M/S. NICHOLAS PIRAMAL INDIA LTD,MUMBAI vs. THE ACIT CUR 7(1),

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 769/Mum/2008 (A.Y: 2004-05) Piramal Enterprises Ltd Vs. ACIT, Circle – 7(1) (Formerly known as Aayakar Bhavan Piramal Healthcare Ltd) Mumbai – 400020. (Before known as Nicholas Piramal Ind) Piramal Tower, Ganpatrao Kadam Marg, Lower Parel, Mumbai – 400013. PAN/GIR No. : AAACN4538P Appellant .. Respondent ITA No. 1954/Mum/2008 (A.Y: 2004-05) DCIT, Circle – 7(1) Vs. Piramal Enterprises Ltd Aayakar Bhyavan (Formerly known as Mumbai – 400 020. Piramal Healthcare Ltd) (Before known as Nicholas Piramal Ind) Piramal Tower, Ganpatrao Kadam Marg, Lower Parel, Mumbai – 400 013. PAN/GIR No. : AAACN4538P Assessee by : Mr.Ronak Doshi & Ms.Manshi Padhiyar.AR Revenue by : Mr.S.N.Kabra.DR

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Date of Hearing 03.06.2022 Date of Pronouncement 20.06.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The cross appeal is filed by the assessee and the revenue against the order of the Commissioner of Income Tax (Appeals)-XIX, Mumbai passed u/s 143(3) and 250 of the Act.

For the sake of convenience, we shall take up the revenue appeal in ITA No. 1954/Mum/2008 for the A.Y 2004-05 as a lead case and the facts narrated. The revenue has raised the following grounds of appeal.

i) On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to restrict the disallowance of Rs. I I, 12,62,638/- to Rs.5, I 1,35,562/- ignoring the fact that the disallowance made by the Assessing Officer comprise of revenue expenditure of Rs.8,42,02,053/-, capital expenditure on Research & Development of Rs,2,70,60,585/-/-, depreciation of the current year of Rs.45, 10,098/- and depreciation on opening WDV of Rs.5,33,2501- (total Rs. I 1,58,25,986/-) and the assessee had itself admitted that there was a difference in the claim of Research & Development expenditure and that the assessee had claimed excess deduction u/s.35 (2AB) and excess depreciation. 2. On the facts and in the circumstances of the case and

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in law, the CIT(A) erred in allowing depreciation © 60% on the software purchased by the assessee clubbing the same with the computer hardware ignoring the fact that software as an intangible asset was entitled for depreciation only © 25% u/s.32( l)(ii) of the Income-tax Act, 196 1 since software purchased is not a product but only is in nature of a commercial right. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to allow depreciation in respect of the assets transferred to the assessee as a result of merger of BMIL & PHL in the manner computed by the assessee ignoring the fact that the Assessing Officer had correctly worked out the depreciation allowance as it should have been claimed by M/s. PHL & M/s. BMIL and also ignoring the fact that similar decision of the CIT(A) for earlier years has not been accepted and appeals are pending with the ITAT. 4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in restricting the addition upto net unutilized Modvat credit the addition on account of increase in the value of closing stock of Rs. 11,77,76,480/- by application of the provisions of section 145 A of the Income- tax Act ignoring appropriate treatment to Modvat credit. 5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to treat the expenditure of Rs.3,21,98,592/- on consultancy charges as revenue expenditure and allow deduction u/s.35 DD ignoring the fact that under the provisions of section 35 DD, expenditure incurred towards amalgamation or de-merger of company is allowable, being 1/5th in each of the successive years, and is not available in respect of the expenditure which is aimed at developing a long term business strategy. 6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to treat the rental

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income from RP house property and Centre point as income from 'house property' as against assessed as income from 'other sources' ignoring the fact that the assessee was not the legal owner of the property in the relevant assessment year. 7. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing that deduction u/s.80 HHC in the cases in which the provisions of MAT are applicable is to be worked out on the basis of adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profits and gains of business and profession ignoring the fact that the provisions of section I 15 JA are substantially different from the earlier provisions u/s. I 15 J where deduction u/s.80 HHC was available on the basis of adjusted book profit. 8. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to allow set off of losses / depreciation of Tools Division of Rs.2,34,54,04,405/- on account of demerger without appreciating the fact that the entire scheme of demerger of Tools Dvision with the assessee company is not valid and is only the method designed to benefit the assessee company in order to claim the benefits of brought forward losses u/s.72 A of the Act under the guise of demerger. 9. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restore the appellant craves leave to amend or alter any ground or add a new ground that may be necessary.

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chemicals and skin care products. The assessee has filed the return of income for the A.Y 2004-05 on 28.10.2004 disclosing a total income of Rs. 3,02,91,080/- under the normal provisions of income tax and u/s 115JB of the Act Rs. 181,19,56,123/-. The return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) of the Act was issued. In compliance the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. It was brought to the notice of the Assessing Officer (A.O.) that during the F.Y 2003-04 the assessee company has amalgamated M/s Sarabhai Piramal Pharmaceuticals P Ltd with itself under the scheme of Amalgamation approved by the Hon’ble Bombay High Court. As per the amalgamation, the assets and liabilities of Sarabhai co P ltd were transferred to the assessee company w.e.f 01.04.2003. Further another company M/s Canare Activities and Fine Chemicals P Ltd(Canera) was amalgamated under the scheme of amalgamation approved by the Hon’ble Bombay High Court order dated 06.05.2004 and as per the scheme of amalgamation, all the assets and liabilities of Canera

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transferred and vested with the assessee company w.e.f 01.10.2003. In F.Y.2003-4,there was a demerger with M/s. Morarjee Gokuldas Spinning and Weaving Co. Ltd with the Canera with respect to Tools division. The A.O. has dealt on the facts of amalgamation and demerger in the Assessment order. The A.O. On perusal of the financial statements found that the assessee has claimed the deduction u/s 35(2AB) of the Act in respect of research and development expenditure, while computing the income.(i) The A.O has dealt and observed at Para 5 to 5.5 of the order and worked out the disallowance u/s 35(2AB) of the Act of Rs. 11,58,25,986/-. (ii) On second disputed issue with respect of depreciation on computers and computer software, the A.O observed that the assessee has claimed the depreciation @ 60% which is higher and the contentions raised before the A.O. that the claim is correct but the AO has restricted @ 25% rate and disallowed the excess claim of Rs.69,02,148/-.(iii) the A.O. calculated the Short term capital gains of computers of Rs.1,72,61,062/-(iv) Since the computer block of Assets ceased to exist, the depreciation claimed on computers of Rs17,57,338/- is disallowed. (v) the

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A.O. dealt on facts of deprecation on the assets merged with the assessee company in the earlier years in the scheme of amalgamation of Boehringer Mannheim Limited (BMIL) at Para 9.3 and disallowed the excess depreciation of Rs. 3,87,47,001/- as under:

9.3 Accordingly, the WDV in respect of the assets belonging to erstwhile BMIL is adjusted for the foregone deprecation for A.Y 1995-96 & 1996-97. In respect of Pharma Division take over from Piramal Holdings Ltd., also the WDV is adopted on the basis of the income tax records. Similarly, the sale by the assessee of its glass division and the bulk drug division in A.Y 1999-00 was considered by the AO to be an itemized sale of assets as against the claim of the assessee that the same was slump sale. As detailed in the assessment order of A.Y 1999-00, the block of assets is reduced by the sale value as recorded in the books of the purchasing company and continuing with the consistent stand of the earlier years, the WDV is reduced and depreciation is reworked, vide annexure-I, as per which the excess depreciation is Rs. 3,87,47,001/-.

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closing stock of Rs. 11,77,76,480/-. (vii) The A.O. find that the assessee has obtained interest bearing loan for purchase of equity and has disallowed the interest on loan of Rs.2,87,00,000/- and observed at Para 11.4 of the order read as under :

11.4 The assessee company's contentions have been considered. However, the same are found to be untenable. The aforesaid interest of Rs.2.87 crores has been incurred on the loan availed for the express purpose of acquiring the equity shares of Phone Poulenc India Limited. For the detailed reasons as discussed in the assessment orders of the assessee company for A Ys 2002-03 and 2003-04, the interest amounting to Rs.2.87 crores debited in the profit and loss account on the loan of Rs.200 Crores from ICICT Ltd which was restructured, as stated above, is held as capital expenditure and the same is hereby disallowed as the interest on loans obtained for the purpose of buying the equity shares, which is not the business of the asscssee, is not. allowable expenditure. Addition: Disallowance of interest on capital loan: Rs. 2,87,00,000/- Penalty proceedings u/s 271(1)(c) is initiated separately for concealing of particulars of income and furnishing inaccurate particulars of income. 4. The A.O. found that (viii) the assessee has claimed consultancy charges Of Rs.3,21,98,592/- in the books of accounts. The assessee has filed the details and explanations referred at para12.1 but the AO was not satisfied with the nature of the payments and observed at Para 12.3 and disallowed the claim:

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12.3 From a perusal of these details it is noticed that similar services had been rendered by these enteritis in the preceding previous year also. Considering the scope of the services rendered, it is clearly seen that the benefit accruing to the assessee company is of long term and enduring n nature. Similarly, the agreement operates for bringing long term and enduring benefit to the assessee company. The assessee company has itself debited under Exceptional Items and has treated it as non- recurring items. Further, for the detailed reasoning given in the Orders u/s. 143(3) for A.Y. 2002-03 and 2003-04, the expenditure on Consultancy Charges is treated as Capital in nature. 12.4 Accordingly, the expenditure amounting to Rs.3,21,98,592/- under the head consultancy charges is treated as capital expenditure. Additional: Consultancy charges disallowed: Rs. 3,21,98,592.

The representatives of the assessee also submitted. during the course of assessment proceedings that this issue was already discussed in detail in the assessment orders of AY 2002-03 and 2003-04, and our submissions made there under may also he considered for the current year as well. The contents of the assessee's letter filed for AY 2003-04, are reproduced here under: Vide para no. 15 of the Order u/ s. 143(3) for A . Y. 2002- 03, while completing the assessment, the A.O. has reduced our claim for depreciation in the block of building - factory /

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office (10%), by considering the entire value of the agreement for the sale of RP1L House as having been received for the previous year pertaining to A. Y. 2002-03. This has resulted in the entire sale proceeds relating to building out of Rs.84.50 crs which was to be received over a number of years, being reduced from the said block in the previous year relevant to A.Y 2002- 03. This has eventually resulted in. the said block being reduced to NIL. As per the contention of the assessee company, the transfer of RP1L House is intended to be completed in installments over a period of 4 years. Accordingly, in the previous year relevant to the current A. Y. 2003-04, the assessee company had reduced the appropriate portion of the sale proceeds from the said block. Also refer Note no. 2 of the Notes to the Computation of A. Y. 2003-04. Consistent with the stand taken by the A. O. for A. Y. 2002-03, we are now excluding the appropriate portion of the sales proceeds for the purpose of calculating depreciation on the said block. Please refer to Annexure XII submitted vide our letter dated 02.09.2005.

16.1 A perusal of the computation filed along with the return of income shows that the assessee company has declared. Income from House property in respect of rent received from RPIL House and Centre Point amounting to Rs.476.19,394 (including additional compensation received of Rs.71,92,815). It is pertinent to note here that the RPIL house has been sold off by the assessee company in the F Y 200 1 -02 relevant to A Y 2002-03 Further, the capital gains on such sale have also been declared by the

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assessee company in A Y 2002-03. As the registration of the sale of RPJL house has also been done in the previous year relevant to A Y 2002-03, the ownership of the RPIL house does not vests with the assessee company. Similarly, the assessee company had entered into a purchase agreement with Morarjee Goculdas Spinning &. Waving Co. Ltd (MOM.) for purchase of office premises at Centre Point. However, the deal did not materialize. Hence, the ownership of the office premises of centre point does not vest with the assessee company. 16.2 In view of the above, the rental income received by the assessee company from the aforesaid two premises (i.e. RPIL House and Centre point) cannot be taxed under the head Income from House Property, since the assessee company is not the owner of the said properties during the financial year 2003-04. Further, the assessee company is also not in the business of letting out of premises. Hence, the rental receipts can also not be taxed under the head Business Income. Such rental receipts can only be taxed under the head "Income from other sources". The deduction available to the assessee company would be only those which qualify u/s 57(iii) of the I T Act. The rental income of Rs.4,76, 19,394 (including additional compensation received of Rs.71,92,815) is hereby taxed as income from Other Sources. There are no expenses incurred in relation to this income and hence no deductions are allowable. Hence the entire rents received of Rs.4,76, 19,394 (including additional compensation received of Rs.71,92,815) is hereby brought to tax under the head "income from Other Sources" without allowing any deductions / expenses. Addition: Income from other sources Rs. 4,75,19,394/-.

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18.9 A plain reading of the above Explanation (iv) leads to the conclusion that what needs to he reduced from the "Book Profits" is the amount of profits biefor deduction_u/s.8OHHC. Hence, it is amply clear that only the amount which is deducted u/s.8OHHC from the Gross Total Income has to be deducted while computing the income for MAT purposes. Hence the book prcfits are to be determined by reducing the amount that is actually deductible u/s.80HHC of the Act, amounting to Rs.3,20,76653, as above. However, since the regular income as determined in the order is more than the income determinable u/s.i 115JB, the assessment is completed by adopting the regular income.

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The submissions of the appellant and the contentions made by the AO in the assessment order were duly considered. It is also observed that the appellant has filed an application for rectification u/s. 154 of the I.T. Act. However, the contentions put forth by the appellant were not disposed off by the AO. The AO is directed to restrict the disallowance to Rs.5,11,35,563/- after necessary verification as specifically brought out in the contentions of the appellant. Further, the AO is also directed to delete the disallowance of excess depreciation amounting to Rs.45,10,098/- of the current year and Rs.53,2501- on the opening written down value(WDV). In the result this ground of appeal is allowed for statistical purpose. We find the Ld.AR has filed the working of disallowance U/sec35(2AB) of the Act which explains the nature of expenditure, actual expenses debited to profit &loss account, claim made in the return of income and the assessee claim before the DSIR and the revised claim. The workings tally with the net disallowance restriction directed by the CIT(A) to A.O. The Ld. DR could not controvert the above findings of restoration to the file of

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A.O. and we do not find merit in this ground of appeal of the revenue and is dismissed.

The submissions of the appellant as well as the contentions of the AO were duly considered. After giving due consideration I am of the opinion the computer software is different from Computer and the rate of depreciation should be 25% as held by the A.O. However, since the appellant had claimed only 17,67,338/- as depreciation, the disallowance should be restricted to Rs. 17,67,338/-. In the result this ground of appeal is partly allowed.

The Ld.AR submitted that the CIT(A) in fact has upheld the A.O. decision and whereas the Honble ITAT in the Assessee own case in A.Y.2010-11 in ITA no.1754&1832 /Mum/2015 dated 15-01-2010 has observed that the computer software is eligible for depreciation @60%. We find there is nothing remains in the ground of appeal as it become in fructuous due to grant of higher depreciation on software and the ground of appeal of the revenue is dismissed.

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Ground No. V Disallowance of excess depreciation : Rs. 3,87,47,001 In ground of appeal No. V, it is contended that the A.O erred in computing depreciation allowable in respect of assets of Boehringer Mannheim India Ltd (BMIL) merged with the appellant and the assets of the pharma division taken over from Piramal Holdings Limited (PHL) in a manner different from the one calculated by the appellant. It is further contended that the AO erred in reducing from the block of assets the sale value as recorded in the books of purchasing company pertaining to Glass division and Bulk division sold in AY 1999-2000 on slump sale basis on the alleged ground that the AC has considered it as sale of itemized sale of assets. I have duly considered the issue. The issue is recurring one. In earlier years the AO had worked out WDV as on 31.03.1996 as if the depreciation for the assessment years 1995-96 and 1996-97 were notionally allowed by BMIL which had not opted to claim depreciation on its assets for AY 1995- 96 and 1996-97 MY learned predecessors in earlier assessment years have directed the A) to allow depreciation on the basis of the computation made ky the appellant and not to reduce the WDV on the basis of notional amount of depreciation. Respectfully

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following the orders of my learned predecessor, the AO is directed to allow the depreciation as claimed by the appellant in respect of assets of BMIL. In the case of PHL the said concern had not claimed depreciation for AY 1996- 97. The depreciation was thrust upon the A.O. My learned predecessor had held that the A.O. was not justified to thrust upon the depreciation. In view of this decision of my learned predecessor and the decisions of my learned predecessors in the case of the appellant itself for A. Yrs. 1997- 98, 1998-99, 1999-200, 2000-01, 2001-02 ,2002- 03,and 2003- 04, the A.O. is directed that the depreciation not claimed by BMIL and M/s. PHL should not be considered for the purpose of working out the WDV and consequently allowing depreciation thereon. In the result this ground of appeal is allowed. Further we find in the assessee’s own case for the A.Y 1997-98 to 2003-04 & 2009-10 to 2010-11, the Hon’ble Tribunal has decided the issue in favour of the assessee In ITA no1754/Mum/2015 for the A.Y 2010-11 at Para 18 to 20 of the order read as under: 18. The next issue that came up for our consideration from ground No.5 of assesee appeal is disallowances of claim of depreciation pertaining to BMIL and PHL of Rs. 94,43,089/-. The Ld. AR for the assessee submitted that this issue is covered in favour of the assessee by the decision of ITAT for AY 2008-09 and 2009-10, where under identical set of facts, the Tribunal has allowed the claim of the depreciation pertaining to BMIL and PHL units. The Ld. DR, on the other hand, fairly accepted that the issue is squarely covered in favour of the assessee by the decision of Tribunal for earlier

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years. But, he strongly supported order of the Ld.AO, as well as the Ld. DRP.

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of CIT Vs. Mahendra Mills (2000) 159 CTR (SC) 381, had concluded that in the absence of a claim of depreciation by the assessee, the same could not have been thrust upon it even if the particulars were available with the AO. We have perused the order of the Tribunal for A.Y. 2008-09 and finding no reason to take a different view, respectfully follow the same. Apart there from, we are also in agreement with the ld. A.R that now when the DRP while disposing off the objections filed by the assessee had specifically directed the A.O to allow claim of depreciation as was raised by the assessee in respect of BMIL, therefore, there was no reason for the A.O to have not followed such directions while passing the final assessment order u/s 143(3) r.w.s 144C(13), dated 28.01.2014. In terms of our aforesaid observations, we direct the A.O to allow the assesses claim of depreciation insofar the assets of BMIL are concerned.

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As observed hereinabove, the A.O declined to accept the claim of the assessee that it was a „slump sale‟ transaction and considered the same as an itemised sale of assets. On the basis of his aforesaid observations, the A.O worked out the WDV of the „block of assets‟ by taking the values of the assets as were recorded in the „books of accounts‟ of the purchasing company, as the sale value, and reduced the same from the different „block of assets‟. In the backdrop of his aforesaid reworking of the WDV the A.O scaled down the assesses claim of depreciation in respect of assets of PHL.

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allowed depreciation as claimed by the assessee on BMIL and PHL units.

We find the Honble Tribunal has considered the facts, provisions of the Act and judicial decisions and directed the A.O. to allow the depreciation. In the present case the facts are identical and CIT(A) has relied on the earlier years decision and granted the relief. We rely on the decision of the Honble Tribunal and findings of the CIT(A) and up held the same as decided in favour of the assessee. Accordingly we dismiss this ground of appeal of the revenue.

6.I have duly examined the issue and have studied the submissions made by the Appellant and am of the view that the new method adopted by the AO is totally illogical and have no basis. This method is not as per any provisions of law or any guidelines provided. This issue of applicability of section 145A is a recurring issue and has been considered by my learned predecessors in A.Y. 2003-04. Following the same and accordingly, I direct the A.O. to restrict the disallowance to net unutilized modvat credit after doing

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necessary rectification as pointed out by the Appellant in rectification application. In the result this ground of appeal is partly allowed.

Further we found that the Hon’ble Tribunal has decided the issue and dealt in the assessee’s own case for the A.Y 2002-03 2003-04,2009-10&2010-11.The Honble Tribunal in ITA no.4000/Mum/2007 &others for A.Y.2003-04 dated 5-10-2021 has observed at page 11 Para 11 to 11.2 as under.

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assessee, without prejudice, claimed that the amount which was added to the closing stock in A.Y.2001-02 on similar lines as above i.e. Rs.86.56 lakhs should be allowed as part of the opening stock in A.Y.2002-03. This claim of the assessee was allowed by the ld. AO by increasing the opening stock to the extent of Rs.86.56 lakhs and the net addition on account of unutilised MODVAT credit was made by the ld. AO at Rs.66,27,443/-. This action of the ld. AO was upheld by the ld. CIT(A). We find that this issue was the subject matter of adjudication by this Tribunal in assessee’s own case for A.Y.2009-10 in ITA Nos.1257/Mum/2014 & 1486/Mum/2014 dated 07/05/2019 wherein it was held as under:- “Adjustment of Inventory as per Sec. 145A : Rs. 1,16,08,088 21. We shall now advert to the contention of the ld. A.R that the A.O/DRP had erred in re-computing the value of the “closing stock‟ at Rs. 15,982.73 lacs as against Rs. 14,834 lacs and “opening stock‟ at Rs. 14,367.65 lacs as against Rs. 13,335 lacs, on the ground that the assessee is following exclusive method of accounting for MODVAT with regards to its inventory. It is the claim of the ld. A.R that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT shall have no bearing on the profits of the assessee. We find that the assessee had before the lower authorities objected to the aforesaid addition as was sought to be made by the A.O on three counts viz. (i) that requirement of valuing the purchases, sales and inventories for the purpose of determining the income under the head “Profits and gains of business or profession” was contrary to the accounting principles laid down by Accounting Standard-2 (for short “AS-2”); (ii). that the ICAI had issued “Guidance Note on Tax Audit under Section 44AB of the I-T Act”, which specifically requires the formats in which information as regards the valuation of purchases, sales and inventories under both inclusive and exclusive method are to be presented, and the same provides that irrespective of the methods being followed, the net impact on the profit and loss will be nil; and (iii). that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized

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MODVAT credit will have no impact on the profits of the assessee. Apart there from, the assessee had also objected to the calculation of the “closing stock‟ and „opening stock‟ by the A.O by multiplying the stock value by the ratio of purchases (including excise) and purchases (net of excise). It is further averred by the ld. A.R that insofar the valuation of inventories as per Sec. 145A was concerned, the raw material, packing material, stores and works-in-progress was valued at cost, while for the finished goods were valued at cost or net realisable value, whichever was lower. In fact, it is the claim of the assessee that the „cost‟ has consistently been taken at net of MODVAT credit. On the basis of the aforesaid facts, it is stated by the assessee that the element of MODVAT was neither included in the consumption nor into cost for valuation of „closing stock‟. As such, it is the claim of the assessee that as it has debited its „profit & loss a/c‟ with purchases of raw material net of MODVAT Excise duty, therefore, the valuation of „closing stock‟ of raw material was also made at cost net of such excise duty. In sum and substance, it is the claim of the assessee that the costs which have not been debited to the profit and loss account at all, cannot be used for valuation of „closing stock‟. On the basis of its aforesaid submissions, it is the claim of the assessee that the deviation on the profit of the year on account of method of valuation prescribed under Sec. 145A is Rs. Nil, which formed part of the tax audit report as “Annexure B‟. 22. We have deliberated at length on the issue under consideration and find that the assessee for the purpose of its statutory accounts had followed the AS-2 on Valuation of Inventories, and the Guidance Note on Accounting Treatment of MODVAT/CENVAT issued by the ICAI. Accordingly, the assessee had followed the exclusive method for accounting purposes. However, for the purposes of incometax it had worked out the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by including inter alia the CENVAT credit. The adjustment required u/s 145A of the I.T Act was reflected in Clause 12(b) of the tax audit report of the assessee. As per Clause 12(b) the adjustment u/s 145A worked out at Nil. It is the claim of the assessee that the amount

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reflected in Clause 12(b) of the tax Audit report shall be treated as the adjustment required u/s 145A, and in support thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum). We have perused Clause 12(b) (Page 61 of „APB‟) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the „due date‟ of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes.” 5.2. Respectfully following the same, we deem it fit and appropriate, to remand this issue to the file of the ld. AO to decide the same in the light of directions issued by the Tribunal for the A.Y.2009-10 . Accordingly, the Ground No. II raised by the assessee is allowed for statistical purposes”. 11.2. The workings for the MODVAT credit are enclosed in pages 161-164 of the paper book filed by the assessee. Respectfully following the aforesaid decision, we restore this issue to the file of the ld. AO to decide the same in the light of directions issued by this Tribunal for A.Y.2009-10. Accordingly, the ground No. I raised by the assessee is allowed for statistical purposes.

We fallow the judicial precedence and uphold the decision of the CIT(A) and duly supported by the Honble Tribunal decisions ,Accounting Standard 2 of ICAI, Guidance note and the Ld.AR elaborate submissions on

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the point of dispute and we do not find merit in the ground of appeal raised by the revenue and is dismissed.

Disallowance of consultancy charges: Rs. 3,21,98,592/- Similar issue was involved in earlier years and while passing the Appellate orders for A.Y. 2002-03 and A.Y. 2003-04 it was held that the payment made to Mckinsey and Company is revenue expenditure and allowable deduction u/s. 37. In the result this ground of appeal is allowed. 16. We find that the similar issue has been decided in the assessee favour by the Honble Tribunal in ITA no.4000/Mum/2007 & others for A.Y.2003-04 dated 5- 10-2021 at page 37 Para 13 to 13.2 read as under:

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matter of adjudication by this Tribunal in assessee‟s own case in ITA No.3927/Mum/2006 dated 20/02/2020 for A.Y.2002-03 wherein it was held that assessee would be eligible for deduction ITA No.4000/Mum/2007 & 4345/Mum/2007 M/s. Piramal Enterprises Limited 38 u/s.37(1) of the Act. We find that the ld. CIT(A) had merely placed reliance on the decision of his predecessor in A.Y.2002-03 and directed the ld. AO to allow deduction u/s.35DD of the Act in respect of the subject mentioned payment. We find that this Tribunal had directed the ld. AO to allow deduction u/s.37(1) of the Act by observing as under:-

“7.1. We have heard rival submissions and materials available on record. We find that under the head legal and professional fees, the assessee had claimed deduction in respect of payments made to Accenture in the sum of Rs.522.97 Lakhs. The assessee submitted that payment of Accenture was mainly pertaining to successful integration of RPIL with the assessee company. The assessee submitted that this expenditure has been incurred on the grounds of commercial expediency allowable as deduction u/s.37(1) of the Act. The ld. AO however, disregarded the contentions of the assessee and disallowed the claim of the assessee by treating it as capital expenditure. The ld. CIT(A) however, observed that since this expenditure had been incurred pursuant to amalgamation of RPIL with assessee company, the same would fall within the ambit of provisions of Section 35DD of the Act and accordingly only 1/5th of the said expenditure would be eligible for deduction. Against this action of the ld. CIT(A) both assessee as well as the revenue are in appeal before us.

7.2. We find that the genuinity of incurrence of this expenditure by way of making payment to Accenture in the total sum of Rs.522.97 lakhs is not in dispute. We find that the payment was made by the assessee to Accenture based on agreement which mandated Accenture to assess in the integration of RPIL with the assessee. As per the agreement, the NPIL management had requested Accenture to submit a proposal to ensure the realization of further value to the group through the proposed integration between NPIL and RPIL. Thus, team of Accenture consultants had conducted a detailed pre-proposal study spanning over five weeks to revive NPIL and RPIL operations with a view to identify synergy and cost reduction opportunities across the merged entity. A preliminary assessment of various opportunities identified with a focused profit improvement initiation could potentially yield in which recurring benefits

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of about Rs.20 to 30 Crores in the short and medium term. From the aforesaid scope of services to be rendered by Accenture, it could be seem that Accenture had purely rendered professional services by way of pre- proposal study to understand the viability of the merger by integrated operations of RPIL with NPIL and the resultant profitability that the resultant merged entity would derive in short to medium term. Hence, it is a clear case of simple professional services rendered by Accenture to the assessee which at any cost cannot be considered as a capital in nature. We find that the said expenditure has to be considered as wholly and exclusively as deduction u/s.37(1) of the ITA No.4000/Mum/2007 & 4345/Mum/2007 M/s. Piramal Enterprises Limited 39 Act. We hold that the provisions of Section 35DD of the Act as alleged by the ld. CIT(A) cannot be made applicable in the instant case as admittedly the same only refers to expenses incurred pursuant to amalgamation. Hence, we direct the ld. AO to grant deduction of the said expenditure u/s.37(1) of the Act. Accordingly, the ground Nos. IV and IV(i) raised by the assessee are allowed and Ground No.4 raised by the revenue is dismissed.”

13.2. Respectfully following the same, the ground No.III raised by the assessee is allowed.

The Ld.DR fairly accepted the decision of the Honble Tribunal in the earlier years . We find the Ld.AR relied on the order of the ITAT on the claim of consultancy charges as discussed and judicial decisions in support of his submissions. Accordingly, we uphold the decision of the CIT(A) in allowing the claim of the assesee and dismiss this ground of appeal of the revenue.

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the head IFHP instead as IFOS. We find the CIT(A) has dealt at page 23 Para 11 of the order as under:

Similar ground had arisen in A.Y. 2002-03 and 2003-04 wherein my predecessor had held that income earned from RP House property is assessable as "Income form Other Sources" since ratio of the decision of the Supreme Court in case of Podar Cement was not applicable to the present case. Following the same for the year under consideration, this ground is dismissed. Further, as regard to Centre point my predecessor had held that income is chargeable under the head "Income form House property" and had directed the A.O. to grant appropriate deduction u/s 24 (a) in accordance with law. Following the same, this ground of Appeal is partly allowed.

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in A.Y. 2002-03, the ownership of the said property does not vest with the assessee company. Similarly, the assessee company had entered into a purchase agreement with Morarjee Goculdas Spinning and Weaving Co. Ltd, (MGM) for purchase of office premises at Centre Point, which duly did not materialize. Hence, the ownership of the said premises does not vest with the assessee company. In view of the same, the ld. AO proceeded to treat the rental income received on letting out of the aforesaid property to be taxed sources‟ under the head „income from other by consequentially denying 30% standard deduction u/s.24(a) of the Act. The ld. AO however, observed that assessee would be eligible only for deduction that qualify u/s.57(iii) of the Act.

19.2. The ld. CIT(A) upheld the action of the ld. AO in respect of treatment of rental income from RPIL house as income from other sources. However, with regard to rental income derived from Centre Point, he directed the ld. AO to treat the rental income as „income from other house property‟ and grant statutory deduction in terms of Section 24(a) of the Act. Against this direction, the revenue is not in appeal before us. We find that the ownership of the RPIL House vests with the assessee for four years and hence, assessee continued to be the owner of the part premises of RPIL House and hence, the rental income thereon should be assessed only under the head „income from house property‟ and assessee would be entitled for statutory deduction @30% u/s.24(a) of the Act for the same. Accordingly, the ground No. IX raised by the assessee is allowed.

We find the Honble Tribunal has held that the transfer of ownership has to be completed over a period of 4 years and therefore the assessee continues to remain

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the owner of part property of the RP House. Further it was decided that the income from RP House and Centre Point is assessable as Income From House Property. The Cit(A) has considered the factual aspects and made a reasonable observations and granted the relief. We find the revenue could controvert on the findings of the CIT(A) on this disputed issue. Accordingly,we fallow the judicial precedence of ratio of the ITAT decision and dismiss the ground of appeal of the revenue.

My predecessor had decided the similar issue in earlier year A.Y. 2003-04 wherein he had followed the decision of the Special Bench in case of Syncome Formulations India Limited and others (108 TTJ 105) (MUM) (SB) and has directed the AO to deduct profits eligible u/s 80HHC and not the deduction u/s 80HHC from book profit for the calculation of book profit u/s 115JB of the Act. Following appellate order for the earlier year, I allow this ground of Appeal. 20. Further we find that in the assessee’s own case for the A.Y 2003-04, the Hon’ble Tribunal has allowed the assessee’s ground of appeal in ITA no.4000/Mum/2007

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& others for A.Y.2003-04 dated 5-10-2021 has observed at page 6 Para 4&4.1 as under:

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Court had held that deduction u/s.80HHE had to be worked out on the basis of adjusted book profit u/s.115JA of the Act and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. Respectfully following the same, we do not find any infirmity in the order passed by the ld. CIT(A). Accordingly, the ground No.1(b) raised by the Revenue is dismissed. The Ld.AR supported the submissions relying on the decision of the Honble ITAT and judicial decisions. We find the CIT(A) has relied on the Special Bench decision, facts and provisions and directed the A.O. to deduct eligible profits while calculating the Book Profits U/sec115 JB of the Act .We find the Honble Tribunal in A.Y.2003-04 has affirmed the action of the CIT(A) in granting relief to the assessee. Accordingly, for the present year, we do not find merits in this ground of appeal raised by the revenue and is dismissed.

After careful consideration of the provisions of Sec. 72A, the demerger order passed by the Bombay High Court as well as the facts and circumstances of the case, I am of the considered opinion that the AO has erred in interpreting the

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provisions of Sec. 72A(4)and tried to apply conditions pertaining to amalgamations which is distinctly different from the demerger issue as claimed by the appellant. As a result I hold that the losses/depreciation of the tools division, on account of demerger is allowable in the hands of the appellant. This ground of appeal is therefore allowed.

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pursuant to such amalgamation, all the assets and liabilities of GBDFC as on the date of amalgamation got vested with the assessee company with effect from the appointed date. Hence on the date of amalgamation, what is to be seen is whether GBDFC had accumulated losses in its kitty or not, along with other assets and liabilities. It is not in dispute that GBDFC had accumulated losses in the form of unabsorbed business losses and unabsorbed depreciation on the date of amalgamation with assessee. It could not be brushed aside that the assets and liabilities on the date of amalgamation together with the details of losses available thereon in the hands of GBDFC was duly placed before the Hon‟ble Bombay High Court along with the scheme of amalgamation while seeking approval. We hold that once the scheme of merger was duly approved by the Hon‟ble High Court having in mind the larger public interest, the same cannot be disturbed by the Revenue by merely alleging that the merger was done only to buy losses and it was done only as a measure of colourable device. It is also pertinent to note that scheme of amalgamation when it goes for approval before the Hon‟ble Bombay High Court, Union of India is made a party to the said scheme, which means all the Central Government regulatory authorities had a right to raise objections to the scheme of merger before the Hon‟ble High Court. In the instant case, Income Tax department which is part of Union of India had not filed any objections before the Hon‟ble High Court objecting to the merger. No evidence has been brought on record by the ld. DR before us in this regard. Hence, the department cannot object to the same at this point of time while implementing the said order of merger. We find that the scheme of amalgamation approved by the Hon‟ble Bombay High Court had to be understood and looked into in a holistic way. It would be just and fair to believe that the scheme of amalgamation would be approved by the Hon‟ble High

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Court only after ensuring that the same is not prejudicial to the interests of its members or to public. Hence, it could be safely inferred that the Hon‟ble Court would exercise due diligence and would conduct detailed enquiries before sanctioning the claim. The fact that the Hon‟ble Bombay High Court had accorded the sanction of the scheme of amalgamation in the assessee‟s case implies that the same had been done by considering the representations from the various fields and by duly considering the tax evasion point for income tax purposes. In this regard, it would be relevant to note the observations made by Shri A. Ramaiya in the Companies Act part 2 at pages 2499 and 2500 in point No.6 incorporated hereunder:- “That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to the public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same.” 7.1. We also find that the Hon‟ble Madras High Court in the case of Penta Media Graphics Ltd. vs. ITO reported in 236 CTR 204 had categorically held that once the merger scheme had been sanctioned with effect from the particular date by the Hon‟ble Court, it is binding on everyone including the statutory authorities. Similar is the view rendered by the Hon‟ble Jurisdictional High Court in the case of Casby CFS (P) Ltd., In Ra reported in 231 Taxman 89 (Bom) dated 19/03/2015. 7.2 Further, we also find that the Hon‟ble Supreme Court in the case of J.K.(Bombay) P. Ltd., vs. New Kaiser-I- Hind Spinning Weaving Company reported in AIR 1970 AIR 1041 had held as under:-

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“The principle is that a scheme sanctioned by the court does not operate as a mere agreement between the parties; it becomes binding on the company, the creditors and the shareholders and has statutory force, and therefore, the joint-debtor could not invoke the principle of accord and satisfaction. By virtue of the provisions of sec. 391 of the Act, a scheme is statutorily binding even on creditors, and shareholders who dissented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and the creditors acquiesce in such alteration.” 7.3. We find that the aforesaid observations of Hon‟ble Supreme Court had been followed in yet another decision by the Hon‟ble Bombay High Court in the case of Sadanand Varde vs. State of Maharashtra reported in 247 ITR 609 wherein it was held that Once a scheme becomes sanctioned by the court, it ceases to operate as a mere agreement between the parties and becomes binding on the company, the creditors and the shareholders and has statutory operation by virtue of the provisions of Section 391 of the Companies Act.” 7.4. The said judgment of Hon‟ble Bombay High Court further provided that an appeal, if any, against the order of amalgamation lies u/s.391(7) of the Companies Act 1956 and the same cannot be agitated in any collateral proceedings. The relevant extract of the said judgment is reproduced hereunder:-

“We are of the view that the amalgamation, which has become final and binding, cannot be permitted to be challenged by the petitioners, without locus standi, in a

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collateral proceeding in the present writ petition. An amalgamation order can only be challenged under the Companies Act by an appeal under Section 391(7) by any one of the parties, but no such appeal was ever filed.”

7.5. The ld. DR before us was not able to point out whether any appeal u/s.391(7) of the Companies Act, 1956 against the order of amalgamation sanctioned by the Hon‟ble High Court, had been preferred by the Income Tax department. In view of the aforesaid observations, the ld. DR cannot object to the scheme of amalgamation approved by the Hon‟ble High Court in the garb of calling the entire arrangements carried out by the assessee as a colourable device.

7.6. Having observed so, it would be relevant to address the next crucial aspect as to whether the assessee had complied with the provisions of Section 72A of the Act r.w.rule 9C of the Rules which alone would enable it to get the benefit of set off of accumulated losses of amalgamating company in addition to the scheme of merger approved by the Hon‟ble Bombay High Court. We find that Section 72A(2) of the Act as it stood then as is relevant to A.Y.2003-04 stipulated fulfillment of 3 conditions. For the sake of ready reference, the relevant provisions of Section 72A(2) as applicable for A.Y.2003-04 are reproduced as under:- “(2) Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company- (i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) continues the business of the amalgamating company for a minimum period of five years

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from the date of amalgamation; (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose.”

7.7. There is absolutely no dispute that assessee in the instant case had fulfilled all the three conditions cumulatively. There is absolutely no dispute that assessee has also fulfilled the requirement stipulated in Rule 9C of the rules by using minimum 50% of installed capacity of amalgamating company within a period of four years and which fact should also be supported by a certificate from a Chartered Accountant in Form No.62. A certificate from an Accountant in the Form No.62 is enclosed in page 76 of the factual paper book. We also find that assessee in the instant case had duly specified the commercial rationale beyond doubt which goes to prove the complete revival of GBDFC. This fact is also reiterated in the “FINANCIAL EXPRESS” news paper on 29/11/2002 Mumbai edition which date happens to be prior to the date of amalgamation. In other words, the said intention behind merger of GBDFC with assessee company, by exploiting the business prospects and inherent networking advantages of GBDFC, which was reported in the news paper on 29/11/2002 stood ratified and strengthened by the subsequent act of the assessee by fully utilizing the resources of GBDFC. At this juncture, we are conscious of the fact that the income tax dispute cannot be determined based on newspaper reports. But in the instant case, the facts stated in the newspaper reports stood subsequently ratified by the actual events that had taken place post merger. We are completely in agreement with the argument advanced by the ld. AR that since assessee was not in control of the operations of GBDFC prior to the merger including the sale of ibuprofen

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undertaking on 01/11/2002 by way of slump sale, the assessee cannot be held responsible for the same. The act of GBDFC prior to merger, to sell any of its undertaking to its sister concern Alpex for a paltry consideration is of absolutely no relevance to the assessee company herein. In view of the aforesaid observations, we hold that the ld. CIT(A) had rightly directed the ld. AO to allow set off of losses of amalgamating company in the hands of the assessee. Accordingly, ground No. 1(d) raised by the revenue is dismissed. The Ld.DR fairly accepts the decision of the Honble Tribunal. The Ld.AR substantiated the submissions with the legal decisions, facts and ITAT order. We find the Ld.CIT(A) has distinguished the facts and directed the A.O. to allow losses/ depreciation of Tools division to the assessee and we fallow the earlier year decision of the Honble ITAT and uphold the decision of the CIT(A) and dismiss this ground of appeal of the revenue.

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ITA No. 769/Mum/2008, A.Y 2004-05

GROUND I: Disallowance of depreciation on computer software: Rs. 17,57,338/- 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - XIX ("the CIT (A)") erred in upholding the action of the Additional Commissioner of Income Tax, Circle 7(1), Mumbai ("the AO") in recalculating depreciation on computer software @ 25% instead of @ 60% as claimed by the Appellant and thereby disallowing depreciation to the extent of Rs. 17,57,338/- on the alleged ground that computer software is different from computers. 2. He failed to appreciate and ought to have held that software purchases are for upgrading the computers and for using computers with latest technology and hence the purchases are wholly and exclusively related to use of the computers and hence are correctly shown as additions under the head computers and depreciation @ 60% is allowable on the same. 3. The Appellant, therefore prays that, depreciation on computer software be allowed 60% as correctly claimed by the Appellant. GROUND II:

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Short term capital gain on sale of computers: 1. On the facts and in the circumstances of the case and in law, CIT (A) erred in confirming the action of the AO of calculating short term capital gain of Rs.1,72,61,062/- on sale of computers by segregating computers and computer software as two different blocks and then reducing sale value of computers from total block of computers. 2. The Appellant prays that AO be directed to treat computer and computer software under one block namely computers and after which there will not be any capital gain as calculated by the AU. GROUND III: Disallowance u/s 145A: 1. On the facts and circumstances of the case and in law, CIT (A) erred in confirming the action of the AO of making an addition in respect of unutilized MOD VAT credit u/s. 145A of the Income Tax Act, 1961 ("the Act"). 2. He failed to appreciate and ought to have held that irrespective of whether the Appellant follows gross or net method of valuation of stock, the amount of unutilized MODVAT credit has no impact on the profits of the Appellant. 3. The appellant prays that the addition in respect of unutilized MODVAT credit be deleted. GROUND IV: Disallowance of interest on loan taken for purchase of Equity: Rs.2,87,00,000I- 1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in disallowing interest expenditure amounting to Rs.2.87 crores paid to various Banks on the alleged ground that the payment was made for a loan which was utilised for acquiring a capital asset and accordingly amount expended

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was capital in nature. 2. He failed to appreciate and ought to have held that: Loan from various Banks was obtained for acquiring business of Rhone Poulenc India Limited ("RPIL"), which is a pharma company, the Appellant has benefited from economies of scale, extension of geographical reach, improved logistics management, benefits from common procurement resulting in lower cost of manufacturing, achieving better cost efficiency, etc. ii. The Appellant had fulfilled all the conditions mentioned in section 36(1)(iii) and as laid down in judicial pronouncements. As per provisions of section 36(1)(iii) as was applicable to the year under appeal, interest paid on capital borrowed for the purpose of the business should be allowed irrespective of whether it was utilised for acquiring revenue asset or capital asset. 3. The Appellant therefore prays that aforesaid disallowance of interest charges made by the AO be deleted. GROUND V: Capital Gain on sale of RP House property: Rs.2,45,44,7681- On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO of not reducing Long Term Capital Gain of Rs.2,45,44,768/- arising on proportionate sale of Rhone Poulenc ("RP") House Property being land from the Return of Income on the protective basis. 2. The Appellant prays that A.O be directed to reduce Long term Capital Gain of Rs.2,45,44,768/- from the Return of Income. GROUND VI:

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Depreciation on RP House Property building: On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in not allowing depreciation on proportionate sale of Building by reducing entire sale proceeds related to Building and thereby reducing the said block to NIL in the previous year 2001-02. 2. The Appellant prays that A.O be directed to allow depreciation on Building by reducing only appropriate portion of sale proceeds from the said block. GROUND VII: Treating Rental Income from RPIL House as "Income form other sources" Rs.4,76,1 9,394/- On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the A.O of treating the Rental Income from Rhone Poulenc India Limited ("RPIL") as 'Income from Other Sources' instead of 'Income from House Property' as offered by the Appellant on the alleged ground that the Appellant is not the owner of the property and thereby denying the deduction of 30% of the annual value u/s. 24(a) of the Act. 2. He failed to appreciate and ought to have held that: the rental income is received from the proportionate portion of the property of which, the appellant was the owner for the year under consideration. ii. The Supreme court has held in the case of CIT v. Podar cement P. Ltd. (226 ITR 625) that "Owner" is a person who is entitled to receive income from the property in his own right. 3. The Appellant therefore prays that the A.O be directed to treat the Rental Income from above property as 'Income from House Property' and thereby allow the deduction u/s.

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24(a) of the Act. GROUND VIII: Additional ground of Appeal: On the facts and circumstances of the case and in law, the CIT(A) erred in not admitting the additional ground raised by the Appellant during Appellate proceedings as regard to taxability of gain on repayment of Sales Tax deferral Loan amounting to Rs.6,08,34,568/ 2. The Appellant prays that the aforesaid receipt be treated as capital receipt or be set aside to the file of the A.O to decide afresh in accordance with law. GROUND IX: The Appellant craves leave to add to, alter or amend the above Grounds of Appeal.

The submissions of the appellant as well as the contentions of the AO were duly considered. After giving due consideration I am of the opinion the computer software is different from Computer and the rate of depreciation should be 25% as held by the A.O. However, since the appellant had claimed only 17,67,338/- as depreciation, the disallowance should be restricted to Rs. 17,67,338/-. In the result this ground of appeal is partly allowed.

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strongly supported the findings of the Ld. AO, as well as the Ld.DRP.

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Further, as observed hereinabove, the assesses claim of depreciation on software expense @ 60% which was allowed by the CIT(A) had also been accepted by the revenue and the same had also not been carried any further in appeal before the Tribunal. In terms of our aforesaid observations, we are of the considered view that the assessee had rightly claimed depreciation on computer software @ 60%. We thus set aside the order of the CIT(A) in context of the issue under consideration and vacate the disallowance of Rs.17,63,425/- made by the A.O on the said count. The Ground of appeal No. III is allowed. Disallowance of claim of depreciation on assets of BMIL and PHL : Rs. 68,75,396/- :

“The appellant had relied on submissions made in ground of appeal no. 2 andhas requested to treat computer and computer software under one block namely computers and after which there will not be any capital gain as caliculated by the A.O

I have considered this issue in ground No. 2 wherein I have held that computer software is different from computers and the rate of depreciation should be 25% as correctly applied

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by the AO and hence action of the AO of calculating aforesaid capital gain is correct and hence I confirm the action of the AO of making addition of Rs. 1,72,62,062/- on account of capital gain. In the result this ground of appeal is dismissed.” 29. We are of the opinion that the matter needs to be examined verified. Accordingly we direct the A.O to allow depreciation @ 60% rate after due verification and recomputed the computer and computer software as on block &WDV and allow ground of appeal for statistical purpose.

I have duly examined the issue and have studied the submissions made by the Appellant and am of the view that the new method adopted by the AO is totally illogical and have no basis. This method is not as per any provisions of law or any guidelines provided. This issue of applicability of section 145A is a recurring issue and has been considered by my learned predecessors in A.Y. 2003- 04. Following the same and accordingly, I direct the A.O. to restrict the disallowance to net unutilized modvat credit after doing necessary rectification as pointed out by the Appellant in rectification application. In the result this ground of appeal is partly allowed.

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12(b) of the tax Audit report shall be treated as the adjustment required u/s 145A, and in support thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum). We have perused Clause 12(b) (Page 61 of „APB‟) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the „due date‟ of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes.

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restore the issue to the file of the Asseessing officer on similar directions and allow the ground of appeal for statistical purpose.

Ground No VII Disallowance of interest on loan taken for purchase of Equity Rs 2,87,00,000/- In this ground, the Appellant has contended that the AO has erred in disallowing interst expenditure amounting to RS. 2.87 crores paid to various banks on the ground that the payment was made for a loan which was utilized for acquiring a capital asset and accordingly, amount expended was capital in nature. This issue has come up for decision in the case of Appellant for A.Y. 2002-03 and 2003-04 wherein my predecessor had confirmed the disallowance. Accordingly, following the decision of the earlier year, I confirm the disallowance for this year also. In the result this ground of appeal is dismissed.

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for acquisition of the asset till the date on which such asset was first put to use , shall not be allowed as deduction. We find that this proviso in any case would not be applicable for the year under consideration as the same was introduced in the statute only with effect from Asst Year 2004-05 and not applicable for earlier years. 6.11. We find that the ratio laid down by the Hon'ble Supreme Court in the case of S.A. Builders v CIT reported in 288 ITR 1 would be squarely applicable to the facts of the instant case. In the said case, the Hon’ble Apex Court held as under: "In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(l)(iii) because in Section 37 also the expression used is "for the purpose of business". It has been consistently held in the decisions relating to section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Thus in Atherton Vs. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not necessity and grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business. The above test in Atherton's case [1925] 10 TC 155 (HL) has been approved by this court in several decisions, e.g. Eastern Investments Ltd. Vs. CIT [1951] 20 ITR 1, CIT Vs. Chandulal Keshavlal and Co. [1960] 38 ITR 2 601 etc. 26. The expression "Commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet it is allowable as a business

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expenditure if it was incurred on grounds of commercial expediency. [Emphasis Supplied] 6.12. We hold that the payment of prepayment charges also partakes the character of interest . We find that there cannot be any iota of doubt that the entire transaction of acquisition of business assets by the assessee has been done on the grounds of commercial expediency and hence the entire interest payment of Rs 27.11 crores and prepayment charges of Rs 8.62 crores would be squarely allowable as deduction u/s 36(1)(iii) of the Act itself. Accordingly, the Ground No. III raised by the assessee is allowed.” 12.1. Respectfully following the same, the ground No. II raised by the assessee is allowed. 35. The Ld.AR submits that if the barrowed funds are used for investment in shares held for controlling interest, interest is allowable U/sec36(1)(iii) of the Act and such expenditure is incurred out of commercial expediency and relied on the catena of the legal decisions. We find the CIT(A) has fallowed the assessee own case for A.Y.2002-03 &2003-04 and confirmed the disallowance of interest. Further on appeal by the assessee to the Honble Tribunal, for both the assesseement years , The ITAT has decided in favour of the assessee as per the observations discussed in the above paragraphs. The Ld.DR has accepted the decisions of the Honble Tribunal. Accordingly, we set

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aside the decision of the CIT(A) on this disputed issue and direct the assessing officer to delete the disallowance of interest and allow the ground of appeal.

In this ground, the Appellant has contended about not reducing long term capital gain arising out of proportionate sale of Rhone Poulenc House and taxing the same on protective basis. Similar issue was decided in earlier years i.e. A.Y. 2002-03 and 2003-04 wherein my predecessor had held that there is no illegality in taxing the proportionate amount of capital gain on protective basis. Further, in this action, no prejudice is caused against the Assessee. Accordingly, following the decision in earlier years, this ground is dismissed.

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Disallowance of depreciation on RP house property: This ground is regarding not allowing depreciation on proportionate sale of building (RP House) by reducing the

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entire sale proceeds relating to building and thereby reducing the said block to Nil in the previous year 2001-02. Similar issue was decided by me in earlier years i.e. A Y. 2002-03 and 2003-04 wherein my predecessor had upheld the action of the A.O. of disallowing the depreciation. Accordingly, following the decision in earlier years, this ground is dismissed. 40. Further at the time of hearing it was brought to the knowledge of the Bench that in the assessee’s own case the Honble Tribunal for A.Y.2003-04 in ITA no.4000/Mum/2007 & others dated 5-10-2021 has observed at page 43 Para 16 as under:

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assessing officer to grant the depreciation on the block of building and allow the ground of appeal.

Similar ground had arisen in A.Y. 2002-03 and 2003-04 wherein my predecessor had held that income earned from RP House property is assessable as "Income form Other Sources" since ratio of the decision of the Supreme Court in case of Podar Cement was not applicable to the present case. Following the same for the year under consideration, this ground is dismissed. Further, as regard to Centre point my predecessor had held that income is chargeable under the head "Income form House property" and had directed the A.O. to grant appropriate deduction u/s 24 (a) in accordance with law. Following the same, this ground of Appeal is partly allowed.

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19.2. The Ld.CIT(A) upheld the action of the Ld.AO in respect of treatment of rental income from RPIL house as income from other sources. How ever with regard to rental income derived from centere point , he directed the Ld.AO to treat the rental income as income from other house property and grant statutary deduction in terms of section 24(a) of the Act. Against the direction, the revenue is not in appeal before us.We find that the ownership of the RPIL House Vests with the assessee for four years and hence assessee continued to be the owner of the part premises of RPIL House and hence,the rental income thereon should be assessed only under the head Income From House Property and the assessee would be entitled for statutary deduction @30% U/sec24(a) of the Act for the same. Accordingly, the ground NoIX raised by the assessee is allowed.

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deferral loan as revenue receipt instead of capital receipt. We found that this ground of appeal was filed before the CIT(A) and the CIT(A) has dealt at Para 17 page 39 and 40 as under:

17.This ground had not been claimed by the appellant at the time of assessment. The issues raised related to taxability on account of repayment of sales tax deferral loan. From the submissions it appears that this is only an after thought which is now being claimed before this office at the time of appeal. This issue would have been properly examined and considered at the time of assessment itself. There is not enough justification to put forward by the appellant for admitting the additional grounds of appeal at this stage after giving due consideration, I do not find sufficient reasons for admitting the additional grounds of appeal, simply when the appellant had adequate opportunity before the finalization of assessment to argue its contentions. Accordingly, the additional grounds of appeal filed by the appellant vide letter dated 10.10.2007 are not admitted. In effect this ground of appeal is dismissed.

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the case restore this disputed issue for limited purpose to the file of the Assessing officer to decide on merits and allow the ground of appeal for statistical purposes.

Order pronounced in the open court on 20.06.2022

Sd/- Sd/- (S RIFAUR RAHMAN) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated 20 .06.2022

KRK, PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A) 3. Concerned CIT 4. DR, ITAT, Mumbai 5. Guard file. 6. आदेशानुसार/ BY ORDER, //True Copy// 1. ( Asst. Registrar)

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ITAT, Mumbai