THE ACIT RG 10(1), v. M/S. LUPIN LABORATORIES LTD,

ITA 2060/MUM/2005 | 1998-1999
Pronouncement Date: 30-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 206019914 RSA 2005
Assessee PAN AAACL1121E
Bench Mumbai
Appeal Number ITA 2060/MUM/2005
Duration Of Justice 5 year(s) 9 month(s) 14 day(s)
Appellant THE ACIT RG 10(1),
Respondent M/S. LUPIN LABORATORIES LTD,
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 30-12-2010
Date Of Final Hearing 09-12-2010
Next Hearing Date 09-12-2010
Assessment Year 1998-1999
Appeal Filed On 16-03-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NOS. 2447 & 2448/MUM/2005 (ASSESSMENT YEARS: 1998-99 & 1999-2000) M/S. LUPIN LIMITED (FORMERLY KNOWN ACIT RANGE 10(1) AS LUPIN LABORATORIES LTD.) ROOM NO. 455 AAYAKAR BHAVAN 159 CST ROAD KALINA VS. M.K. ROAD MUMBAI 400020 SANTACRUZ (E) MUMBAI 400098 PAN - AAACL 1121 E APPELLANT RESPONDENT ITA NOS. 2060 & 2061/MUM/2005 (ASSESSMENT YEARS: 1998-99 & 1999-2000) ACIT RANGE 10(1) M/S. LUPIN LABORATORIES LTD. ROOM NO. 455 AAYAKAR BHAVAN (NOW KNOWN AS LUPIN LIMITED.) M.K. ROAD MUMBAI 400020 VS. 159 CST ROAD KALINA SANTACRUZ (E) MUMBAI 400098 PAN - AAACL 1121 E APPELLANT RESPONDENT REVENUE BY: SMT. REENA JHA TRIPATHI ASSESSEE BY: MS. VASANTI PATEL O R D E R PER B. RAMAKOTAIAH A.M. THESE ARE CROSS APPEALS BY THE REVENUE AND ASSESSEE AGAINST THE ORDERS OF THE CIT(A) X MUMBAI DATED 24.01.2005 FOR ASSESSMENT YEARS 1998-99 AND 1999-2000. ITA NO. 2447/MUM/2005 : A.Y. 1998-99 2. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL A RE AS UNDER: - 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CON FIRMING THE DISALLOWANCE OF AMORTISATION OF LEASE PREMIUM OF RS .2 51 734 IN RESPECT OF LEASEHOLD LAND AND BUILDING. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE DISALLOWANCE OF AN AMOUNT OF RS.20 73 559 UNDER SEC TION 40(A)(I) IN RESPECT OF INTEREST PAYABLE T0 NON-RESIDENTS ON UNP AID PURCHASE CONSIDERATION OF RAW MATERIAL. ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 2 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLDING THAT INTEREST OF ` 20 73 559 PAYABLE TO NON-RESIDENT AS UNPAID PURCHAS E CONSIDERATION IS AN INCOME DEEMED TO ACCRUE AND ARI SE IN INDIA AND THAT TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE THER EON UNDER SECTION 195. 4. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE HE LD THAT THE INTEREST PAYABLE ON UNPAID PURCHASE PRICE CONSIDERA TION FORMED PART OF THE COST OF RAW MATERIAL AND THEREFORE WAS NOT OF THE NATURE OF INTEREST AS ENVISAGED IN SECTION 40(A)(I). 5. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN COMPUTING THE DEDUCTION UNDER SECTION 80HHC ON THE BASIS OF THE COMPANY AS A WHOLE AS AGA INST ON THE BASIS OF EACH BUSINESS UNIT SEPARATELY AS COMPUTED BY THE APPELLANT. 6. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN SETTING OFF LOSSES UNDE R SECTION 80HHC(3)(A)(B)(C) AGAINST THE EXPORT INCENTIVES AND THEREBY DENYING DEDUCTION UNDER SECTION 80HHC. 7. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE HELD THAT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC( 3) THE LOSSES UNDER SECTION 80HHC(3)(A)/(B)/(C) ARE TO BE IGNORED AND THE APPELLANT WAS ENTITLED TO DEDUCTION UNDER SECTION 8 0HHC ON 90 PER CENT OF EXPORT INCENTIVES. OUT OF THESE GROUNDS NOS. 6 & 7 ARE NOT PRESSED. GR OUND NOS. 8 & 9 ARE GENERAL IN NATURE 3. GROUND NO. 1 IS WITH REFERENCE TO DISALLOWANCE OF AMORTIZATION OF LEASE PREMIUM OF ` 2 51 734/- IN RESPECT OF LEASEHOLD LAND AND BUILDIN G. AT THE OUTSET THE LEARNED COUNSEL SUBMITTED THAT THE I SSUE IS DECIDED AGAINST THE ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 1997-9 8 WHEREIN IT WAS HELD AS UNDER: - 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THERE IS NO DISPUTE THAT THE IDENTICAL ISSUE HAS BEEN DECIDED B Y THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2000-01 SUPRA AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. THE TRI BUNAL WHILE RELYING ON THE DECISION OF THE SPECIAL BENCH IN JCIT VS. MUKUN D LTD. AND VICE VERSA (2007) 291 ITR (AT) 249 (MUMBAI)(SB) WHEREIN IT HAS BEEN HELD THAT LEASE HOLD PREMIUM HAS AN ENDURING ADVANTAGE AND THEREFORE IS CAPITAL IN NATURE NOT ALLOWABLE DEDUCTION U/S.37 OF THE ACT CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. TH E ABOVE ORDER HAS BEEN CONSISTENTLY FOLLOWED BY THE TRIBUNAL IN ASSES SEE'S OWN CASE FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03 SUPRA. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE ASSESSEE WE ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 3 RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE LD. CIT(A). THE GROUND TAKEN BY THE ASSESSEE IS THEREF ORE REJECTED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH WE REJECT THIS GROUND OF THE ASSESSEE. 4. THE ISSUE IS GROUND NOS. 2 3 & 4 IS WITH REFERENCE TO DISALLOWANCE OF AN AMOUNT OF 20 73 559/- UNDER SECTION 40(A)(I) OF THE ACT ON THE PRETEXT THAT TAX HAS NOT BEEN DEDUCTED. DURING THE COURSE O F ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAS PA ID AN INTEREST OF ` 92 79 559/- TO NON-RESIDENT RELATING TO IMPORT OF R AW MATERIAL. ASSESSEE HAS DEDUCTED TAX AT SOURCE AT 10% FOR THE INTEREST PAYMENT OF ` 72 06 040/- BUT THE BALANCE AMOUNT OF ` 20.73 559/- HAS NOT BEEN COVERED BY TDS. THE A.O. THEREFORE ASKED WHY THE SAID SUM HAS NOT BEE N DISALLOWED UNDER SECTION 40(A)(I) OF THE I.T. ACT. IT WAS SUBMITTED THAT THE TAX HAS NOT BEEN DEDUCTED AT SOURCE UNDER SECTION 195 OF THE ACT ON INTEREST PAYABLE ON UNPAID PURCHASE CONSIDERATION OF THE IMPORTED RAW M ATERIAL. ASSESSEE HAS REFERRED TO THE DEFINITION OF INTEREST UNDER SECTIO N 2(28A) OF THE ACT AND STATED THAT THE INTEREST PAID FOR PURCHASE OF RAW M ATERIAL IS AN UNPAID PURCHASE CONSIDERATION AND FORMS PART OF COST OF PU RCHASE PRICE. IT IS NOT PAID ON TAKING LOAN IN CASH. IT IS SETTLED LAW THA T INTEREST PAYABLE ON AGREED INSTALMENTS OF UNPAID PURCHASE MONEY CANNOT BE TREA TED AS A SEPARATE OR INDEPENDENT SOURCE OF INCOME LIABLE TO INCOME TAX I N INDIA. ASSESSEE HAS REFERRED TO THE DECISION OF HON'BLE BOMBAY HIGH COU RT IN THE CASE OF METRO THEATRE BOMBAY LTD. 14 ITR 638 TO STATE THAT MERE P URCHASE PRICE OF A CAPITAL ASSET ON LONG TERM CREDIT WITH STIPULATION FOR PAYMENT OF INTEREST DID NOT AMOUNT TO BORROWING CAPITAL WITHIN THE MEANING OF SECTION 10(2)(III) OF THE 1922 ACT (CORRESPONDING TO THE PRESENT SECTION 36(1)(III)). REFERRING TO HON'BLE A.P. HIGH COURT JUDGEMENT IN CIT VS. VISAKH APATNAM PORT TRUST 144 ITR 146 IT IS STATED THAT PAYMENT OF INTEREST O N UNPAID PURCHASE PRICE IS PART AND PARCEL OF TRANSACTION OF SALE. ACCORDIN GLY NO TAX AT SOURCE IS DEDUCTIBLE AND IT IS CLAIMED AS AN EXPENDITURE UND ER SECTION 37(1) AND NOT UNDER SECTION 36(1)(III) OF THE ACT. ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 4 5. THE CIT(A) CONSIDERED THE PROVISIONS OF SECTION 2(2 8A) AND SECTION 9 AND ALSO DISTINGUISHED THE JUDGEMENT RELIED UPON BY THE ASSESSEE AND CONFIRMED THE ADDITION BY STATING AS UNDER:- 30.3 I HAVE CONSIDERED THE RIVAL SUBMISSIONS MATE RIALS ON RECORD AS ALSO THE DECISIONS CITED BY THE RIVAL PARTIES. THE CONTROVERSY CENTRES AROUND THE LIABILITY OF THE APPELLANT TO DEDUCT TAX AT SOURCE UNDER SEC 195(1) OF THE ACT ON THE USANCE INTEREST. THE ASSES SING OFFICER HELD UNDER SEC 40(A)(I) THAT SUCH DEDUCTION OF INTEREST IN COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION WAS NOT PERMISSIBLE SINCE THE SUM OF RS.20 73 559/- WAS PAI D OUTSIDE INDIA WITHOUT DEDUCTION OF ANY TAX AT SOURCE. INTEREST WI THIN THE MEANING OF SEC 2(28A) MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONIES BORROWED OR DEBT INCURRED (INCLUDING A DEPOS IT CLAIM OR OTHER SIMILAR RIGHTS OR OBLIGATION) AND INCLUDES ANY SERV ICE FEE OR OTHER CHARGE IN RESPECT OF THE MONIES BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. THUS THE MEANING OF THE WORD INTEREST IS VERY WIDE AND WOULD INCLUDE INTEREST ON UNPAID PURCHASE PRICE IN ANY MANNER WHICH WOULD INCLUDE BY MEANS O F IRRECOVERABLE LETTER OF CREDIT. THE WORD DEBT IS DEFINED IN SEC 2(C) OF THE INTEREST ACT 1978 INTER ALIA TO MEAN ANY LIABILITY FOR AN ASCE RTAINED SUM OF MONEY. RESPECTFULLY FOLLOWING THE DECISION OF CIT V. VIJAY SHIP BREAKING CORPN 261 ITR 113 (GUJ) WHEREIN THE DECISIONS NAMELY OF BOMBAY STEAM NAVIGATION CO. PVT. LTD. 56 ITR 52 (SC) AND CIT V. VISAKHAPATANAM PORT TRUST 144 ITR 146 (AP) HAVE BEEN REFERRED TO I UPH OLD THE DECISION OF THE ASSESSING OFFICER IN DISALLOWING THE SUM OF RS.20 7 3 559/-. THE CASE OF THE APPELLANT THEREFORE FAILS ON THESE GROUNDS OF APPEAL. 6. THE LEARNED COUNSEL SUBMITTED THAT THE DECISION IN THE CASE OF CIT VS. VIJAY SHIP BREAKING CORPORATION 261 ITR 113 (GUJ) WHICH WAS RELIED UPON BY THE CIT(A) WAS REVERSED BY THE HON'BLE SUPREME C OURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION AND OTHERS VS. CIT 314 TIR 309 FOLLOWING THE AMENDMENT PROVIDED TO THE ACT BY WAY OF EXPLANA TION 2 TO SECTION 10(15)(IV)(C). IT WAS FURTHER SUBMITTED THAT PROVIS IONS OF SECTION 10(15)(IV)(C) ARE APPLICABLE TO THE ASSESSEES PAYMENT OF USANCE INTEREST AND ACCORDINGLY THE AMOUNTS ARE NOT SUBJECTED TO TAX IN INDIA AND T HEREFORE PROVISIONS OF SECTION 195(1) ARE NOT APPLICABLE. THEREFORE INVOKI NG PROVISIONS OF SECTION 40(A)(I) BY THE A.O. IS NOT CORRECT IN LAW. 7. THE LEARNED D.R. RELIED ON THE ORDER OF THE CIT(A) AS FAR AS THE FACTS ARE CONCERNED. 8. WE HAVE CONSIDERED THE ISSUE AND RIVAL CONTENTIONS. IT IS TRUE THAT THE CIT(A) RELIED UPON THE DECISION OF THE HON'BLE GUJA RAT HIGH COURT IN THE CASE ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 5 VIJAY SHIP BREAKING CORPORATION WHILE CONFIRMING TH E ADDITION. THERE IS NO DOUBT THAT THE AMOUNT PAID WAS USANCE INTEREST AS T HE A.O. VIDE PARA 5.23 STATES THAT APART FROM THE BASIC PRICE OF IMPORT OF MATERIAL THE ASSESSEE HAS PAID INTEREST AT 7% OR 8% IN THE USANCE PERIOD BEYO ND THE STIPULATED PERIOD. HE WAS OF THE OPINION THAT IT IS INCOME IN THE HAND S OF THE FOREIGN COMPANY UNDER SECTION 9(1)(V) AND FOLLOWING THE JUDGEMENT O F THE HON'BLE DELHI HIGH COURT IN THE CASE OF J.K. SYNTHETICS LTD. VS. ACIT 185 ITR 540 CONSIDERED THAT EXEMPTION IS NOT ADMISSIBLE FOR DEDUCTION OF T AX UNDER SECTION 195 AND ACCORDINGLY PROVISIONS OF SECTION 40(A)(I) WOULD BE APPLICABLE. THE CIT(A) ALSO FOLLOWED THE SAME LINE OF AGREEMENT IN CONFIRMING T HE ADDITION. HOWEVER NEITHER THE A.O. NOR THE CIT(A) CONSIDERED THE PROV ISIONS OF SECTION 10(15)(IV)(C) WHICH ARE APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR WHICH IS AS UNDER: - 10(15). (IV) .. (C) BY AN INDUSTRIAL UNDERTAKING IN INDIA ON ANY M ONEYS BORROWED OR DEBT INCURRED BY IT [BEFORE THE 1ST DAY OF JUNE 20 01] IN A FOREIGN COUNTRY IN RESPECT OF THE PURCHASE OUTSIDE INDIA OF RAW MATERIALS [OR COMPONENTS] OR CAPITAL PLANT AND MACHINERY [TO THE EXTENT TO WHICH SUCH INTEREST DOES NOT EXCEED THE AMOUNT OF INTERES T CALCULATED AT THE RATE APPROVED BY THE CENTRAL GOVERNMENT IN THIS BEHALF HAVING REGARD TO THE TERMS OF THE LOAN OR DEBT AND ITS REP AYMENT.] [EXPLANATION 1.]FOR THE PURPOSES OF THIS ITEM PU RCHASE OF CAPITAL PLANT AND MACHINERY INCLUDES THE PURCHASE OF SUCH CAPITAL PLANT AND MACHINERY UNDER A HIRE-PURCHASE AGREEMENT OR A LEASE AGREEMENT WITH AN OPTION TO PURCHASE SUCH PLANT AND MACHINERY.] [EXPLANATION 2.FOR THE REMOVAL OF DOUBTS IT IS H EREBY DECLARED THAT THE USANCE INTEREST PAYABLE OUTSIDE INDIA BY A N UNDERTAKING ENGAGED IN THE BUSINESS OF SHIP-BREAKING IN RESPECT OF PURCHASE OF A SHIP FROM OUTSIDE INDIA SHALL BE DEEMED TO BE THE I NTEREST PAYABLE ON A DEBT INCURRED IN A FOREIGN COUNTRY IN RESPECT OF THE PURCHASE OUTSIDE INDIA;] 9. THE PROVISIONS AS APPLICABLE FOR A.Y. 1998-99 ARE T HAT THE INTEREST PAYABLE BY AN INDUSTRIAL UNDERTAKING IN INDIA ON AN Y MONIES BORROWED OR DEBT INCURRED IN RESPECT OF PURCHASE OUTSIDE INDIA OF RAW MATERIAL ARE EXEMPT UNDER SECTION 10(15)(IV)(C) BEFORE THE FIRST DAY OR JUNE 2001 WHICH MEANS THAT THE PROVISIONS OF TDS WOULD BE APPLICABL E IF ANY INTEREST IS BORROWED OR DEBT INCURRED FOR PURCHASE OF RAW MATER IAL AFTER THE FIRST OF JULY ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 6 2001 BUT FOR THE IMPUGNED ASSESSMENT YEAR THE USAN CE INTEREST PAID FOR IMPORT OF RAW MATERIAL IS EXEMPT UNDER SECTION 10(1 5)(IV)(C) AND ACCORDINGLY PROVISIONS OF SECTION 195 ARE NOT APPLICABLE. CONSE QUENT TO THE AMENDMENT BROUGHT TO THE STATUTE BY EXPLANATION 2 THE HON'BL E SUPREME COURT HAS CONSIDERED THE ISSUE IN THE ABOVE CASE OF VIJAY SHI P BREAKING CORPORATION 314 ITR 309 AND HELD THAT THE ASSESSEE WAS NOT ELIG IBLE TO DEDUCTION TAX AT SOURCE ON USANCE INTEREST PAID ON THE PURCHASE OF M ATERIAL FROM OUTSIDE INDIA FOR THE PURPOSE OF SHIP BREAKING SINCE IT WA S EXEMPT FROM PAYMENT OF TAX UNDER EXPLANATION 2 TO SECTION 10(15)(IV)(C) AF TER THE AMENDMENT IN 2003 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 1962. HOWEVER IN THE ABOVE SAID CASE THE ISSUE IS WITH REFERENCE TO PURCHASE OF A SHIP I N THE BUSINESS OF SHIP BREAKING WHEREAS IN THE PRESENT CASE THE INTEREST I S IN RESPECT OF PURCHASE OUTSIDE INDIA OF RAW MATERIALS ON WHICH THERE IS NO DOUBT ABOUT THE FACTS. SINCE THE PROVISIONS OF SECTION 10(15)(IV)(C) EXEMP T THE INTEREST PAYABLE IN THE FOREIGN COUNTRIES THERE IS NO NEED FOR DEDUCTI NG ANY TAX UNDER SECTION 195 AND THEREFORE THE SAID SUM CANNOT BE DISALLOWED UNDER SECTION 40(A)(I). THIS OPINION GETS SUPPORT FROM THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. INDIA PISTONS LTD. 282 ITR 632 WHEREIN ON SIMILAR FACTS THE HON'BLE MADRAS HIGH COURT CONSIDE RED THAT EVEN IN THE ASSESSMENT ORDER THE A.O. MENTIONED THAT THE INTERE ST PERTAINS TO FOREIGN BILLS. IF THAT BE SO SINCE THE AMOUNT WAS NOT A LOAN AND THE AMOUNT OF INTEREST PAID WAS NOT INTEREST ON LOAN DEDUCTION OF TAX AT SOURC E WAS NOT ATTRACTED. INTEREST ON FOREIGN BILLS WAS DEDUCTIBLE EXPENDITURE AND CAN NOT BE DISALLOWED UNDER SECTION 40(A)(I) . IN VIEW OF THE ABOVE WE ALLOW THE GROUND OF THE ASSESSEE WITH A DIRECTION TO THE A.O. TO ALLOW THE AMOUNT AS CLAIMED. GROUNDS ARE CONSIDERED ALLOWED. 