NATIONAL ORGANIC CHEMICAL INDL. LTD, v. JT CIT SP RG 20,

ITA 4553/MUM/2000 | 1996-1997
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 455319914 RSA 2000
Assessee PAN AAACN4412E
Bench Mumbai
Appeal Number ITA 4553/MUM/2000
Duration Of Justice 10 year(s) 3 month(s) 29 day(s)
Appellant NATIONAL ORGANIC CHEMICAL INDL. LTD,
Respondent JT CIT SP RG 20,
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 28-01-2011
Assessment Year 1996-1997
Appeal Filed On 29-09-2000
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER I T A NO: 4562/MUM/2000 AND 2209/MUM/2001 (ASSESSMENT YEAR: 1996-97 AND 1997-98) JOINT / ADDITIONAL COMMISSIONER OF INCOME TAX APP ELLANT SPECIAL RANGE 20 MUMBAI VS NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. RESPOND ENT MUMBAI (PAN: AAACN4412E) I T A NO: 4553/MUM/2000 AND 2208/MUM/2001 (ASSESSMENT YEAR: 1996-97 AND 1997-98) NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. APPELLA NT MUMBAI VS JOINT COMMISSIONER OF INCOME TAX RESPONDENT SPECIAL RANGE 20 MUMBAI ASSESSEE BY: SHRI DINESH VYAS REVENUE BY: SHRI A P SINGH O R D E R R V EASWAR PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEARS 1996-97 AND 1997-98. THE ASSESSEE HEREIN IS A PUBL IC LIMITED COMPANY ENGAGED IN THE MANUFACTURE OF CHEMICALS. T HE APPEALS ARISE OUT OF THE ASSESSMENTS MADE UNDER SECTION 143 (3) OF THE INCOME TAX ACT 1961. 2. THE ASSESSEE HAS FILED A CHART AS WELL AS PAPER BOOKS WHICH HAVE BEEN TAKEN INTO CONSIDERATION WHILE DISPOSING OF THE APPEALS. THE APPEALS WERE HEARD TOGETHER AS THEY INVOLVE SOM E COMMON ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 2 ISSUES AND THEY ARE THEREFORE DISPOSED OF BY A SING LE ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR: 1996-97 ITA NO: 4562/MUM/2000 (APPEAL BY DEPARTMENT) : 3. THE FIRST GROUND IS THAT THE CIT(A) ERRED IN DEL ETING THE DISALLOWANCE OF ` 3 08 741/- MADE ON ACCOUNT OF RENT REPAIRS TAXES AND DEPRECIATION TREATING THEM AS GUEST HOUSE EXPE NSES. THIS ISSUE IS DECIDED AGAINST THE ASSESSEE RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEARS 1987-88 AND 1990-91 TO 1993-94; AS ALSO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BRITAN NIA INDUSTRIES LTD. VS. CIT (2005) 278 ITR 546 (SC). ACCORDINGLY THE DISALLOWANCE RESTORED AND THE GROUND IS ALLOWED. 4. THE SECOND GROUND IS THAT THE CIT(A) ERRED IN DE LETING THE DISALLOWANCE OF ` 3 39 89 365/- REPRESENTING NOTIONAL INTEREST ON ADVANCE MADE TO M/S ORBIT FINANCE PRIVATE LIMITED A ND OTHER PARTIES FOR LAND DEVELOPMENT AND ACQUISITION / CONS TRUCTION OF HOUSING COMPLEX AT THANE IN CONNECTION WITH THE ASS ESSEES MODERNIZATION PROJECT. THIS ISSUE ON IDENTICAL FA CTS AND CIRCUMSTANCES HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE BY THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEARS 1992-93 TO 1995-96 AND COPIES OF T HESE ORDERS HAVE BEEN FILED IN THE ASSESSEES PAPER BOOK. AS T HERE IS NO DISPUTE THAT THE FACTS FOR THE YEAR UNDER APPEAL AR E THE SAME RESPECTFULLY FOLLOWING THOSE ORDERS THE DISALLOWAN CE OF THE INTEREST ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 3 IS DELETED AND THE DECISION OF THE CIT(A) ON THIS P OINT IS CONFIRMED. THE GROUND IS ACCORDINGLY DISMISSED. 5. THE THIRD GROUND RELATES TO THE DEDUCTION UNDER SECTION 80M. THE GROUND OF THE DEPARTMENT IS THAT THE CIT(A) ERR ED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE ON ACCOUNT OF INTEREST OF ` 9 77 03 897/- FOR THE PURPOSE OF COMPUTATION OF THE CLAIM FOR DEDUCTION. THIS ISSUE HAS BEEN DECIDED I N FAVOUR OF THE ASSESSEE ON IDENTICAL FACTS BY ORDERS OF THE TRIBUN AL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1992-9 3 TO 1995-96 AND COPIES OF THESE ORDERS HAVE BEEN FILED IN THE P APER BOOK. RESPECTFULLY FOLLOWING THOSE ORDERS THE DECISION O F THE CIT(A) ON THIS POINT IS CONFIRMED AND THE GROUND TAKEN BY THE REVENUE IS DISMISSED. 6. THE FOURTH GROUND IS THAT THE CIT(A) ERRED IN RE STRICTING THE MANAGERIAL / ADMINISTRATIVE EXPENSES AT ` 5 00 000/- FOR THE PURPOSE OF COMPUTATION OF THE CLAIM FOR DEDUCTION U NDER SECTION 80M. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 1992-93 TO 1995-96 ON SAME FACTS. THEREFORE RESPE CTFULLY FOLLOWING THOSE ORDERS WE AFFIRM THE DECISION OF T HE CIT(A) AND DISMISS THE GROUND. 7. THE FIFTH GROUND RELATES TO INTEREST ON CAPITAL WORKS-IN- PROGRESS. THE GROUND IS THAT THE CIT(A) ERRED IN D ELETING THE DISALLOWANCE OF ` 13 50 17 147/- AS INTEREST ON CAPITAL WORKS-IN- PROGRESS. THIS ISSUE HAS ALSO BEEN DECIDED IN FAVO UR OF THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 4 ASSESSEE ON IDENTICAL FACTS BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1992-93 TO 1995-96 AN D COPIES OF THESE ORDERS HAVE BEEN FILED IN THE PAPER BOOK. RE SPECTFULLY FOLLOWING THOSE ORDERS WE AFFIRM THE DECISION OF T HE CIT(A) AND DISMISS THE GROUND FILED BY THE DEPARTMENT. 8. GROUND NO.6 IS TO THE EFFECT THAT THE CIT(A) ERR ED IN DELETING THE DISALLOWANCE OF THE UNUTILIZED MODVAT CREDIT OF ` 1 21 34 527/-. IT IS SEEN FROM THE CHART FILED BY THE ASSESSEE THA T THIS ISSUE ON SIMILAR FACTS HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE BY ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1987-88 TO 1989-90 AND 1991-92 & 1992-93. CO PIES OF THESE ORDERS ARE PART OF THE ASSESSEES PAPER BOOK. THE ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F THE SUPREME COURT IN CIT VS. INDO NIPPON CHEMICALS CO. LTD. (20 03) 261 ITR 275 (SC). IT WAS HOWEVER POINTED OUT BY THE LEARNE D CIT DR THAT ANY RELIEF GIVEN BY THE TRIBUNAL IN ITS ORDER FOR T HE ASSESSMENT YEAR 1995-96 FROM THE ADDITION MADE TO THE CLOSING STOCK FOR THAT YEAR IS TO BE REDUCED FROM THE OPENING STOCK FOR THE ASSESS MENT YEAR 1996-97 WHICH IS THE YEAR UNDER APPEAL. HE HAS DR AWN OUR ATTENTION TO PAGE 162 OF THE PAPER BOOK WHICH IS T HE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1995-96 IN WHICH THE ADDITION OF ` 2 09 23 491/- MADE TO THE CLOSING STOCK FOR THAT YE AR REPRESENTING UNUTILIZED MODVAT CREDIT WAS DELETED. IT IS WELL SETTLED THAT THE FIGURE OF CLOSING STOCK FOR A PARTICULAR ASSESSMENT YEAR WILL BE THE FIGURE OF OPENING STOCK FOR THE FOLLOWING ASSESSMEN T YEAR. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 5 THEREFORE ACCEPTING THE CONTENTION OF THE LEARNED CIT DR WE DIRECT THE ASSESSING OFFICER TO REWORK THE OPENING STOCK OF THE ASSESSMENT YEAR 1996-97 BY TAKING NOTE OF ANY RELIE F GIVEN BY THE TRIBUNAL IN RESPECT OF THE CLOSING STOCK FOR THE AS SESSMENT YEAR 1995-96. THEREFORE THE DECISION OF THE CIT(A) IS AFFIRMED AND THE GROUND IS DISMISSED SUBJECT TO THE AFORESAID DIREC TION. 9. GROUND NO.7 IS THAT THE CIT(A) ERRED IN DIRECTIN G THE ASSESSING OFFICER TO EXCLUDE THE EXCISE DUTY AND SA LES TAX OF ` 245 70 30 208/- FROM THE TOTAL TURNOVER FOR WORKING OUT THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THIS ISS UE APART FROM BEING DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDE RS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 1989-90 TO 1991-92 AND THE ASSESSMENT YEAR 1993-94 IS ALSO NOW SETTLED BY THE JUDGMENT OF THE SUPREME COURT IN CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC) IN FAVOUR OF THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE JU DGMENT OF THE SUPREME COURT AS ALSO THE ORDERS OF THE TRIBUNAL WE AFFIRM THE DECISION OF THE CIT(A) AND DISMISS THE GROUND. 10. THE EIGHTH AND THE LAST GROUND IN THE APPEAL RE LATES TO THE DISALLOWANCE OF THE EXPENDITURE OF ` 48 35 712/- INCURRED ON RE- ROUTING OF MIDC ROADS MIDC PIPELINES AND OVERHEAD TRANSMISSION LINES LEASED FROM MSEB. THIS ISSUE HAD COME UP IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1993-94 TO 1995-9 6 AND IN THESE YEARS THE SAME HAS BEEN DECIDED AGAINST THE A SSESSEE HOLDING THAT THE ASSESSING OFFICER HAS RIGHTLY TREA TED SUCH ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 6 EXPENDITURE AS CAPITAL IN NATURE. IN THE LIGHT OF THE AFORESAID ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE WE REVE RSE THE DECISION OF THE CIT(A) AND RESTORE THE DECISION TAKEN BY THE ASSESSING OFFICER. THE GROUND IS ACCORDINGLY ALLOWED. 11. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED. ASSESSMENT YEAR: 1996-97 ITA NO: 4553/MUM/2000 (APPEAL BY ASSESSEE) : 12. THE FIRST GROUND IS THAT THE CIT(A) ERRED IN NO T ALLOWING DEDUCTION OF ` 17 19 288/- BEING PRO-RATA PREMIUM ON LEASEHOLD LAND. ACCORDING TO THE CHART FILED BY THE ASSESSEE AND AS EXPLAINED BEFORE US THIS ISSUE STANDS COVERED AGAINST THE AS SESSEE ON IDENTICAL FACTS BY THE ORDERS PASSED BY THE TRIBUNA L IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1989-9 0 TO 1995- 96. COPIES OF THESE ORDERS HAVE BEEN COMPILED IN T HE PAPER BOOK FILED BY THE ASSESSEE. SINCE THE FACTS FOR THE YEA R UNDER APPEAL ARE THE SAME RESPECTFULLY FOLLOWING THE AFORESAID ORDE RS OF THE TRIBUNAL WE UPHOLD THE DISALLOWANCE MADE BY THE INCOME TAX A UTHORITIES AND DISMISS THE GROUND. 13. THE SECOND GROUND HAS BEEN TAKEN WITHOUT PREJUD ICE TO THE FIRST GROUND AND IT IS TO THE EFFECT THAT THE CIT(A ) ERRED IN TREATING THE ENTIRE PREMIUM AS COST OF BUILDING AND PLANT AND IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION THEREON. I N THE LIGHT OF THE DECISION TAKEN BY US WITH REGARD TO THE FIRST GROUN D THE SECOND GROUND HAS ALSO TO BE DECIDED AGAINST THE ASSESSEE AS WAS HELD BY THE TRIBUNAL IN THE ORDERS PASSED BY IT FOR THE ASS ESSMENT YEARS ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 7 1989-90 TO 1995-96. WE HOLD ACCORDINGLY CONFIRM T HE DECISION OF THE CIT(A) AND DISMISS THE GROUND. 14. GROUND NOS. 3 TO 6 ARE DISMISSED AS NOT PRESSED . 15. GROUND NO.7 RELATES TO THE DISALLOWANCE OF GUES T HOUSE EXPENDITURE OF ` 1 85 799/-. THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL ON SIMILAR FACTS IN IT S ORDERS FOR THE ASSESSMENT YEARS 1987-88 AND 1990-91 TO 1995-96. T HE ISSUE IS ALSO COVERED AGAINST THE ASSESSEE BY THE JUDGMENT O F THE SUPREME COURT IN THE CASE OF BRITANNIA INDUSTRIES LTD. VS. CIT (2005) 278 ITR 546 (SC). RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL AND THE JUDGMENT OF THE SUPREME COURT WE CONFIRM THE DISAL LOWANCE AND DISMISS THE GROUND. 16. GROUND NO.8 IS DIRECTED AGAINST THE DISALLOWANC E OF THE CLAIM FOR DEDUCTION OF ` 38 56 005/- BEING THE PROPORTIONATE CHARGE FOR THE ASSESSMENT YEAR 1996-97 IN RESPECT OF EXPEN DITURE INCURRED ON STAMP FEES REGISTRATION FEES ETC. FOR INCREASI NG THE AUTHORIZED CAPITAL OF THE ASSESSEE COMPANY FROM ` 36.00 CRORES TO ` 600.00 CRORES IN THE FINANCIAL YEAR 1992-93. THIS ISSUE H AS BEEN DECIDED AGAINST THE ASSESSEE ON THE SAME FACTS BY THE TRIBU NAL FOR THE ASSESSMENT YEARS 1993-94 TO 1995-96 AND THE DECISIO N OF THE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (1997) 225 ITR 798 (SC) IS ALSO AGAINST THE ASSESSEE. THE REFORE RESPECTFULLY FOLLOWING THE AFORESAID ORDERS AND THE JUDGMENT OF THE SUPREME COURT THE DISALLOWANCE IS CONFIRMED AND TH E GROUND IS DISMISSED. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 8 17. GROUND NO.9 HAS BEEN TAKEN WITHOUT PREJUDICE TO GROUND NO.8 AND IT IS TO THE EFFECT THAT THE CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION FOR THE PROPOR TIONATE AMOUNT OF ` 4 10 213/- BEING EXPENDITURE RELATING TO THE ISSUE OF BONUS SHARES. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 199 3-94 TO 1995- 96 AS ALSO BY THE JUDGMENT OF THE SUPREME COURT IN CIT VS. GENERAL INSURANCE CORPORATION (2006) 286 ITR 232 (S C). RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL A ND THE JUDGMENT WE DIRECT THE ASSESSING OFFICER TO ALLOW THE PROPOR TIONATE EXPENDITURE RELATING TO THE BONUS SHARES AS A DEDUC TION. THIS GROUND IS ACCORDINGLY ALLOWED. 18. GROUND NO.10 RELATES TO THE DECISION OF THE CIT (A) DIRECTING THE ASSESSING OFFICER TO DEDUCT ` 5 00 000/- BEING ADMINISTRATIVE EXPENSES FROM THE DIVIDEND INCOME FOR COMPUTING THE DEDUCTION UNDER SECTION 80M OF THE ACT. IN THE ASSESSMENT YE ARS 1992-93 TO 1995-96 THIS ISSUE HAS BEEN DECIDED AGAINST THE AS SESSEE BY THE TRIBUNAL AND THESE ORDERS HAVE BEEN COMPILED IN THE PAPER BOOK. SINCE THE FACTS ARE THE SAME FOR THE YEAR UNDER APP EAL RESPECTFULLY FOLLOWING THOSE ORDERS THE DECISION OF THE CIT(A) IS CONFIRMED AND THE GROUND IS DISMISSED. 19. GROUND NO.11 IS DIRECTED AGAINST THE NON-ALLOWA NCE OF THE DEDUCTION OF ` 18 08 668/- PAID BY WAY OF CONSULTANCY AND ADVISORY FEES TO VARIOUS PERSONS IN CONNECTION WITH THE COMP ANYS MODERNIZATION PROJECT. THIS ISSUE IS COVERED IN FA VOUR OF THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 9 ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR THE ASSE SSMENT YEARS 1992-93 TO 1995-96. THERE IS NO DIFFERENCE IN THE FACTS FOR THE YEAR UNDER APPEAL AND THEREFORE RESPECTFULLY FOLLOWING THE AFORESAID ORDERS WE DIRECT THE ASSESSING OFFICER TO ALLOW TH E CONSULTANCY AND ADVISORY FEES AS A DEDUCTION. GROUND IS ALLOWED. 20. GROUND NO.12 IS A GENERAL GROUND RELATING TO TH E DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE SPECIFIC GRIEV ANCE OF THE ASSESSEE IS ARTICULATED IN GROUND NOS. 13 AND 14. THEREFORE NO DECISION IS REQUIRED TO BE GIVEN IN RESPECT OF GROU ND NO.12. 21. AS REGARDS GROUND NO.13 IT IS DIRECTED AGAINST THE REDUCTION OF ` 16 86 61 638/- FROM THE PROFITS AND GAINS OF BUSINE SS REPRESENTING 90% OF OTHER INCOME WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. ACCORDING TO THE A SSESSEE THE ASSESSING OFFICER OUGHT TO HAVE REDUCED ONLY ` 13 94 72 638/-. THIS GROUND IS HOWEVER NOT PRESSED BEFORE US AND IS DISM ISSED AS SUCH. 22. GROUND NO.14 WHICH ALSO RELATES TO THE DEDUCTI ON UNDER SECTION 80HHC IS TO THE EFFECT THAT THE CIT(A) ERR ED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN SETTING OFF THE LOSS FROM TRADING EXPORTS AGAINST THE PROFIT FROM EXPORT OF M ANUFACTURED GOODS IN COMPUTING THE DEDUCTION UNDER SECTION 80HH C OF THE ACT. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE O RDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1993-94 AND 1995- 96 AS ALSO BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF IP CA LABORATORY LTD. VS. DCIT (2004) 266 ITR 521 9SC). RESPECTFULL Y FOLLOWING THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 10 AFORESAID ORDERS AND THE JUDGMENT WE CONFIRM THE O RDERS OF THE INCOME TAX AUTHORITIES AND DISMISS THE GROUND. 23. GROUND NO.15 IS THAT THE CIT(A) ERRED IN CONFIR MING THE DISALLOWANCE OF ` 2 47 08 900/- IN RESPECT OF THE PROVISION FOR LIABILITY FOR LONG SERVICE RETIREMENT BENEFITS. IT HAS BEEN CLARIFIED NOW THAT THE GRIEVANCE OF THE ASSESSEE IS ONLY AGAI NST THE REFUSAL TO ALLOW THE INCREMENTAL LIABILITY OF ` 7 56 900/- PERTAINING TO THE YEAR OF APPEAL AND THAT THE INITIAL LIABILITY OF ` 2 39 52 000/- PERTAINS TO THE ASSESSMENT YEAR 1995-96. IT HAS BEEN ALSO POIN TED OUT THAT FOR THE ASSESSMENT YEAR 1995-96 THE TRIBUNAL HAS RESTOR ED THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO HIM TO VERIFY THE NATURE OF THE RETIREMENT BENEFIT AND THE AGREEMENT WITH TH E EMPLOYEES UNION AND THEREAFTER TAKE A FRESH DECISION IN ACCOR DANCE WITH LAW. RELIANCE HAS ALSO BEEN PLACED ON THE FOLLOWING JUDG MENTS OF THE SUPREME COURT: - (1) CALCUTTA COMPANY LTD. VS. CIT (1959) 37 ITR 1 (SC) (2) METAL BOX COMPANY OF INDIA LTD. VS. THEIR WORKM EN (1969) 73 ITR 53 (SC) (3) KEDARNATH JUTE MFG. CO. LTD. VS. CIT (1971) 82 ITR 363 (SC) (4) BHARAT EARTH MOVERS VS. CIT (2000) 245 ITR 428 (SC) SINCE ON IDENTICAL FACTS THE TRIBUNAL FOR THE ASSES SMENT YEAR 1995- 96 HAS RESTORED THE MATTER TO THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS RESPECTFULLY FOLLOWING THE SAID ORDER W E ALSO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE SAME DIRECTIONS. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 11 THE GROUND IS ACCORDINGLY TREATED AS ALLOWED FOR ST ATISTICAL PURPOSES. 24. GROUND NO.16 IS THAT THE CIT(A) ERRED IN CONFIR MING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING IN FULL THE SUM OF ` 3 23 04 028/- CLAIMED BY THE ASSESSEE TOWARDS COST OF CATALYST ISSUES AND IN RESTRICTING THE DEDUCTION TO ` 1 07 68 009/- THEREBY DISALLOWING A SUM OF ` 2 15 36 019/-. IT HAS BEEN POINTED OUT BEFORE US THAT BY ORDERS PASSED FOR THE ASSESSMENT YEARS 1 987-88 TO 1995-96 THE TRIBUNAL HAS RESTORED THIS ISSUE TO TH E FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO HIM TO RECOMPU TE THE PROFITS IN ACCORDANCE WITH THE OLD METHOD FOLLOWED BY THE ASSE SSEE. SINCE THE FACTS ARE THE SAME FOR THE YEAR UNDER APPEAL R ESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL WE ALSO RESTO RE THIS ISSUE TO THE ASSESSING OFFICER WITH THE SAME DIRECTIONS AS WERE GIVEN BY THE TRIBUNAL IN THOSE YEARS AND ALLOW THE GROUND FOR ST ATISTICAL PURPOSES. 25. GROUND NOS. 17 TO 22 RELATE TO A SINGLE ISSUE A ND THAT IS WHETHER THE ACTION OF THE INCOME TAX AUTHORITIES IN ASSESSING CAPITAL GAINS OF ` 10 02 50 323/- ON SALE OF THE ASSESSEES AGROCHEMIC ALS AND SEED UNDERTAKING IS JUSTIFIED OR NOT. IN THESE GROUNDS THE ASSESSEE HAS ALSO TAKEN UP THE CONTENTION THAT THE SALE PROCEEDS REPRESENT CAPITAL RECEIPT WHICH CONTENTION WAS HOW EVER NOT PRESSED BEFORE US. ANOTHER CONTENTION WHICH IS ART ICULATED IN GROUND NO.18 IS THAT NO CAPITAL GAINS CAN BE ASSESS ED BECAUSE THERE WAS NO COST OF THE UNDERTAKING INCURRED BY TH E ASSESSEE IN ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 12 TERMS OF MONEY WHICH CONTENTION WAS ALSO NOT PRESS ED BEFORE US. IN THE RESULT THE ONLY CONTENTION THAT SURVIVES IS WHETHER THE SALE OF THE AGROCHEMICALS AND SEED UNDERTAKING IS A SLUMP S ALE AND IF SO HOW THE CAPITAL GAINS HAVE TO BE COMPUTED. ACCORDI NG TO THE ASSESSEE THE SALE IS A SLUMP SALE AND THEREFORE TH E JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PREMIE R AUTOMOBILES LTD. VS. ITO (2003) 264 ITR 193 (BOM) APPLIES. IT IS CONTENDED THAT THE REQUIREMENTS OF A SLUMP SALE WHICH HAVE BEEN LA ID DOWN IN THE AFORESAID JUDGMENT ARE SATISFIED IN THE PRESENT CAS E AND FURTHER THAT THE CAPITAL GAINS HAVE TO BE COMPUTED IN THE MANNER LAID DOWN IN THE JUDGMENT. 26. THE FACTS IN BRIEF MAY BE NOTICED. THE ASSESSE E TRANSFERRED THE AGROCHEMICALS AND SEED UNDERTAKING (HEREINAFTER REFERRED TO AS THE UNDERTAKING) TO ANOTHER COMPANY BY NAME DE-NOC IL CROP PROTECTION PRIVATE LIMITED ON 01.04.1995 AS A GOIN G CONCERN. THERE WAS A SHARE SUBSCRIPTION AGREEMENT ENTERED IN TO BETWEEN THE ASSESSEE AND DE-NOCIL ON 02.05.1995 A COPY OF WHICH HAS BEEN FILED BEFORE US. THE TRANSFER OF THE UNDERTAK ING WAS FOR A LUMPSUM CONSIDERATION OF ` 30.00 CRORES. THE BOOK VALUE OF THE ASSETS TRANSFERRED (INCLUDING CAPITAL WORK-IN-PROGR ESS AND FREEHOLD / LEASEHOLD LAND) WAS ` 28 01 96 791/-. THERE WAS A DIFFERENCE OF ` 1 98 03 209/-. THIS WAS CONSIDERED AS PROFIT ON TR ANSFER OF FIXED ASSETS. THERE WAS ALSO A PROFIT OF ` 52.32 LAKHS ON TRANSFER OF STOCKS. TOGETHER THERE WAS A TOTAL PROFIT OF ` 250.35 LAKHS. THE CONSIDERATION OF ` 30.00 CRORES WAS PAYABLE BY ISSUE OF 15 00 000 ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 13 FULLY PAID UP EQUITY SHARES OF ` 10/- EACH AT A PREMIUM OF ` 190/- PER SHARE. IN ITS LETTER DATED 12.02.1999 WRITTEN TO T HE ASSESSING OFFICER THE ASSESSEE EXPLAINED THAT THE PROFIT ON SALE OF THE UNDERTAKING CAME TO ` 250.35 LAKHS. WITHOUT PREJUDICE TO THE COMPUTATION OF THE AFORESAID PROFIT THE ASSESSEE A LSO CLAIMED LONG TERM CAPITAL LOSS OF ` 82 74 15 882/- ON THE TRANSFER OF THE UNDERTAKING. THIS WAS ARRIVED AT BY DEDUCTING FROM THE LUMPSUM CONSIDERATION OF ` 30.00 CRORES THE FOLLOWING AMOUNTS: - (A) INDEXED COST OF ACQUISITION.. ` 111 65 32 708/- (B) STAMP DUTY .. ` 1 08 83 174/- IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT NO CAPITAL GAINS WERE ACTUALLY ASSESSABLE BECAUSE THE SALE OF THE UN DERTAKING WAS AS A GOING CONCERN THAT IT WAS A SLUMP SALE AND TH AT THE CONTINUITY OF THE UNDERTAKING WAS ENSURED UNDER THE SHARE SUBS CRIPTION AGREEMENT. 27. THE AFORESAID CONTENTIONS WERE NOT ACCEPTED BY THE ASSESSING OFFICER WHO HELD THAT THE TOTAL CONSIDER ATION OF ` 30.00 CRORES SHOULD BE ALLOCATED TO THE VARIOUS ITEMS OF DEPRECIABLE ASSETS IN THE ABSENCE OF ANY VALUES BEING ASSIGNED TO INDIVIDUAL CATEGORIES OF THE ASSETS UNDER THE SHARE SUBSCRIPTI ON AGREEMENT. IN THIS CONNECTION THE ASSESSING OFFICER REFERRED T O THE ASSESSEES LETTER DATED 16.03.1999 IN WHICH THE ASSESSEE FILED A STATEMENT WITHOUT PREJUDICE WORKING OUT THE CAPITAL GAINS ON THE SLUMP SALE. HE ULTIMATELY CALCULATED THE TOTAL CAPITAL GAINS AT ` 10 02 50 323/- AS UNDER: - ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 14 (I) CAPITAL GAINS ON DEPRECIABLE ASSETS ` 10 24 50 033/- (II) CAPITAL LOSS ON FREEHOLD LAND ` 2 04 258/- (III) CAPITAL LOSS ON TAXABLE LAND ` 19 95 452/- --------------------- TOTAL CAPITAL GAIN ` 10 02 50 323/- --------------------- THE CAPITAL GAINS ON DEPRECIABLE ASSETS IS STATED T O BE AS PER ANNEXURE 2 TO THE ASSESSMENT ORDER AND THE CAPITAL LOSS ON FREEHOLD LAND AND TAXABLE LAND ARE STATED TO BE AS PER ANNEXURE 3 TO THE ASSESSMENT ORDER. 28. THE ABOVE CAPITAL GAINS WAS SET OFF AGAINST THE CAPITAL LOSS OF ` 24 10 20 597/- SUFFERED BY THE ASSESSEE DURING THE RELEVANT YEAR. 29. ON APPEAL THE ASSESSEE SUBMITTED THAT THE CAPI TAL GAINS SHOULD BE COMPUTED TAKING INTO CONSIDERATION THE UN DERTAKING AS A SINGLE CAPITAL ASSET AND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPORTIONING THE CONSIDERATION BETWEEN DIFFERENT CATEGORIES OF ASSETS AND THEN COMPUTING THE CAPITAL GAINS ON AN I TEMIZED BASIS. THE CIT(A) HOWEVER DID NOT AGREE WITH THE ASSESSE ES CONTENTIONS. HE DID NOT ACCEPT THE ASSESSEES CONT ENTION THAT IT WAS A SLUMP SALE AND POINTED OUT THAT THE ARGUMENT WAS BASED MERELY ON THE SHARE SUBSCRIPTION AGREEMENT WHICH I S SUBJECT TO OBTAINING ALL REQUISITE APPROVALS OF THE STATUTORY AUTHORITIES FOR TRANSFER OF IMMOVABLE PROPERTIES WHICH ARE TO BE RE GISTERED COMPULSORILY. HE FURTHER NOTED THAT DE-NOCIL HAS A CQUIRED THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 15 ASSESSEES AGRO BUSINESS EXCLUDING THE CURRENT ASSE TS AND HAD AGREED TO ALLOT SHARES FOR THE TRANSFER. HE NOTED THAT THE ASSESSEE COMPANY WAS HAVING SUBSTANTIAL INTEREST IN DE-NOCIL AND THERE WERE ALSO COMMON DIRECTORS. HE FOUND THAT IN THE B ALANCE SHEET OF DE-NOCIL AS ON 31.03.1996 AFTER THE TRANSFER OF TH E UNDERTAKING IT HAD BIFURCATED THE VALUE OF EACH ASSET AND CLAIMED DEPRECIATION ACCORDINGLY. THE ASSESSEE WAS ALSO NOTICED TO HAVE EFFECTED THE TRANSFER OF IMMOVABLE PROPERTIES SUCH AS LAND AND B UILDING AFTER ASSIGNING SEPARATE VALUES TO THEM AND GETTING THE T RANSFER DEEDS REGISTERED AFTER GETTING CLEARANCE CERTIFICATES FRO M THE INCOME TAX DEPARTMENT UNDER SECTION 230A OF THE ACT. THE STAM P DUTY PAYMENT WAS ALSO FOUND TO HAVE BEEN MADE ON THE VAL UES ASSIGNED TO THE IMMOVABLE ASSETS IN THE RESPECTIVE TRANSFER DEEDS. ON THESE FINDINGS THE CIT(A) WAS OF THE VIEW THAT THE ASSETS OF THE ASSESSEE WERE TRANSFERRED FOR SPECIFIC PRICES AND T HEREFORE IT CANNOT BE SAID THAT THE SALE OF THE UNDERTAKING WAS A SLUM P SALE. HE THEREFORE UPHELD THE ASSESSING OFFICERS VIEW THAT SECTION 50 OF THE INCOME TAX ACT 1961 APPLIED TO THE FACTS OF THE C ASE AND IN WORKING OUT THE CAPITAL GAINS ACCORDINGLY. ALL OTH ER CONTENTIONS OF THE ASSESSEE WERE REJECTED AND THE COMPUTATION OF T HE CAPITAL GAINS MADE BY THE ASSESSING OFFICER WAS UPHELD. 30. IT IS AGAINST THE AFORESAID DECISION OF THE CIT (A) THAT THE ASSESSEE HAS COME IN FURTHER APPEAL BEFORE THE TRIB UNAL. STRONG RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE ON TH E JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PREMIE R AUTOMOBILES ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 16 LTD. CITED SUPRA WHICH JUDGMENT WAS APPLIED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ITS ORDER DATED 28.08.2009 IN IT A NO: 5480/MUM/2006 (ASSESSMENT YEAR 1999-2000) IN THE CA SE OF DCIT VS. M/S VOLTAS LTD. A COPY OF THIS ORDER WAS ALSO FILED BEFORE US. IT WAS SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE MATCHED WITH THE FACTS BEFORE THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF PREMIER AUTOMOBILES LTD. (SUPRA) AND OUR ATTENTION WAS DRAWN TO THE RELEVANT OBSERVATIONS IN THE SAID JUDGMENT. IT WAS THUS CONTENDED THAT THE DEPARTMENTAL AUTHORITIES OUGHT T O HAVE ACCEPTED THE ASSESSEES CONTENTION THAT IT WAS A SLUMP SALE AND THEREFORE NO CAPITAL GAINS CAN BE CHARGED ON THE BASIS OF ITEMIZ ED ASSETS AND THAT SUCH GAINS HAVE TO BE COMPUTED ONLY IN THE MAN NER PRESCRIBED IN THE AFORESAID JUDGMENT. 31. ON THE OTHER HAND THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE CONTENDED AS FOLLOWS: - (A) IT IS POSSIBLE TO BREAK UP THE CONSIDERATION FO R THE SALE OF THE UNDERTAKING AND ATTRIBUTE IT TO THE DIFFERENT ASSETS THAT CONSTITUTE THE UNDERTAKING. IN SUCH A CASE SECTION 50 OF THE ACT WILL APPLY. THE ASSESSING OFFICER IS THUS RIGHT IN APPLYING THE SAID SECTION. (B) THE FACTS BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PREMIER AUTOMOBILES LTD. (SUPRA) ARE NOT SIMILAR TO THE FACTS OF THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 17 ASSESSEES CASE. IN THE CITED JUDGMENT THERE WAS A JOINT VENTURE AGREEMENT WHICH IS ABSENT IN THE PRESENT CASE. IN THE PRESENT CASE THE ASSESSEE IS MERELY SUBSCRIBING TO THE SHARES OF DE-NOCIL BY ITS ASSETS INSTEAD OF CASH. IN THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT THE OBJECT WAS TO CARRY ON BUSINESS AS A JOINT VENTURE. (C) IN ANY CASE WHILE ARRIVING AT THE LUMPSUM CONSIDERATION OF ` 30.00 CRORES THE ASSESSEE WOULD HAVE VALUED THE INDIVIDUAL ASSETS TO ARRIVE AT THE AFORESAID FIGURE AND THIS TAKES THE CASE OUT OF THE PURVIEW OF A SLUMP SALE. (D) THERE IS NO IRRATIONALITY IN THE WORKING OF THE CAPITAL GAINS BY THE ASSESSING OFFICER. (E) AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. ARTEX MANUFACTURING COMPANY (1997) 227 ITR 260 (SC) IF THE VALUE OF THE ASSETS CAN BE DETERMINED FROM THE VALUERS REPORT IT IS NOT A CASE OF A SLUMP SALE. THE ASSESSEE HAS SUBMITTED THE VALUATION REPORT IN RESPECT OF CERTAIN ASSETS TO THE ASSESSING OFFICER ON HIS REQUEST AND IMMOVABLE PROPERTIES SUCH AS ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 18 LAND AND BUILDING HAVE BEEN VALUED SEPARATELY FOR STAMP DUTY PURPOSES. (F) THE ASSESSEE HAS NOT TRANSFERRED THE STOCK RELATING TO THE UNDERTAKING TO DE-NOCIL AND SUCH STOCK HAS BEEN SEPARATELY SOLD. 32. IN HIS REPLY THE LEARNED COUNSEL FOR THE ASSES SEE REITERATED THAT THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FACTS OF THE PRESENT CASE AND THE FACTS BEFORE THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF PREMIER AUTOMOBILES LTD. (SUPRA). H E SUBMITTED THAT THE ASSESSEE AND DE-NOCIL ARE PARTNERS IN A JOINT V ENTURE COMPANY IN WHICH THE ASSESSEE HAD ACQUIRED 50% OF THE SHARE CAPITAL AND INSTEAD OF PAYING CASH THE SHARE CAPIT AL WAS SUBSCRIBED THROUGH THE UNDERTAKING ITSELF WHICH WA S NOT INDIVIDUALLY VALUED BUT WAS VALUED AS A WHOLE FOR ` 30.00 CRORES. THE OBJECT WAS TO TRANSFER THE UNDERTAKING AS A WHOLE TO THE J OINT VENTURE COMPANY AND NOT TO TRANSFER INDIVIDUAL ASSETS MAKIN G UP THE UNDERTAKING. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE ONE HAS TO LOOK AT THE INTENTION AS MANIFESTED IN T HE SHARE SUBSCRIPTION AGREEMENT AND IF THAT IS TAKEN INTO AC COUNT IT WOULD BE EASILY APPRECIATED THAT THE LEGAL IMPLICATIONS OF T HE ARRANGEMENT ARE THE SAME BOTH IN THE CITED CASES AND IN THE PRESENT CASE. HE STRONGLY DENIED THE CLAIM OF THE LEARNED CIT DEPART MENTAL REPRESENTATIVE THAT THE ASSESSEE OBTAINED VALUATION REPORTS FOR INDIVIDUAL ASSETS OF THE UNDERTAKING. HE SUBMITTED THAT THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 19 INDIVIDUAL VALUES OF THE ASSETS WERE GIVEN BY THE A SSESSEE IN ITS LETTER DATED 16.03.1999 AND THEY WERE GIVEN WITHOUT PREJUDICE TO THE MAIN CONTENTION THAT IT WAS A SLUMP SALE. OUR ATTE NTION WAS DRAWN TO PAGE 2 OF THE AFORESAID LETTER IN WHICH THE VAL UES OF THE INDIVIDUAL ASSETS HAVE BEEN GIVEN ACCORDING TO THE BOOKS OF AC COUNT AND IT WAS SUBMITTED THAT THERE IS NO REFERENCE TO ANY VAL UATION REPORT THEREIN. HE FURTHER CONTENDED THAT THE INVENTORY W AS NOT TRANSFERRED CONSISTENT WITH THE OBJECT OF THE ARRANGEMENT WHICH WAS THAT THE TRANSFEREE COMPANY I.E. DE-NOCIL WHICH HAD THE LA TEST TECHNOLOGY IN THE FIELD WOULD MANUFACTURE PRODUCTS OF A DIFFERENT STANDARD THAN WHAT WAS BEING MANUFACTURED BY THE AS SESSEE AND CONSISTENT WITH THIS OBJECT IT WAS NATURAL THAT THE INVENTORY OF THE ASSESSEE WAS NOT TRANSFERRED TO DE-NOCIL. IT WAS S UBMITTED THAT THIS IS THE USUAL ARRANGEMENT MADE IN ALL SUCH JOIN T VENTURE ARRANGEMENTS WHERE TECHNOLOGY IS BROUGHT IN BY THE OTHER COMPANY AND THE INFRASTRUCTURE IS PROVIDED BY THE PARTNER I N THE JOINT VENTURE. 33. AS REGARDS THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ARTEX MANUFACTURING COMPANY (SUPRA) CITED BY THE LE ARNED CIT DEPARTMENTAL REPRESENTATIVE IT WAS POINTED OUT THA T THIS JUDGMENT HAS BEEN TAKEN INTO CONSIDERATION BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF PREMIER AUTOMOBILES LTD. (SUPR A) AND THAT EVEN THE OTHER TWO JUDGMENTS OF THE SUPREME COURT IN THE CASE OF CIT VS. B M KHARWAR (1969) 72 ITR 603 (SC) AND CIT VS. ELECTRIC CONTROL GEAR MANUFACTURING CO. (1997) 227 ITR 278 ( SC) HAVE ALSO BEEN TAKEN NOTE OF. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 20 34. ON A CAREFUL CONSIDERATION OF THE FACTS AND THE RIVAL CONTENTIONS WE ARE OF THE VIEW THAT THE CONTENTION S OF THE ASSESSEE SHOULD PREVAIL. THE SHARE SUBSCRIPTION AGREEMENT A COPY OF WHICH WAS FILED BEFORE US SHOWS THAT THE UNDERTAKING WAS PROPOSED TO BE TRANSFERRED AS A GOING CONCERN TO DE-NOCIL AND IN R ETURN THE ASSESSEE WOULD BE ALLOTTED 50% OF THE EQUITY SHARE CAPITAL OF DE- NOCIL. THE SHARES WERE OF THE FACE VALUE OF ` 10/- EACH AND THEY WERE ALLOTTED TO THE ASSESSEE AT THE PREMIUM OF ` 190/- PER SHARE. IN ALL 15 00 000 EQUITY SHARES WERE ALLOTTED AT ` 200/- EACH AND THUS THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE TRANSFER OF THE UNDERTAKING WAS THE ALLOTMENT OF SHARES WORTH ` 30.00 CRORES. IN THE PREAMBLE TO THE SHARE SUBSCRIPTION AGREEMENT IT HA S BEEN MENTIONED ATLEAST AT TWO PLACES THAT THE TRANSFER O F THE UNDERTAKING WAS AS A GOING CONCERN. THERE ARE REFERENCES TO TH IS FACT ALSO IN CLAUSES 1 AND 7 OF THE TERMS OF THE AGREEMENT. CLA USE 5 TO WHICH OUR ATTENTION WAS DRAWN BY THE LEARNED COUNSEL FOR THE ASSESSEE PROVIDED THAT THE SHARES WERE BEING ALLOTTED TO THE ASSESSEE COMPANY IN CONSIDERATION OF TRANSFER AND ASSIGNMEN T BY NOCIL AND PURCHASE AND ACQUISITION BY THE COMPANY OF THE AFORESAID NOCILS AGRO BUSINESS EXCLUDING THE VALUE OF THE CU RRENT ASSETS. THE FACT THAT THE INVENTORIES WERE NOT TRANSFERRED TO DE-NOCIL AS PART OF THE UNDERTAKING FINDS MENTION IN THE PREAMB LE TO THE AGREEMENT. IT IS NOT CORRECT TO SAY THAT THE ASSES SEE OBTAINED VALUATION REPORTS VALUING EACH AND EVERY ITEM OF AS SETS CONSTITUTING THE UNDERTAKING. THERE IS NO REFERENCE TO ANY VALU ATION REPORT IN ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 21 THE SHARE SUBSCRIPTION AGREEMENT OR IN THE ASSESSEE S LETTERS TO THE ASSESSING OFFICER WRITTEN ON 12.02.1999 AND 16.03.1 999. THESE LETTERS ARE ALSO BEFORE US FROM WHICH WE FIND THAT THE REFERENCE THEREIN PARTICULARLY THE LETTER DATED 16.03.1999 IS ONLY TO THE BOOK VALUE OF THE FIXED ASSETS AND CAPITAL WORK-IN-PROGR ESS. THUS THE ASSETS WERE NOT VALUED BY ANY VALUATION OFFICER. T HE LAND AND BUILDING BEING IMMOVABLE ASSETS WERE HOWEVER VALU ED FOR PURPOSES OF STAMP DUTY. THE BOOK VALUES OF THE ASS ETS OF THE UNDERTAKING WERE FURNISHED TO THE ASSESSING OFFICER WITHOUT PREJUDICE AND ONLY AT THE INSTANCE OF THE ASSESSING OFFICER WHICH FACT WAS NOT DENIED BY THE DEPARTMENT BEFORE US. I T IS THEREFORE NOT CORRECT TO STATE THAT THE ASSESSEE VALUED EACH AND EVERY ITEM OF ASSET OF THE UNDERTAKING WHILE ARRIVING AT THE CONS IDERATION OF ` 30.00 CRORES. 35. IN THE CASE OF PREMIER AUTOMOBILES LTD. (SUPRA) THE HONBLE BOMBAY HIGH COURT HELD THAT THE ONLY CONDITION IN T HE CASE OF SLUMP SALE IS THAT THE SALE SHOULD BE FOR A LUMPSUM PRICE AND THERE SHOULD BE A TRANSFER OF THE ENTIRE BUSINESS ACTIVITY FOR A FIXED PRICE WITHOUT THE SALE VALUE BEING ATTRIBUTED TO INDIVIDUAL ITEMS OF ASSETS. IT WAS FURTHER HELD THAT THE INTENTION OF THE PARTIES IN T HE COMMERCIAL SENSE SHOULD BE GATHERED FROM THE DOCUMENTS CONNECTED WIT H THE TRANSACTION AND MERE EXECUTION OF CONVEYANCE OF IMM OVABLE PROPERTY BY ITSELF WOULD NOT CONSTITUTE SALE OF ITE MIZED ASSETS. ONE SHOULD ALSO SEE WHETHER THE PURCHASER INTENDED TO P URCHASE INDIVIDUAL ITEMS APART FROM THE IMMOVABLE ASSETS. IT WAS ALSO ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 22 OBSERVED THAT THERE SHOULD BE CONTINUITY OF BUSINES S BY THE PURCHASER OF THE UNDERTAKING WHICH WOULD BE A STRO NG INDICATION THAT THE SALE OF THE UNDERTAKING WAS A SLUMP SALE. IF THESE TESTS ARE APPLIED TO THE PRESENT CASE IT SEEMS TO US CLEAR T HAT THE ASSESSEES UNDERTAKING WAS SOLD TO DE-NOCIL ONLY AS A SLUMP SA LE. THE INTENTION OF THE PARTIES IS MANIFESTED IN THE SHARE SUBSCRIPTION AGREEMENT. WE HAVE ALREADY SEEN THAT AT THREE PLAC ES IN THE AGREEMENT THERE IS REFERENCE TO THE FACT THAT THE U NDERTAKING WAS SOLD AS A GOING CONCERN. THE CONTINUITY OF THE BUS INESS HAS BEEN ENSURED BY THE JOINT VENTURE COMPANY IN WHICH THE ASSESSEE HELD 50% SHARES. THE WHOLE IDEA WAS TO COMBINE THE INFR ASTRUCTURE ALREADY ESTABLISHED BY THE ASSESSEE AND THE TECHNOL OGY TO BE BROUGHT IN BY DE-NOCIL. DE-NOCIL NEVER INTENDED TO PURCHASE NOR WAS IT INTERESTED IN PURCHASING THE INDIVIDUAL ASSETS OF THE ASSESSEES UNDERTAKING. IT WAS INTERESTED IN THE U NDERTAKING AS A WHOLE SO THAT THE PRODUCTS COULD BE MANUFACTURED BY PUTTING IN ITS TECHNOLOGY. NEITHER THE ASSESSEE NOR DE-NOCIL APPE ARS TO HAVE INTENDED THAT INDIVIDUAL ITEMS OF THE UNDERTAKING S HOULD BE SOLD AND PURCHASED. THE REFERENCE TO VALUATION OF IMMOVABLE PROPERTIES FOR PURPOSES OF STAMP DUTY IS IRRELEVANT AS HAS BEEN H ELD IN THE AFORESAID JUDGMENT. IT HAS BEEN OBSERVED AT PAGE 2 32 OF THE JUDGMENT THAT IF THAT TEST IS TO BE APPLIED THEN TH ERE COULD NEVER BE A SLUMP SALE BECAUSE IN CASES OF SALE OF THE UNDERT AKING AS A WHOLE SALE OF IMMOVABLE PROPERTIES SUCH AS LAND AN D BUILDING WILL BE INVOLVED. THE EMPHASIS IS MORE ON THE INTENTION OF THE PARTIES ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 23 AND WHETHER THE CONTINUITY OF THE BUSINESS BY THE T RANSFEREE ENTITY IS PRESERVED. IN OUR OPINION LOOKING TO THE SUBST ANCE OF THE TRANSACTION AND APPLYING THE TEST LAID DOWN IN THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IT SEEMS TO US THAT THE SALE OF THE ASSESSEES UNDERTAKING IS IN FACT AND TRUTH A SLUMP SALE. THE ASSESSING OFFICER IS NOT THEREFORE JUSTIFIED IN APP LYING SECTION 50 OF THE INCOME TAX ACT AND ARRIVING AT THE CAPITAL GAIN S ON THE SALE OF INDIVIDUAL ITEMS OF ASSETS. 36. IT IS ALSO SEEN THAT THE JUDGMENTS OF THE SUPRE ME COURT IN THE CASE OF B M KHARWAR (SUPRA) ARTEX MANUFACTURIN G COMPANY (SUPRA) AND ELECTRIC CONTROL GEAR MANUFACTURING CO. (SUPRA) HAVE ALL BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF PREMIER AUTOMOBILES LTD. (SUPRA). 37. WE MUST MENTION THAT THE LEARNED CIT DEPARTMENT AL REPRESENTATIVE ALSO REFERRED TO AN ORDER OF THE MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA SINTERED PRODUCTS LTD. VS. DCIT (2005) 95 ITD 380 (MUM). IN THIS CASE THE TRIBUNAL IN EFFECT HELD THAT WHERE PRICE HAS BEEN FIXED BEFORE HAND IN RESP ECT OF IDENTIFIABLE ASSETS OF THE UNDERTAKING AND NO LIABI LITY WAS TRANSFERRED TO THE BUYER THE TRANSFER OF THE UNDERTAKING WOULD NOT CONSTITUTE A SLUMP SALE. IN THIS ORDER THE TRIBUNAL HAS CONSIDE RED THE JUDGMENT IN THE CASE OF PREMIER AUTOMOBILES LTD. (SUPRA) BUT HAS DISTINGUISHED THE SAME ON THE GROUND THAT IN THE CA SE BEFORE THEM THE PRICE WAS FIXED BEFORE HAND IN RESPECT OF IDENT IFIABLE ASSETS AND NOT AS A LUMPSUM PRICE AND FURTHER THAT NO LIABILIT Y WAS TRANSFERRED ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 24 TO THE BUYER. IN THE PRESENT CASE THERE IS NO MATE RIAL OR EVIDENCE TO SHOW AS WE HAVE ALREADY SEEN THAT THE PRICE WAS D ECIDED OR FIXED IN RESPECT OF INDIVIDUAL ITEMS OF ASSETS CONSTITUTI NG THE UNDERTAKING. SECONDLY THE LIABILITIES RELATING TO THE UNDERTAKI NG WERE ALSO TRANSFERRED AS PART OF THE UNDERTAKING AS WE SEE FR OM THE PREAMBLE TO THE SHARE SUBSCRIPTION AGREEMENT WHICH SAYS THA T IT WAS MUTUALLY AGREED THAT THE ASSESSEE WILL TRANSFER ALL ITS RIGHTS IN THE AGROCHEMICALS AND SEEDS BUSINESS INCLUDING ALL MOVA BLE AND IMMOVABLE ASSETS AND LIABILITIES . THUS THE PRESENT CASE IS DISTINGUISHABLE FROM THE CASE OF MAHINDRA SINTERED PRODUCTS LTD. (SUPRA). 38. THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE ALS O REFERRED TO AN ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF STERIPLATE (P) LTD. VS. ACIT (2006) 7 SOT 596 (DEL). HOWEVER WE FIND THAT IN THAT CASE THERE WAS A VALUATION REPORT OF A CHARTER ED ACCOUNTANT VALUING EACH ITEM OF THE ASSET AT A PARTICULAR VALU E. THE ASSESSEE HAD OFFERED LONG TERM CAPITAL GAINS BUT SUBSEQUENTL Y CLAIMED THAT THE UNDERTAKING WAS SOLD AS A GOING CONCERN. THE C LAIM WAS REJECTED BY THE DEPARTMENTAL AUTHORITIES WHOSE VIE W WAS UPHELD BY THE TRIBUNAL. IT MAY BE SEEN THAT THE ASSESSEE HAD ENGAGED A CHARTERED ACCOUNTANT TO VALUE EACH ITEM OF THE UNDE RTAKING WHICH WAS AN INDICATION THAT THE UNDERTAKING WAS NOT SOLD AS A GOING CONCERN. IT WAS ONLY SUBSEQUENTLY THAT THE ASSESSE E PUT FORTH THE CLAIM THAT THE ENTIRE UNDERTAKING WAS SOLD AS A GOI NG CONCERN. OBVIOUSLY WHERE THE INTENTION OF THE ASSESSEE IS N OT TO TRANSFER THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 25 UNDERTAKING AS A WHOLE BUT TO TRANSFER INDIVIDUAL I TEMS OF ASSETS FOR WHICH VALUATION REPORTS HAD ALSO BEEN PREPARED THE CASE CANNOT BE CONSIDERED AS A SLUMP SALE. THUS BOTH THE ORDERS A RE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. IN THE RESULT WE UPHOLD THE ASSESSEES CONTENTION THAT THE TRANSFER OF THE AGROCHEMICALS AND SEEDS UNDERTAKING WAS A SLUMP SAL E AND SECTION 50 OF THE INCOME TAX ACT IS NOT APPLICABLE. AS REGARDS THE COMPUTATION OF THE CAPITAL GAINS THE MATTER HAS TO GO BACK TO THE ASSESSING OFFICER WHO WILL HAVE TO DECIDE THE COST OF THE UNDERTAKING AS A WHOLE AND MAY ALSO BE REQUIRED TO DECIDE THE VALUE UNDER SECTION 55 OF THE INCOME TAX ACT. THE ASSESSING OFFICER WILL ALSO DECIDE AS TO THE BASIS OF INDEXAT ION TO BE ALLOWED AS ALSO THE QUANTUM OF DEPRECIATION ON THE BLOCK OF ASSETS AND SO ON AND SO FORTH. SUCH DIRECTIONS HAVE BEEN GIVEN B Y THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PREMIER AUTOMOBILE S LTD. (SUPRA) AT PAGE 235. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE CAPITAL GAINS IN ACCORDANCE WITH THE AFORESAID DIRE CTIONS. THUS GROUND NOS. 17 TO 22 ARE PARTLY ALLOWED. 39. GROUND NO.23 IS DIRECTED AGAINST THE NON-ALLOWA NCE OF THE DEDUCTION OF ` 45 00 000/- BEING ADVANCE TO IICT WRITTEN OFF IN TH E ACCOUNTS. THIS GROUND IS DISMISSED AS NOT PRESSED. 40. GROUND NO.24 IS WITHOUT PREJUDICE TO GROUND NO. 23 AND THE ASSESSEE CLAIMS THAT THE CIT(A) OUGHT TO HAVE DIREC TED THE ASSESSING OFFICER TO CONSIDER THE AFORESAID AMOUNT OF ` 45 00 000/- ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 26 AS PART OF THE AGROCHEMICALS UNDERTAKING SOLD AS A SLUMP SALE. THIS GROUND IS ALSO DISMISSED AS NOT PRESSED. 41. GROUND NO.25 IS THAT THE CIT(A) ERRED IN CONFIR MING THE DISALLOWANCE OF ` 40 55 962/- BEING PRIOR YEAR EXPENDITURE NET OF PRIOR YEAR INCOME. IT HAS BEEN POINTED OUT THAT A SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL IN ITS ORDER FOR THE ASSESSMENT YEAR 1991-92. SINCE THE FACTS A RE THE SAME WE WOULD RESPECTFULLY FOLLOW THE EARLIER ORDER OF THE TRIBUNAL TO HOLD THE ISSUE IN FAVOUR OF THE ASSESSEE SUBJECT TO THE REMA RK THAT THE ASSESSING OFFICER SHALL ENSURE THAT NO DOUBLE CLAIM IS ALLOWED. SUBJECT TO THIS REMARK THE GROUND IS DECIDED IN FA VOUR OF THE ASSESSEE. 42. GROUND NO.26 IS TO THE EFFECT THAT THE CIT(A) E RRED IN NOT SPECIFICALLY DIRECTING THE ASSESSING OFFICER TO ALL OW DEPRECIATION ON ` 2 10 53 336/- BEING EXPENDITURE INCURRED ON REVAMPI NG OF NAPHTHA PIPELINE. IT WAS STATED ON BEHALF OF THE ASSESSEE BEFORE US THAT THIS GROUND HAS BECOME OTIOSE. THE GROUND IS ACCORDINGL Y DISMISSED. 43. GROUND NO.27 IS THAT THE CIT(A) ERRED IN CONFIR MING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DED UCTION FOR EXPENDITURE OF ` 1 50 00 000/- BEING FEES PAID FOR ADVISORY SERVICES FOR THE PROPOSED PUBLIC ISSUE FOR THE MODERNIZATION PROJECT. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1992-93 TO 19 95-96. WE HAVE GONE THROUGH THE ORDERS OF THE TRIBUNAL FOR TH E EARLIER YEARS. IN THE ASSESSMENT YEAR 1992-93 THE EXPENDITURE REL ATED TO THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 27 ASSESSMENT OR FEASIBILITY OF THE PROPOSED MODERNIZA TION-CUM- EXPANSION PROGRAMME AT THANE. IT WAS FOR PREPARATI ON OF THE PLAN FOR CARRYING OUT THE STUDY FOR THE PURPOSE. IN THE ASSESSMENT YEAR 1993-94 THE DETAILS OF THE EXPENDITURE SHOW THAT T HEY INCLUDED FOREIGN TRAVEL EXPENSES EXPORT DEPOSIT CONSULTANC Y FEES FOR PROFESSIONAL AND TECHNICAL SERVICES FEASIBILITY ST UDY FOREIGN DEVELOPMENT EXPENDITURE SUNDRY CONTRACT EXPENDITUR E ETC. IN THE ASSESSMENT YEAR 1994-95 THE TRIBUNALS ORDER DOES NOT GIVE THE DETAILS OF THE EXPENDITURE. IN THE ORDER FOR THE A SSESSMENT YEAR 1995-96 THE EXPENDITURE WAS TOWARDS CONSULTANCY AN D ADVISORY FEES PAID TO VARIOUS PERSONS FOR THE MODERNIZATION PROJECT. FOR THE YEAR UNDER APPEAL HOWEVER THERE IS NO SEPARATE DI SCUSSION IN THE ASSESSMENT ORDER BUT IN THE COMPUTATION OF THE INCO ME AT PAGE 22 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE WITH THE NARRATION FEES FOR ISSUE OF SHARES . GROUND NOS. 55 AND 56 TAKEN BY THE ASSESSEE BEFORE THE CIT (A) DESCRIBE THE EXPENDITURE AS FEES PAID FOR ADVISORY SERVICES FOR THE PROPOSED PUBLIC ISSUE AND THERE IS ALSO AN ALTERNATIVE CLAIM THAT THE EXPENDITURE QUALIFIES UNDER SECTION 35D OF THE ACT. THERE ARE NO DETAILS IN THE ORDER OF THE CIT(A) AND EVEN IN THE GROUNDS FILED BEFORE US THE EXPENDITURE IS DESCRIBED AS FEES PAID FOR ADVISORY SERVICES. RELYING ON THE EARLIER ORDERS OF THE TRI BUNAL THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDI TURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. HE ALSO CITED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD. VS. CIT (1966) 60 ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 28 ITR 52 (SC). THE LEARNED CIT DEPARTMENTAL REPRESEN TATIVE HOWEVER CONTENDED THAT SINCE THE ASSESSING OFFICER HAS DESCRIBED THE EXPENDITURE AS FEES PAID FOR ISSUE OF SHARES W HICH NARRATION HAS NOT BEEN SPECIFICALLY DENIED BY THE ASSESSEE T HE DECISION OF THE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (1997) 225 ITR 798 (SC) SHOULD APPLY AND THE GROUND SHOULD BE DECIDED AGAINST THE ASSESSEE. AFTER CAREFULLY CONS IDERING THE RIVAL CONTENTIONS WE ARE OF THE VIEW THAT THE MATTER SHO ULD GO BACK TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION AND FOR ASCERTAINING THE REAL NATURE OF THE EXPENDITURE. IF THE FACTS S HOW THAT THE EXPENDITURE IS IN RELATION TO THE ISSUE OF SHARES THEN UNDOUBTEDLY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BR OOKE BOND INDIA LTD. (SUPRA) WOULD APPLY. IF ON THE OTHER H AND THE EXPENDITURE IS OF A DIFFERENT NATURE THEN THE RELE VANT FACTS AND LEGAL POSITION SHOULD BE CONSIDERED BEFORE DECIDING THE A LLOWABILITY OF THE CLAIM. THE ASSESSING OFFICER WILL HAVE TO THEREFOR E EXAMINE THE FACTUAL POSITION AND TAKE A FRESH DECISION IN ACCOR DANCE WITH LAW AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE O F BEING HEARD. THE GROUND IS ACCORDINGLY TREATED AS ALLOWED FOR ST ATISTICAL PURPOSES. 44. GROUND NO.28 IS THAT THE CIT(A) OUGHT TO HAVE D IRECTED THE ASSESSING OFFICER NOT TO REDUCE THE INTEREST PAYABL E UNDER SECTION 234B FROM THE SELF ASSESSMENT TAX IN COMPUTING THE INTEREST UNDER SECTION 234B OF THE ACT. IT IS STATED ON BEHALF OF THE ASSESSEE THAT THIS GROUND HAS BECOME INFRUCTUOUS SINCE APPROPRIAT E RELIEF HAS ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 29 BEEN GIVEN BY THE ASSESSING OFFICER IN THE ORDER PA SSED BY HIM TO GIVE EFFECT TO THE ORDER OF THE CIT(A). ACCORDINGL Y THE GROUND IS DISMISSED. 45. GROUND NOS. 29 AND 30 ARE GENERAL AND REQUIRE N O DECISION. 46. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. ASSESSMENT YEAR: 1997-98 ITA NO: 2209/MUM/2001 (APPEAL BY DEPARTMENT) : 47. THE FIRST GROUND IS AGAINST THE DISALLOWANCE OF THE INTEREST OF ` 3 50 65 776/- ON ADVANCE MADE TO M/S ORBIT FINANCE LTD.. IN LINE WITH OUR DECISION FOR THE ASSESSMENT YEAR 1996-97 WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISS THE GRO UND FILED BY THE REVENUE. 48. THE SECOND GROUND RELATES TO THE DISALLOWANCE O F INTEREST OF ` 2 89 17 607/-. IN LINE WITH OUR DECISION FOR THE A SSESSMENT YEAR 1996-97 IN RESPECT OF THE SAME ISSUE WE UPHOLD THE DECISION OF THE CIT(A) AND DISMISS THE GROUND. 49. THE THIRD GROUND RELATES TO THE INTEREST ON CAP ITAL WORK-IN- PROGRESS. THE CIT(A) HAS DELETED THE DISALLOWANCE OF ` 15 74 65 989/-. A SIMILAR GROUND FOR THE ASSESSMEN T YEAR 1996-97 HAS BEEN REJECTED BY US AND IN LINE THEREWITH WE RE JECT THIS GROUND FOR THIS YEAR ALSO. 50. GROUND NO.4 RELATES TO THE DELETION OF THE ADDI TION OF UNUTILIZED MODVAT CREDIT OF ` 2 66 53 378/-. THIS GROUND IS SIMILAR TO GROUND NO.6 TAKEN BY THE DEPARTMENT IN THE ASSESSME NT YEAR ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 30 1996-97 WHICH HAS BEEN DISMISSED BY US. IN LINE W ITH OUR DECISION WE CONFIRM THE DECISION OF THE CIT(A) AND DISMISS T HIS GROUND. 51. GROUND NO.5 IS SIMILAR TO GROUND NO.8 TAKEN BY THE DEPARTMENT IN THE ASSESSMENT YEAR 1996-97. IN LINE WITH OUR DECISION FOR THAT YEAR WE ALLOW THE GROUND AND RES TORE THE DECISION OF THE ASSESSING OFFICER. 52. GROUND NO.6 RELATES TO SECTION 80HHC AND IS DIR ECTED AGAINST THE DECISION OF THE CIT(A) EXCLUDING THE EX CISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER. A SIMILAR GROUN D TAKEN IN THE ASSESSMENT YEAR 1996-97 HAS BEEN DISMISSED BY US FO LLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . LAKSHMI MACHINE WORKS (SUPRA). RESPECTFULLY FOLLOWING THE JUDGMENT AND IN LINE WITH OUR DECISION FOR THE ASSESSMENT YEAR 1996 -97 THE GROUND IS DISMISSED. 53. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED. ASSESSMENT YEAR: 1997-98 ITA NO: 2208/MUM/2001 (APPEAL BY ASSESSEE) : 54. GROUND NO.1 RELATES TO THE DECISION OF THE CIT( A) DISALLOWING THE DEDUCTION OF PRO-RATA PREMIUM ON LEASEHOLD LAND . THE AMOUNT IS ` 17 92 288/-. IN TUNE WITH OUR DECISION IN RESPECT OF GROUND NO.1 IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YE AR 1996-97 WE CONFIRM THE DISALLOWANCE AND DISMISS THE GROUND. 55. THE SECOND GROUND HAS BEEN TAKEN WITHOUT PREJUD ICE TO THE FIRST GROUND. IT IS TO THE EFFECT THAT THE CIT(A) ERRED IN TREATING THE ENTIRE PREMIUM AS COST OF BUILDING AND PLANT AND AL LOWING ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 31 DEPRECIATION THEREON. THIS GROUND IS ALSO DISMISSE D IN TUNE WITH OUR DECISION FOR THE ASSESSMENT YEAR 1996-97. 56. GROUND NO.3 WHICH IS AGAINST THE TREATMENT OF THE RUNNING ROYALTY AS CAPITAL EXPENDITURE IS DISMISSED AS NOT PRESSED. 57. GROUND NO.4 WHICH IS AGAINST THE DISALLOWANCE OF THE EXPENDITURE ON TEA COFFEE ETC. TO VISITORS IS DI SMISSED AS NOT PRESSED. 58. GROUND NO.5 RELATES TO GUEST HOUSE EXPENDITURE OF ` 4 70 089/- WHICH IS DISMISSED IN LINE WITH OUR DEC ISION IN RESPECT OF GROUND NO.7 TAKEN BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 1996-97. 59. GROUND NO.6 WHICH IS AGAINST THE DISALLOWANCE OF DEPRECIATION ON BUILDING AND ASSETS IN GUEST HOUSE IS ALSO DISMISSED FOLLOWING THE JUDGMENT OF THE SUPREME COU RT IN THE CASE OF BRITANNIA INDUSTRIES LTD. VS. CIT (2005) 278 ITR 546 (SC). 60. GROUND NO.7 IS AGAINST THE DISALLOWANCE OF ` 38 56 005/- BEING THE PROPORTIONATE CHARGE FOR THE ASSESSMENT Y EAR 1997-98 IN RESPECT OF EXPENDITURE INCURRED ON STAMP FEES AND R EGISTRATION FEES FOR INCREASING THE AUTHORIZED CAPITAL FROM ` 36.00 CRORES TO ` 600.00 CRORES. THIS ISSUE IS DECIDED AGAINST THE ASSESSEE RESPECTFULLY FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (1997) 225 ITR 798 (SC). A SIMILAR ISSUE FOR THE ASSESSMENT YEAR 1996-97 HAS ALSO BEEN DECID ED AGAINST THE ASSESSEE BY US. THE GROUND IS DISMISSED. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 32 61. GROUND NO.8 RELATES TO THE DEDUCTION OF ` 5 00 000/- BEING ADMINISTRATIVE EXPENSES FROM DIVIDEND INCOME FOR TH E PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80M OF THE AC T. A SIMILAR ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN THE ASSESSMENT YEAR 1996-97 AND IN LINE THEREWITH THE PRESENT GROU ND IS DISMISSED. 62. GROUND NO.9 IS A GENERAL GROUND RELATING TO SEC TION 80HHC OF THE ACT AND DOES NOT REQUIRE A SPECIFIC DECISION SINCE THE REAL GRIEVANCES ARE PROJECTED IN GROUND NO.10. IN FACT GROUND NO.10 WHICH IS AGAINST THE ACTION OF THE CIT(A) UPHOLDING THE DECISION OF THE ASSESSING OFFICER TO REDUCE 90% OF OTHER INCOME FROM THE PROFITS OF THE BUSINESS IN COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE CLAIM IS THAT THE CORRECT AM OUNT TO BE REDUCED IS ONLY ` 14 81 56 194/- AND NOT ` 16 57 57 494/-. THIS GROUND IS DISMISSED AS NOT PRESSED. 63. GROUND NO.11 IS SIMILAR TO GROUND NO.15 FOR THE ASSESSMENT YEAR 1996-97. IT RELATES TO THE NON-ALLOWANCE OF T HE DEDUCTION OF ` 2 47 08 900/- BEING LONG SERVICE RETIREMENT BENEFIT S PAYABLE BY THE ASSESSEE. IN LINE WITH OUR DECISION FOR THE ASSESS MENT YEAR 1996- 97 WE RESTORE THIS ISSUE TO THE ASSESSING OFFICER WITH THE SAME DIRECTIONS AS WERE GIVEN IN THE ASSESSMENT YEAR 199 6-97. THE GROUND IS ALLOWED BUT ONLY FOR STATISTICAL PURPOSES . 64. GROUND NO.12 IS SIMILAR TO GROUND NO.16 FOR THE ASSESSMENT YEAR 1996-97 AND IT RELATES TO THE COST OF CATALYST ISSUES. AS WAS DONE IN THE ASSESSMENT YEAR 1996-97 WE RESTORE THI S ISSUE TO THE ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 33 ASSESSING OFFICER WITH THE SAME DIRECTIONS AND TREA T THE GROUND AS ALLOWED FOR STATISTICAL PURPOSES. 65. GROUND NO.13 RELATES TO THE DISALLOWANCE OF ` 39 20 390/- BEING PRIOR YEAR EXPENDITURE NET OF PRIOR YEARS IN COME. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE RESPECTFULLY F OLLOWING THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1991-92. W E MAY CLARIFY THAT WHILE ALLOWING THE ASSESSEES CLAIM THE ASSESS ING OFFICER MAY VERIFY THAT THERE IS NO DOUBLE CLAIM MADE BY THE AS SESSEE. THE GROUND IS ALLOWED. 66. GROUND NO.14 IS DIRECTED AGAINST THE DECISION O F THE CIT(A) CONFIRMING THE DISALLOWANCE OF THE OVERRIDING COMMI SSION OF ` 62 04 067/- PAID DURING THE PREVIOUS YEAR. THIS IS THE AGGREGATE OF ` 30 93 410/- PAID TO M/S NEERAJ CONSULTANTS LIMITED AND ` 31 10 658/- PAID TO M/S GWALIOR TRANSMISSION SYSTEM S LIMITED. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSE SSEE APPOINTED M/S NEERAJ CONSULTANTS LIMITED OF NEW DEL HI FOR PROMOTING THE BUSINESS OF RUBBER CHEMICALS TO M/S A PPOLO TYRES LTD. UNDER LETTER DATED 04.04.1994. THE ARRANGEMEN T WAS FOR A PERIOD OF ONE YEAR COMMENCING FROM 01.04.1994 SUBJE CT TO REVIEW EVERY YEAR. A SIMILAR ARRANGEMENT WAS ENTERED INTO WITH M/S GWALIOR TRANSMISSION SYSTEMS LIMITED ALSO. THE AGE NTS WERE TO RENDER THE FOLLOWING SERVICES: - (1) PROMOTE SALE OF RUBBER CHEMICALS TO M/S APPOLO TYRES LTD. (2) IMPROVE ASSESSEES BUSINESS AND TERMS WITH THEM. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 34 (3) SOLICIT PROCUREMENT OF ORDERS AND FOLLOW UP FOR TIMELY PAYMENTS. (4) VISIT THE DELHI OFFICE AND PLANTS FROM TIME TO TIME FOR SMOOTHER OPERATIONS. (5) PROVIDE REGULAR REPORTS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS UNABLE TO PRODUCE ANY EVIDENCE TO SHOW THAT THE AGE NTS RENDERED ANY WORTHWHILE SERVICE. THE ASSESSING OFFICER MENT IONED THAT THE ASSESSEE WAS HAVING BUSINESS WITH M/S APPOLO TYRES LTD. FOR MORE THAN 10 YEARS AND THERE WAS AN EXISTING BUSINESS RE LATIONSHIP AND THEREFORE THERE WAS NO BUSINESS NECESSITY FOR APPO INTING ANY AGENTS. FURTHER NO DOCUMENTARY EVIDENCE COULD BE PRODUCED TO PROVE THE RENDERING OF THE SERVICES. IN THIS VIEW OF THE MATTER HE DISALLOWED THE COMMISSION PAYMENT. IT MAY BE MENTI ONED THAT A SIMILAR ARRANGEMENT WAS ENTERED INTO WITH M/S GWALI OR TRANSMISSION SYSTEMS LIMITED ALLEGEDLY TO PROMOTE S ALE OF RUBBER CHEMICALS TO M/S J K INDUSTRIES LIMITED. FROM THE ASSESSMENT ORDER WE FIND THAT THE SERVICES TO BE RENDERED BY T HE AGENT WERE SIMILAR TO THE SERVICES TO BE RENDERED BY M/S NEERA J CONSULTANTS LIMITED. IN ADDITION THE ASSESSING OFFICER FOUND THAT THERE WAS NO OFFICE OF THE AGENT IN DELHI AT THE ADDRESS GIVEN B Y THE ASSESSEE AND WHEN THIS WAS POINTED OUT TO THE ASSESSEE THE ASSESSEE STATED THAT THE AGENCY AGREEMENT WAS NOT RENEWED BE YOND ONE YEAR AND THE ASSESSEE HAS NO KNOWLEDGE ABOUT THE AG ENT. HERE ALSO THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE FOR THE RENDERING ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 35 OF THE SERVICES BY THE AGENT. THUS BOTH THE PAYMEN TS WERE DISALLOWED BY THE ASSESSING OFFICER. THE DISALLOWA NCE WAS CONFIRMED BY THE CIT(A). 67. WE HAVE CONSIDERED THE FACTS AND THE RIVAL SUBM ISSIONS. EVEN BEFORE US THE ASSESSEE COULD NOT ADDUCE ANY EV IDENCE FOR THE RENDERING OF THE SERVICES AND CONTROVERT THE FACTUA L FINDINGS RECORDED BY THE INCOME TAX AUTHORITIES. WE THEREFO RE CONFIRM THE DISALLOWANCE AND DISMISS THE GROUND. 68. GROUND NO.15 HAS BEEN TAKEN WITHOUT PREJUDICE T O GROUND NO.14 AND IT IS TO THE EFFECT THAT THE CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE REVERSAL OF OV ERRIDING COMMISSION OF ` 31 10 658/- PAID TO M/S GWALIOR TRANSMISSION SYSTEMS LIMITED IN THE ASSESSMENT YEAR 1998-99 FROM THE INCOME OF THAT YEAR. THE APPEAL FOR THE ASSESSMENT YEAR 1 998-99 IS NOT BEFORE US AND THEREFORE WE CANNOT GIVE ANY SUCH DIR ECTION. THE ASSESSEE MAY IF SO ADVISED TAKE UP THE MATTER BEF ORE THE INCOME TAX AUTHORITIES IF THE PROCEEDINGS FOR THE ASSESSME NT YEAR 1998-99 ARE OPEN AND SEEK REDRESSAL IN ACCORDANCE WITH LAW. WE REFRAIN FROM ISSUING ANY DIRECTIONS RELATING TO THE ASSESSM ENT YEAR 1998- 99. THE GROUND IS DISMISSED. 69. GROUND NO.16 RELATES TO THE DISALLOWANCE OF CON SULTANCY AND ADVISORY FEES OF ` 37 39 750/- FOR MODERNIZATION PROJECT. A SIMILAR GROUND HAS BEEN ALLOWED BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE FOR THE ASSESSMENT YEARS 1992-93 TO 1995-96. THERE IS NO DISPUTE THAT THE FACTS ARE THE SAME FOR THE YEAR UN DER APPEAL. ITA NO: 4562/MUM/2000 ITA NO: 4553/MUM/2000 ITA NO: 2209/MUM/2001 ITA NO: 2208/MUM/2001 36 THEREFORE RESPECTFULLY FOLLOWING THE EARLIER ORDER S OF THE TRIBUNAL WE ALLOW THE GROUND. 70. GROUND NO.17 IS INFRUCTUOUS SINCE RELIEF HAS BE EN GIVEN BY THE ASSESSING OFFICER HIMSELF WHILE GIVING EFFECT T O THE ORDER OF THE CIT(A). IT IS DISMISSED AS SUCH. 71. GROUND NOS. 18 AND 19 ARE GENERAL AND REQUIRE N O DECISION. 72. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. 73. TO SUM UP THE ASSESSEES APPEALS AS WELL AS TH E REVENUES APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011. SD/- SD/- (RAJENDRA SINGH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 28 TH JANUARY 2011 SALDANHA COPY TO: 1. NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED MAFATLAL CENTRE NARIMAN POINT MUMBAI 400 021 2. JOINT / ADDITIONAL CIT SPECIAL RANGE 20 MUMBAI 3. CIT-II MUMBAI 4. CIT(A)-XIV MUMBAI 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI