BAJAJ HOLDINGS & INVESTMENTS LTD ( FORMERLY KNOWN AS BAJAJ AUTO LTD),MUMBAI vs. ADDL CIT RG 3(1), MUMBAI

Appeal by Assessee:ITA No.1223/Mum/2010:AY.2005-2006 Ground No. 1 4. Ground No.1 raised by the Assessee pertains to disallowance of INR.47,000/- made by the Assessing Officer in respect of payment towards fines and penalties which was confirmed by the CIT(A). During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.1 raised by the Assessee is dismissed as not pressed.

Ground No. 2 5. Ground No. 2 raised by the Assessee, which pertains to allowability of deduction in respect of proportionate premium on leasehold land amounting to INR.42,10,566/- written off during the relevant previous year, reads as under:

2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in not allowing deduction in respect of proportionate premium on lease hold land written off amounting to Rs.42,10,566/-.

5.1. During the assessment proceedings the Assessing Officer noted that the Assessee had debited to the Profit & Loss Account proportionate amount of premium on leasehold land amounting to INR.42,10,566/- written off during the relevant previous year. In Note No. 24 of the ‘Notes to Computation of Total Income’ enclosed with the return of income, it was stated that leasehold premium was, in effect, advance rent and as such, the proportionate premium was allowable as a deduction as per the ratio of the judgment of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT (225 ITR 802). Reliance was placed by the Assessee on the orders passed ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 by the Commissioner of Income-tax (Appeals) for Assessment Years 1991-92 onwards in support of the aforesaid contention. However, the Assessing Officer disallowed the deduction claimed by the Assessee in respect of lease premium written off during the relevant previous year under Section 37(1) of the Act holding the same to be in the nature of capital expenditure.

5.2. In appeal before the CIT(A), it was contended on behalf of the Assessee that the lease was for a period of 99 years; and the Assessee was required to pay to Maharashtra Industrial Development Corporation (MIDC) a high upfornt lease premium along with a nominal annual lease rent. The upfront lease premium paid by the Assessee was in the nature of advance rent only. However, the CIT(A) was not convinced. Agreeing with the Assessing Officer, the CIT(A) dismissed the ground raised by the Assessee in this regard by placing reliance on the decision of Special Bench of the Tribunal in case of JCIT vs. Mukund Ltd. reported in 291 ITR (AT) 249. The CIT(A) concluded that no deduction in respect of leasehold premium could be allowed as the same constituted capital expenditure. The CIT(A) also placed reliance upon the judgment in the case of CIT Vs. Project Automobiles (1987) 167 ITR 781 (MP) wherein it was held that the premium paid for securing lease of land is capital expenditure even though paid in annual installments.

5.3. Being aggrieved the Assessee has carried the issue in appeal before the Tribunal.

5.4. During the course of hearing the learned Authorised Representative for the Assessee submitted that this issue has been decided in the favor of the Assessee by the Tribunal in the case of the Assessee for the following assessment years:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Assessment Year ITA No. Date 1999-2000 2125 & 1399/Mum/2005 28/11/2023 2000-2001 3055 & 2655/Mum/2005 1998-1999 8952/Mum/2004 22/08/2023 1997-1998 5030/Mum/2001 13/04/2023 1996-1997 1781/Mum/2000 20/06/2022 20/01/2021 1995-1996 3493/Mum/1999 5.5. Per contra the Learned Departmental Representative placed reliance on the order passed by the authorities below.

5.6. We have perused the material on record and considered the rival submission on this issue. We note that for the assessment years 1995-1996 to 2000-2001 the Tribunal has consistently allowed deduction of proportionate amount of lease premium written off during the relevant previous year as a revenue expenditure by following the judgment of Hon’ble Gujarat High Court in the case of DCIT Vs. Sun Pharmaceutical Ind. Ltd. [2010] 329 ITR 479. We note that in paragraph 50 of the Common Order, dated 20/01/2021 [passed in & 3493/Mum/1999 pertaining to Assessment Year 1995-96], the Tribunal has recorded that the Revenue concedes that ‘this ground is covered by the decision of Hon’ble Apex Court, High Courts & ITAT’. The aforesaid decision of the Tribunal was followed in appeal preferred by the Assessee for the Assessment Year 1996-1997 [ITA No.1781/Mum/2000, Common Order, dated 20/06/2022], and the relevant extract of the same reads as under: “20. A perusal of the impugned order shows that the Assessing Officer following the assessment made in assessment year 1995-96 has disallowed assessee’s claim of proportionate write off premium paid on leasehold land Rs.7,42,135/-. In first appellate proceedings the CIT(A) following the order of first appellate authority in assessment year 1985-86 and 1995-96 reversed the findings of Assessing Officer, hence, the Revenue is in appeal against the findings of the CIT(A) on this issue. We find that in assessment year 1995-96 the Co- ordinate Bench has upheld the finding of the CIT(A) by placing reliance on various decisions viz: i. DCIT vs. Sun Pharmaceutical Industries Ltd., 329 ITR ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 479 (Guj); ii. United Phosphorous Ltd. vs. ACIT, 230 Taxman 590(Guj); and iii. Lupin Ltd. vs. JCIT in ITA No.5088/Mum/2005 for A.Y. 1994-95 decided on 02/11/212. The Revenue has not been able to controvert the findings of Co-ordinate Bench on this issue in assessee’s own case for assessment Year 1995-96. Following the decision of Co- ordinate Bench, we uphold the finding of CIT(A) on this issue and dismiss ground No.7 raised in appeal by the Revenue.” 5.7. The aforesaid decision of the Tribunal has since been followed by the Tribunal while deciding identical issue in favour of the Assessee in appeals [listed in paragraph 4.4 above] pertaining to the Assessment Years 1997-98 to 2000-2001. There is no change in facts and circumstances of the case. In effect, the Tribunal has accepted the contention of the Assessee that the lease premium is on the nature of advance rent and therefore, proportionate lease premium written off was held to be revenue in nature. Accordingly, consistent with the view taken by the Tribunal in the Assessee’s own case for the preceding assessment years, we overturned the decision of CIT(A) and direct the Assessing Officer to allow deduction of proportionate premium on leasehold land amounting to INR.42,10,566/- written off during the relevant previous year as revenue expenditure. Accordingly, Ground No.2 raised by the Assessee is allowed.

Ground No. 3 6. Ground No.3(a) to 3(c) raised by the Assessee, which pertain to disallowance made under Section 14A of the Act, read as under:

3.(a) On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing interest under section 14A of the Act and remitting the matter back to the file of the Assessing Officer to recalculate disallowance in accordance with provisions of rule 8D.

(b) On the facts and in the circumstances of the case and in law, ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing administrative expenses under section 14A of the Act and remitting the matter back to the file of the Assessing Officer to recalculate the disallowances in accordance with provisions of rule 8D.

(c) The Commissioner of Income-tax (Appeals) further erred in holding that since sub-section (2) and (3) of section 14A have retrospective effect, disallowance under section 14A ought to be computed in accordance with provisions of rule 8D.

6.1. Ground No.3(a) pertain to interest expenses of INR.15,79,260/- disallowed made by the Assessing Officer under Section 14A of the Act.

6.2. During the previous year relevant to Assessment Year 2005-06, the Assessee received following incomes aggregating to INR.54,88,79,635/- were claimed to be exempt from tax under Section 10 of the Act:

(a) Interest on tax free bonds amounting to INR.19,44,77,062/- claimed to be exempt under Section 10(23G) of the Act

(b) Income from mutual fund unit amounting to INR.2,42,59,842/- claimed to be exempt under Section 10(33) of the Act

(c) Dividend amounting to INR.33,01,42,731/- claimed to be exempt under Section 10(15) of the Act 6.3. In the computation of income the Assessee did not make any disallowance under Section 14A of the Act. In response to a query raised by the Assessing Officer in this regard during the assessment proceedings, the Assessee made detailed submissions explaining that the investments yielding tax free income had been sourced from the Assessee’s own non-interest bearing funds. However, the Assessing Officer was not convinced. The Assessing Officer rejected the aforesaid contentions of the Assessee holding as under:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07

(a) investments in shares of domestic companies and earning dividend income was a divisible activity from the other activities carried out by the Assessee;

(b) the Assessee had utilised funds from a common pool of funds for all its activities and accordingly, the Assessee's contention that investment yielding tax-free income has been sourced out of its own net worth was without any basis,

(c) the Assessee had not furnished any details or evidence that investments yielding tax free income were made out of interest free funds, 6.4. The Assessing Officer noted the average cost of borrowed funds was 0.05% p.a. and therefore, the Assessing Officer made disallowance of interest of INR.15,79,260/- being 0.05% of INR.289.21/- Crores [percentage of borrowed funds to total funds computed at 22.30% x Investment in tax free investments aggregating to INR.1296.70 Crores].

6.5. In appeal preferred by the Assessee on this issue, the CIT(A) disposed off the ground raised by the Assessee holding as under:

“8.10 I have considered the above decision. However, it may be noted that in case of Hero Cycles Ltd the Punjab and Haryana High Court has not taken into consideration the decision of the Special Bench of Mumbai Tribunal in Daga Capital Management Private Ltd vs ITO.

8.11 I have also considered the facts of the case and I have also gone through the facts on record, but respectfully following the decision of the Special Bench of Mumbai Tribunal in case of Daga Capital Management Private Limited 312 ITR 1(AT), I remit the matter back to the Assessing Officer with a direction to recalculate the disallowance as per rule BD, as held in this case as follows on page 59 para 88 wherein it has been held that:

As we have held that sub-sections (2) and (3) of Section 14A are retrospective in nature and the resultant rule 8D would also fall on the same line, then the disallowance under section 14A is required to be computed with reference to the mandate of these ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 provisions. We, therefore, set aside the impugned orders in all the cases before us and remit the matter to the file of the Assessing Officers for computing the disallowance in terms of section 14A read with rule 8D This ground of appeal is allowed.”

6.6. Being aggrieved, the Assessee has carried the issue in appeal before the Tribunal seeking deletion of disallowance of interest of INR.15,79,260/- made by the Assessing Officer under Section 14A of the Act.

6.7. It was submitted on behalf of the Assessee that the CIT(A) erred in applying the provisions of Rule 8D of the Income Tax Rules, 1962 (for short ‘IT Rules’) as the same was not applicable to the Assessment Year 2005-2006. It was further submitted that own funds (i.e. share capital plus reserves & surplus) of the Assessee as on 31/03/2005 stood at INR.4,134.35 Crores and the same were much more than the investments of INR.1296.70 Crores considered by the Assessing Officer. Further, out of borrowed funds of INR.1,226.99 Crores, funds of INR.1,225.23 Crores pertained to the Sales Tax Deferral Scheme. Therefore, sufficient interest-free own funds were available with the Assessee to make investments and therefore, no disallowance of interest was warranted in the facts and circumstances of the present case.

6.8. Per contra the Learned Departmental Representative placed reliance on the order passed by the Assessing Officer.

6.9. We have perused the material on record and considered the rival submission on this issue.

6.10. It is settled legal position that provisions of Rule 8D of the IT Rules were not applicable for assessment years prior to assessment year 2007-2008 [Godrej & Boyce Mfg Co. Ltd. Vs. ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 DCIT [2010] 328 ITR 81 (Bombay) & Maxopp Investments Vs. CIT [2018] 402 ITR 640 (SC)].

6.11. Further, on perusal of Assessment Order we find that the Assessing Officer has concluded that interest of INR.15,79,260/- was incurred in relation to investment made in tax free investments aggregating to INR.1296.70 Crores. A perusal of financial statements of the Assessee for the relevant previous year shows that Own Funds (Share Capital and Reserves & Surplus) of the Assessee as on 31/03/2005 stood at INR.4,134.35 Crores which was much more than the investments of INR.1296.70 Crores considered by the Assessing Officer for the purpose of computing the amount of disallowance of interest expenses. As per the judgment of Hon’ble Supreme Court in the case of South Indian Bank Ltd. Vs. CIT:[2021] 438 ITR 1 (SC) and the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. (366 ITR 505) Bom there was presumption in the favour of the Assessee that the tax-free investments were made out of interest-free own funds and therefore, no disallowance of interest expenses was warranted even if the provisions of Rule 8D of the IT Rules were applicable. Since the Revenue has failed to bring on record any material to rebut the aforesaid presumption, in the facts and circumstances of the present case, we accept the contention of the Assessee and delete the disallowance of interest of INR.15,79,260/- made by the Assessing Officer under Section 14A of the Act.

7. Ground No.3(b) raised by the Assessee pertains to disallowance of expenses of INR.2,48,61,690/- made by the Assessing Officer under Section 14A of the Act holding the same to be administrative expenses incurred by the Assessee for earning exempt income.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 7.1. The Assessing Officer was of the view that the following expenses aggregating to INR.44.47/- Crores were attributable to earning exempt income of INR.54.88 Crores out of total income INR.981.83 Crores: Expenditure Amount (INR ‘000’) 1. Power & Fuel 8,586 2. Repairs 143,120 3. Employee Emoluments 272,756 4. Rates and Taxes 5,638 5. Insurance 7,687 6,937 6. Miscellaneous Expenses Total 444,724 Thus, the Assessing Officer made proportionate disallowance of INR.2,48,61,690/- computed as under:

44,47,24,000/- x (54.88 Crores/981.83Crore)

7.2. In appeal preferred by the Assessee on this issue, the CIT(A) disposed off the ground raised by the Assessee holding as under:

“9.5 I have considered the submissions made by the AR. I do not agree with the AR that no administrative expenditure is attributable to earn exempt income. The CIT(A) in the order passed for the AY 2004-05 and in earlier years has held 10% of employee emoluments and miscellaneous expenses ought to be apportioned towards earning exempt income in the ratio of exempt income to the total income credited to the Profit and Loss Account. The said method was prescribed when rule 8D was not in existence. The Income- tax (Fifth Amendment) Rules, 2008 inserted w.e.f 24 March 2008 prescribed method for determining amount of expenditure in relation to income not includible in total income. Accordingly, respectfully following the decision of the Special Bench of Mumbai Tribunal in case of Daga Capital Management Private Limited 312 ITR 1 (AT), I remit the matter back to the Assessing Officer with a direction to recalculate the disallowance as per rule 8D, as held in this case on page 59 para 88 wherein it has been held that:

As we have held that sub-sections (2) and (3) of Section 14A are retrospective in nature and the resultant rule 8D would also fall on the same to the disallowance under section 14A is required to be computed with reference to the mandate of these provisions. We, therefore, set aside the impugned ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 orders in all the cases before us and remit the matter to the file of the Assessing Officers for computing the disallowance in terms of Section 14A read with rule 8D 7.3. Being aggrieved, the Assessee has carried the issue in appeal before the Tribunal seeking further relief.

7.4. During the course of hearing it was submitted on behalf of the Assessee that the provisions of Rule 8D of the IT Rules were applicable only from Assessment Years 2007-2008 and onwards. It was further submitted that Assessing Officer had made similar disallowances in the prior assessment years (i.e. Assessment Years 2003-2004 and 2004-05). However, the CIT(A) had directed the Assessing Officer to exclude expenses such as Power and Fuel, Repairs, Rates and Taxes and Insurance as these expenses had no nexus with the investment activity. Further, the CIT(A) had also directed the Assessing Officer to consider only 10% of Employee Emoluments and Miscellaneous Expenses for computing disallowance in the ratio of exempt income to total income. The Assessee has accepted the said manner of computation in Assessment Year 2003-04 as the ground raised in appeal before the Hon'ble Tribunal for the aforesaid assessment year was not pressed by the Assessee. In view of aforesaid, without prejudice to the contention of the Assessee that no expenditure was incurred for earning exempt income, it was submitted that aforesaid method of computation be adopted for the assessment year under consideration and the Assessing Officer be directed to compute the disallowance of administrative expenses under Section 14A of the Act in the same manner as directed by the CIT(A) in Assessment Year 2003-04 and Assessment Year 2004-

05. A copy of similar working for the assessment year under consideration was also placed before the Tribunal.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 7.5. Per contra the Learned Departmental Representative placed reliance on the order passed by the Assessing Officer. It was submitted that the CIT(A) has already remitted the matter back to AO to calculate as per Rule 8D. Without prejudice to the aforesaid by placing reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Godrej Agrovet Ltd [Income Tax Appeal No. 934 of 2011, dated 08/01/2013], it was submitted by the Learned Departmental Representative that disallowance at the rate of 2% should be upheld.

7.6. We have perused the material on record and considered the rival submission on this issue.

7.7. We have already concluded hereinabove that provisions contained in Rule 8D of the IT Rules are not applicable to the Assessment Year 2005-2006. 7.8. We note that method of computation of disallowance of administrative expenses under Section 14A of the Act as adopted by the CIT(A) for the Assessment Year 2005-06, was adopted by the CIT(A) for the Assessment Year 2004-2005 as the CIT(A) had directed the Assessing Officer to compute the disallowance in the following manner vide order, dated 21/08/2008, passed by the CIT(A) for the Assessment Year 2004-05:

10.4 I have considered the submissions made by the AR. I do not agree with the AR that no administrative expenditure is attributable to earn exempt income. In my opinion, expenses not connected at all with earning of exempt income ought not to be attributed. Accordingly, power and fuel, repairs, rates and taxes and insurance should not be considered for earning exempt income. However, it cannot be ruled out that no expenditure would have been incurred by the appellant for earning exempt income. Accordingly, I direct the AO to apportion 10% of employee emoluments and miscellaneous expenses towards earning exempt income. Further, for apportioning the said expenses, the ratios of exempt income of Rs.106,54,33,610 to the total income credited ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 to the Profit and Loss Account amounting to Rs.5933,58,10,011/- should be taken.

7.9. The contention of the Assessee is that even for the Assessment Year 2005-2006 same method can be adopted to quantify the administrative expenses to be disallowed under Section 14A of the Act. However, we note that the Revenue has not accepted the aforesaid method adopted by the CIT(A) and has challenged the same in appeal before the Tribunal. Further, we note that identical issue had come up for consideration before the Tribunal in the case of the Assessee in appeals pertaining to the Assessment Year 2002-2003 [ITA No. 3043 & 2899/Mum/2010, dated 24/06/2024] wherein this issue was disposed off as under:

“Ground No. 4(b): Disallowance of Administrative expenditure attributable to earning of exempt income of Rs.27,388,373/-:

18. During the relevant assessment year the assessing officer has computed administrative expenditure towards earning exempt income in accordance with Rule 8D of the I.T. Rule of the amount of Rs.2,73,88,373/-:

19. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.

20. During the course of appellate proceeding before us the ld. Counsel submitted that the case of the assessee is pertained to assessment year 2002-03 and the Rule 8D of the Income Tax Rule has come into existence only w.e.f assessment year 2007-08, therefore, the disallowance cannot be made in accordance with rule 8D of the I.T. Rule. The ld. Counsel has referred the decision of the Hon’ble Bombay High Court in the case of CIT Vs. M/s Godrej Agronet Ltd. Income Tax Appeal No. 934 of 2011 dated 08.01.2013 wherein it is held that rule 8D of the Income Tax Rule 1962 is applicable prospectively w.e.f assessment year 2008-09 and such disallowance was restricted to 2% of the exempt income. On the other hand, the ld. D.R supported the order of lower authorities.

7.10. On perusal of the above, it can be seen that the Tribunal had restricted the disallowance to 2% by placing reliance upon the decision of the Hon’ble Bombay High Court in the case of M/s Godrej Agronet Ltd. (supra) cited on behalf of the Assessee.

7.11. We are also alive to the fact while adjudicating identical issue for the Assessment Year 2003-2004, the Tribunal has [vide order, dated 09/09/2024, passed in & 1420/Mum/2007] accepted the computation method adopted by the CIT(A) similar to the one adopted for the Assessment Year 2005-06. However, we note that the decision of the Co-ordinate Bench of the Tribunal on this issue for the Assessment Year 2002-2003 [passed in ITA No. 3043 & 2899/Mum/2010, dated 24/06/2024] has skipped the attention of the Tribunal even though reference to the aforesaid decision for the Assessment Year 2002-2003 was made in paragraph 96 of the aforesaid order, dated 09/09/2024, passed by the Tribunal in appeal for the Assessment Year 2003-2004, while adjudicating ground raised by the Assessee relating to disallowance of interest expenses under Section 14A of the Act. Further, we are of the view that method adopted by the CIT(A) was also not reasonable. The CIT(A) had after excluding Power & Fuel Expenses, Repairs/Rates & Taxes and Insurance Expenses’ and thereafter, having allocated 10% of Employee Emoluments and Miscellaneous Expenses to earning of exempt income, further apportioned the expenses so attributed in proportion of exempt income to total income to arrive at the quantum of disallowance.

7.12. In view of the above, we do not find any reason to depart from the view taken by the Co-ordinate Bench of the Tribunal in appeal for the Assessment Year 2002-2003 [ITA No. 3043 & 2899/Mum/2010, dated 24/06/2024]. Accordingly, as per the ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 judgment of the Hon’ble Bombay High Court in the case of M/s Godrej Agronet Ltd. (supra), we direct the Assessing Officer to restrict the disallowance of administrative expenses to the extent of 2% of the total exempt income. Thus, Ground No. 3(b) raised by the Assessee is, therefore, partly allowed.

7.13. By way of Ground No. 3(c), the Assessee has contended that the authorities below erred in applying provisions contained in Rule 8D of the IT Rules to the assessment year under consideration. We have already concluded hereinabove that the provisions of Rule 8D of the IT Rules are not applicable to the Assessment Year 2005-06. Accordingly, Ground No. 3(c) raised the Assessee is allowed.

Ground No. 4 8. Ground No.4 raised by the Assessee pertains to disallowance of INR.30,73,000/- made by the Assessing Officer in respect of payment towards wealth-tax which was confirmed by the CIT(A). During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, submitted that the Assessee does not wish to press this ground. Accordingly, Ground No.4 raised by the Assessee is dismissed as not pressed.

Ground No.5 9. Ground No. 5 raised by the Assessee, which pertains to allowability of deduction in respect of software purchase expenses amounting to INR.63,32,318/-, reads as under:

5 On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in treating part of the expenses incurred in relation to purchase and up gradation of software amounting to Rs 63,32,318/-as capital in nature.

9.1. During the relevant previous year the Assessee had incurred expenditure amounting to INR.3,75,05,700/- for New Software ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Purchases out of which expenditure aggregating to INR.1,11,47,525/- was capitalized in the books of accounts and depreciation of INR.33,89,043/- was claimed in respect of the same. However, during the assessment proceedings the Assessee claimed that deduction of INR.3,75,05,700/- should be allowed in respect of the aforesaid New Software Expenses as the same are revenue in nature. It was contended on behalf of the Assessee that the Assessee had merely acquired right to use the software (and not the ownership). Further, the aforesaid expenditure did not bring into existence any asset of enduring nature. However, the Assessing Officer was not convinced. The Assessing Officer, rejecting the aforesaid submissions made on behalf of the Assessee, concluded that expenditure amounting to INR.3,75,05,700/- for New Software Purchases was capital in nature and therefore, deduction for the same could not be allowed. However, the Assessing Officer allowed the Assessee to claim depreciation under Section 32 of the Act @ 60%. Thus, a net disallowance of INR. 63,32,318/- was made by the Assessing Officer.

9.2. In appeal preferred by the Assessee on this issue, the CIT(A) declined to grant any relief and rejected the ground raised by the Assessee by placing reliance upon the decision of Special Bench of the Tribunal in case of Amway India Enterprises reported in 111 ITD 112. 9.3. Being aggrieved the Assessee has carried the issue before the Tribunal.

9.4. During the course of appellate proceedings before the Tribunal, the Learned Authorized Representative for the Assessee submitted that software expenses are allowable as revenue expenditure under Section 37(1) of the Act. It was submitted that the decision ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 of Special Bench of the Tribunal in the case of Amway India Enterprises (Supra) has been reversed by the Hon'ble Delhi High Court in the case of CIT Vs Amway India Enterprises : [2012] 346 ITR 341 (Delhi)[04-11-2011]. Accepting the aforesaid submission of the Assessee, the Tribunal has allowed identical ground raised by the Assessee in appeal for the Assessment Year 2002-2003 vide order, dated 24/06/2024, passed in ITA No. 3043 & 2899/Mum/2010. The Learned Authorized Representative for the Assessee also placed reliance on Page No.74 of the factual paper book giving details of the software expenses in support of the contention that the Software Purchase Expenditure were revenue in nature.

9.5. On the other hand, the Learned Departmental Representative supported the order of authorities below. He submitted that software is an integral part of hardware and therefore, such software without which the computer cannot operate is to be treated as plant and equipment which are meant for long term use. Thus, expenditure on New Software Purchased has been correctly classified as capital expenditure by the Assessing Officer and the CIT(A) since the same is resulting in enduring benefit to the Assessee. Further, the Assessee has failed to clarify whether the new software purchased is operating software or application software.

9.6. We have given thoughtful consideration to the rival submissions and have perused the material on record.

9.7. We note that the Assessee had incurred an expenditure of INR.3,75,05,700/- towards New Software Purchase which was debited to the Profit and Loss Account. Out of the aforesaid expenditure, an amount of INR.2,00,34,850/- pertained to the purchase of software for research and development purpose and ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 deduction in respect of the same was claimed by the Assessee under Section 35 of the Act. Further, recovery of INR.63,23,325/- was made by the Assessee from the dealers in relation to software expenses incurred by the Assessee for the dealers forming part of New Software Purchase expenses. For the balance amount of expenditure incurred on New Software Purchase amounting to INR.1,11,47,525/- [INR.3,75,05,700/- Less INR.2,00,34,850/- Less INR.63,23,325/-], the Assessee claimed depreciation in the return of income. However, in the notes to computation of income, the Assessee made a claim that the aforesaid expenditure of INR.1,11,47,525/- be allowed as a deduction under Section 37 of the Act. It is the contention of the Assessee that expenditure incurred on New Software Purchase is revenue in nature and in this regard, reliance was placed upon the details of ‘New Software Purchases’ (placed at Page 74 of the factual Paper Book). On perusal of the aforesaid details we find that it gives the break-up of New Software Purchases made from different vendors alongwith brief discription. However, the grouping of aforesaid vendor-wise expenses into expenditure on ‘Research & Development’, expenditure ‘For Dealers’ and expenditure for ‘Own Use’ is not available on record. Therefore, we deemed it appropriate to remand this issue back to the file of Assessing Officer with the directions to allow deduction for New Software Purchase expenses of INR.1,11,47,525/- as revenue expenditure after verifying the factual averments made by the Assessee to the effect that (a) the same do not provide any benefit of enduring nature to the Assessee; and/or (b) the same include expenses for purchase of software licenses not giving any ownership rights to the Assessee. In case the Assessing Officer accepts the contention of the Assessee and grants deduction for New Software Purchase expenses of INR.1,11,47,525/- as revenue expenditure, the Assessing Officer is directed to reverse the depreciation of ITA No. 6838/Mum/2008, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 INR.33,89,043/- granted to the Assessee in respect of the same expenditure.

9.8. In terms of the above ground No. 5 raised by the Assessee is allowed for statistical purposes.

Ground No.6 10. Ground No. 6 raised by the Assessee, which pertains to addition made by the Assessing Officer in respect of Duty Entitlement Pass Book (DEPB) benefit, reads as under: “6. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in holding that entire Duty Entitlement Pass Book (DEPB) benefit credited to the profit and loss account ought to be taxed without appreciating the fact that as per section 28(iiid) only profit on transfer of DEPB is chargeable to tax and not the entire amount credited to the profit and loss account.”

10.1. The facts relevant for adjudication of the ground under consideration are that the DEPB benefit of INR.1,03,67,73,501/- was credited to the Profit & Loss Account for the relevant previous year. The aforesaid amount was net of the loss on sale of Licenses amounting to INR.2,90,10,587/-.

10.2. While framing assessment the Assessing Officer treated the entire amount of DEPB Benefit of 1,03,67,73,501/- credited to the Profit & Loss Account as income for the relevant previous year and denied deduction for loss on sale of licenses amounting to INR.2,90,10,587/-.

10.3. In appeal preferred by the Assessee on this issue, the CIT(A) granted partial relief. The CIT(A) upheld the order of Assessing Officer holding that once an item is accounted as income in the accounts, there is no reason to exclude the same for the purpose of income tax. Therefore, the Assessing Officer was correct in brining to tax the entire amount of DEPB benefit of 1,03,67,73,501/- credited to the Profit & Loss Account as income ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 for the relevant previous year. However, the CIT(A) granted relief to the Assessee by holding that the loss arising in the current year on account lower realisation as compared to the value booked in earlier years ought to be allowed as a deduction. Thus, the CIT(A) accepted Assessee’s claim for deduction/set off of loss of Rs.2,90,10,587/-.

10.4. Not being satisfied the Assessee has carried the issue in appeal before the Tribunal.

10.5. We have given thoughtful consideration to the rival submissions. It emerges that identical issue had come up for consideration before the Tribunal in Assessee’s own case for the Assessment Year 2002-2003 [ITA No.3043/Mum/2010 & dated 24/06/2024], wherein both the sides had agreed that issues raised were to be decided afresh after considering the facts and circumstances of the case as per the judgment of Hon'ble Supreme Court in the case of Excel Industries Ltd. (2013) 358 ITR 295 (SC). The relevant extract of the aforesaid decision of the Tribunal reads as under:

53. Heard both the sides and perused the material on record. The facts and findings on the issue of taxability is not fully discussed in the order of the assessing officer and the CIT(A) therefore we restore this issue to the file of the assessing officer to decide the same after examination in accordance with the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. (2013) 358 ITR 295 (SC). Therefore this ground of appeal of the assessee is allowed for statistical purpose.

10.6. The above decision of the Tribunal was followed by the Co- ordinate bench while adjudicating identical ground raised in appeal for the Assessment Year 2003-2004 [ITA No. 1496 & 1420/Mum/2007, dated 09/09/2024].

10.7. Since the facts and circumstances prevailing during the relevant previous year were identical to those prevailing in Assessment ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Years 2002-03 and 2003-04, we find no reason to depart from the consistent view taken by the Tribunal in appeals for the Assessment Year 2002-2003 and 2003-04. Accordingly, the issues raised by way of Ground No.6 in the present appeal are remanded back to the file of Assessing Officer for denovo adjudication as per the judgment of the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra). The Assessee is directed to furnish before the Assessing Officer the details of corresponding cost, sale proceeds and utilisation of DEPB Benefit. All the rights and contentions of the Assessee are left open. In terms of the aforesaid, Ground No. 6 raised by the Assessee is allowed for statistical purposes.

Ground No.7 11. Ground No. 7 raised by the Assessee, which pertains to allowability of weighted deduction under Section 35(2AB) of the Act, reads as under:

7. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in holding that the appellant is not entitled for weighted deduction under section 35(2AB) for expenditure incurred on research and development for the period from 1 April 2004 to 21 September 2004 11.1. During the relevant previous year the Assessee had incurred capital and revenue expenses on Research and Development amounting to INR.54,58,88,905/- on automobiles [notified by the Central Board of Direct Taxes (CBDT) under Section 35(2AB) of the Act vide Notification No. S.O. 1021(E) dated 21/09/2004]. Out of the aforesaid expenditure, an amount of INR.22,32,70,367/- was incurred upto 21/09/2004 and the balance amount of INR.26,18,538/- was incurred between 22/09/2004 to 31/03/2005. 11.2. Under Section 35(2AB) of the Act the notified industries were ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 entitled to claim weighted deduction of 150% in respect of expenditure incurred on research and development. As per Notification No. S.O. 1021(E), dated 21/09/2004, automobile including automobile components became notified industry falling within the ambit of Section 35(2AB). In the return of income, the Assessee claimed weighted deduction of INR.48,39,27,807/- in respect of expenditure incurred after 21/09/2004 [i.e. on INR.32,26,18,538/-]. No weighted deduction was claimed by the Assessee on the balance amount of INR.22,32,70,367/- [i.e. expenditure incurred on research and development prior to 21/09/2004]. However, by way of Note 13 to Computation of Income enclosed along with the said return, the Assessee made a claim for weighted deduction for research and development expenditure of INR.22,32,70,367/- incurred prior to 21/09/2004. 11.3. The Assessing Officer rejected the aforesaid claim of the Assessee by holding that since the notification for including the automobile and automobile components within the ambit of section 35(2AB) of the Act was silent on the date of its applicability, the Assessee was entitled for weighted deduction only for expenditure incurred after 21/09/2004. 11.4. In appeal preferred by the Assessee, the CIT(A) concurred with the Assessing Officer and concluded that on a plain reading of Section 35(2AB) read with Notification No.245 of 2004 [S.O.1021(E)], dated 21/09/2004 weighted deduction under Section 35(2AB) of the Act could not be allowed in respect of research expenses incurred prior to 21/09/2009. 11.5. Being aggrieved, the Assessee has carried the issue before the Tribunal.

11.6. We have heard the rival submission and perused the material on ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 record.

11.7. In our view, it would be pertinent to refer to the provisions contained in Section 35(2AB)(1) of the Act as applicable at the relevant time which read as under:

Section 35 (2AB)(1) Where a company engaged in the business of bio-technology or in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure] so incurred.

11.8. Bare perusal of the above provisions of Section 35(2AB) of the Act shows that weighted deduction is allowed in respect of expenditure incurred on scientific research to a company engaged in business of manufacture or production of any item or thing notified by the CBDT. It is admitted position that by virtue of Notification No.245 of 2004 [S.O.1021(E)], dated 21/09/2004 automobiles and automobile components were notified as items/things in respect of which aforesaid weighted deduction would be available.

11.9. Notification No.245 of 2004 [S.O.1021(E)], dated 21/09/2004 reads as under: “SECTION 35(2AB)(1) OF THE INCOME-TAX ACT, 1961 - SCIENTIFIC RESEARCH EXPENDITURE - NOTIFIED ARTICLE OR THING FOR THE PURPOSE OF CLAUSE (1) OF SECTION 5(2AB)(1)

NOTIFICATION NO. S.O. 1021(E), DATED 21-9-2004 In exercise of the powers conferred by clause (1) of sub-section (2AB) of section 35 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby notifies automobiles, including automobile components, as article or thing for the purposes of the said clause.”

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 11.10. It is the contention of the Assessee that weighted deduction under Section 35(2AB) of the Act would be available for expenditure on research incurred during the relevant previous year 2004-05 (relevant to Assessment Year 2005-06) while the stand taken by the Revenue is that such weighted deduction would be available only in respect of expenditure incurred after the date of notification (i.e. 21/09/2004) and before the end of the relevant previous year.

11.11. On conjoint reading of Section 35(2AB) and Notification No.245 of 2004 [S.O.1021(E)], dated 21/09/2004, it can be concluded that with effect from 21/09/2004, weighted deduction was available in respect of expenditure incurred by an assessee engaged in manufacture or production of automobiles (including automobile components). The notification did not provide for exclusion of expenditure incurred prior to the date of notification.

11.12. It is settled legal position that in income tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. [Shree Chowdhary Transport Company v. ITO: 426 ITR 289 (SC)]. The relevant Assessment Year 2005-2006 began on 01/04/2005 and the notification was issued much prior on 21/09/2004. Thus, the law as applicable to the Assessment Year 2005-06 provided for weighted deduction for expenditure incurred on research by a company engaged in the business of manufacture or production of automobiles/automobile components. Thus viewed, it cannot even be said that the notification was retrospective in application. Further, there is nothing on record to suggest existence of any express/implied intent or necessary implication on account of which provision of Section 35(2AB) of the Act read with Notification No.245 of 2004 ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 [S.O.1021(E)], dated 21/09/2004 as in force in the Assessment Year 2005-06 were not to be applied. Admittedly, the notification is silent on this aspect and therefore, in our view, the additional condition that weighted deduction shall be allowed only in case of research expenditure incurred after 21/09/2004, cannot be read into the notification. Therefore, we are of the view that an assessee, otherwise eligible to claim withed deduction under Section 35(2AB) of the Act in respect of expenditure incurred in research, cannot be denied deduction merely on the ground that the research expenditure were incurred prior to 21/09/2004. Accordingly, we overturn the decision of the CIT(A) on this issue and direct the Assessing Officer to grant weighted deduction to the Assessee in terms of Section 35(2AB) of the Act in respect of research expenditure of INR.22,32,70,367/- incurred prior to 21/09/2004. Our view draws support from the decision of the Tribunal in the case of DCIT, LTU Vs Ashok Leyland Ltd: [2017] 88 taxmann.com 989 (Chennai - Trib.)[23-09-2016] [refer to paragraph 39 to 39.3] 11.13. Before parting we would like to observe that Learned Departmental Representative had impressed upon the use of term ‘hereby’ in Notification No.245 of 2004 [S.O.1021(E)], dated 21/09/2004. In our view, the use of term hereby does not make reference to time as was contended by the Learned Departmental Representative. Use of term ‘hereby’ has to be understood in the context of provisions contained in Section 35(2AB) of the Act which empower the CBDT to notify ‘article or things’. In our view, use of term ‘hereby’ refers to the factum of issuance of the notification and has not reference to the time of incurring of expenditure on research.

11.14. In view of the above, Ground No. 7 raised by the Assessee is allowed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Ground No.8 12. Ground No. 8 raised by the Assessee, which pertains to computation of deduction under Section 80-IA of the Act, reads as under:

“8. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer that, the term "initial year" ought to taken as the first year in which the appellant exercises its option of claiming deduction under said section 80-IA and not the first year in which it starts generating power.”

12.1. The relevant facts in brief are that the Assessee has installed wind farms in six phases, each qualifying for exemption as power generating units as per the provisions of Section 80-IA(4)(iv) of the Act. The Assessee opted to claim deduction in respect of the Phase I of Wind farm for the first time in Assessment Year 2005- 06 being the sixth year of operation Phase I of Wind farm. In the return of income the Assessee computed and claimed deduction under Section 80IA of the Act at ‘Nil’ after deducting depreciation (including brought forward depreciation of earlier years). However, during the assessment proceedings, the Assessee claimed that only the depreciation claimed and allowed under Section 32 for the Assessment Year 2005-06 ought to be deducted and unabsorbed deprecation of earlier years ought not to be deducted since the Assessee had opted to chose Assessment 2005-06 as the initial assessment year. The aforesaid claim of the Assessee was rejected by the Assessing Officer by placing reliance upon the provisions contained in Section 80I(5) of the Act which read as under:

“Section 80-IA.

(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 hereinafter referred to as the eligible business) there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub- section (4) or generates power or commences transmission or distribution or power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines.

(3) xx xx

(4) This section applies to-

(i) any enterprise carrying on the business of (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :-

(a) it is owned by a company registered in India or by a consortium of such companies (or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act) ;

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, or (ii) operating and maintaining, or (iii)developing, operating and maintaining a new infrastructure facility ;

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st April, 1995. (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 (Emphasis Supplied)

12.2. In appeal preferred by the Assessee, the CIT(A) declined to grant any relief on this issue and rejected the ground raised by the Assessee challenging the order passed by the Assessing Officer on this issue.

12.3. Being aggrieved the Assessee has carried the issue in appeal before the Tribunal.

12.4. We have head both the sides, perused the material on record and examined the position in law in view of the submission made by both the sides and judicial precedents cited during the course of hearing on this issue.

12.5. During the course of hearing heavy reliance was placed on behalf of the Assessee on the decision of Hon’ble Madras High Court in the case of M/s Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT (340 ITR 477) (Madras High Court) which was confirmed by the Hon'ble Supreme Court ((2016) 244 Taxman 58 (SC). On perusal of the aforesaid judgment of the Hon’ble Madras High Court we find that, inter alia, following substantial questions of law was raised for consideration:

“(c) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in saying that unabsorbed depreciation of earlier years before the first year of claim, which has already been absorbed, could be notionally carried forward and taken into consideration for computation of deduction under section 80-IA ?

12.6. Answering the above question of law in favour of the Assessee, the Hon’ble High Court held as under:

17. From a reading of sub-section (1), it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 of the assessee, a deduction of an amount equal to 100 per cent. of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under : "(1) It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ; (2) It is for the purpose of determining the quantum of deduction ; (3) For the assessment year immediately succeeding the initial assessment year ; (4) It is a deeming provision ; (5) Fiction created that the eligible business is the only source of income ; and (6) During the previous year relevant to the initial assessment year and every subsequent assessment year."

18. From a reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in subsection does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.

Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current assessment year 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under section 80-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under section 80-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs.

21. The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and the same reads as follows :

Clause 30(iii). In computing the quantum of 'tax holiday' profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such units were an independent unit owned by a taxpayer who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80- I even though they may have been set off against the profits of the taxpayer from other sources.

12.7. The above judgment was followed by the Co-ordinate Bench of the Tribunal in the case of Bajaj Finserv Limited Vs. The deputy Commissioner of Income Tax –LTU [ITA No.4223/Mum/2012, Assessment Year 2008-09, dated 24/06/2021] cited on behalf of the Assessee.

12.8. Keeping in view the judicial precedents cited in behalf of the Assessee, we set aside the order passed by the CIT(A) and directed the Assessing Officer to recomputed the deduction under Section 80IA of the Act as per the judgment of the Hon’ble Madras High Court in the case of M/s Velayudhaswamy Spinning Mills (P) Ltd. (supra) wherein it was held that the unabsorbed depreciation/loss pertaining to assessment years preceding the initial assessment year to the extent already absorbed against the profit of other business of the Assessee cannot be notionally ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 brought forward and set off against the profits of the eligible business for the purpose of the computing deduction under Section 80IA of the Act as no such mandate has been provided by Section 80IA(5) of the Act. The Assessing Officer is directed accordingly. In terms of the aforesaid directions, Ground No. 8 raised by the Assessee is allowed.

Appeal by Revenue: A.Y. 2005-06: ITA No.535/Mum/2010

13. We would now take up the grounds raised

by the Revenue in the cross-appeal for the Assessment Year 2005-2006. Ground No. 1

14. Ground No. 1 raised by the Revenue, which pertains to the claim of deduction under Section 35D of the Act in respect of GDR issue expenses amounting to INR.1,17,19,960/- written off during the relevant previous year, reads as under:

1. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in allowing deduction u/s. 35D amounting to Rs. 1,17,19,960/-.

14.1. The relevant facts in brief are for the Assessment Year 1995-96, the Assessee had claimed deduction under Section 37(1) of the Act in respect of expenses incurred in connection with the issue of Global Depository Receipts (GDR). In alternative, the Assessee claimed deduction for the aforesaid expenses be allowed under Section 35D of the Act. In the assessment order passed under section 143(3) for Assessment Year 1995-96, the Assessee’s claim for deduction under Section 37(1) of the Act was rejected. However, in respect of the alternative claim for proportionate deduction under Section 35D of the Act, the Assessing Officer was of the view that the claim was required to be examined in the year in which the extension of the industrial undertaking is completed or the new industrial undertaking commences production.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Accordingly, the Assessee claimed deduction under Section 35D of the Act for the first time in Assessment Year 1997-98 since the expansion project was completed during the previous year (ended 31/03/1997) relevant to Assessment Year 1997-98. The aforesaid claim of the Assessee made for the Assessment Year 1997-1998 was rejected by the Assessing Officer. However, the CIT(A) allowed Assesssee’s claim for deduction under Section 35D of the Act in respect of GDR Issue expenses. The appeal preferred by the Revenue against the aforesaid relief granted by the CIT(A) was dismissed by the Tribunal vide order, dated 14/03/2023, [ITA No.5030/Mum/2001].

14.2. For the Assessment Year 2005-06, in the return of income the Assessee had claimed deduction of INR.1,17,19,960/- under Section 35D of the Act in respect of 1/10th of the GDR issue expenses which was disallowed by the Assessing Officer. However, in appeal, the CIT(A) accepted Assessee’s claim and allowed deduction for the aforesaid expenses. Therefore, the Revenue has carried the issue in appeal before the Tribunal.

14.3. During the course of hearing, both sides agreed that following the above decision of the Tribunal for the Assessment Year 1997-98 [ITA No.5030/Mum/2001, dated 14/03/2023], the Hon'ble Tribunal has consistently upheld/allowed Assessee’s claim for deduction under Section 35D of the Act in respect of 1/10th of the GDR issue expenses.

14.4. We note that the Tribunal has dismissed identical ground raised by the Revenue in appeals preferred for Assessment Years 1998-1999 to 2002-2003:

(a) AY 2002-03 (ITA No.2899/Mum/2010, dated 24/06/2024) (b) AY 2001-02 (ITA No.4372/Mum/2005, dated 23/02/2024) (c) AY 2000-01 (ITA No.2655/Mum/2005, dated 28/11/2023)

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 (d) AY 1999-00 (ITA No.1933/Mum/2005, dated 28/11/2023) (e) AY 1998-99 (ITA No.8952/Mum/2004, dated 22/08/2023) (f) AY 1997-98 (ITA No.5030/Mum/2001, dated 13/04/2023)

14.5. There is nothing on record to persuade us to depart from the view taken by the Tribunal in appeals for the preceding assessment years. Accordingly, respectfully following the above decisions of the Tribunal, we decline to interfere with the order passed by the CIT(A) on this issue. Thus, Ground No. 1 raised by the Revenue is dismissed.

Ground No. 2 15. Ground No. 2 raised by the Revenue, which pertains to allowability of depreciation on leased assets amounting to INR.20,21,264/- written off during the relevant previous year, reads as under:

2. On the facts and circumstances of the case and in law, the Learned CIT(A), erred in directing the A.O. to consider the transaction entered with M/s. JCT as genuine lease transaction which is nothing but finance loan transaction.

15.1. The relevant facts in brief are that the Assessee entered into a lease transaction with JCT Limited during the previous year relevant to Assessment Year 1996-97 for lease of new textile machineries amounting to INR.6,99,22,335/-. The Assessee earned lease rental income and claimed depreciation on leased assets. However, the Assessing Officer held the aforesaid transaction with JCT Limited was a finance loan transaction clothed in the form of the lease for the purpose of getting tax benefit by claiming depreciation on the leased assets. Thus, the Assessing Officer denied depreciation claimed by the Assessee and brought to tax entire amount of lease rental as ‘Income from Other Sources’. On appeal, the CIT(A) decided the said issue in favour of the Assessee. The appeal preferred by the Revenue on this issue was dismissed by the Tribunal vide order dated 20/06/2022 for the Assessment Year 1996-1997 passed in No. 6838/Mum/2008, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 2230/Mum/2000, and therefore, depreciation claimed by the Assessee was allowed as deduction against the lease rentals offered to tax under the head 'Income from Other Sources'.

15.2. For the Assessment Year 2005-06, the Lease Rent received by the Assessee in relation to aforesaid transaction with JCT Limited was offered to tax under the head ‘Income from Other Source’. Further, the leased assets were sold during the relevant previous year and the deemed short term capital gains arising thereon was claimed as exempt under Section 54EC of the Act. Since the lease assets were sold during the relevant previous year, no depreciation was claimed in respect of leased assets. The Assessing Officer, following the stand taken in preceding assessment years, held the entire amount of lease rent received as income chargeable to tax while holding the said transaction with JCT Ltd to be finance lease.

15.3. In appeal, the CIT(A) directed the Assessing Officer to consider the lease transaction entered by the Assessee with JCT Limited to be a genuine transaction by following the order passed by the first appellate authority for Assessment Years 1997-98 to 2001-02, and accept the claim as made by the Assessee in relation to the same.

15.4. Being aggrieved, the Revenue has carried the issue in appeal before the Tribunal.

15.5. We have considered the rival submissions and have perused the material on record.

15.6. On perusal of the order impugned, we find that the CIT(A) has granted relief to the Assessee by holding the transaction between the Assessee and JCT Ltd. to be genuine. We note that while holding so the CIT(A) had placed reliance upon the order passed ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 by the first appellate authority for the preceding assessment years which have since been confirmed by the Tribunal. During the course of hearing reliance was placed on behalf of the Assessee on the following decision of the Tribunal:

(a) AY 2002-03 (ITA No.2899/Mum/2010, dated 24/06/2024) (b) AY 2001-02 (ITA No.4372/Mum/2005, dated 23/02/2024) (c) AY 2000-01 (ITA No.2655/Mum/2005, dated 28/11/2023) (d) AY 1999-00 (ITA No.1933/Mum/2005, dated 28/11/2023) (e) AY 1998-99 (ITA No.8952/Mum/2004, dated 22/08/2023) (f) AY 1997-98 (ITA No.5030/Mum/2001, dated 13/04/2023)

15.7. We have perused the decision of the Co-ordinate Bench of the Tribunal, dated 23/02/2024, passed in the case of the Assessee in appeal preferred by the Revenue for the Assessment Year 2001- 2002 [ITA No. 4372/Mum/2005] wherein it was held as under:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 (a) Director of Income-tax (International Taxation) - II v. HSBC Asset Management India Private Limited [2014] 47 taxmann.com 286 (Bombay)

(b) Commissioner of Income-tax 7 v. Sonic Biochem Extractions Private Limited (ITA No. 2088 of 2013) (Bombay)

(c) CIT V. G.N.Agrawal (Individual) 217 ITR 250

"(a) Whether the assessee can be said to have acquired ownership of the assets in question from the Electricity Boards for purpose of claiming depreciation.

(b) Whether the transactions entered into with the Electricity Boards were genuine lease transactions.

(c) Whether the transactions can be characterized as loan transactions against security of the assets in question.

(d) Whether the transactions can be treated as hire-purchase agreements"

The CIT(A) after considering the facts of the case and lease agreement threadbare answered the first two issues in affirmative holding that the assessee had acquired the ownership of the assets purchased from Electricity Board and hence, eligible to claim depreciation on the said assets. The CIT(A) further held that the lease agreements ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 with the State Electricity Board i.e. HSEB and PSEB are genuine lease transactions.

As regards the issue raised in (c) & (d) above, the CIT(A) answered the question in negative holding that the transaction of purchase of assets from HSEB and PSEB and leasing it back to the State Electricity Board is not a hire purchase agreement nor it is a loan transaction against security of the assets. We, concur with the detailed and reasoned findings of the CIT(A) on this issue, they are not reproduced for the sake of brevity. The Hon'ble Supreme Court of India in the case of CIT vs. K.Y.Pillah & Sons, 63 ITR 411 and Hon'ble Delhi High Court in the case of CIT vs. Global Vantedge P. Ltd., 354 ITR 21 held that where the Tribunal concur with the view of CIT(A), the findings of CIT(A) need not be reproduced.

25.4 We find that in the case of CIT vs. Punjab State Electricity Board, wherein after the sale of asset the same asset was leased back to the Punjab State Electricity Board and the Electricity Board claimed deduction in respect of lease rental, the Department allege that sale of asset to third party and the same asset being taken on lease for claiming deduction in respect of lease rental is a colorable device to reduce tax liability and have denied the same. The Tribunal decided the issue in favour of the assessee holding the transaction of sale and lease back of asset as genuine. The Revenue carried the issue in appeal before the Hon'ble High Court raising following substantial question of law:

Whether on the facts and in the circumstances of the case, the income-tax Appellate Tribunal is legally correct in holding that in the present case/ no colourable device has been adopted by the assesses, even when the intention of the assessee behind drafting the agreements between the assessee and the financial institution was to reduce the tax liability artificially of both the parties and as such the ratio of the decision of the hon'ble apex court in the case of McDowell Ltd. v, CTO [1985] 154 ITR 148 (SC) has wrongly been, interpreted The Hon'ble High Court rejected the appeal of Revenue by holding as under:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07

3. "Only contention raised by the learned counsel for the Revenue is that the machinery was integral part of the bollers and the same continued to be with the assessee in spite of sale. The fact remains that the sale consideration was received by the assessee and lease rental was paid by the assessee. Merely because tax liability was reduced could not be conclusive of arrangement being sham or a device. As regards the observations of the-hon'ble Supreme Court in McDowell [1985] 154 ITR 148, the matter has. been explained in subsequent judgments including in Union of India v. AzadiBachaoAitdokn [2003] 263 ITR 706 (SC); AIR 2004 SC 107. Reiterating the view that the assessee was entitled to arrange his affairs to reduce his tax liability, without violating the law, it was observed in AzadiBachaoAndolan [2003] 263 ITR 706 (SQ; AIR 2004 SC 107 that the principle laid down in IRC v. Duke of Westminster [1936) AC 1 was still valid.

Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges."

5. The Hon'ble Supreme Court affirmed the view token by the Madras High Court in M. V. Valliappan v. TTO [1988] 170 ITR 238 and the Gujarat High Court in Banyan and Deny vs. CIT (1996)

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 222 ITR 831. Reference was also made to the judgment in CWT v. Arvind Narottam [1988] 173 FIR 479 and Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667. It: was further observed that the word "device" or "sham" could not be used to defeat the effect of a legal situation.

6. In view of the finding recorded by the Tribunal in the facts of this case, no substantial question of law arises. The appeal is dismissed."

25.5 Thus, the Hon'ble Court held that lease agreement where the asset is leased back to the vendor is not a ploy to reduce tax incidence and is an accepted arrangement. In view of our above findings, we see no merit in Ground No.11 raised by the Revenue, hence, the same is dismissed.”

59. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed and the issue involved in relation to transaction with JCT Ltd are similar to the above findings in relation to transaction with PSEB, accordingly, ground raised by the revenue is dismissed.”

15.8. Thus, the Tribunal has accepted the transaction between the Assessee and JCT Ltd as a genuine transaction. We further note that from the material on record it becomes clear that no depreciation was claimed by the Assessee for the Assessment Year 2005-06 in relation to the assets leased to JCT Limited.

15.9. In view of the above decisions of the Tribunal in the case of the Assessee, we do not find any infirmity in the order passed by the CIT(A) on this issue and accordingly, we decline to interfere with the same. Ground No. 2 raised by the Revenue is, therefore, dismissed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Ground No.3 16. Ground No.3 raised by the Revenue, which pertains to allowability of expenditure on dies and moulds amounting to INR.24,79,56,477/- written off during the relevant previous year, reads as under:

3. On the facts and circumstances of the case and in law, the Learned CIT(A). erred in directing the A.O. to treat expenditure on dies and moulds amounting to Rs. 24,79,56,477/- as revenue expenditure.

16.1. The relevant fact in brief are that the Assessee had claimed deduction for INR.24,79,56,477/- as revenue expenditure being expenditure incurred for purchase of dies and moulds during the relevant previous year. The Assessee accounted for the aforesaid expenses as capital expenses in the books of accounts. However, in the notes to the computation of income it was stated that the dies and moulds are used in the press to produce press parts used in the manufacture of automobiles. Since the dies and moulds represent a part of the plant and machinery, the expenditure on purchase of the same originally was capitalized along with plant and machinery cost. However, the cost of new dies and moulds used during the year represents replacements cost incurred on account of wear & tears of die; or change in the design of the press parts. A particular die/mould can cast approximately 1,00,000 impressions and considering the turnover of the Assessee, the life of the dies/mould would be approximately six months in majority of the cases. Therefore, the cost of dies and moulds put to use during the year, was claimed as an allowable deduction. The Assessing Officer was not convinced with the aforesaid explanation offered by the Assessee and therefore, disallowed deduction as claimed by the Assessee holding the expenditure on mould and dies as capital in nature. However, the Assessing Officer allowed depreciation on the same.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 16.2. In appeal, the CIT(A) overturned the decision of the Assessing Officer and allowed deduction for expenditure incurred on mould and dies as revenue expenditure accepting the explanation provided by the Assessee.

16.3. Being aggrieved, the Revenue has carried the issue in appeal before the Tribunal 16.4. We have given thoughtful consideration to rival submission and perused the material on record. We find that while adjudicating identical issue in appeals pertaining to the preceding assessment years, the Tribunal has held that the expenditure incurred on moulds and dies is in the nature of revenue expenditure. The Tribunal has accepted the submission of the Assessee that expenditure incurred on replacement of moulds/dies was in the nature of revenue expenditure and that the same was allowable as deduction as replacement cost in terms of Section 31 of the Act. In this regard, reliance was placed on behalf of the Assessee, inter alia, on the following decisions in the case of the Assessee:

(a) AY 2002-03 (ITA No.2899/Mum/2010, dated 24/06/2024) (b) AY 2001-02 (ITA No.4372/Mum/2005, dated 23/02/2024) (c) AY 2000-01 (ITA No.2655/Mum/2005, dated 28/11/2023) (d) AY 1999-00 (ITA No.1933/Mum/2005, dated 28/11/2023) (e) AY 1998-99 (ITA No.8952/Mum/2004, dated 22/08/2023) (f) AY 1997-98 (ITA No.5030/Mum/2001, dated 13/04/2023)

16.5. We have perused the decision of the Tribunal in appeal preferred by the Revenue for the AY 2001-2002 [ITA No. 4372/Mum/2005, dated 23/02/2024]. The relevant extract of the aforesaid decision of the Tribunal reads as under:

“12. With regard to Ground No. 3 which is in respect of allowing deduction in respect of expenditure incurred on dies and moulds as revenue expenditure. Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 assessee’s own case and decided the issue in favour of the assessee and against the department.

14. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1997-98. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 5030/Mum/2001 dated 13.04.2023 held as under:

“4. At the outset, with regard to Ground No. (a), which is in respect of allowing the expenditure on dies &moulds of ₹.7,16,16,415/- as a revenue expenditure, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee’s own case and decided the issue in favour of the assessee and against the department.

“55. Considered the rival submission and material placed on record. We notice from the records that the identical issue has already been decided by the Coordinate Bench of ITAT in assessee’s own case for Assessment Year: 1990-91 to 1994-95 (ITA No. 6324 & 6325/Mum/2010 and 6963 & 6964/Mum/2014) on merits. For the sake of clarity, relevant portion of the said decision is reproduced below:-

5.1. We find that for the Assessment Year 1991, 1993 94 & 1994-95, the only ground raised by the revenue is with regard to the direction of the Ld. CIT(A) in allowing the revenue expenditure in respect of replacement of jigs and fixtures and dies and moulds.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 The decision restored by us in ground no. 1 for Assessment Year 1990-91 would hold good for the same. Accordingly, the grounds raised by the revenue are dismissed.

15. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1997-98 is respectfully followed, accordingly, ground raised by the revenue is dismissed.”

16.6. Similarly, while deciding identical issue in appeal for the Assessment Year 1998-99 [ITA No. 8952/Mum/2004, dated 22/08/2023] it was held by the Tribunal as under:

16.0. Ground No.3 raised by the revenue relates to the disallowance of expenses incurred on Dies and Moulds amounting to Rs.30.47 crores. The assessee treated the above said expenses as Capital in nature in the books of account, but claimed the same as revenue expenditure for income tax purposes. This is a recurring issue. The co-ordinate bench has decided this issue in favour of the assessee by confirming the decision rendered by Ld CIT(A) in holding that the expenditure incurred in purchase of dies and moulds are allowable as revenue expenditure in AY 1990-91. The said decision is being followed year after year. In AY 1997-98 also in dated 13.04.2023, the Tribunal has upheld the identical ITA No. 6838/Mum/2008, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 decision taken by Ld CIT(A). Consistent with the view taken by the co-ordinate benches year after year, we confirm the order passed by Ld CIT(A) in holding that the expenditure incurred on Dies and Moulds is allowable as deduction.

16.7. Thus, this is a recurring issue. Identical explanation offered by the Assessee in the preceding assessment years has been accepted by the Co-Ordinate Benches of the Tribunal to hold that expenditure on replacement of mould and dies is in the nature of replacement cost allowable as deduction under Section 31 of the Act being revenue in nature. There is nothing on record to persuade us to take a different view of the matter. Accordingly, we decline to interfere with the order passed by the CIT(A) on this issue. Therefore, Ground No. 3 raised by the Revenue is dismissed.

Ground No. 4 17. Ground No. 4 raised by the Revenue, which pertains to allowability of penalty charges recovered on capital goods and to reduce the total income amounting to INR.1,52,846/- written off during the relevant previous year, reads as under:

4. On the facts and circumstances of the case and in law, the Learned CIT(A), erred in directing the A.O. to allow the penalty charges recovered on the capital goods and to reduce the total income by Rs. 1,52,846/- without reducing the aforesaid amount while computing the depreciation.

17.1. During the previous year relevant to Assessment Year 2005-06, the Assessee recovered a sum of INR.1,52,846/- on account of penalty charges for breach of contractual obligations from suppliers of capital goods for delay in execution of orders. The aforesaid receipts were credited to the Profit & Loss Account. However, the same were excluded from the computation of income for tax purposes. During the assessment proceedings it was claimed by the Assessee that the aforesaid receipts were in the nature of capital receipts not liable to tax. However, the Assessing Officer rejected ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 the aforesaid contention of the Assessee and held that the aforesaid receipts were liable to tax in the hands of the Assessee as the same were revenue in nature.

17.2. In appeal preferred by the Assessee, the CIT(A) held that the above receipts were capital in nature and the same should not be reduced from the cost of acquisition of the respective capital asset.

17.3. Being aggrieved, the Revenue is appeal before the Tribunal on this issue.

17.4. Having given thoughtful consideration to rival submissions and on perusal of record, we find that this is a recurring issue which has been decided in favour of the Assessee in preceding assessment years by the Tribunal, inter alia, in the following appeals:

(a) AY 2002-03 (ITA No.2899/Mum/2010, dated 24/06/2024) (b) AY 2001-02 (ITA No.4372/Mum/2005, dated 23/02/2024) (c) AY 2000-01 (ITA No.2655/Mum/2005, dated 28/11/2023) (d) AY 1999-00 (ITA No.1933/Mum/2005, dated 28/11/2023) (e) AY 1998-99 (ITA No.8952/Mum/2004, dated 22/08/2023) (f) AY 1997-98 (ITA No.5030/Mum/2001, dated 13/04/2023) (g) AY 1994-95 (ITA No.6964/Mum/2014, dated 28/08/2020) (h) AY 1993-94 (ITA No.6963/Mum/2014, dated 28/08/2020)

17.5. We have perused the decision of the Tribunal in appeal preferred by the Revenue for the AY 2001-2002 (ITA No. 4372/Mum/2005, dated 23/02/2024) and the relevant extract of the same reads as under: “16. With regard to Ground No. 4 which is in respect of allowing penalty charges recovered from suppliers of capital goods as capital receipts, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co- ordinate Bench of this tribunal and decided the issue in favour of the assessee and against the revenue.

17. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR.

“8. With regard to Ground No. (b) which is in respect of deleting the addition of ₹.27,95,851/- representing penalty charges received from machinery suppliers, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co ordinate Bench of this tribunal in assessee’s own case and decided the issue in favour of the assessee and against the department.

10. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee in the A.Y. 1995-96. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 3493/Mum/1999, held as under: - “34. At the outset, Ld. AR brought to our notice para 4 of assessment order and para 3 of CIT(A)’s order and submitted that this issue has already been decided by the Coordinate Bench of ITAT in assessee’s own case for Assessment Year: 1993-94 & 1994-95 (ITA No. 2739, 3175, 3491 & 3492/Mum/1999) on merits in favour of the assessee.

“15. Ground no. 8 relates to the addition of Rs. 24,14,323/- being the penalty charges received from the suppliers of machineries on account of some default. The learned CIT(A) has deleted the addition following his order for Assessment Years 1989-90 to 1991-92 as well as the decision of Hon’ble Andhra Pradesh High Court in the case of Barium and Chemicals Ltd 168 ITR164. After hearing both the parties, we find that this issue is covered in favour of the assessee by the decisions of the Tribunal in assessee’s own case pertaining to Assessment Years 1988-89 and 1991-92. Therefore following the same, the order of the learned CIT(A) is upheld and the ground o the Revenue is dismissed.

We do not have a reason deviate from this consistent view of the Tribunal on the issue. Accordingly, this ground of the revenue is rejected.

11. Further, in assessee’s own case in ITA.No. 2230/Mum/2000 dated 20.06.2022 for the A.Y. 1996-97, Coordinate Bench, held as under: - “15. During the period relevant to assessment year under appeal, the assessee recovered penalty charges amounting to Rs.2,56,209/- from suppliers of the capital goods. The assessee claimed the aforesaid charges as capital receipt, whereas, the Assessing Officer treated the aforesaid charges as revenue in nature. The CIT(A) following the order of his predecessor in Assessment Year 1991-92 to 1994-95 held the penalty charges to be capital receipt. We find that in the preceding Assessment Year this issue had come up in the appeal of assessee. The Co-ordinate Bench after considering the decisions in assessee's own case for Assessment Year 1993-94 in decided the issue in favour of assessee holding penalty charges to be capital receipt. The aforesaid decision of the Tribunal has not been controverted by the Revenue, hence, following the same we uphold the findings of CIT(A) and dismiss ground No.2 in the appeal by Revenue.”

ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 by the revenue is dismissed.”

19. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1997-98 is respectfully followed, accordingly, ground raised by the revenue is dismissed.”

17.6. The Revenue has failed to bring on record any material to differentiate the above decisions of the Co-ordinate Benches of the Tribunal either in law or on facts. Therefore, respectfully following the same, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 4 raised by the Revenue is dismissed Ground No. 5 18. Ground No. 5 raised by the Revenue, which pertains to allowability of expenditure on jigs and fixtures amounting to INR.16,06,30,588/- written off during the relevant previous year, reads as under:

5. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in directing the A.O. to treat expenditure on jigs and fixtures amounting to Rs. 16,06,30,588/- as revenue expenditure.

18.1. For the assessment year under consideration, the Assessee had claimed deduction for INR.16,06,30,588/- in respect of expenditure incurred on replacement of Jigs and Fixtures debited to the Profit & Loss Account. The Assessing Officer denied deduction for the same on the ground that the same resulted in enduring benefit to the Assessee and were capital in nature. In appeal preferred by the Assessee, the CIT(A) deleted the disallowance. Hence, the Revenue is in appeal before the Tribunal on this issue.

18.2. We have heard both the sides and have perused the material on record.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 18.3. We find that this is a recurring issue. The Assessee had consistently claimed that Jigs and Fixtures were tooling aids required in the production process. Fixtures were required to hold in a fixed place, the raw material to be worked on. While, Jigs are tools used to guide the working tools. The jigs and fixtures purchased along with the machinery were capitalised in the books of accounts whereas the expenditure incurred to replace the same was charged off in the Profit & Loss Account. The expenditure does not result in installation or increase in the existing capacity and the same is incurred to maintain operational efficiency. The aforesaid explanation has been accepted by the Tribunal while deciding identical issue in favour of the Assessee in the appeal pertaining to assessment years 1990-1991, 1991-1992, 1993- 1994 to 2002-2003. 18.4. We have perused the decision of the Tribunal in appeal preferred by the Revenue for the AY 2001-2002 (ITA No. 4372/Mum/2005, dated 23/02/2024) and the relevant extract of the same reads as under: “20. With regard to Ground No. 5 which is in respect of allowing deduction of expenditure incurred in respect of jigs and fixtures as revenue expenditure, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee’s own case and decided the issue in favour of the assessee and against the department.

21. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR.

22. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1997-98. While deciding the issue, the Coordinate Bench in ITA.No. 5030/Mum/2001 dated 13.04.2023 held as under:-

“13. With regard to Ground No.(c) which is in ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 respect of directing the Assessing Officer to allow deduction of ₹.2,36,37,738/- towards expenditure relating to purchase of jigs and fixtures, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee’s own case and decided the issue in favour of the assessee and against the department.

“57. With regard to this ground, Ld. AR brought to our notice para 8-8.5 of assessment order and para 33 of CIT(A)’s order and submitted that the similar issue has already been decided by the Coordinate Bench of ITAT in assessee’s own case for Assessment Year: 1990-91 to 1994 95 (ITA No. 6324 & 6325/Mum/2010 and 6963 & 6964/Mum/2014) on merits in favour of the assessee.

58. On the other hand, Ld. DR relied on the orders passed by revenue authorities, however he conceded that this ground is covered by the decision of ITAT.

3.1. We have heard rival submissions and perused the materials ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 available on record. We find 'that the assessee company had incurred expenditure on jigs and fixtures amounting to Rs. 1,06,11,0647- including capital work in progress amounting to Rs.11,18,955/- during the Financial Year 1989-90 relevant to A.Y. 1990-91. Assessee submitted that these are nothing but replacement of jigs and fixtures in the main plant and machinery and would be eligible for deduction as revenue expenditure. During the course of assessment proceedings, the assessee requested the Id. AO to allow the sum of Rs.94,92,103/- as deduction in A.Y. 1990-91 and the balance sum of Rs.11,18,955/- in A.Y. 1991-92 since the said amount was lying in capital work in progress and the same was not put to use during the A.Y. 1990- 91. We find that the ld. AO observed that the expenditure incurred on replacement of jigs and fixtures would be capital expenditure and accordingly, granted depreciation thereon. It is not in dispute that assessee had indeed capitalised the replacement cost of jigs and fixtures in its books and had claimed depreciation as per Companies Act in its books. However, for the purpose of Income Tax, the assessee had claimed the said expenditure as the revenue expenditure on the ground that the said expenditure would fall under the category of "current repairs". We find that the present state of appellate proceedings is the second round of proceedings, since in the first round, this Tribunal had restored this issue to the file of the ld. CIT(A) for adjudication in the light of various judicial decisions relied upon by the assessee. We find that the expenditure incurred on replacement of jigs and fixtures are basically toolling aids required ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 in the production process and these items are part of the machinery in automobile industry. We find that these jigs and fixtures need to be constantly replaced due to constant wear and tear and also due to changes in the design of the part. It is not in dispute that the 'expenditure incurred on jigs and fixtures at the time of first purchase together with the main plant and machinery was duly capitalised by the assessee at the time of first purchase for the purpose of Income Tax Act and depreciation claimed accordingly for the purpose of Income Tax Act. Later, whenever the said jigs and fixtures were replaced for the reasons stated supra, the assessee has been claiming the same as revenue expenditure for the purpose of Income Tax Act. We find that this argument was duly 'appreciated by the Id. CIT(A) and the Id. CIT(A) duly granted relief to the assessee in this regard by following the decision of his predecessor in assessee's own case for the A.Yrs 2002-03, 2005- 06 and 2006-07.

18.5. The Revenue has failed to bring on record any material to differentiate the above decisions of the Co-ordinate Benches of the Tribunal either in law or on facts. Therefore, respectfully following the same, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 5 raised by the Revenue is dismissed.

Ground No. 6 19. Ground No. 6 raised by the Revenue, which pertains to allowability of prior period expenses amounting to INR.1,84,72,015/- written off during the relevant previous year, reads as under:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 6. On the facts and circumstances of the case and in law, the Learned CIT(A), erred in directing the A.O. to allow prior period expenses amounting to Rs. 1,84,72,015/- as revenue expenditure.

19.1. The relevant facts in brief are that the Assessing Officer disallowed deduction claimed by the Assessee for prior period expenses of INR.1,84,72,015/- debited to the Profit & Loss Account for the relevant previous year. However, the CIT(A) deleted the disallowance accepting the contention of the Assessee that the deduction for prior-period expenses should be allowed in the year in which the same are debited to the Profit & Loss Account. Being aggrieved, the Revenue has challenged the aforesaid relief granted by the CIT(A) by way of Ground No. 6 raised in the present appeal.

19.2. We have considered the rival submissions and have perused the material on record.

19.3. In our view, the deduction for prior-period expenses can allowed be allowed as deduction provided the same crystallized during the relevant previous year. While averment to this effect has been made on behalf of the Assessee, there is nothing on record to substantiate the said averment. The ‘Particulars of Income or Expenditure of prior period credited or debited to the Profit & Loss Account’ (placed at page 70 of the factual Paper Book) furnished by the Assessee do not suffice as the same provide no indication as to time of crystallization of expenses. Accordingly, we deem is appropriate to remand this issue back to the file of the Assessing Officer with the directions to the Assessee to file documents/details to substantiate that the prior period expenses in respect of which deduction has been claimed crystallized during the relevant previous year, and the directions to the Assessing Officer to decide the issue after taking the same into ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 consideration. All the rights and contentions of the Assessee are left open. The Assessee would be granted reasonable opportunity of being heard as per law. In terms of the aforesaid, Ground No 6 raised by the Revenue is allowed for statistical purposes.

Ground No. 7 20. Ground No. 7 raised by the Revenue, which pertains to allowability of expenditure paid outside India in respect of research & development without deduction of tax written off during the relevant previous year, reads as under:

7. On the facts and circumstances of the case and in law, the Learned CIT(A), erred in directing the A.O. to allow expenditure paid outside India in respect of research & development without deduction of tax 20.1. During the relevant previous year, the Assessee had incurred expenditure towards Research and Development amounting to INR.97,782 in foreign currency without deducting tax at source on the ground that the payments were made for purchase of materials for research and development purpose and the non- resident payee did not have a permanent establishment in India. However, in view of the Assessing Officer, tax was required to be deducted at source on the aforesaid payment made to the non- resident payee and since there was failure to deduct tax at source, the said expenditure was disallowed under Section 40(a)(i) of the Act.

20.2. In appeal preferred by the Assessee, the CIT(A) deleted the said disallowance holding as under The twelfth ground of appeal is in respect of disallowance “ under section 40(a)(i) In respect of research and development expenditure paid outside India of Rs.97,982/- 12.1 During the course of assessment proceedings the appellant was asked to explain why expenditure incurred in foreign currency on account of research and development amounting ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 to Rs 97,982/- should not be disallowed under section 40(a)(i). In this connection it was submitted by the appellant that none of the expenses in foreign currency were charegeble to tax in India accordingly, the question of deducting tax at source there from or applying the provisions of section 40(a)(i) did not arise.

12.2 The AR submitted that as per the provisions of section 9(1) of the Income-tax Act, the payment to a non-resident having no business connection in India is not in the nature of income that arises or accrues in India. Accordingly, no tax is deductible at source in respect of such payments.

12.3 I agree with the submissions made by the AR that payments made in foreign currency towards items of research and development are of a nature which do not require any tax to be deducted at source. Accordingly, following the appellate orders for A.Y. 2000-01 to 2001-02 and A.Y. 2003-04 to A.Y. 2004-05, the disallowance made under section 40(a)(i) is directed to be deleted.

This ground of appeal is allowed.” (Emphasis Supplied)

20.3. Being aggrieved, the Revenue has carried the issue in appeal before the Tribunal 20.4. Having given thoughtful consideration to the rival submissions and on perusal of record on this issue, we conclude that the Revenue has failed to bring on record any material controvert the above findings returned by the CIT(A). We find that similar issue has been decided in favour of the Assessee in preceding assessment years by the Tribunal, inter alia, in the following appeals: (a) AY 2002-2003 (ITA No.2899/Mum/2010, 24/06/2024) (b) AY 2001-2002 (ITA No.4372/Mum/2005, 23/02/2024) (c) AY 2000-2001 (ITA No.3055/Mum/2005, 28/11/2023)

20.5. We have perused the decision of the Co-Ordinate Bench of the Tribunal in appeal preferred by the Revenue for the AY 2001-2002 (ITA No. 4372/Mum/2005, dated 23/02/2024) and the relevant extract of the same reads as under: “36. With regard to Ground No. 9 which is in respect of allowing of deduction under section 40(a)(i) in respect of expenditure incurred in foreign currency, Ld. AR of the assessee brought ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee’s own case and decided the issue in favour of the assesse and against the department.

37. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR.

“109. During the year under consideration the assessee has incurred expenditure in foreign currency amounting to Rs.194.85 lacs and tax at source had been deducted wherever applicable and in some cases no tax was deducted. The assessing officer has disallowed the amount of Rs.26,62,904/- u/s 40(a)(i) in respect of the following expenditure:

Sr.No. Particulars Rs. 1. Research and development 13,04,852 expenses 2. Motor Car Expenses 34,354 3. Truck Van Expenses 39,838 4. Books and periodicals 2,84,291 5. Subscription fees 9,99,569 Total 26,62,904

39. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2000-01 is respectfully followed, accordingly, ground raised by the revenue is dismissed.” (Emphasis Supplied)

20.6. Consistent with the view taken by the Tribunal in the above decisions of the Tribunal, and keeping in view the facts and circumstances of the present case, we decline to interfered with the order passed by the CIT(A) on this issue. Accordingly, the ground raised by the Revenue is dismissed.

21. In result, the appeal preferred by the Assessee as well as the Revenue for the Assessment Year 2005-06 is partly allowed.

Assessment Year 2006-07

22. We would now take cross-appeal for the Assessment Year 2006- 2007 directed against the order, dated 18/03/2010, passed by the CIT(A) whereby the CIT(A) had partly-allowed the appeal of the Assessee against the Assessment Order, dated 26/12/2008, passed under Section 143(3) of the Act.

Appeal By Assessee: AY 2006-07 : Ground No.1 23. Ground No.1 raised by the Assessee, reads as under:

1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in not allowing deduction in respect of fines and penalties amounting to Rs 1000/-.

23.1. Ground No.1 raised by the Assessee pertains to disallowance of INR.1,000/- made by the Assessing Officer in respect of payment towards fines and penalties which were confirmed by the CIT(A).

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground on account of the smallness of the amount involve. Accordingly, Ground No.1 raised by the Assessee is dismissed as not pressed.

Ground No.2 24. Ground No.2 raised by the Assessee in the present appeal is identical to Ground No.2 raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as:

2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in not allowing deduction in respect of proportionate premium on lease hold land written off amounting to Rs.43,26,743/-.

24.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.2 raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 5 to 5.7 hereinabove, we overturn the decision of CIT(A) and direct the Assessing Officer to allow deduction of proportionate premium on leasehold land amounting to INR.43,26,743/- written off during the relevant previous year. Accordingly, Ground No.2 raised by the Assessee is allowed.

Ground No.3(a) 25. Ground No.3(a) raised by the Assessee in the present appeal is identical to Ground No.3(a) raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as:

3(a). On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing interest under section 14A of the Act and remitting the matter back to the file of the Assessing Officer to recalculate disallowance in accordance with provisions of rule 8D.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 25.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.3(a) raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 6 to 6.11 hereinabove, we accept the contention of the Assessee and delete the disallowance of interest of INR.7,35,812/- made by the Assessing Officer under Section 14A of the Act.

Ground No.3(b) 26. Ground No.3(b) raised by the Assessee in the present appeal is identical to Ground No.3(b) raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as:

3(b). On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing administrative expenses under section 14A of the Act and remitting the matter back to the file of the Assessing Officer to recalculate the disallowances in accordance with provisions of rule 8D.

26.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No. 3(b) raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 7 to 7.12 above, we do not find any reason to depart from the view taken by the Co-ordinate Bench of the Tribunal in appeal for the Assessment Year 2002-2003 [ITA No. 3043 & 2899/Mum/2010, dated 24/06/2024]. Accordingly, as per the judgment of the Hon’ble Bombay High Court in the case of M/s Godrej Agronet Ltd. (supra), we direct the Assessing Officer to restrict the disallowance of administrative expenses to the extent of 2% of the total exempt income. Thus, Ground No. 3(b) raised by the Assessee is partly allowed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Ground No.3(c) 27. Ground No.3(c) raised by the Assessee in the present appeal is identical to Ground No.3(c) raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same reads as under:

3(c). The Commissioner of Income-tax (Appeals) further erred in holding that since sub-section (2) and (3) of section 14A have retrospective effect, disallowance under section 14A ought to be computed in accordance with provisions of rule 8D.

27.1. By way of Ground No. 3(c), the Assessee has contended that the authorities below erred in applying provisions contained in Rule 8D of the IT Rules to the assessment year under consideration. Keeping in view our finding and adjudication pertaining to Ground No.3(c) raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 7.13 above, hold that the provisions of Rule 8D of the IT Rules are not applicable to the assessment year under consideration. Accordingly, Ground No. 3(c) raised the Assessee is allowed.

Ground No.4 28. Ground No.4 raised by the Assessee, reads as under:

4. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing the claim for deduction of wealth-tax paid amounting to Rs. 18,98,957/-.

28.1. During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.4 raised by the Assessee is dismissed as not pressed.

Ground No.5 29. Ground No.5 raised by the Assessee in the present appeal is identical to Ground No.5 raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 “5. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in treating part of the expenses incurred in relation to purchase and up gradation of software as capital in nature.”

29.1. During the relevant previous year the Assessee had incurred expenditure amounting to INR.5,96,42,112/- on software out of which deduction for expenditure aggregating to INR.4,62,89,312/- was claimed by the Assessee under Section 35 of the Act and balance amount of INR.1,33,52,800/- was added back in the computation of income and depreciation amounting to INR.1,13,80,393/- was claimed by the Assessee in the original return of income. During the assessment proceeding the Assessee claimed deduction of INR.1,33,52,800/- as revenue expenditure. The aforesaid claim was disallowed by the Assessing Officer on the ground that the expenditure of INR.1,33,52,800/- incurred on software was capital in nature. However, the Assessing Officer allowed the Assessee to claim depreciation under Section 32 of the Act @ 60%.

29.2. In appeal preferred by the Assessee on this issue, the CIT(A) declined to grant any relief and rejected the ground raised by the Assessee by placing reliance upon the decision of Special Bench of the Tribunal in the case of Amway India Enterprises reported in 111 ITD 112. 29.3. Being aggrieved the Assessee has carried the issue before the Tribunal.

29.4. During the course of appellate proceedings both the sides adopted the arguments made in relation to Ground No.5 raised by the Assessee in appeal pertaining to Assessment Year 2005-2006. 29.5. We have given thoughtful consideration to the rival submissions and have perused the material on record. In our view there is no ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 material change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.5 raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 9 to 9.8 above, we deemed it appropriate to remand this issue back to the file of Assessing Officer with the directions to allow deduction for software expenses of INR.1,33,52,800/- as revenue expenditure after verifying the factual averments made by the Assessee to the effect that the software expenses (a) do not provide any benefit of enduring nature to the Assessee; and/or (b) include expenses for purchase of software licenses not giving any ownership rights to the Assessee. In case the Assessing Officer accepts the contention of the Assessee and grants deduction for software expenses of INR.1,33,52,800/- as revenue expenditure, the Assessing Officer is directed to reverse the depreciation of INR.1,13,80,393/- granted to the Assessee in respect of the same.

29.6. In terms of the above ground No. 5 raised by the Assessee is allowed for statistical purposes.

Ground No.6 30. Ground No.6 raised by the Assessee in the present appeal is identical to Ground No.8 raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as: “6. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer is not treating the “initial year” as the first year in which the appellant exercises its option of claiming deduction under said section 80-IA but treating the “initial year” as the first year in which the unit starts generating power.”

30.1. Both sides agreed that there is no change in the facts and circumstances. Keeping in view our finding and adjudication pertaining to Ground No.8 raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 paragraph 12 to 12.8 above, and keeping in view the judicial precedents cited in behalf of the Assessee, we set aside the order passed by the CIT(A) and directed the Assessing Officer to recomputed the deduction under Section 80IA of the Act as per the judgment of the Hon’ble Madras High Court in the case of M/s Velayudhaswamy Spinning Mills (P) Ltd. (supra) wherein it was held that the unabsorbed depreciation/loss pertaining to assessment years preceding the initial assessment year to the extent already absorbed against the profit of other business of the Assessee cannot be notionally brought forward and set off against the profits of the eligible business for the purpose of the computing deduction under Section 80IA of the Act as no such mandate has been provided by Section 80IA(5) of the Act. The Assessing Officer is directed accordingly. In terms of the aforesaid directions, Ground No. 6 raised by the Assessee is allowed.

Ground No.7 31. Ground No.7 raised by the Assessee in the present appeal is identical to Ground No.6 raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as:

7. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in holding that the entire Duty Entitlement Pass Book Benefit (‘DEPB’) credited to the profit and loss account amounting to Rs.83,19,35,416/- ought to be taxed without appreciating the fact that as per section 28(iiid) only profit on transfer of DEPB is chargeable to tax and not the entire amount credited to the profit and loss account.

31.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.6 raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 10 to 10.7. above, we overturn the decision of CIT(A). In view of the aforesaid, the issues raised by way of Ground No.7 in the present appeal are also remanded back to the file of the ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Assessing Officer for denovo adjudication as per the judgment of the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra). The Assessee is directed to furnish before the Assessing Officer the details of corresponding cost, sale proceeds and utilisation of DEPB Benefit. All the rights and contentions of the Assessee are left open. In terms of the aforesaid, Ground No.7 raised by the Assessee is allowed for statistical purposes.

Appeal By Revenue:AY 2006-07:ITA No.4632/Mum/2010 Ground No.1 32. Ground No.1 raised by the Revenue in the present appeal is identical to Ground No.1 raised by the Revenue in appeal for the Assessment Year 2005-2006 and the same read as: “1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in allowing deduction u/s 35D amounting to Rs 1,17,19,960/-“ 32.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, in view of the reasoning/adjudication pertaining to Ground No.1 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 14 to 14.5. above, we decline to interfere with the order passed by the CIT(A) allowing deduction of INR.1,17,19,960/- under Section 35D of the Act. Accordingly, Ground No.1 raised by the Revenue is dismissed.

Ground No.2 33. Ground No.2 raised by the Revenue in the present appeal is identical to Ground No.3 raised by the Revenue in appeal for the Assessment Year 2005-2006 and the same read as:

2 On the facts and circumstances of the case and in law, the Ld CIT(A), erred in directing the AO to treat expenditure on dies and moulds amounting to Rs.21,18,33,793/- as revenue expenditure.

33.1. Both sides agreed that there is no change in the facts and ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.3 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 16 to 16.7. above, we do not find any infirmity in the order passed by the CIT(A) directing the Assessing Officer to allow expenditure on dies and moulds amounting to INR.21,18,33,793/- as revenue expenditure. Accordingly, Ground No.2 raised by the Revenue is dismissed.

Ground No.3 34. Ground No.3 raised by the Revenue in the present appeal is identical to Ground No.4 raised by the Revenue in appeal for the Assessment Year 2005-2006 and the same read as under: “3 On the facts and circumstances of the case and in law, the Ld CIT(A), erred in directing the A.O to allow the penalty charges recovered on capital goods and to reduce the total income by Rs 22,01,465/- without reducing the aforesaid amount while computing the depreciation.”

34.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.4 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 17 to 17.6. above, we do not find any infirmity in the order passed by the CIT(A) directing the Assessing Officer to treat penalty charges of INR.22,01,465/- recovered on capital goods as capital receipts and also not to deduct the same from the cost of assets for computing depreciation. Accordingly, Ground No.3 raised by the Revenue is dismissed.

Ground No.4 35. Ground No.4 raised by the Revenue in the present appeal is identical to Ground No.5 raised by the Revenue in appeal for the Assessment Year 2005-2006 and the same read as: “4 On the facts and circumstances of the case and in law, the Learned CIT(A), erred in directing the AO to treat ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 expenditure on jigs and fixtures amounting to Rs 14,18,75,320/- as revenue expenditure.”

35.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.5 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 18 to 18.5. above, we do not find any infirmity in the order passed by the CIT(A) directing the Assessing Officer to allow deduction for expenditure on jigs and fixtures amounting to INR.14,18,75,320/- as revenue expenditure. Accordingly, Ground No.4 raised by the Revenue is dismissed.

Ground No.5 36. Ground No.5 raised by the Revenue in the present appeal is identical to Ground No.6 raised by the Revenue in appeal for the Assessment Year 2005-2006 and the same read as: “5 On the facts and circumstances of the case and in law, the Learned CIT(A), erred in directing the AO to allow prior period expenses amounting to Rs.87,43,577/- as revenue expenditure.”

36.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.6 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 19 to 19.3. above, we overturn the decision of CIT(A) and remand this issue back to the file of the Assessing Officer with the directions to the Assessee to file documents/details to substantiate that the prior period expenses in respect of which deduction has been claimed crystallized during the relevant previous year. The Assessing Officer is directed to decide the issue after taking into consideration the documents/details furnished by the Assessee and after granting the Assessee a reasonable opportunity of being heard. All the rights and contentions of the Assessee are left open. In terms of ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 the aforesaid, Ground No. 5 raised by the Revenue is allowed for statistical purposes.

37. In result appeal preferred by the Assessee as well as the Revenue for the Assessment Year 2006-07 are partly allowed.

Assessment Year 2004-05

38. We would now take cross-appeal for the Assessment Year 2004- 2005 directed against the order, dated 29/08/2008, passed by the CIT(A) whereby the CIT(A) had partly-allowed the appeal of the Assessee against the Assessment Order, dated 28/12/2006, passed under Section 143(3) of the Act.

Appeal By Assessee: AY 2004-05: Ground No.1 39. Ground No.1 raised by the Assessee pertains to disallowance of INR.1,32,000/- made by the Assessing Officer in respect of payment towards fines and penalties which were confirmed by the CIT(A). During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.1 raised by the Assessee is dismissed as not pressed.

Ground No. 2 40. Ground No.2 raised by the Assessee in the present appeal is identical to Ground No.2 raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as: “2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in not allowing deduction in respect of proportionate premium on lease hold land written off amounting to Rs.42,10,566/-.”

40.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.2 raised in appeal preferred ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 by the Assessee for the Assessment Year 2005-2006 contained in paragraph 5 to 5.7. above, we overturn the decision of CIT(A) and direct the Assessing Officer to allow deduction of proportionate premium on leasehold land amounting to INR.42,10,566/- written off during the relevant previous year. Accordingly, Ground No.2 raised by the Assessee is allowed.

Ground No. 3 41. Ground No.3 raised by the Assessee reads as under: “3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing interest under section 14A, pro-rata administrative expenses comprising of 10% of employee emoluments and miscellaneous expenses.”

41.1. Ground No.3 raised by the Assessee pertains to disallowance of interest under Section 14A, pro-rata administrative expenses comprising of 10% of employee emoluments and miscellaneous expenses made by the Assessing Officer which were confirmed by the CIT(A). During the course of hearing the Learned Authorized Representative for the Assessee stated that the Assessee is willing to accept the decision of the CIT(A) or, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.3 raised by the Assessee is dismissed as not pressed.

Ground No. 4 42. Ground No.4 raised by the Assessee reads as under: “4. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing the claim for deduction of wealth-tax paid during the relevant previous year amounting to Rs.17,42,986/-“ 42.1. During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.4 raised by the Assessee is dismissed as not pressed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Ground No. 5 43. Ground No.5 raised by the Assessee reads as under:

“5. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in rejecting the contention of the appellant to allow deduction under section 80-O for royalty received under a technical knowhow agreement from M/s.Auto Techica, Columbia amounting to INR.73,578/- @ 20% of INR.3,67,890/-“ 43.1. The relevant facts in brief are that the Assessee entered into a Technical Assistance Agreement, dated 14/06/2004, with Autotecnica, Colombiana S.A. for manufacture of vehicles in Colombiana. The Assessee had claimed deduction of INR.73,578/- under Section 80-O of the Act computed at the rate of 20% in respect of royalty of INR.3,67,890/- received from the aforesaid Colombian company. The Assessing Officer rejected the said claim concluding as under:

13. The assessee has claimed deduction u/s. 80-O of Rs.73,578/-. This is claimed on account of royalty and technical know-how fees received from Colombia. The agreement filed only talks about import of CKD kits and ‘Boxer’ and ‘Caliber’ models into Colombia. Further the amended provisions of section 80-O only provide for deduction u/s.80-O in respect of the drawing, design, investion, patent and trade mark outside India, In the circumstances it would appear clear that the amount received is not for any of these purposes. Therefore the deduction claimed is not allowable.

43.2. The ground raised by the Assessee in appeal before CIT(A) challenging the denial of deduction u/s 80-O of the Act was dismissed. Therefore, the Assessee is now in appeal before the Tribunal on this issue.

43.3. We have heard both the sides and have perused the material on record. It emerges that identical issue had come up for consideration before the Tribunal in the case of the Assessee in appeals pertaining to Assessment Year 1998-99. After examining ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 the terms of the Technical Assistance Agreement, dated 14/06/2004, the Tribunal accepted the Assessee’s claim for deduction under Section 80-O of the Act. The relevant extract of the order, dated 22/08/2023, passed in ITA No.9564/Mum/2004 reads as under: “10. Ground No.9 urged by the assessee relates to the deduction claimed by the assessee u/s 80-O of the Act. The assessee claimed a deduction u/s 80-O of the Act a sum of Rs.1,96,608/- calculated @ 50% of royalty amount of Rs.3,93,216/- received by the assessee from a Columbian company. The AO rejected the above said claim with the following observations:

The agreement filed only talks about import of CKD Kits into Columbia. Further the amended provisions of section 80-O only provide for deduction u/s 80-O in respect of the drawing, design, invention, patent and trade mark outside India. In the circumstances, it would appear clear that the amount received is not for any of these purposes. Therefore the deduction claimed is not allowable.

The Ld CIT(A) confirmed the disallowance without much discussion.

10.1 We heard the parties on this issue and perused the record. A deduction u/s 80-O is allowed in respect of income received, inter alia, from a foreign enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark….…..

10.2 The facts prevailing in the instant case are that the assessee has entered into a “Technical Knowhow agreement” with M/s Autotecnicia Columbiana, S.A, a foreign enterprises domiciled at Columbia. The assessee herein has appointed the above said foreign company as exclusive LICENSEE within the territory of Columbia for assembly and progressive manufacture and sale of Bajaj Chetak, Bajaj Chetak Classic, Bajaj Super and Bajaj Super FE scooters and derivatives of these scooters. As per clause 4 of the agreement, assessee shall supply completely knocked down packs of products in primered condition consisting of standard configuration of the production in the production at Bajaj plants (referred as ‘CKD Packs’). As per clause 5 of the agreement, the LICENSEE can request the assessee to delete any part from CKD pack, meaning thereby the LICENSEE shall manufacture those parts by itself. In that case, the assessee shall provide the LICENSEE a set of drawings for such parts/components and characteristics of ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 materials to be use in the manufacture of such parts/components. For supplying the drawings, the assessee has collected technical knowhow fee from the above said licensee, on which the deduction u/s 80-O has been claimed.

10.3 The case of tax authorities is that the payment so received by the assessee was not in respect of the drawing, design, invention, patent and trade mark outside India. However, we notice that the Agreement entered between both the parties clearly provides that the technical knowhow fee is received for supplying the drawings. The relevant clause 5 reads as under:-

5. It is further agreed that should the LICENSEE request BAJAJ to delete any part, component or process from such CKD packs, BAJAJ will provide the LICENSEE as part of Engineering Services a set of drawings for such parts/components and characteristics of materials to be used in the manufacture of such parts/components. For such deletion/s from CKD packs the LICENSEE shall pay to BAJAJ a lump sum technical knowhow fee of US Dollars Five Hundred Thousand (USD 500,000) in installments as under:………….

A careful perusal of the above said clause would show that the assessee has received technical knowhow fee for supplying a set of drawings for such parts/components and also for providing information about characteristics of material to be used in the manufacture of such parts/components. In the instant case, the assessee has given license to assemble its scooter models. When the Licensee prefers to manufacture certain parts/components on its own, the assessee permits the same and accordingly supplies the drawings relating to those parts and collects technical know how fee. The Licensee is bound to manufacture those parts/components in accordance with those M/s. Bajaj Auto Ltd. 6 designs only. Otherwise, the same will not fit into Scooter when the scooter is assembled. Hence, we are unable to find any reason to say that the said payment will not fall under the category of “consideration received for the use of patent, invention, design” mentioned in sec. 80-O of the Act. Accordingly, we are of the view that the technical knowhow fee received by the assessee would fall under the category of “royalty”, as defined in sec.80-O of the Act and it is eligible for deduction u/s 80-O. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim of the assessee.”

43.4. The above decision of the Tribunal has since being followed by the Tribunal in the following cases pertaining to the Assessee:

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 (a) AY 2002-03 (ITA No.2899/Mum/2010, dated 24/06/2024) (b) AY 2001-02 (ITA No.4372/Mum/2005, dated 23/02/2024) (c) AY 2000-01 (ITA No.2655/Mum/2005, dated 28/11/2023) (d) AY 1999-00 (ITA No.1933/Mum/2005, dated 28/11/2023) (e) AY 1998-99 (ITA No.8952/Mum/2004, dated 22/08/2023)

43.5. The Revenue has failed to bring on record any material to differentiate the above decisions of the Co-ordinate Benches of the Tribunal either in law or on facts. Therefore, respectfully following the same, we overturn the decision of Assessing Officer and CIT(A) on this issue and direct the Assessing Officer to allow deduction of INR.73,578/- as claimed by the Assessee under Section 80-O of the Act.

44. Ground No. 6 Ground No.6 raised by the Assessee in the present appeal is identical to Ground No.5 raised by the Assessee in appeal for the Assessment Year 2005-2006 and the same read as: “6. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in holding the action of the Assessing Officer in treating expenses incurred in relation to purchase and upgradation of software amounting to Rs.22,61,830/- as capital expenditure.”

44.1. On perusal of record it emerges that during the relevant previous year the Assessee had incurred expenditure amounting to INR.1,39,65,565/- on software out of which deduction for expenditure aggregating to INR.1,17,03,735/- was claimed by the Assessee under Section 35 of the Act and for the balance amount of INR.22,61,830/- deduction was claimed in the original return of income under Section 37(1) of the Act as revenue expenditure. The aforesaid claim was disallowed by the Assessing Officer on the ground that the expenditure of INR.22,61,830/- incurred on software was capital in nature. However, the Assessing Officer allowed the Assessee to claim depreciation under Section 32 of the Act @ 60%.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 44.2. In appeal preferred by the Assessee on this issue, the CIT(A) declined to grant any relief and rejected the ground raised by the Assessee by following the order passed by the First Appellate Authority in appeal preferred by the Assessee against the assessment order for the Assessment Year 2003-04. 44.3. Being aggrieved the Assessee has carried the issue before the Tribunal.

44.4. During the course of appellate proceedings both the sides adopted the arguments made in relation to Ground No.5 raised by the Assessee in appeal pertaining to Assessment Year 2005-2006. 44.5. We have given thoughtful consideration to the rival submissions and have perused the material on record. In our view there is no material change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.5 raised in appeal preferred by the Assessee for the Assessment Year 2005-2006 contained in paragraph 9 to 9.8 above, we deemed it appropriate to remand this issue back to the file of Assessing Officer with the directions to allow deduction for software expenses of INR.22,61,830/- as revenue expenditure after verifying the factual averments made by the Assessee to the effect that the same (a) do not provide any benefit of enduring nature to the Assessee; and/or (b) include expenses for purchase of software licenses not giving any ownership rights to the Assessee. In case the Assessing Officer accepts the contention of the Assessee and grants deduction for software expenses of INR.22,61,830/- as revenue expenditure, the Assessing Officer is directed to reverse the depreciation granted to the Assessee in respect of the same expenditure.

44.6. In terms of the above ground No. 6 raised by the Assessee is ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 allowed for statistical purposes.

Ground No. 7 45. Ground No.7 raised by the Assessee reads as under:

7. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in including wind power generated captively consumed amounting to Rs.26,38,00,661/- as part of total turnover for the purpose of computing deduction under section 80HHC.

45.1. The Assessee is aggrieved by the action of Assessing Officer whereby the Assessing Officer had included amount of INR.26,38,00,661/- pertaining to the wind power generated captively as part of Total Turnover while computing deduction under Section 80HHC of the Act. Since the aforesaid action of the Assessing Officer was upheld by the CIT(A), the Assessee has carried the issue in appeal before the Tribunal.

45.2. We have head both the sides on this issue, and have perused the material on record (including judicial precedents cited during the course of hearing).

45.3. It emerged that identical issue had come up for consideration before the Tribunal in case the case of the Assessee in appeal preferred by the Assessee for the Assessment Year 2002-2003 [in dated 24/06/2024]. On perusal of the aforesaid decision we find that the Tribunal had held that the internal consumption of power will not form part of the Total Turnover for the purpose of computing the relief under Section 80HHC of the Act. The relevant extract of the aforesaid decision of the Tribunal reads as under: “37. During the course of assessment the assessing officer included the amount of Rs.26,38,00,661/- pertaining to wind power generated captively consumed as part of Total Turnover against the submission of the assessee that it did not form part of any goods sold by the assessee but represented only the cost of wind power ITA No. 6838/Mum/2008, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 generated which has been captively consumed. The assessee also submitted that same cannot be treated as part of turnover since it merely represents a credit in the windwill division which was ultimately set off as electricity charges in the manufacture division and consequently had no effect on the consolidated accounts of the assessee.

38. In the appeal the ld. CIT(A) has dismissed the appeal of the assessee holding that same ought to be included in the turnover.

60. After carefully considering the rival submissions, we find that the Tribunal, with regard to the exclusion of internal consumption of power for the Total Turnover, had decided the same in favour of the assessee by holding that such an inclusion in the Total Turnover will result into double addition, because it is already included in the computation of the profit thus, respectfully following the earlier year’s order, we also hold that the internal consumption of power will not form part of the Total Turnover for the purpose of computing the relief under section 80HHC. Insofar as the exclusion of the scrap sale is concerned, though this issue has been decided against the assessee by the Tribunal in earlier years, however, the Hon'ble Supreme Court in its latest judgment in Civil Appeal no. 5592 of 2008, vide judgment and order dated 10th May 2014, rendered in CIT v/s Punjab Stainless Steel Industries, has held that sale proceeds of scrap cannot be included as part of the Total Turnover for the purpose of section 80HHC. The Hon'ble Supreme Court has discussed this exclusion of the scrap sales from the turnover in a very detail manner. Thus, respectfully following the aforesaid judgment of the Hon'ble Supreme Court, we set aside the impugned order passed by the learned Commissioner (Appeals) and direct the Assessing Officer to exclude the scrap sale from the Total Turnover while computing the deduction under section 80HHC. Thus, ground no.18 is treated as allowed.

Following the decision of ITAT as referred supra we find that decision of ld. CIT(A) in sustaining of disallowance is not justified, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 therefore, after following the decision of ITAT this ground of appeal of the assessee is allowed.”

45.4. The Revenue has failed to bring on record any material to differentiate the above decision of the Co-ordinate Benches of the Tribunal either in law or on facts. Therefore, respectfully following the same, we overturn the decision of Assessing Officer and CIT(A) on this issue and direct the Assessing Officer to compute deduction to be allowed under Section 80HHC of the Act without including amount of INR.26,38,00,661/- pertaining to the wind power generated captively consumed in the Total Turnover. Thus, Ground No. 7 raised by the Assessee is allowed.

Ground No. 8 & 11 46. Ground No. 8 and 11 raised by the Assessee read as under: “8. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not appreciating the fact that only the profit on transfer of Duty Entitlement Pass Book Benefit (DEPB)Scheme as defined in Section 28(iiid) and not the entire amount credited to the Profit and Loss account amounting to Rs.79,95,56,879/- ought to be excluded while computing the ‘profits of the business’ for computing deduction under section 80HHC.”

11. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in including in the total income, DEPB benefit receivable amounting to Rs.74,20,16,352/-“ 45.1. Ground No.11 raised by the Assessee in the present appeal is identical to Ground No.6 raised in appeal for the Assessment Year 2005-2006. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication in paragraph 10 to 10.7 above, we overturn the decision of CIT(A) and remand back the issues raised by way of Ground No.11 in the present appeal back to the file of Assessing Officer for denovo adjudication as per the judgment of the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra). The Assessee is directed to furnish before the Assessing Officer the ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 details of corresponding cost, sale proceeds and utilisation of DEPB Benefit. In terms of the aforesaid, Ground No.11 raised by the Assessee is allowed for statistical purposes.

45.2. Since we have remanded the issue raised in Ground No. 11 back to the file of the Assessing Officer we also deem it appropriate to remand the connected issue raised in Ground No. 8 also back to the file of Assessing Officer for denovo adjudication as per the judgment of the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra). Thus, Ground No.8 raised by the Assessee is also allowed for statistical purposes.

Ground No. 9 46. Ground No.9 raised by the Assessee, reads as under:

9. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in including interest, depreciation as per Income-tax and the majority of other expenses as detailed in ‘Schedule 12’ instead of Rs.16,07,27,493/- as considered by the appellant while computing ‘indirect expenses’ attributable to the export of traded goods for the purpose of computing deduction under Section 80HHC.

46.1. Ground No.9 raised by the Assessee pertains to including interest, depreciation as per Income-tax and the majority of other expenses instead of Rs.16,07,27,493/- as considered by the Assessee while computing ‘indirect expenses’ attributable to the export of traded goods for the purpose of computing deduction under Section 80HHC made by the Assessing Officer which were confirmed by the CIT(A). During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.9 raised by the Assessee is dismissed as not pressed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Ground No. 10 47. Ground No.10 raised by the Assessee, reads as under: “10. On the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals) erred in holding that the appellant is not entitled to deduction in respect of DEPB as per the third proviso to section 80HHC(3)(c).”

47.1. Ground No.10 raised by the Assessee pertains to deduction in respect of DEPB as per the third proviso to section 80HHC(3)(c) made by the Assessing Officer which were confirmed by the CIT(A). During the course of hearing the Learned Authorized Representative for the Assessee, under instruction, stated that the Assessee does not wish to press this ground. Accordingly, Ground No.10 raised by the Assessee is dismissed as not pressed.

Appeal By Revenue: AY 2004-05 : ITA No.6674/Mum/2008

by the Revenue Cross Appeal for the Assessment Year 2004-2005 Ground No.1

49. Ground No.1 raised by the Revenue in the present appeal is identical to Ground No.1 raised by the Revenue in appeal for the Assessment Year 2005-2006 and the same read as under: “1. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in allowing 1/10th deduction amounting to Rs. 1,17,19,960/- u/s.35D in respect of GDR issue expenses.”

49.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, in view of the reasoning/adjudication pertaining to Ground No.1 raised in appeal for the Assessment Year 2005-2006 contained in paragraph 14 to 14.5 above, we decline to interfere with the order passed by the CIT(A) allowing deduction of INR.1,17,19,960/- under Section 35D of the Act. Accordingly, Ground No.1 raised by the Revenue is dismissed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Ground No.2 50. Ground No.2 raised by the Revenue in the present appeal is similar to Ground No.2 raised in Revenue’s appeal for the Assessment Year 2005-2006. Ground No. 2 raised in the present appeal reads as under: “2. On the facts and circumstances of the case and in law, the Learned CIT(A), erred in allowing depreciation claim on assets given on lease of Rs.20,21,264/-.”

50.1. Both sides agreed that there is no change in the facts and circumstances except for the fact that the Assessee had claimed depreciation in respect of leased assets during the relevant previous year. Accordingly, keeping in view our finding and adjudication pertaining to Ground No. 2 raised by the Revenue in appeal for the Assessment Year 2005-06 in paragraph 16.1 to 16.9 above, we find no infirmity in the order passed by the CIT(A) allowing depreciation of INR.20,21,264/- claimed by the Assessee in respect of the assets given on lease. Accordingly, Ground No.2 raised by the Revenue is dismissed.

Ground No.3 51. Ground No.3 raised by the Revenue in the present appeal is similar to Ground No.3 raised by the Revenue in appeal for the Assessment Year 2005-2006. Ground No. 3 raised in the present appeal reads as under: “3. On the facts and circumstances of the case and in law, the Learned CIT(A), erred allowing expenditure on dies and moulds amounting to Rs. 15,57,90,405/- as revenue expenditure.”

51.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.3 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 16.1 to 16.7 above, we do not find any infirmity in the order passed by the CIT(A) directing the Assessing Officer to ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 allow expenditure on dies and moulds amounting to INR.15,57,90,405/- as revenue expenditure. Accordingly, Ground No.3 raised by the Revenue is dismissed.

Ground No.4 52. Ground No.4 raised by the Revenue in the present appeal is similar to Ground No.4 raised in Revenue’s appeal for the Assessment Year 2005-2006. Ground No. 4 raised in the present appeal reads as under: “4. On the facts and circumstances of the case and in law, the Learned CIT(A), erred in holding that penalty charges recovered on capital goods of Rs.25,62,864/- are capital receipts and the same shall not be reduced from the cost of assets for depreciation.”

52.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.4 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 17.1 to 17.6 above, we do not find any infirmity in the order passed by the CIT(A) directing the Assessing Officer to treat penalty charges of INR.25,62,864/- recovered on capital goods as capital receipts and also not to deduct the same from the cost of assets for computing depreciation. Accordingly, Ground No.4 raised by the Revenue is dismissed.

Ground No.5 53. Ground No.5 raised by the Revenue in the present appeal is identical to Ground No.5 raised in Revenue’s appeal for the Assessment Year 2005-2006. Ground No. 5 raised in the present appeal reads as under: “5. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in allowing expenditure on jigs and fixtures amounting to Rs.14,40,01,423/-.”

53.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 adjudication pertaining to Ground No.5 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 18.1. to 18.5. above, we do not find any infirmity in the order passed by the CIT(A) directing the Assessing Officer to allow deduction for expenditure on jigs and fixtures amounting to INR.14,40,01,423/- as revenue expenditure. Accordingly, Ground No.5 raised by the Revenue is dismissed.

Ground No.6 & 7 54. Ground No.6 & 7 raised by the Revenue read as under: “6. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing interest attributable to earning of exempt income amounting to Rs.22,57,111/- disallowed u/s.14A.

7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing part of administrative expenditure attributable to earning exempt income amounting to Rs. 2,84,93,042/- and confirming only the said part of administrative expenditure for computation of profit u/s 115JB.”

54.1. Issues raised in Ground No.6 and 7 raised by the Revenue are identical to the issues raised in Ground No. 3(a) and Ground No. 3(b) raised by the Assessee in appeal for the Assessment Year 2005-06, respectively. In paragraph 6 to 6.11 above, while disposing off the Ground 3(a) hereinabove, we have deleted the disallowance made under Section 14A of the Act in respect of interest expenses. On the other hand, while disposing off Ground No. 3(b) in paragraph 7 to 7.12 hereinabove, we have restricted the disallowance on account of administrative expenses to 2% of the exempt income.

54.2. On perusal of the record we find that there is no change in primary facts as regards the financial position of the Assessee- company is concerned. Therefore, we do not find any reason to depart from the aforesaid view taken while adjudicating identical issues raised in appeal for the Assessment Year 2005-2006. ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Therefore, for the Assessment Year 2004-05 we confirm the order passed by the CIT(A) to the extent the CIT(A) deleted the disallowance of interest income expenses of INR.22,57,111/-. As regards the disallowance made on account of administrative expenses is concerned, we set-aside the decision of the CIT(A) and restrict the disallowance to 2% of the exempt income. The Assessing Officer is directed the computed the amount of disallowance under Section 14A of the Act accordingly. Thus, Ground No. 6 raised by the Revenue is dismissed and Ground No. 7 raised by the Revenue is partly allowed.

Ground No.8 55. Ground No.8 raised by the Revenue in the present appeal is similar to Ground No.6 raised in Revenue’s appeal for the Assessment Year 2005-2006. Ground No. 8 raised in the present appeal reads as under: “8. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing prior period expenses amounting to Rs. 2,97,00,470/-.”

55.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.6 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 19 to 19.3. above, we overturn the decision of CIT(A) and remand this issue back to the file of the Assessing Officer with the directions to the Assessee to file documents/details to substantiate that the prior period expenses in respect of which deduction has been claimed crystallized during the relevant previous year. The Assessing Officer is directed to decide the issue after taking into consideration the documents/details furnished by the Assessee and after granting the Assessee a reasonable opportunity of being heard. All the rights and contentions of the Assessee are left open. In terms of the aforesaid, Ground No. 8 ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 raised by the Revenue is allowed for statistical purposes.

Ground No.9 56. Ground No.9 raised by the Revenue in the present appeal is similar to Ground No.7 raised in Revenue’s appeal for the Assessment Year 2005-2006. Ground No. 9 raised in the present appeal reads as under: “9. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing expenditure of Rs. 2,84,846/- incurred in foreign currency disallowance made u/s. 40(a)(i).”

56.1. Both sides agreed that there is no change in the facts and circumstances. Accordingly, keeping in view our finding and adjudication pertaining to Ground No.7 raised in appeal for the Assessment Year 2005-2006 preferred by the Revenue contained in paragraph 20 to 20.6 above and consistent with the view taken by the Co-Ordinate Benches of the Tribunal in the case of the Assessee, we decline to interfered with the order passed by the CIT(A) on this issue. Accordingly, the Ground No.9 raised by the Revenue is dismissed.

Ground No.10 57. Ground No.10 raised by the Revenue reads as under: “10. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing Rs. 3,30,000/-in respect of charges paid to MEDA [implementing agency for non- conventional energy development] for the purpose of Sales tax loan.”

57.1. During the relevant previous year the Assessee had made payment of INR.3,30,000/- as Maharashtra Energy Development Agency (MEDA) as processing charges for the purpose of obtaining eligibility certificate. The deduction claimed by the Assessee for the aforesaid expenses was disallowed by the Assessing Officer holding the same to be capital in nature. In appeal preferred by the Assessee CIT(A) deleted the disallowance as under:

“15.4 I have considered the above submissions made by the AR.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 In view of the above fact that no capital asset is created on payment of the aforesaid charges and in view of the finding given in the above decisions, the AO is directed to grant deduction in respect of the aforesaid amount of Rs.3,30,000/-“ 57.2. Being aggrieved, the Revenue has preferred appeal before the Tribunal seeking re-instatement of order passed by the Assessing Officer on this issue.

57.3. Having considered the rival submissions and on perusal of record, we do not find any reason to interfere with the order passed by the CIT(A) on this issue. The CIT(A) has returned a finding that the expenditure of INR.3,30,000/- under consideration did not result in creating of capital asset or advantage of enduing nature. There is no material on record to controvert the aforesaid finding of the CIT(A). Accordingly, Ground No. 10 raised by the Revenue is dismissed.

Ground No.11 58. Ground No.11 raised by the Revenue reads as under: “11. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that Excise Duty and Sales Tax are not part of "Total Turnover" for the purpose of computation of deduction u/s. 80HHC.” 58.1. The Revenue is aggrieved by the order passed by the CIT(A) excluding excise duty and sales tax from Total Turnover for the purpose of computing deduction under Section 80HHC of the Act.

58.2. We have considered the rival submissions and have perused the material on record.

58.3. We note that the issue raised by the way of Ground No. 11 above is no longer res-integra in view of the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Sudarshan Chemicals Industries Ltd: 245 ITR 769 and the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Coimbatore Vs. Lakshmi Machine Works [2007] 290 ITR 667 (SC). In the aforesaid judgments its has been held that for purposes of computing allowable deduction under Section 80HHC of the Act, sales tax and excise duty cannot form part of 'Total Turnover'. Following the aforesaid judgments, the Tribunal has decided this issue in favour of the Assessee in the following appeals: (a) AY 2003-04 (ITANo.1496&1420/Mum/2007,dated 09/09/2024) (b) AY 2000-01 (ITA No.2655/Mum/2005,dated 28/11/2023 (c) AY 1997-98 (ITA No.5030/Mum/2001,dated 13/04/2023) (d) AY 1996-97 (ITA No.2230/Mum/2000,dated 20/06/2022) (d) AY 1995-96 (ITA No.3493/Mum/1999,dated 20/01/2021)

58.4. In view of the above, we do not find any infirmity in the order passed by the CIT(A). Accordingly, Ground No. 11 raised by the Revenue is dismissed.

Ground No.12 59. Ground No.12 raised by the Revenue reads as under: “12. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that miscellaneous receipts, scrap sales, sundry sales, etc.) amounting to Rs. 301,41,79,718/- do not form part of "Total Turnover".

59.1. The Revenue is aggrieved by the order passed by the CIT(A) excluding miscellaneous receipts, scrap sales, sundry sales, etc. aggregating to INR.301,41,79,718/- from Total Turnover for the purpose of computing deduction under Section 80HHC of the Act.

59.2. We note that in the case of Commissioner of Income Tax-VII Vs. Punjab Stainless Steel Industries: 364 ITR 144, the Hon’ble Supreme Court has held that that for purposes of computing allowable deduction under Section 80HHC of the Act, scrap sales cannot form part of 'Total Turnover'. Following the aforesaid judgment, the Tribunal has decided this issue in favour of the Assessee in the following appeals: (a) AY 1995-96 (ITA No.3144/Mum/1999, dated 20/01/2021) (b) AY 1996-97 (ITA No.1781/Mum/2000, dated 20/06/2022) (c) AY 1997-98 (ITA No.5030/Mum/2001, dated 13/04/2023)

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 59.3. Further, we find that identical issue had also come up for consideration before the Tribunal in appeal preferred by the Revenue in the case of the Assessee for the Assessment Year 2002-2003, Vide order, dated 24/06/2024, [passed in ITA No. 2899/Mum/2010], the Tribunal decided identical issue in favour of the Assessee and dismissed the ground raised by the Revenue in the following manner:

41. The assessing officer has included the miscellaneous receipts like scrap sales, miscellaneous scrap sale and sundry sales aggregating to Rs.21,16,24,544/- in the Total Turnover.

(a) AY 1995-96 (ITA No.3144/Mum/1999) (b) AY 1996-97 (ITA No.1781/Mum/1999) (c) AY 1997-98 (ITA No.5030/Mum/2001) (d) CIT vs. Punjab Stainless Steel Industries Ltd. [2014] 364 ITR 144 (SC)

On the other hand, the ld. D.R supported the order lower authorities.

5.2 A perusal of the impugned order shows that the Assessing Officer had Included scrap sales generated out of raw material used in manufacturing Rs.43,92,32,708/, miscellaneous scrap sales consisting of packing material like empty barrels, steel covers, etc. amounting to Rs.4,82,77,276/- and ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 sundry sales not covered in Items above amounting to Rs.2,44,358/- In the first appellate proceedings, the CIT(A) held that the sale of aforesaid items should be excluded from Total Turnover for the purpose of calculating deduction u/s 80HHC of the Act, as in Assessment Year 1995-96 these very items were excluded from Total Turnover while computing deduction u/s 80HHC of the Act. In assessment year 1995-96, the assessee carried the issue in appeal before the Tribunal in (supra). The Co-ordinate Bench after placing reliance on the decision rendered by Hon'ble Supreme Court of India in the case of CIT vs Punjab Stainless Steel Industries Ltd. 364 ITR 144 decided the issue in favour of assessee. Since, in the impugned assessment year there is no distinguishing feature, we see no reason to take a different view. Consequently, additional ground No.1 of the appeal is allowed.

Following the decision of ITAT this ground of appeal of the assessee is allowed.” (Emphasis Supplied)

59.4. The Revenue has failed to bring on record any material to differentiate the above decision of the Co-ordinate Bench of the Tribunal either in law or on facts. Therefore, respectfully following the same, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 12 raised by the Revenue is dismissed.

Ground No.13 60. Ground No.13 raised by the Revenue reads as under:

13. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing whole off the following items from profit of business" for the purpose of computation of deduction u/s 80HHC.

(i) Technical know-how fees Rs. 60,40,148/- (ii) Insurance claim Rs. 1,30,868/- (iii) Miscellaneous receipts Rs. 12,95,22,853/- (iv)Sundry creditors balance appropriated Rs. 79,22,996/- (v)Provision no longer required Rs. 16,88,39,049/- (vi)Bad debts recovered Rs. 4,76,201/-“

60.1. Having heard the rival submissions and on perusal of record, we find that identical issue had come up for consideration before the ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Tribunal in appeal preferred by the Revenue in the case of the Assessee for the Assessment Year 1998-99 [ITA No. 8952/Mum/2004] and vide order, dated 22/08/2023, passed by the Tribunal the said issue was decided in favour of the Assessee and the ground raised by the Revenue was dismissed in the following manner:

19.0 Ground no.6 raised by the revenue relates to the computation of deduction u/s 80HHC of the Act. The Ld CIT(A) had directed that the income by way of technical knowhow, insurance claim, miscellaneous receipts, sundry credit balance, provision for doubtful debts written back, provision no longer required shall form part of ‘profits of business’ for the purpose of computation of deduction u/s 80HHC of the Act. The technical Knowhow fees received by the assessee is held to be part of ‘profits of business’ by the co-ordinate bench in the assessee’s own case in AY 1996-97 in dated 20- 06-2022 and the said decision has been followed by the Tribunal in AY 2007-08. The other items of receipts, viz., insurance claim, miscellaneous receipts, sundry credit balance, provision for doubtful debts written back, provision no longer required, in our considered view, need not be excluded while computing ‘profits of business’ as these receipts do not fall under the category of ‘brokerage, commission, interest, rent, charges or any other receipt of similar nature’ mentioned in the definition of ‘profits of business’ given in clause (baa) of Explanation to sec.80HHC of the Act.

60.2. The Revenue has failed to bring on record any material to differentiate the above decision of the Co-ordinate Bench of the Tribunal either in law or on facts. Therefore, respectfully following the same, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 13 raised by the Revenue is dismissed.

Ground No.14 61. Ground No.14 raised by the Revenue, reads as under: “14. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the A.O. to reduce 10% of other income and export incentives while computing the indirect costs and thereafter to compute trading profit for deduction u/s. 80HHC.”

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 61.1. The Revenue is aggrieved by the directions given by the CIT(A) to the Assessing Officer to reduce 10% of other income and export incentives while computing the indirect costs and thereafter to compute trading profit for deduction u/s. 80HHC.

61.2. We have considered the rival submissions and have perused the material on record on this issue.

61.3. We find that identical issue had come up for consideration before the Co-ordinate Bench of the Tribunal in appeal preferred by the Revenue in the case of the Assessee for the Assessment Year 2002-03 [ITA No. 3043 & 2899/Mum/2010, dated 24/06/2024]. The Tribunal had, after examining judgment of Hon'ble Supreme Court of India in the case of Hero Exports vs. CIT 295 ITR 454, and the decisions of the Tribunal in the case of the Assessee for the preceding assessment years decided the issue in favour of the Assessee and the ground raised by the Revenue was dismissed in the following manner:

“90. Heard both the sides and perused the material on record. We find that similar issue on identical fact has been adjudicated in favour of the assessee by the ITAT, Mumbai in the case of the assessee itself in the earlier years referred by the ld. Counsel as under:

(a) AY 2000-01 (ITA No.2655/Mum/2005, dated 28/11/2023) (b) AY 1999-00 (ITA No.1933/Mum/2005, dated 28/11/2023) (c) AY 1997-98 (ITA No.5030/Mum/2001, dated 13/04/2023) (d) AY 1996-97 (ITA No.2230/Mum/2000, dated 20/06/2022) (e) AY 1995-96 (ITA No.3493/Mum/1999, dated 20/01/2021) (f)Surendra Engg. Corprn. vs. ACIT [2003]86 ITD 121(Mum)(SB) (g) Hon'ble Supreme Court in the case of Hero Exports vs. CIT [2007] 295 ITR 454 (SC)”

The extract of the decision of ITAT for AY 2000-01 in is reproduced as under:

“108. During the course of appellate proceeding before us at the outset the ld. Counsel submitted that ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 identical issue and similar fact has been adjudicated by the ITAT in favour of the assessee in the preceding assessment year as under: a. ITAT – AY 1995-96 (ITA No. 3493/Mum/1999, para no.19-22, page nos. 16-18 b. ITAT – AY 1996-97 (ITA No. 1781/Mum/2000, para no. 5.3, page no. 5) c. ITAT – AY 1997-98 (ITA No. 5030/Mum/2001, para no. 93 The relevant decision of ITAT vide ITA No. 5030/Mum/2001 is reproduced as under:

“93. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year in dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 1995-96, held as under: - “5.3 In additional ground No.2 of the appeal the assessee has assailed exclusion of certain expenses i.e. "indirect cost" attributable to export of trading goods for the purpose of deduction u/s 80HHC of the Act. In first appellate proceedings the CIT(A) directed the Assessing Officer to exclude expenses attributable to other Income and export incentive, estimated at 10%. We find that similar issue had come up before the Coordinate Bench in assessee's own case for the Assessment Year 1995-96 (supra). The Tribunal after examining the issue placed reliance on the decision of Hon'ble Supreme Court of India in the case of Hero Exports vs. CIT 295 ITR 454 and the decision of Special Bench of the Tribunal in the case of Surendra Engineering Corporation vs. ACIT, 86 ITD 121 and decided the issue in favour of assessee. For the sake of brevity the findings of ITA No. 6838/Mum/2008, ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 the Co-ordinate Bench are not reproduced hereunder. The Revenue could not controvert the findings of Coordinate Bench on the issue. Following the decision of Tribunal in assessee's own case for the immediately preceding Assessment Year, the additional ground No.2 of the appeal is allowed.”

Following the decision of the ITAT we don’t find any merit therefore, this ground of appeal of the revenue stand dismissed. ” (Emphasis Supplied)

61.4. The Revenue has failed to bring on record any material to differentiate the above decision of the Co-ordinate Bench of the Tribunal either in law or on facts. Therefore, respectfully following the same, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 14 raised by the Revenue is dismissed.

Ground No.15 62. Ground No.15 raised by the Revenue, reads as under: “15. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing provision made for compensation in respect of labour dispute although the matter has not reached finality and the liability has not yet accrued.”

62.1. The Revenue is aggrieved by the order passed by the CIT(A) allowing deduction for provision created for compensation to be paid to employees is respect of labour disputes.

62.2. The relevant facts in brief are that in the return of income the Assessee had claimed deduction to INR.41,54,84,092/- in respect of compensation paid to the workers amounting to INR.29,98,57,938/- and provision created for compensation ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 payable in labour disputes amounting to INR.11,56,26,154/-. The Assessing Officer disallowed deduction in respect of deduction claimed for provision for compensation payable in labour disputes amounting to INR.11,56,26,154/-.

62.3. In appeal preferred by the Assessee the CIT(A) accepted the claim of the Assessee and allowed the deduction for the aforesaid provision holding as under:

“20.8 I have gone through the facts of the case and submissions made by the AR from which it is evident that the appellant had claimed deduction for labour dispute amounting to Rs.41,54,84,092/- in the return of income. Out of the aforesaid amount Rs.29,98,57,938/- was actually paid during the year and balance amount of Rs.11,56,26,154/- was provided by the appellant for 507 workers in respect of which cases are pending at various labour forums on the issue of reinstatement with back wages etc. under the MRTU & PULP Act, 1971. 20.9. Thus the issue to be decided is whether provision for labour dispute made by appellant is of contingent in nature or it represents provision for liability which has crystallized during the previous year so as to be eligible for deduction while computing profits and gains of business or profession.

20.10 It is evident from the submission reproduced on para 22.2 of the Assessment Order that the appellant during the year was in receipt of two Supreme Court Orders in connection with labour disputes filed under Maharashtra Recognition of Trade Union and Prevention of Unfair Labour Practices Act, 1971. 20.11 Based on the order of Supreme Court the appellant made provision for Rs.11,56,26,154/- for 507 workers in respect of which cases are pending at various labour forums on the issue of reinstatement with back wages etc. under the MRTU & PULP Act, 1971. 20.12 In earlier year the appellant did not make any provision for the said amount because it had filed writ petition in the Supreme Court against the order of division bench of Mumbai High Court. Since the order of Supreme Court was passed during the previous year according to me the issue which was contested by the appellant has reaced finality.

20.13 The Assessing Officer in his order has not given any findings why said provision is of contingent in nature. The fact that ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 507 workers had filed cases on the issue of reinstatement with backwages which are pending at various labour forums was not disputed by the AO.

20.14. The Supreme Court in Metal Box Co. India Ltd. vs Their Workmen held that in the case of an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business regard being had to the accepted principles of commercial practice and accountancy, It is not as if such deduction is permissible only in case of amounts actually expended or paid. Just as receipts though not actual receipts but accrued and due are income for Income tax assessment, so also liabilities accrued and due would also be taken into account while working out the profits and gains of the business.

20.15 In view of the above facts I am of the opinion that provision made by the appellant is for liability which has crystallied during the year and is not of contingent in nature Accordingly the appellant is entitled for deduction in respect provision made of Rs. 11,56,26,154/-. Thus the addition made by A.O. is deleted.”

62.4. Being aggrieved, the Revenue has carried the issue in appeal before the Tribunal.

62.5. We have considered the rival submissions and have perused the material on record on this issue including the judgment of the Hon'ble Supreme Court in Civil Appeal No. 4999 of 2002 and Civil Appeal No. 5003 of 2002. 62.6. We find that the provision has been created after taking into consideration the judgment of Hon’ble Supreme Court passed in the case of similarly placed workmen terminated by the Assessee- company. During the relevant previous year two order were passed by the Hon’ble Supreme Court Orders in connection with labour disputes filed under Maharashtra Recognition of Trade Union and Prevention of Unfair Labour Practices Act, 1971 [for short ‘MRTU & PULP Act, 1971’] pertaining to Akurdi Unit and Waluj Unit of the Assessee. In respect of Akurdi Unit, the ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Company was directed to pay each workmen terminated in 1997- 98 a lump-sum amount calculated at 65 days salary, inclusive of all allowances, for the number of years each workman has actually worked irrespective of the days a workman may have put in a year. Accordingly, Compensation was paid to the 301 workmen, amounting to INR.58,750,000. Since, similar disputes pertaining to 15 employees of Akurdi Unit were pending before various Courts/Tribunal, provision of INR.54,48,718/- was created keeping in view compensation payable to the workmen as per the aforesaid judgment of the Hon’ble Supreme Court. In respect of Waluj unit, the Company had offer compensation to 1197 temporary workmen on a similar basis as that of Akurdi unit. In response to the same, 1012 temporary workmen came forward to accept the compensation and accordingly, an amount of INR.192,566,400 was paid to these 1012 workmen during the financial year 2003-2004. However, as per the judgment of Hon’ble Supreme Court the Company was required to pay compensation by adopting changed formula. Instead of 1.50 years as per earlier formula, the Supreme Court ordered to compensation be paid for 2.00 years and 85 days. Accordingly, additional amount of INR.4,85,41,538/- was paid during the relevant previous year and provision of INR.110,177,436/- was created. Thus, the Assessee paid aggregate compensation of INR.29,98,57,938/- and created aggregate provision for compensation of INR.115,626,154 /-.

(a) Details of Compensation paid:

In respect of 301 Workmen at Akurdi INR. 5,87,50,000 In respect of 1012 Workmen at Waluj INR. 19,25,66,400 In respect of 185 Workmen at Waluj INR. 4,85,41,538 Total INR. 29,98,57,938 ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 (b) Details of provision for Compensation created:

In respect of 15 Workers at Akurdi INR. 54,48,718 In respect of 487 Workers at Waluj INR. 11,01,77,436 Total INR. 11,56,26,154 62.7. The CIT(A) allowed deduction for provision for compensation holding that the provision was created for ascertained liability which had crystalized during the relevant previous year. We are in agreement with the view taken by CIT(A) since the judgment of the Hon’ble Supreme Court in case of similarly placed workmen would have binding effect on the Assessee Company in identical disputes raised under MRTU & PULP Act, 1971’. Accordingly, we decline to interfere on the issued passed by the CIT(A). Ground No. 15 preferred by the Revenue is, therefore, dismissed.

Ground No.16 63. Ground No.16 raised by the Revenue, reads as under: “16. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding as "transfer of capital assets the receipt of Cumulative Redeemable Preference Shares in lieu of equity shares held by the assessee on reduction in equity capital of a company and allowing capital loss after indexation.”

63.1. The relevant facts in brief are that during the relevant previous year loss on conversion of investments amounting to INR.2,53,25,577/- was debited to the Profit and Loss Account and shown in Schedule 12 "Other Expenses" consisting of the following:

Particulars Amount (INR.) On Mukand Limited Shares 1,46,14,590 On UTI MIP Bonds 1,07,10,987 Total 2,53,25,577 63.2. In the original return of income, filed on 29/10/2004, no deduction had been claimed in respect of the aforesaid amount. However, during the assessment proceedings the Assessee ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 provide explanation in relation to the loss arising on conversion of investments and claimed a Long Term Capital Loss amounting to INR.2,58,65,934/- after indexation in respect of (a)extinguishment of 20% of equity shares of Mukand Ltd. and (b)loss amounting to INR.1,07,10,987/- on redemption of units of MIP-99. The Assessing Officer rejected the aforesaid claim of the Assessee holding that there was no transfer in terms of Section 2(47) of the Act.

63.3. Being aggrieved the Assessee carried the issue in appeal before CIT(A). After examining both the transactions, the CIT(A) accepted Assessee’s claim holding as under:

“21. The twentieth ground of appeal is not considering loss on conversion of investments aggregating to Rs 2.53,25,577/- while computing capital gains 21.1 The AR submitted that during the previous yea, relevant to Assessment Year 2004-05 the loss arising on conversion of investments aggregating to Rs.2,53,25.577/- was debited to the Profit and Loss Account. The said less comprised of the following: On Mukand Limited Shares 1,46,14,590 On UTI MIP Bonds 1,07,10,987 Total 2,53,25,577 21.2 In connection with loss on conversion of investments in case of Mukand Ltd., the AR submitted the following facts:

21.3 The appellant was holding 9,80,853 equity shares of Rs. 10/- in Mukand Limited at an aggregate cost of Rs.8,28,81,667/-.

21.4 During the previous year relevant to Assessment Year 2004- 05, Mukand Limited effected a reduction in equity share capital by 20% and in lieu of the reduction in capital, the company issued to its equity share holders, 0.01% Cumulative Redeemable Preference Shares (CRPS), without any payment being received from the shareholders. The reduction in equity share capital and issuance of CRPS took place on 12th January, 2004. 21.5 As per the scheme of reduction of capital 20% of 9,80,853 i.e 1,96,169 shares stood cancelled.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 21.6 During the relevant previous year, the appellant wrote off to the profit and loss account an amount of Rs.1,46,14,590/- representing excess of cost of the equity shares over the face value of CRPS issued. The said amount was computed as under:

Cost of 1,96,169 equity shares of 1,65,76,280 Rs.10 each 19,61,690 Less: Face value of 196169 CRPS of Rs. 10/- each allotted Investments Written off 1,46,14,590 21.7 The AR argued that loss of Rs. 1,46,14,590/- had arisen on account of reduction in the share capital made by Mukand Limited which amounted to extinguishment of rights in shares and accordingly constituted a transfer.

21.8 In connection with loss on conversion of investments in case of UTI MIP-99 the relevant facts submitted by the Alt are as under:

21.9 On post restructuring of the erstwhile Unit Trust of India, the specified undertaking of UTI which was managing MIP-99 scheme decided to redeem MIP-99 Units. The investors were given an option to receive cash or alternatively receive 6.60% Tax-free Bonds. The appellant opted for receiving 6.60% free bonds.

21.10 The appellant was holding 4,00,000 units of MII at cost of Rs.41,07,10,987/-, In lieu of the said units, 6.60% Tax Free Bonds of Rs 40,00,00,000- were issued. The loss amounting to Rs.1,07,10,987/- on the issue of new bonds was debited to the Profit and Loss Account.

21.11 The appellant vide letter dated 31 March, 2006 made detailed submissions on the said issue and submitted that the loss after indexation aggregating to Rs.8,25,37,070/-should be allowed as a deduction since there was a transfer of capital asset.

21.12 Further in this connection the AR placed reliance on the following decisions: a. Kartikey Sarabhai vs. CIT (SC) (228 ITR 163) b. CIT vs. Grace Collis and Others (SC) (248 ITR 323)

21.13 The AR vehemently argued that additional shares/units were allotted to the appellant without making any payment and accordingly as per provisions of Section 55(aa) (i) and (iii) the cost of acquisition for original financial assets should be the ITA No.6674/Mum/2008 ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 amount actually paid by the appellant for acquiring the original financial assets and in relation to the financial asset allotted without any payment and on the basis of holding of any ether financial asset, the cost of acquisition shall be taken to be nil.

21.14 I have gone through the facts of the case and submission made by AR.

21.15 The issue to be decided is whether there is transfer of capital assets within the meaning as given in section 2(47), if yes, what should be the cost of acquisition for such assets.

21.16 According to me said issue is squarely covered by the decision of the Supreme Court in case of Kartikeya V. Sarabhai (supra) wherein it has been held that definition of transfer in relation to a capital asset is an inclusive definition which inter alia. provides that relinquishment of an asset or extinguishment of any right therein amounts to transfer of a capital asset. It is not necessary that for a capital gain to arise, there must be a sale of capital asset. Sale is only one of the modes of transfer envisaged by section 2(47) of the Act. Relinquishment of the assets or extinguishment of any right in it, which may not amount to sale, can also be considered as a transfer and any profit or gain which arises from transfer of a capital assets is liable to be taxed under section 45. Even as per the decision of the Supreme Court in the case of CIT vs. Grace Collis and Others(SC) (248 ITR 323) there would be an extinguishment of rights resulting in a transfer in the instant case.

21.17 In view of the above facts, I am of the opinion that reduction in the share capital made by Mukand Limited amounts to extinguishment of rights in shares and accordingly constitutes a transfer.

21.18 In case of Unit Trust of India, the specified undertaking of UTI which was managing. MIP-99 scheme decided to redeem MIP- 99 Units. The investors were given an option to receive cash or alternatively receive 6.60% Tax-free Bonds. The appellant opted for receiving 6.60% tax free bonds. In the above case according to me there is exchange of an asset. The appellant in lieu of UTI MIP-99 received 6.60% Tax-free Bonds. Accordingly to me the said transaction is also squarely covered by the definition of transfer as given in section 2(47) which includes exchange of assets.

21.19 In view of the above facts, I hold that in both the cases i.e. Mukand Limited and UTI MIP-99 there is transfer of asset. Once it is decided that there is transfer of capital assets the logical consequences would follow and if the said transfer results in a capital loss the same has to be allowed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 21.20 In view of the above facts, I hold that loss after indexation aggregating to Rs.8,25,37,070/- should be allowed as a deduction since there is a transfer of capital asset. Thus the said ground of appeal is decided in the favour of the appellant.”

63.4. Being aggrieved by the above relief granted by the CIT(A), the Revenue has carried the issue in appeal before the Tribunal.

63.5. We have considered the rival submissions and have perused the material on record on this issue.

63.6. As regards reduction in the share capital is concerned we find that the CIT(A) has accepted the contention of the Assessee that reduction of shares results in extinguishment of rights in shares and therefore, constitutes ‘transfer’ in terms of Section 2(47) of the Act as per the judgment of the Hon’ble Supreme Court in the case of Kartikeya V. Sarabhai: 228 ITR 163. Therefore, we do not find any reason to interfere with the order passed by the CIT(A) in this regard.

63.7. As regards redemption of units of UTI MIP-99 and allotment of 6.60% Tax-free Bonds is concerned, we concur with the CIT(A) that the said transaction is also squarely covered by the definition of transfer as given in section 2(47) of the Act since the same constitutes ‘exchange’ specifically included in the definition of ‘transfer, as contained in Section 2(47)(i) of the Act. Accordingly, we reject the contention of the Revenue that there was no transfer of capital asset in the two transactions under consideration. Accordingly, Ground No.16 raised by the Revenue is dismissed.

ITA No. 6838/Mum/2008, ITA No.1223/Mum/2010, ITA No. 535/Mum/2010 ITA No.5299/Mum/2010, ITA No.4632/Mum/2010 Assessment Years 2004-05, 2005-06 & 2006-07 Conclusion 65. In conclusion, all the appeals are partly allowed.