ADDL CIRT G 3(2), MUMBAI V. ADITYA BIRLA NUVO LTD, MUMBAI

ITA 3178/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2197 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E SANKARAN
• Assessee Lawyers: J D MISTRI
• Keywords: Business income; Depreciation; Competent authority; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 14A; 115JB; 80IB; 10B; 145

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI , BEFORE S.SH.RAJENDRA,ACCOUNTANT MEMBER AND AMIT SHUKLA,JUDICIAL MEMBER /ITA NO.3178/M/2012, /ASSESSMENT YEAR 2008-09 DCIT-LTU, WORLD TRADE CENTRE, 28 TH FLOOR, CENTRE-1, CUFFE PARADE MUMBAI-400 005. VS. ADITYA BIRLA NUVO LTD. (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LIMITED) A4, ADITYA BIRLA CENTRE, S.K. AHIRE MARG,WORLI, MUMBAI-400 030. PAN:AACI 1747 H /ITA NO.3033/M/2012, /ASSESSMENT YEAR 2008-09) ADITYA BIRLA NUVO LTD. WORLI, MUMBAI-400 030. VS. DCIT-LTU, MUMBAI-400 005. ( / APPELLANT ) ( / RESPONDENT ) C.O. NO.96/M/13 (ARISING OUT OF /ITA NO.3178/M/2012, /ASSESSMENT YEAR 2008-09) ADITYA BIRLA NUVO LTD. WORLI, MUMBAI-400 030. VS. DCIT-LTU, MUMBAI-400 005. ( /CROSS OBJECTOR) ( / RESPONDENT ) / ASSESSEE BY :SHRI J.D. MISTRI / REVENUE BY :SHRI E. SANKARAN-CIT(DR) / DATE OF HEARING : 27. 11. 2015 / DATE OF PRONOUNCEMENT : 09.12.2015 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDERS OF CIT(A)-MUMBAI, 09.02.2012 ,THE ASSESSEE AND REVENUE HAVE FILED APPEAL FOR THE ABOVE ASSESSMENT YEARS(AY.)RAISING V ARIOUS GROUNDS OF APPEALS.THE ASSESSEE HAS ALSO FILED CROSS-OBJECTIONS.DURING THE COURSE O F HEARING BEFORE US, THE AR OF THE ASSESSEE DID NOT PRESS GROUND NO.7 AND 11.HE FURTHER STATED THAT G.NO.12 WAS CONSEQUENTIAL IN NATURE AND GR.NO.13 WAS PRE-MATURE.HE FURTHER STATED THAT GR.NO.8 WAS INFRUCTUOUS.THEREFORE, WE ARE NOT ADJUDICATING GROUND NOS. 7,8,11,12 AND 13. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS VIDE ITS LETTER DT.12.10.15.IT WAS STATED THAT ADDITIONAL GROUND RAISED BY IT PERTAINED TO PURE PO INT OF LAW AND FACTS WERE AVAILABLE ON RECORD.THE ADDITIONAL GROUNDS,RAISED BY THE ASSESSE E,ARE THE SAME THAT WERE RAISED FOR THE EARLIER AY I.E.DISALLOWANCE MADE U/S.14A AND INTERE ST SUBSIDY RECEIVED UNDER TECHNOLOGY UPGRADATION FUND SCHEME (TUFS).IN OUR OPINION THE G ROUNDS RAISED BY IT ARE LEGAL IN NATURE, THEREFORE,SAME ARE BEING ADMITTED. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF RAYON, CARBON BLACK AND INSULATORS ETC,FILED ITS RETURN OF INCOME ON30.09.2 008.THE ASSESSING OFFICER(AO)HAS FINALISED THE ASSESSMENT,U/S.143(3)OF THE ACT,ON 22.03.2010 D ETERMINING THE INCOME OF THE ASSESSEE AT RS. 226,91,32,020/-. ITA/3178/MUM/2012: ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 2 3 .FIRST GROUND OF APPEAL IS ABOUT DELETION OF UNUTIL ISED MODVAT CREDIT AMOUNTING TO RS.12.40 CRORES.WE FIND THAT WE HAVE DECIDED THE IDENTICAL I SSUES AGAINST THE AO,WHILE DECIDING THE APPEAL FOR EARLIER YEAR(ITA/3703/M/11 & 3634/M/11,D TD.24.11.2015)AS UNDER: 14. THE FIRST GROUND OF APPEAL IS ABOUT DELETION OF MOD VAT CREDIT IN CLOSING STOCK. REPRESENTATIVES OF BOTH SIDES AGREED THAT ISSUE WAS DECIDED AGAINST T HE AO BY THE ORDER OF THE TRIBUNAL DELIVERED FOR A.Y.2006-07 (ITA/ 8427&8483 /MUM/10DT.17/09/2014).THE RELEVANT PORTION OF THE O RDER IS AS UNDER : 9.THE SOLE EFFECTIVE GROUND OF APPEAL FILED BY THE AO IS ABOUT DELETION OF UNUTILISED MODVAT CREDIT IN CLOSING STOCK OF RS. 6.57 CRORES.WE FIND THAT IDENTICAL ISSUE HAD ARISEN IN THE EARLIER YEARS ALSO IN THE APPEALS FILED BY THE AO(ITA/616/M UM/2009-AY.2003-04 TO 2005-06 DATED 01.08.2014)AND THE TRIBUNAL HAS ADJUDICATED THE ISS UE OF UNUTILISED MODAT CREDIT AS UNDER. 16.IN THE APPEALS FILED BY THE AO,THERE ARE TWO G ROUNDS OF APPEAL,THAT ARE COMMON.FIRST WE WOULD LIKE TO ADJUDICATE THEM.GROUNDS NO.2,1 AND 1 FOR THE AY.S.2003-04,2004-05 AND 2005- 06 DEAL WITH DELETION OF UNUTILISED MODVAT CREDIT I N CLOSING STOCK AND AMOUNTS INVOLVED ARE RS.5. 04 CRORES,RS.7.15 CRORES AND RS.7.03CRORES RE SPECTIVELY FOR THE AY.S.CONCERNED. 16.1.BEFORE US,DR AND AR AGREED THAT THE ISSUE HAS BEEN ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY EARLIER YEARS ORDER INCLUDING THE ORDE R FOR THE AY.2002-03.WE FIND THAT WHILE DECIDING THE IDENTICAL ISSUE FOR THE IMMEDIATE PREV IOUS ASSESSMENT YEAR,THETRIBUNAL HAD DISMISSED THE APPEAL OF THE AO.BESIDES,THE ISSUE OF MODVAT CREDIT HAS BEEN FINALLY SETTLED BY THE CASE OF INDO NIPPON CHEMICALS CO.LTD.(261ITR 275)BY THE HONBLE APEX COURT.HERE IS THE DECISION OF THE HONBLE COURT: IT IS NOT OPEN TO THE ASSESSING OFFICER TO TREAT O UTGOINGS AS INCOME UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961.WHATEVER METHOD THE ASSESSING OFFICER ADOPTS AFTER INVOKING SECTION 145, IT HAS TO BE CONSISTENT WITH ACCEPTED PRINCIPL ES OF ACCOUNTANCY. THE ASSESSEES,WHICH WERE MANUFACTURING UNITS, WERE LIABLE TO EXCISE DUTY ON THE GOODS MANUFACTURED BY THEM. UNDER THE MODVAT SCHEME THE A SSESSEES CREDIT FOR THE GOT EXCISE DUTY ALREADY PAID ON THE RAW MATERIALS PURCHASED BY THEM AND UTILISED IN THE MANUFACTURE OF EXCISABLE GOODS. WHEN THEY MANUFACTURED THE GOODS A ND SOLD THEM THE PROPORTIONATE PART OF THE MODVAT CREDIT WAS SET OFF AGAINST THEIR EXCISE DUTY LIABILITY. THE ASSESSEE HAD, IN VALUING THEIR STOCK, UNIFORMLY ADOPTED THE NET METHOD, VI Z., VALUING THE RAW MATERIALS AT THE PURCHASE PRICE MINUS THE MODVAT CREDIT. THIS METHOD WAS ALSO ADOPTED WHILE VALUING THE UNCONSUMED RAW MATERIALS AND THE WORK IN PROGRESS A T THE END OF THE YEAR. THE ASSESSING OFFICER TOOK THE VIEW THAT THE MODVAT CREDIT SHOULD BE TREATED AS AN INCOME OR ADVANTAGE IN THE NATURE OF INCOME AND ADDED BACK THE MODVAT CRED IT. THE APPELLATE TRIBUNAL HELD THAT THE MODVAT CREDIT COULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE, THAT MERELY BECAUSE THE MODVAT CREDIT WAS AN IRREVERSIBLE CREDIT AVAILABLE TO MANUFACTURERS UPON PURCHASE OF DUTY- PAID RAW MATERIAL, THAT WOULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED UNDER THE ACT : INCOME WAS NOT GENERATED TO THE EXTENT OF THE MODVAT CREDIT ON UNCONSUMED RAW MATERIAL ;(II) THAT IT WAS NOT PERMISSIBLE FOR THE ASSESSING OFFICER TO ADOPT THE GROSS METHOD FOR VALUATION OF RAW MATERIALS AT THE TIME OF PURCH ASE AND THE NET METHOD FOR VALUATION OF STOCK ON HAND. RESPECTFULLY FOLLOWING THE ABOVE DECISION GROUNDS N O.2,1 AND 1 FOR THE AY.S.2003-04, 2004- 05 AND 2005-06 ARE DECIDED AGAINST THE AO. IN LIGHT OF THE ABOVE DISCUSSION,EFFECTIVE GROUND O F APPEAL IS DECIDED AGAINST THE AO. FOLLOWING THE ABOVE,WE DECIDE GROUND NO.1 AGAINST T HE AO. 4. NEXT GROUND IS ABOUT DELETING THE ADDITION MADE ON ACCOUNT OF CATALYST AND TREATING THE SAME AS CAPITAL EXPENDITURE.DURING THE ASSESSMENT P ROCCEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.6.69 CROR ES ON ACCOUNT OF CATALYST DEPLOYED IN THE PLANT.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE AND SHOULD NOT BE DISALLOWED.TH E ASSESSEE VIDE ITS LETTER DATED 09.03.2010 FILED A DETAILED REPLY IN THAT REGARD.AFTER CONSIDE RING THE SAME,HE HELD THAT THE ASSESSEE HAD CAPITALISED THE SAID EXPENDITURE IN THE BOOKS OF AC COUNTS,THAT FOLLOWING THE BOOK ENTRIES THE EXPENDITURE HAS TO BE DISALLOWED,THAT THE VERY NATU RE OF THE CATALYST USED IN THE PLANT WAS NOT IN THE NATURE OF REPAIRS WHICH FACILITATED THE FUNC TIONING OF PLANT,THAT CATALYST PROVIDED ENDURING BENEFIT TO THE ASSESSEE,THAT CATALYST COUL D NOT BE CONSIDERED AN ITEM OF REVENUE ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 3 NATURE.FINALLY,HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE.HOWEVER,HE HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON CATA LYST. 4.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED T HAT EXPENDITURE WAS INCURRED TOWARDS REPLACEMENT OF AN UNSERVICEABLE PART OF THE PLANT,T HAT THE EXPENDITURE WAS REVENUE IN NATURE,THAT REPLACEMENT OF CATALYST WAS ALLOWED AS REVENUE EXPENDITURE IN ASSESSEES OWN CASE (ERSTWHILE INDO GULF FERTILIZER LIMITED MERGED WITH THE ASSESSEE-COMPANY W.E.F. 01.09.2005)BY THE TRIBUNAL WHILE DECIDING THE APPEA L FOR THE AY.2003-04. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE T HE FAA HELD THAT BOOK ENTRIES WERE NOT DECISIVE, THAT NATURE OF THE EXPENDITURE HAD TO LOO KED INTO,THAT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE LUCKNOW TRIBUNAL DELIVERED IN THE CASE OF HINDALCO INDUSTRIES(ITA/ 749/LUC/03 DTD.26.09.2005).FOLLOWIN G THE ABOVE ORDER OF THE TRIBUNAL HE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 4.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO.THE AR STATED THAT IN THE CASE OF THE ASSESSEE(SUCCESSOR I N BUSINESS OF INDO GULF FERTILISERS LTD.)THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE LUCKNOW TRIBUNAL VIDE ITS ORDER DATED 25.06.2009(ITA /497/LUC/2007-AY.2001-02). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE LUCKNOW TRIBUNAL HAS DISCUSSED AND DECIDED THE ISSU E OF CATALYST IN FOLLOWING MANNER: 5. COMING TO THE DISALLOWANCE OF CLAIM OF DEDUCTION O F RS.45,64 595/- TOWARDS EXPENDITURE ON CATALYSTS IT WAS CLAIMED THAT THE ISSUE WAS DEC IDED IN ASSESSEE'S FAVOUR AND THE MATTER WAS BEFORE THE HIGH COURT FOR THE ASSES MERIT YEAR 199 7-98. IT WAS FURTHER SUBMITTED THAT IRRESPECTIVE OF THE FACT THAT WHETHER THE EXPENDITU RE IS HELD TO BE REVENUE OR CAPITAL, IT IS NOT IN DISPUTE THAT THE SPARES AND CATALYSTS WERE A PASSI VE OR ACTIVE USE DURING THE WHOLE OF THE YEAR. U/S.32 ONLY TWO CONDITIONS ARE TO BE FULFILLED FOR ALLOWING DEPRECIATION I.E., (A) OWNERSHIP AND (B) ITS USE FOR THE PURPOSE OF BUSINESS. ACCORDING TO THE PROVISO TO SECTION 32, DEPRECIATION IS TO BE RESTRICTED TO 50% IF IT WAS ACQUIRED DURING THE PREVIOUS YEAR AND PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS. THE ASSESSEE WAS NOT COMING UNDER THE LIMITATION ACCORDING TO THE PROVISO. 6. THE ASSESSEE FURTHER SUBMITTED THAT IN FACT THE A SSESSEE HAD MADE THE WRITTEN SUBMISSION RUNNING TO 43 PAGES WHICH, AMONG OTHER DETAILS CONT AINED THE DATE OF PURCHASE, COMMERCIAL DESCRIPTION OF THE SPARE, NUMBER OF PIECES AND TOT AL VALUE AGAINST A PARTICULAR ENTRY. OUT OF THE TOTAL SPARES FOR THE FINANCIAL YEAR 1995-96, IT EMS THAT COST LESS THAN RS.5,000/- TOTALED TO RS.45,30,617/-. THE ASSESSE ALSO FURNISHED A COPY O F VOUCHERS/BILLS COVERING VALUE OF RS.L,05,93,876/-. ORIGINALS WERE ALSO SUBMITTED FO R VERIFICATION. IT WAS CLAIMED THAT ALL THE PURCHASES OF THE SPARE PARTS WERE DEBITED TO INVENT ORY. IT WAS SUBMITTED THAT THE ACTUALLY NONE OF THE SPARE PARTS WERE DRAWN FROM STORES FOR CONS UMPTION BY THE PLANT ENGINEERS. THEY WERE BEING CARRIED FORWARD FROM YEAR TO YEAR IN THE INVE NTORY. DURING THE YEAR UNDER CONSIDERATION, ICAI CAME OUT WITH THE INTERPRETATION OF AS-2 WHIC H INSISTED RELISTING OF SPARES. THE QUESTION OF TAXABILITY OF AMOUNT AS REVENUE HAS ARISEN ONLY BECAUSE OF THE REASON OF A DISTINCT TREATMENT FOR THE PURPOSE OF ACCOUNTING AND TAXATIO N. WHILE IN THE FINANCIAL ACCOUNTS SUCH VALUE HAS BEEN CAPITALIZED FOR THE PURPOSE OF TAX ATION, IT WAS BEING CLAIMED AS EXPENSE. CAPITALISATION WAS DONE ON THE BASIS OF BINDING DI RECTIVES OF ICAL MANY OF THE SPARES WERE PROCURED AS BACK AS 1986 BUT CAPITALIZED NOW BECAUS E OF THE CHANGE IN THE ACCOUNTING STANDARDS. THE ASSESSEE RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARMATH JUTE MFG. CO. LTD., V. COMMISSIONER OF I NCOME-TAX (1971) 82 ITR 363, CONTENDED THAT ENTRIES IN THE BOOKS OF ACCOUNT CANNOT BE DECI SIVE OR CONCLUSIVE, FOR DETERMINING THE TAXABILITY OF INCOME. THE ASSESSEE CONTENDED IN TH E LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ANIL BULK CARRIERS P. LT D. V. COMMISSIONER OF INCOME TAX(2005) 276 ITR 625 AND IN THE CASE OF COMMISSIONER OF INCOME TAX V. SWARUP VEGETABLE PRODUCTS INDIA LTD., (2005) 277 ITR 60, ON THE SUBJECT TO DEPRECI ATION IN THE VALUE DUE TO PASSAGE OF TIME IS TO BE RECOGNIZED. XXXXXXXX ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 4 21. COMING TO THE OBJECTION OF THE REVENUE THAT SPARES AND CATALYSTS WERE CARRIED FORWARD FROM YEAR TO YEAR AND BY THE YEAR 2002-03, IT HAD LOST ITS COMMERCIAL VALUE AND THEREFORE, THE CLAIM WAS WITHOUT MERIT. THE LEARNED AR'S SUBMISSION THAT THE CAPITALIZATION WAS DONE BY THE ASSESSEE ONLY BECAUSE OF THE PRESCRIPTION OF THE IC AI WITH REGARD TO THE CHANGE OF THE ACCOUNTING STANDARD IS TO BE ACCEPTED. THE COUNSEL 'S OBJECTION THAT THE RELIANCE PLACED BY THE REVENUE ON THE DECISION OF THE DELHI HIGH COURT IN DELHI TOURISM AND T.D.C. LTD. V. COMMISSIONER OF INCOME-TAX (2006) 285 ITR 114 IS DI STINGUISHABLE ON FACTS. IN THE CASE BEFORE THE HON'BLE DELHIL HIGH COURT, THE HIGH COURT HELD THAT SINCE THE ELECTRICITY CHARGES FOR THE ELECTRICITY CONSUMED WERE A KNOWN EXPENDITURE TO TH E ASSESSEE, THE ASSESSEE, ON THE BASIS OF AVERAGE COULD MAKE A PROVISION FOR THIS EXPENDITURE FOR EVERY YEAR OF ASSESSMENT EVEN IF NO BILL WAS RECEIVED IN A PARTICULAR OF ASSESSMENT. A S THE ASSESSEE HAD FAILED TO CLAIM THIS EXPENDITURE IN THE EARLIER ASSESSMENT YEAR AND HAV ING FAILED TO DISCHARGE THIS DUTY OF PROVIDING FOR A KNOWN EXPENDITURE, THE ASSESSEE COU LD NOT CLAIM THE ELECTRICITY CHARGES IN THE SUBSEQUENT ASSESSMENT YEARS. COMING TO THE INSTANT CASE OF THE ASSESSEE, ON FACTS IT IS TO BE SEEN THAT THE ASSESSEE CHANGED THE METHOD AND STAR TED CAPITALIZATION OF THE SPARES AND CATALYSTS B CAUSE OF THE CHANGE IN THE METHOD OF AC COUNTING STANDARDS AS PRESCRIBED BY THE ICAI. COMING TO THE OBJECTION OF THE REVENUE AS TO HOW THE SPARE PARTS WERE VALUED, IT IS ALWAYS THE CASE OF THE ASSESSEE THAT IT WAS ALWAYS VALUE D AT COST AND IT HAD NEVER CHANGED THIS METHOD. ONE OF THE OBJECTION OF THE REVENUE WAS THA T THERE WAS NO CERTIFICATE NOR EVIDENCE TO SHOW THAT THESE SPA OR CATALYSTS HAD LOST ITS COM MERCIAL PROPERTIES NOR THAT THE SAME HAD AGED. AT THE TIME OF HEARING, WE DIRECTED THE ASS ESSEE TO PRODUCE CERTIFICATE FROM THE COMPETENT AUTHORITY, WHICH HAS NOW BEEN PLACED ON R ECORD. THE REVENUE HAS AGAIN RAISED AN OBJECTION ON THIS. 22. ANOTHER OBJECTION OF THE REVENUE IS THAT IN THE CA SE OF NATIONAL ALUMINIUM CO. LTD., (SUPRA). THE BENCH ALLOWED THE CLAIM OF THE ASSES SEE IN RESPECT OF NON-MOVING STOCK AND SPARES AS REVENUE EXPENSES SINCE THERE WAS DEPRECI ATION IN THE COST OF THE SAME. BUT IN THE CASE OF THE ASSESSEE BEFORE US, IT IS NOT KNOWN ETH ER THE SPARES AND CATALYSTS WERE REALLY FAST MOVING OR NOT. IT IS THE CASE OF THE ASSESSEE THA T SOME OF THE ITEMS WERE PURCHASED AS BACK AS 18 YEARS AND IF IT IS STILL LYING IN THE STORES, WE ARE OF THE VIEW THAT IT INDICATES THAT IT IS N OT A FAST MOVING ITEM. THE FURTHER OBJECTION OF THE REVE NUE IS THAT ONE OF THE MAJOR REASON FOR THIS CLAIM NOW MADE IS THE AMALGAMATION OF IGFL WITH AD ITYA BIRLA MUVA LTD., AND THE LOSS IS PASSED ON TO THE AMALGAMATED COMPANY. WE ARE UNABLE TO SUBSCRIBE TO THE VIEW CANVASSED BY THE REVENUE THAT WHETHER THE COLLABORATION TOOK PL ACE IN THIS YEAR OR NOT, THE FACT THAT THE ACCOUNTING STANDARD WAS CHANGED BY THE ICAL DURING THE YEAR IS NOT DISPUTED. 23. WE FIND THAT ON A SIMILAR ISSUE WHICH WAS AGITATED BEFORE THE CUTTACK BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL ALUMINIUM CO. LTD., (SUPRA) THE TRIBUNAL HELD THAT THE VALUATION TAKEN OF OBSOLESCENCE LOSS AT 20% OF THE HISTORICAL COS T CANNOT BE SAID TO BE WITHOUT ANY BASIS NOT IT IS IMPROPER. CONSEQUENTIALLY, THE CLAIM OF THE ASSE SSEE AFTER THREE YEARS, THE TRIBUNAL HELD, IS TO BE ALLOWED. THE SAME DECISION ON PRINCIPLE IS AP PLICABLE IN THE INSTANT CASE OF THE ASSESSEE AS WELL. THE ASSESSEE CAPITALIZED THESE ITEMS ON AC COUNT OF THE CHANGE IN THE ACCOUNTING STANDARD PRESCRIBED BY THE ICAI. THE OBJECTION BY THE REVENUE THAT THE ASSESSEE SHOULD HAVE CLAIMED IT IN THE EARLIER YEARS, OR THE BASIS FOR CLAIMING THIS DURING THE YEAR UNDER CONSIDERATION IS BECAUSE THE ASSESSEE STARTED MAKIN G PROFIT FOR THE FIRST TIME AFTER AMALGAMATION ETC., IS NOT SUSTAINABLE. EVEN THE AS SESSEE'S COUNSEL SUBMITTED BEFORE US THAT THIS WAS NOT THE FIRST YEAR OF PROFIT MAKING. EVEN BEF ORE THE AMALGAMATION THE COMPANY MADE THE PROFIT. IT IS TRUE THAT AFTER AMALGAMATION ALSO THE ASSESSEE HAD POSITIVE INCOME. WE HAVE TO ACCEPT THE ASSESSEE'S CONTENTION THAT IT WAS NOT THE MOTIVE TO REDUCE TAX, BUT IT WAS BECAUSE OF THE CHANGE IN THE METHOD ACCOUNTING STANDARD PRES CRIBED BY THE ICAI IS A REASON TO BE ACCEPTED IN THE ABSENCE OF ANY EVIDENCE TO THE CONT RARY. 23. IN VIEW OF THE ABOVE, WE ALLOW THIS GROUND TAKE N BY THE ASSESSEE. 24. THE NEXT EFFECTIVE GROUND URGED BY THE ASSESSEE BE FORE US IS AGAINST THE DISALLOWANCE OF INTEREST U/S.244A ON ADVANCE TAX, BEING SELF ASSES SMENT TAX, WITHOUT TAKING INTO CONSIDERATION THE FACT AS ALSO THE LAW THAT THE PHRASE 'UNLESS TH E CONTEXT OTHERWISE REQUIRES' USED IN THE ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 5 BEGINNING OF THE DEFINITION MEANS THAT THE PHRASE ' ADVANCE TAX' AND ALSO OTHER PHRASES DEFINED IN SECTION 2(1) ARE CAPABLE OF MORE THAN ONE MEAN ING, AND AS SUCH, SELF ASSESSMENT TAX WOULD BE REGARDED AS 'ADVANCE TAX' THAT QUALIFIES FOR I NTEREST ULS.244A OF THE ACT. RESPECTFULLY,FOLLOWING THE ABOVE ORDER WE CONFIRM T HE ORDER OF THE FAA AND DECIDE GROUND NO.2 AGAINST THE AO. ITA/3033/MUM/2012: 5. FIRST GROUND OF APPEAL FILED BY THE ASSESSEE IS ABO UT UPHOLDING A DISALLOWANCE OF 19.25 CRORES U/S. 14A OF THE ACT. WHILE DECIDING THE APPEAL FOR THE AY.2007-08(SUPRA) ,WE HAVE RESTORED BACK THE ISSUE OF DISALLOWANCE TO BE MADE U/S.14A TO THE FILE OF THE AO.FOLLOWING THE SAME,AO IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER AFFORDING A REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE. ADDITIONAL GROUND NO.1 AND 2 ALSO DEAL WITH THE DIS ALLOWANCE MADE U/S.14A OF THE ACT. FOLLOWING OUT ORDER FOR AY07-08 WE ARE REMITTING BA CK THE ISSUE TO THE FILE OF AO AND DECIDE ADDITIONAL GR. NO.1 AND 2 IN FAVOUR OF THE ASSESSEE ,IN PART. 6. GROUND NO.2 IS ABOUT DISALLOWANCE OF RS.4.83CRORES U/S.40(A)(IA) OF THE ACT TOWARDS PROVISIONS MADE FOR EXPENSES AT THE YEAR END. 6.1. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT TRIBUNAL HAD IN THE AY.2007- 08(SUPRA)HAD DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE.WE WOULD LIKE TO REPRODUCE THE ORDER FOR THAT YEAR: 5. NEXT GROUND IS REGARDING DISALLOWANCE OF RS.1,33,57 ,668/- U/S. 40(A)(IA) TOWARDS PROVISION MADE FOR EXPENSES AT THE YEAR-END AS PER BEST ESTIMATES. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT TRIBUNAL HAD IN THE AY.2006- 07(SUPRA)HAD DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE IN FOLLOWING MANNER: 3.2.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD INVOKED THE PROVISIONS OF SECTION 40(A)(IA), THOUGH HE HAS ALSO DISCUSSED THE PRINCIPLES OF CONTINGENT LIABILITY,WHILE MAKING THE DISALLOWAN CE.WE FIND THAT FAA HAS PASSED A NON- SPEAKING ORDER AND JUST ENDORSED THE VIEWS OF THE A O BUT HE WAS ALSO OF THE OPINION THAT PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE.IT IS FOUND THAT ASSESSEE HAD SPECIFICALLY MENTIONED DURING THE ASSESSMENT PROCEEDINGS, THAT I T HAD NOT RECEIVED THE BILLS UNDER VARIOUS HEADS, THAT PROVISIONS OF TAX DEDUCTING AT SOURCE W ERE NOT APPLICABLE FOR THE PROVISIONS MADE. WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE O F MAHINDRA & MAHINDRA LTD. (SUPRA). IN THAT MATTER IT WAS HELD THAT TDS PROVISIONS WERE NOT APP LICABLE FOR THE PROVISIONS MADE AT THE YEAR- END.SIMILARLY,IN THE CASE OF INDUSTRIAL DEVELOPMENT BANKING COMPANY(SUPRA),THE TRIBUNAL HAD HELD AS UNDER: 'THE DEDUCTION OF TAX AT SOURCE CAN ONLY BE EFFECTE D WHEN PAYEE IS KNOWN. AS FAR AS THE SITUATION BEFORE US IS CONCERNED, THE REGULAR RETUR N BONDS BEING TRANSFERABLE ON SIMPLE ENDORSEMENT AND DELIVERY AND THE RELEVANT REGISTRAT ION DATE BEING A DATE SUBSEQUENT TO THE CLOSURE OF BOOKS OF ACCOUNT, THE ASSESSEE COULD NOT HAVE ASCERTAINED THE PAYEES AT THE POINT OF TIME WHEN THE PROVISION FOR INTEREST ACCRUED BUT NO T DUE WAS MADE. ACCORDINGLY, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF THE PROVISION FOR INTEREST PAYABLE MADE BY THE ASSESSEE WHICH REFLECTED PROVISION FOR 'INTEREST AC CRUED BUT NOT DUE' IN A SITUATION WHERE THE ULTIMATE RECIPIENT OF SUCH 'INTEREST ACCRUED BUT NO T DUE' COULD NOT HAVE ASCERTAINED AT THE POINT OF TIME WHEN THE PROVISION IS MADE' IN THE CASE UNDER CONSIDERATION,THE ASSESSEE HAD MA DE PROVISIONS BUT HAD NOT RECEIVED THE BILLS, THAT IN THE SUBSEQUENT YEAR THE PROVISIONS MADE BY IT WERE OFFERED FOR TAXATION. CONSIDERING THESE FACTS AND FOLLOWING THE ORDERS OF THE TRIBUNA L IN THE CASE OF MAHINDRA & MAHINDRA LTD. & INDUSTRIAL DEVELOPMENT BANKING COMPANY (SUPRA),WE D ECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. FOLLOWING THE ABOVE,GROUND NO.5 IS DECIDED IN FAVOUR OF THE ASSESSEE . CONSIDERING THE ABOVE,SECOND GROUND OF APPEAL IS A LLOWED. ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 6 7 .NEXT GROUND IS ABOUT DISALLOWANCE OF RS.2.07 CRORE S U/S.43B(F), BEING PROVISION MADE FOR LEAVE SALARY.THE AR AND THE DR AGREED THAT IDENTICA L ISSUE WAS STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL BY EARLIER YEARS ORDER S. WE FIND THAT THE TRIBUNAL HAD DEALT THE ISSUE AS U NDER,WHILE DECIDING THE APPEAL FOR THE AY.2006-07(ITA/8427 & 8483/MUM/10 DT.17/09/2014): 4.GROUND NO.4 DEALS WITH DISALLOWANCE OF RS. 1.73 CRORES,MADE U/S.43B(F) OF THE ACT,BEING PROVISION MADE FOR LEAVE SALARY.WE FIND THAT SIMILA R ISSUE HAD ARISEN IN THE AY 2002-03, 2003-04, 2004-05 AND 2005-06 ALSO.WHILE DECIDING TH E APPEAL FOR THE LAST THREE AY.S.,THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER: 4.SECOND COMMON GROUND IS ABOUT DISALLOWANCE OF PR OVISIONS MADE FOR THE LEAVE SALARY U/S.. 43F OF THE ACT AND THE AMOUNT INVOLVED ARE RS. 2.48 CRORES, 1.76 CRORES AND 2.6 CRORES.DURING THE COURSE OF HEARING BEFORE US,REPRESENTATIVES OF BOTH THE SIDES CONCEDED THAT ISSUE WAS DECIDED BY THE TRIBUNAL IN THE YEAR 2002-03 (SUPRA) . 4.1.WE FIND THAT TRIBUNAL IN ITS ORDER HAS DECIDED THE ISUSE AS UNDER: '15.7.WE HAVE CAREFULLY PERUSED THE ORDERS OF THE L OWER AUTHORITIES AND THE CLAIM OF THE ASSESSEE VIS--VIS SEC.43B(F).A PERUSAL OF SEC. 43B (F) SHOWS THAT THE EXPLANATION TO SEC. 43B REFERRING TO THE AMENDMENT OF THE WORD ANY SUM PAYA BLE IS APPLICABLE ONLY FOR CLAUSE (A) OF SEC.43B WHICH MEANS THAT IT IS NOT APPLICABLE FOR C LAUSE (F).HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SRIKAKOLLU SHUBBARAO & CO.173 ITR 708 HAS HELD THAT IN ORDER TO APPLY THE PROVISIONS OF SEC. 43B NOT ONLY SHOULD BE THE L IABILITY TO PAY THE TAX OR DUTY BE INCURRED IN THE ACCOUNTING YEAR BUT ALSO SHOULD BE STATUTORILY PAYABLE IN THE ACCOUNTING YEAR. IN OUR CONSIDERED OPINION, THE PROVISION FOR LEAVE SALARY IS NOT A STATUTORY LIABILITY BUT ONLY A CONTRACTUAL LIABILITY WHICH IS PAYABLE ONLY IF THE EMPLOYEES RESIGNS OR RETIRED FROM THE SERVICES.WE ALSO FIND THAT THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF EXCIDE INDUSTRIES LTD. (SUPRA) HAS STRUCK DOWN SEC. 43B(F) BEING ARBI TRARY, UNCONSCIONABLE AND DEHORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOV ERS 245 ITR 428. IT IS RELEVANT TO STATE THAT THE TRIBUNAL IN THE CASE OF CIT VS UNIVERSAL M EDICARE IN ITA NO. 6191/M/08, HAS FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS AND DIRECTED THE AO TO ALLOW THE AMOUNTS SO CLAIMED. RE SPECTFULLY FOLLOWING THE AFORE DISCUSSED DECISIONS, WE DIRECT THE AO TO ALLOW THE CLAIM OF P ROVISIONS FOR LEAVE SALARY. GROUND NO. 6 IS ACCORDINGLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE,GROUNDS NO.4,2 AND 2 FOR THE AY.S.UNDER APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSEE-COMPANY. IN VIEW OF THE ABOVE,GROUND NO.4 IS DECIDED IN FAVO UR OF THE ASSESSEE. RESPECTFULLY,FOLLOWING THE ABOVE DECISION,GROUND NO .3 IS DECIDED IN FAVOUR OF THE ASSESSEE . 8. GROUND NO.4 DEALS WITH REDUCTION OF DEDUCTION U/S.8 0IA ON ACCOUNT OF ALLOCATION OF HO EXPENSES,AMOUNTING TO RS.26.64 LACS.THE AR AND THE DR,BEFORE US,AGREED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE OR DER OF THE TRIBUNAL FOR THE AY.2006-07 (SUPRA).WE ARE REPRODUCING THE RELEVANT PORTION OF THE SAID ORDER AND SAME READS AS UNDER: 5.NEXT GROUND IS ABOUT REDUCTION OF DEDUCTION,AMO UNTING TO RS.31.32 LAKHS ON ACCOUNT OF ALLOCATION OF HEAD OFFICE (HO) EXPENSES.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION,U/S.80IA OF THE ACT,IN RESPECT OF POWER PLANT OF RAYON DIVISION (17.31 CRORES) AND POWER PLANT AT HI TECH CARBON AND CHEMICAL (RS. 5.79 CRORES), THAT IT HAD NOT APPORTIONED ANY HO EXPENSE S IN RESPECT OF THE ABOVE UNITS. HE DIRECTED THE ASSESSEE TO EXPLAIN THE REASON FOR NOT CONSIDERING THE HO EXPENSES IN WORKING THE PROFITS OF THE ABOVE UNITS. IN ITS REPLY,DATED 18.11.2008,THE ASSESSEE RELIED UPON THE JUDGMENTS OF STERLING FOODS (237 ITR 579) AND PANDI AN CHEMICALS LTD. (262 ITR 278) DELIVERED BY THE HON'BLE SUPREME COURT.IT WAS ARGUE D THAT THE HO EXPENSES DID NOT HAVE ANY DIRECT AND IMMEDIATE NEXUS TO THE ELIGIBLE UNDERTAK ING,THAT SAME SHOULD BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE AMOUNT OF EXEMPTION U/S 80IA. THE AO, AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,HELD THAT WITHOUT INVOLV EMENT OF HO NONE OF THE UNITS COULD HAVE WORKED, THAT THE MANAGEMENT OF THE COMPANY WAS INVO LVED IN POLICY MATTERS, THAT HO ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 7 EXPENSES HAD TO BE APPORTIONED TO THE ABOVE UNITS T O THE EXTENT OF INVOLVEMENT OF HO, THAT THE HO EXPENSES OF RS. 13 CRORES WERE DIRECTLY RELATED TO THE UNITS AND HAD TO BE APPORTIONED ON THE TURNOVER BASIS FOR ALL THE UNITS.ACCORDINGLY, H E WORKED OUT ADMINISTRATIVE EXPENSES ON PRO-RATA BASIS AND REDUCED THE CLAIM U/S.80IA OF TH E ACT BY RS. 31.32 LAKHS (HITECH CARBON AND CHEMICAL RS. 4.17 LAKHS + RAYON POWER PLANT RS. 27.14 LAKHS). HE HELD THAT BOTH THE PLANTS ENJOYED 100% EXEMPTION,THEREFORE, THE DISALL OWANCE HAD TO BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5.1.ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFT ER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE, HE HELD THAT THEORY APP ORTIONMENT OF EXPENSES HAD TO BE FOLLOWED, THAT DISALLOWANCE OF ADMINISTRATIVE EXPENSES WAS JU STIFIABLE. FINALLY, HE UPHELD THE ORDER OF THE AO. 5.3.WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE EARLIER AY.S.,THE TRIBU NAL HAS DISCUSSED THE ISSUE OF HO EXPENSES WITH REGARD TO SECTION 10B /80IA AND 80IB OF THE AC T.WE WOULD LIKE TO REPRODUCE THE PARAGRAPH NO. 5 AND 5.1 OF THE ORDER FOR THE EARLIE R YEARS AND THAT READS AS UNDER: 5.NEXT GROUND FOR ALL THE THREE YEARS IS ABOUT DIS ALLOWANCE OF RS. 36.05 LAKHS, 38.57 LAKHS AND 36.23 LAKHS AND IS RELATED TO CLAIM OF DEDUCTIO N U/S. 80IA AND 80IB OF THE ACT.BEFORE US, AR AND DR STATED THAT WHILE DECIDING THE ISSUE FOR THE AY 2002-03, THE TRIBUNAL HAD DELETED ALLOCATION OF HEAD OFFICE EXPENSES IN COMPUTING 10B DEDUCTION.A REFERENCE WAS MADE TO PAGE 14 PARAS NO.19-20 OF THE ORDER FOR THE AY 2002-03(S UPRA). 5.1.WE WOULD LIKE TO REPRODUCE THE PARAGRAPHS NO.1 9 AND 20 OF ORDER OF THE TRIBUNAL FOR THE AY 2002-03 (SUPRA) AND SAME READ AS UNDER: '19.GROU ND NO. 9 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES AND IN LAW, T HE LEARNED AO HAS ERRED IN REDUCING THE EXEMPTION U/S.10B I) BY RS.75,083/- ON ACCOUNT OF A LLOCATION OF HEAD OFFICE EXPENSES TO 100% EXPORT ORIENTED UNIT AND; II) BY RS.32,289/- O N ACCOUNT OF ALLOCATION OF EXPENSES OF ANOTHER DIVISION NAMELY, GLOBAL EXPORT & MARKETING TO 100% EXPORT ORIENTED UNIT AND III) BY RS.25,943/- ON ACCOUNT OF INTEREST INCOME EARNED BY 100% EXPORT ORIENTED UNIT; AND THE CIT(A) HAS ERRED IN CONFIRMING THE ABOVE DISALLOWAN CE.THE LEARNED AO BE DIRECTED TO INCREASE THE EXEMPTION U/S. 10B AND REDUCE THE TOTA L INCOME AND REDUCE THE BOOK PROFIT U/S. 115JB ACCORDINGLY. 20.WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDE RED BY THE TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES IN ITA NOS.5630/M/02 & 1865/M/03.THE TRI BUNAL IN THE CASE OF PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. IN ITA NOS.1499/M /05 AND 1500/M/05 HAVE AGAIN CONSIDERED A SIMILAR ISSUE AT PARA-54 OF ITS ORDER DIRECTED THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT BY ALLOCATING HEAD OF FICE EXPENSES TO PROFITS DERIVED FROM ELIGIBLE UNITS. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL MENTIONED HEREINABOVE, WE DIRECT THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION BY ALLOCATING HEAD OFFICE EXPENSES, EXPENSES OF RAYON DIVISION AND INTEREST INCOME. GRO UND NO. 9 IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER,WE DECIDE GR OUNDS NO.9,6 AND 4 IN FAVOUR OF THE ASSESSEE FOR THE AY.S.2003-04 TO2005-06. 6.ISSUE OF DEDUCTION IN EXEMPTION U/S. 10B TOWARDS ALLOCATION OF HEAD OFFICE EXPENSES/ EXPENSE OF OTHER DIVISION AND INTEREST INCOME EARNE D BY 100% E.O.U. UNDER NORMAL INCOME AND MAT PROVISIONS.THE ISSUE IS SUBJECT MATTER OF A PPEAL FOR THE AY 2003-04 AND 2004-05 AND THE AMOUNTS INVOLVED ARE RS.1,42,544/- AND 1,10 ,488/-. AR BROUGHT TO OUR NOTICE THAT TRIBUNAL HAD IN THE ORDER FOR THE AY 2002-03 HAS DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE- COMPANY WHILE DECIDING GROUND NO.9 FOR THAT YEAR. 6 .1.WHILE DECIDING THE EARLIER COMMON GROUNDS OF APPEAL NO.3,AT PARAGRAPH NO.5.1.WE HAVE REPRODUCED THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEAR WHERE THE ISSUE OF INTEREST INCOME EARNED BY THE 100%EOU AND ALLOCATION OF HEAD OFFICE EXPENSES OF OTHER DIVISION HAVE BEEN DE CIDED IN FAVOUR OF THE ASSESSEE- COMPANY.CONSIDERING THE ABOVE GROUND NO.6 AND GROUN D NO.3 FOR THE AY.S.2003-04 AND 2004-05 ARE DECIDED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE ORDER FOR THE EARLIER YEARS,GROUND NO . 5 IS DECIDED IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE,WE DECIDE GROUND NO.4 IN FAVO UR OF THE ASSESSEE . ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 8 9. NEXT GROUND IS ABOUT EXPENDITURE INCURRED TOWARDS C ATALYST,AMOUNTING TO RS.6.69 CRORES. WHILE DECIDING THE APPEAL FILED BY THE AO,WE HAVE D ISMISSED THE GROUND FILED BY THE HIM WITH REGARD TO CATALYST.THEREFORE,ALTERNATE PLEA RA ISED BY THE ASSESSEE IN FORM OF GROUND NO.5 BECOMES INFRUCTUOUS.HENCE,IT STANDS REJECTED. 10. GROUND NO.6 PERTAINS TO DISALLOWANCE OF EMPLOYEE ST OCK OPTION SCHEME(ESOP) EXPENSES OF RS.67.62 LACS.DURING THE ASSESSMENT PRO CEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXPENDITURE UNDER THE HEAD ESPO OF RS.6 7,62,110/-.FOLLOWING THE ORDER OF DELHI TRIBUNAL IN THE CASE OF RANBAXY LABORATORIES( 124TTJ771),HE DISALLOWED THE SAID EXPENDITURE.IN THE APPELLATE PROCEEDINGS,THE FAA UP HELD HIS ORDER. 10.1. BEFORE US, THE AR RELIED UPON THE CASES OF PVP VENT URES LTD.(211 TAXMANN 554);STERLITE OPTICAL TECHNOLOGIES (2 ITAT INDIA 184);SSI LTD. (8 5 TTJ 1049) AND BIOCON LIMITED.DR SUPPORTED THE ORDER OF THE FAA. 10.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BIOCON LIMITED(144ITS215)HAS DECIDED THE ISSUE OF ESPO IN FAVOUR OF THE ASSESSEE IN FOLLOWIN G MANNER. 11.3 WE, THEREFORE, SUM UP THE POSITION THAT THE DI SCOUNT UNDER ESOP IS IN THE NATURE OF EMPLOYEES COST AND IS HENCE DEDUCTIBLE DURING THE V ESTING PERIOD W.R.T. THE MARKET PRICE OF SHARES AT THE TIME OF GRANT OF OPTIONS TO THE EMPLO YEES. THE AMOUNT OF DISCOUNT CLAIMED AS DEDUCTION DURING THE VESTING PERIOD IS REQUIRED TO BE REVERSED IN RELATION TO THE UNVESTING/ LAPSING OPTIONS AT THE APPROPRIATE TIME. HOWEVER, A N ADJUSTMENT TO THE INCOME IS CALLED FOR AT THE TIME OF EXERCISE OF OPTION BY THE AMOUNT OF DIF FERENCE IN THE AMOUNT OF DISCOUNT CALCULATED WITH REFERENCE THE MARKET PRICE AT THE TIME OF GRAN T OF OPTION AND THE MARKET PRICE AT THE TIME OF EXERCISE OF OPTION. NO ACCOUNTING PRINCIPLE CAN BE DETERMINATIVE IN THE MATTER OF COMPUTATION OF TOTAL INCOME UNDER THE ACT. THE QUES TION BEFORE THE SPECIAL BENCH IS THUS ANSWERED IN AFFIRMATIVE BY HOLDING THAT DISCOUNT ON ISSUE OF EMPLOYEE STOCK OPTIONS IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDE R THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. FOLLOWING THE ABOVE DECISION OF THE SPECIAL BENCH,W E DECIDE GROUND NO.6 IN FAVOUR OF THE ASSESSEE. 11. GROUND NO.9 DEALS WITH DISALLOWANCE OF DEPRECIATION ON GOODWILL ON ACQUISITION OF MADURA GARMENTS DIVISION.AS AGREED BY THE AR AND TH E DR,THE ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL,WHILE DECIDING THE APPEAL FOR THE AY.2 006-07(SUPRA).PARAGRAPH 6 OF THE SAID ORDER READS AS UNDER: 6.NEXT GROUND IS ABOUT DISALLOWANCE OF DEPRECIATIO N ON GOODWILL ON ACQUISITION OF MADURA GRAMENTS DIVISION ONGOING CONCERN BASIS.WE FIND THA T IN THE EARLIER IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE AS FOLLOWING: 3.1.WE FIND THAT SUM OF RS. 3.33 CRORES,RS.2.50 CRO RES AND RS.1.87 CRORES WAS FOUND TO BE INCURRED BY THE ASSESSEE FOR THE AY.S.2003-04.2004- 05 AND 2005-06 RESPECTIVELY ON ACCOUNT OF MARKETING AND KNOWHOW INCURRED ON ACQUISITION OF MA DURA GARMENTS DIVISION.WE FIND THAT THE IDENTICAL ISSUE WAS DELIBERATED UPON BY THE TRIBUNA L WHILE DECIDING THE APPEAL FOR EARLIER AY. WE ARE REPRODUCING THE RELEVANT PARAGRAPH OF THAT O RDER AND SAME READS AS UNDER: 18.GROUND NO. 8 READS AS UNDER: THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING DEPRECIATION OF RS. 3,33,86,719 CLAIMED BY THE APPELLANT ON GOODWILL OF RS.20.35 CRORES ACQUIRED ON ACQUISITION OF MADURA GARMENTS DIVISION FROM MADURA COASTS LTD. ON A GOING CONCERN BASIS AND LEARNED CIT (A) HAS ERRED I N CONFIRMING THE ORDER OF THE LEARNED AO. THE LEARNED AO BE DIRECTED TO ALLOW THE DEPRECIATIO N ON GOODWILL AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 18.1.WE FIND THAT THIS ISSUE HAS ALREADY BEEN ALLOW ED IN ASSESSEES OWN CASE IN ITA NO.5421/ M/05 FOR A.Y.2000-01.RESPECTFULLY FOLLOWING THE DEC ISION OF THE CO ORDINATE BENCH, WE DIRECT THE AO TO ALLOW THE CLAIM OF DEPRECIATION ON GOODWI LL. GROUND NO. 8 IS ACCORDINGLY ALLOWED. ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 9 FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL FOR EARL IER YEARS,GROUND NO.5,9,AND 3 FOR THE AY.2003 -04,2004-05,2005-06 ARE DECIDED IN FAVOUR O F THE ASSESSEE. IN VIEW OF THE ABOVE,GROUND NO.6 IS DECID ED IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE,WE ARE DECIDING GROUND NO.9 I N FAVOUR OF THE ASSESSEE. 12. GROUND NO.10 IS ABOUT SALE OF CERTIFIED EMISSION DE DUCTION (CER) AMOUNTING TO RS.4.92 CRORES.THE REPRESENTATIVES OF BOTH THE SIDES MADE T HE SAME SUBMISSIONS THAT WERE MADE WHILE ARGUING THE CASE FOR THE AY.2007-08(SUPRA). 12.1. WE WOULD LIKE TO REPRODUCE PARAGRAPHS 9.TO 9.3 DEAL ING WITH THE ISSUE AND SAME READ AS UNDER: 9. GROUND NO.10 IS WITH REGARD TO SALE OF CERTIFIED EM ISSION REDUCTION (CER) RS.6,95,29, 718/- TREATED AS REVENUE RECEIPTS AND LIABLE TO TAX AND TO TREAT THE SAME AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 9.1. DURING THE ASSESSMENT PROCEEDINGS VIDE ITS LETTER D T.25.3.2009 THE ASSESSEE SUBMITTED IT HAD RECEIVED RS.6.95CRORES ON SALE OF CER, THAT OUT OF ABUNDANT CAUTION IT HAD OFFERED THE AMOUNT AS TAXABLE INCOME, THAT THE AMOUNT IN QUESTI ON WAS IN THE NATURE OF CAPITAL RECEIPT AND WAS NOT LIABLE TO TAX. THE AO REJECTING THE CLA IM OF THE ASSESSEE HELD THAT CER WAS GENERATED IN THE PROCESS OF BUSINESS, THAT IT WAS N OT A CAPITAL RECEIPT, THAT SAME WAS LIABLE TO TAX. 9.2. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA, TH E ASSESSEE CONTENDED THAT CER WERE A TYPE OF EMISSION UNIT ISSUED BY THE CLEAN DEVELOP MENT MECHANISM EXECUTIVE BOARD FOR EMISSION REDUCTION,THAT CARBON CREDIT WAS GENERATED BY USING ADVANCED TECHNOLOGY THAT REDUCED THE CARBON EMISSION IN ENVIRONMENT, THAT TH E INCOME WAS GENERATED BY THE CO. BY SELLING THE POINTS IN THE MARKET, THAT IT WAS CAPIT AL RECEIPT AND WAS NOT CHARGEABLE TO TAX. THE FAA HELD THAT THE ASSESSEE HAD SHOWN THE INCOME AS REVENUE RECEIPT IN THE BOOKS OF ACCOUNT, THAT IT DID NOT FILE REVISED RETURN, THAT THE AMOUN T RECEIVED BY IT WAS DIRECTLY LINKED WITH RUNNING OF THE BUSINESS.UPHOLDING THE ORDER OF THE AO,HE REJECTED THE APPEAL FILED BY THE ASSESSEE. 9.3. BEFORE US, THE AR CONTENDED THAT THE ISSUE OF CER H AD BEEN DEALT AND DECIDED BY THE TRIBUNAL/COURTS IN FAVOUR OF THE ASSESSEE .HE REFER RED TO THE CASES OF MY HOME POWER LTD. (365ITR82);MY HOME POWER LTD.(63 SOT 227);M/S. SHRE E CEMENTS LIMITED(ITA / 503/ JP/2012); BEST CORPORATION PVT. LTD.(ITA 1958/MDS/2 014 DT.20.05.2015) AND M/S. SUBHASH KABINI POWER CORPORATION LTD.(ITA NO.258/BANG/2014) DT.28/11/2014).THE DR SUPPORTED THE ORDER OF FAA.WE HAVE HEARD THE RIVAL SUBMISSION S AND PERUSED THE MATERIAL. IN THE CASE OF MY HOME POWER THE HONBLE ANDHRA PRADESH HIGH CO URT HAS DECIDED THE ISSUE AS UNDER : 3. WE HAVE CONSIDERED THE AFORESAID SUBMISSION AND WE ARE UNABLE TO ACCEPT THE SAME, AS THE LEARNED TRIBUNAL HAS FACTUALLY FOUND THAT 'CARBON C REDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GEN ERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS'. WE AGREE WITH THIS FACTUAL ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINESS OF POWER GENERATION. TH E CARBON CREDIT IS NOT EVEN DIRECTLY LINKED WITH POWER GENERATION. ON THE SALE OF EXCESS CARBON CREDITS THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNAL IT IS CAPIT AL RECEIPT AND IT CANNOT BE BUSINESS RECEIPT OR INCOME. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY EL EMENT OF LAW IN THIS APPEAL. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,GROUND NO .10 IS DECIDE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE ABOVE ORDER FOR THE AY.2007-08,WE DEC IDE GROUND NO.10 IN FAVOUR OF THE ASSESSEE. 13. NOW,WE WOULD LIKE TO TAKE UP THE ADDITIONAL GROUNDS OF APPEAL FILED BY THE ASSESSEE.FIRST TWO ADDITIONAL GROUNDS WERE ABOUT DISALLOWANCE MADE U/S.14A OF THE ACT.WE HAVE ALREADY DEALT THOSE GROUND WHILE DECIDING GROUND NO.1. THIRD ADDITIONAL GROUND IS ABOUT TREATMENT OF INTER EST SUBSIDY UNDER TUFS.WE HAD REMITTED THE ISSUE TO THE FILE OF FAA WHILE DECIDING THE IDE NTICAL QUESTION FOR THE AY.2007-08 IN THE FOLLOWING MANNER: ITA/3033&3178/MUM/12&C.O.-96/13-AY.2008-09,ABNL 10 WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE M ATERIAL.WE FIND THAT, WHILE DECIDING THE APPEAL FOR 95-96 THE TRIBUNAL HAD DEALT WITH THE SA LES TAX/VAT SUBSIDY. IT HAD NO OCCASION TO DEAL WITH THE INTEREST SUBSIDY RECEIVED UNDER THE T UFS.WE FIND THAT NEITHER THE AO NOR THE FAA HAD ANY OCCASION TO DECIDE THE NATURE OF THE IN TEREST SUBSIDY OF TUFS WHILE PASSING THE ASSESSMENT ORDER OR DECIDING THE APPEAL FOR THE YEA R UNDER CONSIDERATION. WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF FAA FOR FRESH ADJUDICATION .THE FAA WILL AFFORD A REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE. FOLLOWING THE ABOVE,THIRD ADDITIONAL GROUND IS REST ORED BACK TO THE FILE OF FAA FOR FRESH ADJUDICATION. CO/96/MUM/13 14.FIRST GROUND IN THE CO IS ABOUT DELETION OF RS.1 2.40 CRORES UNDER THE HEAD MODVAT CREDIT AND GROUND NO.2 IS ABOUT EXPENDITURE WITH REGARD TO CATALYST .WE HAVE,WHILE DEALING WITH THE APPEAL OF THE AO, DECIDED THE ISSUE AGAINST THE AO AND IN FAVOUR OF THE ASSESSEE. THEREFORE,BOTH THE GROUNDS ARE ALLOWED FOR STATISTI CAL PURPOSES. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSE D.APPEAL OF THE ASSESSEE IS PARTLY ALLOWED.CO OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSES. !'#$ !' % ! &' ()* +, . !'#$ )- ()* +, . / )!0 1 !2 ()* 3 +, . ORDER PRONOUNCED IN THE OPEN C OURT ON 9 TH DECEMBER, 2015. (4 3) 9 TH 3)5 , 2015 SD/- SD/- ( !( -6 / AMIT SHUKLA ) ( / RAJENDRA ) ! / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, 3) DATE: 09.12.2015 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.