAL OF THE JUDICIA L DECISIONS AND OBJECTIONS OF FINANCE MINISTER SPEE CH ADDITIONAL DEPRECIATION HAS TO BE ALLOWED ONLY IN T HE CASE OF NEW PLANT AND MACHINERY AND NOT WDV VALUE ON SUBSE QUENT YEARS. THE ASSESSEE ALSO RELIED ON THE DECISION CO SMOS FILMS LTD (SUPRA) WHERE THE TRIBUNAL HAS ALLOWED THE CLAIM OF ASSESSEE FOR 50% OF ADDITIONAL DEPRECIATION U/S. 32(I)(IIA) IN RESPECT OF NEW PLANT & MACHINERY INSTALLED AT TH E NEW ELIGIBLE INDUSTRIAL UNDERTAKING WHERE PLANT & MACHI NERY WERE PUT TO USE FOR LESS THAN 180 DAYS IN THE YEAR OF IN STALLATION AND THE ASSESSEE HAD CLAIMED ONLY 50% OF THE ADDITI ONAL DEPRECIATION AND THE BALANCE AMOUNT WAS CLAIMED IN THE NEXT YEAR. R ESPECTFULLY FOLLOWING THE TRIBUNAL DECISIONS, WE DIRECT THE ASSESSING OFFICER TO ALLOW ADDITIONAL DE PRECIATION CLAIMED BY THE ASSESSEE. THIS GROUND OF THE ASSESS EE IS ALLOWED. ACCORDINGLY, THE GROUND OF THE ASSESSEE IS ALLOWED. 17. THE FOURTH GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF DEPRECIATION ON AIRCRAFT OF =21,70, 15,709/-. 17.1 THE LD. ASSESSING OFFICER OBSERVED THAT DURING THE CURRENT YEAR, THE ASSESSEE HAD CLAIMED DEPRECIATION TO THE TUNE OF =.21, 70,15,709/- TOWARDS THE CAPITALIZATION OF AIRCRAFT. IN ORDER TO ASCERTAIN ITS USAGE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS ACTIVITY, THE ASSESSEE WAS ASKE D TO SUBSTANTIATE ITS CLAIM OF DEPRECIATION BY WAY OF PROVING THAT TH E ABOVE AIRCRAFT HAS BEEN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF ITS BUSINESS ACTIVITY. IN RESPONSE TO THE SAME, THE ASSESSEE RE PLIED THAT IT HAS BUSINESS IN VARIOUS STATES OF INDIA AS WELL AS ITS BUSINESS ACTIVITIES ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 34 -: HAS BEEN EXPANDED IN THE INTERNATIONAL ARENA. FURTH ER, ITP HAS STATED THAT DURING THE CURRENT YEAR THE SALE BY WAY OF DOM ESTIC AND INTERNATIONAL MARKETING HAS INCREASED SUBSTANTIALLY . SINCE THE BUSINESS ACTIVITIES ARE BEING LOCATED AT THE VARIOU S PLACES OF THE COUNTRY AND ALSO TO PROMOTE ITS BUSINESS ACTIVITIES OUTSIDE INDIA, POSSESSION OF AN AIRCRAFT IS ESSENTIAL FOR THE ASSE SSEE. IN THE ASSESSMENT ORDER, THE LD. ASSESSING OFFICER HAS INCORPORATED THE RELEVANT SUBMISSIONS OF THE ASSESSEE VIDE LETTER DA TED 13.12.2010 WHICH IS AS UNDER:- THE PURCHASE OF AIRCRAFT HAS BEEN MADE FOR THE PURPOSE OF FOLLOWING REASONS:- TO IMPROVE ITS BUSINESS TO INCREASE ITS VOLUME TO INCREASE ITS GLOBAL PRESENCE TO INCREASE ITS EXPORTS TO INCREASE ITS CUSTOMER BASE AND TO INCREASE ITS CUSTOMER SERVICE. THE ABOVE ARE EVIDENCED BY THE I. STEEP INCREASE IN EXPORT SALES VOLUME FROM YEAR IN YEAR II. ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES ABROAD ETC. ACCORDINGLY, THE APPELLANT HAD STATED BEFORE THE AO THAT THE QUESTION OF DISALLOWANCE OF DEPRECATION PRESUMING THAT THIS IS NOT EXPENDITURE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, IS ENTIREL Y AGAINST THE LAW AND BUSINESS PRUDENCE. THE ASSESSEE FURTHER STATED BEFORE THE AO THAT IN V IEW OF GENERATION OF REVENUE BY HIRING CHARTERING THE AIRCRAFT TO OTHER CORPORATE I USERS, IT HAS APPLIED TO THE DGGA, FOR OBTAINING 'NO-OBJECTION CERTIFICATE (NOG) ' ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 35 -: FOR OPERATING NON-SCHEDULED AIR SERVICES AND IT HA S OBTAINED THE NOG AND 'NON-SCHEDULE OPERATOR PASSENGER LICENSE (NSOP) AND CARRYING OUT THE AIR SERVICE BUSINESS FROM 2008-09 AND STARTED EARNING REVENUE FROM THE AIRCRAFT AS WELL: THE AO REJECTED THE REPLY OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 1) IT HAS BEEN OBSERVED FROM THE OFFICIAL WEBSITE OF DIRECTOR GENERAL OF CIVIL AVIATION THAT THE ASSESS EE HAS RECEIVED THE LICENCE AS NOLI-SCHEDULE AIRCRAFT OPER ATOR WITH EFFECT FROM 02.04.2009. THE TYPE OF AIRCRAFT PASSED BY THE ASSESSEE IS FALC ON 2000 WITH THE SEAT CAPACITY OF TEN (10) AND THE SAID AIRCRAFT HAS BEEN REGISTERED UNDER THE PASSENGER CATEGORY. 2) AS PER THE AIRCRAFT RULE 1937, PART-IV RULE 30, THE ASSESSEE HAS TO REGISTER ITS AIRCRAFT IN INDIA EVEN THOUGH THE SAME HAS BEEN USED FOR THE PURPOSE OF ITS PERSONAL OR SOLE CORPORATE PURPOSE. 3) AS PER THE AIRCRAFT RULE 1937, PART-IX RULE 67, THE ASSESSEE HAS TO MAINTAIN THE FOLLOWING LOG BOOKS. FOR BETTER CLARITY, THE RULE 67 OF THE AIRCR AFT RULE 1937 IS REPRODUCED AS UNDER:- A) A JOURNEY LOG BOOK; (B) AN AIRCRAFT LOG BOOK; (C) AN ENGINE LOG BOOK FOR EACH ENGINE INSTALLED IN THE AIRCRAFT; (D) A PROPELLER LOG BOOK FOR EVERY VARIABLE PITCH PROPELLER INSTALLED IN THE AIRCRAFT; (E) A RADIO APPARATUS LOG BOOK FOR AIRCRAFT FITTED WITH RADIO APPARATUS; (F) ANY OTHER LOG BOOK THAT MAY BE REQUIRED BY THE DIRECTOR-GENERAL. (2) THE DIRECTOR-GENERAL MAY REQUIRE THAT A TECHNICAL LOG OR FLIGHT LOG BE PROVIDED IN RESPECT OF AN AIRCRAFT AND BE MAINTAINED IN SUCH MANNER AS MAY BE SPECIFIED BY HI M . (3) LOG BOOKS SHALL BE OF SUCH TYPE AND SHALL CONTAIN SUCH INFORMATION, ENTRIES AND CERTIFICATION AS MAY BE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 36 -: SPECIFIED BY THE DIRECTOR-GENERAL. LOG BOOKS AND LO GS SHALL BE PRESERVED UNTIL SUCH TIME AS MAY BE SPECIFIED. EXPLANATION- FOR THE PURPOSE OF THIS RULE, THE EXPRESSION 'JOURNEY LOG BOOK' INCLUDES ANY OTHER FORM OR MANNE R OF RE CORDING (HE REQUISITE INFORMATION AND ACCEPTABLE TO THE DIRECTOR GENERA/'. (4) BASED ON THE 'ABOVE FACTS, IT HAS BEEN CLEAR THAT, THE ASSESSEE HAS GOT LICENCE FOR THE PURPOSE OF NON-SCHEDULE AIRCRAFT OPERATOR ONLY FROM THE FINANCIAL YEAR 2009-10. IT IS FURTHER NOTABLE THAT THE ASSESSEE CANNOT OPERATE AS NON-SCHEDULE OPERATOR WITHOUT THE PERMISSION OF SPECIFIC LICENCE ISSUED BY THE DIRECTOR GENERAL OF CIVIL AVIATION FO R THAT PURPOSE (5) IN ORDER TO PROVE THAT THE SAID AIRCRAFT HAS BE EN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE ASSESSEE HAS TO ESTABLISH THE USAGE O F AIRCRAFT WITH THE RELEVANT LOG BOOK ENTRIES VIS-A-VIS THE SPECIFIC BUSINESS ACTIVITIES CARRIED OUT BASED ON THE ABOVE JOURNEY (6) SINCE THE ASSESSEE HAS NOT FURNISHED HE REQUISITE LOG BOOKS MAINTAINED AS PER RULE 67 OF TH E AIRCRAFT RULE, 1937, THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE ABOVE AIRCRAFT HAS BEEN USED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. THE LD. ASSESSING OFFICER STATED THE DEPRECIATION C LAIMED ON THE ABOVE SAID AIRCRAFT, WHICH HAS BEEN PURCHASE FOR TH E PERSONAL USE INSTEAD OF THE BUSINESS ACTIVITY OF THE ASSESSEE CA NNOT BE ALLOWED AS DEDUCTION. HENCE, THE LD. ASSESSING OFFICER ADDED T O THE TOTAL INCOME OF THE CURRENT YEAR. AGGRIEVED BY THE ORDER , THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME T AX (APPEALS). ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 37 -: 17.2 IN THE APPELLANT PROCEEDINGS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE. HE WAS OF OPINION THAT NO ONE CAN OPERATE AS NON-SCHEDULE OPE RATOR WITHOUT THE PERMISSION AND SPECIFIC LICENCE ISSUED BY THE D IRECTOR GENERAL OF CIVIL AVIATION (DGCA). IN THE INSTANT CASE, THE AO HAS OBSERVED THAT THE ASSESSEE WHO HAS OWNED THE AIRCRAFT FALCON 200 0 WITH THE SEATING CAPACITY OF 10, HAS RECEIVED THE LICENCE FR OM THE DGCA AS NON-SCHEDULE AIRCRAFT OPERATOR W.E.F. 2.4.2009 RELE VANT TO F.Y. 09- 10. SINCE THE ASSESSEE IS NOT HAVING VALID LICENCE TO OPERATE THE AIRCRAFT IN THE FINANCIAL YEAR RELEVANT TO A.Y. 07- 08, IT CANNOT CLAIM DEPRECIATION ON SUCH AIRCRAFT. THERE IS NO COMMENT FROM THE ASSESSEE SIDE TO DENY THIS FACT. IN VIEW OF THIS, T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND DISMISSED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE TRIBUNAL. 17.3 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT DURING THE ASSESSMENT YEAR, THE ASSESSEE COMP ANY HAS PROCURED AN AIRCRAFT AND PUT TO USE WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF ITS BUSINESS. THE AIRCRAFT IS BEING US ED BY THE ASSESSEE'S SENIOR MANAGEMENT PERSONNEL FOR MAKING THE TRIPS RE LATING TO ITS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 38 -: BUSINESS AND THE ASSESSEES CUSTOMERS (INCLUDING PROSPECTIVE CUSTOMERS). THE ASSESSEE HAS MADE THE DEPRECIATION CLAIM U/S 32 ON THE AIRCRAFT TO THE EXTENT OF =.21,70,15,709/-. THE ASSESSEE COMPANY HAD FURNISHED THE REASONS TO THE LD. ASSESSING OFFI CER WHY IT IS NECESSITATED FOR IT TO BUY AN AIRCRAFT ON ITS OWN. BUT THE ASSESSING OFFICER HAS DISALLOWED THE DEPRECIATION CLAIM OF TH E ASSESSEE STATING THAT THE ASSESSEE HAS NOT FURNISHED THE LOG BOOKS T O ESTABLISH THAT THE AIRCRAFT IS BEING USED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF ASSESSEE'S BUSINESS. THE LD. AR SUBMITTED THAT THE LOG BOOK DETAILS WERE NEVER BEEN CALLED BY THE ASSESSING OFFICER. T HEREFORE, THE ASSESSING OFFICER IS NOT A TALL JUSTIFIED IN MAKING A DISALLOWANCE BASED ON A DETAIL WHICH HAS NOT BEEN CALLED BY HIM. THE LD . AUTHORISED REPRESENTATIVE EXPLAINED THE DETAILS OF TRIPS MADE DURING THE ASSESSMENT YEAR 2007-08 AND PRAYED FOR ALLOWING TH E GROUND. 17.4 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRE SENTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (AP PEALS) AND VEHEMENTLY OPPOSED TO THE GROUNDS. 17.5 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION IF THE AIRCRAFT IS KEPT REA DY FOR USE FOR THE BUSINESS PURPOSE, THE ASSESSEE IS ENTITLED FOR DEPR ECIATION. BEFORE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 39 -: US, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THA T AIRCRAFT WAS KEPT READY FOR USAGE AND PERMISSION FROM DIRECTOR GENERA L OF CIVIL AVIATION IS NOT NECESSARY FOR ASSESSEES OWN USE BUT GIVING THE AIRCRAFT ON HIRE TO OTHERS IT REQUIRES PERMISSION. IN OUR OPINION W HETHER SPECIFIC LICENCE TO USE THE AIRCRAFT FOR ASSESSEES OWN BUSI NESS PURPOSE IS REQUIRED OR NOT TO BE REQUIRED TO BE EXAMINED BY AS SESSING OFFICER TO SO AS TO GRANT DEPRECIATION. ACCORDINGLY, THE LD. ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AFRESH AND DECIDE A CCORDINGLY. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSE. 18. THE FIFTH GROUND RAISED BY THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTRICTING DEPRECATI ON AT 5% ON RESIDENTIAL BUILDING =1,01,129/- AND DISALLOWANCE O F DEPRECIATION ON LAND INCLUDING IN BUILDING =98,973/-. 18.1 THIS ISSUE IS COVERED BY THE TRIBUNAL ORDER I N ASSESSEES OWN CASE IN ITA NO.2445/MDS/2005, FOR THE ASSESSMENT Y EAR 2000-2001 DATED 27.09.2007 AS DISCUSSED IN EARLIER PARA 7.1. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED. 19.1 THE SIXTH GROUND RAISED BY THE ASSESSEE WITH R EGARD TO DISALLOWANCE U/S.14A OF THE ACT. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 40 -: 19.2. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE M ATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. SIMILAR ISSUE WAS CO NSIDERED BY THE TRIBUNAL IN ITA NO.2086/MDS/2010, FOR ASSESSMENT YE AR 2006-07, DATED 16.02.2016 IN PARA 8.4 AS UNDER:- 8.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITE D. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E ASSESSEE IS IN RECEIPT OF EXEMPTED INCOME AND NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME. I N ASSESSEES OWN CASE THE CO-ORDINATE BENCH OF TRIBUNAL HAS CONSIDERED 2% DISALLOWANCE OF EXEMPTED INCOME U/S.14A OF THE ACT. THE ACTION OF THE ASSESSING OFFICER APPLYING RULE 8D IS NOT CORR ECT AS THE PROVISIONS OF RULE 8D ARE INTRODUCED EFFEC TIVE FROM 24.03.2008 AND APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 AND WE RELY ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON A ND CO. LTD. V. DCIT IN TAX CASE (APPEAL) NO.2621 OF 2006 DATED 15.10.2012 AND DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF EXEMPT INCOME AS DISALLOWANCE U/S.14A OF THE ACT. THIS GROUND OF TH E ASSESSEE IS PARTLY ALLOWED. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL. 20. THE SEVENTH GROUND RAISED BY THE ASSESSEE IS WI TH REGARD TO ADDITION OF =7,95,069/- ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 41 -: 20.1 THE BRIEF FACTS OF THE ISSUE ARE THAT THE CASE WAS REFERRED TO THE TRANSFER PRICING OFFICER, FOR THE PURPOSE OF DE TERMINING THE ARM'S LENGTH PRICE WITH REFERENCE TO THE 'INTERNATIONAL T RANSACTION CARRIED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES DURING THE F.Y. 2006-07 AS PER THE PROVISIONS OF SEC 92C OF THE ACT . IN RESPONSE TO THE SAME, THE TPO PASSED ORDER VIDE C.R.NO.A-103/TP O-I/A .Y.2007-08 DATED 16.09.2010 STATING THAT THERE WAS AN ADJUSTME NT OF =7,95,069/- FOR THE CURRENT YEAR. ACCORDINGLY, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE WHY THE ABOVE ADJUSTME NT ON THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTER PRISES SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE CURRENT YEAR. THE ASSESSEE SUBMITTED ITS REPLY BEFORE THE AO. NOT SATISFIED W ITH THE EXPLANATION GIVEN BY THE ASSESSEE THE AO HAS PROCEEDED WITH AD DITION. THE AO HAS TAKEN INDIVIDUAL TRANSACTIONS AND FOUND THAT TH E PRICE VARIATION WAS MORE THAN THE TOLERABLE LIMIT OF 5%. THE ASSESS EE HAS OBJECTED STATING THAT 5% TOLERABLE LIMIT HAS TO BE TAKEN FOR TRANSACTIONS AS A WHOLE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 20.2. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) CONFIRMED THE FINDINGS OF THE LD. ASS ESSING OFFICER. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 42 -: AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE TRIBUNAL. 20.3 WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MA TERIAL ON RECORD. IN THIS CASE, THE ASSESSEE IS NOT ABLE TO SHOW THAT THE PRICE VARIATION WAS LESS THAN 5% WHEN INDIVIDUAL TRANSACTION WERE C OMPARED. SINCE, THE PRICE VARIATION IS MORE THAN 5% OF TOLERABLE L IMIT, THE ADDITION MADE BY THE LOWER AUTHORITIES IS JUSTIFIED. THIS G ROUND OF THE ASSESSEE IS REJECTED. 21. THE EIGHTH GROUND RAISED BY THE ASSESSEE IS WIT H REGARD TO DISALLOWANCE OF WEIGHTED DEDUCTION ON R & D EXPENDI TURE COVERED U/S.43B AMOUNTING TO =2,43,05,200/- 21.1 THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSE SSEE HAS PROVIDED LEAVE ENCASHMENT & GRATUITY PROVISION FOR =3,89,79,000/- AND =96,31,399/- RESPECTIVELY RELATED TO THE R&D UNIT E LIGIBLE FOR WEIGHTED DEDUCTION U/S. 35(2AB) OF THE INCOME TAX ACT. WITH REFERENCE TO THE SAME, THE ASSESSEE WAS SHOW CAUSED WHY THE WEIGHTED DEDUCTION CLAIMED ON THE ABOVE PROVISION OF LEAVE ENCASHMENT & GRATUITY SHOULD NOT BE DISALLOWED DUE TO THE FACT THAT THE ABOVE PR OVISIONS CANNOT BE ALLOWED AS PER THE AMENDMENT TO THE PROVISIONS OF SECTION 43B OF THE INCOME-TAX ACT, THEREBY THE WEIGHTED DED UCTION CLAIMED ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 43 -: U/S. 35(2AB) OF THE INCOME TAX ACT IS DISALLOWED. A GGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMM ISSIONER OF INCOME TAX (APPEALS). 21.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE LD. AR. AS PER THE PROVISIONS OF SEC. 43B O F THE ACT CERTAIN EXPENSE ARE TO BE ALLOWED ONLY ON THE BASIS OF ACTU AL PAYMENTS. THE PAYMENTS FALLING U/SEC. 43B(F) IN THE ASSESSEES CA SE ARE TO BE DISALLOWED SINCE THEY WERE NOT PAID. IT IS ALSO T RUE IF CERTAIN EXPENDITURE IS NOT AN ALLOWANCE AS PER THE STATUTE S THE SAME IS TRUE EVEN IN THE CASE OF PAYMENTS APPLICABLE U/S 35(2AB ), THEREFORE, ASSESSING OFFICER IS RIGHT IN MAKING THE DISALLOWA NCE. WITH REGARD TO ALTERNATE PLEA TAKEN BY THE APPELLANT THAT THE !DIS ALLOWED AMOUNT MAY BE ALLOWED IN THE YEAR IN WHICH IT IS PAID IS NOT ACCEPTABLE SINCE NO EXPENDITURE CAN BE ALLOWED AS ALLOWABLE EXPENSES IF THE SAME IS NOT INCURRED DURING THAT YEAR. THEREFORE, THE ALTER NATE ARGUMENT OF THE ASSESSEE IS ALSO NOT ACCEPTABLE. THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) DISMISSED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE COMMI SSIONER OF INCOME TAX (APPEALS). ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 44 -: 21.3 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD. ACCORDING TO LD. AUTHORISED REPRESENTATIVE THE PROVISIONS OF SEC. 43B WILL NOT APPLY IN COMPUTATION OF WEIGHTED DEDUCTION U/S.35D OF THE ACT. IN OUR OPINION, THE PROVISION O F SEC. 43B(F) IS APPLICABLE ONLY ON ACTUAL PAYMENT, IT IS TO BE ALLO WED. HOWEVER, WE ARE OF THE OPINION THAT ON ACTUAL PAYMENT BASIS THE CLAIM TO BE ALLOWED IN THE RELEVANT ASSESSMENT YEAR. THIS GROU ND OF THE ASSESSEE IS PARTLY ALLOWED. 22 THE NINTH GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO EXCHANGE GAIN ON FCCN TREATED AS REVENUE RECEIPTS O F =1,61,33,084/-. 22.1 THIS GROUND IS DISPOSED OFF AS DISCUSSED IN IT A NO.2837/MDS/2014 IN ASSESSMENT YEAR 2006-2007 IN P ARA 9.3. THIS GROUND OF THE ASSESSEE IS ALLOWED. 23. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION OF CAPITAL CREDITORS WRITTEN BACK AMOUNTIN G TO =22,94,271/- 23.1 THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASS ESSING OFFICER ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 45 -: NOTICED THAT AN AMOUNT OF =32,16,087/- RELATING TO THE CAPITAL CREDITORS WAS WRITTEN BACK AND THE SAME WAS CREDITE D TO THE BLOCK OF ASSETS FOR THE PURPOSE OF DEPRECIATION. THE LD. AUT HORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS ADO PTED THE ABOVE ACCOUNTING TREATMENT BY RELYING THAT THE CREDITORS WRITTEN BACK WERE PURELY RELATED TO THE CAPITAL ASSETS. THE ASSESSEE SUBMITTED IN ITS REPLY TO THE LD. ASSESSING OFFICER AS UNDER:- 'THE AMOUNT OF .32,16,087/- REFERS TO THE CREDIT BALANCES IN RESPECT OF CAPITAL CREDITORS WRITTEN BECK, WHICH HAS BEEN CREDITED TO BLOCK OF ASSETS FOR PURPOSE OF TAX DEPRECIATION, SINCE THE CAPITAL COST PERTAINING TO THE SAID CREDI T BALANCES WAS INCLUDED IN THE COST CAPITALIZED IN EARLIER YEARS. IN THE DEPRECIATION SCHEDULE AS PER THE INCOME TAX (ANNEXURE-V TO THE TAX AUDIT REPORT) THESE AMOUNTS ARE FORMING PART OF THE VALUE OF DISPOSALS. HOWEVER, LD. ASSESSING OFFICER OBSERVED THAT THE CA PITAL CREDITORS WRITTEN BACK BY THE ASSESSEE WAS MAINLY BECAUSE OF THE CESSATION OF LIABILITIES. HENCE, THE INCOME RECEIVED HAS TO BE TAXED AS PER THE PROVISIONS OF SEC. 41(1) OF THE ACT. HENCE, THE AM OUNT OF =32,16,087/- IS BEING ADDED TO THE TOTAL INCOME OF THE CURRENT YEAR. FURTHER THE CORRESPONDING DEPRECIATION REDUCED BY T HE ASSESSEE ON THE CAPITAL CREDITOR IS TO THE TUNE OF =9,21,816/- IS BEING ALLOWED AS DEDUCTION. ACCORDINGLY, THE DIFFERENCE AMOUNT OF = 22,94,271/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE CUR RENT YEAR. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 46 -: COMMISSIONER OF INCOME TAX (APPEALS). 23.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS AND THE S UBMISSIONS OF THE LD. AR AND GONE THROUGH THE DECISIONS RELIED BY THE LD. AR AND THE LD. ASSESSING OFFICER. IT WAS HELD BY THE VARIO US COURTS INCLUDING THE APEX COURT, THE CESSION OF LIABILITIES SHOULD B ECOME THE INCOME OF THE ASSESSEE AND THE SAME SHOULD BE BROUGHT TO TAX U/S 41 (1) OF THE-ACT. THE ARGUMENT OF THE ASSESSEE THAT SINCE THE CESSATION IS IN RESPECT OF CAPITAL CREDITORS THEREFORE IT SHOULD GO TO BLOCK OF ASSETS IS NOT ACCEPTABLE. THE DECISION OF THE AO IN BRING ING TO TAX SUCH INCOME AFTER GIVING CREDIT TO THE DEPRECIATION ALRE ADY CLAIMED BY THE ASSESSEE IS IN ORDER AND DISMISSED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE TRIBUNAL. 23.3 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD. THE PROVISIONS OF SEC. 43(1) OF THE ACT CAN NOT BE APPLIED IN RESPECT OF CAPITAL RECEIPTS WRITTEN BACK. THE TRADI NG LIABILITY WRITTEN BACK IS ONLY TO BE CONSIDERED AS INCOME OF THE ASS ESSEE IN TERMS OF SEC. 43(1) OF THE ACT. HENCE, THIS GROUND OF THE A SSESSEE IS ALLOWED. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 47 -: 24. THE LAST GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE ON SOFTWARE LICENCE U/S .40(A)(I) /40(A) (IA) OF THE ACT =2,99,26,327/- 24.1 THE BRIEF FACTS OF THE ASSESSEE IS THAT THE LD . ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD INCURRED THE FOLLOW ING EXPENDITURE ON ACCOUNT OF PURCHASE OF SOFTWARE LICENSE. THE DET AILS OF THE SAME ARE REPRODUCED AS UNDER :- SL.NO PARTICULARS NATURE/USAGE AMOUNT 1 CITRIX ACCESS SUITE PROVI DED VPN ACCES TO LAPTOPS USERS (GIVEN TO FIELD PERSONAL) TO CONNECT ALS SERVERS. THIS IS CONNECTIVITY SOFTWARE AND NOT APPLICATION SOFTWARE 4,880,000 2 ARTICUALTE RAPID E-LEARNING SOFTWARE U SED BY MANAGEMENT DEVELOPMENT CENTRE FOR DEVELOPING E-COURSES 46,748 3 ALLEN BRADLEY SOFTWARE FOR PROGRAMMING OF CONVEYOR LINE (LINKED TO MACHINERY) 64,048 4 HORIBA PARTIAL FLOW DILUTION USED FOR EMISSION ANALYSIS IN ENGINE TESTING (LINKED TO MACHINERY) 936,000 5 71 EMATRIX 10 SOLUTION PLM SOFTWARE ISSUED BY PRODUCT DEVELOPMENT FOR RELEASE OF DESIGNS FOR MANUFACTURE 19,365,240 6 ACOUSTICS SOFTWARE USED FOR DESIGNING NOISE SHIELDS TO REDUCE THE NOISE EMITTED BY VEHICLES AND MEET THE NOISE NORMS THAT ARE IN FORCE. 4,634,291 TOTAL 29,926,327 THE LD. ASSESSING OFFICER OBSERVED THAT IT IS THE R ESPONSIBILITY OF THE PAYER TO DEDUCT TAX ON THE ACQUISITION OF THE SOFTW ARE LICENCES & DURING THE PAYMENTS ON THE RECEIPT OF COMPUTER RELA TED SERIES AS PER THE PROVISIONS OF CHAPTER XVII-B OF THE ACT. SINCE THE ASSESSEE HAS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 48 -: NOT COMPLIED WITH CHAPTER XVII B, THE LD. ASSESSING OFFICER DISALLOWED THE EXPENDITURE OF =2,99,26,327/- U/SC. 40(A)(I) AN D (IA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE CURRENT YEAR. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 24.2. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) OBSERVED THAT FROM THE SUBMISSIONS OF THE ASSESSEE THE EXPENDITURE INCURRED ON SOFTWARE LICENCE WAS ME ANT FOR USE OF COPYRIGHTED ARTICLE BUT NOT USE OF COPYRIGHT. THIS LINE OF ARQUMENT OF THE ASSESSEE CANNOT BE ACCEPTED SINCE AS PER THE D ETAILS FURNISHED BY IT BEFORE THE AO THE PAYMENTS MADE FOR THE SOFTWARE LICENCE IS IN THE NATURE OF COPYRIGHTS OF THE SOFTWARE. THEREFORE , IT SHOULD BE TAKEN AS 'ROYALTY' AND THE PAYMENTS MADE SHOULD HAV E BEEN SUBJECTED TO TDS. WITH REGARD TO DTAAS AND NON-REF ERENCE TO ROYALTY IN DTAAS, THE DECISION OF DELHI ITAT RELIED ON BY THE AO CLARIFIES THE ISSUE. THE HON'BLE DELHI BENCH HAS OB SERVED THAT THE PROPOSITION THAT THE DTAA WILL PREVAIL OVER THE ACT IS NOT INFALLIBLE. IF AN AMENDMENT IN THE ACT COMES SUBSEQUENT TO DTAA LI KE IN THE CASE OF DTAA WITH USA WHICH WAS ENTERED IN 20.12.90, THE PRINCIPLE OF DTAA WILL PREVAIL OVER THE ACT IS NO RELEVANCE. THE REFORE, THE ARGUMENT OF THE ASSESSEE IS REJECTED. FURTHER, IT IS TO BE NOTED AS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 49 -: ADMITTED BY THE ASSESSEE THAT AS PER EXPLANATION 4 TO S.9(1 )(VI) COMPUTERS SOFTWARE IS TREATED AS ROYALTY W. E. F. 1 .6.76. THE OTHER LINE OF ARGUMENT OF THE ASSESSEE THAT THE DISALLOW ANCE U/S 40(A)(I) / 40(A)(IA) WILL NOT BE APPLICABLE TO AMOUNT ALREADY PAID BUT ATTRACTS ONLY THE AMOUNT PAYABLE IS ALSO NOT TENABLE. SO FAR AS TDS PROVISIONS ARE CONCERNED THE WORD 'PAYABLE' USED HERE IS MORE RELEVANT. WHEN THE AMOUNT IS ALREADY PAID THE QUESTION OF MAKING OF TDS ON THAT AMOUNT DOES NOT ARISE. THEREFORE, THE LEGISLATURE H AVE DELIBERATELY USED THE WORD 'PAYABLE' IN THIS CONTEXT SINCE THESE ARE TDS PROVISIONS. THE RESPITE IS GIVEN FOR THE SITUATION OF AMOUNT HAVING BEEN PAID ALREADY IN THE FORM OF AMENDMENT TO S.201 W.E.F. 0 1.07.2012 WHEREBY NO SUCH DISALLOWANCE IS POSSIBLE IF THE ASSESSEE OBTAINS A CERTIFICATE FROM THE ACCOUNTANT OF DEDUCT EE TO THE EXTENT THAT ENTIRE RECEIPTS WERE OFFERED TO TAX IN HIS HANDS. IN VIEW OF THIS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) REJEC TED THE ARGUMENTS OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE US. 24.3 BEFORE US, THE LD. AR SUBMITTED THAT THE EXPEN DITURE INCURRED ON OPERATIONAL SOFTWARE. THE ASSESSEE HAS NO RIGHT OF COPYING HAS IT HAS ONLY RIGHT TO USE. HENCE, IT IS TO BE CONSIDER ED AS REVENUE EXPENDITURE ONLY AS THE ISSUE IS COVERED BY THE ORD ER OF THE TRIBUNAL ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 50 -: IN THE CASE OF RELIANCE INDUSTRIES 43 SOT 506 AND PRAYED FOR ALLOWING THE GROUND. 24.4 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEAL S) AND VEHEMENTLY OPPOSED TO THE GROUND. 24.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISION CITED. IN OUR OPINION THIS I S PURCHASE OF SOFTWARE WHICH IS IN A NATURE OF CAPITAL ASSET. HENCE, THE ASSESSEE IS ENTITLED FOR DEPRECATION AT PRESCRIBED RATES, THE ISSUE IS R EMITTED TO ASSESSING OFFICER FOR FRESH CONSIDERATION. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2838/MDS/2014 IS PARTLY ALLOWED. 26. ITA NO.2839/MDS/2014 OF ASSESSMENT YEAR 2008-2009 :- THE FIRST GROUND RAISED BY THE ASSESSEE IS WITH REG ARD TO DISALLOWANCE OF THE CLAIM OF ADDITIONAL DEPRECIATION U/SEC. 32(I IA) OF THE ACT =24,31,32,108/-. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 51 -: 26.1 THIS ISSUE IS COVERED BY THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN IN ITA NO.2086/MDS/2010 FOR ASSESSMENT YEAR 200 6-2007 VIDE ORDER DATED 16.02.2016 IN FAVOUR OF ASSESSEE AT PAR A 4.4 AS UNDER:- 4.4 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AU THORISED REPRESENTATIVE DREW ATTENTION TO THE PROVISIONS U/S.32(1)(IIA) OF THE ACT FOR CLAIM OF ADDITIONAL DEPRECIATION AND ALSO PROVISIONS OF LAW ON CARRY F ORWARD. SINCE THE ASSET WAS PURCHASED DURING THE SECOND HAL F OF FINANCIAL YEAR 2004-05 AND ONLY 50% OF DEPRECIATION WAS ALLOWED AND PLEADED FOR CARRY FORWARD OF BALANCE 50 % TO BE CLAIMED IN THE ASSESSMENT YEAR 2006-07. ON PERU SAL OF THE JUDICIAL DECISIONS AND OBJECTIONS OF FINANCE MINISTER SPEECH ADDITIONAL DEPRECIATION HAS TO BE ALLOWED ONLY IN THE CASE OF NEW PLANT AND MACHINERY AND NOT WDV VAL UE ON SUBSEQUENT YEARS. THE ASSESSEE ALSO RELIED ON THE DECISION COSMOS FILMS LTD (SUPRA) WHERE THE TRIBUNA L HAS ALLOWED THE CLAIM OF ASSESSEE FOR 50% OF ADDITIONAL DEPRECIATION U/S.32(I)(IIA) IN RESPECT OF NEW PLANT & MACHINERY INSTALLED AT THE NEW ELIGIBLE INDUSTRIAL UNDERTAKING WHERE PLANT & MACHINERY WERE PUT TO USE FOR LESS THAN 180 DAYS IN THE YEAR OF INSTALLATION AND THE ASSESSEE HAD CLAIMED ONLY 50% OF THE ADDITIONAL DEPRECIATION AND THE BALANCE AMOUNT WAS CLAIMED IN THE NEXT YEAR. R ESPECTFULLY FOLLOWING THE TRIBUNAL DECISIONS, WE DIRECT THE ASSESSING OFFICER TO ALLOW ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED. 26.2 ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS A LLOWED. 27. THE SECOND GROUND RAISED BY THE ASSESSEE IS WIT H REGARD TO DISALLOWANCE OF ADDITIONAL DEPRECIATION ON ASSETS E LIGIBLE FOR 100% DEPRECIATION AND PUT TO USE FOR LESS THAN 180 DAYS =5,41,42,948/- ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 52 -: 27.1 THIS ISSUE IS COVERED BY THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN IN ITA NO.2086/MDS/2010 FOR ASSESSMENT YEAR 200 6-2007 VIDE ORDER DATED 16.02.2016 AT PARA 5.4 AS UNDER:- 5.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITE D BY THE LD. AUTHORISED REPRESENTATIVE . THE LEGISLATURE IS CLEAR WHERE THE ASSETS ITSELF IS ALLOWED 100% DEPRECIATION WHICH HAVE BEEN USED FOR LESS THAN FO R 180 DAYS. THE CLAIM FOR ADDITIONAL DEPRECIATION DOES NOT SATISFY THE PROVISIONS UNDER SEC. 32(1)(IIA) OF THE ACT. THEREFORE, WE ARE OF THE OPINION THAT THE ASS ESSING OFFICER HAS EXAMINED AND CORRECTLY DISALLOWED AND WE UPHOLD THE FINDINGS OF THE ASSESSING OFFICER AND DI SMISS THE ASSESSEE GROUND. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISS ED. 28. THE THIRD GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DEPRECATION RESTRICTED AT 5% ON RESIDENTIAL BUILDI NG =1,80,090/-. 28.1 THIS ISSUE IS COVERED BY THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN IN ITA NO.2445/MDS/2015 FOR ASSESSMENT YEAR 200 0-2001 VIDE ORDER DATED 27.09.2007 AT PARA 6 AS UNDER:- 6. WE HAVE HEARD. THE PARTIES AT LENGTH. THE SHO RT CONTROVERSY BEFORE US IS THAT IF THE ASSESSEE HAS PROVIDED RESIDENTIAL FLATS TO ITS EMPLOYEES, THEN AT ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 53 -: WHAT RATE DEPRECIATION IS TO BE ALLOWED. THE CIT(APPEALS) HAS TRIED TO INTERPRET THE CIRCULAR BY STATING THAT THE BOARD MIGHT HAVE IS SUED THE SAID CIRCULAR IN THE CONTEXT OF THE EMPLOYEES' QUARTERS BUILT IN THE FACTORY PREMISES AND NOT TO THE RESIDENTIAL FLATS WHICH. ARE AWAY FROM THE FACTORY. ON THE PERUSAL OF THE CSDT INSTRUCTIONS/LETTER, WE FIND THAT NO SUCH DISTINCTION IS MADE. IN OUR OPINION, THE CIRCULAR/L ETTER ISSUED AMBIGUOUS LANGUAGE AND NO SECOND INTERPRETATION IS REQUIRED. WE, THEREFORE/HOLD THAT THE AO WAS NOT JUS TIFIED IN RESTRICTING THE DEPRECIATION TO 5% IN RESPECT OF THE FIVE RESIDENTIAL FLATS WHICH ARE USED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. WE, THEREFORE, ALLOW GROUND NO.2 IN FAVOUR OF THE ASSESSEE AND ON THIS ISSUE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) . ACCORDINGLY, THIS GROUND IS DECIDED IN FAVOUR OF TH E ASSESSEE. THE GROUND OF THE ASSESSEE IS ALLOWED. 29. THE FOURTH GROUND RAISED BY THE ASSESSEE IS WIT H REGARD TO DISALLOWANCE OF DEPRECIATION ON AIRCRAFT OF =38,81, 02,135/-. 29.1. AS DISCUSSED IN ITA NO.2838/MDS/2014 IN ASSES SMENT YEAR 2007-2008 IN PARA 17.5, THIS GROUND OF THE ASSESSEE IS REMITTED TO LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 54 -: 30. THE FIFTH GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DIFFERENCE IN ARMS LENGTH PRICE OF =1,06,80,935/-. 30.1 THE FACTS IN THIS CASE ARE THAT THERE ARE TP A DJUSTMENT IN RESPECT OF FOREIGN TRANSACTION AS SALE OF SPARE PAR TS TO =6,93,253/- AND GUARANTEE COMMISSION =99,87,682/- TOTAL AGGREGA TING TO =106,80,935/-. REGARDING ADDITION TOWARDS SALE OF S PARE PARTS, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE AS SESSEE IS ENTITLED FOR VOLUME DISCOUNT. REGARDING GUARANTEE COMMISSIO N IT IS SUBMITTED THAT THERE CANNOT BE AN TP ADJUSTMENT IN VIEW OF THE ORDER OF TRIBUNAL IN THE CASE OF REDINGTON INDIA LT D VS. ACIT 155 ITD 873 (CHENNAI). 30.2 WE HAVE HEARD BOTH THE SIDES. IN OUR OPINION T HE PLEA OF THE ASSESSEE IS JUSTIFIED. ACCORDINGLY, WE HOLD TH AT THE ASSESSEE IS ENTITLED FOR VOLUME DISCOUNT IN RESPECT OF SALE OF SPARE PARTS. REGARDING GUARANTEE COMMISSION AS IT WAS HELD BY TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF REDINGTON IND IA LTD (CITED SUPRA) THAT THE CORPORATE GUARANTEE ISSUED FOR BENE FIT OF AE DOES NOT INVOLVE ANY COST TO THE ASSESSEE AND DOES NOT H AVE ANY BEARING PROFIT, INCOME AND LOSS OF ASSETS OF THE ASSESSEE. THEREFORE, IT WAS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION TO W HICH ALP ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 55 -: ADJUSTMENT CAN BE MADE. ACCORDINGLY, THIS GROUND O F THE ASSESSEE IS ALLOWED. 31. THE SIXTH GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO ADDITION OF CAPITAL CREDITORS WRITTEN BACK =55,52, 528/-. 31.1 AS DISCUSSED IN ITA NO.2838/MDS/2014 IN ASSESS MENT YEAR 2007-2008 IN PARA 23.3, THIS GROUND OF THE ASSESSEE IS ALLOWED. 32. THE SEVENTH GROUND RAISED BY THE ASSESSEE IS W ITH REGARD TO EXCHANGE GAIN ON FCCN TREATED AS REVENUE RECEIPT S =15,94,32,297/-/ 32.1 AS DISCUSSED IN ITA NO.2836/MDS/2014 IN ASSESS MENT YEAR 2005-2006 IN PARA 9.3, THIS GROUND OF THE ASSESSEE IS ALLOWED. 33. THE EIGHTH GROUND RAISED BY THE ASSESSEE IS WIT H REGARD TO RESTRICTION TO 100% OF THE WEIGHTED DEDUCTION ON R & D EXPENDITURE OF =2,73,24,500/-. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 56 -: 33.1 AS DISCUSSED IN ITA NO.2838/MDS/2014 IN ASSESS MENT YEAR 2007-2008 IN PARA 21.3, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 34 THE NINTH GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF R & D EXPENDITURE COVERED U/S.43B A MOUNTING TO =1,41,25,515/- 34.1 AS DISCUSSED IN ITA NO.2838/MDS/2014 IN ASSESS MENT YEAR 2007-2008 IN PARA 21.3, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 35. THE TENTH GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE ON SOFTWARE LICENCE U/S.40(A)(I)/40(A)(IA) OF THE ACT =5,63,59,646/-. 35.1 AS DISCUSSED IN ITA NO.2838/MDS/2014 IN ASSES SMENT YEAR 2007-2008 IN PARA 24.5, THIS GROUND OF THE ASS ESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 36. THE ELEVENTH GROUND RAISED BY THE ASSESSEE IS W ITH REGARD TO DISALLOWANCE U/S.14A R.W.S RULE 8D OF THE ACT. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 57 -: 36.1 AS DISCUSSED IN ITA NO.2838/MDS/2014 IN ASSES SMENT YEAR 2007-2008 IN PARA 19.2, THIS GROUND OF THE ASS ESSEE IS PARTLY ALLOWED . 37 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.2839/MDS/2015 IN ASSESSMENT YEAR 2008-2009 IS PA RTLY ALLOWED. 38. DEPARTMENTAL APPEAL IN ITA NO. 2825/MDS/2014 O F ASSESSMENT YEAR 2005-2006 :- 38.1 THE FIRST GROUND RAISED BY THE REVENUE IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE LD. ASSESSING OFFICER TO DISALLOW ONLY 2% OF EXEMPTED I NCOME U/S.14A OF THE ACT, IN PLACE OF AMOUNT OF =3,19,35,900/- DI SALLOWED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 14A R.W. RULE 8D. 38.2 THIS ISSUE CAME UP FOR CONSIDERATION IN THE AS SESSMENT YEAR 2006-2007 IN ITA NO.2086/MDS/2016, FOR ASSESSM ENT YEAR 2006-07 VIDE ORDER DATED 16.02.2016 WHEREIN IT WAS HELD AT PARA 8.4 AS UNDER:- ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 58 -: 8.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESS EE IS IN RECEIPT OF EXEMPTED INCOME AND NO EXPENDITUR E HAS BEEN INCURRED FOR EARNING INCOME. IN ASSESSEES OWN CASE THE CO-ORDINATE BENCH OF TRIBUNAL HAS CONSIDERED 2% DISALLOWANCE OF EXEMPTED INCOME U/S.14A OF THE ACT. THE ACTION OF THE ASSESSING OF FICER APPLYING RULE 8D IS NOT CORRECT AS THE PROVISIONS O F RULE 8D ARE INTRODUCED EFFECTIVE FROM 24.03.2008 AND APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 AND WE RELY ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON AND CO. LTD. V. DCIT IN TAX CASE (APPEAL) NO.2621 OF 2006 DATED 15.10.2012 AND DIREC T THE ASSESSING OFFICER TO DISALLOW 2% OF EXEMPT INCO ME AS DISALLOWANCE U/S.14A OF THE ACT. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSE D. 39. THE NEXT GROUND RAISED BY THE REVENUE IS THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO ALLOW WEIGHTED DEDUCTION U/S.3 5(2AB) OF THE ACT FOR THE ENTIRE PERIOD FROM 01.04.2004 TO 31.03.2005 AS AGAINST THE ALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE PER IOD FROM 21.09.2004 TO 31.03.2005 ON THE BASIS OF NOTIFICATI ON NO.245/2004/ SO/1021(E) DATED 21.09.2004. 39.1 THE BRIEF FACTS OF THE CASE ARE THAT THE LD. A SSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED WEIG HTED DEDUCTION ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 59 -: U/S.150% U/S.35(2AB) IN RESPECT OF CAPITAL EXPENDIT URE AND REVENUE EXPENDITURE INCURRED FOR THE PERIOD 21.09.2004 TO 31.3.2005 FOR THE WHOLE YEAR WHEREAS AS PER NOTIFICATION NO.245/2004/ SO/1021 (E) DATED 21.9.2004, THE ASSESSEE IS ENTITLED TO WEIGH TED DEDUCTION IN RESPECT OF AUTOMOBILE COMPONENTS ONLY FROM 21.9.200 4 TO 31.3.2005 AND NOT FOR THE WHOLE YEAR. THE AO ALLOWED 100% DED UCTION AGAINST 150% DEDUCTION CLAIMED BY THE APPELLANT FOR THE ABOVE PERIOD 1.4.04 TO 20.9.04 AN D ACCORDINGLY DISALLOWED THE EXCESS DEDUCTION CLAIMED OF =8,17,53 , 134/- (=24,52,59,403 =16,35,06,269) IN RESPECT OF CAPIT AL EXPENDITURE AND =7,20,91,344/- (=21,62,74,033 =14,41 ,82,689) IN RESPECT OF REVENUE EXPENDITURE, TOTALING TO =15,38,44,478/-. A GGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 39.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE LD.AR AND ALSO GONE THROUGH THE BOARD'S NOTIFICATION DATED 21.9.04 WHEREIN THE AUTOMOBILES AND AUTOMOBILE COMPONENTS WERE MADE PART OF S.35(2AB). THE COMMI SSIONER OF INCOME TAX (APPEALS) PERUSED THE WRITTEN DOCUMENT OF THE FINANCE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 60 -: MINISTER'S SPEECH ON 2004-05 BUDGET WHEREIN AT PARA 105 STATED AS UNDER:- '105. THE AUTOMOBILE SECTOR HAS DONE WELL AND NEEDS TO BE ENCOURAGED. I THEREFORE PROPOSE TO NOTI FY THE AUTOMOBILE INDUSTRY AS AN INDUSTRY ENTITLED TO 150% DEDUCTION OF EXPENDITURE ON IN-HOUSE R & 0 FACILITIES.' THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERV ED THAT EVEN THOUGH THE NOTIFICATION HAS COME ON 21.9.04, AS PER THE 2004-05 BUDGET THE PROVISIONS ARE APPLICABLE FROM THE BEGIN NING OF THE YEAR. BY READING TOGETHER BOTH THE BUDGET CONTENTS AND TH E NOTIFICATION, THE ASSESSEE IS ENTITLED FOR THE BENEFIT FOR THE W HOLE YEAR. SO, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE AP PEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 39.3 AFTER HEARING BOTH THE PARTIES AND GOING THR OUGH THE ABOVE ORDER OF THE COMMISSIONER OF INCOME TAX (APPE ALS), THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY O BSERVED THAT THOUGH THE NOTIFICATION HAS COME INTO EFFECT ON 21 .09.2004 BUT IT IS TO BE APPLICABLE FOR THE FULL PREVIOUS YEAR RELEVAN T TO ASSESSMENT YEAR 2005-2006. ACCORDINGLY, WE CONFIRM THE FINDIN GS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS DISMISSED. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 61 -: 40. THE NEXT GROUND RAISED BY THE REVENUE IS THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF WARRANTY PROVISI ON OF =2,27,00,000/-. 40.1 IN THE ASSESSMENT PROCEEDINGS, THE LD. ASSESSI NG OFFICER STATED THAT THE WARRANTY CLAIM CONSISTS OF TWO COMPONENTS NAMELY WARRANTY COST OF RS.30,59,71,000/- AND PROVISIONS OF =2,27,00,000/- . RELYING ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT I N THE CASE OF M/S ROTORK CONTROL INDIA LTD & OTHERS (293 ITR 311), THE LD. ASSESSING OFFICER HAS DENIED THE BENE FI T . AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMM ISSIONER OF INCOME TAX (APPEALS). 40.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CASE, S UBMISSIONS OF THE LD.AR AND GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR AND THE AO. THE AO DISALLOWED THE PROVISION FOR WARRANTY MA INLY BY HOLDING THAT IT IS A CONTINGENT LIABILITY. IT DEPENDS ON TH E HAPPENING OF A FUTURE EVENT AND HENCE WOULD NOT COME WITHIN THE SC OPE OF SECTION ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 62 -: 37 OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT UNDER SIMILAR FACTS IN THE CASE OF CIT V. ROTARK CONTROLS INDIA PVT. LTD, 293 ITR 311 (MAD). HOWEVER, THE DECISION HAS BEEN REVERSED BY THE HON' BLE SUPREME COURT IN THE SAME CASE, I.E ROTARK CONTROL INDIA LTD.V.CIT 314 ITR 62(SC). THE HON'BLE SUPREME COURT HAS HELD THAT PROVISION FOR WARRANTY IS AN ALLOWABLE EXPENDITURE U/S. 37 OF THE ACT. FOLLOWING THE DECISION OF THE APEX COURT, THE COMMI SSIONER OF INCOME TAX (APPEALS) ALLOWED THE GROUND OF THE ASSE SSEE. AGAINST THIS, THE REVENUE HAS ASSAILED AN APPEAL BEFORE TRI BUNAL. 40.3 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS. THE WARRANTY PROVIS IONS SHOULD BE BASED ON ACTUARIAL VALUATION OR TO BE BASED ON SCI ENTIFIC METHOD. THE LD.CIT(A) RELIED ON THE JUDGMENT OF SUPREME COU RT IN THE CASE OF ROTARK CONTROL INDIA LTD. (CITED SUPRA) WITHOUT EXAMINING THE BASIC ON WHICH THE ROYALTY WAS PROVIDED FOR. ACCORDINGLY IN THE INTEREST OF J USTICE, WE REMIT THE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO E XAMINE THE ISSUE FRESH AND ALLOW THE CLAIM OF THE ASSESSEE IF IT IS BASED ON ANY SCIENTIFIC METHOD. THE GROUND OF THE REVENUE IS PA RTLY ALLOWED. 41. THE LAST GROUND RAISED BY THE REVENUE IS THAT THE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 63 -: COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPR ECIATE THAT THE WEALTH TAX PAID IN RESPECT OF BUSINESS ASSETS IS NO T A ALLOWABLE EXPENDITURE EVEN AS PER THE EXPLANATION TO SEC. 40( A)(IIA) OF THE ACT. 41.2. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORDS. WE ARE OF THE OPINION THAT THIS ISSUE CAM E FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.2086/MDS/2010, DATED 16.2.2006 WH EREIN IT WAS OBSERVED AT PARA 9.2 AS UNDER:- 9.2 ON APPEAL BEFORE TRIBUNAL, THE LD. AUTHORISED REPRESENTATIVE REITERATED HIS SUBMISSIONS AND RELIE D ON THE GROUNDS OF APPEAL AND ARGUED THAT WEALTH TAX PAID ON BUSINESS ASSETS SHOULD BE ALLOWED. THE ARGUMENTS OF THE LD. AUTHORISED REPRESENTATIVE ARE NOT CONVINCING A ND THE PROVISIONS ARE VERY CLEAR U/S.40(IIA) AS ANY SUM P AID ON ACCOUNT OF WEALTH TAX IS NOT DEDUCTABLE. CONSIDERI NG THE APPARENT FACTS, WE CONFIRM THE DISALLOWANCE OF THE ASSESSING OFFICER AND DISMISS THE ASSESSEE GROUND . ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALLOWED. 41.3 IN THE RESULT, THE APPEAL OF THE REVENUE IN IT A NO.2825/MDS/2014 OF ASSESSMENT YEAR 2005-06 IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 42. ITA NO.2826/MDS/2014 OF ASSESSMENT YEAR 2006-20 07:- THE FIRST GROUND RAISED BY THE REVENUE IS THAT T HE LD. CIT(A) ERRED IN ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 64 -: DIRECTING THE ASSESSING OFFICER TO VERIFY AND ALLOW THE ADDITIONAL DEPRECIATION ON THE COMPUTER SYSTEM INSTALLED IN TH E FACTORY PREMISES WITHOUT APPRECIATING THE FACT THAT THE COM PUTER SYSTEM IS ENTITLE FOR HIGHER DEPRECIATION @ 60% AND CANNOT BE CONSIDERED AS THE PART OF THE PLANT AND MACHINERY F OR CLAIMING ADDITIONAL DEPRECIATION. 42.1 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORDS. WE ARE OF THE OPINION THAT THIS ISSUE CAM E FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.2086/MDS/2010, DATED 16.2.2006 WH EREIN IT WAS OBSERVED AT PARA 6.4 AS UNDER:- 6.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. PRIME FACIE THE ASSESSEE IS IN THE BUSINESS OF MANUFACTUR E OF COMMERCIAL VEHICLES AND ENGINES AND ADDITIONAL DEPRECIATION IS CLAIMED ON LEASED ASSET OF WINDMI LLS. DURING THE PREVIOUS YEAR THE ASSESSEE HAS PURCHASED WINDMILLS LEASED OUT TO OTHERS AND CLAIMED ADDITION AL DEPRECIATION ON SUCH LEASED ASSETS. ON PERUSAL OF PROVISIONS U/S.32(1)(IIA) OF THE ACT AND THE DECIS IONS RELIED BY THE ASSESSEE WHICH ARE IN LEASING BUSINES S AND CANNOT BE BROUGHT INTO CATEGORY OF MANUFACTURE OF COMMERCIAL VEHICLES. THE PROVISIONS ARE VERY CLEAR ON THIS ISSUE. THE CLAIM OF ADDITIONAL DEPRECIATION IS IN V IOLATION OF PROVISIONS U/S.32 OF THE ACT WERE DEPRECATION IS AL LOWED. WE ARE OF THE OPINION THAT THE DECISIONS RELIED BY THE ASSESSEE ARE NOT DIRECTLY ON THE ISSUE AND DISTINGU ISHABLE AND ADDITIONAL DEPRECATION ON LEASED ASSET DOES NOT FIT INTO THE PROVISIONS OF THE ACT AND WE UPHOLD THE FINDING S AND ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 65 -: ORDER OF THE ASSESSING OFFICER ON THIS GROUND AND A LLOW THE GROUND IN FAVOUR OF THE REVENUE. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALLOWED. 43. THE LAST GROUND RAISED BY THE REVENUE IS THAT T HE LD. CIT(A) ERRED IN HOLDING THAT PROVISIONS OF SECTION 40(A)(I ) ARE NOT APPLICABLE IN RESPECT OF INCOME ACCRUED TO NON-RESI DENTS ON CONVERSION OF FOREIGN CURRENCY CONVERTIBLE NOTES(FC CN). 43.1 IN THE ASSESSMENT PROCEEDINGS, THE LD. ASSESS ING OFFICER FOUND THAT DURING THE YEAR, THE ASSESSEE COMPANY HA S CONVERTED 22,700 FCCN (FACE VALUE 22.70 MILLION US DOLLARS) T O 3,22,92,576 SHARES. THESE FCCN HAD BEEN ISSUED BEARING 0.5% INT EREST PER ANNUM. WHILE CONVERTING, THESE FCCN WERE GIVEN A VA LUE INCREASE OF 42.2%. THUS THE HOLDERS OF THE FCCN WOTH 2,27,00,00 0 U.S. DOLLARS WERE COMPENSATED WITH AN ADDITIONAL INCOME OF 95,79 ,400 DOLLARS. IN TERMS OF RUPEES, THIS AMOUNTED TO =42,26,91,504/-. THIS AMOUNT, INDIRECTLY REPRESENTS THE INCREASE IN ASSET VALUE O CCURRED TO THE NON-RESIDENT IN THE FORM OF COMPENSATION AGAINST AC CRUED INTEREST. ON THE SPECIFIC QUERY IN THIS REGARD ON THE TAXABIL ITY AND THE TAX DEDUCTIBILITY, THE ASSESSEE HAS PLEADED THAT SECTIO N 115AC DOES NOT ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 66 -: MANDATE TAXATION OF SUCH FCCN. THE ASSESSEE ALSO PL EADED THAT THIS CONVERSION IS NOT A TRANSFER AS PER SECTION 47(XA) OF THE ACT. THE PLEA OF THE ASSESSEE THAT THIS INCOME IS NOT TO BE TAXED U/S.115AC IS SUPERFLUOUS. SECTION 115AC IS MEANT FOR TAXING CERT AIN INCOMES AT A LOWER RATE (10%) THAN THE NORMAL RATE. IF A PARTICU LAR INCOME IS NOT INCLUDED IN CHAPTER XII OF THE ACT, THEN IT HAS TO BE TAXED AT THE NORMAL RATES. ASSESSEE'S PLEA IS NOT THAT THE INCOM E IS EXEMPT FROM TAX. THE CONVERSION OF FCCN TO SHARES HAS RESULTED IN AN INCOME TO THE NON-RESIDENT AND CAN BE SEEN AS AN 'OTHER INCOM E' ENVISAGED IN SECTION 195 OF THE I. T ACT. THE ASSESSEE SHOULD HA VE DISALLOWED TAX U/S.195 WHICH IT HAS FAILED TO DO. HENCE, THE AMOU NT OF =42,26,91,504/- IS AN EXPENDITURE ATTRACTING PROVIS IONS OF SECTION 40(A)(I) OF THE I. T ACT AND LD. ASSESSING OFFICER ADDED TO THE RETURNED INCOME. AGGRIEVED BY THE ORDER, THE ASSES SEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 43.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE LD. AR. THE AO HAS DISALLOWED THE AMOUNT OF RS.42.26 CRORES U/S 40(A)(I) FOR NOT SUBJECTING THE AMOUNT FOR TDS. THIS IS THE AMOUNT OF INCREASE IN ASSET VALUE TO THE NON-RESIDE NTS ON CONVERSION OF FCCN TO SHARES AND THE RESULTANT CONVERSION TO I NDIAN RUPEE. THE ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 67 -: AO HAS TAKEN SUCH BENEFIT TO THE NON-RESIDENTS ON T HE ACCRUAL BASIS. OPPOSING THE ACTION OF THE AO, THE ASSESSEE HAS CO NTENDED THAT THERE WAS NO INCOME ACCRUED TO THE NOTE HOLDERS SIN CE THE NOTE HOLDERS HAVE BEEN ALLOTTED WITH THE SHARES EQUIVALE NT TO THE NOTE VALUE ONLY AND ARGUED THAT THERE IS NO NECESSITY TO WITHHOLD ANY TAXES ON THE CONVERSION OF NOTES INTO SHARES. THE A SSESSEE ALSO HOLDS THAT IT WILL NOT AMOUNT TO TRANSFER SUBJECT T O CAPITAL GAINS IN VIEW OF EXEMPTION CLAUSE IN S.47(X). THE ASSESSEE HAS ALSO SUBMITTED THAT IT HAS NOT CLAIMED THE CONVERSION AS EXPENDITURE AND DISALLOWING AN EXPENDITURE WHICH WAS NOT CLAIMED IS NOT VALID AS PER LAW. IN MY CONSIDERED OPINION, THE TRANSACTION ARISEN OUT OF CONVERSION WILL NOT ATTRACT CAPITAL GAINS AND WILL NOT ATTRACT PROVISIONS OF S.40(A)(I) SINCE NO INCOME HAS ACCRUED TO THE NO TE HOLDERS AND NOT CLAIMED BY THE ASSESSEE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE GROUND OF THE ASSESSEE . 43.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. PLAIN READING OF SEC.47(X) R.W.S. 49(2A) O F THE ACT DOES NOT SPECIFY TRANSFER ON CONVERSION OF FCCN TO SHARES A ND IT CANNOT BE SAID THAT THE ASSESSEE INCURRED ANY EXPENDITURE SO AS TO DEDUCT TDS U/S.40(A)(I) OF THE ACT AND ACCORDINGLY, DELETION B Y THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED. THIS GROUND OF THE REVENUE IS ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 68 -: REJECTED. 44. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IN ITA NO. 2826/MDS/2014 IN ASSESSMENT YEAR 2006-2007 IS PARTL Y ALLOWED. 45. ITA NO.2827/MDS/2014 OF ASSESSMENT YEAR 2007-20 08:- THE FIRST GROUND RAISED BY THE DEPARTMENT IS THAT THE I D. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW ONLY 5% OF EXEMPTED INCOME U/S 14A OF I. T. ACT, IN PLACE OF AMOUNT OF =4,13,16,188/-. DISALLOWED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. 45.1 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD. SIMILAR ISSUE CAME FOR OUR CONSIDERATION IN ASSESSEES OWN CASE IN ITA NO.2086/MDS/2010 FOR ASSESSMENT YEAR 20 06-07, VIDE ORDER DATED 16.02.2016 WHEREIN HELD AT PARA 8.4 AS UNDER:- 8.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS IN RECEIPT OF EXEMPTED INCOME AND NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME. IN ASSESSEES OWN CASE THE CO-ORDINATE BENCH OF TRIBUNAL HAS CONSIDERED 2% DISALLOWANCE OF EXEMPTED INCOME U/S.14A OF THE ACT. THE ACTION OF THE ASSESSING ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 69 -: OFFICER APPLYING RULE 8D IS NOT CORRECT AS THE PROVISIONS OF RULE 8D ARE INTRODUCED EFFECTIVE FROM 24.03.2008 AND APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 AND WE RELY ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON AND CO. LTD. V. DCIT IN TAX CASE (APPEAL) NO.2621 OF 2006 DATED 15.10.2012 AND DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF EXEMPT INCOME AS DISALLOWANCE U/S.14A OF THE ACT. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. ACCORDINGLY, WE CONFIRM THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS). THE GROUND OF THE REVENUE IS DISMISS ED. 46. THE NEXT GROUND RAISED BY THE REVENUE IS THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APP RECIATE THAT THE WEALTH TAX PAID IN RESPECT OF BUSINESS ASSETS IS NO T A ALLOWABLE EXPENDITURE EVEN AS PER THE EXPLANATION TO SECTION 40(A)(IIA) OF I. T. ACT. 46.1 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD. SIMILAR ISSUE CAME FOR OUR CONSIDERATION IN ASSESSEES OWN CASE IN ITA NO.2086/MDS/2010 FOR ASSESSMENT YEAR 20 06-07, VIDE ORDER DATED 16.02.2016 WHEREIN HELD IT WAS HELD THA T WEALTH TAX LIABILITY IS NOT BUSINESS EXPENDITURE. ACCORDINGL Y, THIS GROUND OF THE REVENUE IS ALLOWED. ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 70 -: 47. THE NEXT GROUND RAISED BY THE REVENUE IS THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPR ECIATE THAT THE UPS COULD BE CONSIDERED AS PART OF PLANT AND MACHI NERY. 47.1 SIMILAR ISSUE CAME FOR OUR CONSIDERATION IN AS SESSEES OWN CASE IN ITA NO.2086/MDS/2010 FOR ASSESSMENT YEAR 20 06-07, VIDE ORDER DATED 16.02.2016 WHEREIN THE TRIBUNAL ALLOWED THE CLAIM OF DEPRECATION ON UPS AT 60%. ACCORDINGLY, WE CONFIRM THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). THIS GROUND OF THE REVENUE IS DISMISSED. 48. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.2827/MDS/2014 FOR ASSESSMENT YEAR 2007-2008 IS P ARTLY ALLOWED. 49. IN THE RESULT, APPEALS OF THE ASSESSEE IN ITA NO.2834/MDS/2014 OF A.Y. 95-96 IS DISMISSED, ITA NO .2835/2014 OF A.Y 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPO SE, ITA NO.2836/2014 OF ASSESSMENT YEAR 2005-06 IS PARTLY A LLOWED, ITA NO.2837/2014 OF ASSESSMENT YEAR 2006-07 IS DISMISSE D, ITA NO.2838/2014 OF ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED AND ITA NO.2839/2014 OF ASSESSMENT YEAR 2008-09 IS PARTLY A LLOWED. IN REVENUE APPEALS IN ITA NO.2825/MDS/2014 OF ASSE SSMENT YEAR ITA NOS.2825 TO 2827, 2834 TO 2839/MDS/2014. :- 71 -: 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO.2826/MDS/2014 OF ASSESSMENT YEAR 2006-07 IS PART LY ALLOWED AND ITA NO.2827/MDS/2014 OF ASSESSMENT YEAR 2007-2008 I S PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER SD/- ( ) (CHANDRA POOJARI) !' / ACCOUNTANT MEMBER / CHENNAI , / DATED:23.09.2016 KV - ' .#(/0 10&( / COPY TO: 1 . 23 / APPELLANT 3. ! 4( () / CIT(A) 5. 0 78 .#(# / DR 2. .923 / RESPONDENT 4. ! 4( / CIT 6. 8% : / GF