Serum Institute of India Ltd., Pune V. Addl. CIT, Range-6, Pune

ITA 931/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1529 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O A MAO SHRI RAJEEV KUMAR
• Keywords: Capital asset; Depreciation; Business expenditure; Rectification of order; Earning of tax free income; Cost of acquisition; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 10AA; 14A; 37(1); 10B; 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 914/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2008-09 DCIT, CENTRAL CIRCLE 1(1), PUNE ....... / APPELLANT ' / V/S. SERUM INSTITUTE OF INDIA LTD., 212/2, PUNE SOLAPUR ROAD, HADAPSAR, PUNE 411028 PAN : AABCS4225M / RESPONDENT / ITA NO. 931/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2008-09 SERUM INSTITUTE OF INDIA LTD., SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411001 PAN : AABCS4225M ....... / APPELLANT ' / V/S. ADDL. CIT, RANGE 6, PUNE / RESPONDENT ASSESSEE BY : SHRI H.P. MAHAJANI SHRI R.S. ABHYANKAR REVENUE BY : SHRI O.A. MAO SHRI RAJEEV KUMAR / DATE OF HEARING : 23-05-2016 / DATE OF PRONOUNCEMENT : 22-07-2016 2 ITA NOS. 914 & 931/PN/2013 * / ORDER PER VIKAS AWASTHY, JM : THESE CROSS APPEALS BY THE REVENUE AND ASSESSEE ARE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DA TED 02-01- 2012 FOR THE ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING, PROCESSING AND SALE OF LIFE SAVING DRUGS, EXPORT OF VACCINES, BIOTECH AND PHARMA PR ODUCTS. THE ASSESSEE IS HAVING THREE UNITS ENGAGED IN MANUFACTUR ING AND PROCESSING OF AFORESAID PRODUCTS. ONE OF THE UNITS IS A 10 0% EXPORT ORIENTED UNIT (HEREINAFTER REFERRED TO AS EOU) IN RESPECT OF WHICH DEDUCTION U/S. 10B HAS BEEN CLAIMED. THE SECOND UNIT IS S ET UP IN DOMESTIC TRADE AREA (HEREINAFTER REFERRED TO AS DTA UNIT ). THE THIRD UNIT IS LOCATED IN SPECIAL ECONOMIC ZONE AT HADAPSAR, PUNE (HEREINAFTER REFERRED TO AS SEZ UNIT). THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR UNDER APPEAL ON 30-09-2008 DECLARING TOTAL INCOME OF ` 41,70,29,006/-. THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME ON 30-03-2010 DECLARING INCOME OF ` 36,91,62,850/-. IN REVISED RETURN OF INCOME, THE ASSESSEE CLAIMED PRODUCT DEVELOPMENT EXPENSES ` 19,96,93,543/- IN RESPECT OF EOU AND SEZ UNIT AS REVENUE EXPENDITURE, WHICH WERE NOT CLAIMED IN ORIGINAL RETURN. FURT HER, IN THE REVISED RETURN, THE ASSESSEE CLAIMED DEDUCTION U/S. 10AA IN RESPECT OF ` 3,87,57,400/- RECEIVED FROM M/S. AKORN INC., USA ON ACCOUNT OF EXCLUSIVE MARKETING RIGHTS OF ITS PRODUCT IN NORTH, CENTRAL AND SOUTH AMERICA. DURING THE COURSE OF SCRUTINY ASSESSMENT PRO CEEDINGS, THE 3 ITA NOS. 914 & 931/PN/2013 ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCES IN THE INCOME R ETURNED BY THE ASSESSEE WHICH INTER ALIA INCLUDES : I. DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENDITURE ` 19,96,93,543/-. II. DISALLOWANCE OF DEDUCTION U/S. 10AA CLAIMED ON RECEIPTS FROM M/S. AKORN INC., USA ON ACCOUNT OF EXCLUSIVE DISTRIBUTION RIG HTS ` 3,87,57,400/-. III. EXCLUSION OF FREIGHT AND INSURANCE FROM TOTAL TURNOVER ONLY WHILE COMPUTING DEDUCTION U/S. 10B AND 10AA OF THE ACT. IV. DISALLOWANCE OF EXPENDITURE U/S. 14A ` 4,10,61,221/-. V. PROVISION FOR LEAVE ENCASHMENT ` 68,27,714/-. VI. DONATIONS TO MANJARI GRAMPANCHAYAT FOR CREATING WATER SUPPLY FACILITIES CLAIMED U/S. 37(1) ` 18,50,000/-. VII. EXPENDITURE TOWARDS LICENSE FEES PAID FOR ACQUIRING MICROSO FT XP AND MS OFFICE SOFTWARE ` 25,32,400/- CLAIMED AS REVENUE EXPENDITURE-CAPITALIZED. VIII. FOREIGN TRAVEL EXPENSES OF EMPLOYEES ` 25,77,069/- CLAIMED AS REVENUE EXPENDITURE, CAPITALIZED/DISALLOWED. IX. DISALLOWANCE OF PMS FEES ` 75,08,253/-. X. RE-CLASSIFICATION OF PLANT AND MACHINERY ITEMS AS FURNITUR E AND FIXTURES ` 27,69,438/-. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE FILED AP PEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONE R OF INCOME TAX (APPEALS) PARTLY ACCEPTED THE APPEAL OF ASSES SEE BY HOLDING PRODUCT DEVELOPMENT EXPENDITURE AS REVENUE IN NATURE, EXCLUDING EXPENDITURE ON FREIGHT AND INSURANCE FROM EXPORT TURNOVE R AND TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S. 10B AND 10AA OF THE ACT, 4 ITA NOS. 914 & 931/PN/2013 RECLASSIFYING CERTAIN ASSETS AS PLANT AND MACHINERY. TH E COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF A SSESSING OFFICER IN TREATING THE RECEIPTS FROM M/S. AKORN INC., USA AS NOT PART OF EXPORT TURNOVER, DISALLOWANCE OF DEDUCTION U/S. 10B ` 9,95,952/-, DISALLOWANCE U/S. 14A ` 64,03,323/-, DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT, DISALLOWANCE OF DONATION TO MANJARI GRAMPANCH YAT, PAYMENT OF LICENSE FEES FOR ACQUIRING COMPUTER SOFTWARES A S CAPITAL EXPENDITURE, CAPITALIZING/DISALLOWING IN FOREIGN TRAVEL EXPENSES OF EMPLOYEES, DISALLOWANCE OF PMS FEES AND CONFIRMING CLASSIFICATION OF SOME FIXED ASSETS AS FURNITURE AND FIXTURES. AGAINST THESE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS ), THE DEPARTMENT AND THE ASSESSEE ARE IN APPEAL. 3. FOR THE SAKE OF CONVENIENCE WE ARE FIRST DEALING WITH THE APPEA L OF THE ASSESSEE. ITA NO. 931/PN/2013 (ASSESSEES APPEAL) 4. THE FIRST GROUND RAISED BY THE ASSESSEE IN ITS APPEA L IS AGAINST NOT TREATING THE RECEIPTS IN FOREIGN CURRENCY FROM M/S. AK ORN INC., USA AMOUNTING TO ` 3,87,57,400/- (USD 8,92,000) TOWARDS DEVELOPMENT OF THE PRODUCTS AS INCOME FROM BUSINESS FOR THE PURPOSE OF ALLOWING DEDUCTION U/S. 10AA OF THE ACT. 5. IN THE ORIGINAL RETURN OF INCOME, THE ASSESSEE HAD SHO WN THE AMOUNT RECEIVED FROM M/S. AKORN INC., USA ` 3,87,57,400/- AS CAPITAL RECEIPTS. SUBSEQUENTLY, IN THE REVISED RETURN OF INCOME T HE ASSESSEE CLAIMED THE AFORESAID AMOUNT AS REVENUE RECEIPT AND ALSO CLAIMED DEDUCTION U/S. 10AA ON THE SAID AMOUNT. 5 ITA NOS. 914 & 931/PN/2013 6. SHRI H.P. MAHAJANI APPEARING ON BEHALF OF THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD RECEIVED AFORESAID AMO UNT IN FOREIGN CURRENCY FOR DEVELOPMENT OF NEW PRODUCTS. THE ASSESSE E HAD ENTERED INTO MEMORANDUM OF UNDERSTANDING WITH M/S. AKORN INC., USA ON 04-04-2006 (AT PAGE 59 OF THE PAPER BOOK) FOR ACQUIRING E XCLUSIVE MARKETING RIGHTS OF NEW PRODUCTS I.E. RABIES MONOCLONAL AN TIBODY (RMA) AND ANTI-D MONOCLONAL ANTIBODY (ANTI-D) DEVELOPED BY THE ASSESSEE. THEREAFTER FOR FUNDING OF THE NEW PRODUCTS AN OTHER AGREEMENT I.E. DEVELOPMENT FUNDING AGREEMENT DATED 07-1 1-2006 (AT PAGE 87 OF THE PAPER BOOK) WAS ENTERED INTO BETWEEN TH E ASSESSEE AND M/S. AKORN INC., USA. THE FUNDS RECEIVED BY THE ASSESSEE FROM M/S. AKORN INC., USA HAD DIRECT NEXUS BETWEEN THE DEVELOPME NT OF NEW PRODUCTS AND THE EXCLUSIVE MARKETING RIGHTS OF THE NEWLY DEVELOPED PRODUCTS. THERE WAS PROXIMATE CONNECTION BETWEEN THE RECEIPTS AND THE BUSINESS OF THE SEZ UNIT. THEREFORE, THE SAID RECEIPT ESSENTIALLY FORMS PART OF THE EXPORT TURNOVER. THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS SHOWN THE RECEIPTS AS EXPORT SALES. THE FUNDS WER E RECEIVED BY THE ASSESSEE FOR DEVELOPMENT OF VACCINES WHICH IS ONE OF THE CORE BUSINESS ACTIVITY OF THE SEZ UNIT. THE LD. AR PRAYED FOR SETTING ASIDE THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE AND GR ANTING THE BENEFIT OF DEDUCTION U/S. 10AA OF THE ACT. 7. ON THE OTHER HAND SHRI O.A. MAO REPRESENTING THE DEP ARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS) IN REJECTING THE CLAIM OF THE ASSESSEE. THE LD. D R SUBMITTED THAT SUM RECEIVED BY THE ASSESSEE UNDER DEVELOPMENT FU NDING AGREEMENT DOES NOT FALL WITHIN THE DEFINITION OF EXPORT TURNO VER. THE FUNDS RECEIVED BY THE ASSESSEE FOR DEVELOPMENT OF VACCINE S CANNOT BE 6 ITA NOS. 914 & 931/PN/2013 SAID TO BE PROFITS AND GAINS DERIVED FROM THE EXPORT OF VA CCINES. THE SAID RECEIPTS AT THE BEST CAN BE SAID TO BE ATTRIBUTABLE TO EXPORT OF VACCINES. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE MOU, DEVELOPMENT AND EXCLUSIVE DISTRIBUTIO N AGREEMENT AND DEVELOPMENT FUNDING AGREEMENT PLACED ON RECORD BY THE ASSESSEE. A CONJOINT READING OF MEMORANDUM OF UNDER STANDING DATED 04-04-2006, DEVELOPMENT AND EXCLUSIVE DISTRIBUTION A GREEMENT DATED 07-11-2006 AND DEVELOPMENT FUNDING AGREEMENT DA TED 07-11-2006 SHOWS THAT A SUM OF ` 3,87,57,400/- (US $ 8,92,000) WERE RECEIVED BY THE ASSESSEE TOWARDS EXCLUSIVE MARKETING R IGHTS OF NEW PRODUCTS GRANTED BY THE ASSESSEE TO M/S. AKORN INC., USA. THE PAYMENTS MADE BY M/S. AKORN INC., USA TO ASSESSEE WERE AGAINST THE MILESTONES ACHIEVED DURING THE PRODUCT DEVELOPMENT. A PE RUSAL OF CLAUSE 2 OF MEMORANDUM OF UNDERSTANDING REVEAL THAT THE NET REVENUE FROM SALE OF NEW PRODUCTS SHALL BE SHARED BETWEE N THE TWO PARTIES EQUALLY. THE ASSESSEE WOULD BEAR ALL MANUFACTURING COST AND M/S. AKORN INC., USA SHALL BEAR ALL MARKETING COST INCLUDING P RODUCT REGISTRATION COST. THE TERM NET REVENUE HAS BEEN DE FINED IN THE MOU HAS SALES REALIZED BY M/S. AKORN INC., USA LESS THE ROYALTY PAID BY ASSESSEE TO ITS COLLABORATORS FOR OBTAINING THE TECHNOLOGY FOR DEVELOPING THE PRODUCTS. THERE IS NO DIRECT NEXUS BETWEEN SALE O F PRODUCT AND THE AMOUNT RECEIVED BY ASSESSEE. THE AMOUNT RECEIVED BY A SSESSEE FROM AKORN, INC., USA TOWARDS DEVELOPMENT OF NEW PRODUCT IS P RIMARILY TOWARDS ACQUIRING EXCLUSIVE RIGHTS FOR MARKETING OF SPECIFIED PRODUCTS DEVELOPED BY ASSESSEE. TO BE ELIGIBLE TO CLAIM DEDUCTION U/ S. 10AA THE 7 ITA NOS. 914 & 931/PN/2013 SEZ UNIT INTER ALIA SHOULD HAVE PROFITS AND GAINS DERIVED FRO M THE EXPORT. THUS, BY NO STRETCH OF IMAGINATION THE AMOUNT R ECEIVED BY ASSESSEE FROM M/S. AKORN INC., USA FOR DEVELOPMENT OF PROD UCT CAN BE CONSIDERED AS INCOME OR GAIN DERIVED FROM THE EXPORT OF ARTICLE OR THINGS AS HAS BEEN ENVISAGED UNDER THE PROVISIONS OF SEC TION 10AA OF THE ACT. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOM E TAX REPORTED AS 113 ITR 84 HAS HELD THAT EXPRESSION ATTR IBUTABLE TO IS HAVING A WIDER IMPORT THAN THE EXPRESSION DERIVED FROM. THE EXPRESSION ATTRIBUTABLE TO INTENDS TO COVER RECEIPTS FROM SOURCE OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF SPECIFIED INDUST RY. ON THE CONTRARY THE EXPRESSION DERIVED FROM CANNOT HAVE A W IDER IMPORT TO INCLUDE ANY INCOME WHICH CAN BE ATTRIBUTABLE TO THE BUSIN ESS. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF LIBERTY IND IA VS. COMMISSIONER OF INCOME TAX REPORTED AS 317 ITR 218 IN A N UNEQUIVOCAL WORDS HAS HELD THAT THE CONNOTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF THE WORDS AT TRIBUTABLE TO. BY USING THE EXPRESSION DERIVED FROM, PARLIAMENT INTENDED T O COVER SOURCES NOT BEYOND THE FIRST DEGREE. 9. IN THE PRESENT CASE, THE ASSESSEE HAS CLAIMED DEDUC TION U/S. 10AA OF THE ACT ON RECEIPTS FROM M/S. AKORN INC., USA IN LIE U OF GRANTING EXCLUSIVE MARKETING RIGHTS OF ITS NEW PRODUCT IN N ORTH, CENTRAL AND SOUTH AMERICA. THE SAID RECEIPTS ARE NOT IN RELATION T O EXPORT OF ITS PRODUCTS. THE MEANING OF EXPRESSION DERIVED FROM HAS G OT ONLY A LIMITED IMPORT AND THEREFORE THE EXPRESSION DERIVED FROM AS USED IN SECTION 10AA MUST BE UNDERSTOOD AS PROFIT DIRECTLY ARISIN G FROM THE 8 ITA NOS. 914 & 931/PN/2013 EXPORT OF GOODS AND NOT INCIDENTAL TO THE EXPORT. THUS , THE EXPRESSION DERIVED FROM WOULD EXCLUDE RECEIPT FROM SOURCES OTHER THAN ACTUAL EXPORT OF ARTICLE OR THINGS OR SERVICES. THUS, FROM PERUSA L OF DOCUMENTS ON RECORD AND THE LAW LAID DOWN BY THE HON'BLE APEX COU RT DEFINING THE EXPRESSION DERIVED FROM, THE AMOUNT OF ` 3,87,57,400/- RECEIVED BY THE ASSESSEE FROM M/S. AKORN INC., USA CANNOT BE HELD TO BE GAIN OR PROFIT DERIVED FROM EXPORT OF ITS PRODUCT. THEREFORE, THE ASSESS EE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S. 10AA OF THE ACT ON THE AFOR ESAID RECEIPTS. WE DO NOT FIND ANY INFIRMITY IN THE WELL REASONED FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN REJECTING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE ASSESSEE IN ITS APPEAL IS DISMISSED. 10. THE GROUND NO. 2 RAISED BY THE ASSESSEE IN ITS APPE AL IS IN RESPECT OF DISALLOWANCE OF DEDUCTION U/S. 10B WITH REFERENCE TO EXPORT INVOICE OF ` 9,95,952/- FOR WANT OF EXTENSION LETTER IN SPITE OF SUBSEQUENT REALIZATION OF EXPORT PROCEEDS. THE LD. AR OF T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD AVAILED DEDUCTION U/S. 1 0B ON THE PROFITS DERIVED FROM ITS EOU. THE ASSESSEE HAD INTER ALIA CLAIMED DEDUCTION U/S. 10B ON INVOICE OUTSTANDING AT THE TIME OF FILING OF RETURN OF INCOME. THE ASSESSEE HAD FILED AN APPLICATION FOR EXTENSIO N. THE ASSESSEE SUBSEQUENTLY RECEIVED THE PAYMENTS. THE ASS ESSEE HAD FILED COPIES OF EXTENSION LETTER AND BANK REALIZATION CERTIFICATES BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). HOWEVER, THE SAME W ERE OVERLOOKED. THE LD. AR CONTENDED THAT SIMILAR DISALLOWANCE W AS MADE IN THE ASSESSMENT YEAR 2007-08. THE MATTER TRAVELLED U P TO THE TRIBUNAL IN ITA NO. 102/PN/2012. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 9 ITA NOS. 914 & 931/PN/2013 11. THE LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAD RIGHTLY DENIED THE DEDUCTION U/S. 10B ON TH E UNREALIZED EXPORT PROCEEDS. 12. BOTH SIDES HEARD. THE ASSESSEE HAD CLAIMED DEDUCT ION U/S. 10B IN RESPECT OF EXPORTS THROUGH VARIOUS INVOICES AGGREGATIN G ` 9,95,952/-. THE EXPORT PROCEEDS WERE NOT RECEIVED WITHIN THE DUE D ATE. HOWEVER, THE SAME WERE REALIZED SUBSEQUENTLY. THE ASSESSING OFFICE R DECLINED THE CLAIM OF DEDUCTION U/S. 10B ON THE DELAYED EXPORT REA LIZATION. THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ORDER OF A SSESSING OFFICER. WE FIND THAT IN IMMEDIATELY PRECEDING ASSESSMENT Y EAR SIMILAR DISALLOWANCE WAS MADE IN THE CASE OF ASSESSEE. THE TRIBUN AL BY PLACING RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COUR T IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MORGAN STANLEY ADV ANTAGE SERVICES PVT. LTD. REPORTED AS 339 ITR 291 GRANTED RELIE F TO THE ASSESSEE BY HOLDING AS UNDER : 10.2 SINCE THE ASSESSEE IN THE INSTANT CASE HAS AP PLIED FOR EXTENSION OF TIME BY THE PRESCRIBED AUTHORITY WHICH HAS NEITHER BEEN REJECTED NOR DECLINED AND THE RBI HAS TAKEN THE INWARD REMITTANC ES ON RECORD, THEREFORE, WE HOLD THAT THE CIT(A) IS NOT JUSTIFIED IN CURTAILING THE DEDUCTION U/S.10B BY EXCLUDING THE DELAYED RECEIPT OF EXPORT PROCEEDS OF RS.7,19,934/- FROM THE EXPORT TURNOVER. WE THEREFO RE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO AL LOW THE CLAIM OF THE ASSESSEE U/S.10B WITH RESPECT TO THE EXPORT INVOICE OF RS.9,19,934/- . GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D. 13. WE OBSERVE THAT IN THE ASSESSMENT YEAR UNDER APP EAL DISALLOWANCE HAS BEEN MADE FOR SIMILAR REASONS. NO MATERI AL HAS BEEN PLACED ON RECORD TO SHOW ANY VARIATION IN THE FACTS. THE REFORE, RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BENCH, WE AC CEPT THE 10 ITA NOS. 914 & 931/PN/2013 PRAYER OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER T O ALLOW DEDUCTION U/S. 10B ON THE AFORESAID AMOUNT OF DELAYED EX PORT REALIZATION. ACCORDINGLY, THE GROUND NO. 2 RAISED IN THE A PPEAL BY THE ASSESSEE IS ALLOWED. 14. THE THIRD GROUND RAISED BY THE ASSESSEE IN ITS APPE AL IS AGAINST THE DISALLOWANCE OF EXPENSES AMOUNTING TO ` 64,03,323/- U/S. 14A OF THE ACT IN RESPECT OF EXEMPT INCOME. THE LD. AR OF THE AS SESSEE SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT OWN INTERE ST FREE FUNDS FOR MAKING INVESTMENTS. THE TOTAL INVESTMENTS MADE BY TH E ASSESSEE IS ` 100 CRORES, WHEREAS THE OWN FUNDS I.E. SHARE HOLDER FUNDS IS TO THE TUNE OF ` 996 CRORES. APART FROM OWN FUNDS, THE ASSESSEE HAS PRO FIT OF ` 385 CRORES DURING THE YEAR. THE TOTAL LOANS OF THE ASSE SSEE DURING THE PREVIOUS YEAR WERE ` 184.68 CRORES. THE LD. AR CONTENDED THAT THE ASSESSEE HAD MADE STRATEGIC INVESTMENT OF ` 6 CRORES IN SISTER CONCERN. WHILE COMPUTING DISALLOWANCE U/S. 14A R.W. RULE 8D, THE ASSE SSING OFFICER HAS INCLUDED THE INVESTMENT MADE BY THE ASSESSEE IN SISTER CONCERN AS WELL. THE LOANS TAKEN BY THE ASSESSEE WERE EXCLUSIVELY USED FOR BUSINESS PURPOSE AND THERE IS NO DIRECT NEXUS BETWE EN THE LOANS TAKEN AND THE INVESTMENTS MADE BY THE ASSESSEE. THE LD. AR CONTENDED THAT THE MATTER CAN BE REFERRED BACK TO TH E FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE LOANS TAKEN AND INVESTMENTS MA DE BY THE ASSESSEE DURING THE YEAR. 15. ON THE OTHER HAND THE LD. DR CONTENDED THAT DISALLOW ANCE U/S. 14A R.W. RULE 8D HAS BEEN RIGHTLY MADE BY THE ASSESSING OFFICER AND UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR PRAYED FOR DISMISSING THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 11 ITA NOS. 914 & 931/PN/2013 16. BOTH SIDES HEARD. THE MAIN CONTENTION OF THE LD. AR IS THAT FOR MAKING INVESTMENTS OWN INTEREST FREE FUNDS HAVE BEEN US ED ALTHOUGH THERE ARE BORROWINGS, AS WELL, BUT THE SAME WERE NOT DIVE RTED FOR MAKING INVESTMENTS. THE LD. AR HAS ALSO DRAWN OUR ATTEN TION TO THE SUMMARY OF INVESTMENTS AT PAGE 146 OF THE PAPER BOOK A ND THE WORKING OF DISALLOWANCE AT PAGE 144 OF THE PAPER BOOK. WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS A REVISIT TO THE FILE OF ASSESSING OFFICER FOR THE LIMITED PURPOSE TO VERIFY, WHETHER THE INTERE ST BEARING FUNDS WERE DIVERTED BY THE ASSESSEE FOR MAKING INVESTMEN TS. THE ASSESSING OFFICER AFTER MAKING NECESSARY VERIFICATION SHALL DEC IDE THIS ISSUE, IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE DECISIO N OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-T AX V. RELIANCE UTILITIES AND POWER LTD. REPORTED AS 313 ITR 340 (BOM). ACCORDINGLY, GROUND NO. 3 RAISED BY THE ASSESSEE IN ITS A PPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 17. THE FOURTH GROUND RAISED BY THE ASSESSEE IS IN RESP ECT OF DISALLOWANCE OF THE PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO ` 68,27,714/-. THE LD. AR OF THE ASSESSEE SUBMITTED AT THE OUTSET THAT THIS ISSUE RELATING TO PROVISION FOR LEAVE ENCASHMENT PERTA INING TO DTA UNIT WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ITA NO. 413/PN/2006 FOR ASSESSMENT YEAR 2002-03 IN ASSESSEES OWN CA SE. 18. WE HAVE HEARD THE SUBMISSIONS MADE BY THE LD. AR OF THE ASSESSEE AND HAVE PERUSED THE ORDER OF THE CO-ORDINAT E BENCH IN ASSESSEES OWN CASE IN ITA NO. 413/PN/2006 FOR ASSESSM ENT YEAR 2002-03 DECIDED ON 24-02-2012. WE FIND THAT THE CO-ORD INATE BENCH OF THE TRIBUNAL HAS OBSERVED THAT THIS ISSUE HAS BEEN D ECIDED AGAINST 12 ITA NOS. 914 & 931/PN/2013 THE ASSESSEE BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. & ANR VS. UNION OF INDIA REPORTED AS 292 ITR470 AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICAR E PRIVATE LIMITED REPORTED AS 324 ITR 263. THE LD. AR OF THE ASSE SSEE IN THE PRECEDING ASSESSMENT YEARS HAS NOT PRESSED THIS GROUN D. THE LD. AR HAS FAIRLY CONCEDED THAT THE ISSUE MAY BE DECIDED IN LINE WITH THE EARLIER ORDER OF THE TRIBUNAL. ACCORDINGLY, GROUND NO. 4 RA ISED IN THE APPEAL BY THE ASSESSEE IS DISMISSED. 19. THE FIFTH GROUND RAISED BY THE ASSESSEE IN ITS APPEA L IS IN RESPECT OF DISALLOWANCE OF CONTRIBUTION OF ` 15,00,000/- TOWARDS MANJARI GRAM PANCHAYATS PROJECT FOR SUPPLY OF DRINKING WATER WHERE EMPLOYEES/WORKERS OF ASSESSEE COMPANY ARE ALSO STAYING. THE ASSESSEE HAD CLAIMED THE SAID EXPENDITURE AS REVENUE EX PENDITURE U/S. 37 OF THE ACT. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE AMOUNT OF ` 15,00,000/- WAS CONTRIBUTED BY THE ASSESSEE TO MANJARI GRAM PANCHAYAT FOR CONSTRUCTION OF DRINKING WATER TANK. THE ASSESSEE COMPANYS LABORATORY IS LOCATED AT HADAPSAR AND VILLAGE M ANJARI IS IN THE IMMEDIATE VICINITY OF HADAPSAR. SEVERAL WORKERS/EMPLOY EES OF THE COMPANY ARE STAYING IN THE VILLAGE. THE CONTRIBUTION OF ` 15,00,000/- FOR WATER SUPPLY PROJECT WOULD INDIRECTLY BENEFIT THE EMP LOYEES OF ASSESSEE COMPANY STAYING IN THAT AREA. THE LD. AR CONT ENDED THAT THE SAID AMOUNT HAS BEEN CONTRIBUTED BY THE ASSESSEE TOWA RDS CORPORATE SOCIAL RESPONSIBILITY. THE LD. AR REFERRED TO THE DECISION OF C O-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2005-06 IN ITA NO. 679/PN/2009 DECIDED ON 22-02-2013, WHEREIN THE ASSESSEE HAD MADE CONTRIBUTION FOR THE SCHOOL AND THE S AME WAS ALLOWED BY THE TRIBUNAL. 13 ITA NOS. 914 & 931/PN/2013 20. PER CONTRA, THE LD. DR VEHEMENTLY OPPOSED THE SUB MISSIONS OF THE ASSESSEE. THE LD. DR VEHEMENTLY SUPPORTED THE FINDIN GS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CONTRIBUTION T OWARDS PROJECT FOR CREATING WATER FACILITY BY MANJARI GRAM PANCHA YAT. THE LD. DR CONTENDED THAT SUCH EXPENDITURE IS NOT ALLOWABLE U/S. 37 OF THE ACT. 21. BOTH SIDES HEARD. THE DISALLOWANCE HAS BEEN MADE BY THE AUTHORITIES BELOW IN RESPECT OF CONTRIBUTION MADE BY THE A SSESSEE FOR CREATING WATER FACILITIES BY MANJARI GRAM PANCHAYAT. IT IS AN UNDISPUTED FACT THAT WORKERS/EMPLOYEES OF THE ASSESSEE COMPANY ARE RESIDING IN VILLAGE MANJARI AND WOULD BE BENEFITED FROM THE WA TER SUPPLY PROJECT TOWARDS WHICH THE ASSESSEE HAS MADE C ONTRIBUTION. THE ASSESSEE HAS CONTRIBUTED THE AMOUNT TOWARDS DISCHARGIN G ITS CORPORATE SOCIAL RESPONSIBILITY AS WELL. IT IS NOT THE CASE OF REVENUE THAT THE FUNDS HAVE BEEN DIVERTED BY THE ASSESSEE IN THE NAME OF CONT RIBUTION TOWARDS WATER PROJECT FOR MANJARI GRAM PANCHAYAT. WE FIND THAT THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 679/PN/2009 HAD ALLOWED THE CONTRIBUTION OF ` 25,00,000/- MADE BY THE ASSESSEE FOR TWO SCHOOLS AND CLAIMED THE SAME AS EX PENDITURE IN TERMS OF SECTION 37(1) OF THE ACT. THE TRIBUNAL WHILE ALLOWING SUCH EXPENDITURE HELD AS UNDER : 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. WE FIND THAT THE CIT(A) HAS RELIED UPON THE JUDGMENTS OF THE HON BLE BOMBAY AND MADRAS HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD (SUPRA) AND INDIA RADIATORS LTD (SUPRA) RESPECTIVELY IN COMING TO THE CONCLUSION THAT THE IMPUGNED EXPENDITURE WAS ALLOWABLE U/S 37(1) OF THE ACT. THE CIT(A) HAS POINTED OUT THAT IN THE CASE BEFORE THE HONBLE MADRAS HIGH COURT, THE CONTRIBUTION WAS MADE TO THE SCHOOL MANA GEMENT WHEREIN AN ASSURANCE WAS GIVEN BY THE MANAGEMENT THAT THE CHIL DREN OF ASSESSEES 14 ITA NOS. 914 & 931/PN/2013 EMPLOYEES WOULD GET PREFERENCE IN THE MATTER OF ADM ISSION IN THE SCHOOL. IN THIS BACKGROUND, THE CONTRIBUTION MADE TO THE SC HOOL WAS HELD TO BE FOR A BUSINESS PURPOSE AND LIABLE TO BE ALLOWED U/S 37(1) OF THE ACT, INSPITE OF THE FACT THAT THE BENEFIT WOULD ALSO ACC RUE TO THE GENERAL PUBLIC. IN OUR CONSIDERED OPINION, THE DECISION OF HONBLE MADRAS HIGH COURT CLEARLY ANSWERS THE OBJECTION OF THE ASSESSING OFFI CER AND THEREFORE, THE CIT(A) MADE NO MISTAKE IN UPHOLDING THE CONTENTION OF THE ASSESSEE THAT THE IMPUGNED EXPENDITURE WAS A BUSINESS EXPENDITURE ALLOWABLE U/S 37(1) OF THE ACT. THUS, ON THIS GROUND, REVENUE FA ILS. 22. IN THE PRESENT CASE ALSO THE CONTRIBUTION HAS BEEN MADE BY THE ASSESSEE FOR THE BENEFIT OF ITS EMPLOYEES/WORKERS, ALTHOUGH IN THE PROCESS GENERAL PUBLIC WOULD ALSO BE BENEFITED. THE GOVT. IS SEEKING CONTRIBUTION FROM VARIOUS CORPORATE HOUSES FOR STRENGTHE NING INFRASTRUCTURE FACILITIES BY CREATING AWARENESS OF SOCIAL COR PORATE RESPONSIBILITY. THUS, IN THE FACTS OF THE CASE AND IN THE LIG HT OF DECISION OF CO-ORDINATE BENCH WE ACCEPT THIS GROUND OF APPEAL OF T HE ASSESSEE AND DELETE THE ADDITION OF ` 15,00,000/-. THE GROUND NO. 5 RAISED IN THE APPEAL OF THE ASSESSEE IS THUS ALLOWED. 23. IN THE SIXTH GROUND OF APPEAL, THE ASSESSEE HAS A SSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN UPHOLDING TH E CAPITALIZATION OF EXPENDITURE INCURRED ON PURCHASE OF MICROS OFT XP AND MICROSOFT OFFICE 2007 SOFTWARE. THE ASSESSEE HAD CLAIMED TH E EXPENDITURE TO BE REVENUE IN NATURE. THE ASSESSING OFFICE R HELD THE EXPENDITURE AS CAPITAL. IN FIRST APPEAL THE COMMISSIONER O F INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE SOFTWARE PURCHASED BY THE ASSESSEE WILL NOT PROVIDE ENDURING BENEFIT TO THE ASSESSEE. THE SOFTWA RE WILL HAVE TO BE UPGRADED WITHIN SHORT SPAN OF 2-3 YEARS. THE AUTHORITIES BELOW HAVE ERRED IN HOLDING THE EXPENDITURE ON PURCHASE OF LICENSED S OFTWARE AS 15 ITA NOS. 914 & 931/PN/2013 CAPITAL IN NATURE. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE C ASE OF COMMISSIONER OF INCOME TAX VS. G.E. CAPITAL SERVICES LTD. REP ORTED AS 300 ITR 420. 24. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 25. BOTH SIDES HEARD. THE ASSESSEE HAS PURCHASED LICEN SED COPY OF MICROSOFT XP PROFESSIONAL OPERATING SYSTEM AND MICROSOFT O FFICE 2007 SOFTWARE. THE CONTENTION OF THE ASSESSEE IS THAT THE LIFE OF THE SOFTWARE IS VERY SHORT AND REQUIRES REGULAR UPGRADATION. THE ASS ESSEE WOULD NOT ENJOY ENDURING BENEFIT FROM THE USE OF SOFTWARE. THE ASSE SSEE CLAIMED THE EXPENDITURE FOR ACQUIRING THE SOFTWARE/OPERATING SYST EM AS REVENUE EXPENDITURE. THE DEPARTMENT HAS HELD THE EXPENDITURE O N ACQUIRING THE SOFTWARE/OPERATING SYSTEM AS CAPITAL EXPENDITURE ON THE GROUND THAT THE ASSESSEE WOULD ENJOY ENDURING BENEFIT AND ALLOW ED DEPRECIATION @ 60% ON THE SOFTWARE. THE CONTENTION OF TH E DEPARTMENT IS BY ACQUIRING THE LICENSED SOFTWARE THE ASSESSEE HAS A CQUIRED TANGIBLE ASSET. IT IS AN UNDISPUTED FACT THAT THE SOFTWARES ACQUIRED BY THE ASSESSEE WOULD REQUIRE REGULAR UPGRADATION IN VIEW OF FAST CHANGING TECHNOLOGY. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CO MMISSIONER OF INCOME TAX VS. G.E. CAPITAL SERVICES LTD. (SUPRA) HAS HEL D THAT THE SOFTWARE WHICH REQUIRES REGULAR UPGRADATION DUE TO TECH NOLOGY CHANGES CANNOT BE SAID TO BE THE SOFTWARE OR ENDURING IN NATURE . THE HON'BLE HIGH COURT DISMISSING THE APPEAL OF THE DEPARTMENT OBSERV ED THAT THE SOFTWARE MS OFFICE, WHICH IS NOT A CUSTOM BUILT SOFTWARE OF T HE ASSESSEE 16 ITA NOS. 914 & 931/PN/2013 REQUIRES REGULAR UPGRADATION. THEREFORE, NO ERROR IS CO MMITTED BY THE TRIBUNAL IS TREATING THE EXPENDITURE INCURRED ON ACQUIRING THE SAME AS REVENUE EXPENDITURE. THUS, IN VIEW OF THE FACTS OF THE CASE AND DECISION OF HON'BLE DELHI HIGH COURT WE HOLD THAT EXPENDITURE INCURR ED BY THE ASSESSEE FOR ACQUIRING MICROSOFT XP LICENSE SOFTWARE AND MIC ROSOFT OFFICE 2007 LICENSE SOFTWARE IS REVENUE IN NATURE. 26. THE SEVENTH GROUND RAISED IN THE APPEAL BY THE ASS ESSEE IS AGAINST DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF EMPLOYEES ` 25,77,069/-. THE ASSESSEE HAD CLAIMED THE EXPENDITURE AS REVENUE EXPENDITURE. THE LD. AR OF THE ASSESSEE FAIRLY ADMITTED THA T IN THE EARLIER ASSESSMENT YEAR 2005-06 UNDER IDENTICAL CIRCUMSTA NCES THE TRIBUNAL HAS DISALLOWED THE CAPITALIZATION OF FOREIGN TRAVEL EX PENDITURE OF EMPLOYEES. THE LD. AR PLACED ON RECORD A COPY OF THE O RDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1383/PN/2011 FOR ASSESSMENT YEAR 2006-07 DECIDED ON 22-02-2013. THE A SSESSING OFFICER DISALLOWED THE FOREIGN TRAVEL EXPENDITURE INCURRED ON EMPLOYEES FOR FINALIZING THE PROPOSAL OF PURCHASING THE PLANT AND MACHI NERY. THE ASSESSEE HAD CLAIMED EXPENDITURE AS REVENUE IN NATURE. THE ASSESSING OFFICER HELD EXPENDITURE TO BE CAPITAL EXPENDITURE AND ALLOWE D DEPRECIATION ON THE SAME. THEREFORE, ASSESSING OFFICER REC TIFIED HIS ORDER U/S. 154 AND DISALLOWED ` 25,77,069/-. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF A SSESSING OFFICER. 27. THE LD. DR VEHEMENTLY DEFENDED THE ORDER OF COMMISSIO NER OF INCOME TAX (APPEALS) IN UPHOLDING THE EXPENDITURE INCURRED TOWARDS FOREIGN TRAVEL OF EMPLOYEES AS CAPITAL IN NATURE. 17 ITA NOS. 914 & 931/PN/2013 28. BOTH SIDES HEARD. THE ASSESSEE HAS ASSAILED THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS) IN UPHOLDING THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER AMOUNTING TO ` 25,77,069/- IN ORDER DATED 04-02-2011 PASSED U/S. 154 OF THE ACT. WE FIND TH AT THE ASSESSEE HAD CLAIMED THE EXPENDITURE AS REVENUE IN NATU RE. HOWEVER, IN AN ALTERNATE SUBMISSION BEFORE THE ASSESSING OFFICER, THE ASSESSEE PRAYED FOR TREATING THE FOREIGN TRAVEL COST AS PART OF CO ST OF MACHINERY AND ALLOW DEPRECIATION ON THE SAME. THE ASSESSING OFFICER A LLOWED THE CAPITALIZATION OF EXPENDITURE AND ALSO ALLOWED DEPRECIATION ON THE SAME AS ADMISSIBLE TO THE PLANT AND MACHINERY. SUBSEQUENTLY IN RECTIFICATION ORDER U/S. 154 THE ASSESSING OFFICER DISALLOWED ` 25,77,069/-. IN FIRST APPEAL BEFORE THE COMMISSIONER OF INCO ME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER. WE FIND THAT THE ISSUES RELATING TO CAPITALIZATION OF FOREIGN TRAVEL EXPENDITURE OF EMPLOYEES IN CONNECTION WITH THE FINALIZING THE PURCHASE OF MACHINERY HAD COME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 679/PN/2009. THE TRIBUNAL UPHELD THE ACTION OF ASSESSING OFFICER IN TREATING THE EXPENDITURE AS CAPITAL IN NATURE AND DISALLO WED UNRELATED EXPENDITURE. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUN AL ARE AS UNDER : 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. WE FIND THAT IN RESPONSE TO A SPECIFIC QUERY FROM THE ASSESSING OFFICER AS TO THE DETAILS OF EMPLOYEES WHO MADE FOREIGN TOURS FOR THE PURPOSE OF PURCHASE OF MACHINERY, ASSESSEE FURNISHED DETAILS VIDE LETTE R DATED 27-11-2008 WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN PARA 7 OF THE ASSESSMENT ORDER. IN THE SAID PARA, THE ASSESSING OFFICER HAS ALSO REFERRED TO A LETTER OF THE ASSESSEE DATED 12-11-20 08 WHEREIN IT WAS POINTED OUT THAT THE MACHINERY WAS PURCHASED IN THE SUBSEQUENT YEAR. IN THIS BACKGROUND, THE POINT TO BE DECIDED AS TO W HETHER THE IMPUGNED EXPENDITURE OF RS. 7,91,197/- ON THE FOREIGN TRAVEL WAS TO BE ALLOWED AS A REVENUE EXPENDITURE OR NOT. QUITE CLEARLY, THE P LEA OF THE ASSESSEE HAS BEEN THAT SUCH EXPENDITURE HAS BEEN INCURRED ON FOR EIGN TOURS OF THE 18 ITA NOS. 914 & 931/PN/2013 EMPLOYEES FOR THE PURPOSE OF PURCHASE OF MACHINERY. SINCE THE PURPOSE OF TRAVEL ADMITTEDLY, IS PURCHASE OF MACHINERY, THE CIT(A), IN OUR VIEW, MADE NO MISTAKE IN HOLDING THAT THE COST OF SUCH FO REIGN TRAVEL WAS LIABLE TO BE TREATED AS PART OF COST OF MACHINERY. OSTENS IBLY, THE PURCHASE OF THE MACHINERY WAS NOT FINALIZED IN THE PARTICULAR Y EAR BUT THE SAME HAS BEEN PURCHASED IN SUBSEQUENT YEAR, AS ADVERTED BY T HE ASSESSEE BEFORE THE ASSESSING OFFICER. THEREFORE, IT WOULD BE IN T HE FITNESS OF THINGS THAT SUCH EXPENDITURE WOULD FORM PART OF COST OF PURCHAS E OF MACHINERY AS AND WHEN IN THE YEAR IN WHICH THE MACHINERY IS CAPI TALIZED. ON FACTS, THEREFORE, THE CLAIM OF THE ASSESSEE FOR ALLOWABILI TY OF SUCH EXPENDITURE AS REVENUE EXPENDITURE IS LIABLE TO BE NEGATED AND ON THIS ASPECT, WE AFFIRM THE ORDER OF THE ASSESSING OFFICER. IN SO F AR AS THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF THE TRIBUNAL FOR A.Y. 2002-03 IS CONCERNED, WE FIND IT APPROPRIATE TO REPRODUCE OPER ATIVE PART OF THE ORDER OF THE TRIBUNAL CONTAINED IN PARA 13, WHICH IS AS U NDER:- WE FIND THAT REVENUE HAS NOT MADE OUT A CASE TO DE MONSTRATE THAT THE SAID FOREIGN TRAVEL EXPENDITURE WAS INCURR ED IN CONNECTION WITH ANY CAPITAL ASSET. THEREFORE, ASSESSING OFFIC ER FAILED TO DISCHARGE THE ONUS SUCCESSFULLY. WHEN ALLEGATION I S MADE BY AO, IT IS EXPECTED THAT HE SHOULD DEMONSTRATE WITH EVID ENCE AGAINST THE ASSESSEE. IN OUR OPINION, THE SAID JUDGMENTS A RE RELEVANT AND APPLICABLE TO THE FACTS OF THE CASE. ACCORDINGLY, T HE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED IN HIS FAVOUR. 25. A PERUSAL OF THE AFORESAID CLEARLY SHOWS THAT I N THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL ALLOWED THE FOREIGN TRAV EL EXPENSES AS REVENUE EXPENDITURE PRIMARILY FOR THE REASON THAT R EVENUE DID NOT MAKE OUT A CASE THAT THE FOREIGN TRAVEL EXPENDITURE WAS INCURRED IN CONNECTION WITH ANY CAPITAL ASSET. HOWEVER, THE FACTUAL POSIT ION IN THE INSTANT YEAR IS QUITE DIFFERENT, INASMUCH AS WE HAVE NOTED EARLI ER THAT THE ASSESSEE ITSELF SUBMITTED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 27-11-2008 THAT THE EXPENDITURE ON FOREIGN TRAVEL IN QUESTION WAS UNDERTAKEN FOR PURCHASE OF MACHINERY, THOUGH THE PURCHASE OF SUCH MACHINERY WAS FINALIZED IN SUBSEQUENT YEAR. THEREFORE, THE DECIS ION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.Y. 2002-03 DOES NOT HELP THE ASSESSEE IN THE INSTANT YEAR AND THUS ON THIS GROUND, ASSESSEE HAS TO FAIL. 29. THE LD. AR OF THE ASSESSEE HAS ADMITTED THAT THE ISS UE IN THE PRESENT APPEAL IS IDENTICAL TO ONE ADJUDICATED BY THE TRIB UNAL IN 19 ITA NOS. 914 & 931/PN/2013 ASSESSMENT YEAR 2005-06. THEREFORE, IN VIEW OF THE DECIS ION OF CO- ORDINATE BENCH THIS GROUND OF APPEAL IS DISMISSED. 30. THE GROUND NO. 8 RAISED BY THE ASSESSEE IN ITS APPE AL IS AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN NOT ALLO WING PMS FEES ` 75,08,253/- EITHER AS COST OF ACQUISITION/IMPROVEMENT OR AS COST OF TRANSFER FOR COMPUTING CAPITAL GAIN. THE LD. AR OF T HE ASSESSEE SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE BY THE REVENU E IN ASSESSMENT YEAR 2007-08. IN FIRST APPEAL THE COMMISSIONE R OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICE. THE ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL IN ITA NO . 102/PN/2012 FOR ASSESSMENT YEAR 2007-08 DECIDED ON 10 -04-2014. THE TRIBUNAL AFTER CONSIDERING THE FACTS OF THE CASE AND T HE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDIN G & TRADING (P) LTD. VS. DCIT IN ITA NO. 703/PN/2012 DECIDED ON 19-09-2013 HELD THAT PMS FEES PAID BY THE ASSESSEE IS A N ALLOWABLE DEDUCTION FROM THE CAPITAL GAINS. 31. BOTH SIDES HEARD. WE FIND THAT THE ISSUE RELATING TO ALLOWABILITY OF PMS FEES PAID BY THE ASSESSEE AS DEDUCTION WHILE COMPU TING INCOME FROM CAPITAL GAINS HAD COME BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING Y EAR. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL WHILE DECIDING TH E ISSUE IN FAVOUR OF THE ASSESSEE ARE AS UNDER : 11.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASS ESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF PORTFOLI O MANAGEMENT SCHEME FEES AMOUNTING TO RS.32,49,729/- OUT OF THE CAPITAL GAINS DERIVED ON SALE OF SHARES/SECURITIES. ON BEING ASKE D AS TO WHY SUCH EXPENDITURE SHOULD NOT BE DISALLOWED WHILE WORKING OUT THE RESULTANT 20 ITA NOS. 914 & 931/PN/2013 CAPITAL GAINS, THE ASSESSEE SUBMITTED THAT THE SAID EXPENDITURE HAVING BEEN INCURRED FOR MANAGING THE INVESTMENT PORTFOLIO OF THE ASSESSEE BY EXPERTS IN THE FIELD WAS NOTHING BUT COST ASSOCIATE D WITH BUYING OF GOOD SCRIPS AND SELLING THE SAME AT RIGHT TIME AND THERE FORE, IT CONSTITUTED COST OF INVESTMENT. HOWEVER, THE ASSESSING OFFICER DID N OT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT A S PER SEC.48, ONLY SUCH EXPENSES ARE DEDUCTIBLE FROM THE SALE CONSIDER ATION OF AN ASSET WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED IN CONNEC TION WITH THE TRANSFER OF THE ASSET. ACCORDING TO THE ASSESSING OFFICER, P ORTFOLIO MANAGEMENT CONSULTANTS ARE SERVICE INTERMEDIARIES WHO CARRY OU T THE RESEARCH AND ANALYSIS ABOUT THE PROFITABILITY OF THE SCRIPS OF V ARIOUS COMPANIES AND KEEP TRACK ON THE MARKET CONDITIONS AND THE FEES PA ID BY THE ASSESSEE TO SUCH PROFESSIONAL MANAGERS COULD NOT BE SAID TO HAV E BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRANSFER OF THE ASSET. HOLDING SO, THE PMS FEES CLAIMED BY THE ASSESSEE AT RS.34,6 3,969/- FROM THE COST OF INVESTMENT WAS DISALLOWED BY HIM WHILE COMP UTING THE CAPITAL GAINS. 11.2 IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF T HE AO BY HOLDING THAT THE EXPENDITURE ON ACCOUNT OF PMS FEES IS NEITHER COST OF ACQUISITION OF THE SHARES IN QUESTION NOR COST OF IMPROVEMENT THER E OF NOR INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANS FER OF ASSETS AND THEREFORE THE AO IS JUSTIFIED IN REJECTING THE CLAI M OF DEDUCTION OF THE FEES OF RS.34,63,969/- WHILE COMPUTING THE CAPITAL GAIN. 11.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 12. AFTER HEARING BOTH THE SIDES WE FIND AN IDENTIC AL ISSUE HAD COME UP BEFORE THE COORDINATE BENCH OF THE TRIBUNAL IN T HE CASE OF KRA HOLDING AND TRADING INVESTMENT PVT. LTD. VS. DCIT. WE FIND THE TRIBUNAL VIDE ITA NO.703/PN/2012 ORDER DATED 19-09-2013 FOR A.Y. 2008-09 WHILE DECIDING AN IDENTICAL ISSUE HAS OBSERVED AS U NDER : 9. IN THE APPEAL OF THE ASSESSEE, THE SOLITARY ISS UE IS WITH REGARD TO THE ACTION OF THE CIT(A) IN CONFIRMING THE STAND OF THE ASSESSING OFFICER THAT FEES PAID TO ENAM ASSET MANAGEMENT COMPANY PVT . LTD. WAS NOT AN ALLOWABLE EXPENDITURE IN COMPUTING APPELLANTS I NCOME WHETHER UNDER THE HEAD BUSINESS OR UNDER THE HEAD CAPITA L GAINS. 10. IN THIS REGARD, THE ASSESSING OFFICER NOTICED T HAT ASSESSEE HAD INCURRED EXPENDITURE OF RS.2,79,31,009/- REPRESENTI NG PAYMENTS TO 21 ITA NOS. 914 & 931/PN/2013 ENAM ASSET MANAGEMENT COMPANY PVT. LTD. AS PORTFOLI O MANAGEMENT FEES IN TERMS OF AN INVESTMENT MANAGEMENT AGREEMENT DATED 01.01.2005. FOLLOWING HIS DECISION FOR THE EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2004-05 TO 2007-08, THE ASSESSING O FFICER DISALLOWED THE EXPENSE AGAINST WHICH ASSESSEE WENT IN APPEAL B EFORE THE CIT(A). THE CIT(A) NOTED THAT SIMILAR ISSUE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 WAS ADJUDICATED BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE ORDER DATED 31 ST MAY, 2011 (SUPRA). HOWEVER, THE CIT(A) NOTICED THAT SUBSEQUENTLY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ONE SHR I HOMI K. BHABHA VS. ITO IN ITA NO. 3287/MUM/2009 DECIDED A SIMILAR ISSUE AGAINST THE ASSESSEE AND THEREFORE HE HELD THE ISSUE AGAINST TH E ASSESSEE. IN VIEW OF THE AFORESAID, ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 11. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR STAND OF THE CIT(A) IN THE A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 CAME UP BEFORE THE TRIBUNAL IN ITA NO. 356 & 240/PN/2011 DATED 25.07.2012 AND AFTER CONSIDERING THE DIVERGENT VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF SHRI HOMI K. BHABHA (SUPRA) WHICH HAS BEEN RELIED UPON BY THE CI T(A), THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS, THE REFORE, CONTENDED THAT THE ISSUE IS ACCORDINGLY LIABLE TO BE DECIDED IN FA VOUR OF THE ASSESSEE. 12. THE LEARNED CIT(DR) APPEARING FOR THE REVENUE H AS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL SO HOWEVER SHE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ALSO THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIBUNAL DATED 25.07.2012 (SUPRA). IN THE SAID CASE, THE TRI BUNAL CONSIDERED THE ALLOWABILITY OF EXPENDITURE INCURRED BY WAY OF PAYM ENT OF FEES OF ENAM ASSET MANAGEMENT COMPANY PVT. LTD. IN TERMS OF THE INVESTMENT AGREEMENT DATED 01.01.2005, WHICH IS PRECISELY THE ISSUE BEFORE US ALSO. THE TRIBUNAL REFERRED TO ITS EARLIER DECISION IN TH E ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 31 ST MAY, 2011 (SUPRA) AND NOTICED THAT THE ISSUE HAS BEEN DECIDED IN FAVO UR OF THE ASSESSEE. THEREAFTER, THE TRIBUNAL NOTED THAT AGAINST THE DEC ISION OF THE TRIBUNAL DATED 31 ST MAY, 2011 (SUPRA), REVENUE PREFERRED AN APPEAL BEF ORE THE HONBLE SUPREME COURT ONLY ON THE ISSUE TREATMENT O F INCOME FROM THE SALE OF SHARES AS CAPITAL GAIN OR BUSINESS INCOM E AND THAT THE REVENUE HAD NOT PREFERRED ANY APPEAL AGAINST THE OR DER OF THE TRIBUNAL ALLOWING THE CLAIM OF DEDUCTION OF EXPENDITURE BY W AY OF PORTFOLIO MANAGEMENT FEE REPRESENTING PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL 22 ITA NOS. 914 & 931/PN/2013 GAINS. AFTER NOTICING THE AFORESAID THE TRIBUNAL C ONCLUDED AS UNDER IN PARA 11 OF ITS ORDER DATED 25.07.2012 :- 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF HOMI K. BHABHA VS. ITO WAS BROUGHT TO OUR NOTICE BY THE LEARNED DR WHEREIN IT WAS HELD THAT PORTFOLIO MANAGEMENT SCHEM E FEES IS NOT DEDUCTIBLE AGAINST CAPITAL GAINS. THE DECISION OF T HE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING WAS N OT FOLLOWED BY THE MUMBAI BENCH IN THE ABOVE CITED DECISION. THE MUMBA I BENCH FOLLOWING OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TR IBUNAL DECLINED TO FOLLOW THE DECISION IN THE CASE OF KRA HOLDING & TR ADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE P OSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRODUCTS 88 ITR 192 (SC)]. FURTH ER, IN THE INSTANT CASE THE TRIBUNAL IN ASSESSEES OWN CASE HAS ALREADY TAK EN A VIEW IN FAVOUR OF THE ASSESSEE. SINCE THE AO & CIT(A) HAVE FOLLOWE D THE ORDER FOR EARLIER YEAR IN THE CASE OF THE ASSESSEE AND SINCE THE ORDE R OF CIT(A) FOR EARLIER YEAR HAS BEEN REVERSED BY THE TRIBUNAL, THEREFORE, UNLESS AND UNTIL THE DECISION OF THE TRIBUNAL IS REVERSED BY A HIGHER CO URT, THE SAME IN OUR OPINION SHOULD BE FOLLOWED. IN THIS VIEW OF THE MAT TER, WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR A.Y. 2004- 05 ALLOW THE CLAIM OF THE PORTFOLIO MANAGEMENT FEES AS AN ALLOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASSESSEE IS A CCORDINGLY ALLOWED. 14. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS CO NSIDERED THE SIMILAR OBJECTIONS OF THE CIT(A), IN OUR CONSIDERED OPINION, THE ORDER OF THE CIT(A) IN THE PRESENT CASE IS UNTENABLE AND WE ACCO RDINGLY SET-ASIDE THE SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 12.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. LTD. (SUPRA) WE HOLD T HAT THE PMS FEES PAID BY THE ASSESSEE IS AN ALLOWABLE DEDUCTION FROM THE CAPITAL GAINS. GROUND APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY A LLOWED. 32. FACTS IN THE PRESENT ASSESSMENT YEAR BEING SIMILAR, T HE GROUND NO. 8 RAISED BY THE ASSESSEE IN ITS APPEAL IS ALLOWED ACCORDINGLY. 33. THE GROUND NO. 9 RAISED BY THE ASSESSEE IN ITS APPE AL IS WITH RESPECT TO CLASSIFICATION OF CERTAIN ITEMS OF FIXED ASSETS T O THE TUNE OF ` 24,69,933/- VIZ. STAINLESS STEEL TABLES, STOOLS, RACKS ETC. LO CATED AT MANUFACTURING UNIT AS FURNITURE AND FIXTURES. THE ASS ESSEE HAD 23 ITA NOS. 914 & 931/PN/2013 INCLUDED THE AFORESAID ASSETS IN THE BLOCK OF ASSETS AS P LANT AND MACHINERY. THE LD. AR OF THE ASSESSEE SUBMITTED THAT C ERTAIN ASSETS LIKE STAINLESS STEEL TABLES, STOOLS, RACKS ETC. WERE USED BY THE ASSESSEE IN LABORATORIES IN THE FACTORY PREMISES. THESE ASSETS ARE USED WHILE MANUFACTURING/DEVELOPING OF NEW PRODUCTS, THEREFORE, THEY A RE CONSIDERED AS PLANT AND MACHINERY. THE STEEL FURNITURE IS USED IN THE LABORATORY TO MAINTAIN THE HYGIENIC, IT CANNOT BE EQUATED TO ORDINARY WOODEN FURNITURE AND FIXTURES USED IN OFFICE. THE LD. AR SU BMITTED THAT THE ISSUE RELATING TO CLASSIFICATION OF SUCH ASSETS AS PLANT AND MACHINERY HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 948/PN/2005 FOR ASSESSMENT YEAR 2001-02 DECIDE D ON 18-01- 2012. THE CO-ORDINATE BENCH OF THE TRIBUNAL AFTER DETAILED DISCUSSION AND AFTER APPLYING THE FUNCTIONAL TEST ACCEPTED THE CONT ENTIONS OF THE ASSESSEE. THE LD. AR PLACED ON RECORD A COPY OF THE ORD ER OF TRIBUNAL IN AFORESAID APPEAL. 34. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMIS SING THIS GROUND RAISED BY THE ASSESSEE. 35. BOTH SIDES HEARD. FINDINGS OF AUTHORITIES BELOW ON TH E ISSUE EXAMINED. WE HAVE ALSO CONSIDERED THE DECISION OF CO-ORDI NATE BENCH OF THE TRIBUNAL ON THIS ISSUE. WE FIND THAT THE ISSUE OF RE CLASSIFICATION OF CERTAIN ASSETS WHICH WERE CLASSIFIED BY THE ASSESSEE AS PLANT AND MACHINERY AND HELD TO BE FURNITURE AND FIXTURES BY THE REVENUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2001-02 IN ITA NO. 948/PN/2005 (SUPRA). THE CO-ORDINATE BENCH OF THE TRIBUN AL AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HELD AS UNDER: 24 ITA NOS. 914 & 931/PN/2013 6. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. THE JURISDICTIONAL HIGH COURT'S JUDGMENT IN THE CASE OF PARK DEVIS, SUPRA, IS CLEAR ON THE ISSUE THAT THE 'FUNCTIONAL TEST' HAS T O BE APPLIED IN DECIDING IF A PARTICULAR TOOL CONSTITUTES PLANT AND MACHINERY O R THE FURNITURE. KARNATAKA HIGH COURT IN CASE OF HINDUSTAN AERONAUTICS LTD, SUPRA ALSO DECIDED THE ISSUE ADOPTING THE SAME LOGIC. THEREFO RE, WE NEED TO ADOPT THE SAME 'FUNCTIONAL TEST' TO DECIDE IF THE IMPUGNED ITEMS I.E. STOOLS, TABLES , STAINLESS STEEL RACKS, 55 CUPBOARDS, 55 TROLLEYS. S S TRAYS ETC. CONSTITUTES 'PLANT & MACHINERY' FOR THE PURPOSE OF DECIDING THE APPLICAB LE RATE OF DEPRECIATION. THE PERUSAL OF THE ORDERS OF THE REV ENUE REVEALED THAT THEY HAVE NOT APPLIED THE FUNCTIONAL TEST TO EACH OF THE DISPUTED ITEMS. IN A WEEPING STATEMENT, THE AO MENTIONED THAT THE 'FURNI TURE ITEMS LIKE STOOLS, CHAIRS, TABLES, RACKS, TROLLEYS ETC' USED IN THE FA CTORY CANNOT BE CATEGORIZED AS PLANT AND MACHINERY AS THEY FAIL EVEN ON THE 'FU NCTIONAL TEST'. THERE IS NO DISCUSSION IN THE ORDERS ON THE DETAILS OF THE S AID TEST. IN OUR OPINION, THE FUNCTIONAL TEST IMPLIES IF THE SAID ITEMS ARE N ECESSARY FOR THE PRODUCTION OF THE PRODUCT IN THE LABORATORY PREMISES. IN OTHE R WORDS, IF THE STOOLS, TABLES, STAINLESS STEEL RACKS, SS CUPBOARDS, SS TRO LLEYS, SS TRAYS ETC. ARE REQUIRED FOR THE LABORATORY PURPOSE I.E. FOR THE PU RPOSE OF PRODUCTION OR PROCESSING OF THE CHEMICAL TESTS IN THE LABORATORY PREMISES LEADING TO THE PRODUCTION OF THE STOCKS, THEY MUST BE CATEGORIZED AS PLANT AND MACHINERY. THE IMPUGNED ITEMS LIKE THE CASE OF 'FAN' HELD AS P LANT AND MACHINERY BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF PARK D AVIS, SUPRA HAVE BOTH FACTORY AND OFFICE FUNCTIONS DEPENDING ON THE PLACE OF USE AND THE EMPLOYEES USING THEM. IF THE SCIENTIST OR LAB TECHNICIANS HAVE USED THE IMPUGNED CHAIRS OR STOOLS OR RACKS OR TRAYS AS PART OF THE PRODUCTION OF THE VACCINES IN THE FACTORY PREMISES, THEY MUST BE CONS TRUED AS 'PLANT' AS HELD IN THE CASE OF PARK DAVIS ON THE DISPUTE RELATING . TO 'FAN' AND THE APPLICABLE RATE OF DEPRECIATION. AS ARGUED BY THE LD DR, THE S PECIAL DESIGN IS AN IRRELEVANT FACTOR AS THE SAME ITEM CAN BE USED FOR MULTIPLE FUNCTIONS. THEREFORE, THE USE OF THE ITEM FOR THE FUNCTION OF PRODUCTION RELATED FUNCTION: AT THE PLACE OF LABORATORY MUST BE DECIDES ITS BLOC K I.E. PLANT & MACHINERY OR THE FURNITURE. IT IS THE NOT THE CASE OF THE REV ENUE THAT THEY WERE NOT USED FOR THE FUNCTION OF THE PRODUCTION OF THE VACC INES. IN OUR OPINION, THE REVENUE AUTHORITIES HAVE CARRIED AWAY MORE BY THE N OMENCLATURE RATHER THAN THE FUNCTIONS OF THE IMPUGNED ITEMS. THEREFOR E, CONSIDERING THE SET PRINCIPLE OF FUNCTIONAL TEST ADVOCATED BY THE JURIS DICTIONAL HIGH COURT CITED ABOVE, WE ARE OF THE OPINION THE ASSESSEE MUST WIN ON THIS ISSUE. ACCORDINGLY, GROUND 2 RAISED IN THE APPEAL OF THE A SSESSEE ARE ALLOWED. 25 ITA NOS. 914 & 931/PN/2013 36. THE LD. DR HAS NOT PLACED ON RECORD ANY MATERIAL TO CONTROVERT THE FINDINGS OF CO-ORDINATE BENCH ON THIS ISSUE. RESPECTFULL Y, FOLLOWING THE DECISION OF CO-ORDINATE BENCH WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 37. THE GROUND NO. 10 IN THE APPEAL OF ASSESSEE IS GENER AL IN NATURE AND HENCE REQUIRES NO ADJUDICATION. 38. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED IN THE AFORESAID TERMS. ITA NO. 914/PN/2013 (REVENUES APPEAL) 39. NOW, WE WILL ADVERT TO THE APPEAL BY THE DEPARTMENT. THE GROUND NOS. 1 AND 2 RAISED BY THE DEPARTMENT ARE INTER RELATED AND ARE TAKEN UP TOGETHER FOR ADJUDICATION. THE GROUND NOS. 1 AND 2 IN THE DEPARTMENTS APPEAL READ AS UNDER : I. WHETHER LD. CIT(A) WAS CORRECT IN HOLDING THAT EXP ENDITURE INCURRED ON PRODUCTS DEVELOPMENT IS A REVENUE EXPENDITURE, ALTH OUGH ASSESSEE HAS NOT DEBITED SUCH EXPENDITURE IN PROFIT AND LOSS ACC OUNT AND NOT CLAIMED IN ORIGINAL RETURN AND ASSESSEE ITSELF TREATED IT A S CAPITAL EXPENDITURE? II. WHETHER LD. CIT (A) WAS CORRECT IN HOLDING THAT NAT URE OF EXPENDITURE IS SUFFICIENT TO DECIDE THAT WHETHER IT IS A CAPITAL O R REVENUE EXPENDITURE IGNORING THE PURPOSE OF SUCH EXPENDITURES? 40. THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF ` 19,96,93,543/- ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENSES AS REVENUE IN NATURE. THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS CLAIMED THE SAID EXP ENDITURE AS CAPITAL. HOWEVER, WHILE FILING REVISED RETURN OF INCOME THE ASS ESSEE TREATED THE SAID EXPENDITURE AS REVENUE. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF LIFE SAVING 26 ITA NOS. 914 & 931/PN/2013 DRUGS. THE DEVELOPMENT OF NEW DRUGS OR VACCINES REQUIRE TIME SPAN OF 2-3 YEARS. THERE ARE CERTAIN EXPENDITURE WHILE DEVELOPME NT OF NEW PRODUCTS WHICH ARE REVENUE IN NATURE LIKE PURCHASE OF RA W MATERIAL, CHEMICAL, CONSUMABLES, SALARIES, TESTING CHARGES, EXPENSES ON CLINICAL TRIALS, STATIONERY ETC. THESE EXPENSES WERE CAPITALIZED IN T HE BOOKS AS PER AS-26 ALTHOUGH THESE EXPENSES ARE REVENUE IN NAT URE. THE ASSESSING OFFICER HAS HELD EXPENDITURE TO BE CAPITAL IN NATU RE PRIMARILY ON THE GROUND THAT THE ASSESSEE IN ITS BOOKS OF ACCOUN T HAS SHOWN THE EXPENDITURE AS CAPITAL. THE ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNT IS NOT DECISIVE FACTOR FOR DETERMINING THE NATUR E OF EXPENDITURE. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. TRANSWEEIGH (INDIA) LTD. VS. INCOME TAX OFFICER, 22 SOT 338 (MUMBAI); II. COMMISSIONER OF INCOME TAX VS. SAKTHI SOYAS LTD., 283 ITR 194 (MAD); III. GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX, 112 TTJ (CHD.-TRIB.) 94. 41. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTING THE FINDINGS OF ASSESSING OFFICER SUBMITTED THAT THE ASSESSEE HAS TREA TED THE ENTIRE AMOUNT OF EXPENDITURE ON PRODUCT DEVELOPMENT AS CAPITAL IN ITS BOOKS OF ACCOUNT. THE ASSESSEE HAS NOT CLAIMED ANY PART OF EX PENDITURE ON PRODUCT DEVELOPMENT EITHER U/S. 37(1) OR U/S. 35(1)(IV) OF THE ACT. EVEN IN THE TAX AUDIT REPORT FILED ALONG WITH THE ORIGINAL RETURN OF INCOME THE TAX AUDITOR HAS NOT MENTIONED THAT ANY PART OF EXPENDIT URE TOWARDS PRODUCT DEVELOPMENT IS REVENUE IN NATURE AND HAS BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT. THE ASSESSEE CLAIMED PRODUCT DEV ELOPMENT 27 ITA NOS. 914 & 931/PN/2013 EXPENDITURE AS REVENUE IN NATURE IN THE REVISED RETURN OF INCOME DUE TO CHANGE OF MIND. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 42. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESE NTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. UNDISPUTEDLY, IN THE ORIGINAL RETURN OF INCOME AND IN THE B OOKS OF ACCOUNT THE ASSESSEE HAS SHOWN EXPENDITURE OF ` 19,96,93,543/- ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENSES AS CAPITAL EXPE NDITURE. SUBSEQUENTLY, IN THE REVISED RETURN OF INCOME THE ASSESS EE HAS CLAIMED THE EXPENDITURE TO THE REVENUE IN NATURE. THE COMMISSIO NER OF INCOME TAX (APPEALS) HAS REVERSED THE FINDINGS OF ASSESSING OFFICER IN TREATING THE EXPENDITURE AS CAPITAL ON THE GROUND THAT THE ACCO UNTING ENTRIES IN THE BOOKS ARE NOT DETERMINING FACTOR FOR DECIDING THE NAT URE OF EXPENDITURE. RELIANCE HAS BEEN PLACED ON THE DECISION OF H ON'BLE SUPREME COURT OF INDIA IN THE CASE OF KEDARNATH JUTE MA NUFACTURING COMPANY LIMITED VS. COMMISSIONER OF INCOME TAX REPORTED A S 82 ITR 363 AND IN THE CASE OF SUTLEJ COTTON MILLS LIMITED VS. COMMIS SIONER OF INCOME TAX REPORTED AS 116 ITR 1. THE COMMISSIONER O F INCOME TAX (APPEALS) HAS FURTHER DRAWN STRENGTH TO SUPPORT HIS FINDING S FROM THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KOP RAN LTD. REPORTED AS 137 TTJ 35 AND SITU ELECTRO INSTRUMENTS (P .) LTD. REPORTED AS 19 SOT 13. 43. ADMITTEDLY, THE EXPENDITURE TOWARDS PRODUCT DEVELOP MENT HAS NOT BROUGHT INTO EXISTENCE A NEW CAPITAL ASSET OF ENDU RING NATURE. THE ASSESSEE HAS FILED THE DETAILS OF PRODUCT DEVELOPMENT EXPE NSES. A PERUSAL OF THE SAME SHOWS THAT PRIMARILY THE EXPENDITURE IS TOWARDS 28 ITA NOS. 914 & 931/PN/2013 PAYMENT OF SALARIES, TESTING CHARGES, R&D EXPENSES, REPAIR S AND MAINTENANCE, CONSUMPTION OF RAW MATERIAL, ETC. THE NATURE OF EXPENDITURE IS CLEARLY REVENUE IN NATURE. IT IS NOT THE CASE OF THE REVENUE THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON PRODUCT DEVELOPMENT IS NOT GENUINE OR HAS NOT CRYSTALLIZED DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. THE LD. AR O F THE ASSESSEE IN SUPPORT OF HIS SUBMISSIONS HAS PLACED RELIANCE ON THE DE CISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TRANSWEEIGH (I NDIA) LTD. VS. INCOME TAX OFFICER REPORTED AS 22 SOT 338 (MUMBAI). IN THE SAID CASE THE ASSESSEE IN ITS BOOKS OF ACCOUNT CLASSIFIED THE E XPENDITURE ON RESEARCH AND DEVELOPMENT AS CAPITAL IN NATURE. WHILE FILING R ETURN OF INCOME THE ASSESSEE CLAIMED RESEARCH AND DEVELOPMENT EX PENSES AS REVENUE ALLOWABLE U/S. 37 OR IN ALTERNATE U/S. 35(1) OF THE A CT. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE AND H ELD THE EXPENDITURE AS CAPITAL. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) AFFIRMED THE FINDINGS OF ASSESSING OFFICER. THE ASS ESSEE CARRIED THE MATTER IN APPEAL TO THE TRIBUNAL. THE TRIBUN AL AFTER APPRECIATING THE FACTS OF CASE AND DOCUMENTS ON RECORD HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WHICH MAINLY COMPR ISE OF SALARY, TRAVELLING, RAW MATERIALS, CONSUMABLES, HARDWARE ETC. IS REVEN UE IN NATURE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBU NAL ARE AS UNDER : 8. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH SIDES, MATERIAL ON RECORD AND ORDERS OF AUTHORITIES BELOW. IT IS NOTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF CAPITAL GOODS I.E. PLANT AND MACHINERY TO BE EMPLOY ED BY CEMENT AND STEEL COMPANIES AND OTHER COMPANIES ENGAGED IN THE INFRASTRUCTURE PRODUCTS. IT IS ALSO NOTED THAT COMPANY IS HAVING T ECHNICAL COLLABORATION FOR UP-GRADATION AND IMPROVEMENT AND DEVELOPMENT OF NEW PRODUCTS. IT IS ALSO NOTED THAT THE COMPANY ALSO CUSTOMIZES IT'S EQUIPMENTS BASED UPON THE SPECIFIC REQUEST OF PARTICULAR CUSTOMER TO THAT EFFECT. IT HAS ALSO 29 ITA NOS. 914 & 931/PN/2013 BEEN STATED THAT R&O ACTIVITIES IS A PART OF IT'S B USINESS ACTIVITIES SO AS TO REMAIN COMPETITIVE AND QUALITATIVE IN IT'S LINE OF BUSINESS. WE HAVE ALSO PERUSED THE NATURE OF EXPENSES WHICH MAINLY CO MPRISE OF SALARIES, TRAVELLING (INCLUDING FOREIGN TRAVEL), RAW MATERIAL S, CONSUMABLES, HARDWARE ETC. IT IS ALSO NOTED THAT IN HOUSE RESEAR CH AND DEVELOPMENT FACILITIES HAVE ALSO BEEN RECOGNIZED BY THE GOVERNM ENT OF INDIA THOUGH SUCH RECOGNITION IS SUBJECT TO THE CONDITION THAT T HE ASSESSEE HAS TO CLAIM THE DEDUCTION AS PER THE PROVISIONS OF IT ACT, 1961 . HOWEVER, THIS FACT OF RECOGNITION BY ITSELF MEANS THAT ASSESSEE IS CARRYI NG OUT CERTAIN R&D ACTIVITIES. NOW, COMING TO THE DEFINITION OF SCIEN TIFIC RESEARCH AS PROVIDED UNDER S. 43(4) OF THE ACT, WE FIND THAT THE ACTIVIT IES CARRIED ON BY THE ASSESSEE HAVE CERTAINLY RESULTED INTO EXPANSION OF KNOWLEDGE IN THE FIELD OF APPLIED SCIENCES, HENCE, THE EXPENDITURE INCURRE D BY THE ASSESSEE TAN CERTAINLY BE TERMED AS EXPENDITURE INCURRED ON 'SCI ENTIFIC RESEARCH'. AS REGARDS THE PRESENTATION OF THE SAME AS THE CAPITAL EXPENDITURE, IN THE BOOKS OF ACCOUNT BY THE ASSESSEE, IT IS A SETTLED P RINCIPLE THAT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT IS NOT CONC LUSIVE TO DETERMINE THE DEDUCTIBILITY OR OTHERWISE OF AN EXPENDITURE, HENCE , SUCH TREATMENT IN THE BOOKS OF ACCOUNT IS NOT RELEVANT FOR THE PURPOSE OF ALLOWABILITY OF THE EXPENDITURE. WE WOULD LIKE TO FURTHER STATE THAT R&D ACTIVITIES CARRIED ON BY THE ASSESSEE RESULTED INTO PRODUCT DE VELOPMENT, PROCESS DEVELOPMENT, INDIGENIZATION, PRODUCT SUPPORT AND TH ESE ACTIVITIES HAVE BEEN CARRIED ON BY THE ASSESSEE IN A CONTINUOUS MAN NER FOR YEARS TOGETHER AND NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THESE CLAIMS OF THE ASSESSEE, HENCE, MER ELY FOR THE REASON THAT ASSESSEE IS HAVING A TECHNICAL COLLABORATION OR IS DEVELOPING VARIOUS PROTOTYPES, THESE ACTIVITIES CANNOT BE TERMED AS NO T OF THE NATURE OF SCIENTIFIC RESEARCH. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE AS REVENUE IS A LLOWABLE UNDER S. 35(1) OF THE ACT AND CAPITAL EXPENDITURE I NCURRED BY THE ASSESSEE IN THIS REGARD IS ALLOWABLE UNDER S. 35(1) (IV) R/W S. 35(2) OF THE ACT. THUS, THIS GROUND OF THE ASSESSEE STANDS ACCEP TED. SINCE WE HAVE HELD SO, THEREFORE, THE ALTERNATE CONTENTION RAISED BY THE ASSESSEE BY WAY OF ADDITIONAL GROUND IS NOT ADJUDICATED. ACCORD INGLY, GROUND NO.1 STANDS ACCEPTED. 44. THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF G LAXO SMITH KLINE CONSUMER HEALTHCARE LTD. VS. ASSISTANT COMMISSIONER O F INCOME TAX REPORTED AS 112 TTJ (CHD) 94 WHILE CONSIDERING THE NA TURE OF 30 ITA NOS. 914 & 931/PN/2013 EXPENDITURE ON PRODUCT DEVELOPMENT EXPENSES HAS HELD THAT THE PRODUCT DEVELOPMENT EXPENDITURE IS REVENUE IN NATURE. T HE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THE SAID CASE ARE AS UNDER : 10. NOW WE MAY EXAMINE THE EXPENDITURE UNDER THE H EAD 'PRODUCT DEVELOPMENT EXPENSES'. THE DETAILS OF THE EXPENDITU RE SHOW THAT THE SAME HAS BEEN INCURRED FOR INTRODUCING AND DEVELOPI NG NEW PRODUCTS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URE AND SALE OF FOOD AND HEALTH CARE PRODUCTS UNDER A WELL-KNOWN BRAND. THE EXPENSES INCLUDE DEVELOPMENT EXPENSES FOR NEW PRODUCTS NAMEL Y NUTIRBAR CHOCOLATE, RIBENA SOFT DRINK, HORLICKS RELAUNCH EXP ENSES. CERTAINLY SUCH EXPENDITURE HAS THE POTENTIAL TO IMPROVE THE PROFIT ABILITY OF THE ASSESSEE. HOWEVER THE ISSUE TO, BE CONSIDERED IS WHETHER THE EXPENDITURE SEEKS TO ENLARGE THE PROFIT-YIELDING CAPACITY OR IT INCREASE S THE EFFICIENCY OF THE BUSINESS. THIS ASPECT, IN OUR CONSIDERED OPINION IS TO BE DECIDED IN THE LIGHT OF THE BUSINESS REALITIES UNDER WHICH THE ASS ESSEE IS OPERATING. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF FAST MOVING CONSUMER GOODS. THE BUSINESS OF THE ASSESSEE IS SU BJECTED TO VOLATILITY IN CONSUMER PREFERENCES, TASTES AND WANTS. THE ASSE SSEE IS THEREFORE REQUIRED TO PERENNIALLY STUDY THE MARKET AND LAUNCH NEW VARIETIES IN ITS PRODUCTS LINE AND MEET THE COMPETITION IN THE MARKE T. IT IS IN THIS BACKGROUND ONE HAS TO EXAMINE AS TO WHETHER THE IMP UGNED EXPENDITURE INCURRED ON DEVELOPMENT, INTRODUCTION AND LAUNCHING OF NEWER PRODUCTS IS AN ADVANTAGE IN THE REVENUE FIELD OR NOT. IN OUR HUMBLE OPINION THE EXPENDITURE IN QUESTION HAS MERELY ENABLED THE ASSE SSEE TO REMAIN COMPETITIVE IN THE MARKET AND RETAIN THE CUSTOMER P REFERENCES AND/LOYALTY TOWARDS ITS BRAND OF PRODUCTS. THE SAID ADVANTAGE CERTAINLY IS NOT LIMITED TO THE PERIOD UNDER CONSIDERATION BUT SPILLS OVER TO THE FUTURE ALSO. SO HOWEVER THIS IS NOT CONCLUSIVE TO H OLD THAT THE EXPENDITURE IN QUESTION IS A CAPITAL EXPENDITURE. THE PARITY OF REASONING LAID DOWN BY THE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. (SUPRA) DISCUSSED BY US IN THE EARLIER PARA IS SQUARELY APPLICABLE WITH RESPECT TO SUCH EXPENDITURE ALSO. 11. WE MAY MENTION HERE THE STAND OF REVENUE THAT T HE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS CREATE A NEW LINE OF BUSINESS FOR THE ASSESSEE AND THUS EXPENDITURE RELATED THEREOF IS TO BE TREATED AS CAPITAL EXPENDITURE. ON THIS ASPECT WE ARE UNABLE TO APPREC IATE AS TO HOW CAN IT BE SAID THAT MERE DEVELOPMENT AND INTRODUCTION OF N EW VARIETIES OF PRODUCTS RESULT IN CREATION OF A NEW LINE OF BUSINE SS. FACTUALLY SPEAKING, 31 ITA NOS. 914 & 931/PN/2013 PRIOR TO THE DEVELOPMENT AND INTRODUCTION OF THE IM PUGNED NEW PRODUCTS THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING A ND SALE OF FOOD AND HEALTH CARE PRODUCTS. EVEN POST DEVELOPMENT AND INT RODUCTION OF NEW PRODUCTS, THE BUSINESS OF THE ASSESSEE REMAINS THAT OF MANUFACTURING AND SALE OF FOOD AND HEALTH CARE PRODUCTS. THEREFOR E IT IS ERRONEOUS TO CONCLUDE THAT THE ASSESSEE ACQUIRED A NEW LINE OF B USINESS BY MERELY DEVELOPING AND INTRODUCING NEW PRODUCTS IN THE EXIS TING LINE OF BUSINESS. THE NEW PRODUCTS CLEARLY RELATE TO THE SAME LINE OF BUSINESS THAT THE ASSESSEE HAS BEEN HITHERTO CARRYING ON. THEREFORE, ON ABOVE CONSIDERATION ALSO THE PLEA OF THE ASSESSEE THAT TH E EXPENDITURE IN QUESTION IS A REVENUE EXPENDITURE DESERVES TO BE UP HELD. 45. IN SO FAR AS THE ARGUMENT OF THE LD. DR THAT THE A SSESSEE HAS SHOWN PRODUCT DEVELOPMENT EXPENDITURE IN ITS BOOKS OF AC COUNT AS CAPITAL IN NATURE AND SUBSEQUENTLY WHILE FILING REVISED RET URN OF INCOME HAS CLAIMED THE SAME TO BE REVENUE DUE TO CHANGE OF M IND IS NOT TENABLE. IT IS A WELL SETTLED LAW THAT ENTRIES MADE IN THE BOOKS OF ACCOUNT DOES NOT DETERMINE THE TRUE NATURE OF TRANSACTION. 46. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF SU TLEJ COTTON MILLS LIMITED VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS CLEAR LY ENUNCIATED THAT THE BOOKS OF ACCOUNT ARE NOT DETERMINA TIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASSESSEE MAY, BY MAKING ENTRIES WHICH ARE NOT I N CONFORMITY WITH THE PROPER ACCOUNTANCY PRINCIPLES, CONCEAL PROFIT OR S HOW LOSS AND THE ENTRIES MADE BY HIM CANNOT, THEREFORE, BE REGARDED AS CONCLUSIVE. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO TH E ASSESSEE. THUS, THE HON'BLE APEX COURT HAS IN UNAMBIGUOUS TERMS H ELD THAT ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. THIS LAW LAID DOWN BY THE HON'BLE AP EX COURT 32 ITA NOS. 914 & 931/PN/2013 HAVE BEEN REITERATED BY THE HON'BLE JURISDICTIONAL HIGH C OURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GOPAL PUROHIT REPOR TED AS 336 ITR 287 (BOM). RECENTLY, IN THE CASE OF COMMISSIONER OF IN COME TAX VS. SMIFS SECURITIES LTD. REPORTED AS 348 ITR 302 (SC) THE HON'BLE SUPREME COURT OF INDIA HAS REAFFIRMED THE VIEW THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT CONCLUSIVE FOR DECIDING THE NATURE OF EXPENDITURE. THUS, IN VIEW OF THE FACTS OF THE CASE AND VARIOUS DECISIONS DISCUSSED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ACCEPTING THE PRODU CT DEVELOPMENT EXPENDITURE AS REVENUE IN NATURE. ACCORDING LY, GROUND NOS. 1 AND 2 RAISED BY THE REVENUE IN ITS APPEAL ARE DISMISSED. 47. THE GROUND NO. 3 RAISED BY THE REVENUE IN APPEAL IS AS UNDER : III. WHETHER LD. CIT(A) WAS CORRECT IN DECIDING THAT ASS ETS USED FOR CARRYING PRODUCTS IS PLANT & MACHINERY? 48. THE THIRD GROUND OF APPEAL BY THE REVENUE IS CORRESP ONDING TO THE GROUND NO. 9 RAISED IN THE APPEAL BY THE ASSESSEE. THE ISSUE REGARDING RECLASSIFICATION OF CERTAIN ASSETS USED IN THE LAB ORATORY AS PLANT AND MACHINERY HAS BEEN DEALT IN DETAILED WHILE DEALING WITH GROUND NO. 9 OF THE ASSESSEES APPEAL. FOR THE DETAILED REASONS GIVEN THEREIN THIS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. 49. THE GROUND NO. 4 RAISED BY THE REVENUE IN APPEAL IS AS UNDER : IV. WHETHER LD. CIT(A) WAS CORRECT IN DECIDING THAT EXP ENDITURE ON FREIGHT & INSURANCE HAS TO BE EXCLUDED FROM BOTH SIDE I.E. EX PORT TURNOVER & TOTAL TURN FOR CLAIMING DEDUCTION U/S. 10B/10AA? 33 ITA NOS. 914 & 931/PN/2013 50. THE ISSUE RELATING TO EXCLUSION OF FREIGHT AND INSURANCE FROM BOTH NUMERATOR AND DENOMINATOR I.E. EXPORT TURNOVER AND TOTA L TURNOVER WHILE CLAIMING DEDUCTION U/S. 10B/10AA OF THE ACT HAS BEEN LAID TO RAISED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD. REPORTED AS 121 TTJ 865. THE COMMISSIONER OF I NCOME TAX (APPEALS) HAS DECIDED THIS ISSUE BY FOLLOWING THE DECISION OF SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD. (SUPRA) AND THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF G EM PLUS JEWELLERY INDIA LTD. REPORTED AS 330 ITR 175. WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS ) IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE FREIGHT AND INSURA NCE CHARGES BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER WHILE ALLOWIN G DEDUCTION U/S. 10B AND 10AA OF THE ACT. ACCORDINGLY, GROUND NO. 4 RAISED BY THE DEPARTMENT IN ITS APPEAL IS DISMISSED. 51. THE GROUND NO. 5 RAISED BY THE REVENUE IN APPEAL IS AS UNDER : V. WHETHER LD. CIT(A) WAS CORRECT IN HOLDING THAT EXPE NDITURE ON COST GUARD DAY FUNCTION & SEMINAR IS ALLOWABLE EXPENDITU RE U/S. 37(I) OF THE ACT? 52. THE LD. AR SUBMITTED THAT THE ASSESSEE CONTRIBUTED ` 2,00,000/- TOWARDS CELEBRATION OF INDIAN COST GUARDS 31 YEARS OF S ERVICE TO THE NATION. THE INTENTION OF CELEBRATING COST GUARD DAY IS T O SPREAD AWARENESS OF THE SERVICE WHICH OPERATES WITH INDIAN NAVY DURING EXTERNAL AGGRESSION AND INDEPENDENTLY GUARDS INDIAN COS T LINE FROM INTRUDERS DURING PEACE. THE BUSINESS MOTIVE BEHIND CONTR IBUTING THE FUND WAS THE ASSESSEE HAS TAKEN GODOWNS ON LEASE FROM M/S. SOVERE IGN PHARMA PVT. LTD. AT DAMAN FOR STORAGE OF VACCINES AND IN DIAN COST 34 ITA NOS. 914 & 931/PN/2013 GUARD HAS ITS HUGE BASE AT DAMAN. THE EXPENDITURE HA S BEEN INCURRED TOWARDS DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY. 53. THE LD. DR REPRESENTING THE DEPARTMENT HAS NOT BEE N ABLE TO SHOW ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF INCOME TA X (APPEALS) IN ALLOWING THE EXPENDITURE. ACCORDINGLY, GROUND NO . 5 RAISED BY THE DEPARTMENT IN APPEAL IS DISMISSED. 54. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 22 ND DAY OF JULY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 22 ND JULY, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-III, PUNE 4. ' / THE CIT (CENTRAL), PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE