Income Tax Appellate Tribunal - Mumbai
Assciated Cement Co. Ltd, vs Department Of Income Tax on 30 June, 2003
1 I.T.A No.6289/ Mum/2003
I.T.A No.6320/ Mum/2003
The Associated Cement Co. Ltd
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI F BENCH, MUMBAI.
[ Before Shri R.V.Easwar, Hon'ble President and
Shri Pramod Kumar, Accountant Member ]
I.T.A No.6289/ Mum/2003
Assessment year: 1998-99
Associated Cement Co. Ltd. ..............................Appellant
Cement House, 3rd floor, Financial Division,
121, M.K. Road, Churchgate, Mumbai-20
PA No.AAACT 1507 C
Vs
Addl. Commissioner of Income tax, Spl.Range 4 ...........................Respondent
Aayakar Bhavan, M.K. Road,
Mumbai.
I.T.A No.6320/ Mum/2003
Assessment year: 1998-99
Addl. Commissioner of Income tax, Spl.Range 4 ..............................Appellant
Aayakar Bhavan, M.K. Road,
Mumbai
Vs
Associated Cement Co. Ltd. ...........................Respondent
Cement House, 3rd floor, Financial Division,
121, M.K. Road, Churchgate, Mumbai-20
PA No.AAACT 1507 C
Appearances:
Shri D.B.Desai, alongwith Shri Soumen Adak,Shri Amit Kr Mishra and Shri Basant
Kasat, for the assessee
A.P. Singh and Pavan Vaid, for the revenue
2 I.T.A No.6289/ Mum/2003
I.T.A No.6320/ Mum/2003
The Associated Cement Co. Ltd
O R D E R
Per Pramod Kumar, Accountant Member:
1. These cross appeals are directed against the order dated 30th June 2003, passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 1998-99. As these appeals call into question same order passed by the CIT(A) and as these appeals were heard together, we deem it fit and proper to dispose of both of these appeals by way of this consolidated order.
2. We will first take up assessee's appeal i.e. ITA No. 6289/Mum/03.
3. By way of letter dated 19th March 2009, the assessee has submitted concise grounds of appeal and prayed that these grounds may be substituted for the grounds of appeal filed alongwith the form 36. We accept this request, and, accordingly, proceed to take up these grounds of appeal for disposal.
4. In ground no. 1, the assessee has raised the following grievance :
That on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the denial of claim of exclusion of road transport subsidy as capital receipt amounting to Rs 18,94,31,601 in computing total income under the normal provisions of the Income Tax Act.
5. Briefly stated the relevant material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had received a sum of Rs 18,94,31,601 towards transport subsidy and claimed the same 3 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd as a capital receipt being exempt from tax. After considering the assessee's submission, the AO was of the view that the transport subsidy is a trading receipt and liable to be taxed according to the provisions of the Income tax Act, 1961. For this proposition, he relied also on the decision of the Hon'ble Supreme Court's judgment in the case of Sahaney Steel and Press Works Ltd, 228 ITR 253 (SC), P.J.Chemicals, 210 ITR 630(SC) and also the Hon'ble Bombay High court in the case of Saddichha Chitra v CIT, 189 ITR 774 (Bom). Aggrieved, the assessee carried the matter in appeal before the CIT (A). Since this ground was not pressed before the CIT (A) and also referring to the decision in the case of Sahaney Steel and Press Works ltd (supra), the same was dismissed. However, the assessee is in further appeal before us.
5. Learned counsel refers to paper book pages 267 to 273 (para 9), which contain order of the ITAT in assessee's own case, wherein, identical claim for the assessment years 1991-92 to 1996-97 has been decided in favour of the assessee. He also refers to the decision of the ITAT Mumbai (SB) in the case of DCIT vs. Reliance Industries Ltd. 88 ITD 273 (SB)(Mum), wherein, it has been held that if a subsidy is given for setting up or expansion of industry, it will be capital irrespective of source of funds or mode of disbursement. Reliance was made to the decision of Hon'ble Supreme Court's judgment in the case of CIT v. Ponni Sugars & chemicals Ltd, 306 ITR 392(SC), wherein, it has been held that it is the purpose test which decides the nature of the incentive and not the modality or the source thereof. In view of this, learned counsel urged us to decide the ground in favour of the assessee. Learned Departmental Representative, on the other hand, submits that even though the issue is covered in favour of the assessee by earlier of decisions of the Tribunal in assessee's own case, those decisions are per incurium inasmuch as these decisions have ignored another division bench decision on this issue, which was against the assessee, in the case of ACIT Vs. Steel Strips Limited (108 ITD 720) wherein the coordinate bench had held that transport subsidy received by assessee from State Government under Transport Subsidy Scheme, 1971 of Government of 4 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd India, against transport cost of raw material and finished goods, would be revenue receipt. We are thus urged not to follow the Tribunal decisions in assessee's own case and uphold the action of the authorities below on this issue. In rejoinder, learned counsel points out that Tribunal's decision in the case of Steel Strips Limited (supra) itself did not follow an earlier decision of the coordinate bench in the case of Assam Asbestos Limited Vs. IAC ( 45 ITD 81) and it did not deal with 'purpose test' to come to the conclusion as to whether or not the subsidy received will be capital receipt or revenue receipt. Our attention is invited to the fact that, in any event, the said DB decision is no longer good law in the light of Hon'ble Bombay High Court judgment in the case of CIT Vs. Reliance Industries Ltd (2010 TIOL 228 HC Mum), approving Special Bench decision in the case of DCIT Vs. Reliance Industries Limited (88 ITD SB 273), wherein it was held that if the subsidy is given for setting up or expansion of industry, it will be capital in nature irrespective of the source of funds or manner of disbursement. It is also pointed out that the Tribunal's decision in the case of Assam Asbestos Ltd (supra) has reached finality as references under section 256(1) and 256(2) have been rejected, and Hon'ble Supreme Court has also dismissed SLP against rejection of 256(2) reference by Hon'ble Gauhati High Court, as reported in CIT Vs. Assam Asbestos Limited (215 ITR 847). Learned counsel then takes us through the nature of subsidy and points out that the subsidy in question is exactly the same as was in the case of Assam Asbestos Limited. In both these cases, the transport subsidy received by the assessee was central transport subsidy, as against HP state transport subsidy receipt in the case of Steel Strips Limited (supra). Learned counsel thus submits that a decision in the context of a different subsidy scheme, i.e. decision in the case of Steel Strips Ltd (supra), will have no application in the matter. We are thus urged to follow the earlier decisions of the coordinate benches in assessee's own case, and not be influenced by coordinate bench decision in the case of HP state transport subsidy scheme.
6. We see merits in the submissions of the learned counsel. The issue in appeal is squarely covered by decisions of the coordinate benches in assessee's own case 5 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd as also in the case of Assam Asbestos Limited (supra) which has since received finality. We have also noted that coordinate bench decision in the case of Steel Strips Limited (supra) was in the context of a different state transport subsidy scheme, and it does not, therefore, directly apply to the situation before us. In view of these discussions, and consistent with the views of coordinate benches in assessee's own case for earlier years, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned addition of Rs 18,94,31,601 on account of central transport subsidy. The assessee gets the relief accordingly.
6. Ground No. 1 is thus allowed.
7. In Ground No.2, the assessee has raised the following grievance:
The ld CIT (A) erred in holding that the AO was justified in treating the expenditure of Rs 1,21,38,100 paid your appellants to Rajasthan State Forest Department as capital in nature.
8. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of Rs 1,21,38,100 on account of compulsory afforestation. This amount was paid by the assessee to Rajasthan State Forest Corporation. It was submitted by the assessee that the assessee company had one factory in Lakheri, Rajasthan and as the mining for raw material was done on the forest land, as per the instruction of the Government of Rajasthan, the amount was paid for the Forest Department to compensate them for loss of forest and towards afforestation costs to make good the said loss. It was also submitted that the afforestation was an operation carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. It was submitted that as this amount had been expended in the normal course of the business of the company, the same is deductible. The AO did not accept the assessee's contention and treated the amount as capital expenditure,. The assessee 6 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd carried the matter in appeal but without any success. The assessee is in further appeal before us.
9. The main thrust of learned counsel's arguments is that afforestation was carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. Our attention is invited to the provisions of Forest (Conservation) Act 1980, and it is submitted that unless the assessee makes payment of these afforestation costs, he would not be allowed to carry out the business activity of extracting limestone. It is also pointed out that while the expenses are incurred wholly and exclusively for the purposes of business, these expenses neither result in creation of any asset for the assessee nor in transfer of ownership of any assets. Our attention is then invited to Hon'ble Supreme Court's judgment in the case of CIT Vs. Kirkel Coal Co (77 ITR 530) wherein it is held that expenditure incurred for stowing operations is revenue expenditure since stowing was an operation carried out in the process of extraction of coal, and without this operation having been carried out, extraction of coal was not possible. Our attention is then invited to decision of a coordinate bench in the case of Orrissa Forest Development Corporation Limited Vs. JCIT ( 80 ITD 300) wherein it was held that expenditure on afforestation is an allowable expenditure. It is then contended that the expenditure is not on an asset owned by the assessee, and from this point of view also, it is to be treated as revenue expenditure in the light of Hon'ble Supreme Court's judgment in the case of CIT Vs. Associated Cement Companies Ltd (172 ITR
257). A reference is then made to Hon'ble Bombay High Court's judgment in the case of National Organic Chemical Industries Limited Vs. CIT (203 ITR 410) wherein it was held that expenditure incurred on construction of jetty for facilitating trading operations of the assessee is a revenue expenditure even though ownership of the jetty is with the Government. It is submitted that, for all these reasons, the expenses incurred on afforestation are clearly in the nature of revenue expenses which should be allowed as deduction in computation of business income. Learned Departmental Representative, on the other hand, submits that the assessee has taken the mine on 7 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd lease which is clearly a capital asset, and the expenses are incurred for the purpose of this capital asset. It is pointed out that expenses to acquire lease rights are capital expenses in nature and the character of expenses incurred on afforestation are also integral part of expenses incurred for acquiring the lease. We are thus urged to hold that these expenses are capital in nature and cannot be allowed as deduction in computation of business income. Learned Departmental Representative then submits that Kirkend Coal Co decision (supra), on which reliance has been placed by the learned counsel, is not at all relevant in this context. It is submitted that in the said case, there was a categorical finding by the Tribunal that stowing is an integral part of the operation of coal mining, and it was for this reason that expense was held to be allowable as revenue expenses. As against this position, in the present case, afforestation has no bearing on the actual mining operation carried out. It is an independent activity which is for the purpose of maintaining the lease rights which are capital assets. As regards coordinate bench's decision in the case of Orissa Forest Corporation (supra), learned Departmental Representative submitted that in the said case assessee was engaged in the business as a forest corporation, and such decision in the case of a forest corporation's case can not be compared with a case in the assessee is engaged in business of extracting limestone. There is no direct link between assessee's business and the expenses so incurred. The link, if at all, is far fetched and all the relevant facts have not even been placed before the Assessing Officer, save and except for generalized submissions about the nature of expenses. We are urged to reject the grievance of the assessee or at best remit the matter to the file of the Assessing Officer for verification of all the factual elements embedded in assessee's submissions. In rejoinder, learned counsel submits that what is to be seen is whether the motivation of incurring this expenditure is wholly and exclusively for the purposes of business, and whether the expenditure is not in the nature of capital expenditure. Once these two conditions are satisfied, as are satisfied in this case, there cannot be any good reasons not to allow the expenditure. We are thus once again urged to delete the impugned disallowance.
8 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003The Associated Cement Co. Ltd
10. We find that, as learned counsel rightly points out, in order to be eligible for deduction under section 37(1) an expense has to be incurred wholly and exclusively for the purposes of business and it should not be in the nature of capital expenses. There is no dispute that the afforestation expense is incurred because it is necessary to do so, in furtherance of legitimate business interests of the assessee. No asset is created as a result of this expenditure. It is statutory obligation of the assessee to provide for compensatory afforestation of land, and unless he does so, the assessee is not allowed to carry out its business activity of extracting from the mines. The nexus is clear and unambiguous. As regards learned Departmental Representative's submission that being relatable to mining lease rights, the expenses should be treated as capital expenditure, we are of the considered view that expenses are incurred not for the purpose of mining lease but for the purpose of carrying out business activity of extracting limestone under the mining lease. The point of time when afforestation expenses are required to be incurred is when extraction activity is carried out. In any event, the mere link with a capital asset would not result in the expenditure being treated as capital expenditure. What is to be seen is the reason on account of which the expenses are incurred and even if the expenses result in some benefit of enduring nature, that benefit would not be decisive of holding the expenses as capital expenditure. In the case of CIT Vs. Glaxo Laboratories India Limited (181 ITR 59), even expenses to increase the capital base has been held to be revenue expenditure because increasing the share capital base was necessary precondition for continuance of technical collaboration arrangement by the assessee. The following analysis of legal position by Hon'ble Bombay High Court, in support of the above conclusions, is of great relevance in this context:
7. That the Court must look to the object and purpose of the expenditure, and that from the point of view of the businessman, is well established.
8. It was laid down in Anglo-Persian Oil Company v. Dale 16 TC 253, that it was the object of the expenditure alone that counted. It was not necessary that the 9 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd expenditure should have the result of bringing an asset into existence. The fact that the expenditure had in fact resulted in the coming into existence of some advantage which would enure for several years was not of consequence.
9. The Supreme Court in Bombay Steam Navigation (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52, laid down the test in these words:
"Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure..." (p. 59)
10. The Patna High Court in the case of CIT v. Kirked Coal Co. [1966] 60 ITR 537, was concerned with an assessee which carried on coalmining. It had spent monies upon certain operations called 'stowing'. The ITO considered that expenditure to be capital expenditure because the extraction of coal had thereby been made possible for a score of years. The matter had gone up in reference to the High Court. The High Court noted the observations in the cases of Anglo Persian Oil Co. (supra) and Bombay Steam Navigation Co. (1953) (P.) Ltd. (supra) set out above. It also noted that the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34, had said that if the expenditure had been made not for the purpose of bringing into existence an asset or advantage for the enduring benefit of the business but for running the business or working it with a view to produce profits, it was a revenue expenditure and that the aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. Applying the tests to the case before it, the Patna High Court held that money expended on stowing operations was by way of revenue disbursement. The decision of the Patna High Court was the subject of an appeal to the Supreme Court in CIT v. Kirkend Coal Co. [1970] 77 ITR 530 and it was upheld. The Supreme Court quoted with approval the passage from the case of Bombay Steam Navigation Co.(1953)(P.) Ltd. (supra) which we have set out above.
11. In Brooke Bond India Ltd. v. CIT [1983] 140 ITR 272 (Cal.) the assessee had issued shares and incurred expenditure which had been claimed as a revenue deduction. The Tribunal had found that the assessee had itself stated that by the expenditure the capital base of the assessee was reinforced on a permanent 10 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd basis and this was the main purpose of the assessee. It was submitted before the Calcutta High Court that the object and purpose of the expenditure was to strengthen the capital structure and, only as an incidental result, more funds had flowed to the assessee making more working funds available to it. The High Court held that that could not change the essential object and purpose of incurring the expenditure and the resultant fact, that is to say, the fundamental change in the income-earning machinery and structure. It held that, therefore, the Tribunal had been right in disallowing the expenditure. In its exhaustive judgment the High Court said that if the main object, purpose and nature of the transaction was to affect the income-earning machinery or structure as such and not only to make the inflow of more funds available then the expediture would be on the capital side. It was true that the alteration in the capital structure by raising the share capital would make more funds available, but that was not decisive. The essential object and purpose of incurring the expenditure and the resultant fact was the fundamental change in the income- earning machinery or structure. It was the resultant advantage obtained by incurring the expenditure, along with the purpose and object of incurring the expenditure, which was the guide to answering the question.
12. Our attention was drawn by Mr. Dastur to the judgment of the Supreme Court in Patnaik & Co. Ltd. v. CIT [1986] 161 ITR 365, whose facts are noteworthy. The assessee dealt in automobiles and spare parts. It had subscribed to certain Government loans and had sustained a loss when re- selling them. It claimed the loss as a revenue loss. The Tribunal found that, having regard to the sequence of events and the close proximity of the investment with the receipt of Government orders for motor vehicles, the conclusion was inescapable that the investment had been made in order to further the sales of the assessee and boost, its business. It had been made by way of commercial expediency for the purpose of carrying on the business and, therefore, the loss suffered by the assessee was a revenue loss. The High Court had re-examined the facts and had come to the contrary conclusion. On appeal by the assessee, the Supreme Court reversed the High Court's decision. It held that the High Court had been in error when it had proceeded to reappreciate the evidence. It affirmed the finding of the Tribunal that the investment made by the assessee in Government loans had been by way of commercial expediency for the purpose of carrying on the assessee's business and that, therefore, the loss suffered by the assessee upon the sale of the investment had to be regarded as a revenue loss. The Supreme Court approved decisions of the Madras and Orissa High Courts that took views similar to that taken by the Tribunal.
13. It is clear that we must find the aim and object, from a businessman's point of view, of incurring the said expenditure. It is established upon the Tribunal's 11 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd finding that the assessee had no need for funds. It is established that it had need of the technical collaboration arrangement to run profitably. What, therefore, motivated the businessman in the assessee was the expediency of ensuring the continuance of the technical collaboration arrangement. The object and purpose of the said expenditure, therefore, seen from the businessman's point of view, must be held to be to obtain the approval of the Government to the continuance of the technical collaboration arrangement. This being the object and purpose, the said expenditure must be held to be revenue expenditure and an allowable deduction. That an advantage of an enduring character, namely, the increase in the share capital, resulted cannot, in the circumstances, be held to be decisive.
11. In view of the above discussions, we uphold the grievance of the assessee on this issue as well. Accordingly, we direct the Assessing Officer to delete the impugned disallowance of Rs 1,21,38,100 on account of afforestation expenses.
12. Ground No. 2 is also thus allowed.
13. In Ground No.3, the assessee has raised the following grievance:
The ld CIT (A) erred in confirming the non allowance of profit from power generating unit u/s. 80 IA while computing book profit u/s.115JA.
14. The short issue that is required to be adjudicated in this ground of appeal is whether, for the purposes of computing book profit under section 115JA, book profits of the eligible unit should be excluded or the tax profits as determined under section 80IA. The Assessing Officer has held that tax profit of the eligible unit should be considered for exclusion from book profit, and the CIT(A) has also confirmed the said action. Learned counsel for the assessee contended that the issue is covered in favour of the assessee by the decision of ITAT, Mumbai in assessee's own case for the assessment year 1997-98 in ITA No.4730/M/01, wherein, the Tribunal following the decision of the Tribunal in the case of Tushako Pumps 12 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd Limited vs ACIT (2 SOT 556) has dismissed the revenue's appeal. Learned Departmental Representative however relies upon the orders of the authorities below and justifies the same. He also refers to the decision of the coordinate bench in the cases of Encube Ethicals Pvt Ltd Vs ITO (16 SOT 396) wherein rejecting the stand of the assessee, it is, inter alia, stated that , "the language used in the sub- clause is quite unambiguous and clear to explain that it means the amount required to be reduced is the profit derived from the industrial undertaking which is eligible for deduction under section 80-IA and not a profit eligible for deduction". A reference is also made to another coordinate bench's decision in the case of Maharshtra State Electricity Board Vs JCIT (82 ITD 422). In the light of these decisions, we are urged to hold that what is to be reduced from book profits of the company is tax profits under section 80IA in respect of eligible units. In rejoinder, learned counsel reiterates his submissions and explains that exclusion of tax profits in the exercise of computing book profits will result in incongruous results. We are urged to uphold the stand of the assessee and direct exclusion of book profits of eligible undertaking.
15. We see merits in the contentions of the assessee. Under the scheme of Section 115 JA, the book profits are required to be reduced by the amount of profit derived by the industrial undertaking which is eligible for exemption under section 80-IA. Under clause (v) to the Explanation to section 115JA, there is no mention that the profit derived by the industrial undertaking must be calculated as per the provisions of the Act. Therefore, the logical interpretation would be that the profits derived by the industrial undertaking as per the books of account have to be reduced from the book profits. When the base figure of profit is profit as per books of accounts, and the only purpose of making adjustments in the same is to reduce the profits of eligible undertaking, it is only book profit which should logically be reduced from the overall book profits. The taxable profits have no logically nexus to this computation, and its being taken into account for the purpose of exclusion of 13 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd profits of eligible undertaking, will give unreasonable results. In the instant case, while computing book profit, which was in consonance with the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, the depreciation as provided in the books of account had been considered. If, while computing the profits derived by the industrial undertaking, which are required to be reduced from the book profits as per clause (v), the provisions of the Act are applied and depreciation as admissible under Act is deducted, it would result into an anomalous situation. Where the profits derived from the industrial undertaking, which are included in the book profits, have been computed as per the books and no adjustment for depreciation has been made while computing the income eligible for exemption under section 80-IA, the quantum of depreciation as per the provisions of the Act would be substantially enhanced. That would violate the very purpose of section 115JA. Therefore, the profit of the industrial undertaking eligible for exemption under section 80-IA must be computed as per the books of account and the provisions of the Act cannot be applied and no adjustment can be made which is not permissible under the section. As regards co ordinate bench decision in the case of Encbe Ethicals (supra), that decisions clearly does not take into account a binding precedent from a coordinate bench which was not brought to the notice of the bench. As to what should be done in such a situation, as held by another coordinate bench of this Tribunal in the case of JKT Fabrics Pvt Ltd Vs JCIT ( 4 SOT 84), a coordinate bench decision disregarding the earlier coordinate bench decision on the issue is not a binding precedent. As regards learned Departmental Representative's reliance on the case of Maharshtra State Electricity Board (supra), we find it was a case in which levy of minimum alternate tax was quashed on the ground that these provisions donot apply to the electricity companies, and some observations were thereafter made on merits but we are unable to find any observations which cover the case before us. Revenue does not, therefore, derive any advantage from the said decision. In view of these discussions, as also bearing in mind entirety of the case and consistent with the stand taken by the coordinate bench in assessee's own case, we uphold the 14 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd grievance of the assessee and direct the Assessing Officer to modify the computation of book profit under section 115 JA accordingly.
16. Ground No. 3 is also allowed.
17. In ground no. 4, the assessee has raised the following grievance:
That on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the non allowance of deduction under section 80 HHC while computing book profit under section 115JA.
18. The short issue involved in this appeal is as to what is the amount of deduction under section 80 HHC - export profits computed under the head 'profits and gains from business and profession, or export profits as per books of accounts- to be excluded for the purpose of computation of book profits under section 115JA. While the Assessing Officer has held that the profit to be excluded is profits computed under the head 'profits and gains from business and profession', the CIT(A) has confirmed the said action by placing reliance on the IPCA Laboratories Limited Vs DCIT (251 ITR 401). The assessee is not satisfied and is in further appeal before us.
19. In the case of Ajanta Pharma Ltd Vs CIT (327 ITR 305), the question which came up for consideration of Hon'ble Supreme Court was "Whether for determining the "book profits" in terms of section 115JB, the net profits as shown in the Profit and Loss Account have to be reduced by the amount of profits eligible for deduction under section 80HHC or by the amount of deduction under section 80HHC?" Their Lordships, inter alia, noted that the provisions regarding Minimum Alternate Tax and incentives for exports operate in two different spheres and formula meant for computing export incentive cannot be used in adjustment of the book profits for minimum alternative tax. Hon'ble Supreme Court , inter alia, observed as follows:
15 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003The Associated Cement Co. Ltd ...... section 80HHC provides for tax incentives. Section 80HHC(1) at one point of time laid down that an amount equal to the amount of deduction claimed should be debited to the Profit and Loss Account of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilized for the business purpose. Section 80HHC(1) concerns eligibility whereas section 80HHC(3) concerns computation of the quantum of deduction/tax relief.
............. A bare reading of section 80AB shows that computation of deduction is geared to the amount of income, but section 80HHC(3), which refers to quantification of deduction is geared to the exports turnover and not to the income. On the other hand, section 115JB refers to levy of MAT on the deemed income. The above discussion is only to show that sections 80HHC and 115JB operate in different spheres. Thus, two essential conditions for invoking section 80HHC(1) are that assessee must be in the business of export and secondly that sale proceeds of such exports should be receivable in India in convertible foreign exchange. Hence, section 80HHC(1) refers to "eligibility" whereas section 80HHC(3) refers to computation of tax incentive. Coming to section 80HHC(1B) it is clear that after Finance Act, 2000 with effect from assessment year 2001-02 exporters would not get 100 per cent deduction in respect of profits derived from exports but that they would get deduction of 80 per cent in the assessment year 2001-02, 70 per cent in the assessment year 2002-03 and so on. Thus, section 80HHC(1B) deals not with "eligibility" but with the "extent of deduction". As earlier stated, section 115JB is a self-contained Code. It taxes deemed income. It begins with a non obstante clause. Section 115JB refers to computation of "book profits" which have to be computed by making Upward and Downward Adjustments. In the Downward Adjustment, vide clause (iv) it seeks to exclude "eligible" profits derived from exports. On the other hand, under section 80HHC(1B) it is the extent of deduction which matters. The word "thereof in each of the items under section 80HHC(1B) is important. Thus, if an assessee earns Rs. 100 crores then for the assessment year 2001-02, the extent of deduction is 80 per cent thereof and so on which means that the principle of proportionality is brought into scale down the tax incentive in a phased manner. However, for the purposes of computation of book profits which computation is different from normal computation under the 1961 Act/computation under Chapter VIA. We need to keep in mind the Upward and Downward Adjustments and if so read it becomes clear that clause (iv) covers full export profits of 100 per cent as "eligible profits" and that the same cannot be reduced to 80 per cent by relying on section 80HHC(1B). Thus, for computing "book profits" the Downward Adjustment, in the above example, would be Rs. 100 crores and not Rs. 90 crores. The idea being to exclude "export profits" from computation of book profits under section 115JB which 16 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of Explanation to the Finance Bill, 2000.
10. One of the contentions raised on behalf of the Department was that if clause (iv) of Explanation to section 115JB is read in entirety including the last line thereof (which reads as "subject to the conditions specified in that section"), it becomes clear that the amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various provisions of section 80HHC in isolation whereas as per clause (iv) of Explanation to section 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of section 80HHC.
Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to section 115JB. We find no merit in this argument. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then section 115JB will cease to be a self-contained code. In section 115JB, as in section 115JA, it has been clearly stated that the relief will be computed under section 80HHC(3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that section. The conditions are only that the relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB [Subject to the conditions specified in sub- sections (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department.
20. The same principles apply on the situation before us. Therefore, what is to be excluded must start with book profits of export business as base. One cannot have computation of book profit with tax profits as the base. In this view of the matter, and in view of the broad principles clearly discernable from Hon'ble Supreme Court's judgment in Ajanta Pharma's case (supra), we uphold the 17 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd grievance of the assessee and direct the Assessing Officer to giver resultant relief, if any.
21. Ground No. 4 is also allowed.
22. In ground no. 5, which is an additional ground of appeal, the assessee has raised the following grievance:
That on the facts and in the circumstances of the case, the appellant be allowed deduction of provision for additional gratuity amounting to Rs 2,82,45,524 and gratuity for sold units amounting to Rs 72,60,568 in computing total income under the normal provisions of the Income Tax Act.
23. Ground No. 5 as also the other remaining grounds of appeal are additional grounds of appeal, and learned Departmental Representative has made common submissions opposing admission of these grounds of appeal. Learned Departmental Representative vehemently opposes the admission of additional ground of appeal. It is his contention that the assessee can not be allowed to raise this new plea at this stage, because the assessee had not made this claim at the time of filing the return of income. Relying upon Hon'ble Supreme Court's judgment in the case of Motibhai Fulabhai Patel & Co Vs Collector of Central Excise (AIR 1979 SC 829), it is submitted that "no person can be permitted to benefit by his wrongful act" and that "no rule of law should be so interpreted so as to encourage its circumvention". It is contended that allowing a taxpayer to raise a new plea at this stage allows him to take benefit of his own mistake of not making the claim by way of an income tax return. It is submitted that the law provides for filing of an income tax return, and a time frame is permitted to revise the income tax return. In case taxpayer is allowed to make the claim at any stage, the time limit for revising the income tax return will be rendered redundant. Learned Departmental Representative then invites our attention to the amendment in Section 143(2) by Direct Tax Law Amendment Act 1987. It is pointed out that as against an assessment under section 143(2) being resorted to for 18 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd determination of correct taxable income prior to this amendment, the assessment is now done only to ensure that assessee has not understated his income or has not computed excessive loss or has not underpaid the tax liability in any manner. The objective of the assessment is thus only to protect interests of the revenue, and it is wrong to proceed on the basis that post this amendment, the objective of assessment is to compute correct income or protect the interests of taxpayer in any manner. Learned Departmental Representative submits that in view of this paradigm shift in the scheme of the assessment, Hon'ble Supreme Court judgment in the case of National Thermal Power Co. Ltd Vs CIT (229 ITR 383) cannot be put into service for admission of additional ground of appeal by the assessee, though it will, according to him, continue to hold good so far as additional grounds of appeal by the Assessing Officer is concerned. In any event, according to the learned Departmental Representative, Hon'ble Supreme Court's judgment in the case of NTPC (supra) is not good law because it does not take into account earlier judgment of Hon'ble Supreme Court in the case of ACIT Vs Gurjargravures Pvt Ltd (111 ITR 1) wherein Their Lordships had held that when assessee has not made claim before the ITO, the same could not have been made before Tribunal either. When it is pointed out to the learned DR that NTPC judgment is by a three judge bench, whereas Gurjargravures judgment is by a two judge bench, the Gurjargravures judgment did not really constitute a binding precedent for Hon'ble Court in NTPC's case, learned Departmental Representative submits that the very fact that this decision was not considered in NTPC's case takes away binding nature of NTPC judgment. It is further contended that in any event, even according to the NTPC judgment, an additional ground can only be admitted when all the relevant material facts are already on record, whereas in the cases before us, additional facts are required to be ascertained. We are thus urged to reject the additional grounds of appeal as not maintainable. Learned counsel for the assessee, on the other hand, submits that all the relevant facts are already on record and no further investigation of facts is required. It is then submitted that the law laid down by Hon'ble Supreme Court in NTPC's case is free of any ambiguity or doubt. Undoubtedly, while discretion of 19 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd admitting an additional ground of appeal is with the Tribunal, Their Lordships have made it clear that the powers of the Tribunal are not confined only to the issues arising out of the CIT(A)'s order and the Tribunal is at liberty to deal with any of the issues relating to the assessment even though the same is not raised before the Assessing Officer. As for the paradigm shift said to have been brought by 1987 amendment to Section 143(2), learned counsel submits that whatever be the ground on which a case is selected for scrutiny assessment, such a narrow interpretation to the scope of exercise under section 143(2) cannot be sustained in law. He submits that the objective of the assessment proceedings is to arrive at the correct income and correct tax liability, and as long as proceedings before the Tribunal are on, assessee can indeed take up any issue which has influence on determination of correct income tax liability. We are taken through Hon'ble Supreme Court's judgment in the case of NTPC and it is pointed out that the said judgment is binding on us under Article 141. We are thus urged to admit the additional grounds of appeal and deal with the same on merits.
24. We are unable to see legally sustainable merits in the stand of the learned Departmental Representative. His perceptions about paradigm shift, said to have been introduced by Direct Taxes Law (Amendment) Act in Section 143(2), are clearly ill conceived. Section 143(2), as it stood prior to the said amendment and after the said amendment, are as follows:
Prior to 1.4. 89 [i.e. pre Direct Tax (Amendment) Act 1987 amendment] 143 (2) When a return has been filed under section 139, and -
(a) an assessment having been made under sub-section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the Assessing Officer objecting to the assessment, or
(b) whether or not an assessment has been made under sub-section (1), the Assessing Officer considers it necessary or expedient to verify the 20 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Assessing Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Assessing Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return.
Section 143(2) substituted by the Direct Taxes (Amendment) Act 1987 Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return:
25. While explaining the scope of this amendment in law, CBDT circular no 549, inter alia, observed as follows:
5.12 Since under the provisions of sub-section (1) of the new section 143, as assessment is not to be made now, the provisions of sub-sections (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-section (2), which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income. This means that under the new provisions, in an assessment order passed under section 143(3) in a scrutiny case, neither the income can be assessed at a figure lower than the returned income, nor loss can be assessed at a figure higher than the returned loss, nor a further refund can be given except what was due on the basis of the returned income, and which would have already been allowed under the provisions of section 143(1)(a)(ii).
26. This is broadly the same approach as has been canvassed by the learned Departmental Representative before us. However, this has not been approved by Hon'ble Andhra Pradesh High Court in the case of CIT Vs Bakelite Hylm Ltd (237 ITR 392) and by Hon'ble Gujarat High Court in the case of Gujarat Gas Co Ltd Vs JCIT 21 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd (245 ITR 84). In both of these cases, revenue's stand was that in view of the amendment in Section 143(2), assessed income cannot be lower than returned income. However, this stand was unequivocally rejected and Their Lordships, in Gujarat Gases case (supra), also held that the CBDT circular, to the extent extracts reproduced above, is not good in law. In Bakelite's case (supra), Their Lordships held that refund in the process of assessment is permissible, and the income is to be computed as per the provisions of the Act. In view of these discussions, the approach sought to be adopted by the learned Departmental Representative is devoid of any legally sustainable merits and we are unable to share his perceptions about paradigm shift in the scheme of Section 143(2). In our considered view, whatever be the grounds on which the case is selected for scrutiny, once the assessment proceedings are initiated, the duty of the Assessing Officer is to determine correct taxable income in accordance with the law. Respectfully following the views expressed by Hon 'ble Andhra Pradesh High Court in Bakelite's case (supra) and by Hon'ble Gujarat High Court in the case of Gujarat Gases( supra), we reject the argument of the learned counsel that in the scheme of assessment under section 143(2), as it exists now, only the interests of revenue are protected and the interests of the assessee are to be ignored.
27. As regards learned Departmental Representative's suggestion that Hon'ble Supreme Court's judgment in the case of NTPC (supra) is not a binding precedent, it is equally devoid of any merits. His reliance on Hon'ble Supreme Court's judgment in the case of Gurjargravuers (supra) is clearly misplaced and it cannot support the proposition that unless a claim is made before the Assessing Officer, it cannot be raised before the Tribunal either. A three judge bench of Hon'ble Supreme Court, in the case of Jute Corporation of India Ltd Vs CIT (187 ITR 688), has , while dealing with Gurjargravuers decision, observed as follows:
22 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003The Associated Cement Co. Ltd
6. In Gurjargravures (P.) Ltd.'s case (supra) this Court has taken a different view, holding that in the absence of any claim made by the assessee before the ITO regarding relief, he is not entitled to raise the question of exemption under section 84 of the Act before the AAC hearing appeal against the order of the ITO. In that case the assessee had made no claim before the ITO for exemption under section 84, no such claim was made in the return nor any material was placed on record supporting such a claim before the ITO at the time of assessment. The assessee for the first time made claim for exemption under section 84 before the AAC who rejected the claim but on further appeal the Tribunal held that since the entire assessment was open before the AAC there was no reason for his not entertaining the claim, or directing the ITO to allow appropriate relief. On a reference the High Court upheld the view taken by the Tribunal. On appeal this Court set aside the order of the High Court as it was of the view that the AAC had no power to interfere with the order of assessment made by the ITO on a new ground not raised before the ITO, and, therefore, the Tribunal committed error in directing the AAC to allow the claim of the assessee under section 84. Apparently this view taken by two Judge Bench of this Court appears to be in conflict with the view taken by the three Judge Bench of the Court in Kanpur Coal Syndicate's case (supra). It appears from the report or of the decision in Gujarat High Court case the three Judge Bench decision in Kanpur Coal Syndicate's case (supra) was not brought to the notice of the Bench in Gurjargravures (P.) Ltd.'s case (supra). In the circumstances the view of the larger Bench in Kanpur Coal Syndicate's case (supra) hold the field. However, we do not consider it necessary to over-rule the view taken in Gurjargravures (P.) Ltd.'s case (supra) as in our opinion that decision is founded on the special facts of the case, as would appear from the following observations made by the Court:
"...As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are not here called upon to consider a case where the assessee failed to make a claim though there was no evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the Income-tax Officer, nor was there any material on record supporting such a claim......." (p. 5) The above observations do not rule out a case for raising an additional ground before the AAC if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made or that the ground became available on account of change of circumstances or law. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the AAC is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the AAC should 23 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the AAC depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose.
28. A Full Bench of Hon'ble Bombay High Court, in the case of Ahmedabad Electricity Co Ltd Vs CIT ( 199 ITR 351) also had an occasion to deal with the impact of Hon'ble Supreme Court's judgment in the case of Gurjargravuers (supra), and Their Lordships, inter alia, observed as follows:
25. In the case of Gurjargravures (P.) Ltd. (supra), the Supreme Court was concerned with a case where the Tribunal had allowed a point to be raised which had not been taken either before the ITO or before the AAC. The Supreme Court held that such a point should not have been allowed to be raised. It said, however, that it was not called upon to consider a case where the assessee had failed to make a claim although there was evidence on record to support it; nor was it called upon to consider a case where a claim was made but there was no evidence or insufficient evidence adduced in support of the claim. In the case before the Supreme Court neither any claim had been made before the ITO nor was there any material on record supporting such a claim and, therefore, such a claim ought not to have been allowed to be raised by the Tribunal before it for the first time.
26. This decision has now been explained by the Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 as turning upon its own special facts. We will revert to it a little later. This decision of the Supreme Court in the case of Gurjargravures (P.) Ltd. (supra) was also distinguished by the Andhra Pradesh High Court in the case of Gangappa Cables Ltd. (supra).
The Andhra Pradesh High Court also said that the Tribunal disposing of an appeal under the Act has got the power to allow the assessee to put forward a new claim, notwithstanding the fact that such a claim was not raised by him before the ITO or the AAC, provided that there is sufficient material on record to allow such a claim.
29. In view of the above position of law, learned Departmental Representative's reliance on Hon'ble Supreme Court's judgment in the case of Gurjargravures (supra) is of no assistance to his cause. It does not lay down any general proposition of law on the question of powers of the Tribunal, nor does it restrict the legal position laid 24 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd down by larger benches in the cases of NTPC (supra) or Jute Corp of India (supra). We reject this argument as well.
30. Learned Departmental Representative's objection to admission of additional grounds on the plea that all the related facts are not already set out in the orders is also incorrect. The facts being on record and facts having been set out in the assessment orders are expressions of different scope. That apart, all that Hon'ble Supreme Court has observed in NTPC's case is that where all the necessary facts are on assessment records, there is good reason for not exercising the discretion of admitting additional ground of appeal on a question of law, but, in our humble understanding, this observation cannot be construed to mean that just because some additional factual verifications are needed, Tribunal is denuded of powers to admit the additional ground of appeal on questions of law. In any event, having regard to the fact that issues raised in the additional grounds of appeal are question of law arising out of facts on record, we reject this objection as well. As far as learned Departmental Representative's submission that additional ground should not be admitted because it will amount to assessess being permitted to take advantage of its wrong, this objection is also devoid of any merits. By allowing the admission of additional ground, the assessee is not being permitted to take any advantage out of its mistake but it is only to enable correct computation of his income and tax liability. Taking advantage of a mistake could be a situation in which he will be any better off on account of not making the claim in the income tax return vis-à-vis the position if he was to make a claim in the income tax return, but that it is not the situation before us.
31. In view of the reasons set out above, we reject the objections of the learned Departmental Representative. As additional grounds of appeal are on legal issues and there is nothing on record to suggest any malafides in additional grounds being raised at this stage, we admit these additional grounds of appeal and proceed to take up the ground of appeal on merits 25 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd
32. On merits, the issue in appeal lies in a very narrow compass of facts. In the income tax return, the assessee had claimed provision for additional gratuity for employees during the year and provision for gratuity in respect of employees of units sold. However, in the case of the assessee, coordinate benches have held that deduction will be admissible in the earlier years . It is to enable the claim, in accordance with the Tribunal decision, that this additional ground is raised.
33. Having heard the rival contentions and having perused the material on record, we find that claim of the assessee deserves to be accepted as identical claims have been allowed for the assessment years 1990-91 to 1994-95, 1996-97 and 1997-98. Consistent with the stand so taken, we direct the Assessing Officer to accept the allow the claim of the assessee after verifying related facts. Grievance of the assessee is upheld.
34. Ground No. 5 is thus allowed.
35. In ground no 6.1, the assessee has raised the following grievance:
That on the facts and circumstances of the case, excise duty and sale of flats be excluded from total turnover for the purpose of computing deduction under section 80 HHC.
36. As far as excise duty is concerned, learned representatives agree that the issue is directly covered, in favour of the assessee, by Hon'ble Supreme Court's judgment in the case of CIT Vs. Laxmi Machine Works ( 290 ITR 667). As regards sale of flats also, learned representatives agree that the same principle will extend here as well inasmuch what cannot be included in export turnover cannot be included in the total turnover as well. In any case, sale of flats by the assessee, on the facts of this case and where it is not business of the assessee to sell flats, cannot be 26 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd included in turnover. Accordingly, we uphold the grievance of the assessee and direct the Assessing Officer to give effect to this exclusion.
37. Ground No. 6.1 is thus allowed.
38. Ground Nos. 6.2 and 6.3 are not pressed and are dismissed as such.
39. In ground no. 7, the assessee has raised the following grievance:
That on the facts and in the circumstances of the case, power tariff freeze (Rs 10,00,82,853), sales tax subsidy (Rs 1,30,25,780) treated as capital receipt and hence not taxable in computing total income under the normal provisions of the Act as well as in computing book profit under section 115JA.
40. To adjudicate on this ground of appeal, only a few material facts need to be taken note of. The assessee had availed sales tax and power tariff incentive, under Himachal Pradesh Incentives Scheme 1991, for setting up new unit in HP. The purpose of these incentives was to promote growth of industries and generation of employment. In the income tax return, power tariff incentive was excluded in computing total income but sales tax incentive was excluded. Exclusion of both was omitted in computation of book profits. At the assessment stage, Assessing Officer took the view that power tariff incentive was to make business more profitable and in appeal CIT(A) confirmed the same. Aggrieved, assessee is in further appeal before us.
41. As far as computation of income under the normal provisions of the Act is concerned, learned representatives agree that identical issue had come up for consideration before the Tribunal in assessee's own case for the assessment year 1996-97 in ITA NO.3783/M/2000 and the Tribunal has decided the issue in favour of the assessee. Learned Departmental Representative, however, relies upon the 27 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd stand of the authorities below and justifies the same. Having heard both the sides, we find that the issue in respect of power tariff issue was allowed by the Tribunal for the assessment year 1996-97, observing as follows:
'"We find from the order of this Tribunal in assessee's own case for A.Y. 1996-97 (supra) that power tariff freeze incentive was directed to be treated as capital receipt vide para 6.1 of the order. The Tribunal had followed the decision of Mumbai Special Bench in the case of DCIT v. Reliance Industries, 88 ITD 273 for coming to this decision. Respectfully following this, we direct that power freeze incentive be treated as capital receipt in the impugned year also. Thus ground No.7 is allowed."
42. Similarly, we also find that issue in respect of sales tax subsidy was allowed by the Tribunal, observing as follows "It was pointed out by the learned A.R. that identical ground was allowed by this Tribunal in assessee's own case for A.Y. 1996-97 referred supra. We find from para 21 of this order that sales tax exemption availed was held to be capital receipt. Following this decision, we direct that the sales tax incentive/subsidy relating to the impugned previous year also, be treated only as capital receipt. Assessee succeeds in its additional ground No.7."
43. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same. To this extent, grievance of the assessee is upheld.
44. However, so far as exclusion of these items from book profits under section 115JA is concerned, we find that even though there are coordinate benches decisions in favour of the assessee, these precedents no longer hold good law in view of Special Bench decision of this Tribunal in the case of Rain Commodities Ltd Vs DCIT (40 SOT 265). Respectfully following the Special Bench decision, we reject the grievance of the assessee and uphold the stand of the authorities below on this issue.
45. Ground No. 7 is thus partly allowed in the terms indicated above.
28 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd 46, Ground No. 8 is as follows:
That on the facts and circumstances of the case, profit on sale of fixed assets (Rs 15,74,02,153) and road transport subsidy (Rs 18,94,31,601) being capital receipt be excluded in computing the book profits under section 115JA.
47. The assessee has not pressed the exclusion of profit on sale of fixed assets, as complete details are said to be not available. As regards the exclusion of transport subsidy from book profits under section 115JA, following the view taken by us on ground no 7 above, we reject the grievance of the assessee.
48. Ground No. 8 is thus rejected.
49. In ground no. 9, the assessee has raised the following grievance:
"That on the facts and in the circumstances of the case, dividend distribution tax of Rs 2,06,00,000. transfer to 'debenture redemption reserve' of Rs 5,00,00,000 be excluded in computing book profit u/s.115JA."
50. Learned representatives agree that this issue squarely covered by the decision of a co-ordinate bench of this Tribunal in asssee's own case for the assessment year 1997-98 in ITA No.3298/M/01, wherein, in para 42, it has been observed as follows:
"42. We have gone through this decision as also the amendments in section 115JB of the Act made with retrospective effect. However, the legislature has made no similar amendments in section 115JA. It is therefore clear that dividend distribution tax would not fall under income tax paid or payable mentioned in Explanation (a) to sub-section (2) of Section 115JA. Therefore, we direct that dividend distribution tax of Rs 4.11 crores shall not be considered as income tax for the purpose of computing book profit u/s.115JA. Hence assessee succeeds its additional ground number 12.' 29 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd As pointed out by the learned counsel, while amendments have been made in section 115JB, with retrospective effect from 1st April 2001, by the Finance Act 2008, no such amendments have been made in section 115 JA. The decision of the Tribunal thus remains unaffected by the amendments made by Finance Act 2008. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same.
51. Ground No. 9 is thus allowed.
52. Ground No.10 relates to relief granted u/s.91 in respect of tax deducted on the fees received from Yanbu Cement Company ltd., Saudi Arabia.
53. Learned representative of the assessee pointed out that the assessee has received an amount of Rs 25.33 crores being fees from project from Yanby Cement Corporation, Saudi Arabia, net of tax deducted at source in the said country. The assessee has omitted to claim relief u/s.91 in respect of tax deducted at Saudi Arabia, which was opposed by learned D.R. Learned counsel also pointed out that on similar issue for the assessment years 91-92 to 97-98, the matter was remitted to the file of the AO for considering the allowability of deduction.
54. As there is no change in material facts in the year under consideration vis-à- vis facts that of the years relied by learned counsel, following the precedent, we allow this ground and remit the matter to the file of the AO for verifying the quantum of deduction that the assessee is eligible for deduction under section 91 of the Act. The AO is directed accordingly.
55. Ground No. 10 is thus allowed for statistical purposes in the terms indicated above.
30 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003The Associated Cement Co. Ltd
56. Ground No.11 relates to disallowance of Rs. 92,16,557 in respect of encashment of leave salary. The deduction was declined by the Assessing Officer on the ground that it is merely a provision, whereas it was not pressed before the CIT(A). The assessee has now raised the grievance against non deduction of this provision.
57. After hearing both the parties, we find that the issue is now covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Bharat Earth Movers, 245 ITR 428, wherein, it has been held that if the liability is certain, then deduction must be allowed even though such liability is to be discharged at a future date. On the basis of this principle, the claim of the assessee was held to be allowable. Respectfully following the said judgment, the order of the Learned CIT (A) is set aside and the Assessing Officer is directed to consider the claim of the assessee in accordance with the law so laid down by Hon'ble Supreme Court
58. Ground No. 11 is thus allowed for statistical purposes in the terms indicated above.
59. Ground Nos 12, 13 and 14 were not pressed and are dismissed as such.
60. In the result, appeal is partly allowed in the terms indicated above.
61. We now take up the appeal filed by the Assessing Officer i.e. ITA No. 6320/Mum/03.
62. In ground no. 1, the grievance raised is as follows:
"On the facts and in the circumstances of the case and in law, the ld CIT (A) has erred in deleting the disallowance on account of service connection, charges paid to RESB of Rs 31,67,077 and APSSB of Rs 2,08,594 which are of capital nature."31 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003
The Associated Cement Co. Ltd
63. Learned representatives agree that this issue is fully covered by the series of decision of the co-ordinate benches of this Tribunal in assessee's own case. The decision of the Tribunal is also fortified by the judgment of the Hon'ble Supreme Court in the case of CIT vs Associated Cement Companies, 172 ITR 257 (SC) and also the Hon'ble Bombay High court's judgment in the case of CIT vs. Excel Industries Ltd., 122 ITR 995(Bom). Respectfully following the views of the coordinate benches, we approve the stand of the CIT(A), and decline to interfere in the matter.
64. Ground No. 1 is thus rejected.
65. Ground No.2 relates to deletion of disallowance of Rs 40,21,000 spent on account of improvement of internal roads.
66. The relevant material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had incurred an amount of Rs 40,21,000 on improvement of internal roads on the PSEB's land for transport of fly ash , which is a component for increasing the strength of cement manufactured by them at Gagal Unit. The AO, following the assessment orders for the assessment years 1991-92 to 1997-98, disallowed the same. Aggrieved, the assessee carried the matter in appeal before the CIT (A). The CIT (A) deleted the disallowance following the appellate order for the assessment year 1997-98. The Assessing Officer is aggrieved and in appeal before us.
67. Learned representatives fairly agree that this issue is squarely covered by the decision of the ITAT in assessee's own case for the assessment year 1997-98 in ITA No.4730/M/01, wherein, the Tribunal following the Hon'ble Supreme Court's judgment in the case of CIT vs. Associated Cement Companies Limited (172 ITR 257) dismissed the ground taken by the revenue. In view of this, we do not find any infirmity in the order of the CIT (A), which is hereby upheld.
68. Ground No. 2 is thus dismissed.
32 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003The Associated Cement Co. Ltd
69. In ground No.3, the Assessing Officer is aggrieved that ld CIT (A) deleted the disallowance of Rs 5,36,000 spent on construction of HP Indoor stadium and Namhole stadium.
70. Learned representatives fairly agree that this issue is squarely covered by the decision of the ITAT in assessee's own case for the assessment year 1997-98 in ITA No.4730/M/01, wherein, the Tribunal following the decision of the ITAT in the caseof HPCL vs DCIT,96 ITD 186 (Mum) dismissed the ground taken by the revenue. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches. Respectfully following the same, we confirm the order of the CIT(A) on this issue and decline to interfere in the matter.
71. Ground No. 3 is also dismissed.
72. In ground no. 4, the Assessing Officer is aggrieved of the CIT(A) deleting the disallowance of Rs 37.76 crores on account of payment to employees under VRS scheme.
73. Learned representatives fairly agree that this issue is covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Bhor Industries ltd., 264 ITR 180(Bom), even though learned Departmental Representative relied upon the stand of the Assessing Officer. Respectfully following the esteemed views of Hon'ble jurisdictional High Court, we uphold the order of the CIT (A) and decline to interfere in the matter.
74. Ground No. 4 is thus also dismissed.
75. In ground no.5, the Assessing Officer has raised the following grievance:
On the facts and in the circumstances of the case and in law, ld CIT (A) erred in directing the AO to allow the deduction of Rs 1,46,60,657 on 33 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd account of withdrawals from the 'share premium account' to meet 'Prorata premium on redemption of debentures' equity shares issue expenses and debenture issue expenses which are of capital nature and do not from part of the profit and loss account prepared in accordance with the Companies Act.
76. The relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed deduction of Rs 1,46,60,757, on account of withdrawal from reserves, in computation of book profits under section 115JA of the Act. The details of these expenses are as follows:
Bonus Issue Expenses Rs 2,67,310 Rights Issue Expenses Rs 4,58,979 Prorate premium on redemption of debentures Rs 33,63,226 Debenture Issue Expenses Rs 1,05,71,233
77. However, from the perusal of the profit and loss account, he noticed that these expenses have been directly adjusted against the share premium account and have not been debited to the profit and loss account. He was of the view that since these expenses have not been debited in the profit and loss account, which is in accordance with Part II and III of Schedule VI to the Companies Act, the adjustment cannot be allowed. According to the Assessing Officer, the assessee ought to have debited the expenses to the profit and loss account and a corresponding withdrawal was required to be made from reserves, and only then adjustment in respect of the same could have been permitted. The adjustment was declined. Aggrieved, assessee carried the matter in appeal before the CIT(A) who upheld the grievance of the assessee and observed that what is to seen is true substance and nature of the transaction and the manner of disclosure was not really decisive of the admissibility of adjustment. As the expenses were adjusted against the reserve in the inner column of the profit and loss account, it was a de facto credit of reserves. The adjustment was thus allowed. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us.
34 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003The Associated Cement Co. Ltd
78. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
79. We find that in terms of the provisions of Section 115JA(2)(i) , to arrive at the book profit, the amount of profit as per profit and loss account is required to be reduced, inter alia, by the "amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account" and it is under this clause that the assessee has made the claim for adjustment. We have also noted that, as evident form Schedule 2 to the profit and loss account of the assessee company ( at page 4 of the compilation filed before us), the expenses incurred by the assessee company are offset against ' share premium account' in the inner column of the profit and loss account, and the net debit of the expenses is net of this figure of transfer from share premium account. On these facts, the stand of the revenue is that since amount withdrawn from reserves has not been shown to the credit of the profit and loss account, the adjustment cannot be allowed. We, however, see no legally sustainable merits in the hyper technical objection taken by the revenue. An amount being credited to the profit and loss account is not necessarily the same thing as amount being shown in the credit side of the profit and loss account on standalone basis. Whether a credit entry is reduced from gross debits to expenses and thus net debit figure is shown, or whether both the credits and debits are shown at gross figures has the same accounting effect and both the situations credit entry continues to have the same character. In any event, manner in which adjustment is shown in the profit and loss account is not decisive of the nature of transaction, nor is the profit and loss account published by the assessee reflects all the debits and credits in the same form in which these are reflected in the profit and loss account shown the books of accounts. The vertical profit and loss account is based on the entries made in the profit and loss account as traditionally prepared in the books of accounts and is not a copy of the same. Therefore, merely because separate credit entry, as an income, is not shown in the profit and loss account, it can not be said that there has been no credit to the profit and loss account. It is not shown 35 I.T.A No.6289/ Mum/2003 I.T.A No.6320/ Mum/2003 The Associated Cement Co. Ltd separately as an income head on the credit side, bit that does not mean that the amount has not been credited to the profit and loss account. In substance, on the facts of this case, there was a credit to the profit and loss account on account of the transfer from reserves and this has been offset against the expenses incurred by the assessee. Learned CIT(A) was, therefore, quite justified in directing the Assessing Officer to allow the impugned adjustment. We uphold his action and decline to interfere in the matter.
80. Ground no. 5 is also thus dismissed.
81. In the result, appeal of the Assessing Officer is dismissed. To sum up, while appeal of the assessee is partly allowed in the terms indicated above, appeal of the Assessing Officer is dismissed.
Pronounced in the open court on 9th March, 2011
Sd/- Sd/-
(R.V. Easwar ) (Pramod Kumar)
(President) (Accountant Member)
Mumbai, Dated 9th March, , 2011
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),, Mumbai
4. Commissioner of Income Tax, , Mumbai
5. Departmental Representative, Bench 'F, Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI