Atlas Copco (India) Ltd., Pune V. DCIT, Cir.-8, Pune

ITA 448/PUN/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59978 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 22-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Keywords: Capital asset; Business income; Depreciation; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 80HHC; 14A; 133(6); 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR,JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 448/PN10 (ASSTT. YEAR 2001-02) ATLAS COPCO (INDIA) LTD., .. APPELLANT SVEANAGAR, DAPODI, PUNE- 411 012 PAN AAACA 4074D VS. DY. COMMISSIONER OF INCOME-TAX, . . RESPONDENT CIR. 8, PUNE ITA NO 409/PN/2010 (ASSTT. YEAR 2001-02) DY. COMMISSIONER OF INCOME-TAX, .. APPELLANT CIR. 8, PUNE VS. ATLAS COPCO (INDIA) LTD., .. RES PONDENT PUNE- 411 012 ASSESSEE BY: SHRI PERCY PARDIWALA DEPARTMENT BY: SHRI HARESHWAR SHARMA DATE OF HEARING: 23.12.2011 DATE OF PRONOUNCEMENT: 30.01.2012 ORDER PER G S PANNU, AM: THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE ARISE OU T OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, P UNE DATED 31.12.2009, WHICH IN TURN, HAVE ARISEN FROM THE ORDER DATED 31.3.2004 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOM E-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2001 -02. BOTH THE CROSS APPEALS ARE DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE SHALL FIRST TAKE UP ASSESSEES APPEAL, VIDE ITA NO 44 8/PN/10. IN ITS APPEAL, ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.(A) THE LD CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE U/S 14A OF THE INCOME-TAX ACT, 1961 TO THE EXTENT OF RS 275,850/-. (B) HE ERRED IN OBSERVING THAT THE AO CANNOT B E FAULTED FOR ESTIMATING THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCO ME. 2. (A) THE LD CIT(A) ERRED IN CONFIRMING THE DISALL OWANCE OF ADVANCES WRITTEN OFF OF RS 100,000/-. (B) HE ERRED IN OBSERVING THAT THE APPELLANT DID NOT CONTEST THE FACT THAT THE AMOUNT WAS CAPITAL IN NATURE AND WAS NOT ALLOWABLE AS A BAD DEBT. 3. THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS 272,628/- BEING REPAIRS TO FACTORY BUILDING. 4. THE LD CIT(A) ERRED IN CONFIRMING THE EXCLUSION OF 90% OF FOLLOWING RECEIPTS FROM PROFIT OF BUSINESS FOR THE PURPOSE OF DEDUCTIO N U/S 80HHC OF THE I.T. ACT, 1961: NATURE OF RECEIPT AMOUNT IN RS. SERVICE CHARGES 40,025,643 SALE OF MANUALS 615 TECHNICAL FEES RECEIVED FROM REVATHI CP 1,500,000 TRAINING CHARGES 75,900 PROFESSIONAL FEES RECEIVED FROM BHAGWATI FOUNDRIES 1,771,000 3. BEFORE US, AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.1 OF THE APPEAL AND, THEREFORE, THE SA ME STANDS DISMISSED FOR NON-PROSECUTION. 4. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS 1,00, 000/- BEING ADVANCES WRITTEN-OFF UNDER THE HEAD MISCELLANEOUS EXPEN SES, WHICH IS THE SUBJECT MATTER OF DISPUTE IN GROUND NO. 2. THE SAID AM OUNT REPRESENTED AN INTER-CORPORATE DEPOSIT GIVEN TO ONE M/S VITARA CHEMI CALS LTD. WHICH ACCORDING TO THE ASSESSEE, COULD NOT BE RECOVERED DUE TO B AD FINANCIAL CONDITION OF THE PARTY AND WAS WRITTEN-OFF. THE ASSESSING OFFICER DISALLOWED THE CLAIM HOLDING THAT SUCH LOSS WAS NOT INCURRED IN THE N ORMAL COURSE OF BUSINESS AND THAT THE ADVANCE WAS CAPITAL IN NATURE. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE CONTENDED T HAT THE AMOUNT WRITTEN OFF WAS ALLOWABLE AS A BUSINESS LOSS UNDER SECTION 28 OF THE ACT AS IT WAS INCURRED IN THE NORMAL COURSE OF BUSINESS. HOWEVER, T HE COMMISSIONER OF INCOME-TAX (APPEALS) DID NOT FIND ANY SUBSTANCE IN THE A FORESAID SUBMISSION OF THE ASSESSEE, AND SUSTAINED THE ADDITION, AGAINST WHI CH ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POIN TED OUT THAT SIMILAR CLAIM FOR THE ASSESSMENT YEAR 2000-01 WAS SUBJECT MATTER O F CONSIDERATION BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NOS 4335 & 3132/MUM/04 DATED 19.11.2010 AND THE ASSESSEES CLAIM HAS BEEN ALLOWE D. IT WAS SUBMITTED THAT EVEN IN THE EARLIER YEAR, THE CLAIM RE LATED TO AN INTER-CORPORATE DEPOSIT (ICD) PLACED WITH THE VERY SAME CONCERN I.E. M/ S VITARA CHEMICALS LTD. AS IS THE CASE IN THIS YEAR, THEREFORE, THE CLAIM OF THE ASSESSEE BE ALLOWED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, APPEARI NG FOR THE REVENUE, HAS NOT CONTROVERTED THE AFORESAID FACTUAL MATRIX BROUG HT OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, BUT HAS RELIED UPON THE ORDER S OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RELEVANT RECORD. IN ASSESSMENT YEAR 2000-01, THE T RIBUNAL IN ITS ORDER DATED 19.11.2010 (SUPRA) HAS CONSIDERED THE ALLOWABILI TY OF THE WRITE-OFF OF ADVANCE GIVEN TO M/S VITARA CHEMICALS LTD. IN THE FOLLO WING WORDS: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE SEEN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE AND IN CLAUSE 17 OF THE OTHER OBJECTS CLAUSE PERMITS THE ASSESSEE TO ENGAGE IN THE BUSINESS OF LENDING MONEY OF THE COMPANY NOT IMMEDIATELY REQUIRED. IT IS FURTHER SEEN THAT THE A SSESSEE HAS BEEN SYSTEMATICALLY AND PERIODICALLY MAKING ICDS. AT PAGE 201 OF THE ASSESS EES PAPER BOOK WE FIND THAT ASSESSEE HAS DURING THE PERIOD FROM APRIL, 1999 TO OCTOBER 1999 MADE INTER CORPORATE DEPOSITS TOTALING RS 4,08,23,117/-. THE I CDS WERE MADE IN ABOUT 15 COMPANIES. THE INTEREST EARNED ON ICDS HAS BEEN REG ULARLY OFFERED TO TAX AS BUSINESS INCOME. IN THIS REGARD WE HAVE SEEN HE ASSESSMENT O RDERS IN ASSESSEES CASE FOR AY 1999-2000 AND 1998-99, WHEREIN THE INTEREST INCOME HAS BEEN OFFERED AS BUSINESS INCOME AND TAX ACCORDINGLY. IN VIEW OF THE ABOVE, W E ARE OF THE VIEW THAT THE FINDINGS OF THE CIT(A) THAT ASSESSEE WAS ENGAGED IN THE BUSI NESS OF MAKING ICDS HAS TO BE UPHELD. IT IS FURTHER SEEN THAT THE COMPANY M/S VIT ARA CHEMICALS LTD. BECAME A SICK COMPANY. THE ASSESSEE FILED A CRIMINAL COMPLAINT U/ S 138 OF THE NEGOTIABLE INSTRUMENT ACT AGAINST M/S VITARA CHEMICALS LTD., B UT THE SAME DID NOT BARE ANY RESULT. M/S VITARA CHEMICALS WAS DECLARED AS SICK C OMPANY UNDER THE SICK INDUSTRIES SPECIAL PROVISIONS ACT. IN THE ABOVE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE THAT IT HAD INCURRED A BUSINESS LOS S TO THE EXTENT OF RS 48.00 LACS U/S 28 OF THE ACT HAS TO BE ACCEPTED. EVEN OTHERWISE AS LAID DOWN BY THE HONBLE DELHI BENCH OF THE ITAT IN THE CASE OF POYSHA OXYGEN PVT. LTD. V. ACIT (2008) 19 SOT 711 (DEL) MONEYS LENT Y WAY OF ICDS WAS A LOAN TRANSACT ION AND REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING AN D, THEREFORE, ALLOWABLE AS DEDUCTION U/S 36(1)(VII) R.W.S. 36(2)(A) OF THE ACT . IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO. 4 RAISED BY THE REVENUE. 8. FOLLOWING THE SAID PRECEDENT AS THE FACTS AND CIRCUMSTAN CES ARE IDENTICAL IN THIS YEAR, WE ARE OF THE VIEW THAT THE A SSESSEES CLAIM OF LOSS OF RS 1,00,000/- ARISING ON ACCOUNT OF WRITE-OFF OF THE ADVA NCES GIVEN TO M/S VITARA CHEMICALS LTD. IS ALLOWABLE AS A BUSINESS LOSS UNDER SECTION 2 8 OF THE ACT. PERTINENTLY, THE TRIBUNAL HAS ALSO HELD THAT IN THE ALTERNATIVE THE IMPUGNED CLAIM IS ALSO ALLOWABLE AS A BAD DEBT WITHIN THE MEANIN G OF SECTION 36(1)(VII) READ WITH SECTION 36(2)(A) OF THE ACT. IN VIEW OF THE ABOVE, WE, THEREFORE, SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. RESUL TANTLY, GROUND NO. 2 RAISED BY THE ASSESSEE STANDS ALLOWED. 9. GROUND NO. 3 PERTAINS TO THE DISALLOWANCE OF RS 2,7 2,628/- BEING REPAIRS TO FACTORY BUILDING. THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS 2,45,035/- REPRESENTING PAYMENTS TO M/S SAGAR CONSTRUCTI ON ON THE PREMISE THAT THE EXPENDITURE INCURRED WAS IN THE NATURE OF CA PITAL EXPENDITURE RESULTING IN AN ENDURING BENEFIT AND, THEREFORE, IT COULD NOT BE ALLOWED AS A REVENUE EXPENDITURE. IN APPEAL, THE ASSESSEE CONTENDED THAT NO ENDURING BENEFIT WAS DERIVED FROM THE EXPENDITURE AS THE SAME WAS INCURRED ON REPAIR WORK CARRIED OUT TO STRENGTHEN AN EXISTING SHED IN THE FACTORY PREM ISES AND ADDITIONAL SET OF GAS CYLINDER FOR BETTER PROTECTION FROM RAINS AS WELL AS I NCREASING SECURITY. THE COMMISSIONER OF INCOME-TAX (APPEALS) DID NOT AGREE WITH THE ASSESSEE AS ACCORDING TO HIM, THE INVOICE DID NOT INDICATE THAT TH E NATURE OF WORK CARRIED OUT WAS MERELY IN THE NATURE OF REPAIRS AND MAINTENAN CE. HE ACCORDINGLY UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, AGA INST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 10. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RE FERRED TO PAGE 24 OF THE PAPER BOOK, INTER ALIA , CONTAINING WRITTEN SUBMISSIONS BEFORE THE LOWER AUTHORITIES AND ON THAT BASIS, IT IS SOUGHT TO BE POINTED OUT THAT THE IMPUGNED EXPENDITURE HAS NOT RESULTED IN ANY ENDURING BENEFIT TO THE ASSESSEE SO AS TO CONSTITUTE A CAPITAL EXPENDITURE. IT WAS P OINTED OUT THAT THE EXPENDITURE HAS NOT RESULTED IN CREATION OF ANY NEW ASSE T AND IS, THEREFORE, ALLOWABLE AS A REVENUE EXPENDITURE. IN SUPPORT OF HI S ARGUMENTS, RELIANCE HAS BEEN PLACED ON THE FOLLOWING JUDGMENTS: (I) STANDARD MILLS CO. LTD. V. CIT 181 233(BOM); (II) ADDL. CIT V INDIA UNITED MILLS LTD 141 ITR 399( BOM). 11. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE, APPEARING FOR THE REVENUE, HAS POINTED OUT THAT THE EXPENDITURE IN QUESTION WAS FOR ERECTION OF ADDITIONAL SHED FOR LPG GAS BANK AN D THEREFORE, THE SAME HAS BEEN RIGHTLY CONSIDERED AS A CAPITAL EXPENDITURE. 12. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW AND ALSO THE SUBMISSIONS PUT-FORTH BY THE ASSESSEE, COPIES OF WHICH H AVE BEEN PLACED ON RECORD. THE ASSERTION OF THE ASSESSEE HAS BEEN THAT AN EXPENDITURE OF RS 2,72,628/- CLASSIFIED AS REPAIRS TO FACTORY BUILDING, W AS INCURRED ON REPAIR WORK CARRIED OUT AT DAPODI FACTORY TO STRENGTHEN THE EXISTIN G SHED FOR LPG GAS BANK AND ADDITIONAL SET OF GAS CYLINDERS WITH THE PURPOSE OF BETTER PROTECTION FROM RAIN AS WELL AS INCREASED SECURITY. IN OUR VIEW, THE ASSESSE E IS RIGHT IN CONTENDING THAT UNDER THE ABOVE CIRCUMSTANCES, NO ENDURI NG BENEFIT RESULTS ON ACCOUNT OF SUCH EXPENDITURE INASMUCH AS AN EXISTING SHED H AS BEEN MERELY STRENGTHENED AND THEREFORE, THE EXPENSES ARE ONLY FOR REGULAR REPAIRS. IN THIS BACKGROUND, WE UPHOLD THE PLEA OF THE ASSESSEE THAT THE E XPENSE IS LIABLE TO BE TREATED AS REVENUE EXPENDITURE AND ACCORDINGLY THE D ISALLOWANCE SUSTAINED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IS LIABLE T O BE DELETED. WE HOLD SO. ON THIS GROUND, THE ASSESSEE SUCCEEDS. 13. GROUND NO. 4 RAISED BY THE ASSESSEE RELATES TO THE MA NNER OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN I TS GROUND, THE ASSESSEE HAS SPECIFICALLY ASSAILED THE EXCLUSION OF 90% OF TH E RECEIPTS ON ACCOUNT OF SERVICE CHARGES, SALE OF MANUALS, TECHNICAL FEE S RECEIVED FROM REVATHI CP, TRAINING CHARGES AND PROFESSIONAL FEES RECEI VED FROM BHAGWATI FOUNDRIES FROM THE PROFITS OF THE BUSINESS BY INVOKING EXPLANATION (BAA) FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS UPHELD THE STAN D OF THE ASSESSING OFFICER ON THE GROUND THAT THE SAME ARE NOT INCLUDIBL E IN THE EXPRESSION PROFITS OF THE BUSINESS AS APPEARING IN EXPLANATION (BAA) TO S ECTION 80HHC OF THE ACT, FOLLOWING THE REASONING OF THE JUDGMENT OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD 245 ITR 769 (BOM) AND ALSO OF THE DELHI TRIBUNAL IN THE CASE OF GL ASS INDIA LTD. V. ACIT 119 TTJ 173 (DEL). 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO THE PAPER BOOK AT PAGES 27 TO 32 TO EXPLAIN THE NATURE OF THE INCOMES IN QUESTION AND IT IS CONTENDED THAT THE SAME FORMED AN INTEGRAL P ART OF THE BUSINESS PROFITS AND, THEREFORE, THE SAME CANNOT BE EXCLUDED FR OM THE EXPRESSION PROFITS OF THE BUSINESS AS APPEARING IN EXPLANATION (B AA) TO SECTION 80HHC OF THE ACT. APART FROM AFORESAID, IT IS POINTED OUT, A SOM EWHAT SIMILAR ISSUE IN THE ASSESSMENT YEAR 1996-97 HAS BEEN RESTORED BY THE TRIBUNA L VIDE ITS ORDER IN ITA NO 1424/PN/07 DATED 30.11.2010 TO THE FILE OF T HE COMMISSIONER OF INCOME-TAX (APPEALS) TO DECIDE THE ISSUE AFRESH IN THE LI GHT OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PFIZER LTD. 42 DTR 32 (BOM). 15. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS DEFENDED THE ACTION OF THE LOWER AUTHORITIES BY POINT ING OUT THAT THE IMPUGNED INCOMES DO NOT CONSTITUTE OPERATIONAL INCOMES AND, THER EFORE, THE SAME HAVE BEEN RIGHTLY SUBJECTED TO THE EXCLUSIONS PRESCRIBED IN EXP LANATION (BAA) TO SECTION 80-HHC OF THE ACT FOR CALCULATING PROFITS OF TH E BUSINESS FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS. IN SO FAR AS EXCLUSION OF SERVICE CHARGES FROM PROFITS OF THE BUSINESS AS PER E XPLANATION (BAA) TO SECTION 80HHC IS CONCERNED, THE SAME HAS BEEN CONSIDERED BY OUR CO- ORDINATE BENCH IN THE ASSESSEES CASE VIDE ITS ORDER DATED 3 0.11.2010 (SUPRA) IN THE FOLLOWING WORDS: 10. AS PER THE REVENUE, THESE RECEIPTS DID NOT FOR M PART OF THE MAIN ACTIVITIES OF THE ASSESSEE AND THEREFORE THEY IS NOT TO BE INCLUD ED IN THE ELIGIBLE PROFITS OF TH BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE AC. ACCORDINGLY, CIT(A) DENIED THE BENEFIT OF DEDUCTION TO THE ASSESSEE. DU RING THE PROCEEDINGS BEFORE US, RELYING ON PAGE 1 OF THE PAPER BOOK, LD. COUNSEL AR GUED STATING THAT THE SAID AMOUNT STANDS EXCLUDED WHILE COMPUTING THE INCOME CHARGEAB LE TO TAX, IF THAT BE THE CASE, THE QUESTION OF REDUCING THE 90% OF THE SAID AMOUNT WHILE ARRIVING AT THE PROFITS OF THE BUSINESS IS PATENTLY ERRONEOUS. FURTHER, HE RELIED ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE M/S PFIZER LTD BEARING ITA N O 128 OF 2009 FOR THE PROPOSITION THAT THE INSURANCE RECEIPTS, INCIDENTAL TO THE STOC K IN TRADE ARE THE ELIGIBLE BUSINESS PROFITS. THIS JUDGMENT IS NOT AVAILABLE TO THE REVE NUE AUTHORITIES AS THE SAME IS DECIDED SUBSEQUENT TO THE ORDER OF THE CIT(A). MORE SO, IT IS NOT CLEAR FROM THE RECORDS WHERE THE REVENUE RECEIPTS RECEIVED ARE IN CONNECTION WITH THE STOCK IN TRADE OR THE CAPITAL ASSET. IT IS ALSO SEEN THAT THE TRIB UNAL IN PARA 8 OF ITS ORDER AS HELD THAT THE SAME INSURANCE RECEIPTS SHOULD NOT BE REDUCED F OR ARRIVING AT THE WDV FOR THE PURPOSE OF CLAIM OF DEPRECIATION. CONSIDERING THE O VERALL DEVELOPMENT SUBSEQUENT TO THE FIRST APPELLATE PROCEEDINGS AND ALSO IN VIEW OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S PFIZER LTD. (SUPRA), WE ARE OF THE OPI NION THAT THE MATTER SHOULD BE SET ASIDE TO THE FILES OF THE CIT(A) FOR DECIDING THE I SSUE AFRESH AFTER CONSIDERING ALL THE STATEMENTS AND THE RELEVANT FACTS I.E. PAGE 1 OF TH E PAPER BOOK, HIGH COURT JUDGMENT IN THE CASE OF M/S PFIZER LTD. (SUPRA) AND JURISDI CTIONAL BENCH OF BOMBAY HIGH COURT IN THE CASE OF DRESSER RAND INDIA P. LTD. ITA 2186 OF 2009 (HC) ORDER OF THE TRIBUNAL IN THE FIRST ROUND OF PROCEEDINGS AND IN OTHER JUDI CIAL DEVELOPMENTS THAT MAY BE RELEVANT TO THE ISSUE UNDER CONSIDERATION. ACCORDIN GLY, RELEVANT GROUNDS ARE SET ASIDE TO THE FILES OF THE CIT(A). FOLLOWING THE SAID PRECEDENT, ON THE ASPECT OF APPLICAT ION OF CLAUSE (1) OF THE EXPLANATION (BAA) OF SECTION 80-HHC TO SERVICE CHARGE S AND ALSO OTHER RECEIPTS IN QUESTION, WE SET ASIDE THE ORDER OF THE COM MISSIONER OF INCOME-TAX (APPEALS) AND REMIT THE MATTER BACK TO HIS FILE TO BE A DJUDICATED AFRESH IN LINE WITH THE DIRECTIONS OF OUR CO-ORDINATE BENCH (SUPRA) AN D THE JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD. (SUPRA) AND DRESSER RAND INDIA P LTD. (SUPRA). THE GROUND OF APPEAL IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED, AS ABOVE. 18. THE REVENUE IN ITS APPEAL HAS TAKEN UP THE FOLLOWI NG GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS 2,20,8 4,664/- MADE BY AO ON ACCOUNT PAYMENT OF COMMISSION BY THE ASSESSEE, WHEN THE ASSESSEE HAD FAILED IN HIS DUTY TO SHOW THAT THE SAID COMMISSION PAYMENTS WERE COMMENSURATE WITH THE SERVICES RENDERED AND ALSO IN IGNORING THE FACT THAT IN SOME CASES THE COMMISSION WAS PAID EVEN WHERE THE C USTOMERS WERE GOVT. AGENCIES WHICH IS AGAINST THE PUBLIC POLICY? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN ALLOWING ADDITIONAL EVIDENCE ON TH E ISSUE OF COMMISSION PAID WITHOUT ALLOWING THE AO TO PRESENT HIS POINT OF VIE W, MORE SO WHEN AMPLE OPPORTUNITY WAS PROVIDED TO THE ASSESSEE COMPANY DU RING ASSESSMENT PROCEEDINGS FOR THE RELEVANT AY AND THE ASSESSEE CO MPANY COULD NOT FULLY SUBSTANTIATE THE PAYMENT OF COMMISSION VIS--VIS CO MMERCIAL EXPEDIENCY, ACTUAL SERVICE RENDERED AND LACK OF SUBSTANTIVE PRO OF LIKE CORRESPONDENCE ETC. IN THIS REGARD? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN IGNORING THE FACT THAT THE INVOICE SUBMITTED BY THE ASSESSEE COMPANY DURING ASSESSMENT PROCEEDINGS STATED THE PR OCUREMENT OF SOFTWARE AS ACQUISITION OF MS SOFTWARE LICENSE, THEREBY DE LETING THE ADDITION MADE BY THE AO BY TREATING IT AS A CAPITAL EXPENDITURE U /S 32(1)(II) AND ALLOWING PROPORTIONATE DEPRECIATION? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS 21 ,91,994/- MADE BY THE AO U/S 36(1)(VA) AND 43B OF THE I.T. ACT, 1961 ON ACCO UNT OF LATE PAYMENT OF EMPLOYEES AND EMPLOYERS CONTRIBUTION TO PROVIDENT FUND? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS 21 ,91,994/- MADE BY THE AO U/S 36(1)(VA) AND 43B OF THE I.T ACT BY IGNORING TH E RATIO OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V GODAVARI SSK LT. RE PORTED IN 298 ITR 149 WHEREIN IT HAS BEEN HELD THAT PRIOR TO AY 2004-05 T HE PAYMENTS TOWARDS PF MADE BEYOND THE DUE DATE PRESCRIBED UNDER THE PF AC T COULD NOT BE ALLOWED NOTWITHSTANDING THE FACT THAT THE SAID PAYMENT HAS BEEN MADE BEFORE THE FILING OF RETURN? 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN NOT TREATING THE PROVISION FOR WAR RANTY AS CONTINGENT LIABILITY WHEN THE ESTIMATION OF THE PROVISION IS NOT DONE ON ANY SCIENTIFIC BASIS AND IS A MERE ESTIMATION WHICH IS CONTRARY TO THE RATIO OF HONBLE SCS DECISION IN THE CASE OF ROTORK CONTROLS INDIA (P) LT. V. CIT REPORT ED IN 314 ITR 62? 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN ALLOWING THE EXPENSES ON ACCOUNT O F CST LIABILITY, PERTAINING TO AY 92-93, IN THE YEAR UNDER CONSIDERATION WITHOUT A SCERTAINING THE NATURE OF LIABILITY I.E. WHETHER THE SAME IS IN THE NATURE OF PENALTY FOR INFRINGEMENT OF ANY LAW IN FORCE AT THAT POINT OF TIME.? 8. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS 2,17,3 8,129/- ON ACCOUNT OF STOCKS WRITTEN OFF WHEN THE SAME WAS A PROVISION AND WAS H ELD TO BE AN UNASCERTAINED LIABILITY BY THE AO? 9. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN NOT EXCLUDING FOREIGN EXCHANGE GAI N, MISCELLANEOUS RECEIPTS (SALE OF SCRAP, RISK INSURANCE RECOVERY, SUNDRY NEU TRAL REVENUE, RECOVERY OF DOUBTFUL ACCOUNTS, REFUND FROM CUSTOMS, INCOME DUE TO ORDER CANCELLATION & OTHERS) FROM ELIGIBLE BUSINESS PROFITS FOR THE PURP OSE OF CALCULATING DEDUCTION U/S 80HHC AS PER EXPLANATION (BAA) TO SEC. 80HHC OF THE I.T. ACT 1961? 19. THE BRIEF FACTS RELATING TO GROUND NO. 1 OF APPEA L ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ISSUED N OTICES UNDER SECTION 133(6) TO 17 RANDOMLY SELECTED PARTIES TO WHOM COMMISSION WAS STATED TO HAVE BEEN PAID BY THE ASSESSEE. OF THESE, RE PLIES FROM 12 PARTIES WERE RECEIVED. THE ASSESSING OFFICER ALSO CALLED FO R DETAILED INFORMATION REGARDING THE NAMES AND ADDRESSES, NATURE OF SERVICES RENDERED, PROOF OF PAYMENT OF COMMISSION ETC. FROM THE ASSESSEE, TO WHICH ASSESSEE SUBMITTED A DETAILED NOTE. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED THE COMMISSION FOR THE REASON THAT ASSESSEE FAILED TO PRODUCE ANY EVIDENCE OF ACTUAL SE RVICES RENDERED BY THE PARTIES, OR ANY CORRESPONDENCE BETWEEN THE PAYEES A ND THE ULTIMATE CUSTOMERS. ACCORDING TO THE ASSESSING OFFICER, THERE WAS NO EVIDENCE TO SHOW THAT THE COMMISSION PAYMENTS WERE COMMENSURATE WITH THE SERVICES RENDERED BY THE PAYEE AGENTS. HE ALSO FOUND THAT COMM ISSION WAS PAID EVEN WHERE THE CUSTOMERS WERE GOVERNMENT AGENCIES. ACCORDING TO THE ASSESSING OFFICER, THERE WAS NO SCOPE FOR PAYMENT OF COMMISSION IN GOVERNMENT CONTRACTS AND THUS, THE ASSESSEE FAILED TO DISCHARGE THE ONU S OF PROVING THE GENUINENESS OF COMMISSION PAYMENTS TO THE VARIOUS PARTIES. FOR ALL THE ABOVE REASONS, THE ASSESSING OFFICER DISALLOWED THE COMMISSION PAYM ENTS OF RS 2,20,84,664/-. AGAINST THIS ACTION, THE ASSESSEE WENT IN A PPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) AND FILED DETAILE D SUBMISSIONS TO SUBSTANTIATE IT CLAIM OF HAVING INCURRED EXPENDITURE BY WAY OF COMMISSION. 20. THE COMMISSIONER OF INCOME-TAX (APPEALS) CONSIDERED T HE ELABORATE AND EXHAUSTIVE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM A ND DELETED THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER. THE RELEVANT FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ARE EXTRACTED H EREINBELOW: 7. I HAVE CAREFULLY CONSIDERED THE REASONS CITED B Y THE AO IN THE ASSESSMENT ORDER FOR MAKING THE SAID DISALLOWANCE A ND ALSO TO THE APPELLANTS SUBMISSIONS. IN MY VIEW, THE APPELLANTS HAVE BEEN ABLE TO SUBSTANTIATE THEIR CLAIM OF COMMISSION PAYMENT. THE APPELLANTS HAD SUBMITTED DETAILED JUSTIFICATION FOR THE PAYMENTS. A MAJORITY OF THE PAYEES SELECTED RANDOMLY BY THE AO HAD CONFIRMED THE RECEI PT OF COMMISSION PAYMENT. THE AO HAS NOT RAISED ANY SERIOUS QUESTION S REGARDING THE VERACITY OF THE INFORMATION RECEIVED FROM THESE PARTIES. SIG NIFICANTLY, IN NO CASE PAYMENT WAS DENIED BY ANY PARTY (IN SOME CASES THER E WAS NO RESPONSE). THE AO ALSO ACKNOWLEDGES THAT THE PAYMENTS HAD BEEN MADE THROUGH CHEQUES. THERE IS NOTHING TO INDICATE THAT THE PART IES TO WHOM COMMISSION PAYMENTS WERE MADE WERE RELATED PARTIES OR THAT THE PAYMENTS WERE MADE OTHER THAN ON COMMERCIAL CONSIDERATION. UNDER THE C IRCUMSTANCES, IN MY VIEW, IT CANNOT BE SAID THAT THE APPELLANTS HAD FAI LED TO PROVIDE SUFFICIENT PROOF AND JUSTIFICATION FOR THE COMMISSION PAYMENTS. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED AND T HE ADDITION MADE IS DELETED. BEING AGGRIEVED BY THE DELETION OF THE ADDITION MADE BY THE COMMISSIONER OF INCOME-TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US. 21. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS REITERATED THE REASONS DETAILED BY THE ASSESSING OFFICER IN SUPPORT OF THE CASE OF THE REVENUE, WHICH HAVE ALREADY BEEN NOTED BY US IN PARA 19 ABOVE AND ARE NOT BEING REPEATED FOR THE SAKE OF BREVITY. WITH REGARD TO THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETING THE DISALL OWANCE, IT HAS BEEN ARGUED THAT THE OBJECTIONS RAISED BY THE ASSESSING OFFICER HAVE NOT BEEN ADDRESSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) A ND THAT THE ADDITION HAS BEEN DELETED ON GENERALIZED CONSIDERATIONS. 22. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE POINTED OUT THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO M ISTAKE IN DELETING THE ADDITION ON THE BASIS OF THE MATERIAL AND SUBMISSIO NS PUT-FORTH BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. IN THIS REGARD, RE FERENCE HAS BEEN MADE TO THE RELEVANT PAGES OF THE PAPER BOOK TO POINT OUT THE MATERIAL WHICH WAS PLACED BEFORE THE LOWER AUTHORITIES. OUR ATTENTION HAS BEEN DRAWN TO THE DETAILS OF THE COMMISSION PAID INDICATING THE NAME AND A DDRESS OF THE PARTIES TO WHOM COMMISSION IS PAID AS WELL AS THE COMPARATIVE CHART OF THE COMMISSION PAID FOR THE EARLIER TWO YEARS, COPIES OF WHICH HAVE BEEN PLACED AT PAGES 35 TO 39 OF THE PAPER BOOK. THE DETAILS OF CO MMISSION PAID LINKING IT TO THE SALES MADE DURING THE YEAR ALONG WITH THE COPI ES OF AGREEMENTS ENTERED WITH DEALERS ON A SAMPLE BASIS, ETC., HAS ALSO BEEN REFERR ED TO IN THE PAPER BOOK WHICH ARE PLACED AT PAGES 42 TO 181. IT HAS FURTHE R BEEN POINTED OUT THAT IN THE PAST YEARS ALSO IN THE ASSESSEES OWN CASE FOR ASSESSMEN T YEARS 1986- 87, 88-89, 91-92, 92-93, 03-94 AND 95-96 IN ITA NOS 5141, 5142/BOM/94, ITA NOS L7280 TO 7282/BOM/95, 1978/BOM/97, 3315/BOM/99 & 152/BOM/2003 AND ITA NO 4335/MUM/04 FOR ASSESSMENT YEAR 2000-01, THE TR IBUNAL HAD AN OCCASION TO DEAL WITH SIMILAR DISALLOWANCES OUT OF COMMISSION EXPENSES AND THE SAME HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE. IT I S FURTHER POINTED OUT THAT THE PRACTICE OF GIVING COMMISSION TO THE DEALERS/AGE NTS IN CONSIDERATION OF SERVICES RENDERED BY THEM HAS BEEN DULY RECOGNIZED BY TH E DEPARTMENT IN THE PAST AND IN THIS YEAR ALSO, THE EXPENDITURE HAS BEEN IN CURRED ON SIMILAR LINES. THEREFORE, ACCORDING TO HIM, THE COMMISSIONER OF INCOME- TAX (APPEALS) MADE NO MISTAKE IN DELETING THE IMPUGNED DISALLOWANCE. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. W E HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS T HE ASSESSEES WRITTEN SUBMISSIONS AND OTHER MATERIAL PLACED ON RECORD, WHICH HAS BEEN REFERRED TO IN THE COURSE OF THE HEARING BEFORE US. BRIEFLY PUT, AS PER THE MATERIAL ON RECORD, IT EMERGES THAT THE ASSESSEE COMPANY HAS CUSTOMERS SPRE AD ALL OVER INDIA AND IN ORDER TO SERVE SUCH CUSTOMERS AT VARIOUS LO CATIONS, ASSESSEE APPOINTS DEALERS FOR ITS VARIOUS PRODUCTS, NAMELY, COMPRE SSORS, CONSTRUCTION AND MINING EQUIPMENT, SPARES AND ACCESSORIES. IT HAS BEEN EXPLAINED THAT THE DEALERS ALSO UNDERTAKE DIRECT SALES AND ORDERS ARE ALSO B OOKED BY THE DEALERS AND PRODUCTS ARE INVOICED/SUPPLIED TO THE CUSTOMERS. ON TH E LATTER ACTIVITIES OF THE DEALER, ASSESSEE PAYS COMMISSION. IT HAS ALSO BEEN EXPLAI NED THAT THE DEALERS ARE MAINLY RESPONSIBLE FOR FOLLOW UP FOR THE Q UOTATIONS AND TO HELP THE COMPANY IN PROCURING THE ORDERS AND ALSO FOR EFFECTING R ECOVERIES AND COLLECTION OF C FORM ETC. EVEN WITH REGARD TO THE GO VERNMENT CUSTOMERS, ASSESSEES PERSONNEL AT THE REGIONAL OFFICES ARE SUPPORTED BY THE NETWORK OF DEALERS WHO ARE BASED AT A CLOSER LOCATION TO THE CUSTOMER S SITE. IN SUCH CASES, THE RESPONSIBILITY OF THE DEALER IS TO PROVIDE NECE SSARY LOGISTIC AND COMMUNICATION SUPPORT TO THE ASSESSEES STAFF. THE WARRANTY SERVICES OF THE PRODUCT, WHICH INCLUDE REGULAR SERVICE VISITS TO ENSURE SM OOTH OPERATION OF THE EQUIPMENT AT THE CUSTOMERS SITE IS ALSO ARRANGED THROU GH THE DEALER-ENGINEER AND AS A PART OF THE APPOINTMENT TERMS OF THE DEALERS, THEY ARE REQUIRED TO STOCK SUFFICIENT PARTS AT THEIR END, SO THAT TIMELY DELIVE RY OF PARTS AND SERVICES IS OFFERED. IN ORDER TO COMPENSATE THE DEALER FOR THE ABOVE SERVICES, THE ASSESSEE GIVES SERVICE COMMISSION TO COVER ALL THE COSTS THAT THE DEALER INCURS TOWARDS TRAVELLING, BOARDING AND LODGING, STOCKING OF PARTS AS WELL AS TRAINING OF THE PERSONNEL. 24. ALL THE AFORESAID FACTUAL ASPECTS OF THE MATTER HAVE NOT BEEN FOUND TO BE NON- EXISTENT BY THE EITHER OF THE AUTHORITIES BEL OW DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO NOT THE CASE OF THE REVENUE TH AT THE COMMISSION EXPENSES HAVE NOT BEEN REGULARLY INCURRED BY THE ASSESSEE AS IN THE PAST YEARS. IN FACT, ONE OF THE POINTS RAISED BY THE ASSESSING OFFICER IS WITH REGARD TO THE COMMISSION PAID TO DEALERS WHERE THE CUSTOMERS INCLU DE GOVERNMENT AGENCIES. IN THIS REGARD, WE FIND THAT THE ASSESSEE SPECIFI CALLY EXPLAINED IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH HAS BEEN PLACED 182-18 3 OF THE PAPER BOOK, THAT GENERALLY THE ORDERS RECEIVED FROM THE GOVE RNMENT AGENCIES ARE FROM THE REMOTE LOCATIONS, VIZ, BORDER ROADS ORGANIZA TION OR MINING CUSTOMERS FROM REMOTE LOCATIONS. THE COMPANY HAS ITS REGIONAL OFF ICES WITH ITS TEAM OF SALES AND SERVICE PERSONNEL WHO LOOK AFTER A LARGE AREA COVERING 4 TO 5 STATES AND THIS TEAM IS SUPPORTED BY THE NETWORK OF DEALERS WHO ARE LOCATED CLOSE TO THE REMOTE SITES OF THE CUSTOMERS. IN THIS SITUATION, THE DEALER RESPONSIBILITY FOR SUCH GOVERNMENT CUSTOMER IS TO PROVIDE LOGISTICS AND COMMUNI CATION SUPPORT FOR FOLLOW UP AND SECURING THE ORDERS FROM THE VARIOU S DEPARTMENTS, ETC. WE DO NOT FIND ANY MATERIAL ADVERSE TO THE AFORESAID EXP LANATION OF THE ASSESSEE. EVEN OTHERWISE, IT HAS BEEN POINTED OUT THAT COMMISSION PAYMENT TO DEALERS WITH RESPECT TO THE ORDERS FROM A GOVERNMENT AGENCY WAS A SUBJECT MATTER OF CONSIDERATION BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R ASSESSMENT YEAR 1985-86 VIDE ITA NO 114/M/03 DATED 25.7.2007. IN TH IS PRECEDENT, THE TRIBUNAL HAS ALLOWED THE DEDUCTION AFTER BEING SATISFI ED OF THE PRACTICE OF COMMISSION PAYMENT. IN THIS BACKGROUND OF THE MATTER, AND WITH NO ADVERSE MATERIAL ON RECORD, WE DO NOT FIND ANY MERIT IN THE OBJECTIONS RAISED BY THE ASSESSING OFFICER WITH REGARD TO COMMISSION PAYMENT TO DEAL ERS RELATING TO THE ORDERS FROM THE GOVERNMENT AGENCIES. AT THIS POINT, WE MAY ALSO OBSERVE THAT EVEN WITH REGARD TO THE VERIFICATION EXERCISE CARRIED O UT BY THE ASSESSING OFFICER, WE FIND NOTHING ADVERSE SO AS TO INFER THAT T HE IMPUGNED COMMISSION PAYMENTS WERE INGENUINE. THE ASSESSING OFFICER ISSUED SUMM ONS TO 17 RANDOMLY SELECTED PARTIES, OUT OF WHICH 12 REPLIES WERE RECEIVED AND 4 SUMMONS CAME BACK UNSERVED. IN RELATION TO ONE PARTY, NO RESPONSE WAS RECEIVED IN-SPITE OF SERVICE OF SUMMONS. WITH REGARD TO SU CH SOLITARY PARTY, LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 215 OF THE PAPER BOOK WHEREIN NECESSARY CONFIRMATION HAS BEEN PLACED, THOUGH TH E PARTY HAD NOT RESPONDED TO THE SUMMONS ISSUED BY THE ASSESSING OFFICER. I N FACT THE FACTUAL SCENARIO OF THE VERIFICATION EXERCISE WOULD REVEAL THAT O VERWHELMING NUMBER OF PARTIES RANDOMLY CHOSEN BY THE ASSESSING OFFICER HAS ACKNOWLE DGED THE COMMISSION PAYMENTS AND IN ANY CASE, THERE IS NO DENIAL O F THE PAYMENT IN ANY OF THE CASE. CONSIDERING THE ENTIRETY OF THE FACTS A ND CIRCUMSTANCES OF THE INSTANT YEAR AS ALSO THE PRECEDENT IN THE ASSESSEES OWN CASE WHEREIN THE PRACTICE OF PAYING COMMISSION TO DEALERS/AGENTS, STAND ESTAB LISHED, WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CONCLUSION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) OF HAVING DELETED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER. RESULTANTLY, GROUND NOS. 1 & 2 ARE D ISMISSED. 25. THE NEXT ISSUE RAISED IN THE APPEAL OF THE REVENUE PERTAINS TO THE DISALLOWANCE OF SOFTWARE EXPENSES. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER HELD THAT THE AMOUNT O F RS 11,08,961/- INCURRED ON PURCHASE OF MS OFFICE AND OTHER SOFTWARE PA CKAGES WAS NOT ALLOWABLE AS REVENUE EXPENDITURE AND THAT THE SAME AM OUNTED TO A LICENSE WITHIN THE MEANING OF SECTION 32(1)(II) ON WHICH ONLY DEPRECIATION WAS ALLOWABLE. THE ASSESSEE TOOK UP THE MATTER IN APPEAL BEF ORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 26. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), TH E ASSESSEE STATED THAT FOR THE FINANCIAL YEAR 2000-01, IT HAD INCURRED A SUM OF RS 11,08,961/- TOWARDS ACQUISITION OF MS OFFICE SOFTWARE LICENSE. ACCORDING TO THE ASSESSEE, IT HAD ONLY ACQUIRED RIGHT TO USE THE SOFTWARE AND NOT SOFTWARE PER SE AND THAT THE SOFTWARE LICENSE ACQUIRED BY THE COMPANY WAS APPLICA TION SOFTWARE AND NOT OPERATING SOFTWARE. IT WAS FURTHER CONTENDED THAT SOFTWARE EXPENSES WERE TOWARDS ACQUISITION OF MS OFFICE LICENSE (PROFESSIONAL & S TANDARD) WHICH WAS NOT CUSTOMIZED SOFTWARE AND COULD BE USED ONLY FOR LIMIT ED PURPOSE OR FOR LIMITED PERIOD. IT WAS, THEREFORE, CLAIMED THAT THE E XPENSES INCURRED WERE FULLY ALLOWABLE AS REVENUE EXPENDITURE AND FOR THIS, THE ASS ESSEE PLACED RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF AMWAY INDIA ENTERPRISES V DCIT AND SOL STAR INTERNATIONAL LTD. V. ACIT 111 ITD 112. 27. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE C OMMISSIONER OF INCOME-TAX (APPEALS) FOUND MERIT IN SUCH SUBMISSIONS. AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE HAD ONL Y ACQUIRED THE RIGHT TO USE THE SOFTWARE WHICH WAS APPLICATION SOFTWARE AND NOT CUSTOMIZED SOFTWARE USED FOR THE ASSESSEES CORE BUSINESS OF MANUFACTURE AND SALE OF MACHINE TOOLS. HE FURTHER STATED THAT SOFTWARE TECHNOLOG Y HAS BEEN EVOLVING VERY RAPIDLY, LEADING TO FREQUENT OBSOLESCENCE AND AS SUC H, INCAPABLE OF PROVIDING ANY ENDURING BENEFIT. IN THIS VIEW OF TH E MATTER, COMMISSIONER OF INCOME-TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO ALL OW SOFTWARE EXPENSES AS REVENUE EXPENDITURE, AGAINST WHICH, REVENUE IS IN APPEAL BEFORE US. 28. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL SIDES. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE COMMISSI ONER OF INCOME-TAX (APPEALS) ON THIS ASPECT. THE INSTANT ISSUE STANDS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE FOLLOWIN G JUDGMENTS: (I) CIT V VARINDER AGRO CHEMICALS LTD. 309 ITR 272 P &H); (II) CIT V SUNDARAM CLAYTON LTD. 321 ITR 69 (MAD) RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENTS, AND THE PARITY OF REASONING GIVEN THEREIN, WE AFFIRM THE DECISION OF THE COMMISSION ER OF INCOME-TAX (APPEALS) AND FIND NO MERIT IN THE REVENUES GROUND O F APPEAL. THIS GROUND IS ACCORDINGLY DISMISSED. 29. THE NEXT GRIEVANCE OF THE REVENUE IN GROUND NO. 4 & 5 IS THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED I N DELETING THE DISALLOWANCE OF RS 21,91,994/- MADE BY THE ASSESSING OFFICE R UNDER SECTION 36(1)(VA) OF THE ACT ON ACCOUNT OF LATE PAYMENT OF EMP LOYEES AND EMPLOYERS CONTRIBUTION TO PROVIDENT FUND. THE ASSESSING OFFICER MAD E THE DISALLOWANCE ON THE GROUND THAT THERE WAS DELAY BY THE ASSESSEE IN MA KING PAYMENTS OF BOTH EMPLOYEES AS WELL AS EMPLOYERS CONTRIBUTION TO P ROVIDENT FUND. ACCORDINGLY, FOR THE LAST PAYMENT OF EMPLOYEES CONTRIB UTION TOWARDS PROVIDENT FUND, DISALLOWANCE UNDER SECTION 36(1)(VA) AND UNDER SECT ION 43B OF THE ACT WAS MADE. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (AP PEALS) DELETED THE IMPUGNED ADDITION FOR THE FOLLOWING REASONS: 22. I HAVE GIVEN CAREFUL CONSIDERATION TO THE MATT ER. THE WEIGHT OF JUDICIAL OPINION AS IT PRESENTLY STANDS, WHICH HAS ALSO BEEN REFERRED B Y THE APPELLANT IN HIS WRITTEN SUBMISSIONS, IS IN FAVOUR OF THE VIEW THAT PAYMENTS MADE WITHIN GRACE PERIOD OF 5 DAYS (I.E. UPTO 20 TH OF FOLLOWING MONTH SHOULD BE ALLOWED) U/S 36(1)(VA ) HAVE TO BE REGARDED AS PAID WITHIN DUE DATE. SINCE THE APPEL LANT HAD MADE THE PAYMENTS WITHIN THE SAID DATES, THE EXPENDITURE WAS ALLOWABLE. 23. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED, THE ADDITION MADE ON THIS ACCOUNT IS DELETED. AGAINST THIS DECISION OF THE COMMISSIONER OF INCOME-TAX (A PPEALS), REVENUE IS IN APPEAL BEFORE US. 30. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIV E ASSAILED THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) BY PLACING RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND , THE LEARNED COUNSEL FOR THE ASSESSEE, DEFENDED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND SUBMITTED THAT THE IMPUGNED PAYMENT HAS BEEN MADE WITHIN THE GRACE PERIOD UNDER THE PROVIDENT FUND ACT. 31. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PA RTIES. WE FIND THAT THE ASSESSEE HAS MADE THE PAYMENT WITHIN THE GRACE PERIOD UNDER THE PROVIDENT FUND ACT AND THEREFORE, THE PAYMENT COULD B E REGARDED AS HAVING MADE WITHIN DUE DATE AS PER PROVISIONS OF SECTION 36(1) (VA) OF THE ACT. IN THIS VIEW OF THE MATTER, WE AFFIRM THE DECISION OF THE COM MISSIONER OF INCOME-TAX (APPEALS). AS A RESULT, GROUND NOS 4 & 5 OF THE REVENUE ARE DISMISSED. 32. THE NEXT ISSUE AGITATED IN GROUND NO. 6 OF REVENU ES APPEAL RELATES TO PROVISION FOR WARRANTY. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED, ON VERIFICATION OF THE BALANCE SHEET, THAT UNDER THE HEAD PROVISIONS, THE ASSESSEE HAD CREDITED BALANCE OF RS 2,3 9,30,903/- ON ACCOUNT OF WARRANTY PROVISION. THE ASSESSING OFFICER SHOW- CAUSED THE ASSESSEE TO FURNISH REASONS AND BASIS OF PROVISION MADE ON ACCO UNT OF WARRANTY WHICH WAS CLAIMED IN THE PROFIT & LOSS ACCOUNT. I N RESPONSE TO THIS, THE ASSESSEE SUBMITTED THAT WARRANTY PROVISION OF RS 25, 97,379/- PERTAINED TO ATLAS COPCO DIVISION, BUT STATED THAT DUE TO PAUCITY OF TIME, WARRANTY PROVISION OF CONSOLIDATED PNEUMATICS DIVISION, WHICH WAS MERGED WIT H THE ASSESSEE COMPANY, COULD NOT BE SUBMITTED. WITH REGARD TO THE CLA IM OF PROVISION OF WARRANTY, THE ASSESSEE CONTENDED THAT WARRANTY IS AN INTE GRAL PART OF TERMS AND CONDITIONS GOVERNING THE CONTRACT FOR SALE OF ASSESSEE S PRODUCT AND, THEREFORE, IN THE PRICE OF THE PRODUCT, THE ASSESSEE IN CLUDED AN ELEMENT OF COST OF WARRANTY. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSEE AND ADDED AN AGGREGATE AMOUNT OF RS 86,14,839/- TO THE TOTAL INCOME OF THE ASSESSEE. 33. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND APPLYING THE RATIO LA ID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS I NDIA (P) LTD 314 ITR 62 (SC) TO THE FACTS OF THE ASSESSEES CASE, HELD THAT THE A SSESSEE WAS JUSTIFIED IN MAKING THE NECESSARY PROVISION ON ACCOUNT OF W ARRANTY IN ACCORDANCE WITH THE PRACTICE CONSISTENTLY FOLLOWED BY IT. THE COMMISSIONER OF INCOME-TAX (APPEALS) ACCORDINGLY DELETED THE ADDITION M ADE BY THE ASSESSING OFFICER ON THIS COUNT, AGAINST WHICH REVENUE IS IN APPE AL BEFORE US. 34. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE APPEARING FOR THE REVENUE, HAS PRIMARILY ARGUED THAT THE PROVISION FOR WARRANTY HAS BEEN ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) WIT HOUT TAKING NOTE OF ASSESSING OFFICERS OBJECTION THAT THERE WAS NO SCIENTIFIC BASI S FOR SUCH PROVISION. 35. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE POINTED OUT THAT THE REASONABLENESS OF THE PROVISION CAN BE UNDERSTO OD IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 DATED 30.11.2010 (SUPRA) WHEREIN THE WARRAN TY CLAIM AT THE RATE OF 0.4% OF THE NET SALES HAVE BEEN HELD TO BE A REASONABL E ESTIMATE, WHEREAS IN THE INSTANT ASSESSMENT YEAR THE PROVISION ALLOWED BY TH E COMMISSIONER OF INCOME-TAX (APPEALS) COMES TO 0.37% OF THE NET SALES OF THE YEAR. IT WAS THEREFORE CONTENDED THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DOES NOT DESERVE ANY INTERFERENCE. 36. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. TH E DISPUTE RELATES TO A PROVISION FOR WARRANTY DEBITED TO THE PROFIT & LOSS ACCOUNT, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT T HE SAME WAS A CONTINGENT LIABILITY AND THAT THE SAME WAS MERELY AN ESTIMATE. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD (SUPRA), THE ARGUMENT OF THE ASSESSING OFFICER THAT PROVISION FOR WARR ANT IS A CONTINGENT LIABILITY DOES NOT HOLD GOOD. THE PROVISION MADE FOR A FTER-SALES WARRANTY SERVICES IN THE PRESENT CASE IS AN INTEGRAL PART OF THE TE RMS AND CONDITIONS GOVERNING THE CONTRACT FOR SALE OF THE ASSESSEES PRODUCT AND THE SAME HAS ALSO BEEN FOUND TO BE ALLOWABLE EVEN IN THE PAST YEAR S AS PER THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1 996-97 DATED 30.11.2010 (SUPRA). THE TRIBUNAL IN ASSESSMENT YEAR 199 8-99 FOUND IT REASONABLE THAT THE PROVISION FOR WARRANTY BE ALLOWED ON AN ESTIMATE BASIS AT THE RATE OF 0.4% OF THE NET SALES. IN THE INSTANT A SSESSMENT YEAR, IT EMERGES FROM THE ASSESSEES SUBMISSIONS BEFORE THE COMMISSIONER OF IN COME-TAX (APPEALS) AND WHICH HAVE NOT BEEN CONTROVERTED THAT TH E WARRANTY PROVISION IN THIS YEAR COMES TO 0.37% OF THE NET SALES. IN THIS BACKGRO UND, THE CLAIM OF THE ASSESSEE DURING THE YEAR CAN BE ACCEPTED AS REASONABLE IN V IEW OF THE PRECEDENT AND THE SAME DESERVES TO BE ALLOWED. THE COMM ISSIONER OF INCOME-TAX (APPEALS), IN OUR VIEW, MADE NO MISTAKE IN D ELETING THE IMPUGNED DISALLOWANCE. RESULTANTLY, THIS GROUND IS DISMISSED. 37. GROUND NO. 7 RAISED BY THE REVENUE RELATES TO TH E ALLOWANCE OF CST LIABILITY PERTAINING TO ASSESSMENT YEAR 1992-93 IN THE Y EAR UNDER CONSIDERATION. ON VERIFICATION OF THE DETAILS OF RATES A ND TAXES, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED UNDER THE H EAD EXPENDITURE PERTAINING TO EARLIER YEARS AN AMOUNT OF RS 10,50,0 00/- ON ACCOUNT OF CST DUES FOR ASSESSMENT YEAR 1992-93. SINCE THE EXPENSES PER TAINED TO EARLIER YEARS AND THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUN TING, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE. HE ACCOR DINGLY DISALLOWED THE SAID AMOUNT OF RS 10,50,000/- AND ADDE D BACK IT TO THE TOTAL INCOME OF THE ASSESSEE. 38. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (A PPEALS), THE ASSESSEE SUBMITTED THAT THE ASSESSEE CLAIMED THE AMOUNT OF RS 10,50,000/- ON ACCOUNT OF CST DUES PAID FOR THE FINANCIAL YEAR 1992 -93 AS THE SAME WAS CRYSTALLIZED DURING THE ASSESSMENT YEAR 2000-01. THE COM MISSIONER OF INCOME-TAX (APPEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING AS FOLLOWS: 26. I HAVE CONSIDERED THE MATTER. THE ASSESSMENT OR DER DOES NOT INDICATE THE AO HAD CALLED FOR ANY EXPLANATION REGARDING THE EXPEND ITURE BEFORE COMING TO THE CONCLUSION THAT THE SAME WAS NOT ALLOWABLE. IN VIEW OF THE CIRCUMSTANCES EXPLAINED BY THE APPELLANT, I AM IN AGREEMENT WITH THE APPELL ANT THAT THE LIABILITY ON ACCOUNT OF CST EVEN THOUGH IT PERTAINED TO EARLIER PREVIOUS YE AR WAS ALLOWABLE AS DEDUCTION FOR THE ASSESSMENT YEAR IN QUESTION AS IT CRYSTALLIZED DURING THE RELEVANT PREVIOUS YEAR. FURTHER, SALES TAX PAYMENT FALLS IN THE AMBIT OF SE C.43B WHICH IS ALLOWABLE ON ACTUAL PAYMENT BASIS. 27. AS SUCH, THIS GROUND OF APPEAL IS ALLOWED AND T HE CORRESPONDING DISALLOWANCE OF RS 10,50,000/- IS DELETED. REVENUE IS IN APPEAL BEFORE US AGAINST THE ABOVE DECISI ON OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 39. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIV E ASSAILED THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) BY PLACING RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND , THE LEARNED COUNSEL FOR THE ASSESSEE DEFENDED THE ORDER OF THE COMMISSIONER OF IN COME-TAX (APPEALS) AND SUBMITTED THAT THE LIABILITY ON ACCOUNT OF CST EVEN THOUGH PERTAINING TO EARLIER PREVIOUS YEAR, IT CRYSTALLIZED D URING THE YEAR AND THEREFORE, NO INTERFERENCE IS CALLED FOR WITH THE ORDER OF THE CO MMISSIONER OF INCOME-TAX (APPEALS). 40. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PA RTIES. IN OUR CONSIDERED OPINION, THE COMMISSIONER OF INCOME-TAX (APPE ALS) MADE NO MISTAKE IN DELETING THE IMPUGNED DISALLOWANCE. THE ASSESSE E HAS ESTABLISHED THAT THE LIABILITY ON ACCOUNT OF CST EVEN THOUGH PER TAINED TO EARLIER PERIOD, HAS IN-FACT CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND IS THUS ALLOWABLE AS A DEDUCTIO N IN THIS YEAR. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECISI ON OF THE COMMISSIONER OF INCOME-TAX (APPEALS). WE HEREBY AFFIRM HIS DECISION AND THIS GROUND OF APPEAL OF THE REVENUE FAILS. 41. GROUND NO. 8 OF REVENUES APPEAL IS THAT THE COM MISSIONER OF INCOME- TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITI ON OF RS 2,17,38,129/- ON ACCOUNT OF STOCK WRITTEN OFF. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF ITS CONTENTION WITH REGARD TO WRITE OFF OF OBSOLETE STOCK. AS PER THE ASSESSING OFFICER, THE ASSESSEE FAILED TO BRING ON RECORD AS TO WHO HAD GIVEN APPROVAL AND UNDER WHAT CIRCUMSTANCES THE STOCK WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. HE ALSO FOUND THAT THERE WAS NO CORRESPONDENC E OR LETTERS BETWEEN THE OPERATING PERSONNEL OF THE ASSESSEE COMPANY W ITH REGARD TO REASONS AND BASIS OF STOCK WRITTEN OFF. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE FACT THAT IT WAS WRITTEN OFF, IF THE INVENTO RY HAD NOT MOVED FOR 12-24 MONTHS ESTABLISHED THAT IT WAS A PROVISION AND SINCE IT W AS A PROVISION, IT WAS IN THE NATURE OF AN UNASCERTAINED LIABILITY, WHICH WA S NOT ALLOWABLE. THE ASSESSING OFFICER, THEREFORE, HELD THAT AS NEITHER PROPER REASONS NOR EVIDENCES IN SUPPORT OF THE ASSESSEES CLAIM OF THE STOCK WRITT EN OFF WERE MADE, THE CLAIM OF THE ASSESSEE WAS LIABLE TO BE REJECTED . 42. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), A SSESSEE ASSAILED THE ORDER OF THE ASSESSING OFFICER BY CONTENDING THAT I T HAD IN FACT SUBMITTED A DETAILED NOTE ON STOCK WRITTEN OFF, PROCESS OF IDENTIFI CATION AND ITS DISPOSAL AS SCRAP. HOWEVER, THE ASSESSING OFFICER WAS WRONG IN OBSERVING THAT THE ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE WITH REGARD TO WR ITE OFF OF OBSOLETE STOCK. A COPY OF SUCH NOTE WAS SUBMITTED BEFORE THE COMMISSIO NER OF INCOME-TAX (APPEALS). THE COMMISSIONER OF INCOME-TAX (AP PEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS ALSO EXTRACTING T HE DETAILED NOTE ON THE ISSUE, DELETED THE IMPUGNED ADDITION OF RS 2,17,38,129/- MADE ON ACCOUNT OF STOCK WRITTEN OFF, BY HOLDING AS UNDER: 38. I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND ALSO THE JUDICIAL PRECEDENT CITED BY THEM. HAVING GIVEN CAREFUL CONSI DERATION TO THE MATTER, I AM OF THE VIEW THAT WRITE OFF OF STOCK IN ACCORDANCE WITH THE ACCOUNTING PRINCIPLE AND PRACTICE REGULARLY FOLLOWED BY THE APPELLANT WAS ALLOWABLE. IN COMING TO THIS VIEW, I HAVE ALSO TAKEN INTO ACCOUNT THE APPELLANTS SUBMISSION THAT THE WRITE OFF IS BASED ON A SCIENTIFIC REVIEW OF INVENTORY, THAT IN CASE THE WRITTEN OFF S TOCK OR SCRAP THEREOF IS SOLD, THE SAME IS OFFERED FOR TAX, THAT THIS METHOD OF STOCK VALUA TION HAS BEEN REGULARLY FOLLOWED OVE3R THE YEARS, THAT DISALLOWANCE OF SUCH WRITE OFF WOUL D ONLY GO TO REDUCE THE OPENING STOCK FOR THE NEXT YEAR AND ALSO THE RATIO OF THE J UDICIAL PRECEDENT CITED BY THE APPELLANTS. 39. AS SUCH, THIS GROUND OF APPEAL IS ALLOWED AND THE ADDITION ON THIS ACCOUNT IS DELETED. REVENUE IS IN APPEAL BEFORE US AGAINST THE AFORESAID DE CISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 43. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIV E HAS SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIE D IN DELETING THE ADDITION ON ACCOUNT OF STOCK WRITTEN OFF AS IT WAS A MERE PROVISION AND THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISREGARDING THE SAID W RITE OFF, INASMUCH AS THE ASSESSEE DID NOT JUSTIFY THE CIRCUMSTANCES IN WHICH THE IMPUGNED STOCK HAS BEEN WRITTEN OFF. 44. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE WRITE OFF OF STOCK IS IN LINE WITH THE REGULARLY FO LLOWED POLICY OF IDENTIFYING NON-MOVING STOCK SAND ITS DISPOSAL AS SCRAP. REFERENCE HAS BEE N MADE TO PAGES 25 TO 26 AND PAGES 235 TO 291 OF THE PAPER BOOK TO DEMONSTRATE THAT THE RELEVANT PROCEDURES/POLICY AS WELL AS THE STOCK WRITTEN OFF WERE FURNISHED BEFORE THE LOWER AUTHORITIES. IN THE FACE OF SUCH DET AILS, IT HAS BEEN POINTED OUT THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFI ED IN ALLOWING ASSESSEES CLAIM FOR DIMINUTION IN THE VALUATION OF STOCK O N ACCOUNT OF SLOW MOVING AND NON MOVING ITEMS. IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V HOTLINETELETUBE & COMPONENTS LTD 175 TAXMAN 286 (DEL). 45. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE, THE SUM AND SUBSTANCE OF THE DISPUTE REVOLVES AROUND A PROV ISION MADE BY THE ASSESSEE IN RESPECT OF DIMINUTION IN VALUE OF STOCK OF A S UM OF RS 2,17,38,129/-. ON BEING ASKED TO EXPLAIN BEFORE THE A SSESSING OFFICER, IT WAS SUBMITTED THAT THE PROVISION WAS MADE ON ACCOUNT OF THE DIMINUTION IN VALUE OF OBSOLETE AND OLD NON MOVING ITEMS OF STOCK. THE ASSE SSEE POINTED OUT THAT IT WAS INTRODUCING NEW PRODUCTS IN THE MARKET AND IN TER MS THEREOF, THE STOCKS OF OLD PRODUCTS AND ITS SPARES AND COMPONENTS DO NOT GET SO LD AND THEREFORE, ON THE BASIS OF A CONSISTENT POLICY THE VALUE OF SUCH OBSOL ETE AND SLOW MOVING STOCK IS IDENTIFIED AND PROVISION MADE FOR ITS DIMINUTION . IT WAS EXPLAINED BY THE ASSESSEE THAT AT THE END OF EACH YEAR, AGE-ANALYSIS O F THE INVENTORY IS CARRIED OUT AND ANY MATERIAL WHICH DOES NOT MOVE FOR A PERIOD OF 12 TO 24 MONTHS IS WRITTEN OFF AT 50% OF THE BOOK VALUE OF SUCH ST OCK AND 100% IF IT HAS NOT MOVED FOR MORE THAN 24 MONTHS. THE ASSESSEE FURTHER EXPLAINED THAT AFTER THE STOCK IS WRITTEN OFF, THE SAME IS SOLD AS SCRAP AN D THE INCOME THEREOF IS OFFERED TO TAX IN RESPECTIVE YEARS. THE DETAILS OF S UCH WRITE OFF, WHICH ARE PLACED AT PAGES 235 TO 291OF THE PAPER BOOK, BEAR OUT THE POLICY ADOPTED BY THE ASSESSEE FOR IDENTIFYING THE STOCK TO BE WRITTEN OFF AND ITS DISPOSAL AS SCRAP. IN OUR CONSIDERED OPINION, THE CLAIM OF THE ASSESSEE CANNOT BE FAULTED INASMUCH AS IT IS WELL ESTABLISHED THEORY THAT THE CLOSING STOCK IS LIABLE TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. THE P RINCIPLE APPLICABLE WITH REGARD TO OBSOLETE STOCK IS AKIN TO THE AFORESAID THEORY AND THE ASSESSEE MADE NO MISTAKE IN ADOPTING SUCH A POLICY TO MAKE A PRO VISION FOR THE OBSOLETE STOCK. IN THE PRESENT CASE, IN OUR VIEW, THE CO MMISSIONER OF INCOME- TAX (APPEALS) MADE NO MISTAKE IN DELETING THE ADDITION . IN FACT, THE LEARNED COUNSEL FOR THE ASSESSEE HAD POINTED OUT THAT A SIMILAR DISPUTE HAD ARISEN IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1973-74 TO 1 975-76 AND THE TRIBUNAL HAD UPHELD THE STAND OF THE ASSESSEE AND FO R THAT MATTER A REFERENCE WAS MADE TO THE DECISION OF THE TRIBUNAL, BO MBAY BENCH IN THE CASE OF IAC V. CONSOLIDATED PNEUMATIC TOOL CO. (I) LTD. 15 ITD 564 (BOM). IT IS FURTHER POINTED OUT THAT SUCH POLICY OF IDENTIFYING AND MAKING A PROVISION FOR DIMINUTION OF VALUE OF OBSOLETE STOCK WAS ACCEPTED BY THE DEPARTMENT IN THE PAST AND NO DISALLOWANCE WAS MADE TILL THE INSTANT ASSESSME NT YEAR. IN THIS BACKGROUND OF THE MATTER ALSO, WE FIND THAT THE COMMISSI ONER OF INCOME-TAX (APPEALS) HAS RIGHTLY DELETED THE ADDITION AND THAT T HE GROUND OF APPEAL RAISED BY THE REVENUE LACKS MERIT. GROUND NO. 8 OF APPEAL IS T HUS DISMISSED. 46. IN GROUND NO.9, THE REVENUE HAS URGED THAT ON TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF IN COME-TAX (APPEALS) ERRED IN NOT EXCLUDING FOREIGN EXCHANGE GAIN , MISCELLANEOUS RECEIPTS (SALE OF SCRAP, RISK INSURANCE RECOVERY, SUNDRY NEUTR AL REVENUE, RECOVERY OF DOUBTFUL ACCOUNTS, REFUND FROM CUSTOMS, INCOME DUE TO ORDER CANCELLATION & OTHERS) FROM ELIGIBLE BUSINESS PROFITS FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECTION 80HHC AS PER EXPLANAT ION (BAA) TO SEC. 80HHC OF THE ACT. 47. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE ASSESSEES APPEAL, VIDE ITA NO.448/PN/2010, SIMILAR ISSUE RELATI NG TO ASSESSEES CLAIM UNDER SECTION 80HHC OF THE ACT IN RESPECT OF CERTAIN OTH ER ITEMS OF INCOME, HAS BEEN CONSIDERED BY US VIDE PARA 16 ABOVE, WHEREIN WE HAVE EXTRACTED THE FINDINGS OF OUR CO-ORDINATE BENCH IN ITS ORDER DA TED 30.11.2010 (SUPRA) REGARDING EXCLUSION OF SERVICE CHARGES FROM THE PROFITS OF BUSINESS AS PER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. FOLLOWI NG THE SAID PRECEDENT AS THE CIRCUMSTANCES ARE IDENTICAL IN THIS YEAR, WE SET ASID E THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND REMIT THE MAT TER BACK TO HIS FILE TO BE ADJUDICATED AFRESH IN LINE WITH THE JUDGMENT OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD. (SUPRA) AND DRESSER RAN D INDIA P LTD. ITA NO 2186 OF 2009 (HC). WE HOLD SO. AS A RESULT, GROUND NO. 9 OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 48. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY AL LOWED, AS ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2012. SD/- SD/- (I C SUDHIR) (G.S. PANNU) JUDICIAL MEMBER ACC OUNTANT MEMBER PUNE: 31 ST JANUARY, 2012 B COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT (A) V, PUNE 4) THE CIT V, PUNE 5) THE D R, A BENCH, PUNE 6) GUARD FILE BY ORDER TRUE COPY SR. PS, I.T.A.T., PUNE