Appeal partially granted on waiver, pension, and credit issues; disallowed capital loss claims.

The Tribunal partially allowed the appeal, granting relief on the waiver of advances, special pension liability, and Modvat credit issues. However, it upheld the disallowance of capital loss claims and partially allowed the claim under Section 80HHC.

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Issues Involved:
1. Deduction in respect of waiver of advances.
2. Claim of short-term and long-term capital loss on sale of R&D assets.
3. Claim of special pension liability based on actuarial valuation.
4. Addition on account of unutilized Modvat credit.
5. Claim of deduction under Section 80HHC on certain receipts.

Detailed Analysis:

1. Deduction in Respect of Waiver of Advances:
The assessee claimed a deduction of Rs. 15,11,15,380/- representing the waiver of advances given to its subsidiary, MGDL. The waiver was due to the prolonged process of getting clearances for property development. The assessee argued that the deduction should be allowed under Sections 36(1)(vii), 37(1), or 28 of the Income Tax Act. The Assessing Officer rejected the claim on several grounds, including the failure to meet the conditions under Section 36(2), lack of Board authorization, and the capital nature of the expense. The CIT (A) upheld this disallowance. However, the Tribunal allowed the deduction under Section 36(1)(vii) by noting that the waiver was indeed written off in the books and that the interest income from the advances had been offered to tax in previous years, fulfilling the conditions of Section 36(2).

2. Claim of Short-Term and Long-Term Capital Loss on Sale of R&D Assets:
The assessee claimed a short-term capital loss of Rs. 6,93,040/- and a long-term capital loss of Rs. 1,29,78,811/- on the sale of R&D assets. The Assessing Officer disallowed the claim, considering it a double deduction since the entire cost of the assets had already been allowed as a deduction under Section 35. The Tribunal upheld this disallowance, following its earlier decision in the assessee's own case, which held that claiming both deductions would amount to double deduction.

3. Claim of Special Pension Liability Based on Actuarial Valuation:
The assessee claimed Rs. 1,27,75,558/- as a special pension liability based on actuarial valuation. The Assessing Officer disallowed the claim, treating it as a contribution to an internal corpus. The CIT (A) upheld this disallowance. However, the Tribunal allowed the alternative claim for a proportionate deduction under Section 35DDA, noting that the Assessing Officer had allowed such deductions in subsequent years.

4. Addition on Account of Unutilized Modvat Credit:
The Assessing Officer added Rs. 17,13,97,088/- to the value of closing stock under Section 145A, representing unutilized Modvat credit. The CIT (A) directed the Assessing Officer to re-compute the profits after adjusting the opening stock, purchases, and sales. The Tribunal directed the deletion of the addition, relying on the Bombay High Court's decision in Diamond Dye Chem Ltd., which held that unutilized credit cannot be directly added to the income of the assessee.

5. Claim of Deduction Under Section 80HHC on Certain Receipts:
The assessee claimed that certain receipts should be included in the business income for computing deductions under Section 80HHC. These receipts included income from services rendered, property development activity, scrap, and royalty. The Assessing Officer excluded 90% of these receipts from the 'profits of business' under Explanation (baa) to Section 80HHC. The Tribunal held that income from services rendered, property development activity, and scrap should be included in the 'profits of business' as they are part of regular operations. However, it upheld the exclusion of royalty income but directed the Assessing Officer to verify and exclude the same from the total turnover.

Conclusion:
The Tribunal allowed the appeal partly, granting relief on the waiver of advances, special pension liability, and Modvat credit issues, while upholding the disallowance of capital loss claims and partially allowing the claim under Section 80HHC.

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