AARTI INDUSTRIES LTD, MUMBAI V. ADDL CIT RG 10(3), MUMBAI

ITA 370/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8854 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-05-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 16-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGLE
• Keywords: Opportunity of being heard; Rule of consistency; Block assessment; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 28

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . .. . . .. . , ,, , ! ! ! ! , ' ' ' ' # $% # $% # $% # $% , ,, , & ! & ! & ! & ! ' ' ' ' BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 370/MUM./2009 ( &( ) '*) / ASSESSMENT YEAR : 200304 ) AARTI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA MULUND GOREGAON LINK ROAD OFF L.B.S. ROAD, MULUND (W) MUMBAI 400 080 .. +, / APPELLANT ( V/S ADDL. COMMISSIONER OF INCOME TAX RANGE10(3), AAYAKAR BHAVAN 101, M.K. MARG, MUMBAI 400 020 .... -.+, / RESPONDENT !+ . / PERMANENT ACCOUNT NUMBER AABCA2787L &( )0 1 2 / ASSESSEE BY : MR. VIJAY MEHTA !' 1 2 / REVENUE BY : MS. KUSUM INGLE (' 1 / DATE OF HEARING 02.08.2012 $ 34* 1 / DATE OF ORDER 12.09.2012 $ $ $ $ / ORDER # $% # $% # $% # $% , ,, , & ! & ! & ! & ! 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL PREFERRED BY THE ASSESSEE, IS DI RECTED AGAINST THE IMPUGNED ORDER DATED 14 TH NOVEMBER 2008, FOR THE ASSESSMENT YEAR 2003 04, PASSED BY THE LEARNED COMMISSIONER (APPEALS)X, MUMBAI, FOR THE AARTI INDUSTRIES LTD. 2 QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) O F THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). 2. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE DIS ALLOWANCE OF CLAIM OF WEIGHTED PORTION OF DEDUCTION UNDER SECTION 35(2 AB) OF THE ACT OF ` 34,14,178. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DYES A ND INTERMEDIATES ORGANICS AND INORGANIC CHEMICALS. IN THE RETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 35(2AB) OF ` 1,02,42,533, IN THE FOLLOWING MANNER. DEDUCTION IN RESPECT OF EXPENDITURE INCURRED ON IN HOUSE RESEARCH & DEVELOPMENT UNITS SET UP AT VAPI AND TUR BHE 1. REVENUE EXPENDITURE VAPI UNIT 39,59,744 THANE UNIT 85,21,721 [I] 64,81,465 2. CAPITAL EXPENDITURE I.E., FIXED ASSETS (EXCEPT LAND & BLDG.) VAPI UNIT THANE UNIT 3,46,890 [II] 3, 46,890 THIS EXPENDITURE IS NOT DEBITED TO P&L A/C BUT CAPITALIZED TO RELEVANT FIXED ASSETS. - 1,02,42,533 WEIGHTED DEDUCTION @ 1.5 TIMES OF ABOVE (I+II) 4. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURN ISH THE EVIDENCE TO PROVE THAT THE NECESSARY CONDITIONS HAVE BEEN FULFI LLED FOR CLAIMING THE WEIGHTED DEDUCTION UNDER SECTION 35(2AB). THEREAFTE R, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDE NCE OR EXPLANATION IN SUPPORT OF HIS ENTITLEMENT FOR WEIGHTED DEDUCTION E XCEPT LETTERS FROM THE MINISTRY OF SCIENCE & TECHNOLOGY ACCORDING RECOGNIT ION OF IN-HOUSE R&D UNIT AND ITS APPLICATION FOR THE CERTIFICATION OF EXPEND ITURE UNDER SECTION 35(2AB). THE ASSESSING OFFICER OBSERVED THAT FOR THE PURPOSE OF BECOMING ELIGIBLE FOR THE WEIGHTED DEDUCTION UNDER SECTION 35(2AB), IT IS MANDATORY ON THE PART OF THE ASSESSEE TO ENTER INTO AN AGREEMENT WITH THE PR ESCRIBED AUTHORITY, WHO AARTI INDUSTRIES LTD. 3 HAS TO SUBMIT ITS REPORT IN RELATION TO THE APPROVA L OF THE FACILITY TO THE DIRECTOR GENERAL AND, THEREFORE, NON FULFILLMENT OF THIS CONDITION IN A CASE WILL ATTRACT THE DISALLOWANCE UNDER THE SAID SECTION. HE , THEREFORE, DISALLOWED THE EXCESS DEDUCTION OF ` 34,14,178, AFTER OBSERVING AND HOLDING AS UNDER:- 2.4 IN VIEW OF THE ABOVE, THE ASSESSEE COMPANY IS NOT ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB). THE ASSES SEE COMPANY, HOWEVER, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 35 (1)(I) AND 35(1)(IV) FOR THE EXPENSES INCURRED I.E., TO THE EXTENT OF ` 64,81,465 FOR REVENUE EXPENSES AND ` 3,46,890 FOR CAPITAL EXPENSES TOTALING TO ` 68,28,355. THE EXCESS DEDUCTION OF ` 34,14,178 IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THE ASSESSEE, BY CLAIMI NG THE EXCESS DEDUCTION, HAS CONCEALED THE INCOME, PENALTY PROCEE DINGS UNDER SECTION 271(1)(C) ARE HEREBY INITIATED. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN BEFORE THE COMMISSIONER (APPEALS ) IT WAS SUBMITTED THAT THE SIGNED AGREEMENT WAS DELIVERED TO THE DEPARTMEN T OF SCIENCE & INDUSTRIAL RESEARCH I.E., THE PRESCRIBED AUTHORITY AND THE SAME IS SUFFICIENT FOR THE FULFILLMENT OF CONDITIONS OF SECTION 35(2AB ). FURTHER, HE SUBMITTED THAT ON EXACTLY SIMILAR FACTS, THE COMMISSIONER (AP PEALS) IN THE ASSESSMENT YEAR 2001-02, HAS GIVEN THE RELIEF AND DIRECTED THE ASSESSING OFFICER TO ALLOW WEIGHTED DEDUCTION UNDER SECTION 35(2AB). THE COMMI SSIONER (APPEALS), THOUGH ACKNOWLEDGED THAT IN THE EARLIER YEARS, THE COMMISSIONER (APPEALS) HAS ADJUDICATED THE SAME FACTS AND HAS ALLOWED THE ASSESSEES APPEAL ON THIS SCORE. HOWEVER, HE PROCEEDED TO EXAMINE VARIOU S PROVISIONS OF SECTION 35(2AB), RELEVANT RULES LIKE RULE-6(IB), (4), (5A), (7A), AND FORM-3CK TO 3CM, AND OBSERVED THAT THE PROCEDURE LAID DOWN HAS NOT BEEN FULFILLED. HIS OBSERVATIONS REGARDING PROCEDURE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ARE AS UNDER: 1) AS PER SECTION 35(2AB)(1), THE EXPENDITURE ON S CIENTIFIC RESEARCH, ON ARTICLES OR THINGS APPROVED BY THE BOA RD, SHALL BE APPROVED BY THE PRESCRIBED AUTHORITY I.E., DSIR. 2) APPLICATION FOR SUCH APPROVAL SHALL BE MADE IN F ORM NO.3CK. THIS APPLICATION IS TO BE MADE TO SECRETARY, DSIR, ALONG WITH A DRAFT AGREEMENT TO BE ENTERED INTO WITH THAT DEPARTMENT. AARTI INDUSTRIES LTD. 4 3) IF THE PRESCRIBED AUTHORITY I.E., SECRETARY, DSI R, IS SATISFIED THAT THE CONDITIONS OF THE RULE AND SECTION ARE FULFILLE D, THEN HE SHALL PASS A WRITTEN ORDER IN WRITING IN FORM 3CM, WHICH IS AS F OLLOWS. 6. AFTER ANALYSING PRESCRIBED STATUTORY FORMS, THE COM MISSIONER (APPEALS) CAME TO THE CONCLUSION THAT THE REQUIRED APPROVAL FOR CLAIMING DEDUCTION UNDER SECTION 35(2AB), HAS TO BE GIVEN BY THE SECRETARY, DSIR, IN FORM NO.3CM. THE EVIDENCES FILED BY THE ASSESSEE LI KE LETTER OF DSIR, DATED 6 TH JULY 2001, COPIES OF AUDITORS CERTIFICATE AS PRES CRIBED BY THE DSIR AND DETAILS OF EXPENDITURE INCURRED IN R&D CENTRE QUALI FIED FOR PRODUCTION UNDER SECTION 35(2AB) AND THE ANNUAL REPORT OF THE COMPAN Y, ARE NOT SUFFICIENT FOR GETTING A DEDUCTION UNDER SECTION 35(2AB) AND ACCOR DINGLY DISMISSED THE ASSESSEES GROUND AFTER OBSERVING AND HOLDING AS UN DER:- 2.7 NOW CLEARLY, THE CERTIFICATE OF RECOGNITION FI LED IS NOT THE SAME AS THE ORDER OF APPROVAL IN FORM NO.3CM. ALSO, NO C OPY OF THE AGREEMENT ENTERED INTO WITH DSIR OR THE APPLICATION IN FORM NO.3CK HAS BEEN FILED. IN THE CIRCUMSTANCES, I AM NOT IN A GREEMENT WITH MY PREDECESSOR THAT THE PRESCRIBED AUTHORITY HAS ISUED THE APPROVAL AND THE ASSESSEE SHOULD NOT BE MADE TO SUFFER FOR MERE TECHNICALITIES. THE FACT IS THAT THE STATUTORY APPROVAL IN FORM 3CM IS NOT AVAILABLE ON RECORD. IN THE CIRCUMSTANCES, I AGREE WITH THE A.O. THAT THE ASSESSEE IS NOT ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTIO N 35(2AB). THIS GROUND OF APPEAL IS DISMISSED. 7. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE EARLIER YEARS ORDER PASSED BY THE COMMISSIONER (AP PEALS) FOR ASSESSMENT YEAR 2001-02, HAS BEEN AFFIRMED BY THE TRIBUNAL VID E ORDER DATED 30 TH MARCH 2012, ITA NO.8554/MUM./2004. HE SUBMITTED THAT IN T HE FIRST STEP ASSESSEE WAS TO SEEK APPROVAL AND RECOGNITION FROM THE MINIS TRY OF SCIENCE & TECHNOLOGY, GOVT. OF INDIA, WHICH HAD BEEN DONE ON 6 TH JULY 2001, A COPY OF SUCH RECOGNITION CERTIFICATE / LETTER IS APPEARING AT PAGE-72 TO 75 OF THE PAPER BOOK. IN THE SECOND STAGE, APPLICATION FOR AP PROVAL UNDER SECTION 35(2AB) BEFORE THE SECRETARY, DISR, ALONG WITH THE FORM 3CK WAS GIVEN VIDE LETTER DATED 29 TH OCTOBER 2010, COPY OF WHICH ARE APPEARING FROM PAGES-76 TO 79 OF THE PAPER BOOK. HE THEN DREW OUR ATTENTION TO THE AGREEMENT BETWEEN THE ASSESSEE AND DSIR, WHICH HAS BEEN SIGNED BY THE ASSESSEE AND SENT TO THE DSIR. ON THIS, HE SUBMITTE D THAT EVEN IF THE AARTI INDUSTRIES LTD. 5 AGREEMENT HAS NOT BEEN SIGNED BY DSIR, IT WILL NOT MAKE A DIFFERENCE AS THE SAME HAS BEEN TAKEN INTO COGNIZANCE WHEREBY ORDER O F APPROVAL OF INHOUSE R&D FACILITY UNDER SECTION 35(2AB) HAS BEEN GIVEN I N FORM NO.3CM ON 5 TH AUGUST 2011, WITH REGARD TO VAPI UNIT. THUS, SO FAR AS VAPI UNIT IS CONCERNED, THE WEIGHTED DEDUCTION UNDER SECTION 35( 2AB) SHOULD BE ALLOWED. THE LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, FAIR LY CONCEDED THAT IN THE CASE OF THANE UNIT ORDER OF APPROVAL IN FORM NO.3CM , COULD NOT BE MADE AVAILABLE, THEREFORE, THE DEDUCTION WILL NOT BE AVA ILABLE TO THIS UNIT. HE ALSO CONCEDED THAT FORM-3CM, COULD NOT BE FILED BY THE C OMMISSIONER (APPEALS) AS THE SAME WAS RECEIVED AFTER THE DATE OF PASSING OF COMMISSIONER (APPEALS)S ORDER AND, THEREFORE, IT AMOUNTS TO ADD ITIONAL EVIDENCE WHICH CAN BE VERIFIED BY THE ASSESSING OFFICER. BASED ON THES E DOCUMENTS, HE SUBMITTED THAT INSOFAR AS THE ASSESSEE IS CONCERNED , ALL THE REQUIREMENTS IN SECTION 35(2AB) R/W RELEVANT RULES, STANDS FULFILLE D IN THE ASSESSEES CASE AND INSOFAR AS VAPI UNIT IS CONCERNED AND, THEREFORE, T HE ASSESSEE IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) FOR VAPI U NIT. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPO N THE ORDER OF THE COMMISSIONER (APPEALS) SUBMITTED THAT NOW IN THE WA KE OF THE ORDER OF APPROVAL IN FORM 3CM, THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND WEIGHTED DED UCTION FOR THANE UNIT SHOULD BE DISALLOWED. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE FINDINGS OF THE COMMISSIONER (APPEALS) AS WELL AS THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE OF WEI GHTED DEDUCTION UNDER SECTION 35(2AB) HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2001-02, IN ASSESSEES OWN CASE IN AN APPEAL FILED BY THE REVENUE WHEREIN IN PARAS-45 AND 46, THE TRIBUNAL OBSERVED AND HELD AS UNDER:- 45. WE HAVE CAREFUL LY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT RECOGNITION CERTIFICATE TO THE ASSESSE E IN RESPECT OF IN- HOUSE R&D UNITS OF TURBHE AND VAPI WAS GRANTED BY T HE MINISTRY OF SCIENCE AND TECHNOLOGY, DEPARTMENT OF SCIENTIFIC AN D INDUSTRIAL RESEARCH, NEW DELHI UP TO 31.3.2003 VIDE LETTER DAT ED 6.7.2001. THIS AARTI INDUSTRIES LTD. 6 BEING SO AND KEEPING IN VIEW THE RATIO OF THE DECIS ION OF THE HONBLE GUJARAT HIGH COURT IN CLARIS LIFESCIENCES LTD. (SUP RA), WHEREIN IT HAS BEEN HELD THAT THE CUT-OF F DATE MENTIONED IN THE C ERTIFICATE ISSUED BY THE DSIR WOULD BE OF NO RELEVANCE. WHAT IS TO BE SE EN IS THAT THE ASSESSEE WAS INDULGING IN R&D ACTIVITY AND HAD INCU RRED THE EXPENDITURE THEREUPON. ONCE A CERTIFICATE BY DSIR I S ISSUED THAT WOULD BE SUFFICIENT TO HOLD THAT THE ASSESSEE FULFILLS TH E CONDITIONS LAID DOWN IN THE AFORESAID PROVISIONS. THE SAID DECISION HAS BEEN FOLLOWED BY THE HONBLE DELHI HIGH COURT IN SANDAN VIKAS (INDIA) LT D. (SUPRA). 46. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE LD.DR, WE RESPECTFULLY FOLLOWING THE ABOVE DECI SIONS HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 35(2AB) OF TH E ACT AND THE LD. CIT(A) WAS FULLY JUSTIFIED IN AL LOWING THE SAME. T HE GROUND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. 10. HOWEVER, IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAS NOW GOT FORMAL APPROVAL FROM DSIR IN FORM 3CM, IN RESPECT OF VAPI UNIT, WHICH HAS BEEN RECEIVED ON 5TH AUGUST 2011, THE ASSESSEE IS ENTITL ED FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) IN THIS UNIT. SINCE THIS HAVE BEEN RECEIVED MUCH AFTER THE DATE OF PASSING OF COMMISSIONER (APPEALS)S ORD ER, THEREFORE, ONLY FOR THE PURPOSE OF VERIFICATION THIS ORDER OF APPROVAL IN FORM 3CM WHICH WAS NOT BEFORE THE AUTHORITIES BELOW, THE SAME IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFICATION. AS REGARDS THANE UNIT, NO SUCH ORDER OF APPROVAL IN FORM NO.3CM IS AVAILABLE WITH THE ASSESSEE, THEREFORE, AS FAIRLY ADMITTED BY THE LEARNED COUNSEL, THE ASSE SSEE WILL NOT BE ELIGIBLE FOR THANE UNIT AND, ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DISALLOW THE WEIGHTED DEDUCTION UNDER SECTION 35(2AB) WITH RESPE CT TO THANE UNIT. CONSEQUENTLY, GROUND NO.1, IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. 11. GROUND NO.2, RELATES TO DISALLOWANCE OF 50% DEPRECI ATION OF ` 34,59,308, CLAIMED ON ENERGY SAVING PLANT AND MACHI NERY. 12. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT HE DID NOT WISH TO PRESS THIS GROUND. LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT OBJECT TO THE SUBMISSIONS MADE BY THE LEARNED COUNS EL FOR THE ASSESSEE. CONSEQUENTLY, WE DISMISS THIS GROUND AS NOT PRESSED . 13. GROUND NO.3, RELATES TO DISALLOWANCE OF DEPRECIATIO N ` 1,36,889, ON THE ASSET PURCHASED FROM PRAVIN METAL CORP. AARTI INDUSTRIES LTD. 7 14. BEFORE US, BOTH THE PARTIES AGREE THAT THIS ISSUE H AS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2001-02, WHEREIN THE ISSUE WAS RESTORED TO THE FILE OF THE A SSESSING OFFICER. ON PERUSAL OF THE ORDER OF THE TRIBUNAL, WE FIND THAT AN IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN AN APPEAL PREFERRED BY T HE REVENUE IN ASSESSEES OWN CASE. THE RELEVANT FINDINGS GIVEN IN PARAS-24 T O 28, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE:- 24. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DU RING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE PURCHASE OF FIXED ASSETS FR OM M/S PRAVIN METAL CORPORATION, HENCE THE AO KEEPING IN VIEW THE FINDI NG RECORDED IN THE PRECEDING YEARS DISALLOWED THE CLAIM OF DEPRECIATIO N ON SUCH ASSETS. 25. ON APPEAL , THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO CONFIRMED THE DISALLOWANCE MADE BY THE AO. 26. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN AARTI INDUST RIES LIMITED V/S ACIT AND VICE-VERSA (SUPRA), THEREFORE, THE ISSUE M AY BE DECIDED ACCORDINGLY. 27. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDE R OF THE AO AND THE LD. CIT(A). 28. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1999-2000 AND 2000-01 (SUPRA) VIDE PARAGRAPH 19 OF ITS ORDER WHIL E OBSERVING THAT THE FACTS ARE NOT EXPLICITLY CLEAR ON THIS ASPECT, RESTORED THE ISSUE TO THE FILE OF THE AO TO RE-EXAMINE THIS ISSUE AND DEC IDE THE SAME AFRESH AFTER GIVING AN ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE SAM E AFRESH IN THE LIGHT OF THE DIRECTION OF THE TRIBUNAL (SUPRA) AND ACCORD ING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSESSEE. T HE GROUND NO.5 TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. KEEPING IN VIEW THE AFORESAID DECISION OF THE CO-OR DINATE BENCH OF THE TRIBUNAL, IN ASSESSEES OWN CASE CITED SUPRA, THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL DECIDE THE ISSU E AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN IN THE SAID ORDER OF THE TRIBUNAL AND AFTER PROVIDING DUE AND EFFECTIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. AARTI INDUSTRIES LTD. 8 16. IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE DIS ALLOWANCE OF COMPUTER SOFTWARE EXPENDITURE OF ` 53,36,000. 17. AS ADMITTED BY BOTH THE PARTIES, IDENTICAL ISSUE HA D BEEN DECIDED BY A CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02, WHEREIN, THE TRIBUNAL, VIDE PARAS-132 TO 136, ALLOWED THE GROUND RAISED BY THE ASSESSEE BY OBSERVING AND HOLD ING AS FOLLOWS:- 133. THE BRIEF FACTS OF THE CASE ARE THAT DURING TH E ASSESSMENT PROCEEDINGS IT WAS OBSERVED THAT ASSESSEE HAD DEBIT ED SUM OF RS.41,44,000/- UNDER THE HEAD ADMINISTRATIVE EXPENS ES WHICH WAS INCURRED FOR COMPUTER SOFTWARE EXPENSES. THE DETAIL S OF SUCH EXPENSES ARE GIVEN IN PARA 7 OF THE ORDER. ACCORDING TO THE ASSESSEE IT HAD INSTALLED SAP ACCOUNTING PACKAGE IN PLACE OF TALLY USED EARLIER AND THE AMOUNT OF SUCH EXPENSES DID NOT RESULT IN ENDURING ADVANTAGE TO THE ASSESSEE COMPANY AND THEREFORE IT WAS SUBMITTED BEF ORE THE AO THAT SUCH EXPENSES SHOULD BE AL LOWED AS REVENUE EXPENSE S. HOWEVER, THE AO TAKING CLUE FROM THE DECISION OF HONBLE RAJASTH AN HIGH COURT IN CASE OF CIT V/S ARAWAL I CONSTRUCTIONS CO. (P.) LTD . (2003) 259 ITR 30 (RAJ) TREATED SUCH EXPENSES AS CAPITAL EXPENSES. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN DA NCAL (INDIA) PRIVATE LIMITED IN ITA NO.5644/MUM/1997, DIRECTED THE AO TO TREAT THE EXPENDITURE AS REVENUE EXPENDITURE AND AL LOWED THE CLAIM OF THE ASSESSEE. 134. AT THE TIME OF HEARING, THE LD. DR SUPPORTS TH E ORDER OF THE AO. 135. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE SUBMITS THAT THE EXPENDITURE ON COMPUTER SOFTWARE WAS ON ACCOUNT OF SAP ACCOUNTING PACKAGE, WHICH THE ASSESSEE WAS PLANNING TO INTRODUCE IN PLACE OF ITS CURRENT TALLY PACKAGE. HOWEVER, THE SA ID PACKAGE DID NOT WORK AND THE ASSESSEE SCRAPPED THE SAID PACKAGE AND CONTINUED WITH THE TALLY PACKAGE, THEREFORE, THE EXPENDITURE INCUR RED BY THE ASSESSEE ON THE SAID PACKAGE WAS RIGHTLY AL LOWED BY THE LD. CIT(A) AS REVENUE EXPENDITURE. THE RELIANCE WAS ALSO PLACED ON ( A) M /S CISCO SYSTEMS (INDIA) P. LTD. V/S ACIT IN ITA NO.431/BANG/2010 (A Y:2002-03) DATED 28.4.2011, (B) AMWAY INDIA ENTERPRISES V/S DCIT (20 08)114 TTJ (DEL)(SB) 476, (C ) CIT V/S GE CAPITAL SERVICES LTD . 164 TAXMAN 46; 214 CTR 551(DEL), (D) CIT V/S GE POWER SERVICES IND IA LTD. 171 TAXMAN 10(DEL), (E) CIT V/S SOUTHERN ROADWAYS LTD. 304 ITR 84 (MAD), (F) AVAYA GLOBAL CONNECT LTD. 122 TTJ (MUM) 300, (G) ANGEL CAPITAL & DEBT MARKET LTD. V/S ACIT 118 TTJ 351 (MU M), (H) VARINDER AGRO CHEMICALS 309 ITR 272 ITA NO. 83 87 /MUM/2004 ITA NO.85 54 /MUM/2 004 ITA NO.26 62 /MUM/2006 ITA NO. 33 34 /MU M/2006 (P&H), (I) RAYCHEM RPG LTD. IN ITA NO.4176 OF 2009, DATED 4.7.2011 (BOM), (J) CIT V/S UNITED BREWERIES LTD 321 ITR 546 (KAR), (K) CIT V/S ESCORTS AUTO COMPONENTS LTD 323 ITR 11 (P&H), (L) I NDO RAMA SYNTHETICS INDIA LTD. V/S CIT 228 CTR 278(DEL), (M) CIT V/S ANJANI AARTI INDUSTRIES LTD. 9 KUMAR CO.LTD. 259 ITR 114 (RAJ), (N) ACIT V/S SUTLE J INDUSTRIES LTD. 94 TTJ 108 (DEL), AND (O) STANDARD REFINERY AND DIS TI L LERY LTD. V/S CIT 79 ITR 589 (SC). 136. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DI SPUTE THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON COMPUTER SOFTW ARE ON ACCOUNT OF SAP ACCOUNTING PACKAGE, WHICH THE ASSESSEE WAS PLAN NING TO INTRODUCE IN PLACE OF ITS CURRENT TALLY PACKAGE AND SINCE THE SAP PACKAGE DID NOT WORK, THE ASSESSEE HAS SCRAPPED THE SAID PACKAGE AN D CONTINUED WITH THE TALLY PACKAGE AND CLAIMED THE EXPENSES AS REVEN UE EXPENDITURE IN THE ALTERNATIVE AS BUSINESS LOSS. IN THE ABSENCE OF ANY MATERIAL PLACED ON RECORD BY THE REVENUE THAT NO SUCH ACCOUNTING IT A NO. 83 87 /MUM/2004 ITA NO.85 54 /MUM/2 004 ITA NO.26 62 /MUM /2 006 ITA NO. 33 34 /MUM/2006 PACKAGE WAS TAKEN BY THE ASSESS EE OR EXPENSES INCURRED BY THE ASSESSEE ARE NOT GENUINE OR THE SAM E ARE NOT FOR BUSINESS PURPOSES, WE ARE OF THE VIEW THAT THE SAP ACCOUNTING PACKAGE WAS SCRAPED BY THE ASSESSEE DUE TO COMMERCI AL EXPEDIENCY, THEREFORE, THE CLAIM OF THE ASSESSEE AS BUSINESS EX PENDITURE WAS RIGHTLY AL LOWED BY THE LD.CIT(A). THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. 18. IN VIEW OF THE AFORESAID FINDINGS OF THE TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02, AND FOLLOWING THE PREC EDENCE, GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 19. WITH REGARD TO GROUND NO.5, THE LEARNED COUNSEL FOR THE ASSESSEE ADMITTED BEFORE US THAT THIS GROUND BEING GENERAL I N NATURE, WHICH RELATES TO OVER ALL DEDUCTION UNDER SECTION 80HHC, THEREFORE, THE SAME IS NOT BEING ADJUDICATED. 20. GROUND NO.6, RELATES TO DISALLOWANCE OF DEDUCTION O F ` 4,23,18,518, ON ACCOUNT OF DEPB CREDIT UNDER SECTION 80HHC OF THE A CT. 21. BOTH PARTIES AGREE BEFORE US THAT AN IDENTICAL ISSU E HAD BEEN DECIDED BY A CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2001-02, WHEREIN THE TRIBUNAL, VIDE PARAS-53 TO 55, OBSERVED AND HELD AS FOLLOWS:- 53. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE ASS ESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 80HHC AS PER PROVISO TO SUB- SECTION 3 OF SECTION 80HHC ON SALE OF DEPB LICENCES CLAIMING THAT SAME ARE EXPORT INCENTIVES COVERED U/S 28(I I IA). HOWEVER, THE AO WAS OF THE VIEW THAT AARTI INDUSTRIES LTD. 10 THE SALE OF DEPB L ICENCE ARE NOT COVERED U/S 28 (I I IA) AND ACCORDINGLY NOT ELIGIBLE FOR DEDUCTION AS PER PROVISO TO SUB-SECTIO N 3 OF SECTION 80HHC. HOWEVER, THE SAME HAS TO BE EXCLUDED AT THE RATE OF 90% FROM THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND G AINS FROM BUSINESS AND PROFESSION AS PER EXPLANATION (BAA) TO SUB-SECTION 4B OF SECTION 80HHC. ON APPEAL, THE LD. CIT(A), HOWEVER, DIRECTED THE AO TO TREAT PROFIT ON SALE OF DEPB LICENSE AS EXPORT INCENTIVES AND AL LOW THE DE DUCTION U/S 80HHC UNDER PROVISO TO SECTION 80HHC(3) OF THE ACT. 54. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE A GREED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT V/S KALPATARU COLOURS AND CHEMICALS (2010) 328 ITR 451 (BOM) 55. WE HAVE CAREFUL LY CONSIDERED THE SUBMISSIONS O F THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE OF THE OPI NION THAT THE ISSUE INVOLVED IN THE PRESENT CASE IS NO MORE RES INTEGRA AND IS C OVERED BY THE RECENT DECISION OF THE HONBLE APEX COURT IN THE CASE OF T OPMAN EXPORTS V/S CIT (2012) 205 TAXMAN 119 (SC) WHEREIN IT HAS BEEN HELD THAT NOT THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE ON SALE OF DEPB, BU T THE SALE VALUE LESS THE FACE VALUE OF THE DEPB WI L L REPRESENT PROFIT ON TRANSFER OF DEPB BY THE ASSESSEE. RESPECTFU LY FOLLOWING THE ABOVE AUTHORIT ATIVE PRONOUNCEMENT OF THE HONBLE SUPREME COURT, WE DIRECT THE AO TO REC OMPUTE THE DEDUCTION U/S 80HHC IN ACCORDANCE WITH THE AFORESAID JUDGMENT OF THE HONBLE APEX COURT AND ACCORDINGLY THE ORDER PASSED BY THE LD.CI T(A) FOR THE ABOVE ASSESSMENT YEARS DOES NOT CALL FOR ANY INTERFERENCE . THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. . 22. KEEPING IN VIEW THE AFORESAID FINDINGS OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02, AND FOLLOWING THE PRECEDENCE, THIS GROUND IS TREATED TO BE ALLOWED. 23. IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED THE CON SIDERATION OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY , BY THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS). 24. BOTH PARTIES AGREE BEFORE US THAT AN IDENTICAL ISSU E HAD BEEN DECIDED BY A CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2001-02, WHEREIN THE TRIBUNAL, VIDE PARAS-96 TO 102, OBSERVED AND HELD AS FOLLOWS:- 96. GROUND NO.7 TAKEN BY THE ASSESSEE READS AS UND ER : AARTI INDUSTRIES LTD. 11 7.1 THE LEARNED CIT (A) ERRED IN UPHOLDING THE CON TENTION OF THE ASSESSING OFFICER BY CONSIDERING GROSS INTEREST AMO UNTING TO RS.29,98,048/- FOR COMPUTING PROFITS OF THE BUSINE SS FOR THE PURPOSE OF S. 80HHC. THE CIT(A) OUGHT TO HAVE CONSIDERED ON LY THE NET INTEREST INCOME FOR THE SAID PURPOSE. 7.2 THE LEARNED CIT (A) ERRED IN UPHOLDING THE CONT ENTION OF THE ASSESSING OFFICER BY CONSIDERING GROSS RENT INCOME AMOUNTING TO RS.9,00,000/- FOR COMPUTING PROFITS OF THE BUSINES S FOR THE PURPOSE OF S. 8OHHC. THE CIT(A) OUGHT TO HAVE CONSIDERED ONLY THE NET RENT INCOME FOR THE SAID PURPOSE. 97. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT THE ASSESSEE EXCLUDED 90% OF INTEREST INCOME OF RS. 29,98,048/- WHI LE COMPUTING THE PROFIT OF BUSINESS AS PER EXPLANAT ION (BAA) TO SUBITA NO. 83 87 /MUM/2004 ITA NO.85 54 /MUM/2 004 ITA NO. 26 62 /MUM/2006 ITA NO. 33 34 /MUM/2006, SECTION (4B) OF SECTION 80HHC. HOWEVER, THE AO, IN VIEW OF THE EXPLANATION (BAA) O F SUB-SECTION (4B) OF SECTION 80HHC AND THE DECISION OF THE HONBLE SU PREME COURT IN CIT V/S DR. V. P. GOPINATHAN (2001) 248 ITR 449(SC) AND THE DECISION IN CIT V/S JOSE THOMAS (2002) 253 ITR 553 (KER) HELD T HAT 90% OF INTEREST HAS TO BE REDUCED FOR COMPUTING THE PROFIT OF THE BUSINESS AND ACCORDINGLY, HE DISALLOWED THE SAME. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE ASSESSEE HAS FAILED TO PROVE NEX US, UPHELD THE DISAL LOWANCE MADE BY THE AO. 98. THE LD.CIT(A) FURTHER O BSERVED THAT THE ASSESSEE HAS ALSO RAISED THE ISSUE FOR REDUCING NET RENT AS AGAINST 90% OF GROSS RENT CONSIDERED BY THE AO. THE LD. CIT (A) WHILE OBSERVING THAT IN LINE WITH THE EARLIER GROUNDS IN RESPECT OF NETTING OF INTEREST, REJECTED THE GROUND TAKEN BY THE ASSESSEE IN THIS REGARD. 99. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 1999- 2000, 2000-01 AND 2001-02. THE RELIANCE WAS ALSO PL ACED ON DECISIONS IN (A) LALSONS ENTERPRISES V/S DCIT (2004) 89 ITD 2 5 (SB) ( DELHI), (B) CIT V/S SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 4 75 (DEL), (C ) CIT V/S ANAND KUMAR (2007) 164 TAXMAN 330(DEL), AND CIT V/S TAX V/S. PUNJAB STAINLESS STEEL IND. [2007] 162 TAXMAN 9 (DELHI). 100. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORD ER OF THE AO AND LD. CIT(A). 101. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE TRIBUNAL IN PARAGRAPH 32 OF ITS ORDER DATED 25.1.2008 FOR TH E ASSESSMENT YEARS 1999-2000 AND 2000-01 (SUPRA) WHILE RELYING ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 1997-98 (SUPRA), WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECI SION OF THE SPECIAL BENCH OF TRIBUNAL IN LALSONS ENTERPRISES (SUPRA), H AS RESTORED BACK THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE NEXUS BE TWEEN THE COMMISSION RECEIVED AND COMMISSION PAID AND DECIDE THE SAME ON SIMILAR LINES. WE FURTHER FIND THAT THE TRIBUNAL ON THE ISSUE OF CONSULTANCY CHARGES AND LEASE RENT FOLLOWING THE IT A NO. 83 87 AARTI INDUSTRIES LTD. 12 /MUM/2004 ITA NO.85 54 /MUM/2004 ITA NO.26 62 /MUM/ 2 006 ITA NO. 33 34 /MUM/2006 DECISION OF THE SPECIAL BENCH O F THE TRIBUNAL IN LALSONS ENTERPRISES (SUPRA), HAS SET ASIDE THE ISSU E TO THE FILE OF THE AO VIDE PARAGRAPH 36 OF ITS ORDER DATED 25.1.2008 ( SUPRA). WE FURTHER FIND THAT ON THE ISSUE OF NETTING OF THE INTEREST T HE TRIBUNAL FOLLOWING ITS EARLIER ORDER FOR THE ASSESSMENT YEAR 1997-98 H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARAGRAPH 60 O F ITS ORDER DATED 25.1.2008 (SUPRA). 102. AFTER CONSIDERING THE RATIO OF THE ABOVE DECIS IONS TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE LD. CIT(A) HAS D ISALLOWED THE CLAIM OF THE ASSESSEE OF NETTING OF INTEREST AND NETTING OF THE RENT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THE NE XUS. HOWEVER, ON THE ISSUE OF NETTING OF INTEREST, RECENTLY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S ASIAN STAR CO.LTD. (20 10) 326 ITR 56 (BOM) HAS DISTINGUISHED THE DECISION IN SHRI RAM HO NDA POWER EQUIP (SUPRA) AND DISAPPROVED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN LALSONS ENTERPRISES (SUPRA) AND HELD AS UNDER (HEADNOTE): .HENCE FOR THE PURPOSE OF EXPLANATION (BAA) TO S ECTION 80HHC THE GROSS INTEREST ON FIXED DEPOSITS IN THE B ANK RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED FOR T HE PURPOSES OF WORKING OUT THE DEDUCTION UNDER SECTION 80HHC AND NOT THE NET INTEREST. SINCE IN THE EARLIER ASSESSMENT YEARS, THE ISSUE HA S BEEN SET ASIDE BY THE TRIBUNAL TO THE AO, THEREFORE, KEEPING IN VIEW THE RULE OF CONSISTENCY, WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND RESTORE BACK THE IS SUE TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OB SERVATIONS HEREINABOVE AND ACCORDING TO LAW INCLUDING THE RECE NT DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA) AND THE DECISION OF HONBLE DELHI HIGH COURT IN CIT V/S J.V . ELECTRONICS PVT.LTD.(2011)16 TAXMANN.COM 319(DEL) AFTER PROVIDI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, PARTLY AL LOWED FOR STATIS TICAL PURPOSES. 25. KEEPING IN VIEW THE AFORESAID FINDINGS OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR AN EARLIER ASSESSMENT YEAR, AND FOLLOW ING THE PRECEDENCE, THIS GROUND IS RESTORED BACK TO THE FILE OF THE ASSESSIN G OFFICER AND DIRECT HIM TO DECIDE THE SAME IN THE LIGHT OF THE OBSERVATIONS MA DE BY THE TRIBUNAL AS AFORESAID AND ACCORDINGLY, THIS GROUND IS TREATED A S PARTLY ALLOWED FOR STATISTICAL PURPOSES. AARTI INDUSTRIES LTD. 13 26. 0 6 &( )0 1 #$ !' 7 1 89 : 26. IN THE RESULT, APPEAL IS PARTLY ALLOWED. $ 1 4* ; < (6 7 TH SEPTEMBER 2012 4 1 : ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER 2012 SD/- . .. . . .. . ! ! ! ! P.M. JAGTAP ACCOUNTANT MEMBER SD/- # # # # $% $% $% $% & ! & ! & ! & ! AMIT SHUKLA JUDICIAL MEMBER MUMBAI, < ( < ( < ( < ( DATED: 12 TH SEPTEMBER 2012 $ 1 -&#= >=* / COPY OF THE ORDER FORWARDED TO : (1) &( )0 / THE ASSESSEE; (2) !' / THE REVENUE; (3) ? () / THE CIT(A); (4) ? / THE CIT, MUMBAI CITY CONCERNED; (5) ='B -&&( , , / THE DR, ITAT, MUMBAI; (6) C) D / GUARD FILE. .= -& / TRUE COPY $( / BY ORDER - . EF / PRADEEP J. CHOWDHURY '0G &( E' / SR. PRIVATE SECRETARY H / 8 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI