M/s. FOSECO INDIA LTD., MUMBAI V. ACIT Rg. - 2(1), MUMBAI

ITA 4667/MUM/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7344 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 22-09-2009
• Assessment Year: 1999-2000
• Appeal Filed On: 24-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.N. JHA
• Keywords: Business expenditure; Competent authority; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 37(1); 80HH; 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4667/M/2005 (ASSESSMENT YEAR: 1999-2000) M/S. FOSECO INDIA LIMITED ACIT, RANGE 2(1) C/O SHARP & TANNAN, RAVINDRA ANNEXE AAYAKAR BHAVAN, M.K. ROAD 194, CHRUCHGATE RECLAMATION VS. MUMBAI 400020 MUMBAI 400020 PAN - AAACF 1049 H APPELLANT RESPONDENT APPELLANT BY: SHRI H.P. MAHAJANI RESPONDENT BY: SHRI R.N. JHA O R D E R PER B. RAMAKOTAIAH, A.M. IN THIS CASE THE ORDER IN ITA NO. 4667/MUM/2005 WAS PASSED ON 16 TH MAY 2008 AND THE ISSUE IN GROUND NO. 3 WAS RECALLED BY M.A. NO. 762/MUM/2008 DATED 06.04.2009. ACCORDINGLY THE CASE WAS POSTED FOR CONSIDERING GROUND NO. 3 IN ASSESSEES APPEAL AFRES H. 2. GROUND NO. 3 IS AS UNDER: - (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF VRS EXPENDITURE OF RS.4,10,90,573 RELATING TO JAMSHEDPU R UNITS AND RS.10,723,833 RELATING TO JAMMU UNIT BY CONSIDERING IT AS CLOSURE OF BUSINESS ACTIVITIES. HE OUGHT NOT TO HAVE DONE SO. 3. BRIEFLY STATED, THE ASSESSEE HAS CLAIMED VRS EXPEND ITURE OF RS.5,66,33,237/- AS REVENUE EXPENDITURE. THE DETAIL S OF WHICH ARE AS UNDER:- I) JAMSHEDPUR UNIT RS.4,10,90,573/- II) JAMMU UNIT RS.1,07,23,833/- III) HEADQUARTERS MUMBAI RS. 48,18,831/- 4. THIS EXPENDITURE WAS CLAIMED AS DEFERED REVENUE EXP ENDITURE IN THE BOOKS OF ACCOUNT WHEREAS THE ASSESSEE CLAIMED THE F ULL AMOUNT UNDER ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 2 SECTION 37(1). THE A.O. DISALLOWED THE SAME HOLDING IT AS CAPITAL EXPENDITURE AND THE CIT(A), AFTER CONSIDERING THE ISSUE, CONFIR MED THE AMOUNT PERTAINING TO JAMMU AND JAMSHEDPUR UNITS WHEREAS HE ALLOWED TH E AMOUNT ON BEHALF OF HEAD OFFICE. IT WAS ASSESSEES CONTENTION THAT T HE ENTIRE AMOUNT IS ALLOWABLE AS REVENUE EXPENDITURE. 5. THE FACTS LEADING TO THE PRESENT ISSUE ARE THAT DUR ING THE EARLIER YEAR THE ASSESSEE HAS PAID AMOUNTS TOWARDS EXPENSES OF C ALCUTTA UNIT, WHICH WAS CLOSED DURING THIS YEAR WHEREAS THE ASSESSEE HA S PAID AMOUNTS FOR JAMSHEDPUR AND JAMMU UNITS DURING THE YEAR, WHICH W ERE IN FACT CLOSED IN THE NEXT YEAR. IT WAS ASSESSING OFFICERS CONTENTIO N THAT THESE UNITS ARE INDEPENDENT BUSINESSES OF THE ASSESSEE AND ASSESSEE HAS SEPARATELY CLAIMED DEDUCTION UNDER SECTION 80HH AND SO EXPENDITURE ON CLOSURE OF BUSINESS UNIT IS CAPITAL IN NATURE AND DID NOT ALLOW THE EXP ENDITURE. IT WAS ASSESSEES CONTENTION THAT THE ASSESSEE HAS REORGANISED THE BU SINESS AND HAS STARTED A PROJECT NEW DAWN TO FUNDAMENTALLY RESTRUCTURE THE FOSECO COMPANY IN INDIA FOLLOWING THE ONE OFF STRUCTURAL CHANGES IN THE MARKET RESULTING FROM ECONOMIC LIBERALISATION COMMENCING 1993. AS THE MAR KET HAS CHANGED AND COMPETITION INCREASED, THE COMPANY FELT THAT RESTRU CTURING WAS REQUIRED AND IT WAS IMPLEMENTED BY FULLY FUNCTIONAL JD EDWARD (E RP) PACKAGE. FOUR OUT OF THE FIVE WORKS OF THE COMPANY WERE PLANNED TO BE CLOSED AND NEW MANUFACTURING FACILITIES ALSO HOUSING THE MANAGEMEN T WERE CONSTRUCTED AT SANASWADI, PUNE. SOME OF THE PROJECT LINES WERE RES TRUCTURED TO BE OUTSOURCED IN LINE WITH FULFILLING CUSTOMERS DEMAN D ON TIME IN FULL (OTIF) AS PART OF RESTRUCTURING. THE ASSESSEE MADE PAYMENT S CONTRACT TO VARIOUS EMPLOYEES WHO OPTED FOR VRS AND THOSE WHO HAVE NOT OPTED FOR VRS WERE RELOCATED IN OTHER UNITS. THE BUSINESS OF THE COMPA NY WAS CONTINUING AND THE EXPENDITURE WAS NOT RELATED TO DISCONTINUANCE O F BUSINESS OF THE COMPANY BUT ONLY FOR A PART OF THE UNIT FOR OPERATI ONAL REASONS. THE ASSESSEES SUBMISSION WERE THAT THERE WAS CENTRALI SED CONTROL, MANAGEMENT AND INTERLACING ACTIVITIES BETWEEN VARIOUS UNITS AN D CLOSURE OF THE UNITS DURING THE YEAR AT JAMSHEDPUR AND JAMMU AND CALCUTT A UNIT IN EARLIER YEAR AND CHINCHWAD IN LATER YEAR DOES NOT AMOUNT CL OSURE OF BUSINESS. IT WAS FURTHER SUBMITTED THAT ALL THE COMPANIES ARE MA NUFACTURING ADDITIVES ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 3 AND CONSUMABLE PRODUCTS AND RESINOUS PRODUCTS WHICH WERE MANUFACTURED AT CHINCHWAD UNIT ARE NOW BEING MANUFACTURED IN SAN ASWADI UNIT AND SOME OF THE PRODUCTS MANUFACTURED IN JAMSHEDPUR AND JAMMU WERE BEING OUTSOURCED NOW, BUT BUSINESS ACTIVITY CONTINUED TO BE THE SAME. THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR 247 ITR 178 AND VARIOUS OTHE R CASES TO SUBMIT THAT THE EXPENDITURE CLAIM IS REVENUE IN NATURE. THE CLA IM OF THE ASSESSEE IS ON THE BASIS OF THE FOLLOWING JUDICIAL PRINCIPLES: - (A) IN THE CASE OF INDIAN CABLE CO. LTD. VS. THE W ORKMEN AIR 1972 (SC) 2195 THE HON'BLE SUPREME COURT HELD THAT THE P AYMENT OF COMPENSATION TO INCLUDE THE WORKMEN TO RETIRE PREMA TURELY WAS AN ITEM OF EXPENDITURE INCURRED BY THE COMPANY ON THE GROUN D OF COMMERCIAL EXPEDIENCY AND WAS ALLOWABLE U/S. 37(1) OF THE ACT. (B) EMPIRE JUTE CO. LTD. VS. CIT (1981) (124 ITR 1) (SC). IN THIS CASE IT WAS HELD THAT THERE MAY BE CASES WHERE EXPENDITURE EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT MAY, NON ETHELESS, BE ON REVENUE ACCOUNT. (C) SASSOON J. DAVID & CO. PVT. LTD. VS. THE CIT 118 ITR 261 (S.C.). THE COURT HELD THAT IT IS TOO LATE IN THE DAY NOW, WHATEVER MAY HAVE BEEN THE POSITION TWO DECADES AGO TO TREAT THE EXPE NDITURE INCURRED BY A MANAGEMENT IN PAYING REASONABLE SUM BY WAY OF GRATU ITY, BONUS, RETRENCHMENT COMPENSATION OR COMPENSATION FOR TERMI NATION OF SERVICE AS NOT BUSINESS EXPENDITURE. (D) ASSAM OIL CO. LTD. VS. CIT (154 IT 647). HELD: - THAT IT WAS CONCLUSIVELY ESTABLISHED THAT THE ASSESSEES BUSINE SS IN WHICH THE DISPUTED PAYMENTS WERE MADE DID NOT COME TO A CLOSE AND THAT THE ASSESSEE MADE SUCH PAYMENTS IN ORDER TO EFFECT ECON OMY AND RATIONALISATIONS OF ITS PERSONNEL. NO ASSETS OF END URING NATURE CAME INTO EXISTENCE BY REASON OF THE PAYMENTS THOUGH BENEFITS ACCRUED TO THE ASSESSEE THEREUNDER, WHICH WOULD CONSTITUTE NOT ONL Y FOR ONE YEAR BUT IN FUTURE YEARS. (E) GEORGE OAKES LTD. VS. THE CIT (1992) 197 ITR 28 8 (MADRAS) HELD: - THE PAYMENT WAS ONLY TO CONTAIN THE LOSS, R EORGANIZE THE BRANCH BY REDUCING THE STAFF AND TO BRING ABOUT A REDUCTIO N IN THE WAGE BILL AND FOR BUSINESS CONSIDERATION AND EXPEDIENCY. (F) MACHINERY MANUFACTURING CORPORATION LTD. VS. TH E CIT (198 ITR 559) CALCUTTA. HELD:- THAT PAYMENT OF COMPENSATION WAS TO INDUCE W ORKMEN TO RETIRE PREMATURELY. IT IS AN EXPENDITURE INCURRED ON GROUN DS OF COMMERCIAL EXPEDIENCY TO FACILITATE CARRYING ONE OF THE BUSINE SS. ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 4 (G) BHOR INDUSTRIES LTD. VS. CIT (128 TAXMAN 626) ( BOMBAY) HELD: VRS EXPENDITURE BEING A REVENUE EXPENDITURE I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALL OWED ENTIRELY IN THE YEAR IN WHICH IT IS INCURRED AND IT CANNOT BE SPREA D OVER A NUMBER OF YEARS EVEN THOUGH ASSESSEE HAS WRITTEN OFF IN ITS B OOKS OVER A PERIOD OF YEARS. (H) RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECIS IONS: - (I) VIKHROLI METAL FABRICATION LTD. LTD. VS. DCIT 54 ITD 740 (II) BANSIDHAR PVT. LTD. 127 ITR 65 (GUJARAT) 6. THE CIT(A), HOWEVER, HAS NOT ACCEPTED ASSESSEES CO NTENTION AND AFTER CONSIDERING THE REPORTS SUBMITTED BY THE BOARD DIRE CTORS HELD THAT THE EXPENDITURE CANNOT BE ALLOWED BY GIVING THE FOLLOWI NG FINDINGS: - 6.3. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND THE DOCUMENTS PRODUCED, FOR THE REASONS DISCUSSED HEREA FTER I AM OF THE CONSIDERED OPINION THAT IT IS A CASE OF CLOSURE OF TWO BUSINESS ACTIVITIES AND, THEREFORE, THE EXPENDITURE CANNOT BE ALLOWED A S DEDUCTION U/S. 37(1) OF THE ACT. DURING THE YEAR, THE ASSESSEE HAD CLOSED DOWN JAMMU UNIT AND JAMSHEDPUR UNIT. JAMMU UNIT WAS ESTA BLISHED IN THE A.Y. 1984-85. THIS WAS A NEW UNDERTAKING WHICH ALSO CLAIMED DEDUCTION U/S. 80HH AND 80I FROM A.Y. 1985-86 TO A. Y. 1994-95. JAMSHEDPUR UNIT WAS ESTABLISHED IN THE A.Y. 1962-63 . BOTH THESE UNITS WERE INDEPENDENT UNITS MANUFACTURING DIFFEREN CE ITEMS CATERING TO DIFFERENT SET OF CUSTOMERS. THIS FACT WAS CLEARL Y STATED IN THE PROPOSAL DATED 10.11.1997 PRESENTED TO THE BOARD OF DIRECTORS WHEREIN IN PARA 2.3 IT WAS STATED THE THE EXPANSIO N OF THE MANUFACTURING BASE OCCURRED IN 1964 WITH THE ESTABL ISHMENT OF A FACTORY IN CALCUTTA TO SUPPLY PRODUCTS TO THE PREDO MINANTLY STATE RUN STEEL INDUSTRY IN EASTERN INDIA. STATUTORY CONSTRAI NTS ON MANUFACTURING CAPACITY AND CONCERNS OVER THE DETERI ORATING INDUSTRIAL RELATIONS SITUATED IN WEST BENGAL PROMPTED FURTHER EXPANSION INTO JAMSHEDPUR, BIHAR STATE, IN 1974, AGAIN, MAINLY TO SERVICE THE LOCAL STEEL MARKET WITH SLURRY FOUNDRY PRODUCTS. FURTHER EXPANSION OCCURRED IN 1983 AND 1988 WITH NEW FACTORIES ESTABLISHED IN JAMMU IN THE NORTH OF THE COUNTRY, IN PONDICHERRY A UNION TERRIT ORY IN SOUTH OF INDIA THUS THE DIFFERENT UNITS OF THE COMPANY WERE SET UP TO MEET THE DEMANDS OF THE LOCAL CUSTOMERS OF THAT AREA AND ALL THE UNITS FUNCTIONED INDEPENDENTLY AND WERE NOT DEPENDENT UPO N EACH OTHER FOR THEIR MANUFACTURING AND SALE. 6.4 IN ORDER TO DECIDE THE ALLOWABILITY OF EXPENDIT URE IT IS NECESSARY TO SEE WHETHER THE CLOSED UNITS FROM PART OF THE SAME BUSINESS THAT CONTINUED TO EXIST OR WHETHER THE CLOSED UNITS AMOU NTED TO SEPARATE VENTURE. IN THIS RESPECT, THE DECISION IN THE CASE OF L.M. CHHABDA & SONS VS. CIT 65 ITR 683 (SC) IS RELEVANT WHEREIN, I T HAS BEEN HELD THAT WHETHER DIFFERENT VENTURES CARRIED ON BY THE ASSESS EE FORM PARTS OF THE ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 5 SAME BUSINESS MUST DEPEND ON THE FACTS AND CIRCUMST ANCES OF EACH CASE. IT IS FOR THE ASSESSEE TO ESTABLISH THAT DIFF ERENT VENTURES CONSTITUTE PARTS OF THE SAME BUSINESS. ONLY BECAUSE AN ASSESSEE IS CARRYING ON BUSINESS VENTURES OF THE SAME CHARACTER AT DIFFERENT PLACES, IT IS NOT NECESSARY THAT VENTURES ARE PART OF THE SAME BUSINESS. IN DETERMINING WHETHER DIFFERENT VENTURES MAY BE SA ID TO CONSTITUTE THE SAME BUSINESS IT HAS TO BE SEEN WHETHER THERE WAS A NY INTERCONNECTION, ANY INTERLACING, ANY INTERDEPENDEN CE, ANY UNIT EMBRACING THE VENTURE AND WHETHER DIFFERENT VENTURE S WERE SO INTERLACED AND SO DOVETAILED INTO EACH OTHER AS TO MAKE THEM INTO THE SAME BUSINESS. THESE PRINCIPLES HAVE TO BE APPLIED BEFORE A LEGAL INFERENCE CAN BE DRAWN THAT DIFFERENT BUSINESS VENT URES CONSTITUTE ONE BUSINESS. 6.5 THE COURT FURTHER OBSERVED THAT IN THE DETERMIN ATION OF THE QUESTION THE FINDING OF FACTS ARE INVOLVED, BECAUSE A VARIETY OF MATTERS HAVING BEARING ON THE UNIT OF THE BUSINESS HAVE TO BE INVESTIGATED, SUCH AS UNITY OF CONTROL AND MANAGEMENT, CONDUCT OF THE BUSINESS THROUGH THE SAME AGENCY, THE INTER-RELATION OF THE BUSINESS, THE EMPLOYMENT OF THE SAME STAFF TO RUN THE BUSINESS, T HE NATURE OF DIFFERENT TRANSACTIONS AND FINALLY THE POSSIBILITY OF THE ONE BEING CLOSED WITHOUT AFFECTING THE TEXTURE OF THE OTHER AND SO F ORTH. 6.6 IN THE PRESENT CASE ALL THE UNITS OF THE APPELL ANT COMPANY WERE FUNCTIONING INDEPENDENTLY. ALL THE ACTIVITIES OF MA NUFACTURE AND SALE WERE INDEPENDENT. THE GOODS PRODUCED BY ONE UNIT WE RE NOT USED BY THE OTHER. THE APPELLANT PREPARED SEPARATE ACCOUNTS FOR EACH UNIT. THUS FOR ITS FUNCTIONING, ONE UNIT WAS NOT DEPENDEN T ON THE OTHER AND CLOSURE OF ONE UNIT WOULD NOT HAVE AFFECTED THE FUN CTIONING OF THE OTHER. 6.7 THE APPELLANT ARGUED THAT THERE IS UNIT OF CONT ROL AT THE TOP IN AS MUCH AS ANNUAL BUDGETS ARE APPROVED BY THE HAD OFFI CE, COLLECTIONS FROM DEBTORS ARE POOLED IN THE HEAD OFFICE, THERE I S CENTRALISED FINANCIAL SYSTEM AND THAT ALL THE UNITS WERE UNDER THE CONTRO L AND MANAGEMENT OF THE MANAGING DIRECTOR AND THE BOARD OF DIRECTORS . 6.8 HOWEVER, THE CONTROL AND UNIT AT THE TOP ONLY I S NOT UNCOMMON IN A CORPORATE ORGANIZATION. BUT MERELY ON THIS BASIS, IT CANNOT BE SAID THAT THERE WAS INTERCONNECTION, INTERLACING OR INTE R DEPENDENCE AMONGST UNITS. THE UNITS WERE LOCATED AT DIFFERENT PLACES MANNED BY DIFFERENT PERSONNEL, HAVING INDEPENDENT INFRASTRUCT URES. THERE WAS NO INTERDEPENDENCE TO THE EFFECT THAT THE FINISHED GOO DS FROM ONE UNIT WERE NEVER USED AS THE RAW MATERIAL OF THE OTHER. H ENCE, THE CONCEPT OF DOVETAILING BETWEEN THESE UNITS ALSO REMAINED AB SENT. FINALLY THE CLOSURE OF THE UNITS HAD NOT IN ANY MANNER AFFECTED THE FUNCTIONING OF THE EXISTING UNITS. 6.9 IT IS ALSO SEEN THAT AFTER THE CLOSURE OF UNITS AT CALCUTTA, JAMMU AND JAMSHEDPUR THE INSTALLED CAPACITY AND ACTUAL PRODUC TION WAS SUBSTANTIALLY REDUCED. THIS IS EVIDENCED FROM THE F OLLOWING DETAILS: ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 6 F.Y LICENSED INSTALLED ACTUAL PRODUCTION (OWN) (TONNES) PRODUCTION (OUTSIDE) 1997-98 36,687 42,961 32,059 NIL 1998-99 43,687 31,786 31,226 NIL 1999-00 42,724 23,810 14,120 11,918 2000-01 42,724 23,810 8,643 8,318 2001-02 42,724 24,380 9,771 6,613 THUS THE ASSESSEE REDUCED THE SIZE OF ITS BUSINESS AND NOT MERELY REDUCED THE WORKFORCE TO MAKE THE BUSINESS MORE PRO FITABLE. 6.10 IT IS ALSO SEEN FROM THE PROPOSAL SUBMITTED TO THE BOARD OF DIRECTORS THAT RANGE OF PRODUCTS MANUFACTURED WERE SUBSTANTIALLY NARROWED DOWN AND RESTRICTED TO RESINS, COATINGS AN D PRECISION SLEEVE FOR FOUNDRY AND AFAX GRANULAR AND POWER FLUXES FOR STEEL. IT IS ALSO SEEN THAT AFTER THE CLOSURE OF UNITS THE ASSESSEE I NCREASED ITS TRADING ACTIVITIES. IN THE F.Y. 1997-98 THE TRADING TURNOVE R WAS 3.27 CRORES WHICH INCREASED TO RS.17.27 CRORES IN 1999-2000 AND RS.17.48 CRORES IN 2000-01. 6.11 IT IS ALSO SEEN THAT THE ASSESSEE HAD COMPLETE LY CLOSED DOWN THESE UNITS AS THE ENTIRE PLANT AND MACHINERY WERE SCRAPPED AND SOLD. THE LAND WHICH WAS A LEASE-HOLD LAND WAS RETURNED T O THE STATE GOVERNMENT. THUS ALL THE OPERATIONS OF THESE UNITS WERE COMPLETELY STOPPED. ALL THE EMPLOYEES EXCEPT A FEW ENGAGED IN SALES, WERE GIVEN RETIREMENT COMPENSATION. 6.12 IT IS ALSO PERTINENT TO NOTE THAT THE APPROVAL OF THE COMPETENT AUTHORITY DOES NOT ANY WHERE INDICATE THAT IT WAS P RIMARILY OR AT LEAST ALSO FOR THE WORKMEN EMPLOYED IN THE FACTORY THAT W AS GOING TO BE CLOSED DOWN SHORTLY AFTER THE SCHEME WAS OVER. IN F ACT IN THE SCHEME, THE USUAL CONDITION PRESCRIBED IN CLAUSE (IV) OF RU LE 2BA OF THE INCOME TAX RULES THAT THE VACANCY CAUSED BY THE VOLUNTARY RETIREMENT IS NOT TO BE FILLED UP WAS DULY INCORPORATED A CONDITION T HAT IN EFFECT IS REDUNDANT FOR A UNIT THAT IS TO BE CLOSED DOWN. EVE N OTHERWISE, A VOLUNTARY RETIREMENT SCHEME FOR THE WORKMEN OF A PR OPOSED CLOSED UNIT HAS A LITTLE MEANING FOR THERE IS HARDLY ANY V OLUNTARY OPTION AVAILABLE TO THE ELIGIBLE PERSONS. RATHER THERE IS A VIRTUAL COMPULSION TO SEEK THE RETIREMENT. 6.13 THE APPELLANT RELIED ON THE DECISION IN THE CA SE OF K. RAVINDRANATHAN NAIR (SUPRA). HOWEVER, IN THAT CASE THE DECISION WAS RENDERED IN THE BACK GROUND OF THE ITATS FINDING T HAT THE VARIOUS UNITS WERE PART OF THE SAME BUSINESS. FURTHER, IN THAT CA SE THERE WAS A LABOUR PROBLEM LEADING TO THE CLOSURE OF THE UNIT W HILE IN THE PRESENT CASE THERE HAS NOT BEEN ANY SUCH PROBLEM PRIOR TO T HE CLOSURE. THEREFORE, THE ISSUE WHETHER DIFFERENT UNITS FOR PA RT OF THE SAME BUSINESS IS BASICALLY DEPENDS UPON THE FACTS OF EAC H CASE. ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 7 6.14 AS DISCUSSED EARLIER, THE COMPENSATION PAID BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE A.Y. 1998-99 FOR CLOSURE OF CALCUTTA UNIT WAS HELD AS NOT ALLOWABLE BY THE CIT(A) ON THE GROUND THAT IT RELATED TO THE CLOSED BUSINESS. THE FACTS REGARDING COMPENSATION PAID FOR JAMMU AND JAMSHEDPUR UNITS DURING THE YEAR UNDE R CONSIDERATION ARE SIMILAR. FOR THE REASON DISCUSSED BY THE CIT(A) IN THE APPELLATE ORDER FOR THE A.Y. 1998-99, THE EXPENDITURE INCURRE D IN CONNECTION WITH CLOSED BUSINESS IS NOT ALLOWABLE. 6.15 HOWEVER, THE COMPENSATION OF RS.48,18,831/- PA ID FOR VRS OF HEAD QUARTER STAFF IS IN MY OPINION, ALLOWABLE AS R EVENUE EXPENDITURE. IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN TH E CASE OF INDIAN CABLE CO. LTD. VS. THEIR WORKMEN (1982) AIR SC 2195 THAT: THE VOLUNTARY RETIREMENT SCHEME ENABLE THE YOUNGE R WORKMEN TO CONTINUE IN SERVICE WHILE IT OFFERED A TEMPTATION FOR THE OL DER EMPLOYEES TO RETIRE FROM SERVICE. THE VOLUNTARY RETIREMENT SCHEME HAS NOT BE EN CHALLENGED AS MALA FIDE BY THE UNIONS. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE PAYMENT OF COMPENSATION TO INDUCE THE WORKMEN TO RE TIRE PREMATURELY WAS AN ITEM OF EXPENDITURE INCURRED BY THE COMPANY ON THE GROUND OF COMMERCIAL EXPEDIENCY IN ORDER TO FACILITATE THE CARRYING ON O F THE BUSINESS AND IT WAS AN EXPENDITURE ALLOWABLE UNDER SECTION 37(1) OF THE IN COME-TAX ACT. IT WAS NOT AN EXPENDITURE OF A CAPITAL NATURE. THE TRIBUNAL WAS J USTIFIED IN DECLINING TO ADD BACK THIS ITEM OF EXPENDITURE TO THE GROSS PROFITS. RELIANCE IS ALSO PLACED ON THE DECISION OF THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BHOR INDUSTRIES LTD. W HEREIN REFERRING TO THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE C ASE OF CIT VS. ASHOK LEYLAND LTD. 86 ITR 549 AND EMPIRE JUTE CO. L TD. VS. CIT 124 ITR 1, IT WAS HELD THAT THE VRS EXPENSES WERE INCU RRED BY THE COMPANY TO SAVE ON THE EXPENSE. THIS EXPENSE WAS NO T REFERABLE TO ANY INCOME-YIELDING ASSET. IT IS WELL SETTLED THAT, ORDINARILY, REVENUE EXPENDITURE, WHICH IS INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF BUSINESS, MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED AND IT CANNOT BE SPREAD OVER A NUMBER OF Y EARS EVEN THOUGH THE ASSESSEE HAS WRITTEN IT OFF IN ITS BOOKS OVER A PERIOD OF YEARS. IT IS ONLY IN CASES OF SPECIAL TYPE OF ASSETS THAT THE SP READ OVER IS WARRANTED. IN THE CASE OF EMPIRE JUTE CO. LTD. V. C IT [1980] 124 ITR 1 (SC), IT HAS BEEN HELD BY THE SUPREME COURT THAT TH ERE ARE CASES WHERE THE TEST OF ENDURING BENEFIT MAY BE BREAK DOWN. THE DECISIONS RENDERED BY THE VARIOUS HIGH COURTS IN THE FOLLOWING CASES ALSO SUPPORT THE ASSESSEES CASE: - CIT VS. SIMPSON & CO. LTD. 230 ITR 749 (MAD) CIT VS. GEORGE OAKES LTD. 197 ITR 288 (MAD) SASSOON J. DAVID & CO. P. LTD. VS. CIT 118 ITR 261 (SC) CIT VS. ASSAM OIL CO. LTD. 154 ITR 647 (CAL) AMBALA CANTT. ELECTRIC SUPPLY CORPORATION LTD. VS. CIT 133 ITR 343 (P&H) KARVALVES LTD. VS. CIT 197 ITR 95 (KERALA) THE ASSESSEE IS AGGRIEVED. ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 8 7. DRAWING OUR ATTENTION TO VARIOUS SUBMISSIONS MADE B EFORE THE A.O. AND THE DETAILS FILED IN THE PAPER BOOK, THE LEARNE D COUNSEL SUBMITTED THAT THESE UNITS WERE PART OF ASSESSEES SAME BUSINESS. IT WAS HIS SUBMISSION THAT THE COMPANY WAS INCORPORATED IN 1958 AND THE CHINCH WAD AND CALCUTTA UNITS WERE SETUP IN SEPTEMBER 1962, JAMSHEDPUR UNIT IN 1973, JAMMU UNIT IN 1983 AND PONDICHERRY UNIT 1988. THE COMPANY WAS MANUFACTURING MORE THAN 400 PRODUCTS FOR THE METALLURGICAL INDUSTRY AN D THESE PRODUCTS ARE IN THE NATURE OF ADDITIVES AND CONSUMABLES USED IN THE METALLURGICAL INDUSTRY. IT WAS SUBMITTED THAT THE JAMSHEDPUR UNIT WHICH WAS SETUP IN 1973 HAS SOME STATUTORY CONSTRAINTS ON MANUFACTURING CAPACIT Y AND CONCERNS OVER THE DETERIORATING INDUSTRIAL RELATIONS IN WEST BENGAL A ND THIS UNIT WAS MOSTLY SERVING THE STEEL MARKET WITH SLURRY FOUNDRY PRODUC TS. THE JAMMU UNIT WAS SET IN 1983. IT HAS SOME ADMINISTRATIVE PROBLEMS IN MANUFACTURING AND BECAUSE OF REORGANISATION THE PRODUCTION ACTIVITY W AS CLOSED BUT SAME PRODUCTS WERE BEING OBTAINED BY OUTSOURCING AND ASS ESSEES BUSINESS HAS INCREASED CONSEQUENT TO RESTRUCTURING. IT WAS ASSES SEES SUBMISSION THAT THERE IS UNITY OF CONTROL, UNITY OF MANAGEMENT, COM MONALITY OF FUNDS, INTERDEPENDENCE AND INTERLACING OF THE ACTIVITIES A ND CLOSURE OF PART OF THE BUSINESS CANNOT BE CONSIDERED AS CLOSURE OF THE BUS INESS. HE RELIED ON VARIOUS DECISIONS, WHICH ARE AS UNDER: - SASSOON J. DAVID & CO. P. LTD. VS. CIT 118 ITR 261 (SC) ASSAM OIL CO. LTD. 154 ITR 647 (CAL) GEORGE OAKS LTD. 197 ITR 288 (MAD) MACHINERY MANUFACTURING CORPORATION LTD. 198 ITR 55 0 (CAL) INDIA CABLE COMPANY (AIR 1982 SC 219) BHOR INDUSTRIES LTD. 128 TAXMAN 626 (BOM) MEDLEY PHARMACEUTICALS LTD. 109 TTJ (BOM) MARGARINE AND REFINED OILS CO. 282 ITR 576 (KAR) MGF INDIA LTD. 272 ITR 191 (DEL) JAYSHREE TEA AND INDUSTRIES LTD. 272 ITR 193 (CAL) RAVINDRANATHAN NAIR 247 ITR 178 (SC) PI INDUSTRIES LTD. 106 ITD 401 (JODH) 8. THE LEARNED D.R., HOWEVER, REFERRED TO THE DETAILE D ORDER OF THE CIT(A) AND SUBMITTED THAT THESE UNITS ARE INDEPENDENTLY FU NCTIONING AND THE JAMSHEDPUR UNIT HAS CLAIMED 80HH AS A SEPARATE BUSI NESS AND ACCORDINGLY THE EXPENDITURE IS CAPITAL IN NATURE. ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 9 9. WE HAVE CONSIDERED THE ISSUE. THE ASSESSEE IS IN TH E BUSINESS OF MANUFACTURING OF VARIOUS METALLURGICAL PRODUCTS FOR A LONG PERIOD AND VARIOUS MANUFACTURING UNITS HAVE BEEN CLOSED AND OT HER UNITS HAVE BEEN CONTINUED. IN FACT THE SCRAPPING OF MACHINERY AND C LOSURE OF UNITS HAPPENED IN LATER YEAR AND ASSESSEE HAS CONTINUED S ERVICING THE CLIENTS BY OUTSOURCING THE REQUIREMENT OF MATERIALS EARLIER MANUFACTURED. NOT ONLY THAT THE ASSESSEE AS PART OF RESTRUCTURING HAS SHIFTED SOME OF THE ACTIVITIES TO THE MAIN UNIT AT PUNE. AS SEEN FROM T HE FACTS OF THE CASE THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND SU PPLY OF VARIOUS METALLURGICAL PRODUCTS TO STEEL INDUSTRY AND IN VIE W OF OBSOLESCENCE OF TECHNOLOGY AS WELL AS DEVELOPMENT IN NEW TECHNOLOGY AND FURTHER DUE TO VARIOUS INDUSTRY-RELATED PROBLEMS HAD TO CLOSE DOWN ITS CALCUTTA UNIT IN EARLIER YEAR AND JAMSHEDPUR AND JAMMU UNITS IN THIS YEAR. EVENTHOUGH THE AMOUNTS HAVE BEEN PAID IN THIS YEAR THE ACTUAL CLOSURE OF THE UNITS HAVE OCCURRED IN THE LATER YEAR, AS PER THE SUBMISS IONS. SIMILAR FACT IS ALSO AVAILABLE FOR EARLIER YEAR WHEREIN THE CALCUTT A UNIT WAS CLAIMED TO BE CLOSED IN AY 1998-99 BUT THE ACTUAL CLOSURE OF THE UNIT OCCURRED DURING THIS ASSESSMENT YEAR. ON THAT FACT AND FURTHER THAT THE CIT(A) HAS NOT GIVEN PROPER OPPORTUNITY TO THE ASSESSEE, THE ISSUE IS RESTORED BACK TO THE CIT(A) FOR GIVING A FINDING, WHICH WE WERE INFORMED HAS NOT BEEN GIVEN YET FOR AY 1998-99. 10. HOWEVER, IN THIS YEAR THE CIT(A) HAS GIVEN A FINDIN G ON CONSIDERATION OF VARIOUS FACTORS THAT THE UNITS ARE INDEPENDENT B USINESSES. HE HAS ALLOWED THE HEAD OFFICE EXPENSES AS REVENUE EXPENDITURE BY RELYING ON VARIOUS PRINCIPLES ESTABLISHED IN THIS REGARD WHICH ARE EXT RACTED IN PARA 6.15 OF HIS ORDER. WE ARE UNABLE TO UNDERSTAND HOW THESE PRINCI PLES ARE NOT APPLICABLE TO THE JAMSHEDPUR AND JAMMU UNITS. IN FACT THE ASSE SSEES BUSINESS IS ONE SINGLE BUSINESS EVENTHOUGH FOR THE PROPOSE OF 80HH AND OTHER DEDUCTIONS AVAILABLE STATUTORILY, THESES UNITS ARE CONSIDERED AS INDEPENDENT BUT THESE ARE FORMING PART OF THE SAME BUSINESS OF THE ASSESS EE AND ASSESSEES BUSINESS HAS NOT CLOSED DOWN AND IT CONTINUED TO BE IN THE SAME IN METALLURGICAL PRODUCTS, BOTH MANUFACTURING AND TRAD ING AS IT WAS BEFORE, BUT WITH INCREASED TURNOVER BECAUSE OF RESTRUCTURIN G. AS SEEN FROM THE FACTS ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 10 ON RECORD THE RESTRUCTURING IN FACT IS HELPING THE ASSESSEE IN MODERNISING AND INCREASING THE BUSINESS TURNOVER AND PROFITS TH EREBY. IT CANNOT BE STATED THAT THESE TWO UNITS ARE INDEPENDENT BUSINES SES SEPARATE FROM THE MAIN COMPANY AND EXPENDITURE INVOLVED THEREIN ARE F OR THE PURPOSE OF CLOSURE OF THE BUSINESS. THE PRINCIPLES RELIED UPON BY THE CIT(A) WHILE ALLOWING THE EXPENDITURE OF HEAD OFFICE WILL EQUALL Y APPLY TO THE OTHER TWO UNITS WHICH ARE FORMING PART OF THE SAME BUSINESS A CTIVITY OF THE ASSESSEE COMPANY. THERE IS NO DENIAL OF THE FACT THAT THE AS SESSEE IS CONTINUING THE MANUFACTURING ACTIVITIES OF THE SAME PRODUCTS ELSEW HERE AND CATERING TO THE SAME CLIENTELE. THE FACTS ARE SIMILAR TO THE FACTS CONSIDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR VS. CIT 247 ITR 178 WHICH THE CIT(A) TRIED TO DISTINGUISH IN PARA 6.13. WHETHER IT IS A LABOUR PROBLEM OR A PART OF RESTRUCTURING OF THE BUSINESS DUE TO VARIOUS OTHER FACTORS, THE FACT IS THAT ASSESSEES BUSINESS IS SP READ OVER INDIA IN VARIOUS UNITS AND OUT OF THESE UNITS THE ASSESSEE HAS CLOSE D TWO UNITS DURING THE YEAR. IN VIEW OF THIS THE EXPENDITURE PAID TO THE E MPLOYEES OF THE ERSTWHILE UNITS FOR THE PURPOSE OF VOLUNTARY RETIREMENT CAN O NLY BE CONSIDERED AS AN EXPENDITURE INCURRED IN THE COURSE OF BUSINESS. FOR THE PURPOSE OF CONTINUING ITS BUSINESS, THE ASSESSEE HAD TO REDUCE THE NUMBER OF UNITS AND ALSO RELOCATE SOME OF THE BUSINESS TO PUNE. INCIDEN TAL EXPENSES INCURRED IN RESTRUCTURING THE BUSINESS HAS TO BE CONSIDERED AS EXPENDITURE INCURRED IN THE COURSE OF CONDUCING THE BUSINESS AND ALLOWABLE UNDER SECTION 37(1). 11. WE DO NOT SEE ANY REASON TO DISTINGUISH THE EXPENDI TURE INVOLVED IN HEADQUARTERS AND THE EXPENDITURE INVOLVED IN TWO UN ITS AT JAMSHEDPUR AND JAMMU. SINCE ALL THE THREE EXPENDITURES INCURRED BY THE ASSESSEE BEING PART OF THE SAME RESTRUCTURING AND ASSESSEES BUSINESS C ONTINUED IN LATER YEARS WITH INCREASED TURNOVER AND PROFIT, WE ARE OF THE V IEW THAT ON THE SAME PRINCIPLES CONSIDERED BY THE CIT(A) WHILE ALLOWING THE HEADQUARTERS EXPENDITURE IS ALSO APPLICABLE TO THE OTHER EXPENDI TURE. MOREOVER, THE FACTS ARE EXACTLY SIMILAR TO THE DECISION CONSIDERED BY T HE HON'BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR VS. CIT 247 I TR 178. IN VIEW OF THIS WE ARE OF THE VIEW THAT THE ASSESSEE HAS CORRECTLY CLAIMED THE EXPENDITURE AS ITA NO. 4667/M/2005 M/S. FOSECO INDIA LIMITED 11 REVENUE AND ACCORDINGLY, THE SAME IS DIRECTED TO BE ALLOWED. ASSESSEES GROUND IS CONSIDERED ALLOWED. 12. IN THE RESULT, APPEAL IS DECIDED ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH 2010. SD/- SD/- (R.K. GUPTA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH MARCH 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) II, MUMBAI 4. THE CIT II, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.