The ACIT.,Circle-1(2)., V. Indian Petrochemicals Corporation Ltd.,

ITA 745/AHD/2008

• Counselvise Citation: 74519914 RSA 2008
• Duration Of Justice: 4 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2004-2005
• Appeal Filed On: 28-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SASMITA MISRA
• Assessee Lawyers: ARVIND SONDE
• Keywords: Capital asset; Depreciation; Business expenditure; Charitable institution; Opportunity of being heard; Retrospective amendment; Bad and doubtful debts; Capital receipt; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 80HHC; 115JB; 37(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 664 AND 665/AHD./2008 (ASSESSMENT YEAR : 200304 AND 200405 ) INDIAN PETROCHEMICALS CORP. LTD. P.O. PETROCHEMICALS DIST. VADODARA 391346 PAN AAACI4415Q .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE1(2), VADODARA .... RESPONDENT ITA NO. 744 AND 745/AHD./2008 (ASSESSMENT YEAR : 200304 AND 200405 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE1(2), VADODARA .. APPELLANT V/S INDIAN PETROCHEMICALS CORP. LTD. P.O. PETROCHEMICALS DIST. VADODARA 391346 PAN AAACI4415Q .... RESPONDENT REVENUE BY : MRS. SASMITA MISRA ASSESSEE BY : MR. ARVIND SONDE DATE OF HEARING 06.06.2012 DATE OF ORDER 29.06.2012 INDIAN PETROCHEMICALS CORP. LTD. 2 O R D E R PER BENCH THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGN ED SEPARATE ORDERS DATED 26 TH NOVEMBER 2007, PASSED BY THE COMMISSIONER (APPEALS )I, VADODARA, FOR ASSESSMENT YEARS 200304 AND 200405 RESPECTIVELY. SINCE MOST OF THE GROUNDS AND FACTS IN ALL THESE APPEALS ARE COMMON, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE FIRST TAKE ASSESSEES APPEAL BEING ITA NO.664/AH D./2008, FOR ASSESSMENT YEAR 200304. 3. THE ISSUE INVOLVED IN GROUND NO.1, IS WHETHER THE S ALES TAX INCENTIVE OF ` 38,62,33,200, IS CAPITAL RECEIPT OR REVENUE RECEIP T TO THE ASSESSEE. 4. THE ASSESSING OFFICER HAS STATED THAT AS PER COMPUT ATION OF INCOME, THE ASSESSEE HAS TREATED ` 38,62,33,200, AS CAPITAL RECEIPT ON ACCOUNT OF SALES TAX EXEMPTION GRANTED BY THE GOVERNMENT OF GU JARAT FOR ESTABLISHING INDUSTRIES IN THE BACKWARD AREA OF GANDHAR. IN REPL Y TO A QUERY RAISED BY THE ASSESSING OFFICER AS TO WHY THE SAID AMOUNT SHOULD NOT BE TREATED AS REVENUE RECEIPT, THE ASSESSEE FILED ITS REPLY STATI NG THAT THE EXEMPTION IS GRANTED BY THE STATE GOVERNMENT OF GUJARAT BECAUSE THE INDUSTRY IS SITUATED IN THE BACKWARD AREA AS NOTIFIED IN THE NOTIFICATIO N PASSED BY THE GOVERNMENT. THE TOTAL QUANTUM OF EXEMPTION AVAILABL E IS BASED ON THE INVESTMENT MADE IN THE FIXED ASSETS OF THE UNDERTAK ING / INDUSTRIAL PLANT. THAT THE MODE OF GRANTING SUCH INCENTIVE IS BY WAY OF SALES TAX EXEMPTION IN RESPECT OF SALE OF PRODUCTS GENERATED BY SUCH UNDER TAKING BUT THE TOTAL QUANTUM OF INCENTIVE AVAILABLE IS BASED ON THE CAPI TAL INVESTED IN THE AFORESAID PROJECT/ PLANTS / UNDERTAKING. HENCE, THE SALES TAX EXEMPTION IS A CAPITAL RECEIPT NOT CHARGEABLE TO INCOME TAX. THE A SSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONSIDERI NG THE JUDGMENT OF HON'BLE SUPREME COURT IN SAHNEY STEEL AND PRESS WOR KS LTD. V/S CIT, [1997] INDIAN PETROCHEMICALS CORP. LTD. 3 228 ITR 253 (SC), AND ALSO FOLLOWING THE ORDER OF THE COMMISSI ONER (APPEALS) FOR ASSESSMENT YEAR 200001, IN THE ASSESSEES OWN CASE CONSIDERED THE SAID AMOUNT OF ` 38,62,33,200, AS REVENUE RECEIPT. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER (APPE ALS). 5. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THAT TH E SAID ISSUE, THOUGH WAS DECIDED AGAINST THE ASSESSEE BY THE COMMISSIONE R (APPEALS) IN ASSESSMENT YEARS 200102 AND 200203, BUT THE LEGAL POSITION IN THE ASSESSMENT YEAR UNDER CONSIDERATION I.E., ASSESSMEN T YEAR 200304, HAS CHANGED IN VIEW OF SUBSEQUENT TWO DECISIONS OF THE TRIBUNAL AND THE DECISION OF ITAT MUMBAI SPECIAL BENCH IN DCIT V/S RELIANCE I NDUSTRIES LTD., [2004] 88 ITD 0273 (SB). IT WAS CONTENDED THAT, SUBSEQUENT LY, AHMEDABAD BENCH OF THE TRIBUNAL IN NIRMA LTD., ITA NO.301/AHD./1996 , VIDE ORDER DATED 13 TH MARCH 2005, AFTER CONSIDERING THE JUDGMENT OF HON'B LE SUPREME COURT IN SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA), HELD THA T SALES TAX INCENTIVE TO BE CONSTITUTED CAPITAL RECEIPT. THE COMMISSIONER (A PPEALS) DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND ALSO BY DI STINGUISHING DECISION OF ITAT MUMBAI SPECIAL BENCH IN RELIANCE INDUSTRIES LT D. (SUPRA) AND ALSO THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN NIRMA LTD. (SUPRA), HELD THAT NO BENEFIT COULD BE GIVEN TO THE ASSESSEE IN T HIS BEHALF AT THIS STAGE AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HENC E, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING, BEFORE US, THE LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE SAME VERY ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200001, IN ITA NO.3896/AHD./2003, ASSESSMENT YEAR 200102, IN ITA NO. 437/AHD./2007 AND ASSESSMENT YEAR 200203, IN ITA N O.3054/AHD./2007, THE APPEALS FILED BY THE ASSESSEE AND THE TRIBUNAL RELYING ON THE DECISION OF ITAT MUMBAI SPECIAL BENCH IN RELIANCE INDUSTRIES LT D. (SUPRA) AND THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN NIRM A LTD. (SUPRA) FOR ASSESSMENT YEAR 199293, IN ITA NO.175/AHD./2003, V IDE COMMON ORDER DATED 30 TH APRIL 2008, DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE I.E., THE INDIAN PETROCHEMICALS CORP. LTD. 4 SALES TAX INCENTIVE RECEIPT IS CAPITAL RECEIPT. TO SUBSTANTIATE HIS SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE FILED A COPY O F THE SAID ORDER OF THE TRIBUNAL AND SUBMITTED THAT THE FACTS IN THE ASSESS MENT YEAR UNDER CONSIDERATION ARE IDENTICAL AND, THEREFORE, THE ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE. 7. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, HAS NOT DISPUTED THE ABOVE SUBMISSIONS OF THE LEARNED COUNS EL FOR THE ASSESSEE, SAVE AND EXCEPT, RELYING ON THE ORDER OF THE AUTHOR ITIES BELOW. 8. ON CONSIDERING THE ABOVE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES AND EARLIER ORDERS OF THE TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEARS 200001, 200102 AND 200203, COPY PLACED AT PAGES1 TO 53 OF THE PAPER BOOK (RELEVANT PAGES14 TO 18) A ND RESPECTFULLY FOLLOWING THE SAID ORDER, WE DECIDE THE ISSUE IN FAVOUR OF TH E ASSESSEE BY ALLOWING ASSESSEES GROUND OF APPEAL AND SET ASIDE THE ORDER S OF THE AUTHORITIES BELOW. HENCE, GROUND NO.1, TAKEN BY THE ASSESSEE IS ALLOWED. 9. IN GROUND NO.2, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN CONFIRMING THE DISALLOWAN CE OF EXPENDITURE BY WAY OF CONTRIBUTION OF ` 70.20 LAKHS, MADE BY THE ASSESSEE TO VARIOUS ORGANISATIONS. 10. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS CLAIMED ` 11,50,000, UNDER THE HEAD DONATION / CONTRIBUTION AND ` 58,70,190, UNDER THE HEAD COMMUNITY WELFARE EXPENSES . THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS ALONG WITH THE JUSTIFICATION FOR ITS CLAIM ON THIS ACCOUNT. THE ASSESSEE STATED THAT AS PART OF SOCIAL RESPONSIBILITY AND GOOD CORPORATE NEIGHBOUR, THE AS SESSEE COMPANY ALWAYS STRIVES TO DEMONSTRATE ITS CONCERN FOR SOCIETY BY T AKING UP PROJECTS IN THE VICINITY OF ITS PROJECT TO IMPROVE THE QUALITY OF T HE LIFE OF THE PEOPLE THROUGH DIRECT EXPENDITURE / WELFARE BODIES. THE ASSESSEE S TATED THAT IT MADE DONATION / CONTRIBUTION TOWARDS COMMUNITY DEVELOPME NT WORK WHICH INCLUDES SUPPLY OF PORTABILITY OF WATER, CONTRIBUTI ON TOWARDS CONSTRUCTION OF INDIAN PETROCHEMICALS CORP. LTD. 5 SCHOOL BUILDING, CONSTRUCTION OF ROAD, HEALTH SERVI CES, DEVELOPMENT OF VILLAGE, ETC. IT WAS STATED THAT THE ASSESSEE COMPANY IS ENT ITLED TO GET DEDUCTION IN RESPECT OF THE AFORESAID EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) AS A BUSINESS EXPENDITURE. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED AND STATED THAT THE SAID EXPENDITURES ARE NOT INCURRED FOR BUSINESS PURPOSES AND ARE NOT COVE RED BY THE PROVISIONS OF SECTION 37(1) OF THE ACT. HE HAS STATED THAT THERE IS NO COMMERCIAL EXPEDIENCY AS FAR AS THE BUSINESS OF THE ASSESSEE I S CONCERNED. HE HAS FURTHER STATED THAT IN REGARD TO CLAIM FOR DONATION , IT IS NOT ENTERTAINABLE BECAUSE THE ASSESSEE HAS NEGATIVE INCOME AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. 11. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) HAS ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY FOLLOWING HI S EARLIER ORDERS FOR ASSESSMENT YEARS 200102 AND 200203. HENCE, THE AS SESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 12. BEFORE US, AT THE TIME OF HEARING, THE LEARNED COUN SEL FOR THE ASSESSEE FILED A CHART GIVING DETAILS OF THE DONATION / CONT RIBUTION MADE TO VARIOUS INDUSTRIES AND SUBMITTED THAT SIMILAR CONTRIBUTIONS WERE ALSO MADE BY THE ASSESSEE IN ASSESSMENT YEAR 200001. THE LEARNED CO UNSEL FURTHER SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE, NOT ONLY IN THE ASSESSMENT YEAR 200001, BUT ALSO IN THE ASSESSMENT YEARS 200102 AND 200203, AND THE TRIBU NAL, BY ITS ORDER DATED 30 TH APRIL 2008, AFTER CONSIDERING THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN CIT V/S MADRAS REFINERIES LTD., 138 T AXMAN 261 (MAD.), THE DECISION OF ITAT MUMBAI BENCH IN HINDUSTAN PETROLEU M CORP. LTD. V/S DCIT, [2005] 96 ITD 186 (MUM.), AND THE JUDGMENT OF HONB LE KARNATAKA HIGH COURT IN MYSORE KIRLOSKAR LTD. V/S CIT, [1987] 166 ITR 836 (KAR.), HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS OF REV ENUE IN NATURE AND IS ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE A CT. TO SUBSTANTIATE HIS SUBMISSIONS, THE LEARNED COUNSEL REFERRED TO PARAS 9 TO 11 OF THE SAID INDIAN PETROCHEMICALS CORP. LTD. 6 JUDGMENT (RELEVANT PAGES18 TO 23 OF THE PAPER BOOK ). HE SUBMITTED THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ASSES SEES OWN CASE BY EARLIER ORDER OF THE TRIBUNAL. 13. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS NOT DISPUTED THE ABOVE SUBMISSIONS OF THE LEARNED COUNS EL FOR THE ASSESSEE, SAVE AND EXCEPT, RELYING ON THE ORDERS OF THE AUTHO RITIES BELOW. 14. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED REPRES ENTATIVES AND PERUSED THE EARLIER ORDERS OF THE TRIBUNAL. WE OBSE RVE THAT THE TRIBUNAL, VIDE PARA11, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200001, OBSERVED AS UNDER: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, FACTS AND CIRCUMSTANCES OF THE CASE AND DECISIONS RELIED UPON BY THE ASSESSEE. (I) SO FAR AS DECISION IN THE CASE OF MADRAS REFINE RIES LTD (SUPRA) IS CONCERNED, THE HONBLE HIGH COURT HAS HE LD THAT EXPENDITURE INCURRED BY THE COMPANY FOR ESTABLISHIN G THE DRINKING WATER FACILITIES TO THE RESIDENT IN VICINI TY OF ITS BUSINESS AND ALSO FOR PROVIDING AID TO SCHOOL RUN FOR BENEFI T OF CHILDREN OF THOSE LOCAL RESIDENTS AS BUSINESS EXPENDITURE BECAU SE, ACCORDING TO THE HONBLE HIGH COURT, WINNING OF THE GOOD-WILL OF PEOPLE OF THE LOCALITY, HELPS IN BOOSTING BUSINESS IN MANY WAYS. (II) SO FAR AS DECISION IN THE CASE OF HPCL VS. DY. CIT (SUPRA) IS CONCERNED, THE HONTLE BENCH HAS HELD THE EXPENDITUR E INCURRED BY THE ASSESSEE TOWARDS IMPLEMENTATION OF 20-POINT PROGRAMME OF THE GOVERNMENT AS REVENUE EXPENDITURE ND THE RELEVANT OBSERVATIONS CONTAINED AT PAGE NO. 193 ARE IN THE FOLLOWING TERMS: IT WILL, THEREFORE., BE CLEAR THAT EVEN IF AN EXPE NSE IS INCURRED VOLUNTARILY. IT MAY STILL BE CONSTRUED AS WHOLLY A ND EXCLUSIVELY. JUST BECAUSE THE EXPENSES ARE VOLUNTARY IN NATURE A ND ARE NOT FORCED IN THE ASSESSEE BY A STATUTORY OBLIGATION, T HESE EXPENSES CANNOT CEASE TO BE A BUSINESS EXPENDITURE. KEEPING ALL THESE FACTORS IN MIND, AS ALSO ENTIRETY OF THE CASE, WE A RE NOT INCLINED TO SUSTAIN THE DISALLOWANCE OF ` .1055648 AS EXPENDITURE, INCURRED ON IMPLEMENTATION 20-POINT PROGRAMMES. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE AUTHORIT IES BELOW INDEED ERRED IN LAW IN DECLINING-DEDUCTION OF EXPEN SES INCURRED ON 20-POINT PROGRAMMES WHICH WAS, BEYOND DISPUTE O R CONTROVERSY, AT THE INSTANCE OF THE GOVERNMENT, AND TO DISCHARGE THE ASSESSEES OBLIGATIONS TOWARDS SOCIET Y AND AS A RESPONSIBLE CORPORATE CITIZEN, INDIAN PETROCHEMICALS CORP. LTD. 7 (III) SO FAR AS DECISION IN THE CASE OF MYSORE KIRL OSKAR LTD. VS. CIT (KAR.) IS CONCERNED, THE HONBLE KARNATAKA HIGH COURT HAS HELD THE EXPENDITURE INCURRED ON ACCOUNT OF DONATIO NS TO CERTAIN FUNDS, CHARITABLE INSTITUTIONS, ETC. IS ALLOWABLE E VEN IF THE DONATION HAS NO NEXUS WITH THE BUSINESS OF THE ASSE SSEE AND REGARDLESS OF ANY BUSINESS ACTIVITY OR ANY COMMERCI AL EXPEDIENCY IN THE LIGHT OF PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF INDIAN MOLASSES CO. PV T. LTD. VS. CIT [1959] 37 ITR 66(SC), AT PAGE NO.75 & 76 WHICH IS IN THE FOLLOWING TERMS: THE INCOME-TAX LAW DOES NOT ALLOW AS EXPENSES ALL THE DEDUCTIONS A PRUDENT TRADER WOULD MAKE IN COMPUTING HIS PROFITS. THE MONEY MAY BE EXPENDED ON GROUNDS OF COMMERCIAL EXPEDIENCY BUT NOT OF NECESSITY. THE TES T OF NECESSITY IS WHETHER THE INTENTION WAS TO EARN TRAD ING RECEIPTS OR TO AVOID FUTURE RECURRING PAYMENTS OF A REVENUE CHARACTER. EXPENDITURE IN THIS SENSE IS EQU AL TO DISBURSEMENT WHICH TO USE A HOMELY PHRASE, MEANS SOMETHING WHICH COMES OUT OF THE TRADERS POCKET. T HUS, IN FINDING OUT WHAT PROFITS THERE BE, THE NORMAL ACCOUNTANCY PRACTICE MAY BE TO ALLOW AS EXPENSE ANY SUM IN RESPECT OF LIABILITIES WHICH HAVE ACCRUED OV ER THE ACCOUNTING PERIOD AND TO DEDUCT SUCH SUMS FROM PROF ITS. BUT THE INCOME TAX LAW DOES NOT TAKE EVERY SUCH ALLOWANCE AS LEGITIMATE FOR PURPOSE OF TAX. A DISTI NCTION IS MADE BETWEEN AN ACTUAL LIABILITY IN PRESENTI AND A LIABILITY DE FUTURO WHICH, FOR THE TIME BEING, IS ONLY CONTIN GENT. THE FORMER IS DEDUCTIBLE BUT NOT THE LATTER. 11.2 AFTER CONSIDERING THE NATURE OF EXPENDITURE A ND THE PROPOSITION OF LAW HELD THE HON'BLE SUPREME COURT AS WELL AS HI GH COURTS AND THE TRIBUNAL (SUPRA), WE ARE OF THE OPINION THAT THE EX PENDITURE INCURRED BY THE ASSESSEE WAS DEFINITELY OF REVENUE NATURE AN D THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDER SECTION 37(1) O F THE ACT SUBJECT, HOWEVER, TO THE VERIFICATION OF PAYMENT AND SINCE T HE ASSESSEE HAD NOT FURNISHED THE RECEIPTS BEFORE THE ASSESSING OFF ICER, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSESSEES CLAIM AFT ER VERIFYING THE FACTUM OF PAYMENT FROM THE ASSESSEE AFTER ALLOWING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. THE ASSESSEES GROUND I S ALLOWED SUBJECT TO VERIFICATION OF FACTUM OF PAYMENT BY THE ASSESSI NG OFFICER. 11.3 EVEN OTHERWISE, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF THIS EXPENDITURE BECAUSE T HE NATURE OF EXPENDITURE AS FOUND CANNOT BUT BE A CONCRETE EXPR ESSION OF CARE AND CONCERN FOR THE SOCIETY TO DISCHARGE THE RESPONSIB ILITY OF A GOOD CORPORATE CITIZEN. JUST BECAUSE THE EXPENDITURE WA S VOLUNTARY IN NATURE AND WAS NOT FORCED ON THE ASSESSEE BY A STAT UTORY OBLIGATION, IT DOES NOT CEASE TO BE BUSINESS EXPENDITURE. IN A DEM OCRATIC SET UP THE GOVERNMENT COLLECT TAXES ONLY TO CARRY ON THE GOVER NANCE ACTIVITIES WHICH ARE IN THE LARGER INTEREST OF THE SUBJECT I.E ., THE SOCIETY BY EXECUTING PROJECT FOR THE WELLBEING OF THE SUBJECT S, I.E., THE SOCIETY, INDIAN PETROCHEMICALS CORP. LTD. 8 BY EXECUTING PROJECT FOR THE WELL BEING OF THE SUBJ ECTS AND IF A TAX PAPER HELPS THE GOVERNMENT BY CARRYING ON SUCH ACTI VITIES OR BY CONTRIBUTING TO CARRYING ON SUCH ACTIVITIES BY THE VARIOUS ARMS OF THE GOVERNMENT, THE TAX PAYER SHOULD BE ENCOURAGED AND NOT BE PENALISED. IF SUCH ACTIVITIES ARE SEEN IS A SOURCE OF PENALIZING THE TAX PAYERS BY IMPOSING ADDITIONAL BURDEN OF TAX, THEN N O TAX PAYER WILL EVER COME FORWARD TO EXTEND A HELPING HAND. IN VIEW OF THIS DISCUSSION, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS OF REVENUE NATURE AND IS ALLOWED, SUBJECT TO OBSERVATION IN PARA11.2 ABOVE. 15. CONSIDERING THE EARLIER ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE AND THE FACT THAT THE COMMISSIONER (APPEALS) MADE T HE DISALLOWANCE BY FOLLOWING HIS EARLIER ORDER FOR ASSESSMENT YEARS 20 0102 AND 200203 AND MADE THE AFORESAID DISALLOWANCE WHICH HAS BEEN REVE RSED BY THE TRIBUNAL, WE ALLOW GROUND NO.2, RAISED BY THE ASSESSEE BY REV ERSING THE ORDERS OF THE LOWER AUTHORITIES. 16. GROUND NO.3, RELATES TO PAYMENT MADE TO DODSAL LTD. CONSIDERING THE SAME AS CAPITAL EXPENDITURE AS AGAINST REVENUE EXPE NDITURE CLAIMED BY THE ASSESSEE OF ` 102,03,43,311. 17. THE RELEVANT FACTS GIVING RISE TO THIS GROUND OF AP PEAL ARE THAT THE ASSESSEE ENTERED INTO A BUILD, OWN, OPERATE, TRANSF ER (FOR SHORT BOOT ) CONTRACT WITH DODSAL LTD. (FOR SHORT DODSAL ) ON 8 TH DECEMBER 1995, FOR ITS DAHEJ, VADODARA PIPELINE PROJECT BETWEEN GANDHAR CO MPLEX AND VADODARA FOR A DISTANCE OF 107 KMS. AS PER THE SAID AGREEMEN T, THE ASSESSEE COMPANY WAS TO PAY A MINIMUM GUARANTEED AMOUNT OF ` 2.47 CRORES PER MONTH TO DODSAL WHICH WOULD INCREASE DEPENDING UPON THE ACTU AL QUANTITY HANDLED. DODSAL FOR ITS OWN FINANCIAL PURPOSES INVOLVED ICIC I LTD. WHO BECAME THE LESSOR. THE ASSESSEE COMPANY WAS NOT INVOLVED IN TH IS FINANCIAL ARRANGEMENT BETWEEN ICICI LTD. AND DODSAL. THE ASSESSEE COMPANY CLAIMED THE PAYMENT OF ` 2.47 CRORES PER MONTH AS REVENUE EXPENDITURE. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT IN THE INITIAL ST AGES OF GANDHAR COMPLEX, THE FOCUS OF THE ASSESSEE WAS TO PUT UP THE MAIN PL ANT AND RUN SUCCESSFULLY RATHER THAN TO CONCENTRATE THE ACTIVITIES RELATED T O INFRASTRUCTURE FACILITIES FOR INDIAN PETROCHEMICALS CORP. LTD. 9 THE RAW MATERIALS. AT THAT TIME, FOCUS WAS TO LEAVE IT TO EXTERNAL AGENCY IN AREAS LIKE PORT INFRASTRUCTURE AND PIPELINES BOTH O N THE ECONOMICS OF COST CONSTRAINT ON INITIAL INVESTMENT AS WELL AS THE LIM ITED EXPERTISE ON THESE AREAS. SINCE THE ASSESSEE COMPANY WAS NOT HAVING EX PERTISE IN THE WORKING AND MANAGING OF PIPELINE PROJECT AND ALSO HANDLING MOVEMENTS OF MATERIALS THROUGH IT, THE ASSESSEE COMPANY IDENTIFIED DODSAL WHO HAD RICH EXPERIENCE IN THIS AREA AND ENTERED INTO THE CONTRACT OF BOOT ARRANGEMENT. THE SAID PIPELINE WAS COMMISSIONED IN MAY 1997. THE AGREEMEN T IN THE ORDINARY COURSE WAS TO TERMINATE AFTER 15 YEARS FROM THE DAT E OF COMMISSIONING. HOWEVER, THE AGREEMENT COULD BE TERMINATED OTHERWIS E THAN BY BREACH OF CONTRACT BY THE ASSESSEE / TAKING OVER THE ASSETS A FTER FIVE YEARS OF COMMISSIONING BASED ON A MUTUAL UNDERSTANDING AND I N LINE WITH BOOT AGREEMENT. IT WAS STATED THAT THE ASSESSEE COMPANY CONTINUED TO PAY AS PER AGREEMENT SINCE 23 RD MAY 1997 AND THE SAID AMOUNT WAS INCREASING BEYOND ` 2.47 CRORES PER MONTH DEPENDING UPON ACTUAL QUANTI TY HANDLED. IT WAS STATED BEFORE THE ASSESSING OFFICER THAT THE ASSESS EE COMPANY, OVER A PERIOD OF TIME, GOT THE RELEVANT EXPERIENCE IN HANDLING AN D MONITORING MOVEMENT OF MATERIAL THROUGH PIPELINE AND OTHER RELATED MATTERS . BESIDES THE NEW MANAGEMENT TAKING OVER THE CONTROL OVER THE ASSESSE E COMPANY AFTER ITS DISINVESTMENTS BY THE GOVERNMENT OF INDIA, ALSO HAD RELEVANT KNOWLEDGE AND RICH EXPERIENCE IN THIS AREA. SINCE THE PIPELIN E WAS VITAL FROM OPERATION VIEW POINT AS WELL AS CONSIDERING THE FACT THAT THE ASSESSEE COMPANY HAD GAINED SPECIFIC TECHNICAL KNOWLEDGE FOR OPERATING S UCH PIPELINE ON ITS OWN, IT HAD THOUGHT PRUDENT TO TERMINATE BOOT AGREEMENT WIT H DODSAL BY MAKING ONE TIME PAYMENT OF ` 102,03,43,311, AS PER THE TERMS OF BOOT AGREEMENT 18. IN VIEW OF ABOVE FACTS, THE ASSESSING OFFICER HAS S TATED THAT THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY ` 102,03,43,311, PAID TO DODSAL SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE . IN RESPONSE THERETO, THE ASSESSEE REPLIED THAT THE EXPENDITURE OF ` 102,03,43,311, HAD BEEN INCURRED TO RESTRUCTURE BOOT AGREEMENT ENTERED INTO AND IT HAS NOT BROUGHT INTO EXISTENCE ANY FIXED ASSETS. THE SAID PAYMENT HAS BE EN MADE TO IMPROVE THE OPERATION EFFICIENCY OF THE ASSESSEE COMPANY IN THE CURRENT YEAR AND FOR THE INDIAN PETROCHEMICALS CORP. LTD. 10 YEARS TO COME. THEREFORE, SUCH EXPENDITURE IS ALLOW ABLE AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THE ASS ESSEE FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER (PAGE8 OF ASSESSMENT ORDER) AS UNDER: WE ALSO WISH TO STATE THAT THE AFORESAID EXPENDITUR E HAS BEEN INCURRED ONLY TO RESTRUCTURE THE EXISTING AGREEMENT AND HAS NOT BROUGHT INTO EXISTENCE ANY FIXED ASSETS. EVEN WHEN THE BOOT AGREEMENT WAS IN OPERATION DODSAL LTD. CONTINUED TO BE THE OWNER OF THE PIPELINE AND AFTER RESTRUCTURING OF THE BOOT A GREEMENT, ICICI LTD. BECAME THE OWNER OF THE PIPELINE. THE ASSESSEE WAS NOT THE OWNER OF THE PIPELINE EARLIER AND BY RESTRUCTURING SUCH AGRE EMENT, THE ASSESSEE HAS NOT BECOME THE OWNER OF THE PIPELINE. WHAT THE ASSESSEE WAS ABLE TO ACHIEVE BY SUCH RESTRUCTURING IS: 1. TAKING CONTROL OF THE OPERATIONS AND MAINTENANCE OF THE PIPELINE WHICH WAS VERY VITAL FOR ITS OPERATION AND FUNCTION ING FROM DODSAL LTD. TO ITSELF THEREBY REDUCING ANY SECURITY HAZARD OR A NY OTHER OPERATIONAL PROBLEMS WHICH MIGHT CROP UP IN FUTURE. 2. UTILISING THE EXPERIENCE GAINED DURING THE OPERA TION OF THE PIPELINE FROM 1997 TO 2003 TO ITS ADVANTAGE THEREBY REDUCING THE NEED OF A MIDDLE PERSON IN BETWEEN. 3. MAKING SUBSTANTIAL SAVING IN THE OPERATIONAL COS T OF THE PIPELINE VIZ. FOR THE PREVIOUS 3 YEARS LIKE 31.3.2001, 31.3. 2002 AND 31.3.2003, ANNUAL AGGREGATE PAYMENT MADE TO DODSAL LTD. FOR OP ERATION OF THIS PARTICULAR PIPELINE WAS AS FOLLOWS: 31.3.2001 ` 30.92 CRORES 31.3.2002 ` 31.35 CRORES 31.3.2003 ` 32.64 CRORES 4. THE EXPENDITURE ON PAYMENT OF LEASE RENT AND MAI NTENANCE OF THE PIPELINE AS PER THE ORIGINAL BOOT AGREEMENT WIT H DODSAL AND AS PER RESTRUCTURING AGREEMENT IS AS FOLLOWS: FINANCIAL YEAR AS PER EARLIER AGREEMENT WITH DODSAL ( ` IN CRORES) AMOUNT PAYABLE AS PER RE STRUCTURING AGREEMENT ( ` IN CRORES) 200304 29.64 23.67 200405 29.64 23.88 200506 29.64 21.17 200607 29.64 15.13 200708 29.64 9.09 INDIAN PETROCHEMICALS CORP. LTD. 11 200809 29.64 6.67 200910 29.64 4.03 201011 29.64 0.81 201112 29.64 0 TOTAL 266.76 104.45 19. THE ASSESSING OFFICER, AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, HAS STATED THAT AFTER TERMINATION OF THE AGREEMENT WITH DODSAL, WHICH HAS TRANSLATED INTO RESTRUCTURING OF BOOT AG REEMENT HAS RESULTED INTO COMMERCIAL ADVANTAGE / BENEFIT OF ENDURING NAT URE TO THE ASSESSEE IN THE FORM OF TAKING CONTROL OF OPERATION AND MAINTEN ANCE OF THE PIPELINE. HE HAS STATED THAT AFTER TERMINATION OF THE AGREEMENT WITH DODSAL AND MAKING ONE TIME PAYMENT OF ` 102,03,43,311, THE ASSESSEE HAS ACQUIRED COMMERCIAL ADVANTAGE OR BENEFIT OF OTHER ADVANTAGES / BENEFITS IN THE FORM OF TAKING CONTROL OF OPERATION AND MAINTENANCE OF T HE PIPELINE WHICH WAS VERY VITAL FOR ITS OPERATION AND FUNCTIONING FROM D ODSAL REDUCING SECURITY HAZARD AND OPERATIONAL PROBLEMS ELIMINATING THE NEE D OF A MIDDLEMAN SUBSTANTIAL SAVING IN THE OPERATIONAL COST OF THE P IPELINE I.E., MAINTENANCE AND OPERATIONAL COST OF THE PIPELINE DURING THE CUR RENT YEAR AND IN THE YEARS TO COME. THEREFORE, IT IS CRYSTAL CLEAR THAT THESE ARE THE ADVANTAGES / BENEFITS OF ENDURING NATURE. HE HAS FURTHER STATED THAT THE ASSESSEE HAS ALSO CRYSTALLISED THIS ASPECT AS PER THE ACCOUNTING STAN DARDS IN ITS BOOKS AFTER TERMINATION OF THE AGREEMENT WITH DODSAL AND SIGNIN G OF NEW AGREEMENT BETWEEN THE ASSESSEE AND ICICI LTD. IN THIS REGARD. THE ASSESSING OFFICER HAS STATED THAT BY MAKING A PAYMENT OF ` 102,03,43,311 THE FACT THAT THE OWNERSHIP HAS NOT BEEN TRANSFERRED TO THE ASSESSEE IS NOT OF ANY SIGNIFICANCE. HE HAS STATED THAT THE ASSESSEE ACHIE VED BY MAKING THIS PAYMENT THE RIGHT TO OPERATE AND MAINTAIN WHICH IS VERY IMPORTANT COMMERCIAL RIGHT WHICH HAS BEEN TAKEN OVER BY THE A SSESSEE FROM DODSAL. THIS HAS ALSO RESULTED INTO EXTINGUISHMENT OF ALL T HE OBLIGATIONS OF THE ASSESSEE TOWARDS DODSAL. IN VIEW OF ABOVE, THE ASSE SSING OFFICER HAS HELD THAT THE PAYMENT OF ` 102,03,43,311, BUT DODSAL IS OF CAPITAL NATURE. HE HAS INDIAN PETROCHEMICALS CORP. LTD. 12 FURTHER STATED THAT THE ASSESSEE HAS ACQUIRED INTAN GIBLE ASSETS AND SINCE IT WAS PUT TO USE FOR LESS THAN 180 DAYS DURING THE FI NANCIAL YEAR UNDER CONSIDERATION, THE ASSESSEE IS ENTITLED FOR THE DEP RECIATION AT HALF OF THE ELIGIBLE RATE WHICH COMES TO ` 12,75,42,913. HENCE, THE ASSESSING OFFICER DISALLOWED ` 89,28,00,398 [ ` 102,03,43,311 () ` 12,75,42,913] AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 20. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN IT WAS CONTENDED ON BE HALF OF THE ASSESSEE THAT ONE TIME PAYMENT TO DODSAL HAS NOT GIVEN RIGHT TO A NY INTANGIBLE ASSET OR ANY FIXED ASSETS IN THE HANDS OF THE ASSESSEE. BEFO RE THE TERMINATION OF BOOT AGREEMENT, THE PIPELINE WAS OWNED BY THE ICICI LTD. AND AFTER RE STRUCTURING OF SAID AGREEMENT ALSO, ICICI LTD. CONT INUED TO REMAIN THE OWNER AND LESSOR OF THE PIPELINE. THE ASSESSEE WAS NOT TH E OWNER OF THE PIPELINE EARLIER AND BY RESTRUCTURING SUCH AGREEMENT, THE A SSESSEE HAS NOT BECOME THE OWNER OF THE PIPELINE. IN BOTH THE SITUATION, T HE ASSESSEE WAS ONLY PAYING FOR THE USER OF THE PIPELINE AND FOR THE FLO W OF RAW MATERIALS AND THE PAYMENT FOR SUCH USER WAS ALWAYS REGARDED AS REVENU E EXPENDITURE AND CLAIMED ACCORDINGLY. IT WAS FURTHER SUBMITTED BEFOR E THE COMMISSIONER (APPEALS) THAT THE BOOT AGREEMENT WAS ENTERED WITH DODSAL FOR THE PURPOSE OF BUSINESS AND ALL THROUGH OUT THE CONTINUANCE OF BOOT CONTRACT, THESE FACILITIES WERE BEING UTILISED FOR THE FLOW OF RAW MATERIALS FOR THE PURPOSE OF BUSINESS. THE MAINTENANCE CHARGES PAID FOR FLOW OF RAW MATERIAL FROM THE PIPELINE WERE ALSO INCURRED FOR THE PURPOSE OF BUSI NESS AND IT IS ONLY TO CARRY ON THE BUSINESS MORE EFFICIENTLY AND ECONOMICALLY W ITH THE BOOT AGREEMENT BEING TERMINATED. HENCE, THE CONTRACTUAL PAYMENT MA DE FOR TERMINATION OF BOOT AGREEMENT IS AN EXPENDITURE INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE AS REVENUE EXP ENDITURE. THE COMMISSIONER (APPEALS), AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE AND THE OBSERVATIONS OF THE ASSESSING OFFI CER, HAS HELD THAT THE ASSESSEE HAS ACQUIRED INTANGIBLE ASSETS IN THE FORM OF COMMERCIAL RIGHT TO OPERATE AND MAINTAIN THE PIPELINE WITH REDUCED SECU RITY HAZARD. THIS RIGHT SO ACQUIRED IS FOR THE LIFE TIME OF THE ASSESSEES BUS INESS. THE ACQUISITION OF THIS INDIAN PETROCHEMICALS CORP. LTD. 13 RIGHT IS ALSO IN RELATION OF A CAPITAL ASSET. THE A SSESSEE HAS CRYSTALLISED THIS EXPENDITURE AS PER ACCOUNTING STANDARD IN ITS BOOKS OF ACCOUNT AFTER TERMINATION OF THE AGREEMENT, THEREFORE, THE TERMIN ATION OF BOOT AGREEMENT HAS RESULTED IN THE ACQUISITION OF THE RIGHT WHICH IS A CAPITAL ASSETS BEING AN INTANGIBLE ASSET. ACCORDINGLY, THE COMMISSIONER (AP PEALS) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER THAT THE EXPENDITUR E OF ` 102,03,43,311, INCURRED IS A CAPITAL EXPENDITURE. HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 21. BEFORE US, ON BEHALF OF THE ASSESSEE, IT WAS CONTEN DED THAT THE BOOT AGREEMENT WAS TERMINATED TO AVOID RECURRING PAYMENT BEING MADE BY THE ASSESSEE AND ONLY ONE TIME LUMP SUM PAYMENT HAS BEE N MADE. HE SUBMITTED THAT THIS LUMP SUM PAYMENT IS MADE TO FRE E FROM ALL OBLIGATIONS AS PER THE CONTRACT. THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT REPLACING RECURRING EXPENDITURE BY MAKING LUMP SUM PAYMENT IS REVENUE EXPENDITURE AND TO SUBSTANTIATE HIS SUBMISSIONS, HE REFERRED TO THE JUDGMENT OF HON'BLE SUPREME COURT IN ASSAM BANGAL C EMENT CO. LTD. V/S CIT, [1955] 027 ITR 034 (SC). THE LEARNED COUNSEL, BY REFERRING TO PAGES 43 AND 44 OF THE SAID JUDGMENT, SUBMITTED THAT THEI R LORDSHIPS CONSIDERED THE JUDGMENT OF THE FULL BENCH OF THE LAHORE HIGH C OURT IN THE CASE OF BANARASIDAS JAGANNATH IN RE (LAH.), [1947] 015 ITR 185, WHEREIN BROAD TEST WAS DEDUCED FOR DISTINGUISHING CAPITAL EXPENDITURE FROM REVENUE EXPENDITURE. IT WAS HELD THAT IF WHAT IS GOT RID OF BY A LUMP SUM PAYMENT IS AN ANNUAL BUSINESS EXPENSE CHARGEABLE AGAINST REVEN UE, THE LUMP SUM PAYMENT SHOULD EQUALLY BE REGARDED AS BUSINESS EXPE NSE BUT IF THE LUMP SUM PAYMENT BRINGS IN A CAPITAL ASSET, THEN THAT PU TS THE BUSINESS ON ANOTHER FOOTING ALTOGETHER. HE SUBMITTED THAT THE A SSESSEE HAS MADE A LUMP SUM PAYMENT, TO GET RID OF MAKING ANNUAL PAYMENT IN THE FORM OF MONTHLY PAYMENT TO DODSAL WHICH WAS ALLOWABLE AS BUSINESS E XPENDITURE TO THE ASSESSEE, IS ALSO TO BE CONSIDERED AS BUSINESS EXPE NDITURE UNDER SECTION 37(1) OF THE ACT, THAT NO ASSET HAS COME INTO EXIST ENCE TO THE ASSESSEE BY MAKING SAID PAYMENT. HE FURTHER RELIED ON THE JUDGM ENT OF HON'BLE SUPREME COURT IN CIT V/S MADRAS AUTO SERVICE (P.) LTD., [19 98] 233 ITR 468 (SC). HE INDIAN PETROCHEMICALS CORP. LTD. 14 SUBMITTED THAT IN THE ABOVE CASE, THE ASSESSEE COMP ANY ENTERED INTO A LEASE AGREEMENT AND AS PER CONDITIONS OF LEASE AGREEMENT, THE LESSEE I.E., THE ASSESSEE HAD A RIGHT TO DEMOLISH AT THIS OWN EXPEND ITURE THE EXISTING PREMISES AND APPROPRIATE TO ITSELF ALL THE MATERIAL S THEREOF WITHOUT PAYMENT TO THE LESSOR ANY COMPENSATION AND CONSTRUCT A NEW BUILDING THEREON TO SUIT THE PURPOSE OF THEIR BUSINESS. HE SUBMITTED THAT AS PER CLAUSE (2) OF THE LEASE DEED, THE LESSEE WAS REQUIRED TO PAY A RENT O F ` 1,000 PER MONTH FOR FIRST 15 YEARS, ` 1,500 PER MONTH FOR THE NEXT TEN YEARS, ` 1,650 PER MONTH FOR THE NEXT TEN YEARS AND ` 2,000 PER MONTH FOR THE REMAINING YEARS. THE LEASE DEED FURTHER PROVIDED THAT THE NEW CONSTRUCTI ON, RIGHT FROM THE COMMENCEMENT OF THE WORK WILL BE PROPERTY OF THE LE SSOR AND UPON COMPLETION OF THE WORK OF CONSTRUCTION, THE LESSEE WILL HAVE ONLY THE RIGHT TO BE A TENANT FOR A PERIOD OF 39 YEARS UNDER EXISTING LEASE SUBJECT TO THE PAYMENT OF RENT AND OBSERVE ALL OTHER TERMS AND CON DITIONS OF THE LEASE. THE LESSEE WAS NOT ENTITLED UNDER ANY CIRCUMSTANCES FOR ANY COMPENSATION WHATSOEVER ON ACCOUNT OF ITS PUTTING UP THE NEW CON STRUCTION IN PLACE OF THE OLD CONSTRUCTION. THUS, THE ASSESSEE INVESTED A SUM OF ` 1,62,833, IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 196869 A ND ` 50,937, DURING THE SUCCEEDING YEAR IN CONSTRUCTION OF NEW BUILDING . THE ASSESSEE CLAIMED AS CAPITAL LOSS. IN THE ALTERNATIVE, THE ASSESSEE ALSO CLAIMED DEDUCTION OF THE PAYMENT AS BUSINESS EXPENDITURE OR AS EXTRA RENT FO R THE LEASE. THE TRIBUNAL HELD THAT THE EXPENDITURE OF THE SAID AMOUNT FOR TH E CONSTRUCTION OF A NEW BUILDING IS IN THE NATURE OF BUSINESS EXPENDITURE F OR THE PROPER CARRYING ON THE BUSINESS OF THE ASSESSEE AND TREATED THIS AMOUN T AS REVENUE EXPENDITURE AND ALLOWED DEDUCTION IN THAT REGARD TO THE ASSESSEE. THE HONBLE HIGH COURT UPHELD THE VIEW OF THE TRIBUNAL. THE DEPARTMENT FILED APPEAL BEFORE THE HON'BLE SUPREME COURT. THE HON'BL E SUPREME COURT STATED THAT IN ORDER TO DECIDE AS TO WHETHER THE EXPENDITU RE IS REVENUE OR CAPITAL, ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIA L POINT OF VIEW. WHAT ADVANTAGE DID THE ASSESSEE GET BY CONSTRUCTING A BU ILDING WHICH BELONGED TO SOMEBODY ELSE AND SPENDING MONEY FOR SUCH CONSTRUCT ION? THE ASSESSEE GOT LONG LEASE OF A NEWLY CONSTRUCTED BUILDING SUITABLY TO ITS OWN BUSINESS AT A INDIAN PETROCHEMICALS CORP. LTD. 15 VERY CONCESSIONAL RATE, THE EXPENDITURE, THEREFORE, WAS MADE IN ORDER TO SECURE A LONG LEASE OF NEW AND MORE SUITABLE BUSINE SS PREMISES AT LOWER RENT. THE SAVING IN EXPENDITURE WAS SAVING IN REVEN UE EXPENDITURE IN THE FORM OF RENT. THE LEARNED COUNSEL SUBMITTED THAT TH E ABOVE EXPENDITURE INCURRED BY THE ASSESSEE BY TERMINATING BOOT AGREEM ENT WITH DODSAL IS A SAVING IN ANNUAL EXPENDITURE IN THE FORM OF LUMP SU M PAYMENT AND, THEREFORE, THE SAME BE EQUALLY REGARDED AS BUSINESS EXPENDITURE AS THE MONTHLY PAYMENT MADE BY THE ASSESSEE WAS ALSO CONSI DERED AS REVENUE EXPENDITURE. THE LEARNED COUNSEL ALSO PLACED RELIAN CE ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S HEDE C ONSULTANCY PVT. LTD., [2002] 258 ITR 380 (BOM.) AND THE JUDGMENT OF HON'B LE JURISDICTIONAL HIGH COURT IN TALATHI AND PANTHAKY ASSOCIATES PVT. LTD., [2012] 343 ITR 309 (BOM.) AND SUBMITTED THAT THE HON'BLE JURISDICTIONAL HIGH COURT ALSO FOLLOWED THE SAME PRINCIPLE AND HELD THAT WHEN A LUMP SUM PA YMENT IS MADE TO GET RID OF ANNUAL PAYMENT BY WHICH THE ASSESSEE GETS CO MMERCIAL ADVANTAGE IN THE FORM OF SECURING TENANCY OF AN EQUIVALENT AREA OF PREMISES ON THE SAME RENT AS BEFORE, THE EXPENDITURE COULD NOT BE REGARD ED AS BEING OF A CAPITAL NATURE, THE SAID EXPENDITURE INCURRED BY THE ASSESS EE IS REVENUE EXPENDITURE. 22. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE ASSE SSING OFFICER HAS ALSO STATED IT AS CAPITAL EXPENDITURE BECAUSE THE A SSESSEE HAD CAPITALIZED IT IN ITS BOOK AFTER TERMINATION OF AGREEMENT WITH DOD SAL. THE LEARNED COUNSEL, BY RELYING ON THE JUDGMENTS OF HON'BLE SUPREME COUR T IN KEDARNATH JUTE MFG. CO. LTD. V/S CIT, [1971] 082 ITR 363 (SC) AND TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION LTD. V/S CIT, [1999] 237 ITR 889 (SC), SUBMITTED THAT THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOO KS OF ACCOUNT CANNOT CHANGE THE NATURE OF THE RECEIPT OR PAYMENTS FROM R EVENUE TO CAPITAL. THE LEARNED COUNSEL SUBMITTED THAT THE SAID PAYMENT OF ` 102,03,43,311, IS TO BE ALLOWED AS REVENUE EXPENDITURE. 23. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE JUSTIFIED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT THE ASSESSEE HAS INDIAN PETROCHEMICALS CORP. LTD. 16 ACQUIRED AN INTANGIBLE RIGHT BY MAKING DOWN PAYMENT AFTER TERMINATING THE BOOT CONTRACT WITH DODSAL. HE SUBMITTED THAT THE CO MMISSIONER (APPEALS) HAS RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING O FFICER TO TREAT IT AS A CAPITAL EXPENDITURE. 24. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE P ARTIES. WE HAVE ALSO CONSIDERED THE CASE LAWS CITED BEFORE US. WE OBSERV E THAT THE ASSESSEE ENTERED INTO BOOT AGREEMENT / CONTRACT WITH DODSAL IN DECEMBER 1995. PURSUANT THERETO, DODSAL BUILT, MAINTAINED AND OPER ATED THE DAHEJ GANDHAR VADODARA PIPELINE FOR AN APPROXIMATE DISTANCE OF 10 7 KMS. THE SAID PIPELINE WAS COMMISSIONED IN MAY 1997. THE ASSESSEE COMPANY, AS PER AGREEMENT, WAS OBLIGED TO PAY ` 2.47 CRORES PER MONTH MINIMUM GUARANTEED AMOUNT TO DODSAL AS BOOT CHARGES. THE SAID AGREEMENT, IN THE ORDINARY COURSE, WAS TO TERMINATE AFTER 15 YEARS FROM THE DATE OF COMMISSIO NING. HOWEVER, THE AGREEMENT COULD BE TERMINATED OTHERWISE THEN BY BRE ACH OF CONTRACT BY THE ASSESSEE / TAKING OVER THE ASSETS AFTER FIVE YEARS OF COMMISSIONING BASED ON A MUTUAL UNDERSTANDING. IT IS STATED THAT OVER A PE RIOD OF TIME THE ASSESSEE GOT RELEVANT EXPERIENCE OF HANDLING AND MONITORING MOVEMENT OF MATERIAL THROUGH PIPELINE AND OTHER RELATED MATTERS. SINCE T HE SAID PIPE LINE WAS VITAL FROM OPERATION VIEW POINT AND ALSO CONSIDERING THE FACT THAT IT REQUIRED SPECIFIC TECHNICAL KNOWLEDGE FOR OPERATING SUCH PIP ELINE ON ITS OWN, IT WAS THOUGHT PRUDENT TO TERMINATE THE BOOT AGREEMENT WIT H DODSAL BY MAKING ONE TIME LUMP SUM PAYMENT OF ` 102,03,43,311, AS COMPENSATION ON ACCOUNT OF PREMATURE TERMINATION OF BOOT AGREEMENT. IN ORDER TO JUSTIFY THAT THE SAID DOWN PAYMENT OF ` 102,03,43,311, IS ECONOMICAL TO THE ASSESSEE COMPANY, WE OBSERVE THAT THE ASSESSEE STAT ED BEFORE THE ASSESSING OFFICER THAT IN THE LAST THREE YEARS I.E. , F.Y. ENDING 31 ST MARCH 2001, IT PAID ` 30.92 CRORES, IN THE F.Y. ENDING 31 ST MARCH 2002, IT PAID ` 31.35 CRORES AND IN THE F.Y. ENDING 31 ST MARCH 2003, IT PAID ` 32.64 CRORES TO DODSAL FOR OPERATION OF SAID PIPELINE. UNDISPUTE DLY, THE SAID PAYMENTS WERE ALLOWED AS REVENUE EXPENDITURE IN RESPECTIVE A SSESSMENT YEARS. FURTHER, THE ASSESSEE, IN ITS REPLY TO THE ASSESSIN G OFFICER, ALSO STATED THAT INDIAN PETROCHEMICALS CORP. LTD. 17 OVER A PERIOD OF NINE F.YS FROM 200304 TO 201112, IT WAS TO PAY, AS PER EARLIER AGREEMENT, MINIMUM ` 266.76 CRORES TO DODSAL. HOWEVER, THE AMOUNT PAYABLE AS PER RECONSTRUCTING AGREEMENT COM ES TO ` 104.45 CRORES. WE FURTHER OBSERVE THAT THE ASSESSEE HAS STATED THA T EVEN WHEN BOOT AGREEMENT WAS IN OPERATION, THE ASSESSEE WAS NOT TH E OWNER OF THE PIPELINE AND ALSO AFTER RECONSTRUCTING OF THE BOOT AGREEMEN T, THE ASSESSEE HAS NOT BECOME THE OWNER OF THE PIPELINE. WE OBSERVE THAT A FTER RESTRUCTURING OF THE BOOT AGREEMENT, I.E., WHEN THE ASSESSEE MADE TH E LUMP SUM PAYMENT OF ` 102,03,43,311, ICICI LTD. BECAME THE OWNER OF THE PIPELINE AND THE ASSESSEE ONLY GOT CONTROL OF THE OPERATION AND MAIN TENANCE OF THE PIPELINE WHICH IS STATED TO BE VERY VITAL FOR ITS OPERATION AND FUNCTIONING OF ASSESSEES PROJECTS. NOW, THE QUESTION ARISES AS TO WHETHER TH IS LUMP SUM PAYMENT MADE BY THE ASSESSEE TO DODSAL IS A CAPITAL EXPENDI TURE OR IS A REVENUE EXPENDITURE. WE OBSERVE THAT THE HON'BLE SUPREME CO URT IN MADRAS AUTO SERVICE PVT. LTD. (SUPRA) HAS STATED THAT IN ORDER TO DECIDE WHETHER THE EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPEN DITURE, ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. IN THE SAID CASE, THE ASSESSEE, A LESSEE OF A BUILDING OBTAINED LEASE FOR A PERIOD OF 39 YEARS. ONE OF THE CONDITION OF THE LEASE WAS THAT THE LESSEE H AD THE RIGHT TO DEMOLISH AT ITS OWN EXPENSES THE EXISTING PREMISES AND APPROPRI ATE TO ITSELF ALL THE MATERIAL THEREOF WITHOUT PAYING TO THE LESSORS ANY COMPENSATION AND TO CONSTRUCT A NEW BUILDING THEREON TO SUIT THE PURPOS E OF THEIR BUSINESS AS PER PLAN APPROVED BY THE LESSOR. THE ASSESSEE SPENT / I NVESTED A SUM OF ` 1,62,835, IN THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR 196869 AND ` 50,937, DURING THE SUCCEEDING YEAR IN CONSTRUCTING A NEW BUILDING ON THE SAID LAND. THE ASSESSEE CLAIMED BEFORE THE ITO THE EXPENDITURE OF THE SAID SUMS OF ` 1,62,835 AND ` 50,937, IN THE RELEVANT ASSESSMENT YEARS AS CAPITAL LOSS. IN THE ALTERNATIVE, THE ASSESSEE CLAI MED DEDUCTION OF THE PAYMENTS AS BUSINESS OR EXTRA RENT FOR THE LEASE. T HE TRIBUNAL HELD THAT THE EXPENDITURE OF THE SAID TWO AMOUNTS FOR THE CONSTRU CTION OF A NEW BUILDING IS IN THE NATURE OF BUSINESS EXPENDITURE FOR PROPER CA RRYING ON OF THE BUSINESS OF THE ASSESSEE AND, THEREFORE, THE SAID TWO AMOUNT S WERE TREATED AS INDIAN PETROCHEMICALS CORP. LTD. 18 REVENUE EXPENDITURE AND DEDUCTION WAS ALLOWED IN RE GARD THERETO TO THE ASSESSEE. IN APPEAL BY THE DEPARTMENT, THE HONBLE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL. THE DEPARTMENT WENT IN FURTH ER APPEAL BEFORE THE HON'BLE SUPREME COURT WHEREIN THEIR LORDSHIPS AT PA GE472, HAVE STATED THAT: IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS REVE NUE EXPENDITURE OR CAPITAL EXPENDITURE, ONE HAS TO LOOK AT THE EXPENDI TURE FROM A COMMERCIAL POINT OF VIEW. WHAT ADVANTAGE DID THE AS SESSEE GET BY CONSTRUCTING A BUILDING WHICH BELONGED TO SOMEBODY ELSE AND SPENDING MONEY FOR SUCH CONSTRUCTION? THE ASSESSEE GOT A LON G LEASE OF A NEW CONSTRUCTED BUILDING SUITABLE TO ITS OWN BUSINESS A T A VERY CONCESSIONAL RENT. THE EXPENDITURE, THEREFORE, WAS MADE IN ORDER TO SECURE A LONG LEASE OF NEW AND MORE SUITABLE BUSINESS PREMISES AT A LOWER RENT. IN OTHER WORDS, THE ASSESSEE MADE SUBSTANTIAL SAVINGS IN MONTHLY RENT FOR A PERIOD OF 39 YEARS BY EXPENDING THESE AMOUNTS . THE SAVING IN EXPENDITURE WAS A SAVING IN REVENUE EXPENDITURE IN THE FORM OF RENT. WHATEVER SUBSTITUTES FOR REVENUE EXPENDITURE SHOULD NORMALLY BE CONSIDERED AS REVENUE EXPENDITURE. MOREOVER, THE AS SESSEE IN THE PRESENT CASE DID NOT GET ANY CAPITAL ASSET BY SPEND ING THE SAID AMOUNTS. THE ASSESSEE, THEREFORE, COULD NOT HAVE CL AIMED ANY DEPRECIATION. LOOKING TO THE NATURE OF THE ADVANTAG E WHICH THE ASSESSEE OBTAINED IN A COMMERCIAL SENSE, THE EXPEND ITURE APPEARS TO BE REVENUE EXPENDITURE. FOR DISTINGUISHING BETWEEN THE CAPITAL EXPENDITURE AND REVENUE EXPENDITURE THEIR LORDSHIPS OF THE APEX COURT CONSI DERED THE CASE OF ASSAM BANGAL CEMENT CO. LTD. (SUPRA) AND AT PAGE473, STA TED AS FOLLOWS: 1. OUTLAY IS DEEMED TO BE CAPITAL WHEN IT IS MADE F OR THE INITIATION OF A BUSINESS, FOR EXTENSION OF A BUSINESS, OR FOR A SUBSTANTIAL REPLACEMENT OF EQUIPMENT. 2. EXPENDITURE MAY BE TREATED AS PROPERLY ATTRIBUTA BLE TO CAPITAL WHEN IT IS MADE NOT ONLY ONCE AND FOR ALL BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE END URING BENEFIT OF A TRADE. IF WHAT IS GOT RID OF BY A LUMP SUM PAYMEN T IS AN ANNUAL BUSINESS EXPENSES CHARGEABLE AGAINST REVENUE, THE L UMP SUM PAYMENT SHOULD EQUALLY BE REGARDED AS A BUSINESS EX PENSE, BUT IF THE LUMP SUM PAYMENT BRINGS IN A CAPITAL ASSET, THEN TH AT PUTS THE BUSINESS ON ANOTHER FOOTING ALTOGETHER. 3. WHETHER FOR THE PURPOSE OF THE EXPENDITURE, ANY CAPITAL WAS WITHDRAWN, OR, IN OTHER WORDS, WHETHER THE OBJECT O F INCURRING THE EXPENDITURE WAS TO EMPLOY WHAT WAS TAKEN IN AS CAPI TAL OF THE BUSINESS. AGAIN, IT IS TO BE SEEN WHETHER THE EXPEN DITURE INCURRED WAS INDIAN PETROCHEMICALS CORP. LTD. 19 PART OF THE FIXED CAPITAL OF THE BUSINESS OR PART O F ITS CIRCULATING CAPITAL . 25. THUS, THE HON'BLE SUPREME COURT IN THE ABOVE CASE I .E., MADRAS AUTO SERVICE (P.) LTD. (SUPRA), WHILE CONFIRMING THE ORD ERS OF THE TRIBUNAL AS WELL AS OF THE HIGH COURT HELD THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE COMPANY FOR THE CONSTRUCTION OF A NEW BUILDING WHIC H DID BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE ASSESSEE COMPANY IS REVENUE EXPENDITURE AS IT DID NOT BRING INTO EXISTENCE ANY CAPITAL ASSE TS FOR THE ASSESSEE COMPANY. THE ASSET WHICH WAS CREATED BELONGED TO SO MEBODY ELSE AND THE ASSESSEE COMPANY DERIVED AN ENDURING BUSINESS ADVAN TAGE BY SPENDING THE SAID AMOUNT. THE EXPENDITURE HAVE BEEN LOOKED UPON AS HAVING BEEN MADE FOR THE PURPOSE OF CONDUCTING BUSINESS OF THE ASSES SEE FOR MORE PROFITABILITY OR MORE SUCCESSFULLY. THE ASSET CREATED BY SPENDING THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASSESSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN PREMISE AT A LOW RENT THUS SAVING CONS IDERABLE REVENUE EXPENDITURE FOR THE NEXT 39 YEARS I.E., THE TERM OF LEASE PERIOD AND CONCLUDED THAT THE EXPENDITURE SHOULD BE LOOKED UPO N AS REVENUE EXPENDITURE. 26. WE ARE OF THE CONSIDERED VIEW THAT THE ABOVE JUDGME NTS OF THE HON'BLE SUPREME COURT SQUARELY APPLIES TO THE FACTS OF THE CASE BEFORE US. IN THE PRESENT CASE ALSO, THE ASSESSEE COMPANY, BY MAKING LUMP SUM PAYMENT OF ` 102,03,43,311, TO DODSAL HAS NOT ACQUIRED ANY CAPIT AL ASSET BUT HAS ACQUIRED ONLY THE RIGHT TO OPERATE AND MAINTAIN THE SAID PIPELINE FOR ITS BUSINESS PURPOSE. FURTHER, BY MAKING THIS LUMP SUM PAYMENT TO DODSAL, THE ASSESSEE COMPANY HAS GOT RID OF MAKING MONTHLY PAYM ENT. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE COMPANY HAS NOT A CQUIRED ANY CAPITAL ASSET BY MAKING LUMP SUM PAYMENT. IT HAS ONLY DERIV ED AN ENDURING ADVANTAGE AS IN THE CASE OF MADRAS AUTO SERVICE (P. ) LTD. (SUPRA). THEREFORE, THE SAID EXPENDITURE OF MAKING LUMP SUM PAYMENT BY TERMINATING BOOT AGREEMENT ENTERED INTO BY THE ASSESSEE COMPANY AND DODSAL, IT HAS ONLY GOT THE BUSINESS ADVANTAGE OF MAINTAINING AND OPERATING THE PIPELINE. THE ASSESSEE COMPANY HAS STATED THAT EVEN WHEN THE BOOT AGREEMENT WAS IN INDIAN PETROCHEMICALS CORP. LTD. 20 OPERATION, THE ASSESSEE WAS NEITHER THE OWNER OF TH E PIPELINE NOR AFTER MAKING THE LUMP SUM PAYMENT TO DODSAL ON TERMINATIN G THE BOOT AGREEMENT THE ASSESSEE BECAME THE OWNER OF THE PIPE LINE. THE OWNER OF THE PIPELINE IS ICICI LTD. THE SAID FACTS HAVE NOT BEEN DISPUTED BY THE DEPARTMENT, EVEN WHEN ASSESSEE FILED ITS REPLY BEFO RE THE AUTHORITIES BELOW AS WELL AS AT THE TIME OF HEARING OF THIS APPEAL BE FORE US. 27. THE HON'BLE JURISDICTIONAL HIGH COURT IN HEDE CONSU LTANCY PVT. LTD. (SUPRA) ALSO HELD THAT IF THE ASSESSEE COMPANY BY S PENDING AMOUNT BY RENOVATING THE GODOWN, TAKEN ON LEASE DID NOT GET T HE ASSETS CREATED BELONGING TO IT BUT IF THE ASSESSEE GOT BUSINESS AD VANTAGE OF USING MODERN BUSINESS PREMISES AT A LOW RENT THUS SAVING CONSIDE RABLE REVENUE EXPENDITURE FOR A CONSIDERABLE LONG PERIOD, THE TRI BUNAL WAS PERFECTLY JUSTIFIED IN COMING TO THE CONCLUSION THAT THE EXPE NDITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE. IT WAS STATED THAT IF WHAT IS GOT RID OF BY MAKING A LUMP SUM PAYMENT IS AN ANNUAL BUSINESS EXP ENDITURE CHARGEABLE AGAINST REVENUE, THE LUMP SUM PAYMENT SHOULD EQUALL Y BE REGARDED AS BUSINESS EXPENDITURE, BUT IF THE LUMP SUM PAYMENT B RINGS IN A CAPITAL ASSETS, THEN THAT PUTS THE BUSINESS ON ANOTHER FOOT ING ALTOGETHER. 28. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S TA LATHI AND PANTHAKY ASSOCIATES PVT. LTD. (SUPRA), ALSO CONSIDERED THE S IMILAR ISSUE AND HELD THAT IF THE ASSESSEE OBTAINED A COMMERCIAL ADVANTAGE OF SEC URING TENANCY OF AN EQUIVALENT AREA OF PREMISES ON THE SAME RENT AS BEF ORE BY CONTRIBUTING AN AMOUNT OF ` 1.50 CRORES TOWARDS RECONSTRUCTION, THE SAID EXPE NDITURE IS REVENUE IN NATURE AND COULD NOT BE REGARDED BEING C APITAL IN NATURE, AS THERE WAS NO ACQUISITION OF A CAPITAL ASSETS AND THE OCCU PATION OF THE ASSESSEE CONTINUED IN THE CHARACTER OF THE TENANCY. 29. IN THE CASE BEFORE US ALSO, THE ASSESSEE HAS ONLY G OT THE RIGHT TO USE THE SAID PIPELINE FOR ITS BUSINESS PURPOSES AND HAS NOT ACQUIRED ANY CAPITAL RIGHT IN THE SAID PIPELINE, SAVE AND EXCEPT, TO OPE RATE AND MAINTAIN IT BY MAKING A LUMP SUM PAYMENT OF ` 102,03,43,311, TO DODSAL ON TERMINATION OF BOOT AGREEMENT. THEREFORE, WE AGREE WITH THE LEA RNED COUNSEL FOR THE INDIAN PETROCHEMICALS CORP. LTD. 21 ASSESSEE THAT THE SAID PAYMENT IS TO BE CONSIDERED AS REVENUE IN NATURE AND NOT AS CAPITAL IN NATURE. 30. WE ALSO OBSERVE THAT THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS), WHILE CONSIDERING THE SAID EXPENDITURE OF ` 102,03,43,311, AS CAPITAL EXPENDITURE ALSO STATED T HAT THE ASSESSEE ITSELF HAS CAPITALIZED THE SAID AMOUNT IN ITS BOOKS OF ACC OUNT. IN THIS REGARD, IT IS RELEVANT TO STATE THAT EVEN IF THE AMOUNT WHICH IS OTHERWISE ALLOWABLE AS REVENUE EXPENDITURE BUT CAPITALIZED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT, THE EXPENDITURE CANNOT BE DISALLOWED. THE HONBLE M ADRAS HIGH COURT IN CIT V/S KASTHURI AND SONS, [2000] 241 ITR 412 (MAD.) AN D THE HON'BLE DELHI HIGH COURT IN CIT V/S DALMIA CEMENT (BHARAT) LTD., [2000] 242 ITR 129 (DEL.) HAVE HELD THAT EVEN IF AN ASSESSEE CAPITALIZ ED IN THE BOOKS OF ACCOUNT, THE INTEREST PAID ON BORROWINGS TAKEN TO ACQUIRE FI XED ASSETS FOR ITS EXISTING BUSINESS, THE SAID INTEREST WOULD NONETHELESS BE AL LOWED AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT WHILE COMPUTING BUSIN ESS PROFITS OF THE RELEVANT ASSESSMENT YEAR AS THE ENTRIES IN THE BOOKS OF ACCO UNT ARE NOT RELEVANT FOR REJECTING THE CLAIM OF THE ASSESSEE, IF IT IS OTHER WISE ALLOWABLE. THE HONBLE CALCUTTA HIGH COURT IN CIT V/S BERGER PAINTS (INDIA ) LTD. (NO.2), [2002] 254 ITR 503 (CAL.) HELD THAT IF ACCORDING TO THE REVENU E LAWS THE ASSESSEE IS ENTITLED TO TREAT A SUM AS A REVENUE EXPENDITURE, T HEN THAT LEGAL RIGHT OF THE ASSESSEE IS NOT ESTOPPED BY THE TREATMENT GIVEN BY THE ASSESSEE TO IT IN ITS OWN BOOKS OF ACCOUNT. THE HON'BLE SUPREME COURT IN KEDARNATH JUTE MFG. CO. LTD. (SUPRA) HELD THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISIONS OF L AW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RI GHTS, NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN HIS BOOKS OF ACC OUNT BE DECISIVE OR CONCLUSIVE ON THE MATTER. 31. IN VIEW OF THE ABOVE JUDGMENTS, WE HOLD THAT THE CL AIM OF THE ASSESSEE WHICH IS OTHERWISE ALLOWABLE AS REVENUE EXPENDITURE , CANNOT BE DENIED MERELY ON THE GROUND THAT THE ASSESSEE HAS CAPITALI ZED THE SAID EXPENDITURE BY MAKING ENTRIES IN ITS BOOKS OF ACCOUNT. INDIAN PETROCHEMICALS CORP. LTD. 22 32. THEREFORE, WE HOLD THAT THE SAID EXPENDITURE OF ` 102,03,43,311, IS TO BE ALLOWED AS REVENUE EXPENDITURE AND IS NOT CAPITA L IN NATURE. HOWEVER, THE ASSESSING OFFICER, WHILE GIVING EFFECT TO OUR O RDER, WILL DISALLOW THE DEPRECIATION AS ALLOWED BY HIM. CONSEQUENTLY, GROUN D NO.3, RAISED BY THE ASSESSEE IS ALLOWED BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW. 33. IN GROUND NO.4, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN CONFIRMING THE DISALLOWAN CE OF EXPENDITURE INCURRED ON ACCOUNT OF REGISTRATION FEE AND STAMP D UTY AMOUNTING TO ` 1,07,02,000 34. THE ASSESSING OFFICER STATED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE OF ` 1,07,02,000, IN RESPECT OF REGISTRATION FEE AND ST AMP DUTY OF LEASE TRANSACTIONS ENTERED INTO WITH ICICI LTD., IN RESPE CT OF DAHEJ, VADODARA, PIPELINE SYSTEM. THE ASSESSEE STATED THAT THE SAID EXPENDITURE IS ONE TIME EXPENDITURE INCURRED FOR REGISTERING THE LEASE DOCU MENTS AND DOES NOT MAKE VALUE ADDITION TO ASSETS UNDER LEASE. THE ASSESSING OFFICER HAS STATED THAT THE ALLOWANCE OF ENTIRE EXPENDITURE IN ONE YEAR MIG HT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF THE FINANCIAL YEAR UNDER CONSIDERATION AS THE LEASE PERIOD IS OF 25 YEARS. THEREFORE, THE ASSESSING OFF ICER APPORTIONED THE EXPENDITURE OF ` 1,07,02,000, OVER THE LEASE PERIOD AND ALLOWED ` 4,28,080, DURING THE FINANCIAL YEAR UNDER CONSIDERATION BY RE LYING ON THE JUDGMENT OF HON'BLE SUPREME COURT IN MADRAS INDUSTRIAL INVESTME NT CORPN. LTD. V/S CIT, [1997] 225 ITR 802 (SC). 35. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) UPHELD THE ACTION OF THE ASSESSING OFFICER. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 36. BEFORE US, DURING THE COURSE OF HEARING, THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID EXPENDITURE OF ` 1,07,02,000, COMPRISES OF ` 93,92,000, TOWARDS STAMP DUTY PAID TO THE GOVERNME NT OF GUJARAT, INDIAN PETROCHEMICALS CORP. LTD. 23 REGISTRATION CHARGES OF ` 13,04,900, INCURRED FOR REGISTERING THE LEASE DOCUMENTS AND BANK CHARGES OF ` 5,100. HE SUBMITTED THAT THE SAID EXPENDITURE IS INCIDENTAL EXPENDITURE INCURRED ON L EASE TRANSACTIONS FOR THE LEASE ENTERED INTO WITH ICICI LTD. THE LEARNED COUN SEL REFERRED TO PAGE87 OF THE PAPER BOOK WHICH IS THE COPY OF THE RECEIPT EVIDENCING INCURRING OF SAID EXPENDITURE OF ` 1,07,02,000. LEARNED COUNSEL, RELYING ON THE JUDGM ENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S CIN CEITA PVT. LTD., [1982] 137 ITR 652 (BOM.) AND THE JUDGMENT OF HONBLE M.P. HIG H COURT IN CIT V/S GOPAL ASSOCIATES, [2010] 326 ITR 413, (M.P), SUBMIT TED THAT THE SAID EXPENDITURE IS TO BE ALLOWED AS REVENUE EXPENDITURE . 37. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDER OF THE COMMISSIONER (APPEALS). 38. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PA RTIES, CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LA WS CITED BEFORE US. WE OBSERVE THAT THE ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE AFORESAID JUDGMENTS. IN THE CASE OF CINCEITA PVT. L TD. (SUPRA), THE ISSUE WAS, AS TO WHETHER THE EXPENDITURE OF ` 10,700, INCURRED BY THE ASSESSEE FOR STAMP DUTY, REGISTRATION OF LEASE DEED AND PAYMENT TO SOLICITOR IN CONNECTION WITH THE LEASE DEED IS CAPITAL EXPENDITURE OR REVEN UE EXPENDITURE. THE HON'BLE JURISDICTIONAL HIGH COURT BY FOLLOWING ITS EARLIER JUDGMENT IN CIT V/S HOECHST PHARMACEUTICALS LTD., [1978] 113 ITR 877 (B OM.) HELD THAT BY INCURRING THE SAID EXPENDITURE, THE ASSESSEE HAS NO T ACQUIRED ANY ASSETS OF ENDURING NATURE AND THE SAID EXPENDITURE COULD NOT BE DISALLOWED AS OF CAPITAL NATURE. IT WAS FURTHER HELD THAT THE PERIOD OF LEASE COULD NOT BE RECORDED AS DECISIVE OF THE CIRCUMSTANCES AS TO WHE THER THE SAID ADVANTAGE SECURED IS OF ENDURING NATURE. FURTHER THE HONBLE MADHYA PRADESH HIGH COURT ALSO CONSIDERED THE SIMILAR ISSUE AS TO WHETH ER THE EXPENDITURE INCURRED ON STAMP DUTY AND REGISTRATION CHARGES AT THE TIME OF EXECUTION OF LEASE AGREEMENT FOR TAKING ON LEASE OF A PLANT FOR SEVEN YEARS IS TO BE ALLOWED AS REVENUE EXPENDITURE OR NOT. THEIR LORDSH IPS HAVE HELD IN THE ABOVE CASE VIZ. GOPAL ASSOCIATES (SUPRA) THAT THE A MOUNT SPENT ON INDIAN PETROCHEMICALS CORP. LTD. 24 REGISTRATION CHARGES AT THE TIME OF EXECUTION OF LE ASE AGREEMENT WAS REVENUE EXPENDITURE. IN THIS REGARD, THEIR LORDSHIP S OF THE HONBLE M.P. HIGH COURT PLACED RELIANCE ON THE JUDGMENT OF THE HONBL E KERALA HIGH COURT IN PLANTATION CORPORATION OF KERALA LTD. V/S COMMISSIO NER OF AGRICULTURAL INCOME-TAX (KER.), [1994] 205 ITR 364 (KER.) AND TH E JUDGMENT OF HONBLE GUJARAT HIGH COURT IN GUJARAT MACHINERY MFG. LTD. V /S CIT, [1995] 211 ITR 1010 (GUJ.). IN VIEW OF THE ABOVE, WE HOLD THAT THE SAID EXPENDITURE OF ` 1,07,02,000, IS TO BE ALLOWED AS REVENUE EXPENDITUR E IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CONSEQUENTLY, GROUND NO.4, RAI SED BY THE ASSESSEE IS ALLOWED BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW. 39. IN GROUND NO.5, THE ASSESSEE HAS DISPUTED THE ORDER PASSED BY THE COMMISSIONER (APPEALS) IN CONFIRMING THE DISALLOWAN CE OF ` 21,76,125, BEING EXPENDITURE INCURRED ON ACCOUNT OF REPAIRS BY TREAT ING THE SAME AS CAPITAL EXPENDITURE. 40. THE RELEVANT FACTS ARE THAT, THE ASSESSEE MADE PAYM ENT OF ` 24.87 LAKHS TO ENGINEERS INDIA LTD ON ACCOUNT OF DESIGNIN G WORK RELATING TO E.O. REACTOR TO REPLACE THE EXISTING REACTOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE STATED BEFORE THE ASSESSI NG OFFICER THAT THE PAYMENT WAS MADE ONLY FOR DESIGNING AND RELOCATION OF THE REACTOR WHICH WAS ALREADY PURCHASED IN THE YEAR 1999 AND WHICH WA S NOT FUNCTIONING AT THE LOCATION AT WHICH IT WAS PLACED. IT WAS STATED THAT THE EXPENDITURE WAS INCURRED ONLY TO RELOCATE THE REACTOR WITHIN THE F ACTORY PREMISES FOR OPTIMUM USE AND IT DID NOT MAKE ANY VALUE ADDITION TO THE REACTOR. THUS, THE SAID EXPENDITURE CANNOT BE REGARDED AS CAPITAL EXPE NDITURE. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE A SSESSEE AND STATED THAT THE EXERCISE OF RELOCATING THE REACTOR RESULTED IN ITS OPTIMUM USE BY THE ASSESSEE AND THUS, CLEARLY ATTRIBUTED TO VALUE ADDI TION OF THE REACTOR. HE HAS STATED THAT BY RELOCATING THE REACTOR, THE ASSESSE E HAS ACQUIRED A NEW OR DIFFERENT ADVANTAGE IN THE FORM OF OPTIMUM USE OF T HE REACTOR AND, ACCORDINGLY, CONSIDERED THE SAID EXPENDITURE OF ` 24.87 LACS AS CAPITAL IN NATURE. HOWEVER, THE ASSESSING OFFICER ALLOWED THE DEPRECIATION OF ` INDIAN PETROCHEMICALS CORP. LTD. 25 3,10,875, AND ADDED BACK THE BALANCE AMOUNT OF ` 21,76,125, TO THE INCOME OF THE ASSESSEE. 41. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) HAS CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFICER AFTER STATING THAT THE SAID REACTOR DID NOT FUNCTION AT ITS ORIGINAL PLACE OF INSTALLATION AND THE EXPENDITURE INCURRED ON DESIGNING OF ITS LOCATION AMOUNTED TO BEING IN T HE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE THE EXPENDITURE INCURRED TO FORM PART OF THE CAPITAL ASSET. HENCE, THE ASSESSEE IS IN FURTHER AP PEAL BEFORE THE TRIBUNAL. 42. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE HAS NOT ACQUIRED ANY NEW ASSET BY RELOCAT ING THE REACTOR FROM ITS ORIGINAL PLACE IN ITS EXISTING FACTORY. HE SUBMITTE D THAT THE SAID EXPENDITURE IS REVENUE IN NATURE AND PLACED RELIANCE ON THE JUD GMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S ABBOTT LABORAT ORIES (I) PVT. LTD., [1993] 202 ITR 818 (BOM). 43. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDER OF THE COMMISSIONER (APPEALS). 44. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PA RTIES, CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LA WS CITED BEFORE US BY THE ASSESSING OFFICER AS WELL AS THE LEARNED COUNSEL. 45. THERE IS NO DISPUTE TO THE FACT THAT THE REACTOR WH ICH WAS INSTALLED AT A NEW PLACE IS THE EXISTING REACTOR WHICH WAS PROCURE D BY THE ASSESSEE IN THE YEAR 1999. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THE SAID REACTOR, AT THE PLACE WHERE IT WAS ORIGINALLY INSTALLED WAS NOT FUNCTIONING AND, THEREFORE, THE SAME REACTOR WAS RELOCATED WITHIN T HE FACTORY PREMISES FOR OPTIMUM USE. WE ARE OF THE CONSIDERED VIEW THAT INC URRING THE SAID EXPENDITURE TO RELOCATE THE REACTOR FROM ITS EXISTI NG PLACE TO A NEW PLACE TO MAKE USE OF IT DOES NOT CREATE ANY NEW ASSET TO THE ASSESSEE. THE HON'BLE JURISDICTIONAL HIGH COURT IN ABBOTT LABORATORIES ( I) PVT. LTD. (SUPRA) HAS HELD INDIAN PETROCHEMICALS CORP. LTD. 26 THAT WHEN THE EXPENDITURE IS INCURRED BY AN ASSESSE E FOR RATIONALISING OF ITS ADMINISTRATIVE AND MODERNISATION OF ITS MACHINERY W ITH A VIEW TO DERIVE MAXIMUM BENEFIT OUT OF THE EXISTING RESOURCES, IT I S A CASE WHERE THE EXPENDITURE WHICH IS ALLOWABLE AS DEDUCTION AND COU LD BE TREATED THAT THE EXPENDITURE HAS BEEN INCURRED TO IMPROVE THE PRODUC TION OF THE EXISTING PROJECT WITH A VIEW TO INCREASE ITS PROFITABILITY A ND NOT AN EXPENDITURE IN CONNECTION WITH A NEW PLANT OR A NEW PROJECT. HENCE , WE HOLD THAT THE SAID EXPENDITURE OF ` 24.87 LACS INCURRED BY THE ASSESSEE HAS TO BE ALLO WED AS REVENUE EXPENDITURE BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, THE ASSESSING OFFICER, WHILE GIVING EFFECT TO THIS ORDER, WILL WITHDRAW THE DEPRECIATION ALLOWED BY HIM. CONSEQUEN TLY, GROUND NO.5, RAISED BY THE ASSESSEE IS ALLOWED. 46. IN GROUND NO.6, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWANCE OF ` 22,13,29,394, UNDER SECTION 80HHC OF THE ACT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT. 47. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS CLAIMED ` 22,13,29,394, AS DEDUCTION UNDER SECTION 80HHC. THE ASSESSING OFFICER STATED THAT THE PROFIT OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFIT & GAINS OF BUSINESS OR PROFESSION IN THE CASE OF ASSESSEE IS NIL. THE QUESTION OF ALLOWANCE OF DEDUCTION UNDER SECTION 80HHC DOES NOT ARISE BOTH UNDER THE NORMAL PROVISIONS AS WELL AS SECTION 115JB AND, ACC ORDINGLY, DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80H HC. 48. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) STATED THAT SIMILAR ISSUE CAME UP BEFORE HIM IN THE CASE OF ASSESSEE IN ASSESSMENT YEAR 2001 02 AND HE CONFIRMED THE ACTION OF THE ASSESSING OFF ICER IN THIS REGARD. ACCORDINGLY, THE COMMISSIONER (APPEALS), BY FOLLOWI NG HIS EARLIER ORDER DATED 28 TH NOVEMBER 2006, PASSED FOR ASSESSMENT YEAR 200102, CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE CL AIM OF DEDUCTION UNDER INDIAN PETROCHEMICALS CORP. LTD. 27 SECTION 80HHC OF ` 22,13,29,394, FOR THE PURPOSE OF COMPUTING BOOK PR OFIT UNDER SECTION 115JB. BEING AGGRIEVED, ASSESSEE IS I N FURTHER APPEAL BEFORE THE TRIBUNAL. 49. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT THE TRIBUNAL IN THE APPEAL FILED FOR ASSESSMENT YEARS 200001 AND 200102, ON SIMILAR ISSUE, DECIDED THE SAME IN FAVOUR OF THE ASSESSEE BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW BY FOLLOWING THE DECISION OF ITAT MUMBAI SPECIAL BENCH IN DCIT V/S S YNCOM FORMULATIONS (I) LTD. & ORS., 292 (AT) 144 (MUM.), VIDE PARA65 TO 68. HE FURTHER SUBMITTED THAT THE SIMILAR ISSUE HAS ALSO COME UP BEFORE THE HON'BLE SUPREME COURT IN CIT V/S BHARI INFORMATION TECH. SYS. P. LTD., [2012 ] 340 ITR 593 (SC), AND THE HON'BLE SUPREME COURT BY ITS JUDGMENT DATED 20 TH OCTOBER 2011, WHILE CONFIRMING THE ORDER OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN SYNCOM FORMULATIONS (I) LTD. (SUPRA), HELD THAT THE DEDUCT ION CLAIMED BY THE ASSESSEE UNDER SECTION 80HHC HAS TO BE WORKED OUT O N THE BASIS OF ADJUSTED BOOK PROFIT UNDER SECTION 115JA AND NOT ON THE BASI S OF THE PROFITS COMPUTED UNDER THE REGULAR PROVISIONS OF LAW APPLICABLE TO C OMPUTATION OF PROFITS AND GAINS OF BUSINESS. HE SUBMITTED THAT THE HON'BLE SU PREME COURT ALSO STATED THAT THE DECISION OF MUMBAI SPECIAL BENCH OF THE TR IBUNAL WAS WITH REGARD TO COMPUTATION OF DEDUCTION UNDER SECTION 80HHC, BUT 8 0HHC / 80HHE FALLS UNDER CHAPTERVI OF THE ACT. THE LEARNED COUNSEL SU BMITTED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGME NT OF HON'BLE SUPREME COURT IN BHARI INFORMATION TECH. SYS. P. LTD., (SUP RA). 50. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTAT IVE HAS NOT DISPUTED THE ABOVE SUBMISSIONS OF THE LEARNED COUNS EL FOR THE ASSESSEE AND CONCEDED THAT THE ISSUE IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF ITAT MUMBAI SPECIAL IN SYNCOM FORMULATI ONS (I) LTD. (SUPRA) AS WELL AS BY THE JUDGMENT OF HON'BLE SUPREME COURT IN BHARI INFORMATION TECH. SYS. P. LTD., (SUPRA). 51. IN VIEW OF ABOVE FACT THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE SUPREME COURT I N BHARI INFORMATION INDIAN PETROCHEMICALS CORP. LTD. 28 TECH. SYS. P. LTD., (SUPRA), WHEREIN IT WAS HELD TH AT DEDUCTION UNDER SECTION 80HHE OF THE ACT IN THE CASE OF EXPORT OF COMPUTER SOFTWARE IS REQUIRED TO BE WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROFITS UN DER SECTION 115JA AND NOT ON THE BASIS OF PROFIT COMPUTED UNDER REGULAR P ROVISIONS OF LAW APPLICABLE TO THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS . THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT IN THE ABOVE CASE APPROVED TH E DECISION OF ITAT MUMBAI SPECIAL BENCH IN SYNCOM FORMULATIONS (I) LTD . (SUPRA) AND STATED THAT SECTION 80HHC AS WELL AS SECTION 80HHE FALLS I N THE SAME CHAPTER I.E., CHAPTERVI. THE PROVISIONS UNDER SECTION 115JA ARE ALSO IN PARI MATERIAL WITH THE PROVISIONS OF SECTION 115JB OF THE ACT. CONSEQU ENTLY, WE ALLOW GROUND NO.6, RAISED BY THE ASSESSEE BY REVERSING THE ORDER S OF THE AUTHORITIES BELOW. 52. WE NOW TAKE UP REVENUES APPEAL BEING ITA NO.744/AH D./2008, FOR ASSESSMENT YEAR 200304. 53. IN GROUND NO.1, THE DEPARTMENT HAS DISPUTED THE ORD ER OF THE COMMISSIONER (APPEALS) IN ALLOWING DEDUCTION OF ` 15,59,750, CLAIMED AS LEASE RENTAL. 54. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE CLAIMED DEDUCTION FOR LEASE RENT OF ` 22,43,936, IN RESPECT OF BOILERS TAKEN ON LEASE FR OM ICICI LTD. / ICICI SECURITIES AND FINANCE LTD. (ISEC) DU RING THE FINANCIAL YEARS 199394 AND 199495. THE ASSESSING OFFICER DISALLOW ED THE CLAIM OF THE ASSESSEE BY FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 199495 AND 199899 AND CONSIDERING THAT THE SAID PAYMENT COMPRISING OF REPAYMENT OF PRINCIPAL AMOUNT, INTEREST AND SALES TAX THEREON. THE ASSESSI NG OFFICER ALLOWED ` 5,94,856, BEING INTEREST AND SALES TAX OF ` 89,330, AND DISALLOWED THE BALANCE AMOUNT OF ` 15,59,750, BY CONSIDERING IT TO BE THE REPAYMENT OF PRINCIPAL AMOUNT OF THE ASSETS. 55. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS), BY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEARS 199596 AND 199697 AND HIS OWN ORDER FOR SUBSEQUENT ASSESS MENT YEARS, DECIDED INDIAN PETROCHEMICALS CORP. LTD. 29 THE ISSUE IN FAVOUR OF THE ASSESSEE BY CANCELING TH E DISALLOWANCE OF ` 15,59,750. HENCE, THE DEPARTMENT IS IN APPEAL BEFOR E THE TRIBUNAL. 56. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE, AT THE TIME OF HEARING, RELIED ON THE ORDER OF THE ASSESSING OFFIC ER. 57. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE SAME VERY ISSUE WAS NOT ONLY DECIDED BY TH E TRIBUNAL IN FAVOUR OF THE ASSESSEE BUT THE ORDER OF THE TRIBUNAL WAS ALSO CONFIRMED BY THE HONBLE GUJARAT HIGH COURT IN THE APPEAL FILED BY THE DEPAR TMENT AGAINST THE ORDER OF THE TRIBUNAL PASSED FOR ASSESSMENT YEARS 199596 AN D 199697. THE LEARNED COUNSEL REFERRED TO PAGES95 TO 100 OF THE PAPER BOOK WHICH IS A COPY OF ORDER DATED 21 ST SEPTEMBER 2010, PASSED BY THE HONBLE GUJARAT HIGH COURT CONFIRMING THE ORDER OF THE TRIBUNAL TO ALLOW LEASE RENT IN RESPECT OF BOILER TAKEN ON LEASE BY THE ASSESSEE FOR ASSESS MENT YEAR 199596. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE SAME VER Y ISSUE WAS ALSO CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR ASSESSMENT YEARS 200001, 200102 AND 200203, BY A COMMON ORDER DAT ED 30 TH APRIL 2008, TO ALLOW THE LEASE RENT PAID BY THE ASSESSEE TO ICI CI LTD. AND ICICI SECURITIES AND FINANCE CORPORATION LTD., IN RESPECT OF BOILER. 58. WE HAVE CONSIDERED THE ORDERS OF THE AUTHORITIES BE LOW AND EARLIER YEARS ORDER OF THE TRIBUNAL IN ASSESSEES CASE (CIT ED SUPRA) AND ALSO THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE APPEA LS FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE TRIBUNAL FOR AS SESSMENT YEAR 199596 AND 199697, COPIES PLACED AT PAGES95 TO 100 AND 1 01 TO 105 OF THE PAPER BOOK. WE OBSERVE THAT THE LEASE RENT PAID BY THE AS SESSEE ON THE BOILER HAS BEEN ALLOWED IN THE PRECEDING ASSESSMENT YEARS. RES PECTFULLY FOLLOWING THE EARLIER ORDERS OF THE TRIBUNAL AND AS CONFIRMED BY THE HONBLE GUJARAT HIGH COURT (CITED SUPRA), WE UPHOLD THE ORDER OF THE COM MISSIONER (APPEALS) AND DISMISS GROUND NO.1, RAISED BY THE REVENUE. INDIAN PETROCHEMICALS CORP. LTD. 30 59. IN GROUND NO.2, THE DEPARTMENT HAS DISPUTED THE ORD ER OF THE COMMISSIONER (APPEALS) IN DELETING THE DISALLOWANCE OF ` 40,25,388, MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(9) OF TH E ACT. 60. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE MADE CONTRIBUTION OF ` 40,25,388, TO VARIOUS CLUBS RUN BY AND MEANT FOR T HE STAFF AND THEIR FAMILIES AT VADODARA, NAGA CHANNA AND OTHER STATION S. THE ASSESSING OFFICER STATED THAT THIS CONTRIBUTION HAS BEEN CATEGORISED UNDER THE HEAD SUMS PAID BY THE ASSESSEE AS AN EMPLOYER WHICH ARE NOT ALLOWA BLE UNDER SECTION 40A(9) OF THE ACT. THE ASSESSING OFFICER DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE THAT THE SAID EXPENDITURE WAS INCURRED TO FACILITATE MANAGEMENT OF VARIOUS ACTIVITIES OF EMPLOYEES AND THEIR FAMILY PU RPOSE COVERING POPULATION OF DIFFERENT TYPES AT THE PLANTS. THE ASSESSING OFF ICER STATED THAT THE PROVISIONS OF SECTION 40A(9) ARE VERY CLEAR THAT AN Y CONTRIBUTION TO EMPLOYEES ANY FUND, TRUST, COMPANY OR SOCIETY, ETC ., OTHER THAN FOR THE PURPOSES AS PROVIDED UNDER SECTION 36(1) OF THE ACT ARE NOT ELIGIBLE FOR DEDUCTION AS BUSINESS EXPENDITURE. THEREFORE, HE DI SALLOWED THE CLAIM OF THE ASSESSEE. 61. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS), BY FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 200203, DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE AND ALLOWED THE CLAIM. HENCE, THE DEPARTME NT IS IN APPEAL BEFORE THE TRIBUNAL. 62. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE, AT THE TIME OF HEARING, RELIED ON THE ORDER OF THE ASSESSING OFFIC ER. 63. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE SAME VERY ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 200001, 200102 AND 200203 BY ITS ORDER DATED 30 TH APRIL 2008 (SUPRA), VIDE PARAS30 TO 32 OF THE SAI D ORDER. HE FURTHER SUBMITTED THAT THE FACTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION INDIAN PETROCHEMICALS CORP. LTD. 31 ARE IDENTICAL TO THE EARLIER ASSESSMENT YEARS WHICH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED. 64. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LEARNED REP RESENTATIVES OF THE PARTIES AND AFTER CONSIDERING THE EARLIER ORDER DAT ED 30 TH APRIL 2008, OF THE TRIBUNAL, WE AGREE THAT THE ISSUE ON IDENTICAL FACT IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER DECISION OF THE TRIBUNAL (C ITED SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER PASSED BY T HE COMMISSIONER (APPEALS) AND DISMISS THE GROUND NO.2, RAISED BY TH E DEPARTMENT. 65. IN GROUND NO.3, THE DEPARTMENT HAS DISPUTED THE ORD ER OF THE COMMISSIONER (APPEALS) IN DELETING THE DISALLOWANCE OF ` 2,66,000, ON ACCOUNT OF PRIOR PERIOD EXPENDITURE. 66. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE CLAIMED PAYMENT IN RESPECT OF TWO INVOICES REPRESENTING STORAGE CHARGE S FOR THE PERIOD OF NOVEMBER / DECEMBER 2001, FOR TANKS USED FOR STORAG E OF IMPORTED FEED STOCK AT KANDLA PAID TO M/S. CHEMICALS AND RESINS P VT. LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE STAT ED THAT THE DETAILS REQUIRED VERIFICATION FROM THEIR SITE ENGINEER AND SUCH VERIFICATION WAS COMPLETED IN THE CURRENT YEAR AND THE PAYMENT WAS A PPROVED ACCORDINGLY. IT WAS STATED THAT THE LIABILITY TO MAKE THE SAID PAYM ENT GOT CRYSTALLISED IN THE CURRENT YEAR. HENCE, THE EXPENDITURE IS ALLOWABLE U NDER SECTION 37(1) OF THE ACT AS IT WAS INCURRED IN THIS YEAR. THE ASSESSING OFFICER DID NOT AGREE AND STATED THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE RELATES TO EARLIER FINANCIAL YEAR. HENC E, HE DISALLOWED THE PRIOR PERIOD EXPENSES OF ` 2.66 LACS AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 67. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BE FORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) ALLOWED THE CLAIM STATING THAT SIMILAR DISALLOWANCE MADE IN THE EARLI ER ASSESSMENT YEARS 2000 01 AND 200102, WERE ALLOWED. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. INDIAN PETROCHEMICALS CORP. LTD. 32 68. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND WHEREAS THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE ON IDENTICAL FACTS CAM E BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 200102 AND THE TRIBUNAL, BY ITS OR DER DATED 30 TH APRIL 2008, ALLOWED THE CLAIM OF THE ASSESSEE. THE LEARNE D DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THIS FACT. 69. CONSIDERING THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES, WE OBSE RVE THAT SIMILAR ISSUE ON IDENTICAL FACTS CAME BEFORE THE TRIBUNAL IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 200102 AND THE TRIBUNAL ALLOWED TH E CLAIM OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER (APPEA LS). MOREOVER, THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THE LIABI LITY TO MAKE SAID PAYMENT ALSO CRYSTALLISED IN THE ASSESSMENT YEAR UNDER CONS IDERATION. CONSEQUENTLY, WE UPHOLD THE ORDER OF THE COMMISSIONER (APPEALS) B Y DISMISSING THE GROUND NO.3, RAISED BY THE DEPARTMENT. 70. GROUND NO.4, RAISED BY THE REVENUE, READS AS FOLLOW S: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADJUSTMENT FOR PROVISION OF BAD AND DOUBTFUL DEBTS AMOUNTING TO ` 16,82,43,673 MADE UNDER CLAUSE (C) OF THE EXPLANATION BELOW SECTION 115JB(2 ) IN COMPUTING THE BOOK PROFIT UNDER THIS PROVISION, BY IGNORING THE F ACT THAT IT WAS A LIABILITY TAGGED WITH THE ASSETS IN THE FORM OF DEB TS, AND WITHOUT APPRECIATING THAT THE SUPREME COURT DECISION IN THE CASE OF APOLLO TYRES LTD. V/S CIT, 255 ITR 273 (SC) ONLY RULED THA T THE ASSESSING OFFICER HAD NO AUTHORITY TO ALTER THE BOOK PROFIT E XCEPT AS PROVIDED IN THE EXPLANATION. 71. BEFORE US, AT TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE CONCEDED THAT IN VIEW OF THE AMENDMENT MADE BY THE FINANCE (NO.2) ACT, 2009, BY INSERTING CLAUSE (I) TO EXPLANATION (1) OF SECTION 115JB(2) OF THE ACT, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2001, THE PROVISIONS MADE FOR BAD AND DOUBTFUL DEBT IS TO BE DISALLOWED AND, THER EFORE, THE ORDER OF THE INDIAN PETROCHEMICALS CORP. LTD. 33 ASSESSING OFFICER IS TO BE CONFIRMED BY REVERSING T HE ORDER OF THE COMMISSIONER (APPEALS). 72. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LEARNED COU NSEL FOR THE ASSESSEE, WE ALLOW GROUND NO.4, RAISED BY THE REVEN UE BY CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. CONSEQU ENTLY, THE GROUND NO.4, RAISED BY THE REVENUE IS ALLOWED. 73. WE NOW TAKE UP ASSESSEES APPEAL BEING ITA NO.665/A HD./2008, FOR ASSESSMENT YEAR 200405. 74. IN GROUND NO.1, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN NOT TREATING THE SALES TA X INCENTIVE OF ` 50,32,63,379, AS CAPITAL RECEIPT. 75. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTED THAT THE FACTS AND THE ISSUE ARE IDENTICA L TO ASSESSMENT YEAR 200304 AND, WHATEVER DECISION IS TAKEN IN RESPECT OF THAT ASSESSMENT YEAR I.E., 200304, THE SAME WILL BE APPLICABLE FOR THIS ASSESSMENT YEAR AS WELL. 76. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE AGREE THAT THE FACTS AND ISSUE IN THIS ASSESSMENT YEAR VIZ. 20040 5 ARE IDENTICAL TO ASSESSMENT YEAR 200304. WE ALSO OBSERVE THAT THE C OMMISSIONER (APPEALS), WHILE CONFIRMING THE ACTION OF THE ASSES SING OFFICER, FOLLOWED ORDERS FOR ASSESSMENT YEARS 200102 AND 200203. WE HAVE DISCUSSED THE SAID ISSUE IN PARAS4 TO 7, HEREIN ABOVE AND FOLLOW ING OUR FINDINGS GIVEN IN PARA8, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESS EE BY ALLOWING THE ASSESSEES GROUND OF APPEAL. HENCE, GROUND NO.1, RA ISED BY THE ASSESSEE IS ALLOWED. 77. IN GROUND NO.2, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN CONFIRMING THE DISALLOWAN CE OF EXPENDITURE BY WAY OF CONTRIBUTION OF ` 1,03,20,654, MADE BY THE ASSESSEE TO VARIOUS ORGANISATIONS. INDIAN PETROCHEMICALS CORP. LTD. 34 78. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTED THAT THE FACTS AND ISSUE ARE IDENTICAL TO ASSESSMENT YEAR 200304 AND, THEREFORE, WHATEVER DECISION IS TAKEN IN RESPE CT OF THAT ASSESSMENT YEAR I.E., 200304, THE SAME WILL BE APPLICABLE FOR THIS ASSESSMENT YEAR AS WELL. 79. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE AGREE THAT THE FACTS AND THE ISSUE IN THIS ASSESSMENT YEAR VIZ. 20 0405 ARE IDENTICAL TO ASSESSMENT YEAR 200304. WE ALSO OBSERVE THAT THE C OMMISSIONER (APPEALS), WHILE CONFIRMING THE ACTION OF THE ASSES SING OFFICER, FOLLOWED THE ORDERS FOR ASSESSMENT YEAR 200102 AND 200203. WE HAVE DISCUSSED THE SAID ISSUE IN PARAS10 TO 13, HEREIN ABOVE AND FOLL OWING OUR FINDINGS GIVEN IN PARAS14 AND 15, WE DECIDE THE ISSUE IN FAVOUR OF T HE ASSESSEE BY ALLOWING THE ASSESSEES GROUND OF APPEAL. HENCE, GROUND NO.2 , RAISED BY THE ASSESSEE IS ALLOWED. 80. IN GROUND NO.3, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN CONFIRMING THE DISALLOWAN CE OF DEPRECIATION OF ` 1,92,95,000, IN RESPECT OF JETTIES CONSTRUCTED BY T HE ASSESSEE AND USED FOR THE PURPOSE OF ITS BUSINESS. 81. THE RELEVANT FACTS, GIVING RISE TO THIS GROUND OF A PPEAL, ARE THAT THE ASSESSEE COMPANY CONSTRUCTED JETTY FOR AND ON BEHAL F OF GUJARAT MARITIME BOARD (FOR SHORT GMB ), AS PER AGREEMENT ENTERED INTO WITH GMB DATED 26 TH FEBRUARY 1996, DELINEATING THE TERMS OF ITS USE AT NARMADA ESTUARY AT VILLAGE DAHEJ. IT IS RELEVANT TO STATE THAT AS PER THE RECITALS OF THE SAID AGREEMENT, IT WAS AGREED BETWEEN THE PARTIES THAT T HE CAPITAL COST OF CONSTRUCTION AS AUDITED AND CERTIFIED BY A C.A., WO ULD BE MADE BY THE ASSESSEE COMPANY WITH EXCLUSIVE OWNERSHIP THEREOF B EING VESTED IN GMB. IN TURN, THE ASSESSEE WAS AFFORDED THE FACILITY FOR PR EFERENTIAL USE OF JETTY OVER OTHER USERS. HOWEVER, THIS DID NOT EXEMPT THE ASSES SEE FROM PAYMENT OF REGULAR CHARGES AS REDUCED BY THE REBATES AS STIPUL ATED IN THE SAID AGREEMENT. AS PER THE SAID AGREEMENT, THE ASSESSEE WAS REQUIRED TO PAY LANDING AND SHIPPING FEES / PORT CHARGES @ 20% OF T HE ACTUAL LANDING AND SHIPPING FEE / PORT CHARGES SPECIFIED IN THE SCHEDU LE OF PORT CHARGES. THE INDIAN PETROCHEMICALS CORP. LTD. 35 BALANCE 80% AS REBATE WAS REQUIRED TO BE SETOFF AG AINST THE CAPITAL INVESTMENT I.E., THE COST OF THE CONSTRUCTION OF TH E JETTY. IT IS ALSO PROVIDED IN THE AGREEMENT THAT AFTER THE CAPITAL INVESTMENT WAS RECOVERED THROUGH SUCH SETOFF, THE ASSESSEE WAS REQUIRED TO PAY LANDING A ND SHIPPING FEES / PORT CHARGES AT NORMAL RATE. THE ASSESSING OFFICER STATE D THAT THE ASSESSEE COMPANY WAS COMPENSATED FOR INCURRING THE CAPITAL C OST OF CONSTRUCTION BY VIRTUE OF REGULAR REBATE ON CHARGES. THE ASSESSEE C OMPANY TREATED THE CAPITAL COST OF THE INVESTMENT AS THE VALUE OF CAPI TAL ASSET AND CLAIMED DEPRECIATION @ 25% OF SUCH CAPITAL COST. THE TOTAL COST OF CONSTRUCTION WAS ` 49.56 CRORES, AND THE ASSESSEE WAS CLAIMING DEPRECI ATION @ 25% EVERY YEAR DESPITE THE CAPITAL COST BEING LIQUIDATED BY THE RE BATES RECEIVED BY THE ASSESSEE FROM GMB FROM TIME TO TIME. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE AND ADDED TO T HE TOTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY. 82. ON BEHALF OF THE ASSESSEE, IT WAS ARGUED THAT AS PE R AGREEMENT WITH GMB, OWNERSHIP OF JETTY WOULD ALWAYS REMAIN WITH GM B. THE BENEFIT TO THE ASSESSEE ON ACCOUNT OF CONSTRUCTION OF JETTY WAS TH E LICENSE TO USE JETTY FOR THE PURPOSE OF ITS BUSINESS AND TO GET CONCESSION I N THE PAYMENT OF LANDING AND SHIPPING FEES / PORT CHARGES. IN SUCH CIRCUMSTA NCES, ACTUALLY THE ASSESSEE WOULD HAVE BEEN ENTITLED TO CLAIM THE WHOL E OF THE COST OF JETTY AS A REVENUE DEDUCTION IN THE YEAR IN WHICH SUCH JETTY WAS CONSTRUCTED. FURTHER, IT WAS CONTENDED THAT ASSESSEE HAD BEEN CL AIMING DEPRECIATION FROM ASSESSMENT YEAR 199798 ONWARDS AT THE RATE APPLICA BLE TO PLANT AND MACHINERY, WHICH HAS BEEN ALLOWED TILL ASSESSMENT Y EAR 200304. IT WAS CONTENDED THAT THE REBATE AVAILABLE TO THE ASSESSEE AS PER THE AGREEMENT ON ACCOUNT OF HAVING MET THE COST OF CONSTRUCTION OF T HE JETTY, IS ONLY REVENUE REBATE. SUCH REBATE IS AVAILABLE ON THE BASIS OF US AGE OF THE PORT AND VARIES FROM YEAR TO YEAR AND IT HAS NOT, IN ANY WAY, REDUC ED THE ACTUAL COST SPENT BY THE ASSESSEE FOR THE CONSTRUCTION OF JETTY DURIN G THE YEAR 1996. IT WAS CONTENDED THAT TOTAL REBATE UP TO ASSESSMENT YEAR 2 00304 AVAILABLE HAS BEEN AT ` 1467.21 LAKHS, AND SUCH REBATE HAS ALREADY BEEN OF FERED AS INDIAN PETROCHEMICALS CORP. LTD. 36 REVENUE INCOME DUE TO REDUCTION IN REVENUE EXPENDIT URE CLAIMED. THEREFORE, THERE IS NO JUSTIFICATION FOR TREATING SUCH REBATE AS A COST HAVING BEEN MADE FOR THE CONSTRUCTION OF JETTY. 83. THE COMMISSIONER (APPEALS) CONSIDERED THE SUBMISSIO NS. HE HAS STATED THAT JETTY REBATE IS MADE AVAILABLE BY GMB N OT GRATIS BUT ONLY BECAUSE THE ASSESSEE HAS MET THE COST OF CONSTRUCTI ON OF THE JETTY. THE JETTY REBATE SHOULD GO TO REDUCE THE COST OF THE CONSTRUC TION OF THE JETTY ON WHICH ASSESSEE IS CLAIMING DEPRECIATION OVER ALL THESE YE ARS. HE HAS STATED THAT THE FACT THAT THE REBATE WILL BE AVAILABLE TO THE ASSES SEE ONLY TILL SUCH TIME AS IT AGGREGATES TO BE EQUAL TO THE COST OF CONSTRUCTION OF THE JETTY, STRENGTHENED THE ARGUMENT AND LENDS FURTHER CREDENCE TO THE ASSE SSING OFFICERS VIEW. HE HAS STATED THAT THE ASSESSEE CANNOT TAKE THE ARGUME NT ON ONE HAND THAT THE JETTY DOES NOT BELONG TO IT AND BELONGS TO GMB WHIL E IT CAPITALIZED THE COST OF CONSTRUCTION OF THE JETTY IN ITS BOOKS OF ACCOUNT A ND CONTINUED TO CLAIM DEPRECIATION ON THE SAME FROM YEAR TO YEAR. IN VIEW OF THE ABOVE, THE COMMISSIONER (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER TO DISALLOW DEPRECIATION CLAIMED BY THE ASSESSEE. HENC E, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 84. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED BEFORE US THAT WHEN THE REBATE WAS ALLOWE D TO THE ASSESSEE BY GMB, IT ONLY ENHANCED THE PROFIT AND, ACCORDINGLY, THE ASSESSEE HAS OFFERED MORE INCOME TO TAX. HE FURTHER SUBMITTED THAT THE D EPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE SINCE ASSESSMENT YEAR 1997 98 ONWARDS AND THE SAME HAS BEEN ALLOWED AND IT IS ONLY IN THE ASSESSM ENT YEAR UNDER CONSIDERATION I.E., ASSESSMENT YEAR 200405, IT IS DISALLOWED. THE LEARNED COUNSEL SUBMITTED THAT SIMILAR ISSUE HAS BEEN CONSI DERED BY THE ITAT, MUMBAI D BENCH, IN THE CASE OF SISTER CONCERN OF THE ASSESSEE BEING ITA NO.1743 TO 1745/MUM./2007, FOR ASSESSMENT YEARS 200 001 TO 200203, IN THE CASE OF RELIANCE PORTS & TERMINALS LTD. V/S DCI T, BY ORDER DATED 26 TH NOVEMBER 2007, AND THE TRIBUNAL ALLOWED THE CLAIM F OR DEPRECIATION ON THE INDIAN PETROCHEMICALS CORP. LTD. 37 COST OF CONSTRUCTION OF JETTIES BY TREATING THE SAI D EXPENDITURE AS PART OF THE BLOCK OF INTANGIBLE ASSET AND FILED A COPY OF SAID ORDER OF THE TRIBUNAL. 85. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 86. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF TH E AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE ORDER OF THE TRIBUNAL DATE D 26 TH NOVEMBER 2007 (SUPRA). 87. WE OBSERVE THAT ON IDENTICAL FACTS, THE TRIBUNAL CO NSIDERED SIMILAR ISSUE IN THE CASE OF RELIANCE PORTS AND TERMINALS L TD., AND ALLOWED THE CLAIM FOR DEPRECIATION ON THE COST INCURRED BY THE ASSESS EE ON CONSTRUCTION OF JETTIES AT SIKKA PORT, GUJARAT, FOR GMB. IN THE SAI D CASE, THE ASSESSEE CONSTRUCTED JETTIES AT SIKKA PORT, GUJARAT OF GMB P RIMARILY TO SERVE IMPORTS OF GROUP COMPANIES AT THE PORT. AS PER THE AGREEMEN T ENTERED INTO, THE ASSESSEE WAS ENTITLED TO CONCESSION IN WHARFAGE CHA RGES I.E., LAND / SHIPPING FEE ON USE OF JETTY, WHICH WAS TO BE SETOFF AGAINS T CAPITAL INVESTMENT MADE BY THE ASSESSEE. THE ASSESSEE TREATED THIS RIGHT TO USE THE JETTY AS AN INTANGIBLE ASSET AND CLAIMED DEPRECIATION ON THE CO ST INCURRED @ 25%. THE ASSESSING OFFICER STATED THAT THE ASSESSEE WAS NOT ENTITLED TO DEPRECIATION ON THE COST OF CONSTRUCTION OF JETTY AS THE ENTIRE COS T BEING REIMBURSED BY GMB BY WAY OF REBATE ON THE WHARFAGE CHARGES WHICH OTHE RWISE THE ASSESSEE WAS LIABLE TO PAY IN FULL. FURTHER, THE RIGHT TO USE TH E JETTY WAS NOT IN THE NATURE OF ANY BUSINESS OR COMMERCIAL RIGHT SIMILAR TO NORM ALLY ACCEPTED INTANGIBLE ASSET SUCH AS KNOWHOW, PATENTS, COPY RIGHTS, TRADE MARKES, LICENSE, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS IN SIMILAR NATURE. THAT ENTIRE INVESTMENT IN THE JETTY WAS QUANTIFIABLE AND THE RETURN FROM THE INVESTMENT WAS SPECIFIED BASED ON WHICH THE REBATE ON WHARFAGE CHARGES WAS DETERMINED. IT IS RELEVANT TO STATE THAT IN THE SAID CASE, AS PER THE AGREEMENT, THE OWNERSHIP OF THE JETTY WAS TO BE WIT H GMB ALTHOUGH, THE COST OF BUILDING AND JETTY WAS MADE BY THE ASSESSEE. IN THE SAID CASE ALSO, THE ASSESSEE WAS REQUIRED TO PAY LANDING AND SHIPPING F EES (KNOWN AS WHARFAGE INDIAN PETROCHEMICALS CORP. LTD. 38 CHARGES) @ 20% OF THE ACTUAL LANDING AND SHIPPING F EES SPECIFIED IN THE SCHEDULE OF PORT CHARGES. THE BALANCE 80% WAS REQUI RED TO BE SETOFF AGAINST THE CAPITAL INVESTMENT I.E., THE COST OF TH E CONSTRUCTION OF JETTIES. AFTER THE CAPITAL INVESTMENT WAS RECOVERED THROUGH SUCH SETOFF, THE ASSESSEE WAS REQUIRED TO PAY LANDING AND SHIPPING F EES AT NORMAL RATE. THE AGREEMENT WAS TO REMAIN IN FORCE FOR A PERIOD OF 25 YEARS OR TILL SUCH TIME SUCH AGGREGATE OF THE REBATE OBTAINED BY THE ASSESS EE IN WHARFAGE CHARGES EQUALED THE AMOUNT OF CONSTRUCTION OF THE JETTIES, WHICHEVER IS EARLIER. THE ASSESSEE SPENT ` 14,25,63,02,471, AND TREATED THE SAME AS INTANGIBL E ASSET UNDER SECTION 32(1) OF THE ACT ON THE REASONING THA T IT WAS LICENSE AND ALSO REPRESENT BUSINESS AND COMMERCIAL RIGHT ON WHICH TH E ASSESSEE CLAIMED DEPRECIATION @ 25%. THE ASSESSING OFFICER DID NOT A GREE WITH THE ASSESSEE AND DISALLOWED THE CLAIM. THE FIRST APPELLATE AUTHO RITY ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. FURTHER, THE COMMI SSIONER (APPEALS) HELD THAT THE EXPENDITURE TO BE ALLOWED PROPORTIONATELY OVER A PERIOD OF 25 YEARS. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE TRIBUNAL. THE TRIBUNAL, AFTER CONSIDERING THE SUBMISSIONS OF THE REPRESENTA TIVES OF THE PARTIES, HELD THAT BY VIRTUE OF THE TERMS OF AGREEMENT, THE ASSES SEE ONLY ACQUIRED THE COMMERCIAL RIGHT OR LICENSE AND THEY ARE REALLY AN INTANGIBLE ASSET WITHIN THE MEANING OF SECTION 32(1) OF THE ACT. THEREAFTER, TH E TRIBUNAL, VIDE PARA32, OF THE SAID ORDER, HELD THAT THE ASSESSEE IS ENTITL ED FOR THE DEPRECIATION BY TREATING THE EXPENDITURE AS PART OF BLOCK OF INTANG IBLE ASSET. THE RELEVANT PARA32 OF THE SAID ORDER, READS AS FOLLOWS: 32. THE QUESTION IS WHETHER THE PRESENT EXPENSES IN CURRED BY THE ASSESSEE CAN BE SAID SATISFY THE TESTS OF BEING LIC ENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS BEING INTAN GIBLE ASSETS WITHIN THE MEANING OF THE AFORESAID PROVISIONS. IN OUR VIE W, THE TRIBUNAL IN THE EARLIER YEAR HAS ALREADY CONCLUDED THAT THIS EX PENDITURE IS QUESTION IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE TERMS OF THE AGREEMENT WHICH ARE EXTRACTED HEREINAB OVE CLEARLY SHOWS THAT THE ASSESSEE HAS ACQUIRED SOME BUSINESS OR COM MERCIAL RIGHT BY INCURRING THIS EXPENDITURE. THIS EXPENDITURE HAS NO T RESULTED IN THE ACQUISITION OF ANY TANGIBLE ASSET LIKE BUILDING, MA CHINERY, PLANT OR FURNITURE. ANY OTHER EXPENDITURE WHICH DID NOT RESU LT IN THE ACQUISITION OF THESE INTANGIBLE ASSETS CAN ONLY BE TREATED AS I NTANGIBLE ASSETS. IN OUR VIEW, SUBSTANTIAL EXPENDITURE INCURRED BY THE A SSESSEE IS FOR CERTAIN COMMERCIAL CONSIDERATIONS AND BUSINESS INTE REST HAS RESULTED IN INDIAN PETROCHEMICALS CORP. LTD. 39 BUSINESS ADVANTAGE TO THE ASSESSEE IN THE FORM OF P RIORITY USER OF THE INFRASTRUCTURE FACILITY THAT WAS BADLY NEEDED BY TH E ASSESSEE AND ITS ASSOCIATES CONCERNS. THE ASSESSEE WOULD HAVE BEEN F ORCED TO INCURRED EXTRA EXPENDITURE IF THIS EXPENDITURE WERE NOT INCU RRED BY THE ASSESSEE. AFTER ALL THE BUSINESSMAN DOES NOT INCUR ANY EXPENDITURE UNLESS IT GIVES SOME BUSINESS ADVANTAGE AND THE HUG E EXPENDITURE INCURRED BY THE ASSESSEE IS ONLY TO GET SUCH BUSINE SS ADVANTAGE LIKE PRIORITY USER BY THE ASSESSEE COMPANY AND RIGHT TO CLAIM REBATE ON THE WHARFAGE CHARGES PAYABLE OR TO GUARD AGAINST THE PO SSIBLE INCREASE IN THE WHARFAGE CHARGES THAT MAY BE NECESSITATED BY EF FLUX OF TIME OR ECONOMIC INFLATION. ALL POINTS ARE CONSIDERED TOGET HER, IN OUR VIEW, THE EXPENDITURE IN QUESTION GIVE RISE TO ACQUISITION OF LICENCE OR OTHER BUSINESS OR COMMERCIAL RIGHT WHICH ARE REALLY IN TH E NATURE OF INTANGIBLE ASSET AND ARE FULLY COVERED WITHIN THE M EANING OF SECTION 32(1) OF THE ACT. IN THE LIGHT OF THE ABOVE DISCUSS ION, THE CONTENTION OF THE ASSESSEE THAT THE SAID EXPENDITURE IS TO BE TRE ATED AS AN INTANGIBLE ASSET, AND THEREFORE, THE ASSETS ARE ENTITLED FOR A PPROPRIATE DEPRECIATION BY TREATING THE SAID EXPENDITURE AS PA RT OF THE BLOCK OF INTANGIBLE ASSET IS FAIR, REASONABLE AND IN ACCORDA NCE WITH THE AMENDMENT PROVISIONS OF LAW IN THIS REGARD. 88. WE OBSERVE THAT THE TERMS OF AGREEMENT OF THE ASSES SEE BEFORE US ARE SIMILAR TO THE TERMS OF AGREEMENT WHICH WAS CONSIDE RED IN THE CASE OF RELIANCE PORTS & TERMINALS LTD. (SUPRA) AND ENTERED INTO WITH GMB. THE BENEFIT WHICH THE ASSESSEE BEFORE US IS ENTITLED TO GET ON ACCOUNT OF CONSTRUCTION OF JETTY ARE SIMILAR TO THE CASE CONSI DERED BY THE TRIBUNAL, VIDE ITS ORDER DATED 26 TH NOVEMBER 2007 (SUPRA). THE LEARNED DEPARTMENTAL REPRESENTATIVE, DURING THE COURSE OF HIS SUBMISSION S, HAS NOT POINTED OUT ANY DISTINGUISHED FACTS IN THE CASE BEFORE US VIZA VIZ IN THE ABOVE CASE OF RELIANCE PORTS AND TERMINALS LTD. (SUPRA). WE OBSER VE THAT THE DECISION IN ABOVE CASE SQUARELY APPLY TO THE FACTS OF THE CASE BEFORE US. THEREFORE, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRI BUNAL DATED 26 TH NOVEMBER 2007 (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION AT THE RATE AS APPLICABLE ON THE COST INCURRED FOR CONSTRU CTION OF JETTY AT DAHEJ. HENCE, WE ALLOW GROUND NO.3, OF THE APPEAL FILED BY THE ASSESSEE BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW. 89. IN GROUND NO.4, THE ASSESSEE HAS DISPUTED THE ORDER OF THE COMMISSIONER (APPEALS) IN CONFIRMING THE ADDITION O F ` 91,29,312, ON ACCOUNT OF UNAVAILED CENVAT CREDIT UNDER SECTION 14 5A OF THE ACT. INDIAN PETROCHEMICALS CORP. LTD. 40 90. THE ASSESSING OFFICER HAS STATED THAT THE ACCOUNT O F THE ASSESSEE COMPANY IN ANNEXURE TO CLAUSE 12 OF THE TAX AUDIT R EPORT REFLECTED UNUTILISED CENVAT CREDIT AMOUNTING TO ` 91,29,312. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT SHOULD NOT BE ADDED IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE ACT. THE ASSESSEE FILED ITS REPLY, STATING THAT THE AFORESAID ITEM HAS BEEN SHOWN UNDER THE HE AD OF LOAN AND ADVANCE IN THE PRINTED BALANCE SHEET AND THE SAME HAS NOT B EEN CLAIMED AS REVENUE DEDUCTION. THEREFORE, NO DISALLOWANCE IS CALLED FOR . THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESSEE AND STATED THAT THE POS ITION IN LAW HAS UNDERGONE A SUBSTANTIAL CHANGE WITH THE INTRODUCTIO N OF SECTION 145A. THE ASSESSING OFFICER ALSO REJECTED THE CONTENTIONS OF THE ASSESSEE THAT IF VALUE OF CLOSING STOCK IS INCREASED THEN THE VALUE OF THE OPENING STOCK SHOULD ALSO BE ADJUSTED BY STATING THAT ANY CHANGE IN THE OPENI NG STOCK WHICH HAD THE EFFECT OF CHANGING THE CLOSING STOCK OF THE PRECEDI NG YEAR DID NOT ACCORD WELL WITH THE ACCEPTED NORMS OF ACCOUNTANCY AND PLACED R ELIANCE ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT I N MELMOULD CORPORATION V/S CIT, [1993] 202 ITR 789. THE ASSESSING OFFICER MADE AN ADJUSTMENT OF ` 91,92,312, TO THE TOTAL INCOME OF THE ASSESSEE. BEI NG AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELL ATE AUTHORITY. 91. ON BEHALF OF THE ASSESSEE, THE FOLLOWING SUBMISSION S WERE MADE WHICH ARE MENTIONED BY THE COMMISSIONER (APPEALS) AT PAGE S15 TO 18 OF THE IMPUGNED ORDER AS UNDER: BEFORE ME, THE APPELLANT HAS SUBMITTED THAT THE ASS ESSING OFFICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT DURING THE COURSE OF ASSESSMENT WE HAVE CONTENDED THAT THE VALUE OF C LOSING STOCK CANNOT BE DISTURBED UNLESS A SIMILAR TREATMENT FO R ADJUSTMENT IS ALSO INDIAN PETROCHEMICALS CORP. LTD. 41 MADE TO THE OPENING STOCK. HOWEVER, WE DO NOT FIND ANY SUCH MENTION OF OUR STAND IN THE ASSESSMENT PROCEEDINGS. IT HAS REFERRED TO ITS REPLY ON THIS ISSUE. THE APPELLANTS OBSERVATION IN THIS REGARD IS FOUND TO BE CORRECT. THE APPELLANT HAS ALSO STATED THAT THE ASS ESSING OFFICERS RELIANCE ON THE CASE OF MELMOULD CORPORATION V. CIT 202 ITR 497 (BOM.) IS MISPLACED. IT HAS ARGUED THAT, IN FACT, I N THE AFORESAID CASE, THE BOMBAY HIGH COURT HAS TAKEN A VIEW THAT IF THER E IS A CHANGE IN THE METHOD OF ACCOUNTING FOR CLOSING STOCK IN A PAR TICULAR YEAR AND SUCH CHANGE HAS BEEN FOLLOWED CONSISTENTLY THEREAFT ER, THEN NO ADJUSTMENT IS REQUIRED TO BE MADE FOR SUCH CHANGE I N THE OPENING STOCK OF THAT YEAR. THE APPELLANT HAS SUBMITTED THA T A COMBINED READING OF SECTION 145A AND AS 2 CLEARLY INDICATES THAT FOR SECTION 145A TO BE APPLICABLE, BOTH THE SPECIFICATIONS LAID DOWN IN THE SECTION SHOULD BE FULFILLED VIZ, THE VALUATION OF INVENTORY SHALL BE: A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TA X, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. IN OUR CASE THE INVENTORY IS VALUED NET OF MODVAT A S ALL OTHER ENTRIES INCLUDING PURCHASE, SALE AND DOSING STOCK A RE ON NET BASIS AND NOT ON GROSS BASIS. IT HAS ARGUED THAT ITS CASE IS DEARLY COVERED BY THE DECISION OF SUPREME COURT IN THE CASE OF CIT V. INDO NIPPON CHEMICALS CO. LTD 261 ITR 275, WHERE IT WAS HELD TH AT (I) THAT MERELY BECAUSE THE MODVAT CREDIT WAS AN IRREVERSIBLE CREDI T AVAILABLE TO MANUFACTURERS UPON PURCHASE OF DUTY-PAID RAW MATERI AL, THAT WOULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED U NDER THE ACT: INCOME WAS NOT GENERATED TO THE EXTENT OF THE MODVA T CREDIT ON UNCONSUMED RAW MATERIAL; (II) THAT IT WAS NOT PERMI SSIBLE FOR THE ASSESSING OFFICER TO ADOPT THE GROSS METHOD FOR VA LUATION OF RAW MATERIALS AT THE TIME OF PURCHASE AND THE NET METH OD FOR VALUATION OF STOCK ON HAND. THE APPELLANT HAS ARGUED FROM THIS THAT IN ITS CASE IT IS A REVERSE SITUATION WHERE WE HAVE ADOPTED THE NE T METHOD AT THE TIME OF PURCHASE AND VALUATION OF STOCK AND THE AO. HAS ADOPTED NET METHOD FOR PURCHASE AND GROSS METHOD FOR VALUATION OF STOCK IN HAND. AS CLEARLY LAID DOWN BY THE SUPREME COURT, SUCH INC ONSISTENT METHOD OF VALUATION OF STOCK IS TOTALLY UNJUSTIFIED. WITHO UT PREJUDICE TO THE AFORESAID SUBMISSION, THE APPELLANT HAS SUBMITTED T HAT EVEN IF THE AO. INSISTS ON INCLUDING CENVAT CREDIT IN THE VALUE OF CLOSING STOCK, SUCH INCLUSION OF MODVAT / CENVAT CREDIT WILL NOT HAVE A NY IMPACT ON THE TAXABLE INCOME OF THE ASSESSEE. THE APPELLANT HAS F URTHER SUBMITTED BY DRAWING ATTENTION TO THE OBSERVATIONS OF THE SUP REME COURT IN THE CASE OF CHAINRUP SANPATRAM V CIT (1953) 24 ITR 481, IN WHICH THE SUPREME COURT HAS LAID DOWN FIRSTLY, THAT PROFITS DO NOT ARISE OUT OF VALUATION OF CLOSING STOCK. SECONDLY, THAT VALUATIO N OF UNSOLD STOCK AT THE CLOSE OF THE ACCOUNTING PERIOD IS A NECESSARY P ART OF THE PROCESS OF DETERMINING THE TRADING RESULTS AND IT CANNOT BE RE GARDED AS SOURCE OF SUCH PROFITS. THE TRUE PURPOSE OF CREDITING THE VAL UE OF UNSOLD STOCK IS INDIAN PETROCHEMICALS CORP. LTD. 42 TO BALANCE THE COST OF THE GOODS ENTERED ON THE OTH ER SIDE OF THE ACCOUNT AT THE TIME OF THEIR PURCHASE SO THAT THE C ANCELLING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRANSACTION ON WHICH THERE HAS BEEN ACTUAL SALES IN THE COURSE OF THE YEAR SHOWING THE PROFIT OR LOS S ACTUALLY REALIZED ON THE YEARS TRADING. IN SHORT, THIS IS THE PRINCIPLE OF BALANCING. THE SUPREME COURT HAS FURTHER LAID DOWN THAT AS THE ENT RY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY TO CANCEL TH E CHARGE FOR THE GOODS PURCHASED AND WHICH HAVE NOT BEEN SOLD, IT SH OULD NECESSARILY REPRESENT THE COST OF THE GOODS. IT HAS THUS ARGUED FOR THE DELETION OF THE ADDITION OF RS.91,29,312/-. 92. THE COMMISSIONER (APPEALS), AFTER CONSIDERING ABOVE SUBMISSIONS OF THE ASSESSEE HELD VIDE PARA14, AS UNDER: 14. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT SEC. 145A VERY CLEARLY REQUIRES THAT THE AMOUNT OF ANY D UTY, CESS OR OTHER TAXES ETC. SHOULD BE INCLUDED IN THE VALUE OF THE C LOSING STOCK. IT IS OBSERVED THAT THE ASSESSING OFFICER HAS NO CHOICE I N THAT HOWEVER, IF THIS AMOUNT REPRESENTED BY THE UNUTILIZED CENVAT AM OUNT HAS NOT BEEN DEBITED TO THE PURCHASE ACCOUNT / RAW MATERIAL ACCO UNT, NO ADDITION BY WAY OF ANY DISALLOWANCE CAN BE MADE. HOWEVER, NO FA ULT WITH THE ACTION OF THE ASSESSING OFFICER IN INCLUDING THIS A MOUNT TO THE CLOSING STOCK CAN BE FOUND. UNDER THE CIRCUMSTANCES, IT IS DIRECTED THAT THE ASSESSING OFFICER SHALL ALLOW THIS DUTY / TAX ON AC TUAL PAYMENT BASIS IN THE YEAR OF PAYMENT U/S 43B OF THE ACT . HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE TH E TRIBUNAL. 93. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ABOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESS EE BY THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V/S MAHALAXMI GLASS WORKS PVT. LTD., [2009] 318 ITR 116 (BOM.) AND ALSO BY THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN CIT V/S MAHAVIR ALLUMIN IUM LTD. [2008] 297 ITR 77 (DEL.), WHEREIN IT HAS BEEN HELD THAT IF THERE I S A CHANGE IN VALUATION OF CLOSING STOCK IN ONE END, THERE MUST NECESSARILY BE A CORRESPONDING CHANGE AT THE OTHER END OTHERWISE THE TRUE PROFIT WOULD NO T BE REFLECTED. 94. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDER OF THE COMMISSIONER (APPEALS). INDIAN PETROCHEMICALS CORP. LTD. 43 95. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED R EPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASES RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE (SUPRA). WE ARE OF THE CONSIDERED VIEW THAT IF THE VALUATION OF CLOSING ST OCK IS INCREASED BY THE UNAVAILED CENVAT / MODVAT, THE PURCHASES SHOULD ALS O BE INCREASED BY A SIMILAR AMOUNT. DURING THE COURSE OF HEARING, IT WA S CONTENDED THAT PURCHASES HAS BEEN DEBITED EXCLUSIVE OF THE EXCISE DUTY ELEMENT I.E., BY ADOPTING NET METHOD OF PURCHASES AND, ACCORDINGLY, THE CLOSING STOCK OF RAW MATERIALS IS VALUED EXCLUSIVE OF THE UNAVAILED CENV AT / MODVAT CREDIT. WE OBSERVE THAT HON'BLE DELHI HIGH COURT HAS HELD IN T HE CASE OF MAHAVIR ALLUMINIUM LTD. (SUPRA), AFTER CONSIDERING THE DECI SION IN THE CASE OF CIT V/S ALLAHABAD NEW COTTON MILLS LTD., AIR 1930 PC 56, TH AT WHENEVER THERE IS CHANGE IN THE VALUATION AT ONE END, THERE MUST NECE SSARILY BE A CORRESPONDING CHANGE AT THE OTHER END OTHERWISE THE TRUE PICTURE WOULD NOT BE REFLECTED. IN THE CASE OF MAHAVIR ALUMINIUM LTD. (SUPRA), THE ISSUE RELATED TO CLOSING VALUATION OF ADJUSTMENT OF UNUTILISED MO DVAT CREDIT. THE TRIBUNAL ALLOWED THE ADJUSTMENT AND IN APPEAL THE HONBLE HI GH COURT CONFIRMED THE ORDER OF THE TRIBUNAL. THE HON'BLE JURISDICTIONAL H IGH COURT, AFTER CONSIDERING ITS EARLIER DECISION IN THE CASE OF MELMOULD CORPOR ATION LTD. (SUPRA), AND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF MAHAVIR ALUMINIUM LTD. (SUPRA), HAS HELD AS UNDER: WE ARE IN RESPECTFUL AGREEMENT WITH THE REASONING A ND THE FINDING GIVEN BY THE DELHI HIGH COURT . 96. IN VIEW OF THE ABOVE, WE HOLD THAT IF THE CLOSING S TOCK TO BE INCREASED ON ACCOUNT OF UNUTILISED MODVAT CREDIT, THE CORRESP ONDING OPENING STOCK OF THAT YEAR IS ALSO TO BE INCREASED, AS THE DEPARTMEN T HAS NOT DISPUTED THE FACT THAT THE PURCHASES HAVE BEEN DEBITED EXCLUSIVE OF THE EXCISE DUTY ELEMENT I.E., BY ADOPTING NET METHOD OF PURCHASES. IF THE VALUE OF CLOSING STOCK IS INCREASED BY THE MODVAT, THE PURCHASES SHO ULD ALSO BE INCREASED BY A SIMILAR AMOUNT. THEREFORE, THE ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE JURISDICTIO NAL HIGH COURT (SUPRA). INDIAN PETROCHEMICALS CORP. LTD. 44 HENCE, GROUND NO.4, TAKEN BY THE ASSESSEE IS ALLOWE D BY DELETING THE ADDITION OF ` 91,29,312, MADE BY THE ASSESSING OFFICER. 97. IN GROUND NO.5, THE ASSESSEE HAS DISPUTED THE ORDER OF LEARNED COMMISSIONER (APPEALS) IN NOT ALLOWING DEDUCTION OF ` 34,46,43,586, BEING DEDUCTION CLAIMED UNDER SECTION 80HHC OF THE ACT, W HILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 98. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTED THAT THE FACTS AND THE ISSUE ARE IDENTICA L TO GROUND NO.6, OF THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 200304 AND, THEREFORE, WHATEVER DECISION IS TAKEN IN RESPECT OF THAT ASSES SMENT YEAR I.E., 200304, WILL BE APPLICABLE FOR THIS ASSESSMENT YEAR AS WELL . 99. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE AGREE THAT THE FACTS AND THE ISSUE IN THIS ASSESSMENT YEAR VIZ. 20 0405 ARE IDENTICAL TO ASSESSMENT YEAR 200304. WE ALSO OBSERVE THAT THE C OMMISSIONER (APPEALS), WHILE CONFIRMING THE ACTION OF THE ASSES SING OFFICER, FOLLOWED HIS ORDER FOR ASSESSMENT YEARS 200102 DATED 28 TH NOVEMBER 2006. WE HAVE DISCUSSED THE SAID ISSUE IN PARAS47 TO 50 HEREIN A BOVE AND FOLLOWING OUR FINDINGS GIVEN IN PARA51 HEREIN ABOVE, WE DECIDE T HE ISSUE IN FAVOUR OF THE ASSESSEE BY ALLOWING THE ASSESSEES GROUND OF APPEA L. HENCE, GROUND NO.5, RAISED BY THE ASSESSEE IS ALLOWED BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW. 100. WE NOW TAKE UP REVENUES APPEAL BEING ITA NO.745/AH D./2008, FOR ASSESSMENT YEAR 200405. 101. IN GROUND NO.1, THE DEPARTMENT HAS DISPUTED THE ORD ER OF THE COMMISSIONER (APPEALS) IN DELETING THE DISALLOWANCE OF ` 46,37,295, MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(9) OF TH E ACT. 102. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTED THAT THE FACTS AND THE ISSUE ARE IDENTICA L TO GROUND NO.2, OF THE APPEAL FILED BY THE DEPARTMENT FOR ASSESSMENT YEAR 200304 AND, THEREFORE, INDIAN PETROCHEMICALS CORP. LTD. 45 WHATEVER DECISION IS TAKEN IN RESPECT OF THAT ASSES SMENT YEAR I.E., 200304, SAME WILL BE APPLICABLE FOR THIS ASSESSMENT YEAR AS WELL. 103. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE AGREE THAT THE FACTS AND THE ISSUE IN THIS ASSESSMENT YEAR VIZ. 20 0405 ARE IDENTICAL TO ASSESSMENT YEAR 200304. WE ALSO OBSERVE THAT THE C OMMISSIONER (APPEALS), WHILE DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, FOLLOWED HIS ORDER DATED 2 ND MAY 2007, FOR ASSESSMENT YEAR 200203. WE ALSO OBSERVE THAT THE FACTS IN THE ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE ASSESSMENT YEAR 200304, WHICH WE HAVE DISCU SSED IN PARA60 TO 63 HEREIN ABOVE AND FOR THE REASONS GIVEN IN PARA64 H EREIN ABOVE, WE UPHOLD THE ORDER PASSED BY THE COMMISSIONER (APPEALS) AND REJECT GROUND NO.1 OF THE APPEAL FILED BY THE DEPARTMENT. 104. GROUND NO.2, READS AS FOLLOWS: 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADJUSTMENT FOR PROVISION OF BAD AND DOUBTFUL DEBTS AMOUNTING TO ` 36,61,40,743 MADE UNDER CLAUSE (C) OF THE EXPLANATION BELOW SECTION 115JB(2 ) IN COMPUTING THE BOOK PROFIT UNDER THIS PROVISION, BY IGNORING THE F ACT THAT IT WAS A LIABILITY TAGGED WITH THE ASSETS IN THE FORM OF DEB TS, AND WITHOUT APPRECIATING THAT THE SUPREME COURT DECISION IN THE CASE OF APOLLO TYRES LTD. V/S CIT, 255 ITR 273 (SC) ONLY RULED THA T THE ASSESSING OFFICER HAD NO AUTHORITY TO ALTER THE BOOK PROFIT E XCEPT AS PROVIDED IN THE EXPLANATION. 105. BEFORE US, AT TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE CONCEDED THAT IN VIEW OF THE AMENDMENT MADE BY THE FINANCE (NO.2) ACT, 2009, BY INSERTING CLAUSE (I) TO EXPLANATION (1) OF SECTION 115JB(2) OF THE ACT, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2001, THE PROVISIONS MADE FOR BAD AND DOUBTFUL DEBT IS TO BE DISALLOWED AND, THER EFORE, THE ORDER OF THE ASSESSING OFFICER IS TO BE CONFIRMED BY REVERSING T HE ORDER OF THE COMMISSIONER (APPEALS). 106. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LEARNED COU NSEL FOR THE ASSESSEE, WE ALLOW GROUND NO.2, RAISED BY THE REVEN UE BY CONFIRMING THE INDIAN PETROCHEMICALS CORP. LTD. 46 DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, GROUND NO.2, OF THE APPEAL FILED BY THE REVENUE IS ALLOWED. 107. IN THE RESULT BOTH THE APPEALS FOR ASSESSMENT YEARS 200304 AND 200405 OF THE ASSESSEE ARE ALLOWED WHILE BOTH APPE ALS OF THE REVENUE ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE 2012 SD/- N.K. BILLAIYA ACCOUNTANT MEMBER SD/- B.R. MITTAL JUDICIAL MEMBER MUMBAI, DATED: 29 TH JUNE 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, I BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI