Income Tax Appellate Tribunal - Mumbai
Novartis P. Ltd , vs Assessee on 4 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI
Before Shri P.M.Jagtap, Accountant Member
and Shri Amit Shukla, Judicial Member..
I.T.A. No. 2874/Mum/1999
Assessment Year : 1994-95.
C.O. No. 257/Mum/1999
(Arising out of ITA No. 2870/Mum/1999)
Assessment Year : 1994-95.
Novartis India Limited, Joint Commissioner of
Sandoz House, Vs. Income-tax,
Dr. Annie Besant Road, Special Range-23,
Worli, Mumbai - 400 018. Mumbai.
Appellant/Cross Objector. Respondent.
I.T.A. No.2720/Mum/1999
Assessment Year : 1994-95.
Joint commissioner of Novartis India Limited,
Income-tax, Vs. Mumbai.
Special Range23,
Mumbai.
Appellant. Respondent.
Assessee by : Shri J.D. Mistri, and
Shri Nitesh Joshi.
Department by : Shri P.K. Shukla.
Date of hearing : 04-10-2012
Date of pronouncement : 31-10-2012.
ORDER
Per P.M. Jagtap, A.M. :
These two appeals, one filed by the assessee being ITA No.2874/Mum/1999 and the other filed by the Revenue being ITA No. 2720/Mum/1999 are cross 2 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 appeals which are directed against the order of learned CIT(Appeals)-XV, Mumbai dated 11-02-1999 and the same are being disposed of by this single composite order together with the cross objection filed by the assessee.
2. First we shall take up the appeal of the assessee being ITA No. 2874/Mum/1999.
3. The issue raised in ground No. 1 of this appeal relates to the disallowance made by the AO and confirmed by the learned CIT(Appeals) on account of provision made for expenses on account of advertisement, travelling, professional fees etc.
4. During the year under consideration, provision was made by the assessee for certain expenses on estimated basis. As per the final position emerged in the subsequent year, the provision so made for some expenses turned out to be more whereas the provision made for other expenses turned out to be short. The excess provision was written back by the assessee in the subsequent years which was offered to tax by the assessee in the subsequent year. In the year under consideration, the AO, however, disallowed the amount of provision for expenses made by the assessee in excess and confirming the said addition made by the AO, the learned CIT(Appeals) directed the AO to consider this aspect in the subsequent year by reducing the income offered by the assessee in that year by way of excess provision written back to avoid double taxation.
5. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The learned counsel for the assessee has submitted that in respect of excess provision, the assessee has already got the relief from the 3 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 AO in the subsequent year as per the direction given by the learned CIT(Appeals) inasmuch as the excess provision written back has been excluded by him from the total income of the assessee. He, however, has contended that no deduction has been allowed by the AO in the subsequent year on account of short provision made in the year under consideration for which payment was made in the subsequent year on the ground that the same represented expenses pertaining to assessment year 1994-95. He has contended that the assessee thus has not got deduction for this amount either in assessment year 1995-96 on the ground that it was pertaining to assessment year 1994-95 and even in 1994-95 on the ground that the same was not claimed by it in that year. He has contended that the AO, therefore, may be directed to allow deduction for the said amount in the year under consideration as the same represents expenses pertaining to that year. The learned DR, on the other hand, strongly relied on the orders of the authorities below on this issue.
6. We have considered the rival submissions and perused the relevant material on record. It is observed from the relevant portion of the learned CIT(Appeals)' impugned order (para No. 18 to 22) that the issue as regards the short provision was neither specifically raised by the assessee nor considered by the learned CIT(Appeals) although the details furnished by the assessee at page No. 94 and 95 of his paper book show that there was a case of short provision made for certain expenses. It is also observed that a similar issue was involved in assessee's own case for assessment year 1993-94 and the Tribunal vide its order dated 29-06-2012 passed in ITA No. 334/Mum/1997 upheld the order of the learned CIT(Appeals) on this issue. As the judicial discipline warrants us to follow the order of the coordinate bench passed in assessee's own case especially when the issue involved as well as material facts relevant thereto are similar, we follow the order of the 4 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 coordinate bench in assessee's own case for assessment year 1993-94 and uphold the impugned order of the learned CIT(Appeals) on this issue. Ground No. 1 of the assessee's appeal is accordingly dismissed.
7. The issue raised in ground No. 2 of the assessee's appeal relates to the disallowance of Rs.9,30,110/- made by the AO and confirmed by the learned CIT(Appeals) on account of assessee's claim for depreciation in respect of Kandla Plant.
8. Since the Kandla Plant of the assessee was not used in the year under consideration due to lack of export order, the depreciation claimed by the assessee on the said plant was disallowed by the AO which was confirmed by the learned CIT(Appeals).
9. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue was restored by the Tribunal in assessee's own case for assessment year 1993-94 to the file of the AO with a direction to decide the same afresh after necessary verification. Before us, the learned counsel for the assessee has submitted that Kandla Plant was used by the assessee earlier for more than five years. If this is so, we find merit in the contention of the learned counsel for the assessee that once the asset enters the relevant block, it loses its separate existence for the purpose of depreciation and what is to be seen for the purpose of allowing depreciation is the use of the relevant block as a whole and not the use of individual asset. We, therefore, direct the AO to consider this legal position and allow the claim of the assessee for depreciation in respect of Kandla Plant after verifying the factual position from the relevant record. Ground No. 2 of the assessee's appeal is accordingly treated as allowed for statistical purposes.
5 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199910. Ground No.3 and 4 of the assessee's appeal relating to disallowance of Rs.19,94,623/- out of foreign travel expenses and Rs.14,64,642/- on account of hotel expenses, air fare etc. are not pressed by the learned counsel for the assessee at the time of hearing before us submitting that the issues raised therein have become infructuous. The same are, therefore, dismissed as not pressed.
11. Ground No. 5 of the assessee's appeal involve the issue relating to disallowance made by the AO and confirmed by the learned CIT(Appeals) on account of expenses incurred for maintaining transit house at Goregaon and Goa by invoking the provisions of section 37(4).
12. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has already been decided by the Tribunal in assessee's own case for earlier years and vide its appellate order dated 29-06- 2012 (supra) passed for assessment year 1993-94, the Tribunal has restored a similar issue to the file of the AO with a direction to verify the details of expenses incurred by the assessee on guest house maintenance and allow the said expenses to the extent they are incurred on food and beverages. Respectfully following the said order, we restore this issue to the file of the AO for deciding the same afresh as per the same direction as given in the earlier year. Ground No. 5 of the assessee's appeal is accordingly treated as allowed for statistical purposes.
13. The next issue raised in ground No. 6 of the assessee's appeal relates to the disallowance made by the AO and sustained by the learned CIT(Appeals) on account of entertainment expenses u/s 37(2).
6 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199914. In the assessment completed for the year under consideration, the disallowance on account of entertainment expenses u/s 37(2A) of the Act was made by the AO to the following extent :
a) Lunch expenses etc. to personnel on Outdoor duty : Rs.6,34,988/-
b) 5% of the total canteen expenses and food Subsidy aggregating to Rs.64,46,940/-. : Rs.3,22,347/-
c) Business meeting expenses of employees : Rs.5,29,299/-
d) Expenses on AGM : Rs. 19,432/-
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Total: Rs.15,06,066/-
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Disallowance at 50% Rs.7,53,034/-
On appeal, the learned CIT(Appeals) confirmed the disallowance made on account of item No. (a), (b) and (d) above following the order of his learned predecessor for assessment year 1993-94 and allowed part relief in respect of item No. (c) holding that 25% of the business meeting expenses should be treated as having been spent on the employees and disallowance at 50% should be made out of the remaining 75% expenses treating the same as in the nature of entertainment.
15. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that a similar issue has been considered and decided by the Tribunal in assessee's own case for assessment year 1993-94 vide its order dated 29-06-2012 (supra) wherein it was held that business meeting expenses and expenses on AGM cannot be treated as in the nature of entertainment expenses. The Tribunal also directed the AO to add only Rs.2 lakhs out of total canteen expenses keeping in view the finding given by the Tribunal in 7 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 the earlier year i.e. assessment year 1993-94. Respectfully following the order of the Tribunal for assessment year 1993-94, we modify the impugned order of the learned CIT(Appeals) and direct the AO to recompute and restrict the disallowance on account of entertainment expenses in the same line as directed by the Tribunal in assessment year 1993-94. Ground No. 6 of the assessee's appeal is accordingly treated as partly allowed.
16. Ground No. 7 of the assessee's appeal relating to the disallowance made by the AO and confirmed by the learned CIT(Appeals) on account of wealth-tax liability has not been pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed.
17. Ground No. 8 of the assessee's appeal involve the issue relating to disallowance of Rs.62,28,000/- made by the AO and confirmed by the learned CIT(Appeals) being the amount debited by the assessee company in its books of account for the impending union settlement at Goa.
18. During the year under consideration, a provision of Rs.62,28,000/- was made by the assessee for impending union settlement in respect of Goa factory workers. Since the said liability was in dispute and there was no settlement arrived at during the year under consideration, the AO as well as the learned CIT(Appeals) disallowed the deduction claimed by the assessee for the provision made on this issue.
19. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. There is no dispute that the provision made by the assessee for impending union settlement in respect of Goa factory workers is a 8 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 contractual liability and the same was in dispute as there was no settlement arrived at between the parties. The learned counsel for the assessee has also accepted this position. He, however, has sought limited relief by way of a direction to be given to the AO to verify whether such settlement has taken place in the year under consideration and if so, allow the deduction claimed by the assessee. Accordingly, we direct the AO to give the assessee an opportunity to establish on evidence as to whether the settlement was arrived at in the year under consideration and to decide the issue accordingly after verifying the assessee's claim. Ground No. 8 of the assessee's appel is accordingly treated as allowed for statistical purposes.
20. Ground No. 9 of the assessee's appeal involve the issue relating to deduction made by the AO and confirmed by the learned CIT(Appeals) amounting to Rs.2,27,789/- being 2% of dividend income on account of administrative and overhead expenses while calculating the deduction u/s 80M.
21. After considering the rival submissions and perusing the relevant material on record, it is observed that similar issue has been decided by the Tribunal in favour of the assessee in assessment year 1991-92 vide its order dated 4th Nov., 2010 passed in ITA No. 9566 and 9679/Mum/1995 wherein it was held following the decision of Hon'ble Bombay High Court in the case of CIT vs. General Insurance Corporation of India 254 ITR 203 that only the expenses those are directly relatable to earning of dividend income should be reduced for the purpose of computing deduction u/s 80M and any disallowance of such expenses made on adhoc or estimate basis cannot be sustained. Respectfully following the said order of the Tribunal for assessment year 1991-92, we set aside the impugned order of the learned CIT(Appeals) on this issue and direct the AO to allow the deduction u/s 9 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 80M as claimed by the assessee in respect of dividend income. Ground No. 9 of the assessee's appeal is accordingly allowed.
22. In ground No. 10, the assessee has challenged the action of the authorities below in including the sales-tax amount of Rs.4.54 crores in the figure of total turnover for the purpose of computing deduction u/s 80HHC.
23. After considering the rival submissions and perusing the relevant material on record, it is observed that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT vs. Laxmi Machine Works 290 ITR 667 as well as that of Hon'ble Bombay High Court in the case of CIT vs. Sudarshan Chemical Industries 245 ITR 769. Respectfully following the said decision of Hon'ble Apex Court and Hon'ble jurisdictional High Court, we set aside the impugned order of the learned CIT(Appeals) on this issue and direct the AO to exclude the sales-tax amount from the figure of total turnover for computing deduction u/s 80HHC. Ground No.10 of the assessee's appeal is accordingly allowed.
24. The issue raised in ground No. 11 of the assessee's appeal relates to the disallowance of Rs.63,93,929/- made by the AO and confirmed by the learned CIT(Appeals) on account of expenses pertaining to assessment year 1993-94.
25. During the year under consideration, a sum of Rs.63,93,929/- was claimed by the assessee on account of expenses pertaining to assessment year 1993-94 which were actually incurred in the year under consideration. According to the assessee, provision for the relevant expenses made in assessment year 1993-94 was short and, therefore, the actual expenses incurred to the extent they were more than 10 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 the provision made in assessment year 1993-94 were claimed in the year under consideration i.e. assessment year 1994-95. The AO as well as the learned CIT(Appeals), however, disallowed the claim of the assessee on this issue on the ground that this amount represented expenses pertaining to assessment year 1993- 94 which could not be allowed in 1994-95.
26. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. Although the learned counsel for the assessee has contended before us that as a result of stand taken by the authorities below on this issue, the assessee is not in a position to get the deduction on account of genuine business expenditure either in assessment year 1993-94 or even in assessment year 1994-95, it is observed that a similar contention raised on behalf of the assessee in assessment year 1993-94 has not been accepted by the Tribunal vide its order dated 29-06-2010 (supra) and a similar issue has been decided against the assessee. As a matter of judicial discipline, we follow the said decision of the Tribunal in assessee's own case for assessment year 1993-94 and uphold the impugned order of the learned CIT(Appeals) confirming the disallowance made by the AO on this issue. Ground No.11 of the assessee's appeal is accordingly dismissed.
27. The next issue raised in ground No. 12 of the assessee's appeal relates to the disallowance of Rs.10,42,491/- made by the AO and confirmed by the learned CIT(Appeals) on account of payment made to M/s Asia Today for broadcasting Cibaca Gel Spots on Zee TV.
28. During the course of assessment proceedings, it was noticed by the AO that the amount in question was paid by the assessee to M/s Asia Today Ltd., a non resident, without deducting tax at source. He, therefore, invoked the provisions of 11 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 section 40(a)(i) and disallowed the said amount which the learned CIT(Appeals) confirmed.
29. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The learned counsel for the assessee has contended that the amount in question was paid by the assessee to a non resident for services rendered outside India. He has submitted that the said amount constituted business income of the said party and since the said party did not have a permanent establishment in India, the amount representing its business income was not chargeable to tax in India. He has contended that although these contentions were raised before the authorities below, neither the AO nor the learned CIT(Appeals) has considered and decided the same on merit. Keeping in view this submission of the learned counsel for the assessee, the learned DR has fairly suggested that this matter may be sent back to the AO for examining the stand of the assessee that the amount in question not being chargeable to tax in India in the hands of the respondent, no tax at source was deductible from the payment thereof. Accordingly, we restore this issue to the file of the AO to decide the same afresh after examining the stand taken by the assessee. Ground No.12 of the assessee's appeal is accordingly treated as allowed for statistical purposes.
30. As regards ground No.13, it is observed that the issue raised therein relating to inclusion or exclusion of excise duty from the figure of total turnover for the purpose of computing deduction u/s 80HHC is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Laxmi Machine Works (supra) as well as that of Hon'ble Bombay High Court in the case of Sudarshan Clemical Industries Ltd.(supra). Respectfully following the said judicial pronouncements, we set aside the impugned order of the learned CIT(Appeals) on 12 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 this issue and direct the AO to exclude the excise duty from the figure of total turnover for the purpose of computing deduction u/s 80HHC. Ground No. 13 of the assessee's appeal is accordingly allowed.
31. During the course of appellate proceedings before the Tribunal, the assessee has filed an application seeking admission of the following two additional grounds :
1) The AO ought to have allowed the proportionate amount of the premium on redemption of non-convertible debenture in assessment year 1994-95, over the tenure of the debenture, having disallowed the entire amount by the Tribunal vide order dated 12th October 2011 in assessment year 1992-
93. The appellant pray that the AO be directed accordingly.
2) The AO be directed to allow the depreciation on of Rs.1,67,768 on the written down value of the foreign visitors expenditure disallowed as capital expenditure by the Tribunal vide order dated 12th October, 2011 for the assessment year 1992-93.
32. As the relief sought by the assessee by way of additional grounds is only consequential as a result of decision rendered by the Tribunal on certain issues in the earlier years and the learned DR has also not raised any objection, the additional grounds filed by the assessee have been admitted.
33. As regards additional ground No.1, the relief claimed by the assessee therein is only limited i.e. to allow the deduction for proportionate amount of premium on redemption of non convertible debenture which as claimed by the assessee in full in assessment year 1992-93 was disallowed by the Tribunal.
13 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199934. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that while disallowing the deduction claimed by the assessee on account of entire premium on redemption of non convertible debenture in assessment year 1992-93, the Tribunal has held in its order dated 12th Oct., 2011 that the assessee is entitled for deduction only to the extent of proportionate amount of premium payable on debentures as the premium so payable has to be spread over to the period of debenture as held by Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. 225 ITR 802. We accordingly direct the AO to allow proportionate deduction on account of premium payable by the assessee on the debenture in the year under consideration after taking into consideration the period of debenture. Additional ground No. 1 of the assessee's appeal is accordingly allowed.
35. As regards additional ground No.2, it is observed that the relief sought by the assessee therein is that certain expenses incurred on the travelling of foreign visitors having been held to be capital expenditure in assessment year 1992-93 being in relation to installation of machinery, depreciation thereon may be allowed in the year under consideration. As agreed by the learned representatives of both the sides, direction can appropriately be given to the AO to verify the final position on this issue in assessment year 1992-93 and to allow appropriate relief to the assessee accordingly. We, therefore, direct the AO to verify the stand of the assessee as regards capitalization of the relevant expenses in assessment year 1992- 93 and decide this issue relating to consequential relief to the assessee accordingly. Additional ground No.2 of the assessee's appeal is accordingly treated as allowed.
36. Now we shall take the appeal of the Revenue being ITA No. 2720/Mum/1999.
14 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199937. In ground No. 1 of this appeal, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the addition made by the AO on account of disallowance of expenses incurred on VRS amounting to Rs.4,29,85,250/- in respect of Bhandup Unit works and Rs.1,05,80,000/- in respect of head office employees.
38. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the deduction claimed by the assessee on account of amount payable under Voluntary Retirement Scheme was disallowed by the AO treating the same as unascertained liability. The learned CIT(Appeals), however, allowed the deduction claimed by the assessee on this issue after having found from the relevant agreements that the concerned employees had opted for retirement which was accepted by the assessee company. He also found that the liability on this account was an ascertained liability as the same was made on the basis of actuarial valuation. He, therefore, held that the said liability was not a contingent liability as held by his predecessor in his appellate order for assessment year 1993-94 and allowed the deduction claimed by the assessee on account of such liability.
39. Before us, the learned DR has submitted that a similar issue involved in assessee's own case for assessment year 1993-94 has been restored by the Tribunal to the file of the AO with a direction to verify certain relevant aspect. The learned counsel for the assessee, on the other hand, has submitted that specific findings have been recorded by the learned CIT(Appeals) in his impugned order for the year under consideration on verification of the relevant agreements as well as the actuarial valuation that the liability was accrued and crystallized.
15 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199940. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has been decided by the Tribunal in assessee's own case for assessment year 1993-94 vide para No. 8 of its order dated 29-06-2012 which reads as under :
" We have heard the rival submissions and perused the orders of the lower authorities and also the paper book filed by the assessee. We find that the main reason for not allowing the claim at the assessment stage was that according to the AO, the accrued liability of Rs.30,39,70,700/- is not crystalised nor it is supported by any scientifically calculated method. The Ld. CIT(A) rejected the submission of the assessee held that the liability is nothing but contingent liability. Be that as it may, we find that the assessee has come out with VRS forced by commercial reasons. The liability is well supported by the actuary valuation the right of employees are supported by the agreement with the company and employee as the actual valuation certificate and the agreements between the company and the employees were not examined by the AO. Therefore, in the interest of justice and fair play, we restore this matter back to the file of AO. The assessee is directed to examine and verify the actuary valuation certificate and the agreement with the company and the employee and if he finds that the liability has been calculated on a scientific basis, may allow the claim of Rs.39,30,70,700/-. Ground No. 1 raised by the assessee is allowed for statistical purposes."
A perusal of the relevant portion of the Tribunal's order for assessment year 1993- 94 as reproduced above shows that it was noted by the Tribunal that the liability in question was well supported by the actuarial valuation as well as the agreements between the assessee company and the employees. However, keeping in view that the said evidence was not examined by the AO, the matter was restored to the file of the AO in the interest of justice and fair play for giving an opportunity to the AO to verify the same. In our opinion, it would, therefore, be appropriate to restore the similar issue involved in the year under consideration also to the file of the AO for the purpose of necessary verification as done by the Tribunal in assessment 16 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 year 1993-94. We order accordingly and allow ground No.1 of the Revenue's appeal for statistical purposes.
41. In ground No.2, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the addition of Rs.28,50,508/- made by the AO on account of proportionate cost of freight included in the value of closing stock.
42. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has been decided by the Tribunal in favour of the assessee in assessee's own case for assessment years 1992-93 and 1993-94 deleting the similar additions made by the AO in the earlier years on account of proportionate cost of freight relatable to closing stock. Respectfully following the decision of the Tribunal in the earlier years on similar issue, we uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue and dismiss ground No. 2 of the Revenue's appeal.
43. In ground No.3, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the addition of Rs.60,70,949/- made by the AO by way of disallowance of expenses incurred on promotional cinema films and Rs.7,38,281/- on production of radio programme.
44. After considering the rival submissions and perusing the relevant material on record, it is observed that the expenses incurred by the assessee on production of promotional films, TV films and radio programme were disallowed by the AO treating the same as capital in nature following the stand taken in the assessments for earlier years i.e. 1992-93 and 1993-94 on a similar issue. As pointed out by the learned counsel for the assessee, a similar disallowance made by the AO in 17 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 assessment years 1992-93 and 1993-94 has been held to be unsustainable by the Tribunal and following the decision of Hon'ble Bombay High Court in the case of CIT vs. Geoffrey Manners and Co. Ltd. 315 ITR 134, the expenditure incurred on production of promotional films etc. has been allowed as revenue expenditure. Respectfully following the decision of the Tribunal in assessment years 1992-93 and 993-94, we uphold the impugned order of the learned CIT(Appeals) on this issue and dismiss ground No. 3 of the Revenue's appeal.
45. The issue raised in ground No. 4 of the Revenue's appeal has become infructuous as a result of our decision rendered on the issue involved in ground No.3. Ground No.4 is accordingly dismissed as having become infructuous.
46. In ground No.5, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the addition of Rs.117.06 lakhs (correct amount is Rs.161.08 lakhs) made by the AO on account of unutilized modvat credit.
47. After considering the rival submissions and perusing the relevant material on record, it is observed that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT Vs Indo Nippon Chemicals Co. Ltd. (SC) 216 ITR 275 and following the said decision of Hon'ble Apex Court, the Tribunal has decided a similar issue in favour of the assessee for assessment years 1991-92,1992-93 and 1993-94. Respectfully following the said judicial pronouncements, we uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue and dismiss ground No. 5 of Revenue's appeal.
18 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199948. In ground No.6, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the addition of Rs.5 lakhs made by the AO by invoking Rule 6D(2).
49. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has been decided by the Tribunal in favour of the assessee in assessee's own case for assessment year 1991-92 holding that the limits of expenditure incurred on travels to the extent of stay in hotel as per Rule 6D is confined to daily allowance as referred to in the said Rule and does not extent to any other expenditure which is incurred wholly and exclusively for the purpose of business. Following the said decision rendered in assessment year 1991-92, the Tribunal has also decided a similar issue in favour of the assessee in assessment year 1992-93. Following the decision of the Tribunal in assessment year 1991-92 and 1992-93 on a similar issue, we uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue and dismiss ground No. 6 of the Revenue's appeal.
50. In ground No.7, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the disallowance of Rs. 15,72,856/- made by the AO on account of expenditure incurred on computer software.
51. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the deduction claimed by the assessee on account of expenses incurred on software application system and purchase of software package was disallowed by the AO treating the said expenses as of capital in nature in view of their enduring benefit. The learned CIT(Appeals) deleted the said disallowance following the order of his predecessor in assessee's own case for 19 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 assessment year 1993-94. Although the learned counsel for the assessee has submitted before us that a similar issue has been decided by the Tribunal in favour of the assessee in the earlier years, we are of the view that the exact nature of expenses incurred on computer software is required to be considered in the light of the guidelines laid down by the Delhi Special Bench of ITAT in the case of Amway India Enterprises 114 TTJ 476. Since this issue has not been considered so either by the AO or by the learned CIT(Appeals), we set aside the impugned order of the learned CIT(Appeals) and restore the matter to the file of the AO for deciding the same afresh in the light of the decision of special Bench of ITAT in the case of Amway India Enterprises (supra). Ground No. 7 of the Revenue's appeal is accordingly treated as allowed for statistical purposes.
52. In ground No.8, the Revenue has challenged the action of the learned CIT(Appeals) in holding that trade discount of Rs.8,17,62,236/- should be excluded from the total turnover for the purpose of computing deduction u/s 80HHC.
53. After considering the rival submissions and perusing the relevant material on record, it is observed that this issue is squarely covered in favour of the assessee by the orders of the Tribunal passed in assessee's own case for earlier years i.e. assessment years 1991-92 and 1992-93 wherein it was held following the decision of Hon'ble Supreme Court in the case of Laxmi Machine Works (supra) and the decision of Hon'ble Bombay High Court in the case of Sudarshan Chemical Industries (supra) that trade discount has to be excluded from the total turnover for the purpose of computing deduction u/s 80HHC. Respectfully following the said judicial pronouncements, we uphold the impugned order of the learned 20 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 CIT(Appeals) giving relief to the assessee on this issue and dismiss ground No. 8 of the Revenue's appeal.
54. As regards ground No.9 relating to assessee's claim that the losses of eligible unit should be ignored for determining the deduction u/s 80HHC if such loss relating to earlier years had been set off against other income, it is observed that a similar issue involved in assessee's own case for assessment year 1993-94 has been restored by the Tribunal vide its order dated 29-06-2012 (supra) to the file of the AO with a direction to verify the claim of the assessee that there are no brought forward losses available to be set off and to allow appropriate relief to the assessee in terms of deduction u/s 80HHC if the same is found to be correct. The learned counsel for the assessee has submitted that a similar direction may also be given in the year under consideration as the facts involved therein are similar to assessment year 1993-94. Since the learned DR has not raised any objection in this regard, we set aside the impugned order of the learned CIT(Appeals) on this issue and restore the matter to the file of the AO for deciding the same afresh as per the same direction given in assessment year 1993-94.
55. As a result of our decision rendered in ground No. 9, ground No. 10 relating to the Revenue's alternative claim on the same issue as involved in ground No. 9 has become infructuous and the same is accordingly dismissed.
56. In ground No. 11, the Revenue has challenged the action of the learned CIT(Appeals) in accepting the claim of the assessee to allow deduction u/s 80I ignoring the provisions of section 80HH(9).
21 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199957. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has been decided by the Tribunal in assessee's own case for assessment year 1992-93 by its order dated 12th Oct., 2011 (supra) whereby the AO was directed by the Tribunal to compute the deduction keeping in view the decision of Hon'ble Bombay High Court in the case of Associate Capsules P. Ltd. Respectfully following the said decision of the Tribunal, we direct the AO to compute the deduction allowable to the assessee keeping in view the decision of Hon'ble Bombay High Court in the case of Associate Capsules P. Ltd.
58. In its cross objection, the assessee company has raised the following grounds:
1. The Respondents submit that in case the Joint Commissioner of Income-
tax, Special Range-23, Mumbai (hereinafter referred to as the JCIT) action of enhancing the value of closing stock by Rs.28,50,508 on account of estimated pro-rata freight on stocks lying at depots is upheld, then the JCIT be directed to increase the value of the opening stock of the subsequent year i.e. assessment year 1995-96 by a similar amount.
2. (i) The Respondents submit that the CIT(A) ought to have held that the expenditure of Rs.68,09,230 incurred on promotional/cinema films, production of TV films/cinema slides/radio programme was allowable as a deduction in computing their business income as being of a revenue nature as it did not result in the benefit of an enduring nature.
(ii) Without prejudice to the above, the Respondents submit that in case the JCIT's action of treating the expenditure of Rs.68,09,230 as capital expenditure is upheld and it is held that the amount is not allowable under section 37(3), then they should be granted depreciation at the prevailing rates.
3. The Respondents submit that in case the JCIT's action of enhancing the value of closing stock by Rs.161.08 lakhs on account of MODVAT credit 22 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/1999 is upheld, then the JCIT be directed to increase the value of the opening stock of the subsequent year i.e. assessment year 1995-96 by a similar amount.
4. The Respondents submit that in case the JCIT's action of disallowing computer software supplies of Rs.15,72,856 as capital expenditure is upheld, then the JCIT be directed to grant depreciation on the same.
59. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that ground No. 1 to 3 of assessee's cross objection raise its alternative claim corresponding to the issues involved in ground No. 2, 3 and 5 of the Revenue's appeal. Since the said issues involved in ground No. 2, 3 and 5 have been decided by us in favour of the assessee, ground No. 1, 2 and 3 of the assessee's cross objection have become infructuous and the same are accordingly dismissed.
60. As regards ground No. 4 relating to assessee's alternative claim that if the expenditure on computer software is treated as capital expenditure, depreciation thereon should be allowed, it is observed that the main issue relating to the nature of computer software expenses whether capital or revenue has been restored by us to the file of the AO for deciding the same afresh. We, therefore, also restore the issue relating to assessee's alternative claim for depreciation on computer software if the same is treated as capital expenditure, to the file of the AO for considering and deciding the same depending on his decision on the main issue. Ground No. 4 of the assessee's cross objection is accordingly treated as allowed for statistical purposes.
23 ITA No.2874/Mum/1999 ITA No.2720/Mum/1999 CO No.257/Mum/199961. In the result, the appeal of the assessee is partly allowed whereas the appeal of the Revenue and cross objection of the assessee are treated as partly allowed for statistical purposes.
Order pronounced on this 31st day of Oct. , 2012.
Sd/- Sd/-
(Amit Shukla) (P.M. Jagtap)
Judicial Member Accountant Member
Mumbai,
Dated: 31st Oct., 2012.
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, I-Bench.
(True copy)
By Order
Asstt. Registrar,
ITAT, Mumbai Benches,
Mumbai.
Wakode