GRINDWELL NORTON LTD, MUMBAI V. ADDL CIT 1(1), MUMBAI

ITA 528/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2266 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 01-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 25-01-2012
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Business income; Depreciation; Valuation report; Capital receipt; Commercial expediency
• Section: 43B; 14A; 32; 28

Judgement Text

, , G , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.528/MUM/2012 ASSESSMENT YEAR: 2007-08 GRINDWELL NORTON LTD., KALYANIWALL & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148 M.G. ROAD, FORT, MUMBAI-400001 / VS. ADDL. CIT 1(1) AAYAKAR BHAVAN, 5 TH FLOOR, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AAACG8725B ITA NO.5800/MUM/2013 ASSESSMENT YEAR: 2008-09 GRINDWELL NORTON LTD., KALYANIWALL & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148 M.G. ROAD, FORT, MUMBAI-400001 / VS. ADDL. CIT 1(1) AAYAKAR BHAVAN, 5 TH FLOOR, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AAACG8725B ITA NO.603/MUM/2012 ASSESSMENT YEAR: 2008-09 GRINDWELL NORTON LTD. 2 ADDL. CIT 1(1) AAYAKAR BHAVAN, 5 TH FLOOR, MUMBAI-400020 / VS. GRINDWELL NORTON LTD., KALYANIWALL & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148 M.G. ROAD, FORT, MUMBAI-400001 (REVENUE) (REVENUE ) P.A. NO. AAACG8725B APPELLANT BY SHRI P.J. PARDIWALLA & SHRI JITENDRA JAIN (AR) RESPONDENT BY SHRI A. RAMACHANDRAN (D R) / DATE OF HEARING: 01/06/2016 / DATE OF ORDER: 27 /07/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE APPEALS PERTAIN TO THE SAME ASSESSEE FOR DIFF ERENT ASSESSMENT YEARS INVOLVING IDENTICAL ISSUES, THEREF ORE THESE WERE HEARD TOGETHER AND BEING DISPOSED OF BY THIS C OMMON ORDER. 2. WE SHALL FIRST TAKE UP APPEAL FILED BY THE ASSESSE E IN ITA NO. 528/MUM/2012 AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI-15 {(IN SHORT CIT(A) }, DATED 09.11.2011 PASSED AGAINST ASSESSMENT ORDER U/S 143( 3) R.W. SECTION 144C(3)(A) OF THE I.T. ACT, DATED 11.01.201 1 FOR THE ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS: THIS APPEAL IS AGAINST THE ORDER OF THE COMMISSION ER OF INCOME-TAX (APPEALS)-15, MUMBAI AND RELATES TO T HE ASSESSMENT YEAR 2007-2008. 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE SURPLUS OF RS.1,63,03,435 /- ARISING ON PREPAYMENT OF DEFERRED SALES TAX WAS A GRINDWELL NORTON LTD. 3 REVENUE RECEIPT LIABLE TO TAX U/S.28(IV) OF THE INC OME-TAX ACT. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE APPELLANT OBTAINED A 'BEN EFIT' IN RESPECT OF THE SAID PRE-PAYMENT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN APPLYING SECTION 28(IV) TO TAX THE SAID AM OUNT. 4. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITS THAT THE ADDITION OF RS.1,63,03,435/- BE DELETED. 5. BOTH THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE APPELLANT WAS NOT ENTITLED TO DEPRECIATION UNDER SECTION 32 IN RESPECT OF THE FOLLOWING INTANGIBLE A SSETS: ASSETS VALUE (RS.) TRADE MARK 2,00,00,000 TECHNICAL KNOW- HOW 3,50,00,000 GOODWILL 3,20,00,000 MARKETING NETWORK 3,75,00,000 NON-COMPETE FEES 4,02,50,000 TOTAL 16,47,50,000 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN GIVING SEVERAL FINDINGS WHICH ARE EITHER IRRELEVANT OR INCORRECT FOR ALLOWING DEPRECIATION U NDER SECTION 32. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT DEPRECIATION IS ALLOWABLE ONLY ON THOSE INTANGIBLE ASSETS WHICH ARE PROTECTED RIGHTS. 8. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT DEPRECIATION IS AVAILABLE UNDER SECTION 32 ONLY IN RESPECT OF A 'REGISTERED TRADE MARK' OR 'PATENTED KNOW HOW'. 9. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO ALLOW DEPRECIATION UNDER SECTION 32 AMOUNTING TO RS.2,37,22,787/- ON THE INTANGIBLE ASS ETS REFERRED TO ABOVE. 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE ALLOCATION OF INTEREST TO T HE EARNING OF DIVIDEND INCOME UNDER SECTION 14A GRINDWELL NORTON LTD. 4 AMOUNTING TO RS.4,90,799/-. 11. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ALLOCATION OF EXPENDITURE TO THE TUNE OF RS.29,68,291/- TO THE EARNING OF DIVIDEND INCOME UNDER SECTION 14A. 12. HAVING REGARD TO THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE AND THE PAST RECORD OF THE APPELLANT, IT IS SUBMITTED THAT THE DISALLOWANC E UNDER SECTION 14A READ WITH RULE 8D IS GROSSLY EXCESSIVE AND REQUIRES TO BE REDUCED SUBSTANTIALLY. 3. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI P.J. PARDIWALLA & SHRI JITENDRA JAIN, (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI A. RAMACHANDRAN, DEPARTMENTAL REPRESENTATIVE (LD. DR) ON BEHALF OF THE REVENUE. 4. GROUND NOS. 1 TO 4: THESE GROUNDS DEAL WITH THE IDENTICAL ISSUE OF DETERMINING THE NATURE AND TAXABILITY OF S URPLUS OF RS.1,63,03,435/- ARISING TO THE ASSESSEE IN THE YEA R UNDER CONSIDERATION ON ACCOUNT OF PRE-PAYMENT OF DEFERRED SALES TAX. THE AO HELD THIS SURPLUS TO BE TAXABLE AS A REVENUE RECEIPT LIABLE TO BE TAXED U/S 41(1) OF THE ACT, WHEREAS LD . CIT(A) HAS TREATED THE SAME AS BENEFIT LIABLE TO BE TAXED U/ S 28(IV) OF THE ACT. BUT, ACCORDING TO THE ASSESSEE THE SAID AMOUNT IS NEITHER LIABLE TO BE TAXED U/S 41(1) NOR IT IS IN THE NATUR E OF BENEFIT LIABLE TO BE TAXED U/S 28(IV), BUT MERELY A CAPITAL RECEIPT NOT IN THE NATURE OF INCOME TO BE TAXED. 4.1. THE BRIEF FACTS AND BACKGROUND OF THE CASE ARE THA T DURING THE YEAR UNDER CONCERN, THE ASSESSEE WAS ENG AGED IN THE BUSINESS OF MANUFACTURING OF ABRASIVES & REFRAC TORY PRODUCTS AND ALSO DEALT IN CERAMICS AND PLASTICS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY T HE AO THAT GRINDWELL NORTON LTD. 5 DURING THE YEAR THE ASSESSEE COMPANY HAD MADE SOME GAIN ON REPAYMENT OF DEFERRED SALES TAX AMOUNTING TO RS.1,63,03,435/-. THE ASSESSEE HAD CLAIMED THE SAME AS CAPITAL RECEIPT, AND THUS NOT LIABLE TO BE TAXED. T HE AO GAVE SHOW CAUSE NOTICE TO THE ASSESSEE TO TREAT THE SAME AS REVENUE RECEIPT LIABLE TO BE TAXED U/S 41(1) OF THE ACT. TH E AO ALSO PROPOSED TO TREAT THE SAME AS REVENUE RECEIPT TAXAB LE IN THE HANDS OF ASSESSEE U/S 28(IV) OF THE ACT. THE ASSESS EE MADE DETAILED SUBMISSIONS BEFORE THE AO TO EXPLAIN THAT SURPLUS ACCRUING ON ACCOUNT OF PRE-PAYMENT OF DEFERRED SALE S TAX WAS CAPITAL RECEIPT NOT LIABLE TO TAX. IT WAS SUBMITTED THAT DEFERRED SALES TAX WAS TREATED AS UNSECURED LOAN IN ITS BOOK S BY THE ASSESSEE AND LOAN WAS NOT A TRADING LIABILITY. THUS , MAKING FULL PAYMENT OF LOAN AT LESSER ACCOUNT DID NOT GIVE RISE TO REVENUE RECEIPTS AND THEREFORE, IT COULD NOT HAVE B EEN BROUGHT TO TAX U/S 41(1). NO BENEFITS HAD ACCRUED TO THE AS SESSEE AND THEREFORE, IT COULD NOT BE BROUGHT TO TAX U/S 28(IV ) OF THE ACT ALSO. BUT, THE AO WAS NOT SATISFIED WITH THE SUBMIS SIONS OF THE ASSESSEE AND THEREFORE, HE BROUGHT TO TAX THE IMPUG NED AMOUNT AS BUSINESS INCOME OF THE ASSESSEE U/S 41(1) . 4.2. BEING AGGRIEVED, THE ASSESSEE CONTESTED THE MATTER BEFORE LD. CIT(A) AND MADE DETAILED SUBMISSIONS BEFORE HIM . IT WAS SUBMITTED THAT THE AO HAD RELIED UPON THE ORDER OF EARLIER YEAR I.E. A.Y. 2005-06 TO DECIDE THIS ISSUE AGAINST THE ASSESSEE, AND IN A.Y. 2005-06 THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THIS AMOUNT WAS NOT LIABLE TO BE TAXED U/S 41(1). LD. CIT(A) IN THE APPEAL ORDER RELYING UPON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE OF EARLIER YEAR GRINDWELL NORTON LTD. 6 HELD THAT THIS AMOUNT WAS NOT LIABLE TO BE TAXED U/ S 41(1) AND THUS, ALLOWED THE RELIEF TO THE ASSESSEE ON THIS GR OUND. BUT, HE RAISED ANOTHER ISSUE OF TAXABILITY OF THIS AMOUNT A S A BENEFIT HAVING BEEN ACCRUED TO THE ASSESSEE, WHICH IS LIABL E TO BE TAXED U/S 28(IV) OF THE ACT. THE ASSESSEE MADE DETA ILED SUBMISSIONS ON THIS ISSUE ALSO, BUT LD. CIT(A) WAS NOT SATISFIED AND TREATED IT AS BENEFIT ACCRUED TO T HE ASSESSEE AND TAXED THE SAME U/S 28(IV) OF THE ACT. 4.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL CONTESTING THE ORDER OF LD. CIT(A). DURING THE COURSE OF HEARING BEFORE US, LD. AR FIRST OF ALL RELIED UP ON THE DECISION OF THE TRIBUNAL FOR A.Y. 2005-06 (ITA NO.1603/MUM/2 010) AND A.Y. 2006-07 (ITA NO.3447/MUM/2010) AS WELL AS ORDER OF HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE FOR THESE TWO ASSESSMENT YEARS I.E. 2005-06 AND 2006-07 AND SUBMITTED THAT THIS ISSUE HAS BECOME NOW SETTLED AS HONBLE HIGH COURT HAS CONFIRMED THE ORDER OF THE TRIBUNAL WHEREIN IT WAS HELD THAT THIS AMOUNT WAS NOT TAXABLE U/S 41(1) OF THE ACT. IT WAS SUBMITTED THAT IN THE IMPUGNED YEAR REV ENUE HAS NOT CONTESTED BEFORE THE TRIBUNAL, THE DECISION OF LD. CIT(A) ON THIS ISSUE AND THUS IT HAS ATTAINED FINALITY. WITH REGARD TO THE ALTERNATIVE ISSUE RAISED BY THE LD. CIT(A) I.E. TAX ABILITY OF THIS AMOUNT U/S 28(IV) OF THE ACT BY TREATING THE SAME A S BENEFIT ACCRUING TO THE ASSESSEE, IT WAS SUBMITTED BY THE L D. COUNSEL THAT THIS AMOUNT CANNOT BE TREATED AS BENEFIT AS THERE HAS TO BE SOME INFLOW OF MONEY TO BE PUT IN THE CATEGORY O F BENEFIT. IT WAS ALSO SUBMITTED THAT REMISSION OF A LIABILITY MAY BE TAXED U/S 41(1) OF THE ACT, WHEREAS SECTION 28(IV), WHICH SEEKS TO TAX GRINDWELL NORTON LTD. 7 A NON-MONETARY INFLOW, OPERATES INTO DIFFERENT FIEL D. IT CANNOT BE SAID THAT IF AN ITEM IS NOT COVERED U/S 41(1) TH EN, IT WOULD AUTOMATICALLY FALL U/S 28. HE PLACED RELIANCE UPON THE BORADS CIRCULAR W.R.T. SECTION 28 ISSUED IN 1964. IT WAS F URTHER SUBMITTED BY HIM THAT IT HAS BEEN HELD BY THE HIGH COURT ALSO THAT THIS AMOUNT WAS NOT EVEN A BENEFIT OF THE NA TURE AS ENVISAGED U/S 28(IV) AND THUS, THE ORDER OF THE HON BLE HIGH COURT SQUARELY COVERS THIS ISSUE. 4.4. PER CONTRA, LD. DR RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES AND SUBMITTED THAT AMOUNT NOT PAID IS A BENEFIT. RELIANCE WAS PLACED BY THE LD. DR ON THE JUDGMENT O F AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF GURDA SPUR CO- OP. SUGAR MILLS VS. DEPUTY COMMISSIONER OF INCOME T AX FOR THE PROPOSITION THAT AMOUNT OF LOAN CONSTITUTED BE NEFIT WITHIN THE MEANING OF SECTION 28(IV) AND WAS THUS TAXABLE THEREIN. 4.5. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES, SUBMISSIONS MADE AND JUDGMENTS RELIED UPON BEFORE U S BY BOTH THE PARTIES. IT IS NOTED THAT THE ISSUE OF TAX ABILITY OF SURPLUS ARISING TO THE ASSESSEE ON REPAYMENT ON DEF ERRED SALES TAX LIABILITY HAS ALSO ARISEN IN EARLIER A.Y. I.E. A.Y. 2005-06 AND 2006-07 WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVO UR OF THE ASSESSEE BY THE TRIBUNAL AS WELL AS BY HONBLE BOMB AY HIGH COURT. IT HAS BEEN CONTENDED BY THE LD. DR BEFORE U S THAT IN EARLIER YEAR, THE TAXABILITY HAS BEEN EXAMINED U/S 41(1) ONLY AND NOT WITH RESPECT TO THE PROVISIONS OF SECTION 2 8(IV), UNDER WHICH THE IMPUGNED AMOUNT WILL BE TAXABLE AS BENEFI T ACCRUED TO THE ASSESSEE. BEFORE WE DEAL WITH THE ARGUMENTS OF LD. DR, WE FIND IT APPROPRIATE TO DISCUSS ABOUT PRECISE NAT URE OF GRINDWELL NORTON LTD. 8 IMPUGNED TRANSACTION. THE ASSESSEE EXPLAINED THE NA TURE OF TRANSACTIONS BEFORE THE AO AND THE REPLY OF THE ASS ESSEE HAS BEEN REPRODUCED BY THE AO IN THE ASSESSMENT. WE FIN D IT APPROPRIATE TO REPRODUCE THE RELEVANT PART OF THE S AME FOR THE SAKE OF BETTER CLARITY OF FACTS: IN THE PRECEDING FINANCIAL YEARS, THE COMPANY HAS AVAILED OF BENEFITS OF DEFERRAL OF SALES TAX OFFERE D BY THE GOVT. OF MAHARASHTRA AS AN INCENTIVE FOR RAPID INDUSTRIALISATION OF THE DEVELOPING REGION OF THE S TATE OF MAHARASHTRA. THE SALES TAX INCENTIVE SCHEME WAS AVAILED BY THE COMPANY IN RESPECT OF ITS PLANT AT BUTIBORI INDUSTRIAL AREA AT NAGPUR (BUTIBORI PLANT) . COPY OF THE AGREEMENT BETWEEN THE COMPANY AND THE GOVT. OF MAHARASHTRA IS ENCLOSED HEREWITH. IN ACCOR DANCE WITH THE SALES TAX INCENTIVE SCHEME, THE SALES TAX COLLECTED IN RESPECT OF BUTIBORI PLANT WAS CREDITED SEPARATELY TO SALES TAX ACCOUNT. SET OFF IF ANY AVA ILABLE ON THE PURCHASES WAS DEBITED TO THIS ACCOUNT WITH CORRESPONDING CREDIT TO PURCHASES. THE NET SALES TA X DIFFERENTIAL WAS THEN TRANSFERRED TO DEFERRED SALES TAX LIABILITY ACCOUNT GROUPED UNDER 'UNSECURED LOAN' IN THE BALANCE SHEET OF THE COMPANY. THE SALES TAX, PAYMENT OF WHICH WAS DEFERRED UNDER THE INCENTIVE SCHEME WAS DEEMED TO HAVE BEEN PAID FOR T HE PURPOSE OF THE BOMBAY SALES TAX ACT, 1959 AND THE INCOME- TAX ACT, 1961, IN THE YEAR IN WHICH THE AMO UNT WAS SO DEFERRED. SECTION 43B OF THE INCOME-TAX PROV IDES FOR DEDUCTION IN RESPECT OF ANY TAX ONLY ON PAYMENT BASIS. HOWEVER, IN RESPECT OF SUCH DEFERRAL SCHEMES THE CBDT HAS VIDE CIRCULAR NO. 496 DATED 28.9.1987 AND CIRCULAR NO. 674 DATED 29.12.1993 NOTIFIED THAT ALTHOUGH THE SALES TAX COLLECTED IN ACCORDANCE WITH A DEFERRAL SCHEME IS NOT PAID INTO THE GOVERNMENT TREASURY, THE SAME IS DEEMED TO HAVE BEEN PAID AND NO DISALLOWANCE UNDER SECTION 43B IS CALLED FOR. ON 12 TH DECEMBER, 2002, THE GOVT. OF MAHARASHTRA ANNOUNCED A SCHEME OF 'PREMATURE REPAYMENT OF THE AMOUNT OF DEFERRED TAX BY THE ELIGIBLE UNITS AT NET PRESENT VALUE (NPV) '. WE ENCLOSE A COPY OF THE TRA DE GRINDWELL NORTON LTD. 9 CIRCULAR DTD. 12 TH DECEMBER 2002 FOR YOUR REFERENCE. UNDER THE SAID PREPAYMENT SCHEME, INDUSTRIES IN THE STATE OF MAHARASHTRA WHO HAD AVAILED OF THE DEFERRED SALES TAX INCENTIVE SCHEME AS PER MAHARASH TRA 1993 PACKAGE SCHEME OF INCENTIVE WERE PERMITTED TO PRE MATURELY PAY THE DEFERRED SALES TAX LIABILITY BY AR RIVING AT A NET PRESENT VALUE BY APPLYING A SPECIFIC DISCOUNT RATE. THE COMPANY AVAILED THE BENEFIT OF THE SCHEME ANNOUNCED ON 12TH DECEMBER, 2002 AND HAS DURING THE YEAR UNDER CONSIDERATION MADE A PREMATURED PAYMENT OF ITS DEFERRED SALES TAX LIABILITY AS UNDER: RS. SALES TAX LIABILITY 2,26,45,595 LESS: PREMATURE PRE-PAYMENT 63,42,160 SURPLUS ON THE ABOVE 1,63,031435 THE COMPANY HAS TREATED THE SURPLUS ACCRUING ON PREMATURE REPAYMENT OF DEFERRED SALES TAX AS A CAPI TAL RECEIPT NOT LIABLE TO INCOME TAX. 4.6. AS DISCUSSED EARLIER ALSO, THE AO HELD THIS AMOUNT OF SURPLUS AS REMISSION OF LIABILITY AND BROUGHT TO TA X THE SAME U/S 41(1). LD. CIT(A) DID NOT AGREE WITH THE AO ON THIS ASPECT AND IN VIEW OF DECISIONS OF THE TRIBUNAL AND JUDGM ENT OF HONBLE BOMBAY HIGH COURT OF PRECEDING YEAR, AND IT WAS HELD BY HIM THAT THIS IS NOT EQUIVALENT TO REMISSIONS OF LIABILITY AS ENVISAGED U/S 41(1) AND THEREFORE, SAME IS NOT TAXA BLE U/S 41(1). THE DECISION OF LD. CIT(A) WAS NOT CONTESTED BY THE REVENUE ON THIS ISSUE AND THEREFORE IT HAS ATTAINED FINALITY. BUT THE ALTERNATIVE ISSUE RAISED BY THE LD. CIT(A) WAS THAT THIS AMOUNT IS EQUIVALENT TO A BENEFIT AS HAS BEEN ENVIS AGED U/S 28(IV) AND THEREFORE, IT WOULD BE LIABLE TO TAX U/S 28(IV). BUT, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY ASSAILED THE REASONING GIVEN BY LD. CIT(A), INTER ALIA, ON THE GROUND THAT HONBLE GRINDWELL NORTON LTD. 10 BOMBAY HIGH COURT IN ASSESSEES OWN CASE IN EARLIER YEARS HAD EXAMINED THIS ASPECT ALSO AND HELD THAT IN FACT NO BENEFIT ACCRUED TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES, BEFORE WE DISCUSS THIS ISSUE FURTHER, WE FIND IT APPROPRIATE TO DISCUSS AND REPRODUCE THE RELEVANT PORTION OF ORDER OF HON BLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE PUBLISHED IN THE NAME OF CIT VS. SULZER INDIA LTD, GRINDWELL NORTON LTD. AND OTHERS 369 ITR 717 (BOM) AS UNDER: IT IS NOT POSSIBLE TO AGREE WITH MR. GUPTA. BECAUS E, PREMATURE PAYMENT OF SALES TAX ALREADY COLLECTED BU T ITS REMITTANCE TO THE GOVERNMENT, AS MR. GUPTA ENVISAGE S, IS NOT COVERED BY THIS PROVISION ELSE THE SUBSECTIONS AND PARTICULARLY SECTION 43B(1) WOULD HAVE BEEN WORDED ACCORDINGLY. THEREFORE SECTION 43B HAS NO APPLICATI ON. INSOFAR AS APPLICABILITY OF SECTION 41(1)(A), THERE ALSO THE APPLICABILITY IS TO BE CONSIDERED IN THE LIGHT OF T HE LIABILITY. IT IS A LOSS, EXPENDITURE OR TRADING LIABILITY. IN THIS CASE, THE SCHEME UNDER WHICH THE SALES TAX LIABILITY WAS DEFE RRED ENABLES THE ASSESSEE TO REMIT THE SALES TAX COLLECT ED FROM THE CUSTOMERS OR CONSUMERS TO THE GOVERNMENT NOT IMMEDIATELY BUT AS AGREED AFTER 7 TO 12 YEARS. IF T HE AMOUNT IS NOT TO BE IMMEDIATELY PAID TO THE GOVERNM ENT UPON COLLECTION BUT CAN BE REMITTED LATER ON IN TER MS OF THE SCHEME, THEN, WE ARE OF THE OPINION THAT THE EXERCI SE UNDERTAKEN BY THE GOVERNMENT OF MAHARASHTRA IN TERM S OF THE AMENDMENT MADE TO THE BOMBAY SALES TAX ACT AND NOTED ABOVE, MAY RELIEVE THE ASSESSEE OF HIS OBLIGA TION, BUT THAT IS NOT BY WAY OF OBTAINING REMISSION. THE WORTH GRINDWELL NORTON LTD. 11 OF THE AMOUNT WHICH HAS TO BE REMITTED AFTER 7 TO 1 2 YEARS HAS BEEN DETERMINED PREMATURELY. THAT HAS BEEN DONE BY FINDING OUT ITS NPV. IF THAT IS THE VA LUE OF THE MONEY THAT THE STATE GOVERNMENT WOULD BE ENTITLED TO RECEIVE AFTER THE END OF 7 TO 12 YEARS, THEN, WE DO NOT SEE HOW INGREDIENTS OF SUB SECTION (1) OF SECTION 41 CAN BE SAID TO BE FULFILLED. THE OBLIGATION TO REMIT TO THE GOVERNMENT THE SALES TAX AMOUNT ALREADY RECOVERED AND COLLECTED FROM THE CUSTOMERS IS IN NO WAY WIPED OUT OR DILUTED. THE OBLIGATION REMAINS. ALL THAT HAS HAPPENED IS AN OPTION IS GIVEN TO THE ASSESSEE TO APPROACH THE SICOM AND REQUEST IT TO CONSIDER THE APPLICATION OF THE ASSESSEE OF PREMATURE PAYMENT AND DISCHARGE OF THE LIABILITY BY FINDING OUT ITS NPV. IF THAT WAS A PERMISSIBLE EXERCISE AND IN TERMS OF THE SETTLED LA W, THEN, WE DO NOT SEE HOW THE ASSESSEE CAN BE SAID TO HAVE BEEN BENEFITED AND AS CLAIMED BY THE REVENUE. THE ARGUMENT OF MR. GUPTA IS NOT THAT THE ASSESSEE HAVING PAID RS.3.37 CRORES HAS OBTAINED FOR HIMSELF ANYTHI NG IN TERMS OF SECTION 41(1), BUT THE ASSESSEE IS DEEMED TO HAVE RECEIVED THE SUM OF RS.4.14 CRORES, WHICH IS THE DI FFERENCE BETWEEN THE ORIGINAL AMOUNT TO BE REMITTED WITH THE PAYMENT MADE. MR. GUPTA TERMS THIS AS DEEMED PAYMEN T AND BY THE STATE TO THE ASSESSEE. WE ARE UNABLE TO AGREE WITH HIM. THE TRIBUNAL HAS FOUND THAT THE FIRST REQ UIREMENT OF SECTION 41(1) IS THAT THE ALLOWANCE OR DEDUCTION IS MADE IN RESPECT OF THE LOSS, EXPENDITURE OR A TRADING LI ABILITY GRINDWELL NORTON LTD. 12 INCURRED BY THE ASSESSEE AND THE OTHER REQUIREMENT IS THE ASSESSEE HAS SUBSEQUENTLY OBTAINED ANY AMOUNT IN RESPECT OF SUCH LOSS AND EXPENDITURE OR OBTAINED A BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF A REMISSION OR CESSATION THEREOF. AS RIGHTLY NOTED BY THE TRIBUNAL, THE SALES TAX COLLECTED BY THE ASSESS EE DURING THE RELEVANT YEAR AMOUNTING TO RS.7,52,01,378/WAS TREATED BY THE STATE GOVERNMENT AS LOAN LIABILITY PAYABLE AFTER 12 YEARS IN 6 ANNUAL/E QUAL INSTALMENTS. SUBSEQUENTLY AND PURSUANT TO THE AMENDMENT MADE TO THE 4TH PROVISO TO SECTION 38 OF THE BOMBAY SALES TAX ACT, 1959, THE ASSESSEE ACCEPTED T HE OFFER OF SICOM, THE IMPLEMENTING AGENCY OF THE STAT E GOVERNMENT, PAID AN AMOUNT OF RS.3,37,13,393/TO SIC OM, WHICH, ACCORDING TO THE ASSESSEE, REPRESENTED THE N PV OF THE FUTURE SUM AS DETERMINED AND PRESCRIBED BY THE SICOM. IN OTHER WORDS, WHAT THE ASSESSEE WAS REQUIR ED TO PAY AFTER 12 YEARS IN 6 EQUAL INSTALMENTS WAS PA ID BY THE ASSESSEE PREMATURELY IN TERMS OF THE NPV OF THE SAME. THAT THE STATE MAY HAVE RECEIVED A HIGHER SUM AFTER THE PERIOD OF 12 YEARS AND IN INSTALMENTS. HOWEVER, THE STATUTORY ARRANGEMENT AND VIDE SECTION 38, 4TH PROV ISO DOES NOT AMOUNT TO REMISSION OR CESSATION OF THE ASSESSEE'S LIABILITY ASSUMING THE SAME TO BE A TRAD ING ONE. RATHER THAT OBTAINS A PAYMENT TO THE STATE PREMATURELY AND IN TERMS OF THE CORRECT VALUE OF TH E DEBT DUE TO IT. THERE IS NO EVIDENCE TO SHOW THAT THERE HAS BEEN ANY REMISSION OR CESSATION OF THE LIABILITY BY THE STATE GRINDWELL NORTON LTD. 13 GOVERNMENT. WE AGREE WITH THE TRIBUNAL THAT NONE OF THE REQUIREMENT OF SECTION 41(1)(A) HAS NOT BEEN FULFILLED IN THE FACTS OF THE PRESENT CASE. (EMPHASIS IN BOLD LETTERS) 4.7. THE PERUSAL OF THE ORDER OF THE HONBLE HIGH COURT REVEALS THAT IN THE EARLIER TWO YEARS I.E. A.YS. 2005-06 AN D 2006-07, IT HAS BEEN HELD BY THE TRIBUNAL AS AFFIRMED BY THE HO NBLE BOMBAY HIGH COURT THAT IMPUGNED AMOUNT WILL NOT BE TAXABLE U/S 41(1). WHILE HOLDING SO, HONBLE BOMBAY HIGH CO URT HAS ALSO OBSERVED THAT, IN EFFECT, NO BENEFIT HAD ACCRU ED TO THE ASSESSEE, SINCE ULTIMATE EFFECT OF THE TRANSACTION IS THAT THE ASSESSEE PAID PRESENT VALUE OF A FUTURE LIABILITY. IN CASE THE ASSESSEE WOULD NOT HAVE PAID THIS LIABILITY, THE AS SESSEE COULD HAVE UTILIZED THIS AMOUNT DURING THESE YEARS FOR TH E PURPOSE OF BUSINESS OR FOR EARNING OF INTEREST INCOME. INST EAD OF DOING IT LIKE THAT, THE ASSESSEE CHOSE TO PAY IT UPFRONT AT A DISCOUNTED VALUE. UNDER THESE CIRCUMSTANCES, IT WOU LD BE VERY DIFFICULT TO SAY IF AT ALL ASSESSEE HAS DERIVED ANY BENEFIT IN FINANCIAL TERMS AND IF YES, THEN TO WHAT EXTENT. HO NBLE HIGH COURT HAS HELD THAT IN FACT NO BENEFIT HAS BEEN DER IVED IN ANY MANNER. IN THE CASE OF SULZER INDIA LTD. V. JCIT (42 SOT 457) (SB) , HONBLE SPECIAL BENCH HAD HELD THAT SURPLUS ARISING ON REPAYMENT OF SALES TAX LIABILITY IS ON A CCOUNT OF DIFFERENCE BETWEEN PAYMENT OF NET PRESENT VALUE AGA INST THE FUTURE LIABILITY AND IT CAN NEITHER BE TERMED AS REMISSIONS/SESSION OF LIABILITY NOR IT GIVES RISE T O ANY BENEFIT TO THE ASSESSEE. ACCORDING TO HONBLE SPECIAL BENCH, I T IS A SIMPLE CASE OF COLLECTING AMOUNT AT NET PRESENT VAL UE OF FUTURE GRINDWELL NORTON LTD. 14 LIABILITY, WHICH CANNOT BE REGARDED AS GIVING RISE TO ANY KIND OF BENEFIT TO THE ASSESSEE. THE HONBLE SPECIAL BENCH HAS DISCUSSED LAW ON THIS ISSUE IN DETAIL AND THIS DECI SION WAS SUBSEQUENTLY AFFIRMED BY HONBLE HIGH COURT BY PASS ING DETAILED ORDER WHICH HAS BEEN BRIEFLY DISCUSSED IN OUR ORDER ABOVE. IT IS FURTHER NOTED BY US THAT HONBLE HIGH COURT HAS ALSO RELIED UPON AND DISCUSSED ITS EARLIER ORDER IN THE CASE OF MAHINDRA AND MAHINDRA LIMITED 261 ITR 501, WHEREIN IT WAS HELD THAT WAIVER OF THE PRINCIPAL AMOUNT OF LOAN DID NOT GIVE RISE TO BENEFIT AS ENVISAGED U/S 28(IV) AND THERE FORE IT WAS NOT TAXABLE U/S 28(IV). IT IS FURTHER BROUGHT TO OUR NO TICE BY LD. COUNSEL OF THE ASSESSEE THAT THE BENEFIT AS ENVIS AGED U/S 28(IV) IS SOMETHING WHICH ACTUALLY FLOWS TO THE ASS ESSEE IN MONETARY TERMS. IN SUPPORT OF HIS VIEW, HE RELIED U PON CIRCULAR OF THE BOARD NO. 20D, DATED 07.07.1964, RELEVANT PA RT OF THE CIRCULAR IS REPRODUCED HEREUNDER FOR THE SAKE OF RE ADY REFERENCE: ASSESSMENT OF THE VALUE OF ANY BENEFIT OR PERQUISI TE ARISING FROM BUSINESS OR EXERCISE OF A PROFESSION, AS INCOME FROM BUSINESS OR PROFESSION. A NEW CLAUSE (IV) HAS BEEN INSERTED IN SECTION 28, WITH EFFECT FROM 1-4-1964, BY SECTION 7 OF THE FINANCE A CT, 1964, UNDER WHICH THE VALUE OF ANY BENEFIT OR PERQU ISITE (WHETHER CONVERTIBLE IN MONEY OR NOT) ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION WILL BE CH ARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. A CORRESPONDING AMENDMENT HAS BEEN MAD E TO SECTION 2(24), INCLUDING THE VALUE OF SUCH BENEF IT OR PERQUISITE IN THE DEFINITION OF THE TERM 'INCOME' V IDE NEW SUB-CLAUSE (VA) INSERTED IN SECTION 2(24) BY SECTIO N 4(C)(I) OF THE FINANCE ACT, 1964. GRINDWELL NORTON LTD. 15 THE EFFECT OF THE ABOVE-MENTIONED AMENDMENT IS THAT IN RESPECT OF AN ASSESSMENT FOR THE ASSESSMENT YEAR 19 64- 65 AND SUBSEQUENT YEARS, THE VALUE OF ANY BENEFIT O R AMENITY, IN CASH OR KIND, ARISING TO AN ASSESSEE FR OM HIS BUSINESS OR THE EXERCISE OF HIS PROFESSION, E.G., T HE VALUE OF RENT-FREE RESIDENTIAL ACCOMMODATION SECURED BY AN ASSESSEE FROM A COMPANY IN CONSIDERATION OF THE PROFESSIONAL SERVICES AS A LAWYER RENDERED BY HIM T O THAT COMPANY, WILL BE ASSESSABLE IN THE HANDS OF THE ASS ESSEE AS HIS INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. 4.8. WE HAVE DISCUSSED IN EARLIER PART OF OUR ORDER ALS O THAT BY MAKING PAYMENT OF NET PRESENT VALUE OF A FUTURE LIA BILITY IT CANNOT BE SAID IF ANY FINANCIAL BENEFIT, IN REAL TE RMS, HAS ACCRUED TO THE ASSESSEE. IT IS NOTED THAT NONE OF T HE AUTHORITIES HAD GONE INTO THIS ASPECT AND DID NOT Q UANTIFY, IN FINANCIAL OR MONETARY TERMS, IF ANY AMOUNT COULD BE WORKED OUT WHICH COULD BE SAID TO BE A BENEFIT THAT HAD ACCRUED TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE ARE OF THIS CONSIDERED OPINION THAT THE IMPUGNED AMOUNT CANNOT BE BROUGHT INTO TAX EITHER U/S 41(1) OR U/S 28(IV). HO NBLE HIGH COURT WHILE GIVING ITS DECISION HAD ANALYSED ALL TH E ASPECT OF THIS ISSUE AND THEREFORE, THIS ISSUE IS NOT OPEN FO R RECONSIDERATION BEFORE US. THUS, RESPECTFULLY FOLLO WING THE ORDER OF HONBLE HIGH COURT, WE FIND THAT NO DIFFER ENT DECISION CAN BE TAKEN; THEREFORE, THIS ISSUE IS DECIDED IN F AVOUR OF THE ASSESSEE. THUS, GROUND NOS. 1 TO 4 ARE ALLOWED. 5. GROUND NOS.5 TO 9:- IN THESE GROUNDS THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN DENYI NG THE BENEFIT OF DEPRECIATION U/S 32 IN RESPECT OF FOLLOW ING INTANGIBLE ASSETS:- GRINDWELL NORTON LTD. 16 ASSETS VALUE (RS.) TRADE MARK 2,00,00,000 TECHNICAL KNOW HOW 3,50,00,000 GOODWILL 3,20,00,000 MARKETING NETWORK 3,75,00,000 NON-COMPETE FEES 4,02,50,000 TOTAL 16,47,50,000 5.1. THE BRIEF BACKGROUND OF THE ISSUE INVOLVED IS THAT DURING THE YEAR UNDER CONCERN, THE ASSESSEE HAD TAKEN OVER GRINDING WHEEL BUSINESS OF M/S ORIENT ABRASIVE LTD. (OAL) AS A GOING CONCERN ON A SLUMP SALE BASIS UNDER BUSINESS TRANSF ER AGREEMENT DATED 18.04.2006 FOR A CONSIDERATION OF R S.26.17 CRORES. OUT OF THE ASSETS ACQUIRED FROM OAL, ASSETS WORTH RS.16.86 CRORES WERE INTANGIBLE ASSETS AND ACCORDIN GLY THE ASSESSEE CLAIMED DEPRECIATION AMOUNTING TO RS.2.37 CRORES ON THE SAME. BUT, AO ASKED THE ASSESSEE TO ESTABLISH T HE GENUINENESS OF THE INTANGIBLE ASSETS IN TERMS OF TH EIR EXISTENCE AS WELL AS CORRECT VALUE AT WHICH THESE HAVE BEEN T AKEN OVER BY THE ASSESSEE. THE AO SIMULTANEOUSLY MADE DIRECT ENQUIRY FROM THE SAID COMPANY I.E. OAL. AFTER ANALYSING ENT IRE FACTS AND SUBMISSIONS OF THE ASSESSEE, THE AO WAS OF THE VIEW THAT PROFITABILITY OF THE SAID BUSINESS WAS VERY LOW, IT S MARKET SHARE WAS NOT MUCH, THE ASSESSEE DID NOT ACQUIRE FU LL RIGHTS WITH RESPECT TO TRADEMARK LICENSE AND ALSO FOUND VA RIOUS DEFECTS IN VALUATION REPORT SUBMITTED BY THE ASSESS EE WITH RESPECT TO VALUATION OF ITS BUSINESS AND ITS ASSETS . FINALLY, AO ARRIVED AT A CONCLUSION THAT IN ABSENCE OF ANY COGE NT EVIDENCES ESTABLISHING CORRECT VALUE OF THE INTANGI BLE ASSETS CLAIMED TO BE ACQUIRED UNDER THE BUSINESS TRANSFER GRINDWELL NORTON LTD. 17 AGREEMENT OR OTHERWISE, THE VALUE OF INTANGIBLE ASS ETS WAS ADOPTED BY THE ASSESSEE ARBITRARILY AND IT WAS BASE D UPON CONJECTURES AND SURMISES AND THEREFORE DEPRECIATION WAS NOT ADMISSIBLE ON THE TANGIBLE ASSETS CLAIMED TO HAVE B EEN ACQUIRED BY THE ASSESSEE ON THE AFORESAID TAKEOVER OF BUSINESS OF OAL AND ACCORDINGLY THE SAME WAS DISALLOWED. 5.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN EXHAUSTIVE SUBMISSIONS WERE FILE D DEMONSTRATING THAT ACQUISITION OF GRINDING WHEEL B USINESS OF OAL WAS PURELY A BUSINESS DECISION WHICH WAS TAKEN BY THE ASSESSEE KEEPING IN VIEW BUSINESS INTEREST AND COMM ERCIAL EXPEDIENCY. THE TRANSACTION OF TAKEOVER WAS SUPPORT ED WITH A BUSINESS TRANSFER AGREEMENT DT. 18.04.2006 AND ALSO SUPPORTED WITH A VALUATION REPORT AND CERTIFICATE O F A CHARTERED ACCOUNTANT, EARMARKING SEPARATE VALUATION FOR EACH AND EVERY ASSET TAKEN OVER AS PER THE SAID BUSINESS TRANSFER AGREEMENT. NOTHING WRONG HAS BEEN FOUND THEREIN BY THE AO EXCEPT MAKING OF SUSPICION WITHOUT ANY CONCRETE BAS IS. ENQUIRY MADE BY THE AO DIRECTLY WITH THE SAID COMPA NY RESULTED INTO A POSITIVE REPLY AND CONFIRMATION OF THE TRANSACTION BY THE SAID PARTY AND THEREFORE, SAME S HOULD NOT HAVE BEEN SIMPLY IGNORED BY THE AO. 5.3. THE PERUSAL OF THE ORDER OF THE LD. CIT(A) ALSO SH OWS THAT THE ASSESSEE HAD FILED EXHAUSTIVE EVIDENCES IN SUPP ORT OF ITS CLAIM, BUT LD. CIT(A) WAS NOT SATISFIED WITH THE SU BMISSIONS OF THE ASSESSEE AND THEREFORE, HE CONFIRMED THE ORDER OF THE AO DOUBTING THE VERY EXISTENCE OF TRADEMARKS, KNOW-HOW , GRINDWELL NORTON LTD. 18 LICENCE AND OTHER RIGHTS ACQUIRED BY THE ASSESSEE A S PART OF AFORESAID DEAL AND ALSO DOUBTED ABOUT THE VALUATION OF THE SAME AS WAS RECORDED BY THE ASSESSEE IN ITS BOOKS. IT WAS ALSO HELD BY THE LD. CIT(A) THAT THE ASSESSEE DID NOT AC QUIRE ANY GOODWILL AS IT DID NOT GET ANY LEGAL RIGHTS WHICH W ERE ENFORCEABLE UNDER THE LAW AND THEREFORE IT COULD NO T BE CONSIDERED TO BE ELIGIBLE FOR DEPRECIATION. 5.4. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. 5.5 .DURING THE COURSE OF HEARING BEFORE US, IT HAS BEE N ARGUED BY THE LD. COUNSEL THAT NOW THIS CONTROVERSY HAS BE COME NARROWED DOWN BECAUSE OF JUDGMENT OF HONBLE SUPREM E COURT IN THE CASE OF CIT VS SMIFF SECURITIES LTD. 348 ITR 302 (SC) WHEREIN HONBLE APEX COURT HAS HELD THAT ASSES SEE IS ENTITLED TO CLAIM OF DEPRECIATION ON THE AMOUNT OF GOODWILL. IT WAS HELD THAT AMOUNT OF DIFFERENCE BETWEEN BOOK VAL UE OF ASSETS ACQUIRED AND AMOUNT PAID BY AN ASSESSEE REPR ESENTS AMOUNT OF GOODWILL ACQUIRED BY THE ASSESSEE AS PART OF TAKE- OVER DEAL, UPON WHICH ASSESSEE WOULD BE ENTITLED TO CLAIM DEPRECIATION. IT WAS BROUGHT TO OUR NOTICE THAT IN SUBSEQUENT YEAR I.E. IN A.Y. 2008-09, LD. CIT(A) HAS HIMSELF G RANTED BENEFIT OF DEPRECIATION ON THE AMOUNT OF GOODWILL WHICH HAS NOT BEEN CHALLENGED BY THE REVENUE BEFORE THE TRIBU NAL. THUS, REVENUE HAS ACCEPTED THE DECISION OF LD. CIT(A) IN A.Y. 2008- 09 WITH REGARD TO ADMISSIBILITY OF CLAIM OF DEPRECI ATION ON THE AMOUNT OF GOODWILL ACQUIRED BY THE ASSESSEE UNDER T HE SAME TRANSACTION OF TAKEOVER OF GRINDING WHEEL BUSINESS OF M/S GRINDWELL NORTON LTD. 19 ORIENT ABRASIVES LTD (OAL). IT WAS THUS, SUBMITTED THAT IN THIS YEAR ALSO, THE DEPRECIATION HAS TO BE ALLOWED AS PE R LAW AND ESPECIALLY IN VIEW THE JUDGMENT OF HONBLE APEX COU RT AND FACTS OF THIS CASE. IN ADDITION TO THAT, LD. COUNSE L ALSO TOOK US THROUGH VARIOUS PAGES OF THE PAPER BOOK TO SHOW THE BUSINESS TRANSFER AGREEMENT AS WELL AS OTHER SUPPORTING EVID ENCES ESTABLISHED THE EXISTENCE OF INTANGIBLE ASSETS AND THEIR APPROPRIATE VALUE. IT WAS FURTHER SUBMITTED THAT TH E DECISION OF TAKING OVER OF GRINDING WHEEL BUSINESS OF OAL WA S TAKEN BY THE ASSESSEE IN THE INTEREST OF ITS BUSINESS AND KEEPING IN VIEW COMMERCIAL EXPEDIENCY AND REVENUE CANNOT SIT I N THE ARMS CHAIR OF A BUSINESSMAN TO DICTATE AS TO HOW TH E BUSINESS IS TO BE CONDUCTED. THE ASSESSEE WAS VERY MUCH AWAR E ABOUT THE ASSETS TO BE ACQUIRED UNDER THE DEAL AND THE PR ICE PAID FOR THE SAME. SINCE NOTHING NON-GENUINE HAS BEEN FOUND BY THE AO, THEREFORE HE WAS NOT IN A POSITION TO RE-WRITE THE BUSINESS AGREEMENT ENTERED INTO BY THE ASSESSEE WITH OAL. UN DER THESE CIRCUMSTANCES, THERE WERE NO BASES TO REJECT THE CL AIM OF DEPRECIATION ON THE ASSETS ACQUIRED BY VIRTUE OF TH IS AGREEMENT. 5.6. PER CONTRA LD. DR RELIED UPON THE ORDERS OF THE LO WER AUTHORITIES. 5.7. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND JUDGMENTS RELIED UPON BEFORE US. THE SOLITARY I SSUE INVOLVED HERE IS ABOUT THE ALLOWABILITY OF THE DEPR ECIATION ON THE AMOUNT OF INTANGIBLE ASSETS ACQUIRED BY THE ASS ESSEE AS PART OF DEAL OF ACQUISITION OF GRINDING WHEEL BUSIN ESS OF OAL GRINDWELL NORTON LTD. 20 IN TERMS OF THE BUSINESS TRANSFER AGREEMENT DATED 1 8.04.2006 ENTERED BY THE ASSESSEE WITH THE SAID COMPANY. IT I S NOTED BY US THAT FROM THE PERUSAL OF THE BUSINESS AGREEMENT ENCLOSED AT PAPER BOOK NO. 27 TO 87 THAT ASSESSEE ACQUIRED G RINDING WHEEL BUSINESS OF OAL ALONG WITH ITS TANGIBLE AND I NTANGIBLE ASSETS INCLUDING GOODWILL, INTELLECTUAL PROPERTY RI GHTS E.G. PATENTS, COPYRIGHTS, PAST AND PRESENT R & D WORKS, BRANDS, TRADEMARK, SERVICE MARKS, REGISTERED DESIGN ETC. AN D ALL OTHER RIGHTS AVAILABLE TO PREVENT THE MISUSE OR DISCLOSUR E OF TRADE SECRETS. THE ASSESSEE ALSO SUBMITTED VALUATION REPO RT FROM M/S. ANMOL SEKHRI AND ASSOCIATES, THE REGISTERED V ALUERS (ENCLOSED AT PAGE NO. 10 TO 192 OF THE PAPER BOOK) FOR ASCERTAINING VALUATION OF THE BUSINESS GIVING VALUE S OF EACH AND EVERY FIXED ASSETS AND OTHER INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE UNDER THE AFORESAID DEAL. IT IS NOTED BY US THAT THE LOWER AUTHORITIES HAVE GRANTED THE BENEFIT OF D EPRECIATION ON THE AMOUNT OF FIXED ASSETS ACQUIRED I.E. PLANT A ND MACHINERY ETC. THUS, GENUINENESS OF TRANSACTION HAS NOT BEEN DOUBTED, BUT WHAT HAS BEEN DOUBTED MERELY IS THE V ALUATION OF INTANGIBLE ASSETS ACQUIRED UNDER THE DEAL. IT IS TO BE NOTED HERE THAT FACTUM OF ACQUISITION OF INTANGIBLE ASSET S HAS ALSO NOT BEEN DISPUTED. THUS, UNDER THESE CIRCUMSTANCES, CASE MADE OUT BY THE LOWER AUTHORITIES IS THAT THE AMOUN T PAID BY THE ASSESSEE FOR ITS BUSINESS IS MORE THAN THE APPR OPRIATE VALUE OF ITS INTANGIBLE ASSETS. THE ASSESSEE HAS AL SO ADMITTED THIS POSITION THAT THE ASSESSEE HAS PAID AN AMOUNT WHICH IS MORE THAN THE AMOUNT OF ITS TANGIBLE ASSETS BECAUSE OF NUMEROUS INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE WHICH GRINDWELL NORTON LTD. 21 WERE QUITE VALUABLE IN THE OPINION OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE CAN SAY THAT SINCE THE ASSESSEE H AD PURCHASED THE GRINDING WHEEL BUSINESS FROM OAL AS A GOING CONCERN, THEREFORE, AMOUNT OF CONSIDERATION PAID IN EXCESS OF VALUE OF TANGIBLE ASSETS WOULD BE ACCOUNTED FOR IN ITS BOOKS OF ACCOUNTS AS GOODWILL. UNDER THESE CIRCUMSTANCES, NO FURTHER EXERCISE WOULD BE REQUIRED TO MAKE PRECISE VALUATIO N OF THE AMOUNT OF GOODWILL. THERE ARE NO DOUBTS ABOUT THE LEGAL POSITION THAT AS PER LAW, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE AMOUNT OF GOODWILL. IT IS WORTH NOTING THAT THIS LEGAL POSITION HAS BEEN ACCEPTED BY LD. CIT(A) IN THE SUBSEQUENT YEAR I.E. A.Y. 2008-09 WHEREIN CLAIM OF DEPRECIATION ON GOODWILL WAS ACCEPTED AND ORDER OF CIT(A) HAS BEEN ACCEPTED BY THE REVENUE ALSO AS NO APPEAL HAS BEEN FILED AGAINST THE SAID DECISION. OUR VIEW FINDS SUPPORT F ROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF TRIUNE ENERGY SERVICES PRIVATE LIMITED V. DCIT 65 TAXMANN.COM 288(DELHI) WHEREIN IDENTICAL ISSUE WAS INVOLVED, IN SIMILAR FACTS AND CIRCUMSTANCES. HONBLE DELHI H IGH COURT RELIED UPON THE JUDGMENT OF APEX COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. (348 ITR 302) AND HELD AS UND ER: GOODWILL IS AN INTANGIBLE ASSET PROVIDING A COMPET ITIVE ADVANTAGE TO AN ENTITY. THIS INCLUDES A STRONG BRAN D, REPUTATION, A COHESIVE HUMAN RESOURCE, DEALER NETWO RK, CUSTOMER BASE, ETC. THE EXPRESSION 'GOODWILL' SUBSU MES WITHIN IT A VARIETY OF INTANGIBLE BENEFITS THAT ARE ACQUIRED WHEN A PERSON ACQUIRES A BUSINESS OF ANOTHER AS A G OING CONCERN. FROM AN ACCOUNTING PERSPECTIVE, IT IS WELL ESTABLIS HED THAT 'GOODWILL' IS AN INTANGIBLE ASSET, WHICH IS RE QUIRED TO GRINDWELL NORTON LTD. 22 BE ACCOUNTED FOR WHEN A PURCHASER ACQUIRES A BUSINE SS AS A GOING CONCERN BY PAYING MORE THAN THE FAIR MAR KET VALUE OF THE NET TANGIBLE ASSET, THAT IS, ASSETS LE SS LIABILITIES. THE DIFFERENCE IN THE PURCHASE CONSIDE RATION AND THE NET VALUE OF ASSETS AND LIABILITIES IS ATTR IBUTABLE TO THE COMMERCIAL BENEFIT THAT IS ACQUIRED BY THE PURCHASER. SUCH GOODWILL IS ALSO COMMONLY UNDERSTOO D AS THE VALUE OF THE WHOLE UNDERTAKING LESS THE SUM TOT AL OF ITS PARTS. THE 'FINANCIAL REPORTING STANDARD 10' ISSUED BY ACCOUNTING STANDARD BOARD WHICH IS APPLICABLE IN UN ITED KINGDOM AND BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF IRELAND IN RESPECT OF ITS APPLICATION IN THE REP UBLIC OF IRELAND, EXPLAINS THAT THE ACCOUNTING REQUIREMENTS FOR GOODWILL REFLECT THE VIEW THAT GOODWILL ARISING ON AN ACQUISITION IS NEITHER AN ASSET LIKE OTHER ASSETS N OR AN IMMEDIATE LOSS IN VALUE. RATHER, IT FORMS THE BRIDG E BETWEEN THE COST OF AN INVESTMENT SHOWN AS AN ASSET IN THE ACQUIRER'S OWN FINANCIAL STATEMENTS AND THE VAL UES ATTRIBUTED TO THE ACQUIRED ASSETS AND LIABILITIES I N THE CONSOLIDATED FINANCIAL STATEMENTS. IN VIEW OF ACCOUNTING STANDARD 10 AS ISSUED BY THE [CAI THE ASSESSEE'S CONTENTION WAS RIGHT THAT THE CONSIDERATION PAID BY THE ASSESSEE IN EXCESS OF VAL UE OF TANGIBLE ASSETS WAS RIGHTLY CLASSIFIED AS GOODWILL. IN THE FACTS OF THE PRESENT CASE, THE TRIBUNAL HAS REJECTED THE VIEW THAT THE SLUMP SALE AGREEMENT WAS A COLOUR ABLE DEVICE. ONCE HAVING HELD SO, THE AGREEMENT BETWEEN THE PARTIES MUST BE ACCEPTED IN ITS TOTALITY. THE AGREEMENT ITSELF DOES NOT PROVIDE FOR SPLITTING UP OF THE INTANGIBLES INTO SEPARATE COMPONENTS. INDISPUTABLY, THE TRANSACTION IN QUESTION IS A SLUMP SALE WHICH DOES NOT CONTEMPLATE SEPARATE VALUES TO BE ASCRIBED TO VARIO US ASSETS (TANGIBLE AND INTANGIBLE) THAT CONSTITUTE TH E BUSINESS UNDERTAKING, WHICH IS SOLD AND PURCHASED. THE AGREEMENT ITSELF INDICATES THAT SLUMP SALE INCLUDED SALE OF GOODWILL AND THE BALANCE SHEET SPECIFICALLY RECORDE D GOODWILL AT RS. 40.58 CRORE. GOODWILL INCLUDES A HO ST OF INTANGIBLE ASSETS, WHICH A PERSON ACQUIRES, ON ACQU IRING A BUSINESS AS A GOING CONCERN AND VALUING THE SAME AT THE EXCESS CONSIDERATION PAID OVER AND ABOVE THE VALUE OF NET TANGIBLE ASSETS IS AN ACCEPTABLE ACCOUNTINPRACT ICE. GRINDWELL NORTON LTD. 23 THUS, A FURTHER EXERCISE TO VALUE THE GOODWILL IS N OT WARRANTED. 5.8. IN THE CASE BEFORE US ALSO THE FACTS ARE IDENTICAL . THE GRINDING WHEEL BUSINESS HAS BEEN ACQUIRED UNDER A S LUMP SALE, UNDER A BUSINESS TRANSFER AGREEMENT WITH OAL. THE SAID AGREEMENT HAS NOT BEEN HELD TO BE BOGUS OR SHAM. IT CAN NEITHER BE REWRITTEN OR NOR HAS BEEN WRITTEN BY THE LOWER AUTHORITIES. THE AO HAD MADE DIRECT INQUIRIES WITH OAL WHEREIN IT WAS CONFIRMED THAT THE ASSESSEE HAD PAID SALES CONSIDERATION AS PER THE TERMS OF THE AGREEMENT AND THE TANGIBLE ASSETS WERE ACQUIRED AS STATED IN THE SAID AGREEMENT AND ACCEPTED BY THE AO AND DEPRECIATION WAS ALLOWED ON THE SAME AS PER FACTS BROUGHT BEFORE US. UNDER THESE CIRCUMSTANCES, ANY AMOUNT OF CONSIDERATION PAID OVE R AND ABOVE THE VALUE OF TANGIBLE ASSETS WOULD BE CLASSIF IED AS AMOUNT OF GOODWILL ON WHICH THE ASSESSEE WOULD BE E NTITLED FOR DEPRECIATION IN VIEW OF JUDGMENT OF HONBLE SUP REME COURT IN THE CASE OF CIT VS SMIFS SECURITIES LTD,(SUPRA). SIMILAR VIEW HAS BEEN TAKEN BY HONBLE PUNE BENCH IN THE CASE OF COSMOS CO-OP BANK LTD. V. DCIT (64 SOT 90) AND COORDINATE BENCH OF MUMBAI IN THE CASE OF DCIT VS. WORLDWIDE MEDIA PVT LTD 153 ITD 162. IT IS FURTHER NOTED BY US THAT DELHI BENCH OF ITAT IN THE CASE OF THYSSENKRUP ELEVATOR (INDIA) PVT. LTD. V. ACIT 167 TTJ 131 ALSO HELD THAT WHERE THE ASSESSEE HAD ACQUI RED BUSINESS OF ANOTHER COMPANY ON SLUMP SALE BASIS, EX CESS CONSIDERATION PAID BY IT OVER AND ABOVE THE VALUE O F NET ASSET ACQUIRED, WAS TO BE CONSIDERED AS GOODWILL U/S 32(1 )(II) WHICH WAS ELIGIBLE FOR DEPRECIATION. GRINDWELL NORTON LTD. 24 5.9. IN ADDITION TO THE ABOVE, ON FACTS ALSO, IT IS NOT ED BY US THAT THE ASSESSEE BROUGHT ON RECORD AMPLE EVIDENCES IN SUPPORT OF ITS CLAIM TO JUSTIFY THE ACQUISITION OF VARIOUS OTHER INTANGIBLE ASSETS AND THE JUSTIFICATION OF THEIR VA LUATION AS WELL AS ADMISSIBILITY OF DEPRECIATION ON THESE ASSETS. I T IS NOTED THAT THE BUSINESS TRANSFER AGREEMENT WAS QUITE EXHAUSTIV E HAVING ELABORATE SCHEDULES AND ANNEXURES CONTAINING ITEM W ISE DESCRIPTION OF EACH AND EVERY TANGIBLE AND INTANGIB LE ASSETS ACQUIRED BY THE ASSESSEE. THE ASSESSEE ACQUIRED ENT IRE PLANT AND MACHINERY, VARIOUS TRADEMARKS, COMMERCIAL LIST OF CUSTOMERS AND DEALERS, ENTIRE DATA AND INFORMATION IN RELATION TO SALES AND DISTRIBUTION NETWORK, OF TECHNICAL KNO W-HOW, GOODWILL OF GRINDING WHEEL BUSINESS, RIGHTS OF NON- COMPETITION ETC WERE DESCRIBED IN THE SAID AGREEMEN T. IT IS FURTHER NOTED THAT PROPER BREAK-UP AND JUSTIFICATIO N FOR THE CONSIDERATION HAS BEEN NARRATED IN THE SAID AGREEME NT. THE SAID AGREEMENT ALSO CONTAINS LISTS OF EMPLOYEES OF OAL TO BE TAKEN-OVER BY THE ASSESSEE COMPANY. IT ALSO CONTAIN ING THE LIST OF TRADEMARKS, PARTICULARS OF GOODWILL OF BUSINESS OF THE OAL IN THE FORM OF BUSINESS DATA, CUSTOMER DETAILS, SPE CIFICATIONS AND QUALITY REQUIREMENT FOR THE PRODUCTS, TRADE SEC RETS AND OTHER CONFIDENTIAL INFORMATION, SOFTWARE PROCESS AN D SIMILAR OTHER INTANGIBLE ASSETS. THERE WAS A PROPER VALUATI ON REPORT SPECIFYING SEPARATE VALUE OF EACH AND EVERY ASSET O F TANGIBLE OR INTANGIBLE NATURE. IT IS ALSO NOTED THAT THE AO MAD E DIRECT INQUIRIES WITH OAL IN RESPONSE TO WHICH PROPER REPL Y WAS GIVEN BY THE OAL CONFIRMING THE TRANSACTIONS. THE O AL SUBMITTED LETTER DATED 21.02.2009 TO THE AO WHEREIN IT WAS GRINDWELL NORTON LTD. 25 INTER ALIA CONFIRMED THAT THE SAID COMPANY TRANSFERRED ITS ABRASIVE DIVISION SITUATED AT BHIWADI (RAJASTHAN) T O THE ASSESSEE COMPANY FOR A TOTAL CONSIDERATION OF RS.26 .17 CRORES. IT IS ALSO BROUGHT TO OUR NOTICE THAT SUBSEQUENT TO THE TAKE- OVER, THE ASSESSEE COMPANY FILED PETITIONS WITH THE CONCERNED DEPARTMENTS FOR REGISTRATION OF TRADEMARKS IN THE N AME OF ASSESSEE COMPANY. IT IS FURTHER NOTED BY US FROM TH E PERUSAL OF THE ORDER OF LD. CIT(A) WHEREIN IT HAS BEEN ACCE PTED THAT THE ASSESSEE HAD PRODUCED BEFORE HIM (I.E. CIT(A)) MORE THAN 26 FILES CONTAINING EVIDENCES WITH REGARD TO ACQUISITI ON OF TECHNICAL KNOW-HOW. UNDER THESE CIRCUMSTANCES, WE F IND THAT THERE WAS NO BASIS WITH THE LOWER AUTHORITIES TO HO LD THAT NO INTANGIBLE ASSETS WERE ACQUIRED BY THE ASSESSEE. TH US, VIEWED FROM ANY ANGLE, THE ASSESSEE IS ELIGIBLE FOR THE CL AIM OF DEPRECIATION U/S 32(1)(II) ON THE AMOUNT OF INTANGI BLE ASSETS ACQUIRED BY IT AS PER BUSINESS TRANSFER AGREEMENT, AND THUS ACTION OF LOWER AUTHORITIES WAS NOT FACTUALLY OR LE GALLY JUSTIFIED WHILE MAKING DISALLOWANCE OF THE DEPRECIATION ON TH E INTANGIBLE ASSETS. THE AO IS DIRECTED TO GRANT THE BENEFIT OF DEPRECIATION IN TERMS OF SECTION 32(1)(II) UPON THE INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE. THUS, THESE GROUND S ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 6. GROUND NOS. 10 TO 12: THESE GROUNDS ARE WITH REGARD TO DISALLOWANCE MADE U/S 14A. THE FACTS BROUGHT BEFORE US ARE THAT DISALLOWANCE WAS MADE BY THE AO U/S 14A WHEREI N DISALLOWANCE ON ACCOUNT OF INTEREST WAS TO THE TUNE OF RS.4.49 LACS AND DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENS ES WAS TO THE TUNE OF RS.20.19 LACS MADE @ OF 1% OF TOTAL EXP ENSES. GRINDWELL NORTON LTD. 26 6.1. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN THE SAME WAS CONFIRMED. BEFORE U S LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT BALANCE SHEE T OF THE ASSESSEE SHOWS THAT IN THE LIST OF INVESTMENTS, THE RE ARE VARIOUS ITEMS OF MUTUAL FUNDS WHICH ARE ACTUALLY DE BT FUNDS AND THEREFORE, THESE SHOULD NOT BE CONSIDERED FOR M AKING THE DISALLOWANCE U/S 14A. OUR ATTENTION WAS ALSO DRAWN ON THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 IN ASSESSEE S OWN CASE WHEREIN DISALLOWANCE WAS CONFIRMED @ OF 2% OF THE D IVIDEND INCOME. 6.2. PER CONTRA, LD. DR DID NOT BRING BEFORE US ANY CON TRARY DECISION. IT IS NOTED FROM THE FACTS BROUGHT BEFORE US THAT DIVIDEND INCOME IN THIS YEAR WAS TO THE TUNE OF RS. 4.90 CRORES. RULE 8D IS NOT APPLICABLE IN THIS YEAR. IN A.Y. 200 7-08, IN ASSESSEES OWN CASE, THE TRIBUNAL HELD VIDE ITS ORD ER DATED 28 TH APRIL 2011 IN ITA NO. 3447/MUM/2010 AS UNDER: VIDE GROUND NOS. 4 TO 6 ASSESSEE CONTENDS THAT RU LE 8D IS NOT APPLICABLE RETROSPECTIVELY AND DISALLOWANCE UNDER SECTION 14A SHOULD BE BASED ON THE FACTS AND MATERI AL CIRCUMSTANCES OF EACH CASE AND IN THE LIGHT OF DECI SION OF THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEA R, WE HOLD THAT IT IS REASONABLE TO RESTRICT DISALLOWANCE TO 2% OF THE DIVIDEND EARNING AND WE DIRECT THE ASSESSING OF FICER ACCORDINGLY. 6.3. THUS, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIB UNAL WE HOLD THAT THE DISALLOWANCE ON ACCOUNT OF EXPENSES U NDER SECTION 14A SHOULD BE RESTRICTED TO 2% OF THE DIVID END INCOME. THE DISALLOWANCE WITH REGARD TO INTEREST SHOULD BE MADE AFTER EXCLUDING THOSE MUTUAL FUNDS WHICH ARE DEBT FUNDS. THUS, ASSESSEE GETS PART RELIEF AND THESE GROUNDS ARE PAR TLY ALLOWED. 6.4. AS A RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. GRINDWELL NORTON LTD. 27 NOW WE SHALL TAKE UP ASSESSEES APPEAL FOR A.Y. 200 8-09 IN ITA NO.5800/MUM/2013 7. GROUND NOS. 1 TO 4: THESE GROUNDS RELATE TO TAXATION OF SURPLUS OF RS.1,68,43,200/- ARISING ON PREPAYMENT O F DEFERRED SALES TAX. IT IS NOTED THAT ISSUE INVOLVED IS IDENT ICAL TO GROUND NOS.1 TO 4 OF A.Y. 2007-08. NO DISTINCTION HAS BEEN MADE OUT BEFORE US IN FACTS OR LAW, THEREFORE, RESPECTFULLY FOLLOWING OUR ORDER FOR THE EARLIER YEARS, THESE GROUNDS ARE DECI DED IN FAVOUR OF THE ASSESSEE AND THE ADDITION MADE IN THIS REGAR D IS DIRECTED TO BE DELETED. 8. GROUND NOS. 5 TO 9: THESE GROUNDS RELATE TO DISALLOWANCE OF DEPRECIATION UPON THE INTANGIBLE ASSETS ACQUIRED UNDER TAKEOVER OF THE BUSINESS OF THE ASSESSEE. THESE GRO UNDS ARE IDENTICAL TO GROUND NOS. 5 TO 9 OF A.Y. 2007-08 WHE REIN CLAIM OF DEPRECIATION HAS BEEN DIRECTED TO BE ALLOWED, AN D NO DISTINCTION HAVING BEEN MADE IN FACTS OR LAW, THE A O IS DIRECTED TO ALLOW DEPRECIATION IN THIS YEAR AS WELL . 9. GROUND NOS. 10 TO 12. THESE GROUNDS PERTAIN TO DISALLOWANCE U/S 14A. IN THIS YEAR, AO MADE DISALLO WANCE U/S 14A FOR A TOTAL AMOUNT OF RS.21,00,757/- COMPRISING OF DISALLOWANCE ON ACCOUNT OF INTEREST OF RS.2.29 LACS AND DISALLOWANCE OUT OF INDIRECT EXPENSES OF RS.18.72 L AKHS, WHICH WAS MADE @ 0.5 % OF AVERAGE INVESTMENTS, AS PER RUL E 8D. THE LIMITED PRAYER OF THE ASSESSEE WAS THAT THE ASSESSE E HAD ALREADY MADE VOLUNTARY DISALLOWANCE OF A SUM OF RS. 3.67 LAKHS AND THEREFORE DISALLOWANCE MADE BY THE AO LED TO DOUBLE DISALLOWANCE OF INTEREST TO THIS EXTENT. IT WAS ALSO GRINDWELL NORTON LTD. 28 SUBMITTED THAT SINCE THE ASSESSEE HAD SUFFICIENT OW N FUNDS, THEREFORE, NO DISALLOWANCE SHOULD BE MADE IN THIS R EGARD. 9.1. PER CONTRA LD. DR RELIED UPON THE ORDER OF THE LOW ER AUTHORITIES. 9.2. WE HAVE GONE THROUGH THE FACTS OF THIS CASE. THE A O IS DIRECTED TO GIVE RELIEF OF THE VOLUNTARY DISALLOWAN CE MADE BY THE ASSESSEE U/S 14A IN ITS COMPUTATION OF INCOME. FURTHER, WITH REGARD TO INTEREST, IT IS NOTED THAT OWN FUNDS OF THE ASSESSEE ARE FAR MORE THAN THE INVESTMENT MADE IN T AX FREE SECURITIES AND THEREFORE, DISALLOWANCE OF INTEREST OF RS.2,29,091/- IS DIRECTED TO BE DELETED. THESE GROU NDS ARE PARTLY ALLOWED. 9.3. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. NOW WE SHALL TAKE UP REVENUES APPEAL FOR A.Y. 2008 -09 IN ITA NO.603/MUM/2012 10. IT IS NOTED THAT THE SOLITARY ISSUE RAISED BY THE REVENUE IS WITH REGARD TO ACTION OF LD. CIT(A) IN REVERSING TH E ACTION OF AO IN TREATING THE AMOUNT OF SURPLUS ON ACCOUNT OF PRE PAYMENT OF DEFERRED SALES TAX LIABILITY AS TAXABLE U/S 41(1) O F THE ACT. IT IS NOTED BY US THAT THE ISSUE INVOLVED IS IDENTICAL TO GROUND NO. 1 TO 4 OF A.Y. 2007-08. NO DISTINCTION IS MADE BEFO RE US IN FACTS OR LAW, THEREFORE, FOLLOWING OUR ORDER FOR A. Y. 2007-08, GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DI SMISSED. 10.1. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMIS SED. GRINDWELL NORTON LTD. 29 11. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE PA RTLY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY, 2016. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 27/07/2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI