Indian Petrochemicals Corporation ... vs Assessee on 26 November, 2007

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Income Tax Appellate Tribunal - Mumbai

Indian Petrochemicals Corporation ... vs Assessee on 26 November, 2007

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                               "I" BENCH, MUMBAI

            BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER, AND

                SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER



                      ITA no. 664 and 665/Ahd./2008
                 (Assessment Year : 2003-04 and 2004-05)


Indian Petrochemicals Corp. Ltd.
P.O. Petrochemicals
Dist. Vadodara 391346
PAN - AAACI4415Q                                       ....................... Appellant

                                      v/s

Asstt. Commissioner of Income Tax
Circle-1(2), Vadodara                                  ................... Respondent



                      ITA no. 744 and 745/Ahd./2008
                 (Assessment Year : 2003-04 and 2004-05)


Asstt. Commissioner of Income Tax
Circle-1(2), Vadodara                                  ....................... Appellant

                                      v/s

Indian Petrochemicals Corp. Ltd.
P.O. Petrochemicals
Dist. Vadodara 391346
PAN - AAACI4415Q                                       ................... Respondent


                        Revenue by : Mrs. Sasmita Misra
                        Assessee by : Mr. Arvind Sonde


Date of Hearing - 06.06.2012                       Date of Order - 29.06.2012
                                                    Indian Petrochemicals Corp. Ltd.


                                                                               2
                                  ORDER

PER BENCH These cross appeals are directed against the impugned separate orders dated 26th November 2007, passed by the Commissioner (Appeals)-I, Vadodara, for assessment years 2003-04 and 2004-05 respectively. Since most of the grounds and facts in all these appeals are common, these appeals were heard together and are being disposed off by this consolidated order for the sake of convenience and brevity.

2. We first take assessee's appeal being ITA no.664/Ahd./2008, for assessment year 2003-04.

3. The issue involved in ground no.1, is whether the sales tax incentive of ` 38,62,33,200, is capital receipt or revenue receipt to the assessee.

4. The Assessing Officer has stated that as per computation of income, the assessee has treated ` 38,62,33,200, as capital receipt on account of sales tax exemption granted by the Government of Gujarat for establishing industries in the backward area of Gandhar. In reply to a query raised by the Assessing Officer as to why the said amount should not be treated as revenue receipt, the assessee filed its reply stating that the exemption is granted by the State Government of Gujarat because the industry is situated in the backward area as notified in the notification passed by the Government. The total quantum of exemption available is based on the investment made in the fixed assets of the undertaking / industrial plant. That the mode of granting such incentive is by way of sales tax exemption in respect of sale of products generated by such undertaking but the total quantum of incentive available is based on the capital invested in the aforesaid project/ plants / undertaking. Hence, the sales tax exemption is a capital receipt not chargeable to income tax. The Assessing Officer did not accept the contention of the assessee and considering the judgment of Hon'ble Supreme Court in Sahney Steel and Press Works Ltd. v/s CIT, [1997] Indian Petrochemicals Corp. Ltd.

228 ITR 253 (SC), and also following the order of the Commissioner (Appeals) for assessment year 2000-01, in the assessee's own case considered the said amount of ` 38,62,33,200, as revenue receipt. Being aggrieved, the assessee filed appeal before the Commissioner (Appeals).

5. On behalf of the assessee, it was contended that the said issue, though was decided against the assessee by the Commissioner (Appeals) in assessment years 2001-02 and 2002-03, but the legal position in the assessment year under consideration i.e., assessment year 2003-04, has changed in view of subsequent two decisions of the Tribunal and the decision of ITAT Mumbai Special Bench in DCIT v/s Reliance Industries Ltd., [2004] 88 ITD 0273 (SB). It was contended that, subsequently, Ahmedabad Bench of the Tribunal in Nirma Ltd., ITA no.301/Ahd./1996, vide order dated 13th March 2005, after considering the judgment of Hon'ble Supreme Court in Sahney Steel and Press Works Ltd. (supra), held that sales tax incentive to be constituted capital receipt. The Commissioner (Appeals) did not agree with the contentions of the assessee and also by distinguishing decision of ITAT Mumbai Special Bench in Reliance Industries Ltd. (supra) and also the decision of the Ahmedabad Bench of the Tribunal in Nirma Ltd. (supra), held that no benefit could be given to the assessee in this behalf at this stage and confirmed the action of the Assessing Officer. Hence, the assessee is in further appeal before the Tribunal.

6. At the time of hearing, before us, the learned Counsel for the assessee submitted that the same very issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for assessment year 2000-01, in ITA no.3896/Ahd./2003, assessment year 2001-02, in ITA no. 437/Ahd./2007 and assessment year 2002-03, in ITA no.3054/Ahd./2007, the appeals filed by the assessee and the Tribunal relying on the decision of ITAT Mumbai Special Bench in Reliance Industries Ltd. (supra) and the decision of Ahmedabad Bench of the Tribunal in Nirma Ltd. (supra) for assessment year 1992-93, in ITA no.175/Ahd./2003, vide common order dated 30th April 2008, decided the issue in favour of the assessee i.e., the Indian Petrochemicals Corp. Ltd.

sales tax incentive receipt is capital receipt. To substantiate his submissions, the learned Counsel for the assessee filed a copy of the said order of the Tribunal and submitted that the facts in the assessment year under consideration are identical and, therefore, the issue is covered in favour of the assessee.

7. Learned Departmental Representative, on the other hand, has not disputed the above submissions of the learned Counsel for the assessee, save and except, relying on the order of the authorities below.

8. On considering the above submissions of the learned Representatives of the parties and earlier orders of the Tribunal in assessee's own case for assessment years 2000-01, 2001-02 and 2002-03, copy placed at Pages-1 to 53 of the paper book (relevant Pages-14 to 18) and respectfully following the said order, we decide the issue in favour of the assessee by allowing assessee's ground of appeal and set aside the orders of the authorities below. Hence, ground no.1, taken by the assessee is allowed.

9. In ground no.2, the assessee has disputed the order of the Commissioner (Appeals) in confirming the disallowance of expenditure by way of contribution of ` 70.20 lakhs, made by the assessee to various organisations.

10. The Assessing Officer has stated that the assessee has claimed ` 11,50,000, under the head "Donation / Contribution" and ` 58,70,190, under the head "Community Welfare Expenses". The Assessing Officer has stated that the assessee was asked to furnish the details along with the justification for its claim on this account. The assessee stated that as part of social responsibility and good corporate neighbour, the assessee company always strives to demonstrate its concern for society by taking up projects in the vicinity of its project to improve the quality of the life of the people through direct expenditure / welfare bodies. The assessee stated that it made donation / contribution towards community development work which includes supply of portability of water, contribution towards construction of Indian Petrochemicals Corp. Ltd.

school building, construction of road, health services, development of village, etc. It was stated that the assessee company is entitled to get deduction in respect of the aforesaid expenditure under section 37(1) of the Income Tax Act, 1961 (for short "the Act") as a business expenditure. However, the Assessing Officer was not satisfied and stated that the said expenditures are not incurred for business purposes and are not covered by the provisions of section 37(1) of the Act. He has stated that there is no commercial expediency as far as the business of the assessee is concerned. He has further stated that in regard to claim for donation, it is not entertainable because the assessee has negative income as per the provisions of the Income Tax Act, 1961.

11. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) has also confirmed the action of the Assessing Officer by following his earlier orders for assessment years 2001-02 and 2002-03. Hence, the assessee is in further appeal before the Tribunal.

12. Before us, at the time of hearing, the learned Counsel for the assessee filed a chart giving details of the donation / contribution made to various industries and submitted that similar contributions were also made by the assessee in assessment year 2000-01. The learned Counsel further submitted that similar issue was considered by the Tribunal in assessee's own case, not only in the assessment year 2000-01, but also in the assessment years 2001-02 and 2002-03, and the Tribunal, by its order dated 30th April 2008, after considering the judgment of the Hon'ble Madras High Court in CIT v/s Madras Refineries Ltd., 138 Taxman 261 (Mad.), the decision of ITAT Mumbai Bench in Hindustan Petroleum Corp. Ltd. v/s DCIT, [2005] 96 ITD 186 (Mum.), and the judgment of Hon'ble Karnataka High Court in Mysore Kirloskar Ltd. v/s CIT, [1987] 166 ITR 836 (Kar.), held that the expenditure incurred by the assessee was of revenue in nature and is allowable as deduction under section 37(1) of the Act. To substantiate his submissions, the learned Counsel referred to Paras-9 to 11 of the said Indian Petrochemicals Corp. Ltd.

judgment (relevant Pages-18 to 23 of the paper book). He submitted that issue is covered in favour of the assessee in assessee's own case by earlier order of the Tribunal.

13. On the other hand, the learned Departmental Representative has not disputed the above submissions of the learned Counsel for the assessee, save and except, relying on the orders of the authorities below.

14. We have heard the submissions of the learned Representatives and perused the earlier orders of the Tribunal. We observe that the Tribunal, vide Para-11, in assessee's own case for assessment year 2000-01, observed as under:-

"11. We have considered the rival submissions, facts and circumstances of the case and decisions relied upon by the assessee.

(i) So far as decision in the case of Madras Refineries Ltd (supra) is concerned, the Hon'ble High Court has held that expenditure incurred by the company for establishing the drinking water facilities to the resident in vicinity of its business and also for providing aid to school run for benefit of children of those local residents as business expenditure because, according to the Honble High Court, winning of the good-will of people of the locality, helps in boosting business in many ways.

(ii) So far as decision in the case of HPCL vs. Dy.CIT (supra) is concerned, the Hontle Bench has held the expenditure incurred by the Assessee towards implementation of 20-Point programme of the Government as Revenue Expenditure nd the relevant observations contained at page No. 193 are in the following terms:

"it will, therefore., be clear that even if an expense is incurred voluntarily. it may still be construed as 'wholly and exclusively'. Just because the expenses are voluntary in nature and are not forced in the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these factors in mind, as also entirety of the case, we are not inclined to sustain the disallowance of ` .1055648 as expenditure, incurred on implementation 20-Point Programmes. We are, therefore, of the considered view that the authorities below indeed erred in law in declining-deduction of expenses incurred on 20-Point Programmes which 'was, beyond dispute or controversy, at the instance of the Government, and to discharge the assessee's obligations towards society and as a responsible corporate citizen, Indian Petrochemicals Corp. Ltd.

(iii) So far as decision in the case of Mysore Kirloskar Ltd. vs. CIT (Kar.) is concerned, the Honble Karnataka High Court has held the expenditure incurred on account of donations to certain funds, charitable institutions, etc. is allowable even if the donation has no nexus with the business of the assessee and regardless of any business activity or any commercial expediency in the light of principles laid down by the Hon'ble supreme Court in the case of Indian Molasses Co. Pvt. Ltd. vs. CIT [1959] 37 ITR 66(SC), at page no.75 & 76 which is in the following terms:

"The income-tax law does not allow as expenses all the deductions a prudent trader would make in computing his profits. The money may be expended on grounds of commercial expediency but not of necessity. The test of necessity is whether the intention was to earn trading receipts or to avoid future recurring payments of a revenue character. Expenditure in this sense is equal to disbursement which to use a homely phrase, means something which comes out of the trader's pocket. Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income tax law does not take every such allowance as legitimate for purpose of tax. A distinction is made between an actual liability in presenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter."

11.2 After considering the nature of expenditure and the proposition of law held the Hon'ble Supreme Court as well as High Courts and the Tribunal (supra), we are of the opinion that the expenditure incurred by the assessee was definitely of Revenue nature and the assessee was entitled to the deduction under section 37(1) of the Act subject, however, to the verification of payment and since the assessee had not furnished the receipts before the Assessing Officer, we direct the Assessing Officer to allow the assessee's claim after verifying the factum of payment from the assessee after allowing the assessee an opportunity of being heard. The assessee's ground is allowed subject to verification of factum of payment by the Assessing Officer.

11.3 Even otherwise, we are of the opinion that the assessee is entitled to deduction of this expenditure because the nature of expenditure as found cannot but be a "concrete expression of care and concern" for the society to discharge the responsibility of a "Good Corporate Citizen". Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it does not cease to be business expenditure. In a democratic set up the Government collect taxes only to carry on the governance activities which are in the larger interest of the subject i.e., the society by executing project for the well-being of the subjects, i.e., the society, Indian Petrochemicals Corp. Ltd.

by executing project for the well being of the subjects and if a tax paper helps the Government by carrying on such activities or by contributing to carrying on such activities by the various arms of the Government, the tax payer should be encouraged and not be penalised. If such activities are seen is a source of penalizing the tax payers by imposing additional burden of tax, then no tax payer will ever come forward to extend a helping hand.

In view of this discussion, we are of the opinion that the expenditure incurred by the assessee was of revenue nature and is allowed, subject to observation in Para-11.2 above."

15. Considering the earlier order of the Tribunal in assessee's own case and the fact that the Commissioner (Appeals) made the disallowance by following his earlier order for assessment years 2001-02 and 2002-03 and made the aforesaid disallowance which has been reversed by the Tribunal, we allow ground no.2, raised by the assessee by reversing the orders of the lower authorities.

16. Ground no.3, relates to payment made to Dodsal Ltd. considering the same as capital expenditure as against revenue expenditure claimed by the assessee of ` 102,03,43,311.

17. The relevant facts giving rise to this ground of appeal are that the assessee entered into a Build, Own, Operate, Transfer (for short "BOOT") contract with Dodsal Ltd. (for short "Dodsal") on 8th December 1995, for its Dahej, Vadodara pipeline project between Gandhar Complex and Vadodara for a distance of 107 kms. As per the said agreement, the assessee company was to pay a minimum guaranteed amount of ` 2.47 crores per month to Dodsal which would increase depending upon the actual quantity handled. Dodsal for its own financial purposes involved ICICI Ltd. who became the lessor. The assessee company was not involved in this financial arrangement between ICICI Ltd. and Dodsal. The assessee company claimed the payment of ` 2.47 crores per month as revenue expenditure. The assessee stated before the Assessing Officer that in the initial stages of Gandhar Complex, the focus of the assessee was to put up the main plant and run successfully rather than to concentrate the activities related to infrastructure facilities for Indian Petrochemicals Corp. Ltd.

the raw materials. At that time, focus was to leave it to external agency in areas like Port infrastructure and pipelines both on the economics of cost constraint on initial investment as well as the limited expertise on these areas. Since the assessee company was not having expertise in the working and managing of pipeline project and also handling movements of materials through it, the assessee company identified Dodsal who had rich experience in this area and entered into the contract of BOOT arrangement. The said pipeline was commissioned in May 1997. The agreement in the ordinary course was to terminate after 15 years from the date of commissioning. However, the agreement could be terminated otherwise than by breach of contract by the assessee / taking over the assets after five years of commissioning based on a mutual understanding and in line with BOOT agreement. It was stated that the assessee company continued to pay as per agreement since 23rd May 1997 and the said amount was increasing beyond ` 2.47 crores per month depending upon actual quantity handled. It was stated before the Assessing Officer that the assessee company, over a period of time, got the relevant experience in handling and monitoring movement of material through pipeline and other related matters. Besides the new management taking over the control over the assessee company after its disinvestments by the Government of India, also had relevant knowledge and rich experience in this area. Since the pipeline was vital from operation view point as well as considering the fact that the assessee company had gained specific technical knowledge for operating such pipeline on its own, it had thought prudent to terminate BOOT agreement with Dodsal by making one time payment of ` 102,03,43,311, as per the terms of BOOT agreement

18. In view of above facts, the Assessing Officer has stated that the assessee was asked to show cause as to why ` 102,03,43,311, paid to Dodsal should not be treated as capital expenditure. In response thereto, the assessee replied that the expenditure of ` 102,03,43,311, had been incurred to re-structure BOOT agreement entered into and it has not brought into existence any fixed assets. The said payment has been made to improve the operation efficiency of the assessee company in the current year and for the Indian Petrochemicals Corp. Ltd.

years to come. Therefore, such expenditure is allowable as revenue expenditure under section 37(1) of the Act. The assessee further submitted before the Assessing Officer (Page-8 of assessment order) as under:-

"We also wish to state that the aforesaid expenditure has been incurred only to restructure the existing agreement and has not brought into existence any fixed assets. Even when the BOOT agreement was in operation Dodsal Ltd. continued to be the owner of the pipeline and after restructuring of the BOOT agreement, ICICI Ltd. became the owner of the pipeline. The assessee was not the owner of the pipeline earlier and by restructuring such agreement, the assessee has not become the owner of the pipeline. What the assessee was able to achieve by such restructuring is:

1. Taking control of the operations and maintenance of the pipeline which was very vital for its operation and functioning from Dodsal Ltd.

to itself thereby reducing any security hazard or any other operational problems which might crop up in future.

2. Utilising the experience gained during the operation of the pipeline from 1997 to 2003 to its advantage thereby reducing the need of a middle person in between.

3. Making substantial saving in the operational cost of the pipeline viz. for the previous 3 years like 31.3.2001, 31.3.2002 and 31.3.2003, annual aggregate payment made to Dodsal Ltd. for operation of this particular pipeline was as follows:-

31.3.2001 ` 30.92 crores 31.3.2002 ` 31.35 crores 31.3.2003 ` 32.64 crores

4. The expenditure on payment of lease rent and maintenance of the pipeline as per the original BOOT agreement with Dodsal and as per restructuring agreement is as follows:-

             Financial Year    As per earlier     Amount payable
                              agreement with         as per re-
                                Dodsal (` in        structuring
                                  crores)         agreement (` in
                                                      crores)
             2003-04                29.64               23.67
             2004-05                29.64               23.88
             2005-06                29.64               21.17
             2006-07                29.64               15.13
             2007-08                29.64               9.09
                                                     Indian Petrochemicals Corp. Ltd.


                                                                                11

              2008-09               29.64                6.67
              2009-10               29.64                4.03
              2010-11               29.64                0.81
              2011-12               29.64                 0
              Total                266.76               104.45

19. The Assessing Officer, after considering the above submissions of the assessee, has stated that after termination of the agreement with Dodsal, which has translated into re-structuring of BOOT agreement has resulted into commercial advantage / benefit of enduring nature to the assessee in the form of taking control of operation and maintenance of the pipeline. He has stated that after termination of the agreement with Dodsal and making one time payment of ` 102,03,43,311, the assessee has acquired commercial advantage or benefit of other advantages / benefits in the form of taking control of operation and maintenance of the pipeline which was very vital for its operation and functioning from Dodsal reducing security hazard and operational problems eliminating the need of a middleman substantial saving in the operational cost of the pipeline i.e., maintenance and operational cost of the pipeline during the current year and in the years to come. Therefore, it is crystal clear that these are the advantages / benefits of enduring nature. He has further stated that the assessee has also crystallised this aspect as per the accounting standards in its books after termination of the agreement with Dodsal and signing of new agreement between the assessee and ICICI Ltd. in this regard. The Assessing Officer has stated that by making a payment of ` 102,03,43,311 the fact that the ownership has not been transferred to the assessee is not of any significance. He has stated that the assessee achieved by making this payment the right to operate and maintain which is very important commercial right which has been taken over by the assessee from Dodsal. This has also resulted into extinguishment of all the obligations of the assessee towards Dodsal. In view of above, the Assessing Officer has held that the payment of ` 102,03,43,311, but Dodsal is of capital nature. He has Indian Petrochemicals Corp. Ltd.

further stated that the assessee has acquired intangible assets and since it was put to use for less than 180 days during the financial year under consideration, the assessee is entitled for the depreciation at half of the eligible rate which comes to ` 12,75,42,913. Hence, the Assessing Officer disallowed ` 89,28,00,398 [` 102,03,43,311 (-) ` 12,75,42,913] and added back to the total income of the assessee.

20. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein it was contended on behalf of the assessee that one time payment to Dodsal has not given right to any intangible asset or any fixed assets in the hands of the assessee. Before the termination of BOOT agreement, the pipeline was owned by the ICICI Ltd. and after re- structuring of said agreement also, ICICI Ltd. continued to remain the owner and lessor of the pipeline. The assessee was not the owner of the pipeline earlier and by re-structuring such agreement, the assessee has not become the owner of the pipeline. In both the situation, the assessee was only paying for the user of the pipeline and for the flow of raw materials and the payment for such user was always regarded as revenue expenditure and claimed accordingly. It was further submitted before the Commissioner (Appeals) that the BOOT agreement was entered with Dodsal for the purpose of business and all through out the continuance of BOOT contract, these facilities were being utilised for the flow of raw materials for the purpose of business. The maintenance charges paid for flow of raw material from the pipeline were also incurred for the purpose of business and it is only to carry on the business more efficiently and economically with the BOOT agreement being terminated. Hence, the contractual payment made for termination of BOOT agreement is an expenditure incurred wholly and exclusively for the purpose of business and is allowable as revenue expenditure. The Commissioner (Appeals), after considering the above submissions of the assessee and the observations of the Assessing Officer, has held that the assessee has acquired intangible assets in the form of commercial right to operate and maintain the pipeline with reduced security hazard. This right so acquired is for the life time of the assessee's business. The acquisition of this Indian Petrochemicals Corp. Ltd.

right is also in relation of a capital asset. The assessee has crystallised this expenditure as per accounting standard in its books of account after termination of the agreement, therefore, the termination of BOOT agreement has resulted in the acquisition of the right which is a capital assets being an intangible asset. Accordingly, the Commissioner (Appeals) has confirmed the action of the Assessing Officer that the expenditure of ` 102,03,43,311, incurred is a capital expenditure. Hence, assessee is in further appeal before the Tribunal.

21. Before us, on behalf of the assessee, it was contended that the BOOT agreement was terminated to avoid recurring payment being made by the assessee and only one time lump sum payment has been made. He submitted that this lump sum payment is made to free from all obligations as per the contract. The learned Counsel for the assessee submitted that replacing recurring expenditure by making lump sum payment is revenue expenditure and to substantiate his submissions, he referred to the judgment of Hon'ble Supreme Court in Assam Bangal Cement Co. Ltd. v/s CIT, [1955] 027 ITR 034 (SC). The learned Counsel, by referring to Pages- 43 and 44 of the said judgment, submitted that Their Lordships considered the judgment of the Full Bench of the Lahore High Court in the case of Banarasidas Jagannath In re (Lah.), [1947] 015 ITR 185, wherein broad test was deduced for distinguishing capital expenditure from revenue expenditure. It was held that if what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as business expense but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. He submitted that the assessee has made a lump sum payment, to get rid of making annual payment in the form of monthly payment to Dodsal which was allowable as business expenditure to the assessee, is also to be considered as business expenditure under section 37(1) of the Act, That no asset has come into existence to the assessee by making said payment. He further relied on the judgment of Hon'ble Supreme Court in CIT v/s Madras Auto Service (P.) Ltd., [1998] 233 ITR 468 (SC). He Indian Petrochemicals Corp. Ltd.

submitted that in the above case, the assessee company entered into a lease agreement and as per conditions of lease agreement, the lessee i.e., the assessee had a right to demolish at this own expenditure the existing premises and appropriate to itself all the materials thereof without payment to the lessor any compensation and construct a new building thereon to suit the purpose of their business. He submitted that as per clause (2) of the lease deed, the lessee was required to pay a rent of ` 1,000 per month for first 15 years, ` 1,500 per month for the next ten years, ` 1,650 per month for the next ten years and ` 2,000 per month for the remaining years. The lease deed further provided that the new construction, right from the commencement of the work will be property of the lessor and upon completion of the work of construction, the lessee will have only the right to be a tenant for a period of 39 years under existing lease subject to the payment of rent and observe all other terms and conditions of the lease. The lessee was not entitled under any circumstances for any compensation whatsoever on account of its putting up the new construction in place of the old construction. Thus, the assessee invested a sum of ` 1,62,833, in previous year relevant to assessment year 1968-69 and ` 50,937, during the succeeding year in construction of new building. The assessee claimed as capital loss. In the alternative, the assessee also claimed deduction of the payment as business expenditure or as extra rent for the lease. The Tribunal held that the expenditure of the said amount for the construction of a new building is in the nature of business expenditure for the proper carrying on the business of the assessee and treated this amount as revenue expenditure and allowed deduction in that regard to the assessee. The Hon'ble High Court upheld the view of the Tribunal. The Department filed appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court stated that in order to decide as to whether the expenditure is revenue or capital, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got long lease of a newly constructed building suitably to its own business at a Indian Petrochemicals Corp. Ltd.

very concessional rate, the expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at lower rent. The saving in expenditure was saving in revenue expenditure in the form of rent. The learned Counsel submitted that the above expenditure incurred by the assessee by terminating BOOT agreement with Dodsal is a saving in annual expenditure in the form of lump sum payment and, therefore, the same be equally regarded as business expenditure as the monthly payment made by the assessee was also considered as revenue expenditure. The learned Counsel also placed reliance on the judgment of Hon'ble Jurisdictional High Court in CIT v/s HEDE Consultancy Pvt. Ltd., [2002] 258 ITR 380 (Bom.) and the judgment of Hon'ble Jurisdictional High Court in Talathi And Panthaky Associates Pvt. Ltd., [2012] 343 ITR 309 (Bom.) and submitted that the Hon'ble Jurisdictional High Court also followed the same principle and held that when a lump sum payment is made to get rid of annual payment by which the assessee gets commercial advantage in the form of securing tenancy of an equivalent area of premises on the same rent as before, the expenditure could not be regarded as being of a capital nature, the said expenditure incurred by the assessee is revenue expenditure.

22. The learned Counsel further submitted that the Assessing Officer has also stated it as capital expenditure because the assessee had capitalized it in its book after termination of agreement with Dodsal. The learned Counsel, by relying on the judgments of Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v/s CIT, [1971] 082 ITR 363 (SC) and Tamil Nadu Industrial Investment Corporation Ltd. v/s CIT, [1999] 237 ITR 889 (SC), submitted that the treatment given by the assessee in its books of account cannot change the nature of the receipt or payments from revenue to capital. The learned Counsel submitted that the said payment of ` 102,03,43,311, is to be allowed as revenue expenditure.

23. On the other hand, the learned Departmental Representative justified the orders of the authorities below and submitted that the assessee has Indian Petrochemicals Corp. Ltd.

acquired an intangible right by making down payment after terminating the BOOT contract with Dodsal. He submitted that the Commissioner (Appeals) has rightly confirmed the action of the Assessing Officer to treat it as a capital expenditure.

24. We have carefully considered the orders of the authorities below and submissions of the learned Representatives of the parties. We have also considered the case laws cited before us. We observe that the assessee entered into BOOT agreement / contract with Dodsal in December 1995. Pursuant thereto, Dodsal built, maintained and operated the Dahej Gandhar Vadodara pipeline for an approximate distance of 107 kms. The said pipeline was commissioned in May 1997. The assessee company, as per agreement, was obliged to pay ` 2.47 crores per month minimum guaranteed amount to Dodsal as BOOT charges. The said agreement, in the ordinary course, was to terminate after 15 years from the date of commissioning. However, the agreement could be terminated otherwise then by breach of contract by the assessee / taking over the assets after five years of commissioning based on a mutual understanding. It is stated that over a period of time the assessee got relevant experience of handling and monitoring movement of material through pipeline and other related matters. Since the said pipe line was vital from operation view point and also considering the fact that it required specific technical knowledge for operating such pipeline on its own, it was thought prudent to terminate the BOOT agreement with Dodsal by making one time lump sum payment of ` 102,03,43,311, as compensation on account of premature termination of BOOT agreement. In order to justify that the said down payment of ` 102,03,43,311, is economical to the assessee company, we observe that the assessee stated before the Assessing Officer that in the last three years i.e., F.Y. ending 31st March 2001, it paid ` 30.92 crores, in the F.Y. ending 31st March 2002, it paid ` 31.35 crores and in the F.Y. ending 31st March 2003, it paid ` 32.64 crores to Dodsal for operation of said pipeline. Undisputedly, the said payments were allowed as revenue expenditure in respective assessment years. Further, the assessee, in its reply to the Assessing Officer, also stated that Indian Petrochemicals Corp. Ltd.

over a period of nine F.Ys from 2003-04 to 2011-12, it was to pay, as per earlier agreement, minimum ` 266.76 crores to Dodsal. However, the amount payable as per re-constructing agreement comes to ` 104.45 crores. We further observe that the assessee has stated that even when BOOT agreement was in operation, the assessee was not the owner of the pipeline and also after re-constructing of the BOOT agreement, the assessee has not become the owner of the pipeline. We observe that after re-structuring of the BOOT agreement, i.e., when the assessee made the lump sum payment of ` 102,03,43,311, ICICI Ltd. became the owner of the pipeline and the assessee only got control of the operation and maintenance of the pipeline which is stated to be very vital for its operation and functioning of assessee's projects. Now, the question arises as to whether this lump sum payment made by the assessee to Dodsal is a capital expenditure or is a revenue expenditure. We observe that the Hon'ble Supreme Court in Madras Auto Service Pvt. Ltd. (supra) has stated that in order to decide whether the expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. In the said case, the assessee, a lessee of a building obtained lease for a period of 39 years. One of the condition of the lease was that the lessee had the right to demolish at its own expenses the existing premises and appropriate to itself all the material thereof without paying to the lessors any compensation and to construct a new building thereon to suit the purpose of their business as per plan approved by the lessor. The assessee spent / invested a sum of ` 1,62,835, in the previous year relevant to the assessment year 1968-69 and ` 50,937, during the succeeding year in constructing a new building on the said land. The assessee claimed before the ITO the expenditure of the said sums of ` 1,62,835 and ` 50,937, in the relevant assessment years as capital loss. In the alternative, the assessee claimed deduction of the payments as business or extra rent for the lease. The Tribunal held that the expenditure of the said two amounts for the construction of a new building is in the nature of business expenditure for proper carrying on of the business of the assessee and, therefore, the said two amounts were treated as Indian Petrochemicals Corp. Ltd.

revenue expenditure and deduction was allowed in regard thereto to the assessee. In appeal by the Department, the Hon'ble High Court upheld the order of the Tribunal. The Department went in further appeal before the Hon'ble Supreme Court wherein Their Lordships at Page-472, have stated that:-

"In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a new constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, the assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure."

For distinguishing between the capital expenditure and revenue expenditure Their Lordships of the Apex Court considered the case of Assam Bangal Cement Co. Ltd. (supra) and at Page-473, stated as follows:-

1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment.

2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade....... If what is got rid of by a lump sum payment is an annual business expenses chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether.

3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was Indian Petrochemicals Corp. Ltd.

part of the fixed capital of the business or part of its circulating capital."

25. Thus, the Hon'ble Supreme Court in the above case i.e., Madras Auto Service (P.) Ltd. (supra), while confirming the orders of the Tribunal as well as of the High Court held that the said expenditure incurred by the assessee company for the construction of a new building which did bring about some kind of an enduring benefit to the assessee company is revenue expenditure as it did not bring into existence any capital assets for the assessee company. The asset which was created belonged to somebody else and the assessee company derived an enduring business advantage by spending the said amount. The expenditure have been looked upon as having been made for the purpose of conducting business of the assessee for more profitability or more successfully. The asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premise at a low rent thus saving considerable revenue expenditure for the next 39 years i.e., the term of lease period and concluded that the expenditure should be looked upon as revenue expenditure.

26. We are of the considered view that the above judgments of the Hon'ble Supreme Court squarely applies to the facts of the case before us. In the present case also, the assessee company, by making lump sum payment of ` 102,03,43,311, to Dodsal has not acquired any capital asset but has acquired only the right to operate and maintain the said pipeline for its business purpose. Further, by making this lump sum payment to Dodsal, the assessee company has got rid of making monthly payment. We are of the considered view that the assessee company has not acquired any capital asset by making lump sum payment. It has only derived an enduring advantage as in the case of Madras Auto Service (P.) Ltd. (supra). Therefore, the said expenditure of making lump sum payment by terminating BOOT agreement entered into by the assessee company and Dodsal, it has only got the business advantage of maintaining and operating the pipeline. The assessee company has stated that even when the BOOT agreement was in Indian Petrochemicals Corp. Ltd.

operation, the assessee was neither the owner of the pipeline nor after making the lump sum payment to Dodsal on terminating the BOOT agreement the assessee became the owner of the pipeline. The owner of the pipeline is ICICI Ltd. The said facts have not been disputed by the Department, even when assessee filed its reply before the authorities below as well as at the time of hearing of this appeal before us.

27. The Hon'ble Jurisdictional High Court in HEDE Consultancy Pvt. Ltd. (supra) also held that if the assessee company by spending amount by renovating the godown, taken on lease did not get the assets created belonging to it but if the assessee got business advantage of using modern business premises at a low rent thus saving considerable revenue expenditure for a considerable long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. It was stated that if what is got rid of by making a lump sum payment is an annual business expenditure chargeable against revenue, the lump sum payment should equally be regarded as business expenditure, but if the lump sum payment brings in a capital assets, then that puts the business on another footing altogether.

28. The Hon'ble Jurisdictional High Court in CIT v/s Talathi And Panthaky Associates Pvt. Ltd. (supra), also considered the similar issue and held that if the assessee obtained a commercial advantage of securing tenancy of an equivalent area of premises on the same rent as before by contributing an amount of ` 1.50 crores towards re-construction, the said expenditure is revenue in nature and could not be regarded being capital in nature, as there was no acquisition of a capital assets and the occupation of the assessee continued in the character of the tenancy.

29. In the case before us also, the assessee has only got the right to use the said pipeline for its business purposeS and has not acquired any capital right in the said pipeline, save and except, to operate and maintain it by making a lump sum payment of ` 102,03,43,311, to Dodsal on termination of BOOT agreement. Therefore, we agree with the learned Counsel for the Indian Petrochemicals Corp. Ltd.

assessee that the said payment is to be considered as revenue in nature and not as capital in nature.

30. We also observe that the Assessing Officer as well as the Commissioner (Appeals), while considering the said expenditure of ` 102,03,43,311, as capital expenditure also stated that the assessee itself has capitalized the said amount in its books of account. In this regard, it is relevant to state that even if the amount which is otherwise allowable as revenue expenditure but capitalized by the assessee in the books of account, the expenditure cannot be disallowed. The Hon'ble Madras High Court in CIT v/s Kasthuri and Sons, [2000] 241 ITR 412 (Mad.) and the Hon'ble Delhi High Court in CIT v/s Dalmia Cement (Bharat) Ltd., [2000] 242 ITR 129 (Del.) have held that even if an assessee capitalized in the books of account, the interest paid on borrowings taken to acquire fixed assets for its existing business, the said interest would nonetheless be allowed as deduction under section 36(1)(iii) of the Act while computing business profits of the relevant assessment year as the entries in the books of account are not relevant for rejecting the claim of the assessee, if it is otherwise allowable. The Hon'ble Calcutta High Court in CIT v/s Berger Paints (India) Ltd. (No.2), [2002] 254 ITR 503 (Cal.) held that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not estopped by the treatment given by the assessee to it in its own books of account. The Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. (supra) held that whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of his rights, nor can the existence or absence of entries in his books of account be decisive or conclusive on the matter.

31. In view of the above judgments, we hold that the claim of the assessee which is otherwise allowable as revenue expenditure, cannot be denied merely on the ground that the assessee has capitalized the said expenditure by making entries in its books of account.

Indian Petrochemicals Corp. Ltd.

32. Therefore, we hold that the said expenditure of ` 102,03,43,311, is to be allowed as Revenue expenditure and is not capital in nature. However, the Assessing Officer, while giving effect to our order, will disallow the depreciation as allowed by him. Consequently, ground no.3, raised by the assessee is allowed by reversing the orders of the authorities below.

33. In ground no.4, the assessee has disputed the order of the Commissioner (Appeals) in confirming the disallowance of expenditure incurred on account of registration fee and stamp duty amounting to ` 1,07,02,000

34. The Assessing Officer stated that the assessee has claimed expenditure of ` 1,07,02,000, in respect of registration fee and stamp duty of lease transactions entered into with ICICI Ltd., in respect of Dahej, Vadodara, pipeline system. The assessee stated that the said expenditure is one time expenditure incurred for registering the lease documents and does not make value addition to assets under lease. The Assessing Officer has stated that the allowance of entire expenditure in one year might give a very distorted picture of the profits of the financial year under consideration as the lease period is of 25 years. Therefore, the Assessing Officer apportioned the expenditure of ` 1,07,02,000, over the lease period and allowed ` 4,28,080, during the financial year under consideration by relying on the judgment of Hon'ble Supreme Court in Madras Industrial Investment Corpn. Ltd. v/s CIT, [1997] 225 ITR 802 (SC).

35. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) upheld the action of the Assessing Officer. Hence, the assessee is in further appeal before the Tribunal.

36. Before us, during the course of hearing, the learned Counsel for the assessee submitted that the said expenditure of ` 1,07,02,000, comprises of ` 93,92,000, towards stamp duty paid to the Government of Gujarat, Indian Petrochemicals Corp. Ltd.

registration charges of ` 13,04,900, incurred for registering the lease documents and bank charges of ` 5,100. He submitted that the said expenditure is incidental expenditure incurred on lease transactions for the lease entered into with ICICI Ltd. The learned Counsel referred to Page-87 of the paper book which is the copy of the receipt evidencing incurring of said expenditure of ` 1,07,02,000. Learned Counsel, relying on the judgment of Hon'ble Jurisdictional High Court in CIT v/s Cinceita Pvt. Ltd., [1982] 137 ITR 652 (Bom.) and the judgment of Hon'ble M.P. High Court in CIT v/s Gopal Associates, [2010] 326 ITR 413, (M.P), submitted that the said expenditure is to be allowed as revenue expenditure.

37. On the other hand, the learned Departmental Representative relied on the order of the Commissioner (Appeals).

38. We have heard the learned Representatives of the parties, considered the orders of the authorities below and the case laws cited before us. We observe that the issue is squarely covered in favour of the assessee by the aforesaid judgments. In the case of Cinceita Pvt. Ltd. (supra), the issue was, as to whether the expenditure of ` 10,700, incurred by the assessee for stamp duty, registration of lease deed and payment to Solicitor in connection with the lease deed is capital expenditure or revenue expenditure. The Hon'ble Jurisdictional High Court by following its earlier judgment in CIT v/s Hoechst Pharmaceuticals Ltd., [1978] 113 ITR 877 (Bom.) held that by incurring the said expenditure, the assessee has not acquired any assets of enduring nature and the said expenditure could not be disallowed as of capital nature. It was further held that the period of lease could not be recorded as decisive of the circumstances as to whether the said advantage secured is of enduring nature. Further the Hon'ble Madhya Pradesh High Court also considered the similar issue as to whether the expenditure incurred on stamp duty and registration charges at the time of execution of lease agreement for taking on lease of a plant for seven years is to be allowed as revenue expenditure or not. Their Lordships have held in the above case viz. Gopal Associates (supra) that the amount spent on Indian Petrochemicals Corp. Ltd.

registration charges at the time of execution of lease agreement was revenue expenditure. In this regard, Their Lordships of the Hon'ble M.P. High Court placed reliance on the judgment of the Hon'ble Kerala High Court in Plantation Corporation of Kerala Ltd. v/s Commissioner of Agricultural Income-tax (Ker.), [1994] 205 ITR 364 (Ker.) and the judgment of Hon'ble Gujarat High Court in Gujarat Machinery Mfg. Ltd. v/s CIT, [1995] 211 ITR 1010 (Guj.). In view of the above, we hold that the said expenditure of ` 1,07,02,000, is to be allowed as revenue expenditure in the assessment year under consideration. Consequently, ground no.4, raised by the assessee is allowed by reversing the orders of the authorities below.

39. In ground no.5, the assessee has disputed the order passed by the Commissioner (Appeals) in confirming the disallowance of ` 21,76,125, being expenditure incurred on account of repairs by treating the same as capital expenditure.

40. The relevant facts are that, the assessee made payment of ` 24.87 lakhs to Engineers India Ltd on account of designing work relating to E.O. reactor to replace the existing reactor. During the course of assessment proceedings, the assessee stated before the Assessing Officer that the payment was made only for designing and re-location of the reactor which was already purchased in the year 1999 and which was not functioning at the location at which it was placed. It was stated that the expenditure was incurred only to re-locate the reactor within the factory premises for optimum use and it did not make any value addition to the reactor. Thus, the said expenditure cannot be regarded as capital expenditure. The Assessing Officer did not agree with the contentions of the assessee and stated that the exercise of re-locating the reactor resulted in its optimum use by the assessee and thus, clearly attributed to value addition of the reactor. He has stated that by re-locating the reactor, the assessee has acquired a new or different advantage in the form of optimum use of the reactor and, accordingly, considered the said expenditure of ` 24.87 lacs as capital in nature. However, the Assessing Officer allowed the depreciation of ` Indian Petrochemicals Corp. Ltd.

3,10,875, and added back the balance amount of ` 21,76,125, to the income of the assessee.

41. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) has confirmed the order passed by the Assessing Officer after stating that the said reactor did not function at its original place of installation and the expenditure incurred on designing of its location amounted to being in the peculiar facts and circumstances of the case the expenditure incurred to form part of the capital asset. Hence, the assessee is in further appeal before the Tribunal.

42. Before us, the learned Counsel for the assessee submitted that the assessee has not acquired any new asset by re-locating the reactor from its original place in its existing factory. He submitted that the said expenditure is revenue in nature and placed reliance on the judgment of Hon'ble Jurisdictional High Court in CIT v/s Abbott Laboratories (I) Pvt. Ltd., [1993] 202 ITR 818 (Bom).

43. On the other hand, the learned Departmental Representative relied on the order of the Commissioner (Appeals).

44. We have heard the learned Representatives of the parties, considered the orders of the authorities below and the case laws cited before us by the Assessing Officer as well as the learned Counsel.

45. There is no dispute to the fact that the reactor which was installed at a new place is the existing reactor which was procured by the assessee in the year 1999. The Department has not disputed the fact that the said reactor, at the place where it was originally installed was not functioning and, therefore, the same reactor was re-located within the factory premises for optimum use. We are of the considered view that incurring the said expenditure to relocate the reactor from its existing place to a new place to make use of it does not create any new asset to the assessee. The Hon'ble Jurisdictional High Court in Abbott Laboratories (I) Pvt. Ltd. (supra) has held Indian Petrochemicals Corp. Ltd.

that when the expenditure is incurred by an assessee for rationalising of its administrative and modernisation of its machinery with a view to derive maximum benefit out of the existing resources, it is a case where the expenditure which is allowable as deduction and could be treated that the expenditure has been incurred to improve the production of the existing project with a view to increase its profitability and not an expenditure in connection with a new plant or a new project. Hence, we hold that the said expenditure of ` 24.87 lacs incurred by the assessee has to be allowed as revenue expenditure by reversing the orders of the authorities below. However, the Assessing Officer, while giving effect to this order, will withdraw the depreciation allowed by him. Consequently, ground no.5, raised by the assessee is allowed.

46. In ground no.6, the assessee has disputed the order of the Commissioner (Appeals) in confirming the action of the Assessing Officer in disallowance of ` 22,13,29,394, under section 80HHC of the Act while computing the book profit under section 115JB of the Act.

47. The Assessing Officer has stated that the assessee has claimed ` 22,13,29,394, as deduction under section 80HHC. The Assessing Officer stated that the profit of the business as computed under the head "Profit & Gains of Business or Profession" in the case of assessee is nil. The question of allowance of deduction under section 80HHC does not arise both under the normal provisions as well as section 115JB and, accordingly, disallowed the deduction claimed by the assessee under section 80HHC.

48. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) stated that similar issue came up before him in the case of assessee in assessment year 2001- 02 and he confirmed the action of the Assessing Officer in this regard. Accordingly, the Commissioner (Appeals), by following his earlier order dated 28th November 2006, passed for assessment year 2001-02, confirmed the action of the Assessing Officer in rejecting the claim of deduction under Indian Petrochemicals Corp. Ltd.

section 80HHC of ` 22,13,29,394, for the purpose of computing book profit under section 115JB. Being aggrieved, assessee is in further appeal before the Tribunal.

49. Before us, the learned Counsel for the assessee, at the time of hearing, submitted that the Tribunal in the appeal filed for assessment years 2000-01 and 2001-02, on similar issue, decided the same in favour of the assessee by reversing the orders of the authorities below by following the decision of ITAT Mumbai Special Bench in DCIT v/s Syncom Formulations (I) Ltd. & Ors., 292 (AT) 144 (Mum.), vide Para-65 to 68. He further submitted that the similar issue has also come up before the Hon'ble Supreme Court in CIT v/s Bhari Information Tech. Sys. P. Ltd., [2012] 340 ITR 593 (SC), and the Hon'ble Supreme Court by its judgment dated 20th October 2011, while confirming the order of Mumbai Special Bench of the Tribunal in Syncom Formulations (I) Ltd. (supra), held that the deduction claimed by the assessee under section 80HHC has to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of the profits computed under the regular provisions of law applicable to computation of profits and gains of business. He submitted that the Hon'ble Supreme Court also stated that the decision of Mumbai Special Bench of the Tribunal was with regard to computation of deduction under section 80HHC, but 80HHC / 80HHE falls under Chapter-VI of the Act. The learned Counsel submitted that the issue is now covered in favour of the assessee by the judgment of Hon'ble Supreme Court in Bhari Information Tech. Sys. P. Ltd., (supra).

50. On the other hand, learned Departmental Representative has not disputed the above submissions of the learned Counsel for the assessee and conceded that the issue is squarely covered in favour of the assessee by the decision of ITAT Mumbai Special in Syncom Formulations (I) Ltd. (supra) as well as by the judgment of Hon'ble Supreme Court in Bhari Information Tech. Sys. P. Ltd., (supra).

51. In view of above fact that the issue is now covered in favour of the assessee by the judgment of Hon'ble Supreme Court in Bhari Information Indian Petrochemicals Corp. Ltd.

Tech. Sys. P. Ltd., (supra), wherein it was held that deduction under section 80HHE of the Act in the case of export of computer software is required to be worked out on the basis of adjusted book profits under section 115JA and not on the basis of profit computed under regular provisions of law applicable to the computation of profits and gains of business. Their Lordships of the Hon'ble Supreme Court in the above case approved the decision of ITAT Mumbai Special Bench in Syncom Formulations (I) Ltd. (supra) and stated that section 80HHC as well as section 80HHE falls in the same Chapter i.e., Chapter-VI. The provisions under section 115JA are also in pari material with the provisions of section 115JB of the Act. Consequently, we allow ground no.6, raised by the assessee by reversing the orders of the authorities below.

52. We now take up Revenue's appeal being ITA no.744/Ahd./2008, for assessment year 2003-04.

53. In ground no.1, the department has disputed the order of the Commissioner (Appeals) in allowing deduction of ` 15,59,750, claimed as lease rental.

54. The Assessing Officer has stated that the assessee claimed deduction for lease rent of ` 22,43,936, in respect of boilers taken on lease from ICICI Ltd. / ICICI Securities and Finance Ltd. (I-SEC) during the financial years 1993-94 and 1994-95. The Assessing Officer disallowed the claim of the assessee by following his order for assessment year 1994-95 and 1998-99 and considering that the said payment comprising of re-payment of principal amount, interest and sales tax thereon. The Assessing Officer allowed ` 5,94,856, being interest and sales tax of ` 89,330, and disallowed the balance amount of ` 15,59,750, by considering it to be the re-payment of principal amount of the assets.

55. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals), by following the order of the Tribunal in assessee's own case for assessment years 1995-96 and 1996-97 and his own order for subsequent assessment years, decided Indian Petrochemicals Corp. Ltd.

the issue in favour of the assessee by canceling the disallowance of ` 15,59,750. Hence, the Department is in appeal before the Tribunal.

56. Before us, the learned Departmental Representative, at the time of hearing, relied on the order of the Assessing Officer.

57. The learned Counsel for the assessee, on the other hand, submitted that the same very issue was not only decided by the Tribunal in favour of the assessee but the order of the Tribunal was also confirmed by the Hon'ble Gujarat High Court in the appeal filed by the Department against the order of the Tribunal passed for assessment years 1995-96 and 1996-97. The learned Counsel referred to Pages-95 to 100 of the paper book which is a copy of order dated 21st September 2010, passed by the Hon'ble Gujarat High Court confirming the order of the Tribunal to allow lease rent in respect of boiler taken on lease by the assessee for assessment year 1995-96. The learned Counsel further submitted that the same very issue was also considered by the Tribunal in assessee's own case for assessment years 2000-01, 2001-02 and 2002-03, by a common order dated 30th April 2008, to allow the lease rent paid by the assessee to ICICI Ltd. and ICICI Securities and Finance Corporation Ltd., in respect of boiler.

58. We have considered the orders of the authorities below and earlier years order of the Tribunal in assessee's case (cited supra) and also the judgment of Hon'ble Gujarat High Court in the appeals filed by the Department against the order of the Tribunal for assessment year 1995-96 and 1996-97, copies placed at Pages-95 to 100 and 101 to 105 of the paper book. We observe that the lease rent paid by the assessee on the boiler has been allowed in the preceding assessment years. Respectfully following the earlier orders of the Tribunal and as confirmed by the Hon'ble Gujarat High Court (cited supra), we uphold the order of the Commissioner (Appeals) and dismiss ground no.1, raised by the Revenue.

Indian Petrochemicals Corp. Ltd.

59. In ground no.2, the Department has disputed the order of the Commissioner (Appeals) in deleting the disallowance of ` 40,25,388, made by the Assessing Officer under section 40A(9) of the Act.

60. The Assessing Officer has stated that the assessee made contribution of ` 40,25,388, to various clubs run by and meant for the staff and their families at Vadodara, Naga Channa and other stations. The Assessing Officer stated that this contribution has been categorised under the head sums paid by the assessee as an employer which are not allowable under section 40A(9) of the Act. The Assessing Officer did not accept the contention of the assessee that the said expenditure was incurred to facilitate management of various activities of employees and their family purpose covering population of different types at the plants. The Assessing Officer stated that the provisions of section 40A(9) are very clear that any contribution to employee's any fund, trust, company or society, etc., other than for the purposes as provided under section 36(1) of the Act are not eligible for deduction as business expenditure. Therefore, he disallowed the claim of the assessee.

61. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals), by following his order for assessment year 2002-03, decided the issue in favour of the assessee and allowed the claim. Hence, the Department is in appeal before the Tribunal.

62. Before us, the learned Departmental Representative, at the time of hearing, relied on the order of the Assessing Officer.

63. On the other hand, the learned Counsel for the assessee submitted that the same very issue has been considered by the Tribunal in assessee's own case for assessment years 2000-01, 2001-02 and 2002-03 by its order dated 30th April 2008 (supra), vide Paras-30 to 32 of the said order. He further submitted that the facts in the assessment year under consideration Indian Petrochemicals Corp. Ltd.

are identical to the earlier assessment years which the learned Departmental Representative has not disputed.

64. In view of the above submissions of the learned Representatives of the parties and after considering the earlier order dated 30th April 2008, of the Tribunal, we agree that the issue on identical fact is covered in favour of the assessee by the earlier decision of the Tribunal (cited supra). Respectfully following the same, we uphold the order passed by the Commissioner (Appeals) and dismiss the ground no.2, raised by the Department.

65. In ground no.3, the Department has disputed the order of the Commissioner (Appeals) in deleting the disallowance of ` 2,66,000, on account of prior period expenditure.

66. The Assessing Officer has stated that the assessee claimed payment in respect of two invoices representing storage charges for the period of November / December 2001, for tanks used for storage of imported feed stock at Kandla paid to M/s. Chemicals and Resins Pvt. Ltd. During the course of assessment proceedings, the assessee stated that the details required verification from their site engineer and such verification was completed in the current year and the payment was approved accordingly. It was stated that the liability to make the said payment got crystallised in the current year. Hence, the expenditure is allowable under section 37(1) of the Act as it was incurred in this year. The Assessing Officer did not agree and stated that assessee is following mercantile system of accounting, the expenditure relates to earlier financial year. Hence, he disallowed the prior period expenses of ` 2.66 lacs and added back to the total income of the assessee.

67. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) allowed the claim stating that similar disallowance made in the earlier assessment years 2000- 01 and 2001-02, were allowed. Hence, the Department is in appeal before the Tribunal.

Indian Petrochemicals Corp. Ltd.

68. Before us, the learned Departmental Representative relied on the order of the Assessing Officer and whereas the learned Counsel for the assessee submitted that similar issue on identical facts came before the Tribunal in assessment year 2001-02 and the Tribunal, by its order dated 30th April 2008, allowed the claim of the assessee. The learned Departmental Representative has not disputed this fact.

69. Considering the orders of the authorities below and the submissions of the learned Representatives of the parties, we observe that similar issue on identical facts came before the Tribunal in assessee's own case for assessment year 2001-02 and the Tribunal allowed the claim of the assessee. Respectfully following the same, we hold that there is no reason to interfere with the order of the Commissioner (Appeals). Moreover, the Department has not disputed the fact that the liability to make said payment also crystallised in the assessment year under consideration. Consequently, we uphold the order of the Commissioner (Appeals) by dismissing the ground no.3, raised by the Department.

70. Ground no.4, raised by the Revenue, reads as follows:-

"4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the adjustment for provision of bad and doubtful debts amounting to ` 16,82,43,673 made under clause (c) of the Explanation below section 115JB(2) in computing the book profit under this provision, by ignoring the fact that it was a liability tagged with the assets in the form of debts, and without appreciating that the Supreme Court decision in the case of Apollo Tyres Ltd. v/s CIT, 255 ITR 273 (SC) only ruled that the Assessing Officer had no authority to alter the book profit except as provided in the Explanation.

71. Before us, at time of hearing, the learned Counsel for the assessee conceded that in view of the amendment made by the Finance (no.2) Act, 2009, by inserting clause (i) to Explanation (1) of section 115JB(2) of the Act, with retrospective effect from 1st April 2001, the provisions made for bad and doubtful debt is to be disallowed and, therefore, the order of the Indian Petrochemicals Corp. Ltd.

Assessing Officer is to be confirmed by reversing the order of the Commissioner (Appeals).

72. In view of the above submissions of the learned Counsel for the assessee, we allow ground no.4, raised by the Revenue by confirming the disallowance made by the Assessing Officer. Consequently, the ground no.4, raised by the Revenue is allowed.

73. We now take up assessee's appeal being ITA no.665/Ahd./2008, for assessment year 2004-05.

74. In ground no.1, the assessee has disputed the order of the Commissioner (Appeals) in not treating the sales tax incentive of ` 50,32,63,379, as capital receipt.

75. At the time of hearing, the learned Representatives of the parties submitted that the facts and the issue are identical to assessment year 2003-04 and, whatever decision is taken in respect of that assessment year i.e., 2003-04, the same will be applicable for this assessment year as well.

76. On perusal of the orders of the authorities below, we agree that the facts and issue in this assessment year viz. 2004-05 are identical to assessment year 2003-04. We also observe that the Commissioner (Appeals), while confirming the action of the Assessing Officer, followed orders for assessment years 2001-02 and 2002-03. We have discussed the said issue in Paras-4 to 7, herein above and following our findings given in Para-8, we decide the issue in favour of the assessee by allowing the assessee's ground of appeal. Hence, ground no.1, raised by the assessee is allowed.

77. In ground no.2, the assessee has disputed the order of the Commissioner (Appeals) in confirming the disallowance of expenditure by way of contribution of ` 1,03,20,654, made by the assessee to various organisations.

Indian Petrochemicals Corp. Ltd.

78. At the time of hearing, the learned Representatives of the parties submitted that the facts and issue are identical to assessment year 2003-04 and, therefore, whatever decision is taken in respect of that assessment year i.e., 2003-04, the same will be applicable for this assessment year as well.

79. On perusal of the orders of the authorities below, we agree that the facts and the issue in this assessment year viz. 2004-05 are identical to assessment year 2003-04. We also observe that the Commissioner (Appeals), while confirming the action of the Assessing Officer, followed the orders for assessment year 2001-02 and 2002-03. We have discussed the said issue in Paras-10 to 13, herein above and following our findings given in Paras-14 and 15, we decide the issue in favour of the assessee by allowing the assessee's ground of appeal. Hence, ground no.2, raised by the assessee is allowed.

80. In ground no.3, the assessee has disputed the order of the Commissioner (Appeals) in confirming the disallowance of depreciation of ` 1,92,95,000, in respect of jetties constructed by the assessee and used for the purpose of its business.

81. The relevant facts, giving rise to this ground of appeal, are that the assessee company constructed jetty for and on behalf of Gujarat Maritime Board (for short "GMB"), as per agreement entered into with GMB dated 26th February 1996, delineating the terms of its use at Narmada Estuary at Village Dahej. It is relevant to state that as per the recitals of the said agreement, it was agreed between the parties that the capital cost of construction as audited and certified by a C.A., would be made by the assessee company with exclusive ownership thereof being vested in GMB. In turn, the assessee was afforded the facility for preferential use of jetty over other users. However, this did not exempt the assessee from payment of regular charges as reduced by the rebates as stipulated in the said agreement. As per the said agreement, the assessee was required to pay landing and shipping fees / port charges @ 20% of the actual landing and shipping fee / port charges specified in the schedule of port charges. The Indian Petrochemicals Corp. Ltd.

balance 80% as rebate was required to be set-off against the capital investment i.e., the cost of the construction of the jetty. It is also provided in the agreement that after the capital investment was recovered through such set-off, the assessee was required to pay landing and shipping fees / port charges at normal rate. The Assessing Officer stated that the assessee company was compensated for incurring the capital cost of construction by virtue of regular rebate on charges. The assessee company treated the capital cost of the investment as the value of capital asset and claimed depreciation @ 25% of such capital cost. The total cost of construction was ` 49.56 crores, and the assessee was claiming depreciation @ 25% every year despite the capital cost being liquidated by the rebates received by the assessee from GMB from time to time. The Assessing Officer disallowed the depreciation claimed by the assessee and added to the total income of the assessee. Being aggrieved, the assessee carried the matter before the first appellate authority.

82. On behalf of the assessee, it was argued that as per agreement with GMB, ownership of jetty would always remain with GMB. The benefit to the assessee on account of construction of jetty was the license to use jetty for the purpose of its business and to get concession in the payment of landing and shipping fees / port charges. In such circumstances, actually the assessee would have been entitled to claim the whole of the cost of jetty as a revenue deduction in the year in which such jetty was constructed. Further, it was contended that assessee had been claiming depreciation from assessment year 1997-98 onwards at the rate applicable to plant and machinery, which has been allowed till assessment year 2003-04. It was contended that the rebate available to the assessee as per the agreement on account of having met the cost of construction of the jetty, is only revenue rebate. Such rebate is available on the basis of usage of the port and varies from year to year and it has not, in any way, reduced the actual cost spent by the assessee for the construction of jetty during the year 1996. It was contended that total rebate up to assessment year 2003-04 available has been at ` 1467.21 lakhs, and such rebate has already been offered as Indian Petrochemicals Corp. Ltd.

revenue income due to reduction in revenue expenditure claimed. Therefore, there is no justification for treating such rebate as a cost having been made for the construction of jetty.

83. The Commissioner (Appeals) considered the submissions. He has stated that jetty rebate is made available by GMB not gratis but only because the assessee has met the cost of construction of the jetty. The jetty rebate should go to reduce the cost of the construction of the Jetty on which assessee is claiming depreciation over all these years. He has stated that the fact that the rebate will be available to the assessee only till such time as it aggregates to be equal to the cost of construction of the jetty, strengthened the argument and lends further credence to the Assessing Officer's view. He has stated that the assessee cannot take the argument on one hand that the jetty does not belong to it and belongs to GMB while it capitalized the cost of construction of the jetty in its books of account and continued to claim depreciation on the same from year to year. In view of the above, the Commissioner (Appeals) confirmed the action of the Assessing Officer to disallow depreciation claimed by the assessee. Hence, assessee is in further appeal before the Tribunal.

84. During the course of hearing, the learned Counsel for the assessee submitted before us that when the rebate was allowed to the assessee by GMB, it only enhanced the profit and, accordingly, the assessee has offered more income to tax. He further submitted that the depreciation has been claimed by the assessee since assessment year 1997-98 onwards and the same has been allowed and it is only in the assessment year under consideration i.e., assessment year 2004-05, it is disallowed. The learned Counsel submitted that similar issue has been considered by the ITAT, Mumbai "D" Bench, in the case of sister concern of the assessee being ITA no.1743 to 1745/Mum./2007, for assessment years 2000-01 to 2002-03, in the case of Reliance Ports & Terminals Ltd. v/s DCIT, by order dated 26th November 2007, and the Tribunal allowed the claim for depreciation on the Indian Petrochemicals Corp. Ltd.

cost of construction of jetties by treating the said expenditure as part of the block of intangible asset and filed a copy of said order of the Tribunal.

85. On the other hand, the learned Departmental Representative relied on the orders of the authorities below.

86. We have carefully considered the submissions of the learned Representatives of the parties and the orders of the authorities below. We have also considered the order of the Tribunal dated 26th November 2007 (supra).

87. We observe that on identical facts, the Tribunal considered similar issue in the case of Reliance Ports and Terminals Ltd., and allowed the claim for depreciation on the cost incurred by the assessee on construction of jetties at Sikka Port, Gujarat, for GMB. In the said case, the assessee constructed jetties at Sikka Port, Gujarat of GMB primarily to serve imports of group companies at the port. As per the agreement entered into, the assessee was entitled to concession in wharfage charges i.e., land / shipping fee on use of jetty, which was to be set-off against capital investment made by the assessee. The assessee treated this right to use the jetty as an intangible asset and claimed depreciation on the cost incurred @ 25%. The Assessing Officer stated that the assessee was not entitled to depreciation on the cost of construction of jetty as the entire cost being reimbursed by GMB by way of rebate on the wharfage charges which otherwise the assessee was liable to pay in full. Further, the right to use the jetty was not in the nature of any business or commercial right similar to normally accepted intangible asset such as knowhow, patents, copy rights, trade markes, license, franchises or any other business or commercial rights in similar nature. That entire investment in the jetty was quantifiable and the return from the investment was specified based on which the rebate on wharfage charges was determined. It is relevant to state that in the said case, as per the agreement, the ownership of the jetty was to be with GMB although, the cost of building and jetty was made by the assessee. In the said case also, the assessee was required to pay landing and shipping fees (known as wharfage Indian Petrochemicals Corp. Ltd.

charges) @ 20% of the actual landing and shipping fees specified in the schedule of port charges. The balance 80% was required to be set-off against the capital investment i.e., the cost of the construction of jetties. After the capital investment was recovered through such set-off, the assessee was required to pay landing and shipping fees at normal rate. The agreement was to remain in force for a period of 25 years or till such time such aggregate of the rebate obtained by the assessee in wharfage charges equaled the amount of construction of the jetties, whichever is earlier. The assessee spent ` 14,25,63,02,471, and treated the same as intangible asset under section 32(1) of the Act on the reasoning that it was license and also represent business and commercial right on which the assessee claimed depreciation @ 25%. The Assessing Officer did not agree with the assessee and disallowed the claim. The first appellate authority also confirmed the action of the Assessing Officer. Further, the Commissioner (Appeals) held that the expenditure to be allowed proportionately over a period of 25 years. Being aggrieved, the assessee filed appeal before the Tribunal. The Tribunal, after considering the submissions of the Representatives of the parties, held that by virtue of the terms of agreement, the assessee only acquired the commercial right or license and they are really an intangible asset within the meaning of section 32(1) of the Act. Thereafter, the Tribunal, vide Para-32, of the said order, held that the assessee is entitled for the depreciation by treating the expenditure as part of block of intangible asset. The relevant Para-32 of the said order, reads as follows:-

"32. The question is whether the present expenses incurred by the assessee can be said satisfy the tests of being licences, franchises or any other business or commercial rights being intangible assets within the meaning of the aforesaid provisions. In our view, the Tribunal in the earlier year has already concluded that this expenditure is question is incurred wholly and exclusively for the purpose of business and the terms of the agreement which are extracted hereinabove clearly shows that the assessee has acquired some business or commercial right by incurring this expenditure. This expenditure has not resulted in the acquisition of any tangible asset like building, machinery, plant or furniture. Any other expenditure which did not result in the acquisition of these intangible assets can only be treated as intangible assets. In our view, substantial expenditure incurred by the assessee is for certain commercial considerations and business interest has resulted in Indian Petrochemicals Corp. Ltd.

business advantage to the assessee in the form of priority user of the infrastructure facility that was badly needed by the assessee and its associates concerns. The assessee would have been forced to incurred extra expenditure if this expenditure were not incurred by the assessee. After all the businessman does not incur any expenditure unless it gives some business advantage and the huge expenditure incurred by the assessee is only to get such business advantage like priority user by the assessee company and right to claim rebate on the wharfage charges payable or to guard against the possible increase in the wharfage charges that may be necessitated by efflux of time or economic inflation. All points are considered together, in our view, the expenditure in question give rise to acquisition of licence or other business or commercial right which are really in the nature of intangible asset and are fully covered within the meaning of section 32(1) of the Act. In the light of the above discussion, the contention of the assessee that the said expenditure is to be treated as an intangible asset, and therefore, the assets are entitled for appropriate depreciation by treating the said expenditure as part of the block of intangible asset is fair, reasonable and in accordance with the amendment provisions of law in this regard."

88. We observe that the terms of agreement of the assessee before us are similar to the terms of agreement which was considered in the case of Reliance Ports & Terminals Ltd. (supra) and entered into with GMB. The benefit which the assessee before us is entitled to get on account of construction of jetty are similar to the case considered by the Tribunal, vide its order dated 26th November 2007 (supra). The learned Departmental Representative, during the course of his submissions, has not pointed out any distinguished facts in the case before us viz-a-viz in the above case of Reliance Ports and Terminals Ltd. (supra). We observe that the decision in above case squarely apply to the facts of the case before us. Therefore, respectfully following the earlier order of the Tribunal dated 26th November 2007 (supra), we hold that the assessee is entitled for depreciation at the rate as applicable on the cost incurred for construction of jetty at Dahej. Hence, we allow ground no.3, of the appeal filed by the assessee by reversing the orders of the authorities below.

89. In ground no.4, the assessee has disputed the order of the Commissioner (Appeals) in confirming the addition of ` 91,29,312, on account of unavailed CENVAT credit under section 145A of the Act.

Indian Petrochemicals Corp. Ltd.

90. The Assessing Officer has stated that the account of the assessee company in annexure to clause 12 of the Tax Audit Report reflected unutilised CENVAT credit amounting to ` 91,29,312. The assessee was asked to explain as to why the said amount should not be added in view of the provisions of section 145A of the Act. The assessee filed its reply, stating that the aforesaid item has been shown under the head of loan and advance in the printed balance sheet and the same has not been claimed as revenue deduction. Therefore, no disallowance is called for. The Assessing Officer did not agree with the assessee and stated that the position in law has undergone a substantial change with the introduction of section 145A. The Assessing Officer also rejected the contentions of the assessee that if value of closing stock is increased then the value of the opening stock should also be adjusted by stating that any change in the opening stock which had the effect of changing the closing stock of the preceding year did not accord well with the accepted norms of accountancy and placed reliance on the judgment of the Hon'ble Jurisdictional High Court in Melmould Corporation v/s CIT, [1993] 202 ITR 789. The Assessing Officer made an adjustment of ` 91,92,312, to the total income of the assessee. Being aggrieved, the assessee carried the matter before the first appellate authority.

91. On behalf of the assessee, the following submissions were made which are mentioned by the Commissioner (Appeals) at Pages-15 to 18 of the impugned order as under:-

"Before me, the appellant has submitted that the Assessing Officer has mentioned In the assessment order that 'during the course of assessment we have contended that the value of closing stock cannot be disturbed unless a similar treatment for adjustment is also Indian Petrochemicals Corp. Ltd.

made to the opening stock. However, we do not find any such mention of our stand In the assessment proceedings. It has referred to its reply on this issue. The appellant's observation in this regard is found to be correct. The appellant has also stated that the Assessing Officer's reliance on the case of Melmould Corporation v. CIT 202 ITR 497 (Bom.) is misplaced. It has argued that, in fact, in the aforesaid case, the Bombay High Court has taken a view that if there is a change In the method of accounting for closing stock in a particular year and such change has been followed consistently thereafter, then no adjustment is required to be made for such change In the opening stock of that year. The appellant has submitted that a combined reading of section 145A and AS 2 clearly indicates that for Section 145A to be applicable, both the specifications laid down in the section should be fulfilled viz, the valuation of inventory shall be:

a) In accordance with the method of accounting regularly employed by the assessee; and

b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

In our case the Inventory is valued net of MODVAT as all other entries including purchase, sale and dosing stock are on net basis and not on gross basis". It has argued that its case Is dearly covered by the decision of Supreme Court In the case of CIT v. Indo Nippon Chemicals Co. Ltd 261 ITR 275, where it was held that "(i) that merely because the Modvat credit was an irreversible credit available to manufacturers upon purchase of duty-paid raw material, that would not amount to income which was liable to be taxed under the Act:

income was not generated to the extent of the Modvat credit on unconsumed raw material; (ii) that it was not permissible for the Assessing Officer to adopt the gross method" for valuation of raw materials at the time of purchase and the 'net method' for valuation of stock on hand". The appellant has argued from this that in its case "it is a reverse situation where we have adopted the net method at the time of purchase and valuation of stock and the AO. has adopted net method for purchase and gross method for valuation of stock In hand. As clearly laid down by the Supreme Court, such inconsistent method of valuation of stock is totally unjustified. Without prejudice to the aforesaid submission, the appellant has submitted that even if the AO. insists on including cenvat credit in the value of closing stock, such inclusion of Modvat / Cenvat credit will not have any impact on the taxable income of the assessee. The appellant has further submitted by drawing attention to the observations of the Supreme Court in the case of Chainrup Sanpatram v CIT (1953) 24 ITR 481, in which the Supreme Court has laid down firstly, "that profits do not arise out of valuation of closing stock. Secondly, that valuation of unsold stock at the close of the accounting period is a necessary part of the process of determining the trading results and it cannot be regarded as source of such profits. The true purpose of crediting the value of unsold stock is Indian Petrochemicals Corp. Ltd.

to balance the cost of the goods entered on the other side of the account at the time of their purchase so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transaction on which there has been actual sales in the course of the year showing the profit or loss actually realized on the year's trading. In short, this is the principle of balancing. The Supreme court has further laid down that as the entry for stock which appears in a trading account is merely to cancel the charge for the goods purchased and which have not been sold, It should necessarily represent the cost of the goods.

It has thus argued for the deletion of the addition of Rs.91,29,312/-.

92. The Commissioner (Appeals), after considering above submissions of the assessee held vide Para-14, as under:-

"14. I have considered the rival submissions. It is observed that sec. 145A very clearly requires that the amount of any duty, cess or other taxes etc. should be included in the value of the closing stock. It Is observed that the Assessing Officer has no choice in that However, if this amount represented by the unutilized cenvat amount has not been debited to the purchase account / raw material account, no addition by way of any disallowance can be made. However, no fault with the action of the Assessing Officer in including this amount to the closing stock can be found. Under the circumstances, it is directed that the Assessing Officer shall allow this duty / tax on actual payment basis in the year of payment u/s 43B of the Act."

Hence, the assessee is in further appeal before the Tribunal.

93. At the time of hearing, the learned Counsel for the assessee submitted that above issue is covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in the case of CIT v/s Mahalaxmi Glass Works Pvt. Ltd., [2009] 318 ITR 116 (Bom.) and also by the judgment of Hon'ble Delhi High Court in CIT v/s Mahavir Alluminium Ltd. [2008] 297 ITR 77 (Del.), wherein it has been held that if there is a change in valuation of closing stock in one end, there must necessarily be a corresponding change at the other end otherwise the true profit would not be reflected.

94. On the other hand, the learned Departmental Representative relied on the order of the Commissioner (Appeals).

Indian Petrochemicals Corp. Ltd.

95. We have considered the submissions of the learned Representatives of the parties and the orders of the authorities below as well as the cases relied on by the learned Counsel for the assessee (supra). We are of the considered view that if the valuation of closing stock is increased by the unavailed CENVAT / MODVAT, the purchases should also be increased by a similar amount. During the course of hearing, it was contended that purchases has been debited exclusive of the excise duty element i.e., by adopting net method of purchases and, accordingly, the closing stock of raw materials is valued exclusive of the unavailed CENVAT / MODVAT credit. We observe that Hon'ble Delhi High Court has held in the case of Mahavir Alluminium Ltd. (supra), after considering the decision in the case of CIT v/s Allahabad New Cotton Mills Ltd., AIR 1930 PC 56, that whenever there is change in the valuation at one end, there must necessarily be a corresponding change at the other end otherwise the true picture would not be reflected. In the case of Mahavir Aluminium Ltd. (supra), the issue related to closing valuation of adjustment of unutilised MODVAT credit. The Tribunal allowed the adjustment and in appeal the Hon'ble High Court confirmed the order of the Tribunal. The Hon'ble Jurisdictional High Court, after considering its earlier decision in the case of Melmould Corporation Ltd. (supra), and the decision of the Hon'ble Delhi High Court in the case of Mahavir Aluminium Ltd. (supra), has held as under:-

"We are in respectful agreement with the reasoning and the finding given by the Delhi High Court."

96. In view of the above, we hold that if the closing stock to be increased on account of unutilised MODVAT credit, the corresponding opening stock of that year is also to be increased, as the Department has not disputed the fact that the purchases have been debited exclusive of the excise duty element i.e., by adopting net method of purchases. If the value of closing stock is increased by the MODVAT, the purchases should also be increased by a similar amount. Therefore, the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court (supra).

Indian Petrochemicals Corp. Ltd.

Hence, ground no.4, taken by the assessee is allowed by deleting the addition of ` 91,29,312, made by the Assessing Officer.

97. In ground no.5, the assessee has disputed the order of learned Commissioner (Appeals) in not allowing deduction of ` 34,46,43,586, being deduction claimed under section 80HHC of the Act, while computing book profit under section 115JB of the Act.

98. At the time of hearing, the learned Representatives of the parties submitted that the facts and the issue are identical to ground no.6, of the appeal of the assessee for assessment year 2003-04 and, therefore, whatever decision is taken in respect of that assessment year i.e., 2003-04, will be applicable for this assessment year as well.

99. On perusal of the orders of the authorities below, we agree that the facts and the issue in this assessment year viz. 2004-05 are identical to assessment year 2003-04. We also observe that the Commissioner (Appeals), while confirming the action of the Assessing Officer, followed his order for assessment years 2001-02 dated 28th November 2006. We have discussed the said issue in Paras-47 to 50 herein above and following our findings given in Para-51 herein above, we decide the issue in favour of the assessee by allowing the assessee's ground of appeal. Hence, ground no.5, raised by the assessee is allowed by reversing the orders of the authorities below.

100. We now take up Revenue's appeal being ITA no.745/Ahd./2008, for assessment year 2004-05.

101. In ground no.1, the Department has disputed the order of the Commissioner (Appeals) in deleting the disallowance of ` 46,37,295, made by the Assessing Officer under section 40A(9) of the Act.

102. At the time of hearing, the learned Representatives of the parties submitted that the facts and the issue are identical to ground no.2, of the appeal filed by the Department for assessment year 2003-04 and, therefore, Indian Petrochemicals Corp. Ltd.

whatever decision is taken in respect of that assessment year i.e., 2003-04, same will be applicable for this assessment year as well.

103. On perusal of the orders of the authorities below, we agree that the facts and the issue in this assessment year viz. 2004-05 are identical to assessment year 2003-04. We also observe that the Commissioner (Appeals), while deleting the disallowance made by the Assessing Officer, followed his order dated 2nd May 2007, for assessment year 2002-03. We also observe that the facts in the assessment year are identical to the facts of the assessment year 2003-04, which we have discussed in Para-60 to 63 herein above and for the reasons given in Para-64 herein above, we uphold the order passed by the Commissioner (Appeals) and reject ground no.1 of the appeal filed by the Department.

104. Ground no.2, reads as follows:-

"2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the adjustment for provision of bad and doubtful debts amounting to ` 36,61,40,743 made under clause (c) of the Explanation below section 115JB(2) in computing the book profit under this provision, by ignoring the fact that it was a liability tagged with the assets in the form of debts, and without appreciating that the Supreme Court decision in the case of Apollo Tyres Ltd. v/s CIT, 255 ITR 273 (SC) only ruled that the Assessing Officer had no authority to alter the book profit except as provided in the Explanation.

105. Before us, at time of hearing, the learned Counsel for the assessee conceded that in view of the amendment made by the Finance (no.2) Act, 2009, by inserting clause (i) to Explanation (1) of section 115JB(2) of the Act, with retrospective effect from 1st April 2001, the provisions made for bad and doubtful debt is to be disallowed and, therefore, the order of the Assessing Officer is to be confirmed by reversing the order of the Commissioner (Appeals).

106. In view of the above submissions of the learned Counsel for the assessee, we allow ground no.2, raised by the Revenue by confirming the Indian Petrochemicals Corp. Ltd.

disallowance made by the Assessing Officer. Hence, ground no.2, of the appeal filed by the Revenue is allowed.

107. In the result both the appeals for assessment years 2003-04 and 2004-05 of the Assessee are allowed while both appeals of the Revenue are allowed in part.



      Order pronounced in the open Court on 29th June 2012



           Sd/-                                                  Sd/-
      N.K. BILLAIYA                                         B.R. MITTAL
   ACCOUNTANT MEMBER                                     JUDICIAL MEMBER



MUMBAI,     DATED: 29th June 2012

Copy to:

(1)   The Assessee;
(2)   The Respondent;
(3)   The CIT(A), Mumbai, concerned;
(4)   The CIT, Mumbai City concerned;
(5)   The DR, "I" Bench, ITAT, Mumbai.


                                                  TRUE COPY
                                                  BY ORDER



Pradeep J. Chowdhury                           ASSISTANT REGISTRAR
Sr. Private Secretary                    ITAT, MUMBAI BENCHES, MUMBAI

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Income Tax Appellate Tribunal - Mumbai

Indian Petrochemicals Corporation ... vs Assessee on 26 November, 2007