GRINDWELL NORTON LTD, MUMBAI v. DCIT 1(1),

CO 231/MUM/2009 | 2004-2005
Pronouncement Date: 07-03-2011 | Result: Allowed

Appeal Details

RSA Number 23119923 RSA 2009
Assessee PAN AAACG8752E
Bench Mumbai
Appeal Number CO 231/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 27 day(s)
Appellant GRINDWELL NORTON LTD, MUMBAI
Respondent DCIT 1(1),
Appeal Type Cross Objection
Pronouncement Date 07-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 07-03-2011
Date Of Final Hearing 12-01-2011
Next Hearing Date 12-01-2011
Assessment Year 2004-2005
Appeal Filed On 10-12-2009
Judgment Text
I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI [CORAM : PRAMOD KUMAR AM AND V DURGA RAO JM] ITA NO. 434/MUM/09 ASSESSMENT YEAR: 2004-05 GRINDWELL NORTON LIMITED .. APPELLANT C/O KALYANIWALLA & MISTRY KALPTARU HERITAGE 5 TH FLOOR 127 MAHATMA GANDHI ROAD FORT MUMBAI 400 001 PAN : AAACG8752E VS. DY COMMISSIONER OF INCOME TAX CIRCLE 1(1) MUMBAI .. RESPONDENT ITA NO. 406/MUM/09 ASSESSMENT YEAR: 2004-05 DY COMMISSIONER OF INCOME TAX CIRCLE 1(1) MUMBAI .. APPELLANT VS. GRINDWELL NORTON LIMITED .. RESPONDENT C/O KALYANIWALLA & MISTRY KALPTARU HERITAGE 5 TH FLOOR 127 MAHATMA GANDHI ROAD FORT MUMBAI 400 001 PAN : AAACG8752E CO NO. 231/MUM/09 ARISING OUT OF ITA NO. 406/MUM/09 ASSESSMENT YEAR: 2004-05 GRINDWELL NORTON LIMITED .. APPELLANT C/O KALYANIWALLA & MISTRY KALPTARU HERITAGE 5 TH FLOOR 127 MAHATMA GANDHI ROAD FORT MUMBAI 400 001 PAN : AAACG8752E VS. DY COMMISSIONER OF INCOME TAX CIRCLE 1(1) MUMBAI .. RESPONDENT I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 2 APPEARANCES: M M GOLVALA ALONGWITH AKRAM KHAN FOR THE ASSESSEE PAVAN VED FOR THE ASSESSING OFFICER O R D E R PER PRAMOD KUMAR : 1. THIS SET OF CROSS APPEALS AS ALSO ASSESSEES CR OSS OBJECTION CALL INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 29 TH OCTOBER 2008 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT 1961 FOR THE ASSESSMENT YEAR 2004-05. AS A MATTER OF CONVENIENCE THEREFORE BOTH THE APPEALS ALONGWITH THE ASSESSEES CROSS OBJECTION ARE BEING TAKEN UP TOGETHER FOR DISPOSAL BY WAY OF THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE AS SESSEE. 3. IN THE FIRST GROUND OF APPEAL FOLLOWING GRIEVAN CE IS RAISED : THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SURPLU S OF RS 1 43 90 679 ARISING ON PREPAYMENT OF DEFERRED SALES TAX WAS A REVENUE RECEIPT LIABLE TO TAX UNDER SECTION 41(1) OF THE INCOME TAX ACT. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO TREAT THE SAID SURPLUS AS A CAPITAL RECEIPT NOT LIABLE TO TAX. 4. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY SPECIAL BENCH DECISION IN THE CASE OF SULZER INDIA LTD VS JCIT (42 SOT 457) WHEREIN IT HAS BEEN HELD THAT THE DEFERRED SALES TAX LIABILITY BEING THE DIFFERENCE BETWEEN THE PAYMENT OF NET PRESENT VALUE AGAINST THE FUTURE LIABILITY CREDITED BY THE ASSESSEE UNDER THE CAPITAL RESERVE ACCOUNT IN ITS BOOKS OF ACCOUNT WAS A CAPITAL RECEIPT AND C OULD NOT BE TERMED AS REMISSION/CESSATION OF LIABILITY AND CONSEQUENTLY NO BENEFIT WOULD ARISE TO THE ASSESSEE IN TERMS OF SECTION 41(1)( A ). THERE IS NO DISPUTE THAT MATERIAL FACTS OF THE CASE BEFORE US ARE THE SAME AS WERE TH E FACTS BEFORE THE SPECIAL I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 3 BENCH IN SULZERS CASE. LEARNED DEPARTMENTAL REPRES ENTATIVE HOWEVER MAKES ELABORATE SUBMISSION IN SUPPORT OF HIS STAND THAT T HE SPECIAL BENCH DECISION IN THE CASE OF SULZER INDIA LIMITED (SUPRA) CALLS FOR A RECONSIDERATION AND THAT IT IS NOT CORRECT. HE SUBMITS THAT EVEN THOUGH THE ISSUE IS COVERED BY THE SPECIAL BENCH DECISION WE MUST TAKE INDEPENDENT VIEW OF TH E MATTER SINCE THE SPECIAL BENCH DECISION IS WHAT HE TERMS AS PER INCURIUM. BROADLY HIS STAND IS THAT WHAT IS TO BE TAXED UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS AND PROFESSION AND IF A BENEFIT LIKE PART REMISSION OF THE DEFERRED SALES TAX LIABILITY IS NOT TAXABLE AS A PROFIT OF THE BUSINESS IT CAN BE TAXED AS GAINS OF BUSINESS. IT IS THEN POINTED OUT THAT THE CIRCULAR RELIED UPON B Y THE SPECIAL BENCH WAS IN THE CONTEXT OF SECTION 43B AND IT CANNOT BE CONSTRU ED TO BE OF APPLICATION IN ALL THE MATTERS RELATING TO THE INCOME TAX ACT. IT IS A LSO POINTED OUT THAT SALES TAX AUTHORITIES ARE NOT IN THE BUSINESS OF GRANTING LOA NS AND THE NATURE OF CONCESSION RECEIVED FROM THE SALES TAX AUTHORITIES CANNOT BE TREATED AS A SIMPLICTOR LENDER BORROWER TRANSACTION. OUR ATTENTION IS THE N INVITED TO THE ACCOUNTING TREATMENT EXTENDED TO THE SALES TAX DEFE RRAL TRANSACTIONS WHICH ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIV E SHOWS THAT A TAXABLE BENEFIT DID ACCRUE TO THE ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND TAKES US THROUGH THE ORDER OF THE SPECI AL BENCH DEMONSTRATES SIMILARITY OF MATERIAL FACTS BETWEEN SULZERS CASE AND ASSESSEES CASE AND POINTS OUT THAT ALL THE ARGUMENTS WHICH ARE NOW ADV ANCED BEFORE US HAVE ALREADY BEEN DEALT WITH BY THE SPECIAL BENCH. LEAR NED DEPARTMENTAL REPRESENTATIVE MAY NOT BE HAPPY WITH THE CONCLUSION S ARRIVED AT BY THE SPECIAL BENCH AND HE MAY STILL CARRY ON POINTING OUT WHAT HE PERCEIVES AS ERRORS THIS DIVISION BENCH IS CERTAINLY NOT THE FORUM TO ADJUDI CATE UPON HIS SUBMISSIONS. WE ARE URGED TO FOLLOW THE SPECIAL BENCH DECISION A ND DELETE THE IMPUGNED ADDITION. 