ADDL CIT RG 7(1), MUMBAI V. PROCTOR & GAMBLE HYGIENE & HEALTHCARE LTD, MUMBAI

ITA 6549/MUM/2010

AI Insights

The case involves a series of appeals by Procter & Gamble Hygiene & Healthcare Ltd. against the orders of the Assistant Commissioner of Income Tax and the Deputy Commissioner of Income Tax concerning the assessment years 2004-05 and 2005-06. The primary issues revolved around the classification of certain expenditures as capital or revenue, the eligibility for deductions under Section 80-IB for new manufacturing units, and the proper allocation of expenses for the purpose of calculating deductions under Section 80HHC. The Tribunal examined the arguments, relevant legal provisions, and precedents to arrive at its decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113546 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: J
• Next Hearing Date: 07-06-2023
• Assessment Year: 2004-2005
• Appeal Filed On: 05-09-2010
• Other Referred Cases: CIT vs. M/s Geoffrev Manner & Co. Ltd., CIT vs. Indo Nippon Chemicals Co. Ltd., CIT vs. Mahalaxmi Glass Works Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Question of law; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 32; 147; 148; 37; 263; 92C; 43B; 143(3); 80HHC; 80IB; 37(1); 143(1); 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "J" BENCH, MUMBAI SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 6591/MUM/2010 (Assessment Year: 2004-05) Procter & Gamble Hygiene & Healthcare Ltd., P & G Plaza Cardinal Gracias Road, Chakkala, Andheri (East), Mumbai - 400009 [PAN: AAACP6332M] Assistant Commissioner of Income Tax – Circle 7(1), Mumbai ............... Vs ................ Appellant Respondent ITA No. 6549/MUM/2010 (Assessment Year: 2004-05) Deputy Commissioner of Income Tax, Circle 8(2), Mumbai, Room No. 216-A, Aayakar Bhawan, M.K. Road, Mumbai Procter & Gamble Hygiene & Healthcare Ltd., P & G Plaza Cardinal Gracias Road, Chakkala, Andheri (East), Mumbai - 400009 [PAN: AAACP6332M] ............... Vs ................ Appellant Respondent ITA No. 2780/MUM/2011 (Assessment Year: 2005-06) Procter & Gamble Hygiene & Healthcare Ltd., P & G Plaza Cardinal Gracias Road, Chakkala, Andheri (East), Mumbai - 400009 [PAN: AAACP6332M] Additional Commissioner of Income Tax – Circle 7(1), Mumbai ............... Vs ................ Appellant Respondent ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 2 ITA No. 2849/MUM/2011 (Assessment Year: 2005-06) Deputy Commissioner of Income Tax, Circle 8(2), Mumbai, Room No. 216-A, OR 209, 2 nd Floor, Aayakar Bhawan, M.K. Road, Near Churchgate , Mumbai - 400020 Procter & Gamble Hygiene & Healthcare Ltd., P & G Plaza Cardinal Gracias Road, Chakkala, Andheri (East), Mumbai - 400009 [PAN: AAACP6332M] ............... Vs ................ Appellant Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Yogesh Thar Shri Gaurav Batham Date Conclusion of hearing Pronouncement of order : : 08.06.2023 25.08.2023 O R D E R Per Bench: 1. This is a batch of four appeals consisting of cross appeals pertaining to the Assessment Year 2004-05 and Assessment Year 2005-06. All the appeals were heard together on account of common issues and are, therefore, being disposed by way of a common order. (ASSESSMENT YEAR 2004-05) 2. We would first take up cross appeals for the Assessment Year 2004- 2005. These are cross-appeals arising from the order, dated 18/06/2010, passed by the Learned Commissioner of Income Tax (Appeals)-15, Mumbai [hereinafter referred to as ‘the CIT(A)’] where by the CIT(A) had partly allowed the appeal preferred by the ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 3 Assessee against the Assessment Order, dated 27/12/2006, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. 2.1. Brief facts of the case are that the Assessee is a company engaged in the business of manufacturing and sale of medicines and personal/ healthcare products, inter alia, under the brand name Vicks, Whisper and Aerial. 2.2. The Assessee has filed its return of income for the Assessment Year 2004-05 on 30/10/2004 declaring total income of INR 85,98,74,210/-. The return was processed under Section 143(1) of the Act. Subsequently, the case of the Assessee was selected for scrutiny and statutory notices were issued. In response thereto, the Assessee filed details, documents and submissions. The Assessing Officer completed the assessment under Section 143(3) of the Act vide Assessment Order, dated 27/12/2006 at assessed income of INR 1,26,00,14,174/- after making certain additions/disallowance. 2.3. Being aggrieved, the Assessee preferred appeal before CIT(A) against the Assessment Order which was partly allowed, vide order dated 18/06/2010. 2.4. Since, both, the Assessee as well as the Revenue were aggrieved by the order dated 18/06/2010, passed by the CIT(A), the present cross-appeals were filed before the Tribunal. APPEAL BY ASSESSEE: ITA No. 6591/MUM/2010 3. We would first take up appeal preferred by the Assessee for the Assessment Year 2004-05. The grounds raised by the Assessee in appeal are taken-up hereinafter in seriatim. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 4 4. Ground No. I I.1 The Learned Commissioner of Income Tax (Appeals) - 15, Mumbai ["CIT (A)"] erred in confirming the action of the Additional Commissioner of Income Tax, Range-7 (1), Mumbai ["A.O."] disallowing a sum of Rs. 25,47,53,254/- incurred as telecasting charges and cost of producing of Television films and commercials for the purpose of advertisement of the Company's product on the alleged ground that the same were capital expenditure. I.2 The Appellant therefore prays that the said disallowance of Rs. 25,47,53,254/- be deleted. 4.1. During the assessment proceedings, on perusal of Schedule 16 to Profit & Loss Account for the relevant previous year, the Assessing Officer noted that the Assessee has incurred expenditure of INR 47,81,50,373/- on advertisement which includes expenses of INR 25,47,53,254/- on cost of production of television films for advertisement consisting of the following: Particular of Expenditure Amount (INR) 1. Advts. TV-Madison (DMB) 23,05,84,975/- 2. Advtg. TV-Others (-) 18,407/- 3. IBS TV Prodn.-Madison 1,22,48,800/- 4. IBS TV Prodn.-Others 1,19,37,886/- 4.2. The Assessee was asked to show cause why the above expenditure of INR 25,47,53,254/- on production of television films should not be disallowed as being capital in nature. In response, the Assessee filed reply letter, dated 08/12/2006, contending, inter alia, that the aforesaid expenditure was incurred for making the films which were advertised through media to educate the customers about the features of the products; the intention of incurring the aforesaid expenditure was to increase the sale of products and not to built the brand image; and the maximum time that an advertisement film could be aired was not more than 1 year to 1.5 years. However, the Assessing Officer drew a comparison between the expenditure on ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 5 production of a film was not same as expenditure on exhibiting the film and concluded that the expenditure on production of film resulted in benefit of enduring nature to the Assessee; and the television film produced was a capital asset which could be exploited by the Assessee for the purpose of advertisement over a period of several years. Since, the television films created brand awareness and had commercial life of spanning over many years as such films could be aired over channels for many years. Thus, the Assessing Officer made a disallowance of cost of film production of INR 25,47,53,254/- holding the same to be capital expenditure eligible for depreciation at the rate of 25%. However, the Assessing Officer allowed depreciation in respect of the same at the rate of 12.5% (i.e. half of 25%) since the period of used was not specified by the Assessee. 4.3. The CIT(A) confirmed the disallowance by placing reliance upon the decision of his predecessor in appeal preferred by the Assessee for the Assessment Years 2002-03 and 2003-04. 4.4. Being aggrieved, the Assessee is now in appeal before us on this issue. 4.5. We have heard the rival contentions and perused the material on record. We note that identical issue stands decided in the favour of the Assessee in the case of the Assessee in ITA No. 3076, 5423, 5424, 4541, & 5009/Mum/2004 pertaining to Assessment Year 1996- 97 to 1998-99, ITA No. 6795, 8999, 6486, & 6796/Mum/2004 pertaining to Assessment Year 1999-2000 to 2000-01, and ITA No. 1499, 1500, 1241/Mum/2005 & 119/Mum/2009 pertaining to Assessment Year 2001-2002, all placed before us as part of the paper-book. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 6 4.6. The relevant extract of the common order, dated 18/06/2010, whereby the Tribunal had decided this issue in ITA No. 3076/Mum/2004 pertaining to Assessment Year 1996-97, reads as under: ―10. Ground No. 4 pertains to addition of Rs. 61,45,000/- in respect of expenditure incurred on production of films for advertising the products of the assessee. 11. It was the assessee contention that the expenditure was incurred for advertisement of products being manufactured/marketed by it in the ongoing business and no there is enduring benefit. The AO relied on the decision of CIT vs. Patel International Film Ltd 102 ITR 219 which was confirmed by the CIT(A). This issue is covered in favour of the assessed by the decision of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Geoffrey Manner & Co. Ltd. 180 Taxman 87 where in the above decision was distinguished and held that expenditure was revenue in nature if the same was incurred in the ongoing business. Respectfully following the said decision, the ground raised by the assessee is allowed.‖ (Emphasis Supplied) 4.7. On perusal of above, it can be seen that while allowing the appeal of the Assessee, the Tribunal has placed reliance on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. M/s Geoffrev Manner & Co. Ltd. (180 Taxman 87) (Bombay High Court), wherein it has been held as under: ―3. The only ground based on, which the revenue has approached this Court is as pointed out earlier that the Tribunal ignored the ratio of the judgment in Patel International Film Ltd.'s case (supra). We may point out, that on facts there the assessee-company was in the business of processing and printing movie films in a processing and printing laboratory purchased by them. It subsequently purchased a film processor in the laboratory to serve as a model for exhibition to induce confidence in its customers by way of advertisement and claimed the amount spent on the purchase as business expenditure. After considering the facts a learned Bench of this Court noted as under :— ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 7 "............. In other words, the asset that was acquired by the assessee-company was a capital asset to be used for the purpose of advertisement of the business that the assessee-company was going to carry on in future and, therefore, the expenditure will have to be regarded as a capital expenditure and not revenue expenditure." (p. 224) It would, thus be clear that the machinery purchased was not in respect of an ongoing business of the assessee, but in respect of the business which was going to be carried out in the future. In the instant case as the facts bear out, the advertisement was in respect of an ongoing business of the assessee herein. 4. A similar issue had come up for consideration before the Division Bench of the High Court of Punjab and Haryana in CIT v. Liberty Group Marketing Division [2008] 173 Taxman 439 . In that case the assessee had claimed expenditure incurred on glow sign boards as also T.V. Films. The expenditure was held to be revenue in nature. 5. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business which is yet to commence then the same cannot be treated as revenue expenditure as expenditure is on a product yet to be marketed. Considering the above, in our opinion the judgment in Patel International Film Ltd.'s case (supra) is clearly distinguishable. The CIT(A) and the Tribunal on the facts of this case were clearly within their jurisdiction in holding that the expenditure was by way of revenue expenditure as it was in respect of promoting ongoing products of the assessee herein.‖ (Emphasis Supplied) 4.8. We note that the Hon’ble Bombay High Court has, vide order dated 12/03/2013, passed in Income Tax Appeal No. 1536 of 2011 preferred by the Revenue against the decision of the Tribunal for the Assessment Year 1996-97 declined to admit the question of law on this issue. While doing so the Hon’ble Bombay High Court relied upon another decision passed on the same day (i.e. 12/03/2013) by the Hon’ble Bombay High Court in appeal preferred by the Revenue for the Assessment Year 2001-2002 (Income Tax Appeal (L) No 946 of ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 8 2012, dated 12/03/2013). In that case it was held that the issue raised was covered in favour of the Assessee and against the Revenue by the above decision of the Hon’ble Bombay High Court in the case of CIT vs. M/s Geoffrev Manner & Co. Ltd. (180 Taxman 87) (Bombay High Court). 4.9. Since both the sides had agreed that there was no change in the facts and circumstances of the case, we find no reason to take a different view. Accordingly, in view of the above judgments/decisions, we hold that the Assessee is entitled to claim deduction under Section 37(1) of the Act for the television film production expenses of INR 25,47,53,254/- incurred in relation to promotion of ongoing products since no enduring benefit accrues to the Assessee. Ground No. I raised by the Assessee is allowed. 5. Ground No. II I.2 The CIT(A) erred in confirming the treatment of ACIT of granting depreciation @ 25% on Moulds and Dies instead of allowing entire expenditure of Rs. 19,43,935/- as revenue expenditure. I.3. The Appellant therefore prays that the ACIT be directed to allow the Appellant's claim for deduction as revenue expenses. I. 4 Without prejudice to the above, the Appellant prays that the ACIT be directed to allow depreciation @ 40% since the said Moulds and Dies fall under the head "Moulds used in rubber and plastic goods factories". 5.1. As per the details of ‘Other Expenses’ of INR 19,57,30,998/-, furnished by the Assessee, vide its letter dated 08/12/2006, the Assessing Officer noted that the same included reimbursement of expenses incurred on purchases of moulds and dies to the extent of INR 19,43,935/-. The Assessing Officer was of the view that the aforesaid expenditure were capital in nature and therefore, the Assessee was asked to explain why the said expenses related to ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 9 purchases of moulds and dies should not be disallowed. 5.2. In response, vide letter dated 08/12/2006, the Assessee explained that the expenditure on moulds and dies represented annual amortization of the reimbursement made by the Assessee to the suppliers of packing materials relating to the cost of purchased of mould and dies. The Assessee submitted that some of the products manufactured and sold by the Assessee are packed in plastic jars and bottles. The manufacturer of the said jars and bottles need to buy moulds which are unique to the design specifications of the Assessee. Even though the moulds are in the possession of the said suppliers since they are used only for the packing materials sold to the Assessee. Therefore, the Assessee reimburses the cost of such moulds and dies to the packaging material supplier. The part of cost reimbursed is amortized each year and claimed as part of the packing material cost. However, the Assessing Officer rejected the explanation of the Assessee. According to the Assessing Officer, the moulds and dies had a long life and the same were not in the nature of items required for day to day upkeep of the business of the Assessee. The benefit derived by the Assessee by acquiring the moulds and dies was of an enduring nature. Thus, the Assessing Officer concluded that the moulds and dies were in the nature of capital asset with the Assessee as the owner. The Assessing Officer disallowed deduction for INR 19,43,935/- claimed by the Assessee and allowed depreciation of INR 4,80,234/- computed at the rate of 25% as opposed to depreciation at the rate of 40% claimed by the Assessee. 5.3. The CIT(A) confirmed the disallowance by placing reliance upon the decision of his predecessor in appeal preferred by the Assessee for ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 10 the Assessment Years 2002-03 and 2003-04. 5.4. Being aggrieved, the Assessee is now in appeal before us on this issue. 5.5. We note that the Tribunal has decided identical issue in the favour of the Assessee in Assessee’s own case for the Assessment Year 2001- 02 [ITA No. 1241/Mum/2005]. The relevant extract of the aforesaid order of the Tribunal reads as under: ―39. Having considered the rival submissions we are of the view that the claim made by the assessee deserves to be accepted. Considering the fact that the dies and molds are actually acquired by the packing material supplier and considering the fact that the cost of such molds and dies are reimbursed by the assessee to the packing material supplier, the assessee cannot be said to have acquired a capital asset in the form of molds and dies. They have to be rightly treated as part of the cost of packing material in the year in which the assessee pays cost of the molds and dies to the supplier of packing material. The period of use of these dies and molds are also very little as the tastes and preferences of consumers keep changing and the Assessee has to change the design of the packing materials often. The test of enduring benefit is therefore not satisfied. The assessee on a conservative basis amortized such cost for a period of 4 years and claimed deduction in 4 years. In our view the claim made by the assessee is acceptable. The AO is directed to allow the deduction as revenue expenditure. In view of the above the question of allowing higher depreciation on molds and dies does not arise for consideration. Ground No. IX is accordingly allowed.‖ (Emphasis Supplied) 5.6. There is nothing on record to persuade us to take a view different from the above view taken by the Tribunal. We find that the Hon’ble Bombay High Court has declined to admit the question of law in appeal preferred by the Revenue on this issue vide order dated 12/03/2013, passed in Income Tax Appeal (L) No 946 of 2012. Accordingly, we hold that reimbursement cost pertaining to moulds ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 11 and dies amortized by the Assessee and claimed as deduction is allowable as revenue expenditure, and therefore, the Assessee is entitled to claim deduction of INR 19,43,935/-. Ground No. II raised by the Assessee is, therefore, allowed. 6. Ground No. III I.1 The CIT(A) erred in restricting deduction@ 30% u/s 80 IB of Income tax Act, 1961 ("the Act") in respect of new undertaking to manufacture Vicks Vaporub 10 gms. (Tins) at Goa. I.2 The Appellant therefore prays allowed deduction @ 100% u/s 80 IB of the Act as claimed by the appellant.‖ 6.1. Ground No. III pertains to restricting the deduction claimed by the Assessee under Section 80-IB of the Act in respect of Vicks Vaporub Tins Unit – manufacturing 10 gm tins line to 30% as against 100%. 6.2. The relevant facts in brief are that for the Assessment Year 2004-05 the Assessee has claimed deductions under Section 80IB of the Act at INR 28,90,66,437/- in respect of the profits derived from the following industrial undertakings set up at various locations in Goa. (a) Vaporub Tin Unit located at Kundiam, Goa (shifted from Honda, Goa), and manufacturing vicks vaporub tins of 10 gms [for short ‘Vaporub-10 gm Unit’] (b) Vaporub Non-Tin Unit located at Kundiam, Goa (shifted from Honda, Goa), and manufacturing vicks vaporub jars [for Short ‘Vaporub Jar Unit’] (c) Whisper-Unit, located at Kundiam, Goa, and manufacturing Whisper sanitary napkins [for short ‘Wishper Unit’] (d) Whisper-Eline Unit located at Kundiam, Goa, and ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 12 manufacturing Whisper Eline sanitary napkins [for short ‘Whisper ELine Unit’] 6.3. During the assessment proceedings, the Assessing Officer noticed that the Assessee had, during the financial year relevant to Assessment Year 1997-98, set up an undertaking to manufacture Vicks Vaporub - 25 gms. [for Short ‘Vaporub-25 gm Unit’] and claimed deduction in respect of profits of such undertaking at the rate of 100% for the first five years i.e. upto Assessment Year 2001- 02 and at the rate of 30% thereafter. During the Financial Year relevant to Assessment Year 2001-02, the Assessee also claimed to have set up a separate undertaking for manufacture of vicks vaporub 10 gms tins, i.e., Vaporub-10 gm Unit. The Assessing Officer, taking note of the Assessment Order for the Assessment Year 2003-04, asked the Assessee to explain why Vaporub-10 gm Unit and Vaporub-25 gm Unit should not be treated as one unit. 6.4. The Assessee claimed that Vaporub-10 gm Unit was a new undertaking and the Assessee was eligible to claim deduction under Section 80IB of the Act in respect of the same at the rate of 100%. It was claimed that the Vaporub-10 gm Unit eligible undertaking though it was set up in a part of existing building. The claim of the Assessee is that the Vaporub-10 gm Unit fulfilled all the other eligibility conditions from claiming Section 80IB deduction. Though Old plant and machinery was used, the percentage of the old plant & machinery used was less than the threshold limit of 20%. The new line employed more than 10 workers (since its manufacturing process was carried on with the aid of power) and manufactured a product, which was not specified in the 11 th Schedule. Further, even after the new line was set up. Further, the existing line was not ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 13 affected at all. Thus, the Vaporub-10 gm Unit complied with all the conditions specified in Section 801B(2) of the Act and was accordingly eligible for deduction at the rate of 100% of its profits. 6.5. The Assessing Officer did not accept the above claim of the Assessee and restricted the deduction claimed by the Assessee to only 30% holding that the Vaporub-10 gm Unit and Vaporub-25 gm Unit as one undertaking giving the following reasoning: (a) The Assessee was manufacturing the same product, i.e., Vicks Vaporub. It was earlier packed in jars and 25 gm tins, from now the Assessee started packing the same in 10 gm tins and stated claiming 100% deduction. (b) Contrary to claim of the Assessee, no separate undertaking came into existence in respect of 10 gm tins. (c) The Assessee had submitted, vide letter dated 20/12/2006, that the Vaporub-10 gm line, though a complete line itself, may be considered to take support of the certain machinery being used by already existing line. Thus, instead of starting a new undertaking, an existing manufacturing facility has been utilized by the Assessee. (d) The Assessee has bifurcated written down value of the plant and machinery used for manufacturing vicks vaporub on a pro- rata basis (as opposed to providing details of plant & machinery actually used) (e) In Annexure 1 to Letter dated 20/12/2006, the Assessee had also ignored the value of the ‘Building’ while computing the percentage of commonly used equipment as against the total ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 14 plant and machinery employed in Vaporub-10 gm Unit at 8.33% 6.6. Being aggrieved, the Assessee carried the issue in appeal before the CIT(A). By following the decision of his predecessor in appeal preferred by the Assessee for the Assessment Year 2003-04, the CIT(A) upheld the action of the Assessing Officer and confirmed the order restricting the deduction under Section 80IB in respect of Vaporub-10 gm Unit to 30%. 6.7. The Assessee is now in appeal before us. 6.8. We have given thoughtful consideration to the rival submission and perused the material on record. We find that that the Assessee has claimed that Vaporub-10 gm Unit was set up as a new unit during the Financial Year relevant to the Assessment Year 2001-02. However, this position has been disputed by the Revenue. 6.9. On perusal of Audit Report in Form 10CCB filed by the Assessee in support of its claim for deduction at the rate of 100% in respect of Vaporub-10 gm Unit, we find that it has been stated as under: (a) Paragraph 8. - Date of Commencement of Operation by the Undertaking : 01/04/2000 (b) Paragraph 18 - (a) Has the industrial undertaking received any machinery or plant on transfer which was previously used for any purpose : No, (b) If yes, please specify value of machinery received on transfer : Not Applicable; (c) Total Value of machinery or plant used in the business : INR 2,77,70,116/- and (f) number of workers employed in the manufacturing process: 16 (c) Paragraph 19 – Total Sales of the Undertaking : INR 31,23,96,364/- ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 15 (d) Paragraph 21 – Profits and Gains derived by the undertaking/enterprise from the eligible business: INR 10,81,22,810/- (e) Deduction under section 80IB – INR 10,81,22,810/- We note that while the case set up by the Assessee is that old plant and machinery was used it was less than 20%, Form 10CCB states that the undertaking had not received by way of transfer any plant and machinery previously used. 6.10. On perusal of Depreciation Schedule annexed to the separate Profit and Loss Account and Balance Sheet drawn up for Vaporub-10 gm Unit, we find that the Plant & Machinery as at 01/04/2002 is stated to be INR 2,77,70,115/-. However, the breakup of such machinery or the details thereof have not been furnished by the Assessee during the assessment or the appellate proceedings to controvert the findings by the Assessing Officer that no new unit was set up. 6.11. Thus, there is nothing on record to support contention of the Assessee that old plant and machinery used for setting up of the Vaporub-10 gm Unit was less than 20% of the entire plant and machinery. 6.12. Ld. Authorised Representative for the Assessee had vehemently contended that the Assessing Officer had relied upon the judicial precedents to support the contention that the deduction under Section 80IB of the Act would be available (a) even if same product is produced by the new undertaking, (b) the new undertaking is set- up under the same building, and (c) even if the new undertaking in expansion of undertaking, and (d) dehors the new undertaking having common electricity connection, store room and ancillary activities. We note that none of the judicial precedents cited deal ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 16 with a situation where all the above factors are present at the same time. In the present case the product manufactured is same, the new undertaking has been set-up in the existing building with common amenities and involving some common equipment. Be that as it may, even if all the other conditions are assumed to be satisfied, the Assessee would not be able to claim deduction under Section 80IB of the Act at the rate of 100% since the Assessee has failed to establish that the unit has been set up by transfer of old plant and machinery of less than threshold limit of 20%. While we agree with the Learned Authorised Representative of the Assessee that the threshold limit is to be tested in the year of set-up and the building cost cannot be included in computing the aforesaid threshold limit, there is nothing on record to show that the aforesaid eligibility condition was met in the initial assessment year or the year of set-up. There is nothing on record from which it could be established or inferred that plant & machinery of specified value was deployed/used to set-up Vaporub- 10 gm Unit as claimed by the Assessee. The Assessing Officer had returned a finding that the Assessee had merely bifurcated the written down value of plant and machinery amongst the units on a pro-rata basis and the same has gone uncontroverted during the appellate proceedings. Though, the Vaporub-10 gm Unit is claimed to set-up during the Assessment Year 2001-02, it cannot be said that the claim made by the Assessee has been accepted by the Revenue in any of the preceding years. In absence of the supporting documents/details which support the claim of the Assessee as aforesaid, we are not inclined to accept the contention of the Assessee that deduction under Section 80IB of the Act is available for 100% of the profits from Vaporub-10 gm Unit. Accordingly. Ground No. III raised by the Assessee is dismissed. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 17 7. Ground No. IV I.1 “The CIT(A) erred in confirming the disallowance of a sum of Rs. 9,83,147/- in respect of depreciation on left behind assets at Vicks Vaporub unit at Honda Location I.2 The Appellant therefore prays that the said disallowance of Rs. 9,83,147- be deleted.‖ 7.1. The Assessee had shifted its Vicks Vaporub Unit located at Honda to Kundiam during the financial year 2003-04. Further, as per the enquiries conducted by the Investigation Wing of the Department, the Assessing Officer got to know that some of the assets were left behind. Since the aforesaid assets worth INR 52,43,452/- remained at its Honda location and were not utilized by the Assessee for its business activities during the relevant previous year, the Assessing Officer disallowed depreciation of INR 9,83,147/- claimed in respect of the same computed as under: Assets left behind and not utilized in AY 2003-04 INR 52,43,452 Depreciation claim for AY 2003-04 @ 25% INR 13,10,863 Opening WDV for the AY 2004-05 as per Assessee INR 39,32,589 Depreciation claimed by Assessee for AY 2004-05 INR 9,83,147 7.2. The CIT(A) also confirmed the disallowance of depreciation of INR 9,83,147/- made by the Assessing Officer. 7.3. Being aggrieved, the Assessee carried the issue in appeal before the Tribunal. 7.4. We have considered the rival submissions and perused the material on record. We note that the assets though abandoned have not been discarded by the Assessee who continues to be the owner. The fact that such assets were not used during the relevant previous year cannot lead to disallowance of depreciation which continue to form ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 18 part of the block of depreciable assets. In the case of Swati Synthetics Vs. ITO 4(3)(4), Mumbai: 38 SOT 208, it was held by the Tribunal as under: “7.13 From above discussions we noticed that the concept of allowing depreciation on block of assets has been introduced in the statutes with certain objects. The calculation of depreciation in respect of each capital asset separately requires elaborate book keeping and process of checking by the Assessing Officer is time consuming. The practice of granting terminal allowance for taxing the balancing charge under the Income-tax necessitate the keeping of records and depreciation already availed by each asset eligible for depreciation necessitated simply the system of allowing depreciation of block of assets have been introduced by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 1-4-1988 to give effect to this new system regarding depreciation balancing charge and capital gain relevant provisions were also amended accordingly. No doubt.......................... .................................. Recently after introducing the block concept of depreciation, Hon‘ble jurisdictional High Court dismissed the appeal of revenue vide their judgment dated 28-7-2009 for want of substantial question of law appeal filed by the revenue against the order of the ITAT Mumbai, in the case of GR Shipping Ltd. (supra). The ITAT held that depreciation on (Ship) Barge which included in block of asset, therefore, depreciation is allowable even though said Barge was not used for the purpose of business during the financial year. The Hon‘ble jurisdictional High Court in the said case of GR Shippling Ltd. against the revenue appeal, in Income-tax Appeal No. 598 of 2009, vide order, dated 28-7-2009, held as under: ―1. Heard learned counsel for the parties. 2. The question sought to be raised in this appeal is based on the ground of non-user of the Barge in the subject assessment year though they were used in the previous assessment year. According to revenue, depreciation would not be available under section 32 of the Income- tax Act. The question sought to be canvassed is squarely covered by two judgments of this Court one in the case of Whittle Anderson Ltd. v. CIT 79 ITR 613 and another in the case of CIT v. G.N. Agrawal (Individual) 217 ITR ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 19 250. In this view of the matter, appeal stands dismissed for want of substantial question of law." 7.14 In concept of depreciation on block assets one doubt comes to the mind that how depreciation can be allowed on assets which were not used for the purpose of business. The reply to this doubt is available in the object of the scheme and respective consequence amendments in the Act. The Legislature was aware about this situation, therefore, various corresponding amendments were made in respective provisions of the Act, if any depreciation has been claimed on an asset of block of assets which was not used, than the profit/income for that year will be reduced but this aspect of the matter has been taken care by the amended section 50 of the Act, when asset is transferred/sold and block ceases the calculation of short- term capital gain will be more as in those cases WDV will be less. 7.15 In the light of above discussions, the condition/requirement of section of word ̳used for the purpose of business‘ as provided in section 32 of (1) of the Act for the concept of depreciation on block pf assets can be summarized, that use of individual asset for the purpose of business can be examined only in the first year when the asset is purchased. In subsequent years use of block of assets is to be examined. Existence of individual asset in block of assets itself amounts to use for the purpose of business. This view is fully supported by various provisions of the Act which were amended consequence to the scheme of depreciation on block of assets including to proviso to section 32 of the Act of which detailed discussion is made in above Para of this order. The said proviso to section 32 requires that whore an asset is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be. When an asset purchased is satisfied the above condition in the year of purchase that asset will be included in the respective block of asset. Depreciation for that year will be calculated on ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 20 written down value in accordance with section 43(6) of the Act by the increase opening WDV by the actual cost of any asset falling within that block, acquired during the previous year. Once an asset is included in the block of assets it‘s remained in block for its entire life. The end of asset, i.e., to go out from block is only in accordance with the provisions of the Act. There are following three situations provided in the statutes when an individual asset of the block goes out of block : (1) an asset is sold or discarded or demolished or destroyed during that previous year as provided in sections 43(6)( c)(i)( b) and 32(1)(iii ) of the Act. (2) An Asset not exclusively used for the purposes of the business or profession but used other than business purposes as provided in section 38(2) of the Act. (3) where any block of assets does not cease to exist but the full value of the consideration received or accruing as a result of the transfer of the depreciable assets by the assessee during the previous year exceeds the aggregate of the amounts stated in section 50 of the Act and where any block of assets ceases to exist for the reason that all the assets in that block are transferred during the previous year." 7.16 In the case under consideration, the admitted facts are that the division of Surat had been closed but the block of assets of the closed unit, (the division of Surat) along with other assets of the block were used for the purpose of business in earlier years. The year under consideration is not the first year of the assets acquired. The assets of closed unit still remained exist/part of the block of assets. The assets did not fall under any of the above exceptional three conditions. The said block of assets was used for the purpose of business during the year. Under the circumstances, the assets of the said closed unit amounts to use for the purpose of business in the year under consideration, we are, therefore, of the considered view that the assessee is entitled for depreciation. We, accordingly, allow the claim of the assessee.‖ (Emphasis Supplied) 7.5. In the above decision it has been held by the Tribunal that once the asset is put to use and forms part of block of asset in subsequent ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 21 years, depreciation would not be disallowed in subsequent years in respect of such asset merely on the ground that the asset has not been used for the purpose of business during the relevant previous year. In the case before us, the asset under consideration, though not used by the Assessee during the relevant previous year, continue to be part of block of asset. Therefore, the Assessee would be entitled to claim depreciation on the written down value of the block of asset in view of the above decision of the Tribunal. Accordingly, we delete the disallowance of depreciation of INR 9,83,147/- made by the Assessing Officer and confirmed by the CIT(A). Ground No. IV raised by the Assessee is allowed. 8. Ground No. V I.1 The CIT(A) erred in confirming the reduction made by the ACIT in respect of the Appellant's claim for deduction u/s 80IB of the Act by allocating head office employee cost, depreciation on the head office assets, R & D expenses and interest expenses. I.2 The Appellant prays that the deduction u/s 80-IB of the Act be allowed as claimed by the Appellant. 8.1. During the assessment proceedings the Assessing Officer was of the view that some of the overhead expenses such as expenses on employees pertaining to head office, depreciation on assets of head office, interest expenses etc., are not allocated to the units claiming deduction under Section 80IB of the Act. Therefore, the Assessee was asked to furnish details of these expenses and to explain as to why the same should not be allocated to the Vaporub Unit, Whisper Unit and Whisper e-line Units in the proportion of their sales to total sales of the company, for computation of profits derived from the business of these industrial undertakings for the purpose of arriving at the deduction under Section 80-IB of the Act. The Assessee, vide its letter dated, 08/12/2006, submitted, inter alia, that all the ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 22 expenses have been bifurcated into direct expenses and common expenses. While direct expenses have been actually incurred by a unit are charged to that unit, the common expenses are allocated to the relevant units in the ratio of turnover. However, the Assessing Officer was not convinced with details and explanation furnished by the Assessee and concluded that the Assessee has not properly allocated the expenses aggregating to INR 51,30,05,284/- consisting of the following (a) Head Office Employees Cost : INR 37,78,87,656/-, (b) Depreciation of Head Office : INR 12,65,20,024/-; and (c) Interest Expenses : INR 85,97,604/-. Thereafter, the Assessing Officer proceeded to allocate the above expenses over various units for the purpose of computing deduction under Section 80IB of the Act. 8.2. Being aggrieved, the Assessee carried the issue in appeal before CIT(A). It was contended before the CIT(A) that the Assessee had computed the profits of the undertakings eligible for deduction under Section 801B of the Act separately and independently, and while doing so the Assessee had also deducted employees cost, depreciation on the corresponding assets used by the respective undertakings as well as the interest expenditure incurred in relation to the respective undertakings. Therefore, the addition made by the Assessing Officer without appreciating the correct facts. However, CIT(A) confirmed the action of the Assessing Officer by observing that identical issue had been decided against the Assessee during the preceding years. 8.3. Being aggrieved, the Assessee carried the issue in appeal before us. 8.4. We have heard the rival contentions and perused the material on record. We note that the Tribunal has decided identical issue in the ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 23 favour of the Assessee in Assessee’s own case for the following Assessment Years - 1995-96 ITA No. 845/Mum/2003 Dated 26/03/2010 - 1997-98 ITA No. 5423/Mum/2004 Dated 18/06/2010 - 1997-98 ITA No. 5424/Mum/2004 Dated 18/06/2010 - 1999-00 ITA No. 6795/Mum/2004 Dated 22/10/2010 - 2000-01 ITA No. 8999/Mum/2004 Dated 22/10/2010 - 2001-02 ITA No. 1500/Mum/2005 Dated 25/01/2012 - 2002-03 ITA No. 4488/Mum/2009 Dated 17/01/2023 8.5. The relevant extract of the common order, dated 22/10/2010, passed by the Tribunal in appeal preferred by the Assessee for Assessment Year 1999-2000 (ITA No. 6795/Mum/2009) reads as under: ―10. Ground No. V(1) pertains to reducing the deduction under section 80IA by allocating Head Office expenses like employment cost, depreciation, capital expenditure, etc. 11. This issue is also considered by the Tribunal in assessee's own case in ITA No. 5423/Mum/2004 for A.Y. 1997-98 and decided in favour of the assessee by holding that there is no rationale in allocating the salary expenses of the marketing personnel which may be common expenses of the entire company which were already considered for allocation on the basis of turnover. Likewise the R&D expenditure and depreciation were already considered for allocation on the basis of the turnover ratio. The same principles apply even for the interest expenses allocation also. Since the facts are similar and allocations also similar to the working of the other unit in earlier years, for the reasons discussed in ground No. 9 in ITA No. 3076/Mum/2004 in para 20 above the issue is to be decided in favour of the assessee. Respectfully following the above decision, the A.O. is directed to delete the said allocation of expenditure. Ground is allowed.‖ (Emphasis Supplied) 8.6. Similarly, in appeal for the Assessment Year 2002-03 (ITA No. 4488/Mum/Mum/2009, dated 17/01/2023) the Tribunal has held as under: ―18. Ground number 3 of the appeal of the learned assessing officer is with respect to deletion of the adjustment to the profit made by the learned assessing officer by locating the head office salaries to the ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 24 Hyundai unit and Kundaim unit on which assessee has claimed deduction under section 80 IB of the act. 19. Both the parties agreed that identical issue arose in the case of the assessee for earlier assessment years wherein the coordinate bench has allowed the issue in favour of the assessee. Further, the revenue has preferred an appeal before the honourable High Court in earlier years where the appeals of the Department have been dismissed. Accordingly, these issues are squarely covered in favour of the assessee. Accordingly respectfully following the decision of the coordinate benches in the honourable High Court in assessee's own case for earlier years involving similar facts and circumstances, we dismiss ground number 3 of the appeal of the AO.‖ 8.7. Respectfully following the above decisions of the co-ordinate Bench of the Tribunal in the case of the Assessee, we hold that the Assessing Officer and CIT(A) erred in holding that that the Assessee has not properly allocated the expenses aggregating to INR 51,30,05,284/- consisting of Head Office Employees Cost (INR 37,78,87,656/-), Depreciation of Head Office (INR 12,65,20,024/-) and Interest Expenses (INR 85,97,604/-). Accordingly, we set aside the reallocation of expenses made by the Assessing Officer and direct the Assessing Officer recomputed deduction under Section 80IB of the Act accordingly. 9. Ground No. VI I.1 The CIT(A) erred in confirming the reduction made by the ACIT in respect of the Appellant's claim for deduction u/s 801B of the Act by disregarding certain incomes while computing the profits for the aforesaid deduction. I.2 The Appellant therefore prays that the said disallowance be deleted. 9.1. During the assessment proceedings, the Assessing Officer also noticed that the Assessee had included several ‘Other Incomes’ in the profits and gains derived from the following units claiming ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 25 deduction under Section 80IB of the Act. - Vaporub-Tin Unit INR 74,75,679/- - Vaporub-Others Unit INR 88,74,151/- - Whisper Unit INR 1,51,80,215/- - Whisper e-Line Unit INR 16,68,479/- Total INR 3,31,98,524/- 9.2. Relying upon the judgment of Hon’ble Supreme Court in the case of Pandian Chemicals Ltd. Vs. Commissioner of Income Tax: 262 ITR 278 (SC) and Commissioner of Income Tax Vs. Sterling Foods: 237 ITR 579 (SC), the Assessing Officer concluded that the above other income could not be considered as profits derived from industrial undertaking since the effective and immediate source of the said incomes was not the industrial undertakings. Thus, the Assessing Officer reduced the Other Income from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under Section 80IA of the Act. 9.3. Being aggrieved, the Assessee carried the issue in appeal before CIT(A). However, the CIT(A) declined to grant any relief and dismissed the ground raised by the Assessee in this regard. 9.4. The Assessee is now in appeal before us on this issue. 9.5. During the course of hearing, both the sides agreed that identical issue stands decided against the Assessee in the case of the Assessee for the preceding assessment year. We note that the Tribunal has decided identical issue against the Assessee in appeal pertaining to the Assessment Year 1999-2000 (ITA No. 6795/Mum/2004, dated 22/10/2010), the relevant extract of the same read as under: ―12. Ground No. V(2) is with reference to the action of the A.O. of reducing profits of eligible units by excluding certain items of other ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 26 income from the profits of eligible units. This issue is already covered against the assessee, in earlier years as the interest and rental income was held as income from other sources. Accordingly the same cannot be considered as income of the eligible units for deduction under section 80IA. Since the A.O.‘s order in line with the principles for allowing the deduction of profits of the eligible units the order is upheld. Ground is rejected.‖ 9.6. Taking a view consistent with the view taken by the Tribunal in the preceding Assessment Year in the case of the Assessee, we uphold the order passed by the Assessing Officer on this issue. The Assessing Officer was justified in reducing the ‘Other Income’ from the profits and gains of the undertaking for the purpose of computing deduction under Section 80IB of the Act. Ground No. VI raised by the Assessee is, therefore, dismissed. 10. Ground No. VII I.1 ―The CIT(A) erred in confirming the reduction made by the ACIT in respect of the Appellants claim for deduction u/s 80HHC of the Act by reducing 90% of entire other incomes while computing the profits for the aforesaid deduction. I.2 The CIT(A) further erred in confirming the alleged reduction by the Appellant of the 90% of certain other income. I.3 The Appellant therefore prays that the said disallowance be deleted. 10.1. Ground No. VII pertains to reduction on claim under Section 80HHC of the Act by reducing 90% of entire other income by way of interest and miscellaneous income. The claim of the Assessee is that the Assessing Officer erred in reduced 90% of the entire other income of INR 11,84,18,570/- while computing deduction in terms of Explanation (baa) to Section 80HHC of the Act instead of 90% of income by way of interest, miscellaneous income etc. of INR 10,65,76,713/- as computed by the Assessee. However, in view of the statement given by the Ld. Authorised Representative under ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 27 instructions from the Assessee that the Assessee does not wish to pursue this ground on account of small quantum of the amount involved, Ground No. VII raised by the Assessee is dismissed as not pressed. 11. Ground No. VIII I.1 The CIT(A) erred upholding the action of the AO of business for the purpose of claiming deduction u/s 80HHC reducing profits u/s. 80IA/ 80IB of the Act. I. 2 Appellant therefore prays that the said adjustment be deleted. 11.1. Ground No. VIII pertains to claim of deduction under Section 80HHC in respect of profits from 80IB units. 11.2. For the Assessment Year 2004-05, the Assessee had claimed deduction under Section 80HHC of the Act on the adjusted profits of business of INR 1,05,17,02,529/- without reducing therefrom the profits in respect of which deduction was claimed under Section 80IA/80IB of the Act. However, the Assessing Officer, by placing reliance of the provisions of Section 80IA(9) of the Act, recalculated the deduction claimed under Section 80HHC after reducing profits in respect of which deduction under Section 80IA/80IB of the Act was claimed. 11.3. In appeal preferred by the Assessee on this issue, the action of the Assessing Officer was confirmed by the CIT(A). 11.4. Being aggrieved, the Assessee carried the issue in appeal before us. 11.5. We have heard the rival contentions and perused the material on record. We note that the Tribunal has decided identical issue in the favour of the Assessee in Assessee’s own case in ITA No. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 28 1499/Mum/2005) (AY 1999-2000), ITA No. 1500/Mum/2005 (AY 2001-02). The relevant extract of the aforesaid order (ITA No. 1499/Mum/2005) read as under: "GROUND I xx GROUND II 1. The CIT (A) erred in reducing an amount of Rs. 36,21,82,320/-, being the deduction u/s 801B, from the profits of the business for calculating the deduction u/s 80HHC. 2. The Appellant prays that the deduction u/s 80HHC in respect of profits from 801B units be calculated by reducing the amount of deduction u/s 801B from the deduction u/s 80HHC and not from the profits of the business, which forms the basis for calculating the deduction u/s 80HHC." 2. The assessee is a company, engaged in Manufacturing and marketing of consumer products. The assessee had filed its original return of income for the assessment year 1999-2000 on 22/11/1999 declaring Rs. 12,65,86,090/-, as its income. The original assessment order u/s. 143(3) of the Income Tax Act, 1961 (the Act) was passed on 27/3/2002 assessing income at Rs. 37,50,03,400/- The AO reopened the assessment u/s. 147 of the Act by issuing notice u/s. 148 on 12/06/2003 for the reason that while completing the assessment u/s.143(3) of the Act, the deduction u/s. 80 IB of Rs. 3,21,82,320/- has not been reduced from Profits of business while computing deduction u/s 80 HHC. 3. In the reassessment proceedings, the AO held that the deduction u/s.80-HHC of the Act had been claimed by including in the profits of business profits from Honda Unit and Kundaim unit in respect of which the assessee has claimed deduction u/s. 80IA. According to the AO allowing such a claim would amount to allowing claim for double deduction. i.e. both u/s. 801A and u/s. 80 HHC, in respect of the same profit. According to the AO, such a claim not only defies logic and common sense, but is also specifically prohibited in law as per the express provisions of sub- section 9 of section 801A. The AO thereafter referred to the provisions of Sub-section 9 of section 801A which reads as under: 'Where any amount of profits and gains of an industrial undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 29 any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading C- Deductions in respect of certain incomes, and shall in no case exceed the profits and gains of such eligible business of industrial undertaking or enterprise, as the case may be.‖ The AO held that in view of the above clear-cut provisions, the profits admissible for deduction uls.801A are to be excluded in computing deduction u/s.8OHHC of the Act. The deduction u/s.801A has been determined at Rs.32,75,62,323/- and Rs. 3,46,19,997/- for Honda unit and Kundaim unit. The above amounts totaling Rs. 36,21,82,320/- were reduced from the profits of business for the purpose of deduction u/s.80HHC and deduction u/s. 80 HHC which was earlier allowed to the assessee in the assessment order u/s.143(3) of the Act was reduced to Rs. 161,03,822/- as against the deduction allowed at Rs. 3,29,55,999/- in the original order u/s. 143(3). 4. On appeal by the assessee the CIT(A) confirmed the order of the AO. The assessee had also challenged the validity of initiation of reassessment proceedings under section 147 of the Act on the ground that the same was done purely on change of opinion. This was also rejected by the revenue authorities. Hence the above appeal by the assessee before 5. We have heard the rival submissions. The issue sought to be canvassed by the assessee in Ground NO.II is no longer res integra and has been concluded by the Hon'ble Bombay High Court in the case of Associated Capsules Pvt. Ltd. Vs. DCIT 332 ITR 42(Bom) wherein the Hon'ble Bombay High Court held as follows: "Section 80-1A(9) of the Income-tax Act, 1961, provides that the deduction to the extent of profits allowed under section 80-IA(1) would not be allowed under any other provisions. It means that the deductions allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80- IA(9) seeks to curtail the allowance of deduction and not the computation of deduction under any other provisions under heading C of-Chapter VI-A of the Act. The Legislature has used specific words whenever it intends to affect the computation of deduction. As the words ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 30 used in section 80-LA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) was inserted with a view to affect computation of deduction under any other provisions under heading C of Chapter VI-A. Since section 80- IA(9) uses the words "shall not be allowed", the section seeks to restrict the allowance of deduction and not the computation of deduction under any other sections under heading C of Chapter VI-A of the Act. Therefore the reasonable construction of section 80-IA(9) would be that where the deduction is allowed under section 80IA(1), then the deduction computed under other provisions under heading C of Chapter VI-A have to be restricted to the profits of the business that remain after excluding the profits allowed as deduction under section 80IA, so that the total deduction allowed under the heading C of Chapter VI-A does not exceed the profits of the business. The Hon'ble High Court held, that the Tribunal was not right in holding that section 80-IA(9) of the Act, mandates that the amount of profits allowed as deduction under section 80-IA(1) of the Act have to be reduced from the profits of the business of the undertaking while computing deduction under any other provisions under heading C in Chapter VI-A of the Act. 6. In the light of the decision of the Hon'ble Bombay High Court we are of the view that the reduction of allowance under section 80HHC made by the AO in the reassessment proceedings cannot be sustained. The same is hereby deleted. In view of the decision of the decision on merits, we are of the view that the validity of initiation of reassessment proceedings under section 147 of the Act is purely academic and calls for no adjudication.‖ 11.6. On perusal of above decision of the Tribunal, we find that identical issues stands decided in favour of the Assessee by the decision of the Hon’ble Bombay High Court in the case of Associated Capsules Pvt. Ltd. Vs. DCIT : 332 ITR 42 (Bom). The provisions of Section 80IA(9) of the Act are attracted only in the case where total deduction allowed under Heading C of Chapter VIA of the Act dealing with ‘Deductions in respect of certain incomes' exceed the profits of the business. Thus, Section 80IA(9) of the Act curtails the allowance of deduction and not the computation of deduction under any other ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 31 provisions under Heading C of Chapter VIA of the Act dealing with ‘Deductions in respect of certain incomes'. Accordingly, we hold that the reduction of the amount of deduction computed under Section 80HHC made by the Assessing Officer cannot be sustained and therefore, the Assessing Officer directed to re-compute the deduction under Section 80HHC of the Act as per the judgment of the Hon’ble Bombay High Court in the case of Associated Capsules Pvt. (supra). Thus, Ground No. VIII raised by the Assessee is allowed. 12. Ground No. IX & X and Additional Grounds XI & XII 12.1. During the course of hearing, the Ld. Authorised Representative for the Assessee had placed upon record a chart and had arguments on the issues stated therein. Since no submissions were advanced in relation to Ground No. IX to XII, the same are dismissed as not pressed. APPEAL BY REVENUE: ITA No. 6549/MUM/2010 13. We would now take up appeal preferred by the Revenue for the Assessment Year 2004-05. The grounds raised by the Revenue in appeal are taken-up hereinafter in seriatim 14. Ground No. 1 “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing disallowance of Rs.10 lakhs out of foreign travel expenses without appreciating the fact that the assessee has not discharged the onus of proving that the said expenditure has been incurred wholly and exclusively for the purpose of business." 14.1. Ground No. 1 pertain to ad-hoc disallowance of Foreign Travelling Expenses amounting to INR 10,00,000/- made by the Assessing Officer. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 32 14.2. For the Assessment Year 2004-05, the Assessee had claimed deduction for Foreign Travel Expenses of INR 2,78,49,959/- in respect of international conferences and regional/global level meetings to ensure a smooth and efficient business operation. However, since the Assessing Officer was not able to verify the foreign travel expenses, and ad-hoc disallowance of INR 10,00,000/- made by the Assessing Officer. 14.3. In appeal preferred by the Assessee, the CIT(A) deleted the ad-hoc disallowance of INR 10,00,000/- made by the Assessing Officer by placing reliance on the decisions of his predecessor in appeals preferred by the Assessee for the Assessment Years 2001-02 to 2003-04. 14.4. Being aggrieved, the Revenue has carried the issue in appeal before us. 14.5. We have heard the rival contentions and perused the material on record. We note that the CIT(A) had deleted the ad-hoc disallowance of INR 10,00,000/- made by the Assessing Officer in respect of foreign travel expenses by placing reliance upon the decision of his predecessor in appeals preferred by the Assessee for the Assessment Years 2002-03 and 2003-04 which have been confirmed by the Tribunal vide common order, dated 17/01/2023, passed in appeal for the Assessment Year 2002-03 [ITA No. 4488/Mum/2009] and 2003- 04 [ITA No. 5195/Mum/2016]. The relevant extract the decision of the Tribunal for the Assessment Year 2003-04 read as under: ―09. The first ground of appeal is with respect to deletion of the addition on account of foreign travel expenses. The fact shows that assessee has incurred foreign travelling expenses of ₹3,04,87,258/- ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 33 . When questioned, assessee submitted foreign travelling expenses employee wise in detail. Out of the above sum, ₹1,02,47,161/- was incurred in foreign currency. The details shows that the expenses were incurred on air fare, accommodation, meals, conveyance and other incidental expenses incurred by the employees of the assessee on official foreign tours for the purpose of attending training sessions and business meetings. According to the learned assessing officer, there is no clear-cut description of the purpose of its visit and therefore how the foreign travel is in connection with the business purpose of the assessee company cannot be ascertained. He also found that certain capital assets have been purchased by way of import and therefore certain travel expenditure may also be of capital in nature accordingly he disallowed ₹ 10 lakhs on a reasonable estimate out of foreign travel expenses as being capital expenditure. On appeal before the learned CIT–A, on the basis of the earlier orders of his predecessor he deleted the addition holding that it is merely an ad hoc addition and no specific defector deficiency was pointed out by the learned assessing officer. Accordingly he held that the learned assessing officer was not justified in making the about disallowance specially when he could not point out any deficiency or defect. Had he had any doubts in his mind; he could have required the appellant to produce further details which he did not do. It was only a passing comment as quoted above on the basis of which he has made an ad-hoc disallowance. Therefore, such disallowance was deleted. The learned AO is in appeal before us. 14.6. As is the case before us, in the preceding assessment years also the Assessing Officer had failed to point out any instance of non- availability of details or an instance of expenditure having been incurred for non-business purposes or expenses being capital in nature. Further, no specific query in respect of any specific foreign travel expense was raised by the Assessing Officer. Therefore, the order passed by CIT(A) deleting the disallowance made by the Assessing Officer was confirmed by the Tribunal and the ground raised by the Revenue in its appeal was dismissed. There is nothing on record to persuade us to take a view different from the view taken by the Tribunal in the case of the Assessee in preceding ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 34 Assessment Years wherein the identical disallowances of the foreign travel expenses made by the Assessing Officer on ad-hoc basis were deleted by the CIT(A) and the order passed by CIT(A) was confirmed by the Tribunal. Accordingly, Ground No. 1 raised by the Revenue is dismissed. 15. Ground No. 2 to 5 2. ―On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.6,10,006/- (net addition) to the closing stock on account of unutilized MODVAT credit. 3. On the facts and in the circumstances of the case and in law, he ld.CIT(A) erred in deleting the addition of Rs.5,10,84,214/- made on account of increase in the value of stock as per the provisions of section 145A. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in relying on the decision of Indo Nippon Chemicals Co. Ltd. (245 ITR 384) without appreciating the fact that the said decision relates to Assessment Year 1989-90, having no bearing on section 145A, which was inserted by Finance (No.2) Act, 1998 w.e.f. 01/04/1999 under which the impugned additions to closing stock has been made." 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has not been able to appreciate that in the decision of Bombay High Court in the case of Indo Nippon Chemicals Ltd., as upheld by Supreme Court (281 ITR 275) (SC), the Hon'ble High Court has explicitly acknowledged the fact that the decision does not deal with the new provision of section 145A of the Income tax Act, 1961. As such, the CIT(A)'s reliance on the above decision is misplaced and erroneous." 15.1. Ground No. 2 to 5 pertains to addition made by the Assessing Officer in relation of MODVAT element in valuation of opening/closing stock, and purchases. 15.2. The relevant facts in brief are the Assessee was following non- inclusive method of accounting for MODVAT credit with regard to inventory, purchases and consumption. Before the Assessing Officer ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 35 it was contended by the Assessee that the treatment followed by it has no impact on the profit. The AO rejected the aforesaid contention and concluded that that non-inclusion of MODVAT gave a distorted and suppressed picture of actual profits. The Assessing Officer made an addition of INR 1,83,27,148/- for the unutilized MODVAT credit on the closing stock value. However, the Assessing Officer provided corresponding adjustment of INR 1,77,17,142/- in relation to the opening stock. Further, the Assessing Officer also recomputed the value of closing stock (to INR 54,35,40,398/-) by adding back the unutilized MODVAT credit at the end of the year and the element of MODVAT credit on purchases. Thus, the Assessing Officer made an addition of INR 5,10,84,214/- on account of increase in value of closing stock. 15.3. The Ld. CIT(A) has deleted the addition in concluding as under: ―7.4. I have perused the facts of the recurring issue and referred to earlier orders. The appellants case is covered by the ITAT Mumbai, order in its own case dated 27-11-2006 (ITA No.5548/M/99) which was followed by the CIT(A) in A.Y.2003-04. The ITAT Mumbai had followed the decision of Supreme Court in case of Indo-Nippon Chemical to arrive at its finding. 7.5. Thus ground 4 is allowed but will not lead to separate deletion as Rs.6,10,006/- has been included while computing the closing stock addition of Rs.5,10,84,214/- which is dealt in ground no.5. 8. to 8.2 xx xx 8.3 Accordingly, he has made an addition on account of increase in value of closing stock to the extent of Rs. 5,10,84,217/- representing the MODVAT availed on the entire purchases (as adjusted for the MODVAT in respect of opening and closing stocks.) 8.4 to 8.12 xx xx 9. I have perused the assessment order and the written submission. There is a common thread running between this ground as well as the ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 36 immediately preceding ground no.4. Though the issue is supposed to be new but after examining the approach adopted by the AO and the working done in Annexure III of the order, it is observed that even in this ground, the adjustment done by the AO is only to the closing stock. No adjustment of the MODVAT is addressed by the AO in respect of the corresponding purchases. It is basic accounting that an item of cost to be included in the using stock must be routed or included in the purchases. In view of the principle applicable in the case of MODVAT on closing stock which has been decided in the case of Indo-Nippon by the Bombay High Court and approved by the Supreme Court needs to be applied here also. It is also relevant to add that the Bombay High Court in this case has taken cognizance of the Apex Court decision in British Paints (relied by the AO). The jurisdictional Bombay High Court discussed both the inclusive and exclusive methods of accounting in detail and thereafter concluded that there was no change in profitability under both the methods. The appellant has been following the exclusive method of accounting consistently and so taking into account all facts and circumstances, more particularly the decision in Indo Nippon. I hold that there is no ground for making an addition of Rs.5,10,84,214/ in the closing stock which includes the addition of Rs.6,10,006/- of unutilized MODVAT credit. The same is deleted. Thus ground no. 5 is allowed.‖ 15.4. Being aggrieved the Revenue is now in appeal before us against the above relief granted by the Assessing Officer. 15.5. Both the side agreed that the Tribunal has decided identical issue in the following appeals: - 1994-95 ITA No. 859/Mum/2003 Dated 30/06/2009 - 2000-01 ITA No. 8999/Mum/2004 Dated 27/11/2015 - 2001-02 ITA No. 1500/Mum/2005 Dated 27/11/2015 15.6. The relevant extract of the decision of the Tribunal in appeal preferred by the Revenue for the Assessment Year 2001-02 (ITA No. 1241/Mum/2005, dated 22/10/2010 read as under: ―17. In the course of assessment proceeding, the assessee was asked to furnish details of unutilized modvat relating to closing stock-in- trade. The assessee furnished the said details vide Annexure- 14 to its ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 37 letter dt. 10.11.2003 as per which the unutilized modvat credit relatable to closing stock-in-trade works was Rs. 15,102,496/-. The assessee was asked to explain why the above unutilised modvat credit of Rs. 15,102,496/- should not be included in the valuation of closing stock as per the provisions of Sec. 145A of the Act. In response to the same, the assessee filed a copy of the tax audit report wherein it was mentioned that there was no impact on the Profit & Loss account due to the deviation from the method of valuation prescribed under Sec. 145A of the Act. The contention of the assessee was not accepted by the AO and he was of the view that as the provisions of Sec. 145A of the Act the amount of unutilized modvat credit had to be added in the value of closing stock. He held that the closing stock of the assessee company was undervalued to the extent of such non-inclusion of modvat credit of Rs. 15,102,496/- and the profit of the company was under-reported to the above extent. Therefore, an amount of Rs. 15,102,496/- was added to the value of dosing stock and the total income of the assessee company was enhanced to that extent. 18. On appeal by the assessee the CIT(A) confirmed the order of the AO. The issue raised in ground No.3 is no longer resintegra and has been decided by the Hon'ble Delhi High Court in the case of CIT vs. Mahavir Alluminium Ltd., 297 ITR 77, wherein the Hon'ble Delhi High Court held that whenever adjustment on account of Modvat credit is made corresponding adjustment is also to be made to opening stock. The aforesaid view has also been accepted by the Hon'ble Bombay High Court in the case of Mahalaxmi Glass Works. 318 ITR 116 (Bom). The issue is therefore remanded to the AO to consider the same afresh in the light of the judicial pronouncement referred to above. The ld. Counsel for the assessee also relied on the decision of the Mumbai Bench of ITAT in the case Hawkins Cookers Ltd. vs. ITO in ITA No.505/Mum/04 dated 11/8/2008, wherein Hon'ble ITAT Mumbai Bench had also examined the issue in the light of the provisions of section 43B of the Act. We are of the view that even this aspect may be raised by the assessee before the AO and the AO is directed to consider the same. Thus ground No.III & IV are treated as allowed for statistical purposes.‖ 15.7. Consistent with the view taken by the Tribunal in the above decision, we set aside the issue raised by the Revenue back to the file of Assessing Officer with the direction to (a) quantify the impact, if any, on the profits on following inclusive method of accounting and (b) decide the issue of Modvat Credit adjustments to the opening/closing stock and purchases, if any, as per law after taking into consideration the judgment of Hon’ble Supreme Court in the case of ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 38 CIT Vs. Indo Nippon Chemicals Co. Ltd: [2003] 261 ITR 275 (SC), judgment of Hon’ble Delhi High Court in the case of CIT vs. Mahavir Aluminium Ltd. (297 ITR 77) (Delhi HC), the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Mahalaxmi Glass Works Pvt. Ltd.: [2009] 318 ITR 116 (Bombay) and the decision of the Mumbai Bench of the Tribunal in the case of Hawkins Cookers Vs. ITO (ITA No. 505/Mum/2004). In terms of the aforesaid, Ground No. 2 to 5 raised by the Revenue are allowed for statistical purposes. (ASSESSMENT YEAR 2005-06) 16. We would now take up cross appeals for the Assessment Year 2005- 2006. These are cross-appeals arising from the order, dated 18/01/2011, passed by the Learned Commissioner of Income Tax (Appeals)-15, Mumbai [hereinafter referred to as ‘the CIT(A)’] whereby the CIT(A) had partly allowed the appeal preferred by the Assessee against the Assessment Order, dated 30/12/2008, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. 17. Both the sides had agreed that our findings/adjudication in respect of issues raised in appeals for the Assessment Year 2004-05 shall apply mutatis mutandis to the corresponding grounds/issues raised in the appeals pertaining to the Assessment Years 2005-06 as there is no change in the facts and circumstances. Accordingly, we proceed to adjudicate the grounds raised in the cross appeals for the Assessment Year 2005-06. APPEAL BY ASSESSEE (ITA No. 2780/Mum/2011) 18. We would take up appeal preferred by the Assessee for the Assessment Year 2005-06. The grounds raised by the Assessee in appeal are taken-up hereinafter in seriatim. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 39 Ground No. I 1. The Learned Commissioner of Income Tax (Appeals)-15 ["the CIT(A)"] erred in confirming the treatment of the AO of allowing depreciation @ 25% on moulds and dies pertaining to packing materials instead of allowing the entire amount consumed to the extent of Rs.21,76,000/- as revenue expenditure. 2. The Appellant prays that AO be directed to allow the Appellant's claim for deduction as revenue expenses. 3. Without Prejudice to the above the Appellant prays that the AO be directed to allow the depreciation @ 40% since the said mould and dies fall under the head "Moulds used in rubber and plastic goods factories". 18.1. Ground No. I raised by the Assessee in appeal for the Assessment Year 2005-06 is identical to Ground No. II raised by the Assessee in appeal for the Assessment Year 2004-05. Accordingly, in view of our finding/adjudication in paragraph 5 to 5.6 above, we hold that reimbursement cost pertaining to moulds and dies amortized by the Assessee and claimed as deduction is allowable as revenue expenditure, and therefore, the Assessee is entitled to claim deduction of INR 21,76,000/-. Ground No. I raised by the Assessee is, therefore, allowed. 19. Ground No. II 1. ―The CIT(A) erred in confirming the action of the AO in not allowing claim u/s. 80-IB of the Act in respect of Vicks Vaporub (Tins) line at 100% as claimed by the Appellant and restricting the same to 30%, on the alleged ground that the new line was only an extension of the existing industrial undertaking and further that this year represents the 9th year of claim for such unit also. 2. The Appellant prays that a deduction @ 100% u/s 801B under the Act be allowed.‖ 19.1. Ground No. II raised by the Assessee in appeal for the Assessment Year 2005-06 is identical to Ground No. III raised in appeal by the Assessee for the Assessment Year 2004-05. Accordingly, in view our ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 40 finding/adjudication in paragraph 6 to 6.12 above, we are not inclined to accept the contention of the Assessee that deduction under Section 80IB of the Act is available for 100% of the profits from Vaporub-10 gm Unit. Accordingly. Ground No. II raised by the Assessee is dismissed. 20. Ground No. III ―I.1 The CIT(A) erred in confirming the action of the AO in not allowing claim u/s. 80-IB of the Act in respect of Whisper E - Line at 100% as claimed by the Appellant and restricting the same to 30%, on the alleged ground that the new line was only an extension of the existing industrial undertaking and further that this year represents the 8th year of claim for such unit also. I.2 The Appellant therefore prays that deduction in respect of the new undertaking of Whisper E-line be allowed at 100% as claimed by the Appellant.‖ 20.1. Ground No. III pertains to deduction claimed by the Assessee under Section 80IB of the Act in respect of Whisper E-line Unit. 20.2. The relevant facts in brief are that during the financial year relevant to the Assessment Year 1998-99 had set up an undertaking to manufacture ‘Whisper’ which was eligible for deduction under Section 80IA/80IB of the Act in respect of profits of such undertaking at 100% for the first five years i.e. upto Assessment Year 2002-03 and thereafter, at the rate of 30%. During the previous year relevant to the Assessment Year 2004-05, the Assessee had established Whisper e- Line Unit. 20.3. For the Assessment Year 2005-06, while the Assessee claimed deduction at the rate of 100% of profits derived from Whisper e-Line Unit, the Assessing Officer restricted the same to 30% holding that the aforesaid unit was nothing but in extension of the Whisper Unit ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 41 established in 1998-99. 20.4. In appeal preferred by the Assessee, the CIT(A) decline to grant any relief on this issue and confirmed the order passed by CIT(A) restricting the amount of deductions under Section 80IB of the Act to 30% of the profits of Whisper e-Line Unit. 20.5. Being aggrieved, the Assessee has carried the issue in appeal before us. 20.6. We have heard the rival contentions and perused the material on record. 20.7. We note that the Tribunal has already examined this issue in appeal preferred by the Assessee for the Assessment Year 2004-05 against the order, dated 28/02/2011, passed by the CIT(A) dismissing the appeal preferred by the Assessee which inturn arose from the Assessment Order, dated 31/12/2009, passed under Section 143(3) read with Section 263 of the Act for the Assessment Year 2004-05. We have perused the aforesaid order passed by the Tribunal in ITA No. 4903/Mum/2011 [Assessment Year 2004-05, dated 09/05/2022] and find that after examining all the issues/contentions raised by both the sides, the Tribunal had concluded that Whisper e-Line Unit was a new unit engaged in manufacturing a new product and that the same was not formed by splitting up or reconstruction of existing business. Thus, Whisper e-Line Unit was held to be a separate industrial undertaking eligible for deduction under Section 80IB(4) of the Act at the rate of 100%. Respectfully following the aforesaid decision of the Tribunal in the case of the Assessee for the Assessment Year 2004-05, we hold that the Assessee is entitled to claim deduction under Section 80IB of the Act at the rate of 100% of profits derived from Whisper e-Line Unit. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 42 Accordingly, Ground No. III Raised by the Assessee is allowed. 21. Ground No. IV ―1. The CIT(A) erred in confirming the action of AO in reducing the profits of the undertakings eligible for deduction u/s. 80-IB of the by disregarding following incomes aggregating Rs.6,34,72,129/- from the computation of the profits of the respective undertakings eligible for deduction u/s. 80-1B of the Act. Interest (gross) Rs. In Lakhs 327.28 Interest on Income Tax refund 111.56 Business process outsourcing income 57.06 Write- back of liabilities no longer required 28.65 Scrap Sales, Depreciation cross charge to affiliate, Incentive from airlines, compensation recd from affiliate, Mould rent record 110.17 2. The Appellant therefore prays that the said incomes aggregating to Rs. 6,34,72,129/- be considered as forming part of the profits of the respective undertakings eligible for deduction u/s. 80-IB of the Act.‖ 21.1. Ground No. IV pertains to reduction of claim of deduction under Section 80IB by reducing the profits of the undertakings by disregarding certain income. Ground No. IV raised by the Assessee in appeal for the Assessment Year 2005-06 is identical to Ground No. VI raised by the Assessee in appeal for the Assessment Year 2004-05. Accordingly, in view of our finding/adjudication in paragraph 9 to 9.6 above, we hold that the Assessing Officer was justified in reducing the ‘Other Income’ from the profits and gains of the undertaking for the purpose of computing deduction under Section 80IB of the Act. Ground No. IV raised by the Assessee in the present appeal is, therefore, dismissed. ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 43 22. Ground No. V and Additional Grounds VIII & IX 22.1. During the course of hearing, the Ld. Authorised Representative for the Assessee had placed upon record a chart and had arguments on the issues stated therein. Since no submissions were advanced in relation to Ground No. V and additional Ground No. VIII & IX, the same are dismissed as not pressed. 23. Ground No. VI ―The CIT(A) erred in confirming the interest charged u/s. 234 of the Act by the A.O. The Appellant prays that the interest chargeable u/s. 234 of the Act be accordingly corrected/ reduced.‖ 23.1. Ground No. VI pertains to levy/charge of interest and the same is disposed off as being consequential in nature. APPEAL BY REVENUE (ITA No. 2849/Mum/2011) 24. We would now take up appeal preferred by the Revenue for the Assessment Year 2005-06. The grounds raised by the Revenue in appeal are taken-up hereinafter in seriatim. 25. Ground No. 1 & 2 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs.3,82,45,404/ related to the cost of production of advertisement/T. V. films, without appreciating the facts of the case". 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding that the expenditure incurred for advertisement/T.V.films as revenue in nature without appreciating the fact that the assessee becomes the owner of the advertisement films which are reusable over an indefinite period of time". 25.1. Ground No. 1 & 2 pertains to disallowance of Advertisement expenses on production of television films and commercials. The Assessing ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 44 Officer had disallowed expenditure amounting to INR 3,82,45,404/- holding the same to be capital in nature. In appeal preferred by the Assessee, the CIT(A) deleted the disallowance by following the decisions of the Hon’ble Bombay High Court in the case of CIT Vs. Geoffrey Manners and Co. Ltd.: (180 Taxman 87) (Bombay High Court). 25.2. Ground No.1 & 2 raised in appeal for the Assessment Year 2005-06 by the Revenue is identical to Ground No. I raised in appeal by the Assessee for the Assessment Year 2004-05. Accordingly, in view of our finding/adjudication in paragraph 4 to 4.9 above, we concur with the CIT(A) and hold that the Assessee is entitled to claim deduction under Section 37(1) of the Act for the television film production expenses of INR 3,82,45,404/- incurred in relation to promotion of ongoing products since no enduring benefit accrues to the Assessee. Ground No. 1 & 2 raised by the Revenue are dismissed. 26. Ground No. 3 to 4 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition of unutilized MODVAT credit of Rs.1,79,76,415/- to the closing stock, without appreciating the facts of the case". 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the decision of the Hon'ble Supreme Court in the case of Indo Nippon Chemicals as reported in 261 ITR 275, without appreciating the fact that the decision of the Hon'ble Supreme Court was rendered in the context of A. Y. 1989-90 ie prior to the insertion of section 145A w.e.f. 1.04.99 i.e. A. Y. 1999- 2000 and therefore, the ratio of the above cited decision is not applicable to the assessee's case for A. Y 2005-2006" 26.1. The Assessing Officer had made an addition of INR 1,79,76,415/- on account of unutilized Modvat Credit since the Assessee was following non-exclusive method of accounting for Modvat Credit with regard to ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 45 inventory, purchases and consumption. The CIT(A) deleted the addition by following the order passed in appeal for the Assessment Year 2004-05. Being aggrieved, the Revenue is in appeal before us on this issue. 26.2. We note that issues raised by the Revenue in Ground No.3 & 4 of the present appeal for the Assessment Year 2005-06 are identical to the issues raised in Ground No. 2-5 of the appeal by Revenue for the Assessment Year 2004-05. Even the CIT(A) had deleted the addition by following his own order for the Assessment Year 2004-05. Accordingly, in view of our finding/adjudication in paragraph 15 to 15.7 above, we set aside this issue back to the file of Assessing Officer with the direction to make Modvat credit adjustments to the closing stock as well as the corresponding Modvat credit adjustments to the opening stock to arrive at the correct quantum of addition, if any, on account of Modvat credit after taking into consideration the judgment of Hon’ble Delhi High Court in the case of CIT vs. Mahavir Aluminium Ltd. (297 ITR 77) (Delhi HC), the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. : [2009] 318ITR116 (Bombay) and the decision of the Mumbai Bench of the Tribunal in the case of Hawkins Cookers Vs. ITO (ITA No. 505/Mum/2004). In terms of the aforesaid, Ground No. 2 & 3 raised by the Revenue are allowed for statistical purposes. 27. Ground No. 5 5. ―On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding up the claim of the assessee u/s.801B at Rs.45,47,99,725/- as against Rs. 17,65,65,066/- worked out by the A. O.". 27.1. Ground No. 5 raised by the Revenue pertains to is the order of CIT(A) allowing the claim of the Assessee for deduction under Section 80IB of ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 46 the Act at the rate of 30% in respect of Whisper E-line Unit. The grievance of the Revenue is that the even deduction to the extent of INR 17,65,65,066/- (as opposed to INR 45,47,99,725/- claimed by the Assessee) should not have been allowed by the Assessee. While adjudicating Ground No. III of the appeal preferred by the Assessee for the Assessment Year 2005-06, we have held that the Assessee is entitled to deduction under Section 80IB of the Act at the rate of 100%. Accordingly, in view of finding/adjudication in paragraph 20 to 20.7 above, Ground No. 5 raised by the Revenue is dismissed. 28. Ground No. 6 & 7 6. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing the A. O. to allocate only interest payable on overdraft, without appreciating the fact that separate books of accounts for Honda Goa Unit & Kundaim Unit had not been maintained by the assessee and that the involvement of the Head Office, the marketing and other divisions and the R & D Unit of the assessee company in the Honda Goa Unit and Kundiam Unit cannot be denied". 7. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding that there is no rationale in allocating the salary expenses of the marketing personnel, R&D expenditure and depreciation which may be common expenses of the entire company which were already considered for allocation on the basis of turnover, appreciating the fact that separate books of accounts for Honda Goa Unit & Kundiam Unit had not been maintained by the assessee and that the involvement of the Head Office, the marketing and other divisions and the R & D Unit of the assessee company in the Honda Goa Unit and Kundiam Unit cannot be denied. 28.1. Ground No. 6 & 7 pertains to increasing the claim of deduction under Section 80IB by allocating certain Head Office expenses like salary, depreciation, interest expenses. 28.2. During the relevant previous year, the Appellant for the company as a whole had incurred employees cost, depreciation on assets of head office and Interest Expenses. The Appellant had also prepared a ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 47 separate profit and loss account for each of the 80-IB units as required under statute and submitted an audit report thereon. The Assessing Officer reduced the claim under Section 80IB of the Act in respect of the relevant undertaking by allocating the unallocated employees cost, depreciation on the head office assets and Interest Expenses to such undertakings on the turnover ratio of the undertakings on the ground that the aforesaid expenses were also allocable to the undertakings. In appeal preferred by the Assessee, the CIT(A) decided the issue in favour of the Assessee by following the decision of the Tribunal in the case of the Assessee for the Assessment Year 1999-2000 (ITA No. 6795/Mum/2004, dated 22/10/2010). Being aggrieved, the Revenue is in appeal before us on this issue. 28.3. Ground No. 6 & 7 raised by the Revenue in appeal for the Assessment Year 2005-06 is identical to Ground No. V raised in Assessee appeal for the Assessment Year 2004-05. Accordingly, in view of our finding/adjudication in paragraph 8 to 8.7 above, we do not find any infirmity in the order passed by the CIT(A). Accordingly, Ground No. 6 & 7 raised by the Revenue are dismissed. 29. Ground No. 8 & 9 8. ―On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the adjustment of Rs.73,46,827/- made u/s. 92CA(3) of the Act, without appreciating the facts of the case. 9. ―On the facts and in the circumstances of the case and in law, the CIT (A) erred in considering the low risk manufacturing comparables set of nine ignoring the cases adopted by the TPO.‖ 29.1. Ground No. 8 & 9 pertains to the transfer pricing adjustment. The contention of the Revenue is that the CIT(A) had erred in deleting the transfer pricing addition of INR 73,45,827/-. We have heard both ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 48 the sides on this issue. On perusal of the order impugned, we find that Ground No. 8 & 9 have been raised by the Revenue on the basis of incorrect understanding of fact that Transfer Pricing Addition of INR 73,46,827/- had been deleted by the CIT(A). Whereas on perusal of the order passed by the CIT(A) we find that the CIT(A) has only deleted transfer pricing addition to the extent of INR 1,82,883/- by granting +/-5% range benefit. We note that assessment in the present case was completed on 31/12/2008. whereas the modified second proviso to Section 92C of the Act applied to assessment or reassessment proceedings pending before an Assessing Officer as on 01/10/2009. Accordingly, we do not find any infirmity in the order passed by the CIT(A) as regards Transfer Pricing Adjustment. Ground No. 8 & 9 raised by the Revenue are, therefore, dismissed. 30. Ground No. 10 10. ―On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs.1, 73, 26,000/- related to various expenses, without appreciating the facts of the case that the assessee failed to discharge its primary onus of providing that the expenditure have been incurred wholly and exclusively for the purpose of business.‖ 30.1. Ground No. 10 is directed against the order of CIT(A) deleting the disallowance of INR 1,73,26,000/- made by the Assessing Officer in relation to various expenses. The break-up the disallowance made by the Assessing Officer is as under: SNo. Nature of expense Deduction Claimed (INR) Amount Disallowed (INR) 1 Donation 17,36,000 1,26,000 2 Office Supplies 1,15,00,000 20,00,000 3 Other General Supplies 79,04,000 10,00,000 4 Computer Application and Development expenses 5,08,00,000 100,00,000 ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 49 5 Other professional fees 13,31,00,000 2,00,000 6 Other service purchases 2,78,00,000 30,00,000 7 Inventory write-offs 16,16,00,000 10,00,000 30.2. We find that the CIT(A), after taking into consideration the documents, details and submission filed by the Assessee, has decided the issue in favour of the Assessee holding as under: ―20.3 In this regards the Appellant submitted the following during the course of hearing: "Appellant's Item wise Submissions Office supplies The expenses of 1.15 crores represent expenses incurred on supplies related to office management. The nature of expenses purchase of papers, cloth covers, inking stamps, envelopes, tea etc for office pantry, pencils erasers, spiral pads, box files etc. Other General supplies The expenses of 79.04 lacs debited under head include office maintenance on petty repairs like replace of halogen lamps, stamp papers, petty office machine maintenance, server hosting charges etc Computer application / development The expenses debited under this head of 5.08 crores include expenses incurred on UPS hire charges, outsourcing IT services to HP (these are major ones) and software maintenance. Further the A.O. has made adhoc disallowance of Rs. 1 crore for the reason that on verification of sample bills it was found by him that one sample bill pertains to purchase of software for DFE Training Package. As can be seen from the details attached that the impugned sample bill is for Rs. 46,500 only, on the basis of which the A.O. has disallowed Rs. 2.1 crore. The Appellant reiterates that all the expenses are revenue in nature and incurred fully in the course of business of Appellant. Other Professional services The expenses debited under this head of Rs. 13.31 crores include professional fees for various services obtained by the company from ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 50 professionals on account of payroll, taxation, company law matters etc. Other service purchases The expenses of Rs. 2.78 crores debited under this head includes expenses on annual maintenance of building automation, access control systems, CCTV systems, cost of conducting various surveys and studies related to company products, analysis and inspection charges for goods, event management fees for organizing various company events, electrical works at plants, swing mobile call center charges, packing and parceling expenses. FG Inventory written off At the outset, the Appellant submits that this issue is decided in favour of Assessee by CIT(A) in earlier years and department appeal has also been dismissed by the order of Honourable Mumbai ITAT in the earlier years. See for eg A.Y. 1996-97 ITA No. 3833/M/04. The expenses debited under this head of Rs. 16.16 lacs represents damaged obsolete FG written off from the books of accounts. These expenses include minor amounts written off during the year arising out of FG inventory adjustment resulting from damaged stocks, transit shortages and shortfalls. These expenses are normal for any FMCG and represents wear and tear. The Appellant again submits that the expenses have actually been incurred during the course of the business and are fully verifiable from the details attached herewith. Further, it is a settled law that no additions can be made on conjectures or surmises and on ad-hoc basis. The Assessee submits that Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) has held that the ITO cannot make the assessment on a pure guess without reference to any evidence or material. 20.4 I have perused the facts of the case, submissions of the Appellant and the details submitted before me vide submissions dated December 22, 2010, providing item wise Invoice no, date and narration for expenses incurred under various heads. Its also seen from page 47 of the assessment order that Appellant had also furnished sample bills with the details of the expenses during the ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 51 assessment proceeding as referred by AO at various places in the order. It is clear from the perusal of the item wise details of expenses and the submissions of the Appellant giving nature of such expenses that they were incurred during normal course of business Moreover, the disallowance mate by the AO is ad hoc in nature with any proper basis or evidence for doing so. It is a settled principle coming out from the above cited judicial precedents that no disallowance can made on ad hoc basis by guess or without reference to any evidence a material. Moreover, the Appellant is a listed entity which gets its accounts audited and no qualification is made by the auditors of the company in this regard therefore the question of personal or non business relate expenditure does not arise. A disallowance u/s 37 of expenditure made in this manner by following the doctrine of tokenism and adhocisim is not justified. In view of the above discussion, I am of the view that ad hoc disallowance is not justified in this case and direct the AO to delete the same.‖ 30.3. The above factual findings retuned by the CIT(A) while deleting the ad-hoc disallowances made by the Assessing Officer have gone uncontroverted in the proceedings before us. There is nothing on record to support the ad-hoc disallowances made by the Assessing Officer. Accordingly, we do not find any infirmity in the order passed by the CIT(A) in this regard. Ground No. 10 raised by the Revenue is, therefore, dismissed. 31. In result, all the four appeals are partly allowed. Order pronounced on 25.08.2023. Sd/- Sd/- (S. Rifaur Rahman) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 25.08.2023 Alindra, PS ITA. No. 6591 & 6549/Mum/2010 (AY 2004-05) ITA. No. 2780 & 2849/Mum/2011 (AY 2005-06) 52 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai