ACIT, Ernakulam V. TCM Ltd., Cochin

ITA 454/COCH/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0839 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 14-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-03-2008
• Court: TRIBUNAL
• Department Lawyers: DR BABU JOSEPH
• Keywords: Capital asset; Depreciation; Business expenditure; Question of law; Assessment record; Tax effect; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO. 410/COCH/2008 ASSESSMENT YEAR : 2004-05 T.C.M. LTD., P.B. NO. 19, KALAMASSERY- 683104. [PAN: AAACT 6206A] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), RANGE-2, ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI ARUN RAJ, ADVOCATE REVENUE BY DR. BABU JOSEPH, SR. DR I.T.A. NO. 454 /COCH/2008 ASSESSMENT YEAR : 2004-05 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), RANGE- 2, ERNAKULAM. VS. T.C.M. LTD., P.B. NO. 19, KALAMASSERY-683104. (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY DR. BABU JOSEPH, SR. DR ASSESSEE BY SHRI ARUN RAJ, ADVOCATE O R D E R PER SANJAY ARORA, AM: THESE ARE CROSS APPEALS, I.E., BY THE ASSESSEE AND THE REVENUE, ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I I, KOCHI (`CIT(A) FOR SHORT) DATED 12.12.2007, AND THE ASSESSMENT YEAR UNDER REFERENCE IS A.Y. 2004-05. THE APPEALS ARISING FROM THE SAME ORDER QUA THE SAME ASSESSEE, WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF VIDE A COMMON ORDER. ITA.NOS. 410 & 454/COCH./2008 2 2. THE ASSESSEES APPEAL IS DELAYED BY A PERIOD OF 14 DAYS, FOR WHICH A CONDONATION PETITION, ACCOMPANIED BY A SWORN AFFIDAVIT BY THE P RINCIPAL OFFICER OF THE APPELLANT- COMPANY, EXPLAINING THE REASONS FOR THE DELAY. THE DELAY, TO WHICH NO SERIOUS OBJECTION STOOD RAISED BY THE REVENUE DURING HEARING, IS EXPL AINED BY GENUINE REASONS. WE ARE THUS SATISFIED THAT THE SAME HAS OCCURRED BONA FIDE AND, ACCORDINGLY, CONDONE THE SAME. ASSESSSEES APPEAL (ITS 410/COCH/2008) 3. WE SHALL TAKE UP THE ASSESSEES APPEAL, BEING SE NIOR, FIRST. THE SECOND GROUND OF THE ASSESSEES APPEAL; THE FIRST GROUND BEING GENE RAL IN NATURE WARRANTING NO ADJUDICATION, IS IN RESPECT OF SUSTENANCE OF DISALL OWANCE OF THE EXPENSES ON THE CAPITAL ISSUE OF RIGHT SHARES, I.E., SHARES ALLOTTED TO THE EXISTING SHARE-HOLDERS ON SOME PROPORTIONATE BASIS, BEING RS. 8,42,082/-. 3.1 THE ASSESSEE, THOUGH CONCEDES OF THE LAW IN THE MATTER AS HAVING BEEN SETTLED BY THE HONBLE APEX COURT AGAINST IT VIDE ITS DECISION IN THE CASE OF BROOKE BOND LTD VS. CIT , 225 ITR 798, PREFERS THE CLAIM ON THE BASIS THAT TH E RIGHT SHARES WERE IN FACT NOT ALLOTTED, AND THE AMOUNTS COLLECTED BY WAY OF SUBSCRIPTION, R ETURNED. THIS WAS AS THE ASSESSEE- COMPANY FAILED TO RAISE THE MINIMUM SUBSCRIPTION, W HEREUPON ONLY IT COULD PROCEED WITH THE ALLOTMENT OF RIGHT SHARES AND THE CONCOMITANT R ETENTION OF THE SUBSCRIPTION MONEY, WHICH, TILL THEN, IS PARKED IN A SEPARATE BANK ACCO UNT. THE EXPENDITURE, THUS, IS IN THE NATURE OF AN ABORTIVE CAPITAL EXPENDITURE, WHICH PA RTAKES THE CHARACTER OF A REVENUE EXPENDITURE. WE CAN HARDLY AGREE. FIRSTLY, THERE I S NO CLAIM BY THE ASSESSEE IN RESPECT OF THIS DEDUCTION PER ITS RETURN OF INCOME, WITH THE S AID EXPENDITURE BEING NOT EVEN BEEN DEBITED TO ITS PROFIT AND LOSS ACCOUNT (P&L A/C), W HICH, BY DEFINITION, IS A STATEMENT OF THE OPERATING RESULTS (PART II OF SCHEDULE VI TO TH E COMPANIES ACT, 1956). AS SUCH, IT IS DIFFICULT TO SAY AS TO HOW IT HAD BEEN DENIED ITS C LAIM, FOR IT TO BE AGGRIEVED THEREBY. FURTHER, THE FACT THAT THE SAME BECAME ABORTIVE CAP ITAL EXPENDITURE AS THE RIGHT SHARES COULD NOT BE ALLOTTED, IS NOT BORNE OUT OF RECORD, INASMUCH THERE IS NO FINDING OR MATERIAL ON RECORD TO THAT EFFECT, AND WHICH IS NECESSARY FO R IT TO PRESS A LEGAL CLAIM BEFORE US. SECONDLY, ON MERITS, THE EXPENDITURE IS ADMITTEDLY CAPITAL EXPENDITURE. THAT THE ASSESSEE ITA.NOS. 410 & 454/COCH./2008 3 COULD NOT ENLIST THE MINIMUM SUBSCRIPTION, ENABLING IT TO ISSUE RIGHT SHARES, I.E., BE SUCCESSFUL IN ITS OBJECTIVE OF RAISING CAPITAL BY W AY OF ISSUE OF SHARES ON RIGHTS BASIS, WOULD NOT OPERATE TO CHANGE ITS CHARACTER TO A REVE NUE EXPENDITURE. ANY EXPENDITURE INCURRED BY A BUSINESS ENTITY IS ONLY TOWARD AND FO R SOME BUSINESS OBJECTIVE, AND CONTINUES TO BE AN EXPENDITURE IRRESPECTIVE OF WHET HER THE SAID OBJECTIVE STANDS ATTAINED OR ACHIEVED OR NOT. THE SUCCESS OF AN EXPENDITURE, WHICH MAY AGAIN BE IN DEGREES (IN CONTRADISTINCTION TO TOTAL), IS NOT RELEVANT FOR DE TERMINING ITS NATURE AS A BUSINESS EXPENDITURE, WHICH IT WOULD QUALIFY TO BE BY VIRTUE OF ITS NEXUS WITH A BUSINESS PURPOSE, NOTWITHSTANDING AND IRRESPECTIVE OF BEING OR NOT BE ING SO (SUCCESSFUL). LIKE-WISE, IN THE PRESENT CASE, THE EXPENDITURE WOULD STILL REMAIN A LEGAL EXPENDITURE INCURRED TOWARD THE ISSUE OF CAPITAL ON RIGHTS BASIS. REFERENCE IN THIS CONTEXT MAY BE ALSO BE MADE TO THE DECISION IN THE CASE OF HASHIMARA INDUSTRIES LTD. VS. CIT (1998) 230 ITR 927 (SC).THE ASSESSEE FAILS ON THIS GROUND. 4. THE THIRD GROUND (`C) IS IN RESPECT OF GRATUITY TOTALLING TO RS. 13,84,815/- TO 37 WORKERS, WHO HAD OPTED FOR THE VOLUNTARY RETIREMEN T SCHEME (VRS). THE ASSESSING OFFICER (AO) DISALLOWED THE SAME AS THE SAID LIABIL ITY IN FACT STOOD PROVIDED BY THE ASSESSEE IN ITS ACCOUNTS FOR THE YEAR ENDED 31.3.20 02, I.E., RELEVANT TO A.Y. 2002-03, THOUGH NOT CLAIMED BY IT FOR THAT YEAR, TREATING IT AS A DEFERRED REVENUE EXPENDITURE. HE, HOWEVER, OBSERVED THAT THERE WAS NO SUCH DEBIT IN I TS ACCOUNTS IN THE P & L A/C FOR THE CURRENT YEAR. ALSO, THE ASSESSEES CLAIM OF HAVING PAID RS. 999455/- OUT OF THE SUM DURING THE YEAR WOULD BE OF NO CONSEQUENCE AS THE D EDUCTION IN ITS RESPECT WAS NOT SUBJECT TO SECTION 43B. IN APPEAL, THE LD. CIT(A) ALLOWED THE ASSESSEE ITS CLAIM TO THE EXTENT OF RS. 999455/- ON THE BASIS OF IT HAVING BE EN PAID TO THAT EXTENT DURING THE YEAR. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 5. WE HAVE HEARD THE PARTIES BEFORE US AND PERUSED THE MATERIAL ON RECORD. 5.1 WE FIRSTLY OBSERVE THAT THE AO HAS EFFECTED THE ADDITION FOR THE ENTIRE AMOUNT OF RS. 13.85 LAKHS CLAIMED BY THE ASSESSEE. SECONDLY, THE LD. CIT(A) OBSERVES OF THE AO AS HAVING ALLOWED THE ASSESSEE ITS CLAIM TO THE EXTEN T OF RS. 999455/-, I.E., AS PAID DURING THE YEAR, FURTHER STATING OF HE BEING IN AGREEMENT WITH THE AO, WHO WAS JUSTIFIED IN ITA.NOS. 410 & 454/COCH./2008 4 DISALLOWING THE BALANCE RS. 385360/- IN VIEW OF SEC TION 40A(7) (A) OF THE ACT. AS SUCH, THE OBSERVATION OF THE LD. CIT(A) IS CONTRARY TO TH E FACTS; THE AO HAVING MADE THE DISALLOWANCE FOR THE FULL AMOUNT. 5.2 THE ASSESSEES METHOD OF ACCOUNTING IS ADMIT TEDLY MERCANTILE. ACCORDINGLY, IT HAS PROVIDED FOR THE LIABILITY BY CREDITING IT IN THE Y EAR IT BECAME PAYABLE. WHAT WE ARE CONCERNED HERE IS THE EXIGIBILITY OF THE ASSESSEES CLAIM AS MADE FOR THE CURRENT YEAR. THE RELEVANT SECTIONS ARE S. 37(1) AND S. 40A(7). THE T OTAL AMOUNT PAYABLE TO THE WORKERS OPTING FOR VOLUNTARY RETIREMENT SCHEME (VRS), WHICH APPEARS TO HAVE BEEN EFFECTED DURING THE FINANCIAL YEAR 2001-02, I.E., AS ON 31.3 .2002, IS AS UNDER: (AMOUNT IN `) COMPENSATION: 4045300/ - GRATUITY: 1384815/- __ ______ TOTAL: 5 427815/- THE SAME WAS TREATED BY THE ASSESSEE IN IT ACCOUNTS AS A DEFERRED REVENUE EXPENDITURE. FOR THE RELEVANT PREVIOUS YEAR, I.E., F.Y. 2003-04, IT CLAIMED THE ENTIRE SUM OF ` 54.28 LAKHS, EVEN AS THE PAYMENTS STATED TO HAVE BEEN MAD E ARE AS: (AMOUNT IN `) COMPENSATION (APRIL, 2002): 1370600 GRATUITY (UP TO JU LY, 2003): 999455 TOTAL AMOUNT: 2470055 5.3 THE FIRST QUESTION, THEREFORE, THAT ARISES IS WHETH ER THE ASSESSEES CLAIM COULD BE GRANTED IN THE ABSENCE OF ANY LIABILITY ARISING DUR ING THE CURRENT YEAR AND, CORRESPONDINGLY, NOT CHARGED TO ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR. THE LIABILITY TO GRATUITY, WITH WHICH WE ARE CONCERNED AT PRESENT, A ROSE DURING THE PREVIOUS YEAR ENDING 31.3.2002 ON THE CESSATION OF SERVICES OF THE WORKE RS OPTING FOR VRS. THAT THE SAME STOOD DEBITED IN THE ACCOUNTS FOR THAT YEAR ONLY PR OPORTIONATELY, I.E., IN PROPORTION TO THE PERIOD OVER WHICH THIS EXPENDITURE STOOD DEFERRED, WOULD BE OF LITTLE CONSEQUENCE; IN FACT, THERE BEING NO CONCEPT OF DEFERRED REVENUE EXPENDIT URE AN ACCOUNTING CONCEPT - UNDER ITA.NOS. 410 & 454/COCH./2008 5 THE ACT (REFER: KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT (1971) 82 ITR 363 (SC)). IT IS IN FACT SURPRISING THAT THE ACCOUNTS FOR THE CURRENT YEAR, AS OBSERVED BY THE AO, DO NOT BEAR ANY PROPORTIONATE CHARGE, I.E., IN VIEW OF THE ASSESSEE HAVING TREATED THE SAME AS A DEFERRED REVENUE EXPENDITURE IN ACCOUNTS. 5.4 IT IS NOT CLEAR AS TO WHAT EXTENT GRATUITY, OF THE TOTAL AMOUNT PAYABLE AS ON 31.3.2002, STANDS PAID IN EACH OF THE THREE YEARS, I.E., UP TO THE CURRENT YEAR END (31/3/2004), BEGINNING THE YEAR IN WHICH THE LIABIL ITY AROSE, I.E., F.Y. 2001-02. SO HOWEVER, THE TOTAL AMOUNT PAID UP TO JULY, 2003 IS AT ` 999455/-. SECTION 40A IS A NON OBSTANTE CLAUSE WHICH WOULD PREVAIL NOTWITHSTANDING ANYTHIN G TO THE CONTRARY IN ANY PROVISION RELATING TO THE COMPUTATION OF INCOME UND ER THE HEAD PROFITS AND GAINS OF THE BUSINESS OR PROFESSION. AS EXPLAINED BY THE APEX C OURT IN THE CASE OF SAJJAN MILLS LTD. VS. CIT (1985) 156 ITR 185 (SC), THE PROVISION IN ACCOUNTS FOR GRATUITY IS TO BE TAKEN IN ITS ORDINARY SENSE, I.E., AS A PROVISION FOR ANY OTHER EXPENDITURE. THE EMBARGO UNDER CLAUSE (A) OF SECTION 40A(7) IS ON DEDUCTION OF AMOUNTS PR OVIDED FOR FUTURE USE IN THE YEAR OF THE ACCOUNT FOR MEETING THE ULTIMATE LIABILITY TO THE P AYMENT OF GRATUITY. CLAUSE (B) EXCLUDES FROM THE OPERATION OF CLAUSE (A), CONTRIBUTION TO A PARTICULAR GRATUITY FUND AND AMOUNT PROVIDED FOR OR SET APART FOR PAYMENT OF GRATUITY W HICH IS PAYABLE DURING THE YEAR OF ACCOUNT. THE PRIMACY OF SECTION 40A(7), I.E., IN RE SPECT OF DEDUCTION QUA EXPENDITURE ON GRATUITY, STANDS AFFIRMED BY THE APEX COURT IN THE SAID CASE, SO THAT THE DEDUCTION WOULD NOT BE ALLOWED ON GENERAL PRINCIPLES IN VIEW OF THE OVERRIDING EFFECT OF THAT PROVISION. A READING OF THE SECTION, AS FURTHER EXPLAINED BY THE APEX COURT, MAKES IT AMPLY CLEAR THAT THE DEDUCTION FOR GRATUITY IS ALLOWABLE, WHERE CLAI MED ON THE BASIS OF A PROVISION, TO THE EXTENT THE LIABILITY FOR PAYMENT ARISES IN A PARTIC ULAR YEAR. IN FACT, EVEN ON GENERAL PRINCIPLES, THE DEDUCTION WOULD BE EXIGIBLE ONLY FO R THAT YEAR, WHERE THE METHOD OF ACCOUNTING IS MERCANTILE, SO THAT WHAT S. 40A(7) IN ESSENCE PROSCRIBES IS DEDUCTION OF LIABILITY ON ACCRUAL BASIS (PER S. 40A(7)(A)), ALLO WING THAT FOR WHICH THE PAYMENT HAS BECOME DUE, I.E., THE LIABILITY FOR PAYMENT (PER S. 40A(7)(B)). WHERE SO, AS DURING THE YEAR ENDING 31.3.2002 IN THE PRESENT CASE, WHEREAT THE LIABILITY BEING CLAIMED AROSE ON THE RETIREMENT FROM OR CESSATION OF SERVICE OF THE 37 EMPLOYEES AND, ACCORDINGLY, PROVIDED FOR IN BOOKS, THE CONDITION OF SECTION 40A (7) (B) IS MET, AND DEDUCTION IN ITS ITA.NOS. 410 & 454/COCH./2008 6 RESPECT WOULD BE ALLOWABLE FOR THAT YEAR. THE ACTUA L PAYMENT, TO WHATEVER EXTENT, MADE DURING THE YEAR OF PROVISION IS HOWEVER NOT RELEVAN T, AND IT COULD WELL BE IN THE SUBSEQUENT YEAR, I.E., PROVIDED THE PROVISION IS MA DE FOR THE YEAR IN WHICH THE LIABILITY FOR PAYMENT ACTUALLY ARISES. THAT THE ASSESSEE MAY, IN THE FACTS OF A PARTICULAR CASE, CHOOSE TO PROVIDE FOR THE LIABILITY IN BOOKS IN A GRADED MANN ER, WOULD NEITHER DISQUALIFY ITS CLAIM, I.E., ON THAT SCORE, NOR BE A FACILITATING FACTOR F OR THE ALLOWANCE, WHICH HAS TO BE IN TERMS OF THE RELEVANT PROVISIONS OF THE ACT. IN THE PRES ENT CASE, AS NO LIABILITY ADMITTEDLY ARISES DURING THE RELEVANT YEAR, NO DEDUCTION IS EXIGIBLE, IRRESPECTIVE OF THE FACT THAT A PART OF THE TOTAL PAYMENT STANDS MADE DURING THE CURRENT YEAR. 5.5 THE NEXT QUESTION THAT ARISES IS IF THE T RIBUNAL COULD HOLD SO; IT HAVING NO POWER OF ENHANCEMENT, WHICH A DIRECTION TO THAT EFFECT WOULD TANTAMOUNT TO, I.E., IN THE ABSENCE OF THE REVENUE CONTESTING THE PARTIAL RELIEF ALLOWED B Y THE FIRST APPELLATE AUTHORITY. WE CONSIDER IT AS SO. THIS IS FOR THE REASON THAT THE SAME ARISES OUT THE ISSUE ARISING BEFORE IT FOR ADJUDICATION, I.E., FLOWS FROM THE APPLICATION OF LAW TO THE OBTAINING FACTS, WHICH IT WAS REQUIRED TO EXAMINE, AND ISSUE FINDINGS ON, IN ADJUDICATING THE ISSUE BEING DECIDED, AND WHICH HAS TO BE IN A HOLISTIC, CONSISTENT MANNE R, AND NO ISSUE OF WANT OF POWER OR JURISDICTION ARISES. RULE 27 OF THE APPELLATE TRIBU NAL RULES, 1963 ALLOWS THE RESPONDENT TO ARGUE THE GROUND/S DECIDED AGAINST IT BEFORE THE TRIBUNAL. FURTHER, AS AFORE-STATED, THE AO HAS GIVEN A DEFINITE FINDING, WHILE THE LD. CIT( A) HAS NOT RENDERED ANY; RATHER, MOVED ON AN INCORRECT ASSUMPTION OF FACT (REFER PARA 5.1 ABOVE ). THE `RELIEF BY THE LD. CIT(A), SO ARISING, WOULD THEREFORE QUALIFY TO BE CONSIDERE D AS A `MISTAKE RECTIFIABLE U/S. 154. UNDER THE CIRCUMSTANCES, WE, THEREFORE, CONSIDER IT FIT AND PROPER TO REMIT THE MATTER BACK TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME AF RESH IN ACCORDANCE WITH LAW, GIVING DEFINITE FINDINGS OF FACT, AND AFTER AFFORDING AN O PPORTUNITY OF HEARING TO BOTH THE SIDES. IN DOING SO, WE RELY ON THE DECISIONS IN THE CASE O F BHAVANA CHEMICALS LTD. VS. CIT (1998) 231 ITR 507 (SC); CIT VS. ASSAM TRAVELS AND SHIPPING SERVICE (1993), 199 ITR 1 (SC); HUKUMCHAND MILLS LTD. VS. CIT (1967), 63 ITR 232 (SC). WE DECIDE ACCORDINGLY. REFERENCE, IN THIS CONTEXT, IS ALSO MADE TO THE DEC ISION IN THE CASE OF KUPURCHAND SHARIMAL V. CIT (1981) 131 ITR 451 (SC), WHEREIN IT STANDS EXPLAIN ED BY THE APEX COURT THAT AN APPELLATE AUTHORITY HAS THE JURISDICTION AS WELL IS DUTY BOUND TO CORRECT ALL THE ITA.NOS. 410 & 454/COCH./2008 7 ERRORS IN THE PROCEEDINGS UNDER APPEAL, DIRECTING A PPROPRIATELY THE AUTHORITY WHOSE DECISION STANDS APPEALED AGAINST BEFORE IT. WE DECI DE ACCORDINGLY. 6. THE NEXT GROUND (`D) OF THE ASSESSEES APPEA L RELATES TO RETRENCHMENT COMPENSATION CLAIMED IN THE SUM OF RS. 215.51 LACS. THE FACTS IN BRIEF ARE THAT ON ACCOUNT OF HEAVY LOSSES BEING INCURRED SINCE THE YEAR 2000, THE MANA GEMENT DECIDED TO CLOSE DOWN THE KALAMASSERY UNIT, THE OTHER TWO BEING AT METTUR AND TUTICORIN. THOUGH THE REQUIRED PERMISSION WAS GRANTED BY THE INDUSTRIAL TRIBUNAL, ALAPUZZA ON 25/5/2002, THERE WAS RESISTANCE FROM THE TRADE UNIONS TO THE CLOSURE OF THE UNIT. FINALLY, AN AGREEMENT WAS ENTERED INTO BY THE ASSESSEE-COMPANY WITH THE UNION S REPRESENTING THE LABOUR ON 14/2/2004 IN THE PRESENCE OF THE JT. LABOUR COMMISS IONER, FOR COMPENSATION AT THE CLAIMED AMOUNT, WHICH IS STATED TO BE `SLIGHTLY HI GHER THAN THAT PAYABLE STATUTORILY. ACCORDINGLY, PROVISION WAS MADE IN ACCOUNTS AS AN A SCERTAINED LIABILITY, THOUGH THE PAYMENT WAS MADE ONLY IN THE YEAR 2006. THE AO, ON A PERUSAL OF THE SETTLEMENT AGREEMENT, FOUND THAT THE SAME CLEARLY MENTIONED TH AT THE WORKMEN WOULD NOT OBSTRUCT THE SALE OF THE FACTORY AND THE PREMISES, AND WOULD COOPERATE AT EVERY STEP TAKEN BY THE MANAGEMENT TO CLOSE DOWN THE UNIT. THE EXPENDITURE, THEREFORE, WAS ONLY TOWARD THE CLOSURE OF THE UNIT AND THE CONSEQUENT DISPOSAL OF THE ASSETS. AS SUCH, THE DECISION IN THE CASE OF K. RAVINDRANATHAN NAIR V. CIT (2001) 247 ITR 178 (SC) WAS CONSIDERED BY HIM AS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. CIT(A), ALLOWED THE ASSESSEES APPEAL, STATING THAT THERE WAS NO DISPUT E THAT THE RETRENCHMENT COMPENSATION WAS PAID TO WORKMEN UNDER AGREEMENT BECAUSE THE KAL AMASSERY UNIT HAD TO BE CLOSED DOWN TO ENSURE THE SURVIVAL OF THE OTHER TWO FACTOR IES, SO THAT ITS CASE WAS COVERED BY THE DECISION IN THE CASE OF K. RAVINDRANATHAN NAIR V. CIT (SUPRA). HOWEVER, HE LIMITED THE DEDUCTION EXIGIBLE TO 1/5 TH OF THE AMOUNT CLAIMED; THE BALANCE 4/5 TH BEING ALLOWABLE IN THE SUBSEQUENT FOUR YEARS IN TERMS OF S. 35DDA. AGGRIEV ED, THE ASSESSEE IS IN APPEAL. 7. BEFORE US, IT WAS ARGUED BY THE LD. AR THAT THE LD. CIT(A) HAD NO BASIS TO HOLD APPLICATION OF S. 35DDA WHICH IS APPLICABLE TO EXPE NDITURE QUA VOLUNTARY RETIREMENT SCHEME. HE FURTHER RELIED ON THE DECISION IN THE CA SE OF CIT V.DCM LTD ., 320 ITR 307 (DEL.) THE LD. DR RELIED ON THE ORDER OF THE AO. ITA.NOS. 410 & 454/COCH./2008 8 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD, AS WELL AS THE CASE LAW RELIED UPON BY THE PARTIES, INCLUDING BY THE JU RISDICTIONAL HIGH COURT IN CIT V . K. RAVINDRANATHAN NAIR , 152 ITR 138 (KER.), SINCE REVERSED BY THE APEX CO URT. 8.1 THE FIRST THING THAT WE OBSERVE IS THAT, AS I T APPEARS, ALL THE LEGAL FORMALITIES FOR THE CLOSURE OF THE UNIT STOOD COMPLETED IN THE YEAR 200 2 WITH THE OBTAINING OF THE PERMISSION FOR CLOSURE FROM THE INDUSTRIAL TRIBUNAL. AS SUCH, THE LIABILITY TOWARD COMPENSATION, TO THE EXTENT STATUTORILY PAYABLE, AROSE IN THAT YEAR. THAT THE SAME WAS NOT ACCEPTABLE TO THE LABOUR, WHICH DEMANDED A HIGHER COMPENSATION, WOULD NOT DETRACT FROM THE FACT OF THE LIABILITY TO THAT EXTENT BEING ADMITTED AND HAVING LAWFULLY ARISEN IN THAT YEAR. IT IS ONLY THE ADDITIONAL COMPENSATION, AS FINALLY AGREED TO BY TH E PARTIES, FOR WHICH THE LIABILITY ARISES DURING THE CURRENT YEAR. HOWEVER, THE REVENUE IS NO T IN APPEAL, AND NEITHER HAS IT RAISED THIS ASPECT OF THE ISSUE IN DENYING THE ASSESSEE IT S CLAIM. ALSO, IT COULD BE THAT THERE WAS, THEREFORE, NO ACTUAL CLOSURE DURING 2002, AND THE S AID UNIT CONTINUED TO BE RUN, AT WHATEVER SCALE, WITH IT BEARING THE WAGES OF THE WO RKMEN. AS SUCH, WE CONSIDER THIS ASPECT OF THE MATTER, THOUGH VITAL TO THE ASSESSEE S CLAIM, AS UNDISPUTED, SO THAT THE LIABILITY QUA THE ENTIRE COMPENSATION AS CLAIMED AROSE DURING TH E CURRENT YEAR WITH THE ARRIVING AT AN AGREEMENT WITH THE UNIONS. HERE, WE MAY ALSO DEAL WITH A RELATED ASPECT; THE AO STATING OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR AS NOT BEARING ANY CHARGE IN ITS RESPECT. THERE HAS BEEN NO REBUTTAL BY THE ASSESSEE , NOR ANY FINDING BY THE LD. CIT(A) IN THE MATTER, EVEN AS WE FIND THIS AS SURPRISING IN V IEW OF THE ASSESSEE STATING OF HAVING PROVIDED FOR THE CRYSTALLIZED LIABILITY IN ITS ACCO UNTS IN PURSUANCE OF THE AGREEMENT. THE ISSUE IS THUS FACTUALLY INDETERMINATE, WHICH WOULD NORMALLY WARRANT A REMISSION BACK TO THE FILE OF THE LD. CIT(A) FOR THE PURPOSE. SO HOWE VER, WE DO NOT THINK THAT THE SAME IS NECESSARY AS, IN OUR CONSIDERED VIEW, THE ABSENCE O F THE BOOKING OF THE CORRESPONDING LIABILITY, OR THE FAILURE TO DEBIT THE SAME TO THE OPERATING STATEMENT FOR THE YEAR; THE ASSESSEES METHOD OF ACCOUNTING BEING MERCANTILE, W OULD NOT BE FATAL TO AND, CONSEQUENTLY, DOES NOT REPRESENT A PRE-REQUISITE OR AN ESSENTIAL CONDITION FOR THE CLAIM OF A LIABILITY AS A BUSINESS DEDUCTION, WHICH IN THE P RESENT CASE HAS BOTH, STATUTORY AND CONTRACTUAL ELEMENTS THERETO. ITA.NOS. 410 & 454/COCH./2008 9 8.2 OUR NEXT OBSERVATION IN THE MATTER IS THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY IS APPARENTLY CONTRADICTORY. IF THE DECISION FOR THE C LOSURE OF A BUSINESS UNIT IS TAKEN ONLY TO ENABLE CARRYING ON THE ASSESSEES BUSINESS, AS FOUN D BY HIM, THE COMPENSATION TO THE WORKMEN FOR DOING SO IS INCURRED ONLY IN EXECUTION OF THE SAID DECISION, AND THUS PAID ONLY TOWARD THE SAID PURPOSE, SO THAT IT IS EXIGIBL E FOR DEDUCTION U/S. 37(1) AS A REVENUE EXPENDITURE IN TOTO ; THE LIABILITY HAVING CRYSTALLIZED. THE EXPENDITUR E UNDER THE VOLUNTARY RETIREMENT SCHEME (VRS), ON THE OTHER HAND, IS PER SE CAPITAL IN NATURE. THIS IS AS IT IS NOT PAID IN PURSUANCE TO THE CONTRACT OF EMPLOYMENT, AN D IS NEITHER A `TERMINAL BENEFIT ENVISAGED UNDER THE TERMS OF EMPLOYMENT, WHICH IS, BY DEFINITION, AGAINST PAST SERVICES. THE VRS PAYMENT IS AGAINST LOSS OF OFFICE OF EMPLOY MENT, AND THE PAYMENT THERE-UNDER IN NORMALLY RECKONED WITH REFERENCE TO THE UNEXPIRE D PERIOD OF SERVICE, I.E., THE EMPLOYER BARTERS THE OBLIGATION OF THE RECURRING LIABILITY O N ACCOUNT OF CONTINUING EMPLOYMENT, BEING NOT DEEMED PRODUCTIVE ENOUGH, AGAINST A ONE-T IME PAYMENT. THE RETRENCHMENT COMPENSATION, ON THE OTHER HAND, IS PAID STATUTORIL Y ON CLOSURE OF AN INDUSTRIAL UNIT. THE PREMISE OF THE SAME IS, AGAIN, COMPENSATION FOR LOS S OF EMPLOYMENT, A SOURCE OF INCOME, ON THE CLOSURE OF BUSINESS AND, AS SUCH, PER SE CAPITAL. NO DOUBT, THERE COULD BE CASES WHERE THE OPTION OF VOLUNTARY RETIREMENT IS ALSO ON ACCOUNT OF CLOSURE OF A PART OF BUSINESS, SO THAT THE TWO EXPENDITURES MAY OVERLAP, OR AT LEAST IN SOME RESPECTS. HOWEVER, THE ESSENTIAL CONDITION THAT SEPARATES THE TWO IS T HAT THE VRS IS VOLUNTARY, AND THE OPTION TO AVAIL IT OR NOT IS WITH THE EMPLOYEE, WHILE RETR ENCHMENT IS NOT, ARISING ONLY ON THE CLOSURE OF A UNIT. IN ANY CASE, VRS HAS DISTINGUISH ING FEATURES, SO THAT WHERE THE ACT HAS PROVIDED FOR A SEPARATE CLAUSE FOR THE SAME, IT WOU LD STAND TO BE CONSIDERED ONLY THERE- UNDER. THE DEDUCTIBILITY OF THE RETRENCHMENT COMPEN SATION, ON THE OTHER HAND, HAS NECESSARILY TO BE REGARDED AFTER DETERMINING ITS NA TURE UNDER THE OBTAINING FACTS, UNDER THE NORMATIVE, REGULAR PROVISIONS OF THE ACT. THE SAME IS FOUND TO HAVE BEEN INCURRED FOR THE CARRYING ON OF BUSINESS BY THE LD. CIT(A), AS AGAIN ST TOWARD ITS CLOSURE BY THE AO, ON A READING OF THE RELEVANT AGREEMENT. THE PROVISION OF S. 35DDA, I.E., FOR VRS, WOULD APPLY THERETO, ONLY ON THE BASIS OF THE FINDING THAT THE COMPENSATION, THOUGH TERMED AS SUCH, IS IN SUBSTANCE A VRS, ELSE NOT. WE DO NOT FIND ANY SU CH FINDING IN THE INSTANT CASE, EVEN AS, AS AFORE-STATED, THE ELEMENT OF BEING VOLUNTARY IS ESSENTIAL FOR IT TO QUALIFY AS A VRS PAYMENT. A CONTRARY FINDING (TO THAT PER THE IMPUGN ED ORDER) WOULD MERIT ITS REVERSAL, OR ITA.NOS. 410 & 454/COCH./2008 10 REMISSION, ACCORDING TO THE FINDINGS LEADING TO THE SAME. IN THE PRESENT CASE, HOWEVER, WE FIND THAT THERE IS NO FINDING AS TO THE BUSINESS OF CLOSED UNIT AND THAT OF THE TWO OTHER UNITS BEING THE SAME, I.E., AS CONSTITUTING A SINGL E BUSINESS, AND FURTHER, NO BASIS STATED BY THE LD. CIT(A) FOR HOLDING OF THE CLOSURE AS BEING FOR THE PURPOSES OF THE BUSINESS. IN FACT, HE STATES OF THE SAME BEING THE UNDISPUTED POSITION , WHILE THAT IS PRECISELY THE REASON FOR THE AOS OBJECTION/S. 8.3 COMING TO THE AOS OBJECTION/S, I.E., OF EXP ENDITURE BEING FOR THE CLOSURE OF BUSINESS AND SALE OF THE UNIT, WE FIND THAT THE SAM E FINDS APPROVAL BY THE JURISDICTION HIGH COURT IN THE CASE OF CIT V . K. RAVINDRANATHAN NAIR (SUPRA). HOWEVER, THE APEX COURT IN FURTHER APPEAL, FOUND IT AS A MATTER OF RECORD THAT ALL THE TEN UNITS OF THE APPELLANT-ASSESSEE WERE ENGAGED IN THE BUSINESS OF PROCESSING CASHEW N UTS. THAT BEING THE CASE, THE FOUR UNITS IN KERALA, WHICH STOOD CLOSED DOWN, COULD NOT BE REGARDED AS CONSTITUTING A SEPARATE BUSINESS, BUT ONLY AS PART OF ONE BUSINESS, SO THAT THERE WAS AS SUCH NO CLOSURE OF BUSINESS, AS CONTENDED BY THE REVENUE. FURTHER ON, THE TRIBUNAL HAD FOUND THE CLOSURE AS EFFECTED TO EFFECTUATE THE RUNNING OF THE OTHER UNI TS, I.E., FOR THE CARRYING ON OF THE BUSINESS. THE CONDITION OF INTERCONNECTIVITY, INTER LACING, ETC., I.E., A UNITY EMBRACING THE DIFFERENT VENTURES, FOR THEM TO CONSTITUTE A SINGLE BUSINESS, WHICH THE HONBLE HIGH COURT FOUND AS ABSENT, WAS NOT OF MUCH RELEVANCE IN VIEW OF THE FINDINGS BY THE TRIBUNAL, THE FINAL FACT FINDING AUTHORITY, WHICH COULD NOT BE SA ID TO BE PERVERSE AND HAD, IN FACT, NOT EVEN CHALLENGED BY THE REVENUE BEFORE THE HIGH COUR T. 8.4 THE FIRST ISSUE, THEREFORE, THAT ARISES IS W HETHER THE ASSESSEES THREE UNITS CONSTITUTE A SINGLE BUSINESS OR MORE THAN ONE, SEPARATE BUSINESS ES. CLEARLY, IF THESE ARE SEPARATE BUSINESSES, THE DECISION BY THE JURISDICTIONAL HIGH COURT WOULD APPLY. AS AFORE-NOTED, THERE IS NO FINDING BY THE AUTHORITIES BELOW ON THI S ESSENTIAL INGREDIENT. ON THE BASIS OF THE MATERIAL ON RECORD, AND THE UNDISPUTED FACTS, W E FIND THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING AND MANUFACTURING IN HEAVY CHEM ICALS, WHICH FALL UNDER THREE GROUPS OF CHEMICALS. WHILE TWO OF THESE, CHLORATES AND FUN GICIDES/PESTICIDES (AND THEIR FORMULATIONS) ARE MANUFACTURED AT THE KAMALASSERY U NIT, THE THIRD GROUP OF CHEMICALS ARE MANUFACTURED BY THE OTHER TWO UNITS (PB PG. 10,11 ). THE WORD `BUSINESS IS OF WIDE IMPORT AND SCOPE, THOUGH HAS TO BE CONSIDERED, PART ICULARLY QUA A SOURCE OF INCOME, ITA.NOS. 410 & 454/COCH./2008 11 ACCORDING TO THE ORDINARY NOTION OF WHAT A BUSINESS IS. WE, THEREFORE, ARE OF THE CONSIDERED VIEW, THAT THE ASSESSEES THREE UNITS AR E IN THE SAME BUSINESS OF MANUFACTURE OF HEAVY CHEMICALS. 8.5 THE SECOND ISSUE, AGAIN FACTUAL, IS WHETHER THE EXPENDITURE ON COMPENSATION ON CLOSURE OF ONE OF THE THREE UNITS, IS TOWARD CLOSUR E PER SE , IMPLYING IT BEING CAPITAL; THE ONLY DIFFERENCE BEING THAT THE CLOSURE WOULD NOT BE OF THE TOTAL BUSINESS BUT A PART THEREOF, OR FOR THE PURPOSE OF SURVIVAL OF THE OTHER TWO UNI TS, SO THAT IT COULD BE REGARDED AS FOR THE PURPOSES OF ITS BUSINESS, I.E., FOR CONTINUING ITS BUSINESS (OR PART THEREOF). THIS IN FACT CONSTITUTES THE AOS PRINCIPAL OBJECTION, TO A CONT RARY FINDING BY THE LD. CIT(A), ALBEIT WITHOUT STATING HIS REASONS FOR SO HOLDING, TAKING IT AS UNDISPUTED. IN THIS REGARD, WE FIND THAT THE INCURRING OF LOSSES, INCLUDING BY THE CLOS ED UNIT, WHICH IS THE ASSESSEES LARGEST UNIT, IS AN ADMITTED FACT. THE SAME IS ALSO STATED TO BE THE REASON FOR CLOSING DOWN THE SAID UNIT, AND WHICH IS ONLY UNDERSTANDABLE AS THAT WOULD ONLY DEPLETE THE RESOURCES FURTHER, INCAPACITATING IN TIME THE CARRYING ON OF ANY BUSINESS. THE LOSSES BEING INCURRED ARE OPERATIONAL LOSSES, AND NOT CAPITAL. AS SUCH, T HE CLOSURE OF ONE VENTURE WOULD AT ONCE PREVENT INCURRING OF LOSSES AND, THUS, CONSERVATION OF RESOURCES TO THAT EXTENT, WHICH COULD BE DEPLOYED FOR THE CONTINUING PART OF THE SA ME BUSINESS. THE SALE OF THE UNIT, A CAPITAL ASSET, WOULD NOT NECESSARILY IMPUGN THE SAI D FINDING. RATHER, TO THE EXTENT THAT FUNDS SO REALIZED ARE DEPLOYED TOWARD THE WORKING C APITAL, SCARCITY OF WHICH IS BEING FACED BY THE ASSESSEE, THE SAME IS SUPPORTIVE OF IT S CLAIM THAT THE UNIT CLOSED DOWN IS TO ENABLE/FACILITATE CARRYING ON OF THE BUSINESS. AS S UCH, THOUGH PRIMARILY A CAPITAL EXPENDITURE, THE EXPENDITURE ON RETRENCHMENT OF COM PENSATION ON THE CLOSURE OF A PART OF THE BUSINESS, INSOFAR AS IT IS GUIDED BY THE CONSID ERATION, AND ENABLES THE CARRYING ON, OF BUSINESS, ASSUMES A REVENUE NATURE, ALLOWABLE U/S. 37(1), AS HELD BY THE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR V. CIT (SUPRA). 8.6 IN VIEW OF THE FOREGOING FINDINGS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN RELATION TO THE ASSESSEES THIS CLAIM, AND DIREC T ITS ALLOWANCE IN FULL U/S. 37(1). WE DECIDE ACCORDINGLY. ITA.NOS. 410 & 454/COCH./2008 12 9. THE ASSESSEES NEXT ISSUE (PER GROUNDS `E & `F) RELATES TO THE DISALLOWANCE OF ITS CLAIM QUA CAPITAL EXPENDITURE ON RESEARCH & DEVELOPMENT (R&D ) EXPENDITURE IN THE SUM OF RS. 23.56 LACS PREFERRED U/S. 35(2)(A) PER ITS R ETURN OF INCOME. THE AO DENIED THE ASSESSEES CLAIM ON THE GROUND THAT THE AMOUNT STOO D NOT DEBITED TO THE P&L ACCOUNT AND, FURTHER, WAS UNSUPPORTED BY ANY EVIDENCES. THE LD. CIT(A) CONFIRMED THE AOS ACTION; THE ASSESSEES CLAIM BEING SANS ANY DETAILS. HE MET THE ASSESSEES SUBMISSION OF T HE TECHNICAL DETAILS QUA THE R&D WORK BEFORE HIM, WHICH WAS STATED TO BE BY WAY OF SETTING UP A PILOT PLANT, AS OF LITTLE MOMENT IN THE ABSENC E OF ANY DETAILS AS TO THE EXPENDITURE INCURRED. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. 10.1 THE REVENUES REASON IN NOT ADMITTING THE AS SESSEES CLAIM IS ITS NON- SUBSTANTIATION BY THE ASSESSEE, WHICH IS AN ADMITTE D FACT. HOWEVER, IT CLAIMS, BY RAISING A SEPARATE GROUND (`J) IN ITS RESPECT, THAT THE NON- SUBMISSION OF THE RELEVANT DETAILS IS ON ACCOUNT OF COMPELLING REASONS; ITS RELEVANT RECORDS HAVING BEEN MISPLACED DUE TO, FIRSTLY, SHIFTING OF FILES TO THE METTUR UNIT ON THE CLOSURE OF THE KALAMASSERRY PLANT, AND THEN AGAIN TO ITS REGISTERED OFFICE AT KALAMASSERRY ON T HE CLOSURE OF THE METTUR UNIT. THE SAID PLEA WE FIND STANDS ALSO ASSUMED BEFORE THE FIRST A PPELLATE AUTHORITY (VIDE GROUND # 5 BEFORE HIM). THOUGH THE SAME STANDS NOT ADDRESSED B Y HIM SPECIFICALLY, IT CANNOT BE SAID THAT HE HAS NOT CONSIDERED THE SAME INASMUCH AS HE HAS DISPOSED THE RELEVANT GROUND; THE SPECIFIC NON ADDRESSING, AS IT APPEARS, BEING IN VI EW OF THE VERY BASIS FOR CONFIRMATION OF THE DENIAL OF THE CLAIM, I.E., THE NON-FURNISHING O F THE RELEVANT MATERIALS, THE ONUS FOR WHICH IS ONLY ON THE ASSESSEE, SO THAT THIS PLEA WA S TAKEN ONLY AS THE UNDERLYING REASON FOR THE NON-FURNISHING AFORESAID AND, CONSEQUENTLY, ONLY A PART OF THE ASSESSEES CONTENTIONS QUA ITS CLAIM. 10.2 WE, HOWEVER, SUBJECT TO THE SPECIFIC FINDI NG AS TO THE TRANSFER OF THE RECORDS ON THE TWO OCCASIONS AS STATED BY THE ASSESSEE, ARE IN CLINED TO ACCEPT THE ASSESSEES CLAIM, WHERE OTHERWISE EXIGIBLE UNDER LAW. THIS IS IN VIEW OF THE DECISION IN THE CASE OF CIT (ADDL.) V. JAY ENGINEERING WORKS LTD ., 113 ITR 389 (DEL.), WHEREIN THE TRIBUNALS ORDER UPHOLDING THE ASSESSEES CLAIMS UNDER LIKE CIRCUMST ANCES WAS UPHELD BY THE HONBLE ITA.NOS. 410 & 454/COCH./2008 13 COURT, STATING THAT IT COULD NOT, UNDER THE CIRCUMS TANCES, BE SAID THAT ITS ALLOWANCE OF THE DEDUCTIONS WAS UNSUPPORTED BY ANY EVIDENCE. IT EXAM INED THE EVIDENCES RELIED UPON BY THE TRIBUNAL FOR THE PURPOSE, FINDING THEM GERMANE, HOLDING THAT THE ASSESSING AUTHORITIES UNDER THE ACT ARE NOT CIRCUMSCRIBED BY THE EVIDENCE S ADMISSIBLE UNDER THE EVIDENCE ACT, SO THAT WHERE THE BOOKS OF ACCOUNT COULD NOT BE PRO DUCED, HAVING BEEN, IN THE FACTS AND CIRCUMSTANCES OF THAT CASE, DESTROYED IN FIRE IN NO VEMBER, 1962, THE ASSESSEE COULD LEGITIMATELY RELY ON SUCH OTHER MATERIALS AS IT COU LD FURNISH, WHICH THE REVENUE AUTHORITIES WERE OBLIGED TO CONSIDER. THE COURTS OF LAW TAKE JU DICIAL NOTICE OF FACTS WHICH ARE NOT PROVED; THE REVENUE AUTHORITIES COULD TAKE COGNIZAN CE OF A STILL WIDER RANGE OF MATERIALS IN DISCHARGE OF THEIR DUAL FUNCTION OF INVESTIGATIO N AS WELL AS QUASI JUDICIAL. THE ENTRIES IN THE BOOKS OF ACCOUNTS MAINTAINED IN THE REGULAR COU RSE OF ITS BUSINESS AS WELL AS THE AUDITORS REPORT/S WERE THEREFORE CONSIDERED AS REL EVANT AND RELIABLE. THE RATIO OF THE SAID DECISION WOULD HOLD IN THE PRESENT CASE AS WELL; TH E ASSESSEE BEING CONSTRAINED UNDER THE CIRCUMSTANCES OF ITS CASE IN FURNISHING THE BOOKS O F ACCOUNT AND OTHER THE DETAILS OF THE EXPENDITURE INCURRED, EVEN AS ITS CLAIM IS SUPPORTE D BY THE AUDITORS REPORT, AND WHICH, IN TURN, IS, AND CAN ONLY BE CONSIDERED AS HAVING BEEN , BASED ON THE BOOKS OF ACCOUNTS, SINCE `MISPLACED. SO HOWEVER, AS AFORE-NOTED, THE APPLIC ATION OF THE SAID CASE LAW MUST BE PRECEDED BY A FINDING OF MISPLACEMENT OF THE RELEVA NT RECORDS BY THE ASSESSEE, WHICH (MISPLACEMENT) CANNOT BE ALLOWED TO BE USED AS AN ALIBI , AND WHICH ONLY WILL MAKE ITS CLAIM MAINTAINABLE. WITHOUT DOUBT, IF THE ASSESSEE HAS SUBMITTED THE REQUISITE DETAILS IN RESPECT OF CLAIMS FOR OTHER DEDUCTIONS/EXPENSES AT THE ASSESSMENT STAGE, WHICH COULD BE ASCERTAINED ONLY FROM THE ASSESSMENT RECORDS, THE S AME WOULD RAISE SERIOUS QUESTIONS AS TO THE VALIDITY OF ITS CLAIM, WHICH MUST BE ESTABLI SHED AS BONA FIDE FOR IT TO BE ADMITTED. AGAIN, THE ASSESSEES FURNISHING OF THE TECHNICAL D ETAILS DEFINITELY LENDS CREDENCE TO ITS CLAIM, BESIDES SUGGESTING THAT SOME RECORDS IN ITS RESPECT ARE PRESERVED, WHICH MAY ALSO BE RELEVANT AND PURPOSEFUL, AS ALSO THOSE SUBMITTED TO THE AUDITORS, WHO MAY HAVE ALSO RETAINED A PART THEREOF AS A PART OF THEIR AUDIT NO TES/RECORD, HAVING CERTIFIED THE SAID EXPENDITURE (ANN. VI TO THE TAX AUDIT REPORT/PB PG. 31). THERE HAS BEEN NO EXAMINATION OF THIS ASPECT OF THE MATTER, WHICH MAY REQUIRE FAC TUAL DETAILS; ITS CLAIM BEFORE US BEING ONLY IN THE FORM OF AN AVERMENT, BEING NOT ACCOMPAN IED EVEN BY THE INFORMATION ON THE RELEVANT DATES, EVEN AS THE AUDIT REPORT IS DATED 2 7/10/2004. IN OTHER WORDS, ITA.NOS. 410 & 454/COCH./2008 14 NOTWITHSTANDING THE ACCEPTANCE OF THE PROPOSITION I N LAW THAT NON-RENDERING OF THE DETAILS OF EXPENDITURE UNDER EXCEPTIONAL CIRCUMSTANCES WOUL D NOT EXCLUDE THE ASSESSEES CLAIM FOR CONSIDERATION ON MERITS, A RECORDING OF THE SAT ISFACTION OF THE REVENUE AUTHORITIES AS TO THE GENUINENESS OF THE ASSESSEES CLAIM IN THE MATT ER IS A MUST, AND FOR WHICH THEY MAY TAKE INTO ACCOUNT ALL THE RELEVANT MATERIALS AND IN FORMATION. UNDER THE CIRCUMSTANCES, WE, ADMITTING THE ASSESSEES PLEA, ONLY CONSIDER IT JUS T AND PROPER TO REMIT THE MATTER BACK TO THE FILE THE AO FOR THE PURPOSE OF EXAMINING THE IS SUE DE NOVO IN LIGHT OF OUR FOREGOING OBSERVATIONS, DECIDING THE SAME IN ACCORDANCE OF LA W BY RENDERING SPECIFIC FINDING/S OF FACT, INCLUDING THE BASIS THEREFOR; THE ASSSESSEE S HALL RENDER ALL POSSIBLE ASSISTANCE AND COOPERATION IN THE MATTER, ANY DECISION BEING BASED ONLY ON THE MATERIALS BROUGHT ON RECORD. WITH REGARD TO THE NON DEBIT OF THE EXPENDI TURE TO THE P&L ACCOUNT, THE SAME WOULD BE OF NO MOMENT, THOUGH AT THE SAME TIME, IT MAY BEAR MENTION THAT INFORMATION ON THE ACCOUNT HEAD/S DEBITED AS WELL NON-CLAIM OF DEPRECIATION ON THE RELEVANT CAPITAL EXPENDITURE WOULD NEED TO BE ASCERTAINED. WE DECIDE ACCORDINGLY. 11. GROUNDS `G AND `H, OF THE ASSESSEES APPEAL ALSO RELATE TO NON-CONSIDERATION OF THE ASSESSEES CLAIMS IN VIEW OF NON-FURNISHING OF THE RELEVANT EXPENSE DETAILS. FOR THE REASONS AS MENTIONED IN THE CASE OF GROUNDS `E & ` F IN RESPECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH RELATED TO THE ASSESSEES BU SINESS, WE FIND OUR DECISION QUA THE SAID GROUNDS TO BE EQUALLY APPLICABLE FOR THESE GROUNDS AS WELL AND, LIKE WISE, REMIT THE MATTER TO THE FILE OF THE ASSESSING AUTHORITY WITH LIKE DI RECTIONS. IN FACT, IT SHOULD APPLY WITH MORE FORCE INASMUCH AS THE PAYMENT OF TAXES COULD W ELL BE CERTIFIED FROM THE RECIPIENT DEPARTMENT OR OTHERWISE EXTERNALLY EVIDENCED. WE DE CIDE ACCORDINGLY. REVENUES APPEAL (ITS 454/COCH/2008) 12. THE SOLE GROUND IN THE REVENUES APPEAL REL ATES TO THE ALLOWANCE, AT THE INSTANCE OF THE LD. CIT(A), OF DEPRECIATION ALLOWANCE IN RESPEC T OF ASSETS (FORMING PART OF THE BLOCK OF ASSETS) THAT WERE ADMITTEDLY NOT USED DURING THE RELEVANT PREVIOUS YEAR. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS FOUND IN ASSESSMEN T TO HAVE CLAIMED DEPRECIATION QUA ASSETS IN RESPECT OF ITS KALAMASSERY AND KUNDARA UN ITS AT ` 253483/- & ` 5662/- ITA.NOS. 410 & 454/COCH./2008 15 RESPECTIVELY, THOUGH THE SAME HAD REMAINED CLOSED T HROUGHOUT THE RELEVANT PREVIOUS YEAR. IN APPEAL, THE LD. CIT(A) ALLOWED THE ASSESSEES CL AIM AGGREGATING TO ` 259145/- ON THE BASIS THAT AFTER THE INTRODUCTION OF THE CONCEPT OF `BLOCK ASSETS, DEPRECIATION IS ALLOWED ON BLOCK ASSETS AND NOT ON INDIVIDUAL ASSETS, WHIC H LOSE THEIR IDENTITY ON BEING MERGED IN THE BLOCK. AS SUCH, THE TEST OF USER HAD TO BE APP LIED TO THE BLOCK OF ASSETS AS A WHOLE AND NOT ON THE INDIVIDUAL ASSETS COMPRISING IT. IN DOIN G SO, THE LD. CIT(A) RELIED UPON THE DECISIONS BY THE TRIBUNAL IN THE CASE OF PACKWELL PRINTERS VS. ACIT , 59 ITR 340 (JABALPUR) AND INDUCTOTHERM (INDIA) LTD. VS. DY. CIT , 69 TTJ (AHMEDABAD) 753. AGGRIEVED, THE REVENUE IS IN APPEAL. 13. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. 13.1 THE REVENUE HAS, TOWARD COMPETENCE OF ITS AP PEAL, I.E., IN VIEW OF ITS LOW TAX EFFECT, RELIED ON THE DECISIONS IN TWO DECISIONS BY THE HONBLE JURISDICTIONAL HIGH COURT, BEING CIT V. BIJU VERGHESE , 323 ITR 36 (KER.) AND CIT V. NARMADA BUILDING ENTERPRISES (P.) LTD . (IN ITA NOS. 31 & 35 OF 2008 DATED 27/2/2009/COPY ON RECORD), UPHOLDING THE REVENUES APPEALS DISMISSED BY THE TRIBUNAL FOR LOW TAX EFFECT, WHERE A QUESTION OF LAW IS CONCERNED. THE REVENUES APPEAL IS, THEREFORE, MAIN TAINABLE. 13.2 ON MERITS, THE FIRST THING THAT WE OBSERVE IS THAT THE MATTER IS NOT RES INTEGRA , THOUGH HAS BEEN SUBJECT TO SOME JUDICIAL CONFLICT. OUR APPROACH THERE-TO WOULD BE TO HIGHLIGHT THE CONTROVERSY, AS WELL AS JUDICIAL PREC EDENTS, LEADING TO THE DETERMINATION OF THE ISSUE. S. 32(1), TO THE EXTENT RELEVANT READS AS:- 32(1) IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE-MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS, ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998. OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED - ITA.NOS. 410 & 454/COCH./2008 16 (I) IN THE CASE OF ASSETS, OF AN UNDERTAKING ENGAGED IN GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUA L COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED. (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED UNDER THIS CLAUSE IN RESPECT OF (A) ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA, WHERE SUCH MOTOR CAR IS ACQUIRED BY THE ASSESSE E AFTER THE 28 TH DAY OF FEBRUARY, 1975 (BUT BEFORE THE 1 ST DAY OF APRIL, 2001), UNLESS IT IS USED (I) IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS; OR (II) OUTSIDE INDIA IN HIS BUSINESS OR P ROFESSION IN ANOTHER COUNTRY; AND (B). EXPLANATION 2 TO THE SUB-SECTION ASSIGNS THE SAME MEANING TO WR ITTEN DOWN VALUE OF THE BLOCK OF ASSETS AS THAT BY S. 43(6) (C). EXPLANATION 3 THERE-TO DEFINES THE EXPRESSION ASSETS AND BLOCK OF ASSETS, PER CLAU SE (A) AND (B) THEREOF TO MEAN THE ASSETS, TANGIBLE AND INTANGIBLE, AS LISTED AT CLAUSE (I) & CLAUSE (II) OF S. 32(1) RESPECTIVELY. SECTION 2(11), AS AMENDED BY FINANCE (NO. 2) ACT, 1 998, WITH EFFECT FROM 1.4.1999, READS AS:- S. 2(11) BLOCK OF ASSETS MEANS A GROU P OF ASSETS FALLING WITHIN A CLASS OF ASSETS COMPRISING- (A) TANGIBLE ASSETS, BEING BUILDINGS, M ACHINERY, PLANT OR FURNITURE; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADE-MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIG HTS OF SIMILAR NATURE, IN RESPECT OF WHICH THE SAME PERCENTAGE OF DEPRECIATION IS PRESCRIBED; 13.3 IT IS PATENTLY CLEAR FROM THE READING OF THE SECTION THAT THE TWIN CONDITIONS THAT ENTITLE AN ASSESSEE TO CLAIM DEPRECIATION ALLOWANCE U/S. 32(1) ARE ` OWNERSHIP , WHOLLY OR PARTLY, AND ` USER FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION BY THE ASSESSEE. BOTH THE CONDITIONS HAVE BEEN SUBJECT TO CONSIDERABLE JUDICI AL REVIEW. WITH REGARD TO BOTH THE CONDITIONS, THE CONSENSUS IS IN FAVOUR OF THEIR INA LIENABLE APPLICABILITY, THOUGH DOUBTS ITA.NOS. 410 & 454/COCH./2008 17 HAVE BEEN EXPRESSED WITH REGARD TO THE LATTER CONDI TION, WITH WHICH WE ARE CONCERNED IN THE INSTANT CASE, FOR THE YEARS SUBSEQUENT TO THE Y EAR OF ACQUISITION, I.E., ONCE A SPECIFIED INDIVIDUAL ASSET FORMS PART OF THE BLOCK OF ASSETS. IT MAY BE APPRECIATED, HOWEVER, THAT IF THE SECOND CONDITION OF USER FOR BUSINESS/PROFESSIO N PURPOSES IS TAKEN AWAY OR CONSIDERED AS INAPPLICABLE, WHETHER IN THE YEAR OF ACQUISITION OF THE ASSET OR IN ANY SUBSEQUENT YEAR, THE ASSESSEE WOULD STAND TO BE ENTITLED FOR DEPRECI ATION EVEN ON NON- BUSINESS/PROFESSIONAL CAPITAL ASSETS AS WELL. THIS IS FOR THE SIMPLE REASON THAT THE CONDITION OF ITS USER IS NOT A DEFINING FACTOR OR C RITERION FOR AN ASSET TO FORM A PART, OR BE A CONSTITUENT, OF A BLOCK OF ASSETS. THE DEBATE QUA `USER, IN FACT, ORIGINALLY REVOLVED AROUND AN ACTIVE, AS AGAINST A PASSIVE USER, WITNESSIN G A DIVERGENCE IN VIEWS. THE HONBLE BOMBAY HIGH COURT IN DINESHKUMAR GULABCHAND AGGARWAL VS. CIT , 267 ITR 768 (BOM.) HAS HELD THAT MERELY KEEPING AN ASSET READY FOR USE, WOULD NOT QUALIFY IT AS A `USER FOR THE PURPOSE OF ALLOWANCE OF DEPRECIATION , AS WHAT WAS CONTEMPLATED BY THE SECTION WAS AN ACTUAL USER. THE APEX COURT DISMISSE D THE SLP BY THE ASSESSEE AGAINST THE SAME [REPORTED AT (2004) 266 ITR (ST). 106]. IT IS DIFFICULT TO SEE, THEREFORE, AS TO HOW IN CASE OF NON-USER, AS WHERE THE CONCERNED UNIT OR BU SINESS DIVISION IS CLOSED DOWN, THE ASSESSEE COULD BE CONSIDERED AS ENTITLED TO DEPRECI ATION ON THE ASSETS THEREOF. HERE, WE MAY CLARIFY THAT THE DECISIONS IN THIS REGARD, ADOP TING THE VIEW IN FAVOUR OF A PASSIVE USER ENTITLING DEPRECIATION, WERE PRIMARILY IN RESPECT O F ASSETS WHICH WERE KEPT, IN THE NATURE AND SCHEME OF THINGS, AS STAND-BY ARRANGEMENTS OR K EPT IN READINESS UNDER POOLING ARRANGEMENTS. IT MAY BE NOTED THAT THE VALUE TO TH E BUSINESS OF SUCH ASSETS IS ONLY BY WAY OF A STAND-BY MEASURE, I.E., FLOWS FROM IT BEIN G KEPT IN READINESS FOR ANY EVENTUAL USER. E.G. A GENERATOR; CLEARLY, IF THERE HAS BEEN NO POWER FAILURE DURING A PARTICULAR YEAR/PERIOD, COULD IT BE SAID THAT THE GENERATOR HA VING NOT BEEN USED THROUGHOUT THE RELEVANT PERIOD, NO DEPRECIATION IS EXIGIBLE THEREO N. THE VERY FACT OF IT BEING KEPT IN READINESS, WHICH MAY INVOLVE PERIODIC CHECK UPS, DE NOTES AN `ACTUAL USER FOR BUSINESS. PUT DIFFERENTLY, WITHOUT WHITTLING DOWN THE ESSENTI AL CONDITION OF USER, MANDATED BY THE SECTION, THE SAME HAS TO BE READ IN A PRAGMATIC MAN NER, WITH DUE REGARD TO THE SURROUNDING FACTS AND CIRCUMSTANCES. ITA.NOS. 410 & 454/COCH./2008 18 13.4 NEXT, THE SECOND ASPECT OF THE MATTER IS WHETH ER THE USER IS TO BE RECKONED WITH REFERENCE TO THE `BLOCK OF ASSETS OR INDIVIDUAL AS SETS. IN FACT, THIS REPRESENTS THE CORE ISSUE; IT BEING UNDISPUTED THAT THE USER PER SE , OF THE ASSETS WHICH COMPRISE THE BLOCK OF ASSETS FOR THE TIME BEING, IS IMPERATIVE FOR CLAIM OF DEPRECIATION. THIS IS ARGUED ON TWIN BASIS; FIRSTLY, THAT THE INDIVIDUAL ASSETS LOSE THE IR IDENTITY ON FORMING PART OF THE BLOCK OF ASSETS, WITH REFERENCE TO VALUE OF WHICH ONLY THE ` WRITTEN DOWN VALUE (W.D.V.) UNDER THE ACT, ON WHICH THE DEPRECIATION IS TO BE WORKED, IS TO BE RECKONED. SECONDLY, GIVEN THE MANNER IN WHICH THE WDV OF THE BLOCK OF ASSETS IS T O BE COMPUTED, IT IS NOT POSSIBLE TO DETERMINE THE VALUE OF THE INDIVIDUAL ASSETS FORMIN G PART OF THE BLOCK, FOR ANY DEPRECIATION TO BE DISALLOWED WITH REFERENCE THERE- TO, I.E., ON ACCOUNT OF NON-USER. IN OTHER WORDS, THE SAME, THOUGH ACCEPTABLE IN PRINCIP LE, FAILS ON GROUND, I.E., ON ITS ACTUAL IMPLEMENTATION, OR SUFFERS FROM A COMPUTATIONAL PRO BLEM. 13.5 WE SHALL DEAL WITH BOTH THE ASPECTS OF THE ARGUMENT. THE `USER U/S. 32, IT MAY BE APPRECIATED, IS NOT AN ARTIFICE, BUT EMPLOYED IN A REAL, GENUINE SENSE OF THE WORD, SO THAT IT DENOTES OR CONVEYS AN ACTUAL USER. IT IS ONLY THE I NDIVIDUAL ASSETS, IT NEEDS TO BE REALIZED, WHICH CAN ACTUALLY BE PUT TO USE. THE CONCEPT OF ` BLOCK OF ASSETS, IT MAY BE EMPHASIZED, IS NOT A PHYSICAL CONCEPT, OR ONE HAVING ANY CORRES PONDENCE IN REALITY, BUT ONLY AN ACCOUNTING ONE, I.E., FOR THE PURPOSE OF COMPUTING THE WRITTEN DOWN VALUE (WDV), ON WHICH A UNIFORM DEPRECIATION RATE COULD AND IS TO B E APPLIED. THE USER, BEING AN ACTUAL, TANGIBLE USER, THE QUESTION THAT NEEDS TO BE ASKED IN THE MATTER IS: WHETHER THE BLOCK OF ASSETS COULD BE PUT TO USE, I.E., AS SUCH ?. THE ANSWER IS CLEARLY IN THE NEGATIVE, AND FLOWS FROM THE VERY DEFINITION OF A `BLOCK OF ASSETS, WH ICH IS NOT A PHYSICAL BUT A NOTIONAL CONCEPT. THE ACT DOES NOT, NOR POSSIBLY COULD, STIP ULATE A USER, IMPLYING AN ACTUAL USE, QUA THE BLOCK OF ASSETS; THE SAME BEING TECHNICAL UNFE ASIBLE AND, THUS, OUTSIDE THE REALM OF POSSIBILITY AND, FURTHER, WOULD TANTAMOUNT TO A HYPOTHETICAL CONDITION. THE CONDITION AS IS CAPABLE OF BEING SATISFIED, AND WHICH MUST TH EREFORE BE CONSIDERED AS CONTEMPLATED BY LAW, IS ONLY QUA INDIVIDUAL ASSETS. THIS QUESTION AROSE BEFORE THE TRIBUNAL IN THE CONTEXT OF S. 38(2) OF THE ACT. SEC. 38(2) EMPOWER S THE AO TO, WHERE ANY TANGIBLE ASSET IS NOT USED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION, TO RESTRICT, INTER ALIA , DEPRECIATION ALLOWANCE IN ITS RESPECT, TO A FAIR PR OPORTION THEREOF, I.E., HAVING REGARD TO ITS ITA.NOS. 410 & 454/COCH./2008 19 USER FOR THE PURPOSES OF BUSINESS OR PROFESSION. N OTING A DIVERGENCE IN VIEW, INCLUDING IN THE CASE OF PACKWELL PRINTERS (SUPRA) RELIED UPON BY THE LD. CIT(A), THE MATTER S TOOD REFERRED TO ITS SPECIAL BENCH IN GULATI SAREE CENTRE VS. ACIT , 71 ITD 73 (CHD.) (SB). THE QUESTION REFERRED TO THE SPECIAL BENCH WAS AS: W HETHER, AFTER THE INTRODUCTION OF THE CONCEPT OF BL OCK OF ASSETS AN INDIVIDUAL ITEM IN A BLOCK OF ASSETS LOSES ITS IDENTITY AND T HE DEPRECIATION HAS TO BE ALLOWED ON THE TOTAL BLOCK WITHOUT CONSIDERING WHETHER AN INDIVID UAL ITEM, COMPRISED IN THE BLOCK HAS BEEN USED FOR BUSINESS PURPOSES OR NOT, WHETHER FU LLY OR PARTLY? SECTION 38(2), IT WAS OPINED, STOOD ALSO AMENDED W ITH EFFECT FROM 1.4.1988, I.E., WHEREAT THE CONCEPT OF BLOCK OF ASSETS STOOD INTROD UCED IN THE STATUTE, TO LIMIT ITS APPLICATION TO S. 32(1)(II), I.E., THE BLOCK OF ASS ETS COMPRISING TANGIBLE ASSETS. ACCORDINGLY, THE LAW, THUS, CLEARLY ENVISAGES THAT THE TANGIBLE ASSETS FORMING PART OF THE BLOCK OF ASSETS MAY NOT BE USED EXCLUSIVELY FOR BUS INESS/PROFESSION AND, AS SUCH, WARRANT A PART DISALLOWANCE, I.E., IN PROPORTION TO THE USE R FOR OTHER THAN FOR THE PURPOSE OF BUSINESS/PROFESSION. IT, THEREFORE, ANSWERED THE Q UESTION REFERRED TO IT IN THE NEGATIVE. THAT THE INDIVIDUAL ASSETS DID NOT LOSE THEIR IDENT ITY ON FORMING PART OF THE BLOCK OF ASSETS, HAS ALSO BEEN OPINED INDEPENDENTLY BY OTHER BENCHES OF THE TRIBUNAL [SEE NOTE 1], I.E., WITHOUT NOTICING OR WITHOUT REFERENCE TO THE DECISI ON BY THE SPECIAL BENCH, EVEN AS THERE ARE DECISIONS TO THE CONTRARY AS WELL, AS IN THE CA SE OF SWATI SYNTHETICS LTD. VS. ITO 338 SOT 2098 (MUM.), NATCO EXPORTS V. CIT (DY.) , 89 TTJ (HYD.) 503 [86 ITD 445]. QUITE APART FROM THE FACT THAT THE VIEW OF THE SPECIAL BE NCH WOULD HOLD, I.E., AT THE LEVEL OF THE TRIBUNAL, WE WONDER WHETHER A DIFFERENT VIEW OF THE MATTER COULD BE TAKEN IN VIEW OF THE CLEAR LANGUAGE OF SECTION 38(2). WE SAY SO AS, COUL D IT BE SAID THAT WHILE THE USER (FOR THE PURPOSE OF BUSINESS/PROFESSION) IS A PRE-REQUISITE FOR THE ALLOWANCE OF DEPRECIATION, THE SAME WOULD BECOME APPLICABLE; THE ALLOWANCE U/S. 32 (1)(II) BEING SUBJECT TO S. 38(2), ONLY WHERE EITHER THE ENTIRE ASSETS FORMING PART OF THE BLOCK OF ASSETS ARE SO USED EXCLUSIVELY OR ALL OF THEM IN THE SAME PROPORTION. THIS IS SO AS ONLY IN SUCH A CASE/S WOULD A UNIFORM RATIO OF USER ENSUE FOR THE ENTIRE BLOCK OF ASSETS, POSING NO PROBLEM IN DETERMINING THE SAME, BE IT AT 100% OR BELOW. THAT IS, COULD IT NOT BE THAT WHILE SOME ASSETS OF THE BLOCK ARE USED EXCLUSIVELY, OTHERS AR E NOT (I.E., THERE IS PART USER FOR NON- BUSINESS PURPOSES), OR EVEN NOT USED AT ALL (0%). W E DO NOT FIND ANYTHING IN S. 38(2) ITA.NOS. 410 & 454/COCH./2008 20 EXCLUDING SUCH A SITUATION. ALTERNATIVELY, COULD I T BE SAID THAT S. 38(2) WOULD HAVE APPLICATION ONLY WHERE THE BLOCK OF ASSETS, INCLUDI NG ITS CONSTITUENTS, IS NOT USED EXCLUSIVELY FOR BUSINESS/PROFESSION, BUT NOT WHERE THEY ARE NOT USED AT ALL. WE THINK NOT. ONCE IT IS APPRECIATED THAT THE USER IS AN ESSENTIA L CONDITION FOR ALLOWANCE OF DEPRECIATION, WITH THE AO EMPOWERED TO RESTRICT THE SAME TO THE P ROPORTIONATE EXTENT, I.E., THE USER FOR BUSINESS/PROFESSION, THERE COULD BE NO SCOPE FOR AN Y DIFFERENT VIEW. THERE MAY ARISE AN ISSUE OR PROBLEM WITH REGARD TO COMPUTATION, I.E., THE COMPUTATIONAL ASPECT AFORE-STATED, BUT THAT WOULD, FIRSTLY, VARY FROM CASE TO CASE, AN D DOES NOT DETRACT FROM THE MATTER IN PRINCIPLE. WE SHALL DEAL WITH THIS ASPECT SEPARATEL Y. THE APEX COURT HAD RECENTLY OCCASION TO CONSIDER THE ALLOWANCE OF DEPRECIATION QUA THE ASSETS OF A CLOSED UNIT [ CIT VS. MCDOWELL & CO. LTD. (2009) 224 CTR (SC) 22,24,30]. BEFORE IT, IT WAS CONTENDED THAT THE MACHINERY OF THE R&D CENTRE WAS, APART FROM THE FAST FOOD (CLOSED UNIT) BEING USED FOR THE OTHER LIQUOR UNIT AS WELL. IT REMITTED THE MATTER BACK TO THE FILE OF THE AO, HOLDING AS UNDER, AND WHICH SHOULD BE CONSIDERED AS SETTLIN G THE CONTROVERSY IN THE MATTER: (PG. 24) 24. ..THE ASSESSEE SHALL BE PERMITTED TO PLACE MA TERIAL IN SUPPORT OF ITS CLAIM THAT THE MACHINERY WAS USED FOR BOTH THE UNITS. IF IT IS ESTABLISHED BY MATERIAL THAT WHOLE OR PART OF THE MACHINERY WAS BEING USED FOR THE LIQ UOR UNIT, WHETHER PARTLY OR FULLY IN RESPECT OF THOSE MACHINERIES, THE DEDUCTION CAN BE MADE, AS PERMISSIBLE IN LAW, OTHERWISE NOT. THE MATTER IS THEREFORE REMITTED TO THE AO FOR DOING NECESSARY EXERCISE . 13.6 COMING TO THE COMPUTATIONAL ASPECT, AS NOTED EARLIER, IT IS FIRSTLY IMPERMISSIBLE TO BE GUIDED THEREBY IN THE FACE OF THE CLEAR LANGUAGE OF THE STATUTE, AND ITS UNEQUIVOCAL INTERPRETATION OF USER REPRESENTING AN ESSENTIAL CO NDITION (BY THE HIGHER COURTS OF LAW), WITH A PART USER (FOR THE RELEVANT PURPOSES) ENTITL ED FOR A PROPORTIONATE ALLOWANCE. WHEN THE ACT EMPOWERS THE AO TO DO SO, IT CONTEMPLATES T HAT HE SHALL APPLY THE LAW IN A FAIR MANNER, I.E., WITH DUE REGARD TO THE OBTAINING FACT S, WHICH WOULD VARY FOR EACH CASE. IN FACT, WE OBSERVE NO COMPUTATIONAL PROBLEM IN THE IN STANT CASE, WITH DEPRECIATION RELATABLE TO THE ASSETS OF ALL THE UNITS, INCLUDING THE TWO C LOSED UNITS, BEING DETERMINED SEPARATELY, AND NOT IN DISPUTE. IN FACT, THERE IS NO CLAIM BY THE ASSESSEE IN THIS REGARD, AND IT IS ONLY THE FIGURES AS COMPUTED BY IT WHICH STAND ADOPTED B Y THE AO. FURTHER, THIS IS THE POSITION THAT WOULD ORDINARILY OBTAIN WHERE SEPARATE BOOKS O F ACCOUNTS FOR EACH UNIT/DIVISION ARE ITA.NOS. 410 & 454/COCH./2008 21 MAINTAINED, AS IN THE PRESENT CASE, SO THAT WORKING OUT W.D.V. FOR DIFFERENT CLASSES (BLOCKS) OF ASSETS FOR EACH UNIT, FOLLOWING THE SAM E COMPUTATIONAL BASIS AS APPLICABLE TO THE WDV OF THE BLOCK OF ASSETS FOR THE ASSESSEE AS A WHOLE, FOLLOWS IN CONSEQUENCE. WHY, IS NOT SUCH A WORKING IMPLICIT WHERE EXEMPTION U/S. 10A, 10B, ETC., OR DEDUCTIONS AS U/S. 80I, 80IA/80IB, 80HH, ETC., ARE TO BE ALLOW ED, EACH OF WHICH IS QUA THE ELIGIBLE UNDERTAKING ONLY, SO THAT ITS OPERATING RESULTS ARE TO BE DETERMINED ON A STAND ALONE BASIS. NO DOUBT, THE LAW PROVIDES FOR SEPARATE MAINTENANCE OF BOOKS OF ACCOUNT, BUT THEN THE CONCEPT OF BLOCK OF ASSETS, AND ITS WDV, IS WITH RE FERENCE TO THE ASSESSEE AND NOT QUA ITS DIFFERENT UNITS. WOULD THAT, THEREFORE, MEAN THAT T HE LAW RELATING TO THE AFORESAID EXEMPTIONS/DEDUCTIONS, EACH OF WHICH ARE UNIT-SPECI FIC, BECOMES INOPERABLE, AS IS BEING CONTENDED IN CASE OF DEPRECIATION. THIS IS AS IN TH AT CASE TOO THE ASSESSEE MAY HAVE, AS IS GENERALLY THE CASE, MORE THAN ONE UNIT, ALL OF WHIC H ARE ENTITLED TO NOT TAX- EXEMPT/DEDUCTIBLE. OR DOES IT IMPLY THAT THE LAW, I N PRESCRIBING THE CONDITION FOR SEPARATE MAINTENANCE OF BOOKS OF ACCOUNT, PROVIDES THE ANSWE R TO THE COMPUTATIONAL IMBROGLIO THAT CONFRONTS THE WORKING OF THE DEPRECIATION RELA TABLE TO DIFFERENT UNITS, THE INCOME OF WHICH MAY BE REQUIRED TO BE WORKED OUT SEPARATELY, NECESSITATING SEPARATE COMPUTATION FOR DEPRECIATION AS WELL. WHILE THE WORKING OF INCO ME MUST NECESSARILY REQUIRE THE SAME, BEING IN FACT STATUTORILY MANDATED, WE DO NOT THINK THAT THE SAME, THOUGH FACILITATIVE OF THE MATTER, IS A PRE-REQUISITE, INASMUCH AS ALL THA T, AS AFORESAID, IT REQUIRES IS THE RELEVANT DATA UNIT-WISE, I.E., THE ONLY ADDITIONAL INPUT IS THE INFORMATION AS TO THE UNIT TO WHICH A PARTICULAR ASSET RELATES, AND WHICH IT NECESSARILY MUST. WHERE THE SAME IS FOR THE HEAD OFFICE (HO), THE HO MAY ITSELF BE TAKEN AS A DIFFER ENT, INDEPENDENT UNIT. 13.7 WE MAY FINALLY CONSIDER THE LINE OF ARGUMENT THAT THE STIPULATION OF USER CONTEMPLATED BY LAW IS FOR THE YEAR OF ACQUISITION, WHEREAT DEPRECIATION IS RESTRICTED TO 50% OF THE NORMATIVE DEPRECIATION WHERE THE USER IS FOR LESS THAN 180 DAYS, AND NOT FOR THE SUBSEQUENT YEARS. THE SAME IN FACT CONFIRMS, IF ANY SUCH WAS REQUIRED, THAT THE CONDITION OF USER IS MANDATORY. CONTINUING FURTHER, THE PROPOSITION THAT THE CONDITION FOR USER IS A PRE-REQUISITE, I.E., IS MANDATORY, FOR TH E SAID, FIRST YEAR ONLY, AND NOT FOR THE SUBSEQUENT YEARS, WHEREAT THE ASSET FORMS PART OF T HE `BLOCK OF ASSETS, WOULD LEAD TO AN ANOMALOUS INFERENCE WHEREBY THE CONDITION OF USER I S A PRECONDITION FOR AN ASSET TO ITA.NOS. 410 & 454/COCH./2008 22 QUALIFY AS A DEPRECIABLE ASSET (I.E., WHICH IS ENTI TLED TO DEPRECIATION ALLOWANCE) FOR ONE YEAR AND NOT FOR THE OTHER, I.E., NOT FOR IT CONTIN UING TO BE ONE. THE LAW HAS TO BE APPLIED IN A HARMONIOUS, CONSISTENT AND UNIFORM MANNER, AND COULD NOT BE CONSIDERED AS POSTULATING DIFFERENT YARDSTICKS OR PARAMETERS FOR THE SAME DEDUCTION (DEPRECIATION) FOR DIFFERENT PERIODS. E.G., COULD IT BE COUNTENANCED T HAT WHILE THE USE OF BORROWED FUNDS FOR BUSINESS PURPOSES IS ESSENTIAL FOR THE INTEREST LIA BILITY IN ITS RESPECT TO BE ALLOWED AS A BUSINESS DEDUCTION FOR THE YEAR OF BORROWING, IT IS NOT SO FOR THE SUBSEQUENT YEARS, SO THAT THE SAME COULD BE WITHDRAWN FROM BUSINESS (WHICH MA Y NOT NECESSARILY BE BY DEBITING THE BORROWERS ACCOUNT) OR NOT USED FOR BUSINESS AT ALL, LYING UNUSED, AND YET THE INTEREST OBLIGATION WOULD BE TAX DEDUCTIBLE. THIS IS NOT TO SUGGEST A COMPLETE PARITY BETWEEN THE TWO SECTIONS; THERE BEING NO CONDITION OF ACTUAL US ER IN THE CASE OF INTEREST DEDUCTION, BUT ONLY TO HIGHLIGHT THE DICHOTOMY THE ARGUMENT ENTAIL S INASMUCH AS CONSTANT AND NOT DIFFERENT CONSIDERATIONS CAN APPLY ACROSS DIFFERENT YEARS FOR AN EXPENDITURE, BEING ONLY IN THE NATURE OF GENERAL CONDITION/S, EXCEPT WHERE SPE CIFICALLY PROVIDED FOR BY LAW. THE SAME IN FACT FOLLOWS THE PROPOSITION THAT THE CONDI TION OF USER IS RELEVANT OR MANDATORY ONLY TILL THE TIME THE INDIVIDUAL ASSET DOES NOT FO RM PART OF THE BLOCK OF ASSETS. APART FROM THE FACT THAT THERE IS NO SANCTION IN LAW FOR SUCH A PROPOSITION (REFER S. 2(11) & EXPLANATION 3 TO S. 32(1)), AS STANDS ALSO CLARIFIE D BY THE SPECIAL BENCH OF THE TRIBUNAL (DISCUSSED EARLIER), THE SAME CANNOT HOLD FOR THE S IMPLE REASON, AS AFORE-NOTED, THAT USER IS NOT A CONDITION FOR AN INDIVIDUAL ASSET TO FORM PAR T OF THE ASSET; THE ONLY DISTINCTION TO WHICH IT IS SUBJECT THAT WHERE IT IS PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS, THE SAME WOULD ATTRACT A DEPRECIATION ALLOWANCE AT 50% OF TH E NORMATIVE RATE APPLICABLE TO ITS CLASS OF ASSETS. AN ASSET FORMS PART OF THE BLOCK OF ASSETS THE MOME NT IT IS ACQUIRED BY AND FOR THE PURPOSES OF THE BUSINESS/PROFESSION ON `OWNERSH IP BASIS, AND DOES NOT AWAIT THE END OF THE YEAR, WHEREAT ONLY THE PERIOD OF USER FOR TH E YEAR OF ACQUISITION COULD BE DETERMINED . 13.8 IN VIEW OF THE FOREGOING, WE ARE OF THE CON SIDERED VIEW THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS O F ITS KALAMASSERY AND KUNDARA UNITS. WE DECIDE ACCORDINGLY, SETTING ASIDE THE IMPUGNED ORDE R ON THIS ISSUE. ITA.NOS. 410 & 454/COCH./2008 23 14. IN THE RESULT, THE ASSESSEES APPEAL IS PART LY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES, AND THE REVENUES APPEAL IS ALLOWED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 14TH MARCH, 2011 GJ COPY TO: 1. T.C.M.LTD., P.B.NO. 19, KALAMASERY-683104 2. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE-2, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. NOTE 1. THE GURDASPUR CO-OPERATIVE SUGAR MILLS VS. CIT (2009) 122 TTJ (ASR.) 528 - DY. CIT VS. MEDLEY PHARMACEUTICALS LTD ., 109 TTJ (MUM.) 328. - ASST. CIT VS. RISHIROOP POLYMERS PVT. LTD ., 102 ITD 128 (MUM.). - ASSTT. CIT V. JAGDISH C. SHETH , 101 ITD 360 (MUM.) BY ORDER ,, (ASSISTANT REGISTRAR)