M/s. INDIAN RAYON & INDUSTRIES LTD., MUMBAI v. ACIT Rg. - 3(2), MUMBAI

ITA 5421/MUM/2005 | 2000-2001
Pronouncement Date: 09-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 542119914 RSA 2005
Assessee PAN AAACI1747H
Bench Mumbai
Appeal Number ITA 5421/MUM/2005
Duration Of Justice 8 year(s) 1 month(s) 30 day(s)
Appellant M/s. INDIAN RAYON & INDUSTRIES LTD., MUMBAI
Respondent ACIT Rg. - 3(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 09-10-2013
Date Of Final Hearing 24-09-2013
Next Hearing Date 24-09-2013
Assessment Year 2000-2001
Appeal Filed On 10-08-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI . . ! ' #'' '$ % ! & BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI VIVEK VARMA JUDICIAL MEMBER . : 5421 / / 2005 : 2000-2001 ITA NO. : 5421/MUM/2005 AY 2000-2001 . : 5422 / / 2005 : 2001-2002 ITA NO. : 5422/MUM/2005 AY 2001-2002 ADITYA BIRLA NUVO LTD. (ERSTWHILE INDIAN RAYON & INDUSTRIES LTD.) A4 ADITYA BIRLA CENTER S K AHIRE MARG WORLI MUMBAI -400 030 .: PAN: AAACI 1747H VS ASST. COMMISSIONER OF INCOME TAX CIRCLE 3(2) ROOM NO. 608 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI -400 020 (APPELLANT) (RESPONDENT) . : 5561 / / 2005 : 2000-01 ITA NO. : 5561/MUM/2005 AY 2000-01 . : 5530 / / 2005 : 2001-02 ITA NO. : 5530/MUM/2005 AY 2001-02 ASST. COMMISSIONER OF INCOME TAX CIRCLE 3(2) ROOM NO. 608 AAYAKAR BHAVAN M.K. ROAD MUMBAI -400 001 VS ADITYA BIRLA NUVO LTD. (ERSTWHILE INDIAN RAYON & INDUSTRIES LTD.) MUMBAI -400 030 (APPELLANT) (RESPONDENT) APPELLANT-ASSESSEE BY : MR. J.D. MISTRY SENIOR ADVOCATE RESPONDENT-REVENUE BY : MR. SANTOSH KUMAR /DATE OF HEARING : 24-09-2013 !' / DATE OF PRONOUNCEMENT : 09-10-2013 * O R D E R #'' '$ : PER VIVEK VARMA JM: FOUR APPEALS ARE BEING TAKEN UP BEING CROSS APPEALS FILED BY THE ASSESSEE AND THE DEPARTMENT IN ASSESSMENT YEARS 2000-01 AND 2001-02. IN BOTH THE ASSESSMENT YEARS THE SENIOR COUN SEL SUBMITTED FACT CHARTS/SYNOPSIS GIVING BRIEF DESCRIPTION ON THE ISSUES INVOLVED ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 2 AND AS TO HOW THE ISSUES WERE DEALT WITH BY THE REVE NUE AUTHORITIES AND BY THE COORDINATE BENCHES OF THE ITAT IN THE CASE(S ) OF THE ASSESSEE IN THE PAST. THE DR ALSO ACCEPTED THE DESCRIPT IONS GIVEN IN THE FACT SHEETS/SYNOPSIS TO BE CORRECT. WE THEREFORE PR OCEED ON THE DETAILS AS SUBMITTED IN THE FACT SHEET/SYNOPSIS. 2. THE APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE DEPARTMENT AGAINST THE ORDER OF CIT(A) III MUMBAI DATED 20.12.2004. SINCE THE APPEALS ARISE OUT OF THE SAME ORDER WE ARE PASSING A CO NSOLIDATED ORDERS FOR THE SAKE OF CONVENIENCE AND BREVITY. ASSESSMENT YEAR 2000-01 ITA NO. 5421/MUM/2005: ASSESSEES APPEAL: THE FOLLOWING GROUNDS HAVE BEEN TAKEN: (1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LEARNED ASSISTANT COMMISSIONER OF INCOME T AX (HEREIN AFTER REFERRED TO AS ACIT) HAS ERRED IN MAKING DISA LLOWANCE OF RS.5 85 508/-BEING RURAL DEVELOPMENT EXPENDITURE IN CURRED BY THE APPELLANT AND LEARNED COMMISSIONER OF INCOME TA X (APPEALS) (HEREIN AFTER REFERRED TO AS CIT (A)) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ACIT. THE LEARN ED ACIT BE DIRECTED TO ALLOW THE CLAIM OF RS. 5 85 508/-AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. (2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ACIT HAS ERRED IN DISALLOWING RS. 12 950/- BEING DEPRECIATION CLAIMED BY THE APPELLANT ON ROLL OVER CHARGES AND LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ORD ER OF THE LEARNED ACIT. THE LEARNED ACIT BE DIRECTED TO ALLOW THE DEPRECIATION OF RS. 12 950/- ON ROLL OVER CHARGES A ND TO REDUCE THE TOTAL INCOME ACCORDINGLY. (3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ACIT HAS ERRED IN DISALLOWING RS. 2 54 37 500/-BEING DEPRECIATION CLAIMED BY THE APPE LLANT ON GOODWILL OF RS. 20 35 00 000/-ACQUIRED ON ACQUISITI ON OF MADURA GARMENTS DIVISION FROM MADURA COASTS LTD. ON A GOING CONCERN BASIS AND LEARNED CIT (A) HAS ERRED IN CONF IRMING THE ORDER OF THE LEARNED ACIT. THE LEARNED ACIT BE DIRE CTED TO ALLOW THE DEPRECIATION OF RS. 2 54 37 500/-ON GOODWILL AN D TO REDUCE THE TOTAL INCOME ACCORDINGLY. (4) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ACIT HAS ERRED IN TREATING THE EXP ENSES OF RS. 98 69 185/-INCURRED FOR BUY-BACK OF SHARES AS CAPIT AL EXPENDITURE AND LEARNED CIT (A) HAS ERRED IN TREATI NG THE FOLLOWING EXPENSES AS CAPITAL EXPENDITURE. PARTICULARS AMOUNT (RS) STOCK EXCHANGE FEES 2 00 000 ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 3 DSP MERRILL LYNCH ADVISOR 10 00 000 TIMES BANK-COLLECTION/PAYMENT BANKER TO OFFER 6 73 443 MCS-REGISTRAR TO OFFICER 5 87 570 24 61 013 THE LEARNED ACIT BE DIRECTED TO ALLOW ENTIRE EXPENS ES OF RS.98 69 185/-INCURRED ON BUY- BACK OF SHARES AS R EVENUE EXPENDITURE AND TO REDUCE THE TOTAL INCOME ACCORDIN GLY. (5) WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLAN T THAT THE DEBENTURE ISSUE EXPENDITURE INCURRED BY THE APPELLA NT DURING THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 198 8-89 AND 1989-90 IS REVENUE EXPENDITURE; HOWEVER; IF IT IS HELD IN THOSE YEARS THAT THE SAID EXPENDITURE IS NOT REVENUE EXPE NDITURE THE APPELLANT CLAIMS THAT THE SAID EXPENDITURE BE CAPIT ALIZED TO THE ACTUAL COST OF FIXED ASSETS AND DEPRECIATION BE ALL OWED ON THE SAME ACCORDINGLY .THE LEARNED ACIT BE DIRECTED TO A LLOW THE CLAIM OF DEPRECIATION ON THE SAID DEBENTURE ISSUE E XPENDITURE AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. WITHOUT PREJUDICE TO THE ABOVE; IF IT IS HELD THAT SAID EXPENDITURE IS NEITHER A REVENUE EXPENDITURE NOR CAPITAL EXPEND ITURE WHICH ENHANCES THE ACTUAL COST OF FIXED ASSETS THE APPEL LANT ALTERNATIVELY CLAIMS THAT DEDUCTION UNDER SECTION 3 5D BE ALLOWED ON THE SAID DEBENTURE ISSUE EXPENDITURE. TH E LEARNED ACIT BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION UN DER SECTION 35D ON DEBENTURE ISSUE EXPENDITURE AND TO REDUCE TH E TOTAL INCOME ACCORDINGLY. (6) WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLAN T THAT THE DEDUCTION CLAIMED UNDER SECTION 36(1)(III) FOR INTEREST ON LO ANS TAKEN FOR NEW PROJECTS/ EXPANSION / MODERNIZATION DURING ASSE SSMENT YEARS 1994-95 TO 1999-2000 IS REVENUE EXPENDITURE HOWEVER IF IT IS HELD IN THOSE YEARS THAT THE SAID EXPENDITURE IS NOT REVENUE EXPENDITURE THE APPELLANT CLAIMS THAT THE SAID EXP ENDITURE BE CAPITALIZED TO THE ACTUAL COST OF FIXED ASSETS AND DEPRECIATION BE ALLOWED ON THE SAME AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 3. GROUND NO. 1 PERTAINS TO DISALLOWANCE OF RS. 5 85 508/- BEING EXPENDITURE INCURRED ON RURAL DEVELOPMENT. 4. AT THE TIME OF HEARING THE SENIOR COUNSEL SUBMITTED T HAT THE ISSUE HAS BEEN IN CONTINUANCE SINCE ASSESSMENT YEAR 199 2-93. WHEN THE ISSUE REACHED THE ITAT IT WAS RESTORED TO THE AO AND IN ALL THE SUBSEQUENT YEARS THE ISSUE HAS BEEN HELD BY THE ITAT IN FAVOUR OF THE ASSESSEE. THE SENIOR COUNSEL SUBMITTED THAT LAST IN THE S ERIES OF ORDERS HAS BEEN IN ITAS NO. 6668 & 6669/MUM/2003 WHER EIN THE COORDINATE BENCH IN THE ASSESSEES OWN CASE DIRECTED T HE AO TO ALLOW THE EXPENSE IF THE AO HAD ALLOWED THE SAME IN ASSESSMENT YEAR 1992- 93 TO GIVE EFFECT TO THE ORDER OF THE COORDINATE BENCH O N THE ISSUE ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 4 TRAVELLING TO SUBSEQUENT YEARS UPTO 1995-96 FACTS BEING IDENTICAL AS IN THE PRECEDING YEARS. 5. THE SENIOR COUNSEL SUBMITTED THAT THE FACTS ARE IDENT ICAL HENCE THE SAME TO BE ALLOWED WHICH HAS BEEN HELD IN ITAS NO. 6668 & 6669/MUM/2003. 6. THE DR PLACED RELIANCE ON THE DECISIONS OF THE REVENUE AUTHORITIES. 7. WE HAVE GONE THROUGH THE ARGUMENTS AND THE RELEVA NT PORTIONS OF THE ORDERS IN THE CASE OF THE ASSESSEE WHEREIN THE IS SUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE WE THEREFORE RESPECTFU LLY FOLLOWING THE ORDERS CITED BEFORE US SET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE AND DIRECT THE AO TO ALLOW THE EXPENDITURE OF RS. 5 85 508/- INCURRED ON RURAL DEVELOPMENT. GROUND NO. 1 IS ALLOWED. 8. GROUND NO. 2 PERTAINS TO ROLLOVER CHARGES OF RS. 12 950/ - ON DEPRECIATION. 9. THE SENIOR COUNSEL SUBMITTED THAT THE ISSUE BECOMES INFRUCTUOUS BECAUSE THE EXPENDITURE HAS BEEN ALLOWED AS A REVENUE EXPENDITURE IN ASSESSEES OWN CASE IN ITA NO. 6962/MUM /1995 AND FOLLOWED IN ITAS NO. 6421 & 6422/MUM/2002. 10. SINCE THE ISSUE HAS BECOME INFRUCTUOUS THE GROUND IS REJECTED . 11. GROUND NO. 3 PERTAINS TO CLAIM OF DEPRECIATION ON GOODWILL. 12. AT THE TIME OF HEARING THE SENIOR COUNSEL SUBMITTED A SYNOPSIS WHEREIN THERE WAS A MENTION OF A NUMBER OF DECISIONS WHICH HAVE HELD THAT DEPRECIATION HAS TO BE ALLOWED ON GOODWILL WHICH N OW HAS BEEN RESTED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SMIFS ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 5 SECURITIES LTD. REPORTED IN 348 ITR 302 WHEREIN THE HON BLE SUPREME COURT HELD THAT DEPRECIATION HAS TO BE ALLOWED ON GOODWILL. 13. THE DR PLACED RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES. 14. WE HAVE HEARD THE ARGUMENTS. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SM IFS SECURITIES ( SUPRA ). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON THE IS SUE AND DIRECT THE AO TO ALLOW THE CLAIM OF DEPRECIATION ON GO ODWILL ACQUIRED FROM MADURA GARMENTS. 15. GROUND NO. 3 IS THEREFORE ALLOWED. 16. GROUND NO. 4 PERTAINS TO EXPENSES INCURRED ON BUY B ACK OF SHARES AT RS. 24 61 013/- CLAIMED AS REVENUE EXPENSE. 17. IT WAS POINTED OUT THAT THE ASSESSEE HAD CLAIMED A TOTAL EXPENDITURE OF RS. 98 69 185/-. THIS WAS DISALLOWED BY THE A O WHEREIN HE HELD THE SAME TO BE OF CAPITAL IN NATURE. THE I SSUE WAS TAKEN UP BEFORE THE CIT(A) WHO ALLOWED THE EXPENSES INCUR RED ON PRINTING WORK CERTIFICATION WORK POSTAGE PRINTING ADVERTISING STATIONARY TRAVELING AND OTHER MISCELLANEOUS EXPENSES BUT DISALLOWED THE REST AS THERE WAS NO COGENT REASON TO ALLOW THE SAME. 18. THE AR POINTED OUT THAT THE ISSUE PERTAINS TO BUY B ACK OF SHARES AND HAS NOTHING TO DO WITH THE CAPITAL RESTRUCTURING OF THE CAPITAL BASE OF THE COMPANY. HE PLACED RELIANCE ON THE DECISION OF BOMBA Y HIGH COURT IN BURMAH TRADING CORPN. LTD. VS CIT REPORTED IN 145 ITR 793 AND ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS HINDALCO INDUSTRIES LTD. WHEREIN THE HONBLE BOMBAY HI GH COURT HELD IT MUST BE CLARIFIED THAT THE EXPENDITURE DOES NOT INCLUDE THE PRICE PAID TO THE SHAREHOLDERS FOR BUYING BACK THE SHARES. IT MERELY RELATES TO THE EXPENDITURE INCURRED IN CONNECTION WITH THE CARRYING OUT OF THE BUY BACK SCHEME. THE BUY BACK HOWEVER WOULD NOT IN ANY MANNER ENH ANCE THE CAPITAL STRUCTURE OF THE RESPONDENT. IF ANYTHING THERE IS A N OUTFLOW OF CAPITAL. AS WE NOTED EARLIER THE RESPONDENT HAS NOT CLAIMED A DED UCTION QUA THE OUTFLOW. IT HAS CLAIMED A DEDUCTION IN RESPECT OF THE EXPENDITU RE INCURRED IN CONNECTION ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 6 WITH THE PROCESS. THERE IS NO INCREASE IN THE CAPIT AL BASE OF THE RESPONDENT AND THE EXPENSES INCURRED WERE IN CONNECTION WITH THE E XISTING BUSINESS OF THE COMPANY. THAT CERTAINLY IS FOR THE OVER ALL BUSINES S OF THE COMPANY AND LIABLE TO BE ALLOWED AS REVENUE DEDUCTION. THE ISSUE RAISED IN QUESTION (D) DOES NOT GIVE RISE TO THE SUBSTANTIAL QUESTION OF LAW. THE AR THEREFORE SUBMITTED THAT THE ENTIRE EXPENSE OF RS. 98 69 185/- HAS TO BE ALLOWED. 19. THE DR PLACED RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES AND POINTED OUT THAT ON THE AMOUNT OF ALLOWANCE ALLOWED B Y THE CIT(A) I.E. THE BALANCE RS. 74 08 171/- THE DEPARTMENT IS IN A PPEAL BEFORE THE ITAT (WHICH IS ALSO BEING HEARD BY US SIMULTANEOUSLY). 20. WE HAVE HEARD THE ARGUMENTS OF THE CONTESTING PART IES AND HAVE PERUSED THE BIFURCATION OF EXPENSES AS PROVIDED BY THE A R AND ALSO THE CASES CITED BEFORE US. 21. THE FACT THAT THE EXPENDITURE IS OF REVENUE NATURE H AS NOT BEEN DISPUTED BY THE CIT(A) WHO HAS DISALLOWED THE SAME BECAUS E ACCORDING TO THE CIT(A) THERE WERE NO COGENT REASONS. W E HAVE ALSO PERUSED THE DECISION OF HONBLE BOMBAY HIGH COURT IN HIND ALCO (SUPRA) WHEREIN A SUCCINCT DISTINCTION HAS BEEN MADE BY THE HON BLE BOMBAY HIGH COURT. RESPECTFULLY FOLLOWING THE SAME WE DIRE CT THE AO TO ALLOW THE ENTIRE EXPENDITURE OF RS. 98 61 185/- CLAIMED AS REVENUE ON BUY BACK OF SHARES. 22. IN THE RESULT GROUND NO. 4 IS ALLOWED. 23. GROUND NO. 5 IS BASICALLY ALTERNATIVE GROUNDS PERTAINING TO EXPENSES ON NCD AND FCDS. AT THE TIME OF HEARING THE SE NIOR COUNSEL SUBMITTED THAT BOTH PARTS OF THE GROUND HAS BE COME INFRUCTUOUS BECAUSE EXPENSES OF NCDS HAS BEEN ALLOWED AS REVENUE EXPENDITURE AND EXPENSES OF FCDS HAVE BEEN ALLOWED UND ER SECTION 35D. HENCE THE ALTERNATIVE GROUNDS ARE NOT PRESSED. 24. SINCE THE GROUND IS NOT PRESSED IT IS REJECTED AS NOT PRESSED. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 7 25. GROUND NO. 6 IS AN ALTERNATIVE GROUND WHEREIN THE ASS ESSEE PRAYED THAT IF THE EXPENSES ARE NOT ALLOWED THEN DEPREC IATION BE ALLOWED ON INTEREST CAPITALIZATION. 26. AT THE TIME OF HEARING THE AR SUBMITTED THAT THE EX PENSES HAS BEEN ALLOWED UNDER SECTION 36(1)(III) HENCE THE ISSUE IMPUGNED IN THE APPEAL IS INFRUCTUOUS HENCE NOT PRESSED. 27. SINCE THE ISSUE HAS BEEN ALLOWED THE ALTERNATE GROU ND BECOMES INFRUCTUOUS. HENCE THE GROUND RAISED IS REJECTED. 28. IN ADDITION TO THE ABOVE GROUND THE ASSESSEE HAS R AISED AN ADDITIONAL GROUND IN ITA 5421 OF 2005 READS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE APPELLANT PRAYS THAT THE (AO) BE DIRECTED TO: I. EXCLUDE FROM TAXABLE PROFITS THE SALES TAX EXEMPTI ON BENEFIT OF RS. 7 55 70 408/- WHICH IS INCLUDED IN SALES AND W HICH IS TAXED IN THE ASSESSMENT ORDER AS PART OF PROFITS OF THE BUSINESS; AND II. TO TREAT THE SAME AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE AR POINTED OUT THAT IN EARLIER YEARS AS WELL THE ISSUE WAS TAKEN UP AS ADDITIONAL GROUND AND THE ISSUE HAD BEEN RESTORED TO THE FILE OF THE AO. HE THEREFORE PRAYED LIKE WISE THE ADDITIONAL G ROUND BE ADMITTED. 29. DR STRONGLY OBJECTED TO THE ALLOWABILITY OF ADDITIONAL GROUND. 30. ON HEARING AND ON GOING THROUGH THE ORDERS OF THE P RECEDING YEARS THE COORDINATE BENCH HAS ALLOWED THE ADMISSION OF A DDITIONAL GROUND AND WE FIND THAT THE SAME HAS BEEN RESTORED TO THE FILE OF THE AO. 31. FOR THE SAKE OF CONTINUANCE AND IN THE INTEREST OF JU STICE WE ALSO ADMIT THE ADDITIONAL GROUND AND DIRECT THE AO TO AD JUDICATE ON THE ISSUE AS PER LAW AND RELYING ON THE DECISIONS OF THE DCIT VS RELIANCE INDUSTRIES LTD. REPORTED IN 82 TTJ 765 (MUM-SB) AS DONE BY THE COORDINATE BENCH IN ITAS NO. 6668 & 6669/MUM/2003 NEEDLESS ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 8 TO MENTION THAT ADEQUATE AND REASONABLE OPPORTUNITY SH ALL BE GIVEN TO THE ASSESSEE TO PRESENT ITS CASE. 32. GROUND IS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT ITA NO. 5421/MUM/2005 IS PARTLY ALLOWED. ITA NO. 5561/MUM/2005 DEPARTMENT APPEAL : THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION MADE UNDER SE CTION.40A(9) OF THE ACT OF RS. 16 66 132/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN IGNORING THE DECISION OF HIS PREDEC ESSORS FOR A.Y.1998-99 & 1999-2000 ON IDENTICAL ISSUE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.5 68 44 0/- MADE US/.14A. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 4 54 06 220/- BEING 2/3 OF TOTAL PREMIUM PAID ON PRE-REDEMPTION OF DEBENTUR ES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE INCURR ED FOR ACQUISITION OF MARKETING AND TECHNICAL KNOW-HOW OF RS.18 67 22 219 /- IS REVENUE EXPENDITURE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN HOLDING THAT EXPENDITURE OF RS. 98 69 185/- INCURRED FOR BUY BACK OF SHARES IS REVENUE EXPENDITURE. 7. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) O N THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 33. GROUND 1 & 2 PERTAIN TO ALLOWANCE OF RS. 16 66 132/- UN DER SECTION 40A(9) BEING EXPENDITURE PAID TO SCHOOL. THE SENIOR COUNSEL SUBMITTED THAT THE ISSUE HAS BEEN THERE SINCE 1993-94 ONWARDS UPTO 1999-2000 AND IN ALL THE YEARS THE EXPENDITURE HAS BEEN ALLOWED BY THE COORDINATE BENCHES IN ITS OWN CASES (COPIES OF ITAT O RDERS PLACED IN APB AT PAGES 119 TO 202 IN THE ORDERS PERTAINING TO ASSESSMENT YEARS 1998-99 AND 1999-2000 IN ITAS NO. 6669 AND 6669/MUM/2003). 34. THE AR THEREFORE SUBMITTED THAT THE EXPENDITURE BE ALLOWED. 35. THE DR PLACED RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 9 36. ON GOING THROUGH THE ORDERS OF THE COORDINATE BENCH ES IN ASSESSEES OWN CASES AND IN ITA NO. 6668 & 6669/MUM/2 003 THE COORDINATE BENCH RELIED ON THE DECISION PERTAINING TO ASSE SSMENT YEAR 1995-96 IN ITA NO. 3207/MUM/2002 WHEREIN IT WAS HELD 2.9 THE GROUND NO.9 IS REGARDING DISALLOWANCE OF RS.19 05 496/- UNDER SECTION 40A (9). THE SAID EXPENDITURE HAD BEE N INCURRED BY THE ASSESSEE ON PAYMENT MADE TO SCHOOLS AT VERAV AL AND MALKHED WHEREIN THE CHILDREN OF THE EMPLOYEES OF TH E COMPANY WERE STUDYING. THE AO DISALLOWED THE EXPENDITURE UN DER SECTION 40A(9). THE SAID SECTION PROVIDES THAT NO DEDUCTION COULD BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS SETTING UP OR FORMATION OF OR AS C ONTRIBUTION TO ANY FUND/ TRUST COMPANY ASSOCIATION OF PERSONS B ODY OF INDIVIDUALS SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT OR OTHER INSTITUTION FOR ANY PURPOSE EXCEPT WHE RESUM IS SO PAID FOR THE PURPOSES AND TO THE EXTENT PROVIDED FO R UNDER CLAUSE (IV) OR CLAUSE (V) OF SUB SECTION (1) OF SEC TION 36 OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEI NG IN FORCE. THE ASSESSEE ARGUED THAT PROVISIONS OF SECTION 40A( 9) WERE NOT APPLICABLE AND THE EXPENDITURE WAS ALLOWABLE AS REV ENUE EXPENDITURE UNDER SECTION 37(1). CIT(A) HOWEVER FOL LOWING THE DECISION IN ASSESSMENT YEAR 1994-95 CONFIRMED THE DISALLOWANCE. AGGRIEVED BY THE SAID DECISION THE AS SESSEE IS IN APPEAL. 2.9.1 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. WE FI ND THAT THE SAME ISSUE HAD BEEN CONSIDERED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN ASSESSMENT YEAR 1994-95 IN ITA NO.2326/ M/2001. IN THAT YEAR ALSO DISALLOWANCE HAD BEEN MADE UNDER SECTION 40A(9) IN RESPECT OF PAYMENTS MADE TO INDRAYAN SCHO OL. THE TRIBUNAL HOWEVER FOLLOWING THE DECISION IN A.Y.1992 -93 AND 1993-94 ALLOWED THE CLAIM. FACTS THIS YEAR ARE IDEN TICAL. THEREFORE FOLLOWING THE DECISION OF THE TRIBUNAL (S UPRA) WE SET ASIDE THE ORDER OF CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE. 19 THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1995-96 WE ALLOW THE CLAIM OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AL SO. 37. SINCE THE ISSUE IS IDENTICAL WE THEREFORE RESPECTFULLY FOLLO WING THE DECISIONS OF THE COORDINATE BENCHES IN ASSESSEES OW N CASE SUSTAIN THE ORDER OF THE CIT(A). 38. GROUNDS NO. 1 & 2 ARE REJECTED. 39. GROUND NO. 3 PERTAINS TO DISALLOWANCE OF EXPENSE AT 1% UNDER SECTION 14A OF THE INCOME TAX ACT. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 10 40. THE AO HAD DISALLOWED THE EXPENDITURE @ 1% AND THE C IT(A) DELETED THE DISALLOWANCE. 41. AT THE TIME OF HEARING THE SENIOR COUNSEL ACCEPTED T HE DISALLOWANCE MADE BY THE AO @ 1% OF EXEMPT INCOME. 42. THE GROUND IS THEREFORE ALLOWED. 43. GROUND NO. 4 PERTAINED TO DELETION OF RS. 4 54 06 220/- B EING 2/3 OF TOTAL PREMIUM ON PRE-REDEMPTION OF DEBENTURE. 44. IN THE ASSESSMENT PROCEEDINGS THE AO ACCEPTED THE EXPENSE TO BE REVENUE BUT PUT A RIDER THAT SINCE THE REDEMPTION IS BEING MADE THREE YEARS IN ADVANCE THE EXPENSE SHALL BE ALLOWED ON E QUATED AMOUNTS SPREADING IN THREE YEARS. THE AO THEREFORE CONC LUDED THAT ONLY 1/3 EXPENDITURE SHALL BE ALLOWED IN THE CURRENT YEAR AND BALANCE TO BE ALLOWED IN SUBSEQUENT TWO YEARS. 45. THE ISSUE CAME UP BEFORE THE CIT(A) WHO FOLLOWING THE DE CISION OF COORDINATE BENCH AT CHENNAI IN THE CASE OF OVERSEAS S ANMAR FINANCIAL LTD. REPORTED IN 86 ITD 602 AND BOMBAY HIGH COU RT IN THE CASE OF CIT VS BHOR INDUSTRIES LTD. REPORTED IN 264 IT R 180 ALLOWED THE EXPENDITURE. 46. THE AR PLEADED THAT THE DECISION OF THE CIT(A) IS AS PE R LAW AND IS NOW SQUARELY COVERED BY THE DECISION OF ACIT VS GRIND WELL WORTON LTD. IN ITA NO. 5512/MUM/2007 WHERE ONE OF US WAS PARTY TO THE ORDER IT WAS HELD IN THE PRESENT CASE WE ARE CONCERNED WITH A CASE WHERE DEBENTURES REDEEMED MUCH PRIOR TO THE PERIOD FOR WHICH THEY WE RE ISSUED. IN OTHER WORDS THE CONTRACTUAL TERMS OF ISSUE OF THE DEBENT URES WERE NOT FULFILLED AND THERE WAS A NOVATION OF CONTRACT BETW EEN THE ASSESSEE AND THE DEBENTURE HOLDERS. IN SUCH CIRCUMSTANCES WE AR E OF THE VIEW THAT THE YEAR IN WHICH THE EXPENDITURE IN THE FORM OF PR EMIUM REDEMPTION OF DEBENTURES SHOULD BE ALLOWED. WE ORDER ACCORDINGLY. GR. NO.4 RAISED BY THE ASSESSEE IS ALLOWED. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 11 47. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DE CISION IN THE CASE OF GRIND WELL ( SUPRA ) WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH SUSTAIN THE ORDER OF THE CIT(A) AND REJECT THE DECISION OF THE AO ON THE ISSUE. 48. GROUND NO. 4 IS REJECTED. 49. GROUND NO. 5 PERTAINS TO ALLOWANCE OF EXPENDITURE ON ACQUISITION OF MARKETING AND TECHNICAL KNOW-HOW OF RS. 18 67 22 219/- AS REVENUE EXPENDITURE. 50. IN THE ASSESSMENT PROCEEDINGS THE AO BIFURCATED THE EXPENDITURES AS TECHNICAL KNOW-HOW EXPENSES AND MARKET ING KNOW- HOW EXPENSES AT RS. 14.05 CRORES AND 5.61 CRORES RESPE CTIVELY AND ALLOWED THE SAME TO BE AS DEFERRED REVENUE EXPENSES TO BE WRITTEN OFF IN 5 YEARS. 51. THE CIT(A) ACCEPTED THE SUBMISSIONS OF THE ASSESSEE A ND ALLOWED THE SAME PLACING RELIANCE ON THE DECISION OF KEDARNATH JUT E MANUFACTURING CO. LTD. VS CIT REPORTED IN 82 ITR 363 (SC) AND THE DECISION OF COORDINATE BENCH IN THE CASE OF AMAR RAJA BAT TERIES LTD. VS ACIT REPORTED IN 272 ITR 17 (AT) WHEREIN IT HAS BEEN HELD .THAT ADMITTEDLY THE EXPENDITURE WAS IN THE REVENUE FIELD. . THUS THE ARGUMENT OF THE REVENUE WAS TO BE REJECTED. THE ENTI RE ADVERTISEMENT EXPENDITURE FOR PRODUCT LAUNCHING WAS TO BE ALLOWED I N THE ASSESSMENT YEAR XXXXX AND ACCORDINGLY THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT EXPENDITURE WAS DELETED . THE SENIOR COUNSEL SUBMITTED THAT ONCE THE EXPENDITURE IS HELD TO BE REVEN UE EXPENDITURE THEN IT HAS TO BE ALLOWED. THE AR THEREFORE SUPPORTED TH E ORDER OF THE CIT(A). 52. ON THE OTHER HAND THE DR PLACED HEAVY RELIANCE ON T HE ORDER OF THE AO. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 12 53. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY HELD THAT THE EXPENDITURE HAS TO BE ALLOWED ONCE IT IS HELD TO BE IN REVENUE FIELD. 54. WE THEREFORE SUSTAIN THE ORDER OF THE CIT(A) ON THE ISSUE AND REJECT THE GROUND TAKEN BY THE AO. 55. GROUND NO. 5 IS REJECTED. 56. GROUND NO. 6 PERTAINS TO BUY BACK OF SHARES. 57. THE ISSUE HAS BEEN DEALT WITH IN ITA NO. 5421/MUM/200 5 WHEREIN WE HAVE ALLOWED THE ENTIRE EXPENDITURE OF RS. 98 69 185/- AS REVENUE EXPENDITURE WHICH INCLUDES THE IMPUGNED EXPENDITU RE OF RS. 74 08 172/-. 58. WE THEREFORE REJECT THE GROUND OF APPEAL. IN THE RESULT THE APPEAL FILED BY THE DEPARTMENT IS PARTLY ALLOWED. ASSESSMENT YEAR 2001-02 ITA NO. 5422/MUM/2005 (ASSESSEES APPEAL): 59. AT THE TIME OF HEARING THE SENIOR COUNSEL PLACED BEFOR E US A CHART/SYNOPSIS MENTIONING THE STATUS OF EACH GROUND WHIC H HAD BEEN DEALT WITH AND DECIDED IN THE PRECEDING YEAR(S) WHICH THE DR ALSO ACCEPTED TO BE CORRECT. WE THEREFORE ARE PROCEEDING O N GROUNDS BRIEFLY. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: (1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX (HEREI N AFTER REFERRED TO AS ACIT) HAS ERRED IN MAKING DISALLOWANCE OF RS.5 7 2 764/- BEING RURAL DEVELOPMENT EXPENDITURE INCURRED BY THE APPELLANT A ND LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (HEREIN AFTER REFERRED TO AS CIT (A)) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARN ED ACIT. THE LEARNED ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 13 ACIT BE DIRECTED TO ALLOW THE CLAIM OF RS.5 72 764/ - AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. (2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ACIT HAS ERRED IN DISALLOWING RS. 9 731/- B EING DEPRECIATION CLAIMED BY THE APPELLANT ON ROLL OVER CHARGES AND L EARNED CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ACIT. THE LEARNED ACIT BE DIRECTED TO ALLOW THE DEPRECIATION OF RS. RS. 9 731 /- ON ROLL OVER CHARGES AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. (3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ACIT HAS ERRED IN DISALLOWING RS. 19 20 39 222/- BEING DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 80 HHC [READ WITH CIRCULAR NO. 680 DATED 21.2.1994] FROM MAT INCOME A S PER PROVISIONS OF SEC 115JB CALCULATED BASED ON BOOK PROFIT AND LEARN ED CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ACIT. THE LEARNED ACIT BE DIRECTED TO ALLOW THE DEDUCTION OF RS. 19 20 39 222 /- CLAIMED BY THE APPELLANT UNDER SECTION 80HHC [READ WITH CIRCULAR N O. 680 DATED 21.2.1994] AND TO REDUCE THE TOTAL INCOME UNDER SEC TION 115JB ACCORDINGLY. (4) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ACIT HAS ERRED IN CHARGING INTEREST OF RS. 7 28 052/- UNDER SECTION 234D OF THE ACT AND LEARNED CIT (A) HAS ERR ED IN NOT DECIDING THIS ISSUE IN HIS APPELLATE ORDER. THE LEARNED ACIT BE DIRECTED NOT TO CHARGE INTEREST UNDER SECTION 234D OF THE ACT AND T O REDUCE THE DEMAND ACCORDINGLY. (5) WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLA NT THAT THE DEBENTURE ISSUE EXPENDITURE INCURRED BY THE APPELLANT DURING THE PR EVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 1988-89 AND 1989-90 IS REVENUE EXPENDITURE HOWEVER; IF IT IS HELD IN THOSE YEARS THAT THE DEBENTURE ISSUE EXPENDITURE IS NOT REVENUE EXPENDITURE THE AP PELLANT CLAIMS THAT THE SAID EXPENDITURE BE CAPITALIZED TO THE ACTUAL C OST OF FIXED ASSETS AND DEPRECIATION BE ALLOWED ON THE SAME ACCORDINGLY. TH E LEARNED ACIT BE DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION ON THE SAID DEBENTURE ISSUE EXPENDITURE AND TO REDUCE THE INCOME COMPUTED AS PE R PROVISIONS OF MAT ACCORDINGLY. WITHOUT PREJUDICE TO THE ABOVE IF IT IS HELD THAT SAID EXPENDITURE IS NEITHER A REVENUE EXPENDITURE NOR CAPITAL EXPENDITU RE WHICH ENHANCES THE ACTUAL COST OF FIXED ASSETS THE APPELLANT ALTE RNATIVELY CLAIMS THAT DEDUCTION UNDER SECTION 35D BE ALLOWED ON THE SAID DEBENTURE ISSUE EXPENDITURE. THE LEARNED ACIT BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION UNDER SECTION 35D ON DEBENTURE ISSUE EXPE NDITURE AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. (6) WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLAN T THAT THE DEDUCTION CLAIMED UNDER SECTION 36(1)(III) FOR INTEREST ON LO ANS TAKEN FOR NEW PROJECTS/ EXPANSION / MODERNIZATION DURING ASSESSME NT YEARS 1994-95 TO 1999-2000 IS REVENUE EXPENDITURE HOWEVER IF IT IS HELD IN THOSE YEARS THAT THE SAID EXPENDITURE IS NOT REVENUE EXPE NDITURE THE APPELLANT CLAIMS THAT THE SAID EXPENDITURE BE CAPIT ALIZED TO THE ACTUAL COST OF FIXED ASSETS AND DEPRECIATION BE ALLOWED ON THE SAME AND TO REDUCE THE TOTAL INCOME COMPUTED AS PER PROVISIONS OF MAT ACCORDINGLY. 60. GROUND NO. 1 PERTAINS TO DISALLOWANCE OF RS. 5 72 764/- B EING RURAL DEVELOPMENT EXPENDITURE. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 14 61. THIS ISSUE HAS BEEN DEALT WITH BY US IN ITA NO. 5421/MUM/2005 WHEREIN WE HAVE ALLOWED THE EXPENDITURE. RELYING ON OUR OWN DECISION AS TAKEN BY US WE ALLOW THE GROUND WHEREIN WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE AO IS DIRECTED TO DELETE THE ADDITION. 62. GROUND NO. 1 IS THUS ALLOWED. 63. GROUND NO. 2 PERTAINS TO DISALLOWANCE OF RS. 9 713/- BEI NG DEPRECIATION ON ROLL OVER CHARGES. 64. THE EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPENDIT URE THUS THIS GROUND BECOMES INFRUCTUOUS IN SO FAR AS THE INSTANT APPEAL IS CONCERNED. 65. GROUND NO. 2 IS THUS REJECTED. 66. GROUND NO. 3 PERTAINS TO DISALLOWANCE OF RS. 19 20 39 222 /- BEING DEDUCTION CLAIMED UNDER SECTION 80HHC ON MAT PROVISIONS. 67. AT THE TIME OF HEARING THE SENIOR COUNSEL SUBMITTED T HAT THE ISSUE IS SQUARELY COVERED BY VARIOUS DECISION AS REFERRED TO IN THE SYNOPSIS FILED. THE SENIOR COUNSEL FURTHER SUBMITTED THAT IN THE LATEST DECISION IN THE CASE OF CIT VS BHARI INFORMATION TECH. SY S. P. LTD. REPORTED IN 340 ITR 593 HONBLE SUPREME COURT HELD IN THE PRESENT CASE WE ARE CONCERNED WITH SECTION 80HHE WHICH IS RE FERRED TO IN THE EXPLANATION TO SECTION 115JA CLAUSE (IX). IN OUR VI EW THE JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL IN SYNCOME FORMULATI ONS SQUARELY APPLIES TO THE PRESENT CASE. THE HONBLE SUPREME COURT AFTER UPHOLDING THE DECISION OF THE SPECIAL BENCH IN SYNCOME FO RMULATIONS HELD WE SEE NO REASON TO INTERFERE WITH THE JUDGMENT. . THE SENIOR COUNSEL THEREFORE PRAYED THAT DISALLOWANCE BE DELETED. HE FURTHER SUBMITTED THAT IN ALL FAIRNESS THAT THE ISSUE NEEDS TO BE RESTORED TO THE FILE OF THE AO AS THERE IS NO FORMAL CALCULATIONS DONE BY THE AO ON THE ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 15 ISSUE INVOLVED. ON THE OTHER HAND THE DR PLEADED THAT TH E REVENUE AUTHORITIES WERE CORRECT IN MAKING THE DISALLOWANCE. 68. WE HAVE HEARD THE ARGUMENTS MADE BY BOTH THE PAR TIES AND THE CASES CITED BEFORE US. THE FACT AS ACCEPTED BY THE DR A S WELL WAS THAT THE AO HAS NOT MADE ANY CALCULATIONS WITH REGARD TO THE IMPUGNED ISSUE. 69. NOW THAT THE ASSESSEE HAS PLACED RELIANCE ON VARIOUS DECISIONS INCLUDING THAT OF HONBLE SUPREME COURT WE ARE OF THE CON SIDERED OPINION THAT THE ISSUE NEEDS TO BE REVISITED BY THE AO IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BH ARI INFORMATION TECH. SYSTEMS PVT. LTD. REPORTED IN 340 ITR 593. 70. AS A RESULT THE ORDER OF THE CIT(A) IS SET ASIDE ON TH IS ISSUE AND THE AO IS DIRECTED TO RECOMPUTE DEDUCTION UNDER SECTION 80HHC UN DER MAT PROVISIONS AS PER LAW AND KEEPING IN VIEW THE DECISION OF BHARI INFORMATION ( SUPRA ). 71. THE GROUND NO. 3 IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 72. GROUND NO. 4 PERTAINS TO CHARGE OF INTEREST UNDER SECTION 234D . 73. THE CHARGE IS CONSEQUENTIAL AND HAS TO BE COMPUTED ACCORDING TO LAW AFTER GIVING EFFECT TO THE INSTANT ORDERS. THE ASSES SEE HAS PLEADED IN THE RELEVANT GROUND THAT THE AO HAS NOT COM PUTED THE INTEREST AS PER LAW. WE THEREFORE DIRECT THE AO TO RECOM PUTED IN IMPUGNED INTEREST AS PER LAW AND PER THE DECISION RENDER ED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIAN OIL CORP. R EPORTED IN 78 DTR 361. 74. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 75. GROUND NO. 5 ARE ALTERNATE GROUNDS TAKEN WITH RESPE CT OF ALLOWANCE OF EXPENSES INCURRED ON NCD AND FCD. IN THE SY NOPSIS FILED AND AS SUBMITTED THE GROUND BECOMES INFRUCTUOUS IN SO FA R AS THE ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 16 INSTANT APPEAL IS CONCERNED AS THE REVENUE AUTHORITIES H AVE ALLOWED EXPENSES TOWARDS NCD AS REVENUE EXPENSES AND EXPENS ES INCURRED TOWARDS FCDS HAVE BEEN ALLOWED UNDER SECTION 35D. 76. THE GROUND IS REJECTED AS NOT PRESSED. 80. GROUND NO. 6 PERTAINS TO DEPRECIATION ON INTEREST C APITALIZATION ON LOAN. 77. THE GROUND WAS TAKEN AS AN ABUNDANT CAUTION. SINCE THE ISSUE HAS BEEN DECIDED BY VARIOUS DECISION BY THE COORDINATE B ENCH IN THE CASE OF THE ASSESSEE IN VARIOUS YEARS ALLOWING THE EXPEN SE UNDER SECTION 36(1)(III) AND ALSO WE HAVE HELD THE ISSUE IN THIS ORDER ITSELF IN ITA NO. 5421/MUM/2005 FOLLOWING THE SAME WE HOLD THAT IN T HE INSTANT APPEAL THE GROUND IS INFRUCTUOUS HENCE REJECTED. 78. IN ADDITION TO THE ABOVE THE ASSESSEE HAS RAISED AD DITIONAL GROUNDS OF APPEAL WHICH ARE AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED AO OUGHT TO HAVE ALLOWED 100% OF THE EXPORT PROFIT AS DEDUCTION UNDER SECTION 80HHC FROM BOOK PROFITS (IG NORING THE SUBSECTION (1B) OF SECTION 80HHC) CALCULATED ON TH E BASIS OF ADJUSTED BOOKS PROFITS UNDER SECTION 115JB. 79. ADDITIONAL GROUND NO. 1: THE ISSUE IS IDENTICAL AS THAT IN ASSESSMENT YEAR 2000-01 WHEREIN WE HAVE RESTORED THE ISSUE BACK TO THE FILE OF THE AO AS HAS BEEN DONE IN THE PRECEDING YE ARS BY THE COORDINATE BENCHES IN THE CASE OF THE ASSESSEE. FOR THE SAKE OF CONSISTENCY WE RESTORE THE ISSUE TO THE FILE OF THE AO WH O SHALL ADJUDICATE THE ISSUE AFRESH IN LIGHT OF THE DECISIONS OF DCIT VS RELIANCE INDUSTRIES LTD. REPORTED IN 82 TTJ 765 (MUM SB) NEEDLES S TO MENTION THAT ADEQUATE AND REASONABLE OPPORTUNITY SHALL BE GIVEN TO THE ASSESSEE TO PRESENT ITS CASE. 80. ADDITIONAL GROUND NO. 2 PERTAINS TO COMPUTATION OF DEDU CTION UNDER SECTION 80HHC IGNORING SUBSECTION (1B) FOR THE PURPO SES OF MAT PROVISION. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 17 81. THE GROUND DOES NOT EMANATE FROM THE IMPUGNED ORDE R WE THEREFORE REFRAIN FROM ADMITTING THE SAME AT THIS STAGE. 82. ADDITIONAL GROUND NO. 2 IS THEREFORE REJECTED. 83. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 5530/MUM/2005 (DEPARTMENT APPEAL) : 84. GROUND NO. 1 IS DELETION OF DISALLOWANCE UNDER SECTION 14 A COMPUTED @ 1% OF THE EXEMPT INCOME BY THE CIT(A). 85. WE HAVE SUSTAINED THE DISALLOWANCE UNDER SECTION 14A IN ITA NO. 5561/MUM/2005. FOLLOWING THE SAME WE REVERSE THE ORD ER OF THE CIT(A) AND SUSTAIN THE DISALLOWANCE AS COMPUTED BY THE A O AT RS. 4 56 257/-. 86. GROUND NO. 1 IS THEREFORE ALLOWED. 87. GROUND NO. 2 PERTAINS TO DELETION OF RS. 10 33 47 020/- U NDER SECTION 80HHC AS PER THE PROVISION OF SECTION 115JB. 88. THE DR SUBMITTED THAT THE ISSUE NEEDS TO BE EXAMINE D BY THE AO. 89. THE AR CONTESTED THE PRAYER OF THE DR SUBMITTING T HAT THE CASE OF SHIRKE CONSTRUCTION REPORTED IN 291 ITR 380 SQUARELY APPLIES ON T HE ISSUE WHEREIN THE HONBLE SUPREME COURT OF INDIA RELYING ON THE DECISION OF P.R. PRABHAKAR VS CIT REPORTED IN (2006) 6 SCC 86 EXPLAINED THE DECISIONS RENDERED IN IPCA LABORATORY LT D. AND INDUFLEX PRODUCTS P LTD. 90. WE HAVE HEARD THE ARGUMENTS AND THE ISSUE IN QUEST ION PERTAINS TO ADJUSTMENT OF DEDUCTION UNDER SECTION 80HHC COMPUTED ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 18 ON INCOME TAKEN UNDER SECTION 115JB. THE ISSUE HAS BEEN DEALT WITH IN DETAIL BY THE CIT(A) WHEREIN HE HAS HELD 10.2 I HAVE CAREFULLY GONE THROUGH THE DETAILED S UBMISSIONS MADE BY THE APPELLANT. THE CONTROVERSY INVOLVED IS ON THE INTER PRETATION OF PROVISO TO SUB SECTION 3 SECTION 8OHHC. AS PER THE APPELLANT I F THERE IS ANY LOSS SUFFERED UNDER THE SAME SUB SECTION 3 OF SECTION 8O HHC THE SAME SHALL BE IGNORED AND DEDUCTION SHALL BE ALLOWED IN RESPECT OF INCOME COMPUTED AS PER THE PROVISO TO SECTION 8OHHC(3). TH E APPELLANT HAS RELIED ON THE DETAILED SUBMISSIONS MADE TO THE AO A ND FOLLOWING JUDGMENTS I) ACIT VS. PRATHIBA SYNTEX (106 TAXMANN 32) II) AVON CYCLES VS. ACIT (59 TTJ 75) III) A.M.MOOSA VS. ITO (54 TTA 193) IV) VISHAL EXPORTS OVERSEAS LTD. MUMBAI VS. ITO ( ITAT I BENCH IN ITA NO. 1 248/MUM12002 JUDGMENT DATED 28.1.2003) . V) CIT VS SMT T.C.USHA (132 TAXMANN 297) VI) M/S. LALSONS ENTERPRISES NEW DELHI VS. DCIT 10.3 THE APPELLANT ALSO STATED THAT THE JUDGMENT O F HONBLE SUPREME COURT WAS ON THE INTERPRETATION OF APPLICATION OF SUB-SEC TION 3 ITSELF AND NOT ON THE PROVISION TO SUB-SECTION 3. IT WAS POINTED O UT THAT THE ORDER THE HONBLE ITAT SPECIAL BENCH IN CASE OF LALSON ENTERPRISES APPLIES TO THE FACTS OF THE CASE. WHEREAS THE AO RELIED UPON THE HONBLE ITAT BENCH INDORE JUDGMENT IN CASE OF PRESTIGE FOODS LTD. AND HONBLE SUPREME COURT DECISION IN CASE OF IPCA LABORATORIES LTD. VS CIT. 10.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE BY THE APPELLANT AND THE AO. I AM IN AGREEMENT WITH THE APPELLANT THAT T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATOR IES LTD. DOES NOT APPLY TO THE FACTS OF THE INSTANT CASE. ON THE CONT RARY THE PROVISO TO SUB- SECTION 3 HAS BEEN INTERPRETED BY THE HONBLE ITAT SPECIAL BENCH IN THE CASE OF LALSONS ENTERPRISES. THE HONBLE SPECIAL BE NCH OF ITAT HAS HELD THAT IN CASE THE COMPUTATION OF PROFIT UNDER S UB-SECTION 3 IS NEGATIVE THEN THE APPLICATION OF PROVISO WOULD HAVE TO BE INDEPENDENT AND THAT THE DEDUCTION UNDER SECTION 8OHHC WOULD BE THE AMOUNT WORKED OUT UNDER PROVISO TO SUB-SECTION 3 OF SECTIO N 8OHHC. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 91. WE DO NOT FIND ANY REASON TO DEVIATE FROM THE DECISION TAKEN BY THE CTI(A) WHICH WE SUSTAIN WE THEREFORE REJECT THE GROU ND TAKEN BY THE DEPARTMENT. 92. IN THE RESULT THE APPEAL FILED BY THE DEPARTMENT IS PA RTLY ALLOWED. TO SUM UP: ASSESSEES APPEAL IN ITA 5421/MUM/2005 IS PARTLY ALLOWED REVENUES APPEAL IN ITA 5561/MUM/2005 IS PARTLY ALLOWED. ASSESSEES APPEAL IN ITA 5422/MUM/2005 IS PARTLY ALLOWED. ADITYA BIRLA NUVO LTD. ERSTWHILE INDIAN RAYON & INDUSTRIES LTD ITAS NO. 5421 & 5561/MUM/2005 ITAS NO. 5422 & 5530/MUM/2005 19 REVENUES APPEAL IN ITA 5530/MUM/2005 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER 2013. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATE: 9 TH OCTOBER 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) & & ' ( ) III/CON__MUMBAI / THE CIT (A)- III CON__ MUMBAI. 4) & & ' 3/CON__ MUMBAI / THE CIT3 /CON__ MUMBAI 5) ()* + & & + - / 6) *. / COPY TO GUARD FILE. &01 / BY ORDER / / TRUE COPY / / [ 2 / 3 4 & + - DY. / ASSTT. REGISTRAR I.T.A.T. MUMBAI *673 . . * CHAVAN SR. PS