DCIT CIR. 6(2), MUMBAI V. M/s. CENTURY TEXTILES & INDUSTRIES LTD., MUMBAI

ITA 4171/MUM/2005

• Counselvise Citation: 417119914 RSA 2005
• Duration Of Justice: 6 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 12-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 03-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: S M BANDI; Y P TRIVEDI SENIOR P R TOPRANI
• Keywords: Business income; Depreciation; Bad and doubtful debts; Revenue expenditure
• Section: 14A; 115JB; 37(1); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER. I.T.A.NO.3926 /MUM/2005 ASSESSMENT YEARS : 2001-02 CENTURY TEXTILES AND INDUSTRIES LIMITED, CENTURY BHAVAN, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 030. PAN: AAACC 2659 Q VS. DY. COMMISSIONER OF I.T., RANGE 6 (2), MUMBAI. AND I.T.A.NO.4171/MUM/2005 ASSESSMENT YEARS : 2001-02 DY. COMMISSIONER OF I.T., RANGE 6 (2), MUMBAI VS. CENTURY TEXTILES AND INDUSTRIES LIMITED, MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI Y.P.TRIVEDI, SENIOR ADVOCATE, P.R.TOPRANI & S.M.BANDI. REVENUE BY : SHRI SANJIV DUTT. DATE OF HEARING: 12-04-2012. DATE OF PRONOUNCEMENT: 16-05-2012. O R D E R VIVEK VARMA, JM : THE APPEALS FILED BY THE ASSESSEE AND DEPARTMENT A RISE FROM THE ORDER OF THE CIT(A)-XXX, MUMBAI DATED 30-03-200 5. 2. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE O F PRODUCTS LIKE TEXTILE YARN AND CHEMICALS. BESIDES THIS ASSESSEE I S ALSO IN THE BUSINESS OF SHIPPING, POWER GENERATION AND BUILDING ACTIVITY . IN THE COURSE OF ASSESSMENT PROCEEDINGS SEVERAL ADDITIONS WERE MADE, SOME OF WHICH I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 2 WERE SUSTAINED BY THE CIT(A) AND ON SOME RELIEF WA S GIVEN. AGAINST THIS ORDER OF THE CIT(A), BOTH THE ASSESSEE AND THE DEPARTMENT ARE BEFORE THE ITAT. AT THE TIME OF HEARING, THE SR. A. R APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT SIMILAR ADDIT IONS WERE MADE IN THE PRECEDING YEAR WHICH REACHED THE TRIBUNAL AND M UMBAI BENCH IN I.T.A. NO. 3890 & 3507 /MUM/2005 FOR THE ASSESSMENT YEAR 1999- 2000 AND I.T.A. NO. 3925 & 4170/MUM/2005 FOR THE AS SESSMENT YEAR 2000-01 HAVE DEALT WITH MOST OF THE ISSUES AND, THE REFORE, MOST OF THE ISSUES ARE ALREADY DEALT WITH AND COVERED IN THE YE AR UNDER CONSIDERATION. HE ALSO FILED A CHART WHICH REFERRED TO EACH GROUND OF APPEAL TAKEN BY THE ASSESSEE AND ALSO BY THE DEPART MENT AND HOW THE ISSUES WERE DEALT WITH BY THE AO, CIT(A) AND FINALL Y BY THE CO-ORDINATE BENCH FOR THE TWO ASSESSMENT YEARS 1999-2000 AND 20 00-01. DR ALSO PLACED A COPY OF JUDGMENT IN LIBERTY INDIA AND CIRC ULAR NO. 551 DATED 23/01/1990. I.T.A. NO. 3926/MUM/2005 : 3. IN THIS APPEAL THE FIRST GROUND RAISED BY T HE ASSESSEE IS THAT THE C.L.T.(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE LOSS DUE TO EXCHANGE RATE FLUCTUATION OF RS. 1, 22,97,318/- TO THE EXTENT OF LOAN WHICH WAS NOT PAID DURING THE YEAR . 4. AT THE TIME OF HEARING THE SENIOR AR APPEARING ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNER (I) PVT. LTD., REPORTED IN 312 LT R 254 (SC) AND SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ONGC L TD. VS. DCIT, I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 3 REPORTED IN 83 LTD 151 AND BY THE ORDER OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ITAS NO. 3925 & 4170/MUM/2005 FOR ASSES SMENT YEAR 2000-01 VIDE PARAS 10, 11 AND 12 AND EARLIER, IN I. T.A. NO. 3507 & 3890/MUM/2005 FOR ASSESSMENT YEAR 1999-2000 VIDE PA RAS 17 AND 18. 5. DR SUPPORTED THE ORDERS OF THE REVENUE AUT HORITIES. 6. AFTER CONSIDERING THE SUBMISSIONS WE FIND THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 3507/MUM/05 IN AS SESSMENT YEAR 1999-2000, IN PARAS 17 & 18 AND I.T.A. NO. 3925 & 4 170/MUM/2005 IN ASSESSMENT YEAR 2000-01, IN PARA 12, WHEREIN THE C O-ORDINATE BENCH HELD PART OF THIS HAS BEEN DISALLOWED MAINLY ON THE BAS IS THAT THE PAYMENT HAS NOT BEEN MADE AND IT WAS ONLY A NOTIONA L LOSS. THE HONBLE SUPREME COURT HAS CLEARLY HELD IN THE CASE OF CIT VS. WOODWARD GOVERNER (I) PVT. LTD. THAT LOSS INCURRED ON REVENUE SIDE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS ALLOWABL E. SINCE THE DISALLOWANCE OF LOSS AMOUNTING TO RS. XXXXX IS ADMI TTEDLY ON REVENUE SIDE, THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT( A) AND DIRECT THE AO TO ALLOW THIS LOSS . RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E TRIBUNAL, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO ALLOW T HE GROUND OF THE LOSS AS CLAIMED BY THE ASSESSEE. GROUND NO. 1 IS, THEREFORE, ALLOWED. 7. THE GROUND NO. 2 OF APPEAL IS THAT THE LD. C.I.T .( A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN HOLDING THAT T HE INCOME/RECEIPTS, WERE NOT DERIVED FROM INDUSTRIAL UNDERTAKING OF CEN TURY YARN AND I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 4 CENTURY DENIM A 100% E.O.US FOR THE PURPOSE OF CLA IMING EXEMPTION U/S 10B OF CENTURY YARN RS. 62,96,874/- AND CENTURY DENIM RS. 56,53,019/- AS NOT DERIVED FROM INDUSTRIAL UNDE RTAKING FOR CLAIMING EXEMPTION U/S 10B. INDIVIDUAL DISALLOWANCE IS DEALT WITH POINT WISE, 2(I) TO 2(IX), HEREUNDER : 8. GROUND NO. 2(I) IS AGAINST THE PREMIUM ON TRANSF ER OF IMPORT LICENSES RS. 4,22,691/- IN CENTURY YARN AND RS. 3,4 6,792/- IN CENTURY DENIM. 9. AFTER CONSIDERING THE SUBMISSIONS OF THE SENIOR AR, WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY T HE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN AND I.T.A. NO. 3 925/MUM/2005 FOR ASSESSMENT YEAR 2000-01, VIDE PARA 14, WHEREIN THE CO-ORDINATE BENCH OF THE TRIBUNAL FOLLOWING THE ORDER OF TRIBUNAL FOR EARLIER YEAR, PARTICULARLY IN ASSESSMENT YEAR 1998-99 IN I.T.A. N O. 9329/MUM/2004 VIDE PARAS 9 TO 11. WE, ACCORDINGLY, DECIDE THIS IS SUE AGAINST THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS DISMISSED. 10. GROUND NO. 2(II) RELATES TO THE C.S.T. REIMBURS EMENT CLAIM RECEIVED AT RS. 22,27,850/- IN CENTURY YARN AND RS. 34,80,311/- RECEIVED IN CENTURY DENIM. WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING YEAR BY THE ITAT IN I.T.AS. NO. 3925/MUM/2005 & I.T.A. NO. 4170/MUM/2005 IN ASSESSM ENT YEAR 2000-01 IN PARAS 14.2, 15 16 & 17 WHICH ARE AS UNDE R: 14.2 AS FAR AS THE ISSUE REGARDING CST REIMBURSEMEN T IS CONCERNED, THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT SIMILA R ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARA 11.1 IN ITA NO.9329/MUM/2004. I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 5 15. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. DRESSER RAND INDIA PVT. LTD. (2010) 323 ITR 429 (BOM). 16. IN THE REJOINDER, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS LITTLE DIFF ERENT. IT IS NOT A CASE OF SALES-TAX REFUND WHICH WAS BEFORE THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF DRESSER RAND INDIA P. LTD. WHERE THE ASSESS EE PAYS SALES-TAX WHICH IS REFUNDED LATER ON IF THE GOODS MANUFACTURE D ARE EXPORTED AND THAT IS WHY THE DECISION OF HONBLE BOMBAY HIGH COU RT IS NOT APPLICABLE. 17. AFTER CONSIDERING THE SUBMISSIONS, WE AGREE WIT H THE CONTENTION OF THE LD. SR. ADVOCATE, SHRI Y.P. TRIVEDI, THAT WHEN SALE S-TAX IS INITIALLY PAID, THAT WILL GO ON TO INCREASE THE PURCHASES WHICH MEANS PR OFIT IS REDUCED AND WHEN SALES-TAX IS REFUNDED THE PROFIT WOULD INCREAS E AND THEREFORE PAYMENT AND REIMBURSEMENT WOULD NULLIFY EACH OTHER. THEREFORE, WE HOLD THAT REFUND OF SALES-TAX CANNOT BE REDUCED FROM PRO FITS. RESPECTFULLY FOLLOWING THE AFORESAID ORDER, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO TREAT THE REIMBURSEMENT OF CST AS BUSINESS RECEIPT FOR THE PURPOSE OF CLAIM ING EXEMPTION U/S 10B. GROUND NO. 2(II) IS ALLOWED. 11. GROUND NOS. 2(III) RELATES TO INSURANCE CLAIMS RECEIVED AT RS. 1,76,719 IN CENTURY YARN AND RS.14,89,484/- IN CENT URY DENIM. THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN I.T. A. NOS. 3890 & 3507/MUM/2005 IN ASSESSMENT YEAR 1999-2000 IN PARA 20. WE DO NOT INTEND TO DISTURB THE ACCEPTED POSITION, HENCE WE H OLD THAT THESE RECEIPTS DO NOT QUALIFY FOR THE EXEMPTION U/S 10B A S THEY ARE CANNOT BE HELD TO BE RECEIPTS, DERIVED FROM THE INDUSTRIAL UN DERTAKINGS. GROUND NO. 2(III) IS DISMISSED. 12. GROUND NO. 2 (IV) RELATES TO SUNDRY CREDIT BALA NCE WRITTEN BACK. THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN I.T.A. NOS. 3890 & 3507/MUM/2005 IN ASSESSMENT YEAR 1999-2000 IN PARA 20. WE DO NOT INTEND TO DISTURB THE ACCEPTED POSITION, HENCE WE H OLD THAT THESE I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 6 AMOUNTS DO NOT QUALIFY FOR THE EXEMPTION U/S 10B AS THE CANNOT BE HELD TO BE RECEIPTS DERIVED FROM THE INDUSTRIAL UND ERTAKINGS. GROUND NO. 2(IV) IS DISMISSED. 13. GROUND NO. 2(V) RELATES TO EXCISE DUTY REFUND O F RS. 5,69,285/- IN CENTURY YARN AND RS. 16,480/- IN CENTURY DENIM. IN GROUND NO. 2(II), WE HAVE DEALT WITH THE REFUND OF CST, GOING BY THE SAME REASONS AS DECIDED IN GROUND NO. 2 (II), WE HOLD THAT REFUN D OF EXCISE DUTY IS A BUSINESS RECEIPT, WHICH WAS PAID BY THE ASSESSEE AT THE TIME OF REMOVAL OF GOODS FROM FACTORY / GODOWN, AND LATER O N IT WAS CLAIMED BACK AS REFUND. BEING BUSINESS RECEIPT, WE HOLD THA T THE RECEIPT IS ELIGIBLE FOR QUALIFYING FOR THE EXEMPTION UNDER SEC TION 10B. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE AO TO TREAT THE REFUND AS BUSINESS RECEIPT FOR THE PURPOSES OF CLAIM OF EXEMPTION UNDER SECTION 10B. GROUND NO. 2(V) IS ALLOWED. 14. GROUND NO. 2(VI) RELATES TO STAFF AGREEMENT DEP OSIT FORFEITED. WE FIND THAT THIS ISSUE HAS BEEN DECIDED AGAINST TH E ASSESSEE IN I.T.A. NOS. 3890 & 3507/MUM/2005 IN ASSESSMENT YEAR 1999-2 000 IN PARA 20. WE DO NOT INTEND TO DISTURB THE ACCEPTED POSITI ON, HENCE WE HOLD THAT THESE AMOUNTS DO NOT QUALIFY FOR THE EXEMPTION U/S 10B AS THESE ARE NOT HELD TO BE RECEIPTS DERIVED FROM THE INDUST RIAL UNDERTAKINGS. GROUND NO. 2(VI) IS DISMISSED. 15. GROUND NO. 2(VII) RELATES TO REFUND OF RS. 21,8 3,894/- FROM MPCT FOR ASSESSMENT YEARS 1993-94 AND 1994-95 RECEI VED FROM THE SALES TAX DEPARTMENT IN CENTURY YARN. IN GROUND NO. 2(II), WE HAVE I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 7 DEALT WITH THE REFUND OF CST, GOING BY THE SAME REA SONS AS DECIDED IN GROUND NO. 2(II), WE HOLD THAT REFUND IS PURELY BUS INESS RECEIPT AND RELATED TO BUSINESS OF THE ASSESSEE. BEING BUSINESS RECEIPT, WE HOLD THAT THE RECEIPT IS ELIGIBLE FOR QUALIFYING FOR THE EXEMPTION UNDER SECTION 10B. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO TREAT THE REFUND AS BUSINESS RECEIPT FOR THE PURPOSES OF CLAIM OF EXEMPTION UNDER SECTION 10B. GROUND NO. 2(VII) IS ALLOWED. 16. GROUND NO. 2(VIII) IS RECEIVED FOR ICICI LTD. F OR DIFFERENCE BETWEEN ACTUAL RATE AND PROVISIONAL RATE ON INTERES T. WE FIND THAT THIS ISSUE DOES NOT QUALIFY FOR EXEMPTION U/S 10B, BEING RECEIPTS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. HENCE, WE REJECT THIS GROUND. GROUND NO. 2(VIII) IS DISMISSED. 17. GROUND NO. 2(IX) RELATES TO RECOVERY FROM OUTSI DERS AGAINST THE DAMAGES OF PROPERTY ETC. WE FIND THAT THIS ISSUE DO ES NOT QUALIFY FOR EXEMPTION U/S 10B, BEING RECEIPTS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. HENCE, WE REJECT THIS GROUND. GROUND NO. 2(IX) IS DISMISSED. GROUNDS NO. 2(I) TO 2(IX) ARE PARTLY ALLOWED. 18. GROUND NO. 3 IS THAT THE C.I.T.(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE FORFEITURE OF EMPLOYEES SECURITY DEPOSIT OF RS. 2,88,780/-. 19. THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSE E IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 3925 & 4170/MUM/ 2005 IN ASSESSMENT YEAR 2000-01, IN PARA 23, WHICH IS AS UN DER: I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 8 23. AFTER HEARING BOTH THE PARTIES, WE FIND THAT SI MILAR DISALLOWANCE AS MADE EVEN IN EARLIER YEAR AND THE MATTER TRAVELLED TO TRIBUNAL. AFTER CONSIDERING THE SUBMISSIONS, THE TRIBUNAL DECIDED T HE ISSUE AGAINST THE ASSESSEE, WHICH IS ALSO AN ADMITTED POSITION IN THE CHART. THEREFORE, FOLLOWING THE EARLIER YEAR ORDER, WE DECIDE THIS IS SUE AGAINST THE ASSESSEE. WE DO NOT INTEND TO DISTURB THE FINDINGS OF THE CO -ORDINATE BENCH TAKEN ON THIS ISSUE, WE THEREFORE, DECIDE THE ISSUE AGAINST THE ASSESSEE. GROUND NO. 3 IS DISMISSED. 20. GROUND NO. 4 IS THAT THE C.I.T(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE PROJECT EXPEN SES RS. 64,003/- TREATING CERTAIN REVENUE EXPENDITURE INCURRED DURIN G THE PERIOD OF SETTING UP OF PROJECT OF CENTURY CEMENT. 21. WE FIND THAT ASSESSEE HAD CLAIMED PROJECT EXPEN SES IN RESPECT OF CENTURY CEMENT DIVISION AMOUNTING TO RS. 64,003/ -. THESE EXPENSES PERTAINED MAINLY TO SALARY, TRAVELLING AND OTHER MI SCELLANEOUS EXPENDITURES, WHICH ARE OTHERWISE, REVENUE IN NATUR E. THIS ISSUE HAS BEEN DECIDED BY THE ITAT IN ASSESSEES OWN CASE IN I.T.A. NOS. 3925 & 4170/MUM/2005 IN ASSESSMENT YEAR 2000-01, IN PARAS 26, 27, 28 AND 29 AS UNDER: 26. BEFORE US, THE ID. COUNSEL OF THE ASSESSEE SUB MITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER O F TRIBUNAL IN EARLIER YEAR AND IN THIS REGARD HE SPECIFICALLY REFERRED TO PARA 19 OF THE ORDER OF TRIBUNAL IN ITA NO.9329/MUM/2004. 27. ON THE OTHER HAND, THE ID. D.R. SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE OF CIT VS. J.K. CHEMICALS LTD. (S UPRA) AND OTHER DECISIONS RELIED ON BY THE CIT(A) HAS CLEARLY HELD THAT SUCH PROJECT EXPENSES ARE NOT ALLOWABLE. 28. IN THE REJOINDER, THE ID. COUNSEL OF THE ASSESS EE POINTED OUT THAT IN THE CASE OF J.K. CHEMICALS LTD. THE ISSUE WAS REGAR DING EXPENDITURE INCURRED FOR PROJECT REPORT FOR SETTING UP A NEW UN IT, WHEREAS IN THE CASE BEFORE US THE EXPENDITURE IS IN THE FORM OF SA LARY, TRAVELLING AND MISC. EXPENDITURE, WHICH IS OF REVENUE NATURE. HE A LSO FURNISHED A I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 9 COPY OF THE ORDER OF BOMBAY HIGH COURT IN ITA NO.42 18 OF 2009 WHEREIN THE REVENUE HAD TAKEN THIS ISSUE BEFORE THE HONBLE BOMBAY HIGH COURT AND WHICH WAS ULTIMATELY DECIDED IN FAVO UR OF THE ASSESSEE. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THE TRIBUNAL DECIDED THIS ISSUE IN ITA NO.9329/MUM/ 2004 VIDE PARA 19. FURTHER, THE HONBLE BOMBAY HIGH COURT ITA NO.4 218 OF 2009, WHERE THE QUESTION WAS ASUNDER: (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE TRIBUNAL WAS JUSTIFIED IN LAW IN TREATING T HE PROJECT EXPENSES AMOUNTING TO RS.15,31,365/- AS REVENUE EXPENDITURE EVEN THOUGH THE SAME WERE CONNECTED TO THE NEW PROJECTS UNDER COMPL ETION AND THEREFORE CAPITAL IN NATURE? DECIDED THE ISSUE VIDE PARA 2, WHICH IS AS UNDER: 2, AS REGARDS THE FIRST TWO QUESTIONS ARE CONCERNE D, THE FINDING .OF FACT RECORDED BY THE TRIBUNAL IS THAT THE SAID EXPE NDITURE WAS INCURRED BY THE ASSESSEE RELATED TO THE SAME LINE OF BUSINES S CARRIED ON BY THE ASSESSEE AND THEREFORE ALLOWABLE AS REVENUE EXPENDI TURE. THE EXPENDITURE INCURRED RELATED TO SALARY, CONVEYANCE, LEGAL AND PROFESSIONAL CHARGES, PRINTING AND STATIONERY, WHIC H ARE REVENUE IN NATURE. IN THIS VIEW OF THE MATTER, NO FAULT CAN BE FOUND WITH THE DECISION OF THE TRIBUNAL IN ALLOWING THE EXPENSES A S REVENUE EXPENDITURE. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CHART SUBMITTED BY THE SENIOR AR, HE REFERRE D TO THE CASE OF CIT VS. COROMANDAL FERTILIZERS, REPORTED IN 105 TAXMAN 490 (AP), WHEREIN IT WAS HELD IT WAS ONLY AT THE STAGE OF STUDYING THE FEASIBILI TY FOR EXPLORING THE AREA FOR INVESTING THE SURPLUS FUNDS. IT HAD NOT RESULTED IN A BENEFIT ON ENDURING NATURE. THEREFORE, THE EXP ENDITURE INCURRED BY THE ASSESSEE WAS ON ACCOUNT OF REVENUE AND NOT OF C APITAL NATURE . IN THE INSTANT CASE, THE EXPENSES INCURRED BY THE ASSE SSEE WERE PRIMARILY IN THE NATURE OF SALARIES, WE FIND FORCE IN THE CAS E CITED BY THE AR AND HOLD THAT THE EXPENSES WERE IN THE NATURE OF REVENU E. IN ANY CASE, WE DO NOT INTEND TO DISTURB THE FINDINGS OF THE CO-ORD INATE BENCH TAKEN ON THIS ISSUE. WE, THEREFORE, DECIDE THE ISSUE IN FAVO UR OF THE ASSESSEE. GROUND NO. 4 IS ALLOWED. I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 10 22. GROUND NO. 5 IS THAT THE C.I.T.( A) HAS ERRED I N CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE PENALTY/FINE OF RS. 1,06,837/-. THESE PETTY PENALTIES AND FINES HAVE BEEN DECIDED A GAINST THE ASSESSEE IN PRECEDING YEAR BY THE ITAT, WE, THEREFO RE, DO NOT FIND ANY REASON TO DEVIATE FROM THESE FINDINGS. WE UPHOLD TH E DISALLOWANCES ON PENALTIES AND FINES. GROUND NO. 5 IS DISMISSED. 23. GROUND NO. 6 IS THAT THE C.I.T.( A) HAS ERRED I N CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING RS. 1,80,2911- BE ING THE AMOUNTS PERTAINING TO LEASEHOLD LAND W/OFF IN VARIOUS DIVIS IONS. 24. THE ISSUE HAD BEEN SET ASIDE TO THE FILE OF THE AO IN THE PRECEDING YEAR IN I.T.A. NOS. 3925 & 4170/MUM/2005 IN ASSESSMENT YEAR 2000-01, FOR RE-EXAMINATION OF THE ISSUE IN TH E LIGHT OF THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF MUKUN D LTD. REPORTED IN 106 ITD 231 (MUM SB) FOR FINDING THE NATURE OF THE PREMIUM PART. RESPECTFULLY FOLLOWING THE ORDER, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO FOR PASSING FRESH ORDER ON THE IMPUGNED ISSUE AFTER ALLOWING PROPER OPPORTUNITY TO THE ASSESSEE. GROUND NO. 6 IS ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO. 7 IS THAT THE C.I.T.(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN TREATING COMPENSATION FROM EX PLOITATION OF COMMERCIAL PREMISES, AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME. I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 11 26. THIS ISSUE IS DECIDED AGAINST THE ASSESSEE IN P RECEDING YEARS. WE, THEREFORE, DO NOT FIND ANY REASON TO DISTURB TH E FINDINGS. ACCORDINGLY, WE UPHOLD THE DISALLOWANCE. GROUND NO. 7 IS DISMISSED. 27. GROUND NO. 8 IS THAT THE C.I.T.(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE PROVISION IN RESPECT OF DIFFERENCE OF ELECTRICITY DUTY ON COLONY CONSUMPTION PAYABLE T O M.P.E.B./ C.S.E.B. ETC. RS. 3,42,051/-. 28. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE BY THE TRIBUNAL IN PRECEDING YEARS WHEREIN THE AO WAS DIRE CTED TO ALLOW THE EXPENDITURE ON PAYMENT BASIS CONSISTENTLY, WHATEVER SYSTEM OF ACCOUNTING IS ADOPTED BY THE ASSESSEE, IS TO BE FOL LOWED YEAR TO YEAR. AFTER CONSIDERING THAT THE ISSUE HAS NOT BEEN DECID ED BY THE AO IN THE PRECEDING YEAR AND THE SAME FINDING IS TO BE ADOPTE D HEREIN AS WELL, WE DEEM IT FIT TO RESTORE THE ISSUE TO THE FILE OF THE AO FOR ADJUDICATION. GROUND NO. 8 IS ALLOWED FOR STATISTICAL PURPOSES. 29. GROUND NO. 9 IS THAT THE C.I.T.(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE DEDUCTION U/S 35D IN RESPECT OF EURO ISSUE OF RS. 47,46,750/-. THIS ISSUE HAS BEEN SET ASIDE DECIDED TO THE FILE OF THE AO IN THE ASSESSEES OWN CASE IN I. T.A. NOS. 3925 & 4170/MUM/2005 IN ASSESSMENT YEAR 2000-01 IN PARAS 5 8, 59 & 61 AS UNDER: 58. AFTER HEARING BOTH THE PARTIES, WE FIND THAT D URING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD MA DE A EURO ISSUE DURING ACCOUNTING YEAR 1994-95. THE ISSUE WAS FOR R S.304.10 CRORES AND THE ASSESSEE HAD UTILIZED THE SAME IN RESPECT O F EXTENSION OF THE INDUSTRIAL PROJECT. THE TOTAL EXPENDITURE INVOLVED WAS RS.9,49,86,299/- I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 12 WHICH WAS IN EXCESS OF THE LIMIT LAID DOWN IN SEC. 35D(2) AT 2.5% OF THE COST OF PROJECT HOWEVER, THE AO DISALLOWED THE SAME BY OBSERVING THAT EVEN EURO ISSUE EXPENSES ARE IN THE NATURE OF SHARE ISSUE EXPENSES AND WOULD BE THEREFORE NOT ELIGIBLE U/S.35D IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BROOK BOND IND IA LTD. VS. CIT (225 ITR 798). BEFORE THE ID. CIT(A), IT WAS MAINLY SUBMITTED THAT DEDUCTION WAS ALLOWED IN EARLIER YEAR AND THE SAME CANNOT BE TAMPERED WITH NOW. THE ID. CIT(A). AFTER CONSIDERIN G THE SUBMISSIONS, RE-WORKED THE DEDUCTION VIDE PARA 22.5, WHICH IS AS UNDER: 22.5 ON VERIFICATION OF THE EARLIER RECORDS IT IS NOTICED THAT ON THE BASIS OF APPELLANTS CLAIM THE ASSESSING OFFICER HA S ALLOWED CLAIM U/S./35D IN A.YS 1995-96 TO 1997-98. APPELLANT HAD UTILIZED AN AMOUNT OF RS.189.87 CRORE(4.54 + 40.21 + 145.12) AN D GOT DEDUCTION OF 1/10TH OF 2.5% OF RS.189.87 CRORE UPTO A.Y. 1999 -2000. THEREFORE APPELLANT IS ENTITLED TO GET DEDUCTION OF 1/10 TH OF 2.5% OF THE BALANCE AMOUNT OF RS.114.23CRORE ONLY UTILIZED IN THIS RESP ECT THE AMOUNT OF DEDUCTION WORKS OUT TO RS.28,55,750 (I.E. 1/10 TH OF RS.2,85,57,500 BEING 2.5% OF RS.114.23 CRORE). APPELLANTS CLAIM O F DEDUCTION OF RS. 76,02,500 FOR A.Y. 2000-2001 IS THEREFORE, NOT CORR ECT. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S.35D AS D ONE IN THE EARLIER YEARS BUT. ONLY TO THE EXTENT OF RS.28,55,750 AS CA LCULATED ABOVE. APPELLANT GETS PART RELIEF OF RS.28,55,750 AND DISA LLOWANCE OF RS.4 7,4 6,750 IS CONFIRMED. THIS GROUND IS THUS PARTLY ALLOWED. 59. BEFORE US, IT WAS MAINLY SUBMITTED THAT SOME AD DITIONAL EXPENDITURE HAS BEEN INCURRED AND THEREFORE THE SAM E WAS ALSO ELIGIBLE AND THEREFORE THE PROJECT COST HAS TO BE CONSIDERED AT A HIGHER FIGURE AND THE SAME IS TO BE ALLOWED ACCORDINGLY. IT WAS A LSO SUBMITTED THAT SIMILAR EXPENDITURE WAS ALLOWED VIDE PARAS 27 TO 29 OF THE ORDER OF TRIBUNAL IN ITA NO.9329/MUM/2004. HOWEVER, ON A QUE RY BY THE BENCH, THE LD. COUNSEL COULD NOT EXPLAIN HOW THE AD DITIONAL EXPENDITURE HAS ARISEN BECAUSE; NORMALLY, AFTER THE COMPLETION OF EURO ISSUE, THE NET PROCEEDS WOULD BE REMITTED TO ASSESS EE AND LATER ON NOTHING WOULD REMAIN PAYABLE. THE ID. COUNSEL COULD NOT GIVE ANY SATISFACTORY ANSWER. 61. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D, THAT ONCE A DEDUCTION IS ALLOWED U/S.35D, EVEN ON EURO ISSUE BY AMORTIZATION OF THE SAME BY EVEN CONSIDERING THE LIMIT OF 2.5% PRES CRIBED, THEN LATER ON SUCH DEDUCTION CANNOT BE DENIED. THEREFORE, THE ASSESSEE IS PRINCIPALLY ELIGIBLE FOR DEDUCTION U/S.35D. THOUGH IN THE EARLIER YEAR ORDER IT IS MENTIONED THAT EXPENDITURE HAS BEEN INC URRED IN VARIOUS YEARS, IT DOES NOT SEEM TO -B PLAUSIBLE BECAUSE ON EURO ISSUE ONLY ONE TIME EXPENDITURE WOULD BE INVOLVED. IT SEEMS THE FI GURE RELATES TO UTILIZATION OF FUNDS AND PERHAPS THE ACCOUNTANTS WE RE NOT PRESENT IN THE COURT THAT IS WHY THE SR. COUNSEL COULD NOT EXP LAIN THE FIGURES. IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO WITH A DIRECTION TO RE -EXAMINE THE ISSUE AND ALLOW THE EXPENDITURE BY WAY OF ONE TIME COST OF PR OJECT AFTER VERIFICATION. I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 13 SINCE THE FACTS IN THE CURRENT YEAR ARE IDENTICAL W ITH THE FACTS IN ASSESSMENT YEAR 2000-01, WE, RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, SET ASIDE THE ORDER OF THE C IT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO FOR PASSING A FRESH ORD ER AFTER NECESSARY EXAMINATION IN ACCORDANCE WITH LAW, AND AFTER ALLOW ING OPPORTUNITY TO THE ASSESSEE. GROUND NO. 9 IS ALLOWED FOR STATISTICAL PURPOSES. 31. GROUND NO. 10 IS THAT THE C.I.T.(A) HAS ERRED I N CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE INTEREST ATTR IBUTABLE TO INVESTMENTS MADE BY THE COMPANY IN DIVIDEND EARNING ASSETS OF RS 8,81,108/-. 32. WE FIND THAT THE ITAT HAS RESTORED THE ISSUE BA CK TO THE AO TO BE DECIDED ON THE BASIS OF THE DECISION OF THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V S DCIT, REPORTED IN 328 ITR 81. THEREFORE, WE SET ASIDE THE ORDER OF TH E CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO RECOMPUTE THE DISALLOWANCE U/S 14A IN THE LIGHT OF THE DECISION OF THE HON'BLE BOM BAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS DCIT (SU PRA). GROUND NO. 10 IS ALLOWED FOR STATISTICAL PURPOSES. 33. GROUND NO. 11 WAS NOT PRESSED BEFORE US. THEREF ORE, SAME IS BEING DISMISSED AS NOT PRESSED. 34. GROUND NO. 12 IS THAT THE C.I.T.(A) ERRED IN PA RTLY CONFIRMING THE ACTION OF A.O. BY ADDING BACK PROVISION FOR DOU BTFUL DEBTS AND ADVANCES AMOUNTING TO RS. 3,43,188/- WHILE COMPUTIN G BOOK PROFITS U/S 115JB OF THE INCOME-TAX ACT. THE PROVISION FOR DOUBTFUL DEBTS AND I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 14 ADVANCES OF RS. 3,43,188/- ARE DEBITED TO PROFIT & LOSS ACCOUNT. NO ADJUSTMENT IN THIS RESPECT IS ADMISSIBLE U/S 115JB OF THE INCOME TAX ACT AND THE SAME SHOULD NOT BE ADDED TO BOOK PROFIT S. 35. THE ISSUE IS COVERED BY THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT, REP ORTED IN 255 ITR 273, WHEREIN THE HON'BLE SUPREME COURT HELD (HEAD NOTE) AS UNDER: THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIE D BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAI NTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OF FICER, THEREAFTER, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUC TIONS AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J. THE ASSESSI NG OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN T HE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115 J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFF ICER TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFF ICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTA IN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGIS TRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANC E WITH THE REQUIREMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UP ON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. HELD ACCORDINGLY, THAT, WHILE DETERMINING THE BOOK PROFITS UNDER SECTION 115J, THE ASSESSING OFFICER COULD NOT RECOM PUTE THE PROFITS IN THE PROFIT, AND LOSS ACCOUNT BY EXCLUDING PROVISION S MADE FOR ARREARS OF DEPRECIATION. RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COU RT, WE HOLD THAT ADJUSTMENTS CANNOT BE MADE ONCE THE ASSESSMENT IS T O BE FRAMED UNDER MAT PROVISIONS, HENCE THE ADDITION MADE BY TH E REVENUE AUTHORITIES IS DELETED. GROUND NO. 12 IS ALLOWED. I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 15 36. GROUND NO. 13 IS THAT THE C.I.T(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O IN DISALLOWING THE LEASE EXPENSES OF RS. 81,180/- BEING 1/20TH OF RS. 16,23,610/- AS AGAINST 1/10TH C LAIMED BY THE APPELLANT. THIS ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE TRIBUNAL IN PRECEDING YEARS. HENCE, WE ALLOW THIS GROUND. RESPECTFULLY FOLLOWING THE ORDERS OF THE COORDINATE BENCH IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2000-01 IN I TA NO. 3925/MUM/2005. GROUND NO. 13 IS ALLOWED. 37. GROUND NO. 14 IS THAT THE C.I.T(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING THE INTEREST PAID TO S.S.I. UNITS ON DELAYED PAYMENT OF RS. 3,52,800/- (I.E. RS. 1,51,20 2 + RS. 2,00,030 + RS.1,5681-). IT IS AN ADMITTED POSITION THAT THE IS SUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL, PARTICUL ARLY BY PARA 25 IN I.T.A. NO. 9329/MUM/2004 IN THE PRECEDING YEAR. FOL LOWING THAT ORDER, WE DISMISS THIS GROUND. GROUND NO. 14 IS DISMISSED. 38. GROUND NO. 15 WAS NOT PRESSED BEFORE US, THEREF ORE, THE SAME IS BEING DISMISSED AS NOT PRESSED. 39. GROUND NO. 16 IS GENERAL IN NATURE. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. I.T.A. NO. 4171/MUM/2005 : I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 16 40. GROUND NO. 1 OF APPEAL RAISED BY THE REVENU E IS THAT THE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RES TRICT THE DISALLOWANCE TO RS. 1,06,837/- WITHOUT APPRECIATING THAT IN VIEW OF THE EXPLANATION TO SECTION 37(1) ANY EXPENDITURE INCURRED BY AN ASS ESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS OR PROFESSION AND NO DEDUCTION WILL BE ALLOWABLE IN RE SPECT OF SUCH AN EXPENDITURE. 41. THIS ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL IN I.T.A. NOS. 3925 & 4170/MUM/2005 IN ASSESSMENT YEAR 2000-01, IN PARAS 69, 70 AND 71 WHICH READ AS UNDER: 69. BEFORE US, IT WAS SUBMITTED THAT THE AMOUNTS DL1LOWED BY THE CIT(A) ARE BASICALLY OF COMPENSATORY NATURE AND THE REFORE THE SAME SHOULD HAVE HEN ALLOWED. IN THIS REGARD , RELIANCE WAS PLACED ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF P RAKASH COTTON MILLS PVT. VS. CIT (201 ITR 684) (SC) AND STANDARD BATTERIES LTD. VS. CIT (211 ITR 444) (SC). 70. ON THE OTHER HAND, THE ID. D.R RELIED ON THE OR DER OF CIT(A). 71. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE HONBLE SUPREME COURT IN THE CASES OF PRAKASH COTTO N MILLS PVT. LTD. (SUPRA) AND STANDARD BATTERIES LTD. VS. CIT (SUPRA) HAS OBSERVED THAT WHATEVER IS PAID TO THE GOVT. AUTHORITIES, THOUGH K NOWN AS PENALTY, BUT IF THE SAME IS OF COMPENSATORY NATURE, THEN THE SAM E, STRICTLY SPEAKING, IS NOT PENALTY AND HAS TO BE ALLOWED AS BUSINESS EX PENDITURE. THE HONBLE COURT HAS GIVEN THE AMPLE OF PENALTY PAID FOR DELAYED PAYMENT OF SALES-TAX WHICH WAS HELD TO BE COMPENSAT ORY NATURE. SINCE NO DETAILS HAVE BEEN GIVEN FOR THE AMOUNT PAID, WHI CH HAS BEEN DISALLOWED BY THE AO, AND EVEN THE SR. COUNSEL OF T HE ASSESSEE HAS NOT PLACED ANY DETAILS BEFORE US, THEREFORE, WE SET ASI DE THE ORDER OF ID. CIT(A AND REMIT THE MATTER BACK TO THE FILE OF AO F OR RE-EXAMINATION OF THE ISSUE AND IF VARIOUS PENALTIES PAID ARE FOUND T O BE ONLY COMPENSATORY IN NATURE IN VIEW OF THE DECISIONS OF THE HONBLE SUPREME COURT (SUPRA), THEN THE SAME MAY BE ALLOWED . RESPECTFULLY FOLLOWING THE DECISION TAKEN BY THE CO ORDINATE BENCH IN THE ASSESEES OWN CASE, WE IN THE CURRENT YEAR, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE TO THE FI LE OF THE AO TO RE I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 17 EXAMINE THE EXACT NATURE OF PAYMENTS, I.E., WHETHER THESE ARE COMPENSATORY OR THESE ARE PENAL IN NATURE. THE GROU ND IS ALLOWED TO THAT EXTANT. GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSES. 42. GROUND NO. 2 IS THAT THE CIT(A) ERRED IN DIRECT ING THE ASSESSING OFFICER TO ALLOW EX GRATIA PAYMENT OF RS. 2,21,8831 - U/S 43B(C)OF THE ACT WITHOUT APPRECIATING THE FACT THAT IT WAS IN TH E NATURE OF BONUS. 43. THIS ISSUE WAS DEALT WITH IN I.T.A. NOS. 3890 & 3507/MUM/2005 FOR THE ASSESSMENT YEAR 1999-2000, WHEREIN THE TRIB UNAL HAD UPHELD THE DECISION OF THE CIT(A). IN THE CURRENT YEAR ALS O THE ISSUE IS SIMILAR ON FACTS. IN ASSESSMENT YEAR 2000-01, THE ISSUE WAS NOT RAISED BY THE DEPARTMENT. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WE CONFIRM THE ORDER OF THE CI T(A) AND DISMISS THE GROUND FILED BY THE DEPARTMENT. GROUND NO. 2 IS DISMISSED. 44. GROUND NO. 3 IS THAT THE CIT(A) ERRED IN DIRECT ING THE ASSESSING OFFICER TO ALLOW THE FOREIGN TRAVEL EXPENSES OF MRS . S.D. GINA, WIFE OF SHRI. B.K. BIRLA, CHAIRMAN OF THE COMPANY WITHOUT A PPRECIATING THE FACT THAT IT WAS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. 45. IN THE PRECEDING YEAR, THE ITAT HAD RESTORED TH E ISSUE TO THE FILE OF THE AO DIRECTING, THE AO TO EXAMINE IN DETA IL THE NATURE OF EXPENSES ALONG WITH THE BOARDS RESOLUTION, IF AT A LL, THEREFORE, FOLLOWING THE FINDINGS OF THE ITAT IN THE PRECEDING YEAR AND IN THE I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 18 INTERESTS OF JUSTICE, WE RESTORE THE ISSUE TO THE F ILE OF THE AO TO TAKE A DECISION THEREON. THIS GROUND IS ALLOWED TO THAT EX TENT. GROUND NO. 3 IS PARTLY ALLOWED. 46. GROUND NO. 4 IS THAT THE CIT(A) ERRED IN DIRECT ING THE ASSESSING OFFICER TO ALLOW DEPRECIATION OF RS. 57,756/- ON AC COUNT OF ADDITION TO PLANT & MACHINERY BEING PROVISION FOR CUSTOM DUTY O N AIRJET LOOMS AND AUTO CORNER WITHOUT APPRECIATING THAT THE SAME ARE COVERED BY THE PROVISIONS OF SECTION 43B. 47. IN ASSESSMENT YEAR 2000-01, IN ITA NO. 4170/MUM /2005 IN PARAS 77 AND 78 AND IN THE EARLIER YEARS, THE ITAT HAS BEEN DECIDING THE ISSUE AGAINST THE REVENUE AND IN FAVOR OF THE A SSESSEE, RESPECTFULLY FOLLOWING THE DECISIONS TAKEN BY THE ITAT IN THE PR ECEDING YEARS, WE DECIDE THE ISSUE AGAINST THE DEPARTMENT. GROUND NO. 4 IS DISMISSED. 48. GROUND NO. 5 IS THAT THE CIT(A) ERRED IN DIRECT ING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO RS. 8,81,10 8/- U/S 14A WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS A MIX O F BORROWED AND SELF OWNED FUNDS WHICH IT UTILISES FOR BOTH BUSINESS AND NON BUSINESS ACTIVITIES AND THE ASSESSEE HAD FAILED IN DISCHARGI NG THE ONUS OF PROVING THE NEXUS BETWEEN THE INVESTMENT AND THE SE LF OWNED FUNDS BY WAY OF CASH FUND FLOW STATEMENT TO THE SATISFACT ION OF THE ASSESSING OFFICER. 49. IN ITA NO. 41790/MUM/2005 FOR ASSESSMENT YEAR, THE ISSUE WAS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATI ON IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 19 BOYCE MFG. CO.LTD. VS. DCIT 328 ITR 81 (BOM). HENCE , WE ALLOW THIS GROUND TO THAT EXTENT. GROUND NO. 5 IS PARTLY ALLOWED. 50. GROUND NO. 6 IS THAT THE CIT(A) ERRED IN DIRECT ING THE ASSESSING OFFICER TO EXCLUDE EXCISE DUTY AND SALES TAX FROM T HE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 8OHHC B Y RELYING ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF SU DARSHAN CHEMICALS LTD. V/S CIT, REPORTED IN 245 ITR 769 WITHOUT APPRE CIATING THE FACT THAT THE DEPARTMENT HAD NOT ACCEPTED THE DECISION AND IT S APPEAL ON MERITS WAS PENDING BEFORE THE APEX COURT AND ALSO NOT APPR ECIATING THAT AS PER THE PROVISIONS OF SECTION 145A THE SAME IS TO B E INCLUDED AS AN INTEGRAL PART OF THE TURNOVER. 51. THE ISSUE IS COVERED BY THE DECISION OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S SUDARSHAN CHEMICAL IND USTRIES LTD., REPORTED IN 245 ITR 769, WHEREIN THE HON'BLE BOMBAY HIGH COURT HELD (HEAD NOTE) AS UNDER: ..SUCH PROFITS CANNOT BE REDUCED ARTIFICIALLY BY INCLUDING STATUTORY LEVIES IN THE DENOMINATOR, NAMELY, TOTAL TURNOVER. THEREFORE, THE TURNOVER SHOULD BE RESTRICTED TO SUC H RECEIPTS WHICH HAVE AN ELEMENT OF PROFIT IN IT. IT IS ONLY THE ACT UAL SALE PRICE WHICH IS RELEVANT. ANYTHING CHARGED BY THE ASSESSEE BY WAY O F EXCISE DUTY AND SALES TAX CANNOT BE TAKEN INTO ACCOUNT AS THEY DO N OT HAVE ANY ELEMENT OF PROFIT. EVEN, ACCORDING TO ACCOUNTING PR INCIPLES, SUCH LEVIES DO NOT FORM PART OF THE PROFIT AND LOSS ACCO UNT. IN FACT, THEY ARE SHOWN AS LIABILITY IN THE BALANCE-SHEET. IN THE CIRCUMSTANCES, THE ABOVE TWO ITEMS CANNOT BE INCLUDED IN THE TOTAL TUR NOVER. THE ISSUE THEN CAME UP BEFORE THE HON'BLE SUPREME C OURT IN THE CASE OF CIT V/S LAKSHMI MACHINE WORKS, REPORTED IN 290 ITR 667 (S.C), WHEREIN, THE HON'BLE SUPREME COURT HELD (HEA D NOTE) AS UNDER: I.T.A. NOS.3926 & 4171 /M/2005 CENTURY TEXTILES AND IN DS. LTD. 20 EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF TURNOVER. JUST AS INTEREST, COMMISSION, ETC., DO NOT EMANATE FROM THE TURNOVER SO ALSO EXCISE DUTY AND SALES TAX DO NOT EMANATE FROM SUCH TURNOVER. SINCE EXCISE DUTY AND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVER SUCH TAXES HAD TO BE EXCLUDED. COMMIS SION, INTEREST, RENT, ETC., DO YIELD PROFITS, BUT THEY DO NOT PARTA KE OF THE CHARACTER OF TURNOVER AND THEREFORE THEY ARE NOT INCLUDIBLE IN T HE TOTAL TURNOVER. IF SO, EXCISE DUTY AND SALES TAX ALSO CA NNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3). ..IF SO, EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) : OTHERWISE THE FORMULA BECOMES UNWORKABLE.. FOLLOWING THE DECISION OF THE HONBLE APEX COURT, W E DO NOT INTEND TO DISTURB THE FINDINGS OF THE CIT(A) ON THE ISSUE. TH E GROUND, TAKEN BY THE REVENUE, IS THEREFORE, DISMISSED. GROUND NO. 6 IS DISMISSED. 52. GROUNDS NO. 7 AND 8 ARE GENERAL IN NATURE. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. IN THE RESULT : I.T.A. NO. 3926/MUM/2005 FILED BY THE ASSESSEE IS P ARTLY ALLOWED AND I.T.A. NO. 4171/MUM/2005, FILED BY THE DEPARTMENT I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 16/05/2012. SD/- SD/- (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 2012. P/-*