PIDILITE INDUSTRIES LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 3355/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49158 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D EVI SINGH
• Assessee Lawyers: KETAN PANCHMIA
• Keywords: Capital asset; Business income; Depreciation; Capital expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.3355/MUM/2009 : ASST.YEAR 2006-2007 M/S.PIDILITE INDUSTRIES LIMITED REGENT CHAMBERS, 7 TH FLOOR JAMNALAL BAJAJ MARG NARIMAN POINT, MUMBAI 400 021, PAN :AAACP4156B. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 3(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI YOGESH THAR & KETAN PANCHMIA RESPONDENT BY : SHRI DEVI SINGH [CIT-DR] O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESS EE ARISES OUT OF THE ORDE R PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX ON 17.03.2009 IN RELATION TO THE ASSESSMENT YEAR 2006-2007. 2. FIRST GROUND IS AGAINST THE DENIAL OF DEDUCTION U/S.80-IA IN RESPECT OF PROFITS OF WINDMILLS. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF WINDMILLS SET UP AT UPLETA, GUJARAT AND SANGLI & SATARA, MAHARASHTRA. THE GUJARAT UNIT WAS SET UP IN 1995-96 AND MAHARASHTRA UNIT WAS SET UP IN 2000-2001. IN THE COVERING LETTER FILE D ALONG WITH THE RETURN OF INCOME THE ASSESSEE CLAIMED THAT THE ABOVE REFERRE D UNDERTAKINGS HAD BROUGHT FORWARD LOSSES BUT IN VIEW OF THE DECISION OF TH E MUMBAI BENCH OF THE TRIBUNAL IN M.PALLONJI & CO. PVT. LTD. VS. JCIT SR-5 (6 SOT 287) THE ASSESSEE WAS ENTITLED TO DEDUCTION. AUDIT REPORT IN FORM NO.10CCB IN SUPPOR T OF CLAIM OF DEDUCTION U/S.80-IA WAS ALSO FILED. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE CLAIM OF THE ASSE SSEE FOR DEDUCTION U/S.80-IA WAS NOT MAINTAINABLE IN VIEW OF THE PROVISIONS OF SECTION 80-IA(5). IN REACHING THIS CONCLUSION, THE A.O. RELIED ON SP ECIAL BENCH ORDER IN THE CASE OF ACIT VS. GOLDMINE SHARES AND FINANCE (P) LTD . [(2008) 113 ITD 209 (AHD) (SB)] . IT WAS ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 2 NOTICED THAT IN THE AFORE-NOTED ORDER OF THE SPECIAL BENCH THE TRIBUNAL HAS CONCLUDED THAT IN VIEW OF THE PROVISI ONS OF SECTION 80-IA(5) THE PROFITS FROM ELIGIBLE BUSINESS FOR THE PURPOSE OF DETE RMINATION OF QUANTUM OF DEDUCTION U/S.80- IA WERE TO BE COMPUTED AFTER DEDUCTION OF NOTIONAL BROUGHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS EVEN THOUG H THIS HAD BEEN SET OFF AGAINST OTHER INCOME IN THE EARLIER YEARS. IN VIEW OF THIS POSITION THE A.O. DID NOT ALLOW DEDUCTION U/S.80-IA(5). THE LEARNED CIT(A) ECHOED THE ASSESSMENT ORDER ON THIS ISSUE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE PLACED ON RECORD TWO SHEETS DETAILING THE POSITION IN RESPECT OF PROF IT / LOSS OF BOTH THE UNITS FROM THE YEAR OF SET UP TILL THE CLOSE OF THE PREV IOUS YEAR RELEVANT TO THE ASSES SMENT YEAR UNDER CONSIDERATION. FIRST IS GUJARAT UNIT, WHOS E COMMERCIAL PRODUCTION STARTE D IN THE FINANCIAL YEAR 1996-97. THERE WAS A LOSS IN THAT YEAR TO THE TUNE OF RS.3.56 CRORES. IN THE REMARKS COLUMN, IT HAS BEEN MENTIONED THAT THE SAID LOSS WAS SET OFF FROM THE BUSINESS INCOME OF OTHER NON-ELIGIBLE UNITS. FROM ASSESSME NT YEAR 1998-99 ONWARDS UP TO ASSESSMENT YEAR 2005-200 6 THERE WAS PROFIT RANGING BETWEEN RS.11,48,000 TO RS.23.84 LAKHS. IN THE ASS ESSMENT YEAR UNDER CONSIDERATION THERE WAS PROFIT OF RS.18.34 LAKHS FOR WHICH THE ASSESSEE IS CLAI MING DEDUCTION U/S.80- IA. IT IS AN ADMITTED POSITION THAT THE AS SESSEE HAD NOT CLAIME D ANY DEDUCTION IN THE EARLIER YEARS DUE TO THE SUB-S ECTION (5) OF SECTION 80-IA. IT IS NOTICED THAT EVEN AFTER REDUCING THE AMOUNT OF PROFITS FOR THE IN TERVENING YEARS THE AMOUNT OF LOSS OF RS.3.56 CRORES WHICH RESULTED IN AS SESSMENT YEAR 1997-98 WHEN COMMERCIAL PRODUCTION WAS STARTED, STILL THERE IS A CUMULATIVE LOSS OF RS.2.14 CRORES. COMING TO THE SECOND UNIT AT SANGLI & SATARA, W HOSE COMMERCIAL PRODUCTION STARTED IN FINANCIAL YEAR 2000-2001 AND THERE WAS A LOSS OF RS.16,73,40,000 IN THAT YEAR. THIS LOSS WAS SET OFF FROM BUSI NESS INCOME OF OTHER NON-EL IGIBLE UNITS AS HAS BEEN MENTIONED IN THE REMARKS COLUMN OF THE CHART PRODUCED BY THE LD. AR BEFORE US. ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 3 STARTING FROM THE SECOND YEAR OF THE Y EAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION, THERE WAS A PROFIT UP TO ASSESS MENT YEAR 2005-2006. IN ASSESSMENT YEAR 2006-2007, THERE WAS PROFIT OF RS.13.34 LAKHS, FOR WHICH THE ASSESSEE IS CLAIMING DEDUCTION. AFTER ADJUSTING THE PROFITS OVER THE PERIOD STILL TH ERE IS A CUMULATIVE LOSS FROM THE ELIGIBLE UNIT AMOUNTING TO RS.12.99 CRORES. THUS IT IS SEEN THAT IN BOTH THE UNITS THERE WAS A LOSS IN THE YEAR IN WHICH THE COMMERCIAL PRODUCTION STARTED. EVEN THOUGH THERE WAS PROFIT IN SUBSEQUENT YEARS, BUT IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE CLAIMED DEDUCTI ON FOR THE PROFIT RESULTED IN THIS YEAR FROM THESE ELIGIBLE UNITS DESPITE THE FACT THAT THERE WAS A CUMULATIVE BROUGHT FORWARD LOSS FROM THESE UNITS. 4. SECTION 80-IA(5) PROVIDES TH AT NOTWITHSTANDING ANYTHING CONTAINED IN PROVISION OF THIS ACT, THE PROFITS AND GAIN S OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY, SHA LL FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER TH AT SUB-SECTION FOR THE ASSE SSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSME NT YEAR OR ANY SUBSEQUE NT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINE SS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVA NT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. IT IS NOTICED TH AT BY VIRTUE OF SUB-SECTION (5), SECTION 80-IA HAS BECOME A STAND AL ONE PROVISION. THE EFFECT OF SUB-SECTION (5) IS THAT FOR THE PURPOSE OF GRANTING DEDUCTION IN THE IN ITIAL YEAR OR A SUBSEQUENT YEAR IT SHALL BE CONSIDERED AS IF THE ASSESSEE IS HAVING ELIGIBLE BUSINESS AS THE ONLY SOURCE OF ITS INCOME. IN OTHER WORDS IF THERE IS A LOSS IN THE INITIAL YEAR AND IN THE SUBSEQUENT YEAR THERE IS A PROFIT, DEDUC TION SHALL BE ALLOWE D BY CONSIDERING THE BROUGHT FORWARD LOSS IN THE YEAR OF PROFIT. FIRSTLY SUCH BROUGHT FORWARD LOSS SHALL BE SET OFF AGAINST THE PROFIT OF THE ELIGIBLE UNIT FOR SUCH SUCCEEDING YEAR AND THE DEDUCTION SHALL BE ALLOWED ONLY IF THERE IS NET PROFIT OF THE ELIGIBLE UNIT, THAT IS, THE PROFIT OF THE YEAR IS SUFF ICIENT ENOUGH TO ABSORB THE BROUGHT FORWARD LOSS OF THE UNIT ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 4 AND ALSO THEREBY LEAVING SOME POSITIVE PR OFIT FOR THE CURRENT YEAR. THIS POSITION REMAINS NOTWITHSTANDING THE FACT THAT THE AS SESSEE MAY HAVE SET OFF SUCH LOSS FROM THE ELIGIBLE UNIT AGAINST THE INCOME OF NON- ELIGIBLE UNIT IN THE Y EAR OF INCURRING OF SUCH LOSS. BY MEANS OF SUB-SECTION (5), TH E LOSS INCURRED IN THE ELIGIBLE UNIT IS NOTIONALLY CARRIED FORWARD TO THE SUBSEQUE NT YEARS AND CONSIDERED AS SUCH IN THE SUBSEQUENT YEARS UNTIL IT IS WIPED OUT WITH THE PROFITS OF THE E LIGIBLE UNIT FOR THE SUCCEEDING YEARS. THIS POSITION STANDS D ESPITE THE FACT THAT SUCH LOSS MAY HAVE BEEN ACTUALLY SET OFF AGAINST THE INCOME OF NON-ELIGIBLE UNITS IN AN EARLIER YEAR OR EVEN THE VERY YEAR IN WHICH COMMERCIAL PRODUCTION STARTED. THE SPECIAL BENCH OF THE TRIBUNAL IN GOLDMINE SHARES AND FINANCE (P) LTD. (SUPRA) HAS HELD TO THIS EXTENT BY LAYING DOWN THAT : I N VIEW OF THE SPECIFIC PROVISIONS OF SECTION 80-IA(5), THE PROFIT FROM THE ELIGIBLE BUSINESS FO R THE PURPOSE OF DE TERMINATION OF THE QUANTUM OF DEDUCTION U/S.80-IA HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHE R INCOME IN EARLIER YEARS. 5. THE LEARNED COUNSEL FOR THE AS SESSEE HAS RELIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT [(2010) 38 DTR (MAD.) 57] IN SUPPORT OF THE CONTENTION THAT : THE INITIAL ASSESSMENT YEAR SHOULD NOT BE CONSIDER ED AS THE YEAR IN WHICH THE UNIT IS SET UP BUT THE YEAR IN WHICH THE DEDUCTION IS CLAIMED FOR THE FIRST TIME. ACCENTUATING ON THIS JUDGMENT, THE LD. AR STATED THAT THE SPECIAL BENCH ORDER IN GOLDMINE SHARES AND FINANCE (P) LTD. (SUPRA) IS NO MORE A GOOD LAW. WE ARE NOT CONVINCED WITH THE REASONING ADVANCED ON BEHALF OF THE ASSESS EE. IN PARA 18 (PAGE 75 OF THE DTR) OF THE JUDGEMENT, THEIR LORDSHIPS OF THE H ONBLE HIGH COURT HAVE OBSERVED THAT THE INITIAL ASSESSMENT YEAR IN TH IS CASE STARTS FROM 2004-2005 SINCE THE ASSESSEE OPTED TO CLAIM THE DEDUCTION FOR TH E FIRST TIME. THIS CLAIM WA S ALLOWED BECAUSE OF THE AMENDMENT TO SECTION 80-IA BY THE FINAN CE ACT, 1999. BEFORE THE AMENDMENT, THE `INITIAL ASSESSMENT YEAR WAS DEFINED IN THE ACT, BUT AFTER THE AMENDMENT NO ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 5 DEFINITION FOR THE INITIAL ASSESSMENT YEAR HA S BEEN GIVEN AND THUS THERE IS OPTION TO THE ASSESSEE IN SELECTING TH E YEAR OF CLAIMING RELIEF U/ S.80-IA. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS FOUND THAT THE UNIT AT GUJARAT WAS SET UP IN THE FINANCIAL YEAR 1996-97 AS IS APPARENT FROM THE DETAIL PR OVIDED TO US BY THE LEARNED COUNSEL FOR THE ASSESSEE WH ICH SHOWS THAT THERE WAS A LOSS IN ASSESSMENT YEAR 1997-98 TO THE TUNE OF RS.3.56 CRORES. IT, THEREFORE, INDICATES THAT THE RATIO OF THE JUDGEMENT OF THE HONBLE MADRAS HIGH COUR T SHALL NOT APPLY TO THE PRESENT FACTUAL SCENARIO FOR THE REASON TH AT THE GUJARAT UNIT WAS SET UP AFTER THE AMENDMENT TO SECTION BY THE FINANCE ACT, 1999. IN THE PRE-AMENDMENT PERIOD INITIAL ASSESSMENT YEAR WAS DEFINED U/S.80-IA(12). SINCE TH E AMENDMENT TOOK PLACE BY THE FINANCE ACT, 1999 TAKING AWAY THE DEFINITION OF `IN ITIAL ASSESSMENT YEAR GIVEN IN THE PRE- AMENDMENT PERIOD, IT IS THE ANTE AMENDM ENT PROVISION WHICH WOULD APPLY TO THE ASSESSEE BECAUSE THE ASSES SEE STARTED COMMERCIAL PRODUC TION IN THE FINANCIAL YEAR 1996-97. IN THAT VIEW OF THE MATTER IT B ECOMES APPARENT THAT THE SPECIAL BENCH ORDER IN THE CASE OF GOLDMINE SHARES AND FINANCE (P) LTD. (SUPRA) WOULD SQUARELY APPLY AS PER WHICH DEDUCTION IS NOT PERMISSIBLE. 6. THE SECOND UNIT AT SANGLI & SATARA STARTED COMMERCIAL PRODUCTION IN THE FINANCIAL YEAR 2000-2001. TH E LEARNED A.R. CONTENDED THAT THE BENEFIT OF THE JUDGEMENT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. (SUPRA) SHOULD BE GRANTED AT LEAST TO THE EXTENT OF PROFIT FROM THIS ELIGIBLE UNIT IN PREFERENCE TO THE SPECIAL BENCH ORDER. AGAIN WE ARE NOT CONVINCED WITH THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE FOR THE REASON THAT THE HONBLE HIGH COURT WAS CONSIDERING A CASE IN WHICH THE ELIGIBLE BUSINESS WAS THE ONLY SOURCE OF INCOME. IT CAN BE NOTICED FROM PAGE 70 OF THE REPORT. THE DISCUSS ION STARTS FROM PARA 13, WHEREBY THE HONBLE HIGH COURT HAS REPRO DUCED THE PROVISION OF SE CTION 80-IA. THEREAFTER CERTAIN IMPORTANT FACTORS HAVE BEEN NOTE D ON PAGE 69 AND THEN AT PAGE 70 IT HAS BEEN OBSERVED THAT : FROM READING OF THE ABOVE, IT IS CLEAR THAT THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PR EVIOUS YEAR RELEVANT TO ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 6 INITIAL ASSESSMENT YEAR AND EVERY S UBSEQUENT ASSESSMENT YEARS . FROM HERE IT TRANSPIRES THAT THIS JUDGEM ENT HAS BEEN RENDERED IN TH E CONTEXT OF A BUSINESS WHICH HAD INCOME ONLY FROM THE ELIGIBLE BUSINESS AND THERE WAS NO INCOME FROM ANY NON- ELIGIBLE UNIT. IT IS IN THIS BACKDROP OF TH E FACT THAT THE HONBLE HIGH COURT HELD THAT IF THE BROUGHT FORWARD LOSS OF THE ELIGIBLE UNIT HAS BEEN SET O FF AGAINST THE INCOME THEN FOR THE PURPOSE OF S UB-SECTION (5), IT SHOULD BE CONSTRUED THAT THERE IS NO BROUGHT FORWARD LOSS FOR THE PURPOSES OF RE DUCING THE PROFIT EARNED IN THE YEAR OF CLAIM OF DEDUCTION U/S.80-IA. IT CAN BE E XPLAINED IN A SIMPLE MANNER. SUPPOSE THERE IS ONLY ELIGIBLE BUSINESS AND IN TH E YEAR OF SETTING UP THERE IS LOSS FROM BUSINESS AT RS.100. SIMULTAN EOUSLY THE ASSESSEE EARNS IN COME FROM `OTHER SOURCES IN THE SAME ELIGIBLE BUSINESS TO THE TUNE OF RS.150. EVEN THOUGH THERE WAS A BUSINESS LOSS OF RS.100 IN THE YEAR OF SE TTING UP, BUT SUCH LOSS WAS SET OFF AGAINST INCOME FROM OTHER SOURCES OF THE ELIG IBLE BUSINESS THEREBY BRINGING THE BUSINESS LOSS TO RS. NIL. IT IS IN THIS SCENARIO THAT THERE WOULD BE NO BROUGHT FORWARD LOSS FROM THE ELIGIBLE BUSINESS IN THE SUBSEQUENT YEARS SO AS TO EN ABLE THE ASSESSEE TO CLAIM THE BENEFIT OF DEDUCTION U/S.80-IA IN SUBSEQUENT Y EARS WHEN THERE IS PROFIT. THE FACTS OF SANGLI & SATARA UNITS ARE ENTIRELY DIFFERENT. IN THIS CASE THERE WAS LOSS OF RS.16.73 CRORES FROM THE ELIGIBLE UNI T WHICH WAS SET OFF AGAINST THE BUSINESS INCOME OF OTHER NON-ELIGIBLE UNIT. THIS F ACT HAS BEEN MENTIONED IN THE DETAIL SHEET SUPPLIED BY THE LEARNED A.R. AT THE TIME OF HEARING. IT, THEREF ORE, BECOMES EVIDENT THAT THE LOSS FROM THE ELIGIBLE UNIT WAS SET OFF AGAINST THE BUSINES S INCOME OF OTHER NON-ELIGIBLE UNIT AND NOT THE INCOME OF THE ELIGIBLE UNIT. THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT WOULD BE APPL ICABLE WHEN THERE IS PROFIT FROM THE ELIGIBLE UNIT AND THE ONLY SOUR CE OF INCOME IS THAT FROM THE ELIGIBLE BUSINESS. AS THE PRESENT ASSESSEE HAD EARNED IN COME FROM NON-ELIGIBLE BUSINES S IN THE YEAR OF LOSS IN THE YEAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION IN THE ELIGIBLE UNIT, WHICH WAS SET OFF, THE RATIO DECIDENDI OF THE JUDGEMENT OF TH E HONBLE MADRAS HIGH COURT WOULD NOT APPLY. BUT FOR THE JUDGMENT IN VELAYUDHASWAMY SPINNING MILLS (P) LTD. (SUPRA) , THE LD. AR HAS NOTHING TO DIS TINGUISH THE SPECIAL BENCH ORDER. ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 7 IN THAT VIEW OF THE MATTER IT IS SEEN THAT THE JUDGMENT RENDERED IN VELAYUDHASWAMY SPINNING MILLS (P) LTD. (SUPRA) IS NOT APPLICABLE TO TH E FACTS OF THE PRESENT CASE. RATHER THE AUTHORITIES BELOW WERE JUSTIFIED IN JETTISONI NG THE CLAIM OF THE ASSESSEE ON DEDUCTION U/S 80-IA BY RELYING ON TH E SPECIAL BENCH ORDER IN THE CASE OF GOLDMINE SHARES AND FINANCE (P) LTD. (SUPRA). WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. TH IS GROUND IS NOT ALLOWED. 7. THE SECOND GROUND IS AGAINST THE TREATMENT OF SOFTWARE EXPENSES OF RS.19,12,451 AS CAPITAL EXPENDITURE. THE ASSESSEE MADE PAYMENT OF RS.19,12,451 TO THREE PARTIES AND CLAIMED IT AS BUSINE SS EXPENSES. THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING IT AS CAPITAL EXPE NDITURE. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELE VANT MATERIAL ON RECORD IT IS NOTICED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT [( 2008) 111 ITD 112 (DEL.) (SB)] HAS DECIDED SIMILAR ISSUE RESTORING THE MATTER TO TH E FILE OF A.O. WITH THE DI RECTION TO DECIDE ABOUT THE DEDUCTIBILITY OR OTHERWISE OF SOFTWARE EXPENSES ON CERTAI N PARAMETERS LAID DOWN IN THAT CASE. BOTH THE SIDES AR E IN AGREEMENT THAT THE FACT S AND CIRCUMST ANCES OF THE PRESENT GROUND BE ALSO DECIDED ACCORDINGL Y. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REST ORE THE MATTER TO THE FILE OF A.O. FOR TAKING A FRESH DECISION ON THIS ISSUE AFTER CONSIDERING TH E MANDATE OF THE SPECIAL BENCH ORDER IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) A FTER ALLOWING A REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. 9. THE LAST GROUND IS AGAINST THE TR EATMENT TO RS.10,69,500 INCURRED FOR TRADEMARK RELATED SERVICES OUT OF LEGAL AND PROFESSIONAL FE ES AS CAPITAL EXPENDITURE. THE FACTS OF THIS GROUND ARE THAT TH E ASSESSEE CLAIMED DEDUCTION OF RS.10,69,500 ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 8 PAID TO M/S.DEPENNING & DEPENNING FOR TRAD EMARK RELATED SERVIC ES UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES. THE ASSES SING OFFICER NOTED THAT THESE EXPENSES WERE INCURRED FOR OBTAINING THE TRADEMARK. AS THE TRADEMARK IS CAPITAL ASSET THE A.O. HELD THAT THE ASSESS EE WOULD BE GRANTED DEPR ECIATION AS APPLICABLE TO INTANGIBLE ASSET. IN HOLDING SO HE RE LIED ON THE VIEW TAKEN BY HIM IN THE IMMEDIATELY PRECEDING YEAR I.E. 2005-2006. NO RELIEF WAS ALLO WED IN THE FIRST APPEAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ABOVE REFERRED PAYMENT W AS MADE BY THE ASSESSEE TO M/S.DEPENNING & DEPENNING WH ICH IS NOT A LEGAL FIRM BUT ENGAGED IN PROVIDING SERVICES RELATING TO PATENT, TRADEMARK, DE SIGN AND COPYRIGHT. COPIES OF BILLS ISSUED BY M/S.DEPENNING & DEPENNING ARE AVAILABL E AT PAGES 32 TO 34 OF THE PAPER BOOK FROM WHICH IT CAN BE SEEN THAT THE PAYM ENT WAS MADE BY THE ASSESSEE TOWARDS FILING PATENT APPLICATION INCLUDING TRAN SLATION FEE / AMENDMENT FEE IN CANADA, RUSSIA AND TAIWAN. IT IS NOTICED THAT FI RSTLY THERE IS NOTHING LIKE LEGAL CHARGES INVOLVED IN SUCH PAYMENTS. SECONDLY, THIS PAYMENT HAS BEEN MADE FOR OBTAINING TRADEMARK. AS TRADEMARK HAVE BEEN INCL UDED U/S.32(1)(II) IN THE CATEGORY OF `INTANGIBLE ASSET AFTER 1.4.1998, THE COSTS INCURRED BY THE ASSE SSEE IN THE INSTANT CASE ARE NOTHING BUT COST OF TRADEMARKS . SUCH AMOUNT WOULD BE CAPITALIZED AND QUALIFY FOR DEPRECIATION AS PER LAW. THE LEAR NED A.R. HAS RELIED ON THE JUDGEMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. FINLAY MILLS LTD. [(1951) 20 ITR 475] IN WHICH IT WAS HELD THAT THE EXPE NSES FOR REGISTRATION OF TRADEMARK ARE DEDUCTIBLE IN FULL. IT IS SEEN THAT THE ASSESSMENT YEARS UNDER CONSIDERATION BEFORE THE HONBLE SUPREME COURT WERE 1943- 44 AND 1944-45. AS THE NECESSARY AMENDMENT HAS BEEN MADE TO SECTION 32(1 )(II) BY SPECIFICALLY INCLUDING TRADEMARK IN THE DEFINITION OF INTANGIBLE ASSET, THE RATIO LAID DOWN IN FINLAY MILLS LTD. (SUPRA) WOULD NOT APPLY AS THE CASE WOULD BE GOVERNED BY SECTION 32(1). IT IS FURTHER SEEN THAT THE ASSESSI NG OFFICER HAS DENIED DEDUCTION BY RELYING ON HIS ORDER ITA NO.3355/MUM/2009 M/S.PIDILITE INDUSTRIES LIMITED. 9 FOR THE IMMEDIATELY PRECEDING YEAR 2005- 2006. ON A PERTINENT QUERY THE LEARNED A.R. ADMITTED THAT THE ASSESSEE ACCEPTED THE ADDITION MADE IN ASSESSMENT YEAR 2005-2006 AND DID NOT AGITATE IT FURTHER. IN VIEW OF THESE FACTS AND THE LEGAL POSITION DISCUSSED ABOVE, WE UPHOLD TH E IMPUGNED ORDER ON THIS ISSUE BY DISMISSING THIS GROUND. 11. IN THE RESULT, THE APPEAL IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 10 TH DAY OF JUNE, 2011 . SD/- SD/- (VIJAY PAL RAO) (R.S.SYAL) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI : 10 TH JUNE, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) III, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.