M/s. ABB Ltd., Bangalore V. CIT, Bangalore

ITA 437/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9425 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Capital asset; Depreciation; Audit objection; Additional depreciation; Difference of opinion; Change of opinion; Reassessment proceedings; Capital Gains
• Section: 143(3); 80HHC; 32(1)(iia); 207; 32; 263

Judgement Text

PAGE 1 OF 16 ITA NO.437/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N L KALRA, A.M. AND SHRI GEORGE GEORGE K, J.M. ITA NO.437/BANG/2009 (ASST. YEAR 2004-05) M/S ABB LIMITED, KHANIJA BHAVAN, 49, RACE CORUSE ROAD, II FLOOR, EAST WING, BANGALORE-1. - APPELLANT VS THE COMMISSIONER OF INCOME TAX, (LTU), BANGALORE. - RESPONDENT APPELLANT BY : SHRI P J PARDIWALLA RESPONDENT BY : SMT. SWATHI S PATIL O R D E R PER N L KALRA : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R U/S 263 BY LEARNED CIT(LTU), BANGALORE. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- I) THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE LEARNED ADDL. COMMISSIONER OF INCOME TAX (LTU) ('ACIT'), BANGALORE UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) DATED PAGE 2 OF 16 ITA NO.437/BANG/2009 2 DECEMBER 20,2006, WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT AND THEREFORE SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING A FRESH ASSESSMENT. II) THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE LEARNED ACIT WAS ERRONEOUS WITH REFERENCE TO CLAIMING OF ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY U/S 32(1)(IIA) WHICH INCLUDES 1,890,822 ON TECHNICAL KNOW-HOW ON THE BASIS OF THE LAW APPLICABLE FOR THE RELEVANT ASST. YEAR. III) THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE LEARNED ACIT WAS ERRONEOUS WITH REFERENCE TO THE ADJUSTMENT OF THE LOSS UNDER EXPORT OF TRADING GOODS OF RS.90,214,230/- WAS ADDED TO THE TOTAL PROFIT OF THE BUSINESS TO ARRIVE AT THE ADJUSTED PROFITS OF THE BUSINESS. IV) THE ADJUSTMENT OF THE ABOVE LOSSES UNDER EXPORT OF TRADING GOODS GOT RECTIFIED BY THE ORDER OF THE CIT(A), SINCE THE ASSESSMENT ORDER GOT MERGED WITH THE CIT(A) ORDER. THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESSMENT ORDER AFTER MERGING WITH THE CIT(A) ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. ASSESSMENT ORDER U/S 143(3) WAS PASSED ON 20.12.2006. THE LEARNED CIT NOTICED THAT THE ASSES SING OFFICER HAS (I) ALLOWED ADDITIONAL DEPRECIATION U/S 32(1)(IIA) ON TECHNICAL KNOW-HOW PAGE 3 OF 16 ITA NO.437/BANG/2009 3 (II) ADDED LOSS COMPUTED FOR TRADING GOODS TO THE TOTAL PROFIT OF THE BUSINESS FOR COMPUTING PROFIT FROM MANUFACTURING FOR THE PURPOSES OF ALLOWING DEDUCTION U/S 80HHC IN RESPECT OF EXPORTS OF MANUFACTURED GOODS. SHOW CAUSE NOTICE U/S 263 WAS ISSUED ON 16.2.2009 V IDE WHICH THE LEARNED CIT PROPOSED TO WITHDRAW EXCESS DEDUCTI ON ALLOWED U/S 32(1)(IIA) AND TO RECOMPUTE DEDUCTION U/S 80HHC WITHOUT ADDING LOSS FROM TRADING GOODS TO THE TOTAL PROFIT OF THE BUSINESS FOR THE PURPOSES OF DETERMINING THE DEDUCT ION ALLOWABLE U/S 80HHC. 4. THE ASSESSEE FILED REPLY VIDE LETTER DATED 17.2.2009. IT WAS SUBMITTED THAT DURING THE YEAR, A NEW INDUSTRIAL UNDERTAKING NAMELY, H V MOTORS CAME INTO EXISTENCE FOR MANUFACTURE OF SQUIRREL CAGE INDUCTION MOTORS. FOR THIS PURPOSE, TECHNICAL KNOW-HOW RELATED TO IT WAS ACQUI RED AND ADDITIONAL DEPRECIATION WAS CLAIMED. TECHNICAL KNO W-HOW RELATED TO PLANT USED IN THE NEW INDUSTRIAL UNDERTAKING. T HE ASSESSEE ALSO ENCLOSED THE FOLLOWING DOCUMENTS WITH THE REPL Y:- A) COPY OF INVOICE BEARING NO.P127080-1 & P127080-2 B) COPY OF THE RELEVANT PAGE OF THE TAX AUDIT REPORT C) COPY OF THE REPORT U/S 32(1)(IIA) WITH ANNEXURE A AND B D) COPY OF THE LICENSE AGREEMENT PAGE 4 OF 16 ITA NO.437/BANG/2009 4 5. IN RESPECT OF DEDUCTION U/S 80HHC, IT WAS SUBMITTED THAT THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A) AND AS A RESULT OF ORDER OF LEARNED CIT(A), THESE PROFITS IN RESPECT OF TRADING GOODS AND THE AO HAS GIVEN EF FECT TO THE ORDER OF LEARNED CIT(A) AND HENCE, THERE IS NO ISSU E OF ADDING LOSS IN TRADING OF GOODS TO BE ADDED TO THE TOTAL P ROFIT OF BUSINESS TO ASCERTAIN PROFIT FROM THE MANUFACTURING OF GOODS FOR THE PURPOSES OF DETERMINING DEDUCTION U/S 80HHC. 6. BEFORE THE LEARNED CIT, IT WAS ALSO ARGUED THAT ON THE ISSUES WHICH ARE BEING CONSIDERED IN PROCEEDING S U/S 263, THE AO HAS APPLIED HIS MIND AND HAS TAKEN A DECISIO N. PROCEEDINGS U/S 263 CANNOT BE INITIATED ON THE BASI S OF CHANGE OF OPINION. 7. THE LEARNED CIT OBSERVED THAT ADDITIONAL DEPRECIATION IS ALLOWABLE ON PLANT AND MACHINERY. I T CANNOT BE ALLOWED ON TECHNICAL KNOW-HOW CONNECTED WITH THE IN STALLATION OF PLANT AND MACHINERY. DEPRECIATION SCHEDULE IN RULE 5 SPECIFIES DEPRECIATION ON PLANT AND MACHINERY IN PART A WHILE PART B DEALS WITH DEPRECIATION ON INTANGIBLE ASSETS LIKE KNOW-HO W, PATENTS ETC. SECTION 32(1) DEFINES THE ITEMS ELIGIBLE FOR DEPREC IATION: I) BUILDINGS, MACHINERY, PLANT OR FURNISHERS BEING TANGIBLE ASSETS II) KNOW-HOW, PATENTS ............ BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1.4.98. PAGE 5 OF 16 ITA NO.437/BANG/2009 5 8. FROM THE ABOVE, THE LEARNED CIT CONCLUDED THAT KNOW-HOW, BEING AN INTANGIBLE ASSET, IS AN INDEPEND ENT ITEM TREATED SEPARATELY FROM PLANT AND MACHINERY. STRICT INTERPRETATION OF SECTION 32(1)(I) AND (II) CLEARLY SHOW THAT TECHNICAL KNOW-HOW CANNOT BE EQUATED WITH PLANT AND MACHINERY AND HENCE, ADDITIONAL DEPRECIATION WHICH IS ALLOWAB LE ON PLANT AND MACHINERY IS NOT ADMISSIBLE ON KNOW-HOW. FOR INTERP RETATION OF THE PROVISIONS, THE LEARNED CIT PLACED RELIANCE ON THE FOLLOWING JUDGEMENTS:- SMT. TARULATA SHYAM & ORS. V CIT 108 ITR 354 (SC); KARNATAKA FOREST PLANTATION CORPORATION LTD. V CIT 156 ITR 275 (KAR.) 9. THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT DUE TO WITHDRAWAL OF ADDITIONAL DEPRECIATION, WDV FOR THE ASSET WILL INCREASE AND THE ASSESSEE WILL BE ENTITLED TO HIGHE R DEPRECIATION IN SUBSEQUENT YEAR, WAS ACCEPTED BY THE LEARNED CIT. 10. IN RESPECT OF COMPUTATION OF DEDUCTION U/S 80H HC, THE LEARNED CIT HELD AS UNDER:- 'I HAVE GONE THROUGH THE RECORDS I.E. BOTH 143(3) ORDER AS WELL AS SUBSEQUENT ORDER OF ASSESSING OFFICER DATED 26.3.2008 AND I FIND THAT IN THE ORDER GIVING EFFECT TO CIT(A) ORDER, THE SAID MISTAKE HAS GOT CORRECTED AS ARGUED BY THE ASSESSEE. BUT THE FACT REMAINS THAT THE ORIGINAL ORDER U/S 143(3) HAS CONTINUED TO REMAIN ERRONEOUS PAGE 6 OF 16 ITA NO.437/BANG/2009 6 AND HENCE PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO CORRECT THE MISTAKE VIZ. COMPUTATION OF 80HHC IN THE ORIGINAL 143(3) ORDER WHICH IS MORE OF ARITHMETICAL IN NATURE. PROCEDURALLY, THIS WOULD BE RIGHT THING TO DO. ASSESSEE'S INTEREST IN ANY CASE, DOES NOT GET HARMED. SUCH AN EXERCISE WOULD BE IN THE INTEREST OF REVENUE AND ALSO PROCEDURALLY CORRECT. IN LATER STAGE, IF THE APPELLATE DECISION CHANGE, THE CORRECT FIGURE ARRIVED AT IN THE 143(3) ORDER WHICH WOULD BE NORMALLY THE BASE FIGURE FOR RESTARTING THE COMPUTATION OF TOTAL INCOME WOULD NOT GIVE RISE TO ANY CONFUSION OR ERROR'. 11. DURING THE COURSE OF PROCEEDINGS BEFORE US, TH E LEARNED AR HAS FILED A PAPER BOOK CONTAINING 79 PAG ES. THE LEARNED AR DREW OUR ATTENTION TO PAGES 1 TO 3 OF TH E PAPER BOOK, WHICH CONTAINS THE AUDIT OBJECTION RAISED BY REVENUE AUDIT. THE TWO ISSUES ON WHICH THE LEARNED CIT HAS INITIATED P ROCEEDINGS U/S 263 ARE THE ISSUES IN RESPECT OF WHICH OBJECTIO NS WERE RAISED BY REVENUE AUDIT. THE LEARNED AR DREW OUR AT TENTION TO THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COUR T IN THE CASE OF CIT V SOHANA WOOLEN MILLS 207 CTR 178. OUR ATTENTION WAS DRAWN TO PARA 6 OF THIS JUDGEMENT WHICH IS REPR ODUCED AS UNDER:- '6. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT JURISDICTION UNDER S.263 OF THE ACT COULD NOT BE EXERCISED BY THE CIT, AS RIGHTLY HELD BY THE TRIBUNAL. IT WAS SUBMITTED THAT THE ORDER OF THE AO COULD PAGE 7 OF 16 ITA NO.437/BANG/2009 7 NOT BE HELD TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. RELIANCE HAS BEEN PLACED ON JUDGEMENTS IN JEEWANLAL (1929) LTD. V ADDL. CIT & ORS. (1977) 108 ITR 407 (CAL), TO SUBMIT THAT CIT CAN EXERCISE POWER UNDER S.263 OF THE ACT ONLY ON APPLICATION OF HIS OWN MIND AND NOT MERELY ON A NOTE OF AN AUDIT PARTY; INDIAN & EASTERN NEWSPAPER SOCIETY V CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996 (SC), TO SUBMIT THAT OPINION OF INTERNAL AUDIT PARTY ON POINT OF LAW DID NOT CONSTITUTE INFORMATION FOR PURPOSES OF S.147(B) OF THE IT ACT; CIT V B C SRINIVASA SETTY (1981) 21 CTR (SC) 138: (1981) 128 ITR 294 (SC) TO SUBMIT THAT TRANSFER OF GOODWILL DOES NOT GIVE RISE TO A CAPITAL GAIN; CIT V NEW SURAJ TRANSPORT CO. (P) LTD. (1991) 100 CTR (P&H) 214: (1992) 194 ITR 458 (P&H) TO SUBMIT THAT ROUTE PERMIT WAS A SELF GENERATING ASSET AND CONSIDERATION FOR ITS TRANSFER WAS NOT ASSESSABLE AS CAPITAL GAINS; CIT V V PRAKASHAN (1994) 121 CTR (KER.) 468: (1995) 211 ITR 119 (KER) TO THE SAME EFFECT AND RAYLON SILK MILLS V CIT (1996) 134 CTR (GUJ.) 388: (1996) 221 ITR 155 (GUJ.) TO SUBMIT THAT SELF-GENERATED GOODWILL DID NOT ATTRACT CAPITAL GAINS'. 12. THE LEARNED AR DREW OUR ATTENTION TO THE DECIS ION OF JAIPUR BENCH IN THE CASE OF MODERN MINERALS V AC IT 59 TTJ 733. THE LEARNED JAIPUR BENCH NOTICED THAT HON'BLE APEX COURT IN THE CASE OF INDIAN & EASTERN NEWSPAPER SOCIETY 11 9 ITR 996 HAS HELD THAT THE OPINION OF AUDIT PARTY ON A POINT OF LAW COULD NOT BE REGARDED AS INFORMATION ENABLING THE AO TO I NITIATE PAGE 8 OF 16 ITA NO.437/BANG/2009 8 REASSESSMENT PROCEEDINGS U/S 147(B) OF THE I T ACT. IT WAS THEREFORE OBSERVED THAT THE JUDGEMENT OF THE HON'BL E APEX COURT HELPS THE ASSESSEE AS IN THE CASE BEFORE THEM ; ACTION U/S 263 WAS TAKEN BY LEARNED CIT ON THE BASIS OF AUDIT O BJECTION. 13. THE LEARNED COUNSEL DREW OUR ATTENTION TO EXPLANATION 4 TO SECTION 32(1) VIDE WHICH THE MEANI NG OF EXPRESSION KNOW-HOW FOR THE PURPOSE OF SUB-SECTION 1 OF SECTION 32 HAS BEEN GIVEN. AS PER THIS EXPLANATION, KNOW-H OW MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURING OR PROCESSING OF GOODS OR IN THE WORK ING OF A MINE, OIL WELL OR OTHER SOURCES OF MINERAL DEPOSITS. SIM ILAR DEFINITION HAS BEEN GIVEN IN EXPLANATION TO SECTION 35AB. THE REAFTER THE LEARNED AR DREW OUR ATTENTION TO THE COPY OF INVOICE S AVAILABLE AT PAGES 9 AND 10 OF THE PAPER BOOK. KNOW-HOW WAS IN THE FORM OF DESIGN DOCUMENTS FOR THE INSTALLATION OF PLANT A ND MACHINERY. THIS IS NOT A KNOW-HOW WHICH IS TO ASSIST IN THE MA NUFACTURING OF GOODS. HENCE, THE KNOW-HOW WHICH THE ASSESSEE ACQU IRED IS NOT COVERED BY THE DEFINITION OF KNOW-HOW AS GIVEN IN EX PLANATION 4 TO SECTION 32(1). THE LEARNED AR DREW OUR ATTENTIO N TO THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V ELECTRON ENGINEERING CO. LTD. 166 ITR 66, VIDE WHICH IT WAS HELD THAT DRAWINGS AND PATTERNS FOR THE MANUFACTURE OF WORN R EDUCTION GEAR UNITS ARE PLANT. THE HON'BLE APEX COURT IN TH E CASE OF SCIENTIFIC ENGINEERING HOUSE P. LTD. V CIT 157 ITR 86 HAS HELD AS UNDER:- PAGE 9 OF 16 ITA NO.437/BANG/2009 9 '(IV) THAT THE DRAWINGS, DESIGNS, CHARTS, PLANS, PROCESSING DATA AND OTHER LITERATURE COMPRISED IN THE 'DOCUMENTATION SERVICE' AS SPECIFIED IN CLAUSE 3 CONSTITUTED A 'BOOK' AND FELL WITHIN THE DEFINITION OF 'PLANT' IN SECTION 43(3) OF THE I T ACT, 1961. THE PURPOSE OF RENDERING SUCH DOCUMENTATION SERVICE BY SUPPLYING THESE DOCUMENTS TO THE APPELLANT WAS TO ENABLE IT TO UNDERTAKE ITS TRADING ACTIVITY OF MANUFACTURING THEODOLITES AND MICROSCOPES AND THESE DOCUMENTS HAD A VITAL FUNCTION TO PERFORM IN THE MANUFACTURE OF THESE INSTRUMENTS; IN FACT, IT WAS WITH THE AID OF THESE COMPLETE AND UP-TO-DATE SET OF DOCUMENTS THAT THE APPELLANT WAS ABLE TO COMMENCE ITS MANUFACTURING ACTIVITY AND THESE DOCUMENTS REALLY FORMED THE BASIS OF THE BUSINESS OF MANUFACTURING THE INSTRUMENTS IN QUESTION. THAT BY THEMSELVES THESE DOCUMENTS DID NOT PERFORM ANY MECHANICAL OPERATIONS OR PROCESSES DID NOT MILITATE AGAINST THEIR BEING A PLANT SINCE THEY WERE IN A SENSE THE BASIC TOOLS OF THE ASSESSEE'S TRADE HAVING A FAIRLY ENDURING UTILITY, THOUGH OWING TO TECHNOLOGICAL ADVANCES THEY MIGHT OR WOULD IN COURSE OF TIME BECOME OBSOLETE. THE CAPITAL ASSET ACQUIRED BY THE APPELLANT, VIZ., THE TECHNICAL KNOW-HOW IN THE SHAPE OF DRAWINGS, DESIGNS, CHARTS, PLANS, PROCESSING DATA AND OTHER LITERATURE, FELL WITHIN THE DEFINITION OF 'PLANT' AND WAS, THEREFORE, A DEPRECIABLE ASSET'. 14. THE LEARNED AR DREW OUR ATTENTION TO THE DECIS ION OF THIS TRIBUNAL IN THE CASE OF ASSESSEE FOR ASST. YEAR 1987-88 PAGE 10 OF 16 ITA NO.437/BANG/2009 10 AND 1988-89. IT WAS POINTED OUT THAT TRIBUNAL VIDE ORDER DATED 19.6.2000 OBSERVED AS UNDER:- 'THE FACTS AS EMERGE OUT FROM THE ORDERS OF THE AUTHORITIES AND FROM THE MATERIALS THAT ARE PLACED ON RECORD ARE THAT THE TECHNICAL KNOW-HOW FEE HAS BEEN PAID FOR SETTING UP OF THE PLANT AND MACHINERY WHICH WILL ULTIMATELY BE USED IN THE PRODUCTION OF THE VARIOUS ARTICLES BASED ON THE TECHNICAL KNOW-HOW. TO PUT IT IN OTHER WORDS, THE TECHNICAL KNOW-HOW FEE HAS BEEN INCURRED AT THE VERY START OF THE BUSINESS ACTIVITY WHICH IS MANUFACTURE. SEC.35AB OF THE ACT TALKS OF LUMPSUM CONSIDERATION FOR ACQUIRING ANY KNOW-HOW FOR USE IN THE BUSINESS AND FOR THE PURPOSES OF THE BUSINESS. IN THE INSTANT CASE, AS NOTED ABOVE, THE FACTS AS EMERGE OUT FROM THE RECORD IS THAT THE TECHNICAL KNOW-HOW FEE IS WITH REFERENCE TO THE MACHINERY TO BE ACQUIRE FOR THE PURPOSE OF PRODUCTION, INSTALLATION OF THE MACHINERY AND THE MANUFACTURING OPERATIONS AS WELL. THE SETTING UP OF THE PLANT CANNOT BE CONSIDERED AS THE GOAL OR BUSINESS OF THE ASSESSEE VIZ. MANUFACTURE. THE EXPENDITURE THAT IS INCURRED IS PRIOR TO THE MANUFACTURE AND THEREFORE, IT CANNOT BE SAID THAT THE KNOW- HOW HAS BEEN ACQUIRED FOR THE PURPOSES OF BUSINESS. FROM THAT POINT OF VIEW, BECAUSE SETTING UP OF THE PLANT IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE, WE ARE OF THE OPINION THAT THE CIT(A) WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT IT SHOULD BE TREATED AS A PLANT. HE WAS, ACCORDINGLY, JUSTIFIED IN ALLOWING DEPRECIATION AND INVESTMENT ALLOWANCE AND NOT ENTERTAINING PAGE 11 OF 16 ITA NO.437/BANG/2009 11 THE CLAIM OF THE ASSESSEE U/S 35AB OF THE ACT. THIS ISSUE IS DECIDED ACCORDINGLY'. 15. ON THE ISSUE OF DEDUCTION U/S 80HHC, THE LEARN ED AR HAS FILED COPIES OF GROUNDS OF APPEAL TAKEN BY TH E REVENUE AGAINST ORDER OF LEARNED CIT(A). THE REVENUE HAS N OT TAKEN ANY GROUND IN RESPECT OF ALLOCATION OF INDIRECT EXPENSE S AGAINST TRADING OF GOODS. HENCE, THERE IS NO LOSS IN TRADI NG OF GOODS BUT IT IS NOW PROFIT AS PER THE ORDER OF LEARNED CIT(A) TO WHICH THE AO HAS GIVEN EFFECT TO. HENCE, THIS ISSUE IS ONLY A CADEMIC. THE LEARNED AR DREW OUR ATTENTION TO PARA 35 OF THE ORD ER OF THE TRIBUNAL PANAJI BENCH IN THE CASE OF V M SALGAOCAR & BROS. LTD. VASCO IN ITA NO.13 AND 186/PNJ/98, 46/PNJ/99, 145/P NJ/98 AND 99/PNJ/2001 APPROVED THAT LOSS IN TRADING IS TO BE ADDED TO THE TOTAL PROFIT TO ASCERTAIN PROFIT IN MANUFACTURI NG FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80HHC. 16. DURING THE COURSE OF PROCEEDINGS BEFORE US, TH E LEARNED DR DREW OUR ATTENTION TO THE FACT THAT IN E XPLANATION 4 TO SECTION 32(1), IT IS MENTIONED THAT THE MEANING OF THE WORD 'KNOW-HOW' AS CONTAINED IN EXPLANATION IS ONLY FOR T HE PURPOSES OF SUB-SECTION 1 OF SECTION 32. THIS MEANING CANNO T BE IMPORTED WHILE CONSIDERING SECTION 32(1)(IIA). THE OTHER AR GUMENT PLACED BY THE LEARNED DR IS THAT THE AO HAS NOT APPLIED HIS MIND ON THE ISSUE OF ALLOWABILITY OF ADDITIONAL DEPRECIATION. T HE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A). IN RESPE CT OF ISSUE OF DEDUCTION U/S 80HHC, THE LEARNED DR POINTED OUT THAT THE PAGE 12 OF 16 ITA NO.437/BANG/2009 12 REVENUE HAS NOT TAKEN ANY GROUNDS OF APPEAL AGAINST THE CONVERSION OF TRADING LOSS INTO TRADING PROFIT BY TH E LEARNED CIT(A) AND THOUGH THERE IS NO PREJUDICE TO THE REVE NUE AS PER THE ORDER OF LEARNED CIT(A), BUT THE ORDER OF THE A O IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E IN RESPECT OF DEDUCTION U/S 80HHC AND WHAT THE LEARNED CIT(A) HAS DONE IS THAT HE HAS MODIFIED THE ORDER OF THE ASSESSING OFF ICER. 17. WE HAVE HEARD BOTH THE PARTIES. THE REVENUE A UDIT IS THE WATCH-DOG IN RESPECT OF RECEIPTS AND PAYMENTS BY THE GOVERNMENT. TAXES LEVIED ARE PART OF THE RECEIPTS OF THE GOVERNMENT. THE REVENUE AUDIT IS SUPPOSED TO TEST CHECK THE CASES TO ASCERTAIN AS TO WHETHER THERE IS NO UNDERC HARGE OF OVER-CHARGE OF THE TAXES. THE SCOPE OF AUDIT IS NO T RESTRICTED TO THE CASES WHERE THERE IS UNDER-CHARGE. IN RESPE CT OF MAJOR AUDIT OBJECTIONS, THE COMMISSIONER OF INCOME TAX BE ING ADMINISTRATIVE HEAD HAS TO CONSIDER THE AUDIT OBJEC TION AND IN CASE, THE LOSS TO REVENUE IS ON ACCOUNT OF WILLFUL NEGLIGENCE OF THE REVENUE OFFICERS THEN HE IS SUPPOSED TO INITIAT E ADMINISTRATIVE ACTION AGAINST THE AO. THE COMMISSI ONER OF INCOME TAX HAS ALSO TO SEND HIS REPORT IN RESPECT O F ACCEPTANCE OF THE AUDIT OBJECTION. IN CASE THE AUDIT OBJECTIO N IS NOT ACCEPTED THEN PERHAPS THE COMMISSIONER OF INCOME TA X MAY NOT BE ENTIRELY JUSTIFIED IN INITIATING REMEDIAL MEASURE BECAUSE THEN HE WILL HAVE TWO DIFFERENT VIEWS ON SAME ISSUE. HO WEVER, IN THE PAGE 13 OF 16 ITA NO.437/BANG/2009 13 INSTANT CASE, WE ARE NOT AWARE THAT THE LEARNED CIT (A) HAS NOT ACCEPTED THE AUDIT OBJECTION. 18. THE LEARNED AR DREW OUR ATTENTION TO THE DECIS ION OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF SOHA NA WOOLLEN MILLS. THE HON'BLE P&H HIGH COURT HELD THAT MERE A UDIT OBJECTION IS NOT ENOUGH TO SAY THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. THE HON'BLE P&H HIGH COURT CLEARLY HELD THAT THE CIT(A) CAN EXERCISE JURISDICTION IF HE IS SATISFIED THAT THE B ASIS FOR EXERCISE OF JURISDICTION EXISTED. 19. THE HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V CIT 243 ITR 83 HAS HELD THAT IN CASE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TA KEN ONE OF THE POSSIBLE VIEWS THEN THE ORDER IS NOT ERRONEOUS. HENCE, IF THE AUDIT IS GIVEN ON AN INFORMATION ON THE POINT OF LA W AND IF THE AO HAS TAKEN A VIEW, WHICH IS ALSO PERMISSIBLE, THEN T HE VIEW OF THE AUDIT ON POINT OF LAW CANNOT BE A BASIS FOR EXERCIS ING JURISDICTION U/S 263. HENCE, WE ARE NOT INCLINED TO HOLD THAT I N THE INSTANT CASE CIT WAS NOT HAVING JURISDICTION U/S 263 ON THE GROUND THAT AUDIT RAISED AN OBJECTION. 20. DURING THE COURSE OF PROCEEDINGS BEFORE US, A QUERY WAS RAISED TO THE LEARNED AR TO ASCERTAIN AS TO WHETHER THE AO RAISED ANY QUERY IN RESPECT OF ALLOWABILITY OF ADDITIONAL DEPRECIATION ON TECHNICAL KNOW-HOW. THE LEARNED AR SUBMITTED THAT NO QUERY WAS RAISED ON TH IS ISSUE. PAGE 14 OF 16 ITA NO.437/BANG/2009 14 21. IT IS TRUE THAT THE TECHNICAL KNOW-HOW IS DEFI NED IN EXPLANATION 4 TO SECTION 32(1). SUB-CLAUSE SETTING (A) IS PART OF SUB-SECTION 1 OF SECTION 32 AND THEREFORE, THE DEFI NITION OF TECHNICAL KNOW-HOW AS CONTAINED IN THAT EXPLANATION WILL BE SQUARELY APPLICABLE FOR SECTION 32(1)(IIA). 22. THE LEARNED AR VIDE PAPER BOOK HAS FILED COPIE S OF INVOICES AND SUCH INVOICES REFERS TO AGREEMENT ON A MA-400-500. COPY OF SUCH AGREEMENT IS AVAILABLE FROM PAGES 20 TO 37 OF THE PAPER BOOK FILED BY THE LEARNED AR. SCHEDULE 7 OF T HIS AGREEMENT REFERS TO THE SUPPLY OF DOCUMENTS AND TECH NICAL ASSISTANCE. DOCUMENTS RELATE TO : A) SALES AND MARKETING DOCUMENTS; B) ELECTROMAGNETIC DESIGN DOCUMENTS; C) MECHANICAL DESIGN DOCUMENTS D) QUALITY SYSTEM E) INSTALLATION AND MAINTENANCE 23. THE KNOW-HOW AS PER EXPLANATION 4 IS THE KNOW- HOW WHICH ASSIST IN THE MANUFACTURE OF GOOD. BEFORE US , THE LEARNED AR HAS SUBMITTED THAT KNOW-HOW RELATED TO INSTALLAT ION AND SUCH KNOW-HOW WAS IN THE FORM OF DESIGNS. THE AO HAS NO T MADE ANY ENQUIRY ON THE ISSUE OF ALLOWABILITY OF ADDITIONAL DE PRECIATION ON KNOW-HOW AND THE LEARNED CIT(A) HAS ALSO NOT CONSID ERED THE SUBMISSION OF THE ASSESSEE THAT KNOW-HOW RELATED TO INSTALLATION. THUS, FACTUAL AND LEGAL ASPECTS HAVE NOT BEEN CONSI DERED EITHER BY CIT IN HIS ORDER U/S 263 NOR BY AO IN HIS ORDER U /S 143(3). PAGE 15 OF 16 ITA NO.437/BANG/2009 15 IN THE FOLLOWING CASES, IT HAS BEEN HELD THAT ASSES SMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E, IF THE AO HAS NOT MADE ENQUIRY ON AN ISSUE ON WHICH HE WAS SUP POSED TO HAVE MADE ENQUIRY AS THE AO IS NOT ONLY AN ADJUDICATO R BUT A PARTY TO COLLECT EVIDENCE:- I) RAJALAKSHMI MILLS LTD. V ITO 313 ITR 182 (AT) (SB) II) CIT V DEEPAK KUMAR GARG 299 ITR 435 (MP) III) CIT V SUNIL GOYAL ITA NO.17/2006 UTTARAKHAND HIGH COURT IV) DECISION OF BANGALORE BENCH IN ITA NO.287/288/BANG/2008 ORDER DT.OCTOBER 3, 2008. 24. HENCE, WE FEEL THAT THE ISSUE OF DISALLOWABILI TY OF ADDITIONAL DEPRECIATION ON KNOW-HOW HAS TO BE CONSI DERED BY THE AO AND WE VACATE THE DIRECTION OF THE LEARNED CIT T HAT ADDITIONAL DEPRECIATION ON KNOW-HOW SHOULD BE ADDED . HENCE, THE ISSUE OF ADDITIONAL DEPRECIATION ON KNOW-HOW IS REQ UIRED TO BE CONSIDERED BY AO AFTER AFFORDING OPPORTUNITY TO THE A SSESSEE. 25. IN RESPECT OF DEDUCTION U/S 80HHC, THE ISSUE I S ACADEMIC ONLY BECAUSE AFTER ORDER OF LEARNED CIT(A) , THERE IS PROFIT IN TRADING OF GOODS AND REVENUE HAS NOT TAKE N ANY GROUND OF APPEAL AGAINST SUCH FINDING OF LEARNED CIT(A). HENCE, THE DIRECTIONS OF LEARNED CIT ON THE ISSUE OF DEDUCTION U/S 80HHC ARE VACATED. PAGE 16 OF 16 ITA NO.437/BANG/2009 16 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 13TH AUGUST, 200 9. SD/- SD/- (GEORGE GEORGE K) (N L KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED:13/8/2009 COPY TO :- 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT(A) CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR 6. GF 7. GF, ITAT, DELHI BENCH BY ORDER MSP/10/8/ ASSISTANT REGISTRAR, ITAT, BANGALORE.