Income Tax Appellate Tribunal - Rajkot
Digjam Ltd. (Formerly Known As Birla Vxl ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before Shri A.L. Gehlot (AM) and Shri N.R.S. Ganesan (JM)
I.T.A. No.950/Rjt/2009
(Assessment years 1998-99)
ACIT, Cir.2 vs M/s Birla VXL Ltd
Jamnagar Aerodrome Road
Jamnagar
PAN : AACFB0644H
(Appellant) (Respondent)
C.O. 203/Rjt/2009
(Arising out of I.T.A. No.950/Rjt/2009)
(Assessment years 1998-99)
M/s Birla VXL Ltd vs ACIT, Cir.2
Jamnagar Jamnagar
(Cross Objector) (Respondent)
Revenue by : Shri LD Bharti
Assessee by : Shri MP Sarda
ORDER
Per N.R.S. Ganesan, JM
The appeal of the revenue is directed against the order of CIT(A), Jamnagar dated 11-06-2009 and pertains to assessment year 1998-99. The assessee has filed cross objection against the very same order of CIT(A). Therefore, we have heard both the appeal of the revenue and the cross objection of the assessee together and are disposing off the same by this common order.
2. The first ground of appeal is with regard to addition of Rs. 1,10,15,897/- towards bonus paid in Saukem division.
3. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal in the assessee's own case elaborately for the assessment year 1991-92 in ITA 2 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 No.220/RJT/1999 order dated 30-06-2008. The CIT(A) by following order of this Tribunal for the assessment year 1991-92 has deleted the addition. Since this issue was elaborately considered by this Tribunal in the assessment year 1991- 92 and both the department and the assessee submit that the issue is covered by the order of this Tribunal, in our opinion, the decision of the Tribunal for the assessment year 1991-92 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.220/RHT/1999 order dated 30-06-2008 and for the reasons stated therein we uphold the order of the CIT(A). Ground No.1 of the revenue fails.
4. Ground No.2 pertains to disallowance of proportionate expenses incurred for outside students in Birla Sagar Higher Secondary School amounting to Rs.1,02,737 whereas Ground No.3 pertains to disallowance of proportionate expenses incurred for outside students in Birla Sagar Girls College amounting to Rs.3,12,185. Since both the issues are akin, we consider them together.
5. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal in the assessee's own case elaborately for the assessment year 1991-92 in ITA No.190/RJT/1999 order dated 30-06-2008 wherein the Tribunal followed its own decision in CO No.52/Rjt/2005 arose from ITA No.157/Rjt/2005 for assessment year 1997-98 order dated 30-06-2008. The Tribunal by following the judgment of the Hon'ble Madras High Court in the case of CIT V/s Madras Refineries Ltd 226 ITR 170 (Mad) held that the money has been spent by the assessee for running the school and it is a commercial expediency and to retain the goodwill in the local relative. The CIT(A) by following order of this Tribunal for the assessment year 1991-92 has deleted the addition. Since the Tribunal for assessment year 1991-92 has followed the of this Tribunal for the assessment year 1997-98 while deciding the issue in favour of the assessee and both the department and the assessee submit that the issue is covered by the order of this Tribunal, in our 3 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 opinion, the decision of the Tribunal for the assessment year 1991-92 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.190/RJT/1999 order dated 30-06-2008 and for the reasons stated therein we uphold the order of the CIT(A). Grounds No.2 & 3 of the revenue fail.
6. Ground No.4 pertains to disallowance of interest amounting to Rs.36,29,590 on account of loan to Mysore Cement Ltd.
7. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal in the assessee's own case elaborately for the assessment year 1991-92 in ITA No.220/RJT/1999 vide order dated 30-06-2008 wherein the Tribunal found that the CIT(A) followed his predecessor's orders for the earlier years. For the year under consideration, the CIT(A) by following order of this Tribunal for the assessment year 1991-92 has deleted the addition. Since this issue has already been considered by this Tribunal in the assessment year 1991-92 and both the department and the assessee submits that the issue is covered by the order of this Tribunal, in our opinion, the decision of the Tribunal for the assessment year 1991-92 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.220/RJT/1999 order dated 30-06- 2008 and for the reasons stated therein we uphold the order of the CIT(A). Ground No.4 of the revenue fails.
8. Ground No.5 pertains to disallowance of marriage expenses of employees or their children amounting to Rs.6,08,498.
9. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal 4 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 in the assessee's own case elaborately for the assessment year 1991-92 in ITA No.220/RJT/1999 order dated 30-06-2008. The Tribunal in its order found that the CIT(A) deleted the addition made by the Assessing Officer with regard to 'chandlo' payments on the occasion of marriage of its employees and their children and pooja expenses, etc. and that the ld.DR could not bring on record any material contrary to the findings of the CIT(A). Since identical issue has been considered by this Tribunal in the assessment year 1991-92 and both the department and the assessee submits that the issue is covered by the order of this Tribunal, in our opinion, the decision of the Tribunal for the assessment year 1991-92 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.220/RJT/1999 order dated 30-06- 2008 and for the reasons stated therein we uphold the order of the CIT(A). Ground No.5 of the revenue fails.
10. Ground No.6 pertains to disallowance of interest of Rs.7,96,17,084 paid on borrowings treating it as capital expenditure.
11. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal in the assessee's own case elaborately for the assessment year 1991-92 in ITA No.220/RJT/1999 in order dated 30-06-2008. The Tribunal following the judgment of the Hon'ble Bombay High Court in CIT vs TATA Chemicals Ltd 256 ITR 395 (Bom) and the judgment of the Hon'ble Apex Court in the case of Dy.CIT vs M/s Core Health Care Ltd Civil Appeal Nos 3952 - 3955 of 2002 with Civil Appeal Nos.8509 - 8510 of 2002) has found that the CIT(A) has rightly followed the decision of the ITAT, Ahmedabad Bench in the case of Vadilal Dairy International Ltd while holding that the interest and hire purchase finance charges were paid for acquisition of capital assets in its existing business. For the assessment year under consideration, the CIT(A) by following order of this Tribunal for the assessment year 1991-92 has deleted the addition. Since this 5 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 issue was elaborately considered by this Tribunal in the assessment year 1991- 92 and both the department and the assessee submit that the issue is covered by the order of this Tribunal, in our opinion, the decision of the Tribunal for the assessment year 1991-92 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.220/RJT/1999 order dated 30-06-2008 and for the reasons stated therein we uphold the order of the CIT(A). Ground No.6 of the revenue fails.
12. Ground No.7 pertains to disallowance of interest of Rs.63,82,500 on loan to subsidiary company VXL Engineers Ltd.
13. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal in the assessee's own case elaborately for the assessment year 1997-98 in ITA No.157/RJT/2005 order dated 30-06-2008. The Tribunal found that the CIT(A) has rightly relied upon the order of the Tribunal in assesse's own case for assessment year 1995-96 ITA No.232/Rjt/1999 whereby the Tribunal upheld the order of CIT(A) allowing the ground taken by the assessee by following the judgment of Madhya Pradesh High Court in the case of D&H Secheron Electrodes Pvt Ltd vs CIT (142 ITR 528) and ITAT, Ahmedabad Bench "B" in the case of ITO vs Ajay Textiles. The CIT(A) by following order of his predecessor for the assessment year 1997-98 has deleted the addition. Since this issue was elaborately considered by this Tribunal in the assessment year 1997-98 and both the department and the assessee submits that the issue is covered by the order of this Tribunal, in our opinion, the decision of the Tribunal for the assessment year 1997-98 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.157/RJT/2005 order dated 30-06- 2008 and for the reasons stated therein we uphold the order of the CIT(A). Ground No.7 of the revenue fails.
6 ITA No.950/Rjt/2009 CO No.203/Rjt/200914. Ground No.8 pertains to disallowance of deduction of Rs.6,28,98,369 in respect of transfer from revaluation reserve.
15. We have heard Shri LD Bharti, the ld.DR and Shri MP Sarda, the ld.representative for the assessee. Both the ld.DR and the ld.representative for the assessee very fairly submitted that this issue was considered by this Tribunal in the assessee's own case elaborately for the assessment year 1997-98 in ITA No.157/RJT/1999 order dated 30-06-2008. The Tribunal found that the CIT(A) while allowing the claim of the assessee has taken the shelter of clause (i) of section 115JA(2) of the Act and therefore, upheld his order. For the year under consideration, the CIT(A) by following order of this Tribunal for the assessment year 1997-98 has deleted the addition. Since this issue was elaborately considered by this Tribunal in the assessment year 1997-98 and both the department and the assessee submits that the issue is covered by the order of this Tribunal, in our opinion, the decision of the Tribunal for the assessment year 1997-98 would be applicable for the year under consideration. Therefore, by following the order of the Tribunal in ITA No.220/RHT/1999 order dated 30-06- 2008 and for the reasons stated therein we uphold the order of the CIT(A). Ground No.8 of the revenue fails.
16. Grounds 9 to 11 are general in nature and do not require any adjudication.
Co No.203/Rjt/200918. Now coming to the cross objection of the assessee the first ground of cross objection is with regard to disallowance of previous year's expenses to the extent of Rs. 22,37,872.
19. The learned representative for the assessee submitted that the expenses represent routine business expenditure such as short provision made in the earlier year, sundry balances written off, etc. According to the ld.representative, the liability for such expenses have been crystallised during the year under 7 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 consideration. Therefore, the assessee claimed the same during the year in which the expenses were crystallized.
20. On the contrary, the ld.DR submitted that the assessee has not filed any material to show that the previous year expenses were crystallized during the year under consideration. According to the ld.representative, during the assessment year 1997-98 assessee claimed similar expenditure and the same was disallowed by the assessing officer. The CIT(A) also confirmed an identical disallowance for assessment year 1997-98 by an order dated 30-11-2004.
21. We have considered rival submissions on either side and have also perused the material available on record. The only contention of assessee is that the liability for such expenditure was crystallized during the year under consideration. The fact remains that the expenses related to previous year and the assessee is maintaining accounts on mercantile basis. When the assessee claims that the liability for such expenditure crystallized during the year under consideration it is for the assessee to file necessary material to prove that the liability has crystallized during the year under consideration. Unfortunately, the assessee has failed to file any material either before the lower authority or before this Tribunal to show that such liability was crystallized during the year under consideration. Therefore, we do not interfere with the order of the lower authority. Accordingly the same is confirmed.
22. Now coming to disallowance of interest on royalty to the extent of Rs. 94,52,322, the ld.representative for the assessee submitted that consequent to the judgment of the Supreme Court dated 01-02-1995 the assessee has to pay differential amount of royalty to South Eastern Coal Field Ltd. According to the ld.representative, the assessee has paid the principal amount of royalty to the extent of Rs. 3,91,57,967 in the financial years 1992-93 to 1994-95. Subsequently South Eastern Coal Field Ltd called upon the assessee by a notice dated 18-09-1997 to pay the interest on such differential amount of royalty. The 8 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 copy of the notice received from South Eastern Coal Field Ltd is available at page 9 of the paper book. The ld.representative further submitted that the assessee has paid the interest for the delayed period to the extent of Rs.94,52,322. According to the ld.representative, the liability for the payment of interest was crystallized during the year under consideration and out of the total liability, the assessee has paid Rs.38,06,422 as on 01-10-1998.
23. On the contrary, the ld.DR submitted that royalty and interest on royalty would fall u/s 43B of the Act. According to the ld.DR, the assessee claimed to have paid the interest during 06-03-1998 to 19-1998. However, the CIT(A) on verification found that the assessee has not made any payment between 06-03- 1998 to 19-03-1998. According to the ld.DR between 06-03-1998 to 19-03-1998 South Eastern Coal Field Ltd raised bills for interest payment. Since the liability was not discharged during the year under consideration, According to the ld.DR, the lower authority has rightly disallowed the claim of the assessee.
24. We have considered the rival submissions on either side and have also perused the material available on record. The contention of the assessee is that the liability has crystallized during the year under consideration. However, the revenue contends that the payment of interest on royalty would fall within the provisions of section 43B of the Act. We have carefully gone through the provisions of section 43B of the Act. From the material available on record it appears that the assessee has to pay differential amount towards royalty consequent to the judgment of the Supreme Court to South Eastern Coal Field Ltd. The lower authorities found that the bill amount was raised by a Government of India Undertaking and therefore, section 43B would be applicable. Section 43B provides various deductions otherwise allowable under the Act shall be allowed irrespective of the previous year in which the liability to pay the amount incurred only on actual payment. Though the ld.DR claims that the payment of interest on royalty would come under section 43B, in our opinion, this needs to be examined by the assessing officer as to how the interest 9 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 payment of royalty would fall within the provisions of section 43B of the Act. All payments payable to government undertaking may not fall within the provisions of section 43B of the Act. Unless and until it is shown that the payment is such nature which falls within section 43B, in our opinion, provisions of section 43B may not be applicable at all. Since the terms and conditions of the payment and the copy of the Supreme Court judgment on which the assessee claims that the interest was to be paid is not available on record, in our opinion, the matter needs to be examined afresh after considering the terms and conditions of royalty payment and the judgment of the Apex Court. We make it clear that we are not expressing any opinion on merit on this issue since the terms and conditions and other materials are not available on record. Since the lower authorities have not examined those records which are not brought on record we set aside the issue back to the file of the assessing officer. The assessing officer shall re-examine the issue afresh as indicated above and thereafter without being influenced by any of the observations made by this Tribunal in this order shall decide the issue in accordance with law after affording opportunity of being to the assessee.
25. The next issue is with regard to the deduction of extraordinary items to the extent of Rs.3,67,76,114 while computing profit u/s 115JA of the Act. The ld.representative for the assessee submitted that the extraordinary expenses have to be deducted in view of section 115JA(2)(i) of the Income-tax Act. The ld.representative submitted that the starting point for computation of deduction u/s 115JA is the Profit & Loss Appropriation Account. However, the assessing officer started the computation of profit u/s 115JA with reference to the profit & loss account instead of Profit & Loss Appropriation Account. According to the ld.representative, the book profit has to be computed with reference to Part II & III of Schedule VI of the Companies Act. Part II and III of Schedule VI to the Companies' Act require the assessee to show separately the amount set apart to reserves, amount of dividend, etc. Therefore, according to the ld.representative, the revaluation of asset withdrawn and credited to the profit & loss account 10 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 should be reduced for the purpose of computation of income u/s 115JA. Referring to the Proviso to section 115JA(2)(i) the ld.representative submitted that this section, viz. 115JA(i) is not applicable to assessee since the reserve was created prior to 01-04-1997.
26. On the contrary, the ld.DR submitted that book profit u/s 115JA means net profit as shown in the profit & loss account which was prepared under Part II & III of Schedule VI to the Companies' Act as increased and decreased by the item mentioned in section 115JA. According to the ld.DR sub section (2) of section 115JA provides that the profit & loss account for the relevant previous year shall be in accordance with provisions of Part II & III of Schedule VI to Companies' Act. The extraordinary amount claimed by the assessee is not included in the net profit computed under the Companies' Act. The ld.DR submitted that profit as per the provisions of Companies' Act is the profit before the appropriation. Profit & Loss Appropriation Account is nothing but a charge made on the net profit of the company. Therefore, according to the ld.representative, the assessing officer has rightly disallowed the claim of the assessee.
27. We have considered the rival submissions on either side and have also perused the material available on record. The assessee admittedly revalued the asset and created revaluation reserve account to the profit & loss account. The depreciation to the extent of Rs.6.28 crores in respect of revaluation of asset was withdrawn from the revaluation reserve account and credited to the profit and loss account. The question arises for consideration is whether the revaluation reserve account credited to profit & loss account shall be reduced from the profit for the purpose of computing profit u/s 115JA or not? We find that the Apex Court in the case of Indo Rama Synthetics (I) Ltd vs CIT (2011) 330 ITR 363 (SC) had an occasion to examine this issue elaborately. No doubt, the book profit as provided in sub section (2) of section 115JA has to be computed under Part II & Part III to Schedule VI of Companies' Act. The assessing officer observed that depreciation to the extent of Rs.29,28,042 related to sold / 11 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 discarded asset was to be reduced. While examining this issue in the case of Indo Rama Synthetics (I) Ltd (supra), the Hon'ble Apex Court found that depreciation is a no-cash charge against the profit. By withdrawing the depreciation from the revaluation reserve and reducing it from the depreciation the assessee artificially brings down the depreciation only to deduct from the profit before depreciation in order to show a healthy balance-sheet to its shareholders. Referring to the revaluation asset, the Hon'ble Apex Court observed that the revaluation was added to historical cost of the asset on the asset side of the balance-sheet and in order to equalize both sides of the balance-sheet, the revaluation of asset to that extent was taken on the liability side. Thus, the figure of profit remained untouched so far as the revaluation asset is concerned. The profits were not increased by such amount when the asset was revalued. The Hon'ble Supreme Court further observed that the revaluation had never gone to increase the book profit at the time of creation of the reserve, therefore, there is no question of reducing the amount transferred from such revaluation reserve. Both the authorities below had no occasion to consider this judgment of the Apex Court. The assessee also had no occasion to bring the same to the notice of the lower authorities. Therefore, in the interest of justice, in our opinion, the matter needs to be reconsidered in the light of the judgment of the Apex Court in the case of Indo Rama Synthetics (I) Ltd (supra). Accordingly we set aside the order of lower authority and remand back the matter to the file of the assessing officer. The assessing officer shall reconsider the issue afresh and thereafter decide the same in accordance with law after considering the Apex Court judgment in Indo Rama Synthetics (I) Ltd (supra) and after providing opportunity of hearing to the assessee.
28. The next issue arises for consideration is levy of interest u/s 234B and 234C when the income was computed u/s 115JA of the Act. We have heard the ld.representative of the assessee and the ld.DR. The question of levy of interest u/s 234B and 234C has been settled by the judgment of the Hon'ble Apex Court in the case of JCIT vs Rolta India Ltd (2011) 330 ITR 470 (SC). In view of the 12 ITA No.950/Rjt/2009 CO No.203/Rjt/2009 judgment of the Apex Court, the lower authority is justified in levying interest u/s 234B and 234C when the profit is computed u/s 115JA of the Act. Accordingly, the order of CIT(A) is confirmed.
29. In the result, appeal filed by the revenue is dismissed and the cross objection filed by the assessee is treated as partly allowed, for statistical purpose.
Order pronounced in the open court on 24-06-2011.
Sd/- sd/-
(A.L. Gehlot) (N.R.S. Ganesan)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Rajkot, Dt : 24th June, 2011
pk/-
copy to:
1. Assessee
2. Revenue
3. the CIT(A), Jamnagar
4. the CIT, Jamnagar
5. the DR, I.T.A.T., Rajkot
(True copy) By order
Asstt.Registrar, ITAT, Rajkot