M/s Aventis Pharma Ltd., v. The DCIT Cir 8(1),

CO 65/MUM/2005 | misc
Pronouncement Date: 16-04-2014 | Result: Dismissed

Appeal Details

RSA Number 6519923 RSA 2005
Assessee PAN AAACH2736F
Bench Mumbai
Appeal Number CO 65/MUM/2005
Duration Of Justice 9 year(s) 2 month(s)
Appellant M/s Aventis Pharma Ltd.,
Respondent The DCIT Cir 8(1),
Appeal Type Cross Objection
Pronouncement Date 16-04-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted K
Tribunal Order Date 16-04-2014
Date Of Final Hearing 26-02-2014
Next Hearing Date 26-02-2014
Assessment Year misc
Appeal Filed On 15-02-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE : SHRI R.C.SHARMA A M & SHRI VIJAY PAL RAO J M I TA NO. 3703 / MUM/20 0 4 ( ASSESSMENT YEAR : 200 0 - 0 1 ) M/S AVENTIS PHARMA LIMITED VENTIS HOUSE 54/A SIR MATHURADAS VASANJI ROAD ANDHERI (EAST) MUMBAI - 400 0 93 VS. ACIT - 8(1) MUMBAI PAN/GIR NO. : A A ACH 2736 F ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 4493 /MUM/2004 ( ASSESSMENT YEAR :2000 - 01) DCIT - 8(1) MUMBAI VS. M/S AVENTIS PHARMA LIMITED VENTIS HOUSE 54/A SIR MATHURADAS VASANJI ROAD ANDHERI (EAST) MUMBA I - 93 PAN/GIR NO. : AAACH 2736 F ( APPELLANT ) .. ( RESPONDENT ) AND /MUM/20 05 (ARISING OUT OF ITA NO. 4493/MUM/ 2004) ( ASSESSMENT YEAR :200 0 - 0 1 ) M/S AVENT IS PHARMA LIMITED VENTIS HOUSE 54/A SIR MATHURADAS VASANJI ROAD ANDHERI (EAST) MUMBAI - 400 093 VS. DCIT - 8(1) MUMBAI PAN/GIR NO. : AAACH 2736 F ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 6 35 /MUM/20 06 ( ASSESSMENT YEAR :200 0 - 0 1 ) M/S AVENTIS PHARMA LIMITED VENTIS HOUSE 54/A SIR MATHURADAS VASANJI ROAD ANDHERI (EAST) MUMBAI - 400 093 VS. DCIT - 8(1) MUMBAI PAN/GIR NO. : AAACH 2736 F ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 2 ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO.695/MUM/2006 ( ASSESSMENT YEAR :2000 - 01) A CIT - 8(1) MUMBAI VS. M/S AVENTIS PHARMA LIMITED VENTIS HOUSE 54/A SIR MATHURADAS VASANJI ROAD ANDHERI (EAST) MUMBAI - 93 PAN/GIR NO. : AAACH 2736 F ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. J.D.MISTRY & SANJIV M. SHAH /REVENUE BY : MR. AJEET KUMAR JAIN & MR. DEEPAK REPOTE DATE OF HEARING : 26 TH FEBRUARY 201 4 DATE OF PRONOUNCEMENT : 16 TH APRIL 201 4 O R D E R PER BENCH : TH ESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AS WELL AS CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 200 0 - 0 1 IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) AND SECTION 271(1)(C) OF THE I.T.ACT . ITA NOS.3703/M UM /2004 4493/M UM /2004 & CO NO.65/M UM /2005 2 . RIVAL CONTENTIONS HAVE BEEN HEARD A ND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS INVOLVED IN MANUFACTURING OF PHARMACEUTICAL PRODUCTS AND DRUGS AND PHARMACEUTICAL FORMULATION IN THE FORM OF TABLETS CAPSULES INJECTIONS. AFTER TAKING INTO CONSIDERATION THE VARIOUS REPLIES OF TH E ASSESSEE ADDITIONS WERE MADE BY AO I N ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 3 RESPECT OF INCOME FROM HOUSE PROPERTY TRANSFER PRICING UNDER SECTION 92 EXPENDITURE ON SOFTWARE DEPRECIATION ON OBSOLETE ASSETS VRS EXPENSES BAD DEBTS AND ADVANCES WRITTEN OFF CAPITAL GAINS ETC. BY THE IMPUGNE D ORDER CIT(A) DELETED PART OF THE ADDITION. AGAINST THIS ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. ASSESSEE HAS ALSO FILED CROSS OBJECTION. 3 . IN THE APPEAL FILED BY THE ASSESSEE (I.E. ITA NO.3703/MUM/2004 ) THE ASSESSEE HAS R AISED FOLLOWING GROUNDS : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) (HEREINAFTER REFERRED TO AS THE LEARNED CIT(A) ) HAS ERRED IN DETERMINING THE ANNUAL RATEABLE VALUE OF THE PROPERT Y LET OUT TO MESSRS UNITED BREWERIES LIMITED AT RS.24 00 000 FOR COMPUTING THE INCOME UNDER THE HEAD 'HOUSE PROPERTY' AS AGAINST THE MUNICIPAL VALUE ADOPTED BY THE APPELLANT FOR COMPUTING THE SAME. HE OUGHT NOT TO HAVE DONE SO. 2. ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN NOT DELETING THE ENTIRE ADDITION UNDER SECTION 92 OF THE INCOME - TAX ACT 1961 (HEREINAFTER REFERRED TO AS 'THE ACT')) WHICH WAS MADE TO THE EXTENT OF RS. 10 56 64 492 BY THE LEARNED ASS ESSING OFFICER. HE OUGHT NOT TO HAVE DONE SO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF ESTIMATED DEPRECIATION ON OBSOLETE ASSETS TO THE EXTENT OF RS.34 43 610. HE OUG HT NOT TO HAVE DONE SO. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THAT LONG - TERM CAPITAL GAIN ARISING ON ACCOUNT OF TRANSFER OF TWO PLOTS OF LAND HAS TO BE COMPUTED BY ADOPTING FAIR MARKE T VALUE AS ON 151 APRIL 1981 AT RS.23.52 PER SQ.FT. AS THE COST INSTEAD OF RS.75 PER SQ. FT. AS WAS ADOPTED BY THE APPELLANTS. HE OUGHT NOT TO HAVE DONE SO. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED I N CONFIRMING THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 4 DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS. 1 08 216. HE OUGHT NOT TO HAVE DONE SO. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING FULL REVENUE DEDUCTION OF VRS AND EA RLY RETIREMENT INCENTIVE AGGREGATING TO RS. 11 72 72 664. HE OUGHT NOT TO HAVE DONE SO. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT SALES - TAX SET OFF AND REFUND AMOUNTING TO RS.L 76 85 4 12 IS LIABLE TO BE INCLUDED IN THE TOTAL TURNOVER FOR COMPUTING T H E DEDUCTION UNDER SECTION 80HHC OF THE ACT. HE OUGHT NOT TO HAVE DONE SO. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE PROCESSING CHARGES OF RS.34 97 542 AND BAD DEBTS RECOVERED AMOUNTING TO RS. 89 475/ - ARE REQUIRED TO BE REDUCED TO THE EXTENT OF 90% UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC FOR THE PURPOSES OF GRANTING RELIEF. HE OUGHT NOT TO HAVE DONE SO. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS TO THE EXTENT OF RS.464 239. HE OUGHT NOT TO HAVE DONE SO. ADDITIONAL GROUND : ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LEARNED ASSISTANT COMMISSIONER OF INCOME - TAX HAS ERRED IN TAXING RS. 5 53 63 662/ - AS SHORT TERM CAPITAL GAIN ARISING O N SALE OF HAEMACCEL BRAND AND OMNATAX BRAND. HE OUGHT NOT TO HAVE DONE SO 4. IN THE APPEAL FILED BY THE REVENUE (I.E . ITA NO.4493/MUM/2004 ) FOLLOWING GROUNDS HAVE BEEN RAISED : - (I) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTE THE INCOME FROM HOUSE PROPERTY TAKING ANNUAL RATABLE VALUE OF THE FLAT AT RS.24 00 000 / - . (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO WORK OUT THE PROFIT BY TAKING THE COST OF RAW MATERIALS AT RATES AT WHICH THE SUPPLIES ARE MADE BY THE KOREAN CONCERNS TO OTHER PHARMA COMPANIES WITH AN INCREASE OF 10 % THEREOF INSTEAD ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 5 OF ACTUAL COST DECLARED BY THE ASSESSEE WHILE INVOKING THE PROVISIONS OF SECTION 92 OF THE ACT. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN R ESTRICTING THE DISALLOWANCE OF INTEREST U/S.L4A OF THE ACT WHEN THE NEXUS BETWEEN THE SALE OF ASSETS AND INVESTMENT IN SHARES IS NOT ESTABLISHED BY THE ASSESSEE. (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRE CTING THE AO TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S.80 HHC. (V) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE ONLY PROCESSING CHARGES A ND BAD DEBTS FROM THE TOTAL TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S.80 HHC. . (VI) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTE THE INDIRECT COST AS PER THE DIRECTIONS GIVEN IN HIS ORDER WITHOUT APPRECIATING THE FACT THAT THE INDIRECT COST ATTRIBUTABLE TO EXPORTS IS DEFINED IN THE STATUTE AND AO HAS ADOPTED THE METHOD GIVEN IN THE STATUTE. (VII) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO CALCULATE DEDUCTION U/S.80 HH C WITHOUT REDUCING 90% OF THE DEPB LICENSE SOLD WITHOUT APPRECIATING THE FACTS OF THE CASE. (VIII) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING TH E AO TO ALLOW EXPENDITURE ON ACCOUNT OF VRS PAYMENT MADE TO EMPLOYEES WITHOUT APPRECIATING THE FACTS OF THE CASE'. 5 . AT THE OUTSET LEARNED AR PLACED ON RECORD THE ORDERS OF TRIBUNAL AND HONBLE HIGH COURT IN ASSESSEES OWN CASE WHEREIN VARIOUS GROUNDS RAISED IN PRE SENT APPEAL HAS BEEN DECIDED. COPY OF ALL THESE ORDERS ALONG WITH THE CHART INDICATING VARIOUS PARA NUMBERS BY WHICH ISSUES ARE COVERED WERE HANDED OVER TO THE LD. DR. WHEREIN HE DID NOT POINT OUT ANY INCONSISTENCY. BOTH I N ASSESSEES APPEAL AS WELL AS R EVENUES APPEAL G ROUND NO.1 IS REGARDING COMPUTATION OF INCOME ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 6 FROM HP IN RESPECT OF 5 TH FLOOR OF HOECHST HOUSE. FACTS IN BRIEF ARE THAT ASSESSEE HAS LET OUT 5 TH FLOOR OF ITS BUILDING KNOWN AS HOECHST HOUSE LOCATED AT NARIMAN POINT WITH TOTAL AREA OF 7442 SQ.FT. AT A MONTHLY RATE OF RE.1/ - . THE ASSESSEE HAS COMPUTED INCOME OF RS. 1 29 096/ - IN RESPECT OF THIS FLOOR UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AO COMPUTED ALP BY TAKING RS. 150/ - PER SQ.FT. PER MONTH FOR 7442 SQ.FT. WHICH WORKS OUT TO BE RS. 1 33 95 600/ - . BY THE IMPUGNED ORDER THE CIT(A) DIRECTED THE AO TO COMPUTE ALV AT RS. 24 00 000/ - . BOTH T HE ASSESSEE AND REVENUE ARE IN FURTHER APPEAL S BEFORE US. L EARNED AR SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CA SE PASSED IN ITA NO.5791/MUM/2000 FOR THE ASSESSMENT YEAR 1994 - 95 VIDE ORDER DATED 5 - 11 - 2004 WHEREIN THE TRIBUNAL DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE AFTER HAVING FOLLOWING OBSERVATIONS : - 11. APROPOS GROUND NO.5 IT IS REQUESTED THAT THE INCOME FROM HOUSE PROPERTY BE COMPUTED AS PER THE MUNICIPAL RATABLE VALUE AT RS. 1 44 058/ - AND NOT ON ADHOC FIGURE OF RS. 24 00 000/ - . THE FIFTH FLOOR OF THE PROPERTY HOECHST HOUSE WAS LET OUT TO M/S VB LIMITED BY THE ASSESSEE ON A MONTHLY RENT OF RE.1 BESIDES INTEREST FREE DEPOSIT OF RS.2.20 CRORES. THE INCOME FROM THE FIFTH FLOOR WAS HOWEVER NOT CALCULATED ON THE RENT OF RE.1 PER MONTH. THE MUNICIPAL CORPORATION FIXED T HE BOOK VALUE OF THE FIFTH FLOOR AT RS.1 44 058/ - BEING 1/5 TH OF THE TOTAL VALUE SO FIXED . THE INCOME FROM THE FIFTH FLOOR WAS THUS PAID BY THE ASSESSEE AT RS. 1 26 146/ - . DISAGREEING THE AO HELD THAT THE RENT OF RE.1 PER MONTH CHARGED BY THE ASSESSEE DID NOT REPRESENT THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEA R TO YEAR AS CONTEMPLATED UNDER THE PROVISIONS OF SECTION 23(1)(A) OF THE IT ACT. SINCE FLOOR DID NOT LET OUT TO M/S VB LIMITED WHICH HELD 26 PERCENT SHARE IN THE ASSESSEE - COMPANY. MR. VIJAY MALLYA THE CHAIRMAN OF THE UB LIMITED WAS ALSO THE CHAIRMAN O F ASSESSEE - COMPANY. THE AO DETERMINED THE REASONABLE RENT OF THE FLOOR AFTER TAKING INTO ACCOUNT THE COMPARATIVE RENT CHARGED BY THE ASSESSEE FROM TENANT OF THE SAID FLOOR. THUS ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 7 THE FAIR RENT OF THE FIFTH FLOOR WAS FIXED BY THE AO AT RS. 1 20 56 040/ - TH E INCOME FROM THE FIFTH FLOOR WAS THUS COMPUTED AT RS. 96 44 832/ - . THE LEARNED CIT(A) DIRECTED THE AO TO COMPUTE INCOME FROM THE FIFTH FLOOR TAKING ANNUAL LETTING VALUE THEREOF AT RS. 24 LAKHS AS AGAINST RS. 1 44 058/ - OFFERED BY THE ASSESSEE AND RS. 31 20 3 6 040/ - FIXED BY THE AO. 12. X X X X X 13. X X X X X 14. IN MR. M V SONAVALA VS. CIT (1989) 177 ITR 246 (BOM) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE INCOME FROM HOUSE PROPERTY HAS TO BE COMPUTED ON THE BASIS OF THE SUM FOR WHICH THE PROPERTY MIGH T REASONABLY BE LET OUT FROM YEAR TO YEAR AND THE ANNUAL MUNICIPAL RATABLE VALUE. IT HAS BEEN TAKEN NOTE OF THAT IN THE CASES OF PROPERTIES SUBJECT TO RENT CONTROL LEGISLATION PROVIDED FOR FIXATION OF STANDARD RENT THE STANDARD RENT ALONE CAN BE THE BASE FOR FIXATION OF MUNICIPAL RATABLE VALUE FOR THE PURPOSES OF MUNICIPAL TAX (AS PER DEWAN DAULAT RAI KAPOOR VS. NEW DELHI MUNICIPAL COMMITTEE (1980) 122 ITR 700 (SC) DR. DALBIR SINGH VS. MCD (1985) 46 CTR (SC)= 152 ITR 388 (SC) AND SHEILA KAUSHISH VS. CI T (1981) 131 ITR 435 (SC) . IN THE LAST REFERRED CASE THE HONBLE SUPREME COURT HAS HELD THAT THE ANNUAL VALUE OF THE PROPERTY IS REQUIRED TO BE DETERMINED WITH REFERENCE TO STANDARD RENT AND NOT THE ACTUAL RENT RECEIVED. AS SUCH THE GRIEVANCE OF THE AS SESSEE JUSTIFIED. GROSS ANNUAL RATABLE VALUE OF THE PROPERTY VIZ 5 TH FLOOR HOECHST HOUSE IS DIRECTED TO BE DETERMINED AT RS. 1 44 058/ - BEING THE ANNUAL VALUE DETERMINED BY THE MUNICIPAL CORPORATION FOR THE PURPOSES OF COMPUTATION OF PROPERTY INCOME. AS SUCH GROUND NO.5 IS ALLOWED. LEARNED DR ALSO DID NOT OPPOSE TO THE AFORESAID SU BMISSION MADE BY THE LEARNED AR TO THE EFFECT THAT ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE AFORESAID ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE. 5 . 1 WE HAVE HEARD RIVAL CONTENTIONS PERUSED FROM THE RECORD AND ORDERS OF THE TRIBUNAL AND FOUND THAT THE VERY SAME ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN TERMS DISCUSSED ABOVE . AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT THE TRIBUNAL HAS CONCLUDED THAT GROSS ANNUAL RATABLE VALUE OF THE PROPERTY AT THE ANNUAL VALUE DETERMINED FOR THE PURPOSES OF COMPUTATION OF HOUSE PROPERTY INCOME IS TO BE DETERMINED AT THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 8 ANNUAL VALUE DETERMINED BY MUNICIPAL CORPORATION . AS THE FACTS AND CIR CUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME H ENCE RESPECTFULLY FOLLOWI NG THE DECISION OF THE TRIBUNAL W E DIRECT THE AO TO DETERMINE ALV AT THE VALUE DETERMINED BY MUNICIPAL CORPORATION FOR THE YEAR UNDER CONSIDERATION. HENCE THIS GROUND OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES WHEREAS THE GROUND RAISED BY THE REVENUE IS DISMISSED. 6 . GROUND NO.2 IS REGARDING ADDITION U/S.92 IN RESPECT OF PURCHASES OF CEFOTAXIME SODIUM & ROXYTHROMYCIN. FACTS IN BRIEF ARE THAT IN RESPECT OF MANUFAC TURING PHARMACEUTICAL FORMULATION IN THE FORM OF TABLETS CAPSULES INJECTIONS ETC. THE ASSESSEE HAS CLAIMED A LOSS. HOWEVER THE AO DID NOT ACCEPT ASSESSEES CLAIM OF LOSS AND OBSERVED THAT ASSESSEE HAS REDUCED PROFIT BY INFLATING PRICE OF RAW MATERIALS WHICH HAS GONE INTO ITS PRODUCTION. THE AO OBSERVED THAT PURCHASE PRICE PAID FOR CEFOTAXIME SODIUM WAS RS. 55 347.34 PER KG. IS HIGHER THAN THE PRICE PAID BY OTHER IMPORTERS ACCORDINGLY T HE AO INVOKED PROVISIONS OF SECTION 92 AND MADE ADDITION OF RS. 10.5 6 CRORES. BY THE IMPUGNED ORDER CIT(A) PARTLY ALLOWED ASSESSEES CLAIM AFTER HAVING FOLLOWING OBSERVATIONS : - 9. THE SUBMISSION MADE BY THE APPELLANT'S REPRESENTATIVE HAS BEEN CONSIDERED. AS CITED ABOVE THE ISSUE IN SO FAR AS THE APPLICABILITY OF THE PR OVISIONS OF SECTION 92 OF THE ACT IS CON CERNED IT IS A REPETITIVE ISSUE AND HAS BEEN THERE IN THE ASSESSMENT YEAR 1999 - 00 AS WELL. IN THE APPELLATE ORDER DATED 20/03/2003 THE ACTION OF THE ASSESSING OFFICER IN THIS RESPECT HAS BEEN CONFIRMED . SINCE THE F ACTS IN THE YEAR ARE THE SAME AS IN THE PRECEDING ASSESSMENT YEAR FOR THE REASONS GIVEN IN THE APPELLATE ORDER DATED 20103/2003 IN THIS YEAR AS WELL THE ACTION OF THE ASSESSING OFFICER TO HOLD THAT THE PROVISIONS OF SECTION 92(1) ARE APPLICABLE IN RESPEC T OF THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 9 TRANSACTIONS OF IMPORT OF TWO RAW MATERIALS UTILISED BY THE APPELLANT COMPANY IN ITS MANUFACTURING PROCESS IS HELD CORRECT AND ON THAT ACCOUNT THE DECISION CALLS FOR NO INTERFERENCE. 10. A S FAR AS THE COMPUTATION OF THE AMOUNT TO BE ADDED ON THE ACCOUNT IS CONCERNED THE FIRST I SSUE RAISED AND DISCUSSED IN ITEM NO. (I) IS CONCERNED AS TO WHETHER FOR THE PURPOSES OF DETERMINATION OF THE PROFIT OF THE CIF VALUE OR THE LANDED COST BE TAKEN THE ISSUE HAS BEEN CONSIDERED IN THE APPELLATE ORDER DATED 2 3/02/2004 WHERE THE CLAIM OF THE APPELLANT TO ADOPT THE CIF VALUE HAS BEEN DISCUSSED . IN THE LIGHT OF THE REASONS GIVEN THEREIN THERE IS NO CAUSE TO INTERFERE IN THE DECISION OF THE ASSESSING OFFICE IN THE MATTER. SIMILARLY THE ISSUE RAISED IN ITEM (II) ABOVE IS A SUBJECT MATTER OF VERIFICATION FOR THERE IS NO DISPUTE WHERE THE RAW MATERIAL SUPPLIED HAS BEEN RECEIVED THROUGH OUT THE YEAR EITHER THE ACTUAL CONVERSION RATE IS TO BE ADOPTED OR IF THAT IS NOT POSSIBLE THEN THE AVERAGE RATE IS TO BE ADOPTED. SINCE THE CLAIM REGARDING THE AVERAGE CONVERSION RATE MADE BY THE APPELLANT IS A MATTER OF VERIFICATION THE ASSESSING OFFICER IS DIRECTED TO VERIFY THIS ASPECT AND MAKE ADJUSTMENT TO THE ADDITION ON THIS ACCOUNT IF REQUIRED. IN SO FAR AS GRANT OF FURTHER WEIGHTAGE DISCUSSED IN PARA - 8 ABOVE THERE IS NO MERIT IN THE CLAIM IN VIEW OF THE DETAILED DISCUSSIONS IN THIS RESPECT MADE IN THE APPELLATE ORDER DATED 20/03 / 2003. THE WEIGHTAGE IS THEREFORE REQUIRED TO BE RETAINED AT 10% OVER AND ABOVE THE PURCHASE PR ICE PAID BY OTHER PHARMACEUTICAL COMPANY IN THE IMPORT OF RAW MATERIAL FROM THE KOREAN CONCERN AT ARMS LENGTH. THE ASSESSING OFFICER SHALL THEREFORE MAKE ADJUSTMENT TO THE AMOUNT ADDED AS PER THE DIRECTIONS GIVEN ABOVE. THE APPEAL IN RESPECT OF GROUND NO .2 IS THUS DISPOSED OFF AS PARTLY ALLOWE D. BOTH ASSESSEE AND REVENUE ARE IN APPEALS BEFORE US. 6 .1 L EARNED AR SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.1528/2009 VIDE OR DER DATED 8 - 9 - 2009 IN ASSESSEES OWN CASE HAS DECIDED SIM ILAR ISSUE IN FAVOUR OF THE ASSESSEE . OUR ATTENTION WAS ALSO INVITED TO THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.1996 - 97 & 1997 - 98 DATED 16 - 5 - 2007 WHEREIN EXACTLY SIMILAR ISSUE WAS DEALT WITH AND FOLLOWING CONCLUSIONS WERE ARRIVED AT : - 28. IN VIEW OF THE ABOVE WE HOLD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE NON - RESIDENT COMPANY WAS NOT AN ARRANGED TRANSACTION. THE CERTIFICATES PRODUCED BY THE ASSESSEE FROM VARIOUS PARTIES ESTABLISH THAT THE ASSESSEE DID NOT BUY THE PRODUCT C EFOAXIME SODIUM AT A PRICE HIGHER THAN THE PRICE AT WHICH THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 10 SAME PRODUCT WAS SOLD TO OTHERS. ACCORDINGLY WE HOLD THAT THE ASSESSING OFFICER FAILED TO ESTABLISH A CASE WHERE PROVISIONS OF SECTION 92 COULD BE APPLIED TO DISOWN THE LOSS INCURRED BY THE ASS ESSEE. THEREFORE WE DO NOT FIND A REASON TO TAKE A DIFFERENT VIEW THAN THE ONE ARRIVED AT BY THE LEARNED CIT(A). WE THEREFORE REJECT THE GROUND OF THE REVENUE. 6 . 2 T HE RELEVANT OBSERVATION IN THE ORDER OF H ONBLE BOMBAY HIGH COURT DATED 8 - 9 - 2009 READ S AS UNDER : - 1. HEARD LEARNED COUNSEL FOR PARTIES. 2. FOLLOWING TWO SUBSTANTIAL QUESTIONS OF LAW ARE SOUGHT TO BE RAISED IN THE APPEAL. A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL IS JUSTIFIED IN LAW IN DELETING THE ADDITIO NS MADE ON ACCOUNT OF PROVISIONS FOR LIABILITY TOWARDS LONG SERVICE ENTITLEMENT AND LEAVE SALARY ENCASHMENT? B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL IS JUSTIFIED IN LAW IN CONFIRMING THE ORDER OF CIT(A) IN DELETING THE ADD ITION OF RS.7.42 CRORES ON THE GROUND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING PROVISIONS OF SECTION 92 OF THE ACT. 3. SO FAR AS FIRST QUESTION IS CONCERNED IT IS SQUARELY COVERED BY THE JUDGMENT OF THE APEX COURT IN THE CASE OF BHARAT EA RTH MOVERS LTD VS. CIT 245 ITR 248. LEARNED COUNSEL FOR THE APPELLANT COULD NOT DISTINGUISH THE SAID JUDGMENT AND SO FAR AS SECOND QUESTION IS CONCERNED IN PARAGRAPH NO.28 OF THE ORDER THE TRIBUNAL AFTER THREADBARE DISCUSSION AND AFTER APPRECIATION OF EVIDENCE RECORDED A FINDING OF FACT WITH WHICH NO FAULT CAN BE FOUND. THE APPEAL IS WITHOUT ANY SUBSTANCE THE SAME STANDS DISMISSED WITH NO ORDER AS TO COSTS. 6.3 SIMILAR ISSUE HAD ALSO COME BEFORE THE TRIBUNAL IN ITA NO. 4993/MUM/2001 IN ASSESSEES OWN CASE AND THE TRIBUNAL VIDE ORDER DATED 27.10.2010 BY FOLLOWING ITS EARLIER ORDER CONFIRMED THE ORDER OF THE LD. CIT(A) AND DISMISSED THE GROUNDS OF APPEAL TAKEN BY THE REVENUE. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAM E RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL AND HON BLE BOMBAY HIGH COURT WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 11 7 . GROUND NO.3 IS REGARDING DISALLOWANCE OF ESTIMATED DEPRECIATION ON OBSOLETE A SSETS OF RS.34 43 610/ - . IT WAS CONTENDED BY THE LEARNED AR THAT T HIS ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GR SHIPPING LTD. ITA NO.598/2009 IN FAVOUR OF THE ASSESSEE. 7 .1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998 - 99 AND 1999 - 2000 WHEREIN THE TRIBUNAL AFTER CONSIDERING THE DECISION IN THE CASE OF G.R.SHIPPING COMPANY AND INDUCTOTHERM INDIA LTD 73 ITD 529 HELD THAT DEPRECIATION WAS ALLOWABLE ON OBSOLETE ASSETS TO THE ASSESSEE. HOWEVER AGAINST THIS DECISION OF THE TRIBUNAL THE DEPARTMENT HAS NOT FILED ANY FURTHER APPEAL BEFORE THE HON BLE HIGH COURT. 7 .2 AS THE FACTS AND CIRCUMSTA NCES DURING THE YEAR UNDER CONSIDERATION ARE SAME RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE WE DO NOT FIND ANY MERIT IN THE ACTION OF THE AO FOR DECLINING ASSESSEES CLAIM OF DEPRECIATION ON OBSOLETE ASSETS. 8 . GROUND N O.4 IS IN REGARD TO FAIR MARKET VALUE AS ON 01.04.1981 FOR COMPUTATION OF LT CAPITAL GAIN ON SALE OF 2 PLOTS OF MULUND FACTORY LAND TO MAFATLAL DYES & CHEM AND NICHOLAS PIRAMAL. IT WAS FAIRLY CONCEDED BY THE LD. AR THAT T HIS ISSUE IS COVERED BY THE DECISIO N OF THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 12 TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.1998 - 99 AND 1999 - 2000 AGAINST THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE WE DISMISS THIS GROUND OF ASSESSEE AND DECIDE IN FAVOUR THE DEPARTMENT. 9 . GR OUND NO. 5 IS REGARDING DISALLOWANCE U/S.14A. LEARNED AR STATED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.1990 - 91 AND 1998 - 99 IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE H IGH COURT. PRECISE OBSERVATION OF THE TRIBUNAL FOR THE A.Y.1998 - 99 READS AS UNDER : - 22. THE AO HAS NOT APPLIED SECTION 14A. IN FACT THIS SECTION WAS NOT IN THE STATUTE DURING THAT YEAR. THE LEARNED CIT(APPEALS) HAS FACTUALLY ANALYZED THE ISSUE AND HAS CO ME TO A CONCLUSION THAT NO EXPENDITURE CAN BE ATTRIBUTABLE TO THE EARNING OF TAX FREE INCOME. ON THIS FACTUAL MATRIX WE AGREE WITH THE LEARNED COUNSEL THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TOPSTAR MERCANTILE (P) LTD. VS. ACIT 2 25 CTR (BO M ) 351 APPLIES AND THE TRIBUNAL CANNOT SET ASIDE THE ISSUE FOR FRESH ADJUDICATION FOR APPLYING SECTION 14A. THE HONBLE HIGH COURT HELD AS FOLLOWS : IN THE ABSENCE OF ANY ADVERSE FINDING BY THE AO AGAINST THE ASSESSEE VIS - - VIS APPLICABILITY O F S. 14A TRIBUNAL WHILE ACCEPTING THE ASSESSEES CONTENTION WAS NOT CORRECT IN RECORDING THE DIRECTION TO CONSIDER THE APPLICABILITY OF S. 14A WHILE REMANDING THE MATTER. 23. RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. AGAINST THE ABOVE ORDER OF TRIBUNAL THE REVENUE HAS NOT FILED ANY APPEAL BEFORE THE HIGH COURT. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME RESPECTFULLY FOLLOWING THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 13 DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS DISCUSSED ABOVE WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE UNDER SECTION 14A. 10 . GROUND NO. 6 IS REGARDING DISALLOWANCE OF FULL REVENUE DEDUCTION OF VRS & EARLY RETIREMENT INCENTIVES AGGREGATING T O RS. 11 72 72 664/ - . IT WAS CONTENDED BY LEARNED AR THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE SUPREME COURT IN CASE OF K. RAVINDRANATHAN NAIR VS. CIT 247 ITR 178 (SC) IN FAVOUR OF THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FOSECO INDIA LTD 352 ITR 320 . LEARNED AR ALSO SUBMITTED THAT SIMILAR CLAIM OF RS. 41.64 CORES IN THE ASSESSMENT YEAR 1999 - 2000 WAS ALLOWED BY THE AO HIMSELF. 10 .1 WE HAVE HEARD THE RIVAL CONTENTIONS . FACTS IN BRIE F ARE THAT ASSESSEE HAS INCURRED EXPENDITURE UNDER VRS SCHEME FOR ITS VARIOUS UNITS AND HEAD OFFICE. THE ASSESSEE HAD SHOWN TOTAL COST INCURRED ON VRS AT RS. 41.64 CRORES INCURRED IN THE F INANCIAL YEAR 1998 - 1999 . OUT OF THIS VRS COST DEBITED IN THE FINANCI AL YEAR 1999 - 2000 IS RS. 2.82 CRORES AND 13.88 CRORES OUT OF VRS EXPENSES INCURRED DURING THE FINANCIAL YEAR 1998 - 99. THE AO DECLINED ASSESSEES CLAIM BY OBSERVING THAT ASSESSEE COMPANY STOPPED MANUFACTURING CERTAIN INDUSTRIAL PRODUCTS PERMANENTLY AT THIS MULUND UNIT THEREFORE BUSINESS OF ASSESSEE AS FAR AS MANUFACTURING OF THOSE PARTICULAR PRODUCTS WAS CONCERNED IS STOPPED. AS PER THE AO VRS EXPENSES INCURRED BY THE ASSESSEE IS ONLY ALLOWABLE TO IT IN CASE OF GOING CONCERN. AS PER AO T HE BUSINESS EXP ENDITURE IS ALLOWED FOR A BUSINESS ONLY WHEN IT IS ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 14 CARRIED ON BY THE ASSESSEE W HERE THE BUSINESS HAS BEEN CLOSED DOWN AND NOT MERELY SUSPENDED THE COMPENSATION PAID TO THE EMPLOYEES WHILE WINDING UP THE BUSINESS SHOULD NOT BE ALLOWED AS A DEDUCTION. THE AO ALSO OBSERVED THAT EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT IN THE NATURE OF VRS EXPENSES BUT IT IS EXPENSES INCURRED FOR COMPULSORY RETRENCHMENT AS PER AO THIS IS THE COST INCURRED BY THE ASSESSEE FOR WINDING UP AND NOT TO REACH ITS BUSINESS. IT IS NOT AT ALL COVERED BY THE SCHEME OF VRS. BY THE IMPUGNED ORDER THE CIT(A) BY OBSERVING THAT ENTIRE SUM DISALLOWED BY THE AO DOES NOT PARTAKE THE CHARACTER OF RETRENCHMENT COMPENSATION AND THAT PART OF THE AMOUNT IS ONE TIME CHARACTER OF EX - GRATIA PAYMENT THAT THE EMPLOYEES ARE ELIGIBLE TO RECEIVE EVEN OTHERWISE ON RETIREMENT OR RESIGNATION EVEN WHERE THERE IS NO CLOSURE IS TO BE ALLOWED. ACCORDINGLY IT WAS HELD BY THE CIT(A) THAT DISALLOWANCE IS TO BE RESTRICTED AS TO WHAT HAS BEEN PAID AS THE VRS AMOUNT AND EARLY RETIREMENT INCENTIVE FOR MULUND FACTORY THAT HAS ARISEN ON ACCOUNT OF CLOSURE INTO ACCOUNTING YEARS. AGAINST THIS ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 10 .2 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RE CORD THAT EXPENDITURE ON VRS DEBITED AND CLAIMED IN THIS YEAR WERE DULY APPROVED BY THE INCOME TAX DEPARTMENT ITSELF. EVEN DURING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION WE FOUND THAT MULUND FACTORY WAS WORKING AND THE AO WAS NOT JUSTIFIED IN OBS ERVING THAT EXPENDITURE WAS INCURRED FOR CLOSING THAT UNIT. WE FOUND THAT VARIOUS ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 15 MANUFACTURING UNIT OF ASSESSEE AT MULUND ANKLESHWAR AND GOA AND UNDER LOAN LICENCE AGREEMENT PART OF THE CORPORATE BUSINESS AND MANY OF THE PROJECTS WHICH WERE BEING MAINTAI NED AT MULUND WERE CONTINUED TO BE PRODUCED UNDER LOAN LICENCE AGREEMENT. AS THE EXPENDITURE SO INCURRED ON VRS WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS EVEN IF WE CONSIDER THE SAME UNDER THE PROVISION OF SECTION 37(1) SAME CANNOT BE DISALL OWED. APPLYING THE PROPOSITION OF LAW LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) AND HON BLE HIGH COURT IN THE CASE OF FOSECO INDIA LTD (SUPRA) TO THE FACTS OF THE INSTANT CASE WE DO NOT FIND ANY MERIT IN THE ACTION O F THE LOWER AUTHORITIES FOR DECLINING THE ASSESSEES CLAIM FOR DEDUCTION O F VRS AND EARLY RETIREMENT INCENTIVES PAID TO THE WORKERS. IN THE RESULT GROUND TAKEN BY THE ASSESSEE IS ALLOWED WHEREAS GROUND OF REVENUE IS DISMISSED. 11 . GROUND NO. 7 IS IN REGAR D TO SALES - TAX SET OFF AND REFUND AMOUNTING TO RS. 1 76 85 412 IS LIABLE TO BE INCLUDED IN THE TOTAL TURNOVER FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT AND GROUND NO. 8 IS REGARDING PROCESSING CHARGES OF RS.34 97 542 AND BAD DEBTS RECOVERE D AMOUNTING TO RS. 89 475/ - ARE REQUIRED TO BE REDUCED TO THE EXTENT OF 90% UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC FOR THE PURPOSES OF GRANTING RELIEF . THIS ISSUE OF ELIGIBILITY OF INCOME FROM PROCESSING CHARGES HAS BEEN CONSIDERED BY THE H ONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES VS. CIT 343 ITR 89 (SC) . THE TRIBUNAL ALSO IN ASSESSEES OWN CASE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 16 FOR A.Y.1999 - 2000 IN ITA NO.4180/MUM/2003 FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSUL ES (SUPRA) HELD AS UNDER : - 2.10.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY OF PROVISION OF EXPLANATION (BAA) TO PROCESSING CHARGES AND SALES TAX REFUND AND SETOFF. AS REGARDS THE PROCESSING CHARGES THE ISSUES IS COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN CASE OF RAVINDRANATHAN NAIR (295 ITR 228) IN WHICH IT HAS BEEN HELD THAT THE PROCESSING CHARGES FORM AN INDEPENDENT ITEM OF INCOME LIKE COMMISSION RENT ETC. AND THEREFORE 90% OF THE SAME IS REQUIRED TO BE REDUCED FROM PROFIT OF BUSINESS AS PER EXPLANATION (BAA). WE THEREFORE HOLD THE PROCESSING CHARGES WILL BE COVERED BY EXPLANATION (BAA). THE ISSUE OF APPLICABILITY OF PROVISION OF EXPLANATION (BAA) TO SEALS TAX REFUND HAD BEEN CO NSIDERED BY THE HONBLE HIGH COURT OF BOMBAY IN CASE OF DRESSER RAND (322 ITR 449) IN WHICH IT HAS BEEN HELD THAT RECEIPTS LIKE RECOVERY OF FREIGHT INSURANCE PACKING CHARGES SALES TAX REFUND AND SERVICE INCOME WILL NOT BE PART OF BUSINESS PROFIT AND HAS TO BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). SUBSEQUENTLY HOWEVER HONBLE HIGH COURT IN CASE OF PFIZER LTD. (330 ITR 62) AFTER REFERRING TO THE JUDGEMENT OF IN CASE OF DRESSER RAND (SUPRA) HELD THAT INSURANCE CLAIM ON STOCK IN TRADE WAS NOT AN INDEPENDENT ITEM OF INCOME AND THEREFORE HAS TO BE CONSIDERED AS INTEGRAL PART OF BUSINESS PROFIT. HOWEVER SINCE THE SALES TAX REFUND HAS BEEN SPECIFICALLY CONSIDERED BY THE HONBLE HIGH COURT IN CASE OF DRESSER RAND (SUPRA) RESPECTFULLY FOLLOWING THE SA ID DECISION WE HOLD THAT SALES TAX REFUND AND SET OFF WILL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). FURTHER THE ALTERNATE CLAIM OF THE ASSESSEE THAT ONLY THE NET RECEIPT SHOULD BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA) IS COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN CASE OF ACG ASSOCIATED CAPSULES P. LTD. V. CIT (343 ITR 89). WE THEREFORE DIRECT THE ASSESSING OFFICER ONLY THE NET RECEIPT AFTER DEDUCTING EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME WILL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). 11 . 1 IN VIEW OF THE ABOVE THE ISSUE WITH REGARD TO ALLOWING CLAIM OF DEDUCTION IN RESPECT OF SALES TAX SET OFF AND REFUND THE ASSESSEE IS NOT ELIGIBLE IN VIEW OF EXPLANATION (BAA) TO SECTION 80HHC. ACCORDINGLY WE DISMISS THIS GROUND OF ASSESSEES APPEAL AND DIRECT THE AO TO REDUCE THE AMOUNT OF SALES TAX REFUND FROM THE ELIGIBLE PROFIT FOR COMPUTING CLAIM OF DEDUCTION U/S.80HHC. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 17 11. 2 WITH RESPECT TO CLAIM OF DEDUCTION U/S.80HHC IN RESPECT OF PROCESSING CHARGES THE ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1999 - 2000 AS NARRATED ABOVE . RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE AO THAT ONLY NET RECEIPTS AFTER DEDUCTING EXPENDITURE INCURRED FOR EARNING SUCH INCOME WILL BE CONSIDERED FOR R EDUCTION FROM ELIGIBLE BUSINESS PROFIT AS PER EXPLANATION (BAA). MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING AS PER DIRECTION GIVEN BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEAR 1999 - 2000 IN ASSESSEES OWN CASE AS DISCUSS ED HEREINABOVE. 1 2 . GROUND NO. 9 IS IN REGARD TO CONFIRMING THE DISALLOWANCE OF BAD DEBTS TO THE EXTENT OF RS.464 239 / - . AS PER LEARNED AR T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT R ANCHI (2010) 323 ITR 397 (SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT THIS POSITION IN LAW IS WELL SETTLED. AFTER APRIL 1 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 12. 1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT BEFORE THE AO ASSESSEE HAS FURNISHED REASONS FOR WRITING OFF BAD DEBTS ALONG WITH DETAILS OF BAD DEBTS WRITTEN OFF. THE RE ASONS CITED BY THE ASSESSEE IN THE CASE OF BAD DEBTS PERTAIN TO OLD UNRECONCILED BALANCE SHORT ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 18 PAYMENT AGAINST INVOICES CONSIGNMENT LOSS IN TRANSIT AMOUNT SHORT PAID ETC. AS PER OUR CONSIDERED VIEW THE AMOUNT SO WRITTEN OFF BY THE ASSESSEE IS ELIGIBLE F OR DEDUCTION AS BAD DEBTS OR BUSINESS LOSS. MERELY BECAUSE THE AO WAS NOT CONVINCED WITH THE EFFORTS MADE BY THE ASSESSEE FOR RECOVERY OF THE BAD DEBTS NO DISALLOWANCE CAN BE MADE IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TRF 3 23 ITR 397 (SC) . 12. 2 FROM THE RECORD WE FIND THAT O UT OF THE TOTAL DISALLOWANCE OF RS. 11 22 804/ - CLAIMED AS BAD DEBTS WRITTEN OFF THE CIT(A) CONFIRMED THE DISALLOWANCE OF RS. 4 64 239/ - AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. THE PRECISE OBSERVATION OF THE CIT(A) WHILE RESTRICTING THE DISALLOWANCE TO RS. 4 64 239/ - WAS AS UNDER : - HOWEVER NO SUCH EVIDENCE HAS BEEN PRODUCED IN REGARD TO THE EXPORT DEBT OUTSTANDING AGAINST AO KOVI PHARMA RUSSIA AND MARK INTERNATIONAL RUSSIA TOTALING TO RS . 4 64 239/ - . IN RESPECT OF DOMESTIC DEBTS THE AMOUNTS ARE SMALL AND APPARENTLY ARE OUTSTANDING FOR A CONSIDERABLE PERIOD OF TIME. THEREFORE IF IN RESPECT OF THESE DOMESTIC DEBTS EVEN WITHOUT TAKING LEGAL COURSE OF ACTION IF THE APPELLANT AS A PRUDENT BU SINESS PERSON HAD ARRIVED AT THE CONCLUSION THAT THE DEBT HAD BECOME HAD AND WRITTEN OFF ALL THE AMOUNTS IN THE ACCOUNTS ITS CLAIM FOR DEDUCTION UNDER THE SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT IS REQUIRED TO BE ACCEPTED. IN TERMS OF THE AME NDED PROVISIONS OF LAW IN THIS REGARD NOTHING FURTHER NEEDED TO BE ESTABLISHED. IT IS CLEAR FROM THE ABOVE OBSERVATION OF THE CIT(A) THAT HE HAS ALREADY CONSIDERED AMENDED PROVISIONS OF LAW AND ALLOWED ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 36(1)( VII) EXCEPT AMOUNT OF RS. 4 64 239/ - . SINCE NO EVIDENCE WITH REGARD TO EXPORT DEBT OUTSTANDING WAS PRODUCED BEFORE THE CIT(A) HE HAS PARTLY CONFIRMED THE DISALLOWANCE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 19 OF RS.4 64 239/ - . IN THE INTEREST OF JUSTICE AND FAIR PLAY WE RESTORE THIS GROUND TO THE EX T ENT OF RS. 4 64 239/ - TO THE FILE OF AO FOR DECIDING AFRESH AND ASSESSEE IS DIRECTED TO FURNISH DETAILS REGARDING INCOME ACCOUNTED FOR IN RESPECT OF EXPORT TO AOKOVI PHARMA RUSSIA AND MARK INTERNATIONAL RUSSIA . 1 3 . THE ADDITIONAL GROUND RAISED BY THE A SSESSEE PERTAINS TO TAXING RS.5 53 63 662/ - AS SHORT TERM CAPITAL GAIN ARISING ON SALE OF HAEMACCEL BRAND AND OMNATAX BRAND. IT WAS CONTENDED BY THE LD. AR THAT T HIS ISSUE HAS BEEN DECIDED BY THE HONBLE SURPEME COURT IN CASE OF CIT VS. B.C.SRINIVASA SHETT Y REPORTED IN 128 ITR 294 (SC) WHEREIN THE HON BLE APEX COURT HAS HELD AS UNDER : - WE ARE OF OPINION THAT THE GOODWILL GENERATED IN A NEWLY COMMENCED BUSINESS CANNOT BE DESCRIBED AS AN 'ASSET' WITHIN THE TERMS OF SECTION 45 AND THEREFORE ITS TRANSFER IS NOT SUBJECT TO INCOME - TAX UNDER THE HEAD 'CAPITAL GAINS'. THE QUESTION WHICH HAS BEEN RAISED BEFORE US HAS BEEN CONSIDERED BY SOME HIGH COURTS AND IT APPEARS THAT THERE IS A CONFLICT OF OPINION. THE MADRAS HIGH COURT IN CIT V. K. RATHNAM NADAR [1969] 71 ITR 433 THE CALCUTTA HIGH COURT IN CIT V. CHUNILAL PRABHUDAS & CO. [1970] 76 ITR 566 THE DELHI HIGH COURT IN JAGDEV SINGH MUMICK V. CIT [1971] 81 ITR 500 THE KERALA HIGH COURT IN CIT V. E.C. JACOB [1973] 89 ITR 88 [FB] THE BOMBAY HIGH COURT IN CIT V . HOME INDUSTRIES AND CO. [1977] 107 ITR 609 AND CIT V. MICHEL POSTEL [1978] 112 ITR 315 AND THE MADHYA PRADESH HIGH COURT IN CIT V. JASWANTLAL DAYABHAI [1978] 114 ITR 798 HAVE TAKEN THE VIEW THAT THE RECEIPT ON THE TRANSFER OF GOODWILL GENERATED IN A BUSI NESS IS NOT SUBJECT TO INCOME - TAX AS A CAPITAL GAIN. ON THE OTHER SIDE LIES THE VIEW TAKEN BY THE GUJARAT HIGH COURT IN CIT V. MOHANBHAI PAMABHAI [1973] 91 ITR 393 AND THE CALCUTTA HIGH COURT IN K.N. DAFTARY V. CIT [1977] 106 ITR 998 THAT EVEN IF NO COST I S INCURRED IN BUILDING UP THE GOODWILL OF THE BUSINESS IT IS NEVERTHELESS A CAPITAL ASSET FOR THE PURPOSE OF CAPITAL GAINS AND THE COST OF ACQUISITION BEING NIL THE ENTIRE AMOUNT OF SALE PROCEEDS RELATING TO THE GOODWILL MUST BE BROUGHT TO TAX UNDER THE HEAD 'CAPITAL GAINS'. IT IS APPARENT THAT THE PREPONDERANCE OF JUDICIAL OPINION FAVOURS THE VIEW THAT THE TRANSFER OF GOODWILL INITIALLY GENERATED IN A BUSINESS DOES NOT GIVE RISE TO A CAPITAL GAIN FOR THE PURPOSES OF INCOME - TAX. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 20 UPON THE AFORESAID CONSIDE RATION CIVIL APPEAL NO. 1146(T) OF 1975 AND CIVIL APPEAL NO. 1378 OF 1976 MUST BE DISMISSED. CIVIL APPEAL NO. 926 OF 1973 RAISES THE SAME QUESTION WITH REFERENCE TO SECTION 12B INDIAN IT ACT 1922. AS THE RELEVANT STATUTORY PROVISIONS OF THE INDIAN IT A CT 1922 ARE SUBSTANTIALLY SIMILAR TO THE CORRESPONDING PROVISIONS OF THE IT ACT 1961 THAT APPEAL IS ALSO LIABLE TO BE DISMISSED. ACCORDINGLY THE APPEALS ARE DISMISSED WITH COSTS. 1 4 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE AO HAS TA XED STCG OF RS. 5.53 CORES ON SALE OF HAEMACCEEL BRAND & OMNATAX BRAND. IN THE RETURN OF INCOME ORIGINALLY FILED U/S.139(1) OF THE ACT THE ASSESSEE COMPANY HAD SHOWN THE ENTIRE RECEIPT ARISING TO IT ON SALE OF TECHNOLOGY AS WELL AS ON SALE OF TRADE MARK A S NOT CHARGEABLE TO TAX. HOWEVER IN THE SUBSEQUENT REVISED RETURN FILED IT HAD OFFERED FOR TAX THE RECEIPT ARISING ON SALE OF TECHNOLOGY AS CHARGEABLE TO TAX AS LONG TERM CAPITAL GAINS. HOWEVER RECEIPT ON SALE OF TRADE MARK WAS STILL CLAIMED AS EXEMPT O N THE GROUND THAT THE ASSESSEE COMPANY HAD NOT INCURRED ANY COST FOR THE ACQUISITION OF THESE TRADE MARKS. THE CLAIM WAS MADE RELYING UPON THE DECISION OF THE APEX COURT IN THE CASE OF THE B.C. SRINIVASA SHETTY (SUPRA). THE ASSESSEE COPANY HAD THUS CLAIMED THAT THE CONSIDERATION RECEIVED IS NOT TAXABLE AND HENCE IS NOT INCLUDED IN THE COMPUTATION OF LONG TERM CAPITAL GAINS. THIS CLAIM OF THE ASSESSEE WAS HOWEVER NOT ACCEPTED BY THE ASSESSING OFFICER WHO AFTER ANALYZING THE BASIS ON WHICH THE RIGHT6 OVER TR ADE MARKS GOT ACQUIRED CAME TO THE CONCLUSION THAT CERTAIN PORTION OF THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY OVER A PERIOD OF TIME AND CLAIMED AS DEDUCTION UNDER VARIOUS HEADS CAN BE RELATED TO THE COST OF ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 21 AC QUISITION OF THESE TRADE MARKS. ON THA T BASIS HE CONCLUDED THAT THE RECEIPT CLAIMED AS EXEMPT FROM TAX THAT IS ARISING TO THE APPELLANT ON TRANSFER OF TRADEMARKS IS CHARGEABLE TO TAX AND BROUGHT THE AMOUNT SO DETERMINED TO TAX AS INCOME OF THE APPELLANT UNDER THE HEAD SHORT TERM CAPITAL GAINS . HOWEVER THIS GROUND WAS NOT TAKEN BEFORE THE CIT(A) . THEREFORE HE HAS NOT DECIDED THE ISSUE. IN THE FITNESS THINGS WE RESTORE THIS GROUND TO THE FILE OF THE CIT(A) FOR DECIDING ON MERIT AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE AND ALSO CONSIDERING THE DECISION OF THE OF THE H O N BLE SUPREME COURT IN THE CASE OF B.C.SRINIVASA SHETTY (SUPRA) . WE DIRECT ACCORDINGLY. NOW WE TAKE THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL NOT DECIDED HEREINABOVE. 1 5 . GROUND NO.(III) IN REVENUES APPEAL IS REGARD ING DISALLOWANCE OF INTEREST ATTRIBUTABLE TO TAX FREE INVESTMENT INCOME IN CHIRON BEHRING VACCINES PVT. LTD.. LEARNED AR AT THE OUTSET SUBMITTED THAT THE VERY ISSUE HAS BEEN DECIDED BY THE TRIBUNAL FOR A.Y.1999 - 2000 IN ITA NO4180/MUM/2009 IN ASSESSEES O WN CASE VIDE ORDER DATED 20 - 2 - 2013. THE PRECISE OBSERVATION OF THE TRIBUNAL READS AS UNDER : - 3.3 THE FOURTH DISPUTE IS REGARDING DISALLOWANCE OF INTEREST ATTRIBUTABLE TO TAX FREE INCOME FROM INVESTMENT IN CHIRON BEHRING VACCINES PRIVATE LIMITED. THE ASSE SSEE HAD MADE INVESTMENT OF RS.4.90 CR IN EQUITY SHARES OF CHIRON BEHRING VACCINES PRIVATE LIMITED AND THE SOURCES OF INVESTMENT HAD BEEN EXPLAINED AS SALE PROCEEDS OF RS.19 CR FROM SALE OF ASSETS TO THE SAID COMPANY. CIT(A) ACCEPTED THE CLAIM OF SALE PROC EEDS BUT CONFIRMED DISALLOWANCE OF INTEREST FOR 20 DAYS AS THERE WAS TIME GAP OF 20 DAYS BETWEEN DATE OF INVESTMENT AND DATE OF RECEIPT. NO MATERIAL IS PLACED ON RECORD BEFORE US TO CONTROVERT THE CLAIM OF THE ASSESSEE REGARDING AVAILABILITY OF SALE PROCEE DS. FURTHER WHILE DEALING WITH THE APPEAL OF THE ASSESSEE WE HAVE DELETED THE DISALLOWANCE OF ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 22 INTEREST EVEN FOR 20 DAYS UPHELD BY CIT(A). THEREFORE THE APPEAL FILED BY THE REVENUE DESERVES TO BE DISMISSED. THE ORDER OF CIT(A) IS UPHELD. 15.1 WE HAVE G ONE THROUGH THE ORDER PASSED BY THE TRIBUNAL AND FOUND THAT THE AFORESAID ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR . AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR ARE SAME RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE AS CITED ABOVE BY THE LEARNED AR WE DISMISS THE GROUND RAISED BY THE REVENUE . 1 6 . GROUND NO. ( IV ) IN REVENUES APPEAL IS REGARDING DIRECTING THE AO TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S.80HHC. THIS ISSUE HAS BEEN DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667(SC ) WHEREIN IT WAS HELD THAT EXCISE DUTY HAS NO ELEMENT OF PROFIT THEREFORE NOT INCLUDIBLE IN TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S. 80HHC . RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DIRECTING FOR EXCLUSION OF EXCISE DUTY FROM THE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S.80HHC. 1 7 . GROUND NO. ( V ) IS REGARDING EXCLUDING ONLY PROCESSING CHARGES AND BAD DEBTS FROM THE TOTAL TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S.80HHC. THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAVINDRANATHAN NAIR 295 ITR 228(SC) WHEREI N THE HONBLE SUPREME COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 23 21. AT THE OUTSET WE MAY STATE THAT IN THE PRESENT CASE WE ARE DEALING WITH THE LAW AS IT STOOD DURING ASSESSMENT YEAR 1993 - 94. AT THAT TIME SECTION 80HHC(3) OF THE I.T. A CT CONSTITUTED A CODE BY ITSELF. SUBSEQUENT AMENDMENTS HAVE IMPOSED RESTRICTIONS/QUALIFICATIONS BY WHICH THE SAID PROVISION HAS CEASED TO BE A CODE BY ITSELF. IN THE ABOVE FORMULA THERE EXISTED FOUR VARIABLES NAMELY BUSINESS PROFITS EXPORT TURNOVER TOT AL TURNOVER AND 90% OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANATION. IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ALL FOUR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VARIABLES WERE REQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTI ON OF SECTION 80HHC(3) SECURES PROFITS DERIVED FROM THE EXPORTS OF ELIGIBLE GOODS. THEREFORE IF ALL THE FOUR VARIABLES ARE KEPT IN MIND IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NECESSARILY INCLUDE ELEMENT OF EXPORT TUR NOVER. THIS ASPECT NEEDS TO BE KEPT IN MIND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 90% OF INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF LIKE NATU RE INCLUDED IN BUSINESS PROFITS HAD TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 TO 44D OF THE I.T. ACT. IN OTHER WORDS RECEIPTS CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE REDUCED FROM BUSINE SS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES ETC. FORMED PART OF GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSES OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVING EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND 'INDEPENDENT INCOMES' CONSTITUTED PART OF GROSS TOTAL INCOME THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH R ECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE IN THE ABOVE FORMULA WE HAVE TO READ ALL THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPORTS. THAT EVERY RECEIPT IS N OT INCOME UNDER THE I.T. ACT AND EVERY INCOME MAY NOT BE ATTRIBUTABLE TO EXPORTS. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FOR AND ON BEHALF OF THE GOVERNMENT SHALL NOT BE INCLUDE D IN THE TOTAL TURNOVER IN THE ABOVE FORMULA (SEE: COMMISSIONER OF INCOME TAX COIMBATORE V. M/S. LAKSHMI MACHINE WORKS - 2007(6) SCALE 168). 22. IN THE PRESENT CASE THE PROCESSING CHARGES WERE INCLUDED I N THE GROSS TOTAL INCOME FROM CASHEW BUSINESS. THAT EVEN ACCORDING TO ASSESSEE THE SAID CHARGES CONSTITUTED AN IMPORTANT COMPONENT OF GROSS TOTAL INCOME FROM CASHEW BUSINESS. THIS IS NOT DISPUTED. THEREFORE IN TERMS OF CLAUSE (BAA) 90% OF THE 'INDEPENDE NT INCOME' HAD TO BE DEDUCTED FROM GROSS TOTAL INCOME TO ARRIVE AT BUSINESS PROFITS TO WHICH THE FRACTION HAD TO BE APPLIED. SINCE THE PROCESSING CHARGES CONSTITUTED INDEPENDENT INCOME SIMILAR TO RENT COMMISSION ETC. WHICH FORMED PART OF THE GROSS TOTA L INCOME THE SAME HAD TO BE REDUCED BY 90% AS CONTEMPLATED IN CLAUSE (BAA) TO ARRIVE AT BUSINESS PROFITS. THEREFORE THE SAID PROCESSING CHARGES ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 24 WERE INCLUDIBLE IN THE TOTAL TURNOVER IN THE FORMULA UNDER SECTION 80HHC(3) OF THE I.T. ACT. 23. BEFORE CONCLU DING WE STATE THAT THE NATURE OF EVERY RECEIPT NEEDS TO BE ASCERTAINED IN ORDER TO FIND OUT WHETHER THE SAID RECEIPT FORMS PART OF/OR THAT IT HAS AN ATTRIBUTE OF AN EXPORT TURNOVER. WHEN AN INDIRECT TAX IS COLLECTED BY THE TAXPAYER ON BEHALF OF THE GOVERNM ENT THE TAX RECOVERED IS FOR THE GOVERNMENT. IT MAY BE AN INCOME IN THE CONCEPTUAL SENSE OR EVEN UNDER THE I.T. ACT BUT WHILE WORKING OUT THE FORMULA UNDER SECTION 80HHC(3) OF THE I.T. ACT AND WHILE APPLYING THE FOUR VARIABLES ONE HAS TO ASCERTAIN WHETHER THE RECEIPT HAS AN ATTRIBUTE OF EXPORT TURNOVER. AN INDIRECT TAX LIKE EXCISE DUTY DOES NOT HAVE THAT ELEMENT OF EXPORT TURNOVER AS UNDERSTOOD IN THE ABOVE FORMULA. AS STATED ABOVE IT IS RECOVERED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT. THEREFORE IN THE PRESENT CASES OUR JUDGMENT IN COMMISSIONER OF INCOME TAX COIMBATORE V. M/S. LAKSHMI MACHINE WORKS - 2007(6) SCALE 168 HAS NO APPLICATION. 24. ACCORDINGLY THE IMPUGNED JUDGMENTS OF THE HIGH COURT AN D THE TRIBUNAL ARE SET ASIDE AND THE ABOVE CIVIL APPEALS FILED BY THE DEPARTMENT ARE ACCORDINGLY ALLOWED WITH NO ORDER AS TO COSTS. 17.1 THIS ISSUE HAS BEEN DISCUSSED BY US AT PARA 11 .2 HEREINABOVE ACCORDINGLY THE AO TO RECOMPUTE THE DEDUCTION U/S.80HHC AFTER EXCLUDING THE NET INCOME FROM PROCESSING CHARGES . HOWEVER BAD DEBTS RECOVERED IS NEITHER PART OF TOTAL TURNOVER NOR EXPORT TURNOVER FOR THE PURPOSE OF SECTION 80HHC THEREFORE SAME IS REQUIRED TO BE EXCLUDED FROM ELIGIBLE PROFIT FOR THE PURPOSE OF CLAUSE (BAA) . 18 . GROUND NO. (VI) IS IN REGARD TO RECOMPUTATION OF INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A MIXED EXPORTER IN THE YEAR UNDER CONSIDERATION AND HAS THEREFORE CLAIMED DEDUCTION IN TERMS OF CLAUSES (I) AND (II) OF SECTION 80HHC(3)(C) IN REGARD TO THE EXPORT OF MANUFACTURED GOODS AND TRADING GOODS. A FURTHER DEDUCTION OF RS.56 62 707/ - WAS CLAIMED IN TERMS OF THE PROVISO TO THE SECTION 80HCC(3) OF THE ACT. IN REGARD TO THE ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 25 COMPUTATION OF DE DUCTION UNDER THE SECTION THE ASSESSEE HAS EXPRESSED GRIEVANCES IN RESPECT OF TAKING THE INDIRECT COST FOR COMPUTING THE DEDUCTION IN RESPECT OF EXPORT OF TRADING GOODS AT A HIGHER AMOUNT HOLDING THAT ALL EXPENSES NOT DIRECTLY RELATED TO MANUFACTURING ACT IVITIES TO BE TAKEN FOR THE SAID PURPOSE. 18 .1 IT WAS CONTENDED BY THE LEARNED D R THAT T HIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.1998 - 99 WHEREIN THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT WHEREIN THE TRIBUNAL HAS HELD AS UNDER : - 10.12 IT IS CLEAR FROM THE WORKING OF THE ASSESSING OFFICER THAT FOR DETERMINING THE INDIRECT COST THE AO HAS REDUCED FROM THE TOTAL COST OF BUSINESS COST OF GOODS AS WELL AS THE OTHER ITEMS. THEREFORE WE DO NO T FIND ANY ERROR AS FAR AS THE FORMULA ADOPTED BY THE ASSESSING OFFICER FOR COMPUTATION OF INDIRECT COST ALLOCATED TO THE EXPORT OF TRADING GOODS. 1 8 .2 ON THE OTHER HAND LEARNED SENIOR AR APPEARING FOR THE ASSESSEE CONTENDED THAT THE AO COMMITTED FACTU AL ERROR IN DETERMINING THE INDIRECT COST INSOFAR AS NO EXPORT WAS EFFECTED FROM HYDERABAD BRANCH THEREFORE THE COST AT HYDERABAD BRANCH WITH RESPECT TO THE LOCAL SALES CANNOT BE ATTRIBUTED TO THE EXPORT OF TRADING GOODS EFFECTED FROM MUMBAI. AS PER LEA RNED SENIOR AR FOR THE PURPOSE OF COMPUTATION OF INDIRECT COST ALLOCABLE TO THE EXPORT OF GOODS UNDER SECTION 80HHC(3B) THE EXPENSES WHICH HAS NOTHING TO DO WITH THE EXPORT OF TRADING GOODS SHOULD BE EXCLUDED. HE FURTHER CONTENDED THAT THOSE EXPENSES WHI CH RELATE TO EITHER MANUFACTURING OF GOODS OR TO DOMESTIC SALES SHOULD NOT BE CONSIDERED AS INDIRECT EXPENSES FOR THE PURPOSE OF ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 26 COMPUTATION OF DEDUCTION IN RESPECT OF TRADING GOODS. AS PER LEARNED AR HYDERABAD BRANCH DID NOT CARRY OUT ANY ACTIVITY RELATI NG TO EXPORT OF TRADING GOODS THEREFORE THERE IS NO JUSTIFICATION FOR REDUCING THE PROFIT OF TRADING EXPORT BY HYDERABAD BRANCH EXPENSES. 18 .3 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE HAS BEEN DEALT BY T HE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998 - 99. WE FOUND THAT IN THE CROSS OBJECTION (I.E . CO NO. 65 /MUM/20 05 ) ALSO THE ASSESSEE HAS RAISED FOLLOWING ISSUE : - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMM ISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN HOLDING THAT IN COMPUTING THE DEDUCTION IN RESPECT OF EXPORT OF TRADING GOODS UNDER SECTION 80HHC OF THE INCOME - TAX ACT 1961 THE EXPENDITURE INCURRED AT THE BRANCHES OF THE APPELLANT COMPANY TO THE EXTENT NOT DIRECTLY RELATED TO DOMESTIC SALE WAS LIABLE TO BE TREATED AS PART OF INDIRECT COST OF TRADING EXPORTS WITHOUT APPRECIATING THE FACT THAT THE BRANCHES DID NOT CARRY OUT ANY ACTIVITY RELATING TO TRADING EXPORT. HE OUGHT NOT TO HAVE DONE SO. 18 .4 WE FOUND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.1998 - 99 IN ITA NO.4179/MUM/2003 VIDE ORDER DATED 12 - 12 - 2012 WHEREIN THE TRIBUNAL HAS UPHELD THE ACTION OF AO FOR COMPUTING PROFIT OF TRADING EXPORT AFTER HAVING D ETAILED DISCUSSION WHICH READS AS UNDER : - 10 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THOUGH THE ISSUE BEFORE US IS LIMITED ONLY TO THE EXTENT OF A FINDING OF THE CIT(A) PERTAINING TO THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO BE TAKEN AS PART OF INDIRECT COST FOR WORKING OUT THE DEDUCTION U/S 80HHC (3)(B). HOWEVER THE SAID FINDING OF THE CIT(A) IS BASED ON THE VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX(APPEALS) THAT U/S SUB.SEC. 3(B) OF SEC. 80 HHC INDIRECT COST ATTRIBUTABLE TO EXPORT INCLUDES THE ITEMS OF EXPENDITURE ONLY IF IT HAS SOME CONNECTION LINK ATTRIBUTES TO ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 27 EXPORT. THIS PROPOSITION PROPOUNDED BY THE CIT(A) IS APPARENTLY AGAINST THE PROVISIONS OF SECTION 80HHC(3)(B). IF THE PROVISIONS OF SEC 80HHC(3)(B) ARE READ IN CONJUNCTION WITH CLAUSE (E) OF EXPLANATION TO THE SAID SUB. SECTION IT IS CLEAR THAT THE INDIRECT COST FOR THE PURPOSE OF ALLOCATION UNDER SUB.SEC (3) SHALL BE TAKEN AS THE TOTAL INDIRECT COST INCURRED FOR THE TOTAL TURNOVE R (LOCAL + EXPORT) AND THE SAME HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER. 10.1 FOR READY REFERENCE WE QUOTE SEC 80HHC(3)(B) AND CLAUSE (E) OF EXPLANATION AS UNDER: [(3) FOR THE PURPOSES OF SUB - SECTION (1 ) (A) . (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOODS THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER45 IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT; ( C) EXPLANATION. FOR THE PURPOSES OF THIS SUB - SECTION (A) .. (B) (D) . (E) 'INDIRECT COSTS' MEANS COSTS NOT BEING DIRECT COSTS ALLOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVE R ; (F) 10.2 IT IS CLEAR FROM THE COMBINED READING OF SUB. SEC. 3(B) AND CLAUSE (E) OF EXPLANATION TO SEC. 80HHC(3) THAT THE PROFIT DERIVED FROM EXPORT OF TRADING GOODS SHALL BE THE EXPORT TURNOVER OF TRADING GOODS MINUS DIRECT COST AND INDIRECT COST ATTRIBUTABLE TO SUCH EXPORTS. THE INDIRECT COST HAS BEEN DEFINED UNDER CLAUSE (E) OF EXPLANATION WHICH MEANS THE INDIRECT COST WHICH IS NOT DIRECT COST AND ALLOCATED IN THE RATIO OF EXPORT OF TRADING GOODS TO THE TOTAL TURNOVER. 10.3 THE TOTAL TURNO VER FURTHER DEFINED UNDER CLAUSE (BA) OF EXPLANATION TO SUB SEC. 4C. THEREFORE THE TOTAL TURNOVER INCLUDES THE LOCAL SALES AS WELL AS THE EXPORT SALES REGARDING MANUFACTURING GOODS AND TRADING GOODS EXCEPT CERTAIN ITEMS WHICH SHALL BE INCLUDED AS PER CLAU SE (BA). WHEN THE INDIRECT COST HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER THEN THE INDIRECT COST SUBJECTED TO BE ALLOCATED IN THE SAID RATIO INCLUDES ALL ITEMS OF INDIRECT COST INCURRED FOR THE TOTAL TURNOV ER. 10.4 IT IS MANIFEST FROM THE PLAN READING OF THE RELEVANT PROVISIONS THAT THE INDIRECT COST FOR THE PURPOSE OF SEC. 80HHC (3)(B) R.W.S CLAUSE (E) OF EXPLANATION DOES NOT RESTRICT THE ITEMS OF EXPENDITURE INCURRED IN RELATION TO EXPORT OF TRADING GOOD S ONLY; BUT THE ENTIRE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER WHICH ITSELF MAKES IT CLEAR THAT ONLY SUCH PORTION OF THE TOTAL INDIRECT COST IN THE RATIO OF EX PORT TURNOVER OF THE TRADING GOODS TO THE TOTAL TURNOVER SHALL BE ALLOCATED FOR THE PURPOSE OF COMPUTING THE PROFITS DERIVED FROM SUCH EXPORT U/S 80HHC(3)(B). ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 28 10.5 THOUGH THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE FINDINGS OF THE CIT(A); HOWEVER TH E REVENUE BEING THE RESPONDENT CAN RAISE AN PLEA AGAINST SUSTAINABILITY OF THE ORDER OF THE CIT(A); BUT THE EFFECT OF SUCH PLEA WOULD BE ONLY TO THE EXTENT OF DEFENCE AGAINST THE APPEAL AND IF THE RESPONDENT/REVENUE SUCCEEDS IN THE SAID GROUND/PLEA THEN THE APPEAL OF THE APPELLANT/ASSESSEE WOULD FAIL. 10.6 THE SCOPE OF RAISING A PLEA AGAINST THE SUSTAINABILITY OF THE IMPUGNED ORDER AS THE RESPONDENT DEFENDED AGAINST THE APPEAL FILED BY OTHER PARTY HAS BEEN PROVIDED UNDER RULE 27 OF ITAT RULES; THEREFORE THOUGH THE IMPUGNED ORDER OF THE CIT(A) WOULD STAND AND WILL HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE REVENUE; BUT IF THE PLEA RAISED BY THE REVENUE IS ACCEPTED AS REGARDS THE VALIDITY OF THE IMPUGNED ORDER BUT THEN THE REVENUE SUCCEEDS ONLY TO THE EXTENT THAT THE APPEAL OF THE ASSESSEE WOULD FAIL. 10.7 THE SCOPE OF RULE 27 OF ITAT RULES HAS BEEN DISCUSSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BAMASI (B.R.) V. COMMISSIONER OF INCOME - TAX REPORTED IN 83 ITR 223 AS UNDER; BUT EV EN IF THE ASSESSEE HAD NOT MADE SUCH A STATEMENT THE ABOVE JUDGMENT SHOWS THAT THE ASSESSEE WOULD BE ENTITLED TO RAISE A NEW GROUND PROVIDED IT IS A GROUND OF LAW AND DOES NOT NECESSITATE ANY OTHER EVIDENCE TO BE RECORDED THE NATURE OF WHICH WOULD NOT O NLY BE A DEFENCE TO THE APPEAL ITSELF BUT MAY ALSO AFFECT THE VALIDITY OF THE ENTIRE ASSESSMENT PROCEEDINGS. IF THE GROUND SUCCEEDS THE ONLY RESULT WOULD BE THAT THE APPEAL WOULD FAIL. THE ACCEPTANCE OF THE GROUND WOULD SHOW THAT THE ENTIRE ASSESSMENT PR OCEEDINGS WERE INVALID BUT YET THE TRIBUNAL WHICH HEARS THAT APPEAL WOULD HAVE NO POWER TO DISTURB OR TO SET ASIDE THE ORDER IN FAVOUR OF THE APPELLANT AGAINST WHICH THE APPEAL HAS BEEN FILED. THE GROUND WOULD SERVE ONLY AS A WEAPON OF DEFENCE AGAINST THE APPEAL. IF THE RESPONDENT HAS NOT HIMSELF TAKEN ANY PROCEEDINGS TO CHALLENGE THE ORDER IN APPEAL THE TRIBUNAL CANNOT SET ASIDE THE ORDER APPEALED AGAINST. THAT ORDER WOULD STAND AND WOULD HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE RESPONDENT. THE TR IBUNAL REFUSED TO ALLOW THE ASSESSEE TO TAKE UP THIS GROUND UNDER AN INCORRECT IMPRESSION OF LAW THAT IF THE POINT WAS ALLOWED TO BE URGED AND SUCCEEDED THE TRIBUNAL WOULD HAVE NOT ONLY TO DISMISS THE APPEAL BUT ALSO TO SET ASIDE THE ENTIRE ASSESSMENT. T HE POINT WOULD HAVE SERVED AS A WEAPON OF DEFENCE AGAINST THE APPEAL BUT IT COULD NOT BE MADE INTO A WEAPON OF ATTACK AGAINST THE ORDER IN SO FAR AS IT WAS AGAINST THE ASSESSEE. 10.8 THE CIT(A) HAS GI VEN THE FINDINGS ON THE ISSUE I N PARAS 28 TO 30 AS U NDER; 28. AFTER CAREFUL CONSIDERATION OF THE SUBMISSION IT HAS TO BE SAID THAT THE SECTION OF THE ASSESSING OFFICER DOES NOT APPEAR TO BE CORRECT. WHAT CANNOT BE IGNORED IS THAT SUBSECTION (3)(B)DEDUCTION INTER - ALIA OF INDIRECT COST ATTRIBUTABLE TO SUCH EXPORTS. THE PHRASE ATTRIBUTABLE TO SUCH EXPORT CANNOT BE MISSED OUT. THEREFORE AN ITEM OF EXPENDITURE CAN BE TAKEN AS COST FOR THE PURPOSE ONLY IF IT HAS SOME CONNECTION LINK ATTRIBUTES TO THE EXPORT. IF THE EXPENDITURE IS ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 29 TOTALLY DISCONNECTED WITH TH E EXPORT ACTIVITY IT CANNOT BE TAKEN AS PART OF THE INDIRECT COSTS THEREFORE THE ASSESSING OFFICER HAS DEFINITELY GONE BEYOND WHAT IS PROVIDED IN THE ACT TO WORKOUT THE INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS. 29. IN ORDER TO DETERMINE C ORRECTLY THE INDIRECT COST THE APPELLANTS REPRESENTATIVE WAS ASKED TO FURNISH THE DETAILS OF TRADING EXPORT ACTIVITIES. IN THIS REGARD THE DETAILS REVEAL THAT THE TRADING GOODS EXPORTS COMPRISE PARTLY OF GOODS IMPORTED AND PARTLY PURCHASED LOCALLY EITHER FROM MUMBAI OR ELSEWHERE. IT WAS SUBMITTED THAT THE MATERIAL DEPARTMENT OF THE COMPANY PROCURED ITEMS OF TRADING EXPORTS. ALL ACTIONS AND FORMALITIES FOR EXPORTS ARE CARRIED OUT BY EXPORT DEPARTMENT. EXPENSES OF BOTH THESE DEPARTMENTS ARE BOOKED AS HEAD O FFICE EXPENSES. THE APPELLANTS REPRESENTATIVE FURNISHED THE DETAILS OF HEAD OFFICE EXPENSES. IT WAS CLAIMED THAT SOME OF THE EXPENSES INCURRED THEREIN ARE FOR DOMESTIC ACTIVITIES AND ONLY EXPENDITURE AMOUNTING TO RS.29 04 71 863/ - IS SUCH THAT IS TO BE TA KEN AS SOMEHOW ATTRIBUTABLE TO EXPORTS TO BE TAKEN AS PART DIRECT EXPENSES. A PERUSAL OF THE DETAILS SHOW THAT AS FAR AS THE HEAD OFFICE EXPENSES IS CONCERNED THE WORKING THEREOF IS CORRECT AND HENCE NEEDED TO BE ACCEPTED. 30 HOWEVER THE APPELLANT COMPA NY EXPORTED TRADING GOODS DURING THE YEAR THAT WERE PROCURED FROM HYDERABAD AND MUMBAI. AT BOTH THE PLACES THE APPELLANT COMPANY HAS BRANCH OFFICES APART FROM THE HEAD OFFICE BEING LOCATED IN MUMBAI. THOUGH IT WAS CLAIMED THAT THE JOB OF PROCUREMENT OF TRA DING GOODS EXPORTED ARE CARRIED OUT FROM HEAD OFFICE THAT IS HAVING SEPARATE PROCUREMENT AND EXPORT DIVISIONS WHILE THE INVOLVEMENT OF BRANCH OFFICE AT MUMBAI CAN BE RULED OUT WITH A SPECIFIC OFFICE FOR THE PURPOSE LOCATED THEREIN IN RESPECT OF THE BRANC H OFFICE AT HYDERABAD THE OTHER PLACE FOR PROCUREMENT THE SAME CANNOT BE ACCEPTED. HENCE THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO THE EXTENT NOT DIRECTLY RELATED TO DOMESTIC SALES IS ALSO REQUIRED TO BE TAKEN AS PART OF THE INDIRECT COST FO R WORKING OUT DEDUCTION UNDER SECTION 80 HHC (3)(B) OF THE ACT THE ASSESSING OFFICER SHALL REWORK OUT THE INDIRECT COST UNDER THE SECTION ACCORDINGLY. X X X X X X 10.10 AS WE HAVE ALREADY DISCUSSED THAT FOR THE PURPOSE OF SEC. 80HHC(3)(B) R.W.CLAUSE (E) OF EXPLANATION THE INDIRECT COST TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER HAS TO BE TAKEN AS THE TOTAL FIGURE OF THE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER AND NOT THE INDIRECT COST DIRECTLY RELATED TO THE EXPORT TURNOVER AS HELD BY THE CIT(A). X X X X X X X 10.12 IT IS CLEAR FROM THE WORKING OF THE ASSESSING OFFICER THAT FOR DETERMINING THE INDIRECT COST THE AO HAS REDUCED FROM THE TOTAL COST OF BUSINESS COST OF GOODS AS WELL AS THE OTHER ITEMS. THEREFORE WE DO NOT FIND ANY ERROR AS FAR AS THE FORMULA ADOPTED BY THE ASSESSING OFFICER FOR COMPUTATION OF INDIRECT COST ALLOCATED TO THE EXPORT OF TRADING GOODS. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 30 18 .5 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME RESP ECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE THE GROUND IN THE REVENUES APPEAL IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 19 . GROUND NO.(VII) IS REGARDING DIRECTING THE AO TO CALCULATE DEDUCTION U/S.8 0HHC WITHOUT REDUCING 90% OF THE DEPB LICENSE SOLD WITHOUT APPRECIATING THE FACTS OF THE CASE. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT 342 ITR 49 (SC) WHEREIN TH E HONBLE SUPREME COURT HAS HELD AS UNDER : - THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MADE PROFITS ON TRANSFER OF DEPB UNDER CLAUSE (D) OF SECTION 28 HE WO ULD NOT GET THE BENEFIT OF ADDI TION TO EXPORT PROFITS UNDER THIRD OR FOURTH PR OVISO TO SUB - SECTION (3) OF SEC TION 80HHC BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT AND THERE IS NOTH ING IN EXPLANATION (BAA) TO SECTION 80HHC TO SHOW THAT THIS BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES. IN OTHER WORDS WHERE THE EXPORT TUR NOVER OF AN ASSESSEE EXCEEDS RS. 10 CRORES HE DOES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT OF EXPORT INCENTIVE UNDER CLAUSE (IIID) OF SECTION 28 TO HIS EXPORT PROFITS BUT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS WHICH ULTIMATELY RE SULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT. THE HIGH COURT THEREFORE WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSESSEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND AS THE ASSES SEE DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(III) THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB AND WITH A VIEW TO GET OVER THIS DIFFICULTY THE ASSESSEE WAS CONTENDING THAT THE PROFITS ON TRANSFER O F THE DEPB UNDER SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL - SETTLED PRINCIPLE OF STATUTORY INTERPRETATION OF A TAXING STATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC READ WITH THE WORDS USED IN CLAUSES (IIID) AND (IIIE) OF SECTION 28 THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 31 SECTION 80HHC ON EXPORT PROFITS TH E BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO THE ASSESSEE. THE IMPUGNED JUDGMENT AND .ORDERS OF THE BOMBAY HIGH COURT ARE ACCORDINGLY SET ASIDE. THE APPEALS ARE. ALLOWED TO THE EXTENT INDICATED IN THIS JUDGMENT. THE ASSESSING OFFICER IS DIRECTED TO COM PUTE THE DEDUCTION UNDER SECTION 80HHC IN THE CASE OF THE APPELLANTS IN ACCORDANCE WITH THIS JUDGMENT. THERE SHALL BE NO ORDER AS TO COSTS. 19 .1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. AS THE ISSUE IS COVERED BY THE DECISION OF THE H ON BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) R ESPECTFULLY FOLLOWING THE SAME WE DIRECT THE AO TO COMPUTE DEDUCTION ON DEPB SINCE LICENSE SOLD IN TERMS OF DECISION IN THE CASE OF TOPMAN EXPORTS (SUPRA). 20 . IN THE RESULT APPEALS OF THE ASSE SSEE (ITA NO.3703/M UM /04) AND REVENUE (ITA NO.4493/M UM /13) ARE ALLOWED IN PART WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE (CO NO.65/M UM /2005) IS DISMISSED. 2 1 . IN THE APPEAL FILED BY THE REVENUE (I.E . ITA NO. 695 /MUM/2004 ) FOLLOWING GROUNDS HAVE BE EN RAISED : - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT (A) ERRED IN RESTRICTING THE PENALTY LEVIED U/S 271(1)(C) TO THE AMOUNT LEVIABLE ON ACCOUNT RECEIPT ARISING TO THE ASSESSEE ON TRANSFER OF TRADE MARKS ONLY WITHOUT AP PRECIATING THE FACTS OF THE CASE.' 2. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND TO BE SET ASIDE AND THAT OF THE ITO /AO /DCIT BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECE SSARY.' 2 1 .1 ASSESSEE IS ALSO IN APPEAL ( ITA NO. 635/MUM/2006 ) AGAINST THE ORDER OF CIT(A) FOR UPHOLDING PENALTY ON SHORT - TERM CAPITAL GAINS COMPUTED BY AO. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 32 2 1 . 2 WE HAVE HEARD RIVAL CONTENTIONS AND FOUND THAT T HE AO HAS INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WITH RESPECT TO THE ADDITION MADE U/S.92 OF THE ACT (RS. 10 56 64 492/ - ) B) INADMISSIBLE AND WRONG CLAIM OF DEDUCTION ON ACCOUNT OF VRS EXPENSES (RS.15 08 52 250/ - ) C) SUPPRESSION OF SHORT - TERM CAPITAL GAIN ON SALE OF TRADEMARKS (RS.5 53 63 662/ - ) AND D) WRONG CLAIM OF DEPRECIATION AMOUNTING TO RS. 34 43 610/ - . 2 1 . 3 BY THE IMPUGNED ORDER THE CIT(A) DELETED THE PENALTY IMPOSED WITH RESPECT TO ADDITION MADE UNDER SECTION 92 BY FOLLOWING THE ORDER OF EARLIER ASSESSMENT ORDER WHEREIN SIMILA R PENALTY IMPOSED BY THE AO WAS DELETED BY THE CIT(A) IN APPEAL NO. 214/2004 - 05 DATED 18 - 11 - 2005. THE CIT(A) ALSO DELETED PENALTY IMPOSED WITH RESPECT TO EXPENDITURE DISALLOWED ON VRS BY OBSERVING THAT TWO VIEWS ARE POSSIBLE FOR SUCH EXPENDITURE THEREFORE THE ISSUE HAS BECOME DEBATABLE ONE ON WHICH NO PENALTY CAN BE IMPOSED. SIMILARLY WITH RESPECT TO PENALTY IMPOSED FOR DENIAL OF CLAIM OF DEPRECIATION ON OBSOLETE ASSETS THE CIT(A) HAD DELETED THE SAME BY OBSERVING THAT ISSUE IS DEBATABLE AND THE ASSESSE E HAS DISCLOSED ALL MATERIAL FACTS AND EXCLUDED THE VALUE OF ALL THESE ASSETS OF THE WRITTEN DOWN VALUE OF RESPECTIVE BLOCK OF ASSETS. THE CIT(A) FURTHER OBSERVED THAT ON AN ISSUE WHICH IS NOT ONLY LEGAL BUT IS ALSO CLEARLY DEBATABLE NO PENALTY CAN BE HEL D AS IMPOSABLE. HOWEVER IN RESPECT OF PENALTY FOR THE ADDITION MADE ON ACCOUNT OF SHORT TERM CAPITAL GAIN THE CIT(A) CONFIRMED THE PENALTY. ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 33 2 1 . 4 BOTH THE ASSESSEE AND REVENUE ARE IN APPEALS BEFORE US. LEARNED AR RELIED ON THE ORDER OF HONBLE SUPREME CO URT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 WHEREIN IT WAS HELD THAT FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) THERE HAS TO BE CONCEALMENT OF PARTICULARS OF INCOME OF THE ASSESSEE AND REVENUE IS REQUIRED TO SHOW THAT ASSESSEE MUST H AVE FURNISHED INACCURATE PARTICULARS IN HIS INCOME. WHEN THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING PENALTY UNDER SECTION 271(1)(C). A MERE M AKING OF CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO INACCURATE PARTICULARS. 2 1 . 5 WE HAVE CONSIDERED RIVAL CONT ENTIONS CAREFULLY GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS BY LEARNED AR AND LEARNED DR DURING THE COURSE OF HEARING BEFORE US. AS DISCUSSED IN THE QUANTUM APPEAL WE HAVE ALREADY DELETED THE ADDITION MADE U/S.92 DISALLOWANCE OF VRS AS WELL AS CLAIM OF DEPRECIATION ON OBSOLETE ASSETS. AS THE QUANTUM ITSELF H AS BEEN DELETED THERE IS NO L E GS FOR LEVY OF PENALTY FOR SUCH DISALLOWANCE/ADDITION. ACCO RDINGLY WE CONFIRM THE ACTION OF THE CIT(A) FOR DELETING THE PENALTY IMPOSED WITH RESPECT TO THESE ABOVE THREE ITEMS. IN RESPECT OF PENALTY IMPOSED FOR ADDITION ON ACCOUNT OF SHORT ITA NO S . 3703/04 4493/04 635/06 695/06 & CO NO. 65/05 34 TERM CAPITAL GAIN WE HAVE ALREADY RESTORED THE MATTER TO THE CIT(A) IN TH IS REGARD FOR DECIDING AFRESH ACCORDINGLY PENALTY FOR SUCH ADDITION IS ALSO RESTORED TO THE FILE OF CIT(A) FOR DECIDING AFRESH AFTER DECIDING THE QUANTUM ADDITION IN TERMS OF DIRECTION GIVEN HEREINABOVE. 2 2 . IN THE RESULT APPEAL OF THE REVENUE IS DISMI SSED WHEREAS APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. 2 3 . RESULTANTLY ITA NO. 3703/M/2004 ITA NO. 4493/M/2004 & ITA NO.635/M/2006 ARE PARTLY ALLOWED AND ITA NO.695/M/2006 AND C.O.NO. 65/M/2006 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH APRIL . 201 4 . 16 TH APRIL 2014 S D/ - SD/ - ( ) ( VIJAY PAL RAO ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTAN T MEMBER MUMBAI ; DATED 16 / 0 4 /2014 /PKM PS COPY OF THE ORDER FORWARDED TO : / BY ORDER ( ASSTT. REGISTRAR) / ITAT MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X MUMBAI. 4. / CIT 5. / DR ITAT MUMBAI 6. GUARD FILE. //TRUE COPY//