The ACIT, Circle-8, Ahmedabad V. Torrent Pharmaceuticals Ltd., Ahmedabad

ITA 3569/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0443 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-10-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 09-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA; S N SOPARKAR
• Keywords: Capital asset; Business income; Question of law; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 80HHC; 234B; 37; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.3569/AHD/2004 & C.O.NO.18/AHD/2005 (ARISING OUT ITA NO.3569/AHD/2004) ASSESSMENT YEAR: 2001-02 DATE OF HEARING:1.10.09 DRAFTED:6.10.09 ACIT CIRCLE-8, AHMEDABAD TORRENT PHARMACEUTICALS LTD., TORRENT HOUSE, NR. DINESH HALL, ASHRAM ROAD, AHMEDABAD PAN NO.AAACT5456A V/S . V/S . TORRENT PHARMACEUTICALS LTD., TORRENT HOUSE, NR. DINESH HALL, ASHRAM ROAD, AHMEDABAD, ACIT, CIRCLE-8, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S.N.SOPARKAR & SHRI P.M.MEHTA, AR REVENUE BY:- SHRI ANIL KUMAR, CIT DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE AND CROSS OBJECTION (CO ) BY THE ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME- TAX (APPEALS)-XIV, ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 2 AHMEDABAD IN APPEAL NO. CIT(A)-XIV/ACIT-8/87/2004-0 5 DATED 28-09-2004. THE ASSESSEE WAS FRAMED BY THE ACIT, CIRCLE-8, AHME DABAD U/S.143(3) R.W.S. 143(2)(II) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31-03-2004 FOR THE ASSESSMENT YEAR 2001-02. 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS REGARDS TO THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS.19,53,66,470/ - OUT OF SELLING, PUBLICITY AND MEDICAL LITERATURE. 3. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF ITAT ORDER IN ITA NO.3146/AHD/2003 IN ASSESSEE OWN CASE FOR ASSESSMENT YEAR 2000-01 A ND STATED THAT EXACTLY ON IDENTICAL FACTS, THE SIMILAR GROUND RAISED BY REVENUE HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 21- 08-2009. ON THE OTHER HAND LD. CIT DR ALSO STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS DECISION IN ASSESSEES OWN CASE (ITA NO. 3146/AHD/2003). BUT HE CONTESTED THE ISSUE BUT ADMITTED THAT THE FACTS ARE EXACTLY IDENTICAL IN THIS YEAR ALSO WHAT WAS IN ASSESSMENT YEAR 2000-01. 4. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE CASE RECORDS WE FIND THAT THE TRIBUNAL EXACTLY ON SIMILAR FACTS HAS DEALT WITH THIS ISSUE IN ITA NO.3146/AHD/2003 FOR THE ASSESSMENT YEAR 2000-01 ORDER DATED 21-08- 2000 VIDE PARA-7 TO 11 AS UNDER:- 7. GROUND NO.2 RELATES TO DISALLOWANCE OF RS.12,74 ,66,253/- ON ACCOUNT OF SELLING, PUBLICITY AND MEDIAL LITERATURE EXPENSE S. RELYING UPON HIS OWN ORDER IN ASSESSMENT YEAR 1998-99, THE AO ALLOWED ON E THIRD OF THE CLAIM FOR DEDUCTION OF THE SAID EXPENDITURE WHILE DISALLO WING THE REMAINING AMOUNT. 8. ON APPEAL, THE LEARNED CIT(A), FOLLOWING HIS OWN ORDERS FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000 AND THE DECI SION OF THE ITAT FOR THE AY 199-93, ALLOWED THE CLAIM OF THE ASSESSE E. ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 3 9. BOTH THE PARTIES AGREED THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 9-6-2007 OF THE ITAT IN ASSES SEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 IN ITA NO.446/AHD/2002. 10. WE FIND THAT THE TRIBUNAL WHILE ADJUDICATING A SIMILAR CLAIM IN THE ASSESSEES OWN CASE IN THE AY 1998-99, CONCLUDED IN THEIR ORDER DATED 26-6-2007 AS UNDER: 10. DURING THE COURSE OF HEARING, BOTH THE PARTIES AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT, AHMEDABAD BENCH IN ASSESSEES OWN CASE FOR THE AY 1 997-98 IN ITA NO.1044/AHD/2002. WHEREIN THE ITAT HAS UPHELD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE REV ENUE BY OBSERVING IN ITS ORDER IN PARAGRAPH 3-SERIES, WHICH IS REPRODUCED AS UNDER: 3.1 GROUND NO.2 IS IN RESPECT OF DELETION OF DISAL LOWANCE ON ACCOUNT OF SELLING PUBLICITY AND MEDICAL LITERAT URE EXPENSES RS.7,83,87,87/- 3.2 FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFIC ER FOLLOWING EARLIER YEARS ALLOWED ONLY 1/3 RD EXPENDITURE. THE CIT(A) FOLLOWED EARLIER YEARS ORDERS OF CIT(A) AND DELETED THE ADDITION. AGGRIEVED, THE DEPARTMENT HAS COME UP IN APPEAL AND URGED CANCELLATION OF THE CIT(A) ORDER. 3.3 HEARD THE PARTIES. IT IS FOUND THAT THIS MATTER IS ALSO COVERED BY THE ORDER DATED 23.02.05 OF THE ITAT, AHMEDABAD PASSED IN APPEAL FILED BY THE DEPARTMENT BEATING ITA NO.1150/A/1997 FOR THE ASSESSMENT YEAR 1993-94 WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 13. GROUND NO.3 READS AS UNDER: 3. THE LD. CIT(A) HAS ERRED I LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,44,03,667/- OUT O F EXPENSES ON SELLING PUBLICITY ETC. 14. THE LD. DR ADMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 1992-93 WHEREBY PARA 18, THE TRIBUNAL HAS UPHOLD THE ORDER OF THE CIT(A) VIDE WHICH SIMILAR ADDITION WAS DELETED. COPY OF TH E ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 4 SAID ORDER IS PLACED AT PAGE NOS.39 TO 50 OF THE PA PER BOOK (ITA NO.4226/AHD/1995, ITA NO.4204/AHD/1995 DATED 17.4.2002). THE SAID PARA FOR THE SAKE OF CONVENIENCE IS REPRODUCED BELOW: 18. GROUND NO. VII RELATED TO MEDICAL LITERATURE E TC. EXPENSES FOR RS.1,25,03,910/-. IT HAS BEEN FOUND BY THE ASSESSI NG OFFICER THAT THE ASSESSEE DEBITED EXPENDITURE UNDER THE HEAD PUB LICITY AND MEDIAL LITERATURE EXPENSES AMOUNTING TO RS.1,87,57, 74/- OUT OF WHICH 66.66% DISALLOWED AS PER PAST PRACTICE. THE CALCULATION OF THE IMPUGNED ADDITION 66.66% OF RS.1,87,57,742/- CO MES TO RS.1,25,03,910/-. THE CIT(A) HAS DELETED THE SAME W ITH THE OBSERVATIONS IN EARLIER YEARS, FOLLOWING THE SAME R EASONS AS IN EARLIER YEARS THERE WAS NO BASIS TO DISALLOW 66.6% EXPENSES AS DEFERRED CAPITAL EXPENDITURE. THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED B THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN ASSESSEE FOR AY 1988-89 IN ITA NO.4938/91. THE RELEVANT OBSERVAT ION OF THE TRIBUNAL IN THAT CASE IS REPRODUCED BELOW: THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE AS PER THE DECISION OF THE TRIBUNAL IN THE CASE OF TORRENT LABORATORIES 59 TTJ 676 WHICH ALTHOUGH RELA TED TO DISALLOWANCE U/S.37(3A) YET THE RATIO IS APPLICABLE TO DEDUCTION U/S.37 ALSO. IT WAS SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER HAS DISALLOWED ONLY 4/5 OF THE EXPENSES PRESUMABLY CONSIDERING THE SAME AS DEFERRED REVENUE EXPENDITURE. IT WAS PLEASED THAT THE CIT(A) HOWEVER HAS ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THE JURISDICTIONAL. HIGH COURT IN THE CASE OF NA VSARI COTTON & SILK MILLS SUPRA AFTER CONSIDERING THE SUBMISSION OF THE PARTIES TO THE DISPUTES, WE ARE OF THE OPINION THAT THE ORDER OF CIT(A) REQUIRE S NO INTERFERENCE AS IT IS BASED ON THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF NAVSARI COTTON & SILK MIL LS SUPRA. ACCORDINGLY THIS GROUND OF APPEAL IS ALSO DISMISSED . 15. AFTER HEARING BOTH THE PARTIES, RESPECTFULLY FO LLOWING THE AFORE CITED DECISION, WE FIND NO MERITS IN THIS GROUND AN D THE SAME IS DISMISSED. THE ORDER OF THE LD. CIT(A) IN THIS REGA RD IS UPHELD. ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 5 3.4 THUS, RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL AS THE REVENUE DID NO DISPUTE THAT FACTS WERE NOT IDEN TICAL, WE UPHOLD THE ORDER OF THE CIT(A), DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE ITAT, AS THE REVENUE DID NOT DISPUTE THAT FACTS WERE NOT IDENTICAL, WE U PHOLD THE IMPUGNED ORDER OF THE CIT(A) IN DISALLOWANCE MADE B Y THE ASSESSING OFFICER. 11. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL FOR THE AY 1998- 99, FOLLOWING THEIR DECISION FOR THE ASSESSMENT YEA R 1997-98 IN ITA NO.1044/AHD/2002 WHILE UNDISPUTEDLY FACTS AND CIRCU MSTANCES REMAINING THE SAME AS IN THE EARLIER ASSESSMENT YEARS, WE HAV E NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). THEREFORE, G ROUND NO.2 IS DISMISSED. WE FIND THAT THE ABOVE ISSUE IS COVERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE TRIBUNALS DEC ISION IN ASSESSEES OWN CASE IN ITA NO.3146/AHD/2003 (SUPRA) IN IMMEDIATE PRECEDING YEAR, ON SIMILAR FACTS, WE CONFIRM THE ORDER OF CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 5. THE NEXT ISSUE IN REVENUES APPEAL AND THAT OF A SSESSEES CO IS COMMON. AS REGARDS TO EXCLUSION OF ONLY RS.48 LAKHS FOR PRO FESSIONAL FEE AND GARDENING EXPENSES OF RS.6.93 LAKHS (THE CORRECT FIGURE SHOUL D BE RS.9.44 LAKHS), THE ASSESSEE IS IN CROSS OBJECTION AND FOR THE BALANCE OUT OF THE TOTAL DEDUCTION U/S.35(2AB) OF THE ACT AT RS.1,71,47,000/- THE REVE NUE IS IN APPEAL. 6. THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO EXCLUDE ONLY RS.48 LACS FOR PROFESSIONAL FEES AND GARDEN E XPENSES OF RS.6.93 LACS FOR THE COMPUTATION OF DEDUCTION U/S.235(2AB) INSTE AD OF RS.1,71,47,000/- AS DONE BY THE A.O. WHEREAS THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 IN C.O.:- ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 6 1. IN LAW AND IN THE FATS AS WELL AS CIRCUMSTANCES OF THE RESPONDENTS CASE THE LEARNED CIT(A) HAS GROSSLY ERRED IN HOLDIN G WHILE DISPOSING OF THE GROUND REGARDING THE DISALLOWANCE OF RS.85,73,5 00 AS INADMISSIBLE WEIGHTED DEDUCTION U/S.35(2AB) THAT THE EXPENDITURE OF RS.48,00,000 BEING PROFESSIONAL FEES AND RS.6,93,000 (THE CORREC T FIGURE SHOULD BE RS.9,44,000) BEING GARDEN EXPENSES ARE NOT RELATED TO THE RESEARCH ACTIVITY AND, THEREFORE, THE RESPONDENT WOULD NOT B E ENTITLED TO A FURTHER DEDUCTION OF 50% THEREON U/S.35(2AB) OF THE I.T. AC T WHEN HE OUGHT TO HAVE HELD THAT THE RESPONDENT IS ENTITLED TO SUCH D EDUCTION EVEN ON THE AFORESAID EXPENSES. THE HONBLE TRIBUNAL MAY, THERE FORE, BE PLEASED TO HOLD THAT THERE IS NO JUSTIFICATION IN HOLDING THAT THE PROFESSIONAL EXPENSES AND GARDEN EXPENSES WOULD NOT BE COVERED F OR THE PURPOSE OF WEIGHTED DEDUCTION U/S.35(2AB) OF THE I.T. ACT AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE REFERABLE TO SUC H EXPENSES. 7. THE BRIEF FACTS LEADING TO THE ABOVE COMMON ISSU E ARE THAT THE ASSESSEE CLAIMED WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT A MOUNTING TO RS.31,86,54,942/-. THE ASSESSING OFFICER STATED THA T FOR THIS DEDUCTION, THE APPROVAL IN FORM NO CM IS REQUIRED FROM SECRETARY D EPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH (DSIR IN SHORT). BEFORE THE AS SESSING OFFICER THE ASSESSEE SUBMITTED THE AGREEMENT FOR RESEARCH IN FORM NO.3CL AND FILED THE APPROVAL FOR THE FACILITY OF IN-HOUSE RESEARCH IN FORM NO.3CL. T HE ASSESSEE ALSO FILED THE APPROVAL IN FORM NO. 3CL GIVING THE DETAILS OF EXPE NDITURE TO BE ALLOWED FOR THE PURPOSE OF DEDUCTION U/S.35(2AB) OF THE ACT FOR THE RELEVANT ASSESSMENT YEAR. ACCORDING TO THE ASSESSING OFFICER, THE DATE OF APPROVAL IN FORM NO.3CL IS 23-01-2004 AND THE ASSESSEE HAS FILED ITS COPY O F LETTER SENT BY DSIR TO DG (INCOME-TAX EXEMPT) KOLKATA, DATED 27-01-2004. THE ASSESSEE SUBMITTED THE TOTAL BREAK UP OF EXPENDITURE ALLOWED AS PER FORM N O.3CL AS UNDER:- (RS. IN LACS) A.Y. 2001-02 I) CAPITAL EXPENDITURE LAND: BUILDING NIL 4 9.92 II) CAPITAL EXPENDITURE ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 7 OTHER THAN LAND & BUILDING 178.61 III) RECURRING EXPENDITURE (BUILDING RELATED) 37.55 IV) RECURRING EXPENDITURE (OTHER THAN BUILDING) 1723.02 V) TOTAL COST OF IN-HOUSE RESEARCH FACILITY EXCLUDING LAND & BUILDING 1901.63 VI) TOTAL COST OF IN-HOUSE RESEARCH FACILITY INCLUDING LAND & BUILDING 1989.10 VII) EXPENSES RELATED TO CLINICAL TRIALS OUTSIDE THE APPROVED FACILITY NOT INCLUDED IN THE ABOVE 51.26 ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE CLA IMED EXPENDITURE FOR R & D AS UNDER:- (1) REVENUE EXPENSES RS.19,45,75,518/- (2) CAPITAL EXPENDITURE (OTHER THAN BLDG.) RS. 1, 78,61,110/- RS.21,24,36,628/- BUT DSIR IN FORM NO.3CL ALLOWED AS UNDER:- (1) REVENUE EXPENSES RS.19,45,75,518/- LESS: DISALLOWED BY DSIR (1) BLDG. REPAIRS RS. 37,55,000/- (2) OTHER REVENUE EXP. RS.1,33,92,000/- RS. 1,71,47,000/- RS.17,74,28,518/- (2) CAPITAL EXPENDITURE (OTHER THAN BLDG.) RS. 1, 78,61,110/- RS.19,52,89,628/- WHEREAS THE ASSESSING OFFICER FINALLY DISALLOWED AS UNDER:- (1) ALLOWABLE @ 150% ON RS.19,52,89,628/- RS.29,29,34,442/- ALLOWABLE @ 100% ON RS.1,71,47,000/- RS. 1,71,47,000/- RS.31,00,81,442/- (2) CLAIMED RS.31,86,54,942/- RS. 85,73,500/- (ADDITION OF RS.86,73,500/-) ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 8 AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT (A), WHO CONFIRMED THE EXCLUSION OF RS.48 LAKHS ON ACCOUNT OF PROFESSIONAL FEE PAID TO DR. C DUTT AS WELL AS GARDEN EXPENSES OF RS.6.93 LAKHS AND ALLOWE D THE BALANCE DEDUCTION BY HOLDING IN PARA-5.3 OF HIS APPELLATE ORDER AS UNDER:- 5.3 I HAVE CONSIDERED THE ABOVE SUBMISSIONS AND TH E ASSESSMENT ORDER. ON PERUSAL OF THE NATURE OF EXPENDITURE IS ON MARKE T RESEARCH, SALES PROMOTION QUALITY CONTROL TESTING COMMERCIAL PRODUC TION STYLE CHANGE OR ROUTINE DATA COLLECTION. THEREFORE THE DISALLOWANCE OF THE ABOVE EXPENDITURE MADE BY THE ASSESSING OFFICER ONLY ON T HE BASIS OF THE REPORT OF THE PRESCRIBED AUTHORITY WAS NOT JUSTIFIED. WHAT IS TO BE SEEN BY THE AO IS THE NATURE OF EXPENDITURE. THEREFORE I CONSIDER THIS GROUND FOR DISPOSAL ON MERITS. ON PERUSAL OF THE NATURE OF EXPENDITURE IT IS SEEN THAT EXCEPT FOR PROFESSIONAL FEES OF RS.48 LACS AND GARDEN EX PENSE OF RS.6.93 LACS THE OTHER EXPENSE ARE NOT OF THE NATURE REFERRED TO ABOVE OR LIKE. THE PROFESSIONAL FEES ARE IN CONNECTION WITH PATENT TO BE REGISTERED OVERSEAS AND HENCE IT WOULD BE COVERED BY THE NATURE OF EXPE NSES COVERED ABOVE. GARDEN EXPENSE HAS NO RELATION WITH THE RESEARCH AC TIVITY. THEREFORE, I HOLD THAT THE A.O WAS JUSTIFIED IN EXCLUDING THESE TWO EXPENSES IN GRANTING DEDUCTION U/S.35(AB). HOWEVER, HE IS DIRE CTED TO ALLOW DEDUCTION IN RESPECT OF THE OTHER DEDUCTIONS. THIS GROUND IS ACCORDINGLY PARTLY ALLOWED. 8. BEFORE US LD. CIT DEPARTMENTAL REPRESENTATIVE RE LIED ON THE ASSESSMENT ORDER AND STATED THAT THE ASSESSING OFFICER HAS RIG HTLY ALLOWED THE WEIGHTED DEDUCTION AT 100% ON 1,71,47,000/- ON THE AMOUNT OF BUILDING REPAIRS AND OTHER REVENUE EXPENSES. ACCORDINGLY, HE SUPPORTED THE OR DERS OF THE ASSESSING OFFICER. ON THE OTHER HAND LD. COUNSEL FOR THE ASS ESSEE CARRIED US TO ASSESSEES PAPER BOOK AT PAGE 127 AND 128 AND NARRATED THE FAC TS AS GIVEN AS UNDER:- FINANCIAL YEAR - 2001-02 (RS.IN LAC) SR. CLAIMED GRANTED DISALLOWED (I) CAPITAL EXPENDITURE: LAND:- BUILDING NIL 49.92 NIL 49.92 0.00 0.00 ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 9 (II) CAPITAL EXPENDITURE (OTHER THAN LAND & BUILDING) 178.61 178.61 00 (III) RECURRING EXPENDITURE (OTHER THAN BUILDING) 37.55 -- 37.55 (IV) RECURRING EXPENDITURE (OTHER THAN BUILDING) 1856.94 1723.02 133.92 (V) TOTAL COST OF IN-HOUSE RESEARCH FACILITY EXCLUDING LAND & BUILDING 2073.10 1901.63 -- (VI) TOTAL COST OF IN-HOUSE RESEARCH FACILITY INCLUDING LAND & BUILDING 2123.02 1989.10 -- (VII) EXPENSES RELATED TO CLINICAL TRIALS OUTSIDE THE APPROVED FACILITY NOT INCLUDED IN THE ABOVE 51.26 51.26 -- THE LD. COUNSEL FOR THE ASSESSEE ALSO CO-RELATE THE EXPENDITURE DISALLOWED AS UNDER:- RS.IN LAC. 1. RECURRING EXPENDITURE - 37.55 (BUILDING RELATED) 2. RECURRING EXPENDITURE: (OTHER THAN BUILDING) I) SECURITY EXPENSES 11.01 II) GARDENING EXPENSES 9.44 III) MUNICIPAL TAX 6.93 IV) PROFESSIONAL FEES 48.00 V) SALARY TO DR. C. DUTT 58.54 133.92 133.92 171.47 AND FURTHER STATED THAT AS PER PROVISIONS OF SECTIO N 35(2AB) THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUCTION FOR THE FOLLOWING EX PENDITURE:- RS. IN LAC I) CAPITAL EXPENDITURE (OTHER THAN ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 10 LAND & BUILDING) 178.61 II) REVENUE EXPENDITURE RELATING TO BUILDING 37.55 III) RECURRING EXPENDITURE I.E. REVENUE EXPENDITU9RE (OTHER THAN BUILDING) 1856.94 IV) EXPENSES RELATED TO CLINICAL TRIALS OUTSIDE THE APPROVED FACILITY NOT INCLUDED IN THE ABOVE EXPENDITURE. 51.26 2124.36 V) ACTUAL WEIGHTED DEDUCTION AT 1.1/2 TIMES OF THE ELIGIBLE EXPENDITURE ABOVE REFERRED TO OF RS.2124.36 LACS. 3186.54 IN VIEW OF THE ABOVE FACTS AND FIGURE, THE LD. COUN SEL FOR THE ASSESSEE STATED THAT THE WEIGHTED DEDUCTION SHOULD BE ALLOWED TO THE ASS ESSEE AS PER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS OF THE CASE THAT THE PRESCRIBED AUTHORITY HAS SEPARATELY INDICATED RS.51.26 LACS FO R THE CLINICAL TRIALS AND AS PER THE EXPLANATION TO THE SEC. 35(2AB) THE ASSESSEE IN CURRING EXPENDITURE ON SCIENTIFIC RESEARCH & DEVELOPMENT IN RELATION TO DR UGS AND PHARMACEUTICALS, SHALL BE GRANTED EXPENDITURE INCURRED ON CLINICAL D RUG TRIALS. ACCORDINGLY, WE FIND THAT THE SUM OF RS.51.26 LACS IN ELIGIBLE EXPE NDITURE AS THE PRESCRIBED AUTHORITY HAS DISALLOWED SUM OF RS.37.55 LACS REVEN UE EXPENDITURE RELATING TO BUILDING AND SUM OF RS.133.92 LACS FROM THE REVENUE EXPENDITURE OTHER THAN BUILDING. AS PER THE BREAK UP GIVEN ABOVE WE FIND T HAT THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUCTION OF SUM OF RS.37.55 LACS AND RS.1 33.92 LACS IN VIEW OF THE FOLLOWING EXPLANATIONS SUBMITTED BEFORE THE LOWER A UTHORITIES :- SECTION 35(2AB) GRANTS WEIGHTED DEDUCTION FOR ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE N ATURE OF COST OF ANY LAND ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 11 OR BUILDING) ON IN-HOUSE RESEARCH & DEVELOPMENT FAC ILITY AS APPROVED BY THE PRESCRIBED AUTHORITY. WHAT IS EXCLUDED IS COST OF LAND & BUILDING AND NOT THE RECURRING EXPENDITURE RELATED TO BUILDING T HAT IS REPAIRS AND RENOVATION OF BUILDINGS, THEREFORE, ASSESSEE IS ENT ITLED TO WEIGHTED DEDUCTION FOR REPAIRS OF RS.37.55 LACS RELATED TO B UILDINGS. SIMILARLY, MUNICIPAL TAX PAID OF RS.6.93 LACS IS ENTIRELY RELA TED TO BUILDINGS WHEREIN IN-HOUSE RESEARCH ACTIVITY IS CARRIED ON. I T IS ONLY MUNICIPAL TAX OF R & D CENTRE, BHATT, HENCE LIKE CURRENT REPAIRS, IT IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S.35(2AB). SO FAR AS SECURITY EXPENSES OF RS.11.01 LACS IS CONCERNED, IT IS SUBMITTED THAT IN-HOUSE RE SEARCH ACTIVITY REQUIRES PROPER TIGHT SECURITY TO AVOID LEAKAGE THROUGH VISI TORS, AND ONLY IN-HOUSE STAFF WILL HAVE ACCESS TO THE SAID BUILDING AND NO OTHERS, AND TO PRESERVE RESEARCH WHICH IS COMPLETED BUT ITS CLINICAL TRIAL IS PENDING. CONSIDERING ALL THESE FACTORS, SECURITY EXPENSES OF RS.11.01 LA CS IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S.35(2AB). SO FAR AS GARDENING EXPENSES OF RS.9.44 LACS, IT IS SUBMITTED AS UNDER:- THE COMPANY HAS A DEDICATED RESEARCH CENTRE WHERE E XTENSIVE RESEARCH IS CARRIED OUT. THE COMPANY HAS A VERY COMPOSITE R & D FACILITY. THE COMPANY IS CONSCIOUS OF THE ENVIRONMENTAL ISSUES AN D HAS PUT UP EFFLUENT TREATMENT PLANT (COSTS APPROX. RS.36 LACS.). AS IS WIDELY ACCEPTED THE VEGETATION PARTICULARLY THE TREES HELP CONTAIN THE POLLUTION RESULTING FROM THE RELEASE OF POLLUTANTS (INCLUDING GASES). SO THE TREES AND PLANTS BECOME AN INTEGRAL PART OF THE RESEARCH CENTRE. ONC E HAVING ACCEPTED THIS POSITION ANY EXPENDITURE INCURRED ON GARDENING SHOULD BE FULLY ALLOWED UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE INCOME TAX ACT. IN THIS CONNECTION, WE WOULD LIKE TO ADD THAT THE G UJARAT POLLUTION CONTROL BOARD HAS ALSO DIRECTED THAT SUCH TREES AND GARDENS SHOULD BE DEVELOPED AND WATERED TREATED BY THE ETP SHOULD BE UTILIZED FOR A FORESTATION PURPOSES. OVER AND ABOVE THIS, GOOD LAB ORATORY PRACTICES REQUIRE THAT RESEARCH CENTERS SHOULD HAVE GREEN COV ER SO THAT POLLUTION LEVELS (INCLUDING DUST) ARE ELIMINATED. SINCE THE O BJECT OF THE ASSESSEE COMPANY IS TO HAVE A WORLD CLASS R & D CENTER SUCH GARDENS (AND THEREFORE THE GARDENING EXPENSES) BECOME A NECESSAR Y. IN RESPECT OF SALARY OF RS.58.54 LACS PAID TO DR. C . DUTT, HE IS IN-CHARGE OF RESEARCH & DEVELOPMENT CENTRE AT BHATT. THROUGH HIM ONLY, ENTIRE IN- HOUSE RESEARCH ACTIVITY IS CARRIED ON BY THE ASSESS EE. HE IS THE PERSON THROUGH WHOM ALL CO-ORDINATION OF THE TECHNICAL SCI ENTISTS AND OTHER TECHNICAL PERSONS IS CARRIED OUT AND SMOOTH FUNCTIO NING IS CARRIED OUT IN VARIOUS RESEARCH ACTIVITIES. TO CONVEY AND FOR REPO RTING OF ENTIRE RESEARCH ACTIVITY TO THE MANAGEMENT HE HAS BEEN TAK EN TO THE BOARD OF ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 12 DIRECTORS BY THE ASSESSEE-COMPANY. THEREFORE, SALAR Y PAID TO DR. C. DUTT IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S.35(2AB). WHE N SECTION SPEAKS OF ANY EXPENDITURE, THERE IS NO JUSTIFICATION TO EXCLU DE THE EXPENDITURE OF RS.133.92 LACS AS DONE BY THE PRESCRIBED AUTHORITY. THE ASSESSEE IS ELIGIBLE FOR WEIGHTED DEDUCTION ON THE ENTIRE EXPEN DITURE OF RS.2124.36 LAC, AS CLAIMED ABOVE. 10. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, W E ARE OF THE VIEW THAT IT IS ONLY THE EXPENDITURE WHICH WILL ONLY BE ALLOWED, W HEREAS THE ASSESSEE VIDE THE COPY OF THE LETTER REPRODUCED HEREINABOVE HAS VERY CLEARLY EXPLAINED AS TO HOW THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE IS A LLOWABLE. THUS THERE WAS NO JUSTIFICATION IN HARPING UPON THE FIGURE CONTAINED IN FORM NO.3CL AS IS DONE BY THE ASSESSING OFFICER. THE PROVISIONS OF THE ACT IT DOES NOT CONTAIN ANY SPECIFIC CONDITIONS FOR THE ALLOWANCE OF EXPENDITURE TO THE EFFECT THAT IT WILL BE RESTRICTED THAT CONTAINED IN FORM NO.3CL. NEEDLESS TO POINT OU T THAT SUCH ALLOWABLE EXPENDITURE ETC. IS REPORTED BY THE DSIR TO DG (INC OME-TAX EXEMPTION), KOLKATA WITHOUT GIVING AN OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE WHEREVER HE QUANTIFIES THE EXPENDITURE WHICH IS LESS THAN TH AT CLAIMED BY THE ASSESSEE. WE FURTHER FIND THAT THE ASSESSEE HAS INCLUDED A SU M OF RS.51.26 LAKHS AS ELIGIBLE EXPENDITURE BEING REVENUE EXPENDITURE RELA TING TO BUILDING AND ANOTHER SUM OF RS.133.92 LAKHS BEING REVENUE EXPENDITURE OT HER THAN BUILDING, WHICH WAS CONSIDERED AS REVENUE BY THE ASSESSING OFFICER HIMSELF. THESE ITEMS CLEARLY ARE WITHIN THE PURVIEW OF ALLOWABLE U/S 35(2AB) OF THE ACT AS WEIGHTED DEDUCTION. THE SECURITY EXPENSES ARE ALSO DIRECTLY RELATED TO IN-HOUSE RESEARCH AS PROPER SECURITY IS REQUIRED TO AVOID LEAKAGE AND ONLY IN-HOUSE STAFF WILL HAVE ASSESSED TO BUILDING. ACCORDINGLY, THIS EXPENDITURE ARE FOR PRESERVING THE RESEARCH WHICH IS COMPLETED AND ITS CLINICAL TRIAL IS PENDING. AS REGARDS TO THE ENVIRONMENTAL ISSUE, THE ASSESSEE-COMPANY HAS SET U P AN AFFLUENT PLANT AND AS IS WIDELY ACCEPTED THE VEGETATION, I.E. TREES HAVE CON TAINED THE POLLUTION. THIS EXPENDITURE OF GARDENING AND PLANTATION HAVE BEEN D ONE FOR THE PERSEVERANCE OF ENVIRONMENT AND THIS IS DIRECTLY RELATED TO R & D F ACILITIES. AS REGARDS TO SALARY ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 13 PAID TO DR. C.DUTT AMOUNTING TO RS.58.54 LAKHS, HE IS IN-CHARGE OF R & D CENTRE AT BHATT. HE IS THE PERSON THROUGH WHOM ALL CO-ORDINATION OF TECHNICAL SCIENTISTS AND OTHER TECHNICAL PERSONS ARE CARRIED OUT. THE ENTIRE REPORTING OF THE RESEARCH ACTIVITY TO THE MANAGEMENT HAS BEEN TAKEN TO THE BOARD OF DIRECTORS THROUGH HIM ONLY AND FOR THIS THE SALARY IS PAID. ACCORDINGLY, THE ASSESSEE HAS RIGHTLY PAID THE ENTIRE EXPENDITURE OF RS.133.92 LA KHS AND BUILDING REPAIRS RS.37.55 LAKHAS ON WHICH WEIGHTED DEDUCTION U/S.35( 2AB) OF THE ACT IS ALLOWABLE. IN VIEW OF THE ABOVE DISCUSSION, WE ALL OW THE CLAIM OF THE ASSESSEE AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED AND THAT OF THE ASSESSEES CO IS ALLOWED. 11. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING AMOUNTING TO RS.40,39,306/- ADDED BY THE A SSESSING OFFICER FOR TRANSACTION WITH M/S. BALDEVBHAI DOSABHAI COTTON CO . 12. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE FILE D A COPY OF ITAT ORDER IN ASSESSEES OWN CASE ITA NO.3146/AHD/2003 AND STATED THAT EXACTLY ON IDENTICAL FACTS, THE SIMILAR GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 21-08-2009. ON THE OTHER HAND, LD. CIT DR ALSO STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE TRIBUNALS ORDER IN ASSESSEES OWN CASE ASSESSMENT YEAR 2000-01 BUT HE RELIED ON THE ORDER OF THE ASSESSING OFFICER. WE FIND THAT THE TRIBUNAL VIDE PARA-16 TO 18 HELD AS UNDER:- 16. GROUND NO.4 IN THE APPEAL RELATES TO CLAIM FOR DEDUCTION OF RS.1,95,58.990/- ON ACCOUNT OF PRESENTATION ARTICLE S WHILE GROUND NO.5 IN THE APPEAL RELATES TO ADDITION OF RS.24,57,449/- ON ACCOUNT OF PACKING MATERIALS FROM BALDEVBHAI DOSABHAI COTTON CO. THE A O NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSES SEE HAD SHOWN THE FOLLOWING PURCHASES FROM BALDEVBHAI DOSABHAI COTTON CO. (1) PURCHASE OF STATIONARY ARTICLES RS.3,93,17,980 /- (2) PACKING MATERIALS RS. 49,14,899/- ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 14 FOLLOWING HIS OWN ORDER FOR THE AY 1999-2000, WHERE IN IT WAS FOUND THAT SINCE M/S. BALDEVBHAI DOSABHAI COTTON CO. DID NOT D EAL IN PRESENTATION ARTICLES, THE AO DISALLOWED 50% OF THE EXPENDITURE ON PRESENTATION ARTICLES AND PACKING MATERIALS. ON APPEAL, THE LEAR NED CIT(A) FOLLOWING HIS OWN ORDER DATED 18-11-2002 FOR THE AY 1999-2000 DELETED THE ADDITION. 17. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON BEHALF OF THE ASS ESSEE WHILE INVITING OUR ATTENTION TO THE DECISION DATED 29-5-2009 OF TH E ITAT IN THE ASSESSEES OWN CASE IN ITA NO.590/AHD/2003 FOR THE AY 1999-2000 CONTENDED THAT THE ISSUE OF PRESENTATION ARTICLES I S SQUARELY COVERED BY THE AFORESAID DECISION OF THE TRIBUNAL. LD. AR ADDE D THAT APPLYING THE SAME PRINCIPLE, ADDITION ON ACCOUNT OF PACKING MATE RIAL HAD BEEN DELETED BY THE LD. CIT(A). ON THE OTHER HAND, THE LEARNED D R DID NOT DISPUTE THE SUBMISSIONS OF THE LEARNED AR 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. WE FIND THAT WHIL E ADJUDICATING A SIMILAR CLAIM IN RESPECT OF PRESENTATION ARTICLES, THE ITAS T IN THEIR DECISION DATED 29-5-2009 IN THE ASSESSEES OWN CASE FOR THE AY 199 9-2000 HELD AS UNDER:- 27. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES. WE NOTED THAT THE INCURRENCE OF THE EX PENDITURE BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS HAS NOT BEEN D ENIED BY THE AO. THE AO HAS MERELY PRESUMED AS IF THE ASSESSEE HAS INFLATED THE COST OF THE EXPENDITURE SO INCURRED BY GETTING THE BILLS FROM M/S. BALDEVBHAI DOSABHAI COTTON CO. WE DO NOT FIND ANY COGENT MATERIAL OR EVIDENCE ON RECORD WHICH MAY PROVE THAT THE ASSESSEE HAS INFLATED THE EXPENSES EXCEPT PRESUMPTION BEING MADE BY THE AO. THE AO HAS NOT DENIED THE INCURRENCE OF THE EXP ENDITURE FOR THE PURPOSE OF BUSINESS AND THE TRANSACTION BEING E NTERED DURING THE COURSE OF THE BUSINESS. THE ASSESSEE HAS SUBMIT TED ALL THE NECESSARY EVIDENCE INCLUDING THE FACT THAT THE PAYM ENT HAS BEEN MADE BY THE ASSESSEE FOR THE SUPPLY OF PRESENTATION ARTICLES THROUGH THE ACCOUNTANT PAYEE CHEQUES. MERELY ON THE BASIS O F SUSPICION HOWSOEVER STRONG IT MAY BE, IT CANNOT BE PRESUMED T HAT THE ASSESSEE HAS INFLATED THE EXPENDITURE. WE, THEREFOR E, CONFIRM THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE. THUS , THIS GROUND STANDS DISMISSED. ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 15 18.1 THOUGH THE ISSUE RELATING TO CLAIM OF PACKING MATERIAL WAS NOT INVOLVED IN AY1999-2000, SINCE THE ASSESSEE SUBMITT ED THE RELEVANT EVIDENCE REGARDING THE AFORESAID CLAIM OF PACKING M ATERIAL WHILE PAYMENT IS ALSO SATED TO HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES, THERE SEEMS TO BE NO JUSTIFICATION FOR DISALLOWING 50% OF THE EXPENDITURE, MERELY ON THE PRESUMPTION THAT THE EXPENDITURE MIGH T HAVE BEEN INFLATED. THEREFORE, FOLLOWING THE REASONING GIVEN BY THE TRI BUNAL IN RELATION TO PRESENTATION ARTICLES IN THE AY 1999-2000 AND THE R EVENUE HAVING NOT BROUGHT TO OUR NOTICE ANY MATERIAL CONTRARY TO THE FINDINGS OF THE LD. CIT(A), WE ARE OF THE OPINION THAT THE DECISION OF THE LEARNED CIT(A) IN DELETING THESE DISALLOWANCES DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, BOTH THE GROUND NOS. 4 AND 5 ARE REJEC TED. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION, FAC TS BEING EXACTLY IDENTICAL IN THIS YEAR ALSO, WE DISMISS THIS ISSUE OF THE REVENU ES APPEAL. 13. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING AMOUNTING TO RS.9.69 LAKHS @ 15% ADDED BY THE ASSESSING OFFICER FOR TRANSACTION OF RS.64.94 LAKHS OF PURCHASE MADE FROM VIMAL CHEMICALS. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE FILED COPY OF T RIBUNALS ORDER IN ITA NO.33146/AHD/2004 FOR THE ASSESSMENT YEAR 2000-01 ORDER DATED 21-08- 2009 AND ARGUED THAT THE ISSUE IS SQUARELY COVERED. WE FIND THAT THE TRIBUNAL HAS HELD AS UNDER:- 19. GROUND NO.6 IN THE APPEAL RELATES TO DELETION OF ADDITION OF RS.2,75,49,042/- ON ACCOUNT OF PURCHASES FROM M/S. VIMAL CHEMICALS. RELYING UPON HIS OWN ORDER FOR THE PRECEDING ASSESS MENT YEAR, THE AO WAS OF THE OPINION THAT VIMAL CHEMICALS WAS INVOLVE D IN CIRCUITOUS TRANSACTIONS TO INCUR FICTITIOUS LOSSES. ACCORDINGL Y, THE AO DISALLOWED 14.5% OF THE TOTAL PURCHASES FROM VIMAL CHEMICALS, RESULTING IN ADDITION OF RS.2,75,49,042/-. ON APPEAL, RELYING UPON HIS OW N ORDER IN AY 1999- 2000, THE LEARNED CIT(A) DELETED THE ADDITION. 20. THE LEARNED AR WHILE INVITING OUR ATTENTION TO THE DECISION OF THE ITAT DATED 29-5-2009 IN THE ASSESSEES OWN CASE IN ITA NO./590/AHD/2003 FOR THE AY 1999-2000 CONTENDED THA T THE ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION OF THE T RIBUNAL. ON THE OTHER HAND, THE LEARNED DR DID NOT DISPUTE THESE SUBMISSI ONS OF THE LEARNED AR. ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 16 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISS UE, THE ITAT IN THEIR AFORESAID DECISION DATED 29-5-2009 HELD AS UNDER: 23 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE CA SE LAW AS RELIED ON BEFORE US. IT IS NOT DENIED THAT M/S VIMAL CHEMI CALS IS NOT A CONCERN IN WHICH THE ASSESSEE IS ANY WAY RELATED. NO MATERIAL WAS BROUGHT TO OUR KNOWLEDGE WHICH MAY PROVE THAT THE F INDINGS GIVEN BY THE CIT(A) IS INCORRECT TO THE EFFECT THAT THE P RICE AT WHICH SIMILAR MATERIAL HAS BEEN PURCHASED BY THE ASSESSEE FROM OTHER PARTIES OTHER THAN M/S. VIMAL CHEMICALS ARE COMPARA BLE WITH THE PRICES AT WHICH THE MATERIAL IS PURCHASED FROM M/S. VIMAL CHEMICALS. THE COMPARATIVE PRICE DETAILS ARE DULY F ILED BY THE ASSESSEE. THE CIT(A) HAS GIVEN CATEGORICAL FINDING ABOUT THE FACT THAT THE TRANSACTIONS HAVE BEEN ENTERED INTO THROUG H THE BANKING CHANNEL. THE ASSESSEE HAS GIVEN ALL THE NECESSARY D ETAILS. THE GENUINENESS OF THE PURCHASES HAS NOT BEEN DENIED / DOUBTED. THE SELLER AND THE ASSESSEE BOTH ARE INDEPENDENT PARTIE S AND ARE NOT CONNECTED IN ANY WAY. IF THE PURCHASER HAS SOLD THE GOODS TO THE ASSESSEE AFTER BUYING FROM THE MANUFACTURER AT A HI GHER PRICE AT WHICH HE PROCURED FROM THE MANUFACTURER, THE MARGIN WILL BE THE PROFIT OF THE SELLER I.E. M/S. VIMAL CHEMICALS. THI S CANNOT BE THE BASIS FOR MAKING THE DISALLOWANCE IN THE HANDS OF T HE ASSESSEE UNTIL AND UNLESS IT IS PROVED THAT M/S. VIMAL CHEMICALS I S A BOGUS CONCERN AND THE ASSESSEE HAS ACTUALLY MADE THE PURC HASES NOT FROM M/S VIMAL CHEMICALS BUT FROM JK DRUGS AND PHARMACEU TICALS CO. LTD. IF ANY PERSON IS ENGAGED IN THE BUSINESS IT IS IMPLIED THAT HE WILL BUY THE GOODS FROM THE MANUFACTURER AT A LOWER RATE AND WILL SELL TO ITS CUSTOMERS AT A HIGHER RATE. THE MARGIN IN BETWEEN IS THE PROFIT OF THE SAID CONCERN. NO MATERIAL OR EVIDENCE HAS BEEN BROUGHT ON RECORD WHICH MAY PROVE THAT THE ASSESSEE HAS DIRECTLY PURCHASED THE MATERIAL FROM JK DRUGS AND PHARMACEUT ICALS CO. LTD. OR M/S. JK DRUGS AND PHARMACEUTICALS CO. LTD. OR M/S. VIMAL CHEMICALS ARE RELATED WITH THE ASSESSEE. UNDER THES E FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT NO INTERFEREN CE IS CALLED FOR IN THE ORDER OF THE CIT(A) DELETING THE DISALLOWANC E AMOUNTING TO RS.26,99,529. THUS, THIS GROUND STANDS DISMISSED. 21.1 IN THE LIGHT OF THE AFORESAID DECISION OF THE TRIBUNAL FOR THE AY 1999- 2000 WHILE UNDISPUTEDLY FACTS AND CIRCUMSTANCES REM AINING THE SAME AS ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 17 IN THE EARLIER ASSESSMENT YEAR, WE HAVE NO ALTERNAT IVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.6 IS DISMISSED. THE FACTS BEING EXACTLY IDENTICAL IN THIS YEAR ALSO , RESPECTFULLY FOLLOWING THE CO- ORDINATE BENCH DECISION, WE DISMISS THIS ISSUE OF T HE REVENUES APPEAL. 14. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND FOR PROVISIONS OF LEAVE ENCASHMENT FOR ASSESSMENT YEAR 2000-01 AMOUNTING TO RS.133.68 LAKHS. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). T HE BRIEF FACTS LEADING TO THIS ISSUE ARE THAT THE AO HAS STATED THAT THE ASSESSEE HAD MADE PROVISION FOR LIABILITY OF RS.236.28 LACS AS PROVISIONS FOR LEAVE ENCASHMENT AND EXPLAINED THAT THE ASSESSEE-COMPANY WAS HITHERTO NOT PROVIDING FOR LEAVE ACCRUED IN THE ACCOUNT. BUT FROM THE FINANCIAL YEAR 2000-01 IT AS CHANGED THE POLICY AND HAS MADE PROVISIONS FOR LEAVE ENCASHMENT AS UNDER:- ASSESSMENT YEAR 2000-01 RS.136.68 LACS ASSESSMENT YEAR 2001-02 RS. 96.6 LACS THE ASSESSEE HAD EXPLAINED THAT THE AMOUNT OF RS.13 6.68 LACS HAD CRYSTALLIZED IN THIS YEAR ALSO. THE ASSESSEE BY A LETTER DATED 05-0 3-2004 EXPLAINED THAT THE ASSESSEE-COMPANY IN THE PAST AS A MATTER OF POLICY DID NOT PROVIDE FOR SUCH EXPENDITURE ON ACCRUAL BASIS. THE MANAGEMENT HOWEVE R DECIDED TO PROVIDE FOR SUCH ACCRUED LIABILITY IN ORDER TO MEET WITH THE RE QUIREMENTS OF THE ACCOUNTING STANDARD-15 AS PRESCRIBED BY THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA AND ACCORDINGLY MADE THE PROVISIONS OF RS.236.28 LACS A S ON 31-03-2001 IN RESPECT OF SUCH LIABILITY TO BE DISCHARGED. THIS WAS DONE A S ONE OF THE ESTABLISHED WELFARE MEASURES OF THE EMPLOYEES. ACCORDING TO THE ACCOUNTING STANDARD ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 18 PRESCRIBED U/S.145 OF THE ACT THE NATURE OF THE EXP ENDITURE DO NOT FALL INTO THE PRIOR PERIOD EXPENDITURE. SIMPLY BECAUSE IN THE ACC OUNTS MAINTAINED BY THE ASSESSEE, SOME BIFURCATION WAS MADE, IT DOES NOT RE NDER THE EXPENDITURE TO BE EITHER ALLOWABLE OR DISALLOWABLE AS HELD BY THE SUP REME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. V. CIT 82 ITR 363 (SC). THE ASSESSEE EXPLAINED BEFORE THE LOWER AUTHORITIES THAT THE ENTIRE EXPEND ITURE WAS RECOGNIZED AND ACCOUNTED FOR DURING THE CURRENT YEAR TO BRING THE FINANCIAL STATEMENTS OF THE COMPANY AT PAR WITH THE ACCOUNTING STANDARDS. THE E XPENDITURE WAS QUANTIFIED AND ASCERTAINED FOR THE FIRST TIME IN THIS ACCOUNTI NG YEAR AND THAT AS THE PROCESS OF ASCERTAINING AND QUANTIFICATION WAS COMPLETED IN THIS ASSESSMENT YEAR, THE ACCOUNTING OF THE SAME WAS DONE IN CURRENT YEAR. SO ON ALL PRACTICAL AND COMMERCIAL REASONS THE INCOME SHOULD BE DETERMINED AFTER CONSIDERING SUCH ASCERTAINED LIABILITY RELATING TO BUSINESS. THE ASS ESSEE STATED THAT THE QUANTUM OR METHOD OF CALCULATION OF LEAVE LIABILITY HAS NEVER BEEN A SUBJECT-MATTER OF DISPUTE. WHAT IS DISPUTED IN THE PRESENT CASE IS TH E LEAVE SALARY RELATING TO EARLIER PERIOD BUT FOR CLAIMING DEDUCTION OF PROVISION FOR LEAVE RELATING TO PREVIOUS YEARS I.E. RS.136.68LACS). AT THE COST OF BEING REP ETITIVE WE WOULD LIKE TO REITERATE: 1. THE ASSESSEE-COMPANY WAS EARLIER FOLLOWING CASH SYS TEM OF ACCOUNTING IN RESPECT OF LEAVE LIABILITY. 2. THE SWITCH FROM CASH BASIS TO MERCANTILE SYSTEM WAS TO COMPLY WITH THE ACCOUNTING STANDARDS AS 15 IN PARTICULAR. 3. THE BASIS OF CALCULATION OF PROVISION FOR LEAVE ENC ASHMENT WAS IN LINE WITH THE METHOD PRESCRIBED BY THE ABOVE REFERRED AC COUNTING STANDARD. 4. THE ASSESSEE HAS BEEN SUBSEQUENT TO THE CHANGE IN T HE METHOD HAS BEEN FOLLOWING THE MERCANTILE SYSTEM REGULARLY. IN SUPPORT OF IT, THE ASSESSEE RELIED ON THE SIMILA R CASE OF WIPRO INFORMATION TECHNOLOGY LTD. VS. DCIT(2004) 88 TTJ 778 (BANG) IT WAS HELD THAT:- ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 19 THE ASSESSEE WAS HITHERTO FOLLOWING CASH SYSTEM OF ACCOUNTING IN RESPECT OF LEAVE SALARY PAYABLE ON RETIREMENT. IT H AS NOW CHANGED THE METHOD FROM CASH TO ACCRUAL. THE LIABILITY THAT ACC RUED AT THE END OF THE YEAR, BASED ON ACTUARIAL VALUATION IS RS.8,24,64,00 0. THE CHANGE IN THE METHOD IS BONA FIDE. THE CHANGE WAS NECESSARY TO PR ESENT A TRUE AND FAIR VIEW AS PRESCRIBED UNDER THE COMPANIES ACT. THE CHA NGE IS ALSO NOW CONTINUOUSLY FOLLOWED THEREAFTER. SINCE THE CHANGE IN THE METHOD IS BONA FIDE BACKED BY SCIENTIFIC METHOD OF PROVISIONS FOR ACCRUED LIABILITY AND SINCE THE LIABILITY IS NOT CONTINGENT IN NATURE, TH E ENTIRE PROVISIONS OF RS.8,24,64,000 IS ALLOWABLE BEFORE US IT WAS ARGUED THAT THERE IS ABSOLUTELY NO JUSTIFICATION IN BIFURCATING THE EXPENDITURE IN THE FORM OF A PROVISION FOR THIS YEA R AND EARLIER YEAR AS IS DONE BY THE ASSESSING OFFICER AND THE ENTIRE EXPENDITURE OF RS.236.28 LACS OUGHT TO HAVE BEEN ALLOWED. 16. WE FURTHER FIND THAT THE CIT(A) HAS DELETED THE ADDITION BY HOLDING AS UNDER:- 8.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE SUBMISSIONS. IT IS TRUE THAT THE ASSESSEE MADE PROVISION FOR LIA BILITY OF RS.236.28 LACS ON ACCOUNT OF LEAVE ENCASHMENT IN THE BOOKS OF ACCO UNT FOR THE YEAR. THE COMPANY WAS IN THE PAST NOT PROVIDED ANY SUCH LIABI LITY IN THE BOOKS. NOW IT AS DECIDED TO CHANGEOVER THE METHOD OF ACCOU NTING THE LIABILITY OF LEAVE ENCASHMENT AND HAS MADE PROVISION FOR THE LIA BILITY AS AT THE END OF THE YEAR. THEREFORE, IN MY VIEW THE ASSESSEE WAS JU STIFIED IN CLAIMING THE ENTIRE LIABILITY AS ACCRUED IN THE YEAR UNDER CONSI DERATION. A SIMILAR QUESTION HAD ARISEN IN THE CASE OF WIPRO INFORMATIO N TECHNOLOGY LTD. WHEREIN THE ITAT. BANGALORE (88 TTJ 778) DECIDED TH E ISSUE AFTER CONSIDERING THE ACCOUNTING STANDARD (A.S-15) HELD A S UNDER: THE CIT(A) REFERRED TO AS-15 AND THEN FURTHER HELD AS UNDER:- FOR THE REASONS DISCUSSED IN THE ABOVE ORDER OF IT AT, AND FOLLOWING THE SAID DECISION, I HOLD THAT THE DISALLOWANCE OF RS.1 36.68 LACS MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. THE ADDITION M ADE ON THIS ACCOUNT IS, THEREFORE DELETED. ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 20 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, DISCU SSION CARRIED ABOVE, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DISMIS SED. 17. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN COMPUTING THE DEDUCTION ON THE FOLLOWING ACCOUNTS U/S.80HHC OF THE ACT AS UNDER:- I) THE TREATMENT OF DEPB INCOME. 18. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT ONLY THE NET PROFIT OF DEPB INCOME SHOULD BE EXCLUDED FOR THE PURPOSE OF C OMPUTATION OF DEDUCTION U/S.80HHC OF THE ACT R.W.S. CLAUSE (BAA) OF THIS SE CTION. HE REFERRED TO THE CASE LAW IN THE CASE OF TOPMAN EXPORTS V. ITO (2009) 318 ITR (AT) 87 (MUM) (SB). THE LD. DEPARTMENTAL REPRESENTATIVE ALSO STAT ED THAT THE ISSUE CAN BE REVERT BACK TO THE FILE OF ASSESSING OFFICER FOR DE CIDING THE ISSUE IN TERMS OF MUMBAI SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA) AND WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF M UMBAI SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA) AND ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER AND DIRECTED THE AO TO RE -COMPUTE THE DEDUCTION EXCLUDING ONLY NET PROFIT IN TERMS OF MUMBAI SPECIA L BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA). THIS ISSUE OF REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. II) TO EXCLUDE EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S.80HHC OF THE ACT. 18.1 AT THE OUTSET, WE FIND THAT THIS ISSUE IS SQU ARELY COVERED BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC), WHEREIN THE HONBLE APEX COURT HA S HELD AS UNDER:- ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 21 6. THE LEARNED CIT(APPEALS)-V, AHMEDABAD ERRED IN CONFIRMING THAT EXCISE DUTY IS PART OF TOTAL TURNOVER FOR THE PURPO SE OF CALCULATION OF DEDUCTION U/S.80HHC OF THE ACT. IN FACT, IN CIVIL APPEAL NO.4409 OF 2005, THE ABOV E PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER [SEE : PAGE NO.24 OF THE PAPER BOOK] , IF SO, THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3), OTHERWISE THE FOR MULA BECOMES UNWORKABLE. IN OUR VIEW, SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF TURNOVER WHICH IS THE POSITION EVEN IN THE CASE OF RENT, COMMISSION, INTEREST ETC., IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALES TAX ARE INDIRECT TAXES. THEY ARE RECOVERE D BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE, IF THEY ARE MA DE RELATABLE TO EXPORTS, THE FORMULA UNDER SECTION 80HHC WOULD BECO ME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE, WE DISMISS THIS ISSUE OF THE REVENUES APPEAL. ACCORDINGLY, THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. III) TO CONSIDER THE NET INTEREST FOR REDUCTION AND NET LABORATORY CHARGES FROM ELIGIBLE PROFITS. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE DI RECTION CAN BE GIVEN TO THE ASSESSING OFFICER TO CONSIDER THE NET INTEREST FOR REDUCTION AND NET LABORATORIES CHARGES FROM ELIGIBLE PROFITS FOR THE COMPUTATION O F DEDUCTION U/S.80HHC OF THE ACT. WE FIND THAT THE ISSUE IS COVERED BY THE DECIS ION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V SHRI RAM HOND A POWER EQUIP 289 ITR 475 (DELHI). THE RELEVANT PORTION OF THE HE AD NOTE OF THE SAID JUDGMENT IS REPRODUCED BELOW: EXPORTSPECIAL DEDUCTION UNDER SECTION 80HHCCOMPUT ATION OF SPECIAL DEDUCTION MODE OF COMPUTATION PROFITS ASSESSABLE AS INCOME FROM OTHER SOURCES NOT PART OF PROFITS FOR PURPOSES OF SECTION 80HHCINTEREST IN C LAUSE (BAA) OF EXPLANATION REFERS TO NET INTEREST INCOME-TAX A CT, 1961, S. 80HHC . ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 22 SECTION 80HHC OF THE INCOME-TAX ACT, 1961, WAS FIRS T INSERTED BY THE FINANCE ACT, 1983, WITH EFFECT FROM APRIL 1,1983, A ND HAS SINCE UNDERGONE SEVERAL CHANGES. WHILE ASCERTAINING THE T RUE SCOPE OF A PROVISION IN A STATUTE, ATTENTION MUST NECESSARILY BE PAID NOT ONLY TO THE TEXT, VIZ., THE WORDS EMPLOYED IN THE RELEVANT PROV ISION, BUT ALSO THE CONTEXT. THE IDEA OF SECTION 80HHC IS TO ENSURE THA T THE EXPORTER GETS THE BENEFIT WITH REFERENCE TO PROFITS DERIVED FROM EXPO RT. WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK AND IN TEREST IS EARNED THEREON IT CAN ONLY BE CATEGORISED AS INCOME FROM O THER SOURCES. THIS RECEIPT MERITS SEPARATE TREATMENT UNDER SECTION 56 OF THE ACT WHICH IS OUTSIDE THE RING OF PROFIT AND GAINS FROM BUSINESS AND PROFESSION. IT GOES ENTIRELY OUT OF THE RECKONING FOR THE PURPOSES OF S ECTION 80HHC. TO GIVE EFFECT TO THIS POSITION, THE ASSESSING OFFICER WHIL E COMPUTING PROFITS OF THE EXPORT BUSINESS WILL HAVE TO REMOVE FROM THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT THE CORRESPONDING INTEREST EXPENDITURE THAT HAS BEEN 'LAID OUT' TO EARN SUCH INCOME FROM OTHER SOURCES. OTHERW ISE THIS WILL DEPRESS THE PROFITS BY AN AMOUNT WHICH IS OUT OF THE RECKON ING OF SECTION 80HHC, A CONSEQUENCE NOT INTENDED TO BE BROUGHT ABOUT. THE OTHER CATEGORY IS WHERE THE EXPORTER IS REQUIRE D TO MANDATORILY KEEP MONIES INFIXED DEPOSIT IN ORDER TO AVAIL OF CREDIT FACILITY FOR THE EXPORT BUSINESS. INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING OF CREDIT FACILITIES FROM THE BANK, DOES NOT HAVE AN I MMEDIATE NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. HOWEVER , THIS WILL APPLY ONLY WHERE THERE IS A SPECIFIC FINDING BY THE ASSES SING OFFICER THAT THE INTEREST INCOME IS NOT BUSINESS INCOME. IF IN A GIV EN CASE THE ASSESSING OFFICER HAS HELD THAT THE INTEREST INCOME IS BUSINE SS INCOME, AND THIS HAS NOT BEEN CHALLENGED BY THE DEPARTMENT THEREAFTER'/ THAT QUESTION CANNOT TO BE PERMITTED TO BE REOPENED AND THE ONLY QUESTIO N THEN WILL BE IF NETTING SHOULD BE ALLOWED. CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC EN VISAGES A TWO-STEP PROCESS IN COMPUTING PROFITS DERIVED FROM EXPORTS, FIRST, THE ASSESSING OFFICER IS REQUIRED TO APPLY SECTIONS 28 TO 44 IN O RDER TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN DOI NG SO, THE ASSESSING OFFICER MAY FIND THAT CERTAIN INCOMES, WHICH HAVE N O NEXUS TO THE EXPORT BUSINESS OF THE ASSESSEE, ARE NOT ALLOWABLE AND THE REFORE OUGHT TO BE TREATED AS INCOME FROM OTHER SOURCES. ONCE THE ASSE SSING OFFICER COMPUTES WHAT IS BUSINESS INCOME THEN HE PROCEEDS T O THE NEXT STEP OF DEDUCTING 90 PER CENT, OF THE RECEIPTS REFERRED TO IN CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC IN ORDER TO ARRIVE AT THE PROFITS DERIVED ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 23 FROM EXPORT. THE EXPRESSION ''BY WAY OF' WHICH QUAL IFIED THE WORD 'INCOME' IN SECTION 80M IS SIMILAR TO THE WORDS 'RE CEIPTS BY WAY OF' OCCURRING IN EXPLANATION (BAA) OF SECTION 80HHC OF THE ACT. FURTHER THE WORDS 'INCLUDED IN SUCH PROFITS' OCCURS IN BOTH THE PROVISIONS. JUST AS IN DISTRIBUTORS (BARODA) WHERE IT WAS EXPLAINED BY THE SUPREME COURT THAT THE WORDS 'SUCH' PROFITS CAN ONLY BE UNDERSTOOD AS 'COMPUTED IN ACCORD- ANCE WITH THE PROVISIONS OF THE ACT', SIMILAR WORDS IN CLAUSE (BAA) SHOULD PARTAKE OF THE SAME MEANING. THE UNDERLYING PRINCIP LE OF NETTING APPEARS TO LOGICALLY GET ATTRACTED AS NO PRUDENT BUSINESSMA N WOULD ALLOW TAXATION OF THE INTEREST INCOME DE HORS THE EXPENDITURE INCU RRED FOR EARNING SUCH INCOME. THE WORDS 'INCLUDED ANY SUCH PROFITS' FOLLO WING THE WORDS RECEIPTS BY WAY OF INTEREST, COMMISSION, BROKERAGE, ETC., IS A CLEAR POINTER TO THE FACT THAT ONLY NET INTEREST WOULD BE INCLUDI BLE IN ARRIVING AT THE BUSINESS PROFIT. ONCE BUSINESS INCOME HAS BEEN DETE RMINED BY APPLYING ACCOUNTING STANDARDS AS WELL AS THE PROVISIONS CONT AINED IN THE ACT, THE ASSESSEE WOULD BE PERMITTED, IN TERMS OF SECTION 37 OF THE ACT, TO CLAIM AS DEDUCTION, EXPENDITURE LAID OUT FOR THE PURPOSES OF EARNING SUCH BUSINESS INCOME. SUPPORT FOR THIS PROPOSITION IS TO BE FOUND FROM CIRCULAR NO. 621 DATED DECEMBER 19,19911, OF THE CENTRAL BOARD OF DI RECT TAXES. THE IDEA OF SECTION 80HHC IS TO ENSURE THAT THE EXP ORTER GETS THE BENEFIT OF THE PROFITS DERIVED FROM EXPORT AND NOT TO DEPRE SS THE PRO FIT FURTHER. THEREFORE, IT CAN ONLY BE THE NET INTEREST WHICH CA N BE INCLUDED IN THE PROFITS. IF NETTING WERE NOT TO BE PERMITTED THE RE SULT WOULD BE THAT THE PROFITS OF THE EXPORTER WOULD BE DEPRESSED BY AN IT EM THAT IS EXPENDITURE INCURRED ON EARNING INTEREST, WHICH DOES NOT FORM P ART OF THE PROFIT AT ALL. THIS COULD NOT HAVE BEEN THE INTENTION OF THE LEGIS LATURE. EXPLANATION (BAA) IS RELATABLE ONLY TO CLAUSE (A) O F SECTION 80HHC(3) AND NOT TO CLAUSE (B) THEREOF. THESE OPERATE IN DIS TINCT AREAS AND NO INTER- MIXING IS CONTEMPLATED. HENCE THE WORD ''INTEREST' IN CLAUSE (BAA) TO THE EXPLANATION IN SECTION 80HHC IS INDICATIVE OF 'NET INTEREST', I.E., GROSS INTEREST LESS THE EXPENDITURE INCURRED BY THE ASSES SEE IN EARNING SUCH INTEREST. TO SUMMARIZE THE CONCLUSIONS : (I) IN COMPUTING WHA T THE PROFITS DERIVED FROM EXPORTS FOR THE PURPOSES OF SECTION 80HHC(1) R EAD WITH SECTION SOHHC(3) ARE, THE NEXUS TEST HAS TO BE APPLIED TO E XCLUDE THAT WHICH DOES NOT I PARTAKE OF PROFITS THAT CAN BE SAID TO H AVE BEEN DERIVED FROM THE BUSINESS OF EXPORTS, (II) IN THE SPECIFIC CONTE XT OF CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC, WHILE DETERMINING THE 'PROFITS OF THE BUSINESS', THE ASSESSING I OFFICER HAS TO UNDERTAKE A TWO-STEP EXERCISE IN THE FOLLOWING SEQUENCE. HE HAS I TO FIRST 'COMPUTE' THE PROFITS OF THE ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 24 BUSINESS UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION.' IN OTHER WORDS, HE WILL HAVE TO COMPUTE BUSINESS PROFI TS, IN TERMS OF THE ACT, BY APPLYING THE PROVISIONS OF SECTIONS 28 TO 44 THE REOF. (HI) IN ARRIVING AT THE PROFITS OF THE BUSINESS BY THE ABOVE METHOD, TH E ASSESSING OFFICER WILL EXCLUDE ALL SUCH INCOMES WHICH PARTAKE OF THE CHAR- I JETER OF 'INCOME FROM OTHER SOURCES' WHICH IN ANY EVENT ARE TREATED UNDER I SECTIONS 56 AND 57 OF THE ACT AND ARE THEREFORE NOT TO BE RECKO NED FOR THE PURPOSES OF SECTION 80HHC. (IV) WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK I AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATEGORIZ ED AS INCOME FROM OTHER SOURCES. THIS RECEIPT MERITS SEPARATE TREATMENT UND ER SECTION 56 OF THE ACT WHICH IS OUTSIDE THE RING OF PROFITS AND GAINS FROM BUSINESS AND PROFESSION. IT ENTIRELY OUT OF THE RECKONING FOR TH E PURPOSES OF SECTION 80HHC. (V) EARNED ON FIXED DEPOSITS FOR THE PURPOSE S OF AVAILING OF CREDIT FACILITIES THE BANK, DOES NOT HAVE AN IMMEDIATE NEX US WITH THE EXPORT BUSINESS THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND BUSINESS INCOME, (VI) ONCE BUSINESS INC OME HAS BEEN DETERMINED BY APPLYING ACCOUNTING STANDARDS AS WELL AS THE PROVISIONS CONTAINED IN THE ACT, THE ASSESSEE WOULD BE PERMITT ED, IN TERMS OF SECTION 37 OF THE ACT, TO CLAIM AS DEDUCTION, EXPENDITURE L AID OUT FOR THE PURPOSES OF EARNING SUCH BUSINESS (VII) IN THE SECOND STAGE, THE ASSESSING OFFICER WILL DEDUCT FROM THE OF THE BUSINESS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIER PROFESSION' THE FOLLOWING SUMS IN ORDER TO ARRIVE AT THE 'PROFITS OF THE BUSINESS' FOR THE PURPOSES OF S ECTION 80HHC(3) : (A) 90 PER CENT, OF ANY SUM TO IN CLAUSES (IIIA), (IIIB ) AND (IIIC) OF SECTION 28, I.E., EXPORT INCENTIVES; (B) 90 PER CENT, OF ANY RE CEIPTS BY WAY OF BROKERAGE, INTEREST, RENT, CHARGES OR ANY OTHER REC EIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS; AND (C) PROFITS OF ANY BR ANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA, (VIII) THE WORD 'INTEREST' IN CLAUSE (BAA) OF THE EXPLANATION CONNOTES 'NET INTEREST' AND NOT 'GROSS INTEREST'. THEREFORE, IN DEDUCTING S UCH INTEREST, THE ASSESSING OFFICER WILL TAKE INTO ACCOUNT THE NET IN TEREST, I.E., GROSS INTEREST AS REDUCED BY EXPENDITURE INCURRED FOR EAR NING SUCH INTEREST, (IX) WHERE, AS A RESULT OF THE COMPUTATION OF PROFITS AN D GAINS-OF BUSINESS AND PROFESSION, THE ASSESSING OFFICER TREATS THE INTERE ST RECEIPT AS BUSINESS INCOME, THEN DEDUCTION SHOULD BE PERMISSIBLE, IN TE RMS O/EXPLANATION (BAA) OF THE NET INTEREST I.E., THE GROSS INTEREST LESS THE EXPENDITURE INCURRED FOR THE PURPOSES OF EARNING SUCH INTEREST. THE NEXUS BETWEEN OBTAINING THE LOAN AND PAYING INTEREST THEREON (LAY ING OUT THE EXPENDITURE BY WAY OF INTEREST) FOR THE PURPOSE OF EARNING THE INTEREST ON THE FIXED DEPOSIT, TO DRAW AN ANALOGY FROM SECTION 37, WILL R EQUIRE TO BE SHOWN BY THE ASSESSEE FOR APPLICATION OF THE NETTING PRINCIP LE. RANI PALIWAL V. CIT [2004] 268ITR 220 (P & H) DISSE NTED FROM . ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 25 RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE RESTORE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME AS PER THE ABOVE DECISION. THESE ISSUES OF THE REVENUES APPEAL ARE ALLOWED FO R STATISTICAL PURPOSES. 19. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING OF CAPITAL LOSS ON THE SALE OF LAND AMOUNT ING TO RS.7,34,051/-. THE ASSESSING OFFICER NOTED IN HIS ASSESSMENT ORDER THA T THE ASSESSEE SOLD LAND WHICH WAS ACQUIRED IN ASSESSMENT YEAR 1994-95 ON AC COUNT OF MERGER OF TORRENT MEDI SYSTEM PVT. LTD. AND THE LAND WAS ACQU IRED BY IN FINANCIAL YEAR OF MERGER AND NOT THE YEAR IN WHICH THE AMALGAMATING C OMPANY TORRENT MEDI SYSTEM PVT. LTD. ACQUIRED THE SAME. HE HAS ACCORDIN GLY COMPUTED THE INDEX COST BY CONSIDERING THE YEAR OF ACQUISITION TO BE F INANCIAL YEAR 1993-94 AND NOT FINANCIAL YEAR 1998-89. THUS, HE HAS RECALCULATE EX CESS CAPITAL LOSS OF RS.7,34,051/- AND DISALLOWED CAPITAL LOSS BY THIS A MOUNT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A). 20. BEFORE CIT(A) THE ASSESSEE STATED THAT THE LAND WAS ACQUIRED BY THE TORRENT MEDI SYSTEM PVT. LTD. IN THE FINANCIAL YEAR 1988-89 IN TERMS OF THE AMALGAMATION OF THE SAID COMPANY WITH THE ASSESSEE IN FINANCIAL YEAR 1993-94. THE LAND VESTED WITH THE ASSESSEE AND THEREFORE THE INDEX COST HAS TO BE WORKED OUT WITH REFERENCE TO THE YEAR OF ACQUISITION BY TH E AMALGAMATING COMPANY. LD. COUNSEL FOR THE ASSESSEE IN THIS CONNECTION REFERRE D TO SECTION 2(42A) AND EXPLANATION-1 THEREOF. IT IS STATED THAT IN TERMS O F THE SAID EXPLANATION WHILE DETERMINING THE PERIOD FOR WHICH CAPITAL ASSET IS H ELD BY THE ASSESSEE IN RESPECT OF THE ASSET WHICH BECOMES THE PROPERTY OF THE ASSE SSEE IN THE CIRCUMSTANCES REFERRED TO IN SECTION 49(1), THERE SHALL BE INCLUD ED THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER REFERRED TO IN SAID SECTION. IT IS THEREFORE SUBMITTED THAT THE PERIOD FOR WHICH THE TORRENT MED I SYSTEM PVT. LTD. HELD THE ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 26 SAID PROPERTY HAS TO BE INCLUDED FOR FINDING OUT TH E INDEX COST. IN VIEW OF THESE ARGUMENTS, THE CIT(A) HELD IN PARA 11.2 AS UNDER:- 11.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT, IT IS NOT IN DISPUTE THAT THE LAND WAS ACQUIRED BY TORRENT MEDI SYSTEM PVT. LTD. IN F.Y. 1988-89 AND THAT IT CAME TO THE APPELLANT ON M ERGER OF SAID COMPANY IN F.Y. 1994-95. IN VIEW OF THE CLEAR PROV ISIONS OF EXPLANATION BELOW SECTION 2(42A) REFERRED TO ABOVE, THE PERIOD OF HOLDING OF THE LAND BY THE APPELLANT AND THE INDEX COST HAS TO BE WORKE D OUT WITH REFERENCE TO THE ACQUISITION IN F.Y. 1988-89. TE ASSESSING OFFIC ER IS DIRECTED TO WORKED THE INDEX COST ACCORDINGLY. 21. IN VIEW OF THE ABOVE FACTS DISCUSSED, WE ARE OF THE VIEW THAT THE LAND ACQUIRED ON ACCOUNT OF MERGER OF TORRENT MEDI SYSTE MS PVT. LTD. IN ASSESSMENT YEAR 1988-89 AND NOT IN ASSESSMENT YEAR 1994-95. A CTUALLY THIS LAND WAS ACQUIRED BY TORRENT MEDI SYSTEM PVT. LTD. IN ASSESS MENT YEAR 1988-89 AND FROM THAT DATE ONLY THE INDEXATION WILL BE DONE. T HE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE AND WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 22. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW MAT CREDIT BEFORE COMPUTING INTEREST U/S.234B & 234C OF THE ACT. 23. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. CHEMPLAST SANMAR LTD. (2009) 314 ITR 231(MAD), WHEREIN THE HONBLE HIGH COURT CO NSIDERING THE DELHI HIGH COURTS DECISION IN THE CASE OF CIT V. JINDAL EXPORTS LTD. (2009) 314 ITR 137 (DEL) HELD AS UNDER:- THE LEARNED COUNSEL FURTHER RELIED ON CIRCULAR NO. 14 OF 2006, DATED DECEMBER 28, 2006 [2007] 288 ITR (ST.) 9), AND CONT ENDED THAT THE AMENDMENT IN EXPLANATION 1 AFTER SECTION 34B BROUGHT ABOUT BY THE FINANCE ACT, 2006, WITH EFFECT FROM APRIL, 1, 007, IS CLARIFICATORY IN NATURE AND, THEREFORE, RETROSPECTIVITY SHOULD BE GI VEN. THE LEARNED COUNSEL ALSO PLACED RELIANCE ON THE DECISION OF THE APEX COURT IN THE CASE ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 27 OF ALLIED MOTORS P. LTD. V. CIT REPORTED IN [1997] 224 ITR 677 AND CIT V. SURESH N. GUPTA REPORTED IN [2008] 97 ITR 322 (SC). THE LEARNED COUNSEL FURTHER CONTENDED THAT THE EXPRESSION UNDER SUB-SECTIONS (4) AND (5) OF SECTION 115JAA IS SET OFF AND NOT DE DUCTION. THEREFORE, THE TAX CREDIT HAS TO BE SET OFF AGAINST TAX PAYABL E. BY RELYING ON THE DECISION OF DELI HIGH COURT IN THE CASE OF CIT V. JINDAL EXPORTS LTD. [2009] 314 ITR 137 (DEL) BEFORE THIS COURT HAVE AL READY BEEN RAISED BEFORE THE DELHI HIGH COURT AND THE DELHI HIGH COUR T HAS ALSO CONSIDERED THE MATTER IN DETAIL AND ALLOWED IN FAVO UR OF THE ASSESSEE. THE SAID JUDGMENT SQUARELY APPLIES TO THE PRESENT CASE AND, THEREFORE, THE SAME HAS TO BE FOLLOWED. IN SUCH CIRCUMSTANCES, THE ORDER PASSED BY THE TRIBUNAL IS IN CONFORMITY WITH LAW AND THE SAME HAS TO BE CONFIRMED. HEARD THE LEARNED COUNSEL APPEARING ON EITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN RESPECT OF THE FIRST QUESTION OF LAW, THE ARGUME NTS ADVANCED BY THE COUNSEL ON EITHER SIDE ARE THE SAME AS THE ONE ADVA NCED BEFORE THE DELHI HIGH COURT CITED SUPRA. THE DELHI HIGH COURT HAS CO NSIDERED THE RELEVANT PROVISIONS AND DEALT WITH THE MATTER IN DE TAIL AND HELD THAT THE CREDIT UNDER SECTIONS 115JAA SHOULD BE GIVEN EFFECT TO BEFORE CHARGING OF INTEREST UNDER SECTIONS 234A, 234B AND 234C OF THE ACT. WE ARE IN AGREEMENT WITH THE REASONING GIVEN BY THE DELHI HIG H COURT. THE LEARNED COUNSEL APPEARING FOR THE REVENUE HAS NOT PRODUCED ANY MATERIALS OR GIVEN COMPELLING REASONS TO TAKE A CONTRARY VIEW WI TH THAT OF THE DELHI HIGH COURT. IN SUCH CIRCUMSTANCES, WE ANSWER THE F IRST QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN RESPECT OF QUESTIONS NOS. 2 AND 3, THE LEARNED C OUNSEL APPEARING FOR THE REVENUE VEHEMENTLY CONTENDED THAT THE ACT DOES NOT PRESCRIBE THE ORDER OF PRIORITY OF ADJUSTMENTS OF TAX DEDUCTED AT SOURCE, ADVANCE TAX AND TAX CREDIT UNDER SECTION 115JAA OF THE INCOME-T AX ACT. THEREFORE, ONE HAS TO TAKE RECOURSE TO THE INCOME-TAX RULES, 1 962, FOR THE SAID PURPOSE. RULE 12(1)(A) OF THE INCOME-TAX RULES, 196 2, PRESCRIBED THAT IN THE CASE OF A COMPANY, THE RETURN OF INCOME REQUIRE D TO BE FURNISHED SHALL BE IN FORM NO. I. SCHEDULE G OF FORM NO.1 LAYS DOWN THE MANNER OF COMPUTING THE TOTAL TAX PAYABLE BY THE ASSESSEE. I T ALSO SPECIFIED THE ORDER IN WHICH TAX DEDUCTED AT SOURCE, ADVANCE TAX AND TAX CREDIT UNDER SECTION 115JAA SHALL BE GIVEN EFFECT TO. LATER THE FORM WAS AMENDED WITH EFFECT FROM AUGUST 17, 2001. THEREFORE, THERE IS NO DISPUTE THAT THE TAX CREDIT UNDER SECTION 115JAA SHALL BE GIVEN EFFE CT ONLY AFTER DETERMINING TAX AND INTEREST. THE COMMISSIONER OF I NCOME-TAX RIGHTLY REJECTED THE CONTENTION OF THE ASSESSEE AND DISMISS ED THE APPEAL. ON ITA NO.3569/AHD.2004 & CO 18/AHD./2005 A.Y,. 2001-02 ACIT CIR-8 V. TORRENT PHARMACEUTICALS LTD. PAGE 28 APPEAL, THE INCOME-TAX APPELLATE TRIBUNAL ALLOWED T HE APPEAL WHICH IS NOT ONLY INCONSISTENT WITH THE STATUTORY RULE BUT MADE THE R ULE CRIPPLED AND REDUNDANT IN THE ABSENCE OF ANY CHALLENGE TO THE RULE. THE HONBLE HIGH COURT QUOTED THE TRIBUNALS DECISI ON AS UNDER:- IN THE PRESENT CASE, THE INTENTION OF THE LEGISLAT URE IS TO GIVE TAX CREDIT TO TAX AND NOT TO THE TAX AND INTEREST. ONCE THE INTENTION IS CLEA R, THE REVENUE CANNOT RELY ON FORM NO.1 TOO SAY THAT THE MAT CREDIT UNDER SECTION 115J AA SHOULD BE GIVEN ONLY AFTER TAX AND INTEREST. FURTHER, WE HAVE ANSWERED THE FIRST Q UESTION OF LAW IN FAVOUR OF THE ASSESSEE, I.E., THE MAT CREDIT UNDER SECTION 115JAA SHOULD BE GIVEN EFFECT TO BEFORE CHARGING THE INTEREST UNDER SECTIONS 234B AND 234C. RULE 12(1)(A) AND FORM NO.1 CANNOT GO BEYOND THE PROVISIONS OF THE ACT. FORM NO .1 CANNOT LAY DOWN THE ORDER OF PRIORITY OF ADJUSTMENT OF TDS, ADVANCE TAX, MAT CRE DIT UNDER SECTION 115JAA WHICH IS CONTRARY TO THE PROVISIONS OF THE ACT. THE ORDER PASSED BY THE TRIBUNAL IS IN ACCORDANCE WITH LAW AND WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE TRIBUNAL SO AS TO WARRANT INTERFERENCE. ACCORDINGLY , WE ANSWER QUESTIONS NOS. 2 AND 3 ALSO IN FAVOUR OF THE ASSESSEE AND AS AGAINST THE REVENUE. THE ISSUE BEING COVERED AS ABOVE, THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 24. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED F OR STATISTICAL PURPOSES AND THAT OF ASSESSEES CO IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13/11/2009 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SI NGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 13/11/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XIV, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD