DY CIT CIR 2(2), V. M/S TATA CHEMICALS LTD,

ITA 4467/MUM/2003

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2749 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 19-08-2015
• Assessment Year: 1990-1991
• Appeal Filed On: 06-06-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SASMITA MISRACIT
• Assessee Lawyers: DINESH VYAS; ATUL T SURAIYA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Source of fund; Question of law; Wholly owned subsidiary; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 143(3); 244A; 80HHC; 37(1); 56

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4466 /MUM/2003 ( / ASSESSMENT YEAR : 1989-90) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAWAN,ROOM NO 545, 5 TH FLOOR, M K ROAD,MUMBAI-400 020 / V. M/S TATA CHEMICALS LIMITED, BOMBAY HOUSE, 24,HOMI MODY STREET , FORT, MUMBAI-400 001 ./ PAN : AAACT4059M ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4567 /MUM/2003 ( / ASSESSMENT YEAR : 1989-90) M/S TATA CHEMICALS LIMITED, BOMBAY HOUSE, 24,HOMI MODY STREET , FORT, MUMBAI-400 001 / V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAWAN,ROOM NO 545, 5 TH FLOOR, M K ROAD,MUMBAI-400 020 ./ PAN : AAACT4059M ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4467 /MUM/2003 ( / ASSESSMENT YEAR : 1990-91) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAWAN,ROOM NO 545, 5 TH FLOOR, M K ROAD,MUMBAI-400 020 / V. M/S TATA CHEMICALS LIMITED, BOMBAY HOUSE, 24,HOMI MODY STREET , FORT, MUMBAI-400 001 ./ PAN : AAACT4059M ( / APPELLANT ) .. ( / RESPONDENT ) ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 2 ./ I.T.A. NO. 4568 /MUM/2003 ( / ASSESSMENT YEAR : 1990-91) M/S TATA CHEMICALS LIMITED, BOMBAY HOUSE, 24,HOMI MODY STREET , FORT, MUMBAI-400 001 / V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAWAN,ROOM NO 545, 5 TH FLOOR, M K ROAD,MUMBAI-400 020 ./ PAN : AAACT4059M ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4468 /MUM/2003 ( / ASSESSMENT YEAR : 1991-92) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAWAN,ROOM NO 545, 5 TH FLOOR, M K ROAD,MUMBAI-400 020 / V. M/S TATA CHEMICALS LIMITED, BOMBAY HOUSE, 24,HOMI MODY STREET , FORT, MUMBAI-400 001 ./ PAN : AAACT4059M ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4569 /MUM/2003 ( / ASSESSMENT YEAR : 1991-92) M/S TATA CHEMICALS LIMITED, BOMBAY HOUSE, 24,HOMI MODY STREET , FORT, MUMBAI-400 001 / V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAWAN,ROOM NO 545, 5 TH FLOOR, M K ROAD,MUMBAI-400 020 ./ PAN : AAACT4059M ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE COMPANY BY SHRI DINESH VYAS & SH. ATUL T SURAIYA R E VENUE BY : MISS SASMITA MISRA,CIT DR / DATE OF HEARING : 19-08-2015 / DATE OF PRONOUNCEMENT : 10-11-2015 ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 3 !' / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THESE CROSS APPEALS FOR THREE ASSESSMENT YEARS 1989 -90 TO 1991-92, FILED BY THE ASSESSEE COMPANY AND THE REVENUE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER PASSED BY THE COMMISSIONER OF I NCOME TAX(APPEALS) - II, MUMBAI (HEREINAFTER CALLED THE CIT(A)) DATED 28.0 2.2003, FOR THE ASSESSMENT YEARS 1986-87 TO 1991-92 WHICH ORDER HA S BEEN PASSED WITH RESPECT TO APPEAL HAVING ARISEN FROM THE SEPARATE A SSESSMENT ORDERS PASSED BY THE REVENUE U/S 143(3) READ WITH SECTION 143(2) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT) FOR THE RES PECTIVE ASSESSMENT YEARS. THERE ARE SEVERAL COMMON ISSUES IN ALL THESE APPEA LS AND HENCE THE SAME ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE AND BREVITY. 2. IT MAY BE MENTIONED HERE THAT DURING THE COURSE OF HEARING THE LEARNED SENIOR COUNSEL OF THE ASSESSEE COMPANY , SH. DINESH VYAS HAS FILED A CHART STATING GROUND-WISE GRIEVANCE OF THE ASSESSEE COMPA NY AS WELL AS OF THE REVENUE. A COPY OF THE SAID CHART WAS ALSO GIVEN TO THE LEARNED CIT-DR , WHO AFTER GOING THROUGH THE CHART DID NOT OBJECT TO THE SUBMISSIONS OF THE ASSESSEE COMPANY THAT MANY OF THE ISSUES ARE COVERE D BY THE EARLIER DECISIONS OF THE TRIBUNAL BOTH FOR AND AGAINST THE ASSESSEE C OMPANY AS STATED IN THE CHART AND IN THIS MANNER WE PROCEED TO DISPOSE OF T HE AFOREMENTIONED APPEALS. 3. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE COMP ANY ARE LENGTHY AND NARRATIVE, THEREFORE, FOR THE SAKE OF BREVITY WE RE FER TO THE GRIEVANCE OF BOTH THE PARTIES GROUND-WISE AS HAS BEEN MENTIONED IN TH E CHART . IT MAY BE MENTIONED HERE THAT IN THE CHART RELIANCE HAS BEEN PLACED ON VARIOUS JUDICIAL ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 4 PRONOUNCEMENTS WHICH MAY INCLUDE THE DECISION RENDE RED BY THE TRIBUNAL IN ASSESSEES OWN CASE , THEREFORE, WHEREIN THE ISSUE IS COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES COMPANY OWN CASE , REFERENCE , IS MADE BY US ONLY TO THE DECISION OF THE TRIBUNAL WHICH IS RENDERED IN O WN CASE OF THE ASSESSEE COMPANY. THIS IS DONE FOR THE SAKE OF BREVITY. ITA NO. 4567/MUM/2003(ASSESSEES APPEAL)-ASSESSMENT YEAR 1989-90 4. GROUND NO. 1 OF THE ASSESSEES COMPANY APPEAL RE LATES TO THE DISALLOWANCE OF RS.75,18,970/- BEING PROVISION FOR EMPLOYEES PEN DING SETTLEMENT OF THEIR DEMANDS. THIS GROUND WAS NOT PRESSED BY THE LD. SEN IOR COUNSEL OF THE ASSESSEE COMPANY AS IT IS STATED BY THE LD SENIOR COUNSEL BEFORE US THAT THE SAID AMOUNT WAS ALLOWED BY THE REVENUE TO THE ASSES SEE COMPANY ON PAYMENT BASIS IN THE ASSESSMENT YEAR 1992-93 AND HE NCE THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY STATED THAT THIS GR OUND MAY BE DISMISSED AS NOT PRESSED. AFTER HEARING BOTH THE PARTIES , THIS GROUND OF APPEAL IS DISMISSED AS BEING NOT PRESSED. WE ORDER ACCORDIN GLY. 5. GROUND NO 2 RELATES TO DISALLOWANCE OF EXPENSES ON ISSUE OF CONVERTIBLE DEBENTURES AMOUNTING TO RS.4,63,453/- . THE ASSESS EE COMPANY HAS STATED TO HAVE INCURRED THESE EXPENSES UNDER TWO HEADS IN THE STATEMENT OF FACTS (HEREINAFTER CALLED THE SOF) FILED WITH THE APPEA L AS UNDER: (I) 13.5% CONVERTIBLE DEBENTURES (1987) ISSUE EXPENSES : RS.63,080/- (II) 13.5% CONVERTIBLE DEBENTURES-SHARE ISSUE EXPEN SES: RS.4,00,373/- ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 5 THE GROUND WITH RESPECT TO THE EXPENSES OF RS.63,08 0/- INCURRED BY THE ASSESSEE COMPANY FOR ISSUE OF CONVERTIBLE DEBENTURE S WAS STATED TO BE COVERED BY THE DECISION OF THE TRIBUNAL DATED 20-4- 2015 IN ITA NO. 4566/MUM/2003 FOR THE ASSESSMENT YEAR 1988-89 , COP Y OF WHICH IS PLACED AT SERIAL NUMBER 9 OF THE PAPER BOOK . THIS ISSUE W AS DISCUSSED AT PARA 13 IN THE SAID ORDER , WHICH IS REPRODUCED BELOW: 13. GROUND NO 4 RELATES TO DISALLOWANCE OF EXPENS ES ON ISSUE OF CONVERTIBLE DEBENTURES AMOUNTING TO RS.17,94,514/-. THE GROUND WAS STATED TO BE COVERED BY THE DECISION OF THE TRIBUNA L DATED 26.04.2013 IN ITA NOS. 4564 & 4463 / MUM/2003 FOR A.Y. 1986-87, C OPY OF WHICH IS PLACED AT SR. NO. 4 OF THE PAPER BOOK. THE ISSUE HA S BEEN DISCUSSED AT PARA 18 TO 21, WHICH IS REPRODUCED BELOW: 18. GROUND NO. 6 RELATES TO DISALLOWANCE OF RS.1, 96,864/- INCURRED ON ISSUE OF CONVERTIBLE BONDS/DEBENTURES. 19. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 5 PARA 12 OF HIS ORDER WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A) AT PARA 24.5 AT PAGE 84 OF HIS ORDER. 20. THE LD. SENIOR COUNSEL POINTED OUT THAT THIS IS SUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 1992-93 BY THE TRIBUNAL IN ITA NO. 4604/M/96. 21. WE HAVE CAREFULLY PERUSED THE SAID ORDER OF THE TRIBUNAL. WE FIND THAT THE TRIBUNAL HAS DISCUSSED THIS ISSUE AT PARA 69 OF ITS ORDER AND HAS ALLOWED THE DEBENTURE EXPENSES. IN TH E INSTANT CASE, FACTS BEING IDENTICAL, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL(SUPRA), WE DIRECT THE AO T O ALLOW THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 6 EXPENSES OF DEBENTURES. THE GROUND OF THE ASSESSEE IS ACCORDINGLY ALLOWED. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES THIS GR OUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. AFTER HEARING BOTH THE PARTIES WITH RESPECT TO THE EXPENSES OF RS.63,080/- INCURRED BY THE ASSESSEE COMPANY IN CONNECTION WITH THE ISSUE OF CONVERTIBLE DEBENTURES, WE ARE IN AGREEMENT WITH THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY THAT THIS GROUND IS COVERED IN THE FAVOUR O F THE ASSESSEE COMPANY BY THE ORDERS OF THE TRIBUNAL IN ASSESSESS OWN CAS E IN EARLIER YEAR AS STATED ABOVE, RESPECTFULLY FOLLOWING THE DECISION OF CO-OR DINATE BENCHES AS STATED ABOVE, THIS GROUND IS ALLOWED IN FAVOUR OF THE ASS ESSEE COMPANY. WE ORDER ACCORDINGLY AND DIRECT THE ASSESSING OFFICER(HEREIN AFTER CALLED THE AO) TO ALLOW THE EXPENSES OF RS.63,080/- BEING INCURRED TO WARDS ISSUE OF CONVERTIBLE DEBENTURES.WE ORDER ACCORDINGLY. HOWEVER, WITH RESPECT TO THE SECOND HEAD OF EXPENSE S STATED TO HAVE BEEN INCURRED BY THE ASSESSEE COMPANY AMOUNTING TO RS.4, 00,373/- WITH RESPECT TO SHARE ISSUE EXPENSES ON CONVERSION OF DEBENTURES TO THOSE SHAREHOLDERS WHO EXERCISED THEIR OPTION TO APPLY FOR A SHARE AS PER THEIR ENTITLEMENT AGAINST PART B SCRIPS OF DEBENTURES , WHICH EXPENSE S ARE MAINLY STAMP DUTY CHARGES AND PRINTING CHARGES IN CONNECTION WITH ISS UE OF SHARES ON CONVERSION OF DEBENTURE. THE LD. SENIOR COUNSEL SUB MITTED THAT THE ISSUE IS ALSO TO BE DECIDED IN FAVOUR OF THE ASSESSEE COMPA NY BY THE ASSESSEES COMPANY OWN CASES AND ALSO RELIED UPON THE FOLLOWIN G DECISIONS TO SUPPORT HIS CONTENTIONS AND SUBMITTED THAT THESE ARE BUSINE SS EXPENSES WHICH SHOULD BE ALLOWED AS REVENUE EXPENDITURE : ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 7 A) ITA NO. 4058/MUM/1999 FOR ASSESSMENT YEAR 1983-84 I N ASSESSEES OWN CASE B) (2000) 72 ITD 1 (MUM) FOR ASSESSMENT YEAR 1992-93 I N ASSESSEES OWN CASE C) ITA NO. 4137/MUM/2001 FOR ASSESSMENT YEAR 1984-85 I N ASSSESSEES OWN CASE D) ITA NO. 4564/MUM/2003 FOR ASSESSMENT YEAR 1986-87 I N ASSESSEES OWN CASE E) ITA NO. 4566/MUM/2003 FOR ASSESSMENT YEAR 1988-89 I N ASSESSEES OWN CASE F) VOLTAS LIMITED V. DCIT (1998) 61 TTJ 543(MUM. TRIB. ) G) J M SHARES & STOCK BROKERS LIMITED V. DCIT (2004) 8 3 TTJ 1052(MUM. TRIB.) H) CIT V. SOUTH INDIA CORPORATION(AGENCIES) LTD. (2007 )290 ITR 217(MAD.) I) CIT V. THIRANI CHEMICALS LIMITED (2007)290 ITR 196( DEL.) THE LD. DR RELIED UPON THE ORDERS OF AUTHORITIES BE LOW. WE HAVE CAREFULLY CONSIDERED THE ABOVE JUDGMENTS AN D PERUSED THE MATERIAL ON RECORD AND HEARD BOTH THE PARTIES, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IN THE INSTANT CASE IS DISTINGUISHABLE FROM T HE DECISIONS RELIED UPON BY THE LEARNED SENIOR COUNSEL IN THE CHART SUBMITTED A S DETAILED ABOVE BECAUSE IN ALL THE CASES RELIED UPON BY THE LD. SR. COUNSEL , IT DEALS WITH THE ALLOWABILITY OF EXPENSES IN CONNECTION WITH THE ISS UE OF THE CONVERTIBLE DEBENTURES AND NONE OF THE CASE DEAL WITH THE ISSUE WITH RESPECT TO THE EXPENSES INCURRED ON ISSUE OF THE SHARES ON CONVERS ION OF THE CONVERTIBLE DEBENTURES. THE EXPENSES OF RS.4,00,373/- INCURRED ON ISSUE OF FRESH SHARES OF THE ASSESSEE COMPANY IN PURSUANCE OF EXERCISE OF OPTION OF CONVERSION BY ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 8 THE SECURITY HOLDERS ON CONVERSION OF CONVERTIBLE D EBENTURES INTO SHARES WHICH IS AN EVENT ALTOGETHER DIFFERENT CULMINATING INTO ALLOTMENT AND ISSUE OF FRESH SHARE CAPITAL LEADING TO EXPANSION OF CAPITA L BASE OF THE COMPANY WHEREBY THE EXISTING DEBENTURES WHICH IS A DEBT/LOA N INSTRUMENTS IS DISCHARGED/SATISFIED AND CEASED TO EXIST IN THE BOO KS OF ACCOUNTS OF THE COMPANY AND IS REPLACED AND SUBSTITUTED BY WAY OF I SSUANCE OF FRESH SHARE CAPITAL OF COMPANY. THERE IS A CLEAR DISTINCTION BE TWEEN DEBENTURES WHICH IS A DEBT/LOAN INSTRUMENT WHILE ISSUE OF FRESH SHARES DIRECTLY LEADS TO EXPANSION OF CAPITAL BASE OF THE COMPANY. THIS ISSUE IN OUR V IEW IS SQUARELY COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F BROOKE BOND INDIA LIMITED (1997)225 ITR 797(SC) AND PUNJAB STATE IND USTRIAL DEVELOPMENT CORPORATION LIMITED (1997)225 ITR 792(SC) WHEREBY THE HONBLE SUPREME COURT HAS HELD THE EXPENSES RELATED TO ISSUANCE OF SHARE CAPITAL TO BE CAPITAL EXPENDITURE AND NOT ALLOWABLE AS REVENUE EXPENDITUR E. WE, AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INC LUDING CASE LAWS RELIED UPON BY THE PARTIES , ARE OF CONSIDERED VIEW THAT T HESE EXPENSES OF RS.4,00373/- INCURRED BY ASSESSEE COMPANY TOWARDS S TAMP DUTY AND PRINTING CHARGES FOR ISSUANCE OF SHARES ON CONVERS ION OF DEBENTURES ARE CAPITAL IN NATURE AND ARE NOT ALLOWABLE AS REVENUE EXPENDITURE IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF BR OOKE BOND INDIA LIMITED (1997)225 ITR 797(SC) AND PUNJAB STATE INDUSTRIAL D EVELOPMENT CORPORATION LIMITED (1997)225 ITR 792(SC) AND WE UPHOLD THE FIN DINGS OF THE CIT(A) WITH RESPECT TO THIS ISSUE AND DISMISS THE APPEAL OF THE ASSESSE COMPANY ON THIS GROUND. WE ORDER ACCORDINGLY. 6. GROUND NO 3 OF THE ASSESSEES COMPANY APPEAL REL ATES TO DISALLOWANCE OF BHANWAD PROSPECTING AND SURVEY EXPENSES AMOUNTING T O RS.1,50,952/- THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY STATED BEFORE US THAT THIS GROUND HAS BECOME OTIOSE AS THE ASSESSEE COMPANY HA S BEEN ALLOWED DEDUCTION U/S 35E OF THE ACT BY THE REVENUE . THE L D. SENIOR COUNSEL STATED ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 9 BEFORE US THAT THIS GROUND IS NOT PRESSED AND MAY B E DISMISSED AS NOT PRESSED AS THE SAME HAS BECOME OTIOSE. THE TRIBUNA L IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1988-89 IN APPEAL NO ITA N O. 4566/MUM/ 2003 VIDE ORDERS DATED 20.04.2015 AT PARA 14-15 HAS DISM ISSED THIS GROUND OF APPEAL AS UNDER: 14 GROUND 5 OF ASSESSEES APPEAL RELATES TO DISALL OWANCE OF BHANWAD PROSPECTING AND SURVEY EXPENSES AMOUNTING TO RS.71, 963. THIS ISSUE IS STATED TO BE COVERED BY THE AFOREMENTIONED ORDER OF THE TRIBUNAL DATED 16.05.2014 IN THE ASSESSEES OWN CASE FOR A.Y.1987- 88 IN ITA NO. 4565/MUM/2003. IT WAS THE CASE OF THE AR THAT SINCE DEDUCTION U/S 35E IS ALLOWED THIS GROUND WAS DISMISSED. IT IS THE REFORE SUBMITTED BY HIM THAT SIMILAR ORDER MAY BE PASSED. 15. WE HAVE HEARD BOTH THE PARTIES. THE TRIBUNAL IN THE ORDER FOR A.Y. 1987-88 (SUPRA) VIDE PARA NOS 7 & 8 HAS HELD AS UND ER: 7. GROUND NO. 2 AS REPRODUCED ABOVE IS RELATING TO THE DISALLOWANCE OF BHANWAD PROSPECTING & SURVEY EXPENS ES OF RS.1,61,176/- . THE LD. AR OF THE ASSESSEE HAS SUBM ITTED THAT THE ISSUE TAKEN VIDE GROUND NO.2 IS COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1986-87 VIDE ITA NO. 4564/M/200 3. THE TRIBUNAL WHILE DEALING WITH THE ISSUE IN QUESTION I N PARA 14 OF THE SAID DECISION HAS OBSERVED THAT SINCE THE ASSESSEE HAD BEEN ALLOWED DEDUCTION UNDER SECTION 35(E) OF THE INCOME TAX ACT(HEREINAFTER REFERRED TO AS THE ACT) , HENCE THE GRIEVANCE OF THE ASSESSEE BECAME OTIOSE AND THE TRIBUNAL THEREFORE D ISMISSED THE GROUND OF APPEAL RELATING TO THE ISSUE. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 10 8. IN VIEW OF THE ABOVE , THIS ISSUE IS DECIDED ACC ORDINGLY AND THE GROUND NO. 2 OF THE APPEAL IS THEREFORE DISMISSED. RESPECTFULLY, FOLLOWING THE DECISION OF THE TRIBUNA L, THIS GROUND IS DISMISSED. THUS, BASED ON THE STATEMENT OF LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY MADE BEFORE US AND AFTER HEARING BOTH THE PARTIES A ND RESPECTFULLY FOLLOWING THE AFORE-STATED DECISION OF THE TRIBUNAL , THIS GR OUND OF APPEAL OF THE ASSESSEE COMPANY IS DISMISSED AS NOT PRESSED. WE ORDER ACCORDINGLY. 7. GROUND NO. 4(I) AND 4(II) RELATES TO THE DISALLO WANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.62,37,995/- AS EXPENDITURE A ND DISALLOWANCE OF INVESTMENT ALLOWANCE ON INCREASE IN LIABILITY ON AC COUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS. THESE ISSUES ARE STATED BY THE LD . SENIOR COUNSEL OF THE ASSESSEE COMPANY TO BE COVERED BY THE ORDERS DATED 20.04.2015 OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 4566/MUM /2003 FOR ASSESSMENT YEAR 1988-89 WHEREBY TRIBUNAL HELD IN PARA 16 AND 1 7 AS UNDER: 16. GROUND NO. 6 RELATES TO THE DISALLOWANCE OF FO REIGN EXCHANGE LOSS AS EXPENDITURE. THIS ISSUE IS STATED TO BE COVERED BY THE AFOREMENTIONED ORDER OF THE TRIBUNAL DATED 16.05.2014 IN THE ASSES SEES OWN CASE FOR A.Y.1987-88 IN ITA NO.4565/MUM/2003 . WE FIND THAT THAT THE TRIBUNAL IN THE SAID ORDER VIDE PARA NOS. 9 & 10 HAS HELD AS UNDER: 9. GROUND NO. 3 AS REPRODUCED ABOVE IS RELATING TO THE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS A S REVENUE EXPENDITURE AND FURTHER DISALLOWANCE OF INVESTMENT ALLOWANCE ON INCREASE IN LIABILITY ON ACCOUNT OF FOREIGN EXCHANG E FLUCTUATION LOSS. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE I SSUE TAKEN VIDE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 11 GROUND NO. 3 IS COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR AS SESSMENT YEAR 1986-87 VIDE ITA NO. 4564/M/2003. THE TRIBUNAL , WH ILE DEALING WITH THE ISSUE IN QUESTION IN PARA 17 OF THE SAID D ECISION , HAS OBSERVED AS UNDER: 17. THE LD. SENIOR COUNSEL POINTED OUT THAT THIS I SSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEE S OWN CASE IN ITA NO. 4194 & 4137/M/01 AT PARA -15 PAGE 1 2 OF ITS ORDERS. FACTS AND ISSUE BEING IDENTICAL, WE ACC ORDINGLY DIRECT THE AO TO ALLOW THE DEPRECIATION AS PER LAW. AS REGARDS THE SECOND LIMB OF GROUND NO. 5 I.E. DISALL OWANCE OF INVESTMENT ALLOWANCE, WE FIND THAT SIMILAR ISSUE CA ME UP FOR HEARING BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y.85-86 IN ITA NO.5181/M/02. THIS ISSUE FINDS PLA CE IN THE ORDER OF THE TRIBUNAL(SUPRA) AT PARA 116, PAGE- 46 OF ITS ORDER. THE TRIBUNAL HAS GIVEN IS FINDING AT PARA-11 9 AND HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1984-85 IN ITA NO.4194/M/01 AND DIRECTED T HE AO TO ALLOW THE INVESTMENT ALLOWANCE ON EXCHANGE LOSS TREATED AS CAPITAL EXPENDITURE .FACTS BEING IDENTICAL , RES PECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA) , WE ACCORDINGLY DIRECT THE AO TO ALLOW THE INVESTMENT E XCHANGE LOSS TREATED AS CAPITAL EXPENDITURE. 10. SO RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEAR, THE FACTS BEING IDENTI CAL FOR THIS YEAR ALSO , THIS ISSUE IS RESTORED TO THE AO TO DECIDE T HE SAME IN VIEW OF THE ABOVE OBSERVATIONS OF THE TRIBUNAL FOR THIS YEA R ALSO. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 12 IN THIS VIEW OF THE SITUATION AFTER HEARING BOTH TH E PARTIES, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH SAME DIRECTIONS AS HAVE BEEN GIVEN ABOVE. THIS GROUND IS CONSIDERED TO BE ALLOWED FOR STATIST ICAL PURPOSES IN THE MANNER AFORESAID. IN THIS VIEW OF THE SITUATION AFTER HEARING BOTH TH E PARTIES AND PERUSING THE MATERIAL ON RECORD, WE RESTORE THIS ISSUE TO THE FI LE OF THE AO WITH SAME DIRECTIONS AS HAVE BEEN GIVEN ABOVE IN VIEW OF THE TRIBUNAL DECISION IN THE PRECEDING YEARS. THIS GROUND IS CONSIDERED TO BE A LLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 8. GROUND NO. 5 RELATES TO DISALLOWANCE OF SUM OF R S.1,69,26,347/- BEING ADDITION OF INTEREST ON ACCOUNT OF INTEREST FREE AD VANCE TO SENEGAL INVESTMENT & TRADING CO. LTD.. THIS ISSUE WAS STATED BY LD. SE NIOR COUNSEL OF THE ASSESSEE COMPANY TO BE COVERED BY THE DECISION OF T HE TRIBUNAL IN ASSESSEES COMPANY OWN CASE FOR ASSESSMENT YEAR 1988-89 IN ITA NO. 4566 /MUM/2003 VIDE ORDERS DATED 20.04.2015 , IT WAS HELD AS UNDER BY THE TRIBUNAL IN PARA 19: 19. GROUND NO. 9 RELATES TO DISALLOWANCE OF SUM OF RS.97,76,096 BEING ADDITION OF INTEREST ON ACCOUNT OF INTEREST FREE AD VANCE TO SENEGAL INVESTMENT AND TRADING CO. LTD. . THIS ISSUE IS STA TED TO BE COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEE CASE F OR A.Y. 1987-88, WHEREIN VIDE ORDER DATED 16.05.2014 IT WAS HELD AS UNDER: 23. THE GROUND NO. 13 AS REPRODUCED ABOVE RELATES TO ADDITION OF INTEREST ON ACCOUNT OF ADVANCE TO SUBSIDIARY COMPAN Y. THE LD. A.R. HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE FOR EARLIER ASSESSMENT YEARS. FOR REFERENC E HE HAS RELIED UPON THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YE AR 1986-87 ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 13 PASSED IN ITA NO. 4564/M/2003. THE TRIBUNAL , WHILE DEALING WITH THE ISSUE, HAS ALLOWED THIS GROUND FOLLOWING THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTLILITIES 313 ITR 340. THE FACTS FOR THIS YEAR BEING IDENTICAL IN NAT URE, THE AO IS DIRECTED TO DECIDE THIS ISSUE IN THE LIGHT OF THE E ARLIER YEARS DECISIONS IN THE OWN CASE OF THE ASSESSEE. ACCORDINGLY , AFTER HEARING BOTH THE PARTIES, WE DI RECT THE AO TO DECIDE THE ISSUE IN LIGHT OF THE ABOVE DECISION IN THE ASS ESSEES OWN CASE. THIS GROUND IS CONSIDERED AS ALLOWED FOR STATISTICAL PUR POSES IN THE MANNER AFORESAID. AFTER HEARING BOTH THE PARTIES AND RESPECTFULLY FOL LOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES COMPANY OWN CASE AS STATED A BOVE , THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE IN LIGHT OF THE ABOVE DECISION IN THE ASSESSEES COMPANY OWN CASE. THIS GROUND OF APPEAL IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 9. THE GROUND NO 6 RELATES TO DISALLOWANCE OF FOREI GN TRAVEL EXPENSES AMOUNTING TO RS.2,36,834/-. THE BREAK UP OF THE SAM E IS GIVEN IN ANNEXURE-1 OF THE CHART FILED BEFORE US. THE CONTENTIONS OF LD . SENIOR COUNSEL IS THAT THESE EXPENSES ARE INCURRED WITH RESPECT TO COMPANI ES EXISTING BUSINESS IN CONNECTION WITH EXPANSION , DIVERSIFICATION AND MOD ERNISATION PLANS AND THESE BUSINESS EXPENSES SHOULD BE ALLOWED AS REVENU E EXPENDITURE. 10 . AFTER HEARING BOTH THE PARTIES , WE RESTORE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE CO NTENTIONS OF THE ASSESSEE COMPANY. IF THE EXPENSES ARE INCURRED IN CONNECTION WITH THE EXISTING BUSINESS OF THE ASSESSEE COMPANY, THE SAME SHOULD B E ALLOWED. WE ORDER ACCORDINGLY. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 14 11. GROUND NO. 7 RELATES TO FAMILY PLANNING EXPENSE S AMOUNTING TO RS.36,016/- . IT WAS SUBMITTED BY THE LD. SENIOR CO UNSEL THAT THE DISALLOWANCE OF THE SIMILAR EXPENSES IN THE ASSESSE ES COMPANY OWN CASE HAS BEEN RESTRICTED TO 50% BY THE TRIBUNAL FOR ASSESSME NT YEAR 1988-89 IN ITA NO 4566/MUM/2003 VIDE ORDERS DATED 20.04.2015 AT PARA 22 WHICH IS REPRODUCED BELOW: 22. GROUND NO. 11 RELATES TO FAMILY PLANNING EXPEN SES AMOUNTING TO RS.79,680/-. IT WAS SUBMITTED THE DISALLOWANCE OF S IMILAR EXPENSE IN THE ASSESSEES OWN CASE FOR A.Y. 1987-88 WAS RESTRI CTED TO 50%. IN THE SAID ORDER THE TRIBUNAL VIDE PARA 21 HAS OBSERVED A S UNDER: 21 GROUND NO. 11 AS REPRODUCED ABOVE RELATES TO FA MILY PLANNING EXPENSES. THE LD. AR HAS STATED THAT THE FAMILY PLA NNING EXPENSES WERE INCURRED BY THE ASSESSEE ON THE WORKERS , WHO THOUGH , WERE NOT REGULAR EMPLOYEES OF THE ASSESSEE, BUT IN FACT THEIR EARNINGS DEPEND UPON BUSINESS OF THE ASSESSEE. HE HAS RELIED UPON THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF ATLAS CYCLE INDUSTRIES LTD 128 ITR 60 WHEREIN THE HONBLE HIGH COURT HAS UPHELD THE DISALLOWANCE OF 50% MADE BY TH E INCOME TAX AUTHORITIES FOR SUCH TYPE OF EXPENDITURE INCURRED O N AN EYE CAMP FOR THE WORKERS OF THE ASSESSEE COMPANY. THE 50% OF THE SAID EXPENDITURE WAS DISALLOWED IN THE SAID CASE ON THE GROUND THAT THE BENEFIT WAS ALSO DERIVED BY THE OUTSIDERS. THE LD.AR HAS FURTHER SUBMITTED THAT THE SAID EXPENDITURE WAS NOT ONLY INCURRED FOR THE WELFARE OF THE WORKERS BUT ALSO FOR A SOCIA L CAUSE. SO CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE ON THIS ISSUE IS RESTRICTED TO 50% OF THE EXPENDITURE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 15 INCURRED. THIS GROUND IS ACCORDINGLY PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES, WE DIR ECT THE AO TO RESTRICT THE DISALLOWANCE TO 50% OF THE EXPENDITURE INCURRED . THIS GROUND IS CONSIDERED TO BE PARTLY ALLOWED. AFTER HEARING BOTH THE PARTIES AND RESPECTFULLY, FO LLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN PRECEDING AS SESSMENT YEARS, WE RESTRICT THE DISALLOWANCE TO 50% OF THE EXPENDITURE INCURRED. WE ORDER ACCORDINGLY.THIS GROUND IS CONSIDERED AS PARTLY ALL OWED. 12. GROUND NO. 8 RELATES TO THE DISALLOWANCE OF EXP ENSES OF RS.89,886/- INCURRED ON FISH AND PRAWN CULTURE. THE LD SENIOR C OUNSEL STATED BEFORE US THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE COMPANY BY THE ASSESSEES COMPANY OWN CASE DECIDED IN ITS FAVOUR B Y THE TRIBUNAL IN EARLIER ASSESSMENT YEARS. AS PER CHART THIS ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1988-89 IN ITA NO.4566/MUM/2003 . THE TRIBUNAL VIDE ITS ORDERS DAT ED 20.04.2015 HAS OBSERVED AS UNDER: 23. GROUND NO. 12 RELATES TO DISALLOWANCE OF RS.2, 29,750/- BEING EXPENSES ON FIST ( SIC. TO BE READ FISH) AND PRAW N CULTURE. AS PER CHART THIS ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN THE AS SESSEES OWN CASE FOR A.Y.1986-87 IN ITA NO. 4564/MUM/2003. THE TRIBUNAL VIDE ITS ORDER DATED 26.04.2013 HAS OBSERVED AS UNDER: 22. GROUND NO. 7 RELATES TO THE DISALLOWANCE OF EX PENSE OF RS.2,22,508/- INCURRED ON FIST(SIC. TO BE READ AS F ISH) AND PRAWN CULTURE. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 16 23. THE AO HAS DISCUSSED THIS ISSUE AT PAGE -6 PARA 15 OF HIS ORDER AND THE LD. CIT(A) HAS DECIDED THE GRIEVANCE AT PARA-12 PAGE 44 OF HIS ORDER. WE FIND THAT THE SIMILAR ISSU E HAS COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1985-86 IN ITA NO 5181/M/02. WE FIND THAT THE TRIBUNAL HAS DISCUSS ED THIS ISSUE AT PARA-66 AND THE FINDINGS OF THE TRIBUNAL IS GIVE N AT PARA-70 OF ITS ORDER. WE FIND THAT THE TRIBUNAL HAS FOLLOWED T HE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS. 1981-82 & 1982-83 IN ITA NO. 1579/M/98 AND ALLOWED THE DEDUCTION. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE DECISION OF T HE TRIBUNAL(SUPRA) IN ASSESSEES CASE, WE DIRECT THE AO TO ALLOW THE E XPENSES OF RS.2,22,508/-.THIS GROUND OF THE ASSESSEE IS ACCORD INGLY ALLOWED. RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION, WE ALLOW THIS GROUND. WE HAVE HEARD BOTH THE PARTIES , RESPECTFULLY FOLLO WING THE DECISION OF TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS, WE ALLO W THIS GROUND OF THE ASSESSEE COMPANY AND DIRECT THE AO TO ALLOW THE EXPENSES OF RS.89,86 6/- . WE ORDER ACCORDINGLY. 13. GROUND NO. 9 RELATES TO EXPENSES ON SHAREHOLDER S VISIT TO MITHAPUR, GUJARAT AMOUNTING TO RS.1,12,554/- INCURRED BY THE ASSESSEE COMPANY AND DISALLOWED BY THE ASSESSING OFFICER . THE CIT(A) RE STRICTED DISALLOWANCE TO 50%. AGGRIEVED THE ASSESEE COMPANY IS IN APPEAL BEF ORE US. THE LD. SENIOR COUNSEL STATED BEFORE US THAT THESE EXPENSES HAVE B EEN INCURRED ON TRAVEL, FOOD AND BEVERAGES OF SHAREHOLDERS FROM MUMBAI TO F ACTORY AT MITHAPUR, GUJARAT. IT WAS SUBMITTED THAT DURING EVERY ANNUAL GENERAL MEETING OF THE COMPANY, THE SHAREHOLDERS REQUESTED THE DIRECTORS T O TAKE THEM TO FACTORY. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 17 THE BOARD OF DIRECTORS DECIDED TO TAKE THE SHAREHOL DERS TO FACTORY FOR THE FIRST TIME IN THIS YEAR AND FOR THE PURPOSE OF TAKING THE SHAREHOLDERS FROM MUMBAI, THE COMPANY HIRED 3/4 BUSES AND INCURRED TR AVELLING AND OTHER EXPENSES ON THE TOUR OF THE SHAREHOLDERS. THE EXPEN SES ARE INCURRED FOR BUSINESS OF THE COMPANY AND SAME SHALL BE ALLOWABLE AS REVENUE EXPENSES U/S 37(1) OF THE ACT. THE AO DISALLOWED THE SAME ON THE GROUND THAT THESE EXPENSES ARE INCURRED ON SHAREHOLDERS WHO HAD NOT C ONTRIBUTED TO THE MANAGEMENT OF THE COMPANY AND ARE PERSONAL EXPENSES OF THE SHAREHOLDERS AND THE ENTIRE EXPENSES OF RS.1,12,554/- WERE DISAL LOWED. THE CIT(A) RESTRICTED DISALLOWANCE TO 50% BY HOLDIN G THAT THE COMPANY IS STATUTORILY REQUIRED UNDER THE COMPANIES ACT TO HOL D ANNUAL GENERAL MEETINGS OF THE SHAREHOLDERS AS THE SHAREHOLDERS AR E THE OWNERS OF THE COMPANY WHO ARE ENTITLED TO APPOINT DIRECTORS AND T HE BOARD OF DIRECTORS ARE RESPONSIBLE TO THE SHAREHOLDERS. THE CIT(A) HELD TH AT THE EXPENDITURE INCURRED ON SHAREHOLDERS HAS A DIRECT NEXUS WITH TH E BUSINESS CARRIED ON BY THE COMPANY. THE COMPANY HAS INCURRED EXPENSES ON T RAVELLING, BOARDING, LODGING, FOOD AND REFRESHMENTS OF THE SHAREHOLDERS. THE CIT(A) HELD THAT HE EXPENSES ON FOOD AND REFRESHMENTS ARE IN THE NATURE OF ENTERTAINMENT EXPENSES AND SHOULD NOT BE ALLOWED WHILE TRAVELLING , BOARDING AND LODGING EXPENSES CANNOT BE TREATED AS THE ENTERTAINMENT EXP ENDITURE AND SHOULD BE ALLOWED AND SINCE NO BIFURCATIONS ARE AVAILABLE, 50 % IS TREATED AS ENTERTAINMENT EXPENDITURE AND IS DISALLOWED WHILE R EST 50% IS CONSIDERED AS TRAVELLING, BOARDING AND LODGING EXPENSES ARE IS AL LOWED BY THE CIT(A). THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY SUBM ITTED BEFORE US THAT THESE EXPENSES ARE BUSINESS EXPENSES AND NEED TO BE ALLOWED IN VIEW OF THE DECISION OF TRIBUNAL IN ITA NO. 5449/M/1998 FOR ASS ESSMENT YEAR 1993-94 IN THE CASE OF TATA ENGINEERING AND LOCOMOTIVE COMPANY LIMITED(TELCO) AT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 18 PARA 7-9 PAGE 6-7 (WHICH IS PLACED AT S.NO. 21 OF P APER BOOK ON RECORD) WHEREBY TRIBUNAL HAS HELD AS UNDER: 7. GROUND NO. 1.4 RELATE TO DISALLOWANCE OF EXPEN DITURE ON BEVERAGES PROVIDED AT THE ANNUAL GENERAL BODY MEETINGS(AGM) F OR RS.1,03,829. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL F OR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF TATA IRON & STEEL CO.LTD. VS. DCIT ITA NO. 7121/MUM/96 DATED 2 ND JUNE, 2005 IN WHICH IT HAS BEEN HELD THAT HOLDING OF AGM IS A STA TUTORY REQUIREMENT AND PARTICIPATION BY THE MEMBERS AND THE CONSTITUEN TS OF THE COMPANY FALL UNDER THE CATEGORY OF BARE NECESSITY EXPENDITU RE. THE TRIBUNAL , ACCORDINGLY, ALLOWED THE EXPENDITURE INCURRED ON GE NERAL BODY MEETINGS AFTER PLACING A RELIANCE UPON THE JUDGMENT OF THE K ARNATAKA HIGH COURT IN THE CASE OF CIT VS. MYSORE PAPER MILLS 126 ITR 4 37 IN WHICH IT HAS BEEN HELD THAT ENTERTAINMENT PRE-SUPPOSES A THIRD P ARTY BEING ENTERTAINED BY THE ASSESSEE ONE DOES NOT ENTERTAIN HIMSELF. THEIR LORDSHIP FURTHER HELD THAT THE ANNUAL GENERAL BODY MEETING EXPENDITURE DID NOT CONSTITUTE ENTERTAINMENT EXPENSES AND THERE FORE, THE RESTRICTION LAID DOWN UNDER SEC. 37(2A) ARE NOT APPLICABLE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT AGM IS ONLY ATT ENDED BY THE SHARE HOLDERS AND THE SHARE HOLDERS ARE PART OF THE COMPA NY ,AS SUCH , THE EXPENDITURE INCURRED ON COMPANY CANNOT BE CALLED TO BE IN THE NATURE OF ENTERTAINMENT EXPENSES. 8. THE LEARNED DR ON THE OTHER HAND HAS CONTENDED T HAT THE SHAREHOLDERS CANNOT BE CALLED TO BE THE EMPLOYEES O F THE COMPANY, AS SUCH ,ANY EXPENDITURE INCURRED THEREON , IS CERTAIN LY FALLS WITHIN THE EXPLANATION OF 37(2A) OF THE I.T.ACT. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 19 9. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS AND JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MYSORE PAPER MILLS LTD.(SUPR A), IN WHICH THEIR LORDSHIP HAVE CATEGORICALLY HELD THAT THE EXPENSES INCURRED ON CATERING AND REFRESHMENT FOR SHAREHOLDER IN THE GENERAL BODY MEETINGS, IS NOT IN THE NATURE OF ENTERTAINMENT. THE ENTERTAINMENT EXPE NDITURE IS PRE- SUPPOSES A THIRD PARTY BEING ENTERTAINED BY THE ASS ESSEE.ONE DOES NOT ENTERTAIN HIMSELF. THE HONBLE HIGH COURT ACCORDIN GLY ALLOWED THE EXPENSES INCURRED IN AGM. SINCE NO CONTRARY JUDGMEN T HAS BEEN PLACED BEFORE US BY THE LEARNED DR, WE, THEREFORE, FOLLOWI NG THE SAME, DIRECT THE ASSESSING OFFICER TO ALLOW THE ENTIRE EXPENDITURE I NCURRED ON AGM. ACCORDINGLY, THE GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. THE CIT(A) HAS DISALLOWED 50% OF EXPENSES SPENT ON THE SHAREHOLDER VISIT ON FOOD AND REFRESHMENT BY HOLDING THE SAME TO BE ENTE RTAINMENT WHILE THE TRIBUNAL IN TELCO CASE(SUPRA) HAS HELD THE SAME NOT TO BE ENTERTAINMENT EXPENSES FOLLOWING THE DECISION OF HONBLE KARNATAK A HIGH COURT IN MYSORE PAPER MILLS LIMITED(SUPRA). WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AND WE HOLD THAT THE EXPENSES IN CURRED ON SHAREHOLDERS BY THE COMPANY TOWARDS TRAVELLING, BOARDING, LODGIN G , REFRESHMENT AND FOOD EXPENSES AMOUNTING TO RS.1,12,554/- FOR TAKING SHAR EHOLDERS OF THE COMPANY FROM MUMBAI TO THE FACTORY OF THE ASSESSEE COMPANY AT MITHAPUR,GUJARAT ARE BUSINESS EXPENSES AND ARE FULLY ALLOWABLE. THE ORDE RS OF THE CIT(A) RESTRICTING DISALLOWANCE TO 50% OF THE EXPENSES INCURRED BY THE ASSESSEE ON REFRESHMENTS AND FOOD DURING VISIT OF SHAREHOLDERS TO FACTORY AT MITHAPUR CONSIDERING THE SAME TO BE ENTERTAINMENT EXPENSES A RE SET ASIDE AND THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED . WE ORDER ACCORDINGLY. 14. GROUND NO. 10 RELATES TO DISALLOWANCE OF RS. 13 ,450/- BEING EXPENDITURE INCURRED AT THE TIME OF AGM. THIS ISSUE WAS STATED BY LD. SENIOR COUNSEL OF ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 20 THE ASSESSEE COMPANY TO BE COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES COMPANY OWN CASE FOR A.Y.1988-89 , WHERE IN AT PARA 24 IN ITS ORDER DATED 20.04.2015 IT HAS BEEN OBSERVED AS UNDE R: 24. GROUND NO. 13 RELATES TO DISALLOWANCE OF RS.10 ,630 BEING EXPENDITURE INCURRED AT THE TIME OF AGM. THIS ISSUE WAS STATED TO BE COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSE SSEES CASE FOR A.Y. 1987-88, WHEREIN AT PARA 14 IN ITS ORDER DATED 16.0 5.2014 IT HAS BEEN OBSERVED AS UNDER: 14. GROUND NO. 6 AS REPRODUCED ABOVE IS RELATING T O THE EXPENSES INCURRED ON ANNUAL GENERAL MEETING OF SHAREHOLDERS. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ISSUE TAKEN VID E GROUND NO. 6 IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 1995-96 AND 1996-97 VIDE ITA NO. 2658/M/2002 AND 5728/M/06 RESP ECTIVELY. THE TRIBUNAL WHILE DEALING WITH THE IDENTICAL ISSUE FOR ASSESSMENT YEAR 1995-96 HAS DIRECTED THE AO TO DECIDE THE SAME IN ITA NO. 4464/MUM/2012 ITA NO. 4565/MUM/2003 IN ACCORDANCE W ITH THE DECISION OF THE TRIBUNAL IN THE CASE OF TELCO DECID ED IN ITA NO. 5449/M/1998.SINCE FOR THE EARLIER ASSESSMENT YEARS, THE ISSUE HAS BEEN REMANDED BACK TO THE AO FOR DECIDING THE S AME AS OBSERVED ABOVE, THE FACTS BEING IDENTICAL FOR THIS YEAR ALSO , THIS ISSUE IS REMANDED BACK TO THE AO TO DECIDE THE SAME AS PER THE DIRECTIONS OF THE TRIBUNAL GIVEN FOR ASSESSMENT YEA R 1995-96 AND 1996-97 IN THE OWN CASE OF THE ASSESSEE. ACCORDINGLY , AFTER HEARING BOTH THE PARTIES, WE RE STORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME IN THE LIGHT OF THE EARLIER YEARS DECISION ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 21 IN THE ASSESSEES OWN CASE. THIS GROUND IS CONSIDER ED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER STATED ABOVE. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES AND RES PECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES COMPANY OWN CASE IN THE EARLIER ASSESSMENT YEAR AS MENTIONED ABOVE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME IN THE LIGHT OF EARLIER YEAR S DECISION IN THE ASSESSEES COMPANY OWN CASES. THIS GROUND IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER STATED ABOVE. WE WOULD LIKE TO ADD AT THIS STAGE THAT IN TODAYS CORPORATE SCENARIO WHERE SIZE AND SCALES OF CORPORATE ENTITIES HAVE GROWN EN ORMOUSLY , WHERE THERE IS A GREAT EMPHASIS AND HIGH EXPECTATION OF ALL STAKEH OLDERS ON GOOD CORPORATE GOVERNANCE PRACTICES BEING ADOPTED BY COMPANIES , THE STRICT REGULATORY CONTROLS THROUGH VARIOUS STATUTES WHICH GOVERN THE OPERATIONS OF THE COMPANIES AND THE COMPETITIVE ENVIRONMENT UNDER WHI CH COMPANIES OPERATES, THERE ARISES A SPECIAL IMPORTANCE OF SHAR EHOLDERS AS A CLASS WHO NOT ONLY ARE A MAJOR SOURCE OF FUNDING THE EXISTING AN D FUTURE FUNDS REQUIREMENTS OF COMPANIES PLANS FOR GROWTH BUT ALSO ARE ACTIVE PARTICIPANTS TO REGULATE AND GOVERN THE COMPANIES BY WAY OF PART ICIPATING IN THE GENERAL MEETINGS BE IT ANNUAL GENERAL MEETINGS, EXTRA-ORDIN ARY GENERAL MEETINGS , COURT CONVENED SHAREHOLDER MEETINGS OR ANY OTHER ME ETING BOTH UNDER REGULATORY REQUIREMENTS OR AS PART OF A GOOD CORP ORATE GOVERNANCE PRACTICED BY THE COMPANY , WHERE-IN THE DECISIONS OF THE UTMO ST IMPORTANCE SHAPING AND REGULATING THE FORTUNES OF THE COMPANY ARE TAK EN IN THE FORM OF DISCUSSIONS AND PASSING OF RESOLUTIONS BY THE SHARE HOLDERS . TO SAY IN PRESENT DAY SCENARIO OF HIGH EXPECTATIONS OF THE BE ST CORPORATE GOVERNANCE PRACTICES BEING ADOPTED BY THE COMPANIES AND THE ST RICT REGULATORY FRAMEWORK IN WHICH THE COMPANIES OPERATE , WHEREBY GOVERNMENT IS ALSO ENCOURAGING ACTIVE PARTICIPATION BY SHAREHOLDERS IN THE COMPANIES DECISION ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 22 MAKING PROCESS WHEREBY MANDATORY POSTAL BALLOTS, E- VOTING ETC HAVING BEEN INTRODUCED UNDER REGULATORY FRAMEWORK , THAT EXPEN SES INCURRED BY THE TAXPAYER COMPANY ON THEIR SHAREHOLDERS UNDER STATU TORY REQUIREMENT OR AS PART OF GOOD CORPORATE GOVERNANCE PRACTICE IS NOT A BUSINESS EXPENSES IS TOO DIFFICULT PROPOSITION TO ACCEPT .WE ARE CONSCIOUS O F THE FACT THAT THE PRESENT APPEAL PERTAINS TO ASSESSMENT YEAR 1989-90 WHEREBY SOME OF THE CORPORATE GOVERNANCE PRACTICE OR STATUTORY REQUIREMENT AS ENU MERATED ABOVE WARE NOT APPLICABLE. 15. GROUND NO. 11 RELATES TO DISALLOWANCE OF DELHI OFFICE EXPENSES AMOUNTING TO RS.75,000/- . AS PER CHART AND AS STATED BY LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY BEFORE US , THIS ISSUE IS ALSO STA TED TO BE COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES COMPANY CASE FOR ASSESSMENT YEAR 1988-89 , WHEREIN AS PER 26 OF ORDER DATED 20.04.20 15 ITS HAS BEEN OBSERVED AS UNDER: 26. GROUND NO 15 RELATES TO DISALLOWANCE OF DELHI OFFICE EXPENSES AMOUNTING TO RS.1,25,000. A PER CHART THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y.1987-88 , WHEREIN AS PER PARA 20 OF ORDER DATED 16.05.2014 IT HAS BEEN OBSERVED AS UNDER: 20. GROUND NO 10 AS REPRODUCED ABOVE RELATES TO DE LHI OFFICE EXPENSES. THE LD. AR HAS STATED FROM THE CHART THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE FOR EARL IER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 1983-84 TO 1986-87. THE AO IS ACCORDINGLY DIRECTED TO DECIDE THE SAID ISSUE IN TH E LIGHT OF THE DECISION GIVEN FOR EARLIER YEARS IN THE OWN CASE OF THE ASSESSEE. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 23 ACCORDINGLY, AFTER HEARING BOTH THE PARTIES WE DIRE CT THE AO TO DECIDE THE ISSUE IN THE LIGHT OF EARLIER YEARS DECISION IN TH E ASSESSEES OWN CASE. THIS GROUND IS ALLOWED. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES , WE DI RECT THE AO TO DECIDE THE ISSUE IN THE LIGHT OF EARLIER YEARS DECISION IN TH E ASSESSEES COMPANY OWN CASE. THIS GROUND IS ALLOWED. 16. GROUND NO. 12 RELATES TO DISALLOWANCE OF EXPENS ES OF RS.13,86,926/- ON NEW PROJECTS EXPENSES ON KARNAL OIL REFINERY. THE A SSESSING OFFICER HAS DISALLOWED THE EXPENSES ON KARNAL OIL REFINERY AS T HE KARNAL OIL REFINERY IS SET UP AS ALTOGETHER SEPARATE VENTURE IN COLLABORAT ION WITH INDIAN OIL CORPORATION LIMITED AND THE EXPENSES ARE NOT RELATE D TO THE BUSINESS OF THE ASSESSEE COMPANY. THE CIT(A) ALSO UPHELD THE DISALL OWANCE . THE LD SENIOR COUNSEL STATED BEFORE US THAT HE IS NOT PRESSING TH IS GROUND AND HENCE THIS GROUND MAY BE DISMISSED AS NOT PRESSED. AFTER HEA RING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE DISMISS THIS GR OUND OF APPEAL AS NOT PRESSED. WE ORDER ACCORDINGLY. 17. GROUND NO. 13 RELATES TO THE DISALLOWANCE OF EX PENSES INCURRED ON GUEST HOUSE TOTALLING TO RS.26,07,662/- DETAILS/BREAK-UP OF WHICH ARE AS UNDER: A) SALARIES, WAGES TO STAFF RS.9,49,365/- B) REPAIRS AND RENOVATION EXPENSES RS.1,73,642/- C) FOOD EXP.(NET OF RECOVERIES) RS.6,01,116/- D) DEPRECIATION RS.4,81,961/- E) MAINTENANCE EXPENSES RS.4,01,578/- -------------------- TOTAL RS.26,07,662/- --------------------- ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 24 THIS GROUND OF APPEAL WAS PRESSED BEFORE US BY LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY ONLY TO THE EXTENT OF FOOD EXPENSE S AMOUNTING TO RS.6,01,116/- . THE LD. SENIOR COUNSEL OF THE ASSES SEE COMPANY STATED BEFORE US THAT THE DISALLOWANCE OF THE REST OF THE EXPENSE S AFTER EXCLUDING FOOD EXPENSES OF RS.6,01,116 MAY BE UPHELD AND THE APPEA L OF THE ASSESSEE MAY BE DISMISSED AS NOT PRESSED. IT WAS CONTENDED BY LD. SENIOR COUNSEL THAT TO THE EXTENT OF FOOD EXPENSES OF RS. 6,01,116/- INCUR RED BY THE ASSESSEE COMPANY , THE ISSUE IS DECIDED IN FAVOUR OF THE ASS ESSE COMPANY BY LATEST DECISION OF THE TRIBUNAL RENDERED IN RESPECT OF ASS ESSMENT YEAR 1988-89 VIDE ORDERS DATED 20.04.2015 AT PARA 33 PAGE 15 WHICH IS PLACED AT PAPER BOOK FILED AT SERIAL NUMBER 9 WHEREBY THE TRIBUNAL HAS H ELD AS UNDER : 33. GROUND NO 19 RELATES TO DISALLOWANCE OF EXPENS ES INCURRED IN GUEST HOUSE TOTALLING TO RS.20,10,227 DETAILS OF WHICH IS AS UNDER: SALARIES, WAGES TO STAFF RS.7,65,431 REPAIRS AND RENOVATION EXPENSES RS.1,85,623 FOOD EXP.(NET OF RECOVERIES) RS.4,79,458 DEPRECIATION RS.1,44,721 MAINTENANCE EXPENSES RS.4,34,994 ---------------------- RS.20,10,227 ---------------------- THIS GROUND WAS PRESSED ONLY TO THE EXTENT OF FOOD EXPENSES AMOUNTING TO RS.4,79,458. IT WAS CONTENDED THAT TO THIS EXTEN T THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE LATEST DECISION OF THE TRIBUNAL RENDERED IN RESPECT OF A.Y.1996-97, WHICH IS FILED AT SR. NO . 12 OF THE PAPER BOOK. IN THIS ORDER DATED 17.08.2007 (ITA NO. 5728/MUM/20 04) THE ISSUE HAS BEEN DISCUSSED AT PARA 4.2 AND 4.3 , WHICH READ AS UNDER: ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 25 4.2 THE NEXT GROUND IS AGAINST THE DISALLOWANCE OF EXPENSES ON MAINTENANCE OF GUEST HOUSE. THE FOOD EXPENSE OF RS. 42,29,391 HAS BEEN CLAIMED BY THE ASSESSEE AS ALLOWABLE. IN T HE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1995-96 IN ITA NO. 265 8/MUM/02 DATED 26-07-2006 THIS ISSUE HAS BEEN CONSIDERED AND HELD IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCU RRED BY THE ASSESSEE FOR FOOD SERVED AT GUEST HOUSE. COMING TO THE OTHER EXPENSES INCURRED ON THE GUEST HOUSE, I.E. SALARIES RS.29,41,078 ; REPAIRS RS.5,91,940; AND SOCIETY CHARGES AND TAXES RS.2,84,949 WE HOLD THAT THE ISSUE IS COVERED AGAINST THE ASSES SEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF BRITANNIA INDUSTRIES LIMITED V S. CIT 278 ITR 546(SC).RESPECTFULLY FOLLOWING THE SAME WE UPHOLD T HESE DISALLOWANCES MADE BY THE REVENUE AUTHORITIES. 4.3 IN THE RESULT, THIS GROUND IS PARTLY ALLOWED. RESPECTFULLY , FOLLOWING THE AFOREMENTIONED DECISIO N WE ALLOW THIS GROUND ONLY TO THE EXTENT OF FOOD EXPENSES AMOUNTING TO RS .4,79,458 AND REST OF THE DISALLOWANCE IS UPHELD AS NOT PRESSED. THIS GRO UND IS PARTLY ALLOWED. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES ON THIS ISSUE AND RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN PRECEDING ASSESSMENT YEARS AS DETAILED ABOVE, WE ALSO ALLOW THIS GROUND ONLY TO T HE EXTENT OF FOOD EXPENSES AMOUNTING TO RS.6,01,116/- AND REST OF THE DISALLOW ANCE IS UPHELD AS NOT PRESSED. THIS GROUND IS PARTLY ALLOWED. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 26 18. GROUND NO. 14 AND 15 RELATES TO DISALLOWANCES U /S 40A(9) OF THE ACT. THE DETAILS ARE AS UNDER: I)PAYMENTS TO SCHOOLS(STAFF WELFARE EXPENSES) A) NUTAN BALSIKSHAN SANGH RS. 5,70,000/- B) KINDERGARTEN PRIMARY SCHOOL RS.3,96,000/- C) MITHAPUR KAMDAR CLUB RS.13,366/- II) SUNDRY CONTRIBUTION HONOUR OF RETIRED TEACHERS RS.1,000/- III) TATA SPORTS CLUB RS.1,10,329/- BEFORE US , IT IS STATED BY THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSES OWN CASE FOR ASSESSMENT YEAR 1988-89 IN ITA NO. 456 6/MUM/2003 VIDE ORDERS DATED 20.04.2015 WHEREBY THE TRIBUNAL HAS OB SERVED AT PARA 25 AT PAGE 11 WHICH IS PLACED AT PAPER BOOK AT S.NO.9 AS UNDER: 25.GROUND NO. 14 RELATES TO FOLLOWING DISALLOWANCE U/S 40A(9) TATA SPORTS CLUB RS.2,35,600 PAYMENT TO SCHOOL(STAFF WELFARE EXPENSES) NUTAN BALSIKSHAN SANGH RS.3,50,000 KINDERGARTEN PRIMARY SCHOOL RS.2,46,000 MITHAPUR KAMDAR CLUB RS.6,000 SUNDRY CONTRIBUTION RS.4,064 BEFORE US IT WAS STATED THAT THIS ISSUE IS ALSO COV ERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES CASE FOR A.Y.1987-88 , WHEREIN VIDE ORDER DATED 16.05.2014 IT HAS OBSERVED AS UNDER: ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 27 15. THE GROUND NO. 7 RELATES TO DISALLOWANCE OF SU NDRY CONTRIBUTIONS UNDER SECTION 40A(9) AND PAYMENTS TO SCHOOLS(STAFF WELFARE EXPENSES).SO FAR THE ISSUE RELATES TO DISAL LOWANCE OF SUNDRY CONTRIBUTIONS IS CONCERNED , THE LD. AR HAS SUBMITTED THAT ISSUE RAISED VIDE GROUND NO.7 IS SQUARELY COVERED I N FAVOUR OF THE ASSESSEE FOR EARLIER ASSESSMENT YEAR I.E. ASSESSMEN T YEAR 1985- 86,1986-87,1995-96 AND 1996-97 . FOR REFERENCE WE T AKE UP THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 1986-8 7. THE TRIBUNAL VIDE PARA 51 OF THE ORDER HAS OBSERVED AS UNDER: 5 1. THIS ISSUE FIND PLACE AT PAGE -12 PARA 26 OF THE ASSESSMENT OR DER AND PAGE- 28 PARA-10 OF THE APPELLATE ORDER.IDENTICAL ISSUE C AME UP FOR HEARING IN THE CASE OF THE ASSESSEE IN A.Y.1983-84 IN ITA NO. 4058/M/99,ITA NO. 2706/M/2000 FOR A.Y.1993-94 , ITA NO. 454/M/02 FOR A.Y.1994-95 , ITA NO. 3082/M/02 FOR A. Y.1995-96 AND ITA NO. 5181/M/02 FOR A.Y. 1985-86. WE FIND THA T THE TRIBUNAL IN ITA NO.5181/M/02 IN ASSESSEES OWN CASE HAS DECIDED A SIMILAR ISSUE AT PARA -140 OF ITS ORDER W HEREIN THE TRIBUNAL HAS FOLLOWED THE EARLIER DECISION OF THE T RIBUNAL IN ASSESSEES OWN CASE FOR A.YRS.1993-94 TO 1995-96 . RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE, WE DIRECT THE AO TO ALLOW THE EXPENSES AS CLAIMED BY T HE ASSESSEE. GROUND NO. 14 IS ACCORDINGLY ALLOWED. 16. SINCE THE FACTS FOR THIS YEAR ARE ALSO IDENTICA L, HENCE THE AO IS DIRECTED TO ALLOW THE EXPENSES FOLLOWING THE DECISI ON OF THE TRIBUNAL IN THE EARLIER ASSESSMENT YEAR AS REPRODUC ED ABOVE. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 28 17. SO FAR THE PAYMENTS TO SCHOOL(STAFF WELFARE EXP ENSES) IS CONCERNED, THE LD AR HAS AGAIN SUBMITTED THAT THE I SSUE RAISED VIDE GROUND NO.7 IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE FOR EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 1983- 84,1984-85, 1992-93 AND 1996-97. THE FACTS OF THIS YEAR , BEING IDENTICAL IN NATURE , THE AO IS DIRECTED TO DECIDE THE SAID ISSU E IN ACCORDANCE WITH THE DECISIONS OF THE TRIBUNAL ON THIS ISSUE IN THE EARLIER ASSESSMENT YEARS. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE D IRECT THE AO TO DECIDE THE ISSUE IN ACCORDANCE WITH THE AFOREMENTIONED DEC ISION OF THE TRIBUNAL ON THIS ISSUE IN EARLIER ASSESSMENT YEARS. IT MAY B E MENTIONED HERE THAT SO FAR AS IT RELATES TO SUNDRY CONTRIBUTION OF RS.4 ,064/- THE SAME WAS NOT PRESSED DUE TO SMALLNESS OF AMOUNT. THEREFORE TO TH IS EXTENT THE DISALLOWANCE IS UPHELD. THIS GROUND IS CONSIDERED T O BE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES AND RES PECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT THE AO TO DECIDE THE ISSUE IN ACCORDANCE WITH THE AFOREMENTIONED DECISION OF THE TRIBUNAL ON THIS ISSUE IN EARLIER ASSESSMENT YEARS. IT MAY BE MENTIONED HERE THAT SO FAR AS IT RELATES TO SUNDRY CONTRIBUTION OF RS.1,000/- TOWARDS HONOUR OF RETIRE D TEACHERS , THE SAME WAS NOT PRESSED DUE TO SMALLNESS OF AMOUNT. THEREFORE T O THIS EXTENT THE DISALLOWANCE IS UPHELD. THIS GROUND IS CONSIDERED T O BE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 19. GROUND NO. 16(I) OF THE ASSESSEES APPEAL RELAT ES TO THE REDUCTION IN ALLOWANCE U/S 80HHC AS THE ASSESSING OFFICER HAS IN CLUDED PROCEEDS FROM SALE OF SCRAP/WASTE IN THE TOTAL TURNOVER WHILE C OMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. THE AO OBSERVED THAT SUNDRY RECEIPTS FORMS AN ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 29 INTEGRAL PART OF THE ASSESSEES BUSINESS AND THE RE CEIPT THERE FROM SHOULD BE INCLUDED IN THE TOTAL TURNOVER. THE GROUND NO 16(II) (A) AND (B) RELATES TO NON-INC LUSION OF THE INTEREST INCOME EARNED DURING THE COURSE OF BUSINESS FROM SUNDRY AD VANCES TO BUSINESS ASSOCIATES, TO SUPPLIERS, TO SUBSIDIARY COMPANIES A ND TO STAFF MEMBERS UNDER THE HEAD BUSINESS AND PROFESSION THEREBY REDUCING THE RELIEF U/S 80HHC AND NOT APPRECIATING THAT THE INTEREST INCOME IS IN EXTRICABLY LINKED TO THE ASSESSEE COMPANY BUSINESS AND AS SUCH SHOULD GO TO REDUCE THE INTEREST EXPENSES. THE AO OBSERVED THAT THE INTEREST INCOME ON THE ADVANCES GIVEN TO SUBSIDIARY COMPANIES AND OTHERS WAS INCLUDED IN TH E BUSINESS INCOME WHICH IN HIS VIEW SHOULD NOT FORM PART OF THE BUSINESS IN COME AS THE SAME IS NOT INEXTRICABLY LINKED TO THE ASSSSSEE BUSINESS. THUS, AO HELD THAT THE INTEREST INCOME SHOULD BE EXCLUDED FROM THE BUSINESS INCOME FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT THU S, THE AO REDUCED THE CLAIM OF THE ASSESSEE COMPANY U/S 80HHC. THE CIT(A) HELD THAT SUNDRY RECEIPTS HAS NO NEXUS W ITH THE EXPORT ACTIVITY AND SHOULD NOT FORM PART OF THE TOTAL TURNOVER OF T HE ASSESSEE COMPANY. THUS, THE CIT(A) HELD THAT SUCH RECEIPTS GET EXCLUDED FRO M THE TOTAL TURNOVER. THE CIT(A) HELD THAT THE SUNDRY RECEIPTS GET EXCLUDED F ROM THE DENOMINATOR BUT THE ASSESSEE COMPANY HAS INCLUDED THE SAME IN THE N UMERATOR IN THE FORM OF BUSINESS PROFITS. THEREFORE, THE CIT(A) DIRECTED AO TO EXCLUDE THE SUNDRY RECEIPTS FROM BOTH THE NUMERATOR AND DENOMINATOR WH EREBY HE DIRECTED THE AO TO EXCLUDE NET SUNDRY RECEIPT I.E. RECEIPT LES S EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON EARNING SUCH SUNDRY RECEIPTS IS REQUIRED TO BE REDUCED FROM THE BUSINESS PROFIT. THE CIT(A) OBSERVED THAT THE ASSESEE COMPANY HAS RE CEIVED INTEREST INCOME FROM IDBI DEPOSITS, SUBSIDIARY COMPANIES AND STAFF MEMBERS AND HELD THAT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 30 THE AO HAS RIGHTLY EXCLUDED THE INTEREST INCOME FRO M BUSINESS INCOME FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S 80HHC OF T HE ACT AS IN VIEW OF THE CIT(A), THE ASSESSEE COMPANY IS NOT ENGAGED IN MONE Y LENDING BUSINESS AND AS PER SECTION 80HHC OF THE ACT, BUSINESS PROFITS A RE DEFINED AND AS PER THIS DEFINITION, INTEREST INCOME IS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS. THE CIT(A) RELIED UPON THE JUDGMENT OF JURISDICTION AL HIGH COURT IN RAVI RATNA EXPORTS PRIVATE LIMITED 246 ITR 443 WHEREBY T HE HONBLE COURT HELD THAT INTEREST INCOME SHOULD BE EXCLUDED FROM THE BU SINESS PROFITS AND THE CIT(A) UPHELD THE ACTION OF THE AO IN RESPECT OF TH E INTEREST INCOME. AGGRIEVED BY THE ORDERS OF THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. THE LD. SENIOR COUNSEL SUBMITTED THAT TH E ISSUE OF EXCLUSION OF PROCEED FROM SALE OF SCRAP/WASTE IN THE TOTAL TURN OVER WHILE COMPUTING DEDUCTION U/S 80HHC IS NO MORE RES-INTEGRA AND IS S ETTLED BY HONBLE SUPREME COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES LIMITED IN (2014)364 ITR 144 (SC) .THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD INCLUDING CASE LAWS RELIED UPON, THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES LIMITED(SUPRA) HAS HELD AS UNDER: 16. WE HAD HEARD THE LEARNED COUNSEL APPEARING FOR BOTH THE SIDES AND ALSO CONSIDERED THE RELEVANT RECORD AND THE JUDGMEN TS REFERRED TO. 17. TO ASCERTAIN WHETHER THE TURNOVER WOULD ALSO IN CLUDE SALE PROCEEDS FROM SCRAP, ONE HAS TO KNOW THE MEANING OF THE TERM 'TURNOVER'. THE TERM 'TURNOVER' HAS NEITHER BEEN DE FINED IN THE ACT NOR HAS BEEN EXPLAINED BY ANY OF THE CBDT CIRCULARS . ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 31 18. IN THE AFORESTATED CIRCUMSTANCES, ONE HAS TO LOOK AT THE MEANING OF THE TERM 'TURNOVER' IN ORDINARY ACCOUNTING OR COMME RCIAL PARLANCE. 19. NORMALLY, THE TERM 'TURNOVER' WOULD SHOW THE SALE EFFECTED BY A BUSINESS UNIT. IT MAY HAPPEN THAT IN THE COURSE OF THE BUSINESS, IN ADDITION TO THE NORMAL SALES, THE BUSINESS UNIT MAY ALSO SELL SOME OTHER THINGS. FOR EXAMPLE, AN ASSESSEE WHO IS MANUFACTURI NG AND SELLING STAINLESS STEEL UTENSILS, IN ADDITION TO ST EELUTENSILS, THE ASSESSEE MIGHT ALSO SELL SOME OTHER THINGS LIKE AN OLD AIR C ONDITIONER OR OLD FURNITURE OR SOMETHING WHICH HAS OUTLIVED ITS UTILI TY. WHEN SUCH THINGS ARE DISPOSED OF, THE QUESTION WOULD BE WHETHER THE SALE PROCEEDS OF SUCH THINGS WOULD BE INCLUDED IN THE 'TURNOVER'. SIMILAR LY IN THE PROCESS OF MANUFACTURING UTENSILS, THERE WOULD BE SOME SCRAP OF STAINLESS STEEL MATERIAL, WHICH CANNOT BE USED F OR MANUFACTURING UTENSILS. SUCH SMALL PIECES OF STAINLESSSTEEL WOULD BE SOLD AS SCRAP. HERE ALSO, THE QUESTION IS WHETHER SALE PROCEEDS OF SUCH SCRAP CAN BE INCLUDED IN THE TERM 'SALES' WHEN IT IS TO BE REFLECTED IN T HE PROFIT AND LOSS ACCOUNT. 20. IN ORDINARY ACCOUNTING PARLANCE, AS APPROVED BY ALL ACCOUNTANTS AND AUDITORS, THE TERM 'SALES', WHEN RE FLECTED IN THE PROFIT AND LOSS ACCOUNT, WOULD INDICATE SALE PROCEE DS FROM SALE OF THE ARTICLES OR THINGS IN WHICH THE BUSINESS UNI T IS DEALING. WHEN SOME OTHER THINGS LIKE OLD FURNITURE OR A CAPI TAL ASSET, IN WHICH THE BUSINESS UNIT IS NOT DEALING ARE SOLD, TH E SALE PROCEEDS THERE FROM WOULD NOT BE INCLUDED IN 'SALES' BUT IT WOULD BE SHOWN SEPARATELY . 21. IN SIMPLE WORDS, THE WORD 'TURNOVER' WOULD MEAN ONL Y THE AMOUNT OF SALE PROCEEDS RECEIVED IN RESPECT OF THE GOODS IN WHICH AN ASSESSEE IS DEALING IN. FOR EXAMPLE- IF A MANUFACTURER AND SELLER OF AIR-CONDITIONERS IS ASKED TO DECLARE HIS 'TURNOVER' , THE ANSWER GIVEN BY HIM WOULD SHOW THE SALE PROCEEDS OF AIR-CONDITIONER S DURING A PARTICULAR ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 32 ACCOUNTING YEAR. HE WOULD NOT INCLUDE THE AMOUNT RE CEIVED, IF ANY, FROM THE SALE OF SCRAP OF METAL PIECES OR SALE PROCEEDS OF OLD OR USELESS THINGS SOLD DURING THAT ACCOUNTING YEAR. THIS CLEARLY DENO TES THAT ORDINARILY A BUSINESSMAN BY WORD 'TURNOVER' WOULD MEAN THE SALE PROCEEDS OF THE GOODS (THE THINGS IN WHICH HE IS DEALING) SOLD BY H IM. 22. SO FAR AS THE SCRAP IS CONCERNED, THE SALE PROCEED S FROM THE SCRAP MAY EITHER BE SHOWN SEPARATELY IN THE PROFIT AND LO SS ACCOUNT OR MAY BE DEDUCTED FROM THE AMOUNT SPENT BY THE MANUFACTURING UNIT ON THE RAW MATERIAL, WHICH IS STEEL IN THE CASE OF THE RESPOND ENT-ASSESSEE, AS THE RESPONDENT-ASSESSEE IS USING STAINLESS STEEL AS RAW MATERIAL, FROM WHICH UTENSILS ARE MANUFACTURED. THE RAW MATERIAL, WHICH IS NOT CAPABLE OF BEING USED FOR MANUFACTURING UTENSILS WILL HAVE TO BE EITHER SOLD AS SCRAP OR MIGHT HAVE TO BE RE-CYCLED IN THE FORM OF SHEETS OF STAINLESS STEEL, IF THE MANUFACTURING UNIT IS ALSO HAVING ITS RE-ROLLING PL ANT. IF IT IS NOT HAVING SUCH A PLANT, THE MANUFACTURER WOULD DISPOSE OF THE SCRAP OF STEEL TO SOMEONE WHO WOULD RE-CYCLE THE SAID SCRAP INTO STEE L SO THAT THE SAID STEEL CAN BE RE-USED. 23. WHEN SUCH SCRAP IS SOLD, IN OUR OPINION, THE SALE P ROCEEDS OF THE SCRAP CANNOT BE INCLUDED IN THE TERM 'TURNOVER' FOR THE REASON THAT THE RESPONDENT-UNIT IS ENGAGED PRIMARILY IN TH E MANUFACTURING AND SELLING OF STEEL UTENSILS AND NOT SCRAP OF STEEL. T HEREFORE, THE PROCEEDS OF SUCH SCRAP WOULD NOT BE INCLUDED IN 'SALES' IN THE PROFIT AND LOSS ACCOUNT OF THE RESPONDENT-ASSESSEE.. 24. THE SITUATION WOULD BE DIFFERENT IN THE CASE OF TH E BUYER, WHO PURCHASES SCRAP FROM THE RESPONDENT-ASSESSEE AND SE LLS IT TO SOMEONE ELSE. THE SALE PROCEEDS FOR SUCH A BUYER WOULD BE T REATED AS 'TURNOVER' FOR A SIMPLE REASON THAT THE BUYER OF THE SCRAP IS A PERSON WHO IS PRIMARILY DEALING IN SCRAP. IN THE CASE ON HAND, AS THE RESPONDENT- ASSESSEE IS NOT PRIMARILY DEALING IN SCRAP BUT IS A MANUFACTURER ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 33 OF STAINLESS STEEL UTENSILS, ONLY SALE PROCEEDS FRO M SALE OF UTENSILS WOULD BE TREATED AS HIS 'TURNOVER'. 25. SO AS TO BE MORE ACCURATE ABOUT THE WORD 'TURNOVER ', ONE CAN EITHER REFER TO DICTIONARIES OR TO MATERIALS WHICH ARE PU BLISHED BY BODIES OF ACCOUNTANTS. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ( HEREINAFTER REFERRED TO AS THE 'ICAI') HAS PUBLISHED SOME MATER IAL UNDER THE HEAD 'GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB OF T HE INCOME TAX ACT'. THE SAID MATERIAL HAS BEEN PUBLISHED SO AS TO GUIDE THE MEMBERS OF THE ICAI. IN OUR OPINION, WHEN A RECOGNIZED BODY OF ACC OUNTANTS, AFTER DUE DELIBERATION AND CONSIDERATION PUBLISHES CERTAIN MA TERIAL FOR ITS MEMBERS, ONE CAN RELY UPON THE SAME. PARA 5 OF THE SAID NOTE DEALS WITH 'SALES', 'TURNOVER' AND 'GROSS RECEIPTS'. PARAS 5.2 AND 5.3 OF THE SAID NOTE ARE REPRODUCED HEREINBELOW, WHICH PERTAIN TO T HE TERM 'TURNOVER'. '5.2 IN THE 'GUIDANCE NOTE ON TERMS USED IN FINANCI AL STATEMENTS' PUBLISHED BY THE ICAI, THE EXPRESSION 'SALES TURNOV ER' (ITEM 15.01) HAS BEEN DEFINED AS UNDER:- 'THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED OR SERVICES RENDERED BY AN ENTERPRISE. THE TERM 'GROSS TURNOVER ' AND 'NET TURNOVER' (OR 'GROSS SALES' AND 'NET SALES') ARE SO METIMES USED TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DE DUCTION OF RETURNS AND TRADE DISCOUNTS'. 5.3 THE GUIDE TO COMPANY AUDIT ISSUED BY THE ICAI I N THE YEAR 1980, WHILE DISCUSSING 'SALES', STATED AS FOLLOWS: 'TOTAL TURNOVER, THAT IS, THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED BY THE COMPANY, GIVING THE AMOUN T OF SALES IN RESPECT OF EACH CLASS OF GOODS DEALT WITH BY THE COMPANY AND INDICATING THE QUANTITIES OF SUCH SALES FOR EACH CLASS SEPARATELY. NOTE (I) THE TERM 'TURNOVER' WOUL D MEAN THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 34 TOTAL SALES AFTER DEDUCTING THERE FROM GOODS RETURN ED, PRICE ADJUSTMENTS, TRADE DISCOUNT AND CANCELLATION OF BIL LS FOR THE PERIOD OF AUDIT, IF ANY. ADJUSTMENTS WHICH DO NOT R ELATE TO TURNOVER SHOULD NOT BE MADE E.G. WRITING OFF BAD DE BTS, ROYALTY ETC. WHERE EXCISE DUTY IS INCLUDED IN TURNO VER, THE CORRESPONDING AMOUNT SHOULD BE DISTINCTLY SHOWN AS A DEBIT ITEM IN THE PROFIT AND LOSS ACCOUNT.' (EMPHASIS SUP PLIED) THE AFORE STATED MEANING GIVEN BY THE ICAI CLEARLY DENOTES THAT IN NORMAL ACCOUNTING PARLANCE THE WORD 'TURNOVER' WOUL D MEAN 'TOTAL SALES' AS EXPLAINED HEREINABOVE. THE SAID SALES WOU LD DEFINITELY NOT INCLUDE THE SCRAP MATERIAL WHICH IS EITHER TO B E DEDUCTED FROM THE COST OF RAW MATERIAL OR IS TO BE SHOWN SEPARATE LY UNDER A DIFFERENT HEAD. WE DO NOT SEE ANY REASON FOR NOT AC CEPTING THE MEANING OF THE TERM 'TURNOVER' GIVEN BY A BODY OF A CCOUNTANTS, WHICH IS HAVING A STATUTORY RECOGNITION. 26. IF ALL ACCOUNTANTS, AUDITORS, BUSINESSMEN, MANUFACT URERS ETC. ARE NORMALLY INTERPRETING THE TERM 'TURNOVER' AS SA LE PROCEEDS OF THE COMMODITY IN WHICH THE BUSINESS UNIT IS DEALING , WE SEE NO REASON TO TAKE A DIFFERENT VIEW THAN THE VIEW NORMA LLY TAKEN BY THE PERSONS WHO ARE CONCERNED WITH THE SAID TERM. 27. IN ADDITION TO THE ABOVE FACTORS, WHICH WE HAVE CO NSIDERED FOR UNDERSTANDING THE MEANING OF THE TERM 'TURNOVER', W E SHOULD NOT MISS THE PURPOSE WITH WHICH THE SAID TERM HAS BEEN INCOR PORATED IN SECTION 80 HHC OF THE ACT. 28. THE INTENTION BEHIND ENACTMENT OF SECTION 80HHC OF THE ACT WAS TO ENCOURAGE EXPORT SO AS TO EARN MORE FOREIGN EXCHANG E. FOR THE SAID PURPOSE THE GOVERNMENT WANTED TO ENCOURAGE BUSINESS MEN, TRADERS AND MANUFACTURERS TO INCREASE THE EXPORT SO AS TO BRING MORE FOREIGN ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 35 EXCHANGE IN OUR COUNTRY. IF THE PURPOSE IS TO BRING MORE FOREIGN EXCHANGE AND TO ENCOURAGE EXPORT, WE ARE OF THE VIEW THAT TH E LEGISLATURE WOULD SURELY LIKE TO GIVE MORE BENEFIT TO PERSONS WHO ARE MAKING AN EFFORT TO HELP OUR NATION IN THE PROCESS OF BRINGING MORE FOR EIGN EXCHANGE. IF A TRADER OR A MANUFACTURER IS TRYING HIS BEST TO INCR EASE HIS EXPORTS, EVEN AT THE COST OF HIS BUSINESS IN A LOCAL MARKET, WE ARE SURE THAT THE GOVERNMENT WOULD LIKE TO ENCOURAGE SUCH A PERSON. I N OUR OPINION, ONCE THE GOVERNMENT DECIDES TO GIVE SOME BENEFIT TO SOME ONE WHO IS HELPING THE NATION IN BRINGING FOREIGN EXCHANGE, THE REVENU E SHOULD ALSO MAKE ALL POSSIBLE EFFORTS TO ENCOURAGE SUCH TRADERS OR M ANUFACTURERS BY GIVING SUCH BUSINESS UNITS MORE BENEFITS AS CONTEMPLATED U NDER THE PROVISIONS OF LAW. 29. FOR THE AFORESAID REASONS, WE ARE OF THE VIEW THAT THE VIEW EXPRESSED BY THE HIGH COURT IS IN CONFORMITY WITH T HE NORMAL ACCOUNTING PRACTICE FOLLOWED BY THE TRADERS, INCLUDING THE RES PONDENT-ASSESSEE AND IT WAS JUSTIFIED IN COMING TO A CONCLUSION THAT THE PROCEEDS GENERATED FROM THE SALE OF SCRAP WOULD NOT BE INCLU DED IN THE 'TOTAL TURNOVER'. 30. FOR THE AFORESAID REASONS, WE DISMISS THE APPEAL W ITH NO ORDER AS TO COSTS. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPR EME COURT IN PUNJAB STAINLESS STEEL INDUSTRIES LIMITED(SUPRA) , WE ANSW ER THE SPECIFIC ISSUE RAISED IN GROUND NO 16(I) BY THE ASSESSEE COMPANY IN MEMO OF APPEAL FILED IN FAVOUR OF THE ASSESSEE COMPANY BY HOLDING THAT THE SALE OF SCRAP/WASTE IS NOT TO BE INCLUDED IN THE TOTAL TURNOVER WHILE COMPUTING TH E DEDUCTION U/S 80HHC OF THE ACT. . THIS GROUND OF THE ASSESSEE COMPANY 16(I ) IS ALLOWED. WE ORDER ACCORDINGLY. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 36 COMING TO GROUND NO. 16(II)(A) AND (B) , WE HAVE O BSERVED THAT THE ASSESSEE COMPANY HAS RECEIVED INTEREST INCOME MAINLY FROM SU BSIDIARY COMPANY, IDBI DEPOSIT UNDER INCOME TAX SAVING SCHEME AND STAFF ME MBERS AS FACTS EMANATING FROM THE CIT(A) ORDER AT PARA15 PAGE 58 A ND ALSO SOF FILED BY THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 1989-90. T HE LD. SENIOR COUNSEL OF THE ASSSEEE COMPANY RELIED UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN GRINDWELL NORTON LIMITED IN (2009) 318 ITR 172(BOM. H.C.) , BHANSALI ENGINEERING POLYMERS LIMITED (2008)306 ITR 194(BOM. HC) AND JUDGMENT OF HONBLE SUPREME COURT IN ACG ASSOCIATED CAPSULES PVT LTD (2012)343 ITR 89(SC) TO CONTEND THAT INTEREST INCO ME FROM BUSINESS ADVANCES/SUNDRY ADVANCES ARE TO BE INCLUDED IN THE PROFITS OF THE BUSINESS AND SUCH INTEREST INCOME IS INEXTRICABLY LINKED TO THE ASSESSEES BUSINESS AND AS SUCH GO TO REDUCE THE INTEREST EXPENSES . LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON AND OBSERVED THAT IN BOTH THE ABOVE STATED JUDGMENTS OF HONBLE BOMBAY HIGH COURT NAMELY GRINDWELL NORTO N LIMITED IN (2009) 318 ITR 172(BOM. H.C.) , BHANSALI ENGINEERING POLYM ERS LIMITED (2008)306 ITR 194(BOM. HC) RELIED UPON BY THE LD. SENIOR COUN SEL OF THE ASSESSEE COMPANY , THE HONBLE BOMBAY HIGH COURT HAS HELD TH AT INTEREST ON OVERDUE SETTLEMENT OF BILLS BY DEBTORS SHALL BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND IS DEDUCTIBLE U/S 80HHC OF THE ACT . THE HONBLE BOMBAY HIGH COURT HAS HELD IN 318 ITR 172 AS UNDER: 2. THE ISSUE INVOLVED IN THIS APPEAL IS AS TO WHETHER THE INTEREST RECEIVED ON OVERDUE PAYMENT IN BUSINESS IS DEDUCTIB LE UNDER SECTION 80HHC OF THE INCOME-TAX ACT, 1961. THIS ISSUE IS SQ UARELY COVERED BY THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT V. GO VINDA CHOUDHURY AND SONS [1993] 203 ITR 881 AND ALSO OF THIS COURT IN THE CASE OF CIT V. BHANSALI ENGINEERING POLYMARS LTD. [2008] 306 ITR 194 (BOM.). ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 37 3. IN THIS VIEW OF THE MATTER, NO SUBSTANTIAL QUESTIO N OF LAW IS INVOLVED IN THE PRESENT APPEAL. THE APPEAL IS, THEREFORE, DISMI SSED. NO ORDER AS TO COSTS. SIMILARY , IN BHANSALI ENGINEERING POLYMERS LIMITED IN 306 ITR 194(BOM. HC), THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: 3. WE HAVE PERUSED THE ORDER OF THE INCOME-TAX APPELLA TE TRIBUNAL DATED JULY 12, 2004, WHEREIN IN PARAGRAPH 6 HE HAS COME TO THE CONCLUSION AS UNDER: 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIALS ON RECORD INCLUDING THE DECISIONS CIT ED BEFORE US. AS RIGHTLY CONTENDED BY LEARNED COUNSEL FOR THE ASSESS EE THE FACTS OF THE CASE LAW RELIED UPON IN THE ASSESSMENT ORDER AR E DIFFERENT FROM THE FACTS OF THE CASE ON HAND. IN THE CASE OF CIT V . PANDIAN CHEMICALS LTD. [1998] 233 ITR 497 (MAD.), THE COURT WAS CONCERNED WITH THE INTEREST RECEIVED FROM THE DEPOSIT OF THE ELECTRICITY BOARD WHICH IS ALSO DIFFERENT FROM THE FACTS OF THE CASE ON HAND. IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED INTEREST FO R BELATED SETTLEMENT OF THE BILLS BY THE DEBTORS, WHICH HAS A DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND HAVE A DIRECT N EXUS WITH THE SALES WHICH IN TURN LINKED TO INDUSTRIAL UNDERTAKIN G. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. MADRAS MOTO RS LTD. [2002] 257 ITR 60 HAD DEALT WITH AN IDENTICAL ISSUE AND HELD THAT IF THE PURCHASERS DID NOT MAKE THE PAYMENTS AN D THEN AGREE TO PAY INTEREST ON THE DELAYED PAYMENTS, THE SAID I NTEREST COULD DIRECTLY BE RELATABLE TO THE BUSINESS OF THE ASSESS EE AND THUS THE INTEREST WOULD HAVE TO BE INCLUDED AS THE PROFITS A ND GAINS DERIVED ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 38 FROM THE BUSINESS OF THE ASSESSEE AND WOULD BE ENTI TLED TO BE COVERED BY SECTION 80HH. ALSO THE THIRD MEMBER CASE REPORTED IN THE CASE OF KIRLOSKAR ELECTRODYNE LTD. V. DEPUTY CI T [2003] 87 ITD 264 (PUNE); [2004] 271 ITR (AT) 69 (PUNE), IT HAS BEEN HELD THAT THE INTEREST RECEIVED FROM CUSTOMERS FOR DELAYED PAYMEN T WAS DIRECTLY RELATABLE TO THE BUSINESS OF THE ASSESSEE AND, THER EFORE, THE ISSUE WAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. IN OUR CONSIDERED VIEW, IN THE ABOVE TWO DECISIONS, THE FACTS ARE IDE NTICAL TO THAT OF THE FACTS OBTAINING IN THE PRESENT CASE AND THE FAC TS OF THE CASE RELIED UPON BY THE REVENUE AUTHORITIES ARE DIFFEREN T FROM THOSE PREVAILING IN THIS CASE. HENCE, WE HAVE TO FOLLOW T HE DECISIONS OF THE MADRAS HIGH COURT REPORTED IN CIT V. MADRAS MOT ORS LTD. [2002] 257 ITR 60 AND THE THIRD MEMBER DECISION REPORTED IN KIRLOSKAR ELECTRODYNE LTD. V. DEPUTY CIT [2004] 271 ITR (AT) 69 (PUNE); [2003] 87 ITD 264 (PUNE) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. HENCE, FOLLOWING THE ABOVE DECISIONS, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE INTEREST RECEIVED FOR DELAYED PAYMENT OF THE DUES BY THE DEBTORS AS INCOME DERIVE D FROM INDUSTRIAL UNDERTAKING AND TO RECOMPUTE THE DEDUCTI ON UNDER SECTION 80HH. ORDER ACCORDINGLY.' IT IS CLEAR THAT IT IS MERELY A FINDING OF FACT AND NO SUBSTANTIAL QUESTION OF LAW ARISES. THE APPEAL, THEREFORE, DEVOID OF ANY ME RIT IS DISMISSED WITH NO ORDER COSTS. IN THE JUDGMENT OF ACG ASSOCIATES CAPSULES PVT LTD. (SUPRA) , HONBLE SUPREME COURT HAS HELD THAT UNDER CLAUSE (1) OF EXPLANATION (BAA) ONLY NINETY PERCENT OF ANY RECEIPT BY WAY OF BROKERAGE, COMMISSION , INTER EST, RENT , CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN ANY S UCH PROFIT ARE TO BE DEDUCTED ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 39 FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. THE EXPRESSION INCLUDE D ANY SUCH PROFITS WOULD MEAN ONLY SUCH RECEIPTS BY WAY OF BROKERAGE, COMMIS SION , INTEREST , RENT , CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION . THEREFORE, IF ANY QUANTUM OF THE RECEIPTS BY WAY OF BROKERAGE , COMMISSION, INTEREST, RENT , CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IS ALLOWED AS EXPENSES UNDER SECTION 30 TO 44D OF THE ACT AND IS NOT INCLUDED IN THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD PROFIT AND GA INS OF BUSINESS OR PROFESSION , NINETY PERCENT OF SUCH QUANTUM OF REC EIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION(BAA) FROM THE PROFI TS OF THE BUSINESS. THE HONBLE SUPREME COURT HELD AS UNDER: 8. BEFORE WE DEAL WITH THE CONTENTIONS OF LEARNED COU NSEL FOR THE PARTIES, WE MAY EXTRACT EXPLANATION (BAA) TO SECTIO N 80HHC OF THE ACT. 'EXPLANATION:- FOR THE PURPOSES OF THIS SECTION,- (BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS O F THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION' AS REDUCED BY- (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUS ES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY R ECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR A NY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS; AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA '. 9. EXPLANATION (BAA) EXTRACTED ABOVE STATES THAT 'PRO FITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED BY THE RECEIPTS OF THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 40 NATURE MENTIONED IN CLAUSES (1) AND (2) OF THE EXPL ANATION (BAA). THUS, PROFITS OF THE BUSINESS OF AN ASSESSEE WILL HAVE TO BE FIRST COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' IN ACCORDANCE WITH PROVISIONS OF SECTION 28 TO 44D OF THE ACT. IN THE COMPUTATION OF SUCH PROFITS OF BUSINESS, ALL RECEIP TS OF INCOME WHICH ARE CHARGEABLE AS PROFITS AND GAINS OF BUSINESS UNDER S ECTION 28 OF THE ACT WILL HAVE TO BE INCLUDED. SIMILARLY, IN COMPUTATION OF SUCH PROFITS OF BUSINESS, DIFFERENT EXPENSES WHICH ARE ALLOWABLE UN DER SECTIONS 30 TO 44D HAVE TO BE ALLOWED AS EXPENSES. AFTER INCLUDING SUCH RECEIPTS OF INCOME AND AFTER DEDUCTING SUCH EXPENSES, THE TOTAL OF THE NET RECEIPTS ARE PROFITS OF THE BUSINESS OF THE ASSESSEE COMPUTE D UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' FROM WHICH DEDUCTIONS ARE TO MADE UNDER CLAUSES (1) AND (2) OF EXPLANATION (B AA). 10. UNDER CLAUSE (1) OF EXPLANATION (BAA), NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CH ARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN ANY SUCH PR OFITS ARE TO BE DEDUCTED FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE EXPRESSION 'I NCLUDED ANY SUCH PROFITS' IN CLAUSE (1) OF THE EXPLANATION (BAA) WOU LD MEAN ONLY SUCH RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION'. THEREFORE, IF ANY QUANTUM OF THE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE IS ALLOWED AS EXPENSES UNDER SECTIONS 30 TO 44D OF THE ACT AND IS NOT INCLUDED IN THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', NINE TY PER CENT OF SUCH QUANTUM OF RECEIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION (BAA) FROM THE PROFITS OF THE BUSINE SS. IN OTHER WORDS, ONLY ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 41 NINETY PER CENT OF THE NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) WHICH IS ACTUALLY INCLUDED IN THE PRO FITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DE TERMINING 'PROFITS OF THE BUSINESS' OF THE ASSESSEE UNDER EXPLANATION (BA A) TO SECTION 80HHC. 11. FOR THIS INTERPRETATION OF EXPLANATION (BAA) TO SE CTION 80HHC OF THE ACT, WE RELY ON THE JUDGMENT OF THE CONSTITUTION BE NCH OF THIS COURT IN DISTRIBUTORS (BARODA) (P.) LTD. (SUPRA). SECTION 80M OF THE ACT PROVIDED FOR DEDUCTION IN RESPECT OF CERTAIN INTERCORPORATE DIVIDENDS AND IT PROVIDED IN SUB-SECTION (1) OF SECTION 80M THAT 'WH ERE THE GROSS TOTAL INCOME OF AN ASSESSEE BEING A COMPANY INCLUDES ANY INCOME BY WAY OF DIVIDENDS RECEIVED BY IT FROM A DOMESTIC COMPANY, T HERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DE DUCTION FROM SUCH INCOME BY WAY OF DIVIDENDS AN AMOUNT EQUAL TO' A CE RTAIN PERCENTAGE OF THE INCOME MENTIONED IN THIS SECTION. THE CONSTITUT ION BENCH HELD THAT THE COURT MUST CONSTRUE SECTION 80M ON ITS OWN LANG UAGE AND ARRIVE AT ITS TRUE INTERPRETATION ACCORDING TO THE PLAIN NATU RAL MEANING OF THE WORDS USED BY THE LEGISLATURE AND SO CONSTRUED THE WORDS 'SUCH INCOME BY WAY OF DIVIDENDS' IN SUB-SECTION (1) OF SECTION 80M MUS T BE REFERABLE NOT ONLY TO THE CATEGORY OF INCOME INCLUDED IN THE GROSS TOT AL INCOME BUT ALSO TO THE QUANTUM OF THE INCOME SO INCLUDED. SIMILARLY, E XPLANATION (BAA) HAS TO BE CONSTRUED ON ITS OWN LANGUAGE AND AS PER THE PLAIN NATURAL MEANING OF THE WORDS USED IN EXPLANATION (BAA), THE WORDS 'RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARG ES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS' WILL NOT ONLY REFER TO THE NATURE OF RECEIPTS BUT ALSO THE QUANTUM OF RECEIPTS INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' REFERRED TO IN THE FIRST PA RT OF THE EXPLANATION (BAA). ACCORDINGLY, IF ANY QUANTUM OF ANY RECEIPT OF THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 42 NATURE MENTIONED IN CLAUSE (1) OF EXPLANATION (BAA) HAS NOT BEEN INCLUDED IN THE PROFITS OF BUSINESS OF AN ASSESSEE AS COMPUT ED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', NINE TY PER CENT OF SUCH QUANTUM OF THE RECEIPT CANNOT BE DEDUCTED UNDEREXPL ANATION (BAA) TO SECTION 80HHC. 12. IF WE NOW APPLY EXPLANATION (BAA) AS INTERPRETED B Y US IN THIS JUDGMENT TO THE FACTS OF THE CASE BEFORE US, IF THE RENT OR INTEREST IS A RECEIPT CHARGEABLE AS PROFITS AND GAINS OF BUSINESS AND CHARGEABLE TO TAX UNDER SECTION 28 OF THE ACT, AND IF ANY QUANTUM OF THE RENT OR INTEREST OF THE ASSESSEE IS ALLOWABLE AS AN EXPENSE IN ACCORDAN CE WITH SECTIONS 30 TO 44D OF THE ACT AND IS NOT TO BE INCLUDED IN THE PROFITS OF THE BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD 'PROFITS AN D GAINS OF BUSINESS OR PROFESSION', NINETY PER CENT OF SUCH QUANTUM OF THE RECEIPT OF RENT OR INTEREST WILL NOT BE DEDUCTED UNDER CLAUSE (1) OFEX PLANATION (BAA) TO SECTION 80HHC. IN OTHER WORDS, NINETY PER CENT OF N OT THE GROSS RENT OR GROSS INTEREST BUT ONLY THE NET INTEREST OR NET REN T, WHICH HAS BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', IS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80 HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. 13. THE VIEW THAT WE HAVE TAKEN OF EXPLANATION (BAA) T O SECTION 80HHC IS ALSO THE VIEW OF THE DELHI HIGH COURT IN SHRI RA M HONDA POWER EQUIP ( SUPRA) AND THE TRIBUNAL IN THE PRESENT CASE HAS FOLLOWED THE JUDGMENT OF THE DELHI HIGH COURT. ON APPEAL BEING F ILED BY THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL, THE HIGH COURT H AS SET ASIDE THE ORDER OF THE TRIBUNAL AND DIRECTED THE ASSESSING OFFICER TO DISPOSE OF THE ISSUE IN ACCORDANCE WITH THE JUDGMENT OF THE BOMBAY HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA). WE MUST, THUS, EXAMINE WHETHER RE ASONS GIVEN BY THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 43 HIGH COURT IN ITS JUDGMENT IN ASIAN STAR CO. LTD. ( SUPRA) WERE CORRECT IN LAW. 14. ON A PERUSAL OF THE JUDGMENT OF THE HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA), WE FIND THAT THE REASON WHICH WEIGHED WITH THE HIGH COURT FOR TAKING A DIFFERENT VIEW, IS THAT RENT, COMMISSION, INTEREST AND BROKERAGE DO NOT POSSESS ANY NEXUS WITH EXPORT TURNOVER AND, THEREFORE, THE INCLUSION OF SUCH ITEMS IN THE PROFITS OF THE BUSIN ESS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROFITS. THE HIG H COURT HAS RELIED ON A DECISION OF THIS COURT IN CIT V. K. RAVINDRANATHAN NAIR [2007] 295 ITR 228 / 165 TAXMAN 282 (SC) IN WHICH THE ISSUE RAISED BEFORE THIS COURT WAS ENTIRELY DIFFERENT FROM THE ISSUE RAISED IN THI S CASE. IN THAT CASE, THE ASSESSEE OWNED A FACTORY IN WHICH HE PROCESSED CASH EW NUTS GROWN IN HIS FARM AND HE EXPORTED THE CASHEW NUTS AS AN EXPO RTER. AT THE SAME TIME, THE ASSESSEE PROCESSED CASHEW NUTS WHICH WERE SUPPLIED TO HIM BY EXPORTERS ON JOB WORK BASIS AND HE COLLECTED PRO CESSING CHARGES FOR THE SAME. HE, HOWEVER, DID NOT INCLUDE SUCH PROCESS ING CHARGES COLLECTED ON JOB WORK BASIS IN HIS TOTAL TURNOVER FOR THE PUR POSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC (3) OF THE ACT AND AS A RESULT THIS TURNOVER OF COLLECTION CHARGES WAS LEFT OUT IN THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OF THE ASSESSEE AND AS A RESU LT NINETY PER CENT OF THE PROFITS OF THE ASSESSEE ARISING OUT OF THE RECE IPT OF PROCESSING CHARGES WAS NOT DEDUCTED UNDER CLAUSES (1) OF THE EXPLANATI ON (BAA) TO SECTION 80HHC. THIS COURT HELD THAT THE PROCESSING CHARGES WAS INCLUDED IN THE GROSS TOTAL INCOME FROM CASHEW BUSINESS AND HENCE I N TERMS OF EXPLANATION(BAA), NINETY PER CENT OF THE GROSS T OTAL INCOME ARISING FROM PROCESSING CHARGES HAD TO BE DEDUCTED UNDER EXPLANA TION (BAA) TO ARRIVE AT THE PROFITS OF THE BUSINESS. IN THIS CASE, THIS COURT HELD THAT THE PROCESSING CHARGES RECEIVED BY THE ASSESSEE WERE PA RT OF THE BUSINESS TURNOVER AND ACCORDINGLY THE INCOME ARISING THEREFR OM SHOULD HAVE BEEN ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 44 INCLUDED IN THE PROFITS AND GAINS OF BUSINESS OF TH E ASSESSEE AND NINETY PER CENT OF THIS INCOME ALSO WOULD HAVE TO BE DEDUC TED UNDER EXPLANATION (BAA) UNDER SECTION 80HHC OF THE ACT. IN THIS CASE, THIS COURT WAS NOT DECIDING THE ISSUE WHETHER NINET Y PER CENT DEDUCTION IS TO BE MADE FROM THE GROSS OR NET INCOME OF ANY O F THE RECEIPTS MENTIONED IN CLAUSE (1) OF THE EXPLANATION (BAA). 15. THE BOMBAY HIGH COURT HAS ALSO RELIED ON THE MEMOR ANDUM EXPLAINING THE CLAUSES OF THE FINANCE BILL, 1991 CO NTAINED IN THE CIRCULAR DATED 19.12.1991 OF THE CENTRAL BOARD OF DIRECT TAX ES TO COME TO THE CONCLUSION THAT THE PARLIAMENT INTENDED TO EXCLUDE ITEMS WHICH WERE UNRELATED TO THE EXPORT TURNOVER FROM THE COMPUTATI ON OF DEDUCTION AND WHILE EXCLUDING SUCH ITEMS WHICH ARE UNRELATED TO E XPORT FOR THE PURPOSE OF SECTION 80HHC, PARLIAMENT HAS TAKEN DUE NOTE OF THE FACT THAT THE EXPORTER ASSESSEE WOULD HAVE INCURRED SUCH EXPENDIT URE IN EARNING THE PROFITS AND TO AVOID A DISTORTED FIGURE OF EXPORT P ROFITS, NINETY PER CENT OF THE RECEIPTS LIKE BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES ARE SOUGHT TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS. IN OUR CONSIDERED OPINION, IT WAS NOT NECESSARY TO REFER TO THE EXPLANATORY ME MORANDUM WHEN THE LANGUAGE OF EXPLANATION (BAA) TO SECTION 80HHC WAS CLEAR THAT ONLY NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE, CO MMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NAT URE INCLUDED IN SUCH PROFITS COMPUTED UNDER THE HEAD PROFITS AND GAINS O F BUSINESS OF AN ASSESSEE COULD BE DEDUCTED UNDER CLAUSE (1) OF EXPL ANATION (BAA) AND NOT NINETY PER CENT OF THE QUANTUM OF ANY OF THE AF ORESAID RECEIPTS WHICH ARE ALLOWED AS EXPENSES AND THEREFORE NOT INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE. 16. IN THE RESULT, WE ALLOW THE APPEAL AND SET ASIDE T HE IMPUGNED ORDER OF THE HIGH COURT AND REMAND THE MATTER TO THE ASSE SSING OFFICER TO WORK ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 45 OUT THE DEDUCTIONS FROM RENT AND INTEREST IN ACCORD ANCE WITH THIS JUDGMENT. NO COSTS. WHILE ON THE OTHER HAND REVENUE HAS RELIED UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RAVI RATNA EXPORTS PRIVATE LIMITED IN 246 ITR 443 WHEREBY THE HONBLE BOMBAY HIGH COURT HAS H ELD THAT INTEREST ON FIXED DEPOSITS CANNOT BE TREATED AS BUSINESS PROFIT TO ARRIVE AT EXPORT PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT W HEREBY HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER : 3. THIS APPEAL RELATES TO THE ASSESSMENT YEAR 1989-90 . IN THE SAID ASSESS-MENT YEAR, THE ASSESSEE RECEIVED RS. 35,000 AS INTEREST ON FIXED DEPOSITS. THE ASSESSEE CLAIMED INTEREST INCOME AND INCLUDED THE SAME IN BUSINESS PROFITS IN THE FOLLOWING FORMULA, VIZ., BU SINESS PROFITS EXPORT TURNOVER/ TOTAL TURNOVER TO ARRIVE AT EXPORT PROFIT S ON WHICH THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80HHC OF THE ACT. T HE DEPARTMENT TREATED THE INCOME FROM INTEREST AS INCOME FROM OTH ER SOURCES. HOWEVER, THE TRIBUNAL INCLUDED THE SAID INTEREST INCOME IN T HE BUSINESS PROFITS. HENCE, THE DEPARTMENT HAS COME IN APPEAL. BEFORE 1- 4-1992, DISTORTION AROSE IN DETERMINING EXPORT PROFITS. THE ASSESSEE U SED TO INFLATE THE BUSINESS PROFITS IN THE ABOVE FORMULA BY INCLUDING RECEIPTS WHICH HAD NO RELATION WITH EXPORT ACTIVITIES. IN CASES OF COMPOS ITE BUSINESS, EVEN WHERE THE COMPONENT OF LOCAL SALES FAR EXCEEDED SAL E PROCEEDS FROM EXPORT ACTIVITY, RECEIPTS LIKE RENT, INTEREST, LABO UR COMMISSION WERE INCLUDED IN BUSINESS PROFITS IN THE ABOVE FORMULA. IN THE CASE OF CIT V. KANTILAL CHHOTALAL [IT APPEAL NO. 533 OF 2000], THIS COURT HAS EXCLUDED SUCH RECEIPTS FROM BUSINESS PROFITS. FURTH ER, THIS COURT HAS HELD THAT THE AMENDING LAW WHICH CAME INTO FORCE FROM 1- 4-1992 BY WHICH CLAUSE (BAA) HAS BEEN INTRODUCED IN THE EXPLANATION TO SECTION 80HHC, ALL SUCH RECEIPTS WHICH HAVE NO NEXUS WITH THE EXPO RT ACTIVITY, STAND ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 46 EXCLUDED. THIS COURT HAS HELD THAT CLAUSE (BAA) IS CLARIFICATORY. HENCE, INTEREST INCOME FROM FIXED DEPOSIT CANNOT BE INCLUD ED IN BUSINESS PROFITS. MOREOVER, IT MAY BE MENTIONED THAT IN THE CASE OF C IT V. SHIRKE CONSTRUCTION EQUIPMENTS [IT APPEAL NO. 133 OF 1999] , THIS COURT HAS TAKEN THE VIEW THAT BUSINESS PROFITS WERE REQUIRED TO BE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON WHICH, IN TURN, REFERS TO SECTION 28 TO SECTION 44D OF THE ACT. IN THE CASE OF CIT V. K.K. DOSHI & CO. [IT APPEAL 77 OF 2000], THIS COURT HAS ONCE AGAIN REITERATED THAT EVEN BEFORE 1-4-1992, RECEIPTS WHICH DID NOT H AVE NEXUS WITH THE EXPORT ACTIVITY CANNOT BE INCLUDED IN BUSINESS PROF ITS. IN THE PRESENT MATTER, WE MAY MENTION THAT THE ASSESSING OFFICER H AS RECORDED A FINDING OF FACT THAT THE SAID INTEREST INCOME FROM FIXED DEPOSITS WAS INCOME FROM OTHER SOURCES. THE TRIBUNAL HAS NOT CON SIDERED THIS ASPECT. IN THE CASE OF GODAVARI SUGAR MILLS LTD. (NO. 2) V. CIT [1991] 57 TAXMAN 47/ 191 ITR 359 , THE DIVISION BENCH OF THIS COURT TOOK THE VIEW, ON FACTS, THAT THE ASSESSEE HAD NO EVIDENCE TO SHOW TH AT THE MONIES ON WHICH THE INTEREST WAS EARNED WERE ADVANCED IN THE COURSE OF THE ASSESSEES BUSINESS AND, THEREFORE, THE DIVISION BE NCH HELD THAT THE INTEREST INCOME WAS TAXABLE AS INCOME FROM OTHER SO URCES. IN THIS MATTER, WE ARE CONCERNED WITH APPEAL UNDER SECTION 260A. IN THIS MATTER, THE ASSESSING OFFICER HAS RECORDED A FINDING OF FACT TH AT THE INTEREST INCOME WAS TAXABLE AS INCOME FROM OTHER SOURCES. IN THE CI RCUMSTANCES, SUCH INCOME CANNOT FALL UNDER THE HEAD PROFITS AND GAIN S OF BUSINESS OR PROFESSION. HENCE, SUCH INCOME CANNOT BE INCLUDED IN BUSINESS PROFITS IN THE ABOVE FORMULA. THEREFORE, ON BOTH COUNTS, THE A PPEAL STANDS ALLOWED. EVEN IF IT IS HELD THAT INTEREST INCOME WAS A BUSIN ESS INCOME, THE SAME WAS NOT INCLUDIBLE IN BUSINESS PROFITS IN THE ABOVE FORMULA. ON THE OTHER HAND, AS STATED ABOVE, THE ASSESSING OFFICER HAS HE LD THAT THE INTEREST INCOME WAS INCOME FROM OTHER SOURCES. IF THAT BE TH E CASE, THEN SUCH AN INCOME CANNOT COME WITHIN THE AMBIT OF SECTION 28 T O SECTION 44D. IT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 47 CANNOT COME UNDER PROFITS AND GAINS OF BUSINESS. TH EREFORE, LOOKING AT THIS MATTER FROM EITHER POINT OF VIEW, THE APPEAL N EEDS TO BE ALLOWED.: WE ORDER ACCORDINGLY. WE ARE OF THE CONSIDERED VIEW THAT IN THE INSTANT CASE THE INTEREST INCOME IS DERIVED FROM ADVANCES/LOANS TO SUBSIDIARY COMPANIES , IDBI DEPOSITS UNDER INCOME TAX SAVING SCHEME AND FROM STAFF MEMBERS. TH ESE INTERESTS INCOME CANNOT BE CONSIDERED AS DERIVED DIRECTLY FROM INDUS TRIAL UNDERTAKING/EXPORT ACTIVITY OF THE ASSESSEE COMPANY OR INEXTRICABLY LI NKED TO THE ASSESSEE COMPANY BUSINESS. IT IS ALSO NOT SHOWN TO US THAT T HE ASSESSEE COMPANY IS IN MONEY LENDING BUSINESS. THERE IS NOTHING TO INDICA TE THAT THE SAID INVESTMENTS WERE PURSUANT TO OR IN FURTHERANCE OF A NY SUCH BUSINESS ACTIVITY OF THE ASSESSEE COMPANY OR DECISION OF THE ASSESSE E SO AS THAT INTEREST INCOME TO BE INCLUDED IN THE PROFITS OF THE BUSINES S TO BE DEDUCTIBLE U/S 80HHC OF THE ACT OR GO TO REDUCE THE INTEREST EXPEN SES AS PER JUDGMENTS CITED ABOVE. NO OTHER JUDGMENT OR ANY OTHER MATERIA L IS BROUGHT TO OUR NOTICE BY THE LD. SENIOR COUNSEL TO SUPPORT HIS CONTENTION S. OUR ABOVE VIEW IS FORTIFIED BY THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF TANNA EXPORTS LIMITED V. CIT (2012) 27 TAXMANN.COM 35(BOM .) AND ALSO BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F IN CIT V. SWANI SPICES MILLS (P.) LTD.(2011) 332 ITR 288 , WHEREBY HONBLE BOMBAY HIGH COURT REVIEWED A LONG LINE OF JUDGMENTS ON THIS ISSUE AND HELD : ' 20. THESE JUDGMENTS OF THE SUPREME COURT ESTABLISH THAT THE INCOME OF AN ASSESSEE WHICH IS CHARGEABLE TO TAX UNDER SECTIO N 4 IS REQUIRED FOR THE PURPOSES OF COMPUTATION TO BE CLASSIFIED UNDER VARI OUS HEADS OF INCOME SPECIFIED IN SECTION 14. SECTION 56 WHICH DEALS WITH INCOME FROM OTHER SOURCES IS ATTRACTED WHERE T HE INCOME DOES NOT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 48 BELONG TO A CATEGORY WHICH IS SPECIFIED IN ANY OF T HE OTHER HEADS ELUCIDATED IN SECTION 14. INCOME EARNED BY AN ASSES SEE, WHICH UTILIZES ITS SURPLUS FUNDS IN ORDER TO EARN INTEREST CANNOT BE CLASSIFIED UNDER THE HEAD OF BUSINESS INCOME BUT WILL FALL FOR CLASSIFIC ATION AS INCOME FROM OTHER SOURCES. . 27. ORDINARILY, WHERE AN ASSESSEE INVESTS FUNDS SUR PLUS TO THE BUSINESS AND EARNS INTEREST, SUCH INCOME DOES NOT CONSTITUTE BUSINESS INCOME BUT FALLS UNDER THE HEAD OF INCOME FROM OTHER SOURCES. MERELY BECAUSE AN ASSESSEE CARRIES ON BUSINESS AND THE INCOME OF THE BUSINESS IS INVESTED IN DEPOSITS, THAT WOULD NOT RESULT IN AN INFERENCE THAT THE RETURN ON THE INVESTMENTS MUST PARTAKE OF THE CHARACTER OF BUSINE SS INCOME. EVERY INCOME WHICH IS EARNED BY AN ASSESSEE WHO CAR RIES ON BUSINESS IS NOT BUSINESS INCOME. EVERY INCOME WHICH IS EARNED B Y AN ASSESSEE WHO CARRIES ON BUSINESS IS NOT BUSINESS INCOME. ON THE CONTRARY, THE POSITION IN LAW IS THAT IT IS ONLY WHERE INCOME EARNED ON AC COUNT OF INTEREST SPRINGS OUT OF OR EMANATES FROM THE BUS INESS ACTIVITY OF THE ASSESSEE, THAT THIS INCOME CAN BE REGARDED AS BEING OF THE NATURE AND CHARACTER OF BUSINESS INCOME. ... 35. THE CONSISTENT LINE OF REASONING WHICH EMERGES FROM THE DECISION OF SEVERAL HIGH COURTS ADVERTED TO EARLIER IS THAT THE MERE FACT THAT AN ASSESSEE CARRIES ON BUSINESS WOULD NOT RESULT IN AN INFERENCE THAT THE INCOME WHICH IS EARNED BY WAY OF INTEREST WOULD FALL FOR CLASSIFICATION AS BUSINESS INCOME.WHERE AN ASSESSEE INVESTS ITS SU RPLUS FUNDS IN ORDER TO EARN INTEREST AND TO OBVIATE ITS FUNDS LYING IDL E, SUCH INCOME WOULD NOT FALL FOR CLASSIFICATION AS BUSINESS INCOME. THIS IS PARTICULARLY SO IN A SITUATION WHERE THE BUSINESS OF THE ASSESSEE DOES N OT CONSIST IN THE INVESTMENT OF FUNDS. WHERE THE ASSESSEE ENGAGES IN AN INDEPENDENT LINE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 49 OF BUSINESS, INTEREST EARNED ON DEPOSITS CANNOT BE REGARDED AS FALLING UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. SUCH INCOME WOULD FALL FOR CLASSIFICATION AS INCOME FROM OTHER SOURCES. IN APPLYING THE PROVISIONS OF SECTION 80HHC(1), THE LE GISLATURE HAS MADE A SPECIFIC PROVISION FOR THE DEDUCTION OF SUCH PROFIT S OF BUSINESS AS ARE DERIVED FROM THE EXPORT ACTIVITY. THE EXPRESSION 'D ERIVED FROM' HAS BEEN CONSTRUED TO REQUIRE A DIRECT AND PROXIMATE NEXUS W ITH THE BUSINESS OF EXPORT. ABSENT SUCH A NEXUS, THE INCOME WHICH RESUL TS FROM THE ACTIVITY WOULD HAVE TO BE EXCLUDED FROM RECKONING FOR THE PU RPOSES OF THE FORMULA PRESCRIBED BY SECTION 80HHC. 36. IN THE PRESENT CASE, THE CONTENTION OF THE ASSE SSEE BOTH BEFORE THE ASSESSING OFFICER AND IN APPEAL WAS THAT IT CARRIES ON THE BUSINESS OF THE EXPORT OF SEEDS, SPICES AND SIMILAR GOODS. THE FUND S REQUIRED FOR THE BUSINESS WERE, ACCORDING TO THE ASSESSEE, PROVIDED EITHER BY ITS DIRECTORS / SHAREHOLDERS OR BORROWED FROM BANKS OR PRIVATE PA RTIES. THE EXPORT BILLS OF THE ASSESSEE, AGAINST THE FULFILMENT OF EX PORT ORDERS ARE SENT FOR COLLECTION TO BANKS AND THE ASSESSEE RECEIVES THE D ISCOUNTED VALUE OF THE SALE PROCEEDS. ACCORDING TO THE ASSESSEE, THE MONEY S WHICH ARE SO RECEIVED ARE UTILIZED FOR THE REPAYMENT OF ITS LOAN S. IF THE ASSESSEE HAS NO EXPORT ORDERS AND IF THERE IS STILL A BALANCE, THE ASSESSEE USED ITS FUNDS TO DISCOUNT THE PURCHASE BILLS OF PRIVATE PARTIES F OR SHORT PERIODS OF TIME OF THREE TO FIVE WEEKS. FOR THIS ACTIVITY, THE ASSE SSEE RECEIVED INTEREST OF BETWEEN 20 TO 22 PER CENT. ON THE EXPLANATION OF TH E ASSESSEE, WHICH HAS BEEN EXTRACTED IN EXTENSO IN PARAGRAPH 6 OF THE ORDER PASSED BY THE ASSESSING OFFICER, IT IS IMPOSSIBLE FOR THIS COURT TO COME TO THE CONCLUSION THAT THE INTEREST WHICH HAS BEEN RECEIVED BY THE AS SESSEE BEARS A DIRECT AND PROXIMATE RELATIONSHIP WITH THE EXPORT ACTIVITY . EVIDENTLY, THE EXPLANATION OF THE ASSESSEE IS SUFFICIENT TO INDICA TE THAT THE FUNDS WHICH ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 50 ARE UTILIZED FOR DISCOUNTING LOCAL SALE BILLS OF PR IVATE PARTIES ARE THOSE WHICH ARE SURPLUS TO THE BUSINESS. THESE SURPLUS FU NDS OF THE ASSESSEE ARE UTILIZED FOR DISCOUNTING BILLS ON WHICH THE ASS ESSEE RECEIVED DISCOUNTING CHARGES. THE SAME WOULD HOLD TRUE IN SO FAR AS INTERCORPORATE DEPOSITS ARE CONCERNED. INCOME RECEIVED BY WAY OF D ISCOUNTING CHARGES AND INTEREST ON INTERCORPORATE DEPOSITS WOULD NOT F ALL UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION BUT WOU LD FALL UNDER THE HEAD OF INCOME FROM OTHER SOURCES. HAVING NO DIRECT AND PROXIMATE NEXUS WITH THE EXPORT ACTIVITY SUCH INCOME HAS TO BE WHOLLY KE PT OUT OF THE RECKONING FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC.' HENCE BASED ON ABOVE DETAILED REASONING , WE UPHOLD THE ORDERS OF THE CIT(A) AND REJECT THE CONTENTIONS OF THE LD. SENIOR COUNSE L AND DISMISS THE GROUND OF APPEAL NO 16(II)(A) AND(B) . WE ORDER ACCORDINGL Y. 20. GROUND NO. 17 OF THE ASSESSEES APPEAL RELATES TO THE DISALLOWANCE OF RS.38,67,780/- BEING PROVISION FOR EMPLOYEES PENDIN G SETTLEMENT OF THEIR DEMANDS. THE LD. SENIOR COUNSEL OF THE ASSESSEE COM PANY STATED BEFORE US THAT THIS GROUND OF APPEAL IS NOT PRESSED AND TH E SAME MAY BE DISMISSED AS THE SAID AMOUNT WAS ALLOWED TO THE ASSESSEE COMPANY AS DEDUCTION BY REVENUE ON PAYMENT BASIS IN THE ASSESSMENT YEAR 19 92-93. AFTER HEARING BOTH THE PARTIES, THIS GROUND IS DISMISSED BY US AS BEING NOT PRESSED. WE ORDER ACCORDINGLY. ITA NO. 4466/MUM/2003(REVENUES APPEAL)-ASSESSMENT YEAR 1989-90 ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 51 21. GROUND NO. 1 OF THE REVENUES APPEAL RELATES TO DISALLOWANCE OF RS.4,77,154/- BEING ENTERTAINMENT EXPENSES ON SUBSI DIZED FOOD COUPONS DELIVERED TO STAFF. IN THIS RESPECT IT IS STATED BY THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY BEFORE US THAT THIS ISSUE IS COVER ED IN FAVOUR OF THE ASSESSEE COMPANY BY THE ORDER OF THE TRIBUNAL DATED 20.04.2015 IN ITA NO. 4465/MUM/2003 FOR ASSESSMENT YEAR 1988-89 ,AT PARA 36 WHICH READS AS UNDER : 36. GROUND NO.1 RELATES TO DISALLOWANCE OF RS.4,17 ,990 BEING ENTERTAINMENT EXPENSES ON SUBSIDIZED FOOD COUPONS D ELIVERED TO STAFF. IN THIS RESPECT IT WAS SUBMITTED THAT THIS ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 16.05.2 014 IN ITA NO. 4466/MUM/2003 FOR A.Y.1987-88 , AT PARA 36 WHICH RE ADS AS UNDER: 36. GROUND NO.1 RELATES TO THE SUBSIDIZED LUNCH CO UPONS ISSUED TO THE EMPLOYEES ENTERTAINMENT EXPENDITURE U/S 37(2) R EAD WITH EXPLANATION (III). THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLI ER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 1995-96 IN ITA NO. 3082/ M/2002 IN THE OWN CASE OF THE ASSESSEE. THE FACTS AND THE ISS UE INVOLVED FOR THIS YEAR ALSO BEING IDENTICAL IN NATURE, THIS GROU ND IS DECIDED IN FAVOUR OF THE ASSESSEE ACCORDINGLY, IN TERMS OF THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 1995-96 IN OWN CASE OF THE ASSESSEE. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES, WE DEC IDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE GROUND RAISED BY THE ASSESSEE ( SIC. TO BE READ AS REVENUE) IS DISMISSED. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 52 ACCORDINGLY, AFTER HEARING BOTH THE PARTIES AND RES PECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMEN T YEARS, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE COMPANY AND THE GRO UND RAISED BY THE REVENUE IS DISMISSED. WE ORDER ACCORDINGLY. 22. GROUND NO. 2 OF THE REVENUES APPEAL RELATES T O REDUCTION IN DISALLOWANCE FROM RS. 2,00,000/- TO RS.75,000/- BEING PAYMENTS MADE TO TATA SERVICES LIMITED FOR EXPENSES REIMBURSEMENT. THIS ISSUE WAS ALSO STATED BY LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY BEFORE US TO BE COV ERED BY THE ORDER OF ORDER OF THE TRIBUNAL DATED 20.04.2015 IN ITA NO. 4465/MU M/2003 FOR ASSESSMENT YEAR 1988-89 ,AT PARA 37 WHICH READS AS UNDER : 37. GROUND NO 2 OF THE REVENUES APPEAL RELATES T O THE DISALLOWANCE OF RS.75,000 BEING PAYMENTS MADE TO TATA SERVICES LIMI TED. THIS ISSUE WAS ALSO STATED TO BE COVERED BY THE ORDER OF THE T RIBUNAL FOR A.Y.1987- 88(SUPRA) IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL V IDE PARA 37 OF ITS ORDER HAS OBSERVED AS UNDER: GROUND NO. 2 RELATES TO THE PAYMENTS MADE TO TATA SERVICES LTD. THE SIMILAR ISSUE ON IDENTICAL FACTS HAS ALREADY BE EN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLI ER ASSESSMENT YEARS I.E. ASSESSMENT YEARS 1983-84 , 1984-85 AND 1 986-87 IN ITA NOS 4242/M/1999, 4194/M/2001 AND 4564/M/2003 RESPECTIVELY IN THE OWN CASES OF THE ASSESSEE. SINC E THE FACTS FOR THIS YEAR ALSO BEING IDENTICAL IN NATURE, THIS GROU ND IS ALSO ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE AS PE R THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEARS 1983-84, 1984-85 AND 1986-87 IN ITA NOS 4242/M/1999 , 4194/M/2001 AND 4564/M/2003 RESPECTIVELY IN THE OWN CASES OF THE AS SESSEE. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 53 ACCORDINGLY , THIS GROUND BEING ALSO COVERED IN FAV OUR OF THE ASSESSEE THE SAME IS DISMISSED. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES AND RES PECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMEN T YEARS, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. WE ORDER ACCORDINGLY. 23. GROUND NO.3 IN THE REVENUES APPEAL RELATES TO THE INTEREST OF RS.21,35,646/- U/S 244A OF THE ACT BEING WITHDRAWN LATER BY THE REVENUE. THE SUM OF RS.1,05,85,185/- WAS RECEIVED BY THE ASS ESSEE COMPANY AS INTEREST FROM THE INCOME TAX DEPARTMENT ON REFUND D UE TO THE ASSESSEE COMPANY AND THE SAME WAS OFFERED FOR TAXATION BY TH E ASSESEEE COMPANY. THIS SUM INCLUDED RS.66,12,750/- RELATING TO THE AS SESSMENT YEAR 1989-90 WHICH WAS GIVEN ON PROCESSING OF RETURN U/S 143(1)( A) ON 29-3-1990. SUBSEQUENTLY, THE INTEREST GRANTED TO THE EXTENT OF RS.21,35,646/- WAS WITHDRAWN ON 26-12-1992 U/S 143(3) OF THE ACT. THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY STATED BEFORE US THAT THE INTEREST WHICH HAS BEEN WITHDRAWN AND OFFERED FOR TAXATION EARLIER SHOULD N OT BE ASSESSED TO TAX. HE DREW OUR ATTENTION THAT AN IDENTICAL ISSUE AROSE BE FORE THE TRIBUNAL IN ITA NO. 5628-29/MUM/2002 FOR ASSESSMENT YEAR 1996-97 AND 19 97-98 IN THE CASE OF GRASIM INDUSTRIES LIMITED WHEREBY TRIBUNAL ALLOWED THE TAXPAYERS APPEAL VIDE ORDERS DATED 16 TH MAY 2012. THE RELEVANT PORTION OF THE TRIBUNAL DEC ISION IS REPRODUCED AS UNDER: 13.1 WE HAVE HEARD THE SR. LD. COUNSEL FOR THE ASS ESSEE AS WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECO RD. AT THE TIME OF HEARING OF THIS APPEAL , THE SR. LD. COUNSEL FOR TH E ASSESSEE HAS SUBMITTED THAT THE BENEFIT OF THE INTEREST SUBSEQUENTLY WITHD RAWN AS A RESULT OF APPELLATE ORDERS SHOULD BE GIVEN TO THE ASSESSEE AN D THE INTEREST ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 54 SUBSEQUENTLY WITHDRAWN SHOULD NOT BE TAXED. HE HAS RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF AVADA TRADI NG CO REPORTED IN 100 ITD 131. 13.2 WE FURTHER NOTE THAT FOR THE AY 1993-94 , THE TRIBUNAL HAS CONSIDERED AND DECIDED A SIMILAR ISSUE IN ITA NO. 1 523/MUM/1997 VIDE ORDER DATED IN PARA 62 AS UNDER: WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS . THESE REFUNDS HAVE BEEN GRANTED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AND THEREFORE THEY WOULD PARTAK E THE CHARACTER OF INCOME OF THE ASSESSEE. IF HOWEVER, AN Y REFUND HAS BEEN FOUND TO BE NOT REFUNDABLE TO THE ASSESSEE AND CONSEQUENTLY THE INTEREST GRANTED IS WITHDRAWN , THE SAME WOULD NOT PARTAKE THE CHARACTER OF INCOME. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO REDUCE FROM THE TAXABILITY OF THE AFORESAID INTE REST GRANTED TO THE ASSESSEE , THE AMOUNT WHICH HAS BEEN WITHDRAWN SUBS EQUENTLY. WE DIRECT ACCORDINGLY. 14. AS FAR AS THE TAXABILITY OF INTEREST GRANTED U/ S 244A OF THE ACT IS CONCERNED, THE SAME IS ASSESSABLE TO TAX IN THE YEA R IN WHICH THE REFUND HAS BEEN GRANTED ALONG WITH INTEREST. HOWEVER, IF T HE SUBSEQUENT REFUND AND INTEREST IS WITHDRAWN , THEN THE SAME SHOULD BE REDUCED FROM THE TOTAL INCOME OF THE ASSESSEE. WE FIND THAT A SIMILA R DIRECTION HAS BEEN GIVEN IN PARA 20 BY THE CIT(A) WHILE PASSING THE IM PUGNED ORDER. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE W ITH THE ORDER OF THE LD. CIT(A), QUA THIS ISSUE HENCE, UPHELD. THE CIT(A) ALLOWED THE DEDUCTION OF INTEREST OF RS. 21,35,646/- WITHDRAWN BY THE REVENUE FROM THE INTEREST ON REFUND GRANTED EAR LIER , WHICH INTEREST ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 55 INCOME WAS OFFERED TO TAXATION BY THE ASSESSEE COMP ANY. WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE CIT(A) IN VIEW OF TH E DECISION OF THE CO-ORDINATE BENCHES IN THE CASE OF GRASIM INDUSTRIES LIMITED(SU PRA) AND WE UPHOLD THE ORDERS OF THE CIT(A) AND HOLD THAT THE ASSESSEE COM PANY SHALL BE ENTITLED FOR DEDUCTION OF RS.21,35,646/- BEING INTEREST WITHDRAW N BY REVENUE IN THE PROCEEDINGS U/S 143(3) OF THE ACT FROM THE INTEREST EARLIER GRANTED OF RS.66,12,750/- WHILE PROCESSING RETURN U/S 143(1) O F THE ACT AND BEING OFFERED TO TAX BY THE ASSESSEE COMPANY . WE DISMISS THE APPEAL OF THE REVENUE ON THIS GROUND. WE ORDER ACCORDINGLY. 24. IN THE RESULT WITH RESPECT TO APPEALS FOR ASSES SMENT YEAR 1989-90, THE APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLO WED AND APPEAL FILED BY THE REVENUE IS DISMISSED IN THE MANNER AFORESAID. ITA NO. 4568/MUM/2003(ASSESSEES APPEAL) ASSESSMEN T YEAR 1990-91 25. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF EXP ENSES INCURRED ON GUEST HOUSE TOTALLING TO RS.28,17,682/- U/S 37(4) OF THE ACT, DETAILS OF WHICH ARE AS UNDER: A) SALARIES, WAGES TO STAFF RS.9,15,086/- B) REPAIRS AND RENOVATION EXPENSES RS.75,423/- C) FOOD EXP.(NET OF RECOVERIES) RS.10,53,419/- D) DEPRECIATION RS.4,40,342/- E) MAINTENANCE EXPENSES RS.3,33,412/- -------------------- TOTAL RS.28,17,682/- --------------------- ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 56 THIS GROUND WAS PRESSED BY LD. SENIOR COUNSEL OF TH E ASSESSEE COMPANY ONLY TO THE EXTENT OF FOOD EXPENSES AMOUNTING TO RS.10,5 3,419/ AND STATED THAT THE REST OF DISALLOWANCE MAY BE UPHELD AND THE APPE AL OF THE ASSESSEE COMPANY MAY BE DISMISSED AS NOT PRESSED TO THE EX TENT OF DISALLOWANCES OF EXPENSES OTHER THAN FOOD EXPENSES . WE HAVE CONSI DERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS . WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/ 2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 456 7/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 45 68/MUM/2003 FOR THE ASSESSMENT YEAR 1990-91 AS THE ISSUE IS IDENTICAL . WE ORDER ACCORDINGLY. 26. GROUND NO 2 AND 4 RELATES TO THE EXPENSES INCUR RED BY THE ASSESSEE COMPANY TO THE TUNE OF RS. 17,50,025/- TOWARDS PAYM ENTS MADE TO REGISTRAR OF COMPANIES TOWARDS FEE FOR INCREASE IN THE AUTHOR ISED CAPITAL OF THE COMPANY AND ALSO INCURRING OF EXPENSES OF RS.7,07,1 65/- TOWARDS ISSUE OF SHARES. THE AO HAS DISALLOWED THE SAME WHICH WAS CO NFIRMED BY THE CIT(A). IT IS STATED BY THE LD. SENIOR COUNSEL OF THE ASSES SEE COMPANY THAT THE HONBLE SUPREME COURT HAS HELD IN JUDGMENT IN THE CASE OF B ROOKE BOND INDIA LIMITED V. CIT (1997)225 ITR 798(SC) AND PUNJAB ST ATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED (1997) 225 ITR 792( SC) THAT THESE EXPENSES PAID TOWARDS FEE TO ROC FOR INCREASE IN AU THORISED CAPITAL OF THE COMPANY ARE INCURRED TOWARDS EXPANSION OF CAPITAL B ASE AND ARE CAPITAL EXPENDITURE NOT ALLOWABLE AS REVENUE EXPENDITURE. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MAT ERIAL ON RECORD INCLUDING CASE LAWS , WE RESPECTFULLY FOLLOWING THE HONBLE S UPREME COURT DECISION IN BROOKE BOND INDIA LIMITED(SUPRA) AND PSIIDC(SUPRA), HOLD THAT THE EXPENSES INCURRED TOWARDS ISSUE OF SHARES BEING EXPENSES OF RS.17,50,025/- AND RS.7,07,165/- TOWARDS PAYMENT OF FEE TO ROC FOR IN CREASE IN AUTHORISED CAPITAL AND ALSO FOR ISSUE OF SHARES ARE HELD TO B E ON CAPITAL ACCOUNT AS ISSUE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 57 OF SHARES LEAD TO INCREASE IN CAPITAL BASE OF THE C OMPANY AND ARE NOT ALLOWABLE AS REVENUE EXPENDITURE AND THE BOTH THE G ROUNDS OF THE ASSESSEE ARE DISMISSED. WE ORDER ACCORDINGLY. 27. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF EXP ENSES OF RS. 16,87,700/- INCURRED BY THE ASSESSEE COMPANY ON AMALGAMATION OF THE TATA FERTILIZER LIMITED WITH THE ASSESSSEE COMPANY W.E.F. 1.4.1989 AS PER HONBLE BOMBAY HIGH COURT ORDERS DATED 07 TH SEPTEMBER 1989 . THE ASSESSEE COMPANY CLAIMED THAT MOST OF THESE EXPENSES WERE INCURRED O N HOLDING MEETINGS WITH SHAREHOLDERS, DEBENTURE HOLDERS , BANKERS , CREDITO RS AND ON FEES TO ADVOCATES , ADVERTISEMENT CHARGES FOR PRINTING AMAL GAMATION NOTICES, PRINTING CHARGES FOR PRINTING SCHEME OF AMALGAMATION ETC.. T HE AO HELD THESE EXPENDITURE TO BE CAPITAL EXPENDITURE AS IN THE OPI NION OF THE AO IT HAS LED TO EXPANSION OF ASSESSEE COMPANY AND HAS PROVIDED IT W ITH LARGER CAPITAL BASE AND RESOURCES OF TATA FERTILIZER LIMITED WHICH RESU LTED INTO BENEFIT OF ENDURING NATURE. BEFORE THE CIT(A), THE ASSESSEEE R EITERATED ITS SUBMISSIONS AND RELIED UPON THE JUDGMENT OF HONBLE SUPREME COU RT IN THE CASE OF BOMBAY DYEING MANUFACTURING CO. LTD. (1996) 219 ITR 521(SC) TO CONTEND THAT THESE ARE BUSINESS EXPENSES ALLOWABLE AS REVEN UE EXPENDITURE UNDER THE ACT AND CONTENDED THAT THE BUSINESS OF TATA FERTILI ZER LIMITED IS COMPLEMENTARY TO THE ASSESSEE COMPANY AND THE AMALG AMATION WILL LEAD TO FINANCIAL SYNERGIES. THE CIT(A) ALSO REJECTED THE C ONTENTIONS OF THE ASSESSEE COMPANY AND HELD THAT THE TATA FERTILIZER LIMITED IS IN THE PROCESS OF SETTING UP FERTILIZER PLANT AND AT THE TIME OF AMALGAMATION , TATA FERTILIZER LIMITED IS NOT PRODUCING ANY PRODUCT AND THE TWO COMPANIES ARE NOT CARRYING ON ANY COMPLEMENTARY BUSINESS AND HENCE RATIO OF DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF BOMBAY DYEING MANUFACTURING CO . LTD.(SUPRA) IS NOT APPLICABLE TO THE INSTANT CASE. THE CIT(A) RELIED UPON THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODFREY PH ILLIPS INDIA LIMITED (1994)206 ITR 23(BOM.) AND HONBLE DELHI HIGH COURT IN TRIVENI ENGINEERING ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 58 WORKS LIMITED 232 ITR 639 AND UPHELD THE DISALLOWAN CE OF EXPENSES INCURRED BY THE ASSESSEE COMPANY ON AMALGAMATION BY HOLDING THE SAME TO BE CAPITAL EXPENDITURE. AGGRIEVED BY THE ORDERS OF THE CIT(A),THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. THE LD SENIOR COUNSEL STATED THAT THE AMALGAMAT IONS BETWEEN THE TWO COMPANIES HAVE LED TO FINANCIAL SYNERGIES AND ALSO THE BUSINESS IS COMPLEMENTARY AS BOTH THE COMPANIES ARE IN TO THE B USINESS OF CHEMICALS AS FERTILIZER IS ALSO CHEMICAL. THE LD. SENIOR COUNSEL DREW OUR ATTENTION TO THE DECISION OF MUMBAI TRIBUNAL IN THE ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 1992-93 REPORTED IN TATA CHEMICALS LIMITED V. DCIT (2000) 72 ITD 1 (MUM.TRIB) WHEREIN THE TRIBUNAL HAS DISCUSSED IN DE TAILS ABOUT THE BACKGROUND OF SETTING UP OF FERTLIZER PLANT BY THE ASSESSEE COMPANY WHICH WAS LATER ON HIVED OFF TO 100% SUBSIDIARY OF THE AS SESSEE COMPANY FIRST AS A PRIVATE LIMITED COMPANY LATER BECAME U/S 43A OF THE COMPANIES ACT,1956 A PUBLIC COMPANY NAMELY TATA FERTILIZER LIMITED. THE LD. SENIOR COUNSEL SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN (200 0) 72 ITD 1 (MUM. TRIB.) HAS BEEN UPHELD BY HONBLE MUMBAI HIGH COURT IN (20 02) 256 ITR 395(BOM. HC) . THE LD. SENIOR COUNSEL ALSO RELIED UPON THE F OLLOWING DECISIONS TO SUPPORT HIS CONTENTIONS THAT THE EXPENSES INCURRED ON THE AMALGAMATION ARE ALLOWABLE REVENUE EXPENDITURE : (I) CIT V. MAHINDRA AND MAHINDRA LTD. (2006)284 ITR 679 (BOM.) (II) CIT V. MIHIR TEXTILES LTD.(2002) 256 ITR 528(GUJ.) (III) CIT V. AKME ELECTRONICS & CONTROL PVT. LTD. (2004) 267 ITR 396(GUJ.) ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 59 (IV) CIT V. BOMBAY DYING & MFG. LTD. (1996) 219 ITR 521( SC). (V) NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED IN ITA NO 3495/M/03 LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BE LOW AND DREW OUR ATTENTION TO THE FINDINGS OF THE CIT(A) AND RELIED UPON THE J UDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODFREY PHILLIPS INDIA LI MITED 206 ITR 23(BOM.) AND SUBMITTED THAT THE AUTHORITIES BELOW HAS RIGHTLY DI SALLOWED THE AMALGAMATION EXPENSES OF RS.16,87,700/- INCURRED BY THE ASSESSEE COMPANY FOR AMALGAMATION OF TATA FERTILIZER LIMITED WITH THE AS SESSEE COMPANY BY TREATING THE SAID EXPENSES AS CAPITAL EXPENDITURE A S IT HAS LED TO ADDITION OF THE BUSINESS TO THE ASSESSEE COMPANY WHICH IS AS AL TOGETHER NEW PROFIT APPARATUS BRINGING ADVANTAGE OF ENDURING NATURE. TH E LD. DR ALSO SUBMITTED THAT THE BUSINESS OF THE TWO COMPANIES ARE ALSO NOT COMPLEMENTARY TO EACH OTHER. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON THE BOTH THE PARTIE S. BEFORE WE PROCEED, IT WILL BE IMPORTANT AND PROFITABLE TO SEE THE FINDINGS OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE COMPANYS BUSINESS IN THE ASSESSEES O WN CASE IN (2000) 72 ITD 1(MUM.) FOR ASSESSMENT YEAR 1992-93 WHICH HAS BEEN UPHELD BY HONBLE BOMBAY HIGH COURT IN (2002) 256 ITR 395(BOM.) , WH ICH ARE AS UNDER: 44. THE ASSESSEE-COMPANY WAS INCORPORATED IN 1939 WITH THE OBJECT OF CARRYING ON 'BUSINESS OF MANUFACTURERS OF AND DEALE RS IN CHEMICAL PRODUCTS OF ANY NATURE AND KIND WHATSOEVER' AS PER CLAUSE 111(1) OF ITS MEMORANDUM OF ASSOCIATION. IT PUT UP A FACTORY AT M ITHAPUR, GUJARAT, FOR THE MANUFACTURE OF AGRO-CHEMICALS AND SODA ASH. A F ACTORY WAS PUT UP AT PITHAMPUR FOR THE MANUFACTURE OF DETERGENTS. THE COMPANY HAD BEEN ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 60 CONTEMPLATING THE MANUFACTURE OF FERTILIZERS IN A L ARGE SCALE IN ORDER TO MAKE A SIGNIFICANT CONTRIBUTION TO THE COU NTRY'S FOOD PROBLEM . BECAUSE OF' LACK OF CERTAIN PRE-CONDITIONS, NO PR OGRESS COULD BE MADE IN THIS BEHALF'. THE COMPANY HAD, UNDER THE LEADERSHIP OF ONE MR. DURBATI SETH, AN EXPERT IN CHEMICALS, EMBARKED ON A STUDY INTO THE ASPECT SOMEWHERE AROUND 1965. IN THE STATE MENT OF THE CHAIRMAN OF THE COMPANY, MR. J.R.D. TATA, FOR THE A CCOUNTING YEAR 1966-67, REFERENCE WAS MADE TO THE FERTILIZER PROJECT. IT WAS STATED BY HIM THAT THE PROJECT LENT ITSELF IDEALLY TO LOCATION IN THE NEIGHBOURHOOD OF MITHAPUR 'FOR BOTH GEOGRAPHICAL AN D TECHNICAL REASONS'. REFERENCE TO THE SAME EFFECT WAS ALSO MADE IN THE D IRECTORS' REPORT TO THE SHAREHOLDERS. AN APPLICATION WAS DULY SUBMITTED TO THE GOVERNMENT OF INDIA FOR INDUSTRIAL LICENCE IN 1967 AND REFERENCE TO THIS IS FOUND IN THE DIRECTORS' REPORT FOR THE Y EAR 67-68 . IN THE CHAIRMAN'S STATEMENT FOR THAT YEAR, REFERENCE WAS M ADE TO THE VARIOUS REASONS FOR THE DELAY IN THE GOVERNMENT GRANTING AP PROVAL. ONE OF THE OBJECTIONS RAISED, IT APPEARS, WAS THAT THE PLANT, IF PUT UP AT MITHAPUR, GUJARAT, WOULD RESULT IN OVER-CONCENTRATION. OF FER TILIZER PROJECTS IN ONE STATE. REFERRING TO THIS OBJECTION, THE CHAIRMAN STATED: ' APART FROM THE REGIONAL ASPECTS OF THIS OBJECTION, WITH WHICH NATURALLY CANNOT DEAL, THE FACT IS THAT, FOR TECHNICAL REASON S, OUR PROJECT CAN ONLY BE PUT UP AT OR NEAR MITHAPUR, AND THERE C AN THEREFORE BE NO QUESTION OF IT BEING SET UP ANYWHERE ELSE IN INDIA'. THESE STATEMENTS, MADE CONTEMPORANEOUSLY, DO SHOW AN INTE NTION ON THE PART OF THE ASSESSEE-COMPANY TO COMMENCE THE FE RTILIZER PROJECT AS PART OF ITS BUSINESS. THE OBSERVATION THAT IT WOULD BE IDEAL TO HAVE THE PROJECT AT MITHAPUR ITSELF 'FOR TECHNIC AL REASONS' IS ALSO IMPORTANT IN THE SENSE THAT IT INDICATES THAT TECHN OLOGICALLY IT WOULD BE CONDUCIVE TO THE MANUFACTURE OF FERTILIZERS IF THE FERTILIZER PROJECT IS ALSO SET UP IN MITHAPUR PLANT. THE ASSESSING OFFICER HAS ACCEPTED THAT THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 61 FERTILIZER PROJECT WAS THUS ORIGINALLY CONCEIVED AS A PART OF THE CHEMICALS PROJECT, BUT SAYS THAT IT WAS ONLY AN INT ENTION WHICH IS 'NOT MATERIAL'. 45. BE THAT AS IT MAY, THE APPLICATION BEFORE THE GOVER NMENT OF INDIA FOR APPROVAL OF THE FERTILIZER PROJECT WAS PENDING FOR VARIOUS REASONS WHICH ARC NOT GERMANE TO THE PRESENT APPEAL. ULTIMATELY, THINGS BEGAN TO THAW AND IN 1980, AFTER ABOUT 15 YEARS, THE COMPANY REVIVED ITS INTEREST, AT A SUGGESTION FROM THE GOVERNMENT, IN T HE MANUFACTURE OF FERTILIZERS IN A LARGE GAS-BASED NIT ROGENOUS FERTILIZER COMPLEX IN BABRALA IN THE STATE OF UTTAR PRADESH. A COMPANY BY NAME TATA FERTILIZERS LTD. (HEREINAFTER REF ERRED TO AS TFL) WAS INCORPORATED IN THE YEAR 1981 FOR THE PURP OSE OF SETTING UP THE FERTILIZER PLANT IN UP. THIS COMPANY WAS INC ORPORATED AS A 100% SUBSIDIARY OF TATA CHEMICALS LTD., THE ASSESSE E-COMPANY. IT WAS FIRST INCORPORATED AS A 'PRIVATE LIMITED' COMPA NY BUT LATER IT BECAME A PUBLIC LIMITED COMPANY BY VIRTUE OF SECTION 43A O F THE COMPANIES ACT AND MENTION TO THIS EFFECT HAS BEEN MADE IN THE CER TIFICATE OF INCORPORATION. IN THE YEAR 1989, TFL WAS AMALGAMATED WITH THE ASSESSEE-COMPANY UNDER ORDERS OF THE BOMBAY HIGH CO URT DATED 7-9-1989. ALL THE PROPERTIES AND ASSETS AND THE LIA BILITIES AND ALL OTHER EFFECTS OF TFL BECAME THOSE OF THE ASSESSEE-C OMPANY WITH EFFECT FROM 1-4-1989. .. 46. AN IMPORTANT ASPECT HAS TO BE NOW NOTICED. THIS HAS BEEN DESCRIBED IN SUFFICIENT DETAIL IN THE PROSPECTUS ISSUED IN CO NNECTION WITH THE ISSUE OF PCDS. THIS HAS REFERENCE TO THE REASONS FOR AMAL GAMATION OF TFL WITH TCL, THE ASSESSEE-COMPANY. THIS ASPECT ASSUMES IMPO RTANCE IN VIEW OF THE FACT THAT THE DEPARTMENTAL AUTHORITIES, AS ALSO THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE BEFORE US, LAID CONSIDE RABLE STRESS ON THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 62 FACT THAT THE VERY FACT THAT A SEPARATE COMPANY WAS INCORPORATED (TFL) FOR THE PURPOSE OF PUTTING UP THE FERTILIZER PROJEC T AT BABRALA, UP, WOULD SHOW THAT IT WAS NEVER THE INTENTION OF THE ASSESSE E-COMPANY TO CARRY ON THE BUSINESS OF MANUFACTURE OF FERTILIZERS AS ITS B USINESS. IN THE YEAR 1985, THE GOVERNMENT OF INDIA ISSUED A LETTER OF IN TENT TO TCL (AND NOT TFL), THE ASSESSEE-COMPANY, FOR SETTING UP THE FERTILIZER PROJECT AT BABRALA. THE ASSESSEE FORMED TFL AS A 10 0% SUBSIDIARY WHICH LATER BECAME A PUBLIC LIMITED COMP ANY. HAVING DONE THIS, THE QUESTION ARISES AS TO WHAT WERE THE REASONS THAT PROMPTED THE AMALGAMATION. ACCORDING TO THE PROSPEC TUS, HAVING COMPLETED ALL THE PRELIMINARY WORK IN CONNECTION WI TH THE PROJECT, TFL WAS AT A TAKE-OFF STAGE IN EARLY 1989, WHEN THE GOVT. OF INDIA, IN A BID TO REDUCE THE GROWING SUBSIDY BU RDEN ON IT, REVISED THE PARAMETERS FOR DETERMINATION OF THE RET ENTION PRICE FOR FERTILIZERS, WITH EFFECT FROM 1-4-1988. THE REV ISION WAS APPLICABLE TO GAS-BASED NITROGENOUS FERTILIZER PLAN TS, WHICH THE BABRALA PROJECT WAS. IT REQUIRED THAT THE RATE OF D EPRECIATION BE REDUCED FROM 11.8896 TO 4.7596 AND THE NORM FOR CAP ACITY UTILISATION BE RAISED FROM 8096 TO 90% FOR THE PURP OSE OF CALCULATION OF RETENTION PRICE. THE EFFECT OF THIS, IN THE WORDS OF THE COMPANY, IS: 'IN THEIR COMBINED EFFECT, THE INC REASE IN THE NORM FOR CAPACITY UTILISATION AND THE REDUCTION IN THE RATE OF PERMISSIBLE DEPRECIATION FOR DETERMINATION OF THE R ETENTION PRICE VIRTUALLY DESTROYED THE VIABILITY OF THE PROJECT - IT COULD NEITHER SERVICE THE SHARE CAPITAL NOR THE LOANS'. TO CONTIN UE THE VERY NEXT PARAGRAPH OF THE PROSPECTUS (AT PAGE 18): 'IT BECAM E OBVIOUS THAT THE FERTILISER PROJECT, ON A 'STAND-ALONE' BASIS, W AS NO LONGER VIABLE IN THE CONTEXT OF THE NEW PARAMETERS FOR THE DETERMINATION OF THE RETENTION PRICES OF THE FERTILISERS. TFL WAS THUS FACED WITH THE MOST UNFORTUNATE AND UNEXPECTED PROSPECT OF HAV ING TO ABORT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 63 THE FERTILISER PROJECT ON WHICH SO MUCH EFFORT, TIM E AND MONEY HAD ALREADY BEEN EXPENDED AND HIGH HOPES INVESTED'. IT WAS THEREFORE DECIDED THAT THE COMPANY COULD NOT GO BAC K ON ITS COMMITMENT TO THE MANUFACTURE OF FERTILIZERS. SO IT 'SOUGHT WAYS AND MEANS OF RESCUING THE FERTILISER PROJECT, IN TH E FACE OF THE NEW PRICING PARAMETERS AND, ALTERING THE COURSE, DECIDE D TO UNDERTAKE AND IMPLEMENT THE PROJECT AS A DIVISION OF THE COMP ANY, DRASTICALLY ALTERING THE MEANS OF FINANCING THE PRO JECT IN A MANNER SO AS TO RESTORE ITS VIABILITY EVEN IN THE C ONTEXT OF THE NEW PRICING PARAMETERS'. THESE REASONS, IN OUR OPINION, SHOW THAT THE INITIAL PROPOSAL TO START THE FERTILIZER BUSINESS A S PART OF THE COMPANY'S BUSINESS, WAS GIVEN EFFECT AND THE BABRAL A PROJECT WAS INDUCTED INTO THE COMPANY'S FOLD. IT IS NO DOUBT TR UE THAT THE INITIAL PROPOSAL TO START THE FERTILIZER PROJECT BY THE ASSESSEE- COMPANY WAS MODIFIED BY FORMING A WHOLLY-OWNED SUBS IDIARY COMPANY (TFL) AND IF TFL HAD CONTINUED AS IT IS AND HAD SET UP THE PROJECT BY ITSELF, NO QUESTION OF THE ASSESSEE PROFESSING TO CARRY ON THE SAID BUSINESS WOULD HAVE AND COULD HAV E ARISEN. THE FACT THAT TFL HAD TO BE AMALGAMATED WITH THE ASSESS EE COMPANY FOR REASONS OF FINANCIAL VIABILITY IS A FACT IN FAV OUR OF THE ASSESSEE'S CLAIM THAT THOUGH FOR SOME TIME THE FERT ILIZER PROJECT WAS SOUGHT TO BE HIVED OFF TO ANOTHER ENTITY, ALBEI T TO A WHOLLY- OWNED SUBSIDIARY, ITS TAKING OVER BY THE ASSESSEE-C OMPANY CLEARLY SHOWS THAT IT GAVE EFFECT TO ITS ORIGINAL PROPOSAL OF HAVING THE FERTILIZER PROJECT AS ITS OWN. THE REASONS GIVEN FO R THE AMALGAMATION ALSO SHOW THAT BUT FOR THE FINANCIAL S TRENGTH AND SUPPORT EXTENDED BY TFL, THE FERTILIZER PROJECT WOU LD HAVE BECOME FINANCIALLY NON-VIABLE. THE INTENTION TO ABSORB TFL AT A DIFFICULT OR CRITICAL PERIOD OF ITS EXISTENCE, WHEN THE 'RAIS ON D'ETRE' ITSELF WAS BEING CHALLENGED DUE TO PRICING POLICIES, SHOWS FINANCIAL ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 64 INTEGRATION. IT IS SAID IN THE PROSPECTUS THAT THE SITUATION WAS SO URGENT THAT THE WHOLE AMALGAMATION PROCEDURE WAS UN DERGONE IN A RECORD TIME OF LESS THAN 3 MONTHS AND THE APPROVA L OF THE HIGH COURT WAS OBTAINED. A CLUE TO THE SENSE OF URGENCY (DESPERATION?) IS AFFORDED BY THE FACT THAT THE ORDER OF THE HIGH COURT IS DATED 7- 9-1989 AND THE FOUNDATION STONE FOR THE BABRALA PRO JECT WAS LAID ON 15-9-1989 47. WE ARE THEREFORE NOT ABLE TO SHARE THE OPINION OF THE INCOME- TAX AUTHORITIES THAT THE ORIGINAL INTENTION TO STAR T THE MANUFACTURE OF FERTILIZER AS PART OF THE ASSESSEE'S BUSINESS IS 'NOT MATERIAL'. ..... ..... 56. THUS THERE ARE SUFFICIENT FACTS, BROUGHT ON REC ORD BY THE ASSESSEE, TO ESTABLISH THAT THERE IS UNITY OF CONTR OL, INTER-LACING, INTER-CONNECTION AND INTER-DEPENDENCE BETWEEN THE V ARIOUS UNITS AND FINANCIAL DOVETAILING BETWEEN THE BUSINESSES. 57. WE NOW TURN TO THE ARGUMENTS RELATING TO THE NATURE OF THE ITEMS MANUFACTURED IN THE CHEMICAL PLANT AT MITHAPUR AND THOSE MANUFACTURED AT BABRALA FERTILIZER PROJECT. ELABORATE ARGUMENTS WERE ADVANCED BEFORE US ON THIS ASPECT OF THE MATTER BY BOTH SIDES. ACCO RDING TO MR. VYAS, THE CHEMICAL PLANT WAS MANUFACTURING 'AGRO-CHEMICALS' W HICH, ACCORDING TO THE DICTIONARY, INCLUDE 'FERTILIZERS' AND THEREFORE THE FERTILIZER PLANT AT BABRALA WAS ONLY AN EXPANSION OF THE EXISTING BUSIN ESS. THE DETAILS OF PRODUCTION OF SOME AGRO-CHEMICALS WERE SUBMITTED AT PAGE 50 OF THE GREEN-FILE PAPER BOOK FILED BY THE ASSESSEE. SUCH D ETAILS HAVE ALSO BEEN ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 65 GIVEN TO THE ASSESSING OFFICER. BENZENE HEXACHLORID E, COPPER OXYCHLORIDE, ETHYLENE DIBROMIDE AND METHYL BROMIDE WERE STATED T O BELONG TO THE CATEGORY OF AGROCHEMICALS. THESE WERE STATED TO BE COMMERCIALLY KNOWN AS PESTICIDES. THE ARGUMENT WAS THAT ANYTHMIG THAT IS PUT INTO THE SOIL WHICH PROTECTS THE PLANTS BY DESTROYING THE PESTS A LSO DOES A FUNCTION SIMILAR TO A FERTILIZER, WHICH GIVES SOME KIND OF A NUTRITION TO THE PLANT. THE OBJECT OF BOTH IS THE GROWTH AND WELL-BEING OF THE PLANT. AT ANY RATE, AGROCHEMICAL HAS BEEN DEFINED TO INCLUDE FERTILIZER , FUNGICIDE, INSECTICIDE ETC. IN THE DICTIONARY. WHAT THE ASSESSEE DID IN TH E BABRALA PLANT WAS TO MANUFACTURE THE FERTILIZERS IN A LARGE SCALE AND TH US IT WAS ONLY AN EXPANSION OF THE BUSINESS. THE ARGUMENT OF THE DEPA RTMENTAL REPRESENTATIVE MR. TRALSHAWALA WAS THAT THE PRODUCT ION OF THE AFORESAID AGROCHEMICALS CONSTITUTED A NEGLIGIBLE PERCENTAGE O F THE PRODUCTION OF THE MITHAPUR FACTORY. WE NEED NOT ENTER INTO THIS CONTROVERSY SINCE IT HAS BEEN HELD IN THE DECISIONS WHICH WE HAVE EARLIE R REFERRED TO THAT THE NATURE OF THE TWO LINES OF ACTIVITIES IS N OT RELEVANT. HOWEVER, IT IS A FACT THAT THE AFORESAID AGRO-CHEMI CALS WERE PRODUCED IN THE MITHAPUR FACTORY FROM 1973-74 TO 19 91-92 AND THE DETAILS OF PRODUCTION ARE GIVEN AT PAGES 30-32 OF THE GREEN FILE PAPER BOOK FILED BY THE ASSESSEE. SIMILARLY, W E ARE NOT ALSO DEALING WITH THE CONTROVERSY AS TO WHETHER THE PROC ESS INVOLVED IN THE MANUFACTURE OF SODA ASH, THE MAIN PRODUCT IN MI THAPUR PLANT, IS TECHNICALLY SIMILAR TO THE MANUFACTURE OF UREA, PROPOSED TO BE MANUFACTURED AT BABRALA. THIS INVOLVES TECHNI CAL EXPERTISE. FOR THE SAME REASON, WE ARE NOT ABLE TO EXAMINE THE CLAIM OF THE ASSESSEE THAT IT IS POSSIBLE, WITH CERTAIN MINOR AD JUSTMENTS, TO MAKE THE MITHAPUR PLANT SUITABLE FOR THE MANUFACTUR E OF UREA, PROPOSED TO BE MANUFACTURED AT BABRALA. ..... ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 66 ...... 64. FOR ALL THE ABOVE REASONS, WE HOLD THAT THE FER TILIZER UNIT AT BABRALA, UP, THE CHEMICAL UNIT AT MITHAPUR, GUJARAT , AND THE DETERGENT BUSINESS AT PITHAMPUR, MP, ALL CONSTITUTE D ONE COMPOSITE OR SINGLE BUSINESS AND THEREFORE THE DISA LLOWANCE OF THE INTEREST OF RS. 35,13,55,815 IS NOT JUSTIFIED. THE SAME IS DELETED AND THE FIRST GROUND IS ALLOWED. THUS , IT COULD BE SEEN FROM THE ABOVE FINDINGS OF THE TRIBUNAL IN (2000) 72 ITD 1 (MUM.) WHICH DECISION IS UPHELD BY HONBLE M UMBAI HIGH COURT IN (2002) 256 ITR 395(BOM. HC) , THAT THE FERTILIZER P ROJECT WAS CONCEIVED BY THE ASSESSEE COMPANY AND APPLICATION FOR LICENSE WAS SU BMITTED TO GOVERNMENT OF INDIA WAY BACK IN THE YEAR 1967 BY THE ASSESSEE COMPANY I.E TATA CHEMICALS LIMITED WHICH WANTED TO SET UP THE UNIT AT MITHAPUR, GUJARAT WHERE EXISTING FACTORY OF THE ASSESSEE COMPANY MANU FACTURING AGROCHEMICAL AND SODA ASH IS SITUATED DUE TO VARIOUS GEOGRAPHICA L AND TECHNICAL REASONS AND THE ASSESSEE COMPANY WAS NOT INTERESTED IN SETT ING UP THIS PROJECT ANY WHERE ELSE IN INDIA AS INTENTION ALWAYS WAS TO HAVE IT AS PART OF THE SAME EXISTING BUSINESS OF THE ASSESSEE COMPANY, LETTER O F INTENT WAS ALSO ISSUED BY GOVERNMENT OF INDIA IN 1985 IN FAVOUR OF THE ASSESS EE COMPANY I.E. TATA CHEMICALS LIMITED BUT AS PER SUGGESTION OF THE GOVE RNMENT , THE COMPANY REVIVED ITS INTEREST IN THE MANUFACTURE OF FERTILIZ ER AND THE FERTILIZER UNIT WAS SET UP AT BARBALA IN THE STATE OF UP . THE ASSESSEE COMPANY SET UP 100% SUBSIDIARY IN THE YEAR 1981 FIRST AS PRIVATE LIMITE D COMPANY WHICH LATER BECAME PUBLIC LIMITED COMPANY U/S 43A OF THE COMPAN IES ACT , 1956 NAMELY TATA FERTILIZER LIMITED WHICH LATER ON GOT AMALGAMA TED WITH THE ASSESSEE COMPANY W.E.F. 1.4.1989 UNDER HONBLE BOMBAY HIGH C OURT ORDERS DATED 07- 09-1989 WITH AN OBJECTIVE TO RESCUE THE FERTILIZER PROJECT OWING TO ADVERSE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 67 GOVERNMENT RETENTION PRICE POLICY REGIME ANNOUNCED BY GOVERNMENT OF INDIA MAKING FERTILIZER PROJECT AS UNVIABLE PROJECT ON ST AND ALONE BASIS, FOR REASONS OF FINANCIAL VIABILITY AND INTEGRATION IS A FACT WH ICH IS IN FAVOUR OF THE ASSESSEE COMPANY CLAIM THAT HAVING DEEP FINANCIAL AND MANAGE MENT INTEREST IN ITS SUBSIDIARY COMPANY NAMELY TATA FERTILIZER LIMITED A ND TO SAFEGUARD ITS INVESTMENT IN TATA FERTILIZER LIMITED WHOSE PROJECT HAS BECOME UN-VIABLE DUE TO ADVERSE RETENTION PRICING POLICY REGIME OF GOVER NMENT OF INDIA (GOI), THE ASSESSEE COMPANY WENT FOR THE AMALGAMATION OF ITS S UBSIDIARY COMPANY NAMELY TATA FERTILIZER LIMITED WITH ITSELF WHICH BE CAME ABSOLUTELY NECESSARY FOR SMOOTH AND EFFICIENT CONDUCT OF THE BUSINESS OF THE ASSESSEE COMPANY AS ON STAND ALONE BASIS ITS SUBSIDIARY COMPANY HAS BE COME UN-VIABLE DUE TO ADVERSE RETENTION PRICING POLICY REGIME ANNOUNCED B Y GOI .WE HAVE ALSO SEEN THAT TRIBUNAL HAS GIVEN FINDING OF FACT THAT THE CH EMICAL BUSINESS , DETERGENT BUSINESS AND FERTILIZER BUSINESS CONSTITUTED ONE SI NGLE AND COMPOSITE BUSINESS AND THERE ARE SUFFICIENT FACTS BROUGHT ON RECORD BY THE ASSESSEE COMPANY, TO ESTABLISH THAT THERE IS UNITY OF CONTRO L, INTER-LACING, INTER- CONNECTION AND INTER-DEPENDENCE BETWEEN THE VARIOUS UNITS AND FINANCIAL DOVETAILING BETWEEN THE BUSINESSES TO CONCLUDE THAT THESE BUSINESS OF CHEMICAL, FERTILIZER AND DETERGENT CONSTITUTED ONE BUSINESS. WE ARE CONSCIOUS OF THE FACT THAT THIS DECISION OF THE TRIBUNAL IN A SSESSEES OWN CASE IN (2000) 72 ITD 1 (MUM. TRIB.) IS FOR ASSESSMENT YEAR 1992-9 3 WHICH IS A POST MERGER ERA AND HENCE WE ARE RESTRICTING OUR CONCLUSIONS BA SED ON THE FINDINGS WHICH ARE RELEVANT TO PRE-MERGER ERA. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODFREY PHILLIPS INDIA LIMITED(SUPRA) IS DISTINGUISHABLE AS IN THAT CASE THE TAXPAYER OBJECT AND PURPOSE OF THE AMALGAMATION WAS TO TAKE OVER TH E EXISTING DISTRIBUTION ORGANISATION OF A MARKETING COMPANY WHICH WAS AN IN DEPENDENT COMPANY. AS A RESULT OF THE AMALGAMATION, THE ENTIRE BUSINESS E STABLISHMENT WITH THE WELL- ESTABLISHED MARKETING NETWORK CAME IN THE HANDS OF TAXPAYER WHICH WAS A ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 68 CAPITAL ASSET AND ADVANTAGE OF ENDURING NATURE. THE FACT THAT THE ACQUISITION WAS INTENDED TO INCREASE THE PROFITABILITY OF THE T AXPAYER CANNOT CONVERT THE CAPITAL EXPENDITURE IN TO REVENUE EXPENDITURE. THER EFORE THE LEGAL EXPENSES INCURRED IN CONNECTION WITH THE AMALGAMATION WAS HE LD TO BE CAPITAL EXPENDITURE BY THE HONBLE BOMBAY HIGH COURT. SIMIL ARLY FACTS IN THE CASE OF TRIVENI ENGINEERING WORKS LIMITED IN (1998)232 ITR 0639(DEL HC) IS DISTINGUISHABLE WHERE BY EXPENSES INCURRED IN CONNE CTION WITH MERGER WAS HELD TO BE CAPITAL EXPENDITURE AS THERE WAS NO FIND ING OF FACT THAT THE BUSINESS OF MERGED COMPANY AND THE COMPANY IN WHICH IT MERGED IS COMPLIMENTARY AND THE MERGER OF THE TWO BUSINESSES IS NECESSARY FOR THE SMOOTH AND EFFICIENT CONDUCT OF THE BUSINESS , AS I T WAS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS OF THE TAXPAYER . WHILE IN THE INSTANT CASE UNDER APPEAL , THE COMPANY I.E TATA FERTLIZER LIMI TED WHICH WAS AMALGAMATED INTO ASSESSEE COMPANY NAMELY TATA CHEMI CALS LIMITED, WAS ALREADY A SUBSIDIARY COMPANY OF THE ASSESSEE COMPAN Y, THE PROJECT WAS CONCEIVED BY THE ASSESSEE COMPANY AND LICENSE WAS A PPLIED IN THE NAME OF THE ASSESSEE COMPANY I.E. TATA CHEMICALS LIMITED WA Y BACK IN 1967 AND ALSO LETTER OF INTENT WAS ISSUED BY GOI IN FAVOUR OF THE ASSESSEE COMPANY IN 1985 WHICH ITSELF SHOWED THAT THE FERTILIZER PROJECT WAS ALWAYS INTENDED TO BE PART OF THE SAME BUSINESS WHICH FACT IS ALSO ADMITTED BY THE AO AND HENCE EVEN AFTER AMALGAMATION IT COULD NOT BE SAID THAT THE NE W BUSINESS ESTABLISHMENT HAS COME INTO HANDS OF THE ASSESSEE COMPANY RATHER THE REASONS FOR THE AMALGAMATION OF THE SUBSIDIARY COMPANY IN WHICH THE ASSESSSEE COMPANY HAS DEEP FINANCIAL AND MANAGEMENT INTERESTS WAS FIN ANCIAL VIABILITY AND INTEGRATION DUE TO ADVERSE RETENTION PRICING REGIM E ANNOUNCED BY GOVERNMENT OF INDIA WHICH MADE THE FERTILIZER PROJE CT AS UNVIABLE UNIT ON STAND ALONE BASIS AND THE ONLY OPTION LEFT TO RESCU E THE FERTILIZER PROJECT OWNED BY SUBSIDIARY COMPANY NAMELY TATA FERTILIZER LIMITED WAS TO MERGE IT WITH THE ASSESSEE COMPANY NAMELY TATA CHEMICALS LIM ITED. THUS, IT IS FOR SMOOTH AND EFFICIENT RUNNING OF THE BUSINESS OF THE ASSESSEE COMPANY ,THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 69 AMALGAMATION OF TATA FERTILIZER LIMITED WHICH WAS A LREADY A SUBSIDIARY COMPANY OF THE ASSESSEE COMPANY WAS UNDERTAKEN BY T HE ASSESSEE COMPANY AND NOT TO ACQUIRE ANY BENEFIT OF ENDURING NATURE A S TATA FERTILIZER LIMITED WAS ALREADY AN EXISTING SUBSIDIARY COMPANY OF THE A SSESSEE COMPANY AND IT COULD NOT BE SAID THAT BY MERGING SUBSIDIARY COMPAN Y WITH ITSELF, HOLDING COMPANY HAS ACQUIRED ANY ADVANTAGE OF ENDURING NATU RE OR ANY PROFIT EARNING APPARATUS HAS BEEN ACQUIRED. ` THUS, IN OUR CONSIDERED VIEW , THE EXPENSES OF R S.16,87,700/- INCURRED BY THE ASSESSEE COMPANY ON HOLDING MEETINGS WITH SHARE HOLDERS, DEBENTURE HOLDERS , BANKERS , CREDITORS AND ON FEES TO ADVOCA TES , ADVERTISEMENT CHARGES FOR PRINTING AMALGAMATION NOTICES, PRINTING CHARGES FOR PRINTING SCHEME OF AMAGMATION ETC. ON AMALGAMATION OF TATA FERTILIZER LIMITED WITH THE ASSESSEE COMPANY ARE REVENUE EXPENDITURE ALLOWABLE AS DEDUCT ION IN COMPUTING BUSINESS INCOME OF THE ASSESSEE COMPANY AND HENCE D ISALLOWANCE OF EXPENSES OF RS.16,87,700/- BY THE AO AND AS SUSTAIN ED BY THE CIT(A) IS SET ASIDE .WE ORDER ACCORDINGLY. 28. GROUND NO 5 OF THE ASSESSEES COMPANY APPEAL RE LATES TO DISALLOWANCE OF BHANWAD PROSPECTING AND SURVEY EXPENSES AMOUNTING T O RS.1,38,732/- . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORDS . WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PA RAS IN ITA NO. 4567/MUM/2003 FOR ASSESSMENT YEAR 1989-90 AND OUR D ECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4568/MUM/2003 FOR ASSESSMENT YEAR 1990-91 AS THE IS SUE IS IDENTICAL .WE ORDER ACCORDINGLY 29. GROUND NO. 6 OF THE ASSESSEES COMPANY APPEAL R ELATES TO THE DISALLOWANCE OF RS.64,43,950/- BEING PROVISION FOR EMPLOYEES PENDING SETTLEMENT OF THEIR DEMANDS. THE LD. SENIOR COUNSEL STATED BEFORE US THAT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 70 THIS GROUND IS NOT PRESSED AND MAY BE DISMISSED AS NOT PRESSED AS THE SAID AMOUNT WAS ALLOWED AS DEDUCTION TO THE ASSESSEE COM PANY IN COMPUTING INCOME FROM BUSINESS OF THE ASSESSEE COMPANY BY THE REVENUE ON PAYMENT BASIS IN ASSESSMENT YEAR 1992-93. AFTER HEARING BOT H THE PARTIES , THIS GROUND IS DISMISSED BEING NOT PRESSED. WE ORDER A CCORDINGLY. 30. GROUND NO. 7 RELATES TO DISALLOWANCE OF SUM OF RS.2,70,96,000/- BEING ADDITION OF INTEREST ON ACCOUNT OF INTEREST FREE AD VANCE TO SENEGAL INVESTMENT & TRADING CO. LTD.. WE HAVE CONSIDERED THE RIVAL CO NTENTIONS AND PERUSED THE MATERIAL ON RECORDS . WE HAVE ADJUDICATED THIS GRO UND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS M UTANDIS TO THIS GROUND IN ITA NO. 4568/MUM/2003 FOR THE ASSESSMENT YEAR 19 90-91 AS THE ISSUE IS IDENTICAL .WE ORDER ACCORDINGLY. 31. THE GROUND NO 8 RELATES TO DISALLOWANCE OF FORE IGN TRAVEL EXPENSES AMOUNTING TO RS.7,16,401/-. THE BREAK UP OF THE SAM E IS GIVEN IN ANNEXURE-1 OF THE CHART FILED BEFORE US. THE CONTENTIONS OF LD . SENIOR COUNSEL IS THAT THESE EXPENSES ARE INCURRED WITH RESPECT TO COMPANI ES EXISTING BUSINESS TO THE TUNE OF RS. 1,70,765/- AND THESE EXPENSES TO TH E TUNE OF RS.1,70,765/- SHOULD BE ALLOWED AS REVENUE EXPENDITURE . THE LD. SENIOR COUNSEL STATED THAT THE BALANCE AMOUNT OF RS.5,45,636/- IS TOWARDS TRAVEL RELATED TO OIL REFINERY PROJECT AND ARE NOT PRESSED AND THE SAME M AY BE DISMISSED AS NOT PRESSED . AFTER HEARING BOTH THE PARTIES , THIS GR OUND OF APPEAL RELATED TO THIS AMOUNT OF RS.5,45,636/- STAND DISMISSED AS NOT PRE SSED. WE ORDER ACCORDINGLY FOR THE REST OF THE AMOUNT OF RS.1,70,765 STATED TO BE SPENT FOR BUSINESS PURPOSES , WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 71 ON RECORDS . WE HOLD THAT WE HAVE ADJUDICATED THI S GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS M UTANDIS TO THIS GROUND IN ITA NO. 4568/MUM/2003 FOR THE ASSESSMENT YEAR 19 90-91 AS THE ISSUE IS IDENTICAL .WE ORDER ACCORDINGLY. 32. GROUND NO. 9 RELATES TO THE DISALLOWANCE OF EXP ENSES OF RS.7,638/- INCURRED ON FISH AND PRAWN CULTURE. WE HAVE CONSIDE RED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS . WE HAVE ADJU DICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR T HE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4568/MUM/2003 FO R ASSESSMENT YEAR 1990-91 AS THE ISSUE IS IDENTICAL .WE ORDER ACCORDI NGLY. 33. GROUND NO. 10 RELATES TO DISALLOWANCE OF DELHI OFFICE EXPENSES AMOUNTING TO RS.1,00,000/- . WE HAVE CONSIDERED THE RIVAL CON TENTIONS AND PERUSED THE MATERIAL ON RECORDS . WE HAVE ADJUDICATED THIS GRO UND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS M UTANDIS TO THIS GROUND IN ITA NO. 4568/MUM/2003 FOR THE ASSESSMENT YEAR 19 90-91 AS THE ISSUE IS IDENTICAL . WE ORDER ACCORDINGLY. 34. GROUND NO. 11 RELATES TO THE DISALLOWANCE OF CL AIM OF DEDUCTION OF PREMIUM ON REDEMPTION OF DEBENTURES ON PAYMENT BASI S AMOUNTING TO RS.22,32,075/- BY THE AO WHICH IS UPHELD BY THE CIT (A). THE LD. SENIOR COUNSEL STATED BEFORE US THAT THIS GROUND HAS BECOM E OTIOSE AS THE REVENUE HAS ALLOWED THE DEDUCTION TO THE ASSESSEE COMPANY OF PREMIUM ON REDEMPTION OF DEBENTURES ON ACCRUAL BASIS IN EARLIE R YEARS AND NO PREJUDICE IS CAUSED TO THE ASSESSEE COMPANY BY THE AFORE-STATED DISALLOWANCE AND HENCE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 72 THIS GROUND MAY BE DISMISSED AS OTIOSE BEING NOT PR ESSED. AFTER HEARING BOTH THE PARTIES, WE DISMISSED THIS GROUND AS NOT PRESS ED. 35. GROUND NO. 12 RELATES TO DISALLOWANCE OF PAYMEN T OF RS.65,456/- FOR SCHOOL AT VARVALA NEAR MITHAPUR , GUJARAT WHERE THE FACTORY OF THE ASSESEE COMPANY FOR MANUFACTURING AGROCHEMICAL AND SODA ASH IS SITUATED .THE ASSESSEE COMPANY CONSTRUCTED FEW ROOMS FOR A SCHOOL BUILDING AT IN VARWALA AREA NEAR MITHAPUR AS PART OF COMPANYS RURAL UPLIF TMENT PROGRAMME. THE ASSESSEE COMPANY SUBMITTED THAT THESE PAYMENTS WERE TOWARDS COMMUNITY WELFARE EXPENSES AND THE OWNERSHIP OF THE SCHOOL BU ILDING WAS PASSED TO SURPANCH GRAM PANCHAYAT . THE PEOPLE STAYING IN THE AREA ARE DIRECTLY OR INDIRECTLY CONNECTED WITH THE COMPANY FOR EMPLOYMEN T OR DAILY LIVELIHOOD AS FACTORY OF THE ASSESSEE COMPANY IS SITUATED AT MITH APUR AND HENCE THESE ARE EXPENSES INCURRED FOR BUSINESS AND ARE ALLOWABLE EX PENSES AS REVENUE EXPENSES. THE SAID EXPENSES WERE DISALLOWED AS REVE NUE EXPENDITURE BY AO AND CONFIRMED BY THE CIT(A) AS IN THE OPINION OF TH E AUTHORITIES BELOW , THE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY F OR THE BUSINESS OF THE ASSESSEE AND EVEN THE OWNERSHIP OF THE PROPERTY IS NOT WITH THE ASSESSEE. THE LD SENIOR COUNSEL OF THE ASSESSEE COMPANY STATE D BEFORE US AT OUTSET THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE COMPANY BY THE DECISION OF THE TRIBUNAL IN ASSESSEES COMPANY OWN CASE IN ITA NO 4442/MUM/98 FOR ASSESSMENT YEAR 1992-93 WHERE THE T RIBUNAL HAS DISMISSED THE APPEAL OF REVENUE BY HOLDING AS UNDER : THE CONTRIBUTION IS IN RESPECT OF THE SCHOOLS LOC ATED IN MITHAPUR WHERE THE ASSESSEES FACTORY IS SITUATED. THIS IS A STAFF WELFARE MEASURE AND CANNOT BE CONSIDERED AS AMOUNTS TO BE DISALLOWED U/ S 40A(9) . THE FINDING OF THE CIT(A) AFTER GOING THROUGH THE DETAI LS OF EXPENSES IS THAT THEY ARE EITHER STAFF WELFARE MEASURES OR LEGITIMAT E BUSINESS EXPENSES AND ARE HENCE ALLOWABLE AS DEDUCTION. THE DECISION OF THE RASSI CEMENT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 73 LIMITED VS. ITO (45 ITD 233) ALSO SUPPORTS THE VIEW TAKEN BY THE CIT(A) BECAUSE, THE ASSESSEE DOES NOT APPEAR TO HAVE ANY C ONTROL OVER THE RECIPIENTS OF THE AMOUNTS. WE , THEREFORE, UPHOLD T HE DECISION OF THE CIT(A) AND DISMISS THE GROUND. IT IS ALSO SUBMITTED BY THE LEARNED SENIOR COUNSEL THAT THE HONBLE BOMBAY HIGH COURT HAS IN THE CASE OF THE ASSESSEE I N ITA NO. 1089 OF 2000 IN CIT V. TATA CHEMICALS LIMITED HAS HELD IN F AVOUR OF THE ASSESSEE THAT THESE EXPENSES ARE ALLOWABLE EXPENSES. AFTER HEARING BOTH THE PARTIES AND RESPECTFULLY FOL LOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE IN ITA 4442/MUM/98 FOR ASSESSMENT YEAR 1992-93 AS ALSO HONBLE BOMBAY HIGH COURT IN ITA NO. 1089 OF 2000 IN THE ASSESEES OWN CASE, WE HOLD THAT THE SE EXPENSES OF RS.65,456/- ARE ALLOWABLE AS REVENUE EXPENSES OF THE COMPANY. W E ORDER ACCORDINGLY. 36. GROUND NO. 13 AND 15 RELATES TO DISALLOWANCES U /S 40A(9) OF THE ACT. THE DETAILS ARE AS UNDER: I)PAYMENTS TO SCHOOLS(STAFF WELFARE EXPENSES) A) NUTAN BALSIKSHAN SANGH RS. 3,50,000/- B) KINDERGARTEN PRIMARY SCHOOL RS.2,46,000/- C) MITHAPUR KAMDAR CLUB RS.10,000/- D) FOUNDERS DAY CELEBRATION RS.43,980/- E) SIKSHAN SAMMAN SAMMITTEE RS.1,000/- F) MITHAPUR CLUB RS.3,000/- G) FLAG DAY CELEBRATION RS.1,385 II) TATA SPORTS CLUB RS.1,10,639/- ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 74 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORDS. WE HAVE ADJUDICATED THIS GROUND IN THE PRE CEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND O UR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THESE GROUND IN ITA NO. 4568/MUM/2003 FOR THE ASSESSMENT YEAR 1990-91 AS TH E ISSUE IS IDENTICAL . WE ORDER ACCORDINGLY. 37. GROUND NO.14 RELATES TO DISALLOWANCE BY AO AND AS SUSTAINED BY THE CIT(A) OF VARIOUS PAYMENTS AGGREGATING TO RS.1,66,5 50/- TO VARIOUS INSTITUTIONS /ASSOCIATIONS MADE BY THE ASSESSEE COM PANY WHICH WERE CONSIDERED AS DONATIONS BY THE AUTHORITIES BELOW. A T THE OUTSET , LD. SENIOR COUNSEL SUBMITTED THAT HE IS PRESSING FOR ALLOWABIL ITY OF PAYMENT OF RS.1,00,000/- MADE TO ASSOCIATED CHAMBERS OF COMMER CE AND INDUSTRY (ASSOCHAM) . THE LD. SENIOR COUNSEL SUBMITTED THAT GROUND OF APPAL OF THE ASSESSEE COMPANY WITH RESPECT TO THE BALANCE PAYMEN TS OF RS.66,550/- TO VARIOUS INSTITUTIONS / ASSOCIATIONS MADE BY THE ASS ESSEE COMPANY MAY BE DISMISSED AS NOT PRESSED. WE, AFTER HEARING BOTH TH E PARTIES , ACCORDINGLY DISMISS THE GROUND OF APPEAL RELATING TO PAYMENTS O F RS.66,550/- TO VARIOUS INSTITUTIONS / ASSOCIATIONS MADE BY THE ASSESSEE CO MPANY AS NOT BEING PRESSED. NOW COMING BACK TO PAYMENT OF RS.1,00,000/- MADE TO ASSOCHAM AND CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, IT WAS SUBMITTED BY THE ASSESSEE COMPANY BEFORE THE AUTHORITIES BELOW THAT ASSOCHAM IS A PREMIER APEX BODY OF ALL COMMERCIAL AND INDUSTRIAL ESTABLIS HMENTS AND THE ASSESSEE COMPANY IS MEMBER OF ASSOCHAM AND CONTRIBUTION IS M ADE BY THE ASSESSEE COMPANY TOWARDS EXPENSES ON STUDY UNDERTAKEN TO ANA LYSE CERTAIN ASPECTS OF RURAL ECONOMICS AND INTERNATIONAL COMPETITIVENESS S TUDY BENEFICIAL TO ALL THE MEMBERS OF INDUSTRY AND COMMERCE AND THESE EXPENSES ARE BUSINESS EXPENSES AND ALLOWABLE AS REVENUE EXPENDITURE. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 75 THE LD. SENIOR COUNSEL REITERATED ITS SUBMISSIONS BEFORE US AS MADE BEFORE AUTHORITIES BELOW WHILE LD. DR RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD, IN OUR CONSIDERED VIEW , THE SECTION 37(1) OF THE A CT, INTER-ALIA, MANDATES THAT THE EXPENSES SHALL BE ALLOWABLE AS REVENUE EXPENDIT URE IF THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND IN THIS CASE THE ASSESSEE COMPANY HAS MADE PAYMENT OF RS.1, 00,000/- TO ASSOCHAM TOWARDS CONTRIBUTION FOR STUDY UNDERTAKEN TO ANALYSE CERTAIN ASPECTS OF RURAL ECONOMICS AND INTERNATIONAL COMPET ITIVENESS STUDY BENEFICIAL TO ALL THE MEMBERS OF INDUSTRY AND COMMERCE AND THE SE STUDIES MAY BRING BENEFITS TO THE ASSESSEE COMPANY BUT THE CONNECTION /NEXUS OF THE BENEFIT LIKELY TO BE BESTOWED IN FAVOUR OF THE ASSESSEE COM PANY AND THE STUDY BEING UNDERTAKEN BY ASSOCHAM BEING TOO REMOTE , IT COULD NOT BE SAID THAT THE EXPENSES FALLS WITH IN THE FOUR CORNERS OF THE MAND ATE OF SECTION 37(1) OF ACT AND ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSES OF THE BUSINESS AND HENCE THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDI TURE TO THE ASSESSEE COMPANY AS MANDATE OF SECTION 37(1) OF THE ACT IS N OT FULFILLED AND THIS GROUND OF APPEAL OF THE ASSESSEE COMPANY IS DISMISS ED AND THE ORDERS OF THE CIT(A) IS UPHELD. WE ORDER ACCORDINGLY. 38. GROUND NO 16(I) RELATES TO DISALLOWANCE OF EXPE NSES ON ISSUE OF CONVERTIBLE DEBENTURES AMOUNTING TO RS.2,10,200/- . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECOR DS . WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567 /MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 456 7/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 45 68/MUM/2003 FOR THE ASSESSMENT YEAR 1990-91 AS THE ISSUE IS IDENTICAL . ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 76 GROUND NO 16(II) RELATES TO DISALLOWANCE OF WRITE O FF OF RS. 20,00,000/- BEING ADVANCE BY ASSESSEE COMPANY TO CBS GRAMOPHONE COMPA NY. THE AO DISALLOWED THE EXPENSES AS THESE ARE LOANS AND ADVA NCES AND NOT TRADE DEBT AND ALSO THE ASSESSEE COMPANY IS NOT A BANKING COMP ANY AND HENCE IT CAN NOT BE ALLOWED AS BAD DEBT. THE ASSESSEE COMPANY DU RING THE FIRST APPEAL BEFORE THE CIT(A) SUBMITTED THAT THE IN 1982 , THE ASSESSEE COMPANY GAVE ADVANCE TO CBS GRAMOPHONE RECORDS AND TAPES LIMITED (HEREINAFTER CALLED THE CBS. THE CBS WAS NOT DOING WELL AND INCURRING LOSSES CONTINUOUSLY AND NOT IN A POSITION TO PAY BACK THE ADVANCE . THE SAI D COMPANY CBS APPROACHED BIFR AND AS PER SCHEME OF REHABILITATION APPROVED BY BIFR , ALL CREDITORS WERE ASKED TO FOREGO THEIR CLAIMS AND HE NCE THE ASSESSEE COMPANY ALSO WROTE OFF THE AMOUNT. THE ADVANCE WAS GIVEN FO R BUSINESS AND SHOULD BE ALLOWED AS BUSINESS EXPENSES. THE CIT(A) REJECTED T HE CONTENTIONS OF THE ASSESSEE COMPANY AS THE ASSESSEE COMPANY HAS NOT C OMPLIED WITH THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. THE CI T(A) HELD THAT THE LOSS INCURRED BY THE ASSESSEE COMPANY HAS NO NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE COMPANY AND ALSO THE LOSS DID NOT A RISE DURING THE COURSE OF THE BUSINESS CARRIED ON BY IT AND IT WAS HELD TO BE CAPITAL LOSS AND HENCE THE LOSS WAS DISALLOWED AS THE SAME CANNOT BE CONSIDERE D AS THE REVENUE LOSS OR REVENUE EXPENDITURE. AGGRIEVED BY THE ORDERS OF THE CIT(A), THE ASSESSE E COMPANY IS IN APPEAL BEFORE US. THE LD. SENIOR COUNSEL SUBMITTED BEFORE US THAT ADVANCES WERE GIVEN WAY BACK IN 1982 AND NOW NO FURTHER DETAILS A RE AVAILABLE MATTER BEING OLD , APART FROM WHAT IS EMANATING FROM THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). THE LD. DR RELIED UPON THE ORDERS O F AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. IN THE ABSENCE OF ANY FURTHER DETAILS AVAILABLE WIT H THE ASSESSEE COMPANY AS CONTENDED BY THE SENIOR LD. COUNSEL OF THE ASSESSEE COMPANY AS STATED ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 77 ABOVE, WE ARE PROCEEDING TO DECIDE THE MATTER ON TH E BASIS OF AVAILABLE RECORDS. THE PRIMARY ONUS IS ON THE ASSESSSEE COMPA NY TO JUSTIFY THE PURPOSE OF GIVING ADVANCE AND ITS NEXUS WITH THE BUSINESS O F THE ASSESSEE COMPANY WHICH THE ASSESSEE COMPANY IN THIS CASE IS NOT ABLE TO BRING ON RECORD. THIS ADVANCE OF RS.20,00,000/- IS ALSO NOT A TRADE DEBT OR IT IS NOT THE CASE OF THE ASSESSEE WHEREBY THE INCOME ARISING FROM THESE ADVA NCES WAS EARLIER INCLUDED IN THE RETURNED INCOME FOR EARLIER ASSESSM ENT YEAR AND DUE TAXES PAID TO THE REVENUE. IN VIEW OF THE ABOVE, WE ARE O F THE CONSIDERED VIEW THAT THE ASSESSEE COMPANY IS NOT ENTITLED FOR CLAIMING T HE SAID AMOUNT OF RS.20,00,000/- WRITTEN OFF OF ADVANCE TO THE CBS TH E SAME CANNOT BE CONSIDERED AS REVENUE EXPENDITURE OR REVENUE LOSS N EITHER INGREDIENTS OF SECTION 36(1)(VII) OF THE ACT ARE FULFILLED. THIS G ROUND OF THE ASSESSEE COMPANY IS DISMISSED AND ORDERS OF THE CIT(A) IS UPHELD. WE ORDER ACCORDINGLY. GROUND NO 16(III) RELATES TO THE WRITE OFF OF FLOAT GLASS PROJECT EXPENSES TO THE TUNE OF RS.1,75,000/- . THE ASSESSEE COMPANY SUBMIT TED BEFORE THE AUTHORITIES BELOW THAT IT INTENDED TO EXPAND ITS AC TIVITY AND INCURRED A SUM OF RS.1,75,000/- FOR CONDUCTING PRELIMINARY STUDY AND FEASIBILITY REPORT FOR SETTING UP FLOAT GLASS PROJECT . HOWEVER , DUE TO C IRCUMSTANCES BEYOND CONTROL THE PROJECT DID NOT MATERIALIZE AND THE ASSESSEE CO MPANY ABANDONED ITS PROJECT AND THE EXPENSES WERE WRITTEN OFF AS REVEN UE EXPENDITURE IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER DISALLOWED THE EXPENSES AS THE FLOAT GLASS PROJECT WAS NOT A PART OF EXISTING BUSINESS O F THE ASSESSEE COMPANY AND CANNOT BE ALLOWED AS REVENUE EXPENDITURE BEING FOR A NEW PROJECT . THE CIT(A) ALSO DISALLOWED THE SAME BY HOLDING THAT THE EXPEND ITURE INCURRED HAS NO NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE COMPANY. THE PROJECT WAS ABANDONED AND HENCE EXPENDITURE INCURRED IS A CAPIT AL LOSS AND THE ACTION OF THE AO WAS UPHELD. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 78 AGGRIEVED THE ASSESSEE COMPANY IS IN APPEAL BEFORE US . THE LD. SENIOR COUNSEL SUBMITTED BEFORE US THAT THE FLOAT GLASS IS MADE OF THE RAW MATERIAL I.E. SODA ASH PRODUCED BY THE ASSESSEE COMPANY. IT WAS DECIDED TO START THE BUSINESS AS FORWARD INTEGRATION IN THE SAME AREA WH ERE THE EXISTING FACTORY OF THE ASSESSEE COMPANY IS SITUATED AND THUS FLOAT GL ASS BUSINESS IS A SAME BUSINESS AS THE ASSESSEES COMPANY EXISTING BUSINES S BEING FORWARD INTEGRATION AND IS MERELY AN EXTENSION OF THE EXIST ING BUSINESS AS SODA ASH PRODUCED PRESENTLY BY THE ASSESSEE COMPANY WOULD HA VE BEEN USED AS RAW MATERIAL BY THE FLOAT GLASS PROJECT FOR MAKING FLOA T GLASS . THE FLOAT GLASS PROJECT WAS ABANDONED AND THE EXPENSES OF RS.1,75,0 00/- INCURRED BY THE ASSSESSEE COMPANY ON PRELIMINARY STUDY AND PREPARAT ION OF FEASIBILITY STUDY FOR ABANDONED FLOAT GLASS PROJECT IS RIGHTLY WRITTE N OFF IN THE BOOKS OF ACCOUNTS AND CLAIMED AS REVENUE EXPENDITURE. THE LD. SENIOR COUNSEL RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF ITS CONTENTIOSN: A) DCIT V. ASSAM ASBESTOS LIMITED (2003) 263 ITR 357(G AUHATI) B) IBM WORLD TRADE CORP. V. CIT 186 ITR 412 (BOM.) C) COROMANDEL FERTILIZERS 247 ITR 417(AP) D) CAMA HOTELS LIMITED 38 TTJ 21(TAHD) E) GRAPHITE INDIA LTD. 221 ITR 0420(CAL.) F) INDO RAMA SYNTHETICS INDIA LIMITED 185 TAXMAN 277(D EL.) G) UNITED BREWERIES LTD. 231 CTR 28(KAR.) H) USHA ALLOYS AND STEELS LIMITED 55 ITD 418(CAL.) LD DR RELIED UPON THE ORDERS OF THE AUTHORITIES BEL OW. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 79 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE PE RUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBS ERVED THAT THE ASSESSEE COMPANY IS INTO THE PRODUCTION OF AGROCHEMICALS , S ODA ASH AND DETERGENT BUSINESS . WE REFERRED TO WIKIPEDIA FOR UNDERSTANDI NG THE MANUFACTURING PROCESS OF FLOAT GLASS WHICH IS AS UNDER : MANUFACTURE FLOAT GLASS USES COMMON GLASS-MAKING RAW MATERIALS , TYPICALLY CONSISTING OF SAND , SODA ASH ( SODIUM CARBONATE ), DOLOMITE , LIMESTONE , AND SALT CAKE ( SODIUM SULFATE ) ETC. OTHER MATERIALS MAY BE USED AS COLOURANTS, REFINING AGENTS OR TO ADJUST THE PHYSIC AL AND CHEMICAL PROPERTIES OF THE GLASS. THE RAW MATERIALS ARE MIXE D IN A BATCH PROCESS, THEN FED TOGETHER WITH SUITABLE CULLET (WASTE GLASS), IN A CONTROLLED RATIO, INTO A FURNACE WHERE IT IS HEATED TO APPROXIMATELY 1500 C. COMMON FLAT GLASS FURNACES ARE 9 M WIDE, 45 M LONG, AND CONTAIN MORE THAN 1200 TONS OF GLASS. ONCE MOLTEN, THE TEMPERATURE OF THE GLASS IS STABILISED TO APPROXIMATELY 1200 C TO ENSURE A HOM OGENEOUS SPECIFIC GRAVITY . THE MOLTEN GLASS IS FED INTO A 'TIN BATH', A BATH O F MOLTEN TIN (ABOUT 34 M WIDE, 50 M LONG, 6 CM DEEP), FROM A DELIVERY CANAL AND IS POURED INTO THE TIN BATH BY A CERAMIC LIP KNOWN AS THE SPOUT LIP. [5] THE AMOUNT OF GLASS ALLOWED TO POUR ONTO THE MOLTEN TIN IS CONTROLLED B Y A GATE CALLED A TWEEL. TIN IS SUITABLE FOR THE FLOAT GLASS PROCESS BECAUSE IT HAS A HIGH SPECIFIC GRAVITY, IS COHESIVE, AND IS IMMISCIBLE WITH MOLTEN GLASS. TIN, HOWEVER, OXIDISES IN A NATURAL ATMOSPHERE TO FORM TIN DIOXIDE (SNO 2 ). KNOWN IN THE PRODUCTION PROCESS AS DROSS, THE TIN D IOXIDE ADHERES TO THE GLASS. TO PREVENT OXIDATION, THE TIN BATH IS PROVID ED WITH A POSITIVE PRESSURE PROTECTIVE ATMOSPHERE OF NITROGEN AND HYDROGEN . ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 80 THE GLASS FLOWS ONTO THE TIN SURFACE FORMING A FLOA TING RIBBON WITH PERFECTLY SMOOTH SURFACES ON BOTH SIDES AND OF EVEN THICKNESS. AS THE GLASS FLOWS ALONG THE TIN BATH, THE TEMPERATURE IS GRADUALLY REDUCED FROM 1100 C UNTIL AT APPROXIMATELY 600 C THE SHEET CAN BE LIFTED FROM THE TIN ONTO ROLLERS. THE GLASS RIBBON IS PULLED OFF THE BA TH BY ROLLERS AT A CONTROLLED SPEED. VARIATION IN THE FLOW SPEED AND R OLLER SPEED ENABLES GLASS SHEETS OF VARYING THICKNESS TO BE FORMED. TOP ROLLERS POSITIONED ABOVE THE MOLTEN TIN MAY BE USED TO CONTROL BOTH TH E THICKNESS AND THE WIDTH OF THE GLASS RIBBON. ONCE OFF THE BATH, THE GLASS SHEET PASSES THROUGH A LEHR KILN FOR APPROXIMATELY 100 M, WHERE IT IS COOLED GRADUALLY S O THAT IT ANNEALS WITHOUT STRAIN AND DOES NOT CRACK FROM THE TEMPERA TURE CHANGE. ON EXITING THE 'COLD END' OF THE KILN, THE GLASS IS CUT BY MACHINES. THUS, AS CAN BE SEEN ABOVE FLOAT GLASS IS MADE OF R AW MATERIAL CONSISTING OF SODA ASH AND OTHER MATERIALS AS DETAILED ABOVE. THE ASSESSEE COMPANY IS MANUFACTURER OF SODA ASH WITH ITS FACTORY AT MITHAP UR, GUJARAT. THE COMPANY PROPOSED TO SET UP FLOAT GLASS PROJECT AS FORWARD I NTEGRATION WHEREBY ITS EXISTING FINISHED PRODUCT I.E. SODA ASH COULD BE UT ILIZED AS RAW MATERIAL IN THE FLOAT GLASS UNIT , THUS IT COULD BE SAID THAT THE P ROPOSED FLOAT GLASS PROJECT WAS EXTENSION OF THE EXISTING BUSINESS BEING FORWAR D INTEGRATION. THE ASSESSEE COMPANY SPENT RS.1,75,000/- TOWARDS PRELIM INARY STUDIES AND FEASIBILITY REPORT FOR THE SAID PROPOSED PROJECT OF FLOAT GLASS BUT THE SAID PROJECT WAS ABANDONED BY THE ASSESSEE COMPANY AND N O CAPITAL ASSET HAS BEEN CREATED AND THE SAID EXPENSES ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND CLAIMED AS REVENUE EXPENDITURE . THUS, IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THESE EXPENSES OF RS.1,75,0 00/- TOWARDS PRELIMINARY STUDIES AND PREPARATION OF FEASIBILITY REPORT WITH RESPECT TO PROPOSED FLOAT ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 81 GLASS PROJECT WHICH WAS EXTENSION OF THE ASSESSEE B USINESS BUT WAS ABANDONED AND NO CAPITAL ASSET BEING CREATED AND TH ESE EXPENSES BEING WRITE OFF IN THE BOOKS OF THE ACCOUNTS ARE REVENUE EXPEND ITURE ALLOWABLE AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS OF T HE ASSESSEE COMPANY. OUR VIEW IS FORTIFIED BY THE DECISIONS RELIED UPON BY THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY AS DETAILED ABOVE. WE ALLOW TH E APPEAL OF THE ASSESSEE COMPANY ON THIS GROUND AND HOLD THAT THE EXPENSES O F RS.1,75,000/- INCURRED BY THE ASSESSEE COMPANY ON PRELIMINARY STU DIES AND PREPARATION OF FEASIBILITY REPORT OF FLOAT GLASS PROJECT WHICH WAS EXTENSION OF THE ASSESSEES COMPANY EXISTING BUSINESS BEING FORWARD INTEGRATION BUT WAS ABANDONED AND THESE EXPENSES BEING WRITTEN OFF IN THE BOOKS OF AC COUNTS ARE REVENUE EXPENSES AND ARE DEDUCTIBLE AS BUSINESS EXPENSES WH ILE COMPUTING INCOME FROM BUSINESS OF THE ASSESSEE COMPANY .WE ORDER ACC ORDINGLY. 39. GROUND NO. 17 RELATES TO DISALLOWANCE OF SCIENT IFIC RESEARCH EXPENSES RELATING TO FISHERIES AND PRAWN CULTURE AMOUNTING T O RS.13,51,103/-. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARA S IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND O UR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4568/MUM/2003 FOR THE ASSESSMENT YEAR 1990-91 AS TH E ISSUE IS IDENTICAL . 40. GROUND NO. 18(I) OF THE ASSESSEES APPEAL RELAT ES TO THE REDUCTION IN ALLOWANCE U/S 80HHC AS THE ASSESSING OFFICER HAS IN CLUDED PROCEEDS FROM SALE OF SCRAP/WASTE IN THE TOTAL TURNOVER WHILE C OMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. THE GROUND NO 18(II) (A) AND (B) RELATES TO NON- INCLUSION OF THE INTEREST INCOME EARNED DURING THE COURSE OF BUSINESS FROM SUNDRY ADVANCES TO BUSINESS ASSOCIATES, TO SUPPLIER S, TO SUBSIDIARY COMPANIES AND TO STAFF MEMBERS UNDER THE HEAD BUSI NESS AND PROFESSION THEREBY REDUCING THE RELIEF U/S 80HHC AND NOT APPRE CIATING THAT THE INTEREST ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 82 INCOME IS INEXTRICABLY LINKED TO THE ASSESSEE COMPA NY BUSINESS AND AS SUCH SHOULD GO TO REDUCE THE INTEREST EXPENSES. /-. WE H AVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/ 2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 456 7/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 45 68/MUM/2003 FOR THE ASSESSMENT YEAR 1990-91 AS THE ISSUE IS IDENTICAL . ITA NO. 4467/MUM/2003(REVENUES APPEAL)-ASSESSMENT YEAR 1990-91 41.GROUND NO. 1 IN REVENUES APPEAL RELATES TO DISA LLOWANCE OF RS.5,53,078 BEING ENTERTAINMENT EXPENSES ON SUBSIDIZED FOOD COU PONS DELIVERED TO STAFF. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PA RAS IN ITA NO. 4466/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND O UR DECISION IN ITA 4466/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4467/MUM/2003 FOR ASSESSMENT YEAR 1990-91 AS THE IS SUE IS IDENTICAL . 42. GROUND NO 2 OF THE REVENUES APPEAL RELATES TO REDUCTION OF DISALLOWANCE FROM RS.300000 TO RS.1,00,000/- BY THE CIT(A) BEING PAYMENTS MADE BY THE ASSESSEE COMPANY TO TATA SERVICES LIMITED TOWARDS EXPENSES REIMBURSEMENT. WE HAVE CONSIDERED THE RIVAL CONTENT IONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4466/MUM/2003 FOR THE ASSESSMENT YEAR 19 89-90 AND OUR DECISION IN ITA 4466/MUM/2003 SHALL APPLY MUTATIS M UTANDIS TO THIS GROUND IN ITA NO. 4467/MUM/2003 FOR THE ASSESSMENT YEAR 19 90-91 AS THE ISSUE IS IDENTICAL . ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 83 43. IN THE RESULT WITH RESPECT TO APPEALS FOR ASSES SMENT YEAR 1990-91, THE APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLO WED AND APPEAL FILED BY THE REVENUE IS DISMISSED IN THE MANNER AFORESAID. ITA NO. 4569/MUM/2003(ASSESSEES APPEAL) -ASSESSMEN T YEAR 1991-92 44. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF EXP ENSES INCURRED ON GUEST HOUSE TOTALLING TO RS.32,40,664/- DETAILS OF WHICH IS AS UNDER: A) SALARIES, WAGES TO STAFF RS.10,43,173/- B) REPAIRS AND RENOVATION EXPENSES RS.5,17,394/- C) FOOD EXP.(NET OF RECOVERIES) RS.13,75,744/- D) DEPRECIATION RS.3,04,353/- -------------------- TOTAL RS.32,40,664/- --------------------- THIS GROUND WAS PRESSED BY LD. SENIOR COUNSEL OF TH E ASSESSEE COMPANY ONLY TO THE EXTENT OF FOOD EXPENSES AMOUNTING TO RS.13,7 5,744/- AND STATED THAT THE REST OF DISALLOWANCE MAY BE UPHELD AND THE APPE AL OF THE ASSESSEE COMPANY MAY BE DISMISSED AS NOT PRESSED TO THE EX TENT OF DISALLOWANCES OF EXPENSES OTHER THAN FOOD EXPENSES. WE HAVE CONSIDE RED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS .WE HAVE ADJUD ICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR ASSES SMENT YEAR 1989-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY M UTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR ASSESSMENT YEAR 1991-92 AS THE ISSUE IS IDENTICAL . WE ORDER ACCORDINGLY. ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 84 45. GROUND NO 2 OF THE ASSESSEES COMPANY APPEAL RE LATES TO DISALLOWANCE OF BHANWAD PROSPECTING AND SURVEY EXPENSES AMOUNTING T O RS.1,90,864/- . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORDS . WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PA RAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND O UR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR ASSESSMENT YEAR 1991-92 AS THE IS SUE IS IDENTICAL .WE ORDER ACCORDINGLY 46. GROUND NO. 3 OF THE ASSESSEES APPEAL RELATES T O THE DISALLOWANCE OF RS.65,24,743/- BEING PROVISION FOR EMPLOYEES PENDIN G SETTLEMENT OF THEIR DEMANDS. THE LD. SENIOR COUNSEL STATED THAT THE ASS ESSEE COMPANY IS NOT PRESSING THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED AS THE SAID AMOUNT WAS ALLOWED ON PAYMENT BASIS IN ASSESSM ENT YEAR 1992-93. AFTER HEARING BOTH THE PARTIES , THIS GROUND IS DIS MISSED BEING NOT PRESSED. WE ORDER ACCORDINGLY. 47. GROUND NO. 4 RELATES TO DISALLOWANCE OF RS. 14, 022/- BEING EXPENDITURE INCURRED AT THE TIME OF AGM. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS .WE HAVE ADJUDICAT ED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE A SSESSMENT YEAR 1989- 90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPL Y MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR THE ASSESS MENT YEAR 1991-92 AS THE ISSUE IS IDENTICAL .WE ORDER ACCORDINGLY. 48. GROUND NO. 5 RELATES TO DISALLOWANCE OF DELHI O FFICE EXPENSES AMOUNTING TO RS.15,000/- . WE HAVE CONSIDERED THE RIVAL CONTE NTIONS AND PERUSED THE MATERIAL ON RECORDS .WE HAVE ADJUDICATED THIS GROU ND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 19 89-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS M UTANDIS TO THIS GROUND ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 85 IN ITA NO. 4569/MUM/2003 FOR THE ASSESSMENT YEAR 19 91-92 AS THE ISSUE IS IDENTICAL . 49. GROUND NO. 6 RELATES TO THE DISALLOWANCE OF DEP RECIATION ON FOREIGN EXCHANGE FLUCTUATION LOSS CAPITALIZED IN THE BOOKS OF ACCOUNTS AMOUNTING TO RS.2,55,763/- AS EXPENDITURE. WE HAVE CONSIDERED TH E RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS . WE HAVE ADJUDICA TED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE A SSESSMENT YEAR 1989- 90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPL Y MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR THE ASSESS MENT YEAR 1991-92 AS THE ISSUE IS IDENTICAL .WE ORDER ACCORDINGLY. 50. THE GROUND NO 7 RELATES TO DISALLOWANCE OF FORE IGN TRAVEL EXPENSES AMOUNTING TO RS.8,74,702/-. THE BREAK UP OF THE SAM E IS GIVEN IN ANNEXURE-1 OF THE CHART FILED BEFORE US. THE CONTENTIONS OF LD . SENIOR COUNSEL IS THAT THESE EXPENSES ARE INCURRED WITH RESPECT TO COMPANI ES EXISTING BUSINESS FOR FERTILIZER PROJECT AND THESE BUSINESS EXPENSES SHOU LD BE ALLOWED AS REVENUE EXPENDITURE . WE HAVE CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE MATERIAL ON RECORDS .FOR THE AMOUNT OF RS.8,74,702 /- STATED TO BE SPENT FOR BUSINESS PURPOSES , WE HOLD THAT WE HAVE ADJUDICAT ED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE A SSESSMENT YEAR 1989- 90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPL Y MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR THE ASSESS MENT YEAR 1991-92 AS THE ISSUE IS IDENTICAL . 51. GROUND NO. 8 & 10 RELATES TO DISALLOWANCES U/S 40A(9) OF THE ACT. THE DETAILS ARE AS UNDER: I)PAYMENTS TO SCHOOLS(STAFF WELFARE EXPENSES) A) NUTAN BALSIKSHAN SANGH RS.4,90,000/- B) KINDERGARTEN PRIMARY SCHOOL RS.2,46,000/- ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 86 C) MITHAPUR KAMDAR CLUB RS.8,000/- D) RASHTRIYA SHALA,RAJKOT RS.1,000 II)PAYMENT TO TATA SPORTS CLUB RS.1,42,040 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORDS.WE HAVE ADJUDICATED THIS GROUND IN THE PREC EDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND O UR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR THE ASSESSMENT YEAR 1991-92 AS TH E ISSUE IS IDENTICAL . WE ORDER ACCORDINGLY. 52. GROUND NO.9 RELATES TO DISALLOWANCE BY AO AND A S SUSTAINED BY THE CIT(A) OF VARIOUS PAYMENTS AGGREGATING TO RS.3,17618/- TO VARIOUS INSTITUTIONS / ASSOCIATIONS MADE BY THE ASSESSEE COMPANY WHICH WER E CONSIDERED AS DONATIONS BY THE AUTHORITIES BELOW. AT THE OUTSET , LD. SENIOR COUNSEL SUBMITTED THAT HE IS PRESSING FOR ALLOWABILITY OF PAYMENT OF RS.50,000/- MADE TO NATIONAL COUNCIL OF APPLIED ECONOMIC RESEAR CH AND PAYMENT OF RS.1,00,000/- MADE TO NATIONAL ORGANISING COMMITTEE POLYMERS-91 . THE LD. SENIOR COUNSEL SUBMITTED THAT GROUND OF APPAL OF TH E ASSESSEE COMPANY WITH RESPECT TO THE BALANCE PAYMENTS OF RS.1,67,618/- T O VARIOUS INSTITUTIONS / ASSOCIATIONS MADE BY THE ASSESSEE COMPANY MAY BE DI SMISSED AS NOT PRESSED. AFTER HEARING BOTH THE PARTIES, WE ACCORDI NGLY DISMISS THE GROUND OF APPEAL RELATING TO PAYMENTS OF RS.167618/- TO VARI OUS INSTITUTIONS / ASSOCIATIONS MADE BY THE ASSESSEE COMPANY AS NOT BE EN PRESSED. NOW COMING BACK TO PAYMENT OF RS.50,000/- MADE TO N ATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH(NCAER) AND PAYMENT OF RS. 1,00,000/- MADE TO NATIONAL CHEMICAL LABORATORY -NATIONAL ORGANISING C OMMITTEE POLYMERS- 91(NOCP-91) FOR ORGANISING POLYMER-91 AND CLAIMED A S REVENUE EXPENDITURE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 87 BY THE ASSESSEE COMPANY, IT WAS SUBMITTED BY THE AS SESSEE COMPANY BEFORE THE AUTHORITIES BELOW THAT SUM OF RS.50,000/- IS CO NTRIBUTED TOWARDS THE CORPUS FUND OF NCAER , A PREMIER RESEARCH INSTITUTE AND FROM THE INCEPTION TATAS ARE ASSOCIATED WITH NCAER AND RS.1,00,000/- WAS CONTRIBUTED TO THE NATIONAL CHEMICAL LABORATORY , PUNE WHO CONDUCTED A MAJOR SEMINAR ON POLYMERS AT NATIONAL LEVEL AND A SUM OF RS.1,00,000 /- WAS CONTRIBUTED . THE ASSESSEE COMPANY SUBMITTED BEFORE THE CIT(A) THAT T HE ASSESSEE IS ONE OF THE LEADER IN POLYMER INDUSTRY AND THE SEMINAR HAS HELP ED THE ASSESSEE AND THESE EXPENSES ARE BUSINESS EXPENSES AND ALLOWABLE AS REVENUE EXPENDITURE. THE CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY AND TREATED THESE CONTRIBUTION AS DONATIONS OR CONTRIBUTIONS HA VING NO NEXUS WITH THE BUSINESS OF THE ASSSESSEE COMPANY . THE LD SENIOR COUNSEL OF THE ASSESSEE COMPANY REITE RATED ITS SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW AND THE LD. DR RE LIED UPON THE ORDERS OF AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD, IN OUR CONSIDERED VIEW , THE SECTION 37(1) OF THE A CT MANDATES , INTER-ALIA, THAT THE EXPENSES SHALL BE ALLOWABLE AS REVENUE EXP ENDITURE IF THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND IN THIS CASE THE ASSESSEE COMPANY HAS PAID A SU M OF RS.50,000/- TO NCAER TOWARDS THE CORPUS FUND OF NCAER AND IT WAS SUBMITTED THAT TATAS ARE ASSOCIATED WITH NCAER FROM INCEPTION AND NCAER BEING PREMIER RESEARCH INSTITUTE BUT THE CONNECTION OF ASSOCIATIO N OF THE ASSESSEE COMPANY WITH NCAER AND THE BENEFIT ACCRUING FROM THIS PAYME NT OF RS.50,000/- TOWARDS CORPUS FUND OF NCAER BEING TOO REMOTE , IT COULD NOT BE SAID THAT THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF THE BUSINESS AND HENCE THE SAME CANNOT BE ALLOWED AS REVENUE EXP ENDITURE TO THE ASSESSEE COMPANY AS MANDATE OF SECTION 37(1) OF THE ACT IS NOT FULFILLED AND ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 88 THIS GROUND OF APPEAL IS DISMISSED AND WE UPHOLD TH E ORDERS OF THE CIT(A) AND SUSTAIN THE DISALLOWANCE TO THE EXTENT OF RS.50,000 /- . WE ORDER ACCORDINGLY. WITH RESPECT TO PAYMENT MADE BY THE ASSESSEE COMPAN Y OF RS.1,00,000/- TO T NATIONAL CHEMICAL LABORATORY -NATIONAL ORGANISING C OMMITTEE POLYMERS- 91(NOCP-91) FOR ORGANISING POLYMER-91 WHO CONDUCTED A MAJOR SEMINAR ON POLYMERS AT NATIONAL LEVEL AND THE ASSESSEE COMPANY BEING A LEADER IN POLYMER INDUSTRY HAS HELPED THE ASSESSE COMPANY , W E ARE OF CONSIDERED VIEW AFTER HEARING BOTH THE PARTIES AND PERUSING THE MAT ERIAL ON RECORD, THAT THERE IS A CLEAR AND DIRECT NEXUS EMERGING THAT THE AFORE -STATED EXPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSESSEE COMPANY A S THE ASSESSEE COMPANY HAS CONTRIBUTED THIS AMOUNT OF RS.1,00,000/- TOWAR DS SEMINAR EXPENSES IN THE FIELD OF POLYMERS CONDUCTED BY NATIONAL CHEMICA L LABORATORY AND THE ASSESSEE COMPANY BEING ONE OF THE MARKET LEADERS IN POLYMER , THERE IS A DIRECT NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE C OMPANY AND THE AFORE- STATED EXPENSES BEING INCURRED WHICH ARE FOR WHOLLY AND EXCLUSIVE FOR THE BUSINESS OF THE COMPANY AND MANDATE OF SECTION 37(1 ) OF THE ACT IS FULLY SATISFIED AND WE ALLOW THE SAID EXPENSES OF RS.1,00 ,000/- AS REVENUE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSES OF THE BUSINESS OF THE ASSESSEE COMPANY AND DEDUCTIBLE WHILE COMPUTING INCOME FROM BUSINESS. HENCE, THIS GROUND OF APPEAL IS ALLOWED AND THE ORD ERS OF THE CIT(A) IS SET ASIDE. WE ORDER ACCORDINGLY. 53. GROUND NO. 11 RELATES TO SUNDRY CONTRIBUTIONS U /S 40A(9) OF THE ACT BEING PAYMENT TO FORT MEDICAL SOCIETY AMOUNTING TO RS.8,8 0,003/- . IT IS STATED BY THE LD. SENIOR COUNSEL OF THE ASSESSEE COMPANY THAT THIS ISSUE IS SQUARELY COVERED IN THE ASSESSEES COMPANY OWN CASE IN ITA N O. 4465/MUM/2003 FOR THE ASSESSMENT YEAR 1987-88, ITA NO. 4564/MUM/2003 FOR ASSESSMENT YEAR 1986-87 AND ITA NO. 5728 FOR ASSESSMENT YEAR 1996-9 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 89 TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 5728 /MUM/2004 AT PAGE 3 PARA 5 FOR ASSESSMENT YEAR 1996-97 HAS HELD AS UNDE R: 5. THE NEXT GROUND IS AGAINST THE DISALLOWANCE ON PAYMENTS MADE TO FORT MEDICAL SOCIETY. THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 1995 -96 IN THE ASSESSEES OWN CASE. RESPECTFULLY FOLLOWING THE SAME WE ALLOW THIS GROUND OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE TRIBUNAL DECISION IN THE OTHER ASSESSMENT YEARS, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE COMPANY AND ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESEE COMPANY . WE ORDER ACCORD INGLY. 54. GROUND NO. 12(I) OF THE ASSESSEES APPEAL RELAT ES TO THE REDUCTION IN ALLOWANCE U/S 80HHC OF THE ACT AS THE ASSESSING OFF ICER HAS INCLUDED PROCEEDS FROM SALE OF SCRAP/WASTE IN THE TOTAL TUR NOVER WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. THE GROUND NO 12(II) (A) AND (B) RELATES TO NON-INCLUSION OF THE INTEREST INCOME EARNED DURI NG THE COURSE OF BUSINESS FROM SUNDRY ADVANCES TO BUSINESS ASSOCIATES, TO SUP PLIERS, TO SUBSIDIARY COMPANIES AND TO STAFF MEMBERS UNDER THE HEAD BUSI NESS AND PROFESSION THEREBY REDUCING THE RELIEF U/S 80HHC OF THE ACT A ND NOT APPRECIATING THAT THE INTEREST INCOME IS INEXTRICABLY LINKED TO THE A SSESSEE COMPANY BUSINESS AND AS SUCH SHOULD GO TO REDUCE THE INTEREST EXPENS ES. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON R ECORDS .WE HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4567/MUM/2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 4567/MUM/2003 SHALL APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 4569/MUM/2003 FOR THE ASSESSMENT YEAR 1991-92 AS THE ISSUE IS IDENTIC AL . ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 90 55. THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 80M OF THE ACT AMOUNTING TO RS.17,94,26,250 , DETAILS AND WORKIN G OF WHICH ARE GIVEN AT PARA 21 PAGE 6 OF THE ASSESSMENT ORDER DATED 17-3-1 994 U/S 143(3) OF THE ACT WHICH DEDUCTION IS REDUCED TO RS.16,20,85,373/- BY THE AO, AGAIN DETAILS AND WORKING OF WHICH ARE GIVEN AT PARA 21 PAGE 8 OF THE ABOVE-STATED ASSESSMENT ORDER. THE LD. SENIOR COUNSEL SUBMITTED AT THE OUTSET STATED BEFORE US THAT THE ASSESSEE COMPANY IS NOT PRESSING FOR THIS GROUND OF APPEAL AND THE SAME MAY BE DISMISSED AS NOT PRESSED. AFTER HEARING BOTH THE PARTIES, THIS GROUND IS DISMISSED AS NOT PRESSED. WE ORDER ACCORDINGLY. ITA NO. 4468/MUM/2003(REVENUES APPEAL) ASSESSMENT YEAR 1991-92 56. GROUND NO. 1 IN THE REVENUES APPEAL RELATES TO DISALLOWANCE OF RS.7,37,330 BEING ENTERTAINMENT EXPENSES ON SUBSIDI ZED FOOD COUPONS DELIVERED TO STAFF. WE HAVE CONSIDERED THE RIVAL CO NTENTIONS AND PERUSED THE MATERIAL ON RECORDS .WE HAVE ADJUDICATED THIS GROU ND IN THE PRECEDING PARAS IN ITA NO. 4466/MUM/2003 FOR THE ASSESSMENT YEAR 19 89-90 AND OUR DECISION IN ITA 4466/MUM/2003 SHALL APPLY MUTATIS M UTANDIS TO THIS GROUND IN ITA NO. 4468/MUM/2003 FOR THE ASSESSMENT YEAR 19 91-92 AS THE ISSUE IS IDENTICAL . 57. GROUND NO 2 OF THE REVENUES APPEAL RELATES TO REDUCTION BY THE CIT(A) OF DISALLOWANCE FROM RS.40,000 TO RS.15,000 BEING PAY MENTS MADE TO TATA SERVICES LIMITED FOR EXPENSES REIMBURSEMENTS. WE HA VE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS .W E HAVE ADJUDICATED THIS GROUND IN THE PRECEDING PARAS IN ITA NO. 4466/MUM/ 2003 FOR THE ASSESSMENT YEAR 1989-90 AND OUR DECISION IN ITA 446 6/MUM/2003 SHALL ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 91 APPLY MUTATIS MUTANDIS TO THIS GROUND IN ITA NO. 44 68/MUM/2003 FOR THE ASSESSMENT YEAR 1991-92 AS THE ISSUE IS IDENTICAL . 58. GROUND NO. 3 RELATES TO EXPENDITURE OF RS.40,95 ,278/- INCURRED BY THE ASSESSEE ON THE ISSUE OF BONUS SHARES BEING DISALLO WED BY THE ASSESSING OFFICER AND ALLOWED BY THE CIT(A). THE LD. SENIOR COUNSEL SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN CIT V. GENERAL INSURANCE CORPORATION (2006) 286 ITR 232(SC) WHEREB Y EXPENDITURE INCURRED IN CONNECTION WITH THE ISSUE OF BONUS SHARES ARE HE LD TO BE ALLOWABLE AS REVENUE EXPENDITURE AS IT WAS HELD BY HONBLE SUPRE ME THAT ISSUANCE OF BONUS SHARES DOES NOT RESULT IN ANY INFLOW OF FRESH FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, THE CAPITAL EMPLOYED REMAINS THE SAME. ISSUANCE OF BONUS SHARES BY CAPITALIZATION OF RESERVES IS MERELY A RE ALLOCATION OF COMPANY'S FUND.THERE IS NO INFLOW OF FRESH FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, WHICH REMAINS THE SAME. IF THAT BE SO, THEN IT CANN OT BE HELD THAT THE COMPANY HAS ACQUIRED A BENEFIT OR ADVANTAGE OF ENDU RING NATURE. THE TOTAL FUNDS AVAILABLE WITH THE COMPANY WILL REMAIN THE SA ME AND THE ISSUE OF BONUS SHARES WILL NOT RESULT IN ANY CHANGE IN THE C APITAL STRUCTURE OF THE COMPANY WHEREBY RESERVES WHICH ARE PART OF COMPANIE S OWN CAPITAL IS CAPITALIZED AND CONVERTED INTO SHARE CAPITAL WHICH MEANS THAT THE AGGREGATE OF SHARE CAPITAL AND RESERVE PRIOR TO ISSUE OF BONU S SHALL REMAIN SAME EVEN AFTER ISSUE OF BONUS SHARES. ISSUE OF BONUS SHARES DOES NOT RESULT IN THE EXPANSION OF CAPITAL BASE OF THE COMPANY AND HENCE THE EXPENSES INCURRED ARE HELD TO BE REVENUE EXPENDITURE.. THE LD. SENIOR COUNSEL ALSO SUBMITTED THAT THE ISS UE IS ALSO COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 4564/MUM/2003 FOR ASSESSMENT YEAR 1986-87 WHEREIN THE TRIBUNAL HAS HE LD AT PARA 7-9 PAGE 3-4 AS UNDER: ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 92 7.GROUND NO 2 RELATES TO DISALLOWANCE OF RS.1,12, 500/- BEING THE PAYMENT MADE TO REGISTRAR OF COMPANIES FOR INCREASE IN AUTHORISED SHARE CAPITAL OF THE COMPANY. 8. THE AO HAS DISCUSSED THIS ISSUE AT PARA-8 PAGE-4 OF HIS ORDER. THE SAME HAS BEEN CONSIDERED BY THE LD. CIT(A) AT P ARA -29 PAGE 95 OF HIS ORDER. IT IS THE SAY OF THE COUNSEL THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS. GENERAL INSURANCE CORPORATION OF INDIA 286 ITR 232. 9. WE HAVE CAREFULLY PERUSED THE ORDER OF THE HONB LE SUPREME COURT WHEREIN THE HONBLE SUPREME COURT HAS HELD TH AT EXPENDITURE INCURRED IN CONNECTION WITH ISSUANCE OF BONUS SHARES IS REVENUE EXPENDITURE AS ISSUANCE OF BONUS SHARES DOES NOT RESULT ANY INFLOW OF FRESH FUNDS OR INCREASE IN CAP ITAL EMPLOYED , THE CAPITAL EMPLOYED REMAINS THE SAME. ISSUE OF BON US SHARES DOES NOT RESULT IN THE EXPANSION OF THE CAPITAL BAS E OF THE COMPANY. THUS THE EXPENDITURE INCURRED IN CONNECTION WITH IS SUANCE OF BONUS SHARES IS REVENUE EXPENDITURE. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE HAS MADE PAYMENT OF RS.1,12,500/- TO THE REGISTRAR OF COMPANIES IN RELATION TO ISSUE OF BONU S SHARES. FACTS BEING IDENTICAL , RESPECTFULLY FOLLOWING THE DECISI ON OF THE HONBLE SUPREME COURT(SUPRA), WE DIRECT THE AO TO ALLOW THE EXPENSES OF RS.1,12,500/- . GROUND NO.2 IS ACCORDINGLY ALLOWED. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORDS. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN CIT V. GENERAL INSURANCE CORPORATION (2006)286 ITR 232(SC) AND ASSESSEE OWN CASE AS STATED ABOVE , WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE AN D HOLD ITA 4466 , 4467 & 4468/MUM/2003 AND ITA 4567,4568 & 4569/MUM/2003 TATA CHEMICALS LIMITED 93 THAT EXPENDITURE OF RS.40,95,278/- INCURRED BY THE ASSES SEE ON THE ISSUE OF BONUS SHARES IS REVENUE EXPENDITURE .WE ORDER ACCORDINGLY. 59. IN THE RESULT WITH RESPECT TO APPEALS FOR ASSES SMENT YEAR 1991-92, THE APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLO WED AND APPEAL FILED BY THE REVENUE IS DISMISSED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2015. !' # $% &! ' ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 8 MUMBAI ; &! DATED 10.11.2015 [ PS: POOJA K ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 9 () / THE CIT(A)- CONCERNED, MUMBAI 4. 9 / CIT- CONCERNED, MUMBAI 5. <=( >>?@ , ?@ , $ 8 / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. ' / BY ORDER, < > //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR)