Income Tax Appellate Tribunal - Mumbai
Nicols Piramal (I) Ltd. B-89, Mum vs Department Of Income Tax on 4 May, 1990
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "B", MUMBAI
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
Sl. ITA No. AY Appellant Respondent
No.
01 5146, 5147, 1985-86, Nicholas Piramal Dy. Commissioner
to 5148 & 86-87, 87- India Ltd. (Formerly of Income Tax,
04 5149/AHD/ 88 & 88- Gujarat Glass Ltd.) Special Range - 1,
95 89, 4 t h floor, Piramal Surat.
Tower Annexe,
Ganpatrao Kadam
Marg, Lower Parel
(W), Mumbai - 400
013
05 5914/M/97 1992-93 Dy. Commissioner of Nicholas Piramal
Income-tax, SR-34, India Ltd.
4 t h Floor, Aayakar (Formerly Gujarat
Bhavan, R.No. 482, Glass Ltd.)
M.K. Road, Mumbai. 4 t h floor, Piramal
Tower Annexe,
Ganpatrao Kadam
Marg, Lower Parel
(W), Mumbai - 400
013
06 3751/M/95 1991-92 -do- -do-
Assessee by : M/Mr. J.D. Mistri/M.D. Inamdar
Revenue by : Mr. Narendra Singh
ORDER
PER Bench These appeals filed by the assessee and revenue are directed against the orders of CIT(A). Since identical issues are involved in these appeals, they were heard together and, therefore, a common order is passed for the sake of convenience.
ITA NO. 3751/M/- Appeal by Revenue for AY 1991-92
2. This appeal filed by the revenue is directed against the order of CIT(A)-XXI, Mumbai, passed on 31.01.1995 for the assessment year 1991-92.
2 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
3. Ground No. 1 is in respect of disallowance of Rs. 24,400/- under Rule 6B of the Act.
4. The AO noticed that the assessee purchased TV sets and distributed exceeded the sum of Rs. 200/- each; therefore, the AO disallowed an amount of Rs. 24,400/- claimed by the assessee under Rule 6B of the Act. The CIT(A) deleted the disallowance made by the AO by observing that the although the TV sets exceeded Rs. 200/- per article, the expenditure will not be hit under Rule 6B of the IT Rules, because these articles did not bear the logo of the company nor its name and such articles, therefore, had not advertisement value. He further observed that the expenditure was incurred to generate goodwill and maintain cordial relation with business associates and other well wishers.
5. We have heard the learned representatives of the parties and perused the record. This issue is covered by the decision of Hon'ble Bombay High Court in favour of the assessee in the case of CIT Vs. Allana Sons Pvt. Ltd., (1995) 216 ITR 690 where it was held that no disallowance can be under Rule 6B if the article does not carry any logo of the company. Respectfully following the decision of the Hon'ble Bombay High Court, we confirm the order of the CIT(A) in deleting the disallowance of Rs. 24,400/- made by the AO under Rule 6B of the Act.
6. Ground No. 2 is in respect of disallowance of Rs. 3,58,993/- under Rule 6D of the Act.
7. The AO made the disallowance of Rs. 3,58,993/- under Rule 6D, which was directed to delete by the CIT(A) by following decisions in assessee's own case in earlier years.
3 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
8. We have heard the learned representatives of the parties and perused the record. This issue is covered by the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Aorrow India Ltd., 229 ITR 325 (Bom.) wherein it was held that disallowance under r. 6D is to be calculated on the basis of actual expenditure incurred per day, and if the allowable deduction is calculated for each day of traveling, it will make no difference whether the calculation of the allowable expenditure is made for each trip or journey or for all the journeys in the year taken together. The total allowable expenditure would be the same. In the light of the said judgment, we set aside the order of CIT(A) and restore that of AO on this issue.
9. Ground No. 3 is in respect of modvat credit of Rs. 3,68,000/-.
10. The AO worked out the disallowance on account of Modvat is Rs. 3,68,000/-. The CIT(A) directed the AO to delete the disallowance made by the AO on account of modvat following the decision of his predecessor in AY 1989-90. The CIT(A) also followed the decision of ITAT, Mumbai Bench in the case of S.H. Kalkar & Co. Ltd., 44 ITD 170.
11. We have heard the learned representatives of the parties and perused the record. We find that this issue is covered in favour of the assessee by the judgment of Hon'ble Supreme Court in the case of CIT Vs. Indo Nippon Corp., 261 ITR 275 wherein the Apex Court held that it is not permissible for the AO to adopt different methods of valuation of excise duty paid raw material when purchased and the unconsumed raw material on hand at the end of the year and therefore he could not adopt the 'gross method' at the time of purchase of duty paid raw material and the 'net method' of valuation at the time of valuation of stock on hand. Since the in the case under consideration, the AO adopted gross method at the time of purchase 4 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
of duty paid raw material and the net method of valuation at the time of valuation of stock on hand and made disallowance on account of Modavt. Hence, in the light of the said decision of Hon'ble Supreme Court, we confirm the order of the CIT(A) on this issue.
12. 4 t h ground is in respect of disallowance of interest in CC a/c of Rs. 2,29,750/-.
13. The assessee has paid advance tax out of cash credit account and the assessee has incurred expenditure towards interest on borrowing for payment of advance tax. Hence, the assessee claimed the interest expenditure of Rs. 2,29,750/-, which was disallowed by the AO as the same is not an allowable expenditure. The CIT(A) following his decision in AY 1990-91 and following the judgment of Hon'ble Calcutta High court in the case of Woolcombers India Ltd. V. CIT, 134 ITR 219, deleted the addition of Rs. 2,29,750/-.
14. We have heard the learned representatives of the parties and perused the record. We find that this issue is covered in favour of the assessee by the judgment of Hon'ble Calcutta High Court in the case of Woolcombers India Ltd. Vs. CIT cited supra. In the light of this judgment, we confirm the order of CIT(A) on this issue.
15. Ground No. 5 is in respect of disallowance of Rs. 1,00,000/- on account of proportionate premium on redemption of debentures.
16. The assessee had made a provision of Rs. 1.00 lakh towards debenture redemption premium and debited it to profit & loss a/c. The AO disallowed the said amount on the ground that the expenditure was not incurred during the year. The CIT(A) allowed the expenditure as revenue expenditure following the judgment in the case of M.P. Financial Corp. V. CIT, 165 ITR 765 (MP).
5 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
17. We have heard the learned representatives of the parties and perused the record. We find that this issue is covered in favour of the assessee by the judgment of Hon'ble Supreme court in the case of Madras Industrial Invt. Corp. Ltd., Vs. CIT, 225 ITR 802 (SC) wherein it was held that discount on debenture is revenue expenditure allowable proportionately over the life of debenture. Respectfully following judgment of Apex Court, we uphold the order of the CIT(A) and dismiss the ground raised by the revenue.
18. Ground No. 6 is in respect of disallowance of provision of gratuity of Rs. 98,854/-.
19. The assessee has made a provision for gratuity of Rs. 2.89 lakhs in the profit & loss a/c. However, the amount disallowed by the assessee in the computation of total is Rs. 1.90 lakhs. The AO, therefore, disallowed the balance amount of Rs. 99,000/- under section 43B of the Act. The CIT(A) directed the AO to allow the amount of Rs. 99,000/- being gratuity actually as deduction as this is not a provision.
20. We have heard the learned representatives of the parties and perused the record. The AO disallowed the amount of Rs. 99,000/- by treating wrongly as a provision for gratuity whereas the CIT(A) directed the AO to allow the same as it is actual payment and not a provision. Therefore, we uphold the order of CIT(A) and dismiss this ground of revenue.
21. Ground No. 7 is in respect of deduction u/s 80 HH & 80I of the Act.
22. The assessee commissioned a new plant, namely, Borosilidcate Glass Plat in F.Y. 1989 and claimed for deduction u/s 80 HH & 80-I. 6 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
The AO disallowed the assessee's claim of deduction u/s 80 HH & 80 I on the ground that the assessee company has merely reconstructed the existing business, such reconstruction is specifically not eligible for deduction under the provisions of section 80I(2) and 80 HH(2). The CIT(A) following the judgment of Hon'ble Supreme Court in the case of Textiles Machinery Corporation Ltd. V. CIT, 107 ITR 195, held that the Borosilicate Glass Plant of the assessee is a new industrial undertaking entitled to deduction u/s 80 HH and u/s 80 I of the Act. He directed the AO to allow deduction u/s 80 HH and 80 I of the Act.
23. We have heard the learned representatives of the parties and perused the record. The Hon'ble Supreme Court in the case of Textiles Machinery Corporation Ltd (supra) laid down the following tests for entitling any assessee to claim a unit as a new industrial undertaking:-
a) Investment of substantial fresh capital in the industrial undertaking.
b) employment of requisite labour wherein
c) manufacture of articles in the said undertaking
d) Earning profits clearly attributable to the said new undertaking and
e) A separate and distinct of the industrial unit set up.
24. We find that the assessee has fulfilled the tests laid down by the Apex court as the assessee launched new activity by establishing new plant & machinery, by investing substantial funds, may produce the same commodities of the old business. The CIT(A) has rightly directed the AO to allow the assessee's claim of deduction u/s 80 HH & 80I, therefore, we uphold the order of CIT(A).
25. Ground No. 8 is in respect of disallowance ONGC Gas liability & interest thereon of Rs. 5,64,84,177/-.
7 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
26 The AO disallowed the assessee's claim for deduction of Rs. 2,37,83,103/- being ONGC Gas liability and interest thereon of Rs. 2,27,01,074/- on the ground that the said expenditure was not incurred by the assessee company in the course of its own business during the year under consideration but related amalgamated company GGL for the earlier years before amalgamation, therefore the AO treated it as capital expenditure. The CIT(A) discussed this issue elaborately in his order with various case laws and directed the AO to allow the claim of deduction by treating it as revenue expenditure by observing as under:-
"15.13 In the light of decision of the Supreme court in 53 ITR, 134; 155 ITR 152 and decision of the Calcutta High Court in 195 ITR 702, as also the decision of the Madras Tribunal in 50 ITD 99, it is held that the ONGC gas liability and interest thereon had crystallized in AY 1991-92, when the Supreme court decided the matter on 04.05.1990 and is allowable as revenue expenditure. The AO is, therefore, directed to allow ONGC gas liability and interest thereon as deduction u/s 37(1) of the Act.
27. The ld. D.R. relied upon the order of AO and submitted that the dispute before the Supreme Court was regarding whole liability, whether it was to be paid by the assessee or not. Therefore, the liability was a contingent liability. The ld. D.R. submitted that when the assessee took over another company called "GGL" on 1-4-1990, the liability was a contingent liability. The ld. D.R., while referring to page 22 of assessee's paper book, where copy of scheme of amalgamation of GKL has been placed, submitted that the entire business and the whole of the marketing of GGL including all properties, moveable and immoveable, real, corporal and incorporal, present, contingent, assets, investment rights etc., were amalgamated. The ld. D.R. submitted that at the time of amalgamation this contingent liability was before the parties and the consideration of amalgamation was decided accordingly. The ld. D.R. referred to Para 4 & 9A of amalgamation scheme. On the basis of 8 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
these facts, the ld. D.R. submitted that the AO has rightly held that the claim of the assessee is capital in nature.
28. The ld. A.R., on the other hand, relied upon the order of CIT(A) and submitted that though there was contingent liability in earlier years and even at the time of amalgamation as on 1-4-1990, the contingent liability has become accrued when the Apex Court has decided the issue. The ld. A.R. submitted that accrual of contingent liability depends upon happening or not happening of an event. In the case of a disputed liability, which is before the Court, such liability is crystallized for the year when the Court decides the issue. The ld. A.R. submitted that in the case under consideration the Apex Court has decided the issue vide judgement dated 4-5-1990. The ld. A.R. drew our attention to page 181 of the annual accounts of GGL, copy of which has been placed at page 163 of assessee's paper book, and submitted that the GGL has pointed out in Schedule 15, not forming part of the accounts for the year ended 31-3-1990, item no. 3, reads as "Oil & Natural Gas Commission (ONGC), had raised a demand on account of increase in gas price which has been set aside by the Gujarat High Court. ONGC has, however, preferred an appeal before the Supreme Court, which is pending. Maximum liability which may arise on this account is net of tax Rs.42.94 lakhs (previous year net of tax of Rs.42.94 lacs). The ld. A.R. referred to page 234 of assessee's paper book and pointed out that ONGC, vide its letter dated 8-8-1990 has raised the demand for arrears payment towards the price of gas in pursuance of the judgement of the Supreme Court. The ld. A.R. submitted that the assessee has claimed the liability and the same has accrued during the year under consideration. The ld. A.R. relied upon the decision which was cited before the CIT(A) in the case of CIT v. T. Veerabhadra Rao & Co. reported in 155 ITR 152 (SC). The ld. A.R. submitted that in the said judgement the Apex Court has allowed the bad debt claim of the assessee, whereas the claim was, in fact, pertaining to business of purchaser firm which was taken over 9 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
by the assessee in that case. The ld. A.R. submitted that the facts are similar. Therefore, as per the law laid down by the Apex Court, the order of CIT(A) may be confirmed.
29. We have heard the ld. representatives of the parties and perused the records. The admitted facts of the case, in brief, are that the assessee company in its computation of income has claimed deduction of Rs.2,27,01,074/- in respect of interest on liability for gas supplied by ONGC to GGL which amalgamated with the assessee company w.e.f. 1-4-1990. During the assessment proceedings, the assessee vide letter dated 15-2-94 claimed additional amount of Rs.2,37,83,103/- on account of arrears of gas liability payable to ONGC. ONGC has subsequently raised the rate of natural gas. GGL along with certain other parties filed a Writ Petition before the Gujarat High Court against the rate increase. The Gujarat High Court directed ONGC to continue to charge the assessee for gas supplied at Rs.1000/- per 1000 cubic meters pending price fixation. ONGC filed appeal before the Supreme Court against the order of Gujarat High Court. Finally, the Hon'ble Supreme Court , vide judgement dated 4- 5-1990, upheld the price fixation adopted by ONGC. Accordingly, ONGC, vide its letter dated 8-8-1990, determined the amount of arrears payable by GGL upto 29-1-1989 at Rs.2,37,83,107/- and interest thereon of Rs.2,27,01,074/-. As against the arrears of Rs.2,37,83,103/-, GGL had claimed Rs.1,47,55,077/- during the asst. years 1985-86 to 1988-89 on the ground that gas was consumed in respective previous years. However, the claim was disallowed in respective years on the ground that the matter was pending before the Supreme Court. Therefore, the liability in these years was contingent in nature. The crux of the matter to be examined in this ground is whether the assessee company succeeded to the business of predecessor company GGL, taking over all the assets and liabilities by amalgamation. At the time of amalgamation, the said liability was a contingent liability as the issue was pending before the Supreme 10 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
Court. The Supreme Court has delivered the judgment on the disputed issue after the date of amalgamation. For proper appreciation of the issue we would like to refer one judgment of the Supreme Court in the case of Commissioner of Income-tax v. T. Veerabhadra Rao, K. Koteswara Rao & Co.155 ITR 152(SC). In the said case the assessee succeeded to the business of a predecessor firm, taking over all the latter's assets and liabilities including a debt due from Laxmi Trading Co. The business carried on by the, predecessor firm was carried on by the assessee. For the assessment year 1963-64, the assessee paid income-tax on the interest accruing on the debt due from Laxmi Trading Co. The parties effected a settlement on March 31, 1965, whereby a sum of Rs. 25,000 was accepted by the assessee and the balance of Rs. 15,100 was written off as irrecoverable. The question was whether the assessee could for the assessment year 1965-66 claim the amount written off as a bad debt under s. 36(1)(vii) of the I.T. Act, 1961:The Court held that the conditions in both sub-clause
(a) and sub-clause (b) of section 36(2) were satisfied and the assessee was entitled to claim deduction of the sum of Rs. 15,100 as a bad debt: It was further held that even if the debt had been taken into account in computing the income of the predecessor firm only and had subsequently been written off as irrecoverable in the accounts of the assessee, the assessee would still have been entitled to a deduction of the amount written off as a bad debt. The Court held that if a business, along with its assets and liabilities, is transferred by one owner to another, a debt so transferred would be entitled to the same treatment in the hands of the successor. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, the same right should be recognised in the transferee. It is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. It is a right which should, on a 11 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner. The court further held that it is not imperative that the assessee referred to in sub-clause (a) of section 36(2) must necessarily mean the identical assessee referred to in sub-clause (b). A successor to the pertinent interest of a previous assessee would be covered within the terms of sub-clause
(b). The successor assessee, in effect, steps into the shoes of his predecessor unless the language of the statute plainly and clearly compels a construction to the contrary, the normal rule of the law should be given its proper play. The assessee had spent a sum of Rs. 6,880 as legal expenses in connection with an appeal filed in the Supreme Court arising out of a suit which was filed by the predecessor to recover an amount due from the Central Government and continued by the assessee on taking over the assets and liabilities of the predecessor. It was held that the assessee was entitled to claim deduction of the sum of Rs. 6,880 spent by it towards legal expenses. The decision of the Andhra Pradesh High Court in CIT v. T. Veerabhadra Rao, K. Koteswara Rao and Co. [1976] 102 ITR 604 was affirmed.
30 From above discussions we find that whenever business was succeeded to as a whole and as a running enterprise, the liabilities so taken over became the assets and liabilities of the successor including contingent liability and other liabilities. In the case under consideration, as stated above, it is not disputed that the assessee company has succeeded to the business of the predecessor company GGL and took over all assets and liabilities. The business carried on by the predecessor company was now carried on by the assessee company. Sec. 37(1) provides that any expenditure not being in nature of capital expenditure laid out and expended wholly and exclusively for the purposes of the business shall be allowed in computing the income chargeable under the head "profits and gains of business". If the predecessor company was not amalgamated with the 12 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
assessee company and was carrying on a business and claimed the said expenditure, that company would, without doubt, be entitled to deduction u/s.37(1) of the Act as the expenditure was incurred by the assessee wholly and exclusively for their business. If a business along with its assets and liabilities transferred by one owner to another, we do not see any reason why such expenditure/contingent liability so transferred should not be entitled to the same treatment in the hands of the successor. When the contingent liability becomes accrued, it is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from previous owner to the transferee. It is a right which should, on proper appreciation of all that implied in the transfer of a business, be regarded as belonging to the new owner. Unless the language of the statute plainly and clearly compels a construction to the contrary, the normal rule of law should be given a proper place. It will be a gross injustice if we accept the case of the Revenue. The Revenue did not allow the assessee's claim to Predecessor Company on the ground that there was no accrual of liability as the liability was contingent liability on account of case pending before the Court. Now, the Court has decided the issue and the liability have accrued. The same has been treated by the Revenue as capital in nature. We may mention here that at the time of amalgamation of GGL with Assessee Company this liability was a contingent liability and the successor company, i.e. assessee, should be ready for payment of that contingent liability. When the assessee company is liable to pay the said liability for the purposes of business of Predecessor Company, which is carried on by the assessee company, we are of the considered view that such an accrued liability is allowable in the year when the issue has been decided by the Apex Court in the hands of the successor company that is the in the hands of the assessee company. The AO is directed to allow the claim of the assessee after verifying the relevant figures of the claim.
13 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
31 Ground No. 9 is in respect of disallowance of rent paid u/s 37(4) of the Act.
32. We have heard the learned representatives of the parties and perused the record. We find that this issue covered against the assessee by the decision Hon'ble Supreme court in the case of Britannia Industries Ltd. Vs. CIT, 278 ITR 546 (SC) wherein it was held that expenses towards rents, repairs, maintenance and depreciation of premises/accommodation used for the purpose of guest-house were to be disallowed u/s 37(4) of the Act. In the light of the judgment of the Apex Court we set aside the order of CIT(A) and the order of AO is restored.
33. Ground No. 10 is disallowance of deduction claimed from the value of closing stock.
34. The assessee's claim of deduction of Rs. 18,02,127/- from the value of closing stock was disallowed by the AO on the ground that the said amount is a difference between the sale price of CGL and the cost of bottles, which have been valued at cost to the company. The CIT(A) directed to allow the deduction by observing as under:-
"The Supreme Court in the case of Kikabhai Premchand, reported in 24 ITR, 506, and the Allahabad High Court in the case of Ramlal Bechairam, reported in 14 ITR 1, have held that no, tax can be levied in respect of prof its arising out of trading with oneself. The Assessing Off icer is, therefore, directed to allow deduction of Rs. 18,02,127/- claimed by the appellant in respect of the reduction in valuation of closing stock."
35. We have heard the learned representatives of the parties and perused the record. In view of the ratio laid down by the Apex Court in the case of Kikabhai Premchand cited supra, which has been followed by the CIT(A) and directed the AO to allow deduction of Rs. 18,02,127/- claimed by the assessee in respect of the reduction in valuation of closing stock, we do not find any infirmity in the order of the CIT(A), therefore, the order of CIT(A) is hereby confirmed.
14 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
ITA NO. 5914/M/97 - APPEAL BY THE REVENUE FOR AY 1992-93
36. This appeal filed by the revenue is directed against the order of CIT(A)-XXIII, Mumbai passed on 4 t h July, 1997 for the assessment year 1992-93.
37. Ground No. 1 is against the action of CIT(A) in deleting the addition of Rs. 7,87,000/- being provision for redemption of debenture premium.
38. Similar ground is decided by us in revenue's appeal in ITA No. 3751/M/95 in ground No. 5 cited supra vide para Nos. 15 to 17 of this order. In the light of that following the conclusions drawn therein, we uphold the order of CIT(A) on this issue.
39. Ground No. 2 is against the action of the CIT(A) in directing the AO to allow deduction under section 80M or gross dividend without considering the expenses for earning the dividend.
40. The assessee had earned dividend income of Rs. 53,58,330/- and had claimed deduction u/s 80-M of the equivalent amount on the ground that the dividend disbursed during the year was Rs. 1,24,54,000/-, for which certificate of auditors for disbursement of dividend was enclosed. No expense for earning this dividend u/s 80AA had been shown by the assessee. The AO on enquiry came to know that there are no expenses relating to this earning of dividend income. The AO following the decision in AY 1991-92 wherein 5% of the expenditure was estimated for earning the dividend income and the deduction u/s 80M was allowed on the net dividend. The CIT(A) following the judgment of Hon'ble Calcutta High court in the case of United Collieries Ltd. 203 ITR 857 (Cal.) directed the AO to allow relief on the gross amount of dividend in the circumstances of the case.
15 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
41. We have heard the learned representatives of the parties and perused the record. We find that this issue is covered by the judgment of Hon'ble Calcutta High Court in the case of United Collieries Ltd. cited supra wherein it was held that for allowing deduction u/s 80M only actual expenses need to be taken into account and not the notional or prorated expenses. Since the CIT(A) directed the AO to allow relief on the gross amount of dividend by following the judgment of Hon'ble Calcutta High Court in the case of United Collieries Ltd. cited supra we confirmed the order of the CIT(A) on this issue.
42. Ground No. 3 is against the action of the CIT(A) in deleting the addition on account of Modvat Credit of Rs. 55,40,000/-.
43. Similar ground is decided by us in revenue's appeal in ITA No. 3751/M/95 in ground No. 3 cited supra vide para Nos. 9 to 11 of this order. In the light of that following the conclusions drawn therein, we uphold the order of CIT(A) on this issue.
44. Ground No. 4 is in respect of deduction u/s 80 HH & 80 I of the Act.
45. Similar ground is decided by us in revenue's appeal in ITA No. 3751/M/95 in ground No. 7 cited supra vide para Nos. 21 to 24 of this order. In the light of that following the conclusions drawn therein, we uphold the order of CIT(A) on this issue.
46. Ground No. 5 reads as under:-
Ground No. 5: On the f acts and in the circumstances of the case and in law, the Ld. CIT(A), Mumbai, erred in holding that liability relating to period prior to amalgamation of M/s Gujarat Glass Ltd. (Amalgamating Co.) should be allowed under revenue head.
16 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
47. We have heard the learned representatives of the parties and perused the record. The issue has been decided in ITA NO. 3751/M/95 - Appeal by Revenue for AY 1991-92, ground number 8, in par No 25 to 30 of this order .The AO is directed accordingly.
48. Ground No. 6 reads as under:-
Ground No. 6: On the f acts and in the circumstances of the case and in law, the Ld. CIT(A), Mumbai erred in holding that 10% of share issue expenses and bonus issue expenses should be allowed as revenue expenses.
49. The AO disallowed the sum of Rs. 37,514/- being 10% of the expenses for increasing the share capital and Rs. 4,56,633/- being expenses on the issue of bonus shares on the ground that the bonus issue expenses were not available as revenue expenses. The submission of the assessee before the CIT(A) was that all the three types of expenses were within the purview of section 35D and accordingly 1/10 t h of such expenses were correctly claimed by the appellant as deductible. The CIT(A) after considering the submission of the assessee held that looking to the appeal orders for assessment years 1991-92 and 1993-94 the appellant's claim ought to have been allowed u/s 35D. The AO is directed to allow the same.
50. We have heard the learned representatives of the parties and perused the record. As regards the deduction of increase in share capital expenses of Rs. 37,514/- being 10% the issue is decided against the assessee by the decision of Hon'ble Supreme court in the case of Punjab State Industrial Development Corp Ltd. Vs. CIT, 225 ITR 792 (SC) wherein it was held that amount paid the Registrar of Companies as filing fee for enhancement of capital is capital expenditure. Hence, we set aside the order of CIT(A) on this issue and restore that of AO. As regards deduction of bonus issue expenses being 10% i.e. Rs. 45,663/-, this issue is covered in favour of the assessee by the following decisions:-
17 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
i. Bombay Burmah Trading, 145 ITR 793 (Bom.) ii. Godavari Sugar Mills Ltd., 191 ITR 311 (Bom) iii. CIT Vs. General Insurance Corporation of India, 156 Taxman 36
51. The Bombay High Court in the case of Bombay Burmah Trading, 145 ITR 793 held that for the purpose of section 40(c)(iii) it is the expenditure incurred by the assessee that has to be taken in to account and not the perquisites in the hands of the employee. In view of this decision, the order of CIT(A) is confirmed on this issue.
ITA NOS.5146, 5147, 5148 & 5149/AHD/95 - appeals by the assessee for the assessment years 1985-86, 86-87, 87-88 & 88-89.
52. The common ground raised by the assessee in all the appeals is that the CIT(A) erred in confirming the disallowance made by the DCIT being the additional cost of the purchase of gas from ONGC due to revision of rate of natural gas. The issue has been decided in ITA NO. 3751/M/95 - Appeal by Revenue for AY 1991-92, ground number 8, in par No 25 to 30 of this order .In the light of that we confirm the orders of the CIT(A) as in these years, AY1985-86, 86-87, 87-88 & 88- 89 the liabilities were contingent liabilities.
53. Another common ground in AY 1987-88 and in AY 1988-89 is that the CIT(A) erred in confirming the disallowance of Rs. 12,915/- being rent of guest house.
54. We have heard the learned representatives of the parties and perused the record. We find that this issue covered against the assessee by the decision Hon'ble Supreme court in the case of Britannia Industries Ltd. Vs. CIT, 278 ITR 546 (SC) wherein it was held that expenses towards rents, repairs, maintenance and depreciation of premises/accommodation used for the purpose of Apex guest-house were to be disallowed u/s 37(4) of the Act. In the light of 18 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
the judgment of the Court we confirm the order of CIT(A) on this issue.
55. In the result, ITA NOS.5146, 5147, 5148 & 5149/AHD/95 - appeals by the assessee for the assessment years 1985-86, 86-87, 87- 88 & 88-89 are dismissed. ITA NO. 3751/M/95-1991-92 and ITA NO. 5914/M/97, AY1992-93, appeals by the revenue are partly allowed as above.
Pronounced on this 4 t h day of June, 2010
Sd/- Sd/-
(D. MANMOHAN) (A.L. GEHLOT)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 4 t h June, 2010
Copy to:-
1) The Appellant.
2) The Respondent.
3) The CIT (A) concerned.
4) The CIT concerned.
5) The Departmental Representative, "B" Bench, I.T.A.T., Mumbai.
By Order //true copy// Asst. Registrar, I.T.A.T., Mumbai.
Kv 19 ITA NOS. 5146 TO 5149/Ahd/95, 5914/M/95 & 3751/M/97 Nicholas Piramal (India) Ltd.
S.No. Description Date Intls
1. Draft dictated on 15.4.10 Sr.P.S./P.S
2. Draft placed before author 16.4.10 Sr.P.S/PS
3 Draft proposed & placed before JM/AM
the second Member
4 Draft discussed/approved by JM/AM
second Member
5 Approved Draft comes to the Sr.P.S./P.S
Sr.P.S./PS
6. Kept for pronouncement on Sr.
P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S
8 Date on which file goes to the
Head Clerk
9 Date of Dispatch of order