LARSEN & TOUBRO LTD,MUMBAI vs. ADDL CIT RG 3, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार Per Rajendra A.M.- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dt.26.03.20130of the CIT(A)-5,Mumbai the Assessing Officer(AO) and the assessee have filed cross-appeals for the year under consideration.Assessee-company, engaged in the business of construction, manufacturing of heavy machinery and cement, etc., filed it return of income on,27.11.1998,declaring income of Rs.37.20 crores.The AO complet -ed the assessment,on 28.02.2001, under section 143(3) of the Act, determining the income of the assessee at Rs.2,09,15,37,490/-. ITA/4442/Mum/2010: 2.First ground of appeal is about confirming the disallowance of Rs.3.15 crores, being the commission paid to certain parties during the previous year. During the course of hearing before us,the Authorised Representative(AR)and the Departmental Representative(DR) agreed that the issue stands decided against the assessee by the order of the Tribunal for the earlier years.We would like to reproduce relevant portion of the order of the Tribunal for A.Y. 1997-98 and same reads as under: - “5.Ground No. 3 relates to the disallowance of commission paid amounting to Rs.2,40, 16,498/-.The Assessing Officer has considered this issue at para 13 on page 7 of his order and the grievance of the assessee was considered by the CIT(A) at para 8 page 3 of his order. Similar disallowance has been considered by the Tribunal at para 8 & 9 of its order in wherein it has followed the Tribunal order for A.Y. 1994-95 in ITA Nos. 4265 & 4892/Mum/98. Facts being identical, respectfully following the decision of the Tribunal in the assessee’s own case in earlier years, finding of the CIT(A) are confirmed. Ground No. 3 is accordingly dismissed.”

4.Third ground of appeal is about failure to treat the transfer of Bangalore undertaking as slump sale and disallowing depreciation of Rs.17.58 crores.During the assessment proceed - ings, the AO found that the assessee had reduced the profit on sale of Bangalore undertaking of Rs. 108.18 crores from the profit and loss account, that it had claimed capital loss in its return, that construction equipment manufacturing undertaking of the company at Bangalore was sold and transferred for a lump sum consideration, as a going concern,to a joint-venture company,that it had treated the undertaking itself is a non-depreciable capital asset and had worked out the LTCL of Rs. 47.29 crores, that the LTCL was the difference between the slum price and the indexed cost of the undertaking, that it had reduced from the respective blocks the written down value of the assets forming part of the undertaking which was transferred.The AO directed the assessee to file explanation with details of computation and treatment made the books of accounts and the legal basis on which it had claimed the transaction was a slump sale. The assessee,vide its letter dated 13/01/2001,stated that the Bangalore works was transferred to a newly incorporated joint-venture company,namely L&T Komatsu Ltd. (LTK) for a lump sum consideration of Rs. 186.10 crores, that the profit on sale and transfer of the above undertaking of Rs. 108.19 crores was disclosed in the books of accounts. The assessee gave detailed breakup in its explanation and claimed that it had treated the undertaking is a capital asset and had worked out long-term capital loss as under It was further argued that the decision was the difference between the slump price and the 4442/M/10 & 4599/M/13-L&T indexed cost of acquisition and improvement of the undertaking, that the written down value of the assets was transferred was reduced and no depreciation had been claimed on such assets.It enclosed a certificate from the statutory auditors giving detailed working of the cost of acquisition and improvement. It was argued that the undertaking, a capital asset, was transferred as a whole along with all its rights and privileges for a lump sum consideration, that no individual value to its assets and liabilities was assigned, that the income arising from such transfer had to be taxed under the head income from capital gains. The assessee referred to the provisions of section 50 B of the Act and the definition of slump sale, as provided in the section 2(42C) of the Act.It relied upon certain judgments delivered by various High Courts. In its letter dated 22/02/2001, the assessee further argued that the assets transferred also included certain items pertaining to research and development (R&D) facilities, that since no part of the consideration would be attributable to such assets same were included in the slum price, that the consideration was not separately offered to tax as per the provisions of section 41(3) of the Act,that the about treatment in computing the total income was in line with the mode of computation of capital gains stating the undertaking is a capital asset and also in view of the fact that no part of consideration could be attributed to specific assets and liabilities and subjected to tax under a different head of income.

4.1.After considering the submission of the assessee,the AO referred to the case of Artex Manufacturing Company(227 ITR 260) and held that where a portion was attributable to plant, machinery and the stock,the difference between the actual cost and returned and value of assets was assessable as business income u/s.41 (2), that the surplus over such difference was assessable as capital gains,that in the case under consideration there was no sale of entire business, that the assessee had sold fixed assets and current assets, that the lump sum purchase consideration of Rs.186 crores was partly attributable to depreciable assets and party to land which was a non -perishable fixed asset,that the consideration of Rs.39.10 crores was specifically attributable to net current assets. He referred to the provisions of section 41(2),(2A) and 50 of the Act and held that the business activity of the assessee comprised manufacturing of cement,engineering and construction including earthmoving equipments and heavy machinery electronic equipments, that transfer of part of activity in form of sale of Bangalore unit did not constitute sale of the entire business as a going concern or a slump sale,that the transfer specifically excluded engine division, marketing division, parts and service division, training Centre as per the agreement entered into by the assessee with the JV-company, that entire business was not transferred, that a part of the assets of 4442/M/10 & 4599/M/13-L&T winner one unit had been transferred, that it was not a case of slum sale, that the assessee was maintaining separate books of accounts for Bangalore division, that the details of plant and machinery,building, land, current assets and liabilities were maintained separately, that the balance sheet and audit report was also prepared separately for that unit, that the balance sheet of Bangalore unit as on 31/03/1998 showed that the entire unit was not transferred on 01/02/1998, that the assessee had separate and identifiable blocks of assets for each unit, that the sale proceeds which were attributable to the blocks of assets of the Bangalore unit could be better nine on some rational basis and any excess, as determined in accordance with the provisions of section 50, could be brought to tax. Referring to the provisions of section 2 (24), he held that the profits embedded in the whole or portion of the lump sum price not attributable to the sale of stock in trade had to be taxed under the head capital gains, that sale of stock in trade was to be taxed as business income. Finally he held that there was no sale of business as a whole and that only a part of a line of business was sold. He referred to the demarcation of the consideration of Rs.186.10 crores in the case of LTK Ltd. i.e. the purchaser and observed that it had showed the allocation of various assets purchased by it. After considering the valuation report in the books of accounts of the purchaser, he discussed the allocation of fixed assets and deduction claim under section 35 of the Act. He held that the valuation report prepared by LTK clearly mentioned the market price of the assets transferred by the assessee, that value was allocated to the capital asset pertaining to R&D work. The AO further observed that there was close connection between the transfer and the acquirer of the business, that the argument of the assessee that the allocation to the different assets and identification of the value was merely done by the JV and it did not have any knowledge of the individual values attributable to the different assets was not available, that in the valuation report of the JV a reference had been made to the earlier valuation report given by the same value to the assessee for land and building, that the value of individual assets were thereby clearly in existence before the date of agreement and was duly considered for arriving at the sales figure of 186.10 crores, that transaction could not be treated as slum sale is claimed by the assessee, that the taxablity would be determined in accordance with the allocation two different assets which would be treated as values attributable to those assets out of the sale price, that the value so apportion therefore would be credited to the respective blocks was sale consideration in case of the assessee which would be accordingly reduced the claim of depreciation, that in respect of non-depreciable asset i.e. land, as LTCG would be attracted, that in respect of R&D assets for which the sale consideration would be 4.5 crores provisions of section 41 (3) of the Act would be attracted, that as per the provisions of the 4

4442/M/10 & 4599/M/13-L&T said section the amount has to be treated as profits under the head business income. He worked out the LTCG on sale of land and reduced the claim of depreciation as under:

4.2.During the appellate proceedings,the assessee made elaborate submission,besides reiterating the arguments advanced before the FAA,before the FAA.After considering the submissions of the assessee, the FAA held that the Bangalore division had not been sold as a whole as going concern, that only certain assets had been transferred, that the assessee had not been able to satisfactorily refute the finding of the AO in that regard, that there was no sale of entire business,that it was sale of fixed assets and current assets and the lump sum consideration of Rs. 186 corrodes was partly attributable to depreciable assets and partly to land and partly to net current assets, that it was all the more apparent from the fact that the said transfer excluded engine division, marketing division etc.,that it was claimed that transaction was made for a lump sum consideration, that the books of accounts at the end of the purchases contradicted the claim made by the assessee, that the AO had brought on record the facts that prove that it was an itemised sale of the assets, that the facts of the case of Artax Manufacturing Company (supra) were applicable to the facts of the case, that the AO had assessed the JV company also, that he could attribute the values individually to various assets, based on a location made in the books of the purchaser company,that the allocation was based on the valuation report dated 11/05/1998, that the assessee had never disputed the facts regarding the valuation report, that the facts born from the records of the purchaser were the clinching evidences with regard to the conclusion drawn by the AO, that the assessee was maintaining separate books of accounts for Bangalore division along with the details of plant and machinery, assets and liabilities, that the balance sheet was separately prepared,that it had separate block of assets which were identifiable, that the sale proceeds could be determined on some rational basis, that taxes could be determined according the provisions of section 50 of the Act,that the consideration attributable to fixed assets had been determined from valuation report in the case of the purchasers, that it was improbable that the assessee was not aware of such itemised valuation of the assets transferred, that entire amount of Rs.186.10 corrodes had been duly demarcated and respective asset wise allocation was available,, that even land and building was duly got valued as per report dated 8/08/1997, that the values attributable to different categories of assets was clearly available, that the value of the current assets transferred that actual value was available from the balance sheet of LTK.The FAA referred to the decision of Asia Brown Brevory Ltd.(100TTJ 502) and observed that mere recitals of the agreement would not be sufficient to hold that transaction was slump sale or 4442/M/10 & 4599/M/13-L&T not,that though the recital in the agreement indicated lump sum payment but the facts had to be seen in the context of itemised valuation report in the case of the purchaser, that the contention raised by the assessee was contradictory.Finally,he held that the AO was fully justified in rejecting the claim of slum sale and considering the transaction as itemised sale and applying the relevant provisions of the Act.

4.3.Before us,the AR stated that the AO/FAA had disregarded the transaction as a slum-sale transaction and had proceeded in determining the tax liability by hypothetically allocating the values attributable to individual assets by crediting the values of block of respective assets, that the facts of the case of Artex Manufacturing Company (supra) were not applicable to the facts of the case, that in the case under consideration the undertaking was transferred as a whole along with all its rights and privileges for a lump sum consideration without assigning any individual value to its assets and liabilities, that the income arising from such transfer had to be taxed under the head income from capital gains.Referring to the CBDT circular NO.63,dated 16/08/1971, the AR argued that the amount of capital gain had be ascertained by deducting,from the amount of compensation the aggregate of cost of acquisition of undertaking and the cost of any improvements thereto,that merely because the assessing officer had also assessed the LTK he could not attribute the values individually to various assets based on the allocation made in the books of the purchaser company, that the allocation was done in the books of the transferee based on the valuation report dated 11/05/1998,that in the hands of the purchaser the apportionment of purchase consideration among various types of assets had to be made,that it had to book the assets and the liabilities,that the accounting treatment given by LTK was in accordance with AS-10, that LTK had apportioned the consolidated consideration among various fix and current assets based on the values report, that there was no material available to the AO to draw the conclusion that assessee had sold itemized assets, that the valuation report dated 11/05/1998 was obtained by LTK, that merely because a valuation of landed building was done by the assessee it could not be presumed that the same was considered for determining the sale price by the assessee,that determination of sale consideration was a matter of negotiation between the buyer and seller, that unilateral valuation of part of an asset by the buyer could not be the basis of determining the sale price, that the AO had failed to appreciate the fact that the market value of assets as per the valuation report dated 11/05/1998 and the value of current assets did not match or even approximated the total consideration received by the assessee, that the reliance placed by the AO on the valuation report was totally arbitrary, that the value of fixed assets had been 4442/M/10 & 4599/M/13-L&T arrived at by deducting book value of current assets from the slum price, that same did not approximate the market value of its assets nor it represented the market value of the current assets, that the assessee had reduced the cost of current assets transferred to the purchaser to the tune of Rs. 45.51 corrodes, that the cost of material, tools and work in progress transfer to LTK was reduced from manufacturing, construction and operating expenses, that it was separately considered for determining the profits on sale/transfer of Bangalore works, that the said cost could not be termed treated as market value of the current assets as held by the AO, that the AO had wrongly presumed that there was no sale of entire business but of only fixed assets and current assets, that the assessee had transferred not only fixed and current assets but also the rights and obligations privileges and charges and everything connected with the construction equipment manufacturing undertaking, that the AO had totally ignored the aspect and concluded that lump sum purchase consideration was specifically attributable to the depreciable and not the appreciable assets, that the AO had wrongly concluded that since the assessee was in various businesses transfer of any one of the business did not cost you transfer or sale of entered business is going concern or slum sale,that the concept of business of an undertaking could never be meant to be all the businesses of the company clubbed together, that what was important was whether the particular business constituted separate unit or an undertaking of the company, the Bangalore works which had been sold constituted separate business and a separate accounting units/undertaking in respect of which even the benefit under section 80-I had been allowed in the past, that the AO had admittedly indicated that Bangalore unit was engaged in manufacture of construction equipment and that was one of the businesses of the company, that it was not necessary for the company to sell all its division forming part of manufacturing business undertaking,that the sale of a going concern could legitimately relate to the manufacturing facilities only,that in case of the assessee the marketing function was always forming part of overall marketing activities of the company. He referred to the pages 256-278 of the paper book and relied upon the cases of PNB Finance Ltd.(307ITR57),Electric Control Gear Manufacturing Company (227 ITR 278) and Novartis India Ltd.(64SOT84).He fairly conceded that the loss claimed by the assessee for with regard to slump sale was not allowable.The DR contended that the whole unit was not sold as a going concern,that other units like marketing unit remained with the assessee,that purchaser JV had the assessee as one of the partners,that facts of the case Artex were clearly applicable,that it was a colorable device to reduce the tax liability,that the JV had shown itemized value of all the assets purchased by it.

4442/M/10 & 4599/M/13-L&T 4.4.We have heard the rival submissions and perused the material before us. We find that the buyer-LTK-is a joint-venture with equal equity participation by the assessee and Komatsu Asia-Pacific Singapore,that it has purchased the manufacturing division of earth moving unit at Banglore from the assessee during the year under consideration,that the other divisions were not part of the sale,that the AO referred to the valuation report prepared by LTK of the assets received by it in transfer and held that value of the assets was available to the assessee,that he further held that it was a case of itemized sale of the assets,that it was not a slump sale,that he finally taxed the transaction,that the FAA upheld the order of the AO referring to the case of Artex Manufacturing Co.(supra),that the assessee argued the it was a case of slump sale and the facts of Artex were not applicable to the facts of the assessee. In our opinion,the short issue to be decided in the matter is whether the transaction can be was slum sale i.e.sale of proverbial lock stock and barrel.In the case of Polychem Ltd. (343 ITR115)Hon’ble Bombay High Court has defined the word slump sale in following manner: “When a transfer takes place of the whole business and undertaking of the assessee and the transfer involves not only fixed assets such as land, building and machinery but other component elements such as the benefit of existing contracts, licences and approvals and intangibles including intellectual property and transfer of the work force of the undertaking or business, it would be impossible in such a case to attribute or allocate the sale consideration as between the fixed assets on the one hand and the intangibles on the other.” In that matter it was found that the assessee, engaged in the business of manufacture and sale of liquor,entered into an agreement on 24.03.1994, to sell to the purchaser the undertaking/business together with its assets and liabilities as a running business/going concern on as is where is basis. According to the assessee, the profit arising on the transfer of the undertaking was not chargeable to tax. The AO deducted from the total sale price of Rs. 10.38 crores the written down value of the fixed assets and the value of the stores, raw materials and finished goods which was worked out at Rs. 3.48 crores and held the difference of Rs. 6.90 crores chargeable as capital gains. The FAA affirmed this holding that the net worth of the unit was ascertained by evaluating each asset and liability and the sale price being determined on the basis of each asset and liability it could not be asserted that the assets were not acquired at any cost. The Tribunal held that this was not a sale of itemised assets and it was hence not possible to compute any chargeable capital gain on the sale of the undertaking as a going concern. On appeal the Hon’ble Court held that the agreement in pursuance of which the undertaking was transferred by the assessee made it clear that the assessee was transferring to the purchaser the undertaking/business as a running business/going concern together with its assets and liabilities,that the under-taking/business comprised besides immovable property

4442/M/10 & 4599/M/13-L&T and movable property(including plant and machinery),current assets including raw materials, stock-in-trade and book debts,the benefits of all pending contracts, engagements and orders, all licences and other permissions and approvals required from the State and the Central Government to carry on liquor business, the distribution network, marketing strategies, plans, advertising information and customer list and the use of intangible assets referable to the undertaking/ business including trademarks,that the agreement did not contain an itemized valuation in respect of the land,building and fixed assets transferred,that the total considera - tion of Rs. 10.6 crores determined under the agreement was for the transfer of the business and undertaking as a whole comprising but not limited to the land, building and fixed assets, that the transaction involved a slump sale,that there was, therefore, fundamentally an error on the part of the AO when he proceeded to hold that there was a profit of Rs. 6.90 crores being the difference between the sale price and the deductions which he erroneously regarded as having emerged from the agreement itself.

4.5.Here,would like to refer to the case fo Agrosynth Chemicals(327 ITR 135) of the Hon’ble Karnataka High Court wherein the Hon’ble Court has discussed the cases referred to by the AO and assessee during the appellate proceedings.In the matter of Argrosynth(supra)under an agreement, the entire land of the assessee-firm, measuring 5 acres along with the factory buildings, plant and machinery and the assets and liabilities were sold for a total consideration of Rs.1.50 Crores.In reassessment proceedings for the assessment year 1995- 96, applying the provisions of section 41(2) of the Act, the difference between the sum of Rs. 1.50 Crores and the written down value of the assets of Rs.23,02,460 was brought to tax.On appeal,the FAA came to the conclusion that it was a slump sale and that capital gains were not attracted.The Tribunal dismissed the Department’s appeal. On appeal to the High Court, dismissing the appeal the Hon’ble Court held as under: “…….the agreement did not reflect the actual value of the land, building, plant and machinery nor the actual liability of the assessee payable to different persons. It was a composite agreement, agreeing to sell the entire going concern of the factory, as it was. Therefore, the Assessing Officer was not correct in bringing to tax the various assets sold by the assessee for a sum of Rs. 1,50,00,000 shown in its books at a written down value of Rs. 23,02,460…….

4442/M/10 & 4599/M/13-L&T

4442/M/10 & 4599/M/13-L&T made a unit sale,i.e., sale of its lamp division which was a part of its overall business concern and that the assessee still continued as a business concern,that the assessee was not treating that unit as a separate and independent business but was treating it as a part of the integrated whole business and,therefore,the sale of the lamp division was not in the nature of a slump sale as a going concern. The Tribunal held that the transaction of sale of the unit by the assessee was a transaction in the nature of slump sale of a going concern as a whole,that since the unit was a capital asset within the meaning of section 2(14) of the Act,the profits on transfer of such capital asset were to be treated as long-term capital gains.Neither the provisions of Sec.50 nor the provisions of section 50B would be attracted but the provisions of sections 45 and 48 would be applied.On appeal by the department,the Hon’ble High Court held as under: “…..the Tribunal held that section 50 would not be applicable in the assessee’s case, as it was not a case of transfer of a depreciable asset, but for transfer of the entire unit as a whole and the sale consideration settled between the parties was not only for the depreciable assets but for all intangible or tangible assets including goodwill, licences and liabilities. Even the stamp duty for transferring the land and building was part of the sale consideration, as it was to borne by the transferee. The sale of the unit was thus, a composite sale and, therefore, a case of slump sale. When an undertaking was sold it was to be understood as a whole of undertaking. Therefore, section 50 dealing with the depreciable assets would not be applicable when the entire unit as a going undertaking was sold by the assessee.” From the above discussion it is clear that if ongoing concern is sold for a lump sum amount it has to be treated a slump sale and had to be taxed as such.In such cases itemised sale of the assets is not there-an amount is paid for transferring an independent unit.To find out the facts of the case we would like to refer to the agreement entered in to by the assessee with the JV company.

4.6.We have perused the Business Transfer Agreement(BTA),dated 01.02.1998 and deed of transfer of land and building of Bangalore Works Undertaking dt.11.3.1998.We find that the agreement was entered in to between the parties on the following understanding- “Whereas, L&T desires to sell to JVC, and JVC desires to purchase from L&T, a part of L&T’s construction equipment manufacturing business alongwith certain facilities and assets relating thereto at the Plant on the terms and conditions set forth herein;” The definitions provided in the BTA would be beneficial to resolve the issue. The agreement has defined Benefit Plans, Business Transfer Approvals and Current Liabilities as under :- “Benefit Plans” means all superannuation, provident fund, gratuity, profit sharing, retirement, deferred compensation, bonus, severance or termination payment, disability, hospitalization, medical insurance, life insurance, life insurance and other benefit plans, programs, policies or arrangements with respect to the Transferred Employees.

4442/M/10 & 4599/M/13-L&T "Business Transfer Approvals" shall mean all approvals, authorizations, permission, consents and licenses from government authorities in India and L&T's shareholders necessary to transfer the L&T Transferred Business to JVC. “Current Liabilities” means the liabilities of L&T including but not limited to credits, loans and advances payment, pre-payment (if any) which shall be assumed by JVC on the Final Closing Date.” At page-283 of the PB L&T assets of L&T have been defined as under :- “L&T Assets” means all of the assets used in or otherwise related to the L&Tribunal Transferred business on the Final Closing Date, including without limitation the following….. Excluding the manufacturing facilities belonging to the Engine Division, the plant, machinery and office equipment belonging to the Marketing Division, Parts & Service divisions and the Training Centre.” L&T transferred business has been defined at pg.284 of the PB as under: “ L&T Transferred Business" means the business, as a going concern, of manufacturing the construction equipment and component thereof as well as various hydraulic equipment, including custom engineered systems and applications thereof which L&T presently manufactures at the Plant, excluding engines, vibratory compactors , wheel loaders, backhoe loaders and dump trucks.” Clause 2 of the BTA is about transfer of business and liabilities.We are reproducing the relevant portion :- “2.1 Transfer of Business Subject to the terms and conditions hereof , on the Final Closing Date L&T shall transfer, convey, assign, sell and deliver to JVC, and JVC shall acquire the L&T Transferred Business and L&T Transferred Assets, free and clear of all Liens. 2.2 Transfer of Liabilities Except the L&T Assumed Liabilities and Current Liabilities which, subject to the terms and conditions hereof, shall be assumed by JVC on the final Closing Date, JVC does not assume, and shall not be deemed to have assumed at any time, any obligations or liabilities of L&T, whether arising out of or relating to the L&-T Transferred Business, or otherwise.

4442/M/10 & 4599/M/13-L&T had transferred that division to JV for a lump sum amount.While doing so,depereciation was not claimed on the assets transferred. It is also found that the entire plot of land of the earth moving equipments manufacturing unit was transferred to JV, none of the assets located at any other plant was transferred by the assessee.In our opinion,the transfer deed executed on 19.03.98 for transfer of land and building was only for the purpose of conveyance and registration of immovable property, that the said transfer deed did not contain any specific value for transfer of plot of land and building, that the value declared by it was for the purpose of stamp duty and registration. We find that in the agreement the assessee had specifically mentioned that the property was valued at Rs.59.31 crores for registration purposes. It is further found that in application made u/s.230A of the Act,the total sale consideration for transfer of construction manufactur -ing undertaking was mentioned and no separate value for land and building was indicated. Considering the above, we are of the opinion that no value was assigned to plot of land and building while transferring the assets to the JV and that the assessee had transferred the business at a lumpsum consideration by way of slump sale without assigning any individual value to various assets and liabilities.

4.7.We find that one of the reasons,given by the FAA,for not considering the transaction a slump sale was that the purchaser had assigned cost to the assets acquired by it.It is a coincidence that the AO for the assessee happened to be the AO for the JV also and from the return of income of the JV he found that the purchaser had shown exact cost of each of the assets.In our opinion, it cannot be the deciding factor.A purchaser of a going concern has to assign cost to the assets received by it.Accounting standard mandates that the entity acquiring a going concern has to get its assets valued.But,valuation report obtained by the purchaser do not prove at all that the assets had the same value for the seller.Once an assessee sells the lock stock and barrel of a unit for that assessee individual items loose existence.In the case before us,there is nothing on record to show that the value shown by the JV was the itemized value of the assets owned by the assessee.Considering the above discussion,we hold that the sale of earth moving manufacturing unit was a slump sale.Here,we want to make it clear that the assessee would not be entitled to claim loss for the transaction in question.Finally, reversing the order of the FAA,we decide ground no.3 in favour of the assessee,in part.

4442/M/10 & 4599/M/13-L&T 5.Fourth ground of appeal is about upholding the computation of deduction u/s.80HHC of the Act on following basis: - i. total turnover was taken inclusive of unclaimed credit balance and scrap sale ii. 90% gross interest received was reduced from the profits of business iii. loss on export of trading goods was set off against profit on export of manufacture goods 4. 90% of miscellaneous income was reduced from the profits of business During the course hearing before us,the AR and the DR stated that issue of inclusion on scrap sales in the total turnover(Rs.1701.62 lakhs) was decided in favour of the assessee by the Tribunal in A.Y. 1997-98 as under: -

7. Ground nos. 5 & 6 relate to the claim of deduction u/s. 80HHC and 80HHE of the Act. These grounds have three components: a) Inclusion of scrap sales and other items of miscellaneous income in the total turnover. Similar issue has been considered by the Tribunal in at para 31 on page 11 of its order, wherein the Tribunal has followed its own order in the assessee’s own case for A.Y. 1994-95 in ITA nos. 4265 & 4892/Mum/98. Facts being identical, respectfully following the decision of the Tribunal in assessee’s own case, we direct the Assessing Officer to give relief accordingly as claimed under part (a) herein above. b) Set off of loss of export of trading goods against profit on export of manufactured goods. Similar issue has been considered by the Tribunal in ITA No 2200/Mum/2000 at para 32 on page 11 of its order, wherein the Tribunal has followed its own order in the assessee’s own case for A.Y. 1994-95 in ITA nos. 4265 & 4892/Mum/98. Facts being identical, respectfully following the decision of the Tribunal in assessee’s own case, findings of the CIT(A) are confirmed. Part (b) is accordingly dismissed. c) This relates to computation of indirect cost attributable to trading exports inclusive of sales and administration overheads, interest and brokerages. This part has not been pressed before us by the learned senior counsel and is therefore dismissed.” “22.Ground nos. 13 to 15 relates to the claim of deduction u/s. 80HHC and 80HHE of the Act. The Assessing Officer has discussed this issue at para 26 on page 21 of his order. The CIT(A) has allowed the appeal of the assessee vide para 25 & 26 on page 15 of his order. We find that the Tribunal had an occasion to consider similar grievance in assessee’s own case in ITA No.2200/M/2000. The Tribunal considered this issue at para 29 on page 10 of its order. We find that the Tribunal has followed the earlier orders of the Tribunal in assessee’s own case in ITA No.4265 & 4892/Mum/98 as also in ITA No. 987/Mum/98. Facts and issues being identical,respectfully following the decision of the Tribunal in assessee’s own case, ground no.13, 14 & 15 are accordingly dismissed.” Respectfully following the orders of the Tribunal in earlier years part of the issue, raised by the assessee, is decided in its favour. 6.The next item is with regard to unclaimed credit balance in the total turnover (Rs.76.10 crores).While deciding the appeal,filed by the assessee, the first appellate authority (FAA) followed the order of his predecessor of the earlier AY. and decided the issue against the assessee.Before us,the AR relied upon the case of Jeyar Consultants and Investments Pvt. Ltd.(46 ITD 71).The DR supported the order of the FAA.We have heard the rival submissions and perused the material before us.We find that the issue is covered in favour of the assessee 14

4442/M/10 & 4599/M/13-L&T by the decision of Jeyar Consultants(supra),relied upon by it. Therefore,we decide issue in favour of the assessee. 7.Next ground is about the 80HHC calculation and reduction of 90% of gross interest receipt (Rs.6078 lakhs) from the profits of business disregarding interest paid of Rs.13,512 lakhs by the assessee.During the course of hearing before us,AR and DR stated that identical issue was deliberated upon by the Tribunal while deciding the issue for A.Y. 1997-98. We find that at page 9 of the order (para 22),the Tribunal has decided the issue as follows: “22. Ground nos. 13 to 15 relates to the claim of deduction u/s. 80HHC and 80HHE of the Act. The Assessing Officer has discussed this issue at para 26 on page 21 of his order. The CIT(A) has allowed the appeal of the assessee vide para 25 & 26 on page 15 of his order. We find that the Tribunal had an occasion to consider similar grievance in assesee’s own case in ITA No.2200/M/2000. The Tribunal considered this issue at para 29 on page 10 of its order. We find that the Tribunal has followed the earlier orders of the Tribunal in assessee’s own case in & 4892/Mum/98 as also in ITA No. 987/Mum/98. Facts and issues being identical, respectfully following the decision of the Tribunal in assessee’s own case, ground no.13, 14 & 15 are accordingly dismissed.” Respectfully following the above order,part of the issue involved is allowed in favour of the assessee. 8.The next item is set off of losses on export trading goods against profit on export of manufactured goods.The AR of the assessee fairly conceded that the Tribunal has dismissed the appeal of the assessee in that regard,while deciding the appeal for A.Y. 1997-98. We are reproducing the relevant portion of that order. b) Set off of loss of export of trading goods against profit on export of manufactured goods. Similar issue has been considered by the Tribunal in ITA No 2200/Mum/2000 at para 32 on page 11 of its order, wherein the Tribunal has followed its own order in the assessee’s own case for A.Y. 1994-95 in ITA nos. 4265 & 4892/Mum/98. Facts being identical, respectfully following the decision of the Tribunal in assessee’s own case, findings of the CIT(A) are confirmed. Part (b) is accordingly dismissed.” Considering the above,this issue is decided against the assessee. 9.Now,we would discuss the last item of the the reduction 90% of miscellaneous income received from profits of business(Rs.3549.29 lakhs).We find that it included Recoveries from S&A companies(Rs.438.04 lakhs),Service fees(Rs.354.54 lakhs)Guest house recoveries (Rs. 20 lakhs),Training /tuition fees(Rs.36.98 lakhs),Profit on sale of stores/bunkers (Rs. 12. 14 lakhs),Provision no longer required (Rs.209.72 lakhs),Verification charges (Rs.10.37 lakhs), Recovery of damages from customers (Rs.34.03 lakhs),Issue of nursery plants (Rs.8.66 lakhs),Royalty received (Rs.36.06 lakhs),Sales promotion reimbursement-Cannon Singapore (Rs.56.89 lakhs), Export incentives(Rs.1422.16 lakhs),Collection against outstanding (Rs. 72. 08lakhs),Other miscellaneous income (Rs.1041.422 lakhs),Less profit on sale of import licence (Rs.184 lakhs) considered separately).

4442/M/10 & 4599/M/13-L&T 9.1.During the assessment proceedings,the AO,referring to the matter of K K Doshi(245ITR 849)held that all the above mentioned receipts were not directly derived out of the export activities of the assessee,that there was no nexus between those receipts and the export business,that same were to be excluded to the extent of 90% as per the provisions of section 80HHC expl.(bba)He recalculated the profit of the business at page no.31 of the assessment order. 9.2.In the appellate proceedings,the FAA held that there was no merit in the case of the assessee,that the AO was justified in applying explanation (baa)and following the decision of K K Doshi(supra). 9.3.Before us,the AR relied upon the orders of Sharda Gums and Chemicals Industrial Area (76 ITD 282) and Honda Siel Power Products Ltd. (77 ITD 123).The DR supported the order of FAA.We have heard the rival submission and material before us.We find that the issue decided by the Tribunal in the case of Honda Seil Power Products(supra)did not deal with the issue raised before us.We would like to reproduce the question raised in the appeal and same reads as under: “That, on the facts and in the circumstances of the case, the learned Commissioner of Income Tax(Appeals)-IV, Calcutta erred in law as well as on facts in holding that the Assessing Officer was not justified in adding back Rs. 90,80,314 under section 40A(3) while processing the return under section 143(1)(a) and in that view directed the Assessing Officer to delete the said disallowances by passing order under section 154 of the Income-tax Act, 1961." In our opinion,the above referred case is of no help to the assessee. In the case of Sharda Gums (supra)issue of interest income has been decided.It does not deal with the other items. Thus,the cases relied upon by the assessee are of little help to the resolve the issue.But,on the other hand the stand taken by the departmental authorities is also defective.We find that the AO and the FAA have relied upon the case of K K Doshi(supra)that stands reversed by the Hon’ble Apex Court (297ITR38).Therefore,we are of the opinion that the issue needs a fresh adjudication at the level of the AO.In the interest of justice we are remitting back the issue to the file to the FAA for fresh adjudication.He is directed to consider all the items,mentioned at paragraph 9 of our order and decide the issue afresh.

10.Next ground of appeal is about reducing the amount claimed as exempt under section 10. (15)and 10(33) of the Act.During the assessment proceedings,the AO found that the assessee has claimed exemption u/s.10(15) and 10(33) respectively amounting to Rs.2.75 crores, being interest from tax free bonds and for dividend receipts at Rs.19.79 crores. The AO observed that income itself was exempt therefore expenditure relating to such income had to be 4442/M/10 & 4599/M/13-L&T disallowed. He referred to the case of Distributors Baroda Ltd. (155 ITR 120) and the circular No. 780 dated 04.10.1988 issued by the CBDT. He directed the assessee to filed explanation in this regard.After considering the submissions of assessee firm dated 13.02. 2010, the AO stated that there was no case of indivisible business, that the business of the assessee consisted of multifarious activities, that making of investment in shares and tax free bonds was not the part of its business activities, that the investments were not the part of stock-in- trade of the business carried out by it. Finally,he held and ad hoc expenditure @ 5% under the head Establishment and Administrative Charges was to be deducted. He worked out the disallowance at Rs.12.85 lakhs out of the claim made under section 10(15) and of Rs.98.97 lakhs out of the claim made under section 10(33) of the Act. 10.1.Aggrieved by the order of the AO the assessee filed an appeal before FAA.After considering the assessment order and the submission of the assessee,the FAA held the provisions of section 14A r.w. rule 8D of the Income Tax Rules,1962 (Rules) were clearly applicable to the facts of the case, that there was scope for making an estimated disallowance of expenditure attributable to exempt income as per the direction of the FAA, the assessee furnished a working of disallowance as per Rule 8D. The FAA found that as per the working disallowance has to be made at Rs.3.90 crores in place of Rs.1.119 crores. It was contested that the provisions of section 14A r.w. Rule 8D could not be applied retrospectively. Referring to the decision of the Daga Capital Investment Ltd. (26 SOT 603),the FAA held Rule 8D as well as the provisions of sub sections (2) and (3) were retrospective in operation, that all direct and indirect expenses relatable to exempted income. Accordingly he directed the AO to work out the disallowance after examining the working submitted by the assessee. 10.2.Before us the AR started that in A.Y. 1997-98 the FAA has deleted the adhoc addition of 5% made by the AO in respect of expenses related to dividend income and interest on tax free bonds, that the Tribunal confirmed the deletion in respect of expenses related to dividend income, that the Tribunal had disallowed the expenses relating to interest on tax free bonds @ 2%,that strategic investments made by the assessee,should be excluded for 14A disallow - ance.The DR relied upon the order of the FAA.

10.3.We have heard the rival submissions and perused the material before us.We find that while deciding the appeal for the AY.1997-98,the Tribunal had disallowed the expenses relating to interest on tax free bonds @ 2%, and had held that strategic investments made by 17

4442/M/10 & 4599/M/13-L&T the assessee,should be excluded for 14A disallowance.Following the same,ground raised by the assessee is allowed in its favour,in part.

11.Next ground of appeal is about addition of Rs.12.94 crores, in computing book profit under section 115JA of the Act.The AR and DR stated that this issue stands decided in light of the decisions delivered in the cases of Vijaya Bank (231 CTR 209),TRF Limited (323 ITR 397).The second item with regard to computation under section 115JA is about disallowance made under section 14A of the Act.Respectfully,following the judgment of Vijaya Bank (supra) and TRF Ltd.(supra)we allow the appeal filed by the assessee.Second item being of consequential nature,stands allowed for statistical purposes. 12.Ground seven deals with deduction of capital recovery portion embedded in lease rental income.Before us,the AR stated that the ground being infructuous was not be adjudicated. Same stands dismissed. 13.Ground No. 8 deals with disallowance of professional fees for projects not materialized, amounting to Rs.10.65 lakhs.The AR conceded that identical issue was decided against the assessee by the Tribunal while deciding the appeal for A.Y. 1990-91 and 1993-94 as under: - “6.17 The tenth ground is regarding the disallowance of expenditure incurred by the assessee in connection with the projects not materialized. The disallowance amounts to Rs.6,49,501. The expenses were incurred towards professional fees, foreign travel, local travel and consultancy fees in respect of proposed projects but ultimately not materialized. In support of the contention, the learned Counsel has relied on various decisions including the decision of the Andhra Pradesh High Court in the case of CIT Vs. Coromandal Fertilizers [247 ITR 417] , Calcutta High Court in the case of CIT VS. Graphite India Ltd [221 ITR 420] and that of Gauhati High Court in the case of DCIT Vs. Assam Asbestos Limited [185 CTR 223]. This issue was considered by the Tribunal in assessee's own case for the assessment year 1989

90. (mentioned supra). The Tribunal after considering the facts and circumstances of the case has confirmed the 50% disallowance made by the Assessing Authority. The expenses were incurred for flat glass project, market survey for fruits and vegetables, tyre project, bulk drugs etc. We agree with the CIT(A) that even though the proposed projects may he intimately connected to the existing business carried on by the assessee, the assessee-company was in fact exploring the prospectus of new units. Those units were not ultimately successful; we can say that they were all aborted projects. Therefore, those expenses are to be treated in the nature of loss of capital instead of revenue expenditure deductible in computing the income of the running business. Even though the items of expenditure may be in the nature of revenue expenses per se, those expenses were incurred not in connection with the business carried on by the assessee-company but those expenses were incurred for the business which were proposed by the assessee-company to commence and carry on. This line of distinction cannot overlooked. Therefore, in the light of the statutory provision governing the subject, we hold that this expenditure cannot be allowed and the lower authorities have rightly disallowed the expenditure incurred in connection with the projects not materialized. This ground is also dismissed. 6.19 The twelfth ground raised by the assessee is against the disallowance under Rule 6D on per employee per trip basis. The Bombay High Court in the case CIT Vs. Aorow India Ltd.

4442/M/10 & 4599/M/13-L&T

[229 ITR 325] has upheld the principle of per employee per trip, and therefore, the ground of the assessee is to be dismissed. The disallowance is, accordingly, confirmed. 11.7 The seventh ground raised by the assessee is against the disallowance of foreign travel expenses of Rs.73,575/-. The disallowance is confirmed and the ground is dismissed in view of our decision for the assessment year. 1990-91. 17.8 The eighth ground is in respect of expenditure incurred on new project - Dismissed. 17.9 The ninth ground is in respect of foreign travel expenditure - Dismissed.” Following the above,ground No. 8 is decided against the assessee.

14.The assessee has raised two additional grounds.The first is about calculation of book profit for deduction under section 80HHC. It was argued that it should be on the basis of profit as per P & L Account instead of normal book profit.The AR referred to the case of Bahary Information Technology System Pvt. Ltd. (SLP No. 33750 of 2009) and stated that suitable direction should be issued to the AO.Considering the facts of the case we direct the AO to follow the decision of Bahary Information Technology System Pvt. Ltd.(supra)while calculating the book profit for deduction u/s.80HHC of the Act.Additional ground no.1 is allowed for statistical purposes. 15.1With regard to second additional ground the AR stated that it was infructuous.So, same stands dismissed.

ITA 4599/Mum/2010: 16.First ground of appeal,raised by the AO,is about disallowance of claim for loss in computation of value of work-in-progress on construction contracts(Rs.15,39,06,000/-).The DR and the AR conceded before us that identical issue was decided in favour of the assessee by the Tribunal,while deciding the appeal in for A.Y. 1997-98 as under: “14.Ground No. 5 with its sub grounds relate to deletion of the addition of Rs.10,75,11,000/- on account of unforeseeable losses in computation of work-in-progress on construction account. This issue has been considered by the Assessing Officer at para 16 on page 9 of his order and the same has been considered by the CIT(A) at para 11 on page 4 of his order. Similar issue was considered by the Tribunal in ITA No. 2863/Mum/2000 at para 44 and 45 on page 15 of its order, wherein the Tribunal has followed its findings for A.Y. 1994-95 in ITA No.4264& 4982/Mum/98. Facts and issues being identical, respectfully following the decision of the Tribunal in the assessee’s own case, findings of the CIT(A) are confirmed. Ground No. 5 with its sub ground is accordingly dismissed.” Respectfully following the above, ground No. 1 is decided against the AO.

4442/M/10 & 4599/M/13-L&T 15.Next ground of appeal is about expenditure on construction of jetty.We find that this issue stands decided in favour of the assessee by the Tribunal in for AY.1997-98,wherein it was held as under: “13.Ground No. 4 relates to the deletion of the addition made on account of expenditure on construction of jetty at Gujarat Cement Plat Rs.9,58,53,000/-. This issue has been discussed by the Assessing Officer at para 15 of page 8 of his order and the same has been considered by the CIT(A) at para 10 page 4 of his order. Similar disallowance was considered by the Tribunal in the assessee’s own case in ITA No. 2863/Mum/2000 at para 42 and 43 on pages 14 & 15 of its order, wherein the Tribunal has followed its findings in assessee’s own case for A.Y. 1994-95 in ITA Nos. 4265 & 4892/Mum/98. Facts and issues being identical, respectfully following the decision of the Tribunal, findings of the CIT(A) are confirmed. Ground No. 4 is accordingly dismissed.” Respectfully following the above, ground No. 2 is decided against the AO.

16.Third ground of appeal is about expenses on cement plants (Rs.34,44,57,820/-).It is found that the issue has been decided in favour of the assessee by the Tribunal in ITA/ 4299/ Mum/ 2001 for A.Y. 1997-98 wherein it has held as under: “15.Ground No. 6 is with its sub ground relates to the deletion of the addition of Rs.19,67, 31, 697/- on account of expenses on Cement Plants. This issue has been considered by the Assessing Officer at para 21 on page 13 of his order and the same has been considered by the CIT(A) at para 15 on page 6 of his order. Similar issue came up for hearing before the Tribunal in the assessee’s own case in wherein the Tribunal has considered this issue at para 17 to 21 of its order, wherein the Tribunal has followed its decision in the assessee’s own case for A.Y. 1982-83 and 1990-91 to 1994-95. Facts and circumstances being identical, respectfully following the decision of the Tribunal in the assessee’s own case, the findings of the CIT(A) are confirmed. Ground No. 6 with its sub ground is accordingly dismissed.” Respectfully following the above,ground No. 3 is decided against the AO.

17.Fourth ground of appeal is about expenses on cement plants (towards setting up of new captive power section)depreciation (Rs.5,71,69,219/-).We observe that the issue before us has been decided by the Tribunal,in favour of the assessee,while adjudicating the appeal for the AY.1997-98(supra).Respectfully following the above,ground No. 4 stands dismissed. 18.Fifth ground of appeal is about interest and commitment charges in respect of borrowings made for cement projects (Rs.1,59,85,43,981/-).It is found that the issue has been deliberated upon and decided in favour of the assessee by the Tribunal in / 2001 (supra).The Tribunal has held as under: “16.Ground No. 7 with its sub ground relates to the deletion of the addition of Rs.71,87,42, 880/- on account of interest and commitment charges in respect of borrowings made for Cement Projects. The disallowance has been made by the Assessing Officer at para 22 on page 15 of his order and the CIT(A) has deleted the additions as discussed at para 17 on page 12 of his order. Similar disallowance was considered by the Tribunal in the assessee’s own case in ITA No. 2863/Mum/2000 at para 46 at page 15 of its order, wherein the Tribunal has 4442/M/10 & 4599/M/13-L&T followed the findings in the assessee’s own case for A.Y. 1994-95 in & 4892/Mum/98. Facts and issues being identical, respectfully f9ollowng the decision of the Tribunal in thease’s own case the findings of the CIT(A) are confirmed. Ground 7 with its sub grounds is accordingly dismissed.” Respectfully following the above,ground No. 5 is decided against the AO.

19.Sixth ground of appeal is about charges,including commitment charges,in respect of borrowings made for cement projects(Rs.5.61crores).Representatives of both the sides agreed that the issue stands decided against the AO by the Tribunal order for the AY.1997

98. (supra). We are reproducing the relevant portion of the order wherein it was held as under: - “16.Ground No. 7 with its sub ground relates to the deletion of the addition of Rs.71,87, 42, 880/-on account of interest and commitment charges in respect of borrowings made for Cement Projects. The disallowance has been made by the Assessing Officer at para 22 on page 15 of his order and the CIT(A) has deleted the additions as discussed at para 17 on page 12 of his order. Similar disallowance was considered by the Tribunal in the assessee’s own case in at para 46 at page 15 of its order, wherein the Tribunal has followed the findings in the assessee’s own case for A.Y. 1994-95 in ITA Nos. 4264 & 4892/Mum/98. Facts and issues being identical, respectfully f9ollowng the decision of the Tribunal in thease’s own case the findings of the CIT(A) are confirmed. Ground 7 with its sub grounds is accordingly dismissed.” Respectfully following the above, ground No. 6 is decided against the AO.

20.Ground No.7 of appeal is about Mining lease,Mining Development expenses (Rs.1,34, 86, 433/-).During the course of hearing of the appeal it was found that this issue is considered and decided in favour of the assessee by the Tribunal in ITA/4299/Mum/2001 for AY.1997-98 wherein it was held as under: “20.Ground No. 11 relates to the deletion of the addition of Rs.8,91,120/- on account of expenditure incurred on mining lease. The Assessing Officer has disallowed this amount as per the discussions at para 25 on page 20 of his order. The CIT(A) has deleted the addition vide para 23 at page 15 of his order. Similar findings of the CIT(A) was confirmed by the Tribunal in in assessee’s own case for A.Y. 1996-97, vide para 97 on page 25 of its order, wherein the Tribunal followed its own findings in the case of the assessee in earlier years. Facts and circumstances being identical, respectfully following the decision of the Tribunal, ground No. 11 is dismissed.” 21.Ground No. 12 relates to the deletion of Rs.1,00,65,540/- being expenditure incurred on mining. This issue has been considered by the Assessing Officer at para 25 of his order. The additions made by the Assessing Officer has been deleted by the CIT(A) vide para 24 at page 15 of his order. The Tribunal has dismissed a similar ground in ITA No. 2200/Mum/2000 vide para 22 on page 8 of his order. We have no hesitation in following the findings of the Tribunal in the assessee’s own case. Ground No. 12 is accordingly dismissed.” Respectfully following the above, ground No.7 stands dismissed.

21.Ground No.8 of appeal is about interest under section 244A of the Act.At the time of hearing the AR for the assessee submitted that this issue is considered and decided in favour of the assessee by the Tribunal for AY.1997-98.The DR could not controvert the claim made

4442/M/10 & 4599/M/13-L&T by the AR.Therefore,respectfully following the above order of the Tribunal,last ground is decided against the AO.