5. IN OUR CONSIDERED VIEW IT IS USEFUL TO REMEMBER THAT AS LAID DOWN BY THE APEX COURT IN THE CASE OF AMBIKA PRASAD MISH RA V. STATE OF U.P. AIR 1980 SC 1762 (@ 1764) EVERY NEW DISCOVERY NOR ARG UMENTATIVE NOVELTY CANNOT UNDO OR COMPEL RECONSIDERATION OF A BINDING PRECEDENT.... A DECISION DOES NOT LOOSE ITS AUTHORITY MERELY BECAUS E IT WAS BADLY ARGUED INADEQUATELY CONSIDERED OR FALLACIOUSLY REASONED... .. A SPECIAL BENCH I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 4 DECISION OF THE TRIBUNAL IS A BINDING JUDICIAL PREC EDENT FOR THE DIVISION BENCHES AND WE MUST RESPECTFULLY FOLLOW THE BINDIN G PRECEDENTS. REVENUE AUTHORITIES MAY NOT BE HAPPY WITH THE CONCL USIONS ARRIVED AT BY THE SPECIAL BENCH AND THEY HAVE EVERY RIGHT TO MAK E SUBMISSIONS AGAINST THE SAME AT HIGHER JUDICIAL FORUM BUT THIS DIVISIO N BENCH IS CERTAINLY NOT THE FORUM TO ADJUDICATE UPON SUCH SUBMISSIONS. THA T APART WE ARE IN MOST RESPECTFUL AND CONSIDERED AGREEMENT WITH THE C ONCLUSIONS ARRIVED AT BY THE SPECIAL BENCH AND WE FIND THAT ALL THE NE CESSARY ASPECTS OF THE NATTER HAVE BEEN CONSIDERED BY THE SPECIAL BENCH IN A VERY COMPREHENSIVE AND ELABORATE ORDER. THE FINDINGS O F THE SPECIAL BENCH IN SULZERS CASE (SUPRA) CAN BE SUMMARIZED AS FOLLOWS: IN ORDER TO INVOKE THE PROVISIONS OF SECTION 41(1) THE FOLLOWING CONDITIONS MUST BE FULFILLED : ( I )IN THE ASSESSMENT OF THE ASSESSEE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF LOSS EXPENDITURE OR THE TRADING LIABILI TY INCURRED BY THE ASSESSEE. ( II )THE ASSESSEE MUST HAVE SUBSEQUENTLY ( I ) OBTAINED ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR ( II ) OBTAINED ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. IN CASE EITHER OF THESE EVENTS HAPPEN THE DEEMING PROVISION ENACTED IN CLOSING PA RT OF SUB-SECTION (1) COMES INTO PLAY. ( III ) THE AMOUNT OBTAINED BY THE ASSESSEE OR THE VALUE OF BENEFIT ACCRUING TO HIM IS DEEMED TO BE PROFIT AND GAIN OF THE BUSINESS OR PROFESSION AND IT BECOMES CHARGEABLE TO INCOME-TAX AS AN INCOME OF THAT PREVI OUS YEAR. [PARA 70] FURTHER ON A PLAIN READING OF SECTION 41(1) IT IS ALSO CLEAR THAT THE PROVISIONS CONTAINED IN SECTION 41(1) DO NOT MAKE ANY DISTINCT ION BETWEEN ANY CONTRACTUAL TRADING LIABILITY OR ANY STATUTORY TRADING LIABILIT Y. EVEN IF ANY STATUTORY LIABILITY IS REMITTED OR CEASED OF OR ANY AMOUNT WHETHER IN CASH OR IN ANY OTHER MANNER HAS BEEN OBTAINED IN RESPECT OF THE EXPENDITURE INC URRED BY WAY OF STATUTORY LIABILITY THE SAME WOULD BE DEEMED TO BE THE PROFI T AND GAIN OF THE BUSINESS OF THE ASSESSEE AND WOULD ACCORDINGLY BE CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT YEAR IN WHICH SUCH BENEFIT OR AMOUNT IS OBT AINED. [PARA 71] ON THE PLAIN READING OF THE ABOVE PROVISIONS OF SEC TION 38(1) (2) (3) (4) OF THE BOMBAY SALES TAX ACT 1959 IT PROVIDES THE MANNER AS TO HOW THE PAYMENT OF TAX PENALTY AND INTEREST AS PRESCRIBED MAY BE MA DE. THE FIRST PROVISO STATES THAT THE COMMISSIONER MAY IN RESPECT OF ANY PARTIC ULAR DEALER OR PERSON FOR THE REASON TO BE RECORDED IN WRITING EXTEND THE DATE O F PAYMENT OR ALLOW HIM TO PAY SUCH AN AMOUNT BY INSTALMENTS WITHOUT PREJUDICE TO THE LEVY OF PENALTY INTEREST OR BOTH. THE SECOND PROVISO PROVIDES THAT THE COMMI SSIONER MAY IN RESPECT OF A DEALER TO WHOM AN ELIGIBILITY CERTIFICATE HAS BEEN GRANTED EXTEND THE DATE OF I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 5 PAYMENTS OR GRANT A MORATORIUM FOR PAYMENT OF DUES OR PROVIDE INSTALMENTS SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED. TH E THIRD PROVISO SAYS THAT THE STATE GOVERNMENT OR THE COMMISSIONER MAY BY GENERA L OR SPECIAL ORDER WHERE A DEALER TO WHOM INCENTIVE BY WAY OF DEFERMENT OF SAL ES TAX OR PURCHASE TAX OR BOTH UNDER 1979 SCHEME 1983 SCHEME OR 1988 SCHEME OR AS THE CASE MAY BE ELECTRONIC SCHEME OR 1988 SCHEME OR 1993 PACKAGING SCHEME OF INCENTIVE HAVE BEEN GRANTED BY VIRTUE OF ELIGIBILITY CERTIFICATE A ND WHERE A LOAN LIABILITY EQUAL TO THE AMOUNT OF ANY SUCH TAX PAYABLE BY SUCH DEALER H AS BEEN RAISED BY THE SICOM OR OTHER DESIGNATED AUTHORITIES DEEM THAT SUCH TAX HAS IN THE PUBLIC INTEREST BEEN PAID. THE FOURTH PROVISO PROVIDES THAT WHERE A N ENTITLEMENT CERTIFICATE HAS BEEN GRANTED TO THE ELIGIBLE UNIT FOR AVAILING OF T HE INCENTIVES