DCIT Cir - 6(3), V. M/s Glaxo Smithkline Pharmaceuticals Ltd,

ITA 7026/MUM/2003

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3438 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-04-2013
• Assessment Year: misc
• Appeal Filed On: 29-10-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Retrospective amendment; Capital expenditure
• Section: 43B; 143(3); 80HHC; 14A; 37(1); 28; 154

Judgement Text

ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 1 OF 34 IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.6159/MUM/2003 (ASSESSMENT YEAR: 1999-2000) GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) 252 DR.ANNIE BESANT ROAD VS DY.CIT 6(3) 522, AAYAKAR BHAVAN MK ROAD WORLI, MUMBAI 400025 MUMBAI-400020 PAN NO: AAACG4414B (APPELLANT) (RESPONDENT) ITA NO.7026/MUM/2003 ( ASSESSMENT YEAR: 1999-2000) DY. CIT 6(3) 522, AAYAKAR BHAVAN MK ROAD MUMBAI 400020 VS GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) DR.ANNIE BESANT ROAD WORLI, MUMBAI 400025 PAN NO: AAACG4414B (APPELLANT) (RESPONDENT) C.O. NO.274/MUM/2004 (ARISING OUT OF ITA NO. 7026/MUM/2003) GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) DR.ANNIE BESANT ROAD VS DY. CIT 6(3) 522, AAYAKAR BHAVAN MK ROAD MUMBAI 400020 WORLI, MUMBAI 400025 PAN NO: AAACG4414B (CROSS OBJECTOR) (RESPONDENT) ITA NO.7207/MUM/2003 (ASSESSMENT YEAR: 1999-2000) DY. CIT 6(3) 522, AAYAKAR BHAVAN MK ROAD MUMBAI 400020 VS GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) DR.ANNIE BESANT ROAD WORLI, MUMBAI 400025 PAN NO: AAACG4414B (APPELLANT) (RESPONDENT) ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 2 OF 34 ASSESSEE BY: SHRI P.J. PARDIWALA & SHRI NIRAJ SHETH DEPARTMENT BY: SHRI GIRIJA DAYAL, CIT(DR) DATE OF HEARING: 17/04/2013 DATE OF PRONOUNCEMENT: 12/06/2013 O R D E R PER BENCH. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AND CROSS OBJECTION BY ASSESSEE FOR ASSESSMENT YEAR 1999-2000 ARISING OUT OF THE ORDER OF CIT (A)-XXVI MUMBAI DATED 22/03/2003 O N ORDER OF AO UNDER SECTION 143(3) OF THE INCOME-TAX ACT. 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRESENTATIVE. LEARNED COUNSEL PLACED ON RECORD A PAPER BOOK AND A CHART INDICATING THE ISSUES WHICH ARE COVERED BY EARLIER ORDERS. THESE ARE CONSIDERED WHILE DISPOSIN G OF THESE APPEALS. ITA NO.6159/MUM/2003-ASSESSEE APPEAL 3. GROUND NO.1 RAISED BY ASSESSEE IS AS UNDER: THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXVI MUMBAI (HEREINAFTER REFERRED TO AS THE CIT (A), ERR ED IN UPHOLDING THE STAND OF THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 6(3) MUMBAI (HEREINAFTER REFERRED TO AS THE ACIT) ERRED IN UPHOLDING THE STAND OF THE ACIT IN NOT ALLOWING THE APPELLANTS CLAIM FOR DEPRECIATION ON ` .22,67,281 AND ` .16,42,617 BEING PART OF THE SHARE DILUTION EXPENSES INCURRED IN THE ASSESSMENT YEAR 1 984- 85 AND 1986-87 SUBMITTED AS RELATABLE TO PROGRAMMES OF CAPITAL EXPENDITURE IN THE AYS 1984-85 AND 1986- 87 RESPECTIVELY. 3.1 THIS ISSUE ARISES ORIGINALLY IN AY 1984-85 AND CONSEQUENT TO THE CAPITALIZATION OF THE AMOUNT IN THAT YEAR CONSE QUENTIAL DEPRECIATION BENEFITS ARE BEING CLAIMED BY ASSESSEE . ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 3 OF 34 3.2 BEFORE US BOTH THE COUNSELS AGREED THAT THE ISS UE OF DISALLOWANCE OF DEPRECIATION OF SHARE VALUATION EXP ENSES IS COVERED IN FAVOUR OF ASSESSEE AND THE AGAINST THE REVENUE B Y THE COORDINATE BENCH DECISIONS RENDERED IN ASSESSEES O WN CASE FROM AY 1984-85 TO 1997-98. IT WAS FURTHER INFORMED THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN AY 1986-87, 1988-89 AND 1991-92 UPHELD ITAT ORDERS. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE DIRECT AO TO ALLOW ON THE ABOVE A MOUNT CAPITALIZED IN AY 1984-85 ON WHICH THE DEPRECIATION CLAIM IS CONSEQUENTIAL. GROUND IS ALLOWED. 4. GROUND NO.2 IS AS UNDER: 2. THE CIT (A) ERRED IN UPHOLDING THE STAND OF THE JCIT IN NOT ALLOWING TENDER DEPOSITS WRITTEN OFF OF ` .5,80,000 4.1 ASSESSEE IS AGGRIEVED ON THE DECISION OF AO AND THE CIT (A) IN REJECTING THE WRITE OFF OF TENDER DEPOSITS AMOUNTIN G TO ` .5,80,000. THE FACTS IN BRIEF ARE THAT ASSESSEE CLAIMED WRITE OFF OF VARIOUS SMALL TENDER DEPOSITS IN THE YEAR UNDER CONSIDERATI ON AND CLAIMED DEDUCTION THEREOF. AO HOWEVER, HELD THAT THE CONDIT IONS OF SECTION 36(2) OF THE ACT WERE NOT SPECIFIED AND THEREFORE, HE REJECTED THE CLAIM OF ASSESSEE. AO ALSO REJECTED THE CLAIM OF AL LOWANCE OF THE SAME UNDER SECTION 28/37(1) OF THE ACT. AGGRIEVED B Y THIS, ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT (A) WHO A LSO CONFIRMED THE ACTION OF AO BY HOLDING THAT SUCH DEPOSITS COULD NO T BE CONSIDERED AS DEBTS OR LOSS INCURRED IN RESPECT OF BUSINESS. A GGRIEVED BY THIS ASSESSEE IS IN APPEAL BEFORE US. 4.2 WE CONSIDERED THE RIVAL SUBMISSIONS AND THE MAT ERIAL ON RECORD. ADMITTEDLY SUCH WRITE OFF IS RELATED TO VAR IOUS SMALL AMOUNT DEPOSITS AS EMD. THE SUBMISSION OF TENDERS FLOATED BY THE PROSPECTIVE BUYERS OF ASSESSEE PRODUCTS AND SUCH DE POSIT IS THE PRE CONDITION TO GET THE BUSINESS HENCE SUCH DEPOSITS C ANNOT BE TREATED ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 4 OF 34 IN ISOLATION OF BUSINESS. THE GENUINENESS OF SUCH D EPOSITS IS NOT IN DISPUTE, NOR ITS WRITE OFF. SIMILAR ISSUE WAS CONSI DERED BY THE COORDINATE BENCH IN THE CASE OF M/S BURROUGHS WELLC OME (I) LTD IN ITA NO.5335/MUM/2002 DATED 27.03.2008 WHEREIN ON SI MILAR FACTS IT WAS HELD THAT THE LOSS WAS INCIDENTAL TO BUSINES S AND WAS ALLOWABLE UNDER SECTION 28 R.W.S. 37(1) OF THE ACT. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN THEREIN, WE DIRE CT AO TO ALLOW THE AMOUNT. GROUND IS ALLOWED. 5. GROUND NO.3 IS AS UNDER: (A) THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE JC IT IN REDUCING THE ESTIMATED WRITTEN DOWN VALUES OF EACH OF THE BLOCK OF ASSETS OF THE FAMILY PRODUCTS UNDERTAKING TRANSFERRED AS A GOING CONCERN IN THE A Y 1995-96 FROM THE OPENING WRITTEN DOWN VALUES OF THE RESPECTIVE BLOCKS, FOR COMPUTATION OF DEPRECIATION ALLOWANCE. (B) THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE JC IT, IN DISALLOWING DEPRECIATION ON DEPRECIATION DISALLOWED IN EARLIER YEARS IN RESPECT OF ASSETS OF THE FAMILY PRODUCTS UNDERTAKING. (C) THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AC IT IN DISALLOWING DEPRECIATION OF ` .44,000 FROM THE BLOCK FACTORY/OFFICE BUILDINGS IN RESPECT OF PART OF BUILDING 72 LEASED TO M/S HONGKONG & SHANGHAI BANKING CORPORATION LTD. DEPRECIATION FOR THE CURRENT AY ` ,40,000 DEPRECIATION ON DEPRECIATION DISALLOWED ` . 4,000 IN AY 1994-95, 1995-96, 1996-97 AND 1997-98 AND 1998-99 ` .44,000 D) THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE ACIT IN DISALLOWING DEPRECATION OF RS.95,000 FROM THE BL OCK FACTORY/OFFICE BUILDINGS IN RESPECT OF PROPERTY A T CHENNAI LEASED TO M/S CONCORDE MOTORS PRIVATE LIMITED. 5.1 GROUND NO.3A AND 3B PERTAINS TO THE ISSUE OF RE DUCTION OF ESTIMATED WDV BLOCK OF ASSETS OF FPU TRANSFERRED IN ASSESSMENT YEAR 1995-96 FROM THE RESPECTIVE BLOCKS AND COMPUTA TION OF ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 5 OF 34 DEPRECIATION DISALLOWED IN EARLIER YEARS. AS PER TH E RECORD, THE FAMILY PRODUCT UNDERTAKING WAS TRANSFERRED AS A GOI NG CONCERN AT SLUMP PRICE OF ` .180 CRORES IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1995-96. BOTH THE PARTIES SUBMITTED THAT THE ISSUE HAS BEEN SET ASIDE BY THE TRIBUNAL IN ITA NO. 1420/MUM/99 AND ITA NO.1594/MUM/99 VIDE ORDER DATED 16.6.2006 W HEREIN THE TRIBUNAL HELD THAT THE TRANSACTION WAS NOT EXIGIBLE TO THE CAPITAL GAIN TAX. FURTHER, AO WAS DIRECTED TO DEDUCT FROM S UCH BLOCK THE WDV OF ASSETS TRANSFERRED TO M/S HEINZ BEFORE ALLOW ING DEPRECIATION TO ASSESSEE. THIS DIRECTION WAS GIVEN AS THE TRIBUNAL HELD AS OTHERWISE ASSESSEE WOULD CLAIM DEPRECIATION ON THE ASSETS WHICH WERE TRANSFERRED. ACCORDINGLY, WE RESTORE THE ISSUE BACK TO THE FILE OF AO TO DETERMINE CONSEQUENTIAL WDV IN TH IS ASSESSMENT YEAR AND ALLOW DEPRECIATION. WE ORDER ACCORDINGLY. 5.2 GROUND NO.3C PERTAINS TO DISALLOWANCE IN DEPREC IATION IN RESPECT OF PART OF BUILDING 72 LEASED TO M/S HONGKO NG & SHANGHAI BANKING CORPORATION LIMITED. GROUND NO.3D PERTAINS TO DISALLOWANCE IN DEPRECIATION OF ` .95,000 FROM THE BLOCK FACTORY/OFFICE BUILDINGS IN RESPECT OF PROPERTY A T CHENNAI LEASED TO M/S CONCORDE MOTORS PVT. LTD. 5.4 THE CIT (A) HAD NOT SPECIFICALLY DISCUSSED THE ISSUE IN THE ORDER. IT WAS FAIRLY ADMITTED THAT THIS ISSUE WAS COVERED BY THE ORDERS OF THE ITAT IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 1994-95, 1995-96 AND 1996-97, 97-98. FOLLOWING THE ORDERS OF EARLIER YEARS, KEEPING IN VIEW OF THE ABOVE FINDINGS OF THE ITAT I N ASSESSEES OWN CASES IN EARLIER YEARS, ON THE REASON THAT ASSESSEE HAD LEASED PART OF THE BUILDING AND THE SAME WAS NOT USED FOR THE P URPOSE OF BUSINESS, NO DEPRECIATION CAN BE ALLOWED. THE GROU ND IS ACCORDINGLY REJECTED. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 6 OF 34 6. GROUND NO.4 IS AS UNDER: 4. THE CIT (A) ERRED IN UPHOLDING THE STAND OF THE ACIT OF MAKING AN ADDITION OF ` .47,10,024 ON ACCOUNT OF CLOSING STOCK OF DIESEL AND COAL. 6.1 AO DISALLOWED THE CLAIM MADE BY ASSESSEE HOLDIN G THAT SINCE THE SAID ITEMS HAVE NOT BEEN CONSUMED IN THE YEAR, THE VALUE OF DIESEL OIL/COAL UNUTILIZED ARE TO BE CONSIDERED AS CLOSING STOCK AND ADDED TO THE INCOME OF THE CURRENT YEAR. THE CIT (A ) FOLLOWING HIS EARLIER ORDERS IN ASSESSMENT YEARS 1994-95 TO 1996- 97 CONFIRMED THE SAME. 6.2 AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE RECORD AVAILABLE BEFORE US, WE FIND THAT THE ISSUE FOR OUR ADJUDICATION IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISIONS OF T HE MUMBAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FROM ASSESSM ENT YEARS 1986- 87 TO 1996-97. SINCE THERE WAS A CHANGE OF METHOD O F ACCOUNTING IN ASSESSMENT YEAR 1986-87, WHICH WAS HELD TO BE A GEN UINE CHANGE OF METHOD OF ACCOUNTING, THE CONSUMABLE ITEMS LIKE COAL AND OIL WERE ALLOWED TO BE WRITTEN OFF IN THE YEAR OF PURCH ASE ITSELF. THEREFORE, CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE IMPUGNED ORDER BY THE CIT (A) AND ALLOW THE GROUND RAISED BY ASSESSEE. 7. GROUND NO.5 IS GIVEN BELOW: THE CIT (A) ERRED IN UPHOLDING THE STAND OF THE JC IT THAT ALL INTEREST OTHER THAN INTEREST ON SECURITIES DEPO SIT IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. THE APPELLANTS SUBMIT THAT FOLLOWING INTEREST INCOM E IS RELATED TO AND INCIDENTAL TO BUSINESS AND AS SUCH F ORMS A PART OF BUSINESS INCOME: ` .IN LAKHS A INTEREST ON BANK/INTER CORPORATE DEPOSIT 92.05 B INTEREST ON GOI SECURITIES 30.17 C INTEREST ON TREASURY BILLS 6.22 ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 7 OF 34 D INTEREST ON DEBENTURES/BONDS 149.55 E INTEREST ON IDBI BONDS/UTI MIP (INVESTMENT OF LTCG UNDER SECTION 54EA) 50.45 328.44 7.1 GROUND NO.5 PERTAINS TO THE TREATMENT GIVEN TO INTEREST INCOME AS INCOME FROM OTHER SOURCES. BEFORE US, BOTH THE P ARTIES AGREED THAT THIS ISSUE WAS EARLIER DECIDED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1989-90 TO 1991- 92, 1992-93 TO 1993-94, 1994-95 TO 1998-99 RESPECTIVELY, WHEREIN T HE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH BY OBSERVING AS FOLLOWS:- '57. LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT (A). WE HAVE CONSIDERED TH E RIVAL SUBMISSIONS AS ALSO THE JUDICIAL PRONOUNCEMEN TS RELIED UPON BY THE LEARNED DR. IN THE CASE OF SHREE KRISHNA POLYESTER LTD. (SUPRA), THE BOMBAY HIGH COU RT HELD THAT INTEREST INCOME FROM INVESTMENT IN SHORT- TERM DEPOSIT OF SURPLUS FUNDS ACQUIRED IN PUBLIC ISSUE O F SHARES, IS ASSESSABLE AS 'INCOME FROM OTHER SOURCES '. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD. (SUPRA), THE SUPREME COURT HELD THAT INTEREST ON INVESTMENT OF BORROWED FUNDS PRIOR TO COMMENCEMENT OF BUSINESS IS TO BE ASSESSED UNDER THE HEAD 'INCOME F ROM OTHER SOURCES'. THE DECISION OF PUNJAB & HARYANA HI GH COURT IN THE CASE OF RANI PALIWAL IS NOT RELEVANT A S THE HIGH COURT WAS CONCERNED WITH ONLY APPLICABILITY OF CLAUSE (BAA) OF THE EXPLANATION UNDER SECTION 8OHHC . IN THE CASE OF PANDIAN CHEMICALS LTD. (SUPRA) THE MADR AS HIGH COURT HELD THAT INTEREST ON DEPOSITS WITH ELEC TRICITY BOARD MADE OUT OF STATUTORY COMPULSION WAS NOT PROF IT DERIVED FROM INDUSTRIAL UNDERTAKING. THIS JUDGMENT HAS SINCE BEEN CONFIRMED BY THE SUPREME COURT (262 ITR 278). IN THE CASE OF AUTOKAST LTD., THE ASSESSEE CO MPANY BORROWED MONEY FOR PURCHASE OF PLANT AND MACHINERY AND EARNED INTEREST INCOME BY PLACING IT IN SHORT- TERM DEPOSITS WITH BANKS TILL PAYMENT WAS MADE FOR PLANT AND MACHINERY. THESE DEPOSITS WERE USED IN BILL DISCOUNTING. THE SUPREME COURT HELD THAT THE INTERE ST INCOME EARNED WAS TAXABLE AS INCOME FROM OTHER SOURCES. IN OUR VIEW, THE PRESENT ISSUE HAS TO BE CONSIDERED N THE LIGHT OF THE AFORESAID JUDGMENTS. THE ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 8 OF 34 RELEVANT PART OF THE ORDER OF THE CIT (A) FOR THE ASSESSMENT YEAR 1989-90 HAS BEEN REPRODUCED (SUPRA) . FOR THE ASSESSMENT YEARS 1990-91 AND 1991-92 ALSO T HE FACTS ARE SIMILAR. WE FIND THAT THE EXACT NATURE OF THE INTEREST 10 GLAXO INDIA LIMITED ITA NO. 6027/MUM/1999, INCOME IS NOT CLEAR FROM THE ORDERS OF THE REVENUE AUTHORITIES. IN OUR VIEW THIS ISSUE REQ UIRES RECONSIDERATION BY THE ASSESSING OFFICER AFTER BRIN GING ON RECORD THE CORRECT FACTUAL POSITION WITH REGARD TO THE NATURE OF THE INTEREST INCOME, AFTER ALLOWING OPPOR TUNITY TO THE ASSESSEE. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE ASSESSING OFFICER FOR RE-ADJUDICATION.' 7.2 CONSISTENT WITH VIEW TAKEN, WE SET ASIDE THE OR DER OF AUTHORITIES AND RESTORE THE ISSUE TO THE FILE OF AO FOR ADJUDIC ATION AFRESH IN ACCORDANCE WITH LAW. THE LEARNED COUNSEL PLACED ON RECORD THE ORDERS GIVING EFFECT TO THE ORDERS OF THE ITAT IN A Y 1995-96 AND 1996-97 WHEREIN AO TREATED THE BUSINESS INCOME BY R EDUCING THE SAME FROM INCOME FROM OTHER SOURCES. THE ACTION OF AO IN THOSE YEARS MAY BE CORRECT ON FACTS BUT AO HAS TO EXAMINE HOW MUCH OF THE INCOME DO PERTAIN TO BE THE BUSINESS INCOME. IT WAS INFORMED THAT THE INTEREST INCLUDED INTEREST ON INTER CORPOR ATE DEPOSITS, TAX REFUNDS, GOI SECURITIES, DEBENTURES/BONDS ETC. SINC E THE NATURE OF INTEREST INCOMES ARE TO BE EXAMINED, THE ISSUE IS R ESTORED TO THE FILE OF AO. THIS GROUND IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.6 AND GROUND NO.8 ARE GIVEN BELOW: 6(A) THE CIT (A) ERRED IN UPHOLDING THE STAND OF A CIT OF INCLUDING THE SALE OF SCRAP IN TOTAL TURNOVER FOR A RRIVING AT THE RATIO OF EXPORT TURNOVER TO TOTAL TURN OVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC. (B)(I) FOR THE PURPOSE OF REDUCING 90% OF ITEMS FOR MING OF MISCELLANEOUS INCOME THE CIT (A) HAVING HELD THAT THE FOLLOWING ITEMS ARE NOT TO BE REDUCED BY 90% IN ACCORDANCE WITH EXPLANATION (BAA) TO SECTION 80HHC ERRED IN STATING THAT NONE OF THE RECEIPTS COULD BE TREATED AS HAVING A DIRECT NEXUS WITH THE BUSINESS ACTIVITI ES OF THE APPELLANT. THE APPELLANTS SUBMIT THAT THE BELOW LISTED ITEMS ARE NOT ENVISAGED BY THE SAID EXPLANATION AND ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 9 OF 34 SHOULD NOT BE CONSIDERED FOR REDUCTION BY 90% UNDER EXPLANATION (BAA) TO SECTION 80HHC. ` .IN LAKHS CLAIM RECOVERIES 125.24 ACCOMMODATION RECOVERY 3.15 RECOVERY OF STAFF BUSES 6.32 SALES TAX/PURCHASE TAX SET OFF 136.07 RECOVERY OF EXPENSES BWIL/BSG (NET) 288.95 MANUFACTURING CHARGES 54.31 AMOUNT RECEIVED ON PRODUCT 11.62 COMMISSION ON CONSIGNMENT SALES 17.38 SAMPLE REBATES 29.49 PROFIT ON SALE OF ASSETS 24.75 CASH DISCOUNTS RECEIVED 10.07 UNCLAIMED CREDIT BALANCES 38.85 MISCELLANEOUS INCOME 8.28 TOTAL 754.48 (II) WITHOUT PREJUDICE TO THE ABOVE, THE REDUCTION SHOULD BE TAKEN ON A NET BASIS AND NOT ON A GROSS BASIS . (III) THE APPELLANTS SUBMIT THAT THEY HAVE ALREADY REDUCED PROFIT ON SALE OF ASSETS ( ` .24.75 LAKHS) FROM THE BUSINESS INCOME. (C) HAVING DECIDED THE GROUND OF APPEAL REGARDING THE ACTION OF THE JCIT IN EXCLUDING THE CLOSING BALANCE OF ADVANCE LICENCE BENEFIT WHILE COMPUTING THE BUSINES S PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC IN FAVOUR OF THE APPELLANTS, THE CIT (A) ERRE D IN DIRECTING THE JCIT TO RECOMPUTED THE DEDUCTION UNDE R SECTION 80HHC AFTER EXCLUDING THE ADVANCE LICENCE BENEFIT FROM BUSINESS PROFIT. 8(A) THE CIT (A) ERRED IN UPHOLDING THE STAND OF TH E ACIT IN HOLDING THAT ` .4,66,77,440 BEING THE ADVANCE LICENCE BENEFIT ACCOUNTED FOR IN THE APPELLANTS BOOKS OF A CCOUNT HAD ACCRUED TO THE APPELLANTS AND WAS TAXABLE AS TH EIR INCOME UNDER SECTION 28(IV) OF THE INCOME TAX ACT, 1961. (B) WITHOUT PREJUDICE TO (A) ABOVE, THE APPELLANTS SUBMIT THAT THE AMOUNT OF ADVANCE LICENCE BENEFIT ACTUALLY CREDITED IN THE PASS BOOK UPTO 31 ST MARCH, 1999 SHOULD ONLY BE INCLUDED IN COMPUTING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 10 OF 34 8.1 GROUND NO.6 PERTAINS TO DEDUCTION U/S 80HHC. TH ERE ARE THREE CONTENTIONS IN THIS GROUND, FIRST ONE 6(A) TO EXCLU DE SALE OF SCRAP FROM THE TOTAL TURNOVER. AO INCLUDED THE INCOME REC EIVED ON SALE OF PRODUCT SCRAP TO THE TOTAL TURNOVER. IT IS FAIRLY A DMITTED THAT THIS ISSUE IS HELD AGAINST ASSESSEE IN THE EARLIER YEARS CONSISTENTLY FROM ASSESSMENT YEAR 1988-89 ONWARDS. CONSISTENT WITH TH E VIEW TAKEN BY TRIBUNAL IN ASSESSEES OWN CASE, WHICH WAS FAIRL Y ADMITTED BY THE LEARNED COUNSEL, WE DISMISS THE GROUND RAISED B Y ASSESSEE ON THIS ISSUE. 8.2 GROUND NO.6(B) IS WITH REFERENCE TO THE EXECUTI ON OF 90% OF THE MISCELLANEOUS INCOME IN COMPUTING THE PROFITS OF TH E BUSINESS. VIDE PAGE 15 OF AOS ORDER AO DISCUSSED VARIOUS OTH ER INCOMES RECEIVED BY ASSESSEE AND LISTED OUT AMOUNTS TO THE EXTENT OF ` .754.48 LAKHS AS OTHER INCOME WHICH IS TO BE EXCLUD ED AT 90% UNDER EXPLANATION (BAA) TO SECTION 80HHC. ASSESSEE CONTESTED THE SAME BEFORE THE CIT (A). THE LEARNED CIT (A) AFTER EXTRACTING THE AMOUNTS IN PARA 12.4A MENTIONING THE DECISION OF TH E ITAT THEREIN HAS DECIDED AS UNDER: 12.4A. IF THIS TEST IS APPLIED TO EACH OF T HE ITEMS LISTED ABOVE, IT WOULD BE SEEN THAT NONE OF T HE RECEIPTS COULD BE TREATED AS HAVING A DIRECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE APPELLANT COMPANY. A O IS THEREFORE, DIRECTED TO RECOMPUTED DEDUCTION UNDER SECTION 80HHC WITHOUT REDUCING 90% OF THESE ITEMS I N ACCORDANCE WITH EXPLANATION (BAA) TO SECTION 80HHC. THIS SUB GROUND OF APPEAL IS THEREFORE, ALLOWED. 8.3 AS THERE IS INCONSISTENCY IN THE ORDER OF THE C IT(A), BOTH ASSESSEE IS CONTESTING THE SAME AND THE REVENUE IS IN APPEAL CORRESPONDING TO GROUND NO.8 IN THEIR APPEAL. IT WA S THE CONTENTION THAT NONE OF THE RECEIPTS CAN BE EXCLUDED AS THEY A RE NOT ITEMS WHICH ARE ENVISAGED BY THE SAID EXPLANATION AND SHO ULD NOT BE CONSIDERED FOR EXCLUSION AT 90% OF THE AMOUNT. APAR T FROM THE NATURE OF THE RECEIPTS, IT WAS FURTHER SUBMITTED TH AT IF INCOMES OF ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 11 OF 34 AMOUNTS ARE TO BE EXCLUDED, IT SHOULD BE ONLY ON TH E BASIS OF THE NET AMOUNT FOLLOWING THE PRINCIPLES LAID DOWN BY TH E HON'BLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S (P) LTD. VS. CIT 343 ITR 89. IT WAS THE CONTENTION OF THE LEARNE D COUNSEL THAT THE OTHER AMOUNTS ARE CERTAINLY BUSINESS INCOME. WI TH REFERENCE TO THE CLAIM RECOVERIES, THE LEARNED COUNSEL ALSO RELI ED ON THE JURISDICTIONAL HIGH COURT IN THE CASE OF PFIZER LTD , 330 ITR 62. FURTHER, IT WAS SUBMITTED THAT ASSESSEE ITSELF EXCL UDED THE PROFIT ON SALE OF ASSETS OF RS. 24.25 LAKHS, THEREFORE DISALL OWING THE SAME AGAIN DOES NOT ARISE. 8.4 WE HAVE CONSIDERED THE ISSUE. PRIMA FACIE THE A BOVE AMOUNTS REPRESENTS THE RECOVERIES IN THE COURSE OF BUSINESS WHICH UNDER THE COMPANY LAW HAS BEEN SHOWN AS OTHER INCOME. HOWEVER , THE NATURE OF AMOUNTS ARE NOT EXAMINED BY AO IN DETAIL AND REQ UIRES RE- EXAMINATION. THEREFORE, ISSUE IS RESTORED TO THE FI LE OF AO TO EXAMINE AFRESH IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL HIGH COURT RELIED UPON BY ASSESSEE A ND ALSO OTHER DECISION OF THE JURISDICTIONAL HIGH COURT OR SUPREM E COURT TO DECIDE EACH OF THE AMOUNT. IN CASE IT IS PART OF TH E BUSINESS RECEIPTS, NOT COMING UNDER THE ITEMS UNDER EXPLANAT ION (BAA) THEY SHOULD NOT BE EXCLUDED AT 90% FROM THE PROFITS OF T HE BUSINESS. OTHERWISE, THE ALTERNATE CONTENTION OF NET AMOUNT T O BE CONSIDERED IF NEXUS IS ESTABLISHED, PARTICULARLY TO THE AMOUNT OF COMMISSION ON CONSIGNMENT SALES. UN-CLAIMED CREDIT BALANCES IT WA S SUBMITTED THAT THE SAME WAS OFFERED U/S 41(1) AND BECOMES BUS INESS INCOME. AO IS ALSO DIRECTED TO EXCLUDE THE SALE OF ASSETS I F ALREADY EXCLUDED BY ASSESSEE. WITH THESE DIRECTIONS THE GROUND IS RE STORED TO THE FILE OF AO FOR EXAMINATION AND FRESH ADJUDICATION. ASSES SEE SHOULD BE GIVEN DUE OPPORTUNITY TO EXPLAIN THE NATURE OF THE RECEIPTS. 8.5 GROUND NO.6(C) AND GROUND 8 PERTAINS TO RE-COMP UTATION OF DEDUCTION UNDER SECTION 80HHC AFTER EXCLUDING THE A DVANCE LICENSE ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 12 OF 34 BENEFIT FROM BUSINESS PROFIT. THESE ARE CONNECTED ISSUES OF CONSIDERING AS BUSINESS INCOME AND QUANTIFICATION F OR THE PURPOSE OF DEDUCTION UNDER 80HHC. 8.6 BRIEFLY STATED, THE ASSESSEE COMPANY OFFERED A SUM OF ` .3,78,07,645 ON ACCOUNT OF ADVANCE LICENCE IN THE C OMPUTATION OF INCOME ATTACHED TO THE RETURN OF INCOME. THE SAME AMOUNT WAS NOT OFFERED TO INCOME TAX IN THE PREVIOUS YEAR RELE VANT TO THE AY 1998-99, THOUGH CREDITED IN THE PROFIT & LOSS A/C I N THAT YEAR. IN THIS YEAR THE AMOUNT OF ` .1018.50 LAKHS WHICH WAS AN ADVANCE LICENCE ACCRUED DURING THE YEAR FOR EXPORTS MADE DU RING THE YEAR WAS CREDITED IN THE PROFIT & LOSS A/C AND A SUM OF ` .4,66,77,440 BEING CLOSING BALANCE OF ADVANCE LICENCE AS AT 31.0 3.1999 HAS BEEN EXCLUDED FROM THE TOTAL INCOME ON THE GROUND THAT T HE SAME HAS NOT BEEN ACCRUED TO ASSESSEE. THE NET RELIEF CLAIME D BY ASSESSEE IS THEREFORE, RS. 88,69,795. CONSISTING WITH THE ORDER S IN AY 1998-99, AO CONSIDERED THAT AMOUNT OF ` .3,78,07,645 WAS TO BE TAXED IN THAT YEAR AND THEREFORE, THE NET AMOUNT OFFERED WAS ACCE PTED AS INCOME ON PROTECTIVE BASIS. HOWEVER, AO ANALYSED THE NATUR E OF THE ADVANCE LICENCE AND AFTER DISCUSSION VIDE PAGE 21 O F THE ASSESSMENT ORDER ULTIMATELY CONCLUDED THAT THIS AMO UNT IS THE INCOME TAXABLE UNDER SECTION 28(IV) IS NOT DERIVED FROM THE EXPORTS AND THEREFORE, NOT ELIGIBLE FOR DEDUCTION UNDER SEC TION 80HHC. THUS THE PROFITS OF THE BUSINESS SHOWN BY ASSESSEE UNDER SECTION 80HHC HAS BEEN ADJUSTED. THIS MATTER WAS CONTESTED BEFORE THE CIT (A) WHO VIDE PARA 13.6E DECIDED AS UNDER: 12.5. SUB-GROUND NO.(E) IS AGAINST THE ACTION OF A O IN NOT EXCLUDING CLOSING BALANCE OF ADVANCE LICENCE BENEFI T AGGREGATING ` .4,66,77,440 WHILE COMPUTING BUSINESS PROFIT. 13.7E. IN THIS REGARD IT IS SEEN THAT THIS SUB-GROU ND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT VIDE C IT (A) ORDER DATED 30.01.2002 AGAINST THE ORDER UNDER SECT ION 143(3) R.W.S. 147 FOR AY 1997-98. RESPECTFULLY FOLL OWING THE SAME, AO IS DIRECTED TO RE-COMPUTE DEDUCTION UN DER ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 13 OF 34 SECTION 80HHC AFTER EXCLUDING THE ADVANCE LICENCE BENEFIT AGGREGATING ` .4,66,77,440 FROM BUSINESS PROFIT. THIS SUB-GROUND OF APPEAL IS THEREFORE, ALLOWED. 8.7 ASSESSEE IS AGGRIEVED ON THE ABOVE DIRECTION. I T WAS SUBMITTED THAT IN THE CASE OF EXCEL INDUSTRIES, THE ITAT CONS ISTENTLY TAKEN A VIEW THAT ON THE ISSUE OF THE TAXABILITY OF THE ADV ANCE LICENCE BENEFITS, NO INCOME ACCRUES UNTIL IMPORTS ARE MADE AND ARE MATERIALIZED. THE LEARNED COUNSEL REFERRED TO THE S ERIES OF THE ORDERS ON THE ISSUE IN THE CASE OF EXCEL INDUSTRIES AND FOR AY 1998- 99 AND 1999-2000 IN ITA NO.3868/MUM/2003 DATED 4.5. 2012 AND SUBMITTED THAT THE WORKING AS PROVIDED BY ASSESSEE IS CORRECT. 8.8 WE HAVE CONSIDERED THE ISSUE. IN THE CASE OF DC IT VS. EXCEL INDUSTRIES (SUPRA) THIS ISSUE WAS DISCUSSED AT GROU ND NO.1 AND 2 AS UNDER: 3.1. GROUND NO.1& 2 : TAXABILITY OF ADVANCE LICENC E BENEFIT RECEIVABLE RS.52,84,674/- AND PASS BOOK BEN EFIT RECEIVABLE RS.2,98,03,293 (WRONGLY STATED AS RS.5,62,63,127/- IN GROUND OF APPEAL BUT RECTIFIED) IN THE TOTAL INCOME. 3.2. THERE IS A LONG DISCUSSION IN THE ASSESSMENT O RDER IN RESPECT OF THE GROUNDS TAKEN IN THE APPEAL. HOW EVER, BOTH THE GROUNDS ARE COVERED IN FAVOUR OF THE ASSES SEE BY THE EARLIER ORDERS OF THE TRIBUNAL IN THE ASSESS EES OWN CASE. SO FAR AS GROUND NO.1 IS CONCERNED, WHIC H RELATES TO THE TAXABILITY OF ADVANCE LICENCE BENEFI TS RECEIVABLE, THE TRIBUNAL HAS DECIDED THAT NO INCOME ACCRUES UNTIL THE IMPORTS ARE MADE AND THE RAW MATERIALS ARE CONSUMED. IN THE YEAR BEFORE US, IT IS NOT IN DISPUTE THAT THE IMPORTS WERE MADE AND THE RAW MATERIALS WERE CONSUMED IN THE SUBSEQUENT YEAR. IN SUCH CIRCUMSTANCES THE EARLIER ORDERS OF THE TRIBUN AL IN THE ASSESSEES OWN CASE APPLY. THE FIRST OF SUCH O RDERS WAS PASSED ON 6 TH OCTOBER 2003 IN ITA NO: 4346/MUM/1997 FOR THE ASSESSMENT YEAR 1992-93. IN THIS ORDER THE TRIBUNAL APPLIED AND FOLLOWED THE DE CISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN JAMSHRI RAJITSINGHJI SPG. & WVG. MILLS LTD. VS. IAC (1992) 41 ITD ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 14 OF 34 (BOM) 142, IN WHICH IT WAS HELD THAT UNTIL THE GOOD S ARE IMPORTED AND THE RAW MATERIALS ARE CONSUMED, NO INCOME BY WAY OF ADVANCE LICENCE BENEFIT ACCRUES TO THE ASSESSEE. THIS ORDER WAS FOLLOWED BY THE TRIBUNAL IN ITS ORDER DATED 27 TH JANUARY 2004 FOR THE ASSESSMENT YEAR 1993-94 IN ITA NO.4145/MUM/1998. FOR THE ASSESSMENT YEAR 1995-96 THE ISSUE AGAIN CAME BEFORE THE TRIBUNAL IN ITA NO.2067/MUM/2000. THIS APPEAL WAS DISPOSED OF BY THE TRIBUNAL ON 7 TH MARCH 2005. THIS ORDER TOOK THE SAME VIEW AS IN THE EARLIER YEA RS. WHAT IS SIGNIFICANT IN THIS ORDER IS THAT THE DEPAR TMENT RELIED ON THE DECISION OF THE AHMEDABAD BENCH OF TH E TRIBUNAL IN THE CASE OF UNITED PHOSPHORUS LIMITED V S. JCIT (2002) 81 ITD 553 (AHD), IN WHICH A VIEW WAS TAKEN THAT THE ADVANCE LICENCE BENEFIT WAS TAXABLE IN THE YEAR IN WHICH IT WAS RECEIVED, WITHOUT WAITING FOR THE ACTUAL IMPORTS AND THE CONSUMPTION OF THE RAW MATER IAL. THIS ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNAL W AS STRONGLY RELIED UPON BY THE REVENUE IN THE APPEAL F OR THE ASSESSMENT YEAR 1995-96. THE TRIBUNAL IN ITS ORDER FOR THE ASSESSMENT YEAR 1995-96 HAS DEALT WITH THE ARGUMENTS OF THE REVENUE BASED ON THE AHMEDABAD BENCH OF THE TRIBUNAL IN PARAGRAPHS 13 ONWARDS. IT WAS HELD BY THE TRIBUNAL THAT EVERY ASPECT HIGHLIGHTED IN THE ORDER OF THE AHMEDABAD BENCH HAS BEEN DULY EXPLAINE D ON BEHALF OF THE ASSESSEE. IN FACT THE TRIBUNAL TO OK THE VIEW THAT THERE WAS NO DISTINCTION BETWEEN THE FACT S OF THE ASSESSEES CASE AND THE FACTS OF THE CASE BEFOR E THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF UNIT ED PHOSPHORUS LIMITED (SUPRA) AND THAT IT WAS IN ORDER FOR THE AHMEDABAD BENCH TO HAVE REFERRED THE ISSUE TO A LARGER BENCH FOR THE SAKE OF CONSISTENCY, HAVING RE GARD TO THE ORDERS OF THE MUMBAI BENCHES OF THE TRIBUNAL IN JAMSHRI RAJITSINGHJI SPG. & WVG. MILLS LTD. (SUPRA) . IN THIS VIEW OF THE MATTER AND FINDING NO DIFFERENCE I N THE FACTS RELATING TO THE ASSESSMENT YEAR 1995-96 AND T HE FACTS FOR THE EARLIER ASSESSMENT YEARS, THE TRIBUNA L HELD THAT THERE WAS NO REASON TO TAKE A DIFFERENT VIEW O F THE MATTER ON THE BASIS OF THE ORDER IN THE CASE OF UNI TED PHOSPHORUS LIMITED, AHMEDABAD BENCH. AFTER THIS OR DER OF THE TRIBUNAL, THE TRIBUNAL DISPOSED OF THE APPEA LS RELATING TO THE ASSESSEE FOR THE ASSESSMENT YEARS 1 996- ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 15 OF 34 97 AND 1997-98 BY ORDER DATED 12 TH JANUARY 2009, IN WHICH THE TRIBUNAL FOLLOWED ITS OWN ORDER FOR THE ASSESSMENT YEAR 1995-96 PASSED ON 7 TH MARCH 2005, TO HOLD THAT THE ADVANCE LICENCE BENEFIT WAS NOT TAXAB LE UNLESS THE GOODS HAVE BEEN IMPORTED AND THE RAW MATERIALS ARE CONSUMED. A SIMILAR VIEW WAS TAKEN B Y THE TRIBUNAL AGAIN FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO:2251/MUM/2009, DATED 29 TH JULY 2010. 3.3. THUS, IN A SERIES OF ORDERS PASSED IN THE ASSESSEES OWN CASE, THE TRIBUNAL HAS TAKEN A CONSISTENT VIEW IN FAVOUR OF THE ASSESSEE EVEN AFTE R CONSIDERING THE ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF UNITED PHOSPHORUS LIMITED (SUPRA). WE MAY ADD THAT THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1993-94 AND THE ORDER FOR THE ASSESSMENT YEARS 1996-97 AND 1997-98 WERE APPEALED AGAINST BY THE REVENUE BEFORE THE HONBLE BOMBAY HI GH COURT BUT SINCE NO STEPS HAD BEEN TAKEN BY THE REVE NUE TO CHALLENGE THE FIRST ORDER OF THE TRIBUNAL, THE H ONBLE HIGH COURT DID NOT CONSIDER IT FIT TO ADMIT THE APP EALS. COPIES OF ALL THE ORDERS OF THE TRIBUNAL AND THE JUDGMENTS OF THE HIGH COURT HAVE BEEN FILED BEFORE US. 3.4. IT WAS THE SUBMISSION OF THE LEARNED D.R. THAT IN VIEW OF THE SPECIAL BENCH DECISION OF MUMBAI IN THE CASE OF TOPMAN EXPORTS VS. ITO 124 ITD 1 (MUM.) (S. B.) PARTICULARLY IN PARAS 33 AND 34 OF THE ORDERS, IT W AS SUBMITTED THAT INCOME ON ADVANCED LICENCE WILL ACCR UE TO THE ASSESSEE WHEN THE EXPORTS WERE MADE AND ACCORDINGLY, FOLLOWING THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH WHICH WAS IN FACT UPHELD ULTIMATELY B Y THE HONBLE SUPREME COURT, THE ISSUE IS TO BE DECID ED AGAINST THE ASSESSEE HOLDING THAT INCOME ON ADVANCE LICENCE ARISES, THE MOMENT EXPORTS WERE DONE AND APPLICATION WAS MADE AND NOT AT THE TIME OF ACTUAL IMPORTS AS CONTENDED BY THE ASSESSEE. FURTHER, REFE RRING TO THE ORDERS IN ITA. NO. 6969/MUM/2008, IT WAS SPECIALLY SUBMITTED THAT THE ITAT REFERRED TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. KALPATARU COLOURS& CHEMICALS 328 ITR 451 (BOM.) TO DISMISS THE REVENUES CONTENTION IN VIEW OF THE ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 16 OF 34 THEN EXISTING BOMBAY HIGH COURT JUDGMENT REFERRED ABOVE, WHICH WAS REVERSED BY THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT & OTHER S IN CIVIL APPEAL NO.1699/2012. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT SPECIAL BENCH DECISION GOT APPROVED BY THE HONBLE SUPREME COURT. THEREFORE, THE ISSUE IS TO BE DECIDED IN LINE WITH THE SPECIAL BENCH DECISION THA T INCOME ACCRUES IN THE YEAR IN WHICH EXPORTS WERE MA DE AND ASSESSEE GOT ENTITLEMENT FOR ADVANCE LICENSING. 3.5. THE LEARNED COUNSEL, HOWEVER REFERRED TO THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCHES IN ASSESSEES OWN CASE AND ALSO SUBMITTED THAT THE ISS UE IN TOPMAN EXPORTS WAS WITH REFERENCE TO THE TAXABIL ITY AND BIFURCATION OF THE DEPB PROCEEDS WHILE COMPUTIN G DEDUCTION UNDER SECTION 80HHC AND NOWHERE CONCERNED WITH THE ISSUE BEFORE US WHICH ITSELF WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE. 3.6. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE RECORD. AS ALREADY STATED ABOVE, THE ISSUES IN ASSESSEES OWN APPEAL IS CONSISTENTLY HELD IN FAVOU R OF THE ASSESSEE FOLLOWING THE DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL IN JAMSHRI RAJITSINGHJI SPG. &WVG. MILLS LTD. VS. IAC (1992) 41 ITD (BOM) 142. AS ALREADY ST ATED, THE ISSUE WAS CONFIRMED BY THE HONBLE JURISDICTION AL HIGH COURT WHICH DISMISSED THE REVENUES APPEAL VID E ORDERS ITA.1183/MUM/2011 DATED 25-11-2011. IN THAT, THE QUESTION REFERRED SPECIFICALLY IS AS UNDER : WHETHER THE ADVANCE LICENCE AND THE DEPB RECEIVABL E BY THE ASSESSEE ARE LIABLE TO BE ASSESSED TO TAX IN THE YEAR IN WHICH THE LICENCE IS GRANTED TO THE LICENSE E OR LIABLE TO BE TAXED IN THE YEAR IN WHICH THE BENEFIT S ACTUALLY ACCRUE AFTER THE IMPORTS ARE EFFECTED, IS THE QUESTION RAISED IN THIS APPEAL. 3.7. THE HONBLE HIGH COURT HELD AS UNDER : 2. THE INCOME TAX APPELLATE TRIBUNAL FOLLOWING IT S DECISION IN THE CASE OF JAMSHRI RAJITSINGHJI SPG. & WVG. MILLS LTD. VS. IAC REPORTED IN 41 ITD 142 HELD THAT THE ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 17 OF 34 SAID AMOUNTS ARE LIABLE TO BE TAXED IN THE YEAR IN WHICH THE BENEFITS ACTUALLY ACCRUE TO THE ASSESSEE AND NO T IN THE YEAR IN WHICH THE LICENCE IS GRANTED. THIS COUR T IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M/S. MAFATLA L INDUSTRIES LTD, BEING INCOME TAX APPEAL NO. 424 OF 2009 DECIDED ON 22 ND SEPTEMBER, 2009 HAS UPHELD THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL IN TH E CASE OF JAMSHRI RAJITSINGHJI SPG. & WVG. MILLS LTD. (SUP RA). 3. IN THIS VIEW OF THE MATTER, WE SEE NO MERIT TO E NTERTAIN THIS APPEAL. THE APPEAL IS ACCORDINGLY DISMISSED WI TH NO ORDER AS TO COSTS. 3.8. THEREFORE, THIS ISSUE IS NO LONGER SURVIVES FO R CONSIDERATION AS FAR AS THE INCOME TAX APPELLATE TRIBUNAL IS CONCERNED AS IT HAS CONSISTENTLY HELD T HE ISSUE IN FAVOUR OF THE ASSESSEE AND WAS ALSO UPHELD BY THE HONBLE HIGH COURT. WE MAY ALSO NOTE THAT EVEN THOUGH THE ISSUE OF ACCRUAL OF INCOME ON DEPB WAS DISCUSSED BY THE SPECIAL BENCH IN PARAS 33 AND 34, THE PRESENT ISSUE IS NOT WITH REFERENCE TO DEPB BUT ADV ANCE LICENCES WHICH IS NOT TRANSFERABLE UNLIKE THE DEPB BENEFITS GRANTED UNDER THE SCHEME. THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT , MUMBAI AND OTHERS HAD NOT DEALT WITH ACCRUAL OF INC OME BUT DEALT WITH THE ISSUE OF BRINGING TO TAX THE SAL E PROCEEDS OF THE DEPB, PROFIT ON SALE OF DEPB AND HO W THEY CAN BE CONSIDERED UNDER SECTION 28. THE ISSUE WAS NOT ABOUT THE ACCRUAL OF INCOME BUT BIFURCATION OF PROCEEDS OF DEPB/DFRC INTO FACE VALUE AND PROFIT AN D YEAR OF TAXABILITY. IN VIEW OF THIS, TO THE EXTENT OF ACCRUAL OF INCOME IS CONCERNED, WE ARE OF THE OPINION THAT ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE BY THE HONBLE HIGH COURT IN THE ORDERS REFERRED (SUPRA). RESPECTFULLY, FOLLOWING THE SAME, WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE. ASSESSING OFFICER IS DIRECTED TO DO THE NEEDFUL IN ACCORDANCE WITH THE ORDERS ON THE ISSUE AS IN THE EARLIER YEARS AND MAKE NECESSARY ADJUSTMENTS, IF ANY REQUIRED IN THE COMPUTATION. WITH THESE DIRECTIONS, GROUNDS ARE CONSIDERED AS ALLOWED. 8.9 CONSISTENT WITH ABOVE OPINION, AO IS DIRECTED T O DO THE NEEDFUL IN ACCORDANCE WITH THE ORDERS ON THE ISSUE IN THE E ARLIER YEAR AND MAKE NECESSARY ADJUSTMENT, IF ANY REQUIRED IN THE C OMPUTATION OF ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 18 OF 34 INCOME UNDER THE HEAD BUSINESS AND ALSO U/S 80HHC. WITH THESE DIRECTIONS THE GROUNDS ARE CONSIDERED ALLOWED FOR S TATISTICAL PURPOSE. 9. GROUND NO.7 IS AS UNDER: 7. THE LEARNED CIT (A) ERRED IN UPHOLDING THE STAN D OF THE ACIT OF NOT ALLOWING THE APPELLANTS CLAIM FOR DEDUCTION OF INTEREST ON DPEA LIABILITY FOR THE PER IOD 1 ST APRIL, 1997 TO 31 ST MARCH, 1999 ON THE GROUND THAT IT CONSTITUTES A CONTINGENT LIABILITY. 9.1 GROUND NO.7 PERTAINS TO INTEREST LIABILITY WITH RESPECT TO DPEA LIABILITY. IT WAS FAIRLY ADMITTED THAT THIS ISSUE I S TO BE HELD IN FAVOUR OF THE REVENUE AND AGAINST ASSESSEE IN VIEW OF THE ORDERS OF THE ITAT IN EARLIER YEARS. WE FIND FROM THE ORDER FROM ASSESSMENT YEAR 1996-97 THAT THE ITAT ORIGINALLY IN ASSESSMENT YEAR 1986-87 CONSIDERED THAT: A) DPEA LIABILITY WILL BE ALLOWABLE, IN THE YEAR IN WH ICH SUCH LIABILITY ACCRUES. THE ORDERS OF THE LD. CIT (A) WI TH REGARD TO GROUND NOS. 4, 5 AND 5 OF THE DEPARTMENT, RESPECTIV ELY FUR THE ASSESSMENT YEARS 1986.87, 1987-88 AND 1988-89 ARE C ONFIRMED. B) REGARDING APPLICABILITY OF SECTION 43B, WE AGREE WI TH THE FINDING OF THE LEARNED CIT (A) FOR THE ASSESSMENT YEAR 1988 -89 THAT THIS LIABILITY IS NOT A TAX, DUTY, CESS OR FEE UNDER ANY LAW LEVIABLE. THEREFORE, WE UPHOLD THE ORDER OF THE LEARNED CIT ( A) ON THIS ISSUE FOR THE ASSESSMENT YEAR 1988-89. C) ADDITIONAL CLAIM FOR DPEA WOULD BE ADMISSIBLE ON TH E SAME FOOTING ON ACCRUAL BASIS. D) REGARDING DETERMINATION OF PROFITS FOR THE PURPOSE OF SECTION 80- I, AS AND WHEN ANY ORDER OF HIGHER JUDICIAL FORUM C OMES, THE ASSESSING OFFICER SHALL GIVE EFFECT TO SUCH ORDER. E) ENHANCED DPEA LIABILITY, AS PER ADDITIONAL GROUND O F APPEAL RAISED BY ASSESSEE FOR THE ASSESSMENT YEAR 1986-87 AND THE ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 19 OF 34 ASSESSEE'S C.O. FOR THE ASSESSMENT YEAR 1987-88, WO ULD BE ALLOWABLE ON ACCRUAL BASIS. F) INTEREST LIABILITY ACCRUES FROM YEAR TO YEAR AND, T HEREFORE, SUCH LIABILITY MAY BE ALLOWED ON THIS BASIS DURING EACH ASSESSMENT YEAR. G) THIS DISPOSES OF THE VARIOUS ISSUES MENTIONED ABOVE RAISED BY ASSESSEE AS ALSO BY THE DEPARTMENT WITH REGARD TO D PEA LIABILITY. 9.2 KEEPING IN VIEW OF THE ABOVE AFORESAID DECISION OF THE TRIBUNAL, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT (A) AND RESTORE THE ISSUE BACK TO THE FILE OF AO FOR DE NOVO ADJUDICATION IN ACCORDANCE WITH THE LAW CONSISTENT WITH EARLIER YEARS ORDERS. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND 9 IS AS UNDER: 9. THE CIT (A) ERRED IN UPHOLDING THE STAND OF THE ACIT IN DISALLOWING EXPENSES OF ` .71.481 (INCLUDING INTEREST) BEING AMOUNT PAID UNDER KAR VIVAD SAMADHAN SCHEME DEBITED TO PROFIT & LOSS A/C PENALTIES. 10.1 ASSESSEE CLAIMED AN AMOUNT OF ` .71,481 PAID UNDER THE KAR VIVAD SAMADHAN SCHEME. AO DISALLOWED THE SAME HOLDI NG THAT TO BE IN THE NATURE OF PENALTY. IT WAS ASSESSEES SUBM ISSION BEFORE THE CIT (A) THAT THE SUM REPRESENTS THE PAYMENT MADE UN DER THE KAR VIVAS SAMADHAN SCHEME IN CENTRAL EXCISE DEPARTMENT AND AS PER THE COPY OF THE CERTIFICATE ISSUED, THE TAX ARREARS TO THE TUNE OF ` .66,573 BEING PENALTY AND ` .4,908 BEING THE INTEREST. IT IS THE SUBMISSION THAT THE SUM IN QUESTION, IS NOT PAID FO R ANY INFRACTION OF LAW AND THEREFORE, IS TO BE ALLOWED AS A DEDUCTI ON. THE LEARNED CIT(A) HELD AS UNDER: 3. GROUND NO.2 OF APPEAL IS AGAINST THE ACTION OF AO IN DISALLOWING AN AMOUNT OF ` .71.481 BEING AMOUNT PAID UNDER KAR VIVAS SAMADHAN SCHEME DEBITED TO THE PROF IT & LOSS A/C BY THE APPELLANT. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 20 OF 34 3.1 PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT AO DISALLOWED THE SAME HOLDING IT TO BE IN THE NATURE OF A PENALTY. AS PER APPELLANTS SUBMISSION MADE BEFORE AO AS WELL AS BEFORE ME THE SAID SUM REPRESENTS PAYMEN T MADE UNDER KAR VIVAS SAMADHAN SCHEME IN THE CENTRAL EXCISE DEPARTMENT. COPY OF CERTIFICATE ISSUED BY TH E COMMISSIONER OF CENTRAL EXCISE, AURANGABAD HAS ALSO BEEN PLACED BEFORE ME. A PERUSAL OF THE SCHEME SHOW S THAT THIS AMOUNT REPRESENTS TAX ARREARS WHICH WERE IN DISPUTE CONSISTING OF ` .66,573 BEING PENALTY AND ` .4908 BEING INTEREST. IT IS THE SUBMISSION OF THE APPELLA NT THAT THE SUM IN QUESTION IS THEREFORE, NOT BEEN PAID IN FOR INFRACTION OF LAW AND THEREFORE, BE ALLOWED AS A DEDUCTION. 3.2 IT WOULD BE SEEN FROM THE FACTS STATED ABOVE TH AT THE AMOUNT IN QUESTION CONSISTS OF ` .66,573 WHICH IS PENALTY. THEREFORE, THE APPELLANTS SUBMISSION IN RESPECT OF THIS AMOUNT IS INCORRECT. EVEN REGARDING THE AMOUNT OF ` .4,908 THE SAME CANNOT BE A BUSINESS EXPENSE DEDUCTIBLE FROM TAXABLE INCOME AS IT REPRESENTS INT EREST ON TAXES PAID UNDER THE CENTRAL EXCISE ACT. BOTH TH ESE AMOUNTS THEREFORE, REPRESENT AMOUNTS WHICH ARE NOT TAX DEDUCTIBLE. THE ADDITION MADE BY AO IS THEREFORE, H ELD TO BE CORRECT. THIS GROUND OF APPEAL IS DISMISSED. 10.2 AFTER PERUSING THE CERTIFICATE ISSUED IN THIS REGARD UNDER THE KAR VIVAD SAMADHAN SCHEME, WE COULD NOT ASCERTAIN W HETHER THE PENALTY WAS PAID FOR ANY VIOLATION OF EXCISE ACT OR FOR TECHNICAL VIOLATION WHICH MAY NOT BE STRICTLY COME UNDER THE INFRACTION OF LAW. SINCE THE ORIGINAL NATURE OF THE PENALTY, IT WAS SE TTLED UNDER THE KAR VIVAD SAMADHAN SCHEME IS NOT ASCERTAINABLE, TO THAT EXTENT THE ISSUE IS TO BE EXAMINED BY AO. IN CASE THE PENALTY SETTLED DOES NOT INVOLVE ANY INFRACTION OF LAW, THE AMOUNT OF ` .66,573 IS TO BE ALLOWED AS REVENUE DEDUCTION. WITH REFERENCE TO THE AMOUNT OF INTEREST OF ` .4,908, THIS BEING AN INTEREST THE SUM IS ALLOWABLE AS DEDUCTION. AO IS DIRECTED TO EXAMINE THE FACTS AND ALLOW THE SAME. GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOS ES. ADDITIONAL GROUND: 11. ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL G ROUND, WHICH WAS ALLOWED: ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 21 OF 34 BETNELAN INTEREST DEMAND. THE APPELLANTS SUBMIT THAT IN VIEW OF THE DEMAND OF INTEREST RAISED BY THE DEPARTMENT OF CHEMICALS AND PETROCHEMICALS PURSUANT TO THE LETTER/ORDER DATED 1 0 TH JUNE, 1997 A SUM OF ` .18,06,887 WHICH REPRESENTS THE INTEREST PAYABLE FOR THE PERIOD 1.4.1997 TO 31.3.19 98 BE ALLOWED AS A DEDUCTION. BETNELAN DEMAND. THE APPELLANTS SUBMIT WITHOUT PREJUDICE TO THEIR CONTENTIONS THAT THEY BE ALLOWED DEDUCTION FOR THE DEMAND IN EACH OF THE AYS TO WHICH THEY PERTAIN I.E . 1995-96 AND 1996-97, THE ENTIRE AMOUNT OF ` .1,20,42,318 BE ALLOWED IN AY 1998-99 AS THE DEMAND WAS RAISED VIDE LETTER/ORDER DATED 10.6.1997 OF THE DEPARTMENT OF CHEMICALS AND PETROCHEMICALS. 11.1 THESE ARE THE ADDITIONAL GROUNDS RAISED IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS VIDE LETTER DATED 9.8 .2007. THE FACTS LEADING TO THE PRESENT ISSUE ARE THAT DURING THE PR EVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1998-99, ASSESSEE RECEI VED A DEMAND DATED 10 TH JUNE, 1997 FROM THE DEPARTMENT OF CHEMICALS & PETROCHEMICALS (DCP) AMOUNTING TO RS.1,90-,43,347/- TOWARDS OVERCHARGING OF PRICE IN RESPECT OF THE APPELLANTS PRODUCT BETNELAN TABS SOLD DURING THE PERIOD JANUARY 1995 TO JULY 19 95. THE DEMAND WAS REVISED TO RS. 1,20,42,312/-. INTEREST O F RS. 84,29,619/- UPTO 31.12.1999 WAS CHARGED ON THE DEMA ND AT THE RATE OF 15% PER ANNUM. AGGRIEVED BY THE DCPS ORDER , ASSESSEE FILED A WRIT PETITION BEARING NO. 1266 OF 1999 BEFORE THE DIVISION BENCH OF THE HONBLE HIGH COURT OF BOMBAY. THE DIVISION B ENCH, VIDE ORDER DATED 16.2.2004 UPHELD THE STAND OF THE DCP. THE DCP, SUBSEQUENTLY BY AN ORDER DATED 17/18.5.2004, REVISE D UPWARDS THE INTEREST DEMAND TO RS. 1,63,70,915/- (TOTAL DEMAND: RS.2,84, 13,228/-). ASSESSEE HAS FILED A SPECIAL LEAVE PETI TION (CIVIL) NO. 6518 OF 2004 IN THE SUPREME COURT WITH PRAYER FOR I NTERIM RELIEF CHALLENGING THE ORDER OF THE DIVISION BENCH OF THE BOMBAY HIGH ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 22 OF 34 COURT. THE SAME IS PENDING BEFORE THE HONBLE SUPRE ME COURT FOR DISPOSAL. 11.2 ASSESSEE IS OF THE VIEW THAT THE LIABILITY PER TAINING TO THE ABOVE DEMAND WAS ALLOWABLE IN EACH OF THE YEARS TO WHICH THE DEMAND PERTAINS. THE YEAR-WISE BREAK-UP OF THE TOTAL DEMAN D OF RS.2,84,13,228/- (INCLUSIVE OF INTEREST) IS GIVEN B ELOW: ASSESSMENT YEAR DEMAND PRODUCT BETNELAN ( ` ) INTEREST DEMAND ( ` .) 1995-96 14,59,674 47,891 1996-97 1,05,82,638 18,06,887 1997-98 - 18,06,887 1998-99 - 18,06,887 1999-2000 18,06,887 2000-01 18,06,887 2001-02 18,06,887 2002-03 18,06,887 2003-04 18,06,887 2004-05 18,06,887 2005-06 65,901 TOTAL 1,20,42,312 1,63,70,915 ASSESSEE HAS NOT DEBITED THE AFORESAID DEMAND (INCL UDING INTEREST) TO THE PROFIT & LOSS ACCOUNT. ASSESSEE HAS ALSO NOT PAID THE DEMAND. 11.3 ON THIS ISSUE, IT WAS FAIRLY ADMITTED THAT THE ISSUE IS RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION IN VIEW OF THE DIRECTIONS GIVEN IN ASSESSMENT YEAR 1995-96 ORDER DATED 30.11.2011 W HEREIN THE TRIBUNAL VIDE PARA 3 & 4 RESTORED THE ISSUE TO THE FILE OF AO FOR DE NOVO ADJUDICATION IN ACCORDANCE WITH THE LAW. CONSISTEN T WITH THE VIEW TAKEN THEREIN, WE DIRECT AO TO ADJUDICATE THE ISSUE AND CONSIDER THE ALLOWANCE OF THE ABOVE AMOUNT IN ACCOR DANCE WITH THE LAW AND FACTS. THE GROUNDS ARE CONSIDERED ALLOWED F OR STATISTICAL PURPOSES. 11.4 IN THE RESULT APPEAL IS PARTLY ALLOWED. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 23 OF 34 ITA NO.7026/MUM/2003 REVENUE APPEAL THIS IS A REVENUE APPEAL AND THERE ARE 13 GROUNDS F OR CONSIDERATION. GROUNDS 12 AND 13 ARE GENERAL IN NAT URE AND DOES NOT REQUIRE ADJUDICATION. 12. GROUND NO.1 IS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF ` .1,68,750 (5% OF ` .33,75,000) BEING ESTIMATED EXPENSES INCURRED ON EARNING THE GROSS DIVIDEND OF ` .33,75,000 OBSERVING THAT THE ENTIRE AMOUNT OF DIVIDEND COMPRI SES ONLY ONE DIVIDEND WARRANT RECEIVED ON EARLIER INVESTMENTS WITHOUT APPRECIATING THAT THE CALCUTTA HIGH COURT HAS, IN THE CASE OF UNITED INDIA FIRE & GENER AL INSURANCE CO. LTD (161 ITR 295) HELD THAT DIVIDEND INCOME EXEMPT UNDER SECTION 80M IS ONLY THE NET INC OME AND THAT MANAGEMENT EXPENSES HAVE TO BE APPORTIONED FOR DISTRIBUTION OF THE SAID INCOME AND THEREFORE, AO RIGHTLY WORKED OUT EXPENSES OF ` .1,68,750 ON EARNING OF THE GROSS DIVIDEND OF ` .33,75,000. 12.1 THIS GROUND PERTAINS TO DISALLOWANCE AT 5% OF AN AMOUNT OF ` .1,68,750 BEING THE ESTIMATED EXPENSES INCURRED ON EARNING THE GROSS DIVIDEND OF ` .33,75,000. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RECORDS AVAILABLE BEFORE US, WE FIND THAT THIS ISSUE IS COVERED BY THE JUDGMENT OF HON'BLE JURISDICTIONAL H IGH COURT IN CIT V/S GENERAL INSURANCE CORPORATION OF INDIA, (2002) 254 ITR 204 (BOM.), AS WELL AS THE DECISION OF CHANDIGARH SPECI AL BENCH OF THE TRIBUNAL IN PUNJAB STATE INDUSTRIAL CORPORATION LTD ., (2006), 102 ITD 001 (CHANDI.). CONSISTENT WITH THE VIEW TAKEN B Y THE TRIBUNAL IN EARLIER ASSESSMENT YEARS, WE SET ASIDE THE IMPUG NED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE TH E ISSUE TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER ASSESSEE'S CLAIM CONSISTENT WITH THE ORDER S IN EARLIER YEAR AS PER LAW AND PRINCIPLE LAID DOWN ON THE ISSUE. TH IS GROUND IS, THUS, ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 24 OF 34 13. GROUND NO.2 IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF A SUM OF ` .2,30,000 BEING THE EXPENDITURE INCURRED ON GLAXO SPORTS CLUB ACTIVITIES UNDER SECTION 40A(9) R ELYING UPON THE CIT (A)S ORDER FOR THE AY 1997-98 IN ASSE SSEES OWN CASE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT. 13.1. GROUND NO.2 PERTAINS TO DISALLOWANCES UNDER S ECTION 40A(9) ON PAYMENT OF ` .2,30,000/-. BEFORE US, BOTH THE PARTIES AGREE THAT THIS ISSUE WAS EARLIER DECIDED BY THE TRIBUNAL IN A SSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1989-90 TO 1991- 92, 1992 -93 TO 1993- 94, 1994-95, 1995-96 , 1996-97, 1997-98 RESPECTIVEL Y, WHEREIN THE TRIBUNAL ALLOWED THE DEDUCTION IN RESPECT OF PAYMEN T MADE TO M/S. GLAXO SPORTS CLUB. CONSISTENT WITH THE VIEW TAKEN B Y THE TRIBUNAL, WE UPHOLD THE ORDER PASSED BY THE COMMISSIONER (APP EALS) AND DISMISS THE GROUND RAISED BY THE REVENUE. 14. GROUND NO.3 IS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF RS.63,22,905/- WRITTEN OFF BY THE ASSESSEE AS BAD D EBTS HOLDING THAT THE A. O. HAS NOT BROUGHT ANY FACTS TO SHOW THAT THIS AMOUNT DOES NOT RELATE TO THE A Y. 1999-2000 WITHOUT APPRECIATING THAT THE AMOUNT WAS ACTUALLY WRITTEN OFF IN MAY, 1999 PERTAINING TO THE A. Y. 19 99- 2000-01 AND, THEREFORE, THE AO RIGHTLY DISALLOWED T HE CLAIM OF THE DEBTS DURING THE YEAR. 14.1 AS STATED IN THE ASSESSMENT ORDER THE SAID AMO UNT HAS BEEN DISALLOWED BY AO PRIMARILY BECAUSE THE SAME WAS ACT UALLY WRITTEN OFF IN MAY, 1999 WHEREAS THE YEAR UNDER CONSIDERATI ON CLOSED ON 31.3.1999. IT WAS THE CONTENTION OF AO THAT SINCE T HE ACCOUNT WAS WRITTEN OFF ONLY IN THE FINANCIAL YEAR 1999-2000, T HE SAME COULD BE CLAIMED AS DEDUCTION IN AY 2000-01, ALTHOUGH IT PER TAINS TO AN EARLIER AY. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 25 OF 34 14.2 THE CIT (A) HELD AS UNDER: 7.1A. IT IS SEEN FROM THE ASSESSMENT ORDER THAT TH IS AMOUNT OF ` .63,22,905 HAS BEEN DISALLOWED BY AO AFTER PERUSAL OF FACTS WHICH SHOWS THAT THIS AMOUNT RELAT ES TO THE PERIOD 1.1.1999 TO 31.3.1999 AND WAS ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT IN MAY, 1999. H E HAS THEREFORE, HELD THAT THIS AMOUNT DOES NOT PERTAIN T O THE AY IN QUESTION. AS PER PROVISIONS OF 36(1)(VII) FOR AN AMOUNT TO BE DEDUCTIBLE AS A BAD DEBT, THE SAME HAS TO BE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF ASSESSEE FOR THE PREVIOUS YEAR. AO HAS NOWHERE CONTENDED THA T THIS AMOUNT DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND FURTHER THE REQUIREMENT OF THE SE CTION IS THAT THE AMOUNT SHOULD BE WRITTEN OFF IN THE ACCOUN TS OF ASSESSEE IN THE PREVIOUS YEAR EVEN IF THE WRITE OFF IS DONE ACTUALLY AFTER THE END OF THE PREVIOUS YEAR, AT THE TIME OF CLOSING OF THE BOOKS. SINCE THE ACCOUNTS FOR THE YE AR ENDED 31.3.1999 WERE FINALIZED ON 21.7.1999 AND THE WRITE OFF HAS BEEN DONE IN MAY, 1999, I HOLD THAT REQUIREMENT OF SECTION 36(1)(VII) HAS BEEN FULFILLE D IN THAT THE AMOUNT CLAIMED AS IRRECOVERABLE HAS BEEN WRITTE N OFF IN THE ACCOUNTS OF ASSESSEE IN THE PREVIOUS YEAR UN DER CONSIDERATION. I THEREFORE, HOLD THAT THIS ADDITION SHOULD BE DELETED. THIS SUB-GROUND IS ALLOWED. 14.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER AS THE LEARNED C IT (A) ORDER IS CONSISTENT WITH THE PRINCIPLES LAID DOWN ON THE ISS UE INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TR F LTD VS. CIT, 323 ITR 397 (SC). THE SAME WAS ALSO CONSIDERED IN A Y 98-99 IN REVENUE APPEAL AGAINST GROUND NO. 4 AND WAS REJECTE D. SINCE THE AMOUNTS WERE ALREADY WRITTEN OFF, REVENUE GROUND IS REJECTED. 15. GROUND NO.4 IS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO ADD PROPORTIONATE DISALLOWANCES TO ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80-I & 80-I A, RELYING UPON THE CIT(A)'S ORDER FOR THE AY. 1997-98 IN THE ASSESSEE'S OWN CASE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING AP PEAL TO THE ITAT . ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 26 OF 34 15.1 GROUND NO.4 PERTAINS TO THE CLAIM UNDER SECTIO N 80I AND 80IA ON THE DISALLOWANCES TO BE CONSIDERED AS PROFIT OF ELIGIBLE UNIT ON PROPORTIONATE BASIS. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RECORDS AVAILABLE BEFORE US, WE FIND THAT TH IS ISSUE WAS NOT CONTESTED BY REVENUE IN AY 97-98 ON THE BASIS OF WH ICH THE CIT(A) GAVE RELIEF. EVEN OTHER WISE WE DO NOT SEE ANY REAS ON TO DIFFER AS THE EXPENDITURE CLAIMED WAS DISALLOWED THE SAME WOULD I NCREASE THE CORRESPONDING PROFITS. WE UPHOLD THE ORDER PASSED B Y THE COMMISSIONER (APPEALS) AND DISMISS THE GROUND RAISE D BY THE REVENUE. 16. GROUND NO.5 IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O. TO EXCL UDE THE AMOUNT OF EXCISE DUTY AND SALES-TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S.80HHC RELYING UPON THE DECISION OF THE BOMBAY H IGH COURT IN THE CASE OF SUDARSHAN CHEMICAL INDUSTRIES LTD. (245 KTR 784) WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING SLP . 16.1 GROUND NO.5 PERTAINS TO EXCISE DUTY FORMING TH E PART FOR DEDUCTION UNDER SECTION 80HHC. THE LEARNED CIT (A) FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT V. SUDARSHAN CHEMICALS INDUSTRIES LTD. [2000] 245 ITR 769 HELD THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDIBLE IN THE TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 8 0HHC. THIS ISSUE IS NOW FAIRLY COVERED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS 290 ITR 667 (SC) WHEREIN IT WAS HELD THAT EXCISE DUTY AND SALES TAX CANNOT FORM PART OF TOTAL TURNOVER UNDER SECTION 80HHC(3). RESP ECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE HON'BLE SUP REME COURT, WE REJECT THE GROUND OF THE REVENUE AND UPHOLD THE ORD ER OF THE CIT (A) ON THIS ISSUE. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 27 OF 34 17. GROUND NO.6 AND 7 ARE GIVEN BELOW: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT FOR THE PU RPOSE OF WORKING OUT INDIRECT COST IN THE CASE OF EXPORT OF TRADING GOODS, THE EXPORT DIVISION IS AN INDEPENDENT, SELF- CONTAINED DIVISION AND THEREFORE, THE HEAD OFFICE ADMINISTRATION EXPENSES INCLUDING INTEREST SHOULD N OT BE ALLOCATED TO THE SAID DIVISION FOR THE PURPOSE OF W ORKING OUT DEDUCTION UNDER SECTION 80HHC, RELYING UPON THE CIT (A)S ORDER FOR THE AY 1997-98 IN ASSESSEES OWN CA SE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO ITAT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A O. TO TAKE 'NET' INTEREST CHARGES FOR ALLOCATION OF EXPENSES F OR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ON PROFIT ON EXPORT OF TRADING GODS, RELYING UPON THE CIT (A)S ORDER FOR THE AY 1997-98 IN ASSESSEE S OWN CASE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT. 17.1 AFTER HEARING BOTH THE PARTIES AND ON A PERUSA L OF THE RECORDS AVAILABLE BEFORE US, WE FIND THAT THE HEAD OFFICE A DMINISTRATIVE EXPENSES, ETC., HAVE BEEN ALLOCATED TO ARRIVE AT TH E INDIRECT COST IN THE CASE OF EXPORT OF TRADING GOODS. THESE ISSUES H AVE BEEN DECIDED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITAS NO. 3464 & 3465/MUM./1996, ETC., FOR ASSESSMENT YEARS 1992-93 AND 1993- 94, ETC., ORDER DATED 29TH MARCH 2007, WHEREIN THE TRIBUNAL, VIDE PARA-11, HELD AS FOLLOWS:- '11. AFTER HEARING BOTH THE PARTIES, WE FIND THAT T HIS ASPECT OF THE ISSUE WAS NEVER ADJUDICATED BY THE ASSESSING OFFICER. NO DOUBT, THE ASSESSEE HAD GIVEN A NOTE REGARDING DEDUCTION U/S 80HHC VIS--VIS INDIRE CT COST IN RESPECT OF TRADING GOODS FOR EXPORT BUT THE ASSESSING OFFICER DID NOT RECORD ANY FINDING IN THI S REGARD AS HE WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ELI GIBLE FOR DEDUCTION U/S 80HHC AS THERE WAS HUGE LOSS IN TRADING GROUND WHICH WAS MUCH MORE THAN PROFITS OF EXPORT OF MANUFACTURED GOODS. ON APPEAL, THE LEARNE D CIT(A) HAS HELD THAT LOSS IN TRADING GOODS COULD NO T BE ADJUSTED AGAINST THE PROFITS IN RESPECT OF EXPORT O F ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 28 OF 34 MANUFACTURED GOODS. IN VIEW OF THIS FINDING, THE LE ARNED CIT(A) PROCEEDED TO DISPOSE OF THE ISSUE REGARDING INDIRECT COST. ON THESE FACTS, WE ARE OF THE VIEW T HAT THIS ISSUE REQUIRES FRESH ADJUDICATION. THE LEGISLATURE HAS AMENDED THE PROVISIONS OF SECTION 80HHC WITH RETROSPECTIVE EFFECT. ACCORDING TO SUCH AMENDMENT, THE LOSS IN TRADING GOODS REQUIRES TO BE ADJUSTED AGAIN ST PROFITS FROM EXPORT OF MANUFACTURED GOODS. COMPUTAT ION OF INDIRECT COST IS NECESSARY INGREDIENT FOR COMPUT ING THE EXPORT PROFIT FROM TRADING GOODS AS WELL AS MANUFAC TURED GOODS. THE ASSESSING OFFICER HAS NOT MADE ANY OBSERVATION ON THIS ASPECT OF THE ISSUE. HOWEVER, S UCH EXERCISE MAY NOT BE REQUIRED TO BE MADE IF THE LOSS IN TRADED GOODS AS PER THE COMPUTATION OF ASSESSEE ITS ELF IS MORE THAN THE PROFITS FROM EXPORT OF MANUFACTURED G OODS IN AS MUCH AS IN SUCH SITUATION, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION U/S 80HHC AS PER THE AMEND ED PROVISIONS. ON THE OTHER HAND, IF THE PROFITS FROM EXPORT OF MANUFACTURED GOODS, AS PER THE CALCULATION OF ASSES SEE, IS MORE THAN THE LOSS IN TRADED GOODS EXPORT, THEN THE ASSESSING OFFICER WOULD BE REQUIRED TO DETERMINE TH E INDIRECT COST. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ASPECT OF THE ISSUE AND REMI T THE MATTER TO THE FILE OF ASSESSING OFFICER FOR FRESH D EDUCTION FOR BOTH THE YEARS. THE ASSESSEE WOULD BE AT LIBERT Y TO FURNISH ALL THE DETAILS REGARDING THIS ASPECT OF TH E ISSUE.' 17.2 ALLOCATION OF OFFICE EXPENSES INCLUDING INTERE ST AND NETTING THEREOF TO EXPORT DIVISION FOR WORKING OUT COST REL ATING TO EXPORT OF TRADING GOODS HAS TO BE RE-DETERMINED AFTER EXAMINA TION. CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE B ENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR EARLIER ASSESSM ENT YEARS, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFI CER FOR ADJUDICATION AFRESH IN ACCORDANCE WITH LAW AND AFTER PROVIDING A DEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ISS UE IN GROUND NO 6 AND 7 ARE RESTORED TO AO IN ASSESSEE APPEAL FOR RE DETERMINATION. THIS GROUND IS, THUS, ALLOWED FOR ST ATISTICAL PURPOSES. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 29 OF 34 18. GROUND NO. 8 IS AS UNDER: 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A O. TO RECOMPUTED DEDUCTION UNDER SECTION 80HHC WITHOUT REDUCING 90% OF VARIOUS ITEMS FORMING PART OF MISCELLANEOUS INCOME IN ACCORDANCE WITH EXPLANATION (BAA) TO SECTION 80HHC HOLDING THAT THESE ITEMS HAV E NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE COMP ANY WITHOUT APPRECIATING THAT THE ITEMS OF MISCELLANEOU S INCOME ARE NOT IN THE NATURE OF INCOME AS SPECIFIED IN CLAUSES (IIIA) (IIIB) & (IIIC) OF SECTION 28 OF THE ACT AND THEREFORE, AO RIGHTLY REDUCED 90% OF VARIOUS ITEMS OF MISCELLANEOUS INCOME FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. 18.1 CONSEQUENT TO THE CONFLICTING ORDER OF THE CIT (A), BOTH ASSESSEE AND THE REVENUE ARE IN APPEAL. THIS ISSUE WAS CONSIDERED IN ASSESSEES APPEAL AGAINST GROUND NO. 6(B)(I) ABO VE WHEREIN THE MATTER WAS RESTORED TO THE FILE OF AO FOR FRESH EXA MINATION. ACCORDINGLY, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 19. GROUND NO.9 & 10 ARE AS UNDER: 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O. TO INCLUDE CLOSING BALANCE OF ADVANCE LICE NCE BENEFIT AGGREGATING TO ` 466.77 LAKHS IN THE PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S.80HHC, RELYING UPON THE CIT(A)'S ORDER FOR' THE A.Y. 1997-98 IN THE ASSESSEE'S OWN CASE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED B Y WAY OF FILING APPEAL TO THE ITAT. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A O. TO ALLOW BENEFIT AGGREGATING TO ` .1018.50 LAKHS ACTUALLY UTILIZED BY ASSESSEE AS ENVISAGED IN PROVI SO TO SECTION 80HHC(3) OF THE ACT, RELYING UPON THE CIT(A )'S ORDER FOR THE A Y. 1997-98 IN THE ASSESSEE'S OWN CA SE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 30 OF 34 19.1 GROUND NOS. 9 & 10 ARE RELATED TO GROUND NO.6 (C) AND 8 IN ASSESSEES APPEAL. CONSISTENT WITH THE STAND TAKEN THEREIN, AS THE MATTER WAS RESTORED WITH DIRECTIONS, THESE GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 20. GROUND NO.11 IS GIVEN BELOW: 11 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO. BY INVOKING THE PROVIS IONS OF SECTION 43B ON UNPAID INTEREST LIABILITY, RELYIN G UPON THE CIT( A)'S ORDER FOR THE A Y. 1997-98 IN THE ASS ESSEE'S OWN CASE WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT 20.1 GROUND NO.11 PERTAINS TO SECTION 43B ON UNPAID INTEREST LIABILITY WHICH CORRESPONDS TO GROUND NO.7 OF ASSES SEES APPEAL. CONSISTENT WITH THE STAND TAKEN THEREIN, AS THE ISS UE WAS RESTORED TO AO, THE GROUND IS CONSIDERED ALLOWED FOR STATIST ICAL PURPOSES. 16.2. IN THE RESULT, REVENUE APPEAL IS PARTLY ALLOW ED. C.O. NO. 274/MUM/2004 - ASSESSEE 21. ASSESSEE RAISED THE FOLLOWING GROUNDS IN THE CROSS OBJECTION: 1. THE RESPONDENTS SUBMIT THAT IN CASE AOS ACTION OF ALLOCATION OF H.O ADMINISTRATION EXPENSES WHILE WOR KING OUT THE INDIRECT COST IN THE CASE OF EXPORT OF TRAD ING GOODS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC IS UPHELD, THEN THE AMOUNT OF ` .9.30 LAKHS BEING ALLOCATION MADE FROM OTHER SERVICES WHICH HAS ALREADY BEEN INCLUDED IN THE EXPORT DIVISION EXPENDITURE, SHOULD BE EXCLUDED. 2. THE RESPONDENTS SUBMIT THAT IN CASE THE AOS ACT ION OF NOT ALLOWING BENEFIT ON THE AMOUNT OF THE ADVANCE L ICENCE BENEFIT ACTUALLY UTILIZED BY THE APPELLANT AS ENVIS AGED IN THE PROVISO TO SECTION 80HHC (3) IS UPHELD, THEN AO BE DIRECTED TO GRANT THE BENEFIT ON THE AMOUNT OF THE ADVANCE LICENCE BENEFIT CREDITED TO THE PROFIT & LO SS A/C AND TAXED BY HIM IN THIS AY IRRESPECTIVE OF THE UTI LIZATION ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 31 OF 34 OF THE BENEFIT AS ENVISAGED IN THE PROVISO TO SECTI ON 80HHC(3) . 21.1 THESE GROUNDS CORRESPOND TO GROUND NOS. 7 AND 9 OF THE REVENUE APPEAL. SINCE THE ISSUES ARE RESTORED TO TH E FILE OF AO, AO IS DIRECTED TO KEEP IN MIND THE ABOVE CONTENTIONS W HILE DECIDING THE ISSUES AND DECIDE ACCORDINGLY IN ACCORDANCE WITH FA CTS AND LAW. THE GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURP OSES. ITA NO.7207/MUM/2003 REVENUE APPEAL 22. THESE GROUNDS ARE RAISED BY THE REVENUE AGAIN ST THE ORDER OF THE CIT (A) PASSED UNDER SECTION 154 TO THE APPELLA TE ORDER DATED 22.03.2003 AS SOME OF THE GROUNDS WERE LEFT UNDECID ED. THE CIT (A) PASSED THE ORDER ALLOWING THE ISSUES IN FAVOUR OF A SSESSEE FOLLOWING THE ORDERS OF THE PREDECESSOR ON THE SAME ISSUES. T HESE ISSUES ARE COVERED BY EARLIER ORDERS AND CHARTS ARE PLACED ON RECORD BY THE COUNSEL. THERE ARE FOUR GROUNDS FOR CONSIDERATION, WHICH ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING AO TO ALLOCAT E ONLY 75% OF THE STAFF COST OF ` .362.56 LAKHS FOR THE PURPOSE OF COMPUTATION OF THE ELIGIBLE PROFITS UNDER SECTION 8 0-I/80IA IN RESPECT OF NASIK UNIT, RELYING UPON THE CIT (A) S ORDER FOR THE AY 1993-94 WHICH HAS NOT BEEN ACCEPTED BY T HE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING AO TO ALLOCAT E NET INTEREST FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N UNDER SECTION 80-I/80-IA RELYING UPON THE CIT (A)S ORDER FOR THE AY 1993-94 WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT NO FINANCE COST IS ALLOCABLE TO UNIT NI.3 NAMELY THE STERILE DRY VIAL UNIT AS IT IS A SELF FINANCING UNIT, RELYING UPON THE CIT (A) S ORDER FOR AY 1993-94 WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CONTESTED BY WAY OF FILING APPEAL TO THE ITAT. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 32 OF 34 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING AO NOT TO ATT RIBUTE ANY EXPENSES TOWARDS EARNING OF INTEREST ON TAX FRE E SECURITIES HOLDING THAT ONLY THREE INTEREST WARRANT S WERE RECEIVED DURING THE YEAR, WITHOUT APPRECIATING THAT CERTAIN EXPENSES HAVE BEEN DEBITED TO THE PROFIT & LOSS A/C WHEREAS IN TERMS OF SECTION 14A OF THE ACT, EXPENDITURE INCURRED ON EARNING EXEMPT INCOME IS NO T ALLOWABLE AND THEREFORE, AO RIGHTLY DISALLOWED 5 PE R CENT OF THE INTEREST RECEIVED ON TAX FREE SECURITIES TOW ARDS EXPENDITURE UNDER SECTION 14A OF THE INCOME TAX ACT . 22.1 GROUND NO.1 TO 3 PERTAINS TO THE DEDUCTION O F STAFF COST OF ` .362.56 LAKHS TO THE NASHIK UNIT WHICH CLAIMED 8 TH YEAR OF DEDUCTION. THE CIT (A) ALLOWED 75% OF STAFF COST AN D 100% OF THE OTHER COSTS. THE CIT (A) FURTHER DIRECTED NOT TO AD D ANY FINANCE COST TO STERILE DRY VIAL UNIT AS IT IS A SELF FINANCING UNIT. HENCE REVENUE IS AGGRIEVED. THESE GROUNDS ARE CONSIDERED IN FAVOU R OF ASSESSEE IN EARLIER YEARS. 22.2 THE ORDER OF THE ITAT IN AY 1997-98 IS AS UND ER: 10. GROUND NO.7 PERTAINS TO THE CLAIM OF DEDUCTION UNDER SECTION 80I AND 80IA. THE DISPUTE IS PERTAINING TO (A) ADJUSTMENT OF INTEREST COST AGAINST INTEREST INCOME , (B) ALLOCATION OF ADDITIONAL STAFF COST TO NASHIK UNITS AND (C) ALTERNATELY DISALLOWANCE IN THE SAME PROPORTION AS THE HEAD OFFICE EXPENSES ALLOCATION. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE ITAT I N ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1989-90 AND 1991-92 IN ITA NOS.10002/BOM/92, 8341/BOM/93, AND 7742/BOM/94 VIDE PARA 31 TO 35 AND ITA NOS.4433 AND ITA NO.4434/BOM/96 FOR ASSESSMENT YEAR 1992-93 AND1993-94 IN REVENUE APPEALS VIDE PARA 24. SINCE T HE FACTS OF THE CASE UNDER CONSIDERATION ARE SAME TO T HAT OF THE AFORESAID DECISIONS, RESPECTFULLY FOLLOWING THE DECISIONS (SUPRA) WE DIRECT AO TO ALLOW DEDUCTION U NDER SECTION 80I AND 80IA AS CLAIMED BY ASSESSEE, FOLLOW ING THE DIRECTIONS IN EARLIER YEARS. IT WAS SUBMITTED T HAT SECTION 80IA CLAIM INVOLVES VARIOUS ASSESSMENT YEAR S SO, AO IS DIRECTED TO DETERMINE THE YEAR OF CLAIM WHILE ALLOWING THE DEDUCTION SO THAT NO DEDUCTION IS CLAI MED BEYOND THE ALLOWABLE PERIOD. GROUNDS ALLOWED. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 33 OF 34 22.3 CONSIDERING THE ABOVE, THERE IS NO MERIT IN RE VENUE GROUNDS AS THE CIT (A) FOLLOWED THE ORDER IN EARLIER YEAR. THE GROUNDS ARE REJECTED. 22.4 WITH REGARD TO GROUND NO.4, AO INVOKED SECTION 14A TO DISALLOW 5% OF THE EXPENDITURE. THE CIT (A) CONSIDE RED THE SAME AS UNDER: 3.1 IT HAS BEEN STATED THAT THERE IS NO EXPENDITUR E DEBITED TO THE PROFIT & LOSS A/C FOR EARNING THE IN TEREST INCOME. AO IN FACT ON PAGE 28 HAS STATED THAT ASSES SEE HAS NOT MAINTAINED LIST OF ANY EXPENSES AND THEREFO RE, THE EXPENSES FOR EARNING THE INTEREST ARE ESTIMATED AT 5%. IT HAS ALSO BEEN STATED THAT DURING THE YEAR ONLY 3 INTEREST WARRANTS WERE RECEIVED WHICH WERE DEPOSIT5 ED INTO THE BANK ALONG WITH OTHER CHEQUES AND THEREFOR E, NO ADMINISTRATION COST HAS BEEN INCURRED IN EARNING TH E AFORESAID INTEREST. A NOTE WAS FURNISHED DURING THE ASSESSMENT PROCEEDINGS WHICH WAS ALSO PART OF THE PAPER BOOK AT PAGES 42 TO 44. 3.2 I HAVE GONE THROUGH THE RECORDS OF THE CASE AND THE DETAILS FILED AND I FIND THAT THE CONTENTION OF THE APPELLANTS IS CORRECT. CONSIDERING THE FACTS OF THE CASE I AM OF THE VIEW THAT THERE IS AN ERROR IN THE APPELL ATE ORDER WHICH NEEDS TO BE CORRECTED. I DIRECT AO NOT TO ATT RIBUTE ANY EXPENSES FORWARDS THE EARNING OF SUCH INTEREST AS ONLY 3 INTEREST WARRANTS WERE RECEIVED DURING THE Y EAR WHICH FACT HAS NOT BEEN DENIED BY AO. ACCORDINGLY T HIS GROUND OF APPEAL IS ALLOWED. 22.5 WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT (A) AS ASSESSEE HAS OWN SURPLUS FUNDS FROM THE SALE OF FAMILY PRODUCTS UNDERTAKINGS AS A GOING CONCERN ON 1.10.19 94 AND THESE SECURITIES WERE PURCHASED OUT OF THE FUNDS AND THER E IS NOT INTEREST COST. MOREOVER SINCE ONLY THREE INTEREST WARRANTS W ERE RECEIVED, NO EXPENDITURE CAN BE ATTRIBUTED TO THE SAME. HOWEVER, THE 5% ESTIMATION ON DIVIDEND RECEIVED IS RESTORED IN GROU ND NO.1 OF THE REVENUE WHICH WAS ON EXEMPT INCOME UNDER SECTION 10 (33). FOR THE SAME REASONS THIS GROUND IS ALSO RESTORED TO AO FOR FRESH CONSIDERATION. 22.6 IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NOS.6159 7026 CO 274 & 7207 OF 2003 GLAXO SMITH KLINE MUMBAI PAGE 34 OF 34 22.7 TO SUM UP, ASSESSEES APPEAL NO.6159/MUM/2003 AND REVENUE APPEAL NO.7026/MUM/2003 AND ITA NO.7207/MUM /2003 ARE PARTLY ALLOWED, WHILE THE CROSS OBJECTION FILED BY ASSESSEE IN APPEAL NO.CO 274/MUM/2004 IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 12 TH JUNE, 2013. SD/- SD/- (AMIT SHUKLA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 12 TH JUNE, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI