Income Tax Appellate Tribunal - Mumbai
Associated Cement Cos Ltd., Mumbai vs Assessee on 28 June, 2012
ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member
and Shri Vivek Varma, Judicial Member
ITA No.7594/Mum/2004
(Assessment year: 1999-2000)
Associated Cement Cos. Ltd., Vs Addl. Commissioner of
Cement House, 3rd Floor, Income Tax Range-1,Room
Financial Division, 121 MK No.579, 5th Floor, Aayakar
Road, Churchgate, Bhavan, MK Road,
Mumbai 400020 Mumbai-400020
PAN:AAACT 1507 C
(Appellant) (Respondent)
ITA No.7644/Mum/2004
(Assessment year: 1999-2000)
Dy. Commissioner of Income Vs Associated Cement Cos. Ltd.,
Tax Range-1,Room No.533, 5th Cement House, 3rd Floor,
Floor, Aayakar Bhavan, MK Financial Division, 121 MK
Road, Mumbai-400020 Road, Churchgate,
Mumbai 400020
PAN:AAACT 1507 C
(Appellant) (Respondent)
Assessee by: Mr.Soumen Adak,
Mr.Amit Kumar Mishra &
Mr.Basant Kasat
Department by: Shri Subachan Ram, CIT (DR)
Date of Hearing: 28/06/2012
Date of Pronouncement: 29/08/2012
ORDER
Per B. Ramakotaiah, A.M.
These are the cross appeals by assessee and Revenue against the order of the CIT (A)-1 Mumbai dated 08.07.2004. At the outset, it was informed that most of the issues in the appeals have been covered by the orders of the ITAT in assessee's own case and placed on record synopsis of grounds and relevant case law for considering Page 1 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench the appeals. Accordingly, taking into consideration the orders of the earlier years and submissions the appeals are decided as under:
ITA No.7594/Mum/2004:2. This is an assessee appeal in which assessee has raised eleven grounds and also additional grounds totaling to 18 grounds on various issues. These are dealt with as under:
3. Ground No.1 Transport Subsidy claimed as capital receipt:
3.1 Assessee received an amount of `22,93,57,398/- as transport subsidy under the transport subsidy scheme 1971 for setting up new industrial unit at Bilaspur in Himachal Pradesh. It was submitted that the purpose of incentive was to promote industrialization in specified areas. The claim of capital receipt was disallowed following the order of immediately preceding year i.e. AY 1998-99 wherein it was held that the subsidy is revenue receipt by AO following the order of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd, vs. CIT (1997) 228 ITR 253 (SC).
The CIT (A) confirmed this treatment given by AO as assessee did not press the issue at that point of time. This issue was decided in favour of assessee by the orders from 1991-92 by ITAT in following appeals:
AY 91-92 in ITA No.1105/M/97 AY 92-93 in ITA No.3961/M/97 AY 93-94 in ITA No.6901/M/97 AY 94-95 in ITA No.3055/M/98 AY 96-97 in ITA No.3783/M/00 AY 97-98 in ITA No.3298/M/01 AY 98-99 in ITA No.6289/M/01 ITA No.6289 & 6320/Mum/2003 for AY 1998-99 vide Para 5 it was decided as under:
"5. Learned counsel refers to paper book pages 267 to 273 (Para 9), which contain order of the ITAT in assessee's own case, wherein, identical claim for the assessment years 1991-92 to 1996-97 has been decided Page 2 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench in favour of the assessee. He also refers to the decision of the ITAT Mumbai (SB) in the case of DCIT vs. Reliance Industries Ltd. 88 ITD 273 (SB)(Mum), wherein, it has been held that if a subsidy is given for setting up or expansion of industry, it will be capital irrespective of source of funds or mode of disbursement. Reliance was made to the decision of Hon'ble Supreme Court's judgment in the case of CIT v. Ponni Sugars & chemicals Ltd, 306 ITR 392(SC), wherein, it has been held that it is the purpose test which decides the nature of the incentive and not the modality or the source thereof. In view of this, learned counsel urged us to decide the ground in favour of the assessee. Learned Departmental Representative, on the other hand, submits that even though the issue is covered in favour of the assessee by earlier of decisions of the Tribunal in assessee's own case, those decisions are per in curium inasmuch as these decisions have ignored another division bench decision on this issue, which was against the assessee, in the case of ACIT Vs. Steel Strips Limited (108 ITD 720) wherein the coordinate bench had held that transport subsidy received by assessee from State Government under Transport Subsidy Scheme, 1971 of Government of India, against transport cost of raw material and finished goods, would be revenue receipt. We are thus urged not to follow the Tribunal decisions in assessee's own case and uphold the action of the authorities below on this issue. In rejoinder, learned counsel points out that Tribunal's decision in the case of Steel Strips Limited (supra) itself did not follow an earlier decision of the coordinate bench in the case of Assam Asbestos Limited Vs. IAC ( 45 ITD
81) and it did not deal with 'purpose test' to come to the conclusion as to whether or not the subsidy received will be capital receipt or revenue receipt. Our attention is invited to the fact that, in any event, the said DB decision is no longer good law in the light of Hon'ble Bombay High Court judgment in the case of CIT Vs. Reliance Industries Ltd (2010 TIOL 228 HC Mum), approving Special Bench decision in the case of DCIT Vs. Reliance Industries Limited (88 ITD SB 273), wherein it was held that if the subsidy is given for setting up or expansion of industry, it will be capital in nature irrespective of the source of funds or manner of disbursement. It is also pointed out that the Tribunal's decision in the case of Assam Asbestos Ltd (supra) has reached finality as references under section 256(1) and 256(2) have been rejected, and Hon'ble Supreme Court has also dismissed SLP against rejection Page 3 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench of 256(2) reference by Hon'ble Gauhati High Court, as reported in CIT Vs. Assam Asbestos Limited (215 ITR
847). Learned counsel then takes us through the nature of subsidy and points out that the subsidy in question is exactly the same as was in the case of Assam Asbestos Limited. In both these cases, the transport subsidy received by the assessee was central transport subsidy, as against HP state transport subsidy receipt in the case of Steel Strips Limited (supra). Learned counsel thus submits that a decision in the context of a different subsidy scheme, i.e. decision in the case of Steel Strips Ltd (supra), will have no application in the matter. We are thus urged to follow the earlier decisions of the coordinate benches in assessee's own case, and not be influenced by coordinate bench decision in the case of HP state transport subsidy scheme".
3.2 Respectfully following the same, we hold transport subsidy as capital receipt not taxable as revenue receipt. This exclusion is supported by the fact that the incentive is capital in nature and do not have any income character in view of the "Purpose Test" and principles laid down by the Hon'ble ITAT Mumbai Special Bench in DCIT vs. Reliance Industries Ltd (2004) 88 ITD 273 (Mum)(SB) in which it was clarified that "if a subsidy is given for setting up or expansion of industry, it will be capital irrespective of source of funds or mode of disbursement. This issue is also favorably covered by the decision in the case of CIT vs. Ponni Sugars & Chemicals Ltd (2008) 306 ITR 392 (Supreme Court) wherein it was held "It is the purpose test which decides the nature of the incentive and not the modality or the source thereof". This issue is also decided favorably in the case of CIT vs. Assam Asbestos Ltd (1995) 215 ITR 847 (Gau.). The SLP against the said decision was dismissed by the Hon'ble Apex Court on 29th November, 1996 which has been stated in the decision of Meghalaya Plywood Ltd vs. CIT (2007) 210 CTR 144 (Gau.). The ground is allowed.
Page 4 of 30ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench
4. Ground No.2. Claim of power tariff incentive and electricity duty of `.4,15,70,325/- and `.1,71,38,000/- as capital receipts.
4.1 This issue is decided by the ITAT in earlier years orders in favour of assessee and in ITA No.6289 & 6320/Mum/2003 vide Para 39 to 44 which is extracted below, it was decided as under:
"39. In ground no. 7, the assessee has raised the following grievance:
That on the facts and in the circumstances of the case, power tariff freeze (Rs 10,00,82,853), sales tax subsidy (Rs 1,30,25,780) treated as capital receipt and hence not taxable in computing total income under the normal provisions of the Act as well as in computing book profit under section 115JA.
40. To adjudicate on this ground of appeal, only a few material facts need to be taken note of. The assessee had availed sales tax and power tariff incentive, under Himachal Pradesh Incentives Scheme 1991, for setting up new unit in HP. The purpose of these incentives was to promote growth of industries and generation of employment. In the income tax return, power tariff incentive was excluded in computing total income but sales tax incentive was excluded. Exclusion of both was omitted in computation of book profits. At the assessment stage, Assessing Officer took the view that power tariff incentive was to make business more profitable and in appeal CIT(A) confirmed the same.
Aggrieved, assessee is in further appeal before us.
41. As far as computation of income under the normal provisions of the Act is concerned, learned representatives agree that identical issue had come up for consideration before the Tribunal in assessee's own case for the assessment year 1996-97 in ITA NO.3783/M/2000 and the Tribunal has decided the issue in favour of the assessee. Learned Departmental Representative, however, relies upon the stand of the authorities below and justifies the same. Having heard both the sides, we find that the issue in respect of power tariff issue was allowed by the Tribunal for the assessment year 1996-97, observing as follows:
Page 5 of 30ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench "We find from the order of this Tribunal in assessee's own case for A.Y. 1996-97 (supra) that power tariff freeze incentive was directed to be treated as capital receipt vide Para 6.1 of the order. The Tribunal had followed the decision of Mumbai Special Bench in the case of DCIT v. Reliance Industries, 88 ITD 273 for coming to this decision. Respectfully following this, we direct that power freeze incentive be treated as capital receipt in the impugned year also. Thus ground No.7 is allowed."
42. Similarly, we also find that issue in respect of sales tax subsidy was allowed by the Tribunal, observing as follows "It was pointed out by the learned A.R. that identical ground was allowed by this Tribunal in assessee's own case for A.Y. 1996-97 referred supra. We find from Para 21 of this order that sales tax exemption availed was held to be capital receipt. Following this decision, we direct that the sales tax incentive/subsidy relating to the impugned previous year also, be treated only as capital receipt. Assessee succeeds in its additional ground No.7."
43. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same. To this extent, grievance of the assessee is upheld.
44. However, so far as exclusion of these items from book profits under section 115JA is concerned, we find that even though there are coordinate benches decisions in favour of the assessee, these precedents no longer hold good law in view of Special Bench decision of this Tribunal in the case of Rain Commodities Ltd Vs DCIT (40 SOT 265). Respectfully following the Special Bench decision, we reject the grievance of the assessee and uphold the stand of the authorities below on this issue".
Same analogy applies to claim of Electricity duty exemption, since granted under the same scheme as power tariff freeze. Respectfully following the same, the ground raised by assessee is allowed.
Page 6 of 30ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench
5. Ground No.3 Expenditure for compulsory afforestation `7,72,750/-):
paid to Rajasthan State Forest Department (` 5.1 This issue is also decided favorably by the ITAT in assessee's own case in ITA No.6289 & 6320/Mum/2003 vide Para 7-12 which is extracted below:
"7. In Ground No.2, the assessee has raised the following grievance:
The ld CIT (A) erred in holding that the AO was justified in treating the expenditure of Rs 1,21,38,100 paid your appellants to Rajasthan State Forest Department as capital in nature.
8. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of Rs 1,21,38,100 on account of compulsory afforestation. This amount was paid by the assessee to Rajasthan State Forest Corporation. It was submitted by the assessee that the assessee company had one factory in Lakheri, Rajasthan and as the mining for raw material was done on the forest land, as per the instruction of the Government of Rajasthan, the amount was paid for the Forest Department to compensate them for loss of forest and towards afforestation costs to make good the said loss. It was also submitted that the afforestation was an operation carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. It was submitted that as this amount had been expended in the normal course of the business of the company, the same is deductible. The AO did not accept the assessee's contention and treated the amount as capital expenditure. The assessee carried the matter in appeal but without any success. The assessee is in further appeal before us.
9. The main thrust of learned counsel's arguments is that afforestation was carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. Our attention is invited to the provisions of Forest (Conservation) Act 1980, and it is submitted that unless the assessee makes payment of these afforestation costs, he would not be allowed to Page 7 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench carry out the business activity of extracting limestone. It is also pointed out that while the expenses are incurred wholly and exclusively for the purposes of business, these expenses neither result in creation of any asset for the assessee nor in transfer of ownership of any assets. Our attention is then invited to Hon'ble Supreme Court's judgment in the case of CIT Vs. Kirkel Coal Co (77 ITR 530) wherein it is held that expenditure incurred for stowing operations is revenue expenditure since stowing was an operation carried out in the process of extraction of coal, and without this operation having been carried out, extraction of coal was not possible. Our attention is then invited to decision of a coordinate bench in the case of Orrissa Forest Development Corporation Limited Vs. JCIT ( 80 ITD 300) wherein it was held that expenditure on afforestation is an allowable expenditure. It is then contended that the expenditure is not on an asset owned by the assessee, and from this point of view also, it is to be treated as revenue expenditure in the light of Hon'ble Supreme Court's judgment in the case of CIT Vs. Associated Cement Companies Ltd (172 ITR 257). A reference is then made to Hon'ble Bombay High Court's judgment in the case of National Organic Chemical Industries Limited Vs. CIT (203 ITR 410) wherein it was held that expenditure incurred on construction of jetty for facilitating trading operations of the assessee is a revenue expenditure even though ownership of the jetty is with the Government. It is submitted that, for all these reasons, the expenses incurred on afforestation are clearly in the nature of revenue expenses which should be allowed as deduction in computation of business income. Learned Departmental Representative, on the other hand, submits that the assessee has taken the mine on lease which is clearly a capital asset, and the expenses are incurred for the purpose of this capital asset. It is pointed out that expenses to acquire lease rights are capital expenses in nature and the character of expenses incurred on afforestation are also integral part of expenses incurred for acquiring the lease. We are thus urged to hold that these expenses are capital in nature and cannot be allowed as deduction in computation of business income. Learned Departmental Representative then submits that Kirkend Coal Co decision (supra), on which reliance has been placed by the learned counsel, is not at all relevant in this context. It is submitted that in the Page 8 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench said case, there was a categorical finding by the Tribunal that stowing is an integral part of the operation of coal mining, and it was for this reason that expense was held to be allowable as revenue expenses. As against this position, in the present case, afforestation has no bearing on the actual mining operation carried out. It is an independent activity which is for the purpose of maintaining the lease rights which are capital assets. As regards coordinate bench's decision in the case of Orissa Forest Corporation (supra), learned Departmental Representative submitted that in the said case assessee was engaged in the business as a forest corporation, and such decision in the case of a forest corporation's case can not be compared with a case in the assessee is engaged in business of extracting limestone. There is no direct link between assessee's business and the expenses so incurred. The link, if at all, is far fetched and all the relevant facts have not even been placed before the Assessing Officer, save and except for generalized submissions about the nature of expenses. We are urged to reject the grievance of the assessee or at best remit the matter to the file of the Assessing Officer for verification of all the factual elements embedded in assessee's submissions. In rejoinder, learned counsel submits that what is to be seen is whether the motivation of incurring this expenditure is wholly and exclusively for the purposes of business, and whether the expenditure is not in the nature of capital expenditure. Once these two conditions are satisfied, as are satisfied in this case, there cannot be any good reasons not to allow the expenditure. We are thus once again urged to delete the impugned disallowance.
10. We find that, as learned counsel rightly points out, in order to be eligible for deduction under section 37(1) an expense has to be incurred wholly and exclusively for the purposes of business and it should not be in the nature of capital expenses. There is no dispute that the afforestation expense is incurred because it is necessary to do so, in furtherance of legitimate business interests of the assessee. No asset is created as a result of this expenditure. It is statutory obligation of the assessee to provide for compensatory afforestation of land, and unless he does so, the assessee is not allowed to carry out its business activity of extracting from the mines. The nexus is clear and unambiguous.Page 9 of 30
ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench As regards learned Departmental Representative's submission that being relatable to mining lease rights, the expenses should be treated as capital expenditure, we are of the considered view that expenses are incurred not for the purpose of mining lease but for the purpose of carrying out business activity of extracting limestone under the mining lease. The point of time when afforestation expenses are required to be incurred is when extraction activity is carried out. In any event, the mere link with a capital asset would not result in the expenditure being treated as capital expenditure. What is to be seen is the reason on account of which the expenses are incurred and even if the expenses result in some benefit of enduring nature, that benefit would not be decisive of holding the expenses as capital expenditure. In the case of CIT Vs. Glaxo Laboratories India Limited (181 ITR 59), even expenses to increase the capital base has been held to be revenue expenditure because increasing the share capital base was necessary precondition for continuance of technical collaboration arrangement by the assessee. The following analysis of legal position by Hon'ble Bombay High Court, in support of the above conclusions, is of great relevance in this context:
"7. That the Court must look to the object and purpose of the expenditure, and that from the point of view of the businessman, is well established.
8. It was laid down in Anglo-Persian Oil Company v. Dale 16 TC 253, that it was the object of the expenditure alone that counted. It was not necessary that the expenditure should have the result of bringing an asset into existence. The fact that the expenditure had in fact resulted in the coming into existence of some advantage which would endure for several years was not of consequence.
9. The Supreme Court in Bombay Steam Navigation (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52, laid down the test in these words:
"Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the Page 10 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure..." (p. 59)
10. The Patna High Court in the case of CIT v. Kirked Coal Co. [1966] 60 ITR 537, was concerned with an assessee which carried on coalmining. It had spent monies upon certain operations called 'stowing'. The ITO considered that expenditure to be capital expenditure because the extraction of coal had thereby been made possible for a score of years. The matter had gone up in reference to the High Court. The High Court noted the observations in the cases of Anglo Persian Oil Co. (supra) and Bombay Steam Navigation Co. (1953) (P.) Ltd. (supra) set out above. It also noted that the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34, had said that if the expenditure had been made not for the purpose of bringing into existence an asset or advantage for the enduring benefit of the business but for running the business or working it with a view to produce profits, it was a revenue expenditure and that the aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.
Applying the tests to the case before it, the Patna High Court held that money expended on stowing operations was by way of revenue disbursement. The decision of the Patna High Court was the subject of an appeal to the Supreme Court in CIT v. Kirkend Coal Co. [1970] 77 ITR 530 and it was upheld. The Supreme Court quoted with approval the passage from the case of Bombay Steam Navigation Co.(1953)(P.) Ltd. (supra) which we have set out above.
11. In Brooke Bond India Ltd. v. CIT [1983] 140 ITR 272 (Cal.) the assessee had issued shares and incurred expenditure which had been claimed as a revenue deduction. The Tribunal had found that the assessee Page 11 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench had itself stated that by the expenditure the capital base of the assessee was reinforced on a permanent basis and this was the main purpose of the assessee. It was submitted before the Calcutta High Court that the object and purpose of the expenditure was to strengthen the capital structure and, only as an incidental result, more funds had flowed to the assessee making more working funds available to it. The High Court held that that could not change the essential object and purpose of incurring the expenditure and the resultant fact, that is to say, the fundamental change in the income-earning machinery and structure. It held that, therefore, the Tribunal had been right in disallowing the expenditure. In its exhaustive judgment the High Court said that if the main object, purpose and nature of the transaction was to affect the income-earning machinery or structure as such and not only to make the inflow of more funds available then the expenditure would be on the capital side. It was true that the alteration in the capital structure by raising the share capital would make more funds available, but that was not decisive. The essential object and purpose of incurring the expenditure and the resultant fact was the fundamental change in the income- earning machinery or structure. It was the resultant advantage obtained by incurring the expenditure, along with the purpose and object of incurring the expenditure, which was the guide to answering the question.
12. Our attention was drawn by Mr. Dastur to the judgment of the Supreme Court in Patnaik & Co. Ltd. v. CIT [1986] 161 ITR 365, whose facts are noteworthy. The assessee dealt in automobiles and spare parts. It had subscribed to certain Government loans and had sustained a loss when re- selling them. It claimed the loss as a revenue loss. The Tribunal found that, having regard to the sequence of events and the close proximity of the investment with the receipt of Government orders for motor vehicles, the conclusion was inescapable that the investment had been made in order to further the sales of the assessee and boost, its business. It had been made by way of commercial expediency for the purpose of carrying on the business and, therefore, the loss suffered by the assessee was a revenue loss. The High Court had re-examined the facts and had come to the contrary conclusion. On appeal by the assessee, the Supreme Court reversed the High Court's decision. It Page 12 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench held that the High Court had been in error when it had proceeded to re-appreciate the evidence. It affirmed the finding of the Tribunal that the investment made by the assessee in Government loans had been by way of commercial expediency for the purpose of carrying on the assessee's business and that, therefore, the loss suffered by the assessee upon the sale of the investment had to be regarded as a revenue loss. The Supreme Court approved decisions of the Madras and Orissa High Courts that took views similar to that taken by the Tribunal".
5.2 Respectfully following the earlier year order, the ground raised by assessee is allowed.
6. Ground No 4. Claim of additional gratuity of `2,82,45,524/-paid during the year.
6.1 The issue is not pressed, hence treated as withdrawn.
7. Ground No.5. Claim of interest paid on borrowings `21,36,57,000/-).
(` 7.1 Assessee has claimed an amount of `.39,09,39,000/- being the interest paid on borrowings which AO has considered it as capital expenditure for expansion of business. This expenditure is claimed under section 36(1)(iii). AO rejected the claim relying on the decision in the case of JCT Ltd vs. ACIT (1997) 65 ITD 169 (Cal.) and similar issue was in dispute in earlier years and was pending at various appellate forums. The CIT (A) analyzed the claim of assessee vis-à-vis utilization of the borrowed funds and partly confirmed the disallowance to the extent borrowed funds were utilized for new advantages/facility and not for expansion of existing business.
7.2 It was fairly admitted that in earlier years similar claim in assessee's own case has been allowed by the ITAT in the following appeals:
i) AY 83-84 ITA 2844/Bom/86
ii) AY 84-85 ITA 4507/Bom/88
iii) AY 85-86 ITA 5830/Bom/89
iv) AY 88-89 ITA 1225/Bom/92
v) AY 89-90 ITA 68/Bom/93
Page 13 of 30
ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench
vi) AY 90-91 ITA 1926/Bom/95
vii) AY 91-92 ITA 647/Mum/97 7.3 It was further submitted that assessee's claim was supported by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Tata Chemicals Ltd (2002) 256 ITR 395 (Bom.) in which while allowing the interest on borrowings gas held that the decisive test is unity of control which is indicated by the inter-lacing, inter- dependence and inter connection between the businesses and the dovetailing of one into the other. Further the learned Counsel relied on the following case laws:
i) Setabganj Sugar Mills Ltd vs. CIT (1961) 41 ITR 272 (SC)
ii) CIT vs. Prithvi Insurance Co. Ltd (1967) 63 ITR 632 (SC)
iii) Produce Exchange Corp.Ltd vs. CIT (1970) 77 ITR 739 (SC)
iv) DCIT vs.Core Health Care Ltd (2008) 298 ITR 194 (SC)
v) L.K.Trust vs. CIT (2009) 222 CTR 214 (SC)
vi) Jt.CIT vs. United Phosphorus Ltd (2008) 299 ITR 9 (SC)
vii) ACIT vs. Arvind Polycot Ltd (2008) 299 ITR 12 (SC)
viii) Dy. CIT vs. Gujarat Alkalies & Chemicals Ltd 299 ITR 85 (SC) 7.4 Considering the submissions and facts of the case, respectfully following the principles laid down in the above cases and by the Coordinate bench in assessee's own case, we modify the order of the CIT (A) and allow the expenditure as revenue expenditure under section 36(1)(iii). The amendment to the section wherein the borrowed funds are to be capitalized till the date on which such asset was put to use has come up with effect from 1.4.2004. As seen from the facts of the claim from the order of the CIT (A) all the borrowings are for the existing business, even though new advantages have been created. Therefore, the interest expenditure is allowable as revenue expenditure. Accordingly this ground is allowed.Page 14 of 30
ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench
8. Ground No. 6. Claim of infringement charges paid to HPSEB.
8.1 An amount of `.1,78,00,000/- paid as peak load infringement charges to HPSEB for excess drawal of power was disallowed stating that this amount is penal in nature. It was fairly submitted that this is issue is covered by the decision in the case of CIT vs. Industrial Cable (India) Ltd (2007) 212 CTR 513 (P&H) and CIT vs. Hero Cycles Ltd (2009) 17 DTR 281 (P&H) as the amount was a kind of surcharge for drawal of excess load and not an amount paid as penalty and hence allowable as deduction.
8.2 The learned Counsel also relied on the following decisions wherein relying on various principles, it was held that the amounts paid by way of damages or interests are compensatory in nature and not penal in nature.
a) Income Tax Officer vs. VRM Share Broking (P) Ltd (2009) 27 SOT 469 (Mum.)
b) Prakash Cotton Mills Pvt. Ltd vs. CIT (1993) 201 ITR 684 (SC).
c) ACIT vs. Taurin Iron & Steel Co. Pvt. Ltd (ITA No.1613/Mum/2010).
8.3 We have examined the issue. What assessee has paid is additional charges for overdrawing the power sanctioned to it which the HPSEB has levied as peak load infringement charges. These are nothing but electricity charges but paid for additional drawal of power than the sanctioned load at that particular point of time. The amounts are compensatory in nature and not penalty for surcharge violation. The same cannot be disallowed by invoking Explanation to section 37(1). In view of this, we direct AO to allow the amount. Ground is allowed.
9. Ground No.7 pertains to claim of contribution to PF on account of delay in depositing the amount.
9.1 Assessee made contribution to provident fund amounting to `2,04,297/- and `2,06,182/- within the due date. But the delay Page 15 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench occurred in realization of the cheques which were not deposited soon after the receipt by the Regional Provident Fund Commissioner. Both the payments of `.2,04,297/- and `.2,06,182/- were realized on 31-07-1998 and 2-11-1998 respectively i.e. within the due date of filing of returns. According to AO assessee violated the provisions of section 36(1)(iv)(va) by not depositing the payment on time. The learned CIT (A) confirmed on the reason that the cheque was not encashed within 15 days from the due date of payment, both the payments were considered as delayed payments.
9.2 After considering the rival arguments, we allow the claim of assessee on the reason that the second proviso to section 43B has been omitted by the finance act 2003 which was held to be retrospective in nature as held by the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd (2009) 319 ITR 306 (SC). Similar issue has been decided in favour of assessee in CIT vs. AIMIL Ltd & Ors (2010) 229 CTR 418 (Del). Considering the principles laid down therein, we direct AO to allow the amount as claimed.
10. Ground No.8 pertains to addition of sales tax refund of `.99,615/- which was not pressed. Hence treated as withdrawn.
11. Ground Nos. 9 & 10 (Original ground Nos.9a & 9b) pertains to addition of MODVAT on closing stock of raw materials and stores and spares and non addition of MODVAT on opening stock of raw materials, stores and spares etc. 11.1 In Annexure-2 of the Tax Audit Report, excise duty referable to closing stock has been mentioned at `9,26,75,975/- while the impact of the deviation, if any, from the provisions under section 145A was reported as Nil. AO considering the unutilized MODVAT credit has considered as an addition to the closing stock. The CIT (A) confirmed the same following the decision of Melmould Corporation vs. CIT (1993) 202 ITR 789 (Bom). The assessee raised Page 16 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench the ground on this. It was further contented that the CIT (A) erred in not considering the adjustment to be made in purchase, sale and closing stock as the provisions were made operative from 1.4.1999.
11.2 This issue is covered by the orders of the Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works Pvt Ltd (2009) 318 ITR 116 (Bom.) and by the Hon'ble Delhi High Court decision in the case of CIT vs. Mahavir Aluminium Ltd (2008) 297 ITR 77 (Del.). Therefore, in principle, assessee's contentions are to be accepted. However, for verification of the actual working of the adjustments, the issue is restored to the file of AO to examine and decide according to the law. Respectfully following the above principles laid down by the Hon'ble High Courts (supra), these grounds are considered allowed for statistical purposes.
12. Ground No.11. Claim of expenditure incurred on cost of dismantling of assets.
12.1 The expenditure of `7,95,594 was incurred for dismantling old and unserviceable assets in phased manner. By incurring expenditure no new assets of enduring nature was brought into existence and hence was claimed as revenue expenditure. AO disallowed the expenditure relying on the Tax Audit Report. The same was upheld by the CIT (A) following the decision in the case of Lake Palace Hotels and Motels Pvt. Ltd vs. CIT (1995) 213 ITR 735 (Raj.). Similar issue in assessee's own case has been allowed by the ITAT Mumbai in the following appeals:
a) AY 91-92 - ITA No.1105/Mum/97
b) AY 92-93 - ITA No.3961/Mum/97
c) AY 96-97 - ITA No.3783/Mum/00
d) AY 97-98 - ITA No.3298/M/01
12.2 Respectfully following the decision in earlier years, which have not been challenged by the Revenue, we allow assessee's claim. We also hope that the Revenue will not make similar Page 17 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench disallowances in later years as it has accepted the decision of the ITAT in earlier years. Ground is considered allowed.
13. Ground No.12 Non Exclusion of payment/reversals of expenses disallowed under section 43B in prior years. 13.1 During the instant assessment year assessee had paid/reversed the amounts in respect of bonus, sales tax and entry tax pertaining to earlier years i.e. assessment year 1995-96 to 1998-99. These expenses were disallowed due to their non-payment in the relevant assessment years. The said amount has been claimed for the first time before the CIT (A).
13.2 Since assessee has not claimed the said payment/reversal in the return of income and since no revised return has been filed to claim the same, the said claim was not allowed by the CIT (A).
13.3 It was submitted that the appellate authorities has abundant powers to admit and dispose off additional grounds as held by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd vs. CIT (1998) 229 ITR 383 (SC). It was further submitted that identical claims in assessee's own case has been restored to the file of AO by the ITAT in the following cases:
- AY 90-91 - ITA 2361/Mum/95
- AY 91-92 - ITA 1105/Mum/97
- AY 92-93 - ITA 3961/Mum/97
- AY 93-94 - ITA 6901/Mum/97
- AY 94-95 - ITA 3055/Mum/98
13.4 It was held in earlier year in ITA 3055/mum/98, vide Para 14 as under:
"14. In relation to further deduction under section 43B, an additional ground has been filed by assessee vide letter dated 7th November,2001 for assessment years 1991-92, 1992-93, 1993-94 and 1994-95.
14.1 Identical ground has been restored back to the file of AO by the Tribunal in assessment year 1989-90 and 1990-91. Following the precedence, the issue is restored to the file of AO with the direction that he should decide Page 18 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench the issue afresh after providing adequate opportunity to assessee to substantiate the claim and of being heard. Thus, the additional ground stands allowed for statistical purpose on the above lines".
13.5 Respectfully following the same, we restore the issue to the file of AO to verify and do accordingly.
Additional Grounds of appeal:
14. Ground No.13. Claim of infringement charges paid to MPSEB and KEB.
14.1 This issue arose consequent to the orders under section 154 dated 21-11-2003 passed by AO. In the original assessment order which is the subject matter of present appeal in the body of assessment order AO had disallowed an amount of `41,54,952/- and `3,90,390/- on account of penal charges paid to MPSEB and KSEB respectively. However, while computing the total income these two amounts were not added to the total income of the assessee company. In response to notice under section154 assessee has given no objection for carrying out the modification and accordingly AO increased the amount while giving effect to the order of the CIT (A). Since an amount was not originally added to the assessment, assessee did not contest the amount even though it contested similar disallowances made to HPSEB considered in Ground No.6 above. It was the contention that the payments are similar to the amounts already considered, considering the rectification passed to the original assessment order, assessee raised an additional ground of appeal.
14.2 Considering the facts of the case, we admit the additional ground and since similar amount was considered by AO together in the body of the assessment order, following the discussion in ground no 6 above, we direct AO to allow the expenditure as revenue expenditure as the payment is not penal in nature but Page 19 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench compensatory in nature. Accordingly additional ground is considered allowed.
15. Ground No.14. Claim for provision of additional gratuity and gratuity on sold units on accrual basis. 15.1 In the return, following the stand adopted by the Revenue in earlier years, assessee had offered provision for additional gratuity for employees retired during the year and credited on sold units. However, the ITAT finally allowed the deduction in earlier years on provisional basis. During the year the amount involved was `3,79,09,331/-.
15.2 The learned Counsel referred to the orders in assessment year 1996-97 to 1998-99 and submitted that identical additional grounds have been admitted and allowed in favour of assessee. Further in assessment year 1990-91 and 1993-94 the issue was allowed in favour of assessee and Revenue has not challenged before the High Court, hence attained finality. Considering the merits of the case and the reasons given in detail from Para 23 to 31 in ITA No.6289 and 6320/Mum/2003 for assessment year 1998- 99, this additional ground is to be admitted and allowed in favour of assessee. In assessee's own case the Coordinate Bench have held the deduction will be admissible in the earlier years. It is to enable the claim in accordance with the Tribunal decision that this additional ground is raised. Having heard the rival contentions and having perused the material on record, we find that the claim of assessee deserves to be accepted as the identical claims have been allowed in earlier years. Consistent with the stand taken, we direct AO to accept and allow the claim of assessee after verifying the related facts. Grievance of assessee is considered allowed to that extent.
Page 20 of 30ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench
16. Ground No.15 Claim for sales tax incentive as capital receipt.
16.1 Assessee had availed sales tax incentive under various schemes formulated by the State Governments to grant incentives for setting up of new industrial units. The purpose of the incentive was to promote growth of industries and generation of employment.
The amount involved in this claim is `.10,24,64,834/- worked out as per the Table given in page No.251 of the paper book is given below:
Computation of sales tax incentive S.No Unit Total Rate Proportionate Incentive Reference exempted of Amount `.) Amount (` `.) turnover (` sales `.) (` tax A Gagal- 31,84,272 4.00% 1,27,371 Annexure-II Local 1
10,75,44,724 8.00% 86,03,578 87,30,949
sales
B Kymore 23,70,16,522 4.00% 94,80,661 Annexure-
Central 2
Sales
C Tikaria 31,70,59,600 12.00% 3,96,32,450 Annexure-
Local 3
Sales
D Sindri 33,49,90,795 13.32% 4,46,20,774 Annexure-
Bihar 4
Local
Sales
Total 99,97,95,913 10,24,64,834
16.2 It was submitted that identical additional ground was admitted and allowed in favour of assessee by ITAT in assessment year 1996-97 in ITA No.3783/M/00 (Para 20-21), AY 1997-98 in ITA No.3298/M/01 (Para 33-34) and AY 1998-99 in ITA No.6289/M/03 (Para 39-45). It was further submitted that exclusion is further supported by the fact that the incentives are capital in nature and do not have any income character in view of the "Purpose Test" & principles laid down by Hon'ble ITAT Mumbai Page 21 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench SB in DCIT vs. Reliance Industries Ltd (2004) 88 ITD 273 (Mum)(SB) which states that "if a subsidy is given for setting up or expansion of industry, it will be capital irrespective of source of funds or mode of disbursement".
16.3 To adjudicate on this ground of appeal, only a few material facts need to be taken note of. The assessee had availed sales tax and power tariff incentive, under Himachal Pradesh Incentives Scheme 1991, for setting up new unit in HP. The purpose of these incentives was to promote growth of industries and generation of employment. In the income tax return, power tariff incentive was excluded in computing total income but sales tax incentive was excluded. Exclusion of both was omitted in computation of book profits. At the assessment stage, Assessing Officer took the view that power tariff incentive was to make business more profitable and in appeal CIT(A) confirmed the same. Aggrieved, assessee is in further appeal before us.
16.4 As far as computation of income under the normal provisions of the Act is concerned, learned representatives agree that identical issue had come up for consideration before the Tribunal in assessee's own case for the assessment year 1996-97 in ITA NO.3783/M/2000 and the Tribunal has decided the issue in favour of the assessee. Learned Departmental Representative, however, relied upon the stand of the authorities below and justifies the same. Having heard both the sides, we find that the issue in respect of power tariff issue was allowed by the Tribunal for the assessment year 1996-97, observing as follows:
"We find from the order of this Tribunal in assessee's own case for A.Y. 1996-97 (supra) that power tariff freeze incentive was directed to be treated as capital receipt vide Para 6.1 of the order. The Tribunal had followed the decision of Mumbai Special Bench in the case of DCIT v. Reliance Industries, 88 ITD 273 for coming to this decision. Respectfully following this, we direct that power freeze incentive be treated as capital receipt in the impugned year also. Thus ground No.7 is allowed."Page 22 of 30
ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench 16.5 Similarly, we also find that issue in respect of sales tax subsidy was allowed by the Tribunal, observing as follows "It was pointed out by the learned A.R. that identical ground was allowed by this Tribunal in assessee's own case for A.Y. 1996-97 referred supra. We find from Para 21 of this order that sales tax exemption availed was held to be capital receipt. Following this decision, we direct that the sales tax incentive/subsidy relating to the impugned previous year also, be treated only as capital receipt. Assessee succeeds in its additional ground No.7."
16.6. We see no reasons to take any other view on the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same. To this extent, grievance of the assessee is upheld.
17. Ground Nos. 16a & 16b: Claim of sales tax incentive, power tariff freeze, Electricity duty, Road Transport subsidy as capital receipt in computing book profit under section 115JA. 17.1 It was fairly admitted that this issue was covered against assessee in assessment year 1998-99 following the decision in the case of Rain Commodities Ltd vs. DCIT (2010) 41 DTR 449 (Hyd) (SB). It was submitted that the decision in the case of Rain Commodities (Supra) is not applicable to the case of assessee since the said decision was in relation to taxability of the capital gain in computing the book profits under section 115JB of the Income Tax Act and not taxability of the capital receipts which does not have any element income embedded in it. The learned Counsel also further relied in the case of Indo Rama Synthetics (I) Ltd vs. CIT (2011) 330 ITR 363 (SC) and the decision of the Bangalore ITAT Bench decision in Syndicate Bank vs. ACIT (2006) 7 SOT 51 (Bang.) to distinguish the earlier year order.
17.2 After considering the rival submissions, we are of the view that so far as the exclusion of these items from book profits under section 115JB is concerned, we find that even though there are Page 23 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench Coordinate Bench decision in favour of assessee, this precedence no longer hold good law in view of the Special Bench decision of this Tribunal in the case of Rain Commodities (Supra). Respectfully following the Coordinate Bench decision in assessment year 1998- 99 which in turn followed the above Special Bench decision, we reject the grievance of assessee and uphold the stand of the authorities on this issue. The grounds are rejected.
18. Ground No.17 pertains to non exclusion of Dividend Distribution Tax and transfer to Debenture Redemption Reserve in computing book profit under section 115JA. 18.1 It was fairly admitted that an identical additional ground was admitted and claim was allowed in favour of assessee by the ITAT for assessment year 1997-98 in ITA No.3298/Mum/2001 (Para 40- 42 and 43-44) and in assessment year 1998-99 in ITA No.6289M/2003 (Para 49-51).
18.2 After considering the rival submissions, we are of the view that assessee's ground is to be allowed. Respectfully following the precedent on the issue in assessee's own case by the Coordinate Bench for assessment year 1998-99, we allow the ground to be raised and allowed. This issue was considered in Para Nos.49 to 51 in AY 98-99 as under:
"49. In ground no.9, the assessee has raised the following grievance:
"That on the facts and in the circumstances of the case, dividend distribution tax of Rs 2,06,00,000. transfer to 'debenture redemption reserve' of Rs 5,00,00,000 be excluded in computing book profit u/s.115JA."
50. Learned representatives agree that this issue squarely covered by the decision of a co-ordinate bench of this Tribunal in assessee's own case for the assessment year 1997-98 in ITA No.3298/M/01, wherein, in Para 42, it has been observed as follows:
Page 24 of 30ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench "42. We have gone through this decision as also the amendments in section 115JB of the Act made with retrospective effect. However, the legislature has made no similar amendments in section 115JA. It is therefore clear that dividend distribution tax would not fall under income tax paid or payable mentioned in Explanation (a) to sub-section (2) of Section 115JA. Therefore, we direct that dividend distribution tax of Rs 4.11 crores shall not be considered as income tax for the purpose of computing book profit u/s.115JA. Hence assessee succeeds its additional ground number 12. As pointed out by the learned counsel, while amendments have been made in section 115JB, with retrospective effect from 1st April 2001, by the Finance Act 2008, no such amendments have been made in section 115 JA. The decision of the Tribunal thus remains unaffected by the amendments made by Finance Act 2008. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same.
51. Ground No. 9 is thus allowed".
18.3 Respectfully following the above, we allow the ground.
19. Ground No.17b. Exclusion of provision for contingencies in computing book profit under section 115JA. 19.1 This was not pressed in view of the amendment made by the Finance Act 2009 with retrospective effect, hence treated as withdrawn.
20. Ground No.18 pertains to relief under section 91 in respect of tax deducted on the fees received from Yanbu Cement Corporation, Saudi Arabia.
20.1 It was submitted that assessee received an amount of `.30.48 crores being fees from project from Yanbu Cement Corporation, Saudi Arabia, net of tax deducted at source. The said fees was duly accounted in Profit & Loss A/c and was included in the taxable income. On the fees received, assessee omitted to claim relief under section 91 in respect of tax deducted at Saudi Arabia.
20.2 In view of the decision of the Coordinate Bench on identical issue in earlier years, more preferably assessment year 1998-99 in Page 25 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench ITA No.6289/Mum/2003 vide Paras 52 to 55, we allow assessee's contention and direct AO to allow the relief under section 91 in respect of tax deducted at Saudi Arabia. It was held as under:
"52. Ground No.10 relates to relief granted u/s.91 in respect of tax deducted on the fees received from Yanbu Cement Company ltd., Saudi Arabia.
53. Learned representative of the assessee pointed out that the assessee has received an amount of Rs 25.33 crores being fees from project from Yanby Cement Corporation, Saudi Arabia, net of tax deducted at source in the said country. The assessee has omitted to claim relief u/s.91 in respect of tax deducted at Saudi Arabia, which was opposed by learned D.R. Learned counsel also pointed out that on similar issue for the assessment years 91-92 to 97-98, the matter was remitted to the file of the AO for considering the allowability of deduction.
54. As there is no change in material facts in the year under consideration vis-à- vis facts that of the years relied by learned counsel, following the precedent, we allow this ground and remit the matter to the file of the AO for verifying the quantum of deduction that the assessee is eligible for deduction under section 91 of the Act. The AO is directed accordingly".
55. Ground No. 10 is thus allowed for statistical purposes in the terms indicated above.
Ground is allowed.
21. In the result assessee's appeal is considered as 'partly allowed'.
ITA No.7644/Mum/2004Revenue appeal.
22. Ground No.1 pertains to allowance of voluntary retirement expenditure treating it as revenue expenditure. 22.1 VRS expenditure was incurred to rationalize the work force for better performance and was claimed on payment basis. Amount was paid in accordance with duly approved scheme under section Page 26 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench 10(10C). AO's contention was that the payment made under the scheme would give benefit of enduring nature and hence the same is capital expenditure. The learned CIT (A) however did not agree as such expenditure did not bring any benefit of enduring nature and was a normal commercial payment. Reliance was also placed on various judicial pronouncements.
22.2 It was submitted that on identical issue, Revenue's appeal was rejected by ITAT in
- AY 1988-89 - ITA No.1225/Bom/92 - Para 11-13
- AY 1989-90 - ITA No.68/Bom/93 - Para 24-26 - AY 91-92 - ITA No.647/M/97 - Para 8
- AY 98-99 - ITA No.6320/M/03 - Para 72-72 22.3 It was directly covered by the decision of jurisdictional High Court in CIT vs. Bhor Industries Ltd (2003) 264 ITR 180 (Bom).
22.4 Since the CIT (A) followed earlier years' order which was upheld by the ITAT, we do not see any reason to interfere with the orders of the CIT (A). Ground is rejected.
23. Ground No.2 pertains to allowance of interest on amount borrowed for expansion and modernization of business as revenue in nature.
23.1 This issue is covered by Ground No.5 in assessee's appeal. As stated there, the CIT (A) allowed the amount partly out of the total disallowance made by AO. The Revenue is aggrieved on the issue to the extent allowed by the CIT (A). This issue was covered in favour of assessee and the Revenue appeal was rejected by the following orders.
- AY 83-84 - ITA 2844/Bom/1986 - Para 24
- AY 84-85 - ITA 4507/Bom/1988 - Para 3
- AY 85-86 - ITA 5830/Bom/1989
- AY 88-89 - ITA 1225/Bom/92 - Para 14-15
- AY 89-90 - ITA 68/Bom/1993 - Para 15-17
- AY 90-91 - ITA 1926/Bom/1995 - Para-2-3
- AY 91-92 - ITA 647/Mum/1997 - Para 13-15
Page 27 of 30
ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench 23.2 Since this issue is elaborately discussed and allowed in favour of assessee in Ground No.5 above, we do not see any reason to interfere with the order of the CIT (A) which is in accordance, not only on the facts of the case, but also on provisions of law. Accordingly this ground is rejected.
24. Ground No.3 pertains to allowance of service connection charges paid to UPSEB as revenue expenditure. 24.1 Service connection charges and expenses for extension of power transmission lines were paid to UPSEB for Tikaria Unit at Uttar Pradesh. It was the contention of AO that similar disallowances were made in preceding assessment years though disallowances were deleted by CIT (A) in those years, departmental appeals before ITAT are pending for disposal. The learned CIT (A) deleted the disallowances following the appellate orders for assessment year 1991-92 to 1997-98.
24.2 It was submitted that the Revenue's appeals were rejected by the ITAT
- AY 91-92 - ITA 647/M/97 - Paras 9-12
- AY 92-93 - ITA 3239/M/97 - Para 9
- AY 94-95 - ITA 2934/M/98 - Para 2-3
- AY 95-96 - ITA 2344/M/99 - Para 4
- AY 96-97 - ITA 3145/M/00 - Para 28
- AY 97-98 - ITA 4730/M/01 - Para 53-54
- AY 98-99 - ITA 6320/M/03 - Para 62-63.
Accordingly, since facts are same, we uphold the order of CIT(A) on the issue. Ground is rejected.
25. Ground No.4 pertains to Allowance of contribution to PF/ESIC by admitting fresh evidence.
25.1 It was submitted that in the original return of income, inadvertently the amount was offered to tax. However, the said error was rectified by filing a revised tax audit report along with the revised return of income. The contributions were disallowed by AO without giving cognizance to the revised tax audit report filed along Page 28 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench with the revised return of income. The CIT (A) deleted the disallowance after verifying the statement of position of liabilities under clause (b) of section 43B.
25.2 After considering the rival submissions, we do not see any merit in Revenue appeal as assessee rectified the mistake by filing the revised return along with the amended tax audit report. Therefore, the provisions of Rule 46A are not applicable as the learned CIT (A) has not admitted any fresh evidence. Since the relief has given on the evidence already filed along with the revised return before AO, we dismiss the Revenue ground raised on the issue of admitting fresh evidence in contravention of Rule 46A. Ground rejected.
26. Ground No.5 pertains to disallowance of `.150,68,960/- being the amount of interest paid on funds borrowed in connection with earning incomes exempt under section 10(33). 26.1 Assessee earned dividend income of `.258,24,114/- which was claimed as exempt. AO disallowed the amount of `.150,68,960/- on proportionate basis. On consideration of the facts that the investments are much less than the profit in each year and assessee had sufficient own funds to make investment, the disallowance was deleted.
26.2 Since the CIT (A) has considered the issue on facts wherein a finding has given that assessee has own funds to make investments, no disallowance is required on facts. Not only that the Hon'ble Supreme Court in the case of Munjal Sales Corporation vs. CIT & Another (2008) 298 ITR 298 (SC) held that when assessee had sufficient own funds and profits to provide interest free loans, the submission that loans to sister concerns were out of those funds has to be accepted. Similar view is also taken by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd 92009) 313 ITR 340 (Bom.). In view of the legal provisions Page 29 of 30 ITA No.7594 and 7644 of 2004 ACC Ltd Mumbai F Bench stated above and also on facts, we do not see any reason to interfere with the order of the CIT (A). Accordingly Revenue ground is rejected.
In the result, Revenue appeal is dismissed.
27. It is to place on record that elaborate arguments were raised, written submissions were also made by DR with reference to road transport subsidy and other grounds so as to contest why the Coordinate Bench decisions are not acceptable. Both the parties have relied on various case laws and referred to the paper book placed on record in three volumes. Suffice to say that we have considered all the case law and since most of the issues have been covered by Coordinate Bench orders, we thought it fit not to reproduce the various arguments and case law in detail.
28. In the result assessee's appeal is partly allowed and Revenue appeal is rejected.
Order pronounced in the open court on 29th August, 2012.
Sd/- Sd/-
(Vivek Varma) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 29th August, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "F" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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