Finolex Cables Ltd.,, Pune v. Addl CIT Circle-8,, Pune

ITA 102/PUN/2007 | 2002-2003
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 10224514 RSA 2007
Assessee PAN AAACF2637D
Bench Pune
Appeal Number ITA 102/PUN/2007
Duration Of Justice 4 year(s) 5 month(s) 28 day(s)
Appellant Finolex Cables Ltd.,, Pune
Respondent Addl CIT Circle-8,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 15-07-2011
Date Of Final Hearing 06-07-2011
Next Hearing Date 06-07-2011
Assessment Year 2002-2003
Appeal Filed On 18-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JM AND SHRI D. KARUNAKARA RAO AM SN ITA NO. A.Y. APPELLANT RESPONDENT 1. 100/PN/2007 2000 - 01 FINOLEX CABLES LTD. 26/27 MUMBAI PUNE ROAD PIMPRI PUNE-411 018 PAN AAACF 2637D ADDL. CIT RANGE 8 PUNE 2. 101/PN/2007 2001 - 02 - DO - - DO - 3. 102/PN/2007 2002 - 03 - DO - - DO - 4. 103/PN/2007 2000 - 01 ADDL. CIT RANGE 8 PUNE FINOLEX CABLES LTD. 26/27 MUMBAI PUNE ROAD PIMPRI PUNE-018 PAN AAACF 2637D 5. 104/PN/2007 2001 - 02 - DO - - DO - 6. 105/PN/2007 2002 - 03 - DO - - DO - APPELLANT BY : SHRI D.P. BAPAT AND SHRI R.D. ONKAR RESPONDENT BY : SHRI HARESHWAR SHARMA CIT DR AND SHRI SANJAY SINGH SR AR ORDER PER D. KARUNAKARA RAO AM THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A) III PUNE IDENTICALLY DAT ED 26-10-2006 FOR A.Y. 2000-01 TO 2002-03. SINCE THE ISSUES INVOLVED IN T HESE APPEALS ARE INTER- CONNECTED ALL THESE APPEALS WERE HEARD TOGETHER AND A RE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 102/PN/2007 FOR A.Y. 2002-03 (ASSESSEES AP PEAL) 2. GROUND NO. 1 RELATES DISALLOWANCE OF RS. 14 36 97 2/- REPRESENTING INCREMENTAL PROVISION ON ACCOUNT OF LEAVE ENCASHMENT QUANTIFIED/ASCERTAINED ON THE BASIS OF ACTUARIAL VALUATION. AT THE TIME OF HEARING THIS GROUND WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. HENC E THE SAME IS DISMISSED AS NOT PRESSED. ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 2 OF 16 3. GROUND NO. 2 RELATES TO DISALLOWANCE OF RS. 50 000 /- MADE U/S 14A OF THE ACT STATING THAT PART OF ADMINISTRATION/OFFICE/PERSO NNEL COST IS ATTRIBUTABLE TO TAX FREE INCOME. THE PARTIES MENTIONED THAT THE ISSUE HA S TO BE REFERRED TO THE FILES OF THE A.O FOR DECIDING THE ISSUE AFRESH IN THE LIGHT OF THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT ITXA NO. 626/10 AND WRIT PETITION NO. 758/10 REPORTED IN 32 8 ITR 81 (MUM). FURTHER THEY MENTIONED THAT SAID BINDING HIGH COURT JUDGMEN T CONSIDERED THE SPECIAL BENCH DECISIONS IN THE CASE OF DAGA CAPITAL MANAGEM ENT PVT. LTD. [2009] 117 ITD 169 (MUM)(SB). THEY ALSO MADE A MENTION OF THE MANNER IN WHICH THE RULE 8D IS REQUIRED TO BE IMPLEMENTED TO THE AY PRIOR TO TH E AMENDMENT. CONSIDERING THE ABOVE SUBMISSIONS OF THE PARTIES WE ARE OF THE O PINION THAT THE MATTER SHOULD BE SET ASIDE FOR REEXAMINING THE ISSUE AFRESH I N THE LIGHT OF THE ABOVE REFERRED DECISIONS AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY THE GROUNDS ARE SET ASIDE. 4. GROUND NO. 3 RELATES DISALLOWANCE OF RS. 27 000/- REPRESENTING CORPORATE MEMBERSHIP FEE PAID TO CLUB. THE TOTAL PAYMENTS WERE OF RS. 33 300/- (27000+6300) CONSISTING OF SUBSCRIPTIONS OF RS. 2 10 0/- EACH MADE IN THE NAMES OF THREE EXECUTIVES (2100*3=RS 6 300/-) AND RS. 27 0 00/- PAID FOR CORPORATE MEMBERSHIP. THE A.O HELD THAT WHILE THE EXPENDITURE INCURRED ON ACCOUNT OF PAYMENT OF CLUB BILLS OF THE EXECUTIVES COULD NOT BE ALLOWED IN THE ABSENCE OF COGENT EVIDENCE TO ESTABLISH THAT THEIR CLUB MEMBERSH IPS HAD PROMOTED THE ASSESSEES BUSINESS. PAYMENTS TOWARDS CORPORATE MEMBERS HIP WOULD ALSO HAVE TO BE TREATED AS CAPITAL IN NATURE SINCE THE SAME REPRESENTED A ONE TIME PAYMENT. ACCORDINGLY DISALLOWANCE WAS MADE BY THE A.O. ON APPEAL THE CIT(A) CONFIRMED THE DISALLOWANCE OF RS. 27 000/- BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMIS SIONS. ... THE SAME HOWEVER CANNOT BE SAID OF THE INITIAL PAYMENTS MADE FOR CORPORATE MEMBERSHIP. I FIND MERIT IN THE A .OS OBSERVATION THAT SUCH INITIAL PAYMENTS BEING IN THE NATURE OF INITIAL OUTLAY WOUL D PARTAKE THE NATURE OF CAPITAL. THEREFORE WHILE OUT OF THE DISALLOWANCE OF RS. 33 300/- MADE BY THE A.O DISALLOWANCE TO THE EXTENT OF RS. 6 300/- I S DELETED THE BALANCE DISALLOWANCE OF RS. 27 000/- IS CONFIRMED. DURING THE PROCEEDINGS BEFORE LD COUNSEL DEMONSTRATED THAT THE SAID EXPENDITURE WAS AIMED AT THE BUSINESS PURPOSES TO CA TER TO THE NEEDS OF THE HIGH VALUE CUSTOMERS. HE HAS ALSO DEMONSTRATED THE EX ISTENCE NO EVIDENCE BY THE AO TO THE CONTRARY. FURTHER RELYING ON THE BOMBAY H IGH COURT JUDGMENT IN ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 3 OF 16 THE CASE OF OTIS ELEVATORS (INDIA) LTD (195 ITR 682) (BOM) LD COUNSEL ATTEMPTED TO IMPRESS UPON US THE NEED FOR ALLOWING SU CH EXPENDITURE AS BUSINESS EXPENDITURE. ON THE OTHER HAND LD DR FOR THE REVENUE IS ON DIFFERENT WAVELENGTH AND EXPLAINED THAT THE IMPUGNED EXPENDIT URE IS ONE TIME EXPENDITURE AND SUCH EXPENDITURE SHOULD BE HELD CAPIT AL IN NATURE AS THEY HAVE IN BUILT ENDURING NATURE. 5. WE HAVE HEARD BOTH THE PARTIES. WE HAVE PERUSED THE CITED DECISION ON THE TOPIC. IN OUR OPINION THE ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE VIDE THE SAID CITATION. FOR THE SAKE COMPLETENESS RELEVANT P ORTION FROM PAGE 686 OF 195 VOL OF THE ITR IS REPRODUCED HERE AND THE SAME READS AS UNDER: THE AAC CATEGORICALLY FOUND THAT THE PAYMENTS OF CLUB FEES (ONE TIME AND INITIAL PAYMENTS) WERE MADE WITH A VIEW TO ENAB LE THE ASSESSEE TO IMPROVE ITS BUSINESS RELATIONS AND PROSPECTS. THE T RIBUNAL WITHOUT RECORDING A CONTRARY FINDING ON THIS CRUCIAL ASPECT OF THE MATTER RESTORED THE ORDER OF THE ITO. IN OUR JUDGMENT CONSIDERING THE CLEAR FINDING GIVEN BY THE AAC WITHOUT A CONTRARY FINDING THERETO BY T HE TRIBUNAL WE MUST ACCEPT THE FACTS AS FOUND BY THE AAC CONSEQUENTLY THE PAYMENTS MUST BE ALLOWED AS BUSINESS EXPENDITURE . WE HAVE EXAMINED IF THE PAYMENT MADE BY THE COMPANY FOR WANT OF CLUB MEMBERSHIP IN THE NAME OF THE EXECUTIVES IS ALLOWABL E AS BUSINESS AND REVENUE EXPENDITURE. IN OUR OPINION THE EXISTENCE OF THE MEM BERSHIP IN THE NAMES OF THE EMPLOYEES SHOULD NOT MAKE ANY DIFFERENCE ON TAXA BILITY SO LONG AS THEY WERE USED FOR THE EMPLOYERS BUSINESS PURPOSES AND THE COMP ANY HAS PAID THE FBT AS PER THE LAW. THUS IMPUGNED ISSUE IS SETTLED IN FAVO UR OF THE ASSESSEE AND THEREFORE THE ORDER OF THE CIT(A) HAS TO BE REVERSED AND IN FAVOUR OF THE ASSESSEE. ACCORDINGLY RELEVANT GROUND IS ALLOWED . 6. GROUND NO. 4 RELATES TO DISALLOWANCE OF 10% OF THE MISCELLANEOUS EXPENSES ON THE GROUND THAT IT IS A NOT AN ALLOWABL E EXPENDITURE U/S 37(1) OF THE ACT. ON HEARING THE ASSESSEES SUBMISSIONS THAT THE DISALLOWANCE IF UNJUSTIFIED CIT(A) FOLLOWED HIS DECISION FOR THE AY 2000-01 AND 2001-02 AND RESTRICTED THE DISALLOWANCE TO 5% OF THE CLAIM. THIS DECISION OF THE CIT(A) WAS AFFIRMED BY US IN THE ASSESSEE OWN CASE FOR THE SAID AYS VIDE ITA NO 1440/PN/1994 DT 24.6.11. IN THIS REGARD THE ASSESSEE S COUNSEL RELIED ON PARA 12 OF THE SAID ORDER. FOR THE SAKE COMPLETENESS OF THI S ORDER WE PROCEED TO IMPORT THE SAME HERE AS UNDER. ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 4 OF 16 5. GROUND 3 RELATES TO DISALLOWANCE OF 10% OF THE M ISCELLANEOUS EXPENSES ON THE GROUND IT IS A NOT AN ALLOWABLE EXP ENDITURE U/S 37(1) OF THE ACT. ON HEARING THE ASSESSEES SUBMISSIONS THAT THE DISALLOWANCE IF UNJUSTIFIED CIT(A) FOLLOWED HIS DECISION FOR THE A Y 2000-01 AND RESTRICTED THE DISALLOWANCE TO 5% OF THE CLAIM. AGGRIEVED WITH THE ABOVE THE REVENUE IS IN APPEAL. BEFORE US FACTS REMAIN THE S AME AND REVENUE HAS NOT BROUGHT FORTH ANY SPECIAL REASON FOR REVERSING THE ORDER OF THE CIT(A). THEREFORE WE ARE OF THE OPINION THE DECIS ION OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY THE GRO UND IS DISMISSED. THE FACTS REMAIN THE SAME AND ASSESSEE HAS NOT BROUG HT FORTH ANY SPECIAL REASON FOR REVERSING THE ORDER OF THE CIT(A). THEREFORE WE ARE OF THE OPINION THE DECISION OF THE CIT(A) DOES NOT CALL FOR ANY IN TERFERENCE. ACCORDINGLY THE GROUND IS DISMISSED. 7. GROUND 5 RELATES TO RESTRICTION OF DISALLOWANCE MAD E ON ACCOUNT OF GIFTS AND PRESENTATIONS. CIT(A) CONFIRMED RS 4 50 000/- AGA INST THE TOTAL DISALLOWANCE. THIS DECISION OF THE CIT(A) WAS AFFIRM ED BY US IN THE ASSESSEE OWN CASE FOR THE SAID AYS VIDE ITA NO 1440/PN/1994 DT 24 .6.11. IN THIS REGARD THE ASSESSEES COUNSEL RELIED ON PARA 6 OF THE SAID ORDER. FOR THE SAKE COMPLETENESS OF THIS ORDER WE PROCEED TO IMPORT THE SAME HERE AS UND ER. 6. GROUND 4 RELATES TO RESTRICTION OF DISALLOWANCE MAD E ON ACCOUNT OF GIFTS AND PRESENTATIONS. CIT(A) CONFIRMED RS 75 000 /- AGAINST THE DISALLOWANCE OF RS 2 41 799/-. IN THIS REGARD LD C OUNSEL FOR THE ASSESSEE MENTIONED THE ISSUE HAS TO BE IN LINE WITH THE ORDE R OF THE TRIBUNAL VIDE ITO 1014-1438/PN/2000 FOR THE AY 1997-98 (PARA 10 I S THE RELEVANT ONE) WHERE THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSE E. CONSIDERING THE SET POSITION IN THE MATTER WE DISMISS THE GROUND OF TH E APPEAL. ACCORDINGLY THE GROUND IS ALLOWED. THE FACTS REMAIN THE SAME AND ASSESSEE HAS NOT BROUG HT FORTH ANY SPECIAL REASON FOR REVERSING THE ORDER OF THE CIT(A). THEREFORE WE ARE OF THE OPINION THE DECISION OF THE CIT(A) DOES NOT CALL FOR ANY IN TERFERENCE. ACCORDINGLY THE GROUND IS DISMISSED. 8. GROUNDS NO. 6 AND 8 RELATE TO CONFIRMATION OF THE DIS ALLOWANCE OF RS 4 08 697/-AND RS. 18 18 129/.- RESPECTIVELY OUT OF THE TOTAL EXPENDITURE ON RUNNING AND MAINTENANCE OF AIRCRAFT ON THE GROUND OF P ERSONAL USE. DURING THE PROCEEDINGS AT THE PROMPT OF THE BENCH LD COUNSEL FAIRLY MENTIONED THAT THE ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 5 OF 16 ISSUE HAS TO BE DECIDED IN LINE WITH OUR DECISION O N THE ISSUE IN THE CASE OF M/S KIRLOSKAR OIL ENGINES LTD VIDE ITA NO 1039 AND 1040 F OR THE AY 1995-96 AND 1996-97 AND AVINASH BHOSALE VIDE ITA NO. 1425 & 152 4/PN/08. WE FIND PARAS 10 TO 14 OF THE SAID ORDER IN THE CASE OF AVINASH BHO SALE (SUPRA) ARE RELEVANT AND HENCE REPRODUCED AS UNDER. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S AND THE PAPER BOOKS MADE AVAILABLE TO US. UNDISPUTED FACTS ARE TH AT THE ASSESSEE USED BOTH BELL HELICOPTER AS WELL AS THE CESSNA AIRCRAFT FOR THE MIXED USE AND THEREFORE THERE IS NO DISPUTE ON THE INVOKING OF T HE PROVISIONS OF SECTION 38(2) OF THE ACT. FURTHER THERE IS NO DISPUTE THA T THE AO RESTRICTED THE DISALLOWANCE ART 1/7 TH OF THE CLAIM. THE SAME IS EVIDENCED BY FILING THE COPIES OF THE ASSESSMENT ORDERS FOR THE AYS 2002-03 TO AYS 2004-05. THEY ARE PLACED AT PAGES 128 TO 145 OF THE PAPER BO OK. FOR THE INSTANT YEAR THE AO ADOPTED 30% AS AGAINST 1/7 TH IN THE PAST AND THEREFORE THE ISSUE TRAVELLED TO THE TRIBUNAL FOR THE FIRST TIME FOR THE INSTANT AY. BEFORE IT IS ADEQUATELY MADE OUT THAT THE 1/7 TH IS REASONABLE. THEREFORE THE ISSUE IN DISPUTE IS WHETHER THE DISALLOWANCE ON ACCOUNTS OF AVIATION EXPENSES AND THE DEPRECIATION OF BOTH BELL HELICOPTOR AND TH E CESSNA AIRCRAFT SHOULD BE RESTRICTED TO 1/7 TH OF THE CLAIM OR NOT. 11. IN THIS REGARD WE HAVE PERUSED THE PROVISIONS OF SECTION 38(2) OF THE ACT WHICH READS AS UNDER. BUILDING ETC PARTLY USED FOR BUSINESS ETC OR NO T EXCLUSIVELY SO USED SECTION 38(1). (2) WHERE ANY BUILDING MACHINERY PLANT OR FURNITU RE IS NOT EXCLUSIVELY USED FOR THE PURPOSES OF THE BUSINESS O R PROFESSION THE DEDUCTIONS UNDER SUB-CLAUSE (II) OF CLAUSE (A) AND CLAUSE (C) OF SECTION 30 CLAUSES (I) AND (II) OF SECTION 31 AND CLAUSE (II) OF SUB- SECTION (1) OF SECTION 32 SHALL BE RESTRICTED TO A FAIR PROPORTIONATE PART THEREOF WHICH THE ASSESSING OFFICER MAY DETERMINE HAVING REGARD TO THE USER OF SUCH BUILDI NG MACHINERY PLANT OR FURNITURE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. FROM THE ABOVE IT IS EVIDENT THAT THE RESTRICTION SHOULD BE A FAIR PROPORTIONATE PART THEREOF WHICH THE ASSESSING OFFI CER MAY DETERMINE HAVING REGARD TO THE USER OF SUCH .. MACHINERY PLANT OR .. FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. 12. IN THIS REGARD WE HAVE PERUSED EXISTING JUDICI AL PRONOUNCEMENTS AND FOUND THAT THE SPECIAL BENCH DECISION IN THE CA SE OF GULATHI SAREE CENTRE (71 ITD 73)(CHD)(SB) WAS IN FAVOUR OF 1/5 TH DISALLOWANCE IN RESPECT OF THE CAR AND COORDINATE BENCH DECISION IN THE CASE OF MAYUR KOTHARI (10 SOT 338)(MUM) IS IN FAVOUR OF 1/6 TH AGAIN IN THE CONTEXT OF A CAR AS DISCUSSED IN PARA 8 OF THE DECISION AND RELE VANT PARA 8 OF THE DECISION IN THE CASE OF MAYUR KOTHARI (SUPRA) READS AS UNDER:- WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH SIDES MATERIAL ON RECORD AND ORDERS OF AUTHORITIES BELOW. ADMITTEDLY THE ASSESSEE ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 6 OF 16 HAS NOT MAINTAINED THE LOG BOOK. THE POSSIBILITY O F PERSONAL USER OF THE CAR CANNOT BE RULED OUT. IN THE CASE OF GUL ATI SAREE CENTRE VS ASSTT CIT [1999] 71 ITD 73 (CHD)(SB) [ITAT CHAND IGARH BENCH] THE TRIBUNAL HELD THAT EVEN AFTER THE INCORPORATION OF THE CONCEPT OF BLOCK ASSET THE PROVISIONS OF SECTION 38(2) WER E APPLICABLE AND THE ASSESSING OFFICER WAS EMPOWERED TO RESTRICT THE DEPRECIATION TO A FAIR PART THEREOF HAVING REGARD TO THE USER OF AS SET FOR THE PURPOSES OF BUSINESS. IN THIS VIEW OF THE MATTER WE HOLD THAT ORDER OF THE REVENUE AUTHORITIES IS CORRECT IN LAW. AS FAR AS THE PROPORTION OF DISALLOWANCE FOR PERSONAL USE IS CONC ERNED WE FIND THAT THE REVENUE AUTHORITIES HAVE MADE A REASONABLE PROPORTIONATE DISALLOWANCE AT THE RATE OF 1/6 TH OF THE TOTAL EXPENSES INCLUDING DEPRECIATION . ACCORDINGLY WE DECLINE TO INTERFERE IN THE MATTER. FURTHER IT HAS COME TO OUR NOTICE THAT THE PUNE BE NCH HAS TAKEN DECISION IN THE CASE OF M/S KIRLOSKAR OIL ENGINES LTD VIDE ITA NO 1039 AND 1040 FOR THE AY 1995-96 AND 1996-97 IN CONNECTION WITH THE DISALLOWANCE OF AIRCRAFT EXPENDITURE AND HELD THAT THE DISALLOWANCES AT THE RATE OF 15% (NEARLY 1/7 TH ) OF THE CLAIM IS FAIR AND REASONABLE. RELEVANT PARA 12 AND 13 OF THE SAID DECISION IS AS FOLLOWS. 12. GROUND NO 4 IS DIRECTED AGAINST THE CIT(A)S ORDER IN CONFIRMING AIRCRAFT EXPENSES AMOUNTING TO RS 10 28 179/-. 13. WE HAVE HEARD BOTH THE PARTIES. IN THE ASSESSM ENT YEAR 90- 91 THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL VIDE ORDER DT 20.7.2005 IN ITA NO. 916/PN/95. HOWEV ER IN ASSESSMENT YEAR 92-93 THE ISSUE WAS DECIDED IN FAVO UR OF THE ASSESSEE BY OBSERVING THAT THE MATTER STANDS COVERE D IN FAVOUR OF THE ASSESSEE IN ASSESSMENT ASSESSMENT YEAR 90-91 T HOUGH ACTUALLY IN AY 90-91 THE MATTER WAS DECIDED AGAINST THE ASSESSEE. THEREFORE THERE WAS A MISTAKE IN THE TRIBUNALS OR DER IN ASSESSMENT YEAR 92-93. WHILE DECIDING THIS ISSUE IN ASSESSMENT YEAR 93-94 IN ITA NO 429/PN/97 THIS POSITION HAS BE EN CLARIFIED AND THE ISSUE WAS DECIDED AGAINST THE ASSESSEE IN THE LIGHT OF THE TRIBUNALS DECISION FOR ASSESSMENT YEAR 90-91. IN A SSESSMENT YEAR 94-95 VIDE ITA NO 606/PN/99 THE ISSUE WAS ALSO DECI DED AGAINST THE ASSESSEE. IN THE COURSE OF HEARING OF THIS APP EAL THE ASSESSEE HAS RELIED ON THE TRIBUNALS DECISION IN AY 92-93 WHICH IN OUR CONSIDERED VIEW IS NOT ACTUALLY IN FAVOUR OF THE A SSESSEE BUT IS AGAINST THE ASSESSEE. THE CASE OF OTHER ASSESSES W HO SHARED THE AIRCRAFT EXPENSES IS ON DIFFERENT FOOTING INASMUCH AS IN THE PRESENT CASE THE ASSESSEE HAS NOT BEEN ABLE TO PROVE AND ES TABLISH THAT THE AIRCRAFT WAS USED FOR THE PURPOSE OF THE ASSESSEES BUSINESS. IN THIS VIEW OF THE MATTER THE ORDER OF THE CIT(A) IS UPHELD IN CONFIRMING THE DISALLOWANCE OF RS 10 28 179/- (I.E . 15% OF THE CLAIM ) ON ACCOUNT OF AIRCRAFT EXPENSES. (EMPHASIS SUPPL IED) 13. FROM THE ABOVE IT IS CLEAR THAT SPECIAL BENCH DECISION IN THE CASE OF GULATHI SAREE CENTRE (SUPRA) OR THE DECISION IN THE CASE OF MAYUR KOTHARI (SUPRA) ARE IN THE CONTEXT OF THE PERSONAL CARS; WHE REAS THE PUNE BENCH DECISION IN THE CASE OF M/S KIRLOSKAR OIL ENGINES L TD (SUPRA) RELATES TO THE AVIATION VEHICLES WHICH IS ALSO THE CASE OF THE ASSESSEE AN WHETHER IT IS THE CASE OF A HELICOPTER OR AIRCRAFT SHOULD NOT MAK E ANY DIFFERENCE. THUS ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 7 OF 16 THE DECISION IN THE CASE OF GULATHI SAREE CENTRE (SU PRA) OR THE DECISION IN THE CASE OF MAYUR KOTHARI (SUPRA) ARE DISTINGUISHAB LE AS THE SUBJECT MATTER OF THESE APPEALS ARE THE DISALLOWANCE OUT OF THE CLAIMS INVOLVING THE PERSONAL CARS . FURTHER WE MAY MENTIONED THAT THE REVENUE IS NO FAIR IN ADOPTING 20% (1/5 TH OF THE CLAIM) IN RESPECT OF THE BELL HELICOPTOR AND IN ADOPTING 30% (NEARLY 1/3 TH OF THE CLAIM) IN RESPECT OF THE CESSNA AIRCRAFT AND IN OUR OPINION IT CONSTITUTES AN ARTI FICIAL DIFFERENCE. IT IS ALSO RELEVANT TO MENTION THAT THE SECTION 38(2) REFERS T O THE EXPRESSION FAIR AND NEITHER OF THE IT AUTHORITIES IE AO OR CIT(A) H AVE UNDERTAKEN ANY EXERCISE TO ESTABLISH THE SAID FAIRNESS IN ADOPTING THE SAID PERCENTAGES. IT IS TRUE THAT THE ONUS IS ON THE ASSESSEE TO SUBS TANTIATE THE CLAIM OF THE ASSESSEE. CONSIDERING THE PECULIAR CIRCUMSTA NCES BETTER KNOWN TO THE ASSESSEE THERE IS SURRENDER OF CLAIM TO THE EXTENT OF 1/7 TH OF THE TOTAL CLAIMS RS 93 96 771/- (IE RS 66 04 98 0/- ON ACCOUNT OF DEPRECIATION OF VEHICLES AND RS 27 91 79 1/- ON ACCOUNT OF AVIATION EXPENSES). AT THIS POINT OF TIME IN OU R OPINION THE ONUS HAS SHIFTED TO THE REVENUE TO DEMONSTRATE THAT THE SAID SURRENDER IS INCORRECT AND ESTIMATIONS MADE BY THE AO ARE FAIR WITHIN THE MEANING OF SECTION 38(2) OF THE ACT. FAI RNESS IS AN IMPORTANT FACTOR IN MATTERS OF QUANTIFICATION OF TH E DISALLOWANCES WHEN SECTION 38(2) OF THE ACT IS INVOKED. THE REVEN UE HAS NOT DONE ANY PROBE INDEPENDENTLY TO DEMONSTRATE THAT AS SESSEES OFFER IS UNFAIR AND HIS ESTIMATIONS ARE FAIR. HENCE WE ARE OF THE OPINION THAT THE ESTIMATIONS MADE BY THE AO WHICH ARE CONF IRMED IN CASE OF THE CESSNA AIRCRAFT AND ALTERED IN CASE OF BELL HELICOPTOR ARE HEREBY SET ASIDE. 14. IN VIEW OF THE EXISTENCE OF THE PUNE BENCH DECI SION WHICH IS BINDING WE ARE OF THE OPINION THAT THE OFFER OF TH E ASSESSEE TO RESTRICT THE DISALLOWANCE TO 1/7 TH OF THE CLAIMS IN RESPECT OF BOTH BELL HELICOPTOR AND THE CESSNA AIRCRAFT IS REASONABLE AND FAIR. AC CORDINGLY THE AO IS DIRECTED. THUS THE ORIGINAL GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 9. THE USE OF THE AVIATION VEHICLES FOR PERSONAL USE IS THE SUBJECT MATTER IN THIS APPEAL. THEREFORE THE ABOVE RATIO HAS APPLICATIO N TO THE GROUND IN QUESTION. ACCORDINGLY THE AO IS DIRECTED TO RECOMPUTE THE DISAL LOWANCE IN LINE WITH THE ABOVE ORDER OF OURS. THUS THE GROUNDS ARE PARTLY ALLOWED . 10. GROUND 7 RELATES TO CONFIRMING OF ADDITION OF RS 1 22 879/- OUT OF THE CLAIM OF DEDUCTION ON ACCOUNT OF SALES PROMOTION AND EMPLOYEE/FACTORY WELFARE EXPENDITURE AND ENTERTAINMENT EXPENSES. ON CONSIDERING THE NATURE OF THE EXPENDITURE BEING EXPENDITURE ON LUNCH SNACKS DIWAL I SWEETS ETC CIT(A) CONFIRMED THE ADDITION. WE FIND THE DISALLOWANCE IS MADE APPLYING THE ADHOC PERCENTAGE OF 5 % OF THE CLAIM. IN OUR OPINION APPLY ING SUCH FIXED PERCENTAGE ONLY CREATES A WRONG PRECEDENT WHEN THE AO HAS NOT MA DE ANY BASIS FOR ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 8 OF 16 ARRIVING AT SUCH PERCENTAGE. IN OUR OPINION WHEN THE A DHOCISM IS THE BASIS DISALLOWANCE OF AN ADHOC AMOUNT OF RS 1 LAKH SHOULD MEET BOTH ENDS OF THE JUSTICE. ACCORDINGLY THE GROUND RAISED IS PARTLY ALLOWED . 11. GROUNDS NO. 9(A) AND 9(B) READ AS UNDER: 9(A) DIRECTING THE AO TO FOLLOW THE GUIDELINES CONT AINED IN THE APPELLATE ORDER FOR A.Y. 2001-02 IN THE MATTER OF ALLOCATION OF E XPENSES FOR DETERMINATION OF PROFITS U/S 80-IA IN RESPECT OF URSE UNIT II AND PIMPRI UNIT II WHICH WOULD RESULT IN ADHOC ALLOCATION OF EX PENSES UNRELATED TO THE ACTIVITIES OF THESE UNDERTAKINGS. 9(B) DENYING THE DEDUCTION U/S 80-IB IN RESPECT OF M ISCELLANEOUS INCOME OF RS. 56 32 480/- OF THE NEW INDUSTRIAL UNDERTAKING AT GOA ON THE GROUND THAT THE SAID INCOME IS NOT DERIVED FROM THE NEW INDU STRIAL UNDERTAKING. 12. AS REGARDS GROUND NO. 9(A) IS CONCERNED AT THE VERY OUTSET LD COUNSEL STATED THAT THIS ISSUE IS IDENTICAL TO THE ONE PEND ING ADJUDICATION BEFORE THE AO IN THE SET ASIDE PROCEEDINGS VIDE DIRECTION OF THE TRI BUNAL IN ITA NO. 1014/PN/2000 DT 30.3.2010 FOR THE AY 1997-98. THIS DECISION OF THE CIT(A) WAS SET ASIDE BY US IN THE ASSESSEE OWN CASE FOR THE SAI D AYS VIDE ITA NO 1440/PN/1994 DT 24.6.11. IN THIS REGARD THE ASSESSEE S COUNSEL RELIED ON PARA 19 OF THE SAID ORDER. FOR THE SAKE COMPLETENESS OF THI S ORDER WE PROCEED TO IMPORT THE SAME HERE AS UNDER. 19. GROUND 11 RELATES TO DEDUCTION U/S 80IA WITH RE FERENCE TO PIMPRI AND URSE UNIT II. AT THE VERY OUTSET LD COUNSEL ST ATED THAT THIS ISSUE IS IDENTICAL TO THE ONE PENDING ADJUDICATION BEFORE THE AO IN TH E SET ASIDE PROCEEDINGS VIDE THE DIRECTION OF THE TRIBUNAL IN ITA 1014/PN/2000 DT 30.3.2010 FOR THE AY 1997- 98. CONSIDERING THE LINKAGE OF THE ISSUE WE PROCEED TO SET ASIDE THIS ISSUE TOO TO THE FILES OF THE AO WITH IDENTICAL DIRECTIONS. ASSE SSEE IS DIRECTED FILED RELEVANT ORDERS OF THE TRIBUNAL BEFORE THE AO DURING THE SET ASIDE PROCEEDINGS. ACCORDINGLY THE GROUNDS ARE SET ASIDE. CONSIDERING THE LINKAGE OF THE ISSUE WE SET ASIDE T HIS ISSUE TOO TO THE FILES OF THE AO WITH IDENTICAL DIRECTIONS. ASSESSEE IS DIRECTED T O FILE RELEVANT ORDERS OF THE TRIBUNAL BEFORE THE AO DURING THE SET ASIDE PROCEEDINGS . ACCORDINGLY THE GROUNDS ARE SET ASIDE. 13. AS REGARDS GROUND NO. 9(B) IS CONCERNED AT THE VE RY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE MENTIONED THAT RS. 56 32 48 0/- IS ELIGIBLE INCOME FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80-IB. HOWEVER HE MENTIONED THAT A SUM OF RS. 44 24 715/- IS ONLY PRESSED RELATIN G TO CASH DISCOUNT RECEIVED . CONSIDERING THE SELF ADMISSION OF THE ASSESSEES COUNSEL WE NOW ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 9 OF 16 PROCEED TO ADJUDICATE THE ELIGIBLE DEDUCTION IN RESPE CT OF CASH RECEIVED AMOUNTING TO RS. 44 24 715/- ONLY . IN THIS REGARD THE LEARNED COUNSEL SUBMITTED THAT THIS AMOUNT IS RECEIVED FROM THE RAW MA TERIAL SUPPLIERS PURCHASED BY THE ASSESSEE. CONSIDERING THE NEXUS OF THIS RECEI PT TO THE TRADING ACTIVITY OF THE ASSESSEE THESE RECEIPTS ARE ELIGIBLE FOR DEDUCTIO N DERIVED FROM THE UNDERTAKING OF THE ASSESSEE. THEREFORE THE ASSESSEE IS ENTITLED FOR COMPUTATION OF DEDUCTION U/S 80-IB OF THE ACT. ON THE OTHER HAN D THE LEARNED DR FOR THE REVENUE STATED THAT CONSIDERING THE ACCOUNTING METHO D FOLLOWED BY THE ASSESSEE IN THIS REGARD WHERE THE RECEIPTS ARE NOT AD JUSTED AGAINST THE PURCHASE BILLS RATHER THEY WILL BE CONSIDERED AS MISCELLANEOUS INCOME BY THE ASSESSEE IN THE BOOKS THEREFORE IT CANNOT BE SAID THAT THESE RE CEIPTS HAVE IMMEDIATE NEXUS TO THE TRADING ACTIVITIES RATHER THIS IS THE KIND OF MISCELLANEOUS INCOME CONNECTED TO THE AMOUNT SHOWN IN THE BOOKS OF CUSTOMERS. IN S UCH CASE THERE IS NO IMMEDIATE NEXUS OF THESE RECEIPTS TO THE TRADING ACT IVITY OF THE ASSESSEE. IN THIS REGARD WE HAVE PERUSED THE ORDERS OF THE REVENUE AND FIN D THAT THE A.O MERELY RELIED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS (233 ITR 497)AND STERLING FOODS LTD. (236 ITR 529). ON THE OTHER HAND THE CIT(A) HAS MENTIONED IN PARA 24.3(C) THAT THE ASSESSEES SU BMISSIONS ARE VERY GENERAL WITHOUT ESTABLISHING AS TO HOW THE RECEIPTS SHOWN UN DER THIS HEAD ARE INEXTRICABLY CONNECTED WITH THE MANUFACTURING BUSINES S OF THE ASSESSEE. THUS HE CONFIRMED THE ORDER OF THE A.O. 14. WE HAVE CONSIDERED THE FACTS OF THE CASE AVAILA BLE BEFORE US AND FIND THAT UNDISPUTEDLY THE SAID AMOUNT OF RS 44 24 715/- IS C ASH DISCOUNT RECEIVED BY THE ASSESSEE. NOTHING IS AVAILABLE BEFORE US TO ESTABLI SH THAT THIS CASH DISCOUNT IS IN CONNECTION WITH THE EARLIER PAYMENTS BY THE ASSESSEE TO THE SUPPLIERS WHO SOLD THE MATERIAL TO THE ASSESSEE. REGARDING ACCOUNTING M ETHOD ALSO THERE IS NO MATERIAL AVAILABLE BEFORE US TO KNOW AS TO HOW THE SA ID DISCOUNT AMOUNT WAS MAINTAINED BY THE ASSESSEE IN ITS LEDGER. FURTHER WE FIND THAT THE SUPREME COURT IN THE CASE OF LIBERTY INDIA REPORTED IN 317 AIT R 218 (SC) HAS CONFIRMED THE RATIO RELIED UPON BY THE A.O IN THE CASES OF PAND IYAN CHEMICALS (SUPRA) AND STERLING FOODS LTD. (SUPRA). IN OUR OPINION FOR THE SAKE CLARITY OF THE FACTS WE FIND THAT THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE A.O FOR WANT OF FACTS AS WELL AS APPLICATION OF LAW AS IT EXISTED NOW. APART FROM OTHER FACTS AO MUST DEMONSTRATE THE IMMEDIATE NEXUS OF THESE CASH DISCOU NT RECEIPTS VIS A VIS ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 10 OF 16 PURCHASES OR TO THE PAYMENTS TO THE SUPPLIERS OF THE RAW MATERIALS PURCHASED BY THE ASSESSEE. ACCORDINGLY THIS GROUND IS SET ASIDE. 15. GROUND NO. 10 REGARDING RELIEF U/S 80-HHC HAS NOT B EEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. HENCE THE SAME IS DISMISSED AS WITHDRAWN. 16. GROUND NO. 11 RELATES TO DENIAL OF DEDUCTION OF R S. 1 85 52 844/- ON ACCOUNT OF THE CARRIED FORWARD UNABSORBED DEPRECIATION O F THE AMALGAMATING COMPANY AND CHARGING OF MAT U/S 115JB OF THE ACT ON THE BOOK PROFITS EQUALANT OF THE SAID AMOUNT. WE NEED TO DECIDE WHETHER THE UNABSORBED DEPRECIATION OF RS. 1.85 CRORES BELONGING TO AMALGAMATING COMPANY I.E. FINOLEX TECHNOLOGIES LTD IS ELIGIBLE FOR REDUCTION FROM THE BOOK PROFIT OF T HE ASSESSEE IN VIEW OF THE PROVISIONS OF CLAUSE (III) TO EXPLANATION (1) OF 115 JB OF THE ACT. 17. RELYING ON THE PROVISIONS THE LD COUNSEL FOR THE ASSESSEE ARGUED STATING THAT IMPUGNED UNABSORBED DEPRECIATION BECAME THE PART OF THE BOOKS OF THE ASSESSEE W E F 1.4.2001 BECAUSE OF THE SCHEME OF AM ALGAMATION AND IT IS NO LONGER HAS ITS OWN IDENTITY AS THAT OF THE AMALGAMAT ING COMPANY AND THEREFORE THE SAME FALLS IN THE AMBIT OF THE PROVISIONS OF SAI D CLAUSE (III) CITED ABOVE. THEREFORE THE SAME ENTITLED FOR REDUCTION AND ACCORDING LY THE EQUIVALENT AMOUNT OF THE BOOK PROFITS OF THE ASSESSEE SHOULD N OT BE SUBJECTED TO MAT. THE ABSORBED DEPRECIATION OF RS. 1.85 CRORES ORIGINALLY OF M /S. FINOLEX TECHNOLOGIES LTD. BECAME THE UNABSORBED DEPRECIATION OF THE ASSES SEE- FINOLEX CABLES LTD WITH EFFECT FROM 1-4-2001 IE RELEVANT FOR THE ASSESSME NT YEAR IS 2002-03. (II) THE ARGUMENT OF THE REVENUE THAT SINCE SAID UNABSORBE D DEPRECIATION IS ADJUSTED AGAINST THE GENERAL RESERVE OF THE ASSESSEE A ND THEREFORE IT BECOMES INELIGIBLE FOR REDUCTION AGAINST THE BOOK PROFITS COMP UTED FOR THE PURPOSE OF SECTION 115JB IS AN INVALID ARGUMENT AS THE COMPUTA TION OF BOOK PROFITS IS SPECIAL PROCEDURE IE IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT 1956. (III) THE COMPUTATION TO BE MADE FOR THE PURPOSE OF SECTION 115JB OF THE ACT IS SPECIFIC AND SELF CONTAINED AND IT NOT INFLUENCED BY THE BOOK ENTRY MADE FOR GENERAL COMPUTAT ION OF INCOME. ON THE OTHER HAND LEARNED CIT DR FOR THE REVENUE ARG UED STATING THAT THE AMOUNTS MENTIONED IN CLAUSE (III) ABOVE RELATES TO THE LOSS OR UNABSORBED DEPRECIATION PERTAINING TO ASSESSEE M/S. FINOLEX CABL ES LTD AND NOT THAT OF THE AMALGAMATED COMPANY VIZ. FINOLEX TECHNOLOGIES LTD. THE UNABSORBED ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 11 OF 16 DEPRECIATION EMERGED BY VIRTUE OF AMALGAMATION SHOULD NOT BE CONSIDERED FOR REDUCING FROM THE BOOK PROFIT AND ALLOW TO REDUCE THE B OOK PROFITS OF THE ASSESSEE. TAKING INTO CONSIDERATION THE PROVISIONS OF 72A RELATING TO ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLOWANCE IN AMALGAM ATION OR DEMERGER THE LEARNED DR STATED THAT FOR CLAIM OF UNABSORBED DEPRECIA TION OF AMALGAMATED COMPANY THE AMALGAMATING COMPANY HAS TO ESTABLISH A ND FULFILL CERTAIN CONDITIONS ENLISTED IN SAID SECTION 72A OF THE ACT AND NOBODY HAS GONE INTO THIS ISSUE WHETHER THE SAID CONDITIONS ARE FULFILLED OR OTH ERWISE. FOR THIS PURPOSE AS PER THE DR FAIRLY THE ISSUE MUST GO TO THE FILE OF THE A.O FOR EXAMINING THE FULFILLMENT OF THE SAID CONDITIONS FOR BOTH FINOLEX CABLES LTD AND FINOLEX TECHNOLOGIES LTD. IN THIS REGARD THE LD COUNSEL FO R THE ASSESSEE REBUTTED BY SAYING THAT THE PROVISIONS OF SECTION 72A HAVE NO BE ARING FOR DETERMINATION OF BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORD ERS OF REVENUE. THERE IS NO DISPUTE ON THE QUANTUM OF CLAIM OF DEDUC TION OF UNABSORBED DEPRECIATION. FURTHER THERE IS NO DISPUTE ON THE FACT THAT UNABSORBED DEPRECIATION HAS BECOME THE CLAIM OF THE ASSESSEE W. E.F. 1-4-2001 AND THE SAME MERGED INTO THE BOOKS OF THE ASSESSEE FROM THE SAID E FFECTIVE DATE. WITH THIS BACKGROUND WE HAVE EXAMINED THE PROVISIONS OF CLAUSE (III) OF THE SAID EXPLANATION I AND THE SAME READ AS UNDER. THE RELEVANT CLAUSE READS AS UNDER: EXPLANATION (1) FOR THE PURPOSES OF THIS SECTION BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2) AS INCREASED BY ----- ----- ----- ----- --- (A) TO (I) IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY (I) (II) (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. ----- ----- ----- ----- ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 12 OF 16 FROM THE ABOVE IT IS CLEAR THAT THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT IS ENTITLED FOR REDUCTION OUT OF THE NET PROFIT ADJUSTME NT AS PER SAID EXPLANATION I. NOW THE ISSUE IS IN THE SCHEME OF AMALGAMATION WH ETHER THE SAID UNABSORBED DEPRECIATION HAS ANY VARIANTS IE THE ONE PERTAINING TO THE ASSESSEE AND THE ONE IMPORTED FROM THE AMALGAMATING COMPANY IE FENOLEX TEC HNOLOGIES LTD AFTER THE EFFECTIVE DATE OF AMALGAMATION AND THE APPLICABIL ITY OF THE PROVISION OF SECTION 72A OF THE ACT TO SUCH LOSS OR UNABSORBED DEPRECIATION . FACTS OF THE CASE ARE THAT THE FENOLEX TECHNOLOGIES LTD HAS BEEN AMALGAMA TED WITH EFFECT FROM 1.4.2001 AND THE LOSS/UNABSORBED DEPRECATION HAS BECO ME THAT OF THE ASSESSEE COMPANY FROM THAT DATE. IN OUR OPINION ONCE SUCH AMA LGAMATION IS LEGALLY AND VALIDLY DONE THE IMPUGNED LOSS OR UNABSORBED DEPRECIA TION LOOSES ITS EARSTWHILE IDENTITY AND PRACTICALLY IT SHALL BE LOSS AND UNABSO RBED DEPRECIATION OF THE ASSESSEE COMPANY UNLESS THE PRINCIPLE OF TAX NEUTRALI TY WHICH IS THE CORE PRINCIPLE FOR THE BUSINESS REENGINEERING PROVISIONS IS VIOLATED. NOTHING IS BROUGHT OUR NOTICE BY THE REVENUE TO DEMONSTRATE ANY SUCH VIO LATION. IN SUCH CIRCUMSTANCES WHERE THE LOSS OR UNABSORBED DEPRECIATION HAS BECOME THAT OF THE ASSESSEE THE ARGUMENTS OF THE DR THAT THE PROVI SIONS OF CLAUSE (III) OF THE SAID EXPLANATION 1 IS INAPPLICABLE TO THE IMPUGNED UNABSORBED DEPRECIATION HAVE TO BE DISMISSED. IN EFFECT THE UNABSORBED DEPRECIAT ION OF FINOLEX TECHNOLOGIES LTD. HAS BECOME THE UNABSORBED DEPRECIATION OF THE ASSESSEE. THEREFORE THE IMPUGNED UNABSORBED DEPRECIATION IS THE UNABSORBED DEP RECIATION OF THE ASSESSEE BY VIRTUE OF AMALGAMATION AND IT CAN NO LON GER BE CONSIDERED AS UNABSORBED DEPRECIATION OF THE AMALGAMATED COMPANY FI NOLEX TECHNOLOGIES LTD. THEREFORE CLAUSE (III) OF EXPLANATION (1) TO SECTION 115JB OF THE ACT DEFINITELY COVERS THE IMPUGNED UNABSORBED DEPRECIATION AND THE SA ME HAS TO BE CONSIDERED IN FAVOUR OF THE ASSESSEE. EVENTUALLY THE AO CANNOT IMPOSE THE MAT ON THE BOOK PROFIT EQUALANT OF THE UNABSORBED DEPRECI ATION OF RS. 1 85 52 844/-. CONSIDERING THESE TO BE HARMONIOUS WE FIND THAT THE PROVISIONS OF SECTION 72A CERTAINLY ARE APPLICABLE TO THE IMPUGNED UNABSORBED DE PRECIATION AND CONDITIONS HAVE TO BE FULFILLED. SO FAR AS THE CONDITIONS ARE CO NCERNED WE FIND THAT THE AO HAS NOT BROUGHT ANYTHING ON TO THE RECORDS TO DEMONSTRA TE THAT THE ASSESSEE FAILED TO FULFIL THE CONDITIONS SPECIFIED IN THE SA ID SECTION 72A OF THE ACT. THUS THE RELEVANT ARGUMENTS OF THE DR ARE DISMISSED. ACCORDI NGLY THE GROUND 11 OF THE APPEAL IS ALLOWED. ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 13 OF 16 19. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED PRO-TANTO . ITA NO. 105/PN/2007 FOR A.Y. 2002-03 (DEPARTMENTS APPEAL) 20. GROUND NO. 1 RELATES TO DISALLOWANCE OF RS. 50 00 0/- MADE U/S 14A OF THE ACT STATING THAT PART OF ADMINISTRATION/OFFICE/PERSON NEL COST IS ATTRIBUTABLE TO TAX FREE INCOME. ON HEARING THE PARTIES WE FIND THAT THIS ISSUE HAS TO BE REEXAMINED IN THE LIGHT OF RECENT JUDGMENTS BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE LTD AND OTHERS (SUPRA). THEREFORE WE SET ASIDE T HIS ISSUE TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER GRANTING REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY THE GROUND I S SET ASIDE. 21. GROUND 2 RELATES TO RESTRICTION OF DISALLOWANCE MAD E ON ACCOUNT OF GIFTS AND PRESENTATION S. CIT(A) CONFIRMED RS 4 50 000/- AGAINST THE TOTAL DISALLOWANCE. THIS DECISION OF THE CIT(A) WAS AFFIRM ED BY US IN THE ASSESSEE OWN CASE FOR THE SAID AYS VIDE ITA NO 1440/PN/1994 DT 24 .6.11. IN THIS REGARD THE ASSESSEES COUNSEL RELIED ON PARA 13 OF THE SAID ORDE R. FOR THE SAKE COMPLETENESS OF THIS ORDER WE PROCEED TO IMPORT THE SA ME HERE AS UNDER. GROUND 4 RELATES TO RESTRICTION OF DISALLOWANCE MAD E ON ACCOUNT OF GIFTS AND PRESENTATIONS. CIT(A) CONFIRMED RS 75 000/- AGA INST THE DISALLOWANCE. IN THIS REGARD LD COUNSEL FOR THE ASSESSEE MENTION ED THE ISSUE HAS TO BE IN LINE WITH THE ORDER OF THE TRIBUNAL VIDE ITO 101 4-1438/PN/2000 FOR THE AY 1997-98 (PARA 10 IS THE RELEVANT ONE) WHERE THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. CONSIDERING THE SET POSITION IN THE MATTER WE DISMISS THE GROUND OF THE APPEAL. ACCORDINGLY THE GROUND IS ALLOWED. 22. CONSIDERING THE SET POSITION IN THE MATTER WE D ISMISS THIS GROUND OF THE APPEAL RAISED BY THE REVENUE. ACCORDINGLY THE GROUND IS DISMISSED. 23. GROUND NO. 3 RELATES TO ALLOWING DEDUCTION U/S 8 0-IA OF THE ACT. AT THE VERY OUTSET LD COUNSEL STATED THAT THIS ISSUE IS ID ENTICAL TO THE ONE PENDING ADJUDICATION BEFORE THE AO IN THE SET ASIDE PROCEEDIN GS VIDE THE DIRECTION OF THE TRIBUNAL IN ITA 1014/PN/2000 DT 30.3.2010 FOR THE AY 1997-98. CONSIDERING THE LINKAGE OF THE ISSUE WE PROCEED TO SET ASIDE THIS I SSUE TOO TO THE FILES OF THE AO WITH IDENTICAL DIRECTIONS. ASSESSEE IS DIRECTED FILE D RELEVANT ORDERS OF THE TRIBUNAL BEFORE THE AO DURING THE SET ASIDE PROCEEDINGS. ACCORDI NGLY THE GROUNDS ARE SET ASIDE. ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 14 OF 16 24. GROUND NO. 4 RELATES TO ALLOWABILITY OF DEDUCTION U/S 80-IA ON INTEREST RECEIVED/RECEIVABLE ON SALE OF JELLY FILLED TELEPHONE CABLE TO DOT ON DEFERRED PAYMENT TERMS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST RECEIVED IS NOTHING BUT A PERIOD COST. CONSIDERING THE FACT T HAT THE ASSESSEE HAS NOT CONSIDERED THIS AMOUNT AS SALES FOR THE PURPOSE OF PA YMENT OF SALES HAD THE A.O HELD THAT THIS AMOUNT IS NOT INCOME DERIVED BY T HE ASSESSEE FROM MANUFACTURING ACTIVITY. HE ACCORDINGLY EXCLUDED THE A MOUNT OF RS. 2 90 80 839/- WHILE COMPUTING DEDUCTION U/S 80-IA OF THE ACT. ON APPEAL THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. 25. ON HEARING THE PARTIES WE FIND THAT THIS ISSUE HA S TO BE REEXAMINED IN THE LIGHT OF RECENT JUDGMENT BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VIDYUT CORPORATION (2010) 324 ITR 221 (BOM). THEREFORE WE SE T ASIDE THIS ISSUE TO THE FILES OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE IN LINE WITH THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF VIDYUT CORPORATION ( SUPRA) AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY THE GROUND IS SET ASIDE. 26. GROUND NO. 5 RELATES TO THE CIT(A)S ACTION IN HO LDING THAT EXCISE DUTY AND SALES TAX COLLECTED BY THE ASSESSEE TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80-HHC OF TH E ACT. THIS ISSUE IS SETTLED AT THE LEVEL OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS (2007) 290 ITR 667 (SC) IN FAVOUR OF THE ASSESS EE WHEREIN IT IS HELD THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDIBLE IN TOTA L TURNOVER IN THE FORMULA CONTAINED IN SECTION 80-HH(3) OF THE ACT. WE ACCORD INGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE ASSESSEE. 27. GROUND NO. 6 RELATES TO CIT(A)S DIRECTION TO THE A.O TO ALLOW THE DEDUCTION U/S 80-IB OF THE ACT IN RESPECT OF SCRAP GENERATED OUT OF MANUFACTURING PROCESS TREATING THE SAME AS BUSINESS INCOME. THE A.O OBSERVED THAT THE SCRAP IS NOT A BYE PRODUCT OF THE AS SESSEE AND HENCE THE SALE OF THE SAME CANNOT BE TREATED AS THE BUSINESS INCOME OF THE UNIT AND HENCE NOT ELIGI9BLE FOR DEDUCTION U/S 80-IB OF THE ACT. AS REGA RDS THE ALTERNATIVE GROUND OF THE ASSESSEE OF TAKING NET INCOME EARNED OUT OF THE SALE OF SCRAP THE A.O ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 15 OF 16 OBSERVED THAT THE SAME IS NOT ACCEPTABLE AS THE COST RELATING TO THE SALE OF SCRAP WAS ALREADY DEBITED TO THE P & L A/C OF THE UNIT. T HE A.O ALSO DID NOT GRANT DEDUCTION U/S 80-IB IN RESPECT OF MISCELLANEOUS INCO ME AMOUNTING TO RS. 56 32 480/- RELYING ON THE JUDGMENTS OF APEX COURT IN THE CASE OF PANDIAN CHEMICALS (233 ITR 497) AND STERLING FOODS LTD. (236 AITR 529). ON APPEAL THE CIT(A) HAS CONFIRMED THE VIEW TAKEN BY THE A.O O N THIS ISSUE. 28. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE HAS MENTIONED THAT THE SAID ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSES SEE BY VIRTUE OF MADRAS HIGH COURT JUDGMENT IN THE CASE OF M/S FENNER INDIA LTD (2 41 ITR 803) FOR THE PROPOSITION THAT THE PROFIT ON SALE OF SCRAP MATERIAL S INCE HAD A DIRECT LINK OR NEXUS WITH THE INDUSTRIAL UNDERTAKING AND THEREFORE IT IS ELIGIBLE FOR DEDUCTION U/S 80IB. CONSIDERING THE SIMILARITY IN LANGUAGE USE D IN SECTIONS 80HH AND 80IB OF THE ACT WE ARE OF THE CONSIDERED OPINION THAT TH E ASSESSEE SHOULD SUCCEED IN THIS REGARD ALSO. ACCORDINGLY GROUND 3 OF THE REVENUE S APPEAL IS DISMISSED . ITA NO. 100 & 101/PN/2007 FOR A.Y. 2000-01 & 2001- 02 (ASSESSEES APPEALS) 29. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR TH E ASSESSEE DID NOT PRESS ANY OF THE GROUNDS TAKEN BY THE ASSESSEE IN THESE AP PEALS. WE THEREFORE DISMISS THESE APPEALS AS NOT PRESSED . ITA NO. 103 & 104/PN/2007 FOR A.Y. 2000-01 & 2001-0 2 (DEPARTMENTS APPEAL) 30. THE ONLY ISSUE RAISED BY THE REVENUE IN BOTH THE SE APPEALS RELATES TO CIT(A) DIRECTION TO THE A.O TO ALLOW DEDUCTION U/S 8 0-IA ON THE AMOUNT OF S ALE OF SCRAP GENERATED OUT OF MANUFACTURING PROCESS. WE FIND THAT ON AN IDENTICAL ISSUE RAISED BY THE REVENUE FOR A.Y. 2002-03 (GROUND-6 OF ITA NO 105/PN/2007 FOR A.Y. 2002-03 (DEPARTMENTS APPEAL) AND ADJUDICATE D BY US IN THE PRECEDING PARAGRAPHS OF THIS ORDER. FOR THE SAME REASONS WE DISMIS S THE RELEVANT GROUND ITA NO. 100 TO 104/PN/07 A.Y: 2000-01 TO 2002-03 PAGE 16 OF 16 THIS APPEAL BY THE REVENUE. ACCORDINGLY THE GROUNDS RA ISED IN THESE TWO APPEALS ARE DISMISSED . 31. IN THE RESULT ASSESSEES APPEAL FOR VIDE ITA NO 102/PN/2007 IS PARTLY ALLOWED PRO-TANTO . ASSESSEES APPEALS FOR VIDE ITA NO 100&101/PN/2007 IS DISMISSED . REVENUES APPEAL FOR VIDE ITA NO 103 & 104/PN/2007 ARE DISMISSED . REVENUES APPEAL FOR VIDE ITA NO 105/PN/07 IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DAY OF JULY 2011. SD/- SD/- (SHAIALENDRA KUMAR YADAV) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED THE15TH JULY 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT-V PUNE 4. CIT (A) III PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE