ACIT, UDAIPUR V. Hindustan Zinc Limited, UDAIPUR

ITA 638/JODH/2008

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1971 (ITAT-JODHPUR)
• Duration Of Justice: 8 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 28-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI
• Assessee Lawyers: K SAMPAT C A DHK
• Keywords: Capital asset; Depreciation; Business expenditure; Charitable institution; Share purchase agreement; Rule of consistency; Bad and doubtful debts; Capital receipt; Commercial expediency; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 43B; 37(1); 80G; 32; 145; 37; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 638/JU/2008 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2006-07 THE ASSTT. COMMISSIONER OF INCOME - TAX, CIRCLE-2 UDAIPUR. CUKE VS. M/S HINDUSTAN ZINC LTD., YASAD BHAWAN, UDAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACH 7354 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 606/JU/2008 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2006-07 M/S HINDUSTAN ZINC LTD., YASAD BHAWAN, UDAIPUR. CUKE VS. THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-2 UDAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACH 7354 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI D. S. KOTHARI (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI K. SAMPAT (C.A) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 24.03.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 24 /04/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THESE TWO CROSS APPEALS ONE BY THE REVENUE I.E. IN ITA NO. 638/JU/2008 , (PERTAINING TO THE ASSESSMENT YEAR 2006-07) AND ANO THER BY THE ASSESSEE I.E. IN ITA NO. 606/JU/2008, (PERTAINING TO THE ASSESSMENT YEAR 2006-07) ARE D IRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (A) UDAIPUR, DATED 05/09/2008. 2 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. BOTH THE APPEALS WERE TAKEN UP TOGETHER AND ARE BEI NG DISPOSED OF BY WAY OF CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST WE TAKE UP THE REVENUES APPEAL IN ITA NO. 638/JU/2008 , PERTAINING TO THE ASSESSMENT YEAR 2006-07. THE REVENUE HAS RAISE D THE FOLLOWING GROUNDS OF APPEAL. ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS IN:- I. DELETED THE DISALLOWANCE OF RS. 3,35,44,273/- OUT O F STAFF WELFARE EXPENSES U/S 40A(9) OF THE IT ACT. II. DELETED THE DISALLOWANCE MADE ON ACCOUNT OF PUBLICI TY AND PUBLIC RELATION EXPENSES AMOUNTING TO RS. 14,75,715/- III. DELETED THE DISALLOWANCE MADE ON ACCOUNT OF DEPRECI ATION CLAIMED IN RESPECT OF INTANGIBLE ASSETS IN THE FORM OF RIGHT I N RELATION TO POWER FROM APGPCL AMOUNTING TO RS. 7,90,92,994/-. IV. DELETED DISALLOWANCE OF DEPRECIATION IN RESPECT OF ASSETS RETIRED FROM ACTIVE USED AMOUNTING TO RS. 39,52,820/-. V. DELETED ADDITION OF RS. 66,58,952/- ON A/C OF ENABL ING ASSETS WRITTEN OFF. VI. DELETED ADDITION MADE ON ACCOUNT OF MINE DEVELOPMEN T EXPENSES AMOUNTING TO RS. 1,90,50,000/-. VII. DELETED THE ADDITION ON A/C OF UNDERVALUATION OF CL OSING STOCK OF ORE AMOUNTING TO RS. 6,87,45,564/-. VIII. DELETED THE REDUCTION OF RS. 87,97,262/- MADE BY TH E AO FOR THE CLAIM U/S 80IA OF THE ACT. IX. DIRECTED TO ALLOW DONATION OF RS. 1,10,52,000/- GIV EN TO NANDI FOUNDATION AS AN EXPENDITURE U/S 37(1) OF THE ACT IN-SPITE OF THE VIEW TAKEN BY THE AO IN ALLOWING THE SAME U/S 80G @ 50%. X. DELETED THE ADDITION OF RS. 8,55,50,700/- ON A/C OF WAIVER OF ELECTRICITY DUTY. XI. DELETING THE DISALLOWANCE OF RS. 11,15,00,000/- AS EXCHANGE RATE DIFFERENCE ON LOAN. XII. DIRECTED NOT TO REDUCE THE PROFITS OF THE BUSINESS, THE AMOUNT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE IT ACT. 2. AT THE TIME OF HEARING, BOTH THE LD. REPRESENTATIV E OF THE PARTIES SUBMITTED THAT THE GROUND NO. 1,2,3,4,5,6 ARE COVERED BY THE DECISION OF THE CO-ORDINATE 3 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. BENCH OF THIS TRIBUNAL, IN THE CASE OF THE ASSESSEE , PERTAINING TO THE EARLIER ASSESSMENT YEARS. HOWEVER, LD. DR SUPPORTED THE AS SESSMENT ORDER. 2.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER THE AUTHORITIES BELOW. WE FIND THAT GROUND NO. 1 IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ITA NO. 612/JU/2009, WHEREIN THIS TRIBUNAL WAS PLEASED TO HOLD AS UNDER:- 4. GROUND NO. 1, IT IS STATED BY THE REPRESENTATIVES OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESEES OWN CASE. WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO . 235/JU/2008, DECIDED THIS ISSUE IN PARA 11.1 TO 11.2 BY OBSERVING AS UND ER: 11.1 AS REGARDS GROUND 5 OF THE REVENUE CHALLENGING STAFF WELFARE EXPENSE U/S 40A(9), WE FIND THAT THE SIMILAR ISSUE STANDS DE CIDED BY US IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 VIDE OUR ORDER DATED 11-03-2016 (IN ITA NO. 537/JU/2007-REVENUE) WHEREIN REVENUES RELEVA NT GROUND NO. 5 HAS BEEN DISMISSED BY FOLLOWING OBSERVATIONS: 15.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT GROUND NO. 7, 8 AND 9 OF THE REVENUE IS SIMILAR TO GROUND NO. 7,8 AND 9 OF THE REVENUE FOR THE ASSESSMENT YEAR 2002- 03 AND THIS ISSUE HAS BEEN DECIDED AGAINST THE REVE NUE BY THIS BENCH VIDE ITS ORDER DATED 09-03-2016 BY FOLLOWING OBSERVATIONS. 16.1 GROUND NO. 7,8,AND 9 AS MENTIONED HEREUNDER ARE SIMILAR IN NATURE:- (VII) DELETING THE DISALLOWANCE OF RS. 3,79,96,220 /- ON ACCOUNT OF STAFF WELFARE EXPENSES U/S 40A(9) OF THE IT ACT. (VIII) DELETING DISALLOWANCE OF RS. 62,90,317/- ON ACCOUNT OF CONTRIBUTION TOWARDS WELFARE FUND 4 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. (IX) DELETING DISALLOWANCE OF RS. 1,73,43,466/- ON ACCOUNT OF OTHER WELFARE EXPENSES. 16.2 LD. DR RELIED ON THE ORDER OF THE AO IN THIS BEH ALF. 16.3 THE LD. AR OF THE ASSESSEE CONTENDS THAT THE A BOVE EXPENDITURE BEING FOR BUSINESS PURPOSES AND FALLING WITHIN THE PARAMETERS O F RELEVANT PROVISIONS HAVE BEEN RIGHTLY ALLOWED BY THE LD. CIT (A) BY DETA ILED ORDER, WHICH IS RELIED ON. 16.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. WE FIND MERIT IN THE ORDER OF THE LD. CIT (A) WHO HAS RIGHTLY ALLOWED THE ABOVE EXPENDITURE AGITATED BY REVENUE QUA GROUND NO. 7,8, AND 9. THIS BENCH OF ITAT VIDE ITS ORDER DATED 03-03-2016 HAS ALL OWED SIMILAR EXPENSES BY FOLLOWING OBSERVATIONS. 13.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ASSESSEE IS A PSU GOVERNED BY STATUTORY AS WELL AS INTERNAL REGULATIONS FOR INCURRING THE EXPENDITURE, ITS APPROVAL AS PER A HIERARCHICAL ADMINISTRATE FRAME WORK. ON FACTS NEITHER OF THE AUDITO RS I.E. STATUTORY AND TAX AUDITORS HAVE INDICATED ANYTHING ADVERSE IN RESPECT OF STAFF WELFARE EXPENDITURE. IT IS ALSO A FACT THAT THE STAFF WELFA RE EXPENDITURE IS INCURRED THROUGH VARIOUS BODIES IN CONSULTATION WITH SUCH STAF F UNIONS. THESE FACTS COUPLED WITH FINDINGS OF LD. CIT (A) THAT EXPENDITU RE IS GENUINE. WHOLLY FOR BUSINESS PURPOSED AND ALLOWED IN VARIOUS EARLIER YEARS EVEN AFTER VERIFICATION HAVE NEITHER BEEN DISLODGED BY REVENUE NOR CONTROVERTED IN ANY MANNER EXCEPT RAISING A SPECIOUS PLEA THAT ISSUE MAY BE SET ASIDE AGAIN. ITS VEHEMENTLY CONTENDED THAT SETTING ASIDE AMOUNTS TO BE A BURDEN OF FRESH PROCEEDINGS ON ASSESSEE WHICH SHOULD NOT BE RESTORED T O BE APPELLATE AUTHORITIES IN ROUTINE AND CASUAL MANNER. LD. COUNSEL CONTENDS THAT IT AMOUNTS TO REASSESSMENT PROCEEDINGS AND IN THIS CASE AFTER 15 YEARS, VARIOUS COURTS HAVE EXPRESSED THEIR STRONG DISPLEASURE ON PERFUNCTORY RE ASSESSMENT. IN OUR CONSIDERED VIEW THE FOLLOWING PROPOSITIONS OF LAW IN THE REALM OF TAX JURISPRUDENCE AS CONTENDED BY LD. COUNSEL FOR THE ASS ESSEE DESERVE MERIT THAT: (I) PRINCIPLES OF RES JUDI CATA DO NOT APPLY TO IT PROCE EDINGS (II) EVERY ASSESSMENT YEA IS A SEPARATE AND DISTINCT UNIT OF ASSESSMENT AND STANDS ON ITS OWN FACTS. (III) WHAT IS SETTLED SHOULD NOT BE ORDINARILY UNSETTLED UN LESS THERE ARE JUSTIFIABLE REASONS I.E. THE PRINCIPLES OF CONSIST ENCY AS 5 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. ENUNCIATED BY HONBLE SUPREME COURT IN RADHA SOAMI SA TSANG (SUPRA) IT IS NOT DISPUTED BY REVENUE THAT THE EXPENDITURE O N STAFF WELFARE HAS BEEN ALLOWED BY AO HIMSELF IN VARIOUS EARLIER YEARS WHILE RE- VARYING ALSO IN SET ASIDE FRESH PROCEEDINGS. FROM THE RECORD IT EMERGES THAT NO SP ECIFIC ITEM OF EXPENDITURE IS POINTED OUT TO BE NOT COVERED BY SEC. 40A(9), NO SUCH INDICATION IS GIVEN BY AUDITORS AND LD. CIT(A)S FINDING ON FAC TS AND LAW HAVE NOT BEEN DISLODGED BY REVENUE. ADVERTING TO THE PLEA OF SET A SIDE AS RAISED BY REVENUE, IT CAN BE ACCEDED AS NO LAWFUL JUSTIFICATION EXISTS TO SUPPORT IT. IN PAT SO MANY YEARS EVEN AFTER RE-VERIFICATION AO HIMSELF HAS ALLOWED SUCH EXPENDITURE. SUCH ORDERS MAY HAVE BEEN PASSED AFTER THE IMPUGNED ASSESS MENT ORDER WAS PASSED RESPECTFULLY FOLLOWING THE HONBLE SUPREME CO URT IN THE CASE OF RADHA SOAMI SATSANG WE CANNOT GLOSS OVER THE OBVIOUS LEGAL POSITION THAT REVENUE BY ITS AO HAS ALLOWED THE STAFF WELFARE EXPENDITURE IN S UCCESSIVE ASSESSMENT YEARS AFTER DIRECTION OF HONBLE HIGH COURT AND ITAT DU RING RE-VERIFICATION AS PROCEEDINGS OF SET ASIDE ASSESSMENT YEARS. THE LEGAL PROPOSITIONS AS CANVASSED BY LD. COUNSEL DESERVED MERIT, CONSEQUENTLY WE HOLD THAT THE SET ASIDE OF PROCEEDINGS CANNOT BE RECOURSE BY APPELLATE A UTHORITIES IN PERFUNCTORY MANNER AND THERE MUST EXIST VALID AND JUST IFIABLE REASONS FOR SUBJECTING THE ASSESSEE TO SECOND ROUND OF PROCEEDIN GS. THE ORDER OF LD. CIT(A) ON THE ISSUE OF STAFF WELFARE EXPENDITURE IS UPHELD, THIS GROUND NO. 7 OF THE REVENUE IS DISMISSED. THE NATURE OF EXPENDITURE AND FACTS AND CIRCUMSTANCE Q UA GROUND NO. 7, AND 9 OF THIS YEAR ARE SIMILAR. THEREFORE, FOLLOWING OUR DECIS ION IN ASSESSEES OWN CASE (SUPRA) FOR THE ASSESSMENT YEAR 2001-02, WE UPHOL D THE ORDER O THE LD. CIT(A) IN THIS BEHALF. THUS, GROUND NOS. 7,8, AND 9 OF THE REVENUE ARE DISMISSED. 15.3 FACTS AND CIRCUMSTANCES OF THE CASE BEING SI MILAR TO EARLIER YEARS AND ALSO FOLLOWING OUR OWN DECISION IN THE ABOVE GROUNDS OF APPEAL (SUPRA), THE GROUND NO. 7,8 AND 9 O THE REVENUE ARE DISMISSED. 11.2 RESPECTFULLY FOLLOWING THE DECISION OF THE CO -ORDINATE BENCH IN ASSESSEES OWN CASE(SUPRA), THE GROUND NO. 5 OF THE R EVENUE CHALLENGING STAFF WELFARE EXPENSE U/S 40A(9) IS DISMISSED. 4.1 THEREFORE, TAKING A CONSISTENT VIEW, THE GROUND NO. 1 OF REVENUES APPEAL IS DISMISSED. 6 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. IN VIEW OF THE ABOVE, THE GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. 3. APROPOS TO GROUND NO. 2 , IT IS STATED BY THE LD. REPRESENTATIVE OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE GROUND NO. 2 , IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ITA NO. 612/JU/2009, WHEREIN THE HONBLE TRIBUNAL DECIDED THE ISSUE IN PARA 5 TO 5.2 AS UNDER:- 5. APROPOS TO GROUND NO. 2 IT IS STATED BY THE REPRESENTATIVE OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO -ORDINATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO. 235/JU/2008, DECIDED THIS ISSUE IN PARA 12.1 AND 12 .2 BY OBSERVED AS UNDER: 12.1 AS REGARD GROUND 6 OF THE REVENUE CHALLENGING A LLOWABILITY OF PUBLICITY AND PR EXPENSE, WE FIND THAT THE SIMILAR ISSUE HAS B EEN DECIDED BY US IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 V IDE OUR ORDER DATED 11- 03-2016 ( IN ITA NO. 537/JU/2007- REVENUE) WHEREIN R EVENUES GROUND NO. 6 HAS BEEN DISMISSED BY FOLLOWING OBSERVATIONS. 16.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE HAS AL READY BEEN DECIDED BY THIS BENCH VIDE ITS ORDER DATED 09-03-2016 (A.Y. 2002-03) IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD, SIMILAR ISSUE CAME UP IN ASSESSMENT YEAR 200 1-02 ON THE SAME ISSUE I.E. GUJARAT EARTHQUAKE ITSELF. THE AMOUNT PROVIDED F OR SUCH RELIEF ON THE CALL OF DISTRICT COLLECTOR HAS BEEN ALLOWED IN ASSESSMENT YEAR 2001-02 BY US BY FOLLOWING OBSERVATIONS. 5.1 GROUND NO. 4 FOR AN AMOUNT OF RS. 20,000/- OF THE ASSESSEE DESERVES TO BE ALLOWED AS IT IS NOT DISPUTED THAT IT WAS INCURRED FOR SENDING GUJARAT 7 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. EARTHQUAKE RELIEF IN THE FORM OF A TRUCKLOAD OF FOOD IT EMS CONSEQUENT TO CHITTORGARH DISTRICT COLLECTORS CLARION CALL. THE AMOU NT BEING FOR SOCIAL GOOD AND FOR DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY IS ALLOWABLE AS BUSINESS EXPENDITURE U/S 37(1). THIS GROUND NO. 4 OF THE ASSE SSEE IS ALLOWED. FOLLOWING ABOVE JUDGMENT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02, THE GROUND NO. 3 OF THE ASSESSEE IS ALLOWED . 16.3 FACTS AND CIRCUMSTANCES OF THE CASE BEING SIMI LAR TO EARLIER YEARS AND ALSO FOLLOWING OUR OWN DECISION IN THE ABOVE GROUND O F APPEAL(SUPRA), THE GROUND NO. 10 OF THE REVENUE IS DISMISSED. 12.2 RESPECTFULLY FOLLOWING THE DECISION OF THE CO -ORDINATE BENCH IN ASSESSEES OWN CASE(SUPRA), THE GROUND NO. 6 OF THE REVENUE CHAL LENGING ALLOWABILITY OF PUBLICITY AND PR EXPENSES IS DISMISSED. 5.2 THE FACTS ARE IDENTICAL AND THERE IS NO CHANGE INTO THE FACTS AND CIRCUMSTANCES POINTED OUT BY THE REVENUE. THEREFOR E, TAKING A CONSISTENT VIEW, THIS GROUND OF THE REVENUES APPEAL IS DISMIS SED. IN VIEW OF THE ABOVE, THIS GROUND NO. 2 OF THE REVENUES APPEAL IS DISMISSED. 4. APROPOS TO GROUND NO. 3 , IT IS STATED BY THE LD. REPRESENTATIVE OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE GROUND NO. 3 IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ITA NO. 612/JU/2009,WH EREIN THE HONBLE TRIBUNAL DECIDED THE ISSUE IN PARA 6 TO 6.1 AS UND ER:- 6. APROPOS TO GROUND NO. 3, IT IS STATED BY THE LD. REPRESENTATIVES OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO. 8 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 235/JODHPUR/2008 DECIDED THIS ISSUE IN PARA 10.1 TO 10.2 BY OBSERVED AS UNDER:- 10.1 AS REGARDS GROUND 4 OF THE REVENUE REGARDIN G THE ALLOWABILITY OF DEPRECIATION ON APGPCL SHARES, WE FIND THAT THE SIM ILAR ISSUE HAS BEEN DECIDED BY US IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2003-04 VIDE OUR ORDER DATED 11-03-2016 (IN ITA NO. 537/JU/ 2007 REVENUE) WHEREIN REVENUES GROUND NO. 4 HAS BEEN PARTLY ALLO WED BY FOLLOWING OBSERVATIONS. 14.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT GROUND NO. 6 OF THE REVENUE IS SIMILAR TO GROUND NO. 6 OF THE REVENUE FOR THE ASSESSMENT YEAR 20 02-03 AND THIS GROUND IS PARTLY ALLOWED BY THIS BENCH VIDE ITS ORDER D ATED 09-03-201 BY FOLLOWING OBSERVATIONS. 15.1 APROPOS GROUND NO. 6 REGARDING DELETING DISALLOW ANCE OF DEPRECIATION OF RS. 19,50,74,094/- ON SHARES OF APGPCL CLAIMING I T TO FOR ACQUISITION OF INTANGIBLE COMMERCIAL RIGHTS FOR USE OF POWER GENERATE D BY APGPCL AT A COST. BOTH PARTIES AGREED THAT THE ISSUE IS SIMILAR TO AY 2001-02 AND THE SAME DECISION MAY BE APPLIED. 15.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. SIMILAR ISSUE CAME UP FIRST TIME B EFORE US N ASSESSMENT YEAR 2001-02, BY A DETAILED ORDER WE HAVE PARTLY UPHELD THE ORDER OF THE LD. CIT(A) BY DIRECTING THAT 2/3RD VALUE OF THE INVESTME NT IN APGPCL, SHARES 9 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. SHOULD BE ATTRIBUTED FOR ACQUISITION OF INTANGIBLE RIG HTS EMBEDDED THEREIN AND DEPRECIATION SHOULD BE ALLOWED ON 2/3RD VALUE IN TERMS OF SECTION 32(1)(II) THEREON. BESIDES 1/3RD VALUE OF INVESTMENT IS ATTRIBUTABLE TO THE EQUITY SHARES. WHENEVER SHARES OF APGPCL ARE TRANSFERRED THE SALE PROCEEDS SHALL BE ACCORDINGLY ALLOCATED I.E. 1/3RD TOWARDS THE SHARE CORRESPONDING COST OF SHARE FOR COMPUTING LONG-TERM CAPITAL GAINS IN ACCORDANCE WITH RELEVANT PROVISIONS AND 2/3RD TOWARDS BLOCK OF ASSESSE ES INTANGIBLE ASSETS BY FOLLOWING OBSERVATIONS:- 17.21 THE CIRCUMSTANCES THAT THE DECLARATION OF LAWI N CIT V. SMIFS SECURITIES LTD. [2012] 348 ITR 302/210 TAXMAN 428/24 TAMAN.COM 222(SC) ENVISIONS INCLUSION OF GOODWILL AS AN ASSET AND, THEREFORE, EN TITLED TO DEPRECIATION, IN OTHER WORDS DOES NOT NECESSARILY MEAN THAT IN EVERY CAS E THE GOODWILL CLAIM HAS TO BE ALLOWED. IN THE PRESENT CASE, THOUGH TERMED AS GOODWILL, WHAT WAS ACTUALLY PARTED WITH BY STL WAS A COMMERCIAL RIGHT, I. E. EXCLUSIVELY TO THE NETWORK WHICH WOULD NOT HAVE BEEN OTHERWISE AVAILABLE BUT FOR THE TERMS OF THE ARRANGEMENT. 17.22 IN BOTH THE ABOVE CASES, IT IS TO BE APPRECIAT ED THAT IN CASE OF SMIFS SECURITIES, THE WHOLE OF THE BUSINESS WAS ACQUIRED AN D AMALGAMATED WITH THE ASSESSEE COMPANY AND THE CONSIDERATION PAID OVER AND ABOVE THE NET BOOK VALUE OF THE ASSETS (I.E. THE TANGIBLE ASSETS) TERME D AS GOODWILL WAS HELD ELIGIBLE FOR DEPRECIATION ON INTANGIBLE ASSET. SIMI LARLY, IN THE CASE OF MIS BHARTI, THE ASSESSEE-COMPANY APART FROM PAYING CONSIDE RATION TO ACQUIRE SHARES OF COMPANY S, AS PER TERMS OF AGREEMENT, ALSO HAD TO PAY SPECIFIC AMOUNT TO TRANSFER TO GET COMMERCIAL RIGHT FOR MARKETING, CUSTOMER SUPPORT, DISTRIBUTION AND ASSOCIATE SET UPS; OTHERWISE SUCH MA RKET/CUSTOMER NETWORK WOULD NOT HAVE BEEN TRANSFERRED TO ASSESSEE COMPANY B Y COMPANY S. THE AMOUNT SO PAID TO ACQUIRE THE COMMERCIAL RIGHTS (AND N OT THE CONSIDERATION TO ACQUIRE SHARES) WAS HELD ELIGIBLE FOR DEPRECIATION. 10 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 17.23 THESE FACTS, CIRCUMSTANCES AND JUDICIAL DECIS IONS LEAD US HOLD THAT IN SUCH TYPE OF BUSINESS TRANSACTIONS, THERE ARE ALWAYS S OME TANGIBLE ASSETS AND SOME INTANGIBLES ASSETS WHICH ARE SOLD AND ACQUIRED A ND EACH CASE WILL HAVE ITS OWN PECULIARITIES IN TERMS OF DOMINANT OBJECTIVE OF SUCH ACQUISITION AND A REASONABLE ESTIMATION OF VALUATION OF DOMINANT INTAN GIBLE ASSET AND OTHER RIGHTS IS TO BE ARRIVED AT. IN THE CASES A DISCUSSED ABOVE, THE VALUE OF INTANGIBLES ARE EITHER DEDUCED BY WAY OF A RESIDUARY ME THODOLOGY WHERE CONSIDERATION PAID OVER AND ABOVE THE NET BOOK VALUE HAS BEEN CONSIDERED AS VALUE OF INTANGIBLE OR THERE COULD BE A SPECIFIC CONS IDERATION AGREED WITH THE SELLER TOWARDS ACQUISITION OF INTANGIBLES. 17.24 IN LIGHT OF ABOVE DISCUSSION FACTS, CIRCUMSTA NCES AND CASE LAWS OF SMIFF SECURITIES. BHARTI TELETECH AND OTHERS (SUPRA) WE HOLD THAT TO ASCRIBE 2/3 RD VALUE OF THE APGPCL INVESTMENT TO INTANGIBLE COMMERC IAL RIGHTS OF COST EFFECTIVE POWER SUPPLY RIGHTS AN 1/3 RD VALUE TO THE TANGIBLE RIGHTS A SHARE HOLDER WILL BE A REASONABLE ESTIMATE ASCRIBABLE TO THE SE CONSTITUENTS. THE AO WILL ACCORDINGLY WORD OUT THE ELIGIBLE DEPRECIATION O N INTANGIBLE RIGHTS U/S 32(I)(II) ON 2/3 RD VALUE OF APGPCL INVESTMENT AND 1/3 RD TO SHARE HOLDER RIGHTS AND WORK OUT THE BLOCK OF ASSET OF INTANGIBLE RIGHTS FOR DEPRECIATION AND 1/3 RD TO VALUE OF APGPCL SHARES. THE ALLOWANCES, CLAIM OF LTCG ON SALE OF SHARES WHENEVER SOLD WILL BE WORKED OUT ACCORDINGLY. 17.25 IN THE ENTIRETY OF FACTS, CIRCUMSTANCES, CONTE NTIONS AND CASE LAWS WE PARTLY UPHELD THE ASSESSEES CLAIM OF DEPRECIATION IN THIS BEHALF U/S 32(I)(II) IN TERMS OF PARA 17.24 ABOVE BY HOLDING THAT:- (I) PRINCIPLE OF EJUSDEM GENERIS A HELD BY HONBLE S UPREME COURT IN TECHNO SHARES IS APPLICABLE TO INTERPRETATION OF SEC. 32(I)( II). LEGISLATURE DID NOT INTEND TO PROVIDE OR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS AS IT IS NOT POSSIBLE TO EXHAUSTIVELY ENUMERATE EACH AND EVERY INTANGIBLE ASSET OR RIGHT. (II) IN THE INSTANT CASE, IT IS THE INTANGIBLE ASS ET IN FORM OF RIGHT TO PROCURE POWER AT COST WHICH QUALIFIED FOR DEPRECIATION UNDER SE CTION 32 OF THE ACT. GIVEN THAT THERE IS NO SEPARATE CONSIDERATION FOR VALU E OF SHARES AN VALUE OF SUCH INTANGIBLE RIGHTS, THE ASSESSEE AND AO HAVE TO COME UP WITH AN APPROPRIATE METHODOLOGY. ON THE LIMITED ISSUE OF DET ERMINING THE VALUATION THE INTANGIBLE RIGHTS WHICH OTHERWISE QUALIFY FOR DEPRE CIATION U/S 32(I)(II) OF 11 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. THE ACT, THE MATTER IS SET ASIDE TO THE FILE OF AO T O EXAMINE THE SAME AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSESSEE. (III) CARE SHALL BE TAKING TO CONSIDER THE NATURE OF INTANGIBLE AND TANGIBLE COMMERCIAL RIGHTS ACQUIRED BY ASSESSEE IN A COMPOSITE TRANSACTION AND TO ASCRIBE REASONABLE VALUATION TO RESPECTIVE RIGHTS. (IV) THE CATEGORIES OF SPECIFIC INTANGIBLE ASSETS RE FERRED IN SECTION 32(I)(II) ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ON E ANOTHER. LIKE WISE UNREMUNERATED RIGHTS NEED NOT STRICTLY ANSWER THE DESCRIP TION OF KNOWHOW, PATENT, TRADEMARKS, LICENSES OR FRANCHISES BUT MUST BE OF SIMILAR OF NATURE AS THE SPECIFIED ASSETS. IN OUR VIEW THE ASSESSEES CL AIM CONFORM TO THIS PARAMETER. (V) INTANGIBLE ASSETS, LIKE SECURING EXPEDIENT AND USEFUL POWER SUPPLY OBTAINED FROM APGPCL ARE INVALUABLE FOR CARRYING ON THE BUSINESS BY THE ASSESSEE. (VI) ACQUISITION OF SUCH INTANGIBLE ASSETS WHICH A RE WHOLE OR PART OF ACQUISITION VALUE, THEREFORE, CORRESPONDINGLY COMPARABLE TO A LICENS E TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF TH E TRANSFEROR. IN THIS CASE ALSO APGPCL GOT THE RIGHTS OF EARLIER ALLOTEE IN FAVOU R OF THE ASSESSEE. (VII) HONBLE SC IN TECHNO SHARES AND STOCKS LTD. H ELD THAT INTANGIBLE ASSETS OWNED BY THE ASSESSEE AND USED FOR THE BUSINESS PURP OSE WHICH ENABLES THE ASSESSEE TO ACCESS THE MARKET AND HAS AN ECONOMIC AN D MONEY VALUE IS A LICENSE OR AKIN TO A LICENSE WHICH IS ONE OF THE ITEMS FALLING IN SECTION 32(I)(II). (VIII) EVEN IF STRICTLY THE RIGHTS DO NOT AMOUNT TO L ICENSE, IN ANY CASE THEY CONSTITUTE ANOTHER GENUS OF OTHER COMMERCIAL RIGHTS OF SIMILAR NATURE AS ENVISAGED BY SEC. 32(I)(II). (IX) THE SHARES ARE THE WRITTEN MEANS TO ACQUIRE AND ENJOY THE RIGHTS OF ELECTRICITY UNDER A POLICY FORMULATED BY APSEB AND AGP GCL UNDER THE AEGIS OF POLICIES OF AP GOVT. THEREFORE THE RIGHTS BEING ACHIE VED IN THE FORM OF ZERO DIVIDEND SHARE CERTIFICATED CANNOT MILITATE AGINST TH E REAL NATURE OF TRANSACTION. OUR VIEW IS FORTIFIED BY HONBLE SUPREM E COURT JUDGMENTS IN THE CASE OF KEDARNATH JUTE MILL AND SUTLEJ COTTON MILLS (SUPRA), THEREFORE, ACQUISITION OF RIGHTS BEING THE DOMINANT AND PRIME MO TIVE IN IMPUGNED 12 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. TRANSACTION, DEPRECIATION IN TERMS OF SEC. 32(I)(II) I S TO BE ALLOWED IN TERMS OF PARA 17.24 ABOVE. (X) THOUGH NO ADVERSE JUDGMENT HAS BEEN CITED ON THE INTERPRETATION AND SCOPE OF SEC.32(I)(II) AND THE ISSUE, ASSUMING EVEN THAT MORE THAN ONE INTERPRETATION IS POSSIBLE, EVEN THE ONE FAVOURABLE T O ASSESSEE IS TO BE ADOPTED IN VIEW OF THE HONBLE SUPREME COURT JUDGMENTS IN THE CASE OF VEGETABLE PRODUCT AND VATIKA TOWNSHIP(SUPRA) 17.26 IN VIEW OF THE FOREGOING WE PARTLY UPHOLD THE O RDER OF LD. CIT(A) ON THIS ISSUE ON ALLOWING IMPUGNED DEPRECIATION IN TERMS OF P ARA 17.24 ABOVE, SAME IS UPHELD. REVENUE GROUND NO. 2 IS PARTLY ALLOWED. 15.3 IN THESE FACTS AND CIRUMSTNCES, FOLLOWING OUR OWN JUDGMENT DATED 03- 03-2016 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YE AR 2001-02, THE GROUND NO. 6 OF THE REVENUE IS ACCORDINGLY PARTLY ALLOWED O N THE SIMILAR TERMS AS MENTIONED ABOVE. THUS GROUND NO. 6 OF THE REVENUE I S PARTLY ALLOWED . 14.3 FACTS AND CIRCUMSTANCES OF THE CASE BEING SIMI LAR TO EARLIER YEARS AND ALSO FOLLOWING OUR OWN DECISION IN THE ABOVE GROUNDS OF APPEAL (SUPRA), THE GROUND NO. 6 OF THE REVENUE IS PARTLY ALLOWED. 10.2 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) THE GROUND NO. 4 OF THE REVENUE REGARDING THE CLAIM OF DEPRECIATION ON APGPCL SHARE S IS PARTLY ALLOWED. 6.1 THEREFORE, TAKING A CONSISTENT VIEW, THIS GROUN D OF THE REVENUES APPEAL IS DISMISSED . IN VIEW OF THE ABOVE, THE GROUND NO. 3 OF THE REVENUES APPEAL IS DISMISSED. 13 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 5. APROPOS TO GROUND NO. 4 , IT IS STATED BY THE LD. REPRESENTATIVES OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE GROUND NO. 4 IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ITAT NO. 612/JU/2009, WHEREIN THE HONBLE TRIBUNAL DECIDED THE ISSUE IN PARA 7 TO 7.1 AS UNDE R:- 7 . GROUND NO. 5 , IT IS STATED BY THE LD. REPRESENTATIVES OF THE PA RTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDI NATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO. 235/JU/2008 HAS DECIDED THIS ISSUE IN PARA 16.1 TO 16.2 BY OBSERVED AS UNDER:- 16.1 AS REGARDS GROUND 11 OF THE REVENUE CHALLEN GING CLAIM OF DEPRECIATION ON ASSETS RETIRED FROM ACTIVE, USE WE FIND THAT THE SIMILAR ISSUE HAS BEEN DECIDED BY US IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 VIDE OUR ORDER DATED 11/03/ 2016 ( IN ITA NO. 537/JU/2007 REVENUE) WHEREIN REVENUES GROUND NO. 11 HAS BEEN DISMISSED BY FOLLOWING OBSERVATIONS. 22.2 WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT GROUND NO. 18 OF TH E REVENUE IS SIMILAR TO GROUND NO. 15 OF THE REVENUE FOR THE ASSESSMENT YEAR 2 002-03 AND THE ISSUE IN QUESTION HAS BEEN DECIDED AGAINST THE REVENUE BY THIS BENCH VIDE ITS ORDER DATED 09/03/2016 BY FOLLOWING OBSERVATIONS. 22.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQU ARELY COVERED BY THE 14 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. YAMAHA MOTOR INDIA(P) LTD. (2010), 328 ITR 297 WHEREIN IT IS HELD AS UNDER:- HELD DISMISSING THE APPEAL, THAT AS LONG AS THE MA CHINERY WAS AVAILABLE FOR USE, THOUGH NOT ACTUALLY USED, IT FEEL WITHIN THE E XPRESSION USED FOR THE PURPOSE OF THE BUSINESS AND THE ASSESSEE COULD CLA IM THE BENEFIT OF DEPRECIATION. AN ACTUAL USER WAS NOT REQUIRED AS HAD B EEN CONTENDED BY THE REVENUE. USE AND DISCARDING WERE NOT IN THE SAME FIEL D AND COULD NOT STAND TOGETHER. HOWEVER, A HARMONIOUS READING OF THE EXPRESS IONS USED FOR THE PURPOSE OF THE BUSINESS AND DISCARDED IT WOULD SH OW THAT USED FOR THE PURPOSES OF THE BUSINESS ONLY MEANS THAT THE ASSE SSEE HAD USED THE MACHINERY FOR THE PURPOSE OF THE BUSINESS IN EARLIER YE ARS. THE EXPRESSION USED FOR THE PURPOSES OF THE BUSINESS AS FOUND IN SECTION 32 WHEN USED WITH RESPECT TO DISCARDED MACHINERY WOULD MEAN THAT THE USE R IN THE BUSINESS WAS NOT IN THE RELEVANT FINANCIAL YEAR/ PREVIOUS YEAR BUT IN THE EARLIER FINANCIAL YEARS. ANY OTHER INTERPRETATION WOULD LEAD TO AN INCO NGRUOUS SITUATION BECAUSE ON THE ONE HAND THE DEPRECIATION WAS ALLOWED ON DISCARDED MACHINERY AFTER ALLOWING, INTER ALIA, AN ADJUSTMENT FO R SCRAP VALUE, YET, ON THE OTHER HAND USER WOULD BE REQUIRED OF THE DISCARDED MACHI NERY WHICH WAS NOT POSSIBLE BECAUSE OF VARIOUS REASONS. THE DISCARDED MA CHINERY WOULD NOT BE ACTUALLY USED IN THE RELEVANT PREVIOUS YEAR AS LONG A S IT WAS USED FOR THE PURPOSES OF BUSINESS IN THE EARLIER YEARS. THE TRIBUNA L WAS CORRECT IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTED DEPRECIATION AFTER REDUCING THE SCRAP VALUE OF THE ASSETS WHICH HAD BEEN DISCARDED AND WRI TTEN OFF IN THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION FROM THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS. ACTUAL USER OF THE MACHINERY WAS NO T REQUIRED WITH RESPECT TO DISCARDED MACHINERY AD THE CONDITION FOR ELIGIBILITY F OR DEPRECIATION THAT THE MACHINERY BEING USED FOR THE PURPOSE OF THE BUSINESS WOULD MEAN THAT THE DISCARDED MACHINERY WAS USED FOR THE PURPOSE OF THE BU SINESS IN THE EARLIER YEARS FOR WHICH DEPRECIATION HAD BEEN ALLOWED. [ THE SUPREME COURT HAS DISMISSED THE SPECIAL LEAVE P ETITION FILED BY THE DEPARTMENT AGAINST THIS JUDGMENT : SEE [2010] 328 IT R (ST.)10.] 22.8 RESPECTFULLY THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. YAMAHA MOTOR INDIA (P) LTD. (SUPRA) AND THE DECIS ION OF ITAT JODHPUR 15 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. BENCH IN THE CASE OF DCIT VS. UDAIPUR DISTILLERY CO. LTD. (SUPRA), WE UPHOLD THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. THUS GRO UND NO. 15 OF THE REVENUE IS DISMISSED. 22.3 FACTS AND CIRCUMSTANCES OF THE CASE BEING SIMIL AR TO EARLIER YEARS AND ALSO FOLLOWING OUR OWN DECISION IN THE ABOVE GROUND O F APPEAL(SUPRA), THE GROUND NO. 18 OF THE REVENUE IS DISMISSED. 16.2 RESPECTFULLY FOLLOWING THE DECISION OF THE CO -ORDINATE BENCH IN ASSESSEES OWN CASE(SUPRA), THE GROUND NO. 11 OF TH E REVENUE CHALLENGING CLAIM OF DEPRECIATION ON ASSETS RETIRED FROM ACTIVE USE IS DISMISSED. 7.1 THEREFORE, THIS GROUND OF THE REVENUES APPEA L IS DISMISSED. IN VIEW OF THE ABOVE, THE GROUND NO. 4 OF REVENUES APPEAL IS DISMISSED . 6. APROPOS TO GROUND NO. 5 , IT IS STATED BY THE LD. REPRESENTATIVES OF THE PARTIES, THAT THE ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. WE FIND THAT THE GROUND NO. 5 IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ITAT NO. 612/JU/2009, WHEREIN THE HONBLE TRIBUNAL DECIDED THIS ISSUE IN PARA 8 TO 8.2 AS UNDER:- 8. APROPOS TO GROUND NO. 6 , IT IS STATED BY THE LD. REPRESENTATIVES OF THE PARTIES, AND THAT IDENTICAL ISSUE IS DECIDED BY THE CO-ORDINATE BENCH IN ITA NO. 235/JU/2008 IN ASSESSEES OWN CASE PERTAINING T O THE ASSESSMENT YEAR 2004-05 IN PARA 13.1 TO 13.2 HAS READS AS UNDER:- 16 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 13.1 AS REGARDS GROUND 7 OF THE REVENUE CHALLENGI NG GHOSUNDA DAMN EXPENSES WE FIND THAT THE SIMILAR ISSUE HAS BE EN DECIDED BY US IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 VIDE OUR ORDER DATED 11-03-2016( IN ITA NO. 537/JU/2007- REVENUE) WHEREIN REVENUES GROUND NO. 7 HAS BEEN DISMISSED BY FOLLOW ING OBSERVATIONS. 17.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT GROUND NO. 11 OF TH E REVENUE IS SIMILAR TO GROUND NO. 10 OF THE REVENUE FOR THE ASSESSMENT YEAR 2 002-03 AND THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE BY THIS BENCH VIDE ITS ORDER DATED 09- 03-2016 BY FOLLOWING OBSERVATIONS; 17.1 APROPOS REVENUE GROUND NO. 10 REGARDING DELETING DISALLOWANCE OF RS. 4,19,12,571/- U/S 37(I) ON ACCOUNT OF ENABLING ASSE TS WRITTEN OFF BEING EXPENSES INCURRED ON GOSUNDA DAM FOR PROCURING WATER. 17.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THIS ISSUE IS ONE GOING ONE FRO M EARLIER YEARS. IN ASSESSMENT YEAR 2001-02, THIS BENCH OF ITAT VIDE ITS ORDER DATED 03-03-2016 (SUPRA) HAS UPHELD THE ORDER OF THE LD. CIT(A) ON THI S ISSUE BY FOLLOWING OBSERVATIONS:- 15.1 REVENUE GROUND NO. 9 CHALLENGING ALLOWANCE OF RS. 9,33,45,17/- ON ACCOUNT OF EXPENSES INCURRED ON GHOSUNDA DAM FOR PROCURI NG WATER. L. CIT(A) ALLOWED THIS CLAIM BY FOLLOWING OBSERVATION. 11.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD.AR CONTENDED THAT WITH REFERENCE TO THE EXPENDITURE INCURRED ON ALTERATION EFFECTED IN THE 17 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. CONSTRUCTION OF GOSUNDA DAM WERE IN EARLIER YEARS ALSO A ND ALLOWABLE U/S 37(I) OF THE ACT BUT THE SAME WERE NOT ALLOWED BY THE AO. HE FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED ONLY ENABLED A MORE EFFIC IENT AND ECONOMICAL SATE OF BUSINESS OPERATION AND THAT NO NEW ASSET WAS CREATED OR ANY PROPERTY ACQUIRED. IN SUPPORT OF THIS THE LD. AR PLACED RELIAN CE IN THE CASE OF CIT VS. BONGAIGAON REFINERY & PETROCHEMICALS LTD. 222 ITR 206 (GAU). NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. VS. CIT203ITR 410(BO M). BIKANER GYPSUM VS CIT, 187 ITR 39 (SC) AND CITVS. ASSOCIATED CEMENT C OMPANY LTD. 172ITR 257 (SC). HE FURTHER STATED THAT SIMILAR ISSUE HAS BEEN C ONSIDERED IN ITA NO. 1106/JP/94 FOR AY 1991-92 AND ITA NO. 321/JP/96 FOR A Y 1992-93 WHEREIN THE HONBLE ITAT HAS DISMISSED THE DEPARTMENTAL APPEAL A ND DECIDED IN VARIOUS OF THE APPELLANT. HE FURTHER STATED THAT AFTER SUBMITTIN G THE BREAK UP OF THE AMOUNT, NO OTHER INFORMATION WAS REQUIRED BY THE AO. T HE LD.AR FURNISHED COMPLETE DETAILS OF EXPENDITURE INCURRED FOR GHOSUNDA D AM. IN VIEW OF THE ABOVE, THE LD. AR CONTENDED THAT THE DISALLOWANCE D ESERVED TO BE DELETED. AS FAR AS THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS. 4,79,519/- COMPLETE DETAILS FROM ALL THE UNITS COULD NOT BE FIL ED AT THE TIME OF ASSESSMENT. HE FURTHER STATED THE CLAIM OF THE APPELLANT DESERVE T O BE ALLOWED ON THE BASIS OF AUDITED BALANCE SHEET AS THE AMOUNTS ARE AUDITED BY THE AUDITORS APPOINTED BY C & AG. 11.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND A LSO GONE THROUGH THE DECISION OF HONBLE ITAT (SUPRA). RESPECTFULLY FOLL OWING THE DECISION OF THE HONBLE IT, ACT IN THE CASE OF THE APPELLANT CITED ABOVE, I HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENDITURE INCURRED ON GOSUNDA DAM AMOUNTING TO RS. 9,3,45,17/- , THE SAME IS DELETED. WITH REGARD TO OTHER DISALLOWANCES OF RS. 4,79,519/- I N THE APPELLANT PROCEEDINGS ALSO, THE LD. AR DID NOT FILE ANY DETAIL S. THEREFORE, THE ASCERTAINMENT IS NOT POSSIBLE. HENCE, THE DISALLOWA NCE IS CONFIRMED. 15.2 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT TH IS ISSUE IS COVERED AND SETTLED IN ITS FAVOUR OF THE ASSESSEE, ITAT ALLOWED THESE CLAIMS IN AYS 1991-92 AND 1992-93; AGGRIEVED REVENUE PREFERRED APPEALS BEFORE HONBLE RAJASTHAN HIGH COURT WHICH WAS PLEASED TO DISMISS REVENUE APPEA LS BY THE ORDER DTD. 30/01/09 IN ITA NOS. 52 & 78/2002 BY FOLLOWING OBSE RVATIONS:- 18 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 12 ADVERTING TO THE FACTS OF THE PRESENT CASE, ADM ITTEDLY, THE ASSESSEES SUPER SMELTER PLANT REQUIRES ADEQUATE QUANTITY OF WATER FOR ITS OPERATION AND UNLESS AND UNTIL, WATER IS AVAILABLE, THE SUPER SMEL TER PLANT WOULD NOT FUNCTION AND WOULD NOT BE ABLE TO PRODUCE ANY ITEMS. ADMITTE DLY, THE GHOSUNDA DAM HAS BEEN CONSTRUCTED BY THE STATE GOVT. AND THE ASSE SSEE HAS MADE EXPENDITURE FOR ITS ALTERATION SO AS TO ENSURE SHARING O F THE WATER WITH THE STATE GOVT. WITHOUT HAVING ANY RIGHT OR OWNERSHIP IN T HE DAM OR THE WATER. EVEN THE ASSESSEES SHARE OF WATER IS ALSO DETERMINED BY THE STATE GOVT. THUS, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR COMMERCIAL EXPEDIENCY RELATES WITH CARRYING ON OF BUSINESS AND FALLS WITHIN SUCH EX PENDITURE AS PRUDENT BUSINESSMAN MAY INCUR FOR THE PURPOSE OF THE BUSINESS . THE OPERATIONAL EXPENSES INCURRED BY THE ASSESSEE SOLELY INTENDED FOR FURTHERANCE OF THE ENTERPRISE CAN BE NO MEANS BE TREATED AS EXPENDITURE O F CAPITAL NATURE . 13.KEEPING IN VIEW THE OBJECT AND PURPOSE OF THE EX PENDITURE AND TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE NOTICED ABOV E, IN OUR CONSIDERED OPINION, THE BENEFIT RECEIVED BY THE ASSESSEE COMPAN Y ON ACCOUNT OF THE EXPENDITURE INCURRED CANNOT BE SAID TO BE AN ADVANTAGE IN THE CAPITAL FIELD. WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A ) AND AFFIRMED BY THE LD. ITAT THAT THE OBJECT AND EFFECT OF THE EXPENDITURE M ADE BY THE ASSESSEE IS TO FACILITATE ITS TRADE OPERATION AND ENABLE THE MANAGE MENT TO CONDUCT BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY. THEREFORE, THE QUE STION NO. 1 (SUPRA) 19 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. DESERVES TO BE ANSWERED IN AFFIRMATIVE I.E. IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. 15.3 REVENUE FURTHER PREFERRED SLP WHICH WAS DISMISSED O N 18-07-11. COPIES OF THE ORDERS ARE REFERRED TO. 15.4 LD. DR IS HEARD. 15.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE ABOVE LEGAL HISTORY ISSUE I N QUESTION STANDS SETTLED IN FAVOR OF THE ASSESSEE, CONSEQUENTLY THIS GROUND NO. 9 OF REVENUE IS DISMISSED. 17.3 RESPECTFULLY FOLLOWING OUR OWN DECISION IN THI S CASE FOR THE ASSESSMENT YEAR 2001-02 (SUPRA), THE GROUND NO. 10 OF THE REVENUE IS DISMISSED. 17.3 FACTS AND CIRCUMSTANCES OF THE CASE BEING SAME AS EARLIER AND ALSO FOLLOWING OUR OWN DECISION IN THE ABOVE GROUND OF APP EAL(SUPRA), THE GROUND NO. 11 OF THE REVENUE IS DISMISSED. 13.2 RESPECTFULLY FOLLOWING DECISION OF THE CO-ORD INATE BENCH IS ASSESSEES OWN CASE(SUPRA), GROUND NO. 7 OF THE REV ENUE CHALLENGING GHOSUNDA DAMN EXPENSES IS DISMISSED. 8.2. THE FACTS ARE IDENTICAL AND TAKING INTO CONSIS TENT VIEW, THIS APPEAL OF THE REVENUE IS DISMISSED. IN VIEW OF THE ABOVE, THE GROUND NO. 5 OF THE REVENUES APPEAL IS DISMISSED . 7. APROPOS TO GROUND NO. 6, IT IS CONTENDED THAT THIS IS ALSO COVERED BY EARLIE R ORDERS, I.E. IN ITA NO.95/JU/2007, WHEREIN THE ISSU E IS DECIDED IN PARA 12.1 TO 12.3 AS UNDER:- 20 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 12.1. APROPOS GROUND NO. 3 REGARDING DELETING THE DISALLOWANCE OF RS.2,53,19,060/- ON ACCOUNT OF MINES DEVELOPMENT EX PENSES. 12.2. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. THE SIMILAR ISSUE AROSE IN TH E ASSESSMENT YEAR 2001-01 AND 2001-02 THIS ISSUE IN QUESTION HAS BEEN SET ASIDE AND RESTORED TO THE FILE OF THE LD. CIT(A) BY ITAT WITH FOLLOWING OBSERVATIONS:- 16.5 LD. COUNSEL FURTHER CONTENDS THAT MINING OPERA TIONS FOR PROCURING ORE IS AN ESSENTIAL AND CONTINUOUS PROCESS AND NOT STATIC ONE. THE EXPENDITURE IS INCURRED AFTER SETTING UP OF BUSINES S BEING IT RECURRING IN NATURE. THE EXPENDITURE IS INCURRED FOR CUTTING DR IVES INCLUDING SHAFTS, CUTS AND OTHER EXCAVATIONS. TO MAKE MINES PREPARATO RY FOR DEVELOPMENT OF THE BLOCK FOR ORE EXTRACTION AND TO MAKE PASSAGE FROM SURFACE TO UNDERGROUND THROUGH PROVISION OF SHAFTS. THE DEVELOPMENT OF DIFFERENT LEVEL FOR APPROACH AND CREATING AREA O F DRILLING OPERATIONS CREATE APPROACHES FOR MOVEMENT OF MUCKING EQUIPMENT , TRANSPORTATION OF BLASTED OARS IN HAULAGE LEVELS PROVISION OF VENT ILATION. MINE DEVELOPMENT IS A CONTINUOUS PROCESS TO SUSTAIN PROD UCTION. IT IS NOT A CAPITAL EXPENDITURE AND IT IS NOT INCURRED FOR EXPL ORATION PURPOSES AND SATISFIED THE CLAIM U/S 37(1) OF THE ACT. THE CLAI M OF THE ASSESEE IS ALLOWABLE DESPITE NOT WRITING OFF IN BOOKS. THE EX PENDITURE IS DISTINGUISHABLE FROM EXPENDITURE INCURRED ON MINE E XPLORATION. THIS EXPENDITURE IS ALLOWABLE IN VIEW OF THE JUDGMENT IN THE CASE OF NAYVELI LIGNITE CORPORATION 120 TTJ (CHENNAI) 1096. 16.6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. THERE IS MERIT IN THE CONTENT IONS OF LD. COUNSEL THAT PRIMARILY THE ISSUE IS ABOUT APPLICABILITY OF SEC 35 E OR 37 (1) FOR ALLOW ABILITY OF EXPENDITURE. ASSESSEE HAS BEEN CA NVASSING ITS CLAIM FOR ALLOW ABILITY OF EXPENDITURE BY REPEATEDLY EMPH ASIZING THAT UNDISPUTEDLY ITS MINING ACTIVITY HAD COMMENCED PRIO R TO 1/4/1970, CONSEQUENTLY THIS EXPENDITURE IS LEGALLY NOT COVERE D BY SEC. 35E BUT U/S 37(I). LD. COUNSELS RAISES DEEP CONCERN ON THE FACT THAT DESPITE SUCH OBSERVATIONS WHICH ARE IN CONFORMITY WITH THE FACTS ON RECORD, THE CLAIM IS BEING SET ASIDE UNNECESSARILY WHICH IS NOT IN CONFORMITY WITH JUDICIAL DISCIPLINE AND CAUSING THE ASSESSEE DEEMED HARASSMENT AS PROPOSITION WHICH REQUIRES DUE CONSIDERATIONS. WE FIND SUBSTANCE IN THE CONTENTIONS OF LD. COUNSEL FOR THE ASSESSEE ABO UT JUDICIAL DISCIPLINE. HOWEVER, THE ISSUE OF APPLICABILITY OF SEC. 35E OR 37(I) IN EARLIER YEARS HAS BEEN RESTORED BACK. THOUGH SYMPATHIZING WITH A SSESSES REPEATED DIFFICULTIES HOWEVER IN THESE FACTS AND CIRCUMSTANC ES IT WILL BE DESIRABLE THAT FOLLOWING OUR ORDER FOR AY 2000-01, THE ISSUE IS RESTORED BACK TO LD.CIT(A), IF THE EXPENDITURE IS ALLOWED BY LD. AO IN SET ASIDE EARLIER YEARS THEN THERE WILL BE NO ISSUE, HOWEVER IN CASE OF DISALLOWANCE LD. 21 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. CIT(A) WILL BE FREE TO TAKE A DECISION DEPENDING ON THE MERITS AND CONSIDERATION OF JUDICIAL POSITION. THIS GROUND NO . 10 OF THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 12.3 FOLLOWING THE DECISION OF THIS BENCH DATED 03/ 03/2016 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02(SUPRA), TH E ISSUE IN QUESTION IS RESTRORED BACK TO THE FILE OF THE LDJ. CIT(A) WITH A DIRECTION TO DECIDE THE ISSUE EXPEDITIOUSLY. THIS GROUND NO. 3 OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. IN VIEW OF ABOVE THE ABOVE, THE GROUND NO. 6 OF REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. THE ISSUE IS RESTORED TO THE F ILE OF AO FOR DECIDING THE SAME, AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND VERIFYI NG THE RECORDS. 8. APROPOS TO GROUND NO. 7 , THE LD. DEPARTMENTAL REPRESENTATIVES SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE A DDITION MADE ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCKS. HE SUBMITTED THAT THE IDENTICAL ISSUE WAS RAISED BEFORE THIS TRIBUNAL IN ITA NO. 612/JU/2009. HE SUBMITTED THAT IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF C IT VS. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 (SC), THE VALUE OF THE STOCKS IS TO BE ADOPTED ON COST OR NET REALIZABLE VALUE. THE ASSESSEE CANNOT ADOPT NOTION AL VALUE OF THE CLOSING STOCK OF ORE. PER CONTRA LD. COUNSEL FOR THE ASSESSEE OPPOS ED THE SUBMISSIONS AND SUBMITTED THAT THE ASSESSEE HAS VALUED ITS STOCK IN ACCORDANC E WITH THE ACCOUNTING PRINCIPLES. HE SUPPORTED THE ORDER OF THE LD. CIT(A). HE SUBMI TTED THAT ORE IS NOTHING BUT SOIL. THEREFORE, NOTIONAL VALUE OF RS. 1 PER MT IS ADOPTE D BY THE ASSESSEE. 8.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . THE IDENTICAL ISSUES BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 612/JU/2 009. THERE IS NO CHANGE INTO THE 22 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. FACTS AND CIRCUMSTANCES, WHEREIN WE HAVE DECIDED TH IS ISSUE IN PARA 9.1 BY OBSERVING AS UNDER:- 9.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS INDIA LTD. (SUPRA) HAS HELD AS UNDER:- SECTION 145 OF THE INCOME-TAX ACT, 1961, CONFERS S UFFICIENT POWER UPON THE OFFICER-NAY IT IMPOSES A DUTY UPON HIM- TO MAKE SUC H COMPUTATION IN SUCH MANNER AS HE DETERMINES FOR DEDUCING THE CORRECT PROFITS AND GAINS. THIS MEANS THAT WHERE ACCOUNTS ARE PREPARED WITHOUT DISCLOS ING THE REAL COST OF THE STOCK-IN-TRADE, ALBEIT ON SOUND EXPERT ADVICE IN THE INTEREST OF EFFICIENT ADMINISTRATION OF THE COMPANY, IT IS THE DUTY OF THE INCOME-TAX OFFICER TO DETERMINE THE TAXABLE INCOME BY MAKING SUCH COMPUTAT ION AS HE THINKS FIT. ANY SYSTEM OF ACCOUNTING WHICH EXCLUDES, FOR THE VAL UATION OF THE STOCK-IN- TRADE, ALL COSTS OTHER THAN THE COST OF RAW MATERIALS F OR THE GOODS-IN- PROCESS AND FINISHED PRODUCTS, IS LIKELY TO RESULT IN A DISTO RTED PICTURE OF THE TRUE STATE OF THE BUSINESS FOR THE PURPOSE OF COMPUTING THE CHA RGEABLE INCOME. SUCH A SYSTEM MAY PRODUCE A COMPARATIVELY LOWER VALUATION OF THE OPENING STOCK AND THE CLOSING STOCK, THUS SHOWING A COMPARATIVELY LOW DIFFERENCE BETWEEN THE TWO. IN A PERIOD OF RISING TURNOVER AND RISING PRICES, T HE SYSTEM ADOPTED BY THE ASSESEE, AS FOUND BY THE TRIBUNAL, IS APT TO DIMINIS H THE ASSESSMENT OF THE TAXABLE PROFIT OF A YEAR. THE PROFIT OF ONE YEAR IS L IKELY TO BE SHIFTED TO ANOTHER YEARS WHICH IS AN INCORRECT METHOD OF COMPUTING PROFITS AND GAINS FOR THE PURPOSE OF ASSESSMENT. EACH YEAR BEING A SELF- CONT AINED UNIT, AND THE TAXES OF A PARTICULAR YEAR BEING PAYABLE WITH REFERENCE TO THE INCOME OF THAT YEAR, AS COMPUTED IN TERMS OF THE ACT, THE METHOD ADOPTED BY THE ASSESSEE HAS BEEN FOUND TO BE SUCH THAT INCOME CANNOT PROPERLY BE DEDUC ED THEREFORE,. IT IS THEREFORE, NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSE SSING OFFICER TO ACT IN EXERCISE OF HIS STATUTORY POWER, AS HE HAS DONE IN TH E INSTANT CASE, FOR DETERMINING WHAT, IN HIS OPINION, IS THE CORRECT TAXAB LE INCOME. 23 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. WE FIND THAT THE LD. CIT(A) DECIDED THE ISSUE BY OB SERVING THAT THE METHOD OF STOCK VALUATION IS CHANGED AND CHANGED IS BONAFIDE. THIS HAS BEEN REGULARLY ADOPTED BY THE APPELLANT AND IS IN LINE WITH THE AC COUNTING PRINCIPLES. SINCE THE CLOSING STOCK OF THE RELEVANT YEAR BECOMES THE OPENING STOCK OF THE NEXT YEAR THE SAME IS REVENUE NEUTRAL. THUS, THE ACCOUN TING METHOD OF STOCK VALUATION IS DONE BY BONAFIDE INTENTION TO ARRIVE A T TRUE PROFIT OF THE BUSINESS. IT IS FURTHER OBSERVED BY THE LD. CIT(A) THAT IN TH E ORDER DATED 16/03/2005 PERTAINING TO THE ASSESSMENT YEAR 2001-02 AND SUBSE QUENTLY, IN 2002-03 AND 2004-05 WHEREIN IT HAS BEEN DECIDE THE CLAIM OF THE VALUATION OF CLOSING STOCK OF ORE ETC., IS ALLOWABLE. IT IS POINTED OUT BY TH E LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE IN ITA NO. 95/JU/2007, ITA NO. 537/JU/2007 AND ITA NO. 235/JU/ 2008. WE FIND THAT THE TRIBUNAL IN ITA NO. 95/JU/2007, THE TRIBUNAL HA S NOTED THE FACT IN THAT YEAR IN PARA 20.2 AS UNDER: BRIEF OF THE CASE ARE THAT DURING THE YEAR UNDER C ONSIDERATION, THE PRODUCTION ACTIVITIES AT SARGIPALLI AND MATON MINES WERE DISCO NTINUED. ACCORDINGLY THE STORES AND SPARES STOCK LYING AT THE MINES AS ON MA RCH 31,2002 WERE VALUED AT 25% OF THE COST, RESULTING IN DECREASE OF PROFI TS BY RS. 98.63 LACS. THIS IS AS PER PERUSAL OF THE NOTES ON ACCOUNTS OF THE RELE VANT YEAR (SCHEDULED-17 VIDE NOTE NO. 5). THE AO INCREASED THE VALUE OF CL OSING STOCK BY RS. 98.63 LACS MENTIONING THAT THE ACTION OF ASESSEE COMPANY IN REDUCING THE STOCK VALUE BY THE MINES WAS NOT IN CONFORMITY WITH THE A CCOUNTING POLICY ADOPTED BY THE COMPANY. THUS THE AO HAS DISALLOWANCE TO T HE TUNE OF RS. 98.63 LACS. OR DECIDED THE ISSUE IN PARA 2.6 AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. IT EMERGES FROM THE RECORD THAT THE VALUAT ION OF STORES AND SPARES EXPENDITURE HAS BEEN CONSISTENTLY FOLLOWED BY THE A SSESSEE WHICH SHOULD NOT BE DISTURBED ON THE PRINCIPLE OF CONSISTENCY AS HEL D BY HONBLE SUPREME COURT IN THE CASE OF RADHASWAMI SATSANG VS. CIT, 19 3 ITR 321 (SC). BESIDES, SIMILAR DISALLOWANCE WAS DELETED BY ITAT I N ASSESSEES OWN CASE IN 24 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. EARLIER YEARS. THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. EXCEL INDUSTRIES (2013), 358 ITR 295 HAS HELD THAT SUCH T YPE OF VALUATION BASED STOCK, ADDITIONS ARE ESSENTIALLY REVENUE NEUTRALS A S CLOSING STOCK BECOME OPENING BALANCE OF THE NEXT YEAR AND REDUCED THE PR OFIT OF THE NEXT YEAR CORRESPONDINGLY. IN VIEW THEREOF, WE SEE NO INFIRM ITY IN THE ORDER OF THE LD. CIT(A) WHICH IS UPHELD ON THIS ISSUE. THUS GROUND NO. 13 OF THE REVENUE IS DISMISSED. WE FIND THAT THE FACTS ARE NOT SIMILAR IN THAT YEAR , THE ISSUE WAS RELATED TO THE VALUATION OF THE STOCKS RELATED TO SPARES BUT HERE IS THE ISSUE IS WITH REGARD TO THE VALUATION OF ORE, WHICH IS ADOPTED ON THE BASIS OF NOTIONAL COST. IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS. BRITISH PAINTS (SUPRA) WE FIND FORCE INTO T HE CONTENTION OF THE REVENUE THAT THE VALUE OF STOCK IS TO BE ADOPTED EITHER ON COST ORE NET REALIZABLE VALUE. THE ASSESSEE HAS TO DEMONSTRATE THE VALUE SO ADOPTE D BY FURNISHING THE EVIDENCES IN SUPPORT THEREOF. IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO DISCHARGE THIS REQUIREMENT OF LAW, THEREFORE, IN OR DER TO COMPUTE THE CORRECT VALUE THIS ISSUE IS RESTORED TO THE FILE OF THE ASS ESSING OFFICER FOR DECISION AFRESH. THE ASSESSING OFFICER IS HEREBY DIRECTED T O MAKE ON THE SPOT ENQUIRY FOR VERIFICATION OF THE CORRECT VALUE OF THE STOCKS OF ORE. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE STOC K OF ORE IS MERELY SOIL AND HAS NO REALIZABLE VALUE. IN OUR CONSIDERED VIEW, T HERE HAS TO BE SOME BASIS FOR ADOPTING A CERTAIN VALUE OF SUCH STOCKS. NEEDL ESS TO SAY, THAT THE ASSESSING OFFICER WOULD AFFORD SUFFICIENT OPPORTUNI TY TO THE ASSESSEE FOR FURNISHING OF EVIDENCE IN SUPPORT OF THE VALUE OF T HE STOCKS. THIS GROUND OF THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 25 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 8.2 THERE IS NO CHANGE INTO FACTS AND CIRCUMSTANCES IN THE YEAR UNDER APPEAL. THEREFORE, TAKING A CONSISTENT VIEW, THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECISION AFRESH FOR VALUING T HE STOCK. THE AO WOULD DECIDE THE ISSUE IN THE LIGHT OF DIRECTION GIVEN IN ITA NO. 61 2/JU/2009 PERTAINING TO THE ASSESSMENT YEAR 2005-06. HENCE, THE GROUND NO. 7 IS ALLOWED FOR STATISTICAL PURPOSE. 9. GROUND NO. 8 IS AGAINST DELETION OF REDUCTION OF RS. 87,97,262/ - MADE BY THE ASSESSING OFFICER FOR THE CLAIM U/S 80IA OF THE ACT . THE LD. DEPARTMENTAL REPRESENTATIVES ADOPTED THE SAME ARGUE AS WERE MADE IN ITA NO. 612/JU/2009 . HE SUBMITTED THAT THE ASSESSEE HAS NOT APPORTIONED THE EXPENSES RELATED TO HEAD OFFICE AND CPP. HE SUBMITTED THAT DIRECTORS FEE IS SAME FOR THE HEAD OFFICER AS WELL. 9.1 ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE EXPENSES ARE DULY APPORTIONED AND THE WORD DERIVED FROM HAS A WI DE IMPORT AND BE CONSTRUED ACCORDINGLY. 9.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . THE IDENTICAL ISSUE WAS IN THE ITA NO. 612/JU/2009 WE HAVE DECIDED THIS ISSUE IN PARA 10.2 BY OBSERVING AS UNDER:- 10.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW. WE FIND THAT THE IDENTICAL ISSUE WAS IN THE YEAR 2004-05 IN ITA NO. 235/JU/2008. THE COORDINATE BENCH HAS DECIDED THE ISSUE IN PARA 17.9 HOLDING AS UNDER:- 26 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 17.9 WE HAVE HEARD THE RIVAL CONTENTION AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. IT IS SETTLED LAW THAT WHEN THE ASSESSE E CLAIMS ANY ALLOWABLE DEDUCTION THE EXPLANATION AND EVIDENCE SUBMITTED IN THIS BEHALF IS TO BE OBJECTIVELY CONSIDERED BY LD. AO. IN CASE OF ANY I NFIRMITY IN THE CLAIM, THE SAME SHOULD BE EFFECTIVELY DEALT AND THE CLAIM SHOU LD BE DENIED BY PROPER DISCHARGE OF ONUS. WITHOUT EFFECTIVE REBUTTAL AND OBJECTIVE CONSIDERATION ASSESSEES BENEFICIAL CLAIM CANNOT BE DISALLOWED ON ASSUMPTIONS AND INTENDMENTS. IT IS ALSO SETTLED JURISPRUDENCE THAT WHILE INTERPRETING THE BENEFICIAL LEGISLATIONS A LIBERAL APPROACH SHOULD B E ADOPTED. THIS IS SO AS A VERY STRICT INTERPRETATION WILL DEFEAT THE LEGISLAT IVE INTENT OF ENCOURAGING CAPTIVE POWER PLANTS IN ELECTRICITY STARVED NATION IN GENERAL AND POWER SHORT STATE OF RAJASTHAN. PROVISIONS OF SEC. 80IA OF THE IT ACT ARE UNDOUBTEDLY BENEFICIAL IN NATURE, SO IN CASE OF AMBIGUITY ABOUT ITS INTERPRETATION A LIBERAL APPROACH IS MANDATES BY SETTLED JUDICIAL PRECEDENTS . THE UNDISPUTED FACTS WHICH EMERGE FROM THE RECORD INDICATE THAT ASSESSEE BY EVIDENCE AND EXPLANATION BROUGHT ON RECORD OBJECTIVE MATERIAL TO DEMONSTRATE IN THIS CAE HO AND OTHER COMMON ASSETS HAVE NO PROXIMATE CONNEC TION WHICH THE CPP, DEBARI WHICH IS AN INDUSTRIAL UNDERTAKING ELIGIBLE TO DEDUCTION UNDER SECTION 80IA. THE HO AND OTHER COMMON ASSETS EXISTED EVEN PRIOR TO INSTALLATION OF CPP. THE ALLEGED EXPENSES REPRESENT GENERAL CORPOR ATE EXPENDITURE WHICH CANT BE ALLOCATED OR ASSIGNED TO AN INDEPENDENT UN IT ENGAGED IN POWER GENERATING ACTIVITY ON STANDALONE BASIS. WHILE RED UCING THE DEDUCTION U/S 80IA, LD. AO HAS IGNORED THE CRUCIAL TERM DERIVED FROM USED IN SEC. 80IA A TERM WHICH BECAME SUBJECT MATTER OF JUDICIAL DECISI ON AND SETTLED BY HONBLE SUPREME COURT. THIS CRUCIAL OMISSION HAS RESULTED IN AOS CONCLUSION THAT: (I) THE PROPORTIONATE DEPRECIATION OF OTHER COMMON ASSE TS IS ALLOCABLE TO BE REDUCED FROM THE PROFITS OF ELIGIBLE CPP UNIT. (II) THE PROPORTIONATE PART OF THE EMPLOYEES REMUNERATI ON AND BENEFITS, ADMINISTRATIVE AND SELLING EXPENSE SUCH A REMUNERAT ION OF MANAGERS, DIRECTORS, AUDITORS, FINANCIAL ADVERTISERS, AMENITI ES AND HEAD OFFICER ASSETS IS ALSO REQUIRE TO BE ALLOCATED TO CPP DEBAR I. (III) LD. AO INSTEAD OF ESTABLISHING ANY DIRECT OF PROXIM ATE RELATION BETWEEN THESE UNCONNECTED PROPORTIONATE EXPENSES REDUCED TH EM FROM ELIGIBLE PROFITS UNDER A NOTION THAT EVEN THE REMOTE AND UNC ONNECTED PROPORTIONATE EXPENSES ARE ALLOCABLE. (IV) THE LD. AO HELD THAT HO IS NOT A PROFIT EARNING CEN TRE AND CAPTIVE POWER PLANT, DEBARI, IS NOT A STANDALONE UNIT, HAVI NG INDEPENDENT FUNCTIONING AND A SEPARATE PROFIT CENTER AND ON SUC H ERRONEOUS ASSUMPTION REDUCED THE DEDUCTION U/ 80IA BY AFORESA ID EXPENSES OF OTHER INDEPENDENT AND FUNCTIONALLY DIFFERENT UNITS. LD. COUNSEL HAS DEMONSTRATED THAT OTHER UNITS OF TH E COMPANY CANNOT USE THE FIXED ASSETS, LIKE PERMANENT RESIDENTIAL BUILDI NGS OF UDAIPUR UNIT WHICH ARE WHOLLY AND EXCLUSIVELY FOR THE OPERATION OF UDAIPUR UNIT ONLY; THERE IS NO BASIS TO ASSUME THAT THEY WERE EVEN IMPLIEDLY USED BY OTHER OPERATING UNITS INCLUDING CPP. CONSEQUENTLY THERE BEING NO DIRECT NEXUS BETW EEN TWO INDEPENDENT INDUSTRIAL UNITS THE QUESTION OF PROPORTIONATE APPO RTIONMENT OF THEIR USER OR DEPRECIATION TO CPP DOES NOT ARISE. MOREOVER, IT H AS BEEN DEMONSTRATED THAT THE 27 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. UDAIPUR BASED OFFICE EQUIPMENT, FURNITURE, FIXTURES , COMPUTERS, MOTOR VEHICLES ETC. ARE ALSO EXCLUSIVELY USED FOR THE DAY TO DAY W ORKING OF UDAIPUR UNIT AND THEY CAN IN NO WAY BE SUPPOSED TO BE USED FOR CPP. SINCE RESPECTIVE UNITS RETAIN CONTROL OVER THEIR ASSETS, THEY HAVE NO OCCASION OF USER BY CPP. ROM THE FACTS AND CIRCUMSTANCES EMERGING FORM THE RECORD AND CONT ENTIONS. WE OBSERVE THAT: A) NO ALLOCATION OF HO AND OTHER EXPENSES IS JUSTIFIED SINCE SUCH EXPENDITURE ON HO AND OTHER UNITS WAS INCURRED EVEN PRIOR TO SETTI NG UP OF ELIGIBLE CPP UNIT. B) THE ASSESSEE IS PRIMARILY ENGAGED IN THE ACTIVITIES OF MINING AND MANUFACTURING OF ZINC AND LEAD METALS. THIS BUSINE SS OF THE ASSESSEE IS ONE AND INDIVISIBLE FROM CPP UNIT. IN THE ABSENCE OF A NY DIRECT NEXUS THE APPORTIONMENT IS NOT MANDATED BY THE CORRECT INTERP RETATION OF SEC 80IA. C) IT HAS NOT BEEN REBUTTED THAT AFTER THE COMMENCEMEN T OF CPP ACTIVITY THERE WAS NO INCREASE IN THE HO EXPENSE RELATABLE TO EMPL OYEES REMUNERATION & BENEFITS AN ADMINISTRATIVE EXPENSE AS A WHOLE, IN C OMPARISON TO THE EARLIER YEAR. RATHER HO EXPENSES FOR THE YEAR UNDER CONSIDE RATION HAVE BEEN REDUCED DRASTICALLY. THUS THERE IS NO REASON TO AS SUME ANY NOTIONAL INCREASE IN THESE EXPENSES AFTER THE COMMENCEMENT OF CPP DEB ARI, CONSEQUENTLY, THE CONCLUSION THAT IMPUGNED ALLOCATION OF EXPENSES HAS NO DIRECT NEXUS WITH ELIGIBLE CPP UNIT, HAS NO BASIS OR VALID JUSTIFICAT ION. D) APROPOS EXPENSES LIKE, RATES & TAXES, FEES TO AUDIT ORS, COT AUDITORS, DIRECTORS TRAVELLING, REIMBURSEMENT OF CORPORATE EXPENSE AS W ELL AS CONSULTANCY CHARGES ETC., SUCH EXPENSES WERE REQUIRED TO BE INC URRED IRRESPECTIVE OF THE CPP UNIT. E) ELIGIBLE PROFITS OF ANY INDUSTRIAL UNDERTAKING WHIC H EXITS ON STANDALONE FOOTING, ACCORDING TO ACCEPTED ACCOUNTING THE LEGAL PRINCIPL ES, ARE TO BE COMPUTED AFTER TAKING INTO ACCOUNT ALL THE RECEIPTS AND EXPE NDITURE INCURRED ONLY BY IT AND NOT BY NOTIONALLY ATTRIBUTING THE PROPORTIONATE DEPRECIATION OR ADMINISTRATIVE EXPENSES ON ASSUMPTIONS. F) THE AFORESAID EXPENSES OF SALARY AND WAGES, CONTRIB UTION TO PROVIDENT FUND ETC. AND OTHER BENEFITS TO EMPLOYEE INSURANCE, CO NSULTANCY AND OTHER ADMINISTRATIVE EXPENSE AS ALLEGED BY LD. AO, HAVE I N FACT, BEEN INCURRED AT UDAIPUR OFFICE FOR GOODS MANUFACTURED I.E. ZINC AND LEAD BY THE APPELLANT . CONSEQUENTLY, SUCH EXPENDITURE IS DEDUCTIBLE WHILE COMPUTING THE PROFIT OF ASSESSEES MANUFACTURING BUSINESS OF ZINC AND LEAD. ANY PART THEREOF CANNOT BE HYPOTHETICALLY ATTRIBUTED TO INDEPENDENT CPP UNI T SITUATED AT DEBRI. SUCH PRESUMPTIVE AND NOTIONAL REDUCTION OF CLAIM U/S 80I A IS ARBITRARY AND UNSUSTAINABLE. G) THE WORDS DERIVED FROM HAVE BEEN USED BY THE LEGI SLATURE IN THE RESTRICTED SENSE AND THEREFORE, THERE MUST BE DIRECT NEXUS BET WEEN THE EXPENDITURE AND INDUSTRIAL ACTIVITY. SINCE THERE IS NO DIRECT NEXUS OF THE ALLEGED EXPENSE WITH CPP UNIT, NEITHER ALLOCATION NOR REDUCTION OF 80IA CLAIM HAS JUSTIFICATION. IT IS SETTLED LAW THAT ALLOCATION, IF ANY, CANNOT BE MADE BY DEMONSTRATION OF DIRECT NEXUS BETWEEN ALLEGED PROPORTIONS OF EXPENSES WITH POWER GENERATION OPERATIONS OF PP UNIT SITUATE AT DEBARI, LD. CIT(A) HAS RIGHTLY DELETED THE REDUCTION IN 80IA CLAIM. I) THE LEGISLATURE HAS USED THE WORDS DERIVED FRO M IN CONTRADICTION TO THE WORDS ATTRIBUTABLE TO IN OTHER SECTIONS. 28 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. A. IN THE CASE OF CAMBAY ELECTRIC SUPPLY CO VS. CIT 19 78 CTR (SC) 50: (197) 113 ITR 84 HONBLE SUPREME COURT HAS SQUARELY HELD THAT THE WORDS DERIVED FROM HAVE BEEN USED BY THE LEGISLATURE IN RESTRICT ED SENSE AS THE WORDS ATTRIBUTABLE TO ARE MUCH WIDER IN MEANING THAN TH E WORDS DERIVED FROM. B. HONBLE SUPREME COURT IN THE CASE OF IT VS. STERLIN G FOODS (1999) 153 ITR CTR (SC) 439: (1999) 237 ITR 579 (SC) HAS HELD THA T OR APPLICATION OF THE WORDS DERIVED FROM. THERE MUST BE A DIRECT NEXUS BETWEEN THE PROFITS AND THE ACTIVITY OF THE INDUSTRIAL UNDERTAKING, CONSEQU ENTLY, IT IS BY NOW A SETTLED PROPOSITION THAT REMOTE OR INDIRECT NEXUS WOULD NOT BE SUFFICIENT FOR APPLICATION OF THE WORDS DERIVED FROM. C. IN THE CASE OF IT VS. STRAWBOARD MANUFACTURING CO L TD. {(1989) 177 ITR 43} IN THE CONTEXT OF DEDUCTION UNDER SECTION 80E, HON BLE SUPREME COURT HELD THAT: THE PROVISION FOR REBATE HAS BEEN MADE FOR THE PUR POSE OF ENCOURAGING THE SETTING UP OF NEW INDUSTRIES. IT I S NECESSARY TO REMEMBER THE WHEN A PROVISION IS MADE IN THE CONTEX T OF A LAW PROVIDING FOR CONCESSIONAL RATE OF TAX FOR THE PURP OSE OF ENCOURAGING AN INDUSTRIAL ACTIVITY, A LIBERAL CONSTRUCTION SHOU LD BE PUT UPON THE LANGUAGE OF THE STATUTE. IN OUR VIEW, THE CONTROVERSY IN QUESTION STANDS SQU ARELY COVERED BY THE CASE OF ZANDU PHARMACEUTICALS WORKS LTD. (SUPRA ) IN FAVOR OF THE ASSESEE. IN THIS CASE ASSESSEE INCURRED EXPENDITURE FOR THE R & D WORK IN THE HO AND THERE WERE INDEPENDENT MANUFACTURING UNITS. ASSESS EE CLAIMED DEDUCTION U/S 80IA WITHOUT ALLOCATING ANY PROPORTIONATE EXPENSES OF HO LD. AO ADOPTED THE SAME COURSE AS IN THE CASE OF THIS ASSESSEE. IT WA S HELD THAT THE HO WAS MAINTAINED FOR THE OVERALL BENEFIT OF THE MANUFACTU RING UNITS ONLY AND HO WAS NOT A PROFIT EARNING CENTRE; IT HAD NO INCOME OTHER THAN THE MANUFACTURING UNITS. THEREFORE, R& D EXPENSE INCURRED FOR THE DE VELOPMENT OF NEW DRUGS WERE ASSUMED TO BE FOR THE BENEFIT OF ALL MANUFACTU RING UNITS. ON THIS BASIS, LD. AO ALLOCATED PROPORTIONATE AND SIMILARLY REDUCE D THEM FROM ELIGIBLE INCOME WHILE CALCULATING DEDUCTION U/S 80IA. CIT(A ) AND ITAT UPHELD AOS ACTION REJECTING THE APPELLANTS CONTENTION THAT TH E R & D EXPENSE INCURRED BY HO HAD NOTHING TO DO WITH THE ELIGIBLE UNITS AND PR OPORTIONATE EXPENSES SHOULD NOT BE REDUCED WHILE CALCULATING DEDUCTION U /S 80IA. HONBLE BOMABY HIGH COURT UPHELD ASSESSEES CLAIM. LD. CIT(A) IN THIS CASE WHILE DELETING THE REDUCTION FROM ASSESSEES CLAIM U/S 80IA HAS APPLIE D NEARLY SIMILAR OBSERVATION. IN VIEW THEREOF NO INFIRMITY CAN BE A TTRIBUTED TO THE ORDER OF LD. CIT(A) WHICH IS UPHELD. IN THE GIVEN FACTS, CIRCUM STANCES AND LEGAL POSITION, WE HOLD THAT THE SAID HO EXPENSES WITH THE ELIGIBLE INDUSTRIAL UNDERTAKING I.E. CPP, THEREFORE THE UNRELATED PROPORTIONATE HO EXPEN SES CANNOT BE REDUCED WHILE COMPUTING DEDUCTION U/S 80IA. THIS GROUND NO . 12 OF THE REVENUE IS DISMISSED. 29 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. HOWEVER, WE FIND THAT THE CERTAIN EXPENSES WHICH AR E COMMON TO BOTH TO THE HEAD OFFICE AND CAPTIVE POWER PLANT HAS NOT BEEN AL LOCATED. THEREFORE, THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFI CER FOR RE-COMPUTATION OF REDUCTION. THE ASSESSING OFFICER WOULD RE-WORK ALL OCATION OF THE EXPENSES RELATED TO THE DIRECTORS FEES, AUDITORS FEES AND DONATION FOR CHARITY. TO THIS EXTENT, THE ORDER OF THE LD. CIT(A) IS MODIFIED. THIS GROUND OF THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9.3 THERE IS NO CHANGE INTO FACTS AND CIRCUMSTANCES. T HEREFORE, TAKING A CONSISTENT VIEW, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RE- COMPUTING THE REDUCTION OF DEDUCTION U/S 80IA. THE ASSESSING OFFICER WOULD RESTRICT THE APPORTIONMENT TO THE EXTENT OF DIRECTORS FEE, CHARITY AND DONATIONS. THE GROUND NO. 8 IS PARTLY ALLOWED AS DISCUSSED HEREINABOVE FOR STA TISTICAL PURPOSE. 10. GROUND NO. 9 , IS AGAINST ALLOWING THE DONATIONS OF RS. 1,10,52, 000/- GIVEN TO NANDI FOUNDATION AS AN EXPENDITURE ALLOWED UNDER SECTION 37(1) OF THE ACT, IN SPITE OF THE VIEW TAKEN BY THE ASSESSING OFFICER IN ALLOWING THE SAME U/S 80G AT THE RATE OF 50%. THE LD. D/R SUBMITTED THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. HE SUBMITTED THAT THERE IS A SPECIFI C PROVISION UNDER THE ACT, WHEREIN SUCH DONATIONS ARE ALLOWABLE. HE SUBMITTED THAT TH E NATURE OF THE DONATION IS BEYOND THE SCOPE OF SECTION 37(1) OF THE ACT. 10.1 ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUPP ORTED THE ORDERS OF THE LD. CIT(A) AND SUBMITTED THAT THE ISSUE WAS DECIDED BY THIS TRIBUNAL IN ITA NO. 235/JU/2008, PERTAINING TO THE ASSESSMENT YEAR 2004 -05. 30 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 10.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE IN ITA NO. 235/JU/2008 PERTAINING TO THE ASSESSMENT YEAR 2004-05. THE CON TENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THIS AMOUNT IS ALLOWABLE U/S 3 7(1) IF THE ACT, AS THE SAME HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE AMO UNT WAS SPENT UNDER THE MID- DAY-MEAL SCHEME OF THE RAJASTHAN IN THE ADJACENT AR EA OF THE ASSESSEES MINE. LD. CIT(A) ALLOWED THE SAME. WE HAVE GIVEN OUR THOUGHT FUL CONSIDERATION TO THE RIVAL CONTENTIONS OF THE PARTIES. WE DO NOT SEE ANY MERIT INTO THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DONATION OF NANDI FOUNDATION FOR PROVIDING MID- DAY-MEAL UNDER THE GOVERNMENT OF RAJASTHAN SCHEME, IS ALLOWABLE AS BUSINESS EXPENDITURE. SECTION 37(1) OPERATES IN A DIFFERENT FIELD. IN OUR VIEW THERE HAS TO BE DIRECT NEXUS BETWEEN THE AMOUNTS SPENT AND THE BUSI NESS OF THE ASSESSEE. IN THE PRESENT CASE, THERE IS NO EVIDENCE SUGGESTING THAT THE EXPENDITURE IS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THEREFORE, THIS GROUND OF THE REVENUES APPEAL IS A LLOWED. THE FINDING OF THE LD. CIT(A) ON THIS ISSUE IS SET ASIDE AND THAT THE ASS ESSING OFFICER IS RESTORED. THUS, GROUND NO. 9 OF THE REVENUES APPEAL IS ALLOWED. 11. GROUND NO. 10 IS AGAINST DELETION OF ADDITION OF RS. 8,55,50,700 /- MADE ON ACCOUNT OF WAIVER OF ELECTRICITY DUTY. THE LD. CIT (DR) VEHEMENTLY ARGUED THAT LD. CIT(A) FAILED TO APPRECIATE THE FACT IN RIGHT PERSP ECTIVE. HE SUBMITTED THAT WAIVER OF THE ELECTRICITY DUTY IS NOTHING BUT REMISSION OF LI ABILITY WHICH CANNOT BE TERMED AS SUBSIDY. SUBSIDY IS DIFFERENT FROM THE WAIVER OF E LECTRICITY DUTY. THIS ASPECT WAS NOT 31 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. CONSIDERED BY THE LD. CIT (A) WHILE DECIDING THE IS SUE. HE SUBMITTED THAT THE CASE LAWS AS RELIED BY THE LD. COUNSEL FOR THE ASSESSEE DO NOT HELP AS THOSE CASE LAWS RELATE TO THE SUBSIDIES. HE SUBMITTED THAT SAHNEY S TEELS AND PRESS WORKS LTD. VS. CIT(A) 228 ITR 253, THE HONBLE APEX COURT HAS HELD THAT THE POWER SUBSIDIES ARE OF REVENUE NATURE AND HAVE TO BE TAXED ACCORDINGLY. HE SUBMITTED THAT EVEN IF IT IS ASSUMED THAT THE WAIVER OF ELECTRICITY DUTY IS SUBS IDY WITHOUT PREJUDICE TO THE SUBMISSION THAT SAME IS NOT A SUBSIDY EVEN THEN IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL A ND PRESS WORKS LTD. VS. CIT(A)228 ITR 253, IT WOULD NOT PARTAKE CHARACTER O F CAPITAL. 11.1. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESSEE OPPOSED THE SUBMISSIONS OF THE D/R AND SUBMITTED THAT THE FACT OF THE PRESENT CASE IS DISTINGUISHABLE. HE SUBMITTED THAT THE LD. DR HAS NOT READ THE ENTIRE J UDGMENT OF THE HONBLE SUPREME COURT. EVEN THE SAHNEY STEEL FAVOURS THE ASSESSEE. HE SUBMITTED THAT SUBSEQUENT TO SAHNEY STEEL, THERE ARE OTHER JUDGMENT BY THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGAR. T HE RELIANCE IS ALSO PLACED ON THE JUDGMENT OF THE SPECIAL BENCH OF THIS TRIBUNAL REND ERED IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. (2004) 88 ITD 273(MUM)(SB) . HE SUBMITTED THAT THE PURPOSE OF NOTIFYING SCHEME WAS INDUSTRIAL DEVELOPM ENT AND TO PROMOTE HIGHER CAPITAL INVESTMENT UNDER THE FACTS OF THE PRESENT C ASE. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITIONS. HE SUBMITTED THAT PURPOSE TEST AS LAID BY HONBLE APEX COURT IF APPLIED ON THE FACTS OF THE P RESENT CASE IN THAT EVENT, THERE WOULD BE NOT ANY IOTA OF DOUBT THAT WAIVER OF ELECT RICITY DUTY IS CAPITAL IN NATURE. 32 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 11.2. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. THE LD. CIT (A) DELETED THE ADDITION, BY RELYING UPON THE JUDGMENT OF THE SPECI AL BENCH OF THIS TRIBUNAL RENDERED IN THE CASE OF DCIT VS. RELIANCE INDUSTRIE S LTD. LD. CIT (A) DECIDED THE ISSUE IN PARA 47 TO 50 AS UNDER:- DECISION I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS IONS OF THE LD. A/R AND HAVE GONE THROUGH THE ORIGINAL NOTIFICATION DATED 2 8/07/2003 ISSUED BY THE GOVT. OF RAJASTHAN, FINANCE (TAX DIVISION) DEPARTME NT. THE IMPORTANT/RELEVANT FEATURES FOR THE PURPOSE OF DECI DING THE ISSUE ARE AS UNDER:- I) THE NOTIFICATION STARTS WITH THE HEADING RAJASTHA N INVESTMENT PROMOTION POLICY2003. WITH A VIEW TO PROVIDE INVE STORS AN ATTRACTIVE OPPORTUNITY TO INVEST IN THE STATE OF RAJASTHAN, TH E FOLLOWING SCHEME IS INTRODUCED IN THE STATE. CLAUSE-2: OPERATIVE PERIOD : THE SCHEME SHALL COME INTO OPERATION WITH EFFECT F ROM 1 ST JULY, 2003 AND SHALL REMAIN IN FORCE UPTO 31 ST MARCH, 2008. CLAUSE-3: APPLICABILITY OF THE SCHEME THE SCHEME SHALL BE APPLICABLE TO ALL NEW INVESTMEN TS AND INVESTMENTS MADE BY EXISTING UNITS AND ENTERPRISES FOR MODERNIZATION /DIVERSIFICATION, SUBJECT TO THE CONDITION THAT SUCH UNITS SHALL COMMENCE COMMER CIAL PRODUCTION/OPERATIONS OWING TO SUCH INVESTMENT DURI NG THE OPERATIVE PERIOD OF THE SCHEME. CLAUSE-5: ELIGIBILITY: THE BENEFIT (SUBSIDIES AS PER CLAUSE 7 AND EXEMPTIO N AS PER CLAUSE 9 UNDER THIS SCHEME SHALL BE AVAILABLE TO ALL UNITS, OTHER THAN THOSE COVERED IN THE LIST OF INELIGIBLE UNITS SUBJECT TO THE FULFILLMENT OF T HE FOLLOWING CONDITIONS:- (I) TO CLAIM WAGE/EMPLOYMENT SUBSIDY THE UNIT SHALL PR OVIDE:- 33 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. (A) DIRECT EMPLOYMENT TO AT LEAST THEN PERSONS IN CASE OF A NEW UNIT AND (B) TWENTY FIVE PERCENT ADDITIONAL DIRECT EMPLOYMENT SU BJECT TO A MINIMUM OF TEN PERSONS IN CASE OF DIVERSIFICAT ION, MODERNIZATION OR EXPANSION. (C) THE UNIT SHALL BE ELIGIBLE FOR INTEREST SUBSIDY AND /OR WAGE/EMPLOYMENT SUBSIDY ONLY IF IT COMMENCES FIRST COMMERCIAL PRODUCTION/OPERATION DURING THE OPERATIV E PERIOD OF THE SCHEME. CLAUSE-7: SUBSIDIES: IN CASE OF NEW INVESTMENT MADE, THE SUM TOTAL OF IN TEREST SUBSIDY AND WAGE/EMPLOYMENT SUBSIDY WOULD BE SUBJECT TO A MAXIM UM LIMIT OF FIFTY PERCENT OF THE TAX PAYABLE AND DEPOSITED UNDER THE RAJASTHAN SALES TAX ACT, 1994, THE CENTRAL SALES TAX ACT, 1956 AND VALUE ADD ED TAX ACT AS AND WHEN INTRODUCED IN THE STATE; PROVIDED THAT THE MAXIMUM LIMIT OF 50% PRESCRIBED U NDER CLAUSE 7(1)(A) AND CLAUSE 7(I)(B) MAY BE RAISED BY THE BIOI TO SIXTY P ERCENT IN SUCH CASES WHERE THE INVESTMENTS EXCEED RS. 100 CRORE BUT ARE LESS T HAN OR EQUAL TO RS. 200 CRORES, AND THIS MAXIMUM LIMIT MAY BE RAISED FURTHE R TO SEVENTY FIVE PERCENT IN CASES WHERE THE INVESTMENTS EXCEED RS. 200 CRORE . EXEMPTIONS: IN ADDITION TO THE SUBSIDIES AVAILABLE IN CLAUSE 7, THE ELIGIBLE BENEFICIARY SHALL BE ENTITLED TO CLAIM THE FOLLOWING EXEMPTION, IF AP PLICABLE:- 50% EXEMPTION OF ELECTRICITY DUTY FOR SEVEN YEARS. THE GOVT. OF RAJASTHAN VIDE ORDER DATED 28/3/2005 H AS MODIFIED THE SCHEME. AFTER THE EXISTING CLAUSE 8(VI) OF THE SCHEME THE F OLLOWING PROVISO SHALL BE INSERTED:- PROVIDED THAT THE NEW PROJECT HAVING A TOTAL NEW I NVESTMENT AS PER COLUMN NO. 2 OF THE TABLE GIVEN BELOW, SHALL BE EXE MPTED FROM ELECTRICITY DUTY, ON SELF GENERATED ENERGY IN RESPECT OF NEW IN VESTMENT IN CPP FOR 7 YEARS, TO THE EXTENT A MENTIONED IN COLUMN NO. 3 OF THE TABLE. S.NO. TOTAL NEW INVESTMENTS EXEMPTION OF ELECTRICITY DUTY ON SELF GENERATED ENERGY 1 FROM RS. 100 CRORE UPTO RS. 200 CRORE 60% 2 FROM RS. 200 CRORE UPTO RS. 400 CRORE 75% 34 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 3 RS. 400 CRORE OR MORE 100% . 48. IT IS A FACT THAT THE APPELLANT HAD INSTALL ED A CPP AT CHITTORGARH LZS, CHANDERIA DURING ASSESSMENT YEAR 2005-06. THE COMP ANY GENERATED 83.0507 CRORE UNIT THEREFROM. IN VIEW OF THE ABOVE NOTIFICATION, THE ELECTRICITY DUTY WAS WAIVED TO THE APPELLANT EXTENT OF RS. 8,55,50,700/-. HAD THE RE BEEN NO SUCH WAIVER, THE APPELLANT WOULD HAVE CLAIMED THE PAYMENT OF ELECTRI CITY DUTY AS REVENUE EXPENDITURE. FURTHER THE APPELLANT ITSELF HAS ROUT ED THE SAME THROUGH P&L ACCOUNT AS REVENUE ITEM. AS PER THE DECISION CITED BY AO I N THE CASE OF RAJARAM MAIZE PRODUCT BY THE HONBLE SUPREME COURT WAS DELIVERED ON 23/7/2001 THAT THE POWER SUBSIDY RECEIVED BY THE RESPONDENT WAS OF REVENUE N ATURE INASMUCH AS IT WENT TOWARDS REDUCTION OF THE ELECTRICITY BILLS. 49. THE A/R HAS CITED THE DECISION OF BOMBAY SPT. BENCH ITD 273 (2004) IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. IN THIS CASE THE FOLLOWING POINT WAS TO BE DECIDED; WHETHER ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CAE AND IN LAW THE ASSESSEE COMPANY IS JUSTIFIED IN ITS CLAIM THAT THE SALES TAX INCENTIVE ALLOWED TO IT DURING THE PREVIOUS YEAR IN TERMS OF RELEVANT GOVER NMENT ORDER CONSTITUTE CAPITAL RECEIPT AND IS NOT TO BE TAKEN INTO ACCOUNT IN COMP UTATION OF TOTAL INCOME. THE FACTUAL POSITION IN THIS CASE IS AS UNDER:- THE ASSESSEE SET UP A UNIT IN PATALGANGA WHICH IS A NOTIFIED AREA AND BECAME ELIGIBLE FOR INCENTIVE ANNOUNCED BY THE GOVT . OF MAHARASHTRA, WHICH BEGINS COMMERCIAL PRODUCTION IN NOVEMBER, 1982. THE INCEN TIVE WAS IN THE FORM OF EXEMPTION FROM LIABLE FOR PAYMENT OF SALES TAX FOR A PERIOD OF 5 YEARS COMMENCING FROM 8-6-83 AND ENDING ON 7-6-1988. THE ASSESSEES CLAIM WAS THAT THE QUANTUM OF THE SALE TAX LIABLE WOULD BE CLAIMED AS DEDUCTION O N THE BASIS OF THAT IT IS A CAPITAL RECEIPT OR ON THE BASIS OF THAT IT SHOULD BE TREATE D AS LIABILITY UNDER THE SALES TAX LIABILITY. BUT SINCE, IT WAS EXEMPTED FROM PAYMENT OF SALES TAX, THE SAME SHOULD BE TREATED A PAID WITHIN THE MEANING OF SECTION 43B SO AS TO ADJUSTED AGAINST THE AMOUNT OF SUBSIDY, WHICH THE ASSESSEE WOULD HAVE RE CEIVED FROM THE STATEMENT GOVERNMENT. IN THAT YEAR THE ASSESEE WAS EXEMPTED FROM THE PAYMENT OF PURCHASE TAX OF RS. 10,82,175/- AND SALES TAX OF RS. 4,29,89 ,686/- MAKING THE TOTAL TO RS. 4,40,71,858/-. THE SPL. BENCH FINALLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE SPL. BENCH DID CONSIDER THE RATIO LAID DOWN IN THE JUDGMENT OF SUPREME COURT IN SAHINEY STEEL AND PRESS WORKS LTDS CASE, WHICH IS AS UNDER:- IF ANY SUBSIDY IS GIVEN, THE CHARACTER OF THE SUB SIDY IN THE HANDS OF THE RECIPIENTS-WHETHER REVENUE OR CAPITAL-WILL HAVE TO BE DETERMINED BY HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IF IT IS GIVEN BY WAY OF ASSISTANCE TO THE ASSESSEE IN CARRYING ON OF ITS TRADE OR BUSINESS, I T HAS TO BE TREATED AS TRADING RECEIPT. THE SOURCE OF THE FUND IS QUITE IMMATERIA L. 50. IN THE APPELLANTS CASE ALSO THE TITLE OF THE SCHEME RAJASTHAN INVESTMENT PROMOTION SCHEME, 2003(RAJ. INVEST 2003) ITSELF MA KES THE PURPOSE OF THE SCHEME VERY MUCH CLEAR. IF FURTHER LAID DOWN THAT THE SCH EME SHALL BE APPLICABLE TO ALL NEW 35 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. INVESTMENTS AND INVESTMENTS MADE BY EXISTING UNITS AND ENTERPRISES FOR MODERNIZATION/EXPANSION/DIVERSIFICATION SUBJECT TO THE CONDITION THAT SUCH UNITS SHALL COMMENCE COMMERCIAL PRODUCTION/OPERATION OWING TO S UCH INVESTMENT DURING THE OPERATIVE PERIOD OF THE SCHEME. THE SCHEME IS OPER ATIVE W.E.F. 1-7-2003 AND WAS REMAINED IN FORCE UPTO 31-03-2008. INITIALLY THE E XEMPTION IN CLAUSE 8 OF THE SCHEME WAS 50% OF THE ELECTRICITY DUTY FOR SEVEN YE ARS IN ADDITION TO THE SUBSIDY AVAILABLE UNDER CLAUSE 7 OF THIS SCHEME BUT THE APP ELLANT HAS NOT CLAIMED ANY DEDUCTION MENTIONED IN CLAUSE 7. BY AMENDMENT ORDE R DATED 28-03-2005 OF GOVT. OF RAJASTHAN, THE FINANCE DEPARTMENT (TAX DIVISION) , THE SCHEME HAS BEEN AMENDED TO THE EXTENT THAT THE EMPTION WOULD BE AVA ILABLE TO 100% IF THE TOTAL NEW INVESTMENT IS RS. 400 CRORE OR MORE IN CPP. THE AP PELLANT HAS ESTABLISHED THE CPP IN 2005-06 FOR THE FIRST TIME IN CHANDERIA SMELTER UNIT. THE CAPITAL INVESTMENT IS ALSO MORE THAN RS. 400 CR ORE. THE CPP IS ESTABLISHED WITHIN THE PERIOD FROM 1-7-2003 TO 31-3-2008. THE COMMERCIAL PRODUCTION HAS ALSO COMMENCED IN THE SAME FINANCIAL YEAR. THUS ALL THE TERMS AND CONDITIONS OF THE SCHEME DO CLEARLY DEFINE THAT THE WAIVER OF ELECTRI CITY DUTY BY THE GOVT. OF RAJASTHAN WAS WITH A PURPOSE TO HELD THE ASSESSEE TO ESTABLIS H A NEW POWER PLANT AND NOT TO HELD IN DAY TO DAY OPERATIONS OF THE POWER PLANT. THEREFORE, THE DECISION OF THE HONBLE SPL. BENCH, BOMBAY IN THE CASE OF RELIANCE INDUSTRIES IS FULLY APPLICABLE TO THE APPELLANTS CASE. THEREFORE, THE DISALLOWANCE MADE BY THE AO IS DELETED. THE APPEAL IS ALLOWED ON THIS GROUND. FROM ABOVE, IT CAN BE INFERRED THAT LD. CIT (A) CON SIDERED ALL THE JUDGMENTS AS RELIED BY THE PARTIES AND BY FOLLOWING THE DECISION OF THE SPECIAL BENCH DELETED THE ADDITION. IN THE PRESENT CASE, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE WAIVER OF ELECTRICITY DUTY IS LINKED WITH THE QUANT UM OF INVESTMENT MADE BY THE ASSESSEE. THE PRE CONDITION FOR AVAILING SUCH INCE NTIVE IS ESSENTIALLY INVESTMENT MADE BY THE ASSESSEE. IN THE SAHNEY STEEL AND PRESS WORKS LTD.(SUPRA), THE HONBLE SUPREME COURT EXAMINED THE ISSUE AND LAID DOWN PRIN CIPLES ON THE BASIS OF WHICH A SUBSIDY GIVEN TO THE ASSESSEE IS REQUIRED TO BE CAT EGORIZED. IF IT IS AN OPERATIONAL SUBSIDY SAME WOULD FALL WITHIN THE AMBIT OF REVENUE AND IF IT IS A SUBSIDY FOR A PURPOSE OF SETTING UP AND EXPANSION OF INDUSTRY THA T WOULD BE WITHIN THE AMBIT OF CAPITAL. ADMITTEDLY, IN THE PRESENT CASE, IT IS NO T THE CASE OF SUBSIDY GIVEN BY THE 36 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. STATE GOVERNMENT BUT IT IS A SORT OF INCENTIVE IN T HE FORM OF WAIVER OF ELECTRICITY DUTY BUT THIS WAIVER IS DEPENDENT UPON THE INVESTMENT MA DE BY THE ASSESSEE AND PRODUCTION OF POWER. THE LD. CIT(A) HAS FOLLOWED T HE DECISION OF SPL. BENCH OF THIS TRIBUNAL RENDERED IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. (SUPRA) IN THAT CASE THERE WAS INCENTIVE IN THE FORM OF EXEMPTION F ROM LIABILITY OF PAYMENT OF SALES TAX FOR A PERIOD OF 5 YEARS. IN THE PRESENT CASE, IT IS THE WAIVER OF THE ELECTRICITY DUTY. THE REVENUES CASE IS THAT HAD THIS WAIVER W AS NOT GIVEN BY THE STATE GOVERNMENT, THE PAYMENT OF ELECTRICITY DUTY WOULD B E ELIGIBLE DEDUCTION AS REVENUES EXPENDITURE. ON THE CONTRARY, THE ASSESSEES CASE IS THAT THE IS SUE IS SQUARELY COVERED BY THE DECISION OF THE SPL. BENCH OF THIS TRIBUNAL AND ALS O THERE ARE OTHER JUDGMENTS. THE HONBLE SUPREME COURT RENDERED IN THE CASE OF PONNI SUGAR (SUPRA) HELD AS UNDER:- 14. IN OUR VIEW, THE CONTROVERSY IN HAND CAN BE RE SOLVED IF WE APPLY THE TEST LAID DOWN IN THE JUDGMENT OF THIS COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA). IN THAT CASE, ON BEHAL F OF THE ASSESSEE, IT WAS CONTENDED THAT THE SUBSIDY GIVEN WAS UP TO 10% OF THE CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE QUANTUM O F INVESTMENT IN CAPITAL AND, THEREFORE, RECEIPT OF SUCH SUBSIDY WAS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN T HAT CASE THAT SUBSIDY GRANTED ON THE BASIS OF REFUND OF SALES TAX ON RAW MATERIAL, MACHINERY AND FINISHED GOODS WERE ALSO OF CAPITAL N ATURE AS THE OBJECT OF GRANTING REFUND OF SALE TAX WAS THAT THE ASSESSE E COULD SET UP NEW BUSINESS OR EXPAND HIS EXISTING BUSINESS. THE CONT ENTION OF THE ASSESSEE IN THAT CASE WAS DISMISSED BY THE TRIBUNAL AND, THEREFORE, THE ASSESSEE HAD COME TO THIS COURT BY WAY OF A SPECIAL LEAVE PETITION. IT WAS HELD BY THIS COURT ON THE FACTS OF THAT CASE AN D ON THE BASIS OF THE 37 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. ANALYSES OF THE SCHEME THEREIN THAT THE SUBSIDY GIV EN WAS ON REVENUE ACCOUNT BECAUSE IT WAS GIVEN BY WAY OF ASSISTANCE I N CARRYING ON OF TRADE OR BUSINESS. ON THE FACTS OF THAT CASE, IT W AS HELD THAT THE SUBSIDY GIVEN WAS TO MEET RECURRING EXPENSES. IT W AS NOT FOR ACQUIRING THE CAPITAL ASSET. IT WAS NOT TO MEET PA RT OF THE COST. IT WAS NOT GRANTED FOR PRODUCTION OF OR BRINGING INTO EXIS TENCE ANY NEW ASSET. THE SUBSIDIES IN THAT CASE WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND ONLY AFTER COMME NCEMENT OF PRODUCTION, AND THEREFORE, SUCH A SUBSIDY WOULD ONL Y BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. CONSEQUENTLY, THE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE ON THE FACTS OF THAT CASE STOOD REJECTED A ND IT WAS HELD THAT THE SUBSIDY RECEIVED BY SAHNEY STEEL COULD NOT BE R EGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDINGLY, THE M ATTER WAS DECIDED AGAINST THE ASSESSEE. THE IMPORTANCE OF THE JUDGME NT OF THIS COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE(SUPRA) LIE S IN THE FACT THAT IT HAS DISCUSSED ANY ANALYZED THE ENTIRE CASE LAW AND IT HAS LAID DOWN THE BASIC TEST TO BE APPLIED IN JUDGING THE CHARACT ER OF A SUBSIDY. THE TEST THAT THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WH ICH THE SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ON HAS TO AP PLY THE PURPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS N OT RELEVANT. THE SOURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMAT ERIAL. THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE A RE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILIZED FOR REP AYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANT IAL EXPANSION OF EXISTING UNITS. ON THIS ASPECT THERE IS NOT DISPUT E. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN TH E BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY S CHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN 38 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WHICH THE SUBSIDY ASSISTANCE IS GIVEN WH ICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE M ECHANISM THOUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. 15. IN THE DECISION OF HOUSE OF LORDS IN THE CASE O F SEAHAM HARBOUR DOCK CO. V. CROOK [1931] 16 TC 333 THE HARBOUR DOCK CO. HAD APPLIED FOR GRANTS FROM THE UNEMPLOYMENT GRANTS COMMITTEE FROM FUNDS APPROPRIATED BY PARLIAMENT. THE SAID GRANTS WERE P AID AS THE WORK PROGRESSED THE PAYMENT WERE MADE SEVERAL TIMES FOR SOME YEARS. THE DOCK CO. HAD UNDERTAKEN THE WORK OF EXTENSION OF IT S DOCKS. THE EXTENDED DOCK WAS FOR RELIEVING THE UNEMPLOYMENT. T HE MAIN PURPOSE WAS RELIEF FROM UNEMPLOYMENT. THEREFORE, THE HOUSE OF LORDS HELD THAT THE FINANCIAL ASSISTANCE GIVEN TO THE COMPANY FOR DOCK EXTENSION CANNOT BE REGARDED AS A TRADE RECEIPT. IT WAS FOUN D BY THE HOUSE OF LORDS THAT THE ASSISTANCE HAD NOTHING TO DO WITH TH E TRADING OF THE COMPANY BECAUSE THE WORK UNDERTAKEN WAS DOCK EXTENS ION. ACCORDING TO THE HOUSE OF LORDS, THE ASSISTANCE IN THE FORM O F A GRANT WAS MADE BY THE GOVERNMENT WITH THE OBJECT THAT BY ITS USE M EN MIGHT BE KEPT IN EMPLOYMENT AND, THEREFORE, ITS RECEIPTS WAS CAPI TAL IN NATURE. THE IMPORTANCE OF THE JUDGMENT LIES IN THE FACT THAT TH E COMPANY HAD APPLIED FOR FINANCIAL ASSISTANCE TO THE UNEMPLOYMEN T GRANTS COMMITTEE. THE COMMITTEE GAVE FINANCIAL ASSISTANCE FROM TIME TO TIME AS THE WORK PROGRESSED AND THE PAYMENTS WERE EQUIVA LENT TO HALF THE INTEREST FOR TWO YEARS ON APPROVED EXPENDITURE MET OUT OF LOANS. EVEN THOUGH THE PAYMENT WAS EQUIVALENT TO HALF THE INTER EST AMOUNT PAYABLE ON THE LOAN (INTEREST SUBSIDY) STILL THE HO USE OF LORDS HELD THAT MONEY RECEIVED BY THE COMPANY WAS NOT IN THE COURSE OF TRADE BUT WAS OF CAPITAL NATURE. THE JUDGMENT OF HOUSE OF LO RDS SHOWS THAT THE SOURCE OF PAYMENT OR THE FORM IN WHICH THE SUBSIDY IS PAID OR THE MECHANISM THROUGH WHICH IT IS PAID IS IMMATERIAL AN D THAT WHAT IS RELEVANT IS THE PURPOSE FOR PAYMENT OF ASSISTANCE. ORDINARILY SUCH 39 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. PAYMENTS WOULD HAVE BEEN ON REVENUE ACCOUNT BUT SIN CE THE PURPOSE OF THE PAYMENT WAS TO CURTAIN/OBLITERATE UNEMPLOYME NT AND SINCE THE PURPOSE WAS DOCK EXTENSION, THE HOUSE OF LORDS HELD THAT THE PAYMENT MADE WAS OF CAPITAL NATURE. 16. ONE MORE ASPECT NEEDS TO BE MENTIONED. IN SAHN EY & PRESS WORKS LTD.S CASE (SUPRA) THIS COURT FOUND THAT THE ASSES SEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED. IT WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. IN THE C ASE OF SEAHAM HARBOUR DOCK CO. (SUPRA) ASSESEE WAS OBLIGED TO SPE ND THE MONEY FOR EXTENSION OF ITS DOCKS. THIS ASPECT IS VERY IMPORT ANT. IN THE PRESENT CASE ALSO, RECEIPT OF SUBSIDY WAS CAPITAL IN NATURE AS THE ASSESSEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT O F TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS /EXPANSION OF EXISTING BUSINESS. 17. APPLYING THE ABOVE TESTS TO THE FACTS OF THE PR ESENT CASE AND KEEPING IN MIND THE OBJECT BEHIND THE PAYMENT OF INCENTIVE SUBSIDY WE ARE SATISFIED THAT SUCH PAYMENT RECEIVED BY THE ASSESSE E UNDER THE SCHEME WAS NOT IN THE COURSE OF A TRADE BUT WAS OF A TRADE BUT WAS OF CAPITAL NATURE. ACCORDINGLY, THE FIRST QUESTION IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 11.3 IF WE APPLY THE PURPOSE TEST ON THE FACTS OF THE PRESE NT CASE, ESSENTIALLY SUCH WAIVER OF ELECTRICITY DUTY IS RELATED TO SETTING UP AND EXPANSION OF INDUSTRY HENCE CAPITAL IN NATURE AS PER NOTIFICATION ISSUED BY THE STATE GOVERNMENT. UNDER THESE UNDISPUTED FACTS, WE DO NOT SEE ANY REASON TO DISTU RB THE FINDING OF THE LD. CIT (A), SAME IS HEREBY AFFIRMED. THIS GROUND OF THE REVENU ES APPEAL IS DISMISSED. 12 . NEXT GROUND (GROUND NO. 11) IS AGAINST DELETION OF ADDITION OF RS. 11,15,00,000/- AS EXCHANGE RATE DIFFERENCE ON LOAN. THE LD. DEPARTMENTAL 40 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. REPRESENTATIVES SUBMITTED THAT THE LD. CIT(A) WAS N OT JUSTIFIED IN DELETING THE ADDITION. LD. DEPARTMENTAL REPRESENTATIVES SUBMITT ED THAT THE ASSESSEE HAD TAKEN A COMMERCIAL BORROWING AMOUNTING TO RS. 552.87 CROR E DURING THE FINANCIAL YEAR 2003-04. THIS LOAN WAS TAKEN FOR EXPANSION OF COS PROJECT AS CLZS, CHANDERIA, RAMPURA AGUCHA MINES AND CPP AT CHANDERIA FOR EXPAN SION OF THE COMPANY FOR CAPITAL INVESTMENT. THE COMPANY HAS COMPLETED THE EXPANSION DURING THE ASSESSMENT YEAR 2006-07 AND CAPITALIZED THE INTEREST PAYMENT AND OTHER INCIDENT AL CHARGES. WHILE FINALIZING THE BALANCE SHEET AS ON 31/03/2006, THE APPELLANT HAD D EVALUED THE QUANTUM OF PRINCIPLE LOANS AMOUNT BASED ON EXCHANGE RATE PREVA ILING ON THAT DATE AND INCREASE OF LIABILITY OF SUCH AMOUNT THERE FROM HAD BEEN CHA RGED TO THE P&L ACCOUNT AS REVENUE EXPENDITURE UNDER THE HEAD EXCHANGE RATE OF LOAN. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD OBTAINED LOAN DURING THE FINANCIAL YEAR 2003-04 AND THE SAME WAS OUT OUTSTANDING AS LIABILITY ON 31/03/ 2006. IT IMPLIED THAT THERE WAS NO RE-PAYMENT OF LOAN TILL THE ASSESSMENT YEAR 2006 -07. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PROVIDED AN AMOUNT OF RS . 11.15 CRORE BY DEVALUING THE QUANTUM OF PRINCIPLES OF LOAN BASED ON EXCHANGE RAT E ON CLOSE OF THE YEAR. IT WAS OBSERVED THAT THE SUCH LOSS WAS A NOTIONAL DEVALUAT ION LOSS JUST BY PASSING A BOOK ENTRY. THE ASSESSEE HAD NEITHER INCURRED ANY EXPEN DITURE AS SUCH DURING THE YEAR NOR THE LIABILITY HAS CRYSTALLIZED OR FINALIZED DUR ING THE RELEVANT ASSESSMENT YEAR. SUCH CLAIM OF EXCHANGE RATE DIFFERENCE WOULD BE NOT IONAL TILL LOAN WAS ACTUALLY REPAID AND THE LIABILITY ASCERTAINED. IT WAS OPINED BY T HE ASSESSING OFFICER THAT SINCE THE LOAN WAS ACQUIRED FOR CAPITAL PURPOSE, ANY ACCRETIO N TO LIABILITY WAS NECESSARILY A 41 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. CAPITAL IN NATURE. THE LOAN WAS A BALANCE SHEET IT EM AND HELD AS CAPITAL LIABILITY AND, THEREFORE, ANY INCREASE THEREIN WOULD ALSO BE LOGIC ALLY CAPITAL IN NATURE. LD. DR SUBMITTED THAT THERE IS NO INFIRMITY INTO THIS REAS ONING OF THE ASSESSING OFFICER. HE SUBMITTED THAT AS PER SECTION 43A OF THE ACT, THERE SHALL BE ADJUSTMENT TO THE ACTUAL COST OF THE ASSET SO IMPORTED ON ACCOUNT OF EXCHANG E RATE FLUCTUATION IN THE YEAR OF REPAYMENT. SECTION 43A SPEAKS OF LOAN TAKEN SPECIF ICALLY FOR ACQUIRING THE ASSETS. EVEN THE BENEFIT OF DEPRECIATION ON INCREASED COST OF ASSETS IS ALLOWABLE ONLY IN THE YEAR OF REPAYMENT OF LOAN NOT BEFORE THAT. 12.1. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE SUP REME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR (2009) 312 ITR 254 (SC) LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TRANSAC TION IN FOREIGN CURRENCY ARE RECORDED AT THE EXCHANGE RATE PREVAILING ON THE DAT E OF TRANSACTION. ALL MANDATORY ITEMS DENOMINATED IN FOREIGN CURRENCY REINSERTED ON THE YEAR AND STOP EXCHANGE DIFFERENCE OF RESTATEMENT OR RESETTLEMENT OR CHARGE D TO P&L ACCOUNT EXCEPT THOSE RELATING TO FIXED ASSETS WHICH ARE INCLUDED IN THE COST OF ASSETS. ACCORDINGLY, THE INTEREST COST TILL THE DATE OF CAPITALIZATION HAD B EEN INCLUDED IN THE COST OF ASSETS AND CAPITALIZED IN THE BOOKS OF ACCOUNT AS PER THE ACCO UNTING POLICY AND FOLLOWING MANDATORY ACCOUNTING STANDARD AS-16 RELATING TO BOR ROWING COST ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IT IS CONTENDED THAT THE ASSET HAD BEEN PUT TO USE IN THE RELEVANT PREVIOUS YEARS. IT IS C ONTENDED THAT IN VIEW OF THE IMPROVED PROFITABILITY, THE ASSESSEE HAD LEFT WITH RETAINED EARNINGS WHICH WAS TEMPORARILY INVESTED IN MUTUAL FUNDS. WHILE, THE O UTSTANDING ECB LOAN WAS RS. 558 42 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. CRORE AS 3/3/2006, THE ASSESSEE COMPANY INVESTED SU RPLUS FUNDS TO THE EXTENT OF RS. 1605 CRORE IN MUTUAL FUNDS. IT IS CONTENDED THAT AFTER CAPITALIZATION, ECB HAD CHANGED ITS NATURE AND ASSUMED A NEW CHARACTER OF CIRCULATING CAPITAL. THE TREATMEN T WAS IN CONSONANCE WITH ACCEPTED ACCOUNTING PRINCIPLES AND ACCOUNTING STAND ARDS. AS SUCH THE LOSS ON ACCOUNT OF EXCHANGE DIFFERENCE IS A REVENUE CHARGE AND THE SAME IS ALLOWABLE U/S 37(1) OF THE ACT. 12.2 WE HAVE HEARD THE RIVAL CONTENTIONS, LD. CIT(DR) ST RONGLY URGED THAT THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF WOODWORD GOVERNOR (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. HOWEVER, WE FIND MERIT INTO THE CONTENTION OF THE LD. COUNSEL F OR THE ASSESSEE THAT AFTER CAPITALIZATION, THE ECB HAD CHANGED ITS NATURE AND ASSUMED CHARACTER OF CIRCULATING CAPITAL. SUCH TREATMENT IS IN CONSONANCE WITH THE A CCEPTING ACCOUNTING PRINCIPLES AND ACCOUNTING STANDARDS. AS SUCH LOSS ON ACCOUNT OF EXCHANGE DIFFERENCE IS A REVENUE CHARGE AND IS ALLOWABLE DEDUCTION UNDER SEC TION 37(1) OF THE ACT. IN VIEW OF THESE UN REBUTTED FACTS IN OUR CONSIDERED VIEW, THE RATIO OF THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. WOODWARD GOVERNOR (SUPRA) IS SQUARELY APPLICABLE ON THE PRESENT CASE. THE HONB LE COURT HAS HELD AS UNDER:- 29. TO ANSWER THE CONTROVERSY, WE NEED TO ANALYSE S ECTION 43A (UNAMENDED). THE PERIOD IN QUESTION IN THE BATCH O F CIVIL APPEAL IS PRIOR TO THE FINANCE ACT, 2002, THEREFORE, WE ARE R EQUIRED TO CONSIDER THE SCOPE OF SECTION 43A (UNAMENDED). 43 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 30. SECTION 43A STARTS WITH A NON OBSTANTE CLAUSE. SECTION 43A(1) OVERRIDES THE OTHER PROVISIONS ONLY AS REGARDS CASE S FALLING UNDER THAT SUB-SECTION. FOR INSTANCE, IN A CASE WHERE THE ASSE T IS ACQUIRED, OR THE LIABILITY TO PAY IN FOREIGN EXCHANGE ARISES, AFTER THE CHANGE IN THE RATE OF EXCHANGE, THE SAID SUB-SECTION HAS NO APPLICATIO N AND THE GENERAL PRINCIPLES OF LAW MUST BE APPLIED IN DECIDED WHERE THER ACTUAL COST IS INCREASED OR REDUCED AS A RESULT OF SUCH CHANGE. I N OTHER WORDS, SECTION 43A(1) APPLIES ONLY WHERE AS A RESULT OF CH ANGE IN THE RATE OF EXCHANGE THERE IS AN INCREASE OR REDUCTION IN THE L IABILITY OF THE ASSESSEE IN TERMS OF THE INDIA RUPEE TO PAY THE PRI CE OF ANY ASSET PAYABLE IN FOREIGN EXCHANGE OR TO REPAY MONEYS BORR OWED IN FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET. SECTION 43A(1), THEREFORE, HAS NO APPLICATION UNLESS THE AS SET IS A ACQUIRED AND THE LIABILITY EXISTED, BEFORE THE CHANGE IN THE RAT E OF EXCHANGE TAKES EFFECT. IN SUCH A CASE, SECTION 43A CONTEMPLATES R ECOMPUTATION OF THE COST OF THE ASSETS FOR THE PURPOSES OF DEPRECIATION (SECTION 32 AND 43(1), AND ALSO AS REGARDS CAPITAL ASSETS FOR SCIEN TIFIC RESEARCH (SECTION 35(1)(IV) AND ALSO REGARDING PATENT RIGHT OR COPYRI GHTS (SECTION 35A). 31. AS HELD IN ARVING MILLS CASE (1992) 193 ITR 2 55 (SC) (SUPRA) INCREASE OR DECREASE IN LIABILITY IN THE REPAYMENT OF FOREIG N LOAN SHOULD BE TAKEN INTO ACCOUNT TO MODIFY THE FIGURE OF ACTUAL COST IN THE YEAR IN WHICH THE INCREASE OR DECREASE IN LIABILITY ARISES ON ACCOUNT OF THE FLUCTUATION IN THE RATE OF EXCHANGE. THUS, THE ADJUSTMENTS IN THE ACTUAL COST ARE TO BE MADE IRRESPECTIVE OF THE DATE OF ACTUAL PAYMENT IN FOREIGN CURRENY MADE BY THE ASSESSEE. THIS POSITION ALSO FINDS PLA CE IN THE CLARIFICATION ISSUES BY THE MINISTRY OF FINANCE DATED JANUARY 4, 1967, WHICH, INTER ALIA, READS AS UNDER: 2. THE GOVERNMENT AGREES THAT FOR THE PURPOSES OF THE CALCULATION OF DEPRECIATION ALLOWANCE, THE COST OF CAPITAL ASSETS IMPORTED BEFORE THE DATE OF DEVALUATION SHOULD BE W RITTEN OFF TO THE EXTENT OF THE FULL AMOUNT OF THE ADDITIONAL RUP EE LIABILITY INCURRED ON ACCOUNT OF DEVALUATION AD NOT WHAT IS A CTUALLY PAID 44 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. FROM YEAR TO YEAR. THE PROPOSED LEGAL PROVISION IN THE MATTER IS INTENDED TO BE FRAMED ON THIS BASIS. (EMPHASIS SU PPLIED) 32. ONE MORE ASPECT NEEDS TO BE MENTIONED. SECTIO N 43(1) DEFINES ACTUAL COST FOR THE PURPOSE OF GRANT OF DEPRECIATION, ETC. TO MEAN THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. TILL THE INSE RTION OF THE UNAMENDED SECTION 43A THERE WAS NO PROVISION IN THE INCOME-TAX ACT FOR ADJUSTMENT OF THE ACTUAL COST WHICH WAS FIXED O NCE AN FOR ALL, AT THE TIME OF ACQUISITION OF THE ASSET. ACCORDINGLY, NO ADJUSTMENT COULD BE MADE IN THE ACTUAL COST OF THE ASSETS FOR PURPOSES OF GRANT OF DEPRECIATION FOR ANY INCREASE/DECREASE OF LIABILITY SUBSEQUENTLY ARISING DUE TO EXCHANGE FLUCTUATION. CONSEQUENTLY, SECTION 43A WAS INTRODUCED IN THE ACT BY THE FINANCE ACT, 1967, WIT H EFFECT FROM APRIL 1, 1967, IN THE ABOVE TERMS TO PROVIDE FOR ADJUSTMENT IN THE ACTUAL COST OF ASSETS PURSUANT TO CHANGE IN THE FOREIGN CURRENC Y EXCHANGE RATES. AS A CONSEQUENCE OF THE INSERTION OF THE SAID SECTI ON, IF BECAME POSSIBLE TO ADJUST THE INCREASE/DECREASE IN LIABILI TY RELATING TO ACQUISITION OF CAPITAL ASSETS ON ACCOUNT OF EXCHANG E RATE FLUCTUATION, IN THE ACTUAL COST OF THE ASSETS ACQUIRED IN FOREIGN C URRENCY AND FOR, INTER ALIA, DEPRECIATION TO BE ALLOWED WITH REFERENCE TO SUCH INCREASED/DECREASED COST. THIS POSITION IS ALSO MA DE CLEAR BY CIRCULAR NO. 5-P DATED OCTOBER 9, 1967, ISSUED BY THE CENTRA L BOARD OF DIRECT TAXES. ONE MORE POINT NEEDS TO BE MENTIONED. SECT ION 43A (UNAMMENDED) CORRESPONDS TO PARAGRAPH 10 OF AS-11 S IMILARLY PROVIDING FOR ADJUSTMENT IN THE CARRYING COST OF FI XED ASSETS ACQUIRED IN FOREIGN CURRENCY, DUE TO FOREIGN EXCHANGE FLUCTUATI ON AT EACH BALANCE- SHEET DATE. THE RELEVANT PARAGRAPH READS AS FOLLOW S: 10. EXCHANGE DIFFERENCES ARISING ON REPAYMENT OF LIABILITIES INCURRED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS, WHICH CARRIED IN TERMS OF HISTORICAL COST, SHOULD BE ADJUSTED IN CARRYING AMOUNT OF THE RESPECTIVE FIXED ASSETS. THE CARRYIN G AMOUNT OF SUCH FIXED ASSETS SHOULD, TO THE EXTENT NOT ALREADY SO ADJUSTED OR OTHERWISE ACCOUNTED FOR, ALSO BE ADJUSTED TO ACC OUNT FOR ANY INCREASE OR DECREASE IN THE LIABILITY OF THE ENTERP RISE, AS 45 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. EXPRESSED IN THE REPORTING CURRENCY BY APPLYING THE CLOSING RATE, FOR MAKING PAYMENT TOWARDS THE WHOLE OR A PART OF T HE COST OF THE ASSETS OR FOR REPAYMENT OF THE WHOLE OR A PART OF THE MONIES BORROWED BY THE ENTERPRISE FROM ANY PERSON, DIRECTL Y OR INDIRECTLY, IN FOREIGN CURRENCY SPECIFICALLY FOR TH E PURPOSE OF ACQUIRING THOSE ASSETS. 33. AS STATE ABOVE, WHAT TRIGGERS THE ADJUSTMENT IN THE ACTUAL COST OF THE ASSETS, IN TERMS OF THE UNAMENDED SECTION 43A OF TH E 1961 ACT IS THE CHANGE IN THE RATE OF EXCHANGE SUBSEQUENT TO THE AC QUISITION OF ASSET IN FOREIGN CURRENCY. THE SECTION MANDATES THAT AT ANY TIME THERE IS CHANGE IN THE RATE OF EXCHANGE, THE SAME MANY BE GI VEN EFFECT TO BY WAY OF ADJUSTMENT OF THE CARRYING COST OF THE FIXED ASSETS ACQUIRED IN FOREIGN CURRENCY. BUT FOR SECTION 43A WHICH CORRES PONDS TO PARAGRAPH 10 OF AS-11 SUCH ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSETS WAS NO POSSIBLE, PARTICULARLY IN THE LIGHT OF SECTI ON 43(1). THE UNAMENDED SECTION 43A NOWHERE REQUIRED AS CONDITION PRECEDENT FOR MAKING NECESSARY ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSET THAT THERE SHOULD BE ACTUAL PAYMENT OF THE INCREASE D/DECREASED LIABILITY AS A CONSEQUENCE OF THE EXCHANGE VARIATIO N. THE WORDS USED IN THE UNAMENDED SECTION 43A WERE FOR MAKING PAYME NT AND NO ON PAYMENT WHICH IS NOW BROUGHT IN BY AMENDMENT TO SE CTION 43A, VIDE THE FINANCE ACT, 2002. 34. LASTLY, WE ARE OF THE VIEW THAT THE AMENDMENT O F SECTION 43A BY THE FINANCE ACT, 2002, WITH EFFECT FROM APRIL 1, 2003, IS AMENDATORY AND NOT CLARIFICATORY. THE AMENDMENT IS IN COMPLETE SU BSTITUTION OF THE SECTION AS IT EXISTED PRIOR THERETO. UNDER THE UNA MENDED SECTION 43A ADJUSTMENT TO THE ACTUAL COST TOOK PLACE ON THE HAP PENING OF CHANGE IN THE RATE OF EXCHANGE WHEREAS UNDER THE AMENDED SECT ION 43A ADJUSTMENT IN THE ACTUAL COST IS MADE ON CASH BASIS . THIS IS INDICATED BY THE WORDS AT THE TIME OF MAKING PAYMENT. IN O THER WORDS, UNDER THE UNAMENDED SECTION 43A, ACTUAL PAYMENT WAS NOT A CONDITION PRECEDENT FOR MAKING NECESSARY ADJUSTMENT IN THE CA RRYING COST OF THE 46 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. FIXED ASSET ACQUIRED IN FOREIGN CURRENCY HOWEVER, U NDER THE AMENDED SECTION 43A WITH EFFECT FROM APRIL 1, 2003, SUCH AC TUAL PAYMENT OF THE DECREASED ENHANCED LIABILITY IS MADE A CONDITION PR ECEDENT FOR MAKING ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASS ET. THIS INDICATES A COMPLETE STRUCTURAL CHANGE BROUGHT ABOUT IN SECTION 43A, VIDE THE FINANCE ACT, 2002. THEREFORE, THE AMENDED SECTION IS AMENDATORY AND NOT CLARIFICATORY IN NATURE. CONCLUSION: 35. FOR THE REASON GIVEN HEREINABOVE, WE FIND NO IN FIRMITY IN THE IMPUGNED JUDGMENTS OF THE DELHI HIGH COURT AND ACCORDINGLY T HE CIVIL APPEALS FILED BY THE DEPARTMENT STAND DISMISSED WITH NO ORD ER AS TO COSTS. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE INTO THE ORDER OF THE LD. CIT(A), SAME IS HEREBY AFFIRMED. THIS GR OUND OF THE REVENUE APPEAL IS DISMISSED. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. NOW, WE TAKE UP ASSESSEES APPEAL IN ITA NO. 606/JU/2008 , PERTAINING TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE HAS RAIS ED FOLLOWING GROUNDS OF APPEAL. A. IN NOT ALLOWING DEDUCTIONS ON ACCOUNT PAYMENTS MADE AS UNDER, IN DETERMINING THE TAXABLE INCOME:- (I) RS. 1500000/- TOWARDS JEEVA EDUATIONAL TRUST. (II) RS. 286000/- TOWARDS GRAM PANCHAYAT, JETUSAR (III) RS. 400000/- TOWARDS PANDIT CHATUR LAL MEMORIAL (IV) RS. 250000/- TOWARDS DR. CY. MEHTA REHAB CENTRE. (V) RS. 150000/- TOWARDS BADHIR BAL KALYAN VIKAS SAMITI (VI) RS. 150000/- TOWARDS VIKALANG KALYAN SAMITI B. ABOVE CONTRIBUTIONS ARE ALLOWABLE U/S 37(1) OF THE ACT ALSO C. THE APPELLANT CRAVES TO ADD, AMEND, ALTER OR M ODIFY ANY OF THE GROUND OF APPEAL. 47 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. 13 . IN GROUND NO. A & B ARE INTER-RELATED. ALL THESE RELATES TO A ALLOWABILITY OF DONATIONS MADE BY THE ASSESSEE TO VARIOUS CHARITABL E TRUSTS, AS A BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. LD. RE PRESENTATIVES OF THE PARTIES SUBMITTED THAT THE REVENUE HAS ALSO RAISED GROUND I N ITA NO. 638/JU/2008, WHEREIN DONATIONS MADE TO NANDI FOUNDATION WAS ALLOWED AS E XPENDITURE. BOTH THE REPRESENTATIVES HAVE ADOPTED THE SAME ARGUMENT, LD. COUNSEL FOR THE ASSESSEE STRONGLY URGED THAT THESE PAYMENTS ARE IN THE NATUR E OF BUSINESS EXPENDITURE AND HAVE BEEN SPENT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HE SUBMITTED THAT THESE EXPENDITURE ARE ESSENTIALLY FOR THE PROMOTION AND MAINTENANCE OF BUSINESS OF THE ASSESSEE. 13.1 ON THE CONTRARY LD. DEPARTMENTAL REPRESENTATIVES O PPOSED THE SUBMISSIONS, AND SUPPORTED THE ASSESSMENT ORDER. 13.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE IDENTICAL ISSUES IN RESPECT OF ALLOWAB ILITY OF THE PAYMENT MADE TO NANDI FOUNDATION WAS UNDER APPEAL IN ITA NO. 638/JP/2008 . WE HAVE ALLOWED THE GROUND OF THE REVENUE BY OBSERVING AS UNDER:- 10.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIE S BELOW. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ITA NO. 235/JU/2008 PERTAINING TO THE ASSESSMENT YE AR 2004-05. THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS T HAT THIS AMOUNT IS ALLOWABLE U/S 37(1) IF THE ACT, AS THE SAME HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE AMOUNT WAS SPENT UNDER THE MID-DAY-M EAL SCHEME OF THE RAJASTHAN IN THE ADJACENT AREA OF THE ASSESSEES MI NE. LD. CIT(A) ALLOWED THE 48 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. SAME. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION T O THE RIVAL CONTENTIONS OF THE PARTIES. WE DO NOT SEE ANY MERIT INTO THE CONTE NTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DONATION OF NANDI FOUNDATION FOR PROVIDING MID-DAY- MEAL UNDER THE GOVERNMENT OF RAJASTHAN, THE SCHEME IS ALLOWABLE AS BUSINESS EXPENDITURE. SECTION 37(1) OPERATES IN A DIFFERENT FIELD. IN OUR VIEW THERE HAS TO BE DIRECT NEXUS BETWEEN THE AMOUNTS SP ENT AND THE BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE, THERE IS NO EVI DENCE SUGGESTING THAT THE EXPENDITURE IS LAID OUT OR EXPENDED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THEREFORE, THIS GROUND O F THE REVENUES APPEAL IS ALLOWED. THE FINDING OF THE LD. CIT(A) ON THIS ISSU E IS SET ASIDE AND THAT THE ASSESSING OFFICER IS RESTORED. THUS, GROUND NO. 9 OF THE REVENUES APPEAL IS ALLOWED. 13.3 FOR THE SAME REASONING, WE DO NOT FIND ANY MERIT I NTO THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE, THAT THESE PAYMENTS A RE ALLOWABLE AS A BUSINESS EXPENDITURE, AS THE LEGISLATION AS PROVIDED SEPARAT E PROVISIONS FOR DEDUCTION OF SUCH PAYMENTS. MOREOVER THE PROVISIONS UNDER SECTION 37( 1) ARE CLEAR ONLY SUCH EXPENDITURE WHICH HAS BEEN LAID OUT OR EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE WHICH IS NECESS ARILY RELATED TO COMMERCIAL ELEMENTS BUT IN RESPECT OF THE EXPENDITURE MADE IN THE FORM OF PAYMENTS MADE TO THE CHARITABLE INSTITUTION IS ESSENTIALLY HAVING AN ELEMENT OF CHARITY BOTH HAVE DIFFERENT FIELD OF OPERATIONS AND PURPOSES. THEREF ORE, WE DISMISS THE GROUNDS RAISED BY THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS DIS MISSED. 14. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 638/JU/2008 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE ASSESSEE IN ITA NO. 606/JU/2008 IS DISMISSED. 49 ITA NO. 638 & 606/JU/2008 HINDUSTAN ZINC LTD., UDAIPUR. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY, THE 24TH DAY OF APRIL 2017. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 24 /04/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT-. - THE ASSTT. COMMISSIONER OF I NCOME-TAX, CIRCLE-2, UDAIPUR 2. THE RESPONDENT- . M/S HINDUSTAN ZINC LTD. YASAD BHAWAN, UDAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 638/JU/2008 & 606/JU/2008) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR