THE ACIT, Circle -1, Ahmedabad v. CORE HEALTHCARE LTD., Ahmedabad

ITA 573/AHD/2003 | 1997-1998
Pronouncement Date: 22-01-2010 | Result: Dismissed

Appeal Details

RSA Number 57320514 RSA 2003
Assessee PAN OFTHE1961A
Bench Ahmedabad
Appeal Number ITA 573/AHD/2003
Duration Of Justice 6 year(s) 11 month(s) 12 day(s)
Appellant THE ACIT, Circle -1, Ahmedabad
Respondent CORE HEALTHCARE LTD., Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-01-2010
Date Of Final Hearing 12-01-2010
Next Hearing Date 12-01-2010
Assessment Year 1997-1998
Appeal Filed On 10-02-2003
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI MAHAVIR SINGH JM & SHRI A.N. PAHUJA A M I.T.A. NO. 1195/AHD/2004 - AY 1996-97 I.T.A. NO. 573/AHD/2003 - AY 1997-98 ACIT CIRCLE-1 VS CORE HEALTHCARE LTD AHMEDABAD CORE TOWERS NEAR ARIMAL RAILWAY CROSSI NG ELLISBRIDGE AHMEDABAD [PAN : 31-084-CT-0254] (APPELLANT) (RESPONDENT) C.O. NO. 88/AHD/2008 (ARISING OUT OF ITA NO. 1195/AHD/2004) (ASSESSMENT YEAR 1996-97) CORE HEALTHCARE LTD VS ACIT CIR.1 AHMEDABAD AHMEDABAD (CROSS OBJECTOR) (RESPONDENT) REVENUE BY : SHRI SHELLEY JINDAL DR ASSESSEE BY : SHRI SN SOPARKAR / SHRI HIMANSHU SHAH ARS O R D E R AN PAHUJA : THESE TWO APPEALS BY THE REVENUE AGAINST AN ORDER DATED 30.1.2004 FOR THE AY 1996-97 AND ORDER DATED 22.11 .2002 FOR THE AY 1997-98 OF THE CIT(A)-V AHMEDABAD AND CROSS- OB JECTION BY THE ASSESSEE IN THE AY 1996-97 RAISE A NUMBER OF COM MON ISSUES. THEREFORE THESE APPEALS AND THE CROSS OBJECTION WE RE HEARD SIMULTANEOUSLY FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 2. GROUND NO. 1 IN BOTH THE APPEALS OF THE REVENUE PERTAINS TO DEDUCTION OF INTEREST U/S 36(1)(III) OF THE INCOME -TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT]. THE ASSESSING OFFICER[A O IN SHORT] NOTICED THAT THOUGH THE ASSESSEE HAD BORROWED FUNDS FOR THE ONGO ING EXPANSION CUM 1195& 573/AHD/2004& CO 88/AHD./2008 2 DIVERSIFICATION PROGRAMME AND HAD ACCORDINGLY CAPI TALIZED THE INTEREST ON BORROWED FUNDS IN THEIR BOOKS OF ACCOUNTS THE AMOU NT WAS CLAIMED AS REVENUE EXPENDITURE IN THE COMPUTATION OF INCOME R ELYING INTER ALIA ON THE DECISIONS IN THE CASE OF CIT VS. ALEMBIC GLASS INDUSTRIES LTD. 103 ITR 715 AND INDIA CEMENTS LTD. VS. CIT 60 ITR. IN THESE CIRCUMSTANCES RELYING UPON HIS OWN ORDERS FOR THE PRECEDING YEARS THE AO DISALLOWED THIS EXPENDITURE HOLDING THAT EXPENDITURE CAPITALI ZED IN ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTANCY COULD NOT BE TREATED AS REVENUE EXPENDITURE. 2.1 ON APPEAL THE LD. CIT(A) ALLOWED THE CLAIM FOLLOWING HIS OWN ORDER FOR THE AY 1997-98 WHEREIN ORDERS OF THE IT AT FOR THE AYS. 1992- 93 & 1993-94 WERE RELIED UPON. 2.2 THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE APEX COURT I N THE ASSESSEES OWN CASE FOR THE AY 1992-93 REPORTED IN 298 ITR 194. 2.3 AFTER HEARING THE PARTIES WE FIND THAT THE ITAT AHMEDABAD C BENCH IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 1994-95 AND 1995- 96 VIDE THREIR ORDER DATED 19-06-2009 IN ITA NO.14 92 & 1493/AHD/2000 WHILE FOLLOWING THE JUDGMENT OF THE HONBLE GUJAR AT HIGH COURT IN ASSESSEES OWN CASE WHICH WAS LATER AFFIRMED BY TH E HONBLE APEX COURT IN THEIR JUDGMENT REPORTED IN 298 ITR 194 (SC) AS A LSO DECISION DATED 29.3.2001 IN ITA NO.445/AHD./1997 FOR THE AY 1993-9 4 IN THE ASSESSEES OWN CASE ALLOWED A SIMILAR CLAIM IN THE FOLLOWING TERMS: 9.GROUND NO.3 FOR THE ASSESSMENT YEAR 1994-95 AND GROUND NO.1 IN THE APPEAL FOR THE AY 1995-96 RELATE TO THE DELE TION OF THE DISALLOWANCE OF PRIOR PERIOD INTEREST AMOUNTING TO RS.3 20 22 266/- AND RS.5 50 00 000 RESPECTIVELY. THIS ISSUE IS NOW COVERED IN 1195& 573/AHD/2004& CO 88/AHD./2008 3 FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONB LE GUJARAT HIGH COURT IN THE ASSESSEES OWN CASE REPORTED 251 ITR 6 1 WHICH HAS SINCE BEEN AFFIRMED BY THE SUPREME COURT IN THE JUD GMENT REPORTED IN 298 ITR 194. THE AO HAS DISALLOWED THE INTEREST ON THE GROUND THAT IT WAS INCURRED IN RESPECT OF LOANS TAKEN FOR THE PURCHASE ERECTION INSTALLATION AND TRIAL RUN OF A NEW BOTTL E PACKAGING UNIT IN RAJPUR WHICH IS ABOUT 30 KILOMETERS FROM AHMEDABAD . THE AO HAS TREATED THAT THIS UNIT TO BE SEPARATE AND A NEW BUSINESS QUITE APART FROM THE EXISTING BUSINESS OF THE ASSESSEE IN ITS AHMEDABAD UNIT WHICH WAS THAT OF MANUFACTURE AND SALE OF IV FLUIDS. THE JUDGMENT OF THE SUPREME COURT IN THE ASSESSEES OWN CASE RELATES TO THE ASSESSMENT YEAR 1992-93. A PERUSAL OF THE J UDGMENT OF THE HONBLE GUJARAT HIGH COURT OF THAT YEAR WHICH WAS AFFIRMED BY THE SUPREME COURT SHOWS THAT IT DEALS WITH THE SAME IS SUE. THE COMMERCIAL PRODUCTION IN THE RAJPUR UNIT HAD COMMEN CED IN FEBRUARY 1988 AND THE NEW MACHINERY PURCHASED DURI NG THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1992- 93 WERE INSTALLED IN RAJPUR WHERE THE MANUFACTURING OPERATI ONS HAD ALREADY COMMENCED. THE HIGH COURT AFFIRMED THE ORDER OF TH E TRIBUNAL ALLOWING THE INTEREST FOR THE PERIOD. THE JUDGMENT OF THE HONBLE HIGH COURT WAS AFFIRMED BY THE SUPREME COURT. THE AO HAS STATED IN THE ASSESSMENT ORDER FOR THE YEAR UNDER APPEAL T HAT THE FACTS ARE THE SAME AS IN THE EARLIER YEARS. IN RESPECT OF TH E ASSESSMENT YEAR 1993-94 THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE IN ITS ORDER DATED 29-3-2001 IN ITA NO.445 /AHD.1997 (COPY FILED). RESPECTFULLY FOLLOWING THE JUDGMENTS AND ORDERS CITED ABOVE PASSED IN THE ASSESSEES OWN CASE FOR THE EAR LIER YEARS WE AFFIRM THE DECISION OF THE CIT(A) ON THIS POINT FOR BOTH THE YEARS AND DISMISS THE GROUNDS OF THE DEPARTMENT. 2.31 AS POINTED OUT BY THE LD. AR THE ISSUE R EGARDING CLAIM FOR DEDUCTION OF INTEREST ON BORROWED FUNDS HAS NOW BEE N SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE AFORES AID CASE OF CORE HEALTH CARE LTD. (SUPRA) WHEREIN IT WAS HELD: IN THE CASE OF CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 THIS COURT OBSERVED THAT INTEREST PAID ON THE BORROWING UTILIS ED TO BRING INTO EXISTENCE A FIXED ASSET WHICH HAS NOT GONE INTO PRODUCTION G OES TO ADD TO THE COST OF INSTALLATION OF THAT ASSET. IT WAS FURTHER OBSER VED THAT IF THE SAID BORROWING WAS NOT 'FOR THE PURPOSE OF BUSINESS' INA SMUCH AS NO BUSINESS HAD COME INTO EXISTENCE IT MUST FOLLOW THAT IT WAS MADE FOR THE PURPOSE OF ACQUIRING AN ASSET WHICH COULD BE PUT TO USE FOR DO ING BUSINESS AND HENCE INTEREST PAID ON SUCH BORROWING WOULD GO TO A DD TO THE COST OF THE ASSETS SO ACQUIRED. 1195& 573/AHD/2004& CO 88/AHD./2008 4 IN OUR VIEW THE ABOVE OBSERVATIONS HAVE TO BE CONFI NED TO THE FACTS IN THE CASE OF CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 (SC). IT WAS A CASE WHERE THE COMPANY HAD NOT YET STARTED PRODUCTION WH EN IT BORROWED THE AMOUNT IN QUESTION. THE MORE APPROPRIATE DECISION A PPLICABLE TO THE PRESENT CASE WOULD BE THE JUDGMENT. OF THIS COURT I N THE CASE OF INDIA CEMENTS LTD. V. CIT [1966] 60 ITR 52 IN WHICH IT HAS BEEN OBSERVED THAT FOR CONSIDERING WHETHER PAYMENT OF INTEREST ON BORR OWING IS REVENUE EXPENDITURE OR NOT THE PURPOSE FOR WHICH THE BORRO WING IS MADE IS IRRELEVANT. IN OUR VIEW SECTION 36(1)(III) OF THE 1961 ACT HAS TO BE READ ON ITS OWN TERMS. IT IS A CODE BY ITSELF. SECTION 36(1 )(III) IS ATTRACTED WHEN THE ASSESSEE BORROWS THE CAPITAL FOR THE PURPOSE OF HIS BUSINESS. IT DOES NOT MATTER WHETHER THE CAPITAL IS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET BECAUSE ALL THAT THE SECT ION REQUIRES IS THAT THE ASSESSEE MUST BORROW THE CAPITAL FOR THE PURPOS E OF HIS BUSINESS. THIS DICHOTOMY BETWEEN THE BORROWING OF A LOAN AND ACTUAL APPLICATION THEREOF IN THE PURCHASE OF A CAP ITAL ASSET SEEMS TO PROCEED ON THE BASIS THAT A MERE TRANSACTION OF BORROWING DOES NOT BY ITSELF BRING ANY NEW ASSET OF ENDURING NATU RE INTO EXISTENCE AND THAT IT IS THE TRANSACTION OF INVESTMENT OF THE BORROWED CAPITAL IN THE PURCHASE OF A NEW ASSET WHICH BRINGS THAT ASSET INTO EXISTENCE. THE TRANSACTION OF BORROWING IS NOT THE SAME AS THE TRANSACTION OF INVESTMENT. IF THIS DICHOTOMY IS KEPT IN MIND IT BE COMES CLEAR THAT THE TRANSACTION OF BORROWING ATTRACTS THE PROVISION S OF SECTION 36(1)(III). THUS THE DECISION OF THE BOMBAY HIGH COURT IN CAL ICO DYEING AND PRINTING WORKS [1958] 34 ITR 265 AND THE JUDGMENT OF THE SUPREME COURT IN INDIA CEMENTS LTD. [1966] 60 ITR 52 HAVE BEEN GIVEN WITH REFERENCE TO THE BORROWINGS MADE FOR THE PURPOSES O F A RUNNING BUSINESS WHILE THE DECISION OF THE SUPREME COURT IN CHALLAPA LLI SUGARS LTD. [1975] 98 ITR 167 WAS GIVEN WITH REFERENCE TO THE BORROWINGS WHICH C OULD NOT BE TREATED AS MADE FOR THE PURPOSES OF BUSINESS AS NO BUSINESS HAD COMMENCED IN THAT CASE. THEREFORE THERE IS NO INCO NSISTENCY BETWEEN THE ABOVE DECISIONS. CONCLUSIONS FOR THE ABOVE REASONS WE HOLD THAT THE ASSESSING O FFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS. 1 56 76 000 IN RESPECT OF BORROWINGS UTILISED FOR PURCHASE OF MACHINES. ACCOR DINGLY THE ABOVE QUESTION IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 2.32. THE AFORESAID DECISION HAS SUBSEQUENTLY BEEN FOLLOW ED IN GUJRAT ALKALIES AND CHEMICALS LTD.(SUPRA) JCIT VS. UNITED PHOSPHOROUS LTD. 299 ITR 9(SC) ACIT VS. ARVIND POLYCOT LTD. 299 ITR 12(SC) AND CIT VS. ISHWAR BUVAN HOTELS LTD. 215CTR 14(SC) . 1195& 573/AHD/2004& CO 88/AHD./2008 5 2.4. IN THE LIGHT OF AFORESAID DECISIONS OF THE HONBLE APEX COURT WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF LD. CI T(A).THEREFORE GROUND NO. 1 IN BOTH THESE APPEALS OF THE REVENUE IS DISMI SSED. 3. GROUND NOS. 2 TO 7 IN THE APPEAL OF THE REVENU E FOR THE AY 1996- 97 & GROUND NOS. 2 TO 5 IN THE APPEAL FOR THE AY 1 997-98 AS ALSO GROUND NOS. 2 & 3 IN THE CO PERTAIN TO DISALLOWANCE OF ADV ERTISEMENT EXPENSES EMPLOYMENT COST IN RESPECT OF MARKETING STAFF TRA VELING EXPENDITURE SALES PROMOTION EXPENSES STAFF TRAINING EXPENSES CONSULTANCY FEES AND OTHER MARKETING EXPENSES BESIDES GENERAL CHARGES AN D EXPENDITURE ON STATIONERY & PRINTING STORES AND SPARES LAB CHARG ES TREATED AS DEFERRED REVENUE EXPENDITURE BY THE ASSESSEE IN ITS BOOKS. THE EXPENDITURE ON SALES PROMOTION INCLUDES EXPENSES ON MARKETING LITE RATURE AND STATIONERY CONSUMPTION OF SALES PROMOTION MATERIALS INCLUDING GIFT ARTICLES EXPENSES ON PRODUCT REGISTRATION MARKET CONFERENCE EXPENSES AUDIO VISUAL EXPENSES FOR PRODUCT MARKETING AND OTHER LIKE EXPEN SES WHILE GENERAL CHARGES INCLUDE STAFF TRAINING EXPENSES FEES PAID TO HUMAN RESOURCE CONSULTANTS ADVERTISEMENT FOR RECRUITMENT OF PEOPL E. RELYING UPON THE ORDERS OF THE LD. CIT(A) FOR THE AYS 1992-93 TO 199 5-96 AND THE DECISION IN THE CASE OF MADRAS INDUSTRIAL DEVELOPMENT CORPOR ATION VS. CIT 225 IT 802(SC) THE AO DISALLOWED THE CLAIM FOR THE AFORES AID EXPENSES. BESIDES EXPENDITURE ON SALARY AND WAGES TRAVELL ING JOB WORK CHARGES POWER AND FUEL ETC TO THE EXTENT OF RS 15 82 79 128 /- TREATED AS PRE- OPERATIVE IN THE BOOKS OF ACCOUNTS AND CLAIMED AS R EVENUE IN THE COMPUTATION OF INCOME WAS DISALLOWED BY THE AO RE LYING INTER ALIA ON THE DECISIONS IN THE CASE OF ADDL. CIT VS. RAJENDRA FLOUR & ALLIED INDUSTRIES LTD. 128 ITR 402 AND DECISIONS REPORTED IN 155 ITR 860(BOMBAY) 159 ITR 308(MADRAS) & 191 ITR 226(PATN A) AS ALSO DECISION DATED 15.6.1998 OF A CO-ORDINATE BENCH IN THE CASE OF VADILAL DAIRY INTERNATIONAL LTD. IN ITA NO. 500/AHD./97. 1195& 573/AHD/2004& CO 88/AHD./2008 6 3.1 ON APPEAL THE LD. CIT(A) DELETED THE DISAL LOWANCE EXCEPT ON ACCOUNT OF STORES AND SPARES AS ALSO LAB CHARGES TR EATED AS DEFERRED REVENUE EXPENDITURE BY THE AO FOLLOWING THE ORDER S OF THE ITAT FOR THE AYS. 1992-93 & 1993-94 AS ALSO HIS OWN ORDERS FOR T HE AYS. 1994-95 & 1995-96. HOWEVER THE DISALLOWANCE OF EXPENDITURE O F RS.15 82 79 128/- TREATED AS PREOPERATIVE IN THE BOOKS OF ACCOUNTS WAS UPHELD BY THE LD. CIT(A). 3.2. THE REVENUE IS NOW IN APPEAL BEFORE US. BO TH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED BY THE DECISION DATE D 19-06-2009 OF THE ITAT AHMEDABAD C BENCH IN ASSESSEES CASE FOR AYS . 1994-95 AND 1995-96 IN ITA NO.1492 & 1493/AHD/2000 AS ALSO DECI SION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CAS E FOR THE AY 1992- 93 REPORED IN 308 ITR 263(GUJ). 3.3 WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. AS POINTED OUT BY THE LD. AR A CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE FOR THE AYS.1994-95 AND 1995-9 6 VIDE ORDER DATED 19-06-2009 IN ITA NO.1492 & 1493/AHD/2000 CONCLUDE D A SIMILAR ISSUE AS UNDER: ADVERTISEMENT EXPENSES 10. GROUND NO.4 IN THE APPEAL FOR THE A.Y. 1994-95 AND GROUND NO.2 IN THE APPEAL FOR THE A.Y. 1995-96 RELATE TO T HE DISALLOWANCE OF ADVERTISEMENT EXPENSES. SO FAR AS THE ASSESSMEN T YEAR 1994- 95 IS CONCERNED THERE ARE TWO AMOUNTS WHICH HAVE B EEN DISALLOWED VIZ. RS.1 61 01 602/- AND RS.42 62 418/- . SO FAR AS RS.1 61 01 602/- IS CONCERNED THE SAME WAS INCURRE D ON A SPECIAL ADVERTISEMENT CAMPAIGN LAUNCHED BY THE ASSESSEE FOR CREATING A CORPORATE IMAGE AND TO MAKE THE PUBLIC AWARE ABOUT THE VARIOUS EXPANSION AND DIVERSIFICATION OF THE PROJECTS AND T O PROTECT AND ENHANCE THE IMAGE OF THE COMPANY. IN THE ACCOUNTS THE ASSESSEE TREATED THE EXPENDITURE AS DEFERRED REVENUE AND DEB ITED ONLY 1/4 TH OF THE SAME. IN THE RETURN THE ASSESSEE CLAIMED T HE ENTIRE EXPENDITURE AS REVENUE IN NATURE. SO FAR AS THE EX PENDITURE OF RS.42 62 418/- IS CONCERNED THE SAME WAS INCURRED FOR LAUNCHING A NEW PRODUCT MANUFACTURED BY THE ASSESSEE VIZ. AN E YE DROP 1195& 573/AHD/2004& CO 88/AHD./2008 7 FORMULATION. SO FAR AS THE EXPENDITURE ON THE SPEC IAL CAMPAIGN IS CONCERNED THE ISSUE IS COVERED IN FAVOUR OF THE AS SESSEE BY THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE A SSESSEES OWN CASE FOR THE A.Y. 1992-93 REPORTED IN 308 ITR 263. IN THIS JUDGMENT IT HAS BEEN HELD APPLYING THE JUDGMENTS O F THE SUPREME COURT IN EMPIRE JUTE COMPANY LTD. VS. CIT (1980) 12 4 ITR 1 AND ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377 THAT THE NATURE OF THE ADVANTAGE DERIVED BY THE ADVERTIS EMENT CAMPAIGN HAS TO BE CONSIDERED IN A COMMERCIAL SENSE AND THE TEST OF ENDURING BENEFIT SHOULD NOT BE APPLIED BLINDLY OR M ECHANICALLY. IT WAS HELD THAT THE ADVERTISEMENT EXPENSES INCURRED T O CREATE A BRAND IMAGE WERE ALLOWABLE AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE ASSESSEES OWN CASE WE CONFIRM THE DECISION OF THE CIT(A) SO FAR AS THE EXPENDITURE OF RS.1 61 01 602/- IS CONCERNED . 11. AS REGARDS THE ADVERTISEMENT EXPENSES INCURRED TO ADVERTISE THE EYE DROP FORMULATIONS NEWLY MANUFACTU RED BY THE ASSESSEE THE SAME RATIO SHOULD FOLLOW IN OUR HUMBLE OPINION. THIS CANNOT STAND ON A DIFFERENT FOOTING AND THE JUDGMENT CITED ABOVE IN OUR HUMBLE OPINION IS EQUA LLY APPLICABLE. THEREFORE RESPECTFULLY FOLLOWING THE SAME WE CONFIRM THE DECISION OF THE CIT(A) IN RESPECT OF TH IS EXPENDITURE ALSO. THUS GROUND NO.4 IN THE APPEAL F OR THE A.Y. 1994-95 IS DISMISSED. 12. THE SAME ISSUE HAS BEEN RAISED BY THE DEPARTMEN T IN GROUND NO.2 IN ITS APPEAL FOR THE A.Y 1995-96. FOR THIS YEAR THE ADVERTISEMENT EXPENSES INCURRED IS RS.3 37 62 420/- . IN LINE WITH OUR DECISION FOR THE A.Y. 1994-95 WE CONFIRM THE D ECISION OF THE CIT(A) TO ALLOW THE EXPENDITURE AS REVENUE IN NATUR E AND DISMISS THE GROUND. EMPLOYMENT COST & OTHER EXPENSES 18. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL SUBMISSIONS. WE NOTE FROM PAGE-95 OF THE ASSESSMEN T ORDER THAT THE AO HAS NOT CONNECTED ANY EXPENDITURE TO ANY PAR TICULAR UNIT OF THE ASSESSEE SO THAT IT CAN BE SAID THAT THE EXPEND ITURE DISALLOWED IN THE ASSESSMENTS WERE INCURRED ONLY WITH THE REFE RENCE TO THE SACHANA UNIT. BE THAT AS IT MAY IN ORDER TO DETER MINE WHETHER THE SACHANA UNIT IS AN ENTIRELY NEW BUSINESS OR IS PART OF THE EXISTING BUSINESS OF THE ASSESSEE IT IS NECESSARY TO SEE WH ETHER THERE IS UNITY OF CONTROL COMMON FINANCE COMMON ADMINISTRA TION COMMON STAFF ETC. AMOUNTING TO DOVE-TAILING INTERLACING A ND INTERDEPENDENCE BETWEEN THE TWO ACTIVITIES. THE ANN UAL REPORT OF THE DIRECTORS OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 31-3- 1195& 573/AHD/2004& CO 88/AHD./2008 8 1994 RELEVANT TO THE ASSESSMENT YEAR 1994-95 IS AT PAGE 188 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE DIRECTO RS HAVE REPORTED TO THE SHARE HOLDERS THAT THE COMPANY WAS IN THE PR OCESS OF IMPLEMENTING A RUPEES 450 CRORES INVESTMENT PLAN WH ICH INVOLVES MANUFACTURE OF MEDICAL DISPOSABLE AND DEVICES SMAL L VOLUME OF PARENTERALS (I.E. IV FLUIDS) TOTAL PARENTARELS NUT RITION PRODUCTS RENAL CARE PRODUCTS AND EXPANSION OF THE CAPACITY FOR IV FLUIDS. THEY HAVE ALSO REPORTED THAT AN INVESTMENT OF RS.131.69 CRORES HAS ALREADY BEEN MADE AND THE FIRST PHASE INVOLVING INC REASE IN CAPACITY OF IV-FLUIDS AND SVPS. WAS ALREADY IN PROD UCTION FOR QUITE SOMETIME. IT WAS FURTHER REPORTED THAT THE COMPANY HAS MOBILIZED RS.98 CRORES THROUGH A PUBLIC-CUM-RIGHT ISSUE IN 19 93 TO PART FINANCE THE SACHANA PROJECT. THIS SHOWS TWO THINGS . FIRSTLY IT SHOWS THAT THE SACHANA UNIT IS ALSO MANUFACTURING P RODUCTS WHICH ARE IN THE SAME LINE OF BUSINESS WHICH THE ASSESSEE IS ALREADY CARRYING ON. SECONDLY IT SHOWS THAT THE SACHANA PR OJECT WAS PARTLY FINANCED BY A PUBLIC-CUM-RIGHT ISSUE MADE BY THE AS SESSEE COMPANY WHICH SHOWS FINANCIAL DOVE-TAILING. THE F INANCIAL INTERLACING AND DOVE-TAILING IS ALSO SHOWN BY THE B ALANCE SHEET OF THE COMPANY AS ON 31-3-1994 WHICH IS AT PAGE NO.200 OF THE PAPER BOOKS. THE SHAREHOLDERS FUNDS CONSISTING OF SHARE CAPITAL AND RESERVES AND SURPLUS WHICH STOOD AT RS.1 980.69 LA KHS AS ON 31-3- 1993 HAS INCREASED TO RS. 14098 LAKHS AS ON 31-3-19 94. THE INCREASE IS OF RS.120 CRORES APPROXIMATELY. IF WE S EE THE ASSETS SIDE OF THE BALANCE SHEET IT SHOWS GROSS BLOCK OF FIXED ASSETS AT RS.6508 LAKHS AND RS.8899 LAKHS RESPECTIVELY AND CA PITAL WORK IN PROGRESS AT RS.568 LAKHS AND 8111 LAKHS RESPECTIVEL Y. THE INCREASE IN THE GROSS BLOCK EXPRESSED IN CRORES OF RUPEES IS RS.23 CRORES AND THE INCREASE IN CAPITAL WORK-IN-PROGRESS SIMILARLY EXPRESSED IS RS.76 CRORES. TOGETHER THEY ACCOUNT FOR RS.99 CRORES. THIS MEANS THAT OUT OF THE ASSESSEES FUNDS RS.99 CRORES HAVE GONE TO THE SACHANA UNIT. THIS SHOWS FINANCIAL INTERLACING OR INTERDEPENDENCE. THE BALANCE SHEET AS ON 31-3-1995 (PAGE 144 OF THE PAPER BOOK NO.II) ALSO SHOWS SIMILAR USE OF THE INTERNAL FUNDS/ACCRUALS. THE INCREASE OF ABOUT RS.255 CRORES COMPARED TO 31-3-1994 IN THE SHAREHOLDERS FUNDS HAS BEEN USED TO FINANCE THE GROSS BLOCK OF ASSETS OF THE SACHANA PROJECT TO THE EXTENT OF ABOUT RS.150 CRORES AND TOWARDS CAPITAL WORK-IN-PROGRESS OF RS.50 CRORES. SCHEDULE 20 TO THE BALANCE SHEET (PAGE 211 OF THE PAPER BOOK) SHOWS THAT EVEN IN RESPECT OF IV SETS ALREADY BEING MANUFACTURED IN THE ASSESSEES AHMEDABAD UNIT THE INSTALLED CAPACITY HAS BEEN INCREASED FROM 400 LAKH UNITS AS ON 31-3-1993 TO 1200 LAKH UNITS AS ON 31-3-1994. THUS THERE IS EXPANSION OF THE ALREADY EXISTING BUSINESS ALSO. PAGE 138 OF PAPER B OOK NO.II CONTAINS THE DIRECTORS REPORT FOR THE YEAR ENDED 3 1-3-1995 WHERE THE DIRECTORS HAVE REPORTED TO THE SHAREHOLDERS THA T THE RS.450 1195& 573/AHD/2004& CO 88/AHD./2008 9 CRORE EXPANSION-CUM-DIVERSIFICATION PROJECT IS BEIN G FINANCED THROUGH LEVERAGING AND INTERNAL ACCRUALS. THIS IS IN CONFORMITY WITH WHAT HAS BEEN STATED ABOVE AND SHOWN BY THE BALANCE SHEET. IT SHOWS FINANCIAL INTERLACING AND INTERDEPENDENCE. TH E ACCOUNTS FOR THE YEAR ENDED 31-3-1996 FILED BEFORE US (PAPER BOO K NO.III) SHOW THAT THE INCREASE OF ABOUT RS.390 CRORES IN THE LOA N FUNDS FROM RS.188.77 CRORES AS ON 31-3-1995 TO RS.571.74 HAS G ONE TO FINANCE THE GROSS BLOCK AND WORK-IN-PROGRESS RELATING TO TH E SACHANA UNIT TO THE EXTENT OF RS.160 CRORES AND RS.120 CRORES RE SPECTIVELY. THIS ALSO SUPPORTS THE CLAIM THAT THE INTERNAL ACCRUALS AND FUNDS AS WELL AS FUNDS BORROWED BY THE COMPANY HAVE BEEN USED TO FINANCE THE SACHANA UNIT SHOWING FINANCIAL DOVETAILING. SCHEDU LE 21 TO THE BALANCE SHEET AS ON 31-3-1996 (PAGE 24 OF PAPER BOO K NO.III) SHOWS INCREASE IN THE INSTALLED CAPACITY NOT ONLY I N RESPECT OF THE SYRINGES AND DISPOSABLE PLASTIC INFUSION SETS MANUF ACTURED BY THE SACHANA UNIT FROM NIL TO 2424 LAKH UNITS AND 400 LAKH UNITS AS ON 30-6-1996 BUT ALSO IN RESPECT OF THE I.V.SOLUTIONS ALREADY BEING MANUFACTURED BY THE ASSESSEE FROM 2012 LAKH UNITS IN THE EARLIER YEAR TO 2403 LAKH UNITS AS ON 30-6-1996. THIS ALSO SHOWS THAT BOTH THE ACTIVITY OF MANUFACTURING I.V. SOLUTIONS (EXIST ING BUSINESS) AND THE PRODUCTION OF SYRINGES AND DISPOSABLE PLASTIC I NFUSION SETS IN THE SACHANA UNIT HAVE BEEN TREATED AS PART OF AN IN TEGRATED BUSINESS. 19. PAGE 133 OF THE PAPER BOOK NO.II CONTAINS THE 8 TH ANNUAL REPORT I.E. FOR THE YEAR ENDED 31-3-1995. THE DIR ECTORS REPORT CONTAINS THE FOLLOWING PASSAGE AT PAGE 136: ON THE ORGANIZATION FRONT THE COMPANY HAS SUCCES SFULLY INSTALLED AND STABILIZED DIVISIONAL PROFIT CENTRE B ASED STRUCTURE WHICH COMPRISESFLUID THERAPY DIVISION PHARMACEUTIC AL DIVISION CRITICAL CARE DIVISION MEDICAL DEVICES DIVISION & INTERNATIONAL DIVISION. WHEREAS THE DIVISIONS OPERATE AS INDEPEND ENT PROFIT CENTRES MANUFACTURING AND/OR MARKETING PRODUCTS IN THEIR RESPECTIVE DIVISIONS FUNCTIONS LIKE FINANCE AUDIT INFORMATI ON TECHNOLOGY STRATEGIC MARKETING HRD R&D PROJECTS TECHNICAL ETC. PROVIDE A MATRIX BASED SUPPORT TO VARIOUS DIVISIONS FOR EFFIC IENT OPERATION. (EMPHASIS SUPPLIED) THE EMPHASISED PART OF THE ABOVE PASSAGE SHOWS THAT MANY KEY FUNCTIONS (MENTIONED THEREIN) HAVE BEEN CENTRALISED AND ARE LOOKING AFTER BOTH THE EXISTING UNITS AND THE UNIT AT SANCHANA. IN OTHER WORDS THERE IS A COMMON MANAGEMENT OR ADMINI STRATION WHICH IS ONE OF THE TESTS TO FIND OUT IF TWO OR MOR E ACTIVITIES CONSTITUTE A SINGLE BUSINESS. 1195& 573/AHD/2004& CO 88/AHD./2008 10 20. SO FAR AS THE STAFF IS CONCERNED THE SALARIES PAID TO THE STAFF IS DEBITED TO THE COMMON PROFIT AND LOSS ACCOUNT UN DER THE HEAD EMPLOYMENT COST WHICH INCLUDES SALARIES WAGES B ONUS GRATUITY STAFF WELFARE EXPENSES CONTRIBUTION TO PROVIDENT A ND OTHER FUNDS. NO DISTINCTION IS SEEN MAINTAINED IN THE PROFIT AND LOSS ACCOUNT BETWEEN DIFFERENT UNITS OF THE ASSESSEE AND THE STA FF EMPLOYED THEREIN. THE ADDITIONAL INFORMATION REQUIRED TO BE GIVEN BY THE COMPANY U/S 217(2A) OF THE COMPANIES ACT MAKES NO D ISTINCTION BETWEEN THE STAFF EMPLOYED IN DIFFERENT UNITS. THER E IS ONE CHAIRMAN AND MANAGING DIRECTOR ONE WHOLETIME DIREC TOR ONE VICE- PRESIDENT (PROJECT) ONE MARKETING MANAGER TWO VIC E-PRESIDENTS (PHARMACEUTICAL) ONE GENERAL MANAGER ONE MATERIAL CONTROLLER ETC. INTER ALIA. THEY ARE PUT IN CHARGE OF ALL THE UNITS IN THEIR RESPECTIVE FIELDS. IN OTHER WORDS THERE IS SAY N O MATERIAL MANAGER SEPARATELY FOR THE AHMEDABAD OR RAJPUR OR SACHANA U NITS. THUS THERE IS COMMON STAFF FOR THE DIFFERENT UNITS OPERA TED BY THE ASSESSEE. 21. THE ABOVE FACTS AND FIGURES WHICH ARE NOT IN Q UESTION DO SHOW THAT THE VARIOUS BUSINESSES AND UNITS OF THE A SSESSEE HAVE TO BE TREATED AS CONSTITUTING A SINGLE OR SAME BUSINES S. IT SHOULD ALSO BE REMEMBERED THAT ALL THE ITEMS MANUFACTURED BY TH E ASSESSEE IN ITS VARIOUS UNITS ARE PRODUCTS OF THE PHARMACEUTICA L OR HEALTHCARE INDUSTRY. ACCORDINGLY THE EXPENDITURE INCURRED BY THE ASSESSEE WAS RIGHTLY ALLOWED AS DEDUCTION IN COMPUTING ITS P ROFITS FROM THE BUSINESS FOR BOTH THE YEARS. WE CONFIRM HIS DECISIO N. 22. THE LEARNED DR HAS POINTED OUT THAT THE ORDER O F THE TRIBUNAL FOR THE AY 1993-94 ON THIS POINT IS AGAINS T THE ASSESSEE AND IT SHOULD NOT BE CHANGED. HE HAS RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN CITV VADILAL DAIRY IN TERNATIONAL LTD (2008) 7 DTR 371 (GUJ.). A CAREFUL AND RESPECTFUL R EADING OF THE JUDGMENT SHOWS THAT IN THAT CASE NEITHER THE ASSESS ING OFFICER NOR THE CIT(A) NOR EVEN THE TRIBUNAL HAD RECORDED ANY F INDING THAT COMMON STAFF WAS EMPLOYED BY THE ASSESSEE FOR BOTH THE EXISTING UNIT AND THE NEW UNIT. THE ASSESSEE WAS MANUFACTURI NG ICE-CREAM AND THE NEW UNIT WAS SET UP IN SINNAR MAHARASHTRA FOR THE PROCUREMENT OF MILK THE CONTENTION BEING THAT IT W AS A CASE OF BACKWARD INTEGRATION AND THUS BOTH THE UNITS CONSTI TUTED THE SAME BUSINESS. IT WAS SUBMITTED BEFORE THE HONBLE HIGH COURT ON BEHALF OF THE ASSESSEE THAT IT HAD EMPLOYED COMMON STAFF THAT THERE WAS COMMON ADMINISTRATION INTERCONNECTION INTERLACING AND INTERDEPENDENCE BETWEEN THE TWO UNITS WITH RESPECT TO FINANCIAL TRANSACTIONS. THE HONBLE HIGH COURT OBSERVED THAT IN RELATION TO THIS SUBMISSION NONE OF THE DEPARTMENTAL AUTHORITI ES OR THE TRIBUNAL HAS RECORDED ANY FINDING WHILE HOLDING THA T THE SINNAR UNIT 1195& 573/AHD/2004& CO 88/AHD./2008 11 WAS A SEPARATE AND INDEPENDENT UNIT. THE SUBMISSION OF THE ASSESSEE WAS THEREFORE NOT ACCEPTED. IT WILL BE AP PRECIATED THAT THE JUDGMENT TURNED ON THE FACTS OF THE CASE BEFORE THE HONBLE HIGH COURT WHERE THE ASSESSEE WAS UNABLE TO SHOW TH AT THERE WAS INTERLACING INTERDEPENDENCE OR DOVETAILING BETWEEN THE DIFFERENT UNITS OF THE ASSESSEE SO FAR AS STAFF OR FINANCES W ERE CONCERNED. IN THE CASE BEFORE US HOWEVER THE ASSESSEE HAS ADDUC ED ENOUGH MATERIAL TO WHICH WE HAVE ALLUDED EARLIER TO SHOW THAT THERE WAS UNITY OF CONTROL COMMON MANAGEMENT COMMON STAFF COMMON FINANCES AND THUS INTERLACING DOVETAILING AND INT ERDEPENDENCE SHOWING THAT ALL ITS UNITS CONSTITUTED A SINGLE OR SAME BUSINESS. THUS THE PRESENT CASE STANDS ON A DIFFERENT FOOTIN G ON FACTS AND EVIDENCE. 23. AS REGARDS THE ORDER OF THE TRIBUNAL FOR THE AY 1993-94 IT IS NOT DISPUTED ON BEHALF OF THE ASSESSEE THAT THE DEC ISION OF THE TRIBUNAL ON A SIMILAR POINT HAS BEEN ACCEPTED BY IT BUT IT IS SUBMITTED THAT THE FACTS HEREIN ARE DIFFERENT. IT I S CONTENDED THAT THE ORDER OF THE TRIBUNAL FOR THE AY 1993-94 ON THIS PO INT IS BASED ON THE EARLIER ORDER FOR THE AY 1992-93 WHICH IS REPOR TED IN (2001) 78 ITD 1 (TM). IN PARAGRAPH 13 OF THIS ORDER FOR THE A Y 1992-93 THE ONLY QUESTION IT IS POINTED OUT THAT WAS DECIDED WAS WHETHER EXPENDITURE BY WAY OF SALARIES WAGES TRAVELLING E XPENSES TELEPHONE & TELEX EXPENSES LEASE RENT CHARGES INS URANCE PREMIUM ETC. WERE DIRECTLY LINKED TO THE ERECTION O F THREE NEW MACHINES AND IF SO WHETHER THEY COULD BE ALLOWED U /S 37 AS REVENUE EXPENDITURE. IT IS ARGUED BEFORE US THAT TH E QUESTION WHETHER THE SACHANA UNIT IS A TOTALLY SEPARATE BUSI NESS NOT FORMING PART OF THE EXISTING BUSINESS OF THE ASSESS EE AND WHETHER THE SACHANA UNIT WAS ONLY AN EXPANSION OF THE EXIST ING BUSINESS OF THE ASSESSEE WAS NOT BEFORE THE TRIBUNAL AND WAS TH EREFORE NOT DECIDED. IT IS ACCORDINGLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE LIGHT OF THE DIFFERENT NATURE AND COMPLEXION OF THE QUESTION THAT HAS ARISEN FOR DECISION FOR THE Y EARS NOW UNDER APPEAL AND THE ADDITIONAL OR CHANGED FACTUAL POSITI ON AS SHOWN BY THE EVIDENCE ADDUCED FOR THE YEARS UNDER APPEAL TH E GROUNDS HAVE TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 24. WE FIND FORCE IN THE CONTENTION. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE AND RIGHTLY SO T HE CONTROVERSY BEFORE THE TRIBUNAL IN THE AY 1992-93 WAS WHETHER T HE VARIOUS ITEMS OF EXPENDITURE WERE DIRECTLY RELATED TO THE E RECTION OF THE THREE MACHINES IN THAT YEAR AND HENCE SHOULD BE CAP ITALIZED. THERE IS NO MENTION IN PARAGRAPH 13 OF THE ORDER OF THE T RIBUNAL REPORTED IN (2001) 78 ITD 1 (TM) ABOUT THE SACHANA UNIT NOR DOES IT APPEAR TO HAVE BEEN ARGUED BEFORE THE TRIBUNAL IN THAT YEA R THAT THIS UNIT 1195& 573/AHD/2004& CO 88/AHD./2008 12 WAS ONLY AN EXPANSION OF THE EXISTING BUSINESS OF T HE ASSESSEE AND NOT A NEW OR SEPARATE BUSINESS. FOR THE YEARS U NDER APPEAL THE QUESTION THAT WAS DEBATED BEFORE US WAS WHETHER THE SAID UNIT CAN BE SAID TO CONSTITUTE A SEPARATE OR NEW BUSINES S AND NOT AN EXPANSION OF THE EXISTING BUSINESS. IT IS THIS QUES TION THAT HAS BEEN DECIDED BY US TO THE EFFECT THAT THE SACHANA UNIT I S ONLY AN EXPANSION OF THE EXISTING BUSINESS AS THERE IS INTE RLACING INTERDEPENDENCE AND INTERCONNECTION BETWEEN THE EXI STING BUSINESS AND THE NEW UNIT AND SUCH DOVETAILING COVE RS THE FINANCE STAFF MANAGEMENT AND ADMINISTRATION AND ACCOUNTS. WE HAVE ALSO FOUND THAT THERE IS UNITY OF CONTROL IN THE SENSE T HAT THERE IS ONLY ONE CHAIRMAN AND MANAGING DIRECTOR AND ONE BOARD OF DIRECTORS CONTROLLING/MANAGING ALL THE BUSINESSES. HAVING REG ARD TO THE DIFFERENT NATURE AND COMPLEXION OF THE QUESTION FOR THE YEARS UNDER APPEAL IT IS HELD THAT THE EARLIER ORDERS OF THE T RIBUNAL FOR THE AYS 1992-93 AND 1993-94 CANNOT COME TO THE AID OF THE R EVENUE. THUS GROUND NO.5 FOR THE AY 1994-95 AND GROUND NO.3 FOR THE AY 1995- 96 ARE DISMISSED. 3.4 WE ARE OF THE OPINION THAT THE CONCEPT OF D EFERRED REVENUE EXPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT A ND ALIEN TO THE ACT. THE RELEVANT PROVISIONS OF THE ACT RECOGNISE ONLY CAPIT AL OR REVENUE EXPENDITURE. DEFERRED REVENUE EXPENDITURE DENOTES E XPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED WH ICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS LIK E QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC. IS WRITTEN-OFF OVE R A PERIOD OF TIME E.G. EXPENDITURE ON ADVERTISEMENT SALES PROMOTION TRAV ELING ETC.. THOUGH THE NATURE OF SUCH EXPENDITURE IS REVENUE KEEPING IN V IEW THE FACT THAT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE DERI VED OVER A PERIOD OF TIME STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS THE TAXPAYERS HAVE BEEN AMORTISING THE SAME OVER THE EXPECTED TIM E PERIOD OVER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THEREFROM. ACCORD INGLY ONLY A PROPORTION OF SUCH EXPENDITURE IS AMORTISED IN THE PROFIT AND LOSS ACCOUNT BUT AN APPROPRIATE ADJUSTMENT IS MADE IN THE COMPUTATION O F INCOME CLAIMING THE ENTIRE AS ALLOWABLE REVENUE EXPENDITURE IN TERMS OF PROVISIONS OF SECTION 37(1) OF THE ACT. THE EXPENDITURE WHICH IS TREATED AS DEFERRED REVENUE IN THE BOOKS ALMOST IN ALL CASES COMPRISES OF ITEMS T HE BENEFITS DERIVED 1195& 573/AHD/2004& CO 88/AHD./2008 13 WHEREFROM ARE EPHEMERAL AND TRANSITORY IN NATURE IN AS MUCH AS THESE ARE INCURRED AS A PART OF A CONTINUOUS PROCESS AND NEED TO BE EXPENDED IN ORDER TO GENERATE AND INCREASE THE BRAND RECALL AND SUSTAIN IT IN THE MINDS OF CUSTOMERS. WHETHER OR NOT EXPENDITURE IS OF ENDU RING NATURE THE HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMIC AL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377 HAS ITSELF OBSERVED THAT THE IDEA OF 'ONCE FOR ALL' PAYMENT AND 'ENDURING B ENEFIT' ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS ; NOR ARE THE NOTIONS OF 'CAPITAL' OR 'REVENUE' A JUDICIAL FETISH. WHAT IS C APITAL EXPENDITURE AND WHAT IS REVENUE ARE NOT ETERNAL VERITIES BUT MUST N EEDS BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSIN ESS. THE EXPRESSION 'ASSET OR ADVANTAGE OF AN ENDURING NATURE' WAS EVOL VED TO EMPHASISE THE ELEMENT OF A SUFFICIENT DEGREE OF DURABILITY APPROP RIATE TO THE CONTEXT. 3.5 MOREOVER THE DEFERRED REVENUE EXPENDIT URE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO TREAT THE SAM E AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWA BILITY OF ANY EXPENDITURE UNDER THE ACT WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOG NISE ANY CONCEPT OF DEFERRED REVENUE EXPENDITURE. THAT IS WHY AO HIMSEL F ALLOWED THE AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT. IN A NUMBER OF JUDGMENTS VIZ. AMAR RAJA BATTERIES LTD. V. ACIT [(2004) 91 ITD 280 (HYD )] JCIT V. MODI OLIVETTI LTD. [(2005)4 SOT 859 (DELHI)] ACIT VS. M EDICAMEN BIOTECH LTD. [(2005) 1 SOT 347 (DELHI)] HERO HONDA MOTORS LTD. V . JOINT COMMISSIONER OF INCOME TAX [(2005) 3 SOT 572 (DELHI)] AND CHARAK PHARMACEUTICALS V. JCIT [(2005) 4SOT 393 (MUMBAI)] IT HAS BEEN AFFIRME D THAT WHERE ANY EXPENDITURE IS TREATED AS A DEFERRED REVENUE EXPEND ITURE IT PRESUPPOSES THAT THE CONCERNED EXPENDITURE CREATING BENEFIT IS IN THE REVENUE FIELD AND IS A REVENUE EXPENDITURE BUT CONSIDERING ITS ENDUR ING BENEFITS AS WELL AS THE FACT THAT IT DOES NOT RESULT IN THE CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD THE SAME IS REQUIRED TO BE TREATED DISTINCTLY FROM CAPITAL EXPENDITURE.. 1195& 573/AHD/2004& CO 88/AHD./2008 14 3.6. AS REGARDS RELIANCE PLACED BY THE AO ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INV ESTMENT CORPORATION LTD. VS. CIT ((1997) 225 ITR 802) IN THAT CASE IT HAS BEEN HELD THAT DEDUCTION ON ACCOUNT OF DISCOUNT ON THE ISSUE OF DE BENTURES IS ALLOWABLE ON PROPORTIONATE BASIS DURING THE PERIOD OVER WHICH THESE ARE OUTSTANDING. WHILE PUTTING FORTH SUCH AN INTERPRETATION THE DEP ARTMENT SEEMS TO BE IGNORING ONE CRUCIAL FACT IN AS MUCH AS THE HONBLE SUPREME COURT DEALT WITH THE QUESTION OF ISSUE OF DEBENTURES WHICH CAN BE CLEARLY AND SUCCINCTLY IDENTIFIED WITH AND IS RELATABLE TO A DE FINED TIME-FRAME I.E. THE PERIOD IN WHICH THE DEBENTURES ARE OUTSTANDING AND AS SUCH CAN BE SPECIFICALLY ALLOCATED OVER DEFINED PERIODS. ON THE CONTRARY THE NATURE OF EXPENDITURE SUCH AS ADVERTISEMENT OR EXHIBITION SA LES PROMOTION OR TRAVELLING ETC.IS SUCH THAT ALTHOUGH THE BENEFIT A RISING THEREFROM MAY EXTEND OVER SEVERAL ACCOUNTING PERIODS THE SAME CA NNOT BE CLEARLY AND DEFINITIVELY ASSIGNED OVER TIME SINCE THE SAME IS I NTANGIBLE IN NATURE. IN FACT THE HONBLE SUPREME COURT ITSELF WHILE DISCUS SING THE ISSUE IN THE SAID CASE AND DISTINGUISHING BETWEEN VARIOUS SITUA TIONS HAS OBSERVED THAT .ORDINARILY REVENUE EXPENDITURE WHICH IS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALL OWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPRE AD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOK S OVER A PERIOD OF YEARS. 3.7 . AS FAR AS THE ENTRIES IN THE BOOKS OF ACCOU NT ARE CONCERNED IT IS WELL SETTLED THAT THEY DO NOT CLINCH THE ISSUE EITHER WA Y AND ARE NOT DETERMINATIVE OF THE ALLOWABILITY OR OTHERWISE OF T HE EXPENDITURE. THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 AND IN THE CASE OF CIT V. INDIAN DISCOUNTS CO. LTD. [1970] 75 ITR 191 (SC) ARE CLEAR ON THE ISSUE. THE ACCOUNTING ENTRIES IN THE BOOKS OF ACCOUNTS ARE OCC ASIONED BY A DIVERSE SET OF CONSIDERATIONS AND ISSUES SUCH AS COMPLIANCE WITH STATUTORY LAWS AND MANDATORY ACCOUNTING STANDARDS/PRINCIPLES AND O F COURSE 1195& 573/AHD/2004& CO 88/AHD./2008 15 MANAGEMENT DECISIONS AS TO THE TREATMENT OF A PARTI CULAR ITEM WHICH CAN BE GUIDED BY CONSIDERATIONS OF REPORTED PROFITABILI TY EARNING PER SHARE IMPACT ON SHARE PRICES ETC.. THE SUPREME COURT IN T HE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT ((1971) 82 ITR 363) (SC) ALSO AFFIRMED THE ABOVE VIEW BY OBSERVING THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR D EDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE E XISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONC LUSIVE IN THE MATTER. 3.8. SUBSEQUENTLY THE HONBLE COURT RE-AFFIRMED T HE SAID VIEW IN SUTLEJ COTTON MILLS. LTD. VS. CIT 116 ITR1(SC) BUT IT IS NOW WELL SETTLED THAT THE WAY IN WHICH EN TRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATI VE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFE RED ANY LOSS. THE ASSESSEE MAY BY MAKING ENTRIES WHICH ARE NOT IN CO NFORMITY WITH THE PROPER ACCOUNTANCY PRINCIPLES CONCEAL PROFIT OR SH OW LOSS AND THE ENTRIES MADE BY HIM CANNOT THEREFORE BE REGARDED AS CONCL USIVE ONE WAY OR THE OTHER. WHAT IS NECESSARY TO BE CONSIDERED IS THE TR UE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. 3.9 LIKEWIESE IN THE CASE OF TUTICORIN ALKALI CH EMICALS AND FERTILIZERS LTD VS. CIT 227 ITR 172(SC) HONBLE SUPREME COURT H ELD THAT IT IS TRUE THAT THIS COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECE IPT ARE PERMISSIBLE IN LAW OR NOT THE QUESTION HAS TO BE DECIDED ACCORDIN G TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE . ACCOUNTING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION O F THE ACT AS WAS POINTED OUT BY LORD RUSSELL IN THE CASE OF B. S. C. FOOTWEAR LTD. [1970] 77 ITR 857 860 (CA) THE INCOME TAX LAW DOES NOT MARC H STEP BY STEP IN THE FOOTPRINTS OF THE ACCOUNTANCY PROFESSION. 3.10 IN THE INSTANT CASE WE FIND THAT THE EXPE NDITURE RELATING TO ADVERTISEMENTS SALES PROMOTION TRAVELLING OR OTH ER MARKETING AND 1195& 573/AHD/2004& CO 88/AHD./2008 16 CONSULTANCY EXPENSES IS IN THE REVENUE FIELD. THE ONLY ISSUE TO BE CONSIDERED IS WHETHER THE ASSESSEE CAN CLAIM THE EN TIRE EXPENDITURE IN THIS YEAR ITSELF EVEN THOUGH IT HAD WRITTEN OFF TH IS EXPENDITURE IN THE BOOKS OVER A NUMBER OF YEARS. IN THIS CONNECTION WE MAY REFER TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN.(SUPRA) WJERIN IT WAS HELD - '...SECTION 37(1) FURTHER REQUIRES THAT THE EXPENDI TURE SHOULD NOT BE OF A CAPITAL NATURE. THE QUESTION WHETHER A PARTICULAR E XPENDITURE IS REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS MU ST BE DETERMINED ON A CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES A ND BY THE APPLICATION OF PRINCIPLES OF COMMERCIAL TRADING. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. IF THE OUTGOING OR EXPENDITURE IS SO RELATED TO THE CARRYING ON OR CO NDUCT OF THE BUSINESS THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT-MAKING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER THE POSSESSION OF WHICH IS A CONDITION OF THE CARRYING ON OF THE BUSINESS THE EXPENDITURE MAY BE REGARDED AS REVENUE EXPENDITURE. ANY LIABILITY INCURRED FOR THE BUSINESS OF OBTAINING A LOAN WOULD BE REVENUE EXPENDITURE. ORDINARILY REVENUE EXPENDITURE WHICH IS INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NU MBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PE RIOD OF YEARS. HOWEVER THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIO D OF ENSUING YEARS. IN FACT ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR M IGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YEAR. ISSUIN G DEBENTURES IS AN INSTANCE WHERE ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABI LITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURE THE PAYMENT IS T O SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO T HE BUSINESS OF THE COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOUL D THEREFORE BE SPREAD OVER THE PERIOD OF DEBENTURES.' 3.11 THE AFORESAID JUDGMENT RELIED UPON BY THE A O ITSELF CLARIFIES THAT THOUGH THE ASSESSEE MAY HAVE WRITTEN OFF THE EXPEND ITURE IN ITS BOOKS OF ACCOUNT OVER A PERIOD SAY OF FIVE YEARS IT MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT WAS INCURRED IF IT IS REVENUE EXPENDITURE AND IF IT IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS. IN THE CASE UNDER CONSIDERATION THERE IS NOTHING TO SUGGEST TH AT WITH THIS EXPENDITURE 1195& 573/AHD/2004& CO 88/AHD./2008 17 ANY ASSET TANGIBLE OR INTANGIBLE HAS BEEN CREATED . THERE IS NO EVIDENCE ON RECORD REGARDING ACCRUAL OF ANY SPECIFIC REVENUE IN THE YEARS UNDER CONSIDERATION OR SUBSEQUENTLY OVER A DEFINED PERIOD WITH THE INCURRING OF SAID EXPENDITURE. AO HIMSELF ADMITTED THE PORTION O F EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITU RE. IN THESE CIRCUMSTANCES WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 3.12. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD. DR DID NOT POINT OUT ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) WHILE DELETING DISALLOWANCE ON ACCOUNT OF DEFERRED REVENUE EXPENSE S WE HAVE NO ALTERNATIVE BUT TO DISMISS GROUND NOS. NOS. 2 TO 7 IN THE APPEAL FOR THE AY 1996-97 & GROUND NOS. 2 TO 5 IN THE APPEAL FOR THE AY 1997-98. 3.13 AS REGARDS EXPENDITURE ON STORES AND SPAR ES AS ALSO LAB CHARGES THE LD. CIT(A) UPHELD THE DISALLOWANCE INTER ALIA SINCE DETAILS AND NATURE OF EXPENDITURE OF THE SAID EXPENDITURE WERE NOT CLA RIFIED BEFORE HIM. EVEN BEFORE US SUCH DETAILS WERE NOT PLACED NOR THEIR NA TURE EXPLAINED IN THESE CIRCUMSTANCES IN THE INTEREST OF JUSTICE ESPECIALL Y WHEN THE AMOUNT HAS BEEN CLAIMED AS DEFERRED REVENUE EXPENDITURE WE CO NSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE WITH DIRECTIONS TO ALLOW SUFFICIENT OPP ORTUNITY TO THE ASSESSEE TO CLARIFY THE NATURE OF EXPENSES AND THEREAFTER DI SPOSE OF THE MATTER IN ACCORDANCE WITH LAW AND IN THE LIGHT OF OUR AFORESA ID FINDINGS. WITH THESE DIRECTIONS GROUND NO. 3 IN THE CO IS DISPOSED OF. 3.14 AS REGARDS PREOPERATIVE EXPENSES OF RS.15 8 2 79 182 IN THE LIGHT OF FINDINGS OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS.1994-95 AND 1995-96 VIDE ORDER DATED 19-06-2009 IN ITA NO. 1492 & 1493/AHD/2000 AND THE AFORESAID DISCUSSION IN RE SPECT OF DEFERRED REVENUE EXPENDITURE WE ARE OF THE OPINION THAT THE SAID AMOUNT IS 1195& 573/AHD/2004& CO 88/AHD./2008 18 ALLOWABLE AS REVENUE EXPENDITURE . THEREFORE GROUN D NO.2 IN THE CO IS ALLOWED 4. THE NEXT GROUND NO. 8 IN THE APPEAL FOR THE A Y 1996-97 & GROUND NO. 6 IN THE APPEAL FOR THE AY 1997-98 RELATE TO DISAL LOWANCE OF DEDUCTION U/S 35D OF THE ACT. THE AO RESTRICTED THE CLAIM FOR DED UCTION U/S 35D TO RS.90 48 216/- AS AGAINST CLAIM OF RS.1 17 30 673/- IN THESE TWO ASSESSMENT YEARS IN THE LIGHT OF HIS FINDINGS IN T HE AYS 1992-93 TO 1995- 96. 4.1 ON APPEAL THE LD. CIT(A) FOLLOWING DECISI ONS OF THE CIT(A)/ITAT FOR THE AYS 1992-93 1993-94 & 1995-96 ALLOWED THE CLA IM. 4.2 THE REVENUE IS NOW IN APPEAL BEFORE US. BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED BY THE DECISION DATE D 19-06-2009 OF THE ITAT AHMEDABAD C BENCH IN ASSESSEES CASE FOR AYS . 1994-95 AND 1995-96 IN ITA NO.1492 & 1493/AHD/2000 . 4.3 WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. AS POINTED OUT BY THE LD. AR. A CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE FOR THE AYS.1994-95 AND 1995-9 6 VIDE ORDER DATED 19-06-2009 IN ITA NO.1492 & 1493/AHD/2000 CONCLUDE D IN THE MATTER AS UNDER: 4. THE OBJECTION OF THE DEPARTMENT IS THAT SECTION 35D(2) DOES NOT PERMIT THE EXPENDITURE TO BE AMORTIZED. WE HAV E PERUSED THE SECTION. SECTION 35D(1) PERMITS AMORTIZATION OF CE RTAIN PRELIMINARY EXPENSES INCURRED BEFORE THE COMMENCEMENT OF THE BU SINESS OR AFTER THE COMMENCEMENT OF THE BUSINESS BUT IN CONNE CTION WITH THE EXTENSION OF THE INDUSTRIAL UNDERTAKING OR SETTING UP A NEW INDUSTRIAL UNIT. SUB-SECTION (2) LISTS THE TYPES OF EXPENDITU RE WHICH QUALIFY FOR THE AMORTIZATION. SUB-CLAUSE (IV) OF CLAUSE (C) PR OVIDES FOR AMORTIZATION OF EXPENDITURE IN CONNECTION WITH THE ISSUE FOR PUBLIC SUBSCRIPTION OF SHARES IN OR DEBENTURES OF THE COM PANY BEING 1195& 573/AHD/2004& CO 88/AHD./2008 19 UNDER-WRITING COMMISSION BROKERAGE AND CHARGES FOR DRAFTING TYPING PRINTING AND ADVERTISEMENT OF THE PROSPECTU S. IT IS THIS SUB- CLAUSE WHICH IS RELIED UPON BY THE ASSESSEE AND IT IS CONTENDED THAT THE WORD BEING THEREIN IS NOT EXHAUSTIVE AND OTHER ITEMS OF EXPENDITURE CAN ALSO BE INCLUDED FOR AMORTIZATION I F THEY ARE INCURRED IN CONNECTION WITH THE PUBLIC ISSUE OF SHA RES. THE CONTENTION OF THE ASSESSEE IS UNDOUBTEDLY SUPPORTED BY THE JUDGMENT OF THE MADHYA PRADESH HIGH COURT IN THE CA SE OF SHRI SYNTHETICS LTD 162 ITR 819 WHICH WAS FOLLOWED BY TH E AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF NACHMO KNITES VS. DCIT IN ITA NO.970/AHD/2000 DATED 27-1-2006. DURING THE YE AR THE ASSESSEE COMPANY MADE A PUBLIC ISSUE OF 47 34 000 E QUITY SHARES OF RS.10/- EACH FOR PREMIUM OF RS.140/- PER SHARE. THE PUBLIC ISSUE WAS MADE IN AUGUST 1993. THE ALLOTMENT OF S HARES WAS COMPLET3ED IN OCTOBER 1993. THUS THE CONDITION T HAT THERE SHOULD HAVE BEEN A PUBLIC ISSUE OF SHARES IN THE RELEVANT PREVIOUS YEAR IS ALSO SATISFIED. THEREFORE NO FAULT CAN BE FOUND I N THE DIRECTION OF THE CIT(A) FOR AMORTIZATION OF FEES PAID TO THE ROC FOR INCREASE IN THE AUTHORIZED SHARE CAPITAL. HIS DIRECTION IS CON FIRMED AND THE FIRST GROUND IS DISMISSED. 4.4 IN THE LIGHT OF VIEW TAKEN BY THE ITAT IN T HE AFORESAID DECISIONS FOR THE AYS 1992-93 TO 1995-96 ESPECIALLY WHEN THE LD. DR DID NOT POINT OUT ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) WE HAVE NO ALTERNATIVE BUT TO DISMISS GROUND NO. 8 IN THE APPEAL FOR THE AY 1996- 97 & GROUND NO. 6 IN THE APPEAL FOR THE AY 1997-98. 5. GROUND NO. 9 IN APPEAL FOR ASSESSMENT YEAR 1996- 97 PERTAINS TO ADDITION OF RS.32 00 792 ON ACCOUNT OF UNEXPLAINED DEPOSITS. THE AO ADDED THE NEW UNSECURED LOANS/DEPOSITS RECEIVED BY THE COMPANY DURING THE YEAR FORM THE ELEVEN PERSONS MENTIONED IN THE A SSESSMENT ORDER SINCE THE ASSESSEE FAILED TO FURNISH THEIR PAN AND CONFIRMATIONS. 5.1 .ON APPEAL THE ASSESSEE CONTENDED THAT THE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF DRUGS AND PHARMACEUT ICALS HAS IN ACCORDANCE WITH THE MARKETING PRACTICE PREVAILING I N THE INDUSTRY FOLLOWED THE SYSTEM OF APPOINTING STOCKISTS / DISTRIBUTORS I N VARIOUS PARTS OF INDIA FROM WHOM DEPOSITS WERE ALSO OBTAINED. THE LD. CIT (A) FOUND THAT THE 1195& 573/AHD/2004& CO 88/AHD./2008 20 AMOUNTS WERE RECEIVED BY CHEQUES AND COMPLETE ADDRE SSES OF ALL THE PARTIES HAVE BEEN FURNISHED AS ALSO ALL THESE AMOUN TS WERE RECEIVED IN EARLIER YEARS AND NOT DURING THE PREVIOUS YEAR AS M ENTIONED BY THE AO. MOREOVER THE AMOUNTS WERE MERELY TRANSFERRED FROM THEIR ADVANCE ACCOUNT TO DEPOSIT ACCOUNT AND THEREFORE THESE AMO UNTS WERE REPORTED AS NEW DEPOSITS IN THE TAX AUDIT REPORT. IN THE LI GHT OF THESE FACTS THE LD. CIT(A) DELETED THE ADDITION. 5.2 AFTER HEARING THE PARTIES WE ARE NOT INCLI NED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) SINCE THE REVENUE HAVE N OT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE FINDINGS OF THE LD. CIT(A) THAT THESE AMOUNTS WERE RECEIVED IN THE PRECEDING YEARS AND HA D BEEN TRANSFERRED FROM THEIR ADVANCE ACCOUNT TO DEPOSIT ACCOUNT. ACCO RDINGLY GROUND NO. 9 IN THE APPEAL FOR THE AY 1996-97 IS DISMISSED. 6.. GROUND NO. 10 IN THE APPEAL FOR THE AY 1996-9 7 AND GROUND NO.7 IN THE CO PERTAINS TO RESTRICTION OF DISALLOWANCE O N ACCOUNT OF REMUNERATION PAID TO MD. ON PERUSAL OF SCHEDULE 21 NOTES ON ACCOUNTS FORMING PART OF THE ANNUAL REPORT OF THE COMPANY THE AO NOTICED THAT THE ASSESSEE COMPANY PAID REMUNERATION OF RS. 99.59 LACS TO ITS MANAGING DIRECTOR IN ACCORDANCE WITH TERMS APPR OVED BY THE BOARD OF DIRECTORS OF THE COMPANY AS WELL AS MEMBERS OF THE COMPANY IN GENERAL MEETING. HOWEVER AS THE COMPANY INCURRED LOSSES IN ACCORDANCE WITH PROVISIONS OF COMPANIES ACT 1956 THE COMPANY WAS REQUIRED TO OBTAIN APPROVAL OF THE CENTRAL GOVERNMENT FOR PAYMENT OF R EMUNERATION. SUBSEQUENTLY VIDE ORDER DATED 4 TH JULY 1997 ISSUED BY GOVERNMENT OF INDIA DEPARTMENT OF COMPANY AFFAIRS THE APPROVAL WAS ACCORDED U/S 310 & 198(4) / 309(3) OF THE COMPANIES ACT 1956 FO R REMUNERATION OF ONLY RS.5.00 LACS PER MONTH (ALL INCLUSIVE). SINCE THE REMUNERATION OF RS. 99.59 WAS EXCESSIVE AND WAS REFUNDABLE AS PER PROVI SIONS OF SECTION 309(5A) AND 309(5B) OF THE COMPANIES ACT 1956 THE AO DISALLOWED A 1195& 573/AHD/2004& CO 88/AHD./2008 21 SUM OF RS.39.59 LACS (RS.99.59- 60 LACS) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6.1. ON APPEAL THE CIT(A) WHILE RELYING UPON HIS O WN ORDER FOR THE AY 1997-98 RESTRICTED THE DISALLOWANCE TO RS.6 39 000 IN THE FOLLOWING TERMS: 11. THE APPELLANT COMPANY SUBMITTED AS UNDER: THE COMPANY HAD PAID REMUNERATION TO MANAGING DIREC TOR IN ACCORDANCE WITH TERMS APPROVED BY THE BOARD OF DIRE CTORS OF THE COMPANY AS WELL AS MEMBERS OF THE COMPANY IN GE NERAL MEETING. HOWEVER AS THE COMPANY INCURRED LOSSES IN ACCORDANCE WITH PROVISIONS OF COMPANIES ACT 1956 THE COMPANY WAS REQUIRED TO OBTAIN APPROVAL FROM CENTRA L GOVERNMENT FOR THE PAYMENT OF REMUNERATION. SUBSEQUENTLY THE GOVERNMENT APPROVED REMUNERATION AND AS PER THE APPROVAL OF THE GOVERNMENT RS. 6 39 000/ - ONLY ULTIMATELY FOUND EXCESS WHICH HAS BEEN RECOVERED IN MARCH 2001. ANNEXURE IS ENCLOSED HEREWITH SHOWING YEAR W ISE EXCESS REMUNERATION PAID AGGREGATING TO RS.38 60 00 0/- WHICH HAS SINCE BEEN RECOVERED. AMOUNT OF REMUNERA TION OF RS.6 39 000/- WHICH HAS BEEN PAID IN EXCESS OF AMOU NT OF REMUNERATION APPROVED BY CENTRAL GOVT. CAN NOT BE A LLOWED AS DEDUCTIBLE EXPENDITURE. IN A.Y. 97-98 ALSO IN MY APPELLATE ORDER I HAVE CONFIRMED SUCH DISALLOWANCE OF EXCESS AMOUNT OF REMUNERATION. I AM THEREFORE INCL INED TO CONFIRM DISALLOWANCE TO THE EXTENT OF RS.6 39 000/- ONLY WHICH IS ULTIMATELY FOUND TO BE EXCESS AS AGAINST DISALLOWANCE OF RS.39 59 000/- MADE BY THE A.O. 6.2 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A) IN REDUCING THE DISALLO WANCE WHILE THE ASSESSEE IN THE CROSS-OBJECTION IS CHALLENGING DISALLOWANCE TO THE EXTENT OF RS. 6 39 000/- UPHELD BY THE LD. CIT(A). THE LD DR SUP PORTED THE FINDINGS OF THE AO WHILE THE LD. AR PLEADED THAT SINCE AMOUNT H AS BEEN DISALLOWED IN THE YEAR UNDER CONSIDERATION EXCESSIVE REMUNERATIO N OFFERED TO TAX BY THE ASSESSEE IN THE SUBSEQUENT YEAR MAY BE REDUCED. 6.3 WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) RESTRICTED THE DI SALLOWANCE ON THE BASIS 1195& 573/AHD/2004& CO 88/AHD./2008 22 OF HIS FINDINGS IN THE AY 1997-98. NEITHER THE REVE NUE NOR THE ASSESSEE IS IN APPEAL BEFORE US ON THIS ISSUE IN THE AY 1997 -98 AS IS EVIDENT FROM THE GROUNDS OF APPEAL RAISED BEFORE US BY THE REVEN UE. HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SHRIRAM PISTONS & RINGS LTD. [1990] 181 ITR 230 HELD THAT WHEN A REMUNERATION PAYABLE TO AN EMPLO YEE WAS APPROVED BY THE COMPANY LAW BOARD THEN THE FAIRNES S OF THE REMUNERATION COULD NOT BE CHALLENGED BY INVOKING TH E PROVISIONS OF SECTION 40A(2) OF THE ACT. IN THE LIGHT OF VIEW TAK EN IN THE AFORESAID DECISION AND THE FACT THAT THE REVENUE AS WELL AS T HE ASSESSEE HAVE NOT DISPUTED THE FINDINGS OF THE LD. CIT(A) IN THE AY 1 997-98 ON THE BASIS OF WHICH DISALLOWANCE HAS BEEN RESTRICTED IN THE YEAR UNDER CONSIDERATION WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). HOWEVER SINCE THE EXCESSIVE AMOUNT HAS BEEN TAXED IN THE YE AR UNDER CONSIDERATION IT CAN BE TAXED AGAIN IN THE SUBSEQU ENT YEAR AGAIN WHEN THE ASSESSEE OFFERED THE SAME TO TAX. WITH THESE OB SERVATIONS GROUND NO. 10 IN THE APPEAL FOR THE AY 1996-97 AND GROUN D NO.7 IN THE CO ARE DISMISSED. 7. GROUND NO. 7 IN THE APPEAL FOR THE AY 1997-9 8 PERTAINS TO RELIEF OF RS.1 20 000/- OUT OF ENTERTAINMENT EXPENSES GRANTED BY THE LD. CIT(A). DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ESTIMATED TOTAL ENTERTAINMENT EXPENSES OF RS. 10 LAKHS OUT OF MISC ELLANEOUS AND STAFF WELFARE EXPENSES INSTEAD OF AN AMOUNT RS. 3.60 LACS ESTIMATED BY THE ASSESSEE. ACCORDINGLY A DISALLOWANCE OF RS. 3.20 L ACS WAS MADE AFTER ALLOWING DEDUCTION U/S 37(2) OF THE ACT. 7.1 ON APPEAL THE LD. CIT(A) REDUCED THE DISA LLOWANCE IN FOLLOWING TERMS: 8.1 I AM NOT IN AGREEMENT WITH THE ABOVE CONTE NTIONS OF THE APPELLANT. THIS IS MORE PARTICULARLY IN VIEW OF TH E FACT THAT THE DISALLOWANCE OF FURTHER AMOUNT HAS BEEN MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE TAX AUDIT REPORT WHEREI N IT WAS 1195& 573/AHD/2004& CO 88/AHD./2008 23 MENTIONED THAT THERE WERE EXPENSES IN THE NATURE OF ENTERTAINMENT DEBITED IN THE MISCELLANEOUS EXPENSES LIKE OFFICE AND FACTORY MISCELLANEOUS EXPENSES UNDER GENERAL CHARGES. ON P ERUSAL OF THE DETAILS OF THESE MISCELLANEOUS EXPENSES SHOWED THAT ACTUALLY MUCH MORE EXPENDITURE RELATED TO ENTERTAINMENT EXPENDITU RE INCURRED IN OFFICE MISC. ACCOUNT WHICH SHOWED THAT THERE WERE A MOUNTS INCURRED ON HOTEL CHARGES FOR GUESTS DINNER TO GUE STS ON VARIOUS OCCASIONS FOR RS.6 18 073/- IN TOTAL WHICH WAS SPEC IFICALLY ON ACCOUNT OF ENTERTAINMENT OF GUESTS AND VISITORS. S IMILARLY OUT OF STAFF WELFARE EXPENSES OF RS.49 60 152/- THERE ARE EXPENDITURE ON LUNCH TEA REFRESHMENTS ETC. OUT OF WHICH SOME POR TION WILL NECESSARILY WOULD HAVE BEEN INCURRED FOR VISITORS A ND GUESTS OF THE COMPANY ALSO. IN VIEW OF THESE FACTS OF THE CASE IT IS HELD THAT THERE IS JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER IN MAKING FURTHER DISALLOWANCE. HOWEVER THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER OVER AND ABOVE THE DISALLOWANCE A LREADY MADE BY THE APPELLANT IS FOUND TO BE ON A HIGHER SIDE. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO RESTRICT THE DIS ALLOWANCE TO RS.2 00 000/- SO AS TO MEET WITH THE ENDS OF JUSTIC E. THE APPELLANT GETS A RELIEF OF RS.1 20 000/- ON THIS COUNT. 7.2 THE REVENUE IS NOW IN APPEAL BEFORE US. THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE A SSESSEE RELIED UPON THE FINDINGS OF THE LD. CIT(A). 7.3 AFTER HEARING THE PARTIES WE FIND THAT A SIM ILAR DISALLOWANCE OF RS. 2 LACS MADE BY THE AO IN THE AY 1996-97 WAS REDUCED TO RS. 1.20 LACS AND THE REVENUE HAVE NOT CARRIED THE MATTER IN FURT HER APPEAL. IN THE YEAR UNDER CONSIDERATION DISALLOWANCE HAS BEEN REDUCED TO RS. 2 LACS OUT OF AN AMOUNT OF RS. 3.20 LACS. SINCE ESTIMATED DISALL OWANCE MADE BY THE AO HAS BEEN REDUCED BY THE LD. CIT(A) WHILE THE LD. DR DID NOT POINT OUT ANY INFIRMITY IN THE ESTIMATE MADE BY THE LD. CIT(A ) NOR THERE IS ANY MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIF FERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NO. 7 IN THE APPEAL OF THE REVENUE FOR THE AY 1997-98 IS DISMISSED. 8. GROUND NO.8 IN THE APPEAL OF THE REVENUE FOR THE AY 1997-98 PERTAINS TO DELETION THE DISALLOWANCE OF PROFESSION AL FEES OF RS.2 90 000. 1195& 573/AHD/2004& CO 88/AHD./2008 24 THE AO DISALLOWED THE SAID AMOUNT ON THE GROUND THA T THE AMOUNT WAS REQUIRED TO BE CAPITALIZED BEING PRE-OPERATIVE EXP ENSES RELATING TO CORE PHARMA PROJECT. 8.1 ON APPEAL THE ASSESSEE CLAIMED THAT THE PROFE SSIONAL FEES OF RS.2 90 000 HAS BEEN PAID IN CONNECTION WITH THE PR OJECT WHICH WAS ALREADY IN EXISTENCE AND THEREFORE THE EXPENDITUR E WAS OF REVENUE NATURE. SINCE THERE WAS CONTRADICTION IN THE FACTS STATED BY THE ASSESSEE AND THE FACTS RECORDED BY THE AO THE LD. CIT(A) DI RECTED THE AO TO VERIFY THIS POINT AND IF IT IS FOUND THAT THE SAME IS FOR THE EXISTING PROJECT EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITUR E U/S 37(1) OF THE ACT. 8.2 AFTER HEARING BOTH THE PARTIES WE DO NOT FIN D ANY INFIRMITY IN THE AFORESAID DIRECTIONS OF THE LD. CIT(A). IN THIS VI EW OF THE MATTER GROUND NO. 8 IN THE APPEAL OF THE REVENUE FOR THE AY 1997-98 I S DISMISSED. 9. GROUND NO.4 IN THE CO RELATES TO DISALLOWANC E OF DEFERRED REVENUE EXPENDITURE IN TERMS OF PARA 6 TO11 OF THE ASSESSM ENT ORDER. THE ASSESSEE MENTIONED THAT THAT ADDITION MADE TOTALS U P TO RS.16 20 78 371/- AS AGAINST ADDITION OF RS. 17 49 85 046 MADE BY THE AO RESULTING IN EXCESS DISALLOWANCE OF RS.1 29 06 675. SINCE RELEVANT GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE NOT BE FORE US NOR THERE ARE ANY FINDINGS OF THE LD. CIT(A) ON THIS ASPECT APPA RENTLY ISSUE DOES NOT ARISE OUT OF THE ORDER OF THE LD. CIT(A). IN THESE CIRCUMSTANCES GROUND NO. 4 IN THE CO IS DISMISSED. IN ANY CASE THE ISSUE BE ING SUBJECT MATTER OF RECTIFICATION THE ASSESSEE MAY APPROACH THE AO FO R NECESSARY RECTIFICATION. 1195& 573/AHD/2004& CO 88/AHD./2008 25 10. GROUND NO. 1 IN THE CO BEING GENERAL IN NATU RE DOES NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE GROUND NOS. 5 & 6 HAVING NOT BEEN PRESSED BEFORE US ALL THESE GROUNDS ARE DISMISSED 11.. IN THE RESULT APPEALS OF THE REVENUE FOR THE AY 1996-97 AND THE AY 1997-98 ARE DISMISSED WHILE CROSS-OBJECTION OF T HE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 22ND DAY OF J ANUARY 2010. SD/- SD /- (MAHAVIR SINGH) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED: 22ND JANUARY 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ACIT CIRCLE-1 3. CIT(A)-V AHMEDABAD 4. CIT AHMEDABAD 5. THE DR C BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD