TaxTMI 
TaxTMI 
2005 (8) TMI 330
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....n of Rs. 1,50,00,000 from Hoechst India Ltd. as a revenue receipt chargeable to tax in assessment year 1992-93 rejecting the appellant's contention that the said receipt is of capital nature and not liable to tax under any of the provisions of the Income-tax Act, 1961." 3. The material facts related to the issue involved in this appeal may be summarized, in brief, as under: 3.1 The assessee-company, is engaged in the manufacture of life saving drugs, which include Anti Sera Vaccine and various blood products. For manufacture of blood products, the assessee was securing plasma from the donors and carrying out tests to check the blood from Human Immuno Deficiency Virus and for Hepatitis B Antigen. In other words, the assessee secures blood from donors, and the blood secures from the donors were subjected to various tests before these were used for the manufacture of serum. One of the test is for detecting presence of Human Immuno Deficiency Virus (HIDV) which causes AIDS. For this purpose, the company was using, inter alia, a type of Kit called ELISA Test Kits. These ELISA Test kits were manufactured by a German Company, namely, Behring Worke Ag. (hereinafter called the BWAG) a....
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....G and its marketing company Hoechst (India) Ltd., in India, as a result of which an amount of Rs. 1.50 crore was paid to the assessee as full and final settlement of all claims of the assessee on account of damages suffered or to be suffered by the assessee company. The settlement was arrived at in writing vide compromise agreement dated 8-3-1991. The assessee's case before the Assessing Officer was that the amount of Rs. 1.5 crore received by the assessee is not in the nature of income but is a capital receipt not liable to tax inasmuch as the compensation of Rs. 1.5 crore received by the assessee was for discontinuance of assessee's business in certain blood products consequent upon appearance of HIV anti-bodies in some blood products, and compensation was against the loss of reputation and goodwill of the assessee and the fearful and horrendous consequences, for which the company had to go out of the business causing capital loss because of the suspension of this part of the business with a consequent loss of investment involved in the said business. It was also stated by the assessee that the receipt in question cannot be looked at from the point of view of compensation for los....
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....ials Nil 507116 507116 ----------------------------------------------------------- Semi-finished stock Nil 1069869 1069869 destroyed ----------------------------------------------------------- Value of finished goods 1580787 5631040 7211836 destroyed ----------------------------------------------------------- Goods returned and 4929232 6690642 11619874 destroyed ----------------------------------------------------------- From the above, it may be seen that total sum of Rs. 2,04,08,695 were debited to the Profit & Loss A/c during the assessment years 1989-90 and 1990-91 and has already been allowed. The compensation received on account of this loss should be in the nature of revenue receipt. Otherwise loss of Rs. 2,04,08,695 should also have been taken as ....
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....ompany has taken pre-emptive action regarding its blood products by destroying its entire batch of blood products related to the defective kits. There is thus no loss of goodwill or reputation in the market. In fact, blood products were to be sold in the market in the name of M/s. Serum Institute of India Ltd. In the market, consumer did not know that components used on manufacturing products were imported from Germany. Loss of reputation as reliable supplier has occurred in case of German Company M/s. Behring Worke AG. So far as the ultimate consumer of assessee company is concerned, there is no loss of goodwill or reputation in the name of the assessee company. In fact, possible loss in goodwill and reputation has been totally stopped by the preemptive action taken by the assessee company in this connection. Since there is no loss of goodwill or reputation, compensation received in the compromise from the supplier of defective kits is in the nature of revenue receipt. Considering all these facts, I am of the opinion that the compensation received via compromise dated 8-3-1991 of Rs. 1.50 crore by the assessee company from M/s. Hoechst (India) Ltd. during the year is in the nat....
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....ied defective test kits to the appellant company. It is, thus, clear that when the suit was filed, the appellant was concerned with its loss of business in the line of blood products. It is interesting to note that even though the claim was for criminal liability, the company compromised the same for a monetary consideration of Rs. 1.50 crore and agreed to drop all claims made against Behring and Hoechst Co. In the compromise claim, it has also been said that no further claim would be made in case any claim is made against the appellant company by any persons or employees or former employees, etc. on account of alleged loss or damage caused to the appellant company by use of product, which had been subjected to or processed by ELISA Test Kit. This also goes on to show that the compensation is mainly for the loss of business or loss of profit and not for destruction of profit-making apparatus. The company was not forced to close down its unit on account of defective test kit supplied to it. What it was asked was only to destroy the existing batches which were defective and the same was complied. After destroying the batches, the company had itself claimed its loss in the concerned y....
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....ed was found to be defective. The work was abandoned by the supplier and the amount was received for non-fulfilment of contract. The court had held that the compensation amount was capital receipt, as the business of the company was in Barium Chemicals and compensation did not represent loss of profits. The ratio of this decision is not applicable, as the compensation claimed is not for defective supply of plant and machinery, but for test kits, which were used in the products manufactured by the company and which is an important input for production or manufacture of goods. The other cases relied by the appellant are also not at par with that of the appellant company. Having regard to all these facts and circumstances of the case, I am of the view that the compensation amount of Rs. 1.50 crore received by the company is in the nature of revenue receipt, as it is for defective supply of test kits, which are used by the appellant in manufacturing goods. The addition of Rs. 1.50 crore so made by the Assessing Officer, is therefore, confirmed." 4. Still aggrieved, the assessee is in appeal before us. 4.1 The learned counsel for the assessee, Shri B.K. Khare, C.A. has submitted t....
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....dwill in the market, the company decided to file a criminal complaint against the BWAG and others rather than to seek compensation for monitory loss suffered by the assessee. He submitted that criminal action was necessary in order to avoid third party liability as also the rigor of the drug rules violations which constitute criminal act and the consequences such as punishment of imprisonment and other consequences are to be taken care off and hence the necessity of filing criminal complaint rather than going by civil suit as the assessee were not looking into at a monitory compensation as to stay off of great impounding peril. In other words, the learned counsel for the assessee has put great emphasis on the point that the real issue for taking criminal action was to save the assessee company's name, reputation and goodwill and if this not averted, the entire business including manufacturing blood products of the assessee company could be in danger. 4.2 It was further pointed out that after filing the criminal complaint, BWAG and Hoechst (India) Ltd. wanted to arrive at a settlement with the assessee. After deliberation, this was agreed to and a compromise petition was filed be....
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....id money to the assessee company more to save their skin from damages likely to result from the litigation, to avoid the prolonged litigation, to prevent the damage and reputation, to maintain their good business relationships and to persuade the assessee company to drop all proceedings. This receipt was, therefore, capital in nature. 4.3 He further submitted that if any receipt is sought to be taxed as income by the revenue, the burden lies on the department to prove that it is within the taxing provision. In support thereof, he referred to the decision of Hon'ble Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532. 4.4 The learned counsel for the assessee further contended that in order to decide as to whether the receipt is in the nature of income liable to tax, it is to be seen as to why the payment was made. It has already been explained that the payment was made to the assessee company to save the reputation of BWAG and Hoechst and to persuade the assessee company not to lead any evidence to prove their guilty. He, therefore, submitted that the payment made to persuade a person not to do certain things cannot have any characteristics of incom....
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.... assessee agreed to a compromise, it was submitted by the learned counsel for the assessee that BWAG and Hoechst were eager for compromise inasmuch as the Hoechst import license was already cancelled, Hoechst's business would have to be otherwise winded up, and as because of the fact that this would be a costly and prolonged litigation, and in order to maintain good relationship, the assessee agreed for compromise. He further submitted that nothing further should be read in to this. At this stage, he pointed out that the authorities below was overlooked the fact that the assessee company had to stop completely the production of blood serum and that to that extent there was impairment of capital structure. He further stated that the destruction of stock and the loss resulted out therefrom was not a subject-matter of the criminal complaint nor was BWAG has to compensate to it not the compromise deed makes any reference to it and, therefore, by making a reference that the compensation received by the assessee, were against the loss incurred by the assessee as a result of destruction of stock is not at all warranted. He further submitted that the authorities below had failed to underst....
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.... that the defect in its blood product manufactured by the assessee company was only due to the defective kits supplied by the BWAG and Hoechst. He further submitted that there were various reasons for appearance of anti-bodies in the blood products made by the assessee. It was pointed out that the anti-bodies found in the product cannot always and solely be attributed to defective kits. Anti-bodies could result because of absence of observation of good manufacturing practice which has pre-dominant role in the pharmacy industry in general. It could be due to negligence of the staff in scientifically using the kits. Antibodies could be also seen in the manufactured products even they were not present in the plasma at the time of test. He, therefore, contended that no direct link or nexus between the kits supplied by BWAG and Hoechst and the defects found in the blood products could be established by the assessee. In other words, he submitted that the defect found in the blood products were not the direct result of kits used by the assessee company in testing the plasma. He further submitted that the criminal complaint is by itself is not a determining factor to say that the compensat....
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....sion. 6. We have considered the rival contentions of both the parties and have carefully gone through the orders of the authorities below. We have deliberated upon the various decisions cited at the Bar. The only issue arises for our consideration is as to whether the amount of Rs. 1.50 crore received by the assessee from BWAG and Hoechst is subjected to tax under the provisions of Income- tax Act, 1961. 6.1 It is not in dispute that the assessee has a business, inter alia, of producing and sale of various blood products. The assessee secured blood from donors and these were subjected to various tests before these were used for the manufacture of serum and one of the test is for detecting presence of HIV. For the purpose of various tests carried out for detecting HIV, the assessee company was using certain kits including the kit called ELISA Test Kit. The assessee used kits manufactured by various companies which were available in the Indian market. The imported test kits which were available in the market at the relevant point of time are as under as stated by the assessee company in its "written note" on blood products manufactured by the assessee: (i) Abbott GMBH (ii....
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.... and were already withdrawn from the market of Europe. The assessee-company, therefore, filed a criminal complaint in the court of law some time in the month of July 1990. However, ultimately, this complaint was withdrawn by the assessee-company vide its petition dated 2-3-1991 filed with the Judicial Magistrate, I Class, Pune. In the withdrawal application, the assessee has stated that the assessee-company bad settled and compromised the disputes between it and the accused i.e., BWAG & Hoechst out of court and as such, the assessee-company does not want to proceed with the prosecution of that complaint. It was also stated there that it has been agreed, decided and settled by and between the assessee-company and the accused that neither of the parties would file any prosecution or suit against each other in respect of the aforesaid supply of defective ELISA Test Kit manufactured and supplied by the accused to the assessee-company. This withdrawal petition was allowed by the learned Judicial Magistrate by saying that the offences under sections 415 and 420 of IPC read with section 34 of IPC are allowed to be compounded and the other offences under Drugs & Cosmetics Act, 1940 and off....
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....inant seeks permission to compound offences under section 415/420 of the Indian Penal Code in view of the fact and the circumstances mentioned above. As regards offences under sections 269, 270 and offences under the Drugs & Cosmetics Act, 1940 in view of the discussions held with the Accused, the Complainant does not wish to lead any evidence. (4) In the circumstances, the Accused may be acquitted in respect of compoundable offences and complaint be dismissed for want of the prosecution in respect of other offences. (5) It is further submitted that it has been agreed, decided and settled by and between the complainant and accused that neither of the parties shall file any prosecution/suit against each other in respect of the cause of action for this complaint i.e., the supply of defective ELISA Test Kits manufactured and supplied by the Accused to the Complainant. It is therefore prayed that the offices be compounded and permission be granted to the Complainant, to withdraw the complaint and/or the complaint be dismissed for want of prosecution. Pune 2-3-1991 Sd/-  ....
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....dicial Magistrate, Pune Cantonment Court, dated 2-3-1991" 6.4 The compromise agreement for claims of damages dated 8-3-1991 entered into by and between the assessee and BWAG & Hoechst reads as under: "Compromise for claims of damages.- This deed made this 8-3-1991 between Behring Worke AG, a company registered under the laws relating to the Companies in West Germany having its registered office at PO Box 1140 D-3550, Marburg (Lahn) 1. West Germany (hereinafter referred to as 'Behring') Hoechst India Ltd., a company incorporated under the Companies Act, 1956, and having its registered office at Hoechst House, Nariman Point, Bombay-400 021 (hereinafter referred to as 'Hoechst' of the One Part and Serum Institute of India Limited, a company incorporated under the Companies Act, 1956 and having its Registered office at 212/2, Hadapsar, Pune 411 028 (hereinafter referred to as 'SIIL' which expression shall, unless repugnant to the context be deemed to mean an....
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....made by SIIL on Behring and Hoechst for the supply and use of the said ELISA Test Kits. Now this deed made in consideration of the said sum of Rs. 1,50,00,000 paid by Hoechst to SIIL, the receipt whereof SIIL hereby acknowledges, and in consideration of the covenants and release hereinafter contained Witnesseth as follows:- "1. SIIL hereby confirms that the said payment is in full and final settlement of all claims and demands of any nature whatsoever made by SIIL against Behring, Hoechst and their associated or affiliated companies and their directors, former directors, employees and former employees and that no claim or demand of any nature whatsoever remains outstanding against anyone or more of them as a result of the use by SIIL of the said ELISA Test Kits or otherwise. 2. Without prejudice to the generality of the language used in Clause 1 hereinabove, SIIL and Dr. Cyrus Poonawalla hereby confirm that they shall not at any time in the future Institute, or provoke the institution of, whether directly or indirectly, any proceeding of any manner whatsoever, whether by themselves or by association with any other person, against Behring, Hoechst and anyone or more of thei....
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....today the draft agreement pertaining to the out of court settlement between the company and M/s Behring Worke AG, Marburg, Germany and M/s. Hoechst India Ltd., Bombay, vide Complaint No. 303 of 1990 filed in the Court of Judicial Magistrate, First Class, at Pune (Cantonment Court) filed by the Company's duly authorized Principal Officer and Director Quality Assurance, Dr. S.S. Jadhav, and have duly approved the said settlement; Resolved further that Dr. C.S. Poonawalla, Chairman of the Company, be and is hereby authorized to sign the agreement on behalf of the Company; Resolved further that Dr. S.S. Jadhav, duly authorized Principal Officer and Director Quality Assurance, be and is hereby authorized to withdraw the said Complaint No. 303 of 1990 filed in the Court of Judicial Magistrate, First Class, at Pune against M/s. Behring Worke AG, Marburg, Germany and M/s. Hoechst India Ltd., Bombay, subject to the settlement finally arrived at: 6.6 On reading clause 5 of the application seeking permission to withdraw the complaint, it is seen that it was agreed, decided and settled by and between the assessee company and BWAG & Hoechst that neither of the parties shall file any pr....
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.... compromise agreement for claims of damages dated 8-3-1991, it is seen that the assessee-company alleged that the ELISA Test Kits were defective and the use of the same has caused damages to its products and as a consequence thereof, it has also caused a loss of business. In other words, the assessee-company alleged that use of the defective ELISA Test Kits caused damaged to its products and loss of its business. Therefore, the damage to the assessee's products was due to defective ELISA Test Kits as alleged by the assessee itself as evident from clause 4 of the said agreement. However, on the other hand, BWAG & Hoechst at the same time had denied each and every allegation made by the assessee-company that the ELISA Test Kits supplied by them to the assessee-company were in any way defective as would be appearing from the clause 5 of the said agreement. It is not in dispute that this agreement is a mutual agreement executed and made by the both the parties. Though the BWAG & Hoechst denied that the said ELISA Test Kits supplied to the assessee-company were in any way defective, but with a view to avoid prolonged litigation and controversy and with a view to prevent any damage to th....
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....id amount of Rs. 1.50 crore was paid to the assessee wholly and exclusively to compensate the damages suffered to the name and reputation of the assessee-company and to the source of its income is not found to be supported by the terms and conditions embodied in the compromise agreement and in the application for withdrawing the criminal complaint. The compensation for damages suffered to the name and reputation of the assessee-company is one of the item included in the total or all the claims made or to be made by the assessee-company in respect of the damages that might have been suffered by the assessee-company. The language of clause 6 is very clear so as to one can say that the sum of Rs. 1.50 crore was paid to the assessee-company in full and final settlement of all the claims whatsoever arising out of the use of the ELISA Test Kits. The claim paid to the assessee-company was not only for the purpose of withdrawing the alleged criminal complaint by the assessee-company against the BWAG & Hoechst but it is in connection to or related to all the claims that may arise from the use of the said ELISA Test Kits. Whatever stated in clause 6 of the Preamble to the agreement is furthe....
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....anner are covered by the settlement. The payment of Rs. 1.50 crore is, thus, in full and final settlement of all claims and demands of any nature whatsoever that may arise at any time in any proceedings of any manner whatsoever. The condition 3 also speaks of releasing and discharging BWAG & Hoechst and all of their directors, former directors, employees and former employees from all claims, actions, demands and other proceedings whatsoever in respect of the alleged damage caused to the assessee-company and its directors. Condition No. 4 further states that in the event of a claim being made against the assessee-company by any person or persons whomsoever or the Government at any time in future on account of alleged loss or damages alleged to have been caused by the use of any product of the assessee-company which were subjected to or processed by the ELISA Test Kits, the assessee-company had agreed to indemnify by BWAG & Hoechst that the assessee-company shall not claim from BWAG & Hoechst and any of their directors, former directors, employees and former employees any compensation that the court may ask the assessee-company to pay and the assessee-company shall not directly or in....
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....ay refer to another decision of the jurisdictional High Court in the case of CIT v. Presidency Co-operative Housing Society [1995] 216 ITR 321 at page 325 (Bom.). 6.10 It is also well-settled that whether, in a particular case, payments were capital receipts or not would depend upon the facts and circumstances of the case. It is not possible to lay down any single test as infallible or any single criterion as decisive in determination of the question which must ultimately depend on the facts of the particular case and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision. 6.11 The Hon'ble Supreme Court in the case of CIT of Bombay Burmah Trading Corpn. [1986] 161 ITR 386 affirming the decision of the Hon'ble Bombay High Court in Bombay Burmah Trading Corpn. Ltd. v. CIT [1971] 81 ITR 777 has held as under: "Extracted from Head Notes.- 'If there was any capital asset, and if there was any payment made for the acquisition of that capital asset, such payment would amount to a capital payment in the hands of the payee. Secondly, if any payment was made for sterilization of the very source of....
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....ver, be distinguished from another class of cases where compensation is paid as a solatium for loss of office. Such compensation may be regarded as capital or revenue: it would be regarded as capital, if it is for loss of an assert of enduring value to the assessee, but not where payment is received in settlement of loss in a trading transaction." After analyzing a number of cases, the court observed that the following satisfactory measure of consistency in the principle is disclosed: "Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which docs not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carryon his trade (freed from the contract terminated) the receipt is revenue: Where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally....
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.... agency in the usual course of business and the restrictive covenant. Whether compensation received by an assessee for loss of agency is a capital or a revenue receipt depends upon the circumstances of each case. But before coming to the conclusion one way or the other, many questions have to be asked and answered: What was the scope of the earning apparatus or structure, from physical, financial, commercial and administrative standpoints? If it was a business of taking agencies, how many agencies had it, what was their nature and variety, how were they acquired, how were one or some of them lost and what was the total income they were yielding? If one of them was given up, what was the average income of the agency lost? What was its proportion in relation to the total income of the company? What was the impact of giving it up on the structure of the entire business? Did it amount to a loss of an enduring asset causing an unabsorbed shock dislocating the entire or a part of earning apparatus or structure? Or, was the loss an ordinary incident in the course of the business? But these questions can only be answered satisfactorily if the relevant material is available to the income....
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....mpensate for cancellation of the agency agreement is normally a capital receipt." In this case, it was further observed that: "The question whether the receipt is capital or revenue is to be determined by drawing a conclusion of law ultimately from the facts of the particular case and it is not possible to lay down any single test as infallible or any single criterion as decisive. This Court in the case of Karam Chand Thapar & Bros. (P.) Ltd. v. CIT [1971] 80 ITR 167, discussed and held that in CIT v. Chari & Chari Ltd. [1965] 57 ITR 400 (SC), it was held that ordinarily compensation for loss of an office or agency is regarded as a capital receipt, but this rule is subject to an exception that payment received even for termination of an agency agreement would be revenue and not capital in a case where the agency was one of many which the assessee held and its termination did not impair the profit making structure of the assessee, but was within the framework of the business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken. Thereafter the Court held that it was difficult to lay down a precise principle of u....
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....e kits could also be responsible for appearance of anti-bodies. Anti-bodies could be seen also in manufactured products even though they were not present in the Plasma at the time of test." 6.18 Therefore, anti-bodies found in the product cannot always be attributed to ELISA Test Kits supplied by BWAG & Hoechst. Some other cause/s could also be responsible for appearance of anti-bodies. However, it is pertinent to note that though BWAG & Hoechst denied and disputed the allegation that ELISA Test Kits were in any way defective, they had still agreed to pay the assessee-company the sum of Rs 1.50 crore as compensation for losses referred to in the Compromise Agreement. The reason for entering into compromise and agreeing to pay the said sum are described in the said Agreement as under: (i) To avoid prolonged litigation and controversy; (ii) To prevent any damage to the long established and impeachable reputation of BW AG & Hoechst and of all of their associated or affiliated companies and their offices; (iii) To maintain good business relations with other manufacturers and consumers. 6.19 Thus, it is clear that the reason for entering into compromise and agreeing to....
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.... line of business any more, otherwise, it might affect the assessee's other products and in long run may cause extinction of business. As already stated above, the appearance of anti-bodies HIV in the blood products could be for several reasons. Even anti-bodies HIV was found in blood collected by the assessee-company from the donors as is clear from the Food and Drug Administration Department's letter dated 1-3-1989. Therefore, the risk of HIV anti-bodies to be found in the blood products is normal incidence of this line of business. It is inherent in it. The assessee has itself admitted the position that anti-bodies found in the product cannot always be attributed to defective Kits and anti-bodies could result because of absence of observation of Good Manufacturing Practice which has a predominant role in the Pharma Industry in general. The assessee has also stated that it has not carried a validating test before the Kit was used. Negligence of the staff in scientifically using the Kits would also be responsible for appearance of anti-bodies. Anti-bodies could be seen also in manufactured products even though they were not present in the Plasma at the time of test. In this connec....
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....e quite embarrassing. Damages: According to Dr. Kapre, we have not used the ELISA Kits of H in the proper way. According to International Good Manufacturing Practice, we should have validated the Kits before using them. This we have not done. In view of this, if anything goes wrong, we cannot hold H or anybody else responsible excepting our on selves. Under the circumstances, any future claim for damages, will not be sustainable. Cheating: As per both PV and RJ, H is responsible for cheating. This view is also borne out completely by the evidence. In my view also, for whatever it counts, we are here on a sound wicket. The offence of cheating can be analysed into three parts. (1) Supply of sub-standard kit. (If this has happened after announcement of sub-standard nature by the German Drug Controller). (2) Not to inform us about the sub-standard nature of the kit when it came to the notice of H. (3) When on our own, we inquired of H, Bombay (Dr. Schick), H cheated us by suppressing the subsequent inconvenient protocol and supplying an earlier good protocol which was no more valid. (Here also, it may be added that Dr. Schick appears to be operating on deputation from Be....
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....ket. There was no complete restraint on the assessee in carrying the said line of business of blood products. The sterilisation, if any, of the very source of profit-making apparatus, here source of blood product, is not attributable to the use of ELISA Test Kits supplied by BWAG & Hoechst nor the intention of both the parties while making the settlement at Rs. 1.50 crores was to compensate the assessee for sterilisation of the very source of profit-making apparatus of the assessee-company. Having regard to the cumulative effect of the terms and conditions of compromise agreement and other surrounding circumstances as discussed or pointed out in foregoing paras, it is clear that the payment of Rs. 1.50 crore to the assessee is on account of injury or damages to the trading transaction or operations or activities including loss of reputation and goodwill of the assessee-company. The payment is not found to be on account of depriving the assessee from its very source of income. The appearance of anti-bodies HIV in the blood products was a normal incident of the Pharma business inasmuch as anti-bodies HIV was found in the blood collected from the donors. The damages resulted out there....
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....venant'. The case before us is also of the nature where we have taken a view that the compensation paid is in respect of two distinct matters, one taking the character of revenue receipt being damages for loss of stock, profit or business on revenue account and the other of a capital receipt being compensation for loss of assessee's name, fame, reputation and goodwill. It is an admitted position that the assessee has destroyed the stock of blood products worth Rs. 2,04,08,695, which was allowed as a business loss in the assessment years 1989-90 and 1990-91. The stock of blood products was destroyed because part of it contained HIV positive anti-bodies. The reasons given by the assessee itself for appearance of anti-bodies in the blood products are as under: "Anti-bodies found in the production not always be attributed to defective kits. Anti-bodies could result because of absence of observations of GNP (Good Manufacturing Practice) which has a predominant role in the Pharma industry in general. Serum Institute of India Ltd., has not carried a validating test before the kit was used. Negligence of the staff in scientifically using the kits could also be responsible for appe....