BY WAY OF DEFERMENT OF SALES TAX ETC. SUCH ELIGIBLE UNIT MA Y IN RESPECT OF THE PERIODS DURING WHICH THE SAID CERTIFICATE IS VALID AT ITS OPTION PREMATURELY PAY IN PLACE OF THE AMOUNT OF TAX DEFERRED BY IT AN AMOUNT EQUAL TO THE NET PRESENT VALUE OF THE DEFERRED TAX AS MAY BE PRESCRIBED AND ON MAKING SUCH PAYMENTS IN THE PUBLIC INTEREST THE DEFERRED TAX SHALL BE DEEMED T O HAVE BEEN PAID. [PARA 73] IN THE INSTANT CASE THE ASSESSEE HAD COLLECTED TOT AL AMOUNT OF RS. 752.01 LAKHS TOWARDS SALES TAX DURING THE YEARS 1989-90 TO 2001- 02. IT WAS TREATED AS A LOAN LIABILITY PAYABLE AFTER 12 YEARS IN SIX ANNUAL/EQUA L INSTALMENTS AND THUS THE ASSESSEE TREATED THE SAID LIABILITY AS UNSECURED LO ANS IN ITS BOOKS OF ACCOUNT. [PARA 76] PURSUANT TO THE AMENDMENT MADE TO SUB-SECTION (4) O F SECTION 38 OF THE BOMBAY SALES TAX ACT 1959 BY SUBSTITUTING THE 4TH PROVISO WHICH PROVIDES FOR PAYMENT OF NET PRESENT VALUE (NPV) OF DEFERRED TAXES UNDER THE PACKAGE SCHEME OF INCENTIVES THE STATE GOVERNMENT BY NOTIFICATION NO . STR-12.02/CR-102/TAXATION- 1 DATED 16-11-2002 INTRODUCED RULE 31D IN THE BOM BAY SALES TAX RULES 1959 (BST RULES) LAYING DOWN THE PROCEDURE FOR DETERMINA TION OF SUCH NPV. THE PROCEDURE FOR DETERMINATION OF NPV OF THE AMOUNT OF DEFERRED TAXES HAVING BEEN PUBLISHED THE DEFERRAL UNITS MAY EXERCISE THE OPTI ON UNDER 4TH PROVISO TO SUB- SECTION (4) OF SECTION 38 OF THE BOMBAY SALES TAX A CT 1959 OF PRE-MATURELY REPAYING AT NPV THE AMOUNT OF DEFERRED TAXES. RULE 31D OF THE BOMBAY SALES TAX RULES HAS BEEN PROVIDED WITH A TABLE AND THE NOTES BELOW IT FOR DETERMINATION OF NPV. FOR EXAMPLE THE PAYMENT OF BST RS. 27 903 AND CST RS. 70 171 DUE ON 1-5- 2003 WAS DEPOSITED ON 30-12-2002 I.E. FOUR MONTHS BEFORE THE DUE DATE THE DISCOUNTED PERCENTAGE OF DEFERRED TAX TO BE PAID AS NPV WAS PRESCRIBED IN THE SAID TABLE AT 96.4955 PER CENT AND ACCORDINGLY TH E NPV AMOUNT OF BST AND CST WAS WORKED OUT AT RS. 26 925 AND RS. 67 712 RESPEC TIVELY AS PER CERTIFICATE DATED 27-12-2002 AND THE SAME WAS PAID ON 30-12-200 2 AS PER THE CERTIFICATE DATED 25-8-2003. THIS AMOUNT WAS PAID BY THE ASSESS EE AS PER OFFER MADE BY THE STATE GOVERNMENT WHO APPOINTED THE STATE INDUSTRIAL & INVESTMENT CORPORATION OF MAHARASHTRA LIMITED (SICOM) FOR SETTLEMENT OF TH E DEFERRED SALES TAX LIABILITY BY AN IMMEDIATE ONE-TIME PAYMENT. ACCORDINGLY THE ASSESSEE HAD PAID AN AMOUNT OF RS. 337.13 LAKHS TO SICOM WHICH ACCORDIN G TO THE ASSESSEE REPRESENTED THE NPV AS DETERMINED BY SICOM. THE PAY MENT WAS MADE TO SICOM ON 30-12-2002 AS PER CERTIFICATES DATED 25-8-2003. THE REVENUE HAD PLACED NO I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 6 MATERIAL ON RECORD TO SHOW THAT THE NET PRESENT VAL UE (NPV) OF A FUTURE SUM WAS NOT THE SAME OR IN THE PROCESS OF CALCULATION OF PR ESENT VALUE OF A FUTURE SUM THERE WAS ANY CONVERSION GAIN TO THE ASSESSEE. IT W AS ALSO NOT THE CASE OF THE REVENUE THAT THERE WAS NO SUCH CONVERSION PROVIDED UNDER THE BST ACT OR THE TABLE PROVIDED FOR DETERMINATION OF NPV WAS NOT APP LICABLE TO THE CASE OF THE ASSESSEE. IN THE ABSENCE THEREOF IT WAS NOT POSSIBL E TO ACCEPT THE CONTENTION OF THE REVENUE THAT THERE WAS A REMISSION OR CESSATION OF THE TRADING LIABILITY. [PARA 77] HAVING REGARD TO THE LAW LAID DOWN BY THE SUPREME C OURT AND BY THE HIGH COURTS IN VARIOUS DECIDED CASES IT WAS FOUND THAT TO INVO KE THE PROVISIONS OF SECTION 41(1) THE FIRST REQUIREMENT IS AS TO WHETHER IN TH E ASSESSMENT OF THE ASSESSEE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF LOSS EXPENDITURE OR THE TRADING LIABILITY INCURRED BY THE ASSESSEE. IN THE CASE OF THE ASSESSEE THE REVENUES PLEA WAS THAT THE ASSESSEE HAD OBTAINED THE BENEFIT OF DEDUCTION OF SALES TAX LIABILITY UNDER SECTION 43B AS PER THE CBDTS CIRCU LAR NO. 496 DATED 25-9-1987. HOWEVER IT WAS FOUND THAT IN THE SAID CIRCULAR IT HAD BEEN CLEARLY STATED VIDE PARA 5 THAT ...THE STATUTORY LIABILITY SHALL BE TR EATED TO HAVE BEEN DISCHARGED FOR THE PURPOSES OF SECTION 43B [EMPHASIS SUPPLIED]. THUS THE BENEFIT OF DEDUCTIO N WAS ALLOWED FOR THE PURPOSE OF SECTION 43B ONLY AND NOT UNDER ANY OTHER PROVISIONS OF THE ACT. THERE WAS NO DISPUTE THAT TH E ASSESSING OFFICER HAD ALSO APPLIED THE AFORESAID BOARD CIRCULAR WHILE GIVING T HE BENEFIT OF DEDUCTION UNDER SECTION 43B. IT IS SETTLED LAW THAT THE CIRCULARS A RE BINDING ON THE DEPARTMENT. IT IS ALSO SETTLED LAW THAT THE COURT CANNOT ADD WORDS TO STATUTE OR READ WORDS INTO IT WHICH ARE NOT THERE. THIS BEING SO IT WAS TO BE OPINED THAT THE FIRST REQUIREMENT OF SECTION 41(1) HAS NOT BEEN FULFILLED IN THE FACTS OF THE CASE. [PARA 104] THE OTHER REQUIREMENT OF SECTION 41(1) IS THAT THE ASSESSEE MUST HAVE SUBSEQUENTLY : ( I ) OBTAINED ANY AMOUNT IN RESPECT OF SUCH LOSS AND E XPENDITURE OR ( II ) OBTAINED ANY BENEFIT IN RESPECT OF SUCH A TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF. IN THE INSTANT CASE THE SALES TAX COLLECTED BY THE ASSESSEE DURING THE YEARS 1989-90 TO 2001-02 AMOUNT ING TO RS. 752.01 LAKHS WAS TREATED BY THE STATE GOVERNMENT AS A LOAN LIABILITY PAYABLE AFTER 12 YEARS IN SIX ANNUAL/EQUAL INSTALMENTS. SUBSEQUENTLY PURSUANT TO THE AMENDMENT MADE TO THE FOURTH PROVISO TO SECTION 38(4) OF THE BOMBAY SALES TAX ACT 1959 WHICH PROVIDES THAT WHERE AN ENTITLEMENT CERTIFICATE HAS BEEN GRAN TED TO THE ELIGIBLE UNIT FOR AVAILING OF THE INCENTIVES BY WAY OF DEFERMENT OF S ALES TAX ETC. SUCH ELIGIBLE UNIT MAY IN RESPECT OF THE PERIODS DURING WHICH THE SAI D CERTIFICATE IS VALID AT ITS OPTION PREMATURELY PAY IN PLACE OF THE AMOUNT OF T AX DEFERRED BY IT AN AMOUNT EQUAL TO THE NET PRESENT VALUE OF THE DEFERRED TAX AS MAY BE PRESCRIBED AND ON MAKING SUCH PAYMENTS IN THE PUBLIC INTEREST THE D EFERRED TAX SHALL BE DEEMED TO HAVE BEEN PAID. IN THE INSTANT CASE THE ASSESSEE HA D OPTED FOR THE OFFER OF SICOM AN IMPLEMENTING AGENCY OF THE STATE GOVERNMENT AND REPAID AN AMOUNT OF RS. 337.13 LAKHS TO SICOM WHICH ACCORDING TO THE ASSESS EE REPRESENTED THE NPV OF I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 7 THE FUTURE SUM AS DETERMINED AND PRESCRIBED BY SICO M. THE SAID PAYMENT WAS MADE TO SICOM ON 30-12-2002 AS PER CERTIFICATES DAT ED 25-8-2003. IT HAS ALREADY BEEN DEMONSTRATED THAT NPV IS EQUIVALENT TO FUTURE VALUE OF THE SUM. IN OTHER WORDS WHAT THE ASSESSEE WAS REQUIRED TO REPAY AFTE R 12 YEARS IN SIX ANNUAL/EQUAL INSTALMENTS THE SAME WAS REPAID BY TH E ASSESSEE IN THE PUBLIC INTEREST AS NPV IS EQUIVALENT TO THE FUTURE VALUE OF THE SUM. FURTHER THERE WAS NO IOTA OF EVIDENCE TO SHOW THAT THERE HAD BEEN ANY REMISSION OR CESSATION OF LIABILITY BY THE STATE GOVERNMENT. THUS ONE OF THE REQUIREMENTS SPELT OUT FOR THE APPLICABILITY OF SECTION 41(1)( A ) HAD NOT BEEN FULFILLED IN THE FACTS OF THE INSTAN T CASE. [PARA 105] ALTERNATIVELY IT WAS CONTENDED BY THE REVENUE THAT THE ASSESSEE WAS REQUIRED TO COMPLY WITH PROCEDURE LAID DOWN IN CLAUSES 6.21 AND 6.22 OF THE STATE GOVERNMENTS RESOLUTION. ACCORDING TO THE REVENUE T HE ASSESSEE HAD ADMITTEDLY FAILED TO DO SO. THEREFORE THE QUESTION OF CONVERS ION OF DEFERRED SALES TAX LIABILITY INTO INTEREST FREE LOAN DID NOT ARISE. FU RTHER THERE WAS NO MODIFIED ELIGIBILITY CERTIFICATE INCORPORATING THE CHANGE FR OM DEFERRED SALES TAX LIABILITY TO INTEREST FREE LOAN. HOWEVER IT WAS FOUND THAT THE ASSESSEE ON THE BASIS OF LETTER ISSUED BY SICOM TO THE SALES TAX AUTHORITY HAD PASS ED NECESSARY ENTRIES IN THE BOOKS OF ACCOUNT CLAIMING THE DIFFERENCE OF DEFERRA L AMOUNT AS CAPITAL RECEIPT. MERELY BECAUSE THE SALES TAX AUTHORITIES HAD NOT IS SUED THE MODIFIED ELIGIBILITY CERTIFICATE DID NOT MEAN THAT THE PAYMENT OF RS. 33 7.13 LAKHS MADE BY THE ASSESSEE COULD NOT BE ACCEPTED AS HAVING BEEN PAID AT NPV OF THE FUTURE SUM OF RS. 752.01 LAKHS TOWARDS DISCHARGE OF FULL LIABILIT Y. IT IS SETTLED LAW THAT THE LAW DOES NOT CONTEMPLATE OR REQUIRE THE PERFORMANCE OF AN IMPOSSIBLE ACT- LEX NON COGIT AD IMPOSSIBILIA. FURTHER BOTH THE PARTIES HAD AGREED DURING THE CO URSE OF THEIR ARGUMENTS THAT THE ENTRIES RECORDED IN THE BO OKS OF ACCOUNT WERE NOT DETERMINATIVE OF THE NATURE OF TRANSACTION. EVEN AS SUMING FOR THE SAKE OF ARGUMENT THAT THE ASSESSEE DID NOT GET MODIFIED ELI GIBILITY CERTIFICATE OR THE REPAYMENT OF LOAN PAID BY THE ASSESSEE AT ITS NPV O F FUTURE SUM THEN IN THOSE CIRCUMSTANCES MERELY BECAUSE THE ASSESSEE HAD PASS ED NECESSARY ENTRIES IN ITS BOOKS OF ACCOUNT IT COULD NOT BE HELD THAT THERE W AS ANY CESSATION OR REMISSION OF LIABILITY. [PARA 106] THE ASSESSEE WAS LIABLE TO PAY SALES TAX AMOUNTS CO LLECTED FROM 1-11-1989 TO 31- 10-1996 PAYMENTS OF WHICH WERE DEFERRED UNDER THE SCHEME AND THE AMOUNTS WERE PAYABLE AFTER TWELVE YEARS IN SIX EQUAL ANNUAL INSTALMENTS COMMENCING FROM 1-5-2003 WHICH MEANT THAT THE LIABILITY WAS P AYABLE IN FUTURE. LATER ON THE STATE GOVERNMENT CAME OUT WITH A SCHEME BY WHICH IT WAS PROVIDED THAT IF SOME DEALERS OPTED THEN THEY COULD PAY THE FUTURE LIABI LITY AT A DISCOUNTED VALUE OR WHAT ONE MAY CALL NET PRESENT VALUE IMMEDIATELY. TH US IN THIS SITUATION IT COULD NOT BE CONSTRUED AS REMISSION OF LIABILITY BECAUSE THE STATE GOVERNMENT HAD NOT WAIVED OF ANY OF THE LIABILITY AS GIVEN IN THE ILLU STRATIONS. HAD THE STATE GOVERNMENT ACCEPTED LESSER AMOUNT AFTER TWELVE YEAR S OR REDUCED SUCH INSTALMENTS THEN IT COULD HAVE BEEN A CASE OF REMI SSION OR CESSATION. HOWEVER IN THE INSTANT CASE THE STATE GOVERNMENT HAD CHOSEN TO RECEIVE THE MONEY IMMEDIATELY WHICH WAS RECEIVABLE FROM 1-5-2003 TO 1 -5-2008. THE AMOUNT OF RS. I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 8 337.13 LAKHS WAS ACTUALLY PAID TO SICOM ON 30-12-20 02. THUS THE AMOUNT WHICH WAS PAYABLE FROM 1-5-2003 TO 1-5-2008 HAD BEEN PAI D ON 30-12-2002. THUS IT DID NOT SATISFY THE CONDITION OF ACTUAL REMISSION IN PRAESENTI . IT WAS A SIMPLE CASE OF COLLECTING THE AMOUNT AT NET PRESENT VALUE WHICH WAS DUE LATER ON AND EVEN THE FORMULA FOR COLLECTING THE NET PRESENT VAL UE WAS ALSO GIVEN BY THE SICOM AND THE AMOUNTS HAD BEEN PAID AS PER THAT FORMULA. THEREFORE SUCH PAYMENT OF NET PRESENT VALUE OF A FUTURE LIABILITY COULD NOT B E CLASSIFIED AS REMISSION OR CESSATION OF THE LIABILITY SO AS TO ATTRACT THE PRO VISIONS OF SECTION 41(1)( A ). [PARA 108] FOR THE REASONS STATED ABOVE IT WAS TO BE HELD THA T THE DEFERRED SALES TAX LIABILITY BEING THE DIFFERENCE BETWEEN THE PAYMENT OF NET PRESENT VALUE AGAINST THE FUTURE LIABILITY CREDITED BY THE ASSESS EE UNDER THE CAPITAL RESERVE ACCOUNT IN ITS BOOKS OF ACCOUNT WAS A CAPIT AL RECEIPT AND COULD NOT BE TERMED AS REMISSION/CESSATION OF LIABILITY AND CONSEQUENTLY NO BENEFIT WOULD ARISE TO THE ASSESSEE IN TERMS OF SECTION 41( 1)( A ). [PARA 109] 6. AS FACTS OF THE PRESENT CASE ARE MATERIALLY SIMI LAR TO THE CASE IN SULZERS CASE (SUPRA) AND RESPECTFULLY FOLLOWING T HE LAW SO LAID DOWN BY THE SPECIAL BENCH WE UPHOLD THE GRIEVANCE OF THE A SSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. GROUND NO. 1 IS THUS ALLOWED. 8. IN THE SECOND GROUND OF APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LEARNED CIT(A) ERRED IN ALLOCATING A SUM OF RS 2 62 713 TO THE EARNING OF DIVIDEND INCOME. THE APPELLANT SUBMITS T HAT THE ALLOCATION IS ERRONEOUS IN FACT AND IN LAW AND THA T THE ASSESSING OFFICER BE DIRECTED TO RECOMPUTE THE TOTAL INCOME W ITHOUT MAKING THE SAID ALLOCATION. 9. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS 87 57 108 BUT HA S NOT OFFERED ANY EXPENSES FOR DISALLOWANCE UNDER SECTION 14 A. THE C ONTENTION OF THE I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 9 ASSESSEE WAS THAT NO DIRECT EXPENSES HAVE BEEN INCU RRED TO EARN THIS DIVIDEND INCOME BUT THIS CONTENTION WAS REJECTED. THE ASSESSING OFFICER DISALLOWED 10% OF DIVIDEND EARNINGS AS EXPENSES INC URRED TO EARN THE SAME. IN APPEAL CIT(A) UPHELD THE DISALLOWANCE IN PRINCIPLE BUT REDUCED TO THE QUANTUM OF DISALLOWANCE TO 3% OF DIVIDEND E ARNINGS WHICH WORKED OUT TO RS 2 62 713. THE ASSESSEE IS NOT SATI SFIED AND IS IN FURTHER APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD WE CONSIDER IT APPROPRIATE TO RESTRICT T HE DISALLOWANCE TO 2% AS HAS BEEN DONE BY THE COORDINATE BENCHES IN GROUP CASES . TO THIS LIMITED EXTENT PART RELIEF IS GRANTED TO THE ASSES SEE. 11. GROUND NO 2 IS THUS PARTLY ALLOWED. 12. IN GROUND NO. 3 THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THE LEARNED CIT(A) ERRED IN CONFIRMING THE RECOMPUT ATION OF DEDUCTION UNDER SECTION 80 HHC BY EXCLUDING 90% OF THE FOLLOWING ITEMS: A) PREPAID SALES TAX B) INSURANCE CLAIM C) PENALTY ON BOUNCED CHEQUE 13. AS FAR AS GAINS ON PREPAID SALES TAX IS CONCERN ED LEARNED REPRESENTATIVES AGREE THAT IN THE EVENT OF GROUND N O. 1 I.E. CHALLENGING ADDITION OF SURPLUS ARISING ON PREPAYMENT OF DEFERR ED SALES TAX IS ALLOWED THIS ISSUE WILL NOT FOR ANY ADJUDICATION A ND WILL HAVE TO BE DISMISSED AS INFRUCTUOUS. AS GROUND NO. 1 IS ALREAD Y ALLOWED EARLIER IN THIS ORDER WE DISMISS GROUND 3(A) AS INFRUCTUOUS. 14. AS REGARDS GROUND 3(B) I.E. EXCLUSION OF 90% O F INSURANCE CLAIM RECEIVED BY THE ASSESSEE LEARNED REPRESENTATIVES AGREE THAT THE ISSUE IS I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 10 COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF CIT VS PFIZER LIMITED (330 ITR 62) EVEN AS LEARNED DEPARTMENTAL REPRESENTATIVE DUTIFULLY RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HONBLE JURISDICTIONAL HIGH COURT WE UPHOLD THE GR IEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER NOT TO EX CLUDE THE INSURANCE CLAIM RECEIPTS. GROUND NO. 3 (B) IS THUS ALLOWED. 15. IN GROUND 3(C) ASSESSEES GRIEVANCE IS AGAINS T EXCLUSION OF PENALTY ON BOUNCED CHEQUE FOR THE PURPOSE OF COMPUTING DED UCTION UNDER SECTION 80 HHC. THE STAND OF THE ASSESSEE IS THAT P ENALTY ON BOUNCED CHEQUE IS LEVIED WHEN A CHEQUE GIVEN BY THE CUSTOME R BOUNCES AND IT IS IN THE NATURE OF ADDITIONAL SALES PROCEEDS. THE AUT HORITIES BELOW ON THE OTHER HAND IS THAT PENALTY ON BOUNCED CHEQUE IS AN EARNING WHICH IS NOT FORM BUSINESS AND CANNOT THEREFORE BE INCLUDED IN T HE INCOME WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC. WE AR E UNABLE TO SEE ANY MERITS IN THE STAND OF THE AUTHORITIES BELOW. THE P ENALTY ON BOUNCED CHEQUE AS ASSESSEE RIGHTLY CONTENDS IS AN INTEGRA L PART OF THE BUSINESS RECEIPTS AND CANNOT BE VIEWED AS A SEPARATE SOURCE OF INCOME. IT IS LIKE AN ADDITIONAL SALE PROCEEDS WHICH IS RECEIVED FROM CU STOMERS WHOSE CHEQUES BOUNCE. IT CANNOT BE VIEWED IN ISOLATION FR OM THE BUSINESS IN THE COURSE OF WHICH SUCH CHARGES ARE LEVIED ON THE CUST OMERS. WE THEREFORE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO GRANT RELIEF IN THIS RESPECT AS WELL. GROUND NO. 3 (C) IS THUS ALLOWED. 16. GROUND NO. 3 IS THUS PARTLY ALLOWED IN THE TERM S INDICATED ABOVE. 17. IN GROUND NO. 4 THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE : THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER IN REDUCING DEDUCTION ALLOWABLE UNDER SECTI ON 80 IB RS 61 25 635 FROM THE ADJUSTED PROFITS OF THE BUSINES S WITHOUT I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 11 COMPUTING DEDUCTION UNDER SECTION 80 HHC. THE APPEL LANT SUBMITS THAT DEDUCTION UNDER SECTION 80HHC BE COMPUTED WITH OUT REDUCING THE DEDUCTION ALLOWED UNDER SECTION 80 IB. 18. IT IS SUFFICIENT TO TAKE NOTE OF THE FACT THAT THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE CIT(A) BY RELYING UPO N SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT VS RO GINI GARMENTS ( 108 ITD 49) WHICH HAS SUBSEQUENTLY BEEN APPROVED BY THE LAR GER BENCH IN THE CASE OF ACIT VS HINDUSTAN MINT AGRO PRODUCTS PVT LT D (119 ITD SB 107) AND BY HONBLE DELHI HIGH COURT IN THE CASE OF GREA T EASTERN EXPORTS VS CIT ( 196 TAXMAN 145). THESE DECISIONS WERE HOWEVE R DISAPPROVED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF A SSOCIATED CAPSULES PVT LTD VS DCIT (197 TAXMAN 84) AND WHILE DOING SO H ONBLE JURISDICTIONAL HIGH COURT HAS OBSERVED AS FOLLOWS: 37. STRONG RELIANCE WAS ALSO PLACED BY THE COUNSEL FOR THE REVENUE ON THE SPECIAL BENCH DECISIONS OF THE TRIBUNAL IN THE CASE OF ROGI NI GARMENTS (SUPRA) AND HINDUSTAN MINT & AGRO PRODUCTS (P.) LTD. (SUPRA) W HICH ARE AFFIRMED BY THE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPOR TS (SUPRA). RELIANCE IS ALSO PLACED ON DECISION OF THE KERALA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD. (SUPRA) WHICH SUPPORTS THE CASE OF THE REVENUE . 38. WE FIND IT DIFFICULT TO SUBSCRIBE TO THE VIEWS EXPRESSED BY THE DELHI HIGH COURT IN INTERPRETING THE PROVISIONS OF SECTION 80-IA(9). IN THAT CASE IN FACT THE COUNSEL FOR THE REVENUE HAD ARGUED (SEE PARA 38 OF THE JUDGMENT) THAT SECTION 80-IA(9) APPLIES AT THE STAGE OF ALLOWING DEDUCTION AND NOT AT THE STAGE OF COMPUTING DEDUCTION UNDER OTHER PROVISIONS UNDER HE ADING C OF CHAPTER VI-A. IT WAS ARGUED THAT IN THE MATTER OF GRANT OF DEDUCTION THE FIRST STAGE IS COMPUTATION OF DEDUCTION AND THE SECOND STAGE IS TH E ALLOWANCE OF THE DEDUCTION. COMPUTATION OF DEDUCTION HAS TO BE MADE AS PROVIDED IN THE RESPECTIVE SECTIONS AND IT IS ONLY AT THE STAGE OF ALLOWING DEDUCTION U NDER SECTION 80-IA(1) AND ALSO UNDER OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A THE PROVISIONS OF SECTION 80-IA(9) COMES INTO OPERATION. WHILE ACCEPT ING THE ARGUMENTS ADVANCED BY THE COUNSEL FOR THE REVENUE IT APPEARS THAT THE DELHI HIGH COURT FAILED TO I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 12 CONSIDER THE IMPORTANT ARGUMENT OF THE REVENUE NOTE D IN PARA 38 OF ITS JUDGMENT. MOREOVER WITHOUT REJECTING THE ARGUMENT OF THE REV ENUE THAT SECTION 80-IA(9) APPLIES AT THE STAGE OF ALLOWING THE DEDUCTION AND NOT AT THE STAGE OF COMPUTING THE DEDUCTION THE DELHI HIGH COURT COULD NOT HAVE HELD THAT SECTION 80-IA(9) SEEKS TO DISTURB THE METHOD OF COMPUTING THE DEDUCT ION PROVIDED UNDER OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A OF THE ACT. IN THESE CIRCUMSTANCES WE FIND IT DIFFICULT TO CONCUR WITH THE VIEWS EXPRE SSED BY THE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPORTS (SUPRA). FOR THE SAME REASON WE FIND IT DIFFICULT TO SUBSCRIBE TO THEVIEWS EXPRESSED BY THE KERALA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD. (SUPRA). 39. IN THE RESULT WE HOLD THAT SECTION 80-IA(9) DO ES NOT AFFECT THE COMPUTABILITY OF DEDUCTION UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A BUT IT AFFECTS THE ALLOWABILITY OF DE DUCTIONS COMPUTED UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI- A SO THAT THE AGGREGATE DEDUCTION UNDER SECTION 80-IA AND OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A DO NOT EXCEED 100 PER CENT OF THE PROF ITS OF THE BUSINESS OF THE ASSESSEE. OUR ABOVE VIEW IS ALSO SUPPORTED BY THE C .B.D.T. CIRCULAR NO. 772 DATED 23-12-1998 WHEREIN IT IS STATED THAT SECTION 80IA(9) HAS BEEN INTRODUCED WITH A VIEW TO PREVENT THE TAX-PAYERS FR OM CLAIMING REPEATED DEDUCTIONS IN RESPECT OF THE SAME AMOUNT OF ELIGIBL E INCOME AND THAT TOO IN EXCESS OF THE ELIGIBLE PROFITS. THUS THE OBJECT OF SECTION 80-IA(9) BEING NOT TO CURTAIL THE DEDUCTIONS COMPUTABLE UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER IT IS REASONABLE TO HOLD TH AT SECTION 80-IA(9) AFFECTS ALLOWABILITY OF DEDUCTION AND NOT COMPUTATION OF DE DUCTION. TO ILLUSTRATE IF RS. 100 IS THE PROFITS OF THE BUSINESS OF THE UNDER TAKING RS. 30 IS THE PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) AND THE DEDUCTION COMPUTED AS PER SECTION 80HHC IS RS. 80 THEN IN VIEW OF SE CTION 80-IA(9) THE DEDUCTION UNDER SECTION 80HHC WOULD BE RESTRICTED T O RS. 70 SO THAT THE AGGREGATE DEDUCTION DOES NOT EXCEED THE PROFITS OF THE BUSINESS. I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 13 19. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HO NBLE JURISDICTIONAL HIGH COURT WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE DEDUCTION UNDER SECT ION 80 HHC IN THE LIGHT OF LAW SO LAID DOWN BY THEIR LORDSHIPS. 20. GROUND NO. 4 IS THUS ALLOWED. 21. IN GROUND NO. 5 THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS 20 35 641 BEING WRITE OFF OF CAPITAL WORK IN PROGRE SS. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO A LLOW THE SAME. 22. THE EXPENSES IN QUESTION WERE INCURRED FOR DEVE LOPING AN ALTERNATIVE MACHINE FOR MANUAL SETTING OF CRUDE SET TING EQUIPMENT BUT SINCE THIS PROJECT WAS UNSUCCESSFUL AND HAD TO BE A BANDONED THE LOSS ON CAPITAL WORK IN PROGRESS HAS ARISEN. THIS CLAIM WAS MADE BEFORE THE ASSESSING OFFICER BY WAY OF A LETTER BUT ASSESSING OFFICER DID NOT DEAL WITH THE SAME. IN APPEAL HOWEVER CIT(A) REJECTED THE SAME ON MERITS. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US. 23. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING P ERUSED THE MATERIAL ON RECORD WE SEE NO REASONS TO INTERFERE IN THE MATTER FOR THE SHORT REASON THAT FACTUAL ELEMENTS EMBEDDED IN ASSE SSEES SUBMISSIONS ARE NOT BORNE OUT OF MATERIAL ON RECORD BEFORE US. WE THEREFORE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLIN E TO INTERFERE IN THE MATTER. 24. GROUND NO. 5 IS THUS DISMISSED. 25. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 14 26. WE NOW TAKE UP THE APPEAL FILED BY THE ASSESSIN G OFFICER. 27. IN THE FIRST GROUND OF APPEAL THE ASSESSING OF FICER HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) ERRED IN DELETING THE ADDITION OF RS 54 15 9 64 ON ACCOUNT OF UNUTILIZED MODVAT CREDIT WITHOUT APPRECI ATING THE FACT THAT THE ADDITION WAS RIGHTLY MADE BY THE ASSE SSING OFFICER IN VIEW OF THE PROVISIONS OF SECTION 145 A OF THE A CT. 28. EVEN THOUGH LEARNED DEPARTMENTAL REPRESENTATIVE RELIES UPON THE STAND OF THE ASSESSING OFFICER LEARNED REPRESENTAT IVES AGREE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER S OF THE COORDINATE BENCH IN THE CASES OF COBOT INDIA LIMITED VS DCIT ( ITA NO. 4/MUM/4) WHICH HAS BEEN APPROVED BY HONBLE BOMBAY HIGH COUR T AND THAT WHETHER ASSESSEE FOLLOWS THE INCLUSIVE METHOD OR EX CLUSIVE METHOD THERE IS NO IMPACT ON TAXABLE PROFITS. IN THE YEAR 2009 SIMILAR ADDITION FOR THE ASSESSMENT YEAR 2002-03 WAS REMANDED TO TH E ASSESSING OFFICER BY A COORDINATE BENCH BUT NO ORDERS HAVE BEEN PAS SED BY THE ASSESSING OFFICER IN THIS REGARD. WE HAVE ALSO NOTED THAT IN THE IMMEDIATELY PRECEDING YEAR THE RELIEF GRANTED BY THE CIT(A) ON THIS ISSUE HAS NOT BEEN CARRIED IN FURTHER APPEAL. ALL THIS SHOWS THAT THE DISPUTE HAS BEEN ALLOWED TO REACH FINALITY AND THERE ARE NO GOOD REA SONS TO AGITATE THIS ISSUE IN THIS PARTICULAR YEAR. IN VIEW OF THESE DIS CUSSIONS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE WE APPROVE THE IMPUGN ED RELIEF GRANTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 29. GROUND NO. 1 IS DISMISSED. I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 15 30. IN GROUND NO. 2 THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE UNDER S ECTION 14A OF THE ACT TO THE EXTENT OF RS 2 62 713 ONLY HOLDI NG THAT THE DISALLOWANCE OF 3% OF THE EXEMPT INCOME CAN BE CONS IDERED TO BE EXPENSES ATTRIBUTABLE TO EARNING THE DIVIDEND IN COME WHICH IS WITHOUT ANY REASONABLE BASIS. 31. WHILE DEALING WITH ASSESSEES GRIEVANCE AGAINST CONFIRMATION OF ESTIMATED DISALLOWANCE UNDER SECTION 14A WE HAVE R EDUCED THE SAME TO 2% OF DIVIDEND EARNINGS IN ACCORDANCE WITH THE STA ND TAKEN BY THE COORDINATE BENCHES IN GROUP VASES. IN THIS VIEW OF THE MATTER THE GRIEVANCE RAISED BY THE ASSESSING OFFICER IS RENDER ED INFRUCTUOUS AND IS TO BE DISMISSED AS SUCH. 32. GROUND NO. 2 IS DISMISSED. 33. IN GROUND NO. 3 THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCES: 3(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INCOME FROM AGENCY COMMISSION SERVICE CHARGES SCR AP SALES AND SALES TAX AS A PART OF BUSINESS PROFIT FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 80 HHC. 3(B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ADJUST THE INTEREST RECEIPTS AGAINST INTEREST PAID AND CONSIDE R THE NET AMOUNT AS OTHER INCOME FOR THE PURPOSE OF WORKING O UT DEDUCTION UNDER SECTION 80 HHC. 34. AS FAR AS GROUND NO. 3 (B) IS CONCERNED LEARNE D REPRESENTATIVES AGREE THAT THE ISSUE IS NOW COVERED AGAINST THE ASS ESSEE BY HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF CIT VS ASIAN STAR CO LTD (326 ITR 56). RESPECTFULLY FOLLOWING HONBLE BOMBAY HIGH COURT I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 16 JUDGMENT WE VACATE THE RELIEF GRANTED BY THE CIT(A ). GROUND NO. 3 (B) IS THUS ALLOWED. 35. WITH REGARD TO GROUND NO. 3 (A) LEARNED COUNSE L FOR THE ASSESSEE FAIRLY CONCEDES THAT THE INCOME FROM AGENCY COMMISS ION CANNOT BE TREATED AS BUSINESS PROFIT. HE POINTS OUT THAT ASSE SSEE HAS SUO MOTU REDUCED THE AGENCY COMMISSION FROM BUSINESS PROFITS AS EVIDENT FROM PAGE 7 OF THE ASSESSMENT ORDER 36. HOWEVER AS FAR AS SERVICE CHARGES IN GROUND 3( A) ARE CONCERNED LEARNED COUNSEL URGES US TO TAKE UP THIS ISSUE ALON G WITH GRIEVANCE RAISED IN THE CROSS OBJECTION. GRIEVANCE RAISED IN THE CR OSS OBJECTION IS AS FOLLOWS: WITHOUT PREJUDICE TO THE CONTENTION OF THE RESPONDE NT THAT GROUND 3(A) IN THE APPEAL FILED BY THE DEPARTMENT R EQUIRES TO BE DISMISSED IN ANY EVENT THE RESPONDENT SUBMITS T HAT THE EXPENDITURE EARNED TO EARN THE SERVICE RECEIPTS MUS T BE NETTED (REDUCED) BEFORE ARRIVING AT THE FIGURE WHICH IS TO BE REDUCED FROM THE PROFITS AND GAINS FROM BUSINESS OR PROFES SION UNDER EXPLANATION (BAA) BELOW SECTION 80 HHC. 37. THE ASSESSEE ASSEMBLES THE EFFLUENT TREATMENT P LANT AT CUSTOMERS SITE AND SERVICE CHARGES REPRESENT CHARGES RECEIVED BY THE ASSESSEE IN RESPECT OF THE SAME. THERE ARE DIRECT COSTS INVOLVE D IN THIS ACTIVITY. WHILE ASSESSING OFFICER WAS OF THE VIEW THAT SERVICE CHAR GES ARE RECEIVED FOR SERVICES RENDERED BY THE ASSESSE THE CIT(A) HAS GR ANTED RELIEF ON THE GROUND THAT SINCE THESE ACTIVITIES ARE PART AND PAR CEL OF ASSESSEES BUSINESS THE SERVICE CHARGES RECEIPT CANNOT BE EXC LUDED FROM BUSINESS PROFITS. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 38. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD WE ARE OF THE CONSIDERED VIEW THAT THE S ERVICE CHARGES RECEIPTS ARE NOT IN RESPECT OF EXPORT BUSINESS AND SHOULD BE EXCLUDED AS SUCH I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 17 WHAT IS TO BE EXCLUDED IS THE EARNINGS FROM SERVICE CHARGES ON NET BASIS BECAUSE THERE ARE DIRECT AND CLEARLY IDENTIFIABLE E XPENSES INCURRED TO EARN THE SAME AND ANY OTHER APPROACH WILL RESULT I N DISTORTION OF RESULTS. ACCORDINGLY WHILE WE UPHOLD THE GRIEVANCE OF THE A SSESSING OFFICER WE ALSO UPHOLD THE GRIEVANCE OF THE ASSESSEE RAISED IN THE CROSS OBJECTION. 39. AS REGARDS EXCLUSION OF SCARP SALES AND SALES T AX REFUND LEARNED REPRESENTATIVES AGREE THAT THE ISSUES ARE COVERED I N FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN THE CASES OF KODAK INDIA PVT LTD (8923/MUM/04) AND DIAMOND DYECHEM LTD ( ITA 3342/MUM/06) COPIES OF WHICH WERE PLACED BEFORE US . LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER DUTIFULLY REL IED UPON THE STAND OF THE ASSESSING OFFICER. CONSISTENT WITH THE STAND T AKEN BY THE COORDINATE BENCHES WE APPROVE THE CONCLUSIONS ARRIVED AT BY T HE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 40. GROUND NO 3 IS THUS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 41. IN GROUND NO. 4 THE ASSESSING OFFICERS GRIEVA NCE IS AS FOLLOWS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ENTRAN CE FEES PAID TO CLUB AT RS 1 01 645. 42. AS REGARDS THIS GRIEVANCE OF THE ASSESSING OFFI CER WE HAVE NOTED THAT WHAT HAS BEEN DISALLOWED ARE THE NORMAL CLUB E XPENSES AND NOT THE ENTRANCE FEES. LEARNED REPRESENTATIVES AGREE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY TRIBUNALS ORDER FOR 1995 -96 AND THE RELIEF GRANTED BY THE CIT(A) ON THIS ISSUE IN THE INTERV ENING YEARS HAS NOT EVEN BEEN CALLED INTO QUESTION BEFORE THE TRIBUNAL. I.T.A NO.434/ MUM/2009 I.T.A..NO.406/M/2009 C.O.NO231/M/2009 GRINDWELL NORTON LTD 18 43. WE ARE UNABLE TO SEE ANY PARTICULAR REASON FOR THIS ISSUE BEING CHALLENGED IN THIS PARTICULAR YEAR. IN ANY EVENT E VEN ON MERITS THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY TRIB UNALS DECISION. RESPECTFULLY FOLLOWING THE SAME WE APPROVE THE CON CLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTE R. 44. GROUND NO. 4 IS THUS DISMISSED. 45. IN THE RESULT WHILE APPEAL OF THE ASSESSING OF FICER IS PARTLY ALLOWED CROSS OBJECTION FILED BY THE ASSESSEE IS A LLOWED. TO SUM UP WHILE APPEALS FILED BY THE ASSESSEE AS ALSO BY THE ASSESSING OFFICER ARE PARTLY ALLOWED IN THE TERMS INDICATED ABOVE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT T ODAY ON 7TH DAY OF MARCH 2011. SD/- SD/- (V DURGA RAO ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI; 7 TH DAY OF MARCH 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER MUMBAI 4. COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE G BENCH MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI