MANU/IU/0714/2016

IN THE ITAT, MUMBAI BENCH, MUMBAI

ITA No./4442/Mum/2010 and ITA No./4599/Mum/2013
Assessment Year: 1998-1999
Decided On: 27.07.2016
Appellants: Larsen & Toubro Ltd.
Vs.
Respondent: DCIT - Range 2(2)
Hon'ble Judges/Coram:
Joginder Singh, Member (J) and Rajendra, Member (A)
Counsels:
For Appellant/Petitioner/Plaintiff: J.D. Mistry
For Respondents/Defendant: Mukund Chate
Case Note:
Direct Taxation - Slump sale - Sale of unit - Commissioner held that Assessing
Officer (AO) was fully justified in rejecting claim of slum sale - Hence, present
appeal - Whether sale of earth moving manufacturing unit was slump sale -
Held, Assessee had sold going concern and joint venture had taken over all
assets and liabilities of Assessee for lumpsum price - It was not case of AO
that other units were not doing their businesses independently or they were
linked with unit sold by Assessee - Assessee had transferred business at
lumpsum consideration by way of slump sale - Thus, sale of earth moving
manufacturing unit was slump sale - Assessee would not be entitled to claim
loss for transaction in question - Appeal partly allowed. [4]
Facts:
During the assessment proceedings, the AO found that the assessee had
reduced the profit on sale of undertaking from the profit and loss account,
that it had claimed capital loss in its return, that construction equipment
manufacturing undertaking of the company 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 was a non-depreciable capital asset and
had worked out the LTCL, 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, stated that the works was transferred to a newly
incorporated joint-venture company, that the profit on sale and transfer of
undertaking was disclosed in the books of accounts. The AO 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 under Section 41(2) of Act, that the surplus over such

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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
was partly attributable to depreciable assets and party to land which was a
non -perishable fixed asset, that the consideration 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 unit did not
constitute sale of the entire business as a going concern or a slump sale. On
appeal, the First Appellate Authority 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. Hence, present appeal.
Held:
Sale of unit treated as slump sale:
(i) It was clear that if ongoing concern was 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 was not there-an amount was paid for transferring
an independent unit. The Assessee had sold a going concern and the joint
venture had taken over all the assets and liabilities of the Assessee for a
lumpsum price. Earth moving equipment manufacturing unit was an
independent unit and was sold to the JV without assigning any individual
value to either fixed assets or current assets, that it was sale of undertaking
as a whole. It was not the case of the AO that the other units were not doing
their businesses independently or they were inseparably linked with the unit
sold by the Assessee. In fact they were catering the need of all other
divisions. As an independent unit, earth moving manufacturing unit, was a
separate business having its own assets and liabilities. The Assessee had
transferred that division to JV for a lump sum amount. While doing so,
depreciation was not claimed on the assets transferred. It was 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. 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. There
was nothing on record to show that the value shown by the JV was the
itemized value of the assets owned by the Assessee. Thus, the sale of earth
moving manufacturing unit was a slump sale. The Assessee would not be
entitled to claim loss for the transaction in question.[4]
ORDER
Rajendra, Member (A)
1. Challenging the order dt. 26.03.2013 of 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

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of Rs. 37.20 crores. The AO completed 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 ITA No. 2200/M/2000, 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."
Respectfully following the above order of the Tribunal, we decide the first ground of
appeal against the assessee.
3 . Second ground is about addition made under section 40A(9) in respect of
contribution to Marine Navy Officers Welfare Fund (Rs. 8.85 lakhs) and Utmal
Employees Welfare Fund (Rs. 1 lakh). Representatives of both the sides agreed that
identical issue was decided in favour of the assessee by the Tribunal, while adjudicating
the appeal for A.Y. 1997-98 as under:-
"6. Ground No. 4 relates to the disallowance of Rs. 6,32,725/- on account of
contribution to Marine Navy Officers Welfare Fund. This issue has been
discussed by the Assessing Officer at para 18 page 9 of his order and the same
has been considered by the CIT(A) at para 13 page 5 of his order, wherein the
CIT(A) has directed the Assessing Officer to allow deduction of Rs. 1,00,000/-.
Similar disallowance was considered by the Tribunal in ITA No.
2200/Mum/2000 at para 12 and 13 of its order at page 5 & 6, wherein the
Tribunal has followed its own decision in ITA No. 3943/Mum/98. Facts and
circumstances being identical, respectfully following the decision of the
Tribunal in the assessee's own case for earlier years, we direct the Assessing
Officer to delete the addition of Rs. 6,32,725/-. Ground No. 4 is accordingly
allowed."
Respectfully following the above, ground No. 2 is decided in favour of the assessee.
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
proceedings, 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

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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 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 50B 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 (MANU/SC/0773/1997 : 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 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

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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 section2(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 taxability 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 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

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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. (100 TTJ 502) and observed that mere recitals of the agreement would not be
sufficient to hold that transaction was slump sale or 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 :
MANU/DTCR/0010/1971, 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

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the assessee, that the reliance placed by the AO on the valuation report was totally
arbitrary, that the value of fixed assets had been 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. (307
ITR 57), Electric Control Gear Manufacturing Company (MANU/SC/1245/1997 : 227 ITR
278) and Novartis India Ltd. (64 SOT 84). 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.
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 Bangalore 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. (MANU/MH/0162/2012 :
343 ITR115) Hon'ble Bombay High Court has defined the word slump sale in following

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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 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 consideration 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 of Agrosynth Chemicals (MANU/KA/0116/2010
: 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

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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.......
9. Both the counsel have relied upon the judgment rendered by their Lordships
on the same day, viz., July 8, 1997. The judgment in Artex Manufacturing
Company MANU/SC/0773/1997 : [1997] 227 ITR 260 (SC) was delivered earlier
and later on, the same day, the judgment in Electric Control Gear Manufacturing
Company MANU/SC/1245/1997 : [1997] 227 ITR 278 has been delivered.
Based on the facts in each case, their Lordships have taken a view that section
41(2) is applicable in the case of Artex Manufacturing Company
MANU/SC/0773/1997 : [1997] 227 ITR 260 (SC) and similarly their Lordships
have held that the provisions of section 41(2) of the Act is not applicable to the
facts involved in Electric Control Gear Manufacturing Company
MANU/SC/1245/1997 : [1997] 227 ITR 278.
10. In view of these two judgments, we have to find out whether the facts in
the present case are similar to the case in Artex Manufacturing Company
MANU/SC/0773/1997 : [1997] 227 ITR 260 (SC) or Electric Control Gear
Manufacturing Company MANU/SC/1245/1997 : [1997] 227 ITR 278. If the case
in hand is similar to that of Artex Manufacturing Company MANU/SC/0773/1997
: [1997] 227 ITR 260 (SC), we have to reverse the finding of the Tribunal as
well as the Commissioner of Income-tax (Appeals), and if the judgment in
Electric Control Gear Manufacturing Company MANU/SC/1245/1997 : [1997]
227 ITR 278 could be made applicable to the present case based on the facts of
the case, then the appeal of the Revenue has to be dismissed, by answering the
questions of law. In order to appreciate the facts of this case, the agreement
entered into between the assessee and M/s. Agrosynth Chemicals Ltd., we have
to examine the nature of transactions. The learned counsel for the parties have
made available the copy of the agreement entered into between the assessee
and the purchaser, dated December 1, 1994. Under the agreement, the entire
land measuring 5 acres along with the factory buildings, plant and machinery
and the assets and liabilities are sold for a total consideration of Rs.
1,50,00,000 and the company which has purchased it had agreed to pay the
consideration of Rs. 1,50,00,000 by allotting 15 lakhs equity shares of Rs. 10
each in favour of the partners of the assessee. On going through the
documents, the agreement does not reflect the actual value of the land,
building, plant and machinery. It also does not reflect the actual liability of the
assessee payable to different persons. It is composite agreement, agreeing to
sell the entire going concern of the factory, as it is. But, in the case of Artex
Manufacturing Company MANU/SC/0773/1997 : [1997] 227 ITR 260 (SC),
during the course of assessment, the assessee had produced the document to
show the value of the articles sold by it. Therefore, the facts involved in Artex
Manufacturing Co. and the facts involved in the present case are different. But

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 in the case of Electric Control Gear Manufacturing Company
MANU/SC/1245/1997 : [1997] 227 ITR 278, the agreement relied upon in the
said judgment and the agreement relied upon in the present case are more or
less same. Therefore, relying upon the judgment in Electric Control Gear
Manufacturing Company MANU/SC/1245/1997 : [1997] 227 ITR 278, we have
to answer the questions of law against the Revenue and in favour of the
assessee."
Finally, we would also like to refer to the case of Ece Industries Ltd.
(MANU/DE/4142/2010 : 344 ITR 382) of the Hon'ble Delhi High Court. In that matter
the assessee had sold its lamp division in the previous year relevant to the assessment
year 1999-2000 for a sum of Rs. 42.50 crores. In the computation of capital gains, the
assessee showed cost of the lamp division at Rs. 59.33 crores and declared the long
term capital loss at Rs. 16.83 crores to be adjusted against the profit for the current
year. The AO invoked the provisions of section 50 of the Act and issued a show-cause
notice to the assessee. The assessee submitted that no part of the price of Rs. 42. 50
crores was attributable to any particular asset including any depreciable asset and, so,
the provisions of section 50(2) were not attracted. It also contended that it was an old
concern for more than 36 months, its transfer would give long-term capital gain. The
AO held that the capital gains on the depreciable asset were to be treated as short-term
capital gains and required the assessee to quantify the consideration received by it for
sale of tangible and intangible assets but the assessee did not furnish the information.
Accordingly, he took the written down value of the assets of the lamp division at Rs.
5,15,75,131 as declared by the assessee out of which he segregated the value of land
and applied indexation. Consequently, he computed the short-term capital gains at Rs.
36,89,23,393. The FAA confirmed the order passed by the Assessing Officer holding that
the assessee had merely 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

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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.
"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

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 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.
3. Purchase Price
3.1 Consideration
The total consideration to be paid to L & T by JVC for the L & T Transferred
Business shall be in an amount equal to the Effective Amount plus/minus
Adjustment Amount (the "Final Closing Amount").
As of the Effective Date, the Parties have agreed upon the Effective Amount as
set out in the Exhibit-A hereto, based upon the valuation confirmed by Komatsu
and mutually agreed."
A perusal of the above leaves no doubt that the assessee had sold a going concern and
the JV had taken over all the assets and liabilities of the assessee for a lumpsum price.
We further hold that earth moving equipment manufacturing unit was an independent
unit and was sold to the JV for Rs. 186.10 crores without assigning any individual value
to either fixed assets or current assets, that it was sale of undertaking as a whole. It is
found that the said unit was allowed 80I deduction in earlier years. It proves that it was
not dependent on other divisions located at Bangalore. It is not the case of the AO that
the other units were not doing their businesses independently or they were inseparably
linked with the unit sold by the assessee. In fact they were catering the need of all
other divisions. As an independent unit, earth moving manufacturing unit, was a
separate business having its own assets and liabilities. The assessee had transferred
that division to JV for a lump sum amount. While doing so, depreciation 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 manufacturing 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.

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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.
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
iv. 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
ITA No. 2200/Mum/2000 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.

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 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 A.Y. 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 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 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 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.

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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 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).
9.1. During the assessment proceedings, the AO, referring to the matter of K.K. Doshi
(MANU/MH/0679/2000 : 245 ITR 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

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of K.K. Doshi (supra) that stands reversed by the Hon'ble Apex Court
(MANU/SC/8246/2007 : 297 ITR 38). 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.
1 0 . 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 disallowed. He referred to the case of
Distributors Baroda Ltd. (MANU/SC/0146/1985 : 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 ad-hoc
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 disallowance. 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 A.Y. 1997-98, the Tribunal had disallowed the
expenses relating to interest on tax free bonds @ 2%, and had held that strategic
investments made by the assessee, should be excluded for 14A disallowance. Following
the same, ground raised by the assessee is allowed in its favour, in part.

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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 (MANU/SC/0150/2010 : 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.
1 3 . 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. Coromandel Fertilizers
[MANU/AP/0729/2001 : 247 ITR 417], Calcutta High Court in the case of CIT
VS. Graphite India Ltd. [MANU/WB/0079/1996 : 221 ITR 420] and that of
Gauhati High Court in the case of DCIT Vs. Assam Asbestos Limited
[MANU/GH/0107/2003 : 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. Acrow India Ltd. [MANU/MH/0186/1997 : 229 ITR 325] has upheld

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 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.
15.1 With 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 ITA No. 4299/Mum/2001 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.
17. 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 ITA No.
4299/Mum/2001 for A.Y. 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

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 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.
18. 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 ITA No. 2200/Mum/2000, 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.
19. 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 A.Y. 1997-98 (supra). Respectfully following the above,
ground No. 4 stands dismissed.
2 0 . 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 ITA
No. 4299/Mum/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 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 these 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.
21. Sixth ground of appeal is about charges, including commitment charges, in respect

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of borrowings made for cement projects (Rs. 5.61 crores). Representatives of both the
sides agreed that the issue stands decided against the AO by the Tribunal order for the
A.Y. 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 ITA
No. 2863/Mum/2000 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
following the decision of the Tribunal in these 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.
22. 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 A.Y. 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 ITA No.
3533/Mum/2001 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."
2 1 . 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.
23. 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 A.Y. 1997-98. The DR could not controvert
the claim made by the AR. Therefore, respectfully following the above order of the
Tribunal, last ground is decided against the AO.
As a result, appeal filed by the assessee stands partly allowed and appeal of the AO is
dismissed.

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Order pronounced in the open court on 27th July, 2016.
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