Finolex Cables Ltd., Pimpri V. Addl.CIT, Range-8, Pune, Pune

ITA 961/PUN/2002

• Counselvise Citation: 96124514 RSA 2002
• Duration Of Justice: 9 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 1998-1999
• Appeal Filed On: 01-07-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Assessee Lawyers: D P BAPAT; R D ONKAR
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Opportunity of being heard; Cost of acquisition; Wholly owned subsidiary; Speculation loss; Bad and doubtful debts; Scheme of amalgamation; Capital receipt; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 14A; 80IB; 43(5); 139(5); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER S.NO ITA NO ASSTT. YEAR APPELLANT RESPONDENT 1 961/PN/02 98-99 FINOLEX CABLES LTD 26/27, MUMBAI-PUNE ROAD, PIMPRI, PUNE . PAN AAACF 26370 ADDL. CIT. RANGE-8, PUNE 2 976/PN/02 98-99 ASSTT. CIT, CIR.8 PUNE FINOLEX CABL ES LTD., PUNE 3 683/PN/03 99- 2000 FINOLEX CABLES LTD., PUNE ADDL. CIT R-8, PUNE 4 718/PN/03 99- 2000 DY. CIT, CIR. 8, PUNE FINOLEX CABLES LTD., PUNE 5 1305/PN/03 2000- 01 FINOLEX CABLES LTD., PUNE ADDL. CIT R-8, PUNE 6 1331/PN/03 2000- 01 DY. CIT, CIR.8, PUNE FINOLEX CABLES LTD.,PUNE 7 1157/PN/07 2003- 04 FINOLEX CABLES LTD., PUNE ADDL. CIT R-8, PUNE 8 1184/PN/07 2003- 04 ASSTT. CIT, CIR.9 PUNE FINOLEX CABLES LTD., PUNE 9 1421/PN/05 1997- 98 FINOLEX CABLES LTD., PUNE ASSTT. CIT R-8, PUNE ASSESSEE BY : S/SHRI D P BAPAT & R D ONKAR RESPONDENT BY : SHRI HARESHWAR SHARMA DATE OF HEARING : 11.01.2012 DATE OF PRONOUNCEMENT : 06 .03.2012 ORDER PER G. S. PANNU, AM : THE CAPTIONED APPEALS BY THE ASSESSEE AND REVENUE INVOLV E CERTAIN COMMON ISSUES AND, THEREFORE, THEY HAVE BEEN HEARD TOGE THER AND ARE BEING DISPOSED OF BY WAY OF A CONSOLIDATED ORDER FOR THE SAKE OF BREVITY AND CONVENIENCE. 2. FIRST, WE SHALL TAKE UP ASSESSEES APPEAL VIDE ITA NO 96 1/PN/2003 FOR THE ASSESSMENT YEAR 1998-99. THIS APPEAL IS DIRECTED AGAI NST THE ORDER OF THE 2 COMMISSIONER OF INCOME-TAX (APPEALS)-III, PUNE DATED 26 .4.2002, WHICH IN TURN, HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFF ICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) , PERTAINING TO THE ASSESSMENT YEAR 1998-99. 3. THE GROUND OF APPEAL NO. 1 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND N LAW THE LD CIT(A) ERRED IN: A. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION THE AO IN DEN YING THE SET-OFF OF LOSS OF THE AMALGAMATING COMPANY VIZ. FINORAM SHEETS LTD. ( FSL) FOR THE ASSESSMENT YEAR 1998-99 AGAINST THE TAXABLE INCOME OF THE APPELLANT COMPANY FOR THE VERY SAME ASSESSMENT YEAR UNDER APP EAL. B. FURTHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IS NOT RECOGNIZING AND RES PECTING THE SANCTITY OF THEORDER PASSED BY THE HON. BOMBAY HIGH COURT APPRO VING THE AMALGAMATION OF FSL WITH THE APPELLANT COMPANY AND FURTHER CONCL UDING THAT, FIXING THE DATE OF AMALGAMATION WITH EFFECT FROM 1.4.1997 WAS MEREL Y A COLORABLE DEVICE DISREGARDING THE FACT THAT THE ENTIRE SCHEME OF AMA LGAMATION WAS APPROVED BY THE HIGH COURT IN TERMS OF SECTION 391 AND 394 O F THE COMPANIES ACT, 1956, WHICH PROVISIONS ENJOIN THE COURT TO TAKE INT O ACCOUNT, AMONG OTHERS, PUBLIC INTEREST BEFORE THE SCHEME OF AMALGAMATION I S SANCTIONED. THE DISPUTE IN GROUND NO. 1 REVOLVES AROUND THE DISALL OWANCE OF ASSESSEES CLAIM OF SET OFF OF THE LOSSES OF M/S FINORAMA SH EETS LTD (FSL), THE AMALGAMATING COMPANY, WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-99. IN THIS CONNECTION, THE RELEVANT FACTS ARE THAT FOR THE ASSESSMENT YEAR 1998-99, THE ASSESSEE COMPANY FILED A RETURN OF INCOME ORIGINALLY ON 27.11.1998 DECLARING AN INCOME OF RS 55,34,39,620/-. SUBSEQUENTLY, ON 31.3.2000, ASSESSEE C OMPANY FILED A REVISED RETURN OF INCOME DECLARING INCOME OF RS 43,24,0 0,700/-. THE REVISED RETURN WAS FILED AS A CONSEQUENCE OF AMALGAMATION OF FS L WITH THE ASSESSEE COMPANY WITH EFFECT FROM 1.4.1997. IN THE REVISED RETU RN, ASSESSEE CLAIMED SET-OFF OF THE LOSS OF RS 11,69,99,261/- PERTAINING TO FSL FOR THE INSTANT ASSESSMENT YEAR. THIS SET-OFF OF LOSS CLAIMED BY THE ASSESSEE I N THE REVISED RETURN HAS BEEN DENIED BY THE ASSESSING OFFICER AND SUCH DENIAL IS SUBJECT MATTER OF DISPUTE BEFORE US. SIMILAR IS THE SITUATION IN THE ASSESSMENT YEAR 3 1999-2000, WHEREIN THE LOSS OF RS 12,21,30,200/- PERTA INING TO FSL HAS BEEN DENIED THE SET-OFF BY THE ASSESSING OFFICER. 4. BRIEFLY PUT, THE FACTS RELEVANT TO THE DISPUTE AND THE OBJECTIONS OF THE REVENUE TO THE CLAIM OF THE ASSESSEE CAN BE SUMMARIZED A S FOLLOWS. FSL WAS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMP ANIES ACT, 1956 ENGAGED IN THE BUSINESS OF MANUFACTURING OF PVC SHEETS A ND VARIOUS OTHER ITEMS. INITIALLY, FSL WAS A 50:50 JOINT VENTURE BETWE EN ASSESSEE AND M/S PALTOUGH LTD.,ISRAEL AND IT BECAME A SUBSIDIARY OF TH E ASSESSEE COMPANY ON 31.3.1997. IT IS NOTED BY THE ASSESSING OFFICER THAT THE COMMERCIAL OPERATIONS OF FSL STARTED FROM 01.01.1997 AND IT INCURRED LOSSES F OR ASSESSMENT YEARS 1998-99 AND 1999-2000 OF RS 11,69,99,261/- AND RS 12, 21,30,200/- RESPECTIVELY AS PER THE RETURNS OF INCOME FILED BY IT F OR THE TWO YEARS ON 30.11.98 AND 30.12.99 RESPECTIVELY. ON 25.3.1998, TH E BOARD OF DIRECTORS OF THE ASSESSEE COMPANY APPROVED A SCHEME OF AMALGAMATION IN TERMS OF WHICH IT WAS PROPOSED TO AMALGAMATE FSL WITH THE ASSESSEE COMPA NY. SIMILAR RESOLUTION WAS PASSED BY THE BOARD OF DIRECTORS OF FSL O N 30.6.1998, BY WHICH TIME FSL WAS A 100% SUBSIDIARY OF THE ASSESSEE COMPAN Y. ON 14.12.1998 AN APPLICATION WAS FILED BY FSL BEFORE THE HONBLE BOMBAY HIGH COURT SEEKING APPROVAL OF THE SCHEME OF AMALGAMATION WH ICH WAS PASSED IN THE EXTRAORDINARY GENERAL MEETING OF THE SHAREHOLDER S OF THE ASSESSEE COMPANY ON 18.1.1999. SUBSEQUENTLY, ON 23.2.1999 A PE TITION FOR SANCTION OF THE SCHEME WAS FILED BY FSL BEFORE THE HONBLE BOMBAY HIGH COURT. SIMILARLY, ON 23.2.1999 PETITION OF THE ASSESSEE COMPAN Y WAS ALSO MADE BEFORE THE HONBLE BOMBAY HIGH COURT FOR SANCTION OF THE PROPOSED SCHEME OF AMALGAMATION OF FSL WITH THE ASSESSEE COMPANY. THE HON BLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 11.1.2000 SANCTIONED THE A RRANGEMENT IN THE SCHEME OF AMALGAMATION WHEREBY FSL AMALGAMATED WITH T HE ASSESSEE COMPANY WITH EFFECT FROM 1.4.1997. IN TERMS OF THE SAI D ORDER THE ENTIRE 4 UNDERTAKING AND BUSINESS OF FSL STOOD TRANSFERRED AND VE STED IN THE ASSESSEE COMPANY PURSUANT TO THE PROVISIONS OF 394 OF THE C OMPANIES ACT, 1956. SUBSEQUENT TO THE SAID SANCTION BY THE HONBLE H IGH COURT THE ASSESSEE FILED REVISED RETURNS FOR THE ASSESSMENT YEARS 1998- 99 AND 1999- 2000 INCORPORATING THEREIN THE LOSSES OF FSL WHICH WERE HITHERTO DECLARED BY FSL IN ITS RESPECTIVE RETURNS OF INCOME. THIS CLAIM OF SE T-OFF OF LOSSES HAS BEEN DENIED BY THE ASSESSING OFFICER FOR THE FOLLOWING R EASONS- THAT THE CLAIM FOR THE LOSSES IS BASED ON THE FACT THAT THE AMALGAMATI ON IS WITH EFFECT FROM 1.4.1997 (I.E. THE APPOINTED DATE). AS PER THE ASSESSING OFFICER, THE PROCESS OF AMALGAMATION WAS STARTED WITH PASSING OF BOARD RESOLUTIO NS ON 25.3.1998 AND WAS FINALLY SANCTIONED BY THE HONBLE BOMBAY HIGH COUR T ON 23.2.1999 AND THEREFORE, THE APPOINTED DATE FOR THE IMPLEMENTATIO N OF THE SCHEME, I.E. WITH EFFECT FROM 1.4.1997, WHICH IS RETROSPECTIVE, IS ARBITRA RY AND HAS BEEN DONE ONLY TO FACILITATE THE SET OFF OF THE LOSSES OF FSL FOR THE TWO YEARS AGAINST THE POSITIVE INCOME OF THE ASSESSEE; THAT THE ONLY PURPOSE FOR WHICH THE DATE OF AMALGAMATION WAS FIXED RETROSPECTIVELY WAS TO ESCAPE FROM THE CONDITIONS PRESCRIBED IN SECTION 72A OF THE ACT WHICH, INTER-ALIA, REQUIRE OBTAINING OF PERMISSION FROM THE SPECIFIED AUTHORITY, ETC.; THAT FIXI NG THE DATE OF AMALGAMATION SCHEME AS 1.4.1997 IS A COLORABLE DEVICE RESO RTED TO BY THE ASSESSEE IN ORDER TO EVADE THE PAYMENT OF TAXES, IN VIEW OF THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MC DOWEL & CO. V. CIT 154 ITR 148 (SC); THAT THE FACT THAT THE SCHEME OF AMALGAMATI ON HAS BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT DOES NOT PUT ANY FE TTERS ON THE DEPARTMENT TO TREAT THE DATE OF IMPLEMENTATION OF THE SCHEME AS A COLORABLE DEVICE TO EVADE PAYMENT OF DUE TAXES, AND THUS AS PER THE ASSESSING OFFICER, IT CAN BE IGNORED; THAT IN ANY CASE THE HONBLE BOMBAY HIGH COU RT IN ITS ORDER DATED 11.1.2000 HAS APPROVED THE SCHEME OF AMALGAMATION EXCEP T CLAUSE 6 DEALING WITH THE PROFIT AND LOSSES OF THE AMALGAMATING COMPANY (I.E. FSL) EARNED 5 BETWEEN THE APPOINTED DATE AND THE EFFECTIVE DATE. T HEREFORE, AS PER THE ASSESSING OFFICER HE WAS COMPETENT TO DENY THE BENEFIT OF SET OFF OF LOSSES OF THE AMALGAMATING COMPANY FOR THE REASON THAT CLAUSE 6 H AS NOT BEEN APPROVED BY THE HONBLE HIGH COURT. 5. IN THIS CASE, THE ASSESSING OFFICER HAS OBSERVED THAT THE ONLY PURPOSE FOR FIXING THE APPOINTED DATE OF THE AMALGA MATION AS 1.4.1997 WAS WITH A VIEW TO FACILITATE SET-OFF OF THE LOSSES OF FSL F OR THE TWO ASSESSMENT YEARS OF 1998-99 AND 1999-2000 AGAINST THE POSITIVE IN COME OF THE ASSESSEE. AS PER THE ASSESSING OFFICER, THE REVENUE IS ENTITLED TO EXPLORE AND EXAMINE THE SCHEME OF AMALGAMATION FOR THE POSSIBILITY THAT FIXA TION OF THE APPOINTED DATE OF 1.4.1997 IS A COLOURABLE DEVICE ADOPTED BY T HE ASSESSEE COMPANY TO AVOID PAYMENT OF TAXES DESPITE THE FACT THAT THE SCHEME OF AMALGAMATION HAS THE APPROVAL AND SANCTION OF THE HONBLE BOMBAY HIGH COURT IN TERMS OF SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956. IN THIS CO NNECTION, THE CASE OF THE REVENUE IS THAT IT IS ENTITLED TO DO SO IN TERM S OF THE JUDGMENT OF THE HONBLE SUPREME COURT THE CASE OF MARSHAL SONS & CO. ( INDIA) LTD 326 ITR 809 (SC) AND KEEPING IN MIND THE RATIO OF THE JUDGME NT OF THE HONBLE SUPREME COURT IN THE CASE OF MC DOWELL & CO. (SUPRA). 6. BEFORE WE PROCEED TO ADDRESS THE AFORESAID CONTROVER SY, WE MAY BRIEFLY TOUCH UPON THE RELEVANT PROVISIONS OF THE COMPANIES ACT, 1956 IN TERMS OF WHICH THE IMPUGNED AMALGAMATION SCHEME HAS BEEN CARRIED OUT. SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956 PROVIDE THE MOD E AND MANNER OF FACILITATING THE SCHEMES OF ARRANGEMENT, RECONSTRUCTION AND AMALGAMATION OF COMPANIES. EVERY APPLICATION FOR THE SANCTION OF A COM PROMISE OR ARRANGEMENT PROPOSED BETWEEN A COMPANY AND ANY OTHE R PERSON (INCLUDING A SCHEME OF AMALGAMATION OF ANY TWO OR MORE COMPANIES), I S TO BE MADE TO THE COURT IN TERMS OF SECTION 391 OF THE COMPANIES ACT, 1956 . SUB-SECTION (1) OF 6 SECTION 394, INTER ALIA , PRESCRIBES THAT WHERE, INTER ALIA, A SCHEME OF AMALGAMATION OF ANY TWO OR MORE COMPANIES INVOLVE THA T THE WHOLE OR ANY PART OF THE UNDERTAKING, PROPERTY, OR LIABILITIES OF ANY COMPANY CONCERNED IS TO BE TRANSFERRED TO ANOTHER COMPANY, THE COURT MAY, E THER BY THE ORDER SANCTIONING THE AMALGAMATION OR BY A SUBSEQUENT ORDER M AKE PROVISION FOR ALL OR ANY MATTERS SPECIFIED IN THE SECTION. SUCH MATTERS IN CLUDE TRANSFER TO THE TRANSFEREE COMPANY OF THE PROPERTY OR LIABILITIES OF THE TRANSFEREE COMPANY; ALLOTMENT BY THE TRANSFEREE COMPANY OF ANY SHARES, ETC. IN THAT COMPANY WHICH, UNDER THE ARRANGEMENT ARE TO BE ALLOTTED; CONT INUATION BY THE TRANSFEREE COMPANY OF ANY LEGAL PROCEEDINGS PENDING BY OR AGAINST T HE TRANSFEROR COMPANY; THE DISSOLUTION OF THE TRANSFEROR COMPANY; AND , SUCH OTHER MATTERS AS MAYBE DEEMED NECESSARY TO SECURE THE AMALGAMATION IS F ULLY AND EFFECTIVELY CARRIED OUT. THE FIRST PROVISO TO SECTION 39 4(1) SEEKS TO PRESCRIBE THAT NO SUCH SCHEME FOR THE AMALGAMATION OF A COMPANY, WHICH IS BEING WOUND UP, WITH ANY OTHER COMPANY SHALL BE SANCTIONED BY THE COURT, UNLESS THE COURT HAS RECEIVED A REPORT FROM THE REGISTRAR OF COMPANIES THAT THE AFFAIRS OF THE COMPANY HAVE NOT BEEN CONDUCTED IN A MAN NER PREJUDICIAL TO THE INTERESTS OF ITS MEMBERS OR TO PUBLIC INTEREST. SIMILARL Y, THE SECOND PROVISO TO SECTION 394(1) SEEKS TO PROVIDE THAT NO ORDER FOR THE D ISSOLUTION OF THE TRANSFEROR COMPANY SHALL BE MADE UNLESS THE OFFICIAL LI QUIDATOR HAS MADE REPORT TO THE COURT THAT AFFAIRS OF THE COMPANY HAVE NOT BEEN CONDUCTED IN A MANNER PREJUDICIAL TO THE INTERESTS OF ITS MEMBERS OR TO PUBLIC INTEREST. SUB- SECTION (2) OF SEC. 394 PRESCRIBES THAT WHERE AN ORDER PRO VIDES FOR THE TRANSFER OF ANY PROPERTY OR LIABILITIES, THEN, BY VIRTUE OF T HE ORDER THAT PROPERTY SHALL BE TRANSFERRED TO AND VEST IN, AND THOSE LIABILITIES SHAL L BE TRANSFERRED TO AND BECOME THE LIABILITIES OF, THE TRANSFEREE COMPANY. SUB -SECTION (3) OF SECTION 394 PRESCRIBES THAT AFTER MAKING OF AN ORDER UNDER SECT ION 394(1) A COPY THEREOF IS TO BE FILED WITH THE REGISTRAR FOR REGISTRA TION. SECTION 394A OF THE 7 COMPANIES ACT, 1956 PROVIDES THAT THE COURT SHALL GIVE NOTICE OF EVERY APPLICATION MADE UNDER SECTION 391 OR 394 TO THE CENTR AL GOVERNMENT AND THE COURT SHALL TAKE INTO CONSIDERATION THE REPRESENTATION S, IF ANY MADE TO IT BY THE GOVERNMENT BEFORE PASSING AN ORDER UNDER ANY OF THESE SECTIONS. PERTINENTLY, THE STATUTORY PROVISIONS CONTAINED IN THE COMPANIES ACT, 1956 DO NOT PROVIDE THE DATE OF AMALGAMATION. SO, HOWEVER, EVERY AMALGAM ATION OR MERGER HAS TWO CRUCIAL DATES WHICH ARE INVARIABLY STATED AND DEFINE D IN THE SCHEME OF AMALGAMATION, NAMELY, APPOINTED DATE AND EFFECTIV E DATE. WHEREAS THE FORMER DENOTES THE DATE ON WHICH THE AMALGAMATION TAKE S PLACE OR IN OTHER WORDS THE PROPERTY, ASSETS AND LIABILITIES OF THE TRANSF EROR COMPANY VESTS IN AND ARE TRANSFERRED TO THE TRANSFEREE COMPANY, THE LATTER DENOTES THE DATE ON WHICH THE AMALGAMATION/MERGER IS COMPLETED IN ALL RESPE CTS AFTER HAVING GONE THROUGH THE FORMALITIES INVOLVED AND THE TRANSFEROR COMPANY HAVING BEEN DISSOLVED BY THE REGISTRAR OF COMPANIES. THE AFORESAID T WO DATES ARE CRITICAL IN MANY RESPECTS AND IN SO FAR AS WE ARE CONCERNED, THEIR RELEVANCE IS TO THE ASSESSMENT OF INCOME OF THE TWO COMPANIES INVOLVED IN AMA LGAMATION. FOR THE PURPOSES OF INCOME-TAX, THE APPOINTED DATE IS T HE RELEVANT DATE AND FOR THE PERIOD FALLING AFTER THAT DATE THE TWO COMPANIES ARE LIABLE TO BE ASSESSED TO INCOME-TAX AS A SINGLE ASSESSEE AND NOT AS TWO ASSESSEES. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V SWASTIK RUBBER PRODUCTS LTD. 140 ITR 304 (BOM) HAS HELD THAT THE DATE OF AMALGAMATIO N FOR INCOME-TAX ASSESSMENT PURPOSES SHALL BE THE APPOINTED DATE MENTIONE D IN THE ORDER OF THE COURT SANCTIONING THE SCHEME SINCE WHAT IS CRUCIAL IS THE DATE OF VESTING OF THE ASSET AND ANY INCOME ACCRUING OR ARISING ON SUCH ASSET W OULD BE THAT OF THE TRANSFEREE COMPANY TO BE ASSESSED IN ITS HANDS, NOTWIT HSTANDING THAT THE SCHEME FINALLY BECOMES EFFECTIVE ON A LATTER DATE STATED IN THE SCHEME. IN FACT, IT WOULD BE APPROPRIATE AT THIS STAGE TO EMPHASI ZE THAT THE AFORESAID PROPOSITION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN APPROVED BY THE 8 HONBLE SUPREME COURT IN THE CASE OF MARSHAL SONS & CO. INDIA LTD (SUPRA). ON THIS ASPECT, WE MAY POINT OUT FURTHER THAT AS PER T HE HONBLE SUPREME COURT, WHILE SANCTIONING A SCHEME IT IS OPEN FOR THE HIG H COURT TO MODIFY THE APPOINTED DATE AND PRESCRIBE ANY OTHER DATE. IF THE COURT SO SPECIFIES THE DATE, THEN SUCH DATE WOULD BE THE DATE OF AMALGAMATI ON/TRANSFER BUT WHERE THE COURT DOES NOT PRESCRIBE ANY SPECIFIC DATE BUT MEREL Y SANCTIONS THE SCHEME PRESENTED TO IT, IT WOULD FOLLOW THAT THE DATE OF AMALGAMATION/DATE OF TRANSFER IS THE DATE SPECIFIED IN THE SCHEME AS THE TRANS FER DATE OR APPOINTED DATE. PARA 7 OF THE ORDER OF THE HONBLE SUPREME C OURT IS RELEVANT IN THIS REGARD, WHICH READS AS UNDER: 7. EVERY SCHEME OF AMALGAMATION HAS TO NECESSARILY PROVIDE A DATE WITH EFFECT FROM WHICH THE AMALGAMATION/TRANSFER SHALL TAKE PLA CE. THE SCHEME CONCERNED HEREIN DOES SO PROVIDE, VIZ. 1 ST JAN., 1982. IT IS TRUE THAT WHILE SANCTIONING THE SCHEME, IT IS OPEN TO THE COURT TO MODIFY THE SAID DATE AND PRESC RIBE SUCH DATE OF AMALGAMATION/TRANSFER AS IT THINKS APPROPRIATE IN T HE FACTS AND CIRCUMSTANCES OF THE CASE. IF THE COURT SO SPECIFIES A DATE, THERE IS L ITTLE DOUBT THAT SUCH DATE WOULD BE THE DATE OF AMALGAMATION DATE OF TRANSFER. BUT, WHERE T HE COURT DOES NOT PRESCRIBE ANY SPECIFIC DATE BUT MERELY SANCTIONS THE SCHEME PRESE NTED TO IT AS HAS HAPPENED IN THIS CASE IT SHOULD FOLLOW THAT THE DATE OF AMALG AMATION/DATE OF TRANSFER IS THE DATE SPECIFIED IN THE SCHEME AS THE TRANSFER DATE. IT CANNOT BE OTHERWISE. IT MUST BE REMEMBERED THAT BEFORE APPLYING THE COURT UNDER SEC TION 391(1), A SCHEME HAS TO BE FRAMED AND SUCH SACHEM HAS TO CONTAIN A DATE OF AMA LGAMATION/TRANSFER. THE PROCEEDINGS BEFORE THE COURT MAY TAKE SOME TIME; IN DEED, THEY ARE BOUND TO TAKE SOME TIME BECAUSE SEVERAL STEPS PROVIDED BY SS. 391 TO 394A AND THE RELEVANT RULES HAVE TO BE FOLLOWED AND COMPLIED WITH. DURING THE P ERIOD THE PROCEEDINGS ARE PENDING BEFORE THE COURT, BOTH THE AMALGAMATING UNITS, I.E. THE TRANSFEROR COMPANY AND THE TRANSFEREE COMPANY MAY CARRY ON BUSINESS, AS HAS HA PPENED IN THIS CASE BUT NORMALLY PROVISION IS MADE FOR THIS ASPECT ALSO IN THE SCHEME OF AMALGAMATION. IN THE SCHEME BEFORE US, CL. 6(B) DOES EXPRESSLY PROVIDE T HAT WITH EFFECT FROM THE TRANSFER DATE, THE TRANSFEROR COMPANY (SUBSIDIARY COMPANY) S HALL BE DEEMED TO HAVE CARRIED ON THE BUSINESS FOR AND ON BEHALF OF THE TRANSFEREE COMPANY (HOLDING COMPANY) WITH ALL ATTENDANT CONSEQUENCES. IT IS EQUALLY RELEVANT TO NOTICE THAT THE COURTS HAVE NOT ONLY SANCTIONED THE SCHEME IN THIS CASE BUT HAVE AL SO NOT SPECIFIED ANY OTHER DATE AS THE DATE OF TRANSFER/AMALGAMATION. IN SUCH A SITUAT ION, IT WOULD NOT BE REASONABLE TO SAY THAT THE SCHEME OF AMALGAMATION TAKES EFFECT ON AND FROM THE DATE OF THE ORDER SANCTIONING THE SCHEME. WE ARE, THEREFORE, OF THE O PINION THAT THE NOTICES ISSUED Y THE ITO (IMPUGNED IN THE WRIT PETITION) WERE NOT WARRAN TED IN LAW. THE BUSINESS CARRIED ON BY THE TRANSFEROR COMPANY (SUBSIDIARY COMPANY) SHOU LD BE DEEMED TO HAVE BEEN CARRIED ON FOR AND ON BEHALF OF THE TRANSFEREE COMP ANY. THIS IS THE NECESSARY AND THE LOGICAL CONSEQUENCE OF THE COURT SANCTIONING THE SC HEME OF AMALGAMATION AS PRESENTED TO IT. THE ORDER OF THE COURT SANCTIONING THE SCHEME, THE FILING OF THE CERTIFIED COPIES OF THE ORDERS OF THE COURT BEFORE THE REGISTRAR OF COMPANIES, THE ALLOTMENT OF SHARES, ETC., MAY HAVE ALL TAKEN PLACE SUBSEQUENT TO THE DATE OF AMALGAMATION/TRANSFER, YET THE DATE OF AMALGAMATION IN THE CIRCUMSTANCES OF THIS CASE WOULD BE 1 ST JAN. 1982. THIS IS ALSO THE RATIO OF THE DECISION OF THE PRIVY COUNCIL IN RAGHUBAR DAYAL V. THE BANK OF UPPER INDIA LTD. AIR 1919 PC 91. 7. THUS, IN THE ABOVE BACKGROUND, WE MAY NOW PROCEED TO EXAMINE THE PRESENT SCHEME OF AMALGAMATION AS SANCTIONED BY THE HON BLE BOMBAY HIGH 9 COURT. THE RELEVANT PORTION OF THE ORDER OF THE HON BLE HIGH COURT DATED 11.1.2000 IN THE MATTER OF SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956 HAS BEEN PLACED IN THE PAPER BOOK FILED BEFORE US AND T HE RELEVANT PORTION IS REPRODUCED AS UNDER: UPON THE PETITION OF FINORAM SHEETS LIMITED, PRE SENTED TO THIS HONBLE COURT ON THE 23 RD DAY OF FEBRUARY, 1999 FOR SANCTION OF THE ARRANGEM ENT EMBODIED IN THE PROPOSED SCHEME OF AMALGAMATION OF FINORAM SHEETS LIMITED, ( HEREINAFTER REFERRED TO AS THE TRANSFEROR COMPANY OR PETITIONER COMPANY) WITH F INOLEX CABLES LIMITED, (HEREINAFTER REFERRED TO AS THE TRANSFEREE COMPANY) ..AND UPON READING THE AFFIDAVIT OF R.G.D. SILVA DATED 16 TH DAY OF MARCH, 1999 PROVING PUBLICATION OF THE NOTI CE OF THE DATE OF HEARING OF THE PETITION IN THE ISSUES OF M AHARASTRA HERALD,PUNE, DATED 11 TH DAY OF MARCH, 1999 AND LOK SATTA, MUMBAI DATED 11 TH DAY OF MARCH, 1999 AND UPON .. THE REGIONAL DIRECTOR, DEPARTMENT OF COMPANY AFFAIRS, MAHARASHTRA, MUMBAI AND THE OFFICI AL LIQUIDATOR HIGH COURT, MUMBAI RESPECTIVELY .AND UPON READING THE REPORT DATED 26 TH DAY OF MAY, 1999 OF THE OFFICIAL LIQUIDATOR, HIGH COURT, BOMBAY WHEREIN HE HAS OPINED THAT THE AFFAIRS OF THE TRANSFEROR COMPANY H AVE NOT BEEN CONDUCTED IN A MANNER PREJUDICIAL TO THE INTEREST OF ITS MEMBERS O R TO PUBLIC INTEREST AND UPON HEARIANG ..MR. R.P. SINGH, COMPANY PROSECUTOR, FOR REGIONAL DIRECTOR, DEPARTMENT OF COMPANY AFFAIRS, M AHARASTRA MUMBAI WHO SUBMITS TO THE ORDER OF THE COURT AND MR. S.C. GUPTA, DEPUT Y OFFICIAL LIQUIDATOR, HIGH COURT, BOMBAY WHO ALSO SUBMITS TO THE ORDERS OF THE COURT THIS COURT DOTH HEREBY SANCTION THE ARRANGEMENT EMBODIED IN THE SCHEME OF AMALGAMATION OF FINORAM SHEETS LIMITED, THE TRANSFE ROR COMPANY WITH FINOLEX CABLES LIMITED, THE TRANSFEREE COMPANY AS SET FORTH IN EXHIBIT A TO THE PETITION AND ALSO IN THE SCHEDULE HERETO AND THIS COURT DOTH HER EBY DECLARE THE SAME TO BE BINDING ON ALL THE MEMBERS OF THE PETITIONER COMPANY AND THE TRANSFEREE COMPANY AND THIS COURT DOTH ORDER THAT WITH EFFECT FROM THE 1 ST DAY OF APRIL, 1997 (HEREINAFTER CALLED THE APPOINTED DATE) THE ENTIRE UNDERTAKING AND BUSINESS OF FINORAM SHEETS LIMITED INCLUDING ALL THE PROPERTIES , ASSETS, INVESTMENTS, CLAIMS, POWERS, AUTHORITIES, ALLOTMENTS, APPROVALS AND CONS ENTS, LICENCES, REGISTRATIONS, CONTRACTS, ENGAGEMENTS, ARRANGEMENTS, RIGHTS, TITLE , INTERESTS, BENEFITS, AND ADVANTAGES OF WHATSOEVER NATURE AND WHERE SO EVER S ITUATE BELONGING TO OR IN THE OWNERSHIP POWER OR POSSESSION AND IN THE CONTROL OF OR VESTED IN OR GRANTED IN FAVOUR OF OR ENJOYED BY THE TRANSFEROR COMPANY .. ...ALL OTHER INTERESTS ARISING TO THE TRANSFEROR COMPANY (HEREIN AFTER REFERRED TO AS THE SAID ASSETS) SHALL BE TRANSFERRED AND VESTED IN THE TRA NSFEREE COMPANY PURSUANT TO THE PROVISIONS OF SECTION 394 (2) OF THE COMPANIES ACT, 1956AND THIS COURT DOTH FURTHER ORDER THAT WITH EFFECT FROM THE APPOINTED DATE ALL DEBTS, LIABILITI ES, DUTIES AND OBLIGATIONS OF FINORAM SHEETS LIMITED, THE TRANSFEROR COMPANY SHALL ALSO B E AND STAND TRANSFERRED OR DEEMED TO BE TRANSFERRED WITHOUT ANY FURTHER ACT IN STRUMENT OR DEED TO THE TRANSFEREE COMPANY SO AS TO BECOME AS AND FROM THE APPOINTED D ATE, THE DEBTS, LIABILITIES, DUTIES AND OBLIGATIONS OF THE TRANSFEREE COMPANY AS PER THE AFORESAID ORDER OF THE HONBLE HIGH COURT , THE APPOINTED DATE FOR THE SCHEME OF AMALGAMATION IS 1.4.1997. IT I S PERTINENT TO OBSERVE THAT AS PER THE ORDER OF THE HONBLE HIGH COURT, WIT H EFFECT FROM 1.4.1997, I.E. THE APPOINTED DATE, THE ENTIRE UNDERTAKING AND BUSINE SS OF FSL, INCLUDING ALL ITS PROPERTIES AND LIABILITIES VEST IN AND STAND TRANSFE RRED TO THE ASSESSEE COMPANY. THEREFORE, IN SO FAR AS THE DATE OF AMALGAMAT ION/DATE OF TRANSFER IS 10 CONCERNED, THE SAME AS PER THE SCHEME SANCTIONED BY THE HONBLE HIGH COURT IS WITH EFFECT FROM 1.4.1997. CONSEQUENTLY, FOLLOWING THE RATIO OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SWASTIK RUBBER PRODUC TS LTD (SUPRA), IT FOLLOWS THAT FOR THE PERIOD STARTING FROM 1.4.1997, T HE TWO COMPANIES ARE LIABLE TO BE ASSESSED TO INCOME-TAX AS A SINGLE ASSESSEE AND NOT A S TWO ASSESSEES. IT IS IN THIS BACKGROUND IT IS TO BE APPRECIATED THAT IN ORDER TO GIVE EFFECT TO THE ORDER OF THE HONBLE HIGH COURT DATED 11.1.2000 SANCT IONING THE SCHEME OF AMALGAMATION, THE ASSESSEE COMPANY REVISED ITS RETURNS OF INCOME FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000 SO AS TO INCORPORAT E THEREIN THE INCOME/LOSS OF FSL FOR SUCH PERIOD. FSL HAD FILED A LOSS RETURN FOR THE ASSESSMENT YEAR 1998-99 DECLARING A LOSS OF RS 11,69,99,261 /-. AS A CONSEQUENCE OF ITS MERGER WITH THE ASSESSEE COMPANY FROM 1. 4.1997, THE LOSS PERTAINING TO THE PREVIOUS YEAR ENDING ON 31.3.1998 CORRESPONDING TO THE ASSESSMENT YEAR 1998-99 WAS CLAIMED BY THE ASSESSEE AS SET-OFF AGAINST ITS POSITIVE INCOME FOR SUCH ASSESSMENT YEAR IN THE REVISED R ETURN FILED ON 31.3.2000 WHEREBY, THE INCOME WAS REVISED TO RS 43,24,0 0,700/- AS AGAINST ORIGINALLY DECLARED INCOME OF RS 55,34,39,620/-. THE SA ID SET-OFF HAS BEEN CLAIMED IN TERMS OF THE PROVISIONS OF SECTION 70 OF THE ACT WHICH SPEAK OF SET- OFF OF LOSSES FROM ONE SOURCE AGAINST INCOME FROM OTHER SOURCES UNDER THE SAME HEAD OF INCOME. 8. IN SO FAR AS THE DETERMINATION OF THE APPOINTED DA TE OR IN OTHER WORDS, DATE OF AMALGAMATION/DATE OF TRANSFER AS 1.4.1997 IS CONCERNED, THERE IS NO DISPUTE THAT IT CORRESPONDS TO THE SCHEME OF AMALGAMATION AS APPROVED BY THE HONBLE HIGH COURT OF BOMBAY. SO, HOWEVER, THE CLAIM OF SET OFF OF LOSS OF FSL MADE BY THE ASSESSEE IN ITS REVISED RETURN HAS BEEN DENIE D BY THE ASSESSING OFFICER, PRIMARILY FOR THE REASON THAT THE SPECIFICATIO N OF THE DATE OF AMALGAMATION/DATE OF TRANSFER AS 1.4.1997 IN THE SCHEM E WAS A DEVICE TO EVADE PAYMENT OF TAX. AS PER THE REVENUE, ON CONSIDERI NG SUCH DATE, 11 ASSESSEE COMPANY BECOMES ENTITLED TO SET OFF OF THE LOSSES FOR ASSESSMENT YEARS 1998-99 AND 1999-2000 INCURRED BY THE TRANSFER OR COMPANY, I.E. FSL AGAINST THE POSITIVE INCOME OF THE ASSESSEE COMPANY. AS PER THE REVENUE, THE APPOINTED DATE HAS BEEN SO FIXED SO AS TO ENABLE T HE ASSESSEE COMPANY TO TAKE THE BENEFIT OF SET OFF OF SUCH LOSSES OF FSL, IN TERMS OF SECTION 70 OF THE ACT. THE CLAIM OF THE REVENUE IS THAT THE PROCESS OF AMAL GAMATION STARTED WITH THE PASSING OF BOARD RESOLUTION ON 25.3.1998 AND IT IS ONLY THEREAFTER THE REQUISITE PETITION WAS MOVED BEFORE THE HONBLE BOMBA Y HIGH COURT, I.E. ON 23.2.1999 AND THE SCHEME BECAME EFFECTIVE ONLY AFTER T HE SANCTION BY THE HONBLE HIGH COURT, VIDE ITS ORDER DATED 11.1.2000. IT IS CONTENDED THAT IF THE APPOINTED DATE WAS NOT FIXED RETROSPECTIVELY, THE LOSSES O F FSL WERE LIABLE TO BE CARRIED FORWARD AND SET-OFF AGAINST THE INCOME OF A SSESSEE ONLY IN THE MANNER PRESCRIBED UNDER SECTION 72A OF THE ACT. SECTION 7 2A OF THE ACT PRESCRIBES FOR VARIOUS CONDITIONS, INCLUDING SEEKING APPROVA L OF THE PRESCRIBED AUTHORITY, ETC. AND THEREFORE, AS PER THE REVENUE, ON LY WITH A VIEW TO CIRCUMVENT SUCH PROVISIONS THE DATE OF 1.4.1997 HAS BEEN FIXED AS THE DATE OF AMALGAMATION/DATE OF TRANSFER. IT HAS FURTHER BEEN CA NVASSED THAT THIS AMOUNTS TO A COLOURABLE DEVICE INTENDED TO EVADE PAYM ENT OF TAXES. 9. IT HAS BEEN ARGUED ON BEHALF OF THE ASSESSEE TH AT THE PROVISIONS OF THE COMPANIES ACT, 1956 REQUIRE GIVING OF NOTICE OF EVERY A PPLICATION MADE BY THE PARTIES UNDER SECTION 391 OR 394 OF THE COMPANIES ACT 1956 TO THE CENTRAL GOVERNMENT AND IN THIS CASE ALSO, THE REQUISITE NOTICES HA VE BEEN ISSUED TO THE CENTRAL GOVERNMENT. THE HONBLE HIGH COURT HAS TAKEN NOTE OF THE REPRESENTATIONS MADE BY THE CENTRAL GOVERNMENT AND IT IS ONLY AFTER TAKING INTO CONSIDERATION THE SAME, THE SCHEME OF AMALGAMATION HAS BEEN SANCTIONED. THEREFORE, IT IS TOO LATE IN THE DAY FOR T HE REVENUE TO NOW SAY THAT THE SCHEME OF AMALGAMATION INVOLVES ANY COLOURABLE DEVI CE FOR EVASION OF 12 TAXES. IN THIS CONNECTION, IT HAS BEEN SPECIFICALLY POINT ED OUT THAT SECTION 394(1) OF THE COMPANIES ACT, 1956 REQUIRES THE REGISTR AR OF COMPANIES TO REPORT AS TO WHETHER THE AFFAIRS OF THE COMPANY HAVE N OT BEEN CONDUCTED IN A MANNER PREJUDICIAL TO THE INTERESTS OF ITS MEMBERS OR TO THE PUBLIC INTEREST. IN THIS CASE, AS PER THE ORDER OF THE HONBLE BOMBAY HIGH COURT DATED 11.1.2000, THERE IS NO SUCH AVERMENT ON BEHALF OF THE DESIGNATED A UTHORITIES. IT IS SUBMITTED THAT PRESENCE OF THE EXPRESSION PUBLIC INTER EST IN SECTION 394(1) OF THE ACT IS SACROSANCT AND WOULD ALSO INCLUDE ANY COLOURABLE ATTEMPT IN THE SCHEME FOR EVASION IN THE PAYMENT OF TAXES. IT IS VEHEM ENTLY ARGUED THAT THE PLEA OF THE REVENUE IS FAR-FETCHED TO ALLEGE THAT TH E ARRANGEMENT WHICH HAD UNDERGONE THE PROCESS OF APPROVAL OF SHAREHOLDERS IN T HE EXTRAORDINARY GENERAL MEETING, CREDITORS, REGIONAL DIRECTOR OF COMPA NY AFFAIRS REPRESENTING GOVERNMENT OF INDIA AND PASSING THE TEST OF PUBLIC INT EREST AS CONTAINED IN SECTION 394 OF THE COMPANIES ACT, 1956 AND FINALLY BEIN G APPROVED BY THE HONBLE HIGH COURT, COULD EVER BE CONSTRUED AS A COLOUR ABLE DEVICE FOR EVASION OF TAXES. ON THIS ASPECT, IT HAS BEEN VEHEMENTLY CONTENDED BY THE ASSESSEE THAT THE ASSESSING OFFICER WAS NOT EMPOWERED TO RAI SE THE QUESTION OF TAX AVOIDANCE BECAUSE THE SCHEME OF AMALGAMATION HAS SINCE BEEN APPROVED AND SANCTIONED BY THE HONBLE HIGH COURT IN TERMS OF SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956. IT HAS BEEN ARGUED ON BEHALF OF THE ASSESSEE THAT THE PROVISIONS OF THE COMPANIES ACT, 1956 REQ UIRE GIVING NOTICE OF EVERY APPLICATION MADE BY THE PARTIES UNDER SECTION 391 OR 394 OF THE COMPANIES ACT 1956 TO THE CENTRAL GOVERNMENT AND IN T HIS CASE ALSO, THE REQUISITE NOTICES HAVE BEEN ISSUED TO THE CENTRAL GOVERN MENT. THE HONBLE HIGH COURT HAS TAKEN NOTE OF THE REPRESENTATIONS MADE BY THE CENTRAL GOVERNMENT AND IT IS ONLY AFTER TAKING INTO CONSIDERATI ON THE SAME, THE SCHEME OF AMALGAMATION HAS BEEN SANCTIONED. THEREFORE, IT IS T OO LATE IN THE DAY FOR THE REVENUE TO NOW SAY THAT THE SCHEME OF AMALGAMATION INVOLVES ANY 13 COLOURABLE DEVICE FOR EVASION OF TAXES. IN THIS CONNECTIO N, IT HAS BEEN SPECIFICALLY POINTED OUT THAT SECTION 394(1) OF THE COM PANIES ACT, 1956 REQUIRES THE REGISTRAR OF COMPANIES TO REPORT AS TO W HETHER THE AFFAIRS OF THE COMPANY HAVE NOT BEEN CONDUCTED IN A MANNER PREJUDICIAL TO THE INTERESTS OF ITS MEMBERS OR TO THE PUBLIC INTEREST. IN THIS CASE, AS PER THE ORDER OF THE HONBLE BOMBAY HIGH COURT DATED 11.1.2000, THERE IS NO SUCH AVERMENT ON BEHALF OF THE AUTHORITIES. IT IS SUBMITTED THAT PRESEN CE OF THE EXPRESSION PUBLIC INTEREST IN SECTION 394(1) OF THE ACT IS SACROSANCT AND WO ULD ALSO INCLUDE ANY COLOURABLE ATTEMPT FOR EVASION IN THE PAYMENT OF TAXE S. IT WAS, THEREFORE, CONTENDED THAT THE ASSESSING OFFICER WAS NOT EMPOWERED TO EXAMINE THE QUESTION OF TAX EVASION IN THE SCHEME OF AMALGAMATION W HICH HAS APPROVAL OF THE HONBLE HIGH COURT IN TERMS OF SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956. 10. ON THE CONTRARY, AS PER THE REVENUE IT IS COMPE TENT TO EXAMINE WHETHER FIXING THE DATE OF AMALGAMATION WITH EFFECT FROM 1.4 .1997 IS A COLORABLE DEVICE WITH A VIEW TO EVADE TAXES WHILE COMPUTING THE INCOME OF THE TRANSFEREE ASSESSEE COMPANY DESPITE THE FACT THAT SCHEME OF AMALGAMATI ON HAS BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT. IN THIS CONNECTION, THE REVENUE HAS RELIED UPON THE FOLLOWING OBSERVATIONS CONTAINED IN THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MARSHALL SONS & C O. (INDIA) LTD. (SUPRA) TO JUSTIFY ITS STAND: 10. FOR THE ABOVE REASONS, THE APPEALS ARE ACCORDI NGLY ALLOWED. THE WRIT PETITIONS FILED BY THE APPELLANT IN THE HIGH COURT SHALL BE DEEMED TO HAVE BEEN ALLOWED. WE, HOWEVER, MAKE IT CLEAR THAT WE HAVE NO T EXPRESSED ANY OPINION ON THE PLEA OF THE LEARNED COUNSEL FOR THE REVENUE THAT TH E AMALGAMATION ITSELF IS A DEVICE DESIGNED TO EVADE THE TAXES LEGITIMATELY PAYABLE BY THE SUBSIDIARY COMPANY. IF THE IT AUTHORITIES THINK THAT, THEY ARE ENTITLED TO RAISE THIS QUESTION IN THE PROCEEDINGS UNDER THE IT ACT, IT IS OPEN TO THEM TO DO SO BY WAY OF A SEPARATE PROCEEDING ACCORDING TO LAW. 14 11. AT THIS STAGE, WITHOUT GOING INTO THE CONTROVERSY AS TO WHETHER THE ASSESSING OFFICER WAS EMPOWERED TO RAISE THE QUESTION OF T AX AVOIDANCE, WE MAY EXAMINE THE OTHER PLEA OF THE ASSESSEE THAT THERE WAS NO COLOURABLE ATTEMPT TO EVADE TAXES AS THE SCHEME OF AMALGAMATION WA S FOUNDED ON COMMERCIAL / ECONOMIC CONSIDERATIONS OF BUSINESS AND THAT BEN EFIT OF TAXES, IF ANY, WAS ONLY INCIDENTAL. IN THE SUBSEQUENT PARAGRAPHS, WE, THEREFORE, PROCEED TO EXAMINE THE AFORESAID PROPOSITION CANVASSED BY THE ASSESSEE. 12. IN THIS CONNECTION, IT IS POINTED OUT THAT FSL WAS P ROMOTED AS A JOINT VENTURE BETWEEN THE ASSESSEE COMPANY AND M/S PALTOUGH LTD . ISRAEL. FSL STARTED COMMERCIAL PRODUCTION IN JANUARY, 1997 AND FOR THE FINANCIAL YEARS ENDING 31.3.1997, 31.3.1998 AND 31.3.1999, IT HAD I NCURRED LOSSES. FSL, AS IT EMERGES FROM THE DIRECTORS REPORT FOR THE FINANCIAL YE AR 1997-98 PLACED AT PAGE 110 OF THE PAPER BOOK, DID NOT GET ANY FURTHER SHAREHOLDING FROM THE FOREIGN COLLABORATOR, BUT INSTEAD THE SHAREHOLDING OF THE FOREIGN COLLABORATOR WAS SOLD TO THE ASSESSEE COMPANY. IT IS POINTED OUT THAT A S ON 31.3.1997, FSL BECAME A FULLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY. IT HAS BEEN SOUGHT TO BE POINTED OUT ON BEHALF OF THE ASSESSEE THAT THE MAJORITY OF THE LOSSES SUFFERED BY FSL WERE INDEED FUNDED BY THE ASSESSEE, BEING ITS HOLDING COMPANY, EITHER IN TERMS OF SHAREHOLDING OR BY WAY OF UNSECURED LOANS AND IN THIS REGARD, REFERENCE WAS INVITED TO THE AUDITED FINA NCIAL STATEMENTS OF FSL PLACED AT PAGES 115 TO 125 OF THE PAPER BOOK. THE LEAR NED COUNSEL EXPLAINED THAT THE OVERSEAS COLLABORATOR IN FSL DID NOT INVEST FU RTHER IN THE PROJECT AND DECIDED TO WITHDRAW AS A JOINT VENTURE PARTNER AND FS L WERE INCURRING LOSSES WHICH WERE BEING FUNDED BY THE ASSESSEE COMPANY, THEREFOR E IN ORDER TO ENSURE THE PROPER USE OF THE CAPITAL RESOURCES OF FSL, IT WAS DECIDED IN THE INTEREST OF FSL TO AMALGAMATE WITH THE HOLDING COMPAN Y, IE. ASSESSEE COMPANY. THE APPOINTED DATE OF 1.4.1997 WAS CHOSEN AS TH E CORRECT DATE FROM THE PERSPECTIVE OF BUSINESS INASMUCH AS FSL BECAME THE SUBSIDIARY OF 15 THE ASSESSEE BEFORE 1.4.1997 AND FACTUALLY THE CASH LOSSES SUFFERED THEREAFTER WERE MAJORLY FUNDED BY THE ASSESSEE COMPANY ITSELF. IT WA S UNDER THESE CIRCUMSTANCES, THE DATE OF AMALGAMATION WAS CHOSEN AS 1.4.19 97. IT HAS ALSO BEEN CONTENDED THAT AS A RESULT OF AMALGAMATION NOT ON LY ALL THE ASSETS OF FSL VEST IN AND MERGE WITH THAT OF THE ASSESSEE COMPANY BUT ALSO ITS LIABILITIES IN THE FORM OF LONG TERM, LOANS FROM FINANCIAL INSTITUTIO NS AND OTHER BUSINESS LIABILITIES ALSO STOOD TRANSFERRED TO THE ASSESSEE COMPANY. IT WAS THEREFORE POINTED OUT THAT THE BENEFIT OF THE SET-OFF OF LOSSES O F FSL CANNOT BE SEEN IN ISOLATION OF THE OVERALL IMPACT OF THE AMALGAMATION W HEREBY THE ASSESSEE ALSO TOOK OVER THE LIABILITIES OF ERSTWHILE FSL. 13. ON THE OTHER HAND, AS PER THE REVENUE, THE ASSESSEE HAS NOT MADE OUT A CASE AS TO HOW THE BUSINESS OF THE ASSESSEE WOULD HAVE BEEN ADVERSELY AFFECTED IF THE DATE OF AMALGAMATION WAS NOT FIXED RE TROSPECTIVELY. IT IS POINTED OUT THAT IN THE EVENTUALITY OF THE AMALGAMATION DATE BEING FIXED PROSPECTIVELY, ASSESSEE WOULD HAVE LOST THE BENEFIT OF SET-OFF OF LOSSES O F FSL AS CLAIMED BY IT, BECAUSE IN THAT CASE IN ORDER TO AVAIL THE BENEFIT OF CARRY FORWARD OF LOSSES OF AMALGAMATING COMPANY, IT WOULD HAVE BEEN GOVERNED BY THE PROVISIONS OF SECTION 72A OF THE ACT. ACCORDING TO THE REVENUE, IT IS O NLY TO AVOID THE STRINGENT CONDITIONS OF SECTION 72A OF THE ACT THAT THE ASSESSEE FIXED THE DATE OF AMALGAMATION ON A RETROSPECTIVE DATE AND THAT THER E ARE NO BUSINESS OR COMMERCIAL CONSIDERATIONS FOR FIXING THE DATE OF AMALGAM ATION AS 1.4.1997. 14. ON THIS ASPECT, WE HAVE CAREFULLY CONSIDERED THE RIVA L ASSERTIONS. WE MAY RECAPITULATE WHAT HAS BEEN EARLIER OBSERVED BY US IN EARLIER PARAGRAPH 6 THAT EVERY SCHEME OF AMALGAMATION/MERGER WOULD HAVE T WO CRUCIAL DATES, NAMELY, THE APPOINTED DATE AND EFFECTIVE DATE. T HEIR IMPORT AND RELEVANCE IN THE INCOME-TAX PROCEEDINGS HAVE ALREADY BEING DISCUSSE D BY US IN THE EARLIER PARAGRAPHS AND SAME ARE NOR BEING REPEATED FO R THE SAKE OF BREVITY. AT 16 THIS POINT IT MAY ONLY BE APPRECIATED THAT THE APPOI NTED DATE CAN BE UNDERSTOOD AS A DATE ANTERIOR TO THE FORMULATION AND PRESENTATION OF AMALGAMATION SCHEME TO THE COURT AS THIS IS THE DATE ON WHICH THE TRANSFER OF THE UNDERTAKING OF THE TRANSFEROR COMPANY TO THE TRA NSFEREE COMPANY IS STATED TO TAKE PLACE. THE LATTER IS A FUTURE DATE AND IS GENE RALLY A DATE SUBSEQUENT TO THE FINAL ORDER OF THE COURT SANCTIONING THE SCHEME OF AMALGAMATION AND IF ONE MAY REFER TO SECTION 394(3) OF THE COMPANIES ACT, SUCH DATE CAN BE UNDERSTOOD TO BE THE DATE ON WHICH COPY OF THE HIGH CO URTS ORDER SANCTIONING THE AMALGAMATION IS FILED WITH THE REGISTRAR OF COMPA NIES. THE DIFFERENCE BETWEEN THE TWO DATES HAS INDEED BEEN ALSO APPRECIATED BY THE HONBLE SUPREME COURT IN THE CASE OF MARSHAL SONS & CO (INDIA) LTD (SUPRA). THE HONBLE SUPREME COURT HAS NOTICED THAT EVEN BEFORE AP PLYING TO THE COURT UNDER SECTION 391(1) OF THE COMPANIES ACT, 1956 A SCHEME HAS TO BE FRAMED AND SUCH SCHEME HAS TO CONTAIN A DATE OF AMALGAMATION/TRANSFE R . THE PROCEEDING BEFORE THE COURT MAY TAKE SOME TIME INASMUCH AS SEVERAL STEPS PROVIDED BY SECTIONS 391 TO 394A OF THE COMPANIES ACT, 1956 HAVE TO BE FOLLOWED AND COMPLIED WITH. IT IS, THEREFORE, TO BE U NDERSTOOD THAT MERELY BECAUSE THERE IS A TIME LAG BETWEEN THE APPOINTED DATE AND THE EFFECTIVE DATE, THE FIXATION OF THE APPOINTED DATE CANNOT BE REJECTED BY THE REVENUE AS A COLORABLE DEVICE ONLY INTENDED WITH INTENTION OF AVOI DANCE OF TAX. 15. NEVERTHELESS, IN OUR CONSIDERED OPINION, THE FACTU AL SITUATION BROUGHT OUT BY THE ASSESSEE CONCERNING THE AFFAIRS OF FSL SUGGEST THAT IT WOULD BE REASONABLE TO INFER THAT THE SAVING IN TAXES FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000 RESULTING IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF THE LOSSES OF FSL FOR SUCH YEARS, WAS NOT THE FOUNDATION HEAD TO EFFECTUATE THE AMALGAMATION. IN FACT, IT IS EVIDENT FROM THE BALANCE SHEET OF FSL FOR THE YEAR ENDING 31.3.1998 THAT IT HAD CASH LOSSES OF RS 463 LAKH S WHICH WERE SUBSTANTIALLY FUNDED BY THE ASSESSEE COMPANY TO THE EXTENT OF RS 260 LAKHS, 17 BY WAY OF UNSECURED LOANS, APART FROM ITS SHAREHOLDING, AND THIS SUPPORTS THE PLEA ADVANCED THAT WITH THE EXIT OF THE JOINT VENTUR E PARTNER, AND ASSESSEE CONTROLLING THE ENTIRE SHAREHOLDING OF FSL AND SUBSTAN TIALLY FUNDING THE CASH LOSSES BY WAY OF UNSECURED LOANS, IT WAS ASSESSEE COMPANY WHICH WAS PROVIDING FINANCIAL ASSISTANCE TO FSL RIGHT FROM 1.4.19 97 ONWARDS. IT IS ALSO EMERGING FROM THE ASSERTIONS OF THE ASSESSEE BEFORE THE L OWER AUTHORITIES THAT THE VIABILITY OF FSLS BUSINESS OPERATIONS CAME UNDER PRESSU RE ON ACCOUNT OF WITHDRAWAL OF FURTHER FINANCIAL SUPPORT FROM THE OVE RSEAS JOINT VENTURE PARTNER AND IN THE FACE OF THE FACT THAT FSL HAD ACCUMULATED LOSSES OF RS 9.91 CRORES AS ON 31.3.1998 AS AGAINST PAID UP SHARE CAPITAL OF RS 1 3.85 CRORES WHICH REPRESENTED A SUBSTANTIAL EROSION OF CAPITAL BASE. THE ASSE SSEE HAS ALSO POINTED OUT BEFORE THE LOWER AUTHORITIES THE ATTEMPT S MADE TO REVIVE THE FINANCIAL HEALTH OF THE OPERATIONS OF FSL IN THE SUBSEQ UENT YEARS. CONSIDERING THE AFORESAID, IN OUR VIEW, THERE WAS A SOUND AND PRUDE NT BUSINESS CONSIDERATION TO PUT THE DATE OF AMALGAMATION/DATE OF TRANSFER AS 1.4.1997. AT THIS JUNCTURE, WE MAY REFER TO THE JUDGMENT OF THE HO NBLE KARNATAKA HIGH COURT IN THE CASE OF SHANKARANARAYANA HOTELS PVT. LTD. V OFFICIAL LIQUIDATOR, GOVT. OF KARNATAKA (1992) 74 COMP. CASES 290 (KAR.). T HE HONBLE KARNATAKA HIGH COURT WAS DEALING WITH AN APPLICATION SEEKING SANCTI ON OF A SCHEME OF AMALGAMATION AND MERGER OF THE PETITIONER COMPANY WI TH ANOTHER COMPANY. IN RESPONSE TO THE NOTICES ISSUED UNDER SECTION 394A OF THE COMPANIES ACT, 1956, THE OFFICIAL LIQUIDATOR SUBMITTED IN ITS REPORT THAT THERE WAS A LIKELIHOOD BREACH OF THE TRANSFEREE COMPANY REDUCING ITS TAX LIABI LITY UPON AMALGAMATION AND, THEREFORE, AFFAIRS OF THE TRANSFEROR COMPANY WER E SAID TO BE CARRIED OUT IN A MANNER PREJUDICIAL TO ITS MEMBERS OR TO THE PUBLIC IN TEREST AND IN THIS CONNECTION, RELIANCE WAS PLACED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. (SUPRA). ON THE AFORESAI D BASIS, THE SANCTION OF THE SCHEME BY THE HONBLE HIGH COURT WAS OPPOSED BY T HE OFFICIAL LIQUIDATOR. 18 IN THE BACKGROUND OF SUCH ARGUMENTS, THE HONBLE HIGH C OURT FORMULATED THEE TESTS WHICH THE COURT WOULD ORDINARILY POSE TO ITSELF WH ILE SANCTIONING A SCHEME OF AMALGAMATION, IN THE FOLLOWING WORDS: WHEN A SCHEME OF COMPROMISE AND/OR ARRANGEMENT IS SUBMITTED TO THE COURT FOR ITS SANCTION, THE COURT WOULD ORDINARILY POSE TO ITSELF THREE QUESTIONS, VIZ., (I) WHETHER THE STATUTORY PROVISIONS HAVE BEEN COMPLIED WITH OR NOT ; (II) WHETHER THE CLASS OR CLASSES HAVE BEEN FAIRLY REPRESENTED: AND (III) WHETHER THE ARRANGEMENT IS SUCH AS A MAN OF BUSINESS WOULD REASONABLY APPROVE. FROM THE AFORESAID, IT FOLLOWS THAT ONE OF THE TESTS W HICH IS REQUIRED TO BE APPLIED IS TO WHETHER THE ARRANGEMENT IS SUCH THAT A MAN OF BUSINESS WOULD REASONABLY APPROVE. IN OTHER WORDS, A COURT WHILE SANCT IONING A SCHEME OF AMALGAMATION IS REQUIRED TO BE SATISFIED THAT THERE A RE JUSTIFIABLE BUSINESS CONSIDERATIONS ON WHICH THE SCHEME IS FOUNDED. PERTINENTL Y, IT WOULD BE A SAFE PREMISE TO DEDUCE IN THE PRESENT CASE THAT THE IMPUGNE D SCHEME OF AMALGAMATION HAS MUSTERED THE TEST OF BUSINESS PRUDENCE , AS IT HAS BEEN DULY SANCTIONED BY THE HONBLE BOMBAY PER SECTIONS 391 T O 394 OF THE COMPANIES ACT, 1956. IN OUR VIEW, IT WOULD NOT BE OU T OF PLACE TO INFER THAT THE IMPUGNED SCHEME OF AMALGAMATION HAS BEEN UNDERSTOOD A S A MAN OF BUSINESS WOULD REASONABLY APPROVE, AND IT STANDS THE T EST OF BUSINESS PRUDENCE. IN FACT IT IS TO BE APPRECIATED THAT THE HON BLE HIGH COURT WHILE EXERCISING ITS DISCRETION UNDER SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956 HAS TO SEE THAT THE SCHEME AS A WHOLE, HAVING REGARD TO THE GENERAL CONDITIONS, BACKGROUND AND OBJECTS IS REASONABLE AND FAIR. IN ANY CASE, THE SCHEME OF AMALGAMATION AS A WHOLE HAS NOT BEEN ASSAILED BY THE REVENUE AS A COLOURABLE DEVICE. IT IS ONLY ON ONE LEG OF THE SC HEME, NAMELY, FIXING OF THE APPOINTED DATE OF 1.4.1997 AS THE DATE OF AMALGA MATION/DATE OF TRANSFER WHICH BEEN VIEWED AS A DEVICE. WE SERIOUSLY DOUBT AS TO WHETHER ONLY A SINGULAR ASPECT OF THE SCHEME CAN BE CONSIDERED AS A COLOURA BLE DEVICE, ESPECIALLY IN A CASE WHERE THE SCHEME AS A WHOLE HAS PASSED THE TESTS OF PUBLIC INTEREST AND BUSINESS PRUDENCE CONSEQUENT TO ITS SANCTION BY THE 19 HONBLE BOMBAY HIGH COURT. NEVERTHELESS, IN SO FAR AS T HE FIXING OF THE DATE OF 1.4.1997 AS THE DATE OF AMALGAMATION/DATE OF TRANSFE R IS CONCERNED, WE HAVE ALREADY OPINED THAT THE SAME WAS FOR BUSINESS CONSIDERATIO NS. IN OUR CONSIDERED OPINION, IN VIEW OF THE ABOVE DISCUSSION, THE ADOPTION OF THE APPOINTED DATE OF 1.04.1997 CANNOT BE CONSTRUED AS A COLOURABLE DEVICE TO EVADE PAYMENT OF TAXES, AND THUS, WE ARE UNABLE TO AG REE WITH THE ACTION OF THE REVENUE TO DISREGARD THE APPOINTED DATE OF 1.4.1 997 AS THE DATE OF AMALGAMATION/DATE OF TRANSFER FOR THE PURPOSES OF ASSESSM ENT OF INCOME. THUS, ON THIS ASPECT WE UPHOLD THE PLEA OF THE ASSESSEE TO CLAIM SET OFF OF LOSS OF FSL FOR ASSESSMENT YEAR 1998-99 AGAINST THE INCOME OF THE ASSESSEE COMPANY BECAUSE THE TWO ENTITIES ARE LIABLE TO BE ASSESSED AS A SINGLE UNIT FROM 1.4.1997 ONWARDS. THEREFORE, ON THE BASIS OF ABOV E DISCUSSION, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX 9APPE ALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE FOR SET OFF OF LOSS OF FSL AS CLAIMED IN ITS REVISED RETURN FILED ON 31.3.2000. T HUS, ON THIS GROUND, THE ASSESSEE SUCCEEDS AS ABOVE. 16. GROUND NO. 2 READS AS FOLLOWS: 2. A. THE LEARNED CIT(A) FURTHER ERRED IN UPHOLDING THE ACTION OF AO IN ASSESSING A SUM OF RS. 72,81,912/- EARNED ON SALE OF PREMISES AS INCOME FROM BUSINESS AS AGAINST APPELLANTS CONTENT ION THAT THE SAME IS PROPERLY CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. B. WITHOUT THE PREJUDICE, THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE APPELLANTS CONTENTION IN THE ALTERNATIVE THAT THE APPELLANT CONVERTED CAPITAL ASSET OR TREATED THE CAPITAL ASSET AS STOCK-IN-TRAD E AT THE TIME OF SALE OF FLATS TO THE OUTSIDERS AND THEREFORE THE PROFIT EARNED S HOULD BE BIFURCATED BETWEEN CAPITAL GAINS REPRESENTING EXCESS OF MARKET PRICE ON THE DATE OF SALE OVER THE COST OF ACQUISITION AND ONLY THE BALANCE A MOUNT SHOULD BE ASSESSED AS BUSINESS INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER FOUND THAT THE ASSESSEE HAD EARNED PROFIT OF RS. 72,81, 912/- ON SALE OF FLATS CONSTRUCTED BY IT. THE ASSESSEE HAD SHOWN THIS AS PROFIT O N SALE OF INVESTMENTS AND WAS SET OFF AGAINST THE CAPITAL LOSS. THE ASSESSEE HAD DURING 20 THE ASSESSMENT YEAR 1996-97 ACQUIRED A PIECE OF LAND ADM EASURING 19,000 SQ.FT. LOCATED IN PUNE IN AN AUCTION FROM THE INCOME -TAX DEPARTMENT FOR A CONSIDERATION OF RS. 69,42,746/-. ON THIS LAND, ASSESSEE C ONSTRUCTED 20 FLATS AND SOLD A PORTION OF THE SAME. AFTER ALLOCATING COST ON PROPORTIONATE BASIS, THE COST OF THE PROPERTY WAS DETERMINED AT RS. 72,81,9 12/- IN RESPECT OF FLATS SOLD. THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER AS TO WHY THE PROFIT BE NOT TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS. THE ASSESSEE SUBMITTED THAT THE CONSTRUCTION OF FLATS WAS NOT THE MAI N BUSINESS ACTIVITY OF THE COMPANY; THAT THE LAND PURCHASED WAS FOR THE PURP OSE OF INVESTMENT AND IN THE ACCOUNT BOOKS IT WAS SHOWN AS INVESTMENT AND NOT STOCK IN TRADE; THAT THE INVESTMENT WAS ALSO NOT CONSIDERED AS STOCK-IN-TRADE BEF ORE SELLING; THAT THE AREA OF LAND BEING LARGE, IT WAS NOT POSSIBLE TO SELL THE LAND AS SUCH AND THEREFORE, IT WAS DECIDED TO CONSTRUCT FLATS AND SELL IT; THAT THIS WAS A SINGLE TRANSACTION AND NOT CONTINUOUS AND REPETITIVE TRANSACTIO N AND NEITHER IN THE PAST PRIOR TO 1995, NOR IN FUTURE ANY CONSTRUCTION ACTI VITY HAD BEEN CARRIED ON BY IT; AND THAT AT THE TIME OF PURCHASE OF THE LAND, THE COMPANY HAD NO INTENTION TO TRADE IN LAND. THE ABOVE SUBMISSIONS DID N OT FIND FAVOUR WITH THE ASSESSING OFFICER. REFERRING TO CERTAIN CASE LAWS, SUCH AS MAZ GAON DOCS LTD. V. CIT 34 ITR 36 (SC), UPPER INDIA CHAMBER OF COMME RCE V. CIT 15 ITR 163(ALL), NARAYAN SWADESHI WEAVING MILLS 26 ITR 765 (SC), BHOGILAL H. PATEL V. CIT 68 ITR 587 AND JANKIRAN BAHADUR RAN V. C IT 57 ITR 21(SC), THE ASSESSING OFFICER INFERRED THAT THERE WAS AN INTENTION TO LAUNCH UPON AN ADVENTURE IN THE NATURE OF TRADE. FURTHER REFERRING TO OTHER JUDICIAL PRONOUNCEMENTS IN GURUDAYAL NARAYANDAS V. CIT 50 ITR 6 33 (BOM), KUSHAN PRASAD & CO. LTD. V. CIT 27 ITR 49(SC), CIT V. BRIT ISH INDIA CORPORATION 142 ITR 563 (ALL), V. RAMANATHN V. CIT 51 ITR 640 (MAD ), RAJE J. RAMESHWAR RAO V. CIT 42 ITR 179 (SC), THE ASSESSING OFFICER INFER RED THAT THE ACTIVITY OF THE ASSESSEE IN DIVIDING THE LAND INTO PLOTS AND NOT SEL LING IN A SINGLE UNIT WENT 21 TO ESTABLISH THAT ASSESSEE WAS CARRYING ON BUSINESS IN REAL P ROPERTY AND IT WAS A BUSINESS VENTURE. AS PER THE ASSESSING OFFICER THE ASSESSEE HAD ACQUIRED A BIG CHUNK OF LAND IN UP-MARKET AREA WHERE LARGE AMOUNT OF COMMERCIAL AND RESIDENTIAL COMPLEXES WERE BEING BUILT BY VARIOUS BUIL DERS AND SOON AFTER ACQUIRING THE LAND, IT STARTED CONSTRUCTING LARGE NUMB ER OF FLATS AND SOLD MOST OF THEM IN LESS THAN THREE YEARS AT AN EXORBITANT PRICE , WHICH INDICATED HIGH QUALITY OF CONSTRUCTION AND THUS IT EARNED HUGE PROFIT ON SELLING THESE FLATS. IN THE VIEW OF THE ASSESSING OFFICER, THE ACTIVITY OF THE A SSESSEE WAS CHARACTERISTIC OF A PERSON CARRYING ON THE BUSINESS OF BUI LDER AND DEVELOPER OF LAND. THE ASSESSING OFFICER THUS HELD THAT THE SURPLUS R ECEIVED ON SALE OF FLATS WAS THE TRADING INCOME AND TAXABLE AS PROFITS AND GAIN S OF BUSINESS AND NOT CAPITAL GAINS. THE ASSESSING OFFICER DID NOT ACCEPT THE CON TENTION OF THE ASSESSEE THAT THE COMPANY WAS MAINLY ENGAGED WITH BUSINESS O F MANUFACTURING OF CABLES AND HELD THAT THERE WAS NO BAR ON THE ASSESSEE FROM CARRYING OUT ANY OTHER BUSINESS ACTIVITY, EVEN IF IT MAY NOT BE THE MAIN OBJECT OF THE ASSESSEE COMPANY AND THAT IT WAS ALSO NOT ESSENTIAL THAT THERE SHOULD BE SERIES OF TRANSACTIONS AND EVEN A SINGLE OR ISOLATED T RANSACTION COULD CONSTITUTE BUSINESS. THE ASSESSEE HAD CONSTRUCTED NUMBER OF FL ATS AND HAD SOLD ON VARIOUS DATES TO VARIOUS PERSONS. THUS, IT WAS NO T A CASE OF SINGLE TRANSACTION. FURTHER RELIANCE WAS PLACED ON THE DECISION IN TUTICORIN ALKALI CHEMICALS V. CIT 237 ITR 172 (SC) AND FORT PROPERTIES PVT. LTD V. CIT 208 ITR 232. CONSIDERING THE FACTS OF THE CASE AS A WHOLE, TH E ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEE HAD CARRIED ON THE ACTIVITY OF CONSTRUCTION AND SALE OF FLATS IN THE SAME MANNER AS WOULD BE CARRIED ON BY A PERSON CARRYING ON THE BUSINESS OF BUILDER AND LAND DEV ELOPER. THE PROFIT OF RS. 72,81,912/- ON SALE OF FLATS WAS, THEREFORE, HELD AS TRADING RECEIPT AND ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. BEING AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME -TAX (APPEALS). 22 17. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE MADE BEFORE THE ASSESSING OFFI CER. IT WAS EXPLAINED THAT THE ASSESSEES BUSINESS WAS EXPANDING AND IN ORDER TO MEET THE BUSINESS NEEDS, IT REQUIRED COMMERCIAL AND RESIDENTIAL PREMISES. THE SURPLUS CASH GENERATED WAS DEPLOYED CONSIDERING ITS FUTURE BUSINESS NEEDS AND ALSO FOR GENERATING ADEQUATE FINANCIAL RETURNS. A CCORDINGLY, THE COMPANY DECIDED TO PURCHASE THE SAID LAND AND CONSIDERING THE SIZ E OF PLOT, IT WAS FELT THAT IT COULD NOT BE SOLD AND HENCE ASSESSEE DECIDED TO CON STRUCT APARTMENTS FOR RESIDENTIAL PURPOSES. A CONTRACTOR WAS ENGAGED IN 199 5. THE CONSTRUCTION OF APARTMENTS WAS COMPLETE IN 1997-98. ULTIMATELY, TH E ASSESSEE CONTENDED THAT THE SURPLUS WAS LIABLE FOR CAPITAL GAINS TAX AND NOT TRADING RECEIPT. 18. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSE E, THE COMMISSIONER OF INCOME-TAX (APPEALS) AFFIRMED THE VIEW OF THE ASSESSING OFFICER THAT THE SURPLUS OF RS. 72,81,912/- ARISING F ROM SALE OF FLATS WAS TRADING RECEIPT ASSESSABLE UNDER THE HEAD PROFITS AND GAINS BUSINE SS. THE RELEVANT FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) A RE EXTRACTED BELOW: 3.3. THE SUBMISSIONS HAVE BEEN CONSIDERED. TO DEC IDE THE ISSUE, WHETHER THE RECEIPT OF SURPLUS ON SALE OF FLATS, ONE HAS TO GO BEHIND WHAT MAY APPEAR TO BE OBVIOUS. FOR DETERMINING THE TRUE NATURE OF TRANSA CTIONS, THE TOTALITY OF THE CIRCUMSTANCES AND FACTS OF THE CASE NEEDS TO BE TAK EN INTO CONSIDERATION. THE APPELLANT ACQUIRED A LARGE CHUNK OF LAND IN A PRIME UPCOMING AREA OF PUNE IN AUCTION MADE BY IT DEPARTMENT IN JULY 1994 FOR A SUM OF RS. 69,42,746/- IN A SHORT PERIOD, THE APPELLANT ENGAGED A CONTRACTOR FOR CONSTRUCTION OF HIGH COSTING FLATS MEANT FOR UPPER AND RICH STRATA PEOPLE WHICH IS EVIDENT FROM THE SA LE PRICE OF THE FLATS. THE VERY FACT THAT IN A VERY SHORT PERIOD, THE APPELLANT WENT FOR CONSTRUCTION OF FLATS SHOWS THAT THE INTENTION WAS NOT KEEPING THE LAND AS INVESTMENTS A ND SELLING IT IN THE SAME FOR SUBSEQUENTLY. THERE IS NOT MUCH MERIT IN THE CONTE NTION THAT SINCE THE PIECE OF LAND WAS LARGE AND NOT EASILY MARKETABLE ACCORDING TO CA SH NEEDS OF THE COMPANY, IT WENT FOR CONSTRUCTIONS OF THE APARTMENTS. IT IS NOT A C ASE WHERE A LARGE PLOT OF LAND WAS SOLD IN SMALLER PIECES. THE COMPANY PLANNED AND WE NT AHEAD IN THE SAME FASHION AS A BUILDER IN MAKING FLATS. MERELY THAT THE LAND WA S SHOWN AS INVESTMENT CANNOT BE THE SOLE FACTOR FOR DETERMINE THE SURPLUS ON SALE OF FL ATS AS CAPITAL RECEIPT. THE BALANCE SHEET ALSO DOES NOT REFLECT THAT THERE WAS CASH NEE DS OF THE COMPANY, THEREFORE IT WENT FOR CONSTRUCTION OF FLATS. THE APPELLANTS RESERVE AND SURPLUS AS WELL AS SHAR EHOLDERS CAPITAL WAS RS. 502 CRORES. APPROXIMATELY RS. 200 CRORES OF SURPLU S FUNDS WAS INVESTED IN SHORT TERM INTER CORPORATE DEPOSITS. IN FACT IT WAS BUOYANT W ITH FUNDS. I AGREE WITH AO THAT ENTRIES IN THE BOOKS OF ACCOUNTS SHOWING THE SAID L AND AS INVESTMENT S\WOULD NOT BE CONCLUSIVE PROOF TO DETERMINE THE NATURE OF SURPLUS ON SALE OF FLATS. THE FACTS SHOW THAT THE APPELLANT CARRIED ON THE SAME OPERATIONS A ND IN THE SAME WAY, AS THOSE WHICH ARE CHARACTERISTIC OF ORDINARY TRADING IN THE LINE OF BUSINESS OF BUILDER AND DEVELOPER. RELYING ON THE DECISION OF V. RAMANATHA N VS. CIT 51 ITR 640 (MAD) IT IS CLEAR THAT THE CONDUCT OF THE APPELLANT WAS THAT OF A BUILDER AND THE SALE OF FLATS WAS 23 TRADING ADVENTURE. RELIANCE IS ALSO PLACED ON THE DECISION OF SUPREME COURT IN P. M. MOHAMMED MEERAKHAN VS. CIT 73 ITR 735(SC) AND KHAN BAHADUR AHMED ALLADIN AND SONS VS. CIT 68 ITR 573(SC) TO HOLD THAT THE TR ANSACTION OF CONSTRUCTION AND SALE OF FLATS HAD THE CHARACTER OF A TRADE. EVEN ISOLAT ED OR SOLITARY TRANSACTIONS CAN BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE IF I T PARTAKES SOME OF THE ELEMENTS OF TRADE OR COMMERCE, THEREFORE IT IS NOT NECESSARY TH AT THERE SHOULD BE REPETITIVE TRANSACTIONS. THE SUBSEQUENT ACTIVITY OF THE APPEL LANT AFTER THE PURCHASE OF LAND CLEARLY SHOWS THAT IT WAS DORMANT INTENTION OF THE APPELLANT TO ENTER INTO THE BUSINESS OF A BUILDER AND DEVELOPER TO MAXIMIZE ITS BUSINESS PROFIT. THE MAIN BUSINESS ACTIVITY OF THE APPELLANT WHICH IS MANUFACTURING OF CABLES I S NOT A DECISIVE FACTOR TO HOLD THAT THE APPELLANT COULD NOT HAVE ENTERED IN A BROAD SEN SE RATHER THAN IN CONSTRUCTION OF LUXURIOUS FLATS AT AUNDH CLEARLY SHOWS SYSTEMATIC O R ORGANIZED COURSE OF ACTIVITY WITH A SET PURPOSE OF DERIVING PROFITS AS A BUILDER. THE APPELLANT HAS WORKED UPON THE SAID PIECE OF LAND AND DEVELOPED AND CONSTRUCTED FLATS A ND SOLD THEM WHICH WAS ADVENTURE IN THE NATURE OF TRADE. THE APPELLANT HA S RENDERED ALL SUCH ACTIVITIES WHICH A PERSON ENGAGED IN THE BUSINESS IS SUFFICIENT TO C ONSTITUTE TRADE OR BUSINESS AND IS NOT NECESSARY TO HAVE A SERIES OF TRANSACTIONS. TH EREFORE, CONSIDERING ALL THE FACTS AND THE TOTALITY OF THE CASE, I AM IN AGREEMENT WIT H THE CONCLUSION OF THE AO THAT THE SURPLUS OF RS. 72,81,912/- ARISING FROM SALE OF FLA TS IS TRADING RECEIPT OF THE APPELLANT AND ASSESSABLE UNDER THE HEAD PROFITS AND GAINS BUS INESS. THE APPEAL FAILS ON THIS GROUND. AGGRIEVED WITH THE DECISION OF THE COMMISSIONER OF INCO ME-TAX (APPEALS), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 19. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS RAISED BEFORE THE LOWER AUTHORITIES, WHICH WE HAVE ALREADY ADVERTED TO, IN THE EARLIER PART OF THIS ORDER. THE ONLY OTHER ARGUMENT RAISED BEFORE US IS THAT THE COMMISSIONER OF INCOME-TAX (APPEA LS) HAS NOT PROPERLY APPRECIATED THE FACTUAL ASPECT OF THE MATTER FOR WHICH OUR ATTENTION WAS INVITED TO PAGE 50 OF THE PAPER BOOK. AS PER THE LEARNED COU NSEL, OUT OF 20 FLATS CONSTRUCTED, 4 FLATS HAVE BEEN RETAINED FOR ASSESSEES OWN U SE AND 9 FLATS HAVE BEEN SOLD TO THE OUTSIDERS DURING THE YEAR UNDER CONSIDERATION AND FURTHER 2 FLATS HAVE BEEN SOLD IN THE SUBSEQUENT YEAR A ND 5 FLATS ARE REMAINING UNSOLD. IT WAS POINTED OUT THAT CERTAIN FLATS HAVE BEEN RETAINED BY THE ASSESSEE COMPANY FOR ITS OWN USE AND THAT SALE OF SURPLUS FLA TS IS PRIMARILY CARRIED OUT AS INCIDENTAL TO ASSESSEES PRIMARY INTENTION OF PROVIDING FLATS FOR ITS OWN EMPLOYEES. THEREFORE, IT IS EXPLAINED THAT THE RE WAS NO INTENTION TO ACQUIRE THE LAND AND BUILD FLATS THEREON WITH A BUSINE SS PURPOSE, BUT WAS CARRIED OUT ONLY AS AN INVESTMENT ACTIVITY. 24 20. ON THE OTHER HAND, THE LEARNED CIT-DEPARTMENTAL REPRESENTATIVE, APPEARING FOR THE REVENUE, POINTED OUT THAT FACTUALL Y ONLY A SMALL PORTION OF THE TOTAL FLATS HAS BEEN RETAINED BY THE ASSESSEE FOR IT S OWN USE AND THAT THE LOWER AUTHORITIES HAVE CLEARLY BROUGHT OUT THAT THE A CTIVITY IS PRIMARILY CARRIED OUT AS A BUSINESS ACTIVITY AND, THEREFORE, THE INCOME IS LIABLE TO BE TAXED AS BUSINESS INCOME. IN-FACT, AS PER THE LEARNED DEPARTMENTA L REPRESENTATIVE RETAINING OF SOME OF THE FLATS FOR OWN USE IS RATHER IN CIDENTAL TO THE MAIN ACTIVITY OF CONSTRUCTING THE FLATS AND SELLING THE SAME AS A BUSINESS VENTURE. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. OST ENSIBLY TO DETERMINE AS TO WHETHER AN ACTIVITY IS AN ADVENTURE I N THE NATURE OF TRADE OR IS BEING CARRIED OUT AS AN INVESTMENT-SIMPLICITOR IS AN ISSUE WHICH HAS TO BE DECIDED CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE. THE AFORESAID PROPOSITION IS WELL SETTLED AND DOES NOT REQUIRE ANY FURTHER ELABORATION. IN THE PRESENT CASE, IT IS CLEARLY EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW THAT AFTER ACQUIRING THE PIECE OF LA ND IN 1994, ASSESSEE CONSTRUCTED APARTMENTS THEREON. ONE OF THE FINDINGS CONCUR RENTLY RECORDED BY BOTH THE AUTHORITIES BELOW IS TO THE EFFECT THAT THE MODE AND MANNER OF CONSTRUCTION OF APARTMENTS BY THE ASSESSEE IS AKIN TO AN ORDI NARY BUSINESS MAN ENGAGED IN THE ACTIVITY OF BUILDER AND DEVELOPER . THE PLEA SOUGHT TO BE MADE OUT BY THE APPELLANT-ASSESSEE IS THAT FOUR OF THE 20 FLATS CONSTRUCTED BY IT HAVE BEEN RETAINED BY IT FOR THE USE OF ITS EMPLOY EES AND, THEREFORE, THE PRIMARY OBJECT WAS TO USE THE LAND FOR PROVIDING HOUSIN G FACILITY TO ITS OWN EMPLOYEES. IN OUR CONSIDERED OPINION, THE AFORESAID ASSE RTION OF THE ASSESSEE IS UNTENABLE HAVING REGARD TO THE ENTIRE CONSPECTUS OF F ACTS, INASMUCH AS A VERY SMALL NUMBER OF FLATS HAVE BEEN RETAINED FOR OWN USE BY THE ASSESSEE COMPANY. PRESENTLY, ONLY 4 FLATS ARE STATED TO HAVE BEEN RETAINED BY THE ASSESSEE FOR OWN USE AND 11 FLATS HAVE BEEN SOLD OUT OF T HE 20 FLATS CONSTRUCTED AND EVEN WITH REGARD TO THE BALANCE OF 5 FL ATS WHICH REMAIN, THERE 25 IS NO ASSERTION THAT THE SAME ARE KEPT FOR USE FOR ASSESSEE S OWN PURPOSES. WE, THEREFORE, ARE INCLINED TO UPHOLD THE CASE MADE OU T BY THE LOWER AUTHORITIES THAT ASSESSEE HAS WORKED UPON THE SAID PIECE O F LAND AND DEVELOPED AND CONSTRUCTED FLATS AND SOLD THEM AS A BUSI NESS ACTIVITY AND, THEREFORE, PROFITS THEREON ARE LIABLE TO BE ASSESSED AS BUSINESS INCOME AND NOT AS CAPITAL GAINS CLAIMED BY THE ASSESSEE. THUS, ON HIS GROUND, ASSESSEE HAS TO FAIL. 22. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO. 2(B) AND, THEREFORE, THE SAM E IS DISMISSED AS NOT PRESSED. RESULTANTLY, THE GROUND NO. 2 IS DISMISSED. 23. GROUND NO. 3 READS AS FOLLOWS: 3. THE LEARNED CIT(A) HAS FURTHER ERRED IN UPHOLDI NG THE DISALLOWANCE OF PRO RATA PROVISION MADE FOR PREMIUM PAYABLE REDEMPTION OF D EBENTURES IN THE AMOUNT OF RS. 3,71,08,236/- THE ISSUE INVOLVED IN THIS GROUND RELATES TO DISALLOWANCE OF PROVISION MADE TOWARDS PREMIUM ON REDEMPTION OF DEBENTURES. THE BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER FOUND THAT ASSESSEE HAD INCLUDED RS. 3,71,08,236/- BEING PREMI UM PAYABLE ON REDEMPTION OF DEBENTURES. ACCORDING TO THE ASSESSEE, THE SUM DEBITED WAS ON PRO RATA BASIS LINKED TO THE TENURE OF DEBENTURES A ND THE SUM WAS AN ALLOWABLE DEDUCTION. THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF MADRAS INDUSTRIAL CORPORATION 225 ITR 802 (SC). THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE R EGARDING THE ALLOWABILITY OF THE PREMIUM ON DEBENTURES AND DISALLO WED THE SAME. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) NOTICED THAT ID ENTICAL ISSUE WAS DECIDED BY HIS PREDECESSOR AGAINST THE ASSESSEE IN THE ASSESSME NT YEAR 1997-98 AND EARLIER YEARS. FOLLOWING THE SAID DECISION FOR THE EARLIER YEARS WHICH WAS TO THE EFFECT THAT SINCE THERE WAS A BUY BACK CLAU SE IN THE 26 DEBENTURES, THE DECISION IN THE CASE OF TUNGABHADRA INDU STRIES LTD. 207 ITR 553 WOULD APPLY, THE COMMISSIONER OF INCOME-TAX (APPEA LS) HELD THAT PREMIUM ON REDEMPTION OF DEBENTURES ON PRO-RATE BASIS COULD NOT BE ALLOWED. BEING AGGRIEVED, ASSESSEE IS IN FURTHER APPEAL BEFORE US . 24. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF OUR CO- ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 1997-98 VIDE ORDER DATED 30.3.2010 IN ITA NO 1014/PN/2000, COPY OF WHICH IS PLACED IN PAPER BOOK AT PAGES 142 TO 156. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE ABOVE FACT-SITUATION AND HAS NOT BROUGHT ANY CONTRARY DECISION TO OUR NOTICE. 25. AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ELEVANT ORDERS OF THE TRIBUNAL, WE FOLLOW THE PARITY OF REASONING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND IS ACCORDINGLY ALLOWED. 26. GROUND NO. 4 READS AS FOLLOWS: 4. THE LEARNED CIT(A) HAS FURTHER ERRED IN UPHOLDIN G THE DISALLOWANCE OF EXPENDITURE ON GIFTS AND PRESENTATION ARTICLES TO T HE EXTENT OF RS. 1 LAC. THE BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD INCURRED E XPENDITURE OF RS. 24,56,300/- ON ARTICLES LIKE GIFT CHEQUES, SWEETS AND DRY FRUITS BOXES, ARTICLES AND PRESENTS ETC. AND CALENDARS AND GREETINGS. THE DETAI L OF THE PERSONS TO WHOM GIFTS WERE GIVEN WAS NOT FURNISHED AND THEREFORE, AS PER THE ASSESSING OFFICER, IT WAS NOT POSSIBLE TO ASCERTAIN WHETHER THE EN TIRE EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE O F BUSINESS. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER DISALLOWED 50% OF T HE AMOUNT DEBITED FOR GIFTS ETC. WHICH RESULTED IN DISALLOWANCE OF RS.12,28,150 /-. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS CONTENDE D BY THE ASSESSEE 27 THAT ALL SUCH EXPENSES WERE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS. THE COMMISSIONER OF INCOME-TAX (APPEALS) NOTICE D THAT SIMILAR DISALLOWANCE WAS CONSIDERED FOR THE ASSESSMENT YEAR 1996-9 7 WHEREIN THE DISALLOWANCE WAS RESTRICTED BY HIS PREDECESSOR TO RS. 75,000/ - AND FOR THE ASSESSMENT YEAR 1997-98 OUT OF TOTAL EXPENDITURE OF RS. 17,84,515/- DISALLOWANCE WAS RESTRICTED TO RS. 75,000/-. IN VIEW OF THIS FACTUAL POSITION, THE COMMISSIONER OF INCOME-TAX (APPEALS) RESTRICTED THE DISALL OWANCE FOR THE YEAR UNDER CONSIDERATION TO RS 1,00,000/-. STILL NOT SATISFI ED, ASSESSEE HAS COME UP IN FURTHER APPEAL BEFORE US. 27. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF OUR CO- ORDINATE BENCH DATED 30.3.2010 (SUPRA) IN ASSESSEES CASE F OR ASSESSMENT YEAR 1997-98. THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS NEITHER DISPUTED THE ABOVE FACT-SITUATION AND NOR BROUGHT ANY CONTRARY DECISION TO OUR NOTICE. 28. AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ELEVANT ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WE FOLLOW THE PARITY OF REASONING GIVEN IN THE ORDER OF THE TRIBUNAL IN ITA NO 1014/PN/2000 DA TED 30.3.2010 (SUPRA) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY THE COMMISSIONER OF INCOME-TAX (APPEALS)S ACTION IN CONFIRMING THE DISALL OWANCE OF RS 1,00,000/- ON GIFT EXPENSES IS SET-ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. THIS GROUND IS ACCORDINGLY ALLOWED. 29. GROUND NO. 5 READS AS FOLLOWS: 5. THE LEARNED CIT(A) HAS FURTHER ERRED IN UPHOLDI NG THE ACTION OF THE AO IN DISALLOWANCE OF LOSS OF RS. 1,98,74,921/- REPRESENT ING THE UNREALIZABLE PORTION OF THE INTER-CORPORATE DEPOSITS ADVANCED TO M/S. BA NGUR FINANCE LTD. INCLUDING INTEREST ACCRUED THEREON. THE ISSUE IN THIS GROUND RELATES TO THE DISALLOWANCE OF AMOUNT WRITTEN OFF OF RS 1,98,74,291/- DUE FROM M/S BANGUR FINANCE. T HE RELEVANT FACTS ARE 28 THAT THE ASSESSEE HAD WRITTEN OFF A SUM OF RS. 1,98,74,9 21/- BEING INTER CORPORATE DEPOSITS (ICD), WHICH WAS ADVANCED IN EARLIER YEAR. BEFORE THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE ASSESSEE THAT ON 5 .8.1995 ICD WAS GIVEN TO BANGUR FINANCE LTD., WHICH CARRIED INTEREST AT THE RATE OF 18% PER ANNUM. AGAINST THE DEPOSITS, THE COMPANY HAD TAKEN SOME S ECURITIES. LATER ON IT WAS FOUND THAT M/S BANGUR FINANCE LTD. WAS NOT IN A POSITION TO REPAY THE LOANS GIVEN AND, THEREFORE, AFTER ADJUSTING THE SECURIT IES AND CONSIDERING THE RECOVERIES MADE, BALANCE SUM OF RS. 1,98,74,921/- WAS WRI TTEN OFF. THE SUM WAS CLAIMED AS BUSINESS EXPENDITURE BY THE ASSESSEE. THE ASSE SSING OFFICER HELD THAT THE STATED BAD DEBTS WAS NOT TAKEN INTO ACCOU NT IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH THE BAD DEBTS HAD BEEN WRITTEN OFF OR IN THE PRECEDING YEARS. THE AMOUNT OF RS. 1,98,74,921/- REPRESENTED LOSS OF CAPITAL ADVANCED BY THE ASSESSEE, AND THUS, THE SUM WAS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THESE SUMS DID NOT REPRESENT MONEY LENT IN T HE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING CARRIED ON BY THE ASSESSEE; AS ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING ELECTR ICAL AND TELEPHONE CABLES AND WAS NOT IN THE BUSINESS OF BANKING OR MONEY LENDING; THE MONEY WAS ADVANCED AS LOANS AND NON- RECEIPT OF THE SAME WAS A CAPITAL LOSS, THEREFORE IT WAS NOT ALLOWED AS DEDUCTION UNDER SECT ION 36(1)(VII) OF THE ACT OR AS BUSINESS EXPENDITURE. 30. IN APPEAL, IT WAS CONTENDED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT A PART OF THE AMOUNT ADVANCED TO THE VERY SAME CONCERN WAS WRITTEN OFF IN ASSESSMENT YEAR 1997-98, WHICH WAS NOT DI SALLOWED BY THE ASSESSING OFFICER. IT WAS CONTENDED THAT THE VOLUME AND THE FREQUENCY OF THE TOTAL ACTIVITY OF INVESTMENT OF SURPLUS FUNDS OF BUSINESS I N INTER-CORPORATE DEPOSITS WERE SUCH THAT THIS ACTIVITY HAD ALL THE INDICIA O F A BUSINESS. DEPOSITS HAD BEEN PLACED TO THE ORDER OF RS. 70 CRORES IN ASSESSMEN T YEAR 1995-96, 29 RS. 63 CRORES IN ASSESSMENT YEAR 1996-97, RS. 126 CRORES IN ASSESSMENT YEAR 1997-98 AND RS. 200 CRORES IN ASSESSMENT YEAR 1998-99. ACCO RDING TO THE ASSESSEE, THE FACT THAT THESE DEPOSITS WERE KEPT WITH VARIOU S CORPORATE ENTITIES INSTEAD OF BANKS WAS INDICATIVE OF THE RISK ASSOCIATE D WITH THIS ACTIVITY. IT WAS SOUGHT TO BE HIGHLIGHTED AS TO HOW THE DEPOSITS W ERE KEPT AT FREQUENT INTERVALS FROM TIME TO TIME RIGHT FROM ASSESSMENT YEAR 1995-96 AND EVEN THE DEPARTMENT HAS ASSESSED THE INTEREST EARNED ON THESE DEP OSITS AS BUSINESS INCOME IN EARLIER YEARS AS ALSO IN THE YEAR UNDER CONSIDE RATION. THE TOTAL AMOUNT INVESTED WAS RS. 200 CRORES IN ASSESSMENT YEAR 1998-9 9, WHICH WAS APPROXIMATELY 38% OF THE TOTAL SHAREHOLDERS FUNDS. R ELIANCE WAS PLACED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CI T V. PARAMOUNT PREMISES P. LTD 190 ITR 259 FOR THE PROPOSITION THAT I NCOME BY WAY OF INTEREST EARNED ON DEVELOPMENT OF SURPLUS FUNDS COULD BE TREATE D AS THE INCOME ARISING FROM THE VERY SAME BUSINESS FROM WHICH SUCH SURPLUS FU NDS ARE GENERATED AND NOT FROM AN INDEPENDENT ACTIVITY AS SUCH. IT WAS ALSO CONTENDED THAT THAT TO JUSTIFY A CLAIM FOR BAD DEBT UN DER SEC. 36(1)(VII) IN THE COURSE OF MONEY LENDING ACTIVITY, IT WAS NOT NECESSARY THA T THE ASSESSEE MUST OBTAIN A LICENSE UNDER THE MONEY LENDERS ACT. 31. ACCORDING TO THE COMMISSIONER OF INCOME-TAX (APPEALS) , IT WAS AN ADMITTED FACT THAT THE BUSINESS OF THE APPELLANT IS MANU FACTURING ELECTRICAL AND TELEPHONE CABLES. FURTHER, THE NATURE OF BUSINESS AS DECL ARED IN PART IV OF THE INCOME-TAX RETURN FILED WAS AS MFG., AND SELLING OF E LECTRICAL AND TELECOMMUNICATIONS CABLES. THE COMMISSIONER OF INCOME-T AX (APPEALS) ALSO OBSERVED THAT NEVER IN THE RETURN THE ASSESSEE CLAIMED THAT IT IS ALSO ENGAGED IN THE BUSINESS OF MONEY LENDING. THE MAIN OBJECT OF T HE APPELLANT AS PER THE MEMORANDUM OF ASSOCIATION IS TO MANUFACTURE CERTAIN PROD UCTS. ONE OF THE ANCILLARY OBJECT TO THE MAIN OBJECT WAS TO INVEST THE MON EY OF THE COMPANY NOT 30 IMMEDIATELY REQUIRED. THE COMMISSIONER OF INCOME-TAX (APPEALS) NOTICED THAT ASSESSEE HAD HUGE RESERVE OF FUNDS WHICH HAS BEEN INVE STED IN LARGE PERCENTAGE INTO ICDS. IT IS A FACT THAT THE ASSESSEE HAS BEE N PUTTING ITS SURPLUS FUNDS IN ICDS SINCE FEW YEARS. LOOKING INTO ALL THESE ASPE CTS, AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS), IT COULD NOT HE H ELD THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF A MONEY LENDER. JUST INVE STING A LARGE PERCENTAGE OF SURPLUS FUNDS INTO ICDS COULD NOT BE CONSIDE RED AS BUSINESS ACTIVITY OF THE ASSESSEE. NOWHERE IT HAS BEEN DECLARED THAT THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING. THE SURPLUS GENERATED OUT OF BUSINESS AND NOT REQUIRED IMMEDIATELY HAD TO BE UTILIZED BY WAY OF DEPOSITS, LOANS ETC. IT WAS OBSERVED THAT THE ICDS APPEAR AS LOANS AND ADVANCES IN THE BALANCE SHEET OF THE ASSESSEE AND NOT AS STOCK-IN-TRADE. THE ASSESSE E DOES NOT MAINTAIN ANY SEPARATE BOOKS FOR LOANS GIVEN AS ICDS NOR TH ERE WAS ANY SEPARATE PERSONNEL TO ATTEND TO THE SO CALLED DIFFERE NT BUSINESSES OF THE ASSESSEE. ON THE BASIS OF THE ABOVE FACTS, THE COMMISSIONER OF INCOME-TAX (APPEALS) AFFIRMED THE ACTION OF THE ASSESSING OFFICER AND CONCLUDED AS FOLLOWS: THEREFORE IT IS HELD THAT :- A. THE APPLICANT IS NOT IN THE BUSINESS OF MONEY LENDING. B. THE LOSS OF MONEY LENT WAS A CAPITAL LOSS. C. THE LOANS GIVEN WAS NOT IN THE ORDINARY COURSE O F BUSINESS OF MONEY LENDING D. THE MONEY LENT WAS NOT A STOCK IN TRADE OF THE A PPELLANT. IT IS HELD THAT THE WRITE OFF OF BAD DEBTS OF RS. 1 ,98,74,921/- IS NOT ALLOWABLE AS BUSINESS LOSS U/S 28 OR UNDER SEC. 36(1)(VII) R.W.S . 36(2) OF THE IT ACT. THE ADDITION OF RS. 1,98,74,921/- IS THEREFORE CONFIRMED. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 32. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POIN TED OUT THAT BOTH THE AUTHORITIES BELOW HAVE DECLINED THE CLAIM OF THE A SSESSEE FOR DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT ON A WRONG FOOTING . IT IS POINTED OUT THAT THE 31 MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE APPELLANT COMPANY, COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PAGES 72 TO 82, CLEA RLY BRING OUT THAT ONE OF THE MAIN OBJECTS OF THE ASSESSEE IS TO INVEST AND DEAL W ITH THE MONEY NOT IMMEDIATELY REQUIRED IN SUCH MANNER AS THE COMPANY MAY DEEM FIT. IN THIS REGARD, REFERENCE WAS MADE TO SUB-CLAUSE (43) OF THE C LAUSE III OF THE MEMORANDUM OF ASSOCIATION. ON THIS BASIS, IT IS POINTED O UT THAT IT WAS WRONG TO STATE THAT THE ASSESSEE DID NOT HAVE THE OBJECTS TO CAR RY ON BUSINESS OF MONEY LENDING. NOTWITHSTANDING THE AFORESAID, OUR AT TENTION WAS INVITED TO PAGES 61 TO 69 OF THE PAPER BOOK WHERE THE YEAR-WISE D ETAILS OF ICDS GIVEN BY THE ASSESSEE STARTING FROM THE FINANCIAL YEAR 1994-95 UPTO THE IMPUGNED ASSESSMENT YEAR HAVE BEEN PLACED. IN TERMS THEREOF, IT I S SOUGHT TO BE MADE OUT THAT THE ASSESSEE HAS NOT ONLY BEEN FREQUENTLY PLACI NG SUBSTANTIAL SUMS OF MONEY IN THE ICDS BUT HAS ALSO CARRIED ON THE SAME AS A CO ORDINATED BUSINESS ACTIVITY AND IT IS NOT A CASE WHERE THE AMOUNTS H AVE BEEN ADVANCED BY WAY OF ICDS AS A MERE INVESTOR. IT IS ALSO FURTHER P OINTED OUT THAT ALL ALONG FROM THE ASSESSMENT YEAR 1995-96 AND ALSO DURING THE ASS ESSMENT YEAR UNDER CONSIDERATION, THE INTEREST INCOME EARNED ON ICDS HAVE BEEN OFFERED BY THE ASSESSEE AS BUSINESS INCOME AND THE SAME HAS ALSO BEEN AS SESSED AS SUCH AND FOR THAT PURPOSE, REFERENCE WAS MADE TO THE DE TAILS PLACED AT PAGE 71 OF THE PAPER BOOK. IT WAS POINTED OUT THAT THE ASSE SSEE CAN BE SAID TO HAVE BEEN ENGAGED IN THE BUSINESS OF MONEY LENDING AND , THEREFORE, THE IMPUGNED WRITE-OFF OF THE AMOUNT OF IRRECOVERABLE IC DS ADVANCED TO BANGUR FINANCE LTD. WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 36 (1)(VII) OF THE ACT. APART THEREFROM, IT HAS ALSO BEEN POINTED OUT THAT T HE IMPUGNED AMOUNT WAS CONSIDERED IRRECOVERABLE AFTER ADJUSTING THE AMOUNT OF SECURITY PLEDGED WITH THE ASSESSEE; AND THAT THE IMPUGNED WRITE-OFF WAS ALSO B ASED ON A LEGAL ADVICE SOUGHT BY THE ASSESSEE, A COPY OF WHICH HAS BEEN PLACE D IN THE PAPER BOOK AT PAGES 59 TO 60. IT WAS, THEREFORE, CONTENDED TH AT HAVING REGARD TO THE 32 DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R.F. LTD. V CIT (2010) 323 ITR 397 (SC) THE IMPUGNED CLAIM WAS AN ALLOWABLE DEDUCTION. 33. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE, APPEARING FOR THE REVENUE, HAS DEFENDED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER BY PLACING RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. THE REASONING TAKEN BY THE LOWER AUTHORITIES HAVE B EEN REITERATED BEFORE US WHICH HAVE ALREADY BEEN ADVERTED TO BY US IN EARLIER P ART OF THIS ORDER AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 34. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. TH E DISPUTE RELATES TO AN AMOUNT OF RS 1,98,74,291/- WRITTEN OFF BY THE ASSESSEE AS IRRECOVERABLE FROM M/S BANGUR FINANCE LTD. INITIALLY, ASSESSEE HAD ADVA NCED AN ICD TO BANGUR FINANCE LTD. ON 5.8.1995 FOR A PERIOD OF 6 MO NTHS CARRYING AN INTEREST OF 18% PER ANNUM. AS A SECURITY AGAINST THE ADVANCING O F ICD, ASSESSEE OBTAINED ADVANCE CHEQUES AND PLEDGE OF CERTAIN SHARES BEL ONGING TO THE BORROWING GROUP. THE ASSESSEE COMPANY ACCOUNTED FOR INTER EST ON THE SAID ICD AND OFFERED IT FOR TAXATION IN THE ASSESSMENT YEAR 1996-97, WHICH HAS BEEN ASSESSED AS BUSINESS INCOME. IT TRANSPIRES THAT WHEN THE ASSESSEE DEPOSITED CHEQUES OF PRINCIPAL AND INTEREST, THE SAME WERE DIS-HONOURED AND THEREAFTER, THE COMPANY INITIATED STEPS TO RECOVER THE MONIES OUTSTANDING. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE WROTE-OFF THE SUM OF RS 1,98,74,921/- AFTER ADJUSTING THE AMOUNT RECOVERABLE ON ACCOUNT OF SECURITIES PLEDGED WITH IT. THE SAID CLAIM HAS BEEN SOUGHT TO BE JUSTIFIED BY THE ASSESSEE UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT AS BAD DEBTS WRITTEN- OFF. 35. SECTION 36(1)(VII) OF THE ACT PERMITS DEDUCTION O F THE AMOUNT OF ANY DEBT OR A PART THEREOF WHICH IS WRITTEN-OFF AS IRRECOV ERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THE CLAIM SET-UP BY T HE REVENUE IS THAT THE DEBT HAS NOT BEEN CREATED IN THE COURSE OF BUSINESS A ND ALSO THAT INCOME 33 CORRESPONDING TO THE SAID DEBT HAS NOT BEEN OFFERED FO R TAX EITHER IN THE INSTANT YEAR OR ANY PRECEDING YEAR AS REQUIRED BY SECTION 36(2)( I) OF THE ACT. THE COUNTER-PLEA SET-UP BY THE ASSESSEE IS THAT THE AFORESAID ICDS REPRESENT MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING AND, THEREFORE, THE STIPULATION UNDER SECTION 36(2)(I) POINTED BY THE REVENUE DOES NOT APPLY. 36. THE PERTINENT DISPUTE IS AS TO WHETHER THE ICDS ADV ANCED BY THE ASSESSEE CONSTITUTE AN ACTIVITY OF MONEY LENDING OR NOT. F OR THAT PURPOSE, WE HAVE EXAMINED THE FACTUAL ASPECTS BROUGHT OUT BY THE APPELLANT-COMPANY AND FIND THAT SINCE THE FINANCIAL YEAR 1994-95, THE ASSESSEE H AS BEEN CONTINUOUSLY CARRYING ON THE ACTIVITY OF ADVANCING ICDS TO VARIED BO DIES. IN THE FINANCIAL YEAR 1994-95, THE ICDS AMOUNTING TO RS 70 CRORES WAS GIV EN TO AS MUCH AS 12 COMPANIES. SIMILARLY IN THE FINANCIAL YEAR 1995-96, FRESH ICDS WERE GIVEN OF AS MUCH AS RS 63,25,00,000/- AND THE NUMBER OF BORRO WERS TOTALLED TO 23. EVEN IN THE FINANCIAL YEARS 1996-97 AND 1997-98, WE F IND THAT SUBSTANTIAL AMOUNTS HAVE BEEN GIVEN TO AS MANY AS 15 AND 21 PARTIE S RESPECTIVELY. THE INTEREST INCOME ON THE ICDS HAS BEEN ASSESSED AS BUSINESS INCOM E AND ALL THESE DETAILS ARE PLACED IN THE PAPER BOOK AT PAGES 61 TO 71. ALL THESE SUPPORT THE ASSERTIONS OF THE ASSESSEE THAT DEPOSITING OF ICDS IS BEING CARRIED ON AS AN ORGANIZED ACTIVITY AKIN TO THE ACTIVITIES CARRIE D ON BY A TRADER. IN FACT, THE ASSESSING OFFICER EVEN IN THE INSTANT ASSESSMENT YEAR H AS ASSESSED INTEREST INCOME ON ICDS AS BUSINESS INCOME AND, IN OUR VIE W, IN THE FACE OF THE AFORESAID, IT IS QUITE INCONSISTENT ON THE PART OF T HE REVENUE TO CANVASS THAT THE ACTIVITY OF GIVING ICDS IS NOT A BUSINESS ACTIVIT Y. MOREOVER, IT IS ALSO EVIDENT FROM THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE -COMPANY THAT CLAUSES ANCILLARY TO THE MAIN OBJECT EMPOWER THE COMPAN Y TO DEAL WITH MONIES NOT IMMEDIATELY REQUIRED IN THE MANNER AS DEEM ED FIT. IN THE PRESENT CASE, THE CASE MADE OUT IS ON THE BASIS OF FACTUAL MATRIX OF THE PAST YEARS THAT ICDS WERE GIVEN BY THE ASSESSEE TO EARN INTEREST INCOME TH EREON IN A 34 SYSTEMATIC AND ORGANIZED MANNER SO AS TO BE CONSTRUED AS A N ACTIVITY OF BUSINESS. THEREFORE, UNDER THESE CIRCUMSTANCES, WE ARE IN AGREEMENT WITH THE ASSESSEE TO SAY THAT ICDS HAVE BEEN GIVEN BY THE ASSESSEE IN THE COURSE OF ITS MONEY LENDING ACTIVITIES WHICH CONSTITUTE BUSINESS AND, THEREFORE, THE STIPULATION OF SECTION 36(2)(I) OF THE ACT THAT THE AMO UNT OF DEBT SHOULD HAVE BEEN OFFERED AS INCOME IS NOT APPLICABLE. IN SO-FAR-AS IR RECOVERABILITY OF THE IMPUGNED AMOUNT IS CONCERNED, IT IS QUITE EVIDENT FROM T HE MATERIAL ON RECORD THAT THE ASSESSEE HAS MADE OUT ITS CASE, AND CONSIDERING THE ENTIRETY OF FACTS, WE, THEREFORE, FIND IT APPROPRIATE TO ALLOW THE CLA IM OF THE ASSESSEE FOR WRITE-OFF OF THE IMPUGNED IRRECOVERABLE AMOUNT OF ICDS AS A DEDU CTION WITHIN THE MEANING OF SECTION 36(1)(VII) OF THE ACT. 37. BEFORE PARTING, WE MAY DEAL WITH THE OBJECTION O F THE LOWER AUTHORITIES THAT THE ACTIVITY OF MONEY LENDING HAS NOT BEEN STA TED SPECIFICALLY IN THE RETURNS OF INCOME AS THE BUSINESS ACTIVITY. WHILE FACTUALL Y THE REVENUE MAY BE CORRECT IN ASSERTING THE AFORESAID, SO, HOWEVER, IT IS ALSO FACTUALLY EVIDENT THAT THE INCOME FROM ICDS HAS BEEN OFFERED BY THE ASSESSEE IN T HE PAST YEARS AS BUSINESS INCOME AND THE SAME HAS ALSO BEEN ASSESSED AS SUCH BY THE REVENUE AND SIMILAR SITUATION CONTINUES EVEN DURING T HE YEAR UNDER CONSIDERATION. THEREFORE, THE SAID OBJECTION OF THE LOW ER AUTHORITIES IS HYPER- TECHNICAL AND IS UNJUSTIFIED HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 38. IN THIS VIEW OF THE MATTER, THE ORDER OF THE COM MISSIONER OF INCOME-TAX (APPEALS) IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. THIS GROUND OF APPEAL IS ALLOWED. 39 . GROUND NO. 6 READS AS FOLLOWS : 6. THE LEARNED CIT(A) HAS FURTHER ERRED IN UPHOLDI NG DISALLOWANCE OF SUM OF RS. 2,93,33,002/- OUT OF THE PROVISION MADE TOWARD PROB ABLE CLAIM AGAINST THE APPELLANT BY THE DEPARTMENT OF TELECOMMUNICATIONS ( DOT). 35 AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND AND, THEREFORE, THE SAME IS DI SMISSED AS NOT PRESSED. 40. GROUND NO. 7 READS AS UNDER: 7. THE LEARNED CIT(A) HAS FURTHER ERRED IN : A. CONFIRMING EXCESS ALLOCATION OF CERTAIN EXPENSES WHILE WORKING U/S 80-IA WITH REFERENCE TO URSE UNIT II. DESCRIPTION AMOUNT (RS.)* REMARKS I. OUT OF TRAVELING EXPENSES I. LOCAL CONVEYANCE ON TRAVEL II. DIRECTORS TRAVELING ALLOWANCE III. TRAVEL SALES AIR / RAIL FARE IV. TRAVEL SALES HOTEL/ . DA V. TRAVELING OTHERS VI. TRAVEL THERE AIR-RAIL FARE VII. TRAVEL OTHER HOTEL / DA 1.53,113 38,091 3,15,796 4,35,465 5,20,941 2,49,229 2,27,681 19,40,316 CONFIRMED BY LEARNED CIT(A) AT RS. 8,00,000/- II MISCELLANEOUS EXPENSES I. PRINTING AND STATIONERY II. MISCELLANEOUS EXPENSES III. ENTERTAINMENT EXPENSES 12,86,927 4,82,932 2,23,459 CIT(A) CONFIRMED EXCESS ALLOCATION TO THE EXTENT OF RS. 8 LACS. CIT(A) CONFIRMED EXCESS ALLOCATION TO THE EXTENT OF RS. 4 LACS. CIT(A) ENHANCED THE ALLOCATION FURTHER BY RS. 1.50 LACS. III OTHER EXPENSES 1. COMMUNICATION EXPENSES 45,72,914 CIT(A) CONFIRMED EXCESS ALLOCATION TO THE EXTENT OF RS. 5 LACS. IV PAYMENT AND PROVISION FOR EMPLOYEES 30,00,000 CIT(A) CONFIRMED EXCESS ALLOCATION TO THE EXTENT OF RS. 10 LACS. *EXCESS ALLOCATION BY THE AO. B. CONFIRMING EXCESS ALLOCATION OF PERSONNEL TO THE EXTENT OF RS. 5 LACS WHILE WORKING RELIEF U/S 80-IA FOR PIMPRI UNIT II. C. UPHOLDING THE ACTION OF AO HOLDING THAT INCOME B Y WAY OF INTEREST OF RS. 20,71,51,909/- ON DEFERRED SALES TO DOT CANNOT BE C ONSIDERED TO BE PROFIT DERIVED BY THE INDUSTRIAL UNDERTAKING IN THE CONTEN T OF ALLOWING RELIEF U/S 80- IA. 36 41. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SIMILAR ISSUE WAS SUBJECT-MATTER OF CONSIDERATION BEFORE THE TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98, AND VIDE ORDE R DATED 30.3.2010 (SUPRA), OUR CO-ORDINATE BENCH HAS SET ASIDE THE ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE LEARNED DE PARTMENTAL REPRESENTATIVE DID NOT CONTROVERT THE FACTUAL MATRIX. 42. IN THESE CIRCUMSTANCES, WE FOLLOW THE PARITY OF REASON ING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA) AND SE T ASIDE THE CAPTIONED ISSUES TO THE FILE OF THE ASSESSING OFFICER TO BE ADJUDICATE D AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER D ATED 30.3.2010 (SUPRA). THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH THE DIR ECTIONS OF THE TRIBUNAL AND AS PER LAW. 43. GROUND NO. 8 IS AS UNDER: 8. THE LEARNED CIT(A) HAS FURTHER ERRED IN CONFIRM ING DISALLOWANCE OF RS. 1,38,010/- REPRESENTING EXPENSES ON FOREIGN TOUR OF DIRECTORS RELATIVE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER FOUND A SUM OF RS. 1.38,010/- WAS INCURRED ON ACCOUNT OF MRS. M. P. CHAHABRIA, RELATIVE OF THE DIRECTOR. THE ASSESSING OFF ICER HELD THAT SINCE THE ABOVE EXPENDITURE HAS BEEN INCURRED FOR THE RELATIVE S OF DIRECTOR, IT COULD NOT BE SAID TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, HE DISALLOWED THE SAID EXPENDITURE OF RS. 1,38,010/- AGAINST WHICH ASSESSEE WENT IN APPEAL BEFORE THE COMMISSION ER OF INCOME- TAX (APPEALS). 44. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS CONTENDED THAT THE EXPENSES WAS INCURRED FOR THE PURPOSE OF BUSINE SS. AS THE ASSESSEE FAILED TO PROVIDE ANY PROOF JUSTIFYING THE INCURRENCE OF THIS EXPENDITURE FOR THE PURPOSE OF BUSINESS, THE COMMISSIONER OF INCOME-TAX (APPE ALS) UPHELD THE 37 ACTION OF THE ASSESSING OFFICER AND THE ADDITION MADE WAS CONFIRMED. AGAINST THIS ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE IS IN APPEAL BEFORE US. 45. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE STANDS DECIDED AGAINST ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DE CISION OF OUR CO- ORDINATE BENCH DATED 30.3.2010 (SUPRA) IN ASSESSEES CASE F OR ASSESSMENT YEAR 1997-98. 46. AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ELEVANT ORDERS OF THE TRIBUNAL, WE FOLLOW THE PARITY OF REASONING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA) AND DECIDE THE ISSUE AGAINST TH E ASSESSEE. THIS GROUND IS ACCORDINGLY DISMISSED. 47. GROUND NO. 9 IS AS FOLLOWS: 9. THE LEARNED CIT(A) HAS FURTHER ERRED IN CONFIRM ING DISALLOWANCE OF RS.82,554/- AS SPECULATION LOSS THOUGH, IT IS REPRE SENTING FOREIGN EXCHANGE FLUCTUATION NOT ON ACCOUNT OF CANCELLATION OF ANY F OREIGN EXCHANGE CONTRACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER FOUND THAT THE LOSS ON EXCHANGE FLUCTUATION INCLUDED NE T LOSS OF RS 82,554/- ON ACCOUNT OF CANCELLATION OF POWER CONTRACTS FOR PURCHASE O F FOREIGN EXCHANGE. THE ASSESSEE WAS ASKED WHY THE LOSS BE NOT HELD AS SPECULATI ON LOSS IN TERMS OF SECTION 43(5) OF THE ACT. THE ASSESSEE SUBMITTED THAT THE ENTIRE LOSS WAS INCURRED FOR THE PURPOSE OF BUSINESS AND IT SHOULD BE AL LOWED AS A BUSINESS EXPENDITURE. THE ASSESSING OFFICER OBSERVED THAT THE SAME ISSUE WAS ALSO INVOLVED IN ASSESSMENT YEAR 1996-97 AND 1997-98 WHERE I T WAS HELD THAT THE LOSS ON CANCELLATION (FORECLOSING) OF FOREIGN EXCHANGE CONT RACTS WAS SPECULATION LOSS IN TERMS OF SECTION 43(5) OF THE ACT AND THE APPEAL OF THE ASSESSEE ON THIS ISSUE WAS DISMISSED BY THE COMMISSIONER OF INCOM E-TAX (APPEALS). AGAINST THIS VIEW OF THE ASSESSING OFFICER, ASS ESSEE FILED APPEAL 38 BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). THE CO MMISSIONER OF INCOME-TAX (APPEALS) FOLLOWING THE ORDER OF HIS PREDEC ESSOR FOR THE 1996-97 HELD THAT THE LOSS ON ACCOUNT OF CANCELLATION OF FOREIGN EXCHANGE CONTRACTS WAS SPECULATIVE LOSS AND ACCORDINGLY, THE ORDER OF THE AO DISALLOWING THE SUM OF RS. 82,554/- WAS CONFIRMED. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 48. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT SIMI LAR ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF OUR CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 2001-02 VIDE ITA NO 1440/PN/04 DATED 24.6.2011. THE LEARNE D DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE ABOVE FACT-SITUATION AND HAS NOT BROUGHT ANY CONTRARY DECISION TO OUR NOTICE. 49. AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ELEVANT ORDERS OF THE TRIBUNAL, WE FOLLOW THE PARITY OF REASONING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 24.6.2011 (SUPRA) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND IS ACCORDINGLY ALLOWED. 50. GROUND NO. 10 OF THE APPEAL IS AS FOLLOWS: 10. THE LEARNED CIT(A) HAS FURTHER ERRED IN NOT GR ANTING RELIEF U/S 80HHC AGAINST RECEIPTS LIKE INSURANCE CLAIMS, MISCELLANEOUS RECEI PTS, WRITE-BACK OF CREDIT BALANCES, DISCOUNT ON PURCHASES REPRESENTING BUSINESS INCOME WHILE APPLYING PROVISION OF EXPLANATION (BAA) OF SEC. 80HHC. THE ISSUE RAISED IN THIS GROUND IS AGAINST THE ACTION OF THE ASSESSING OFFICER IN TREATING INCOMES FROM INSURANCE CLAIMS, MISC. RECEIPTS, CREDIT BALANCES WRITTEN OFF, DISCOUNT ON PURCHASE, ETC. AS FORMI NG PART OF BUSINESS INCOME FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT CREDIT BALANCE A PPROPRIATED RS. 4,79,694/-, MISCELLANEOUS RECEIPTS RS. 54,28,088/-, INSURA NCE CLAIMS RS. 8,90,364/-, DISCOUNT ON PURCHASE RS. 4,57,429/- DID NOT HAVE ANY ELEMENT OF TURNOVER AND THE SAME DOES NOT HAVE ANY CONNECTION WI TH EXPORT ACTIVITY OF 39 THE ASSESSEE. HE ACCORDINGLY HELD THAT ABOVE RECEIPTS WER E COVERED BY EXPLANATION (BAA) TO SECTION 80HHC AND CONSEQUENTLY 90% OF THE ABOVE RECEIPTS WERE TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSES OF DETERMINING THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEES REPRESEN TATIVE SUBMITTED THAT NONE OF THESE RECEIPTS WERE COVERED BY EXPLANATION (BAA) TO SECTION 80HHC AND THEREFORE THEY SHOULD BE CONSIDERED AS PART OF BUSINESS INCOME AND 90% OF SUCH RECEIPTS SHOULD NOT BE EXCLUDED FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 51. THE COMMISSIONER OF INCOME-TAX (APPEALS), AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE, AFFIRMED THE VIEW OF THE ASSESSI NG OFFICER BY HOLDING AS FOLLOWS: 14.3 THE SUBMISSION HAVE BEEN CONSIDERED. THE AO HAS REFERRED TO BOARD CIRCULAR 621 DT. 19..2.1991 WHERE THE BOARD HAS CLA RIFIED THE AMENDMENT AND PROVISIONS OF EXPLN. (BAA) AND WHERE IT HAS BEEN NO TED THAT THE EXISTING FORMULA U/S 80HHC GAVE DISTORTED FIGURE OF EXPORT PROFITS WHEN RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST ETC. WHICH DID NOT HAVE ELEME NT OF TURNOVER WERE INCLUDED IN THE P&L ACCOUNT. THEREFORE BOARD CLARIFIED THAT PROFI T OF BUSINESS FOR THE PURPOSE OF SEC 80HHC WOULD NOT INCLUDE RECEIPTS BY WAY OF BROKERAG E COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATURE. EX PLANATION (BAA) PROVIDES AN ADHOC 10% CONCESSION IN GENERAL FOR THE REASON THAT THE P ART OF COMMON EXPENSES MIGHT HAVE BEEN INCURRED ON EARNING THESE INCOMES. THE DEDUCTION U/S 80HHC IS ALLOWABLE OUT OF BUSINES S PROFIT IN THE SAME PROPORTION AS EXPORT TURNOVER IS TO THE TOTAL TURNOVER. THESE SUM S WHICH HAVE BEEN CONSIDERED BUY THE AO UNDER EXPLN (BAA) TO SEC. 80HHC ARE NOT APPE ARING AS PART OF THE TOTAL TURNOVER HOWEVER THEY ARE PART OF THE BUSINESS PROF IT. IF THESE SUMS ARE INCLUDED IN THE BUSINESS PROFIT BUT NOT IN THE TOTAL TURNOVER I T WOULD GIVE DISTORTED FIGURE OF EXPORT PROFIT. IT WAS WITH THIS VIEW TO ELIMINATE THE DIS TORTED FIGURE OF EXPORT PROFIT THAT EXPLN. (BAA) WAS INTRODUCED AND WHICH HAS BEEN AMPLY CLARI FIED BY CBDTS CIR. 621 DT. 19.12.1991 THAT ALL THOSE WHICH ARE INCLUDED IN THE P&L ACCOUNT BUT DO NOT HAVE ELEMENT OF TURNOVER ARE TO BE EXCLUDED AS PER PROVI SIONS OF EXPLN. (BAA). EVEN IN THE CASE OF CIT VS. K. K. DOSHI & COMPANY 245 ITR 849 ( BOM) IT WAS HELD THAT THERE SHOULD BE DIRECT NEXUS BETWEEN PROFITS ON THE ONE H AND AND EXPORT ACTIVITY ON THE OTHER HAND. THE PROFIT EARNED BY THE ASSESSEE SHOU LD HAVE DIRECT NEXUS WITH THAT OF THE EXPORT ACTIVITIES. THESE RECEIPTS OR THE SUMS WHICH ARE INCLUDED INTO THE P&L ACCOUNT WHICH GOES TO INCREASE BUSINESS PROFITS OF APPELLANT HAVE NEXUS WITH THE EXPORT ACTIVITY OF THE APPELLANT. THEREFORE, IN VI EW OF EXPLANATION (BAA) SUCH PROFITS OF THE BUSINESS WHICH DO NOT FORM PART OF THE TOTAL TU RNOVER HAVE TO BE EXCLUDED AND MOREOVER THEY HAVE NO DIRECT NEXUS WITH THE EXPORT ACTIVITIES OF THE APPELLANT. THEREFORE, ACTION OF THE AO IS REDUCING 90% OF THE SUMS REFERRED ABOVE OUT OF PROFITS OF BUSINESS IN TERMS OF EXPLANATION (BAA) TO SECTIO N 80HHC IS CONFIRMED. THE APPEAL FAILS ON THIS GROUND. 40 52. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF PFIZER LTD. 330 ITR 62 (BOM), THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE MAY BE SET ASIDE AND RESTORED TO HIS FILE FOR FRESH ADJUDICATION. TO THIS PRAYER OF THE ASSESSEE, THE LEARNED DEPARTMENTAL RE PRESENTATIVE HAS NO SERIOUS OBJECTION. 53. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. W E FIND FORCE IN THE SUBMISSIONS OF THE ASSESSEE. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE AND RE STORE THE MATTER BACK TO HIS FILE WITH DIRECTIONS TO ADJUDICATE THE SAME AF RESH IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF PFIZER LTD. (SUPRA), AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 54. IN THE RESULT, APPEAL, VIDE ITA NO 961/PN/02 F ILED BY ASSESSEE IS PARTLY ALLOWED. 55. WE SHALL NOW TAKE UP CROSS-APPEAL OF THE REVENUE VID E ITA NO. 976/PN/2002 PERTAINING TO THE ASSESSMENT YEAR 1998-99. 56. GROUND NO. 1 OF APPEAL IS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN RESTRICTING DISALLOWANCE OF RS 1,00,000/- AS AGAINS T ADDITION MADE OF RS 11,28,150/-. THIS GROUND IS CONNECTED WITH GROUND NO. 4 OF ASSESSEES APPEAL VIDE ITA NO.961/PN/02, WHEREIN VIDE PARA 28 ABOVE, WE HA VE DISCUSSED AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE BY FOLLOWING OUR CO-ORDINATE BENCHS DECISION DATED 30.3.2 010 IN ITA NO 1014PN2000. IN VIEW OF THIS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 57. GROUND NOS. 2 & 3 READ AS UNDER: 41 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN DIRECTING TO ALLOW DEPRECIATION ON LEASED ASSET OF RS 16,81,087/- AND IN NOT APPRECIATING THE FACT THAT THE SAID CLAIM WA S MADE NOT IN THE INTEREST OF COMMERCIAL EXPEDIENCY BUT AN ATTEMPT TO UNDULY REDU CE TAX LIABILITY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING INTEREST OF RS 20,01,578/- FOR P URCHASE OF LEASED ASSET AND NOT APPRECIATING THE FACT THAT THE TRANSACTION OF L EASING WAS NOT A BONA FIDE BUT A DEVICE OF TAX AVOIDANCE. IT IS NOT ALLOWABLE IN VIEW OF THE RATIO OF SUPREME COURT IN THE CASE OF MCDOWEL & CO. V. CIT ( 14 ITR 148 (SC). THE ISSUES INVOLVED IN THE ABOVE GROUNDS ARE AGAINST TH E DISALLOWANCE OF DEPRECIATION ON LEASED ASSETS OF RS 16,81,087/- AND F INANCIAL COST OF RS 20,01,578/-. THE ASSESSING OFFICER FOUND THAT THE ASSESSE E HAD CLAIMED DEPRECIATION IN RESPECT OF LEASED ASSETS. FOR THE REASO N DISCUSSED IN EARLIER YEARS, THE DEPRECIATION OF RS 16,81,087/- WAS DISALLOWE D. THE ASSESSEE HAD INTEREST COST OF RS 20,01,578/- PERTAINING TO INTEREST PAYABLE ON THE OANS RAISD TO FINANCE THE PURCHASE OF THOSE ASSETS WHICH WERE BOUGHT FROM AND LEASED BACK TO FINOLEX INDUSTRIES LTD. THE ASSESSING OFFICER DISA LLOWED THE FINANCE COST OF RS 20,01,578/- BY FOLLOWING HIS DECISION FOR THE EARLIER ASSESSMENT YEARS. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEA LS) DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE BY FOLLOWING HIS ORDER FOR EARLIER ASSESSMENT YEAR 1997-98. 58. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SIMILAR ISSUE WAS SUBJECT-MATTER OF CONSIDERATION BEFORE THE TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98, AND VIDE ORDE R DATED 30.3.2010 IN ITA N0 1038/PN/2000, OUR CO-ORDINATE BENCH HAS SET A SIDE THE ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE AFO RESAID FACTUAL MATRIX. 59. IN THESE CIRCUMSTANCES, FOLLOWING THE PARITY OF REASO NING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA), WE-SET ASIDE THE CAPTIONED ISSUES TO THE FILE OF THE ASSESSING OFFICER TO DECIDE AFRESH KEEPING IN MIND THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 30 .3.2010 (SUPRA). THE 42 ASSESSING OFFICER SHALL AFFORD A REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH THE DIR ECTIONS OF THE TRIBUNAL AND AS PER LAW. THUS, ON THESE GROUNDS, THE RE VENUE SUCCEEDS FOR STATISTICAL PURPOSES. 60. GROUND NO. 4 READS AS FOLLOWS: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN ALLOWING RELIEF U/S 80IA AND IN DIRECTING TO ALLOCATE COMMON EXPENSES IN THE RATIO OF SALES. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF OUR CO- ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 1997-98 VIDE ITA NO 1038/PN/00 DATED 30.3.2010. THE LEARNED DEPARTMENT AL REPRESENTATIVE HAS NOT DISPUTED THE ABOVE FACT-SITUATION. 61. SINCE THE ISSUE IN THIS GROUND HAS BEEN A SUBJECT-MA TTER OF DISPUTE IN EARLIER YEAR, AND THE SAME HAS BEEN DECIDED BY THE TR IBUNAL IN FAVOUR OF THE ASSESSEE SINCE ASSESSMENT YEAR 1993-94 ONWARDS, AS NOTED IN TH E ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA), FOLLOWING THE PRECEDENT, WE HEREBY AFFIRM THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A PPEALS) AND THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 62. GROUND NO. 5 READS AS FOLLOWS: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW THE LD CIT (A) ERRED IN DIRECTING THE AO TO EXCLUDE SALES TAX AND EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC. THE ISSUE INVOLVED IN THIS GROUND IS WITH REGARD TO TR EATMENT OF SALES- TAX AND EXCISE DUTY AS A PART OF TOTAL TURNOVER FOR TH E PURPOSE OF CALCULATING DEDUCTION U/S 80HHC OF THE ACT. IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SUDARSHAN CHEMICAL INDUSTRIES LTD. 245 ITR 769 (BOM), THE COMMISSIONER OF INCOME-TAX (APPEAL S) DIRECTED THE ASSESSING OFFICER TO EXCLUDE SALES-TAX AND EXCISE DUTY COLLECT ED FROM THE 43 FIGURE OF TOTAL TURNOVER FOR CALCULATING DEDUCTION U NDER SECTION 80HHC OF THE ACT. 63. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF OUR CO- ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 1997-98 ORDER DATED 30.3.2010. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE ABOVE FACT-SITUATION. 64. AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ELEVANT ORDERS OF THE TRIBUNAL, WE FIND THAT THE TRIBUNAL FOR THE ASSESSMENT YEAR 1997-98 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LAXMI MACHINE WOR KS 290 ITR 667 (SC) WHEREIN IT IS HELD THAT EXCISE DUTY AND SALES-TAX ARE NOT INCLUDIBLE IN TOTAL TURNOVER FOR THE PURPOSES OF APPLYING THE FORMULA CO NTAINED IN SECTION 80HHC (3) OF THE ACT. ACCORDINGLY, WE DECIDE THE ISSUE IN FAVO UR OF THE ASSESSEE AND THE GROUND OF APPEAL RAISED BY THE REVENUE IS ACCORDING LY DISMISSED. 65. IN THE RESULT, ITA NO 976/PN/02 FILED BY THE REV ENUE IS PARTLY ALLOWED. 66. WE NOW TAKE UP ASSESSEES APPEAL, VIDE ITA NO 683/PN /03 FOR THE ASSESSMENT YEAR 1999-2000, WHEREIN GROUND OF APPEAL NO. 1 READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND N LAW THE LD CIT(A) ERRED IN: A. IN UPHOLDING THE ACTION THE AO IN DENYING THE S ET-OFF OF LOSS OF THE AMALGAMATING COMPANY VIZ. FINORAM SHEETS LTD. (FSL) FOR THE ASSESSMENT YEAR 1999-00 AGAINST THE TAXABLE INCOME OF THE APPE LLANT COMPANY FOR THE VERY SAME ASSESSMENT YEAR UNDER APPEAL FOR THE PERI OD 1 ST APRIL, 1998 TO 30 TH JUNE, 1998 COMPRISED IN THE RELEVANT PREVIOUS YEAR. B. NOT RECOGNIZING AND RESPECTING THE SANCTITY OF THE ORDER PASSED BY THE HON. BOMBAY HIGH COURT APPROVING THE AMALGAMATI ON OF FSL WITH THE APPELLANT COMPANY AND FURTHER CONCLUDING THAT, FIXI NG THE DATE OF AMALGAMATION WITH EFFECT FROM 1.4.1997 WAS MERELY A COLORABLE DEVICE DISREGARDING THE FACT THAT THE ENTIRE SCHEME OF AMA LGAMATION WAS APPROVED BY THE HIGH COURT IN TERMS OF SECTION 391 AND 394 O F THE COMPANIES ACT, 1956, WHICH PROVISIONS ENJOIN THE COURT TO TAKE INT O ACCOUNT, AMONG OTHERS, PUBLIC INTEREST BEFORE THE SCHEME OF AMALGAMATION I S SANCTIONED. 44 WE HAVE EXHAUSTIVELY DEALT WITH THIS GROUND IN ASSESSEE S APPEAL FOR THE ASSESSMENT YEAR 1998-99 AND FOR THE REASONS ASSIGNED T HEREIN, ASSESSEE IS LIABLE TO SUCCEED HEREIN ALSO. WE, THEREFORE, SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSI NG OFFICER TO REWORK THE LOSS OF FSL PERTAINING TO THE ASSESSMENT YEAR 1 999-2000 TO BE SET OFF AGAINST TAXABLE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THUS, ON THIS GROUND ASSESSEE SUCCEEDS. 67. GROUND NO. 2 READS AS FOLLOWS: 2 ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN: A. IN TREATING THE PROFIT ON SALE OF PROPERTY RS 1 3,60,887/- UNDER THE HEAD INCOME FROM BUSINESS INSTEAD OF CAPITAL GAI NS AS CLAIMED BY THE APPELLANT. B. NOT APPRECIATING AND THEREBY IGNORING THAT IN A PPELLANTS CASE IT WAS NOT ITS BUSINESS TO DEVELOP PROPERTY AND AN ISOLATED TRANSA CTION COULD NOT FORM PART OF THE TRADE OR BUSINESS ON THE BASIS OF ESTABLISHE D PRINCIPLES OF LAW. SO FAR AS GROUND NO. 2 IS CONCERNED, WE HAVE EXHAUSTIVE LY DEALT WITH A SIMILAR ISSUE BY WAY OF GROUND NO.2 IN ASSESSEES APPEAL F OR THE ASSESSMENT YEAR 1998-99 AND HELD THAT THE LOWER AUTHORITIES WER E JUSTIFIED IN TREATING THE IMPUGNED INCOME AS BUSINESS INCOME. FOLLOWING THE PARITY OF REASONING CONTAINED IN OUR ORDER OF ASSESSMENT YEAR 1998-99, HERE IN ALSO WE DECIDE THE ISSUE IN FAVOUR OF THE REVENUE AND ACCORDINGLY, THE GRO UND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 68. GROUND NO. 3 READS AS FOLLOWS: 3. THE LEARNED CIT(A) HAS FURTHER ERRED IN UPHOLDI NG THE DISALLOWANCE OF PRO RATA PROVISION MADE FOR PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES IN THE AMOUNT OF RS. 6,07,143/- THIS ISSUE IS COMMON WITH THE DISPUTE RAISED BY THE ASSESSE E BY WAY OF GROUND NO. 3 IN ITS APPEAL FOR ASSESSMENT YEAR 1998- 99, WHEREIN WE HAVE DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE BY 45 FOLLOWING THE DECISION OF OUR CO-ORDINATE BENCH IN ASSESSE ES CASE FOR ASSESSMENT YEAR 1997-98 VIDE ORDER DATED 30.3.2010 IN ITA NO 1014/PN/2000. ACCORDINGLY, ON SIMILAR PARITY OF REASO NING, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND IS THUS ALLOWED. 69. GROUND NO. 4 READS AS FOLLOWS: 4. THE LEARNED CIT(A)R ERRED IN DISALLOWING RS 50,0 00/- ON AD HOC BASIS ON ACCOUNT OF GIFT EXPENSES INCURRED BY THE APPELLANT (OUT OF RS 18,54,140/-) THIS ISSUE IS COMMON WITH GROUND NO. 4 OF ASSESSEES APPEAL F OR ASSESSMENT YEAR 1998-99, WHEREIN WE HAVE DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY FOLLOWING THE D ECISION OF OUR CO- ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 1997-98 VIDE ORDER DATED 30.3.2010 (SUPRA). ACCORDINGLY, BY FOLLOWING THE PRECEDENTS, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 70. GROUND NO. 5 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT (A) ERRED IN DISALLOWING RS 25,18,085/- REPRESENTING DEVALUATION IN THE VALUE OF CURRENT INVESTMENTS. THE DISPUTE IN THIS GROUND TAKEN BY THE ASSESSEE PERTAIN S TO A DISALLOWANCE OF RS 25,18,085/- WHICH REPRESENTED DEVALUATION IN THE VALUE OF INVESTMENTS ACQUIRED FROM A CONCERN WHICH HAD DEFAULTED IN THE REP AYMENT OF AN ICD THE ASSESSING OFFICER NOTICED THAT THE SAID CLAIM WAS ON ACCOUNT OF FALL IN THE VALUE OF SHARES OF BANK OF RAJASTHAN LTD., WHICH WERE ACQUIRED BY THE ASSESSEE AS A SECURITY AGAINST AN ICD ADVANCED TO BANGUR FI NANCE LTD. IN 1995. SINCE BANGUR FINANCE LTD. HAD DEFAULTED ON REPA YMENT, THE AFORESAID SHARES WERE APPROPRIATED AGAINST THE AMOUNT OUTSTANDING FROM BANGUR FINANCE LTD. AND THE BALANCE OF THE IRRECOVERABLE AMO UNT WAS WRITTEN-OFF AND CLAIMED AS A DEDUCTION IN THE ASSESSMENT YEAR 1998-99. T HE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT IT WA S A CAPITAL LOSS. AS PER THE 46 ASSESSING OFFICER, THE DEDUCTION CLAIMED IN THE ASSESSEMENT YE AR 1998-99 ON ACCOUNT IRRECOVERABLE AMOUNT OF BANGUR FINANCE LTD. WAS ALSO DISALLOWED AT THE TIME OF ASSESSMENT PROCEEDINGS FOR THE REASON THAT I T WAS IN THE NATURE OF A CAPITAL LOSS. THEREFORE, ACCORDING TO THE ASSESSING OFFI CER THE FINDING ON THIS ASPECT RECORDED IN THE ASSESSMENT ORDER FOR THE ASSESSMENT Y EAR 1998-99 WOULD ALSO BE APPLICABLE WHILE CONSIDERING THE IMPUGNED CLAIM OF LOSS ON ACCOUNT DEVALUATION OF AN INVESTMENT. IN THIS MANNER, T HE ASSESSING OFFICER HELD THE ASSESSEE INELIGIBLE FOR CLAIM OF DEDUCTION FOR L OSS ON ACCOUNT OF DEVALUATION OF INVESTMENT. THE CIT(A) HAS ALSO UPHELD THE STAND OF THE ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEF ORE US. 71. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ISSUE IS LINKED TO THE GROUND RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 1997-98 RELATING TO ITS CLAIM FOR DEDUCTION UNDER SECTIO N 36(1)(VII) OF THE ACT ON ACCOUNT OF THE AMOUNT WRITTEN AS IRRECOVERABLE FROM BAN GUR FINANCE LTD. IT IS ALSO POINTED OUT THAT EVEN IF ASSESSEE WAS NOT TO SUCCEED IN ITS GROUND FOR THE ASSESSMENT YEAR 1998-99, YET THE IMPUGNED CLAIM OF THE A SSESSEE IS PERMISSIBLE. FOR THIS, IT IS SUBMITTED THAT THE IMPUGNED INVESTMENTS HAVE BEEN REFLECTED IN THE BALANCE SHEET AS CURRENT INVESTMENTS A ND THAT THE SAME ARE AKIN TO A STOCK-IN-TRADE AS HAS BEEN APPRECIATED BY THE ACCOUNTING STANDARD (AS-13) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR ACCOUNTING FOR INVESTMENTS. IN TERMS OF THE SAID ACCOUNTI NG STANDARD, EVEN A CURRENT INVESTMENT IS TO BE VALUED AT THE LOWER OF COST OR MARKET VALUE, WHICH IS ALSO THE CASE WHILE VALUING AN ITEM OF STOCK-IN-TRADE. IN TERMS THEREOF, IT IS ARGUED THAT THE IMPUGNED LOSS IN THE DEVALUATION OF T HE VALUE OF THE CURRENT INVESTMENTS REPRESENTED BY THE SHARES OF BANK OF RAJASTH AN, IS A PERMISSIBLE DEDUCTION AND IN THIS REGARD RELIANCE HAS ALSO BEEN PLA CED ON THE JUDGMENT OF THE HONBLE SUPREME COURT CIT V WOODWARD GOVERNOR I NDIA P. LTD. (2009) 312 ITR 254 (SC). 47 72. ON THE OTHER HAND, THE LEARNED CIT-DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER AS WE LL AS THE COMMISSIONER OF INCOME-TAX (APPEALS) WERE JUSTIFIED IN DENYING THE IMPUGNED CLAIM FOR THE REASON THAT THE IMPUGNED INVEST MENTS WERE ONLY IN SUBSTITUTION OF AN ICD WHICH WAS CONSIDERED AS CAPITAL IN NATURE IN THE ASSESSMENT YEAR 1998-99 AND NOT AS A STOCK-IN-TRADE AND TH E LOSS ON ITS IR- RECOVERABILITY HAS BEEN DISALLOWED AS BEING CAPITAL IN NA TURE. THEREFORE, THE IMPUGNED LOSS IN THIS YEAR ALSO IS REQUIRED TO BE CO NSIDERED IN THE SAME LIGHT. 73. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ON THIS ASPECT. AS IS EVIDENT, THE DISPUTE EMANATES FROM THE ASSESSM ENT YEAR 1998-99 WHEREIN AN ICD ADVANCED TO BANGUR FINANCE LTD . HAS BEEN WRITTEN-OFF AS IRRECOVERABLE AFTER MAKING ADJUSTMENT FO R THE VALUE OF SECURITY AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF THE SHARES OF BANK OF RAJASTHAN LTD. THE DIMINUTION IN THE VALUE OF SUCH SHA RES AS ON 31.3.1999, BEING THE LAST DAY OF THE PREVIOUS YEAR CORRESPONDING T O THE ASSESSMENT YEAR 1999-2000, HAS BEEN CLAIMED AS A DEDUCTION WHILE COMPUTING THE TAXABLE INCOME. IN THE APPEAL OF THE ASSESSEE FOR ASSESSME NT YEAR 1998- 99 (SUPRA), IT HAS BEEN HELD BY US THAT THE ADVANCING O F ICD TO BANGUR FINANCE LTD. WAS IN THE COURSE OF BUSINESS CARRIED ON BY T HE ASSESSEE AND ACCORDINGLY, THE WRITE-OFF OF THE IRRECOVERABLE AMOUNT HAS BEEN HELD ELIGIBLE AS A DEDUCTION UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. IN THIS BACKGROUND OF THE MATTER, WE SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSI NG OFFICER TO CONSIDER THE SAME AND ALLOW THE IMPUGNED CLAIM OF THE A SSESSEE AS PER LAW. THUS, ON THIS GROUND, ASSESSEE SUCCEEDS. 74. GROUND NO. 6 READS AS FOLLOWS: 48 ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN REDUCING THE CLAIM OF TAX FREE INTEREST & TAX FR EE DIVIDEND BY RS 50,000/- ON THE ASSUMPTION THAT, PART OF THE ADMINISTRATION/OFFICE/ PERSONNEL COST IS ATTRIBUTABLE TO SUCH INCOME. THE ISSUE INVOLVED IN THIS GROUND IS WHETHER THE COMMI SSIONER OF INCOME-TAX (APPEALS) IS JUSTIFIED IN REDUCING THE CLAIM O F TAX FREE INTEREST AND TAX FREE DIVIDEND BY RS 50,000/- ON THE ASSUMPTION T HAT, PART OF THE ADMINISTRATION/OFFICE/PERSONNEL COST IS ATTRIBUTABLE TO SUCH INCOME. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAD RECEIVED INTERE ST OF RS 4,70,77,397/- AND DIVIDEND OF RS 24,61,835/-, WHICH W AS CLAIMED AS EXEMPTED INCOMES. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE FOR EARNING OF SUCH I NCOMES. THE ASSESSEE EXPLAINED THAT THE INVESTMENTS WHICH HAVE YIELDED TAX FREE INTEREST WERE MADE IN FINANCIAL YEAR 1994-95 WHEN THE ASSESSEE ISSUED GLOBAL DEPOSITORY RECEIPTS (GDR) AND RECEIVED A PREMIUM OF RS 252 CRORES. T HE INVESTMENT IN SHARES ON WHICH DIVIDENDS HAVE BEEN RECEIVED WERE GRADUA LLY ACQUIRED OUT OF OWN FUNDS AND, THEREFORE, NO EXPENSES WERE INCURRED FOR EARNING THE IMPUGNED EXEMPT INTEREST AND DIVIDEND INCOME. THE ASS ESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND ESTIMATED 5% OF GROSS RECEIPTS AS EXPENDITURE FOR EARNING THE SAID INCOMES AND ONLY 95% OF THE GROSS RECEIPTS WAS CONSIDERED AS TAX FREE. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) WHILE ASSAILING THE ORDER OF TH E ASSESSING OFFICER, ASSESSEE RELIED ON THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF GENERAL INSURANCE CORPORATION 254 ITR 203 (BOM) F OR THE PROPOSITION THAT THE ASSESSING OFFICER WAS NOT ENTITLED TO MAKE ANY APPORT IONMENT OF INDIRECT EXPENSES OF ADMINISTRATIVE NATURE FOR BEING SET-OFF AGA INST INCOME BY WAY OF INTEREST AND DIVIDENDS. THE COMMISSIONER OF INCOME-TAX ( APPEALS) RESTRICTED THE DISALLOWANCE TO RS 50,000/-. AGAINST THIS DISALLOWANCE OF RS 50,000/- ASSESSEE IS IN FURTHER APPEAL BEFORE US. NOTABLY, THE REV ENUE IS ALSO IN APPEAL 49 BEFORE US AGAINST THE RELIEF ALLOWED BY THE COMMISSIONE R OF INCOME-TAX (APPEALS), BY WAY OF GROUND NO. 6 IN ITA NO 718/PN/0 3. 75. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REFER RED TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V DCIT (2010) 328 ITR 81(BOM) AND SUBM ITTED THAT THE ASSESSEE WOULD BE SATISFIED IF THE MATTER BE RE-EXAMINE D BY THE ASSESSING OFFICER IN THE LIGHT OF THE SAID JUDGMENT. 76. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT SINCE THE ISSUE DID INVOLVE A SUBSTANTIAL AMOUNT, IT MAY NOT BE SET-ASIDE AND INSTEAD, THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R BE SUSTAINED. 77. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. T HE SUM AND SUBSTANCE OF THE DISPUTE IN THIS GROUND RELATES TO THE A PPLICATION OF SECTION 14A OF THE ACT, WHICH PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO AN I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THIS CA SE, BOTH THE AUTHORITIES BELOW HAVE ESTIMATED CERTAIN AMOUNT OF EXPENDITURE AS BEING RELATABLE TO THE EXEMPTED INCOMES, NAMELY, INTEREST AND DIVIDEND INCOME S, EARNED BY THE ASSESSEE. QUITE CLEARLY, THE SAID APPROACH OF THE LOWER AU THORITIES IS NOT IN LINE WITH THE SUBSEQUENT PRONOUNCEMENT OF THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. (SUPRA) AND IN THIS VIEW OF THE MATTER, WE FIND AMPLE FORCE IN THE PLEA OF THE ASSESSEE THAT THE ISSUE DESE RVES TO BE RE- EXAMINED BY THE REVENUE AUTHORITIES IN THE LIGHT OF THE SAID JUDGMENT. THEREFORE, WE SET-ASIDE THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) AND RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER TO BE ADJUDICATED AFRESH IN LIGHT OF THE JUDGMENT OF HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD (SUPRA). NEEDLESS TO SAY, THE A SSESSING OFFICER SHALL CARRY OUT THE AFORESAID EXERCISE AFTER ALLOWING TH E ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSING OFFICER SHALL CONSIDER THE 50 SUBMISSIONS PUT-FORTH BY THE ASSESSEE AND THEREAFTER DECIDE IN ACCORDANCE WITH LAW. THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATI STICAL PURPOSES. 78. GROUND NO. 7 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT (A) ERRED IN: A) CONFIRMING EXCESS ALLOCATION OF CERTAIN EXPENSES WHILE WORKING RELIEF U/S 80IA W.E.T. URSE UNIT II: B) CONFIRMING EXCESS ALLOCATON OF PERSONNEL COST TO THE EXTENT OF RS 5 LACS WHILE WORKING RELIEF U/S 80IA FOR PIMPRI UNIT-II. THIS GROUND IS SIMILAR TO GROUND OF APPEAL NO. 7 RAISE D BY THE ASSESSEE IN ASSESSMENT YEAR 1998-99, WHEREIN BY FOLLOWING THE REASONING GIVEN IN THE EARLIER ORDER OF THE TRIBUNAL DATED 30 .3.2010 (SUPRA), WE HAVE SET ASIDE THE ISSUES TO THE FILE OF THE ASSESSING OFFICER TO B E DECIDED AFRESH IN THE LIGHT OF DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 30.3.2010 (SUPRA). ACCORDINGLY, IN THE INSTANT YEAR ALSO THE IMPUGNED ISSUE IS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH SAME DIRECTIONS, WHO SHALL AF FORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THEN DECI DE THE ISSUE IN ACCORDANCE WITH THE DIRECTIONS OF THE TRIBUNAL AND AS PER LAW. THUS, ON THIS GROUND, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 79. IN THE RESULT, ASSESSEES APPEAL, VIDE ITA NO 683/P N/03 IS PARTLY ALLOWED. 80. WE SHALL NOW TAKE UP REVENUES CROSS APPEAL IN ITA NO . 718/PN/03 FOR ASSESSMENT YEAR 1999-2000. 81. GROUND NO. 1 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DIRECTING TO ALLOW SET OFF OF BROUGHT FORWARD LOSSE S FROM FINORAM SHEETS LTD FROM 1.7.98 TO 31.3.99 ON PRO RATA BASIS. THIS GROUND IS CONNECTED WITH THE OUTCOME OF GROUND NO . 1 OF ASSESSEES CROSS-APPEAL IN ITA NO 683/PN/03 FOR THE ASSESSMENT YEAR 1999- 51 2000. BY THE ORDER OF EVEN DATE, WHILE DISPOSING OF GROUND NO. 1 OF ASSESSEES APPEAL IN ITA NO. 683/PN/03, WE HAVE ALLOWED THE STAND OF THE ASSESSEE AND FOR THAT REASON, WE MODIFY THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THE IMPUGNED GROUND AND DIRECT THE ASSESSING OFFICER TO MODIFY THE ORDER ACCORDINGLY. THIS GROUND I S ACCORDINGLY DISPOSED- OFF. 82. GROUND NO. 2 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE ON ACCOUNT OF GIF TS AND PRESENTATION TO RS 50,000/- AS AGAINST DISALLOWANCE OF RS 9,27,070/- M ADE BY THE AO. THIS GROUND IS CONNECTED WITH GROUND NO. 1 OF REVENUE S APPEAL VIDE ITA NO. 976/PN/02, WHEREIN WE HAVE DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY FOLLOWING OUR CO-ORD INATE BENCHS DECISION DATED 30.3.2010 IN ITA NO 1014/PN/2000. IN VIEW OF THIS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 83. GROUND NOS. 3 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING INTEREST TAKEN FOR PURCHASE OF LEASED ASS ET AND NOT APPRECIATING THE FACT THAT THE TRANSACTION OF LEASING WAS NOT A BONA FIDE BUT A DEVICE OF TAX AVOIDANCE, IN VIEW OF THE RATIO OF SUPREME COURT IN THE CASE OF MCDOWEL & CO. V. CIT (14 ITR 148 (SC). THIS GROUND IS SIMILAR TO GROUND NO. 3 OF REVENUES AP PEAL FOR ASSESSMENT YEAR 1998-99, WHEREIN THE ORDER OF THE COMMI SSIONER OF INCOME- TAX (APPEALS) HAS BEEN SET-ASIDE AND THE MATTER RESTORED TO THE FILE OF THE ASSESSING OFFICER TO BE ADJUDICATED AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 30.3.2010 (SUPRA). FOLLOWING THE PRECEDENTS, IN THE INSTANT YEAR ALSO, THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS SET-ASIDE AND THE MATTER RESTORED TO THE FI LE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH TH E DIRECTIONS OF THE TRIBUNAL AND AS PER LAW, OF-COURSE AFTER AFFORDING A R EASONABLE OPPORTUNITY OF 52 BEING HEARD TO THE ASSESSEE. THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 84. GROUND NO. 4 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LDCIT(A) ERRED IN DIRECTING TO RESTRICT THE EXPENSES INCURRED FOR EAR NING TAX FREE INCOME TO RS 50,000/- WITHOUT APPRECIATING THE FACT THJAT ASSESSEE HAS NO T MAINTAINED ANY SEPARATE ACCOUNT IN ORDER TO EARN SUCH TAX FREE INCOME. THIS GROUND IS SIMILAR TO GROUND NO. 6 OF ASSESSEES APPEA L IN ITA NO 683/PN/03, WHEREIN WE HAVE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND REMITTED THE MATTER BACK TO THE FILE OF T HE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE RATIO OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA). FOL LOWING THE SAME, WE REMIT THIS MATTER TO THE FILE OF THE ASSESSING OFFICER W ITH SIMILAR DIRECTIONS. THIS GROUND IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 85. GROUND NO. 5 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN ALLOWING DEDUCTION U/S 80IA AND IN DIRECTING TO ALL OCATE COMMON EXPENSES THIS GROUND IS SIMILAR TO GROUND NO. 4 OF REVENUES APP EAL FOR ASSESSMENT YEAR 1998-99, WHEREIN THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, FOLLOWING THE PRECEDENT, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, AND ACCO RDINGLY THE GROUND IS DISMISSED. 86. IN THE RESULT, REVENUES APPEAL, VIDE ITA NO 718 /PN/03, IS PARTLY ALLOWED. 87. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO 1305/PN/03 RELATING TO ASSESSMENT YEAR 2000-01. 88. GROUND NO. 1 READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND N LAW THE LD CIT(A) ERRED IN DISALLOWING SET OFF OF CARRIED FORWARD BUS INESS LOSS OF ERSTWHILE FINORAM SHEETS LTD., THE AMALGAMATING COMPANY, CLAI MED BY THE APPELLANT U/S 72A OF THE IT ACT. 53 THIS GROUND IS CONNECTED TO GROUND NO. 1 OF ASSESSEES APP EAL IN ITA NO. 961/PN/02 FOR ASSESSMENT YEAR 1998-99, WHICH HAS SINCE BEING ALLOWED IN FAVOUR OF THE ASSESSEE. THUS, THE ISSUE NOW RAISED BY T HE ASSESSEE IN THIS APPEAL IS RENDERED ACADEMIC AND IS TREATED AS DISMISSED FO R STATISTICAL PURPOSES. 89. GROUND NO. 2 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 14,78,844/- REPRESENTING ACTUAL PAYM ENT OF LEAVE ENCASHMENT. THE FACTS, IN BRIEF, ARE THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, BY WAY OF ITS LETTER DATED 17.1.2003, ASSE SSEE RAISED THE CLAIM REGARDING ACTUAL PAYMENT OF LEAVE ENCASHMENT OF RS 14, 78,844/-. HOWEVER, THE ASSESSING OFFICER FAILED TO TAKE INTO ACCOUNT THE SAID CLAIM OF THE ASSESSEE. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE SUBMITTED THAT THE CLAIM REPRESENTED ACTUAL PAYME NT OF LEAVE ENCASHMENT TO THE EMPLOYEES DURING THE PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR 2000-01 ON ACCOUNT OF ACCUMULATED LEAVE OF THE EMPLOYEES OF THE EARLIER YEARS. THE COMMISSIONER OF INCOME-TAX ( APPEALS) ALSO REJECTED THE CLAIM OF THE ASSESSEE BY OBSERVING AS FOLLOWS: 5.3 THE SUBMISSIONS HAVE BEEN CONSIDERED. THE APP ELLANTS CONSISTENT STAND HAS BEEN TO CLAIM THE LEAVE ENCASHMENT ON PROVISION BASIS, WHICH HAS BEEN ALLOWED IN AY 99-00. EVEN THOUGH IN THE EARLIER YEARS SUCH CLAIM HAS BEEN DISALLOWED BY THE AO AND THE MATTER IS BEFORE THE ITAT, IN VIEW OF TH E DECISION IN BHARAT EARTH MOVERS THE ASSESSEES CLAIM IS TO BE ALLOWED ON THE BASIS OF PROVISION MADE FOR THE YEAR BASED ON MERCANTILE SYSTEM AND NOT ON ACTUAL PAYMEN T BASIS. ONLY IF THE ITAT PUNE HOLDS IN FAVOUR OF THE ASSESSEE FOR EARLIER YEARS T HE CONSEQUENTIAL RECTIFICATION COULD BE MADE FOR THIS YEAR. TILL SUCH TIME THE CLAM OF T HE APPELLANT IS REJECTED. 90. BEFORE US, THE ASSESSEE RAISED A LIMITED PLEA TO TH E EFFECT THAT IN CASE THE CLAIM OF THE ASSESSEE IN ASSESSMENT YEAR 1997-98 BASED ON THE PROVISION MADE IN THE ACCOUNT BOOKS IS REJECTED BY THE ASSESSING OFFICE R, HE BE DIRECTED 54 THAT THE IMPUGNED CLAIM BE CONSIDERED IN THIS ASSESSMENT Y EAR ON THE BASIS OF ACTUAL PAYMENT OF LEAVE ENCASHMENT TO THE EMPLOYEES. 91. TO THE AFORESAID PLEA OF THE ASSESSEE, THE LEARNED CIT-DEPARTMENTAL REPRESENTATIVE HAD NO SERIOUS OBJECTION. 92. WE HAVE EXAMINED THE PLEA SET UP BY THE ASSESSEE WI TH REGARD TO A SUM OF RS 14,78,844/- REPRESENTING ACTUAL PAYMENT OF LE AVE ENCASHMENT TO EMPLOYEES WHICH PERTAIN TO THE ACCUMULATION OF LEAVE O F THE EARLIER YEARS. THE ASSESSEE MADE THIS CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS THE OTHERWISE CONSISTENT CLAIM MADE IN THE RETURN OF I NCOME WAS BASED ON THE PROVISIONS MADE IN THE ACCOUNT BOOKS AS PER MERCANTILE BASIS. IN THE ASSESSMENTS OF THE PAST YEARS, THE SAID CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. IT HAS BEEN EXPLAINED THAT IN TH E ASSESSMENT YEAR 1997-98 THE TRIBUNAL HAS SET-ASIDE THE ISSUE REGARDING THE ALLOWABILITY OF ASSESSEES CLAIM ON THE BASIS OF THE PROVISION, BACK TO THE FI LE OF THE ASSESSING OFFICER. IN CASE SUCH CLAIM OF THE ASSESSEE IS ULTIMAT ELY ALLOWED BY THE ASSESSING OFFICER, THE DISPUTE IN THE PRESENT GROUND W OULD BE RENDERED REDUNDANT. IN CASE, THE CLAIM IS NOT SO ALLOWED ULTIM ATELY, THEN THE ASSESSING OFFICER IS DIRECTED TO CONSIDER AND ALLOW THE CLAIM OF THE ASSESSEE ON ACTUAL PAYMENT BASIS AS OTHERWISE IT WOULD LEAD TO AN ANOMALOU S SITUATION FOR THE ASSESSEE. IT IS FURTHER CLARIFIED THAT OUR AFORESAID DIRECT ION SHALL OPERATE ONLY IF THE CLAIM OF THE ASSESSEE IN THE PAST YEARS ON THE BASIS O F THE PROVISION MADE IN THE ACCOUNT BOOKS IS FOUND TO BE ULTIMATELY UNSUSTAIN ABLE. THEREFORE, IN THIS VIEW OF THE MATTER, THE GROUND OF APPEAL RAISED BY T HE ASSESSEE IS ACCORDINGLY DISPOSED OF. 93. GROUND NO. 3 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT (A) ERRED IN DISALLOWING OF PRO RATA PROVISION MADE FOR PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES IN THE AMOUNT OF RS 1,02,191/-. 55 THIS ISSUE IS SIMILAR TO GROUND NO. 3 OF ASSESSEES APPEAL FO R ASSESSMENT YEAR 1998-99, WHEREIN WE HAVE DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY FOLLOWING THE D ECISION OF OUR CO- ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 1997-98 VIDE ORDER DATED 30.3.2010 IN ITA NO 1014/PN/2000. ACCORDINGLY, FOLLOWING THE PRECEDENTS, IN THIS YEAR ALSO THE ISSUE IS DECIDED IN FAVOU R OF THE ASSESSEE AND ACCORDINGLY, THE GROUND IS ALLOWED. 94. GROUND NO. 4 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 68,23,425/- REPRESENTING LOSS INCURR ED ON CANCELLATION OF FORWARD FOREIGN CURRENCY CONTRACT. THIS ISSUE IS SIMILAR TO GROUND NO. 9 OF ASSESSEES APPEAL FO R ASSESSMENT YEAR 1998-99, WHEREIN WE HAVE DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY FOLLOWING THE D ECISION OF OUR CO- ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 2001-02 DATED 24.6.2011 (SUPRA). ACCORDINGLY, WE FOLLOW THE REASONIN G GIVEN THEREIN AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND I S ACCORDINGLY ALLOWED. 95. GROUND NO. 5 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN REDUCING THE CLAIM OF TAX FREE INTEREST AND TAX FRE E DIVIDEND BY RS 50,000/- ON THE ASSUMPTION THAT, PART OF THE ADMINISTRATION/OFFICE/ PERSONNEL COST IS ATTRIBUTABLE TO SUCH INCOME. THIS GROUND IS SIMILAR TO GROUND NO. 6 OF ASSESSEES APPEA L IN ITA NO 683/PN/03 FOR THE ASSESSMENT YEAR 1999-00, WHEREIN WE HAVE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THE POINT AND REMI TTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE AFRE SH IN ACCORDANCE WITH THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ AND BOYCE (SUPRA). WE HOLD ACCORDINGLY HERE ALSO AND REMIT THE MATTER BACK TO THE 56 FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. T HIS GROUND IS DISPOSED OF ACCORDINGLY. 96. GROUND NO. 6 READS AS FOLLOWS 6: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN: (A) DISALLOWING A SUM OF RS 74,64,140/- BEING THE L ICENCE FEE TOWARDS SAP-R3 MODULE (ERP) SYSTEM) ON THE GROUND THAT IT IS CAPIT AL EXPENDITURE. (B) HOLDING THAT (WITHOUT PREJUDICE TO GROUND A A BOVE) DEPRECIATION SHOULD BE ALLOWED ON THE AFORESAID EXPENDITURE @ 25% AS AGAIN ST THE APPELLANTS CLAIM THAT THE CORRECT RATE OF DEPRECIATION IS 60%. SO FAR AS GROUND NO. 6(A) IS CONCERNED, THE FACTS, IN BRI EF, ARE THAT THE ASSESSEE CLAIMED AN EXPENDITURE OF RS 74,64,140/- BEING L ICENSE FEES TOWARDS SAP-R3 MODULE WHICH WAS DISALLOWED BY THE ASSESSIN G OFFICER TREATING IT AS A CAPITAL EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE IMPUGNED EXPENDITURE WHICH REQUIRED REPLACEMENT OF TH E EARLIER SOFTWARE SYSTEM BY A NEW SOFTWARE, RESULTED IN ACQUISITION OF AN E NDURING BENEFIT BY THE ASSESSEE AND, THEREFORE, THE EXPENDITURE WAS CAPITAL IN N ATURE ON WHICH HE ALLOWED DEPRECIATION @ 60%. IN APPEAL, THE COMMISSIONE R OF INCOME-TAX (APPEALS) UPHELD THE STAND OF THE ASSESSING OFFICER, BUT A T THE SAME TIME DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION AT TH E RATE OF 25% ONLY. NOT BEING SATISFIED, THE ASSESSEE IS IN APPEAL BEFORE US. 97. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE CONT ENDED THAT THE ISSUE IS NOW FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. M/S R AYCHEM RPG LTD., VIDE ITA NO 4176 OF 2009 DATED 4.7.2011, A COPY OF WHICH I S PLACED ON RECORD. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 98. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF RIVAL PARTIES. IN THIS CASE, THE ASSESSEE CLAIMED DEDUCTION FOR AN AMOUNT OF RS 74 ,64,140/- ON ACCOUNT OF SOFTWARE AND CONSULTANCY CHARGES. IT WAS NOTICED B Y THE ASSESSING 57 OFFICER THAT IN THE ACCOUNT BOOKS THE ASSESSEE HAD CLAIMED I T AS A CAPITAL COST WHEREAS FOR THE PURPOSES OF INCOME-TAX, THE SAID EXPEND ITURE WAS CLAIMED AS REVENUE EXPENDITURE. THE EXPENDITURE RELATED TO IMP LEMENTATION OF AN ENTERPRISES RESOURCES PLANNING (ERP PACKAGE). THE ASSESSEE JU STIFIED ITS CLAIM FOR REVENUE EXPENDITURE ON THE GROUND THAT THE SOFTWARE WAS INTENDED TO IMPROVE THE QUALITY AND EFFICIENCY OF THE INFORMATION SYSTEMS. THE ASSESSING OFFICER FAULTED THE CLAIM OF THE ASSESSEE ON TWO GROUND S. FIRSTLY, ACCORDING TO HIM, THE CAPITALIZATION OF SUCH COST IN THE ACCOUNT BOOKS BY THE ASSESSEE HIMSELF DID NOT JUSTIFY THE CLAIM OF REVENUE EXPENDITU RE FOR THE PURPOSES OF INCOME-TAX. SECONDLY, ACCORDING TO THE ASSESSING OFFICER, T HE IMPROVEMENT IN THE QUALITY AND EFFICIENCY OF THE INFORMATION SYSTEM IN TENDED BY THE SOFTWARE WILL ENSURE A LONG TERM BENEFIT TO THE ASSESSEE COMPANY AND THEREFORE, IT WAS TO BE SEEN AS A CAPITAL EXPENDITURE. 99. IN SO FAR AS THE NATURE OF THE EXPENDITURE IS CONCER NED, IN A SOMEWHAT SIMILAR SITUATION, THE HONBLE HONBLE BOMBAY HIGH CO URT IN THE CASE OF M/S RAYCHEM RPG LTD. MUMBAI (SUPRA), HAS APPROVED THE ORDE R OF THE TRIBUNAL IN HOLDING THE SAME TO BE A REVENUE EXPENDITURE. IN THE CASE OF M/S RAYCHEM RPG LTD. (SUPRA), THE TRIBUNAL FOUND THAT ERP PACKAGE FACILITATED ASSESSEES TRADING OPERATIONS AND ENABLED THE MANAGEMENT TO COND UCT BUSINESS MORE EFFICIENTLY. THUS, THE SAID EXPENDITURE WAS ALLOWED AS A REVENUE EXPENDITURE. IN THE PRESENT CASE, THERE IS NO DISPUTE TO THE ASSERTIO N OF THE ASSESSEE THAT THE NEW SOFTWARE WAS INTENDED TO BENEFIT THE QUALITY AND EFFICIENCY OF THE INFORMATION SYSTEMS AND IN THAT VIEW OF THE MATTER, IT IS EVIDENT THAT THE SOFTWARE WOULD FACILITATE CARRYING ON THE BUSINESS MORE E FFICIENTLY OR MORE PROFITABLY AND THE SAME CANNOT BE RECKONED AS IN THE NA TURE OF THE PROFIT MAKING APPARATUS ITSELF. THEREFORE, WE ARE UNABLE TO A CCEPT THE PROPOSITION OF THE REVENUE THAT THE EXPENDITURE IS CAPITAL IN NATURE . THE ARGUMENT OF THE ASSESSING OFFICER THAT THE EXPENDITURE WILL GIVE LONG T ERM BENEFIT TO THE 58 ASSESSEE IS NOT DETERMINATIVE OF THE EXPENDITURE BEING CAPITAL IN NATURE BECAUSE IT IS QUITE CLEAR THAT SUCH BENEFIT IS IN THE REV ENUE FIELD, I.E. RESULTING IN CONDUCT OF BUSINESS MORE PROFITABLY OR MORE EFFICIENTLY. IT IS QUITE WELL-SETTLED THAT EVEN WHERE BENEFIT OF AN EXPENDITURE ACCRUES OVE R A LONG PERIOD OF TIME, YET IT CANNOT BE CONSTRUED AS A CAPITAL EXPENDITURE SO LONG AS THE BENEFIT ACCRUES IN THE REVENUE FIELD AND FOR THE SAID PROPOSITIO N, A GAINFUL REFERENCE CAN BE MADE TO THE JUDGMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF EMPIRE JUTE CO. V CIT 120 ITR 1 (SC). 100. IN SO FAR AS THE OTHER OBJECTION OF THE ASSESSING OF FICER THAT THE AMOUNT HAS BEEN CAPITALIZED IN THE ACCOUNT BOOKS IS CONCERNED, TH E SAME IN OUR VIEW IS NOT RELEVANT TO DECIDE THE NATURE OF THE EXPENDITU RE WHICH IS TO BE DECIDED ON THE BASIS OF THE PREVAILING LEGAL POSITION. 101. IN VIEW OF THE AFORESAID DISCUSSION, WE THEREFORE SE T-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE AS A REVENUE EXPENDITURE. THER EFORE, ON THIS GROUND ASSESSEE SUCCEEDS. 102. GROUND NO. 6(B) WAS NOT PRESSED BY THE ASSESSEE AND , THEREFORE, IT STANDS DISMISSED AS SUCH. 103. GROUND NO. 7 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 1,47,636/- BEING 5% OF GROSS MISCEL LANEOUS EXPENSES I.E. RS 29,52,686/- ON THE GROUND THAT IT IS A NON-BUSINESS EXPENDITURE U/S 37(1). AT THE TIME OF HEARING, THIS GROUND WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND, THEREFORE, THE SAME STANDS DISMISSED AS NOT PRESSED. 104. GROUND NO. 8 READS AS FOLLOWS: 59 ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 1,00,000/- ON AD HOC BASIS ON ACCOUN T OF GIFT EXPENSES INCURRED BY THE APPELLANT (OUT OF RS 30,81,009/-). THIS GROUND IS SIMILAR TO GROUND NO. 4 IN ASSESSEES APPE AL FOR ASSESSMENT YEAR 1998-99 VIDE ITA NO 961/PN/02, WHEREIN FOLLOWING THE REASONING GIVEN IN THE EARLIER ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA), WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCOR DINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE GROUND IS ALL OWED. 105. GROUND NO. 9 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 6,63,880/- OUT OF TOTAL EXPENSES ON RUNNING AND MAINTENANCE OF AIRCRAFT ON THE GROUND THAT THE AIRCRAFT IS USED FOR PERSONA L USE BY THE DIRECTORS AND EMPLOYEES OF THE COMPANY. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR WAS A SUBJECT-MATTER OF CONSIDERATION IN ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2001-02 IN ITA NO 1440/PN/04 AND OUR CO-ORDINATE BEN CH HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS VIDE ITS ORDER DATED 24.6.2011. AS A CONSEQUENCE, FOLLOWING THE PRECED ENT, WE SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO BE ADJUDICATED IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL CONTAINED IN ITS ORDER DATE D 24.6.2011 (SUPRA) (SUPRA). THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTI CAL PURPOSES. 106. GROUND NO. 10 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN : (A) CONFIRMING EXCESS ALLOCATION OF CERTAIN EXPENSE S WHILE WORKING RELIEF U/S 80IA W.R.T. URSE II: (B) CONFIRMING EXCESS ALLOCATION OF PERSONNEL COST TO THE EXTENT OF RS 5 LACS WHILE WORKING RELIEF U/S 80IA FOR PIMPRI UNIT-II. THIS GROUND IS SIMILAR TO GROUND NO. 7 IN ASSESSEES APPE AL FOR ASSESSMENT YEAR 1998-99 VIDE ITA NO 961/PN/02, WHEREIN FOLLOWING THE 60 REASONING GIVEN IN THE EARLIER ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA), WE HAVE SET ASIDE THE ISSUES TO THE FILE OF THE ASSESSING OF FICER WITH CERTAIN DIRECTIONS. HEREIN-ALSO, WE SET ASIDE THE ABOVE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING IT AFRESH IN ACCORDANCE WIT H THE DIRECTIONS GIVEN IN THE ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA) . THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 107. GROUND NO. 11 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD CIT(A) ERRED IN INCLUDING THE SALE OF SCRAP IN THE TURN OVER WHILE WORKING RELIEF U/S 80HHC. AT THE TIME OF HEARING, THIS GROUND WAS NOT PRESSED AN D, THEREFORE, THE SAME STANDS DISMISSED AS SUCH. 108. IN THE RESULT, APPEAL OF THE ASSESSEE, VIDE ITA NO 1305/PN/03, IS PARTLY ALLOWED. 109. WE SHALL NOW TAKE UP REVENUES CROSS APPEAL VIDE ITA NO 1331/PN/03 FOR ASSESSMENT YEAR 2000-01. 110. GROUND NO. 1 OF THE APPEAL IS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD CIT (A) ERRED IN DIRECTING TO ALLOW CLAIM OF DEDUCTION OF RS 42,50,000/- ON ACCOUNT OF PREMIUM ON REDEMPTION OF DEBENTURES, WHEN N O SUCH CLAIM WAS MADE BY THE ASSESSEE IN ITS ORIGINAL RETURN OF INCOM E FILED U/S 139(1) THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF PREMIUM OF RS 42,50,000/- WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT SUCH A CLAIM WAS MADE ONLY DURING THE ASSESSMENT PROCEEDINGS AND NEITHER I T WAS MADE IN THE ORIGINAL RETURN OF INCOME FILED UNDER SECTION 139(1) A ND NOR ANY REVISED RETURN OF INCOME WAS FILED UNDER SECTION 139(5) OF THE ACT. HOW EVER, THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THIS TECHN ICAL OBJECTION OF THE ASSESSING OFFICER IS NOT SUSTAINABLE AND PROCEEDED TO CONSIDER THE ISSUE ON 61 MERITS. THE COMMISSIONER OF INCOME-TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION OF RS 42,50,0 00/- ON ACCOUNT OF PREMIUM ON REDEMPTION OF DEBENTURES ON PAYMENT BASIS. THE COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER HELD THAT IN CASE THE T RIBUNAL HELD THAT THE PREMIUM ON DEBENTURES WAS TO BE ALLOWED ON PROVISION B ASIS, THEN THE CLAIM OF DEDUCTION ON PAYMENT BASIS WOULD STAND REVERSED. 111. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE DEFENDED THE ORDER OF THE ASSESSING OFFICER BY PLACING RELIANCE ON THE SAME. ON THE CONTRARY, THE LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT THE CLAIM OF THE ASSESSEE HAS BEEN CORRECTLY ENTERTAINED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN VIEW OF THE JUDGMENT OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF CIT V. JAI PARABOLIC SPRINGS LTD 306 ITR 42 (DEL). 112. WE HAVE CONSIDERED THE RIVAL STANDS AND FIND NO IN FIRMITY ON THE PART OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN ENTERTAININ G THE CLAIM OF THE ASSESSEE WITH REGARD TO A SUM OF RS 42,50,000/- ON ACCOUNT OF PREMIUM ON REDEMPTION OF DEBENTURES, ON ACTUAL PAYMENT BASIS. IN THE PAST YEARS, ASSESSEE HAD CLAIMED EXPENDITURE OF PREMIUM ON REDEMPTIO N OF DEBENTURES, BY WAY OF A PROVISION IN THE ACCOUNT BOOKS ON A PRO RATA BASIS. THE ASSESSING OFFICER DID NOT ALLOW SUCH CLAIM AND, THEREFORE, IN THE INSTANT YEAR DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE MADE A CLAIM FOR AL LOWABILITY OF PREMIUM ON REDEMPTION OF DEBENTURES, ON ACTUAL PAYME NT BASIS. THE ASSESSING OFFICER FAULTED THIS CLAIM ON THE GROUND THAT I T WAS NOT CONTAINED IN THE ORIGINAL RETURN OF INCOME FILED UNDER SECTION 139( 1) OF THE ACT AND NO REVISED RETURN WAS ALSO FILED MAKING SUCH CLAIM. BEFORE U S, THE LEARNED CIT- DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SUCH CLAIM COU LD ONLY HAVE BEEN MADE IN THE RETURN OF INCOME AND NOT OTHERWISE. THE C OMMISSIONER OF INCOME-TAX (APPEALS) CONSIDERED THE BACKGROUND OF THE CLAI M AND ALSO NOTICED THAT A SIMILAR CLAIM ON IDENTICAL BASIS WAS ALLOWED BY TH E ASSESSING OFFICER 62 HIMSELF IN THE ASSESSMENT FOR ASSESSMENT YEAR 1999-2000 AN D ALSO BY HIS PREDECESSOR COMMISSIONER OF INCOME-TAX (APPEALS) FOR ASSES SMENT YEAR 1994-95. IN OUR VIEW, THERE IS NO FETTERS ON THE POWE RS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) TO ENTERTAIN SUCH CLAIM HAVING REGA RD TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE RATIO OF THE JUDGME NT OF THE HONBLE DELHI IN THE CASE OF JAI PARABOLIC SPRINGS LTD (SUPRA), R ELIED UPON BY THE ASSESSEE BEFORE US, SUPPORTS ACTION OF THE COMMISSIONER OF IN COME-TAX (APPEALS). THEREFORE, WE HEREBY AFFIRM THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASPECT AND THE REVENUE HAS T O FAIL. 113. IN SO FAR AS THE MERITS IS CONCERNED, THE COMMISSIONE R OF INCOME-TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO ADD BACK THE SUM OF RS 1,02,191/- DEBITED TO THE PROFIT & LOSS ACCOUNT AS A PROVISION AND I NSTEAD ALLOW THE DEDUCTION FOR RS 42,50,000/- ON ACTUAL PAYMENT BASIS. TH E COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER OBSERVED THAT IN CASE THE T RIBUNAL WERE TO ALLOW THE ASSESSEES PLEA FOR DEDUCTION ON THE BASIS OF THE PROVI SIONS MADE, THEN HIS DIRECTION ALLOWING DEDUCTION ON PAYMENT BASIS WOULD STAND REVERSED. ON THIS ASPECT, THE LEARNED CIT-DEPARTMENTAL REPRESENTATIV E POINTED OUT THAT IN THE PAST YEARS THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM ON THE BASIS OF THE PROVISION AND, THEREFORE, THE DIRECTION OF THE COMMISSI ONER OF INCOME-TAX (APPEALS) TO ALLOW THE CLAIM ON PAYMENT BASIS SHOULD BE REVERSED. IN OUR VIEW, THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) I TSELF IS QUITE SPEAKING ON THIS ASPECT TO THE EFFECT THAT DEDUCTION ON PAYMENT BASIS IS TO BE ALLOWED ONLY IN CASE THE ASSESSEES CLAIM FOR ALLOWANCE ON THE BASIS OF A PROVISION IS NOT UPHELD. AS A RESULT, WE THEREFORE AFFIRM THE ORDE R OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE GROUND OF APPEAL RAISED B Y THE REVENUE IS DISMISSED. 114. GROUND NO. 2 READS AS FOLLOWS: 63 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING TO ALLOW THE CLAIM OF RS 57, 89,285/- ON ACCOUNT OF PREMIUM ON FORWARD FOREIGN EXCHANGE CONTRACTS. THE DISALLOWANCE OF RS 57,89,285/- BEING PREMIUM ON F ORWARD FOREIGN EXCHANGE CONTRACTS WAS MADE BY THE ASSESSING OFFICER ON THE G ROUND THAT SUCH PREMIUM REPRESENTING THE FORWARD COVER RATE AND SPO T RATE AVAILED ON THE DATE OF BOOKING WAS A CAPITAL EXPENDITURE. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE IMPUGNED EXPENSES WE RE REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF ACQUIRING RAW MATERIAL AND THE SAID EXPENDITURE WAS NOT INCURRED FOR ACQUIRING ANY CAPITAL ASSET OR ANY OTHER ENDURING BENEFIT OF CAPITAL NATURE. IN THIS VIEW OF T HE MATTER, THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEING AGGRIEVED, REVENUE IS IN APPEAL BEFOR E US. 115. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTA TIVE ASSAILED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND SUPPORT ED THE ORDER OF THE ASSESSING OFFICER BY PLACING RELIANCE UPON THE SAME. ON TH E OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE FINDINGS O F THE COMMISSIONER OF INCOME-TAX (APPEALS). 116. WE HAVE CONSIDERED THE RIVAL CLAIMS ON THIS ASPECT. F ROM THE ORDERS OF THE AUTHORITIES BELOW AN UNDISPUTED FACTUAL POSITION WH ICH EMERGES IS TO THE EFFECT THAT THE IMPUGNED EXPENDITURE TOWARDS PREMIUM ON FOREIGN EXCHANGE CONTRACTS RELATES TO THE IMPORT OF RAW MATERIAL. EVEN BEFORE US, THE SAID FACTUAL POSITION CONTINUES TO HOLD AS NO COGENT MATERIAL HAS BEEN LED BY THE REVENUE TO THE CONTRARY. IN THIS BACKGROUND OF THE MATT ER, NO FAULT CAN BE FOUND WITH THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN TREATING THE EXPENDITURE AS REVENUE EXPENDITURE. THE COMMISSION ER OF INCOME-TAX (APPEALS) HAS ALSO RECORDED A FACTUAL FINDING IN PARA 7. 3 OF HIS ORDER TO THE EFFECT THAT ALL THE FORWARD COVER CONTRACTS IN QUESTION H AVE BEEN HONOURED 64 WITHOUT CANCELLATION, FOR MAKING PAYMENTS FOR PURCHASE OF RAW MATERIAL. THEREFORE, CONSIDERING THE FACTUAL SITUATION IN THE INST ANT CASE, WE HOLD THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) CORRECTLY REVERSE D THE ORDER OF THE ASSESSING OFFICER TREATING THE EXPENDITURE AS A CAPITAL E XPENDITURE. IN THE RESULT, ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEA LS) IS HEREBY AFFIRMED AND THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISM ISSED. 117. GROUND NO. 3 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DIRECTING TO RESTRICT THE EXPENSES INCURRED OR EARN ING TAX FREE INCOME TO RS 50,000/- WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAS NOT MAINTAINED ANY SEPARATE ACCOUNT IN ORDER TO EARN SUCH TAX FREE INCOME. THIS GROUND IS SIMILAR TO GROUND NO. 5 OF ASSESSEES APPEA L IN ITA NO 1305/PN/03 FOR THE ASSESSMENT YEAR 2000-01, WHEREIN WE HAVE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THE POINT AND REMI TTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE AFRE SH IN ACCORDANCE WITH THE GUIDELINES GIVEN BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ AND BOYCE (SUPRA). WE HOLD ACCORDINGLY HERE ALSO AND RE MIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTI ONS. THIS GROUND IS DISPOSED OF ACCORDINGLY. 118. GROUND NO. 4 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF MISCELLA NEOUS EXPENSES TO 5% OF SUCH EXPENSES. IN CONNECTION WITH THE ABOVE GROUND OF APPEAL, THE BA CKGROUND IS THAT THE ASSESSING OFFICER DISALLOWED A SUM OF RS 2,95,270/- BE ING 10% OF MISCELLANEOUS EXPENSES ON THE GROUND THAT THE SAME COUL D NOT BE FULLY VERIFIED. THE COMMISSIONER OF INCOME-TAX (APPEALS) CON SIDERED IT REASONABLE TO RESTRICT THE DISALLOWANCE TO 5% OF THE EXPENSE, AGAIN ST WHICH THE REVENUE IS IN APPEAL BEFORE US. 65 119. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTA TIVE ASSAILED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DEFENDE D THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE LEARNED COUNSEL FOR THE ASSE SSEE DEFENDED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 120. HAVING CONSIDERED THE DISCUSSION IN THE ORDERS OF THE AUTHORITIES BELOW, WE FIND NO REASONS TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) AS THE SAME IS FAIR AND REASONABLE IN REST RICTING THE DISALLOWANCE TO 5% OF THE EXPENSE, FOR THE REASONS STATED THEREIN. AS A RESULT, WE DISMISS THE GROUND RAISED BY THE REVENUE. 121. GROUND NO. 5 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE ON ACCOUNT OF GIF TS AND PRESENTATION TO RS 1,00,000/- AS AGAINST DISALLOWANCE OF RS 15,40,505/ - MADE BY THE AO. THIS GROUND IS CONNECTED WITH GROUND NO. 8 OF ASSESSEES CROSS - APPEAL IN ITA NO 1305/03 FOR ASSESSMENT YEAR 2000-01, WHEREIN THE SAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. AS A CONSE QUENCE, THIS CONNECTED GROUND OF THE REVENUE STANDS DISMISSED. 122. GROUND NO. 6 READS AS FOLLOWS: 6 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN ALLOWING DEDUCTION U/S 80IA AND IN DIRECTI NG TO ALLOCATE COMMON EXPENSES. THIS GROUND IS SIMILAR TO GROUND NO. 4 OF REVENUES APP EAL IN ITA NO 976/PN/02 FOR ASSESSMENT YEAR 1998-99, WHEREIN WE HAV E DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY F OLLOWING THE DECISION OF OUR CO-ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 199 7-98 VIDE ITA NO 1038/PN/00 DATED 30.3.2010. HEREIN ALSO, WE FOLLOW THE PARITY OF REASONING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 3 0.3.3010 (SUPRA) AND 66 DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND I S ACCORDINGLY DISMISSED. 123. GROUND NO. 7 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DELETING THE INTEREST CHARGED U/S 115P OF RS 8,49,8 62/-. THE FACTS AS EMERGING FROM THE ASSESSMENT ORDER ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT DURING THE ANNUAL GENERAL MEETING, ASSESSEE COMPANY DECLARED INTERIM DIVIDEND OF RS 25,75,34,018/- @ RS 7.50 PER EQUITY SHARE WHICH WAS DIST RIBUTED BY THE COMPANY IN MAY 2000 ON WHICH TAX @ 10% UNDER SECTION 11 5-0 OF THE ACT WAS PAYABLE BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICE R, ASSESSEE FAILED TO PAY THE TAX WITHIN THE PRESCRIBED TIME AND, THEREFORE, BY VIRTUE OF SECTION 115-P OF THE ACT, INTEREST BECAME CHARGEABLE. HE ACCORDINGLY CHARGED INTEREST OF RS 8,59,862/- UNDER SECTION 115-P OF THE AC T. 124. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX ( APPEALS), IT WAS CONTENDED BY THE ASSESSEE THAT PRIMARILY THE EVENT OF DE CLARATION AND DISTRIBUTION OF DIVIDEND TOOK PLACE AFTER THE CLOSE OF PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH WAS EVIDENT FROM THE FACTS DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ITSE LF. IT WAS ALSO SUBMITTED THAT THERE WAS THUS NO DELAY AND EVEN OTHERW ISE ON MERITS ALSO, NO INTEREST WAS CHARGEABLE. IT WAS FURTHER CONTENDED THAT CH ARGING OF INTEREST UNDER SECTION 115-P CANNOT FORM PART OF THE ASSESSMENT PR OCEEDINGS UNDER SECTION 143(3) OF THE ACT. AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETED THE CHA RGING OF INTEREST UNDER SECTION 115-P OF THE ACT BY HOLDING AS UNDER: 16.3 THE SUBMISSIONS HAVE BEEN CONSIDERED. IT IS E VIDENT FROM THE ORDER OF THE AO ITSELF THAT ONLY IN THE MEETING ON 1.4.00 THE DIREC TORS APPROVED THE PAYMENT OF DIVIDEND AND THE DATE OF 14 DAYS AS PRESCRIBED IN S ECTION 115-O STARTED FROM 1.4.00. 67 THEREFORE, THIS EVENT OF DECLARATION OF DIVIDEND AN D PAYMENT OF DIVIDEND FALLS IN NEXT A.Y I.E. A.Y 01-02 RELEVANT TO PREVIOUS YEAR 00-01. THEREFORE, CHARGEABILITY OF INTEREST U/S 115P COULD BE RELEVANT ONLY FOR AY 01-02 AND IT IS NOT RELEVANT FOR THIS YEAR. THEREFORE THE CLAIM OF THE APPELLANT IS ALLOWED AND INTEREST OF RS 89,49,862/- U/S 115P IS DELETED. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 125. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTA TIVE ASSAILED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASP ECT BY PLACING RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ON THE O THER HAND, LEARNED COUNSEL FOR THE ASSESSEE, BESIDES REITERATING THE SUBMISSION S AS MADE BEFORE THE ASSESSING OFFICER, RELIED ON THE ORDER OF THE COMMI SSIONER OF INCOME-TAX (APPEALS). 126. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. I N OUR CONSIDERED OPINION, THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN COMING TO A FACTUAL FINDING THAT THE EVENT OF DECLARAT ION OF DIVIDEND AND PAYMENT OF DIVIDEND FELL FOR CONSIDERATION IN THE ASSESS MENT YEAR 2001-02 AND NOT IN THE YEAR UNDER CONSIDERATION AND THEREFORE, QU ESTION OF CHARGEABILITY OF INTEREST UNDER SECTION 115-P OF THE ACT, IF ANY, WOULD ARISE ONLY IN THE ASSESSMENT YEAR 2001-02. WE, THEREFORE, DO NOT FIND ANY GROUND TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPE ALS) ON THIS ASPECT. WE HEREBY AFFIRM HIS ORDER AND, REVENUE FAILS ON THIS GROUND. 127. GROUND NO. 8 IS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD CIT (A) ERRED IN DIRECTING TO EXCLUDE EXCISE DUTY OF RS 71,25,46,168 /-AND SALES TAX OF RS 28,42,38,297/- FROM THE TOTAL TURNOVER FOR THE PURP OSE OF DEDUCTION U/S 80HHC. THIS GROUND IS SIMILAR TO GROUND NO. 5 OF REVENUES AP PEAL VIDE ITA NO 976/PN/02 FOR ASSESSMENT YEAR 1998-99 WHEREIN BY FO LLOWING THE DECISION OF OUR CO-ORDINATE BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 1997-98 ORDER DATED 30.3.2010 (SUPRA), WE HAVE DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, FOLLOWING THE PARIT Y OF REASONING GIVEN IN THE ORDER OF THE TRIBUNAL DATED 30.3.2010 (SUPRA), W E DECIDE THE ISSUE IN 68 FAVOUR OF THE ASSESSEE AND THE GROUND OF THE REVENUE IS ACCORDINGLY DISMISSED. 128. IN THE RESULT, REVENUES APPEAL IN ITA NO 1331/P N/03 IS PARTLY ALLOWED. 129. WE NOW TAKE UP ASSESSEES APPEAL FOR ASSESSMENT YEAR 2 003-04, VIDE ITA NO 1157/PN/07. 130. GROUND NO. 1 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 33,65,663/- TOWARDS LIQUIDATED DAMA GES BEING THE AMOUNT REPRESENTING SHORT RECOVERY FROM THE CUSTOMERS. AMO NG OTHERS, THE CIT(A) ERRED IN OBSERVING THAT THE APPROPRIATE EVIDENCE WAS NOT FIL ED IN THE COURSE OF PROCEEDINGS. THE FACTS, IN BRIEF, ARE THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS 33,65,663/- ON ACCOUNT OF LIQUIDATED DAMAGES. ON BEING ASKED TO EXPLAIN, ASSESSEE STATED THAT THE LIQUIDATED DAM AGES DEBITED TO PROFIT & LOSS ACCOUNT REPRESENTED RATE DIFFERENCE RESUL TING INTO LESSER RECOVERY AND THAT THE ENTIRE AMOUNT OF LIQUIDATED DA MAGES PERTAINED TO SALES INVOICES WHICH WERE CHARGED TO TAX. THE ASSESSING OFFICER R EJECTED THE PLEA OF THE ASSESSEE ON THE GROUND THAT ASSESSEE COMPANY DID NOT FILE ANY EVIDENCE TO SHOW HOW THE DIFFERENCES WERE CALCULATED AND WHAT WAS THE CONDITION THAT WAS LAID DOWN IN THE SALE AGREEMENTS EXECUTED AND HOW T HE RATE DIFFERENCE HAD ARISEN. HE ACCORDINGLY DISALLOWED THE CLAIM OF DEDUCTI ON OF RS 33,65,663/- AS LIQUIDATED DAMAGES. THE ASSESSING OFFICER ALSO REJECTED THE ALTERNATIVE PLEA OF THE ASSESSEE THAT THE SAME SHOULD BE ALLOWED AS BAD DEBTS ON THE GROUND THAT IN THE SCHEDULE 13 OF ITS ANNUAL ACCOUNTS, NO FIGURE HAD BEEN MENTIONED AGAINST AMOUNTS WRITTEN-OFF. ACCORDING TO HI M, SINCE THE AMOUNT HAD NOT ACTUALLY BEEN WRITTEN-OFF AS BAD DEBT, THE CLA IM WAS LIABLE TO BE REJECTED. IN APPEAL, THE ASSESSEE CLAIMED BEFORE THE COM MISSIONER OF INCOME-TAX (APPEALS) THAT SIMILAR CLAIM WAS ALLOWED BY H IS PREDECESSOR IN THE 69 ASSESSEES CASE FOR THE ASSESSMENT YEAR 2002-03. HOWEVER, THE COMMISSIONER OF INCOME-TAX (APPEALS) OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH ANY DETAILS BEFORE HIM ALSO AND, THEREFORE, ACCORDING TO HIM, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING TH E CLAIM OF THE ASSESSEE. THE COMMISSIONER OF INCOME-TAX (APPEALS), THEREFO RE, CONFIRMED THE DISALLOWANCE OF RS 33,65,663/-. BEING AGGRIEVED, A SSESSEE IS IN FURTHER APPEAL BEFORE US. 131. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONFINED HIS ARGUMENTS TO THE EFFECT THAT IMPUGNED AMOUNT WAS ALLOW ABLE AS A DEDUCTION IN TERMS OF SECTION 36(1)(VII) OF THE ACT AS BAD DEBTS WRI TTEN-OFF. IN THIS REGARD, A REFERENCE WAS MADE TO PAGES 1 TO 7 OF THE PAPER BOOK W HICH CONTAIN THE DETAILS OF THE LIQUIDATED DAMAGES AMOUNTING TO RS 33,6 5,663/-. IT IS SUBMITTED THAT THE SAME RELATES TO VARIOUS SHORT RECOVERIES FROM T HE DEPARTMENT OF TELECOMMUNICATIONS, VIZ. MAHARASHTRA CIRCLE, KERALA C IRCLE, UTTAR PRADESH CIRCLE, GUJARAT CIRCLE, ETC. BY REFERRING TO THE DETAI LS, IT IS SOUGHT TO BE EXPLAINED THAT FOR CERTAIN BILLS THE AMOUNTS HAD BEEN SHORT RECOVERED AND THE SAME HAVE BEEN DEBITED TO THE ACCOUNT HEAD LIQUIDATED DAMAGES AND SUCH LIQUIDATED DAMAGES HAVE BEEN CLAIMED AS A DEBIT IN THE PROFIT & LOSS ACCOUNT. IN THIS CONNECTION, OUR ATTENTION HAS BEEN INVITED TO S CHEDULE 13 TO THE PROFIT & LOSS ACCOUNT WHICH CONTAINS THE ACCOUNT HEAD LIQUIDATED DAM AGES, COPIES OF WHICH HAVE BEEN PLACED ON RECORD. IT WAS, THEREFORE, CO NTENDED THAT THE ASSESSEE SATISFIES ALL THE CONDITIONS PRESCRIBED UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT INASMUCH AS THE IMPUGNED A MOUNT REFLECTS SHORT RECOVERIES ON VARIOUS SALE INVOICES RAISED AND THE AMOUNTS HAD ACTUALLY BEEN WRITTEN-OFF IN THE BOOKS OF ACCOUNT BY DEBITING TO THE HEAD LIQUIDATED DAMAGES. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RE LIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) IN SUPPORT OF THE CLAIM. 70 132. ON THE OTHER HAND, THE LEARNED CIT-DEPARTMENTA L REPRESENTATIVE HAS POINTED OUT THAT DEBITING OF THE EXPENSE HEAD LIQUI DATED DAMAGES TO THE PROFIT & LOSS ACCOUNT DOES NOT AMOUNT TO WRITE-OFF AS CONTEMPLATE D UNDER SECTION 36(1)(VII) OF THE ACT AND THEREFORE THE CLAIM OF THE ASSESSEE IS NOT JUSTIFIED. 133. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. T HE AMOUNTS IN QUESTION WERE CLAIMED TO BE SHORT RECOVERIES FROM CUSTOME RS. THE COMMISSIONER OF INCOME-TAX (APPEALS) IN PARA 6.3 OF HIS ORDER AGREED WITH THE ASSESSEE IN PRINCIPLE THAT SHORT RECOVERIES FROM CUSTOMERS WA S AN ALLOWABLE DEDUCTION. HOWEVER, HE DENIED THE CLAIM PRIMARILY ON THE PLEA THAT THE ASSESSEE COMPANY COULD NOT FILE ANY EVIDENCE AS TO HOW THE SHORT RECOVERIES ARE CALCULATED AND WHAT WERE THE RELEVANT CONDITIONS O F THE AGREEMENT WHICH GAVE RISE TO SUCH SHORT RECOVERIES. IN THIS CONNECTION, WE H AVE CONSIDERED THE DETAILS OF THE SHORT RECOVERIES WHICH ARE PLACED IN THE PAPER BOOK AT PAGES 1 TO 7. IT HAS ALSO BEEN ASSERTED THAT THE SAID DETAILS WER E PART OF THE RECORD OF THE LOWER AUTHORITIES. A SINGULAR FACT WHICH IS EMERGING FROM THE RECORD IS THAT THE IMPUGNED AMOUNTS REPRESENT SHORT RECOVERIES FROM VAR IOUS GOVERNMENT CUSTOMERS. THE FACTUM OF THE ASSESSEE NOT HAVING RECOVERED SUCH AMOUNTS IS NOT AT ALL DISPUTED BY THE LOWER AUTHORITIES AT ANY STAGE. IT IS ALSO NOT DISPUTED THAT THE AMOUNTS RECOVERABLE WERE ON ACCOUNT OF SALE I NVOICES RAISED BY THE ASSESSEE FOR SUPPLIES MADE TO SUCH CUSTOMERS. UNDER THESE CIRCUMST ANCES, IN OUR VIEW, THE SAME WOULD PARTAKE THE CHARACTER OF A B AD DEBT WITHIN THE MEANING OF SECTION 36(1)(VII) OF THE ACT. EVEN IF THE MANNER OF CALCULATING THE SHORT RECOVERIES FOR EACH BILL HAS NOT BEEN BROUGHT OUT ON RECORD, YET THE SAME IS NOT FATAL TO THE FACTUAL INFERENCE THAT THE SHORT R ECOVERIES ARE ON ACCOUNT OF SALE INVOICES RAISED BY THE ASSESSEE ON ITS CUSTOMERS. WITH R EGARD TO THE OBJECTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE DEBIT UNDER THE ACCOUNT HEAD OF LIQUIDATED DAMAGES IN THE PROFIT & L OSS ACCOUNT DOES NOT AMOUNT TO A WRITE-OFF AS CONTEMPLATED UNDER SECTION 36( 1)(VII) OF THE ACT, THE 71 SAME, IN OUR VIEW IS DEVOID OF MERIT. IT IS QUITE CLEAR THAT THE AMOUNTS DUE FROM THE STATED CUSTOMERS ARE NO LONGER SHOWN AS OUTSTANDING IN THE ACCOUNT BOOKS AS THE SAME HAVE BEEN CHARGED TO PROFIT & LOSS ACCOU NT UNDER THE HEAD LIQUIDATED DAMAGES. THEREFORE, IN SUM AND SUBSTA NCE THE AMOUNTS HAVE BEEN WRITTEN-OFF AND WOULD QUALIFY THE CONDITION PRE SCRIBED UNDER SECTION 36(1)(VII) R.W.S 36(2) OF THE ACT OF A BAD DEBT WRIT TEN-OFF, AND SUCH WRITE-OFF OF A DEBT AS IRRECOVERABLE QUALIFIES TO BE DEDUCTIBLE UNDER SECTION 36(1)(VII) IN TERMS OF THE JUDGMENT OF THE HONBLE SUPREME COURT I N THE CASE OFF TRF LTD (SUPRA). FOR ALL THE ABOVE REASONS WE UPHOLD THE PLEA OF THE ASSESSEE AND THE GROUND IS ACCORDINGLY ALLOWED. 134. GROUND NO. 2 IS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 16,36,787/- REPRESENTING BUY-BACK EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER MADE DISALLOWANCE OF THE EXPENDITURE CLAIMED BY THE ASSE SSEE OF RS 16,36,787/- REPRESENTING BUY-BACK EXPENSES ON THE GROUN D THAT IT WAS CLASSIFIED AS CAPITAL EXPENDITURE IN THE REPORT OF TAX AUDITOR, EVEN THOUGH ASSESSEE HAD CLAIMED THIS EXPENDITURE ON REVENUE ACCOUNT I N THE RETURN OF INCOME. 135. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX ( APPEALS), IT WAS CONTENDED BY THE ASSESSEE THAT SINCE THE EXPENDITURE WAS IN CURRED NOT FOR AUGMENTATION OR EXPANSION OF THE CAPITAL BASE OF THE COMPANY, THE EXPENDITURE INCURRED WAS ON REVENUE ACCOUNT. RELIANCE W AS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD 225 ITR 792 (SC). THE C OMMISSIONER OF INCOME-TAX (APPEALS) DID NOT FIND ANY MERIT IN THE SUB MISSIONS OF THE ASSESSEE. ACCORDING TO THE COMMISSIONER OF INCOME-TAX (APPEA LS), SINCE IN 72 THE CASE OF THE ASSESSEE THE EXPENDITURE INCURRED RELATE D TO THE CAPITAL BASE OF THE COMPANY, THE SAME HAD TO BE TREATED AS CAPITAL EXPENDITURE, AS CLASSIFIED BY THE AUDITORS OF THE ASSESSEE-COMPANY. 136. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HA S PLACED RELIANCE N THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SELAN EXPLORATION TECHNOLOGY LTD. 188 TAXMAN 1 (DEL.), WHE REIN THE EXPENSES INCURRED FOR BUY-BACK OF SHARES WERE ALLOWED AS REVENUE EXPENDITURE. 137. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL RE PRESENTATIVE, APPEARING FOR THE REVENUE, HAS DEFENDED THE DISALLOWA NCE BY PLACING RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 138. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. T HE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SELAN EX PLORATION TECHNOLOGY LTD. (SUPRA) PRESSED INTO SERVICE BY THE ASSESSEE, IN OUR VIEW, CL EARLY COVERS THE CONTROVERSY IN FAVOUR OF THE ASSESSEE. IN THE CASE BEFORE THE HONBLE HIGH COURT, ASSESSEE HAD INCURRED CERTAIN EXPENDITURE FOR BUY -BACK OF ITS SHARES WHICH WAS DISALLOWED BY THE REVENUE AS CAPITAL EXPENDITU RE. THE HONBLE HIGH COURT, AFTER CONSIDERING THE RATIO OF THE HONB LE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. (SUPRA) AND BROOKE BOND INDIA L TD V. CIT 225 ITR 798 (SC), HELD AS UNDER: IT IS CLEAR FROM THE AFORESAID JUDGMENTS THAT A FI NE DISTINCTION IS MADE BY THE SUPREME COURT IN CLASSIFYING THE EXPENDITURE UNDER TWO CATEGORIES:- (A) WHEN THE EXPENSE INCURRED RELATES TO THE ISSUE OF FRESH SHARES, WHICH LEADS TO AN INFLOW OF FRESH FUNDS INTO THE COMPANY, SUCH EXPENDITURE IS TO BE TREATED AS CAPITAL EXPENDITURE. (B) ON THE OTHER HAND, WHERE NO SUCH FLOW OF FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, THE EXPENDITURE INCURRED WOULD BE REVENUE EXPENDITURE, AS IN SUCH A CASE THE COMPANY WOULD NOT ACQUIRE BENEFIT OR ADD ITION OF ENDURING NATURE. IN THE PRESENT CASE, CONSULTANCY FEE FOR ADVISORY S ERVICES WAS PAID BY THE ASSESSEE- COMPANY FOR BUYBACK OF SHARES. INSTEAD OF INCREASE IN THE SHARE CAPITAL, IT WAS GOING TO RESULT IN THE DECREASE IN FUNDS WITH THE BUYBACK OF THE SHARES. IN THESE CIRCUMSTANCES, THE TRIBUNAL RIGHTL Y HELD THAT THE ASSESSEE HAD NOT ACQUIRED THE BENEFIT OR ADDITION OF ENDURING NA TURE BECAUSE AFTER THE BUYBACK, BENEFIT OR ADDITION OF ENDURING NATURE WOULD NOT RI SE AS CAPITAL EMPLOYED HAD, IN FACT, GONE DOWN. THE EXPENDITURE INCURRED HAD NOT R ESULTED INTO BRINGING INTO EXISTENCE ANY ASSET. THEREFORE, IT WAS RIGHTLY HELD TO BE AN EXPENSE OF REVENUE NATURE. THE CONTENTION OF LEARNED COUNSEL FOR THE REVENUE T HAT WITH LESSER CAPITAL DIVIDEND IN FUTURE PAYABLE SHALL BE LESS AND, THERE FORE, IT SHALL BE TREATED AS A 73 BENEFIT OF ENDURING NATURE CANNOT BE ACCEPTED. WE F URTHER FIND THAT IN THESE CIRCUMSTANCES THE TRIBUNAL RIGHTLY HELD THAT SUCH A N EXPENDITURE WAS ALLOWED UNDER SECTION 37 OF THE ACT AS EXPENSE INCURRED FOR BUSINESS PURPOSE IN THE FOLLOWING MANNER: 15. ONCE WE DECIDE THAT THE IMPUGNED EXPENDITURE I S NOT CAPITAL IN NATURE, WE HAVE TO SEE ITS ALLOWABILITY UNDER SECTION 37. IN T HIS REGARD, WE FIND THAT THE EXPENSES WERE INCURRED BY THE ASSESSEE COMPANY FOR COMPLIANCE OF SEBI GUIDELINES WITH REGARD TO BUYBACK OF SHARES. THE BU YBACK OF SHARES IS STATED TO BE FOR THE PURPOSE OF PROVIDING AN EXISTING OPPORTU NITY TO THE EXISTING SHAREHOLDERS WHO SO DESIRE. THIS TRIBUNAL IS TAKING A CONSISTENT VIEW THAT EXPENDITURE INCURRED WITH REGARD TO AGM IS BUSINESS EXPENDITURE. THE AGM IS HELD BY A COMPANY FOR THE BENEFIT OF EXISTING SHAREHOLDERS. ON THE SAME R EASONING, THE IMPUGNED EXPENDITURE WHICH WERE ALSO INCURRED FOR THE BENEFI T OF EXISTING SHAREHOLDERS IN THE ORDINARY COURSE OF BUSINESS IS ALSO AN EXPENDIT URE INCURRED FOR BUSINESS PURPOSE AND HENCE THE SAME IS ALLOWABLE UNDER SECTI ON 37. WE, THEREFORE, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 139. ON THIS GROUND, THE LEARNED COUNSEL FOR THE ASSESSEE ASSERTED THAT THE FACTUAL MATRIX IN THE PRESENT CASE IS PARI MATERIA WITH THAT IN THE CASE OF SELAN EXPLORATION TECHNOLOGY LTD. (SUPRA). THE LEARNED CIT -DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE FACTUAL MATRIX BRO UGHT OUT BY THE ASSESSEE, BUT HAS CONTENDED THAT THE COMMISSIONER OF INCOM E-TAX (APPEALS) MADE NO MISTAKE IN TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE AS IT RELATED TO REDUCTION IN CAPITAL BASE OF THE COMPANY. 140. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. I N OUR VIEW, THE OBSERVATIONS OF THE HONBLE DELHI HIGH COURT EXTRACTED ABOVE CLEARLY SUPPORT THE CASE OF THE ASSESSEE THAT THE IMPUGNED EXPENDITURE IS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE. WE THEREFORE SET ASIDE THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSI NG OFFICER TO DELETE THE IMPUGNED ADDITION AND ACCORDINGLY ASSESSEE SUCCE EDS ON THIS GROUND. 141. GROUND NO. 3 READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND N LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 30,00,000/- BEING PROVISION FOR SLOW MOVING STOCK OF RAW MATERIALS. AT THE TIME OF HEARING, THIS GROUND WAS NOT PRESSED B Y THE LEARNED COUNSEL FOR THE ASSESSEE AND, THEREFORE, THE SAME STANDS DISMISSED AS NOT PRESSED. 74 142. GROUND NO. 4 READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DISALLOWING RS 27,000/- REPRESENTING CORPORATE MEMB ERSHIP OF CLUB. THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS 33,300/- BEING CLUB MEMBERSHIP FEES AND RS 8,795/- BEING OTHER CLUB EXPENSE S, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER. IN APPEAL, THE COMM ISSIONER OF INCOME- TAX (APPEALS) FOLLOWING HIS ORDER FOR THE ASSESSMENT YEA R 2002-03 RESTRICTED THE DISALLOWANCE TO THE EXTENT IT REPRESENTED THE INI TIAL CORPORATE MEMBERSHIP FEES. AGAINST THIS, ASSESSEE IS IN APPEAL. 143. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT SIMILAR ISSUE WAS SUBJECT-MATTER OF CONSIDERATION BY OUR CO-ORDINAT E BENCH IN ASSESSEES CASE FOR ASSESSMENT YEAR 2002-03 AND THE TRIBUNAL V IDE ITS ORDER DATED 15.7.2011 IN ITA NO 102/PN/07 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF OTIS ELEVATORS (I) LTD. 195 ITR 682 (BOM). THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT DISPUTE THE ABOVE FACTUAL ASPECT S. THEREFORE, BY FOLLOWING THE PARITY OF REASONING GIVEN BY THE TRIB UNAL IN ITS ORDER DATED 15.7.2011 (SUPRA), WE REVERSE THE FINDING OF THE COM MISSIONER OF INCOME-TAX (APPEALS) AND DELETE THE IMPUGNED DISALLOWANCE. THE ASS ESSEE SUCCEEDS ON THIS GROUND. 144. GROUND NO. 5 READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DISALLOWING RS 2,05,945/- BEING 10% OF GROSS MISCE LLANEOUS EXPENSES I.E. RS 20,59,446/- ON THE GROUND THAT IT IS A NON-BUSINESS EXPENDITURE U/S 37(1). WHILE SCRUTINIZING THE DETAILS OF MISCELLANEOUS EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT AT RS 8,72,15,989/-, THE ASSESSING OF FICER OBSERVED THAT IT CONTAINED ANOTHER HEAD OF MISCELLANEOUS EXPENSES TO T HE EXTENT OF RS 20,59,446/-. THE ASSESSING OFFICER DISALLOWED 10% OF AMO UNT OF RS 75 20,59,446/- FOR NON-BUSINESS PURPOSES, AS ACCORDING TO HIM IT COULD NOT BE VERIFIED AS TO WHETHER TOTAL EXPENSES DEBITED UNDER T HE ABOVE HEAD WERE INCURRED FOR BUSINESS PURPOSES. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE COULD NOT SUBSTANTIATE ITS C LAIM AND, ACCORDINGLY, THE COMMISSIONER OF INCOME-TAX (APPEALS) AFF IRMED THE DISALLOWANCE OF 10% MADE BY THE ASSESSING OFFICER. 145. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT IN THE ASSESSMENT YEAR 2001-02 ON THE SIMILAR ISSUE, THE COMMISSION ER OF INCOME- TAX (APPEALS) HAD RESTRICTED THE DISALLOWANCE TO 5% AGAI NST 10% MADE BY THE ASSESSING OFFICER, AND SUCH ACTION HAS BEEN AFFIRMED BY THE TRIBUNAL VIDE ITS ORDER DATED 24.6.2011 IN ITA NO 1440/PN/047 AND TO THAT EXTENT, THE RELIEF BE ALLOWED. THE LEARNED DEPARTMENTAL REPRESENTATIVE, H OWEVER, DEFENDED THE ORDERS OF THE LOWER AUTHORITIES. 146. AFTER HEARING BOTH THE PARTIES, WE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 5% OF THE AMOUN T OF MISCELLANEOUS EXPENSES OF RS 20,59,446/-, AS AFFIRMED BY THE TRIBUNAL IN ITS ORDER DATED 24.6.2011 (SUPRA). THUS ASSESSEE PARTLY SUCCEEDS ON THIS GROUN D. 147. GROUND NO. 6 READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 2,00,000/- ON AD HOC BASIS ON ACCOUN T OF GIFT EXPENSES INCURRED BY THE APPELLANT OUT OF TOTAL RS 11,55,860/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT UNDER THE SUB-HEAD GIFTS AND PRESENTATION, ASSESSEE HAD CLAIMED AN AMOUNT OF RS 11,55,860/-. THE ASSESSING OFFICER DISALLO WED RS 5,77,930/- BEING 50% OF SUCH EXPENSES FOR THE REASON THAT SOME NO N-BUSINESS RELATABLE EXPENSES WERE INCLUDED IN THE SAME. IN APPEAL, THE COM MISSIONER OF INCOME- 76 TAX (APPEALS), FOLLOWING HIS ORDER IN ASSESSEES CASE FOR T HE ASSESSMENT YEAR 2002-03, RESTRICTED THE DISALLOWANCE TO RS 2,00,000/- O NLY. 148. ON THIS GROUND, THE LEARNED COUNSEL FOR THE ASSE SSEE POINTED OUT THAT RIGHT FROM THE ASSESSMENT YEAR 1993-94 ONWARDS AD HOC DISALLOWANCE OF SIMILAR NATURE HAS BEEN DELETED IN THE APPEALS BEFORE THE TRIBUNAL AND IT IS ONLY ON ACCOUNT OF A TYPOGRAPHICAL ERROR/OVERSIGHT THAT FOR THE ASSESSMENT YEAR 2002-03 THE TRIBUNAL IN APPEAL NO 102/PN/07 DATED 1 5.7.2011 HAS DISMISSED THE GROUND RAISED. IT IS CLAIMED THAT THE SAME HAS BEEN DONE BY MISTAKE AS IN-FACT THE TRIBUNAL HAS REFERRED TO ITS EARLIER ORDE RS IN ITA NOS 1014- 1038/PN/00 FOR ASSESSMENT YEAR 1997-98 WHEREIN SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS THEREFORE CONTENDED T HAT THE ISSUE IS LIABLE TO BE DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE PAST HISTORY. 149. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE FACTUAL MATRIX CONCERNING THE PRECEDENTS AS MADE OUT BY THE LEAR NED COUNSEL FOR THE ASSESSEE. 150. ON THIS ASPECT, WE FIND THAT THE ASSESSING OFFICER DI SALLOWED 50% OF THE EXPENSES ON GIFT AND PRESENTATIONS, WHICH RESULTED IN AN ADDITION OF RS 5,77,930/- AND THE LEVEL OF SUCH DISALLOWANCE CORRESPOND ED TO THE ACTION OF THE ASSESSING OFFICER IN EARLIER YEAR. THE COMMISSIONER OF INCOME-TAX (APPEALS) NOTICED THAT IN THE EARLIER YEAR HE HAD REST RICTED THE DISALLOWANCE TO RS 4,50,000/- OUT OF THE DISALLOWANCE OF RS 12,73,925/ MADE BY THE ASSESSING OFFICER. FOLLOWING HIS OWN DECISION OF THE EARLIER YEA R, THE COMMISSIONER OF INCOME-TAX (APPEALS) RESTRICTED THE DISALLOWANCE IN THIS Y EAR TO RS 2,00,000/- OUT OF THE DISALLOWANCE OF RS 5,77,930/- MADE BY THE A SSESSING OFFICER. BEFORE US, THE CLAIM SET UP BY THE ASSESSEE IS THAT IN TH E EARLIER YEAR OF 2002- 03, THE TRIBUNAL IN ITA NO 102/PN/07 (SUPRA) DISMISSED THE GROUND OF THE ASSESSEE IN PARA 7 OF THE ORDER, ON A MISTAKEN BELIEF THA T AS PER THE THEN PRECEDENTS AVAILABLE IN THE ASSESSEES OWN CASE, IT WAS TO BE DECIDED AGAINST 77 THE ASSESSEE. WHEREAS ACTUALLY IN THE PRECEDENTS IN ASSESSEE S CASE BY WAY OF ITA NOS. 1014-1038/PN/00 FOR THE ASSESSMENT YEAR 19 97-98, THE TRIBUNAL HAD ALLOWED THE CLAIM OF THE ASSESSEE. 151. WE HAVE CAREFULLY EXAMINED THE CASE SET UP BY THE ASSESSEE AND HAVE PERUSED PARA 7 OF THE ORDER OF THE TRIBUNAL DATED 15 .7.2011 (SUPRA) AND FIND THAT THE ASSERTIONS OF THE ASSESSEE ARE BORNE OUT. UNDER THESE CIRCUMSTANCES, WE, THEREFORE, FOLLOWING THE EARLIER PRECEDENT BY W AY OF ITA NOS 1014- 1038/PN/00 FOR ASSESSMENT YEAR 1997-98 HOLD THAT THE CL AIM OF THE ASSESSEE IS LIABLE TO BE ALLOWED. THEREFORE, WE DIRECT THE ASSESSI NG OFFICER TO DELETE THE ADDITION. ON THIS GROUND, THE ASSESSEE SUCCEEDS. 152. GROUND NO. 7 IS AS UNDER: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 1,24,420/- BEING 5% OUT OF SALES PRO MOTION EXPENSES, EMPLOYEES WELFARE EXPENSES, FACTORY WELFARE EXPENSES AND ENTE RTAINMENT EXPENSES ON THE GROUND THAT THEY ARE PERSONAL/NON-BUSINESS EXPENDIT URE. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS 1,24,420/- BEING 5% OF SALES PROMOTION EXPENSES OF RS 6,15,195/-, EMPLOYEE WELF ARE EXPENSES OF RS 10,31,724/-, FACTORY WELFARE EXPENSES RS 3,45,975/- AN D ENTERTAINMENT EXPENSES OF RS 4,95,511/-. IN APPEAL, THE COMMISSIONER O F INCOME-TAX (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOLLOWING HIS ORDER FOR EARLIER YEAR 2002-03 IN ASSESSEES CASE. 153. AFTER CONSIDERING THE SUBMISSIONS OF RIVAL PARTIES, WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE B ENCH IN ASSESSEES CASE FOR EARLIER ASSESSMENT YEARS 2001-02 AND 2002-03, W HEREIN THE TRIBUNAL HAS SUSTAINED THE DISALLOWANCE OF RS 1,00,000/- ON SIMILA R FACTS AND CIRCUMSTANCES. THEREFORE, FOLLOWING THE PRECEDENT, WE SU STAIN A DISALLOWANCE OF RS 1,00,000/- AND DELETE THE BALANCE ADDITION OF R S 24,420/-. THE ASSESSEE PARTLY SUCCEEDS ON THIS GROUND. 78 154. GROUND NO. 8 IS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 11,33,536/- OUT OF TOTAL EXPENSES ON REPAIRS AND MAINTENANCE ON THE GROUND THAT THEY ARE NON-BUSINESS EXPENDITURE. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS 11,33,536/- OUT OF TOTAL EXPENSES ON REPAIRS AND MAINTENANCE FOR THE REASON THAT THE EXPENDITURE WAS INCURRED FOR NON-BUSINESS PURPOSES. IN APPEAL, THE COMMI SSIONER OF INCOME- TAX (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER FOLLOWING HIS ORDER FOR EARLIER YEAR 2002-03 IN ASSESSEE S CASE. 155. AFTER CONSIDERING THE SUBMISSIONS OF RIVAL PARTIES, W E FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BE NCH IN ASSESSEES CASE FOR EARLIER ASSESSMENT YEAR 2002-03, WHEREIN THE TR IBUNAL HAS SET-ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE A SSESSING OFFICER, VIDE ORDER DATED 15.7.2011 IN ITA NO 102/PN/07. THEREFO RE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND FI NDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE SUCCEEDS ON THIS GROUND. 156. GROUND NO. 9 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING A SUM OF RS 20,31,916/- AND DIRECTING T HE AO TO ALLOW DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF SEC. 35AB AND WIT HDRAW THE DEPRECIATION ALLOWED BY AO. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE DID NO T PRESS THIS GROUND AND, THEREFORE, THE SAME STANDS DISMISSED AS NOT PRESSED. 157. GROUND NO. 10 IS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING A SUM OF RS 1,42,322/- ON ACCOUNT OF IN TEREST FROM ADVANCES TO THE SUBSIDIARY COMPANIES. 79 THE ASSESSING OFFICER DISALLOWED RS 1,42,322/- CLAIMED B Y THE ASSESSEE ON ACCOUNT OF INTEREST FROM ADVANCES TO THE SUBSIDIA RY COMPANIES. IN APPEAL, IT WAS EXPLAINED BY THE ASSESSEE THAT THE COM PANY HAD GIVEN SOME INTEREST FREE ADVANCES DURING THE YEAR TO CREOLE HOL DINGS LTD. AND FINOLEX FINANCE LTD PURELY ON TEMPORARY BASIS AND PART OF THE ADVANCE WAS REPAID DURING THE YEAR. ACCORDING TO THE ASSESSEE, THERE WAS NO NEXUS WHATSOEVER BETWEEN THE ADVANCES GIVEN AND THE AMOUNTS BORROWED O N INTEREST DURING THE YEAR. THE COMMISSIONER OF INCOME-TAX (APPEALS), HOWEVE R, UPHELD THE DISALLOWANCE OF RS 1,42,322/- MADE BY THE ASSESSING OFFICER . 158. AFTER CONSIDERING THE SUBMISSIONS OF RIVAL PARTIES, W E FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BE NCH IN ASSESSEES CASE FOR EARLIER ASSESSMENT YEAR 2001-02, WHEREIN THE TR IBUNAL HAS SET-ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE A SSESSING OFFICER, VIDE ORDER DATED 24.6.2011 IN ITA NO 1440/PN/04. THEREF ORE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND FI NDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2001-02. THE ASSESSEE SUCCEEDS ON THIS GROUND. 159. GROUND NO. 11 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE AO TO FOLLOW THE GUIDELINES CONTAINED IN THE APPELLATE ORDER FOR AY 2001- 02 IN THE MATTER OF ALLOCATION OF EXPENSES FOR DETE RMINATION OF PROFITS U/S 80IA IN RESPECT OF PIMPRI UNIT II WHICH WOULD RESULT IN AD HOC ALLOCATION OF EXPENSES UNRELATED TO THE ACTIVITIES OF THIS UNDERTAKING. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BENCH IN ASSESSE ES CASE FOR EARLIER ASSESSMENT YEARS AND FOR THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL HAS SET-ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, 80 VIDE ORDER DATED 15.7.2011 IN ITA NO 102/PN/07. TH EREFORE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND FI NDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE SUCCEEDS ON THIS GROUND. 160. GROUND NO. 12 READS AS FOLLOWS: ON THE FACTS AND IN TH CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE AO TO FOLLOW THE GUIDELINES AS CONTAI NED IN THE APPELLATE ORDER FOR AY 2001-02 IN THE MATTER OF ALLOCATION OF EXPENSES FOR DETERMINATION OF PROFITS U/S 80IA IN RESPECT OF URS UNIT II WHICH WOULD RESULT IN AD HOC ALLOCATION OF EXPENSES UNRELATED TO THE ACTIVITIES OF THIS UNDERTAKING. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BENCH IN ASSESSE ES CASE FOR EARLIER ASSESSMENT YEARS AND FOR THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL HAS SET-ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, VIDE ORDER DATED 15.7.2011 IN ITA NO 102/PN/07. TH EREFORE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND FI NDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE SUCCEEDS ON THIS GROUND. 161. GROUND NO. 13 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING RS 1,00,000/- ON AD HOC BASIS ON ACCOUN T OF ADMINISTRATIVE EXPENSES ATTRIBUTED TO EARNING OF DIVIDENDS THEREBY REDUCING THE CLAIM FOR DEDUCTION UNDER SECTION 80M BY RS 1,00,000/-. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BENCH IN ASSESSE ES CASE FOR EARLIER ASSESSMENT YEARS AND FOR THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL HAS SET-ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, 81 VIDE ORDER DATED 15.7.2011 IN ITA NO 102/PN/07. TH EREFORE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND FI NDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE SUCCEEDS ON THIS GROUND. 162. IN THE RESULT, ASSESSEES APPEAL, VIDE ITA NO 115 7/PN/07 IS PARTLY ALLOWED. 163. WE SHALL NOW DEAL WITH REVENUES APPEAL, VIDE IT A NO 1184/PN/07 FOR THE ASSESSMENT YEAR 2003-04, GROUND NO. 1 READS AS FOL LOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE ON EXPENDITURE IN CURRED ON GIFT AND REPRESENTATIONS UPTO RS 2 LAKHS AS AGAINST DISALLOWANCE OF RS 5,77, 930/- MADE BY THE AO. THIS GROUND IS CONNECTED WITH GROUND NO. 6 OF ASSESSEES APPEAL VIDE ITA NO.1157/PN/07, WHEREIN WE HAVE DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY FOLLOWING PAST PRECEDE NTS. IN VIEW OF THIS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 164. GROUND NO. 2 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN ALLOWING DEDUCTION U/S 80IA AND IN DIRECTING TO ALL OCATE COMMON EXPENSES. IT HAS BEEN ASSERTED BEFORE US THAT SIMILAR ISSUE CAME UP F OR CONSIDERATION BEFORE OUR CO-ORDINATE BENCH IN ASSESSEES CA SE FOR EARLIER ASSESSMENT YEARS AND FOR THE ASSESSMENT YEAR 2002-03 THE T RIBUNAL HAS SET- ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, VIDE ORDER DATED 15.7.2011 IN REVENUES APPEAL IN I TA NO 105/PN/07. THEREFORE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND RESTORE THE ISSU E TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND 82 FINDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002 -03. THE REVENUE SUCCEEDS ON THIS GROUND FOR STATISTICAL PURPOSES. 165. GROUND NO. 3 IS AS UNDER: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING DEDUCTION U/S 80IA ON INTEREST RECEIVED/RE CEIVABLE IN RESPECT OF SALES ON DEFERRED PAYMENT TERMS. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BENCH IN ASSESSE ES CASE FOR EARLIER ASSESSMENT YEARS AND FOR THE ASSESSMENT YEAR 2002-03 THE T RIBUNAL HAS SET- ASIDE THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, VIDE ORDER DATED 15.7.2011 IN REVENUES APPEAL IN I TA NO 105/PN/07. THEREFORE, FOLLOWING THE PRECEDENT, WE SET-ASIDE THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND RESTORE THE ISSU E TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH THE DIRECTIONS AND FINDINGS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002 -03. THE REVENUE SUCCEEDS ON THIS GROUND FOR STATISTICAL PURPOSES. 166. GROUND NO. 4 IS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE DEDUCTION U/S 80IB IN RESPECT OF SALE OF SCRAP GENERATED OUT OF MANUFACTURING PROCESS TREATING THE SAME AS B USINESS INCOME. ON THIS GROUND ALSO, THE PARTIES STATED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE OUR CO-ORDINATE BENCH IN ASSESSEES CA SE FOR ASSESSMENT YEAR 2002-03, WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE, VIDE ORDER DATED 15.7.2011 IN REVENUES APPEAL IN ITA NO 105/PN/07. THEREFORE, FO LLOWING THE PRECEDENT, WE DECIDE THIS GROUND AGAINST THE REVENUE. THE REVENUE FAILS THIS GROUND. 167. GROUND NO. 5 READS AS FOLLOWS: ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE AO TO RESTRICT THE EXPENSES INCURRED FOR EARNING TAX FREE INCOME TO RS 83 1,00,000/- WITHOUT APPRECIATING THE FACT THAT THE A SSESSEE HAS NOT MAINTAINED ANY SEPARATE ACCOUNT IN ORDER TO EARN SUCH TAX FREE INC OME. THIS GROUND IS CONNECTED WITH GROUND NO. 13 OF ASSESSEES AP PEAL VIDE ITA NO.1157/PN/07, WHEREIN WE HAVE SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE AND RE STORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERA TION WITH CERTAIN DIRECTIONS FOLLOWING THE PAST PRECEDENTS IN THE ASSESSEES OW N CASE. IN VIEW OF THIS, WE FOLLOW THE SAME AND RESTORE THIS GROUND TO THE FILE OF THE ASSESSING OFFICER. THIS GROUND OF THE REVENUE IS ALLOWED FOR STA TISTICAL PURPOSES. 168. IN THE RESULT, REVENUES APPEAL, VIDE ITA NO 118 4/PN/07 IS PARTLY ALLOWED. 169. WE NOW TAKE UP ASSESSEES APPEAL VIDE ITA NO 1421/P N/05 FOR ASSESSMENT YEAR 1997-98. 170. GROUND NO. 1 RELATING TO RE-ASSESSMENT OF INCOME U NDER SECTION 147 OF THE ACT WAS NOT PRESSED AT THE TIME OF HEARING AND, TH EREFORE, THE SAME STANDS DISMISSED AS NOT PRESSED. 171. GROUND NO. 2 IS AS FOLLOWS: THE LD CIT(A) HAS FURTHER ERRED IN UPHOLDING DISAL LOWANCE OF RS 1,87,67,367/- BEING THE AMOUNT OF IRRECOVERABLE ADVANCE WRITTEN OFF IN THE ACCOUNTS. THIS GROUND IS CONNECTED WITH GROUND NO. 5 OF ASSESSEES AP PEAL IN ITA NO 961/PN/02, WHEREIN WE HAVE DISCUSSED THE ISSUE I N DETAIL AND HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE PARITY OF REASONING GIVEN THEREIN, WE HEREBY SET-ASIDE THE ORDER OF THE COMMISSIO NER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. THE ASSESSEE SUCCEEDS ON THIS GROUND OF APPEAL. 84 172. GROUND NO. 3 RELATING TO LEVY OF INTEREST UNDER SECTION 234B(3) OF THE ACT WAS NOT PRESSED BY THE LEARNED COUNSEL AT THE TIME OF HEARING AND, THEREFORE, THE SAME STANDS DISMISSED AS NOT PRESSED. 173. IN THE RESULT, ASSESSEES APPEAL, VIDE ITA NO 142 1/PN/05 IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 06 TH DAY OF MARCH, 2012. SD. SD. (I C SUDHIR) (G.S . PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE DATED: 06 TH MARCH, 2012 B COPY TO:- 1) FINOLEX CABLES LTD., PUNE 2) DEPARTMENT 3) THE CIT (A)-III PUNE 4 THE CIT-V PUNE 5) DR, A BENCH, I.T.A.T.,PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE : 85