DCIT, Ernakulam V. Appolo Tyres Ltd, Ernakulam

ITA 729/COCH/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1056 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 17-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2008
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA; SUSAN GEORGE VARGHESE
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Capital asset; Business income; Depreciation; Retrospective amendment; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 115JB; 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A NO. 729/COCH/2008 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), ERNAKULAM VS. M/S. APOLLO TYRES, 6 TH FLOOR, CHERUPUSHPAM BLDG., SHANMUGHAM ROAD, ERNAKULAM KOCHI-682031. [PAN: AAACA 6990Q] (REVENUE-APPELLANT) (ASSESSEE- RESPONDENT) I.T.A NO. 627/COCH/2008 ASSESSMENT YEAR : 2005-06 M/S. APOLLO TYRES, 6 TH FLOOR, CHERUPUSHPAM BLDG., SHANMUGHAM ROAD, ERNAKULAM KOCHI-682031. VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR AND SMT. S. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI V. SATHYANARAYANAN, CA DATE OF HEARING 17/12/2012 DATE OF PRONOUNCEMENT 08/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER D ATED 26-03-2008 PASSED BY LD CIT(A)-II, KOCHI AND THEY RELATE TO THE ASSESSMENT YEAR 2005-06. 2. WE SHALL FIRST TAKE UP THE APPEAL FILED BY T HE REVENUE IN ITA NO.729/COCH/2008. FOLLOWING ISSUES ARE URGED IN THIS APPEAL:- I.T.A. NOS. 729 & 627/COCH/2008 2 (A) DEPRECIATION ON MACHINERY INSTALLED IN THE SHO W ROOMS OF DEALERS. (B) NON-DEDUCTION OF NON-REFUNDABLE DEPOSITS COLL ECTED FROM THE DEALERS FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION. (C) EXPENDITURE INCURRED IN THE CLUBS (D) DEPRECIATION ON THE PORTION OF BUILDING, WHIC H HAS BEEN LET OUT. (E) GRANTING OF DEDUCTION U/S 80IA ON THE D.G. P OWER UNITS I & II. 3. THE FIRST AND SECOND ISSUE RELATES TO THE CO MPUTATION OF DEPRECIATION ON THE MACHINERY INSTALLED IN THE SHOW ROOMS OF DEALERS. THE FACTS RELATING THERETO ARE STATED IN BRIEF. THE ASSESSEE INSTALLED CERTAIN MACHINERI ES AT THE PREMISES OF ITS DEALERS, WHO OWNED THE BRANDED SHOW ROOMS UNDER THE NAME AND S TYLE APOLLO TYRE WORLD/APOLLO RADIAL WORLD. THE COST OF MACHINER IES INSTALLED DURING THE YEAR UNDER CONSIDERATION WAS RS.88,22,753/-. THE ASSESSEE HAD COLLECTED SECURITY DEPOSITS FROM THOSE DEALERS @ 50% OF THE COST OF MACHINERIES. TH E ASSESSEE CLAIMED THE ABOVE SAID SUM OF RS.88,22,753/- AS REVENUE EXPENDITURE, THOUG H IT HAD CAPITALISED THE SAME IN ITS BOOKS OF ACCOUNT. THE AO HELD THAT THE AMOUNT OF R S.88,22,753/- SPENT ON PURCHASE OF MACHINERIES IS CAPITAL IN NATURE AND ACCORDINGLY DISALLOWED THE SAID CLAIM. HE FURTHER HELD THAT THE DEPRECIATION ON THESE MACHINERIES IS NOT ALLOWABLE, SINCE THEY WERE USED IN THE PREMISES OF THE DEALERS AND NOT BY THE ASSES SEE. THE AO FURTHER OPINED THAT THE DEPRECIATION, IF FOUND TO BE ALLOWABLE, THE SAME HA S TO BE ALLOWED ONLY ON 50% OF THE COST OF MACHINERIES, AS THE OTHER 50% HAS BEEN COLL ECTED BY THE ASSESSEE AS SECURITY DEPOSIT FROM THE CONCERNED DEALERS. 4. THE LD CIT(A) AGREED WITH THE VIEW OF THE AO THAT THE AMOUNT SPENT ON PURCHASE OF MACHINERIES, THOUGH INSTALLED IN THE PREMISES OF THE DEALERS, IS CAPITAL IN NATURE. HOWEVER, THE LD CIT(A) HELD THAT THE DEPRECIATION I S ALLOWABLE ON THE ENTIRE AMOUNT OF RS.88,22,753/- ON THE REASONING THAT :- (A) THE PURPOSE OF INSTALLATION OF MACHINERIES AT THE SHOW ROOMS OF THE DEALERS IS TO PROVIDE BETTER AFTER SALES SERVICE WHICH WIL L AFFECT THE SALES TURNOVER OF THE ASSESSEE. THUS THE MACHINERIES ARE USED BY THE AS SESSEE AS A PART OF SALE I.T.A. NOS. 729 & 627/COCH/2008 3 PROMOTION PROGRAM AND HENCE IT CAN BE SAID THAT TH ESE MACHINERIES ARE USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. (B) THE ASSESSEE HAS COLLECTED SECURITY DEPOSIT @ 50% OF THE COST OF MACHINERIES AND THE SAME WILL REMAIN AS A LIABILIT Y, SO LONG AS THE ASSETS ARE NOT TRANSFERRED BACK TO THE ASSESSEE. HENCE, THE AMOU NT OF SECURITY DEPOSIT CANNOT BE REDUCED FROM THE COST OF ASSET. 5. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE ASSESSEE HAS NOT CHALLENGED THE DECISION OF LD CIT(A) IN HOLDING THA T THE COST OF MACHINERIES INSTALLED IN THE APOLLO RADIAL WORLD, I.E., AT THE DEALERS PR EMISES, IS CAPITAL IN NATURE. THE ONLY DISPUTE IS ABOUT THE DEPRECIATION ALLOWABLE ON THE COST OF THOSE MACHINERIES. ACCORDING TO THE ASSESSING OFFICER, THESE MACHINERIES CANNOT BE SAID TO BE USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND HENCE NO DEPRECIATI ON IS ALLOWABLE ON THEM. IN THIS CONNECTION, WE ARE INCLINED TO ACCEPT THE VIEW TAKE N BY THE LD CIT(A). AS RIGHTLY POINTED OUT BY THE FIRST APPELLATE AUTHORITY, THE O BJECT OF PROVIDING THESE MACHINERIES IS TO PROVIDE BETTER AFTER SALES SERVICE, WHICH WOULD IN TURN HELP TO INCREASE THE TURNOVER OF THE ASSESSEE. THESE MACHINERIES ARE USED TO PROV IDE AFTER SALES SERVICE TO ITS CUSTOMERS, WHICH OTHERWISE THE ASSESSEE IS EXPECTED TO DO. THUS, IT IS SEEN THAT THE ASSESSEE HAS ADOPTED A BUSINESS STRATEGY. HENCE, W E AGREE WITH THE VIEW OF THE LD CIT(A) THAT THESE MACHINERIES ARE USED FOR THE PURP OSE OF BUSINESS OF THE ASSESSEE ONLY. WITH REGARD TO THE AMOUNT OF SECURITY DEPOSI T COLLECTED FROM THE CUSTOMERS, WE NOTICE FROM THE AGREEMENT THAT IT REMAINS THE LIABI LITY OF THE ASSESSEE TILL THE AGREEMENT IS CANCELLED. SO LONG AS THE AGREEMENT REMAINS IN FORCE, THE SECURITY DEPOSIT WILL REMAIN AS THE LIABILITY OF THE ASSESSEE. FURTHER, IT IS CLEARLY PROVIDED IN THE AGREEMENT THAT THE DEALER SHALL HOLD THE MACHINERIES IN TRUST . THE QUESTION OF REFUND/ADJUSTMENT OF DEPOSIT ARISES ONLY ON THE EVENT OF THE DEALER C HOOSING TO GIVE UP/DISCONTINUE THE CAR RADIAL BUSINESS. HENCE, IN OUR CONSIDERED VIEW , IT CANNOT BE SAID THAT THE DEALERS HAVE CONTRIBUTED MONEY FOR PURCHASE OF THESE MACHIN ERIES. HENCE THE QUESTION OF ADJUSTMENT OF SECURITY DEPOSIT AGAINST THE COST OF ASSETS FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION DOES NOT ARISE. ACCORDINGLY, WE UP HOLD THE VIEW TAKEN BY LD CIT(A) ON THESE TWO ISSUES. I.T.A. NOS. 729 & 627/COCH/2008 4 6. THE NEXT ISSUE RELATES TO THE EXPENDITURE IN CURRED ON CLUBS. THE ASSESSEE HAD CLAIMED A SUM OF RS.7,26,998/- AS EXPENDITURE INCUR RED IN CLUBS. THE DISALLOWANCE OF THIS CLAIM MADE BY THE AO WAS REVERSED BY LD CIT(A) . WE NOTICE THAT THIS BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE A SSESSEES OWN CASE RELATING TO THE ASSESSMENT YEAR 2007-08 IN ITA NO.430/COCH/2006 AND THE TRIBUNAL, VIDE ITS ORDER DATED 24-08-2012, HAS HELD THAT THE EXPENDITURE INC URRED TOWARDS ENTRANCE FEE/SUBSCRIPTION CAN BE TERMED AS BUSINESS EXPENDIT URE AND THE COST OF SERVICES CAN BE ALLOWED ONLY IF THE COMMERCIAL EXPEDIENCY IN INCURR ING THE SAME IS PROVED. IN THE INSTANT YEAR ALSO, WE HOLD ACCORDINGLY. THE ASSESS EE HAS GIVEN BREAK UP DETAILS OF CLUB EXPENSES AS UNDER:- ENTRANCE FEE/SUBSCRIPTION - 7,05,680 COST OF SERVICES AND FACILITIES - 21,288 ------------ 7,26,968 ====== HOWEVER, THE DETAILS FURNISHED BY THE ASSESSEE BEFO RE US REQUIRE VERIFICATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DIS CUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISION ACCORDINGLY. 7. THE NEXT ISSUE RELATES TO THE DEPRECIATION CLAI MED ON LET OUT PROPERTIES. BOTH THE PARTIES AGREED THAT THIS ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.426/COCH/2006, WH ICH WAS FOLLOWED IN I.T.A.NO.430/COCH/2006 RELATING TO THE ASSESSMENT Y EAR 2007-08. BY FOLLOWING THE SAID ORDERS OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF L D CIT(A) ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE AO. 8. THE NEXT ISSUE RELATES TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT ON THE D.G. POWER GENERATION UNITS I & I I BY CONSIDERING THE SAME AS AN UNDERTAKING FOR THE PURPOSES OF SEC. 80IA OF THE ACT. BOTH THE PARTIES AGREED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THE TRIBUNAL IN ITA NO.429/COCH/2006 AND 377/COCH/2009 RELATING TO THE ASSESSMENT YEAR 2002-03 AND I.T.A. NOS. 729 & 627/COCH/2008 5 THE SAME WAS FOLLOWED BY THE TRIBUNAL IN ITS ORDER DATED 24-08-2012 RELATING TO THE ASSESSMENT YEAR 2003-04 IN ITA NO. 378/COCH/2009. WE NOTICE THAT THE DECISION TAKEN BY LD CIT(A) IS IN ACCORDANCE WITH THE DECISION REN DERED BY THE TRIBUNAL. HENCE, WE UPHOLD HIS ORDER ON THIS ISSUE. 9. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE IN ITA NO.627/COCH/2008. FOLLOWING ISSUES ARE URGED IN THIS APPEAL:- (A) WRITE OFF OF IRRECOVERABLE ADVANCE PAID FOR P URCHASE OF MACHINERIES. (B) SETTING OFF OF LONG TERM CAPITAL LOSS INCURRE D ON SALE OF EQUITY SHARES/UNITS AGAINST LONG TERM CAPITAL GAIN EARNED ON SALE OF L AND. (C) ADDITION OF DEFERRED TAX LIABILITY, WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 10. THE ASSESSEE HAS RAISED FOLLOWING TWO ADDIT IONAL GROUNDS:- (A) WEIGHTED DEDUCTION @ ONE AND ONE HALF TIMES O F THE EXPENDITURE TO BE ALLOWED ON THE EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH. (B) DEDUCTION FOR LOSS INCURRED ON QUALITY CLAIMS RAISED IN EXPORT MARKET. 11. THE FIRST ISSUE RELATES TO THE CLAIM OF AMO UNT WRITTEN AS IRRECOVERABLE. THE ASSESSEE GAVE A SUM OF RS.2.76 CRORES AS ADVANCE TO WARDS PURCHASE OF MACHINERY. SINCE THE DEAL DID NOT MATERIALISE AND SINCE THE SU PPLIER ADJUSTED THE SAID ADVANCE AGAINST HIS CHARGES TOWARDS COST AND TIME SPENT FOR REFURBISHING AND MODIFYING THE MACHINERY, THE ASSESSEE WROTE OFF THE ADVANCE IN IT S BOOKS OF ACCOUNT AND CLAIMED THE SAME AS DEDUCTION. THE AO DISALLOWED THE SAID CLAI M BY HOLDING THAT ASSESSEE DID NOT DISCLOSE THE ABOVE SAID AMOUNT AS ITS INCOME IN ANY OF THE YEAR AND HENCE THE SAME IS NOT ALLOWABLE U/S 36(1)(VII) OF THE ACT. THE LD CIT (A) HELD THAT THE SAID CLAIM IS NOT ALLOWABLE EVEN AS BUSINESS LOSS OR BUSINESS EXPENDI TURE, SINCE IT WAS A CAPITAL LOSS. THE LD CIT(A) RELIED UPON MANY CASE LAW IN SUPPORT OF H IS DECISION. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS MADE BY THE LD CIT(A) ON THIS ISSUE:- I.T.A. NOS. 729 & 627/COCH/2008 6 5.4 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISS ION. THE APPELLANTS CLAIM OF DEDUCTION UNDER SEC. 36(1)(VII) IS NOT AT ALL ALLO WABLE IN VIEW OF SEC. 36(2) AS THE AMOUNT WRITTEN OFF HAS NOT BEEN TAKEN FOR COMPUTAT ION OF INCOME DURING THE PREVIOUS YEAR OR EARLIER YEARS. NOW WHETHER THIS CAN BE ALLOWED AS A BUSINESS LOSS OR EXPENDITURE IS TO BE DECIDED. ADMITTEDLY THE ADVANCE WAS FOR PURCHASE OF CAPITAL ASSET LIKE PLANT AND MACHINERY. THE AD VANCE GIVEN TO FOREIGN COLLABORATOR WAS SHOWN AS WORK IN PROGRESS (WIP) I N ASSET ACCOUNT. THEREFORE, WHEN THE SAME AMOUNT IS LOST OR WRITTEN OFF, IT WI LL BE A CASE OF LOSS OF CAPITAL WHICH CANNOT BE ALLOWED AS DEDUCTION. 5.5 IN THE CASE OF SWADESHI COTTOM MILLS CO. LTD. VS. CIT (63 ITR 65)(SC) IT HAS BEEN HELD THAT COMPENSATION PAYABLE FOR BREACH OF CONTRACT TO PURCHASE CAPITAL ASSET IS A CAPITAL EXPENDITURE. 5.6 IN THE CASE OF CIT VS. MYSORE SUGAR CO. LTD. ( 46 ITR 649)(SC) IT HAS BEEN HELD THAT LOSS OF CAPITAL NATURE IS NOT DEDUCTIBLE WHILE CALCULATING BUSINESS INCOME. 5.6 IN THE CASE OF PATEL BRASS WORKS VS. ACIT (50 ITD 332 (ITAT AHD.), THE ASSESSEE PLACED AN ORDER FOR PURCHASE OF CERTAIN M ACHINERY AND PAID CERTAIN AMOUNT AS ADVANCE. SUBSEQUENTLY, IT CANCELLED THE ORDER AND HAD TO PAY CANCELLATION CHARGES WHICH IT CLAIMED AS BUSINESS LOSS. THE HONBLE TRIBUNAL HELD THAT THE APPELLANT HAS INCURRED A LOSS BUT IT COUL D NOT BE CONSIDERED AS A BUSINESS LOSS HENCE NOT ALLOWABLE AS A DEDUCTION. 5.8 IN THE CASE OF HASIMARA INDUSTRIES LTD. VS. CI T AND ANOTHER (231 ITR 842)(SC) IT HAS BEEN HELD THAT ADVANCE GIVEN ON CA PITAL ACCOUNT BECOMES A CAPITAL LOSS WHEN IT BECOMES IRRECOVERABLE. 5.9 THE APPELLANTS CASE IS SQUARELY COVERED BY T HE ABOVE DECISIONS. FOLLOWING THESE DECISIONS I HOLD THAT THE ADVANCE WRITTEN OF F IS A LOSS OF CAPITAL, HENCE NOT ALLOWABLE AS DEDUCTION. THE DISALLOWANCE OF RS. 2 7600000/- IS, THEREFORE, CONFIRMED. 12. THIS BENCH OF THE TRIBUNAL ALSO CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN ITA NO.430/COCH/2009 RELATING TO THE ASSESS MENT YEAR 2007-08. THE TRIBUNAL, VIDE ITS ORDER DATED 24-08-2012 DECIDED THE SAID IS SUE AS UNDER:- 19. IN OUR VIEW, THE ADVANCES GIVEN FOR THE P URPOSES OF ACQUISITION OF CAPITAL ASSETS OR FOR TOWARDS REVENUE PURPOSES CANNOT BE C LAIMED AS BAD DEBT U/S 36(1)(VII) OF THE ACT. ACCORDINGLY, IN OUR VIEW, THE AO WAS NOT CORRECT IN DRAWING SUPPORT FROM THE SAID SECTION. WITH REGARD TO THE ADVANCE GIVEN FOR ACQUISITION OF REVENUE ITEMS AMOUNTING TO RS.2,,32,93,575/-, T HE ASSESSEE GETS SUPPORT I.T.A. NOS. 729 & 627/COCH/2008 7 FROM THE DECISION OF HONBLE DELHI HIGH COURT IN T HE CASE OF MOHAN MEAKIN LTD VS. CIT (2011)(59 DTR (DEL) 401); WHEREIN THE HIGH COURT, BY FOLLOWING THE FOLLOWING DECISIONS HELD THAT THE TRADE ADVANCES W RITTEN OFF CAN BE ALLOWED AS DEDUCTION U/S 37 OF THE ACT. (A) CHENAB FOREST CO. VS. CIT (1974) (96 ITR 568) (J & K) (B) CIT VS. MYSORE SUGAR CO. LTD (1962)(46 ITR 64 9) (SC) (C) CIT VS. MAHALAKSHMI TEXTILE MILLS LTD (1967)( 66 ITR 710)(SC). IN THE CASE OF MYSORE SUGAR CO. LTD, SUPRA, THE HON BLE APEX COURT HAD AN OCCASION TO DISCUSS THE NATURE OF LOSSES AND THE FO LLOWING OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THAT CASE ARE VERY MU CH RELEVANT HERE:- TO FIND WHETHER AN EXPENDITURE IS ON THE CAPITAL A CCOUNT OR ON REVENUE, ONE MUST CONSIDER THE EXPENDITURE IN RELATION TO TH E BUSINESS. SINCE ALL PAYMENTS REDUCE CAPITAL IN THE ULTIMATE ANALYSIS, O NE IS APT TO CONSIDER A LOSS AS AMOUNTING TO A LOSS OF CAPITAL. BUT THIS IS NOT TRUE OF ALL LOSSES, BECAUSE LOSSES IN THE RUNNING OF BUSINESS CANNOT BE SAID TO BE OF CAPITAL. THE QUESTIONS TO CONSIDER IN THIS CONNECTION ARE : FOR THAT WAS THE MONEY LAID OUT ? WAS IT TO ACQUIRE AN ASSET OF AN ENDURING NATURE FOR THE BENEFIT OF THE BUSINESS, OR WAS IT AN OUTGOING IN THE DOING OF THE BUSINESS? IF MONEY BE LOST IN THE FIRST CIRCUMSTANCE, IT IS A LOSS OF CAPITAL, BUT IF LOST IN THE SECOND CIRCUMSTANCE, IT IS A REVENUE LOSS. IN THE FIRST, IT BEARS THE C HARACTER OF AN INVESTMENT, BUT IN THE SECOND, TO USE A COMMONLY UNDERSTOOD PHR ASE, IT BEARS THE CHARACTER OF CURRENT EXPENSES. BY FOLLOWING THE TEST LAID DOWN BY THE HONBLE SUP REME COURT, WE HOLD THAT THE ADVANCES OF RS.28,67,407/- GIVEN FOR ACQUISITION O F CAPITAL ASSETS IS LIABLE TO DISALLOWED AS CAPITAL LOSS AND THE ADVANCES OF R S.2,32,93,575/- GIVEN FOR ACQUISITION OF REVENUE ITEMS IS ALLOWABLE U/S 37 O F THE ACT AS CURRENT EXPENSES. ACCORDINGLY, THE ORDER OF LD CIT(A) STANDS MODIFIE D. 13. SINCE THE VIEW EXPRESSED BY LD CIT(A) ON THI S ISSUE IS IN TUNE WITH THE VIEW TAKEN BY THE TRIBUNAL, WE DO NOT FIND ANY INFIRMITY IN HI S ORDER ON THIS ISSUE. 14. THE NEXT ISSUE RELATES TO THE SETTING OFF O F LONG TERM CAPITAL LOSS INCURRED ON SALE OF EQUITY SHARES AND MUTUAL FUND UNITS AGAINST THE LONG TERM CAPITAL GAIN EARNED ON SALE OF LAND. ACCORDING TO THE ASSESSEE, THE PROVI SIONS OF SEC.70 DO NOT PROHIBIT SUCH SET OFF. HOWEVER, THE CLAIM OF THE ASSESSEE WAS NE GATED BY THE AO. FOR THE SAKE OF I.T.A. NOS. 729 & 627/COCH/2008 8 CONVENIENCE, WE EXTRACT BELOW THE DISCUSSIONS MADE BY THE ASSESSING OFFICER ON THIS ISSUE:- 8 ON A PERUSAL OF THE COMPUTATION OF THE CAPITAL GAIN IT IS SEEN THAT THE ASSESSEE HAS SET OFF THE LOSS ON SALE OF SHARES AG AINST THE PROFIT ON SALE OF LAND AND HAS ACCOUNTED THE NET FIGURE ONLY. FOR ASSESS MENT YEAR 2005-06 CAPITAL GAIN ON SALE OF SHARE IS EXEMPT U/S. 10(38). HENC E NEITHER THE GAIN NOR THE LOSS ON THE SALE OF SHARES (FOR WHICH STT HAS BEEN PAID ) CAN BE CONSIDERED FOR INCOME TAX PURPOSES. WHEN THIS WAS POINTED TO THE ASSESSEE, THE ASSESSEE REPLIED AS UNDER:- IN RESPONSE TO YOUR PROPOSITION TO NOT ALLOW SET-O FF OF LONG TERM CAPITAL LOSS ON SALE OF SHARES AGAINST LONG TERM CAPITAL GA IN ON SALE OF LAND (IN VIEW OF HE FACT THAT LONG TERM CAPITAL GAIN ARISING ON ACCOUNT OF SALE OF EQUITY SHARES IS EXEMPT U/S. 10(38) W.E.F. A.Y. 200 5-08) IT IS SUBMITTED BY THE ASSESSEE COMPANY THAT IN ACCORDANCE WITH THE PR OVISIONS OF SEC. 70(3) OF THE INCOME TAX ACT, 1961, THE ASSESSEE IS ENTIT LED TO HAVE ANY LOSS ARISING ON ACCOUNT OF TRANSFER OF ANY LONG TERM CAP ITAL ASSET SET OFF AGAINST INCOME, IF ANY, ARISING ON ACCOUNT OF TRANSFER OF A NY OTHER CAPITAL ASSET IN THE SAME ASSESSMENT YEAR. SEC. 70(3) IS REPRODUCED HEREUNDER: W HERE THE RESULT OF THE COMPUTATION MADE FOR ANY ASS ESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAP ITA ASSET (OTHER THAN A SHORT TERM CAPITAL ASSET) IS LOSS, THE ASSES SEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AG AINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPU TATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CA PITAL ASSET NOT BEING A SHORT TERM CAPITAL ASSET . SEC. 70 WAS SUBSTITUTED FOR THE EXISTING SEC. 70 W. E.F. 01-04-2003 I.E. ASSESSMENT YEAR 2003-04. HAD IT BEEN THE INTENTION OF THE LEGISLATURE TO NOT ALLOW SET OFF OF LOSS ARISING ON ACCOUNT OF SAL E OF EQUITY SHARES (INCOME ON WHICH IS EXEMPT UNDER SEC. 10(38), AGAIN ST LONG TERM CAPITAL LOSS ARISING ON ACCOUNT OF SALE OF IMMOVABLE PROPE RTY, IT WOULD HAVE MADE NECESSARY AMENDMENTS TO SEC.70(3). IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT IN ACCOR DANCE WITH THE PROVISIONS OF SEC.70(3),LONG TERM CAPITAL LOSS ARI SING ON ACCOUNT OF TRANSFER OF EQUITY SHARES IS TO BE SET OFF AGAINST LONG TERM CAPITAL LOSS ON SALE OF IMMOVABLE PROPERTY. THERE IS, THEREFORE, NO MERIT IN YOUR PROPOSITION T O IGNORE SET OFF LONG TERM CAPITAL LOSS ON SALE OF EQUITY SHARES AND TO TAX LONG TERM CAPITAL GAIN ON SALE OF LAND. I.T.A. NOS. 729 & 627/COCH/2008 9 IN ORDER TO CLAIM EXEMPTION U/S. 10(38) OF THE INCO ME TAX ACT, THE ASSESSEE HAS TO PROVE THAT THEY HAVE COMPLIED WITH THE CONDITIONS STATED THEREIN. SINCE THE COMPLIANCE HAS NOT BEEN PROVED THE EXEMPTION U/S. 10(38) OF THE INCOME TAX ACT CANNOT BE GRANTED TO T HE ASSESSEE. THERE IS NO MERIT IN THE ARGUMENT OF THE ASSESSEE. SO FAR AS SHARES ARE CONCERNED, SEC. 70(3) HAS NOT APPLICABLE TO THE AS SESSEES CASE WITH EFFECT FROM ASSESSMENT YEAR 2005-06, SEC. 10(38) STIPULATES TH AT IF SECURITY TRANSACTION TAX IS TO BE CHARGED, INCOME FROM TRANSFER OF SUCH SHA RES ARE EXEMPT FROM THE PROVISION OF TAXATION. AS CORRECTLY POINTED OUT B Y THE ASSESSEE SEC. 70(3) COMES INTO PLAY ONLY WHEN A COMPUTATION OF TAXABLE INCOME UNDER THE HEAD CAPITAL GAINS IS MADE U/S. 48 TO 55. SEC. 10 CL EARLY SAYS THAT: IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR O F ANY PERSON, ANY INCOME FAILING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED THUS WHATEVER INCOME IS EXEMPT UNDER THE DIFFERENT CLAUSES OF SEC. 10, THEY HAVE TO BE REMOVED FROM THE PURVIEW OF INCOME BEFOR E COMPUTING THE TOTAL INCOME OF ANY PERSON. THUS ONCE AN INCOME (WHICH I NCLUDES LOSS ALSO) IS EXEMPT, COMPUTATION HAS NOT TO BE DONE. SEC 70(3) BECOMES APPLICABLE ONLY AFTER COMPUTATION OF INCOME AS PER THE PROVISIONS O F SEC. 48 TO 55 IS MADE. IN THE PRESENT CASE THERE IS NO COMPUTATION AS THE WHO LE TRANSACTION HAS TO BE IGNORED. NEEDLESS TO SAY SEC. 70(3) IS SUBJECT TO SEC. 10. THUS WHEN AN AMENDMENT IS MADE IN SEC. 10 EXEMPTING RESULT OF CE RTAIN TRANSACTIONS, NO CORRESPONDING AMENDMENT TO SEC. 70(3) IS CALLED FOR AS THESE TWO SECTIONS ARE MUTUALLY EXCLUSIVE. AND AS REGARDS THE ARGUMENT THA T TO CLAIM EXEMPTION U/S. 10(38) OF INCOME TAX ACT, ASSESSEE HAS TO PROVE TH AT THEY HAVE COMPLIED WITH THE CONDITION THEREIN, IT HAS TO BE NOTED THAT EXEM PTION U/S. 10 IS GRANTED NOT WHEN A CLAIM IS MADE. IT IS GRANTED IF THE CONDIT ION STIPULATED THEREIN IS SATISFIED. THE NECESSITY OF PROVING THE CONDITION COMES UP ONLY WHEN THE ASSESSING OFFICER FEELS THAT CONDITIONS ARE NOT SAT ISFIED. WHEN THIS WAS AGAIN BROUGHT TO THE NOTICE OF THE ASSESSEE, IT ARGUED TH AT THE SHARES TRANSFERRED ON WHICH LOSS WAS INCURRED WERE CHARGEABLE TO SECURITIES TRANSACTION TAX. HOWEVER, BEING A CAPIT AL ASSET THE TRANSACTION IS LIABLE TO CAPITAL GAINS TAX FOR WHICH CAPITAL GA IN IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 48 TO 55 OF THE INCOME TAX ACT, 1961. IT IS ONLY AFTER THE CAPITAL GAIN IS CO MPUTED THAT EXEMPTION U/S. 10(38) OF THE INCOME TAX ACT COMES INTO PLAY. THE INTENTION OF THE LEGISLATURE IS TO EXEMPT LONG TERM CAPITAL GAINS AN D NOT TO EXCLUDE THE TRANSACTIONS OF SALE OF LONG TERM CAPITAL ASSETS FR OM THE PURVIEW OF CAPITAL GAINS COMPUTATION. I.T.A. NOS. 729 & 627/COCH/2008 10 AN ASSET WHICH IS A CAPITAL ASSET HAS TO BE TRANSF ERRED ONLY AFTER COMPLYING WITH THE PROVISIONS RELATING TO THE COMPU TATION AND PAYMENT OF CAPITAL GAINS TAX. THERE IS NO EXEMPTION TO LONG T ERM CAPITAL ASSETS BEING SHARES. ONLY AN EXEMPTION IS PROVIDED AND ALSO SUC H TRANSACTION IS LIABLE TO MAT (W.E.F. A.Y. 07- 08) FOR THE REASONS ALREADY DISCUSSED THERE IS NO MERI T IN THE ARGUMENT OF THE ASSESSEE THAT SEC. 10(38) WILL CAME INTO PLAY ONLY WHEN COMPUTATION ACCORDING TO THE PROVISIONS OF SEC. 48 TO 55 IS DONE. EQUALLY BAD IS THE ARGUMENT OF THE ASSESSEE THAT THE INTENTION OF THE LEGISLATURE IS TO EXEMPT LONG TERM CAPITAL GAINS AND NOT TO EXCLUDE THE TRANSACTIONS OF SALE OF LONG TERM CAPITAL AMOUNT FROM THE PURVIEW OF CAPITAL GAINS COMPUTATION. IT IS TRUE THAT IT IS NOT THE INTENTION OF THE LEGISLATURE, BUT THE LOGICAL CORO LLARY OF CARRYING OUT THE INTENTION OF THE LEGISLATURE TO EXEMPT CAPITAL GAINS ON TRAN SFER OF SHARES. THEREFORE THE LOSS ON SALE OF SHARES IS IGNORED, AND CAPITAL GAI N ON SALE OF LAND OF RS. 9,89,41,590/- IS BROUGHT TO TAX UNDER THE HEAD CA PITAL GAIN. (ADDITION RS. 9,89,41,590/-). THE LD CIT(A) ALSO CONFIRMED THE STAND TAKEN BY THE ASSESSING OFFICER. 15. BEFORE US, THE ASSESSEE REITERATED THE CONTE NTIONS MADE BEFORE THE TAX AUTHORITIES. HOWEVER, WE FIND MERIT IN THE VIEW EX PRESSED BY THE ASSESSING OFFICER ON THIS ISSUE. THE LD CIT(A) HAS SUMMARISED THE SCHEM E OF THE ACT AS UNDER IN PARA 7.5 AND 7.6 OF HIS ORDER AS UNDER:- 7.5 THE ASSESSING OFFICER HAS REJECTED THIS ARGUME NT STATING THAT WHEN ANY INCOME IS EXEMPT U/S. 10, THE SAME HAS TO BE EXCLUD ED FROM THE PURVIEW OF COMPUTATION OF TOTAL INCOME UNDER DIFFERENT SEC. IN CLUDING THOSE OF SEC. 48 TO 55. THUS, ONCE INCOME WHICH INCLUDES LOSS IS EXEMPT , THE SAME CANNOT BE TAKEN FOR COMPUTATION. SHE HAS ALSO REJECTED THE A SSESSEES CONTENTION THAT FOR CLAIMING EXEMPTION UNDER SEC. 10(38), THE ASSESSEE HAS TO CLAIM IT AND PROVE THAT THE CONDITIONS STIPULATED THEREIN ARE SATISFIE D. SHE HAS RIGHTLY POINTED OUT THAT EXEMPTION U/S. 10 IS GRANTED NOT AS PER CLAIM OF THE ASSESSEE BUT AS PER FULFILMENT OF CONDITIONS STIPULATED THEREIN. 7.6 ON GOING THROUGH THE ORDER OF THE AS SESSING OFFICER I FIND THAT SHE HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE. SEC. 70 PROVIDES FOR SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. THE VERY SCHEME OF SUCH SET OFF IMPLIES T HAT THE SOURCE IN RESPECT OF WHICH A LOSS HAS OCCURRED, IS SUCH THAT, HAD THERE BEEN PROFIT INSTEAD OF LOSS THEY WOULD HAVE BEEN CHARGEABLE TO TAX. IN THE ASSESSE ES CASE LONG TERM CAPITAL I.T.A. NOS. 729 & 627/COCH/2008 11 GAIN ON SALE OF LAND IS TAXABLE WHEREAS LONG TERM CAPITAL GAIN ON SALE OF SHARE ON WHICH SIT HAS BEEN PAID, IS EXEMPT. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 16. THE NEXT ISSUE RELATES TO THE ADDITION OF DEFERRED TAX LIABILITY FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. BOTH THE PARTIES AGREED THAT THE PROVISIONS OF SEC. 115JB HAVE BEEN AMENDED BY FINAN CE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 1.4.2001, AS PER WHICH THE AMOUNT OF D EFERRED TAX AND THE PROVISION THEREOF IS LIABLE TO ADDED TO THE NET PROFIT FOR T HE PURPOSE OF COMPUTATION OF BOOK PROFIT. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED T HE AMENDMENT CITED ABOVE IN ORDER TO DECIDE THIS ISSUE AGAINST THE ASSESSEE. HENCE, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER ON THIS ISSUE. 17. THE NEXT ISSUE RELATES TO THE CLAIM OF WEIG HTED DEDUCTION ON THE SCIENTIFIC RESEARCH EXPENDITURE CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS LODGED THIS CLAIM BEFORE US FOR THE FIRST TIME. SINCE, IT IS A LEGAL ISSUE, WE ADMIT THE SAME. THOUGH THE ASSESSEE CLAIMS THAT IT HAS OBTAINED APPROVAL FOR I TS RESEARCH PROGRAMME, THE LD D.R POINTED OUT THAT THE APPROVAL HAS BEEN GRANTED ONLY FROM 1.4.2007. IN ANY CASE, THIS ISSUE WAS NOT EXAMINED BY THE ASSESSING OFFICER. A CCORDINGLY, IN OUR VIEW, THE INSTANT CLAIM MADE BY THE ASSESSEE IS REQUIRED TO BE EXAMIN ED BY THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO HIS FILE WI TH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCOR DANCE WITH THE LAW. 18. THE NEXT ISSUE RELATES TO THE CLAIM OF QUAL ITY LOSS CLAIM FROM EXPORT MARKET. IT IS PERTINENT TO NOTE THAT THE ASSESSEE DID NOT CLAI M THIS EXPENDITURE IN ITS RETURN OF INCOME AND HENCE THERE WAS NO OCCASION FOR THE AO T O EXAMINE THIS CLAIM. THE FACTS RELATING THERETO ARE STATED IN BRIEF. IT WAS STATE D THAT M/S APOLLO TYRES LTD MANUFACTURED CERTAIN TYPE OF TYRES IN THE PLANT BEL ONGING TO M/S PREMIER TYRES LTD, WHICH IT HAD TAKEN ON LEASE. THE SAID PRODUCTS WERE SUPPLIED TO THE EXPORT MARKET THROUGH M/S APOLLO INTERNATIONAL TRADING LLC, DUBAI . SINCE THERE WERE CERTAIN MANUFACTURING DEFECTS, THE ABOVE SAID M/S APOLLO IN TERNATIONAL TRADING LLC, DUBAI I.T.A. NOS. 729 & 627/COCH/2008 12 LODGED QUALITY CLAIMS WITH M/S APOLLO TYRES LTD AND THE CLAIM AMOUNT RELATING TO THE YEAR UNDER CONSIDERATION WAS RS.49.00 LAKHS. SINCE THE PRODUCTS WERE MANUFACTURED FROM THE FACTORY BELONGING TO M/S PREMIER TYRES LTD , M/S APOLLO TYRES LTD PASSED ON THIS QUALITY CLAIM TO THE SAID COMPANY. IN THE ASS ESSMENT PROCEEDING OF M/S PREMIER TYRES LTD, THE AO DISALLOWED THE SAID CLAIM ON THE REASONING THAT THE PRODUCTS HAVE BEEN MANUFACTURED BY M/S APOLLO TYRES LTD, WITH WHI CH M/S PREMIER TYRES LTD WAS NOT CONCERNED WITH. THE SAID DISALLOWANCE WAS ALSO CON FIRMED BY THE LD CIT(A) IN THE APPEAL PREFERRED BEFORE HIM BY M/S PREMIER TYRES LT D. 19. THE LD. A.R SUBMITTED THAT THE AMOUNT OF QUAL ITY CLAIM WAS DISALLOWED IN THE HANDS OF M/S PREMIER TYRES LTD (ALSO KNOWN AS PTL ENTEPRISES LTD) AND HENCE IT MAY BE ALLOWED IN THE HANDS OF THE ASSESSEE HEREIN. HO WEVER, HE COULD NOT FURNISH THE DETAILS RELATING TO THE QUALITY CLAIMS. HE SUBMI TTED THAT THE ASSESSEE HAS ONLY PASSED JOURNAL ENTRIES IN ITS BOOKS OF ACCOUNT ON THE BASI S OF CERTAIN CORRESPONDENCES AND HE FAIRLY ADMITTED THAT HE COULD NOT PRODUCE THE DETAI LS AT THIS STAGE. 20. BEFORE PROCEEDING TO DECIDE THIS ISSUE, IT I S PERTINENT TO REFER TO THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KERALA IN THE CASE OF M/S MIL CONTROLS LIMITED VS. CIT IN ITA NO.94 & 99 OF 2002 IN ITS ORDER DATED 01 -06-2011. IN THE ABOVE SAID CASE, THE ASSESSEE THEREIN MADE A PAYMENT OF RS.16.00 LAK HS IN ONE YEAR AND RS.37.00 LAKHS IN ANOTHER YEAR TO A GROUP COMPANY TOWARDS CORPORA TE SERVICE CHARGES AND CLAIMED THE SAME AS EXPENDITURE. HOWEVER, IT COULD NOT FUR NISH THE NATURE AND DETAILS OF SERVICES EXCEPT A STATEMENT SHOWING SERVICES IN BRO AD TERMS. THE AO DISALLOWED 75% OF THE CLAIM AND THE LD CIT(A) RESTRICTED THE DISAL LOWANCE TO 50%, WHICH WAS ALSO CONFIRMED BY THE TRIBUNAL. IN THE APPEAL PREFERRED BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT, IT WAS HELD AS UNDER:- 4. AFTER HEARING BOTH SIDES AND AFTER GOING THROU GH THE ORDERS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER S PASSED BY THE TRIBUNAL AS WELL AS THE LOWER AUTHORITIES LIMITING THE APPELLA NTS CLAIM FOR DEDUCTION OF SERVICE CHARGES PAID AT 50% OF THE CLAIM AMOUNT. T HE FINDING OF THESE AUTHORITIES IS THAT THE APPELLANT DID NOT FURNISH SPECIFIC DETAILS ABOUT THE SERVICES RENDERED AND WHAT IS STATED IS ABOUT THE BROAD SUPPORT AND HELP I.T.A. NOS. 729 & 627/COCH/2008 13 RECEIVED BY THE APPELLANT FROM THE GROUP COMPANY T O JUSTIFY PAYMENTS. WE DO NOT KNOW WHY THE APPELLANT COULD NOT FURNISH BRAKE UP DETAILS OF THE PAYMENTS MADE WITH REFERENCE TO THE CORRESPONDING SERVICE RENDERED FOR PROCURING ORDERS, FOR USE OF THE FACILITIES OF THE PAYEE COMPANY ETC. THE APPELLANTS CONTENTION THAT THE CLAIM IS ALLOWABLE MERELY BECAUSE PAYMENT IS MADE AND THE SAME IS BONAFIDE CANNOT BE ACCEPTED. THIS IS BECAUSE PAYEE IS A RELATED COMPANY WITHIN THE GROUP AND THEREFORE THE STANDARD OF PROOF REQUIRED FOR ALLOWING THE CLAIM IS MORE THAN WHAT IS REQUIR ED IN OTHER CASES. IF THE PAYMENT WAS TO A STRANGER AND BONAFIDE, PRESUMPTIO N OF REASONABLENESS OF PAYMENT WOULD APPLY BUT NOT WHEN PAYMENTS ARE BETW EEN RELATED COMPANIES BENEFICIARIES ARE THE SAME SET OF PEOPLE AND THEREFORE, UNLESS DETAILS ARE FURNISHED JUSTIFYING THE PAYMENT OF SERVICE CHARGE S, DEPARTMENT IS NOT BOUND TO ALLOW THE CLAIM. ON THE WHOLE, WE FIND THAT A LIBERAL APPROACH IS TAKEN BY THE OFFICER AND STILL MORE LIBERAL WERE THE FIRST APP ELLATE AUTHORITY AND THE TRIBUNAL BECAUSE THE CLAIM MADE IS SUSTAINED AT 50% WITHOUT PROOF OF THE SERVICE RENDERED JUSTIFYING ALLOWANCE OF EVEN SO MUCH OF T HE CLAIM. 21. IN THE INSTANT CASE, THERE IS NO DISPUTE TH AT THE DEBIT NOTE FOR QUALITY CLAIM HAS BEEN RECEIVED FROM A GROUP CONCERN. THE ASSESSEE H EREIN HAS NOT ACCEPTED THE SAID CLAIM AND HENCE IT HAS PASSED ON THE CLAIM TO THE L ESSOR (M/S PTL ENTERPRISES LTD) FROM WHOM, THE ASSESSEE HAD TAKEN THE PLANT ON LEASE. I N THE NORMAL COURSE, THE LESSOR HAS ALSO ACCEPTED THE LIABILITY AND ACCORDINGLY ACCOUNT ED THE SAME IN ITS BOOKS OF ACCOUNT. THUS, THE ASSESSEE HEREIN DID NOT BEAR THE LIABILIT Y, BUT HAS ACTED AS A PIPE LINE IN COLLECTING THE LIABILITY FROM THE LESSOR AND PASSIN G ON THE SAME TO THE GROUP CONCERN, M/S APOLLO INTERNATIONAL TRADING LLC, DUBAI. HOWEV ER, IN THE INCOME TAX PROCEEDING CARRIED IN THE HANDS OF M/S PTL ENTERPRIESES LTD, TH E ASSESSING OFFICER THEREIN DID NOT ALLOW THE CLAIM, SINCE THE LEASE AGREEMENT DID NOT PROVIDE FOR SUCH AN EVENTUALITY AND FURTHER NO PROOF WAS PRODUCED IN RESPECT OF THE SAI D CLAIM. 22. THERE CANNOT BE ANY DISPUTE THAT EXPENDITUR E CLAIM IS ALLOWABLE UNDER THE INCOME TAX ACT SUBJECT TO THE PROVISIONS CONTAINED THEREIN, IF IT WAS INCURRED FOR THE PURPOSES OF THE BUSINESS. IN THE INSTANT CASE, THE ASSESSEE HEREIN HAS NOT ACCEPTED THE LIABILITY RELATING TO THE QUALITY CLAIM. IT HAS PASSED ON THE LIABILITY TO THE LESSOR AND THE LESSOR HAS ALSO ACCEPTED THE SAID LIABILITY. I T IS PERTINENT TO NOTE THAT THE LESSOR M/S PTL ENTERPRISES LTD IS ALSO A GROUP COMPANY. THE AS SESSEE IS PUTTING FORTH CLAIM FOR DEDUCTION OF EXPENDITURE RELATING TO QUALITY CLAIM ONLY FOR THE REASON THAT THE SAID CLAIM WAS DISALLOWED IN THE HANDS OF M/S PTL ENTERPR ISES LTD, EVEN THOUGH THE SAID I.T.A. NOS. 729 & 627/COCH/2008 14 COMPANY HAD ACCEPTED THE LIABILITY FOR THE SAME. W E HAVE ALREADY NOTICED THAT THE DISALLOWANCE WAS MADE IN THE HANDS OF M/S PTL ENTERP RISES LTD FOR THE REASON THAT THE SAID ASSESSEE FAILED TO FURNISH ANY PROOF. THE VIE W EXPRESSED BY THE HONBLE KERALA HIGH COURT IN RESPECT OF TRANSACTIONS BETWEEN GROUP CONCERNS HAS BEEN EXTRACTED ABOVE. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE ASSESSEE HEREIN IS NOT ENTITLED TO CLAIM DEDUCTION RELATING TO QUALITY CLAIMS. ACCO RDINGLY, WE REJECT THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. 23. IN THE RESULT, THE APPEAL OF THE REVENUE AN D THE APPEAL OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 08-02-2013 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH FEBRUARY, 2013 GJ COPY TO: 1. M/S. APOLLO TYRES, 6 TH FLOOR, CHERUPUSHPAM BLDG.,SHANMUGHAM ROAD, ERNAKULA M KOCHI-682031. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1( 1), RANGE-1, ERNAKULAM 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCHIN