THE DCIT 8(2), MUMBAI V. M/S. WARNER LAMBERT (I) PVT. LTD (NOW KNOWN AS PFIZER PHARMACEUTICALS INDIA PVT. LTD), MUMBAI

ITA 4145/MUM/2007

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6127 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 09-11-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 31-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: P J PARDIWALA
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Advance ruling; Cost of acquisition; Wholly owned subsidiary; Bad and doubtful debts; Competent authority; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 37(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G : MUMBAI BEFORE SHRI S.V. MEHROTRA, (AM) AND SMT. ASHA VIJAY RAGHAVAN, (JM) ITA NO.4145/M/07 ASSESSMENT YEAR : 2003-04 DY. COMMISSIONER OF INCOME TAX -8(2) ROOM NO.216-A, AAYAKAR BHAVAN M.K. ROAD MUMBAI-20. ..( APPELLANT ) VS. WARNER LAMBERT (I) PVT. LTD. (NOW KNOWN AS PFIZER PHARMACEUTICALS INDIA PVT. LTD.), 5, PATEL ESTATE, OFF S.V. ROAD JOGESHWARI (W) MUMBAI-12. .....( RESPONDENT ) P.A. NO. (AAACW 0787 H) ITA NO.2503/M/07 ASSESSMENT YEAR : 2003-04 DY. COMMISSIONER OF INCOME TAX -8(2) ROOM NO.216-A, AAYAKAR BHAVAN M.K. ROAD MUMBAI-20. ..( APPELLANT ) VS. WARNER LAMBERT (I) PVT. LTD. (NOW KNOWN AS PFIZER PHARMACEUTICALS INDIA PVT. LTD.), PFIZER CENTRE 5, PATEL ESTATE, OFF S.V. ROAD JOGESHWARI (W) MUMBAI-12. .....( RESPONDENT ) P.A. NO. (AAACW 0787 H) C.O. NO.247/MUM/2007 ARISING OUT OF ITA NO.4145/M/07 ASSESSMENT YEAR : 2003-04 WARNER LAMBERT (I) PVT. LTD. (NOW KNOWN AS PFIZER PHARMACEUTICALS INDIA PVT. LTD.), PFIZER CENTRE 2 5, PATEL ESTATE, OFF S.V. ROAD JOGESHWARI (W) MUMBAI-12. .....( CROSS OBJECTOR ) VS. DY. COMMISSIONER OF INCOME TAX -8(2) ROOM NO.216-A, AAYAKAR BHAVAN M.K. ROAD MUMBAI-20. ..( APPELLANT IN APPEAL ) DEPARTMENT BY : SHRI S ANJIV DUTT ASSESSEE BY : SHRI P.J. PARDIWALA AND SHRI NISHANT THAKKAR O R D E R PER S.V. MEHROTRA, (AM). THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 29.1.2007 AND 21.2.2007 FOR THE ASSESSMENT YEAR 200 3-04 AND THE CROSS OBJECTIONS RAISED BY THE ASSESSEE AGAINST THE DEPAR TMENTS APPEAL IN ITA NO.4145/M/2007 FOR THE SAKE OF CONVENIENCE ALL THE SE APPEALS AND THE CROSS OBJECTION RAISED BY THE ASSESSEE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE, A PRIVATE LIMITED COMPANY, IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED, INTERALIA , IN THE BUSINESS OF TRADING, IMPORT AND MARKETING, MANUFACTURE AND SALE OF AYURVEDIC MEDICINE, BRETH F RESHNER, CHEWING GUM AND DRUGS. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING A LOSS OF RS.6,53,72,000/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.12,78,80,383/-, INTERALIA MAKING FOLLOWING ADDITIONS/DISALLOWANCES:- 1) DISALLOWANCE ON ACCOUNT OF ADVERTISEMENT AND SALES PROMOTION EXPENSES RS.2,82,00,00 0/- 3 2) DISALLOWANCE U/S.35 DDA RS. 13,6 0,000/- 3) DISALLOWANCE U/S.43B/ 36(1)(VA) R.W.S2(24)(X) RS. 7,72,285/- 4) DISALLOWANCES OUT OF EXPENSES ON STORES & CONSUMABLES RS. 19,44,000/- FURTHER, THE ASSESSING OFFICER COMPUTED THE LONG TE RM CAPITAL GAIN AT RS.12,78,80,383/- AS AGAINST RETURNED LONG TERM CAP ITAL LOSS OF RS.6,53,72,000/-. BEING AGGRIEVED WITH THE ASSESSMENT ORDER THE ASSES SEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO WHILE PARTLY ALLOWING THE ASSESS EE'S APPEAL DELETED THE DISALLOWANCES IN REGARD TO SL.NOS. 1-4 NOTED ABOVE AND RE-COMPUTED THE LONG TERM CAPITAL GAIN AFTER CONSIDERING THE AMOUNT OF RS.23, 45,000/- CLAIMED TOWARDS BAD DEBTS. HOWEVER, HE CONFIRMED THE ASSESSING OFFICER S ACTION IN CONSIDERING THE DEPRECIATION FOR THE YEAR IN RESPECT OF ASSETS SOLD UNDER SLUMP SALE TO CADBURY INDIA LTD. (CIL) INCLUDING THE DEPRECIATION ALLOWAB LE IN RESPECT OF EARLIER YEARS THOUGH NOT CLAIMED BY THE ASSESSEE IN ITS BOOKS. B EING AGGRIEVED THE REVENUE HAS FILED AN APPEAL BEFORE US AND THE ASSESSEE HAS FILE D CROSS OBJECTIONS. 3. FIRST WE TAKE UP THE APPEAL FILED BY THE DEPARTM ENT IN ITA NO.4145/MUM/2007 FOR ASSESSMENT YEAR 2003-04 . 4. GROUND NO. 1 READS AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED IN TREATING THE EXPENDITURE ON AD VERTISEMENT OF RS.1,11 ,00,000/- AND SALES PROMOTION EXPENSES OF RS.1,72,00,000/- AS CAPITAL EXPENDITURE, IGNORING T HE FACT THAT THE SAID EXPENDITURE WAS INCURRED FOR BUILDING BRA ND AND IMAGE OF THE COMPANY, WHICH GIVES ENDURING BENEFI T TO THE COMPANY AND THUS THE EXPENDITURE ON ADVERTISEMENT A ND SALES PROMOTION IS IN THE NATURE OF CAPITAL EXPENDITURE. 4 5. BRIEF FACTS APROPOS THIS ISSUE ARE THAT THE ASSE SSEE HAD CLAIMED ADVERTISEMENT EXPENSES OF RS.1.11.CRORES AND SALES PROMOTION EXPENSES RS.1.72 CRORES. THE ASSESSING OFFICER REQUIRED THE ASSESSE E TO JUSTIFY ITS CLAIM. AFTER CONSIDERING THE ASSESSEE'S SUBMISSIONS, THE ASSESSI NG OFFICER CONCLUDED THAT THE ASSESSEE HAD INCURRED SUCH HEAVY EXPENDITURE TO PRO PAGATE AND BUILD UP BRANDS OWNED BY IT. HE OBSERVED THAT IN THIS ERA OF FREE M ARKET ECONOMY AND CUT THROAT COMPETITION, TO SUSTAIN IN THE MARKET AND TO INCREA SE THE MARKET SHARE, BRAND IDENTITY AND BRAND POPULARITY ARE VERY IMPORTANT. HE DID NOT ACCEPT THE ASSESSEE'S CONTENTION THAT THE EXPENDITURE WAS ONLY FOR THE PU RPOSE OF BOOSTING ITS SALES. THE ASSESSING OFFICER AFTER CONSIDERING VARIOUS CASE LA WS CONCLUDED THAT THE EXPENDITURE WAS NOT CAPITAL IN NATURE. HE ALLOWED D EPRECIATION @ 12% ON THESE EXPENSES. THE LD.CIT(A) DELETED THE DISALLOWANCES FOLLOWING THE DECISION OF HIS PREDECESSOR FOR ASSESSMENT YEAR 1999-00 AND 2001-02 . 6. THE LD. DR SUBMITTED THAT SINCE THE BRAND ACQUIR ED BY THE ASSESSEE GAVE ENDURING BENEFIT TO THE BUSINESS, IT WAS RIGHTLY TR EATED AS CAPITAL EXPENDITURE BY THE ASSESSING OFFICER. HE REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN ASSAM BENGAL CEMENT CO. LTD. VS. CIT(1955) 27 ITR 34 WHER EIN IT WAS INTERALIA HELD THAT IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRING ING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE . . 7. HE SUBMITTED THAT DEVELOPMENT AND SALES PROMOTION EXPENSES HAVE BEEN INCURRED FOR EXHIBITION OF ASSESSEE'S PRODUCTS IN C INEMAS AND T.V. TO DERIVE ENDURING BENEFIT. HE FURTHER POINTED THAT DISTRIBUT ION OF FREE SAMPLES, SPECIAL PROMOTION GIFTS ETC. WERE MADE IN THE NATURE OF ADV ERTISEMENT AND SALES PROMOTION FOR DERIVING ENDURING BENEFIT. THE LD. DR FURTHER REFERRED TO SECTION 32(1)(II) AND POINTED OUT THAT DEPRECIATION IS ALLOWABLE IN RESPE CT OF INTANGIBLE ASSETS BEING SPECIFIC RIGHTS ACQUIRED BY ASSESSEE. HE FURTHER SU BMITTED THAT BRAND BUILDING ITSELF 5 BECOMES RIGHT TO THE ASSESSEE TO EXPLOIT THE SAME O VER THE YEARS FOR BUSINESS PURPOSES. HE, THEREFORE, SUBMITTED THAT LEGISLATURE ITSELF TREATED THIS EXPENDITURE AS CAPITAL IN NATURE. IN THIS REGARD THE LD. DR R ELIED ON THE DECISION IN THE CASE OF CIT VS. PATEL INTERNATIONAL FILM LTD. (1976) 102 IT R 219(BOM.) WHEREIN THE ASSESSEE COMPANY WHICH CARRIED ON THE BUSINESS OF P ROCESSING AND PRINTING MOVIE FILMS PURCHASED A PROCESSING AND PRINTING LABORATOR Y. SUBSEQUENTLY, IT PURCHASED A FILM PROCESSED IN THE LABORATORY TO SERVE AS A MODE L FOR EXHIBITION TO INDUCE CONFIDENCE IN ITS CUSTOMERS BY WAY OF ADVERTISEMEN T AND CLAIMED THE AMOUNT SPENT ON THE PURCHASE AS BUSINESS EXPENDITURE. THE HONBLE BOMBAY HIGH COURT HELD THAT THE ASSET ACQUIRED BY THE ASSESSEE WAS NO T ITS STOCK-IN-TRADE BUT WAS USED FOR THE PURPOSE OF ADVERTISEMENT OF THE BUSINE SS THAT THE ASSESSEE WAS GOING TO CARRY ON IN FUTURE. THEREFORE, THIS WAS CAPITAL IN NATURE. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED BY EARLIER YEARS ORDER IN ACIT VS. M/S. WARNER LAMBERT INDIA LTD. IN ITA NO.954 & 3063/MUM/2006 ORDER DATED 31.12.2009 FOR THE ASSESS MENT YEAR 1999-00 AND 2001-02. AS REGARDS RELIANCE PLACED ON THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PATEL INTERNATIONAL FILM LTD. SUPRA, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE SAME IS DISTINGUISHAB LE ON FACTS AS IN THE SAID CASE THE ASSESSEE HAD PURCHASED A FILM AS MODEL TO DEMON STRATE TO ITS CUSTOMERS THE COLOUR PROCESSING WORK AT THE LABORATORY. THUS, PU RCHASE OF FILM RESULTED IN THE ACQUISITION OF ASSET OF CAPITAL NATURE PROVIDING EN DURING BENEFIT TO THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTED OU T THAT THE TRIBUNAL HAD CONSIDERED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEOFFREY MANNERS & CO. LTD. (2009) TIOL-93-HC-MUM-IT WHEREIN THE HONBLE BOMBAY HIGH COURT HAD CONSIDERED THE DECISION IN TH E CASE OF PATEL INTERNATIONAL FILM LTD. SUPRA. IN THIS CASE THE ASSESSEE PRODUCE D AN ADVERTISEMENT FILM TO PROMOTE ITS PRODUCTS. THE EXPENDITURE WAS INCURRED ON PROMOTION OF FILMS, SLIDES, ADVERTISEMENT FILMS AND THE ASSESSEE CLAIMED IT AS DEDUCTION IN COMPUTING ITS PROFIT. THE HONBLE BOMBAY HIGH COURT UPHELD THE AS SESSEE'S CONTENTION. 6 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES. THE MAIN CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE I S THAT THE ASSESSEE WAS CREATING A BRAND IN INDIA AND THE SAME IS IN THE NATURE OF I NTANGIBLE ASSET AS CONTEMPLATED IN SECTION 31(1)(II) PROVIDING RIGHTS TO THE ASSESS EE. WE FIND THAT THE TRIBUNAL WHILE CONSIDERING THIS ISSUE IN EARLIER YEARS HAS RECORDE D A FINDING THAT THE EXPENDITURE IS IN REVENUE FIELD. FURTHER, IN PARA-11 OF ITS ORDER THE TRIBUNAL HAS SPECIFICALLY CONSIDERED THIS ARGUMENT AND THEREFORE, THIS ARGUME NT DOES NOT SURVIVE. THE TRIBUNAL IN PARA 8 TO 11 HAS OBSERVED AS UNDER :- 8. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTEN TIONS AND THE AUTHORITIES CITED BEFORE US, IT SEEMS TO US THA T THE DECISION OF THE CIT(A) ON THE ISSUE IS UNEXCEPTIONABLE AND R EQUIRES TO BE UPHELD. THERE IS A FINDING OF FACT RECORDED BY THE CIT(A) TO THE EFFECT THAT THE ASSESSEE COMPANY IS NOT THE OWNER O F THE BRANDS HALLS AND CHICLETS AND THAT IT WAS THE HOLDING COMPA NY IN USA WHICH OWNED THE BRANDS. THERE IS ALSO A FINDING REC ORDED BY HIM THAT BREATH FRESHENERS AND CHEWING GUM UNDER THE AF ORESAID BRAND NAMES WERE BEING MANUFACTURED IN INDIA SINCE 1969 BY A COMPANY CALLED WARNER HINDUSTAN LTD. AND THUS THES E BRANDS WERE NOT UNFAMILIAR IN INDIA AND THEREFORE THERE WA S NO NEED FOR INCURRING ANY EXPENDITURE IN BUILDING THE ABOVE BRA NDS IN INDIA. THESE FINDINGS HAVE NOT BEEN DISPUTED BEFORE US BY THE REVENUE. IF THAT IS SO, THE EXPENDITURE ON ADVERTIS EMENT AND SALES PROMOTION MUST BE HELD TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSIN ESS. LONG YEARS BACK, THE ALLAHABAD HIGH COURT CONSIDERED THE QUESTION OF ALLOWABILITY OF ADVERTISEMENT EXPENSES IN THE CASE OF HINDUSTAN COMMERCIAL BANK LTD., IN RE (1952) 21 ITR 853. IN T HIS CASE, THE EXPENDITURE ON ADVERTISEMENT WAS INCURRED AT TH E TIME WHEN NEW BRANCHES OF THE BANK WERE OPENED AND INAUG URATED. THERE WAS THUS A SPECIAL ADVERTISEMENT CAMPAIGN WHI CH WAS VIEWED BY THE REVENUE AUTHORITIES AS CONFERRING AN ENDURING BENEFIT UPON THE ASSESSEE. THIS VIEW WAS DISAPPROVE D BY THE ALLAHABAD HIGH COURT AND REPELLING THE CONTENTION OF THE REVENUE THAT THE OPENING OF NEW BRANCHES WAS AN ADV ANTAGE FOR THE ENDURING BENEFIT OF THE BANK AND WAS IN THE NAT URE OF CAPITAL EXPENDITURE, THE HIGH COURT HELD (PAGE 363-364 OF T HE REPORT) THAT; EVERY EXPENDITURE INCURRED BY A BUSINESS CO NCERN FOR THE 7 PURPOSE OF ITS BUSINESS IS BOUND TO RESULT IN SOME BENEFITS TO ITS BUSINESS AND, THE MERE FACT, THAT THE BENEFIT IS NO T CONFINED TO ONE YEAR, DOES NOT TO OUR MINDS ANSWER THE QUESTION . EVERY BUSINESSMAN WHO CARRIES ON BUSINESS WANTS TO CARRY ON HIS BUSINESS NOT ONLY AT THE SCALE AT WHICH HE HAD BEEN DOING SO BUT ALSO WANTS TO EXTEND IT AS MUCH AS HE CAN. IT IS ON E OF THE ORDINARY INCIDENTS OF A BUSINESS. ...... IT IS MER ELY A CASE WHERE FOR THE PURPOSE OF EXTENDING THE BUSINESS NEW BRAN CHES HAD BEEN OPENED AND CERTAIN EXPENSES HAD BEEN INCURRED BY WAY OF ADVERTISEMENT ETC. WE THINK THAT IT CANNOT BE SAI D THAT AN EXPENDITURE OF THIS KIND BRINGS IN AN ADVANTAGE FOR THE ENDURING BENEFIT OF THE TRADE AND IS, THEREFORE, CAPITAL EXP ENDITURE. AT PAGE 367 OF THE REPORT, IT WAS FURTHER OBSERVED THA T; ADVERTISEMENT HAS NOW BECOME A VERY COMMON FEATURE OF EVERY BUSINESS AND THE AMOUNT IS ALWAYS SPENT TO FA CILITATE THE BUSINESS AND TO GET BETTER RETURNS. NO CASE HAS BEE N CITED BEFORE US IN WHICH IT HAS BEEN HELD THAT THE AMOUNT SPENT IN A SPECIAL CAMPAIGN OF ADVERTISEMENT MUST NECESSARILY BE A CAPITAL EXPENDITURE. THIS DECISION OF THE ALLAHABAD HIGH COURT HAS BEEN REFERRED TO BY THE GUJARAT HIGH COURT IN DCIT V S. CORE HEALTHCARE LTD. (SUPRA), WHILE COMING TO THE CONCLUS ION THAT AN EXPENDITURE INCURRED BY CORE HEALTHCARE LTD. IN THE SUM OF RS.70 LAKHS AND ODD ON A SPECIAL ADVERTISEMENT CAMP AIGN IS ALLOWABLE AS REVENUE EXPENDITURE. IN THAT CASE, THE OBJECTION OF THE DEPARTMENT WAS THAT THE EXPENDITURE WAS CAPITAL IN NATURE BECAUSE IT WAS INCURRED ON A SPECIAL ADVERTISEMENT CAMPAIGN LAUNCHED FOR CREATING A CORPORATE IMAGE OF THE COMP ANY AND WAS NOT INCURRED FOR RUNNING THE EXISTING BUSINESS OF THE COMPANY (SEE PAGE 267 OF THE REPORT). THIS OBJECTIO N WAS REJECTED BY THE GUJARAT HIGH COURT APPLYING THE RUL INGS OF THE SUPREME COURT IN EMPIRE JUTE COMPANY LTD., (1980) 1 24 ITR 1 AND ALEMBIC CHEMICAL WORKS COMPANY LTD., (1989) 177 ITR 377 IN WHICH IT WAS HELD THAT THE NATURE OF THE ADVANTA GE OBTAINED BY THE ASSESSEE BY INCURRING THE EXPENDITURE HAS TO BE CONSIDERED IN A COMMERCIAL SENSE AND THE TEST OF EN DURING BENEFIT IS NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT HAVING REG ARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE GIVEN CAS E. AFTER ADVERTING TO THE ABOVE RULINGS AND AFTER REFERRING TO THE JUDGEMENT OF THE ALLAHABAD HIGH COURT (SUPRA), THE G UJARAT HIGH COURT HELD THAT THE ADVERTISEMENT EXPENSES INCU RRED BY THE ASSESSEE ON A SPECIAL ADVERTISEMENT CAMPAIGN AT THE TIME OF 8 INSTALLATION OF ADDITIONAL MACHINERY IN THE EXISTIN G LINE OF BUSINESS DID NOT RESULT IN ANY ENDURING BENEFIT. IT NEEDS TO BE CLARIFIED THAT THE AFORESAID JUDGEMENT OF THE GUJAR AT HIGH COURT WAS RENDERED AFTER THE MATTER WAS REMANDED TO THEM BY THE SUPREME COURT IN DCIT VS. CORE HEALTHCARE LTD. , (2 008) 298 ITR 194. IN CIT VS. BERGER PAINTS (SUPRA) THE CALC UTTA HIGH COURT HELD THAT ADVERTISEMENT EXPENSES ARE NORMALL Y TO BE TREATED AS REVENUE EXPENDITURE SINCE THE MEMORY OF THE PURCHASING MARKET IS SHORT AND ADVERTISEMENT IS NEE DED FROM YEAR TO YEAR AND CANNOT BE MADE ONCE FOR ALL IN ANY SINGLE PARTICULAR YEAR. IN CIT VS. GEOFFREY MANNERS & CO . LTD.(SUPRA), THE ASSESSEE PRODUCED AN ADVERTISEMENT FILM TO PROM OTE ITS PRODUCTS. THE EXPENDITURE WAS INCURRED FOR PROMOTIO N OF FILMS, SLIDES, ADVERTISEMENT ETC. AND WAS CLAIMED AS A DED UCTION IN COMPUTING ITS PROFITS. THE INCOME TAX AUTHORITIES N EGATIVED THE ASSESSEES CLAIM, BUT THE TRIBUNAL ALLOWED THE SAME . APPROVING THE VIEW TAKEN BY THE TRIBUNAL, THE HONBLE BOMBAY H IGH COURT HELD THAT THE CORRECT TEST TO BE APPLIED IN SUCH A CASE WOULD BE, THAT IF THE EXPENDITURE IS IN RESPECT OF AN ONGOING BUSINESS OF THE ASSESSEE AND THERE IS NO ENDURING BENEFIT, IT C AN BE TREATED AS REVENUE EXPENDITURE. IF, HOWEVER, AND IF IT IS I N RESPECT OF BUSINESS WHICH IS YET TO COMMENCE THEN THE SAME CAN NOT BE TREATED AS REVENUE EXPENDITURE AS EXPENDITURE IS ON A PRODUCT YET TO BE MARKETED. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE IS IN THE LINE OF MANUFACTURE AND SALE OF THE BREATH FRESHENERS AND CHEWING GUMS FOR MANY YEARS A ND IT IS AN ONGOING BUSINESS. THE PRODUCTS ARE BEING SOLD BY TH E ASSESSEE AND THE SALES FIGURES ARE ALSO NOTED IN THE ASSESSM ENT ORDERS. IT IS NOT THEREFORE A CASE OF A COMPANY WHICH IS YET T O COMMENCE ITS BUSINESS OR MARKET ITS PRODUCTS. WE HAVE ALREAD Y SEEN ON THE BASIS OF THE JUDGEMENTS OF THE ALLAHABAD AND GU JARAT HIGH COURTS THAT THERE IS NO ENDURING BENEFIT DERIVED BY THE ASSESSEE BY INCURRING THE EXPENSES ON ADVERTISEMENT AND SALE S PROMOTION. IN THIS VIEW OF THE MATTER, WE ARE OF TH E VIEW THAT THE JUDGEMENT OF THE BOMBAY HIGH COURT APPLIES IN FA VOUR OF THE ASSESSEE. 9. THE LEARNED CIT DR CITED BEFORE US A RULING OF A UTHORITY FOR ADVANCE RULING IN FOSTERS AUSTRALIA LTD., IN R E (302 ITR 289) (AAR). WE HAVE GONE THROUGH THE RULING AND WE ARE 9 INCLINED TO AGREE WITH THE SUBMISSION MADE ON BEHAL F OF THE ASSESSEE THAT THE AFORESAID RULING WAS RENDERED ON DIFFERENT FACTS. THE QUESTION THERE WAS WHETHER REGISTRATION OF THE AUSTRALIAN COMPANIES TRADEMARK IN INDIA IS ONE OF T HE RELEVANT FACTORS POINTING TO THE ROOTS IT HAD TAKEN AND THE RECOGNITION IT HAD GAINED IN INDIA AND WHETHER THIS AMOUNTS TO A B USINESS CONNECTION WITHIN THE MEANING OF SECTION 9(1)(I) O F THE INCOME TAX ACT. THIS RULING DOES NOT GOVERN THE PRESENT CA SE WHERE THE FACTS ARE DIFFERENT AND THE CONTROVERSY IS ALSO DIF FERENT. THE OTHER CRITICISM MADE BY THE LEARNED CIT DR THAT THE CIT(A) HAS NOT PASSED A SPEAKING ORDER IS ALSO NOT ACCEPTABLE, SINCE WE FIND THAT IN HIS ORDER FOR THE ASSESSMENT YEAR 1999-2000 HE HAS EXAMINED THE FACTS OF THE CASE IN CONSIDERABLE DETA IL AND HAS RECORDED ALL THE RELEVANT FACTS WHICH ARE NECESSARY FOR THE RESOLUTION OF THE CONTROVERSY. HE HAS ALSO REFERRED TO THE ASSESSEES ARGUMENTS IN PARAGRAPH 8.1 OF HIS ORDER FOR THAT YEAR IN WHICH THE ASSESSEE HAS EXPLAINED HOW THE JUDGEM ENT OF THE SUPREME COURT IN THE CASE OF ASSAM BENGAL CEMENT CO.(SUPRA), CITED BY THE ASSESSING OFFICER, IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE FIND THAT IN SUB STANCE AND EFFECT THE ESSENCE OF THE AUTHORITIES CITED IN THE ASSESSMENT ORDERS HAS BEEN ADVERTED TO BY THE CIT(A). HIS ORDER S CANNOT THEREFORE BE VULNERABLE TO THE CHARGE THAT THEY ARE NOT SPEAKING ORDERS. WITH RESPECT, WE REJECT THE CONTENTION OF T HE LEARNED CIT DR. 10. WITH REGARD TO THE QUESTION OF REASONABLENESS O F THE EXPENDITURE, THE SAME IS NOT IN DISPUTE BEFORE US. NO ARGUMENT WAS ADVANCED ON BEHALF OF THE DEPARTMENT THAT EVEN IF THE EXPENSES ARE ALLOWABLE AS REVENUE EXPENDITURE, A PA RT THEREOF SHOULD BE DISALLOWED AS EXCESSIVE OR UNREASONABLE. NEVERTHELESS, WE MAY REFER TO THE CHART FILED ON BE HALF OF THE ASSESSEE BEFORE US DURING THE HEARING FROM WHICH WE FIND THAT THE ASSESSEE HAS BEEN INCURRING THE ADVERTISEMENT A ND SALES PROMOTION EXPENSES SINCE THE ASSESSMENT YEAR 1996-9 7. IN THE THREE YEARS COMMENCING FROM THIS YEAR, THE PERCENTA GE OF THE EXPENDITURE TO THE SALES AMOUNTED TO 28.07%, 26.70% AND 27.93% AND THE EXPENDITURE HAVE BEEN ALLOWED IN THE ASSESSMENTS MADE UNDER SECTION 143(3) OF THE ACT AS STATED BEFORE US ON BEHALF OF THE ASSESSEE. FOR THE YEARS UNDER APPEAL 10 BEFORE US, THE PERCENTAGE OF THE EXPENDITURE TO THE SALES IS MUCH LOWER AT 11.08% AND 13.61% RESPECTIVELY FOR TH E ASSESSMENT YEARS 1999-2000 AND 2001-02. THE EXPEND ITURE DOES NOT APPEAR TO US TO BE UNREASONABLY HIGH OR EX CESSIVE SO AS TO PROVOKE FURTHER EXAMINATION. 11. IN THE LIGHT OF THE DISCUSSION MADE ABOVE, IT F OLLOWS THAT THE PROVISIONS OF SECTION 32(1)(II) OF THE ACT, AS AMENDED BY THE FINANCE (NO.2) ACT, 1988 WITH EFFECT FROM 1.4.1999 ARE NOT APPLICABLE TO THE PRESENT CASE. THE ASSESSEE HAS N OT ACQUIRED ANY INTANGIBLE ASSET ON OR AFTER 1.4.1998 SO THAT O NLY DEPRECIATION WILL BE ALLOWED ON THE SAME AND NOT TH E EXPENDITURE INCURRED IN ACQUIRING THEM. THE EXPENDI TURE WAS INCURRED BY THE ASSESSEE IN THE REVENUE FIELD AND N OT IN THE CAPITAL FIELD, NOR DID THE ASSESSEE ACQUIRE ANY ASS ET, TANGIBLE OR INTANGIBLE, BY INCURRING THE EXPENDITURE ON ADVERTI SEMENT AND SALES PROMOTION. 10. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THE PERCENTAGE OF EXPENDITURE TO THE SALES IN ASSESSMENT YEAR 1999-00 2001-02 WAS 11.8% AND 13.61 % RESPECTIVELY. HOWEVER, IN THE CURRENT ASSESS MENT YEAR IT IS STILL MUCH LOWER AND, THEREFORE, THE DECISION IS SQUARELY APPL ICABLE TO THE FACTS OF THE CASE. WE FIND OURSELVES IN AGREEMENT WITH LD. COUNSEL AND , THEREFORE, RESPECTFULLY FOLLOWING THE SAME THIS GROUND IS DISMISSED. 11. GROUND NO.2 READS AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PROVI SION OF SECTION 35DDA ARE NOT ATTRACTED IN THIS CASE AND DIRECTING THE ASSESSING 11 OFFICER TO ALLOW A SUM OF RS.17,00,000/- PAID TO TH E RETIRING EMPLOYEE MS. CHITRA DHOKE. 12. THE BRIEF FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.17.00 LACS INCURRED ON VOLUNTARY RETIR EMENT SCHEME IN THE P&L ACCOUNT. THE ASSESSEE HAD POINTED OUT THAT THE SAI D EXPENDITURE IS NOT IN ACCORDANCE WITH THE SCHEME OF VOLUNTARY RETIREMENT TO WHICH PROVISIONS OF SECTION 35DDA APPLIES AND, ACCORDINGLY, THE SAID AMOUNT HAD BEEN CLAIMED IN THE P&L ACCOUNT. THE ASSESSING OFFICER REQUIRED THE ASSESS EE TO JUSTIFY ITS CLAIM AS THE SAID EXPENDITURE WAS CLEARLY UNDER VOLUNTARY RETIREMENT SCHEME AND WAS TO BE ALLOWED AS PER SECTION 35DDA AT 1/5 TH OF THE CLAIM FOR EACH YEAR FOR FIVE YEARS. THE ASSESSEE POINTED OUT THAT M/S. WARNER LAMBERT USA W AS ACQUIRED BY PFIZER INC. IN VIEW OF THIS, COMPANY ANNOUNCED VRS SCHEME WHICH WA S OPTED ONLY BY MS. CHITRA DHOKE, ONE OF THE EMPLOYEE OF THE COMPANY. OTHER E MPLOYEES HAD BEEN ABSORBED BY M/S. CADBURY INDIA LTD.(CIL) AS PER THE AGREEMEN T FILED. THEREFORE, IT WAS CONTENDED THAT THE CLAIM IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER HOWEVER, HELD THAT PROVISIONS OF SECTION 35 DDA WERE APPLICABLE. HE OBSERVED THAT SECTION 35DDA INCLUDES SCHEMES OF ANY NATURE WHICH AMOUNT TO GRANTING VOLUNTARY RETIREMENT TO AN EMPLOYEE PRIOR TO ITS ACTUAL RETIREMENT DATE FOR WHICH COMPENSATION IS GIVEN WHICH EXCEEDS THE NORMA L SALARY PERQUISITES WHICH THE EMPLOYEE MAY NORMALLY RECEIVE THAT YEAR. 13. BEFORE THE LD. CIT(A) IT WAS, INTERALIA, SUBMITTED THAT THE ASSESSEE COMPANY IS WHOLLY OWNED SUBSIDIARY OF WARNER LAMBERT, USA A ND WARNER LAMBERT, USA WAS ACQUIRED BY PFIZER INC. AFTER ACQUISITION OF BUSINE SS OF WARNER LAMBERT, USA, PFIZER INC. HIVED OFF WORLDWIDE NON-CHOCOLATE CONFECTIONER Y BUSINESS TO CADBURY OVERSEAS. AS PER THE AGREEMENT DATED 30.3.2003 TO TRANSFER BU SINESS BETWEEN ASSESSEE AND CIL, THE ASSESSEE SOLD ITS BUSINESS OF NON-CHOCOLAT E CONFECTIONERY PRODUCTS BY WAY OF SLUMP SALE TO CIL AS A GOING CONCERN. 12 14. DUE TO TRANSFER OF NON-CHOCOLATE BUSINESS TO CI L, THE ASSESSEE HAD GIVEN OPTIONS TO ITS EMPLOYEES TO TAKE VOLUNTARY RETIREME NT WHO DID NOT WISH TO JOIN CIL OR WHO HAD NOT BEEN ABSORBED BY CIL. EXCEPT MS. CH ITRA DHOKE, ALL EMPLOYEES HAD BEEN ABSORBED BY CIL. SHE THEREFORE, OPTED FOR VOL UNTARY RETIREMENT. IT WAS SUBMITTED THAT THERE WAS NO FORMAL SCHEME OF VOLUNT ARY RETIREMENT AND THUS REQUIREMENT OF SECTION 35DDA WERE NOT SATISFIED. I T WAS FURTHER SUBMITTED THAT TAX U/S. 192 HAD BEEN DEDUCTED FROM PAYMENT OF RS.17.00 LACS MADE TO MS. CHITRA DHOKE WITHOUT GIVING EXEMPTION U/S.10(10C) OF THE A CT. LD. CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT ASSESSEE HAD MADE ANY COMPENSATION UNDER THE EXISTING SCHEME AFTER CONSIDERING THE PROVISIONS OF SECTION 35DDA. LD. CIT(A) OBSERVED T HAT THE VRS SHOULD BE IN ACCORDANCE WITH ANY SCHEME OR SCHEMES OF VOLUNTARY RETIREMENT. SINCE THE ASSESSEE HAS HIMSELF CONTENDED THAT PAYMENT WAS NOT UNDER ANY FORM OR IN THE FORM OF SCHEME OF VOLUNTARY RETIREMENT, THE APPLICA BILITY OF PROVISIONS U/S.35DDA MERELY ON PRESUMPTION WAS NOT JUSTIFIED. TAKING NO TE OF THE FACT THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE U/S.192, WITHOUT, ALLOWI NG ANY EXEMPTION U/S.10(10C), HE DIRECTED THE ASSESSING OFFICER TO ALLOW REMAININ G DEDUCTION OF RS.13,16,000/-. 15. THE LD. DR SUBMITTED THAT SECTION 35DDA HAS BEE N INSERTED BY THE FINANCE ACT, 2001 W.E.F. 1.4.2001. SINCE WE ARE DEALING WI TH ASSESSMENT YEAR 2003-04, THE PROVISIONS OF SECTION 35DDA WERE APPLICABLE. HE REFERRED TO SECTION 35DDA SUB-SECTION(6) AND POINTED OUT THAT IF AN EXPENDITU RE IS COVERED BY SUB-SECTION(1) TO SECTION 35DDA THEN A SPECIFIC BAR HAS BEEN IMPOS ED FOR NOT ALLOWING DEDUCTION UNDER ANY OTHER PROVISIONS OF THE ACT. HE FURTHER S UBMITTED THAT UNDER SUCH CIRCUMSTANCES THE LD.CIT(A) COULD NOT RESORT TO SEC TION 37(1) OF THE ACT. THE DR REFERRED TO THE ORDER OF THE LD.CIT(A) AND POINTED OUT THAT WHILE CONSIDERING THE PROVISIONS OF SECTION 35DDA SUB-SECTION(1), THE LD. CIT(A) CONSIDERED THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2005 W.R.E .F 1.4.2004 BY SUBSTITUTING THE WORDS IN CONNECTION WITH FOR AT THE TIME OF . HE SUBMITTED THAT ADMITTEDLY THE AMOUNT HAS BEEN PAID IN CONNECTION WITH VOLUN TARY RETIREMENT SCHEME AND, 13 THEREFORE, THE PROVISIONS OF SECTION 35DDA ARE APPL ICABLE AND ONLY 1/5 TH OF THE AMOUNT PAID COULD BE ALLOWED AS DEDUCTION. HE SUBMI TTED THAT NO APPROVAL OF ANY COMPETENT AUTHORITY WAS REQUIRED FOR THE VOLUNTARY RETIREMENT SCHEME ADOPTED BY THE ASSESSEE. HE SUBMITTED THAT IT CAN BE ANY SCHE ME. IN THIS REGARD HE REFERRED TO PARA-9 OF THE ORDER OF THE LD.CIT(A) WHEREIN HE HAS OBSERVED . THAT THE PAYMENT MADE TO ONE OF HIS EMPLOYEES WAS NOT UNDER ANY FORMAL OR INFORMAL VOLUNTARY RETIREMENT SCHEME. THE LD.DR SUBMITTED THAT THE WORD FORMAL OR INFORMAL IS NOT THERE IN THE ACT. HE FURTHER REFER RED TO PAGE-6 OF ASSESSMENT ORDER WHEREIN THE ASSESSEE'S SUBMISSIONS HAVE BEEN REPR ODUCED IN WHICH THE ASSESSEE ITSELF POINTED THAT THE COMPANY ANNOUNCED VRS SCHEM E. HE, THEREFORE, ARGUED THAT ASSESSEE'S ARGUMENTS ARE SELF CONTRADICTORY. THE LD. DR FURTHER POINTED OUT THAT RULE 2BA LAYS DOWN THE GUIDELINES FOR THE PU RPOSE OF SECTION 10(10C) IN REGARD TO THE AMOUNT RECEIVED BY THE EMPLOYEE AT TH E TIME OF HIS RETIREMENT. HE SUBMITTED THAT ALL THE VRS SCHEMES CONTEMPLATED U/S .35DDA NEED NOT CONFORM TO THE REQUIREMENTS LAID DOWN UNDER SECTION 10(10C) RE AD WITH RULE 2BA BECAUSE SECTION 35DDA DOES NOT REFER TO SECTION 10(10C) . HE SUBMITTED THAT MERE DEDUCTION OF TAX IS NOT A RELEVANT CONSIDERATION FO R DECIDING THE ISSUE. 16. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT NO FORMAL SCHEME HAS BEEN ADOPTED BY THE COMPANY AND ONLY AN OPTION WAS GIVEN TO THOSE EMPLOYEES WHO WERE NOT ABSORBED BY CIL TO OPT FOR V RS. THE LD. COUNSEL FOR ASSESSEE REFERRED TO THE ASSESSMENT ORDER AND POINT ED OUT THAT IN THE SUBMISSIONS THE ASSESSEE HAS USED ONLY LOOSE LANGUAGE BUT SAME IS TO BE CONSIDERED IN OVER ALL CONTEXT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT VRS CONTEMPLATED U/S.35DDA IS SAME AS IN SECTION 10(10C) AND, THERE FORE, FOR INVOKING SEC.35 DDA IT IS NECESSARY THAT THE SCHEME ADOPTED BY THE COM PANY CONFORMS WITH THE REQUIREMENTS SET OUT IN RULE 2BA. HE SUBMITTED THA T FORMULATE SCHEME SHOULD SET OUT THE CONDITIONS IN ACCORDANCE WITH RULE 2BA TO C OME WITHIN THE AMBIT OF SECTION 35DDA. HE POINTED OUT THAT NO SUCH SCHEME WAS FORME D. THEREFORE, THE PROVISIONS OF SECTION 35 DDA ARE NOT APPLICABLE. 14 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. SECTION 35DDA (1) OF THE ACT READS AS UNDER :- 35DDA. (1) WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN ANY PREVIOUS YEAR BY WAY OF PAYMENT OF ANY SUM TO AN EM PLOYEE AT THE TIME OF HIS VOLUNTARY RETIREMENT, IN ACCORDANCE WITH ANY SCHEME OR SCHEMES OF VOLUNTARY RETIREMENT, ONE-FIFT H OF THE AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE P ROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIOUS YEAR, AND T HE BALANCE SHALL BE DEDUCTED IN EQUAL INSTALMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS. 18. A BARE PERUSAL OF THIS SECTION WOULD REVEAL THA T THE APPLICABILITY OF THIS SECTION IS ATTRACTED ONLY WHEN THE PAYMENT HAS BEEN MADE TO AN EMPLOYEE IN CONNECTION WITH HIS VOLUNTARY RETIREMENT, IN ACCORD ANCE WITH ANY SCHEME OR SCHEMES OF VOLUNTARY RETIREMENT. SINCE THE PAYMENT REDUCES THE BURDEN ON THE ASSESSEE RELATABLE TO SUBSEQUENT YEARS, THE LEGISLA TURE INSERTED THIS SECTION IN ORDER TO ALLOW ONLY 1/5 TH OF THE TOTAL SUM PAID BY THE ASSESSEE TO ITS EMOPL OYEES. THIS AMOUNT IN THE HANDS OF THE EMPLOYEE HAS BEEN EXEMPT ED U/S. 10(10C) OF THE ACT TO THE EXTENT OF RS .5.00 LACS. THE RELEVANT PART OF SECTION 10(10C) READS AS UNDER :- 10(10C) ANY AMOUNT RECEIVED OR RECEIVABLE BY AN EM PLOYEE OF (I) A PUBLIC SECTOR COMPANY ; OR (II) (III) (IV) .. (V) (VI) (VII) 15 (VIIA) (VIIB) . (VIIC) (VIII) . ON HIS VOLUNTARY RETIREMENT ORE TERMINATION OF HIS SERVICE, IN ACCORDANCE WITH ANY SCHEME OR SCHEMES OF VOLUNTA RY RETIREMENT OR IN THE CASE OF A PUBLIC SECTOR COMPAN Y REFERRED TO IN SUB-CLAUSE (I) A SCHEME OF VOLUNTARY SEPARATION, TO THE EXTENT SUCH AMOUNT DOES NOT EXCE ED FIVE LAKH RUPEES. PROVIDED THAT THE SCHEMES OF THE SAID COMPANIES OR AUTHORITIES OR SOCIETIES OR UNIVERSITIES OR THE INS TITUTES REFERRED TO IN SUB-CLAUSES (VII) AND (VIII) , AS TH E CASE MAY BE , GOVERNING THE PAYMENT OF SUCH AMOUNT ARE FRAMED IN ACCORDANCE WITH SUCH GUIDELINES (INCLUDIN G ANY SPECIAL ALLOWANCE SPECIFICALLY GRANTED TO AN ASSESS EE BY HIS EMPLOYER TO MEET EXPENDITURE ACTUALLY INCURRED ON PAYMENT OF RENT (BY WHATEVER NAME CALLED) IN RESPEC T OF RESIDENTIAL ACCOMMODATION OCCUPIED BY THE ASSESSEE, TO SUCH EXTENT AS MAY BE PRESCRIBED HAVING REGARD TO T HE AREA OR PLACE IN WHICH SUCH ACCOMMODATION IS SITUA TED AND OTHER RELEVANT CONSIDERATIONS. 19. THE SUBMISSION OF THE LD. DEPARTMENTAL REPRESEN TATIVE IS THAT THE PROVISIONS OF SECTION 35DDA ARE APPLICABLE BECAUSE THE PAYMEN T HAS BEEN MADE IN PURSUANCE TO SCHEME OF VOLUNTARY RETIREMENT AND IT IS NOT NE CESSARY THAT THE SAID SCHEME SHOULD COMPLY WITH GUIDELINES AS PER SECTION 10(10C ). WE ARE NOT INCLINED TO ACCEPT THE PLEA OF THE LD. DEPARTMENTAL REPRESENTAT IVE. IN THE PRESENT CIRCUMSTANCES, IN ORDER TO RESOLVE THE DISPUTE, WE ARE OF THE OPINION THAT PRINCIPLES OF HARMONIOUS CONSTRUCTION OF STATUTE HAVE TO BE AP PLIED. AS PER THESE PRINCIPLES A STATUTE MUST BE RECEIVED AS A WHOLE AND ONE PROVISI ON OF THE ACT SHOULD BE CONFORMED WITH REFERENCE TO OTHER PROVISIONS IN THE SAME ACT SO AS TO MAKE A 16 CONSISTENT ENACTMENT OF THE WHOLE STATUTE. THE PROV ISIONS RELATING TO VOLUNTARY RETIREMENT SCHEME ARE CONTAINED IN SECTION 10(10C) AND ALL THE CONDITIONS LAID DOWN THEREIN HAVE TO BE FULFILLED BEFORE EXEMPTION CAN BE AVAILED UNDER THE SAID SECTION. THE INCOME AND EXPENDITURE GO TOGETHER AN D IT IS DIFFICULT TO APPRECIATE THAT WHILE CONSIDERING THE EXPENDITURE PART ANY KIN D OF CLAIM COULD BE TAKEN INTO CONSIDERATION WHEREAS WHILE ALLOWING EXEMPTION ONLY THOSE CLAIMS ARE TO BE TAKEN INTO CONSIDERATIONS WHICH CONFORM TO THE GUIDELINES UNDER RULE 2BA. THE LANGUAGE IN SECTION 35DDA AND SECTION 10(10C), AS NOTED ABOV E, CLEARLY REFERS TO SCHEME OR SCHEMES OF VOLUNTARY RETIREMENT. IT IS TRUE THAT S ECTION 35 DDA DOES NOT SPECIFICALLY REFER TO SECTION 10(10C) BUT PRINCIPLE S OF HARMONIOUS CONSTRUCTION HAVE TO BE APPLIED HERE AND IT IS TO BE HELD THAT THE RE QUIREMENTS AS LAID DOWN UNDER RULE 2BA HAVE TO BE MET BEFORE DEDUCTION UNDER SECTION35 DDA COULD BE ALLOWED. THERE IS NO DISPUTE THAT THE SCHEME ADOPTED BY THE ASSESS EE DID NOT CONFORM TO THE GUIDELINES LAID DOWN UNDER RULE 2BA. THEREFORE, IT CANNOT BE HELD THAT PROVISIONS OF SECTION 35DDA ARE APPLICABLE IN THE PRESENT CASE. WE ARE IN AGREEMENT WITH THE PLEADING OF THE LD. DR THAT DEDUCTION OF TAX U/S.19 2 OUT OF SUM OF RS .17.00 LACS WITHOUT ALLOWING ANY EXEMPTION IS NOT OF MUCH RELEV ANCE, BECAUSE THAT DOES NOT DETERMINE THE CORRECT TAX LIABILITY OF THE ASSESSEE . HOWEVER, IT IS AN IMPORTANT FACTOR TO BE TAKEN INTO CONSIDERATION IN DECIDING T HE ISSUE SINCE THE ASSESSEE HAS DEDUCTED THE TAX FROM THE ENTIRE SUM OF RS.17.00 LA CS. THEREFORE, THE PLEA OF THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE IS NOT IN C ONFORMITY WITH RULE 2BA, CANNOT BE DISPUTED. IT HAS NOT BEEN BROUGHT ON RECORD BY THE DEPARTMENT THAT IN THE ASSESSMENT ORDER MS. CHITRA DHOKE WAS ALLOWED EXEMP TION AS CONTEMPLATED UNDER SECTION 10(10C). IN VIEW OF THE ABOVE WE CONFIRM TH E ORDER OF THE LD. CIT(A). IN THE RESULT, THIS GROUND IS DISMISSED. 20. GROUND NO.3 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW THE DEDU CTION OF EMPLOYERS/EMPLOYEES CONTRIBUTION TO PROVIDENT FUND PAID BEYOND DUE DATE. 17 21. THE ASSESSING OFFICER NOTICED FROM FORM NO.3CD FILED ALONGWITH RETURN OF INCOME THAT THERE WAS A DELAY IN DEPOSIT OF EMPLOYE ES/EMPLOYERS CONTRIBUTION TO PROVIDENT FUND (PF) DETAILS OF WHICH ARE AS UNDER : - SR. NO. MONTH AMOUNT( RS. DUE DATE DATE OF PAYMENT REMARK 1. NOV.2002 2,62,924/- 15.12.2002 16.12.2002 15.12.2002 WAS SUNDAY 2. DEC. 2002 2,57,952/- 15.1.2003 16.1.2003 - 3. MAR.2003 2,54,409/- 15.4.2003 16.4.2003 15.4.200 3 WAS A BANK HOLIDAY (MAHAVIR JAYANTHI) 22. THE ASSESSING OFFICER DENIED DEDUCTION OF RS .7,72,285/- IN VIEW OF 2 ND PROVISO TO SECTION 43B WHICH STIPULATES THAT NO DED UCTION WILL BE ALLOWED UNLESS PAYMENT HAS ACTUALLY BEEN MADE BY ANY MODE AS MENTI ONED THEREIN ON OR BEFORE DUE DATE AS DEFINED IN EXPLANATION 36(1)(VA). THE LD. CIT(A) ALLOWED THE PAYMENTS MENTIONED AT SL.NO.1 AND 3 SINCE THE PAYME NT HAS BEEN MADE IMMEDIATELY AFTER HOLIDAY WHICH WAS DUE DATE. HOWEVE R, AS REGARDS THE PAYMENT MENTIONED AT SL.NO.2, HE OBSERVED THAT SINCE THE PA YMENT HAD BEEN MADE BEYOND DUE DATE, AND THE SAME PERTAINS TO EMPLOYEES CONTR IBUTION, THEREFORE, IT CANNOT BE ALLOWED. HAVING HEARD BOTH THE PARTIES, WE DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) IN REGARD TO PAYMENTS A T SL.NO.1 AND 3 BECAUSE THE PAYMENT HAS BEEN MADE ON THE VERY NEXT DAY AFTER TH E HOLIDAY. THEREFORE, THIS GROUND IS DISMISSED. 18 23. GROUND NO.4 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.19.44 LACS REPRESENTING STORES AND CONSUMABLES. 24. THE BRIEF FACTS APROPOS THE ABOVE ISSUE ARE THA T FROM THE DETAILS OF ASSETS TRANSFERRED PURSUANT TO SLUMP SALE OF ITS UNIT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED THE VALUE OF INVENTORIES TRANS FERRED AT RS .294.75 CRORES. HE NOTICED FROM DETAILS OF CLOSING STOCK THAT THE STOC K TRANSFERRED WAS AS UNDER :- A) RAW MATERIAL : RS. 38.97 LACS B) PACKING MATERIAL : RS. 25.70 LACS C) FINISHED GOODS : RS.210.64 LACS TOTALLING TO : RS .275.31 LACS 25. HE, THEREFORE, REQUIRED THE ASSESSEE TO RECONCIL E THE DIFFERENCE IN THE VALUE OF ASSETS TRANSFERRED OF RS.19.44 LACS (294.75 27 5.31 LACS). THE ASSESSEE POINTED OUT THAT THE DIFFERENCE OF RS .19.44 LACS WAS ON ACCOUNT OF STORES AND CONSUMABLES REMAINING UNUTILIZED AND LYING IN STOCK AS ON THE DATE OF TRANSFER TO CIL. THE ASSESSING OFFICER NOTICED THAT THE ASSESS EE HAD INCLUDED THE SAID EXPENSES IN THE TOTAL EXPENSES CLAIMED IN P&L A/C. UNDER THE HEAD STORES AND CONSUMABLES. THE ASSESSING OFFICER OBSERVED THAT S INCE STOCK TO THE EXTENT OF RS .19.44 LACS WAS UNUTILIZED OUT OF PURCHASES MADE FR OM STORES AND CONSUMABLES, THE SAME BE DISALLOWED WHILE COMPUTING PROFITS OF T HE BUSINESS. 19 26. BEFORE THE LD.CIT(A) IT WAS, INTERALIA, SUBMITTED THAT THE INVENTORY OF STORES AND CONSUMABLES AS ON 1.4.2002 WAS RS.21.73 LACS A ND CLOSING INVENTORY SHOWN AS NIL FOR THE REASON THAT OUT OF OPENING INVENTORY OF RS.21.73 LACS INVENTORY OF RS.2.29 LACS WAS UTILIZED UP TO THE DATE OF SALE AN D BALANCE AMOUNT WAS TRANSFERRED TO CIL. THE LD. CIT(A) ACCEPTED THE ASSESSEE'S CON TENTION AND DELETED THE DISALLOWANCE. 27. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 28. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PA GE 210 OF THE PAPER BOOK WHEREIN SUBMISSIONS DATED 14.3.2006, ARE CONTAINED, IN WHICH, IT WAS STATED AS UNDER :- RECONCILIATION OF INVENTORIES TRANSFERRED : THE DIFFERENCE ON INVENTORIES I.E. RS.19.44 LACS (RS.294.75 LACS RS.38.97 RAW MATERIAL LACS + 25.70 PACKING MATERIAL LACS + 210.6 4 LACS FINISHED GOODS) WAS ON A/C. OF STORES AND CONSUMABL ES REMAINED UNUTILIZED AND LYING IN STOCK AS ON THAT D ATE AND TRANSFERRED TO CADBURY INDIA LIMITED. HE FURTHER, REFERRED TO PAGE-42 OF THE PAPER BOOK WH EREIN SCHEDULE FORMING PART OF P&L ACCOUNT REGARDING CONSUMPTION OF RAW MATERIAL I S CONTAINED IN WHICH ADJUSTMENT HAD BEEN MADE IN REGARD TO STOCK OF RAW MATERIAL, PACKING MATERIAL AND FINISHED GOODS ON ACCOUNT OF SALE OF BUSINESS UNIT. HE FURTHER REFERRED TO PAGE-34 OF PAPER BOOK TO DEMONSTRATE THAT APART FROM STOCK OF RAW MATERIAL, PACKING MATERIAL AND FINISHED GOODS, THE STORES HAD ALSO BE COME NIL AS ON 31.3.2003. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS SC HEDULE IV HAD NOT BEEN TAKEN INTO CONSIDERATION. HE POINTED OUT THAT IN THE SCHE DULE RELATING TO STOCK OF MATERIALS NO EFFECT WAS GIVEN TO INVENTORY RELATING TO STORES AND THEREFORE, SEPARATE ADJUSTMENT HAD BEEN MADE. 20 29. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH PART IES AND PERUSED THE RECORDS. THE WHOLE ADDITION HAD BEEN MADE SOLELY ON ACCOUNT OF NON CONSIDERATION OF SCHEDULE-IV TO THE BALANCE SHEET WHEREIN FIGURES OF INVENTORY ARE MENTIONED. OUT OF THE OPENING INVENTORY OF RS.21.73 LACS ON ACCOUN T OF STORES AND CONSUMABLE AN AMOUNT OF RS.2.29 LACS WAS UTILIZED UPTO THE DATE O F SALE AND THE BALANCE OF RS.19.44 LACS WAS TRANSFERRED TO CIL. THIS, THE DIF FERENCE HAD DULY BEEN RECONCILED. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 30. GROUND NO.5 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO RECOMPUTE THE LONG TERM CAPITAL GAIN AFTER CONSIDE RING THE AMOUNT OF RS.23,45,000/- CLAIMED TOWARDS BAD DEBTS BUT DEDUCTION DISALLOWED BY THE ASSESSING OFFICER, EVEN THOUGH AS PER EXPLANATION-2 TO SECTION 50B, THE BOOK VALUE OF THE ASSETS IS TO BE TAKEN INTO ACCOUNT FOR COMPUTING THE NET WORT H. 31. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED BAD DEBTS AND WRITTEN OFF AN AMOUNT OF RS.23,45,000/. HE REQUIRED THE ASSESSEE TO FURNISH THE NECESSARY DETAILS REGARDING WRITE-OFF. HOWEVER, NO DETAILS WERE FURNISHED. HE, THEREFORE, REJECTED THE ASSESSEE'S CONTENTION AND M ADE AN ADDITION OF RS .23,45,000/-. 32. BEFORE THE LD. CIT(A) IT WAS POINTED OUT THAT I N ACCORDANCE WITH ACCOUNTING POLICY FOLLOWED BY THE COMPANY YEAR AFTER YEAR, SUN DRY DEBTORS WERE STATED AFTER MAKING ADEQUATE PROVISION FOR DOUBTFUL DEBTS. IT W AS POINTED OUT THAT RS.23,45,000/- WAS DEBITED AGAINST PROVISIONS FOR DOUBTFUL DEBTS MADE IN THE ACCOUNT YEAR AFTER YEAR AND THIS WAS DEDUCTED WHILE COMPUTING TOTAL INCOME. THE LD. CIT(A) RELYING ON THE DECISION OF HONBLE CALCUT TA HIGH COURT IN CIT VS. COATES OF 21 INDIA LTD. (1998) 232 ITR 324 (CAL.) DECIDED THIS I SSUE AGAINST THE ASSESSEE . THE MATTER DID NOT REST HERE AS BEFORE THE LD. CIT(A) T HE ASSESSEE HAD TAKEN AN ADDITIONAL GROUND AS UNDER :- 2. YOUR RESPONDENT SUBMITS THAT IN THE EVENT IT I S HELD THAT AMOUNT PF RS.23,45,000/- BEING BAD DEBTS IS NOT TO BE CONSIDERED WHILE COMPUTING LONG TERM CAPITAL GAINS AS DIRECTED BY THE CIT(A), THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE AMOUNT OF RS.23,45,000/- AS BAD DEBTS. 33. ALTERNATE PLEA BY WAY OF ADDITIONAL GROUND WAS THAT IN THE EVENT OF ASSESSING OFFICERS ACTION REGARDING DISALLOWANCE OF BAD DEBT S BEING CONFIRMED BY THE LD. CIT(A) , NET WORTH OF UNDERTAKING SOLD AS SLUMP SAL E SHOULD BE INCREASED BY THAT AMOUNT. THE SUBMISSION OF THE ASSESSEE WAS THAT FO R THE PURPOSES OF COMPUTING LONG TERM CAPITAL GAIN UNDER SECTION 50B ACCRUING O N ACCOUNT OF SALE OF UNDERTAKING AS SLUMP SALE TO CIL THE LOANS AND ADVANCES WERE TA KEN AT RS .1,23,17,000/- WHICH AMOUNT WAS ARRIVED AT AFTER DEDUCTION OF RS.23,45,0 00/- WRITTEN OFF IN THE BOOKS AS BAD DEBTS. THE ASSESSEE'S PLEA IS THAT THE ASSESSI NG OFFICER SHOULD HAVE SUO-MOTO MADE ADJUSTMENT TO THE AMOUNT OF LOANS AND ADVANCES SO THAT IT SHOULD HAVE BEEN CONSIDERED AT RS.1,46,62,000/- INSTEAD OF RS.1,23,1 7,000/-. THE LD. CIT(A) ACCEPTED THE ASSESSEES CONTENTION AND DIRECTED THE ASSESSING OFFICER TO RE- COMPUTE THE LONG TERM CAPITAL GAIN. 34. BEING AGGRIEVED BY THIS FINDING OF THE LD. CIT( A) THE DEPARTMENT IS IN APPEAL BEFORE US AND THE ASSESSEE IN GROUND NO.2 OF ITS CR OSS OBJECTION HAS PLEADED THAT IN CASE THE AMOUNT OF RS.23,45,000/- IS NOT TO BE CONS IDERED WHILE COMPUTING LONG TERM CAPITAL GAINS, THE ASSESSING OFFICER SHOULD BE DIRECTED TO ALLOW THE AMOUNT OF RS.23,45,000/- AS BAD DEBTS. 35. THE LD. COUNSEL FOR THE ASSESSEE EXPLAINED THE FACTS AS NOTED EARLIER AND REFERRED TO THE COMPUTATION OF INCOME CONTAINED AT PAGE-16 OF ASSESSMENT ORDER TO 22 DEMONSTRATE THAT AS PER TERMS OF ACCOUNTING POLICY, THE ASSESSEE HAD ADDED BACK RS.14,000/- BEING THE PROVISION OF DOUBTFUL DEBTS A MOUNT DURING THE YEAR WHILE COMPUTING ITS TOTAL INCOME. HE FURTHER POINTED OUT THAT RS.23,45,000/- WAS REDUCED FROM BUSINESS INCOME. ACCORDINGLY, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT CORRECT AMOUNT WHICH SHOULD HAVE B EEN CLAIMED WAS RS.23.31 LACS (RS.23,45,000 RS .14,000). HE POINTED OUT THAT THIS AMOUNT SHOULD HA VE BEEN WRITTEN OFF AGAINST PROVISION APPEARING IN BALANCE SHEET MADE OVER THE YEARS. HE SUBMITTED THAT THE MODUS OPERANDI ADOPTED BY THE AS SESSEE MEETS THE REQUIREMENTS OF WRITE-OFF OF BAD DEBTS AS HELD BY T HE HON'BLE SUPREME COURT IN T.R.F. LTD. VS. CIT (2010) 323 ITR 397 (SC). 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. IT IS WELL SETTLED LAW THAT ENTRIES, IN THE BOOKS OF ACCOUNT CAN NOT DECIDE THE TRUE NATURE OF TRANSACTION AND IF IN SUBSTANCE THE ASSESSEE HAS WRITTEN OFF THE DEBTS ACCOUNT THEN THE ASSESSEE'S CLAM CANNOT BE DENIED. THE ASSESSEE'S METHODOLOGY WAS TO MAKE PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE ACCOUNT BY DEBITING THE P&L ACCOUNT AND CREDITING THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT. WHILE COMPUTING ITS INCOME, THE ASSESSEE WAS WRITING BACK THE PROVISIONS SUO-MOTO AND COMPUTING ITS INCOME ACCORDINGLY. HOWEVER, IN THE C URRENT YEAR THE ASSESSEE CLAIMED BAD DEBTS IN THE COMPUTATION OF INCOME. TH E WRITE-OFF WAS MADE AGAINST THE PROVISIONS OF BAD DEBTS. FROM THIS IT IS EVIDE NT THAT DEBTS WERE WRITTEN OFF THROUGH PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUN T. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN T.R.F. LTD. SUPRA, WE ARE O F THE OPINION THAT SINCE IN EARLIER YEARS THE ASSESSEE HAD WRITTEN BACK THE PRO VISIONS, THEREFORE, IN THE CURRENT YEAR THE ASSESSEE'S CLAIM SHOULD BE ALLOWED ALBEIT TO THE EXTENT OF RS.23,31,000/- AFTER REDUCING THE SUM OF RS.14,000/- DEBITED AS BA D DEBTS IN THE P&L ACCOUNT. SINCE WE HAVE DECIDED THE MAIN ISSUE IN FAVOUR OF T HE ASSESSEE, ALLOWING GROUND NO.2 TAKEN IN C.O., THEREFORE, THE ALTERNATE PLEA R AISED BY THE ASSESSEE BEFORE THE LD. CIT(A) DOES NOT SURVIVE. ACCORDINGLY THIS GROU ND IS DISMISSED AS INFRUCTUOUS. C.O. NO.247/MUM/2007 (BY ASSESSEE )(A.Y. : 2003-04) :- 23 37. THE FIRST GROUND TAKEN BY THE ASSESSEE IN ITS C ROSS OBJECTION IN C.O. NO.247/MUM/2007 ARISING OUT OF ITA NO.4145/MUM/2007 FOR ASSESSMENT YEAR 2003-04 READS AS FOLLOWS:- YOUR RESPONDENT SUBMITS THAT IN THE EVENT IT IS HE LD THAT THE EXPENDITURE OF RS.1,11,00,000/- INCURRED ON ADVERTI SEMENT AND RS.1,72,00,000/- AS EXPENDITURE ON SALES PROMOTION IS CAPITAL IN NATURE, THE ASSESSING OFFICER BE DIRECTED TO ALLOW DEPRECIATION THEREON AT THE RATES APPLICABLE. 38. GROUND NO.1 IS RELATED TO GROUND NO.1 OF DEPART MENTS APPEAL. THEREFORE, THIS GROUND DOES NOT SURVIVE AS WE HAVE DISMISSED T HE SIMILAR GROUND TAKEN BY THE DEPARTMENT, THIS GROUND DOES NOT SURVIVE. 39. GROUND NO.3 TAKEN BY THE ASSESSEE IN ITS CROSS OBJECTION READS AS UNDER:- THE LD. CIT(A) ERRED IN HOLDING THAT ASSESSING OFF ICER WAS JUSTIFIED IN DISALLOWING A SUM OF RS.2,57,952/- TOW ARDS EMPLOYER/EMPLOYEES CONTRIBUTIONS TO PROVIDENT FUND IN THE MONTH OF JANUARY, 2002 BY INVOKING THE PROVISION OF SECTIONS 43B/36(1)(VA). YOUR RESPONDENT SUBMITS THAT ON THE FACTS OF THE CA SE AND PROPER INTERPRETATION OF PROVISIONS OF THE ACT, THE LD. CIT(A) OUGHT TO HAVE ALLOWED DEDUCTION IN RESPECT OF THIS AMOUNT AS PAYMENT WAS MADE WITHIN THE ACCOUNTING YEAR. 40. THIS ISSUE IS DEALT WITH IN DEPARTMENTS APPEAL IN GROUND NO.3. WE FIND THAT THE AMOUNT OF RS.2,57,952/- WAS DUE FOR PAYMENT ON 15.1.2003 BUT WAS PAID ON 16.1.2003. THUS, THE PAYMENT IN ANY CASE HAS BEEN M ADE WITHIN THE GRACE PERIOD. THEREFORE, IN VIEW OF THE DECISION HON'BLE SUPREME C OURT IN CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 36(1)(VA) OR SECTION 43B WHERE EMPLOYERS OR EMPLOYEES CONTRIBUTION IS PAID BEFORE THE DUE D ATE OF FILING THE RETURN UNDER 24 SECTION 139(1) OF THE ACT, THIS GROUND IS ALLOWABLE . IN THE RESULT THIS GROUND IS ALLOWED. 41. GROUND NO.4 TAKEN BY THE ASSESSEE IN ITS CROSS OBJECTION READS AS UNDER :- THE LD. CIT(A) ERRED IN HOLDING THAT ASSESSING OF FICER WAS JUSTIFIED IN DETERMINING THE ELIGIBLE DEPRECIATION FOR THE YEAR UNDER APPEAL AT RS.8,61,26,465/- AS AGAINST RS.2,10 ,671/- CLAIMED BY THE RESPONDENT. YOUR RESPONDENT SUBMITS THAT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32 OF THE ACT, THE LD. CIT(A) OUGHT TO H AVE HELD THAT ELIGIBLE DEPRECIATION FOR THE YEAR UNDER APPEAL AMO UNTS TO RS.2,10,671/- AS CLAIMED BY YOUR RESPONDENT. YOUR RESPONDENT PRAYS THAT THE ASSESSING OFFICER BE DIRECTED ACCORDINGLY. 42. FACTS RELEVANT TO THIS ISSUE ARE THAT WHILE CON SIDERING THE ASSESSEE'S CLAIM OF DEPRECIATION, THE ASSESSING OFFICER NOTICED THAT TH E ASSESSEE HAD NOT CLAIMED DEPRECIATION ALLOWABLE AS PER PROVISIONS OF SECTION 32(1) OF THE INCOME TAX ACT IN RESPECT OF ITS ASSETS IN EARLIER YEARS PRIOR TO ASS ESSMENT YEAR 2002-03, THOUGH FOR THIS YEAR I.E. A.Y. 2003-04, THE ASSESSEE HAD CLAIM ED DEPRECIATION AT RS.2,10,671/- WHICH WAS PRIMARILY DUE TO THE FACT THAT ONE OF THE DIVISIONS HAD BEEN TRANSFERRED DURING THE YEAR TO M/S. CIL. HE OBSERVED THAT IF TH E ELIGIBLE DEPRECIATION OF EARLIER YEARS WAS CONSIDERED THEN THE VALUE OF OPENING WDV WOULD BE ENTIRELY DIFFERENT AND THERE WOULD BE SUBSTANTIAL CHANGE IN THE EXTENT OF ELIGIBLE DEPRECIATION. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN WHY THE ELIGIBLE DEPRECIATION IN RESPECT OF EARLIER YEARS SHOULD NOT BE CONSIDERED WHILE WOR KING OUT THE ELIGIBLE DEPRECIATION FOR THE CURRENT YEAR. THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS WERE ADVANCED DURING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2001-02 WHICH HAVE BEEN SUMMARIZED BY THE ASSESSING OFFICER AS UNDER :- 25 I) THE PROVISION OF SECTION 32 BEING BENEFICIAL P ROVISION ALLOWS AN ASSESSEE TO CLAIM DEPRECIATION ON CAPITAL ASSET S USED FOR THE PURPOSE OF ITS BUSINESS. HOWEVER, SUCH DEPRECIATION CANNOT BE ALLOWED UNTIL A CLAIM IS MADE FOR ALLOWANCE THEREOF AND NECESSARY PARTICULARS ARE SUBMITTED ALONGWITH THE R ETURN OF INCOME. II) THE TERM ALLOWED SUGGESTS THAT THE ASSESSING OFFICER IS REQUIRED TO ALLOW THE DEPRECIATION AFTER VERIFYING APPROPRIATENESS OF THE CLAIM MADE BY THE ASSESSEE . III) THE TERM ALLOWED DOES NOT SIGNIFY THAT THE ASSESSING OFFICER SHALL SUO MOTO ALLOW DEPRECIATION EVEN IF I T IS NOT CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. THE CLAIM OF DEPRECIATION IS OPTIONAL AND NOT MANDATORY IS ALSO SUPPORTED BY THE LANGUAGE OF CLAUSE (III) OF EXPLANATION 3 TO SE CTION 32(1) OF THE ACT. IV) IN THE CASE OF CIT VS. M/S. MAHENDRA MILLS 24 3 ITR 56, IT HAS BEEN HELD THAT THE ASSESSEE HAS OPTION TO CLAIM OR NOT TO CLAIM DEPRECIATION AND WHEN THE ASSESSEE DOES NOT C LAIM THE DEPRECIATION, THE ASSESSING OFFICER CANNOT THRUST U PON THE ASSESSEE THE SAME. THE RELIANCE IS ALSO PLACED ON THE ITAT, INDORES DECISION IN THE CASE OF BETA NAPTHOL P. LT D. VS. DCIT (50 ITR 375). V) THE PERUSAL OF THE AFORESAID DECISION OF THE SU PREME COURT CLEARLY BRINGS OUT THAT THE ALLOWABLE PROVISIONS OF DEPRECIATION AS CONTAINED IN SECTION 32 OF THE ACT PROVIDES AN I NHERENT RIGHT TO THE ASSESSEE TO CLAIM DEPRECIATION. 43. THE ASSESSING OFFICER CONSIDERED THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF MAHENDRA MILLS SUPRA, AND POINTED OU T THAT THE SAID DECISION WOULD 26 NOT BE APPLICABLE AS SECTION 34(1) WAS DELETED W.E. F. 1.4.1988. HE OBSERVED THAT THE HON'BLE SUPREME COURT WHILE DELIVERING THE JUDGM ENT UPHELD THE JUDGMENTS OF THE HONBLE COURTS OF BOMBAY, PUNJAB & HARYANA, KARNA TAKA, ANDHRA PRADESH, CALCUTTA AND KERALA. HE NOTED THAT IN ALL THESE JUD GMENTS THE HONBLE COURTS HAVE RELIED ON THE FACT THAT AS PER SECTION 34(1) OF THE INCOME TAX ACT, THE ASSESSEE WAS REQUIRED TO FURNISH THE PARTICULARS FOR CLAIM OF DE PRECIATION. RELIANCE WAS ALSO PLACED ON CBDT CIRCULAR DATED 31.8.1965 WHEREIN IT HAS BEEN STATED THAT WHERE THE PARTICULARS HAVE NOT BEEN FURNISHED BY THE ASSE SSEE AND NO CLAIM OF DEPRECIATION HAS BEEN MADE IN THE RETURN THE INCOME TAX OFFICER SHOULD ESTIMATE THE INCOME WITHOUT ALLOWING DEPRECIATION ALLOWANCE. HE POINTED OUT THAT IN ALL THE ABOVE JUDGMENTS THE MAIN REASON FOR UPHOLDING THE A SSESSEE'S CONTENTION THAT DEPRECIATION COULD NOT BE FORCIBLY ALLOWED WAS BECA USE OF THE FACT THAT THE PARTICULARS OF DEPRECIATION HAD NOT BEEN FURNISHED BY THE ASSESSEE U/S.34(1) OF THE ACT. FURTHER THE ASSESSING OFFICER HAD NOT CALLED FOR PARTICULARS OF THE ASSETS DURING THE COURSE OF ASSESSMENT. 44. HOWEVER, HE OBSERVED THAT THE PRESENT CASE PERTA INS TO ASSESSMENT YEAR 2003-04 AND SECTION 34 IS NOT THERE. FURTHER, THE PARTICULARS OF DEPRECIATION ALLOWABLE U/S.32 WERE CALLED FOR FROM THE ASSESSEE. THEREFORE, HE CONCLUDED THAT THE OPTION WITH THE ASSESSEE NO LONGER EXISTS. HE F URTHER POINTED OUT THAT HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MOTHER INDIA R EFRIGERATION INDUSTRIES P. LTD. (1985) 155 ITR 711 (SC) HAS HELD THAT CURRENT DEP RECIATION IS A FIRST CHARGE ON THE PROFITS AND THAT CHARGE CANNOT BE IGNORED BY WI THHOLDING THE PARTICULARS SO AS TO AVOID SET OFF THE EARLIER YEARS LOSS. THUS, H E CONCLUDED THAT DEPRECIATION HAD TO BE PROVIDED BY THE ASSESSEE. 45. THE ASSESSING OFFICER FURTHER SUBMITTED THAT TH E MAIN REASON FOR NOT CLAIMING DEPRECIATION WAS TO REDUCE LOSSES FOR THE CURRENT Y EAR SO THAT THE WDV OF THE ASSETS REMAINED HIGHER IN THE BOOKS OF ACCOUNT AND BENEFIT OF HIGHER SET OFF IS ALLOWED WHEN SUBSEQUENTLY THE COMPANY MERGED IN M/S . PFIZER LTD. HE, 27 ACCORDINGLY, COMPUTED ELIGIBLE DEPRECIATION FOR EAR LIER YEARS AND REDUCED THE SAME TO WORK OUT THE ELIGIBLE DEPRECIATION FOR THIS YEAR . 46. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAD EXCLUDED THE ASSETS OF THE DIVISION TRANSFERRED TO M/S. CIL BEFO RE COMPUTING THE ELIGIBLE DEPRECIATION FOR THE YEAR. TAKING NOTE OF THE FACT THAT THE ASSETS WERE TRANSFERRED AT THE VERY END OF THE YEAR I.E. ON 30.3.2003, HE C ONCLUDED THAT IN VIEW OF THE PROVISIONS OF SECTION 32, INCLUDING EXPLANATION 5, THE ASSESSEE HAD TO BE ALLOWED ELIGIBLE DEPRECIATION ON THE ASSETS USED DURING THE YEAR FOR ITS BUSINESS. HE, ACCORDINGLY, COMPUTED ELIGIBLE DEPRECIATION FOR THE YEAR AT RS.8,61,26,465/- AS PER ANNEXURE A OF HIS ORDER AND ALLOWED THE SAME AS AG AINST THE CLAIM MADE FOR RS.2,10,671/-. 47. CONSEQUENTLY THE ASSESSING OFFICER ALSO DETERMI NED THE LONG TERM CAPITAL GAIN UNDER SECTION 50B FROM SLUMP SALE OF THE UNIT TO M/S. CIL AT RS.12,78,80,383/- AS AGAINST THE CAPITAL LOSS DETERMINED BY THE ASSES SEE AT RS.6,53,72,000/-. IN DOING SO HE DETERMINED THE NET WORTH OF THE UNIT SO LD TO CIL IN TERMS OF EXPLANATION TO THE PROVISIONS OF SECTION 50B AS PER WHICH FOR C OMPUTING THE NET WORTH, THE AGGREGATE VALUE OF TOTAL ASSETS OF THE UNIT IS TO B E REDUCED BY THE VALUE OF LIABILITIES OF THE UNIT. FURTHER, HE NOTED THAT AS PER EXPLANA TION 2(A) TO SECTION 50B, FOR COMPUTING THE NET WORTH, THE AGGREGATE VALUE OF TOT AL ASSETS SHALL BE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AS DETERMINED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-ITEM (C) OF ITEM (I) OF SUB CLAUSE (C) OF CLAUSE (6) OF SECTION 43, AND IN THE CASE OF OTHER ASSETS, THE BOOK VALUE OF SUCH ASSETS. ACCORDINGLY, HE DETERMINED THE VALUE OF ASSETS TRANSFERRED AFTER CO NSIDERING THE DEPRECIATION ALLOWABLE TILL THE DATE OF THE TRANSFER AS UNDER :- SR.NO. NATURE OF ASSET VALUE AS PER ASSESSEE (RS.) VALUE AFTER CONSIDERING DEPRECIATION ALLOWABLE TILL THE DATE OF 28 TRANSFER(RS.) 1. LAND (FREEHOLD) 1,00,03,766/- 1,00,03,766/- 2. BUILDINGS (FACTORY) 12,20,35,935/- 7,26,15,296/- 3. FURNITURE & FITTINGS(GENERAL) 91,70,466/- 69,61,693/- 4. PLANT & MACHINERY (GENERAL) 22,46,09,989/- 8,46,60,114/- 5. COMPUTERS 25,72,380/- 8,99,151/- 6. MOTOR VEHICLES 37,05,597/- 37,05,597/- 37,20,98,133/- 17,88,45,617/ 17,88,45,617/ 17,88,45,617/ 17,88,45,617/- -- - 48. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) . THE LD. CIT(A) U PHELD THE ASSESSING OFFICERS ACTION IN HOLDING THAT THE DEPRECIATION BEING A SPE CIAL ALLOWANCE CANNOT BE USED AT THE SWEET WILL OF THE ASSESSEE INASMUCH AS WHENEVER IT IS ESSENTIAL, THE SAME IS CLAIMED AND WHENEVER IT IS NOT, THE SAME IS NOT CLA IMED. HE, THEREFORE, HELD THAT THE ELIGIBLE DEPRECIATION FOR ALL THE YEARS HAD TO BE COMPUTED IN WHICH THE ASSESSEE HAD NOT CLAIMED THE SAME FOR DETERMINING THE WRITTE N DOWN VALUE AS ON 1.4.2002 AND SINCE THE ASSETS OF THE UNIT TRANSFERRED TO CIL BY WAY OF SLUMP SALE, WERE USED FOR ASSESSEE'S BUSINESS UP TO 30.3.2003, THEREFORE, DEPRECIATION HAD TO BE CHARGED UP TO 30.3.2003. HE, THEREFORE, DISMISSED THE FOLL OWING TWO EFFECTIVE GROUNDS, INTERALIA, TAKEN BY THE ASSESSEE BEFORE HIM:- (A) THE ASSESSEE HAS CONTESTED THE ASSESSING OFFICE RS DECISION THAT THE DEPRECIATION IS TO BE ALLOWED TO IT ON PLANT AND MA CHINERY TRANSFERRED BY IT TO CIL UNDER SLUMP SALE AS A GOING CONCERN WITH EFFECT FRO M 30.3.2003. 29 (B) ON PROPER APPRECIATION OF SECTION 32 OF THE ACT , NO DEPRECIATION IS ALLOWABLE IN RESPECT OF ASSETS TRANSFERRED DURING THE YEAR BU T THE BLOCK OF ASSETS IS REQUIRED TO BE ADJUSTED. 49. BEFORE US THE ASSESSEE FILED PETITION DATED 30. 3.2010 FOR REVISION/ADMISSION OF ADDITIONAL GROUND IN THE CROSS OBJECTION, IN ORD ER TO BRING OUT THE REAL CONTROVERSY IN THE MATTER AS THE SAME HAS NOT BEEN REFLECTED BY GROUND NO.4, WHICH READS AS FOLLOWS:- THE CIT(A) ERRED IN CONFIRMING THAT THE COMPUTATIO N OF WDV OF FIXED ASSETS OF THE UNDERTAKING TRANSFERRED TO CADB URY INDIA LTD. IN SLUMP SALE AT RS.17,88,45,617/- MADE BY THE ASSE SSING OFFICER, AS AGAINST AS ARRIVED AT BY YOUR RESPONDEN T AT RS.37,20,98,133/-. THE CIT(A) ERRED IN HOLDING THAT GROUND NO.6 AS RAI SED BEFORE HIM WAS CONSEQUENTIAL IN NATURE AND NEEDED NO ADJUD ICATION. THE CIT(A) OUGHT TO HAVE HELD THAT THE CORRECT WDV OF FIXED ASSETS TRANSFERRED TO CADBURY INDIA LTD. UNDER SLUM P SALE WAS RS.37,20,98,133/-. THE CIT(A) OUGHT TO HAVE HELD THAT THE COMPUTATION OF CAPITAL LOSS UNDER SECTION 50B OF THE ACT AS PER THE RESPON DENT WAS CORRECT IN LAW. 50. THE LD. SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS THRUSTED DEPRECIATION ON THE ASSESSEE WHILE COMPUTI NG LONG TERM CAPITAL GAINS ON ACCOUNT OF SLUMP SALE OF ITS UNIT TO CIL. THE LD. COUNSEL SUBMITTED THAT THE WDV IS TO BE COMPUTED AS PER THE PROVISIONS CONTAINED IN S ECTION 32 R.W.S. 43(6) OF THE ACT. HE REFERRED TO ITEM (C) OF CLAUSE 6 OF SECTION 43 WHICH DEALS WITH WRITTEN DOWN 30 VALUE OF BLOCK OF ASSETS. THE LD. COUNSEL SUBMITTE D THAT AFTER THE INCORPORATION OF BLOCK OF ASSETS CONCEPT, IT IS NOT MATERIAL WHETHER THE ASSET IS USED OR NOT FOR BUSINESS BUT IF IT FORMS PART OF BLOCK OF ASSETS TH EN, DEPRECIATION IS TO BE ALLOWED WITH REFERENCE TO WDV OF BLOCK OF ASSET. SPECIFIC MODE HAS BEEN PRESCRIBED UNDER SECTION 43(6) FOR COMPUTING THE WDV WHICH IS OPENIN G WDV AS ON 1 ST APRIL + ADDITIONS MADE DURING THE YEAR SUBTRACTIONS BY WA Y OF SALE ETC. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFIC ER HAS NOT DETERMINED THE WDV CORRECTLY ON TWO COUNTS: 51. FIRSTLY, BY THRUSTING DEPRECIATION FOR THOSE YE ARS IN WHICH THE ASSESSEE DID NOT CLAIM THE SAME, AND THEREBY REDUCING THE OPENIN G WDV, AND 52. SECONDLY, BY CHARGING DEPRECIATION UPTO THE DAT E OF TRANSFER VIZ 30.3.2003 IN RESPECT OF ASSETS TRANSFERRED BY WAY OF SLUMP SALE. 53. THE LD. COUNSEL REFERRED TO THE ADDITIONAL GROU ND AND SUBMITTED THAT THE MAIN ISSUE TO BE DECIDED IS REGARDING DETERMINATION OF THE NET WORTH FOR THE PURPOSES OF COMPUTING LONG TERM CAPITAL GAIN/LONG T ERM CAPITAL LOSS WITH REFERENCE TO SECTION 50B AND FOR THAT PURPOSE METHODOLOGY HAS BEEN GIVEN IS SECTION 43(6)(C)(I)(C). THE LD. COUNSEL SUBMITTED THAT IF IN VIEW OF SECTION 43(6)(C)(I)(C) DEPRECIATION IS TO BE ALLOWED THEN BENEFIT OF UNAB SORBED DEPRECIATION IS TO BE ALLOWED TO BE SET OFF WHILE COMPUTING THE NET WORTH . 54. AS REGARDS SECOND ASPECT, LD. SR. COUNSEL SUBMI TTED THAT IN RESPECT OF ASSETS TRANSFERRED BY WAY OF SLUMP SALE FOR COMPUTING WDV WITH REFERENCE TO WHICH DEPRECIATION IS TO BE CHARGED, DEPRECIATION FROM 1. 4.2002 TO 30.3.2003 COULD NOT BE CHARGED AS NO SUCH STEP IS CONTEMPLATED IN THIS SECTION. IN SUPPORT OF THIS SUBMISSION, LD. SENIOR COUNSEL REFERRED TO SUB-ITEM (B) TO SECTION 43(6)(C)(I) AND POINTED OUT THAT FOR COMPUTING WDV OF BLOCK OF ASSE TS THE MONEYS PAYABLE IN RESPECT OF ASSETS SOLD IS TO BE REDUCED AND ON BALA NCE WDV DEPRECIATION IS TO BE 31 COMPUTED. HE SUBMITTED THAT IN CASE OF SLUMP SALE DI FFERENT YARDSTICK CANNOT BE ADOPTED. 55. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AS FAR AS ASSESSEE'S CLAIM OF THRUSTING DEPRECIATION IS CONCERNED THE SA ME ISSUE IS COVERED BY EXPLANATION-5 TO SECTION 32(1) WHICH READS AS UNDER :- SECTION 32(1) EXPLANATION-5 :- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THAT THE PROVISIONS OF THIS SUB-SECTI ON SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUC TION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCO ME. 56. HE SUBMITTED THAT THIS EXPLANATION HAS BEEN INSE RTED FOR REMOVING DOUBTS AND, THEREFORE, IS CLARIFICATORY IN NATURE. HENCE, I T APPLIES TO EARLIER YEARS ALSO. THE ASSESSING OFFICER HAS ALLOWED DEPRECIATION FOR EARL IER YEARS ALSO AND, ACCORDINGLY, COMPUTED WDV. HE SUBMITTED THAT UNABSORBED DEPRECIA TION IS TO BE CARRIED FORWARD AND SET-OFF IN TERMS OF SECTION 32(2) ONLY. LD. DR REFERRED TO EXPLANATION-3 TO SECTION 43(6) AND POINTED OUT THAT AS PER THE SA ID EXPLANATION ANY ALLOWANCE IN RESPECT OF DEPRECIATION CARRIED FORWARD UNDER SUB-S ECTION (2) OF SECTION 32 SHALL BE DEEMED TO BE DEPRECIATION ACTUALLY ALLOWED. HE, THE REFORE, SUBMITTED THAT AS PER LEGAL FICTION THE CARRIED FORWARD DEPRECIATION IS D EEMED TO HAVE BEEN ACTUALLY ALLOWED AND, THEREFORE, THERE IS NO QUESTION OF THE SAME BEING AVAILABLE FOR SET OFF. THEREFORE, THERE IS NO JUSTIFICATION FOR CLAIMING S ET OFF OF UNABSORBED DEPRECIATION AGAINST CAPITAL GAIN. HE SUBMITTED THAT UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST PROFIT IN THE SUBSEQUENT YEARS AS PER PROVI SIONS UNDER SECTION32(2). 32 57. THE LD. DR REFERRED TO PAGE-12 OF THE ASSESSMEN T ORDER AND POINTED OUT THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80 HHC I.E. UNDER CHAPTER VI-A, THEREFORE, IT IS NOT CORRECT TO PLEAD THAT THERE WA S INSUFFICIENCY OF PROFITS. HE SUBMITTED THAT THE DISPUTE AT BEST CAN BE ACTUALLY WITH REGARD TO THE MANNER OF COMPUTING WDV. HE REFERRED TO PAGE-11 OF THE ASS ESSMENT ORDER AND POINTED OUT THAT MANNER OF COMPUTATION OF WDV IS NOT CLEAR AND, THEREFORE, MATTER CAN BE RESTORED TO ASSESSING OFFICER FOR RE-COMPUTING THE DEPRECIATION AS PER PROVISIONS OF SECTION 43(6)(C)(I)(C)(C). 58. IN THE REJOINDER THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT EXPLANATION- 5 TO SECTION 32 IS NOT RETROSPECTIVE AS HELD IN THE FOLLOWING DECISIONS:- 1) RAM NATH JINDAL VS. CIT (2001) 252 ITR 590 (P&H), 2) CIT VS. SREE SENHAVALLI TEXTILES P. LTD. (2003) 259 ITR 77 (MAD.) 3) CIT VS. CROMPTON GREAVES LTD. (KER) AND CIT VS. K ERALA ELECTRIC LAMP WORKS LTD. (2003) 261 ITR 721 (KER) 59. THE LD. COUNSEL SUBMITTED THAT ON THE ONE HAND DESPITE DEPRECIATION FOR THE ASSESSMENT YEARS 1997-98 TO 2002-03 REMAINING UNABS ORBED AS ON 1.4.2002, THE ASSESSEE IS CALLED UPON TO PAY TAX ON THE CAPITAL G AINS ON THE SALE OF ITS NON CONFECTIONARY BUSINESS UNDERTAKING TO CIL WITHOUT A LLOWING SET OFF OF SUCH UNABSORBED DEPRECIATION IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. TIMES GUARANTEE L TD. AND ON THE OTHER HAND REDUCE SUCH DEPRECIATION FROM THE WRITTEN DOWN VALU E OF THE FIXED ASSETS, THEREBY DECREASING THE NET WORTH AND INCREASING THE CAPITAL GAINS. 60. THE LD. COUNSEL SUBMITTED THAT SUCH UNABSORBED DEPRECIATION CANNOT BE CONSIDERED TO HAVE BEEN ALLOWED AS PER SECTION 43(6 )(C) PARTICULARLY BECAUSE EXPLANATION-3 THERETO HAS NO ROLE TO PLAY IN VIEW O F THE FACTS THAT EXPLANATION-2 TO SECTION 50B OF THE ACT MAKES A REFERENCE ONLY TO SE CTION 43(6)(C) AND NOT TO 33 EXPLANATION THERE UNDER. THE LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT IT COULD NEVER HAVE BEEN THE INTENTION OF THE LEGISLATURE TO DENY, SET OFF, ON THE ONE HAND AND ON THE OTHER TO TAKE THAT VERY DEPRECIATION INT O CONSIDERATION WHILE ARRIVING AT WRITTEN DOWN VALUE OF THE DEPRECIABLE ASSETS WHILE COMPUTING THE NET WORTH OF ITS NON CONFECTIONARY BUSINESS UNDER TAKING TRANSFERRED TO CIL. HE FURTHER SUBMITS THAT THE UNJUST POSITION AS EXPLAINED ABOVE BECOMES EVEN WORSE SINCE UNDISPUTEDLY, THE UNABSORBED DEPRECIATION HAS IN FA CT LAPSED. THE LD. COUNSEL THEREFORE, SUBMITTED THAT SECTION 50B AND SECTION 4 3(6)(C)(I)(C) SHOULD BE HARMONIOUSLY INTERPRETED AS MEANING ONLY SUCH DEPR ECIATION AS WAS ABSORBED BY THE ASSESSEE . 61. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORDS OF THE CASE. THERE ARE PRIMARILY TWO ISSUES FOR CONSI DERATION :- 62. FIRSTLY, WHETHER IN CASE OF SLUMP SALE, DEPRECI ATION HAS TO BE ALLOWED ON THE ASSETS SOLD IN SLUMP SALE UP TO THE DATE OF TRANSFE R OR NO DEPRECIATION IS TO BE ALLOWED ON ASSETS TRANSFERRED FOR THE YEAR IN WHICH SUCH TRANSFER TAKES PLACE IN TERMS OF SECTION 43(6)(C)(I)(C)(B). 63. SECONDLY, WHETHER IN VIEW OF SECTION 43(6)(C)(I )(C)(B) ONLY DEPRECIATION ACTUALLY ABSORBED AGAINST THE PROFITS IS TO BE TAKE N INTO CONSIDERATION OR ALLOWABLE DEPRECIATION HAS TO BE COMPUTED FOR ALL THE YEARS A FTER 1.4.1988 FOR COMPUTING VALUE OF ASSETS TO BE REDUCED FROM BLOCK OF ASSET I RRESPECTIVE OF THE FACT WHETHER IN THE BOOKS THE ASSESSEE HAD CHARGED DEPRECIATION OR NOT. 64. FIRST WE WILL CONSIDER THE FIRST ISSUE. 65. THE FACTS ARE NOT IN DISPUTE. THE ASSESSEE HAD COMPUTED THE DEPRECIATION AT RS.2,10,671/- AFTER EXCLUDING THE NET DEPRECIATED V ALUE OF SUCH ASSETS FROM THE BLOCK OF ASSETS FROM WDV AS ON 1.4.2002 WHEREAS THE ASSESSING OFFICER COMPUTED THE DEPRECIATION ON THE ASSETS TRANSFERRED PURSUANT TO SLUMP SALE UP TO 30.3.2003 ON THE GROUND THAT THE ASSETS HAD BEEN USED BY THE ASSESSEE FOR THE ENTIRE PERIOD. THE ASSESSEE'S CONTENTION IS THAT AFTER THE INTRODU CTION OF BLOCK OF ASSET CONCEPT W.E.F. 1.4.2000, THE WDV HAS TO BE COMPUTED AS PER SECTION 43(6)(C)(I) BY ADDING 34 PURCHASES TO THE OPENING WDV AS PER SUB ITEM (A) AN D REDUCING THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THE PREVIOUS YEAR IN TERMS OF SUB ITEM (B). THE CONTENTION IS THAT IN THE CASE OF SLUMP SALE ALSO A S PER SUB-ITEM (C) THE VALUE OF ASSET NET OF DEPRECIATION IS TO BE EXCLUDED FROM BL OCK OF ASSET AND IN DOING SO THE DEPRECIATION FOR THE YEAR IN WHICH THE SLUMP SALE T AKES PLACE IS NOT TO BE TAKEN INTO CONSIDERATION. THE CONTENTION IS THAT THE SLUMP SAL E CANNOT BE DIFFERENTLY VIEWED FROM REGULAR SALE. ACCORDINGLY, THE ASSESSEE HAD C OMPUTED THE WDV AFTER EXCLUDING THE VALUE OF ASSETS AS PER SUB ITEM (C) A ND THEN CLAIMED DEPRECIATION ON THE BALANCE AMOUNT AMOUNTING TO RS .2,10,671/-. IN ORDER TO APPRECIATE THE CONTROVERSY WE FIRST REFER TO VARIOUS RELEVANT SECT IONS IN THIS REGARD. 66. SECTION 32 DEALS WITH THE DEPRECIATION ALLOWABL E TO THE ASSESSEE IN RESPECT OF ASSETS OWNED AND USED ONLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. SECTION 32(1) CLAUSE (I) AND (II) REFE R TO VARIOUS ASSETS IN RESPECT OF WHICH DEPRECIATION IS ALLOWABLE. FURTHER AS PER SU B CLAUSE (II) IN THE CASE OF ANY BLOCK OF ASSETS, DEPRECIATION IS ALLOWABLE AS PER T HE PERCENTAGE OF THE WDV AS MAY BE PRESCRIBED. FROM THIS IT IS EVIDENT THAT DEPRECI ATION IS TO BE ALLOWED IN RESPECT OF BLOCK OF ASSETS WITH REFERENCE TO ITS WDV. 67. THE BLOCK OF ASSET HAS BEEN DEFINED IN SECTION 2(11) AS UNDER :- SECTION 2(11) BLOCK OF ASSETS MEANS A GROUP OF A SSETS FALLING WITHIN A CLASS OF ASSETS COMPRISING (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COPYRIG HTS, TRADE-MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE, IN RESPECT OF WHICH THE SAME PERCENTAGE OF DEPRECIA TION IS PRESCRIBED; THUS, IT REFERS TO GROUP OF ASSETS ON WHICH SAME RA TE OF DEPRECIATION IS APPLICABLE. RELEVANT PART OF SECTION 43(6) READS AS UNDER :- SECTION 43(6)WRITTEN DOWN VALUE MEANS 35 (A) .. .. (B) .. .. (C) IN THE CASE OF ANY BLOCK OF ASSETS, - (I) . . (A) . (B) (C) IN THE CASE OF A SLUMP SALE, DECREASE BY THE ACTUAL COST OF THE ASSET FALLING WITHIN THAT BLOCK AS REDUCED (A) BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THE CORRESPONDING PROVISION S OF THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1 ST DAY OF APRIL, 1988; AND (B) BY THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1988 AS IF THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLO CK OF ASSETS, SO, HOWEVER, THAT THE AMOUNT OF SUCH DECREASE DOES NOT EXCEED THE WRITTEN DOWN VALUE; .. 68. FROM THE DEFINITION OF WDV AS REPRODUCED ABOVE , IT IS EVIDENT THAT FOR COMPUTING WDV OF ALL THE ASSETS FALLING WITHIN A PA RTICULAR BLOCK OF ASSET, THE ADJUSTMENTS AS CONTEMPLATED FROM SUB-ITEM A-B HAVE TO BE CARRIED OUT BEFORE ARRIVING AT WDV. THESE ADJUSTMENTS HAVE TO BE CARRI ED OUT TO THE WDV AS AT THE BEGINNING OF THE RELEVANT PREVIOUS YEAR. THERE IS NO DISPUTE IN THE PRESENT CASE AS REGARDS THE ADJUSTMENT AS CONTEMPLATED IN CLAUSE A AND B. THUS, IN CASE AN ASSET IS SOLD/DISCARDED THEN THE MONEYS PAYABLE IN RESPEC T OF SUCH ASSET HAVE TO BE REDUCED FROM THE BLOCK OF ASSET BEFORE ARRIVING AT WDV. CONSEQUENTLY, NO 36 DEPRECIATION IS CHARGED ON THE ASSETS SOLD IN THE Y EAR OF SALE. HOWEVER, IN THE PRESENT CASE THE DISPUTE IS WITH REGARD TO CHARGING OF DEPRECIATION FOR THE YEAR IN WHICH ASSETS HAVE BEEN SOLD IN SLUMP SALE PARTICULA RLY FOR COMPUTING NET WORTH OF ASSETS SOLD FOR COMPUTING CAPITAL GAIN UNDER SECTIO N 50B. SECTION 50B(1) AND (2) READ AS UNDER :- 50B. SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE. (1) ANY PROFITS OR GAINS ARISING FROM THE SLUMP SAL E EFFECTED IN THE PREVIOUS YEAR SHALL BE CHARGEABLE TO INCOME-TAX AS CAPITAL GAINS ARISING FROM THE TRANSFER OF LONG- TERM CAPITAL ASSETS AND SHALL BE DEEMED TO BE THE I NCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE : PROVIDED THAT ANY PROFITS OR GAINS ARISING FROM THE TRANSFER UNDER THE SLUMP SALE OF ANY CAPITAL ASSET BEING ONE OR MORE UNDERTAKINGS OW NED AND HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRE CEDING THE DATE OF ITS TRANSFER SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FRO M THE TRANSFER OF SHORT-TERM CAPITAL ASSETS. (2) IN RELATION TO CAPITAL ASSETS BEING AN UNDERTAK ING OR DIVISION TRANSFERRED BY WAY OF SUCH SALE, THE 'NET WORTH' OF THE UNDERTAKING OR THE DIVISION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE COST OF ACQUISITION AND T HE COST OF IMPROVEMENT FOR THE PURPOSES OF SECTIONS 48 AND 49 AND NO REGARD SHALL BE GIVEN TO THE PROVISIONS CONTAINED IN THE SECOND PROVISO TO SECTION 48. 69. THUS, AS PER SUB SECTION 50B(2) NET WORTH OF TH E UNDERTAKING OR DIVISION IS REQUIRED TO BE REDUCED FROM THE SALE CONSIDERATION. AS PER EXPLANATION 1 TO SECTION 50B THE NET WORTH OF THE ASSESSEE IS THE AGGREGATE VALUE OF TOTAL ASSETS OF THE UNDERTAKING OR DIVISION AS REDUCED BY THE VALUE OF LIABILITIES OF SUCH UNDERTAKING OR DIVISION AS APPEARING IN ITS BOOKS OF ACCOUNT. FUR THER IN EXPLANATION 2 TO SECTION 50B IT HAS BEEN LAID DOWN THAT FOR COMPUTING THE NE T WORTH THE AGGREGATE VALUE OF TOTAL ASSETS IN THE CASE OF DEPRECIABLE ASSETS WOU LD BE THE WDV OF THE BLOCK OF ASSETS DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF ITEM (C) OF ITEM (1) OF SUB 37 CLAUSE (C) OF CLAUSE (6) OF SECTION 43. THIS TAKES US TO SECTION 43 (6). SUB ITEM (C) LAYS DOWN SPECIFIC MODE FOR COMPUTATION OF WDV IN C ASE OF SLUMP SALE. 70. SUB-ITEM (C) HAS BEEN INSERTED BY THE FINANCE A CT,1999 W.E.F. 1.4.2000SIMULTANEOUSLY WITH THE INSERTION OF SECTIO N 50B FOR COMPUTING CAPITAL GAIN IN CASE OF SLUMP SALE. THE BASIC MANDATE OF THE SUB -ITEM (C) IS TO DECREASE THE ACTUAL COST OF ASSET FALLING WITHIN THAT BLOCK, BY TAKING THOSE ASSETS ONLY AS THE ASSETS IN THE RELEVANT BLOCK. FURTHER WHILE COMPUT ING ACTUAL COST, FOLLOWING DEPRECIATION IS TO BE REDUCED FROM THE VALUE OF ASS ET :- - A. DEPRECIATION ACTUALLY ALLOWED IN RESPECT OF ASS ESSMENT YEAR COMMENCING BEFORE 1.4.1988; PLUS - B. DEPRECIATION THAT COULD HAVE BEEN ALLOWABLE FOR ASSESSMENT YEAR COMMENCING ON OR AFTER 1.4.1988. 71. THUS, TWO ASPECTS ARE CLEAR FIRSTLY, REDUCTION OF ACTUAL ALLOWANCE OF DEPRECIATION IS RESTRICTED FOR THE PERIOD PRIOR TO 1.4.1988 AND SECONDLY, AFTER 1.4.1988, THE DEPRECIATION ALLOWABLE HAS TO BE TAKE N INTO CONSIDERATION. THE PROVISION HAS BEEN MADE REGARDING CHARGING OF DEPRE CIATION W.R.T. ASSETS TRANSFERRED FOR COMPUTING THE NET VALUE TO BE REDUC ED FROM ACTUAL COST. 72. A BARE PERUSAL OF SUB-ITEM (C) MAKES IT CLEAR T HAT ALLOWABLE DEPRECIATION HAS TO BE COMPUTED IN TERMS OF CLAUSE (B) IN RESPECT OF ALL THE ASSETS WHICH HAVE BEEN TRANSFERRED BY WAY OF SLUMP-SALE. THE ALLOWABLE DEP RECIATION IS TO BE COMPUTED IN TERMS OF SECTION 32 AND IF THE ASSET IS USED FOR TH E PURPOSES OF BUSINESS THEN DEPRECIATION IS TO BE ALLOWED. FULL MEANING HAS TO BE ASCRIBED TO THE TERM ALLOWABLE DEPRECIATION AND ITS APPLICATION CANNO T BE LIMITED BY REFERRING TO SUB- ITEM (B). THE CONTENTION OF LD. SENIOR COUNSEL THAT LIKE SUB-ITEM (B), NO DEPRECIATION IS TO BE CHARGED IN THE YEAR OF TRANSF ER CANNOT BE ACCEPTED BECAUSE THE OBJECT OF BOTH THE SUB-ITEMS IS DIFFERENT. THE MANNER OF COMPUTATION AS CONTEMPLATED IN SUB-ITEM (B) IN CASE OF SALE OF ASS ETS CANNOT BE READ INTO SUB-ITEM (C) MERELY ON THE GROUND THAT BOTH DEALS WITH SALE. IN SUB-ITEM (C) THE OBJECT IS TO COMPUTE NET VALUE OF ASSET SOLD BY WAY OF SLUMP-SAL E FOR THE PURPOSES OF 38 COMPUTING CAPITAL GAIN UNDER SECTION 50B WHEREAS IN SUB-ITEM (B) SALE CONSIDERATION IS ADJUSTED BEFORE ARRIVING AT WDV. HA D THIS BEEN THE INTENTION OF LEGISLATURE, THERE WAS NO NECESSITY TO SEPARATELY I NCORPORATE SUB-ITEM (C). 73. IT IS WELL SETTLED RULE OF INTERPRETATION THAT A DEEMING PROVISION HAS TO BE STRICTLY CONSTRUED AND ITS FIELD CANNOT BE ENLARGED TO ROPE IN THOSE AREAS WHICH ARE NOT CONTEMPLATED THEREIN. IN THE WRITTEN SUBMISSI ONS FILED BY THE ASSESSEE IT HAS BEEN POINTED OUT THAT UP TO ASSESSMENT YEAR 1999-00 ASSESSEE IN CASE OF SLUMP SALE, WERE SUCCESSFULLY CLAIMING THAT THE SALE CONS IDERATION WAS NOT EXEGIBLE TO TAX IN VIEW OF THE INABILITY TO COMPUTE COST OF UNDERTA KING TRANSFERRED UNDER SLUMP SALE. AS A COROLLARY TO THE STAND BEING TAKEN IT WAS ALSO CONTENDED BY THE ASSESSEE THAT SECTION 43(6)(C)(I)(B) COULD NOT BE INVOKED TO REDU CE THE WDV INASMUCH AS THERE WAS NO IDENTIFIABLE SALE CONSIDERATION PAYABLE W.R. T. ANY ONE ASSET FALLING WITHIN THE BLOCK AND TRANSFERRED UNDER THE SLUMP SALE AND HENC E, ASSESSEE CONTINUED CLAIMING DEPRECIATION ON THE WDV OF THE BLOCK WITHOUT REDUCI NG ANY AMOUNT THEREFROM DESPITE THE SALE. IN ORDER TO BRING TO TAX THE GAI NS ACCRUING ON SLUMP SALE AND TO OVERCOME THE AFOREMENTIONED CONTROVERSY SECTION 50B AND SUB CLAUSE(C) UNDER SECTION 43(6)(I) WERE INTRODUCED BY THE FINANCE ACT , 1999.THUS THE OBJECT WAS TO CURB THE MISCHIEF BY INCORPORATING SPECIFIC PROVISI ONS IN THAT REGARD. 74. FURTHER, THE ABOVE INTERPRETATION IS ALSO IN CO NSONANCE WITH THE CONCEPT OF ALLOWING DEPRECIATION. AS PER SECTION 32 DEPRECIATI ON IS ALLOWABLE ONLY ON THE ASSETS WHICH ARE OWNED BY THE ASSESSEE AND HAVE BEEN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, SINCE UPTO THE DATE OF TRANSFER THE ASSET IS OWNED AS WELL AS USED FOR THE PURPOSES OF BUSINESS, DEPRECATION HAS TO BE ALLOWED. THE CONCEPT OF BLOCK OF ASSET DOES NOT AT ALL AFFEC TS THE BASIC ESSENTIALS FOR ALLOWING DEPRECATION. ONLY CHANGE IS THAT THE CONCEPT OF IN DIVIDUAL ASSET HAS BEEN GIVEN A GO BY AND NOW FOR THE GROUP OF ASSETS THE CONCEPT O F BLOCK OF ASSETS HAS BEEN INCORPORATED. 75. LD. SENIOR COUNSEL SUBMITTED THAT IF WE ACCEPT THE DEPARTMENTS CONTENTION THEN IT WOULD LEAD TO AN ANOMALOUS SITUATION INASMU CH THAT BOTH THE TRANSFEROR AND 39 TRANSFEREE WILL BE ABLE TO CLAIM DEPRECIATION ON TH E SAME ASSETS IN THE YEAR OF TRANSFER BECAUSE THE FIFTH PROVISO TO SECTION 32 SU BSTITUTED BY THE FINANCE ACT, 1999 W.E.F. 1.4.2000WHICH DEALS WITH SUCH SITUATIONS, DO ES NOT REFER TO SLUMP SALE. HE SUBMITTED THAT THIS COULD NEVER BE THE INTENTION OF THE LEGISLATURE AND THEREFORE, THE WDV HAS TO BE COMPUTED AFTER ADJUSTING THE ASSET SO LD IN SLUMP SALE. WE ARE UNABLE TO ACCEPT THIS PLEA OF LD. SENIOR COUNSEL FO R THE SIMPLE REASON THAT IN ANY CASE THE PURCHASER WILL ADOPT THE PURCHASE CONSIDER ATION FOR PURPOSES OF CHARGING DEPRECIATION AND HE IS NOT CONCERNED WITH THE WDV O F SELLER. EVEN IN SUB-ITEM (B) THIS IS NOT THE BASIS FOR NOT CHARGING DEPRECIATION IN RESPECT OF PARTICULAR ASSET SOLD. BUT THE BASIS IS TO BE FOUND IN THE DEFINITION OF B LOCK OF ASSET AS PER WHICH ALL ASSETS IN RESPECT OF WHICH SAME RATE OF DEPRECIATION IS PR ESCRIBED IS TREATED AS ONE UNIT. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT THE ASSES SING OFFICER WAS RIGHT IN COMPUTING DEPRECIATION FOR THE PERIOD FROM 1.4.2002 TO 30.3.2003 AND REDUCING THE SAME WHILE COMPUTING THE VALUE OF ASSETS TRANSFERRE D IN SLUMP SALE. ACCORDINGLY, THE FIRST ISSUE NOTED EARLIER STANDS DISMISSED.. 76. NOW WE TAKE UP THE SECOND ISSUE. 77. THE ASSESSING OFFICER WHILE CONSIDERING THE ASS ESSEE'S CLAIM OF LONG TERM CAPITAL LOSS ON ACCOUNT OF SLUMP SALE OF DIVISION, NOTED AT PAGE-15 OF HIS ORDER THAT THE ASSESSEE HAD NOT BEEN CLAIMING DEPRECIATION IN EARLIER YEARS. IN VIEW OF PROVISIONS OF SECTION 32, THE ASSESSING OFFICER WHI LE COMPUTING THE CAPITAL GAIN ALLOWED THE ELIGIBLE DEPRECIATION FOR THE VARIOUS A SSESSMENT YEARS. THUS THE WDV AS ON 1.4.2002 HAS BEEN ARRIVED AT AFTER ALLOWING D EPRECIATION ON THE ASSETS THOUGH NOT CLAIMED BY THE ASSESSEE. THIS HAS RESULTED IN R EDUCING THE NET WORTH OF THE ASSESSEE AS CONTEMPLATED U/S.50B OF THE ACT. THE AS SESSEE'S CONTENTION IS THAT THE DEPRECIATION WHICH REMAINED UNABSORBED AND ELAPSED SHOULD NOT ENTER IN THE COMPUTATION OF LONG TERM CAPITAL GAIN WHILE COMPUTI NG THE NET WORTH OF THE ASSETS TRANSFERRED. DETAILED ARGUMENTS HAVE BEEN ADVANCED IN REGARD TO THE ISSUE AS TO WHETHER DEPRECIATION CAN BE THRUSTED UPON THE ASSES SEE OR NOT. IN OUR OPINION FOR DECIDING THE PRESENT CONTROVERSY WE NEED NOT TO ENT ER INTO THIS AREA OF CONTROVERSY AND THE ISSUE CAN BE DECIDED ONLY W.R.T. SUB ITEM ( C)OF ITEM (I) OF SUB CLAUSE (C) OF 40 CLAUSE (6) OF SECTION 43. FOR THE SAKE OF CONVENIE NCE WE AGAIN REPRODUCE THE SAID SUB-ITEM:- SECTION 43(6)WRITTEN DOWN VALUE MEANS (A) .. .. (B) .. .. (C) IN THE CASE OF ANY BLOCK OF ASSETS, - (I) . . (A) . (B) (C) IN THE CASE OF A SLUMP SALE, DECREASE BY THE ACTUAL COST OF THE ASSET FALLING WITHIN THAT BLOCK AS REDUCED (A) BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THE CORRESPONDING PROVISION S OF THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1 ST DAY OF APRIL, 1988; AND (B) BY THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1988 AS IF THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLO CK OF ASSETS, SO, HOWEVER, THAT THE AMOUNT OF SUCH DECREASE DOES NOT EXCEED THE WRITTEN DOWN VALUE; .. 78. A BARE PERUSAL OF SUB ITEM (C) CLEARLY SHOWS TH AT THE ACTUAL COST OF THE ASSET FALLING WITHIN THAT BLOCK OF ASSETS SOLD IN SLUMP S ALE HAS TO BE REDUCED INTERALIA BY THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE FIRS T DAY OF APRIL, 1988 AS IF THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLOCK OF A SSETS. AS PER THIS PROVISION IRRESPECTIVE OF THE FACT WHETHER THE DEPRECIATION W AS CLAIMED BY THE ASSESSEE OR 41 NOT, THE DEPRECIATION HAS TO BE CALCULATED. AS DI SCUSSED IN DETAIN WITH REFERENCE TO FIRST ISSUE, THIS IS A SPECIFIC PROVISION PRESCRIBI NG SPECIFIC MODE OF COMPUTATION AND, THEREFORE, HAS TO BE GIVEN FULL EFFECT. THIS SUB-IT EM HAS BEEN INSERTED ALONG WITH INSERTION OF SECTION 50B AND, THEREFORE, BOTH THE S ECTIONS HAVE TO BE HARMONIOUSLY CONSTRUED. WE ARE NOT INCLINED TO ACCEPT THE ASSES SEE'S CONTENTION THAT SUCH UNABSORBED DEPRECIATION CANNOT BE REGARDED TO HAVE BEEN ALLOWED AS PER SECTION 43(6)(3) MERELY BECAUSE EXPLANATION 2 TO SECTION 50 B MAKES REFERENCE TO SECTION 43(6) AND NOT TO EXPLANATIONS THEREIN. DIFFERENT S ECTIONS IN A STATUTE DEALING WITH SAME ISSUE HAVE TO BE READ IN A MANNER SO AS TO GIV E COMPLETE EFFECT TO THE LEGISLATIVE INTENT. THEREFORE, IN OUR CONSIDERED O PINION THE DEPRECIATION ALLOWABLE ON ALL THE ASSETS TRANSFERRED BY WAY OF SLUMP SALE IS TO BE ALLOWED FOR THE PURPOSE OF REDUCING THE VALUE OF THE ASSET FROM THE SAID BL OCK. 79. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE DEPARTMENTS VIEW IS ACCEPTED IT WOULD RESULT IN A HIGHLY INEQUITABLE AN D UNJUST POSITION. WE DO NOT FIND ANY SUBSTANCE IN THIS PLEA BECAUSE WHILE INTERPRETI NG THE TAXING STATUTE, CONSEQUENCES, HOWSOEVER, HARSH HAVE TO BE IGNORED. IN THIS REGARD WE REFER TO THE CLASSICAL OBSERVATIONS :- VISCOUNT SIMON QUOTED WITH APPROVAL A PASSAGE FRO M ROWLATT, J. EXPRESSING THE PRINCIPLE IN THE FOLLOWI NG WORDS :IN A TAXING ACT ONE HAS TO LOOK MERELY AT W HAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION A S TO TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMP LIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. 80. IN VIEW OF THE ABOVE DISCUSSION WE HOLD AS UNDE R :- 1) DEPRECIATION IS TO BE CHARGED FOR THE PERIOD FROM 1 .4.2002 TO 30.3.2003 WHILE COMPUTING THE ACTUAL COST OF THE ASSETS TRANS FERRED BY WAY OF SLUMP SALE. 42 2) THE DEPRECIATION ALLOWABLE ON THE ASSETS FOR THE P ERIOD UPTO 31.3.2002 HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE ACTUAL COST OF THE ASSETS TRANSFERRED BY WAY OF SLUMP SALE. 81. WE FIND THAT THE COMPUTATION MADE BY THE ASSESS ING OFFICER IS NOT VERY CLEAR, AS ALSO SUBMITTED BY THE LD. DR. WE, THEREFORE, RE STORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF COMPUT ING THE ACTUAL COST OF THE ASSET TRANSFERRED BY WAY OF SLUMP SALE IN TERMS OF SUB IT EM (C) OF ITEM (I) OF SUB CLAUSE (C) OF CLAUSE (6) OF SECTION 43(6) OF THE ACT IN T ERMS OF AFOREMENTIONED DISCUSSION. IN THE RESULT GROUND RAISED BY ASSESSEE STANDS DISM ISSED. 82. GROUND NO.5 OF THE C.O. READS AS UNDER :- YOUR RESPONDENT SUBMITS THAT IN THE EVENT LONG TER M CAPITAL GAIN ON ACCOUNT OF SLUMP SALE ULTIMATELY DETERMINED IS POSITIVE, THEN SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIA TION UNDER SECTION 32(2) OF THE ACT THEREAGAINST BE ALLOWED. YOUR RESPONDENT PRAYS THAT THE ASSESSING OFFICER BE DIRECTED ACCORDINGLY. 83. THE ASSESSEE, BY WAY OF THIS GROUND HAS TAKEN A N ALTERNATIVE PLEA THAT IN CASE ON THE BASIS OF AFOREMENTIONED DISCUSSION ULTI MATELY LONG TERM CAPITAL GAIN ON ACCOUNT OF SLUMP SALE IS DETERMINED AT POSITIVE FIG URE THEN SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION U/S.32(2) IS TO BE ALLOWED. THIS SUBMISSION IS BASED MORE ON THE PRINCIPLES OF EQUITY, RATHER THA N ON SOUND LEGAL FOOTING. THE PRESCRIPTION UNDER SUB-ITEM (C) TO SECTION 43(6) FO R COMPUTING ALLOWABLE DEPRECIATION IS ONLY FOR THE LIMITED PURPOSE OF DET ERMINING THE COST OF ASSET TRANSFERRED BY WAY OF SLUMP SALE TO BE REDUCED FRO M BLOCK OF ASSET. THIS FICTION CANNOT BE EXTENDED BEYOND THE LIMIT FOR WHICH IT HA S BEEN INCORPORATED IN THE ACT. THE FUNCTION OF THIS PROVISION IS RESTRICTED ONLY T O THE EXTENT OF DETERMINING THE 43 ACTUAL COST OF THE ASSET TRANSFERRED BY WAY OF SLUM P SALE TO BE REDUCED FROM BLOCK OF ASSET. AS SOON AS IT IS DONE THE PURPOSE OF THI S SECTION IS ACHIEVED. THEREFORE, THE ASSESSEE'S PLEA THAT IT SHOULD BE FURTHER EXTEN DED FOR SETTING OFF UNABSORBED DEPRECIATION CANNOT BE ACCEPTED. AS A MATTER OF FA CT IF THIS PLEA IS ACCEPTED IT WOULD MAKE THE ENTIRE SECTION OTIOSE BECAUSE ON THE ONE HAD DEPRECIATION ALLOWABLE IS CALCULATED AND IN THE SAME BREATH IT IS TO BE AD DED BACK WHILE COMPUTING THE NET WORTH OF THE UNIT TRANSFERRED. THEREFORE, THIS PLE A OF THE ASSESSEE IS CLEARLY DEVOID OF ANY MERIT AND, ACCORDINGLY, THIS GROUND IS DISMI SSED. 84. ITA NO.2503/MUM/07 85. THE DEPARTMENT HAS TAKEN FOLLOWING GROUND OF AP PEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO GIVE SET OFF OF BROUGHT FORWARD DEPRECIATION OF EARLIER YEARS AGAINST THE LONG TERM CAPITA GAINS OF THE ASSESSMENT YEAR UNDER CONSIDERATION. 86. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE FILED AN APPLICATION U/S.154 BEFORE THE AO TO RECTIFY THE ASSESSMENT BY ALLOWING SET OFF OF UBABSORBED DEPRECIATION FOR EARLIER YEARS AGAINST THE DETERMIN ED LONG TERM CAPITAL GAIN BY THE AO. THE APPLICATION WAS REJECTED BY THE AO. LD. C IT(A) ALLOWED THE ASSESSEES APPEAL INTERALIA OBSERVING AS UNDER :- IN FIND THAT THE AO HAS MERELY REJECTED THE APPLI CATION ON THE GROUND THAT PROVISIONS OF INCOME TAX ACT REGARDING SET OFF OF B ROUGHT FORWARD OF BUSINESS LOSS AND DEPRECIATION LOSS HAS TO BE ADJUSTED AGAINST THE OTHER HEADS OF INCOME HAS BEEN INTRODUCED FRO AY 2002-03. HENCE AS PER PROVIS IONS, INTER HEAD ADJUSTMENT IS POSSIBLE FROM THE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION LOSS WHICH HAS BEEN ARISEN ON OR AFTER AY 2002-03. BUT THE PROVIS IONS OF SECTION 71(2) OF THE IT ACT IS FOUND HAVING NOT RESTRICTED THE BROUGHT FORW ARD LOSS/DEPRECIATION TO BE SET OFF AS CONTEMPLATED BY THE AO. THEREFORE, I FIND C ONSIDERABLE FORCE IN THE SUBMISSIONS OF THE APPELLANT. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AS PER THE RECORDS AGAINST THE LONG TERM CAPITAL GAINS DETERMINED BY IT. THEREFORE, THESE G ROUNDS ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 44 87. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. WHILE DECIDING GR.NO. 4 AND 5 OF THE C.O. OF THE ASSESSEE WE HAVE RESTORED THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR RECOMPUTATION OF CAPITAL GAIN . THE SET OFF OF UNABSORBED DEPRECIATION IS TO BE IN ACCORDANCE WITH THE DECISI ON OF SPECIAL BENCH IN THE CASE OF DCIT VS. TIMES GUARANTY LTD. THE AO WILL DECIDE THI S ISSUE ACCORDINGLY. IN THE RESULT THIS GROUND IS ALLOWED FOR STATISTICAL PURPO SES. 88. IN THE RESULT, ASSESSEE'S CROSS OBJECTION IN C. O. NO.247/MUM/07 IS PARTLY ALLOWED AND DEPARTMENTS APPEAL IN ITA NO.4145/MUM/ 2007 FOR THE ASSESSMENT YEAR 2003-04 IS DISMISSED AND APPEAL IN ITA NO.2503 /MUM/2007 FOR THE ASSESSMENT YEAR 2003-04 IS PARTLY ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3.12.2010. SD/- SD/- (ASHA VIJAYRAGHAVAN ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 3.12.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.