THE ACIT CIR 8(1), V. M/S. AVENTIS PHARMA ALTD.,

ITA 8746/MUM/2004

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79539 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 03-07-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 03-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRITAM SINGH
• Assessee Lawyers: J D MISTRY; SANJIV M SHAH
• Keywords: Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Earning of tax free income; Fair market value; Bad and doubtful debts
• Section: 143(3); 80HHC; 14A; 28; 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI VIJAY PAL RAO , J M I TA NO. 8978 / MUM/20 0 4 ( ASSESSMENT YEAR : 200 1 - 0 2 ) M/S AVENTIS PHARMA LIMITED, VENTIS HOUSE, 54/A, SIR MATHURADAS VASANJI ROAD, ANDHERI (EAST), MUMBAI - 400 0 93 VS. ACIT - 8(1), MUMBAI PAN/GIR NO. : A A ACH 2736 F ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 8746 /MUM/2004 ( ASSESSMENT YEAR :200 1 - 0 2 ) A CIT - 8(1), MUMBAI VS. M/S AVENTIS PHARMA LIMITED, VENTIS HOUSE, 54/A, SIR MATHURADAS VASANJI ROAD, ANDHERI (EAST), MUMBA I - 93 PAN/GIR NO. : AAACH 2736 F ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. J.D.MISTRY & SANJIV M. SHAH /REVENUE BY : MR. PRITAM SINGH DATE O F HEARING : 3 RD JULY , 201 4 DATE OF PRONOUNCEMENT : 23 RD JULY , 201 4 O R D E R PER R.C.SHARMA (A.M) : TH ESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 200 1 - 02 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T.ACT . 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS INVOLVED IN MANUFACTURING OF ITA NO S 8978 & 8746 /04 2 PHARMACEUTICAL PRODUCTS AND DRUGS AND PHARMACEUTICAL FORM ULATION IN THE FORM OF TABLETS, CAPSULES, INJECTIONS. AFTER TAKING INTO CONSIDERATION THE VARIOUS REPLIES OF THE ASSESSEE, ADDITIONS WERE MADE BY AO I N RESPECT OF INCOME FROM HOUSE PROPERTY, TRANSFER PRICING UNDER SECTION 92, EXPENDITURE ON SOFTWARE DEPREC IATION ON OBSOLETE ASSETS, VRS EXPENSES, BAD DEBTS AND ADVANCES WRITTEN OFF, CAPITAL GAINS ETC., BY THE IMPUGNED ORDER, CIT(A) DELETED PART OF THE ADDITION. AGAINST THIS ORDER OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 3 . SHRI J.D.MIST RY, LEARNED SENIOR COUNSEL APPEARED ON BEHALF OF THE ASSESSEE AND SUBMITTED DETAILED CHART OF EACH AND EVERY GROUND TAKEN BY THE ASSESSEE AND REVENUE DULY MENTION ING THE RELEVANT PARA OF AO & CIT(A)S ORDER WHERE THEY HAVE BEEN DEALT WITH , AND THE RELEVANT PARA OF THE ORDER OF THE TRIBUNAL BY WHICH THE ISSUE IS COVERED. THE CHART WAS HANDED OVER TO THE BENCH AS WELL AS TO THE LEARNED CIT DR ALONG WITH COPY OF THE ORDER S OF THE TRIBUNAL BY WHICH GROUND TAKEN BY THE ASSESSEE AND REVENUE ARE COVERED. AFTER LEA RNED AR COMPLETED HIS ARGUMENT WITH REGARD TO EACH AND EVERY GROUND TAKEN BY THE ASSESSEE AND REVENUE, LEARNED DR WAS ASKED REGARDING VARIOUS GROUNDS RAISED BY LEARNED AR AS HAVING BEEN COVERED BY THE ORDER OF THE TRIBUNAL. LEARNED DR FAIRLY CONCEDED THAT EACH GROUND NARRATED BY THE LEARNED AR IN THE CHART ARE DULY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY ASSESSMENT YEAR I.E. A.Y. 2000 - 2001 VIDE ORDER DATED 16 - 4 - 201 4 . ITA NO S 8978 & 8746 /04 3 4 . WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND FOUND THAT THE GROUNDS WHICH COVERED BY THE ORDER OF THE TRIBUNAL , ARE DECIDED IN THE FOLLOWING PARAGRAPHS . 5. BOTH I N ASSESSEES APPEAL AS WELL AS REVENUES APPEAL , G ROUND NO.1 IS REGARDING COMPUTATION OF INCOME FROM HP IN RESPECT OF 5 TH FLOOR OF HOECHST HOUSE. 6. FACTS IN BRIEF ARE THAT ASSESSEE HAS LET OUT 5 TH FLOOR OF ITS BUILDING KNOWN AS HOECHST HOUSE LOCATED AT NARIMAN POINT WITH TOTAL AREA OF 7442 SQ.FT. AT A MONTHL Y RATE OF RE.1/ - . THE ASSESSEE HAS COMPUTED INCOME OF RS. 1,29,096/ - IN RESPECT OF THIS FLOOR UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AO COMPUTED ALP BY TAKING RS. 150/ - PER SQ.FT. PER MONTH FOR 7442 SQ.FT., WHICH WORKS OUT TO BE RS. 1,33,95,600/ - . B Y THE IMPUGNED ORDER, THE CIT(A) DIRECTED THE AO TO COMPUTE ALV AT RS. 24,00,000/ - . BOTH T HE ASSESSEE AND REVENUE ARE IN FURTHER APPEAL S BEFORE US. LEARNED AR SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE PASSED IN ITA NO .5791/MUM/2000 FOR THE ASSESSMENT YEAR 1994 - 95, VIDE ORDER DATED 5 - 11 - 2004, WHEREIN THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER HAVING FOLLOWING OBSERVATIONS : - 11. APROPOS GROUND NO.5, IT IS REQUESTED THAT THE INCOME FROM HOUSE PROPERT Y BE COMPUTED AS PER THE MUNICIPAL RATABLE VALUE AT RS. 1,44,058/ - AND NOT ON ADHOC FIGURE OF RS. 24,00,000/ - . THE FIFTH FLOOR OF THE PROPERTY HOECHST HOUSE, WAS LET OUT TO M/S VB LIMITED BY THE ASSESSEE ON A MONTHLY RENT OF RE.1 BESIDES INTEREST FREE DEPO SIT OF RS.2.20 CRORES. THE INCOME FROM THE FIFTH FLOOR WAS HOWEVER, NOT CALCULATED ON THE RENT OF RE.1 PER MONTH. THE MUNICIPAL CORPORATION FIXED T HE BOOK VALUE OF THE FIFTH FLOOR ITA NO S 8978 & 8746 /04 4 AT RS.1,44,058/ - , BEING 1/5 TH OF THE TOTAL VALUE SO FIXED. THE INCOME FROM T HE FIFTH FLOOR WAS THUS PAID BY THE ASSESSEE AT RS. 1,26,146/ - . DISAGREEING, THE AO HELD THAT THE RENT OF RE.1 PER MONTH CHARGED BY THE ASSESSEE DID NOT REPRESENT THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR, AS CONTE MPLATED UNDER THE PROVISIONS OF SECTION 23(1)(A) OF THE IT ACT. SINCE FLOOR DID NOT LET OUT TO M/S VB LIMITED, WHICH HELD 26 PERCENT SHARE IN THE ASSESSEE - COMPANY. MR. VIJAY MALLYA, THE CHAIRMAN OF THE UB LIMITED, WAS ALSO THE CHAIRMAN OF ASSESSEE - COMPANY. THE AO DETERMINED THE REASONABLE RENT OF THE FLOOR AFTER TAKING INTO ACCOUNT THE COMPARATIVE RENT CHARGED BY THE ASSESSEE FROM TENANT OF THE SAID FLOOR. THUS, THE FAIR RENT OF THE FIFTH FLOOR WAS FIXED BY THE AO AT RS. 1,20,56,040/ - THE INCOME FROM THE F IFTH FLOOR WAS THUS COMPUTED AT RS. 96,44,832/ - . THE LEARNED CIT(A) DIRECTED THE AO TO COMPUTE INCOME FROM THE FIFTH FLOOR, TAKING ANNUAL LETTING VALUE THEREOF AT RS. 24 LAKHS AS AGAINST RS. 1,44,058/ - OFFERED BY THE ASSESSEE AND RS. 31,20,36,040/ - FIXED BY TH E AO. 12. X X X X X 13. X X X X X 14. IN MR. M V SONAVALA VS. CIT (1989) 177 ITR 246 (BOM) , THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE INCOME FROM HOUSE PROPERTY HAS TO BE COMPUTED ON THE BASIS OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE LET OUT FROM YEAR TO YEAR AND THE ANNUAL MUNICIPAL RATABLE VALUE. IT HAS BEEN TAKEN NOTE OF THAT IN THE CASES OF PROPERTIES SUBJECT TO RENT CONTROL LEGISLATION PROVIDED FOR FIXATION OF STANDARD RENT, THE STANDARD RENT ALONE CAN BE THE BASE FOR FIXATION OF MUN ICIPAL RATABLE VALUE FOR THE PURPOSES OF MUNICIPAL TAX (AS PER DEWAN DAULAT RAI KAPOOR VS. NEW DELHI MUNICIPAL COMMITTEE (1980) 122 ITR 700 (SC) , DR. DALBIR SINGH VS. MCD (1985) 46 CTR (SC)= 152 ITR 388 (SC) AND SHEILA KAUSHISH VS. CIT (1981) 131 ITR 43 5 (SC) . IN THE LAST REFERRED CASE, THE HONBLE SUPREME COURT HAS HELD THAT THE ANNUAL VALUE OF THE PROPERTY IS REQUIRED TO BE DETERMINED WITH REFERENCE TO STANDARD RENT AND NOT THE ACTUAL RENT RECEIVED. AS SUCH, THE GRIEVANCE OF THE ASSESSEE JUSTIFIED. G ROSS ANNUAL RATABLE VALUE OF THE PROPERTY , VIZ 5 TH FLOOR HOECHST HOUSE IS DIRECTED TO BE DETERMINED AT RS. 1,44,058/ - , BEING THE ANNUAL VALUE DETERMINED BY THE MUNICIPAL CORPORATION FOR THE PURPOSES OF COMPUTATION OF PROPERTY INCOME. AS SUCH, GROUND NO.5 I S ALLOWED. LEARNED AR ALSO SUBMITTED THAT RECENTLY THE TRIBUNAL HAS DECIDED THE SAME ISSUE IN ASSESSEES OWN CASE FOR THE A.Y.2000 - 01 VIDE ORDER DATED 16 - 4 - 2014 PASSED IN ITA NO.3703/MUM/04 AND OTHER CONNECTED APPEALS IN FAVOUR OF THE ASSESSEE AFTER FOLL OWING THE DECISION OF ITS ITA NO S 8978 & 8746 /04 5 COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1994 - 95. 6.1 LEARNED DR ALSO DID NOT OPPOSE TO THE AFORESAID SU BMISSION MADE BY THE LEARNED AR TO THE EFFECT THAT ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE AFORESAID ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE. 6 . 2 WE HAVE HEARD RIVAL CONTENTIONS , PERUSED THE RECORD AND ORDERS OF THE TRIBUNAL AND FOUND THAT THE VERY SAME ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN TERMS DISCUSSED ABOVE . AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT, THE TRIBUNAL HAS CONCLUDED THAT GROSS ANNUAL RATABLE VALUE OF THE PROPERTY FOR THE PURPOSES OF COMPUTATION OF HOUSE PROPERTY INCOME IS TO BE DETERMINED AT THE ANNUAL VALUE DETERMINED BY MUNICI PAL CORPORATION . AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, H ENCE, RESPECTFULLY FOLLOWI NG THE DECISION OF THE TRIBUNAL , W E DIRECT THE AO TO DETERMINE ALV AT THE VALUE DETERMINED BY MUNICIPAL CORPORATION FOR THE YEAR UNDER CONSIDERATION. HENCE, THIS GROUND OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES, WHEREAS THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7 . GROUND NO.2 IN BOTH THE APPEALS OF THE ASSESSEE AS WELL AS REVENUE IS REGARDING ADDITION U/S.92 IN RESPECT OF PURCHASES OF CEFOTAXIME SODIUM & ROXYTHROMYCIN. ITA NO S 8978 & 8746 /04 6 7 .1 FACTS IN BRIEF ARE THAT IN RESPECT OF MANUFACTURING PHARMACEUTICAL FORMULATION IN THE FORM OF TABLETS, CAPSULES, INJECTIONS ETC., THE ASSESSEE HAS CLAIMED A LOSS. HOWEVER, THE AO DID NOT ACCEPT ASSESSEE S CLAIM OF LOSS AND OBSERVED THAT ASSESSEE HAS REDUCED PROFIT BY INFLATING PRICE OF RAW MATERIALS WHICH HAS GONE INTO ITS PRODUCTION. THE AO OBSERVED THAT PURCHASE PRICE PAID FOR CEFOTAXIME SODIUM WAS RS. 55,347.34 PER KG., IS HIGHER THAN THE PRICE PAID BY OTHER IMPORTERS , ACCORDINGLY, T HE AO INVOKED PROVISIONS OF SECTION 92 AND MADE ADDITION OF RS. 2,83,68,000/ - IN RESPECT OF RAW MATERIAL CEFOTAXIME SODIUM, AND RS.5,76,97,336/ - IN RESPECT OF RAW MATERIAL ROXYTHROMYCIN . BY THE IMPUGNED ORDER, CIT(A) PARTLY AL LOWED ASSESSEES CLAIM AFTER HAVING FOLLOWING OBSERVATIONS : - 10 . THE SUBMISSION MADE BY THE APPELLANT'S REPRESENTATIVE HAS BEEN CONSIDERED. AS CITED ABOVE, THE ISSUE IN SO FAR AS THE APPLICABILITY OF THE PROVISIONS OF SECTION 92 OF THE ACT IS CON CERNED, IT IS A REPETITIVE ISSUE AND HAS BEEN THERE IN THE ASSESSMENT YEAR 1999 - 00 AS WELL. IN THE APPELLATE ORDER DATED 20/03/2003, THE ACTION OF THE ASSESSING OFFICER IN THIS RESPECT HAS BEEN CONFIRMED . SINCE THE FACTS IN THE YEAR ARE THE SAME AS IN THE PRECEDIN G ASSESSMENT YEAR, FOR THE REASONS GIVEN IN THE APPELLATE ORDER DATED 20103/2003 IN THIS YEAR AS WELL, THE ACTION OF THE ASSESSING OFFICER TO HOLD THAT THE PROVISIONS OF SECTION 92(1) ARE APPLICABLE IN RESPECT OF THE TRANSACTIONS OF IMPORT OF TWO RAW MATER IALS UTILISED BY THE APPELLANT COMPANY IN ITS MANUFACTURING PROCESS IS HELD CORRECT AND ON THAT ACCOUNT THE DECISION CALLS FOR NO INTERFERENCE. 1 1. A S FAR AS THE COMPUTATION OF THE AMOUNT TO BE ADDED ON THE ACCOUNT IS CONCERNED, THERE IS MERIT IN THE CLA IM MADE BY THE APPELLANTS REPRESENTATIVE. THE ASSESSING OFFICER WITHOUT BRINGING INTO ACCOUNT ANY NEW FACT WARRANTING HIGHER ADDITION HAS BEEN GUIDED SOLELY BY HIS DECISION IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2000 - 01 WHERE ON ACCOUNT OF TYPOGRAPH ICAL ERROR, HE HAS HELD THAT IN PARA 4.7 OF THE ASSESSMENT ORDER THAT THE EXCESS PRICE IS TO BE ADOPTED AT RS. 45,000/ - PER KG. IN EFFECT HE HAD TAKEN THE FIGURE AT RS.30,000/ - PER KG. WHILE WORKING OUT THE AMOUNT OF RS. 6,26,00,400/ - ADDED ON THIS ACCOUNT. 12. THEREFORE, AS RIGHTLY POINTED OUT BY THE APPELLANTS REPRESENTATIVE IN HIS SUBMISSION SINCE IN THIS ACCOUNTING YEAR ITA NO S 8978 & 8746 /04 7 LANDED COST PAID BY THE APPELLANT COMPANY IN THE PURCHASE OF THE SAID RAW MATERIALS FROM ITS PRINCIPAL IS MORE OR LESS THE SAME AS IN THE PRECEDING ASSESSMENT YEAR AND THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANYTHING ON RECORD TO SHOW THAT OTHER COMPANIES USING RAW MATERIAL OF SIMILAR FORMULATION HAVE PAID MUCH A LESSER PRICE, THERE IS NO REASON FOR UPHOLDING THE ASSESSING OFFICERS A CTION IN THIS REGARD. 13. THEREFORE, THE ASSESSING OFFICER WILL ADOPT THE SAME LANDED COST IN THE RAW MATERIAL PURCHASED BY OTHER CONCERNS AS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WHERE HE HAD MADE ADDITION OF RS.30,000/ - PER KG. ON THIS ACCOUNT. FURTHER WEIGHTAGE OF 10% OVER AND ABOVE THE PURCHASE PRICE PAID BY OTHER PHARMACEUTICALS COMPANIES IN THE IMPORT OF RAW MATERIAL IS TO BE GRANTED AS IN THE PRECEDING ASSESSMENT YEARS. THE ASSESSING OFFICER SHALL MAKE ADJUSTMENT TO THE AMOUNT ADDED UNDER T HE SECTION AS PER THE DIRECTION GIVEN ABOVE AND RESTRICT THE ADDITION ON THIS ACCOUNT ONLY TO THAT EXTENT. THE APPELLANT SHALL GET RELIEF IN RESPECT OF THE BALANCE SUM OUT OF RS. 5,76,97,336/ - ADDED ON THIS ACCOUNT IN THE ASSESSMENT YEAR UNDER APPEAL. APPEA L IN RESPECT OF GROUND NO.2 IS THUS DISPOSED OFF AS PARTLY ALLOWED. 7.2 BOTH ASSESSEE AND REVENUE ARE IN APPEALS BEFORE US. 7 . 3 L EARNED AR SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.1528/2009 VIDE OR DER DATED 8 - 9 - 2009 IN ASSESSE ES OWN CASE HAS DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE . OUR ATTENTION WAS ALSO INVITED TO THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.1996 - 97 & 1997 - 98, DATED 16 - 5 - 2007, WHEREIN EXACTLY SIMILAR ISSUE WAS DEALT WITH AND FOLLOWING CON CLUSIONS WERE ARRIVED AT : - 28. IN VIEW OF THE ABOVE WE HOLD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE NON - RESIDENT COMPANY WAS NOT AN ARRANGED TRANSACTION. THE CERTIFICATES PRODUCED BY THE ASSESSEE FROM VARIOUS PARTIES ESTABLISH THAT THE ASSESS EE DID NOT BUY THE PRODUCT CEFOAXIME SODIUM AT A PRICE HIGHER THAN THE PRICE AT WHICH THE SAME PRODUCT WAS SOLD TO OTHERS. ACCORDINGLY, WE HOLD THAT THE ASSESSING OFFICER FAILED TO ESTABLISH A CASE WHERE PROVISIONS OF SECTION 92 COULD BE APPLIED TO DISOWN THE LOSS INCURRED BY THE ASSESSEE. THEREFORE, WE DO NOT FIND A REASON TO TAKE A DIFFERENT VIEW THAN THE ONE ARRIVED AT BY THE LEARNED CIT(A). WE THEREFORE REJECT THE GROUND OF THE REVENUE. ITA NO S 8978 & 8746 /04 8 7.4 T HE RELEVANT OBSERVATION IN THE ORDER OF H ONBLE BOMBAY HIGH COURT, DATED 8 - 9 - 2009 , READS AS UNDER : - 1. HEARD LEARNED COUNSEL FOR PARTIES. 2. FOLLOWING TWO SUBSTANTIAL QUESTIONS OF LAW ARE SOUGHT TO BE RAISED IN THE APPEAL. A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL IS JUSTIFIED IN LAW IN DELETING THE ADDITIONS MADE ON ACCOUNT OF PROVISIONS FOR LIABILITY TOWARDS LONG SERVICE ENTITLEMENT AND LEAVE SALARY ENCASHMENT? B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL IS JUSTIFIED IN LAW IN CONFIRMING THE ORDER O F CIT(A) IN DELETING THE ADDITION OF RS.7.42 CRORES ON THE GROUND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING PROVISIONS OF SECTION 92 OF THE ACT. 3. SO FAR AS FIRST QUESTION IS CONCERNED, IT IS SQUARELY COVERED BY THE JUDGMENT OF THE APEX CO URT IN THE CASE OF BHARAT EARTH MOVERS LTD VS. CIT 245 ITR 248. LEARNED COUNSEL FOR THE APPELLANT COULD NOT DISTINGUISH THE SAID JUDGMENT AND SO FAR AS SECOND QUESTION IS CONCERNED, IN PARAGRAPH NO.28 OF THE ORDER, THE TRIBUNAL, AFTER THREADBARE DISCU SSION AND AFTER APPRECIATION OF EVIDENCE RECORDED A FINDING OF FACT WITH WHICH NO FAULT CAN BE FOUND. THE APPEAL IS WITHOUT ANY SUBSTANCE, THE SAME STANDS DISMISSED WITH NO ORDER AS TO COSTS. 7.5 SIMILAR ISSUE HAD ALSO COME BEFORE THE TRIBUNAL IN ITA NO. 3703 /MUM/200 4 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 - 01 AND THE TRIBUNAL VIDE ORDER DATED 16 TH APRIL, 2014 BY FOLLOWING ITS EARLIER ORDER CONFIRMED THE ORDER OF THE LD. CIT(A) AND DISMISSED THE GROUNDS OF APPEAL TAKEN BY THE REVENUE. AS THE FA CTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL AND HON BLE BOMBAY HIGH COURT , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND GROUND RAISED BY THE REVENUE IS DISMISSED. 8 . GROUND NO. 3 IS REGARDING DISALLOWANCE OF ESTIMATED DEPRECIATION ON OBSOLETE ASSETS OF RS. 68 , 16 , 036 / - . IT WAS CONTENDED BY THE LEARNED ITA NO S 8978 & 8746 /04 9 AR THAT T HIS ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GR SHIPPING LTD., ITA NO.598/2009 IN FAV OUR OF THE ASSESSEE AND RELYING UPON THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE TRIBUNAL HAS DECIDED THE ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 - 01 VIDE ORDER DATED 16 - 4 - 2014. 8 .1 WE HAVE CONSIDERED RIVAL CONTENT IONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998 - 99 AND 1999 - 2000, WHEREIN THE TRIBUNAL AFTER CONSIDERING THE DECISION IN THE CASE OF G.R.SHIPPING COMPANY AND IND UCTOTHERM INDIA LTD, 73 ITD 529 , HELD THAT DEPRECIATION WAS ALLOWABLE ON OBSOLETE ASSETS TO THE ASSESSEE. HOWEVER, AGAINST THIS DECISION OF THE TRIBUNAL, THE DEPARTMENT HAS NOT FILED ANY FURTHER APPEAL BEFORE THE HON BLE HIGH COURT. THEREAFTER RELYING THE SAME, THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 - 01 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 8 .2 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE AO FOR DECLINING ASSESSEES CLAIM OF DEPRECIATION ON OBSOLETE ASSETS. 9 . GROUND NO.4 IS IN REGARD TO FAIR MARKET VALUE AS ON 01.04.1981 FOR COMPUTATION OF LT CAPITAL GAIN ON SALE OF 1 ST PHASE OF LAND AT ITA NO S 8978 & 8746 /04 10 MULUND TO NIRMAL LYFESTYLES PVT. LTD. IT WAS FAIRLY CONCEDED BY THE LD. AR THAT T HIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.1998 - 99 AND 1999 - 2000 AND 2000 - 01 AGAINST THE ASSESSEE. THEREFORE, RESP ECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DISMISS THIS GROUND OF ASSESSEE AND DECIDE IN FAVOUR THE DEPARTMENT. 10 . GROUND NO. 5 IS REGARDING DISALLOWANCE U/S.14A. LEARNED AR STATED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIB UNAL IN ASSESSEES OWN CASE FOR A.Y.1990 - 91 AND 1998 - 99 IN FAVOUR OF THE ASSESSEE, AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE HIGH COURT. PRECISE OBSERVATION OF THE TRIBUNAL FOR THE A.Y.1998 - 99 READS AS UNDER : - 22. THE AO HAS NOT AP PLIED SECTION 14A. IN FACT THIS SECTION WAS NOT IN THE STATUTE DURING THAT YEAR. THE LEARNED CIT(APPEALS) HAS FACTUALLY ANALYZED THE ISSUE AND HAS COME TO A CONCLUSION THAT NO EXPENDITURE CAN BE ATTRIBUTABLE TO THE EARNING OF TAX FREE INCOME. ON THIS FACTU AL MATRIX, WE AGREE WITH THE LEARNED COUNSEL THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TOPSTAR MERCANTILE (P) LTD. VS. ACIT 225 CTR (BO M ) 351 APPLIES AND THE TRIBUNAL CANNOT SET ASIDE THE ISSUE FOR FRESH ADJUDICATION FOR APPLYING SE CTION 14A. THE HONBLE HIGH COURT HELD AS FOLLOWS : IN THE ABSENCE OF ANY ADVERSE FINDING BY THE AO AGAINST THE ASSESSEE VIS - - VIS APPLICABILITY OF S. 14A TRIBUNAL, WHILE ACCEPTING THE ASSESSEES CONTENTION, WAS NOT CORRECT IN RECORDING THE DIRECTION TO CONSIDER THE APPLICABILITY OF S. 14A WHILE REMANDING THE MATTER. 23. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. AGAINST THE ABOVE ORDER OF TRIBUNAL, THE REVENUE HAS NOT FILED ANY APPEAL BEFORE THE HIGH COURT. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ITA NO S 8978 & 8746 /04 11 DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS DISCUSSED ABOVE, WE DO NOT FIND ANY MERIT IN THE DISALLO WANCE MADE UNDER SECTION 14A. 11 . GROUND NO. 6 IS REGARDING DISALLOWANCE OF FULL REVENUE DEDUCTION OF VRS & EARLY RETIREMENT INCENTIVES AGGREGATING TO RS. 9 , 90 , 75 , 633 / - . IT WAS CONTENDED BY LEARNED AR THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE SUPRE ME COURT IN CASE OF K. RAVINDRANATHAN NAIR VS. CIT, 247 ITR 178 (SC) IN FAVOUR OF THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FOSECO INDIA LTD, 352 ITR 320 . LEARNED AR ALSO SUBMITTED THAT SIMI LAR CLAIM OF RS. 41.64 CORES IN THE ASSESSMENT YEAR 1999 - 2000 WAS ALLOWED BY THE AO HIMSELF. 1 1 .1 WE HAVE HEARD THE RIVAL CONTENTIONS . FACTS IN BRIEF ARE THAT ASSESSEE HAS INCURRED EXPENDITURE UNDER VRS SCHEME FOR ITS VARIOUS UNITS AND HEAD OFFICE. THE ASS ESSEE HAD SHOWN TOTAL COST INCURRED ON VRS AT RS. 41.64 CRORES INCURRED IN THE F INANCIAL YEAR 1998 - 1999 . OUT OF THIS, VRS COST DEBITED IN THE FINANCIAL YEAR 2000 - 01 IS RS. 13.88 CRORES . THE AO DECLINED ASSESSEES CLAIM BY OBSERVING THAT ASSESSEE COMPANY STOP PED MANUFACTURING CERTAIN INDUSTRIAL PRODUCTS PERMANENTLY AT THIS MULUND UNIT, THEREFORE, BUSINESS OF ASSESSEE, AS FAR AS MANUFACTURING OF THOSE PARTICULAR PRODUCTS WAS CONCERNED, IS STOPPED. AS PER THE AO, VRS EXPENSES INCURRED BY THE ASSESSEE IS ONLY ALL OWABLE TO IT IN CASE OF GOING CONCERN. AS PER AO, T HE BUSINESS EXPENDITURE IS ALLOWED FOR A BUSINESS ONLY WHEN IT IS CARRIED ON BY THE ASSESSEE , W HERE THE BUSINESS HAS BEEN CLOSED DOWN AND NOT MERELY ITA NO S 8978 & 8746 /04 12 SUSPENDED, THE COMPENSATION PAID TO THE EMPLOYEES WHILE WINDING UP THE BUSINESS SHOULD NOT BE ALLOWED AS A DEDUCTION. THE AO ALSO OBSERVED THAT EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT IN THE NATURE OF VRS EXPENSES BUT IT IS EXPENSES INCURRED FOR COMPULSORY RETRENCHMENT , AS PER AO THIS IS THE COST INCURRED BY THE ASSESSEE FOR WINDING UP AND NOT TO REACH ITS BUSINESS. IT IS NOT AT ALL COVERED BY THE SCHEME OF VRS. BY THE IMPUGNED ORDER, THE CIT(A) BY OBSERVING THAT ENTIRE SUM DISALLOWED BY THE AO DOES NOT PARTAKE THE CHARACTER OF RETRENCHMENT COMPENSATION AND T HAT PART OF THE AMOUNT IS ONE TIME CHARACTER OF EX - GRATIA PAYMENT THAT THE EMPLOYEES ARE ELIGIBLE TO RECEIVE EVEN OTHERWISE ON RETIREMENT OR RESIGNATION EVEN WHERE THERE IS NO CLOSURE IS TO BE ALLOWED. ACCORDINGLY, IT WAS HELD BY THE CIT(A) THAT DISALLOWAN CE IS TO BE RESTRICTED AS TO WHAT HAS BEEN PAID AS THE VRS AMOUNT AND EARLY RETIREMENT INCENTIVE FOR MULUND FACTORY THAT HAS ARISEN ON ACCOUNT OF CLOSURE INTO ACCOUNTING YEARS. AGAINST THIS ORDER OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US . 1 1 .2 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXPENDITURE ON VRS DEBITED AND CLAIMED IN THIS YEAR WERE DULY APPROVED BY THE INCOME TAX DEPARTMENT ITSELF. EVEN DURING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION, WE FOUND T HAT MULUND FACTORY WAS WORKING AND THE AO WAS NOT JUSTIFIED IN OBSERVING THAT EXPENDITURE WAS INCURRED FOR CLOSING THAT UNIT. WE FOUND THAT VARIOUS MANUFACTURING UNIT OF ASSESSEE AT MULUND, ANKLESHWAR AND GOA AND UNDER LOAN LICENCE AGREEMENT PART OF THE CO RPORATE BUSINESS AND MANY ITA NO S 8978 & 8746 /04 13 OF THE PROJECTS WHICH WERE BEING MAINTAINED AT MULUND WERE CONTINUED TO BE PRODUCED UNDER LOAN LICENCE AGREEMENT. AS THE EXPENDITURE SO INCURRED ON VRS WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, EVEN IF WE CONSIDER TH E SAME UNDER THE PROVISION OF SECTION 37(1), SAME CANNOT BE DISALLOWED. APPLYING THE PROPOSITION OF LAW LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) AND HON BLE HIGH COURT IN THE CASE OF FOSECO INDIA LTD, (SUPRA) TO THE F ACTS OF THE INSTANT CASE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR DECLINING THE ASSESSEES CLAIM FOR DEDUCTION O F VRS AND EARLY RETIREMENT INCENTIVES PAID TO THE WORKERS. IN THE RESULT, GROUND TAKEN BY THE ASSESSEE IS ALLOWED, W HEREAS GROUND OF REVENUE IS DISMISSED. 1 2 . GROUND NO. 7 IS IN REGARD TO SALES - TAX SET OFF AND REFUND AMOUNTING TO RS. 1 , 23 , 16 , 492 IS LIABLE TO BE INCLUDED IN THE TOTAL TURNOVER FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT AND GROUND NO. 8 IS R EGARDING PROCESSING CHARGES OF RS. 28,98 , 904 / - IS REQUIRED TO BE REDUCED TO THE EXTENT OF 90% UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC FOR THE PURPOSES OF GRANTING RELIEF . THIS ISSUE OF ELIGIBILITY OF INCOME FROM PROCESSING CHARGES HAS BEEN CO NSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES VS. CIT , 343 ITR 89 (SC) . THE TRIBUNAL ALSO IN ASSESSEES OWN CASE FOR A.Y.1999 - 2000, IN ITA NO.4180/MUM/2003, FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (SUPRA), HELD AS UNDER : - ITA NO S 8978 & 8746 /04 14 2.10.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY OF PROVISION OF EXPLANATION (BAA) TO PROCESSING CHARGES AND SALES TAX REFUND AND SETOFF. AS REGARD S THE PROCESSING CHARGES, THE ISSUES IS COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN CASE OF RAVINDRANATHAN NAIR (295 ITR 228) IN WHICH IT HAS BEEN HELD THAT THE PROCESSING CHARGES FORM AN INDEPENDENT ITEM OF INCOME LIKE COMMISSION RENT ETC. AND, T HEREFORE, 90% OF THE SAME IS REQUIRED TO BE REDUCED FROM PROFIT OF BUSINESS AS PER EXPLANATION (BAA). WE THEREFORE HOLD THE PROCESSING CHARGES WILL BE COVERED BY EXPLANATION (BAA). THE ISSUE OF APPLICABILITY OF PROVISION OF EXPLANATION (BAA) TO SEALS TAX R EFUND HAD BEEN CONSIDERED BY THE HONBLE HIGH COURT OF BOMBAY IN CASE OF DRESSER RAND (322 ITR 449) IN WHICH IT HAS BEEN HELD THAT RECEIPTS LIKE RECOVERY OF FREIGHT INSURANCE, PACKING CHARGES, SALES TAX REFUND AND SERVICE INCOME WILL NOT BE PART OF BUSINES S PROFIT AND HAS TO BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). SUBSEQUENTLY, HOWEVER HONBLE HIGH COURT IN CASE OF PFIZER LTD. (330 ITR 62) AFTER REFERRING TO THE JUDGEMENT OF IN CASE OF DRESSER RAND (SUPRA) HELD THAT INSURANCE CLAIM ON STOCK IN TRADE WAS NOT AN INDEPENDENT ITEM OF INCOME AND THEREFORE HAS TO BE CONSIDERED AS INTEGRAL PART OF BUSINESS PROFIT. HOWEVER, SINCE THE SALES TAX REFUND HAS BEEN SPECIFICALLY CONSIDERED BY THE HONBLE HIGH COURT IN CASE OF DRESSER RAND (SUPRA) RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT SALES TAX REFUND AND SET OFF WILL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). FURTHER, THE ALTERNATE CLAIM OF THE ASSESSEE THAT ONLY THE NET RECEIPT SHOULD BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA) IS COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF ACG ASSOCIATED CAPSULES P. LTD. V. CIT (343 ITR 89). WE THEREFORE DIRECT THE ASSESSING OFFICER ONLY THE NET RECEIPT AFTER DEDUCTING EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME, WILL B E CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). 12 . 1 IN VIEW OF THE ABOVE, THE ISSUE WITH REGARD TO INCLUSION OF SALES TAX SET OFF AND REFUND IN TOTAL TURNOVER , WE HOLD THAT SALES TAX REFUND AND SET OFF WILL BE CONSIDERED FOR REDUCTION AS PER EXPLA NATION (BAA) TO SECTION 80HHC. 1 2 . 2 WITH RESPECT TO CLAIM OF DEDUCTION U/S.80HHC IN RESPECT OF PROCESSING CHARGES, THE ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1999 - 2000 AS NARRATED ABOVE AND RELYING UPON THE SAM E, THE TRIBUNAL HAS DEALT WITH THE SAME ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 - 01. ITA NO S 8978 & 8746 /04 15 RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO THAT ONLY NET RECEIPTS AFTER DEDUCTING EXPENDITURE INCURRED FOR EARNING SUCH INCOME WILL BE CONSIDERED F OR R EDUCTION FROM ELIGIBLE BUSINESS PROFIT AS PER EXPLANATION (BAA). MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING AS PER DIRECTION GIVEN BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEAR 1999 - 2000 IN ASSESSEES OWN CASE, AS DISCUSSED HEREINABO VE. 1 3 . GROUND NO.9 IS IN REGARD TO HOLING THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OF THE ASSESSEE COMPANY WAS LIABLE TO BE TREATED AS PART OF INDIRECT COST OF TRADING EXPORTS. 1 4 .1 LEARNED AR FAIRLY CONCEDED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 1999 - 2000 IN ITA NO. 4180/MUM/2003, VIDE ORDER DATED 20 - 2 - 2013 AGAINST THE ASSESSEE . 1 4 .2 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.1999 - 2000 , WHERE IN THE TRIBUNAL HAS UPHELD THE ORDER OF THE CIT(A) BY OBSERVING AS UNDER : - 2.11.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF INDIRECT COST WHILE. COMPUTING D EDUCT I ON U/S 80HHC IN RESPECT OF EXPORT OF TRADING G OODS. THE. ASSESSEE WAS PROCURING GOODS AT BOTH BRANCHES I.E. HY DERABAD BRANCH AND MUMBAI BRANCH FOR THE PURPOSE OF EXPORT ; THE DI SPUTE IS WHETHER THE EXPENSES AT THE HYDERABAD BRANCH COULD BE CONSIDERED AS PART OF IND I RECT COST . THE CA SE OF THE ASSESSEE IS THAT THERE WAS NO EXPORT AT HYDERABAD AND, THEREFORE, EXPENSES: INCURRED AT HYDERABAD COULD NOT BE CONSIDERED AS PART OF INDIRECT COST. WE, HOWEVER, FIND THAT THE SAME ISSUE HAD COME UP FOR CONSIDERATION BEFORE TRIBUNAL IN A.Y.1998 - 99 IN ITA NO.4173/MUM/2013. IN THAT YEAR, CIT(A) HAD HELD THAT EXPENDITURE INCURRED AT BRANCH OFFICE AT HYDERABAD WHICH HAD NO CONNECTION OR LINK WITH EXPORT COULD NOT ITA NO S 8978 & 8746 /04 16 BE CONSIDERED AS PART OF INDIRECT COST. THE TRIBUNAL HOWEVER DID NOT UPHOLD THE VIEW TAKEN BY CIT(A) AND HELD THAT THE INDIRECT COST TO BE CONSIDERED FOR THE PURPOSE OF SECTION 80HHC WOULD BE THE TOTAL INDIRECT COST INCURRED FOR THE TOTAL TURNOVER AND NOT ONLY RELATING TO THE EXPORT TURNOVER. THEREFORE, THE EXPENSES INCURRED AT HYDERABAD BRANCH NOT DIRECTLY RELATED TO DOMESTIC SALES HAVE TO BE CONSIDERED AS PART OF INDIRECT COST. THE ORDER OF CIT(A) IS THEREFORE UPHELD. 14.3 AS THE ISSUE RAISED IS SIMILAR TO THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1999 - 2000, THEREFO RE, WE CONFIRM THE ORDER OF THE CIT(A) BY HOLDING THAT THE EXPENSES INCURRED AT HYDERABAD BRANCH IS NOT DIRECTLY RELATED TO DOMESTIC SALES WHICH HAVE TO BE CONSIDERED AS PART OF INDIRECT COST. 1 5 . GROUND NO. 10 IS IN REGARD TO CONFIRMING THE DISALLOWANCE OF BAD DEBTS TO THE EXTENT OF RS. 65,95, 038 / - . AS PER LEARNED AR, T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT, RANCHI , (2010) 323 ITR 397 (SC) , WHEREIN THE HONBLE SUPREME COURT HELD THAT , THIS POSITION IN LAW IS WELL SETTLED. AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 1 5 . 1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT BEFORE THE AO ASSESSEE HAS FURNISHED REASONS FOR WRITING OFF BAD DEBTS ALONG WITH DETAILS OF BAD DEBTS WRITTEN OFF. THE REASONS CITED BY THE ASSESSEE IN THE CASE OF BAD DEBTS PERTAIN TO OLD UNRECONC ILED BALANCE, SHORT PAYMENT AGAINST INVOICES, CONSIGNMENT LOSS IN TRANSIT, AMOUNT SHORT ITA NO S 8978 & 8746 /04 17 PAID ETC. AS PER OUR CONSIDERED VIEW THE AMOUNT SO WRITTEN OFF BY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION AS BAD DEBTS OR BUSINESS LOSS. MERELY BECAUSE THE AO WAS NOT CO NVINCED WITH THE EFFORTS MADE BY THE ASSESSEE FOR RECOVERY OF THE BAD DEBTS, NO DISALLOWANCE CAN BE MADE IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TRF, 323 ITR 397 (SC) . 1 5 . 2 FROM THE RECORD WE FIND THAT O UT OF THE TOTAL DISALL OWANCE OF RS. 5,91,19,706 / - CLAIMED AS BAD DEBTS WRITTEN OFF, THE CIT(A) CONFIRMED THE DISALLOWANCE OF RS. 65,95 , 038 / - AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. THE PRECISE OBSERVATION OF THE CIT(A) WHILE RESTRICTING THE DISALLOWANCE TO RS. 65,95 ,038 / - WAS AS UNDER : - 51. THEREFORE, IN THE CIRCUMSTANCES IT IS TO BE HELD IN RESPECT OF THE ACTION OF THE ASSESSING OFFICER OF MAKING DISALLOWANCE OF RS. 5,91,19,706/ - CLAIMED AS BAD DEBTS THAT WHILE THE DISALLOWANCE IN REGARD TO THE FOREIGN DEBTS AND D EPOSITS WRITTEN OFF IS NOT CORRECT, AS IT IS NOT BASED ON THE CORRECT APPRECIATION OF FACTS AND HENCE, CANNOT BE UPHELD IN RESPECT OF BALANCE AMOUNT OF BAD DEBTS IT IS TO BE HELD AS CORRECT. THEREFORE, OUT OF THE TOTAL DISALLOWANCE WHILE THE DISALLOWANCE O F RS. 5,25,24,668/ - IS DELETED IN RESPECT OF THE BALANCE AMOUNT OF RS. 65,95,038/ - THE DISALLOWANCE IS SUSTAINED. APPEAL IN RESPECT OF GROUND NO.9 IS THUS DISPOSED OFF AS PARTLY ALLOWED. WE HAVE CONSIDERED RIVAL CONTENTIONS. THE FINDING RECORDED BY CIT(A) WITH REGARD TO WRITING OFF OLD FOREIGN DEBT, IN RESPECT OF EXPORT MADE IN 1998, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. WITH RESPECT OF BALANCE OF RS. 65,95,038/ - , IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD., 323 ITR 397 , S INCE THE AO HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE , THEREFORE, THE MATTER IS REMANDED BACK TO THE FILE OF THE AO ITA NO S 8978 & 8746 /04 18 FOR FRESH CONSIDERATION. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PUR POSES . 1 6 . GROUND NO.11 IN ASSESSEES APPEAL IS IN REGARD TO LEVY OF INTEREST OF RS. 54,71,276/ - U/S. 234D. 1 6 .1 THE AO PASSED THE ASSESSMENT ORDER U/S. 143(3) IN CONSEQUENT TO WHICH LEVIED INTEREST ON THE EXCESS REFUND GRANTED TO IT, WHICH HAS BEEN PASSED A FTER AMENDMENT IN SECTION 234D VIDE FINANCE ACT, 2 012, DATED 1 - 6 - 2003 , THE DATE ON WHICH THE PROVISION OF EXPLANATION 2 TO SECTION 234D CAME INTO FORCE. IN APPEAL, THE CIT(A) CONFIRM ED THE ACTION OF THE AO. 1 6 .2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PE RUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE DECISION OF T HE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. INDIAN OIL CORPORATION LTD., 25 TAXMANN.COM 284 , WHEREIN THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT, THE PROCEEDING IN REGARD TO R EFUND WHICH HAS BEEN GRANTED UNDER SECTION - 143(1) OF THE ACT ARE CONCLUDED AND FINAL. THE REFUND WHICH HAS BEEN GRANTED UNDER SECTION 143(1) OF THE ACT IS PROVISIONAL, TO BE FINALLY DETERMINED WHEN FINAL ASSESSMENT ORDER IS PASSED UNDER SECTION 143(3) OF T HE ACT. EXPLANATION - 2 TO SECTION 234D OF THE ACT MAKES IT CLEAR THAT IT WOULD BE APPLICABLE TO PENDING PROCEEDINGS I. E. WHERE ASSESSMENT IN RESPECT OF SUCH ASSESSMENT YEAR IS NOT COMPLETED ON 1/6/2003. IN VIEW OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE AFORESAID CASE, WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD AND DISMISS THIS GROUND OF ASSESSEE. ITA NO S 8978 & 8746 /04 19 17 . NOW, WE SHALL TAKE THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL, NOT DECIDED HEREINABOVE. 1 8 . GROUND NO.(III) IN REVENUES APPEAL IS REGARDING DISALLOWANCE OF INTEREST ATTRIBUTABLE TO TAX FREE INVESTMENT INCOME IN CHIRON BEHRING VACCINES PVT. LTD.. LEARNED AR, AT THE OUTSET, SUBMITTED THAT THE VERY ISSUE HAS BEEN DECIDED BY THE TRIBUNAL FOR A.Y.1999 - 2000 IN ITA NO4180/MUM/2009 IN ASSESS EES OWN CASE VIDE ORDER DATED 20 - 2 - 2013. THE PRECISE OBSERVATION OF THE TRIBUNAL READS AS UNDER : - 3.3 THE FOURTH DISPUTE IS REGARDING DISALLOWANCE OF INTEREST ATTRIBUTABLE TO TAX FREE INCOME FROM INVESTMENT IN CHIRON BEHRING VACCINES PRIVATE LIMITED. TH E ASSESSEE HAD MADE INVESTMENT OF RS.4.90 CR IN EQUITY SHARES OF CHIRON BEHRING VACCINES PRIVATE LIMITED AND THE SOURCES OF INVESTMENT HAD BEEN EXPLAINED AS SALE PROCEEDS OF RS.19 CR FROM SALE OF ASSETS TO THE SAID COMPANY. CIT(A) ACCEPTED THE CLAIM OF SAL E PROCEEDS BUT CONFIRMED DISALLOWANCE OF INTEREST FOR 20 DAYS AS THERE WAS TIME GAP OF 20 DAYS BETWEEN DATE OF INVESTMENT AND DATE OF RECEIPT. NO MATERIAL IS PLACED ON RECORD BEFORE US TO CONTROVERT THE CLAIM OF THE ASSESSEE REGARDING AVAILABILITY OF SALE PROCEEDS. FURTHER WHILE DEALING WITH THE APPEAL OF THE ASSESSEE WE HAVE DELETED THE DISALLOWANCE OF INTEREST EVEN FOR 20 DAYS UPHELD BY CIT(A). THEREFORE, THE APPEAL FILED BY THE REVENUE DESERVES TO BE DISMISSED. THE ORDER OF CIT(A) IS UPHELD. LEARNED A R ALSO SUBMITTED THAT THIS ISSUE HAS ALSO BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.2 000 - 01 VIDE ORDER DATED 16 - 4 - 2014 AGAINST THE REVENUE. 1 8 .1 WE HAVE GONE THROUGH THE ORDER PASSED BY THE TRIBUNAL AND FOUND THAT THE AFORESAID ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR . AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS CITED ABOVE BY THE LEARNED AR, WE DISMISS THE GROUND RAISED BY THE R EVENUE . ITA NO S 8978 & 8746 /04 20 1 9 . GROUND NO. ( IV ) IN REVENUES APPEAL IS REGARDING DIRECTING THE AO TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S.80HHC. THIS ISSUE HAS BEEN DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS . LAXMI MACHINE WORKS, 290 ITR 667(SC ) , WHEREIN IT WAS HELD THAT EXCISE DUTY HAS NO ELEMENT OF PROFIT, THEREFORE, NOT INCLUDIBLE IN TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S.80HHC . RESPECTFULLY, FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DIRECTING FOR EXCLUSION OF EXCISE DUTY FROM THE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S.80HHC. 20 . GROUND NO. ( V ) IS REGARDING EXCLUDING ONLY PROCESSING CHARGES AND BAD DEBTS FROM THE TOTAL TURNOVER WHILE C OMPUTING THE ELIGIBLE DEDUCTION U/S.80HHC. THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAVINDRANATHAN NAIR, 295 ITR 228(SC) , WHEREIN THE HONBLE SUPREME COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT. 21. AT THE OUTSET, WE MAY STATE THAT, IN THE PRESENT CASE, WE ARE DEALING WITH THE LAW AS IT STOOD DURING ASSESSMENT YEAR 1993 - 94. AT THAT TIME SECTION 80HHC(3) OF THE I.T. ACT CONSTITUTED A CODE BY ITSELF. SUBSEQUENT AMENDMENTS HAVE IMPOSED RESTRICTION S/QUALIFICATIONS BY WHICH THE SAID PROVISION HAS CEASED TO BE A CODE BY ITSELF. IN THE ABOVE FORMULA THERE EXISTED FOUR VARIABLES, NAMELY, BUSINESS PROFITS, EXPORT TURNOVER, TOTAL TURNOVER AND 90% OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANA TION. IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ALL FOUR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VARIABLES WERE REQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTION OF SECTION 80HHC(3) SECURES PROFITS DERIVED FROM THE EXPORTS OF ELIGIBLE GOO DS. THEREFORE, IF ALL THE FOUR VARIABLES ARE KEPT IN MIND, IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NECESSARILY INCLUDE ELEMENT OF EXPORT TURNOVER. THIS ASPECT NEEDS TO BE KEPT IN MIND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 90% OF INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, ITA NO S 8978 & 8746 /04 21 CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDED IN BUSINESS PROFITS, HAD TO BE DEDUCTED FROM BUSINESS PROFITS COMPU TED IN TERMS OF SECTIONS 28 TO 44D OF THE I.T. ACT. IN OTHER WORDS, RECEIPTS CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE REDUCED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES ETC. FORMED PART OF GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSES OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVING EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND 'INDEPENDENT INCOMES' CONSTITUTED PART OF GROSS TOTAL INCOME, THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE, IN THE ABOVE FORMULA, WE HAVE TO READ ALL THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPORTS. THAT, EVERY RECEIPT IS NOT INCOME UNDER THE I.T. ACT AND EVERY INCOME MAY NOT BE ATTRIBUTABLE TO EXPORT S. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FOR AND ON BEHALF OF THE GOVERNMENT, SHALL NOT BE INCLUDED IN THE TOTAL TURNOVER IN THE ABOVE FORMULA (SEE: COMMISSIONER OF INCOME TAX, COIMBATORE V. M/S. LAKSHMI MACHINE WORKS - 2007(6) SCALE 168). 22. IN THE PRESENT CASE, THE PROCESSING CHARGES WERE INCLUDED IN THE GROSS TOTAL INCOME FROM CASHEW BUSINESS. THAT, EVEN ACCORDING TO ASSESSEE THE SAID CHARGES CONSTITUTED AN IMPORTANT COMPONENT OF GROSS TOTAL INCOME FROM CASHEW BUSINESS. THIS IS NOT DISPUTED. THEREFORE, IN TERMS OF CLAUSE (BAA), 90% OF THE 'INDEPENDENT INCOME' HAD TO BE DEDUCTED FROM GROSS TOTAL INCOME TO ARRIVE AT BUSINESS PRO FITS TO WHICH THE FRACTION HAD TO BE APPLIED. SINCE, THE PROCESSING CHARGES CONSTITUTED INDEPENDENT INCOME SIMILAR TO RENT, COMMISSION, ETC., WHICH FORMED PART OF THE GROSS TOTAL INCOME, THE SAME HAD TO BE REDUCED BY 90% AS CONTEMPLATED IN CLAUSE (BAA) TO ARRIVE AT BUSINESS PROFITS. THEREFORE, THE SAID PROCESSING CHARGES WERE INCLUDIBLE IN THE TOTAL TURNOVER IN THE FORMULA UNDER SECTION 80HHC(3) OF THE I.T. ACT. 23. BEFORE CONCLUDING WE STATE THAT THE NATURE OF EVERY RECEIPT NEEDS TO BE ASCERTAINED IN ORDER TO FIND OUT WHETHER THE SAID RECEIPT FORMS PART OF/OR THAT IT HAS AN ATTRIBUTE OF AN EXPORT TURNOVER. WHEN AN INDIRECT TAX IS COLLECTED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT THE TAX RECOVERED IS FOR THE GOVERNMENT. IT MAY BE AN INCOME IN THE CONCEPT UAL SENSE OR EVEN UNDER THE I.T. ACT BUT WHILE WORKING OUT THE FORMULA UNDER SECTION 80HHC(3) OF THE I.T. ACT AND WHILE APPLYING THE FOUR VARIABLES ONE HAS TO ASCERTAIN WHETHER THE RECEIPT HAS AN ATTRIBUTE OF EXPORT TURNOVER. AN INDIRECT TAX LIKE EXCISE DU TY DOES NOT HAVE THAT ELEMENT OF EXPORT TURNOVER AS UNDERSTOOD IN THE ABOVE FORMULA. AS STATED ABOVE, IT IS RECOVERED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT. THEREFORE, IN THE PRESENT CASES, OUR JUDGMENT IN COMMISSIONER OF INCOME TAX, COIMBATORE V. M/S. LAKSHMI MACHINE WORKS - 2007(6) SCALE 168, HAS NO APPLICATION. ITA NO S 8978 & 8746 /04 22 24. ACCORDINGLY, THE IMPUGNED JUDGMENTS OF THE HIGH COURT AND THE TRIBUNAL ARE SET ASIDE AND THE ABOVE CIVIL APPEALS FILED BY THE DEPARTMEN T ARE ACCORDINGLY ALLOWED WITH NO ORDER AS TO COSTS. 21 .1 THIS ISSUE HAS BEEN DISCUSSED BY US WHILE DECIDING THE GROUND NO. 10 IN THE APPEAL OF ASSESSEE HEREINABOVE, ACCORDINGLY THE AO IS DIRECTED TO RECOMPUTE THE DEDUCTION U/S.80HHC AFTER EXCLUDING THE NE T INCOME FROM PROCESSING CHARGES . HOWEVER, BAD DEBTS RECOVERED IS NEITHER PART OF TOTAL TURNOVER NOR EXPORT TURNOVER FOR THE PURPOSE OF SECTION 80HHC , THEREFORE, SAME IS REQUIRED TO BE EXCLUDED FROM ELIGIBLE PROFIT FOR THE PURPOSE OF CLAUSE (BAA) . 22 . GRO UND NO. (VI) IS IN REGARD TO RECOMPUTATION OF INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A MIXED EXPORTER IN THE YEAR UNDER CONSIDERATION AND HAS THEREFORE CLAIMED DEDUCTION IN TERMS OF CLAUSES (I) AND (I I) OF SECTION 80HHC(3)(C) IN REGARD TO THE EXPORT OF MANUFACTURED GOODS AND TRADING GOODS. IN REGARD TO THE COMPUTATION OF DEDUCTION UNDER THE SECTION, THE ASSESSEE HAS EXPRESSED GRIEVANCES IN RESPECT OF TAKING THE INDIRECT COST FOR COMPUTING THE DEDUCTION IN RESPECT OF EXPORT OF TRADING GOODS AT A HIGHER AMOUNT HOLDING THAT ALL EXPENSES NOT DIRECTLY RELATED TO MANUFACTURING ACTIVITIES TO BE TAKEN FOR THE SAID PURPOSE. 2 2.1 IT WAS CONTENDED BY THE LEARNED D R THAT T HIS ISSUE IS COVERED BY THE DECISION OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.1998 - 99, WHEREIN THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT , WHEREIN THE TRIBUNAL HAS HELD AS UNDER : - ITA NO S 8978 & 8746 /04 23 10.12 IT IS CLEAR FROM THE WORKING OF THE ASSESSING OFFICER THAT FOR DETERMINING THE IND IRECT COST, THE AO HAS REDUCED FROM THE TOTAL COST OF BUSINESS, COST OF GOODS AS WELL AS THE OTHER ITEMS. THEREFORE, WE DO NOT FIND ANY ERROR AS FAR AS THE FORMULA ADOPTED BY THE ASSESSING OFFICER FOR COMPUTATION OF INDIRECT COST ALLOCATED TO THE EXPORT OF TRADING GOODS. 22 . 2 ON THE OTHER HAND, LEARNED SENIOR AR APPEARING FOR THE ASSESSEE CONTENDED THAT THE AO COMMITTED FACTUAL ERROR IN DETERMINING THE INDIRECT COST, INSOFAR AS NO EXPORT WAS EFFECTED FROM HYDERABAD BRANCH, THEREFORE, THE COST AT HYDERABA D BRANCH WITH RESPECT TO THE LOCAL SALES CANNOT BE ATTRIBUTED TO THE EXPORT OF TRADING GOODS EFFECTED FROM MUMBAI. AS PER LEARNED SENIOR AR FOR THE PURPOSE OF COMPUTATION OF INDIRECT COST ALLOCABLE TO THE EXPORT OF GOODS UNDER SECTION 80HHC(3B) , THE EXPENS ES, WHICH HAS NOTHING TO DO WITH THE EXPORT OF TRADING GOODS SHOULD BE EXCLUDED. HE FURTHER CONTENDED THAT THOSE EXPENSES WHICH RELATE TO EITHER MANUFACTURING OF GOODS OR TO DOMESTIC SALES SHOULD NOT BE CONSIDERED AS INDIRECT EXPENSES FOR THE PURPOSE OF CO MPUTATION OF DEDUCTION IN RESPECT OF TRADING GOODS. AS PER LEARNED AR, HYDERABAD BRANCH DID NOT CARRY OUT ANY ACTIVITY RELATING TO EXPORT OF TRADING GOODS, THEREFORE, THERE IS NO JUSTIFICATION FOR REDUCING THE PROFIT OF TRADING EXPORT BY HYDERABAD BRANCH E XPENSES. 22 .3 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998 - 99 IN ITA NO.4179/MUM/2003, VIDE ORDER DATED 12 - 12 - 2012, WHEREIN TH E TRIBUNAL HAS UPHELD THE ACTION OF AO FOR COMPUTING PROFIT OF TRADING EXPORT AFTER HAVING DETAILED DISCUSSION, WHICH READS AS UNDER : - ITA NO S 8978 & 8746 /04 24 10 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THOUGH, THE ISSUE BEFORE US IS LIMITED ONLY TO THE EXTENT OF A FINDING OF THE CIT(A) PERTAINING TO THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO BE TAKEN AS PART OF INDIRECT COST FOR WORKING OUT THE DEDUCTION U/S 80HHC (3)(B). HOWEVER, THE SAID FINDING OF THE CIT(A) IS BASED ON THE VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX(APPEALS) THAT U/S SUB.SEC. 3(B) OF SEC. 80HHC, INDIRECT COST ATTRIBUTABLE TO EXPORT INCLUDES THE ITEMS OF EXPENDITURE ONLY IF IT HAS SOME CONNECTION, LINK, ATTRIBUTES TO EXPORT. THIS PROPOSITION PROPOUNDED BY THE CIT(A) IS APPARENTLY AGAINST THE PROVISIONS OF SECTION 80HHC(3)(B). IF THE PROVISIONS OF SEC 80HHC(3)(B) ARE READ IN CONJUNCTION WITH CLAUSE (E) OF EXPLANATION TO THE SAID SUB. SECTION, IT IS CLEAR THAT THE INDIRECT COST FOR THE PURPOSE OF ALLOCATIO N UNDER SUB.SEC (3) SHALL BE TAKEN AS THE TOTAL INDIRECT COST INCURRED FOR THE TOTAL TURNOVER (LOCAL + EXPORT) AND THE SAME HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER. 10.1 FOR READY REFERENCE, WE QUOTE SEC 80HHC(3)(B) AND CLAUSE (E) OF EXPLANATION AS UNDER: [(3) FOR THE PURPOSES OF SUB - SECTION (1), (A) . (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER45 IN RESPECT OF SUCH TRA DING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT; (C) EXPLANATION. FOR THE PURPOSES OF THIS SUB - SECTION, (A) .. (B) (D) . (E) 'INDIRECT COSTS' MEANS COSTS, NOT BEING DIRECT COSTS, AL LOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER ; (F) 10.2 IT IS CLEAR FROM THE COMBINED READING OF SUB. SEC. 3(B) AND CLAUSE (E) OF EXPLANATION TO SEC. 80HHC(3) THAT THE PROFIT DERIVED FROM EXPORT OF TRADING GOODS SHALL BE THE EXPORT TURNOVER OF TRADING GOODS MINUS DIRECT COST AND INDIRECT COST ATTRIBUTABLE TO SUCH EXPORTS. THE INDIRECT COST HAS BEEN DEFINED UNDER CLAUSE (E) OF EXPLANATION WHICH MEANS THE INDIRECT COST WHICH IS NOT DIRECT COST AND ALL OCATED IN THE RATIO OF EXPORT OF TRADING GOODS TO THE TOTAL TURNOVER. 10.3 THE TOTAL TURNOVER FURTHER DEFINED UNDER CLAUSE (BA) OF EXPLANATION TO SUB SEC. 4C. THEREFORE, THE TOTAL TURNOVER INCLUDES THE LOCAL SALES AS WELL AS THE EXPORT SALES REGARDING MA NUFACTURING GOODS AND TRADING GOODS EXCEPT CERTAIN ITEMS WHICH SHALL BE INCLUDED AS PER CLAUSE (BA). WHEN THE INDIRECT COST HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER, THEN THE INDIRECT COST SUBJECTED TO BE A LLOCATED IN THE SAID RATIO INCLUDES ALL ITEMS OF INDIRECT COST INCURRED FOR THE TOTAL TURNOVER. 10.4 IT IS MANIFEST FROM THE PLAN READING OF THE RELEVANT PROVISIONS THAT THE INDIRECT COST FOR THE PURPOSE OF SEC. 80HHC (3)(B) R.W.S ITA NO S 8978 & 8746 /04 25 CLAUSE (E) OF EXPLANATI ON DOES NOT RESTRICT THE ITEMS OF EXPENDITURE INCURRED IN RELATION TO EXPORT OF TRADING GOODS ONLY; BUT THE ENTIRE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER WHIC H ITSELF MAKES IT CLEAR THAT ONLY SUCH PORTION OF THE TOTAL INDIRECT COST IN THE RATIO OF EXPORT TURNOVER OF THE TRADING GOODS TO THE TOTAL TURNOVER SHALL BE ALLOCATED FOR THE PURPOSE OF COMPUTING THE PROFITS DERIVED FROM SUCH EXPORT U/S 80HHC(3)(B). 10.5 THOUGH THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE FINDINGS OF THE CIT(A); HOWEVER, THE REVENUE, BEING THE RESPONDENT CAN RAISE AN PLEA AGAINST SUSTAINABILITY OF THE ORDER OF THE CIT(A); BUT THE EFFECT OF SUCH PLEA WOULD BE ONLY TO THE EXTENT OF DEFE NCE AGAINST THE APPEAL AND IF THE RESPONDENT/REVENUE SUCCEEDS IN THE SAID GROUND/PLEA, THEN THE APPEAL OF THE APPELLANT/ASSESSEE WOULD FAIL. 10.6 THE SCOPE OF RAISING A PLEA AGAINST THE SUSTAINABILITY OF THE IMPUGNED ORDER AS THE RESPONDENT DEFENDED AGAIN ST THE APPEAL FILED BY OTHER PARTY HAS BEEN PROVIDED UNDER RULE 27 OF ITAT RULES; THEREFORE, THOUGH THE IMPUGNED ORDER OF THE CIT(A) WOULD STAND AND WILL HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE REVENUE; BUT IF THE PLEA RAISED BY THE REVENUE IS ACCE PTED AS REGARDS THE VALIDITY OF THE IMPUGNED ORDER BUT THEN THE REVENUE SUCCEEDS ONLY TO THE EXTENT THAT THE APPEAL OF THE ASSESSEE WOULD FAIL. 10.7 THE SCOPE OF RULE 27 OF ITAT RULES HAS BEEN DISCUSSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF BAMASI (B.R.) V. COMMISSIONER OF INCOME - TAX REPORTED IN 83 ITR 223 AS UNDER; BUT EVEN IF THE ASSESSEE HAD NOT MADE SUCH A STATEMENT, THE ABOVE JUDGMENT SHOWS THAT THE ASSESSEE WOULD BE ENTITLED TO RAISE A NEW GROUND, PROVIDED IT IS A GROUND OF LAW AND DOES NOT NECESSITATE ANY OTHER EVIDENCE TO BE RECORDED, THE NATURE OF WHICH WOULD NOT ONLY BE A DEFENCE TO THE APPEAL ITSELF, BUT MAY ALSO AFFECT THE VALIDITY OF THE ENTIRE ASSESSMENT PROCEEDINGS. IF THE GROUND SUCCEEDS, THE ONLY RESULT WOULD BE THAT THE APPEAL WOULD FAIL. THE ACCEPTANCE OF THE GROUND WOULD SHOW THAT THE ENTIRE ASSESSMENT PROCEEDINGS WERE INVALID, BUT YET THE TRIBUNAL WHICH HEARS THAT APPEAL WOULD HAVE NO POWER TO DISTURB OR TO SET ASIDE THE ORDER IN FAVOUR OF THE APPELLANT AGAINST WHI CH THE APPEAL HAS BEEN FILED. THE GROUND WOULD SERVE ONLY AS A WEAPON OF DEFENCE AGAINST THE APPEAL. IF THE RESPONDENT HAS NOT HIMSELF TAKEN ANY PROCEEDINGS TO CHALLENGE THE ORDER IN APPEAL, THE TRIBUNAL CANNOT SET ASIDE THE ORDER APPEALED AGAINST. THAT OR DER WOULD STAND AND WOULD HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE RESPONDENT. THE TRIBUNAL REFUSED TO ALLOW THE ASSESSEE TO TAKE UP THIS GROUND UNDER AN INCORRECT IMPRESSION OF LAW THAT IF THE POINT WAS ALLOWED TO BE URGED AND SUCCEEDED, THE TRIBUN AL WOULD HAVE NOT ONLY TO DISMISS THE APPEAL, BUT ALSO TO SET ASIDE THE ENTIRE ASSESSMENT. THE POINT WOULD HAVE SERVED AS A WEAPON OF DEFENCE AGAINST THE APPEAL, BUT IT COULD NOT BE MADE INTO A WEAPON OF ATTACK AGAINST THE ORDER IN SO FAR AS IT WAS AGAINST THE ASSESSEE. 10.8 THE CIT(A) HAS GI VEN THE FINDINGS ON THE ISSUE I N PARAS 28 TO 30 AS UNDER; ITA NO S 8978 & 8746 /04 26 28. AFTER CAREFUL CONSIDERATION OF THE SUBMISSION, IT HAS TO BE SAID THAT THE SECTION OF THE ASSESSING OFFICER DOES NOT APPEAR TO BE CORRECT. WHAT CANNOT BE IGNORED IS THAT SUBSECTION (3)(B)DEDUCTION INTER - ALIA OF INDIRECT COST ATTRIBUTABLE TO SUCH EXPORTS. THE PHRASE ATTRIBUTABLE TO SUCH EXPORT CANNOT BE MISSED OUT. THEREFORE, AN ITEM OF EXPENDITURE CAN BE TAKEN AS COST FOR THE PURPOSE ONLY IF IT HAS SOME CO NNECTION, LINK, ATTRIBUTES TO THE EXPORT. IF THE EXPENDITURE IS TOTALLY DISCONNECTED WITH THE EXPORT ACTIVITY, IT CANNOT BE TAKEN AS PART OF THE INDIRECT COSTS, THEREFORE, THE ASSESSING OFFICER HAS DEFINITELY GONE BEYOND WHAT IS PROVIDED IN THE ACT TO WORK OUT THE INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS. 29. IN ORDER TO DETERMINE CORRECTLY THE INDIRECT COST, THE APPELLANTS REPRESENTATIVE WAS ASKED TO FURNISH THE DETAILS OF TRADING EXPORT ACTIVITIES. IN THIS REGARD THE DETAILS REVEAL THAT THE TRADING GOODS EXPORTS COMPRISE PARTLY OF GOODS IMPORTED AND PARTLY PURCHASED LOCALLY EITHER FROM MUMBAI OR ELSEWHERE. IT WAS SUBMITTED THAT THE MATERIAL DEPARTMENT OF THE COMPANY PROCURED ITEMS OF TRADING EXPORTS. ALL ACTIONS AND FORMALITIES FOR EXPORTS A RE CARRIED OUT BY EXPORT DEPARTMENT. EXPENSES OF BOTH THESE DEPARTMENTS ARE BOOKED AS HEAD OFFICE EXPENSES. THE APPELLANTS REPRESENTATIVE FURNISHED THE DETAILS OF HEAD OFFICE EXPENSES. IT WAS CLAIMED THAT SOME OF THE EXPENSES INCURRED THEREIN ARE FOR DOME STIC ACTIVITIES AND ONLY EXPENDITURE AMOUNTING TO RS.29,04,71,863/ - IS SUCH THAT IS TO BE TAKEN AS SOMEHOW ATTRIBUTABLE TO EXPORTS TO BE TAKEN AS PART DIRECT EXPENSES. A PERUSAL OF THE DETAILS SHOW THAT AS FAR AS THE HEAD OFFICE EXPENSES IS CONCERNED, THE WORKING THEREOF IS CORRECT AND HENCE NEEDED TO BE ACCEPTED. 30 HOWEVER, THE APPELLANT COMPANY EXPORTED TRADING GOODS DURING THE YEAR THAT WERE PROCURED FROM HYDERABAD AND MUMBAI. AT BOTH THE PLACES THE APPELLANT COMPANY HAS BRANCH OFFICES APART FROM THE H EAD OFFICE BEING LOCATED IN MUMBAI. THOUGH IT WAS CLAIMED THAT THE JOB OF PROCUREMENT OF TRADING GOODS EXPORTED ARE CARRIED OUT FROM HEAD OFFICE THAT IS HAVING SEPARATE PROCUREMENT AND EXPORT DIVISIONS, WHILE THE INVOLVEMENT OF BRANCH OFFICE AT MUMBAI CAN BE RULED OUT WITH A SPECIFIC OFFICE FOR THE PURPOSE LOCATED THEREIN, IN RESPECT OF THE BRANCH OFFICE AT HYDERABAD, THE OTHER PLACE FOR PROCUREMENT, THE SAME CANNOT BE ACCEPTED. HENCE THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO THE EXTENT NOT DIR ECTLY RELATED TO DOMESTIC SALES IS ALSO REQUIRED TO BE TAKEN AS PART OF THE INDIRECT COST FOR WORKING OUT DEDUCTION UNDER SECTION 80 HHC (3)(B) OF THE ACT, THE ASSESSING OFFICER SHALL REWORK OUT THE INDIRECT COST UNDER THE SECTION ACCORDINGLY. X X X X X X 10.10 AS WE HAVE ALREADY DISCUSSED THAT FOR THE PURPOSE OF SEC. 80HHC(3)(B) R.W.CLAUSE (E) OF EXPLANATION, THE INDIRECT COST TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER HAS TO BE TAKEN AS THE TOTAL FIGURE OF THE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER AND NOT THE INDIRECT COST DIRECTLY RELATED TO THE EXPORT TURNOVER AS HELD BY THE CIT(A). X X X X X X X ITA NO S 8978 & 8746 /04 27 10.12 IT IS CLEAR FROM THE WORKING OF THE ASSESSING OFFICER THAT FOR DETERMINING THE INDIRECT COST, T HE AO HAS REDUCED FROM THE TOTAL COST OF BUSINESS, COST OF GOODS AS WELL AS THE OTHER ITEMS. THEREFORE, WE DO NOT FIND ANY ERROR AS FAR AS THE FORMULA ADOPTED BY THE ASSESSING OFFICER FOR COMPUTATION OF INDIRECT COST ALLOCATED TO THE EXPORT OF TRADING GOOD S. 22.4 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, THE GROUND IN THE REVENUES APPEAL IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. [ 23 . GROUND NO.(VII) IS REGARDING DIRECTING THE AO TO CALCULATE DEDUCTION U/S.80HHC WITHOUT REDUCING 90% OF THE DEPB LICENSE SOLD WITHOUT APPRECIATING THE FACTS OF THE CASE. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT, 342 ITR 49 (SC) , WHEREIN THE HONBLE SUPREME COURT HAS HELD AS UNDER : - THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MA DE PROFITS ON TRANSFER OF DEPB UNDER CLAUSE (D) OF SECTION 28, HE WO ULD NOT GET THE BENEFIT OF ADDI TION TO EXPORT PROFITS UNDER THIRD OR FOURTH PR OVISO TO SUB - SECTION (3) OF SEC TION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT AND THERE IS NOTHING IN EXPLANATION (BAA) TO SECTION 80HHC TO SHOW THAT THIS BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN A SSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES. IN OTHER WORDS, WHERE THE EXPORT TURNOVER OF AN ASSESSEE EXCEEDS RS. 10 CRORES, HE DOES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT, OF EXPORT INCENTIVE UNDER CLAUSE (IIID) OF SECTION 28 TO HIS EXPORT PROFITS, BUT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS, WHICH ULTIMATELY RESULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT. THE HIGH COURT, THEREFORE, WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSESSEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND AS THE ASSES SEE DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(III), THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB AND WIT H A VIEW TO GET OVER THIS DIFFICULTY THE ASSESSEE WAS CONTENDING THAT THE PROFITS ON TRANSFER OF THE DEPB UNDER ITA NO S 8978 & 8746 /04 28 SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL - SETTLED PRINCIPLE OF STATUTORY INTERPRETATION OF A TAXING STATUTE TH AT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC READ WITH THE WORDS USED IN CLAUSES (IIID) AND (IIIE) OF SECTION 28, THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON EXPORT PROFITS, THE BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO THE ASSESSEE. THE IMPUGNED JUDGMENT AND .ORDERS OF THE BOMBAY HIGH COURT ARE ACCORDINGLY SET ASIDE. THE APPEALS ARE. ALLOWED TO THE EXTENT INDICATED IN THIS JUDGMENT. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE DEDUCTION UNDER SECTION 80HHC IN THE CASE OF THE APPELLANTS IN ACCORDANCE WITH THIS JUDGMENT. THERE SHALL BE NO ORDER AS TO COSTS. 23 .1 WE HAVE CONSID ERED RIVAL CONTENTIONS AND PERUSED THE RECORD. AS THE ISSUE IS COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) , R ESPECTFULLY FOLLOWING THE SAME , WE DIRECT THE AO TO COMPUTE DEDUCTION ON DEPB SINCE LICENSE SOLD IN TERMS OF DECISION IN THE CASE OF TOPMAN EXPORTS (SUPRA). 24 . IN REGARD TO GROUND NO.(IX), WE HAVE ALREADY DECIDE D THE ISSUE WHILE DECIDING THE GROUND NO. 10 IN THE APPEAL OF THE ASSESSEE , WHEREIN WE HAVE REMANDED THE MATTER BACK TO THE FILE OF THE AO FOR F RESH CONSIDERATION ONLY TO THE EXTENT OF THE WRITE OFF . HENCE, THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 25 . GROUND NO.(X) OF THE REVENUE IS REGARDING INACTION ON THE PART OF THE CIT(A) IN DIRECT ING THE AO TO MAKE ADJUSTMENT IN THE VALUATION OF CLOSING STOCK. IT WAS SUBMITTED BEFORE THE CIT(A) THAT SINCE SUCH ADJUSTMENT IN THE VALUATION OF OPENING STOCK ON THIS ACCOUNT WILL BE HIGHER THAN THAT IN THE CLOSING STOCK VALUE BY RS. 77,33,369/ - , THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION IN THE COMPUTATION OF ITS ITA NO S 8978 & 8746 /04 29 BUSINESS PROFITS OF AN EQUAL AMOUNT. IN THIS REGARD, RELIANCE WAS ALSO PLACED BY THE ASSESSEE BEFORE CIT(A) IN THE CASE CIT VS. INDO NIPPON CHEMICAL COMPANY, 261 ITR 275(SC) . CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE CIT(A) RELYING ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT, 227 ITR 172 (SC) , DIRECTED THE AO TO MAKE THE ADJUSTMENT IN REGARD TO THE STOCKS, PURCHASE, SALES, EXCISE DUTY PAYMENTS AND IF SUCH ADJUSTMENT RESULTS IN AN ADDITION TO THE INCOME OF THE ASSESSEE, RESTRICT THE ADDITION ONLY TO THAT EXTENT. 25.1 LEARNED SENIOR COUNSEL SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1999 - 200 0 , PASSED IN ITA NO. 4180/2003, VIDE ORDER DAT ED 20 - 2 - 2013 IN FAVOUR OF THE ASSESSEE. 25.2 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1999 - 2000. THE TRIBUNAL RELYING THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALUMINUM LTD., 295 ITR 77 , REMITTED THE MATTER BACK TO THE AO FOR DE NOVO CONSIDERATION AFTER HAVING FOLLOWING OBSERVATIONS : - 2.9.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPU TE IS REGARDING ADJUSTMENT ON ACCOUNT OF MODVAT CREDIT U/S. 145A OF THE INCOME - TAX ACT . UNDER THE SAID PROVISION, VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY HAS TO BE MADE ON THE BASIS OF METHOD OF ACCOUNTING REGULARLY FOLLOWED AND FURTHER ADJUST MENT IS REQUIRED TO BE MADE TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS TO BRING THE GOODS TO THE PLACE OF ITS LOCATION CONDITIONS ON THE DATE OF THE VALUATION. THEREFORE, UNDER THE PROVISION U/S. 145A ADJUSTMENT ON ACCOUNT OF TAX, DUTY ETC HAS TO BE MADE AT ALL STAGES THAT IS, OPENING STOCK, PURCHASES AND SALES AND CLOSING STOCK. IT HAS BEEN HELD BY THE ITA NO S 8978 & 8746 /04 30 HON BLE HIGH COURT OF DELHI IN CASE OF MAHAVIR ALUMINUM LTD. (295 ITR 77) THAT ADJUSTMENT U/S. 145A HAS TO BE MADE BOTH THE OPENING STOCK AND CLOSING STOCK. THIS ISSUE THEREFORE IN OUR VIEW REQUIRES FRESH EXAMINATION. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A), AND RESTORE THE MATTER TO AO FOR PASSING A FRESH ORDER AFTER ALLOWING OPPORTUNITY OF HEARING TO ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE RESTORE THE MATTER TO THE FILE OF THE AO FOR DE NOVO CONSIDERATION AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF REVENUE IS PARTLY ALLOWED. 2 3 . RESULTANTLY, BOTH APPEALS OF ASSESSEE AS WELL AS REVENUE ARE ALLOWED PARTLY FOR STATISTICAL PURPOSES IN TERMS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD JULY . 201 4 . 23 RD J ULY ,2014 SD/ - SD/ - ( ) ( VIJAY PAL RAO ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 23 /07 /2014 /PKM , PS COPY OF THE ORDER FO RWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//