M/s PROCTER & GAMBLE DISTRIBUTION CO., MUMBAI v. JT. I.T.O. SPL. Rg. - 5, MUMBAI

ITA 3596/MUM/2003 | 1997-1998
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 359619914 RSA 2003
Assessee PAN AAACP4046L
Bench Mumbai
Appeal Number ITA 3596/MUM/2003
Duration Of Justice 8 year(s) 2 month(s) 21 day(s)
Appellant M/s PROCTER & GAMBLE DISTRIBUTION CO., MUMBAI
Respondent JT. I.T.O. SPL. Rg. - 5, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 29-07-2011
Date Of Final Hearing 21-07-2011
Next Hearing Date 21-07-2011
Assessment Year 1997-1998
Appeal Filed On 08-05-2003
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND J.SUDHAKAR REDDY (A.M ) ITA NO.3596/MUM/2003 (ASSESSMENT YEAR:1997-98) PROCTER & GAMBLE DISTRIBUTION COMPANY LIMITED (SINCE MERGED WITH PROCTER & GAMBLE HOME PRODUCTS LIMITED) P&G PLAZA CARDINAL GRACIAS ROAD CHAKALA ANDHERI (EAST) MUMBAI-400099. PAN: AAACP4046L JOINT COMMISSIONER OF INCOME TAX SPL. RG.5 MUMBAI. APPELLANT V/S RESPONDENT ITA NO.3661/MUM/2003 (ASSESSMENT YEAR:1997-98) DY. COMMISSIONER OF INCOME TAX CIRCLE 7(1) 452 AAYAKAR BHAVAN M K MARG MUMBAI-400020 M/S PROCTER & GAMBLE DISTRIBUTION CO. LTD. TIECICON HOUSE DR.E.MOSES ROAD MUMBAI-400025. PAN: AAACP4046L APPELLANT V/S RESPONDENT DATE OF HEARING : 21.7.2011 DATE OF PRONOUNCEMENT : 29.7.2011 ASSESSEE BY : S/SHRI YOGESH A.THAR AND HARES H G.BUCH REVENUE BY : SHRI SUBACHAN RAM O R D E R PER D.K.AGARWAL (JM) THESE CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDERS DATED 26.2.2003 READ WI TH ORDER UNDER SECTION 154 DATED 28.3.2003 PASSED BY THE LE ARNED ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 2 COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 1997-98. BOTH THESE APPEALS ARE DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE MARKETING SELLING AND DI STRIBUTION OF CONSUMER PRODUCTS INCLUDING DETERGENT TOILETS S OAPS TOILETRIES ETC. THE ASSESSEE COMPANY WAS FORMED AS A JOINT VENTURE BETWEEN P & G GROUP AND GODREJ GROUP IN 1 993. THIS JOINT VENTURE WAS TERMINATED IN JULY 1996 AND THE SHAREHOLDINGS AS WELL AS THE MANAGEMENT WAS TAKEN OVER BY P AND G GROUP OF COMPANIES. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.1 28 96 220/-. SUBSE QUENTLY THE SAID RETURN WAS REVISED DECLARING THE INCOME OF RS.6 60 07 130/- AS THE INCOME UNDER PROVISION OF SECTION 115JA WAS MORE THAN THE TOTAL INCOME AS DETERMINED BY THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. HOWEVER THE ASSESSMENT AFTER MAKING VARIOUS DISALLOWANCES WAS COMPLETED AT AN INCOME OF RS.29 38 01 950/- VIDE OR DER DATED 30.3.2000 PASSED UNDER SECTION 143(3) OF TH E INCOME TAX ACT 1961 (IN SHORT THE ACT). ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (A) PARTLY ALLOWED THE A PPEAL. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 3 3. BEING AGGRIEVED BY THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (A) THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO.3596/MUM/2003(BY ASSESSEE) 4. GROUND NO. I (1) IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.7.25 CRORES ON ACCOUNT OF NON COMPETITION FEE. 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITS THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISI ON OF THE SPECIAL BENCH OF THE TRIBUNAL IN TECUMSEH INDIA PVT . LTD VS ADDL.CIT (2010-TIOL-408-ITAT-DEL-SB). HE FURTHER S UBMITS THAT THE TRIBUNAL IN THE CASE OF M/S.PROCTER & GAM BLE HOME PRODUCTS LTD. V/S JCIT (2011-TIOL-16-ITAT-MUM) HAS ALSO DECIDED THE SIMILAR ISSUE AGAINST THE ASSESSEE FOLL OWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL (SUP RA). HE THEREFORE SUBMITS THAT THE GROUND TAKEN BY THE ASS ESSEE MAY BE DECIDED ACCORDINGLY. 6. ON THE OTHER HAND THE LEARNED D.R. WHILE RELYIN G ON THE ORDER OF THE AO AND LEARNED COMMISSIONER OF IN COME TAX (A) ALSO RELIED ON THE DECISION OF THE SPECIA L BENCH OF ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 4 THE TRIBUNAL IN M/S.PROCTER & GAMBLE HOME PRODUCTS LTD. (IN SHORT M/S PGHPL) (SUPRA) AND SUBMITS THAT FOLLOWIN G THE DECISION OF THE TRIBUNAL THE ISSUE MAY BE DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND MERITS IN THE PLEA OF THE PARTIES THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY RECENT DECISION OF THE SPECIAL BENCH OF THE TRI BUNAL IN TECUMSEH INDIA (P.) LTD. V/S ADDL.CIT (SUPRA) SINCE REPORTED IN (2010) 127 ITD 1 (DELHI)(SB) AND ALSO BY THE DE CISION IN THE CASE OF M/S PGHPL (SUPRA). IN THE CASE OF M/S PGHPL THE TRIBUNAL FOLLOWING THE DECISION OF THE SPECIA L BENCH OF THE TRIBUNAL (SUPRA) VIDE PARAGRAPH 2.4.2 OF THE O RDER HAS HELD AS UNDER : 2.4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. IN THE CASE OF TECUMSEH USA A LEADING GLOBAL COMPRESSOR MANUFACTURER THE ASSESSE E HAD PURCHASED THE COMPRESSOR RELATED OPERATIONS OF WHIRLPOOL INDIA A LEADING REFRIGERATOR MANUFACTURE R IN INDIA FOR INDIAN COMPRESSOR MARKET. THE ASSESSEE H AD PAID THE PRICE OF RS.52.5 CRORES WHICH INCLUDED A S UM OF RS.2.65 CRORES TO BE PAID AS NON-COMPETE FEES. THE ISSUE WAS WHETHER NON COMPETE FEES WHICH WAS IN FOR CE FOR 5 YEARS COULD BE ALLOWED AS REVENUE EXPENDITUR E. THE SPECIAL BENCH AFTER DETAILED EXAMINATION HELD T HAT THE EXPENDITURE WAS CAPITAL IN NATURE. IT PLACED RE LIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CIT VS COAL SHIPMENT PVT. LTD. (82 ITR 902) IN WHICH IT WA S HELD THAT PAYMENT TO WARD OFF COMPLETION IN BUSINESS TO A RIVAL DEALER WOULD CONSTITUTE CAPITAL EXPENDITURE IF THE OBJECT ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 5 OF MAKING THAT PAYMENT WAS TO DERIVE AN ADVANTAGE B Y ELIMINATING COMPETITION OVER SOME LENGTH OF TIME. T HE SPECIAL BENCH ALSO OBSERVED THAT NON COMPETE PERIOD OF FIVE YEARS HAD BEEN CONSIDERED AS SUFFICIENT TO GIV E ENDURING BENEFITS IN CASE OF ASSAM BENGAL CEMENT CO . LTD. (27 ITR 34). IN THAT CASE THE ASSESSEE WHO WA S A MANUFACTURER OF CEMENT HAD PAID PROTECTION FEES TO THE LESSOR OF QUARRIES FOR LIME STONE ON ANNUAL PAYMEN T OF RS.5000/- FOR THE WHOLE PERIOD OF LEASE AND ANOTHER SUM OF RS.35000/- P.A. AS A FURTHER PROTECTION FEES FOR FIVE YEARS FOR SIMILAR UNDERTAKING IN RESPECT OF THE WHO LE DISTRICT. THE ISSUE WAS WHETHER THE PAYMENT COULD B E ALLOWED AS REVENUE EXPENDITURE. HONBLE SUPREME COU RT OBSERVED THAT THE FACT THAT THE PAYMENT WAS RECURRI NG WAS IMMATERIAL. IT WAS THE NATURE OF ASSET ACQUIRED WHICH WAS MATERIAL. THE ASSET REQUIRED WAS THE RIGH T TO CARRY ON THE BUSINESS UNFETTERED BY ANY COMPETITION WHICH WAS NOT A PART OF WORKING OF THE BUSINESS BUT WENT ON TO APPRECIATE THE WHOLE OF THE CAPITAL ASSET AND MAKE IT MORE PROFIT YIELDING. THE EXPENDITURE WAS THUS H OLD AS CAPITAL IN NATURE BY THE HONBLE SUPREME COURT. THE LEARNED AR HAS NOT BROUGHT ON RECORD ANY DISTINGUIS HING FEATURE FROM THE FACTS OF TECUMSEH (I) (P) LTD. (SU PRA). THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF SP ECIAL BENCH IN CASE OF TECUMSEH (I) (P) LTD. (SUPRA) WE UPHOLD THE ORDER OF CIT(A) CONFIRMING THE DISALLOWA NCE AS CAPITAL EXPENDITURE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUG HT ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE WE RESPECTFULLY FOLLOWING THE ABOVE DECISIONS UPHOLD T HE ORDER OF THE LEANED COMMISSIONER OF INCOME TAX (A) CONFIRMI NG THE DISALLOWANCE AS CAPITAL EXPENDITURE AND ACCORDINGLY GROUND NO. I (1) TAKEN BY THE ASSESSEE IS REJECTED. 8. GROUND NO .I (2 3 AND 4) ARE AGAINST THE SUSTENANCE OF DISALLOWANCE OF AMORTIZATION OF TRADE LICENCE FEE OF RS.25 ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 6 LAKHS OR IN THE ALTERNATIVE THE DEDUCTION UNDER SE CTION 35A BE ALLOWED AS CLAIMED. 9. BRIEF FACTS OF THE ABOVE ISSUES ARE THAT THE AO FROM THE DETAILS OF MISCELLANEOUS EXPENSES FILED BY THE ASSE SSEE NOTED THAT THE COMPANY HAS SHOWN EXPENSES OF RS.25 LAKHS CLAIMED TO BE PAID AS LICENCE FEE. ON BEING ASKED T O EXPLAIN IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT THE LICENCE FEES HAVE BEEN PAID FOR USE OF THE TRADE MARK OF THE PRODUCTS LICENSED FROM GODREJ AND BOYCE LTD. DURING THE PERIOD APRIL 1996 TO JUNE 1996 WHICH EXPENDITUR E IS RELATED TO BUSINESS AND IS NOT IN ANY WAY CAPITAL IN NATURE NOR HAS IT GIVEN AN ENDURING BENEFIT TO THE ASSESSE E COMPANY. THEREFORE THE LICENCE FEE WHICH HAS BEE N EXPENDED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS SH OULD BE ALLOWED UNDER SECTION 37(1) OF THE ACT. HOWEVER T HE AO AFTER CONSIDERING THE ASSESSEES REPLY AND THE TRAD E MARK LICENCE AGREEMENT OBSERVED THAT IN THE ASSESSMENT Y EARS 1994-95 TO 1996-97 THE CLAIM OF THE ASSESSEE OF LICENCE FEES WAS EXAMINED AND IT WAS HELD THEREIN THAT IT WAS NOT AN ALLOWABLE CLAIM BEING THE EXPENDITURE IN THE NA TURE OF CAPITAL. ALTERNATIVELY IT WAS HELD THEREIN THAT LI CENCE FEE PAID IS FOR THE USE OF TRADE MARK AND IS THEREFORE COVERED BY THE SECTION 35A OF THE ACT SINCE THIS EXPENDITURE INCURRED ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 7 ON ACQUISITION OF PATENT RIGHTS TRADE MARKS BY THE ASSESSEE EXPENDITURE TO THE EXTENT OF 1/14 TH OF THE EXPENDITURE CAN ONLY BE ALLOWED AS PER SECTION 35A OF THE ACT. THEREFORE FOLLOWING THE FINDINGS RECORDED I N THE ASSESSMENT ORDER FOR ASSESSMENT YEARS 1994-95 TO 1 996-97 THE AO DISALLOWED THE CLAIM OF THE ASSESSEE OF RS .25 LAKHS. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (A) FOLLOWING THE APPELLATE ORDER FOR THE ASSESSMENT YE AR 1996- 97 UPHELD THE DISALLOWANCE MADE BY THE AO. 10. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSE SSEES OWN CASE IN PROCTER & GAMBLE DISTRIBUTION COMPANY LIM ITED V/S DCIT IN ITA NO.846/MUM/2003 (AY-1994-95) ORDER DATE D 9.5.2008 WHEREIN THE TRIBUNAL AFTER EXAMINING TH E ISSUE HAS DELETED THE SIMILAR DISALLOWANCE MADE BY THE A O. HE HAS ALSO PLACED ON RECORD THE COPY OF THE SAID OR DER OF THE TRIBUNAL. 11. ON THE OTHER HAND THE LEARNED D.R. SUPPORTS T HE ORDER OF THE AO AND THE LEARNED COMMISSIONER OF INCOME TA X (A). 12. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 8 MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) WHEREIN THE TRIBUNAL HAS HELD VIDE PARAGRAPH 9 AT PAGES 6 AND OF ITS ORDER AS UN DER : 9..WE FIND THAT THE PAYMENTS ARE STAGGERED OVER THE PERIOD OF SEVEN YEARS. THE RIGHTS GRANTED TO PGG ARE NON-EXCLUSIVE RIGHTS TO USE THE TRADEMARKS. IN A SENSE THE ASSESSEE PAYING THE INSTALLMENT AS HE USES THEM WHICH SHOWS THAT IT IS IN THE NATURE OF RE VENUE ONLY. ACCORDINGLY THE SAME IS ALLOWED RESPECTFULLY FOLLOWING THE SAME AND A KEEPING IN V IEW THE RULE OF CONSISTENCY WE ARE OF THE VIEW THAT THE EX PENDITURE CLAIMED BY THE ASSESSEE ARE REVENUE IN NATURE AND ACCORDINGLY THE DISALLOWANCE OF RS.25 LAKHS MADE B Y THE AO AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCO ME TAX (A) IS DELETED. GROUND NO. I (2 AND 3) TAKEN BY THE ASSESSEE ARE THEREFORE ALLOWED WHILE GROUND NO. I (4) WHICH IS AN ALTERNATIVE GROUND IS REJECTED. 13. GROUND NO. II ( 1 AND 2) ARE AGAINST THE SUSTENANCE OF ADDITION OF RS.20 39 899/- PAID ON ACCOUNT OF ADV ERTISEMENT EXPENSES IN FOREIGN CURRENCY TO ASIA TODAY LIMITED . 14. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM T HE DETAILS FILED BY THE ASSESSEE IT WAS NOTED BY THE AO THAT THE ASSESSEE COMPANY HAS REMITTED TOTAL RS.61 12 561/- IN ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 9 FOREIGN CURRENCY TO FOREIGN TELECASTING COMPANIES D URING THE YEAR UNDER CONSIDERATION. OUT OF THIS RS.14 21 22 0/- WAS ESTIMATED TO ASIA TODAY LTD. HONG KONG AND RS.47 01 341/- TO STAR T.V. SINGAPORE. THE AO FURTHER NOTED THA T THE ASSESSEE HAS FILED DETAILS OF TDS FROM REMITTANCES TO ASIA TODAY LTD. AND STAR T.V. IN FOREIGN CURRENCY. TH E AO FURTHER NOTED THAT THE ASSESSEE HAS DEDUCTED TAX A T SOURCE UNDER SECTION 195 OF THE ACT @ 55% OF THE 10% OF REMITTANCE AFTER MAY 1996 AS PER THE PROVISIONS OF CIRCULAR NO.742 ISSUED BY THE CBDT ON 2.5.1996. BUT ON THE REMITTANCES MADE UPTO MAY 1996 OF RS.20 39 899/- TO FOREIGN TELECASTING COMPANIES THE ASSESSEE HAS NEI THER DEDUCTED TAX AT SOURCE NOR PAID TO THE CENTRAL GOV ERNMENT. THE ASSESSEE WAS ASKED TO EXPLAIN. IT WAS INTERAL IA SUBMITTED BY THE ASSESSEE THAT NO PART OF THE SERVI CES IN CONNECTION WITH THE SAID ADVERTISING WERE RENDERED BY ASIA TODAY LTD. IN INDIA THE SAID FEE CANNOT BE DEEMED TO ACCRUE OR ARISE TO ASIA TODAY LTD. IN INDIA. HOWEVER TH E AO WAS OF THE VIEW THAT THE ASSESSEE COMPANY IS GIVING ADVERT ISEMENTS TO ASIA TODAY LTD. TO TELECAST ON ZEE T.V. ADVE RTISEMENT REVENUE IS EARNED BY FOREIGN COMPANY WHICH IS DOING THE TELECASTING FOR ZEE T.V. THE INCOME IS DEEMED TO ACCRUE/ARISE TO ASIA TODAY LTD. IN INDIA. THEREFOR E THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 10 195. THE ASSESSEE HAS FAILED TO DO SO. THE AO DIS ALLOWED THE DEDUCTION UNDER SECTION 40(A)(I) AND MADE THE A DDITION OF RS.20 39 899/- TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (A) FOLLOWING THE APPELLATE ORDERS FOR THE EARLIER YEAR S UPHELD THE DISALLOWANCE MADE BY THE AO. 15. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE TRIBUNAL IN THE ASSESSE ES APPEALS (SUPRA) IN THE EARLIER YEARS ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE HAS RESTORED THE ISSUE T O FILE OF THE AO THEREFORE FOLLOWING THE SAME THE ISSUE MAY BE RESTORED TO THE FILE OF THE AO. 16. ON THE OTHER HAND THE LEARNED D.R. SUPPORTS TH E ORDER OF THE AO AND THE LEARNED COMMISSIONER OF INCOME T AX (A). 17. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT ON THE SIMILAR ISSUE THE TRIBUNAL IN THE EARLIER YEARS HAS RESTORED BACK THE MATTER TO THE FILE OF THE AO VID E FINDING RECORDED IN PARAGRAPH 13 PAGES 7 AND 8 OF ITS OR DER DATED 9.5.2008 (SUPRA) AS UNDER : 13. LD.A.R. FOR ASSESSEE MENTIONED THAT THE SIMILA R PAYMENTS WERE MADE TO M/S ASIA TODAY LTD. AND ISS UE ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 11 CAME UP BEFORE THE HONBLE TRIBUNAL IN THE CASE OF M/S PGHHPL VIDE ITA NO.5153/M/98 FOR AY 1995-96 AND 5687 & 5688/M/99 FOR AY 1994-95 & 1996-97. IN THE SE APPEALS ON THIS ISSUE THE HONBLE ITAT HAS REFERR ED THE ISSUE TO THE FILES OF THE AO FOR THE REASON THAT TH E AO FAILED TO PASS A SPEAKING ORDER AS TO HOW THE PROVI SIONS OF SECTION 40(A) ARE APPLICABLE. THE TRIBUNAL HE LD THAT THE PLACE OF HAPPENINGS ARE OUTSIDE INDIA AND THE PAYMENTS HAVE BEEN MADE OUTSIDE INDIA. FOLLOWING THE ABOVE AR FOR ASSESSEE FAIRLY REQUESTED THAT THE MA TTER MAY BE SENT TO THE AO FOR FRESH ADJUDICATION AT TH E END OF THE AO. LD. CIT-DR RELIED ON THE ORDER OF THE C IT(A) IN THIS REGARD AND ARGUED THAT THE DECISION OF TR IBUNAL MUMBAI G- BENCH IN THE CASE OF M/S SATELLITE TELEVISION ASIA REGION LTD. VIDE ITA NO.5066/M/20 04 FOR THE AY 2000-01 IS APPLICABLE AND HE ARGUED THAT THE PAYMENT OF ADVERTISEMENT EXPENSES TO ASIA TODAY L TD. WITHOUT DEDUCTION OF TAX UNDER SECTION 40(A) IS RI GHTLY DISALLOWED BY THE AO. ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING AFRESH AFTER A FFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEA RD. HE SHALL ALSO EXAMINE THE REVENUES ARGUMENT RELYIN G ON THE DECISION IN THE CASE OF SATELLITE TELEVISION ASIA REGION LTD (SUPRA). ACCORDINGLY THIS GROUND IS SE T ASIDE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUG HT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING T HE ORDER OF THE TRIBUNAL (SUPRA) SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND RESTORE THE ISSUE TO THE FILE OF THE AO FOR EXAMINATION AFRESH IN THE L IGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE SAID ORDER (SUPRA) AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO. II ( 1 AND 2) ARE THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOS ES. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 12 18. GROUND NO. III (1 AND 2) ARE AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.12 26 40 000/- PAID ON TERMINAT ION OF JOINT VENTURE AGREEMENT AND OTHER AGREEMENTS. 19. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM TH E PROFIT AND LOSS ACCOUNT THE AO NOTED THAT THE ASSESSEE C OMPANY HAS SPENT AN AMOUNT OF RS.12 26 40 000/- PAID TO G ODREJ SOAPS LTD. ON TERMINATION OF JOINT VENTURE AS REVE NUE EXPENDITURE. THE ASSESSEE WAS ASKED TO FILE FULL P ARTICULARS OF PAYMENTS METHOD OF WORKING OF THE AMOUNT PAYABL E COPY OF THE AGREEMENT AND IN CASE ANY VALUATION WAS GOT DONE TO ASSESS THE AMOUNT PAYABLE TO FILE COPY OF SUCH RE PORTS AND ALSO TO JUSTIFY THE CLAIM OF DEDUCTION OF RS.12 26 40 000/-. IN RESPONSE THE ASSESSEE COMPANY HAS SUBMITTED AS UNDER (PARAGRAPH 10.1 TO 10.7 PAGES 12 TO 14 OF ASSESSME NT ORDER): 10.1 DURING THE YEAR UNDER CONSIDERATION THE JOI NT VENTURE WITH GODREJ FAMILY WAS TERMINATED AS PER T HE TERMS OF THE TERMINATION OF JV AGREEMENT A COPY OF WHICH HAS ALREADY BEEN SUBMITTED TO YOU IN ASSESSME NT YEAR 1996-97. THE SAID SUM OF RS.12 26 40 000/- H AS BEEN PAID AS PER THE TERMS OF THE SAID AGREEMENT AS FOLLOWS : RS.11 26 40 000/- IS TOWARDS TERMINATION OF MANUFACTURING AGREEMENT WHICH WAS A PART OF THE JOI NT VENTURE AGREEMENT AND RS.1 00 00 000/- IS TOWARDS TERMINATION OF ALL OTHER AGREEMENTS RELATED TO THE JOINT VENTURE AGREEMENT. AS IS CLEAR FROM THE AGREEMENT THIS PAYMENT IS TOWARDS TERMINATION OF EXISTING AGREEMEN TS ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 13 WHICH EXPENDITURE IS REQUIRED BY COMMERCIAL EXPEDIENCY AND IS NOT OF AN ENDURING NATURE OR IS N OT BRINGING INTO EXISTENCE ANY CAPITAL ASSETS AND HENC E THE SAME IS CLAIMED AS REVENUE EXPENDITURE IN THE RETUR N OF INCOME. 10.2 THE ASSESSEE WAS AGAIN GIVEN ANOTHER OPPORTUNITY VIDE LETTER DATED 7 TH JANUARY 2000 TO EXPLAIN WHY THESE EXPENSES SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE SINCE THE PAYMENTS WERE MADE ON TERMINATION OF JOINT VENTURE AGREEMENT. 10.3 IN RESPONSE TO THE ABOVE THE ASSESSEE AGAIN FILED WRITTEN REPLY DATED 14 TH JANUARY 2000 AND SUBMITTED AS UNDER : AS HAS ALREADY BEEN STATED THE ASSESSEE COMPANY HAS PAID TO GODREJ SOAPS LTD. (GSL) RS.11 26 40 000/- TOWARDS TERMINATION OF MANUFACTURING AGREEMENT WHIC H WAS A PART OF THE JOINT VENTURE AGREEMENT AND RS.1 00 00 000/- IS TOWARDS TERMINATION OF ALL OTHE R AGREEMENTS RELATED TO THE JOINT VENTURE AGREEMENT . IN ANTICIPATION OF THE ORDERS EXPECTED AS PER THE MANUFACTURING AGREEMENT GSL HAD INVESTED CAPITAL TO BE ABLE TO MEET THE ORDERS WHICH IS SUNK COST OF GS L ON ACCOUNT OF THE TERMINATION OF THE AGREEMENT. THUS THIS IS EXPENDITURE REQUIRED BY COMMERCIAL EXPEDIENCY AN D IS NOT OF AN ENDURING NATURE OR IS NOT BRINGING INTO EXISTENCE ANY CAPITAL ASSET. ON THE CONTRARY THIS I S COMPENSATION FOR THE LOSS ON ACCOUNT OF EARLY TERMINATION OF THE AGREEMENT. HENCE THE SAME CANNO T BE TREATED AS CAPITAL EXPENDITURE 10.4 THE ASSESSEE HAS NOT FURNISHED DETAILS REGARDI NG METHOD/BASIS OF WORKING OF AMOUNT PAYABLE OR ANY VALUATION WHICH WAS GOT DONE TO ASSESS THE AMOUNT PAYABLE. THE ASSESSEE WAS AGAIN GIVEN AN OPPORTUNIT Y VIDE NOTE SHEET ENTRY DATED 20.1.2000 TO FURNISH TH E BASIS FOR WORKING OUT THE FIGURE OF COMPENSATION OF RS.11.264 CRORES AND RS.1 CRORE FOR TERMINATION OF AGREEMENTS AND ALSO TO FURNISH REASONS WHICH RESULT ED INTO TERMINATION OF JOINT VENTURE. 10.5 IN RESPONSE TO THE ABOVE ASSESSEE VIDE ITS LE TTER DATED 25 TH JANUARY 2000 SUBMITTED AS UNDER: ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 14 YOUR GOOD SELF HAS DESIRED TO KNOW THE REASONS FOR THE TERMINATION OF THE JV. IN THIS RESPECT WE WOULD LI KE TO STATE THAT IT WAS A BUSINESS AND COMMERCIAL AGREEME NT TO TERMINATE THE JV. THE AMOUNT OF RS.11.264 CRO RES PAID TO GODREJ SOAP LTD. TOWARDS TERMINATION OF T HE MANUFACTURING AGREEMENT BETWEEN THE TWO COMPANIES AND RS.1 CRORE PAID TOWARDS ANNULMENT/TERMINATION OR CAUSING THE ANNULMENT/TERMINATION OF THE OTHER JOIN T VENTURE AGREEMENTS AND ALL OTHER AGREEMENTS IS AN AMOUNT NEGOTIATED BETWEEN THE TWO PARTIES. 10.6 THE ASSESSEE WAS ONCE AGAIN GIVEN AN OPPORTUNITY VIDE NOTE SHEET ENTRY DATED 7.3.2000 T O FURNISH THE DETAILS ON THE BASIS OF WHICH AMOUNT OF COMPENSATION OF RS.11.264 CRORES WAS DETERMINED AN D CIRCUMSTANCES AND REASONS WHICH RESULTED INTO TERMINATION OF JOINT VENTURE. THE ASSESSEE WAS A LSO ASKED TO EXPLAIN HOW IT WAS COMMERCIALLY EXPEDIENT TO TERMINATE THE AGREEMENT AND TO MAKE THE PAYMENT TO GODREJ SOAPS LTD. 10.7 IN RESPONSE TO THE ABOVE THE ASSESSEE VIDE IT S LETTER DATED 13 TH MARCH 2000 SUBMITTED AS UNDER : THIS REFERS TO THE INFORMATION SUBMITTED BY US ON JANUARY 25 2000 AND JANUARY 31 2000 AND THE SUBSEQUENT HEARING WHEREIN YOUR GOOD SELF HAS REQUESTED US TO EXPLAIN SPECIFICALLY AS TO THE ALLO WBILITY OF THE DEDUCTIONS CLAIMED BY US IN RESPECT OF THE FOLLOWING PAYMENTS : I) A SUM OF RS.11.264 CRORES TO GODREJ SOAPS LTD (GSL) FOR A PREMATURE TERMINATION OF THE MANUFACTUR ING AGREEMENT AND II) A SUM OF RS. 1 CRORES TO GSL FOR TERMINATION O F ALL OTHER JOINT VENTURE AGREEMENTS. AS REQUESTED WE EXPLAIN IN RESPECT OF THE ABOVE AS FOLLOWS : RE: TERMINATION OF MANUFACTURING AGREEMENT : THE ASSESSEE COMPANY HAD ENTERED INTO JOINT VENTURE AGREEMENT (JVA) IN JANUARY 1993 BY WHICH THE ASSESS EE COMPANY AGREED TO PURCHASE 80 000 METRIC TONES OF TOILET SOAPS PER ANNUM FROM APRIL 1993 FROM GSL O N A ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 15 PRINCIPAL BASIS. BY THIS JVA GSL ALSO AGREED TO TERMINATE ITS MANUFACTURING AGREEMENTS WITH THIRD P ARTIES FOR MANUFACTURE OF TOILET SOAPS. THIS MANUFACTURING AGREEMENT WAS FOR A PERIOD OF 10 YEARS. HOWEVER WITH THE TERMINATION OF THE JVA IN JULY 1996 AS WELL AS CHANGES IN THE MARKET CONDITIONS IN THE TOILET SOAPS MARKET THE SAID MANUFACTURING AGREEMENT WAS ALSO TERMINATED. CONSEQUENTLY GSL WAS PUT TO A LOS S OF SALES AND PROFITS AND WAS ALSO UNABLE TO USE SUCH MANUFACTURING CAPACITY FOR OTHERS ON ACCOUNT OF THE PRODUCT AND QUALITY SPECIFICATIONS IMPOSED BY THE ASSESSEE COMPANY AS WELL AS THE TERMINATION OF THE THIRD PARTY MANUFACTURING AGREEMENTS BY GSL AS A PART OF THE JVA. WE SUBMIT THAT THE PAYMENT OF SUCH COMPENSATION FOR EARLY TERMINATION OF THE MANUFACTURING AGREEMENT B EING A BUSINESS EXPENDITURE IS FULLY DEDUCTIBLE AS REVEN UE EXPENDITURE. IN THIS RESPECT RELIANCE IS PLACED ON THE FOLLOWING DECISIONS IN THIS REGARD : I. KARAMCHAND THAPAR & BROS. PVT.LTD. V/S CIT (80 ITR 167) II. CIT V/S OBEROI HOTELS (INDIA) PVT. LTD (209 ITR 732 (CAL)) III. CIT V/S ASHOK LELAND LTD. (86 ITR 549 SC) IV. G.SCAMMEL AND NEPHEW LTD V/S ROWLES (HM INSPECTOR OF TAXES 8 ITR SUPPL.41-CA ) IT HAS BEEN HELD IN THE DECISION IN ASHOK LEYLANDS CASE (86 ITR 549) BY THE APEX COURT THAT THE COMPENSATI ON PAID TO THE MANAGING AGENTS FOR THE TERMINATION OF THE MANAGING AGENCY IN VIEW OF THE CHANGE IN THE BUSINE SS ACTIVITY OF THE ASESEEE WAS CLEARLY OF A REVENUE NA TURE AND THEREFORE AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE INCOME TAX ACT. SIMILARLY IN G SCAMMELS CASE THE EXPENDITURE INC URRED FOR TERMINATION OF DISADVANTAGEOUS TRADING RELATION SHIP AND THE RELATED LITIGATION EXPENSES HAVE BEEN HELD TO BE OF A REVENUE NATURE AND THEREFORE ALLOWABLE AS DEDUCTIONS. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 16 IN THE CASE OF THE ASSESSEE COMPANY AS IS EVIDENT FROM THE COPY OF THE TERMINATION OF JV AGREEMENT WHIC H IS ENCLOSED AND MARKED AS ANNEXURE I THE COMPENSATIO N WAS PAID TO GSL FOR ITS LOSS OF SALES AND PROFITS WHICH HAD RESULTED FROM THE TERMINATION OF THE SAID MANUFACTURING AGREEMENT AS A RESULT OF THE TERMINA TION OF A DISADVANTAGEOUS TRADING RELATIONSHIP WHICH IN TURN HAD ARISEN DUE TO THE CHANGES IN THE TOILET SOAPS M ARKET IN INDIA. DUE TO THE EARLY TERMINATION OF THE MANUFACTURING CAPACITY FOR ANY OTHER CUSTOMER ALSO. AS SUCH YOU WILL APPRECIATE THAT THE PAYMENT OF RS.11 .264 CRORES TO GSL WAS A BUSINESS EXPENDITURE OF REVENUE NATURE AND IS ACCORDINGLY ALLOWABLE FULLY AS DEDUC TION AS CLAIMED. RE : TERMINATION OF OTHER AGREEMENTS OF JVA: THIS AMOUNT WAS PAID TO GSL TO COMPENSATE FOR THE LOSS ON ACCOUNT OF PREMATURE TERMINATION OF ALL OTHER AGREEMENTS WHICH FORMED A PART OF JVA. WE SUBMIT T HAT PAYMENT OF COMPENSATION FOR EARLY TERMINATION OF TH E OTHER AGREEMENT OF JVA BEING A BUSINESS EXPENDIT URE IS FULLY DEDUCTIBLE AS REVENUE EXPENDITURE. IN TH IS RESPECT WE PLACE RELIANCE ON THE SUBMISSIONS MADE ABOVE REGARDING THE PAYMENT FOR TERMINATION OF MANUFACTURING AGREEMENT HOWEVER THE AO DID NOT ACCEPT THE ASSESSEES EXPL ANATION. HE OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY BASIS ON WHICH ODD FIGURE OF RS.11.264 CRORES HAS BEEN W ORKED OUT FOR TERMINATION OF MANUFACTURING AGREEMENT AN D RS. 1 CRORE TO BE PAID TOWARDS TERMINATION OF OTHER JOINT VENTURE AGREEMENTS. THE AO AFTER CONSIDERING THE CERTAIN CLAUSE OF THE AGREEMENT INCLUDING CLAUSE 19 OF THE AGREEMENT WHICH READS AS UNDER : ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 17 INDEMNIFICATION 19. IN THE EVENT OF THE EXPIRATION OR TERMINATION O F THIS AGREEMENT NONE OF THE PARTIES SHALL BE LIAB LE TO THE OTHER PARTIES FOR ANY LOSS OF ANTICIPATED SALES OR PROSPECTIVE PROFITS OR BECAUSE OF EXPENDITURES REL ATED TO THE PERFORMANCE OF THIS AGREEMENT. DISTINGUISHED THE DECISIONS RELIED ON BY THE ASSESS EE AND INTERALIA OBSERVED AS UNDER : 10.14 THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.12.264 CRORES PAID AS COMPENSATION FOR TERMINATI ON OF JOINT VENTURE AGREEMENT. BUT INSPITE OF SO MANY OPPORTUNITIES GIVEN THE ASSESSEE COMPANY HAS NOT FURNISHED ANY DETAILS REGARDING THE METHOD OR BASIS ON WHICH AN ODD FIGURE OF RS.11.264 CRORES WAS WORKED OUT AS COMPENSATION FOR SO CALLED TERMINATION OF MANUFACTURING AGREEMENT AND RS.ONE CRORE TOWARDS TERMINATION OF OTHER AGREEMENTS ENTERED UNDER JOINT VENTURE. THE ASSESSEE HAS ALSO NOT FURNISHED ANY DETAILS AS TO NOW IT WAS COMMERCIALLY EXPEDIENT FOR THE ASSESSEE TO TERMINATE THE JOINT VENTURE. EVEN D URING THE COURSE OF ASSESSMENT PROCEEDING OF EARLIER AY 1996-97 THE ASSESSEE DID NOT FURNISH ANY CORRESPONDENCE OR MINUTES OF MEETINGS HELD BEFORE T HE TERMINATION OF THE JOINT VENTURE AS TO WHY THE JO INT VENTURE WAS TERMINATED AND HOW THE AMOUNTS PAYABLE WERE DETERMINED. IT IS NOT KNOWN FOR WHOM IT WAS COMMERCIALLY EXPEDIENT TO TERMINATE THE JOINT VENTU RE. WHETHER IT WAS TERMINATED AT THE INSTANCE OF GODRE J FAMILY OR AT THE INSTANCE OF P&G GROUP.. THE AO AFTER CONSIDERING THE SALES POSITION OF SHAREHOLDINGS OF THE COMPANY BEFORE AND AFTER TERM INATION OF THE JOINT VENTURE AGREEMENT AND OTHER RELEVANT MATERIAL HAS FINALLY HELD THAT THE PAYMENTS FOR TERMINATION OF AGREEMENTS WAS CAPITAL EXPENDITURE VIDE FINDING REC ORDED AS UNDER (PAGE 23 OF AO): ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 18 IT IS PERTINENT TO NOTE THAT AGREEMENT AT SR.NO.2 3 5 6 9 AND 10 ARE THE AGREEMENTS WHICH WERE NOT ENTERED EXCLUSIVELY BETWEEN THE ASSESSEE COMPANY (PGG) AND GSL. IT IS NOT UNDERSTANDABLE AS TO HOW IT WAS T HE LIABILITY OF THE ASSESSEE COMPANY TO COMPENSATE THE GSL FOR TERMINATION OF THESE AGREEMENTS WHEREIN THE ASSESSEE COMPANY WAS NOT A PARTY. THIS ITSELF SHOW S THAT THE PAYMENT WAS NOT MADE FOR COMMERCIAL EXPEDIENCY OF THE ASSESSEE COMPANY. IT MAY ALSO BE MENTIONED HERE THAT AS PER CLAUSE 3.3 (A) OF JOINT VENTURE AGREEMENT QUOTED ABOVE EQUITY SHARES WERE ALLOTTED TO PGFE OF RS.100/- EACH AT A PREMIUM OF RS.457.50 PER SHARE AT THE TIME OF ENTERING INTO JO INT VENTURE. BUT AT THE TIME OF TERMINATION OF AGREEME NT THE FAMILY MEMBERS OF GODREJ GROUP TRANSFERRED THE SHARES TO THE COMPANIES OF P&G GROUP @ 230/- PER SHARE ONLY. IT IS ALSO PERTINENT TO NOTE THAT GS L HAS BEEN SHOWING HUGE LOSSES CARRY FORWARD IN ITS INCO ME TAX RETURN AND EVEN AFTER RECEIVING PAYMENTS FROM T HE ASSESSEE COMPANY GSL WAS NOT LIABLE TO PAY ANY INCOME TAX. THUS IT LEADS TO IRRESISTIBLE CONCLUS ION THAT PAYMENTS WERE MADE FOR TERMINATION OF JOINT VENTU RE BETWEEN TWO GROUPS AND ON CONVENIENT UNDERSTANDING THE PAYMENTS WERE SHOWN TO BE MADE TO GSL WHICH WIL L NOT BE LIABLE TO PAY ANY INCOME TAX. THUS IT WAS ONLY CAMAFLOUGING THAT THE PAYMENT HAS BEEN SHOWN TO BE MADE FOR TERMINATION OF MANUFACTURING AGREEMENT OF RS.11.264 CRORES AND ONLY RS. ONE CRORE FOR ALL TH E AGREEMENTS ENTERED UNDER JOINT VENTURE AGREEMENT. THUS THE PAYMENT WAS RELATED TO THE CHANGE OF OWNERSHIP AND MANAGEMENT OF THE COMPANY EXCLUSIVELY TO P&G GROUP. THUS IT CANNOT BE SAID THAT THE PA YMENT HAS BEEN MADE FOR ANY TERMINATION OF TRADING AGREEM ENT BUT IT WAS MADE FOR RESTRUCTURING OF THE COMPANY AN D HENCE WAS CAPITAL EXPENDITURE. 20. ON APPEAL THE LEARNED COMMISSIONER OF INCOME T AX (A) WHILE AGREEING WITH THE VIEWS OF THE AO HELD THAT THE ENTIRE PAYMENT OF RS.12 26 40 000/- WAS NOT INCURRE D BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES O F ITS BUSINESS AS REQUIRED BY THE PROVISIONS OF SECTION 3 7 (1) OF ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 19 THE ACT AND ACCORDINGLY HE CONFIRMED THE DISALLOWA NCE MADE BY THE AO. 21. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE VERY FAIRLY SUBMITS THAT THE IDENTICAL ISS UE HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN THE CASE OF M/S.PROCTER & GAMBLE HOME PRODUCTS LTD. V/S JCIT ( 2011- TIOL-16-ITAT-MUM). HE FURTHER SUBMITS THAT NOW TH E ASSESSEE HAS FILED EXTRACT OF BOARD RESOLUTION DA TED JULY 23 1996 EXTRACT OF ARTICLE PUBLISHED IN BUSINESS INDIA MAGAZINE FOR THE PERIOD JULY 15 TO 28 1996 EXTRAC T FROM THE BOOK GLOBAL CEO PUBLISHED IN THE YEAR 2001 BY A. V. VEDPURISWAR MANAGEMENT AUTHOR AND MANUFACTURING AGREEMENT FOR TOILET SOAPS DATED 22 JAN. 1993 BE TWEEN PGG AND GSL APPEARING AT PAGES 1 TO 20 OF THE ADD ITIONAL PAPER BOOK ALONG WITH THE COPY OF THE APPLICATION F OR ADMISSION OF THE ADDITIONAL EVIDENCE ON THE GROUND THAT THE SAID ADDITIONAL DOCUMENT ARE REQUIRED TO BE BROUGHT ON RECORD TO THE NOTICE OF THE BENCH TO RENDER ASSISTA NCE TO THE TRIBUNAL IN DECIDING THE ISSUE RAISED IN THE SAID GROUNDS THE SAME BEING ESSENTIAL TO DECIDE THE ISSUE IN JUST AN D FAIR MANNER THEREFORE IT MAY BE ADMITTED. HE FURTHER SUBMITS THAT THE COMPENSATION OF RS.12 26 40 000/- PAID TO THE GSL ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 20 FOR TERMINATION OF MANUFACTURING AGREEMENT IS ALLOW ABLE IN VIEW OF THE FOLLOWING REASONS : 1. MANUFACTURING ARRANGEMENT WAS DISADVANTAGEOUS. SUBMITTED EXTRACTS FROM BUSINESS INDIA EDITION O F JULY 1997 STATING THAT I) P&G HAD NO CONTROL OVER COSTS UNDER THE AGREEMENT AS IT WAS COST + FIXED MARGIN CONTRACT. THERE WERE NO COST CAPS OR INCENTIVES FOR COST EFFICIENCIES IN THE JV AGREEMENT. II) COSTS WERE INCREASING AND MARKET SHARES WAS REDUCING. III) SALES WERE FALLING BEHIND TARGETS RESULTING IN IDLE CAPACITY RESULTING IN HIGHER OVERHEADS. IV) PURSUANT TO JV GSL HAD ENHANCED ITS MANUFACTURING FACILITIES RESULTING IN BURDEN OF HIG H INTEREST AND DEPRECIATION SINCE 50% OF CAPACITY REMAINED UNUTILIZED. V) GODREJS PROCESSING COSTS WERE WELL ABOVE THE MARKET RATES BY AS MUCH AS RS.10 000 PER TONE. VI) THE JV WAS ADVERSELY AFFECTING THE BRANDS OF GSL. SUMMARY CHART BASED ON FINANCIALS SHOWING THAT AFTE R TERMINATION OF JV OPERATING COSTS AS A % TO SALES REDUCED TO 57% IN FY 1996-97 AS AGAINST 89% IN FY 1995-96 AND IN FY 1994-95 IS AS UNDER : ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 21 PROCTOR AND GAMBLE DISTRIBUTION COMPANY LIMITED PREVIOUS YEAR 1996-97 ASSESSMENT YEAR 1 997-98 (RS.IN CRORE) PARTICULARS FINANCIAL YEAR 1996-97 1995-96 1994-95 A. SALES 175.08 364.55 351.49 B.PURCHASE COST 100.12 316.43 315.05 C.PURCHASE COST AS % OF SALES 57.18% 86.80% 89.62% D.PROFIT BEFORE TAX 22.85 (34.05) 15.4 (YEAR UNDER APPEAL) QUANTITY PURCHASED WAS LOWER IN YEAR 1994 (46 000 TONNES) AND YEAR 1995 (38 000 TONNES) AS AGAINST ANNUAL COMMITMENTS OF 80 000 TONES. 2. WHETHER TERMINATION AFFECTED PROFIT MAKING APPARATUS OF THE COMPANY I) APPELLANT CONTINUED SELLING ITS MAJOR SOAP BRAN D CAMAY EVEN AFTER TERMINATION OF JV THEREFORE TH E PROFIT MAKING APPARATUS WAS NOT AFFECTED. 3. COMPENSATION WAS GIVEN FOR LOSS OF SALES AND PROFITS AND IDLE CAPACITY OF GSL RESULTING FROM TERMINATION I) ALTHOUGH ORIGINAL AGREEMENT DID NOT ENVISAGE SUCH COMPENSATION AN AGREEMENT CAN ALWAYS BE MODIFIED BY CONSENT OF BOTH PARTIES. HENCE TO THE EXTENT THE CONFINED AGREEMENT WAS NOT ACTED UPON IT WAS OVERRIDDEN BY NEW TERMINATION AGREEMENT. II) IN ANY CASE CLAUSE 19 OF JV AGREEMENT APPLIED AND IN CASES OF TERMINATION MENTIONED IN PARAGRAPH 14 OF THE JV AGREEMENT AND THIS IS NOT SUCH A TERMINATIO N. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 22 III) MERELY SINCE THE ASSESSEE IS NOT CONTRACTUALL Y BOUND COMPENSATION CANNOT BE DISALLOWED. VOLUNTARY PAYMENTS WITHOUT LEGAL CLAIM ARE ALLOWABLE IF COMME RCIAL EXPEDIENCY IS ESTABLISHED. MOTOR INDUSTRIES COMPANY LTD. (223 ITR 112) (KAR) GLAXO LABORATORIES (I) P.LTD. (114 ITR 110) (BOM) 22. FURTHER THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REFERRING TO THE SAME DECISIONS WHICH WERE RELIED ON IN THE CASE OF M/S PGHPL (SUPRA) AND THE EXTRACT OF THE AR TICLES PUBLISHED IN THE MAGAZINE ALSO RELIED ON THE DECI SION OF THE HONBLE SUPREME COURT IN SENAIRAM DOONGARMALL V/S COMMISSIONER OF INCOME TAX (1961) 42 ITR 392 (SC) FOR THE PROPOSITION THAT THE QUALITY OF THE PAYMENT THAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OF ITS MEASURE AND MAKES IT FALL WITHIN C APITAL OR REVENUE. HE THEREFORE SUBMITS THAT THE PAYMENTS ON TERMINATION OF THE MANUFACTURING AGREEMENT PURSUAN T TO THE TERMINATION OF THE JOINT VENTURE AGREEMENT BE ALLOWED TO THE ASSESSEE. 23. ON THE OTHER HAND THE LEARNED D.R. WHILE STRON GLY OPPOSING TO THE ADMISSION OF ADDITIONAL EVIDENCE S UBMITS THAT THE ADDITIONAL EVIDENCE WAS FILED BY THE ASSES SEE IN VIEW OF THE OBSERVATIONS OF THE TRIBUNAL IN THE CA SE OF M/S PGHPL (SUPRA) THEREFORE THE SAME SHOULD NOT BE AD MITTED. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 23 THE LEARNED D.R. FURTHER SUBMITS THAT IN VIEW OF T HE FINDINGS RECORDED BY THE AO THE LEARNED COMMISSIONER OF I NCOME TAX (A) AND THE TRIBUNAL IN THE CASE OF M/S PGHPL (SUPRA) THE LEARNED COMMISSIONER OF INCOME TAX (A) WAS FULL Y JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE AN D THEREFORE THE DISALLOWANCE MADE BY THE AO BE UPHELD. 24. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THERE WAS AN INDEMNIFICA TION CLAUSE IN THE SAID AGREEMENT WHICH READS AS UNDER : INDEMNIFICATION 19. IN THE EVENT OF THE EXPIRATION OR TERMINATION O F THIS AGREEMENT NONE OF THE PARTIES SHALL BE LIAB LE TO THE OTHER PARTIES FOR ANY LOSS OF ANTICIPATED SALES OR PROSPECTIVE PROFITS OR BECAUSE OF EXPENDITURES REL ATED TO THE PERFORMANCE OF THIS AGREEMENT. 25. AS REGARDS THE ADMISSION OF ADDITIONAL EVIDENCE WE FIND THAT THERE IS NO DISPUTE THAT THE EXTRACT OF BOARD RESOLUTION AND ARTICLES PUBLISHED IN THE MAGAZINES ARE FOR THE RELEVANT ASSESSMENT YEAR BUT THE SAME WERE NOT FILED BEFORE THE AO AS OBSERVED BY THE AO IN PARAGRAPH 1 0.14 OF THE ASSESSMENT ORDER. NOW THE ASSESSEE IS FILING TH E SAME AS AN ADDITIONAL EVIDENCE IN VIEW OF THE OBSERVAT IONS OF THE ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 24 TRIBUNAL IN THE CASE OF M/S PGHPL (SUPRA) WHEREIN IT HAS BEEN HELD IN PARAGRAPH 2.5.5 THAT THERE IS ALSO N O MATERIAL PRODUCED TO SHOW THAT THERE WERE ANY DIFFICULTIES B ETWEEN THE TWO PARTIES REGARDING THE WORKING OF THE MANUFACTUR ING AGREEMENT. HOWEVER KEEPING IN VIEW THAT THE ABOV E ADDITIONAL EVIDENCE IS FOR THE RELEVANT ASSESSMENT YEAR WHICH ACCORDING TO THE LEARNED COUNSEL FOR THE ASSE SSEE GOES TO THE VERY ROOT OF THE MATTER WE ADMIT THE SAME. 26. WE FURTHER FIND THAT ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL IN THE CAS E OF M/S PGHPL (SUPRA) HAS CONSIDERED THE ABOVE ISSUE IN DE TAIL AND AFTER CONSIDERING ALL THE DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE HAS HELD VIDE PA RAGRAPHS 2.5.4 TO 2.5.13 AS UNDER : 2.5.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDI NG THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE BY W AY OF PAYMENT OF RS.7 CRORES TO GSL TOWARDS TERMINATION O F MANUFACTURING AGREEMENT FOR MANUFACTURE OF DETERGEN T BAR. THE SAID MANUFACTURING AGREEMENT HAD BEEN ORIGINALLY ENTERED INTO BETWEEN PGI & GSL UNDER THE PROVISIONS OF CLAUSE 9.3 OF THE JOINT VENTURE AGREE MENT (JVA) BETWEEN P&G GROUP AND THE GODREJ GROUP. IN TERMS OF THE SAID AGREEMENT PGI HAD PURCHASED THE LAUNDRY AND CLEANING POWDER BUSINESS FROM GSL AND H AD ENTERED INTO MANUFACTURING AGREEMENT FOR MANUFACTUR ING AND DESIGNING OF DETERGENT BAR. THE SAID BUSINESS W AS LATER TRANSFERRED BY PGI TO THE ASSESSEE W.E.F. 1.1 1.93. AS PER THE AGREEMENT THE ASSESSEE HAD AGREED TO BUY FROM GSL 1800 TONS BAR OF DETERGENT PER MONTH AT T HE AGREED PRICE. THE AGREEMENT WAS IN FORCE TILL 31.3. 97. THE JV AGREEMENT BETWEEN THE TWO GROUPS WAS HOWEVER ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 25 TERMINATED ON 23.7.96. UNDER THE PROVISIONS OF CLAU SE 14.6 OF THE JVA IN CASE OF TERMINATION OF JVA ALL AGREEMENTS EMANATING FROM THE JVA WERE TO AUTOMATICALLY CEASE. THE CASE OF THE ASSESSEE HOWEV ER IS THAT THE MANUFACTURING AGREEMENT WAS PREMATURELY TERMINATED ON 30.7.96 TO REMOVE COMMERCIAL CONSTRAI NTS AND THE PAYMENT OF RS.7 CRORES HAD BEEN MADE TO GSL TO COMPENSATE FOR LOSS OF SALE AND PROFIT AND LOSS OF CAPACITY UTILIZATION. IT HAS ALSO BEEN SUBMITTED TH AT THE AGREEMENT TERMINATED WAS FOR MANUFACTURE OF TRILO B RAND AND IT WAS ONE OF MANY SUCH AGREEMENTS BY THE ASSESSEE FOR MANUFACTURE OF DIFFERENT PRODUCTS. THE TERMINATION DID NOT THEREFORE HAVE ANY IMPACT ON TH E PROFIT EARNING APPARATUS AND THE ADVANTAGE DERIVED FROM THE ASSESSEE WAS ONLY IN THE REVENUE FIELD. IT HAS BEEN POINTED OUT THAT AFTER THE TERMINATION SALES AND P ROFIT BOTH HAD IMPROVED. ACCORDINGLY IT HAS BEEN URGED TH AT THE EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 2.5.5 IN OUR VIEW FOR DECIDING THE NATURE OF EXPENDITURE IT IS FIRST NECESSARILY TO ASCERTAIN T HE REAL PURPOSE OF PAYMENT. IT IS CLEAR FROM THE READING OF THE CLAUSE 14.6 OF JVA THAT IN CASE OF TERMINATION OF T HE JVA ALL OTHER AGREEMENTS ENTERED INTO UNDER THE PROVISIONS OF JVA WOULD AUTOMATICALLY CEASE TO EXIS T. THERE IS NO DISPUTE THAT THE MANUFACTURING AGREEMEN T HAD BEEN ENTERED INTO UNDER THE PROVISIONS OF THE C LAUSE 9.3 OF THE JVA. THERE IS ALSO NO DISPUTE THAT THE J VA HAD BEEN TERMINATED BY BOTH THE PARTIES ON 23.7.96 AND THEREFORE ON THE SAID DATE THE MANUFACTURING AGREEM ENT HAD CEASED TO EXIST. THERE WAS THUS NO NEED TO ENTE R INTO A SEPARATE TERMINATION AGREEMENT. THE TERMINAT ION AGREEMENT DATED 30.7.96 WAS ONLY A FORMALITY. THERE IS ALSO NO MATERIAL PRODUCED TO SHOW THAT THERE WERE A NY DIFFICULTIES BETWEEN THE TWO PARTIES REGARDING THE WORKING OF THE MANUFACTURING AGREEMENT. MERELY BECAUSE THE GP RATE IN THE SUBSEQUENT PERIOD HAD IMPROVED IT CANN OT BE THE BASIS TO CONCLUDE THAT THE MANUFACTURING AGREEM ENT HAD BEEN TERMINATED BECAUSE OF ANY COMMERCIAL CONSTRAINTS WHEN NO SUCH MATERIAL HAS BEEN PLACED O N RECORD. IT HAS BEEN SUBMITTED THAT SALE AND PROFIT HAD IMPROVED AFTER THE TERMINATION. BUT WE FIND FROM TH E DETAILS GIVEN AT PAGE 37 OF THE PAPER BOOK THAT SAL ES OF SOAP AND DETERGENT HAD FALLEN DOWN TO RS.284 CRORE IN F.Y.1996-97 COMPARED TO RS.299 CRORE IN F.Y.1995-96 . GP RATE IN RESPECT OF SOAP AND DETERGENT IS NOT GIV EN. NO ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 26 SUCH PLEA WAS RAISED BEFORE LOWER AUTHORITIES AND THEREFORE CANNOT BE ENTERTAINED AT THIS STAGE AS IT WILL REQUIRE GOING INTO FRESH FACTS. MOREOVER THE MANUFACTURING AGREEMENT WAS NOT TERMINATED BECAUSE OF ANY CONSTRAINTS IN THE WORKING OF THE MANUFACTURING AGREEMENT BUT BECAUSE OF THE TERMINATION OF THE JVA AS ON THE TERMINATION OF J.V. THE MANUFACTURING AGREEM ENT AUTOMATICALLY CEASED TO EXIST. THEREFORE IN OUR VIE W THE PAYMENT MADE BY THE ASSESSEE WAS FOR TERMINATION OF THE JVA. THE ARGUMENT OF THE ASSESSEE THAT PAYMENT WAS MADE FOR LOSS OF SALE OR PROFIT BY GSL CANNOT B E ACCEPTED AS CLAUSE 19 OF J.V.A CLEARLY PROVIDED THA T IN CASE OF TERMINATION OF J.V.A. NO LIABILITY WOULD B E CAST ON ANY PARTY TOWARDS THE OTHER PARTY FOR LOSS OF ANTICIPATED SALE OR PROSPECTIVE PROFITS. 2.5.6 HAVING CONCLUDED THAT THE PAYMENT HAD BEEN MADE FOR TERMINATION OF JVA THE OTHER ISSUE TO BE ADDRESSED IS WHETHER THE PAYMENT CAN BE CONSIDERED AS REVENUE EXPENDITURE IN CASE OF THE ASSESSEE. A CARE FUL PERUSAL OF THE JVA SHOWS THAT IT WAS NOT A MERE TRA DING AGREEMENT. IT PROVIDED FOR CREATION OF JOINT VENTUR E COMPANY BETWEEN P&G GROUP AND GODREJ GROUP NAMELY PGG IN WHICH THE PG GROUP WAS TO HOLD 51% EQUITY. PGG HAD BEEN FORMED FOR MANUFACTURE OF SYNTHETIC DETERGENT BAR AND TO MARKET SALE AND DISTRIBUTE TO ILET SOAP. THE JVA ALSO PROVIDED FOR DIFFERENT MANUFACTU RING AGREEMENTS BETWEEN GSL AND DIFFERENT ENTITIES OF P & G GROUP FOR MANUFACTURE OF DIFFERENT PRODUCTS. FURTHE R THE JVA WAS FOR AN UNLIMITED PERIOD AND COULD BE TERMIN ATED ONLY IN CASE OF INSOLVENCY AND BANKRUPTCY AND LIQUI DATION OF EITHER OF THE PARTY AND FOR BREACH OF ANY TERMS AND CONDITIONS OF THE JVA. ADMITTEDLY NONE OF THE TERMS AND CONDITIONS OF THE JVA HAD BEEN VIOLATED BY EITHER O F THE PARTIES. THUS THE JVA PROVIDED FOR A LONG TERM BUSI NESS FRAMEWORK AND PROFIT EARNING APPARATUS OF THE P & G GROUP. WITH THE TERMINATION OF THE JVA THE JV COMP ANY AS WELL AS OTHER MANUFACTURING AGREEMENTS AUTOMATIC ALLY CEASED TO EXIST. THE TERMINATION OF JVA WAS THUS OBVIOUSLY A PART OF RESTRUCTURING AND REORGANIZATIO N OF THE PROFIT EARNING APPARATUS OF THE P&G GROUP. THER EFORE THE TERMINATION HAD IMPACT ON THE PROFIT EARNING APPARATUS OF THE GROUP AND THE PAYMENT WAS THEREFOR E IN RELATION TO CHANGE IN PROFIT EARNING APPARATUS OF T HE P&G GROUP AND NOT FOR TERMINATION OF MANUFACTURING AGREEMENT WHICH HAD ALREADY CEASED TO EXIST. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 27 2.5.7 WE HAVE NOW TO CONSIDER THE NATURE OF THE SAI D EXPENDITURE. IT IS A SETTLED LEGAL POSITION THAT IN CASE AN EXPENDITURE IS INCURRED FOR BETTER WORKING OF THE E XISTING PROFIT EARNING APPARATUS IT WILL BE REVENUE IN NAT URE BUT IN CASE THE EXPENDITURE RELATES TO ANY CHANGE IN TH E PROFIT EARNING APPARATUS THE EXPENDITURE WOULD BE C APITAL IN NATURE. THE SAID VIEW IS SUPPORTED BY THE JUDGME NT OF HONBLE SUPREME COURT IN CASE OF EMPIRE JUTE CO. (1 24 ITR 1). WE HAVE ALREADY HELD THAT THE PAYMENT IN TH IS CASE WAS IN RELATION TO RESTRUCTURING AND REORGANIZ ATION OF BUSINESS FRAME WORK AND PROFIT EARNING APPARATUS OF THE P & G GROUP. THE PAYMENT WAS NOT WHOLLY AND EXCLUSIVELY FOR TERMINATION OF MANUFACTURING AGREEM ENT BETWEEN THE ASSESSEE AND THE GSL. THEREFORE IN OUR VIEW THE EXPENDITURE HAS TO BE TREATED AS CAPITAL I N NATURE. THE LEARNED AR FOR THE ASSESSEE HAS ARGUED THAT THE MANUFACTURING AGREEMENT WAS LIKE ONE OF SEVERAL AGENCIES TAKEN DURING THE COURSE OF BUSINES S AND THEREFORE EXPENDITURE ON TERMINATION OF ONE AGE NCY HAS TO BE TREATED AS REVENUE IN NATURE. WE ARE UNAB LE TO ACCEPT THE ARGUMENT. FIRSTLY THIS IS NOT A CASE OF TERMINATION OF ONE OF SEVERAL AGENCIES. THE JVA AS WE HAVE DISCUSSED EARLIER PROVIDED FOR LONG TERM BUSIN ESS FRAMEWORK AND PROFIT EARNING APPARATUS OF THE P & G GROUP. SECONDLY PAYMENT MADE FOR CANCELLATION OF A N AGENCY CAN BE CONSIDERED AS REVENUE EXPENDITURE ONL Y WHEN IT DOES NOT AFFECT THE TRADING OR PROFIT EARNI NG STRUCTURE OF THE BUSINESS. IN THE PRESENT CASE WE H AVE ALREADY HELD THAT THE TERMINATION OF JVA HAD AN IMP ACT ON THE PROFIT EARNING APPARATUS AS JVA WAS A PIVOT TO THE BUSINESS STRUCTURE. WE THEREFORE HOLD THAT THE EXPENDITURE WAS CAPITAL IN NATURE. 2.5.8 THE LEARNED AR FOR THE ASSESSEE HAS PLACED RELIANCE ON SEVERAL JUDGMENTS IN SUPPORT OF THE CAS E THAT THE EXPENDITURE WAS REVENUE IN NATURE. WE HAVE GONE THROUGH THE SAID JUDGMENTS AND IN OUR VIEW ALL THE JUDGMENTS ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN CASE OF CIT VS ASHOK LEYLAND LTD. (86 ITR 549) ON WHICH RELIANCE HAS BEE N PLACED THE ASSESSEE WAS ORIGINALLY IMPORTING AND ASSEMBLING MOTOR CARS PARTS ETC. MANUFACTURED BY AUSTIN OF ENGLAND. THE ASSESSEE HAD APPOINTED CB LT D. AS MANAGING AGENT FOR AUSTIN CARS. WITH GOVERNMENT ALLOWING SETTING UP OF AUTOMOBILE INDUSTRY IN INDIA THE ASSESSEE IN 1954 TOOK UP MANUFACTURING OF LEYLAND COMMERCIAL VEHICLE AND STOPPED MANUFACTURING OF AUS TIN ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 28 CARS. IN 1955 THE ASSESSEE TERMINATED THE MANAGING AGENCY ON PAYMENT OF RS.2.5 LACS. THE ISSUE WAS NAT URE OF EXPENDITURE ON ACCOUNT OF THE SAID PAYMENT AND I T WAS HELD AS REVENUE EXPENDITURE. IT IS OBVIOUS THAT THE TERMINATION OF MANAGING AGENCY DID NOT HAVE ANYTHIN G TO DO WITH THE STOPPAGE OF MANUFACTURING OF AUSTIN CAR WHICH HAD ALREADY BEEN STOPPED NOR DID IT HAVE ANYT HING TO DO WITH THE MANUFACTURE OF LEYLAND COMMERCIAL VEHICLE. AFTER THE ASSESSEE STOPPED MANUFACTURING AUSTIN CARS THE MANAGING AGENCY HAD BECOME REDUNDANT. THUS THE TERMINATION OF MANAGING AGENCIE S DID NOT RELATE TO THE PROFIT EARNING APPARATUS OF T HE ASSESSEE AND BY TERMINATION THE ASSESSEE COULD ONLY GAIN ADVANTAGE IN THE REVENUE FIELD BY WAY OF SAVIN G OF UNNECESSARY EXPENDITURE. THE CASE OF THE ASSESSEE I S DIFFERENT AS IN THIS CASE PAYMENT WAS FOR TERMINATI ON OF JVA WHICH HAD IMPACT ON THE PROFIT EARNING APPARATU S. 2.5.9 IN CASE OF WESTERN INDIA OIL DISTRIBUTING CO. INDIA VS CIT (77 ITR 140) THE ASSESSEE HAD AN AGREEMENT F OR 10 YEARS FOR OBTAINING AGGREGATE LOAN OF RS.10 LACS . THE ASSESSEE HAD AGREED TO PAY INTEREST @ 6% PER ANNUM ON RS.10 LACS WHETHER OR NOT THE FINANCE WAS TAKEN. TH E ASSESSEE WAS ALSO REQUIRED TO PAY COMMISSION ON IMP ORT OF GOODS WHETHER FINANCE WAS TAKEN OR NOT EVEN AF TER EXPIRY OF AGREEMENT. SUBSEQUENTLY THE ASSESSEE REVO KED THE AGREEMENT IN A CONSENT DECREE ON PAYMENT OF RS. 3 LACS IN FIVE EQUAL INSTALLMENTS. THE ISSUE WAS THE NATURE OF EXPENDITURE INCURRED. OBVIOUSLY THE AGREEMENT W AS ONLY IN CONNECTIONS WITH OBTAINING FINANCE REQUIRED FOR THE PURPOSE OF BUSINESS AND ANY PAYMENT IN CONNECTI ON WITH THE FINANCE FOR THE WORKING OF BUSINESS IS A REVENUE EXPENDITURE. THE TERMINATION OF AGREEMENT DID NOT H AVE ANY IMPACT ON THE PROFIT EARNING APPARATUS. THE HON BLE HIGH COURT HELD THAT PAYMENT HAD BEEN MADE ONLY TO REMOVE DIFFICULTY IN THE SMOOTH RUNNING OF BUSINESS . THE CASE IS OBVIOUSLY DISTINGUISHABLE AS THE PAYMENT DI D NOT RELATE TO THE PROFIT EARNING APPARATUS. 2.5.10 IN CASE OF CIT VS MOTOR INDUSTRIES CO. LTD. (223 ITR 112) THE ASSESSEE WAS MANUFACTURE AND DISTRIBU TOR OF AUTOMOBILE PARTS. THE ASSESSEE HAD AN AGREEMENT WITH THE SOLE DISTRIBUTOR WHICH EXPIRED ON 9.2.72. THE ASSESSEE ENTERED INTO A FRESH AGREEMENT WITH THE SO LE DISTRIBUTOR ON 18.3.72 AS PER WHICH THE DISTRIBUTOR SHIP WAS RESTRICTED TO CERTAIN AREAS. THE AGREEMENT WAS LIMITED TO FIVE YEARS TILL 9.2.77 WITHOUT ANY RIGHT OF ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 29 RENEWAL TO THE DISTRIBUTOR. INSTEAD OF RENEWING THE AGREEMENT IN 1977 THE ASSESSEE DECIDED TO TAKE ON THE REMAINING TERRITORY FROM THE DISTRIBUTOR ON PAYMENT OF RS.99 LACS OVER A PERIOD OF THREE YEARS AND THE ISS UE WAS WHETHER THE EXPENDITURE COULD BE ALLOWED AS REVENUE EXPENDITURE. THE HONBLE HIGH COURT OBSERVE D THAT STRICTLY SPEAKING THE DISTRIBUTOR DID NOT HAVE ANY LEGAL CLAIM AS THE AGREEMENT HAD EXPIRED AND THERE WAS NO PROVISION FOR RENEWAL. THE PAYMENT HAD BEEN MADE FOR SMOOTH TRANSITION FROM MARKETING THROUGH A DIST RIBUTOR TO MARKETING BY THE COMPANY ITSELF. THE PAYMENT DID NOT RELATE TO ANY ASSETS OR ANY AUGMENTATION OF ANY PRO FIT MAKING APPARATUS. IT WAS ONLY TO GET RID OF A COMMERCIALLY DISADVANTAGEOUS BUSINESS AGREEMENT AND THUS HELD AS REVENUE EXPENDITURE. THE CASE IS OBVIO USLY DISTINGUISHABLE. IN THE PRESENT CASE THE JVA AS POI NTED OUT EARLIER WAS A LONG TERM ASSET AND CONSTITUTED T HE PROFIT EARNING APPARATUS IN CASE OF THE ASSESSEE. 2.5.11 IN CASE OF CIT VS PECIO ELECTRONIC & ELECTRI CAL LTD. (107 CTR 240) THE ASSESSEE HAD CONTRACT FOR MANUFACTURE OF GOODS WITH M/S. VULCAN INDUSTRIES SI NCE NOVEMBER 1971. IN 1975 THE ASSESSEE STOPPED LIFTING GOODS FROM THAT PARTY AND PAID COMPENSATION OF RS.4 03 000/- FOR BREACH OF CONTRACT. THE HIGH COUR T HELD THAT THE PAYMENT HAD BEEN MADE FOR PREMATURE TERMINATION OF A TRADE AGREEMENT WHICH WAS CREATING AN ONEROUS BURDEN ON THE ASSESSEE. THE TERMINATION ONL Y AVOID FUTURE COMMERCIAL INCONVENIENCE AND THEREFORE THE EXPENDITURE WAS HELD ALLOWABLE AS REVENUE EXPENDITU RE. IN THE PRESENT CASE AS WE HAVE POINTED OUT EARLIER THE PAYMENT HAD BEEN MADE FOR TERMINATION OF JVA WHICH WAS NOT A MERE TRADE AGREEMENT. IT PROVIDED FOR LON G TERM BUSINESS FRAMEWORK AND PROFIT EARNING APPARATU S FOR THE P & G GROUP AND THEREFORE THE TERMINATION D ID AFFECT THE PROFIT EARNING APPARATUS. 2.5.12 IN CASE OF CIT VS GLAXO LABORATORIES (INDIA ) PVT. LTD. (114 ITR 110) THE ASSESSEE HAD AN AGREEM ENT FOR THE PURPOSE OF DISTRIBUTION OF PRODUCTS. THE AGREEMENT COULD BE TERMINATED BY EITHER PARTY AT ON E MONTHS NOTICE. THE AGREEMENT OBVIOUSLY DID NOT HAV E ANYTHING TO DO WITH THE PROFIT EARNING APPARATUS AS IT ONLY RELATED TO THE SALE AND DISTRIBUTION OF THE PR ODUCTS AND IT COULD BE TERMINATED ANY TIME AFTER ONE MONTH S NOTICE. THE EXPENDITURE FOR TERMINATION WAS HELD TO BE ALLOWABLE AS REVENUE EXPENDITURE. THE CASE IS OBVIO USLY ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 30 DISTINGUISHABLE FROM THE PRESENT CASE IN OUR VIEW O F THE DISCUSSION MADE EARLIER. 2.5.13 IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE REASONS GIVEN EARLIER WE SEE NO INFIRMITY IN THE OR DERS OF THE AUTHORITIES BELOW HOLDING THE EXPENDITURE AS CA PITAL EXPENDITURE. THE ORDER OF CIT (A) IS ACCORDINGLY UP HELD. 27. AS REGARDS THE DECISION OF THE HONBLE SUPREME COURT IN SENAIRAM DOONGARMALL (SUPRA) WE ARE OF THE VIEW THAT THERE IS NO QUARREL ON THE RATIO OF THE PRINCIPLE L AID DOWN BY THEIR LORDSHIPS. HOWEVER KEEPING IN VIEW THE DECIS ION OF THE TRIBUNAL IN M/S PGHPL (SUPRA) INDEMNIFICATION CLA USE NO.19 OF THE AGREEMENT (SUPRA) WE ARE OF THE VIEW THAT T HE SAID DECISION RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 28. IN THE ABSENCE OF ANY OTHER DISTINGUISHING FEA TURE BROUGHT ON RECORD BY THE LEARNED COUNSEL FOR THE A SSESSEE KEEPING IN VIEW INDEMNIFICATION CLAUSE NO.19 OF TH E AGREEMENT (SUPRA) AND IN THE ABSENCE OF ANY DOCUME NTARY EVIDENCE IN SUPPORT OF THE ARTICLE PUBLISHED IN TH E MAGAZINES WE RESPECTFULLY FOLLOWING THE ORDER OF T HE TRIBUNAL (SUPRA) HOLD THAT THE EXPENDITURE OF RS.12 26 40 000/- IS IN THE NATURE OF CAPITAL EXPE NDITURE NOT ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37(1 ) OF THE ACT. ACCORDINGLY WE ARE INCLINED TO UPHOLD THE OR DER OF ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 31 THE LEARNED COMMISSIONER OF INCOME TAX (A) IN CONF IRMING THE DISALLOWANCE MADE BY THE AO. THE GROUND III ( 1 AND 2) TAKEN BY THE ASSESSEE ARE THEREFORE REJECTED. 29. GROUND NO. IV (1 AND 2) ARE AGAINST THE DISALLOWANCE OF WRITE BACK OF PROVISIONS FOR EXCISE DUTY BY T HE AO. 30. AT THE TIME OF HEARING THE LEARNED COUNSEL FO R THE ASSESSEE VERY FAIRLY SUBMITS THAT THE LEARNED COMMI SSIONER OF INCOME TAX (A) HAS GRANTED RELIEF TO THE ASSESSE E. HOWEVER THE GROUND WAS TAKEN OUT OF ABUNDANT CAUTI ON AS AT THE TIME OF FILING OF THE APPEAL TO THE TRIBUNAL THE APPEAL FOR THE EARLIER YEARS WERE PENDING BEFORE THE TRIBUNA L. SINCE THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE IN FAVOUR OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS THEREFORE HE DOES NOT WANT TO PRESS ABOVE GROUNDS WHICH WERE NOT OBJECTED TO BY THE LEARNED D.R. 31. THAT BEING SO WE ARE OF THE VIEW THAT SINCE DU E RELIEF HAS BEEN GRANTED BY THE TRIBUNAL IN THE RELEVANT A SSESSMENT YEARS THE GROUNDS RAISED BY THE ASSESSEE ARE THERE FORE REJECTED BEING NOT PRESSED AND ACCORDINGLY SAME ARE DECIDED AGAINST THE ASSESSEE. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 32 ITA NO.3661/MUM/2003 (BY REVENUE) 32. GROUND NO.1 IS AGAINST THE DELETION OF DISALLO WANCE OF PROVISIONS FOR LEAVE ENCASHMENT OF RS.11 99 828/-. 33. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT THE ASSESSEE COMPANY HAS MADE PROVISION FOR A CCRUED LEAVE OF RS.11 99 828/-. THE AO AFTER RELYING O N THE VARIOUS DECISIONS HELD THAT THE PROVISION FOR ACCRU ED LEAVE ENCASHMENT OF RS.11 99 828/- IS NOT ALLOWABLE AND HENCE HE REJECTED THE CLAIM OF THE ASSESSEE. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (A) FOLLOWING TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F BHARAT EARTH MOVERS LTD. V/S CIT (245 ITR 428) WHEREIN IT HAS HELD THAT THE PROVISIONS MADE FOR LEAVE ENCASHMENT IS NO T THE CONTINGENT LIABILITY AND THE SAME IS ALLOWABLE EXPE NDITURE DELETED THE DISALLOWANCE OF RS.11 99 828/- MADE BY THE AO. 34. AT THE TIME OF HEARING THE LEARNED D.R. SUPPOR TS THE ORDER OF THE AO. 35. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEARS 1995-96 AND 1996-97 ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 33 (SUPRA) WHEREIN THE ASSESSEE HAS ALLOWED THE SIMI LAR CLAIM TO THE ASSESSEE. 36. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) FOLLOW ING THE DECISION OF THE HONBLE APEX COURT IN BHARAT EARTH MOVERS LTD. (SUPRA) HAS ALLOWED THE CLAIM OF THE ASSESSEE VIDE PARAGRAPH 22 OF THE ORDER. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REV ENUE WE RESPECTFULLY FOLLOWING THE SAME UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A) IN ALLOWING THE CLAIM OF THE ASSESSEE. THE GROUND NO.1 TAKEN BY T HE REVENUE IS THEREFORE REJECTED. 37. GROUND NO.2 IS AGAINST THE DELETION OF OBSOLET E MATERIAL WRITTEN OFF OF RS.73 42 784/- 38. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM TH E DETAILS OF MISCELLANEOUS EXPENSES THE AO NOTED THAT THE AMOUNT OF RS.73 42 784/- HAS BEEN DEBITED ON ACCOUNT OF OBSOLETE MATERIAL WRITTEN OFF. IN RESPONSE TO SHOW CAUSE NO TICE AS TO WHY THE SAME SHOULD NOT BE ADDED TO THE INCOME OF T HE ASSESSEE THE ASSESSEE FURNISHED THE REPLY INTERAL IA STATING ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 34 THAT THE EXPENDITURE INCURRED UNDER THE HEAD OBSOL ETE MATERIAL WRITTEN OFF CONSISTS OF RAW MATERIAL AND PACKING MATERIAL WHICH HAS BECOME OBSOLETE AND HENCE CANNOT BE USED AFTER THAT DATE. HOWEVER THE AO WAS OF THE VIEW THAT IN THE ABSENCE OF ANY DETAILS OF SUCH EXPENSES THE ASSESSEE HAS NOT DISCHARGED ITS ONUS AND HENCE HE REJECTED T HE CLAIM OF THE ASSESSEE. 39. ON APPEAL THE LEARNED COMMISSIONER OF INCOME T AX (A) FOLLOWING THE APPELLATE ORDER FOR THE EARLIER Y EARS DELETED THE DISALLOWANCE MADE BY THE AO. 40. AT THE TIME OF THE HEARING THE LEARNED D.R. SU PPORTS THE ORDER OF THE AO. 41. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN TH E ASSESSEES OWN CASE (SUPRA) WHEREIN SIMILAR DISALL OWANCE HAS BEEN DELETED BY THE TRIBUNAL. THE RELIANCE WA S ALSO PLACED ON THE DECISION OF THE TRIBUNAL IN DCIT V /S BARDMA OF INDIA LTD. IN ITA NO. 3428/MUM/2003 (AY-1997-98 ). 42. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FO R THE ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 35 ASSESSEE THAT THE TRIBUNAL IN ASSESSEES OWN CASE VIDE PARAGRAPH 26 OF THE ORDER (SUPRA) HAS ACCEPTED TH E CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THE TRIB UNAL IN BARDMA OF INDIA LTD.(SUPRA ) WHEREIN IT HAS BEEN HELD THAT THE OLD MODELS OF MACHINES BECOME OUTDATED DUE TO LATEST TECHNOLOGY DEVELOPMENT AND FAST CHANGING ENVIRONMEN T IN THE FIELD OF ELECTRONIC PRODUCTS AND THEREFORE NO T SALEBLE AND THE SPARE PARTS RELATING TO SUCH OBSOLETE MACH INES DO NOT HAVE ANY MARKET VALUE AND THERE IS NO MARKET EQUIPMENT. RESPECTFULLY FOLLOWING THE SAME AND KE EPING IN VIEW THE RULE OF CONSISTENCY WE UPHOLD THE ORDER O F THE LEARNED COMMISSIONER OF INCOME TAX (A) IN DELETING THE DISALLOWANCE MADE BY THE AO. THE GROUND NO.2 TAKE N BY THE REVENUE IS THEREFORE REJECTED. 43. GROUND NO.3 IS AGAINST THE DELETION OF ADDITION OF RS.2 50 000/- MADE BY THE AO UNDER SECTION 37(2A) O F THE ACT. 44. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED WELFARE EXPENSES OF RS.57 14 811/-. THE AO WAS OF THE VIEW THAT ALL TH E EXPENSES CANNOT BE ALLOWED. THE AO IN VIEW OF THE FINDING RECORDED IN THE EARLIER YEAR I.E. FOR THE ASSESSMEN T YEAR 1996-97 ESTIMATED RS.5 00 000/- AS EXPENDITURE INCU RRED IN ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 36 THE NATURE OF ENTERTAINMENT. THE AO AFTER GIVING STATUTORY DEDUCTION OF RS.2 50 000/- MADE THE DISALLOWANCE O F RS.2 50 000/- AND ADDED THE SAME TO THE INCOME OF T HE ASSESSEE. ON APPEAL THE LEARNED COMMISSIONER OF IN COME TAX (A) FOLLOWING THE APPELLATE ORDERS FOR THE ASSE SSMENT YEARS 1994-95 TO 1996-97 WHEREIN HE HAS DELETED T HE SIMILAR DISALLOWANCE DELETED THE DISALLOWANCE MADE BY THE AO. 45. AT THE TIME OF HEARING THE LEARNED D.R. SUPP ORTS THE ORDER OF THE AO. 46. ON THE OTHER HAND THE LEARNED COUNSEL OF THE A SSESSEE WHILE RELYING ON THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (A) SUBMITS THAT THIS ISSUE IS ALSO COVE RED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1996-97 IN ITA NO.861/MUM/2003 ORDE R DATED 9.5.2008 (SUPRA). HE THEREFORE SUBMITS THA T FOLLOWING THE SAME THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) IN DELETING THE DISA LLOWANCE BE UPHELD. 47. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE AS SESSEE ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 37 THAT THE TRIBUNAL ON THE SIMILAR FACTS AND CIRCU MSTANCE OF THE CASE HAS UPHELD THE ORDER OF THE LEARNED COMMIS SIONER OF THE INCOME TAX (A) DELETING THE DISALLOWANCE MAD E BY THE AO VIDE PARAGRAPH 28 OF THE ORDER (SUPRA). FOLLOWIN G THE SAME AND KEEPING IN VIEW THE RULE OF CONSISTENCY W E DECLINE TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (A). THE GROUND NO.3 TAKEN BY THE REVEN UE IS THEREFORE REJECTED. 48. GROUND NO.4 IS AGAINST THE DELETION OF DISALLOW ANCE OF WRITE BACK OF PROVISION OF RS.18 14 08 561/-. 49. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS NOTED BY THE AO THAT THE ASSESSEE COMPANY HAS WRITTEN BACK THE PROVISION OF CONTRACTUAL LIABILITY OF RS.18 14 08 561/- FOR THE ASSESSMENT YEARS 1994-95 (RS.5 24 83 620/-) 1995-9 6 (RS.6 40 35 941/-) AND 1996-97 (RS.6 48 89 000/-) A ND OFFERED THE AMOUNT AS INCOME. THE ASSESSEE HAD CLA IMED THESE AMOUNTS AS DEDUCTION ON ACCOUNT OF CONTRACTU AL LIABILITY IN THE EARLIER ASSESSMENT YEARS. THE CLA IM OF THE ASSESSEE WAS NOT ACCEPTED BY THE DEPARTMENT AND THE SE AMOUNTS WERE DISALLOWED AND ADDED BACK TO THE INCOM E OF THE ASSESSEE AS THERE WAS NO EXISTING LIABILITY. THE ASSESSEE HAS CONTESTED THIS IN APPEALS BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (A) WHICH ARE PENDING. ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 38 THEREFORE THE AO DID NOT DISTURB THE ASSESSEES CLAIM AND ADDED THE SAME ON PROTECTIVE BASIS WITH THIS OBSERV ATIONS THAT IN CASE THE DISALLOWANCE/ADDITIONS MADE IN EA RLIER ASSESSMENT YEARS ARE UPHELD THIS AMOUNT WILL BE AL LOWED AS DEDUCTION BY RECTIFYING THIS ORDER. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (A) WHILE OBSERVING THA T THE SAID AMOUNT WAS SUBJECTED TO THE DISALLOWANCE IN TH E SAID RELEVANT ASSESSMENT YEARS DIRECTED THE AO TO REDUC E THE AMOUNT OF RS.18 14 08 561/- FROM THE INCOME OF THE ASSESSEE. 50. AT THE TIME OF HEARING THE LEARNED D.R.SUPPORT S THE ORDER OF THE AO. 51. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE THE PROVISIONS HAS BEEN ALLOWED IN THE RELEVANT ASSESSMENT YEARS THEREFORE IN VIE W OF THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1996-97 THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) BE UPHELD. 52. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE ARE OF THE VIEW THAT THE LEARNED COMMISSIONER OF INCOM E TAX (A) HAS ALLOWED THE CLAIM OF THE ASSESSEEE ON THE GRO UND THAT ITA NO.3596 AND 3661/MUM/2003 ASSESSMENT YEAR:1997-98 39 THE SAID AMOUNT HAS BEEN SUBJECTED TO DISALLOWANCE IN THE RELEVANT ASSESSMENT YEARS AND TAXING THE SAME IN TH E YEAR UNDER CONSIDERATION WILL BE SUBJECTED TO DOUBLE ADD ITION. IN THE ABSENCE OF ANY CONTRARY MATERIAL AGAINST THE FINDING OF LEARNED COMMISSIONER OF INCOME TAX (A) WE ARE INCL INED TO UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INC OME TAX (A) IN ACCEPTING THE CLAIM OF THE ASSESSEE AND ACCO RDINGLY THE GROUND NO.4 TAKEN BY THE REVENUE IS REJECTED. 53. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2011. SD SD (J.SUDHAKAR REDDY) (D.K.AGAR WAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 29TH JULY 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI