Income Tax Appellate Tribunal - Mumbai
National Organic Chemicals Industries ... vs Assessee
1
ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'F' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI R.K. PANDA, A.M.
ITA No. 2131/Mum/2005
(Asst Year 2000-01)
National Organic Chemical Vs Asst. Commissioner of Income-tax,
Industries Limited, Circle 7(1),
Mafatlal House, 3rd Floor, Aayakar Bhawan,
Backbay Reclamation, M.K. Road,
Mumbai - 400 020. Mumbai. 20
(Appellant) (Respondent)
PAN NO. AAACN4412E
ITA No. 2147/Mum/2005
(Asst Year 2000-01)
Asst. Commissioner of Income- Vs National Organic Chemical Industries
tax, Circle 7(1), Limited,
Aayakar Bhawan, Mafatlal House, 3rd Floor,
M.K. Road, Backbay Reclamation,
Mumbai. 20 Mumbai - 400 020.
(Appellant) (Respondent)
PAN NO. AAACN4412E
ITA No. 6104/Mum/2005
(Asst Year 2001-02)
National Organic Chemical Vs Asst. Commissioner of Income-tax,
Industries Limited, Circle 7(1),
rd
Mafatlal House, 3 Floor, Aayakar Bhawan,
Backbay Reclamation, M.K. Road,
Mumbai - 400 020. Mumbai. 20
(Appellant) (Respondent)
PAN NO. AAACN4412E
ITA No. 4774/Mum/2005
(Asst Year 2001-02)
Asst. Commissioner of Income- Vs National Organic Chemical Industries
tax, Circle 7(1), Limited,
Aayakar Bhawan, Mafatlal House, 3rd Floor,
M.K. Road, Backbay Reclamation,
Mumbai. 20 Mumbai - 400 020.
(Appellant) (Respondent)
PAN NO. AAACN4412E
2
ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
Assessee by Shri Dinesh Vyas
Department by Shri Subachan Ram
Date of hearing 16.1.2012
Date of pronouncement 17.2.2012
ORDER
PER R K PANDA, AM
These are cross appeals and are directed against the separate orders dated 14.01.2005 & 18.03.2005 of the ld. CIT(A) XIX, Mumbai relating to A.Y. 2000-01 & 2001-02 respectively. Since common grounds are involved in both these cross appeals, therefore, these were heard together and are being disposed of by this common order for the sake of convenience. ITA 2131/Mum/2005 for A.Y. 2000-01 (By assessee)
2. In grounds of appeal No. 1 the assessee has challenged the order of the ld. CIT(A) in confirming the action of the A.O. in not allowing deduction of Rs. 17,92,470/- being pro-rata premium on leasehold land. 2.1 The ld. Counsel for the assessee, at the outset, submitted that this ground is covered against the assessee by the decision of the Tribunal in assessee's own case for A.Y. 1989-90 to 1997-98. Copies of these orders are already on record. In view of the submission of the ld. Counsel for the assessee and respectfully following the order of the Tribunal in assessee's own case for earlier years, we uphold the order of the ld. CIT(A) in disallowing the deduction of Rs. 17,92,470/-. The ground of appeal No. 1 by the assessee is accordingly dismissed.
3ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
3. Ground of appeal No. 2 is an alternate ground to ground of appeal No. 1 considered above wherein the argument of the assessee is that the entire premium needs to be considered as cost of building and plant so as to allow depreciation thereon. Since the issue is considered against the assessee in ground No.1, accordingly, this ground is also dismissed.
4. Grounds of appeal No. 3,4 & 5 by the assessee read as under:-
"Ground No. 3:- The learned Commissioner (Appeals) erred in confirming the enhancement in the value of closing stock by an amount of Rs.2,76,54,645 in respect of MODVAT credit.
Ground No. 4. The learned Commissioner (Appeals) ought to have appreciated that as required by the provisions of section 145A, the appellant had increased the value of closing stock by the MODVAT amount relating thereto and therefore the value of the closing stock should not have been further increased.
Ground No. 5: Without prejudice, the learned Commissioner (Appeals) ought to have directed the Deputy Commissioner to increase the value of purchases by the amount of Rs.2,76,54,645 being the amount of MODVAT credit by which value of closing stock is increased."
4.1 Both the parties fairly agreed that the issue should go back to the file of the A.O. for fresh adjudication in the light of the decision of the Tribunal in assessee's own case in ITA No. 5296/Mum/2003 order dt. 29.4.2011 for A.Y. 1999-2000. Accordingly we restore this issue to the file of the A.O. with the direction to decide the issue afresh and in accordance with law in the light of the direction of the Tribunal in assessee's own case for A.Y, 1999- 2000. We hold and direct accordingly. The above grounds are accordingly allowed for statistical purpose.
4ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
5. Ground of appeal No. 6 by the assessee reads as under:-
"The learned Commissioner (Appeals) erred in confirming the action of the Assistant Commissioner in not allowing deduction for the full sum of Rs. 9,16,62,445/ claimed by the appellant towards cost of catalyst issues according to the changed method of accounting followed by the appellant consistently since 1983."
5.1 After hearing both the sides we find identical issue had come up before the Tribunal in assessee's own case for A.Y. 1998-99. We find the Tribunal, following the order of the Tribunal in assessee's own case in earlier assessment years, restored the issue back to the file of the A.O. with the direction to recompute the profits in accordance with the old method followed by the assessee. The relevant observation of the Tribunal at para 12 of the order reads as under:-
"12. Before us, it was argued that on similar issue in assessee's own case for the assessment years 1987-87 to 1997-98, the matter has been restored back to the file of the Assessing Officer with directions to re-compute the profits in accordance with the old method followed by the assessee. Since, there is no change in the facts in the current year, respectfully following the orders of the Tribunal; we also restore this issue to the file of the Assessing officer with the same directions as were given by the Tribunal in the years cited before us."
5.2 Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice by the ld. D.R., we restore this issue to the file of the A.O. with the same directions as were given by the Tribunal in the preceding assessment years. The ground raised by the assessee is accordingly allowed for statistical purpose. 5 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
6. Ground of appeal No. 7, 8, 9 & 10 by the assessee read as under:-
7. The learned Commissioner (Appeals) erred in confirming the disallowance of an amount of Rs. 12,47,173 being prior year expenditure.
8. Without prejudice, the learned Commissioner (Appeals) erred in not directing the Assistant Commissioner to set off prior period expenses against the prior period income and disallow only net prior period expenses.
9. Without prejudice, the learned Commissioner (Appeals) erred in holding that the Assistant Commissioner has disallowed the prior period expenses net of prior period income. The learned Commissioner (Appeals) ought to have appreciated that the Assistant Commissioner has disallowed prior period expenses of Rs. 12,47,173 without setting it of against the prior income of Rs.6,1O,815.
10. Without prejudice, the learned Commissioner (Appeals) erred in not directing the Assistant Commissioner to allow deduction for the aforesaid expenditure in the year to which it relates. 6.1 After hearing both the sides we find identical issue had come up before the Tribunal in assessee's own case during A.Y. 1998-99. We find the Tribunal, following the order of the Tribunal in assessee's own case in earlier assessment years, decided the issue in favour of the assessee by holding as under:-
"15. We find that similar issue had come up for consideration before the Tribunal in assessee's own case for the assessment years, 1991-92 , 1996-97 and 1997-98, wherein, the same has been decided in favour of the assessee by the Tribunal. Since in the year under consideration, there is no change of facts, respectfully following the earlier orders of the Tribunal, we decide the issue in favour of the assessee with the direction to the 6 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
Assessing Officer to ensure that no double deduction is allowed. Subject to this remark, Ground No.5 & 6 is allowed."
6.2 Respectfully following the decision of the Tribunal in assessee's own case for earlier assessment years and in absence of any distinguishable features brought before us by the ld. D.R., we direct the A.O. to allow the claim of the assessee. At the same time we direct the A.O. to ensure that no double deduction is allowed. Accordingly, ground of appeal No. 7 is allowed. Grounds of appeal No. 8, 9 & 10 being alternate grounds, become infructuous. Accordingly grounds of appeal No. 8, 9 & 10 are dismissed.
7. Grounds of appeal No. 11, 12, 13 & 14 by the assessee read as under:-
"11. The learned Commissioner (Appeals) erred in confirming the action of the Assistant Commissioner in not allowing deduction for the following loans and advances aggregating to Rs. 3,96,85,000 written off during the year:
Rupees
(i) Interest due from Mafatlal Finance Ltd in respect of earlier years: Rs. 3,88,92,000
(ii) Excess amount of Excise paid in F.Y. 1997-98 and 1998-99: Rs. 50,000
(iii) Misc. Advances written off Rs. 7,43,000 Rs. 3,96,85,000
12. The learned Commissioner (Appeals) erred in holding that the aforesaid loans and advances written off are not eligible for deduction as bad debts under section 36(1)(vii) read with section 36(2).7 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
13. Without prejudice to the above, the learned Commissioner (Appeals) erred in not directing the Assistant Commissioner to allowing deduction for loans and advances written off of Rs.3,96,85,000 as trading loss under section 27/28 or as business expenditure under section 37(1).
14. Without prejudice to the above, the learned Commissioner (Appeals) ought to have directed the Assistant Commissioner to set off the credit balances for more than 3 years written back of Rs. 1,96,000 against the above disallowance of Rs. 3,96,85,000.
7.1 Facts of the case in brief are that the assessee has written off loans and advances to the extent of Rs. 3,94,89,000/-. The details of the same were called for by the A.O. and accordingly the assessee filed the details as follows:-
Plastic Products Division. (Rs.in lakhs)
i. Interest due from Mafatlal finance Ltd. In
respect of earlier years written off. : 388.92
Rubber Chemicals Division:
i. Excess amount of Excise Paid in F.Y.
97-98 and 98-99 written off : 0.50
Petrochemicals & Polymer division:
i. Misc. Advances written off : 7.43
396.85
The A.O. asked the assessee to furnish details of the said debts along with explanation as to how the same has been claimed since it prima facie does not appear to be a trade debt. In absence of any satisfactory explanation furnished by the assessee, the A.O. was of the opinion that the nature of loans and advances cannot be treated as debt for the purpose of write off 8 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
under section 36(1)(viii) of the Act. Relying on a couple of decisions the A.O. disallowed the amount of Rs. 396.85 lakhs and added the same to the total income of the assessee. In appeal, the ld. CIT(A) confirmed the action of the A.O. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us.
7.2 The ld. Counsel for the assessee at the outset submitted that interest income was offered to tax in the past. The assessee inadvertently filed a written submission before the A.O. that it was write off of loans and advances due from Mafatlal Finance Ltd. He submitted that in the interest of justice the matter may be restored to the file of the A.O. with a direction to give an opportunity to the assesee to explain the allowability of the same under the provisions of section 36(1)(vii)) r.w.s. 36(2) of the Act. So far as the excess amount of Excise paid in financial year 1997-98 and 1998-99 claimed during the year amounting to Rs. 50,000/- and miscellaneous advances written off amounting to Rs. 7,43,000/-, the ld. Counsel for the assessee did not press the above two amounts due to smallness of the same. 7.3 The ld. D.R., on the other hand, while supporting the order of the ld. CIT(A) submitted that he has no objection if the matter is restored to the file of the A.O. with a direction to verify the allowability of the claim of deduction of interest due from Mafatlal Finance Ltd. In the light of provisions of section 36(1)(vii) r.w.s. 36(2) of the Act. 7.4 The submission of the ld. Counsel for the assessee that in the interest of justice the matter may be restored to the file of the A.O. to verify the allowability of Rs. 3,88,92000/-, in our opinion, is acceptable. We, 9 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
therefore, deem it proper to restore the issue to the file of the A.O. with a direction to give an opportunity to the assessee to substantiate with evidence to his satisfaction that the assessee fulfils the condition prescribed under section 36(1)(vii) r.w.s. 36(2) for the allowability of the amount of Rs. 3,88,92,000/-. So far as the other two amounts are concerned, in view of the submission of the ld. Counsel for the assessee that he is not pressing for the above two amounts due to smallness of the amount, the claim of the assessee is dismissed. Grounds of appeal No. 11 to 14 are partly allowed for statistical purposes.
8. Ground of appeal No. 15 reads as under:-
" The learned Commissioner (Appeals) erred in confirming the action of the Assistant Commissioner in not allowing deduction for Rs. 1,77,25,542 being consultancy and advisory fees paid for modernisation.
8.1 After hearing both the sides we find the A.O. disallowed an amount of Rs. 1,77,25,542/- on account of consultancy fees, salaries etc. relating to modernisation of the project on the ground that in the actual computation no such deduction was claimed. In appeal the ld. CIT(A) following the order of his predecessor confirmed the action of the A.O. 8.2 We find identical issue had come up before the Tribunal in the immediately preceding assessment year and the Tribunal has allowed the claim of the assessee. Since the ld. CIT(A) has merely followed the order of his predecessor which has been reversed by the Tribunal, therefore, 10 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
respectfully following the order of the Tribunal we allow the claim of the assessee. This ground is according allowed.
9. Ground of appeal No. 16 reads as under:-
"The learned Commissioner (Appeals) erred in not directing the Assistant Commissioner to allow deduction for Rs.36,51,034 being proportionate expenditure on substantial expansion.
9.1 After hearing both the sides we find the assessee before the ld. CIT(A) contended that the A.O. did not allow the deduction of Rs. 36,51,034/- being proportionate expenditure on substantial expansion. The ld. CIT(A) noted that no such claim was made by the assessee while computing the total income. Since the A.O. has not dealt with the issue and no addition has been made on this ground, the ld. CIT(A) dismissed the ground as infructuous. Aggrieved with such order of the ld. CIT(A) the assessee is in appeal before us.
9.2 The ld. Counsel for the assessee submitted that in the notes forming part of return of income the assessee at Cl. No. 15 has mentioned as under:-
"The substantial expansion referred to as the NOCIL Modernisation project is the responsibility of some officers/executives who have been in continuous employment with the company. They comprise of persons from engineering, operations, technology and other departments and their responsibility for the expansion is in addition to their ongoing responsibilities. In view of the above facts that these persons are discharging their present obligations along with their obligations for the expansion, the company has estimated the time spent on the activities for the companies existing operations and for the expansion and therefore the proportionate expenditure amounting to Rs. 36,51,034/- comprising of salaries, travelling and other miscellaneous expenses is estimated as having been incurred for the companies expansion. This amount has not been claimed as a deduction in the computation of income. This is without prejudice to our claim that the amount be allowable as a deduction."11 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
Referring to the order of the Tribunal for A.Y. 1998-99 and 1999-2000 he submitted that similar issue has been decided by the Tribunal in favour of the assessee. He accordingly submitted that the matter may be restored to the file of the A.O. with a direction to verify the claim of the assessee and pass appropriate order. The ld. D.R. while supporting the order of the ld. CIT(A) fairly agreed that he has no objection if the matter is restored to the file of the A.O. 9.3 After hearing both the sides we deem it proper to restore the issue to the file of the A.O. with a direction to verify the claim of the assessee in the computation of total income and decide the issue afresh in the light of the decision of the Tribunal in assessee's own case in the preceding assessment year and in accordance with law. Needless to say the A.O. shall give due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the assessee is accordingly allowed for statistical purpose.
10. Grounds of appeal No. 17, 18, 19, 20 & 22 were not pressed by the ld. counsel for the assesee for which the ld. D.R. has no objection. Accordingly these grounds are dismissed as not pressed. Grounds of appeal No. 23,24 & 25 being general in nature are dismissed.
11. Ground of appeal No. 21 reads as under:-
"The learned Commissioner (Appeals) erred in not specifically directing the learned Assistant Commissioner to allow to be carried forward the following capital losses to subsequent assessment years:12 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
Assessment Amount(rs.)
year
1996-97 14,02,71,877
1997-98 7,65,575
1999-00 1,22,943
11.1 After hearing both the sides we deem it proper to restore the issue to the file of the A.O. with a direction to verify the records and allow the claim of capital loss in accordance with law. This ground of the assessee is accordingly allowed for statistical purpose.ITA No. 2147/Mum/2005 for A.Y. 2000-01 (By Revenue)
12. Ground of appeal No. 1 reads as under:-
"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to delete the disallowance of Rs.97,67,200/- being interest on loans and advances made to Orbit Finance Ltd.
12.1 After hearing both the sides we find the A.O. following the order of his predecessor for earlier assessment years disallowed an amount of Rs. 97,67,200/- on the ground that such advances were not incidental to the purpose of the assessee's business and therefore interest attributable to the advances has to be disallowed. In appeal, then ld. CIT(A) following the order of his predecessor decided the issue in favour of the assessee. We find identical issue had come up before the Tribunal in assessee's own case for A.Y. 1998-99 and 1999-2000 and the Tribunal vide order dtd. 29.4.2011 at para No. 31 & 80 of the order has dismissed the appeal filed by the Revenue 13 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
for A.Y. 1998-99 & 1999-2000 respectively. Respectfully following the order of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice by the ld. D.R. we uphold the order of the ld. CIT(A) on this issue. The ground raised by the Revenue is accordingly dismissed.
13. Ground of appeal No. 2 by the Revenue reads as under:-
"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.30,96,41,023/- in respect of interest on capital work-in-progress.
13.1 After hearing both the sides we find the assessee had capitalised interest to the extent of Rs. 30,96,41,023/- and added the same to the cost of capital work in progress. The assessee, however, claimed the same as deduction while computing the total income on the ground that the interest pertains to the existing business of the assessee company. The A.O. disallowed the claim following the decision of the Calcutta ITAT in the case of JCT Mills reported in 65 ITD 169. The ld. CIT(A) following the orders of his predecessor for A.Y. 1998-99 and 1999-2000 allowed the claim of the assessee. We find the Tribunal following the order of the Tribunal in assessee's own case for A.Y. 1992-93 to 1997-98 has allowed the claim of the assessee and dismissed the appeal filed by the Revenue for the A.Y. 1998-99 and 1999-2000 at para 34 and 83 of the order dtd. 29.4.2011.
Respectfully following the order of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice, the order of the ld. CIT(A) on this issue is upheld. The ground raised by the Revenue is accordingly dismissed.14 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
14. Ground of appeal No. 3(a) by the Revenue reads as under:-
"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.lO,72,32,435/- in respect of expenditure incurred under the Voluntary Retirement Scheme held by assessing officer as capital nature.
14.1 After hearing both the sides we find the assessee in its computation of total income has claimed deduction of Rs. 10,72,32,435/- which was paid during the year on account of VRS. The A.O. treated the expenditure as capital in nature on the ground that the same brings into existence a benefit of an enduring nature. In appeal the ld. CIT(A) following the order of his predecessor for A.Y. 1998-99 and 1999-2000 allowed the claim of the assessee. We find when the matter for A.Y. 1998-99 and 1999-2000 came up before the Tribunal, the Tribunal vide ITA No. 5176/Mum/2003 for A.Y. 1999-2000 dismissed the appeal filed by the Revenue on this issue by holding that the issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Bhor Industries Ltd. Reported in 264 ITR 180. Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice we find no infirmity in the order of the ld. CIT(A) allowing the claim of the assessee. Accordingly the ground raised by the Revenue is dismissed. ITA 6104/Mum/2005 for A.Y. 2001-02 (By assessee)
15. Ground of appeal No. 1 relates to the order of the ld. CIT(A) in confirming the disallowance of Rs.17,92,467/- being pro-rata premium on leasehold land.
15ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
15.1 After hearing both the sides we find this ground is identical to ground of appeal No. 1 in ITA No. 2131/Mum/2005 for A.Y. 2000-01 wherein the above ground is decided against the assessee. Following the same ratio, this ground filed by the assessee is dismissed.
16. Ground of appeal No. 2 is an alternate ground and is identical to ground of appeal No. 2 in ITA No. 2131/Mum/2005 which has already been decided and dismissed. Following the same ratio, this ground by the assessee is dismissed.
17. Grounds of appeal No. 3, 4, 5 & 6 relate to the order of the ld. CIT(A) in enhancing the value of closing stock by an amount of Rs. 2,47,45,208/- in respect of unutilised Modvat credit.
17.1 After hearing both the sides we find these grounds are identical to the grounds of appeal No. 3 to 5 in ITA No. 2131/Mum/2005 for A.Y. 2000-01. We have already decided these grounds and restored the issue back to the file of the A.O. for fresh adjudication. Following the same ratio we restore the above grounds to the file of the A.O. for fresh adjudication in the light of the directions given therein. The above grounds are accordingly allowed for statistical purpose.
18. Grounds of appeal No. 7 & 8 relate to disallowance of prior year expenditure of Rs. 6,83,029/-.
18.1 After hearing both the sides we find the above grounds are identical to grounds of appeal No. 7 to 10 in ITA No. 2131/Mum/2005 for A.Y. 2000-01. 16 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
We have already decided the issue in favour of the assessee. Following the same ratio, the above grounds are allowed.
19. In grounds of appeal No. 9 & 10, the assessee has challenged the order of the ld. CIT(A) in directing the A.O. to allow the entire expenditure of Rs. 2,94,74,310/- as revenue expenditure.
19.1 After hearing both the sides we find the assessee claimed an amount of Rs. 4,83,17,739/- out of which an amount of Rs. 1,88,43,429/- was incurred for the employees who opted VRS during the year and the balance amount of Rs. 2,94,74,310/- was paid as final instalment to the employees who had taken VRS in financial year 1998-99. According to the A.O. only an amount of Rs. 1,88,43,429/- which is incurred during A.Y. 2001-02 qualifies for deduction u/s 35DDA. The balance amount of Rs. 2,94,74,310/- is not covered by the provisions of section 35DDA. He therefore allowed only an amount of Rs.37,68,686/- being 1/5th of Rs. 1,88,43,429/- as against Rs. 96,63,548/- claimed by the assessee u/s 35DDA. The A.O. further noted that during A.Y. 1999-2000 and 2000-01 the VRS expenditure was treated as capital in nature and was disallowed. He therefore disallowed an amount of Rs. 2,94,74,310-/- holding the same to be capital in nature. In appeal the ld. CIT(A) directed the A.O. to allow the deduction @ 1/5th on the amount of Rs. 2,94,74,310/-by holding as under:-
"I have considered the matter. The payment is not disputed. The appellant has claimed deduction only 1/5th of it. It is also not doubted that the instalment had become due during the previous year under consideration. "Regarding the issue of accrual" the decision of A.P. High Court in the case of Y.S.C. Babu vs. Chairman and managing Director, Syndicate bank (2002) 253 ITR 1 is relevant. In the said decision, the Hon'ble Court interalia has held 17 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
that the accrual as well as payment of salary should co-exist in order to attract the provisions of section 192. The Supreme Court in the case of K. Ravindranathan Nair vs. CIT (2001) 247 ITR 178 has held that where the assessee had 10 cashew nut processing units and paid compensation for the employees for four units, all forming part of the same business, the disallowance could not be warranted. Further, section 35DDA also speaks about incurring any expenditure in any previous year by way of payment of any sum to an employee. Considering the fact that the courts have held such payments as revenue in nature and also considering the fact that the assessee had claimed deduction in terms of section 35 DDA that is 1/5th of the amount, the disallowance made by the AO is not justified, in my considered opinion. The AO is directed to allow the deduction @ 1/5th on the aforesaid amount of Rs. 2,94,74,310/-. It is not doubted that the payment was approved by the concerned authorities also. The decision of Bombay High Court in the case of Bhor Industries Ltd. V. ACIT, 264 ITR 180 is also in favour of the appellant. In view of the discussion made above, grounds of appeal No. 26 to 31 are allowed."
19.2 After hearing both the sides we find no infirmity in the order of the ld. CIT(A) who has allowed 1/5th of the VRS expenditure of Rs. 2,94,74,310/- as per the provisions of section 35DDA. The ld. Counsel for the assessee also did not seriously press for the deduction of the whole amount during the impugned year. We also do not find any merit in the submission of the ld. D.R. that since the expenditure of earlier year has been debited during the year, therefore, nothing should be allowed. We find the provisions of section 35DDA which relates to amortisation of expenditure incurred under VRS was brought to the statute book by the Finance Act 2001 w.e.f. 1.4.2001. Since the assessment in the impugned case relates to A.Y. 2001- 02, therefore, we find the ld. CIT(A) is justified in allowing 1/5th of the expenditure of Rs. 2,94,74,310/-. The same is accordingly upheld. Grounds of appeal No. 9 & 10 by the assessee are dismissed. 18 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
20. In grounds of appeal No. 11 the assessee has challenged the order of the ld. CIT(A) in confirming the order of the A.O. in not allowing deduction for Rs. 38,89,424/- being consultancy and advisory fees paid for modernisation.
20.1 After hearing both sides we find the above issue is identical to ground of appeal No. 15 in ITA No. 2131/M/2005. We have already decided the issue in favour of the assessee. Following the same ratio, this ground by the assessee is allowed.
21. Ground of appeal No. 12 relates to the order of the ld. CIT(A) in not directing the A.O. to allow deduction of Rs. 70,30,995/- being proportionate expenditure on salaries, travelling and other expenses. 21.1 After hearing both the sides, we find this ground is identical to ground of appeal No. 16 in ITA No. 2131/Mum/2005. We have already decided the issue and the ground raised by the assessee has been allowed. Following the same ratio this ground by the assessee is allowed.
22. Grounds of appeal No. 13, 14, 15, 16, 19 & 20 were not pressed by the ld. Counsel for the assessee for which the ld. D.R. has no objection. Accordingly these grounds are dismissed as not pressed. Grounds of appeal No. 22, 23, 24 & 25 being general in nature are dismissed.
23. In ground of appeal No. 17 the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of Rs. 14,91,452/- u/s 40(a)(i) 19 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
being the amount paid to foreign suppliers for credit allowed on purchase made from them.
23.1 The ld. Counsel for the assessee fairly conceded that the above ground is decided against the assessee. Accordingly this ground is decided against the assessee.
24. Ground of appeal No. 18 relates to the computation of book profit u/s 115JB of the Act as against book loss determined by the assessee. This ground is connected to ground of appeal No. 5 by the Revenue, therefore, the same is discussed along with ground of appeal No. 5 by the Revenue.
25. In ground of appeal No. 21 the assessee has challenged the order of the ld. CIT(A) in confirming the levy of interest u/s 234B of the Act. 25.1 After hearing both the sides we find the issue relates to charging of interest u/s 234B while computing book profit u/s 115JB of the Act. The ld. Counsel for the assessee submitted that the issue stands decided in favour of the assessee by the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Natural Gems Ltd. (Bom) reported in 327 ITR 269 wherein it has been held that while computing income u/s 115J interest cannot be levied u/s 234B and 234C of the income Tax Act, 1961. Referring to the decision of the Tribunal in the case of M/s Schreiber Dynamix Dairies Ltd. V. DCIT reported in ITA No. 5132 & 5133/Mum/2009 order dtd. 10.12.2010 for A.Y. 2006-07 & 2007-08 he submitted that the Tribunal, following the decision of Hon'ble jurisdictional High Court in the case of 20 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
Natural Gems Ltd. (supra), directed the A.O. to delete the interest charged u/s 234B and 234C of the Act.
25.2 The ld. D.R., on the other hand, supported the order of the ld. CIT(A). 25.3 After hearing both the sides we find the co-ordinate Bench of the Tribunal in the case of M/s Schreiber Dynamix Dairies Ltd. (supra) by following the decision of Hon'ble jurisdictional High Court in the case of Natural Gems Ltd. (supra) has directed the A.O. to delete the interest charged u/s 234B & 234C of the Act while computing book profit u/s 115JB of the I.T. Act 1961. Respectfully following the decision of the Tribunal we direct the A.O. to delete the interest charged u/s 234B while computing the book profit u/s 115JB of the Act. This ground by the assessee is accordingly allowed.
ITA No. 4774/Mum/2005 for A.Y. 2001-02 (By Revenue)
26. Ground of appeal No. 1 by the Revenue reads as under:-
"On the facts and in circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 89,77,678/- being interest on loans & advances made to Orbit Finance Ltd. for construction of a housing project at Thane."
26.1 After hearing both the sides we find this ground is identical to ground of appeal No. 1 in ITA No. 2147/Mum/2005 for A.Y. 2000-01. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following the same ratio, this ground by the Revenue is dismissed.
21ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
27. Ground of appeal No. 2 by the Revenue reads as under:-
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.30,74,66,000/- in respect of interest attributable to capital work-in-progress."
27.1 After hearing both the sides we find this ground is identical to ground of appeal No. 2 in ITA No. 2147/Mum/2005 for A.Y. 2000-01. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following the same ratio, this ground by the Revenue is dismissed.
28. Grounds of appeal No. 3(a) & 3(b) by the Revenue read as under:-
"3(a) On the facts and in circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 58,94,862/- made by the AO who held that the expenditure incurred under the Voluntary Retirement Scheme of the company for its employees, was of capital in nature and was not allowable.
3(b) On the facts and in circumstances of the case and in law the Ld. CIT(A) erred in directing the AO to allow the deduction @ 1/5th on the amount of Rs.2,94,74,310/- when even as per the assessee the provisions of section 35DDA were not applicable.
28.1 After hearing both the sides we find these grounds are identical to grounds of appeal No. 9 & 10 of the assessee's appeal in ITA No. 6104/Mum/2005 for A.Y. 2001-02 wherein it has been held that provisions of section 35DDA which relates to amortisation of expenditure incurred under VRS was brought to the statute book by the Finance Act 2001 w.e.f.
1.4.2001 and therefore the assessee is entitled to claim 1/5th of the expenditure incurred on VRS. Therefore the order of the ld. CIT(A) allowing 1/5th of the expenditure being in order is upheld. Accordingly grounds of appeal No. 3(a) & 3(b) by the Revenue is dismissed.22 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
29. Ground of appeal No. 4 by the Revenue reads as under:-
" On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.5,48,731/- being written off loans and advances given to the employees."
29.1. After hearing both the sides we find the assessee claimed write off of advances to staff amounting to Rs. 5,48,731/- as an allowable expenditure. On being questioned by the A.O. to justify the claim it was submitted that the loans were given to the employees as per the terms and conditions of the service and were given in the normal course of business. It was submitted that the loan is incidental to business, therefore, write off of the same should be allowed as deduction. However, the A.O. was not satisfied with the explanation given by the assessee. He observed that loans and advances written off by the assessee cannot be allowed since it is not in the business of money lending. Relying on the decision of Hon'ble Supreme Court in the case of Amarchand Sobhachand reported in 82 ITR 591 he disallowed the claim on the ground that it is not in the nature of debt and the business activity of the assessee is not that of money lending. In appeal the ld. CIT(A) following the decision of his predecessor deleted the disallowance. Aggrieved with such order of the ld. CIT(A) the Revenue is in appeal before us.
29.2 After hearing both the sides we find identical issue had come up before the Tribunal in assessee's own case in A.Y. 1999-2000. We find the Tribunal upheld the order of the ld. CIT(A) by holding as under:- (para 93 of the order).
23ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
"Having heard the rival contentions and having perused the material on record, we see no reasons to interfere in the conclusions arrived at by the CIT(A) on this issue either. Learned Departmental Representative could not point out a single instance where the advances written off were not made during the course of , and as incidental to, business of the assessee. As long as amounts written off have been in the course of, and as incidental to, assessee's business activities, the loss so incurred is admissible as business loss. The CIT(A) was, therefore, quite justified in his conclusions and the same do not call for any interference from us. We decline to interfere in the matter.
29.3 Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice, the order of the ld. CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed.
30. Ground of appeal No. 5 by the Revenue reads as under:-
" On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the adjustments made by the AO on the following amounts for the purpose of computation of total income u/s. 115JB.
i) Rs. 30,70,484/- being provisions for W.T.
ii) Rs. 35,45,507/- on account of provision of gratuity
iii) Rs.123,79,10,422/- amount transferred to P & L Account from the
contingency reserve.
30.1 Facts of the case in brief are that the A.O. during the course of assessment proceedings noted that the assessee has not paid tax u/s 115JB of the Act. According to the assessee the book profit is (-) Rs.
1,11,98,79,644/-. The A.O. observed from the P&L account that the assessee had -
a) Failed to add back the provision for wealth tax of Rs. 40 lacs although it is in the nature of an unascertained liability since it is a provision.24 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05
M/s National organic Chemical Ind. Ltd.
b) Failed to add back the provision for gratuity of Rs. 35,45,507/-
although it is in the nature of an unascertained liability since it is a provision.
c) Excluded the amount of Rs. 1,23,79,10,422/- which was the amount transferred to the profit and loss account from the contingency reserve.
He, therefore, asked the assesse to explain as to why the above mentioned adjustments should not be done to the book profit for the purpose of Sec. 115JB.
30.2 It was explained by the assessee that the contingency reserve had been created in the earlier years without debiting the same to the Profit & Loss account and hence the same is not required to be added to the book profits of the earlier years. It was also submitted that the provision for gratuity is an ascertained liability in accordance with the decision of the Supreme Court in the case of Bharat Earth Movers Ltd. 30.3 However the A.O. was not satisfied with the explanation given by the assessee. He observed that the provision for gratuity and provision for wealth tax are in the nature of unascertained liability. After analysing the explanation to Section 115JB he observed that credit to the P&L account from the contingency reserve can be reduced only if the book profit of the year in which the reserve was created has been increased to that extent. He therefore rejected the explanation of the assessee that the contingency reserve has been created without any debit to the P&L account. According to him, there is no such exception provided in the Explanation. Further he observed that the book profit of the earlier years have not been increased 25 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
and hence the Explanation to Sec. 115JB would not be applicable to the amount withdrawn from the contingency reserve of Rs. 1,23,79,10,422/-. He, therefore, added the same to the book profit and did not allow the same to be reduced as claimed by the assessee. The A.O. further added an amount of Rs. 40 lacs towards provision for wealth tax and Rs. 35,45,507/- being provision for gratuity for determining the book profit u/s 115JB of the Act.
30.4 In appeal the ld. CIT(A) directed the A.O. not to increase the book profit by the said amount of Rs. 123,79,10,422 being transferred to the P&L account from the contingency reserve for the purpose of calculating book profit u/s 115JB of the Act. The relevant observation of the ld. CIT(A) reads as under:
15.1.1. I have carefully considered the matter. It is seen from the profit and loss account for the year ended 3 1/3/2001, relevant for AY 2001-02, that total receipts/income are of Rs. 1033.61 crores.
Total expenses are of Rs. 1143.99 crores. Thus, there is deficit of Rs. 110.98 crores. This deficit is reduced by withdrawing an amount of Rs. 123.79 crores from the contingency reserve. As a result of this adjustment, profit is shown at Rs. 13.1 1 crores. In the actual working no profit has been earned by the company during the year. Secondly, the copy of the profit and loss account and the balance sheets for the years ended 3 1/3/1999 and 31/3/2000 show that contingency reserves were created of Rs. 100 crores and 50crores respectively out of the existing surplus in profit and loss account. The reserves were not created before first day of April 1997. The said reserves were also not created by way of a debit to the profits and loss accounts pertaining to previous years 1998-99 and 1999-2000. The same were created by way of appropriations from the profits of the earlier years. In previous year 1998-99 profits were only of Rs. 13.63 crores. No such provision, therefore, could have been created by way of debiting to the profit and loss account. Similarly in the previous year 1999-2000 the profits were only of Rs. 1.39 crore and there was no scope to create any reserve by way of a debit to the profit and loss account. Further, it is seen 26 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
that the assessee could not have increased the book profit of the previous years 1998-99 and 1999- 2000 by the said reserves for the reason that the said amounts of reserves were not withdrawn out of the book profit of such previous years. It is not the case that because of the creation of the contingency reserves the appellant assessee had reduced its book profits for the previous years 1998- 99 and 1999-2000. In such circumstances, the stipulation made in the proviso to clause (i) to the effect that the amount withdrawn from reserves created or provisions made in the previous year relevant to the assessment year 1997-98 or after shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions out of which the said amount was withdrawn under the explanation is not applicable in the case of the appellant..
30.5 So far as the issue relating to provision for gratuity of Rs. 35,45,507/- is concerned, he directed the A.O. not to increase the book profit by that amount by holding as under:-
15.3.1. I have considered the issue. In view of the decision of the Hon'ble Supreme Court as relied upon by the appellant's counsel, it cannot be said that the liability for gratuity was not an ascertained liability. It is not the case of the AO that the provision was made on adhoc basis or it was not made on the basis of an actuarial valuation. The Hon'ble Bombay High Court in the case cited supra has held that since the provision for gratuity was made on actuarial calculation, it was an ascertained liability and the said amounts could not be added to the net profits. Considering these decisions, the AO is directed to not to increase profit by the amount of Rs. 35,45,507/-.
30.6 However as regards the addition of Rs. 40 lacs on account of provision of wealth tax he gave partial relief to the assessee by holding as under:-
15.2.1. I have considered the issue. The appellant had not increased the book profit by the amount of Rs. 40 lakhs provided for wealth tax. According to the appellant, neither clause (a) nor clause (c) to the Explanation was applicable. So far as clause (a) is concerned, the reliance placed by the counsel on the decision of Bombay High Court is well placed. The court has held that since 27 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
clause (a) of the Explanation does not contemplate wealth tax, the net profits could not be increased by the amount of wealth tax paid by the assessee. In clause (c) it is laid down that the amount or amounts set aside to provisions made for meeting unascertained liabilities go in increase the book profit. It is admitted that the wealth tax is a liability. The dispute is whether it is an ascertained liability or an unascertained liability. The very fact that the appellant has assets chargeable to wealth tax it cannot be said that wealth tax liability was in the nature of an unascertained liability. That the liability was ascertained is also proved by the fact that the assessee had paid wealth tax to the extent of Rs. 30,70,484/- on the basis of the return of net wealth furnished by it in October 2001. In view of this fact, the book profit can be increased by an amount of Rs. 9,25,516/- (Rs. 40,00,000 -- Rs. 30,70,484). The AO is directed to increase the book profit accordingly."
Aggrieved with such order of the ld. CIT(A) the Revenue is in appeal before us.
30.7 We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as the issue relating to the addition of wealth tax is concerned we find the same stands decided in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Echjay Forgings P. Ltd. Reported in 251 ITR15 wherein it has been held that since the clause (a) of the Explanation does not contemplate wealth tax, the net profits could not be increased by the amount of wealth tax paid by the assessee. The ld. CIT(A) has given a factual finding that the assessee had paid wealth tax amounting to Rs. 30,70,484/- which could not be controverted by the ld. D.R. Therefore, we do not find any infirmity in the 28 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
order of the ld. CIT(A) in directing the A.O. to delete the addition to the tune of Rs. 30,70,484/- from the book profit. Accordingly, the same is upheld. 30.8 So far as the provision for gratuity amounting to Rs. 35,45,507/- is concerned we find the same is also covered by the decision of the Hon'ble Bombay High Court in the case of Echjay Forgings Pvt. Ltd. (supra) wherein it has been held that when the provision for credit was made on the basis of actuarial calculations it was an ascertained liability and the said amount could not be added to the net profit. Since the order of the ld. CIT(A) is in consonance with the decision of the Hon'ble jurisdictional High Court, therefore, we do not find any infirmity in the order of the ld. CIT(A) in directing the A.O. not to increase the book profit by the amount of Rs. 35,45,507/-. Accordingly the same is upheld.
30.9 Now coming to the order of the ld. CIT(A) in directing the A.O. not to increase the book profit amounting to Rs. 123.79 crores for the purpose of section 115JB we find the ld. CIT(A) has given a factual finding that in actual working no profit has been earned by the company during the year. Further he has given a finding that the balance sheet for the year ended 31st March 1999 and 31st March, 2000 show that contingency reserves were created of Rs. 100 crores and Rs. 50 crores respectively out of the existing surplus in profit and loss account and the reserves were not created before first day of April, 1997. The said reserves were also not created by way of a debit to the profits and loss accounts pertaining to previous years 1998-99 and 1999-2000. The ld. D.R. could not controvert the above factual finding given by the ld. CIT(A). Since the ld. CIT(A) has elaborately discussed the 29 ITA No. 2131/M/05, 2147/M/05, 6104/M/05 & 4774/M/05 M/s National organic Chemical Ind. Ltd.
issue and the ld. D.R. could not point out any error or controvert the factual finding of the ld. CIT(A), therefore, we do not find any infirmity in the order of the ld. CIT(A). The ground raised by the Revenue is dismissed.
31. In the result, appeals filed by the assessee are partly allowed for statistical purposes and appeals filed by the Revenue are dismissed. Order pronounced on 17.02.2012.
Sd/- Sd/-
(N.V. VASUDEVAN) ( R K PANDA )
Judicial Member Accountant Member
Place: Mumbai : Dated: 17.02.2012
RK
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT Concerned Mumbai
4 CIT(A) Concerned, Mumbai
5 DR Bench F
6 Master File
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai