Income Tax Appellate Tribunal - Ahmedabad
Elecon Engg. Co. Ltd. vs Assistant Commissioner Of Income Tax on 22 August, 2003
Equivalent citations: (2003)81TTJ(AHD)809
ORDER
A.L. Gehlot, A.M.
1. These are cross appeals one by the assessee and the other by the Revenue and are directed against the order of the CIT(A) dt. 24th Jan., 1995, for asst. yr. 1991-92, For the sake of convenience, these are being decided together by this single order.
2. We first take up the appeal filed by the assessee. The learned authorised representative submitted a chart of grounds of appeal which has been placed on record. The grounds of appeal have been taken on the basis of the said chart.
3. The first effective ground is pertaining to disallowance of Rs. 37,306 under Rule 6B on account of cost of silver article, sweet boxes distributed to business associates and customers which did not contain the logo of the company. The learned authorised representative pointed out that this issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case for asst. yr. 1990-91. A copy of the said order has been placed at p. 59 of the assessee's paper book. On perusal of the order of the Tribunal in ITA No. 3229/Ahd/94 dt. 17th April, 2002, for asst. yr. 1990-91 and others we find that the issue is covered in favour of the assessee. The relevant observation of Tribunal from the said order is reproduced as under :
"We have considered the rival submissions of the parties and perused the record. It has been found from the order of the CIT(A) relating to asst. yr, 1989-90 that the presentation articles were not carrying the logo of the company. On these facts, we are of the view that such expenses are not disallowable. Therefore, we allow the same and the addition made by the AO on this count is deleted."
4. The second ground is pertaining to disallowance of Rs. 1,78,610 under Rule 6D. Luxuary tax, expenditure tax etc. should not be considered at the time of calculation of disallowance under Rule 6D. The learned authorised representative pointed out that this issue is covered against the assessee by the order of the Tribunal supra. The relevant observation of the Tribunal supra is reproduced as below :
"In our view the payment of luxuary tax, expenditure tax and sales tax included in the hotel bills is a part of the payment made to the Hotels which are required to be taken into consideration while computing the disallowable amount under Rule 6D. The view taken by the AO and confirmed by the CIT(A) is, therefore, perfectly valid and justified, We, therefore, do not find any merit in ground No. 3 of assessee's appeal.
Respectfully following the above decision of Tribunal and for the reasons stated therein, we confirm the orders of the Revenue authorities on this issue."
5. The third ground raised relates to bonus paid during the calendar year 1985 debited to the P&L a/c pertaining to asst. yr. 1991-92 Rs. 11,38,680. The learned authorised representative submitted that this amount represents the bonus payable for asst. yr. 1984 on account of raising of the limit of eligible salary under the Bonus Act from Rs. 1,600 per month to Rs. 2,500 per month. This expenditure remained to be debited to Revenue account i.e., salary account in asst. yr. 1985, but through oversight/by mistake the same was not accounted for in that year and the said mistake has been rectified during the year under consideration, The learned authorised representative further submitted that being a genuine expenditure and the amount was in fact paid and incurred then the assessee should be allowed the said expenditure.
6. The learned Departmental Representative supported the order of the CIT(A) and submitted that the CIT(A) has correctly upheld the order of the AO as these expenses pertaining to earlier year and the same has not been utilized in the year under consideration.
7. Having heard both the sides and after considering the totality of the facts of the case we do not find any merit in the ground. The said expenditure pertains to earlier year 1985 and norms of commercial expediency has also not been satisfied as it is admitted fact that the expenditure has been accrued and paid in 1985. There is no material on record which shows that this expenditure has been crystalised during the year. Under the circumstances we uphold the order of the CIT(A) where addition of Rs. 11,38,618 has been confirmed.
8. The next ground raised by the assesses is pertaining to depreciation for rented premises of Rs. 10,375. At the time of hearing the learned authorised representative pointed out that this issue is covered against the assessee by the decision of the Tribunal cited supra. The relevant observations of the Tribunal are reproduced as under :
"Ground No. 6 relates to assessee's claim for depreciation on electrical fittings and fixtures at rented premises "Arcadia Building, Bombay". The appellant had let out its premises "Arcadia Building, Bombay" and also let out the furniture and fixtures, air conditioner and other electrical installations therein on hire. The rent received towards premises let out is taxed under the head "income from house property". The hire charges are taxed under the head "income from other sources" against which depreciation is claimed. The Asstt. CIT denied the claim for depreciation on electrical installations stating that the same formed part of building. The assessee contended that the electrical installations are not part of the cost of building and are to be treated as so and as such. This issue is also covered against the assessee by the earlier order of the Tribunal in the assessee's own case for asst. yr. 1987-88. We therefore, respectfully following the earlier order of the Tribunal, confirm the view taken by the CIT(A). Hence, ground No. (6) is also rejected."
We respectfully follow the order of the Tribunal (supra) and in view of that, order of the CIT(A) is confirmed.
9. The next ground raised by the assessee relates to depreciation of Rs. 4,03,950 on electrical installations in the technical building. The electrical installations in the technical building has been taken as part of building by the Revenue authorities and accordingly depreciation at the rate of 10 per cent was allowed instead of 33.33 per cent as claimed by the assessee. The learned authorised representative submitted that the electrical installations at the technical building should be considered separately as plant as depreciation is allowable at the rate of 33.33 per cent, He further submitted that the Revenue authorities were grossly erred in treating the electrical installation as the part of the building whereas electrical fixtures like fans, air conditioners etc. are treated as plant. Therefore, there is no justification in holding electrical installation as part of building, The learned authorised representative referred the following decisions in support of his contention :
1. CIT v. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad)
2. CIT v. Tarun Commercial Mitts Ltd. (1985) 151 ITR 75 (Guj)
3. CIT v. Indian Metallurgical Corporation (1983) 141 ITR 40 (Mad)
4. CIT v. Indian Turpentine & Resin Co. Ltd. (1970) 75 ITR 533 (All)
5. CIT v. Elecon Engineering Co. Ltd. (1987) 166 ITR 66 (SC).
The learned Departmental Representative on the other hand supported the orders of the Revenue authorities.
10. We have considered the rival submissions of the parties, perused the record and gone through the decisions cited by the learned authorised representative. The word 'plant' includes apparatus or instruments used by a businessman in carrying on his business. In determining whether an article is a plant the enquiry must be as to what operation it performs in assessee's is business and whether it will fulfill the functions of a plant. It is the contention of the assessee that the building of the assessee accommodated all the technical personnel entrusted with job of drawing, designing and engineering etc. which aids and assists the manufacturing process of the assessee-company. The finding of the CIT(A) is that electrical installation are routine type of fittings, After considering the totality of the facts of the case we find that the controversy under consideration is covered by the judgment of Hon'ble Gujarat High Court in the case of CIT v. Tarun Commercial Mills Ltd. (supra). Some facts and figures involved in this ground are subject to verification. Under the circumstances we send back this issue to the file of the AO to decide the allowability of depreciation in accordance with the above judgment of Hon'ble Gujarat High Court after affording reasonable opportunity of hearing to the assessee.
11. The next ground raised by the assessee pertains to Rs. 1,03,901, prior year expenses debited in Financial year 1989-90. This ground has not being pressed by the learned authorised representative therefore, the same is rejected as not pressed.
12. In the result, the appeal of the assessee is partly allowed.
13. ITA 1816/Ahd/1995 (Revenue's appeal) :
The first ground raised in this appeal pertains to Rs. 63,86,710 being premium for forward contract for foreign exchange. The learned authorised representative submitted that this ground is covered against the assessee by the decision of the Tribunal cited supra. The relevnat observation of the Tribunal is reproduced as under :
"At the time of hearing, it has been agreed by both the parties that the issue is covered against the assessee by the order of Tribunal in ITA No. 2805/Ahd/1993 for asst. yr. 1988-89 in assessee's own case, in the appeal filed by the Revenue. The relevant observation of the Tribunal is reproduced as below :
"14. Ground No. 3 relates to deletion of an addition of Rs. 56,45,675 on account of premium for forward contract of foreign exchange. It was the common contention of learned representatives of both the sides that this point is covered against the assessee by the order of the Tribunal in the assessee's own case for asst. yr. 1986-87 in ITA No. 2635/Ahd/90 and in ITA No. 2245/Ahd/91 for asst. yr. 1987-88. The Tribunal has treated such payment as capital expenditure. In asst. yr. 1986-87, the Tribunal while holding it as capital expenditure directed the AO to allow depreciation thereon. The learned Departmental Representative admitted that the facts are similar in the year under consideration. The Tribunal in the assessee's case for asst. yr. 1986-87 vide para 17.3 has held as under :
"17.3 Section 43A(1) opens with a non obstante clause, namely, notwithstanding anything contained in any other provision of this Act", therefore, Section 43A(1) overrides any other provisions contained in 1961, Act including provisions of Section 36(1)(iii) of IT Act, 1961. In the case before us the assessee-company desired to ensure that the foreign currency required for repayment of the loans be obtained at a pre-determined rate and cost. Accordingly, the company has booked forward contract with City Bank NA for delivery of the required foreign currency on the stipulated dates. The contract was entered into for entire outstanding amount and delivery of foreign currency obtained under the contract for the installment due from time to time. The balance value of the contracts (after deducting the amount withdrawn towards repayment) is rolled over for a period up to the date of next installment. As per the exchange control rules forward cover was available for a maximum period of six months and, therefore, to cover long-term loans the company was required to roll over (carry forward) the unutilised forward cover. Roll over changes (carry forward charges) were required to be paid to the authorized dealers as consideration for permitting the unutilised amount of the contract to be available at a later date. Looking to the nature of expenses and provisions of Section 43A, in our opinion, the AO is legally and factually correct in capitalizing the roll over charges amounting to Rs. 8,26,280. We, therefore, reverse the order of the CIT(A) in this regard and restore the order of the AO. This ground of appeal by Revenue is allowed. The AO will however, allow depreciation on the increased cost of the capital asset as a result of giving effect to the order of the Tribunal."
We respectfully follow the above order of the Tribunal and in view of that reverse the order of the CIT(A). Since the relevant facts are subject to verification. Therefore, the matter is sent bank to the AO to decide in accordance with the above observation of the Tribunal after giving reasonable opportunity of hearing to the assessee.
14. The second ground raised by the Revenue pertains to Rs. 17,30,459, addition to closing stock on account of Modvat. At the time of hearing the learned authorised representative pointed out that this issue is covered in favour of the assessee by the above order of the Tribunal, The relevant observations of the Tribunal read as under :
"At the time of hearing, both the parties agreed that the issue is covered in favour of the assessee by the order of Tribunal in ITA No. 2791/Ahd/1993 for asst. yr. 1988-89 in assessee's own case. The learned authorised representative pointed out that the relevant observations of the Tribunal are at p. 3 para 7 of the said order. For the sake of ready reference, the same is reproduced as below :
"7.1 We have considered the submissions made by the learned representatives and have also gone through the orders of the learned departmental authorities. The CIT(A) has decided this issue against the assessee by following his orders in assessee's own case for asst. yr, 1989-90, The AO has discussed this issue at length at pp. 19 to 25 of the assessment order, The Tribunal in assessee's own case for asst. yr. 1987-88 in ITA No. 2245/Ahd/91 has discussed this issue in para 25 at p. 9 which is reproduced below :
"25. The last ground of appeal is relating to the addition to the closing stock on account of modvat credit. When the purchases are debited after deduction of modvat credit, no addition can be made to the closing stock on account of modvat credit has been held by the Bombay High Court in the case of Indo Nippon (2000) 245 ITR 304 and (2000) 246 ITR 295. We, accordingly, do not find any infirmity in the order of the CIT(A) in regard to this ground."
We respectfully follow the order of the Tribunal (supra) and in view of that the order of the CIT(A) is confirmed with modification that closing stock of this year will be the opening stock of next year. The AO is directed accordingly.
15. The last ground raised in this appeal is pertaining to deduction under Section 80HHC Rs. 62,42,033. During the assessment proceedings the facts noticed by the AO are reproduced as below :
"(i) 'A' company has claimed deduction under Section 80HHC for Rs, 62,64,559, this deduction is claimed proportionately on export turnover of Rs. 20,23,44,977 on business income of Rs. 4,27,61,059 as per working filed with revised return of income. Working of eligible export turnover is given as under :
NHE DIV.
18,04,49,974 Gear division 7,27,580 New Madras Div.
4,83,99,369 22,96,76,923 Less : retained out of retention money 71,51,960 22,25,24,963 Less : freight charges to be deduction 2,15,22,775 Eligible export turnover under s. 80HHC 20,10,02,188 Out of the above export Rs. 7,27,580 is for export from gear division and remaining amount of export is claimed to have been made to electricity generating authority of Thailand. It is claimed by the company that amount of export to Thailand has been received in India in convertible foreign currency. Assessee-company has clarified in letter No. A 301:36516 dt. 7th Oct., 1993, that company had not maintained separate books of accounts for export business and as such they are entitled for deduction under Section 80HHC as computed as a proportion of export turnover to total turnover.
(ii) On examination of the invitation to bid, contract entered into it with RGAT, details of bills issued etc. it is found that company had executed the foreign project in which it supplied the goods and services taken by it in pursuance of contract entered into it with electricity generating authority of Thailand. The company had undertaken the foreign project as per invitation to BID by BGAT, Thailand for design, manufacture, testing, preassembly, erection, testing and commissioning of third lignite handling system for the Mac-Moh-Mine examination project for the power plant unit 8-9, stage-I. Assessee-company was issued a show cause notice dt. 19th Jan., 1994, to explain that why the deduction under Section 80HHC should not be rejected as there is specified provision for deduction under Section 80HHC in respect of profit and gains from project executed outside India. The company was not eligible for deduction under Section 80HHC for consideration received for deduction of foreign project outside India. Further, notice was issued in this regard on 24th Jan., 1994 calling certain details in respect of foreign projects for determining whether assessee-company is eligible for deduction under Section 80HHC or under Section 80HHB."
16. After considering the submission of the assessee and after detailed discussion on the issue at pp. 12 to 18 of the assessment order the AO concluded that the assessee's claim is covered by Section 80HHB but since the assessee has not claimed any deduction under Section 80HHB and the condition laid down in Section 80HHB are not fulfilled, therefore, deduction under that section cannot be allowed. The relevant observation of the AO is reproduced from the assessment order as below :
"It is not clear why the assessee-company has not claimed deduction under correct section i.e., 80HHB where there is clear provision under Section 80HHB(5) which restrict the allowing of any other deduction under Chapter VI-A including 80HHC for the consideration or of the income comprised in the consideration payable to the assessee for the execution of the foreign project referred to in Clause (a) Sub-section (1) of Section 80HHB. Foreign project is defined in Clause (b) of Sub-section 2 of Section 80HHB, which includes the assembly or installation of any machinery or plant outside India. The project at Thailand executed by the assessee-company clearly falls in definition of foreign project. The supplies are made for the purpose of execution of the said project and the consideration received by the company for these supplies are part and parcel of the total consideration of the whole project. So in totality no deduction under heading, in respect of certain income under chapter VI-A including Section 80HHC is allowable to the assessee in view of the provisions of Section 80HHB(5) of the Act.
Since assessee-company has not claimed any deduction under Section 80HHB and the conditions laid down in Section 80HHB are not filfilled, the deduction under this section cannot be allowed.
Para 17 :
Assessee-company has made export of gears from gear division for Rs. 7,27,580 and other conditions are fulfilled. So deduction under Section 80HHC for export profit is allowed on this export. This deduction is worked out as under :
7,27,580 x4,27,61,059 =Rs.22,526."
1,38,11,80,317
17. The CIT(A) after considering the submission of the assessee directed the AO to allow the claim of the assessee. The relevant observation of the CIT(A) is reproduced as below :
"I have considered the submissions made on behalf of the appellant. It is seen that as per the terms of contract award, it was clarified that the EGAT shall have the option of two separate contract, one for supply of material and equipment and the other for the erection of equipment in Thailand. As per the above terms of award, the appellant entered into two separate contracts, one for the supply of material and equipment and the other for the erection of the equipment. Though there were certain clauses, like breach of the terms of one contract, shall be classified as the breach of the terms of the other contract, but it does not alter the basic fact that there were two separate contracts for two different jobs. The area of both the contracts clearly defined, and the classes which the AO has highlighted to indicate that it was a composite contract, were incomplete by the EGAT, simply to ensure the proper completion and commissioning of the project as a whole. The appellant has raised separate bills on EGAT in respect of the supplies from India and has received the sale proceeds in India in US dollars, under Letter of Credit. The supply of material and equipment under a different contract, being separate and identifiable in terms separate bills raised, the payment being received in convertible foreign currency will entitle the appellant for deduction under Section 80HHC. The AO is, therefore, directed to allow the claim of the appellant."
18. The learned Departmental Representative supported the order of the AO and submitted that the entire contract was a composite contract and therefore, the assessee was not correct in claiming deduction under Section 80HHC. The learned Departmental Representative further submitted that though the AO has expressed his view that the deduction under Section 80HHB is allowable but after considering the definition of foreign project which means project for (1) the construction of any building, road, dam, bridge or other structure outside India, (2) The assembling or installation of any machinery or plant outside India and (3) the execution of such other works (of whatever nature) as may be prescribed. It is the submission of the learned Departmental Representative that the assessee's case is not covered even by this foreign project. Therefore, deduction under Section 80HHB is also not allowable. The learned Departmental Representative submitted that the language of section is very clear and it is well settled that the plain words of a statute not to be allowed to override. The learned Departmental Representative in support of his contention referred a deduction of Hon'ble Supreme Court in the case of CIT v. Madhurai Mills Co. Ltd. (1973) 89 ITR 45 (SC).
19. The learned authorised representative submitted that the company has not carried out any construction work outside India envisaged by Section 80HHB. The company had manufactured and supplied the equipments as per contract and rightly claimed deduction under Section 80HHC. He further submitted that the assessee-company did not claim any deduction for the profit earned under the contract related to installation and assembling of plant and machinery outside India. The company did not maintain separate books of accounts for separate contract. The company received contract from EGAT and company made supplies from India and outside India against the contract. No separate material receipt were issued by EGAT since the EGAT released payment against the Letter of Credit for various supplies. The learned authorised representative further submitted that all physical export made from India are covered under Section 80HHC and the company has rightly claimed the deduction under Section 80HHC. All supplies other than Elecon Engg. Co. Ltd. were made after purchasing goods in the name of assessee-company. The learned authorised representative further submitted that the assessee-company entered into two contracts with EGAT, Thailand, one is for supply of material and machinery and the other is for erection and commissioning of the system. The bills pertaining to two separate contracts were raised by the assessee separately. The learned authorised representative pointed out the bills separately raised of which copies have been incorporated in the paper book submitted by the assessee. It is also the submission of the learned authorised representative that the claim of the assessee is supported by the auditor's report in form No. 10CCAC prescribed in this regard. The learned authorised representative further submitted that for the sake of argument if it is accepted that this was a composite contract even though the assessee was entitled for deduction under Section 80HHC in respect of goods exported by the assessee company. He further submitted that in such case it is the duty of the AO to apportion the turnover and grant relief in relation to the turnover pertaining to export of goods. In support of his contention he relied upon a judgment of Hon'ble Supreme Court in the case of Continental Construction Ltd. v. CIT (1992) 195 ITR 81 (SC). He further submitted that though the said judgment is in respect of allowing of deduction under Section 80-0 and 80HHB, the said judgment is applicable in the case of the assessee-company, In this regard he placed reliance on a judgment of Rajasthan High Court in the case of Shri Swami v. State of Rajasthan AIR 1995 Raj 69.
In the said judgment it has been stated that obiter observation by Supreme Court has binding effect.
20. We have considered the rival submissions of the parties and perused the record. We find that there was two separate contracts one for supply of material and equipment and the other for the erection of equipment in Thailand. The assessee has claimed deduction under Section 80HHC only in respect of supply of material and equipment. Section 80HHC provides that where an assessee, being an Indian company, is engaged in the business of export out of India of any goods or merchandise to which this section applies there shall, in accordance with and subject to provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profit referred to in Sub-section (1B) derived by the assessee from the export of such goods or merchandise. On the basis of the judgment of Hon'ble Supreme Court in the case of Continental Construction Ltd. v. CIT (supra) we are of the view that even if it is a composite contract the assessee is entitled to deduction under Section 80HHC in respect of goods exported by he assessee-company as it is the duty of the AO to apportion the turnover and grant relief in relation to the portion of turnover pertaining to deduction under Section 80HHC. On perusal of the auditor's report we find that the claim under Section 80HHC as per audit report is 53,93,286 whereas assessee's claim is for Rs. 62,42,033. It is stated at the time of hearing that this figure of claim Rs. 62,42,033 is based on the revised return submitted by the assessee-company.
21. After considering the totality of the facts of the case we are. inclined to uphold the order of the CIT(A). However, the facts and figures involved in this ground are subject to verification and we think it proper to send back this issue to the file of the AO to verify all the facts and figures involved in this ground and allow the claim of the assessee in accordance with the above observation.
22. In the result, both the appeals are partly allowed.