SANDVIK ASIA LTD., Pune V. CIT CIR 8, Pune

ITA 339/PUN/2004

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2277 (ITAT-PUNE)
• Duration Of Justice: 11 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-11-2013
• Assessment Year: 1998-1999
• Appeal Filed On: 09-03-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Keywords: Non-deduction of tax; Bad and doubtful debts; Revised return; Provision of bad debts
• Section: 43B; 80HHC; 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 339/PN/2004 $& ' !(' / ASSESSMENT YEAR : 1998-99 SANDVIK ASIA LIMITED, MUMBAI-PUNE ROAD, DAPODI, PUNE-411012 PAN : AACCS6638K ....... / APPELLANT )& / V/S. JT. COMMISSIONER OF INCOME TAX, SPECIAL RANGE 5, PUNE / RESPONDENT ASSESSEE BY : SHRI JEHANGIR MISTRI REVENUE BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 13-10-2015 / DATE OF PRONOUNCEMENT : 11-12-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 19-1 2-2003 FOR THE ASSESSMENT YEAR 1998-99. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF TUNGSTEN CARBIDE TOOLS. THE A SSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YE AR ON 30-11-1998 DECLARING INCOME OF RS.9,60,36,180/-. THEREAFTER, THE 2 ITA NO. 339/PN/2004, A.Y. 1998-99 ASSESSEE FILED REVISED RETURN OF INCOME ON 29-01-1999 DEC LARING INCOME OF RS.9,35,20,431/-. THE REVISED RETURN WAS PROCESSED U/S . 143(1)(B). THE PROVISIONS OF EXCISE DUTY RS.3,87,76,398/- CLAIMED BY THE ASSESSEE WAS DISALLOWED AND THE EXCESS DEDUCTION U/S. 80HHC ON TH E SAME WAS ALLOWED. THE ASSESSEE AGAIN REVISED ITS RETURN ON 30-03- 2000 DECLARING INCOME OF RS.96,66,218/- AS PER NORMAL COMPUTATION AND RS.1,10,35,842/- U/S. 115JA. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 28-05-1999. FURTHER, NOTICES U/S. 143(2) WE RE ISSUED TO THE ASSESSEE ON 05-06-2000 AND 07-08-2000. DURING SC RUTINY ASSESSMENT, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWANCES AND ASSESSED THE INCOME OF ASSESS EE AT RS.8,62,36,600/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-11-2000, T HE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TA X (APPEALS) ASSAILING THE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDE R PARTLY ACCEPTED THE APPEAL OF THE ASSESSEE. STILL AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER O F INCOME TAX (APPEALS) ON SIX COUNTS. THE GROUNDS RAISED IN THE APPEAL ARE DEALT WITH HERE-IN-UNDER IN SERIATIM. THE GROUND NO. 1 RAISED IN THE APPEAL IS AS UNDER: 1. DEDUCTION UNDER SECTION 36(1)(VII) OF THE INCOME-TA X ACT, 1961 (THE ACT) IN RESPECT OF PROVISIONS OF RS.3,8 3,94,000 FOR BAD AND DOUBTFUL DEBTS. 1.1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S)-III, PUNE [THE CIT(A)] ERRED IN DISALLOWING THE PROVISION OF BAD DEBTS OF RS.3.83,94,000 MADE DURING THE PREVIOUS YEAR RELEVA NT TO THE ASSESSMENT YEAR 1998-99 UNDER SECTION 36(1)(VII) OF THE ACT. THE 3 ITA NO. 339/PN/2004, A.Y. 1998-99 SAID PROVISION BEING TAX-DEDUCTIBLE, THE CIT(A) OUG HT TO HAVE GRANTED DEDUCTION ON ACCOUNT OF THE SAME. SANDVIK ASIA LTD. (THE APPELLANT) PRAYS THAT DEDUCTION FOR THE AFORESAID PROVISION BE GRANTED. 3.1 THE ASSESSEE MADE PROVISION OF RS.3,83,94,000/- FOR BAD AND DOUBTFUL DEBTS. THE LD. AR SUBMITTED THAT THE SUNDRY DEBTORS SHOW N IN THE BALANCE SHEET ARE NET OF PROVISIONS FOR DOUBTFUL DEBT S. THE LD. AR REFERRED TO THE BALANCE SHEET AS ON MARCH 31, 1998 AND THE AUDITORS REPORT U/S. 44AB OF THE ACT. THE LD. AR POINTED OUT THAT IN SCHEDULE 8 TO THE BALANCE SHEET DETAILED CALCULATION OF THE SUNDRY DEBTORS HAS BEEN SHOWN. IN NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDING MARCH 31, 1998 IN NOTE 1(D) IT HAS BEEN SPECIFICALLY MENTIONE D THAT CERTAIN SPECIFIC DEBTS IDENTIFIED AS IRRECOVERABLE OR DOUBTFUL ARE WRITTEN OFF OR PROVIDED FOR INDIVIDUALLY OR ARE COVERED BY A GLOBAL PROVISION MADE FOR THE FIRST TIME IN THE YEAR. THE LD. AR FURTHER SU BMITTED THAT THE ISSUE RELATING TO PROVISION FOR BAD DEBTS IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF VIJAYA BANK VS. COMMISSIONER OF INCOME TAX REPORTED AS 323 IT R 166 (SC). THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE AP EX COURT IN THE CASE OF TRF LTD. VS. COMMISSIONER OF INCOME TAX, 323 I TR 397 (SC). 3.2 ON THE OTHER HAND THE LD. DR SUBMITTED THAT THE DEB TS HAVE NOT BEEN WRITTEN OFF IN THE BOOKS OF THE ASSESSEE. THE PARTIE S FROM WHOM DEBTS ARE IRRECOVERABLE ARE NOT IDENTIFIABLE. THE LD. DR VE HEMENTLY SUPPORTED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (A PPEALS) ON THIS ISSUE AND PRAYED FOR DISMISSING THIS GROUND OF APPEAL O F THE ASSESSEE. 4 ITA NO. 339/PN/2004, A.Y. 1998-99 3.3 WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BE LOW. THE CONTENTION OF THE ASSESSEE IS THAT THE PROVISION FOR DOUB TFUL DEBTS IS DEDUCTABLE. THE LD. AR PLACED RELIANCE ON THE DECISION OF T HE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF VIJAYA BANK VS. CO MMISSIONER OF INCOME TAX (SUPRA). THE HON'BLE APEX COURT IN THE SAID CASE WHILE DELIBERATING ON THE ISSUE HAS DEALT WITH TWO QUESTIONS: I. THE MANNER IN WHICH THE WRITE OFF IS TO BE DONE. II. WHETHER IT IS IMPERATIVE FOR THE ASSESSEE TO CLOSE EACH A ND EVERY INDIVIDUAL ACCOUNT AND ITS DEBTORS IN ITS BOOKS OR A MERE REDUCTION IN THE LOANS AND ADVANCES OR DEBTORS ON THE ASSET S IDE OF ITS BALANCE SHEET TO THE EXTENT OF THE PROVISION FOR BA D AND DOUBTFUL DEBT IS SUFFICIENT TO CONSTITUTE A WRITE OFF? WHILE ANSWERING FIRST QUESTION, THE HON'BLE APEX COURT PLAC ED RELIANCE ON THE DECISION RENDERED IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. COMMISSIONER OF INCOME TAX, 320 ITR 577. IN SO FAR SECOND QUESTION IS CONCERNED THE HON'BLE COURT HAS HELD AS UNDER : 8. COMING TO THE SECOND QUESTION, WE MAY REITERATE THAT IT IS NOT IN DISPUTE THAT SECTION 36(1)(VII) OF 1961 ACT APPLIES BOTH TO BANKING AND NON-BANKING BUSINESS. THE MANNER IN WHICH THE WRIT E OFF IS TO BE CARRIED OUT HAS BEEN EXPLAINED HEREINABOVE. IT IS I MPORTANT TO NOTE THAT THE ASSESSEE-BANK HAS NOT ONLY BEEN DEBITING THE PR OFIT AND LOSS ACCOUNT TO THE EXTENT OF THE IMPUGNED BAD DEBT, IT IS SIMUL TANEOUSLY REDUCING THE AMOUNT OF LOANS AND ADVANCES OR THE DEBTORS AT THE YEAR-END, AS STATED HEREINABOVE. IN OTHER WORDS, THE AMOUNT OF LOANS AN D ADVANCES OR THE DEBTORS AT THE YEAR-END IN THE BALANCE-SHEET IS SHO WN AS NET OF THE PROVISIONS FOR THE IMPUGNED DEBT. HOWEVER, WHAT IS BEING INSISTED UPON BY THE ASSESSING OFFICER IS THAT MERE REDUCTION OF THE AMOUNT OF LOANS AND ADVANCES OR THE DEBTORS AT THE YEAR-END WOULD N OT SUFFICE AND, IN THE INTEREST OF TRANSPARENCY, IT WOULD BE DESIRABLE FOR THE ASSESSEE-BANK TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF LOANS AND ADVANCES OR DEBTORS AS A PRE-CONDITION FOR CLAIMING DEDUCTION UN DER SECTION 36(1)(VII) OF THE 1961 ACT. THIS VIEW HAS BEEN TAKEN BY THE AS SESSING OFFICER BECAUSE THE ASSESSING OFFICER APPREHENDED THAT THE ASSESSEE-BANK MIGHT BE TAKING THE BENEFIT OF DEDUCTION UNDER SECT ION 36(1)(VII) OF THE 5 ITA NO. 339/PN/2004, A.Y. 1998-99 1961 ACT, TWICE OVER. (ORDER OF THE CIT (APPEALS) A T PAGES 66,67 AND 72 OF THE PAPER BOOK, WHICH REFERS TO THE APPREHENSION S OF THE ASSESSING OFFICER). IN THIS CONTEXT, IT MAY BE NOTED THAT THE RE IS NO FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD UNAUTHORISE DLY CLAIMED THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII), TWIC E OVER. THE ORDER OF THE ASSESSING OFFICER IS BASED ON AN APPREHENSION THAT, IF THE ASSESSEE FAILS TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF ITS D EBTOR, IT MAY RESULT IN THE ASSESSEE CLAIMING DEDUCTION TWICE OVER. IN THIS CASE, WE ARE CONCERNED WITH THE INTERPRETATION OF SECTION 36(1)( VII) OF THE 1961 ACT. WE CANNOT DECIDE THE MATTER ON THE BASIS OF APPREHENSI ONS/DESIRABILITY. IT IS ALWAYS OPEN TO THE ASSESSING OFFICER TO CALL FOR DE TAILS OF INDIVIDUAL DEBTOR'S ACCOUNT IF THE ASSESSING OFFICER HAS REASO NABLE GROUNDS TO BELIEVE THAT THE ASSESSEE HAS CLAIMED DEDUCTION, TW ICE OVER. IN FACT, THAT EXERCISE HAS BEEN UNDERTAKEN IN SUBSEQUENT YEARS. T HERE IS ALSO A FLIPSIDE TO THE ARGUMENT OF THE DEPARTMENT. THE ASS ESSEE HAS INSTITUTED RECOVERY SUITS IN COURTS AGAINST ITS DEBTORS. IF IN DIVIDUAL ACCOUNTS ARE TO BE CLOSED, THEN THE DEBTOR/DEFENDANT IN EACH OF THO SE SUITS WOULD RELY UPON THE BANK STATEMENT AND CONTEND THAT NO AMOUNT IS DUE AND PAYABLE IN WHICH EVENT THE SUIT WOULD BE DISMISSED. 9. BEFORE CONCLUDING WE MAY REFER TO AN ARGUMENT AD VANCED ON BEHALF OF THE DEPARTMENT. ACCORDING TO THE DEPARTME NT, IT IS NECESSARY TO SQUARE OFF EACH INDIVIDUAL ACCOUNT FAILING WHICH TH ERE IS LIKELIHOOD OF ESCAPEMENT OF INCOME FROM ASSESSMENT. ACCORDING TO THE DEPARTMENT, IN CASES WHERE A BORROWER'S ACCOUNT IS WRITTEN OFF BY DEBITING THE PROFIT AND LOSS ACCOUNT AND BY CREDITING LOANS AND ADVANCES OR DEBTORS ACCOUNTS ON THE ASSETS SIDE OF THE BALANCE-SHEET, THEN, AS AND WHEN IN THE SUBSEQUENT YEARS IF THE BORROWER REPAYS THE LOAN, T HE ASSESSEE WILL CREDIT THE REPAID AMOUNT TO THE LOANS AND ADVANCES ACCOUNT AND NOT TO THE PROFIT AND LOSS ACCOUNT WHICH WOULD RESULT IN E SCAPEMENT OF INCOME FROM ASSESSMENT. ON THE OTHER HAND, IF BAD DEBT IS WRITTEN OFF BY CLOSING THE BORROWER'S ACCOUNT INDIVIDUALLY, THEN THE REPAI D AMOUNT IN SUBSEQUENT YEARS WILL BE CREDITED TO THE PROFIT AND LOSS ACCOUNT ON WHICH THE ASSESSEE-BANK HAS TO PAY TAX. ALTHOUGH, PRIMA F ACIE, THIS ARGUMENT OF THE DEPARTMENT APPEARS TO BE VALID, ON A DEEPER CONSIDERATION, IT IS NOT SO FOR THREE REASONS. FIRSTLY, THE HEAD OFFICE ACCOUNTS CLEARLY INDICATE, IN THE PRESENT CASE, THAT, ON REPAYMENT IN SUBSEQUE NT YEARS, THE AMOUNTS ARE DULY OFFERED FOR TAX. SECONDLY, ONE HAS TO KEEP IN MIND THAT, UNDER THE ACCOUNTING PRACTICE, THE ACCOUNTS OF THE RURAL BRANCHES HAVE TO TALLY WITH THE ACCOUNTS OF THE HEAD OFFICE. IF THE REPAID AMOUNT IN SUBSEQUENT YEARS IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE HEAD OFFICE, WHICH IS ULTIMATELY WHAT MATTERS, THEN , THERE WOULD BE A MIS-MATCH BETWEEN THE RURAL BRANCH ACCOUNTS AND THE HEAD OFFICE 6 ITA NO. 339/PN/2004, A.Y. 1998-99 ACCOUNTS. LASTLY, IN ANY EVENT, SECTION 41(4) OF TH E 1961 ACT, INTER ALIA, LAYS DOWN THAT, WHERE A DEDUCTION HAS BEEN ALLOWED IN RESPECT OF A BAD DEBT OR A PART THEREOF UNDER SECTION 36(1)(VII) OF THE 1961 ACT, THEN, IF THE AMOUNT SUBSEQUENTLY RECOVERED ON ANY SUCH DEBT IS G REATER THAN THE DIFFERENCE BETWEEN THE DEBT AND THE AMOUNT SO ALLOW ED, THE EXCESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS AND, ACCORDINGLY, CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE PREVI OUS YEAR IN WHICH IT IS RECOVERED. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER IS SUFFICIENTLY EMPOWERED TO TAX SUCH SUBSE QUENT REPAYMENTS UNDER SECTION 41(4) OF THE 1961 ACT AND, CONSEQUENT LY, THERE IS NO MERIT IN THE CONTENTION THAT, IF THE ASSESSEE SUCCEEDS, T HEN IT WOULD RESULT IN ESCAPEMENT OF INCOME FROM ASSESSMENT. 3.4 IN THE FACTS OF THE CASE AND THE DECISION OF HON'BLE SUPREME COURT OF INDIA WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE ASSESSING OFFICER FOR DECIDING AFRESH IN THE LIGHT OF THE DECIS ION RENDERED BY THE HON'BLE SUPREME COURT OF INDIA IN THE C ASE OF VIJAYA BANK VS. COMMISSIONER OF INCOME TAX (SUPRA). ACCORDINGLY, T HIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4. GROUND NO. 2 AND FINDINGS THEREON ARE AS UNDER: 2. EXEMPTION UNDER SECTION 10(33) OF THE ACT IN RES PECT OF DIVIDEND INCOME ON MASTER SHARES AND OTHER UNITS OF UNIT TRUST OF INDIA ('UTI). 2.1. THE CIT(A) ERRED IN REJECTING THE APPELLANT'S CLAIM THAT DIVIDEND INCOME OF RS.19,24,960 ON MASTER SHARES AND OTHER U NITS OF UTI IS EXEMPT UNDER SECTION 10(33) OF THE ACT. THE LEARNED CIT(A) OUGHT TO HAVE TREATED THE SAID DIVIDEND AS EXEMPT AND EXCLUDED TH E SAME FROM THE TOTAL INCOME OF THE APPELLANT. THE APPELLANT PRAYS THAT THE AFORESAID DIVIDEND SHO ULD BE CONSIDERED AS EXEMPT AND EXCLUDED FROM THE TOTAL INCOME OF THE AP PELLANT. 4.1 DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL, THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 19,24,960 /- ON MASTER SHARES AND OTHER UNITS OF UTI. THE ASSESSEE HA D CLAIMED THE 7 ITA NO. 339/PN/2004, A.Y. 1998-99 SAID DIVIDEND INCOME AS EXEMPTED U/S. 10(33) OF THE ACT. WHEREAS THE CONTENTION OF THE REVENUE IS THAT THE DIVIDEND ON UNIT OF UTI AND MASTER SHARE OF UTI ARE NOT EXEMPTED U/S. 10(33) OF THE ACT AS SUCH THE UNITS OF UTI ARE NOT SHARES. THE LD. AR OF THE ASSES SEE SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 32(3) OF THE UNIT T RUST OF INDIA ACT, 1963, ANY DISTRIBUTION OF INCOME RECEIVED BY A UNIT HOLDER FROM THE UTI SHALL BE DEEMED TO BE HIS INCOME BY WAY OF DIVIDEND AND UT I SHALL BE DEEMED TO BE A COMPANY. THUS, FOR ALL INTENT AND PURPOS E THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE ON UNITS OF THE UTI AR E AT PAR WITH A DIVIDEND EARNED ON THE SHARES OF ANY PUBLIC LIMITED COMPAN Y. THE LD. AR FURTHER POINTED OUT THAT THE ISSUE, WHETHER DIVIDEND IN COME RECEIVED ON MASTER SHARE IS ELIGIBLE FOR 100% DEDUCTION AT PAR WITH SHARES OF OTHER COMPANIES OR ONLY 40% DEDUCTION SHOULD BE ALLOWED WAS DECIDED BY THE TRIBUNAL IN ASSESSEES APPEAL IN ITA NO. 579/PN/2000 FOR ASSESSMENT YEAR 1995-96 AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX, PUNE PASSED U/S. 263 OF THE ACT. 4.2 ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBM ITTED THAT THE PROVISIONS OF SECTION 10(33), 115O AND 80L ARE INT ER RELATED. UP TO ASSESSMENT YEAR 1999-2000 INCOME RECEIVED IN RESPECT OF UN ITS OF UTI WERE ELIGIBLE FOR DEDUCTION U/S. 80L OF THE ACT. AFTER IT S OMISSION W.E.F. ASSESSMENT YEAR 2000-01 THE INCOME ON THE UNITS OF UTI WAS INCLUDED IN SECTION 10(33) OF THE ACT. THUS, THE DIVIDEND IN COME EARNED ON UTI UNIT IS TAXABLE IN THE ASSESSMENT YEAR 19 98-99. THE LD. DR FURTHER SUBMITTED THAT THE DIVIDEND EARNED ON THE UN ITS OF THE UTI CANNOT BE EQUATED WITH THE DIVIDEND EARNED ON THE SHAR ES OF A COMPANY. 8 ITA NO. 339/PN/2004, A.Y. 1998-99 4.3 BOTH SIDES HEARD. THE ORDERS OF THE AUTHORITIES BELOW PERUSED. THE ASSESSEE HAS CLAIMED EXEMPTION U/S. 10(33) ON DIVIDEND INCOME EARNED ON THE UNITS OF UTI. THE CONTENTION OF THE ASSE SSEE IS THAT IN VIEW OF PROVISIONS OF SECTION 32(3) OF THE UTI ACT, THE DIVIDEN D INCOME EARNED BY ASSESSEE ON THE UNITS OF MASTER SHARE OF UT I AND UNITS HELD UNDER OTHER SCHEMES OF UTI IS AT PAR WITH THE DIVIDEND ON SHARES OF A COMPANY. WE FIND THAT SIMILAR ISSUE WAS RAISED IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 1995-96 IN PROCEEDINGS U/S. 263 OF T HE ACT. THE TRIBUNAL IN APPEAL BY THE ASSESSEE HELD THAT THE ASSESS EE WOULD BE ELIGIBLE TO CLAIM DEDUCTION ONLY TO THE EXTENT OF 40% ON TH E DIVIDEND INCOME FROM UNITS OF UTI. THE RELEVANT EXTRACT OF THE ORD ER OF TRIBUNAL DATED 04-11-2010 IN ITA NO. 579/PN/2000 FOR ASSESSMENT YEAR 1995- 96 IS AS UNDER: 2. THE CIT ISSUED A NOTICE U/S 263 FOR A.Y. 1995-9 6 ON THE GROUND THAT THE ASSESSMENT ORDER DATED 26-2-1998 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS 100% DIVIDEND RECEIVED F ROM MASTER SHARES OF UTI OF RS. 13,55,400/- WAS ALLOWED AS A DEDUCTION I NSTEAD OF RESTRICTING THE SAME TO 40%. HENCE, THE EXCESS DEDUCTION OF RS. 8,13,240/- WAS REQUIRED TO BE WITHDRAWN. IN FACT, THE ASSESSEE, DU RING THE YEAR UNDER CONSIDERATION, RECEIVED DIVIDEND ON MASTER SHARES O F UTI AT RS. 13,55,400/-. THE ASSESSEE CLAIMED DEDUCTION U/S 80M ON THIS DIVIDEND AT 100%. AFTER REJECTING THE CONTENTION RAISED ON B EHALF OF THE ASSESSEE, THE CIT HELD THAT THE ORDER PASSED BY THE A.O FOR A .Y. 1995-96 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E AS THE ASSESSEE WAS ENTITLED TO DEDUCTION ONLY AT 40% AS AGAINST 100% A LLOWED BY THE A.O IN THE ORIGINAL ASSESSMENT. THE STAND OF THE ASSESSEE WAS THAT THE MASTER SHARES OF UTI RANK WITH SHARES OF ANY OTHER COMPANY AND NOT AS INCOME FROM UNITS OF UTI. ACCORDING TO THE ASSESSEE THE CO MPANY HELD THE UNITS OF UTI. DIVIDEND RECEIVED FROM UNITS OF US 64 WAS R ESTRICTED TO 40% WHEREAS 100% DEDUCTION WAS CLAIMED FOR THE DIVIDEND S FROM HDFC LTD.. AND MASTER SHARES OF UTI. IN THIS CONNECTION, THE A SSESSEE REFERRED TO THE PROVISIONS OF UNIT TRUST OF INDIA ACT 1963 WHEREIN IT WAS STATED THAT UNDER THE SAID ACT, SECTION 32(3)(B) STATES THAT UT I SHALL BE DEEMED TO BE A COMPANY. SIMILAR PROVISIONS ARE ALSO INCLUDED IN THE INCOME-TAX ACT1961. IT WAS CONTENDED THAT MASTER SHARES WERE I SSUED NOT UNDER THE NORMAL SCHEME OF UTI BUT IN PURSUANCE OF THE AMENDM ENT TO THE UTI ACT, 9 ITA NO. 339/PN/2004, A.Y. 1998-99 WHEREIN THE UTI WAS PERMITTED TO ISSUE DIFFERENT SC HEMES. IT WAS STATED THAT THE MUTUAL FUND (SUBSIDIARY) UNIT SCHEME 1986 OF UTI WAS NOTIFIED ON 9-10-1986 UNDER WHICH DIFFERENT UNITS WERE OFFER ED FOR SUBSCRIPTIONS UNDER THE DIFFERENT ISSUE DOCUMENTS. IT WAS ALSO ST ATED THAT THIS MUTUAL FUND WAS TO BE THE SUBSIDIARY OF UTI. THE OBJECTIVE S OF THE INVESTMENTS FROM THE TRUST WERE ALSO STATED AND IT WAS URGED TH AT THE MASTER SHARES WERE ISSUED IN TERMS OF THE MUTUAL FUND (SUBSIDIARY ) SCHEME. THE CERTIFICATE MENTIONED THAT THE PERSONS NAMED IN THE CERTIFICATE WERE THE REGISTERED HOLDERS OF WITHIN MENTIONED MASTER SHARE S OF RS. 10/- EACH BEARING THE DISTINCTIVE NUMBERS SPECIFIED SUBJECT T O THE PROVISIONS OF THE MUTUAL FUND (SUBSIDIARY) UNIT SCHEME OF 1986. HENCE IT WAS URGED BE CONSIDERED AS DIVIDEND FROM OTHER COMPANIES AND SHO ULD BE ENTITLED TO 100% DEDUCTION FOR THE PURPOSES OF SECTION 80M AND NOT 40%. IN THIS BACKGROUND THE ORDER OF THE CIT IS OPPOSED. ON THE OTHER HAND, LD. DR SUBMITTED THE ORDER OF CIT UNDER PROVISIONS OF 263 IS JUSTIFIED IN ITS FACTS AND CIRCUMSTANCES LD. DR RAISED DETAILED CONCLUSION ON BEHALF OF REVENUE TO SUPPORT THE ORDER OF CIT. 3. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND TH E MATERIAL ON RECORD, WE FIND THAT THE PROVISIONS OF MUTUAL FUND (SUBSIDI ARY) UNIT SCHEME 1986 FORMULATED UNDER SECTION 21 OF THE UNIT TRUST OF INDIA ACT 1963 APPROVED BY THE BOARD OF TRUSTEES OF THE UNIT TRUST OF INDIA AT THE BOARD MEETING HELD ON JUNE 4, 1986 READ AS UNDER: 'MUTUAL FUND (SUBSIDIARY) UNIT SCHEME 1986 IN EXERCISE OF THE POWERS CONFERRED BY SECTION 21 O F THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963) THE BOARD OF THE UNIT TRUST OF INDIA HEREBY MAKES THE FOLLOWING UNIT SCHEME.....' THE ABOVE MAKES IT CLEAR THAT THIS IS NOTHING BUT A DIFFERENT SCHEME OF ISSUING UNITS OF UTI.' IN THIS BACKGROUND, THE PROVISIONS OF SECTION 80-M OF THE INCOME-TAX ACT, 1961 WAS ANALYZED. THE PROVISO TO SECTION 80M READS AS FOLLOWS: [PROVIDED THAT WHERE ANY DOMESTIC COMPANY RECEIVES ANY INCOME BY WAY OF DIVIDENDS FROM THE UNITS OF THE UNIT TRUST OF IN DIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT1963 (52 OF 1963), SUCH DOMESTIC COMPANY SHALL, SUBJECT TO THE AFORESAID PROVISIONS, BE ELIG IBLE FOR DEDUCTION TO THE EXTENT OF (A) FOUR-FIFTH OF SUCH INCOME IN RESPECT OF THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL 1994. 10 ITA NO. 339/PN/2004, A.Y. 1998-99 (B) TWO-FIFTH OF SUCH INCOME IN RESPECT OF THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL 1995 AND NO DEDUCTION SHALL BE ALLOWED ON SUC H INCOME IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR COMMENCING ON THE 1ST DAY OF APRIL 1996 AND ANY SUB SEQUENT PREVIOUS YEAR.] 4. THE DISTRIBUTION OF UNITS OF UTI IS AT PAR WITH THE DIVIDENDS. THE PROVISO TO SECTION 80-M REFERS TO THE INCOME BY WAY OF DIVIDEND FROM UTI AND DOES NOT MAKE A DISTINCTION BETWEEN VARIOUS SCHEMES. THE SCHEME IS NOT STANDING AT ITS OWN PURPOSE BUT IT IS THE NORMAL PROCEDURAL ASPECT. BASICALLY IT IS UNDER THE UMBRELLA OF UTI. SO IT COMES UNDER THE PROVISION, ACCORDING TO WHICH WHERE ANY DOMESTIC CO MPANY RECEIVES ANY INCOME BY WAY OF DIVIDENDS FROM THE UNITS OF THE UN IT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963), SUCH DOMESTIC COMPANY SHALL, SUBJECT TO THE AFORESAID PR OVISIONS, BE ELIGIBLE FOR DEDUCTION TO THE EXTENT OF (A) FOUR-FIFTH OF SU CH INCOME IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON THE 1ST DAY OF APRIL 1994; (B) TWO FIFTH OF SUCH INCOME IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL 1995, AND NO DEDUCTION SHALL BE ALLOWED ON SUCH INC OME IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON THE 1ST DAY OF APRIL 1996 AND ANY SUBSEQUENT PREVIOUS YEAR. UNDER CIRCUMSTANCES CIT WAS JUSTIFIED IN INVOKING PROVISI ON OF SECTION 263 AND REACHED TO JUDICIOUS FINDING WHICH NEED NO INTERFERENCE FROM OUR SIDE. ACCORDINGLY, THE ORDER OF THE CIT IS UPHE LD ON POINT OF VALIDITY AS WELL AS ON MERIT. ACCORDINGLY THE APPEAL OF THE ASSESSEE IS DISMISSED. THUS, IN VIEW OF THE ORDER OF CO-ORDINATE BENCH, WE HOLD TH AT THE DIVIDEND RECEIVED ON VARIOUS UNITS OF UTI BY THE ASSESSEE CANNOT BE EQUATED WITH THE DIVIDEND EARNED ON SHARES OF A COMPANY. ACCOR DINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 5. GROUND NO. 3 RAISED IN THE APPEAL AND FINDINGS THEREON ARE AS UNDER: 3 COMPUTATION OF RELIEF UNDER SECTION 80HHC OF THE ACT. 3.1 THE CIT(A) ERRED IN REJECTING THE APPELLAN T'S CLAIM THAT INTEREST OF RS.24,47,147 (COMPRISING NSC INTEREST OF RS.2,40,24 2, BANK INTEREST OF 11 ITA NO. 339/PN/2004, A.Y. 1998-99 RS.4,68,654, INTEREST ON INTER-CORPORATE DEPOSITS O F RS.11,46,010 AND OTHER INTEREST OF RS.5,92,241) SHOULD BE CONSIDERED AS 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' FOR THE PURPOSES OF SEC TION 80HHC OF THE ACT. HAVING HELD THAT DIVIDEND OF RS.19,24,960 FROM UNIT S OF MASTER SHARES AND UTI REFERRED TO IN GROUND 2 ABOVE IS NOT AN EXE MPT INCOME UNDER SECTION 10(33) OF THE ACT. THE C1T(A) ERRED IN REJE CTING THE APPELLANT'S CLAIM THAT SAID INCOME DISTRIBUTED ON MASTER SHARES AND OTHER UNITS OF UTI SHOULD BE CONSIDERED AS 'PROFITS AND GAINS OF B USINESS OR PROFESSION' FOR THE PURPOSES OF SECTION 80HHC OF TH E ACT. THE APPELLANT PRAYS THAT THE AFORESAID INTEREST AND DIVIDEND INCOME SHOULD HE CONSIDERED AS 'PROFITS OF BUSINESS' WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 3.2 THE CIT(A) ERRED IN REJECTING THE APPELLANT'S C LAIM THAT NO ADJUSTMENT ON ACCOUNT OF DEALERS TRAINING COURSE FE ES OF RS.17,91,449 AND RENT OF RS.1,28,000 RECOVERED FROM MANAGING DIR ECTOR'S SALARY SHOULD BE MADE UNDER EXPLANATION (BAA) TO SECTION 8 0HHC OF THE ACT WHILE COMPUTING 'PROFITS AND GAINS OF BUSINESS OR P ROFESSION'. THE APPELLANT PRAYS THAT NO SUCH ADJUSTMENT SHOULD BE MADE ON ACCOUNT OF THE TRAINING COURSE FEES AND RENT RECOVERED FROM MANAGING DIRECTOR'S SALARY. 3.3 THE C1T(A) ERRED IN REJECTING THE APPELLANT'S C LAIM THAT 90% OF RS.23,664 BEING RENT RECEIVED FROM SAI SERVICE, HAS BEEN DEDUCTED TWICE AS PER THE EXPLANATION (BAA) TO SECTION 80HHC OF TH E ACT WHILE COMPUTING 'PROFITS AND GAINS OF BUSINESS OR PROFESS ION'. THE CIT(A) OUGHT TO HAVE HELD THAT AS THE JOINT COMMISSIONER OF INCOM E-TAX SR-5, PUNE [THE ASSESSING OFFICER] HAS ALREADY EXCLUDED 90% OF THE MISCELLANEOUS INCOME (IN WHICH THE THIS RENT AMOUNT OF RS.23,664 WAS INCLUDED), THE AO SHOULD NOT HAVE AGAIN EXCLUDED 90% OF SUCH RENT, WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE APPELLANT PRAYS THAT 90% OF RS.23,664 SHOULD BE EXCLUDED ONLY ONCE WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF TH E ACT. 5.1 THE LD. AR OF THE ASSESSEE SUBMITTED AT THE OUTSET THAT THE ISSUES RAISED IN GROUND NOS. 3.1 AND 3.2 OF THE APPEAL HAVE BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 525/PN/2003 FOR THE ASSESSMENT YEAR 1997-98 DECIDED ON 10-04 -2015. 12 ITA NO. 339/PN/2004, A.Y. 1998-99 HOWEVER, IN RESPECT OF GROUND NO. 3.3 THE LD. AR CONTENDE D THAT THE AMOUNT OF RS.23,664/- RENT RECEIVED FROM SAI SERVICE HAS B EEN DEDUCTED TWICE. THIS AMOUNT HAS BEEN SHOWN SEPARATELY , AS WELL AS IN MISCELLANEOUS INCOME. THE LD. AR PRAYED FOR REDUCING THE AFO RESAID RENT AMOUNT ONLY ONCE. 5.2 ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ISS UE HAS ALREADY DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN T HE ASSESSMENT YEAR 1997-98. THEREFORE, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS LIABLE TO BE DISMISSED. 5.3 WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE LD. AR HAS FAIRLY CONCEDED THAT THE ISSUE RAISED IN GROUND NOS. 3.1 AND 3.2 OF THE APPEAL HAVE BEEN DECIDED AGAINST THE ASSESSEE BY T HE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 525/PN/2003 (SUPRA). THE LD. AR HAS PLACED ON RECORD A COPY OF THE AFORESAID ORDER OF THE TR IBUNAL. THEREFORE, BOTH THE ABOVE GROUNDS ARE DISMISSED IN THE SAME TERMS . IN RESPECT OF GROUND NO. 3.3 THE CONTENTION OF THE LD. AR IS THAT THE AMOUNT OF RS.23,664/- RECEIVED AS RENT FROM SAI SERVIC E HAS BEEN REDUCED TWICE, AS THE SAID AMOUNT HAS BEEN SHOWN TWICE, IN MISCELLANEOUS INCOME AND AS WELL AS SEPARATELY AS RENT FRO M SAI SERVICE. WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO ASSESSING OFFICER FOR LIMITED PURPOSE OF VERIFICATION. IF THE AMOUNT HAS BEEN DEDUCTED TWICE THE NECESSARY CORRECTION MAY BE CARRIED OUT TO DEDUCT THE AFORESAID AMOUNT ONLY ONCE. ACCORDINGLY, GROUND NO . 3.3 IS ALLOWED FOR STATISTICAL PURPOSES. 13 ITA NO. 339/PN/2004, A.Y. 1998-99 6. GROUND NO. 4 RAISED IN THE APPEAL AND FINDINGS THEREON ARE AS UNDER: 4. ADDITION OF INTEREST INCOME OF RS.18,14,272 PAID TO INCOME- TAX DEPARTMENT 4.1 THE CIT(A) ERRED IN NOT DETERMINING A LOSS OF R S.9,24,983 (BEING THE DIFFERENCE BETWEEN INTEREST OF RS.18,14,272 PAI D ON INCOME TAX AND INTEREST OF RS.8,89,289 GRANTED ON INCOME-T AX REFUND) UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE CIT (A) OUGHT TO HAVE DETERMINED THE SAME IN VIEW OF THE HONOURABLE INCOME-TAX APPELLATE TRIBUNAL'S ORDER IN THE APPELLANT'S OWN C ASE FOR ASSESSMENT YEAR 1996-97. THE APPELLANT PRAYS THAT THE AFORESAID LOSS BE DETE RMINED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND THE SAME B E SET-OFF AGAINST THE INCOME DETERMINED UNDER THE HEAD PROFI TS AND GAINS FROM BUSINESS AND PROFESSION'. 6.1 IN RESPECT OF GROUND NO. 4, THE LD. AR SUBMITTED THAT THE ISSUE RELATING TO INTEREST INCOME PAID TO THE DEPARTMENT HAS B EEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 525/PN/2003 (SUPRA). WE FIND THAT IDENTICAL ISSUE WAS RAISED BY THE ASSESSEE AS GROUND NO. 3 IN ITA NO. 525/PN/2003 (SUPRA) . THE CO- ORDINATE BENCH OF THE TRIBUNAL IN PARA 42 OF THE ORDER HA S DEALT WITH THIS ISSUE AND HAS DISMISSED THIS GROUND. RESPECTFULLY FOLLO WING THE SAME THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED FO R THE SIMILAR REASONS. 7. GROUND NO. 5 OF THE APPEAL AND FINDINGS THEREON ARE AS UNDER: 5. DEDUCTION UNDER SECTION 37(1) OF THE ACT IN RESPECT OF LUMP SUM KNOW HOW FEES. 5.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AP PELLANT IS ELIGIBLE FOR DEDUCTION OF ONLY RS.1,03,00,449 IN RESPECT OF TECHNICAL KNOW- HOW ACQUIRED IN THE PREVIOUS YEAR RELEVANT TO ASSES SMENT YEAR 1997-98 AND THUS IN ENHANCING THE INCOME OF THE APP ELLANT BY RS.5,334,216. THE CIT(A) ERRED IN: 14 ITA NO. 339/PN/2004, A.Y. 1998-99 HOLDING THAT THE LUMP SUM EXPENSES (INCLUDING INCOM E-LAX AND R&D CESS THEREON) INCURRED BY THE APPELLANT FOR TECHNICAL KNOW-HOW ARE CAPITAL IN NATURE AND ARE CO VERED BY THE PROVISIONS OF SECTION 35AB OF THE ACT: AND GRANTING DEDUCTION OF ONLY 1/6 TH OF SECOND INSTALLMENT OF TECHNICAL KNOW PAID IN THE PREVIOUS YEAR RELEVANT T O THE ASSESSMENT YEAR 1998-99; AND INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT AND NOT GRANTING ANY DEDUCTION FOR THIRD INSTALLMENT OF TEC HNICAL KNOW FEES PROVIDED FOR IN THE HOOKS OF ACCOUNT AND IN RESPECT OF WHICH THE APPELLANT HAD ALSO PROVIDED FO R TAX DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB. IN VIEW OF THE ABOVE, THE APPELLANT PRAYS AS FOLLOW S: WITHOUT PREJUDICE TO THE APPELLANT'S PRIMARY CONTEN TION THAT THE ENTIRE AMOUNT PAID FOR TECHNICAL KNOW-HOW IS ALLOWA BLE DEDUCTION UNDER SECTION 37(1) OF THE ACT IN THE YEAR IN WHICH THE SAME WAS INCURRED (I.E.; IN THE PREVIOUS YEAR RELEVANT TO AS SESSMENT YEAR 1997-98). THE APPELLANT PRAYS THAT DEDUCTION FOR THE ENTIRE AMOUNT OF RS.6,35,48,653 (COMPRISING RS.33,12,26,83 BEING INSTALLMENT PAID I N YEAR RELEVANT TO ASSESSMENT YEAR 1998-99 AND RS.30,49,09 ,69 BEING AMOUNT PAYABLE AND PROVIDED FOR IN THE BOOKS OF ACCOUNT OF THE APPELLANT) BE ALLOWED UNDER SECTION 37(1) OF THE ACT, WITHOUT INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT; WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PRAYS THAT A DEDUCTION FOR RS.1,05,73,666 BEING R&D CESS AND TAX ES PAID ON SECOND AND THIRD INSTALLMENT OF TECHNICAL K NOW- HOW TEES BE ALLOWED UNDER SECTION 37(1) OF THE ACT READ WITH SECTION 43B OF THE ACT AND DEDUCTION OF RS.21, 666,664 [COMPRISING OF TECHNICAL KNOW-HOW FEES PAID AS SHOW N IN APPENDIX I] UNDER SECTION 35 AB OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PRAYS THAT A DEDUCTION FOR RS.105,73,666 BEING R&D CESS AND TAXE S PAID ON SECOND AND THIRD INSTALLMENT OF TECHNICAL K NOW- HOW FEES BE ALLOWED UNDER SECTION 37(1) OF THE ACT AND DEDUCTION FOR RS.1,28,26,666 [BEING 1/6 TH OF TOTAL TECHNICAL 15 ITA NO. 339/PN/2004, A.Y. 1998-99 KNOW-HOW FEES OF RS.76,95,998 PAID] OUGHT TO BE ALL OWED UNDER SECTION 35 AB OF THE ACT. WITHOUT PREJUDICE LO THE ABOVE, THE APPELLANT PRAYS THAT A DEDUCTION FOR RS.1,53,822,77 BE ALLOWED UNDER SECTI ON 35AB OF THE ACT [BEING 1/6 TH OF TOTAL TECHNICAL KNOW-HOW FEES PAID AND R&D CESS PAID ON SECOND AND THIRD INSTALLMENT AND TAXES PAID THEREON]. 7.1 THE LD. AR SUBMITTED THAT THE ISSUE RAISED IN GROUND N O. 5 IS SIMILAR TO THE ONE RAISED IN ASSESSMENT YEAR 1997-98. TH E CO-ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT THE PROVISIONS OF SECT ION 35AB OF THE ACT ARE TO BE APPLIED TO THE LUMP SUM CONSIDERATION PAID FOR ACQUISITION OF TECHNICAL KNOW-HOW BY THE ASSESSEE. 7.2 THE LD. DR ADMITTED THAT THE ISSUE RAISED BY THE ASSE SSEE IN GROUND NO. 5 HAS BEEN ADJUDICATED BY THE CO-ORDINATE B ENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 525/PN/2003 (S UPRA). HOWEVER, THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF T HE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 7.3 BOTH THE SIDES HAVE SUBMITTED THAT THE ISSUE RAISED IN GROUND NO. 5 THE APPEAL HAS BEEN CONSIDERED BY THE CO-ORDINAT E BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 525/PN/2003 (S UPRA). THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS REPRODUCED AS UNDER : 31. IN VIEW OF INTRODUCTION OF PROVISIONS OF SECTI ON 35AB OF THE ACT WHICH WERE INSERTED BY THE FINANCE ACT, 1985 W.E.F. 01.04.1986, WE ARE OF THE VIEW THAT IN CASES OF PAYMENT OF LUMP SUM CO NSIDERATION FOR ACQUIRING TECHNICAL KNOW-HOW, THE PROVISIONS OF SEC TION 35AB OF THE ACT ARE ATTRACTED AND THE EXPENDITURE IS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT, WHICH IS GENERAL PROVISION AND SPECIFICALL Y EXCLUDES EXPENDITURE COVERED UNDER SECTIONS 30 TO 36 OF THE ACT. CONSEQ UENTLY, THE SAID EXPENDITURE IS TO BE AMORTIZED UNDER SECTION 35AB O F THE ACT AND CANNOT BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH THE LIABILITY TO PAY THE SAID AMOUNT ACCRUES. THE HONBLE SUPREME COURT IN DRILCOS (INDIA) (P.) 16 ITA NO. 339/PN/2004, A.Y. 1998-99 LTD. VS. CIT (SUPRA) HAD HELD THAT AFTER INSERTION OF SECTION 35AB OF THE ACT, WHERE THE EXPENDITURE IS TO BE USED IN BUSINES S OF ASSESSEE, SECTION 35AB OF THE ACT WOULD COME INTO PLAY AND THE PROVIS IONS OF SECTION 37(1) OF THE ACT ARE NOT APPLICABLE FOR UNITS ESTABLISHED PRIOR TO 01.04.1998. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THA T PROVISIONS OF SECTION 35AB OF THE ACT ARE TO BE APPLIED TO THE LU MP SUM CONSIDERATION PAID FOR ACQUISITION OF TECHNICAL KNOW-HOW BY THE A SSESSEE. 32. ANOTHER PLEA RAISED BY THE ASSESSEE WAS THAT TH E ASSESSEE HAD ONLY ACQUIRED THE RIGHT TO USE THE TECHNICAL KNOW-H OW. THE READING OF CLAUSES OF AGREEMENT WITH SPECIAL REFERENCE TO CLAU SE 8 I.E. EFFECT OF TERMINATION OF AGREEMENT REFLECTS THAT THE ASSESSEE HAD ACQUIRED THE SAID TECHNICAL KNOW-HOW IN PERPETUITY. EVEN AFTER THE TERMINATION OF PERIOD OF AGREEMENT I.E. 7 YEARS, THE ASSESSEE HAD THE RIGHT TO USE THE SAID TECHNICAL KNOW-HOW AND CONTINUE TO MANUFACTURE THE ITEMS USING BOTH THE PATENTED AND UN-PATENTED SANDVIK KNOW-HOW PROVIDED BY SANDVIK TO IT. AS PER THE AGREEMENT, THE TECHNICAL KNOW-HOW IN SUCH CIRCUMSTANCES, WAS ACQUIRED BY THE ASSESSEE BY PAYI NG THE CONSIDERATION AGAINST THE PURCHASE OF THE SAID TECH NICAL KNOW-HOW AND WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE THAT T HE CONSIDERATION TO BE PAID IN INSTALLMENTS WAS PAID FOR THE USE OF TECHNI CAL KNOW-HOW AND NOT FOR THE ACQUISITION OF TECHNICAL KNOW-HOW AND HENCE NOT COVERED UNDER SECTION 35AB OF THE ACT. THE SECTION ITSELF PROVID ES THAT ANY LUMP SUM CONSIDERATION PAID FOR ACQUIRING ANY KNOW-HOW, FOR USE, FOR THE PURPOSE OF HIS BUSINESS IS TO BE DEDUCTED IN SIX INSTALLMEN TS. UNDER THE AGREEMENT, THE TECHNICAL KNOW-HOW RECEIVED BY THE A SSESSEE WAS IN RELATION TO PRODUCTION OF NEW TYPE OF CEMENTED CARB IDE PRODUCTS, AND ACQUISITION GAVE RISE TO COMING INTO EXISTENCE OF A SSET AND ADVANTAGE OF ENDURING BENEFIT AND THE SAME IS ENVISAGED IN SECTI ON 35AB OF THE ACT. THERE IS PASSAGE OF RIGHTS, KNOW-HOW AND TECHNOLOGY UNDER THE AGREEMENT, AND THE SAID ASSET AND ADVANTAGE HAD BEE N ACQUIRED FOR USE IN BUSINESS OF THE ASSESSEE AND THE SAME COULD BE U SED BY ASSESSEE EVEN AFTER THE TERM OF AGREEMENT. WE HOLD THAT THE ASSESSEE HAVING ACQUIRED THE TECHNICAL KNOW-HOW IS TO BE SUBJECTED TO THE PROVISIONS OF SECTION 35AB OF THE ACT VIS--VIS ITS CLAIM OF DEDUC TION OF THE SAID AMOUNT. THE CIT(A) VIDE OBSERVATIONS ON PAGE 11 OF APPELLATE ORDER HAD HELD THAT THE LIABILITY FOR PAYMENT OF TECHNICAL KN OW-HOW ACCRUED IN ASSESSMENT YEAR 1997-98 ITSELF AND THE DEDUCTION UN DER SECTION 35AB OF THE ACT HAD TO BE ALLOWED ON FULL AMOUNT. THE REVE NUE IS NOT IN APPEAL AGAINST THE SAID OBSERVATIONS OF THE CIT(A). ACCOR DINGLY, WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD AND WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 35AB OF THE ACT ON THE FULL AMOUNT I.E. RS.8.82 CRORES. THE AHMEDABAD BENCH OF THE TRIBUNA L IN APS-STAR 17 ITA NO. 339/PN/2004, A.Y. 1998-99 INDUSTRIES LTD. VS. DCIT (SUPRA) HAD ALSO HELD THAT WHAT IS MATERIAL FOR SECTION 35AB OF THE ACT IS NOT THE ACTUAL AMOUNT PA ID DURING THE YEAR BUT THE AMOUNT IN RESPECT OF WHICH LIABILITY HAD BEEN I NCURRED FOR ACQUIRING TECHNICAL KNOW-HOW. WE HOLD SO. THE CIT(A) AFTER HOLDING THE ASSESSEE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 35AB OF THE ACT ON THE FULL AMOUNT, HAD NOT ALLOWED THE CLAIM OF THE ASSESSEE I N VIEW OF NON- DEDUCTION OF TAX AT SOURCE ON THE BALANCE TWO INSTA LLMENTS, WHICH WERE PAID IN THE SUCCEEDING ASSESSMENT YEARS, IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. ADMITTEDLY, THE ASSES SEE HAD DEDUCTED TAX AT SOURCE ON THE INSTALLMENT PAID DURING THE FINANCIAL YEAR AND HAS PAID TAX AT SOURCE ON THE BALANCE INSTALLMENTS IN THE SUCCEE DING YEARS. IN THIS REGARD, WE FIND MERIT IN THE PLEA OF LEARNED AUTHOR IZED REPRESENTATIVE FOR THE ASSESSEE THAT THIS WAS AT BEST OF THE CASE OF S HORT DEDUCTION OF TAX AND NOT NON-DEDUCTION OF TAX AT SOURCE AND THERE WA S NO MERIT IN INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. WE FIND THAT THE ISSUE IN THE PRESENT APPEAL IS SIMILAR TO T HE ONE DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSES SMENT YEAR 1997-98. THE LD. DR HAS NOT BEEN ABLE TO SHOW FROM RECO RDS ANY POINT OF DISTINCTION. RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BENCH WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE IN THE SAME TERMS. 8. GROUND NO. 6 OF THE APPEAL AND FINDINGS THEREON ARE AS UNDER: 6. DEDUCTION UNDER SECTION 37(1) OF THE ACT ON ACCO UNT OF EXCHANGE FLUCTUATION LOSS OF RS.51,72,003. 6.1 THE LEARNED CIT(A) ERRED IN REJECTING THE APPEL LANT'S CLAIM THAT EXCHANGE FLUCTUATION LOSS OF RS.51,72,003 IS DEDUCT IBLE UNDER SECTION 37( 1) OF THE ACT. THE ABOVE LOSS WAS INCUR RED BY THE APPELLANT ON ACTUAL PAYMENT OF TECHNICAL KNOW-HOW F EES PAID DURING THE YEAR AND ON RESTATEMENT OF OUTSTANDING L IABILITY AT THE EXCHANGE RATE PREVAILING ON 3 1 MARCH 1998. THE APPELLANT PRAYS THAT THE ABOVE LOSS BE ALLOWED UNDER SECTION 37(1) OF THE ACT. 8.1 THE LD. AR SUBMITTED THAT THE EXCHANGE FLUCTUATION LOS S WAS SUFFERED BY THE ASSESSEE ON ACTUAL PAYMENT OF TECHNICAL K NOW-HOW FEE 18 ITA NO. 339/PN/2004, A.Y. 1998-99 PAID DURING THE YEAR. THE LD. AR REFERRED TO TABLE 5 IN TH E LIST OF THE TABLE PLACED BEFORE US AND SUBMITTED THAT DEDUCTION ALLOW ABLE U/S. 35AB AND EXCHANGE DIFFERENCES HAVE BEEN WORKED OUT IN A CCORDANCE WITH THE DECISION OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. WOODWARD GOVERNOR INDIA P . LTD. REPORTED AS 312 ITR 254 (SC). THE RELEVANT TABLE ON WH ICH THE LD. AR HAS PLACED RELIANCE IS AS UNDER: TABLE 5 : DEDUCTION ALLOWABLE U/S. 35AB AND EXCHAN GE DIFFERENCES IN ACCORDANCE WITH SUPREME COURT DECISION IN WOODWARD GOVERNER (312/ITR/254) AY TOTAL BASED ON WHICH SEC 35AB TO BE ALLOWED AMOUNT ALLOWED U/S. 35AB BASED ON RS.8,82,46,665 EXCHANGE DIFFERENCES TOTAL 1997-98 8,82,46,665 1,47,07,778 - 1,47,07,778 1998-99 9,34,83,668 1,47,07,778 29,47,684 1,47,07,7 78 1999-00 9,34,83,668 1,47,07,778 22,24,316 1,47,07,7 78 2000-01 9,34,83,668 1,47,07,778 - 1,47,07,778 2001-02 9,34,83,668 1,47,07,778 - 1,47,07,778 2002-03 9,34,83,668 1,47,07,778 - 1,47,07,778 2003-04 9,34,83,668 1,47,07,778 - - TOTAL >>>>> 8,82,46,668 51,72,000 9,34,18,668 8.2 ON THE OTHER HAND THE LD. DR OBJECTED TO THE SAME AND SUBMITTED THAT THERE IS NO INFIRMITY IN THE FINDINGS OF THE AUTHORITIES B ELOW ON THIS ISSUE. 8.3 WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BE LOW. WE ARE OF THE VIEW THAT IF THE EXCHANGE FLUCTUATION LOSS HAS BEEN WR ONGLY COMPUTED, THE SAME HAS TO BE REWORKED. WE DEEM IT AP PROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR RE-COMPUTING EXCHANGE FLUCTUATION LOSS AND ARRIVE AT THE CORRECT AMOU NT OF DEDUCTION 19 ITA NO. 339/PN/2004, A.Y. 1998-99 U/S. 37(1) OF THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSE E IS ALLOWED FOR THE STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A CCEPTED IN THE FORESAID TERMS. ORDER PRONOUNCED ON FRIDAY, THE 11 TH DAY OF DECEMBER, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 11 TH DECEMBER, 2015 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-III, PUNE 4. ' / THE CIT-V, PUNE 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE