TARAK CHEMICALS P. LTD, MUMBAI V. ACIT RG 2(3), MUMBAI

ITA 6537/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56328 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 19-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D S SUNDER SINGH
• Keywords: Business income; Depreciation; Opportunity of being heard; Additional evidence; Assessment record; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

1 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M. ITA NO. 4131/MUM/2008 (ASST YEAR 2004-05) ACIT 2(3), ROOM NO. 555, AAYAKAR BHAVAN, MUMBAI. VS M/S TARAK CHEMICALS PVT. LTD., 313/315, GROUND FLOOR, KHAJURWALA CHAMBERS, NARSHI NATHA STREET, MASJID BUNDER, MUMBAI 400 009. (APPELLANT) (RESPONDENT) PAN NO. AAACT 2022L ITA NO. 760/MUM/2010 (ASST YEAR 2006-07) ACIT 2(3), ROOM NO. 555, AAYAKAR BHAVAN, MUMBAI. VS M/S TARAK CHEMICALS PVT. LTD., 313/315, GROUND FLOOR, KHAJURWALA CHAMBERS, NARSHI NATHA STREET, MASJID BUNDER, MUMBAI 400 009. (APPELLANT) (RESPONDENT) PAN NO. AAACT 2022L ITA NO. 6537/MUM/2009 (ASST YEAR 2006-07) M/S TARAK CHEMICALS PVT. LTD., 313/315, GROUND FLOOR, KHAJURWALA CHAMBERS, NARSHI NATHA STREET, MASJID BUNDER, MUMBAI 400 009. VS ACIT 2(3), ROOM NO. 555, AAYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) PAN NO. AAACT 2022L 2 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. APPELLANT BY S HRI D.S. SUNDER SINGH RESPONDENT BY SHRI VIPUL JOSHI DATE OF HEARING 19.12.2011 DATE OF PRONOUNCEMENT 30.12.2011 ORDER PER R.K. PANDA, A.M. ITA NO. 4131/MUM/2008 FILED BY THE REVENUE IS DIREC TED AGAINST THE ORDER DATED 30.3.2008 OF THE COMMISSIONER OF INCOME TAX (A)- XXX, MUMBAI RELATING TO ASSESSMENT YEAR 2004-05. ITA NO. 760/MUM/2010 FILED BY THE REVENUE AND ITA NO. 6537/MUM/2009 FILED BY T HE ASSESSEE ARE CROSS APPEALS AND ARE DIRECTED AGAINST THE ORDER DA TED 12.11.2009 OF THE COMMISSIONER OF INCOME TAX (A)-6, MUMBAI RELATING T O ASSESSMENT YEAR 2006-07. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 4131/MUM/2008 (BY THE REVENUE FOR A.Y. 2004 -05) 2. THE REVENUE IN ITS ONLY EFFECTIVE GROUND HAS CHA LLENGED THE ORDER OF CIT(A) IN TREATING THE NON-COMPETE FEES OF RS. 1,75 ,00,000/- AS CAPITAL GAINS AS AGAINST BUSINESS INCOME TREATED BY THE A.O. 3. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE P REVIOUS YEAR RELEVANT TO A.Y. 2004-05 THE ASSESSEE COMPANY HAS SOLD ITS ENTI RE SOFOIN-DS BUSINESS TO TRANSPEK SILOX INDUSTRY LTD. (TSIL) VIDE AGREEME NT ENTERED INTO BY THE ASSESSEE COMPANY AND ISIL FOR A TOTAL CONSIDERATION OF RS. 19.50 MILLION TO BE PAYABLE BY TSIL TO THE ASSESSEE COMPANY IN THE F OLLOWING MANNER:- TRADE MARKS 1,00,000 NON-COMPETE CLAUSE 175,00,000 SCIENTIFIC AND TECHNOLOGY KNOW-HOW TRANSFER 14,00,000 PLANT AND MACHINERY 5,00,000 1,95,00,000 3 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. THE SUM OF RS. 1,75,00,000/- RECEIVED BY THE ASSESS EE FROM TSIL AS NON- COMPETE FEE WAS OFFERED TO TAX UNDER THE HEAD CAPI TAL GAIN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. ASKED TH E ASSESSEE TO FURNISH THE JUSTIFICATION FOR TAXABILITY OF NON-COMPETE FEES UNDER THE HEAD CAPITAL GAIN. IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS TRANSFERRED THE RIGHT TO CARRY ON THE BUSINESS OF THE SPECIFIED CHEMICALS AN D ANY ALTERNATES THEREON (INCLUDING THE RIGHT TO USE OF ALLOW ITS NAME TO BE USED IN CONNECTION WITH ANY SUCH BUSINESS) TO TSIL. THE PROVISIONS OF SECT ION 28(VA) OF THE ACT WAS BROUGHT TO THE NOTICE OF THE A.O. WHICH CATEGORICAL LY PROVIDES THAT IN CASE WHERE ANY AMOUNT IS RECEIVED ON ACCOUNT OF TRANSFER OF RIGHT TO MANUFACTURE AND PRODUCE OR PROCESS ANY ARTICLE AND THING OR RIG HT TO CARRY ANY BUSINESS, THE SAME WOULD BE CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN. IT WAS ACCORDINGLY CONTENDED THAT THE CONSIDERATION OF RS. 1.75 CRORES RECEIVED BY THE ASSESSEE COMPANY FOR THE TRANSFER OF RIGHT TO C ARRY ON THE BUSINESS OF SPECIFIED CHEMICALS HAS BEEN CORRECTLY COMPUTED BY IT AND OFFERED TO TAX UNDER THE HEAD CAPITAL GAIN. 3.1 HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM AS PER PARA 2 OF TH E AGREEMENT THE ASSESSEE HAS NOT JUST TRANSFERRED THE RIGHT TO MANUFACTURE O R PRODUCE OR PROCESS SOFOLIN-DS BUT ALSO ITS ENTIRE BUSINESS TO TSIL. A S PER CLAUSE 6 OF THE AGREEMENT, THE ASSESSEE COMPANY ALONG WITH ITS PROM OTERS, DIRECTORS, SUBSIDIARIES AND AFFILIATES HAVE AGREED NOT TO CARR Y ON ANY BUSINESS IN ANY CAPACITY IN INDIA WHICH COMPETES WITH THE BUSINESS OF SAFOLIN-DS. THE A.O. REFERRED TO PROVISIONS OF SECTION 28(VA) AND CAME T O THE CONCLUSION THAT IN VIEW OF CLAUSE 6 OF THE AGREEMENT THE NON-COMPETE F EE RECEIVED BY THE ASSESSEE FROM TSIL SQUARELY FALLS WITHIN THE GAMUT OF SECTION 28(VA)(A). HE FURTHER NOTED FROM PARA 3 OF THE DIRECTORS REPORTS ON OPERATIONS ACCORDING TO WHICH THE COMPANY HAS CLOSED SAFOLIN-DS BUSINESS . HE, THEREFORE, CAME TO THE CONCLUSION THAT THE COMMON AGREEMENT ENTERED INTO BY THE ASSESSEE WITH TSIL IS FOR THE SALE OF THE BUSINESS AND THE I MPUGNED NON-COMPETE FEES AMOUNT SO RECEIVED IS FOR NOT CARRYING ON THE SAID BUSINESS. THEREFORE WHAT 4 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. IS RECEIVED IN THE GARB OF NON-COMPETE FEES IS THE SUM/CONSIDERATION FOR NOT CARRYING OUT ANY ACTIVITY IN RELATION TO THE AFORES AID BUSINESS FOR THE PURPOSES OF WHICH THE ASSESSEE HAS ALSO RECEIVED TE CHNICAL KNOW-HOW FEES, TRADE MARK FEES & SALE CONSIDERATION ON SALE OF PLA NT AND MACHINERY OF THE SAME DIVISION. HE, THEREFORE, TREATED THE NON-COMP ETE FEES OF RS. 1,75,00,000/- AS BUSINESS INCOME. 3.2 THE ASSESSEE MADE DETAILED SUBMISSION BEFORE TH E LD. CIT(A) BASED ON WHICH THE LD. CIT(A) DIRECTED THE A.O. TO TREAT THE RECEIPT ON ACCOUNT OF NON- COMPETE CLAUSE AS CAPITAL GAINS AND NOT AS INCOME U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. WHILE DOING SO HE NOTED THAT ANY CONSIDERATION RECEIVED OR RECEIVABLE IN ANY KIND UN DER AN AGREEMENT FOR NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINE SS IS CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS O R PROFESSION. BUT THE SUB CLAUSE (A) IS RESTRICTED IN ITS OPERATIONS BY THE P ROVISO THAT IF ANY SUM RECEIVED OR RECEIVABLE IS ON ACCOUNT OF TRANSFER OF RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS, WHICH IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS WOULD NOT BE TAXABLE AS PROFITS AND GAINS OF BUSINESS OR PROFES SION. ACCORDING TO HIM THIS PROVISO HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER WHILE ATTRACTING THE PROVISIONS OF SECTION 28(VA)(A ) ALTHOUGH ADMITTEDLY HE HAS RECORDED THAT THE ASSESSEE HAS NOT JUST TRANSFE RRED THE RIGHT TO MANUFACTURE OR PRODUCE OR PROCESS SAFFOLIN DS BUT ALSO ITS ENTIRE BUSINESS TO TRANSPEK SILOX INDUSTRY LIMITED (TSIL) AND THE S ALE OF BUSINESS AS SUCH IS NOT DISPUTED. ACCORDING TO HIM THE APPLICATION OF T HE PROVISIONS OF SECTION 28(VA) ARE ALSO CLARIFIED BY THE CBDT VIDE CIRCULAR NO. 8 OF 2002. ACCORDING TO HIM SINCE THE ASSESSEE HAS TRANSFERRED THE ENTIR E BUSINESS AND HAS THEREBY TRANSFERRED ITS RIGHT TO MANUFACTURE OR PRO DUCE OR PROCESS THE PRODUCT NAMELY SAFFOLIN-DS, THEREFORE, THE CONSIDER ATION SO RECEIVED IS TAXABLE UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE THE ASS ESSING OFFICER IS NOT 5 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. JUSTIFIED IN TREATING THE AMOUNT RECEIVED ON ACCOUN T OF NON-COMPETE CLAUSE AGAINST THE TRANSFER OF ASSESEES RIGHT TO MANUFACT URE OR PRODUCE OR PROCESS THE PRODUCT SAFFOLIN-DS AS INCOME FROM BUSINESS OR PROFESSION. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS I N APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE A .O. AT PAGE 2 OF THE ASSESSMENT ORDER WHILE REJECTING THE SUBMISSION OF THE ASSESEE HAS MENTIONED AS UNDER:- THE SUBMISSION MADE BY THE ASSESSEE COMPANY WAS CAR EFULLY CONSIDERED AND IS FOUND UNACCEPTABLE. AS PER PARA 2 OF THE AGREEMENT, THE ASSESSE HAS NOT JUST TRANSFERRED THE RIGHT TO MANUFACTURE OR PRODUCE OR PROCESS SAFOLIN-DS BUT AL SO ITS ENTIRE BUSINESS TO TRANSPEK SILOX INDUSTRY LTD. AND CONSID ERATION OF WHICH IS TO BE SETTLED AS STATED ABOVE. AS PER CLA USE 6 OF THE AGREEMENT, ASSESSEE COMPANY ALONG WITH ITS PROMOTER S, DIRECTORS, SUBSIDIARIES AND AFFILIATES HAVE AGREED NOT TO CARR Y ON ANY BUSINESS IN ANY CAPACITY IN INDIA WHICH COMPETES WI TH THE BUSINESS OF SAFOLIN-DS. BY AGREEING TO DO SO, THE ASSESSEE COMPANY HAS RECEIVED A SUM OF RS. 1,75,00,000/-. 4.1 FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE H AS NOT ONLY TRANSFERRED ITS ENTIRE BUSINESS TO TSIL BUT ALSO AGREED NOT TO CARRY ON ANY BUSINESS IN ANY CAPACITY IN INDIA WHICH COMPETES WITH THE BUSIN ESS OF SAFFOLIN-DS. 4.2 WE FIND THE PROVISIONS OF SECTION 28(VA) READS AS UNDER:- SEC. 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON (VA) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CA SH OR KIND, UNDER AN AGREEMENT FOR (A) NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BU SINESS; OR (B) NOT SHARING ANY KNOW-HOW, PATENT, COPYRIGHT, TRADE- MARK, LINCENCE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE OR INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISION FOR SERVICES; PROVIDED THAT SUB-CLAUSE (A) SHALL NOT APPLY TO (I) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CASH OR KIND, ON ACCOUNT OF TRANSFER OF THE RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY O N ANY BUSINESS; WHICH IS CHARGEABLE UNDER THE HEAD CAPIT AL GAINS; 6 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. IN VIEW OF THE CLEAR-CUT PROVISIONS OF PROVISO TO S ECTION 28(VA)(A) AND THE CLAUSES OF THE AGREEMENT, WE CONCUR WITH THE FINDIN GS OF THE LD. CIT(A) THAT THE A.O. HAS NOT CORRECTLY APPRECIATED THE FACTS AN D THE PROVISIONS OF LAW BEFORE DISALLOWING THE CLAIM OF THE ASSESSEE. WHEN THE ASSESSEE HAS TRANSFERRED THE ENTIRE BUSINESS AND HAS THEREBY TRA NSFERRED ITS RIGHT TO MANUFACTURE OR PRODUCE OR PROCESS THE PRODUCT NAMEL Y SAFFOLIN DS, THE CONSIDERATION SO RECEIVED HAS TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS O R PROFESSION. THE LD. D.R. ALSO COULD NOT CONTROVERT THE FINDINGS GIVEN B Y THE LD. CIT(A). UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE TREATING THE NON-COMPETE FEES AS CAPITAL GAIN. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. ITA 760/MUM/2010 (BY THE REVENUE FOR A.Y. 2006-07) 5. THE REVENUE IN ITS ONLY EFFECTIVE GROUND OF APPE AL HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 21,20,381/- MADE BY THE A.O. AS REVENUE RECEIPT. 5.1 FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTED FROM ANNEXURE -5 OF AUDI TORS REPORT WHERE THE AUDITORS HAVE MENTIONED AS UNDER:- THE COMPANY IS ELIGIBLE TO RECEIVE COMPENSATION FRO M MULTILATERAL FUND UNDER THE MONTREAL PROTOCOL FOR PHASING OUT TH E PRODUCTION OF CHLORINATED RUBBER AND SUPPLY OF CARBON TETRA CHLOR IDE TO NON FEED STOCK SECTOR. THE AFORESAID COMPENSATION IS A CCOUNTED ONLY AFTER COMPLYING WITH SUCH CONDITIONS AND ENSURING T HAT THERE IS NOT UNCERTAINTY IN THIS REGARD. FOLLOWING THIS PRACTIC E COMPENSATION DURING THE YEAR ALONE HAS BEEN ACCOUNT, THE SAME IS CONSIDERED AS CAPITAL RECEIPT, AND AMOUNT OF RS. 21,20,381/- HAS BEEN CREDITED TO CAPITAL RESERVE. IN ABSENCE OF FULL DETAILS FILED BY THE ASSESSEE, T HE A.O. CONSIDERED THE RECEIPT AS REVENUE RECEIPT AND ADDED THE SAME TO TH E TOTAL INCOME OF THE ASSESSEE. 7 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. 5.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE MAIN BUSINESS OF THE ASSESSEE WAS TO MANUFACTURE CHLORINATED RUBBER (CR ) FOR WHICH THE RAW MATERIAL WAS CARBON TETRA CHLORIDE. THE GOVT. OF IN DIA ISSUED A MEMORANDUM TO ALL COMPANIES WHICH WERE PRODUCING OR CONSUMING 85% OF CARBON TETRA CHLORIDE, REQUESTING THEM TO PHASE OUT THE CONSUMPTION OF CARBON TETRA CHLORIDE (CTC). THE SAID PHASING OUT W AS DONE BY THE ASSESEE IN ACCORDANCE WITH THE CONTROL MEASURES LAID DOWN U NDER THE MONTREAL PROTOCOL. IN ACCORDANCE WITH THE AGREEMENT, THE ASS ESSEE WAS REQUIRED TO STOP PURCHASE OF CTC AFTER 01.01.2005. A COPY OF TH E AFFIDAVIT EXECUTED BY THE ASSESSEE FOR NOT PURCHASING CTC FROM THE EFFECT IVE DATE WAS ALSO FILED DURING APPELLATE PROCEEDINGS. IT WAS SUBMITTED THAT THE PHASE OUT PLAN WAS ROLLED OUT UNDER THE WORLD BANKS CTC SECTOR PLAN I MPLEMENTATION PROJECT AND IN ORDER TO IMPLEMENT THAT, THE G01 NOMINATED I DBI BANK FOR MONITORING THE COMPLIANCE OF THE TERMS AND CONDITIO NS OF THE GRANT BY ALL COMPANIES. THE GRANTS WERE CLAIMED TO BE RELEASED B Y THE IDBI ONLY AFTER IT WAS SATISFIED THAT THE COMPANIES HAD FULFILLED THEI R OBLIGATIONS OF PHASING OUT THE USE OF CTC. IT WAS ARGUED THAT THE NECESSAR Y FUNDS HAD BEEN RELEASED BY THE IDBI ONLY IN ITS CAPACITY AS REPRES ENTATIVE OF G01 IN THE MATTER. A COPY OF THE COMMUNICATION SANCTIONING THE RELEASE OF FUNDS TO THE ASSESSEE WAS ALSO FILED IN THE PAPER BOOK. ACCORDI NGLY IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAD ENTERED INTO THE AGREEMENT WITH IDBI (DULY AUTHORIZED AGENT OF GOL) AND RECEIVED THE COMPENSAT ION FOR PHASING OUT THE USE OF CTC, AS REQUIRED UNDER THE MULTILATERAL FUND OF THE MONTREAL PROTOCOL. IN VIEW OF THE SAME IT WAS STATED THAT THE PROVISIO NS OF THE SECOND PROVISO TO SEC. 28(VA) HAD BEEN DULY FULFILLED AND ACCORDINGLY IT- WAS STATED THAT THE SAID COMPENSATION WAS NOT LIABLE TO BE TAXED AS INC OME. 5.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. WHILE DOING SO HE NOTED THAT SECOND PROVISO TO SECTION 28(VA) WOULD SQUARELY COVER THE IMPUGNED COMPENSATION RECEIVED BY THE ASSESSEE COMPANY FROM THE MULTILATE RAL FUND OF THE MONTREAL PROTOCOL UNDER UNITED NATIONS ENVIRONMENT PROGRAMME . AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APP EAL BEFORE US. 6. AFTER HEARING BOTH THE SIDES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). THE SECOND PROVISO TO SECTION 2 8(VA) READS AS UNDER:- SEC. 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION 8 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. (VA) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CA SH OR KIND, UNDER AN AGREEMENT FOR PROVIDED THAT SUB-CLAUSE (A) SHALL NOT APPLY TO (I) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CA SH OR KIND, ON ACCOUNT OF TRANSFER OF THE RIGHT TO MANUFACTURE, PR ODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS; WHICH IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS. (II) ANY SUM RECEIVED AS COMPENSATION, FROM THE MULTILA TERAL FUND OF THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER UNDER THE UNITED NATIONS ENVIRONMENT PROGRAMME, IN ACCORDANCE WITH THE TERMS OF AGREEMENT ENTERED INTO WITH THE GOVERN MENT OF INDIA. WE FIND ALTHOUGH THE ASSESSEE HAS NOT FILED FULL DE TAILS AS ALLEGED BY THE A.O. IN THE BODY OF THE ASSESSMENT ORDER, WE FIND THE AS SESSEE FILED FULL DETAILS BEFORE THE LD. CIT(A). IT IS NOT THE CASE OF THE R EVENUE THAT THE LD. CIT(A) ADMITTED THE ADDITIONAL EVIDENCE WITHOUT AFFORDING ANY OPPORTUNITY TO THE A.O. SINCE NO SUCH GROUND HAS ALSO BEEN RAISED BY T HE REVENUE. IT IS THE SETTLED PROPOSITION OF LAW THAT THE POWERS OF THE C IT(A) ARE CO-TERMINUS WITH THAT OF THE POWERS OF THE A.O. SINCE THE LD. CIT(A ) HAS CONSIDERED THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE BEFORE HI M AND SATISFIED HIMSELF THAT THE COMPENSATION RECEIVED BY THE ASSESSEE WAS FOR PHASING OUT THE USE OF CTC AS REQUIRED UNDER THE MULTILATERAL FUND OF T HE MONTREAL PROTOCOL, THEREFORE, THE PROVISIONS OF THE SECOND PROVISO TO SECTION 28(VA) HAVE BEEN FULFILLED AND THEREFORE THE ASSESSEE IS ENTITLED TO THE BENEFIT. THE LD. D.R. COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT(A) . WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND AC CORDINGLY THE ORDER OF THE LD. CIT(A) IS UPHELD. THE GROUND RAISED BY THE REV ENUE IS ACCORDINGLY DISMISSED. ITA 6537/MUM/2009 (BY THE ASSESSEE FOR A.Y. 2006-07 ) 7. GROUND OF APPEAL NO. 1 BY THE ASSESSEE READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN CO NFIRMING THE DISALLOWANCE OF RS. 71,214 MADE BY THE ASSESSING OF FICER TOWARDS EXPENSES ATTRIBUTABLE TO THE EARNING OF DIVIDEND IN COME UNDER THE 9 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. PROVISIONS OF SECTION 14A AGAINST THE DIVIDEND INCO ME OF ONLY RS. 11,210 EARNED BY THE APPELLANT. 7.1 AFTER HEARING BOTH THE SIDES WE FIND THE A.O. M ADE DISALLOWANCE OF RS. 71,214/- U/S 14A READ WITH RULE 8D BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL M ANAGEMENT PVT. LTD. IN THIS CASE THE ASSESSMENT YEAR INVOLVED IS 2006-07. THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE IS ONLY RS. 11,210/-. BOT H THE PARTIES FAIRLY AGREED THAT THE MATTER NEEDS FRESH ADJUDICATION AT THE LEV EL OF A.O. IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT REPORTED IN 328 ITR 81. IN V IEW OF THE ABOVE SUBMISSIONS MADE BY BOTH SIDES, WE DEEM IT PROPER T O RESTORE THE ISSUE TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F GODREJ BOYCE MFG. CO. LTD. (SUPRA) AND IN ACCORDANCE WITH LAW. NEEDLES TO SAY THE A.O. SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND OF APPEAL NO. 2 BY THE ASSESSEE READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN UP HOLDING THE ASSESSING OFFICERS ACTION IN TREATING THE REPAIRS AND MAINTENANCE EXPENDITURE OF RS. 205,110 ON ROADS INCURRED BY THE APPELLANT AS CAPITAL EXPENDITURE VIS-A-VIS THE APPELLANTS CLAIM OF TREATING THE SAME AS REVENUE EXPENDITURE. 8.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS EE INCURRED EXPENDITURE OF RS. 1,75,000/- TOWARDS ROAD CONSTRUCTION AND MAI NTENANCE. THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY SUCH EXPENS ES SHOULD NOT BE CAPITALISED AS THE BENEFITS OUT OF SUCH EXPENSES SH ALL BE OF ENDURING NATURE. IN ABSENCE OF ANY SATISFACTORY REPLY, THE A.O. TREA TED THE AMOUNT OF RS. 1,75,000/- AS CAPITAL IN NATURE. 10 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. 8.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 2,05,110/- FOR THE REPAIR AND MAINTENANCE OF ROADS AT KHARKHADI PLANT AND HAD PAID AN ADVANCE OF RS. 1,75 ,000/- TO THE CONTRACTOR M/S J.T. SHETH. RELYING ON A COUPLE OF DECISIONS, IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED ON REPAIRS AND MAINTENANCE OF ROADS WAS REVENUE IN NATURE AND SHOULD BE ALLOWED. 8.3 HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE FINAL BILL DTD. 30 .3.2006 RAISED BY M/S J.T. SHETH INDICATES THAT THE FINAL BILL WAS RAISED FOR CONSTRUCTION OF APPROACH ROAD. THE DETAILS GIVEN IN THE BILL ALSO MENTION PROVIDING AND LAYING 150 MM THICK METALLING... REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE, THE LD. CIT(A) DIRECTED THE A.O. TO ENHANCE THE AMO UNT FROM RS. 1,75,000/- TO RS. 2,05,110/-. HE, HOWEVER, DIRECTED THE A.O. TO ALLOW DEPRECIATION AS PERMISSIBLE IN RESPECT OF BUILDINGS. AGGRIEVED WIT H SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 8.4 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ASSESSEE CLAIMED THE EXPENDITURE FOR REPAIRS AND MAINTENANCE OF THE EXISTING ROADS AND NOT FOR NEW ROADS MADE. HE, HOWEVER, WAS UNABLE TO FUR NISH THE DETAILS OF ANY SUCH OLD ROAD ON THE GROUND THAT THE SAME IS NOT RE ADILY AVAILABLE AND SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FI LE OF THE A.O. WITH A DIRECTION TO VERIFY WHETHER THE EARLIER ROAD WAS TH ERE AND WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE WAS FOR REPAIR S OF OLD ROADS OR CONSTRUCTION OF NEW ROADS. 8.5 THE LD. D.R., ON THE OTHER HAND, WHILE SUPPORTI NG THE ORDER OF THE LD. CIT(A) SUBMITTED THAT HE HAS NO OBJECTION IF THE MA TER IS RESTORED TO THE FILE OF THE A.O. FOR VERIFICATION. 11 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. 8.6 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. SINCE THE DISPUTE IN THE IMPUGNED GROUND IS REGARDING WHE THER THE EXPENDITURE INCURRED IS FOR REPAIRS OF EXISTING ROAD OR CONSTRU CTION OF NEW ROADS AND SINCE THE FULL FACTS ARE NOT COMING OUT OF THE RECO RDS, THEREFORE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY AS TO WHETHER THERE WAS EXISTENCE OF ROAD IN THE PAST. IF THERE WAS ROAD EARLIER AND IF THE EXPENDITURE IS INCURRED FOR REPAIR OF TH E EXISTING ROAD THEN OF COURSE THE ASSESSEE IS ENTITLED TO CLAIM THE SAME A S REVENUE EXPENDITURE. HOWEVER, IF THE EXPENDITURE INCURRED IS FOR CONSTRU CTION OF NEW ROAD THEN THE EXPENDITURE HAS TO BE CAPITALISED AND THE ASSES SEE IS ENTITLED TO DEPRECIATION AS DIRECTED BY THE LD. CIT(A). WITH TH ESE OBSERVATIONS, WE RESTORE THE ISSUE TO THE FILE OF THE A.O. FOR DECID ING THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROU ND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSES. 9. GROUND OF APPEAL NO. 3 BY THE ASSESSEE READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN UP HOLDING THE ASSESSING OFFICERS ACTION IN TREATING THE PRODUCT DEVELOPMENT EXPENDITURE OF RS. 165,000 INCURRED BY THE APPELLAN T AS CAPITAL EXPENDITURE VIS-A-VIS THE APPELLANTS CLAIM OF TREA TING THE SAME AS REVENUE EXPENDITURE. 9.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. DI SALLOWED AN AMOUNT OF RS. 2,50,000/- CLAIMED BY THE ASSESSEE UNDER THE HE AD LEGAL AND PROFESSIONAL EXPENSES HOLDING SUCH EXPENSES TO BE C APITAL IN NATURE. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE EXPENDITUR E HAD BEEN INCURRED FOR DEVELOPMENT OF NEW PRODUCTS IN THE EXISTING BUSINES S OF MANUFACTURING CHEMICALS AND HENCE THE SAME COULD NOT BE SAID TO B E CAPITAL EXPENDITURE. SAMPLE BILLS RAISED BY THE CONSULTANT WERE FILED BE FORE THE LD. CIT(A). RELYING ON A COUPLE OF DECISIONS, IT WAS SUBMITTED THAT THE EXPENDITURE SHOULD BE ALLOWED AS REVENUE IN NATURE. THE ASSESSEE ALSO AR GUED THAT THE CONSULTING 12 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. CHARGES TOWARDS NEW PRODUCT DEVELOPMENT WAS ONLY RS . 1,65,000/- AND NOT RS. 2,50,000/- AS MENTIONED BY THE A.O. 9.2 HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE HELD THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT THE SO-CALLED NEW PRODUCTS IN RESPECT OF THE DEVE LOPMENT OF WHICH THE IMPUGNED CONSULTANCY CHARGES HAS BEEN PAID RELATED TO THE EXISTING BUSINESS OF THE ASSESSEE. ACCORDING TO HIM ANY EXP ENDITURE INCURRED ON THE DEVELOPMENT OF THE NEW PRODUCTS HAS TO BE TREATED A S CAPITAL EXPENDITURE. HE THEREFORE CONFIRMED THE ORDER OF THE A.O. HOWEV ER, HE DIRECTED THE A.O. TO VERIFY THE CONTENTION OF THE ASSESSEE REGARDING THE CORRECT AMOUNT CHARGED TO THE P&L ACCOUNT AND MAKE THE DISALLOWANC E ACCORDINGLY. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. 9.2 AFTER CONSIDERING THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND ON PERUSAL OF THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE HAS MADE ONLY LEGAL ARGUMENTS WITHOUT GIVING ANY FA CTUAL DATA. NOTHING WAS BROUGHT TO OUR NOTICE TO ESTABLISH THAT THE CON SULTANCY CHARGES HAVE BEEN PAID FOR NEW PRODUCTS FOR EXISTING BUSINESS OF THE ASSESSEE. THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSE THAT TH E CONSULTANCY CHARGES HAVE BEEN PAID TO FIND OUT SOME NEW AREA FOR EXISTI NG BUSINESS IS ALSO A MERE SUBMISSION WITHOUT ANY DOCUMENTARY EVIDENCE. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE LD. CIT(A) AND ACCORDINGLY UPHOLD THE SAME. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 10. GROUND OF APPEAL NO. 4 BY THE ASSESSEE READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN NO T DELETING THE ENTIRE AD-HOC DISALLOWANCE OF RS. 228,639 IN RESPEC T OF FOREIGN 13 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. TRAVEL EXPENSES AND IN ONLY GRANTING PARTIAL RELIEF BY RESTRICTING THE SAID DISALLOWANCE TO 10% OF THE FOREIGN TRAVEL EXPENSES INCURRED BY THE APPELLANT. 10.1 FACTS OF THE CASE IN BRIEF ARE THAT AN AMOUNT OF RS. 22,86,393/- WAS DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT TOWARDS TRAVELLING AND CONVEYANCE EXPENSES. SINCE THE ASSESSEE COULD NOT FILE DETAILS ABOUT THE FOREIGN TRAVELLING BY THE DIRECTORS ETC. WITH SUPPO RTING VOUCHERS, THE A.O. DISALLOWED 10% OF TOTAL EXPENSES IE. RS. 2,28,639/- ON ADHOC BASIS. 10.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT TH E TOTAL FOREIGN TRAVELLING EXPENSES INCURRED BY THE ASSESSEE AGGREGATES TO RS. 6,05,405/-. THE ASSESSEE FILED DETAILS OF FOREIGN TRAVEL EXPENDITUR E AND COPIES OF BILLS ETC. HOWEVER, THE LD. CIT(A) HELD THAT DESPITE SPECIFIC REQUEST MADE TO THE ASSESSEE, THE DETAILS OF THE FOREIGN TRAVEL EXPENSE S, BOARDING PASSES, COPIES OF TICKETS, HOTEL RECEIPTS AND FOOD AND BEVERAGES E XPENSES AND VOUCHERS WERE NOT FURNISHED DURING ASSESSMENT STAGE. THEREFO RE, HE REJECTED THE ADDITIONAL EVIDENCES FILED BEFORE HIM. HE, HOWEVER , DIRECTED THE A.O. TO VERIFY AND EXCLUDE THE EXPENSES INCURRED ON DOMESTI C TRAVEL INCURRED BY THE ASSESSEE FOR DISALLOWANCE OF FOREIGN TRAVEL EXPENSE S. 10.3 THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSE T, FURNISHED A COPY OF THE QUESTIONNAIRE ISSUED BY THE A.O. AND SUBMITTED THAT THE A.O. HAS NEVER CALLED FOR ANY SUCH DETAILS. THEREFORE, THE LD. CI T(A) WAS NOT JUSTIFIED IN NOT ACCEPTING THE ADDITIONAL EVIDENCE FILED BEFORE HIM. THE LD. CIT(A) HAS NOT VERIFIED THE RECORDS AND HAS MERELY RELIED ON THE A SSESSMENT ORDER. HE ACCORDINGLY SUBMITTED THAT THE MATTER MAY BE RESTOR ED TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE DETAILS AND DECIDE T HE SAME. 10.4 THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LD. CIT(A). 14 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. 10.5 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. FROM THE QUES TIONNAIRE ISSUED BY THE A.O. WE FIND THE A.O. HAS NOT CALLED FOR ANY DETAIL S UNDER THE HEAD FOREIGN TRAVEL EXPENSES. WE FURTHER FIND THE TRIBUNAL IN A SSESSEES OWN CASE FOR A.Y. 2003-04 VIDE ITA NO. 3617/MUM/2008 ORDER DTDS. 23.4 .2009 HAS RESTORED THE ISSUE OF FOREIGN TRAVEL EXPENSE TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. SINCE IN THE INSTANT CASE THE LD. CI T(A) WITHOUT GOING THROUGH THE ASSESSMENT RECORDS DID NOT ACCEPT THE ADDITIONA L EVIDENCE FILED BEFORE HIM, THEREFORE, WE, IN THE INTERESTS OF JUSTICE, DE EM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO D ECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE A.O. IS ALSO DIRECTED TO KEEP IN MIN D THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 WHILE DECID ING THE ISSUE. WE HOLD AN DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSES SEE IS ALLOWED FOR STATISTICAL PURPOSE. 11. GROUND OF APPEAL NO. 5 BY THE ASSESSEE READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN CO NFIRMING THE ENTIRE AD-HOC DISALLOWANCE OF RS. 255,425 MADE BY T HE ASSESSING OFFICER IN RESPECT OF MISCELLANEOUS EXPENSES AND IN RESPECT OF WHICH FULL DETAILS WERE SUBMITTED BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT AS WELL AS THE APPELLATE P ROCEEDINGS. 11.1 AFTER HEARING BOTH THE SIDES WE FIND THE A.O. MADE AN ADHOC DISALLOWANCE OF RS. 2,55,425/- OUT OF TOTAL CLAIM O F RS. 12,77,123/- UNDER THE HEAD MISCELLANEOUS EXPENSES. THE LD. CIT(A) DI SMISSED THIS GROUND RAISED BY THE ASSESSEE SINCE THE ASSESSEE DID NOT P RESS THIS GROUND BEFORE HIM. THE LD. COUNSEL FOR THE ASSESSEE, ON BEING PO INTED OUT THE ABOVE, CONCEDED THAT THE ASSESSEE HAS NOT PRESSED THIS GRO UND BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PR ESS THIS GROUND BEFORE 15 ITA NO.4131/MUM/2008, & 760/M/2010 & 6537/M UM/2009 TARAK C HEMICALS PVT. LTD. THE TRIBUNAL. IN VIEW OF THE ABOVE, THE GROUND RAI SED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 12. IN THE RESULT, THE REVENUES APPEAL IN ITA NO. 760/MUM/2010 AND 4131/MUM/2008 ARE DISMISSED AND ASSESSEES APPEAL I N ITA NO. 6537/MUM/2009 IS PARTLY ALLOWED FOR STATISTICAL PUR POSE. ORDER PRONOUNCED ON THIS 30.12.2011 DAY OF DECEMBER , 2011. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 30/12/2011 RK COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT, CONCERNED, MUMBAI 4 CIT(A) - CONCERNED, MUMBAI 5 DR BENCH J 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI