DCIT, CHENNAI V. M/s. E.I.D.Paryy (India) Ltd., CHENNAI

ITA 705/CHNY/2010

• Counselvise Citation: 70521714 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 14-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN ITA
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Fair market value; Valuation report; Capital receipt; Commercial expediency; Unabsorbed depreciation; Revenue expenditure
• Section: 143(3); 80HHC; 234B; 115JB; 10B; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NOS.415 & 416/MDS/2010 ASSESSMENT YEARS : 2004-05, 2006-07 M/S E.I.D.PARRY(INDIA)LTD DARE HOUSE # 234 N.S.C. BOSE ROAD CHENNAI 600 001 VS THE ACIT LARGE TAXPAYER UNIT CHENNAI [PAN - AAACE0702C] (APPELLANT) (RESPONDENT) I.T.A NOS.705 & 706/MDS/2010 ASSESSMENT YEARS : 2004-05 & 2006-07 THE ACIT LARGE TAXPAYER UNIT CHENNAI VS M/S E.I.D.PARRY(INDIA)LTD DARE HOUSE # 234 N.S.C. BOSE ROAD CHENNAI 600 001 (APPELLANT) (RESPONDENT) C.O.NO.47/MDS/2010 [IN I.T.A.NO. 705/MDS/2010] ASSESSMENT YEAR : 2004-05 M/S E.I.D.PARRY(INDIA)LTD DARE HOUSE # 234 N.S.C. BOSE ROAD CHENNAI 600 001 VS THE ACIT LARGE TAXPAYER UNIT CHENNAI (CROSS OBJECTOR (RESPONDENT) ASSESSEE BY : SHRI PHILIP GEORGE, ADVOCATE DEPARTMENT BY : SHRI P.B.SEKARAN, CIT/DR ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 2 -: O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS IS A BUNCH OF FIVE MATTERS CROSS APPEALS FOR ASSESSMENT YEARS 2004-05 AND 2006-07 AND CROSS OBJECTION BY T HE ASSESSEE FOR ASSESSMENT YEAR 2004-05. IN ALL MATTERS, ALMOST ID ENTICAL ISSUES BASED ON COMMON FACTS ARE INVOLVED, THEREFORE, FOR THE SA KE OF CONVENIENCE AND BREVITY, WE PROCEED TO DECIDE THEM BY A COMMON ORDER. BUT TO START WITH WE WILL NARRATE THE FACTS OBTAINING IN A SSESSMENT YEAR 2004-05. I.T.A.NO. 415/MDS/2010 A.Y 2004-05 2. THE RELEVANT FACTS, IN NUT SHELL, ARE THAT E.I.D .PARRY(INDIA) LTD., A COMPANY REGISTERED UNDER THE COMPANIES ACT , 1956, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2004-05 ON 27. 10.2004, WHICH WAS PROCESSED U/S 143(1) VIDE INTIMATION DATED 11.1 1.2005. SUBSEQUENTLY, NOTICE U/S 148 DATED 30.8.2007 WAS IS SUED AFTER RECORDING REQUISITE REASON FOR ESCAPEMENT OF INCOME . THE ASSESSEE, INSTEAD, REPLIED VIDE LETTER DATED 31.3.2008 QUEST IONING THE VERY JURISDICTION OF THE ASSESSING OFFICER SINCE THIS AS SESSEE HAD JOINED LARGE TAXPAYER UNIT LTU) IN DECEMBER 2007. THE COM PANY ALSO REQUESTED THE ASSESSING OFFICER TO PROVIDE A COPY O F REASONS RECORDED ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 3 -: FOR THE REOPENING OF THE ASSESSMENT. SUBSEQUENT THERETO, ANOTHER NOTICE U/S 148 DATED 27.8.2008 WAS ISSUED AND AGA IN THE ASSESSEE REQUESTED FOR PROVIDING A COPY OF THE REASONS RECOR DED FOR THE REOPENING OF THE ASSESSMENT. THE ASSESSING OFFICER SENT A LETTER DATED 7.10.2008 TO THE ASSESSEE STATING THEREIN THA T THE JURISDICTION OF THIS CASE IS VESTED IN THE LTU. HE ALSO CONVEYED T HE REASONS FOR REOPENING. THEREAFTER, RE-ASSESSMENT WAS COMPLETE D U/S 143(3) R.W.S 147 ON 29.12.2008 AT A TOTAL INCOME OF ` 48,06,95,261/- AS AGAINST ` 24,23,15,892/- DECLARED BY THE ASSESSEE-FIRM. IN THIS WAY, TAX LIABILITY OF ` 16,43,44,870/- WAS DETERMINED BY MAKING VARIOUS ADDITIONS/DISALLOWANCES AND DENYING DEDUCTION UNDE R CHAPTER VIA OF THE ACT, AS UNDER: 1. COMPUTED THE DEDUCTION U/S 80HHC AFTER: A. EXCLUDING INTEREST RECEIPT ON BANK DEPOSITS AS INCOME FROM OTHER SOURCES. B. EXCLUDING SUNDRY INCOME AND INCOME BY WAY OF WRITE BACK OF LIABILITIES NO LONGER REQUIRED FROM THE ADJUSTED BOOK PROFITS. C. INCLUDING COMMISSION RECEIPT IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. D. STATING THAT AS PER SECTION 80IA(9) THE PROFIT DERIVED OUT OF THE 80IA UNITS HAS TO BE EXCLUDED BEFORE THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. 2. DENIED DEDUCTION UNDER SECTION 80HHC IN COMPUTIN G BOOK PROFITS UNDER SECTION 115JB STATING THAT ASSES SEE IS NOT ELIGIBLE FOR DEDUCTION UNDER THE NORMAL PROV ISIONS OF THE INCOME TAX ACT. 3. IGNORED THE UNABSORBED DEPRECIATION OF ` 6,93,09,231 AS PER THE REVISED COMPUTATION FOR DEDUCTION UNDER ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 4 -: SECTION 80IA FILED BY THE APPELLANT FOR THE EARLIER YEARS 2001-02 TO 2003-04 AND INSTEAD CONSIDERED THE UNABSORBED DEPRECIATION OF ` 19,17,53,539/- AS PER THE COMPUTATION FOR DEDUCTION UNDER SECTION 80IA FILED ALONG WITH THE RETURN OF INCOME FOR THE A Y 2003-04 . 4. DENIED DEDUCTIONS UNDER SECTION 80IA ON THE PROF ITS EARNED BY THE COGENERATION PLANT OF ` 16,39,95,598/- INCLUDING INCOME FROM POWER SUPPLIED TO TNEB STATIN G THAT CO-GENERATION PLANT IS NOT A SEPARATE UNDERTAK ING WITHIN THE MEANING OF SECTION 80IA(4)(IV)(A). IN TH AT PROCESS, THE ASSESSING OFFICER HAS MADE THE FOLLOWING CHANGES IN THE COMPUTATION FOR DEDUCTION UNDER SECTION 80IA ADOPTED BY THE APPELLANT: A) DISALLOWED THE CLAIM FOR THE INCOME FROM THE POW ER SUPPLIED TO SUGAR UNIT STATING THAT ONE CANNOT EARN PROFIT OUT OF ITS OWN. B) ADOPTED THE COST OF BAGGASSE SUPPLIED BY THE SUG AR UNIT TO THE COGENERATION UNIT AT ` 708/MT AS AGAINST ` 660/MT VALUED BY THE APPELLANT AND ADDED ` 1,78,09,728 TO THE TOTAL INCOME. C) EXCLUDED THE INCOME ARISING FROM THE GENERATION OF STEAM IN THE COGENERATION PLANT AND SUPPLIED TO THE SUGAR UNIT STATING THAT STEAM CANNOT BE CONSIDERED AS THE POWER ON PAR WITH THE ELECTRICAL POWER CONTEMPLATED BY THE LEGISLATURE AND ALSO ON THE GROUND THAT ONE CANNOT PROFIT OUT OF ITS OWN. 5. DISALLOWED THE CONTRIBUTIONS TO THE FOLLOWING FUNDS AMOUNTING TO ` 15,56,608/- STATING THAT THE CONTRIBUTIONS WERE MADE WITHOUT ANY STATUTORY OBLI GATION AND ALSO WITHOUT OBTAINING ANY PRIOR APPROVAL FROM THE COMMISSIONER OF INCOME FOR THE RECOGNIT ION OF THE FUNDS. I CONTRIBUTION TO DEATH RELIEF SCHEME ` 17,617 II. CONTRIBUTION TO BENEVOLENT SCHEME ` 99,714 III. CONTRIBUTION TO SOCIAL SECURITY FUND ` 12,68,962 IV. CONTRIBUTION & EXPENDITURE ON EMPLOYEES RECREATION! SPORTS CLUB - ` 1,70,255 6. TREATED THE SUGAR INCENTIVE OF ` 5,34,955/- WHICH WAS EARNED ON ADDITIONAL QUOTA OF SUGAR SOLD AND CLAIME D AS CAPITAL RECEIPT BY THE APPELLANT, AS CASH SUBSIDY G RANTED TO THE APPELLANT FOR THE REPAYMENT OF THE LOAN TOWARDS PURCHASE OF CAPITAL ASSETS. ACCORDINGLY, THE ASSESS ING ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 5 -: OFFICER HAS ALLOCATED THE INCENTIVE ON A PRORATA BA SIS BASED ON THE WDV OF THE CAPITAL ASSETS AND DISALLOWED ` 1,12,042/- AS EXCESS DEPRECIATION CLAIMED BY THE AP PELLANT. 7. COMPUTED THE INTEREST UNDER SECTION 234B AND 234C BEFORE ALLOWING MAT CREDIT UNDER SECTION 115JAA STA TING THAT MAT CREDIT WILL BE REDUCED FROM ASSESSED TAX ONLY FROM 01.04.2007 AS PER THE FINANCE ACT,2006 AND CANNOT B E APPLIED RETROSPECTIVELY. 8. ADDED A SUM OF ` 23,76,960 AND ` 6,93,29,153 TO THE LONG TERM CAPITAL GAIN ON SALE OF LAND AT METTUPALAYAM A ND AT BOAT CLUB, CHENNAI RESPECTIVELY BY REPLACING THE FA IR MARKET VALUE ARRIVED AT BY THE APPELLANT BASED ON REPORT O F AN INDEPENDENT VALUER WITH THE GUIDELINE VALUE PROVIDE D BY THE SUB-REGISTRAR. 9. GRANTED CREDIT FOR TDS CERTIFICATE OF ` 98,22,581 AS AGAINST ` 1,10,66,771 CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 10. CONSIDERED SELF ASSESSMENT TAX OF ` 16,00,000 ONLY AS AGAINST THE AMOUNT PAID AND DISCLOSED BY THE APPELL ANT OF ` 18,00,000 IN THE RETURN OF INCOME. 11. LEVIED INTEREST OF ` 5,57,58,654 AND ` 28,99,072 UNDER SECTION 234B AND 234C RESPECTIVELY. 3. AGGRIEVED, THE ASSESSEE-COMPANY PREFERRED FIRST A PPEAL AND THE LD. CIT(A) HAS GIVEN PART RELIEF TO THE ASSESSE E, THAT IS WHY NOW BOTH PARTIES ARE AGGRIEVED. THE ASSESSEE-COMPANY HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN AS MUCH AS HE HAS HELD AGAINST THE APPELLANT IS OPPOSED TO LAW AND CONTRARY TO THE FAC TS AND CIRCUMSTANCES OF THE CASE. 2. REOPENING OF ASSESSMENT: CIT(A)'S ORDER - PAGES 4 TO 6, PARAS 4 TO 4.1.2 ASSESSMENT ORDER - PAGE 1 2.1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERR ED IN UPHOLDING THE REOPENING OF ASSESSMENT U/S 147. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 6 -: 2.2. THE COMMISSIONER OF INCOME TAX (APPEALS) GRO SSLY ERRED IN OBSERVING THAT THE APPELLANT HAD ACCEPTED THE JURISDICTION OF THE ASSESSING OFFICER IN REOPEN ING THE ASSESSMENT U/S 147. 2.3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGH T TO HAVE APPRECIATED THAT THE APPELLANT HAD ONLY ACCEPTED THE JURISDICTION OF THE ASSESSING OFFICER TO ACT AS THE ASSESSING OFFICER BUT NOT HIS JURISDICTI ON OR ACTION OF REOPENING THE ASSESSMENT. 2.4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUG HT TO HAVE APPRECIATED THAT THE APPELLANT HAD FULLY AN D TRULY DISCLOSED ALL MATERIAL EVIDENCE NECESSARY FOR COMPLETION OF ASSESSMENT AT THE ORIGINAL STAGE ITSELF. 2.5. THE COMMISSIONER OF INCOME TAX (APPEALS) OUG HT TO HAVE NOTED FROM THE REASONS RECORDED FOR REOPENING THAT THOSE REASONS WERE ALL ARRIVED AT BY THE ASSESSING OFFICER ON THE MATERIALS FILED AT THE ORIGINAL STAGE. 2.6. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT THE REOPENING WAS BAD IN LAW AS THE SUBSEQUENT NOTICE U/S 148 WAS NOT BASED ON INDEPENDENT AND UNBIASED RECORDING OF REASONS TO BELIEVE. 3 . COMPUTATION OF DEDUCTION U/S 80HHC - EXCLUSION OF INTEREST RECEIPTS FROM PROFIT & GAINS: CIT(A)'S ORDER - PAGES 7 & S, PARAS 5.1 & 5.2.3 ASSESSMENT ORDER - PAGES 2 TO 4 PARA [II][A] 3.1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER THAT THE INTEREST RECEIPTS SHOULD BE EXCLUDED FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S S. 80HHC. 3.2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN HOLDING THAT THE INTEREST RECEIPTS WOULD NOT BE ENTITLED TO BE CONSIDERED FOR COMPUTATION OF DEDUCTION U/S 80HHC. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 7 -: 3.3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUG HT TO HAVE APPRECIATED THAT THE BANK DEPOSITS WERE MADE OUT OF THE RECEIPTS GENERATED IN THE NORMAL COURSE OF BUSINESS AND THEREFORE THE INTEREST RECEIPTS FORMS PART OF BUSINESS INCOME. 4. COMPUTATION OF DEDUCTION U/S 80HHC - EXCLUSION OF PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IA FROM THE PROFITS OF BUSINESS : CIT(A)'S ORDER - PAGES 9 TO 11, PARAS 5.5 TO 5.5.2 ASSESSMENT ORDER - PAGES 5 & 6 PARA [II][D] 4.1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTRICTING THE DEDUCTION UNDER CHAPTER VIA BY APPL YING THE PROVISIONS OF SECTION 80IA(9). 4.2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IA SHOULD BE EXCLUDED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. 4.3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF SECTION 80I A(9) WERE NOT APPLICABLE IN THE CONTEXT OF THE DEDUCTION U/S 80HHC, SO FAR AS THE APPELLANT IS CONCERNED. 4.4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT THE PROFITS ELIGIBLE FOR DEDUCTION U /S . 80IA SHOULD NOT BE EXCLUDED FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80HHC SINCE THE DEDUCTIONS U/SS 80HHC AND 80IAIA WERE NOT CLAIMED O N THE SAME PROFIT. 4.5 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE DEDUCTION U/S 8 0IA WAS CLAIMED IN RESPECT OF COGENERATION UNIT WHEREAS THE DEDUCTION U/S , WHICH WERE SEPARATE INDEPENDENT INDUSTRIAL UNDERTAKINGS. 5. SET OFF OF UNABSORBED DEPRECIATION: CIT(A)'S ORDER - PAGES 12 TO 14, 'PARAS 7 TO 7.1.3 ASSESSMENT ORDER - PAGE 9 PARA [III][I] 5.1. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN HOLDING THAT THE APPELLANT WAS NOT ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 8 -: ELIGIBLE FOR CLAIM OF CARRIED FORWARD OF UNABSORBED DEPRECIATION ON THE BASIS OF REVISED STATEMENT FILE D DURING THE ASSESSMENT PROCEEDINGS. 5.2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ALLOWED THE APPELLANT TO SET OFF THE CARRY FORWARD UNABSORBED DEPRECIATION PERTAINING TO NELLIKUPPAM COGENERATION UNDERTAKING TO THE EXTENT OF ` 6,93,09,231/- AS PER THE REVISED CLAIM FOR EARLIER YEARS 2001-2002 TO 2003-2004 FILED DURING THE COURS E OF ASSESSMENT PROCEEDINGS FOR A.Y. 2002-2003 INSTEA D OF ` 19, 17,53,358/- AS PER THE DETAILS FILED ALONG WIT H THE RETURN FOR A.Y. 2003-2004. 5.3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE DECISION OF THE SUPREM E COURT IN THE CASE OF GOETZE INDIA P. LTD. REPORTED IN 284 ITR 323 IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE. DEDUCTION U/S 80IA : CIT(A)'S ORDER - PAGES 14 TO 26, PARAS 8 TO 8.5.13 ASSESSMENT ORDER - PAGES 6 TO 15 PARAS [III] TO [II I][IV] 6.1. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSS LY ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION U/ S 80IA ON THE PROFITS EARNED BY THE COGENERATION UNDERTAKING TO THE TUNE OF ` 16,39,95,598/-. 6.2. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSS LY ERRED IN HOLDING THAT COGENERATION UNIT CANNOT BE T REATED AS SEPARATE INDEPENDENT UNDERTAKING. 6.3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT COGENERATION UNDERTAKING I S A SEPARATE, DISTINCT AND AN INDEPENDENT UNDERTAKING F ROM THAT OF THE SUGAR UNDERTAKING BY WAY OF INVESTMENT, EMPLOYMENT, END PRODUCT MANUFACTURED AND PROFIT EARNED. 6.4. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSS LY ERRED IN HOLDING THAT COGENERATION UNDERTAKING AND SUGAR UNDERTAKING ARE INTERDEPENDENT WITH EACH OTHE R SINCE MORE THAN 90% OF BAGASSE REQUIRED FOR COGENERATION WAS TRANSFERRED FROM SUGAR UNDERTAKING . 6.5. THE COMMISSIONER OF INCOME TAX (APPEALS) HAVIN G APPRECIATED AND FOUND THAT THE COGENERATION UNIT CO ULD ALSO BE RUN ON OTHER FUELS LIKE PETROLEUM PRODUCTS, ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 9 -: LIGNITE, COAL, CANE TRASH, GROUNDNUT SHELL, WOODCHI PS, OTHER BIO MASS, ETC.; OUGHT TO HAVE FOUND THAT THIS UNIT WAS IN EVERY RESPECT A STAND ALONE UNIT AND COULD H AD, IN FACT, BEEN RUN AT CERTAIN PERIOD ON FUEL OTHER T HAN SELF GENERATED BAGASSE. 6.6. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSS LY ERRED IN HOLDING THAT MERELY BECAUSE THE ASSESSEE H AD UTILIZED CENVAT CREDITS OF CAPITAL GOODS IN RESPECT OF COGENERATION PLANT, FOR THE PURPOSE OF MANUFACTURE OF EXCISABLE GOODS, VIZ. SUGAR, THE COGENERATION UNIT WAS NOT TO BE CONSIDERED AS AN INDEPENDENT UNIT. 6.7. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE CONDITIONS FOR CLAIMIN G CENVAT CREDIT FOR THE PURPOSE OF CENTRAL EXCISE ACT AND CONDITIONS FOR CLAIM OF DEDUCTION U/ S. 80LA UN DER INCOME TAX ACT ARE DIFFERENT AND CANNOT BE CROSS IMPORTED FOR ALLOWING THE CLAIM. 6.8. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RELYING ON THE DEFINITION OF 'INDUSTRIAL UNDERTA KING' IN SECTION 33B AS THE SAID DEFINITION WAS NOT APPLICAB LE TO SECTION 80LA. 6.9. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE ISSUES RELATING TO ELIGIBILITY OF STEAM FOR THE COMPUTATION U/ S. 80LA WITHIN THE MEANING O F GENERATION OF POWER AND WHETHER THE CAPTIVE CONSUMPTION OF STEAM AND POWER IS ELIGIBLE FOR DEDUCTION U/ S. 80LA AND ALSO THE ADJUSTMENT OF THE INTER UNIT PROFITS WITH REFERENCE TO THE COST OF BAGASSE WERE ACADEMIC IN NATURE AND DISMISSING THE SAME FOR STATISTICAL PURPOSE. 6.10 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN NOT CONSIDERING THE APPELLANT'S ARGUMENTS AND CA SE LAW FILED AND RELIED ON BEFORE HIM IN THIS RESPECT. 7. DISALLOWANCE OF CONTRIBUTION TO EMPLOYEES RECREATION & SPORTS CLUB: CIT(A)'S ORDER - PAGES 27 & 28, PARAS 10 & 10.2 ASSESSMENT ORDER - PAGES 15 & 16 PARA IV 7.1. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSS LY ERRED IN NOT ALLOWING THE DEDUCTION U/S 40A(9) IN RESPECT OF EMPLOYEES RECREATION & SPORTS CLUB. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 10 - : 8 . COMPUTATION OF LONG TERM CAPITAL GAINS ON SALE OF PROPERTY AT BOAT CLUB, CHENNAI : CIT(A)'S ORDER - PAGES 29 TO 32, PARAS 12.2, 12.3 & 12.5 ASSESSMENT ORDER - PAGES 20 & 21 PARA [VIII][B] 8.1. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSS LY ERRED IN ADOPTING THE GUIDELINE VALUE AS ON 01. 04. 1981 AS THE FAIR MARKET VALUE FOR THE PURPOSE OF COMPUTA TION OF CAPITAL GAINS IN RESPECT OF THE LAND AT BOAT CLU B ROAD. 8.2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE GUIDELINE VALUE CANNOT BE MECHANICALLY ADOPTED AS FAIR MARKET VALUE. 8.3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ADOPTED THE FAIR MARKET VALUE AS PER THE VALUA TION REPORT OF THE APPROVED VALUER RELIED ON BY THE APPE LLANT. 9. THE APPELLANT CONTESTS ALL THE FINDINGS OF FA CT AND LAW MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS ) AGAINST THE APPELLANT. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY T O LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT AMOUNT WRITTEN BACK IN RESPECT OF LIABILITIES NO LONGER RE QUIRED SHOULD BE TREATED AS BUSINESS PROFITS AND RELIEF UJS.80HHC SHOULD BE ALLOWED THEREON ACCORDINGLY. 2.1. HAVING REGARD TO THE NARROW IMPORT TO THE TERM 'DERIVED FROM' TAKEN INTO ACCOUNT IN THE FOLLOWING SUPREME COURT'S DECISION, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER. A) COMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD VS CI T 113 ITR 84 B) CIT VS STERLING FOODS 237 ITR 579 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT DEDUCTI ON U/S.80HHC SHOULD BE ALLOWED TO THE ASSESSEE ON THE BASIS OF ADJUSTING THE BOOK PROFITS FOR THE PURPOSE OF COMPUTING THE BOOK PROFITS. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 11 - : 3.1. THE LEARNED CIT(A) FAILED TO NOTE THE DECISION OF THE MUMBAI HIGH COURT IN THE CASE OF M/S.AJANTHA PHARMA LTD. (233 CTR 441) SUPPORTS THE ACTION OF TH E ASSESSING OFFICER. 4. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLO WANCE OF CONTRIBUTION TO THE FOLLOWING SCHEMES: 4.1. IT IS SUBMITTED THAT THE DECISION OF THE CIT(A )-III, IN THE CASE OF M/S.CHEMPLAST SANMAR LTD. IN ITA NO.269/2006-07 DATED 31.3.2008 RELIED UPON HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL TO ITAT HAS BEEN PREFERRED. 4.2. THE LEARNED CIT(A) FAILED TO NOTE THAT AS PER SECTION 40A(9) NO DEDUCTION SHALL BE ALLOWED IN RES PECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER EXCEPT TO RECOGNIZED PROVIDENT FUND/SUPERANNUATION FUNDS APPROVED GRATUITY FUND. 4.3. THE LEARNED CIT(A) FAILED TO NOTE THAT IN THE ASSESSEE'S OWN CASE FOR THE A.Y.2002-03, THE LEARNE D CIT(A)-XII, CHENNAI HAS UPHELD THE DISALLOWANCE MAD E BY THE AO IN HER ORDER IN ITA NO.164/06-07, DATED 27.2.2008. 5. THE LEARNED CIT(A) ERRED IN ALLOWING THE ASSESSEE'S CLAIM RELATING TO INCENTIVE ON SALE OF ADDITIONAL QUOTA SUGAR. 5.1. IT IS SUBMITTED THAT THE DECISION OF THE SUPRE ME COURT RELIED UPON BY THE CIT(A) IN THE CASE OF M/S. PONNI SUGARS AND CHEMICALS LIMITED (306 ITR 392) WAS RENDERED IN RESPECT OF A.Y.1989-90. HOWEVER, TH E ACT HAS BEEN AMENDED WITH EFFECT FROM 99-2000 BY WA Y OF INSERTION OF EXPLANATION 10 TO SECTION 43(1) AND THE ASSESSMENT YEAR UNDER CONSIDERATION BEING 2004-05 THE SAID EXPLANATION IS APPLICABLE HERE. IN THE VIE W OF ABOVE PROVISION THE INCENTIVE/SUBSIDY RECEIVED BY ASSESSEE HAS TO BE EXCLUDED FROM COMPUTATION OF COST/WDV OF ASSETS. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 12 - : 6. THE LEARNED CIT(A) ERRED IN HOLDING THAT MAT CRE DIT SHOULD BE ALLOWED BEFORE CHARGING INTEREST U/S.234B AND 234C. 6.1. IT IS SUBMITTED THAT THE DECISION OF THE HON'B LE MADRAS HIGH COURT RELIED UPON IN THE CASE OF M/S.CHEMPLAST SANMAR LTD. HAS NOT BECOME FINAL AND THE DEPARTMENT HAS PREFERRED APPEAL TO SUPREME COURT. 7. THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO RE- COMPUTING THE LONG TERM CAPITAL GAINS BY ADOPTING T HE VALUE OF LAND AT METTUPALAYAM AS PER THE VALUE ADOP TED BY THE ASSESSEE AS ON 1.4.1981. 7.1. THE LEARNED CIT(A) FAILED TO NOTE THAT THE LAN D SITUATED AT OTHER SURVEY NOS. CLOSE TO THE PROPERTY OF THE ASSESSEE WAS SHOWN AT ` 9,000 PER ACRE AS ON 1.4.1981 AND HENCE IT WOULD BE REASONABLE TO ADOPT THE AVERAGE VALUE AS HAS BEEN DONE IN THE ASSESSMENT ORDER. 8. THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW POTENTIAL FACTOR OF 10% OF THE VALUE OF THE PROPERT Y AS ON 1.4.1981 IN RESPECT OF PROPERTY LOCATED AT BOAT CLUB. 8.1. THE LEARNED CIT(A) FAILED TO NOTE THAT THE ACT DOES NOT SPECIFICALLY PROVIDE FOR SUCH AN ALLOWANCE FOR THE PURPOSE OF COMPUTING THE GUIDE LINE VALUE AS ON 1.4.1981. 9. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 5. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 13 - : 1. THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SETTING OFF THE ALLEG ED UNABSORBED CARRIED FORWARD DEPRECIATION OF EARLIER YEARS AMOUNTING TO ` 19, 17,53,358/-. 2. THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THIS ASSESSMENT YEAR BEING THE FIRST YEAR OF CLAIM FOR DEDUCTION U/ S. 80LA THE ALLEGED CARRIED FORWARD OF DEPRECIATION WAS TO BE IGNORED. 3. THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE LAW AS EXPOSED BY THE HON'BLE HIGH COURT OF MADRAS VIDE JUDGMENT DATED 11.03.2010 IN THE CASES OF M/ S. VELAYUDHASWAMY SPINNING MILLS (P) LTD. & M/S. SUDAN SPINNING MILLS (P) LTD. V. ACIT I N T.C.A. NOS. 909 & 940 OF 2009 AND IN THE CASE OF CIT V. M/S. MOHAN BREWERIES AND DISTILLERIES LTD. I N T.C.A. NO. 918 OF 2008 SUPPORTS THE ABOVE CONTENTION OF THE CROSS OBJECTOR. 4. THE CROSS OBJECTOR CRAVES LEAVE TO FILE ADDITION AL GROUNDS OF CROSS OBJECTION IF ANY AT OR BEFORE THE TIME OF HEARING. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE EVIDENCE PLACED BEFORE US. THE FIRST ISSUE OF ASSESSEES APPEAL RELATES TO REOPENING OF ASSESSMEN T. THE MAIN CONTENTION OF SHRI PHILIP GEORGE, LD. ADVOCATE, IS THAT THE REASONS FOR REOPENING U/S 148(2) WERE RECORDED BY THE ACIT, C OMPANY CIRCLE II(1) DATED 30.8.2007. WHEN THE ASSESSEE OBJECTED VIDE ITS LETTER DATED 31.3.2008 REGARDING HIS JURISDICTION, AGAIN N OTICE U/S 148 DATED 27.8.2008 WAS ISSUED BY THE ACIT, LTU. IT WAS ARGU ED THAT THE REASONS RECORDED BY THE EARLIER ASSESSING OFFICER H AVE BEEN SIMPLY ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 14 - : ADOPTED BY THE PRESENT ASSESSING OFFICER AND HENCE, THESE REASONS CANNOT BE SAID TO BE THE REASONS RECORDED BY THE PR ESENT ASSESSING OFFICER BASED ON HIS OWN OPINION. IN A WAY IT WAS A RGUED THAT THE CONCERNED ASSESSING OFFICER HAS NOT AT ALL RECORDED THE REQUISITE REASONS. THE REASONS RECORDED BY ONE ASSESSING OFF ICER AND ASSESSMENT PASSED BY ANOTHER ASSESSING OFFICER WOU LD NOT MAKE THE ASSESSMENT ORDER AS A VALID ORDER. ON THE OTHER HA ND, SHRI P.B.SEKARAN, LD. CIT/DR HAS RELIED ON THE REASONS G IVEN BY THE LD. CIT(A) IN REJECTING THIS VERY CONTENTION AND HAS FU RTHER SUBMITTED THAT THE ASSESSMENT WAS INITIALLY PROCESSED U/S 143(1). IN VIEW OF THE TRITE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE C ASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD, 291 ITR 500, IN WHI CH IT HAS BEEN HELD THAT U/S 147, AN ASSESSING OFFICER HAS POWER TO ASS ESS OR RE-ASSESS AND IF THE RETURN OF INCOME HAS SIMPLY BEEN PROCESS ED U/S 143(1), THE RE-ASSESSMENT DONE U/S 147 R.W.S 148 WOULD AMOUNT T O THE FIRST ASSESSMENT BUT THIS CAN BE DONE WITHIN FOUR YEARS . 7. WE HAVE EXAMINED THE REASONING GIVEN BY BOTH SI DES. WE HAVE FOUND THAT ACTION U/S 147 R.W.S 148 OF THE AC T HAS BEEN TAKEN IN THIS CASE WITHIN FOUR YEARS AND NO REGULAR ASSESSME NT ORDER HAD BEEN PASSED EARLIER TO THIS ORDER AS RETURN OF INCOME H AD ONLY BEEN PROCESSED U/S 143(1). THE ASSESSING OFFICER HAS DU LY RECORDED THE ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 15 - : REASONS FOR REOPENING OF THE SAME WHICH IS A SINE Q UA NON FOR TAKING ACTION UNDER THIS SECTION. IT IS NOT MADE OUT FROM THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE THAT THE REASONS RECORDED ARE NOT THE REASONS OF THE ASSESSING OFFICER OR THAT HE HAS NOT FORMED HIS OPINION THAT INCOME HAS ESCAPED ASSESSMENT. THEREFORE, IN VIEW OF THE HON'BLE SUPREME COURTS DECISION IN THE CASE OF RAJ ESH JHAVERIS CASE(SUPRA), SINCE THERE NOT EVEN A CHANGE OF OPINI ON, WHICH CANNOT ARISE IN A CASE WHERE RETURN WAS PROCESS U/S 143(1 ), WE DO NOT FIND ANY INFIRMITY IN THE ASSUMPTION OF JURISDICTION. HENCE, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY UPHOLDING THE VALID ITY OF RE- ASSESSMENT ON ALL COUNTS. 8. THE SECOND ISSUE RELATES TO COMPUTATION OF DEDUCTIO N U/S 80HHC. THE ASSESSING OFFICER HAS RESTRICTED THE DE DUCTION U/S 80HHC TO ` 23,81,273/- AGAINST ` 38,99,208/- CLAIMED IN THE RETURN OF INCOME. THE ASSESSING OFFICER HAS EXCLUDED INTEREST RECEIVE D ON BANK DEPOSITS BUT HAS ADDED IT UNDER THE HEAD INCOME FROM OTHE R SOURCES. THE ASSESSING OFFICER HAS ALSO EXCLUDED SUNDRY INCOME A ND INCOME BY WAY OF WRITE OFF OF LIABILITIES NO LONGER REQUIRED FROM THE ADJUSTED BOOK PROFITS. HE HAS ALSO INCLUDED COMMISSION RECEIPT I N THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80H HC. IN VIEW OF SECTION 80IA(9) THE PROFIT DERIVED FROM 80IA UNITS HAS BEEN EXCLUDED ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 16 - : BEFORE COMPUTATION OF DEDUCTION U/S 80HHC. THE ASS ESSEE HAS OBJECTED TO THIS ACTION OF THE ASSESSING OFFICER BY MAINLY RELYING ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF CIT VS J.J EXPORTERS LTD., 324 ITR 329. 8.1 THE EXCLUSION OF INTEREST RECEIPT ON BANK DEP OSITS WAS STATED TO BE OUT OF THE INCOME FROM BUSINESS RECEIPTS GENERAT ED IN THE NORMAL COURSE OF OPERATIONS OF THE ASSESSEES BUSINESS. THEREFORE, IT WAS ARGUED THAT THESE RECEIPTS FORM PART OF BUSINESS IN COME AND HAVE TO BE INCLUDED IN THE PROFITS FOR COMPUTATION OF DEDUC TION U/S 80HHC. BUT AFTER ANALYZING THE FACTS IN THE LIGHT OF THE R ELEVANT PRECEDENTS, WE ARE IN AGREEMENT WITH THE LD. CIT(A) AS WELL AS THE LD.DR THAT THESE INTEREST RECEIPTS CANNOT CONSTITUTE EITHER PROFIT O R GAIN DERIVED FROM THE ASSESSEES UNDERTAKING. THIS ISSUE STANDS COVE RED BY THE DECISION OF HON'BLE HON'BLE JURISDICTIONAL HIGH COURT RENDER ED IN THE CASE OF SOUTH INDIA SHIPPING CORPORATION VS CIT, 240 ITR 24 AND THAT OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF PANDI AN CHEMICALS VS CIT, 262 ITR 278. SOME COURTS HAVE EVEN EXCLUDED I NTEREST RECEIVED ON FIXED DEPOSITS/DEPOSITS MADE FOR THE PURPOSE OF AVAILING CREDIT FACILITIES FROM THE BANK ON THE REASONING THAT THE SE RECEIPTS DO NOT HAVE IMMEDIATE AND DIRECT NEXUS WITH THE EXPORT BUS INESS AND THEREFORE, HAVE TO BE NECESSARILY TREATED AS INCOM E FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. WHAT THE HO N'BLE CALCUTTA HIGH ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 17 - : COURT HAS STATED CAN NOT BE APPLIED BY US SITTING I N CHENNAI WHERE THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT HAS A BINDING EFFECT. MOREOVER, THE DECISION OF HON'BLE SUPREME COURT WIL L HAVE OVERRIDING EFFECT AND HAS TO BE FOLLOWED BY US AS A LAW OF THE LAND BECAUSE OF ARTICLE 141 OF THE CONSTITUTION OF INDIA. THEREFOR E, WE CONFIRM THE FINDING OF THE LD. CIT(A) ON THIS ISSUE ALSO. 8.2 THE NEXT ISSUE RELATES TO EXCLUSION OF PROFI T ELIGIBLE FOR DEDUCTION U/S 80IA FOR COMPUTATION OF DEDUCTION U/S 80HHC AS PER SECTION 80IA(9) OF THE ACT. THE ASSESSEE HAS CLAIMED DEDU CTION U/S 80IA ON THE PROFITS DERIVED FROM CO-GENERATION PLANT BUT HA S NOT EXCLUDED THE SAME FOR COMPUTING 80HHC DEDUCTION. THE ASSESSING OFFICER HAS EXCLUDED DEDUCTION CLAIMED U/S 80IA. THE LD. CIT(A ) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THIS CLAIM OF THE ASSESSEE SEEMS TO BE CORRECT IN VIEW OF THE DECISION OF HON'BLE M ADRAS HIGH COURT RENDERED IN THE CASE OF SM CREATIONS VS ACIT, 304 ITR 319, WHICH HAS BEEN FOLLOWED IN THE CASE OF SREEJA HOSIERIES, ITAT CHENNAI, 22 DTR 465(CHENNAI). BUT WE HAVE NOTICED THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GENERAL OPTICS (ASIA) LTD VS DY. CIT, 315 ITR 400, HAS TAKEN A DIFFERENT VIEW BY HOLDING THAT TH ERE IS NO SUCH PROVISION OR INTENTION OF THE LEGISLATURE TO ALLOW DEDUCTION U/S 80IA ON THE BALANCE AMOUNT THERE IS NO JUSTIFICATION TO ALL OW DEDUCTION U/S ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 18 - : 80IA ONLY ON THE BALANCE AMOUNT I.E THE AMOUNT REMA INING AFTER DEDUCTION U/S 80HHC OF THE ACT . IN THE ABSENCE O F SUCH AN INTENTION, DEDUCTION U/S 80IA SHOULD ALSO BE ALLOWED ON THE GR OSS TOTAL AMOUNT AS THE WORDS USED IN SUB-SECTION (1) OF SECTION 80I A ARE GROSS TOTAL INCOME AND NOT ON THE BALANCE AMOUNT AFTER DEDUCTI ON MADE UNDER ANY SECTION. THE FACT REMAINS THAT THIS AMENDMENT HAS BEEN BROUGHT BY THE FINANCE ACT, 1998 AND MADE EFFECTIVE FROM 1. 4.1999. AS WE ARE CONCERNED WITH THE ASSESSMENT YEAR 1995-96 THIS AMENDMENT HAS NOTHING TO DO WITH THE ASSESSMENT YEAR 1995-96 AND THIS AMENDMENT IN NO WAY HELPS THE DEPARTMENT. BUT IN THE CASE OF SM CREATIONS, THE HON'BLE MADRAS HIGH COURT HAS TAKEN A VIEW THAT REL IEF U/S 80IA SHOULD NOT BE DEDUCTED FROM PROFITS AND GAINS OF BUSINESS BEFORE COMPUTING RELIEF U/S 80HHC. THERE ARE OTHER DECISIONS FOR AN D AGAINST THE ASSESSEE. BUT IN CIT VS MRF LTD., THE HON'BLE MADR AS HIGH COURT VIDE ITS JUDGMENT DATED 27.10.2009 IN TCA NO.1020 OF 200 9 HAS DISCUSSED ALL THE FACETS OF THE ISSUE AND HAS CONFIRMED THE V IEW TAKEN IN SM CREATION(SUPRA). THEREFORE, WE ARE LEFT WITH NO OP TION BUT TO RESPECTFULLY FOLLOW THE RATIO DECIDENDI OF JURISDIC TIONAL HIGH COURTS JUDGMENT. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAV OUR OF THE ASSESSEE. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 19 - : 9. THE NEXT ISSUE OF THIS APPEAL IS REGARDING SET OFF OF UNABSORBED DEPRECIATION. IN THIS REGARD, ADDITIONAL GROUND HA S BEEN RAISED REGARDING SETTING OFF OF THE ALLEGED UNABSORBED CAR RIED FORWARD DEPRECIATION OF EARLIER YEARS. IT WAS ARGUED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE MADRAS HIGH COURT RENDERED IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. LTD VS ACIT, 231 CTR 31, AND BY THE TRIBUNAL O RDER DATED 13.9.2010 PASSED IN I.T.A.NOS.592 TO 610/MDS/2010 I N THE CASES OF GRT GROUP. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE LATEST DECISION OF HON'BLE SUPREME COURT RENDERED IN THE C ASE OF GOETZE (INDIA) LTD VS CIT, 284 ITR 323. 10. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE HON'BLE MADRAS HIGH COURT AND ITAT CHENNAI BENCH(SUPRA). THE DECISION OF HON'BLE APEX COURT I N THE CASE OF GOETZ (INDIA) LTD(SUPRA) IS ON ENTIRELY DIFFERENT FACTS. WE, THEREFORE, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 11. THE NEXT ISSUE OF ASSESSEES APPEAL IS REGARDING D EDUCTION U/S 80IA - CAPTIVE CONSUMPTION. ADMITTEDLY, THIS ISSU E STANDS COVERED IN ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 20 - : FAVOUR OF THE ASSESSEE BY VARIOUS DECISION OF ITAT, CHENNAI BENCHES. THEREFORE, WE ALLOW THIS GROUND OF APPEAL. 12. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF CONTRIB UTION TO EMPLOYEES RECREATION & SPORTS CLUB. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE-COMPANY HAD MADE CONTRIBUTIONS TO THE FOLLOWING FUNDS: (I) CONTRIBUTION TO DEATH RELIEF SCHEME - ` 17,617 (II) CONTRIBUTION TO BENEVOLENT SCHEME - ` 99,714 (III)CONTRIBUTION TO SOCIAL SECURITY FUND - ` 12,68,962 (IV) CONTRIBUTION TO EMPLOYEES - ` 1,70,255 RECREATION & SPORTS CLUB 13. THE ASSESSING OFFICER HAD DISALLOWED THESE CONTRIBU TIONS IN VIEW OF THE PROVISIONS OF SECTION 40A(9) OF THE ACT. TH E CASE OF THE ASSESSEE IS THAT ALL THE CONTRIBUTIONS HAVE BEEN MA DE BY THE COMPANY UNDER COMMERCIAL EXPEDIENCY IN THE COURSE OF BUSINE SS HENCE, ARE ALLOWABLE U/S 37 AS BUSINESS DEDUCTION. THE LD. CI T(A) HAS ALLOWED ALL THESE CONTRIBUTIONS EXCEPT THE CONTRIBUTION TOWARDS EMPLOYEES RECREATION & SPORTS CLUB AMOUNTING TO ` 1,70,255/- . THE REASON FOR DISALLOWANCE OF THIS CONTRIBUTION IS BASED ON THE D ECISION OF ITAT, AHMEDABAD IN THE CASE OF NATIONAL DAIRY DEVELOPMENT BOARD VS ADDL. CIT, 310 ITR (AT) 325, IN WHICH IT HAS BEEN HELD TH AT CONTRIBUTION MADE TO THE EMPLOYEES RECREATION CLUB IS NOT ALLOWA BLE AS DEDUCTION U/S 40A(9) OF THE ACT. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 21 - : 14. BEFORE US IT WAS ARGUED BY THE LD.AR THAT TOWARDS THIS CONTRIBUTION SECTION 40A(9) IS NOT APPLICABLE. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDER OF THE LD. CIT(A). 15. AFTER HEARING BOTH SIDES, WE HAVE FOUND THAT TH IS ISSUE STANDS SQUARELY COVERED BY THE DECISION OF ITAT, AHMEDAB AD IN THE CASE CITED SUPRA AGAINST THE ASSESSEE. THE LD.AR HAS NOT BEEN ABLE TO FURNISH ANY CONTRARY DECISION. THEREFORE, WE CANN OT ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE SAME STANDS DISMI SSED. 16. THE LAST ISSUE OF THE ASSESSEES APPEAL IS REGARDI NG LONG TERM CAPITAL GAINS (LTCG). THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE- COMPANY HAD SOLD A PIECE OF LAND SITUATED AT METTUP ALAYAM AND ANOTHER AT BOAT CLUB, CHENNAI. THE ASSESSING OFFI CER HAS ADDED ` 23,76,960/- AND ` 6,93,29,153/- TO THE LTCG SHOWN IN REGARD TO THESE SALES RESPECTIVELY BY REPLACING THE FAIR MARKET VAL UE ARRIVED AT THE BY ASSESSEE BASED ON THE VALUERS REPORT WITH THE GUI DELINE VALUE PROVIDED BY THE SUB-REGISTRARS OFFICE. IT WAS ARG UED THAT COPIES OF THE RELEVANT GUIDELINE VALUE WERE NOT PROVIDED THE ASSESSEE , THEREFORE, THE LD. CIT(A) HAS PROVIDED THE COPIES T O THE ASSESSEE- COMPANY. THE ASSESSEE HAS DISPUTED THIS VALUATION DONE BY THE ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 22 - : ASSESSING OFFICER BASED ON GUIDELINE VALUE OF SUB-R EGISTRARS OFFICE BY SUBMITTING AS UNDER: FAIR MARKET VALUE OF LAND AT METTUPALAYALAM IT MAY BE NOTED FROM THE SUB-REGISTRAR'S LETTER THA T THERE WERE FOUR PROPERTIES FOR WHICH GUIDELINE VALUE AS O F 01.04.1981 WERE FURNISHED TO THE ASSESSING OFFICER. IN THAT, ONE PROPERTY HAS A GUIDELINE VALUE OF 1,05 ,000 PER ACRE AND THE OTHER THREE PROPERTIES HAVE A GUIDELIN E VALUE OF ` 9000/- EACH PER ACRE. THE ASSESSING OFFICER HAS T AKEN THE AVERAGE OF ALL FOUR VALUES MENTIONED IN THE SRO . REPORT AND ARRIVED AT ` 33,000/- PER ACRE. WHEN IT IS ASCERTAINED THAT A PROPERTY HAS A GUIDELINE VALUE O F ` 1,05,000 AS ON 01.04.1981, THAT VALUE SHALL BE TAKE N IN TO ACCOUNT IN DETERMINING THE FAIR MARKET VALUE. IN AP PELLANT'S CASE, THE VALUATION REPORT FURNISHED BY THE APPELLA NT HAS RECKONED ONLY ` 1,00, 000 PER ACRE AFTER CONSIDERING THE GUIDELINE VALUE OBTAINED FROM THE SRO AND ENQUIRIES MADE IN THE LOCALITY BY THE APPROVED VALUER AND THE ADDI TION OF THE POTENTIAL FACTOR OF 10% AS THE PROPERTY IS LOCA TED VERY CLOSE TO THE RAILWAY STATION. IT MAY BE WORTHWHILE TO MENTION THAT THE GUIDELINE VALUE HAS ONLY A PERSUASIVE VALUE IN DETERMINING FAIR MAR KET VALUE AND DOES NOT ITSELF REPRESENT AS A FAIR MARKE T VALUE. IT HAS BEEN RECOGNISED BY SUPREME COURT AND SEVERAL HI GH COURTS THAT FAIR MARKET VALUE HAS TO BE ARRIVED AT TAKING INTO ACCOUNT VARIOUS FACTORS LIKE LOCATION, SPECIFI CATION, ETC. IN VIEW OF THE FACT THAT FAIR MARKET VALUE ADOPTED BY THE APPROVED VALUER HAS BEEN ARRIVED ON SEVERAL FACTORS INCLUDING THE GUIDELINE VALUE, THE VALUATION REPORT FURNISHED BY THE APPELLANT SHOULD BE CONSIDERED. FAIR MARKET VALUE OF LAND AT BOAT CLUB ROAD THE JOINT SUB-REGISTRAR REPORT MENTIONS THE GUIDELI NE VALUE OF ` 80,000 PER GROUND THOUGH THE DATE OF VALUE HAS NOT BEEN MENTIONED. THE ASSESSING OFFICER HAS ACCORDING LY TAKEN THE FAIR MARKET VALUE AS ` 33 PER SQ. FT. HOWEVER THE VALUATION REPORT GIVEN BY THE APPROVED VALUER H AS RECKONED THE FAIR MARKET VALUE AT ` 246.40 PER SQ. FT. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 23 - : INCLUSIVE OF 10% FOR POTENTIAL FACTOR SINCE THE PRO PERTY IS CENTRALLY LOCATED IN CHENNAI AND IS IN POSH AREA WI TH SERENE SURROUNDINGS. THE FAIR MARKET VALUE DETERMINED BY T HE VALUER ALSO TAKES INTO ACCOUNT THE SRO VALUE OF NEA RBY PLACES AND PUBLISHED REPORTS. AS MENTIONED IN THE CASE OF METTUPALAYAM PROPERTY, VARIOUS FACTORS LIKE LOCATION, SPECIFICATION, ETC. HAS TO BE TAKEN INTO ACCOUNT IN DETERMINING THE FAIR MARKET V ALUE AND THE GUIDELINE VALUE HAS ONLY A PERSUASIVE FORCE. IN VIEW OF THE FACT THAT THE FAIR MARKET VALUE DETE RMINED BY THE APPROVED VALUER IS ON RATIONAL AND OBJECTIVE BA SIS, THE SAME SHOULD BE ADOPTED.' 17. AFTER CONSIDERING THE SUBMISSIONS PUT FORTH ON BE HALF OF THE ASSESSEE-COMPANY, THE LD. CIT(A) HAS GIVEN HIS FIND ING AS UNDER: 12.4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE RIVAL SUBMISSIONS. THE CONCERNED SUB-REGISTRAR OF THE LAND AT METTUPALAYAM HAS CERTIFIED TO THE ASSES SING OFFICER VIDE LETTER NO.1846/2008 DATED 18-12-2008 T HAT THE GUIDELINE VALUES AS ON 01.04.1981 ON THE PROPER TIES LOCATED IN THE AREA WHERE THE PROPERTY OF THE APPEL LANT LOCATED WERE AS UNDER: SI. NO NAME OF THE VILLAGE SURVEY NUMBER GUIDELINE VALUE/ ACRE (AS ON 01.04.1981). RS. 1 CHICKA DASAMPALAYAM 245/1B 9,000 2 CHICKA DASAMPALAYAM 245/1C 9,000 3 CHICKA DASAMPALAYAM 245/2 9,000 4 CHICKA DASAMPALAYAM 236/1A 1,05,000 ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 24 - : 12.4.1 THE ASSESSING OFFICER HAS REWORKED THE GUIDELINE VALUE AS ON 1.4.1981 BASED ON THE VALUE GIVEN BY THE SUB-REGISTRAR BY TAKING INTO CONSIDERATION OF THE AVERAGE VALUE OF THE PROPERTIE S LOCATED FOR SURVEY NOS.245/1B, 245/1C, 245/2, 236/1A AT ` 33,000/- PER ACRE AS ON 1.4.1981. THE ABOVE TREATMENT OF THE ASSESSING OFFICER IS NOT JUSTIFIED DUE TO THE FACT THAT THE VALUE OF THE PROPERTY AT SURVE Y NO.236/1A ITSELF WAS ` 1,05,000/- AS ON 1.4.1981 AND THE APPELLANT ALSO HAS DULY ADOPTED THE VALUE AT ` 1,00,000/- .EXCLUSIVE OF THE POTENTIAL FACTOR. HENCE, I AM OF THE CONSIDERED OPINION THAT THE VALUE ADOPTED BY THE AP PELLANT FOR THE PROPERTY LOCATED AT METTUPALAYAM IS REASONA BLE AND THE SAME CAN BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF LONG-TERM CAPITAL GAIN. ACCORDINGLY THE REVISED VALUATION OF THE ASSESSING OFFICER IS REJEC TED AND I DIRECT THE ASSESSING OFFICER TO REWORK THE LONG-TER M CAPITAL GAIN AS PER THE VALUE ADOPTED BY THE APPELLANT AS O N 01.04.1981. 12.5 PROPERTY LOCATED AT BOAT CLUB, CHENNAI:- IT HAS BEEN OBSERVED FROM THE MISCELLANEOUS RECORDS FOR THE CURRENT YEAR THAT THE JOINT SUB-REGISTRAR'S (JSRO) REPORT MENTIONS THE GUIDELINE VALUE OF ` 80,000/ PER GROUND AS ON 01.04.1981. THE ASSESSING OFFICER HAS ACCORDINGLY T AKEN THE FAIR MARKET VALUE AS ` 33 PER SQ.FT. ON THE OTHER HAND, THE APPELLANT HAS NOT PRODUCED NECESSARY EVIDENCE SATIS FACTORILY TO DISPROVE THE ASSESSING OFFICER'S CONTENTION EXCEPT THE VALUATION REPORT. FURTHER THE APPELLANT ALSO HAS NOT PRODUCED REQUISITE EVIDENCE TO DISPROVE THE ACTION OF THE ASSESSING OF FICER DURING THE APPELLATE PROCEEDINGS. HENCE, I AM OF THE CONSI DERED OPINION THAT THE ADJUSTMENT DONE BY THE ASSESSING O FFICER FOR THE PURPOSE OF COMPUTATION OF LONG-TERM CAPITAL GAI N ON THE ABOVE PROPERTY BASED ON THE VALUATION OF THE JSRO, CHENNAI IS CORRECT. ACCORDINGLY, THE SUBMISSION OF THE APPELLA NT IN THIS REGARD IS REJECTED. HOWEVER, I DIRECT THE A.SSESSIN G OFFICER TO INCLUDE THE POTENTIAL FACTOR OF 10% ON THE VALUE OF PROPERTY AS ON 01.04.1981 WHILE COMPUTING THE LONG-TERM CAPITAL GA IN DUE TO FACTORS LIKE LOCATION, SPECIFICATION, ETC, WHILE DE TERMINING THE FAIR MARKET VALUE AS ON 01.04.1981. ACCORDINGLY, THIS GR OUND OF APPEAL IS PARTLY ALLOWED. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 25 - : 18. BUT STILL THE ASSESSEE IS AGGRIEVED. THE LD.AR HA S AGAIN RELIED BEFORE US ON THE VALUERS REPORT AND HAS FURTHER SU BMITTED THAT THE GUIDELINE VALUE PROVIDED BY THE SUB-REGISTRARS OFF ICE IS NOT STATIC AND VARIES IN EACH CASE. IT WAS ARGUED THAT A CAPITA L VALUE MAY HAVE A PERSUASIVE VALUE IN DETERMINING THE FAIR MARKET VAL UE BUT IT IS NOT CONCLUSIVE. IT WAS FURTHER ARGUED THAT THE APPROVE D VALUERS REPORT CONTAINS THE BASE OF GUIDELINE VALUE AND ALSO AFTER TAKING INTO CONSIDERATION THE RELEVANT FACTORS TO ARRIVE AT THE FAIR MARKET VALUE OF A GIVEN PROPERTY, THE VALUER HAS FURNISHED HIS REPO RT. WITH REGARD TO FAIR MARKET VALUE OF LAND SITUATED AT BAT CLUB ALSO SIMILAR ARGUMENTS WERE MADE WHICH ARE EVIDENT FROM THE EXTRACTED PORT ION HEREINABOVE. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY INFIRMITY IN THE CONCLUSION ARRIVED AT Y THE LD. CI T(A) AND APPROVE THE SAME. HENCE, WE CANNOT ALLOW THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 20. IN THE CROSS OBJECTION, THE ONLY GROUND IS REGARDIN G SET OFF OF UNABSORBED DEPRECIATION OF EARLIER YEARS WHICH WE H AVE ALREADY DECIDED. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 26 - : 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2004-05 IS PARTLY ALLOWED AND CROSS OBJECTION IS AL LOWED. I.T.A.NO. 705/MDS/2010 22. IN REVENUES APPEAL FOR ASSESSMENT YEAR 2004-05, T HE FIRST ISSUE RELATES TO DEDUCTION ALLOWED U/S 80HHC REGARD ING WRITTEN BACK AMOUNTS. THE ASSESSING OFFICER HAS ACCEPTED THE IN COME BY WAY OF WRITTEN BACK OF LIABILITIES WHICH ARE NO LONGER REQ UIRED FROM THE ADJUSTED BOOK PROFITS. THE CONTENTION OF THE ASSES SEE IS THAT THIS HAS BEEN DONE WITHOUT APPRECIATING THE FACT THAT THE WR ITE BACK OF LIABILITIES REPRESENTED EXPENDITURE THAT WAS REDUC ED FROM THE TAXABLE PROFITS OF THE EARLIER YEARS, HENCE, THE AMOUNT WRI TTEN BACK FORM PART OF THE BUSINESS OF THE CURRENT YEAR. THE LD.AR HAS RELIED ON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF EXT RUSION PROCESS PVT. LTD VS THE INCOME-TAX OFFICER, 106 ITD 336 IN SUPPO RT OF HIS STAND. ON THIS BASIS OF THIS ARGUMENT, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. NOW, THE REVENUE IS AGGRIEVED. 23. THE LD.DR HAS ARGUED THAT THE WRITTEN BACK AMOUNTS CANNOT BE RELATED TO BE BUSINESS OF THE ASSESSEE TO BE ELIGIB LE FOR DEDUCTION U/S 80HHC. THE MAIN PLANK OF THE LD.DRS ARGUMENT IS T HAT THIS AMOUNT CANNOT BE TREATED AS DERIVED FROM IN VIEW OF THE DECISIONS OF APEX ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 27 - : COURT RENDERED IN THE CASES CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS CIT, 113 ITR 84 AND CIT VS STERLING FOODS, 237 I TR 579. 24. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THA T ANY AMOUNT WRITTEN BACK IN RESPECT OF LIABILITIES NO LONGER R EQUIRED HAVE TO BE TREATED AS PROFITS AND GAINS DERIVED FROM THE ACTIV ITIES CARRIED ON BY THE ASSESSEE WITHIN THE MEANING OF SECTION 80HHC. THE DECISIONS WHICH THE LD.DR HAS REFERRED TO ARE GENERAL DECISIO NS WHICH DEFINED THE TERMINOLOGY DERIVED FROM. IN THIS CASE, THE WRITTEN BACK AMOUNT IN RESPECT OF THE LIABILITIES NO LONGER REQUIRED I S DEFINITELY RELATED TO THE BUSINESS OF THE ASSESSEE AND CAN BE TREATED AS DERIVED FROM THE BUSINESS ACTIVITIES OF THE ASSESSEE-COMPANY HENCE, THIS GROUND OF REVENUE CANNOT BE ALLOWED. 25. THE SECOND ISSUE RELATES TO ADJUSTMENT OF BOOK PROF ITS FOR THE PURPOSE OF COMPUTING BOOK PROFITS. ACCORDING TO TH E REVENUE, THIS IS NOT ALLOWABLE U/S 80HHC, BUT ACCORDING TO THE LD. C IT(A) THIS IS AN ALLOWABLE DEDUCTION. 26. BOTH THE PARTIES HAVE TAKEN SIMILAR STAND BEFORE US . IT IS TRUE THAT THE ASSESSEE-COMPANY IS NOT ELIGIBLE FOR DEDUC TION UNDER THE NORMAL PROVISIONS OF THE ACT. BUT STILL THE ASSESS ING OFFICER HAS HIMSELF ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 28 - : QUANTIFIED THE DEDUCTION U/S 80HHC AT ` 23,81,273/- IN HIS ORDER. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT IN THE CASE OF CHEMPLAST SANMAR VS ACIT, IN I.T.A.NO. 1213 TO 1216/MDS/2005 DATED 8.5.2007 IN WHICH IT HAS BEEN HELD AS UNDER: 'THE ASSESSEE HAS APPROACHED THE HON'BLE ITAT WITH THE GROUNDS OF APPEALS THAT DEDUCTION U/S.80HHC SHOULD BE ALLOWED ON THE BASIS OF ADJUSTED BOOK PROFIT UNDER BOOK PROFIT METHOD AS PROVIDED U/S. 115JA/L15JB. THE HON 'BLE TRIBUNAL HAS ALLOWED THE APPEAL OF THE ASSESSEE IN TOTO WITHOUT REMITTING THE ABOVE ISSUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION BY RELYING ON THE DECISION OF HON'BLE SPECIAL BENCH TRIBUNAL OF MUMBAI VIDE ITA NO.3720 (MUMBAI)/2005 IN THE CASE OF M/S. THIRUMALAI CHEMIC ALS LIMITED VS ITO, WHERE IT HAS BEEN HELD THAT 'IF NO DEDUCTION IS AVAILABLE TO THE ASSESSEE THE GROSS TOTAL INCOME ITSELF IS THE TAXABLE INCOME OF THE ASSESSEE. THEREFORE THE INTERPRETATION IS THAT THE ADJUSTED BOOK PROFIT OF THE COMPANY IS ITSELF THE GROSS TOTAL INCOME OF THAT COMPANY'. 27. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO N, APART FROM THE DECISIONS RELIED ON BY THE LD.AR, WE CONFIRM THE FINDING OF THE LD. CIT(A) BY HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80HHC IN COMPUTING THE PROFITS U/S 115JB HENCE, WE DO NOT INTERFERE IN THIS FINDING OF THE LD. CIT(A). THIS GROUND OF APPEAL STANDS DISMISSED. 28. THE NEXT ISSUE RAISED BY THE REVENUE VIDE GROUND NO .4 IS IN RELATION TO DELETION OF DISALLOWANCE OF CONTRIBUTIO NS TO DEATH RELIEF SCHEME, BENEVOLENT SCHEME, SOCIAL SECURITY FUND. THE FACTS OF THIS ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 29 - : ISSUE HAVE BEEN NARRATED BY US WHILE DEALING WITH T HE RELATED GROUND OF ASSESSEES APPEAL. IN OUR CONSIDERED OPINION, T HIS ISSUE STANDS COVERED BY THE DECISION OF HON'BLE MADRAS HIGH COUR T RENDERED IN ASSESSEES OWN CASE, 240 ITR 253(MAD) AND IT IS FU RTHER SUPPORTED BY THE DECISION OF ITAT CHENNAI IN THE CASE OF INDIA P ISTONS REPCO LTD , 26 ITD 413. THEREFORE, WE DO NOT INTERFERE IN THIS ISSUE AS THE SAME STANDS COVERED BY THE DECISION OF HON'BLE JURISDIC TIONAL HIGH COURT. 29. GROUND NO.5 PERTAINS TO SUGAR INCENTIVE RECEIVED AS CAPITAL RECEIPT. THE ASSESSEE HAD RECEIVED SUGAR INCENTIVE OF ` 5,39,955/- WHICH WAS EARNED ON ADDITIONAL QUOTA OF SUGAR SOLD AND CLAIMED AS CAPITAL RECEIPT AND SUBSIDY WAS GRANTED FOR THE REP AYMENT OF THE LOAN TOWARDS PURCHASE OF CAPITAL ASSETS. THE ASSESSING OFFICER ALLOCATED THE INCENTIVE ON PRORATE BASIS BASED ON THE WDV OF THE CAPITAL ASSETS AND DISALLOWED ` 1,12,042/- AS EXCESS DEPRECIATION CLAIMED. THE CA SE OF THE ASSESSEE IS THAT THE INCENTIVE WAS NOT GRANT ED FOR THE PURCHASE OF FIXED ASSETS BUT FOR THE SALE OF ADDITIONAL QUOT A OF LEVY SUGAR WHICH ENTITLED THE COMPANY TO RECEIVE INCENTIVE. ACCORDI NG TO THE ASSESSEE THE INCENTIVE WAS GRANTED NOT BASED ON THE INVESTME NT IN FIXED ASSETS BUT ONLY WITH A DIRECTION TO USE IT FOR REPAYMENT O F LOANS. SO, EXPLANATION 10 TO SECTION 43(1) WOULD NOT APPLY IN THIS CASE AND THE INCENTIVE RECEIVED HAS TO BE TREATED AS CAPITAL REC EIPT NOT LIABLE TO BE ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 30 - : REDUCED FROM THE COST OF CAPITAL ASSETS. IN THE NO TE FOR ASSESSMENT YEAR 2004-05, THE ASSESSEE EXPLAINED THE SUGAR INCE NTIVE IN FOLLOWING WORDS: SUGAR INCENTIVE IS AVAILABLE TO THE NEW UNITS OR T O THE UNITS UNDERTAKING EXPANSION WITH THE STIPULATION TH AT THE SUGAR INCENTIVE SO REALIZED SHOULD BE UTILIZED FOR THE PURPOSE OF REPAYMENT OF LOAN FOR SETTING UP THE UNI T OR FOR THE EXPANSION OF THE EXISTING UNIT. 30. AFTER EXAMINING THIS ISSUE, THE LD. CIT(A) HAS FOUND THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS PONNI SUGARS LTD, 306 ITR 392, WAS RENDERED UNDER SIMILAR FACTS AND CIRCUMSTANCES HOLDING THAT THE RECEIPT IN THE HANDS OF THE ASSES SEE WAS ONLY CAPITAL RECEIPT. THEREFORE, HE HAS ALLOWED THIS CLAIM OF T HE ASSESSEE. THE LD.DR HAS ARGUED BEFORE US THAT THE HON'BLE SUPREME COURTS DECISION ON WHICH THE LD. CIT(A) HAS RELIED, RELATED TO ASSE SSMENT YEAR 1989- 90, BUT THE ACT HAS BEEN AMENDED WITH EFFECT FROM A SSESSMENT YEAR 1999-2000 BY INSERTION OF EXPLANATION 10 SECTION 43 (1) AND THE ASSESSMENT YEAR UNDER CONSIDERATION BEING 2004-05, SUCH EXPLANATION IS APPLICABLE HERE. THIS EXPLANATION EXCLUDES INCE NTIVE/SUBSIDY RECEIVED BY THE ASSESSEE FROM COMPUTATION OF COST/W DV OF ASSETS. IN THIS REGARD, RELIANCE HAS BEEN PLACED ON THE DECISI ON OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD VS CIT, 228 ITR 253 IN WHICH IT HAS BEEN HELD AS UNDER: ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 31 - : HELD, DISMISSING THE APPEAL, THAT, UNDER THE NOTIF ICATION IN QUESTION THE PAYMENTS WERE MADE TO ASSIST THE NE W INDUSTRIES AT THE COMMENCEMENT OF BUSINESS TO CARRY ON THEIR BUSINESS. THE PAYMENTS WERE NOTHING BUT SUPPLEMENTARY TRADE RECEIPTS. IT WAS TRUE THAT THE ASSESSEE COULD NOT USE THIS MONEY FOR DISTRIBUTION AS DIVIDEND TO ITS SHAREHOLDERS. BUT THE ASSESSEE WA S FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIK ED AND WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. THE SUBSIDIES HAD NOT BEEN GRANTED FOR PRODUCTION OF, OR BRINGING INTO EXISTENCE ANY NEW A SSET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR, ONLY AF TER THE SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ONLY BE TREATED A S ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. THE SUBSIDIES WERE OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDING LY,. 31. AFTER COGITATING THE RIVAL STANDS, WE FIND THA T THE DECISION OF HON'BLE SUPREME COURT ON WHICH THE LD. CIT(A) HAS P LACED RELIANCE WAS RENDERED PRIOR TO INSERTION OF EXPLANATION 10 S ECTION 43(1). THE DECISION RELIED ON BY THE DEPARTMENT WAS RENDERED AFTER THE AMENDMENT, SO THIS FINDING OF THE LD. CIT(A) IS REV ERSED AND GROUND NO.5 OF REVENUES APPEAL IS ALLOWED. 32. GROUND NO.6 OF REVENUES APPEAL RELATES TO MAT CRE DIT ALLOWED BEFORE CHARGING INTEREST WHICH, ACCORDING TO THE LD . CIT(A), IS ALLOWABLE IN VIEW OF THE DECISION OF HON'BLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS CHEMPLAST SANMAR LTD , 314 ITR 231, WHEREIN IT HAS BEEN HELD THAT MAT CREDIT HAS TO BE ALLOWED BEFORE CHARGING OF INTEREST U/S 234B AND 234C. AS THIS I SSUE IS SQUARELY ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 32 - : COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE MEN TIONED DECISION OF HON'BLE MADRAS HIGH COURT, WE CANNOT ALLOW THIS ISS UE IN FAVOUR OF THE REVENUE AND THEREFORE, THE SAME STANDS DISMISSED. 33. GROUND NOS. 7 & 8 REGARDING COMPUTATION OF LTCG ARE CONCERNED, WE HAVE ALREADY DECIDED THE SAME BY REMI TTED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WHILE DECIDING TH E ISSUE RAISED IN ASSESSEES APPEAL. THEREFORE, THESE GROUNDS ARE AL SO RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIO NS. 34. IN THE RESULT, THE APPEAL OF THE REVENUE FOR ASSE SSMENT YEAR 2004-05, IS PARTLY ALLOWED AND PARTLY ALLOWED FOR S TATISTICAL PURPOSES. I.T.A.NO. 706/MDS/2010 A.Y 2006-07 35. IN THIS APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07, THE FIRST ISSUE IS REGARDING DISALLOWANCE OF CONTRI BUTIONS TO DEATH RELIEF SCHEME, BENEVOLENT SCHEME AND SOCIAL SECURITY FU ND. THE SECOND ISSUE IS REGARDING SUGAR INCENTIVE RECEIVED AS CAPI TAL RECEIPT. WE HAVE ALREADY DECIDED THESE ISSUES IN REVENUES APPEAL F OR ASSESSMENT YEAR 2004-05. IN THE SAME MANNER, THESE GROUNDS ARE DIS POSED OF. 36. THE THIRD ISSUE RELATES TO CLAIM ALLOWED U/S 10B IN RESPECT OF M/S PESTICIDES UNIT AT THIYAGAVALLI. THE FACTS AP ROPOS THIS ISSUE ARE ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 33 - : THAT THE ASSESSEE HAS BEEN IN THE CHEMICAL PESTICID ES BUSINESS FOR MORE THAN TWO DECADES. DURING 1994, IT STARTED PRO DUCTION OF ORGANIC PESTICIDES (NEEM BASED) AT ITS RANIPET FACTORY IN A SMALL PILOT PLANT AT A CAPACITY OF 450 KGS PER YEAR TO FIND OUT ITS COMMER CIAL VIABILITY. THE INVESTMENT WAS ONLY ` 1.25 CRORES. THE PRICE OF THE ORGANIC PESTICIDES IS STATED TO BE HIGH AND SELLING THE PRODUCT IN IND IA WAS VERY DIFFICULT. HENCE, IT LOOKED AT THE MAJOR FOREIGN MARKETS LIKE USA AND EUROPE TO SELL THE PRODUCTS. TO ENABLE THE ASSESSEE TO MARKE T ITS NEEM BASED PESTICIDE IN THOSE COUNTRIES IT HAD TO REGISTER ITS PRODUCT WITH THEIR RESPECTIVE AGENCIES FOR ENVIRONMENTAL CLEARANCE. T HEREFORE, IT UTILIZED THE SERVICE OF RECOGNIZED LABORATORIES TO RUN THE T OXICITY TEST AND CERTIFY ITS PRODUCT BEFORE IT BECOME ELIGIBLE TO EX PORT. FOR THAT THE COMPANY HAD INCURRED CERTAIN EXPENDITURE LIKE REGIS TRATION EXPENSES, LAB TESTING CHARGES ETC DURING THIS PERIOD. THIS E XPENDITURE WAS CLAIMED AS REVENUE EXPENDITURE IN THE RELEVANT YEAR S. SUBSEQUENTLY, THE ASSESSEE SET UP A NEW FACTORY AT THYAGAVALLI VI LLAGE NEAR CUDDALORE DISTRICT DURING 1997-98 AT AN INSTALLED C APACITY OF 7000 KGS PER YEAR. THIS FACTORY WAS PUT UP AT A COST OF ` 17 CRORES. EXCISE REGISTRATION WAS OBTAINED ON 26.7.1996 AND APPROVAL OF POLLUTION CONTROL BOARD WAS OBTAINED DURING 1997-98. IT STAR TED THE COMMERCIAL PRODUCTION AFTER GIVING INTIMATION TO THE EXCISE DE PT DURING MARCH 1998. MOST OF THE PRODUCTS WERE EXPORTED TO FOREIG N COUNTRIES. SO, ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 34 - : THIS FACTORY WAS CONVERTED INTO 100% EOU DURING FIN ANCIAL YEAR 2005- 06 AND DEDUCTION U/S 10B WAS CLAIMED. THE ASSESSIN G OFFICER HAS TREATED THIS FACTORY AS EXPANSION/SPLIT UP OF EXIST ING BUSINESS AND HAS DENIED DEDUCTION U/S 10B OF THE ACT. THE CASE OF T HE ASSESSEE IS THAT THYAGAVELLI PLANT WAS CONSTRUCTED AS A BRAND NEW U NIT AND NO PLANT AND MACHINERY OF PILOT PLANT WAS TRANSFERRED FROM A NY OF THE OTHER UNITS OF THE ASSESSEE. IT WAS ARGUED THAT EVEN AF TER ESTABLISHING NEEMAZOL UNIT AT THYAGAVELLI, THE OLD UNIT AT RANIP ET WAS IN OPERATION. THE LD. CIT(A) HAS EXAMINED THIS ISSUE DEEPLY AND H AS FINALLY AGREED WITH THE CLAIM OF THE ASSESSEE. 37. BEFORE US SIMILAR ARGUMENTS WERE ADVANCED BUT APART FROM THE SUBMISSION OF BARE FACTS, WE COULD NOT CULL OUT FUL L AND FINAL FACTS REGARDING THIS AS THE ASSESSING OFFICER HAS NOT DON E PROPER INVESTIGATION WHICH HE WAS BOUND TO DO. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE NEEDS TO BE REST ORED TO THE FILE OF THE ASSESSING OFFICER. WE DIRECT THE ASSESSING O FFICER TO DECIDE THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION THE RE LEVANT PROVISIONS AS WELL AS THE PRECEDENTS ON THE ISSUE. THUS, WE ALLO W THIS GROUND FOR STATISTICAL PURPOSES. ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 35 - : 38. THE LAST ISSUE RAISED IN THIS APPEAL IS IN REGARD T O FOREIGN EXCHANGE LOSS. THE ASSESSING OFFICER HAS ADDED A S UM OF ` 83 LAKHS OUT OF THE AMOUNT DEBITED TO PROFIT & LOSS ACCOUNT ON ACCOUNT OF FOREIGN EXCHANGE LOSS OF ` 2.48 CRORES TO THE INCOME AS IT RELATES TO TERM LOANS FOR THE PURPOSE OF PURCHASE OF FIXED ASS ETS WITHIN INDIA. THE TERM LOAN WAS BORROWED IN FOREIGN EXCHANGE. TH E ASSESSING OFFICER WAS OF THE OPINION THAT AS PER THE PROVISIO N OF SECTION 43A WHICH SPECIFICALLY DEALS WITH THE ACQUISITION OF AS SETS FROM OUTSIDE INDIA, IT WOULD NOT COVER THE LOSS DUE TO CHANGE IN FOREIGN EXCHANGE ON THIS TERM LOAN AS IT WAS UTILIZED IN THE PURCHAS E OF ASSETS WITHIN INDIA. THE MAIN CRUX OF THE LD.DRS ARGUMENT WAS T HAT THE ASSESSING OFFICER WAS CORRECT IN HIS FINDING BECAUSE THE FORE IGN EXCHANGE FLUCTUATION LOSS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE CANNOT BE ACCEPTED DUE TO THE FACT THAT THE FOREIGN EXCHANGE FLUCTUATION LOSS AROSE ON ACCOUNT OF PURCHASE OF FI XED ASSETS WITHIN INDIA AND ALSO LOSS DUE TO FOREIGN EXCHANGE FLUCTU ATION AROSE AFTER THE ASSETS WERE PUT TO USE. THE LD. CIT(A) HAS DIRECTE D THE ASSESSING OFFICER TO ALLOW THIS CLAIM OF THE ASSESSEE AFTER V ERIFICATION OF THE FACTS OF THE ISSUE AND HAS ALLOWED THIS ISSUE FOR STATIST ICAL PURPOSES. IN EFFECT, THE GROUNDS RAISED BY THE REVENUE IN THIS R ESPECT ARE MISDIRECTED. THE LD. CIT(A) HAS NOT ALLOWED THE C LAIM OF THE ASSESSEE RATHER HE HAS RESTORED THE ISSUE TO THE FILE OF TH E ASSESSING OFFICER TO ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 36 - : DECIDE THE SAME IN THE LIGHT OF THE FACTS WHICH ARE BEFORE HIM AS IN PARA 9 AND 9.1 OF HIS ORDER. WE FURTHER CLARIFY TH AT THE ASSESSING OFFICER SHALL DECIDE THIS ISSUE AFRESH WITHOUT BEIN G GUIDED BY ANY NARRATION IN THE LD. CIT(A)S ORDER, BUT AFTER GIVI NG OPPORTUNITY OF HEARING TO THE ASSESSEE. 39. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO. 416/MDS/2010 A.Y 2006-07 40. IN ASSESSEES APPEAL FIRST ISSUE IS REGARDING DED UCTION U/S 80IA CAPTIVE CONSUMPTION WHICH HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE IN ASSESSMENT YEAR 2004-05. THE SECOND ISS UE IS REGARDING DISALLOWANCE OF CONTRIBUTION TO EMPLOYEES RECREATIO N & SPORTS CLUB. WE HAVE ALREADY DECIDED THIS ISSUE IN ASSESSMENT Y EAR 2004-05 AGAINST THE ASSESSEE. WITH SIMILAR REASONING WE DE CIDE THIS ISSUE AGAINST THE ASSESSEE. ACCORDINGLY, THE APPEAL OF T HE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IS PARTLY ALLOWED. ACCORDI NGLY, THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IS PARTLY ALLOWED. 41. TO SUMMARIZE THE RESULT, APPEAL OF THE ASSESSEE FO R ASSESSMENT YEAR 2004-05 IS PARTLY ALLOWED, THE APPEAL OF THE R EVENUE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES AND CROSS OBJECTION ITA 415 & 416/10 705 & 706/10 CO 47/10 :- 37 - : OF THE ASSESSEE IS ALLOWED. FOR ASSESSMENT YEAR 2 006-07, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PU RPOSES, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.08.11. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 2 ND AUGUST, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR