Income Tax Appellate Tribunal - Ahmedabad
Gmm Pfaulder Ltd.,, Ahmedabad vs Assessee on 10 January, 2014
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ 'ए
ए',, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A " BENCH, AHMEDABAD
सम¢ ौी एन.एस.सैनी, लेखा सदःय एवं ौी कुल भारत, Ûयाियक सदःय ।
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
Sl. ITA No(s) Assessment Year Appeal(s) by
No(s) Appellant vs. Respondent
Appellant (s) Respondent(s)
1. 2627/Ahd/2008 2005-06 GMM Pfaudler Ltd. Jt.CIT
3rd Floor, B-Jadav Range-4
Chambers Ahmedabad
Ashram Road (Revenue)
Ahmedabad
(Assessee)
PAN:AABCG 0563 A
2. 2923/Ahd/2008 2005-06 Revenue Assessee
3. 3280/Ahd/2010 2005-06 Revenue Assessee
Assessee by : Shri S.N.Soparkar with Ms.Urvashi
Shodhan, AR
Revenue by : Shri O.P.Batheja, Sr.DR
सुनवाई कȧ तारȣख / Date of Hearing : 10/01/2014
घोषणा कȧ तारȣख /Date of Pronouncement : 28/01/2014
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
Out of these three appeals, two appeals - i.e. ITA No.2627/Ahd/2008 & ITA No.2923/Ahd/2008 are the cross-appeals by Assessee and Revenue respectively against the order (in respect of quantum proceedings) passed by the Ld.Commissioner of Income Tax(Appeals)-VIII, Ahmedabad ('CIT(A)' for short) dated 05/05/2008 pertaining to Assessment Year (AY) 2005-06. The ITA No.3280/Ahd/2010 is filed by the Revenue against the order (in respect of penalty proceedings) passed by the ld.CIT(A)-VIII, Ahmedabad dated ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT -2- 09/09/2010 for AY 2005-06. Since these appeals pertain to the same assessee, these were heard together and are being disposed of by way of this consolidated order for the sake of convenience.
2. First, we take up the Assessee's appeal in ITA No.2627/Ahd/2008 for AY 2005-06. The assessee has raised following grounds of appeal:-
1. The Learned Commissioner (Appeals) failed to understand the facts and circumstances of the case.
2. The Learend Commissioenr (Appeal) erred in confirming the non-allowance of claim of accrued interest Rs.38,33,185/- payable to APSEB as per order of the city civil court.
3. The Learned Commissioner (Appeal) erred in confirming the disallowance of Rs.3,62,160/- being administrative expenses u/s.14A of the Act, considering them incurred in relation to exempted dividend income.
4. The appellant prays for appropriate relief on the above grounds of appeals.
5. The appellant craves leave to add, alter, amend, substitute, or withdraw any of the above grounds of appeal as circumstances may justify.
2.1. Apart from the above grounds, the assessee has also raised an additional ground, which reads as under:-
Additional ground of appeal Appellant craves leave to raise this additional ground of appeal before the Hon'ble ITAT. This is a legal ground and therefore as per the decision of Hon'ble Supreme Court in the case of National Thermal Power (229 ITR 383) it can be raised before the Hon'ble ITAT.
1. The appellant prays that on the facts and circumstances of the case and in law for the purpose of computing book profit u/s.115JB of the Act, the amount of bad debts written off against provision for bad and doubtful debts should be reduced if provision for bad debts is disallowed.ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue)
GMM Pfaudler Ltd. vs. Jt.CIT -3- Appellant craves leave to add, amend, alter, change, delete and edit the above ground of appeal before or at the time of the hearing of the appeal.
3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was finalized, thereby the Assessing Officer (AO) has made various disallowances/additions. The disallowances/additions made by the AO in respect of the accrued interest to APSEB, provision for liquidated damages, recovery of bad debts, bad debts written off, provision for warranty, disallowance u/s.14A, proportionate interest u/s.36(1)(iii), disallowance of additional depreciation, disallowance of royalty/trademark expenses, unutilized Cenvat credit and Arm's Length Price. Against this, assessee filed an appeal before the ld.CIT(A), who after considering the submissions, partly allowed the appeal. Now, both the Assessee and the Revenue feeling aggrieved by the order of the ld.CIT(A) have preferred cross- appeals.
4. At the outset, ld.counsel for the assessee submitted that ground No.1 is general in nature, the same may be decided accordingly. In view of the statement made by the ld.counsel for the assessee, ground No.1 is treated as general in nature which needs no separate adjudication.
5. Ground No.2 is against in confirming the disallowance of claim of accrued interest Rs.8,33,185/- payable to APSEB as per order of the city civil court.
ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue)GMM Pfaudler Ltd. vs. Jt.CIT -4- 5.1. The ld.counsel for the assessee fairly conceded that this ground has been decided against the assessee by the Hon'ble Coordinate Bench (ITAT "A" Bench Ahmedabad) in ITA No.1476/Ahd/2006 for AY 2002- 03, order dated 11/02/2011. In view of the submission made by the ld.counsel for the assessee and the decision of the Hon'ble Coordinate Bench passed in ITA No.1476/Ahd/2006(supra), wherein the Tribunal has recorded a finding that the issue is decided against the assessee, this ground of the assessee is, therefore, rejected.
6. Ground No.3 is against the confirmation of disallowance of Rs.3,62,160/- being administrative expenses u/s.14A of the Act.
6.1. The ld.counsel for the assessee submitted that this issue is decided in favour of assessee by the Hon'ble Coordinate Bench in ITA No.1476/Ahd/2006 pertaining to AY 2002-03.
6.2. On the contrary, ld.Sr.DR supported the order of the ld.CIT(A). The ld.Sr.DR has relied on the decision of Hon'ble Calcutta High Court in the case of Dhanuka & Sons vs. CIT reported at (2011) 12 taxmann.com 227 (Cal.).
7. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below.
We find that the Hon'ble Coordinate Bench in ITA No.1476/Ahd/2006(supra) vide para-16, it has been held that since the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT -5- made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this grounds is allowed. In this year also, the AO has not established the nexus. Moreover, the ld.counsel for the assessee has relied on the decision of the Hon'ble Kerala High Court in the case of CIT vs. Catholic Syrian Bank Ltd. reported at (2012) 207 Taxman 2 :: (2011) 9 taxmann.com 148 (Ker.)(Mag), wherein the Hon'ble High Court has held that so far as disallowance of administrative expense is concerned, there is no precious formula or proportionate disallowance, hence no disallowance can be called for under the identical facts. On the other hand, the ld.DR has relied on the decision of Hon'ble Calcutta High Court in the case of Dhanuka & Sons(supra). Since different views have been expressed by the Hon'ble Calcutta High Court and Hon'ble Kerala High Court, view which is in favour of assessee is to be Adopted as held by the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported at 88 ITR 192 (SC). Therefore, respectfully following the decision of Hon'ble Kerala High Court in the case of Catholic Syrian Bank Ltd.(supra), this ground of assessee's appeal is allowed.
8. Ground Nos.4 & 5 are general in nature which require no independent adjudication.
9. Now, we take the additional ground raised by the assessee. The additional ground raised by the assessee being legal in nature in view of ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT -6- the decision of the Hon'ble Supreme Court in the case of National Thermal Power (229 ITR 383), the same is admitted for adjudication. Since this ground has been taken first time and certain details are required to be verified, this ground is restored back to the file of ld.CIT(A) for decision afresh. Additional ground is allowed but for statistical purposes.
10. In the result, assessee's appeal in ITA No.2627/Ahd/2008 for AY 2005-06 is partly allowed for statistical purposes only.
11. Now, we take up the Revenue's appeal in ITA No.2923/2008 for AY 2005-06. The facts are identical as were in ITA No.2627/Ahd/2008 for AY 2005-06 (Assessee's cross-appeal-supra).
11.1. The first ground is against deletion of disallowance of provision for liquidated damages of Rs.8,67,740/-. The ld.Sr.DR submitted that the ld.CIT(A) was not justified in deleting the disallowance of provision for liquidated damages. On the contrary, ld.counsel for the assessee fairly submitted that under the identical facts, the Hon'ble Coordinate Bench in ITA No.2002/Ahd/2007 for AY 2003-04 (assessee's cross-appeal), dated 11/02/2011, the issue ahs been restored back to the file of AO.
12. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble Coordinate Bench in ITA No.2002/Ahd/2007 ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT -7- for AY 2003-04 vide para-56 has restored this issued back to the file of AO. The Hon'ble Tribunal in para-56 has given the following direction:-
"56. We have heard the parties and carefully perused the material on record. In our considered view the issue regarding liquidated damages requires a fresh look by the AO. He would allow the claim on actual basis. Wherever the other party has claimed liquidated damages against the assessee in the current year Asst.Year it should be allowed. The assessee would submit individual account and the AO will examine such accounts and take a decision as per law. This ground is allowed but for statistical purposes."
12.1. After considering the totality of the facts, we feel that a similar direction may also be issued in this case as well. Accordingly, the AO is directed to decide this issue afresh in the light of the direction issued in ITA No.2002/Ahd/2007 (supra). Thus, this ground of the Revenue is allowed but for statistical purposes.
13. Ground No.2 is against the deletion of the disallowance of Rs.26,08,000/-, being bad debts written off. The ld.Sr.DR supported the order of the AO, whereas ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that an identical issue has been decided by the Tribunal in ITA No.1241/Ahd/06 for AY 2002-03 (Revenue's cross-appeal), order dated 11/02/2011.
14. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble Coordinate Bench vide para-43 of its order has decided this issue in favour of assessee by observing as under:-
ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue)GMM Pfaudler Ltd. vs. Jt.CIT -8- "43. We have heard the parties and carefully perused the material on record. In our considered view there is no case for interference in the order of ld.CIT(A). It is admitted position that assessee has actually written off the amounts. Once it is so then matter is squarely covered by the decision of Hon.Supreme Court in the case of TRF Ltd. vs. CIT (2010) 323 ITR 397 (SC() wherein it is held that w.e.f. 1.4.1989 in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is enough if the bad debt is written off and the bad debt is irrecoverable in the account of assessee. Following the above decision of Hon.Supreme Court, we confirm the order of ld.CIT(A) and dismiss this ground of Revenue."
14.1. Since the facts are identical in this case also and the Revenue has not pointed out any change in the facts and circumstances of the case, therefore we uphold the order of the ld.CIT(A) and dismiss this ground of the Revenue's appeal.
15. Ground No.3 is against the deletion of disallowance of Rs.68,61,000/- in respect of provision for warranty expenses. The Sr.DR supported the order of the AO, whereas the ld.counsel for the assessee supported the order of the ld.CIT(A). Ld.counsel for the assessee pointed out that this issue has been set aside to the file of AO by the Hon'ble Coordinate Bench in ITA No.12/Ahd/2008 for AY 2004-
05. 15.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble Tribunal in ITA No.12/Ahd/2008 for AY 2004-05 (Revenue's appeal in assessee's own case) vide order dated ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT -9- 11/12/2011 has restored the matter back to the file of AO by observing as under:-
"76. Ground No.2 relates to deletion of a sum of Rs.6,43,000/- is provisions for warranty expenses. The assessee debited a sum of Rs.25,70,000/- in the P&L a/c. The AO disallowed warranty expenses for three months on proportionate basis as pertaining to the subsequent year. The ld.CIT(A) allowed the entire claim following the decision of ITAT, Bangalore in the case of Wipro Ge Medical System Ltd. vs. DCIT 81 TTJ 455.
...
79. We have heard the parties. The assessee has to submit present value of warranty expenses. It has to be properly ascertained and discounted on accrual basis. A proper calculation on this issue will be submitted to the AO who will examine the same and allow the claim as per decision of Hon.Supreme Court in Rotork Controls India (P) ltd. (supra) as above. This ground of Revenue is allowed but for statistical purposes."
15.2. Since the facts are identical in this case also and the Revenue has not pointed out any change in the facts and circumstances of the case, therefore taking a consistent view, we accordingly set aside the order of the ld.CIT(A) and restore this issue back to the file AO for fresh adjudication. Thus, this ground of Revenue's appeal is allowed but for statistical purposes.
16. Ground No.4 is against the deletion of disallowance of interest expenses of Rs.13,44,876/- u/s.14A of the Act. The ld.Sr.DR supported the order of the AO and placed reliance on the decision of Hon'ble Calcutta High Court rendered in the case of Dhanuka & Sons vs. CIT (supra) and decision of ITAT Mumbai Bench rendered in the case of Kalpataru Construction Overseas (P.) Ltd. vs. DCIT reported at (2007) ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
- 10 -
13 SOT 194 (Mum.). On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the issue has been decided by the Hon'ble Coordinate Bench in ITA No.1476/Ahd/2006 for AY 2002-03.
17. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble ITAT in ITA No.1476/Ahd/2006(supra) vide para Nos.14 to 16 has held as under:-
"14. We have considered the rival submissions and perused the material on record. In our considered view, the matter would go to the file of AO as per the decision of Hon.Bombay High Court in the case of Godrej Boyce Mfg. Co.Ltd. (supra) only when it is held that some amount is required to disallowed as there is a nexus between the exempted income and investment, i.e. if Revenue is able to show that interest bearing capital has been invested in shares but where no such nexus is established the question of determining any disallowance does not arise and, therefore, matter need not be sent to the file of AO as no determination of any disallowance would be necessary. In the present case we notice that loan funds have decreased this year as compared to earlier years. Even though investments have increased from Rs.940.32 lacs to Rs.1008.51 lacs but such increase in investment cannot be linked to any borrowed funds this year as assessee has in fact not borrowed any additional fund this year. Prior to the decision of Hon.Supreme Court in the case of Hon'ble Supreme Court in S.A.Builders vs. CIT 288 ITR 1 (SC) onus was considered on the assessee to show the nexus between the interest free funds and investment on which no income is earned. After S.A.Builders case (supra) onus is considered shifted to the Revenue and AO has to show that interest bearing capital alone were invested in investment on which no income was earned. Hon.Supreme Court in the case of Munjal Sales Corporation vs. CIT (2008) 298 ITR 298 (SC) held where assessee had sufficient profits in the current year then interest free advances can be considered to be flowing from such profits. Hon'ble Bombay High Court in CIT vs. ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
- 11 -
Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) held that if there are fund available both interest free and interest bearing, then a presumption arise that investment were out of interest free funds generated or available with the assessee. If the interest free funds were sufficient to meet the investment no disallowance of interest paid on borrowed funds would be necessary. Once such presumption is established claim of interest was allowable.
15. There is another aspect of the matter. If the assessee has made investment in subsidiaries out of mixed funds and for commercial expediency then no interest out of payment made on borrowed funds can be disallowed as held in S.A.Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC). Hon'ble Punjab & Haryana High Court in CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P& H) held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated.
16. Since assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this ground is allowed."
17.1. The Hon'ble Coordinate Bench has examined the various case laws and came to the conclusion that the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest-bearing funds, disallowance of interest cannot be made. In the present case also, the facts are identical, therefore we do not find any reason to take a contrary view than taken by the Hon'ble Coordinate Bench. Thus, this ground of the Revenue's appeal is rejected.
18. Ground No.5 is against the deletion of disallowance of Rs.1,29,034/- u/s.36(1)(iii) of the Act. The ld.Sr.DR has supported the order of the AO, whereas ld.counsel for the assessee supported the order ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
- 12 -
of the ld.CIT(A) and submitted that under the identical facts, the Hon'ble Tribunal in ITA No.1476/Ahd/2006(supra) the issue has been decided in favour of assessee vide para Nos.9 & 16 by observing as under:-
"9. Ground No.4(a) relates to disallowance of proportionate interest of Rs.10,70,7000/-. The AO disallowed proportionate interest out of interest paid on borrowed funds on the assumption that borrowed money has been used for acquisition of investment as on balance sheet date. As per AO the Company had made total investment to the extent of Rs.1008.51 lacs in the equity shares and Mutual funds. During the year the investment in shares and Mutual funds were increased from 940.32 lacs to Rs.1008.51 lacs. Out of this investment, to the tune of Rs.61 lacs, is made in subsidiary Companies namely Karamsad Investment Ltd. & Karamsad Holding Ltd. Since the assessee had purchased shares in those companies being sister concerns, the nature of investment is the same as in shares and Mutual Fund of other companies. The assessee company had earned dividend income of Rs.94.47 lacs during the year and has claimed as exempt under section 10(33). Invoking section 14A AO held that expenditure for earning exempted income cannot be allowed as deduction. Similarly, the AO identified that administrative expenditure which could have been incurred for handling the investment in shares and Mutual Fund. A part of such expenditure was considered attributable to investment made in sister concerns, the income therefrom was exempt under section 10(33). The assessee submitted that it has enough working capital and it has not increased its borrowings this year. Therefore, it cannot be said that investment in subsidiary was done during this year out of any borrowed capital made this year. Regarding administrative expenditure sought to be disallowed assessee submitted before the AO that there is no relationship of such expenditure with the investment activities. No specific staff has been appointed for this purpose. The AO, however, did not agree and disallowed proportionate interest by holding that assessee did not produce any evidence to show that interest free funds were alone used for making such investment in sister concerns. The assessee has not maintained separate account for making investment are out of mixed funds. There is no nexus between the investment and interest free funds. Onus is on the assessee during the year and also in earlier years that investment for earning capital gains and dividend are made out of interest free capital. After long and detailed discussion the AO disallowed pro-rata interest worked out at ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
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Rs.10.70 lacs. In addition, he also disallowed, by estimate administrative, expenditure of Rs.1,20,000/-. ...
16. Since assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this ground is allowed."
18.1. In the present case also, the facts are identical as the ld.CIT(A) had given a finding on fact that there assessee had sufficient interest free fund and it had not diverted the interest bearing fund same remained unrebutted. Therefore, we do not find any reason to take a contrary view than taken by the Hon'ble Coordinate Bench. Thus, this ground of the Revenue's appeal is rejected.
19. Ground No.6 is against the deletion of disallowance of additional depreciation of Rs.2,17,595/-. The ld.Sr.DR strongly supported the order of the AO and submitted that the pre-requisite for claiming additional depreciation is that the assessee has to demonstrate increase in the installed capacity. He also submitted that AO has given a finding that the assessee could not prove the increase in the installed capacity. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the ld.CIT(A) is justified in deleting the disallowance. He drew our attention towards page No.163 of the paper- book, wherein it has been submitted by the assessee-company that it had set up new shed in which New Plant & Machinery installed for manufacturing of parts, which are used in manufacturing of Glass Lined ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
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Vessels/Reactors and are sold directly to the customers. Upto this year the company had no separate facility for the production of said parts. They were manufactured in the existing manufacturing facilities. By setting up new shed for manufacturing of parts the assessee-company has achieved higher production of Glass lined Vessels/Reactors and simultaneously reduced the cost of manufacturing of parts. Thus, the company ahs made expansion of its existing unit. In the annual report, the installed capacity in respect of manufacturing of parts has not been reported. In annual report, it is stated that, "The company has during the year expanded capacity by adding a new facility for manufacturing Glass Lined Parts & Components." As on 31/03/2002 the company has no installed capacity in respect of manufacturing of parts. Therefore, the manufacturing in current year may be considered as 100% increase installed capacity in respect of manufacturing of parts. 19.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. Considering the submissions of the assessee, we find that the ld.CIT(A) has given a finding on fact that the appellant has started new line of production of manufacturing of parts which was not there earlier, therefore, there was no installed capacity as on 31.3.2002 in respect of manufacturing of parts, therefore there is 100% increase in installed capacity in respect of manufacturing of parts. Therefore, ld.CIT(A) was of the view that as the new facility of production has been established the appellant is clearly eligible for additional depreciation, accordingly, the disallowance of additional depreciation is deleted.
ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue)GMM Pfaudler Ltd. vs. Jt.CIT
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19.2. In view of uncontroverted finding on fact that there was increase in installed capacity from '0' to '100', we do not find any infirmity in the order of the ld.CIT(A), the same is hereby upheld. Thus, this ground of Revenue's appeal is rejected.
20. Ground No.7 is against the deletion of disallowance of royalty of Rs.41,06,250/-. The ld.Sr.DR supported the order of the AO, whereas ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the assessee-company is paying royalty to Pfaudler Inc, USA for the usage of trademarks. It is submitted that as per user Agreement the assessee-company has got the right of user only and not of ownership. The payment of Royalty is related to sales made by user of technology supplied by them. If the assessee does not use the technology then no royalty payment is required. User of the trademark did not create any asset or conferred any permanent right in favour of the assessee. The Agreement is only for 11 years and terminable by short notice. Royalty is paid in course of profit earning process.
20.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that on the basis of the submissions of the assessee, ld.CIT(A) has given a finding on fact that the assessee has not acquired any ownership rights. It has got the right of user only. Since, AY 1989-90, the user charges claimed as royalty have been allowed in the ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
- 16 -
assessments, the rate of user charges is 1% of the sales during the year under consideration. TDS has been made in respect of royalty payments. As it is a recurring expenditure payable on the basis of sales and the appellant has not acquired any capital asset or permanent right, the payment of royalty is allowable as business expenditure. The Revenue has not controverted this fact by placing any material on record, therefore, we do not find any infirmity in the order of the ld.CIT(A), the same is hereby upheld. Thus, this ground of Revenue's appeal is rejected.
21. Ground No.8 is against the deletion of addition of Rs.1,04,889/- on account of arm's length price in respect of sale of material to associated concern. The ld.Sr.DR supported the order of the AO and submitted that the ld.CIT(A) is not justified in deleting the addition. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the order of the ld.CIT(A) is justified.
21.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A), after considering the explanation given by the ld.counsel for the assessee, has given a finding on fact that the transactions considered by the AO are not substantial as compared to the volume of the transactions. Further, it is found that in most of the transactions, the appellant has earned higher sales price and in totality the ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
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appellant has gained higher prices as can be seen from pages 197 to 199 of the paper-book.
21.2. The Revenue has not controverted this fact by placing any material on record, therefore, we do not find any infirmity in the order of the ld.CIT(A), the same is hereby upheld. Thus, this ground of Revenue's appeal is rejected.
22. Ground No.9 is against the direction of the ld.CIT(A) to the AO to allow reduction of Rs.1,11,223/- being prior period adjustment for the purpose of computation of book profit u/s.115JB. The Sr.DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in directing the AO to allow reduction being prior period adjustment for the purpose of computation of book profit u/s.115JB of the Act. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that this issue is covered by the decision of Hon'ble Gujarat High Court rendered in Tax Appeal No.1940 of 2010 in the case of CIT vs. The Riddhi Siddhi Gluco Boils Ltd., dated 28/06/2012. Reliance is also placed on the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT reported at (2002) 255 ITR 273 (SC).
22.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble Jurisdictional High Court in the case of The Riddhi Siddhi Gluco Boils Ltd.(supra), has observed vide para-4 as under:-
ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue)GMM Pfaudler Ltd. vs. Jt.CIT
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"4.0 A Division Bench of this Court in Tax Appeal No.109 to 2010, decided on 13.12.2011, has held in para:10 that the Assessing Officer could not have varied the Profit and Loss Account of the company duly audited and prepared in terms of the provisions contained in the Companies Act which is extracted as under:-
"10. In that view of the matter, as rightly pointed out by the counsel for the assessee, in view of the decisions of the Apex Court in the case of Apollo Tyres Ltd. vs. Commissioner of Income-Tax reported in (2002) 255 ITR 273 and in the case of Commissioner of Income-Tax vs. HCL Comnet Systems and Services Ltd. reported in (2008) 305 ITR 409(SC), the Assessing Officer, could not have varied the Profit and Loss Account of the company duly audited and prepared in terms of the provisions contained in the Companies Act."
22.2. Therefore, respectfully following the judgement of Hon'ble Jurisdictional High Court, this ground of Revenue's appeal is dismissed.
23. Ground No.10 is against the direction of the ld.CIT(A) to the AO not to include provision for doubtful debts of Rs.44,74,000/-, provision for warranty expenses of RS.21,74,000/- and interest expenses of Rs.13,44,876/- being expenses related to earn exempt income for the purpose of computation of book profit u/s.115JB of the Act. The ld.Sr.DR supported the order of the AO and placed reliance on the decision of the Hon'ble High Court of Delhi in the case of CIT vs. ILPEA Paramount (P.) Ltd. reported at (2010) 192 Taxman 65 (Delhi). On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and relied on the decision of Hon'ble Coordinate Bench (ITAT 'A' Bench Ahmedabad) in ITA No.1999/Ahd/2008 for AY 2003-04 in the case of ACIT vs. Vodafone Essar Gujarat Ltd., dated 11/05/2012, ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
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decision of ITAT 'E' Bench Mumbai in ITA No.3850/Mum/2010 for AY 2005-06 in the case of M/s.Essar Teleholdings Ltd. vs. DCIT dated 29/07/2011 and decision of ITAT 'F' Bench Delhi in ITA No.4931/Del/2010 for AY 2007-08 in the case of Quippo Telecom Infrastructure Ltd. vs. ACIT, dated 18/02/2011.
23.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) in para-14.2 of his order has given a finding that as regards the provision for doubtful debts of Rs..44,74,000/- and provision of warranty expenses are concerned, the same are treated as ascertained liability and therefore, no addition can be made to the book profit in respect of these amounts, accordingly, these additions are deleted. Similarly, in respect of disallowance of expenses u/s.14A of Rs.17,07,036/- as the disallowance has been reduced to Rs.3,62,160/-. The ld.CIT(A) has partly confirmed the disallowance. We find that the Hon'ble Coordinate Bench in the case of Vodafone Essar Gujarat Ltd. vide para-11 of its order has held as under:-
"11. We have considered the rival contentions, the case laws cited and perused the documents on record. It is a fact that the assessee had made provision for bad and doubtful debts and the same has been charged to the Profit and Loss Account for the year ended 31st March 2003. In the Balance Sheet as on 31st March 2003 of the assessee, it can be seen that the provision of bad and doubtful debts has been reduced from the gross debtors and the net sundry debtors are shown as asset in the balance sheet. Thus the provision for bad and doubtful debts cannot be termed as a provision for liability but is in the nature of diminution in the value of asset. In view of the aforesaid facts, we are of the view that the facts in the present case are identical to that of the case of Yokogwa India Ltd.(supra). We therefore, respectfully ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
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following the decision of Hon'ble High Court in the case of CIT vs. Yokogwa India Ltd., (supra) we do not find any infirmity in the order of CIT(A). Accordingly the appeal of the Revenue is dismissed."
23.2. The Hon'ble Coordinate Bench in the case of M/s.Essar Teleholidngs Ltd.(supra) has held that the provisions of section 14A cannot be imported into while computing the book profit u/s.115JB of the Act inasmuch as clause (f) of Explanation to Section 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit u/s.115JB of the Act. In this connection, the Hon'ble Coordinate Bench placed reliance on the decision of ITAT Delhi Bench in the case of Goetze (India) Ltd. vs. CIT (2009) 32 SOT 101 (Del), wherein it has been held that provisions of sub-sec.(2) & (3) of section 14A cannot be imported into clause (f) of the Explanation to Section 115JA of the Act.
23.3. So far as provision for warranty is concerned, ld.CIT(A) has given a finding that there liabilities are ascertained, therefore book profit would not be increased.
23.4. After considering the totality of the facts and the decisions of the Coordinate Benches, we do not find any infirmity in the order of the ld.CIT(A), the same is hereby upheld. Thus, this ground of Revenue's appeal is dismissed.
24. Ground Nos.11 & 12 are general in nature which require no independent adjudication.
ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue)GMM Pfaudler Ltd. vs. Jt.CIT
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25. In the result, Revenue's appeal in ITA No.2923/Ahd/2008 for AY 2005-06 is partly allowed for statistical purposes.
26. Now, we take up the Revenue's appeal in ITA No.3280/Ahd/2010 for AY 2005-06, wherein Revenue has taken the following grounds:-
1. The ld.CIT(A) has erred in law and on facts in deleting the penalty of Rs.4,37,407/- levied by the A.O. u/s.271(1)(c) of the Act, on account of disallowance of Rs.8,33,185/- and Rs.3,62,160/- made by the A.O. in respect of interest paid to APESB and u/s.14A of the Act, respectively.
1.1. In doing so, the ld.CIT(A) has erred in not appreciating the fact that the assessee had furnished inaccurate particulars while claiming interest of rs.8,33,185/- on damages payable of Rs.69,43,209 to Andhra Pradesh State Electricity Board (APSEB) as per the decree dated 16-12-94 issued by the City Civil Court while the assessee had obtained stay from Hon'ble Andhra Pradesh High Court against the said decree and hence the said decree was not in operation.
1.2. The ld.CIT(A) has further erred in not appreciating the fact that as per the Provisions of Section 14A of the I.T.Act, 1961, no deduction should be allowed in respect of the expenditure incurred for earning exempt income and the assessee had furnished incorrect particulars of income by disregarding the statutory provisions of the Act.
2. On the facts and in the circumstances of the case, the ld.CIT(A) ought to have upheld the order of the Assessing Officer.
3. It is, therefore, prayed that the order of the ld.CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent.
26.1. The only effective ground is against the deletion of penalty of Rs.4,37,407/- levied by the AO u/s.271(1)(c).
26.2. The Assessing Officer observed that during the year under consideration, the assessee-company has claimed interest payable to APSEB amounting to Rs.8,33,185/- and disallowance of administrative ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
- 22 -
expenses of Rs.3,62,160/- which was confirmed by the ld.CIT(A) in quantum proceedings. However, the penalty was levied in respect of disallowance of Rs.8,33,185/-. Being aggrieved by the penalty order, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions deleted the penalty. Now, the Revenue is in appeal before us.
26.3. The ld.Sr.DR has strongly supported the order of the AO and submitted that the ld.CIT(A) was not justified in deleting the penalty. On the contrary, ld.counsel for the assessee submitted that the CIT(A) has only followed the decision of the Hon'ble ITAT "A" Bench Ahmedabad in the case of DCIT vs. GMM Pfaudler Ltd. in ITA No.4232/Ahd/2007 for AY 1998-99, dated 11/04/2008 and also decision of Hon'ble ITAT 'F' Bench in the case of DCIT vs. Nalwa Investments Ltd. in ITA No.3805/Del/2010 for AY 2005-06, dated 29/10/2010.
27. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the issue raised in Revenue's appeal with regard to disallowance of interest paid to APSEB and disallowance of u/s.14A of the Act. So far as the disallowance u/s.14A is concerned, this disallowance has been deleted by us in our order passed in ITA No.2627/Ahd/2008 (Assessee's appeal) for AY 2005-06 (supra), therefore, the penalty of Rs.4,37,407/- levied by the AO u/s.271(1)(c) of the Act in respect of interest paid to APSEP does not survive. The Coordinate Bench in assessee's own case has taken a view that penalty is ITA No.2627/Ahd/2008-AY 2005-06 (By Assessee) ITA No.2923/Ahd/2008-AY 2005-06 (By Revenue) & ITA No.3280/Ahd/2010-AY 2005-06 (By Revenue) GMM Pfaudler Ltd. vs. Jt.CIT
- 23 -
not leviable on such amount, therefore, taking a consistent view, we delete the penalty for this year also. Thus, this ground of Revenue's appeal is rejected.
28. We summarize the result as under:-
(1) Assessee's appeal in ITA No.2627/Ahd/2008 for AY 2005- 06 is partly allowed but for statistical purposes. (2) Revenue's appeal in ITA No.2923/Ahd/2008 for AY 2005- 06 is partly allowed but for statistical purposes. (3) Revenue's appeal in ITA No.3280/Ahd/2010 for AY 2005-
06 is dismissed.
Order pronounced in Court on the date mentioned hereinabove at caption page Sd/- Sd/-
(एन.एस.सैनी) (कुल भारत)
लेखा सदःय Ûयाियक सदःय
( N.S. SAINI ) ( KUL BHARAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 28 / 01 /2014
टȣ.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-VIII, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad