ORDER JUGAL KISHORE, A.M.: This Special Bench has been constituted under s. 255(3) of IT Act, 1961 by Hon'ble President, Tribunal in case of M/s ITC Ltd. vide ITA No. 1541/Cal/2000 for asst. yr. 1997-98 to consider following questions : "(1) That on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of Rs. 38,64,109 debited to year's revenue account as value of stores written off by holding that it is for AO to prove that consumable stores had either not been used or individually costed less than Rs. 5,000 ignoring, in process, findings in assessment that claim could not be established on record. (2) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of Rs. 5,00,000 on account of building, furniture, fixture and fittings thereby contravening enunciation by jurisdictional High Court to defect (sic'effect) that prohibition against guest house expenses stipulated in s. 37(4) is absolute. (3) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of travelling expenses disregarding specific finding that assessee could not discharge statutory onus of providing that entire amount debited as expenses represented revenue expenditure laid out wholly and exclusively for purposes of business. (4) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of Rs. 67,59,104 without requiring expenses to controvert finding that amount represented outgoings in form of entertainment expenses. (5) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of Rs. 1,45,48,331 under sub-head of payments to clubs disregarding finding that no part of expenditure could be shown to have any direct and intelligible nexus with business of company as such. (6) That on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of Rs. 13,30,000 claimed as advertisement expenses when clearly expenditure in question did not qualify to be treated as admissible revenue expenses of company's business. (7) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition of 'repairs' when order of assessment showed that material evidence to establish claim had been omitted to be made available for AO's scrutiny. (8) That, on facts and in circumstances of case, CIT(A) has erred in deleting addition of Rs. 1,77,05,366 basing his analysis on method of accounting thereby ignoring fact that provision represented purely contingent expenditure. (9) That on facts and in circumstances of case, CIT(A) has erred in deleting addition of Rs. 55,00,000 by ascertaining capital or revenue nature of expenses solely with reference to composition of amount rather than purpose each component of expenditure was expected to serve. (10) That learned CIT(A) erred in law and on facts in summarily deleting addition under s. 43B r/w s. 36(1)(va) without appreciating that statutory disallowance is essentially to be based on facts and that unlike governmental liabilities of other nature covered by s. 43B, option to claim deduction in year of payment is not available under law in regard to contribution to employees' provident and pension funds. (11) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in deleting addition/disallowances of Rs. 2.5 crores under head other staff welfare business by holding that although assessee could not furnish details of such expenses before AO in course of assessment in deleting addition of Rs. 30,00,000 on account of expenditure on fuel soft coke for staff and mill workers by holding same as in nature of employees welfare expenses incurred on basis of agreement with workers in gross disregard to r. 46A of IT Rules, 1962 as assessee did not disclose fact of agreement with workers in course of assessment procedure and in deleting addition of Rs. 4,00,000 on account of school fees scholarship and educational tour expenses by holding that expenditure were incidental to assessee's business. (12) That learned CIT(A) erred in law and on facts in deleting addition of miscellaneous expenses ignoring trite law that decision in regard to different year cannot be taken as authority on facts. (13) That on facts and in circumstances of case, CIT(A) has erred in deleting addition by holding that onus of proof is, not on assessee, but on AO. (14) That on facts and in circumstances of case, CIT(A) has erred in deleting addition applicable without appreciating that arm's length principle had been clearly shown to have been violated. (15) Learned CIT(A) erred in law and on facts in directing adoption of total turnover net of excise duty for purposes of computation of admissible amount of deduction under s. 80HHC which directly contradicts law. (16) That, on facts and in circumstances of case, Hon'ble CIT(A) has erred in directing AO to allow deduction under s. 80HHC of IT Act, 1961 as per computation made by assessee's auditor without pointing out any defect in computation made by AO." 2. At outset, learned Departmental Representative for Revenue submitted that most of additions in this case have been deleted by learned CIT(A) following decision of Tribunal for asst. yr. 1994-95. He stated that facts of 1994-95 are not identical to facts of issues raised by Revenue in this case. In 1994-95, Hon'ble Tribunal while upholding order of learned CIT(A) has basically observed that special auditor under s. 142(2A) was appointed by Revenue and such special auditor in his audit report has not commented anything adverse, which could support observation of AO while making additions in case of asst. yr. 1994-95. Learned Departmental Representative submitted that since no special audit was got done by Revenue for year under consideration, decision of Tribunal for asst. yr. 1994-95 could not be relied for supporting order of learned CIT(A) for year under consideration. He stated that learned CIT(A) should have adjudicated matters on merit and should not have followed simply order of Tribunal for asst. yr. 1994-95. 3. learned Departmental Representative for Revenue arguing first ground raised by Revenue, has submitted that AO has dealt with above ground at page No. 35 of his order, wherein he has given specific reason for disallowing above claim. It has been contended by learned Departmental Representative that assessee in this case could not submit any evidence and documents asked for by AO. It has been pointed out by t h e learned Departmental Representative that though AO has asked for details and evidences as per direction of this Tribunal while setting aside matter to file of assessee, and in its reply assessee has relied upon documents and evidences filed before learned CIT(A). Learned Departmental Representative pleaded that assessee has not discharged its burden to prove genuineness of claim made by it. It has been submitted by learned Departmental Representative that though assessee has debited entire value of such obsolete consumable stores, at same time no resale value of such obsolete goods or stores has been shown by assessee, which is highly surprising. She has submitted that even this Tribunal while adjudicating ground No. 17 in case of 1994-95 had held that there should be some resale value of such items declared by assessee. It has been submitted by learned Departmental Representative that learned CIT(A) while deleting addition made by AO, has only followed decision of this Tribunal for asst. yr. 1994-95, wherein Tribunal upheld order of learned CIT(A) on ground that no adverse comment was passed by special auditor. Learned Departmental Representative contended that in these circumstances order of this Tribunal for asst. yr. 1994-95 should not be simply followed for deciding grounds raised by Revenue in this year. 4 . learned Departmental Representative has thereafter drawn attention of this Bench on details in respect of items of consumable stores which were written off by assessee and has submitted that from perusal of such details available at Annex. 3 to Enclosure B of paper book No. II, it is evident that such written off obsolete consumable stores includes 1,246 metric ton of coal, which is highly improbable of becoming obsolete. It has, therefore, been contended by learned Departmental Representative that since assessee has not co-operated with AO in providing details and evidences in support of claim made, AO has no option but to make disallowance, which has been deleted by learned CIT(A) in casual manner without disposing same on merit and, therefore, such order of learned CIT(A) is liable to be reversed. 5 . In his rival submission, learned senior counsel Shri R.N. Bajoria appearing for and on behalf of assessee has assailed above submission of learned Departmental Representative and has first pointed out that this Tribunal while restoring matter back to file of AO has basically done so to give opportunity to AO to examine evidence and documents filed by assessee before learned CIT(A). However, AO after such setting aside has asked for voluminous documents, which is not possible humanly. Shri Bajoria in support of his above contention has drawn attention of this Special Bench on letter of AO which is available at page No. 204 of paper book, wherein AO asked for details in support of such obsolete consumer stores written off. It has been submitted by Shri Bajoria that direction of this Tribunal should have been followed by AO in constructive manner as restoration of issues were made by this Tribunal for verification of evidence and documents filed by assessee before learned CIT(A) and it was not made with intention to provide opportunity to AO to make fresh assessment in regard to such claim of assessee. It has been submitted by Shri Bajoria that assessee company is having turnover of more than Rs. 6,000 crores and writing off Rs. 38,00,000 of consumer stores, which has become obsolete, is general phenomena in line of business of assessee. Shri Bajoria has also pointed out that so far as obsolence of coal is concerned such coal was wet having no value and even otherwise whenever such obsolete items were sold through auction, assessee used to show same under head 'Miscellaneous income'. 6. Shri Bajoria has thereafter submitted that facts of present case are exactly similar to facts of asst. yr. 1994-95 as nature of business of assessee remains same and, therefore, learned CIT(A) has rightly followed decision of this Tribunal in asst. yr. 1994-95 and such order of learned CIT(A) is liable to be upheld. learned Departmental Representative in his rejoinder has once again reiterated that AO is well competent to ask for details from assessee in respect of claim made by it and assessee was duty bound to prove genuineness of claim made by it and since assessee adopted method of non co-operation by not filing details called for, action of AO was well within ambit of law. 7 . We have carefully considered arguments of both sides and perused material placed before us. assessee has written off consumable stores amounting to Rs. 38 lacs, details of which are furnished before AO and kept at Annex. 3 of Enclosure B of paper book No. II of assessee are as under : "ITC Ltd. Asst. yr. 1997-98 Stores Written Off Amount Stores & spares for MK-5 (revenue stores & spares 4,36,003 for : cigarette machine) Stores & spares for MK 5-8-5 " 5,22,662 Stores & spares for MK-8 " 45,923 Stores & spares for PA7RO " 6,767 Stores & spares for MAX 111 " 17,299 Stores & spares for M2 Packer " 2,95,448 Stores & spares for MKL- Duplex " 2,889 Stores & spares for Bang Wrapepr " 98,055 Bearings 2,01,584 V-Belts 9,056 Miscellaneous spares 63,480 F & C on spares 73,878 Coal 1246-872 Mts. 19,76,893 Package & printing division munger-cost of silicon 1,14,172 1,14,172 carbide Total 38,64,109 8 . assessee has not furnished any evidence to prove that above consumable stores have become obsolete during year under consideration. t same time, considering volume of assessee's business wherein t h e assessee's turnover exceeded Rs. 6,000 crores, possibility of some consumable stores becoming obsolete cannot be ruled out. Further, obsolete stores would also have some realizable value. In case of assessee items written off included 1,246 M.T. of coal. Even if coal is dust or rejected, it has some realizable value. learned counsel for assessee has claimed that whenever consumable stores are sold, amount realized are credited as other income in assessee's books of account. However, learned counsel for assessee could not point out whether any amount on realization of 1,246 M.T. of coal and other consumable items written off in year under consideration was shown as miscellaneous income on its realization in this year or any of subsequent years. Considering totality of these facts and arguments of both sides, in our opinion, it would meet ends of justice if disallowance is sustained at 25 per cent of consumable stores written off by assessee. We hold and direct accordingly. 9. So far as ground No. 2 raised by Revenue is concerned, at outset it was agreed position between parties that above issue has to be decided in favour of Revenue and against assessee by virtue of order of Hon'ble Supreme Court in case of Britannia Industries Ltd. vs. CIT (2005) 198 CTR (SC) 313 : (2005) 278 ITR 546 (SC). In said case, their Lordships held as under : "The only question which we are called upon to consider in instant case is whether expression 'premises and buildings' referred to in ss. 30 and 32 and used for purposes of business or profession would include within its scope and ambit expression 'residential accommodation including any accommodation in nature of guest house' used in sub-ss. (3), (4) and (5) of s. 37 of Act. While two expressions can be similarly interpreted, distinction has been sought to be introduced for purposes of s. 37 by specifying nature of building to be guest house. In our view, intention of legislature appears to be clear and unambiguous and was intended to exclude expenses towards rents, repairs and also maintenance of premises/ accommodation used for purposes of guest house of nature indicated in sub-s. (4) of s. 37. When language of statute is clear and unambiguous, Courts are to interpret same in its literal sense and not to give it meaning which would cause violence to provisions of statute. If legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for purposes of business or profession, then it would not have felt need to amend provisions of s. 37 so as to make definite distinction with regard to buildings used as guest houses as defined in sub-s. (5) of s. 37 and provisions of ss. 31 and 32 would have been sufficient for said purpose. decisions cited by Dr. Pal contemplate situations where specific provision had been made in ss. 30 to 36 of Act and it was felt that what had been specifically provided therein could not be excluded under s. 37. clarification introduced by way of sub-s. (5) to s. 37 was also not considered in said case. As mentioned in decision of Calcutta High Court in case of CIT vs. Biswanath Tea Co. Ltd. (2003) 185 CTR (Cal) 488 : (2003) 264 ITR 166 (Cal), any other interpretation would negate very purpose of sub-s. (4) of s. 37. It is another matter that at subsequent point of time, legislature felt it necessary to omit said provisions, but they were in statute book at relevant point of time. rigours of same, in our view, cannot be avoided in instant case". 1 0 . We respectfully following same decide issue in favour of Revenue and against assessee and accordingly allow ground No. 2 raised by Revenue. 11. Brief facts relating to ground No. 3 are that assessee has made total claim of Rs. 40.91 crores under travelling expenditure and in tax audit report, disallowance under r. 6D stood at Rs. 64,56,704, AO observed that out of total travelling expenses sum of Rs. 7,18,72,4 57 only has been taken into consideration by auditors to quantify disallowance under r. 6D. AO has, therefore, observed that balance travelling expenditure of Rs. 33.74 crores has not been considered for working out disallowance under r. 6D. He has further held that details of travelling expenses reveal that sum of Rs. 58,30,454 has been incurred in connection with travelling undertaken by person other than employee of assessee and disallowance on this account under r. 6D has been worked out at Rs. 8,92,258 and, therefore, balance travelling expenditure for other person to extent of Rs. 49,38,196 has also not been incurred by employees or executives of assessee and, therefore, same is liable to be disallowed. AO has thereafter seen from details of balance travelling expenditure that assessee has not filed details and purpose of foreign visit made by officer of company and details regarding Indian travel has also not been filed. He has accordingly considering possibility of personal and pleasure trips disallowed 1 per cent of claim of Rs. 33.72 crores over and above disallowance of Rs. 49,38,196 claimed by assessee on account of travelling expenditure by person other than employees of assessee. 12. In appeal, learned CIT(A) has deleted addition made by AO on account of travelling expenditure incurred by assessee on person other than employees and ad hoc estimate disallowance of Rs. 33,72,275 holding that assessee has itself shown Rs. 8,92,258 as disallowable under r. 6D and fact that AO has not questioned basis of calculation. CIT(A) has also considered earlier order of his predecessor for asst. yr. 1994-95 while deleting additions of Rs. 49,38,196 and Rs. 33,72,275. 13. Revenue being aggrieved with such order of learned CIT(A) has now come in appeal before us vide ground No. 3 as mentioned hereinabove. 1 4 . learned Departmental Representative for Revenue has assailed order of learned CIT(A) and has contended that so far as disallowance of Rs. 49,38,196 is concerned, same was rightly made by AO as these expenditures were incurred by persons other than employee of assessee company and, therefore, by no stretch of imagination could be held s incurred for purpose of business and could not be allowed as such expenditures do not satisfy conditions for its admissibility as mentioned in s. 37(1) of Act. learned senior Departmental Representative extending her argument has pleaded that learned CIT(A) has deleted such addition only by stating that AO has not assigned any palpable reason for such disallowance. However, it is also fact that assessee has not been able to offer any reasonable explanation for incurring such expenditure for other than employees. She has also objected to action of learned CIT(A) in deleting addition of Rs. 33,72,275 and has submitted that since assessee has not submitted details of foreign travel and Indian travel, AO has no option but to make impugned disallowance, which has been deleted by learned CIT(A) only by following earlier appellate order of CIT(A) and order of Hon'ble Tribunal for asst. yr. 1994-95. She has relied on following judgments in support of her contention : (1) Goodyear India Ltd. vs. CIT (2000) 162 CTR (Del) 286 : (2000) 246 ITR 116 (Del); (2) CIT vs. Premier Breweries Ltd. (2005) 196 CTR (Ker) 496 : (2005) 279 ITR 51 (Ker); (3) Ram Bahadur Thakur Ltd. vs. CIT (2003) 181 CTR (Ker) 193 : (2003) 261 ITR 390 (Ker). It has, therefore, been prayed by learned Departmental Representative that since learned CIT(A) while deleting addition has not adjudicated upon observation of AO while making disallowance and, therefore, order of learned CIT(A) should be set aside and that of AO be restored. 15. In his rival submission, learned senior counsel for assessee Shri R.N. Bajoria has defended order of learned CIT(A) in deleting two folds disallowance by AO. He has first argued on disallowance of travelling expenditure by non-employee and has submitted that assessee had duly explained nature and reason of such travelling expenditures on non-employees which were basically incurred by auditors, retainers, consultants and non-executive directors, details of which were furnished along with tax audit report and assessee itself offered Rs. 8.92 lakhs being amount spent in excess of r. 6D. Shri Bajoria has submitted that Annexure to tax audit report clearly reflected fact that tax auditor had verified amount of disallowance and there was no scope for further disallowance under said rule and in these circumstances, learned CIT(A) was wholly justified in deleting disallowance. It has been pointed out by Shri Bajoria that even otherwise assessee company has got various factories, godowns and stock points at various locations of country and therefore it is necessary for auditor, consultant and retainers to verify documents and such verification is not possible without travelling to these places and, therefore, action of AO in disallowing sum of Rs. 49.38 lakhs was highly unjustified which has rightly been deleted by learned CIT(A). 16. Defending action of learned CIT(A) in deleting travelling expenses of Rs. 33.72 lakhs, Shri R.N. Bajoria has stated that tax auditor has quantified amount of travelling expenditure incurred by employees in excess of r. 6D and same has been offered to tax. It has been submitted by learned counsel that assessee in this case has duly submitted all relevant documents and evidences, which clearly indicated that such expenditure was not incurred for personal and pleasure trips, which could enable AO to make ad hoc disallowance. He has relied on following judgments in support of his contention that since books of accounts being audited in accordance with provisions of IT Act and has been accepted as true and correct, there is no justification to make any ad hoc or lump sum disallowance : (i) Asstt. CIT vs. Perfect Project Ltd. (2002) 253 ITR 16 (Cal)(AT) (Calcutta Bench); (ii) Sayaji Iron & Engg. Co. vs. CIT (2002) 172 CTR (Guj) 339 : (2002) 253 ITR 749 (Guj); (iii) Dinesh Mills Ltd. vs. CIT (2002) 173 CTR (Guj) 478 : (2002) 254 ITR 673 (Guj) and (iv) Nidhipati Singhania vs. Asstt. CIT (1991) 39 ITD 292 (All). It has, therefore, been contended that observing past order and considering facts and circumstances involved in case, learned CIT(A) was justified in deleting two folds of disallowance made by AO and such order of learned CIT(A) should be upheld. 17. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned counsel for assessee and case laws relied upon. In this case, AO has made two folds disallowance under head travelling expenditure. first disallowance out of travelling expenditure is on account of expenditure incurred by assessee to tune of Rs. 59.3 lakhs towards travelling of non-employees out of which Rs. 8.92 lakhs has already been offered by assessee under r. 6D and AO has made disallowance of balance of Rs. 49.38 lakhs holding that he was not convinced with commercial expediency of travelling undertaken by non-employees of assessee company. We after perusing Annexure of tax audit report and other evidence and document on record find that such travelling expenditures were undertaken by auditors, retainers, consultants and non-executive directors of company, such fact has clearly been shown in tax audit report furnished by assessee. auditors have duly verified such travelling expenditures by non- employees and have thereafter quantified sum of Rs. 8.92 lakhs disallowable under r. 6D of Act. So far as justification of balance Rs. 49.30 lakhs for business of assessee is concerned, it is also undisputed fact that assessee company has various factories, godowns and stock point apart from branches and offices at various locations of country and it is duty of auditors and other consultants to verify documents and books of accounts in order to give conclusive and authentic report to management. Apart from above, criteria for allowability of travelling expenditure is that whether expenditure was incurred for purpose of business or not. If expenditure is incurred for purpose of business, it is immaterial whether expenditure was incurred by employee of assessee company or non-employee of assessee company. When assessee engages outside agency, viz. auditor, consultant, advisor, etc. and travelling is undertaken by them for purpose of business of assessee company, expenditure incurred by them in such travelling has to be borne by assessee company and it would be allowable expenditure being incurred for purpose of business of assessee company. In present case, it has nowhere been brought on record by AO that expenditure was not incurred for purpose of business of assessee company. sole basis for disallowance of expenditure was that expenditure was incurred by persons other than employees of assessee company. In our opinion, disallowance made by AO was not justified and learned CIT(A) has rightly deleted same. 18. Coming to ad hoc disallowance of Rs. 33.72 lakhs by AO, we find that tax auditor has quantified amount of travelling expenditure incurred by assessee company in excess of r. 6D and has offered same for tax. Though assessee has submitted details of such expenditure, AO h s disallowed 1 per cent of such expenditure holding that personal and pleasure trips could not be ruled out. However, such observation of AO is not supported by any evidence on record. learned Departmental Representative though has relied on several decisions, but facts of such decisions are not identical to facts of this case. 19. In case of Goodyear India Ltd. vs. CIT (supra) relied upon by learned Departmental Representative, assessee failed to furnish details of certain expenditure and also failed to produce vouchers and other evidence in support of genuineness of such expenditure. On above facts, their Lordships of Delhi High Court have upheld estimated disallowance out of those expenditure. However, in case under consideration before us, assessee has produced details asked for by Revenue authorities relating to travelling expenditure. Therefore, facts of assessee's case are different than facts in case of Goodyear India Ltd. (supra). 20. In case of Premier Breweries Ltd. (supra), their Lordships of Kerala High Court held that burden is upon assessee to prove that expenditure is incurred for purpose of business. In said case, assessee has claimed deduction for payment in respect of liaison work and corporate management charges. It was found by AO that corporation has already banned liaisoning work and assessee could not produce evidence with regard to rendering of any service towards corporate management. In view of above facts, Hon'ble Kerala High Court upheld disallowance with regard to payment for liaisioning work and corporate management charges. There is no dispute with regard to legal proposition laid down by their Lordships of Kerala High Court that onus is upon assessee to prove that expenditure was incurred for purpose of business. However, in case under consideration before us, assessee has already proved that expenditure was incurred for purpose of business. Even AO himself has allowed 99 per cent of expenditure incurred by assessee company towards travelling. He only made ad hoc disallowance of 1 per cent out of travelling expenditure on estimate basis. Therefore, in our opinion, this decision of Hon'ble Kerala High Court does not support stand of Revenue. 21. In case of Ram Bahadur Thakur Ltd. vs. CIT (supra), again their Lordships of Kerala High Court have reiterated that burden is upon assessee to prove that foreign tour of director was for purpose of business. Since in that case facts were not properly examined either by AO or by appellate authorities, on facts matter was remanded to Tribunal to dispose of appeal afresh. 22. From these facts it is evident that facts of assessee's case are different than facts of cases relied upon by learned Departmental Representative. Considering facts of assessee's case and arguments of both sides, we do not find any justification for 1 per cent disallowance on ad hoc basis out of travelling expenditure incurred by assessee. We, therefore, hold that CIT(A) was justified in deleting such disallowance. Accordingly, order of CIT(A) on this point is sustained and ground No. 3 of Revenue's appeal is rejected. 23. Brief facts relating to ground No. 4 are that assessee company has claimed entertainment expenses to tune of Rs. 1,50,19,648 which was considered by assessee for working out disallowance under s. 37(2) in computation of income. disallowance worked out by assessee stood at Rs. 75,04,824. AO has observed that assessee company made payment to club amounting to Rs. 2,18,12,229 out of which Rs. 33,68,772 represents payment made to clubs for different purposes. AO thereafter on scrutiny of accounts has found that payment has been made in connection with entertainment against which assessee claimed that same were incurred during various business conferences and meetings held in clubs. AO has further observed that details of workmen and staff welfare expenditure of Rs. 22.04 crores reveals that same includes Rs. 4.06 crores as expenses towards lunch and refreshment, for which assessee has claimed that same has been incurred against canteen expenses relating to workmen and staff. AO has however observed that since no documentary evidence in support of claim has been filed and possibility of outsiders being entertained with lunch/refreshment could not be ruled out. He has disallowed 25 per cent of such expenditure i.e. Rs. 1,01,50,000. On same analogy, he has also disallowed 25 per cent of entertainment expenditure of Rs. 1,50,19,648 and of Rs. 33,68,772 being payment made to clubs and thereby making total disallowance under s. 37(2) at Rs. 1,42,64,210 against disallowance offered by assessee at Rs. 75,04,824 and thereby making further disallowance of Rs. 67,59,386. 24. In appeal, learned CIT(A) has deleted addition following order of his predecessor for asst. yr. 1994-95. In appeal before us learned Departmental Representative for Revenue has assailed such order of learned CIT(A) and has contended that learned CIT(A) while deleting addition has not taken into consideration observation of AO and has deleted same only by relying on decision of his predecessor for asst. yr. 1994-95, which was influenced by special audit report. It has been contended by learned Departmental Representative that since assessee had not discharged its onus to justify working out of disallowance under s. 37(2) by placing relevant evidence on record, action of AO in making further disallowance was correct and same was made after duly appreciating evidence, facts and circumstances of case. She has once again relied on same decision as relied by her while arguing ground No. 3 above. 2 5 . In his rival submission, learned counsel for assessee has heavily defended order of learned CIT(A) and has contended that all details were provided to AO and assessee after taking into consideration all facts and evidence on record has itself disallowed sum of Rs. 75,04,824 and, therefore, further disallowance of Rs. 67,59,386 by AO on ad hoc and presumptive basis was not at all correct and was rightly deleted by learned CIT(A) following order of his predecessor for asst. yr. 1994-95 as facts and circumstances of asst. yr. 1994-95 were exact and similar to facts of case during year under consideration and, therefore, it has been contended that order of learned CIT(A) be upheld. 26. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned counsel for assessee and case laws relied upon. AO in this case has made further disallowance of Rs. 67,59,386 over and above disallowance made by assessee at Rs. 75,04,824. disallowance by assessee has been made by taking into consideration entertainment expenditure of Rs. 1,50,19,648 whereas AO has further considered 25 per cent on amount spent by assessee company towards payment to clubs at Rs. 33.69 lakhs and 25 per cent of lunch expenditure at Rs. 1,01,50,000 as entertainment expenditure for purpose of disallowance under s. 37(2). 26.1 AO while disallowing 25 per cent of expenditure incurred towards lunch and refreshment has given specific observation that assessee has not been able to submit evidence in support of his contention that these were exclusively used by employee and other staff of assessee company. AO has given similar observation in case of expenditure incurred towards club payment. Since assessee has not been able to submit any details or evidence in support of its contention that these expenditures were wholly and exclusively incurred for employees and staff of assessee company and possibility of outsiders being entertained with lunch/refreshment and at club cannot be ruled out, in our considered opinion, some disallowance is called for. AO has worked out such disallowance at 25 per cent of payment to clubs and expenditure for lunch and refreshment, which is in our opinion on higher side, In our considered opinion, disallowance of 10 per cent in case of each of expenditure will meet ends of justice. We, therefore, direct AO to disallow only 10 per cent of expenditure incurred for lunch/refreshment and for payment of club and then work out disallowance under s. 37(2). We hold and direct accordingly and accept ground No. 4 raised by Revenue for statistical purposes. 27. Now we take up ground No. 5 raised by Revenue. Brief facts are that AO while computing total income observed that payment to clubs by assessee company includes expenditure of Rs. 1,45,48,331 for sponsorship, prize money, etc., which are not incidental to business and has accordingly disallowed same. In appeal, learned CIT(A) has deleted addition following earlier appellate order for asst. yr. 1994-95. 28. In appeal before us, learned Departmental Representative for Revenue has relied heavily on order of AO. 29. In his rival submission, learned counsel for assessee has relied heavily on order of learned CIT(A) and has further submitted that details in regard to sponsorship expenditure were submitted before AO and AO without discussing same has disallowed such expenditures in casual manner. It has been submitted by learned counsel that these expenditures r e being incurred on account of sponsorship of games mainly hoardings displayed at time of games, capitation fees to various sponsors and prize money etc. learned counsel has submitted that AO has made disallowance on mere suspicion and conjecture and without discussing nature of expenditure incurred by' assessee. It has been submitted that advertisements through sponsorship of events are incidental to business of assessee to promote its product and create public awareness for product of company and, therefore, these expenditures are incidental to business and have been incurred to promote product of company and, therefore, are allowable expenditure. In support of his contention, learned counsel has relied on following case laws : (1) CIT vs. Delhi Cloth & General Mills Co. (1999) 155 CTR (Del) 608 : (1999) 240 ITR 9 (Del); (2) Asstt. CIT vs. Hindustan Marketing & Advertising Co. Ltd. (1994) 49 TTJ (Del) 96; (3) G.D. Pharmaceuticals Ltd. vs. Dy. CIT (1997) 61 ITD 275 (Cal). It has, therefore, been prayed that advertisement expenses incurred in connection with sponsorship of events are allowable as revenue expenditure and, therefore, order of learned CIT(A) in this regard should be upheld. 30. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned counsel for assessee and case laws relied upon. In this case, AO has disallowed expenditure observing that these are not incidental to business of assessee. However, there is no discussion about nature of expenditure by AO, whereas assessee has submitted details in respect of expenditure incurred by it for sponsorship of events. Now days it is common to sponsor some sports or events to advertise products of company or company's corporate image itself. It is not in dispute that assessee had also incurred expenditure by sponsorship of events/sports for purpose of advertising its product/corporate image. Such expenditure is Revenue expenditure incurred for purpose of business. AO has not given any cogent reason for disallowing such expenditure. Hon'ble Delhi High Court in case of Delhi Cloth & General Mills Co. (supra) has upheld order of Tribunal allowing expenditure on football tournament incurred by assessee. No contrary decision is referred to by Revenue. In view of above, considering facts of case and arguments of both sides, in our opinion, CIT(A) has rightly deleted disallowance of expenditure on sponsorship of events made by AO. We uphold order of CIT(A) in this regard and reject ground No. 5 of Revenue appeal. 31. Brief facts relating to ground No. 6 are that assessee company has claimed sum of Rs. 1.33 crores as sales promotion expenses included under head "Advertisement expenditure". On being asked, assessee submitted that expenditure was incurred in connection with sponsorship on various events in order to promote its different cigarette brands. However, AO has observed that assessee failed to offer satisfactory explanation along with documentary evidence as to how different promotional expenses were fully incidental to genuine business needs of assessee. He has thereafter inferred that atleast 10 per cent of expenditure incurred by assessee should be considered for not being incidental to assessee's genuine business needs and has accordingly disallowed sum of Rs. 13,30,000. 3 2 . In appeal, learned CIT(A) has followed decision of his predecessor for asst. yr. 1994-95 and has deleted addition. 33. In appeal before us, learned Departmental Representative for Revenue has submitted that assessee in this case has not been able to place on record necessity of such expenditure and, therefore, in these circumstances, AO was very reasonable in disallowing 10 per cent of such expenditure, which should have been upheld by learned CIT(A). learned Departmental Representative has once again reiterated her submission that decision of this Tribunal in upholding deletion made by learned CIT(A) in case of 1994-95 cannot be relied in year under consideration as decision of 1994-95 of this Tribunal was basically rendered considering fact that special audit was conducted in that year, wherein no special audit has been made for year under consideration. learned Departmental Representative in support of her contention has relied on same decisions relied by her while making ground No. 3 above. 34. In his rival submission, learned senior counsel Shri R.N. Bajoria has defended order of learned CIT(A) and has submitted that action of AO in disallowing 10 per cent of such expenditure is totally irrational, illogical and is based on presumption. It has been argued by Shri Bajoria that since AO has himself accepted that 90 per cent of such expenditure was genuine, action of AO in doubting and disallowing 10 per cent of expenditure is totally unwarranted and is based on misappreciation of facts involved in this case. He has further contended that in all past years, such expenditures have been allowed and this is not case of Revenue that expenditure incurred by assessee has benefited to third party other than business needs of assessee and, therefore, in circumstances, action of learned CIT(A) in deleting addition by following order of his predecessor for asst. yr. 1994-95 is liable to be upheld. 35. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned senior counsel for assessee and case laws relied upon. In this case, AO has made addition on basis of presumption that at least 10 per cent of such expenditure must have been incurred other than business needs of assessee. However, while disallowing 10 per cent of expenditure, AO has not brought any material evidence on record to justify disallowance that such expenditure has resulted benefit to third party or has not been made by assessee for its genuine business needs. assessee has submitted details of expenditure relating to sponsorship for organizing various events for promotion of different brands of cigarettes manufactured by it. We also find that assessee has showed expenditure of Rs. 172.60 crores on account of advertisement expenses which includes Rs. 133 lakhs as sales promotion expenses as evident from details of advertisement expenses available at p. 62 of paper book. We find that assessee company has made expenditure on sponsorship of various events like golf, polo, football, cricket, racing, badminton, etc. for purpose of advertisement of its product. We have also noted down fact that Department has not disputed identical expenditures in any of previous year and auditors have also not pointed out that any such expenses was not related or incidental to business needs of assessee and, therefore, in our considered opinion, action of AO in disallowing 10 per cent of such expenditures without bringing any material evidence on record was not justified and learned CIT(A) has rightly deleted addition. We, therefore, uphold order of learned CIT(A) in this regard and reject ground raised by Revenue. 36. Brief facts relating to ground Nos. 7 and 9 by Revenue are that assessee has incurred expenditure of Rs. 12.32 crores on account of repairs to buildings, Rs. 17.29 crores on repairs to machinery and Rs. 13.37 crores on account of repairs to others. AO from perusal of details of such expenditures has observed that repairs to buildings include expenditure of Rs. 1.28 crores for repairs to company flats, whereas repairs to others include expenditure of Rs. 2.43 crores making total expenditure for repairs to Rs. 3.71 crores. AO has further noticed that these company flats are exclusively used by directors and higher executives of assessee company as their residence and, therefore, personal element in expenditure incurred in connection with residential flats could not be ruled out and has accordingly disallowed 1/4th of such claim amounting to Rs. 92,75,000. 3 7 . AO has further observed that machinery repairs expenditure include charges of Rs. 55 lakhs for reinstallation of Loga machine at Bangalore factory, which was brought from Saharanpur factory of assessee. AO has treated such expenditure in connection with installation of machinery as capital expenditure in view of decision of Hon'ble Supreme Court in case of Sitalpur Sugar Works Ltd. vs. CIT (1963) 49 ITR 160 (SC) and decision of Hon'ble Bombay High Court in case of CIT vs. Otis Elevator Co. (I) Ltd. 51 ITR 443 [sic'(1990) 51 Taxman 443 (Bom)]. He has accordingly made disallowance. 38. In appeal, learned CIT(A) has deleted addition following decision of his predecessor for asst. yr. 1994-95 in case of disallowance of Rs. 92,75,000 and has also deleted addition of Rs. 55,00,000 for reinstallation of machinery holding that reinstallation of machinery cannot be held as capital expenditure. learned CIT(A) has observed that decision of Sitalpur Sugar Works Ltd. (supra) relied by AO is not applicable in present case as above decision relating to shifting of entire factory from one place to another, whereas in present case, existing machine has been transferred from one factory to another for its efficient utilization. 39. Revenue is aggrieved with such order of learned CIT(A) and has now come in appeal before us by raising grounds No. 7 and 9 of its appeal. 40. In appeal before us, learned Departmental Representative for Revenue has relied on order of AO and has made same submission that decision of learned CIT(A) and Tribunal on same issue for asst. yr. 1994-95 cannot be relied upon as decision was rendered by taking into consideration special audit. 41. In his rival submission, learned counsel for assessee has relied heavily on order of learned CIT(A). It has been contended by Shri Bajoria that so far as disallowance of Rs. 92,75,000 is concerned, such disallowance was rightly deleted by learned CIT(A) as repairs of company flats used for directors and senior executives is common feature and even otherwise any expenditure on such company flats resulting into benefit to executives are considered in hands of executives while determining value of perquisites and in these circumstances, action of AO was not correct and learned CIT(A) was justified in deleting such addition. 42. Shri Bajoria has also defended order of learned CIT(A) in deleting addition of Rs. 55,00,000 and has pointed out that service charges paid to French company, who had supplied machines, is not meant for shifting of entire factory and, therefore, decision of Sitalpur Sugar (supra) by Hon'ble Supreme Court was not applicable as rightly held by learned CIT(A) while deleting addition. It has, therefore, been submitted by Shri Bajoria that order of learned CIT(A) was correct in holding that reinstallation of plant and machinery could not be held as capital expenditure and such order of learned CIT(A) is liable to be upheld. 43. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned counsel for assessee and case laws relied upon. So far as disallowance of Rs. 92,75,000 is concerned, AO in this case has accepted repair expenditures to extent of 75 per cent incurred by assessee on flats of company and disallowed 25 per cent of such expenditure observing that personal element in expenditure incurred in connection with residential flats cannot be ruled out. flats were o w n e d by assessee company and were utilised by directors or employees of assessee company for their residence. expenditure incurred on maintenance of assets (flats) owned by assessee company cannot be said to be personal expenditure merely because these assets have been utilised by directors/senior executives for their residence. When residential accommodation is provided to directors/executives of company, expenditure incurred thereon would be allowable expenditure in hands of that company. It would be perquisite in hands of directors/executives. assessee is company and any benefit and facility provided to directors/executives even for their personal benefit cannot be said to be personal expenditure of assessee company because company and employees are two different entities. Such facility, benefit or amenities would be perquisites in hands of employees. But so far as company i s concerned, it would be allowable as business expenditure because those facilities or benefits have been provided to employees to retain their services for purpose of business of company. Furthermore, providing such facility to employees is necessary to attract/retain skilled and experienced human resources. In view of above, we are of opinion that CIT(A) was justified in deleting disallowance of Rs. 92,75,000 made by AO. 4 4 . Coming to disallowance of expenditure of Rs. 55,00,000 for reinstallation of Loga machine, we find that such reinstallation expenditures were incurred in connection with shifting of machinery from Saharanpur and installing same at Bangalore unit of assessee. AO has disallowed such shifting and reinstallation expenses of such machinery treating same as capital expenditure and by relying on decision of Hon'ble Supreme Court in case of Sitalpur Sugar Works Ltd. (supra). However, ratio of decision of Hon'ble Supreme Court in case of Sitalpur Sugar Works Ltd. (supra) are not applicable to facts of present case as in case of Sitalpur Sugar Works Ltd. (supra), expenditures were incurred for shifting of entire factory. Whereas in present case, machinery from Saharanpur have been shifted to Bangalore unit and substituting is made for efficient utilization of machinery apart from fact that shifting of such machinery from one unit to another for its efficient use has not resulted into any addition in assets of assessee company and, therefore, in our considered opinion, such expenditure cannot be treated as capital expenditure and in these circumstances, learned CIT(A) has rightly deleted addition. Accordingly, we uphold order of learned CIT(A) on this ground and reject ground Nos. 7 and 9 raised by Revenue. 45. Brief facts relating to ground No. 8 by Revenue are that assessee company has created provision of Rs. 2,37,67,318 on account of damaged and destroyed stock of cigarettes and debited same to P&L a/c. On being asked, it was submitted by assessee before AO that it is policy of company to destroy damaged cigarettes from time to time after all formalities for getting approval in connection therewith are completed. Sometimes necessary approvals are not formerly obtained at end of year and as result thereof and in order to keep conformity with principle of mercantile system of accounting, provision is created for unapproved portion of damaged cigarettes which is reversed at beginning of next financial year and subsequently throughout year, all approved damaged stocks are written off. It was pointed out that even in immediately preceding financial year, provision of Rs. 60,61,952 was created for damaged stock and same was reversed at beginning of financial year. AO, however, not convinced with explanation by assessee, has not allowed such provision and after giving credits of Rs. 60,61,952, which was created by assessee during year under consideration, has disallowed sum of Rs. 1,77,05,366 under this head. In appeal, learned CIT(A) has deleted addition holding that necessary provision was made in books in accordance with mercantile system of accounting and, therefore, addition is uncalled for. Revenue is aggrieved with such order of learned CIT(A) and has now come in appeal before us. 46. In appeal before us, learned Departmental Representative for Revenue has assailed such order of learned CIT(A) and has contended that provision made by assessee company is absolutely contingent in nature as n o t ascertainable, which is evident from fact that assessee is itself reversing entry on very first day of next financial year. It has been contended by learned Departmental Representative for Revenue that entry made by assessee on account of such provision is certainly case of deviation/departure from established accounting principles and such claim of assessee is based merely on book entry and, therefore, provision on account of damaged stock cannot be allowed. In support of her argument, she has relied on decision of Hon'ble Supreme Court in case of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC). 47. In his rival submission, learned senior counsel for assessee, Shri R.N. Bajoria has relied heavily on decision of learned CIT(A) and has pointed out that identical issue arose before Tribunal in assessee's own case for asst. yrs. 1988-89 and 1989-90 in ITA Nos. 3485 and 3486/Cal/1992, order dt. 12th May, 2000, wherein this Tribunal vide para 10 of order held that when assessee is following mercantile system of accounting, then assessee is entitled for liability accrued towards giving credit to dealers for such damaged cigarettes. It has been submitted by Shri Bajoria that this is not case of Revenue that assessee is either claiming double deduction or of such provision made by assessee has resulted into any diversion of tax to immediately following year. It has been submitted that assessee is following such system of making provision since long and, therefore, action of AO in making disallowance without considering merit of provision by assessee was highly unjustified and in these circumstances, learned CIT(A) was correct in reversing such action of AO. It has, therefore, been pleaded that order of learned CIT(A) be upheld. 48. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned senior counsel for assessee and case law relied upon. From perusal of material available on record, it appears that AO has disallowed claim of assessee on basis of cash system of accounting, but assessee is claiming same on mercantile system of accounting. In this case, there is no dispute regarding value of damaged cigarettes and actual dispute is regarding year in which it has to be allowed, Department has basically deferred assessee's claim for deduction in respect to credit to be given to dealers on return of damaged stocks by one year, whereas assessee has claimed same in year in which it was sold. We have noted down fact that it is undisputed fact that assessee consistently follows mercantile system of accounting and, therefore, it has liability towards giving credit to dealers for damaged cigarettes and such liability of assessee cannot be held as contingent liability. We have also taken into consideration fact that such provision for damaged stocks has been made by assessee considering quantum of sales made by it to dealers and, therefore, action of assessee in making provisions for such damaged stocks on basis of its past experience cannot be held either bogus or contingent in nature keeping in view fact that assessee has not made double claim in cases of damaged stocks as evident from accounting entry passed by it by reversing such provision in immediately following year. 4 9 . Coming to case law relied by learned Departmental Representative for Revenue in case of Sutlej Cotton Mills Ltd. (supra), wherein Hon'ble Supreme Court has held as under : "It is now well settled that way in which entries are made by assessee in his books of account is not determinative of question whether assessee has earned any profit or suffered any loss. assessee may, by making entries which are not in conformity with proper principles of accountancy, conceal profit or show loss and entries made by him cannot, therefore, be regarded as conclusive one way or other. What is necessary to be considered is true nature of transaction and whether in fact it has resulted profit or loss to assessee." Considering facts involved in present case, above ratio laid down by Hon'ble apex Court rather supports claim of assessee as assessee is following such system of making provision since long and value and quantity claimed by assessee has also not been proved as false by Revenue except deferring such claim by one year and since in present case, assessee has not concealed any particulars regarding such damaged stocks and such provision has been made at end of year which is based on expected damaged stocks on sales made by it during year under consideration. Such action of assessee cannot be held either bogus or illegal in nature keeping in view fact that assessee itself reversed such entry in immediately following year and avails deduction only which is being claimed by dealers. 50. We also find that in identical conditions, this Tribunal in assessee's own case for asst. yrs. 1988-89 and 1989-90 in ITA Nos. 3485 and 3486/Cal/1992 (supra) at para 10 held as under : "We are fully satisfied that when assessee is following mercantile system of accounting then assessee is entitled for liability accrued towards giving credit to dealers for such damaged cigarettes. Such provision of credit liability is duly reflected in P&L a/c which were also audited. Therefore, we set aside orders of authorities below and allow claim of assessee with respect to provisions made for said sum during assessment years under consideration." We, therefore, considering facts and circumstances involved in case and in light of above discussion and respectfully following earlier order of this Tribunal in assessee's own case, do not see any reason to interfere with order of learned CIT(A) in reversing action of AO and, therefore, uphold same and reject ground No. 8 raised by Revenue. 5 1 . Ground No. 10 raised by Revenue relates to disallowance of contribution to PF/pension fund amounting to Rs. 74,06,687 made by AO observing that such amounts were paid beyond due date as prescribed in relevant Act and, therefore, contribution is to be disallowed in view of s. 2(24)(x) r/w s. 36(1)(va) of Act. learned CIT(A) in appeal has deleted such addition observing that amounts were paid within due dates as evident from audit report and, therefore, disallowance made by AO was uncalled for. 52. In appeal, learned Departmental Representative for Revenue has assailed order of learned CIT(A) and has submitted that auditors of assessee have themselves certified that amounts debited to P&L a/c in connection with provision for PF/pension fund were unpaid till 31st March, 1997 and were only paid on or before 30th Sept., 1997. It has been contended by learned Departmental Representative that so far as employees' contribution to PF is concerned, due date for payments with appropriate authority has to be read as mentioned in s. 36(1)(va) and not as per s. 43B. She has pleaded that employer's contributions are also to be paid on or before due date prescribed in PF/Pension Act and if assessee fails to pay same before due date as prescribed in this Act, same will be disallowed as held by Hon'ble Madras High Court in recent judgment in case of CIT vs. Synergy Financial Exchange Ltd. (2006) 205 CTR (Mad) 481 : (2007) 288 ITR 366 (Mad). 53. In his rival submission, learned senior counsel Shri R.N. Bajoria has relied heavily on order of learned CIT(A) and has drawn attention to this Bench on details of payment of provident/pension fund, gratuity fund and ESI, which are available at p. 93 of paper book and has pointed out that none of payments were made beyond due date (including grace period) as prescribed in those Acts and, therefore, there was no question of any disallowance either under s. 43B(b) or under s. 36(1)(va) r/w s. 2(24)(10) of Act. However, he was unable to state that whether such details of payments, which are available at p. 93 of paper book, were produced before AO for verification or not. 54. We have heard both parties and have taken into consideration orders of tax authorities. We have also considered paper book filed by learned senior counsel for assessee. So far as employer's contribution towards PF/pension fund are concerned, these are being dealt under cl. (b) of s. 43B which reads as under : "43B Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of.............................. (b) any sum payable by assessee as employer by way of contribution to any PF or superannuation fund or gratuity fund or any other fund for welfare of employees." assessment year in question before us is 1997-98 during which second proviso to s. 43B during relevant period reads as under : "Provided further that no deduction shall, in respect of any sum referred to in cl. (b), be allowed unless such sum has actually been paid in cash or by issue of cheque or draft or by any other mode on of before due date as defined in Explanation below cl. (va) of sub-s. (1) of s. 36, and where such payment has been made otherwise than in cash, sum has been realized within fifteen days from due date". above second proviso has been omitted by Finance Act, 2003 w.e.f. 1st April, 2004 and Special Bench, Chennai in case of Kwality Milk Foods Ltd. vs. Asstt. CIT (2006) 102 TTJ (Chennai)(SB) 1 : (2006) 100 ITD 199 (Chennai)(SB) has held that such amendment by Finance Act, 2003 is retrospective in nature. However, Hon'ble Madras High Court in case of CIT vs. Synergy Financial Exchange Ltd. (supra), has held that deletion of second proviso would not have any retrospective effect. Hon'ble Gauhati High Court in case of CIT vs. George Williamson (Assam) Ltd. (2006) 284 ITR 619 ( G u ) has held that such amendment to second proviso to s. 43B is retrospective in nature and therefore this will be applicable to earlier year also. Since there are two decisions one in favour of assessee and another against assessee, in our considered opinion view favourable to assessee should be taken as held by Hon'ble Supreme Court in case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC). We therefore, respectfully following same hold that employer's contribution are to be allowed, if paid, on or before due date of filing of return as prescribed in IT Act. 55. Coming to employees' contribution, we find that it is governed by s. 2(24)(x) r/w s. 36(1)(va) and not by s. 43B of IT Act. By virtue of s. 2(24)(x), which reads as under, employees' contribution shall be included in total income of assessee : "2(24) 'income' includes' ............................ (x) any sum received by assessee from his employees as contributions to any PF or superannuation fund or any fund set up under provisions of Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for welfare of such employees;" As per s. 36(1)(va), assessee will get deduction for payment of employees' contribution made on or before due date. This section reads as under : "(va) any sum received by assessee from any of his employees to which provisions of sub-cl. (x) of cl. (24) of s. 2 apply, if such sum is credited by assessee to employee's account in relevant fund or funds on or before due date. Explanation.'For purposes of this clause, 'due date' means date by which assessee is required as employer to credit employee's contribution to employee's account in relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;" 55.1 From combined reading of ss. 2(24)(x) and 36(1)(va), position emerges that any contribution made by employees to any PF, superannuation fund, ESI fund or any other fund for welfare of such employees received by assessee from his employees shall be deemed to be income of assessee of relevant year. However, assessee will get deduction therefor under s.. 36(1)(va) only if he deposits sum received from employees before due date specified under Act, Rule, Order or Notification governing funds mentioned above. Thus provision of s. 43B, which is applicable in respect of employer's contribution, is quite different than provision of s. 36(1)(va) which is applicable in respect of employees' contribution. So far as employer's contribution is concerned, as per proviso to s. 43B, deduction is permissible if payment is made on or before due date for filing of return as specified under s. 139(1) of IT Act. But in respect of employees' contribution, deduction would be permissible only if payment is made before due date as provided in respective Act, Rule, Order or Notification governing such fund, i.e. PF, superannuation fund, ESI fund or any other similar fund for welfare of employees. We may mention that payment made within grace period permissible under Act, Rule, Order or Notification of respective fund would be considered to be payment made within due date as per Explanation to s. 36(1)(va). By providing grace period, competent authority governing relevant fund permits employers to make deposits within such extended time as covered by grace period. Therefore, payment made within grace period would be considered to be payment made within due date under respective Act, Rule, Order or Notification within meaning of Explanation to s. 36(1)(va). 5 6 . Coming to facts of present case, we find that it has been contended by learned counsel that all payments either in respect of employer's contribution or in respect of employees' contribution have been made on or before due date including grace period. However, it has been contended by learned Departmental Representative that such details were not furnished before AO and it would require verification at end of AO whether payment was actually made within due date, as claimed by assessee. After considering arguments of both sides, we deem it proper to restore matter back to file of AO for verification of actual date of payment in this regard and thereafter recalculate disallowance under s. 43B/36(1)(va), if any, as per our observation above. Needless to mention that AO will allow adequate opportunity of being heard to assessee. Accordingly, ground No. 10 of Revenue's appeal is deemed to be allowed for statistical purposes. 5 7 . Ground No. 11 by Revenue relates to deletion of addition of workmen and staff welfare expenses of Rs. 2.5 crores. 58. assessee in this case has claimed expenditure of Rs. 22.04 crores under head "Workmen and staff welfare expenses". AO while perusing details observed that these claims included following expenses : Sl. Nature of expenditure Amount No. Fuel /soft coke for staff and mill 1. 30,00,000 1. 30,00,000 workers Management staff social/sports 2. l,55,00,000 activities Workers' social and sports 3. 41,00,000 activities Cultural/ retiring gifts, long time 4. 20,00,000 service awards School fees/ scholarship and 5. 4,00,000 educational tours AO has disallowed above expenditures observing that assessee has not been able to explain as to how these expenditures were incidental to assessee's genuine business needs. In appeal, such disallowance made by AO was deleted by learned CIT(A) observing that these expenditures related to genuine business needs of assessee and AO has not been able to bring any material evidence on record to show that expenditures were either not actually incurred or these were not incurred in connection with genuine business needs of assessee. learned CIT(A) further observed that identical disallowances were deleted by his predecessor for asst. yr. 1994-95. Revenue has disputed such deletion of addition by learned CIT(A) and has now come in appeal before us. 59. In appeal before us, learned Departmental Representative for Revenue has assailed order of learned CIT(A) and has submitted that assessee was not under any contract/obligation to incur such expenditures for employees. She has submitted that expenditures on employees' social/sports activities were not incidental to assessee's genuine business needs and, therefore, rightly disallowed by AO. 60. In his rival submission, learned senior counsel for assessee Shri R.N. Bajoria has assailed above submission of learned Departmental Representative for Revenue and has pleaded that agreement with workers were duly filed before AO, copy of which is also available at Annex. 19 of paper book. It has been contended by learned counsel that cultural/social activities by employees, tour and travelling are incidental to every business to keep morality of workers high for achieving targeted goals. It has been submitted that books of accounts of assessee are audited and there is no justification to make ad hoc or lump sum disallowance without bringing any material facts on record. He has stated that all expenses were incurred for welfare of employees and for organizing sports and cultural activities, which are meant for purpose of maintaining healthy and cordial relation with them. learned senior counsel has also relied on latest decision of Hon'ble Special Bench, Chandigarh in case of Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT (2006) 103 TTJ (Chd)(SB) 364 : (2006) 102 ITD 1 (Chd)(SB), wherein it was held that when expenditure has been incurred by assessee purely on commercial consideration, same has to be allowed. It has, therefore, been pleaded that order of learned CIT(A) be upheld. 61. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered paper book filed by learned senior counsel for assessee and case laws relied upon. assessee in this case has claimed these expenditures for organizing employees social and sports activities, cultural/retiring gifts, long time service awards, school fees/scholarship and educational tours expenses. AO has disallowed these expenditures holding that same are not incidental to business needs of assessee. However, this is also not case of revenue that expenditures were either not incurred or if incurred then were incurred for other than business purpose or for acquiring any assets. From details of such expenditures, it is evident that these expenditures were incurred for purpose of maintaining healthy and cordial relationship with staff and workers of assessee company, which in turn result in earning high profit and efficiency of resources. reimbursement of fuel/soft coke for staff and mill workers has also been made as per contractual agreement with staff and hence, purely incidental to business. 62. We, therefore, on basis of aforesaid facts and documents placed on record, are of opinion that such expenditures were necessary for commercial expediency and, therefore, are to be allowed as held by Hon'ble Supreme Court in its landmark decision in case of Shahzada Nand & Sons vs. CIT 1977 CTR (SC) 246 : (1977) 108 ITR 358 (SC), which has been followed by Hon'ble Special Bench, Chandigarh in case of Punjab State Industrial Development Corporation Ltd. (supra), for facility of reference relevant portion of Hon'ble apex Court is reproduced as under : "Commercial expediency must be tested in context of current socio- economic thinking'commercial expediency must be judged not in light of 19th century laissez faire doctrine which regarded man as an'economic being concerned only to protect and advance his self-interest but in context of current socio-economic thinking which places general interest of community above personal interest of individual and believes that business or undertaking is product of combined efforts of employer and employees and where there is sufficiently large profit, after providing for salary or remuneration of employer and employees and other prior charges such as interest on capital, depreciation, reserves, etc. part of it should in all fairness go to employees". We, therefore, considering facts and circumstances and relying on above discussion, are of opinion that expenditures incurred by assessee were necessary for commercial expediency and hence were incidental t o business needs and in these circumstances, learned CIT(A) was justified in deleting addition made by AO. We, therefore, uphold order of learned CIT(A) and reject ground No. 11 raised by Revenue. 63. Ground No. 12 raised by Revenue relates to disallowance of Rs. 7,67,40,000 under head "Miscellaneous expenses", which was comprised of following : Rs. (a) Social responsibility (public relation) 2,26,00,000 (b) Souvenir advertisement 5,00,000 (c) Garden expenses 52,00,000 (d) Residential expenses 2,89,00,000 (e) Sponsorship expenses 21,00,00,000 (f) Research and development 7,00,000 (g) Tobacco cultivation expenses 32,00,000 (h) Machine shifting expenses 41,00,000 (i) Salaries for Hotel Searock, Mumbai 2,46,00,000 (j) Music CC TV Charges (Hotels) 10,00,000 (k) Guest compensation charges 1,00,000 (l) Brokerage and commission 1,00,000 (m) Visitors expenses 16,00,000 (n) Sundries 80,50,000 AO has disallowed above expenditure holding that either above expenditures were not incidental to business or assessee did not produce any documents or evidences in support of expenditures incurred by it. AO in respect of expenditures incurred as mentioned in A, B, C, E, J and M h s observed that these expenditures are not related and incidental to business of assessee, whereas he has disallowed 10 per cent of residential maintenance expenses on ground that personal expenses cannot be ruled out. Regarding expenditures as mentioned in F, G, K, L and N, AO has disallowed expenditures observing that relevant evidences were not filed before him by assessee. AO has also disallowed machine shifting expenses considering same as capital expenditure and has also disallowed salaries paid for Hotel Searock, Mumbai observing that same cannot be allowed as said hotel was not at all operational during year under consideration. 64. In appeal, learned CIT(A) has deleted addition observing that AO has not made any effort to establish that either expenses were not incurred or if incurred these were not related to genuine requirement of business of assessee and disallowances have been made on mere surmises n d conjectures. learned CIT(A) has held that these expenses were incidental to genuine needs of assessee's business and identical additions made in earlier years have been deleted by his predecessors. CIT(A) thereafter following ratio laid down by Hon'ble Supreme Court in case of Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) has deleted addition made by AO. 65. Revenue is aggrieved with such order of learned CIT(A) and has now come in appeal before us. 6 6 . Smt. Pallavi Agarwal, learned Departmental Representative for Revenue has relied heavily on observation of AO while disallowing above expenditures. It has been contended by her that either assessee did not furnish details asked for by AO or claims made by assessee were not allowable as these were not incidental to genuine business needs of assessee. It has been pleaded by learned Departmental Representative that since assessee has not produced relevant details asked by AO and has also not been able to explain necessity of such expenditure for its business, AO in these circumstances, had no option but to make above disallowances. It has, therefore, been pleaded by her that order of AO be restored by setting aside order of learned CIT(A). 6 7 . In his rival submission, senior advocate Shri R.N. Bajoria, learned counsel for assessee has relied heavily on order of learned CIT(A) and has pleaded that all these expenditures were incidental to business of assessee. He has submitted that expenditures in respect of social responsibility were made for maintenance of traffic island, road-side railings etc. which enhances goodwill of company and as such is allowable expenditure. Arguing on advertisement expenses, learned senior counsel has submitted that advertisements in souvenirs are allowable as revenue expenditure in view of Circular No. 200 dt. 28th June, 1976 [1976 CTR (Journ) 460] issued by CBDT. Shri Bajoria has pointed out that garden expenses were incurred for garden maintenance in factory and office premises, which is purely business expenditure. Pleading for residential expenses, Shri Bajoria has stated that maintenance of residential complex at various units for providing security, electricity, water, repair and maintenance are purely incidental to business and even otherwise, these expenses constitute perquisites in hands of employees and, therefore, no question arises in considering same in hands of assessee. Shri Bajoria has then pleaded that sponsorship expenses for organizing various social and cultural events to promote its products and for creating public awareness are allowable expenditure in view of decision of Hon'ble jurisdictional High Court in case of G.D. Pharmaceuticals Ltd. (supra). 68. Shri Bajoria has thereafter submitted that other expenditures also such as research and development expenses, tobacco cultivation expenses, machine shifting expenses, music CC TV charges provided in guest room in t h e hotel, guest compensation, brokerage and commission and other miscellaneous expenditures are incidental to business activity of assessee and AO should have allowed same. Arguing on salaries for Hotel Searock, Shri Bajoria has submitted that AO had disallowed such salaries paid to Hotel Searock's staff without checking that hotel was operating during year under consideration and which is evident from expenditure tax paid by hotel. 69. Concluding his argument, Shri Bajoria has submitted that entire order of AO in making disallowance under this head is without referring to any evidence or any material evidence on record and AO has made addition on basis of pure guess and surmises which are not legally sustainable and, therefore, these have rightly been deleted by learned CIT(A). It has, therefore, been pleaded that order of learned CIT(A) be upheld. 70. We have considered rival submissions of parties and perused material placed before us. As stated in para 63 above, AO disallowed total sum of Rs. 7,67,40,000 under head "Miscellaneous expenses", which comprised of several expenses claimed by assessee as business expenditure. (a) Social responsibility (public relation)'Rs. 2,26,00,000 : 70.1 AO disallowed expenditure alleging that same was not incidental to assessee's business. It has been explained by assessee's learned counsel that to maintain goodwill of company, assessee had incurred this expenditure for maintenance of traffic island, road-side railings, public toilets etc. We find substantial force in arguments of learned counsel. Now days it is common incidence that company sponsors and takes responsibility towards beautification of city to maintain its corporate image which ultimately help company to advertise its products. Such expenditure is of revenue nature incurred for purpose of its business. By incurring expenditure on some social obligation, assessee ultimately was able to advertise its products at public places and this type of expenditure has definitely relevance with company's business policy and incidental to business to promote its product and create public awareness for product of company. AO did not dispute genuineness of expenditure incurred by assessee. He has not given any cogent reason for disallowing this expenditure, except making general observation that it was not incidental to assessee's genuine business needs. It was also not case of AO that assessee could not furnish relevant details/evidence in support of incurring such expenditure. In view of above, considering facts of case and arguments of both sides, in our opinion, CIT(A) has rightly deleted disallowance of expenditure on social responsibility made by AO. We, therefore, uphold order of CIT(A) on this issue. (b) Souvenir advertisement'Rs. 5,00,000 70.2 Here also AO disallowed expenditure holding that souvenir advertisements were basically donation in nature. In ground No. 6 of this Revenue's appeal, Department agitated deletion of addition on account of advertisement expenses. For detailed discussion made above in paras 31 to 35 of this order, we find no reason to interfere with order of CIT(A) on this issue. Apart from that, we find by virtue of Circular No. 200 dt. 28th June, 1979 of CBDT, claim in respect of expenditure on advertisements in souvenirs is to be allowed if there is evidence that expenditure has been actually incurred. AO in this case did not raise any question about non-furnishing of evidence in support of claim. Hon'ble Bombay High Court in case of Century Spinning & Manufacturing Co. Ltd. vs. CIT (1991) 99 CTR (Bom) 8 : (1991) 189 ITR 660 (Bom) has held that expenditure for advertisement in souvenir is not disallowable in view of CBDT Circular No. 200 dt. 28th June, 1979, which is binding on IT authorities in view of s. 119 of Act. In view of above, we hold that addition made by AO on this account was unwarranted and CIT(A) has rightly deleted same. (c) Garden expenses'Rs. 52,00,000 70.3 AO treated expenditure as inadmissible as according to him garden expenses have no connection with assessee's business. As explained by assessee, garden expenses were incurred for maintenance of garden in factory and office premises, which are purely business expenditure. It is common factor that business houses and even small establishment put efforts to keep their working place attractive with view to exhibit their image acceptable to their employees and public at large, which also helps company to maintain its corporate image. For beautification of business premises, gardening is first choice. Therefore, it cannot be said that these expenses are not related to assessee's business. In view of above, we are of opinion that CIT(A) has rightly deleted addition in absence of any contrary material being brought on record by AO. (d) Residential expenses'Rs. 2,89,00,000 7 0 . 4 assessee incurred expenditure on security, water, sewage, electricity, etc. for its residential complex at various units. AO on ground that personal element in expenditure cannot be ruled out disallowed on estimate 10 per cent of said expenditure which came to Rs. 2.89 crores. residential complex owned by assessee company at its different units were utilised by its directors or employees for their residence. expenditure incurred on security, water supply, electricity, etc. in connection with those accommodation cannot be said to be personal expenditure merely because these residential accommodations have been used for personal need of director/employees of assessee company. It would be in that case perquisite in hands of directors/executives. assessee is company and any benefit and facility provided to directors/ executives even for their personal benefit cannot be said to be personal expenditure of assessee company because company and employees are two different entities. Such facility, benefit or amenities would be perquisites in hands of employees. But so far as company is concerned, it would be allowable as business expenditure. Further, we have already dealt with similar issue raised in grounds No. 7 and 9 of this appeal in paras 36 to 44 above and we have for reasons stated therein deleted partial disallowance of expenditure made by AO. In view of above, we hold that AO was not justified in making partial disallowance of 10 per cent of expenditure incurred on residential expenses and CIT(A) has thus rightly deleted such disallowance, which we uphold. (e) Sponsorship expenses'Rs. 21,00,00,000 70.5 assessee incurred expenditure and claimed deduction of Rs. 21 crores in connection with various social and cultural events organised by it to promote its product and for creating public awareness as allowable expenditure. AO disallowed same observing that assessee failed to establish as to how this expenditure was genuinely incidental to its business needs. However, there is no discussion about nature of expenditure by AO, whereas assessee has submitted details in respect of same. While adjudicating ground No. 5 in paras 27 to 30 above, we have held that now days it is common to sponsor some sports or events to advertise products of company or corporate image itself. Such expenditure is revenue in nature and hence allowable. This finding of ours gets support from decisions of Hon'ble Delhi High Court in case of Delhi Cloth & General Mills Co. (supra). I n view of above, in our opinion, CIT(A) has rightly deleted disallowance of expenditure on sponsorship of social and cultural events. We, therefore, uphold his order on this issue. (f) Research and development'Rs. 7,00,000 70.6 AO found that assessee claimed this expenditure to have been incurred in connection with research work at Bangalore and Rajahmundry. He disallowed same holding that assessee could not furnish evidence in support of research work conducted by assessee. We have heard parties and perused material placed before us. It is not disputed that assessee company was having research units at Bangalore and Rajahmundry where research and development work is carried out. allegation of AO that assessee could not establish that research work was being carried out in those research centres, in our considered opinion, is vague. When it is not disputed that assessee has been maintaining two research units in two different places, then natural conclusion in absence of any evidence to contrary should have been that work for which these units are run must have been carried out. Therefore, when existence of research units are not disputed, expenditure incurred thereupon cannot be said to be inadmissible as non-business expenditure. In view of above, we uphold deletion of addition of Rs. 7,00,000 and sustain order of CIT(A) on this issue. (g) Tobacco Cultivation expenses'Rs. 32,00,000 70.7 According to assessee, this expenditure had been incurred by its leaf tobacco division for promotion of tobacco cultivation. AO observed that expenditure was in nature of aid given to local tobacco farmers. In absence of evidence regarding help rendered, AO disallowed claim. According to assessee, this expenditure was incidental to business activity of assessee and AO should have allowed same. From observation of AO it is evident that he did not dispute expenses incurred but he disputed nature of expenses as aid to farmers. For manufacturing cigarettes assessee required tobacco leaf. Therefore, if any expenditure is incurred for promotion of tobacco leaf cultivation by farmers, same was related to assessee's business of production of cigarettes. In view of above, we are of opinion that CIT(A) has rightly deleted disallowance of Rs. 32 lakhs on this account, which we uphold. (h) Machine shifting expenses'Rs. 41,00,000 70.8 assessee incurred expenses of Rs. 41 lakhs for shifting of cigarette business machinery from one factory to another. It was explained by assessee's learned counsel that this represented expenses of freight, insurance etc. incurred by factories in connection with movement of idle machinery for their efficient utilisation and hence same is allowable under provisions of IT Act. We have heard parties and perused material placed before us. jurisdictional High Court in case of CIT vs. Karanpura Development Co. Ltd. (1982) 31 CTR (Cal) 170 : (1983) 144 ITR 538 (Cal) has held that shifting of machinery from one factory premises to another factory premises did not result in any enduring benefit to assessee and expenditure cannot be treated as capital in nature. assessee has also filed copy of order of Tribunal, Kolkata Benches in case of assessee for asst. yr. 1991-92 in ITA No. 1 57 /Cal/1996, order dt. 30th April, 2001, which is placed at pp. 49 to 67 of paper book. In that order, Tribunal on pp. 13 and 14 (pp. 61 to 63 of paper book) after detailed discussions and deliberations upheld order of CIT(A) in deleting addition made on this account by AO. Facts and circumstances being identical, we respectfully following decision of Hon'ble jurisdictional High Court in case of Karanpura Development Co. Ltd. (supra) and said order of Tribunal do not find any reason to differ with deletion of disallowance made by CIT(A) on this issue. We uphold same. (i) Salaries for Hotel Searock, Mumbai'Rs. 2,46,00,000 70.9 During year under appeal, assessee incurred expenditure on salaries for Hotel Searock, Mumbai and claimed same as deduction. AO treated said expenditure as inadmissible observing that hotel suffered huge damages due to bomb blast in earlier year. Repairs of this hotel were still in progress during relevant accounting year and hence said hotel was not at all operational. learned counsel submitted that AO disallowed expenditure without checking with assessee whether hotel was operating. Referring to pp. 100 to 110 of paper book, learned counsel submitted that these documents will prove that hotel was operating and hotel was also paying expenditure tax in respect of sales of this hotel. Therefore, disallowance was unjustified. We have heard parties and perused material placed before us. assessee's accounts are audited. On p. 100 of paper book, assessee has submitted details of sales/income of hotel for year ended 31st March, 1997, relevant to assessment year under appeal, which is duly certified by auditor. This page reflects total sales/income of Rs. 11,94,142. Pages 101 to 103 of paper book are copies of return of expenditure and statement of chargeable expenditure. Pages 104 to 110 show break-up of month-wise chargeable expenditure, expenditure tax collected and deposited to Government. On perusal of these documents, it is clearly established that assessee's hotel at Mumbai was in running and in operational condition during assessment year under appeal. Therefore, AO's observation that hotel was under repair and non-operational during year is not based on any evidence on record. In view of above, we are of opinion that expenditure incurred by assessee on salaries for Hotel Searock, Mumbai was genuine and hence allowable. We, therefore, uphold order of CIT(A) in deleting such disallowance made by AO. We direct accordingly. (j) Music CC TV charges (Hotels) - Rs. 10,00,000 (k) Guest compensation charges - Rs. 1,00,000 70.10 assessee claimed said expenditure incurred in its running hotel business. AO found claim of assessee to be non-incidental in nature and hence disallowed same. CIT(A) allowed claim of assessee. assessee's learned counsel submitted that AO mistakenly disallowed these expenses on assumption that it is not incidental to assessee's business. assessee is engaged in hotel business and such expenditure was incurred in hotel in normal course. Music and colour T.V. are provided in all rooms in hotel and expenses were incurred for smooth operation of these electronic equipments. In regard to guest compensation charges, it was submitted that compensation to hotel guests is occasionally paid for routine issues like quality of food etc. It was further submitted that above expenses were very small and insignificant fraction of turnover. Therefore, disallowances made by AO were unjustified. We have heard rival contentions of parties and perused material placed before us. So far expenditure claimed under head 'Music CC TV charges (Hotels)' is concerned, providing of these articles in rooms of hotel, in our considered opinion, would be capital in nature. Therefore, claim of assessee for allowance of this expenditure as business expenditure cannot be accepted. We, therefore, reverse order of CIT(A) and sustain addition of Rs. 10,00,000 in this regard. At same time, however, we direct AO to allow depreciation on such Music CC and TV as per law. In regard to expenditure on guest compensation charges, we find substantial force, on facts and in circumstances of case, in submission of assessee's learned counsel. In view of above, we do not find any reason to interfere with order of CIT(A) on this issue. deletion of addition of Rs. 1,00,000 on this account is, therefore, upheld. We direct accordingly. (l) Brokerage and commission'Rs. 1,00,000 (m) Visitors' expenses'Rs. 16,00,000 70.11 AO disallowed expenditure on brokerage and commission of Rs. 1,00,000 in absence of relevant confirmation. In regard to visitors' expenses, AO alleged that commercial expediency of this expenditure could not be established by assessee. learned counsel submitted that brokerage and commission cover brokerage paid to agents for obtaining houses for employees to be provided by assessee. visitors' expenses cover expenses incurred in connection with visit of various VIPs to assessee's offices/units. It was also pointed out that expenditure on entertainment had already been offered for tax in pursuance of tax audit report and hence there cannot be double disallowance. It was further submitted that these expenses were routinely incurred at various offices/locations and same being incidental to business is allowable expenditure. We find that during year under appeal, assessee had incurred expenditure of Rs. 1 lakh on payment of commission and brokerage for searching out accommodation for employees to be provided by assessee. Considering smallness of expenditure and fact that providing accommodation to employees by assessee is not questioned, related expenditure thereon cannot be disallowed. In view of above, we uphold order of CIT(A) on this issue in deleting disallowance of Rs. 1,00,000. In regard to visitors' expenses of Rs. 16 lakhs, assessee being big industrial house, being one of highest tax payers in State of West Bengal, is visited by several VIPs and other business personalities and as matter of natural courtesy, assessee has to incur some expenditure on those visitors to maintain its goodwill and reputation in business field. This is related to its running of business. AO did not dispute incurring of said expenditure. His only stand was that of lack of commercial expediency, which in our opinion is not correct. We, therefore, find no reason to uphold said disallowance, which is deleted. (n) Sundries'Rs. 80,50,000 7 0 .1 2 AO for want of verification of details duly supported by evidences disallowed to extent of 1/10th of total expenditure claimed under this head of Rs. 8.05 crores, which came to Rs. 80,50,000, which was deleted by CIT(A). assessee's learned counsel submitted similar expenditure has been allowed in past years by CIT(A) and also by Tribunal in assessee's own case for asst. yrs. 1988-89 and 1989-90. We find that assessee has not been able to produce bifurcation of such expenditure either before Revenue or even before us. In these circumstances, CIT(A) was not justified in deleting addition entirely and hence some disallowance under this head is called for. Though AO has made disallowance of Rs. 80,50,000, i.e. 10 per cent of total sundry expenses at Rs. 8.05 crores, but such disallowance is also on higher side considering volume of turnover of assessee. We, therefore, restrict disallowance to 5 per cent. disallowance is thus sustained at Rs. 40,25,000 and assessee will get relief of Rs. 40,25,000. We direct accordingly. 71. Now we take up ground No. 13 raised by Revenue. At time of hearing, Revenue has sought to modify ground No. 13 and has filed modified ground of appeal which reads as under : "That on facts and circumstances of case Hon'ble CIT(A) has erred in deleting addition by AO of Rs. 4.78 crores on account of advancing interest-free loans to subsidiaries". 7 2 . learned counsel for assessee had no objection to modification of ground No. 13 by assessee. Accordingly, we consider and take up modified ground No. 13 for adjudication. 73. Brief facts relating to this ground are that AO has disallowed interest of Rs. 4,78,20,000 by calculating notional interest at rate of 18 per cent per annum on loans to subsidiaries observing that interest-free advances were made to subsidiaries out of borrowed funds. In appeal before learned CIT(A), it was submitted by assessee that loans to subsidiaries were given out of assessee's own fund and AO has simply notionally disallowed interest on such loans on ground that interest was also disallowed in earlier years. It was submitted before learned CIT(A) that identical disallowance was deleted by this Tribunal in asst. yrs. 1988-89 and 1989-90. learned CIT(A) after considering submission of assessee and following decision of this Tribunal has deleted addition made by AO. 74. In appeal before us, learned Departmental Representative for Revenue has assailed order of learned CIT(A) and has submitted that learned CIT(A) while deleting addition has merely followed earlier decision of this Tribunal for asst. yr. 1988-89. It has been pleaded that Tribunal while allowing relief to assessee has basically observed that onus was upon Department to prove that borrowed funds were utilised for advancing interest-free loans to its subsidiaries. Learned Departmental Representative has stated that such observation of Tribunal does not hold good in view of latest decision of Hon'ble Punjab & Haryana High Court in case of CIT vs. Abhishek Industries Ltd. (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H) and decision of Third Member (Chennai Tribunal) in case of Kumaragiri Textiles Ltd. vs. Dy. CIT (2006) 103 TTJ (Chennai)(TM) 805 : (2006) 100 ITD 57 (Chennai)(TM). It has, therefore, been submitted that order of AO be restored. 7 5 . In his rival submission, learned counsel for assessee has heavily defended order of learned CIT(A) and has pointed out that learned CIT(A) has deleted addition following earlier decision of this Tribunal in assessee's own case and such order of Tribunal was based on various decisions of Hon'ble Calcutta High Court. It has been pointed out by Shri Bajoria that Hon'ble Calcutta High Court in recent judgment in case of CIT vs. Britannia Industries Ltd. (2005) 198 CTR (Cal) 426 : (2006) 280 ITR 525 (Cal) has also decided similar issue in favour of assessee. Learned counsel has pleaded that assessee company has sufficient own funds to advance same to its sister concern and has stated that profit of t h e company during year itself is in hundred crores where loans to subsidiaries are even less than Rs. 50 crores. 76. It has also been stated by Shri Bajoria that decision of Hon'ble Punjab & Haryana High Court in case of Abhishek Industries Ltd. (supra) relied by learned Departmental Representative does not hold good in case of assessee, as Hon'ble Punjab & Haryana High Court in its order has disagreed with decision of Hon'ble Calcutta High Court in case of Britannia Industries Ltd. (supra). It has been submitted that since jurisdictional High Court has decided case in favour of assessee and facts and circumstances of case are identical as were involved in case of Britannia Industries Ltd. (supra), order of learned CIT(A) in deleting addition made by AO should be upheld. 77. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. In this case, assessee company has made following interest-free loans to its wholly subsidiary companies : (i) M/s Sumit Investments Ltd. 19.3 crores (ii) M/s Pinnacle Investments Ltd. 15.0 crores (iii) M/s Sage Investments Ltd. l1.0 crores AO has disallowed notional interest by calculating 18 per cent per annum on such loans to subsidiaries observing that borrowed funds were utilised to advance interest-free loans to sister concern. observation of AO is based on facts that such advances were made out of cash credit account maintained by bank. assessee has pleaded that it had sufficient own fund to make interest-free loans to its subsidiaries and has also submitted that such advancement of interest-free loans to subsidiaries is regular feature in case of assessee company and this Tribunal after considering various judgments of Hon'ble Calcuta High Court has decided issue in favour of assessee. 78. learned Departmental Representative for Revenue in support of his contention has relied on judgment of Hon'ble Punjab & Haryana High Court in case of Abhishek Industries Ltd. (supra) and decision of Hon'ble Tribunal, Third Member Court in case of Kumaragiri Textiles Ltd. (supra). However, decision of Hon'ble Punjab & Haryana High Court in case of Abhishek Industries Ltd. (supra) is not applicable to present case as while deciding issue Hon'ble Punjab & Haryana High Court has disagreed with decision of Hon'ble jurisdictional High Court in case of Britannia Industries Ltd., whereas Hon'ble Calcutta High Court in almost identical facts in case of Britannia Industries Ltd. decided issue in favour of assessee by holding as under : "From above discussion, we find in relation to each assessment years involved in this appeal that recipient of interest-free loan was not firm of relatives; advance was made for purpose of business within meaning of s. 36(1)(iii); that there was regular course of business between assessee and firm; and that advances were made to MCAP in regular course of business; such advances were made in course of business for commercial expediency and for purpose of business; findings arrived at by learned Tribunal were not perverse; entire expenditure was made from mixed account; therefore, there would presumption that amount was made out of own fund of assessee and not from borrowed capital; that there were sufficient funds and that advances were made from mixed account. Therefore, CIT(A) and learned Tribunal both were right in presuming that advance was made out from assessee's own fund eligible for benefit of s. 36(1)(iii)." 7 9 . Apart from above judgment, we find that Hon'ble Supreme Court in recent judgment in case of S.A. Builders Ltd. vs. CIT (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC) has held as under : "To consider whether one should allow deduction under s. 36(1)(iii) of interest paid by assessee on amounts borrowed by it for advancing to sister concern, authorities and Courts should examine purpose for which assessee advanced money and what sister concern did with money. That borrowed amount is not utilized by assessee in its own business but had been advanced as interest-free loan to its sister concern is not relevant. What is relevant is whether amount was advanced as measure of commercial expediency and not from point of view whether amount was advanced for earning profits. Once it is established that there was nexus between expenditure and purpose of business (which need not necessarily be business of assessee itself) Revenue cannot justifiably claim to put itself in arm-chair of businessman." 80. In present case, admittedly advances were made to sister concern out of cash credit account with bank but AO in this case has not made case that these advances were not made in course of business for commercial expediency and for purpose of business whereas assessee is making such interest-free advance to its sister concern since long during regular course of business. assessee has also disclosed profit of more than hundred crores, which justify claim of assessee to have made advance out of own fund and, therefore, other case law relied by learned Departmental Representative in case of Kumaragiri Textiles Ltd. (supra) also does not support action of AO as in that case, assessee failed to establish that it had sufficient own fund to advance interest-free loan to sister concern. We, therefore, considering facts and circumstances of case, are of opinion that Revenue in this case has failed to make case that borrowed funds were utilised for advancing interest-free loan to sister concern whereas assessee company has duly exhibited as to availability of own fund to enable it to make interest-free advance to its sister concern during course of its normal business. facts of this case are identical to facts of case of Britannia Industries Ltd. (supra), which has been decided in favour of assessee by Hon'ble jurisdictional High Court. We, therefore, do not see any reason to interfere with such order of learned CIT(A) in deleting addition and accordingly uphold same and reject ground No. 13 of Revenue. 81. Revenue has modified ground No. 14 which reads as under : "On facts and in circumstances of case, learned CIT(A) has erred in deleting addition of Rs. 13,28,09,673 made under s. 40A(2)(a) of IT Act, 1961 without appreciating that arm's length principle had been violated in this transaction." 8 2 . learned senior counsel for assessee has not pressed any serious objection on such modified ground No. 14 and after hearing both parties such application for modification of ground No. 14 is accepted. 83. Brief facts relating to this ground are that assessee company has made substantial purchases of tobacco from its fully owned subsidiaries viz. M/s All India Tobacco Co. Ltd. (in short AITC) and M/s Elan Enterprises Ltd. (in short EEL). assessee purchased tobacco of 87,07,939 kgs. valued at Rs. 60,20,23,738 from M/s AITC and tobacco of 29,62,211 kgs. valued at Rs. 20,41,64,531 from EEL. AO observed that purchases of tobacco from outside dealers during month of April, 1996 to March ,1997 is as under : Quantity Rate/Kg. Month Value (Rs.) (Kg.) (Rs.) April, 8,32,600 4,38,23,562 52.63 8,32,600 4,38,23,562 52.63 1996 May, 16,60,600 8,47,74,205 51.05 1996 June, 11,03,200 5,27,99,683 47.86 1996 July, 1996 8,01,000 10,17,13,309 126.98 Aug.,1996 2,71,800 1,69,73,082 62.45 Sept., 47,145 28,11,473 59.63 1996 Oct.,1996 - - - Nov., - - - 1996 Dec., - - - 1996 Jan., - - - 1997 Feb., 2,14,080 1,51,98,760 71.00 1997 March, 6,87,008 6,02,20,358 87.66 1997 56,17,433 48,00,27,741 Whereas purchases from M/s AITC during month of September, 1996 and January, 1997 are as under : Quantity Rate/Kg. Month Value (Rs.) (Kg.) (Rs.) Sept., 12,87,104 9,07,32,370 70.49 1996 Jan., 74,20,835 51,12,91,368 68.90 74,20,835 51,12,91,368 68.90 1997 84. AO observed that M/s EEL had opening stock of raw material valued at Rs. 62.52 per kg. and noticed that purchases from M/s EEL were made in May, 1996 at Rs. 68.92 per kg. comparing to purchase from outsiders of such tobacco at Rs. 51.05 per kg. AO has accordingly observed that assessee company has purchased tobacco from its subsidiaries at higher rate than prevailing rate in market during relevant period and has worked out excess payment to its subsidiaries at Rs. 13,28,09,673 and has disallowed same by invoking provision of s. 40A(2)(a) of Act. In appeal, learned CIT(A) has deleted such addition following decision of his predecessor in case of asst. yr. 1994-95 and has held that there is no tax evasion by assessee company and there were bona fide transactions with subsidiaries which do not attract provisions of s. 40A(2). 8 5 . In appeal before us, learned Departmental Representative Shri Raja Ram Shah has assailed order of learned CIT(A) and has submitted that facts of present case are different than decided by learned CIT(A) in case of 1994-95 and upheld by Hon'ble Tribunal. It has been submitted that AO in earlier years has held such transactions with subsidiaries as sham transaction, whereas in present case, AO has not considered transactions with subsidiaries as sham transaction but has disallowed payment by invoking provisions of s. 40A(2)(a). learned Departmental Representative has further stated that in asst. yr. 1994-95, assessee company had also made sales to its subsidiary companies, whereas no sale to i t s subsidiaries has been made in this year by assessee company and, therefore, facts of present case are altogether different than facts involved in case of asst. yr. 1994-95. learned Departmental Representative has thereafter relied on observation of AO while disallowing payment made to subsidiaries and has contended that from perusal of observation of AO, it is evident that assessee company has paid excess amount on purchases made from its subsidiaries. It has been stated that from facts and figures mentioned by AO in assessment order, it is apparent that assessee company paid higher amount for purchases of raw materials from i t s subsidiaries, whereas raw materials at cheaper rate were available with outsider sellers. learned Departmental Representative has pointed out that since AO in this case has established that excess payments were made by assessee to its subsidiaries against purchase of material, it was onus of t h e assessee to establish reasonableness of such payment. Since assessee failed to explain reason for such excess payments to its subsidiaries, AO has rightly made disallowance. In support of his plea, learned Departmental Representative has relied on following decisions : (i) Khan Carpets vs. CIT (2004) 187 CTR (All) 668 : (2003) 262 ITR 325 (All); (ii) Nirma Industries Ltd. vs. Asstt. CIT (2005) 95 TTJ (Ahd)(SB) 867 : (2005) 95 ITD 199 (Ahd)(SB). 86. In his rival submission, learned senior counsel for assessee Shri Bajoria has assailed above submission of learned Departmental Representative and has submitted that assessee in this case has not made any attempt to furnish any inaccurate particulars before AO and even auditor in audit report has mentioned such transaction with subsidiaries. Shri Bajoria has submitted that assessee company purchases two types of tobaccos i.e. raw tobacco and old and matured tobacco. Raw tobaccos are generally purchased from outsiders through auction, whereas old and matured tobaccos are generally purchased from subsidiaries. It has been submitted that raw tobaccos purchased are first processed and are stored for at least six months to achieve best results. assessee company has to incur large holding cost in form of storage and interest charges for holding such tobaccos for six months. learned senior counsel submits that in another way, cost of raw tobaccos becomes costlier after six months, since these become old and matured tobaccos. learned counsel has pleaded that these subsidiaries are holding tobaccos for more than six months and assessee company has purchased matured tobaccos from its subsidiaries at prevailing rate of such matured tobacco in market. 8 7 . learned senior counsel further submits that learned Departmental Representative is not correct in defending order of AO contending that facts of earlier year are not similar to facts of present case. He has submitted that in asst. yr. 1991-92, GP margins of subsidiary companies were ranging from 2.5 per cent to 4.47 per cent, whereas i n year under consideration such margin is only nearly 1 per cent. learned Authorised Representative further submitted that Revenue has not found any infirmity while completing assessment of these subsidiaries. Concluding his argument, Shri Bajoria has submitted that since purchase from subsidiary company has been made in interest of assessee's business, no disallowance under s. 40A(2)(b) was to be made and learned CIT(A) was correct in reversing such order of AO. 88. Parties were heard and records were perused. Sec. 40A(2)(a) reads as under : "Where assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in cl. (b) of this sub-section, and AO is of opinion that such expenditure is excessive or unreasonable having regard to fair market value of goods, services or facilities for which payment is made or legitimate needs of business or profession of assessee or benefit derived by or accruing to him therefrom, so much of expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction." 89. plain reading of provisions contained in s. 40A(2)(a) makes it clear that it would be applicable if following conditions are satisfied : (i) where assessee incurs any expenditure; (ii) payment for such expenditure is to be made to any person referred to in cl. (b) of this sub-section; (iii) AO is of opinion that such expenditure is excessive or unreasonable having regard to fair market value of goods, services or facility for which payment is made. 90. All above conditions must be satisfied so as to apply provisions of s. 40A(2)(a). So far as facts of case under consideration before us are that there is no dispute that assessee has incurred expenditure and payment has been made to person referred to in cl. (b). only dispute is whether payment for such expenditure is excessive or unreasonable having regard to fair market value of goods. In this regard, we agree with submission of learned Departmental Representative that whether payment is excessive or unreasonable is to be examined in each year and merely because in preceding year addition was deleted by Tribunal would not be sufficient to delete addition in subsequent year, because payment may be reasonable in one year and it may be unreasonable or excessive in other year. But now question remains whether in year under consideration AO had enough material to form opinion that payment made for purchase of tobacco from sister concern is excessive or unreasonable having regard to fair market value of such goods. As per chart given by AO himself at p. 25 of assessment order, which is also reproduced by us in our order, purchase of tobacco from outside varies from Rs. 47.86 per kg. to Rs. 126.98 per kg. Thus there was huge variation in rates of purchases of tobacco from outside dealers. AO has not disputed or doubted genuineness of above rates of tobacco purchased from outside dealers. Thus it is established fact accepted by Revenue itself that rates of tobacco vary considering quality of tobacco. It has been explained by learned counsel that tobacco purchased from sister concern is of better quality because sister concern after purchasing tobacco process it and keeps it in stock for longer period so that it can mature. From finding of AO in p. 26 of assessment order, it is evident that sister concern namely M/s EEL had opening stock of tobacco of 40,12,938 kgs. valued at Rs. 25.09 crores. Thus sister concern had carried huge stock of tobacco so that same can mature. tobacco has been sold to assessee as per requirement of assessee. purchase of t h e tobacco from sister concern namely AITC was @ Rs. 70.49 kgs. in September, 1996 and Rs. 68.90 per kg. in January, 1997. highest rate of purchase from outside was in July, 1996 which was Rs. 126.98 per kg. Thus purchase from sister concern was at lower rate than highest rate of purchase from outside. However, if we compare purchase rate of same month, i.e. September, 1996 in which purchase from outside was Rs. 59.63 per kg. while it was Rs. 70.49 per kg. from sister concern. purchase rate from sister concern is little higher than purchase rate from outside. However, it has been explained by learned counsel that purchase from sister concern was of matured tobacco which was kept in stock for quite long period by sister concern. This fact has not been denied or rebutted by AO. On other hand, in case of other sister concern M/s EEL, AO himself has recorded finding that sister concern carried huge stock of tobacco for quite long period. other purchase from sister concern namely M/s AITC was in January, 1997, which was @ Rs. 68.90 per kg. In January, 1997, there was no purchase from outside but nearest purchase from outside was in February, 1997, which was at rate of Rs. 71 per kg., which is higher than purchase from sister concern. Similarly, purchase from sister concern namely M/s EEL was at rate of Rs. 68.92 per kg. AO himself has recorded finding that M/s EEL had brought forward opening stock which was at rate of Rs. 62.52 per kg. which was sold to assessee at rate of Rs. 68.92 per kg. sister concern has incurred expenditure by way of godown charges and interest, etc. in keeping huge stock of tobacco and, therefore, gross margin of approximately 10 per cent charged by sister concern to meet cost of expenditure for carrying of stock and also for profit for services rendered by them cannot be said to be excessive or unreasonable. In view of above factual position, we are unable to agree with Revenue that AO had sufficient material to form opinion that payment to sister concern for purchase of tobacco was unreasonable or excessive having regard to fair market value of tobacco. Accordingly we uphold order of learned CIT(A) in this regard and reject ground raised by Revenue. 91. Now we take up ground No. 15 raised by Revenue. Ground No. 15 raised by Revenue is squarely covered in favour of assessee by recent decision of Hon'ble Supreme Court in case of CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1 : (2007) 290 ITR 667 (SC), wherein your Lordship held as under : "The object of legislature in enacting s. 80HHC of Act was to confer benefit on profits accruing with reference to export turnover. Therefore, 'turnover' was requirement, commission, rent, interest, etc. did not involve any turnover. Therefore, 90 per cent of such commission, interest, etc. was excluded from profits derived from export. Therefore, even without clarification such items did not form part of formula in s. 80HHC(3) for simple reason that they did not emanate from 'export turnover', much less any turnover. Even if assessee was exclusive dealer in exports, said commission was not includible as it did not spring from 'turnover', just as interest, commission, etc. did not emanate from 'turnover', so also excise duty and sales-tax did not emanate from such turnover. Since excise duty and sales-tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent, etc. do yield profits, but they do not partake of character of turnover and, therefore, they were not includible in 'total turnover'. above discussion shows that income from rent, commission, etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of turnover also. In fact, in Civil Appeal No. 4409 of 2005, above proposition has been accepted by AO, if so, then excise duty and sales-tax also cannot form part of 'total turnover' under s. 80HHC(3), otherwise formula becomes unworkable. In our view, sales-tax and excise duty also do not have any element of 'turnover', which is position even in case of rent, commission, interest, etc. It is important to bear in mind that excise duty and sales-tax are indirect taxes. They are recovered by assessee on behalf of Government. Therefore, if they are made relatable to exports, formula under s. 80HHC would become unworkable." Respectfully following decision of Hon'ble Supreme Court in case of CIT vs. Lakshmi Machine Works (supra), we decide issue in favour of assessee and against Revenue and accordingly reject ground No. 15 raised by Revenue. 92. Ground No. 16 relates to deduction under s. 80HHD of Act. Brief facts relating to this issue are that assessee company apart from other activities also run and manage chain of hotels known as "Welcome Group of Hotels". assessee company has claimed deduction of Rs. 30,39,30,662 under s. 80HHD of Act as per auditor's report in Form No. 10CCAD. assessee company has computed deduction under s. 80HHD on hotel-wise basis. AO has, however, recomputed computation on pro rata basis and h s computed such deduction in proportion as hotel foreign exchange receipts bear to total turnover from all activities of assessee. AO h s accordingly worked out deduction under s. 80HHD at Rs. 7,22,78,182 against deduction claimed by assessee at Rs. 30,39,30,662 resulting in reduction of allowance by Rs. 23,16,52,480. learned CIT(A) in appeal has accepted claim of assessee for deduction under s. 80HHD at Rs. 30,39,30,662 following his decision for asst. yr. 1994-95. Revenue has disputed such order of learned CIT(A) and has raised ground No. 16 against such order of learned CIT(A). 93. In appeal before us, learned senior Departmental Representative for Revenue Dr. Raja Ram Shah has assailed order of learned CIT(A) in allowing claim of assessee under s. 80HHD. It has been submitted by learned Departmental Representative that deduction claimed by assessee on basis of hotel-wise is not at all correct and has pleaded that deduction under s. 80HHD has to be computed taking into consideration sub-s. (3) of such section, which says that profit derived from services provided to foreign tourists shall be amount which bears to profit of business (as computed under head "Profits and gains of business or profession"). same proportion as receipt bears to total receipt of business carried on by assessee. It has been emphasized by Dr. Raja Ram Shah that interpretation of legislature while enacting s. 80HHD was very clear and was meant for allowing deduction in respect of profit on receipt from foreign tourists proportionately taking total receipts of business carried on by assessee. It has been argued by learned Departmental Representative that there was no intention for allowing unit-wise deduction under s. 80HHD and word "a hotel" used in sub-s. (1) of s. 80HHD is simply syntextually expression but relates to entire business activity of assessee including in running of hotel business. learned Departmental Representative, however, could not state reason for considering entire receipts from all other activities carried on by assessee for working out deduction under s. 80HHD by AO. He has, therefore, also argued on alternative plea from side of Revenue and has pleaded that at least receipt of entire hotel business should be considered while computing deduction under s. 80HHD. learned Departmental Representative in support of his above contention has relied on decision of Tribunal, Cochin Bench in case of Hotel & Allied Trades (P) Ltd. vs. Dy. CIT (2004) 91 TTJ (Cochin) 1025 : (2002) 83 ITD 85 (Cochin). He submitted that it has been held by Tribunal, Cochin Bench that hotel business of assessee should be taken as whole and not in part. It has, therefore, been pleaded that order of AO be restored by setting aside order of learned CIT(A). 94. In his rival submission, learned senior counsel for assessee has relied heavily on order of learned CIT(A) and has pleaded that assessee company has rightly computed deduction under s. 80HHD by computing deduction for each hotel separately and these have fully been verified and certified by auditors in line with practice followed by assessee in earlier year also. It has been contended that above method of computation has duly been accepted by learned CIT(A) in asst. yr. 1994-95 and such order of learned CIT(A) has been upheld by this Tribunal. 95. learned counsel has thereafter stated that s. 80HHD is intended to promote foreign exchange earnings for country and sub-s. (1) to s. 80HHD clearly allows deduction to assessee engaged in business of hotel approved by prescribed authority. learned counsel has emphasized on words "business of hotel" and has stated that same is meant for deduction in respect of each approved hotel and, therefore, deduction under s. 80HHD is to be computed for each hotel separately. learned senior counsel Shri Bajoria has stated that if profit and turnover of totally unrelated business, like tobacco, paper, printing and packaging are taken than computation under s. 80HHD will result into incongruous and unrealistic result without any rational relationship to profit derived by hotel from serving foreign tourists. It has been stated that sub-s. (2) lays down that s. 80HHD applies only to services provided to foreign tourists and receipts in relation to which are received from convertible foreign exchange. It has been stated that words "services provided to foreign tourists" clearly indicate that receipts with reference to services provided by hotel and has nothing to do with other activities of assessee and, therefore, other activities i.e. profit and turnover of other business except approved hotel business are to be excluded for computation of deduction under s. 80HHD. 96. Shri Bajoria has further submitted that computation for deduction under s. 80HHD is to be computed by taking of profit and receipts of hotel-wise and not by taking profit and turnover of all approved hotels. It has been submitted that if computation for deduction under s. 80HHD are made by taking profit and turnover of all approved hotels then hotels running in loss will jeopardize prospects of good hotel, which is not intention of legislature while enacting s. 80HHD. It has, therefore, been pleaded by learned senior counsel that computation in respect of deduction under s. 80HHD has rightly been claimed by assessee and, therefore, order of learned CIT(A) be upheld. 97. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. We have also considered relevant material available on record. Sec. 80HHD during asst. yr. 1997-98 reads as under : "80HHD. (1) Where assessee, being Indian company or person (other than company) resident in India, is engaged in business of hotel or of tour operator, approved by prescribed authority in this behalf or of travel agent, there shall, in accordance with and subject to provisions of this section, be allowed,.............. (a) fifty per cent of profits derived by him from services provided to foreign tourists; and (b) so much of amount out of remaining profits referred to in cl. (a) as is debited to P&L a/c of previous year in respect of which deduction is to be allowed and credited to reserve account to be utilized for purposes of business of assessee in manner laid down in sub-s. (4)." relevant sub-ss. (2), (2A) and (3) read as under : "(2) This section applies only to services provided to foreign tourists receipts in relation to which are received in, or brought into, India by assessee in convertible foreign exchange within period of six months from end of previous year or, within such further period as competent authority may allow in this behalf. Explanation 1'For purposes of this sub-section, any payment received by assessee, engaged in business of hotel or of tour operator or of travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through authorized dealer, (from another hotelier, tour operator or travel agent, as case may be,) on behalf of foreign tourist or group of foreign tourists, shall be deemed to have been received by assessee in convertible foreign exchange if person making payment furnishes to assessee certificate specified in sub-s. (2A). Explanation 2.'For purposes of this sub-section, expression 'competent authority' means RBI or such other authority as is authorized under any law for time being in force for regulating payments and dealings in foreign exchange. (2A)'Every person making payment to assessee referred to in Expln. 1 to sub-s. (2) out of Indian currency obtained by conversion of foreign exchange received from or on behalf of foreign tourist or group of foreign tourists shall furnish to that assessee certificate in prescribed form indicating amount received in foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed. (3)'For purposes of sub-s. (1), profits derived from services provided to foreign tourists shall be amount which bears to profits of business (as computed under head 'Profits and gains of business or profession' same proportion as receipts specified in sub-s. (2) as reduced by any payment, referred to in sub-s. (2A), made by assessee bear to total receipts of business carried on by assessee. 98. From plain reading of above s. 80HHD, assessee should fulfill following conditions to be entitled to deduction prescribed in above section : (i) assessee should be Indian company or person resident in India; (ii) assessee should be engaged in business of hotel or tour operator approved by prescribed authority in this behalf; or (iii) assessee should be travel agent. If assessee fulfills above conditions, he is entitled to 50 per cent of profit derived by him from services provided to foreign tourists. Sub-s. (3) prescribes procedure to compute profit derived from services provided to foreign tourists. As per this sub-section, such profit is to be worked out as per following formula : Profits of business (as computed under head "Profits and gains of business or profession) multiplied by receipts in convertible foreign exchange on account of services provided to foreign tourists divided by total receipts of business carried on by assessee. 9 9 . There is no dispute that assessee has fulfilled conditions prescribed under sub-s. (1) of s. 80HHD so as to be eligible for deduction in this section. dispute is with regard to computation of profit derived from services provided to foreign tourists. As per assessee, computation as per formula given in sub-s. (3) of s. 80HHD is to be made in respect of each approved hotel separately. While as per Revenue, computation is to be made considering total receipts of all hotels as well as all other businesses of assessee and also profits of all hotels and other businesses run by assessee. From plain reading of s. 80HHD(1), we find that assessee, who is engaged in business of hotel or of tour operator is entitled to deduction under s. 80HHD. Now question is alphabet "a" used before word hotel and tour operator is to be interpreted as "one" or it is only article used before noun i.e. hotel. In our opinion, alphabet "a" is used here only as article and cannot be interpreted as "one". If alphabet 'a' used before word hotel is interpreted as "one", result would be that assessee who is running one hotel or an, assessee who is operating one tour would only be entitled to deduction under s. 80HHD and not persons who are running more than one hotel or tour operator who is operating more than one tour would not be entitled. It cannot be intention of legislature. Therefore, we are of considered opinion that alphabet "a" used before word hotel cannot be interpreted as one. 100. Now next question is what is meaning of word "the profits of business" as used in sub-s. (3) of s. 80HHD, whether profit of all businesses is to be considered or profit of hotel business is to be considered and whether profit of each hotel is to be considered separately. In our opinion, meaning of word "the profit of business" used in sub-s. (3) means "the business" referred in sub-s. (1), i.e. business of hotel, which is approved by prescribed authority in this behalf. Therefore, profit of business other than business referred in sub-s. (1) has to be excluded while computing profit derived from services provided to foreign tourists under sub-s. (3). It would not be out of place to mention here that assessee is engaged in several business activities like manufacturing and sale of cigarettes, paper, packaging material, etc. All these businesses are separate and independent than hotel business of assessee. inclusion of profit of these businesses would distort correct determination of profit derived from services rendered to foreign tourists. In case of assessee itself in year under consideration by including profits and receipts of other businesses, deduction under s. 80HHD is worked out lesser than deduction claimed by assessee. But in subsequent year, when profit from other businesses is more, deduction under s. 80HHD works out to more than what is claimed by assessee and Revenue itself has computed deduction under s. 80HHD considering hotel business alone. However, we are also unable to agree with contention of learned counsel that deduction is to be computed separately in respect of each hotel. Sec. 80HHD(1) refers to business of hotel. business of hotel which is approved by prescribed authority has to be considered as whole being business which is entitled for deduction under s. 80HHD(1). Therefore, we hold that deduction under sub-s. (3) of s. 80HHD has to be computed by taking profits of hotel business approved by prescribed authority. To clarify, if assessee had ten hotels and seven hotels are approved for purpose of s. 80HHD(1) and three hotels are not approved then profit of all these seven hotels would amount to profits of business of hotel approved for purpose of s. 80HHD(1). Therefore, AO has to compute deduction under s. 80HHD(3) by taking profits of all hotels approved by prescribed authority. same is to be multiplied by receipts in convertible foreign exchange for services provided to foreign tourists by all these hotels and is to be divided by total receipts of all approved hotels. We hold accordingly. 101. assessee has also raised additional ground during course of hearing which reads as under : "That on facts and circumstances of case, Hon'ble CIT(A) has erred in deleting addition of Rs. 12.53 crores under head 'Advertisement expenses' made by AO comprising of expenditure incurred in connection with sponsorship, cinema, films, etc. and fabrication jobs." 102. learned senior counsel for assessee has not pressed any serious objection and, therefore, after hearing both parties, application for admission of additional ground is accepted. 103. Brief facts relating to this additional ground are that assessee company has made total claim of Rs. 172.60 crores, out of which Rs. 52.79 crores were incurred in connection with sponsorship of various sports events, like golf, polo, football, etc. AO has presumed that at least 10 per cent of such expenditures was not commercially expedient to business of assessee and has disallowed same. He has also disallowed Rs. 5.74 crores incurred by assessee for advertisement in cinema, film, video, etc. holding that these are non-incidental to business of assessee. AO apart from above two disallowances has also made disallowance of 10 per cent in connection with fabrication job of Rs. 15,05,65,278 and thereby making total addition under head 'Advertisement' at Rs. 12.53 crores. In appeal, learned CIT(A) has deleted addition following his decision in earlier assessment year decided in favour of assessee. 104. In appeal, learned Departmental Representative for Revenue has assailed order of learned CIT(A) and has relied on order of AO. learned Departmental Representative has submitted that disallowance on account of notional income from dismantling fabrication material out of fabrication expenses for Rs. 1.51 crores has rightly been made by AO. learned Departmental Representative has submitted that even this Tribunal while deciding case for asst. yr. 1994-95 has upheld contention of Revenue that notional income of 10 per cent being salvage value of dismantled fabrication material cannot be ruled out. learned Departmental Representative while arguing for deletion of other expenses by CIT(A) has simply relied on order of AO. 105. In his rival submission, learned senior counsel for assessee has heavily defended order of learned CIT(A) and has submitted that sponsorship expenses and expenditures on cinema and video have been incurred solely and exclusively for business of assessee and these expenditures have been incurred for promoting product of business and for creating public awareness. Arguing on fabrication expenses, it has been submitted by learned counsel that assessee is crediting salvage value of such dismantled fabrication materials as and when disposed by assessee and such receipts from sale of salvage value are credited under head "Miscellaneous income" at time of realization and, therefore, no question arises for considering any notional income out of such fabrication charges. It has, therefore, been prayed that order of learned CIT(A) be upheld. 106. We have given our careful consideration to rival submissions made before us and have perused orders of tax authorities. AO has made disallowance under this head mainly on three expenditures, viz. 5.28 (i) Expenses for sponsorship for sports crores 5.74 (ii) Cinema, film, video expenditure crores (iii) Salvage value of dismantled fabrication 1.51 material crores AO has accepted genuineness of such expenditures in case of sponsorship and video and cinema expenses to extent of 90 per cent and has disallowed 10 per cent of such expenditures presuming that it might have been incurred for other than business needs. However, such observation of AO is not supported by any material evidence on record. Whereas while deciding ground No. 12 i.e. regarding disallowance of miscellaneous expenditure, we have already held that advertisements through sponsorship events and through cinema and videos are incidental to business of assessee as these are incurred to promote its products and create public awareness of activities of company and these expenditures are purely and exclusively meant for business needs of assessee as also held by this Tribunal in case of G.D. Pharmaceuticals Ltd. (supra). We, therefore, do not find any infirmity in order of learned CIT(A) in deleting addition in respect of sponsorship expenses and expenses incurred on cinema and video and, therefore, uphold same and reject objection raised by Revenue. 107. learned Departmental Representative has also disputed order of learned CIT(A) in deleting addition of Rs. 1.51 crores made by AO considering notional income available to assessee from dismantling of fabrication materials. We have noted down fact that assessee has claimed that income available to it out of such salvage value of fabrication material is being credited under head "Miscellaneous income" and such contention of learned counsel has not been rebutted by learned Departmental Representative before us. We, therefore, in these circumstances are of opinion that addition made by AO in respect of notional income available to assessee from dismantled fabrication material is not correct as same will tantamount to double addition keeping in view fact that assessee is itself crediting such income available to it as soon as it realises income from sale of salvage material. We, therefore, in view of above facts, do not see any reason to interfere with order of learned CIT(A) in this regard and uphold same and reject additional ground raised by Revenue. 108. In result, appeal filed by Revenue is partly allowed. *** JOINT COMMISSIONER OF INCOME TAX v. I.T.C. LTD.