Appollo Tyres Ltd, Ernakulam V. ACIT, Cochin

ITA 616/COCH/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69116 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; International transaction; Additional depreciation; Wholly owned subsidiary; Commercial expediency; Revised return; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

1 ITA NO.616/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO.616/COCH/2011 (ASSESSMENT YEAR 2007-08) APOLLO TYRES LTD VS THE A.C.I.T., CIR.1 6 TH FLOOR, CHERUPUSHPAM BLDG RANGE 1, KOCHI SHANMUGHAM ROAD ERNAKULAM 6892 031 PAN : AAACA6990Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY VOHRA RESPONDENT BY : SHRI M ANIL KUMAR, C.I.T. SMT. S VIJAYAPRABHA DATE OF HEARING : 24-09-2013 DATE OF PRONOUNCEMENT : 20-12-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE ASSESSING OFFICER DATED 21-10-2011 FOR THE ASSESSME NT YEAR 2007-08. 2. THE FIRST GROUND OF APPEAL IS WITH REGARD TO ADD ITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT. 2 ITA NO.616/COCH/2011 3. SHRI AJAY VOHRA, THE LD.SENIOR COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE CLAIMED RS. 5,01,83,094 AS ADDITI ONAL DEPRECIATION IN RESPECT OF NEW MACHINERY AND PLANT ACQUIRED AFTER 30-09-2005. IT IS NOT IN DISPUTE THAT THE ASSESSING OFFICER HAS ALLOWED 10% OF THE ADDITIONAL DEPRECIATION FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSEE CLAIMED THE REMAINING 10% OF THE DEPRECIATION FOR THE YEAR UNDE R CONSIDERATION. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. REFERRING TO THE REPORT FILED BY THE DRP (DRP), THE LD.SENIOR COUNSEL POINTED OUT THAT DRP MISCONSTRUED THE PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT AND REJECTED THE CLAIM OF THE ASSESSEE ON T HE GROUND THAT THERE IS NO PROVISION FOR CARRY FORWARD OF ANY ADDITIONAL DE PRECIATION. ACCORDING TO THE LD.SENIOR COUNSEL, THIS IS NOT A CARRY FORWARD OF ADDITIONAL DEPRECIATION; BUT A CLAIM MADE BY THE ASSESSEE DURING THE YEAR UN DER CONSIDERATION. REFERRING TO PROVISIONS OF SECTION 32(1)(IIA) OF TH E ACT, THE LD.SENIOR COUNSEL SUBMITTED THAT IN CASE OF ANY MACHINERY OR PLANT AC QUIRED AND INSTALLED AFTER 31-03-2005 THE ASSESSEE IS ENTITLED FOR A FUR THER SUM EQUAL TO 20% OF THE ACTUAL COST OF THE PLANT & MACHINERY INSTALLED AS ADDITIONAL DEPRECIATION. THIS SECTION 32(1)(IIA) DOES NOT SAY THE YEAR IN WHICH THE ADDITIONAL DEPRECIATION HAS TO BE ALLOWED. IT SIMP LY SAYS THAT THE ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFAC TURE OR PRODUCTION OF ARTICLES OR THING HAS ACQUIRED AND INSTALLED MACHIN ERY AND PLANT AFTER 31- 03-2005 IS ELIGIBLE FOR ADDITIONAL DEPRECIATION OF A FURTHER SUM EQUAL TO 20% 3 ITA NO.616/COCH/2011 OF THE ACTUAL COST. THE FURTHER SUM OF 20% OF THE ACTUAL COST MAY BE ALLOWED EITHER IN THE YEAR IN WHICH THE PLANT OR MA CHINERY WAS ACQUIRED AND INSTALLED OR IN THE SUBSEQUENT YEARS. SO LONG AS THERE IS NO RESTRICTION IN RESPECT OF THE YEAR IN WHICH THE ADDITIONAL DEPR ECIATION IS TO BE ALLOWED, THE ASSESSING OFFICER CANNOT REJECT THE CLAIM OF TH E ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 4. THE LD.SENIOR COUNSEL FURTHER POINTED OUT THAT S ECOND PROVISO TO SECTION 32(1)(II) OF THE ACT RESTRICTS THE DEPRECIA TION TO 50% IN CASE THE MACHINERY AND PLANT WAS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD LESS THAN 180 DAYS. THEREF ORE, ACCORDING TO THE LD.REPRESENTATIVE, WHEN THE PLANT OR MACHINERY IS U SED FOR LESS THAN 180 DAYS, THE ASSESSEE IS ENTITLED FOR 50% OF THE ADDIT IONAL DEPRECIATION AND THE REMAINING 50% CAN BE CLAIMED IN THE SUBSEQUENT YEAR SINCE THERE IS NO RESTRICTION TO CLAIM THE ADDITIONAL DEPRECIATION IN THE SUBSEQUENT ASSESSMENT YEAR. THE LD.SENIOR COUNSEL FURTHER SUB MITTED THAT IT IS NOT A CASE OF CARRY FORWARD OF ADDITIONAL DEPRECIATION FO R WANT OF SUFFICIENT PROFIT. ACCORDING TO THE LD.SENIOR COUNSEL, THE ASSESSEE HA S SUFFICIENT PROFIT TO ABSORB THE ENTIRE DEPRECIATION FOR THE FIRST YEAR I N WHICH THE DEPRECIATION WAS CLAIMED. HOWEVER, IN VIEW OF SECOND PROVISO TO SECTION 32(1)(II), THE ASSESSING OFFICER HAS ALLOWED ONLY 10% OF THE DEPRE CIATION BEING 50% OF THE TOTAL CLAIM. IN THE ABSENCE OF ANY PROVISION T O PROHIBIT THE ASSESSEE 4 ITA NO.616/COCH/2011 FROM CLAIMING REMAINING DEPRECIATION IN THE NEXT AS SESSMENT YEAR, THE CLAIM OF DEPRECIATION CANNOT BE DISALLOWED BY THE A SSESSING OFFICER. 5. REFERRING TO THE OBJECTION FILED BEFORE THE DRP, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT SECTION 32(1)(IIA) IS AN INCENTIVE PROVISION AND ENACTED BY THE LEGISLATURE WITH AN INTENTION TO BOOST INVESTMENT IN INDUSTRY SO AS TO INCREASE THE PRODUCTIVITY. A PRO VISION IN TAXING STATUTE GRANTING INCENTIVE FOR PROMOTING GROWTH AND DEVELOP MENT SHOULD BE CONSTRUED LIBERALLY. ACCORDING TO THE LD.SENIOR CO UNSEL, HYPER TECHNICAL AND LEGALISTIC APPROACH WOULD FRUSTRATE AND DEFEAT THE VERY INTENTION OF THE LEGISLATION. THEREFORE, SUCH HYPER TECHNICAL APPRO ACH SHOULD BE AVOIDED. 6. THE LD.SENIOR COUNSEL SUBMITTED THAT A BARE READ ING OF SECTION 32(1)(IIA) CLEARLY SHOWS THAT THE ASSESSEE IS ELIGI BLE FOR ADDITIONAL DEPRECIATION IN CASE THE NEW MACHINERY AND PLANT W AS ACQUIRED AND INSTALLED AFTER 31-03-2005. THERE IS NO RESTRICTIV E CONDITION IN THE CLAUSE FOR THE ELIGIBILITY OF THE ASSESSEE TO CLAIM ADDITI ONAL DEPRECIATION. WHEN THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @20%, IN THE ABSENCE OF ANY SPECIFIC PROVISION, THE ASSESSING OFFICER CANNOT CU T DOWN THE SCOPE OF DEDUCTION BY REFERRING TO PROVISO TO SECTION 32(1)( II) OF THE ACT. ACCORDING TO THE LD.SENIOR COUNSEL, EVEN IF THERE IS ANY CONT RADICTION BETWEEN SECTIONS 32(1)(IIA) AND PROVISO TO SECTION 32(1)(II), IT HAS TO BE RECONCILED SO AS TO 5 ITA NO.616/COCH/2011 GIVE HARMONIOUS EFFECT TO THE LEGISLATIVE INTENT. THE BENEFITS CONFERRED ON THE ASSESSEE BY WAY OF INCENTIVE PROVISION CANNOT B E TAKEN AWAY BY ADOPTING AN IMPLIED MEANING TO SECOND PROVISO TO SE CTION 32(1)(II) OF THE ACT. SINCE THE SECOND PROVISO TO SECTION 32(1)(II) DOES NOT EXPRESSLY PROHIBIT THE ALLOWANCE OF THE BALANCE 50% DEPRECIAT ION IN THE SUBSEQUENT YEAR, PROVISO TO SECTION 32(1)(II) SHALL NOT BE INT ERPRETED TO MEAN THAT IT IMPLIEDLY RESTRICT THE ADDITIONAL DEPRECIATION TO B E ALLOWED IN THE SUBSEQUENT ASSESSMENT YEAR. ACCORDING TO THE LD.SE NIOR COUNSEL, WHEN THE MAIN PROVISION WHICH ALLOWS DEPRECIATION @20% A ND DOES NOT PRESCRIBE ANY PARTICULAR YEAR IN WHICH IT HAS TO BE ALLOWED, THE INTENTION OF THE LEGISLATURE IS TO ALLOW ENTIRE ADDITIONAL DEPRE CIATION @20%. THE SECOND PROVISO TO SECTION 32(1)(II) IS TO MEAN THAT 10% SHOULD BE ALLOWED IN THE YEAR IN WHICH THE MACHINERY IS ACQUIRED AND INSTALLED AND THE BALANCE 10% HAS TO BE IMPLIEDLY ALLOWED IN THE SUBS EQUENT YEAR. 7. THE LD.SENIOR COUNSEL PLACED HIS RELIANCE ON THE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS COSMO FILMS LTD 139 ITD 628 (DEL) AND IN THE CASE OF ACIT VS SIL INVESTMENT LTD 148 TTJ 213 (DEL). FURTHER RELIANCE WAS PLACED ON THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN MITC ROLLING PVT LTD VS ACIT ITA N O.,2789/MUM/2012, COPY OF WHICH IS AVAILABLE AT PAGES 26 TO 28 OF THE PAPER BOOK. THE LD.SENIOR COUNSEL HAS ALSO RELIED UPON THE UNREPORT ED DECISION OF THE 6 ITA NO.616/COCH/2011 HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF DIV IS LABORATORIES LTD VS DCIT ITA NO.11/HYD/2012, COPY OF WHICH IS AVAILABLE AT PAGES 29 TO 41 OF THE PAPER BOOK. 8. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR SU BMITTED THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION U/ S 32(1)(IIA) OF THE ACT IN RESPECT OF NEW MACHINERY AND PLANT . THE DEPRECIAT ION HAS TO BE GRANTED IN THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE. IF THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS, THEN, THE ASSESS EE IS ENTITLED ONLY FOR 50% OF THE ADDITIONAL DEPRECIATION I.E. 10%. IN FA CT, 10% OF THE DEPRECIATION WAS ALLOWED IN THE YEAR IN WHICH THE M ACHINERY WAS PUT TO USE. IT IS NOT THE CASE OF THE ASSESSEE THAT THE A SSESSEE HAD NO SUFFICIENT PROFIT IN THE YEAR IN WHICH THE MACHINERY WAS PUT T O USE, THEREFORE, THE ADDITIONAL DEPRECIATION COULD NOT BE CARRIED FORWAR D. ACCORDING TO THE LD.DR, THERE IS NO PROVISION IN THE INCOME-TAX ACT TO CARRY FORWARD THE ALLOWABLE DEPRECIATION WHEN THE ASSESSEE HAS SUFFIC IENT PROFIT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PUT TO USE T HE MACHINERY FOR LESS THAN 180 DAYS. THEREFORE, IN VIEW OF PROVISO TO SE CTION 32(1)(II), THE ASSESSEE IS ENTITLED ONLY FOR 50% OF THE DEPRECIATI ON AND NOT THE ENTIRE RATE OF DEPRECIATION @20%. IN VIEW OF THE PROVISO, ACCO RDING TO THE LD.DR, THE ASSESSEE IS NOT ENTITLED FOR ADDITIONAL DEPRECIATIO N DURING THE YEAR UNDER CONSIDERATION. 7 ITA NO.616/COCH/2011 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 32(1)(IIA) READS AS FOLLOWS: 32(1)(IIA) IN THE CASE OF ANY NEW MACHINERY OR PLA NT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED A ND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF TH E ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDU CTION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATI ON BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE IND IA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREM ISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; O R (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COS T OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION OF ANY ONE PREVIOUS YEAR. 8 ITA NO.616/COCH/2011 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT, WHICH READS AS FOLLOWS: PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD OF L ESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHA LL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULAT ED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE. 11. A BARE READING OF THIS SECTION 32(1)(IIA) CLEAR LY SAYS THAT IN CASE A NEW MACHINERY OR PLANT WAS ACQUIRED AND INSTALLED A FTER 31-03-2005 BY AN ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFAC TURE OR PRODUCE OF ARTICLE OR THING, THEN, A SUM EQUAL TO 20% OF THE A CTUAL COST OF THE MACHINERY AND PLANT SHALL BE ALLOWED AS A DEDUCTIO N. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ACQUIRED AND INSTALLED THE MA CHINERY AFTER 31-03- 2005. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. THEREFORE, THE AS SESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION WHICH IS EQUIVALENT TO 20% OF THE ACTUAL COST OF SUCH MACHINERY. THE DISPUTE IS THE YEAR IN WHICH T HE DEPRECIATION HAS TO BE ALLOWED. THE ASSESSEE HAS ALREADY CLAIMED 10% O F THE DEPRECIATION IN 9 ITA NO.616/COCH/2011 THE EARLIER ASSESSMENT YEAR SINCE THE MACHINERY WAS USED FOR LESS THAN 180 DAYS AND CLAIMING THE BALANCE 10% IN THE YEAR U NDER CONSIDERATION. SECTION 32(1)(IIA) DOES NOT SAY THAT THE YEAR IN WH ICH THE ADDITIONAL DEPRECIATION HAS TO BE ALLOWED. IT SIMPLY SAYS THA T THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION EQUAL TO 20% OF THE COS T OF THE MACHINERY PROVIDED THE MACHINERY OR PLANT IS ACQUIRED AND INS TALLED AFTER 31-03-2005. PROVISO TO SECTION 32(1)(IIA) SAYS THAT IF THE MACH INERY WAS ACQUIRED BY THE ASSESSING DURING THE PREVIOUS YEAR AND HAS PUT TO U SE FOR THE PURPOSE OF BUSINESS LESS THAN 180 DAYS, THE DEDUCTION SHALL BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT THE PRESCRIBED RATE. THER EFORE, IF THE MACHINERY IS PUT TO USE IN ANY PARTICULAR YEAR, THE ASSESSEE IS ENTITLED FOR 50% OF THE PRESCRIBED RATE OF ADDITIONAL DEPRECIATION. THE IN COME-TAX ACT IS SILENT ABOUT THE ALLOWANCE OF THE BALANCE 10% ADDITIONAL D EPRECIATION IN THE SUBSEQUENT YEAR. TAKING ADVANTAGE OF THIS POSITION , THE ASSESSEE NOW CLAIMS THAT THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE THE ASSESSEE IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION SINCE THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS AND THE BALANCE 50% SHALL BE ALLOWED IN THE NEXT YEAR SINCE THE ELIGIBILITY OF THE ASSESSEE FOR CLAI MING 20% OF THE ADDITIONAL DEPRECIATION CANNOT BE DENIED BY INVOKING SECOND PR OVISO TO SECTION 32(1)(II) OF THE ACT. 10 ITA NO.616/COCH/2011 12. THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF COSMO FILMS LTD (SUPRA). THE REVENUE HAS T AKEN A SIMILAR GROUND AS TAKEN BEFORE THIS TRIBUNAL THAT THE ASSESSEE CAN NOT CARRY FORWARD THE ADDITIONAL DEPRECIATION TO BE ALLOWED IN THE SUBSEQ UENT ASSESSMENT YEAR. THE DELHI BENCH OF THIS TRIBUNAL AFTER CONSIDERING THE PROVISIONS OF SECTION 32(1)(IIA) AND PROVISO TO SECTION 321)(II) OF THE A CT FOUND THAT WHEN THERE IS NO RESTRICTION IN THE ACT TO DENY THE BENEFIT OF BA LANCE 50%, THE ASSESSEE IS ENTITLED FOR THE BALANCE ADDITIONAL DEPRECIATION IN THE SUBSEQUENT ASSESSMENT YEAR. IN FACT, THE DELHI BENCH OF THIS TRIBUNAL HAS OBSERVED AS FOLLOWS AT PAGES 641 AND 642 OF THE ITD: THUS, THE INTENTION WAS NOT TO DENY THE BENEFIT TO THE ASSESSEES WHO HAVE ACQUIRED OR INSTALLED NEW MACHIN ERY OR PLANT. THE SECOND PROVISO TO SECTION 32(1)(II) RES TRICTS THE ALLOWANCES ONLY TO 50% WHERE THE ASSETS HAVE BEEN A CQUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN T HE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE I NO RESTRICTION THAT BALANCE OF ONE TI ME INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION SHALL NOT BE AVAILABLE IN THE SUBSEQUENT YEAR. SECTION 32(2) PR OVIDES FOR A CARRY FORWARD SET UP OF UNABSORBED DEPRECIATION. T HIS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWA NCE U/S 32(1)(IIA) IS ONE TIME BENEFIT TO ENCOURAGE THE IND USTRIALIZATION AND IN VIEW OF THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF BAJAJ TEMPO LTD (SUPRA), THE PROVISIONS REL ATED TO IT 11 ITA NO.616/COCH/2011 HAVE TO BE CONSTRUED REASONABLY, LIBERALLY AND PURP OSIVE TO MAKE THE PROVISION MEANINGFUL WHILE GRANTING THE AD DITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS TO GIVE IMPE TUS TO INDUSTRIALIZATION AND THE BASIC INTENTION AND PURPO SE OF THESE PROVISIONS CAN BE REASONABLY AND LIBERALLY HELD THA T THE ASSESSEE DESERVES TO GET THE BENEFIT IN FULL WHEN T HERE IS NO RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF B ALANCE OF 50% WHEN THE NEW MACHINERY AND PLANT WERE ACQUIRED AND USED FOR LESS THAN 180 DAYS. ONE TIME BENEFIT EXTENDED TO ASSESSEE HAS BEEN EARNED IN THE YEAR OF ACQUISITION OF NEW MACHINERY AND PLANT . IT HAS BEEN CALCULATED @15% BUT RESTRICTED TO 50% ONLY ON ACCOUNT OF USAGE OF THESE PLANT & MACHINERY IN THE YEAR OF ACQUISITION. IN SECTION 3 2(1)(IIA), THE EXPRESSION USED I SHALL BE ALLOWED. THUS, THE AS SESSEE HAD EARNED THE BENEFIT AS SOON AS HE HAD PURCHASED THE NEW MACHINERY AND PLANT IN FULL BUT IT IS RESTRICTED T O 50% IN THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD USAGES. SUCH RESTRICTIONS CANNOT DIVEST THE STATUTORY RIGHT. LAW DOES NOT PR OHIBIT THAT BALANCE 50% WILL NOT BE ALLOWED IN SUCCEEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE U/S 32(1)(IIA) IN AN E XTRA INCENTIVE WHICH HAS BEEN EARNED AND CALCULATED IN THE YEAR OF ACQUISITION BUT RESTRICTED FOR THAT YEAR TO 50% ON ACCOUNT OF USAGE. THE SO EARNED INCENTIVE MUST BE MADE AVAILA BLE IN THE SUBSEQUENT YEAR. THE OVERALL DEDUCTION OF DEPR ECIATION U/S 32 SHALL DEFINITELY NOT EXCEED THE TOTAL COST O F MACHINERY AND PLANT . IN VIEW OF THIS MATTER, WE SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO EXTEND THE BENE FIT. WE ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL. SINCE WE HAVE DECIDED GROUND NO.2 IN FAVOUR OF ASSESSEE, THERE IS NO NEED TO 12 ITA NO.616/COCH/2011 DECIDE THE ALTERNATE CLAIM RAISED IN GROUND NO.3. THE SAME IS DISMISSED. 13. THIS ISSUE WAS ALSO CONSIDERED BY ANOTHER BENCH OF THIS TRIBUNAL AT DELHI IN SIL INVESTMENT LTD (SUPRA). AT PAGE 233 O F THE TTJ, THE TRIBUNAL HAS OBSERVED AS FOLLOWS: 40. THERE IS NOTHING ON RECORD TO SHOW THAT THE DI RECTIONS GIVEN BY THE LEARNED CIT(A) ARE NOT PROPER. THE EL IGIBILITY FOR DEDUCTION OF ADDITIONAL DEPRECIATION STANDS ADMITTE D, SINCE 50 PER CENT THEREOF HAD ALREADY BEEN ALLOWED BY THE AO IN THE ASST.YR.2005-06, I.E. THE IMMEDIATELY PRECEDING ASS ESSMENT YEAR. THEREFORE, OBVIOUSLY, THE BALANCE 50 PER CEN T OF THE DEDUCTION IS TO BE ALLOWED IN THE CURRENT YEAR, I.E . ASST.YR. 2006-07. THE LEARNED CIT(A) HAS MERELY DIRECTED THE VERIFICATION OF THE CONTENTIONS OF THE ASSESSEE AND TO ALLOW THE BALANCE ADDITIONAL DEPRECIATION AFTER SUCH FACTUAL VERIFICATION. ACCORDINGLY, FINDING NO MERIT THEREIN, GROUND NO.3 RAISED BY THE DEPARTMENT IS REJECTED. 14. A SIMILAR VIEW WAS TAKEN BY MUMBAI BENCH OF THI S TRIBUNAL IN MITC ROLLING PVT LTD (SUPRA). IN VIEW OF THE ABOVE DECI SIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL ON IDENTICAL SET OF FACTS THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE BALANCE 50% OF THE DEPR ECIATION HAS TO BE ALLOWED IN THE SUBSEQUENT YEAR, THEREFORE, THE ORDE RS OF THE LOWER 13 ITA NO.616/COCH/2011 AUTHORITIES ON THIS ISSUE ARE SET SIDE AND THE ASSE SSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF BALANCE 50% ADDITIONAL DEPRECIAT ION IN THE YEAR UNDER CONSIDERATION. 15. THE NEXT GROUND OF APPEAL IS WITH REGARD TO SHA RE ISSUE EXPENDITURE INCURRED IN RESPECT OF EQUITY SHARES AND THE FEE PA ID TO REGISTRAR OF COMPANIES FOR INCREASING THE AUTHORISED SHARE CAPIT AL OF THE COMPANY. 16. SHRI AJAY VOHRA, THE LD.SENIOR COUNSEL SUBMITTE D THAT THE ASSESSEE HAS INCURRED EXPENDITURE TO THE EXTENT OF RS.6,36,0 7,257 ON ISSUES OF SHARES TO QUALIFIED INSTITUTIONAL BUYERS AND FURTHE R EXPENDITURE OF RS.12,50,000 ON FEES PAID TO REGISTRAR OF COMPANIES FOR INCREASING THE AUTHORIZED SHARE CAPITAL. ACCORDING TO THE LD.SENI OR COUNSEL, THE ASSESSEE CLAIMED DEDUCTION OF RS.1,29,71,451 BY WAY OF AMORT IZATION OF AGGREGATE EXPENDITURE OF RS.6,48,71,451 U/S 35D OF THE ACT. HOWEVER, THE ASSESSING OFFICER / DRP (DRP, HEREINAFTER) DISALLOWED THE CLA IM OF THE ASSESSEE ON THE GROUND THAT BENEFIT UNDER THAT SECTION IS AVAIL ABLE ONLY IN RESPECT OF SETTING UP OF A NEW INDUSTRIAL UNIT AND NOT FOR MEE TING EXPENDITURE FOR EXPANSION OF THE BUSINESS. REFERRING TO SECTION 35 D(1), THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT SECTION 35D (1) ALLOWS DEDUCTION IN 14 ITA NO.616/COCH/2011 CONNECTION WITH THE EXPENDITURE SPECIFIED IN SUB SE CTION (2) OF THAT SECTION INCURRED BEFORE COMMENCEMENT OF BUSINESS OR AT THE TIME OF EXPANSION OF SUCH BUSINESS OR SETTING UP OF NEW UNIT. ACCORDING TO THE LD.SENIOR COUNSEL, THE ASSESSEE ENGAGED IN THE BUSINESS OF MA NUFACTURE AND SALE OF AUTOMOTIVE TYRES. WITH A VIEW TO EXPAND ITS GLOBAL FOOT PRINT AND REACH, THE ASSESSEE ACQUIRED THE SHARES OF DUNLOP TYRES INTERN ATIONAL PTY. LIMITED (DTIPL HEREINAFTER) ENGAGED IN THE SAME LINE OF BUS INESS AS THAT OF THE ASSESSEE THROUGH ITS WHOLLY OWNED SUBSIDIARY OF APO LLO MAURITIUS HOLDINGS LIMITED (AMHPL) AND APOLLO SOUTH AFRICA HOLDINGS (P ROPRIETORY) LTD. THE SHARES WERE ISSUED TO QUALIFIED INSTITUTIONAL BUYER S FOR REPAYMENT OF BRIDGE LOAN RAISED FOR ACQUISITION OF DUNLOP TYRES INTERNATIONAL LTD, SOUTH AFRICA THROUGH ADVANCING LOANS TO AMHPL. THE LD.SE NIOR COUNSEL FURTHER SUBMITTED THAT IN THE CONTEXT OF GLOBALIZATION AND LIBERALIZATION THE ACQUISITION OF SHARES OF DTIPL ENGAGED IN THE SAME LINE OF BUSINESS AS THAT OF THE ASSESSEE SHOULD BE REGARDED AS EXPANSIO N OF THE ASSESSEES UNDERTAKING. THEREFORE, THE EXPENDITURE INCURRED F OR ACQUIRING THE SHARES OF DTIPL HAS TO BE AMORTISED U/S 35D OF THE ACT. 17. ON THE CONTRARY, SHRI M. ANIL KUMAR, THE LD.DR SUBMITTED THAT THE ASSESSEE CLAIMED EXPENDITURE OF RS.1,29,71,451 U/S 35D OF THE ACT. ACCORDING TO THE LD.DR, SECTION 35D IS AVAILABLE ON LY IN RESPECT OF INITIAL 15 ITA NO.616/COCH/2011 SETTING UP OR IN CONNECTION WITH SETTING UP OF A NE W INDUSTRIAL UNDERTAKING AND NOT FOR MEETING THE EXPENDITURE INCURRED FOR EX PANSION OF BUSINESS. ACCORDING TO THE LD.DR, THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER AND DRP THAT THE EXPENDITURE WAS INCURRED DURING TH E COURSE OF BUSINESS FOR THE PURPOSE OF WORKING CAPITAL OF THE COMPANY. SINCE THE ASSESSEE CLAIMED BEFORE THE LOWER AUTHORITIES THAT THE EXPEN DITURE WAS INCURRED IN THE COURSE OF BUSINESS AND FUNDS WERE RAISED FOR ME ETING THE WORKING CAPITAL OF THE COMPANY, ACCORDING TO THE LD.DR, SEC TION 35D HAS NO APPLICATION AT ALL. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE NOW CLAIMS THAT EXPENDITURE WAS INCURRED FOR ISSUE OF SHARES TO QUA LIFIED INSTITUTIONAL BUYERS AND FEES PAID TO REGISTRAR OF COMPANIES. TH EREFORE, IT HAS TO BE AMORTISED FOR FIVE YEARS AND 1/5 TH OF THE AMOUNT SHALL BE ALLOWED DURING THE YEAR UNDER CONSIDERATION. A BARE READING OF THE DR AFT ASSESSMENT ORDER, THE OBJECTION FILED BY THE ASSESSEE BEFORE THE ASSE SSING OFFICER AND THE DECISION OF THE DRP CLEARLY SHOWS THAT THE ASSESSEE CLAIMED THAT ADDITIONAL CAPITAL WAS RAISED FOR AUGUMENTATION OF THE WORKING CAPITAL; THEREFORE, IT WAS IN THE REVENUE FIELD. IT WAS ALS O NOT CLAIMED BEFORE THE LOWER AUTHORITY THAT THE EXPENDITURE WAS INCURRED I N RESPECT OF ISSUE OF 16 ITA NO.616/COCH/2011 SHARES AND FEES PAID TO REGISTRAR OF COMPANIES. TH EREFORE, THE LOWER AUTHORITIES HAD NO OCCASION TO EXAMINE WHETHER THE EXPENDITURE WAS IN FACT INCURRED FOR ISSUE OF SHARES AND FEES PAID TO THE REGISTRAR OF COMPANIES. SINCE NOW THE ASSESSEE CLAIMS THAT THE EXPENDITURE WAS INCURRED FOR ISSUE OF SHARES TO THE QUALIFIED INSTI TUTIONAL BUYERS AND ON FEES PAID TO REGISTRAR OF COMPANIES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE ISSUE AN D FIND OUT WHETHER, FUNDS RAISED BY THE ASSESSEE AND UTILIZATION THEREO F WAS FOR THE PURPOSE OF ACQUIRING A CAPITAL ASSET BY WAY OF ITS EXPANSION O R IT IS FOR THE WORKING CAPITAL OF THE EXISTING BUSINESS. SINCE THE ASSESS ING OFFICER AND THE DRP HAD NO OCCASION TO EXAMINE THE ISSUE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE DISA LLOWANCE OF RS.1,29,71,451 IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE THAT THE EXPENDITURE WA S INCURRED TO EXPAND ITS BUSINESS GLOBALLY BY ACQUIRING A COMPANY WHICH IS DOING A SIMILAR BUSINESS AS THAT OF THE ASSESSEE. WE MAKE IT CLEAR THAT WE ARE NOT EXPRESSING ANY OPINION ON MERIT. IT IS FOR THE ASS ESSING OFFICER TO EXAMINE THE ISSUE INDEPENDENTLY ON MERIT AND TAKE A DECISIO N IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE AS SESSEE. 17 ITA NO.616/COCH/2011 19. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF INVESTMENT WRITTEN OFF IN THE SHARES OF GUJARAT PERSTOP ELECTR ONIKS LTD. 20. SHRI SANJAY VOHRA, THE LD.SENIOR COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE ASSESSEE INVESTED A SUM OF RS.5.18 CRORES BY ACQUIRING 51.8 LAKHS SHARES OF GUJARAT PERSTOP ELECTRONIKS LTD, A COMPANY JOINTLY PROMOTED BY THE ASSESSEE AND GUJARAT INDUSTRIAL & I NVESTMENT CORPORATION. ACCORDING TO THE LD.REPRESENTATIVE, G UJARAT PERSTOP ELECTRONIKS LTD WAS DECLARED AS A SICK COMPANY BY T HE BIFR. THEREFORE, A SUM OF RS.4.66 CRORES BEING 90% OF THE TOTAL INVEST MENT IN THE EQUITY SHARES OF GUJARAT PERSTOP ELECTRONIKS LTD WAS WRITT EN OFF BY THE ASSESSEE DURING THE YEAR 2002-03. REFERRING TO PAGE 399 OF THE PAPER BOOK, THE LD.SENIOR COUNSEL SUBMITTED THAT IN THE BOARD OF DI RECTORS MEETING HELD ON 26-06-2002 IT WAS DECIDED TO WRITE DOWN 90% OF THE EXISTING EQUITY DUE TO ACCUMULATED LOSSES. THE BALANCE 10% OF THE INVESTM ENT BEING 51.8 LAKHS WAS WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION . ACCORDING TO THE LD.REPRESENTATIVE 90% OF THE INVESTMENT WAS HELD TO BE ALLOWABLE AS LOSS INCIDENTAL TO BUSINESS BY THIS TRIBUNAL FOR THE ASS ESSMENT YEAR 2002-03 IN ITA NO.429/COCH/2006 ORDER DATED 08-02-2003. ACCOR DING TO THE LD.SENIOR COUNSEL FOR THE ASSESSMENT YEAR 2002-03, THIS BENCH OF THE TRIBUNAL FOUND 18 ITA NO.616/COCH/2011 THAT THE INVESTMENT IN GUJARAT PERSTOP ELECTRONIKS LTD, THOUGH NOT ENGAGED IN THE SAME LINE OF BUSINESS AS THAT OF THE ASSESSE E COMPANY WAS FOR THE PURPOSE OF BUSINESS AND WRITE OFF OF 90% OF THE INV ESTMENT WAS IN THE NATURE OF LOSS INCIDENTAL TO BUSINESS, AND THEREFOR E, ALLOWABLE DEDUCTION IN TERMS OF SECTION 28 R.W.S. 37(1) OF THE ACT. REFER RING TO THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2002-03, COPY OF W HICH IS AVAILABLE ON PAGE 247 OF THE PAPER BOOK, THE LD.REPRESENTATIVE S UBMITTED THAT IN RESPECT OF 90% OF THE AMOUNT WRITTEN OFF, THE TRIBUNAL ALLO WED THE CLAIM OF THE ASSESSEE. THEREFORE, THE REMAINING 10% NOW WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION HAS TO BE ALLOWED. ACCORDING T O THE LD.REPRESENTATIVE, THIS ISSUE IS COVERED BY THE ORDER OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE. 21. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR S UBMITTED THAT THE ASSESSEE ADMITTEDLY INVESTED RS.5.18 CRORES FOR ACQ UIRING THE SHARES OF GUJARAT PERSTOP ELECTRONIKS LTD, A COMPANY JOINTLY PROMOTED BY THE ASSESSEE AND GUJARAT INDUSTRIAL & INVESTMENT CORPOR ATION. GUJARAT INDUSTRIAL & INVESTMENT CORPORATION IS NOT IN THE B USINESS OF MANUFACTURE AND SALE OF AUTOMOTIVE TYRES. THE EXPENDITURE WAS NOT INCURRED IN THE COURSE OF EARNING OF PROFIT. ACCORDING TO THE LD.D R, THE SHARES WERE ACQUIRED WITH A VIEW TO ACQUIRE CAPITAL ASSET FOR A NEW BUSINESS VENTURE. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF INVESTMENT IN ACQUIRING 51.8 LAKHS SHARES OF GUJARAT PERSTOP E LECTRONIKS LTD IS IN THE 19 ITA NO.616/COCH/2011 COURSE OF ACQUISITION OF CAPITAL ASSET. REFERRING TO THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03, THE LD.DR SUBMITTED THAT NO DOUBT, THIS TRIBUNAL EXAMIN ED THE ISSUE IN 2002-03 AND FOUND THAT 90% OF THE INVESTMENT MADE BY THE AS SESSEE WHICH WAS WRITTEN OFF DURING THAT PERIOD HAS TO BE ALLOWED AS BUSINESS LOSS U/S 28 R.W.S. 37(1) OF THE ACT. THE DRP AND THE ASSESSING OFFICER APPARENTLY NOT FOLLOWED THE ORDER OF THIS TRIBUNAL SINCE THE DEPAR TMENT HAS ALREADY FILED AN APPEAL BEFORE THE HIGH COURT AGAINST THE ORDER O F THIS TRIBUNAL AND TO KEEP THE ISSUE ALIVE, THE DISALLOWANCE WAS MADE AS IT WAS MADE FOR THE ASSESSMENT YEAR 2002-03. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2002-03. THE ADMITTED FACTS OF THE CASE IS THAT THE ASSESSEE INVESTED A SUM OF RS.5.18 CRORES FOR ACQUI RING THE SHARES OF GUJARAT PERSTOP ELECTRONIKS LTD WHICH WAS JOINTLY P ROMOTED BY THE ASSESSEE AND GUJARAT INDUSTRIAL & INVESTMENT CORPOR ATION. IT IS NOT IN DISPUTE THAT GUJARAT PERSTOP ELECTRONIKS LTD IS NOT IN THE BUSINESS OF MANUFACTURE AND SALE OF AUTOMOTIVE TYRES. THEREFOR E, THE INVESTMENT MADE BY THE ASSESSEE TO THE EXTENT OF RS.5.18 CRORE S FOR ACQUIRING THE SHARES OF GUJARAT PERSTOP ELECTRONIKS LTD CANNOT BE IN THE COURSE OF 20 ITA NO.616/COCH/2011 EARNING OF PROFIT OR RUNNING THE EXISTING BUSINESS EFFECTIVELY AND EFFICIENTLY. THIS INVESTMENT OF 5.18 CRORES WAS MADE BY THE ASSE SSEE TO ACQUIRE A NEW PLATFORM / PROFIT EARNING APPARATUS FOR EXPANDI NG THE SCOPE OF ITS BUSINESS. THEREFORE, UNDER NORMAL CIRCUMSTANCES, T HIS SHOULD HAVE BEEN TREATED AS CAPITAL EXPENDITURE. ANY LOSS INCURRED IN THE INVESTMENT FOR A CAPITAL ASSET HAS TO BE TREATED AS CAPITAL LOSS. T HEREFORE, WE HAVE OUR OWN RESERVATION ABOUT THE CORRECTNESS OF THE DECISION O F THE EARLIER BENCH OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2002-03. WE ARE CONSCIOUS THAT THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IS BINDING ON THE SUBSEQUENT BENCHES. EVEN THOUGH WE HAVE RESERVATION ABOUT THE CORRECTNESS OF THE DECISION TAKEN BY THE EARLIER BE NCH, TO MAINTAIN THE JUDICIAL DISCIPLINE, THIS TRIBUNAL HAS TO FOLLOW TH E DECISION TAKEN BY THE EARLIER BENCH OF THIS TRIBUNAL. IN VIEW OF THE SET TLED PRINCIPLES OF LAW ABOUT THE BINDING NATURE OF THE DECISION OF THE EARLIER B ENCH OF THIS TRIBUNAL AND THE MATTER IS ALREADY PENDING BEFORE THE HIGH COURT IN APPEAL BY THE DEPARTMENT, WE DO NOT FIND ANY REASON TO TAKE A DIF FERENT VIEW THAN THAT OF THE EARLIER DECISION TAKEN BY THE EARLIER BENCH TIL L THE HIGH COURT PRONOUNCES ITS JUDGMENT IN THE DEPARTMENTAL APPEAL FOR THE ASSESSMENT YEAR 2002-03. SINCE THE DEPARTMENTAL APPEAL IS ALR EADY PENDING BEFORE THE HIGH COURT AGAINST THE ORDER OF THIS TRIBUNAL F OR ASSESSMENT YEAR 2002- 03, REFERENCE TO LARGER BENCH ALSO MAY NOT SERVE AN Y PURPOSE. ACCORDINGLY, BY FOLLOWING THE ORDER OF THIS TRIBUNA L FOR THE ASSESSMENT YEAR 21 ITA NO.616/COCH/2011 2002-03, THE ORDER OF ASSESSING OFFICER IS SET ASID E AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW 10% OF THE REMAINING I NVESTMENT WRITTEN OFF AS BUSINESS LOSS AS HELD BY THE EARLIER BENCH. 23. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF LOSS TO THE EXTENT OF RS.45,58,79,524 ON THE LOAN ADVANCED TO SUBSIDIARY COMPANY WHICH WAS CONVERTED INTO PREFERENCE SHARES. 24. SHRI AJAY VOHRA, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY ADVANCED FOREIGN CURRENCY LOAN OF 314 MILLION RANDS EQUIVALENT TO 232.92 CRORES IN INDIAN RUPEES TO ITS WHOLLY SUBSIDIARY COMPANY, APOLLO MAURITIUS HOLDINGS CO LTD CARRYING INTEREST AT THE RATE OF 7.5%. THE LOAN WAS ADVANCED FOR ACQUIRING 100% CON TROLLING INTEREST IN DTIPL, SOUTH AFRICA. THE MAURITIUS SUBSIDIARY ADVA NCED THE SAID LOAN TO APOLLO, SOUTH AFRICA, WHICH ULTIMATELY ACQUIRED THE ENTIRE SHARE CAPITAL OF DTIPL, SOUTH AFRICA ON 21-04-2006. ACCORDING TO TH E LD.SENIOR COUNSEL, THE OBJECT AND PURPOSE OF ADVANCING LOAN TO APOLLO MAURITIUS HOLDINGS CO LTD WAS TO FACILITATE THE SUBSIDIARY COMPANY TO ACQ UIRE A SIMILARLY PLACED TYRE MANUFACTURING COMPANY IN SOUTH AFRICA WHICH OF FERS A COMPREHENSIVE RANGE OF RADIAL PRODUCTS UNDER THE WORLD RENOWNED B RAND. THE LD. SENIOR COUNSEL FURTHER SUBMITTED THAT THE OBJECT OF ADVANC ING THE LOAN WAS ALSO 22 ITA NO.616/COCH/2011 INTENDED TO ENHANCE THE EFFICIENCY OF THE ASSESSEE S BUSINESS AND GIVE IT A SHARPER COMPETITIVE EDGE BY CREATING SYNERGY WITH T YRE BUSINESS IN SOUTH AFRICA. REFERRING TO THE ANNUAL REPORT OF THE ASSE SSEE COMPANY FOR THE YEAR UNDER CONSIDERATION, THE LD.SENIOR COUNSEL SUB MITTED THAT THE ASSESSEE ADVANCED A FOREIGN CURRENCY LOAN TO MAURIT IUS SUBSIDIARY ON COMMERCIAL EXPEDIENCY. ACCORDING TO THE LD.SENIOR COUNSEL, AFTER ACQUIRING THE SOUTH AFRICAN COMPANY THROUGH ITS MAURITIUS SUB SIDIARY, THE ASSESSEE WAS ABLE TO ACQUIRE RAW MATERIALS AT LOW COST DUE T O CENTRALIZED PURCHASING. THE ENGINEERING AND TECHNICAL SUPPORT SUPPLEMENTED BY SKILLS THE TRANSFER THROUGH ON THE JOB TRAINING, OUTSOURCI NG THE PRODUCT TO CAPITALIZE ON LOWER MANUFACTURING COST. THE ASSESS EE INCREASED ITS ABILITY TO SECURE OFF-SHORE FUNDING AT MORE COMPETITIVE RAT ES. APART FROM THAT THE ASSESSEE ANTICIPATED BENEFITS IN CENTRALIZED INTERN ATIONAL MARKETING, GLOBAL BRAND POSITIONING, PRODUCT RANGE RATIONALIZATION, E TC. THE LD.SENIOR COUNSEL FURTHER SUBMITTED THAT ON 29-03-2007, THE APOLLO MA URITIUS CONVERTED THE ABOVE SAID LOAN ADVANCED BY THE ASSESSEE INTO NON C UMULATIVE REDEEMABLE PREFERENTIAL SHARES AFTER GETTING THE CO NSENT OF THE ASSESSEE. HOWEVER, AT THE TIME OF CONVERSION OF THE LOAN INTO CUMULATIVE REDEEMABLE PREFERENTIAL SHARES, DUE TO DECLINE IN THE VALUE OF THE RANDS, THE LOAN OF 314 MILLION RANDS WHICH WAS EQUIVALENT TO 232.92 CR ORES HAD DECLINED BY AN AMOUNT OF RS.45.54 CRORES. AFTER CONVERSION OF L OAN INTO REDEEMABLE PREFERENTIAL SHARES, THE VALUE OF THE SAME STOOD AT 187.33 CRORES. 23 ITA NO.616/COCH/2011 ACCORDING TO THE LD.SENIOR COUNSEL, IN THE PROCESS OF CONVERSION OF THE LOAN INTO REDEEMABLE PREFERENTIAL SHARES AND DUE TO DECL INE IN VALUE OF THE RANDS, THE ASSESSEE SUFFERED A LOSS OF RS.45.58 CRO RES. THE LD. SENIOR COUNSEL SUBMITTED THAT THIS LOSS WAS INCURRED MAINL Y DUE TO DIFFERENCE IN THE FOREIGN EXCHANGE CONVERSION RATE. REFERRING TO THE NOTE SAID TO BE FILED ALONG WITH THE REVISED RETURN, THE LD.SENIOR COUNSE L POINTED OUT THAT THOUGH IN THE BOOKS OF ACCOUNT, PREFERENTIAL SHARE WAS REC OGNIZED AT 232.92 CRORES WHICH WAS THE AMOUNT ORIGINALLY ADVANCED, TH E FOREIGN EXCHANGE LOSS WAS DEBITED TO FOREIGN EXCHANGE CURRENCY TRANS ACTION RESERVE ACCOUNT. ACCORDING TO THE LD.SENIOR COUNSEL, SINCE THERE WAS A CONSTRUCTIVE REPAYMENT OF LOAN ADVANCED BY THE ASSE SSEE COMPANY THE SAME WAS CONVERTED INTO REDEEMABLE PREFERENTIAL SHA RES WHICH RESULTED IN ACTUAL FOREIGN EXCHANGE LOSS OF RS.45.58 CRORES. A CCORDING TO THE LD.SENIOR COUNSEL, THE LOSS SUFFERED BY THE ASSESSE E WAS NOT CLAIMED IN THE ORIGINAL RETURN; HOWEVER, THE SAME WAS CLAIMED IN T HE REVISED RETURN. THE DRP DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT IT WAS A BOOK LOSS AND NOT IN THE NATURE OF BUSINESS LOSS. THE A SSESSING OFFICER MADE THE DISALLOWANCE ON THE GROUND THAT THE ACQUISITION OF THE CAPITAL ASSET RESULTED IN LOSS, THEREFORE, IT IS A CAPITAL LOSS, HENCE, IT CANNOT BE ALLOWED. 24 ITA NO.616/COCH/2011 25. ACCORDING TO THE LD.SENIOR COUNSEL, THE INTENTI ON OF THE ASSESSEE AT THE TIME OF ADVANCING THE LOAN WAS TO ACQUIRE CONTR OL OVER DTIPL, SOUTH AFRICA WITH THE INTENTION TO EXPAND ITS GLOBAL REAC H AND TO ACCESS KNOW HOW, SKILLS OWNED BY DTIPL. THEREFORE, THE ACQUISI TION OF DTIPL WAS IN THE LARGER INTEREST OF THE BUSINESS OF THE ASSESSEE COMPANY. AS A CONSEQUENCE OF DEVALUATION OF THE INDIAN RUPEE, THE ASSESSEE HAS SUFFERED LOSS. THE LD.SENIOR COUNSEL POINTED OUT T HAT THE ASSESSEE BORROWED THE LOAN FOR THE PURPOSE OF BUSINESS AND T HE SAME WAS ADVANCED TO MAURITIUS SUBSIDIARY COMPANY AND THE IN TEREST ON THE LOAN WAS CLAIMED AS A DEDUCTION AND ALLOWED BY THE ASSES SING OFFICER U/S 36(1)(III) OF THE ACT. THE LD.SENIOR COUNSEL PLACE D HIS RELIANCE ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUIL DERS VS CIT 288 ITR 1 (SC). THE LD.SENIOR COUNSEL HAS ALSO PLACED RELIAN CE ON THE JUDGMENT OF THE KARNATAKA HIGH COURT IN CIT VS ANAND TECHNOLOGY RESOURCE PARK (P) LTD 202 TAXMAN 654 (KAR). THE LD.SENIOR COUNSEL FO R THE ASSESSEE HAS ALSO PLACED RELIANCE ON VARIOUS JUDGMENTS OF THE VA RIOUS HIGH COURTS WHEREIN SIMILAR INTEREST WAS ALLOWED ON THE BORROWE D FUNDS. APPLYING THE PRINCIPLES LAID DOWN BY THE SUPREME COURT AND VARIO US HIGH COURTS ON THE INTEREST PAID ON THE LOAN WHICH WAS ADVANCED TO SIS TER CONCERN, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE LOAN ADVANCED TO MAURITIUS COMPANY FOR THE PURPOSE OF ACQUIRING CONT ROLLING INTEREST IN DTIPL WAS FOR BUSINESS PURPOSE AND WAS DUE TO COMME RCIAL EXPEDIENCY, 25 ITA NO.616/COCH/2011 THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE DUE TO FOREIGN EXCHANGE FLUCTUATION HAS TO BE ALLOWED AS BUSINESS LOSS. 26. REFERRING TO THE JUDGMENT OF THE DELHI HIGH COU RT IN CIT VS WOODWARD GOVERNOR INDIA (P) LTD 294 ITR 451 (DEL) W HICH HAS BEEN APPROVED BY THE SUPREME COURT IN 312 ITR 254 (SC), THE LD.SENIOR COUNSEL SUBMITTED THAT THE INCREASE IN LIABILITY DUE TO INC REASE IN THE RATE OF FOREIGN EXCHANGE WAS HELD TO BE ON THE REVENUE ACCOUNT, HEN CE, IT IS ALLOWABLE AS REVENUE EXPENDITURE. THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. 27. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR S UBMITTED THAT THE ASSESSEE HAS NOT CLAIMED LOSS IN THE ORIGINAL RETUR N, HOWEVER, THE SAME WAS CLAIMED IN THE REVISED RETURN. ACCORDING TO TH E LD.DR, THE MONEY WAS ADVANCED IN FOREIGN CURRENCY AS A LOAN TO SUBSIDIAR Y COMPANY FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST IN DTIPL IN SOUTH AFRICA. THEREFORE, THE LOAN WAS ADVANCED FOR THE PURPOSE OF ACQUIRING A CAPITAL ASSET IN SOUTH AFRICA. AFTER ACQUISITION OF A CAPI TAL ASSET, THE PROFIT EARNING APPARATUS OF THE ASSESSEE IS EXPANDED DUE TO THE LO AN ADVANCED BY THE ASSESSEE. INDIRECTLY THE ASSESSEE IS ACQUIRING A C APITAL ASSET THROUGH THE 26 ITA NO.616/COCH/2011 SUBSIDIARY COMPANY. ACCORDING TO THE LD.DR, THE LO AN WAS ALREADY ADVANCED AND BY A BOOK ENTRY, THE ASSESSEE IS SHOWI NG LOSS. IN FACT, ACCORDING TO THE LD.DR, NO MATERIAL LOSS HAS ACCRUE D TO THE ASSESSEE. THE LD.DR FURTHER SUBMITTED THAT ADVANCING MONEY IS NOT THE BUSINESS OF THE ASSESSEE. THE BUSINESS OF THE ASSESSEE, ADMITTEDLY , IS MANUFACTURING OF TYRE. THE LD.DR FURTHER POINTED OUT THAT THE LOAN ADVANCED BY THE ASSESSEE WAS CLAIMED TO HAVE BEEN CONVERTED INTO PR EFERENTIAL SHARE AND WHILE VALUING THE PREFERENTIAL SHARE, A BOOK LOSS W AS SHOWN. ACCORDING TO THE LD.DR, THE LOAN TAKEN BY THE ASSESSEE FOR THE P URPOSE OF ACQUIRING CAPITAL ASSET IS IN THE CAPITAL FIELD, THEREFORE, T HE CONSEQUENTIAL LOSS, IF ANY, SAID TO BE SUFFERED BY THE ASSESSEE IS IN THE CAPIT AL FIELD. THE LD.DR FURTHER POINTED OUT THAT CONVERSION OF LOAN INTO PR EFERENTIAL SHARES AMOUNTS TO LIQUIDATION OF LOAN AND IT CANNOT BE CONSTRUED A S LOSS SUFFERED IN THE COURSE OF BUSINESS ACTIVITY. THEREFORE, ACCORDING TO THE LD.DR, THE LOSS SUFFERED BY THE ASSESSEE HAS TO BE TREATED AS CAPIT AL LOSS, HENCE, IT CANNOT BE ALLOWED. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTED LY, THE ASSESSEE BORROWED LOAN AND ADVANCED THE SAME AS LOAN TO MAUR ITIUS SUBSIDIARY IN FOREIGN CURRENCY. SUBSEQUENTLY, THE LOAN ADVANCED WAS CONVERTED INTO 27 ITA NO.616/COCH/2011 PREFERENTIAL SHARES. THE VALUATION OF THE PREFEREN TIAL SHARE IN INDIAN RUPEE WAS RECORDED IN THE BOOKS OF ACCOUNT AND THE DIFFER ENCE BETWEEN THE VALUE OF PREFERENCE SHARE IN INDIAN RUPEE AND SOUTH AFRICAN RAND WAS SHOWN AS BUSINESS LOSS. ADMITTEDLY, THE ASSESSEE I S NOT IN THE BUSINESS OF MONEY LENDING. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING TYRES. FOR THE PURPOSE OF EXPANDING ITS CAPITAL BASE AND T HE PROFIT MAKING APPARATUS, THE ASSESEE ADVANCED LOAN TO MAURITIUS S UBSIDIARY COMPANY FOR THE PURPOSE OF ACQUIRING A CONTROLLING INTEREST IN THE SOUTH AFRICAN COMPANY. IT IS AN ADMITTED FACT THAT THE ASSESSEE ACQUIRED ENDURING BENEFIT DUE TO EXPANSION OF ITS BUSINESS IN SOUTH A FRICA. THE ASSESSEE UTILIZED THE MARKETING NET WORK OF THE SOUTH AFRICA N COMPANY. DUE TO CENTRALIZED PURCHASE, THE COST OF RAW MATERIAL HAS CONSIDERABLY LOWERED DOWN AND THE ASSESSEE WAS ABLE TO MARKET ITS PRODUC T ON COMPETITIVE RATE. THE ASSESSEE WAS ABLE TO REDUCE THE MANUFACTURING C OST DUE TO TRANSFER OF TECHNICAL SKILL ACQUIRED FROM SOUTH AFRICAN COMPANY . THEREFORE, THE ASSESSEE OBTAINED ENDURING BENEFIT IN THE CAPITAL F IELD. THE ASSESSEE ALSO ACQUIRED 100% CONTROLLING INTEREST IN THE SOUTH AFR ICAN COMPANY. THEREFORE, IT IS OBVIOUS THAT THE LOAN WAS ADVANCED BY THE ASSESSEE FOR ACQUIRING THE SOUTH AFRICAN COMPANY, WHICH IS UNDOU BTEDLY A CAPITAL ASSET. IN OTHER WORDS, THE LOAN ADVANCED BY THE ASSESSEE W AS CONVERTED INTO AN INVESTMENT. 28 ITA NO.616/COCH/2011 29. NOW THE QUESTION ARISES FOR CONSIDERATION IS WH EN THE VALUE OF THE SHARES OF MAURITIUS SUBSIDIARY COMPANY WAS DIMINISH ED DUE TO REDUCTION IN INDIAN RUPEE, WHETHER SUCH A DIMINUTION COULD BE AL LOWED AS REVENUE LOSS? WHEN THE ASSESSEE ADVANCED THE MONEY FOR THE PURPOSE OF ACQUIRING / EXPANDING THE CAPITAL ASSET, THE CONSEQ UENTIAL LOSS, IF ANY, HAS TO BE TREATED AS CAPITAL LOSS. IT IS NOT A SIMPLE LOSS DUE TO REDUCTION IN INDIAN RUPEE. THE ASSESSEE ADMITTEDLY ADVANCED MON EY FOR THE PURPOSE OF ACQUIRING 100% CONTROLLING INTEREST IN THE SOUTH AFRICAN COMPANY THROUGH ITS MAURITIUS SUBSIDIARY COMPANY. THEREFOR E, IN FACT, IT IS AN INVESTMENT. THE SO-CALLED LOAN WAS ADVANCED IN FOR EIGN CURRENCY. THIS TRIBUNAL HAD AN OCCASION TO CONSIDER THE IDENTICAL ISSUE IN RESPECT OF THE SAME LOAN IN THE ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2006-07. THIS TRIBUNAL FOUND THAT THE SO-CALLED LOAN WAS ADV ANCED FOR ACQUIRING A CAPITAL ASSET. IN FACT, AT PARAGRAPHS 18 & 19 OF T HE ORDER FOR ASSESSMENT YEAR 2006-07 THIS TRIBUNAL HAS OBSERVED AS FOLLOWS: 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD. ADMITTEDLY, THE ASSESSEE IS IN THE BUSINESS OF MANU FACTURE AND SALE OF TYRE. IN ORDER TO EXPAND ITS BUSINESS IN SOUTH AFRICA, THE ASSESSEE INTENDED TO PURCHASE DUNLOP TY RES 29 ITA NO.616/COCH/2011 INTERNATIONAL (PROPRIETORY) LTD. FOR THAT PURPOSE, AS AN INTERMEDIARY ARRANGEMENT, A SUBSIDIARY COMPANY WAS FLOUTED IN MAURITIUS BY NAME APOLLO (MAURITIUS) HOLDING PV T LTD. APOLLO (MAURITIUS) HOLDING PVT LTD, IN TURN, FLOUTE D ANOTHER COMPANY IN SOUTH AFRICA CALLED APOLLO (SOUTH AFRICA ) HOLDING PVT LTD. THE ASSESSEE COMPANY GAVE A LOAN OF 314 M ILLION RANDS TO MAURITIOUS SUBSIDIARY COMPANY, WHICH IN TU RN, GAVE LOAN TO SOUTH AFRICAN SUBSIDIARY COMPANY FOR THE PU RPOSE OF ACQUIRING DUNLOP TYRES INTERNATIONAL (PROPRIETORY) LTD. THEREFORE, THE PURPOSE OF GRANTING LOAN IS TO ACQUI RE A COMPANY IN SOUTH AFRICA. IT IS AN ADMITTED FACT TH AT SOUTH AFRICA HAS TWO MANUFACTURING UNITS OF DUNLOP TYRES INTERNATIONAL (PROPRIETORY) LTD AND HAS WIDE RANGE OF DISTRIBUTORSHIP NETWORKING FOR SALES. IN ORDER TO SAFEGUARD ITSELF FROM FOREIGN EXCHANGE RATE FLUCTUATION, THE ASSESSEE ENTERED INTO A FORWARD CONTRACT WITH CITI BANK. HO WEVER, BEFORE THE DUE DATE, I.E. 14-03-2006, THE ASSESSEE HAD TO SETTLE THE FORWARD CONTRACT AND ON THAT ACCOUNT HAS SUFFERED A LOSS OF RS.5,09,01,000. THE QUESTION ARISES FOR CO NSIDERATION IS WHETHER LOSS SUFFERED BY THE ASSESSEE IN SETTL ING THE FORWARD CONTRACT BEFORE THE DUE DATE IS A CAPITAL L OSS OR A REVENUE LOSS? IT IS WELL SETTLED PRINCIPLE OF LAW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE PROCESS OF EARNING OF PROFIT IS A REVENUE EXPENDITURE. HOWEV ER, IF ANY EXPENDITURE WAS INCURRED IN THE PROCESS OF ESTABLIS HING A CAPITAL ASSET EITHER BY EXPANDING THE EXISTING UNIT OR BY EXPANDING THE PROFIT MAKING APPARATUS IT HAS TO BE TREATED AS CAPITAL EXPENDITURE. 30 ITA NO.616/COCH/2011 19. NOW, IN THE ABOVE BACKGROUND, WE HAVE TO SEE WH ETHER ACQUISITION OF TYRE MANUFACTURING COMPANY ALONG WIT H THE DISTRIBUTION NETWORK AT SOUTH AFRICA WOULD EXPAND T HE BUSINESS AND PROFIT MAKING APPARATUS OF THE ASSESSE E OR NOT? THE ASSESSEE, INSTEAD OF ACQUIRING THE COMPANY DIRE CTLY, ESTABLISHED A COMPANY IN MAURITIUS AS 100% SUBSIDIA RY COMPANY AND THE SAID SUBSIDIARY COMPANY HAS ESTABLI SHED ANOTHER COMPANY IN SOUTH AFRICA. THE MOTIVE AND IN TENTION BEHIND THE ESTABLISHMENT AND CREATION OF TWO INTERM EDIARY COMPANIES IS FOR THE PURPOSE OF ACQUIRING DUNLOP TY RES INTERNATIONAL (PROPRIETORY) LTD. THE LOAN IN FOREI GN EXCHANGE WAS GRANTED TO ACHIEVE THE ABOVE OBJECT OF ACQUIRIN G THE COMPANY IN SOUTH AFRICA. THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT BY ACQUISITION OF A COMPANY IN SOUTH A FRICA, THE MANUFACTURING BASE AND DISTRIBUTION NETWORK, IN OTH ER WORDS, THE CAPITAL BASE OF THE COMPANY, EXPANDS CONSIDERAB LY AND THE PROFIT MAKING APPARATUS ALSO EXPANDED. THOUGH THE COMPANY WAS ACQUIRED THROUGH A SUBSIDIARY COMPANY T HIS TRIBUNAL OF THE CONSIDERED OPINION THAT IT IS ONLY AN ARRANGEMENT MADE BY THE ASSESSEE TO ACQUIRE DUNLOP TYRES INTERNATIONAL (PROPRIETORY) LTD. IN EFFECT, THE AS SESSEE IS HOLDING AND CONTROLLING THE SUBSIDIARY COMPANY AS W ELL AS DUNLOP TYRES INTERNATIONAL (PROPRIETORY) LTD. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ENTIRE ARRANGEME NTS MADE BY THE ASSESSEE BY ESTABLISHING TWO INTERMIDIARY SU BSIDY COMPANIES WOULD COME TO LIGHT ONCE THE CORPORATE VE IL IS LIFTED. THEREFORE, THE LOSS SUFFERED WAS IN THE PRO CESS OF ACQUISITION OF DUNLOP TYRES INTERNATIONAL (PROPRIET ORY) LTD IN SOUTH AFRICA. IN OTHER WORDS, THE LOSS WAS SUFFERE D IN THE 31 ITA NO.616/COCH/2011 PROCESS OF ACQUISITION OF A CAPITAL ASSET WHICH EXP ANDS THE MANUFACTURING FACILITY AS WELL AS THE PROFIT MAKING APPARATUS OF THE COMPANY. THEREFORE, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT THE LOSS SUFFERED BY THE ASSESSEE BY S ETTLING THE FORWARD CONTRACT IN THE PROCESS OF ACQUISITION OF D UNLOP TYRES INTERNATIONAL (PROPRIETORY) LTD IS A CAPITAL LOSS W HICH CANNOT BE ALLOWED AS A REVENUE LOSS OR AS AN ITEM OF EXPENDIT URE. THIS IS NOT AN EXPENDITURE INCURRED IN THE COURSE OF EAR NING OF PROFIT. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE ORDE R OF CIT(A) ON THIS ISSUE IS CONFIRMED. 30. FURTHERMORE, THE ASSESSEE HIMSELF CLAIMING THE SHARE ISSUE EXPENSES AS CAPITAL EXPENDITURE AND AMORTIZATION U/ S 35D OF THE ACT. THE SPECIAL BENCH OF THIS TRIBUNAL AT DELHI IN THE ASSE SSEES OWN CASE REPORTED AT 264 ITR (AT) 1 (DEL)(SB) HAS FOUND SIMI LAR TRANSACTION AS CAPITAL IN NATURE. 31. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA) AND OTHER JUDGMEN TS OF VARIOUS HIGH COURTS. NO DOUBT, THE ASSESSING OFFICER ALLOWED TH E INTEREST ON THE BORROWED FUNDS AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. BY TAKING A CLUE FROM THIS, THE LD.SENIOR COUNSEL FOR THE ASSES SEE CLAIMS THAT THE LOSS HAS ALSO TO BE ALLOWED AS REVENUE LOSS. WE ARE UNA BLE TO ACCEPT THE 32 ITA NO.616/COCH/2011 CONTENTION OF THE LD.SENIOR COUNSEL FOR THE ASSESSE E. WHEN THE ASSESSEE BORROWED LOAN EITHER FOR CAPITAL INVESTMENT OR FOR WORKING CAPITAL, THE BORROWAL IS FOR THE PURPOSE OF BUSINESS, THEREFORE, THE INTEREST PAID ON SUCH LOAN HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA) FOUND THAT ADVANCING THE AMOUNT BORROWED TO THE SISTER CONCERN IS ALSO A BUSINESS PURPOSE AND T HERE IS A COMMERCIAL EXPEDIENCY IN ADVANCING THE AMOUNT. SO LONG AS THE FUNDS ADVANCED TO THE SISTER CONCERN ARE USED FOR BUSINESS PURPOSE OF THE SISTER CONCERN AND THE AMOUNTS BY THE DIRECTORS OF THE SISTER CONCERN FOR THEIR PERSONAL PURPOSE, THE INTEREST ON SUCH LOAN HAS NOT TO BE AL LOWED AS BUSINESS EXPENDITURE. WE ARE UNABLE TO UNDERSTAND HOW THIS PRINCIPLE LAID DOWN BY THE APEX COURT IS APPLICABLE TO THE FACTS OF THE CA SE. HERE, THE ASSESSEE ADVANCED THE SO-CALLED LOAN FOR THE PURPOSE OF ACQU IRING CONTROLLING INTEREST IN THE SOUTH AFRICAN COMPANY THROUGH ITS M AURITIUS SUBSIDIARY COMPANY WHICH IS A CAPITAL INVESTMENT. THEREFORE, THE ADVANCE OF LOAN IS FOR ACQUIRING A CAPITAL ASSET OR FOR EXPANSION OF I TS CAPITAL BASE. THEREFORE, THE LOSS, IF ANY, SUFFERED HAS TO BE TREATED AS CAP ITAL LOSS AND IT CANNOT BE ALLOWED AS REVENUE LOSS. 32. IT IS WELL SETTLED PRINCIPLES OF LAW THAT IF TH E MONEY WAS ADVANCED FOR THE PURPOSE OF ACQUIRING A CAPITAL INTEREST WHICH I S ENDURING IN NATURE, THEN 33 ITA NO.616/COCH/2011 THE LOSS OR PROFIT SUFFERED IN THAT PROCESS HAS TO BE TREATED IN THE CAPITAL FIELD. THE LOSS / PROFIT WAS NOT EARNED / RECEIVED IN THE PROCESS OF EARNING PROFIT. THE LOSS IS SUFFERED IN THE COURSE OF ACQU IRING A CAPITAL ASSET FOR EXPANSION OF THE PROFIT EARNING APPARATUS. THEREFO RE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAD R IGHTLY FOUND THAT THERE IS NO LOSS SUFFERED BY THE ASSESSEE IN CONVERSION OF L OAN INTO PREFERENTIAL SHARES OF THE MAURITIUS SUBSIDIARY COMPANY AND THE LOSS SHOWN IS ONLY A BOOK LOSS. EVEN ASSUMING FOR THE ARGUMENTS SAKE, IT HAS TO BE TREATED AS A LOSS, THEN, THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE LOSS IS IN THE CAPITAL FIELD, AND THEREFORE, IT CANNOT BE ALLOWED AS LOSS WHILE COMPUTING TOTAL INCOME. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF LOWER AUTHORITIES. ACCORDINGLY, THE SAME IS CONFIRMED. 33. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF DEPRECIATION U/S 38(2) OF THE ACT IN RESPECT OF LET OUT PORTION OF THE CORPORATE OFFICE BUILDING AT GURGAON. 34. WE HEARD SHRI AJAY VOHRA, THE LD.SENIOR COUNSEL FOR THE ASSESSEE AND SHRI M ANIL KUMAR, THE LD.DR. IT IS BROUGHT TO THE NOTICE OF THIS BENCH FOR THE ASSESSMENT YEAR 2006-07 THAT AN IDENTICAL I SSUE CAME UP BEFORE THIS TRIBUNAL IN ITA NOS 31 & 74/COCH/2010. THE CO PY OF THE ORDER IS 34 ITA NO.616/COCH/2011 PLACED AT PAGE 386 OF THE PAPER BOOK. THIS TRIBUNAL FOUND THAT THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION ON THE GU RGAON OFFICE PREMISES. 35. HAVING HEARD THE LD.SENIOR COUNSEL FOR THE ASSE SSEE AND THE LD.DR WE FIND THAT THIS TRIBUNAL HAD AN OCCASION TO CONSI DER THIS ISSUE FOR THE ASSESSMENT YEAR 2006-07. BY FOLLOWING ITS EARLIER ORDER FOR THE ASSESSMENT YEARS 2001-02, 2002-03, 2004-05 AND 2004 -05 THIS TRIBUNAL FOUND THAT THE CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE WITH REGARD TO DEPRECIATION. IN VIEW OF T HE ABOVE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE VERY SA ME PROPERTY DISALLOWING THE DEPRECIATION WE DO NOT SEE ANY REASON TO INTERF ERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRME D. 36. THE NEXT GROUND OF APPEAL IS IN RESPECT OF ADDI TION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST RECEIVED O N THE AMOUNT ADVANCED TO ASSOCIATED ENTERPRISE IN MAURITIUS, VIZ. APOLLO MAURITIUS HOLDINGS LTD AND ON ACCOUNT OF REIMBURSEMENT OF EXPENSES RECEIVE D FROM DUNLOP TYRES INTERNATIONAL PTY LTD (NOW KNOWN AS APOLLO TYRES SO PUTH AFRICA (PROPRIETORY) LIMITED) (DTIPL). 37. SHRI AJAY VOHRA, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER AND THE TRANSFER PRICING OFFICER MADE AN ADDITION 35 ITA NO.616/COCH/2011 OF RS.7,24,53,335 ON ACCOUNT OF INTEREST RECEIVED O N THE AMOUNT ADVANCED TO ASSOCIATE ENTERPRISE IN MAURITIUS AND ON ACCOUNT OF REIMBURSEMENT OF EXPENSES RECEIVED FROM DTIPL. ACCORDING TO THE LD. SENIOR COUNSEL, THE ASSESSEE ADVANCED A LOAN OF RS. 314 MILLION RANDS E QUIVALENT TO 232.92 CRORES TO APOLLO MAURITIUS HOLDINGS LTD. AS PER TH E AGREEMENT WITH APOLLO MAURITIUS HOLDING LTD THE LOAN CARRIED INTEREST @7. 5% PER ANNUM. ACCORDINGLY, THE ASSESSEE RECEIVED INTEREST OF RS.7 ,07,13,227. IN THE TRANSFER PRICING STUDY, ACCORDING TO THE LD.SENIOR COUNSEL, THE ASSESSEE BENCHMARKED THE INTERNATIONAL TRANSACTION USING LIB OR. THE SIX MONTHS AVERAGE USD LIBOR RATE FOR THE PERIOD APRIL, 2006 T O MARCH, 2007 COMES TO 5.39% PER ANNUM. HOWEVER, THE ASSESSEE ACTUALLY CHARGED 7.5% WHICH IS HIGHER THAN THE COMPARABLE UNCONTROLLED PRICE OF SIX MONTH USD LIBOR. THEREFORE, ACCORDING TO THE LD.SENIOR COUNSEL, THE TRANSACTION OF ADVANCEMENT OF LOAN TO MAURITIUS ASSOCIATE CONCERN IS AT ARMS LENGTH PRICE. 38. THE LD.SENIOR COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE AVAILED A ND UTILIZED FOREIGN CURRENCY LOAN FROM INTERNATIONAL FINANCE CORPORATIO N CARRYING INTEREST @7.25% TO 7.46% PER ANNUM. THE ASSESSEE COMPANY HA D ALSO TAKEN FOREIGN CURRENCY LOAN FROM ICICI BANK CARRYING INTE REST @ 7.24% AND 7.05%. ACCORDING TO THE LD.SENIOR COUNSEL, THE INT EREST CHARGED BY THE 36 ITA NO.616/COCH/2011 ASSESSEE IS HIGHER THAN THE RATE OF INTEREST ON THE FOREIGN CURRENCY LOAN. THEREFORE, THE TRANSACTION BETWEEN THE ASSESSEE AND APOLLO MAURITIUS HOLDINGS LTD IS AT ARMS LENGTH PRICE. 39. EVEN OTHERWISE, ACCORDING TO THE LD.SENIOR COUN SEL, LOAN ADVANCED TO APOLLO MAURITIUS HOLDINGS LTD WAS FINANCED BY WA Y OF BRIDGE LOAN FROM VARIOUS BANKS IN INDIA. THE AVERAGE RATE OF INTERE ST CHARGED BY BANKS IN INDIA ON THE BRIDGE LOAN COMES TO 7.14% PER ANNUM W HICH WAS LOWER THAN THE INTEREST RATE OF 7.5% CHARGED BY THE ASSESSEE O N THE LOAN ADVANCED TO APOLLO MAURITIUS HOLDINGS LTD. ACCORDING TO THE LD .SENIOR COUNSEL, THE TPO, APPLYING THE RATE OF 11.35% ON THE LOAN TAKEN FROM GE CAPITAL SERVICES INDIA MADE TRANSFER PRICING ADJUSTMENT OF RS.7,07,13,227. THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE LOAN ADVANCED TO MAURITIAN ENTITY WAS IN FOREIGN CURRENCY, THEREFORE , THE SAME HAS TO BE BENCHMARKED APPLYING LIBOR. FOR THIS PROPOSITION, THE LD.SENIOR COUNSEL PLACED HIS RELIANCE ON THE FOLLOWING DECISIONS: SIVA INDUSTRIES & HOLDINGS LTD VS ACIT ITA NO.2148 /MDS/2148 TATA AUTOCOMP SYSTEMS LTD VS ACIT ITA NO.7354/MUM/ 2011 FOUR SOFT LGD VS DCIT 142 TTJ 358 DCIT VS TECH MAHINDRA LTD 46 SOT 141 PEROT SYSTEM TSI INDIA PVT LTD VS DCIT 130 TTJ 685 (DEL) 37 ITA NO.616/COCH/2011 COTTON NATURALS (I) PVT LTD VS DCIT ITA NO.5855/DE L/2012 40. THE LD.SENIOR COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT THE AVERAGE COST OF THE FUNDS AVAILABLE WITH THE ASSESS EE IS AT 7.25%. THEREFORE, CHARGING OF INTEREST AT 7.5% ON THE LOAN ADVANCED TO MAURITIAN SUBSIDIARY WAS AT ARMS LENGTH PRICE. 41. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR S UBMITTED THAT IN RESPECT OF INTEREST RECEIVED FROM MAURITIAN SUBSIDI ARY, THE TPO ADOPTED INTERNAL CUP METHOD AND ACCORDINGLY MADE THE ADJUST MENT. ACCORDING TO THE LD.DR, LIBOR RATE HAS NOT TAKEN INTO CONSIDERAT ION THE RISK FACTOR INVOLVED IN ADVANCING THE LOAN. THEREFORE, THE AVE RAGE SIX MONTHS USD LIBOR RATE FOR THE PERIOD APRIL, 2006 TO MARCH, 200 7 MAY NOT BE THE APPROPRIATE METHOD. IN RESPECT OF REIMBURSEMENT OF EXPENSES RECEIVED FROM DUNLOP TYRES INTERNATIONAL PVT LTD, THE ASSESS ING OFFICER FOUND THAT THE ASSESSEE HAS RECEIVED THE MONEY WITHOUT ANY INT EREST AND THE INTEREST COST HAS BEEN IGNORED BY THE ASSESSEE. ACCORDING T O THE LD.DR, THE TPO, BY ADOPTING THE INTEREST RATE TAKEN EARLIER FOR ADV ANCING SIMILAR LOANS TO ASSOCIATE ENTERPRISES MADE ADJUSTMENT. ACCORDING T O THE LD.DR, THE DRP, AFTER TAKING INTO CONSIDERATION THE SUBSTANTIAL GAP BETWEEN THE TIME OF EXPENDITURE AND THE TIME OF REIMBURSEMENT CONFIRMED THE ASSESSMENT MADE BY THE TPO. 38 ITA NO.616/COCH/2011 42. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTED LY, THE ASSESSEE ADVANCED LOAN TO ASSOCIATE ENTERPRISE IN MAURITIUS AND RECEIVED INTEREST. THE ASSESSEE HAS ALSO RECEIVED REIMBURSEMENT OF EXP ENDITURE FROM DTIPL. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE HAS CHARGED INTEREST AT ARMS LENGTH PRICE IN RESPE CT OF LOAN ADVANCED TO ASSOCIATE ENTERPRISE. 43. WE HAVE CAREFULLY GONE THROUGH ALL THE DECISION S REFERRED BY THE LD.SENIOR COUNSEL FOR THE ASSESSEE. IN THE CASE BEF ORE THE CHANDIGARH BENCH OF THIS TRIBUNAL IN SIVA INDUSTRIES & HOLDING S LTD (SUPRA) THE ASSESSEE ADVANCED A LOAN OF RS.50 CRORES TO ITS SUB SIDIARY IN MAURITIUS FOR MAKING INVEST AND CHARGED INTEREST @6% PER ANNUM. THE TPO FOUND THAT USD DENOMINATED LIBOR COULD NOT BE CONSIDERED AS A LOAN WAS GIVEN FROM INDIA AND THE PRIME LENDING RATE IN INDIA HAS TO BE TAKEN INTO CONSIDERATION. THE DEPARTMENT CONTENDED BEFORE THE TRIBUNAL THAT LIBOR WOULD BE APPLICABLE IF THE ASSESSEE ADVANCED LOAN I N FOREIGN CURRENCY. HOWEVER, IN THE CASE BEFORE THE CHANDIGARH BENCH OF THIS TRIBUNAL, THE LOAN WAS ADVANCED IN INDIAN RUPEE AND, THEREFORE, T HE DEPARTMENT CONTENDED THAT PRIME LENDING RATE IN THE DOMESTIC M ARKET WOULD BE APPLIED AND NOT LIBOR RATE. THE TRIBUNAL AFTER CONSIDERING THE MATERIALS AVAILABLE 39 ITA NO.616/COCH/2011 ON RECORD FOUND THAT THE ASSESSEE RAISED FUNDS BY I SSUING ZERO PER CENT OPTIONAL CONVERTIBLE PREFERENTIAL ISSUE FOR ADVANCE MENT OF LOAN TO MAURITIUS SUBSIDIARY COMPANY. THE LOAN WAS GIVEN IN USD. TH E ASSESSEE WAS ALSO RECEIVING INTEREST FROM THE ASSOCIATE ENTERPRISE. SINCE THE TRANSACTION WAS AN INTERNATIONAL TRANSACTION, THE TRIBUNAL FOUND TH AT COMMERCIAL PRINCIPLE WITH REGARD TO INTERNATIONAL TRANSACTION HAS TO BE APPLIED. ACCORDINGLY, THE TRIBUNAL FOUND THAT THE PRIME LENDING RATE IN DOMES TIC MARKET HAS NO APPLICATION AND INTERNATIONAL MARKET RATE FIXED BY LIBOR WOULD COME INTO PLAY. ACCORDINGLY, THE TRIBUNAL FOUND THAT LIBOR S HOULD BE APPLIED. 44. WE HAVE ALSO CAREFULLY GONE THROUGH THE DECISIO N IN TATA AUTOCOMP SYSTEMS LTD (SUPRA). THE MUMBAI BENCH OF THIS TRIB UNAL FOUND THAT LOAN EXTENDED TO ASSOCIATE CONCERN COME WITHIN THE AMBIT OF INTERNATIONAL TRANSACTION. THE QUESTION OF RATE OF INTEREST ON T HE BORROWINGS OF LOAN IS AN INTEGRAL PART OF THE ARMS LENGTH PRICE DETERMINATI ON. THE TRIBUNAL, AFTER CONSIDERING THE INSTRUCTIONS ISSUED BY RBI IN RESPE CT OF EXPORT CREDIT TO EXPORTERS ON INTERNATIONALLY COMPETITIVE RATE UNDER THE SCHEME OF PRE- SHIPMENT CREDIT IN FOREIGN EXCHANGE AND RE-DISCOUNT ING OF EXPORT BILLS ABROAD HAS PERMITTED THE BANKS TO FIX THE RATE OF I NTEREST WITH REFERENCE TO RULING LIBOR OR LIBOR EURIBOR. ACCORDINGLY, THE TR IBUNAL FOUND THAT THERE IS JUSTIFICATION ON THE PART OF THE ASSESSEE TO ADOPT EURIBOR RATE IN DETERMINING THE ARMS LENGTH PRICE ON THE LOAN ADVA NCED TO ASSOCIATE 40 ITA NO.616/COCH/2011 ENTERPRISE. IN THE CASE ON HAND ALSO, THE LOAN WAS ADVANCED IN FOREIGN CURRENCY TO MAURITIUS ASSOCIATE CONCERN. THE ASSES SEE AVAILED LOAN IN FOREIGN CURRENCY TO ADVANCE LOAN TO THE ASSOCIATE C ONCERN IN MAURITIUS. THE ASSESSEE, IN FACT, CHARGED INTEREST AT 7.5%. T HE LIBOR RATE OF INTEREST DURING THAT PERIOD IS 5.39% PER ANNUM. TH EREFORE, THE RATE OF INTEREST CHARGED BY THE ASSESSEE ON THE LOAN ADVANC ED TO ASSOCIATE ENTERPRISE ON THE INTERNATIONAL TRANSACTION IS MORE THAN THE LIBOR AVERAGE RATE FOR THE SIX MONTHS PERIOD DURING THE RELEVANT TIME. 45. SINCE THE CO-ORDINATE BENCHES OF THIS TRIBUNAL AT CHANDIGARH AND MUMBAI FOUND THAT IN RESPECT OF INTERNATIONAL TRANS ACTION, LIBOR WOULD BE MORE APPROPRIATE, THIS TRIBUNAL IS OF THE CONSIDERE D OPINION THAT THE ASSESSING OFFICER HAS TO ADOPT LIBOR THAN THE DOMES TIC MARKET RATE. IN THE CASE BEFORE US, THE DOMESTIC MARKET RATE COMES NEARLY TO 7.14% TO 7.5%. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERE D OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE LIBOR RATE OF INTEREST BY DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF LO AN ADVANCED TO ASSOCIATE ENTERPRISE. ACCORDINGLY, THE ORDERS OF THE LOWER A UTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO CONSIDER L IBOR RATE OF INTEREST FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. 41 ITA NO.616/COCH/2011 46. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DEDU CTION U/S 80IA OF THE ACT IN RESPECT OF DIESEL GENERATING SETS I AND 2 AN D IN RESPECT OF GAS TURBINE POWER GENERATION UNIT. 47. SHRI AJAY VOHRA, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER BY FOLLOWING HIS OWN ORD ER FOR THE ASSESSMENT YEAR 2005-06 REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE POWER GENERATING UNIT IS NOT AN UNDERTAKING BY ITSE LF. REFERRING TO THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.429/COCH/2006, THE LD.SENIOR COUNSEL SUBMITTED T HAT THIS TRIBUNAL FOUND THAT DG & DT POWER GENERATING UNIT FOR CAPTIVE CONS UMPTION IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THOUGH THE ORDER OF THIS TRIBUNAL WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER AND DRP, THEY SIMPLY REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT THE ISSUE HAS NOT REACHED FINALITY. ACCORDING TO THE LD.SENIOR COUNS EL, THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06 IS BINDING ON THE LOWER AUTHORITY INCLUDING THE DRP, THEREFORE, THEY CANNOT TAKE A DI FFERENT VIEW. WE HEARD SHRI M ANIL KUMAR, THE LD.DR ALSO. 48. ADMITTEDLY, THE VERY SAME ISSUE CAME BEFORE THI S TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06 IN THE ASSESSEES OWN CASE IN ITA NO.729/COCH/2008. THIS TRIBUNAL, BY FOLLOWING ITS EARLIER ORDER FOR THE 42 ITA NO.616/COCH/2011 ASSESSMENT YEAR 2002-03 FOUND THAT DIESEL POWER GEN ERATION UNIT FOR CAPTIVE CONSUMPTION IS ALSO ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IN VIEW OF THE ORDER OF THIS TRIBUNAL, THE LOWER AUTHO RITIES ARE NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE ASSESSING OFFICER IS SET ASIDE AND THE ASSESSING OF FICER IS DIRECTED TO ALLOW DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER GENERATION BY USING DIESEL POWER GENERATION UNIT. HOWEVER, IN RE SPECT OF GAS TURBINE POWER GENERATION UNIT, THE ISSUE WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER SINCE THE SAME WAS RAISED BEFORE THIS TRIBUNAL AS AN ADDITIONAL GROUND. THEREFORE, FOR THE YEAR UNDER C ONSIDERATION ALSO, WE REMAND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION ON MERIT. 49. THE NEXT GROUND ARISING FOR CONSIDERATION IS AD DITIONAL DEDUCTION OF 50% EXPENDITURE ON IN-HOUSE RESEARCH AND DEVELOPMEN T U/S 35(2AB) OF THE ACT. 50. THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE VERY SAME ISSUE CAME UP BEFORE THIS TRIBUNAL FOR THE ASSESSME NT YEAR 2006-07 IN ITA NOS 31 & 74/COCH/2010. THIS TRIBUNAL FOUND THAT TH E ASSESSEE FAILED TO MAKE ANY CLAIM BEFORE THE ASSESSING OFFICER, THEREF ORE, THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR C ONSIDERATION ON MERIT IN 43 ITA NO.616/COCH/2011 RESPECT OF DEDUCTION U/S 35(2AB). WE HEARD SHRI M ANIL KUMAR, THE LD.DR ALSO. 51. AS RIGHTLY SUBMITTED BY THE LD.SENIOR COUNSEL F OR THE ASSESSEE, DEDUCTION U/S 35(2AB) OF THE ACT THE ISSUE WAS REMA NDED BACK TO THE FILE OF THE ASSESSING OFFICER AS THE ASSESSEE FAILED TO CLAIM THE SAME BEFORE THE ASSESSING OFFICER. FOR THE SAKE OF CONSISTENCY , THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE U/S 35(2AB) OF THE ACT IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECON SIDERATION. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AND DECIDE THE S AME AFRESH IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. 52. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DECEMBER, 2013. (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 20TH DECEMBER, 2013 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH