M/s. ICI India Limited, Kolkata V. DCIT, Circle - 10, Kolkata, Kolkata

ITA 488/KOL/2006

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4778 (ITAT-KOLKATA)
• Duration Of Justice: 10 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-04-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 09-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: R N BJORIA SENIOR
• Keywords: Value adopted by valuation officer; Capital asset; Business income; Depreciation; Business expenditure; Opportunity of being heard; Retrospective amendment; Question of law; Cost of acquisition; Fair market value; Valuation report; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 234B; 14A; 80IB; 37(1); 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 2613 / KOL / 2005 & ITA NO.488/KOL/2006 ASSESSMENT YEAR :2002-03 ACIT, CIRCLE-10, 3, GOVT. PLACE (WEST) KOLKATA-700 001 AKZO NOVEL INDIA LTD., 34,CHOWRINGHEE ROAD, KOLKATA-700 071 [ PAN NO.AAACI 6297 A ] V/S . V/S . AKZO NOVEL INDIA LTD. (FORMERLY KNOWN AS M/S ICI INDIA LTD.)2. 34, CHOWRINGHEE ROAD, KOLKATA-700 071 DCIT, CIRCLE-10, 3 GOVT. PLACE (WEST), KOLKATA-01 /APPELLANT .. / RESPONDENT ITA NO. 1019 & 852/KOL/2007 ASSESSMENT YEAR: 2003-04 DCIT, CIRCLE-10, 3, GOVT. PLACE (WEST) KOLKATA-700 001 AKZO NOVEL INDIA LTD., 34,CHOWRINGHEE ROAD, KOLKATA-700 071 [ PAN NO.AAACI 6297 A ] V/S . V/S . AKZO NOVEL INDIA LTD. 34, CHOWRINGHEE ROAD, KOLKATA-700 071 DCIT, CIRCLE-10, 3 GOVT. PLACE (WEST), KOLKATA-01 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI R.N.BJORIA, SENIOR COUNSEL /BY RESPONDENT SHRI NIRAJ KUMAR, CIT-DR /DATE OF HEARING 22-04-2016 ! /DATE OF PRONOUNCEMENT 10-06-2016 ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 2 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE TWO SETS OF CROSS-APPEALS BY REVENUE AND ASS ESSEE ARE AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)- X, KOLKATA DATED 16.09.2005 AND 29.01.2007. ASSESSMENTS WERE FRAMED BY DCIT/ACIT, CIRCLE- 10/RANGE-10, KOLKATA U/S 143(3) OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE THEIR ORDERS DATED 3 0.03.2005 AND 28.02.2006 FOR ASSESSMENT YEARS 2002-03 AND 2003-04 RESPECTIVELY. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.488/KO L/2006 (A.Y.02-03) 2. AT THE TIME OF HEARING LD. AR STATED THAT HE HA S BEEN INSTRUCTED BY ASSESSEE NOT TO PRESS GROUND NO. 4 & 5, HENCE SAME ARE DISMISSED AS NOT PRESSED. 3. THE FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO. 1(A) AND 1(B) IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE O RDER OF AO BY HOLDING THE EXPENSES INCURRED FOR BUSINESS RE-ORGANIZATION AS C APITAL IN NATURE WHEREAS THESE ARE REVENUE IN NATURE. THE ASSESSEE FURTHER A LTERNATIVELY CLAIMED FOR THE ALLOWING OF THE DEDUCTION OF DEPRECIATION IF TREATE D THE SAID EXPENDITURE AS CAPITAL IN NATURE. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE MANUFACTURING BUSINESS O F PAINTS, PHARMACEUTICALS AND RUBBER ETC. THE ASSESSEE FOR TH E YEAR UNDER CONSIDERATION HAS CLAIMED COST OF BUSINESS RE-ORGAN IZATION OF 5,23,93,000/- IN THE PROFIT & LOSS A/C WHICH INCLUDES THE FOLLOWI NG A) AN AMOUNT OF 421.24 LAKHS ACCRUED IN THE BOOKS OF ACCOUNT IN RES PECT OF VOLUNTARY COMPENSATION (INCLUDING AMOUNTS PROVID ED FOR VARIOUS ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 3 RETIREMENT BENEFIT FUND) FOR CERTAIN EMPLOYEES WHO HAVE ACCEPTED PREMATURE RETIREMENT. B) THE COST OF RESTRUCTURING OF RUBBER CHEMICALS BU SINESS ACTIVITIES AT THE RISHRA FACTORY. THE RE-ORGANISATION EXPENSE OF RS.1 02.69 LAKHS COMPRISE MAINLY OF SALARY AND OVERHEAD COST OF PERS ONNEL ENGAGED IN THE RESTRUCTURING EXERCISE. THE AO DURING ASSESSMENT PROCEEDINGS SOUGHT CLARIFI CATION FROM THE ASSESSEE ABOUT THE NATURE OF SUCH EXPENSE AND QUEST IONED THAT WHY SUCH EXPENSE SHOULD NOT BE TREATED AS CAPITAL IN NATURE AS THERE WILL BE ENDURING BENEFIT OUT OF SUCH RE-ORGANISATION EXPENSES. IN CO MPLIANCE TO THE NOTICE THE ASSESSEE SUBMITTED THAT THE RESTRUCTURING EXPENSES ARE REVENUE EXPENSES RELATED TO BUSINESS AND THEREFORE ELIGIBLE FOR DEDU CTION. HOWEVER THE AO FOUND THAT IN THE EARLIER ASSESSMENT YEAR 2001-02 S IMILAR EXPENSES WERE ALSO DISALLOWED WHICH WAS ALSO CONFIRMED BY THE LD. CIT( A). ACCORDINGLY THE COST OF BUSINESS RE-ORGANISATION AMOUNTING TO RS.5,23,93 ,000/- WAS ALSO DISALLOWED DURING THIS YEAR BY TREATING THE SAME AS CAPITAL EXPENDITURE DUE TO LONG ENDURING BENEFIT TO THE ASSESSEE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHERE IT WAS SUBMITTED THAT THE AO DISALLOWED THE COST OF BUSINE SS REORGANIZATION WITHOUT THE APPLICATION OF MIND AS THE COMPONENTS OF THE RE -ORGANIZATION EXPENSES IN THE CURRENT YEAR ARE DIFFERENT COMPARED TO THE EARL IER YEARS. THE EXPENDITURE ALSO DOES NOT RESULT IN ANY CAPITAL ASSET WHICH CAN BE TERMED AN ENDURING BENEFIT AS THE EXPENSES ARE PURELY REVENUE IN NATUR E. ASSUMING BUT NOT ADMITTING THAT IF THE SAID EXPENDITURE IS TREATED A S CAPITAL IN NATURE, THE APPELLANT SHOULD BE ALLOWED DEDUCTION BY WAY OF DEP RECIATION IN THE CURRENT YEAR AND THE FOLLOWING YEAR. HOWEVER THE LD. CIT(A ) DISREGARDED THE PLEA OF THE ASSESSEE BY OBSERVING AS UNDER : ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE AR AND FACTS OF THE CASE. AS APPARENT FROM THE IMPUGNED ORDER, THE APPE LLANT HAS MADE SIMILAR AND IDENTICAL SUBMISSION BEFORE THE AO DURI NG THE ASSESSMENT PROCEEDING. THE AO AFTER HAVING DULY CONSIDERED THE SUBMISSION OR THE APPELLANT COMPANY HAS NOT ACCEPTED THE SAME. IN THE ASSESSMENT YEAR 2001-02, SIMILAR COURSE OF BUSINESS RE-ORGANIZATION CONSISTS OF COMPONENTS OF SIMILAR AND IDENTICAL NATURE WAS DISA LLOWED BY THE AO AND THE SAME WAS CONFIRMED BY THE THEN CIT(A) AFTER HAVING CONSIDERED THE MERITS AND FACTS OF THE CASE. ALTHOU GH THE APPELLANT HAS STATED THAT THE REORGANIZATION EXPENSES FOR THE YEA R UNDER CONSIDERATION ARE DIFFERENT FROM THE EXPENSES INCURRED IN EARLIER YEAR, IT COULD NOT SUBSTANTIATE THE SAID CONTENTION WITH SUPPORTING MA TERIALS TO ESTABLISH AND SUPPORT THE CONTENTION. I FIND THE NATURE OF RE -ORGANIZATION EXPENSES ARE SIMILAR AND IDENTICAL WITH THE EXPENSE S INCURRED IN EARLIER YEARS. ACCORDINGLY, THE DISALLOWANCE OF RS.5,23,93, 000/- STANDS UPHELD. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 6. BEFORE US THE LD. AR SUBMITTED THE PAPER BOOK WH ICH IS RUNNING FROM PAGES 1 TO 179 AND STATED THAT THE AMOUNT OF PAYMEN T TOWARDS THE VOLUNTARY RETIREMENT OF THE EMPLOYEES IS VERY MUCH COVERED UN DER SECTION 35DDA OF THE ACT. WITH REGARD TO THE SALARY AND OVERHEAD COST OF THE PERSONNEL INVOLVED IN THE BUSINESS REORGANIZATION THE ASSESSEE SUBMITTED THAT ALL THESE EXPENSES ARE REVENUE IN NATURE AND THEREFORE ELIGIBLE FOR DE DUCTION. THE LD. AR ALSO ALTERNATIVELY SUBMITTED THAT IN CASE THE EXPENDITUR E INCURRED ON THE BUSINESS REORGANIZATION ARE TREATED AS CAPITAL EXPENDITURE T HEN THE SAME SHOULD BE ELIGIBLE FOR THE DEPRECIATION. ON THE OTHER HAND TH E LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 7. FROM THE AFORESAID DISCUSSION WE FIND THAT THE A O HAS DISALLOWED THE EXPENSES COMPRISING OF VRS, SALARY AND OTHER OVER-H EAD COST OF PERSONNEL BY TREATING THEM AS CAPITAL EXPENDITURE. THE LD. CIT(A ) HAS ALSO CONFIRMED THE DISALLOWANCE MADE BY AO. HOWEVER, WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN ASSESSE ES OWN CASE IN ITS FAVOUR ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 5 IN ITA NO.1721/KOL/2008 (SUPRA) FOR ALLOWING THE DEDUCTION OF VRS EXPENSES , THE RELEVANT EXTRACT IS REPRODUCED BELOW:- 10. IN RESPECT OF GROUND NO. 1 OF THE APPEAL, THE AO HAS STATED THAT THE ASSESSEE DEBITED RS.4,57,00,000 TOWARDS COST OF BUS INESS ORGANIZATION IN RESPECT OF VOLUNTARY COMPENSATION FOR CERTAIN EM PLOYEES WHO HAVE ACCEPTED PREMATURE RETIREMENT DURING THE YEAR. AO H AS STATED THAT SIMILAR CLAIM FOR THE ASSESSMENT YEARS 2001-02, 200 2-03 AND 2003-04, AND 2003-04 WAS DISALLOWED. HENCE, AO DISALLOWED TH E CLAIM OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION . 11. IN THE FIRST APPEAL, THE LEARNED C.I.T.(A) HAS DELETED THE SAID ADDITION BY OBSERVING THAT ITAT, C BENCH, KOLKAT A IN THE CASE OF EXIDE INDIA LTD. VS DCIT IN ITA NO. 2933/KOL/03 DATED 11.02.2004 ALLOWED THE AMOUNT PAID TO THE EMPLOYEES ON ACCOUNT OF VOL UNTARY PREMATURE RETIREMENT CONSIDERING AS REVENUE EXPENDITURE. C.I. T.(A) HAS ALSO PLACED RELIANCE ON THE DECISION OF THE APEX COURT I N THE CASE OF INDIA CABLES AIR (1972) (SC) 2195. HENCE, DEPARTMENT IS I N FURTHER APPEAL BEFORE THE TRIBUNAL. 12. DURING THE COURSE OF HEARING THE LEARNED DR REL IED ON THE ORDER OF THE AO WHEREAS THE LEARNED AR OF THE ASSESSEE SUBMI TTED THAT SIMILAR ISSUE IN THE CASE OF THE ASSESSEE WAS CONSIDERED BY THE I.T.A.T., KOLKATA BENCH IN THE ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2001-02 IN ITA NO. 448/KOL/2005 VIDE ORDER DATED 21.04.06 (COPY PLACED ON RECORD) AND THE TRIBUNAL DIRECTED THE AO TO ALLOW DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DDA AT 20% INSTEAD OF THE ENTIRE AMOUNT WITH A DIRECTION TO ALLOW THE BALANCE OF 20% EACH IN FOUR SUCCEEDING YEARS AND THE DEPARTMENT HAD AGREED WITH THE DIRECTION OF THE ITAT AND DID NOT DISPUTE THE SAME IN FURTHER AP PEAL. LEARNED DR HAS NOT DISPUTED THE ABOVE CONTENTION OF THE LEARNE D AR. 13. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES AND RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL DATED 21.04.2006 (SUPRA), WE MODIFY THE ORDERS OF T HE AUTHORITIES BELOW AND DIRECT THAT THE CLAIM OF THE ASSESSEE BE ALLOWE D IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DDA AT 20% OF THE AMOUN T OF THE EXPENDITURE INCURRED AND BALANCE AMOUNT BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. HENCE GROUND NO.1 O F THE APPEAL OF THE DEPARTMENT IS ALLOWED IN PART. TAKING A CONSISTENT VIEW OF THE CO-ORDINATE BENCH O F THIS TRIBUNAL, WE ALLOW ASSESSEES GROUND. WITH REGARD TO THE EXPENSES INCU RRED IN CONNECTION WITH THE RE-ORGANISATION EXPENSE OF RS.102.69 LAKHS WHIC H COMPRISE MAINLY SALARY ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 6 AND OVERHEAD COST OF PERSONNEL ENGAGED IN THE RESTR UCTURING EXERCISE, WE FIND THAT ALL OF THESE EXPENSES ARE REVENUE IN NATURE. T HESE EXPENDITURES DO NOT RESULT INTO ANY FIXED ASSETS. IN THIS CONNECTION, W E RELY IN THE JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F CIT V. JCT ELECTRONICS LTD. (2010) 188 TAXMAN 191 (P&H), WHEREIN HEAD NOTE SECTION 37(1) OF THE INCOME-TAX ACT, 1961 BUSINES S EXPENDITURE ALLOWABILITY OF ASSESSMENT YEAR 2004-05 WHETHER WHERE TRIBUNAL HAD TREATED EXPENDITURE FOR RESTRUCTURING AND VIABI LITY STUDY AND PREPARATION OF RESTRUCTURING PROPOSAL AS REVENUE EX PENDITURE BY RECORDING FINDINGS OF FACT THAT EXPENSES WERE INCUR RED FOR PURPOSE OF BUSINESS AND WERE IN CONFORMITY WITH PROVISIONS OF SECTION 37, NO QUESTION OF LAW AROSE FROM TRIBUNALS ORDER HELD, YES FINALLY WE HOLD THAT THE VRS EXPENSES AMOUNTING TO RS. 421.24 LACS WILL BE ALLOWED IN FIVE EQUAL INSTALMENTS IN THE MANNER AS LAID DOWN UNDER SECTION 35DDA OF THE ACT. FOR THE SALARY OF THE PERSONNEL A LONG WITH THEIR OVERHEAD COST AMOUNTING TO RS. 102.69 LACS ENGAGED IN THE BU SINESS REORGANISATION ACTIVITY WILL BE ALLOWED IN FULL AS REVENUE EXPENDI TURE. AO IS DIRECTED ACCORDINGLY. HENCE THIS GROUND OF APPEAL OF ASSESSE E IS ALLOWED. 8. THE SECOND ISSUE RAISED BY ASSESSEE IN GROUND NO . 2 IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF TH E AO BY WRONGLY DISALLOWING THE INCOME TAX DEPRECIATION FOR RS. 4,53,90,731.00 ON THE WDV OF THE BLOCK OF ASSETS BY WRONGLY INTERPRETING THE INCOME TAX PROVI SIONS OF INCOME TAX ACT WITH REGARD TO THE UNDERTAKING SOLD IN THE PAST AS GOING CONCERN FOR A SLUMP SALE. 9. THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS HAS SOLD ITS BUSINESS UNDERTAKINGS AND CLAIMED IN THE RETURN OF INCOME AS LONG TERM CAPITAL GAIN UNDER SECTION 45 READ WITH SECTION 48 OF THE ACT. H OWEVER THE AO TREATED THE SALE OF UNDERTAKING AS TAXABLE UNDER SECTION 50 OF THE ACT. AS A RESULT THERE WAS CHANGE OF DEPRECIATION CLAIMED BY THE ASSESSEE AND ALLOWED BY THE DEPARTMENT. FOR THE YEAR UNDER CONSIDERATION THE DE PRECIATION CLAIMED BY THE ASSESSEE WAS RS.28,96,78,803/- BUT THE DEPARTMENT A LLOWED FOR RS. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 7 24,42,88,072/-. ACCORDINGLY THE AO DISALLOWED THE E XCESS DEPRECIATION OF RS. 4,53,90,731/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE C IT(A) WHO AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE HAS DIS MISSED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER : 6. I HAVE DULY CONSIDERED THE SUBMISSION OF THE AR AND THE FINDINGS OF THE AO IN THE IMPUGNED ORDER. SIMILAR AND IDENTICAL ISSUE CAME UP IN APPEAL FOR ASSESSMENT YEAR 1999-00 IN APPEAL NO.44/ CIT(A)- X/CIR.10/05 AND VIDE ORDER DATED 1.9.05 IN PARA 9 A ND 10, I HAVE DISCUSSED FACTS AND MERIT INVOLVED IN THE GROUND AN D DECIDED THE ISSUE AGAINST THE APPELLANT COMPANY THEREBY UPHOLDING THE AOS ORDER IN THIS READ. I THEREFORE, FIND NO NECESSITY OF FURTHER DET AILED DISCUSSION IN THE INSTANT GROUND. FOLLOWING THE AFORESAID ORDER THE A OS DISALLOWANCE AND ADDITION OF RS.4,33,90,731/- IS UPHELD. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 11. AT THE OUTSET, WE FIND THAT THE INSTANT ISSUE I S ALREADY COVERED IN FAVOUR OF ASSESSEE IN ITS OWN CASE FOR THE ASSESSMENT YEAR 04-05 IN ITA NO.1721/KOL/2008 DATE 26.11.2010. THE RELEVANT EXTRACT GROUND OF AP PEAL AND RELEVANT ORDER ARE REPRODUCED BELOW : THE ASSESSEE COMPANY CLAIMED DEPRECIATION AMOUNTIN G TO RS.24,27,86,408/- IN ITS COMPUTATION OF INCOME. THI S ISSUE IS ALSO COVERED IN EARLIER YEARS ASSESSMENT. DEPRECIATION CLAIMED BY THE ASSESSEE WAS DISALLOWED IN EARLIER YEAR BASED ON WD V OF THE BLOCK OF ASSETS ARRIVED AT AFTER ADJUSTING SALE CONSIDERATIO N OF THE UNDERTAKING VIZ., FERTILIZER, OLD FIBRES, SEEDS, AGRO CHEMICALS ETC., TRANSFERRED FOLLOWING WHICH DEPRECIATION AS PER REDUCED WDV ADO PTED BY THE DEPARTMENT WORKS OUT AT RS.22,02,10,622/- AS AGAINS T CLAIM OF RS.24,27,86,408/- KEEPING IN VIEW THE PRACTICE ADOP TED IN THE PAST ASSESSMENT YEARS, THE DIFFERENCE AMOUNT OF DEPRECIA TION (RS.24,27,86,408/- - RS.22,02,10,622/-), BEING REDU CED TO THE EXTENT OF RS.2,25,75,786- AGAINST THE CLAIM OF THE ASSESSEE. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 8 16. DURING THE COURSE OF HEARING, THE LEARNED DR PL ACED RELIANCE ON THE ORDER OF THE AO WHEREAS THE LEARNED AR SUBMITTED TH AT THE ABOVE ISSUE IS COVERED IN THE ASSESSEES CASE FOR THE ASSESSMEN T YEAR 1994-95 REPORTED IN (2008) 23SOT 58, COPY PLACED ON RECORD AND ALSO IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 IN ITA NO.2900(KOL)/2003 VIDE ORDER DATED 20 TH JULY, 2007. LEARNED DR HAS NOT DISPUTED THE ABOVE CONTENTION OF THE ASSESSEE. 17. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY REJECT GROUND NO. 2 OF THE APPEAL TAKEN BY THE DEPARTMENT. IN VIEW OF ABOVE, WE ACCORDINGLY DISMISS THE ORDERS OF LOWER AUTHORITIES AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 12. THE THIRD ISSUE RAISED BY THE ASSESSEE IN GROUN D NO. 3 OF THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO FOR NOT APPRECIATING THE FACT THAT THE EXPENSES AMOUNTING TO RS. 2,43,56,107/- FO R THE PERIOD STARTING FROM THE DATE WHEN THE COMMERCIAL RISKS FOR THE PHARMACE UTICAL BUSINESS WERE ASSUMED BY THE PURCHASER TILL THE ACTUAL DATE OF TR ANSFER OF THE SAID BUSINESS ARE ONLY THE EXPENSES RELATING TO CORPORATE OFFICE/ FUNCTIONS WHICH HAVE NOT BEEN ALLOCATED. 13. THE ASSESSEE DURING THE YEAR HAS SOLD ITS PHARM ACEUTICAL BUSINESS UNDERTAKING AS A GOING CONCERN FOR A SLUMP PRICE TO NICHOLAS PIRAMAL INDIA LTD., (NPIL FOR SHORT) ON DATED 01.01.2002 ALTHOUGH THE ACTUAL TRANSFER OF THE BUSINESS TO NPIL WAS ON 27.03.2002. THE ASSESSEE HA S NOT INCLUDED ITS EARNING FROM THE SAID UNDERTAKING FOR THE PERIOD 01 .01.2002 TO 26.03.2002 IN THE ACCOUNTS OF THE CURRENT YEAR. THE AO DURING ASS ESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS CLAIMED ALL EXPENSES OF THAT THAT UNDERTAKING INCURRED AFTER 1.1.2002 AND UPTO THE DATE OF ACTUAL TRANSFER. IN RESPONSE TO THE NOTICE FROM THE AO THE ASSESSEE CLARIFIED THAT AS P ER THE AGREEMENT IT WAS AGREED WITH THE PURCHASER OF THE BUSINESS TO BEAR T HE REVENUE EXPENSES DURING THE PERIOD 01.01.2002 TO 26.03.2002 OTHER TH AN OPERATING EXPENSES. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 9 THESE EXPENSES WERE PERTAINING TO CORPORATE/OFFICE EXPENSES OF THE ASSESSEE AS A WHOLE. HENCE THESE EXPENSES WERE CLAIMED AS RE VENUE EXPENSE. HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSE E ON THE GROUND THAT IF THE COMMERCIAL RISK AFTER 01.01.2002 ARE TO BE ASSU MED BY NPIL AND IF THE INCOME FOR THAT PERIOD HAS NOT TO BE ACCOUNTED FOR IN THE BOOKS OF THE ASSESSEE, NO DEDUCTION FOR PHARMACEUTICAL REVENUE E XPENSES AFTER 01.01.2002 CAN BE ALLOWED IN THE HAND OF THE ASSESS EE EITHER UNDER BUSINESS HEAD OR UNDER THE HEAD OF CAPITAL GAIN. 14. AGGRIEVED ASSESSEE PREFERRED APPEAL TO LD. CIT( A) WHO UPHELD THE ORDER OF THE AO BY OBSERVING AS UNDER : 12. I HAVE MINUTELY CONSIDERED THE SUBMISSION AND CONTENTION OF THE AR. I HAVE ALSO GONE THROUGH THE AOS IMPUGNED ORDE R IN THIS REGARD. HOWEVER, I DECLINE TO SUPPORT THE CONTENTION OF THE AR OF THE APPELLANT COMPANY. THE SAID EXPENSES WERE BORNE BY THE COMPAN Y FROM 11.1.2002 TO 26.3.02 WITHOUT GETTING THE CORRESPOND ING BENEFIT OF INCOME FOR THE SAME PERIOD. IF THE COMMERCIAL RISK AFTER 1.1.2002 IS TO BE ASSUMED BY THE PURCHASER, NPIL, IT IS NATURAL AN D CONSEQUENTLY BOTH OPERATING AND REVENUE EXPENSES ARE TO BE ASSUMED BY IT IN PURSUANT OF ASSUMPTION OF COMMERCIAL RISK. BESIDES ALTHOUGH THE APPELLANT CLAIMED TO HAVE BORNE THE EXPENSES FROM 1.1.02 TO 26.3.03 T HE CORRESPONDING INCOME UPTO THE DATE OF ACTUAL TRANSFER OF THE PHAR MACEUTICAL BUSINESS TO NPIL HAS NOT BEEN SHOWN FOR THE PERIOD. AS NOTED BY THE AO, THEREFORE, THE CONTENTION OF THE APPELLANT COMPANY IS NOT MAINTAINABLE IN VIEW OF FACTS DISCUSSED ABOVE. IF NO EARNING FOR THE ABOVE PERIOD IS INCLUDED NO EXPENDITURE FOR THE SAME PERIOD CAN ALS O BE NOT ALLOWABLE EITHER UNDER THE HEAD BUSINESS OR CAPITAL GAIN. ACC ORDINGLY, THE AOS ORDER IN THIS REGARD IS UPHELD. BEING AGGRIEVE BY THIS ORDER OF LD. CIT(A) ASSESSEE CAME IN SECOND APPEAL BEFORE US. 15. BEFORE US LD. AR SUBMITTED THAT THE PHARMACEUTI CAL UNIT WAS NOT A SEPARATE INDEPENDENT BUSINESS. IT WAS PART AND PARC EL OF THE SAME BUSINESS HAVING SEVERAL UNITS UNDER THE CONTROL OF MANAGEMEN T. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 10 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID FACTS OF TH E CASE, WE FIND THAT NPIL WAS TO BEAR THE OPERATIVE EXPENSES OUT OF THE OPERA TING REVENUE FROM THE SAID BUSINESS UNDERTAKING. THE ASSESSEE HAS NOT ALLOCATE D REVENUE EXPENSES RELATING TO THE CORPORATE OFFICE / FUNCTIONS PERTIN ENT TO THE PHARMACEUTICAL BUSINESS UNDERTAKING IN TERMS OF THE AGREEMENT WITH THE PURCHASER. IN THE INSTANT CASE, THE PHARMACEUTICAL BUSINESS UNDERTAKI NG WAS SUPPOSED TO BE TRANSFER TO THE BUYER ON 1 ST JANUARY, 2002 BUT IN ACTUALITY IT WAS TRANSFERRED TO 27.03.2002. IT WAS AGREED WITH THE BUYER OF THE UND ERTAKING THAT THE ASSESSEE SHALL BEAR ALL THE EXPENSES PERTAINING TO THE CORPO RATE OFFICE OTHER THAN THE OPERATING EXPENSES OF SAID UNDERTAKING WHICH WILL B E BORNE BY THE PURCHASER. AS THE ACTUAL DATE OF TRANSFER OF THE BUSINESS IS 2 7.03.2002 THEN THE ASSESSEE WAS LIABLE TO BEAR ALL THE EXPENSES UPTO 27.03.2002 . IN THE INSTANT CASE, ASSESSEE WAS HAVING SEVERAL OTHER BUSINESS UNITS AN D THE EXPENSES WERE INCURRED FOR THE RUNNING OF THE BUSINESS UNITS ON C ONTINUOUS BASIS AND THE UNIT WHICH WAS UNDER CONSIDERATION OWNED BY THE ASSESSEE TILL THE ACTUAL DATE OF TRANSFER. IN THE SIMILAR FACTS AND CIRCUMSTANCES, T HE HONBLE SUPREME COURT IN THE CASE OF B.R. LTD. V. V.P.GUPTA, CIT IN CIVIL APPEAL NOS. 1594 TO 1594 OF 1972 DATED 03.05.1978, WHEREIN THE HEAD NOTE SECTION 72 OF THE INCOME-TAX ACT,. 1961 [CORRESPONDING TO SECTION 24(2) OF THE I NDIAN INCOME-TAX ACT, 1922] LOSSES CARRY FORWARD AND SET OFF OF BUSINESS LO SSES ASSESSMENT YEARS 1954-55 TO 1956-57 WHETHER TEST TO DETERMINE WHET HER TWO BUSINESS CONSTITUTE SAME BUSINESS, IS UNITY OF CONTROL AND N OT NATURE OF TWO LINES OF BUSINESS HELD. YES BUSINESS OF IMPORT OF WOOLEN GOODS CARRIED ON BY ASSESSEE-COMPANY WAS STOPPED DUE TO LOSSES DURING A SSESSMENT YEAR 1953- 54 FROM ASSESSMENT YEAR 1954-55, IT CARRIED ON BU SINESS OF EXPORTING OF COTTON TEXTILES AND EARNED PROFITS THERE WAS COMM ON CONTROL AND COMMON MANAGEMENT OF SAME BOARD OF DIRECTORS OF BUSINESS O F IMPORT AND EXPORT WHETHER ON FACTS, IT COULD BE SAID THAT THERE WAS D OVETAILING OR INTERLACING BETWEEN BUSINESS OF IMPORT AND BUSINESS OF EXPORT C ARRIED ON BY ASSESSEE AND THAT THEY CONSTITUTED SAME BUSINESS HELD, YES . ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 11 RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF B.R. LTD. (SUPRA) WE ALLOW ASSESSEES GROUND. 17. THE 4 TH ISSUE RAISED IN GROUND NO. 6(A) TO (F) BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED FOR ACCEPTING THE VALUATIO N OF CHOWRINGHEE PROPERTY ON THE BASIS OF DVO REPORT INSTEAD OF TAKING THE VALUA TION MADE BY THE REGISTERED VALUER ENGAGED BY THE ASSESSEE. 18. THE ASSESSEE WAS HAVING THE LAND & BUILDING LOC ATED AT ICI HOUSE AT CHOWRINGHEE, KOLKATA CONSISTING OF TOTAL AREA OF THE PROPERTY 35.60 KOTT AH. THE ASSESSEE HAS SOLD ITS PROPERTY FOR A COMPOSITE CONSIDERATION OF RS. 21 CRORES ON DATED 28 TH JUNE 2001 TO M/S RELIANCE INDUSTRIES LIMITED. THE SALE PRICE FOR THE LAND WAS CONSIDERED AT RS. 17,92,41,9 08/- AND BALANCE OF RS. 3,07,58,092/- WAS CONSIDERED AS SALE PRICE OF THE B UILDING. THE ASSESSEE CLAIMED LONG TERM LOSS OF RS. 12,74,78,092/- AFTER ARRIVING INDEXED COST OF ACQUISITION OF RS. 30,67,20,000/-. THE ASSESSEE GOT THE VALUATION OF THE PROPERTY FROM THE REGISTERED PROPERTY VALUER AS ON 1.4.1981 WHICH WAS DETERMINED AT RS. 7.20 CRORES (RS. 20 LAKHS PER KOT TAH X 35.60). HOWEVER THE AO WAS NOT SATISFIED WITH THE VALUATION DONE BY THE ASSESSEE THEREFORE THE MATTER WAS REFERRED TO THE DVO (DISTRICT VALUATION OFFICER) WHO DETERMINED THE VALUATION AS ON 1.4.1981 FOR RS. 5 LACS PER KOTTAH BASED ON COMPARABLE CASES AND AFTER CONSIDERING ALL THE RELEVANT FACTORS LIKE SIZE, SHAPE, FRONTAGE, LOCATION, TRANSPORT FACILITIES AND OTHER AMENITIES. ACCORDINGLY THE AO WORKED OUT THE INDEXED COST OF ACQUISITION FOR RS. 7,58,28 ,000/- AND COMPUTED THE CAPITAL GAIN OF RS.10,34,13,908/- (RS. 17,92,41,908 - RS. 7,58,28,000) WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 19. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHEREAS ASSESSEE SUBMITTED THAT THE DVO HAS ADOPTED RS.5 LA KHS PER COTTAH IN RESPECT OF LAND AS ON 1/4/81 WHICH IS NOT BASED ON ANY LOGIC AND IS TOTALLY AD HOC. THE ACTUAL INSTANCES OF SALE DURING 1978 TO 19 80 GIVEN BY THE DVO ARE ALSO NOT AT ALL COMPARABLE TO THE PRIME PROPERTY AT THE ABOVE ADDRESS. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 12 ALTERNATIVELY THE ASSESSEE SUBMITTED THAT THAT THE LD. AO ERRED IN MAKING THE REFERENCE TO THE VALUATION OFFICER U/S. 55A OF THE ACT FOR THE PROPERTY AT 34, CHOWRINGHEE ROAD, KOLKATA IN AS MUCH AS SECTION 55( A) CLEARLY STATES THAT IN A CASE WHERE THE VALUE OF ASSETS AS CLAIMED BY THE ASSESSEE IS IN ACCORDANCE IN RELATION TO THE ESTIMATE MADE BY THE REGISTERED VALUER REFERENCE CAN BE MADE TO THE VALUATION OFFICER ONLY IF THE LD. DC IS OF THE OPINION THAT THE VALUE SO CLAIMED IS LESS THAN THE FAIR MARKET VALUE WHICH IS NOT THE CASE IN RESPECT OF THE ABOVE PROPERTY. HOWEVER THE LD. CIT(A) REJECTE D THE PLEA OF THE ASSESSEE BY HOLDING AS UNDER : 24. I HAVE CAREFULLY CONSIDERED THE SUBMISSION AND ACTS OF THE CASE. IN THE CASE OF K G KEW REPORTED IN146 ITR 611, THE HON BLE KARNATAKA HIGH COURT HAS HELD THAT A VALUATION OFFICER APPOIN TED U/S. 16A OF THE W.T. ACT, 1957 TO WHOM REFERENCE CAN BE MADE BY THE AO BEFORE COMPLETING HIS ASSESSMENT ORDER IS A STATUTORY AUTH ORITY UNDER THE ACT. THE COURT FURTHER HELD THAT THE VALUATION MADE BY T HE DVO IS BINDING ON THE AO UNLIKE THE VALUATION MADE BY THE REGISTERED VALUER. THE AO IS BOUND TO COMPLETE THE ASSESSMENT IN CONFORMITY WITH THE VALUATION OF THE VALUATION OFFICER ALTHOUGH THE ASSESSEE IS NOT PRECLUDED FROM OBJECTING AND CHALLENGING THE SAME IN APPROPRIATE L EGAL AUTHORITY. IN SPITE OF THE SUBMISSION OF THE APPELLANT COMPANY, T HE REGISTERED VALUER ENGAGED BY THE COMPANY HAS NOT CITED ANY COMPARABLE CASES TO COME TO THE CONCLUSION THAT THE VALUE OF LAND PER COTTAH AT RS.20 LAKHS AS ON 1.4.81 AND IT WAS BASED ON ESTIMATE VALUE. AS THE A O HAS FOUND THAT THE VALUATION MADE BY THE REGISTERED VALUER OF THE COMPANY IS NOT BASED ON ACCEPTABLE BASIS HE HAS REFERRED THE MATTE R TO THE DVO WHO AFTER CONSIDERING ALL THE MATERIAL FACTS AND COMPAR ABLE CASES SUBMITTED HIS REPORT WHICH WAS FOLLOWED BY THE AO. AS HELD IN THE AFORESAID DECISION THE VALUATION REPORT OF THE DVO IS BINDING ON THE AO ONCE THE MATTER HAS BEEN REFERRED TO HIM BEFORE COMPLETION O F THE ASSESSMENT ORDERED. THERE IS NO VALID MATERIAL GROUND FOR HOLD ING THAT THE VALUATION MADE BY THE REGISTERED VALUER ENGAGED BY THE COMPAN Y IS MORE AUTHENTIC AND MORE RELIABLE THAN THE VALUATION OF T HE DVO. I THEREFORE FIND NO LOGIC AND MERIT IN THE CONTENTION OF THE AP PELLANT COMPANY. ACCORDINGLY, THE AOS FINDING AND ORDER IN THIS GRO UND IS JUSTIFIED AND HENCE UPHELD. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 13 20. BEFORE US LD. AR SUBMITTED THAT THE VALUATION D ONE BY DVO AT RS.5 LAKH PER KOTTAH IN RESPECT OF LAND AS ON 1.4.1981 I S NOT BASED ON ANY LOGIC AND IT IS TOTALLY AD HOC. LD. AR FURTHER SUBMITTED THAT THE VALUATION REPORT GIVEN BY THE REGISTERED VALUER, SRI DE WHICH THE ASSESSEE HA S SUBMITTED DURING ASSESSMENT PROCEEDINGS LOGICALLY SETS FORTH THE BAS IS OF VALUATION AFTER GIVING DUE CONSIDERATION TO THE FOLLOWING:- A) THE DEMAND AND AVAILABILITY OF PLOTS OF LAND HAV ING SIMILAR LOCATION, AREA, CHARACTERISTIC, AS WELL AS, THE PRICES OFFERE D FOR SUCH LAND IN THE OPEN MARKET FOR SALE; B) TRANSFER OF INTEREST AND ANY COVENANTS; AND C) THE MAXIMUM DEVELOPMENT POTENTIAL OF THE LAND FROM THE BUYERS POINT OF VIEW HE FURTHER STATED THAT THE VALUATION REPORT OF THE REGISTERED VALUER, SRI DE VERY LUCIDLY AND SUCCINCTLY BRINGS OUT DUE TO CONSIDERAT ION GIVEN FOR THE ABOVE FACTORS. ON THE OTHER HAND, LD. DR RELIED ON THE O RDERS OF AUTHORITIES BELOW. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ABOVE DISCUSSION, WE FIND THAT LOWER AUTHORITIES HAVE DISPUTED THE VALUATION GIVEN BY THE REGISTERED VALUER AS ON 01.04.1981. THE VALUATION DONE BY THE REGISTERED VALUER WAS AT RS.20 LAKHS PER KOTTAH AS ON 01.04.1981 AND ON THE OTHER HAND, DVO VALUED THE SAME AT RS.5 LAKHS PER KOTTAH AS ON 01.04.1981. NOW THE ISSUE BEFORE US AR ISES FOR OUR CONSIDERATION IS AS TO WHETHER THE VALUATION MADE BY THE DVO AS O N 01.04.1981 SHOULD BE ADOPTED FOR WORKING OUT OF CAPITAL GAINS IN THE INS TANT CASE. WE FIND THAT AS PER THE PROVISIONS OF SEC.55A OF THE ACT THE AO CAN BE MADE THE REFERENCE TO DVO ONLY IF HE IS OF THE OPINION THAT THE VALUE SO CLAIMED IF LESS THAN ITS FAIR MARKET VALUE. IN THE INSTANT CASE, ASSESSEE HAS SHO WN FAIR MARKET VALUE MORE AS DETERMINED BY THE DVO, THEREFORE, IN OUR CONSIDE RED VIEW, LOWER AUTHORITIES HAVE NO POWER TO REFER THE MATTER BEFORE DVO U/S. 5 5A OF THE ACT. IN THIS CONNECTION WE ARE PUTTING OUR RELIANCE OF THE JUDGM ENT OF THIS JURISDICTIONAL ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 14 HIGH COURT IN THE CASE OF CIT V. UMEDBHAI INTERNATIONAL P. LTD. (2014) 45 TAXMAN. COM 306 (CAL), WHEREIN THE HEAD NOTE:- SECT ION 55A OF THE INCOME- TAX ACT, 1961 CAPITAL GAINS REFERENCE TO VALUAT ION OFFICER (CONDITION PRECEDENT) WHETHER FORMATION OF OPINION OF ASSESSI NG OFFICER THAT VALUE CLAIMED BY ASSESSEE IS LESS THAN ITS FAIR MARKET VA LUE IS SINCE QUA NON BEFORE REFERRING MATTER TO DEPARTMENTAL VALUATION OFFICE U NDER SECTION 55A AND REASONS RECORDED AFTER ORDER OF REFERENCE FOR VALUA TION OF REGISTERED VALUER IS NOT SUBSTITUTE OF PRE-DECISIONAL FORMATION OF OPINI ON HELD, YES ASSESSEE- COMPANY SOLD ENTIRE LAND OF ITS RICE MILL AND GOT P ROPERTY VALUED BY REGISTERED VALUER TO DETERMINE FAIR MARKET VALUE AS ON 1-4-198 1 HOWEVER, ASSESSING OFFICER REFERRED MATTER TO DEPARTMENTAL VALUER TO D ETERMINE VALUE OF SAID PROPERTY ASSESSEE SUBMITTED THAT REFERENCE TO VAL UATION OFFICER WAS WITHOUT JURISDICTION AS ASSESSING OFFICE HAD NOT FORMED OPI NION THAT VALUE CLAIMED BY ASSESSEE WAS LESS THAN ITS FMV WHETHER SINCE DEPA RTMENT HAD NOT BROUGHT ANY MATERIAL ON RECORD THAT ASSESSING OFFICER HAD F ORMED AN OPINION HAVING REGARD TO NATURE OF ASSESSEE AND OTHER RELEVANT CIR CUMSTANCES FOR MAKING REFERENCE DEPARTMENTAL VALUATION OFFICER, REFERENCE WAS NOT IN COMPLIANCE WITH SECTION 55A AND IT WAS WITHOUT JURISDICTION HELD, YES TAKING THE CONSISTENT VIEW OF HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF UMEDBHAI INTERNATIONAL P.LTD. (SUPRA) WE REVERSE THE ORDERS OF LOWER AUTHORITIES AND ALLOW ASSESSEES GROUND. 22. THE FIFTH ISSUE RAISED BY ASSESSEE IN THIS APPE AL IS THAT LD. CIT(A) ERRED IN DISALLOWING THE EXPENSES UNDER SECTION 14A OF TH E ACT. 23. THE ASSESSEE HAS DECLARED DIVIDEND OF RS.4.55 C RORES AS EXEMPT UNDER SECTION 10(34) OF THE ACT WITHOUT MAKING ANY DISALL OWANCE OF THE EXPENSES AS PER PROVISIONS OF SEC. 14A OF THE ACT. IN COMPLIANC E TO THE NOTICE THE ASSESSEE REPLIED THAT NO BORROWED FUNDS INCURRING I NTEREST WAS USED IN THE INVESTMENT AND THERE IS NO EXPENSE RELATED TO EARNI NG OF DIVIDEND INCOME. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 15 HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSE E BY HOLDING THAT THE ASSESSEE FAILED TO FURNISH WITH ANY SPECIFIC NEXUS THAT BORROWED FUND HAS NOT BEEN DIVERTED AND THE ENTIRE INVESTMENT WAS MADE OU T OF OWN FUND ONLY. BESIDES THE ABOVE THE AO OBSERVED THAT TO SUPERVISE A INVESTMENT PORTFOLIO WHICH YIELD DIVIDEND TO THE EXTENT OF RS.4.55 CRORE S. THE ASSESSEE NEEDS TO HAVE INFRASTRUCTURE LIKE MANPOWER, OFFICE, ACCOUNTA NTS, RECORDS, ETC., HENCE ON ESTIMATE, RS.10 LAKH IS ATTRIBUTED TO EARNING OF DI VIDEND AND THE SAME IS DISALLOWED U/S. 14A. BY AO. 24 AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHO CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER:- 34.I HAVE DULY CONSIDERED THE SUBMISSION OF THE AR OF THE COMPANY. THE HON'BLE SUPREME COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION LTD. VS CIT, 242 ITR 450 HA S HELD THAT ONLY SUCH EXPENSES RELATED TO EARNING OF EXEMPTED DIVIDE ND INCOME ARE DISALLOWANCE U/S. 14A OF THE IT ACT. HOWEVER, THE A PPELLANT COMPANY HAS ALSO NOT QUANTIFIED THE SPECIFIC AMOUNT OF EXPE NSES ALTHOUGH IT HAS IMPLICITLY ADMITTED THAT CERTAIN EXPENSES ARE BOUND TO BE INCURRED FOR EARNING THE EXEMPTED DIVIDEND INCOME. THE COMPANY H AS EARNED A TOTAL DIVIDEND INCOME OF RS.4.55 CRORES DURING THE RELEVANT PREVIOUS YEAR UNDER CONSIDERATION. THE AO HAS ESTIMATED THE DISALLOWABLE AMOUNT AT RS.10 LAKHS WITHOUT SPECIFYING THE EXACT AMOUNT OF EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME . HOWEVER, CERTAIN EXPENSES IN THE FORM OF CLERICAL WORKS AND OTHER OF FICE EXPENSES CANNOT BE RULED OUT. I THEREFORE, FIND IT WILL BE REASONAB LE AND FAIR TO DISALLOW 1% OF THE TOTAL DIVIDEND INCOME AS PROPORTIONATE EXPEN SES FOR EARNING THE SAID DIVIDEND INCOME. THE AO IS DIRECTED TO RESTRIC T THE DISALLOWANCE AT 1% OF THE TOTAL DIVIDEND INCOME EARNED DURING THE Y EAR. BEING AGGRIEVE BY THIS ORDER OF LD. CIT(A) ASSESSEE CAME IN SECOND APPEAL BEFORE US. 25. AT THE OUTSET, WE FIND THAT SIMILAR ISSUE WAS D ISMISSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S R.P.SEN & BROTHERS (P) LTD. IN GA NO. 3019 OF 2012 DATED 04.01.2013, WHEREIN THE HONBLE JURISDICTION AL HIGH COURT HAS HELD AS UNDER:- ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 16 THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDE R THE INCOME TAX. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1 PER CENT OF SUCH DIVIDEND INCOME WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSISTENTLY. WE FIND NO REASON TO INTERFERE. TAKING A CONSISTENT VIEW, OF THIS HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF M/S R.P.SEN & BROTHERS (P) LTD. (SUPRA) WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). HENCE, THIS GROUND OF ASSESSEE S APPEAL IS DISMISSED. 26. THE 6 TH ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THA T LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE BROUGHT FORWARD BUSINESS LOSS AND LONG TERM CAPITAL LOSS FOR AY 200 0-01. THE ASSESSEE HAS SET OFF OF LONG TERM BROUGHT FORWA RD CAPITAL LOSS OF RS.17,23,36,729/- AND BUSINESS LOSS OF RS. 6.25 CRO RES. THE ASSESSEE HAS FURNISHED THE BREAKUP OF AFORESAID LOSS WHICH IS AS UNDER:- AY 2000-01 : LONG TERM CAPITAL LOSS RS.16,43,71,5 65/- AY 2001-02 : LONG TERM CAPITAL LOSS RS. 79,65, 164/- AY 2000-01 : BUSINESS LOSS RS. 6,25,00,000/- THE AO DURING ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSMENT ORDER U/S. 143(3) FOR THE AY 2000-01 HAS BEEN SET ASIDE BY THE CIT, KOLKATA-IV BY AN ORDER U/S 263 DATED 21.12.2004 AND HAS DIRECTED TO COMPLETE FRESH ASSESSMENT AFTER MAKING PROPER INVESTIGATION. THE F RESH ASSESSMENT HAS NOT BEEN MADE SO FAR AND HENCE AT THIS STAGE, IT IS NOT PROPER TO ALLOW SET OFF OF A LONG TERM CAPITAL LOSS OF RS.16,43,71,565/- AND BUS INESS OF RS. 6.25 CRORES. FURTHER ON PERUSAL OF RECORD OF AY 2001-02, IT IS F OUND THAT THERE IS NO ASSESSED LONG TERM CAPITAL LOSS. IN THE RESULT, ENT IRE SET OFF OF RS.17,23,36,729/- IS DISALLOWED. SIMILARLY THE ASSE SSEE IN ITS COMPUTATION HAS DEDUCTED BROUGHT FORWARD LOSS OF THE BUSINESS AMOUN TING TO RS.6,25 CRORES. HOWEVER, ON PERUSAL OF ASSESSMENT ORDER FOR AY. 200 0-01, IT IS FOUND THAT THERE IS INCOME OF RS.30.39 CRORES UNDER THE HEAD BUSINESS . HENCE, THERE IS ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 17 NO QUESTION OF CARRY FORWARD AND SET OFF OF SUCH LO SS. ACCORDINGLY THE AO DISALLOWED THE CAPITAL LOSS AND BUSINESS LOSS. 27. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A) WHO DIRECTED THE AO TO ALLOW SET OFF OF ADMISSIBLE BROUGHT FORWARD B USINESS LOSS AND CAPITAL LOSS AS PER LAW AFTER VERIFICATION OF RELEVANT ASSE SSMENT RECORDS. BEING AGGRIEVED BY THE OF ORDER OF LD. CIT(A) THE A SSESSEE IS IN 2 ND APPEAL BEFORE US. 28. AT THE OUTSET WE FIND THAT THE GROUND RAISED BY THE ASSESSEE IS CONSEQUENTIAL IN NATURE AND WILL HAVE THE EFFECT AS PER THE ORDER OF THE AO OF THE RELEVANT YEARS. HENCE, WE ALLOW ASSESSEES GROU ND FOR STATISTICAL PURPOSES. 29. THE LAST GROUND RAISED BY ASSESSEE IN THIS APPE AL IS AGAINST THE LEVY OF INTEREST 234B & 234C. AT THIS STAGE, IT IS CONSEQUE NTIAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 30. IN THE RESULT, ASSESSEES APPEAL PARTLY ALLOWED . COMING TO REVENUES APPEAL IN ITA NO. 2613/KOL/2005 FOR A.Y.02-03 . 31. THE FIRST ISSUE RAISED BY REVENUE IN THIS APPEA L IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 138 .09 LACS ON ACCOUNT OF CUSTOM DUTY PAID BEFORE FILING INCOME TAX RETURN BY VIRTUE OF THE PROVISIONS OF SECTION 43B OF THE ACT WHICH WAS NOT INCLUDED IN CL OSING STOCK OF FINISHED GOODS IN TERMS OF PROVISION OF SEC. 145A OF THE ACT . 32. THE ASSESSEE HAS NOT INCLUDED CUSTOMS DUTY ESTI MATED AT RS.138.09 LACS IN THE VALUE OF THE CLOSING STOCK AT THE YEARE ND LYING IN BONDED ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 18 WAREHOUSE. THE ASSESSEE CLAIMED THAT THIS METHOD HA S BEEN FOLLOWED CONSISTENTLY FOR THE VALUING OF THE CLOSING STOCK. HOWEVER THE ASSESSEE CLAIMED THE DEDUCTION OF THE CUSTOM DUTY BY VIRTUE OF THE PROVISIONS OF SECTION 43B OF THE ACT ON THE PAYMENT BASIS. HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE CUSTOM DUTY IS LIABLE TO BE INCLUDED IN THE CLOSING STOCK IN TERMS OF THE PROVISIONS OF SEC TION 145A OF THE ACT. THE AO ALSO OBSERVED THAT IN A.Y. 2001-02 ADDITION ON SAME ISSUE WAS MADE WHICH HAS BEEN CONFIRMED BY THE CIT(A). ACCORDINGLY THE A O HAS MADE THE ADDITION OF THE CUSTOM DUTY TO THE TOTAL INCOME OF THE ASSES SEE. 33. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) AND SUBMITTED THAT THE ACT OF NON-INCLUSION OF CUSTOM DUTY ESTIMA TED AT RS.1.38 CRORES HAS NO EFFECT ON THE PROFIT AND LOSS ACCOUNT AS THE SAM E BECOMES THE OPENING STOCK OF THE FOLLOWING YEAR. THE ASSESSEE HAS BEEN CONSISTENTLY REGULARLY FOLLOWING THE SYSTEM OF STOCK VALUATION. THE COMPAN Y HAS BEEN VALUING ITS CLOSING STOCK OF CHEMICAL PRODUCTS AT ITS ACTUAL CO ST EXCLUDING CUSTOMS DUTY ON STOCK LYING IN THE BONDED WAREHOUSE OR REALIZABLE V ALUE WHICHEVER IS LOWER. ACCORDINGLY THE LD. CIT(A) ALLOWED THE GROUND OF AP PEAL OF ASSESSEE BY OBSERVING AS UNDER : THE SUBMISSION AND FACTS OF THE CASE HAVE BEEN CAR EFULLY CONSIDERED. ON THE BASIS OF CONSISTENT AND REGULAR METHOD OF AC COUNTING ADOPTED BY THE APPELLANT COMPANY, THE APPELLANT HAS NOT INCLUD ED THE ELEMENT OF CUSTOM DUTY LIABILITY IN THE VALUATION OF CLOSING S TOCK. IF AT ALL THE CUSTOM DUTY IS INCLUDED IN THE VALUATION OF CLOSING STOCK THE OPENING STOCK OF THE NEXT YEAR WILL HAVE TO BE INCREASED BY THE SAME AMO UNT AND FIGURE THIS WILL ONLY RESULT IN DISTORTION OF THE ACCOUNTING SY STEM REGULARLY FOLLOWED BY THE APPELLANT COMPANY WITHOUT BRINGING IN ANY RE VENUE. AS PER THE AMENDED PROVISION OF SECTION 43B STATUTORY LIABILIT Y IS ALLOWABLE DEDUCTION IF ACTUALLY PAID ON OR BEFORE DUE DATE FO R FILING OF THE RETURN OF INCOME U/S. 139(1) OF THE IT ACT. IN THE CASE OF AL LIED MOTORS PVT. LTD. VS. CIT, 91 TAXMAN 205 / 224 677 THE SUPREME COURT HAS HELD THAT THE PROVISO WHICH WAS INSERTED BY THE ACCOUNTING FINANC E ACT, 1987 SHOULD BE GIVEN RETROSPECTIVE EFFECT. SIMILAR VIEW WAS HEL D EARLIER BY THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAGANNAT H STEEL CORPORATION 191 ITR 676. IN MY VIEW, THE INSERTION MADE BY THE FINANCE ACT, 1987 WAS REMEDIAL IN NATURE, DESIGNED TO ELIMINATE UNINT ENDED CONSEQUENCES WHICH MAY CAUSE UNDUE HARDSHIP TO THE ASSESSEE. I FIND ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 19 REINFORCEMENT FROM THE DECISION OF MADRAS HIGH COUR T IN THE CASE OF CIT VS. DYNAVISION LTD., REPORTED IN 267 ITR 600. T HE AO IS ACCORDINGLY DIRECTED TO ALLOW DEDUCTION ON ACTUAL PAYMENT BASIS MADE ON OR BEFORE DUE DATE FOR FILING OF THE RETURN OF INCOME AFTER V ERIFICATION OF PAYMENT DETAILS. THIS GROUND IS ACCORDINGLY DECIDED IN FAVO UR OF THE APPELLANT COMPANY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE RE VENUE IS APPEAL BEFORE US. 34. BOTH THE PARTIES ARE RELIED ON THE ORDERS OF AU THORITIES BELOW AS FAVOURABLE TO THEM. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT ASSESSEE HAS INCURRED AN EXPENSE OF RS.138.09 LAKHS TOWARDS THE CUSTOM DUTY ON THE IMPORT OF THE FINISHED GOODS WHICH WAS LYING IN THE BONDED WAREHOUSE AT THE YEAREND. THE AO DURING THE COURSE OF ASSESSMENT PRO CEEDINGS OBSERVED THAT THE AMOUNT OF CUSTOM DUTY HAS NOT BEEN INCLUDED IN THE VALUATION OF THE CLOSING STOCK AS REQUIRED U/S. 145A OF THE ACT. SO THE AO HAS MADE THE DISALLOWANCE. HOWEVER LD. CIT(A) HAS DELETED THE AD DITION MADE BY AO ON THE GROUND THAT ASSESSEE HAS BEEN FOLLOWING THE VAL UATION METHOD FOR ITS CLOSING STOCK CONSISTENTLY WITHOUT THE INCLUSION OF CUSTOM DUTY. LD. CIT(A) ALSO OBSERVED THAT THE CLOSING STOCK OF ONE YEAR BECOMES OF THE OPENING STOCK OF THE NEXT YEAR AND THEREFORE, IF CUSTOM DUTY INCLUDE D IN THE VALUATION OF THE CLOSING STOCK THEN THIS WILL ONLY RESULT IN DISTORT ION OF ACCOUNTING SYSTEM REGULARLY FOLLOWS BY THE ASSESSEE. NOW THE QUESTION BEFORE US FOR OUR CONSIDERATION ARISES SO AS TO WHETHER CUSTOM DUTY I NCURRED BY ASSESSEE ON THE FINISHED GOODS WHICH ARE LYING AS CLOSING STOCK IN THE BONDED WAREHOUSE IS TO BE INCLUDED. AT THIS JUNCTURE, WE FIND IMPORT ANT TO REPRODUCE THE PROVISION OF SECTION 145A OF THE ACT WHICH READS AS UNDER : [METHOD OF ACCOUNTING IN CERTAIN CASES. 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145,- (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 20 (I) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR I NCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION .- FOR THE PURPOSES OF THIS SECTION*, ANY TAX, DUTY , CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDI NG ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT; FROM THE PROVISION OF THE SECTION WE FIND THE AMOUN T OF ANY TAX DUTY CESS OR FEE WHICH IS ACTUALLY PAID OR INCURRED TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION NEEDS TO BE INCLUDED IN THE VALUATION OF CLOSING STOCK. IN THE INSTANT CASE, TH E GOODS HAD NOT REACHED TO THE LOCATION OF THE ASSESSEE BUT ARE LYING IN THE B OUNDED WAREHOUSE, WHICH MEANS THAT THE LIABILITY FOR THE CUSTOM DUTY HAS NO T ACCRUED ON THE DATE OF VALUATION. THEREFORE, IN OUR CONSIDERED VIEW SUCH D UTY IS NOT LIABLE TO BE INCLUDED IN THE VALUE OF THE CLOSING STOCK. IN THIS CONNECTION, WE ARE ALSO PUTTING OUR RELIANCE OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT V. LOKNETE BALASAHEB DESAI S.S.K. LTD., REPORTED (2011) 12 TAXMANN.COM 40 (BOM) WHERE THE HEAD NOTES:- SECTION 145A OF THE INCOME-TAX ACT, 1961 METHOD O F ACCOUNTING IN CERTAIN CASES ASSESSMENT YEAR 2001-02 WHETHER I N RESPECT OF EXCISABLE GOODS MANUFACTURED AND LYING IN STOCK, EX CISE DUTY LIABILITY WOULD GET CRYSTALLIZED ON DATE OF CLEARANCE OF GOOD S AND NOT ON DATE OF MANUFACTURE AND, THEREFORE, TILL DATE OF CLEARANCE OF EXCISABLE GOODS ASSESSEE CANNOT BE SAID TO HAVE INCURRED EXCISE DUT Y LIABILITY HELD, YES WHETHER THEREFORE WHERE MANUFACTURED SUGAR WA S LYING IN STOCK AND SAME WAS NOT CLEARED FROM FACTORY, EXCISE DUTY ELEMENT CANNOT BE ADDED TO VALUE OF UNSOLD SUGAR LYING IN STOCK ON LA ST DAY OF ACCOUNT YEAR HELD, YES ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 21 RESPECTFULLY FOLLOWING THE SAME ANALOGY OF THE JUDG MENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF LOKNETE BALASAHEB DESAI S.S.K.LTD. (SUPRA) WE DISMISS THE REVENUES GROUND. 35. THE 2 ND ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF INT EREST PAID ON BORROWED FUND WHICH WAS DIVERTED FOR THE PURCHASE OF SHARES. 36. THE ASSESSEE HAS MADE INVESTMENT OF RS.151,97,6 1,000/- IN THE SHARES OF QUEST INTERNATIONAL INDIA LTD. WHICH IS A SUBSID IARY OF THE ASSESSEE COMPANY AND CLAIMED THAT THE INVESTMENT WAS MADE OU T OF THE OPERATING ACTIVITIES AMOUNTING TO RS.143.58 CRORE PLUS OPENIN G CASH AND BANK BALANCE WAS UTILIZED FOR THIS PURPOSE. THE ASSESSEE HAS FUR THER SUBMITTED THAT NO DIVIDEND HAS BEEN RECEIVED DURING THE YEAR FROM THI S INVESTMENT. HOWEVER THE AO DURING ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE WAS HAVING THE BORROWINGS IN THE YEAR ENDED 31.3.2001 OF RS.35 .66 CRORES WHICH ALSO FOUND PLACE IN OPENING CASH AND BANK BALANCE. HENCE THE DIVERSION OF BORROWED FUND FOR AFORESAID PURPOSE IS APPARENT EVE N IF THE INVESTMENT WAS PARTIALLY MET BY OPENING CASH AND BANK BALANCE. IT IS AGREED THAT RS.143 CRORES HAS BEEN INVESTED OUT OF OWN SOURCE. HOWEVER , THE ASSESSEE HAS NOT BEEN IN A POSITION TO EXPLAIN AND SUBSTANTIATE REGA RDING BALANCE RS.8 CRORES (APPROX.). HENCE, CORRESPONDING INTEREST TAKING RAT E OF 10% AMOUNTING TO RS.80,00,000/- IS DISALLOWED U/S. 36(1)(III). 37. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A). WHEREAS LD. AR STATED THAT THIS INVESTMENT IS OUT OF THE CASH GENE RATED FROM THE CASH FLOW DURING THE YEAR AND THE OPENING BALANCE OF RS.181.8 1 CRORES. THIS OPENING BALANCE IN TURN HAS BEEN BUILT UP WITH THE CASH GEN ERATED FROM OWN OPERATIONS OF RS.137.05 CRORES DURING THE FINANCIAL YEAR 2000- 01 INCLUDING THE CONSIDERATION FROM THE SALE OF POLY URETHANE BUSINE SS ON 31.3.01 AS A GOING CONCERN FOR A SLUMP PRICE OF RS.75 CRORES. HENCE, I T CLEAR THAT THE INVESTMENT ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 22 IN THE SAID COMPANY HAS COME ENTIRE OUT OF OWN FUND S OF THE COMPANY AND NOT FROM, ANY BORROWING. THEREFORE, THE DISALLOWANCE OF A NOTIONAL EXPENSE OF RS.80 LAKHS BY THE AO FOR THE ABOVE INVESTMENT AS E XPENSE OF DIVERSION OF FUNDS FOR NON-BUSINESS PURPOSE IS NOT CORRECT. ACCO RDINGLY THE CITA DELETED ADDITION MADE BY AO BY OBSERVING AS UNDER:- I HAVE CAREFULLY PERUSED THE SUBMISSION OF THE AR OF THE COMPANY ALONG WITH THE OBSERVATION MADE BY THE AO IN THE IM PUGNED ORDER. THE COMPANY HAS INVESTED IN THE SHARES OF THE SAID SUBS IDIARY COMPANY OUT OF IT OWN GENERATED FUND. SECTION 36(1)(III) SPEAKS ABOUT THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS OR PROFESSION. THERE IS NO MATERIAL FINDING ON RECO RD TO INDICATE THAT THE APPELLANT HAS DIVERTED IT BORROWED FUND FOR NON-BUS INESS PURPOSE. IN CIT VS. INFOTEX PVT. LT., 150 ITR 195 (KAR.) / CALI CO DYEING AND PRINTING WORKS VS. 341 ITR 26 IT WAS HELD THAT FOR GIVING TH E BENEFIT OF SECTION 36(1)(III) TO THE ASSESSEE, WHAT IS NECESSARY TO EX AMINE IS WHETHER THE ASSESSEE HAS USED THE BORROWED CAPITAL FOR THE PURP OSE OF BUSINESS, IF THAT IS FOUND TO BE TRUE, THEN, ONE NEED NOT EXAMIN E FURTHER AS TO WHETHER THE ASSET PURCHASED WITH BORROWED CAPITAL H AS BEEN IN FACT USED BY THE ASSESSEE. IN THE INSTANT GROUND THERE W AS NO ANY INDICATION ON RECORD TO SHOW THAT THE COMPANY HAS DIVERTED BOR ROWED FUND FOR THE PURPOSE OF NON-BUSINESS PURPOSE. THE APPELLANT COMP ANY HAS INVESTED IN THE SHARES OF THE SAID COMPANY OUT OF ITS OWN SO URCES OF FUND AND THERE IS NO VALID GROUND TO DISALLOW INTEREST AT TH E NOTIONAL RATE OF 10% BY INVOKING SECTION 36(1)(II) OF THE IT ACT. I THER EFORE, FIND THE DISALLOWANCE OF RS.80 LAKHS IS WITHOUT ANY SUSTAINA BLE MATERIAL GROUND AND THE SAME IS DELETED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 38. BOTH THE PARTIES RELIED ON THE ORDERS OF AUTHOR ITIES BELOW AS FAVOURABLE TO THEM. BEFORE US LD. AR DREW OUR ATTENTION AT PAG ES 31 OF THE PAPER BOOK WHERE CASH FLOW STATEMENT OF THE ASSESSEE WAS PLACE D. LD. AR ALSO SUBMITTED THAT ASSESSEE HAS EARNED PROFIT OF RS.79 CRORES DURING THE YEAR UNDER APPEAL. LD. AR FURTHER DEMONSTRATED THAT THE INVESTMENT WAS MADE OUT OF THE OWN FUNDS AND NO BORROWED FUNDS WAS INVESTME NT IN THAT INVESTMENT, AS SUCH LD. AR PRAYED FOR THE DISALLOWANCE OF THE A DDITION MADE BY AO ON ACCOUNT OF BORROWED FUND. FROM THE AFORESAID DISCU SSION, WE FIND THAT AO HAS DISALLOWED THE INTEREST EXPENSES ON ACCOUNT OF HOLDING THAT THE INVESTMENT WAS MADE OUT OF THE BORROWED FUND, HOWEV ER, LD.AR BEFORE US ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 23 HAS DEMONSTRATED THAT NO BORROWED FUND WAS UTILIZED IN MAKING SUCH INVESTMENT. IN REJOINDER, LD. DR HAS NOT RAISED ANY OBJECTION TO CONTROVERT THE ARGUMENT OF LD. AR. NOW THE QUESTION BEFORE US ARIS ES FOR ADJUDICATION SO AS TO WHETHER THE BORROWED FUND HAS BEEN UTILIZED TO M AKE THE INVESTMENT IN THE SISTER CONCERN. WE FIND FORCE FROM THE SUBMISSION O F LD. AR THAT THERE ARE SUFFICIENT FUNDS AVAILABLE FOR THE INVESTMENT AND A S SUCH NO BORROWED FUND WAS UTILIZED FOR THE AFORESAID INVESTMENT. THEREFOR E, IN OUR CONSIDERED VIEW NO DISALLOWANCE OF INTEREST ON THE BORROWED FUND REQUI RED TO BE DISALLOWED AS CONTEMPLATED U/S 36(1)(III) OF THE ACT. IN THIS CON NECTION, WE ARE PUTTING OUR RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT V. RELIANCE UTLITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM), WHEREIN THE HEAD NOTE:- SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 IN TEREST ON BORROWED CAPITAL ASSESSEE-COMPANY WAS ENGAGED IN BUSINESS OF GENERATION OF POWER IT HAD MADE INVESTMENTS IN ITS SISTER CONCE RN FROM JANUARY, 2000 TO MARCH, 2000 ASSESSING OFFICER WAS OF VIEW THAT SUM OF RS.213 CRORES WAS INVESTED OUT OF ASSESSEES OWN FU NDS AND RS.147 CRORES WAS INVESTED OUT OF BORROWED FUNDS ACCORDI NGLY, ASSESSING OFFICER DISALLOWED A PART OF INTEREST CLAIMED ON APPEAL, ASSESSEE- COMPANY CONTENDED THAT IT HAD INTEREST-FREE FUNDS W ORTH RS.398 CRORES COMPRISING OF SHARE CAPITAL, RESERVES AND SURPLUS A ND DEPRECIATION RESERVES AND, THUS, ENTIRE INVESTMENT HAD BEEN MADE IN SISTER CONCERN OUT OF INTEREST-FREE FUNDS COMMISSIONER (APPEALS) ACCEPTED ASSESSEES CONTENTION AND DIRECTED ASSESSING OFFICE TO ALLOW ENTIRE AMOUNT OF INTEREST UNDER SECTION 36(1)(III) TRIBU NAL UPHELD ORDER OF COMMISSIONER (APPEALS) ON INSTANT APPEAL, IT WAS SEEN THAT COMMISSIONER (APPEAL) AS ALSO TRIBUNAL HAD RECORD A CLEAR FINDING THAT ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHICH H AD BEEN GENERATED IN COURSE OF YEAR COMMENCING FROM 1-4-1999 FURTHE R, IN TERMS OF BALANCE-SHEET THERE WAS AN AVAILABILITY OF RS.398.1 9 CRORES INCLUDING RS.180 CRORES OF SHARE CAPITAL WHETHER IF THERE A RE FUNDS AVAILABLE, BOTH, INTEREST-FREE FUNDS GENERATED OR AVAILABLE WI TH COMPANY, PROVIDED SAID FUNDS ARE SUFFICIENT TO MEET INVESTMENTS HEL D, YES WHETHER SINCE, IN INSTANT CASE, SAID PRESUMPTION WAS CLEARL Y ESTABLISHED IN VIEW OF FINDINGS RECORDED BY COMMISSIONER (APPEALS) AND TRIBUNAL, IMPUGNED ORDER PASSED BY SAID AUTHORITIES WAS TO BE AFFIRMED HELD, YES. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 24 RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE BOMB AY HIGH COURT IN THE CASE OF WE UPHOLD THE ORDER OF LD. CIT(A) AND THIS GROUN D OF REVENUES APPEAL IS DISMISSED. 39. THE 3 RD ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY AO ON TH E GROUND THAT ORGANIZATION TO WHICH THE ASSESSEE HAS MADE THE PAY MENT WAS NOT NOTIFIED BY THE DIRECTOR GENERAL EXEMPTION IN OFFICIAL GAZETTE. 40. THE ASSESSEE HAS CLAIMED FURTHER DEDUCTION IN C OMPUTATION U/S.35 AS UNDER: A) CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH U/S 3 5 RS.12,96,737/- B) WEIGHTED DEDUCTION ON SUMS PAID TO SCIENTIFIC RESEARCH ASSOCIATION RS.20,16,598/- THE ASSESSEE SUBMITTED THAT THE DEDUCTION FOR CAPIT AL EXPENDITURE ON SCIENTIFIC RESEARCH U/S 35(1) DOES NOT REQUIRE ANY CERTIFICATE OTHER THAN TAX AUDIT REPORT. THE ASSESSEE SUBMITTED THAT THE CONTRIBUTION WAS MA DE TO ICI R & T CENTRE, THANE. THE EXTENSION OF EXEMPTION HAS BEEN FORWARDE D TO CBDT WITH THE RECOMMENDATION FOR EXTENSION BY DIT(EAST), MUMBAI A ND DGIT (EAST), KOLKATA, HOWEVER, NOTIFICATION FOR EXEMPTION IS STI LL AWAITED. HOWEVER THE AO HAS DISALLOWED FOR THE REASON THAT THE RESEARCH CEN TRE IS NOT APPROVED FOR THE PERIOD BY THE CENTRAL GOVT. BY NOTIFICATION IN THE OFFICIAL GAZETTE WHICH IS A PRE-REQUISITE FOR WEIGHTED DEDUCTION AS PER SEC. 35 (1)(II) OF THE INCOME TAX ACT. 41. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER : I HAVE ALSO DULY CONSIDERED THE AO'S OBSERVATION AN D FINDING IN THE IMPUGNED ORDER. THE AO HAS DISALLOWED THE WEIGHTED DEDUCTION OF RS.20,16,598/- ON THE GROUND THAT THE PRESCRIBED AUTHORITY HAS APPROV ED ICI RESEARCH & TRAINING CENTRE U/S. 35(2) FOR THE PERIOD 1.4.97 TO 31.3.97. IN THE CASE OF CIT VS. KEEN PESTICIDE PVT. LTD. 97 TAXMAN 306, THE HON 'BLE KERALA HIGH COURT HAS LAID DOWN THE PRINCIPLE THAT IN ORDER TO GIVE B ENEFIT OF DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH U/S. 35 IT IS SUFFICIENT THAT THE CAPITAL EXPENDITURE IS INCURRED IN THE PREVIOUS YEA R AS PROVIDED IN THAT SECTION. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 25 IN K.M. SCIENTIFIC RESEARCH CENTRE VS. LAKSMAN PRAS AD (1977) TAX I R 426, ALLAHABAD HIGH COURT HAS HELD THAT THE LANGUAGE IN SECTION 35(1)(II). THE HON'BLE MUMBAI HIGH COURT ALSO HAS HELD IN THE CASE OF NATIONAL LEATHER MFG. COMPANY VS. INDIAN COUNCIL OF AGRICULTURAL RESEARCH REPORTED IN 241 ITR 482 / 110 TAXMAN 511 THAT RETROSPECTIVE WITHDRAWAL AND / OR CANCELLATION OF CERTIFICATE WILL HAVE NO EFFECT UPON THE ASSESSEE W HICH HAS ACTED UPON IT WHEN IT WAS VALID AND OPERATIVE. IN THE INSTANT CASE, ON THE BASIS OF VALID CERTIFICATE ISSUED BY THE APPROPRIATE AUTHORITY THE ICI R & T C ENTRE, THANE HAS CONTINUED THE RESEARCH WORK AND THE APPELLANT COMPANY HAS CON TRIBUTED THE SAID AMOUNT TOWARDS SUCH RESEARCH AND TRAINING PROGRAMME AND ACCORDINGLY THE COMPANY WILL BE ENTITLED TO GET WEIGHTED DEDUCTION OF RS.20,16,598/- AS DEDUCTION IN TERMS OF THE PROVISIONS OF SECTION 35 OF THE IT ACT. I THEREFORE, FIND THE DISALLOWANCE MADE BY THE AO IS NOT BASED O N JUSTIFIABLE MATERIAL GROUND AND HENCE, THE AO IS DIRECTED TO ALLOW WEIGH TED DEDUCTION OF THE SAID AMOUNT ACCORDINGLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 42. AT THE OUTSET IT WAS OBSERVED THAT DEDUCTION U/ S. 35 OF THE ACT IS AVAILABLE IF THE DONATION IS MADE TO THE NOTIFIED O RGANIZATION BY THE CENTRAL GOVT. OF INDIA IN THE OFFICIAL GAZETTE. IN THE INST ANT CASE, ASSESSEE FAILED TO PROVIDE THE COPY OF THE NOTIFICATION TO JUSTIFY THA T THE INSTITUTION WAS APPROVED. IN VIEW OF THIS, WE REVERSE THE ORDER LD. CIT(A) AN D GROUND OF REVENUES APPEAL IS ALLOWED. 43. NEXT ISSUE IN THIS APPEAL OF REVENUE IS THAT LD . CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DELAYED PAYME NT TOWARDS PF CONTRIBUTION. THE ONLY DATE IS ALLOWABLE UNDER THE PF ACT. 44. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE AO HAS MADE THE ADDITION O F THE AMOUNT OF THE EMPLOYEE CONTRIBUTION AS THERE WAS A DELAY IN PAYME NT TO PF AUTHORITIES. HOWEVER, FROM THE ASSESSMENT ORDER WE FIND THAT ALL THE PAYMENT OF EMPLOYEES CONTRIBUTION WERE MADE BEFORE THE DUE DAT E OF FILING OF INCOME TAX RETURN AS SPECIFIED U/S.139(1) OF THE ACT. NOW, TH IS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S VIJAY SHREE LIMITED VIDE ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 26 ITAT NO.245 OF 2011 IN GA NO.2607 OF 2011 DATED 7 TH SEPTEMBER, 2011, WHEREIN IT HAS BEEN HELD AS UNDER:- AFTER HEARING MR. SINHA, LEARNED ADVOCATE, APPEARIN G ON BEHALF OF THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF T HE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD. , WE FIND THAT THE SUPREME COURT IN THE AFORESAID CASE HAS HELD THAT T HE AMENDMENT TO THE SECOND PROVISO TO THE SEC. 43(B) OF THE INCOME TAX ACT, AS INTRODUCED BY FINANCE ACT, 2003, WAS CURATIVE IN NATURE AND IS RE QUIRED TO BE APPLIED RETROSPECTIVELY WITH EFFECT FROM 1 ST APRIL, 1988. SUCH BEING THE POSITION, THE DELETION OF THE AMOUNT PAID BY THE EMPLOYEES CONTRIBUTION BEYOND DUE DATE WAS DEDUCTIBLE BY INVO KING THE AFORESAID AMENDED PROVISIONS OF SECTION 43(B) OF THE ACT. WE, THEREFORE, FIND THAT NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED IN THIS APPEAL AND CONSEQUENTLY, WE DISMISS THIS APPEAL. FROM THE ABOVE, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN THE CA SE OF M/S VIJAY SHREE LIMITED (SUPRA). AS THE ISSUE IS COVERED, HENCE, WE DISMIS S REVENUES GROUND OF APPEAL. 45. NEXT ISSUE IN THIS APPEAL OF REVENUE IS THAT LD . CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 14A OF THE ACT TO THE EXTENT OF 1% OF THE EXEMPTED INCOME. 46. THIS ISSUE HAS ALREADY BEEN DISCUSSED IN ASSESS EES APPEAL IN ITA NO.488/KOL/2006 FOR AY 02-03 AND TAKING A CONSISTENT VIEW, WE ALLO W REVENUES GROUND. 47. NEXT ISSUE IN THIS APPEAL OF REVENUE IS THAT LD . CIT(A) ERRED IN DIRECTING THE AO TO GIVE THE MAT CREDIT IN THE SAME MANNER AS IN THE CASE OF TDS AND ADVANCE TAX FOR THE PURPOSE OF CALCULATION OF INTER EST U/S 234B AND 234C OF THE ACT. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 27 48. AT THE OUTSET, IT WAS OBSERVED THAT SIMILAR ISS UE IN ASSESSEES OWN CASE IN ITA NO.2612/KOL/2005 DATED 01.09.2015 FOR AY 2002-03 WAS DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL BY RESTORING TO THE FILE OF AO FOR FRESH ADJUDICATION. THE RELEVANT EXTRACT IS REPRODUCED BE LOW:- 8. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE HONBLE SUPREME COURT IN T HE CASE OF SAGE METALS LIMITED REPORTED IN (2012) 26 TAXMANN.COM 258 (SC) HAS HELD AS UNDER:- ENTITLEMENT OF MAT CREDIT IS NOT DEPENDENT UPON AN Y ACTION TAKEN BY THE DEPARTMENT. HOWEVER, QUANTUM OF TAX CREDIT WILL DEPEND UPON THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER. THUS, T HE RIGHT TO SET OFF ARISES AS A RESULT OF THE PAYMENT OF TAX UNDER SECT ION 115JA(1) ALTHOUGH QUANTIFICATION OF THAT RIGHT DEPENDS UPON THE ULTIMATE DETERMINATION OF TOTAL INCOME FOR THE FIRST ASSESSM ENT YEAR. THEREFORE, AS RIGHTY POINTED OUT BY THE LD. SR. COU NSEL FOR THE ASSESSEE, FIRST THE TOTAL INCOME HAS TO BE DETERMINED FOR THE ASSES SMENT YEAR 1999-2000 AND 2000-2001. WE, ACCORDINGLY, RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDA NCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WE REMIT BACK THIS ISS UE TO THE FILE OF AO FOR FRESH ADJUDICATION. WE HOLD ACCORDINGLY. 49. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. COMING TO ASSESSEES APPEAL IN ITA NO.852/KOL/2007 FOR AY 03-04 50. FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO.1( A) IN ITS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY DISAL LOWING THE EXPENSES INCURRED ON THE BASIS OF REORGANIZATION IN THE FORM OF SALARY AND OVERHEAD COST. 51. THIS GROUND IS COVERED IN ASSESSEES APPEAL IN ITA NO.488/KOL/2006 FOR AY. 2002-03, WHERE THE SAME ISSUE WAS DECIDED I N FAVOUR OF ASSESSEE, HENCE, WE APPLY SAME VIEW. THIS GROUND OF ASSESSEE S APPEAL IS ALLOWED ACCORDINGLY. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 28 52. AT THE TIME OF HEARING LD. AR FOR THE ASSESSEE NOT PRESSED GROUND NO.1(B), HENCE, SAME IS DISMISSED AS NOT PRESSED. 53. NEXT ISSUE RAISED BY ASSESSEE IS THAT LD. CIT(A ) ERRED IN CONFIRMING THE ORDER OF AO BY HOLDING THAT THE PREMIUM PAID FOR PR EMATURE REDEMPTION OF DEBENTURE IS TO BE CAPITALIZED. 54. THE AO DURING THE COURSE OF ASSESSMENT OBSERVED THAT THE ASSESSEE HAS PAID PREMIUM ON REDEMPTION OF DEBENTURE. THESE DEBENTURES WERE ISSUED/ ALLOTTED TO MEET THE COMPANYS REQUIREMENTS OF CAPITAL EXPENDITURE. THE ASSESSEE HAD PAID PREMIUM OF RS.1,28,26000/- TO THE DEBENTURE HOLDERS DURING THIS ASSESSMENT YEAR AND THE SAME HAS BEEN C LAIMED AS DEDUCTION IN COMPUTING THE BUSINESS INCOME. IN COMPLIANCE TO THE NOTICE ISSUED BY THE AO FOR TREATING THE SAME AS CAPITAL EXPENDITURE, THE A SSESSEE SUBMITTED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HOWEVER THE ASSESSEE HAD NOT PRODUCED ANY AGREEMENT WITH THE LENDERS AS TO HOW THE RATE WAS AGREED FOR THE PAYMENT OF PREMI UM. THE AO ALSO OBSERVED THAT THERE WAS NO STIPULATION IN THE DEBEN TURE TRUST DEED FOR THE PAYMENT OF SUCH PREMIUM ON REDEMPTION AND THE DEBEN TURE WAS ISSUED TO MEET THE CAPITAL EXPENDITURE OF THE ASSESSEE. IN VI EW OF THE ABOVE, THE AO DISALLOWED THE EXPENDITURE OF RS.1,28,26,000/- BY H OLDING AS CAPITAL EXPENDITURE AND ADDED TO THE TOTAL INCOME OF THE AS SESSEE. 55. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO AFTER HEARING THE CONTENTIONS OF THE ASSESSEE DIRECTED TH E AO TO EXAMINE THE PURPOSE FOR WHICH THE DEBENTURES WERE ISSUED BY THE APPELLANT. IN CASE THE BORROWED IS UTILIZED FOR ACQUISITION OF CAPITAL ASS ETS, THE PREMIUM PAID FOR PREMATURE REDEMPTION OF THE DEBENTURES IS REQUIRED TO BE TREATED AS CAPITAL EXPENDITURE AND CONSEQUENTLY DEPRECIATION IS ALLOWE D TO THE APPELLANT. IN CASE THE DEBENTURES ARE RAISED FOR THE WORKING CAPITAL R EQUIREMENTS OF THE APPELLANT COMPANY, THE PREMIUM PAID BEING IN THE NATURE OF IN TEREST FOR PREMATURE ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 29 REDEMPTION IS ALLOWABLE AS REVENUE EXPENDITURE. THE AO IS DIRECTED TO VERIFY AND ALLOW ACCORDINGLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 56. AT THE OUTSET, IT WAS OBSERVED THAT ISSUE IS CO VERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF DCIT V. CORE HEALTH CARE LTD. (2008) 298 ITR 194 (SC), WHEREIN THE HEAD NOTE:- BUSINESS EXPENDITURE INTEREST ON BORROWED CAPITAL -ACQUISITION OF NEW MACHINERY FOR EXISTING BUSINESS EXPRESSION FOR THE PURPOSE OF BUSINESS' OCCURRING IN S. 36(1)(III) INDICATES THAT ONCE THE TEST OF ' FOR THE PURPOSE OF BUSINESS ' IS SATISFIED IN RESPECT OF THE CAPITAL BORROWED, THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER S. 36(1)(III)THIS P ROVISION MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO ACQUIRE A CAP ITAL ASSET OR A REVENUE ASSETWHAT SUB-CL. (III) EMPHASIZES IS THE USER OF THE CAPITAL AND NOT THE USER OF THE ASSET WHICH COMES INTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL SEC. 36(1)(III) IS A CODE BY ITSELFDETERMINATION O F ACTUAL COST IN S. 43(1) HAS RELEVANCY IN RELATION TO SS. 32, 32A, 33 AND 41' ACTUAL COST ' OF AN ASSET HAS NO RELEVANCY IN RELATION TO S. 36(1)(III)HENCE, EX PLN. 8 TO S. 43(1) HAS NO RELEVANCY TO S. 36(1)(III)PROVISO TO S. 36(1)(III) INSERTED BY THE FINANCE ACT, 2003, W.E.F. 1ST APRIL, 2004, IS ONLY PROSPECTIVE A ND WOULD NOT APPLY TO ASSESSMENT YEARS IN QUESTION RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE SUPR EME COURT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) WE ALLOW ASSESSEES GROUND. 57. NEXT ISSUE RAISED BY ASSESSEE IS THAT LD. CIT(A ) ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE ENTRANCE FEE PAID TO THE CLUB. 58. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NG OBSERVED THAT THE ASSESSEE HAS PAID RS.1,00,000/- TO BOMBAY GYMKHANA CLUB AND CLAIMED AS REVENUE EXPENDITURE INCURRED WHOLLY FOR THE PURPOSE OF THE BUSINESS BUT FAILED TO PROVIDE THE DETAILS OF MEMBER IN WHOSE FAVOUR TH E PAYMENT WAS MADE TO THE SAID CLUB. THE AO OBSERVED THAT ENTRANCE FEE IS GENERALLY PAID FOR THE PERSONAL BENEFIT OF AN INDIVIDUAL WHO ENJOYS THE SA ME EVEN AFTER LEAVING THE ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 30 JOB OF THE COMPANY. ACCORDINGLY THE AO HELD THAT PA YMENT OF ENTRANCE FEE IS FOR THE PERSONAL BENEFIT OF THE EMPLOYEE/MEMBER, TH E SUM OF RS.1,00,000/- IS DISALLOWED BEING NOT FOR THE PURPOSE OF THE BUSINES S. 59. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO AFTER THE CONTENTIONS OF THE ASSESSEE HAS UPHELD THE ACTI ON OF THE AO. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSE SSEE IS IN 2 ND APPEAL BEFORE US : 60. AT THE OUTSET, WE FIND THAT THIS ISSUE IS SQUAR ELY COVERED IN FAVOUR OF ASSESSEE BY JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSAM BROOK LTD. V. CIT (2004) 139 TAXMANN. 229 (CAL), WHEREIN THE HONBLE COURT HAS HELD: THERE WAS A SUBSCRIPTION TO THE EXTENT OF RS. 5,00, 000 BY THE COMPANY FOR THE RENOVATION/REPAIR OF THE CLUB IN QUESTION. IT H AS BEEN CLAIMED THAT THE EMPLOYEES OF THE COMPANY ARE THE MEMBERS OF THE CLU B AND AS THE COMPANY IS SITUATED IN A REMOTE PLACE, THAT IS THE ONLY SOU RCE OF RECREATION OF ITS EMPLOYEES. NATURALLY, IF THE MANAGEMENT PAYS SOME A MOUNT FOR THE UPLIFTMENT/RUNNING OF THE CLUB IN QUESTION IN AN EF FECTIVE WAY THEN IT MUST BE HELD THAT THE SAID PAYMENT WAS MADE IN THE INTEREST OF THE COMPANY SO THAT ITS EMPLOYEES REMAINED HAPPY AND CONSEQUENTLY THE WORK OF THE COMPANY IS NOT HAMPERED IN ANY WAY DUE TO DISSATISFACTION ON THE P ART OF ITS EMPLOYEES. AS THIS PAYMENT OF RS. 5,00,000 WAS MADE BY THE COMPAN Y TO THE CLUB KEEPING ITS BUSINESS INTEREST IN MIND, THE SAID PAYMENT MUS T BE HELD TO BE BUSINESS EXPENDITURE AND ACCORDINGLY AS PER S. 37 THE ASSESS EE-COMPANY IS ENTITLED TO GET DEDUCTION. THE REASON FOR REJECTING SUCH PRAYER BY THE TRIBUNAL WAS THAT THE ASSESSEE-COMPANY WAS NOT THE OWNER OF THE SAID CLUB. IN EFFECT, THIS ARGUMENT OF THE TRIBUNAL PRACTICALLY MAKES THE CASE OF THE ASSESSEE-COMPANY STRONGER. BY MAKING SUCH PAYMENT TO A CLUB THERE IS NO PERSONAL BENEFIT TO THE COMPANY AND AS SUCH, THE ABSENCE OF OWNERSHIP MORE SUPPORTS THE CONTENTION OF THE ASSESSEE. SO, TRIBUNAL WAS NOT JU STIFIED IN DISALLOWING THIS PAYMENT OF RS. 5,00,000.CIT VS. SUNDARAM INDUSTRIE S LTD. (2000) 158 CTR (MAD) 437 : (1999) 240 ITR 335 (MAD), CIT VS. MADRA S AUTO SERVICE (P) LTD. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC) A ND CIT VS. ENGINEERS INDIA LTD. (1999) 155 CTR (DEL) 394 : (1999) 239 ITR 237 (DEL ) APPLIED. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE JURISDIC TIONAL HIGH COURT WE ALLOW THE ASSESSEES GROUND. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 31 61. NEXT ISSUE RAISED BY ASSESSEE IS THAT LD. CIT(A ) ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE EXPENSES INCURRED IN RELATION TO TRANSFER OF CATALYST BUSINESS UNDERTAKING AS A GOING CONCERN FO R A SLUM PRICE. 62. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NG FOUND THE ASSESSEE SOLD ITS CATALYST BUSINESS FOR A SALE PRIC E OF RS.155,20,58,777/- FROM WHICH THE ASSESSEE HAS CLAIMED DEDUCTIONS IN R ESPECT OF THE FOLLOWING:- WDV OF FIXED ASSETS RS.16,97,74,925/- BOOK VALUE OF CURRENT ASSETS OVER CURRENT LIABILITY RS.18,38,16,406/- TRANSACTIONS COST RS.24,30,00,000/- THE AO SOUGHT CLARIFICATION ABOUT THE TRANSACTION C OST. IN REPLY TO THE SAID LETTER, IT WAS STATED THAT CERTAIN LIABILITIES WERE TAKEN BY THE ASSESSEE IN CONNECTION WITH THE SALE OF THE AFORESAID UNIT IN T ERMS OF BUSINESS TRANSFER AGREEMENT DATED 2/10/2002. THESE LIABILITIES INCLUD E THAT THE ASSESSEE WILL MAKE ARRANGEMENT WITHIN FIVE YEARS FROM THE SALE OF THE SAID CATALYST BUSINESS FOR TRANSFER OF PANKI LAND TO THE PURCHASE R AND IN THE EVENT OF FAILURE TO DO SO, A SUM OF RS.15 CRORE WOULD BE PAID TO THE PURCHASER. SIMILARLY, A PROVISION OF RS.2.30 CRORE HAS BEEN MADE FOR PANKI SOIL CONTAMINATION AND GROUND WATER ISSUES. ACCORDINGLY THE AO OBSERVED TH AT THE LIABILITY FOR SUCH EXPENDITURE DID NOT CRYSTALLIZE IN THE PREVIOUS YEA R AND FURTHERMORE, SUCH LIABILITY IS ALSO CONTINGENT ON THE HAPPENING OF SO ME EVENT (I.E. FAILURE TO TRANSFER OF LAND) IN FUTURE. FOR THIS REASON AND IN THE CIRCUMSTANCES STATED HEREINABOVE, THE DEDUCTION FOR TRANSACTIONS COST OF RS.24.30 LACS IS NOT ADMITTED IN COMPUTING THE CAPITAL GAIN FOR SALE OF THE SAID CATALYST BUSINESS. THE SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCO ME OF THE ASSESSEE. 63. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO AFTER THE CONTENTIONS OF THE ASSESSEE HAS UPHELD THE ACTI ON OF THE AO BY OBSERVING AS UNDER : ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 32 ON PERUSAL OF THE EXPENSES, IT IS INDICATED THAT TH ESE EXPENSES HAVE NO NEXUS WITH THE SALE OF THE UNDERTAKING. THEY ARE NO T RELATABLE TO THE TRANSFER OF THE UNDERTAKING AND HENCE, ARE NOT DEDUCTBLE FRO M THE SALE CONSIDERATION OF THESE UNDERTAKINGS. FURTHER, THESE ARE EXPENSES TO BE INCURRED BY THE APPELLANT AND HAVE NOT ACTUALLY BEEN INCURRED. THE LIABILITY OF RS.10 CRORES TOWARDS LAND COST WAS TO BE INCURRED IN CASE THE LA ND IS NOT TRANSFERRED TO THE PURCHASER. FURTHER, THE TOLL CONVERSION COST OF RS. 2.4 CRORES AND SOL CONTAMINATION GROUND WATER MATTERS OF RS.2.3 CRORES RE NOT EXPENDITURE RELATABLE TO THE TRANSFER OF THE UNDERTAKING. FURTH ER, THERE IS NO EVIDENCE THAT THIS EXPENDITURE IS INCURRED. ON PERUSAL OF THE EXP ENDITURE, IT IS INDICATED THAT IT IS NOT AN ALLOWABLE EXPENDITURE WHILE COMPUTING THE CAPITAL GAINS FROM THE SALE OF THE CATALYST BUSINESS SAND POLY-URITHINE BU SINESS. THE AO IS CORRECT AS PER LAW IN DISALLOWING THE APPELLANTS CLAIM OF DED UCTION OF THESE AMOUNTS FROM THE SALE CONSIDERATION OF THE BUSINESS UNDERTA KINGS. THE AO'S ACTION IS CORRECT AS PER LAW AND IS UPHELD. THE GROUND OF APP EAL FAILS AND IS REJECTED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 64. FROM THE AFORESAID DISCUSSION WE FIND THAT THE PROVISIONS CLAIMED BY THE ASSESSEE HAVE NOT BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. ALL THE PROVISIONS WERE DEPENDING ON THE OUTCOME OF THE FUTURE EVENT. THERE WAS A TIME LIMIT OF FIVE YEARS FROM THE DATE OF THE AGR EEMENT FOR THE TRANSFER OF THE UNDERTAKING AND THE PERIOD OF FIVE YEARS HAVE EXPIR ED SO IN THE INTEREST OF JUSTICE AND FAIR PLAY WE ARE INCLINED TO RESTORE TH E ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION AS PER LAW. HENCE THIS GROUND OF ASSESSEE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 65. NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS THAT L D. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE DEDUC TION CLAIMED U/S. 35(1)(II) 66. THIS ISSUE HAS ALREADY BEEN DECIDED BY US IN ITA NO.2613/KOL/2005 FOR A.Y 2002-03 WHERE THE SAME IS DECIDED AGAINST THE A SSESSEE. IN TERMS OF ABOVE, THIS GROUND OF ASSESSEES APPEAL IS DISMISSE D. 67. NEXT ISSUE REGARDING THE DEDUCTION U/S.80HHC OF THE ACT IN THIS APPEAL OF ASSESSEE IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 33 68. NEXT ISSUE REGARDING THE LEVY OF INTEREST U/S 2 34B IN THIS APPEAL OF ASSESSEE IS CONSEQUENTIAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. 69. IN THE RESULT, ASSESSEES APPEAL PARTLY ALLOWED . COMING TO ITA 1019/KOL/2007 FOR AY 03-04 OF REVENUE . 70. FIRST ISSUE IN THIS APPEAL OF REVENUE IS THAT L D. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO BY DISALLOWING THE EXPENSES INCURRED IN CONNECTION WITH THE BUSINESS RE-ORGANIZATION. 71. AT THE OUTSET, IT WAS OBSERVED THAT THE ISSUE H AS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE IN ITA NO. 488/KOL/2006 FOR A.Y 02-03, SAME WILL BE APPLIED IN THIS ISSUE ALSO. HENCE, THIS GROUND OF R EVENUES APPEAL IS DISMISSED. 72. NEXT ISSUE IN THIS APPEAL OF REVENUE IS THAT LD . CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY HOLDING THAT SALE OF UNDERTAKING IS TO BE ADJUSTED FROM THE WDV OF THE BLOCK OF ASSETS. 73. AT THE OUTSET, IT WAS OBSERVED THAT THE ISSUE H AS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE IN ITA NO. 488/KOL/2006 FOR A.Y 02-03, SAME WILL BE APPLIED IN THIS ISSUE ALSO. HENCE, THIS GROUND OF R EVENUES APPEAL IS DISMISSED. 74. NEXT ISSUE IN THIS APPEAL OF REVENUE IS THAT LD . CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF LATE PAYMENT TOWARDS THE EMPLOYER AND EMPLOYEES OF PF. 75. AT THE OUTSET, IT WAS OBSERVED THAT THE ISSUE H AS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE IN ITA NO. 2613/KOL/2006 FOR A.Y 02-03, SAME WILL BE APPLIED IN THIS ISSUE ALSO. HENCE, THIS GROUND OF R EVENUES APPEAL IS DISMISSED. ITA NO.2613/KOL/05,488/KOL/06, 1019 & 852/KOL/07 AYS 02-03 & 03-04 ACIT CIR-10 KOL. V. AKZO NOVEL INDIA LTD. PAGE 34 76. NEXT ISSUE IN THIS APPEAL OF REVENUE IS THAT LD . CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE U/S. 80IB OF THE ACT. 77. AT THE OUTSET, IT WAS OBSERVED THAT THE ASSESSE E HAS FAILED TO FURNISH THE PRESCRIBED CERTIFICATE IN FORM NO. 10CCB DULY CERTI FIED BY CHARTERED ACCOUNTANT FOR CLAIMING THE DEDUCTION U/S. 80IB OF THE ACT. HENCE, WE ALLOW THIS GROUND OF REVENUES APPEAL. 78. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. 79. IN COMBINE RESULT, ASSESSEES APPEALS (ITA NO. 488/ KOL/2006 & 852/KOL/2007) AND THAT OF REVENUES APPEALS (ITA NO .2613/KOL/2005 AND 1019/KOL/2007) ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 10/ 06/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP '#$- 10 / 06 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-AKZO NOVEL INDIA LTD., 34, CHOWRINGHEE R OAD, KOLKATA-71 2. / REVENUE-ACIT CIRCLE-10, 3, GOV. PLACE (WEST), KO LKATA-01 3.#,#-. / / CONCERNED CIT KOLKATA 4. /- / CIT (A) KOLKATA 5.2 3455-., -.!, / DR, ITAT, KOLKATA 6.489:; / GUARD FILE. BY ORDER/ , /TRUE COPY/ /# -.!,