The Asstt. Commissioner of Income Tax, Vapi Circle, Vapi V. M/s. Mitsu Limited, Daman

ITA 3510/AHD/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2062 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2000-2001
• Appeal Filed On: 26-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Not Found
• Assessee Lawyers: A GOPALAKRISHNAN
• Keywords: Reopening of assessment; Capital asset; Gift; Business income; General deduction; Transfer pricing; Business expenditure; Rectification of order; Maximum Marginal Rate; Question of law; Cost of acquisition; Difference of opinion; Assessment record; Capital receipt; Change of opinion; Revenue expenditure; Capital expenditure; Capital Gains
• Section: 43B; 80HHC; 80IB; 37(1); 250; 80IA; 80HH; 192; 64; 113; 43; 48; 73; 72; 13; 22; 147; 37; 28; 154

Judgement Text

PAGE 1 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 , , IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI SANDIP GOSAIN, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER S N . .. . . .. . ./ ././ ./ I .T.A NO. / // / A Y: APPELLANT V. /RESPONDENT 1 1671/AH D/2006 2002 - 03 M/S. MITSU LIMITED, 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q V. ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRCLE, VAPI 2 1371/AH D/2006 2002 - 03 ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRCLE, VAPI V. M/S. MITSU LIMITED, 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q 3 CO.NO.1 84/AHD/ 2006 2002 - 03 M/S. MITSU LIMITED, 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q V. ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRCLE, VAPI 4 16 72/AH D/2006 2003 - 04 M/S. MITSU LIMITED, 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q V. ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRCLE, VAPI 5 1764/AH D/2006 2003 - 04 ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRCLE, VAPI V. M/S. MITSU LIMITED, 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q 6 1000/AH D/2016 2002 - 03 M/S. MITSU LIMITED, 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q V. ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRCLE, VAPI 7 3510/AH D/2016 2000 - 01 ASSISTANT COMMISSIONER OF V. M/S. MITSU LIMITED, PAGE 2 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 INCOME TAX - VAPI CIRCLE, VAPI 304/2, IIND PHASE, GIDC, VAPI 396195 PAN: AACCM 2764 Q ASSESSEE BY SHRI A. GOPALAKRISHNAN, CA REVENUE BY SHRI RITESH MISHRA, CIT(D.R.) DATE OF HEARING 13.02.2020 DATE OF PRONOUNCEMENT 04 - 05 - 2020 /ORDER PER BENCH: 1. THE ABOVE CAPTIONED APPEALS BY THE ASSESSEE AND REV ENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF LEARNED COM MISSIONER OF INCOME TAX (APPEALS)-VALSAD(IN SHORT THE CIT (A)) DATED 31.03.2006 FOR THE ASSESSMENT YEAR 2002-03 AND CROSS OBJECTION BY THE ASSESSEE , ORDER DATED 15.05.2006 FOR THE ASSESSMENT YEAR 2003-04 , AND OR DER DATED 30.08.2006 FOR THE ASSESSMENT YEAR 2002-03 AND ORDER 09.03.201 6 FOR THE ASSESSMENT YEAR 2000-01 ARE AGAINST THE APPEAL OF ASSESSMENT O RDER PASSED UNDER SECTION 143 (3)/ 143(3)/263 OF INCOME TAX ACT,1961 (IN SHORT THE ACT) BY THE ASSISTANT COMMISSIONER OF INCOME TAX-VAPI CIRC LE, VAPI (REFERRED AS THE AO). THESE APPEAL WERE BY THE ASSESSEE AS WELL AS REVENUE FOR THE AND CROSS OBJECTION BY THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 AND A.Y. 2003-04 AND A.Y. 2000-01 INVOLVING COMMON ISSUES WE RE HEAD TOGETHER AND PAGE 3 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 BEING DISPOSED-OF BY THIS CONSOLIDATED ORDER FOR TH E SAKE OF BREVITY AND CONVENIENCE. 2. I.T.A.NO. 1671/AHD/2006/ A.Y. 2002-03: BY THE ASSES SEE: 3. GROUND NO. 1 & 2: ARE GENERAL IN NATURE; HENCE, DOE S NOT REQUIRE OUR ADJUDICATION. 4. GROUND NO. 3 STATES THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 29,242 BEING STAFF WELFARE EXPE NSES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS I NCURRED THIS EXPENDITURE UNDER STAFF WELFARE EXPENSE ON ACCOUNT OF PURCHASE OF WASHING MACHINE FOR DIRECTOR AND UMBRELLAS GIVEN TO SELECTED STAFF. HENCE, THIS EXPENDITURE IS IN THE NAME OF GIFTS, WHICH CANNOT BE ALLOWED AS BUSINESS EXPENSES. WE FURTHER OBSERVE THAT THE TRIBUNAL ALSO CONFIRMED SU CH DISALLOWANCE IN I.T.A.NO. 2470/A/2004 FOR THE ASSESSMENT YEAR 2001- 02 IN THE CASE OF THE ASSESSEE. IN VIEW OF THESE FACTS, THIS GROUND OF AP PEAL IS DISMISSED. 6. GROUND NO. 4 STATES THAT LD. CIT (A) HAS ERRED IN C ONFIRMING DISALLOWANCE OF SALE PROMOTION EXPENSES OF RS. 45,2 15. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE AO OBSERVED TH AT THE ASSESSEE HAS DEBITED SALE PROMOTION EXPENSES OF RS.2,26,078 WHIC H INTER-ALIA INCLUDED PAGE 4 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 EXPENDITURE ON GIFT TO FOREIGN CLIENTS, ORGANIZER D IARY ETC. CLAIMED TO HAVE BEEN INCURRED TO DEVELOP THE RELATIONSHIP WITH THE M. ACCORDINGLY, THE AO DISALLOWED 1/5 TH OF THE SAME AT RS.45, 215. THE CIT (A) ALSO UPHELD THE SAME. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT SUCH EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BU SINESS HENCE, SAME IS ALLOWABLE AS DEDUCTION. FURTHER, THE ISSUE IS COVER ED IN FAVOUR OF THE ASSESSEE BY ORDER OF TRIBUNAL [I.T.A.NO. 2453/AHD/2 004/A.Y. 01-02] VIDE PARA 23.1 AT PAGE NO. 22. WE FIND THAT THE AO HAS DISALLOWED THE SAME ON ESTIMATE BASIS WITHOUT ANY JUSTIFICATION. HENCE, SA ME ARE DIRECTED TO BE ALLOWED. THIS GROUND OF APPEAL IS THEREFORE, ALLOWE D. 8. GROUND NO. 5 & 6 : STATES THAT LD. CIT (A) HAS ERRE D IN CONFIRMING THE ACTION OF THE AO IN NOT CONSIDERING THE CLAIM O F THE ASSESSEE THAT THE ENTIRE RECEIPT TO THE TUNE OF RS.23,06,12,200 B Y WAY OF TRANSFER OF TECHNICAL KNOW-HOW AND FOR UNDERTAKING NON-COMPETE OBLIGATION AS CAPITAL RECEIPTS AND THE LD. CIT (A) ERRED IN CONFI RMING ACTION OF THE AO ON ACCOUNT OF CLAIM OF THE APPELLANT ON PART TRANSF ER AS NON-COMPETE FEES TO THE TUNE OF RS. 14,55,41,760 NOT EXIGIBLE T O TAX. THE ACTION OF THE AO IS CONTRARY TO THE FACTS. 9. BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF VARIOUS KINDS OF PESTI CIDES. DURING THE YEAR PAGE 5 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS IMPAR TED THE PROCESS/TECHNOLOGY OF PRODUCTION OF CHLOROPYRIDINE PRODUCTS DEVELOPED BY IT TO M/S. DOW AGRO SCIENCE B. V., (IN SHORT DAS) C OMPANY REGISTERED IN NETHERLANDS. THE TOTAL CONSIDERATION RECEIVED BY TH E ASSESSEE WAS RS.18,19,27,200. OUT OF THIS, THE ASSESSEE HAS TREA TED 20% OF THE RECEIPT AMOUNTING TO RS.3,63 85,440 AS ROYALTY FOR USE OF P ROCESS/TECHNOLOGY (HEREINAFTER REFERRED TO AS TECHNICAL KNOW-HOW) AND 80% OF THE ABOVE RECEIPTS AMOUNTING TO RS.14,55,41,760 WERE TREATED AS CONSIDERATION FOR LOSS OF SOURCE OF INCOME AND HENCE, AS CAPITAL RECE IPT. THE ASSESSEE HAS CLAIMED THIS RECEIPT AS NON-COMPETE FEES OF RS.14,5 5,41,760 AS CAPITAL RECEIPT AND CLAIMED IT AS EXEMPT FROM TAX. HOWEVER, THE AO, WHILE GOING THROUGH THE ASSESSMENT RECORDS, NOTICED THAT DURING THE ASSESSMENT YEAR 2000-01, THE ASSESSEE HAS ENTERED INTO A NON-COMPET E AGREEMENT WITH ANOTHER PARTY HOECHEST AGROENVO AND HAS RECEIVED RS .10 CRORES AS A CONSIDERATION FOR NONCOMPETING INTO THAT PARTICULA R LINE OF BUSINESS. SINCE THE NATURE OF TRANSACTION OF THIS YEAR IS SIMILAR, THE ASSESSEE WAS THEREFORE ASKED TO EXPLAIN AS TO WHY THIS RECEIPT SHOULD NOT BE TREATED AS A REVENUE INSTEAD OF CAPITAL RECEIPT AND TAX AS BUSINESS INCO ME UNDER SECTION 28 OF THE INCOME TAX ACT, 1961. IT WAS EXPLAINED BY THE A SSESSEE THAT THE ASSESSEE HAS ENTERED INTO A NON-COMPETE COVENANT WI TH THE PURCHASER OF PAGE 6 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 TECHNICAL KNOW-HOW AND BY DOING SO, IT HAD UNDERTAK EN AN OBLIGATION THAT IT WILL NOT CARRY OUT ANY KIND OF RESEARCH RELATED TO CHLOROPYRIDINE PRODUCT FOR THE PERIOD OF 10 YEARS AND WILL NOT SELL SUCH T ECHNICAL KNOW-HOW INFORMATION AND INTELLECTUAL PROPERTY OF MANUFACTUR ING TO ANY THIRD PARTY. THUS, THE ASSESSEE COMPANY LOST ITS SOURCE OF INCOM E AS A RESULT OF NON- COMPETE AGREEMENT. THE ASSESSEE COMPANY CANNOT USE AND SHARE TECHNICAL KNOW-HOW TO OTHERS AND IF THE ASSESSEE IS USES TECH NICAL KNOW-HOW INFORMATION FOR ITSELF, IT WILL HAVE TO PAY HEAVY P ENALTIES TO THE BUYER. HOWEVER, THE AO REPRODUCED THE CLAUSE 2.4 OF THE TE CHNOLOGY PURCHASES AGREEMENT WITH DAS BV AS UNDER: TO PROTECT THE VALUE OF MITSU OF KNOW-HOW TO DAS, MI TSU AND ITS AFFILIATES SHALL NOT CONTINUE RESEARCH RELATED TO TH E PRODUCTION OF CHLOROPYRIDINE PRODUCTS BASED UPON MITSU KNOW-HOW FOR THE PERIOD OF TEN (10) YEARS FROM THE EFFECTIVE DATE OF THIS A GREEMENT, EXCEPT AS OTHERWISE PROVIDED IN THE SUPPLY AND LICENSE AGR EEMENT FOR CHORPYRIFOS AND CHORPYRISFOS METHYL OF AND EVEN DAT E BETWEEN THE PARTIES. FOR A LIKE PERIOD, MITSU SHALL USE ITS BEST EFFORTS TO PREVENT DISCLOSURE TO THIRD PARTIES FOR USE OF MITSU OF KNOW- HOW BY ITS EMPLOYEES, SUBSEQUENT TO THE EFFECTIVE DATE OF THIS P ARAGRAPH 2.4 MITSU ACKNOWLEDGES AND CONFIRMS THAT THE COVENANTS WHICH HAS PROVIDED UNDER THIS AGREEMENT ARE REASONABLE ON IT. IN VIEW OF THE CONSIDERATION, IT HAS RECEIVED UNDER THIS AGREEMENT. 10. THE AO OBSERVED THAT THE PERUSAL OF THE ABOVE CLAUS E OF TECHNOLOGY PURCHASE AGREEMENT MAKES IT CLEAR THAT THE ASSESSEE WAS RESTRAINED FROM DOING ANY KIND OF ACTIVITY RELATED TO CHLOROPYRIDIN E PRODUCTS FOR A PERIOD PAGE 7 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 OF 10 YEARS AND AS A RESULT, IT LOST ITS SOURCE OF INCOME FROM THE PARTICULAR ACTIVITY. HOWEVER, IT IS HARD TO BELIEVE THAT THE R ECEIPT IS NOT A BUSINESS RECEIPT. IF THE ASSESSEE WERE NOT ENGAGED INTO THE BUSINESS OF MANUFACTURING AND SELLING VARIOUS KINDS OF PESTICID ES, IT WOULD HAVE NOT EARNED THIS INCOME. THE ASSESSEE COMPANY EARNED THI S INCOME ONLY BECAUSE OF THIS KNOWLEDGE AND EXPERTISE IN THAT BUS INESS. HAD THE ASSESSEE COMPANY NOT BEEN IN THE BUSINESS OF MANUFACTURING A ND SELLING OF PESTICIDES AND IT WOULD HAVE NOT ACQUIRED KNOWLEDGE AND EXPERTISE RELATED TO THE DEVELOPMENT OF CHLOROPYRIDINE PRODUCTS. IT I S TRUE THAT THE ASSESSEE HAS LOST ITS SOURCE OF INCOME, BUT FROM THE PERUSAL OF THE TECHNOLOGY TRANSFER AGREEMENT AND OTHER FACTS AND CIRCUMSTANCE S OF THE CASE, IT IS ALSO EVIDENT THAT RECEIPT OF NON-COMPETE FEES IS NOTHING BUT A RECEIPT RESULTING IN THE BENEFIT OF THE COMPANY WHICH AROSE OUT OF CA RRYING ON BUSINESS. THE AO FURTHER PLACED RELIANCE IN THE CASE OF CIT V. R L BHARGAVA (86 OF 1981) OF HON`BLE DELHI HIGH COURT WHEREIN IT WAS HELD THA T THE CONSIDERATION RECEIVED FOR IMPARTING TECHNICAL KNOW-HOW, WITHOUT THE VALUE OF ANY CAPITAL ASSET, SHOULD BE TREATED AS A BUSINESS RECE IPT. THE AO FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS ITSELF TREAT ED 20% OF TOTAL RECEIPT AS A REVENUE RECEIPT CHARGEABLE TO TAX AS BUSINESS INCOME. IF 20% OF THE TOTAL RECEIPT IS BUSINESS INCOME, WHICH THE ASSESSE E ITSELF ADMITS, THEN HOW PAGE 8 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 80% OF THE SAME TOTAL RECEIPT CAN BE TREATED AS CAP ITAL RECEIPTS? TOTAL RECEIPTS COMES FROM ONE SINGLE SOURCE I.E. FROM ONE SINGLE TRANSACTION (SALE OF TECHNOLOGY/OF KNOW-HOW), THEN HOW TWO TREATMENT CAN BE GIVEN TO IT. THEREFORE, THE ASSESSEE COMPANY WAS ASKED TO GIVE T HE BASIS OF THE ALLOCATION OF TOTAL RECEIPTS AS 20% REVENUE RECEIPT AND 80% CAPITAL RECEIPT. HOWEVER, THE ASSESSEE COMPANY COULD NOT PROVIDE THE BASIS OF ALLOCATION AND HAS MADE THE ALLOCATION ARBITRARILY. THE AO FUR THER OBSERVED THAT THERE IS NO TRANSFER OF ANY CAPITAL ASSET. THEREFORE, IN THE CIRCUMSTANCES, IT WAS HELD THAT THE ENTIRE AMOUNT HAS BEEN RECEIVED AS RO YALTY AGAINST TRANSFER OF TECHNICAL KNOW-HOW ALONG WITH THE FUTURE PROFITS OF THE ASSESSEE COMPANY. THE AO FURTHER NOTED THAT IT APPEARS THAT THE ASSESSEE COMPANY IS A MAJOR COMPETITOR OF THE PURCHASER OF THE KNOW- HOW. THE AGREEMENT IS MUCH MORE THAN AN AGREEMENT OF TRANSFER OF KNOW-HOW . THE ASSESSEE COMPANY HAS AGREED TO KEEP OFF FROM THE MARKET AND HAS SIMILARLY OFFERED ALL ITS INTANGIBLE BUSINESS RESOURCES LIKE PRODUCT REGISTRATION, CUSTOMER INFORMATION AND MARKET CONTACTS, WHICH WE WILL ENAB LE THE PURCHASER TO EARN REVENUE PROFIT YEAR AFTER YEAR. THE ASSESSEE C OMPANY, ON THE OTHER HAND, HAS RECEIVED THE PROFIT IT WOULD HAVE EARNED FOR A PERIOD THROUGH A SINGLE ACT I.E. BY TRANSFERRING THE TECHNICAL KNOW- HOW AND KEEPING OFF THE COMPETITION. PAGE 9 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 11. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). IT WAS CONTENDED BEFORE THE CIT (A) THAT THE LEGISL ATOR HAS SOUGHT TO BRING INTO TAX RECEIPTS FOR AN UNDERTAKING NON-COMPETE CO VENANTS FROM THE ASSESSMENT 2003-04 ONLY. THE ASSESSEE COMPANY HAS S OLD THE TECHNICAL KNOW-HOW ALONG WITH UNDERTAKING NON-COMPETE COVENAN TS. THE HON`BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RAWLLWOLF L IMITED [1983] 143 ITR 720 (BOMBAY) HELD THAT SUCH RECEIPTS ARE CAPITAL IN NATURE NOT LIABLE TO TAX. THE CASE LAWS OF CIT V. R L BHARGAVA (86 OF 19 81) IS DISTINGUISHABLE AS IN THAT CASE THE ASSESSEE HAS TRANSFERRED ONLY TECH NICAL KNOW-HOW WITH NO COMMERCIAL OBLIGATION WHICH IS NOT THE CASE OF THE ASSESSEE. HOWEVER, THE LD. CIT (A) HAS ECHOED THE FINDINGS OF THE AO ON TH E GROUND THAT THE ASSESSEE COMPANY WAS MANUFACTURE AND EXPORTER OF TH E PRODUCTS IN INDIA AND ABROAD. THE APPELLANT COMPANY HAS SOLD ITS LINE OF BUSINESS AND TECHNICAL KNOW-HOW TO A FOREIGN COMPANY WHO WILL NA TURALLY INSIST THAT SUCH TECHNOLOGY NOT BE SHARED WITH A THIRD PARTY. IT IS TRUE THAT THE SALE OF KNOW- HOW AND UNDERTAKING OF NON-COMPETE OBLIGATIONS IS R ESULTING IN LOSS OF SOURCE OF INCOME OF THE APPELLANT COMPANY. THE AO H AS RELIED IN THE CASE OF CIT V. R L BHARGAVA (SUPRA) WHEREIN SALE OF TECH NICAL KNOW-HOW HAS BEEN HELD TO BE THE BUSINESS RECEIPT. THEREFORE, AFTER P ERUSAL OF THE VARIOUS FACTUAL ASPECT OF THE CASE, THE LD. CIT(A) HAS AGRE ED THAT THE APPELLANT PAGE 10 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 COMPANY HAS EARNED THE RECEIPT TO THE TUNE OF RS.14 ,55,41,760/- FOR TRANSFER OF KNOW-HOW AND THE SAME CONSTITUTES AN IN COME TAXABLE UNDER THE PROVISIONS OF THE ACT. 12. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE ONCE AGAIN STRONGL Y RELIED UPON THE PROVISIONS OF SEC. 28(1) AND REITERATED THE STAND O F THE ASSESSEE THAT IT IS A PRIMARY CONDITION THAT THE ASSESSEE MUST CARRY ON THE BUSINESS DURING THE PREVIOUS YEAR ONLY THEN THE PROFITS AND GAINS WILL BE TAXABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. THE LD. COUNSEL FU RTHER ARGUED THAT SECTION 28(VA)(A) HAS BEEN INSERTED BY THE FINANCE ACT, 200 2 W. E. F 1.4.2003 AND REFERENCE IS ONLY TO ANY SUM WHETHER RECEIVED OR RE CEIVABLE IN CASH OR KIND UNDER AN AGREEMENT FOR NOT CARRYING OUT ANY ACTIVIT Y IN RELATION TO ANY BUSINESS. THEREFORE, SUCH SUM IS CHARGEABLE UNDER S ECTION 28(VA) WITH EFFECT FROM 01.04.2003 I.E. A.Y. 2003-04 AND NOT FO R THE ASSESSMENT YEAR UNDER APPEAL. THE LD. COUNSEL ALSO CONTENDED THAT THE MAIN PROVISION OF SEC. 28 AND SEC. 28(VA) REFERS TO CARRYING ON OF BU SINESS AND AS THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS, THEREFORE THERE I S NO QUESTION ON THE TAXABILITY OF NON-COMPETE FEES UNDER THE HEAD PROFI TS AND GAINS OF BUSINESS. ON THE CONTRARY, IT IS A CAPITAL RECEIPT AND HAS BEEN RIGHTLY RETURNED UNDER THE HEAD CAPITAL GAINS BY THE ASSESS EE IN HIS RETURN OF PAGE 11 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 INCOME. THE LD. COUNSEL FILED A PAPER BOOK RELYING UPON THE DECISION OF ITAT IN THE CASE OF MRS. HAMI ASPI BALSARA ( SUPRA ), ACIT V. SAVITA MANDHANA IN ITA NO. 3900/MUM/2010, DR. B.V. RAJU ( SUPRA ), GUFFIC CHEM (P.) LTD. V. CIT [2011] 332 ITR 602/198 TAXMAN 78 (SC) AND JOHN D'SOUZA . THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT SIMILAR ANT HELD TO BE CAPITAL RECEIPT IN THE CASE OF THE ASSES SEE BY THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.1151 AND 1188 OF 2008 A ND 800 OF 2013 DATED 04.07.2016[ PB-61 TO 68] WHEREIN AFTER CONSIDERING THE DECISION OF HON`BLE SUPREME COURT IN THE CIRCUMSTANCES GUFFIC CHEM (P.) LTD. V. CIT [2011] 332 ITR 602 (SC)/ [2011] 198 TAXMAN 78 (SC) WHICH HELD THAT NON-COMPETE FEES RECEIVED FOR FROM REFRAINING FROM CARRYING ON BUSINESS WAS CAPITAL RECEIPT AND NON-COMPETE FEES RECEIVED PRIOR TO 01.0 4.2003 WAS NOT TAXABLE UNDER SECTION 28(VA) OF THE ACT AND CIT V. SAPTHAGI RI DISTILLERIES LTD. [2015] 53 TAXMANN.COM 218 (SC) IT WAS HELD THAT COMPENSA TION AMOUNT RECEIVED TOWARDS LOSS OF SOURCE OF INCOME AND NON-COMPETITIO N FEES WOULD ONLY BE TREATED AS CAPITAL RECEIPT AND WAS NOT LIABLE TO TA X, HELD IN FAVOUR OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE FURT HER RELIED IN THE CASE OF CIT V. MRS. TARA SINHA [I.T.A.NO. 154/2005 DATED 11 .08.2017 OF HON`BLE DELHI HIGH COURT] IN SUPPORT OF HIS CONTENTIONS. 13. PER CONTRA, LD. D.R. SUPPORTED THE ORDER OF LOWER AUTHORITIES. PAGE 12 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS COVER ED BY DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF THE ASSESSEE WHER EIN IT WAS HELD AGAINST THE ORDER OF THE COMMISSIONER OF (APPEALS) , THE ASSESSEE PREFERRED THE APPEAL BEFORE THE TRIBUNAL. THE TRIBUNA L BY ITS ORDER DATED 4.1.2008 ALLOWED THE APPEAL BY HOLDING THAT S ECTION 28(IV) OF THE ACT WAS NOT APPLICABLE IN THE CASE OF THE ASSES SEE. HENCE THE REVENUE IS BEFORE US. 7. LEARNED COUNSEL FOR THE APPELLANT-REVENUE MR. SUDHI R MEHTA HAS CONTENDED THAT THE TRIBUNAL HAS COMMITTED AN ERROR I N ALLOWING THE APPEAL OF THE ASSESSEE WHEREBY HOLDING THAT THAT SE CTION 28(IV) OF THE ACT WAS NOT APPLICABLE IN THE CASE OF THE ASSES SEE. HE HAS FURTHER CONTENDED THAT THE ISSUE SQUARELY FALLS WITHIN THE SC OPE OF SECTION 28(IV) OF THE ACT. 8. LEARNED COUNSEL FOR THE RESPONDENT MR. PATEL HAS CON TENDED THAT THE ISSUE IS COVERED BY THE DECISION OF THE APEX COUR T IN THE CASE OF GUFFIC CHEM (P.) LTD. V. CIT [2011] 332 ITR 602/198 TAXMAN 78/10 TAXMANN.COM 105 (SC) WHERE IN PARAGRAPH NO. 7 IT IS HELD AS FOLLOWS: 'TWO QUESTIONS AROSE FOR DETERMINATION, NAMELY, WHET HER THE AMOUNTS RECEIVED BY THE APPELLANT FOR LOSS OF AGENCY WAS IN NORMAL COURSE OF BUSINESS AND THEREFORE WHETHER THEY CONSTITUTED REVEN UE RECEIPT? THE SECOND QUESTION WHICH AROSE BEFORE THIS COURT WAS WHE THER THE AMOUNT RECEIVED BY THE ASSESSEE (COMPENSATION) ON THE COND ITION NOT TO CARRY ON A COMPETITIVE BUSINESS WAS IN THE NATURE OF CAPITA L RECEIPT? IT WAS HELD THAT THE COMPENSATION RECEIVED BY THE ASSESSEE FOR LOSS OF AGENCY WAS A REVENUE RECEIPT WHEREAS COMPENSATION RECEIVED FOR REFRAINING FROM CARRYING ON COMPETITIVE BUSINESS WAS A CAPITAL RECEIPT. THIS DICHOTOMY HAS NOT BEEN APPRECIATED BY THE HIGH COURT IN ITS IMPUGNED JUDGEMENT. THE HIGH COURT HAS MISINTERPRETED THE JUDGE MENT OF THIS COURT IN GILLANDERS ARBUTHNOT & CO. LTD.'S CASE [ (1964) 53 ITR 283 (SC) ]. IN THE PRESENT CASE, THE DEPARTMENT HAS NOT IMPUGNE D THE GENUINENESS OF THE TRANSACTION. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE HIGH COURT HAS ERRED IN INTERFERING WITH THE CONCURRE NT FINDINGS OF FACT RECORDED BY THE CIT(A) AND THE TRIBUNAL. ONE MORE A SPECT NEEDS TO BE HIGHLIGHTED. PAYMENT RECEIVED AS NON-COMPETITION FE E UNDER A PAGE 13 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 NEGATIVE COVENANT WAS ALWAYS TREATED AS A CAPITAL R ECEIPT TILL THE ASSESSMENT YEAR 2003-04. IT IS ONLY VIDE FINANCE AC T, 2002 WITH EFFECT FROM 1.4.2003 THAT THE SAID CAPITAL RECEIPT IS NOW MADE TAXABLE (SEE: SECTION 28(VA)). THE FINANCE ACT, 2002 ITSELF INDIC ATES THAT DURING THE RELEVANT ASSESSMENT YEAR COMPENSATION RECEIVED BY T HE ASSESSEE UNDER NON-COMPETITION AGREEMENT WAS A CAPITAL RECEIPT, NO T TAXABLE UNDER THE 1961 ACT. IT BECAME TAXABLE ONLY WITH EFFECT FR OM 1.4.2003. IT IS WELL SETTLED THAT A LIABILITY CANNOT BE CREATED RET ROSPECTIVELY. IN THE PRESENT CASE, COMPENSATION RECEIVED UNDER NON-COMPE TITION AGREEMENT BECAME TAXABLE AS A CAPITAL RECEIPT AND N OT AS A REVENUE RECEIPT BY SPECIFIC LEGISLATIVE MANDATE VIDE SECTIO N 28(VA) AND THAT TOO WITH EFFECT FROM 1.4.2003. HENCE, THE SAID SECTION 28(VA) IS AMENDATORY AND NOT CLARIFICATORY. LASTLY, IN CIT V. RAI BAHADUR JAIRAM VALJI (1959) 35 ITR 148 IT WAS HELD BY THIS COURT THAT IF A CONTRACT IS ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS, ANY COMPENSATION RECEIVED FOR ITS TERMINATION (LOSS OF AGENCY) WOULD BE A REVENUE RECEIPT. IN THE PRESENT CASE, BOTH CIT(A) AS WELL A S THE TRIBUNAL, CAME TO THE CONCLUSION THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH RANBAXY LED TO LOSS OF SOURCE OF BUSINESS; THAT PAYM ENT WAS RECEIVED UNDER THE NEGATIVE COVENANT AND THEREFORE THE RECEIP T OF RS. 50 LAKHS BY THE ASSESSEE FROM RANBAXY WAS IN THE NATURE OF CA PITAL RECEIPT. IN FACT, IN ORDER TO PUT AN END TO THE LITIGATION, PARL IAMENT STEPPED INTO SPECIFICALLY TAX SUCH RECEIPTS UNDER NON- COMPETITION AGREEMENT WITH EFFECT FROM 1.4.2003. ' 9. THE LEARNED COUNSEL FOR THE RESPONDENT HAS FURTHER R ELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF CIT V. SA PTHAGIRI DISTILLERIES LTD. [2015] 53 TAXMANN.COM 218/229 TAXMAN 487 (SC) WHERE IT WAS HELD THAT COMPENSATION AMOUNT RECEIVED TOWARDS LOSS OF SOURCE OF INCOME AND NON-COMPETITION FEE COULD ONLY BE TREATED AS CAPITAL RECEIPT AND WAS NOT LIABLE TO TAX. 10. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES. WE H AVE GONE THROUGH THE ORDER OF THE TRIBUNAL AND THE JUDGEMENT C ITED BY THE LEARNED COUNSEL FOR THE RESPONDENT. IN OUR VIEW, THE ISSUE IS NOW SQUARELY COVERED BY THE AFORESAID DECISIONS OF THE A PEX COURT. IN THAT VIEW OF THE MATTER, WE DISMISS THE APPEALS PREFERRE D BY THE REVENUE. ACCORDINGLY, WE ANSWER THE QUESTIONS IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. PAGE 14 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 15. IN THE LIGHT OF JUDGEMENT OF HONBLE GUJARAT HIGH C OURT A CITED ABOVE IN THE CASE OF THE ASSESSEE, WE FIND THAT THE ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HON` BLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE ASSESSEE`S OWN CASE WHEREIN AFTER CONSIDERING THE DECISION OF HON`BLE SUPREME COURT IN THE CASE O F GUFFIC CHEM (P.) LTD. V. CIT [2011] 332 ITR 602 (SC)/ [2011] 198 TAXMAN 7 8 (SC) WHICH HELD THAT NON-COMPETE FEES RECEIVED FOR FROM REFRAINING FROM CARRYING ON BUSINESS WAS CAPITAL RECEIPT AND NON-COMPETE FEES RECEIVED P RIOR TO 01.04.2003 WAS NOT TAXABLE UNDER SECTION 28(VA) OF THE ACT AND CIT V. SAPTHAGIRI DISTILLERIES LTD. [2015] 53 TAXMANN.COM 218 (SC) IT WAS HELD THA T COMPENSATION AMOUNT RECEIVED TOWARDS LOSS OF SOURCE OF INCOME AN D NON-COMPETITION FEES WOULD ONLY BE TREATED AS CAPITAL RECEIPT AND W AS NOT LIABLE TO TAX, HELD IN FAVOUR OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER RELIED IN THE CASE OF CIT V. MRS. TARA SINHA [I.T.A .NO. 154/2005 DATED 11.08.2017 OF HON`BLE DELHI HIGH COURT] WHEREIN ALS O FOLLOWING THE DECISION OF GUFFIC CHEM (P.) LTD. V. CIT [2011] 332 ITR 602 (SC)/ [2011] 198 TAXMAN 78 (SC) AND ROHITASAVA CHAND V. CIT 306 ITR 242 (DELHI) THE ISSUE WAS ALLOWED IN FAVOUR OF THE ASSESSEE. SINCE THE FA CTS OF THE PRESENT CASE, ARE IDENTICAL AS THE ASSESSEE HAS RECEIVED NON-COMP ETE FEES FOR NON- COMPETE OBLIGATION RESULTING IN LOSS OF SOURCE OF I NCOME AND FURTHER MORE PAGE 15 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 NON-COMPETE FEES IS CHARGEABLE UNDER SECTION 28(VA) FROM ASSESSMENT YEAR 2003-04 AND NOT FOR ASSESSMENT YEAR UNDER APPEAL, T HEREFORE, THE NON- COMPETE FEES IN QUESTION AMOUNTS TO RECEIPT OF CAP IN NATURE, NOT CHARGEABLE TO TAX FOR ASSESSMENT YEAR UNDER CONSIDE RATION. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGEMENTS OF HON BLE GUJARAT HIGH COURT AND HON`BLE SUPREME COURT AS CITED ABOVE, WE ALLOW GROUND NO. 5 & 6 OF APPEAL IN FAVOUR OF THE ASSESSEE. 16. GROUND NO. 7: IS ALTERNATIVE GROUND WHICH SAYS THE LD. CIT (A) HAS ERRED IN UPHOLDING IN NOT GRANTING DEDUCTION UNDER SECTION 80HHC ON RECEIPTS BY WAY OF NON-COMPETE FEES TO THE TUNE OF RS.14,55,41,760 AND ASSESSED THE INCOME FROM BUSINESS. THE ACTION O F THE ASSESSING OFFICER IS CONTRARY TO THE FACTS AND LAW AND DESERV E TO BE DELETED. 17. SUCCINCT FACTS ARE THAT DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSEE HAS CLAIMED AN ALTERNATE CLAIM THAT SI NCE THE NON-COMPETE FEES ARE TREATED AS REVENUE RECEIPT AND INCOME FROM BUSINESS AND PROFESSION HENCE, SAME ARE INCLUDIBLE UNDER THE HEA D BUSINESS INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. HOWEVER , THE AO WAS OF THE VIEW THAT DEDUCTION UNDER SECTION 80HHC IS ALLOWED IN RESPECT OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH T HAT SECTION APPLIES. THE JURISDICTIONAL ASSESSEE COMPANY HAS NOT RECEIVED TH IS INCOME FROM PAGE 16 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 EXPORTING ANY GOODS AND MERCHANDISE. THEREFORE, THE CLAIM OF THE ASSESSEE HAS NO FORCE HENCE, SAME WAS REJECTED. 18. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). THE CIT (A) OBSERVED THAT WITH REGARD TO CLAIM OF D EDUCTION UNDER SECTION 80HHC(4C), THE MAIN THRUST OF THE ASSESSEE IS THAT EXCLUSION MENTIONED IN SUB-CLAUSE (BAA) OF SECTION 80HHC. A CAREFUL ANALYS IS OF SAID CLAUSE CLEARLY BRINGS OUT THE INTENTIONS OF THE LEGISLATURE THAT P ROFIT EARNED OUTSIDE INDIA HAS BEEN EXCLUDED AS ALSO BROKERAGE, COMMISSION, IN TEREST, RENT AND SIMILAR RECEIPTS. HENCE, THE CIT (A) DID NOT FIND ANY INFIRMITY IN THE COMPUTATION FOR DEDUCTION UNDER SECTION 80HHC MADE BY THE AO BY EXCLUDING SUCH INCOME BY WAY OF NON-COMPETE FEES. A CCORDINGLY, THIS GROUND OF APPEAL WAS DISMISSED. 19. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BE FORE THE TRIBUNAL. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SINCE, WE HAVE ALLOWED THE APPE AL OF THE ASSESSEE IN RESPECT OF GROUND NO. 5 & 6 OF NON-COMPETE FEES. AS CAPITAL RECEIPT AS PER JUDGEMENT OF HON`BLE HIGH COURT. THEREFORE, THE CLA IM OF DEDUCTION UNDER SECTION 80HHC BECOMES ACADEMIC IN NATURE AND INFRUC TUOUS, HENCE, SAME IS NOT BEING ADJUDICATED HENCE, IT IS TREATED AS DI SMISSED. PAGE 17 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 21. GROUND NO. 8 STATES THAT THE LD. CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN NOT GRANTING DEDUCTION UNDER SE CTION 80HHC ON THE RECEIPTS ON TRANSFER OF TECHNICAL KNOW-HOW TREATED AS ROYALTY TO THE TUNE OF RS. 8,50,70,440 AND ASSESSED AS BUSINESS IN COME . THE ACTION OF THE ASSESSING OFFICER IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO BE DELETED. 22. THE AO OBSERVED THAT THE ASSESSEE HAS MADE AN ALTER NATE CLAIM THAT DEDUCTION UNDER SECTION 80HHC SHOULD BE GRANTED ON THE ABOVE INCOME, IF THE NON-COMPETE FEES IS TO BE TREATED AS REVENUE RE CEIPT. HOWEVER, THE AO OBSERVED THAT DEDUCTION UNDER SECTION 80HHC IS A LLOWABLE ONLY IN RESPECT OF EXPORT OUT OF INDIA OF ANY GOODS OR MERC HANDISE TO WHICH THIS SECTION APPLIES. THE ASSESSEE COMPANY HAS NOT RECEI VED THIS INCOME FROM EXPORTING ANY GOODS OR MERCHANDISE. THEREFORE, THE CLAIM OF THE ASSESSEE COMPANY TO GRANT DEDUCTION UNDER SECTION 80HHC HAS GOT NO FORCE AND WAS THEREFORE REJECTED. 23. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). WHO HAS DISMISSED THE GROUND OF APPEAL. 24. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF AMOUNT OF NON- COMPETE FEES RECEIPTS IS TREATED AS INCOME FOR TECH NICAL KNOW-HOW AS PAGE 18 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 BUSINESS INCOME THEN DEDUCTION UNDER SECTION 80HHC BE ALLOWED ON SAID INCOME. 25. PER CONTRA , THE LD. CIT (DR) RELIED ON LOWER AUTHORITIES. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SINCE, WE HAVE ALLOWED THE APPE AL OF THE ASSESSEE IN RESPECT OF GROUND NO. 5 & 6 OF NON-COMPETE FEES. AS CAPITAL RECEIPT AS PER JUDGEMENT OF HON`BLE HIGH COURT. THEREFORE, THE CLA IM OF DEDUCTION UNDER SECTION 80HHC BECOMES ACADEMIC IN NATURE AND INFRUC TUOUS, HENCE, SAME IS NOT BEING ADJUDICATED HENCE, IT IS TREATED AS DI SMISSED. 27. GROUND NO. 9 STATES THAT THE LD. CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN NOT GRANTING DEDUCTION UNDER SE CTION 80-O ON RECEIPTS TREATED AS NON-COMPETE FEES TO THE TUNE OF RS. 14,55,41,760 AND ASSESSED AS BUSINESS INCOME PURELY ON TECHNICA L GROUND STATING THAT REVISED CERTIFICATE IN FORM NO. 10HA IS NOT FILED. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO BE DELETED. 28. THE ASSESSEE HAS MADE AN ALTERNATE CLAIM FOR DEDUC TION UNDER SECTION 80-O IN RESPECT OF RECEIPTS FROM TRANSFER O F TECHNICAL KNOW-HOW. HOWEVER, THE AO OBSERVED THAT SECTION 80-O ALLOWS A DEDUCTION OF 30% FROM THE AMOUNT RECEIVED BY ANY ASSESSEE COMPANY, I F ITS GROSS TOTAL INCOME INCLUDES ANY INCOME FROM THE GOVERNMENT OF F OREIGN STATE OR PAGE 19 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 FOREIGN ENTERPRISE IN CONSIDERATION FOR USE OUTSIDE INDIA OF ANY PATENT, INVENTION, DESIGN, PROCESS, REGISTERED TRADEMARK ET C. AND SUCH INCOME IS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE IN INDIA. A PERUSAL OF THE CLAIM PUT FORWARD BY THE ASSESSEE COMPANY REVEALS THAT TH E ASSESSEE COMPANY HAS CLAIMED DEDUCTION IN RESPECT OF RECEIPTS FROM T HE FOLLOWING TWO FOREIGN COMPANIES 1). SYNGENTA CROP PROTECTION AG RS. 48,68 ,50,00 AND 2). DOW AGRO SCIENCE RS.3,63,85,440 TOTALING TO RS. 8,50,7 0,440. THE 80% OF THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY FROM THE DO W AGRO SCIENCE WAS CONSIDERED AS RECEIPTS FOR UNDERTAKING NON-COMPETE OBLIGATION NOT ELIGIBLE TO TAX HAS BEEN CONSIDERED AS BUSINESS RECEIPTS ARI SING FROM MANUFACTURING PESTICIDES AND AS ROYALTY INCOME. CERTIFICATE IN FO RM NO. 10HA HAS ALSO BEEN FILED BY THE ASSESSEE COMPANY ALONG WITH ITS R ETURN OF INCOME. THE AO OBSERVED THAT CONDITIONS AS PER PROVISIONS OF SE CTION 80-O AND CBDT CIRCULAR NUMBER 71 DATED 20-12-1995 HAS BEEN MET WI TH THE ABOVE TRANSACTION. THE ASSESSEE COMPANY DID RECEIVE INCOM E FROM A FOREIGN ENTERPRISE AS ROYALTY FOR SALE OF TECHNOLOGICAL PRO CESS DEVELOPED BY IT. IT RECEIVED FULL CONSIDERATION FOR IT IN CONVERTIBLE F OREIGN EXCHANGE AND SUCH INCOME WAS RECEIVED IN INDIA WITHIN 6 MONTHS FROM T HE END OF THE PREVIOUS YEAR AS PER THE CERTIFICATE FILED BY THE ASSESSEE C OMPANY ALONG WITH THE RETURN OF INCOME. HOWEVER, THE ASSESSEE COMPANY FOR M 10HA FILED ALONG PAGE 20 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 WITH HIS RETURN OF INCOME HAS FILED FOR DEDUCTION U NDER THIS SECTION ONLY FOR RS.08, 50, 70, 440/-. THEREFORE, DEDUCTION UNDER SE CTION 80-O IS ALLOWED ON THE AMOUNT CLAIMED BY THE ASSESSEE COMPANY IN FO RM 10HA. 29. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). THE CIT (A) OBSERVED THE AO HAS NOT GRANTED DEDUCTI ON UNDER SECTION 80-O ON RECEIPTS TO THE TUNE OF RS.14,55,41,760 WHICH W ERE CLAIMED BY THE ASSESSEE COMPANY AS NON-COMPETE FEES BUT SAME WERE ASSESSED AS ROYALTY INCOME. THE APPELLANT COMPANY HAS CLAIMED THE RECEI PT AS BEING ATTRIBUTABLE TO THE UNDERTAKING OF NON-COMPETE OBLI GATIONS. THE AO HAS TREATED THE SAME AS BEING DERIVED FROM BUSINESS. TH E APPELLANT COMPANY ITSELF HAS CLAIMED IN ITS RETURN OF INCOME ONLY 20% OF THE INCOME FROM THE TRANSACTION CAN BE ATTRIBUTED TO SALE OF KNOW-HOW. HENCE, THE CIT (A) OBSERVED THAT HE DID NOT FIND ANY INFIRMITY IN THE OBSERVATION OF THE AO DENYING DEDUCTION UNDER SECTION 80-O, THE APPELLANT COMPANY. THIS GROUND WAS ACCORDINGLY, DISMISSED. 30. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THAT THIS IS ALTERNATE GROUND IF THE AMOUNT OF NON-COMPETE FEES IS TREATED AS BUSINESS INCOME THEN THE DEDUCTION UNDER SECTION 80-O IS REQUIRED T O BE ALLOWED. 31. PER CONTRA , THE LD. DR RELIED UPON THE ORDERS OF THE LOWER AU THORITIES. PAGE 21 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SINCE, WE HAVE ALLOWED THE APP EAL OF THE ASSESSEE IN RESPECT OF GROUND NO. 5 & 6 OF NON-COMPETE FEES. AS CAPITAL RECEIPT AS PER JUDGEMENT OF HON`BLE HIGH COURT. THEREFORE, THE CLA IM OF DEDUCTION UNDER SECTION 80HHC BECOMES ACADEMIC IN NATURE AND INFRUC TUOUS, HENCE, SAME IS NOT BEING ADJUDICATED HENCE, IT IS TREATED AS DI SMISSED. 33. GROUND NO. 10 STATES THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN NOT CONSIDERING INTEREST IN COME TO THE TUNE OF RS.1,88,07,480 AS INCOME FROM BUSINESS FOR COMPUTIN G DEDUCTION UNDER SECTION 80HHC. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO BE DELETED. 34. THE AO HAS OBSERVED THAT THE AMOUNT OF INTEREST OF RS.1,88,07,480 HAS BEEN EARNED BY THE ASSESSEE OUT OF SURPLUS FUND KEPT WITH BANK, WHICH HAS GOT NO CONNECTION WITH MANUFACTURING ACTIVITY O F THE ASSESSEE COMPANY. THE AO FURTHER OBSERVED THAT SUCH INCOME DOES NOT HAVE ANY DIRECT NEXUS AND THEREFORE, IT WAS EXCLUDED FROM TH E PROFITS DERIVED FOR MANUFACTURING ACTIVITY ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE AO ALSO SUPPORTED HIS VIEW BY PLACING RELI ANCE IN THE CASE OF CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDI AN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC) : 129 TAXMAN 539 (SC). PAGE 22 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 35. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). HOWEVER, THE LD. CIT (A) RELYING ON THE DECISION IN THE CASE OF CIT NAGPUR ENGINEERING CO LTD. [2000] 245 ITR 806 (BOMBAY) AND LALSON ENTERPRISE V. DCIT 89 ITD 25 (DELHI) DIRECTED THE AO TO EXCLUDE O NLY NET INTEREST INCOME OF RS. 44,15,400 AS EARNED BY THE ASSESSEE AFTER PA YMENT OF INTEREST AND EARNING OF INTEREST. THUS, THIS GROUND OF APPEAL WA S PARTLY ALLOWED. 36. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THAT CIT (A) HAS ALLOWED NETTING OF INTEREST INCOME OF RS.44,15,400 FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH IS SUPPORTED BY THE DECISION OF SHRI RAM HONDA 289 ITR 475 (DELHI). 37. THE LD. D. R. RELIED ON THE ORDER OF THE AO/CIT (A) . 38. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE UNDER CO NSIDERATION IS SQUARELY COVERED BY THE DECISION OF FULL BENCH OF HON`BLE RA JASTHAN HIGH COURT IN THE CASE OF RELIANCE TRADING CORPORATION V. ITO [20 15] 376 ITR 53 (RAJ.) WHEREIN IT WAS HELD AS UNDER: 26. MR. R.B. MATHUR, LEARNED COUNSEL APPEARING FOR THE IT DEPARTMENT, HAS REFERRED TO THE CASES RELATING TO T HE DEDUCTIONS ON EXPORT PROFITS UNDER S.80HHC AND HAS RELIED ON DIREC T AND PROXIMATE TEST, IN SUBMITTING THAT WHERE THE INTEREST HAS NO D IRECT OR PROXIMATE NEXUS WITH THE BUSINESS OF EXPORT, SUCH INTE REST WILL NOT PAGE 23 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 BE EXCLUDED UNDER SUB-S. (3) OF S.80HHC OF THE ACT. HE HAS RELIED ON TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997] 227 ITR 172/93 TAXMAN 502 (SC); CIT V. SWANI SPICE MILLS (P .) LTD. [2011] 332 ITR 288/201 TAXMAN 81 (MAG.)/12 TAXMANN.COM 432 (BO M).; LIBERTY INDIA V. CIT [2009] 317 ITR 218/183 TAXMAN 349 (SC) ; PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278/129 TAXMAN 539 (SC); AND CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CI T [1978] 113 ITR 84 (SC) . 27. IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (S UPRA), THE SUPREME COURT HELD, WHILE DISCUSSING THE CLASSIFICATI ON OF INCOME UNDER SS. 4, 14, 56 AND 57 OF THE ACT, THAT INTEREST INCOME IS ALWAYS OF REVENUE NATURE UNLESS RECEIVED BY WAY OF DAMAGES O R COMPENSATION. WHERE INTEREST IS EARNED BY ASSESSEE ON INVESTMENT OF SHARE CAPITAL, IT CAN BE ASSESSED SEPARATELY UNDE R THE HEAD 'INCOME FROM OTHER SOURCES'. THE INCOME ATTRACTS TAX AS SOON AS IT ACCRUES. 28. IN SWANI SPICE MILLS (P.) LTD. (SUPRA), THE BOMBAY HIGH COURT, AFTER DISCUSSING SEVERAL JUDGMENTS, HELD IN PARA 20, THAT THE INCOME OF AN ASSESSEE WHICH IS CHARGEABLE TO TAX UNDER S. 4 , IS REQUIRED FOR THE PURPOSES OF COMPUTATION TO BE CLASSIFIED UNDER VAR IOUS HEADS OF INCOME SPECIFIED IN S. 14. SEC. 56, WHICH DEALS WIT H INCOME FROM OTHER SOURCES IS ATTRACTED WHERE THE INCOME DOES NO T BELONG TO A CATEGORY WHICH IS SPECIFIED IN ANY OF THE OTHER HEA DS ELUCIDATED IN S. 14. THE INCOME EARNED BY AN ASSESSEE, WHICH UTILIZES ITS SURPLUS FUNDS IN ORDER TO EARN INTEREST CANNOT BE CLASSIFIED UNDER THE HEAD OF BUSINESS INCOME, BUT WILL FALL FOR CLASSIFICATION AS INCOME FROM OTHER SOURCES. 29. IN CIT V. SHRI RAM HONDA POWER EQUIP [2007] 289 ITR 475/158 TAXMAN 474 (DELHI) IT WAS HELD THAT THE INTEREST INCOME KEPT BY THE ASSESSEE FOR AVAILING OF CREDIT FACILITIES FROM BAN K, DOES NOT QUALIFY THE BUSINESS INCOME, AND, THEREFORE, WILL GO TO REDUC E THE DEDUCTIBLE AMOUNT FOR THE PURPOSES OF S.*) S. 80HHC. RELIANCE WAS PLACED ON THE JUDGMENTS IN K. RAVINDRANATHAN NAIR (S UPRA) PUNIT COMMERCIAL LTD. (SUPRA) AND THE JUDGMENTS OF THE KER ALA HIGH COURT IN ABAD ENTERPRISES V. CIT [2002] 253 ITR 319/120 TAXMAN 503, CIT V. JOSE THOMAS [2002] 253 ITR 553/121 TAXM AN 210 (KER.) AND CIT V. ABAD FISHERIES [2002] 258 ITR 641 /125 TAXMAN 616 PAGE 24 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 (KER.) AS WELL AS URBAN STANISLAUS CO. V. CIT [2003] 263 ITR 10/130 TAXMAN 244 (KER.). 30. IN LIBERTY INDIA (SUPRA), THE SUPREME COURT, DEALIN G WITH THE DEDUCTION ON DUTY ENTITLEMENT PASSBOOK SCHEME (DEPB), HELD THAT THERE IS A DISTINCTION BETWEEN PROFIT LINKED TAX IN CENTIVES AND INVESTMENT LINKED TAX INCENTIVES. SECTIONS 80-I, 80 -IA AND 80-IB HAVE A COMMON SCHEME. THE INCENTIVES IN THE FORM OF DEDUC TIONS ARE LINKED TO PROFITS AND NOT TO INVESTMENT. DEPB IS AN INCENTIVE. SOURCE OF DUTY DRAWBACK RECEIPT LIES IN S. 75 OF THE CUSTOMS ACT AND S. 37 OF THE CENTRAL EXCISE ACT. THE REMISSION OF DUTY IS ON ACCOUNT OF THE STATUTORY/POLICY PROVISIONS OF THESE ACTS. THE PROFI TS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSION 'PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING'. THE TRADE DISCOUNTS, R EBATE, DUTY DRAWBACK, AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DETE RMINING THE COSTS OF PURCHASE. THE DUTY DRAWBACK, REBATE ETC. SHO ULD NOT BE TREATED AS ADJUSTMENT (CREDITED) TO COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOULD BE TREATED AS SEPARATE ITEMS O F REVENUE OR INCOME AND ACCOUNTED FOR ACCORDINGLY. 31. IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. (SUPR A), IT WAS HELD THAT S. 80E PROVIDES FOR DEDUCTION IN RESPECT OF PRO FITS AND GAINS FROM SPECIFIED INDUSTRIES IN THE CASE OF CERTAIN COMPANIE S, PROVIDING FOR CERTAIN SPECIAL DEDUCTION TO BE MADE IN COMPUTING THE TOTAL INCOME IN THE CASE OF SPECIFIED INDUSTRIES, OVER AND ABOVE THE OTHER GENERAL DEDUCTIONS CONTEMPLATED BY THE ACT. SUCH DEDUCTIONS M UST BE ATTRIBUTABLE TO THE PROFITS AND GAINS OF THE BUSINESS . IN PARA 8, THE SUPREME COURT HELD AS FOLLOWS : '8. AS REGARDS THE ASPECT EMERGING FROM THE EXPRESS ION 'ATTRIBUTABLE TO OCCURRING IN THE PHRASE 'PROFITS AND GAINS ATTRIB UTABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATION A ND DISTRIBUTION OF ELECTRICITY) ON WHICH THE LEARNED SOLICITOR GENERAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DELIBE RATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED THAT THE EXPRESSION 'ATTRIBUTABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. HAD THE EXPRESSION 'DERIVED FROM' BEEN USED IT COULD HAVE WITH SOME FORC E BEEN CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OL D MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFITS AND GAINS DE RIVED FROM THE CONDUCT OF THE BUSINESS OR GENERATION AND DISTRIBUTION OF ELECTRICITY. PAGE 25 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 IN THIS CONNECTION IT MAY BE POINTED OUT THAT WHENEV ER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER S UGGESTED BY THE LEARNED SOLICITOR GENERAL IT HAS USED THE EXPRESSION 'DERIVED FROM', AS FOR INSTANCE IN SECTION 80J. IN OUR VIEW SINCE THE EXPRESSION OF WIDER IMPORT, NAMELY, 'ATTRIBUTABLE TO' HAS BEEN USED, THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN T HE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELE CTRICITY.' 32. MR. ANUROOP SINGHI, LEARNED COUNSEL APPEARING FOR TH E DEPARTMENT, SUBMITS, RELYING ON CIT V. RAJASTHAN LAN D DEVELOPMENT CORPN. [1995] 211 ITR 597 (RAJ.), MURLI INVESTMENT CO. (SUPRS), CIT V. AVON APPARELS [D.B. IT APPEAL N O. 41 OF 1999, DATED 11-7-2002], SHRI RAM HONDA POWER EQUIP (SUPRA), CIT V. MEEA & CEIKO PUMPS (P.) LTD. [ITAT NO. 298 OF 2003, DATED 27-11-2 014], CIT V. GREATWAYS (P.) LTD. [2008] 171 TAXMAN 316 (PUNJ. & HAR.) , THAT WHERE SURPLUS FUNDS 'ARE PARKED WITH THE . BANK AND INTEREST IS EARNED THEREON, IT CAN BE ONLY CATEGORIZED AS INCOME FROM OTHER SOURCES. THIS RECEIPT MERITS SEPARATE TREATMENT UNDER S. 56 OF TH E ACT, WHICH IS OUTSIDE THE RING OF PROFITS AND GAINS FROM BUSINESS A ND PROFESSION. SUCH INCOME WHICH COULD ONLY BE EARNED UNDER S. 56. GOES ENTIRELY OUT OF THE RECKONING FOR THE PURPOSES OF S.80HHC. 33. WE HAVE CONSIDERED THE SUBMISSIONS AT THE BAR, AND FIND THAT IN SHRI RAM HONDA POWER EQUIP. (SUPRA), THE QUESTION NOS. 1 AND 3 WERE ADDRESSED AND ANSWERED IN FAVOUR OF THE REVENUE. THE DISCUSSION IN THIS JUDGMENT, IS CLOSE TO THE QUESTION RAISED, AN D HAS RECEIVED CAREFUL CONSIDERATION, WITH REFERENCE TO THE OBJECT AND PURPOSE OF PROVIDING DEDUCTIONS UNDER S. 80HHC, PRIOR TO AMENDME NT W.E.F. 1ST APRIL, 1992. THE DEDUCTIONS UNDER S. 80HHC WAS ADMISS IBLE IN RESPECT OF BUSINESS INCOMES, WHICH DID NOT HAVE AN ELEMENT O F TURNOVER. THE CBDT CIRCULAR NO. 564, DT. 5TH JULY, 1990 [(1990) 85 CTR (ST) 53],WAS ISSUED TO CLEAR THE DOUBTS THAT CL. (BAA) OF THE EXPL ANATION TO S. 80HHC OF THE ACT, WAS INTRODUCED W.E.F. 1ST APRIL, 1992. T HE RATIONALE FOR THIS CHANGE WAS EXPLAINED IN CBDTS CIRCULAR NO. 621, DT. 19TH DEC, 1991 [(1992) 101 CTR (ST) 1].THE PROFIT EARNED BY THE AS SESSEE DURING THE RELEVANT ASSESSMENT PERIOD FROM THE COMMISSION WAS ALSO TREATED TO BE PROFIT, DERIVED FROM EXPORT SINCE IT WOULD NOT HA VE COME TO THE ASSESSEE HAD HE NOT BEEN ENGAGED IN THE EXPORT BUSIN ESS. THE DECISION WAS APPROVED IN P.R PRABHAKAR (SUPRA). PAGE 26 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 34 . THERE IS DISTINCTION BETWEEN THE WORDS 'ATTRIBUTA BLE TO' AND 'DERIVED FROM'. IN SUB-S. (3) OF S.80HHC OF THE ACT, THE WORDS USED IN CL. (A), ARE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS'. 35. IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. (SUPR A), IT WAS HELD AS FOLLOWS; 'IN OUR VIEW, SINCE THE EXPRESSION OF WI DER IMPORT, NAMELY 'ATTRIBUTABLE TO', HAS BEEN USED, THE LEGISLATURE INTE NDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT O F THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY'. 36. THE SUPREME COURT IN VELLORE ELECTRIC CORPN. LTD. V. CIT [1997] 227 ITR 557/93 TAXMAN 401 , HELD IN THE CONTEXT OF S. 80-I, WHICH USES THE WORDS 'PROFITS AND GAINS ATTRIBUTABLE TO ANY PRI ORITY INDUSTRY', ANSWERING THE QUESTION IN AFFIRMATIVE, THAT THE INCO ME EARNED BY WAY OF INTEREST ON THE INVESTMENT IN SECURITIES OF THE AMOUNTS APPROPRIATED TO THE CONTINGENCIES RESERVE, WHICH WA S MANDATORILY REQUIRED TO BE MAINTAINED BY IT IN TERMS OF THE ELEC TRICITY (SUPPLY) ACT, 1948. IT WAS HELD THAT THE CONDITION STATUTORIL Y INCORPORATED IS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS OF GEN ERATION AND DISTRIBUTION OF ELECTRICITY BY THE ASSESSEE. 37 . IN SUB-S. (3) OF S. 80HHC OF THE ACT, THE WORDS US ED ARE, 'DERIVED FROM'. IN OUR VIEW, THE WORDS 'DERIVED FROM', ARE OF RESTRICTED MEANING. AND ARE NOT AS WIDE AS ARE 'ATTRIBUTABLE TO '. THE 'STAND ALONE' PROVISION OF S.80HHC OF THE ACT HAS TO BE CONSTRUED ON ITS OWN WORDINGS. A DISTINCTION SOUGHT TO BE MADE IN RESPEC T OF THE DEFINITION OF 'PROFITS OF THE BUSINESS' UNDER SUB-S. (BAA) OF THE EXPLANATION, TO MEAN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR, PROFESSION', WHICH INCORPO RATES THE ENTIRE PROCEDURE FOR COMPUTING THE BUSINESS INCOME UNDER S. 28 TO 44 OF THE ACT. DE HOR S. 80HHC OF THE ACT. THE CONSISTENT A PPROACH IS THAT WHERE THE STATUTORY PROVISION TALKS OF 'INCOME DERIV ED FROM' THE BUSINESS ACTIVITY IN QUESTION, THE NEXUS THEORY SHOULD BE APPLIED IN ORDER TO DETERMINE WHETHER A PARTICULAR ITEM OF INCO ME IS BUSINESS INCOME OR NOT. 38 . IN PUNIT COMMERCIAL LTD. (SUPRA), THE ASSESSEE WAS A 100 PER CENT EXPORTER. THE AO HAD PROCEEDED ON THE FOOTING THAT THE INTEREST INCOME WAS BUSINESS INCOME, AND THAT IT WAS NOT INCO ME FROM EXPORTS, AND IN THESE CIRCUMSTANCES, THE HIGH COURT HELD THAT SINCE THE ENTIRE PAGE 27 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 BUSINESS ACTIVITY OF THE ASSESSEE IS ONLY OF EXPORTS , THE ENTIRE BUSINESS INCOME IS DEEMED TO BE PROFIT DERIVED FROM EXPORT O F GOODS. BOTH THE JUDGMENTS OF THE KERALA HIGH COURT IN K. RAVINDRANATH AN NAIR (SUPRA), AND SOUTHERN CASHEW EXPORTERS V. DY. CIT [2003] 130 TAXMAN 203 (KER.), WERE AFFIRMED BY THE SUPREME COURT, CONFIRM ING THE FINDINGS OF THE KERALA HIGH COURT, THAT INTEREST EA RNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING OF CREDIT FAC ILITIES FROM THE BANK DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSI NESS, AND THEREFORE, HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. 39. IT IS THE SETTLED PROPOSITION IN INTERPRETATION OF THE STATUTES, THAT WHILE ASCERTAINING THE TRUE SCOPE OF A PROVISION IN A STATUTE, ATTENTION MUST NECESSARILY BE PAID NOT ONLY TO THE TEXT, BUT AL SO THE CONTEXT. IN RESERVE BANK OF INDIA V.. PEERLESS GENERAL FINAN CE & INVESTMENT CO. LTD. [1987] 61 COMP. CAS. 663 (SC) IT WAS OBSERVED THAT INTERPRETATION MUST DEPEND ON THE TEXT AND THE CONTEXT. WHERE THE P LAIN LITERAL INTERPRETATION OF A STATUTORY PROVISION PRODUCES A M ANIFESTLY UNJUST RESULT, WHICH COULD NOT HAVE BEEN INTENDED, THE COURT MUST AVOID SUCH INTERPRETATIONS. 40. IN SHRI RAM HONDA POWER EQUIP. (SUPRA), THE DELHI HIGH COURT HELD THAT THE WORD ' INTEREST' IN CL. (BAA) OF THE EXPLA NATION TO S.80HHC OF THE ACT, IS INDICATIVE OF NET INTEREST I.E. GROSS I NTEREST AS REDUCED BY EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING SUCH INTEREST. 41. WHILE APPLYING THE DIRECT AND PROXIMATE NEXUS TEST, WE ARE OF THE VIEW THAT WHERE THE INTEREST EARNED DOES NOT HAVE D IRECT AND PROXIMATE NEXUS, WITH THE INCOME FROM THE BUSINESS OF EXPORT, THE INTEREST CANNOT BE DEDUCTED AS INCOME FROM EXPOR T UNDER S. 80HHC(3)(A) OF THE ACT, AND HAS TO BE GIVEN THE SAME TREATMENT FOR TAX, AS 'INCOME FROM OTHER SOURCES' UNDER S. 56 OF THE ACT. 42 . THE QUESTION NO. 1 IS, THUS, ANSWERED IN FAVOUR OF T HE REVENUE, AND AGAINST THE ASSESSEE. 43. SO FAR AS QUESTION NO. 2 IS CONCERNED, ON THE AFORES AID DISCUSSION, WE ARE ALSO OF THE VIEW THAT THE AMENDMENT IN S. 80 HHC, BY WAY OF INSERTION OF SUB-S. (4B), EXCLUDING INTEREST INCOME F OR THE PURPOSES OF DEDUCTION UNDER' S. 80HHC OF THE ACT, WILL ALSO AFFEC T THE DEDUCTION OF INTEREST INCOME UNDER S. 80HHC OF THE ACT. FOR T HE PERIOD PRIOR TO THE AMENDMENT, INASMUCH AS THE APPLICABILITY OF THE PRINCIPLE OF PAGE 28 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 DIRECT AND PROXIMATE NEXUS TO THE BUSINESS INCOME, WI LL APPLY BOTH, TO THE PROVISIONS OF THE ACT PRIOR TO, AND AFTER THE A MENDMENT, WHICH CAME INTO EFFECT BY THE FINANCE ACT, 1992, W.E.F. 1 ST APRIL, 1992. THE QUESTION NO. 2, IS THUS DECIDED IN FAVOUR OF THE REVEN UE AND AGAINST THE ASSESSEE. 44. ON THE QUESTION NO. 3, WE HOLD THAT THE EARNING OF THE INCOME CONVERTIBLE FROM FOREIGN EXCHANGE BY WAY OF INTERES T, IS NOT NECESSARY SO LONG AS THE INTEREST IS DERIVED FROM BUSINESS OF EXPORT, AND HAS DIRECT AND PROXIMATE NEXUS, WITH THE INCOME EARNED O UT OF THE PROFITS RETAINED FOR THE EXPORT BUSINESS. THE EARNING OF THE INCOME CONVERTIBLE FROM FOREIGN EXCHANGE, IS NOT A TEST FO R DETERMINING, AS TO WHETHER DEDUCTION IS ALLOWABLE IN RESPECT OF THE IN COME DERIVED FROM THE PROFITS RETAINED FOR EXPORT BUSINESS. THE QUESTIO N NO. 3, IS ALSO DECIDED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSE SSEE. 45. THE REFERENCE IS ANSWERED IN THE AFORESAID TERMS. 39. IN VIEW OF RESPECTFULLY FOLLOWING THE RATIO LAID DO WN BY THE HON`BLE RAJASTHAN HIGH COURT IN ABOVE DECISION, THIS GROUND S OF APPEAL OF THE ASSESSEE IS ACCORDINGLY, DISMISSED. 40. GROUND NO. 11 STATES THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN NOT CONSIDERING INSURANCE C LAIM RECEIVED TO THE TUNE OF RS.2,33,106 AND MISCELLANEOUS INCOME TO THE TUNE OF RS. 54,316 AS INCOME FROM BUSINESS FOR THE PURPOSE OF COMPUTIN G DEDUCTION UNDER SECTION 80HHC. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND LAW. 41. THE LD.AO RELYING ON THE HON`BLE SUPREME COURT DECI SION IN THE CASE OF CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) HA S DISALLOWED THE CLAIM OF INSURANCE FOR THE PURPOSE OF DEDUCTION UNDER SECTIO N 80HHC OF THE ACT . PAGE 29 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 42. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT (A). IT WAS CONTENDED THAT INSURANCE CLAIM RECEIVED IS D IRECTLY DERIVED FROM THE BUSINESS. IT WAS PLEADED THAT INSURANCE CLAIM IS AG AINST SOME BUSINESS LOSS, HENCE, SUCH RECEIPTS INCREASES THE MANUFACTURING PROFIT. HOWEVER, CIT (A) OBSERVED THAT THE CLAIM OF THE APPELLANT THAT I T INCREASES MANUFACTURING PROFIT IS NOT ACCEPTED AS THE INSURAN CE CLAIM IS RECEIVED ON ACCOUNT OF CLAIM FOR LOSS AS PER INSURANCE POLICY. HOWEVER, THE CIT (A) HAS ACCEPTED THE ALTERNATE CLAIM THAT EXCLUSION IS REST RICTED TO THE RECEIPTS BY WAY OF INSURANCE CLAIM AS REDUCED BY CORRESPONDING LOSSES AND EXPENSES. 43. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NETTING OFF EXPENSES HAS BEEN GRANTED BY THE CIT (A). THE AMOUNT OF RS.5 4,316 WAS RECEIVED FOR DAMAGE OF RAW MATERIAL. THIS ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE BY DECISION OF TRIBUNAL IN A.Y. 2001-02 IN I.T.A.NO. 2 435/AHD/2004 (PAGE 33 PARA 32). 44. PER CONTRA, LEARNED CIT(D.R.) RELIED ON CIT (A). 45. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE INSURANCE CLAI M AND MISC. INCOME HAVE BEEN RECEIVED AGAINST BUSINESS LOSS, HENCE, SU CH RECEIPT IS NOT INCOME DERIVED FROM EXPORT BUSINESS. HOWEVER, AN AMOUNT O F RS. 54,316 WAS PAGE 30 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 RECEIVED AGAINST DAMAGE, WHICH IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH OF TRIBUNAL IN THE CA SE OF THE ASSESSEE IN I.T.A.NO. 2435/AHD/2004. HENCE, SAME IS ALLOWED. TH US, THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLOWED. 46. GROUND NO.12 TO14 ARE GENERAL IN NATURE; AND NOT PR ESSED BEFORE US, HENCE, DOES NOT REQUIRE OUR ADJUDICATION. 47. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 48. I.T.A.NO. 1371/AHD/2006/A.Y. 2002-03: BY THE REVENU E: 49. ADDITIONAL GROUND: DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AO HAS FILED AN ADDITIONAL GROUND STATING THAT THE LD. CIT (A) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE AMOUNT OF DEPB CREDIT OF RS.3, 31, 22,811 FROM THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80HHC, THOUGH THE SAME HAS NO DIRECT NEXUS WITH THE EXPORT ACTIVITY O F THE ASSESSEE. 50. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SINCE THE ADDITIONAL GROUND IS BEING PURELY LEGAL AND DOES NOT REQUIRE FURTHER FACTS HENCE, SAME IS ALLOW ED TO BE ADMITTED FOR CONSIDERATION ON MERIT IN THE LIGHT OF DECISION IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT [1998] 229 ITR 383(SC ) WHEREIN IT WAS HELD PAGE 31 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 THAT THE ADDITIONAL GROUND OF APPEAL CAN BE ADMITTE D WHERE THE ISSUE INVOLVED IS PURE QUESTION OF LAW NOT INVOLVING ANY INVESTIGATION OF FACTS. 51. THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUC TION ON ACCOUNT OF EXPERT BENEFIT OF DEPB OF RS.4,51,34,659 WHILE C ALCULATING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THEREFORE, THE ASSE SSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ABOVE AMOUNT SHOULD NOT BE EXCL UDED WHILE WORKING OUT THE PROFITS ELIGIBLE UNDER SECTION 80HHC OF THE ACT. IT WAS EXPLAINED THAT DEPB REPRESENT DUTY ENTITLEMENT PASS BOOK AND AS PER GOVERNMENT RULE THE ASSESSEE COMPANY CAN IMPORT CERTAIN GOODS FREE OF CUSTOM DUTY TO THE EXTENT OF AMOUNTS SHOWN IN DEPB. IT WAS CONTEN DED THAT THE EXPORTER DOES NOT RECEIVE ANY INCOME BY VIRTUE OF DEPB HENC E, SUCH ITEM DISCLOSE DUTY ENTITLEMENT SHOULD NOT BE CONSIDERED AS OTHER INCOME. HOWEVER, THE AO WAS OF THE VIEW THAT DEPB IS NOT INCOME DERIVED FOR EXPERT OF GOODS NOR IS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING, HENC E, NOT REQUIRED TO BE INCLUDED WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC OF THE ACT. THE AO ALSO SUPPORTED HIS VIEW BY PLACING RELIANCE IN T HE CASE OF CIT V. STERLING FOODS 237 ITR 579 (SC) AND SAME WAS EXCLUDED FROM W ORKING OF PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE A CT. PAGE 32 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 52. BEING, AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT (A). HOWEVER, LD. CIT (A) OBSERVED THAT THE TAXATION LAW S (SECOND AMENDMENT) ACT, 2005 HAS NOW CLEARLY CLOSED THE WHOLE ISSUE BY LYING DOWN SPECIFICALLY THAT PROFIT ON SALE OF DEPB AND DFRC BENEFITS ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC SUBJECT TO CERTAIN CONDITIONS. FURTHER, DECISION OF CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) RELIED BY THE AO EXCLUDED ONLY PROFITS FROM SALES OF IMPORT ENTITLEMENTS AND LICEN SES BEING NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THE MERE RECEIPT OF AN EXPERT BENEFIT TO REIMBURSE THE DUTY ELEMENTS CANNOT BE TREATED AS ON E DEGREE AWAY FROM THE ACTIVITY OF INDUSTRIAL UNDERTAKING. IN VIEW OF THIS MATTER, THE CIT (A) DIRECTED THE AO TO GRANT DEDUCTION UNDER SECTION 80 HHC WITHOUT EXCLUDING RS.3,31,22,811 BY WAY OF DEPB CREDITS FROM ELIGIBL E PROFITS. 53. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. CIT (D.R.) RELIED ON THE ORDER TH E FINDINGS OF THE LD. AO. 54. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ISSUE COVERED BY AMENDMENT BY FINANCE ACT, 2005 AND DECISION OF HON`BLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S PVT. LTD. V. CIT [2012] 343 ITR 89 (SC). 55. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE HON`BLE SUPREM E COURT IN THE CASE OF PAGE 33 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 ACG ASSOCIATED CAPSULES PVT. LTD. V. CIT [2012] 343 ITR 89 (SC) THE HON`BLE SUPREME COURT OBSERVED AS THIS IS AN APPEAL AGAINST THE JUDGMENT AND ORDER DATED 06.08.2010 OF THE BOMBAY HI GH COURT IN ITA(L) NO. 1276 OF 2010 DECIDING TWO ISSUES AGAINST THE ASS ESSEE. ON THE FIRST ISSUE, THE HIGH COURT HAS HELD, RELYING ON ITS JUDGME NT IN CIT V. KALPATARU COLOURS & CHEMICALS [2010] 192 TAXMAN 435 (BOM.) , THAT THE ENTIRE AMOUNT RECEIVED BY AN ASSESSEE ON SALE OF THE DUTY EN TITLEMENT PASS BOOK (FOR SHORT 'THE DEPB') REPRESENTS PROFIT ON TRANSFE R OF DEPB UNDER SECTION 28(IIID) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'TH E ACT'). WE HAVE ALREADY DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN A SEP ARATE JUDGMENT IN TOPMAN EXPORTS V. CIT [2012] 18 TAXMANN.COM 120 (SC) , AND WE HAVE HELD THAT NOT THE ENTIRE AMOUNT RECEIVED BY THE ASSE SSEE ON SALE OF DEPB, BUT THE SALE VALUE LESS THE FACE VALUE OF THE DEPB WIL L REPRESENT PROFIT ON TRANSFER OF DEPB BY THE ASSESSEE. THE FIRST ISSUE IS , THEREFORE, DECIDED ACCORDINGLY. THEREFORE, RESPECTFULLY FOLLOWING SAME WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAM E IS UPHELD. ACCORDINGLY, THIS ADDITIONAL GROUND OF APPEAL OF THE REVENUE IS THEREFORE, DISMISSED. 56. GROUND NO.1 STATES THAT LD. CIT (A) HAS ERRED IN DE LETING FOREIGN TRAVELLING EXPENSES OF RS.4,48,986 WITHOUT APPRECIA TING THE FACTS THAT PAGE 34 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE CLAIM T HAT IT WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSE. 57. THE ASSESSEE HAS DEBITED A SUM OF RS.22,44,932 AS F OREIGN TRAVEL EXPENSES. THE AO HAS OBSERVED THAT THOUGH THE ASSES SEE HAS GIVEN THE NAMES OF PERSON WHO HAVE VISITED ALONG WITH NAMES OF THE PLACE AND NUMBER OF DAYS OF STAY. THE ASSESSEE HAS SUBMITTED THAT IT HAS EXPORT TURNOVER OF RS. 80.90 CRORES AND VARIOUS EXECUTIVES ARE REQUIRED TO VISIT ABROAD TO EXPLORE MARKET CONDITION AND NEW MARKET. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE COULD NOT JUSTIFY THE PU RPOSE OF VISIT AND GIVE PROPER EXPLANATION. HENCE, THE AO DISALLOWED 1/5 TH OF EXPENDITURE WHICH WORKED OUT TO RS. 4,48,986. 58. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). IT WAS CONTENDED THAT THE APPELLANT IS A LEADING MA NUFACTURE OF NON- SYNTHETIC PYRETHORID PRODUCTS AND UNDERTAKES EXPORT S AS WELL AND FOR THE PURPOSE OF ITS EMPLOYEES AND WHOLE TIME DIRECTORS V ISITED VARIOUS COUNTRIES FREQUENTLY. THE ASSESSEE HAS ALSO FILED DETAILS OF TRAVELLING EXPENDITURE INCURRED ALONG WITH EXPLANATION. THE ASSESSEE ALSO RELIED IN THE CASE OF M/S. VIKSHARA TRADING & INVESTMENT LTD. [I.T.A.NO. 5122/AHD/1996 DATED 30.03.1998) OF AHMEDABAD TRIBUNAL WHEREIN IT WAS H ELD THAT WHETHER THE ASSESSEE WAS BENEFITTED BY FOREIGN TRAVEL OR NOT WA S SUBSEQUENT EVENT AND PAGE 35 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 WAS NOT RELEVANT. HENCE, FOREIGN TRAVEL UNDERTAKEN BY DIRECTORS FOR BUSINESS PURPOSE AND THERE NO JUSTIFICATION FOR DIS ALLOWING 50% ON PURE ESTIMATE. THE LD. AR FOR THE ASSESSEE ALSO RELIED T HE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF SAYAJI IRON & ENGINEE RING CO. V. CIT [2002] 253 ITR 749 [2002] 121 TAXMAN 43 (GUJ). IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE LD. CIT (A) OBSERVED THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL/ EVIDENCE THAT 1/5 TH EXPENDITURE WAS NOT INCURRED FOR BUSINESS PURPOSE. THE AO HAS NOT ANALYZED EACH AND EVERY VISIT AND PARTICULAR TRIP OF DIRECTOR THAT HE HAS OVER STAYED . THEREFORE, CONSIDERING AFORESAID JUDICIAL PRONOUNCEMENTS THE CIT (A) HELD THAT ACTION OF THE AO IS NOT SUSTAINABLE IN THE EYES OF LAW, AS SAME IS WITH OUT ANY MERIT AND CONCRETE FINDINGS. THEREFORE, 1/5 TH DISALLOWANCE MADE BY THE AO WERE DELETED. 59. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. CIT (DR) VEHEMENTLY SUPPORTED THE FINDINGS OF THE AO RECORDED IN ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE HAS COULD NOT JUSTIFY THE STAY OF FOREIGN VISIT. THEREFORE, L D. CIT (A) WAS NOT JUSTIFIED IN DELETING THAT DISALLOWANCE OF EXPENDITURE. 60. AU CONTRAIRE , THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED TH AT ORDER OF LD. CIT (A) AND ARGUED THAT THE EXPORT TUR NOVER OF THE ASSESSEE IS PAGE 36 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 MORE THAN 80.90 CRORES AND REQUIRES TO UNDERTAKE FR EQUENT FOREIGN VISIT BY THE DIRECTORS AND EMPLOYEES TO EXPLORE NEW MARKE T FOR THEIR PRODUCTS. HENCE, CONSIDERING THE TURNOVER AND JUDICIAL DECISI ON RELIED BY THE ASSESSEE BEFORE CIT (A). THE CIT (A) WAS JUSTIFIED IN DELETI NG THE AD-HOC ESTIMATED DISALLOWANCE. 61. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE DISALLOWANCE @ 1/5 TH OF TOTAL FOREIGN TRAVEL EXPENSES HAVE BEEN MADE ON PRESUMPTION BASIS WITHOUT BRINGING ANY MATERIAL OR EVIDENCE ON RECORD THAT THESE WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS FILED EVERY DETAILS OF FOREIGN TRIPS UNDERTAKEN WITH NAME, PLACE OF VISIT AND NUMBER OF DAYS. THEREFORE, RELYING ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF M/S. VIKSHARA TRADING & INVESTMENT LTD. [I.T.A.NO. 5122/AHD/1996 DATED 30.03.1998) OF AHMEDABAD TRIBUNAL WHEREIN IT WAS HELD THAT WHETH ER THE ASSESSEE WAS BENEFITTED BY FOREIGN TRAVEL OR NOT WAS SUBSEQUENT EVENT AND WAS NOT RELEVANT. HENCE, FOREIGN TRAVEL UNDERTAKEN BY DIREC TORS FOR BUSINESS PURPOSE AND THERE NO JUSTIFICATION FOR DISALLOWING 50% ON PURE ESTIMATE. AND ALSO ON THE JUDGEMENT OF HONBLE GUJARAT HIGH C OURT IN CASE OF SAYAJI IRON & ENGINEERING CO. V. CIT [2002] 253 ITR 749 [2 002] 121 TAXMAN 43 (GUJ), WE ARE OF THE CONSIDERED OPINION THE LD. CIT (A) WAS JUSTIFIED IN PAGE 37 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 DELETING THE 1/5 TH ESTIMATED DISALLOWANCE OF FOREIGN TRAVELLING EXPEN SES. ACCORDINGLY, THIS GROUNDS OF APPEAL OF REVENUE IS T HEREFORE, DISMISSED. 62. GROUND NO. 2 STATES THE LD. CIT (A) HAS ERRED IN DE LETING ADDITION OF RS.23,226 ON ACCOUNT OF PETROL AND DIESEL EXPENS ES WITHOUT APPRECIATING FACTS. 63. THE AO NOTICED THAT THE ASSESSEE HAS DEBITED RS. 3, 66,130 UNDER THE HEAD OIL AND PETROL EXPENSES. THE ASSESSEE COMPANY HAS ADMITTED THAT LOG BOOK OF VEHICLES IS NOT MAINTAINED. THEREFORE, THE AO DISALLOWED 1/5 TH OF EXPENSES WHICH WORKED OUT TO RS.73,226 AS AGAINST WHICH, THE ASSESSEE HAS VOLUNTARY DISALLOWED RS. 50,000 HENCE, BALANCE OF RS. 23,226 WERE DISALLOWED. 64. IN APPEAL, THE LD. CIT (A) HAS DELETED THE SAID DIS ALLOWANCE BY RELYING ON THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. V. CIT [2002] 253 ITR 749 [2002] 121 TAXMAN 43 (GUJ) WHEREIN IT WAS HELD THAT PUBLIC LIMITED COMPANY IS AN INANIMATE PERSON AND THERE CANNOT BE ANYTHING PERSONAL ABOUT SUCH AN ENTITY. 65. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. CIT (DR) RELIED ON THE AO AND SUB MITTED THAT THE ASSESSEE COMPANY ITSELF ADMITTED THAT LOG-BOOK IS NOT MAINTA INED AND DISALLOWED RS. 50,000 ON THIS ACCOUNT. PAGE 38 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 66. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON T HE ORDER OF LD. CIT (A). 67. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THERE CANNOT BE AN Y PERSONAL USE OF VEHICLES IN THE CASE OF LIMITED COMPANY. THEREFORE, RELYING ON THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. V. CIT [2002] 253 ITR 749 [2002] 12 1 TAXMAN 43 (GUJ), WE FIND NO FAULT IN THE FINDINGS OF LD. CIT (A). ACCOR DINGLY, SAME IS UPHELD. CONSEQUENTLY, THIS GROUND IS DISMISSED. 68. GROUND NO. 3 STATES THAT LD. CIT (A) HAS ERRED IN H OLDING THAT EXPENDITURE INCURRED OF RS.1,43,200 ON REGISTRATION OF TRADEMARK AND REVIEWING THE DRAFT TECHNOLOGY AGREEMENT WAS REVENU E IN NATURE THOUGH THE SAME WAS GIVING ENDURING BENEFIT. 69. THE ASSESSEE HAS INCURRED TRADEMARK EXPENSES OF RS. 1,54,200 AND RS. 40,400 FOR CONSULTANCY CHARGES AGGREGATING TO R S. 1,94,600. THE AO HAS OBSERVED THAT THE EXPENDITURE INCURRED FOR TRADEMAR K REGISTRATION WILL GIVE ENDURING BENEFIT HENCE, SAME ARE CAPITAL IN NATURE. HOWEVER, WITHOUT PREJUDICE, THE A.R. OF THE ASSESSEE SUBMITTED THAT EXPENSES SHOULD BE APPORTIONED OVER A PERIOD OF 3 YEARS. CONSIDERING T HESE FACTS, THE AO DISALLOWED 1/3 RD OF THE EXPENSES OF RS. 1,54,200, WHICH WORKED OUT TO RS. PAGE 39 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 1,02,800. THE EXPENDITURE OF RS.40,000 INCURRED FOR REVIEWING THE DRAFT OF TECHNOLOGY PURCHASE AGREEMENT RECEIPT OF WHICH ARE TREATED AS CAPITAL RECEIPT. HENCE, SAID EXPENDITURE WAS DISALLOWED BEI NG CAPITAL EXPENDITURE. 70. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). WHEREIN IT WAS CONTENDED THAT EXPENDITURE WAS INCUR RED IN CONNECTION WITH REGISTRATION OF TRADEMARK AND ITSELF CANNOT BE TREATED AS CAPITAL EXPENDITURE. THE CIT (A) THEREFORE, HELD THAT THE A SSESSEE COMPANY HAS NOT INCURRED THE EXPENDITURE FOR PURCHASE OF TRADEM ARK. THE EXPENSES WERE INCURRED FOR REGISTRATION OF TRADEMARK AND REL ATABLE EXPENDITURE. HENCE, EXPENDITURE IS ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE DISALLOWANCE MADE OF 2/3 RD OF EXPENSES WAS THEREFORE, DELETED. WITH REGARD TO EXPENSES OF RS. 40,400 INCURRED TOWA RDS REVIEWING DRAFT TECHNOLOGY PURCHASE AGREEMENT, THE CIT (A) OBSERVED THAT THE ASSESSEE HAS SUBMITTED THAT RECEIPT OF TECHNOLOGY TRANSFER WAS T REATED AS REVENUE INCOME BY THE AO. FURTHER, IF IT IS TREATED AS ROYA LTY EVEN THAN THE EXPENDITURE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. IN VIEW OF THIS MATTER, THE CIT (A) HAS ALLOWED THE APPEAL ON THIS COUNT. 71. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED D.R. SUPPORTED THE ORDER OF T HE AO WHEREAS THE PAGE 40 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF LD. CIT (A) AND SUBMITTED THAT EXPENDITURE ARE FOR REGISTRATION AND PURCHASE OF LEGAL DOCUMENT. 72. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE EXPENDITURE OF RS.1,54,200 HAS BEEN INCURRED FOR REGISTRATION OF TRADEMARK AND NOT FOR THE PURCHASE OF TRADEMARK. HENCE, THE CIT (A) RIGHTLY TREATED IT AS REVENUE EXPENDITURE, ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE A CT. SIMILARLY, EXPENDITURE OF RS.40,400 HAS BEEN INCURRED TOWARDS DRAFTING LEGAL AGREEMENT AND PART RECEIPTS FROM TECHNOLOGY TRANSFE R ARE TREATED AS REVENUE RECEIPTS AND TREATED AS BUSINESS INCOME. TH EREFORE, THE ACTION OF THE AO IS MERELY BASED ON PRESUMPTION BASIS. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAM E IS UPHELD. THIS GROUND OF APPEAL IS THEREFORE, DISMISSED. 73. GROUND NO. 4 STATES THAT THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE PAYMENTS OF PF AND ESIC AMOUNTING TO RS.1,28,20 9 MADE BEFORE FILING OF RETURN OF INCOME ARE ELIGIBLE FOR DEDUCTI ON WITHOUT CONSIDERING THE FACT THAT THE DUE DATE IN THE RESPECTIVE ACTS F OR SAID PAYMENT IS 15 TH AND 21 ST OF EVERY MONTHS. PAGE 41 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 74. THE ASSESSEE COMPANY FILED MONTH-WISE DETAILS OF PA YMENT OF PF AND ESIC WITH RETURN OF INCOME. THE PAYMENT MADE BEYOND GRACE PERIOD WAS SUO-MOTO DISALLOWED BY THE ASSESSEE AT RS.1,36,534. HOWEVER, THE PAYMENT OF RS.1,28,209 IS MADE BEYOND DUE DATE UNDE R THE PF AND ESIC RULES WAS NOT DISALLOWED. THE AO THEREFORE, RELYIN G ON THE DECISION OF HON`BLE MADRAS HIGH COURT IN THE CASE OF CIT V. MAD RAS RADIATORS LTD. DISALLOWED THE SAME UNDER SECTION 43B OF THE ACT. 75. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). THE LD. CIT (A) HAS DELETED THE DISALLOWANCE BY FOL LOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC G LASS INDUSTRIES LTD. [2005] 149 TAXMAN 15 (GUJARAT) WHEREIN HON`BLE HIGH COURT HELD THAT PF & ESIC DEDUCTED DURING THE YEAR AND PAID BEFORE DUE DATE OF FILING OF RETURN OF INCOME IS ALLOWABLE AS A DEDUCTION UNDER SECTION 43B OF THE ACT. 76. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED D.R. SUBMITTED THE PAYMENT OF PF AND ESIC HAS NOT BEEN PAID WITHIN DUE DATE PRESCRIBED UNDER THE RESP ECTIVE STATUTES I.E. PF ACT AND ESIC RULES. THEREFORE, IN THE LIGHT OF DECI SION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. GUJARAT STATE ROAD TRANSPORT CORPORATION [2014] 366 ITR 170 (GUJ) : 223 TAXMAN 398 : [2014] 41 PAGE 42 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 TAXMANN.COM 100 (2014) (1) TML 502 -GUJ-HC IS NOT A LLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT. 77. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). 78. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS COVER ED AGAINST THE ASSESSEE BY DECISION OF HONBLE GUJARAT HIGH COURT IN THE CA SE OF CIT V. GUJARAT STATE ROAD TRANSPORT CORPORATION [2014] 366 ITR 17 0 (GUJ) : 223 TAXMAN 398 : [2014] 41 TAXMANN.COM 100 (2014) (1) TML 502 -GUJ-HC. HENCE, THE FINDING RECORDED BY THE LD. CIT (A) ARE REVERSED. T HIS GROUNDS OF APPEAL OF REVENUE IS ALLOW IN FAVOUR OF THE REVENUE. 79. GROUND NO. 5 STATES THAT THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,250 MADE OUT OF TELEPHONE EXPE NSES, WITHOUT CONSIDERING THE FACT THE ASSESSEE HIMSELF DISALLOWE D RS.50,000 ON THIS ACCOUNT. 80. BRIEF FACTS ARE THAT THE AO HAS DISALLOWED 1/5 TH OF TELEPHONE EXPENSES OF RS.51,250 WHICH WORKED OUT TO RS. 1,250 BY OBSER VING THAT IT IS HARD TO BELIEVE THAT FROM TELEPHONE INSTALLED AT THE RESIDE NCE OF DIRECTOR THERE ABSOLUTELY NO PERSONAL CALL MADE BY THE DIRECTORS. THE ASSESSEE HAS SUO- MOTO DISALLOWED RS.50,000 FOR PERSONAL USE OUT OF TELEPHONE EXPENSES. PAGE 43 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 81. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). HOWEVER, CIT (A) KEEPING IN VIEW THAT THE ASSESSEE HAS ALREADY DISALLOWED RS.50,000 FOR PERSONAL USE HENCE, FURTHER DISALLO WANCE MADE WITHOUT ANY MERIT AND CONCRETE FINDING, HENCE, SAME WERE DI SALLOWED. 82. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE AO WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPOR TED THE ORDER OF THE CIT (A). 83. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE COMPA NY HAS ALREADY DISALLOWED RS. 50,000 FOR PERSONAL USE HENCE; FUR THER DISALLOWANCE MADE BY THE AO WAS RIGHTLY DELETED BY THE LD. CIT (A). T HEREFORE, SAME IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 84. GROUND NO. 6 STATES THAT THE LD. CIT (A) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE FOLLOWING AMOUNTS FROM THE PROFITS E LIGIBLE FOR DEDUCTION UNDER SECTION 80HHC, THOUGH SAME HAVE NO DIRECT OR IMMEDIATE NEXUS WITH EXPORT ACTIVITY OF THE ASSESSEE A) RESTRICTED EXCLUSION INTEREST INCOME OF RS.44,15,400 AS AGAINST RS.1,88,07,480 B) EXCHANGE RATE DIFFERENCE OF RS.1,55,25,673 C) SALE OF SCRAP OF RS .44,621. THE CIT (A) HAS GRANTED RELIEF ON THE ISSUE OF EXCHANGE RATE DI FFERENCE WITHOUT PAGE 44 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 APPRECIATING THE FACT THAT THE ASSESSEE ENTER IN TO FORWARD CONTRACT ON ACCOUNT OF WHICH THERE MIGHT BE AN INCOME OR LOSS A ND HENCE, IT IS NOTHING BUT A SPECULATION PROFIT AND NOT RELATED TO BUSINESS OF THE ASSESSEE. 85. BRIEFLY, STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS RECEIVED INTEREST OF RS.1,88,07,480 OUT OF SURPLUS FUND WHIC H WERE KEPT WITH BANK. HENCE, THE AO RELYING ON CIT V. STERLING FOODS [199 9] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (S C) : 129 TAXMAN 539 (SC) HAS EXCLUDED THE SAME FROM THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. SIMILARLY, THE AO OBSERVE D THAT THE EXCLUSION OF THE AMOUNT OF EXCHANGE RATE DIFFERENCE FOR THE PURP OSE OF DEDUCTION UNDER SECTION 80HHC THE ASSESSEE HAS CLAIMED THAT SAME AS ACCOUNTED SEPARATELY AS PER ACCOUNTING STANDARD 11 AS PRESCRIBED. THEREF ORE, APPLYING THE RATIO LAID DOWN IN THE CASE OF CIT V. STERLING FOODS [199 9] 237 ITR 579 (SC), THE AO EXCLUDED THE AMOUNT OF EXCHANGE RATE DIFFERENCE. THE AO HAS ALSO EXCLUDED SALE OF SCRAP OF AS IT WAS REALIZED FOR SA LE OF RAW MATERIAL AND PACKING MATERIAL. 86. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT (A). IT WAS CLAIMED THAT FLUCTUATION IN FOREIGN EXCHANGE RATES INCOME IS RELATED TO THE REALIZATION OF EXPORT PROCEEDS AND BASICALLY EXCHANGE RATE PAGE 45 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 FLUCTUATION DIFFERENCE IS NOTHING BUT A PART OF SAL ES. THE ASSESSEE HAS ALSO PLACED RELIANCE ON VARIOUS TRIBUNAL DECISION AS REF ERRED BY THE CIT (A) IN HIS ORDER. AFTER CONSIDERING THE FACTS AND JUDICIAL FINDINGS, THE CIT (A) OBSERVED THAT THE EXCHANGE RATE DIFFERENCE BEARS TH E CHARACTER OF INCOME WHICH IS TREATED AS DERIVED FROM EXPORT SALES AND I T IS PART AND PARCEL OF THE EXPORT PROFITS ONLY. THUS, THE CIT (A) HAS ALLO WED THE CONTENTION OF THE ASSESSEE AND HELD THAT AMOUNT ON ACCOUNT OF EXCHANG E RATE DIFFERENCE OF RS.1,55,25,673 WOULD NOT BE EXCLUDED WHILE COMPUTIN G DEDUCTION UNDER SECTION 80HHC. THE CIT (A) OBSERVED THAT THE SCRAP IS NATURAL OUTCOME OF THE MANUFACTURING PROCESS. IT IS GENERATED DURING T HE MANUFACTURING PROCESS AND IS THUS, DIRECTLY RELATED TO SOURCE OF BUSINESS INCOME. RELIANCE WAS ALSO PLACED IN THE CASE OF ROLLA TAINERAS LTD. V. DCIT [200] 69 TTJ (DEL) AND MADRAS HIGH COURT IN THE CASE OF FENNER (INDIA) LIMITED V. CIT [200] 241 ITR 803 ((MAD). 87. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED D.R. SUPPORTED THE ORDER OF T HE AO. 88. PER CONTRA , LEARNED COUNSEL SUBMITTED THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS. IT WAS SUBMIT TED THAT NETTING OF INTEREST HAS BEEN ALLOWED BY THE HON`BLE SUPREME CO URT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. V. CIT [2012] 343 ITR 89 (SC) AND HONBLE PAGE 46 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 GUJARAT HIGH COURT IN THE CASE OF DCIT V. NARMADA V ALLEY FERTILIZER [2015] 57 TAXMANN.COM 250 (GUJARAT) AND ALSO COVERED BY T HE DECISION OF ITAT IN I.T.A.NO. 1672/& 2245/AHD/.20027 FOR A.Y. 2004-0 5 IN ASSESSEE`S OWN CASE. FURTHER EXCHANGE RATE DIFFERENCE IS ALSO COVE RED IN FAVOUR OF THE ASSESSEE BY ITAT IN I.T.A.NO. 1672/AHD/2007 (PAGE N O. 53 TO 55 ) FURTHER. TAX APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED BY THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO. 658 OF 2009 FOR A.Y. 2 004-05. FURTHER, THE SCRAP IS GENERATED DURING MANUFACTURING PROCESS AND SAME IS COVERED BY DECISION OF GUJARAT HIGH COURT IN THE CASE OF NIRMA LIMITED 55 TAXMANN.COM 125 (GUJARAT) AND HARJIVANDAS J. JAVERI 258 ITR 758 (GUJARAT) AND ALSO COVERED BY DECISION OF THE ITAT IN I.T.A.N O. 1672/& 2245/AHD/.20027 FOR A.Y. 2004-05 IN ASSESSEE`S OWN CASE. 89. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT NETTING OF INTERES T HAS BEEN ALLOWED BY THE HON`BLE SUPREME COURT IN THE CASE OF ACG ASSOCI ATED CAPSULES PVT. LTD. V. CIT [2012] 343 ITR 89 (SC) AND HONBLE GUJA RAT HIGH COURT IN THE CASE OF NARMADA VALLEY FERTILIZER [2015] 57 TAXMANN .COM 250 (GUJARAT) AND IS ALSO COVERED BY THE ITAT IN I.T.A.NO. 1672/ & 22 45/ AHD/2007 FOR A.Y. 2004-05 IN ASSESSEE`S OWN CASE. FURTHER, EXCHANGE R ATE DIFFERENCE IS COVERED IN FAVOUR OF THE ASSESSEE BY ITAT IN I.T.A. NO. 1672/AHD/2007 (PAGE PAGE 47 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 NO. 53 TO 55 ) FURTHER THE TAX APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED BY THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO. 658 OF 2009 FOR A.Y. 2004-05. FURTHER, SCRAP IS GENERATED DURIN G MANUFACTURING PROCESS AND SAME IS COVERED BY DECISION OF GUJARAT HIGH COU RT IN THE CASE OF NIRMA LIMITED[2015] 55 TAXMANN.COM 125 (GUJARAT) AND HARJ IVANDAS J. JAVERI 258 ITR 758 (GUJARAT) AND IS ALSO COVERED BY THE ITAT IN I.T.A.NO. 1672/& 2245/AHD/2007 FOR A.Y. 2004-05 IN ASSESSEE`S OWN CA SE. IN THE LIGHT OF ABOVE FINDINGS, THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 90. GROUND NO. 7 IS GENERAL IN NATURE HENCE, DOES NOT R EQUIRE ANY ADJUDICATION. 91. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 92. CO NO. 184/AHD/2006: A.Y. 2002-03: BY THE ASSESSEE: 93. GROUND NO.1: IS GENERAL IN NATURE; HENCE, DOES NOT REQUIRE OUR ADJUDICATION. 94. GROUND NO. 2 STATES THAT LD. CIT (A) HAS RIGHTLY DE LETED THE ADDITION MADE BY THE AO BEING FOREIGN TRAVELLING EX PENSES OF RS.4,48,986 WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE CLAIM THAT IT WHOLLY AND EXCLUS IVELY INCURRED FOR BUSINESS PURPOSE. PAGE 48 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 95. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS WE HAVE DISMISSED THIS GROUN DS OF APPEAL OF REVENUE IN THEIR APPEAL, HENCE, THIS GROUND TAKEN IN CO BY THE ASSESSEE HAS BECOMES INFRUCTUOUS. THEREFORE, IT IS TREATED DISMISSED. 96. GROUND NO. 3 STATES THE LD. CIT (A) HAS RIGHTLY DEL ETED ADDITION OF RS.23,226 ON ACCOUNT OF PETROL AND DIESEL EXPENSES WITHOUT APPRECIATING FACTS. 97. AS WE HAVE DISMISSED THIS GROUND OF REVENUE HENCE, THIS GROUND OF THE ASSESSEE BECOMES INFRUCTUOUS, HENCE, TREATED AS DISMISSED. 98. GROUND NO. 4 STATES THAT LD. CIT (A) HAS RIGHTLY HE LD THAT EXPENDITURE INCURRED OF RS.1,43,200 ON REGISTRATION OF TRADEMARK AND REVIEWING THE DRAFT TECHNOLOGY AGREEMENT WAS REVENU E IN NATURE THOUGH THE SAME WAS GIVING ENDURING BENEFIT. 99. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS WE HAVE DISMISSED THIS GROUN DS OF APPEAL OF REVENUE, THEREFORE, THIS GROUND OF THE ASSESSEE IS ACCORDINGLY, DISMISSED. 100. GROUND NO. 5 STATES THAT THE LD. CIT (A) HAS RIGHTL Y HELD THAT PAYMENTS OF PF AND ESIC AMOUNTING TO RS.1,28,209 MA DE BEFORE FILING OF RETURN OF INCOME ARE ELIGIBLE FOR DEDUCTION WITH OUT CONSIDERING THE PAGE 49 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 FACT THAT THE DUE DATE IN THE RESPECTIVE ACTS FOR S AID PAYMENT IS 15 TH AND 21 ST OF EVERY MONTHS. 101. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. OUR FINDING AS GIVEN IN RESPECT OF REVENUE APPEAL WOULD APPLY TO THIS GROUND HENCE, THIS GROUNDS OF APPEAL IS THEREFORE, DISMISSED. 102. GROUND NO. 6 STATES THAT THE LD. CIT (A) HAS RIGHTL Y DELETED THE DISALLOWANCE OF RS.1,250 MADE OUT OF TELEPHONE EXPE NSES. 103. WE HAVE DISMISSED THIS GROUND OF REVENUE HENCE, THI S GROUND BECOMES INFRUCTUOUS. 104. GROUND NO.7 : STATES THAT THE LD. CIT (A) HAS RIGHT LY DIRECTED NOT TO EXCLUDE THE FOLLOWING AMOUNTS FROM THE PROFITS E LIGIBLE FOR DEDUCTION UNDER SECTION 80HHC, THOUGH SAME HAVE NO DIRECT OR IMMEDIATE NEXUS WITH EXPORT ACTIVITY OF THE ASSESSEE A) RESTRICTED EXCLUSION INTEREST INCOME OF RS.44,15,400 AS AGAINST RS. 1,88,07,480 B ) EXCHANGE RATE DIFFERENCE OF RS.1,55,25,673 C) SALE OF SCRAP OF RS . 44,621. THE CIT (A) HAS RIGHTLY GRANTED RELIEF ON THE ISSUE OF EXCHANGE RATE DIFFERENCE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ENT ER IN TO FORWARD CONTRACT ON ACCOUNT OF WHICH THERE MIGHT BE AN INCO ME OR LOSS AND HENCE, IT IS NOTHING BUT A SPECULATION PROFIT AND N OT RELATED TO BUSINESS OF THE ASSESSEE. PAGE 50 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 105. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT WE HAVE ALLOWED T HIS GROUND IN REVENUE APPEAL THEREFORE, OUR FINDING THEREON WOULD APPLY ACCORDINGLY, FOLLOWING THE SAME THIS GROUNDS OF APPEAL OF THE ASSESSEE IS THEREFORE, DISMISSED. 106. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSESSE E IS DISMISSED. 107. I.T.A.NO.1672/AHD/2006/A.Y.2003-04:BY ASSESSEE: 108. GROUND NO. 1 & 2: ARE GENERAL IN NATURE; HENCE, DOE S NOT REQUIRE OUR ADJUDICATION. 109. GROUND NO.3 STATES THAT LD. CIT (A) HAS ERRED IN CO NFIRMING DISALLOWANCE OF SALE PROMOTION EXPENSES OF RS. 2,62 ,627 WHICH IS CONTRARY TO THE FACTS AND LAW. 110. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE AO OBSERVED TH AT THE ASSESSEE HAS DEBITED SALE PROMOTION EXPENSES OF RS.2,26,078 WHIC H INCLUDED EXPENDITURE ON GIFT TO FOREIGN CLIENTS, ORGANIZER D IARY ETC. CLAIMED TO HAVE INCURRED TO DEVELOPMENT RELATION WITH THEM. ACCORDI NGLY, THE AO DISALLOWED 1/5 TH THE SAME AT RS. 45,215. THE CIT (A) ALSO UPHELD TH E SAME. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT SUCH EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS HENCE, SAME IS ALLOWABLE AS DEDUCTION. FURTHER, THE ISSUE IS COVER ED IN FAVOUR OF THE PAGE 51 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 ASSESSEE BY TRIBUNAL ORDER IN I.T.A.NO. 2453/AHD/ 2 004/ A.Y. 01-02 PARA 23.1 AT PAGE NO. 22. WE FIND THAT THE AO HAS DISAL LOWED THE SAME ON ESTIMATE BASIS WITHOUT ANY JUSTIFICATION. HENCE, SA ME ARE DIRECTED TO BE ALLOWED. THIS GROUND IS THEREFORE, ALLOWED. 111. GROUND NO. 4 STATES THAT LD. CIT (A) HAS ERRED IN C ONFIRMING DISALLOWANCE OF RS.3,23,600 TREATING SAME AS DEFERR ED REVENUE EXPENDITURE. 112. THE PERUSAL OF DETAILS SUBMITTED BY THE ASSESSEE SH OWED THAT RS. 4,85,400 HAS BEEN INCURRED FROM REGISTRATION OF IMI DACLOPRID PRODUCT, WHICH WILL GIVE ENDURING BENEFIT TO THE ASSESSEE AS IT IS RENEWABLE IN THREE YEARS. THEREFORE, SAME WAS TREATED AS CAPITAL EXPEN DITURE. HOWEVER, THE AO HAS ACCEPTED ALTERNATE PLEA THAT THE PRODUCT IS DEFERRED REVENUE EXPENDITURE TO BE WRITTEN OFF IN THREE YEARS. HENCE , 1/3 RD WAS ALLOWED AND BALANCE 2/3 RD OF RS. 3,23,600 WAS DISALLOWED. 113. IN APPEAL, CIT (A) OBSERVED THAT EXPENDITURE HAS BE EN INCURRED FOR NEW PRODUCT REGISTRATION WITHOUT WHICH THE ASSESSEE CANNOT SELL ITS PRODUCT IN MARKET. THE BENEFIT OF THIS REGISTRATION WOULD B E AVAILABLE TO THE ASSESSEE AT LEAST THREE YEARS FOR WHICH THE AO HAS ACCEPTED THE ALTERNATE PLEA. HENCE, THIS GROUND WAS DISMISSED. PAGE 52 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 114. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REPEATED SAME ARGUMENT AS TAKEN BEFORE LOWER AUTHORITIES. 115. PER CONTRA, THE LEARNED D.R. SUPPORTED THE ORDER OF AUTHORITIE S BELOW. 116. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE EXPENDITURE HA S BEEN INCURRED FOR REGISTRATION OF NEW PRODUCT WHICH WILL GIVE BENEFIT TO THE ASSESSEE FOR AT LEAST THREE YEARS. HENCE, 2/3 RD OF THE SAME HAS BEEN RIGHTLY CAPITALIZED TO BE ALLOWED IN NEXT THREE YEARS. IN VIEW OF THIS MAT TER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAM E IS UPHELD. THIS GROUNDS OF APPEAL IS THEREFORE, DISMISSED. 117. GROUND NO. 5 STATES THAT LD. CIT (A) ERRED IN CONFI RMING THE ACTION OF THE AO IN MAKING ADDITION OUT OF LOSS INCURRED B Y THE APPELLANT COMPANY ON TRADED ITEMS TO THE TUNE OF RS.1,87,694 . THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND LAW. 118. THE AO HAS OBSERVED THAT THE REPLY OF THE ASSESSEE IS NOT CONVINCING. IT IS HARD TO BELIEVE THAT THE ASSESSEE COMPANY WHI CH IS HAVING A TURNOVER OF MORE THAN RS. 40 CRORES AND HAS UNDERTAKEN SMALL ACTIVITY OF TRADING OF RS.4.6 CRORES AND HAS INCURRED LOSSES IN THE ACTIVI TY. THIS, FURTHER GETS PAGE 53 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 STRENGTHENED THAT MUST OF SALES ARE MADE TO RELATED PARTIES. IN VIEW OF ABOVE FACTS, IT IS HELD THAT LOSSES INCURRED BY THE ASSESSEE COMPANY ARE NOT GENUINE HENCE, THESE LOSS ARE ADDED TO TOTAL INCOME . 119. BEING DISSATISFIED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE CIT (A). IT WAS CONTENDED THAT THE RAW MATERIAL WHICH IS NOT REQUIRED FOR USE WERE DISPOSED-OFF AS A MATTER OF COMMERCIAL EXPEDIE NCY TO ITS RELATED PARTIES. HOWEVER, LD. CIT (A) OBSERVED THAT THE TRA NSACTION IS NOT IN ORDINARY COURSE OF BUSINESS AND HAS ALSO RESULTED I N LOSS OF RS. 1,87,694. THE LD. AR OF THE APPELLANT HAS NOT BROUGHT FORTH T HE CIRCUMSTANCES LEADING TO DISPOSAL AT A PRICE LOWER THAN ITS PURCHASE COST . ACCORDINGLY, THIS GROUND WAS DISMISSED. 120. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT PURCHASE AND SALE ARE DURING NORMAL COURSE OF BUSINESS AND FULLY SUPPORTE D BY THE PROPER BILLS. THE PURCHASER COMPANIES ARE ALSO BEING ASSESSED AT MAXIMUM MARGINAL RATE. THE ADDITION HAS BEEN MADE ONLY ON THE BASIS OF PRESUMPTION HENCE, DESERVE TO BE DELETED. 121. AU CONTRAIRE , THE LEARNED D.R. SUPPORTED THE ORDER OF CIT (A). 122. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE PURCHASE AND S ALE ARE DULY SUPPORTED PAGE 54 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 BY THE PROPER BILLS. THERE IS ONLY ONE COMPANY IN W HICH SALES ARE MADE AT LOWER PRICE. THE PURCHASER COMPANIES ARE ALSO ASSES SED AT MAXIMUM MARGINAL RATE. WE FIND THAT THE AO HAD MADE ADDITIO N ONLY ON PRESUMPTION BASIS WITHOUT BRINGING ON RECORD ANY COGENT MATERIA L TO ESTABLISH THAT SALES WERE MADE WITH A VIEW TO DECREASE PROFIT. THE ASSES SEE COMPANY WHICH IS HAVING A TURNOVER OF MORE THAN RS.40 CRORES WOULD U NDERTAKE SUCH STEP TOTAL INCOME SUPPRESS THE PROFIT. SINCE THE ADDITIO N IS MADE FOR PRESUMPTION BASIS. THEREFORE, SAME IS DIRECTED TO B E DELETED. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 123. GROUND NO. 6 STATES THE LD. CIT (A) HAS ERRED IN I N NOT CONSIDERING THAT INTEREST INCOME TO THE TUNE OF RS.92,15,954 AS INCOME FROM BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 80HHC. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND L AW AND DESERVE TO BE DELETED. 124. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND IS COV ERED BY OUR FINDINGS AS GIVEN IN THE CASE OF THE ASSESSEE FOR THE ASSESSMEN T YEAR 2002-03 IN GROUND NO. 10 AS DISCUSSED IN EARLIER PART OF THIS ORDER. THEREFORE, FOLLOWING OUR FINDING AS GIVEN THEREIN THIS GROUNDS OF APPEAL OF THE ASSESSEE IS ACCORDINGLY, DISMISSED. PAGE 55 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 125. GROUND NO. 7 STATES THAT LD. CIT (A) HAS ERRED IN NOT CONSIDERING INSURANCE CLAIM RECEIVED TO THE TUNE OF RS.1,11,006 AS INCOME FROM BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 80HHC. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND L AW AND DESERVE TO BE DELETED. 126. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND IS COV ERED BY THE FINDINGS OF ITAT IN I.T.A.NO. 2453/AHD/2004 FOR A.Y. 2001-02. H ENCE, FOLLOWING THE SAME THIS GROUND OF APPEAL IS THEREFORE, ALLOWED. 127. GROUND NO. 8 STATES THAT LD. CIT (A) HAS ERRED IN D IRECTING THE AO TO EXCLUDE PROFIT ON SALE OF DEPB TO THE TUNE OF RS .5,91,000 FROM THE PROFIT ELIGIBLE BUSINESS FOR DEDUCTION UNDER SECTIO N 80HHC. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND LAW AND DESE RVE TO BE DELETED. 128. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY THE DECISION OF HON`BLE SUPREME COURT IN THE CASE OF AVANI EXPORT [2015] 58 TAXMANN.COM 100 (SC) WHICH HELD THE AMENDMENT OF TAXATION LAW (SECOND AMENDMENT) 2005 W OULD NOT OPERATE RETROSPECTIVELY. 129. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE HON`BLE SUPREM E COURT IN THE CASE OF PAGE 56 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 ACG ASSOCIATED CAPSULES PVT. LTD. V. CIT [2012] 343 ITR 89 (SC) THE HON`BLE SUPREME COURT OBSERVED AS THIS IS AN APPEAL AGAINST THE JUDGMENT AND ORDER DATED 06.08.2010 OF THE BOMBAY HI GH COURT IN ITA(L) NO. 1276 OF 2010 DECIDING TWO ISSUES AGAINST THE ASS ESSEE. ON THE FIRST ISSUE, THE HIGH COURT HAS HELD, RELYING ON ITS JUDGME NT IN CIT V. KALPATARU COLOURS & CHEMICALS [2010] 192 TAXMAN 435 (BOM.) , THAT THE ENTIRE AMOUNT RECEIVED BY AN ASSESSEE ON SALE OF THE DUTY EN TITLEMENT PASS BOOK (FOR SHORT 'THE DEPB') REPRESENTS PROFIT ON TRANSFE R OF DEPB UNDER SECTION 28(IIID) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'TH E ACT'). WE HAVE ALREADY DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN A SEP ARATE JUDGMENT IN TOPMAN EXPORTS V. CIT [2012] 18 TAXMANN.COM 120 (SC) , AND WE HAVE HELD THAT NOT THE ENTIRE AMOUNT RECEIVED BY THE ASSE SSEE ON SALE OF DEPB, BUT THE SALE VALUE LESS THE FACE VALUE OF THE DEPB WIL L REPRESENT PROFIT ON TRANSFER OF DEPB BY THE ASSESSEE. THE FIRST ISSUE IS , THEREFORE, DECIDED ACCORDINGLY. THEREFORE, RESPECTFULLY FOLLOWING SAME WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAM E IS UPHELD. HENCE, FOLLOWING THE SAME THIS GROUND OF APPEAL IS THEREFO RE, ALLOWED. 130. GROUND NO. 9 STATES THAT LD. CIT (A) HAS ERRED IN C ONFIRMING THE ACTION OF THE AO IN EXCLUDING CLAIM RECEIVED BY THE ASSESSEE COMPANY AMOUNTING RS.2,70,00,000 FOR LOSS OF PROFIT THE PRO FIT ELIGIBLE FOR PAGE 57 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 DEDUCTION UNDER SECTION 80HHC. THE ACTION OF THE AO IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO BE DELETED. 131. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T SIMILAR CLAIM HAS BEEN ALLOWED BY THE TRIBUNAL IN OWN CASE OF THE ASSESSEE FOR A.Y. 2004- 05 IN I.T.A.NO. 1672/AHD/2007 (PAGE NO. 42 PARA 26) . 132. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF THE LOWER AUT HORITIES 133. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT SIMILAR CLAIM HAS BEEN ALLOWED BY THE TRIBUNAL IN OWN CASE OF THE ASSESSEE FOR A.Y. 2004- 05 IN I.T.A.NO. 1672/AHD/2007 (PAGE NO. 42 PARA 26). THEREFORE, RES PECTFULLY FOLLOWING THE SAME THIS GROUND IS ALLOWED. 134. GROUND NO. 10 & 11 ARE GENERAL IN NATURE HENCE, DO ES NOT REQUIRE ANY ADJUDICATION. 135. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 136. I.T.A.NO.1764/AHD/2006/A.Y.2003-04:BY REVENUE: 137. GROUND NO. 1 STATES THAT LD. CIT (A) HAS ERRED IN D ELETING STAFF WELFARE EXPENSES OF RS. 42,358 WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS FAILED TO EXPLAIN THAT THE EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES. PAGE 58 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 138. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS I NCURRED EXPENDITURE OF RS.1,65,202 FOR LABOUR WELFARE AND RS. 46,590 FOR S TAFF WELFARE, WHICH ARE MAINLY IN THE NATURE OF ENTERTAINMENT AND PERTAINED TO TEA COFFEE ETC. OF WHICH GENUINENESS IS ALSO DOUBTFUL. HENCE, THE AO H AD DISALLOWANCE 20 % OF SUCH EXPENSES AT RS. 42,358. HOWEVER, THE CIT (A ) HAS DELETED THE SAME. WE FIND THAT SUCH TYPE OF DISALLOWANCE DELETED N A. Y. 2001-02 IN I.T.A.NO. 2470/A/2004 WERE CONFIRMED BY THE TRIBUNAL, IN THE CASE OF THE ASSESSEE. IN VIEW OF THESE FACTS, THIS GROUND OF APPEAL IS TH EREFORE, DISMISSED. 139. GROUND NO. 2 STATES THAT LD. CIT (A) HAS ERRED IN D ELETING DISALLOWANCE OF RS.27,771 MADE OUT OF AUDIT EXPENSE S WITHOUT CONSIDERING THE FACTS THAT THE ASSESSEE HAS FAILED TO PROVE EXIGENCY OF INCURRING SUCH EXPENDITURE FOR BUSINESS PURPOSE. 140. THE ASSESSEE HAS CLAIMED THE ABOVE EXPENSES IN-GROU P IN MISC. EXPENSES ON ACCOUNT OF EXPENDITURE INCURRED FOR ENT ERTAINMENT OF AUDITOR OF THE ASSESSEE COMPANY. THEREFORE, THE AO DISALLOW ED THE SAME. HOWEVER, CIT (A) DELETED THE SAME BY HOLDING THAT N O CONCRETE FINDING HAS BEEN GIVEN BY THE AO. IN VIEW OF THIS MATTER, WE AR E OF THE CONSIDERED OPINION THE CIT (A) WAS JUSTIFIED, IN DELETING THE DISALLOWANCE SO MADE. PAGE 59 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAME IS UPHELD. THIS GROUNDS OF APPEAL OF REVENUE I S THEREFORE, DISMISSED. 141. GROUND NO. 3 STATES THAT LD. CIT (A) HAS ERRED IN D ELETING FOREIGN TRAVELLING EXPENSES OF RS. 1,54,650 WITHOUT APPRECI ATING THE FACTS THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE CLAIM T HAT IT WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES. 142. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND OF APPEAL WAS ALSO COME BEFORE US IN A.Y. 2002-03 IN THE CASE OF THE ASSESS EE, WHEREIN WE HAVE DISMISSED THE REVENUE APPEAL, ON THIS GROUND. THERE FORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS DISMISSED. 143. GROUND NO. 4 STATES THE LD. CIT (A) HAS ERRED IN DE LETING ADDITION OF RS.13,596 ON ACCOUNT OF PETROL AND DIESEL EXPENS ES WITHOUT APPRECIATING FACTS. 144. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND OF APPEAL WAS ALSO COME BEFORE US IN A.Y. 2002-03 IN THE CASE OF THE ASSESS EE, WHEREIN WE HAVE DISMISSED THE REVENUE APPEAL, ON THIS GROUND. THERE FORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS DISMISSED. PAGE 60 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 145. GROUND NO. 5: STATES THAT THE LD. CIT (A) HAS ERRED IN HOLDING THAT PAYMENTS OF PF AND ESIC AMOUNTING TO RS. 2,330 MADE BEFORE FILING OF RETURN OF INCOME ARE ELIGIBLE FOR DEDUCTION WITHOUT CONSIDERING THE FACT THAT THE DUE DATE IN THE RESPECTIVE ACTS FOR SAID P AYMENT IS 15 TH AND 21 ST OF EVERY MONTHS. 146. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND OF APPEAL WAS ALSO COME BEFORE US IN A.Y. 2002-03 IN THE CASE OF THE ASSESS EE, WHEREIN WE HAVE ALLOWED THE REVENUE APPEAL, BY FOLLOWING DECISION O F HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. GUJARAT STATE ROAD TRAN SPORT CORPORATION [2014] 366 ITR 170 (GUJ) : 223 TAXMAN 398 : [2014] 41 TAXMANN.COM 100 (2014) (1) TML 502 -GUJ-HC. THEREFO RE, FOLLOWING SAME, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE R EVENUE. 147. GROUND NO. 6 STATES THAT THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.85,641 MADE OUT OF TELEPHONE EXP ENSES, WITHOUT CONSIDERING THE POSSIBILITY OF USE OF TELEPHONE BY THE DIRECTORS AND EMPLOYEES OF THE ASSESSEE COMPANY. 148. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND OF APPEAL WAS ALSO COME BEFORE US IN A.Y. 2002-03 IN THE CASE OF THE ASSESS EE, WHEREIN WE HAVE PAGE 61 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 DISMISSED THE REVENUE APPEAL, ON THIS GROUND. THERE FORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS DISMISSED. 149. GROUND NO. 7 STATES THAT THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 40A(2)(B) OF RS.5,9 12 WITHOUT APPRECIATING THAT PAYMENT MADE TO RELATED PARTY FOR PURCHASE OF MATERIAL WAS EXCESSIVE AS COMPARED TO OTHER PARTY. 150. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE CIT (A) HAS DELETED THIS GROUND BY OBSERVING THAT THE ASSESSEE HAS PURCHASED THE MATER IAL FOR RELATED PARTIES AT ARMS LENGTH PRICE AND NO EXCESSIVE PAYMENT HAS BEEN MADE AND CONSIDERING THE BUSINESS EXIGENCY. THE AO HAS NOT B ROUGHT ON RECORD ANY SUCH FACTS. IN VIEW OF THIS, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, IT IS UPHELD. THIS GROUND OF APPE AL IS DISMISSED. 151. GROUND NO.8 STATES THAT THE LD. CIT (A) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE FOLLOWING AMOUNTS FROM THE PROFITS E LIGIBLE FOR DEDUCTION UNDER SECTION 80HHC, THOUGH SAME HAVE NO DIRECT OR IMMEDIATE NEXUS WITH EXPORT ACTIVITY OF THE ASSESSEE A) RESTRICTED EXCLUSION INTEREST INCOME OF RS.47,53,885 AS AGAINST RS. 92,15,954/- B) EXCHANGE RATE DIFFERENCE OF RS. 64,58,750/- C) SALE OF SCRAP OF R S.3,00,311/-. THE CIT (A) HAS GRANTED RELIEF ON THE ISSUE OF EXCHANGE RAT E DIFFERENCE WITHOUT PAGE 62 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 APPRECIATING THE FACT THAT THE ASSESSEE ENTER IN TO FORWARD CONTRACT ON ACCOUNT OF WHICH THERE MIGHT BE AN INCOME OR LOSS A ND HENCE, IT IS NOTHING BUT A SPECULATION PROFIT AND NOT RELATED TO BUSINESS OF THE ASSESSEE . 152. THE LD. CIT (DR) RELIED ON THE AO. 153. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT NETTING OF INTEREST HAS BEEN GRANTED BY THE C IT (A), WHICH IS COVERED BY THE DECISION OF HON`BLE SUPREME COURT IN THE CAS E OF ACG ASSOCIATED CAPSULES PVT. LTD. V. CIT [2012] 343 ITR 89 (SC) AN D DCIT V. NARMADA VELLEY FERTILIZERS CO LTD. [2015] 57 TAXMANN.COM 250 (GUJA RAT) WHEREIN IT WAS HELD THAT WHERE INTEREST INCOME WAS RECEIVED ON IN VESTMENTS, WHILE INTEREST PAID ON BORROWINGS PERTAINED TO BUSINESS EXPENDITURE, NOT 90 PERCENT OF GROSS INTEREST , BUT 90 PERCENT OF NET I NTEREST WAS TO BE REDUCED FOR COMPUTING SECTION 80HHC DEDUCTION. FURTHER THE ISSUE OF EXCHANGE RATE DIFFERENCE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF ITAT IN ASSESSEE`S OWN CASE IN I.T.A.NO. 1672 & 2245/AH D/2007 FOR ASSESSMENT YEAR 2004-05[ PB-53] AND I.T.A.NO. 1614/AHD/2009 FO R A.Y. 2006-07 [ PB- 110 TO 104]. FURTHER, TAX APPEAL OF THE DEPARTMENT HAS BEEN DISMISSED BY THE HONBLE GUJARAT HIGH COURT IN CIT V. MITSU LIMI TED [TAX APPEAL NO. 658 OF 2009 DATED 19.03.2014] (PB-22 TO 24) AND SALE OF SCRAP IS COVERED IN PAGE 63 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN I.T.A.NO.1672 & 2245/AHD/2007 FOR ASSESSMENT YEAR 2004-05 [PB-19-20 ]. 154. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND OF APPEAL WAS ALSO COME BEFORE US IN A.Y. 2002-03 IN THE CASE OF THE ASSESS EE, VIDE GROUND NO. 6 OF DEPARTMENT APPEAL, WHEREIN WE HAVE DISMISSED THE RE VENUE APPEAL, ON THESE ISSUES IN EARLIER PART OF THIS ORDER. THE HON BLE GUJARAT HIGH COURT IN THE CASE OF DCIT V. NARMADA VELLEY FERTILIZERS C O LTD. [2015] 57 TAXMANN.COM 250 (GUJARAT) WHEREIN IT WAS HELD THAT WHERE INTEREST INCOME WAS RECEIVED ON INVESTMENTS, WHILE INTEREST PAID ON BORROWINGS PERTAINED TO BUSINESS EXPENDITURE, NOT 90 PERCENT O F GROSS INTEREST , BUT 90 PERCENT OF NET INTEREST WAS TO BE REDUCED FOR CO MPUTING SECTION 80HHC DEDUCTION. SIMILARLY, THE HON`BLE SUPREME COURT IN THE CASE OF CIT V. PUNJAB STAINLESS STEEL INDUSTRIES [2014] 46 TAXMANN .COM 68 (SC) WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF MANUFACTURE AND EXPORTER OF STEEL UTENSIL S, PROCEEDS GENERATED FROM SALE OF SCRAP WOULD NOT BE INCLUDED IN TOTAL TURNOVER. THESE ISSUES ARE ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN THE CASE OF THE ASSESSEE AS MENTIONED BY THE LEARNE D COUNSEL FOR THE PAGE 64 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 ASSESSEE IN ABOVE PARA. THEREFORE, FOLLOWING SAME, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 155. GROUND NO. 9 RELATES THAT LD. CIT (A) ERRED IN HOL DING THAT EXCISE DUTY AND SALES WOULD NOT BE INCLUDED IN THE TOTAL T URNOVER WHILE CALCULATING THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT WITHOUT CONSIDERING THE FACTS THAT THE ISSUE IN QUESTION IS YET TO BE DECIDED BY THE HIGHEST COURT OF THE LAND. 156. THE LD. CIT (DR) RELIED ON THE AO. 157. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON`BLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS[2007] 290 ITR 667 (SC), AND ALSO BY THE DECISION OF TRIB UNAL IN ASSESSEE`S CASE FOR A.Y. 2001-02 IN I.T.A.NO. 2453/AHD/2004 [PB56-5 7] AND FOR A.Y. 2004- 05 I.T.A.NO. 1672 & 2245/AHD/2007 FOR ASSESSMENT Y EAR 2004-05[ PB-53]. FURTHER, TAX APPEAL OF THE DEPARTMENT HAS BEEN DISM ISSED BY THE HONBLE GUJARAT HIGH COURT IN I.T.A.NO. 658 OF 2009 (PB-22 TO 24). 158. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON`BLE SUPREME COU RT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS [2007] 290 ITR 667 (SC) AND ALSO BY THE DECISION PAGE 65 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 OF TRIBUNAL IN ASSESSEE`S CASE FOR A.Y. 2001-02 IN I.T.A.NO. 2453/AHD/2004 [PB56-57] AND FOR A.Y. 2004-05 I.T.A.NO. 1672 & 224 5/AHD/2007 FOR ASSESSMENT YEAR 2004-05[ PB-53]. FURTHER, TAX APPEA L OF THE DEPARTMENT HAS BEEN DISMISSED BY THE HONBLE GUJARAT HIGH COUR T IN I.T.A.NO. 658 OF 2009 (PB-22 TO 24). IN VIEW OF THESE FACTS AND CIRC UMSTANCES, RESPECTFULLY FOLLOWING THE ABOVE CITED JUDGEMENTS OF HON`BLE SU PREME COURT AND HON`BLE HIGH COURT AND TRIBUNAL, THIS GROUNDS OF AP PEAL OF REVENUE IS THEREFORE, DISMISSED. 159. GROUND NO. 10 IS GENERAL IN NATURE HENCE, DOES NOT REQUIRE ANY ADJUDICATION. 160. IN THE RESULT, THE APPEAL OF THE REVENUE FOR A.Y. 2 003-04 IS PARTLY ALLOWED. 161. I.T.A.NO.1000/AHD/2016/A.Y.2002-03:BY THE ASSESSEE: 162. GROUND NO. 1 TO 4 ARE AGAINST THE NON ALLOWING DEDU CTION UNDER SECTION 80-O OF THE ACT BY NOT CONSIDERING THE DIRE CTION OF ITAT USED VIDE ORDER DATED 22.03.2013 AND NOT ADJUDICATING AP PEAL IN ARBITRARY MANNER WITHOUT CONSIDERING LEGAL ASPECT. 163. SUCCINCT FACTS ARE THAT ORIGINAL ASSESSMENT WAS MAD E UNDER SECTION 143 (3) ON 21.03.2005 DECLARING TOTAL INCOME OF RS. 45,86,66,943 WHICH WAS LATER ON REVISED TO RS. 41,82,55,337 UNDER SECTION 154 OF THE ACT. THIS ORDER PAGE 66 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 WAS SUBSEQUENTLY CANCELLED UNDER SECTION 263 OF THE ACT VIDE ORDER DATED 22.12.2005 BY THE COMMISSIONER OF INCOME TAX WITH A DIRECTION TO MAKE A FRESH ASSESSMENT WHILE EXAMINING THE DEDUCTION UNDE R SECTION 80HHC AND UNDER SECTION 80-O WHICH WERE WRONGLY ALLOWED. IN C ONSEQUENCE TO ABOVE, FRESH ASSESSMENT WAS MADE ON 30.08.2006. AGGRIEVED, THE ASSESSEE HAS CARRIED THE MATTER BEFORE CIT (A). THE CIT (A) VIDE ORDER DATED 30.11.2006, HAS ALLOWED THE APPEAL OF THE ASSESSEE ON DEDUCTION UNDER SECTION 80HHC AND UNDER SECTION 80-O OF THE ACT. THE ASSESSEE AS WELL AS DEPARTMENT WENT INTO APPEAL BEFORE TRIBUNAL. THE ITAT AHMEDABA D VIDE ORDER DATED 22.03.2013 [I.T.A.NO. 451/AHD/2006 AND CO. NO. 84/A HD/2007, I.T.A.NO. 1074/ AHD/ 2007 BY THE ASSESSEE] AND I.T.A.NO.1074/ AHD/2007 BY THE DEPARTMENT. THE ITAT VIDE PARA 4.2 AND 4.3 OF ITS O RDER HAS SET-ASIDE THE ISSUE OF DEDUCTION UNDER SECTION 80-O TO THE FILE O F CIT (A) BY OBSERVING THAT THOUGH THE CIT (A) HAS ALLOWED DEDUCTION UNDER SECTIO N 80-O OF THE ACT TO THE ASSESSEE BY FOLLOWING CBDT CIRCULAR NO. 7 31 DATED 20.12.1995, BUT NO FINDING GIVEN BY THE CIT (A) THAT EVEN AFTER SALE OF TECHNICAL KNOW- HOW , THERE WAS RESTRICTION ON THE BUYER DEBARRING H IM FROM USING SUCH TECHNICAL KNOW-HOW IN INDIA. UNDER THESE FACTS, WE FEEL THAT THE ORDER OF LD. CIT (A) IS NOT SUSTAINABLE ON THIS ISSUE. HOWEVER , WE FEEL THAT IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD GO BACK TO TH E FILE OF LD. CIT (A) FOR PAGE 67 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 DECIDING THE ISSUE AFRESH IN ORDER TO ENABLE THE ASSESSEE TO BRING COGENT EVIDENCE ON RECORD TO ESTABLISH THAT THERE ARE REST RICTION ON THE BUYER DEBARRING HIM FROM USING TECHNICAL KNOW-HOW IN INDIA AT ANY POINT OF TIME. IF THE ASSESSEE IS ABLE TO DO SO THE ASSESSEE MIGHT HAVE A CASE FOR ALLOWING DEDUCTION U/S. 80-O BUT THE ABSENCE THE ASSESSEE `S A BILITY TO ESTABLISH THIS, THAT THERE WAS RESTRICTION ON THE BUYER DEBARR ING HIM FROM USING TECHNICAL KNOW-HOW IN INDIA AT ANY POINT OF TIME, I N OUR CONSIDERED OPINION, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.80-O ON ACCOUNT OF THIS RECEIPT BECAUSE IN THAT SITUATION, IT CANNOT BE SAID THAT THE RECEIPT IN QUESTION IS A CONSIDERATION FOR USER OF TECHNICAL KNO W-HOW OUTSIDE INDIA. HENCE, WE SET-ASIDE THE ORDER OF CIT (A) ON THIS IS SUE AND RESTORE THE MATTER BACK TO HIS FILE FOR FRESH DECISION. 164. IN VIEW OF ABOVE, THE CIT (A) HAS AGAIN GIVEN AN OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. IT WAS EXPLAINED THAT THE AS SESSEE COMPANY HAS RECEIVED A SUM OF RS. 18,19,27,200 FROM M/S. DOW AG RO SCIENCE BV FOR THE TRANSFER OF TECHNICAL KNOW-HOW OF WHICH 80% AMOUNT OF RS. 14,55,41,760 HAS BEEN CLAIMED AS CONSIDERATION RECEIVED FOR LOSS OF INCOME AND AS SUCH TREATED THE SAME AS CAPITAL RECEIPT. THE BALANCE 20 % AMOUNT OF RS. 3,63,85,440 HAS BEEN CLAIMED AS ROYALTY RECEIVED FO R THE USE OF PROCESS AND TECHNOLOGY. THE ASSESSEE COMPANY HAD ALSO RECEI VED A SUM OF RS. PAGE 68 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 4,86,85,000 FROM SYNGENTA CROP PROTECTION AG AND TH E SAME HAS BEEN TREATED AS ROYALTY. THE APPELLANT COMPANY HAS CLAIM ED DEDUCTION UNDER SECTION 80-O OF THE ACT ON ROYALTY PAYMENTS OF RS. 8,50,70,440 [ RS. 3,63,85 440 + RS. 4,86,85,000] AND THE BALANCE AMOUNT OF RS .14,55,41,760 WAS CLAIMED AS EXEMPT BEING CAPITAL RECEIPT. THE APPELL ANT COMPANY ALSO FILED THE CHARTERED ACCOUNTANT CERTIFICATE IN REGARD TO THE NATURE OF RECEIPT AND CLAIM OF DEDUCTION UNDER SECTION 80-O ON WHICH THE AO ORIGINALLY GRANTED DEDUCTION UNDER SECTION 80-O VIDE ORDER DAT ED UNDER SECTION 143 (3) DATED 21.03.2005 AND CIT (A) HAS ALLOWED THE AP PEAL. HOWEVER, VIDE ORDER DATED 30.08.2006 UNDER SECTION 143 (3) READ W ITH SECTION 263 THE AO WITHDREW THE DEDUCTION UNDER SECTION 80-O OF THE AC T. HOWEVER, THE CIT (A) OBSERVED THAT THE ASSESSEE HAS FILED COPIES OF AGREEMENT ENTERED IN TO BY THE APPELLANT WITH ABOVE STATED TWO PARTIES FOR TRANSFER OF TECHNICAL KNOW-HOW TO THEM FOR CONSIDERATION. THE LD. AR OF T HE APPELLANT ALSO SUBMITTED THAT AN MISCELLANEOUS APPLICATION HAS BEE N FILED BY HIM BEFORE THE ITAT FOR RECTIFICATION OF MISTAKE BECAUSE WHIL E ADJUDICATING THE APPEAL THE DUE CONSIDERATION TO CBDT CIRCULAR NO. 700 DATE D 23.03.1995 HAS NOT BEEN GIVEN WHICH AMOUNTS TO OMISSION AND REQUIRES T O BE RECTIFIED. BESIDE THIS, NO EVIDENCE HAS BEEN ADDUCED WHICH SHOWS THAT THERE WAS RESTRICTION ON THE BUYER OF TECHNICAL KNOW-HOW TO USE THE SAME IN INDIA AT ANY POINT PAGE 69 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 OF TIME. KEEPING IN VIEW THE DIRECTION OF THE OF H ON`BLE AHMEDABAD AND SUBMISSIONS OF THE APPELLANT AS WELL AS RELIANCE ON THE ASSESSMENT ORDER, THE CIT (A) HELD THAT THE APPELLANT HAS NOT BEEN A BLE TO PLACE ON RECORD ANY EVIDENCE WHICH SHOWS THAT THERE WAS ANY RESTRIC TION ON THE BUYERS OF TECHNICAL KNOW-HOW FOR USING IT IN INDIA AT ANY POI NT OF TIME. THEREFORE, AS PER DIRECTION OF THE ITAT, THE APPELLANT IS NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 80-O OF THE ACT. 165. BEING, DISSATISFIED THE ASSESSEE HAS FILED THIS APP EAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REFE RRED THE SECTION 8.01- TERMINATION OF THE PURCHASE AGREEMENT DATED 12.09. 2001(PB-38) WITH SYNGENTA CROP PROTECTION AG, SWITZERLAND BY WHICH T HE SAID PURCHASE AGREEMENT CAN BE TERMINATED BY SELLER OR PURCHASER IN THE EVENT OF TRANSACTION IS BEING PROHIBITED BY THE GOVERNMENT B ECOMES FINAL OR BY MUTUAL WRITTEN CONSENT OF BOTH PARTIES (PB-52) TO C ONTEND THAT AGREEMENT CAN BE TERMINATED BY MUTUAL WRITTEN CONSENT OF THE PARTIES. LEARNED COUNSEL FURTHER REFERRED SECTION 9.06- ASSIGNMENT C LAUSE (PB-54) TO CONTEND THAT THE BUYER CANNOT ASSIGN THIS AGREEMENT AND HENCE, ONLY A RIGHT TO USE INTELLECTUAL PROPERTY IS ACQUIRED. LEA RNED COUNSEL ALSO REFERRED CLAUSE 6.4 (PB-35) OF TECHNOLOGY PURCHASE AGREEMENT DATED 01.01.2002 (PB-30) ENTERED IN TO WITH DOW AGROSCIENCES B.V., N ETHERLAND TO CONTEND PAGE 70 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 THAT THIS AGREEMENT CANNOT BE ASSIGNED TO THIRD PAR TY BY THE NEITHER PARTY, WITHOUT WRITTEN CONSENT OF THE OTHER PARTY. THUS, T HE BUYER HAS ONLY A LICENSE TO USE THE TECHNICAL KNOW-HOW AND DO NOT HA VE A RIGHT TO TRANSFER THE SAME. LEARNED COUNSEL FURTHER DRAWN OUR ATTENTI ON THAT PRODUCTS SOLD ARE INSECTICIDES, PESTICIDES AND/OR ITS INTERMEDIAT ES. SUCH PRODUCTS CANNOT BE MANUFACTURED IN INDIA WITHOUT OBTAINING A LICENS E IN THE FORM OF REGISTRATION FROM THE CONCERNED GOVERNMENT DEPARTME NT IN INDIA. THE PURCHASER OF TECHNICAL KNOW-HOW HAS NEVER APPROACHE D THE APPELLANT COMPANY FOR SUCH PERMISSION TO USE THE TECHNICAL KN OW-HOW IN INDIA AND TO THE BEST OF THEIR KNOWLEDGE AND BELIEF OF THE APPEL LANT COMPANY, THE AFORESAID PURCHASERS HAVE NOT USED THE PROCESS OF K NOW-HOW OF MANUFACTURING PRODUCTS IN INDIA. 166. LEARNED COUNSEL FURTHER SUPPORTED HIS VIEW BY PLACI NG RELIANCE IN THE CASE OF LI & FUNG INDIA (P) LTD. V. CIT [2008] 305 ITR 105 (DELHI) WHEREIN CONSIDERING THE CBDT CIRCULAR NO. 700 DATED 23.03.1 995 IT WAS OBSERVED THAT WHERE THE TECHNICAL AND PROFESSIONAL SERVICES ARE RENDERED FROM INDIA AND ARE RECEIVED BY A FOREIGN GOVERNMENT OR ENTERPR ISE OUTSIDE INDIA, DEDUCTION UNDER SECTION 80-O WOULD BE AVAILABLE TO THE PERSON RENDERING THE SERVICE EVEN IF THE FOREIGN RECIPIENT OF THE SE RVICES UTILIZES THE BENEFIT PAGE 71 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 OF SUCH SERVICES IN INDIA. SIMILAR FINDINGS WERE GI VEN IN THE CASE OF CIT V. INCHCAPE INDIA P. LTD.[2005] 273 ITR 92 (DELHI) 5. AGAIN OUR ATTENTION WAS DRAWN TO THE CIRCULAR ISS UED BY THE CBDT BEING CIRCULAR NO.700 DATED SPECIFICALLY REFERRING T O SECTION 80-O OF THE ACT. IT IS STATED SPECIFICALLY AS UNDER: THE MATTER HAS BEEN CONSIDERED BY THE BOARD. IT IS CLARIFIED THAT AS LONG AS THE TECHNICAL AND PROFESSIONAL SERVICES ARE RENDERED FROM INDIA AND ARE RECEIVED BY A FOREIGN GOVERNMENT OR E NTERPRISE OUTSIDE INDIA, DEDUCTION UNDER SECTION 80-O WOULD BE A VAILABLE TO THE PERSON RENDERING THE SERVICES EVEN IF THE FOREI GN RECIPIENT OF THE SERVICES UTILIZES THE BENEFIT OF SUCH SERVICES IN INDIA. 6.THUS, IT IS NOT OPEN FOR THE REVENUE TO ARGUE AGAINS T THE PROVISION OF LAW AND THE CIRCULAR BY WHICH PUBLIC AT LARGE IS INF ORMED AS TO WHAT IS THE PROVISIONS OF LAW. THEREFORE, WE WOULD LIKE T O ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE RE VENUE. ORDERED ACCORDINGLY. THE APPEAL STANDS DISPOSED OFF. 167. IT WAS FURTHER SUBMITTED THAT THERE ARE NO RECORD A VAILABLE IN SUPREME COURT IF ANY SLP IS PENDING IN THIS REGARD. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON CBDT CIRCULAR NO. 731 DATED 20.12.1995 IN WHICH IT WAS CLARIFIED THAT DEDUCTION UNDER SECTION 80-O WOULD BE AVAILABLE TO REINSURANCE AGENT IN INDIA FO R THE GROSS PREMIUM BEFORE REMITTANCE TO HIS FOREIGN PRINCIPAL.(PB-29). 168. PER CONTRA , THE LEARNED D.R. RELIED ON THE ORDER OF LOWER AUT HORITIES. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS SOLD THE TECHNICAL KNOW-HOW HENCE, DEDUCTION UNDER SECTION 80-O IS NOT ALLOWABL E. PAGE 72 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 169. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE CHARTERED ACC OUNTANT CERTIFICATE IN REGARD TO THE NATURE OF RECEIPT AND CLAIM OF DEDUCT ION UNDER SECTION 80-O ON WHICH THE AO ORIGINALLY GRANTED DEDUCTION UNDER SECTION 80-O VIDE ORDER DATED UNDER SECTION 143 (3) DATED 21.03.2005 AND CI T (A) HAS ALLOWED THE APPEAL. HOWEVER, VIDE ORDER DATED 30.08.2006 UNDER SECTION 143 (3) READ WITH SECTION 263 THE AO WITHDREW THE DEDUCTION UNDE R SECTION 80-O OF THE ACT. HOWEVER, THE CIT (A) OBSERVED THAT THE ASSESSE E HAS FILED COPIES OF AGREEMENT ENTERED IN TO BY THE APPELLANT WITH ABOVE STATED TWO PARTIES FOR TRANSFER OF TECHNICAL KNOW-HOW TO THEM FOR CONS IDERATION. THE LD. AR OF THE APPELLANT ALSO SUBMITTED THAT AN MISCELLANEO US APPLICATION HAS BEEN FILED BY HIM BEFORE THE ITAT FOR RECTIFICATION OF M ISTAKE BECAUSE WHILE ADJUDICATING THE APPEAL THE DUE CONSIDERATION TO CB DT CIRCULAR NO. 700 DATED 23.03.1995 HAS NOT BEEN GIVEN WHICH AMOUNTS T O OMISSION AND REQUIRES TO BE RECTIFIED. BESIDE THIS, NO EVIDENCE HAS BEEN ADDUCED WHICH SHOWS THAT THERE WAS RESTRICTION ON THE BUYER OF TE CHNICAL KNOW-HOW TO USE THE SAME IN INDIA AT ANY POINT OF TIME. KEEPING IN VIEW THE DIRECTION OF THE OF HON`BLE AHMEDABAD AND SUBMISSIONS OF THE APPELLA NT AS WELL AS RELIANCE ON THE ASSESSMENT ORDER, THE CIT (A) HELD THAT THE APPELLANT HAS NOT BEEN ABLE TO PLACE ON RECORD ANY EVIDENCE WHICH SHOWS TH AT THERE WAS ANY PAGE 73 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 RESTRICTION ON THE BUYERS OF TECHNICAL KNOW-HOW FOR USING IT IN INDIA AT ANY POINT OF TIME. THEREFORE, AS PER DIRECTION OF THE I TAT, THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-O OF THE AC T. LEARNED COUNSEL ALSO REFERRED CLAUSE 6.4 (PB-35) OF TECHNOLOGY PURCHASE AGREEMENT DATED 01.01.2002 (PB-30) ENTERED IN TO WITH DOW AGROSCIEN CES B.V., NETHERLAND TO CONTEND THAT THIS AGREEMENT CANNOT BE ASSIGNED T O THIRD PARTY BY THE NEITHER PARTY, WITHOUT WRITTEN CONSENT OF THE OTHER PARTY. THUS, THE BUYER HAS ONLY A LICENSE TO USE THE TECHNICAL KNOW-HOW AN D DO NOT HAVE A RIGHT TO TRANSFER THE SAME. LEARNED COUNSEL FURTHER DRAWN OUR ATTENTION THAT PRODUCTS SOLD ARE INSECTICIDES, PESTICIDES AND/OR I TS INTERMEDIATES. SUCH PRODUCTS CANNOT BE MANUFACTURED IN INDIA WITHOUT OB TAINING A LICENSE IN THE FORM OF REGISTRATION FROM THE CONCERNED GOVERNM ENT DEPARTMENT IN INDIA. THE PURCHASER OF TECHNICAL KNOW-HOW HAS NEV ER APPROACHED THE APPELLANT COMPANY FOR SUCH PERMISSION TO USE THE TE CHNICAL KNOW-HOW IN INDIA AND TO THE BEST OF THEIR KNOWLEDGE AND BELIEF OF THE APPELLANT COMPANY THE AFORESAID PURCHASERS HAVE NOT USED THE PROCESS OF KNOW-HOW OF MANUFACTURING PRODUCTS IN INDIA. 170. WE OBSERVE THAT THE HON`BLE DELHI HIGH COURT IN THE CASE OF CIT V. INCHCAPE INDIA P. LTD.[2005] 273 ITR 92 (DELHI) HEL D AS UNDER: PAGE 74 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 5. AGAIN OUR ATTENTION WAS DRAWN TO THE CIRCULAR ISS UED BY THE CBDT BEING CIRCULAR NO.700 DATED SPECIFICALLY REFERRING T O SECTION 80-O OF THE ACT. IT IS STATED SPECIFICALLY AS UNDER: THE MATTER HAS BEEN CONSIDERED BY THE BOARD. IT IS CLARIFIED THAT AS LONG AS THE TECHNICAL AND PROFESSIONAL SERVICES ARE RENDERED FROM INDIA AND ARE RECEIVED BY A FOREIGN GOVERNMENT OR E NTERPRISE OUTSIDE INDIA, DEDUCTION UNDER SECTION 80-O WOULD BE A VAILABLE TO THE PERSON RENDERING THE SERVICES EVEN IF THE FOREI GN RECIPIENT OF THE SERVICES UTILIZES THE BENEFIT OF SUCH SERVICES IN INDIA. 6.THUS, IT IS NOT OPEN FOR THE REVENUE TO ARGUE AGAINS T THE PROVISION OF LAW AND THE CIRCULAR BY WHICH PUBLIC AT LARGE IS INF ORMED AS TO WHAT IS THE PROVISIONS OF LAW. THEREFORE, WE WOULD LIKE T O ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE RE VENUE. ORDERED ACCORDINGLY. THE APPEAL STANDS DISPOSED OFF. 171. WE FURTHER NOTE THAT SIMILAR FINDINGS WERE GIVEN BY THE HON`BLE MADRAS HIGH COURT IN THE CASE OF CIT V. CHAKIAT AG ENCIES PVT. LTD. [2009] 314 ITR 200 (MAD) WHEREIN IT WAS HELD THAT 14. THE BASIC PURPOSE OF SECTION 80-O IS THE SPREAD BY AN INDIAN ASSESSEE OF ANY PATENT, INVENTION, MODEL, DESIGN, S ECRET FORMULA OR PROCESS, OR SIMILAR PROPERTY RIGHT, OR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL OF THE ASSESSEE FOR USE OUTSIDE INDIA AND IN THAT PROC ESS TO RECEIVE INCOME TO AUGMENT THE FOREIGN EXCHANGE RESOURCES OF THE COUNTRY. THE ASSESSEE CAN ALSO MAKE AVAILABLE TO THE FOREIGN ENTERPRISE, TECHNICAL AND PROFESSIONAL SERVICES, EXPERTISE OF W HICH IT POSSESSES FOR EARNING FOREIGN EXCHANGE FOR THE COUNTRY. 15. THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR IN CIRC ULAR NO. 700 DATED MARCH 23, 1995 ([1995] 213 ITR (ST.) 78), CL ARIFIED SECTION 80- O BY STATING THAT AS LONG AS THE TECHNICAL AND PROF ESSIONAL SERVICES ARC RENDERED FROM INDIA AND ARE RECEIVED BY THE FOR EIGN GOVERNMENT OR ENTERPRISE OUTSIDE INDIA, DEDUCTION UNDER SECTIO N 80-O OF THE ACT WOULD BE AVAILABLE TO THE PERSON RENDERING THE SERV ICE, EVEN IF THE FOREIGN RECIPIENT OF THE SERVICE UTILISES THE BENEF IT OF SUCH SERVICES IN INDIA. PAGE 75 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 172. IN VIEW OF ABOVE, WE NOTE THAT THE ASSESSEE HAS REN DERED TECHNICAL SERVICE FROM INDIA AND ARE RECEIVED IN INDIA FROM T HE FOREIGN COMPANY IN CONVERTIBLE FOREIGN EXCHANGE. HENCE, THE RENDERING OF THE COMMERCIAL SERVICE AND RECEIVING COMMISSION IN FOREIGN EXCHANG E BY THE ASSESSEE WOULD ENTITLE THE ASSESSEE TO THE BENEFIT OF SECTIO N 80-O. FOREIGN EXCHANGE EARNED IS FOREIGN EXCHANGE SAVED. THE CBDT CIRCULAR NO. 700 DATED MARCH 23, 1995 ([1995] 213 ITR (ST.) 78), CLARIFIED SECT ION 80-O BY STATING THAT AS LONG AS THE TECHNICAL AND PROFESSIONAL SERVICES ARC RENDERED FROM INDIA AND ARE RECEIVED BY THE FOREIGN GOVERNMENT OR ENTERPRIS E OUTSIDE INDIA, DEDUCTION UNDER SECTION 80-O OF THE ACT WOULD BE AV AILABLE TO THE PERSON RENDERING THE SERVICE, EVEN IF THE FOREIGN RECIPIEN T OF THE SERVICE UTILIZES THE BENEFIT OF SUCH SERVICES IN INDIA. IN VIEW OF A BOVE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80-O OF THE ACT. ACCORDINGLY, THIS GROUND I S ALLOWED. 173. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 2002-03 IN I.T.A.NO. 1000/AHD/2016 STANDS ALLOWED. 174. I.T.A.NO. 3510/AHD/2016/A.Y. 2000-01/BY THE REVENUE . 175. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: PAGE 76 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE APPEAL OF THE ASS ESSEE AND QUASHED THE RE-OPENING PROCEEDINGS. (II) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CIT (A), MAY BE SET- ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER M AY BE RESTORED. 176. SUCCINCT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF INTERMEDIATES LIKE CHLORAL ICAC AN D OTHER PRODUCTS. THE ASSESSEE HAS FILED RETURN OF INCOME ON 28.11.2000 D ECLARING TOTAL INCOME OF RS. 13,00,450 UNDER NORMAL PROVISIONS OF INCOME TAX ACT,1961 (OF THE ACT) AND BOOK PROFIT OF RS. 80,10,690 UNDER SECTION 115JB. THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) ON 2 8.11.2002 DECLARING TOTAL INCOME OF RS. 11,95,88,016 IN WHICH ADDITIONS WERE MADE BY REWORKING OF DEDUCTION UNDER SECTION 80HHC BY REDUC ING 90% OF TOTAL OTHER INCOME INCLUDING NON-COMPETE FEES OF RS.10,00,00,00 0 FOR THE PURPOSE OF ARRIVING AT THE FIGURE OF ELIGIBLE PROFIT OF THE BU SINESS. THE CIT (A) HAS PASSED ORDER ON 23.04.2003 AGAINST WHICH THE ASSESS EE AS WELL AS DEPARTMENT HAS FILED APPEAL BEFORE INCOME TAX APPEL LATE TRIBUNAL (TRIBUNAL). DURING THE PENDENCY OF APPEAL BEFORE TR IBUNAL, THE ASSESSMENT WAS REOPENED U/S.147 OF THE ACT ON THE REASON THAT THE ASSESSEE HAS REDUCED 90% OF NON-COMPETE FEES WHILE ARRIVING AT T HE FIGURE OF ELIGIBLE BUSINESS PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC INSTEAD PAGE 77 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 OF REDUCING TOTAL AMOUNT OF NON-COMPETE FEES AS THE SAID RECEIPT IS NOT DERIVED FROM THE ELIGIBLE BUSINESS ACTIVITY. OTHER REASON, FOR REOPENING OF ASSESSMENT WAS THAT THE ASSESSEE HAS CLAIMED DEDUCT ION UNDER SECTION 80HHC AND UNDER SECTION 80IB SIMULTANEOUSLY ON THE GROSS TOTAL INCOME AND AS PER PROVISIONS OF SECTION 80IA(9) R.W.S. 80IB(13 ), THE ASSESSEE CANNOT CLAIM DEDUCTION UNDER TWO DIFFERENT SECTIONS IN RES PECT OF SAME BUSINESS. THE AO HAS WORKED OUT THE DEDUCTION UNDER SECTION 8 0HHC AT RS.8,21,84,014 AS AGAINST THE DEDUCTION OF RS. 10.0 3.50,355 COMPUTED IN THE ORIGINAL ASSESSMENT. THE AO EXCLUDED THE ENTIRE AMOUNT OF NON- COMPETE FEES OF RS.10 CRORES AND ALSO EXCLUDED DEDU CTION OF RS.1,83,58,427 UNDER SECTION 80IA WHILE CALCULATING THE ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. BEING , AGGRIEVED, THE ASSESSEE HAS ASSAILED THE ORDER PASSED BY THE AO UN DER SECTION 143 (3) READ WITH SECTION 147 BEFORE THE LD. CIT (A). THE ASSESS EE HAS CHALLENGED THE REOPENING OF ASSESSMENT ON THE GROUND THAT THE REOP ENING IS BASED ON CHANGE OF OPINION AND IS ALSO ON THE ISSUE OF SECTI ON 80HHC WHICH IS SUBJECT MATTER OF APPEAL BEFORE ITAT AND THEREFORE, THE AO HAS NO JURISDICTION TO REOPEN THE SAID ASSESSMENT. THE LD. CIT (A) VIDE OR DER DATED 12.02.2007 HELD THAT THE APPEAL IS ADJUDICATED ON MERIT HENCE, ISSUE OF REOPENING OF ASSESSMENT BECOMES CONSEQUENTIAL IN NATURE AND ACCO RDINGLY, HE REFRAINED PAGE 78 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 FROM ADJUDICATING THIS ISSUE OF VALIDITY OF ASSESSM ENT. HOWEVER, WITH REGARD TO RECEIPT OF NON-COMPETE FEES AROSE OUT OF THE CARRYING OF THE BUSINESS OF THE ASSESSEE AND THEREFORE, ELIGIBLE FO R DEDUCTION UNDER SECTION 80HHC. ON THE ALLOWABILITY OF BOTH THE DEDUCTION UN DER SECTION 80IB AND UNDER SECTION 80HHC, THE LD. CIT (A) RELYING ON VAR IOUS JUDICIAL PRONOUNCEMENTS HELD THAT THE ASSESSEE CAN CLAIM BOT H THE DEDUCTION SUBJECT TO CONDITION THAT TOTAL DEDUCTION CANNOT EX CEED THE ELIGIBLE PROFIT IN THE GROSS TOTAL INCOME. 177. THE DEPARTMENT PREFERRED APPEAL BEFORE TRIBUNAL, WH EREIN IT WAS BROUGHT TO NOTICE OF THE TRIBUNAL THAT THE DECISION OF CIT (A) IN REFUSING TO ADJUDICATE THE ISSUE OF VALIDITY OF RE-OPENING ON T HE GROUND THAT IT IS CONSEQUENTIAL IN NATURE IS BAD-IN-LAW AND REQUESTED TO ADJUDICATE THIS GROUND. ACCORDINGLY, THE TRIBUNAL HELD THAT THE CIT (A) WAS DUTY BOUND TO ADJUDICATE THE ISSUE OF RE-OPENING AND ACCORDINGLY, RESTORED THE ISSUE TO THE FILE OF THE CIT (A). IN VIEW OF THESE FACTS, T HE CIT (A) CONSIDERED THE APPEAL AND DECIDED THE ISSUE OF RE-OPENING OF ASSES SMENT. THE CIT (A) OBSERVED THAT IN THE ORIGINAL ASSESSMENT THE AO TRE ATED THAT AMOUNT RECEIVED ON ACCOUNT OF NON-COMPETE FEES OF RS.10 CR ORES AS REVENUE RECEIPT BY TREATING IT BENEFIT TO THE COMPANY OUT O F CARRYING OUT OF THE BUSINESS AND THE AO HAS ALSO CONSIDERED THE SAME IN THE COMPUTATION OF PAGE 79 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 INCOME AS WELL AS CALCULATION OF DEDUCTION UNDER SE CTION 80HHC AND THEREFORE, THE VIEW TAKEN BY THE AO AMOUNTS TO CHAN GE OF OPINION BECAUSE ON THE SIMILAR FACTS AVAILABLE ON RECORD THE AO HAS ARRIVED AT DIFFERENT CONCLUSION. THE CIT (A) FURTHER OBSERVED THAT NOTIC E UNDER SECTION 148 OF THE ACT CANNOT BE ISSUED ON THE ISSUE WHICH THE ASS ESSING OFFICER HAS ALREADY DECIDED AND SUBSEQUENTLY ALSO DECIDED BY TH E CIT (A) BECAUSE THE ASSESSMENT ORDER IS MERGED WITH THE ORDER OF CIT (A ) AGAINST WHICH APPEAL CAN BE FILED BEFORE TRIBUNAL. THE CIT (A) FURTHER O BSERVED THAT THE HONBLE GUJARAT HIGH COURT IN APPEAL NO. 800 OF 2013 VIDE O RDER DATED 16.07.2016 IN APPELLANT`S OWN CASE HELD THAT NON-COMPETE FEES IS A CAPITAL RECEIPT, THEREFORE, ALLOWING OF DEDUCTION UNDER SECTION 80HH C OF THE ACT BECOMES MATTER OF ACADEMIC DISCUSSION. IN VIEW OF THIS, THE CIT (A) HELD THAT THE AO REOPENED ASSESSMENT ON SAME SET OF FACTS AS AVAILAB LE ON RECORD AND ON ACCOUNT OF PRINCIPLE OF MERGER AND MOREOVER, IN VIE W OF THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT, THIS AMOUNTS TO CHANGE OF OPINION, HENCE, REOPENING OF ASSESSMENT U/S.147 IS NOT AS PER LAW. AS THE RE-OPENING ASSESSMENT HAS NOT BEEN FOUND AS PER LAW THEREFORE, OTHER GROUNDS OF APPEAL THE APPELLANT WERE NOT ADJUDICATED. 178. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED D.R. SUPPORTED THE ORDER OF T HE AO. IT WAS PAGE 80 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 CONTENDED THAT THE CIT (A) HAS FAILED TO CONSIDER T HE LEGAL POSITION BROUGHT BY THE AO IN HIS REMAND REPORT BASED ON VARIOUS JUD GEMENTS. THE AO IN ORIGINAL ASSESSMENT TREATED THE NON-COMPETE FEES AS REVENUE RECEIPT BUT HE DID NOT DISCUSS IN THE ASSESSMENT WHETHER THE NO N-COMPETE FEES RECEIVED BE TREATED AS INCOME DERIVED FROM BUSINESS AND CAN BE TREATED AS INCOME ATTRIBUTABLE TO THE CARRYING OUT OF THE B USINESS. 179. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE AO HAS DULY CONSIDERED THE ISSUE IN THE ORIGINAL AS SESSMENT BY TREATING THE AMOUNT RECEIVED ON ACCOUNT OF NON-COMPETE FEES OF R S. 10 CRORES AS REVENUE RECEIPT BEING A BENEFIT TO THE COMPANY OUT OF CARRYING OUT OF THE BUSINESS, AND THE AO HAS ALSO CONSIDERED THE SAME I N THE COMPUTATION OF INCOME AS WELL AS CALCULATION OF DEDUCTION UNDER SE CTION 80HHC AND THEREFORE, THE VIEW TAKEN BY THE AO AMOUNTS TO CHAN GE OF OPINION BECAUSE ON THE SIMILAR SET OF FACTS AS AVAILABLE ON RECORD, THE AO HAS ARRIVED AT DIFFERENT CONCLUSION AS ARRIVED BY THE PRECEDING AO . THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT NOTICE UNDE R SECTION 148 OF THE ACT CANNOT BE ISSUED ON THE ISSUE WHICH THE AO HAS ALRE ADY DECIDED AND SUBSEQUENTLY ALSO DECIDED BY THE CIT (A) BECAUSE TH E ASSESSMENT ORDER HAS BEEN MERGED WITH THE ORDER OF CIT (A) AGAINST WHICH APPEAL CAN BE FILED BEFORE TRIBUNAL. FURTHER, THE HONBLE GUJARAT HIGH COURT IN APPEAL NO. 800 PAGE 81 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 OF 2013 VIDE ORDER DATED 16.07.2016 IN APPELLANT`S OWN CASE HELD THAT NON- COMPETE FEES IS A CAPITAL RECEIPT, THEREFORE, ALLOW ING OF DEDUCTION UNDER SECTION 80HHC OF THE ACT BECOMES MATTER OF ACADEMIC DISCUSSION. THEREFORE, RELYING ON THE DECISION OF CIT (A) SUBMI TTED THAT CIT (A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . 180. PER CONTRA, LEARNED CIT(D.R.) RELIED ON THE AO. 181. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ORIGINAL ASSES SMENT WAS MADE BY THE AO BY TREATING THE AMOUNT RECEIVED ON ACCOUNT OF NO N-COMPETE FEES OF RS.10 CRORES AS REVENUE RECEIPT BEING A BENEFIT TO THE COMPANY OUT OF CARRYING OUT OF THE BUSINESS AND THE AO HAS ALSO CO NSIDERED THE SAME IN THE COMPUTATION OF INCOME AS WELL AS CALCULATION OF DED UCTION UNDER SECTION 80HHC AND THEREFORE, THE VIEW TAKEN BY THE AO AMOUN TS TO CHANGE OF OPINION, BECAUSE ON THE SIMILAR SET FACTS WERE ALRE ADY AVAILABLE ON RECORD. THUS, THE AO HAS ARRIVED AT DIFFERENT CONCLUSION AS ARRIVED AT BY THE PRECEDING AO. FURTHER, THE NOTICE UNDER SECTION 14 8 OF THE ACT CANNOT BE ISSUED ON THE ISSUE, WHICH THE AO HAS ALREADY BEEN DECIDED, AND THE CIT (A) SUBSEQUENTLY DECIDED SAID ISSUE. THEREFORE, SAI D ASSESSMENT ORDER HAS BEEN MERGED WITH THE ORDER OF CIT (A). OUR VIEW, IS FURTHER FORTIFIED BY THE DECISION OF ACIT V RAJESH JHAVERI STOCK BROKERS (P) LTD. [2007] 291 ITR 500 PAGE 82 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 (SC) AND ALSO FOR THE DECISION OF HON`BLE SUPREME C OURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. [2010] 320 ITR 561/187 TAXMAN 312(SC) HELD THAT WHERE NO NEW MATERIAL COME TO NOTICE OF THE AO AFTER COMPLETION OF ASSESSMENT AND ASSESSMENT HAS BEEN REOPENED ON THE BASIS OF SAME MATERIAL IS NOT PERMISSIBLE. WE ALSO NOTICE THAT TH E HONBLE GUJARAT HIGH COURT IN APPEAL NO. 800 OF 2013 VIDE ORDER DATED 16 .07.2016 IN APPELLANT`S OWN CASE HAS TREATED THE NON-COMPETE FEES AS CAPITA L RECEIPT. THEREFORE, THE ISSUE HAS BEEN COVERED AGAINST THE REVENUE BY T HE DECISION OF HONBLE GUJARAT HIGH COURT. IN VIEW OF THIS MATTER, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAME IS UPHELD. THEREFORE, ALL THE GROUNDS OF APPEAL OF REVENUE AE DISMISSED. 182. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. 183. IN THE RESULT, APPEAL OF THE ASSESSEE IN I.T.A.NO. 1671/AHD/2006 AND APPEAL OF REVENUE IN I.T.A.NO. 1371/AHD/2006 FOR A. Y. 2002-03 ARE PARTLY ALLOWED AND CROSS OBJECTION NO. 184/AHD/2006 FOR A. Y. 2002-03 BY THE ASSESSEE IS DISMISSED. THE APPEAL OF THE ASSESSEE I N I.T.A.NO. 1672/AHD/2006 AND APPEAL OF REVENUE IN I.T.A.NO. 1 764/AHD/2006 FOR THE A.Y. 2003-04 ARE PARTLY ALLOWED. THE APPEAL OF THE ASSESSEE IN I.T.A.NO. 1000/AHD/2016 FOR A.Y. 2002-03 IS ALLOWED AND APPEA L OF THE REVENUE IN I.T.A.NO.3510/AHD/2016 FOR A.Y. 2000-01 IS DISMISSE D. PAGE 83 OF 83 MITSU LTD. V. ACIT- VAPI/I.T.A. NO.1671-1371,CO-184 ,1672-1764,1614 &1000/AHD/2006/A.Y.02-03,03-04,06-0 7.02-03 184. THIS ORDER IS PRONOUNCED BY LISTING THE CASE ON THE NOTICE BOARD OF TRIBUNAL UNDER PROVISO TO RULE 34(4) OF INCOME TAX APPELLATE TRIBUNAL RULES 1963. SD/- SD/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER AC COUNTANT MEMBER SURAT: DATED: 4 TH MAY, 2020/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A) / ITAT (DR)/ GUARD FILE OF ITAT. BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, SURAT