Kirloskar Oil Engines Ltd., Pune V. Jt.CIT, (Spl.Range-1), Pune, Pune

ITA 45/PUN/2001

• Counselvise Citation: 4524514 RSA 2001
• Duration Of Justice: 10 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-06-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 08-01-2001
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Keywords: Capital asset; Gift; Depreciation; Opportunity of being heard; Cost of acquisition; Fair market value; Capital receipt; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI G.S. PANNU, AM I.T.A. NO. 45/PN/2001: A.Y. 1997-98 KIRLSOKAR OIL ENGINES LTD. LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE-411 003 PAN NOT ON RECORD APPELLANT VS. JT. CIT SPL. RANGE 1, PUNE RESPONDENT I.T.A. NO. 82/PN/2001: A.Y. 1997-98 JT. CIT SPL. RANGE 1 PUNE APPELLANT VS. KIRLSOKAR OIL ENGINES LTD. LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE-411 003 PAN NOT ON RECORD RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR DEPARTMENT BY: SHRI HARESHWAR SHARMA ORDER PER SHAILENDRA KUMAR YADAV, JM BOTH THESE CROSS APPEALS PERTAINING TO THE SAME AS SESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-II PUN E DATED 6-10- 2000 FOR A.Y. 1997-98. ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 2 I.T.A. NO. 45/PN/2001 (ASSESSEES APPEAL) 2. GROUND NO. 1(A) TO 1(E) RELATES TO COMPUTATION OF CAPITAL GAINS AT RS. 60,75,00,000/ AS AGAINST RS. 43,28,11, 250/- RETURNED BY THE ASSESSEE. THE A.O FOUND THAT THE AS SESSEE HAS SOLD 15 LAKHS SHARES OF KIRLOSKAR CUMMINS LTD., FOR A TOTAL CONSIDERATION OF RS. 60,75,00.000/-. THE ASSESSEE I NFORMED THAT OUT OF AFOREMENTIONED 15 LAKHS SHARES, 14,50,0 00 SHARES WERE HELD BY THE ASSESSEE PRIOR TO 1-4-1981 AND THE BALANCE 50,000 SHARES WERE OUT OF BONUS SHARES ISSUED BY KI RLOSKAR CUMMINS LTD. AFTER 1-4-1981. FOR THE PURPOSE OF CO MPUTING THE COST OF ACQUISITION TO DETERMINE THE CAPITAL GA IN, THE ASSESSEE CLAIMED NIL COST FOR 50,000 BONUS SHARES. HOWEVER, IN RESPECT OF 14,50,000 SHARES THE ASSESSEE CLAIMED FAIR MARKET VALUE OF RS. 39.50 PER SHARE AS ON 1-4-1981. THE ASSESSEE ALSO CLAIMED BENEFIT OF INDEXATION AFTER 1 996-97 AND ACCORDINGLY CLAIMED THE COST OF ACQUISITION AT RS. 17,46,88,750/-. IT WAS ALSO INFORMED THAT EVEN 14, 50,000 SHARES HAD BEEN RECEIVED BY THE ASSESSEE OUT OF BON US SHARES ISSUED BY KIRLOSKAR CUMMINS LTD., PRIOR TO 1-4-1981 . ON THESE FACTS, THE A.O OPINED THAT THE COST OF ACQUIS ITION OF THE ENTIRE SHARES SHOULD BE TAKEN AT NIL. IN RESPONSE T O SHOW CAUSE NOTICE ISSUED BY THE A.O HE ASSESSEE SUBMITTE D THAT EVEN THOUGH THE PROVISIONS OF SECTION 55(2)(AA) WER E CHANGED W.E.F. 1-4-1996, THE CHANGE WAS SUBJECT TO PROVISIO NS MENTIONED IN CLAUSE (I) AND (II) OF SUB-CLAUSE (B) OF SECTION ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 3 55(2). ACCORDING TO THE ASSESSEE, CLAUSE )(I) OF S ECTION 55(2)(B) GAVE THE OPTION TO SUBSTITUTE FAIR MARKET VALUE AS ON 1-4-1981 IN PLACE OF ACTUAL COST AND THESE PROVISIONS HAD A OVERRIDING EFFECT OVER THE PROVISIONS OF SECTION 55(2)(AA). H OWEVER, THE A.O DID NOT ACCEPT THIS SUBMISSIONS OF THE ASSESSEE AND NOT ALLOWED THE INDEXED COST OF ACQUISITION OF RS. 17,4 6,88,750/- CLAIMED BY THE ASSESSEE AND COMPUTED THE CAPITAL GA INS AT RS. 70,75,00,000/- AS AGAINST CAPITAL GAIN OF RS. 43,28 ,11,250/- OFFERED BY THE ASSESSEE. ON APPEAL, THE CIT(A) ALS O UPHELD THE FINDING OF THE A.O. 3. HAVING CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT T HIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISIONS OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HEINRIC H DE FRIES GMBH VS. JT. CIT (2005) 96 TTJ (MUM) 864 AND ALCAN INC. VS. DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) (2008) 110 ITD 15 (MUM) AS ARGUED ON BEHALF OF ASSESSEE. IN T HE CASE OF HEINRICH DE FRIES GMBH VS. JT. CIT (2005) 96 TTJ (M UM) 864 THE RELEVANT FACTS WERE AS UNDER: CAPITAL GAINS-COST OF ACQUISITION-SALE OF ORIGINAL SHARES AND BONUS SHARES ACQUIRED BEFORE AND ALTER 1ST APRIL, 1981-0PTION OF SUBSTITUTION OF FAIR MARK ET VALUE OF ASSETS AS ON ,1ST APRIL, 1981, AS COST OF ACQUISITION UNDER S. 55(2)(AA) EXTENDS TO BONUS SHARES-TO THE EXTENT BONUS SHARES WERE ISSUED TO TH E ASSESSEE PRIOR TO 1ST,APRIL, 1981,THE OPTION IS WIT H THE ASSESSEE TO TAKE ITS COST OF ACQUISITION AS ITS FAIR ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 4 MARKET VALUE AS ON 1ST APRIL, 1981-0THERWISE IT WIL L LEAD ~O AN INCONGRUITY-INFERENCE THAT 'SUBSTITUTION OPTION IS AVAILABLE ONLY WHEN REAL COST IS INCURRED BY THE ASSESSEE', IS NOT SUPPORTED BY ANY JUDICIAL PRECEDENT AND IS ALSO DEVOID AT ANY LEGALLY SUSTAINABLE BASIS-ASSESSEE WAS ALLOTTED 25.000 SHARES ON 21ST APRIL, 1964, RECEIVED 5,000 BONUS SHARES ON 24TH JUNE, 1975, 50,000 BONUS SHARES ON 21ST AUG., 1979 AND 33,333 BONUS SHARES ON 16TH MAY, 1985-COMPUTATION OF CAPITAL GAINS ON SALE AT SHARES IS TO BE DIVIDED IN THREE PARTS- (A) SALE OF 25,000 ORIGINAL SHARES FOR WHICH COST OF ACQUISITIO N IS TO BE TAKEN AT DM 2,17.175; (B) SALE AT 55,000 BONU S SHARES FOR WHICH COST AT ACQUISITION IS TO BE TAKEN AT FAIR MARKET VALUE AS ON 1ST APRIL, 1981; AND (C) SA LE AT REMAINING, LE., 33,333 BONUS SHARES, FOR WHICH COST AT SHARES IS TO BE TAKEN AS NIL. ON THESE FACTS, THE TRIBUNAL HELD AS UNDER: HELD: THERE IS NO DOUBT OR CONTROVERSY THAT THE COS T OF ACQUISITION OF BONUS SHARES, IN TERMS OF THE SPE CIFIC PROVISIONS OF SEC. 55(2)(AA)(IIIA), IS TO BE TAKEN AT NIL, ' BUT THEN. AS' SPECIFICALLY PROVIDED FOR IN S. 55(2) ITSELF, THE PROVISIONS OF S. 55(2)(AA)(IIIA) ARE SUBJECT TO THE PROVISIONS OF, INTER AHA, S. 55(2)(B)(I) WHICH GIVES AN OPTION TO THE ASSESSEE, IN RESPECT OF A CAPITAL ASSET WHICH, BEC OMES PROPERTY OF THE ASSESSEE BEFORE 1ST APRIL, 1981, TO TAKE FAIR MARKET VALUE (FMV) AS ON 1 ST APRI1, 1981 AS THE COST OF ACQUISITION. THIS SUBSTITUTION OPTION IS AVAILABLE ONLY FOR THE ASSETS COVERED BY SEC. 55(2)(AA) AND DOES NOT E XTEND TO THE ASSETS COVERED BY THE PROVISIONS OF S. 55(2}(A), I.E., TENANCY RIGHTS, STAGE CARRIAGE PERMITS AND 100M HOU RS, AND GOODWILL, ETC. THE SCOPE OF SEC. 55(2)(AA) EXTE NDS TO, INTER ALIA, BONUS SHARES AS WELL AS THE SAME ARE 'ALLOTTED 'WITHOUT ANY PAYMENT AND ON THE BASIS OF HO1DING OF ANY OTHER FINANCIAL ASSET' AND ARE SPECIFICALLY COVERED BY S.' 55(2)(AA)(IIIA). THE PROVISIONS OF THE STATUTE ARE UNAMBIGUOUS ACCORDINGLY, TO THE EXTENT BONUS SHARES WERE ISSUED TO THE ASSESSEE PRIOR TO 1ST APII1,198L , THE OPTION IS WITH THE ASSESSEE TO TAKE ITS COST OF ACQ UISITION AS ITS FMV AS ON 1ST APRIL, 1981 . EVEN OTHERWISE, MAKES NO SENSE TO DECLINE THE OPTION OF FMV AS ON 1 ST APRIL 1981 TO BONUS SHARES AND RESTRICT THIS OPTION ONLY TO ORIGINAL SHARES. WHEN BONUS SHARES ARE ISSUED, THER E IS CORRESPONDING FALL IN THE MARKET VALUE OF SHARES BE CAUSE THE SAME VALUATION OF COMPANY SPREAD OVER MORE NUMB ER OF UNITS OF SHARES. IN SUCH A SITUATION, ON ONE HAND, THE ASSESSEE GETS THE LOWER FMV AS ON 1 ST APRIL 1981 FOR THE ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 5 ORIGINAL SHARES AND FMV AS ON 1 ST APRIL 1981 IS DECLINED IN RESPECT OF BONUS SHARES. THIS INCONGRUITY CAN BE BETTER APPRECIATED WITH THE HELP OF AN EXAMPLE. TAKE FOR EXAMPLE A HYPOTHETICAL SITUATION IN WHICH THE ASSESSEE, OWNS,' AS 'ON 1ST JAN:, 1981, 10, 000 SHARES IN X & CO. LTD. WHICH IS 1 PERCENT OF THE ENTIRE. CAPITAL, BASE OF THE COMPANY. LET US ALSO ASSUME THAT THE MARKET VALUE O F THESE SHARES IS RS. 1,00,00,000, AS THE ENTIRE COMP ANY IS VALUED AT RS. 1,00,00,00,000. LET US FURTHER 'ASSUM E THAT ON 1ST JAP., 1981, THE X & CO. LTD. AFLOTS BONUS SHARES IN THE RATIO OF 1:1. IN SUCH A SITUATION, THE ASSESS E WILL GET 10,OOO SHARES MORE AND HIS HOLDING WIL1 BECOME 20,000 SHARES. 'HOWEVER, THE ENTIRE CAPITAL BASE WILL ALSO GO UP IN THE SAME PROPORTION AND THE MARKET VALUE OF ASSESSEE'S SHAREHOLDING, WHICH WILL CONTINUE TO BE 1 PER CENT OF THE ENTIRE SHARE CAPITAL, WILL ALSO CONTINUE TO REMAIN THE SAME, I.E. RS. 1,00,00,000. THE REASON IS THIS. THE ALLOTMENT OF BONUS SHARES WILL NOT AFFECT OVERALL VALUATION OF THE COMPANY WHICH WILL HOWEVER, BE SPREAD OVER MORE NUMBER OF SHARES. BUT THEN, IF FMV IS BE TAKEN IN RESPECT OF ORIGINAL SHARES ONLY, THE ASSESSEE WILL BE AT A CLEAR DISADVANTAGE IN THE SENSE THAT POST B ONUS ISSUE MARKET VALUE OF 10,000 SHARES WILL ONLY BE RS. 50,00,000, WHEREAS PRE BONUS ISSUE, THE MARKET VALU E OF THOSE 10,000 SHARES WOULD HAVE BEEN RS. 1,00,00,000 . THAT CLEARLY IS 'INCONGRUOUS, AND QUITE APPROPRIATE LY NOT SUPPORTED BY THE SCHEME OF COMPUTATION OF CAPITAL GAINS UNDER THE SCHEME OF THE ACT. THE CIT(A)'S INFERENCE THAT 'SUBSTITUTION OPTION IS AVAILABLE ONLY WHEN REAL CO ST IS INCURRED BY THE ASSESSEE', IS NOT SUPPORTED BY ANY JUDICIAL PRECEDENT AND IS ALSO DEVOID OF ANY LEGALLY SUSTAINABLE BASIS. IN ANY . EVENT, FOR THE REASONS SET OUT ABOVE, EVEN FROM THE POINT OF VIEW OF PLAIN LOGIC AND REASONING, THE OPTION OF FMV CANNOT BE RESTRICTED ONLY TO THE ORIGINAL SHARES AND MUST ALSO EXTEND TO THE BONUS SHARES. THE PROVISIONS OF THE STATUTE ARE QUITE CLEAR, UNAMBIGUOUS AND HARDLY CAPABLE OF BEING INTERPRETED IN ANY OTHER MANNER. TO SUM UP, THE LEGAL POSITION IS LIKE THIS. SO FAR AS BONUS SHARES ALLOTTED BEFORE 1ST APRIL, 1981 ARE CONCERNED, AND EVEN AFTER THE INSERTION OF S. 55(2)(AA)(IIIA), FOR THE PURPOSE OF COMPUTING CAPITAL GAINS ON TRANSFER OF THE SAID BONUS SHARES, THE ASSESSEE HAS AN OPTION TO TAKE THEIR FAIR MARKET VALUE AS ON 1ST AP RI1, 1981 AS THE COST ACQUISITION. . THE COMPUTATION OF CAPITAL GAINS ON SALE OF SHARES IS TO BE DIVIDED IN THREE PARTS-FAR SALE OF 25,000 ORIGINAL SHARES FOR WHICH COST OF ACQUISITION IS TO BE TAKEN AT DM 2,17,175 ; (B) SALE OF 55,000 BONUS SHARES FOR WHICH COST OF ACQUISITION IS TO BE TAKEN FMV AS ON 1ST APRIL, 1981; AND (C) SALE OF ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 6 REMAINING, I.E. 33,333 BONUS SHARES, [OR WHICH COST OF SHARES IS TO BE TAKEN AS NIL. THE ONUS OF FURNISHING THE FAIR MARKET VALUE OF SHARES AS ON 1ST APRI1, 1981 , HOWEVER, IS ON THE ASSESSEE AND THE ASSESSEE WILL FURNISH THE SAME TO THE AD FOR VERIFICATION. ACCORDINGLY, T HE AD IS DIRECTED TO RECOMPUTE THE CAPITAL GAINS IN THE LIGH T OF ABOVE OBSERVATIONS. SO, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNA L IN THE CASE OF HEINRICH DE FRIES GMBH (SUPRA) WE HOLD THAT THE CIT(A) WAS NOT JUSTIFIED IN AGREEING WITH THE VIEW OF THE A.O IN COMPUTING THE CAPITAL GAINS AT RS. 60,75,00,000/- AS AGAINST RS. 43,28,11,250/- RETURNED BY THE ASSESSEE AND DEC IDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN THE INTEREST O F JUSTICE WE RESTORE THIS ISSUE TO THE A.O. TO RECOMPUTE THE C APITAL GAIN IN LIGHT OF ABOVE LEGAL DISCUSSION. 4. GROUND NO. 2 RELATES TO DISALLOWANCE OUT OF INT EREST CLAIMED AMOUNTING TO RS. 68,58,000/-. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 1039 AND 1040/PN/ 2000 FOR A.Y. 1995-96 AND 1996-97 WHEREIN THE ISSUE WAS REMI TTED BACK TO THE FILE OF THE A.O FOR FRESH ADJUDICATION AND TO ASCERTAIN AS TO WHETHER THE AMOUNT ADVANCED TO THE VARIOUS COMPANIES CLOSELY CONNECTED TO THE ASSESSEE WERE MA DE OUT OF THE BORROWED FUNDS OR OTHERWISE AND THEN TO DECIDE THE ISSUE AS PER PROVISIONS OF LAW. FACTS BEING SIMILAR, SO FOLLOWING THE SAME DECISION IN ASSESSEES OWN CASE FOR A.Y. 1995- 96 AND ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 7 1996-97, WE RESTORE THIS ISSUE TO THE FILE OF THE A .O WITH A DIRECTION TO DECIDE AS PER FACT AND LAW AND AS PER THE DIRECTIONS ENUMERATED IN THE ORDER OF THE TRIBUNAL FOR THE A.Y. 1995-96 AND 1996-97 (SUPRA). THE A.O SHALL ALSO EX AMINE AS TO WHETHER THE ADVANCES MADE BY THE ASSESSEE TO THE ASSOCIATED COMPANIES WAS WHETHER FOR THE PURPOSE OF THE ASSESSEES BUSINESS. NEEDLESS TO MENTION HERE THAT THE A.O SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS DECIDED ACCORDINGLY. 5. GROUNDS NO. 3 AND 4 WITH REGARDS TO DISALLOWANCE OUT OF COMMISSION EXPENSES AND ADVANCES WRITTEN OFF WERE N OT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. S O THE SAME ARE DISMISSED AS NOT PRESSED. 6. GROUND NO. 5 RELATES TO TREATMENT OF VARIOUS EXP ENSES AS ENTERTAINMENT EXPENSES AND DISALLOWANCE THEREOF AMO UNTING TO RS. 2,23,477/-. THE CIT(A) FOR THE REASONS GIVE N FOR THE EARLIER ASSESSMENT YEARS 1995-96 AND 1996-97, CONFI RMED THE DISALLOWANCE. WITH REGARDS TO TREATMENT OF VARIOUS EXPENSES AS ENTERTAINMENT EXPENSES AND DISALLOWANCE THEREOF, IT WAS SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA). EVERY CAS E IS TO BE DECIDED ON ITS FACTS AND CIRCUMSTANCES. SO, THE A.O IS DIRECTED TO DECIDE THE ISSUES WITH RESPECT TO DISALLOWANCE O UT OF ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 8 ENTERTAINMENT EXPENSES, SEMINAR AND TRAINING EXPENS ES AND CORPORATE OFFICE MESS EXPENSES ON FACTS AND CIRCUMS TANCES INCLUDING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 1995-96 AND 1996-97 (SUPRA) AFTER PROVIDIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. GROUND NO. 6 AND 7 RELATE TO DISALLOWANCE OUT OF VEHICLE MAINTENANCE EXPENSES AND TELEPHONE EXPENSES. UNDISP UTEDLY THE ASSESSEE IS A LIMITED COMPANY. BOTH THESE ISSUE S ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT (2002) 253 ITR 749 AND ALSO IN THE CASE OF DINESH M ILLS LTD. VS. CIT (2002) 254 ITR 673. SO, FOLLOWING THE SAID JUDGMENTS OF THE HONBLE GUJARAT HIGH COURT, WE DIRECT THE AU THORITIES BELOW TO DELETE THE IMPUGNED DISALLOWANCES. 8. GROUND NO. 8 RELATES TO DISALLOWANCE OF DEPRECIA TION. THE AUTHORITIES BELOW IN THE ORDERS FOR THE EARLIER YEA RS CONFIRMED THE DISALLOWANCES. DURING THE COURSE OF HEARING OF THIS APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OU T THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THIS TRIBUNAL IN ITA NO. 429/PN/1997 AND 606/PN/199 9 FOR A.Y. 1993-94 AND 1994-95 WHEREIN FOLLOWING ITS EARL IER DECISION IN THE CASE OF THE ASSESSEE FOR A.Y. 1992- 93 IN ITA NO. ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 9 667/PN/1996 DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE BY OBSERVING AS UNDER: THE GROUND NO. 7 IS DIRECTED AGAINST THE DISALLOWA NCE OF DEPRECIATION AS A RESULT OF FOREIGN EXCHANGE FLUCTU ATION AMOUNTING TO RS. 1,43,361/-. THE LIABILITY ARISING AS A RESULT OF THE FOREIGN EXCHANGE FLUCTUATION WAS TREA TED AS A CONTINGENT IN NATURE BY THE CIT(A) WHO HELD THAT THE SAME CANNOT BE CAPITALIZED AND ACCORDINGLY DEPRECIA TION CANNOT BE ALLOWED ON INCREASED LIABILITY ON ACCOUNT OF FOREIGN EXCHANGE LOSS FOR THE RELEVANT YEAR. IN TH E COURSE OF HEARING OF THIS APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT IDENTICAL ISSUE HAS B EEN DECIDED IN FAOVUR OF THE ASSESSEE BY THIS TRIBUNAL IN ITA NO. 667/PN/1996 FOR A.Y. 1992-93 BY HOLDING THAT TH E LIABILITY ARISING OUT OF FOREIGN EXCHANGE FLUCTUATI ON HAD TO BE TAKEN INTO ACCOUNT AS THE ASSESSEE WAS MAINTAINI NG THE BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND THERE WAS NO SCOPE FOR BRINGING ANY REQUIREMENT OF MAKING ACT UAL PAYMENT UNDER THE PROVISIONS OF SECTION 43A OF THE ACT AS STOOD PRIOR TO THE AMENDMENT IN THE SECTION BY T HE FINANCE ACT 2002 WITH EFFECT FROM 1-4-2003 AND THUS HOLDING THAT THE LIABILITY HAD BEEN INCURRED AT THE END OF THE PREVIOUS YEAR WHICH COULD BE ADDED TO THE COST OR THE WDV OF THE CONCERNED ASSETS FOR THE PURPOSES OF COMPUTING THE DEPRECATION. IN THIS CASE, THE TRIBU NAL HAD RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF PUDUMJEE PULP AND PAPER MILLS LTD. (19 94) 210 ITR 97 AND THE DECISION OF CALCUTTA C BENCH O F THE TRIBUNAL IN THE CASE OF DY. CIT VS. ICI (INDIA) LTD . (2003) 85 ITD 85 (CAL) (TM). RESPECTFULLY FOLLOWING THE T RIBUNAL ORDER FOR THE A.Y. 1992-93 WE DIRECT THE A.O TO ALL OW THE DEPRECIATION ON THE INCREASED WDV OF COST AS A RESU LT OF FOREIGN EXCHANGE LIABILITY ACCRUED AT THE END OF TH E YEAR. THIS ISSUE IS THUS DECIDED IN FAVOUR OF THE ASSESSE E. SO FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN IT NO. 429/PN/1997 AND 606/PN/1999 A.O. IS DIRECTED TO ALLOW THE DEPRECIAT ION ON INCREASED W.D.V. OF COST AS A RESULT OF FOREIGN E XCHANGE LIABILITY ACCRUED AT THE END OF THE YEAR. ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 10 9. GROUND NO. 9 IS WITH REGARDS TO DISALLOWANCE OF CLAIM U/S 35AB. THE AUTHORITIES BELOW HAVE CONFIRMED THE DISA LLOWANCE FOLLOWING THEIR ORDER FOR THE EARLIER ASSESSMENT YE ARS 1995-96 AND 1996-97. HAVING CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIN D THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1995-9 6 AND 1996-97 (SUPRA) WHEREIN THIS ISSUE HAS BEEN SET ASI DE TO THE FILE OF THE A.O FOR EXAMINING AND VERIFYING THE DET AILS OF LUMPSUM CONSIDERATION PAID BY ERSTWHILE AMALGAMATIN G COMPANY FOR ACQUIRING KNOW HOW. FOR THE DETAILED DISCUSSIONS GIVEN IN THE AFORESAID ORDER, FOR THE Y EAR UNDER CONSIDERATION AS WELL, WE RESTORE THIS ISSUE TO THE FILE OF THE A.O WHO SHALL EXAMINE AND VERIFY THE DETAILS OF LUM P SUM CONSIDERATION PAID BY THE AMALGAMATING COMPANY FOR ACQUIRING KNOW HOW IN EARLIER YEARS AND SHALL ASCER TAIN THE AMOUNT OF DEDUCTION U/S 35AB OF THE ACT ALLOWABLE I N THE REMAINING YEARS. THE A.O SHALL PROVIDE REASONABLE OPPORTUNITY TO THE ASSESSEE WHILE QUANTIFYING THE A MOUNT AVAILABLE TO THE ASSESSEE U/S 35AB ON PRO RATA BASI S AND WHILE ASCERTAINING THE NUMBER OF REMAINING YEARS FOR WHIC H THE AMOUNT IS CONTINUED TO BE DEDUCTED TO THE PRESENT A SSESSEE. WE ORDER ACCORDINGLY. ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 11 10. GROUND NO. 10 IS WITH REGARDS FOREIGN TRAVEL EX PENSES OF RS 2,15,865/-. THE A.O FOUND THAT AN AMOUNT OF RS. 2,15,865/- HAD BEEN INCURRED ON THE TRAVELING E XPENSES OF MRS. ARTI KIRLOSKAR AND MRS. N.S. CHITNIS WIVES OF SENIOR EXECUTIVES OF THE COMPANY. SINCE THE EXPLANATION FU RNISHED BY THE ASSESSEE WAS NOT FOUND SATISFACTORY, THE A.O MA DE THE DISALLOWANCE WHICH WAS CONFIRMED BY THE CIT(A). HAV ING CONSIDERED THE RIVAL SUBMISSIONS AND PERUSING THE M ATERIAL ON RECORD, WE FIND THAT IDENTICAL ISSUE BASED ON THE S AME FACTS WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THIS BENCH OF THE TRIBUNAL IN ITA NO. 429/PN/1997 AND 606/PN/1999 FOR A.Y. 1993-94 AND 1994-95 IN WHICH THE DECISION FOR A.Y. 1991-92 IN ITA NO. 291/PN/1995 WAS FOLLOWED AND THE ISSUE W AS DECIDED IN FAVOUR OF THE ASSESSEE. FACTS BEING SIMI LAR SO FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL W E DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE DISALLOWAN CE MADE OUT OF FOREIGN TRAVEL EXPENSES ARE DELETED. 11. GROUNDS NO. 11 AND 12 WITH REGARDS TO LEASEHOL D LAND WRITTEN OFF AND DISALLOWANCE OUT OF MISCE. EXPENSES WERE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. H ENCE THE SAME ARE DISMISSED AS NOT PRESSED. 12. GROUND NO. 13 IS WITH REGARDS TO DISALLOWANCE O UT OF GIFT DISTRIBUTION EXPENSES OF RS. 4,14,613/-. THE A.O MA DE THE ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 12 DISALLOWANCE AT 10% OF THE TOTAL CLAIM FOR THE REAS ON THAT IN THE ABSENCE OF A GIFT DISTRIBUTION RECORD, IT WAS N OT POSSIBLE TO VERIFY AS TO WHETHER THE ENTIRE EXPENSES HAD BEEN I NCURRED FOR THE PURPOSE OF BUSINESS OR NOT. ON APPEAL, THE CIT( A) CONFIRMED THE DISALLOWANCE. AFTER HEARING BOTH THE PARTIES, AND CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTA NCES OF THE CASE, WE FIND THAT IDENTICAL ISSUE WAS DECIDED IN F AVOUR OF THE ASSESSEE IN A.Y 1995-96 IN ITA NO. 1039/PN/2000 WHE REIN THE DECISION OF THE TRIBUNAL FOR A.Y. 1989-90 AND 1 990-91 WAS FOLLOWED. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL IN EARLIER YEARS AND FINDING THAT THE GIFT ARTICLES ARE IN THE NATURE OF GESTURE OF GOODWILL AND AS A CUSTOMARY PR ACTICE TO THE CUSTOMERS AND BUSINESS ASSOCIATES. THEREFORE, T HE DISALLOWANCE IN QUESTION ARE DIRECTED TO BE DELETED . 13. GROUNDS NO. 14 AND 15 WITH REGARDS TO DISALLOWA NCE OUT OF AIRCRAFT EXPENSES AND LEGAL AND PROFESSIONAL EXP ENSES WERE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE . HENCE THE SAME ARE DISMISSED AS NOT PRESSED. 14. GROUND NO. 16 IS WITH REGARDS TO DEDUCTION UNDE R CHAPTER VI-A WHICH IS CONSEQUENTIAL IN NATURE. SO THIS ISSUE IS ALLOWED SUBJECT TO VERIFICATION BY THE A.O. ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 13 15. GROUND NO. 17 WITH RESPECT TO PREMIUM PAYABLE O N REDEMPTION OF DEBENTURES WAS NOT PRESSED BY THE LEA RNED COUNSEL FOR THE ASSESSEE. SO THE SAME IS DISMISSED AS NOT PRESSED. ITA NO. 82/PN/2001 (DEPARTMENTS APPEAL) 16. THE ONLY GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER: IN THE FACTS AND CIRCUMSTANCES OF THE CASE HE LEAR NED CIT(A) HAS ERRED IN HOLDING THAT SPECIAL CAPITAL IN CENTIVE AMOUNTING TO RS. 20,00,000/- RECEIVED BY M/S. PRASH ANT KHOSLA PNEUMATICS LTD. FROM GOVERNMENT OF MAHARASHTRA (THROUGH SICOM) WAS A CAPITAL RECEIPT I N THE HANDS OF THE ASSESSEE 17. THE A.O OBSERVED THAT THE ASSESSEE HAD RECEIVED RS. 20 LAKHS AS SPECIAL CAPITAL INCENTIVE FROM SICOM. IN R ESPONSE TO THE QUESTION RAISED BY THE A.O AS TO WHY THIS AMOUN T SHOULD NOT BE TREATED AS REVENUE EXPENDITURE, THE ASSESSEE EXPLAINED THAT M/S. PRASHANT KHOSLA PNEUMATICS LTD., IS A REG ISTERED COMPANY. UNDER THE VARIOUS INCENTIVE PACKAGES OFFE RED BY THE GOVERNMENT OF MAHARASHTRA FOR SETTING UP NEW INDUST RIES IN THE STATE, THE COMPANY APPLIED FOR SPECIAL CAPITAL INCENTIVE FROM THE SICOM. ACCORDINGLY SICOM SANCTIONED A LOAN OF RS. 20 LAKHS IN 1992. SINCE THE ACTUAL DISBURSEMENT OF THE LOAN WAS TO TAKE PLACE FROM RECEIPT OF FUNDS FROM THE GO VT. OF MAHARASHTRA, PRASHANT KHOSLA PNEUMATICS LTD. TOOK A BRIDGE LOAN OF RS. 15 LAKHS FROM SICOM. CONSEQUENTLY, SIC OM CONVERTED THE BRIDGE LOAN OF RS. 15 LAKHS TOGETHER WITH ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 14 OUTSTANDING INTEREST OF RS. 5 LAKHS INTO SPECIAL CA PITAL INCENTIVE AND THIS BEING IN THE NATURE OF CAPITAL R ECEIPT IT WAS DIRECTLY CREDITED TO THE CAPITAL RECEIPT RESERVE AC COUNT. THE ASSESSEE HAS ACCORDINGLY CLAIMED THE RECEIPT AS A C APITAL RECEIPT. THE A.O HOWEVER, DID NOT ACCEPT THE ASSESS EES EXPLANATION AND HELD THAT THE SAME IS REVENUE RECEI PT. ON APPEAL, THE CIT(A) DELETED THE SAME. 18. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F HONBLE SUPREME COURT IN THE CASE OF CIT VS. PONNI SUGARS A ND CHEMICALS LTD. (2008) 306 ITR 392 (SC) WHEREIN IT I S HELD AS UNDER: HELD ACCORDINGLY, REVERSING THE DECISION OF THE HI GH COURT, ON THIS POINT THAT THE MAIN ELIGIBILITY COND ITION IN THE SCHEME WAS THAT THE INCENTIVE HAD TO BE UTILIZE D FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF AN EXISTING U NIT. THE SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT IN THE COU RSE OF A TRADE BUT WAS OF A CAPITAL NATURE. SO RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMI CALS LTD. (SUPRA) WE DECIDE THIS ISSUE AGAINST THE DEPAR TMENT AND IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, THE APPEA L OF THE REVENUE IS DISMISSED. ITA NO. 45 AND 82/PN/2001 KIRLOSKAR OIL ENGINES A.Y. 1997-98 , 15 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2011 SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE,DATED THE 30 TH JUNE 2011 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT- III PUNE (4) CIT(A)-II PUNE (5) THE D.R. A' BENCH, PUNE TRUE COPY BY ORDER, ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE