M/S. CADBURY INDIA LTD., V. THE ADDL CIT RG5(1),

ITA 975/MUM/2005

• Counselvise Citation: 97519914 RSA 2005
• Duration Of Justice: 7 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-03-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 04-02-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VERMA
• Assessee Lawyers: J P BAIRAGRA
• Keywords: Gift; Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 54; 37; 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE D.K. AGARWAL, J.M. AND SHRI RAJENDRA SINGH, A.M. ITA NO. : 975/MUM/2005 ASSESSMENT YEAR : 2001-02 CADBURY INDIA LIMITED CADBURY HOUSE 19, B. DESAI ROAD MUMBAI-400 026. PAN NO: AAACC 0460 H ADDL. COMMISSIONER OF INCOME TAX, RANGE-5(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI J.P. BAIRAGRA RESPONDENT BY : SHRI PRAVIN VERMA DATE OF HEARING : 24.4.2012 DATE OF PRONOUNCEMENT : 25.5.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 3.11.2004 OF CIT(A) FOR THE ASSESSMENT YEAR 2001-02. TH E ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES ON SEVERAL GROUNDS WHICH H AVE BEEN DEALT WITH IN THE SUCCEEDING PARAS. 2. THE FIRST DISPUTE IS REGARDING THE DISALLOWANCE OF EXPENSES OF RS.1,24,201/- INCURRED BY THE ASSESSEE ON RURAL DEVELOPM ENT IN THE VILLAGES NEAR THE ASSESSEES FACTORY. FACTS IN BRIEF ARE THA T THE AO ITA NO. 975/M/05 A.Y.01-02 2 DISALLOWED THESE EXPENSES HOLDING THAT THERE WAS NO NEXU S WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. CIT(A) CONFIRMED THE DISALLOWANCE FOLLOWING THE DECISION IN EARLIER YEARS. AGGRIEVED BY THE SAID DECISION ASSESSEE IS IN APPEAL. 2.1 WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 1 994-95 IN ASSESSEES OWN CASE IN ITA NO.282/M/00 IN WHICH THE TRIB UNAL FOLLOWING THE DECISION IN EARLIER YEAR CONFIRMED THE DISALLOWANCE. THE FACTS IN THIS YEAR ARE IDENTICAL. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN EARLIER YEAR (SUPRA), WE CO NFIRM THE ORDER OF CIT(A). 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF PROVISI ON FOR CONTRACTUAL LIABILITY TOWARDS 3 RD PARTY MANUFACTURERS/ CONVERTORS IN RELATION TO EXCISE DUTY PAYABLE AMOUNTING TO RS.61,44 ,628/-. THE ASSESSEE WAS IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF MALTED FOODS, COCOA BASED PRODUCTS INCLUDING CONFECTIONARY WHICH WERE BEING MANUFACTURED AT ITS OWN FACTORY AS WELL AS UN DER AGREEMENT WITH THIRD PARTY MANUFACTURERS/CONVERTERS AT THEIR FACTORIES. IN RESPECT OF PRODUCTS MANUFACTURED AT COMPANY'S OWN FACTORY, EXCISE DUTY IS PAID ON THE BASIS OF COMPANY'S WHOL ESALE TRADE ITA NO. 975/M/05 A.Y.01-02 3 PRICE LESS PERMISSIBLE DEDUCTIONS IN THE NATURE OF POST MAN UFACTURING EXPENSES (PME) INCURRED BY THE COMPANY ON FREIGHT, OCTR OI, ADDITIONAL SALES TAX ETC. THE THIRD PARTY MANUFACTURERS CONVERTERS W ERE INITIALLY PAYING EXCISE DUTY ON THE PRODUCTS MANUFACTURED FOR CADB URY ON THE BASIS OF COST OF RAW MATERIAL, PACKING MATERIAL AND CONVE RSION CHARGES WHICH INCLUDED THIRD PARTY MANUFACTURERS/ CONVERTERS MARGIN OF PROFIT. HOWEVER, THE EXCISE AUTHORITIES DISPUTED THE SAID BASIS OF VALUATION AND CLAIMED THAT EXCISE DUTY ON PRODUCTS MANUFACTURED BY THIRD PARTY MANUFACTURERS/CONVERTERS IS PAYABLE ON THE BASIS OF CAD BURY'S WHOLE SALE TRADE PRICE LESS PME. ACCORDINGLY, THE EXCISE DEPARTME NT ISSUED A SHOW CAUSE CUM DEMAND NOTICE AND DIRECTED THE MANUFACTURERS/CONVERTERS TO PAY EXCISE DUTY ON THE BASI S OF NORMAL PRICE WORKED OUT FROM THE PRICES CHARGED BY THE ASSESSEE CO MPANY TO THEIR WHOLESALE DEALERS. THE SAID THIRD PARTY MANUFACT URERS/CONVERTERS DISPUTED THE BASIS ADOPTED BY THE EXCISE AUTHORITIES FOR LEVY OF EXCISE DUTY AND THE SAID DISPUTE BECAME THE SUBJECT MATTER OF A PPEAL BEFORE THE EXCISE DUTY APPELLATE AUTHORITIES. ALTHOUGH THE PR IMARY LIABILITY TO PAY THE EXCISE DUTY WAS THAT OF THE THIRD PARTY MANUFACTURERS/CONVERTERS, THE SAID EXCISE DUTY LIABILIT Y WAS TO BE PAID BY THE ASSESSEE COMPANY AS PER THE AGREEMENTS AS AND WHEN W AS PAYABLE. SINCE THE SAID DISPUTE WAS NOT SETTLED IN THE Y EAR UNDER CONSIDERATION, THE ASSESSEE COMPANY RETAINED THE LIABILITY IN RESPECT OF ITA NO. 975/M/05 A.Y.01-02 4 THE DISPUTED AMOUNT TO THE EXTENT OF RS.61,44,628/- IN VIEW OF ITS CONTRACTUAL OBLIGATIONS TOWARDS THE THIRD PARTY MANUFACT URERS/ CONVERTERS BY REDUCING ITS SALES TO THAT EXTENT AND CREDIT ING THE ACCOUNTS OF THE THIRD PARTY MANUFACTURERS/CONVERTERS. IN THE RESULT, THE SALES WERE SHOWN LESS TO THAT EXTENT IN THE PROFIT & LOSS ACCOUNT AND IN EFFECT, DEDUCTION WAS CLAIMED ON ACCOUNT OF PROVI SION FOR LIABILITY TOWARDS CONTRACTUAL OBLIGATION TO THE THIRD PARTY MANUFACTURERS/ CONVERTERS IN COMPUTING THE TOTAL INCOME WHICH WAS DISALLOWED BY THE AO FOLLOWING DECISION IN EARLIER YEA R. IN APPEAL THE CIT(A) HAS CONFIRMED THE DISALLOWANCE FOLLOWING THE APP ELLATE ORDER IN THE EARLIER YEAR, AGGRIEVED BY WHICH THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 3.1AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE HAD BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSMENT YEAR 1994-95 IN ITA NO.282/M/00. IN THE SAID YEAR, THE TRIBUNAL NOTED TH AT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AS PER WHICH CONTRACTUAL LIABILITY ACCRUED ON THE DATE OF ITS ASCERTAIN MENT AND WAS ALLOWABLE IN THE YEAR OF ASCERTAINMENT. IN THIS CASE, T HE LIABILITY WAS PENDING IN DISPUTE AND THEREFORE, THE SAME HAD NOT BE EN INCURRED DURING THE YEAR. FACTS THIS YEAR ARE IDENTICAL AND, TH EREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE YEAR 1994-95 (SUPRA), WE CONFIRM THE ORDER OF CIT(A)DISALLOWING THE CLAIM. ITA NO. 975/M/05 A.Y.01-02 5 4. THE THIRD DISPUTE IS REGARDING ADDITION OF RS.70,10 ,096/- ON ACCOUNT OF SALE OF MILK FAT OUTSIDE THE BOOKS OF ACCOUNT. DURING THE SURVEY UNDER SECTION 133A CONDUCTED AT THE BUSINESS PREMISE S OF THE ASSESSEE IN ASSESSMENT YEAR 1998-99 DISCREPANCIES HAD BEEN NOT ED IN THE QUANTITY OF MILK FAT PRODUCED. THE COST OF DIFFERE NTIAL QUANTITY HAS BEEN ADDED TO THE TAXABLE INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE EXPLAINED THAT IT PURCHASED COW MILK FROM THE SUBSI DIARY M/S. INDURI FARM LIMITED. THE EXCESS FAT CONTENT OVER DESIRED CONTENT WAS EXTRACTED AND SOLD TO OUTSIDE PARTIES. THE MILK FAT GE NERATED AND SOLD WAS RECORDED IN EXCISE REGISTER AS THE SAME AS EXCISABLE ITEM . AO HOWEVER DID NOT ACCEPT THE EXPLANATION AND FOLLOWING THE DECISION IN EARLIER YEAR MADE THE ADDITION WHICH IN APPEAL WAS C ONFIRMED BY CIT(A) FOLLOWING THE DECISION IN EARLIER YEAR AGGRIEV ED BY WHICH, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORD S AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE SAME ISSUE HAS ALREADY BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.3450/M/2004 IN ASSESSMENT YEAR 1998-99. TH E TRIBUNAL IN THE SAID ORDER NOTED THAT THERE WAS NOTH ING ON RECORD FOUND DURING THE SURVEY TO SHOW THAT THE ASSESSEE HAD MA DE SALE OUTSIDE THE BOOKS OF ACCOUNT. THE MILK FAT WAS SUBJECT TO EXCISE DUTY ITA NO. 975/M/05 A.Y.01-02 6 AND IT WAS RECORDED IN THE EXCISE REGISTER. THE ASSESSEE HA D GIVEN DETAILED BREAKUP OF THE CANS. THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE WEIGHT OF EACH AND EVERY FILLED IN CAN WAS NOT TAKEN DURING SURVEY AND THERE COULD BE SMALL VARIATIONS IN W EIGHT. THE TRIBUNAL FURTHER OBSERVED THAT EVEN IF THE WEIGHT OF EACH CAN WAS TAKEN AS SAME I.E. 50KG. THE TOTAL WEIGHT OF FAT ON B ASIS OF PRODUCTION LOG SHEET WAS 417476 KG AND AS PER EXCISE REGISTER THE SA ME WAS AT 470674 KG. THE TRIBUNAL ALSO OBSERVED THAT THE PRODU CTION LOG SHEET FOUND DURING SURVEY COULD NOT BE SAID TO BE CONCLUSIVE A S EVEN AS PER AO THE WEIGHT PER TIN WAS NORMALLY 50 KG. AND IT CO ULD NOT BE THE SAME IN ALL THE CASES. FURTHER, ON THE DAYS THE DISCREPAN CY WAS NOTED, THERE WAS NO MENTION OF MILK FAT CANS PRODUCED IN THE PRODUCTION LOG SHEET. THE TRIBUNAL THEREFORE SAW NO J USTIFICATION FOR MAKING ADDITION AS THERE WAS NO EVIDENCE OF ANY UNACCO UNTED SALE OUTSIDE THE BOOKS. THE TRIBUNAL, THEREFORE, DELETED T HE ADDITION. IN THE PRESENT YEAR, ADDITION HAS BEEN MADE FOLLOWING THE DE CISION IN EARLIER YEAR. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECIS ION OF THE TRIBUNAL IN THE EARLIER YEAR (SUPRA), SET ASIDE THE ORDER OF CI T(A) AND DELETE THE ADDITION MADE. 5. THE FOURTH DISPUTE IS REGARDING ADDITION OF RS.30,2 6,788/- ON ACCOUNT OF INTEREST PAID TO THE INCOME TAX DEPARTMENT. THE AO NOTED THAT THE ASSESSEE HAD RECEIVED INTEREST ON INCOME TAX REFU ND AND HAD ITA NO. 975/M/05 A.Y.01-02 7 ALSO PAID INTEREST OF RS.30,26,788/- TO THE INCOME TAX DEPARTMENT WHICH THE ASSESSEE HAD ADJUSTED AGAINST RECEIPT AND NET PAY MENT OF RS.9951/- WAS CLAIMED AS DEDUCTION. AO ASSESSED THE INTEREST RECEIVED AS INCOME FROM OTHER SOURCES AND PAYMENT MADE TO THE INCOME TAX DEPARTMENT WAS DISALLOWED WHICH IN APPEAL WA S CONFIRMED BY CIT(A) AGGRIEVED BY WHICH, ASSESSEE IS IN APPEAL BEFO RE THE TRIBUNAL. 5.1 WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALL OWANCE OF INTEREST PAID TO THE INCOME TAX DEPARTMENT. THE ASSESSEE HAD ADJU STED THE INTEREST PAID AGAINST THE INTEREST RECEIVED ON REFUND. THE INTEREST PAID TO INCOME TAX DEPARTMENT IS NOT ALLOWABLE AS DEDUCTION . THIS VIEW IS SUPPORTED BY THE THIRD MEMBER DECISION OF THE TRIBUNA L IN THE CASE OF DY. CIT VS. SANDVIK ASIA LTD. (2011) 133 ITD 126 (PUN E)(TM). 6. THE FIFTH DISPUTE IS REGARDING INCLUSION OF MISCELL ANEOUS INCOME INCLUDING SALES TAX AND EXCISE DUTY REFUND IN THE TOTAL TURNOVER. THE ASSESSEE HAD EXCLUDED THESE RECEIPTS FROM THE TOTAL TURNO VER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THE AO HOWEVER I NCLUDED THE SAME IN THE TOTAL TURNOVER WHICH IN APPEAL WAS CONF IRMED BY THE CIT(A) AND AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 975/M/05 A.Y.01-02 8 6.1 AFTER HEARING BOTH PARTIES, WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSM ENT YEAR 1995-96 IN ITA NO.1641/M/2003 DATED 8.10.2010. THE TRIBUNAL IN THE SAID YEAR NOTED THAT THE MISCELLANEOUS INCOME WHICH INCL UDED TRADE DISCOUNTS, MISCELLANEOUS SALES, SALES TAX, EXCISE DUTY ETC. HAD TO BE INCLUDED IN THE TOTAL TURNOVER EXCEPT THE SALES TAX AND EXCISE DUTY WHICH DID NOT CONTAIN AN ELEMENT OF TURNOVER IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LA KSHMI MACHINE WORKS (290 ITR 667). THE FACTS THIS YEAR ARE IDENTICAL. THEREFORE, WE CONFIRM THE ORDER OF CIT(A) EXCEPT IN RELATION TO SALE S TAX AND EXCISE DUTY WHICH WILL BE EXCLUDED FROM THE TOTAL TURNOVER. 7. THE SIXTH DISPUTE IS REGARDING REDUCTION OF 90% OF INTEREST FROM PROFIT OF BUSINESS AS PER EXPLANATION (BAA) WHILE COMPUT ING DEDUCTION UNDER SECTION 80 HHC. ASSESSEE HAD RECEIVED INTEREST ON FDRS, ICDS AND OTHERS AGGREGATING TO RS.5,21,04,545/-. THE AO EX CLUDED 90% OF THE SAME FROM THE PROFIT OF THE BUSINESS WHILE COMPUTIN G DEDUCTION UNDER SECTION 80 HHC WHICH IN APPEAL WAS CONFIRMED BY CIT( A). ASSESSEE HAS DISPUTED THE DECISION OF AUTHORITIES BELOW TO EXCLUDE 90% OF THE GROSS INTEREST AND NOT NET INTEREST INCOME. 7.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORD S AND CONSIDERED THE MATTER CAREFULLY. EARLIER THE HON'BLE HI GH COURT OF ITA NO. 975/M/05 A.Y.01-02 9 BOMBAY IN CASE OF CIT VS. ASIAN STAR CO. LTD. (326 ITR 56) HAD HELD THAT 90% OF GROSS INTEREST HAS TO BE REDUCED FROM THE PR OFIT OF BUSINESS AS PER EXPLANATION (BAA). HOWEVER THE SAID DECISIO N OF THE HON'BLE HIGH COURT HAS NOT BEEN UP HELD BY THE HON'BLE SUPREME COURT WHO IN THE CASE OF ACG ASSOCIATED CAPSULES LTD. (343 ITR 89), HAVE RECENTLY HELD THAT 90% OF NET RECEIPTS HAVE TO BE REDUCED AS PER EXPLANATION (BAA). WE, THEREFORE, SET ASIDE THE ORDE R OF CIT(A) AND HOLD THAT 90% OF NET INTEREST INCOME IS REQUIRED TO BE REDUCED AFTER DEDUCTING EXPENSES INCURRED HAVING NEXUS WITH EARNING OF INTEREST INCOME. THE ISSUE IS THUS RESTORED TO AO FOR WORKING O UT 90% OF NET INTEREST INCOME AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. THE SEVENTH DISPUTE IS REGARDING COMPUTATION OF CAPIT AL GAIN ON SALE OF LAND AND BUILDING. THE ASSESSEE DURING THE YEAR HAD TRANSFERRED LAND AND BUILDING AT COLABA FOR A CONSIDERATION OF R S.8.00 CRORES VIDE AGREEMENT DATED 30.10.2010 TO F.C. ALLANA LTD. THE SAID PROPERTY HAD BEEN PURCHASED IN THE YEAR 1973. THE ASSESSEE COMPUTED LON G TERM CAPITAL GAIN SEPARATELY IN RESPECT OF LAND AND IN RESPECT OF BUILDING TREATING BUILDING AS NON DEPRECIABLE ASSET. THE CAPITAL GAIN WAS CLAIMED AS EXEMPT UNDER SECTION 54EC AS ASSESSEE HAD MADE INVESTMENT IN NABARD BONDS. THE AO HOWEVER OBSERVED TH AT THE ASSESSEE HAD PURCHASED LAND AND BUILDING AS COMPOSITE UNIT A ND SALE HAD ALSO BEEN MADE AS COMPOSITE UNIT. NO BIFURCATION HAD BEEN MADE ITA NO. 975/M/05 A.Y.01-02 10 BY THE ASSESSEE IN ASSESSMENT YEAR 2000-01 AND IN EARLIER Y EARS AND BIFURCATION WAS MADE ONLY IN 2001-02 TO CLAIM THE BENE FIT OF DEDUCTION. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE LAND AND BUILDING SHOULD NOT BE TREATED AS A COMPO SITE UNIT AND CAPITAL GAIN BE TREATED AS SHORT TERM CAPITAL GAIN UND ER SECTION 50 OF THE INCOME TAX ACT AS DEPRECIATION HAD BEEN CLAIMED IN EARLIER YEARS. THE ASSESSEE SUBMITTED THAT IT HAD NOT CLAIMED DEPRECIATIO N IN THE EARLIER YEAR. THE DEPRECIATION HAD BEEN CLAIMED AND A LLOWED INADVERTENTLY DUE TO OVERSIGHT IN ASSESSMENT YEARS 1982-8 3 TO 1988- 89 AND 2000-01 AND AMOUNT INVOLVED WAS SMALL. IT WAS A LSO SUBMITTED THAT INCOME FROM THE BUILDING HAD BEEN ASSESSED AS HOUSE PROPERTY INCOME. THE AO HOWEVER OBSERVED THAT EVEN IF THE INCOM E HAD BEEN COMPUTED AS HOUSE PROPERTY INCOME, PROPERTY HAD BEEN HE LD BY THE ASSESSEE AS BUSINESS ASSET WHICH WAS NOT LET OUT AND DEPRECIATI ON ON WHICH HAD BEEN CLAIMED. HE, THEREFORE COMPUTED SHORT TER M CAPITAL GAIN UNDER SECTION 50 OF THE INCOME TAX ACT WHICH CAME TO NIL AND WHICH RESULTED INTO DISALLOWANCE OF EXCESS DEPRECIATION OF RS.80.00 LACS. THE AO ALSO OBSERVED THAT AS THERE WAS NO CAPITAL GA IN THERE WAS NO QUESTION OF ALLOWING DEDUCTION UNDER SECTION 54 EC. 8.1 IN APPEAL, CIT(A) OBSERVED THAT IRRESPECTIVE OF T HE FACT WHETHER DEPRECIATION WAS ALLOWED OR NOT, ASSESSEE HAD BEEN CLAIMI NG DEPRECIATION IN ALL THESE YEARS AND AT NO POINT OF TIM E, IT HAD ITA NO. 975/M/05 A.Y.01-02 11 BIFURCATED THE PROPERTY. THE ASSESSEE HAD SHOWN PROPERTY AS A COMPOSITE UNIT. THE ASSESSEE HAD TREATED PROPERTY AS COMPOSI TE DEPRECIABLE PROPERTY AND THEREFORE PROVISIONS OF SECTION 50 WERE APPLICABLE. HE, THEREFORE, CONFIRMED THE ORDER OF AO A PPLYING THE PROVISIONS OF SECTION 50 EC. CIT(A), HOWEVER, ALLOWED T HE CLAIM OF THE ASSESSEE IN RESPECT OF PAYMENT OF RS.2.20 CRORES TO ALLIED PHOTOGRAPHIC TO GET CLEAR TITLE OF THE PROPERTY TO BE ADDED TO THE COST OR TO BE DEDUCTED FROM SALES. ACCORDINGLY HE DIRECTED A O TO INCREASE COST OF BLOCK OF ASSET BY RS.2.20 CRORES AFTER NECESSARY VERI FICATION. THE ASSESSEE HAS CHALLENGED THE DECISION OF CIT(A) UPHOLDI NG THE APPLICATION OF PROVISION OF SECTION 50 OF THE ACT. 8.2 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LAND AND BUILDING PORTION HAD BEEN SEPARATELY SHOWN IN THE BALANCE SHEET AND THAT THE ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION O N LAND. EVEN IN RESPECT OF THE BUILDING, DEPRECIATION IN SOME OF THE YEARS HAD BEEN GOT ALLOWED ONLY INADVERTENTLY. IT WAS ALSO SUBMITTED THAT THE BIFURCATION OF LAND AND BUILDING FOR THE PURPOSE OF CO MPUTATION OF CAPITAL GAIN HAS BEEN UPHELD BY SEVERAL HIGH COURTS INCL UDING THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. CITIBANK N.A. (261 ITR 570) IN WHICH IT HAS BEEN HELD THAT BIFURCATION OF LAND AND BUILDING WAS NECESSARY FOR THE PURPOSE OF COMPUTATION OF CAPITAL GA IN AS LAND WAS NOT DEPRECIABLE ASSET AND NOT COVERED UNDER SECTION 50 OF THE ITA NO. 975/M/05 A.Y.01-02 12 INCOME TAX ACT. THE LD. AR ALSO SUBMITTED THAT HE HAD NO OBJECTION IF THE PROVISIONS OF SECTION 50 WERE APPLIED ONLY IN RESPE CT OF BUILDING PORTION. IT WAS ALSO SUBMITTED THAT THE PROVISIONS OF SECTION 54 EC WERE APPLICABLE IN CASE OF SHORT TERM CAPITAL GAIN COMPUT ED UNDER SECTION 50 IN CASE ASSET WAS A LONG TERM ASSET. THE LD. DEPA RTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDER S OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. 8.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING COMPUTATI ON OF CAPITAL GAIN FROM SALE OF LAND AND BUILDING. THE ASSESSEE HAD PU RCHASED PROPERTY IN THE YEAR 1973. THE ASSESSEE WHILE COMPUTING CAPITAL GAIN HAD BIFURCATED THE PROPERTY INTO TWO PARTS I.E. LAND AND BUILDING AND LONG TERM CAPITAL GAIN HAD BEEN COMPUTED IN RESPECT OF BOTH PARTS SEPARATELY AND CLAIMED EXEMPTION UNDER SECTION 54 EC IN VIEW OF CAPITAL GAIN INVESTED IN NABARD BONDS. THE AO HAS NOT A CCEPTED THE METHOD OF COMPUTATION ADOPTED BY THE ASSESSEE AND COMPUTE D CAPITAL GAIN UNDER SECTION 50 TREATING LAND AND BUILDING AS COM POSITE UNIT ON WHICH DEPRECIATION HAD BEEN CLAIMED. THE APPROACH ADO PTED BY THE AO HAS BEEN ACCEPTED BY CIT(A) WHICH HAS BEEN DISPUTED BY THE ASSESSEE. ITA NO. 975/M/05 A.Y.01-02 13 8.4 ON CAREFUL CONSIDERATION OF ALL ASPECTS OF THE MATTER , IN OUR VIEW, THE APPROACH ADOPTED BY AUTHORITIES BELOW CAN NOT BE A CCEPTED. THE PROVISIONS OF SECTION 50 CAN BE APPLIED IN THE CASE OF DE PRECIABLE ASSETS. THE LAND IS NOT A DEPRECIABLE ASSET AND, THEREFORE CAPITAL GAIN HAS TO BE COMPUTED IN RESPECT OF LAND SEPARATELY AS LONG TERM CAPITAL GAIN. THE BIFURCATION OF LAND AND BUILDING INTO SEPAR ATE PART FOR THE PURPOSE OF CAPITAL GAIN HAS BEEN UPHELD BY SEVERAL HIGH COURTS INCLUDING THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE O F CIT VS. CITIBANK N.A. (261 ITR 570). THE LAND AND BUILDING HAS THEREFORE TO BE BIFURCATED FOR THE PURPOSE OF COMPUTATION OF CAPITAL GA IN AND SINCE DEPRECIATION IN SOME YEARS HAS BEEN ALLOWED IN RESPECT OF BUILDING PORTION, THE CAPITAL GAIN IN RESPECT OF BUILDING PORTI ON HAS TO BE COMPUTED AS SHORT TERM CAPITAL GAIN UNDER SECTION 50 OF THE ACT. THE GAIN IN RESPECT OF LAND PORTION HAS TO BE COMPUTED AS LO NG TERM CAPITAL GAIN AS PER METHOD PRESCRIBED IN THE ACT. SINCE ASSESSEE H AS INVESTED THE LONG TERM CAPITAL GAIN IN NABARD BONDS, A SSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 54 EC OF THE A CT EVEN IN RESPECT OF SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 IN RESPECT OF BUILDING PORTION, IF THE SAME WAS HELD FOR MORE THAN THREE YEARS. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF HON'BLE HIGH COUR T OF BOMBAY IN CASE OF CIT VS. ACE BUILDERS (281 ITR 210). THE CAPITAL G AIN IS THEN REQUIRED TO BE RECOMPUTED AT THE LEVEL OF AO AFTER M AKING NECESSARY ITA NO. 975/M/05 A.Y.01-02 14 EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ISSUE IS THU S RESTORED TO THE FILE OF AO. 9. THE EIGHTH DISPUTE IS REGARDING DISALLOWANCE OF PAYM ENT TO CONSULTANTS, GIFTS ETC. THE AO NOTED THAT THE ASSESSEE HAD MADE CERTAIN PAYMENTS IN CONNECTION WITH VOLUNTARY RETIREME NT SCHEME (VRS). THE DEDUCTION ALLOWABLE UNDER SECTION 35 DDA AS PER TAX AUDIT REPORT WAS RS.33,78,498/- WHEREAS ASSESSEE HAD MADE CLAIM OF RS.37,92,038/-. THE EXCESS CLAIM OF RS.4,13,540/- WAS ON ACCOUNT OF PAYMENT OF RS.1.50 LACS TO CONSULTANTS, GIFTS OF RS.96,450/ - AND INCENTIVES/DIFFERENCE AMOUNT RS.1,67,000/- PAID TO EX- EMPLOYEES WHO HAD OPTED FOR VRS IN THE EARLIER YEARS. THE ASSESSEE SUBM ITTED THAT THESE EXPENSES HAD BEEN INCURRED IN THE ORDINARY COURSE O F BUSINESS AND SHOULD BE ALLOWED AS DEDUCTION. AO HOWEVER, DID NO T AGREE WITH THE ASSESSEE AND DISALLOWED THE CLAIM WHICH IN APPEAL WAS CONFIRMED BY CIT(A) AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL B EFORE THE TRIBUNAL. 9.1 BEFORE US, THE LD. AR SUBMITTED THAT UNDER PROVISI ONS OF SECTION 35 DDA, ANY EXPENDITURE INCURRED BY WAY OF PAYMENT T O EMPLOYEES IN CONNECTION WITH VOLUNTARY RETIREMENT SCHEME (VRS) HAS TO BE ITA NO. 975/M/05 A.Y.01-02 15 CONSIDERED AS DEDUCTION. THE LD. DR ON THE OTHER HAND P LACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 9.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING DEDUCTION UNDER SECTI ON 35 DDA IN RESPECT OF CERTAIN EXPENSES WHICH INCLUDE A SUM OF RS.1.50 LACS MADE TO CONSULTANT IN CONNECTION WITH FRAMING OF THE SCHEME A ND RS .96,540/- INCURRED TOWARDS GIFTS AND INCENTIVES AND RS.1, 67,000/- AS INCENTIVES TO EX-EMPLOYEES WHO OPTED FOR VRS SCHEME. A NY EXPENDITURE INCURRED BY WAY OF PAYMENT TO AN EMPLOYE E AT THE TIME OF VOLUNTARY RETIREMENT IS ALLOWABLE AS DEDUCTION UNDER SE CTION 35DDA. THEREFORE SUM OF RS.96,540/- WHICH HAD BEEN PAID TO EM PLOYEES AT THE TIME OF VOLUNTARY RETIREMENT, IN OUR VIEW WILL BE ALLOWABLE AS DEDUCTION UNDER SECTION 35DDA. PAYMENT OF RS.1,67,000/ - TO EX- EMPLOYEES MADE HOWEVER IS NOT ELIGIBLE FOR DEDUCTION. THE PAYMENT TO CONSULTANTS THOUGH MAY NOT BE ALLOWABLE UNDER SECTION 35 DDA OF THE ACT, IT CAN BE CONSIDERED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS OR ON COMMERCIAL EXPEDIENCY. THE ASSESSEE HAS INCLUDED RS.1.50 LACS FOR DEDUCTI ON UNDER SECTION 35DDA WHICH MEANS THE DEDUCTION HAS BEEN CLAIMED OVER A PERIOD OF TIME WHEREAS THE SAME COULD HAVE BEEN CLAIMED AND ALLOWED UNDER SECTION 37 OF THE ACT WHOLLY IN THE RELE VANT YEAR. THEREFORE, MAKING THE CLAIM IN RESPECT OF PAYMENT TO CO NSULTANT UNDER ITA NO. 975/M/05 A.Y.01-02 16 SECTION 35 DDA DOES NOT ADVERSELY IMPACT THE REVENUE. WE , THEREFORE, SEE NO REASON FOR MAKING DISALLOWANCE UNDER SECTION 35 D DA. THE ORDER OF CIT(A) IS SET ASIDE ON THIS POINT AND CLAIM OF THE ASSESSEE ALLOWED. 10. THE NINTH GROUND IS REGARDING DISALLOWANCE OF REPA IRS TO THE BUILDING. THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.18 ,61,490/- WHICH INCLUDED EXPENDITURE OF RS.3,57,500/- ON REDEVEL OPMENT OF CADBURY HOUSE RS.2,40,612/-, ON CONSTRUCTION OF CYCLE STAN D AND RS.12,63,378/- ON RENOVATION OF CANTEEN BUILDING. TH E AO OBSERVED THAT THE EXPENDITURE WAS NOT ON ROUTINE CURRENT REPA IRS AND MAINTENANCE OF THE BUILDING BUT WAS OF THE NATURE OF CAPITAL EXPENDITURE. HE, THEREFORE DISALLOWED THE CLAIM WHICH I N APPEAL WAS CONFIRMED BY CIT(A). THE DISALLOWANCE HAS BEEN MADE FOL LOWING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BALLI MAL NAVAL KISHORE VS. CIT (224 ITR 414). 10.1 BEFORE US, THE LD. AR SUBMITTED THAT EXPENDITUR E INCURRED WAS FOR REPAIR OF BUILDINGS AND NO NEW ASSET HAD BEEN CREAT ED. IT WAS, THEREFORE, ARGUED THAT THE EXPENDITURE SHOULD BE ALL OWED AS REVENUE EXPENDITURE. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND ARGUED THAT EXPENDITURE INCURRE D ON RENOVATION OF BUILDING SHOULD BE TREATED AS CAPITAL EXPENDITURE. ITA NO. 975/M/05 A.Y.01-02 17 10.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RI VAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABI LITY OF EXPENSES INCURRED ON REPAIR/RENOVATION OF THE BUILDING AS REVE NUE EXPENDITURE. THE ASSESSEE HAD INCURRED A SUM OF RS.2,40,612/- ON CONSTRUCT ION OF CYCLE STAND WHICH IS OBVIOUSLY A NEW AND INDEPENDENT ASSE T AND THEREFORE, THE EXPENDITURE HAS RIGHTLY BEEN TREATED AS CAPITAL EXPENDITURE. AS REGARDS THE REPAIR/RENOVATION OF THE BUILDINGS, THE AO HAS TREATED THE EXPENDITURE AS CAPITAL FOLLOWING THE J UDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KI SHORE VS. CIT (SUPRA), IN WHICH IT HAS BEEN HELD THAT EXPENDITURE IN CURRED ON TOTAL RENOVATION OF THE BUILDING HAS TO BE TREATED AS CAPI TAL EXPENDITURE. THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.3,57,500/- ON REDEVELOPMENT OF CADBURY HOUSE AND CONSIDERING THE SMAL LNESS OF THE AMOUNT INVOLVED THIS COULD NOT BE CONSIDERED AS EXPENDIT URE ON TOTAL RENOVATION OF THE BUILDING AND, THEREFORE, SAID EXPE NDITURE HAS TO BE ALLOWED AS EXPENDITURE ON REPAIR OF THE BUILDING. AS REGARDS CANTEEN BUILDING, ASSESSEE HAD SPENT SUBSTANTIAL AMOUNT OF RS.12,6 3,378/- ON RENOVATION OF THE BUILDING IN ASSESSMENT YEAR 2001-02. THE FULL DETAIL OF NATURE OF WORK DONE IS NOT AVAILABLE. HOWEVER CONSID ERING THE NATURE OF BUILDING AND SUBSTANTIAL EXPENDITURE INCURRE D IT HAS TO BE CONSIDERED AS EXPENDITURE ON TOTAL RENOVATION AND THUS CAPITAL IN ITA NO. 975/M/05 A.Y.01-02 18 NATURE. WE, THEREFORE, CONFIRM THE ORDERS OF AUTHORI TIES BELOW TREATING THE SAID EXPENDITURE AS CAPITAL EXPENDITURE AND IN ALL OWING DEPRECIATION OF THE SAME. 11. THE DISPUTE RAISED IN TENTH GROUND IS REGARDING LE VY OF INTEREST UNDER SECTION 234C. THIS GROUND WAS NOT PRESSED AT THE TI ME OF HEARING OF THE APPEAL AND SAME IS, THEREFORE, DISMISSED AS NOT PRESSED. 12. THE DISPUTE RAISED IN GROUND NO.12 IS REGARDING DI SALLOWANCE OF EXPENDITURE ON GARDEN MAINTENANCE AT THANE FACTORY. T HIS GROUND WAS ALSO NOT PRESSED AT THE TIME OF HEARING BY THE LD. AR. WE, THEREFORE DISMISS THE GROUND AS NOT PRESSED. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 25.5.2012. SD/- SD/- (D.K. AGARWAL ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 25.5.2012. JV. ITA NO. 975/M/05 A.Y.01-02 19 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.