M/S. MAHINDRA & MAHINDRA LTD., v. THE ADDL CIT SP. RG 49,

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVAN JM ITA NO.2523/MUM/2005 : ASST.YEAR 1998-99 M/S.MAHINDRA & MAHINDRA LIMITED MAHINDRA TOWARS GROUND FLOOR CORPORATION TAXATION WORLI ROAD NO.13 WORLI MUMBAI 400 018. PA NO.AAACM3025E. VS. THE ADDL.COMMISSIONER OF INCOME-TAX SPECIAL RANGE 49 MUMBAI. (APPELLANT) (RESPONDENT) ITA NO.3078/MUM/2005 : ASST.YEAR 1998-99 THE ADDL.COMMISSIONER OF INCOME - TAX SPECIAL RANGE 49 MUMBAI. VS. M/S.MAHINDRA & MAHINDRA LIMITED MAHINDRA TOWARS GROUND FLOOR CORPORATION TAXATION WORLI ROAD NO.13 WORLI MUMBAI 400 018. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI S.K.PAHWA (CIT-DR) ASSESSEE BY : SHRI B.K.KHARE O R D E R PER R.S.SYAL AM : THESE TWO CROSS APPEALS ONE BY THE REVENUE AND TH E OTHER BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 31.1.2005 IN RELATION TO THE ASSESSMENT YEAR 1998-9 9. 2. THE FIRST PART OF GROUND NO.1 OF ASSESSEES APPE AL ABOUT THE SUSTENANCE OF ADDITION OF RS.1 77 470 TOWARDS AMORTIZATION OF PRE MIUM ON LEASEHOLD LAND WAS NOT PRESSED BY THE LEARNED A.R. THE SAME THEREFORE STANDS DISMISSED. 3. THE SECOND PART OF GROUND NO.1 IS AGAINST THE UP HOLDING OF ADDITION OF RS.22 99 076 TOWARDS CAPITAL ADVANCES WRITTEN OFF. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE WROTE OFF THE SAID AMO UNT IN ITS PROFIT AND LOSS ACCOUNT BY CLAIMING IT AS BUSINESS EXPENDITURE OR LOSS INCI DENTAL TO CARRYING ON OF BUSINESS. ON THE PERUSAL OF THE DETAIL OF SUCH AMOUNT IT WAS OBSERVED BY THE AO THAT IT REPRESENTED THE OLD BALANCES ON CAPITAL ACCOUNT WRI TTEN OFF BY THE ASSESSEE NOW. ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 2 THE A.O. OBSERVED THAT EVEN THE AUDITORS IN TAX AUD IT REPORT HAVE CATEGORIZED THIS AMOUNT AS EXPENDITURE OF CAPITAL NATURE DEBITE D TO THE PROFIT AND LOSS ACCOUNT. ON BEING CALLED UPON TO JUSTIFY THE DEDUCTION OF TH E SAID AMOUNT THE ASSESSEE STATED THAT IT WAS IN NATURE OF BAD DEBT AND HENCE SHOULD BE ALLOWED. AT THE SAME TIME IT WAS ALSO MENTIONED BY THE ASSESSEE THAT THE CONDITION LAID DOWN IN SECTION 36(2) WAS NOT FULFILLED AS THESE AMOUNTS WERE NOT I NCLUDED IN THE INCOME OF EARLIER YEAR(S). IN THE ALTERNATIVE IT WAS CONTENDED THAT THE DEDUCTION BE ALLOWED U/S.37(1). NOT CONVINCED THE ASSESSING OFFICER MADE THE ADDITION. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THESE PAYMENTS WERE MADE IN EARLIER YEARS ON CAPITAL ACCOUNTS. AS THE SAID AMOUNTS WERE FOUND TO BE NOT RECOVERABLE THE LD. AR STATED THAT THE AS SESSEE THOUGHT IT PRUDENT TO WRITE OFF THE SAID AMOUNT IN THE PROFIT AND LOSS ACCOUNT. THE LEARNED A.R. RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N CIT VS. TATA IRON & STEEL CO. LTD. [(1977) 106 ITR 363 (BOM.)] IN SUPPORT OF HIS CONTENTION THAT THE DEDUCTION WAS ALLOWABLE EVEN IF THESE WERE ADVANCES ON CAPITA L ACCOUNTS. IN THE OPPOSITION THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RE LIED ON THE IMPUGNED ORDER AND CONTENDED THAT THE CAPITAL LOSS WAS NOT ALLOWABLE. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND IT AS UNDISPUTED POSITION THAT THE SAID AMOUNTS WERE ADVANCED IN EARLIER YEARS ON CAPITAL ACCOUNTS AND NOT IN THE TR ADING OPERATIONS. THESE AMOUNTS WERE WRITTEN OFF BY THE ASSESSEE IN THE INSTANT YEA R FOR WHICH DEDUCTION WAS CLAIMED. WE DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LEARNED AR FOR THE REASON THAT IT IS A CLEAR CUT CASE OF CAPITAL LOSS AND HENCE CANNOT BE CONSIDERED AS A BAD DEBT OR BUSINESS LOSS. THE LAW DOES NOT PERMIT DEDUCTION OF CAPITAL LOSS. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE SU PREME COURT IN THE CASE OF HASIMARA INDUSTRIES LTD. VS. CIT [(1998) 231 ITR 84 2 (SC)] . THE JUDGMENT OF THE ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 3 HONBLE JURISDICTIONAL HIGH COURT RELIED ON BY THE LEARNED A.R. IN THE CASE OF TATA IRON & STEEL CO. LTD. (SUPRA) IS NOT APPLICABLE ON THE GROUND THAT IN THAT CASE THE ASSESSEE DISCARDED THE PLANTS AFTER CLAIMING OBSOLE SCENCE ALLOWANCE. THE FACTS OF THAT CASE ARE NOWHERE NEAR TO THE INSTANT CASE IN W HICH THE DISPUTE IS ABOUT THE LOSS SUFFERED BY THE ASSESSEE ON CAPITAL ACCOUNT. NEITHE R THE AMOUNT CAN BE ALLOWED AS DEDUCTION U/S.36(1)(VII) NOR U/S.37(1). IN THE SAME MANNER IT CANNOT BE CONSIDERED AS A REVENUE LOSS U/S.28. WE THEREFORE APPROVE TH E VIEW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.1(2) OF THE ASSESSEES APPEAL. 6. GROUND NO.2 OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.8 93 56 131 TOWARDS TECHNICAL SERVICE FEES PA ID TO VARIOUS PARTIES. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE CONTEND ED THAT SIMILAR DISALLOWANCE WAS MADE BY THE AUTHORITIES BELOW IN THE IMMEDIATELY PR ECEDING YEAR AND THE TRIBUNAL VIDE ITS ORDER IN ITA NO.7845/MUM/2004 FOR ASSESSME NT YEAR 1997-98 HAS ACCEPTED THE ASSESSEES CLAIM ON THIS ISSUE VIDE IT S ORDER DATED 29 TH OCTOBER 2009 A COPY OF WHICH WAS PLACED ON RECORD. THE LEARNED D EPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE DECIDED BY THE TRIBUNAL IN ASSESS MENT YEAR 1997-98. AFTER CONSIDERING THE RIVAL BUT COMMON SUBMISSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENT WE ALLOW THIS GROUND OF APPEAL. 7. GROUND NO.3 IS AGAINST THE CONFIRMATION OF ADDIT ION OF RS.6 65 28 676 TOWARDS EXPENDITURE ON IMPLEMENTATION OF SOFTWARE S YSTEM. GROUND NO.4 IS AGAINST UPHOLDING THE ADDITION OF RS.12 08 973 U/S.40A(9) A ND GROUND NO.5 IS AGAINST THE CONFIRMATION OF ADDITION OF RS.10 69 09 754 TOWARDS DEVELOPMENT EXPENSES PAID TO M/S.AVL AUSTRIA. ON THESE THREE GROUNDS BOTH THE S IDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THESE GROUNDS ARE SIMILA R TO THOSE ALREADY DECIDED BY THE TRIBUNAL IN THE ABOVE REFERRED ORDER FOR ASSESSMENT YEAR 1997-98 IN WHICH THE ORDER OF THE CIT(A) WAS SET ASIDE AND THE MATTERS W ERE RESTORED TO THE FILE OF A.O. IN VIEW OF THESE SUBMISSIONS AND RESPECTFULLY FOLLO WING THIS PRECEDENT WE SET ASIDE ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 4 THE IMPUGNED ORDER ON THESE THREE GROUNDS AND RESTO RE THE ISSUES TO THE FILE OF THE A.O. FOR DECIDING IT AFRESH IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. 8. GROUND NO.6 IS AGAINST THE CHARGEABILITY OF INTE REST U/S.244A GRANTED TO THE ASSESSEE AMOUNTING TO RS.4 28 34 836. THE ASSESSEE WAS GRANTED INTEREST ON INCOME-TAX REFUND U/S.244A THROUGH INTIMATION U/S.1 43(1)(A) FOR THE ASSESSMENT YEAR 1996-97. THE ASSESSEE CREDITED ONLY A SUM OF R S.1.63 CRORES AS INCOME TO THE PROFIT AND LOSS ACCOUNT AND THE REMAINING AMOUNT OF RS.2.65 CRORES WAS CREDITED IN THE BALANCE SHEET TO THE ADVANCE TAX ACCOUNT. THE A SSESSING OFFICER OPINED THAT THE ENTIRE AMOUNT OF RS.4.28 CRORES WAS TAXABLE AS INCO ME. THE LEARNED CIT(A) UPHELD THE VIEW OF THE ASSESSING OFFICER. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THIS ISSUE IS NO MORE RES INTEG RA QUA THIS FORUM IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN AVADA TRADING CO.(P) LTD. VS. ACIT [(2006) 100 ITD 131 (MUM.) (SB)] HOLDING THAT THE INTEREST ON REFUND U/S.244A GRANTED TO THE ASSESSEE IN THE PROCEEDINGS U/S.143(1)(A) WOULD BE ASSESSABLE IN THE YEAR IN WHICH IT IS GRANTED AND N OT IN THE YEAR IN WHICH PROCEEDINGS U/S.143(1)(A) ATTAINED FINALITY. IN THE LIGHT OF THE DIRECT DECISION OF THE SPECIAL BENCH ON THIS ISSUE WE APPROVE THE VIEW TA KEN BY THE LEARNED CIT(A) ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 10. THE LAST GROUND OF THE ASSESSEES APPEAL IS AGA INST THE CLAIM FOR DEDUCTION OF PRIOR PERIOD EXPENSES OF RS.26 32 268. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE DID NOT RAISE ANY CLAIM FOR THIS AMOUNT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER ADDITIONAL GROUND WAS RAISED BEFORE THE LEARNED CIT(A) AS IS EVIDENT FROM THE ASSESSEES LETTER TO CIT(A) DAT ED 10.8.2004 COPY PLACED AT PAGE 233 OF THE PAPER BOOK WHICH IS REPRODUCED AS UNDER :- ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 5 THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX (ADDL.CIT) OUGHT TO HAVE ALLOWED DEDUCTION FOR THE EXPENSES AG GREGATING TO RS.26 32 368 (ANNEXURE I) IN DETERMINING THE ASSESS ED INCOME FOR ASSESSMENT YEAR 1998-99 WHILE DISALLOWING THOSE EX PENSES IN THE ASSESSMENTS OF A.Y. 2000-01 AS `PRIOR PERIOD EXPENS ES. THE APPELLANT PRAYS THAT THE ADDL.CIT BE DIRECTED TO AL LOW DEDUCTION OF RS.26 32 268 IN THE ASSESSMENT OF A.Y. 1998-99 BY P ASSING THE NECESSARY ORDERS. 11. THE LEARNED CIT(A) DID NOT ADJUDICATE UPON THIS GROUND. THE LEARNED DEPARTMENTAL REPRESENTATIVE CANDIDLY ACCEPTED THAT THERE WAS NO FINDING IN THE IMPUGNED ORDER ON SUCH GROUND. IN THE GIVEN CIRCUMS TANCES WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE ASSESSEES CLAIM FOR DEDUCTION AS PER LAW. THE MATTER IS BEING SENT TO THE ASSESSING OFFICER INSTE AD OF THE LEARNED CIT(A) FOR THE REASON THAT CERTAIN OTHER GROUNDS HAVE ALSO BEEN RE STORED TO THE FILE OF A.O. AND IT IS NOT PROPER TO SEND ONE PART OF THE ORDER TO THE AO AND THE OTHER TO THE LD. FIRST APPELLATE AUTHORITY. NEEDLESS TO SAY THE ASSESSEE W ILL BE GIVEN ADEQUATE OPPORTUNITY OF HEARING BEFORE DECISION ON THIS ISSUE. 12. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.23 05 076 MADE BY THE A.O. U/S.40A(9) ON ACCOUNT OF PAYMENT TO DIFFERENT CLUBS. GROUND NO.2 IS AGAINST THE DELETION OF DISAL LOWANCE OF PROVISION FOR WARRANTIES OF RS.4.38 CRORES. GROUND NO.5 IS AGAINS T THE DELETION OF DISALLOWANCE OF PROVISION FOR PENDING LABOUR DEMANDS OF RS.5.26 CRO RES FOR WHICH NEGOTIATIONS WERE STILL GOING ON. GROUND NO.7 IS AGAINST THE DEL ETION OF DISALLOWANCE OF RS.2.18 CRORES ON ACCOUNT OF SPECIAL PENSION LIABILITY. GRO UND NO.10 IS AGAINST THE DIRECTION GIVEN BY THE LEARNED CIT(A) TO A.O. FOR EXCLUDING T HE AMOUNT OF SALES-TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTI ON U/S.80HHC. 13. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THESE GROUNDS ARE SIMILAR TO THOSE ALREADY DECIDED BY THE TRIBUNAL IN ITA NO.7845/MUM/2004 FOR ASSESSMENT YEAR 1997-98. VIDE ITS ORDER DATED 29 TH OCTOBER 2009 THE TRIBUNAL DECIDED ALL THESE GROUN DS IN FAVOUR OF THE ASSESSEE. ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 6 THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT P OINT OUT ANY DISTINGUISHING FEATURE OF THE FACTS OF THESE GROUNDS FOR THIS YEA R VIS--VIS EARLIER YEAR. RESPECTFULLY FOLLOWING THE PRECEDENT AND CONSIDERIN G THE RIVAL BUT COMMON SUBMISSIONS WE DISMISS THESE GROUNDS RAISED BY THE REVENUE. 14. GROUND NO.3 IS AGAINST THE DIRECTION OF THE LEA RNED CIT(A) TO VERIFY THE DETAILS AND ALLOW DEDUCTION IN RESPECT OF PAYMENT / REVERSAL OF ITEMS DISALLOWED U/S.43B IN PRIOR YEARS OF RS.19 02 866. IT WAS CLAI MED BEFORE THE LEARNED FIRST APPELLATE AUTHORITY THAT THE ASSESSEE HAD FILED DET AIL OF PAYMENT / REVERSAL MADE BY IT DURING THE FINANCIAL YEAR 1997-98 RELEVANT TO TH E ASSESSMENT YEAR UNDER CONSIDERATION IN RESPECT OF LIABILITIES WHICH WERE DISALLOWED IN THE EARLIER ASSESSMENT YEARS U/S.43B. HOWEVER THE ASSESSING OF FICER DID NOT CONSIDER THE CLAIM. THE LEARNED CIT(A) VIDE PARA 14.3 OF THE IMP UGNED ORDER OBSERVED THAT THIS ISSUE WAS NOT DISCUSSED IN THE ASSESSMENT ORDER. HE THEREFORE DIRECTED THE ASSESSING OFFICER TO VERIFY THESE DETAILS AND ALLOW THE DEDUCTION. FROM THE FACTS NARRATED ABOVE IT IS CLEAR THAT THE LEARNED CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE ASSESSEES CLAIM IN THIS REGARD AND T HEN ALLOW THE PERMISSIBLE DEDUCTION AS PER LAW. WE ARE THEREFORE OF THE CON SIDERED OPINION THAT THERE IS NO INFIRMITY IN DIRECTING THE ASSESSING OFFICER TO CON DUCT VERIFICATION OF THE ASSESSEES CLAIM IN THIS REGARD WHICH OUGHT TO HAV E BEEN MADE BY THE AO ON HIS OWN WHEN THE ISSUE WAS RAISED BEFORE HIM. THIS GRO UND IS NOT ALLOWED. 15. GROUND NO.4 IS AGAINST THE DELETION OF DISALLOW ANCE OF RS.8 89 323 TOWARDS OLD BALANCES WRITTEN OFF. THE ASSESSING OFFICER DIS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE CONDITIONS OF SECTI ON 36(2) WERE NOT FULFILLED. THE LEARNED CIT(A) FOLLOWING THE DECISION TAKEN BY HIM IN ASSESSMENT YEAR 1997-98 DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION I N WRITE OFF OF BALANCES. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE DEPARTMENT HAD NOT PREFERRED ANY APPEAL ON THIS ISSUE IN THE IMMEDIATELY PRECEDI NG YEAR. ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 7 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD WE FIND THAT NO DETAILS OF THIS AMOUNT ARE A VAILABLE ON RECORD. THE CLAIM OF THE ASSESSEE BEFORE THE LEARNED CIT(A) WAS THAT THE COMPANY MADE ADVANCES FOR PROCUREMENT FROM VARIOUS SUPPLIERS AND SUB-CONTRACT ORS AND DUE TO CERTAIN REASONS SOMETIMES THE AMOUNTS WERE LOCKED UP AND THE UNADJU STED AMOUNTS WERE PERIODICALLY CLEARED BY WRITING OFF THE AMOUNTS. TH E FACTS OF THIS GROUND APPEAR TO BE SOMEWHAT SIMILAR TO GROUND NO.1(2) OF THE ASSESS EES APPEAL WHICH HAS BEEN DISMISSED BY US ABOVE FOR THE REASON THAT IT WAS WR ITE OFF OF CAPITAL LOSS. IN THE ABSENCE OF ANY DETAIL ABOUT THE WRITING OFF OF ADVA NCES OF RS.8.89 LAKHS BEING THE SUBJECT MATTER OF THIS GROUND WE ARE UNABLE TO ADJ UDICATE UPON THIS ISSUE. WE THEREFORE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF A.O. FOR CONSIDERING WHETHER SUCH ADVANCES WRITTEN OFF WERE ADVANCED ON CAPITAL OR REVENUE ACCOUNT AND THEN DECIDE THE ISSUE AS PER LA W. 17. GROUND NO.6 IS AGAINST THE DELETION OF DISALLOW ANCE OF PROVISION FOR LEAVE ENCASHMENT OF RS.2.26 CRORES. THE A.O. HELD THAT TH E PROVISION FOR LEAVE ENCASHMENT WAS IN THE NATURE OF CONTINGENCY AND HEN CE NOT DEDUCTIBLE. THE LEARNED CIT(A) FOLLOWING THE JUDGMENT OF THE HONBLE SUPRE ME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. VS. CIT [245 ITR 428 (SC)] DELETED THE DISALLOWANCE. 18. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ISSUE RAISED IN THIS GROUN D IS SQUARELY COVERED BY THE AFORE- NOTED JUDGMENT OF THE HONBLE SUPREME COURT IN WHIC H IT HAS BEEN HELD THAT IF A LIABILITY ARISES IN THE YEAR THEN DEDUCTION IS TO B E ALLOWED EVEN IF THE LIABILITY HAS TO BE QUANTIFIED AND DISCHARGED AT A LATER PERIOD. IT IS FURTHER NOTED THAT THE EFFECT OF THIS JUDGMENT OF THE HONBLE SUPREME COURT HAS BEEN NULLIFIED BY THE LEGISLATURE BY INSERTION OF CLAUSE (F) TO SECTION 43B WITH EFFE CT FROM ASSESSMENT YEAR 2002- 2003. SINCE WE ARE DEALING WITH ASSESSMENT YEAR 199 8-99 THE RATIO OF THE HONBLE ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 8 SUPREME COURT JUDGMENT WILL APPLY WITH FULL FORCE. WE THEREFORE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT AL LOWED. 19. GROUND NO.8 IS AGAINST THE DELETION OF DISALLOW ANCE OF RS.65.19 LAKHS TOWARDS VOLUNTARY RETIREMENT SCHEME (VRS) PAYMENT. THE ASSESSEE ANNOUNCED VRS AND THE EMPLOYEES WHO OPTED UNDER THE SAID SCHE ME WERE PAID LUMPSUM CONSIDERATION. THE TOTAL COMPENSATION PAID BY THE A SSESSEE WAS CLAIMED AS DEDUCTION U/S.37(1) OF THE ACT. THE ASSESSING OFFIC ER MADE THE ADDITION. HOWEVER THE LEARNED CIT(A) CONCURRED WITH THE SUBMISSIONS A DVANCED ON BEHALF OF THE ASSESSEE AND DELETED THE SAID ADDITION. 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE SAID PAYMENT WAS MADE B Y THE ASSESSEE TO ITS EMPLOYEES WHO OPTED TO GET DISCHARGED FROM DUTY ON PAYMENT OF A PARTICULAR SUM. BY NO STANDARD SUCH AMOUNT CAN BE CONSIDERED AS A CAPITAL EXPENDITURE. THE LEARNED CIT(A) HAS RIGHTLY RELIED ON THE JUDGMENTS IN THE C ASE OF INDIAN CABLE CO. LTD. VS. THEIR WORKMEN (1972) AIR SC 2195 CIT VS. ASHOK LEY LAND LTD. 86 ITR 549 AND EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1 (SC). IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENTS BY THE HIGHEST COURT OF THE LAND WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) HAS RIGHTLY DEALT WITH THIS ISSUE IN DELETING THE DISALLOWANCE. THIS GROUND IS NOT ALLOWED. 21. THE ONLY OTHER GROUND WHICH SURVIVES FOR OUR C ONSIDERATION IS AGAINST THE DELETION OF ADDITION ON ACCOUNT OF CAPITAL GAIN ON SALE OF LAND AND BUILDING. THE FACTS APROPOS THIS GROUND ARE THAT AS PER AGREEMEN T FOR SALE THE ASSESSEE ENTERED INTO AGREEMENT WITH M/S.BALMER AND LAWRIE LIMITED F OR SALE OF LAND AND BUILDING AT CALCUTTA IN RESPECT OF THE INSTRUMENTATION DIVIS ION FOR A TOTAL CONSIDERATION OF RS.3.40 CRORES. IN THE RETURN OF INCOME THE ASSESSE E DISCLOSED LONG TERM CAPITAL GAIN ON SALE OF LAND AT RS.96 55 695. THE ASSESSEE ALSO REDUCED FROM THE BLOCK OF ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 9 BUILDINGS A SUM OF RS.1 02 51 200 BEING CONSIDERA TION RECEIVED FOR THE BUILDING AND FACILITIES. IN VIEW OF NON-PERFORMANCE OF THE T ERMS AND CONDITIONS BY THE BUYER THE SALE DID NOT TAKE PLACE. THE ASSESSEE REQUESTED THE A.O. TO EXCLUDE THE CAPITAL GAIN OF RS.96 55 695 AND ALSO NULLIFY THE IMPACT OF SALE CONSIDERATION FROM BLOCK OF BUILDING AND RE-COMPUTE DEPRECIATION ACCORDING LY. HOWEVER THE ASSESSING OFFICER DID NOT DISCUSS THIS ISSUE IN THE ASSESSMEN T ORDER. THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO EXCLUDE CAPITAL G AIN ON SALE OF PROPERTY AND ALSO IGNORE THE IMPACT OF REDUCTION OF THE SALE CONSIDER ATION FROM THE BLOCK OF BUILDING. 22. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS APPARENT THAT THE ASSESSEE INITIALLY E NTERED INTO AGREEMENT WITH M/S.BALMER AND LAWRIE LIMITED FOR SALE OF LAND AND BUILDING AT CALCUTTA. ADVANCE OF RS.51 LAKHS WAS ALSO RECEIVED BY THE ASSESSEE. D UE TO NON-PERFORMANCE OF THE AGREEMENT THE SAID DEAL WAS CALLED OFF. THE ASSESSE E REFUNDED THE ADVANCE OF RS.51 LAKHS TO M/S.BALMER AND LAWRIE LIMITED VIDE C HEQUE NO.341604 DATED 23.4.2001. IN VIEW OF THESE FACTS IT BECOMES APPARE NT THAT AS THE VERY TRANSFER OF THE CAPITAL ASSET HAD NOT TAKEN PLACE THERE CANNOT BE ANY QUESTION OF SUBJECTING CAPITAL GAIN TO TAX THEREON. WE THEREFORE APPROVE THE VIE W TAKEN BY THE LEARNED CIT(A). 23. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 13 TH DAY OF JANUARY 2010. SD/- SD/- (ASHA VIJAYARAGHAVAN) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI : 13 TH JANUARY 2010. DEVDAS* ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 10 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - II MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI. ITA NOS.2523 & 3078/MUM/2005 M/S.MAHINDRA & MAHINDRA LIMITED. 11 DATE INITIAL 1. DRAFT DICTATED ON 08.01.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11.01.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.