THE ACIT CIR-7(1), V. M/S. NATIONAL SECURITIES CLEARING CORPN. LTD,

ITA 8941/MUM/2004

• Counselvise Citation: 894119914 RSA 2004
• Duration Of Justice: 6 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 11-08-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 08-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: ARVIND SONDE
• Keywords: Earning of tax free income; Revenue expenditure; Capital expenditure; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER. S.NO. I.T.A. NO. ASSTT. YEAR. 1. 8675/MUM/2004 1998-99 2. 8676/MUM/2004 1999-2000 3. 2513/MUM/2007 2003-04 M/S NATIONAL SECURITIES CLEARING ADDL. COMMISSIONER OF INCOME-TAX, CORPORATION LTD., VS. SPECIAL RANGE-23, MUMBAI./ EXCHANGE PLAZA, C-1, BLOCK-G, ASSTT. COMMISSIONER OF INCOME-TAX, BANDRA-KURLA COMPLEX, CIRCLE-7(1), MUMBAI. BANDRA (EAST), MUMBAI 400 020. PAN AAACN2642L APPELLANT. RESPONDENT. S.NO. I.T.A. NO. ASSTT. YEAR. 4. 8940/MUM/2004 1998-99. 5. 8941/MUM/2004 1999-2000 6. 2 121/MUM/2007 2003-04, DY./ASSTT. COMMISSIONER OF INCOME-TAX, N ATIONAL SECURITIES CLEARING CIRCLE-7(1), MUMBAI. VS. CORPORATION LTD., MUMBAI. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI ARVIND SONDE. DEPARTMENT BY : SHRI C.G.K. NAIR. DATE OF HEARING : 11-08-2011. DATE OF PRONOUNCEMENT : 26-08-2011. 2 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. O R D E R. PER P.M. JAGTAP, A.M. : THESE SIX APPEALS, THREE FILED BY THE ASSESSEE AND THREE FILED BY THE REVENUE, ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THREE SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS) FOR ASSESSMENT YEARS 1998-99, 1999-2000 AND 2003-04 AND SINCE SOME COMMON ISSUES ARE INVOLVED THEREIN, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE COMPOSITE ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL TAKE UP THE CROSS APPEALS FOR ASS ESSMENT YEAR 1998-99 WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEA LS)-XIX, MUMBAI DATED 30-09- 2004. 3. THE SOLITARY GROUND RAISED IN THE ASSESSEES APP EAL AND GROUND NO. 4 OF THE REVENUES APPEAL RELATES TO THE DISALLOWANCE ON ACC OUNT OF EXPENDITURE INCURRED IN RELATION TO EARNING OF TAX FREE INTEREST INCOME MAD E BY THE AO AT 2% OF SUCH GROSS INTEREST EARNED WHICH HAS BEEN SUSTAINED BY THE LEA RNED CIT(APPEALS) TO THE EXTENT OF 0.5%. 4. THE ASSESSEE IN THE PRESENT CASE IS A WHOLLY OWN ED SUBSIDIARY COMPANY OF NATIONAL STOCK EXCHANGE OF INDIA LTD. (NSE IN SHORT ). ITS MAIN ACTIVITY CONSISTS OF FACILITATING CLEARING AND SETTLEMENT OF TRANSACTION S IN SECURITIES AND INSTRUMENTS, ENSURING COMPLETION AND GUARANTEE OF SETTLEMENTS AN D FACILITATING, PROMOTING, ASSISTING, REGULATING AND MANAGING DEALINGS IN SECU RITIES AND INSTRUMENTS. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERA TION, INTEREST INCOME EARNED ON TAX FREE BONDS AMOUNTING TO RS.6,40,46,445/- WAS CL AIMED TO BE EXEMPT BY THE 3 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. ASSESSEE U/S 10(15). ACCORDING TO THE AO, INTEREST EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME WAS LIABLE TO BE DISALLOW ED. HE, THEREFORE, ESTIMATED SUCH EXPENDITURE AT RS.12,28,929/- BEING 2% OF GROS S INTEREST INCOME EARNED BY THE ASSESSEE ON TAX FREE BONDS AND MADE A DISALLOWA NCE TO THAT EXTENT. ON APPEAL, THE LEARNED CIT(APPEALS) RESTRICTED THE SAID DISALL OWANCE TO 0.5% OF THE GROSS INTEREST INCOME RELYING ON THE ORDER OF HIS PREDECE SSOR IN THE CASE OF NATIONAL STOCK EXCHANGE. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE, THE TRIBUNAL IN THE CASE OF NATIONAL STOCK EXCHANGE VID E ITS ORDER PASSED IN ITA NO. 7492/MUM/2005 AND OTHERS HAS DECIDED A SIMILAR ISSU E SUSTAINING THE DISALLOWANCE TO THE EXTENT OF 1% OF THE GROSS INTEREST INCOME EA RNED BY THE ASSESSEE ON TAX FREE BONDS AS AGAINST 2% MADE BY THE AO AND 0.5% MADE BY THE LEARNED CIT(APPEALS). THE SAID DECISION RENDERED IN THE CASE OF NATIONAL STOCK EXCHANGE HAS BEEN FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2004-05 AND 2005-06 WHILE DECIDING THE SIMILAR ISSUE BY ITS ORD ER DATED 29-07-2001 PASSED IN ITA NO.S 3113 & 3124/MUM/2009 TO SUSTAIN THE DISALL OWANCE MADE ON SIMILAR ISSUE TO THE EXTENT OF 1% OF THE GROSS INTEREST EAR NED. RESPECTFULLY FOLLOWING THESE DECISIONS OF THE TRIBUNAL, WE MODIFY THE IMPUGNED O RDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND DIRECT THE AO TO MAK E A DISALLOWANCE TO THE EXTENT OF 1% OF THE GROSS INTEREST EARNED BY THE ASSESSEE ON TAX FREE BONDS. GROUND NO. 4 OF THE REVENUES APPEAL IS THUS PARTLY ALLOWED WHER EAS THE SOLITARY GROUND RAISED IN THE ASSESSEES APPEAL IS DISMISSED. 4 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. 6. IN GROUND NO.1 AND 2 OF ITS APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN HOLDING THAT THE ADVERT ISEMENT EXPENDITURE OF RS.13,28,093/- IS ALLOWABLE IN THE HANDS OF THE ASS ESSEE. 7. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HA D CLAIMED ADVERTISEMENT EXPENDITURE OF RS.13,28,093/- BEING 1/3 RD OF THE TOTAL ADVERTISEMENT EXPENDITURE OF RS.39,84,280/- INCURRED BY NSE. ACCORDING TO THE AO , THE ADVERTISEMENT AND PUBLICITY EXPENDITURE INCURRED BY NSE TO PROMOTE IT S BUSINESS OF TRADING IN SECURITIES COULD NOT BE SAID TO BE RELATED TO THE A SSESSEES BUSINESS OF CLEARING AND SETTLEMENT. HE HELD THAT THE SAID EXPENDITURE THUS WAS NEITHER INCURRED BY THE ASSESSEE NOR WAS LAID OUT OR EXPENDED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. HE, THEREFORE, DISALLOWED THE ADVERTISEME NT EXPENDITURE CLAIMED BY THE ASSESSEE. ON APPEAL, THE LEARNED CIT(APPEALS) DELET ED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT EXPENDITURE FOLL OWING THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE ON A SIMILAR ISS UE FOR IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 1997-98. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE, THE ORDER PASSED BY HE LEARNED CIT(APPEALS) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 GIVING RELIEF ON THE SIMILAR ISSUE HAS BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 30 TH MAY, 2005 PASSED IN ITA NO. 4202/MUM/2000 FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3 : THE ASSESSEE COMPANY IS A SUBSIDIARY OF NATIONAL STOCK EXCHANGE LIMITED, AND AS THE ASSESSING OFFICER HAS HIMSELF V ERIFIED BY VISITING THE BUSINESS PREMISES OF THE ASSESSEE, BOTH THE COMPANI ES ARE INTERLINKED, AND THEIR BUSINESS IS CLOSELY INTERCONNECTED. IT IS NOT EVEN REVENUES CASE THAT 5 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. EXPENSES ARE NOT BONAFIDE OR GENUINE. IT IS ALSO AN ADMITTED POSITION THAT BOTH THE COMPANIES I.E. SUBSIDIARY AS WELL AS HOLDI NG ARE TAXED AT THE SAME RATE. UNDER THESE CIRCUMSTANCES, IT IS DIFFICULT TO COMPREHEND AS TO WHAT PURPOSE IS SERVED BY DISALLOWING THE EXPENSES IN TH E HANDS OF ONE COMPANY AND ALLOWING IN THE HANDS OF THE OTHER. THE BENEFIT OF THE JOINT EXPENDITURE IS RECEIVED BY BOTH THE COMPANIES AND THE SAME HAVE BE EN ALLOCATED IN FAIR AND REASONABLE MANNER, KEEPING IN MIND THESE FACTS, AS ALSO ENTIRELY OF THE CASE, WE APPROVE AND AFFIRM CONCLUSION ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTE. 9. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THA T OF ASSESSMENT YEAR 1997-98, WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RE NDERED IN ASSESSMENT YEAR 1997- 98 AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NOS. 1 AND 2 OF THE REVENUES APPEAL ARE ACCORDINGLY DISMISSED. 10. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE OF RS.10, 59,371/- MADE BY THE AO OUT OF SOFTWARE EXPENSES. 11. IN THE TOTAL SOFTWARE EXPENSES OF RS.52,96,855/ - CLAIMED BY THE ASSESSEE, A SUM OF RS.50,97,656/- WAS ON ACCOUNT OF 1/3 RD SHARE OF SOFTWARE EXPENSES INCURRED BY NSE. THIS SHARING OF SOFTWARE EXPENSES WAS NOT F ULLY ACCEPTED BY THE AO AND HE DISALLOWED A SUM OF RS.10,59,371/- OUT OF SOFTWA RE EXPENSES BEING 20% OF RS.50,97,656/-. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE AO ON THIS ISSUE FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 GIVING RELIEF TO THE ASSESSEE ON SIMILAR ISSUE. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS ALREADY NOTED BY US, THE OR DER OF THE LEARNED CIT(APPEALS) 6 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. FOR ASSESSMENT YEAR 1997-98 ACCEPTING THE ARRANGEME NT BETWEEN THE ASSESSEE COMPANY AND NSE OF SHARING THE EXPENDITURE FOR ASSE SSMENT YEAR 1997-98 HAS ALREADY BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 30 TH MAY, 2005 (SUPRA). RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 13. NOW WE SHALL TAKE UP THE CROSS APPEALS FOR ASSE SSMENT YEAR 1999-2000 WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT (APPEALS)-XIX, MUMBAI DATED 30-09-2004. 14. THE ISSUE RAISED IN GROUND NO.1 OF THE ASSESSEE S APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LE ARNED CIT(APPEALS) ON ACCOUNT OF Y2K EXPENDITURE AMOUNTING TO RS.63,77,34 0/- TREATING THE SAME AS OF CAPITAL NATURE. 15. THE EXPENDITURE AMOUNTING TO RS.63,76,340/- INC URRED DURING THE YEAR UNDER CONSIDERATION WAS CLAIMED BY THE ASSESSEE AS DEDUCT ION ON THE GROUND THAT THE SAME WAS INCURRED FOR REDESIGNING THE COMPUTER SYST EMS IN ORDER TO MAKE THEM COMPATIBLE FOR ANY CHANGE REQUIRED ON ACCOUNT OF YE AR 2000. ACCORDING TO THE AO, THERE WAS ENHANCEMENT IN THE CAPABILITIES OF COMPUT ER SYSTEM AS A RESULT OF INCURRING OF THE SAID EXPENDITURE WHICH BROUGHT AN ENDURING BENEFIT TO THE ASSESSEE. HE HELD THAT THE SAID EXPENDITURE, THEREF ORE, WAS OF CAPITAL NATURE AND THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION FOR TH E SAME. HE ALSO HELD THAT THE PROVISIONS OF SECTION 36(1)(XI) SPECIFICALLY ALLOWI NG Y2K EXPENSES INTRODUCED WITH EFFECT FROM ASSESSMENT YEAR 2000-01 WERE NOT APPLIC ABLE TO THE YEAR UNDER 7 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. CONSIDERATION. ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO IN TREATING THE IMPUGNED EXPENDITURE INCURRED BY THE A SSESSEE AS CAPITAL EXPENDITURE. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS SUBMITTED THAT THE IMPUGNED EXPENDITURE IS BEING CLAIMED BY THE ASSESS EE NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(XI) WHICH ARE NOT APPLI CABLE TO THE YEAR UNDER CONSIDERATION, BUT THE SAME IS BEING CLAIMED U/S 37 (1) BEING THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. HE HAS INVITED OUR ATTENTION TO THE DETAILS OF THE EXPENDI TURE IN QUESTION FURNISHED IN HIS PAPER BOOK ALONG WITH SUPPORTING BILLS AND A PERUSA L OF THE SAME SHOWS THAT A SUBSTANTIAL AMOUNT OF RS.59,63,246/- WAS PAID BY TH E ASSESSEE TO M/S TATA CONSULTANCY SERVICES FOR ANALYSIS, CONVERSION AND T ESTING OF EXISTING SOFTWARE. THE DESCRIPTION OF THE WORK DONE BY M/S TATA CONSULTANC Y SERVICES IS GIVEN IN THEIR RESPECTIVE BILLS AND AS MENTIONED IN THE SAID BILLS , THE WORK WAS DONE BY M/S TATA CONSULTANCY SERVICES AS PER THE AGREEMENT DATED 10 TH MARCH,1999 ENTERED INTO WITH THE ASSESSEE COMPANY. IT IS OBSERVED FROM THE ORDERS OF THE AUTHORITIES BELOW THAT NEITHER THE AO NOR THE LEARNED CIT(APPEALS) HA S TAKEN INTO CONSIDERATION THE NATURE OF WORK DONE IN THE LIGHT OF RELEVANT CLAUS ES OF THE SAID AGREEMENT. IN ORDER TO ASCERTAIN THE NATURE OF IMPUGNED EXPENDITURE, WH ETHER CAPITAL OR REVENUE, IT IS NECESSARY TO EXAMINE THE NATURE OF SOFTWARE EXPENDI TURE INCURRED BY THE ASSESSEE AND THIS EXERCISE CAN BE DONE BY APPLYING THE GUIDE LINES LAID DOWN BY THE DELHI BENCH OF ITAT IN THE CASE OF AMWAY INDIA ENTERPRISE S 111 ITD 112 TO THE FACTS OF THE PRESENT CASE. WE, THEREFORE, DEEM IT JUST AND P ROPER TO SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH IN THE LIGHT OF THE SAID DECISION OF THE SPECIAL 8 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. BENCH OF ITAT. GROUND NO. 1 OF THE ASSESSEES APPEA L IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 17. THE NEXT ISSUE RAISED IN GROUND NO.2 OF THE ASS ESSEES APPEAL AND GROUND NO.4 OF THE REVENUES APPEAL RELATING TO DISALLOWAN CE OF EXPENDITURE CONFIRMED BY THE LEARNED CIT(APPEALS) AT RS.2,54,445/- BEING 0.5 % OF GROSS INTEREST EARNED ON TAX FREE BONDS IS SIMILAR TO THE ONE INVOLVED IN G ROUND NO.1 OF THE ASSESSEES APPEAL AND GROUND NO. 4 OF THE DEPARTMENTAL APPEAL FOR ASSESSMENT YEAR 1998-99 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOI NG PORTION OF THIS ORDER. FOLLOWING THE CONCLUSION DRAWN IN ASSESSMENT YEAR 1 998-99, WE MODIFY THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND SUSTAIN THE DISALLOWANCE MADE ON ACCOUNT OF GROSS INTEREST EARN ED ON TAX FREE BONDS TO 1% AS AGAINST 2% MADE BY THE AO AND 0.5% SUSTAINED BY THE LEARNED CIT(APPEALS). GROUND NO. 2 OF THE ASSESSEES APPEAL IS ACCORDINGL Y DISMISSED WHEREAS GROUND NO. 4 OF THE REVENUES APPEAL IS PARTLY ALLOWED. 18. THE ISSUE RAISED IN GROUND NO. 1 AND 2 OF THE R EVENUES APPEAL RELATING TO ADVERTISEMENT EXPENSES HELD BY THE LEARNED CIT(APPE ALS) AS ALLOWABLE IN THE HANDS OF THE ASSESSEE IS SIMILAR TO ONE INVOLVED IN GROUND NO. 1 AND 2 OF REVENUES APPEAL FOR ASSESSMENT YEAR 1998-99 WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONC LUSION IN ASSESSMENT YEAR 1998- 99, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 1 AND 2 OF THE REVENUES APPEAL. 19. THE ISSUE RAISED IN GROUND NO. 3 OF THE REVENUE S APPEAL RELATING TO DELETION OF THE DISALLOWANCE OF RS.15,70,767/- OUT OF SOFTWA RE EXPENSES BY THE LEARNED CIT(APPEALS) IS SIMILAR TO THE ONE RAISED IN GROUND NO. 3 OF REVENUES APPEAL FOR 9 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. ASSESSMENT YEAR 1998-99 WHICH HAS BEEN DECIDED BY U S IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN ASSES SMENT YEAR 1998-99, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVI NG RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.3 OF THE REVENUES APPEAL. 20. NOW WE SHALL TAKE UP THE CROSS APPEALS FOR ASSE SSMENT YEAR 2003-04 WHICH ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A PPEALS)-XIX, MUMBAI DATED 21- 11-2006. 21. THE ISSUE RAISED IN GROUND NO. 1 OF THE ASSESSE ES APPEAL AS WELL AS THAT OF REVENUES APPEAL RELATING TO THE DISALLOWANCE ON AC COUNT OF EXPENDITURE INCURRED IN RELATION TO EARNING OF TAX FREE INTEREST INCOME IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 1 OF THE ASSESSEES APPEAL AND GROUND NO .4 OF REVENUES APPEAL FOR ASSESSMENT YEAR 1998-99 WHICH HAS ALREADY BEEN DECI DED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRA WN IN ASSESSMENT YEAR 1998-99, WE MODIFY THE IMPUGNED ORDER OF THE LEARNED CIT(APP EALS) ON THIS ISSUE AND DIRECT THE AO TO MAKE A DISALLOWANCE ON THIS ISSUE TO THE EXTENT OF 1% OF THE GROSS INTEREST EARNED BY THE ASSESSEE ON TAX FREE BONDS. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED WHEREAS GROUND NO. 1 OF THE REVENUES APPEAL IS PARTLY ALLOWED. 22. THE ISSUE RAISED IN GROUND NO.2 OF THE REVENUE S APPEAL FOR ASSESSMENT YEAR 2003-04 RELATING TO ADVERTISEMENT EXPENSES HELD BY THE LEARNED CIT(APPEALS) AS ALLOWABLE IN THE HANDS OF THE ASSESSEE IS SIMILAR T O THE ISSUE RAISED IN GROUND NO. 1 AND 2 OF THE REVENUES APPEAL FOR ASSESSMENT YEAR 1 998-99 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDE R. FOLLOWING OUR CONCLUSION DRAWN IN ASSESSMENT YEAR 1998-99, WE UPHOLD THE IMP UGNED ORDER OF THE LEARNED 10 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.2 OF THE REVENUES APPEAL. 23. THE ISSUE RAISED IN GROUND NO.2 OF THE ASSESSEE S APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LE ARNED CIT(APPEALS) ON ACCOUNT OF SHIFTING EXPENSES AMOUNTING TO RS.1,88,8 72/-. 24. THE SHIFTING EXPENSES AMOUNTING TO RS.1,88,872/ - INCURRED DURING THE YEAR UNDER CONSIDERATION WERE CLAIMED BY THE ASSESSEE UN DER THE HEAD OTHER EXPENSES. THE SAID EXPENSES WERE COMPRISING OF A SUM OF RS.97 ,181/- INCURRED TOWARDS RE- LOCATION CHARGES OF BCP SITE FROM PUNE TO CHENNAI A ND A SUM OF RS.91,691 INCURRED TOWARDS SHIFTING OF OFFICE MATERIAL/RECORD S FROM TRADE WORLD/MAHINDRA TOWERS TO BANDRA-KURLA COMPLEX. ACCORDING TO THE AO , THE SAID EXPENDITURE WAS NOT INCURRED BY THE ASSESSEE IN THE NORMAL OR ORDIN ARY COURSE OF ITS BUSINESS AND THE SAME, THEREFORE, COULD NOT BE ALLOWED AS BUSINESS E XPENDITURE. HE ALSO HELD THAT EXPENDITURE INCURRED ON SHIFTING OF OFFICE OR PLANT WAS IN THE NATURE OF CAPITAL EXPENDITURE AND THE SAME WAS NOT ALLOWABLE AS DEDUC TION. ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO IN TREATIN G THE SHIFTING EXPENSES AS OF CAPITAL NATURE AND CONFIRMED THE DISALLOWANCE MADE ON THIS ISSUE. 25. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE CASE OF CIT VS. MADURA C OATS LTD. 253 ITR 62 (MAD.) CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT W AS HELD BY THE HONBLE MADRAS HIGH COURT THAT EXPENDITURE INCURRED BY THE ASSESSE E FOR SHIFTING ITS ADMINISTRATIVE OFFICE WAS ALLOWABLE AS REVENUE EXPENDITURE. IT WAS HELD THAT MERE IMPROVEMENT IN CONVENIENCE AND INCREASE IN EFFICIENCY DOES NOT MEA N A PERMANENT ADVANTAGE WHICH HAS TO BE REGARDED AS FALLING IN THE CAPITAL FIELD. TO THE SIMILAR EFFECT IS THE 11 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS KARANPURA DEVELOPMENT CO. LTD. 144 ITR 538 (CAL.) WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE FOR SHIFTING THE LABORATOR Y WHICH INCLUDES EXPENDITURE INCURRED FOR REFITTING PLANT AND APPARATUS IN THE N EW PREMISES WAS AN ALLOWABLE REVENUE EXPENDITURE AS THE ASSESSEE BY SHIFTING DID NOT DERIVE ANY PERMANENT BENEFIT BUT IT WAS FOR EFFICIENT WORKING AND FOR BE TTER RESEARCH. KEEPING IN VIEW THE RATIO OF THESE JUDICIAL PRONOUNCEMENTS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND CONSIDERING THE FACTS OF THE CASE, WE ARE OF TH E VIEW THAT THE EXPENSES INCURRED BY THE ASSESSEE FOR SHIFTING OF ITS OFFICE AND BCP SITE WAS IN THE NATURE OF REVENUE EXPENDITURE AND THE SAME HAVING BEEN INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS, THE ASSESSEE IS ENTITLED F OR DEDUCTION OF THE SAID EXPENSES. IN THAT VIEW OF THE MATTER, WE DELETE THE DISALLOWA NCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON THIS ISSUE AND ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL. 26. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR A.Y. 1999-2000 AND 2003-04 AS WELL AS THAT OF THE REVENUE FOR A.Y. 1998-99, 1999- 2000 AND 2003-04 ARE PARTLY ALLOWED AS INDICATED ABOVE WHEREAS THE APPEAL OF TH E ASSESSEE FOR A.Y. 1998-99 IS DISMISSED. ORDER PRONOUNCED ON THIS 26 TH DAY OF AUGUST, 2011. SD/- SD/- (R.S. PADVEKAR)) (P.M . JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 26 TH AUGUST, 2011. 12 ITA NOS.8675,8676/MUM/2004 ITA NO.2513/MUM/2007, ITA NO.8940,8941/MUM/2004 ITA NO.2121/MUM/2007. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENC HES, MUMBA I. WAKODE .