10. GROUND NO.5 IS AGAINST THE SUSTENANCE OF DISALLOWA NCE OF DEDUCTION U/S.80HHC ON THE BASIS OF COMPANY AS A WHOLE AS AGA INST ON THE BASIS OF EACH BUSINESS UNIT SEPARATELY. AT THE OUTSET THE LE ARNED COUNSEL SUBMITTED THAT THE ISSUE IS DECIDED IN FAVOUR THE ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 1997-98 WHEREIN IT WAS HELD AS UNDER: - 26. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND M ERIT IN THE PLEA OF THE ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 7 LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO.3314 AND 3242/MUM/2005 FOR ASSESSMENT YEAR 2 000-01 WHEREIN VIDE PARA-11 OF THE ORDER DATED 23.9.2008 I T HAS BEEN HELD AS UNDER :- 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES ALONG WITH THE JUDGMENTS RELIED UPON BY THE PARTIES. FROM THE PERUSAL OF THE JUDGMENT IN THE CASE OF M. GANI & CO . (SUPRA) WE FIND THAT THE ASSESSEE IS ENTITLED TO THE ALLOWABILITY OF DEDUCTI ON U/S.80 HHC WITH THE TURNOVER OF QUA ASSESSEE AND NOT THE QUA BUSINESS WHEN ASSESSEE HAVING MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR DIFFERENT BUSINESS WHICH IS THE CASE IN THE INSTANT CASE ALSO. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) ORDER IS SET ASIDE ON THIS ISSUE AND ASSESSI NG OFFICER IS DIRECTED TO RECOMPUTE ALLOWABILITY OF DEDUCTION U/S.80 HHC QUA BUSINESS AND NOT QUA ASSESSEE AS SEPARATE BOOKS OF ACCOUNTS MAINTAINED B Y THE ASSESSEE FOR BULK DRUGS FORMULAS EXPORT DIVISIONS ETC. THE MERGER O F ACCOUNTS AT THE HEAD OF OFFICE FOR MAKING OF SINGLE PROFIT AND LOSS ACCOUNT WILL NOT COME IN THE WAY AS SUCH MERGER IS ONLY FOR THE LIMITED PURPOSE OF MA KING OF THE FINANCIAL STATEMENTS AS BOOKS OF ACCOUNTS IS ALLOWABLE. ACCO RDINGLY GROUND 3 IS ALLOWED. THE ABOVE ORDER HAS BEEN CONSISTENTLY FOLLOWED BY T HE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 1996-9 7 2001-02 AND 2002-03 SUPRA. 27. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE CONSISTEN T VIEW OF THE TRIBUNAL DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DEDU CTION U/S.80HHC IN THE LIGHT OF THE ORDER OF THE TRIBUNAL SUPRA AND AL LOW THE SAME. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH WE ALLOW THIS GROUND OF THE ASSESSEE. ITA NO. 2060/MUM/2005 : A.Y. 1998-99 11. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWING SIX GROUNDS: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISAL LOWANCE OF RS.1.70 LACS MADE ON ACCOUNT OF PARTLY CONVERTIBLE DEBENTURE ISSUE EXPENSES U/S 37(1) WITHOUT APPRECIATING THE FACT TH AT AS PER THE TERMS OF THE ISSUE AS CONTAINED AT PAGE 19 OF THE P ROSPECTUS 1/3 RD OF THE AMOUNTS OF THE DEBENTURES WERE CONVERTIBLE I NTO ONE EQUITY SHARE OF RS.10/- AT A PREMIUM OF RS.90 ON ALLOTMENT AND ACCORDINGLY 1/3 RD OF THE EXPENDITURE INCURRED IN CONNECTION WITH THE ISSUE OF DEBENTURE DISALLOWED WAS FOR RAISING THE C APITAL BASE AND HENCE IT IS A CAPITAL EXPENDITURE NOT ALLOWABLE U/S 37(1) AS IT IS AN EXPENDITURE INCURRED IN CONNECTION WITH RISING THE CAPITAL BASE WHICH IS OF ENDURING NATURE AND HENCE IS A CAPITAL EXPENDITURE NOT ALLOWABLE U/S 37 OF THE INCOME TAX ACT 1961 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSE SSING OFFICER THAT ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 8 ONLY 90% OF THE NET INTEREST RECOVERIES AND INTERES T FROM BANK DEPOSITS SHOULD BE SET OFF AGAINST INTEREST AND FIN ANCE CHARGES PAID I.E. CERTAIN CREDIT AND DEBITS OF THE SAME NATURE A RE TO BE ADJUSTED AGAINST EACH OTHER BEFORE REDUCTION UNDER CLAUSE (B AA) OF EXPLANATION TO SECTION 80HHC. FURTHER THE LD. CIT(A ) ALSO ERRED IN DIRECTING THE ASSESSING OFFICER THAT INTEREST FROM DEBTORS ON ACCOUNT OF DELAYED PAYMENTS SHOULD BE CONSIDERED AS INCOME DERIVED FROM EXPORT BUSINESS WITHOUT APPRECIATING THE FACT THAT FOR THE COMPUTATION OF DEDUCTION U/S 80HHC RECEIPTS ARE TO BE REDUCED ON GROSS BASIS RATHER THAN ON THE NET BASIS. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO EXCLUD E THE EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPO SE OF COMPUTING DEDUCTION U/S 80HHC OF THE INCOME TAX ACT 1961. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE BY THE ASSESSING OFFICER OF RS.26.20 LACS RELATING TO THE ADDITION OF EARLIER YEARS DEPRECIATION FOR WORKING OUT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JA WITHOUT APPRECIATING THE FACT THAT TO COMPUTE THE PROFIT IN ACCORDANCE WITH PROVISIONS OF PART II AND III OF SCHEDULE VI OF THE COMPANIES ACT 1956 DEPRECIATION PROVIDED FO R THE EARLIER YEARS SHOULD BE ADDED BACK. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSE SSING OFFICER THAT FOR DEDUCTION OF EXPORT PROFIT CONSIDER THE PROFIT S AS PER THE BOOKS AND NOT THE PROFITS COMPUTED FOR THE PURPOSE OF STA TUTORY DEDUCTION U/S 80HHC WITHOUT APPRECIATING THE FACT THAT UNDER THE PRESENT SCHEME OF COMPUTATION OF INCOME U/S 115JA ONLY AMO UNT OF PROFIT ELIGIBLE U/S 80HHC IS TO BE REDUCED RATHER THAN ON THE BASIS/ MANNER LAID DOWN IN ERSTWHILE 115J R.W. THE CIRCULA R NO. 680 DATED 21.02 1994. 6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSES SING OFFICER TO INCLUDE INTEREST ON BANK DEPOSITS AND PROVISIONS WR ITTEN BACK FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA WITHOUT APPRECIATING THE FACT THAT INTEREST ON BANK DEPOSIT AND THE PROV ISION WRITTEN THAT CANNOT BE TERMED AS INCOME DERIVED FROM THE BUSINES S OF INDUSTRIAL UNDERTAKING OR ATTRIBUTABLE TO THE INDUSTRIAL UNDER TAKING. 12. GROUND NO.1 IS AGAINST THE DELETION OF DISALLOWANC E OF ` 1.70 LACS MADE ON ACCOUNT OF PARTLY CONVERTIBLE DEBENTURE ISS UE EXPENSES UNDER SECTION 37(1). AT THE OUTSET THE LEARNED D.R SUBMIT TED THAT SIMILAR ISSUE IS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE I N ITA NO. 2059/MUM/2005 FOR A.Y. 1997-98 WHEREIN IT WAS HELD AS UNDER: - ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 9 36. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT IN THE ASSESSEE'S OWN CASE IN M/S. LUP IN LABORATORIES LTD. VS. ACIT AND VICE VERSA IN ITA NO.2445/M/05 AND 205 8/M/05 FOR ASSESSMENT YEAR 1996-97 ORDER DATED 5.1.2009 IDENT ICAL ISSUE HAS COME TO THE TRIBUNAL FOR THE ASSESSMENT YEAR 1996-9 7 WHEREIN THE TRIBUNAL AFTER CONSIDERING ALL THE FACTS AND CIRCUM STANCES OF THE CASE AND THE DECISIONS INCLUDING THE DECISION OF HONBLE APEX COURT IN INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC) HAS HELD AS UNDER :- 24. WE FIND THE VARIOUS DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. FURTHER MOST OF THE DECISIONS HAVE BEEN CONSIDERED BY THE SPECIAL B ENCH OF THE TRIBUNAL. WE THEREFORE FOLLOWING THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF BROOKE BOND INDIA LTD.(SUPRA) AND THE DECISION OF THE SPEC IAL BENCH OF THE TRIBUNAL IN THE CASE OF ASHIMA SYNTEX LTD. SET ASIDE THE ORDER OF THE CI T(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. 25. HOWEVER REGARDING THE ALTERNATE CONTENTION OF THE ASSESSEE THAT THE ALLOWABILITY OF EXPENDITURE U/S.35D WAS NOT ADJUDIC ATED BY THE CIT (A) WE FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE AS SESSEE AND THEREFORE RESTORE THE MATTER TO THE FILE OF THE CIT(A) TO ADJUDICATE THE ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE U/S.35D OF THE ACT. THIS GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. SINCE THE MATTER IS STILL PENDING BEFORE THE LD. CI T(A) AND KEEPING IN VIEW THE RECENT DECISIONS IN CIT VS. SECURE METERS LIMIT ED (2010) 321 ITR 611 (RAJ.) APPROVED BY THE HON'BLE SUPREME COURT IN (20 09) TIOL 93 (SC) AND IN MAHINDRA & MAHINDRA LTD. VS. JCIT (2010) 36 SOT 348 (MUM.) WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE ENTIRE ISSUE SHOULD GO BACK TO THE FILE OF THE LD. CIT(A) AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ACCOUNT AND SEND BACK THE MA TTER TO HIS FILE WHO SHALL DECIDE THE SAME AFRESH KEEPING IN MIND THE SA ID ORDER OF THE TRIBUNAL AND THE AFORESAID DECISIONS AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE REVENUE IS THEREFORE PARTLY A LLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH WE RESTORE THE ISSUE TO FILE OF THE LEARNED CIT(A) TO DECIDE THE ISSUE AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND IS CONSIDERED PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. FIRST PART OF GROUND NO.2 PERTAINS TO THE DIRECTION TO REDUCE 90% OF THE NET AMOUNT AND NOT THE GROSS AMOUNT OF INTEREST RECOVERIES AND INTEREST FROM BANK DEPOSIT WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC. THE CIT(A) HAS RELIED ON VARIOUS PRINCIPLES ESTABLISHED IN VARIOUS CASE LAWS AND SIMILAR ISSUE WAS ALSO HELD IN FAVOUR OF THE ASSESS EE BY THE ITAT IN EARLIER YEARS. HOWEVER THE COUNSEL FAIRLY ADMITTED IN THE COURSE OF AGREEMENT THAT THIS ISSUE IS TO BE DECIDED AGAINST THE ASSESSEE RE LYING ON THE PRINCIPLES ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 10 ESTABLISHED BY HON'BLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. ASIAN STAR CO. LTD. 326 ITR 56 AND BY HON'BLE MADRAS HIGH COUR T IN THE CASE OF AMBATTUR CLOTHING CO. LTD. VS. ACIT 326 ITR 245. IN VIEW OF THE JUDICIAL PRINCIPLES ESTABLISHED IN THE ABOVE CASES ORDER OF THE CIT(A) IS MODIFIED AND THAT OF THE A.O. IS RESTORED. THE AMOUNT TO BE CONS IDERED UNDER SECTION (BAA) FOR DEDUCTION IS TO BE TAKEN AT 90% OF THE GROSS IN TEREST. ACCORDINGLY REVENUES GROUND IS ALLOWED. 14. SECOND PART OF GROUND NO. 2 PERTAINS TO THE DIRECTI ON TO THE A.O. THAT INTEREST FROM DEBTORS ON ACCOUNT OF DELAYED PAYMENT SHOULD BE CONSIDERED AS INCOME DERIVED FROM EXPORT BUSINESS. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE IN EARLIER YEARS BY FOLLOWING THE DECI SIONS: - 1. LUPIN LAB. LTD. ITA NO. 2739 & 2505/BOM/1992 2. LUPIN LAB. LTD. ITA NO. 2445 & 2058/MUM/2005 3. LUPIN LAB. LTD. ITA NO. 3314 & 3242/MUM/2005 4. LUPIN LAB. LTD. ITA NO. 8627 & 9180/BOM/2004 IN VIEW OF THE PRECEDENT ON THIS ISSUE THERE IS NO NEED TO MODIFY CIT(A)S ORDER. ACCORDINGLY SECOND PART OF GROUND NO. 2 ON I NTEREST FROM DEBTORS ORDER OF THE CIT(A) IS CONFIRMED. THAT PART OF THE GROUND IS DISMISSED. 15. GROUND NO. 3 PERTAINS TO EXCLUSION OF EXCISE DUTY A ND SALES TAX FROM TOTAL TURNOVER. THIS ISSUE IS NOW SETTLED BY THE OR DERS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667 AND BY CIT VS. CATAPHARMA (I) P. LTD. 292 ITR 641. IN VIEW OF THIS ORDER OF THE CIT(A) ON THIS ISSUE IS CONFIRMED. REVENUES GR OUND IS DISMISSED. 16. GROUND NO. 4 IS AGAINST THE DELETION OF ADDITION OF ` 26.20 LACS RELATING TO THE ADDITION OF EARLIER YEARS DEPRECIATION FOR WORKING OUT THE BOOK PROFIT FOR THE PURPOSE OF SECTION115JA OF THE ACT. 17. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE IS CONSIDERED BY THE TRIBUNAL IN ASSE SSEES OWN CASE IN ITA NO. 2059/MUM/2005 FOR A.Y. 1997-98 WHEREIN IT WAS HELD AS UNDER: - 73. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE. WE FIND MERIT IN THE PLEA OF THE L D. COUNSEL FOR THE ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 11 ASSESSEE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE JUDGMENTS OF HON'BLE SUPREME COU RT AS UNDER :- 74. IN APOLLO TYRES LTD. SUPRA IT HAS BEEN HELD (PL ACITUM F AND G AT PAGE-280) : THEREFORE WE ARE OF THE OPINION THE ASSESSING OF FICER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY THE POWER OF EXA MINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER T HE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COM PANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO TH E SAID SECTION. TO PUT IT DIFFERENTLY THE ASSESSING OFFICER DOES NOT HAVE TH E JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXC EPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115J. 75. IN MALAYALA MANORAMA CO. LTD. VS. CIT AND VICE VERSA (2008) 300 ITR 251 (SC) IT HAS BEEN HELD (PLACITUM 33 PAGE 265 ): WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES AT L ENGTH AND CAREFULLY PERUSED THE WRITTEN SUBMISSIONS FILED BY THEM. IN OUR CONSI DERED OPINION THE CONTROVERSY INVOLVED IN THIS CASE IS NO LONGER RES INTEGRA. A THREE-JUDGE BENCH OF THIS COURT IN APOLLO TYRES (SUPRA) HAS CLEARLY I NTERPRETED SECTION 115J OF THE 1961 ACT. THERE IS NO SCOPE FOR ANY FURTHER DISCUSS ION. 76. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE AUTHORITA TIVE PRONOUNCEMENT OF THE HONBLE APEX COURT SUPRA UPHOLD THE ORDER OF T HE LD. CIT(A) HOLDING THAT THE ASSESSING OFFICER DOES NOT HAVE THE JURISD ICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE P&L ACCOUNT EXCEPT TO THE E XTENT PROVIDED IN THE EXPLANATION TO SEC.115JA (2) OF THE ACT AND IN DIRE CTING THE ASSESSING OFFICER TO EXCLUDE THE PROVISION MADE FOR DEPRECIAT ION OF EARLIER YEARS AMOUNTING TO ` 24.89 LACS FOR ASSESSMENT YEAR 1997-98. THE GROUND TAKEN BY THE REVENUE IS THEREFORE REJECTED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE C OORDINATE BENCH WE REJECT THIS GROUND OF THE REVENUE. 18. GROUND NO. 5 PERTAINS TO THE ISSUE OF CONSIDERING T HE PROFIT COMPUTED FOR THE PURPOSE OF STATUTORY DEDUCTION UNDER SECTIO N 80HHC AS WELL AS FOR THE PURPOSE OF BOOK PROFIT WAS HELD IN FAVOUR OF TH E REVENUE IN THE EARLIER BY THE ORDER OF THE ITAT AGAINST GROUND NO. 8 IN REVEN UES APPEAL 2059/MUM/2005 FOR A.Y. 1997-98. 19. THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE IS COV ERED IN FAVOUR OF THE ASSESSEE CONSEQUENT TO THE JUDGEMENT OF THE HON 'BLE SUPREME COURT IN THE CASE OF AJANTA PHARMA LTD. VS. CIT 327 ITR 305 AND ACCORDINGLY THE ORDER OF THE CIT(A) REQUIRES CONFIRMATION. IN VIEW OF THE PRONOUNCEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF AJANTA PHA RMA (SUPRA) THERE IS NO ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 12 NEED TO INTERFERE WITH THE ORDER OF THE CIT(A) ON T HIS ISSUE AND ACCORDINGLY REVENUES GROUND IS REJECTED. 20. GROUND NO.4 IS AGAINST THE DIRECTION OF THE LD. CIT (A) TO INCLUDE INTEREST ON BANK DEPOSITS AND PROVISION WRITTEN BAC K FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IA OF THE ACT. 21. THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE BY T HE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 2059/MUM/20 05 FOR A.Y. 1997-98 HOLDING AS UNDER: - 53. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE FACTS ARE NOT IN DISPUTE. WE FURTHER FIND THAT THE TRIBU NAL IN A RECENT DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO.648 & 411/MUM/2008 DATED 30.9.2009 HAS ALLOWED T HE DEDUCTION U/S.80IA ON THE NETTING OF INTEREST BY FOLLOWING TH E ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN LALSONS ENTERPRISES (2004) 89 ITD 25(DEL.)(SB) WHICH IS ON THE ALLOWABILITY OF DEDUCTION U/S.80HHC ON NETTING OF INTEREST. FOR THE ASSESSMENT YEAR 2000-01 IN ITA N O.3314 & 3242/M/2005 DATED 23.9.2008 THE TRIBUNAL WHILE ALLO WING THE DEDUCTION US/.80IA ON NETTING OF THE INTEREST HAS F OLLOWED ITS EARLIER ORDER IN IT(SS)A NO.311/MUM/ 2003 FOR ASSESSMENT YE AR PERTAINING TO BLOCK PERIOD 1.4.89 TO 22.2.2000 DATED 16.3.2006 WH EREIN THE TRIBUNAL HAS ALLOWED NETTING OF INTEREST WHILE COMPUTING DED UCTION U/S.80HHC OF THE ACT. THE TRIBUNAL FOR ASSESSMENT YEAR 2001-0 2 IN ITA NO.8627 & 9180/M/2004 DATED 15.4.2009 WHILE ALLOWING THE DEDU CTION U/S.80IA HAS FOLLOWED ITS EARLIER ORDER FOR ASSESSMENT YEAR 2000-01 DATED 23.9.2008 IN ITA NO.3314 & 3242/M/2005 SUPRA. THE TRIBUNAL FOR THE ASSESSMENT YEAR PERTAINING TO BLOCK PERIOD 1.4.89 T O 22.2.2000 DATED 16.3.2006 WHILE ALLOWING THE DEDUCTION U/S.80HHC HA S ALLOWED THE NETTING OF INTEREST ON THE BASIS OF NEXUS BETWEEN T HE INTEREST PAID INTEREST RECEIPT AND THE BUSINESS OF THE ASSESSEE. FOR THE ASSESSMENT YEAR 2000-01 IN ITA NO.1307 AND 436/M/05 DATED 23.7 .2008 THE TRIBUNAL WHILE ALLOWING THE DEDUCTION U/S.80IA ON T HE NETTING OF INTEREST HAS FOLLOWED THE RATIO LAID DOWN IN LALSON S ENTERPRISES (2004) 89 ITD 25 (DEL.) (SB). THUS ALL THE DECISIONS REL IED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE BASED ON THE DECISIONS OF LALSONS ENTERPRISES VS. DCIT (2004) 89 ITD 25 (SB)(DEL.) WH ICH IS UNDISPUTEDLY ON THE DEDUCTION U/S.80HHC OF THE ACT. 54. WE FURTHER FIND THAT THE OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE PRIOR TO THE DECISION OF THE HONBLE SUPREME COURT IN LIBERTY INDIA VS. CIT (2009) 225 CTR (SC) 233 ; (2009) 317 ITR 218 (SC) WHEREIN IT HAS BEEN OBSERVED AND HELD AS U NDER(PLACITUM 15 AT PAGE 233): ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 13 CONTINUING OUR ANALYSIS OF SECTION 80-IA/80-IB IT MAY BE MENTIONED THAT SUB- SECTION (13) OF SECTION 80-IB PROVIDES FOR APPLICAB ILITY OF THE PROVISIONS OF SUB- SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SECTION 80-IA SO FAR AS MAY BE APPLICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 8 0-IB. THEREFORE AT THE OUTSET WE STATED THAT ONE NEEDS TO READ SECTIONS 80-I 80- IA AND 80-IB AS HAVING A COMMON SCHEME. ON A PERUSAL OF SUB-SECTION (5) OF S ECTION 80-IA IT IS NOTICED THAT IT PROVIDES FOR THE MANNER OF COMPUTATION OF P ROFITS OF AN ELIGIBLE BUSINESS. ACCORDINGLY SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE THE DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAVE G OT TO BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SUB-SECTION (5) OF SECTION 80-IA WHICH ARE ALSO REQUIRED TO BE READ INTO SECTION 80-IB. (SEE SECTION 80-IB( 13)). WE MAY REITERATE THAT SECTIONS 80-I 80-IA AND 80-IB HAVE A COMMON SCHEME AND IF SO READ IT IS CLEAR THAT THE SAID SECTIONS PROVIDE FOR INCENTIVES IN TH E FORM OF DEDUCTION(S) WHICH ARE LINKED TO PROFITS AND NOT TO INVESTMENT. ON AN ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDE RTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SUB-SECTION (2) WOULD BE EN TITLED TO DEDUCTION UNDER SUB- SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED F ROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE APART FROM ELIGIBIL ITY SUB-SECTION(1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PE RCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM INDUSTRIA L UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. IT HAS BEEN FURTHER HELD (PLACITUM 22 & 24 AT PAGE 235): THEREFORE WE ARE OF THE VIEW THAT THE DUTY DRAW BACK DEPB BENEFITS REBATES ETC. CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECT ION 80-IA/80-IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPENDENT S OURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRI AL UNDERTAKING. IN THE CIRCUMSTANCES WE HOLD THAT DUTY DRAWBACK RE CEIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80-I/80-IA/80-IB OF THE 1961 ACT. 55. IN CIT VS. M/S. ASIAN STAR COMPANY IN INCOME TA X APPEAL NO.200 OF 2009 DATED 18/19 .3. 2010 WHICH HAS ALSO BEEN RELIE D ON BY THE LD. COUNSEL FOR THE ASSESSEE WHILE ARGUING GROUND NO.5 THEIR LORDSHIPS WHILE HOLDING IN PARA 21 OF THE JUDGMENT THAT THE VIEW TA KEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN LALSONS ENTERPRISES (2004) 89 ITD 25(SB) IS IMPERMISSIBLE HAS HELD AS UNDER :- 22. IN THE CIRCUMSTANCES WE ALLOW THE APPEAL BY HOLDING THAT THE TRIBUNAL WAS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THE NET INTEREST ON FIXED DEPOSITS IN THE BANK RECEIVED BY THE ASSESSEE SHOULD BE CONSIDE RED FOR THE PURPOSES OF WORKING OUT THE DEDUCTION UNDER SECTION 80HHC AND N OT THE GROSS INTEREST. THE QUESTION OF LAW WOULD ACCORDINGLY STAND ANSWERED IN THE AFORESAID TERMS IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. TH ERE SHALL BE NO ORDER AS TO COSTS. 56. IN CIT VS. VIDYUT CORPORATION (2010) 324 ITR 22 1(BOM.) IT HAS BEEN HELD: (HEADNOTE): HELD THAT FOR THE PURPOSE OF DEDUCTION UNDER SEC TION 80-IB THE INTEREST INCOME RECEIVED ON UNSECURED LOANS DID NOT FORM A P ART OF THE BUSINESS INCOME. ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 14 57. RESPECTFULLY FOLLOWING THE LAW LAID DOWN BY THE HONBLE APEX COURT AND THE HON'BLE JURISDICTIONAL HIGH COURT (SU PRA) WHICH IS BINDING ON US WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION U/S. 80IA ON THE NETTING OF INTEREST INCO ME AND PROVISIONS WRITTEN BACK BEING BEYOND THE FIRST DEGREE NEXUS BE TWEEN PROFITS AND THE INDUSTRIAL UNDERTAKING AND HENCE THE ORDER PAS SED BY THE LD. CIT(A) ON THIS ACCOUNT IS REVERSED AND THAT OF ASSESSING O FFICER IS RESTORED. THE GROUND TAKEN BY THE REVENUE IS THEREFORE ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE WE ALLOW THE GROUND OF THE REV ENUE ON THIS ISSUE. THE ORDER OF THE CIT(A) ON THIS ISSUE IS MODIFIED AND T HAT OF AO IS RESTORED. ITA NO. 2448/MUM/2005 : A.Y. 1999-2000 22. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS: - 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CON FIRMING THE DISALLOWANCE OF AMORTISATION OF LEASE PREMIUM OF RS .2 47 816 IN RESPECT OF LEASEHOLD LAND AND BUILDING. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN COMPUTING THE DEDUCTION UNDER SECTION 80HHC ON THE BASIS OF THE COMPANY AS A WHOLE AS AGA INST ON THE BASIS OF EACH BUSINESS UNIT SEPARATELY AS COMPUTED BY THE APPELLANT. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN SETTING OFF LOSSES UNDE R SECTION 80HHC(3)(A)(B)(C) AGAINST THE EXPORT INCENTIVES AND THEREBY DENYING DEDUCTION UNDER SECTION 80HHC. 4. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE HELD THAT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC( 3) THE LOSSES UNDER SECTION 80HHC(3)(A)/(B)/(C) ARE TO BE IGNORED AND THE APPELLANT WAS ENTITLED TO DEDUCTION UNDER SECTION 8 0HHC ON 90 PER CENT OF EXPORT INCENTIVES. OUT OF THESE GROUNDS NOS. 3 & 4 ARE NOT PRESSED. 23. GROUND NO. 1 IS SIMILAR TO GROUND NO. 1 RAISED IN A SSESSEES APPEAL FOR A.Y. 1998-99 IN ITA NO. 2477/MUM/2005. FOR THE REAS ONS GIVEN THEREIN ABOVE WE REJECT THE GROUND OF THE ASSESSEE. 24. GROUND NO. 2 IS ALSO DECIDED IN FAVOUR OF THE ASSES SEE VIDE PARA 10 ABOVE IN ASSESSEES OWN CASE. FOR THE SAME REASONS GIVEN THEREIN WE ALLOW THE GROUND OF THE ASSESSEE. ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 15 ITA NO. 2061/MUM/2005 : A.Y. 1999-2000 25. REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS A PPEAL: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISAL LOWANCE OF RS.151.52 LACS MADE ON ACCOUNT OF PARTLY CONVERTIBL E DEBENTURE ISSUE EXPENSES U/S 37(1) WITHOUT APPRECIATING THE F ACT THAT AS PER THE TERMS OF THE ISSUE AS CONTAINED AT PAGE 19 OF T HE PROSPECTUS 1/3 RD OF THE AMOUNTS OF THE DEBENTURES WERE CONVERTIBLE INTO ONE EQUITY SHARE OF RS.10/- AT A PREMIUM OF RS.90 ON AL LOTMENT AND ACCORDINGLY 1/3 RD OF THE EXPENDITURE INCURRED IN CONNECTION WITH THE ISSUE OF DEBENTURE DISALLOWED WAS FOR RAISING THE C APITAL BASE AND HENCE IT IS A CAPITAL EXPENDITURE NOT ALLOWABLE U/S 37(1) AS IT IS AN EXPENDITURE INCURRED IN CONNECTION WITH RISING THE CAPITAL BASE WHICH IS OF ENDURING NATURE AND HENCE IS A CAPITAL EXPENDITURE NOT ALLOWABLE U/S 37 OF THE INCOME TAX ACT 1961 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF DEPRECIATION OF RS.2 92 05.580 ON WDV OF TECHNICAL KNOW HOW ACQUIRED BY THE ASSESSEE COMPANY FROM SYNCHEM CHEMI CALS (I) PVT. LTD. WITHOUT APPRECIATING THE FACT THAT ASSESSEE DI D NOT USE THE TECHNOLOGY OR TECHNICAL KNOW HOW FOR THE PURPOSE OF THE BUSINESS AND ALSO THE FACT THAT ASSESSEE FAILED TO SUBMIT DE TAILS OF TECHNICAL KNOW HOW RECEIVED FROM SYNCHEM CHEMICALS AND JUSTIF Y PURCHASE CONSIDERATION PAID FOR SUCH A KNOW HOW IN VIEW OF C OMMERCIAL PRUDENCE REASONABLY AND ALSO THE FACT THAT NO COMME RCIAL PRODUCTION OF THE PRODUCTS SPECIFIED IN THE AGREEME NT HAD COMMENCED. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS.7.50 LACS BEING THE COMMISSION PAID TO SMT. M.D. GUPTA WITHOUT APPRECIATING THE FACT THAT BOARD OF DIRECTORS HAD P ASSED A RESOLUTION THAT MRS. M D GUPTA WILL NOT BE ELIGIBLE FOR ANY COMMISSION WITH EFFECT FROM 1.1.1998. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO EXCLUD E THE EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPO SE OF COMPUTING DEDUCTION U/S 80HHC OF THE INCOME TAX ACT 1961. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSE SSING OFFICER THAT ONLY 90% OF THE NET INTEREST RECOVERIES AND INTERES T FROM BANK DEPOSITS SHOULD BE SET OFF AGAINST INTEREST AND FIN ANCE CHARGES PAID I.E. CERTAIN CREDIT AND DEBITS OF THE SAME NATURE A RE TO BE ADJUSTED AGAINST EACH OTHER BEFORE REDUCTION UNDER CLAUSE (B AA) OF EXPLANATION TO SECTION 80HHC. FURTHER THE LD. CIT(A ) ALSO ERRED IN DIRECTING THE ASSESSING OFFICER THAT INTEREST FROM DEBTORS ON ACCOUNT OF DELAYED PAYMENTS SHOULD BE CONSIDERED AS INCOME DERIVED FROM ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 16 EXPORT BUSINESS WITHOUT APPRECIATING THE FACT THAT FOR THE COMPUTATION OF DEDUCTION U/S 80HHC RECEIPTS ARE TO BE REDUCED ON GROSS BASIS RATHER THAN ON THE NET BASIS. 6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE BY THE ASSESSING OFFICER OF RS.26.20 LACS RELATING TO THE ADDITION OF EARLIER YEARS DEPRECIATION FOR WORKING OUT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JA WITHOUT APPRECIATING THE FACT THAT TO COMPUTE THE PROFIT IN ACCORDANCE WITH PROVISIONS OF PART II AND III OF SCHEDULE VI OF THE COMPANIES ACT 1956 DEPRECIATION PROVIDED FO R THE EARLIER YEARS SHOULD BE ADDED BACK. 7) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSE SSING OFFICER THAT FOR DEDUCTION OF EXPORT PROFIT CONSIDER THE PROFIT S AS PER THE BOOKS AND NOT THE PROFITS COMPUTED FOR THE PURPOSE OF STA TUTORY DEDUCTION U/S 80HHC WITHOUT APPRECIATING THE FACT THAT UNDER THE PRESENT SCHEME OF COMPUTATION OF INCOME U/S 115JA ONLY AMO UNT OF PROFIT ELIGIBLE U/S 80HHC IS TO BE REDUCED RATHER THAN ON THE BASIS/ MANNER LAID DOWN IN ERSTWHILE 115J R.W. THE CIRCULA R NO. 680 DATED 21.02 1994. 26. GROUND NO. 1 RAISED BY THE REVENUE IS SIMILAR TO GR OUND NO. 1 IN ITA NO. 2060/MUM/2004 FOR A.Y. 1998-99. RESPECTFULLY FO LLOWING THE ABOVE DECISION AND THAT OF THE COORDINATE BENCH IN EARLIE R YEARS WE RESTORE THE ISSUE TO FILE OF THE LEARNED CIT(A) TO DECIDE THE I SSUE AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 27. GROUND NO. 2 PERTAINS TO DISALLOWANCE OF DEPRECIATI ON OF ` 2 91 05 580/- ON WDV ON TECHNICAL KNOW HOW ACQUIRED BY THE ASSESSEE COMPANY FROM SYNCHEM CHEMICALS (I) PVT. LTD. DIRECT ED TO BE ALLOWED BY THE CIT(A). THE BRIEF FACTS ARE THAT DURING THE A.Y. 19 98-99 THE ASSESSEE COMPANY ACQUIRED KNOW HOW AND PROCESS FOR THE MANUF ACTURE OF BULK DRUGS NAMELY NADOLOL METROPROLOL TRATRATE DILTIAZEM HY DROCHOLRIDE TEMOXIFEN CITRATE AND KETROLAC TROMETHMINE FROM SYNCHEM CHEMI CALS (I) PVT. LTD.. THE SAID KNOW HOW WAS ACQUIRED BY THE ASSESSEE FOR A CO NSIDERATION OF ` 1330.45 LAKHS (WHICH INCLUDED INTEREST OF ` 580.54 LAKHS) IN THE COURSE OF ITS EXISTING BUSINESS OF BULK DRUG MANUFACTURING FOR EXTENSION O F THE EXISTING PRODUCE LINE AT ANKLESHWAR. THE THEN A.O. ALLOWED DEPRECIAT ION ON THE SUM OF ` 1330.54 LAKHS IN A.Y. 1998-99 MADE UNDER SECTION 14 3(3) ON 19.03.2001. HOWEVER IN THE BLOCK ASSESSMENT ORDER DATED 28.03. 2002 PASSED UNDER ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 17 SECTION 158BC R.W.S. 143(3) THE A.O. DISALLOWED TH E DEPRECIATION ALLOWANCE ON TECHNICAL KNOW HOW AND CONSIDERED THE SAME AS UN DISCLOSED INCOME WITHIN THE MEANING OF SECTION 158BC(B) IN VIEW OF T HE DETAILED REASONING CONTAINED IN THE BLOCK ASSESSMENT ORDER. THE A.O. A LSO DISALLOWED THE DEPRECIATION ALLOWANCE ON PROTECTIVE BASIS IN THE R EGULAR ASSESSMENT ORDER FOR A.Y. 1999-2000 ONWARDS. THE CIT(A) AFTER CONSI DERING THE SUBMISSION OF THE ASSESSEE WITH REFERENCE TO TECHNICAL KNOW-HOW B EING CAPITAL ASSET ON WHICH DEPRECIATION WAS ALLOWABLE LEGALLY AS WELL AS ON THE FACT THAT A.O. ALLOWED IN A.Y. 1998-99 AFTER EXAMINATION OF THE FA CTS HAS ALLOWED THE CLAIM OF DEPRECIATION OF THE ASSESSEE BY GIVING THE FOLLO WING FINDING: - 31.3. I HAVE GONE THROUGH THE RIVAL SUBMISSIONS P ERUSED THE MATERIALS AVAILABLE ON RECORD AND ALSO THE DECISIONS CITED HE REINABOVE BY THE A/R. ON PERUSAL OF THE ASSESSMENT ORDER FOR THE ASSESSME NT YEAR 1998-99 (COPY IS PLACED ON RECORD AT PAGE 293-321 OF THE PA PER BOOK) I FIND THAT DEPRECIATION HAS BEEN ALLOWED BY THE THEN ASSESSING OFFICER ON THE AMOUNT CAPITALIZED ON ACCOUNT OF KNOW-HOW AND PROCE SS. IT IS ALSO TRUE THAT THE SAID KNOW-HOW HAS BEEN TREATED AS PART OF THE BLOCK OF PLANT AND MACHINERY. SIMILARLY ON PERUSAL OF THE BLOCK ASSESSMENT ORDER IT IS OBSERVED THAT DISALLOWANCE OF DEPRECIATION HAS BEEN MADE ON SUBSTANTIVE BASIS AND I HAVE DELETED THE SAME IN THE BLOCK ASSE SSMENT APPELLATE ORDER NO. IT(A) X/IT 121/2002-03 DATED 29/4/2003. O N PERUSAL OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR UNDER APPE AL I FIND THAT THE DISALLOWANCE OF DEPRECIATION HAS BEEN MADE ON PROTE CTIVE BASIS AS WELL. THE ISSUE INVOLVED IN THE INSTANT CASE IS WHETHER D EPRECIATION COULD BE DISALLOWED ON PROTECTIVE BASIS IN RESPECT OF THE SA ME ASSESSEE. THE PROTECTIVE ASSESSMENT IS A KIND OF ASSESSMENT WHERE THE ASSESSING OFFICER TAKES PROCEEDINGS AGAINST TWO OR MORE PERSO N FOR SAME INCOME WHEN HE IS DOUBTFUL OF THE PERSON TO WHOM THE INCOM E HAS ACTUALLY ACCRUED. THIS VIEW FINDS SUPPORT FROM THE DECISION IN THE CASE OF CIT V. SMT. DURGAWATI SINGH 234 ITR 249 (ALL) JAGANNATH B AWRI & ORS V. CIT & ORS. 234 ITR 464 (GAU) AND CWT V. BEGAM BRIGEES ZAH OOR QASIM & ORS. 248 ITR 482 (DEL). IN THE LAST CASE IT WAS HELD THA T PROTECTIVE INCLUSION OF WEALTH IS PERMISSIBLE WHERE A SUBSTANTIVE ASSESSMEN T IS MADE IN THE HANDS OF ANOTHER. THUS THE ASSESSING OFFICER SHOUL D NOT HAVE MADE THE ADDITION ON THE SAME PERSON IN RESPECT OF SAME INCO ME (DISALLOWANCE OF DEPRECIATION) ONCE ON SUBSTANTIVE BASIS AND THEN ON PROTECTIVE BASIS. NOW I TAKE UP THE ALTERNATIVE ISSUE WHETHER THE AP PELLANT COMPANY WAS ENTITLED TO DEPRECIATION ALLOWANCE ON THE PLANT (KN OW-HOW) IN VIEW OF THE CIRCUMSTANCES AND FACTS OF THE INSTANT CASE. ON PER USAL OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1998-99 IT IS OBSERVE D THAT DEPRECIATION HAS BEEN ALLOWED ON THE AMOUNT OF KNOW-HOW CAPITALI ZED IN THE BOOKS OF ACCOUNT. IN THE CASE OF PACKWELL PRINTERS V. ACIT 5 9 ITD 340 (JAB) INDUCTOTHERM INDIA LTD. V. DCIT 73 ITD 329 (AHD) AN D SOUTH EASTERN COALFIELDS LTD. V. JCIT 85 ITD 608 (NAG) IT WAS OBS ERVED THAT ONCE AN ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 18 INDIVIDUAL ASSET ENTERS INTO THE BLOCK OF ASSETS IT LOOSES ITS IDENTITY AND DEPRECIATION IS ALLOWABLE ON THE WDV OF THE BLOCK O F ASSETS AS PER SEC 43(6). IT IS NOT POSSIBLE TO EXCLUDE ANY PARTICULAR ASSET OR AN ASSET RETIRED FROM ACTIVE USE AS THE ASSET CONTINUE TO FORM PART OF THE RESPECTIVE BLOCK OF ASSETS AND IS ENTITLED TO DEPRECIATION AS LONG AS T HE BLOCK EXISTS. SIMILAR VIEW WAS ALSO TAKEN BY THE BOMBAY HIGH COURT IN THE CASE OF NECTAR BEVERAGES PVT. LTD. V. DCIT (ASST) 267 ITR 385 WHER EIN THE BOMBAY HIGH COURT DEALING WITH SEC 41(1) OBSERVED AT PG 396 THA T W.E.F. 1/4/1998 SEC 32(1) PROVIDES THAT DEPRECIATION IS PROVIDED ON BLO CK OF ASSETS INSTEAD OF INDIVIDUAL ASSET. IN VIEW OF THE ABOVE DISCUSSIONS I DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION OF RS.2 91 05 580/-. THE APPELLANT THEREFORE SUCCEEDS ON THESE GROUNDS OF APPEAL. 28. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. W HEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND REFERRED TO THE ORDER FOR 1998-99 AND SUBSEQUENT ORDER OF THE ITAT IN A.Y. 2000-01 IN ITA NOS. 3314 & 3242/MUM/2005 AND ALSO FOR A.Y. 2001-02 IN ITA NOS. 8627 & 9180/MUM/2004 AND ALSO THE BLOCK ASSESSMENT ORDER I N IT(SS) NOS. 531 & 568/MUM/2003. ON CONSIDERING THE FACTS ON RECORD AN D ORDERS OF THE ITAT AS A PRECEDENT WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). IN FACT THE CLAIM OF DEPRECIATION WAS ORIGINALLY CONSI DERED AND ALLOWED IN THE EARLIER ASSESSMENT UNDER SECTION 143(3) BY THE A.O. IN 1998-99 APPEALS OF WHICH WERE CONSIDERED ABOVE AND REVENUE HAS NOT DIS TURBED THE CLAIM AND ITS ALLOWANCE. NOT ONLY THAT THIS BEING THE SECOND YEAR OF CLAIM OF DEPRECIATION THE POWERS TO RESTRICT DEPRECIATION IN BLOCK OF ASSETS ARE ALSO RESTRICTED AND BOTH ON LAW AND ON FACTS THE CIT(A) HAS CONSIDERED THE ISSUE CORRECTLY. WE THEREFORE UPHOLD THE ORDER OF THE CIT (A). GROUND IS REJECTED. 29. GROUND NO. 3 PERTAINS TO DISALLOWANCE OF ` 7.50 LAKHS OF COMMISSION PAID TO SMT. M.D. GUPTA BUT ALLOWED BY THE CIT(A). BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAS PAID COMMISSION OF ` 7 50 000/- TO ITS DIRECTOR SMT. M.D. GUPTA IN TERM S OF THE CONDITIONS OF THE EMPLOYMENT AS APPROVED BY THE BOARD OF DIRECTO RS AND THE SHAREHOLDERS. THE COMMISSION IN QUESTION PERTAINED TO THE PERIOD PRIOR TO 01.01.1998 THE DATE FROM WHICH IT WAS DECIDED BY T HE BOARD OF DIRECTORS THAT SMT. M.D. GUPTA WOULD NOT BE ENTITLED TO ANY C OMMISSION ON OR AFTER THE SAID DATE. WHILE PASSING THE ORDER THE ASSESSI NG OFFICER ADDED THE SUM OF ` 7 50 000/- ON THE BASIS OF HIS FINDINGS IN PARA 10 OF THE ORDER PASSED ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 19 UNDER SECTION 143(3) R.W.S. 158BC OF THE ACT ON 28. 03.2002 IN ASSESSEES OWN CASE. THE ADDITION OF ` 7 50 000/- WAS MADE ON PROTECTIVE BASIS. HOWEVER THE DISALLOWANCE OF COMMISSION PAID TO SMT . M.D. GUPTA AS UNDISCLOSED INCOME HAS NOT BEEN SUSTAINED BY THE LE ARNED CIT(A) X MUMBAI IN THE BLOCK ASSESSMENT APPEAL ORDER NO. CIT (A)-X/IT/210-02-03 DATED 21.03.2003. AFTER CONSIDERING ASSESSEES SUBM ISSIONS THE CIT(A) HAS ALLOWED THE AMOUNT BY CONSIDERING THE ISSUE AS UNDE R: - 32.3 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND THE MATERIALS FILED ON RECORD. ON PERUSAL OF THE BLOCK ASSESSMENT ORDER IT IS OBSERVED THAT DISALLOWANCE OF COMMISSION HAS BEEN M ADE ON SUBSTANTIVE BASIS AND I HAVE DELETED THE SAME IN THE BLOCK ASSE SSMENT APPELLATE ORDER NO. IT(A) X/IT/121/2002-03 DATED 29/4/2003. O N PERUSAL OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR UNDER APPE AL I FIND THAT THE DISALLOWANCE OF COMMISSION HAS BEEN MADE ON PROTECT IVE BASIS AS WELL. THE ISSUE INVOLVED IN THE INSTANT CASE IS WHETHER C OMMISSION COULD BE DISALLOWED ON PROTECTIVE BASIS IN RESPECT OF THE SA ME ASSESSEE. THE PROTECTIVE ASSESSMENT IS A KIND OF ASSESSMENT WHERE THE ASSESSING OFFICER TAKES PROCEEDINGS AGAINST TWO OR MORE PERSO NS FOR SAME INCOME WHEN HE IS DOUBTFUL OF THE PERSON TO WHOM THE INCOM E HAS ACTUALLY ACCRUED. THIS VIEW FINDS SUPPORT FROM THE DECISION IN THE CASE OF CIT V. SMT. DURGAWATI SINGH 234 ITR 249 (ALL) JAGANNATH B AWRI & ORS V. CIT & ORS. 234 ITR 464 (GAU) AND CWT V. BEGAM BRIGEES ZAH OOR QASIM & ORS. 248 ITR 482 (DEL). IN THE LAST CASE IT WAS HELD THA T PROTECTIVE INCLUSION OF WEALTH IS PERMISSIBLE WHERE A SUBSTANTIVE ASSESSMEN T IS MADE IN THE HANDS OF ANOTHER. THUS THE ASSESSING OFFICER SHOUL D NOT HAVE MADE THE ADDITION ON THE SAME PERSON IN RESPECT OF SAME INCO ME (DISALLOWANCE OF COMMISSION) ONCE ON SUBSTANTIVE BASIS AND THEN ON P ROTECTIVE BASIS. NOW I TAKE UP THE ALTERNATIVE ISSUE WHETHER IN THE CIRC UMSTANCES AND FACTS OF THE CASE THE ASSESSING OFFICER COULD HAVE MADE THE DISALLOWANCE OF COMMISSION. IT IS AN IRREFUTABLE FACT THAT THE ORDE RS NAMELY THE REGULAR ASSESSMENT ORDER OF MRS. MANJU D. GUPTA FOR THE ASS ESSMENT YEAR 1999- 2000 THE REGULAR ASSESSMENT ORDER AND THE BLOCK AS SESSMENT ORDER OF THE APPELLANT COMPANY ARE MADE BY THE SAME ASSESSIN G OFFICER. ADMITTEDLY COMMISSION WAS PAYABLE TO MRS. MANJU D. GUPTA UP TO 31/12/1997 AND SUCH COMMISSION WAS PAYABLE TO HER I N TERMS OF THE EMPLOYMENT AS APPROVED BY THE SHAREHOLDERS OF THE A PPELLANT COMPANY. THE SAID COMMISSION AMOUNT WAS DETERMINABLE AS PERC ENTAGE OF THE PROFITS AND SUCH PROFITS WERE DETERMINED ONLY AT TH E END OF ACCOUNTING YEAR I.E. FOR JULY 1 197 TO JUNE 30 1998. IN TERM S OF THE CONDITIONS OF EMPLOYMENT SUCH COMMISSION ACCRUED TO MRS. MANJU D . GUPTA ONLY ON ADOPTION OF THE COMPANIES ACT ACCOUNTS FOR THE YEAR ENDED 30/6/1998 WHICH WERE ADOPTED BY THE BOARD OF DIRECTORS ON 29/ 8/1998 AND APPROVED BY THE SHAREHOLDERS ON 27/11/1998. SINCE M RS. MANJU D. GUPTA WAS LEGALLY ENTITLED TO RECEIVE COMMISSION IN COME IN THE ACCOUNTING YEAR 31/3/1999 ACCORDINGLY THE SAID COMMISSION INC OME WAS OFFERED AND ASSESSED TO TAX AS INCOME OF THE ASSESSMENT YEA R 1999-2000. ON ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 20 PERUSAL OF THE WORKING OF DIRECTORS COMMISSION IN NOTE NO. 16 OF SCHEDULE 18 (PG 33 OF THE PUBLISHED ACCOUNTS) APPENDED TO TH E AUDITED ACCOUNTS FOR THE ACCOUNTING YEAR ENDED 30/6/1998 UNDER THE COMPA NIES ACT I FIND THAT COMMISSION OF ` 7 50 000/- IS PAID TO MRS. M.D. GUPTA ONLY FOR THE PERIOD DECEMBER 1997. AS PER PG. 354 OF THE PAPER B OOK OF THE BLOCK APPEAL THE SAID COMMISSION OF RS.7 50 000/- WAS PAI D TO MRS. M.D. GUPTA BY THE APPELLANT COMPANY BY CHEQUE NO. 491685 DATED 28/12/1998. THEREFORE THE SAID COMMISSION WS FOR T HE PERIOD PRIOR TO 1/1/1998 AND NOT IN CONTRAVENTION OF THE BOARD OF D IRECTORS RESOLUTION AS ALLEGED BY THE ASSESSING OFFICER. FURTHER THE ASSE SSING OFFICER SHOULD NOT HAVE TAKEN CONFLICTING STANDS FIRSTLY BY DISALLOWI NG THE COMMISSION PAYMENT AND THEN BY ASSESSING THE SAME COMMISSION A S INCOME OF MRS. M.D. GUPTA. IN VIEW OF THE ABOVE DISCUSSIONS I DIR ECT THE ASSESSING OFFICER TO DELETE DISALLOWANCE OF ` 7 50 000/- ON ACCOUNT OF COMMISSION PAID TO MRS. M.D. GUPTA. THE APPELLANT THEREFORE SUCCEEDS ON THESE GROUNDS OF APPEAL. . 30. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND EXAMINI NG THE FACTS OF THE ISSUE WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). IN FACT THE REVENUE FAILED TO EXPLAIN WHY THE AMOUNT WAS DISALL OWED WHEN THE SAID PERSON WAS ELIGIBLE FOR COMMISSION AS PER THE TERMS OF EMPLOYMENT. AS RIGHTLY POINTED BY THE CIT(A) THE AMOUNT OF COMMISS ION CAN ONLY BE ASSESSED AFTER THE BOOKS OF ACCOUNTS WERE ADOPTED B Y THE BOARD OF DIRECTORS AND APPROVED BY THE SHAREHOLDERS. SINCE SMT. M.D. G UPTA WAS ELIGIBLE FOR COMMISSION INCOME IN THE ACCOUNTING YEAR 31.03.1999 PAYABLE FOR THE PERIOD UPTO DECEMBER 1997 THERE IS NO NEED TO REVI EW THE DECISION OF THE CIT(A). ACCORDINGLY THE GROUND IS REJECTED. 31. GROUND NO. 4 PERTAINING TO EXCLUSION OF EXCISE DUT Y AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTIN G DEDUCTION UNDER SECTION 80HHC IS SIMILAR TO GROUND NO. 3 IN ITA NO. 2060/MUM/2005. FOR THE REASONS GIVEN IN PARA 15 ABOVE THIS ISSUE IS DE CIDED AGAINST THE REVENUE. 32. GROUND NO. 5 HAS TWO COMPONENTS. FIRST COMPONENT O F GROUND NO.5 PERTAINS TO THE DIRECTION TO REDUCE 90% OF THE NET AMOUNT AND NOT THE GROSS AMOUNT OF INTEREST RECOVERIES AND INTEREST FORM BAN K DEPOSIT WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC AND SECON D COMPONENT PERTAINS TO THE DIRECTION TO THE A.O. THAT INTEREST FROM DEB TORS ON ACCOUNT OF DELAYED PAYMENT SHOULD BE CONSIDERED AS INCOME DERIVED FROM EXPORT BUSINESS. ITA NOS.2447 2448 20602061/MUM/20045 M/S. LUPIN LABORATORIES LTD. 21 THESE ISSUES ARE CONSIDERED VIDE PARA 13 & 14 ABOVE IN ITA NO. 2060/MUM/ 2004. FOR THE REASONS MENTIONED THEREIN THE ISSUE I N FIRST PART IE. 90% AT GROSS AMOUNT IS ALLOWED AND ON SECOND PART OF TREAT ING INTEREST FROM DEBTORS THE GROUND IS REJECTED AND CIT(A) ORDER TO THAT EXTENT IS CONFIRMED. 33. GROUND NO. 6 IS AGAINST THE DELETION OF ADDITION O F ` 26.20 LACS RELATING TO THE ADDITION OF EARLIER YEARS DEPRECIA TION FOR WORKING OUT THE BOOK PROFIT FOR THE PURPOSE OF SECTION115JA OF THE ACT. THIS GROUND IS SIMILAR TO GROUND NO. 4 IN ITA NO. 2060/MUM/2005 FOR A.Y. 1 998-99. FOR THE REASONS GIVEN IN PARA 17 ABOVE THIS GROUND OF THE REVENUE IS REJECTED. 34. GROUND NO. 7 PERTAINS TO THE ISSUE OF CONSIDERING THE PROFIT COMPUTED FOR THE PURPOSE OF STATUTORY DEDUCTION UNDER SECTIO N 80HHC AS WELL AS FOR THE PURPOSE OF BOOK PROFIT. THIS ISSUE IS DECIDED I N FAVOUR OF THE ASSESSEE VIDE PARA 19 ABOVE. FOR THE SAME REASONS THIS GROU ND OF THE REVENUE IS REJECTED FOR THIS ASSESSMENT YEAR ALSO. 35. IN THE RESULT ITAT NO. 2477/MUM/2005 ITA NO. 2060 /MUM/2005 AND ITA NO. 2061/MUM/2005 AND ITA NO. 2488/MUM/2005 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 30 TH DECEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) X MUMBAI 4. THE CIT X MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.